Hamilton vs. Carney

As the 2006 elections approach, and with the end of the Bush era on the mental horizon, conservatives, libertarians, and classical liberals of all stripes have begun a period of soul-searching over the consequences of the Republican revolution. Moreover, with AF debating whether limited government and Big Business have a future — and Tim Carney arguing that they never did — a story is emerging of a vision betrayed. Republican officeholders, goes the tale, elected on a platform of promoting free markets and reigning-in the federal bureaucracy, have by and large only corrupted the system in their own image. Businesses have been protected, policy has been sold to the highest bidder, and the “Iron Triangles” of legislators, regulators, and well-connected beneficiaries are more entrenched than ever. A depressing picture overall.

But is it accurate? And, more importantly, is it wise? A dose of historical perspective, I believe, can put this tale in a different light. Tim Carney and others may, in fact, be arguing from a most un-conservative premise, an idealization of economic life that judges reality a failure.

To see why this is, it helps to recall Alexander Hamilton’s insights into American democracy. More than 200 years ago, Hamilton recognized that in an extended commercial republic like the new United States, even the best legislation would have difficulty catching the public’s eye. The way to succeed, then, was to yoke private interests to wise policy, and let the interests secure passage of the good idea. Granted, one needed to be careful, so that the public weal wasn’t twisted to serve private ends, but Hamilton believed — as did James Madison and many others — that the constitutional order they had designed would allow just this kind of balancing act.

There is a lesson here for distraught advocates of limited government: what looks like unseemly collusion between government and business interests can be the byproduct of other, nobler changes. Examining the record of Congress from the last few years, a distinction between two kinds of legislation quickly emerges. Not between laws that benefit some more than others, and laws that benefit everyone equally — the latter, in a diverse society, simply don’t exist — but between laws which serve only part of the nation, and those that serve it all.

Start with the bankruptcy reform bill passed in 2004. The act, though not perfect, addressed a number of abuses in the previous law — and would never have passed without the support of credit card companies, who had a great deal to gain. A similar dynamic took shape when President Bush proposed individual accounts for Social Security. Investment firms which would have gained in business tremendously lined up behind the reform. Did their influence mean that any change would necessarily have been rigged in favor of Wall Street? Probably not. And Hamiltonian prudence survives in even smaller pockets. Congressman Mark Kirk of Illinois, for example, has begun calling for the elimination of tariffs on imported sugar. Trade protections for “Big Sugar” are a perfect example of a Public Choice conundrum: the benefit to domestic producers is concentrated, while the cost to consumers is dispersed, hence the tariff’s longevity. How is Rep. Kirk hoping to overcome this? By enlisting the support of an industry with concentrated interests of its own: candy makers. They may be hurt more than most by propped-up sugar prices, but we could all benefit if the tariffs come tumbling down.

None of this is to deny the numerous counter-examples of terrible legislation. But often the problem isn’t that Congress and Big Business have gotten cozy; in many cases they don’t seem to have gotten cozy enough. Take the Medicare prescription drug expansion. Democrats complained that the law was packed with giveaways to pharmaceutical companies. Whatever the justice of this argument, it’s less interesting than another oft-ignored fact: many large corporations lobbied aggressively in its favor. Earlier this summer, the U.S. Chamber of Commerce even endorsed several Republican candidates, citing their support for the drug benefit (and was forced to backtrack when, embarrassingly, it turned out that not all of them did so).

Why did businesses come out swinging for a government expansion into health care? Because they’re facing insurance and pension crises of their own, and wanted nothing more than for the federal government to step in and relieve them. Doesn’t this give ammunition to the worst fears of Carney and others, this public abrogation of the free market, with corporate America playing cheerleader? Not exactly. It’s crucial to realize that Big Business as a whole wasn’t pushing for Medicare expansion — just that portion with its eyes on the bottom line, stockholders. This is something of a change from the historical pattern, since management has traditionally been seen as the voice of the business community. Managers, though, will suffer the same consequences as other employees from the move to offload their private health insurance to government.

In a world where an increasing proportion of Americans own stock, it might seem odd to pin problems on “stockholders” as a class. But policies can be designed to appeal to different interests within people, just as they can to different economic sections at large. The Medicare expansion looked good to a stockholder concerned about his company’s value. Its appeal might have changed had he been forced to realize that he, too, might someday be relying on the program. Corporate managers could have been brought on board as part of a coalition to oppose the expansion — but they were not. The same story might be told of other economic policy mistakes. Sarbanes-Oxley, for example: transparent accounting looked good to stockholders, but clunky new procedures and broad regulation looked bad to managers and accountants. The former won out, because the latter, after Enron, were afraid to even take the field.

Tim Carney is right to point out the unfortunate cases where public policy has, in fact, been hijacked by Big Business. But our most serious problems are not just the result of collusion. They’re the result of poor statesmanship, a failure to understand how laws and policies can drive — or be driven by — the complex interaction of market forces in America. Our immediate choice is not between a state that mucks with the market and one that stands clear; it is between a manageable state, and one that is out of control. If we classical liberals are smart, we’ll listen to Hamilton, who can teach us that, if a government is to be limited, it must first be tamed.

Jeff Bergman is a writer and student at the University of Chicago Law School, who blogs at jointstrikeweasel.blogspot.com.