How the system works

by Russ Roberts on January 4, 2009

in Politics

Rod Blagojevich will probably go to jail for trying to sell a Senate seat and various other shenanigans. Bill Richardson has withdrawn his nomination to be Secretary of Commerce because he is under a grand jury investigation:

The investigation concerns CDR Financial Products Inc., a Beverly
Hills, Calif., company that in 2004 was awarded two consulting
contracts worth about $1.4 million to advise the State of New Mexico on
a large bond issue for building infrastructure, one of Mr. Richardson’s
initiatives. The company’s president, David Rubin, a major Democratic
contributor, gave about $100,000 to two political action committees
controlled by Mr. Richardson, as well as $10,000 to his re-election
campaign in 2005, according to published reports.

Awkward. And now there’s Hillary:

An upstate New York developer donated $100,000 to former President Bill Clinton’s foundation in November 2004, around the same time that Senator Hillary Rodham Clinton helped secure millions of dollars in federal assistance for the businessman’s mall project.

Mrs. Clinton helped enact legislation allowing the developer, Robert J.
Congel, to use tax-exempt bonds to help finance the construction of the
Destiny USA entertainment and shopping complex, an expansion of the
Carousel Center in Syracuse.

Mrs. Clinton also helped secure a provision in a highway bill that set aside $5 million for Destiny USA roadway construction.
The bill with the tax-free bonds provision became law in October 2004,
weeks before the donation, and the highway bill with the set-aside
became law in August 2005, about nine months after the donation.

At first glance, this seems a bit strange. Why should a shopping complex be allowed to use tax-exempt bonds? And the timing is a bit awkward. Not to worry says both Congel and a Hillary spokesperson:

Mr. Congel and Philippe Reines, a spokesman for Mrs. Clinton, both said
there was no connection between his donation and her legislative work
on his project’s behalf. Mr. Reines said Mrs. Clinton supported the
expansion of Carousel mall “purely as part of her unwavering commitment
to improving upstate New York’s struggling economy, and nothing more.”

That’s a comfort. BOTH of them say there was no connection. I guess it was just a coincidence. And I love that word "unwavering." She doesn’t just have a commitment to upstate New York. It’s an unwavering commitment.

The Times is thoughtful enough to run a picture of Mr. Congel:

Developer190

He seems like an awfully cheerful sort. You would be too if you had a U. S. Senator helping you out.

So why did his shopping complex get special treatment? It was green. That was the key:

Mr. Congel had been a prime force behind Congress’s passage of
tax-exempt “green bonds,” a program to lower the financing costs of
some $2 billion in environmentally friendly projects by exempting
lenders from paying federal taxes on their income from the private bonds. By some estimates, the program could cost the Treasury about $200 million.

The
way the legislation was written, Mr. Congel’s Syracuse development,
which he agreed to build and run in a way that promotes renewable
energy and recycling, was one of just a handful of projects that would
qualify.

Ah, the bootleggers and the baptists, the morally righteous and the self-interested pursuing their self-interest under the cover of a worthy cause. I would love to know just what Congel did to make his mall a green project. We get a hint at the bottom of the story:

The Destiny USA project has attracted criticism. Stephanie Miner, a member of the Syracuse City Council, called it a “boondoggle” that won tax breaks with dubious economic and environmental promises.

But
a Destiny USA spokesman said the savings from the tax-exempt bonds is
paying for extra “green” elements — like recycled construction
materials, solar power panels and an efficient climate control system — whose cost a lender normally would not have approved.

Congel is also a big donor to Republican causes:

Although Mr. Congel has sometimes given money to Democrats, he is a
major Republican campaign fund-raiser. In 2004, he was a “Bush Ranger,”
gathering more than $200,000 in bundled contributions for the
Bush-Cheney re-election effort.

In the most recent election cycle, he donated money to the Republican National Committee and to the Republican presidential primary campaigns of Rudolph W. Giuliani, Fred D. Thompson and Mitt Romney.

So what was he doing donating to Bill Clinton’s foundation? I love his answer:

But Mr. Congel said there was nothing incongruous about his donation to
Mr. Clinton’s foundation. “I have a huge interest in our country, and I
thought Clinton was a great president,” Mr. Congel said. He added, “I
think he’s a dedicated, dedicated American, and I’m a dedicated,
dedicated American, and when we have a president I think we have a
right, privilege and obligation to support that president. And I did
that with Clinton, and I did that with Bush.”

