Washington, DC -- (ReleaseWire) -- 03/06/2015 --BENNETT: Jay Cost is a columnist for the Weekly Standard, where he writes the Morning Jay column. He's also the author of a new book, which came out on February 10th, called A Republic No More: Big Government and the Rise of American Political Corruption. Jay, welcome to Financial Myth Busting.
COST: Thanks for having me.
BENNETT: Your book argues provocatively that America has lost its Republican form of government. Can you take the listeners of Financial Myth Busting through your basic premise?
COST: Absolutely. The book is a history of political corruption, and so I traced it over time but it's more than that. It's a little bit contemporary policy analysis, a little bit political philosophy, and the argument of the book basically boils down to this: that when the framers of the Constitution were designing the government, they were very careful in the way they set the system up. They wanted to make sure that every institution within the government had the necessary power to accomplish the basic goals that they set forth and also to balance and check one another. And so, power was sort of synchronized to the institution. The problem with political corruption is that we, subsequent generations, have grown the government and its power so substantially beyond the original grant that was given in 1787, but we have not updated the institutions.
The institutions are still more or less the same as they were when they were originally were handed down to us. And this creates corruption in the following way. You can think of the Constitution as a finally crafted Swiss watch as it was originally designed, but we keep tweaking the system and we keep amending it in effect. There are only 27 or so official constitutional amendments, but we have so substantially revised the powers of the government through effectively amending it, that it's almost as if that watch doesn't work.
And so what happens is, Madison had this idea, he thought that in our system, ambition would counteract ambition. That was the whole point of checks and balances. But by giving the government so much power, without updating the institutional design, we undermined checks and balances. Ambition no longer counteracts ambition and what you seen now is the misuse of power. The systematic misuse of power and the way our government tends to misuse power is by favoring small factions, interest groups or pressure groups, whatever you want to call them, favoring them over the country at large, over the public interest and that I define as corruption.
BENNETT: So, our Constitution provides us with a government that's based upon the rule of law not man?
BENNETT: However, our laws are created and enforced by men, right? Our federal government is supposed to act like this: Congress creates and abolishes the law, whereas men have to interpret the law. Is that where the corruption begins?
COST: Yes. James Madison was very concerned about corruption. He didn't use that word, he called it 'factionalism,' but he was very worried about it and he understood that it was inevitable, right? That it's ultimately tied to human selfishness. The problem in a Republican form of government—this is the paradox of Republican government—is that Republican government ultimately has to depend upon the role of the people in some way, shade, manner or form.
COST: However, people are inherently selfish and so, the very principle of Republican government leads itself to corruption, which is to say that if you're going to rely on a bunch of selfish, ignoble people then you stand at real possibility of getting selfish ignoble legislation or law. And so Madison's solution to this problem was carefully designed institutions to channel human selfishness into ways that are socially beneficial.
BENNETT: And these institutions are?
COST: Those institutions would be the Congress, the bicameral nature of the Congress; it would be the court system being separated from the public will; the presidency, with the electoral college; and then also on top of that federalism. And then on top of that, you have things like enumerated powers. Article 1, section 8 of the Constitution list specifically the powers that Congresses is to have and it does not give Congress a general grant of power. You combine that with the Bill of Rights, which specifically limit what Congress can do and also of course the 10th Amendment which is sort of stuck on there as a reminder that by the way, this is an enumerated grant of power.
The point of the whole regime, the whole thing, it was supposed to set up a system whereby selfish factions enter the system, but they are balanced by one another and the end result of the process should be public spirited policy. That was Madison's great contribution to American political though.
BENNETT: What if neither party, neither group actually represents the interests of the American people? It seems that today everybody is controlled by something: foreign or domestic corporations, special interest groups, whoever provided the majority of funding to them, whatever it may be. Everyone seems to be practicing dishonest, deceptive types of politics, and it's aimed less at getting things done and more at manipulating public opinion on important issues that might be confronting our country.
