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.