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?