COST: Well I think the problem that we have now and the problem that I argue in the book is that corruption is now not just bad guys versus good guys.
I understand it as the rules of the game and I think it's embedded within the rules of the game now, that it's evolved over time. Sometimes those rules have done a good job at checking corruption and other times, they've done a poor job. Right now they're doing a very poor job. And look, I think it's frankly embedded in our campaign finance system. For Congress, the campaign finance system as we have it right now is basically one massive conflict of interest, which is to say that if I have business before some sub-committee within Congress, I'm going to donate 5,000 dollars through my political action committee to every member of that sub-committee who might vote with me, and therefore I'm going to purchase, in effect, favorable legislation. This is the way campaigns are funded now. It's just the way things are done.
BENNETT: Does that mean that both the Democratic and Republican Parties are actually destroying America?
COST: Yes, it does.
In the second half of my book, I look at five separate policies. I look at farm subsidies, I look at congressional pork barrel, I look at Medicare, I look at corporate tax policy and I look at financial regulation. In all five of them, I see the government systematically tilting public policy to well-connected, well-heeled interest groups, and I see both political parties engaging in this. And in fact, you can look in particular the Republican party on, say, farm subsidies and Medicare reform. They were very pro-reform in the in mid 1990s when they first got control of the House Representatives. They passed a good farm reform bill and a 'so-so' Medicare reform bill but later Congresses that were also run by Republicans allowed those reforms to be chipped away by constant pressure from the interest groups.
BENNETT: If all this lack of care and attention is given to the best interests of the American people, how do we turn this around? Don't we need a federal government and political parties that will place the interests of the public before their ridiculous petty disagreements and personal agendas?
COST: That's what we need and that's a very difficult task to accomplish. The book lays out in some detail that it took a long time for us to get to this point, and it's going to take a long time for us to dig our way out of it. I think that ultimately, I would go back to the experience of Madison and also Thomas Jefferson, when they felt like the Republican character of the government was being taken away in the 1790s, with legislation like the Alien and Sedition act and the raising of a permanent military force. What they did was they organized and they used the ballot boxes as the ultimate corrective, and I think that that is something that is underused in this country. I'll give you an example. I think now the Republican primary season is heating up and people are spending enormous amount of time looking at every detail of that race. But I think they spend too little time focused on their member of Congress and what he or she may be doing and whether or not he or she is actually engaging in that kind of conflict-of-interest system that I discussed, and there are so many elections that just go unused. Primary elections could root out members of Congress who are part of the problem rather than part of the solution and they are so rarely used. The amazing thing about it now, is you wouldn't have to take every member out to get them to behave. All you'd have to do is kick a couple of them out and put the fear of God in the rest of them and that's something that I don't see being done, frankly.
BENNETT: Who would be the person to put the fear of God in them?
COST: Well I think that the primary voters in both political parties but I also think this is an area where liberals and conservatives actually have may have more common ground than they appreciate. Isn't that what liberals want, what both sides want? A government that acts disinterestedly, which is to say that a government that doesn't play favorites? And both political parties, they talk about disinterested governments but when you actually look at the fruits of their labor, you see they're very partial. I think that there's an opportunity there for both sides to coordinate but that's part of a partisan game now. For instance, the Left and Right get divided by the two political parties fighting endlessly about the top marginal tax rate. And so while we are debating the top marginal tax rate, both sides leave our corporate tax code as-is with its vast nexus of pay offs and kickbacks to well-placed industries that basically pay nothing in taxes, and we're just so endlessly divided on that one issue that we ignore the potential for common ground on other things. It's similar in financial regulation. I mean the Left and the Right debate endlessly about more or less regulation, but there's been precious little conversation about regulatory capture which very clearly happened. Fannie Mae and Freddie Mac clearly captured their regulators, Countrywide Financial captured the Office of Thrift Supervision as did Washington Mutual. Nobody on the Left or the Right wants regulatory capture. So like I said, these are areas of potential agreement that the partisan divide will not allow to be discussed. They spend time talking about areas where we're divided and that's the way the parties operate and what you need, I really think, you need not just active aggressive sustained public pressure but a left/right alliance on a limited set of goals.
