We Should Care This Much About Earmarks? Really?

We Should Care This Much About Earmarks? Really?


If you've been following some of the recent coverage of the $410 billion federal appropriations bill, you might be forgiven for thinking that there is little more to the federal budget than a plague of roughly 9,000 "earmarks," all wasteful and deceitful. After all, both the mainstream press and congressional Republicans have been relentlessly focused on earmarks — and not generally in the kindest of terms.

But how concerned should the public really be about earmarks? Actually, not very, say political scientists who study earmarks and pork-barrel politics.

For one, earmarks (i.e. specific targeted requests for funding separate from the normal appropriations process) account for roughly 2 percent of all appropriations expenditures. (By contrast, the military budget accounts for more than half of all federal discretionary spending).

And while some projects might sound silly when taken out of context, most actually serve legitimate local needs that otherwise fall through the cracks of normal funding mechanisms (which, by the way, would disburse the same amount of money even without earmarks)

"I think people should take a deep breath and stop worrying, and look at other things we're spending money on as a society," said Scott A. Frisch, a professor at Cal State University, Channel Islands, who is working on a book called Why Earmarks are Good for Democracy and is also the author of The Politics of Pork. "I'm much more worried about entitlement reform, contracting reform, election reform, campaign finance. But earmarks are a convenient target to distract people."

"The thing I'm struck by is that everyone seems to be starting from the premise that all earmarks are bad," said Amy Steigerwalt, a professor of political science at Georgia State University who has also studied earmarks. "Like most things in the world, a simple black-and-white perception isn't true. There are certainly abuses ... but the reality is that earmarks are really the only mechanism that members can ensure that money goes to their districts in ways that are not part of larger bills."

One of the challenges of the modern legislative process, Steigerwalt notes, is that Congress no longer allocates funding for local projects by what used to be called private bills. Rather, these days, the only opportunity for individual House and Senate members to address the local concerns often is the earmarking process, in which members request funding for specific projects from the appropriation committee chairs.

After all, the House and the Senate are not about to vote separately on 9,000 stand-alone bills, each covering an intensely local project. Such a process would take forever. But bundling all the projects together in a single bill is not only much more efficient, said Diana Evans, a professor of political science at Trinity College, it also helps to get an appropriations bill passed. After all, if everybody has a local project in the bill, everybody also has a stake in the bill passing. (Evans makes this point in more detail in her recent book, Greasing the Wheels.)

"It's an inevitable part of the process," she said. "It's too useful. It helps members to get re-elected, and it helps leaders to put together support for their bills."

And it's a bipartisan part of the process. Both Republicans and Democrats are active earmarkers. And for good reason, notes Jeffrey Lazarus, a professor of political science at Georgia State: "Members who score more federal spending get higher vote shares, and tend to have an easier time winning re-election."

Then again, it might make a little sense for Republicans to be the ones complaining now, since, according to Evans, "the general rule that everyone agrees to is that the majority gets 60 percent of earmarks, so when the Republican party was in power, they got 60 percent of the earmarks, and now the Democrats are in power and they get 60 percent of the earmarks."

But, then again, it was under the period of a Republican majority Congress that the practice of earmarking really boomed. In 1994, the last year Democrats were in power, the watchdog group Citizens against Government Waste found 1,318 earmarks worth $7.8 billion. By 2006, the last year of Republican rule, that had ballooned to 9,963 earmarks worth $29 billion.

When Democrats returned to power in 2007, they instituted new rules making earmarks more transparent ("It used to be that, until the past Congress, you really had to go through the reports and dig through them," said Frisch.) Such rules, however, did little to slow the earmarks.

"Making earmarks public doesn't shame members," Evans said. "They want constituents to know about their awards. They talk about them in newsletters and press releases. I'd say most constituents like them pretty well if they're coming to their district."

Of course, the process still could be more open. "The way the process is done right now is not terribly transparent," said Steigerwalt. "And anything that seems untransparent can also be portrayed as sneaky, underhanded, and certainly unfair or only aiding those in power." (Obama has floated new rules to improve transparency even more.)

