De-Rigging Capitalist Privilege

When Charles G. Koch, the chief executive officer of his family business, recently wrote an op-ed for the Washington Post saying he agreed with Democratic presidential candidate Bernie Sanders that our economic system is “often rigged to help the privileged few,” it raised eyebrows even among the company-town’s power structure.

The online version was absolutely swamped with comments. Almost all of the commenters agreed about the evils of crony capitalism but most of them unfairly attacked Koch as hypocritical for being a capitalist himself. The examples he presented of Koch Industries’ opposing government subsidies that could have advantaged its business counted for exactly nothing. Pretty tough to crack the capitalist stereotype even when the capitalist supports one of the Left’s core precepts.

It is easy to make capitalists the bad guys, especially when government is rigging policies that benefit them. When the Wall Street Journal recently ran a front page story about how the big insurance companies that had lobbied for Obamacare were now losing money on their new health plans, who could not shout “Serves them right!” for pleading for a program that forces people to purchase their product under threat of tax penalties?

The tax penalties for refusing to buy insurance were lower than the premiums. Meanwhile, the rules also permitted individuals to purchase “insurance” even after they became ill. So people—not being as foolish as the government officials who wrote these rules—did not bother to pay premiums until they actually became sick. Hence the premium losses for the companies. Their sufferings were the result of good, old-fashioned individual self-interest on the part of consumers.

The critics had predicted this would happen. But who was the real culprit? The vast majority of the public agreed with their political science professors who taught them that capitalist lobbyists corrupted the elected officials and agency bureaucrats to win benefits for themselves.

After a doctorate in political science and decades of teaching the subject, I was convinced, too. That is, until I gained uninhibited access to one of the nation’s top public officials. I then saw unmistakable evidence that he was manipulating the rich lobbyists rather than vice versa. Mostly the lobbyists were playing defense, to stop the latest bright idea from ruining their businesses. They weren’t trying to propose some plan of their own. The ideas actually came from politicians posing as the good fairy, promising free benefits; from intellectuals trying to perfect human nature; and from government-expert bureaucrats thinking they could organize everything.

How could the health insurance companies come up with the idea of forcing people to buy their product, anyway? They never would have imagined such a thing was possible. The Obama administration’s political and agency officials in fact told the private health executives they could either join the process of creating the Obamacare plan, and obtain generous treatment (and new business), or they could brave the consequences. It was a deal the companies couldn’t refuse—not one they initiated.

Government power is in the hands of those writing and implementing the laws and regulations. Most people believe politicians are so in need of campaign funds that they must give business favors in order to receive contributions. My experience is otherwise. How is it that in almost all cases, powerful officials are getting campaign funds from companies and groups on both sides of issues? That places the pol in the commanding position.

The bureaucrat is even better placed. By law, he cannot take money, and he is mostly not foolish enough to try. He can seek to secure a job or a client afterward, and equally well from the people on either side of an issue. This gives him many more opportunities for mischief. Congress passes laws that regulators have great latitude in interpreting. Congress makes agency officials publish their official rules to enforce some sort of accountability, but most of the rules issued by agency officials are not designated as official rules, and in any case the top officials can make exceptions to them in “emergencies” that these officials themselves designate. In fact, Congress has little idea what the bureaucracy is doing.

Its real work is through what Competitive Enterprise Institute scholar Clyde Wayne Crews calls “dark matter.” His study Mapping Washington’s Lawlessness: A Preliminary Inventory of Regulatory Dark Matter explains these mysterious rules in the following manner:

[T]he Sun, the Moon, the planets, the Milky Way, the multitudes of galaxies beyond our own, and their trillions of component stars, planets, and gas clouds [that we see]—make up only a tiny fraction of the universe. How tiny a fraction? Less than 5 percent. Instead, dark matter and dark energy make up most of the universe, rendering the bulk of existence beyond our ability to directly observe. Here on Earth, in the United States, there is also “regulatory dark matter” that is hard to detect, much less measure. Congress passes a few dozen public laws every year, but federal agencies issue several thousand “legislative rules” and regulations…. We have ordinary public laws on the one hand, and ordinary allegedly aboveboard, costed-out and commented-upon regulation on the other. But the legal requirement of publishing a notice of proposed rulemaking and allowing public comment does not apply to “interpretative rules, general statements of policy, or rules of agency organization, procedure, or practice.”

