Friday, February 19, 2010

Lobbying and Corruption

-- Posted by Neil H. Buchanan

Two weeks ago, The New York Times ran a news article by Eric Lichtblau under the headline: "Lobbying Imperils Overhaul of Student Loans." In the article, Lichtblau describes an Obama administration proposal (already passed by the House) to save federal money on subsidized student loans, and he explains how the lenders who currently enjoy the subsidies that the proposal would recapture are fighting back with a lobbying blitz. The article is very well-written and informative, a textbook example of reporting without editorializing.

Still, there is something vaguely creepy about the tale that Lichtblau tells. His story boils down to this: (1) There was a proposal to save money, (2) The affected industry began lobbying Congress, so (3) The proposal now might fail. Readers might wearily shrug their shoulders and think, "What else is new! Of course the lobbyists will win." That was certainly my first reaction. As I have thought more about this, however, the underlying logic has become more and more difficult to fathom. More on that in a moment.

But first, it is important to understand just how simple the underlying issue is. Normally, if a lender faces a higher risk of default on a loan, it will want either a higher interest rate from the borrower, some kind of collateral, or a guarantee or cash from a third party. Therefore, one could imagine lenders refusing to make affordable loans to many college students, given how iffy repayments are on these unsecured loans, and given that many students lack a backer with sufficient resources.

The problem is that the federal government solved the lenders' problem twice. The program that the Administration wants to end has the federal government paying lenders to make student loans, even though the loans are guaranteed by the federal government. The lenders thus face no losses from defaults, but the federal government nonetheless pays the lenders in the hope that they will be more willing to put up with those (nonexistent) default losses. Sweet deal! Eliminating the subsidy would save an estimated $80 billion or so over 10 years, money that the Administration would put toward expanding the availability of student loans.

The industry, of course, has a standard set of bogus arguments to justify continuing its free ride. They run from the usual "government takeover" meme, to the call to "think of the jobs," to the humorous idea that students get "personal service" from private lenders. It is the usual story, with talented people being paid to spin a story that cannot credibly be spun.

The part of this story that still nags at me, however, is the straight line from lobbying to the bill being in danger of not passing in the Senate. I can certainly imagine that there are plenty of Republican Senators who would oppose this plan, for any number of reasons. What I cannot understand is how the lobbying is changing anyone's mind. Who could understand the situation in the first place enough to favor the plan, but then change their minds when a lobbyist from the affected parties tells them that they should oppose it?

Maybe a few senators simply had not thought deeply enough about the issue before now, but now that they have thought and prayed about it, they have come to the conclusion that the subsidy is a good idea and must be continued. Color me skeptical.

Another answer is the old "jobs in your district" argument. Like the military-industrial complex, the lending industry openly plans to make Senators believe that jobs will be lost at home. (Interestingly, but unsurprisingly, a former Clinton administration official is now the lead lobbyist for the lenders.) Maybe enough Senators will decide that they are not willing to risk the bad press that might ensue if some lenders' employees are laid off (even though the best bet is that those people would not be laid off at all but would, instead, be kept on to administer the expanded program envisioned by the President).

In any case, as Lichtblau's article points out, the lenders are not content to rely solely on baseless arguments and contrived town-hall-style meetings. They also give money in equal measure to politicians from both parties, to the tune of $2.1 million in 2009 alone. The largest lender, Sallie Mae, also spent more than $3 million on lobbying in each of the last two years.

Politicians insist, of course, that they cannot be bought. They simply receive money from people with whom they already agree (which is why the contributor wants them in office). If pressed, they will sometimes suggest that the contributions lead to "access," which apparently means that they decide whom to see based on who has given them money. This explanation is disturbing in its own right, of course, given that selling access to someone necessarily implies that someone else is being denied access. (If there were enough access for everyone, the price would be zero.)

How does any of this fit into the battle over the student loan subsidies? Again, we are not talking about the people who were already going to vote against the bill. What matters is the apparent possibility that some Senators might change their votes in the face of the lobbying blitz. Those Senators, if they exist, must either be willing to listen only to those people who can afford a lobbying blitz -- and then change their votes after listening to the lobbyists' silly arguments -- or are at least indirectly on the take.

I readily confess that my musings on this might seem naive. Perhaps they are. What bothers me is that being non-naive (but not so jaded as to imagine that politicians can be bought) requires us to accept the idea that "lobbying" can kill any bill, even one that clearly is (as Obama put it) a "no-brainer." Again, we are not supposed to believe that money directly buys Senators' votes, but the alternative explanations are more than a bit of a stretch. The strengths and weaknesses of the arguments are so clear that the mechanisms of influence become more apparent.

The point is not that this is a smoking gun -- proof of a quid pro quo, cash for votes. Rather, the point is that we just nod and accept the idea that lobbyists regularly kill bills, but we rarely consider the process by which they succeed. If this is not corruption, what is?


Patrick S. O'Donnell said...

Which should bring us back, with Ronald Dworkin in the NYRB, to a discussion of the "devastating" Citizens United decision....