Moreover, earmarks have also gotten a bad name from a few high-profile cases with corrupt lobbyists, like those surrounding now-jailed Rep. Randy "Duke" Cunningham, R-CA, or the lobbying firm PMA Group, which is under FBI investigation for improper campaign contributions.

But just because lobbyists are involved, doesn't mean that they are not representing legitimate local concerns. Lazarus has found in his own research that earmark requests are generally very responsive to the concerns of particular districts. "Members of Congress tend to seek out earmarks which comport with the finds of federal spending that their districts request," he said. "So it's not like it's as totally useless as it's made out to be. There is actually some effort to target spending to what a district wants and what it needs."

Sure, lobbyists often insert themselves into the process, helping local institutions navigate the confusing folkways of Washington, exacting what might be an unnecessary toll. But that shouldn't tarnish otherwise defensible projects, say scholars. "Sometimes, it's easy to pick out abusive earmarks," noted Steigerwalt. "But you get into trouble when you start critiquing volcano monitoring, which, to the people of Seattle, is extremely important since they're waiting for a volcano to explode."

And what of the supposed "eruption of spending" that these earmarks are producing?

"Earmarks are simply taking money we've decided to spend on community development or agriculture, and instead of allowing the bureaucracy or some type of static formula to decide it, it's allowing the elected representatives of the people to," said Frisch. In other words, earmarks do not represent new spending, but rather money that would have been allocated otherwise under bureaucratic formulas that can ignore sometimes idiosyncratic local concerns.

Ultimately, none of the political scientists think that earmarks are going away any time soon, even if Obama succeeds in adding further transparency to the process. "As long as voters are rewarding it," said Lazarus, "politicians will keep doing it, no matter how nationally unpopular. Unless something fundamental about the political landscape changes, you're never going to see the avenue for this kind of spending completely shut off."

So, we are left with yet another paradox of American democracy: opportunistic politicians railing against a process they willingly participate in and benefit from, knowing very well that there is actually very little they could do to change it even if they wanted to, and voters rewarding behavior — at the individual level — that they supposedly dislike at the national level. Pork-barrel politics are as old as the system of geographic representation enshrined in the Constitution, and it doesn't appear things are going to change anytime soon. But maybe, say scholars, that's just fine.


http://www.miller-mccune.com/politics/we-should-care-this-much-about-earmarks-really-1064.print

Can the private sector save the banks?

Lee Drutman: Can the private sector save the banks?

Tuesday, March 3, 2009

LEE DRUTMAN

WASHINGTON

THESE ARE HARD TIMES on Wall Street. All those big banks that once towered so high are now basically insolvent, and the only solution left seems to be for the U.S. government to inject a hefty sum of taxpayer money to prop up the banking system.

But . . . one small problem: Too much government ownership could be a gateway to “nationalization,” which, apparently, is un-American. You see, we in the good U.S. of A. believe in free enterprise, and we are not going to let a little thing like the massive failure of a sizeable chunk of private banking system fool us into letting the government start running our economy.

Ah yes. The private sector. And, speaking of which, shouldn’t that distinguished private sector be coming to the rescue of our once-grand banks any minute now, snapping up those “toxic” assets at market prices and getting our credit system humming again?

Okay, so the branding on these assets could be a little better, but come on! All you folks on Wall Street, who don’t like this whole nationalization thing: Don’t you want to show those crazy liberals in Washington that the private sector is not dead, that the free market still works, that government is not the solution?

After all, what would J.P. Morgan do? Well, back in 1907, Wall Street got caught up in a bit of a panic not entirely dissimilar to this one, and some large banks wound up insolvent. Morgan showed that the private sector was up to the task. He got a bunch of banker friends together and they pumped capital into the troubled banks alongside the U.S. Treasury, restoring solvency and confidence.

