What’s The Problem?

It’s a Big Problem, and It Kills the Political Process.

A gut check by most Americans regarding the state of affairs in Washington nets a queasy feeling.  Something isn’t right.  It is corrupt.  It’s elitist.  It is out of control.  It’s the Establishment.  There is too much money – too much influence by too few contributors.  Too little focus on regular folks like you and me.  Government is complex.  It is expensive.  It is at odds with itself.  It is at odds with us.  This queasy feeling is in almost every one of us and it is broad, so broad it seems to touch everything that Washington touches.

Although Obama’s lack of leadership has left most of us feeling rudderless, President Bush didn’t leave us in a better mood.  We elected Obama because he seemed a bit like the outsider many voters were looking for in 2008.  He proposed Hope and Change, but Obama wasn’t really an outsider so much as the quintessential Democrat, a Leftist Elitist that believed government was the answer to our problems.  This hasn’t worked out so well.  Hope and Change turned out to be more government, more complex government, more expensive government which has produced an economic, cultural and social malaise that only Jimmy Carter could love.  Obama didn’t solve our problems so much as bring a new set of elites that created even more problems.  Slower growth, less jobs, more regulation, more executive orders…..more, more, more government, which is another problem.

Is there one, root core problem that we could all point to and say…’yep, its starts right there. That’s the problem.’  Is there something simple?  Understandable?  Something that lay at the bottom of our rotten culture of governance?  Are the people we elect simply so intellectually conceited that they miss wisdoms that are easily accessible by common folks like you and me.

Think hard.  Is there something that once revealed everyone says, ‘oh yeah, that’s it…yeah, that is it.’  Great problem solving is simple.  Einstein said if you can’t explain a solution to a six-grader you don’t understand the problem. Occam’s Razor, a favorite of scientists, helps us understand how to know if you probably have the right answer.  Occam’s Razor (according to Merriam Webster) states that the ‘simplest of competing theories be preferred to the more complex or that explanations of unknown phenomena be sought first in terms of known quantities.’   Put more humbly, the answer is usually the simplest explanation.  Put another way, our problems aren’t really a complex list of issues.  There is a root core problem.

So what’s the problem?  You know the answer.  You see the answer in commercials from Bernie Sanders.  Donald Trump’s entire campaign is based on this one enigmatic problem that stands out like a sore thumb because he has so much of it, and demands so little of it for his campaign.  Huh? What?  What is it?

Money.  Money?  Really…..  Yeah, really.  You know, money is the root of all evil.  Well, that’s what the Leftist will tell you, with a hand stuck out for the morning’s gratuity.  Though money can be used for great good, political money has become a nasty tool for acquiring every more political power, power stolen from you and me.

Money is great.  It is essential.  It greases our ability to buy to save, to invest, to purchase goods and services, and to be charitable.  With money much is possible.  Without it we would still be living in mud huts on a savannah.  We need it to survive, and money as a tool to use for the exchange of value is tremendously important.  In politics, in modern politics, money, legal or otherwise, greases the skids to power, and retention of power.  If you have enough of it, it buys what you need.  A favor, a vote, a desired point of view – it’s called rent-seeking. Businessmen, and unionistas too, have come to love money and politics.  If it sounds like a questionable match of tools and a perfect precursor to corruption, it is.  Is it corruption for Elon Musk to lobby our government to provide a $7,500 tax credit for each, very expensive electric car he sells very rich people.  Good question.  Seems so to me.  Is it corruption that government provides price subsidies for corn to make ethanol, and goobers and a host of other food commodities?  Is it corrupt for unions to take money from its member’s paychecks and use it to fund campaigns for politicians who vote for pay increases for employees?  How about all the bacon your Congressman brings home to his district?  Sometimes the projects seem just fine.  All too often, though, the dollars are more akin to ‘a bridge to nowhere.’  I keep wondering where the Tom Lewellen government program is?  Where is my congressionally ear-marked program?   As it is for most of us, that program doesn’t exist us because we don’t have the money to buy the influence to get the program in the Federal Register.   Are these projects that Congress should be funding?  Elon Musk says, yes.  I say, ‘Elon, I want my money back.’