These informal rules include presidential and agency memoranda, guidance documents, interpretation of formal rules, notices, bulletins, directives, news releases, letters, blog posts, and even oral statements, including explicit or veiled threats. They can escape judicial review since no one outside knows this “dark matter” exists and may not even be written down. The Consumer Financial Protection Bureau created by the Dodd-Frank Financial Control Act has no formal implementing regulations at all. Its director, Richard Cordray, said the bureau will not issue any regulations that define exactly what actions or practices violate the law. So, as Crews asks, “how will a bank, credit union or other financial services provider know if it has violated the law?”

The simple answer is that they cannot, any more than any business can see “dark matter” regulations that never see the light of day. A capitalist has no chance in this contest when a mere telephone call making a “suggestion” carries the weight of law that could ruin any business and send an unwary executive to jail.

Average citizens—even well-informed citizens—know even less of this and probably wouldn’t believe it if it were explained to them.

But citizens do know something is seriously wrong. They think the problem is the rich, but it is mainly the government. On the other hand, people may have a better idea than this suggests, given that they tell Gallup that “rich” begins at $150,000 per year. The system is biased in favor of the privileged “few” but in fact this includes bureaucrats, politicians, their academic and media cheerleaders, and maybe you and me, too.

So some, or even many, citizens conclude that their only recourse is to vote for the very, very rich Donald Trump, who promises that he has the super-wealth and the amazing power to tame all of these bad capitalists, politicians, bureaucrats, and enablers. Unfortunately, the voters get a man who made much of his wealth working hand in glove with all of these powers receiving government guarantees, abatements, waivers, and favorable deals. He would fit right in.

The only solution is to begin dismantling the Washington power structure that makes the abuses possible, sending programs back to the states, localities, and private institutions as the Constitution intended—that is, to return power to the people’s own control.

Donald Devine

Donald Devine, senior scholar at the Fund for American Studies, and the author of America’s Way Back: Reconciling Freedom, Tradition and Constitution, was director of the U.S. Office of Personnel Management during Ronald Reagan's first term.

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  1. gabe says

    All you say is clearly correct, but:

    1) Why would one think it *especially* advantageous, and thus, free from the possibility of corruption, to send these heretofore constitutionally questionable powers back to the States. The States, or at least its political / partisan actors also act upon self-interest. Indeed, many of the later Federal Regulations have been the offspring of concerted State action to force policy changes AND specific changes in INDUSTRY practice. Not to comply with the State AG’s / machinery is to face the prospect of unending litigation, massive fines and IMPRISONMENT.
    No, the States are not the answer – rather they are an integral (and INTEGRATED) part of the problem having in recent decades conspired with the Federales to force policy / industry changes. (See Paul Nolette’s book, Federalism on Trial…)
    2) It would be far better to work to limit existing power concentrations in government and to prevent any further arrogations of such power to either Fed, State or local governments. Failure to do so will result in the re-institution of “Prerogative” government.
    3) I do not hold out much hope for turning out the miscreants in government, especially those operating under Pendleton Act rules. With the passage of Scalia, hopes for a change in the Black Robes interpretation of Constitutional delineations of power, etc. are further diminished.
    4) The people themselves are either too lazy, too stupid or have been too “fattened” by the alleged beneficence of these same political actors, that any hope of enlisting their support is futile.

    Let us, once again, get used to curtsying and bowing to our Monarch(s), oops, I mean elected and *appointed* representatives.

  2. Ron Johnson says

    The federal is too big and therefore it is a necessary business expense to feed the beast. Witness Silicon Valley companies’ behavior over the last several years; they went from naive babe in the woods to killer lobbyist in order to survive a regulatory onslaught. SCOTUS is only now waking up the leviathan administrative state, and that would have to be brought to heal first. Perhaps by reigning in the unconstitutional agencies we could limit the government’s power to regulate us, which is how politicians fleece the sheep—it’s a protection racket.

  3. R Richard Schweitzer says

    “We are the witnesses of a fundamental transformation of society, of a crowning expansion of Power. The revolutions and coup d’état which are a feature of our epoch are but insignificant episodes heralding the coming of the SOCIAL PROTECTORATE.

    “A beneficent authority will watch over every man from the cradle to the grave, repairing the disasters which befall him, even when they are of his own making, controlling his personal development and orienting him toward the most appropriate use of his faculties. By a necessary corollary this authority will be the disposer of societies entire resources, with a view to getting from them highest possible return and in that way multiplying the benefits which it confers.