Unlike a century ago, of course, there are no strong banks left to help out the weak ones. But what we do have today are a lot of individual people who made an awful lot of money working on Wall Street. Surely, they could do their part for the free market?

Let’s do some brief accounting. The top 25 hedge-fund managers for 2007 each earned at least $360 million. And the top earner, John Paulson (no relation to Henry) earned $3.7 billion. Then you have the Wall Street CEOs. Merrill Lynch’s John Thain took home $83 million in 2007 (plus that fancy commode for his office). Goldman Sach’s Lloyd Blankfein took home $54 million. Then there’s Countrywide’s Tony Mozilo, who earned $410 million over several years by being at the center of the exploding mortgage business. But high-level compensation went pretty far down the organizational chart. And don’t forget about the bonuses: $18 billion even in 2008, $33.2 billion the year before. Wall Street made a lot of people millionaires.

And by the way: what, exactly, did they do in return for this money? As far as I can tell, Wall Street over the last 10 years consisted mostly of a sort of collective mania in which supposedly very smart people bought and traded insane amounts of complex financial products that they didn’t really understand, any more than they needed to understand the complex computer algorithms (designed by a bunch of even-smarter economics Ph.D.s) that told them they should be doing it.

Moreover, the more buying and selling they did, the more money they made. And as we all know, when you’re making millions in bonuses and compensation, you don’t ask silly questions like whether it is a good idea to leverage your assets 30- or 40-to-1 on the premise that home prices go up forever in excess of real income and people with no assets and no job can of course pay off a mortgage. Especially when it’s not even your own money you’re gambling with.

And so we are in a funny situation these days. We have a lot of people who got very rich on Wall Street during this disastrously delusional decade. And now, while the already deep-in-debt federal government struggles to clean up the sprawling mess the investors and bankers left behind, Wall Street still complains: Don’t nationalize!

Well, how about this for a solution: How about all those smart Wall Street bankers and investors who got so rich ruining the financial sector get together some of their own money and show us all how great the private sector is in correcting its own failures by setting up a fund to buy up the toxic assets and pump liquidity into the banks?

It’s good for taxpayers (less money for the bailout). It’s good for preserving private enterprise (no specter of socialism). And it might even be good for Wall Street (at the very least, Wall Street can improve its reputation by showing some spirit of civic responsibility; and who knows, maybe its denizens can even make some money buying up cheap assets).

For years now, conservatives have been talking up the importance of both personal responsibility and the power of private enterprise, while warning of wasting taxpayer dollars on big government. Well, if this isn’t a chance to put all those principles into practice, I don’t know what is. Come on, private sector! You can do it! Right?

Lee Drutman, a frequent contributor, is a research fellow at the Brookings Institution ( ldrutman@brookings.edu).

http://www.projo.com/opinion/contributors/content/CT_drut3_03-03-09_RUDEEQT_v14.3e69832.html

The real problem with Washington lobbyists - Providence Journal

Lee Drutman: The real problem with Washington lobbyists

01:00 AM EST on Sunday, February 8, 2009

LEE DRUTMAN

WASHINGTON

BARELY IN OFFICE a day, President Obama was already on the case of the lobbyists, signing an executive order on Jan. 21 that banned lobbyists’ gifts to the executive branch, limited the lobbying-career options for departing executive-branch personnel and brought unprecedented transparency to White House deliberations. Though unable to quite deliver on his campaign promise that lobbyists “won’t find a job in my White House,” he did impose a two-year moratorium on their working on issues on which they had recently lobbied.

All of this is well and good and promising as a first step: It shows that Obama is concerned with the often distorting role of lobbyists in our policy process and is interested in transparency and good government. And yet at the same time, there is also something troubling about the approach, because these rules fail to acknowledge the murky complexities of lobbying, and in so doing, may ultimately undermine our ability to curtail the most troubling biases that lobbyists introduce into the system.