Since the Woodrow Wilson’s presidency in the early 20th century, when the states ratified the Income Tax, the federal government has been on a progressively increasing budget incline.  More money, more money, more money.  During FDR’s administration the Supreme Court’s redefined ‘the general welfare’ to mean Congress could spend on anything it darn-well pleased as along as it sounded like it might be helpful toward some citizen’s welfare.  This restatement of the ‘general welfare’s meaning created quite a stir in the 1930s and a terrible deficit spending habit right through to today.  James Madison, which wrote and commented on this phrase – for the General Welfare – actually meant that Congressional spending would be only for those items listed in the Constitution. Also during FDR’s administration Maynard Keynes (yep, Keynesian Economics) theorized that full employment was possible by borrowing money to pay people to do make-work jobs.  The dollars spent on government created jobs would come back in new taxes that would pay for the debt.  The new interpretation allowed unlimited spending on just about anything for which the government could conceive of writing checks.  The new incredible power of collecting ever expanding revenues via the income tax and Congress became a money machine.  And add to these, the power of ‘free’ debt financing of government jobs, and you have a perfect storm for political corruption. Political contributions gained traction as a method to reward contributors with the power to change policy – whether economic, social, and cultural policy.  Taxation has become a political bludgeon for the Left and the Right. Campaign contributions have become the preferred method to give the rich, businesses and the unions, political power which is generally at odds with plain folks like you and me.   If Congress’ spending obeyed Constitutional guidelines, our budget would be less than half the $4 trillion we spent this year.   But for our government, political contributions increasing mean accelerated spending for special interests.

There’s a Bernie point of view of political campaign contributions – lots of little donations for folks like you and me, and there’s a Trump point of view – lots of checks written by the candidate.  And then there’s Hillary’s approach – ‘I’ve never seen a buck I didn’t like, no matter the denomination.’  In today’s world Bernie and Donald are the political outsiders largely because they are using campaign donations from non-traditional fundraising methods. These candidates are outsiders.   In Bernie’s socialist world contributions are used for class warfare against the rich.  The people with the most money, specifically bankers, are bad guys who deserve to have their money confiscated by the government and put to good use by ‘wise’ politicians like Bernie who will promptly buy votes with those dollars from his set of focus groups of choice – students, women, people of color not including white, which apparently is not a color.  On the other hand, Trump uses money to build a populist and nationalist consensus.  No money from big donors means that he comes with no strings attached.  What is unsaid, it both candidates – and Hillary – will need the party’s money and infrastructure to win the fall election.   So, which approach is better?  Both? Neither?  Not sure.  If you still feel left out of the political game, you should.  Hillary is in it to win, which one should be when entering any competition, but what she actually believes in beyond winning is not clear.  Dittoes for Trump and Bernie.  What is really going to change with any of these candidates?  Answer is: not much.

Money, though, is neither good nor bad.  It’s just a tool.  Its utility is based only on the value it creates and its ability to exchange value.  Nothing more, nothing less.  It can used well, and it can be used poorly, and it can be used criminally.  And then there’s political money.  And then there is big political money.  Money has become the currency of political power.  The more contributions collected from donors, and, once elected, the more dollars confiscated from the tax payers, the more power a politician enjoys.  There is something deeper, though, and this is the troubling part of politics.  Money is not only power, it is highly focused power.   Luigi Zingales, notes in his book A Capitalism for the People, that a million dollars spent on lobbying or a million dollar political donation, can buy a billion dollar payback.  In his words:

In 2008, the sum of all the money spent in the presidential, senatorial, and congressional campaigns was $5.3 billion.  That $5.3 billion brought the right to control $8 trillion [US Budget for two years], so the size of the prize is more than 1,000 times the total price of the tickets. (Zingales, 2012)

Is a contribution really a bribe, mordida, rent-seeking, or is it just good – really, really good – political investment for business and/or for unions

