Lobbyists-The Political Mafia

What our economy needs is a friendlier environment to the kind of entrepreneurial risk-taking that has always been America’s trump card over all other countries; which means getting the Mafia of modern politics–lobbyists and their corrupting big money–out of Washington.

Monopolies bring power and money. It happened during prohibition, it happened before the Great Depression, it’ happened with marijuana. It also resulted in “Too big to Fail”, which, by the way, is even worse now–much worse.

And considering the gridlock and corruption that Republicans are causing in order to prevent our government from implementing well planned, effective ways to promote economic growth–growth and demand being the real answers to our economic quagmire–it doesn’t look good going forward. That is, unless the public gets past their their lazy nature in the face of the GOP propaganda machine and the network “news” obsessed with selling ads rather than reporting the truth.

Why Has the U.S. Become Like Everyone Else?

For whatever reason—I think it’s obvious that I personally place a good part of the blame on the Entertainment companies that have taken over the News divisions of all television “news”– Democrats’ proof that substantial increases in public investment will deliver robust growth, as it has in the past, just can’t seem to break through the clutter of political noise. Even with bridges crumbling and highways disintegrating, Republicans insist on blaming the poor and elderly for all of the country’s problems.

Republicans, of course, emphasize that reductions in marginal tax rates will spur growth by increasing the incentives to work and invest; an approach that has failed miserably in the UK and Eurozone. It’s called austerity, and it’s never, ever worked when implemented in a recovering but fragile economy. How blind must we be to ignore the ever-increasing unemployment rates in the Eurozone, which also stubbornly clings to the same deficit-reduction obsession of “conservatives” that has produced 11.8% unemployment across 17 countries -with an astounding 25% in Spain, the world’s 12th largest economy?

And that’s the Republican cure for our economy? It doesn’t take a genius to see that the monopolies have benefited the most from the deregulation craze of Reagan and the Bush Presidencies–which is why lobbyists support doing more of the same by supporting Republicans with millions in campaign contributions (can you say Koch brothers?) who continue to deliberately destroy our economy by blaming the poor and elderly who have no way to fight back except with their votes…which they also seek daily to obstruct.

If we were blowing and growing? Hell yes, pay down that debt! that’s what Bush Jr should have done when he had the benedit of PresidentClinton’s surplises. But for pete’s sake quit giving it to those that don’t need it and who will simply ship it to offshore bank accounts.

And as of yesterday, March 1st, 2013, we’re going to do our best to join The UK and Eurozone with an insanity move of choking what little demand the U.S. has managed to maintain, by laying off thousands, if not hundreds of thousands of government contractors and employees and crushing the cheapest delivery system in the world (The US Post Office) by requiring them to fund their pension plan 75 years into the future in only ten years so that the lobbyists for FEDEX and UPS can keep their jobs!

And we the people just sit back and let it happen.

Republicans and Democrats, although vastly different, both face the same two huge challenges:

  1. The aging of the population and healthcare costs severely limit the government’s ability to increase spending or cut taxes without severe effects on the economy.
  2. Advanced economies which have, by definition, already taken advantage of the most obvious sources of productivity-growth and are forced to innovate to find new sources of productivity-growth.

And innovation is a trial-and-error process that is far more expensive and difficult than merely copying someone else’s success and then doing it cheaper, which has made China wealthy for decades—although that too is coming to an end with global demand at a similar level as during the Great Depression.

So what exactly can the U.S. do in order to promulgate that once healthy and productive growth industry that is entrepreneurial innovation?

Release The Kraken! Umm, I Mean Money

In spite of lethargic growth, large U.S. business activity has fared amazingly well in the post-2008 crisis years. Corporate profits after taxes have hovered around 10 percent of gross domestic product. That’s almost twice as high as they were during the Reagan years.

And contrary to some liberal thinking, high corporate profits aren’t a fundamentally bad thing. However, one would expect that, over time, they would be mitigated by new competitors tempted by the hope of making their own fortunes. This new competition is what drives present companies to either step up their own games ‑ which often means burning through huge amounts of cash and diminishing returns ‑ or go out of business.

Unfortunately, this reallocation of resources ‑ from inefficient incumbents to innovative upstarts and the incumbents striving to keep pace with them ‑ stops when the present firms succeed in put up monetary and legal barriers to shield themselves against competitors. So in come the lobbyists to “convince” Republicans to keep them safe and any prospective competitors at a disadvantage. Which is why we should not give large incumbents any undue advantages in our tax code.