As Exhibit A in the complexities of “lobbying,” consider the case of would-have-been Health and Human Services Secretary Tom Daschle, who for the past four years worked as a “special policy adviser” at Alston & Bird, one of the largest lobbying law firms in Washington. Daschle did not register as a lobbyist. But let’s say he did, as he probably should have. Would his track record in the Senate and deep knowledge of the health-care system suddenly have been less valuable?

Who knows: Perhaps his experience working with Alston & Bird clients like Roche and the American Hospital Association and CVS Caremark gave Daschle a greater understanding of what is wrong with private health care and how to fix it, an understanding he can now turn to progressive ends. Why is it that we always assume that once somebody has spent time as a lobbyist, he or she is rendered incapable of shedding those particularized loyalties upon joining the government, but that once somebody leaves government, he or she will immediately shed any allegiance to the commonweal? Does Obama have so little faith in the people he has selected?

Consider also Daschle’s options upon leaving the Senate in 2005. Alston & Bird offered him the chance to get rich and to stay active in Washington. Sure, he could have taken a job at a think tank or a public-interest organization, but such jobs pay far less and are also harder to come by. Ultimately it was the perks in this world that got him into trouble — a cautionary tale more than anything else.

But Daschle’s decision followed a well-worn Washington career trajectory for elected officials and staffers alike: Spend some time in the federal government, build up some policy expertise and some political connections, and then “go downtown” and cash in by working for a lobbying firm or a well-paying corporation’s Washington office.

And so, every year more and more policy and political experience and knowledge migrate to those who can pay top dollar for it. By my calculations, corporations and business associations combined now have a 25-to-1 personnel advantage over public interests and unions combined in registered lobbyists. This, however, surely understates the advantage. Not only are corporations able to hire the most experienced and connected operatives, they also are able to support the ever-increasing number of ancillary lobbying activities that don’t get publicly disclosed — the issue advertising and research studies and private polling and “grassroots” mobilization and coalition building and other shadow lobbying that go into honing and relentlessly pressing arguments.

Which means that if Obama is truly interested in transparency, a great first step would be to require full disclosure of the whole range of lobbying activities, not just direct lobbying as required under current rules. Doing so would help us to see lobbyists more fully for what they actually are — producers and promoters of argument and information, some of which is quite valuable to the policy process. Indeed, lawmakers and their staffs frequently depend on lobbyists to do much of the legwork in researching, drafting, and ginning up support for various policy proposals.

But herein lies the challenge. Lobbyists are not an evil class apart, a flock of shady operatives whose sole trick is manipulating the social norms of reciprocity, and who therefore must be quarantined. For better or worse, lobbyists have become an integral part of the Washington policymaking process. The problem is that lobbyists represent only those who can afford to hire them, and this turns out primarily to be corporations and wealthy special interests.

One way to ameliorate this massive representation bias would be to set up an Office of Public Lobbying, which would seek ways to give more volume to the public interest voices that so often get drowned out by wealthy corporate interests. Another would be to do more to support policy expertise in government, both by expanding entities such as the Congressional Research Service and the Government Accountability Office and doing more to attract and maintain top talent. But most of all, let’s stop treating lobbying as a problem of corruption and ethics. The deeper, more fundamental problem is one of representation and voice.

Lee Drutman, an occasional contributor, is a research fellow in governance studies at the Brookings Institution. He is working on a book about the growth of corporate lobbying in Washington, D.C.

http://www.projo.com/opinion/contributors/content/CT_drut8_02-08-09_9UD6QNO_v8.4001ae1.html

A decade of financial creativity!

Lee Drutman: A decade of financial creativity!

01:00 AM EST on Wednesday, January 21, 2009

LEE DRUTMAN

WASHINGTON

THIS YEAR marks the tenth anniversary of the Gramm-Leach-Bliley Act, the landmark deregulatory law that breathlessly cast aside the antiquated notion that there should be protection against excessive risk-taking and conflict of interest in the financial-services industry. “In this era of economic prosperity,” Rep. Thomas J. Bliley Jr. (R.-Va.) said at the time, “we have decided that freedom is the answer.”) A mega-wave of Wall Street mergers promptly followed.