BENNETT: In the financial world, talking about regulatory capture would mean that people would have to be truthful about what went on, who got paid, how much they got paid and who is involved We don't live in a world where, especially in DC, they want the truth to come out.
COST: That's absolutely correct and you can see that with the response to the financial collapse of 2008, which is the basically they have just effectively re-inflated the bubble without trying to fix the underlying problems that generated the bubble in the first place. Again, I think this is something where we need to return to Madison and Jefferson, their final solution when their backs were against the wall by 1798. Their final solution was 'we need to mobilize the public, we need to make them aware of what is going on,' and I think that is something that is lacking in our present day, for how much time we spend talking about politics as a country, I think we spend too much time talking about insubstantial things like, 'Oh did you see Scott Walker speech at CPAC?'
Or 'Did you see what Hillary Clinton said in this speech, or how few people showed up to her event in Georgetown?' These are trivialities, this is not where the real action is happening, and I think as long as the public at large is focused on what are basically trivialities, as long as the public is not focusing on the right areas, then the status quo is able to be retained.
BENNETT: And as long as the government's divided, it's going to be easy to forget how our founding fathers actually meant for a political system to operate.
COST: Absolutely, I couldn't agree more.
BENNETT: This week, 2016 candidates gathered at CPAC (Conservative Political Action Conference). Rand Paul won the straw poll there. What do you think of that, and does CPAC carry a lot of weight?
COST: No, no I don't. I don't think CPAC carries a lot of weight.
BENNETT: They are going to be unhappy to hear that. (Laughter)
COST: Before I started writing this book, I would have put a lot more care and thought or worry into CPAC and the results but like I said, I am increasingly of the opinion that whatever candidate the Republican party nominates, his/her campaign is going to have to be financed in exactly the same way. They're going to have to go to the exact same donors and those—your average citizen kicks in a hundred bucks because he or she believes in the principles of the Republican party or the Democratic party, that's great, but that is not how these campaigns are financed. They are financed by massive quantities of money, PAC money, individual money that is bundled together and this money is not given out of the kindness of the donor's hearts. There is an expected return on investment and as long as we continue with a campaign finance regime that basically legitimizes conflicts of interest, I look at all these candidates and I think to myself, they are all going to have to raise a billion dollars to run against Hillary Clinton and they may have differences on the stump, they may have differences of emphasis but they're going to have to go to the same people to get that money. In my opinion, that does not lend itself to more campaign finance restrictions per se, I think that existing campaign finance regime with the restrictions that it has are actually what facilitates this pay to play system. It sort of gets to the point of the book which is you look at the personalities, they cycle in and out, but the problems persist and they worsen over time, which suggests to me that it's not simply a matter of Democrats or Republicans, and it's not just a matter of good Republicans versus bad Republicans or good Democrats versus bad Democrats. It doesn't matter who the players are so much, if the rules of the game are messed up.
BENNETT: Both parties seem to be practicing politics that divide and manipulate public opinion, rather than seeking to build an honest national consensus. Do you have a solution for them?
COST: Well, I think that the only real solution is outside pressure that's applied. I think that people who draw a professional living off of the political parties, people that like the status quo and are doing well by it, they get a little slice of power which they're able to use to their own purposes and be financially secure and socially prominent. I don't think they want to change and I think that the only way, to really force change on the political system such as ours, has become in some way, shape or form a reform from the outside.
BENNETT: Jay Cost's book, A Republic No More: Big Government and the Rise of American Political Corruption is available on Amazon.
All data sourced through Bloomberg
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About Dawn Bennett
Dawn Bennett is CEO and Founder of Bennett Group Financial Services. She hosts a national radio program called Financial Myth Busting http://www.financialmythbusting.com
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