Here in California, we have more direct and transparent corruption by corporate power, this time courtesy of a method of "direct democracy," namely, our initiative process. PG&E has sponsored a ballot initiative under the guise of "a coalition of taxpayers, environmentalists, renewable energy, business and labor," that is "concocted to undercut competition from municipal power agencies." The ugly story is told here by one of our country's best newspaper columnists (using criteria that include an abiding concern for the common good), Michael Hiltzik:,0,7313678,full.column

Michael C. Dorf said...

I continue to think that while Citizens United is a bad decision, its effect will be marginal, given all the ways that corporate money bought without it--e.g., as illustrated by Neil's post itself. How's that for optimism?!

Bob Hockett said...

Thanks a million for this post, Neil -- yet another model of your characteristically crisp, comprehensive analyses that always show literally every prospective avenue of exoneration for the rent-seekers to be blocked. I wish *you* were on the NYT op ed page each week rather than, say, Thomas Friedman!

All best,

Charles said...

Being currently immersed in reading about consciousness, and therefore about unconsciousness, I suspect that the pols' claims that "they cannot be bought" are based on a naive view of how we respond to stimuli. It may (or may not) be true that a pol doesn't consciously think "for $100K, I'll stick with my position - but for $500K ...", but my guess is that decision making involves a very large component of unconscious mental activity. Which by definition would mean that the pol doesn't really know why the decision goes one way or the other. Caution would seem to dictate that we err on the side of minimizing such unconscious influences.

Re Prof. O'Donnell's observation about CA's "direct democracy" via initiatives (and more broadly via poll-driven politics), that seems clearly to conflict with the republican concepts expressed in Federalist X (representative government effected by our "best and brightest" citizens, presumably in principle exercising their best independent judgment). Has anyone ever tried to mount a constitutional challenge (either Fed or state) based on some argument like that? (Probably a dumb idea, but I have the excuse IANAL.)

And Prof Dorf: do you think CU a "bad decision" just because of consequences or also technically? Not, BTW, a rhetorical, but a real question - I have no position on the technical aspect. (Altho I found this discussion of CU between Prof Lessig and Glen Greenwald informative.)

I see these issues as intertwined. The idealistic image we have of democracy is reasoned debate (ala Lincoln-Douglas) intended to influence opinion on issues broadly understandable to the electorate. However, in a mass-media-saturated society of citizens necessarily largely ignorant (in the literal, not pejorative sense) re a maze of complex issues, opinions aren't influenced by media, they're essentially created by them (those who know any Fox "News" acolytes are familiar with an extreme version of this phenomenon). "Representatives" then read polls and promise to enact "the will of the people". The net effect seems to me that "one person, one vote, one representative mediating public passions" becomes "one person, N votes, translated directly into policy", where (for example), the one person is Murdoch and N is the audience for Beck, O'Reilly, et al. Right or wrong technically, it would seem that CU exacerbates an already toxic situation.

Neil H. Buchanan said...

Charles's observations about politicians' unconscious decision-making seem spot on to me.

I share Mike's suspicion that the marginal effect of the Citizens United decision will be small, but I do think that it's a terrible decision as a matter of legal analysis. (Despite all of my writing on economics, I *am* a law professor ...)

My thanks, as always, to Bob H. for his complimentary remarks. As to his suggestion that I replace Thomas Friedman on the NYT op-ed page, two thoughts: (1) Why deny the world the opportunity to ridicule such brilliantly idiotic phrases as yesterday's "global weirding, not global warming" gem, and (2) I am holding out for a slot on the Wall Street Journal's op-ed page. Then, I can get a slot on Fox News and influence N people in the way that Charles so aptly describes. (N would, of course, approach infinity.)

Charles said...

IMO, one should assiduously avoid becoming a NYT columnist as it seems to have a corrosive effect on people.

Years ago when we thought he had important things to say about the Middle East (usually on Washington Week), my wife and I were big Tom Friedman fans (probably an example of the "necessarily ignorant" phenomenon to which I alluded above). I now think a description encountered on Prof Leiter's blog is pretty much the most that can be said for him:

"Nothing to say and the ability to say it well."

Except that I now reject even the latter part, having years ago gotten to the point of finding his "let me explain this in simple terms even you can understand" approach to complex issues rather insulting.

Sam Rickless said...

My own sense is that some politicians (probably the minority) are bought, while the rest are self-deceived. When the Sallie Mae lobbyist walks into the pol's office, he knows that crossing the lobbyist will mean less money for him *and* more money for his opponent (whether from the other party or possibly his own party, in the shape of a primary challenge). This is very strong motivation to hang on the lobbyist's every word, to see bad arguments as good arguments, to focus selectively on evidence in a way that reinforces the lobbyist's arguments. (The motivational effects here, as Charles suggests, are unconscious.) Once the motivational bias has done its work, the pol can quite honestly protest that there was no quid pro quo, that his vote was not bought.

I hate to be a pessimist, but there is absolutely no way to avoid this kind of corruption in politics. Given human nature and what getting elected requires in the way of publicity, corruption is unavoidable. (I think I agree with Mike here.) Suppose, for instance, that by some miracle we get public financing of elections. Even with this, the candidate supported by the wealthiest backers will have a much better chance of spreading her or his message and gaining positive publicity. And, again, the candidate will know what she or he needs to do to stay in the backer's good graces. The Madisonian ideal is dead and buried.

Sal said...

This is more evidence that American Government is the real "organized crime" in America.