Yes, that must have been the reason Congel gave $100,000 to Bil Clinton’s foundation— Bill Clinton was a great President. A great President with a wife in the Senate. Just a coincidence, no doubt.

Here is the beauty of politics. Hillary would never have been so crass as to sell her favors to the highest bidder. But no politician has to be that crass. You just do what you know will get rewarded and the rewards come. You don’t have to ask. It’s like asking water to flow downhill. You don’t need to. It does that on its own accord.

Fish gotta swim. Birds gotta fly. Politicians respond to incentives just like you and I.

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  • I apologize ahead of time for my comment as it may come across as a cry for publicity, of sorts. But anyway, I'm looking to run as an unaffiliated US Senate candidate here in Delaware in 2010. I get a lot of comments suggesting that I face an uphill battle against the established parties. But your posting points to another direction that we really need to consider to re-establish faith in our own political system. Your posting and the related background in not new to me in terms of the realpolitik of our government. But really----enough is enough. When will it become so blatantly obvious that we need a complete retooling of legislative responsibilities toward America and not to specific self interest groupings?


    If you feel this comment is not appropriate for your guidelines, feel free to delete or pillory later. I would, however, appreciate copying your particular posting onto my blog if you don't mind. I've followed your writings for some time and appreciate your perspectives.

  • I know people who do big construction projects in California, and what you've described is exactly how everything gets done here.


    Environmental regulations, unions, labor laws, zoning, land use laws, NIMBYs, government run roads and transit, etc, etc... it all means that at every step the right palms have to get greased.


    Some regulations about structural integrity and fire safety are no doubt okay, but most regulations just ensure that developers plan for the cost of buying favors and then they pass those costs on to consumers.


    Also note that it's a "rule of men and not laws" game. The rules are always in flux, are interpreted on a case by case basis, and you can buy special treatment from the umpires.


    The more regulated and subsidized an industry is the more corrupt it is.

  • geoih

    Quote from Jim Egnor: "When will it become so blatantly obvious that we need a complete retooling of legislative responsibilities toward America and not to specific self interest groupings?"


    Perhaps you have some specific details on how that might be accomplished. I'm sure you'll get plenty of advice from this group, but I'm not sure you'll like it, or find it helpful in getting you elected to anything.

  • Jon

    This is another critique of the naive notion that politicians are serious people who do serious things seriously. And it's excellent analysis. But it's not a good reason to encourage people to swear off political action.


    For example, were you or Don (or other principled advocates of liberty) to be elected, you'd certainly work to pass tax cuts. And people interested in tax cuts would send you money, either before or after your work (whether you were successful or not). But you would do this whether they contributed to your campaigns or not--because it's the right thing to do.


    Don't get me wrong, Clinton/Richardson/et al are probably the norm; they deserve to be ousted.

  • vidyohs

    I'll be the cynic that will rain on your parade, Mr. Egnor.


    "When will it become so blatantly obvious that we need a complete retooling of legislative responsibilities toward America and not to specific self interest groupings?


    Posted by: Jim Egnor | Jan 5, 2009 12:01:57 AM"


    Really, Mr. Egnor, why do you assume that it is just the legislative branch that needs reformation?


    Remember Ruby Ridge, Mt. Carmmel near Waco, Elian Gonzales, botched deadly no-knock home invasions by the minions of the Executive branch, random State Trooper road blocks with nothing more than fishing in mind, random homeland security roadblocks across the S.W. stopping people to perform fishing expeditions? How about undeclared wars with the culpability of both the legislative and executive branches?


    Or, have you forgotten federal judges making law like the one near Kansas City who dictated to the state a tax increase for school funding, or federal Judge William Wayne Justice who seized control of Texas prisons for over a decade? Or, the federal judges across the nation that supported the no-knock home invasions mentioned prior. Or, the federal judges that ruled that a policeman has the right to arrest you if you refuse to produce an ID for him to examine upon his request (papers please) and receive federal protection when he does so?


    Plenty of reformation needed there as well as the legislative.


