The more things change, the more they stay the same. The president, the president-elect, and Congress endorse the folly of ever-changing market manipulations by government through the Troubled Asset Relief Act of 2008 (TARA) and sister bailouts of AIG, Bear Sterns, Freddie Mac, Fannie Mae and ad infinitum.
Fluctuating government interventions in commerce reward political machinations inside the Beltway; distort economic competition by favoring some industries or companies over others; and, kill new jobs or innovation - earmarks of a healthy economy. The interventions are invariably fixated on prolonging unproductive jobs in favored congressional districts or states by spending and borrowing that shrivels capital available for genius entrepreneurs.
President-elect Barack Obama and a Democrat-controlled Congress are bettering the TARA folly by planning an additional $25 billion bailout of the flabby and anemic auto industry. That initial sum will predictably mushroom into tens of billions more. Remember AIG obtained a rich bailout supplement while its management luxuriated in plush hotel suites.
Writing 220 years ago in Federalist 62, James Madison descried incessant changes in the law that altered the economic playing field. Legal instability confers on lobbyists and their clients a preferred position over men and women whose labors are economically productive. Anticipating modern-day Jack Abramoffs, Madison observed that mutability in government financial decrees gives “unreasonable advantage … to the sagacious, the enterprising, and the moneyed few over the industrious and uninformed mass of the people. Every new regulation concerning commerce or revenue, or in any way affecting the value of the different species of property, presents a new harvest to those who watch the change, and can trace its consequences; a harvest, reared not by themselves, but by the toils and cares of the great body of their fellow citizens. This is a state of things in which it may be said with some truth that laws are made for the FEW, not for the MANY.”
TARA fits Madison’s observation like a glove. Its strategy for boosting the economy has changed more rapidly than George Steinbrenner’s firing of New York Yankee managers. The Treasury Department’s initial plan was to purchase “toxic” mortgage-backed securities from financial institutions in jeopardy. A few days later, it changed to purchases of preferred stock in major banks in futile hope that the beneficiaries would make loans out of gratitude for their government benefactor. Next came the plan to inject capital into institutions offering consumer credit, and then the AIG bailout enlargement.
Freddie Mac received a multibillion-dollar cash injection, while Fannie Mae waited in line at the trough. The Federal Deposit Insurance Corp. is now flirting with direct relief to homeowners confronting foreclosures. Municipalities bemoaning budget crunches are swarming Congress and the Treasury Department clamoring for a share of federal government largesse to alleviate the ills of their mismanagements.
As Madison anticipated, TARA and its erratic implementation have given birth to an army of lavishly paid and parasitic K Street lobbyists. They have been retained by an awesome array of special interests to exploit their political connections to obtain government money or favors. Their stupendous labors in lobbying Congress or the executive branch, however, are an economic deadweight. They contribute nothing to the volume and quality of goods or services in the private marketplace. They represent a staggering diversion of intellectual talent or creativity away from producing real economic assets into economically barren political calculations or scheming.
Moreover, their successes in altering the economic playing field arrest economic growth or investment. Madison amplified in Federalist 62: “[G]reat injury results from an unstable government. The want of confidence in the public councils dampens every useful undertaking, the success and profit of which may depend on a continuance of existing arrangements.
What prudent merchant will hazard his fortunes in any new branch of commerce when he knows not but that his plans may be rendered unlawful before they can be executed? What farmer or manufacturer will lay himself out for the encouragement given to any particular cultivation or establishment, when he can have no assurance that his preparatory labors and advances will not render him victim to an inconstant government. In a word, no great improvement or laudable enterprise can go forward which requires the auspices of a steady system of national policy.”
Wittingly or unwittingly, President-elect Obama’s economic nostrums will enrich K Street lobbyists at the expense of ordinary taxpayers. If he neglects The Federalist Papers, he will risk earning the ridicule heaped on the French Bourbon monarchs: They forgot nothing, and learned nothing.
Bruce Fein is a constitutional lawyer with Bruce Fein & Associates and author of “Constitutional Peril: The Life and Death Struggle for our Constitution and Democracy.”