Lobbyists, the new arm-twisting, knee-braking, intimidating, Mafia of the political new world order have done their jobs well. The Mafia used fear for “influence”. Lobbyists use campaign contributions for their “influence”, but they are equally effective.

An astounding 52% of Republican House and Senate members who have left office since 1998 have become lobbyists!!

What Ever Happened to the Sherman Anti-Trust Act?

“Too Big to Fail” should not have happened nor been overlooked so casually. Ever-increasing lobbyists’ power and influence is robbing America of its entrepreneurial spirit, not regulations or taxes. Lobbyists (and Republicans who cater to them) wanting fewer regulations are tantamount to bank robbers wanting fewer cops.

Even the U.S. tax code gives large incumbents an enormous advantage over start-ups by subsidizing corporate debt. When businesses want to raise money for operations, they can funnel huge amounts of profit back into the business by either selling shares or borrowing. Normally, we’d want business ventures to make these decisions on the basis of what makes the most sense based on underlying economic conditions. But in the United States, we allow companies to deduct interest expenses from their taxes but not dividends on their stocks. This makes it much cheaper for companies to raise money by borrowing than by selling shares.

This debt partiality leads companies to take on large amounts of debt, and makes it much easier for some companies to borrow than for others. Established firms with pricing power that have been around for years find it much easier to borrow than new, unproven firms with high-growth potential. So the tax-deductibility of interest expenses but not dividends gives the well-established corporate Goliaths a big boost, while doing nothing for the would-be upstarts eager to take them on.

Lobbying Is the Bane of Entrepreneurialism

Robert Pozen of the Brookings Institution and Harvard Business School and Lucas Goodman, have devised an ingenious plan to level the playing field.

  1. Cut the corporate tax rate from 35 percent to 25 percent. This lower statutory rate will make the U.S. a much more attractive destination for profitable investment projects, particularly since our current corporate tax rate of 35 percent is the highest in the industrialized world.
  2. To finance this substantial cut, Pozen and Goodman recommend a modest 60 percent to 85 percent cap on the amount of interest companies write off from their tax bills, sharply reducing debt bias and keeping the proposal revenue-neutral.

Naturally, companies that rely heavily on debt would scream bloody murder, and for some of them, reducing debt levels would be contentious. But start-ups that don’t have the option of raising money by taking on huge amounts of debt would at far less of a disadvantage. The end result could be an entrepreneurial renaissance, as unwieldy corporate dinosaurs that had used cheap credit to scare off competitors are forced to reckon with innovative new rivals.

Reducing the debt bias really does encourage start-up activity, always has, and the results for employment levels has always been considerable.

As noted economists John Haltiwanger, Ron Jarmin, and Javier Miranda have observed, start-ups and young firms make a substantial direct contribution to creating jobs.

They also promote job creation by forcing fat, lazy and sometimes overbearing companies out of their defensive stance and into a fight to retain, much less increase, market share.

Of course consumers, the necessary demand factor in the supply and demand equation, also benefit from this as competition forces down prices and breeds entirely new products and services.

This plan is obviously no guarantee for economic growth, but it has enormous upside promise and, if implemented, wouldn’t add a dime to the deficit. As an added bonus, it would inherently reduce the infectious anti-consumer benefits of lobbyists intent on keeping big companies large and in charge to the detriment of we, the consumers.

Just as re-implementing Glass-Steagall would bring “Too Big To Fail” back down to a sensible level, so would re-implementing the anti-monopoly, anti-capitalism, and pro-free market Sherman Anti-Trust Act.

Of course Republicans say complain that regulations, like the Sherman Anti-Trust Act is a hinderance to business…you don’t hear many criminals asking for more cops either do you?

Harvey Gold

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  2 comments for “Lobbyists-The Political Mafia

  1. Winky_Dink
    March 6, 2013 at 3:34 am

    Harvey, this is once again, so insightful and by the line — “And we the people just sit back and let it happen.” I am disgusted at the US for the umpteenth time…

    I’ve always hated communism, yet the famous play of the 1930’s where Commy tenets are explained as better for people … now our News is beyond shaped, it’s commoditized and controlled …

    JEB BUSH PREANNOUNCES A DYNASTAY RUN AT THE PRESIDENCY … GOP destroys little poor people and the “La Cosa Nostrum” delivers death by falsehoods..

    Ugh.

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