    Now, here is your problem, Mr. Egnor, you go out and expand your vision to include the things I just mentioned, couple that with how you understand the legislative branch; then talk to Joe-in-the-street about what you know and what you want to do and watch his eyes glaze over, watch him start to twitch and look at his watch, and finally hear him make the excuse that if he doesn't get home soon he'll miss his favorite TV show.


    We Americans have access to the most sophisticated information source on the planet, and have always had free access to the information to know and understand government, yet 99.99999999% of the people operate purely upon enculturation and conventional wisdom and that isn't going to change until the jack-booted thugs kick their personal door in, slap the 6-pack out of their hands, and haul them away because a neighbor reported suspicious activities at a home with an address similar to theirs.


    Then, Mr. Egnor, if he was lucky enough to not get himself killed by protesting the injustice too vigorously, then you'll have a man who will listen to you.


    But, by then you will have realized that talking is useless because you aren't going to change anything by talking or through the ballot box. Every single reformer who ever went to Washington to "fix" it wound up co-opted, one term by choice, defeated with his own parties help, or, as in the case of Ron Paul, if so popular he wins re-election anyway, simply marginalized and shoved into the corner and treated like the odd relative no one wants in front of a camera.


    Ron Paul fought a gentleman's fight last year, tried to put the problems in front of the American people, and I'll bet you even money that you and I can go out into the street today and randomly ask people we pass or in shops to tell us who Ron Paul is and why he said those things about America and we will be met with that same glazed eye look I mentioned above.


    They got their TV, their 6-pack, their credit card, and they haven't felt the cutting edge of government yet, so life is good why worry and why fight city hall?


    Great, now I have described the real situtation I should be willing to propose a solution. I have one and I will.


    The only solution is the one that began at Lexington and Concord, some 230 years ago. Washington D.C. is more alien to you and I than King George and the British were to the colonials.

  • JP

    Oh, Oh!


    If we look at barriers to resource transfers between family members vs. regular folk, then we can explain why the family as a unit is such a strong political device in American politics. We can also use it to explain a contributing factor to why we see dynastic families...


    Didn't Krugman get his Nobel Prize for proving this concept with localized resource pools? VC's and start up techies go to Silicon Valley. Financiers to New York...


    The small distance between resources provides low barriers to exchange... just so with financial exchanges and the legal entity of the family. The low cost to transfer resources provides a reason for resource density.


    (I want a shout out from whoever does the research when they get their Nobel Prize.)


    ...now where is the intrade contract on Chelsea?

  • Anonymous

    vidyohs on Jan 5, 2009 @ 10:46:34 AM


    "They got their TV, their 6-pack, their credit card, and they haven't felt the cutting edge of government yet, so life is good why worry and why fight city hall?


    Great, now I have described the real situtation I should be willing to propose a solution. I have one and I will.


    The only solution is the one that began at Lexington and Concord, some 230 years ago. Washington D.C. is more alien to you and I than King George and the British were to the colonials."


    I think you're onto something...

  • Stephen Ulicny

    Nothing in the country will ever operate perfectly well, or honestly, until real consideration is given to the way in which this country was established, that being on the blood of previous, Native inhabitants.

    Then some meaningful retribution must be made for our "original sin" of destroying the native culture that was here before us, "stealing" all of their land and destroying their traditions of knowledge that had kept this land pure and perfect for milennia.


    Unfortunately our whole economy is based on self interest over public good and the present concept of Green is child's play.

  • I apologize for the delay in having gotten back to this particular post and more directly replies to my own comment.


    I appreciated reading some of the "challenges" and comments from "cynics' etc---while I may not subscribe totally to libertarian views, at least, I can appreciate the underlying concerns and questions offered. Likewise, some folks have given me the proverbial food for thought.


    I really don't know whether I can make a change or not. Given that I am not affiliated with the major parties...probably not. But at least give me the chance of trying to make a difference and to at least offer another alternative beyond the mainstream.


    My outlook is that our political system and economic concerns therof is not taking into account the generic needs and values of a truly democratic society. I beleive that any change of atruly egailtarian nature will need to take place over many years. Sort of like trying to enforce the concept of democracy in the Middle East...when this particular part of the world had never even dealt with this concept before. While perhaps "we" may think it an ideal paradigm...it will take generations of successful implementation for the targeted society to realize same, if at all.

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