For America’s businesses the return on investment (a business investment not a political one) is generally framed in the tens of percent annually.  In politics, the return can be in the 100s or 1000s or 100,000s of percent.  The question is why be a traditional capitalist when a Jim Taggart capitalist can buy profits via preferential treatment from government friendlies.  If you don’t remember Jim Taggart, he’s the antagonist in Ayn Rand’s Atlas Shrugged.  In today-speak, Taggart is the perfect crony-capitalist, rubbing elbows with regulators to make sure he keeps his piece of the capitalist pie, using government to wall off the competition. Dagny, his sister, the protagonist, ignored the government and found a way to get the job done, when government and her brother could not.  For those who need a modern example of Jim Taggert, think Elon Lusk (Tesla), Eric Schmidt (Google) or perhaps the coven of leaders at Solyndra, Netflix, and Solar One.   As for a Dagny look alike, think Carly Fiorina, Elizabeth Holmes, and Sarah Blakey.

Rent-seeking isn’t a business process or business enterprise.  It is a political enterprise.  According to James Buchanan’s essay, Politics without Romance, rent-seeking is like profit-taking. In business the goal is to make a widget and if it pleases the customers, profits result.  In politics, delighting voters works the same way.  Vote for me, get a debit card.  Give to my campaign, and you get a tax preference.  It works great…for the politician.  Not so much for the typical voter.  As we have seen from Mr. Zingales, businesses participate in rent-seeking because it is so profitable.  But business is only part of the rent-seekers population.  Unions, foundations, universities, rich folks with an axe to grind, social enterprises like Planned Parenthood or AARP, advocacy groups for this idea or that…, gun control, social justice, income inequality – even the Federal Government gets into the game by giving to political campaigns.   According to OpenSecrets Obama’s top five contributors included two Left-leaning businesses, Google and Microsoft, but also the University of California, Harvard University and the US Government.  Universities want their share of the federal pie, but how the heck can the US Government legally give to a political campaign is beyond my mind to conceive, but there it is at number four.

For the really rich, Superpacs take in unlimited sums to support political education, generally in the form of hit pieces to rile voters to vote one way…or another.  Jeb Bush raised $100 million from Superpacs within a few weeks of his announcement, money that would obliquely support his candidacy.  Superpacs are not allowed to directly campaign for a candidate.   You know, wink, wink, Jeb’s a good guy, but the money we spend is not tied to his campaign.  To refine the understanding of the MONEY problem, Jeb’s donors provide insight to the shocking concentration of the dollars provided by so few people.

This morning, the Right to Rise super-PAC filed its first disclosure reports, confirming that it had indeed raised $103 million in the first six months of the year. That is an unprecedented amount, but what’s really news is the distribution of the donations. It does appear that only about 500 donors gave more than $25,000 to the super-PAC, but donations of less than $25,000 accounted for just $21.7 million of the total. On the other end of the spectrum, 23 people gave more than $1 million to the super-PAC, contributing a total of $27.3 million. (Choma, July )

Why raise money from guys like you and me $25 a pop, when millions can be raised from a few? In minutes!!!  Answer is?  Duh, you know the answer.  Anyway, money is a problem, especially when so much can come from so little.  On the upside, a small group of political investors wasted a lot of money on Jeb.  Jeb wasn’t the right guy.  Hillary, on the other hand is doing quite well with non-campaign contributions exceeding $60M.  Bernie, the outsider, has only $46K.

