Why Clinton's Redistribution was Worse than Obama's

Redistribution that is not actually felt by the losers at the time of its enactment is one of the most insidious features of the political order. Such legislation gives the illusion of a free lunch and disarms potential opponents who fail to recognize the costs that are coming. At least taxing Peter to pay Paul causes Paul immediate harm and prompts others to fear they may someday take Paul’s place. In contrast, silent redistributive legislation and regulation wreak havoc on democracy by undermining deliberation.

In this respect Bill Clinton was a much more dangerous politician than Barack Obama. To be sure, the current President never acknowledged that redistribution was one of the main purposes of Obamacare. Nor was he forthright about the policy’s redistributive effects. Misleading prospective losers, he promised, “If you like your plan, you can keep it.” But Obamacare’s costs have become clear relatively quickly, and the President’s party will pay a political price for them. Furthermore, Obamacare institutes new taxes to pay for some of its costs, even if these taxes were not transparent increases in the IRS tax rate schedules.

By contrast, one of Bill Clinton’s biggest redistributive scheme was almost completely hidden from the public eye. As Charles Calormis and Stephen Haber outline in their marvelous book about the relation of banks and the state, Fragile by Design, Clinton midwifed an agreement to lower the standards under which the government-backed agencies, Fannie Mae and Freddie Mac, guaranteed mortgages. As a result, poor individuals who previously would not have qualified for mortgages could buy houses. But the redistribution was not confined to the poor.  Reckless members of the middle class were encouraged to borrow excessively as well. When the housing bubble burst almost a decade after Clinton left office, taxpayers throughout the nation and indeed those laid off from the resulting recession felt the pain.

Clinton’s aim was consciously redistributive. Recognizing that Americans would not stand for the high taxes to support a massive European-style welfare state, Clinton supported “third way” policies that redistribute by government guarantees, aiding people to purchase housing they could otherwise not afford.  Of course, Clinton had many willing accomplices—big banks, activist groups like ACORN, and Fannie and Freddie Mae themselves. With their help, the slickest politician in many generations found a way to engage in the most silent redistribution.

In fact his redistributive action was so silent and so complex, that Bill Clinton remains very popular even after the taxpayer bailouts and job losses in a prolonged recession caused in no small measure by these very policies. It should remind us that opposing excessive spending and taxes is relatively easy. It is far more difficult to constrain silent redistribution, which clever politicians, like Bill Clinton, make their masterwork