    “Power takes over, as it were, the whole business of public and private happiness, and it is an indispensable clause of the contract that all possessions, all productive energies and all liberties should be handed over to it as being the labor and the raw materials without which it cannot accomplish so gigantic a task. The business is one of setting up an immense patriarchy, or if anyone prefers the word, a matriarchy, since we are now told that collective authority should be animated by maternal instincts.” [emphasis added]

    Bertrand de Jouvenel* (1945)

    The subject of the post is the Federal Administrative State [FAS]. As with all “States,” it is an embodiment of authority. The delegates of the authority of the populace (legislators) have created that embodiment by delegation. It may appear that their further delegation has been in response to perceived public desire for the creation of a SOCIAL PROTECTORATE; yet, it also has been, and continues to be, fostered by the satisfaction of those who would be legislators with the privileges and immunities of office without the responsibilities for (and electoral consequences of) authority.

    There are no reports of ongoing drosophila research that may lead to the development of a different genetic strain of aspiring legislators; nor of an “infection” resistant strain. They do seem to remain responsive to their perceptions of “popular demands.”

    The FAS is power. We are rife with documentation of its insidious and obstreperous increments and exercises. Legislators have found it electorally rewarding to appear to, and occasionally act as, intermediaries for those impacted by the exercises of the powers they have delegated.

    As a unit of power, the impacts of FAS power on the public can only be constrained by power in the hands of those impacted. Legislators have no appetite for (in fact they appear to wish to avoid) re-assuming their constitutionally delineated authorities to displace the authority they have delegated to an extra-constitutional entity.

    With limited economic and human capacities and actual incompetence, the façade of a SOCIAL PROTECTORATE is beginning to deteriorate as the plausible objective for the FAS. It is now becoming an institution occupied by a special segment of the managerial class whose objectives are power, which can only be constrained by equal power for the individual members of our society in seeking their own objectives by means of their own selection.

    * “On Power” (Liberty Fund 1993)[Chap. XIX]

  4. gabe says

    DeJouvenal would appear to be critiquing all power grabbing elites and those who have sought, and continue to seek, to institute the perfect order, from the days of the Athenian Stranger to the Lois Lerners of the present day.

    There is, however, an inherent and entropic danger in the “force structure” created and embellished by the minions of the FAS. Which of said agencies SHALL dominate. Yes, they may continue to impose new obligation,the non-observance of which is entails rather severe penalties for the populace. We now observe some fracturing of the seemingly monolithic structure with one agency pitting itself against the institutional interests of the other – all. of course, an entirely predictable pathway of power seeking mechanisms.
    Consider that in the recent San Bernadino terrorist attack, ICE actually blocked CSIS (i think the alphabetical designation is correct?) from interviewing and / or reviewing the files on the third man, a Hispanic immigrant.

    And whose institutional interest was served, one may ask? Clearly, the interests of the governed, and their expectation to be safe and secure in their persons, as the one agency sought information that may have hastened apprehension of other guilty parties. was not at all considered. Only the institutional interests of the agencies nominally responsible for vetting the third person of interest.

    This is not as rare an occurrence as we would imagine. I’ll not cite the other agencies – BUT in several EPA actions, various other agencies sought to assume primary authority and power over the alleged miscreant corporations / persons.

    Oh this will be lovely watching the FAS devour itself. When one considers civil forfeiture, the jockeying for position over some unsuspecting citizen’s assets between several agencies, each with some tangential authority, impelled to “self-fund” their operations will be quite the spectacle.

    The Legislative, unaware as always, or uncaring, about the implications of it’s “well deliberated” delegations will, of course, act surprised. Leaping into action, surely in response to the popular plight, will doubtless proffer speeches, lamentations and empathy – then it will make new law allowing for even greater delegation – careful, of course, to make their corporate AND Non-Government Organizational constituents aware of the service the Legislator is prepared to provide.

    So on we go, kiddies!!! I wouldn’t be surprised if one’s campaign coffers were replenished after the efforts/ services provided. Yet, at some point the internecine competition for institutional predominance may come apart. Or the people may WAKE UP!!!

  5. R Richard Schweitzer says

    Within the FAS “turf wars” are and will be resolved by consolidations of power. This may be done in Matryoshka fashion of the centralization of power. Even so, the economic and human capacity limitations are likely to bring about the disruption of its managerial class accompanied by the deterioration of not only the façade but the entire structure of the FAS.

    In the meanwhile, and it is in the meanwhile that we and our nearby posterity exist, the effects of those disruptions and deterioration will be deep and long-lasting; shaping the future for generations to come if we do not deal with this legislative created Golem, controlling it rather than becoming its servant (and thereby the servants of those who, for the sake of its power, WILL control it).

