The Corner

OWS Should Ask for Less Government

Over at the Huffington Post, Jacob Albert and David Schlussel write about the importance of the Occupy Wall Street movement. I agree with many of the things they identify as being big problems in American society, particularly the “overweight influence” of some in the financial industry on Washington.

The problem of overweight corporate influence and of governance tilted toward the benefit of the few is hard to catch and harder to fix. U.S. Representative Barney Frank called D.C. “the place where one never writes if one can call, never calls if one can speak, never speaks if one can nod, and never nods if one can wink.”

OWS is protesting the banks, but banks do no winking, no speaking, no nodding. They outsource this work to their lobbyists. By first focusing on New York’s financial sector, OWS forced a conversation about where this influence lives. Big banks haven’t been the most visible target of OWS protests simply because they possess vast resources and wealth, but because of their sway over the country’s decision-makers. Extreme inequality is problematic because it doesn’t arise from the fact that some people work hard and others don’t, but often because the deck of cards has been stacked from the very start.

However, they seem to miss the elephant in the room. Yes, corporations have influence over decisions made in Washington. Yes, it has led to many awful consequences for the economy as a whole. However, the real source of the problem is government intervention in the private sector — the bloated state’s ability to distribute rents, tax breaks, tax credits, and bailouts to its private-sector friends or to special-interest groups. To the considerable extent that the housing bubble was at the center of the recession and the financial crisis, government bears a large responsibility (think about the mortgage-interest deductions, incentives to increase the number of homeowners, and the perpetuation of sub-market interest rates).

Special-interest-group politics (which includes regulatory capture and crony capitalism) is bad for consumers, taxpayers, and the overall economy. It isn’t exactly corruption, but it is terrible, because it creates bad incentives, moral hazards, and often inefficient outcomes (such as the “too big to fail” mentality that underwrote TARP and the industrial policy that underwrote Solyndra). It leads to privatized benefits and socialized loses. It leads to a destruction of the private profit-and-loss system that should be guiding companies’ decisions about how to run their business.

Take a bailout package like TARP. The real cost of this rescue package isn’t so much its cost, but the precedent it sets: Large financial institutions understand that when they get in trouble (whether because they respond to bad incentives set by the government or not), policymakers will rescue them and prevent losses for their creditors. It’s a vicious cycle that encourages imprudent risk-taking at a large scale and shelters wrong-doers from the full consequence of their actions.

The way to get rid of special-interest politics is not to tie the hands of corporations. On the contrary, it is to reduce the size of government. It’s important that people are finally complaining about corporate influence on Washington, but it will remain fruitless if the policies designed in response don’t restrain the size of government and in particular its ability to pick winners and losers and redistribute money, influence, and favors.

Obviously, my preference would be to reduce the government as much as possible. That being said, in a bipartisan spirit, I will suggest that we can take care of the poor in this country and have an efficient military with half of the money spent today at the federal level. Let’s stop spending the rest.

Veronique de Rugy is a senior research fellow at the Mercatus Center at George Mason University.

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