Tag Archives: political privilege

Conservatives, Liberals, and Privilege

Utah Senator Mike Lee (R) delivered an important, and timely address at the Heritage Foundation this week. It was focused squarely on what he called “America’s crisis of crony capitalism, corporate welfare, and political privilege.”

It is a problem, he said, that “simultaneously corrupts our economy and our government.” He pointed to a number of ways in which it manifests itself, including “direct subsidies,” “indirect subsidies, like loan guarantees,” “tax carve-outs and loopholes,” “bailouts,” the implicit bailout of “too big to fail,” and “complicated regulations.”

The Senator is careful to point out that the problem has a long history:

Just like the crises of lower-income immobility and middle class insecurity, the crisis of special-interest privilege is not Barack Obama’s fault. It predates his presidency. And though his policies have made it worse, past Republican presidents and Congresses share some of the blame.

He also stresses that the problem is bipartisan:

Too many in Washington have convinced themselves that special-interest privilege is wrong only when the other side does it.

And he’s willing to call Republicans to task for the part they have played:

We [Republicans] have tried being a party of corporate connections and special-interest deal-making. And we’ve lost five of the six presidential popular votes since [Reagan left office].

But though he believes Republicans bear some blame, the Senator contends that government-granted privilege is fundamentally incompatible with conservatism:

Properly considered, there is no such thing as a conservative special interest.

While I agree, I have a more ecumenical view of the issue.

Yes, privilege is incompatible with properly-considered conservatism, but I also think it incompatible with properly-considered progressivism (and properly-considered libertarianism, for that matter). The Senator, on the other hand, believes that “Liberals have no problem privileging special interests, so long as they’re liberal special interests.” As evidence, he quotes progressive thinker Herbert Croly, who wrote:

In economic warfare, the fighting can never be fair for long, and it is the business of the state to see that its own friends are victorious.

I won’t dispute that many progressives continue to view things this way. But I think there is value in framing the elimination of government-granted privilege in terms that attract progressives to the cause rather than in terms that seem destined to repel them.

And there is plenty of evidence that many progressives are at least open to the anti-privilege agenda. As I note in the beginning of the Pathology of Privilege, both the Tea Party and the Occupy movements oppose corporate bailouts. Consider the way progressive economist and Nobel Laureate Joseph Stiglitz framed the issue in Zuccotti Park:

Our financial markets have an important role to play. They are supposed to allocate capital and manage risk. But they’ve misallocated capital and they’ve created risk. We are bearing the cost of their misdeeds. There’s a system where we socialized losses and privatized gains. That’s not capitalism, that’s not a market economy, that’s a distorted economy and if we continue with that we won’t succeed in growing, and we won’t succeed in creating a just society.

Those words could have come out of Milton Friedman’s mouth.

Or consider the way progressives Mark Green and Ralph Nader framed regulatory capture in 1973:

The verdict is nearly unanimous that economic regulation over rates, entry, mergers, and technology has been anticompetitive and wasteful.

The result, they wrote, is a system which “undermines competition and entrenches monopoly at the public’s expense.”

Green and Nader’s concern about regulatory capture wasn’t just an academic exercise. It helped propel one of the most successful eliminations of government-granted privilege in U.S. history: the deregulation of trucking, air travel, and freight rail in the late 1970s. To the considerable benefit of consumers, these industries were substantially deregulated and de-cartelized. And it happened because liberals like Ted Kennedy and Jimmy Carter eventually joined the cause.

Our task today is to get modern libertarians, conservatives, and progressives to once again rally against government-granted privilege.

Richmond, Calif., Eminent Domain, and the Problems of Political Privilege

Sign Of The Times - ForeclosureRichmond, California is now moving forward with a proposal to use eminent domain to acquire more than 600 “underwater mortgages” (mortgages with unpaid balances greater their properties’ market value).

Eminent domain has long been used by governments for various public uses, such as highways, roads, and public utilities.  More recently this has been extended to include shopping mallsbusiness parks, and professional sports stadiums. However, while contemplated by other cities, eminent domain has never been used for the purpose of seizing mortgages. Richmond would be the first city to actually carry out such a plan.

On its face, the plan is straightforward. The city has offered to buy these underwater mortgages at discounted rates from the banks and investors currently holding these mortgages. If the offers are rejected, the city will use eminent domain to force the sale of these mortgages to the city. The city will then write down the debt, refinancing the loans for amounts much more in line with current home values.

While the stated objective of this plan is to provide mortgage relief to homeowners hurt by the most recent housing crises, the plan is rife with opportunities for political privilege and favoritism.  Ilya Somin, a law professor at the George Mason University School of Law, has laid out several problems involved with this scheme:

  • Far from benefiting low-income people as intended, the plan will actually harm them. Much of the money to condemn the mortgages and pay litigation expenses will come from taxpayers, including the poor. Most of the poor are renters, not homeowners, so they cannot benefit from this program. But renters do indirectly pay property taxes through the property taxes paid by their landlords, a cost which is built into their rent.
  • The program would also enrich those who took dangerous risks at the expense of the prudent. It isn’t good policy to force more prudent taxpayers to subsidize the behavior of people who took the risk of purchasing high-priced real estate in the midst of a bubble. Doing so will predictably encourage dubious risk-taking in the future.
  • Prudent Richmonders will also lose out from this policy in another way. If lenders believe that the city is likely to condemn mortgages whenever real estate prices fall significantly, they will either be unwilling to lend to future home purchasers in Richmond, or only do so at higher interest rates. That will hurt the local economy and make it more difficult for Richmonders to buy homes.
  • We should also remember that eminent domain that transfers property to private parties is often used to benefit the politically powerful at the expense of the poor and the weak. In Kelo v. City New London (2005), a closely divided Supreme Court ruled that government could take private property and transfer it to influential business interests in order to promote “economic development.” As a result, multiple New London residents lost their homes for a “development” project that still hasn’t built anything on their former property eight years later. Property owners lost their rights and the public has yet to see much benefit. The Richmond policy would create another precedent to help legitimate future Kelos.

You can read Somin’s article here.

It should be noted that there is a legal challenge underway as banks and investors argue that the city’s plan is unconstitutional. However, regardless of the plan’s legality, it is clear that it will do little to support economic development, aid the housing market, or support future investment in the local economy. It seems more about using these mortgages to privilege the few at the expense of the many.