OpenSecrets.org tallies contributions from across all possible sources.  According to the website about 2/3 of the dollars donated to presidential campaigns in 2012 came from about 290,000 Democrats and 280,000 Republicans.  These donations are just the dollars going directly to the candidate’s campaign, only about one-third of all spending.   Considering these contributors are about 1/3 of 1 percent of all voters and their contributions provide 2/3s of the candidate dollars, it’s a lot of money from a few people.  Without this contributors, a candidates chance of winning is vast diminished.  And then there’s the Pacs and SuperPacs. When these sources of spending are considered, the donor list becomes even more restricted.  According to the Sunlight Foundation:

One sign of the reach of this elite “1% of the 1%”: Not a single member of the House or Senate elected last year won without financial assistance from this group. Money from the nation’s 31,385 biggest givers found its way into the coffers of every successful congressional candidate. And 84 percent of those elected in 2012 took more money from these 1% of the 1% donors than they did from all of their small donors (individuals who gave $200 or less) combined.   (Drutman, 2013)

Is there any wonder why Americans feel left out in the political cold? Reviewing this donor math, it is any wonder the 100,000,000 people do not even bother to register to vote?  It’s politically chilly out here in the hinterlands and people are, dare I say, pissed.  I said it.  Sorry for the bad language.

But it gets worse, not only are we average Joe’s sidelined regarding political speech and political power, we are further marginalized by spending on lobbyists.  According to OpenSecrets (a very good site by the way) in 2015, $3.21 billion was spent by 11,504 lobbyists.  Oh, how Washington has changed since the 1960s.  According to Wendell Potter and Nick Penniman, Nation on the Take: In 1960, ‘when John F. Kennedy was elected president, 289 lobbying groups spent a grand total of $30.4 million (in today’s dollars) on lobbying activities.’  (Wendell Potter, 2015)   In real dollars, that’s a 100-fold increase.   So pile on $3.2 billion in lobbying to the $5+ billion in political contributions spent by the rich during election cycle, and there should be no doubt that Average Joe America is getting little or nothing for this vote.

So money is a big chunk of a problem.  It sucks the power right out of our lives, our wallets, society and culture and creates a giant black hole in Washington D.C.  That sucking sounds is our future getting pulled into that black hole.  That sucking sound is the reason for our squeamishness, that sinking feeling we see in a variety of polls, in questionable politicking, and in poor governance.  Considers our collective vision of Washington.

  • Two-thirds of voters feel America is moving in the wrong direction (Rasmussen)
  • 53% of voters believe that neither party represents them (Rasmussen)
  • Nearly 100,000,000 people do not even bother to register to vote (Census – Statistic Brain)
  • And trust I our federal government has fallen from around 70% in the 1960s to under 20% today (Gallup)

It doesn’t take a rocket scientist to figure out why the words establishment and outsider are frequent bullets in the reporting of this election cycle.  Voters are tired of the status quo and seek a different direction from fresh faces.  What is amazing is how deaf the establishment is to this revolution in voter thinking.  Even after spending, and wasting, $100 million on Jeb Bush, the establishment donors were fast at work trying to extricate Trump from the electoral equation.  And for Bernie, the angst and magic is the same.  He doesn’t get his money from the insiders, and so he is an outsider and Hillary and the DNC is definitely tried to zing his kester out of the race, and failed.

The two outsiders, though, are no less tone deaf to fixing our problems than the insiders.   Trump will make America great by building a wall along the Mexican border and by negotiating better trade agreements. Bernie will tax us more and give even more free stuff away than Obama, LBJ or FDR – without a way to pay for the new freebies.  Though Trump’s populist crooning and business focus may indeed provide a temporary salve for a slow economy, he does not address our broken social policies, grossly burdensome regulatory environment, or our enormous ($100 trillion) unfunded mandates. And Bernie?  After 70 years as a socialist it is amazing he hasn’t figured out that socialism is a crippler of nations, not an enabler of greatness.  He seems to be quite happy with the rat hole of mediocrity produced by Obama who he says doesn’t go far enough to the Left.  Oh, well.

So you might say, hold it, if Bernie and The Donald aren’t taking in the big bucks from big donors, and Jeb got his clock cleaned, even with $100M in big donations, is money really the problem.  Good question.

The answer is still ‘Yes.’  Contributions are a bit like venture capital.  Some candidates win and some lose.   Most every contributor will still be in the game long after the losers go home.  Donations don’t end so much as find the winners.
Since investment returns on contributions are as high as 1000 to 1, losers don’t go home.  They refocus on the frontrunners.  As much as insiders don’t really like Trump or Bernie, in the general election, if both are the finalists in the big prize, big money will flow, directly to their campaigns or indirectly via PACs and Superpacs, i.e. dark and semi-dark money.