  6. libertarian jerry says

    First of all, Free Market Capitalism has created more wealth for more people and has taken more people out of poverty and into the Middle Classes and above then any other economic system ever devised. With the that said we have to realize the difference between Free Market Capitalism and Crony Capitalism. Free Market Capitalism is based on competition,property rights,the rule of law and a narrow but the important role of the State in acting as a referee on the field of commerce and industry. The government isn’t there to pick winners and losers or to tilt the playing field in one direction or another or to reap the fruits of commerce and industry for redistribution to the political and dependency classes. The role of the State mostly consists as acting as a referee on the economic and commercial playing fields. Just as in a football game where the referee is supposed to be a neutral actor in keeping the game fair and flowing,not involving themselves in making tackles or blocks or calling biased penalties.
    Crony Capitalism involves the opposite. With the Crony capitalist influencing the laws and the
    political class referees who enforce those laws. This is done with bribes,kickbacks,campaign contributions and pressure groups to buy influence in the system. Which basically means a system of corruption and a general reduction in the amount of beneficial wealth created in the economic system. Most of us suffer because of the Crony System.
    In a free market capitalist system there is no such thing as “too big to fail.” The problem is that in today’s day and age the Left lumps all businessmen into the same group. That somehow if one is successful in business or commerce then that person “stole” their wealth from the rest of us and that only the government can right this wrong when in the end it is the government that enables the theft in the first place.

    • R Richard Schweitzer says

      LJ,

      This comment and your choice of terms goes to the original post and gives one a better sense of your concepts.

      Of especial interest is your concept of the functions of government; at least those functions in the conditions of “capitalism.”

      At the risk of being nauseatingly repetitive, consider the concept of capitalism, not as a system structured for purpose or object, but simply a **condition** that results from individual (and group) relationships, usually conducted by individually determined means for individually determined objectives – within specific circumstances (that may be random or externally influenced), most commonly for acquisitive and accumulative motives.

      The objectives and interests, the relationships and means are not those established in accord with any identifiable “system.” They are those of broad varieties , from a broad variety of motives of a broad variety (including capacities) of humans.

      While they are not the *only* forms of relationships in the condition of capitalism, “Markets” are forms of relationships. They are probably never “Free” in the sense of free to and free from; instead, we observe them as relationships in their specific circumstances, almost always affected and influenced by factors external to the parties.

      When political, military or ideological forces (such as regulations, doctrines, taboos, etc.) do not have significant impacts on the circumstances of those relationships, the “Free” label is often applied. Still, there may be many constraints on conduct in the relationships. A cheater may be excluded from a most notoriously haggling bazaar where preying on the unwary is accepted..

      Depending on how one may describe “competition,” it is a bit difficult to accept that competition amongst differing objectives and means has played a greater role in material advances than the finding of ways to cooperation in the attaining of differing objectives by varying means.

      There is much else provocative of more thought in your comment. Perhaps another time?

      • z9z99 says

        Richard,

        I am with you up until

        […]it is a bit difficult to accept that competition amongst differing objectives and means has played a greater role in material advances than the finding of ways to cooperation in the attaining of differing objectives by varying means[…]

        Competition and cooperation are not mutually exclusive. To use Jerry’s analogy a football team must cooperate within itself in order to compete. For more economic examples, consider the various design competitions that produced the technology necessary to go to the moon, and the amount of cooperation (even among competing parties) that those technologies required.

        I find it most useful to think of cooperation as an executive attribute, essential to getting things done, and competition as an optimizing process. Competition is a means of improving the way things get done in the setting of uncertainty, and unanticipated challenges. Competition tends to penalize poor planning, ulterior motives, bureaucratic incompetence, arrogance, half-baked schemes, etc. that tend to afflict command-heavy endeavors, and which otherwise tend to survive if they can just find an authoritative patron.

        • gabe says

          Z / Richard:

          Let us consider this competition vs. cooperation dialectic from the perspective of the organizing principle of a *state* or civic association.

          If a state has as its raison d’etre for governance the achievement of some common substantive purpose, objective or end state, let us say income equality, social justice, human happiness, it would not be unwise to deem *competition* as an anathema as such a nexus of human interaction would seem to work against the achievement of the stated substantive goal. Differing objectives in such a civic undertaking would by definition be somewhat less than helpful in attaining the prescribed (proscribed) ends of income equality, justice, etc. Under such conditions, cooperation, i.e., the mutual and agreed upon discharge of “state” prescribed obligations would appear to be a better mechanism for achieving the associations goal. We can observe this in a number of “consociational” constitutional governments where set allotments are pre- and proscribed – in short, allocation of resources are divined based upon X, Y, and Z. Efforts to counter, change or redefine such allotments are viewed, (rightly so, given the *purpose* of the state) unfavorably. Cooperation is the preferred mechanism for such an association and Law is shaped to engender, foster and sustain this cooperative system of allocation. Differing objectives (and they will arise, of course) are to be combated and defeated using both the Law and other “social” mechanisms.

