Yves here. Quelle surprise! Donations to members of Congress lead to the adoption of pro-bank policies. What good is money, after all, if you can’t use it to buy nice things like votes?
By Thomas Ferguson, Director of Research, Institute for New Economic Thinking,
Professor Emeritus, University of Massachusetts, Boston; Paul Jorgensen, Assistant Professor of Political Science, University of Texas-Pan American and Jie Chen, University Statistician, University of Massachusetts. Originally published at the Institute for New Economic Thinking website
Well, here we go again. Only weeks ago the mass media and the establishments of both major parties united to paint candidates championing health care for all Americans as hopeless, pie-in-the-sky budget busters who were obviously unfit to occupy the Oval Office. Now as Corvid-19 brings the world economy to a screeching halt, a white shoe is suddenly showing up on the other foot: the U.S. government is rolling out single-payer insurance for finance and big business on a scale far beyond anything Senators Warren or Sanders ever dreamed of—and with even less legal safeguards and reporting requirements than the last, post-Lehman saturnalia.
As the phalanxes of lobbyists and campaign donors swarm over the Capitol and the White House, it seems an opportune time to review some basic truths about how money-driven political systems actually function. Our new study tries to do this in painstaking detail. It was, frankly, written because we are tired of hearing that it is impossible to show that Congressmen and women ever vote in favor of legislation because they receive vast streams of campaign contributions. Full Stop.
We deal with a classic problem of economics and political science—the extent to which governments can resist pressures from organized interest groups, and especially from finance. We begin with a look at the full “spectrum of political money” that is potentially relevant to understanding the choices of politicians, but then narrow down the analysis to a set of very specific cases of unique relevance to American politics right now: votes in the U.S. House of Representatives on measures to weaken the Dodd-Frank financial reform bill in the years following its passage. To control as many factors as possible that could influence floor voting by individual legislators, the analysis focuses on representatives who originally cast votes in favor of the bill but then subsequently voted to dismantle key provisions of it. This design rules out from the start most factors normally advanced by skeptics to explain vote shifts, since these are the same representatives, belonging to the same political party, representing substantially the same districts.
Our panel analysis, which also controls for spatial influences, highlights the importance of time-varying factors, especially political money, in moving representatives to shift their positions on amendments such as the “swaps push out” provision. Our results suggest that the links between campaign contributions from the financial sector and switches to a pro-bank vote were direct and substantial: For every $100,000 that Democratic representatives received from finance, the odds they would break with their party’s majority support for the Dodd-Frank legislation increased by 13.9 percent. Democratic representatives who voted in favor of finance often received $200,000–$300,000 from that sector, which raised the odds of switching by 25–40 percent.
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As if to prove this post’s point, Rep. Neal, the top Dem on the House tax-writing Ways and Means committee, says he “immediately sought out advice from Bob Rubin” on structuring the coronavirus bailout.
https://twitter.com/zachdcarter/status/1249812810298806277
The top industries contributing to Neal’s campaigns, according to Open Secrets, are securities and investment, and real estate.
https://www.opensecrets.org/members-of-congress/summary?cid=N00000153
This, from the abstract of the article cited is damning:
It is interesting, as well as hurting to read it in full. The intro is well worth a read.
Yes, the ~$5T trillion dollar US budget is for sale for a total aggregate US donorsphere of about $2B. With leverage at > 2000:1, it is amazing more people don’t buy a Senator or two.
Agree. Congresscritters are really cheap these days. I issue a strong buy recommendation!!
If the price of oil goes any lower Exxon Mobile may
have to lay off a few Senators.
Their loss is our gain!
One wonders just what the price would be to have Mitch McConnel personally introduce and shepherd through comprehensive GND legislation. I fear his fundraising is lagging McGrath in the latest quarter by millions. Quite a tragedy. /s
It should come as no surprise that the paper also mentions elected officials who are effectively “pre-bought” as they or their spouses have large interests in the financial industry or have investment portfolios that will increase in value via a government intervention.
“But these works scarcely exhaust the subject of Congress and money. All these papers mis-measure political contributions fairly severely – in some cases by almost 50%. Other claims they advance are also implausible or plainly wrong. A paper by Tahoun and Lent, for example, shows that the personal finances of Congressional representatives and their spouses played a significant role in the 2008 vote to bailout the banks. ”
So it isn’t simply lobbying money/campaign contributions that drive congressional behavior.
Some elected officials will not need ANY financial inducement to vote in the financial industry’s favor as these elected officials are already closely coupled to the financial industry via personal finances.
And they can even tout their political purity by asserting the have received “no money from the financial industry”.
Quelle surprise indeed, money = power and has since people wore togas. To quote someone who had thought a bit about this, What Then Shall Be Done?
At least Rome’s Saturnalia had a lighter side:
During Saturnalia, work and business came to a halt. Schools and courts of law closed, and the normal social patterns were suspended. Instead of working, Romans spent Saturnalia gambling, singing, playing music, feasting, socializing and giving each other gifts.
And I’ve got it! Biden is our Saturnalicius princeps! In many Roman households, a mock king was chosen: the Saturnalicius princeps, or “leader of Saturnalia,” sometimes also called the “Lord of Misrule.” Usually a lowlier member of the household, this figure was responsible for making mischief during the celebrations—insulting guests, wearing crazy clothing, chasing women and girls, etc. The idea was that he ruled over chaos, rather than the normal Roman order.