And how does the money work?  A few examples may be useful.

For Unions: dollars flow in from the unions’ fee deducted from employee paychecks every two weeks, the key word being paychecks.   This is recurring revenue, a constant, never-ending source of revenue.  The numbers are huge, in the hundreds of millions.  Unions are a political money machine.  These ‘fees’ show up in campaigns in at least three ways, 1) to individual campaigns – local, state, and federal – that may be of interest to the union and 2) to national or state campaign committees, and 3) as in kind donations of labor and services.  Ninety percent of union donations goes to Democrats. Perhaps the largest campaign donations are non-dollar, in kind donations, that arrive in the form of human labor, especially for get out the vote.  According to the Huffington Post, ‘an analysis … found that labor unions spent more than $1.7 billion on politics and lobbying in the 2012 election cycle.’  For all levels of political representation. So for that city council election the Democrat get dollars to support Union contract negotiations for better pay and all those wonderful retirement benefits that are killing city budgets, well, and county, and state, and federal budgets, too.

This union money machine is a feedback loop where money is exchanged for contract favors benefiting union members, which is re-enforced by bigger checks meaning more money for Unions to spend on better pay and benefits for union members.   Yeehaw.   FDR said this kind of binding arbitration and social cozying up was …. Not right.  FDR was correct, this is the not right way to conduct government business.  But this conduct is routine in government because the only place union membership is growing is in government and it is growing because of this terrible feedback mechanism.

For Business: This mechanism is a bit different.   The options are available for business, 1) ask the Board of Directors or CFO if a campaign donation is possible, 2) bundle a bunch of folks (whether business friends, Pacs or SuperPacs) with common interests together and give a chunk of change, and/or 3) since you are a rich executive, you write a big check.  Getting the company to write a check is hard because business don’t really like being too political, but in excess of $300,000,000 are donated by corporations.  Interestingly, about half of these political investments go to each party.  You know, to be fair to all.  As noted above, union donations do not divide evenly with 90% going to Democrats.  For corporate giving, though, these are the best crony capitalist dollars with which one can buy influence.

A Path Forward?

 

How does Washington earn our trust again?  What is the right, or at least, a better path forward?  How do we engage those 100,000,000 people that don’t even bother to register?  Is there a path for the political entrepreneur to provide a bit of creative destruction in our political system as the two dominate political parties can’t seem to get out of their own way to design a wise path back to American Greatness.  Today, when average people give money, they are just supplementing the rich guy’s message.  If you don’t believe in that message, you probably wasted your donation.  Your speech becomes a quiet, dull tone on the edge of the presses’ consciousness.  You are one of the 53% of voters thinking, heck, neither of these parties represent me.

So how do we fix this so you have a voice?  When you give $10 or $20 to a candidate, will this elect a candidate with a path to get better governance for your family?  Can Congress create a law so there is a way for your $20 donation make a difference to the candidate that is getting plenty of checks for $5,000?  Can Congress redo campaign finance to reduce the effect of the multi-million dollar donations Super Pacs?  Can they limit PAC contributions?  Sure.  Even direct contributions to candidates.  Well, of course they can. But will they?  Not likely.  Will presidential candidates that need about a billion to run for president advocate to change rules so you feel better?  Hah!  That senator that needs 5 to 10 million dollars to clobber his opponent, is he interested in finding ways to reduce the number of dollars flowing into his campaign war chest so middle-class or not so middle-class voters needs are recognized.  Not likely. And those Congressmen and Congresswomen that need a million – are they going to line up to reduce the money in campaigns.  Good luck finding anyone to sign on to any kind of reductions.  Nothing could be finer than raising funds $20 at a time.  LOL.  Trust me, every endeavor to ‘make things fair’ will just open more loopholes so more money can be acquired.