So, then, what better way to commemorate this historic moment than with the newly announced break-up of Citigroup, whose 1998 mega-merger had once upon a time forced Congress’s hand by brazenly violating the existing cross-ownership provisions in the old Glass-Steagall Act? Instead of trying to stop the merger, federal lawmakers decided to at last give in to more than two decades of lobbying by the industry and repeal Glass-Steagall. “The world changes, and we have to change with it,” said Sen. Phil Gramm (R.-Texas). “We have taken a step that will greatly increase the variety of financial services that will be available to people all over America.”

On Jan. 13, Citigroup CEO Vikram Pandit announced that conglomeration had officially failed as a business model. His company would be dumping several units, including its Smith Barney brokerage. The new company would look remarkably like the Citicorp of the 1990s — back before it merged with Travelers, and well before it discovered that somehow it was on the hook for $306 billion in “toxic assets” (enough to qualify for a $45 billion taxpayer bailout!).

It’s funny: When Gramm-Leach-Bliley initially passed, Sandy Weill and John Reed, Citigroup’s co-chairmen and co-chief executives, prophetically predicted that “this legislation will unleash the creativity of our industry.” How true: Never has a decade seen more fiscal creativity.

But their next prediction, that “all Americans — investors, savers and insureds — will be better served” has been a bit less prophetic. Unless by all Americans, Weill and Reed only meant people like them. Each earned about $26 million the year of the merger. Weill also pulled in a remarkable $785 million in compensation between 1995 and 2000.

But back to the creativity bit. The first acts of the post-deregulation Wall Street resourcefulness surrounded the relentless cheerleading behind the great Ponzi scheme commonly known as the tech bubble. The poster child for this was Jack Grubman, Citigroup’s visionary $20 million-a-year tech analyst, inventively telling everyone to Buy! Buy! Buy! WorldCom, Global Crossing and Qwest — all a steal at any price!

But why was Grubman so hot to trot on such rot? Probably because the investment-banking wing of Citigroup was getting rich underwriting the these companies’ stock offerings, but only so long as the brokerage wing of Citigroup could whip the stock-buying public into an appropriate frenzy. These same conflicts of interest were rampant across Wall Street.

Citigroup, along with many other Wall Street banks, also showed remarkable, newly unleashed ingenuity in developing and then helping to execute many of the funny-business transactions that Enron used to commit massive fraud. (Citigroup later paid $255 million in fines to the Securities and Exchange Commission. Other banks were also fined.)

The next wave of unleashed innovation on Wall Street, of course, was the massively creative and fabulously complex array of mortgage-backed securities. Remarkably, even though nobody now appears to have actually understood what they were buying, everybody on Wall Street somehow thought they could make money on these assets, or at least use them to win massive short-term personal bonuses, regardless of how the game of hot potato ultimately turned out.

Had this colossally stupid investment craze taken place in the pre-conglomerate world, things would still have turned out poorly when it finally become clear that housing prices do not, in fact, outpace real income growth forever and, yes, people with no assets and no job do, in fact, sometimes default on their loans. But things turned out even worse because these giant Wall Street conglomerates had far more money to play with than the investment banks of yore, and leveraged their assets on the order of 30 to 1 (with permission from the kind, gentle Securities and Exchange Commission). As a result, it seems that now almost the entire economy is on the hook. The analogy here is to the compulsive gambler who not only bets his savings, but also his house. And his kid’s college savings. And all on something very, very stupid.

So here’s to 10 years of the freedom, creativity and the wide variety of financial services we were promised. And how, amazingly, it all led us right back to where we started — and so much worse for the wear.

Lee Drutman, an occasional contributor, is a research fellow in governance studies at the Brookings Institution, in Washington.

http://www.projo.com/opinion/contributors/content/CT_drut21_01-21-09_SACVLPI_v15.42812c0.html