As far as the author’s macro-economic arguments go (linked above), it’s like a balloon animal, if you push one arm in the other one swells out. Because it has to. And in our case the lurch to national socialism, backstopped by the perennial chump The U.S. Taxpayer, will mean that as night follows day the pressure will simply appear elsewhere: the scrip will eventually lose all value against goods and services. But currency regime changes take decades, meantime I’ve got some saturnine celebrating to do!
Yo go to the article and can easily calculate the cost of your law being passed adding a 100% commission for lobbyists.
Over the years I’ve had occasion to fantasize with others as to “What would you do if you won that big lottery pot?”
Most thought it was a joke when I said “One of the first things I’ buy would be some representation in gov’t.”
It’s not a joke…
the carnival view of alchemy is just turning lead into gold…. but really, it is the creating of money… for oneself..out of nothing. the BEST way to do it is by statute.
It seems so cliché, socialism for the rich, rugged individualism for everybody else, but it is sooooo true.
Heads, I win (profits!) tails you lose (my bad).
It was fleeting but I really liked it when Bernie got on national TV and shown a light on it. I just think that maybe people just don’t believe it’s true, because they just don’t realize how bad the leaders of our society have become.
The global economy was slowing down before the coronavirus.
China was the last real engine of global growth and they have made the same mistake as everyone else.
How can a build up of private debt stifle growth?
Policymakers thought banks were financial intermediaries and couldn’t see the problem.
Japan did it first, and their economy has been flat-lining for almost thirty years.
We got our experts to investigate.
Policymakers thought banks were financial intermediaries and couldn’t see the problem, so they put it down to demographics. This was a plausible explanation and seemed to fit.
Central banks revealed how banks really work in 2014.
https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf
Bank loans create money and debt repayments to banks destroy money.
Bank credit effectively brings future prosperity into today.
Japan had its debt fuelled boom in the 1980s, they spent the next thirty years paying down the debt they had built up in the 1980s.
They hadn’t realised they were impoverishing the future as they enjoyed the debt fuelled boom in the 1980s.
A new ideology swept the world, neoliberalism.
It was built on an old economics that had the same problems it’s always had, neoclassical economics.
This ideology never had a long term future.
The 1920s roared with debt based consumption and speculation until it all tipped over into the debt deflation of the Great Depression. No one realised the problems that were building up in the economy as they used an economics that doesn’t look at private debt, neoclassical economics.
The 1920s was the debt fuelled boom.
The 1930s was the impoverished future.
Past success has been achieved at the expense of future prosperity and this has been done globally.
The US didn’t save the banks in the 1920s and this made it worse, but you still get this future impoverishment as Japan has been experiencing since 1991, it’s called a balance sheet recession.
China was the last real engine of global growth and they have made the same mistake.
Everyone does with this economics.
At 25.30 mins you can see the super imposed private debt-to-GDP ratios.
https://www.youtube.com/watch?v=vAStZJCKmbU&list=PLmtuEaMvhDZZQLxg24CAiFgZYldtoCR-R&index=6
What Japan does in the 1980s; the US, the UK and Euro-zone do leading up to 2008 and China has done more recently.
The PBoC saw the Minsky Moment coming unlike the BoJ, ECB, BoE and the FED, by looking at private debt-to-GDP ratio.
Steve Keen saw 2008 coming in 2005 by looking at the private debt-to-GDP ratio.
It shows you when bankers are using bank credit to inflate asset prices.
It is the money creation of bank loans that causes the economy to boom as it rushes towards a financial crisis. These debt fuelled booms come at the expense of future prosperity and the economy struggles under the weight of all that debt.
Japan did it first.
Let’s find out what the problem is.
Richard Koo had studied what had happened in Japan and knew the same would happen in the West after 2008. He explains the processes at work in the Japanese economy since the 1990s, which are at now at work throughout the global economy.
https://www.youtube.com/watch?v=8YTyJzmiHGk
Debt repayments to banks destroy money, this is the problem.
https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf
Policymakers applied misguided solutions to a problem they never understood.
Austerity is the worst thing you can do in a balance sheet recession.
QE can’t get into the real economy due to lack of borrowers.
We saved the banks, but left the debt in place.
Just like Japan.
The banks are ready to lend, but there aren’t the borrowers to get that QE into the real economy.
Nothing is really going to get better again until we get a better idea of how the economy actually works.
A new ideology swept the world, neoliberalism.
It was built on an old economics that had the same problems it’s always had, neoclassical economics.
This ideology never had a long term future.
In 1979, the UK got a one way ticket to a financial crisis and impoverished future.
What happened in 1979?
The UK eliminated corset controls on banking in 1979 and the banks invaded the mortgage market and this is where the problem starts.
https://www.housepricecrash.co.uk/forum/uploads/monthly_2018_02/Screen-Shot-2017-04-21-at-13_53_09.png.e32e8fee4ffd68b566ed5235dc1266c2.png
Before 1980 – banks lending into the right places that result in GDP growth (business and industry, creating new products and services in the economy)
Debt grows with GDP
After 1980 – banks lending into the wrong places that don’t result in GDP growth (real estate and financial speculation)
Debt rises faster than GDP
2008 – Minsky Moment and financial crisis
After 2008 – Balance sheet recession and the economy struggles as debt repayments to banks destroy money. We are making the repayments on the debt we built up from 1980 – 2008.