          In a civic association, one in which there is no common substantive purpose, where no specific allotment of wealth, resources, power, etc is either intended or welcomed, competition may be said to exercise greater import in the operation of the civic association. And while, as Z points out, much good comes from competition, it is not necessarily or legally sanctioned; that is to say that the civic association, while recognizing the benefits from competition does not necessarily PRESCRIBE or PROSCRIBE competition. I, as a citizen of this association, am under no legal obligation to compete.
          Rather the association simply ALLOWS for competition (and cooperation) as simply one means of interaction amongst the citizenry, provided that certain rules of conduct are adhered to – this, we call The Law.
          Yet, (and I suspect that Richard is getting at this) there is clearly no absence of cooperation in such a civic association. The Law itself is the binding cooperative impulse / mandate. We can see that under such a (theoretically) neutral milieu that the citizenry may not only choose to participate in the competitive realm, their mere assent (even passive) represents a *cooperative* consent. In effect, The Law becomes the preferred mode of cooperation for this civic association; it provides for no preferred or certain outcomes; it favors no tribe, creed nor ideology, it offers no positive prescriptions for happiness or “social” justice (indeed, it may be argued that the word *social* can not, nor should not be applied to this association) and no specified goals or outcomes.
          The Law is the mechanism of cooperation. A rather unique one in that it allows for either or both of the two associational modalities – cooperation and / or competition.
          Only under such an association, at least to my mind, can we see how both cooperation and competition are essential components of proper civic functioning AND only in such an arrangement can the differing objectives, of which Richard speaks, be allowed to work their (somewhat) unguided magic to create suitable civic riches and richness. Some call this “the market” – but is is so much more than simply that!
          It is the willful and purposive consent to abide by The Law – that great instrument of civic “cooperation.
          It also allows for the greater measure of human freedom. As their is no legally enforceable / mandated *end-state* such that certain behaviors / conditions / distributions would be otherwise prohibited, The Law engenders neutrality and wide areas of discretion (within certain bounds, of course). Contrast this with the “instrumental” or purposive state, if you will.

          Competition and cooperation are not exclusive except in the Utopias we have observed over the last century. Under a proper civic association, they mutually reinforce each other. Without it, we enjoy neither competition, nor are we predisposed to cooperate.

          In short, it ain’t “markets” It is an epistemology!

          • gabe says

            Sorry, kiddies, i could simply not resist this:

            Here is Oakeshott paraphrasing Schopenhauer:

            “There was once, so Schopenhauer tells us, a colony of porcupines. They were wont to huddle together on a cold winters day and, thus wrapped in communal warmth, escape being frozen. But, plagued with the pricks of each others quills, they drew apart. And every time the desire for warmth brought them together again, the same calamity overtook them. Thus they remained, distracted between two misfortunes, able neither to tolerate nor to do without one another, until they discovered that when they stood at a certain distance from one another they could both delight in one another’s individuality and enjoy one another’s company. They did not attribute any metaphysical significance to this distance, nor did they imagine it to be an independent source of happiness, like finding a friend. They recognized it to be a relationship in terms not of substantive enjoyments but of contingent considerabilities that they must determine for themselves. Unknown to themselves, they had invented civil association.”

            Distance IS The Law and all that it entails and allows!

            Oops, I just pricked myself.

            Then again, IT AIN’T *PHYSICS*

  7. R Richard Schweitzer says

    Not to beat open my empty piñata:

    […]it is a bit difficult to accept that competition amongst differing objectives and means has played a greater role in material advances than the finding of ways to cooperation in the attaining of differing objectives by varying means[…]
    Him
    Many uses are made of the terms, “competition” and “cooperation.” I tried to stay in a particular context for both. But, observed closely, the piñata cover reads, “the finding of ways to,” rather than “simply” cooperation.”

    The reason for that (on my part) comes from consideration of the differences in motivations for the various forms of competition in particular contexts and those for the particular instances of efforts at finding ways to cooperation.

    Sorry to bring in the same old “motivations;” but, they seem to be involved everywhere.

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