Congress could place a small universal limit on any type of donation say $500 or $1000 that would make the $20 donation seem important?  Yes, but it will never happen.

Congress could federalize campaigns.  No more donations.  Campaigns get a tithe from the feds and that’s it.  This is possible, but as corrupt and incompetent as our government is, giving it more responsibility seems a bit nuts.

Congress could toss out all of our campaign finance laws, placing no limits on any contribution.  This might work, but only if donation and donor information were immediately available to voters – i.e. there should be no limits on speech, even money, and no hiding identities from the populace. This is actually a great idea because money is speech and protected by the First Amendment.  The transparency piece would mean we might like the candidate taking $20 donations better than the candidate taking $1 million donations.  But this isn’t going to happen either.  Democrats don’t like free speech via money.  Republicans don’t want the transparency as the press would have a field day with big money Republicans, though there are just as many big money Democrats.

A better options leads us to Joseph Schumpeter, the father of innovation and entrepreneurialism. Perhaps there is a better way that doesn’t require writing laws and regulations. Something a bit entrepreneurial, something parties and candidates would have to adopt, not the government.  This approach requires a party to self-regulate its donations – not likely for our current parties, but a great idea for a new political party.  Which is precisely what the New Party will propose.

If your heart isn’t really in union with either the Republicans or Democrats, then the New Party or any new party might make more sense, more attractive to the little guy, even the person that doesn’t bother to register. A party that self-regulates big money out of the political equation will find traction among the disaffected.  Doing a little math, how many people fit into the disgruntled cohort?  It’s a big group. One hundred million citizens are not registered plus 53% of the registered voters (73 million) believe neither party represents them – means 173 million people are completely out of the political loop.   Seventy-five percent of us are not represented in Washington, in the states, or in our cities.  Schumpeter would say this situation is ripe for an entrepreneur, for a bit of creative destruction.  A big market, with a huge number of people looking for a new entry into the decaying political market.  Imagine a party that agreed with you that money was a problem and a problem that totally dilutes your power, your speech, your access to government, your trust in government and the ability of government to create value.  Wonder if there were a party that regulated donors and donations.  Wonder if there were a party that focused, not on the rich, but the average folks, even the poor, people that were just trying to get ahead in life on their own merits.

For government to work, to be effective, the people must trust its minions and today over 80% do not.  The New Party’s First principle for governance will be to limiting the size of donations.  Opensecret’s metric for a small donation is under $200.   This seems to be that just right amount for a donation that even an Average Joe could make, putting he (or she) and Bill Gates on the same political footing.  The $200 limit means that a George Soros’ donation – of $200 – won’t diminish yours or mine, or even a person who gives very modestly, say $10 or $20.  That ten bucks isn’t eclipsed by the $200 donation like the $1,000,000 contribution that the rich guy gives to today.  This approach to political contributions should appeal to those 53% of voters who don’t feel represented by the current parties.  This might even help the totally disenfranchised, the 100,000,000 people who don’t even register, good reason to both register to vote and pitch in some dollars to campaigns they support.  If a new party (any party) were more focused on the average person, voters might feel more trustworthy of their political power.   Maybe?  It’s certainly worth testing.  It is certainly worth an entrepreneur’s time.

Is money the only problem in Washington?  Not really.  There are more than a few in our political elite that have character problems, intellectual conceit about their grand capabilities, a propensity for party regulars to get in line for legislation even when it makes no sense.  Are there budget problems, poor social policy, terrible execution in education, odd and faulty economic policy, issues with complexity, desire for control, and natural proclivity for acquisition of power, and ideological driven solutions that are implemented though few believe the solutions have any remote change of working?  Yep, but in all cases, rent-seeking and big money is driving bad habits, poor thinking, miserable problem solving, and untrustworthy governance.  Will reducing the effect of money solve all of these problems?

No, but a remedy for the big money black hole will mitigate the worst of our politicians’ character and leadership problems.  More is required to fix the problems in DC.   Certainly improved principles of governance are essential.

CIVIL is political movement to clean up the toxicity of American Politics