December 18, 2014

Last week, Senator Elizabeth Warren set the political world abuzz when she gave a stirring speech on the Senate floor calling out an audacious insider deal for Citigroup and other big banks that was tacked onto the must-pass spending bill.  The provision was eventually approved thus bringing back the federal government’s ability to bailout big banks who engage in the very economic practices that brought America and much of the global economy to its knees. As she noted, Citigroup lobbyists were able to get language overturning the “Prohibition Against Federal Government Bailouts of Swaps Entities” inserted into the omnibus bill – a bill where a “no” vote carried the burden of another federal government shutdown.

On some level the amount of attention the speech received is absurd as Senator Warren simply named what mass publics have been expressing for years:  regular folks do not have the ability to influence government and economic policy in Washington is not made with them in mind.  What is really worth noting in the whole affair then is that when a United States Senator names what regular citizens know it is such a rarity to become sensation.

In political science the model of public policymaking citizens know but have a hard time naming, and Senator Warren so plainly and powerfully elucidates with the Citigroup example, is called the elite theory of democracy.  In it, elected leaders are not the highest decisions makers.  Rather they are conduits who put the preferred policy of economic elites in place.  Oh sure, we fight like hell over social policy, but in this model those fights are largely diversionary turning attention away from the manner in which elite economic interests are catered to in public policy.  Elites use their monetary resources and subsequent power to give political donations that so trump average citizens that elites shrink the viable candidate pool so the rest of us then choose from Tweedledum Democrat and Tweedledee Republican who differ little on economic policy. Advantages in lobbying, media presence, and think tank giving round out their conduits for seeing their economic interests met and legitimized in policymaking.  That even the watered down Dodd-Frank Wall St. reforms could be so quickly undermined this December to again allow for federal protection of credit-default swaps is but one very obvious example. 

Elite theory contrasts mightily with what we Political Scientists call pluralism. I am sparing you some of the branches/variants of both views but, at root, the pluralist model is more normatively appealing.  It indicates that public policy is the result of individuals binding together as groups and pressing elected officials.  The balance of public policy is roughly approximate to the number of groups, and their relative membership weight.  Policy goes in the direction of whomever is more numerically organized but the other side prevents complete wins and the balance/game is always being redrawn. 

Americans like pluralism but experience elite theory.  And Elizabeth Warren knows it.   One need only follow the money.  In the 2014 election cycle, as the Center for Responsive Politics data shows, Citigroup gave over 2 million dollars in political donations (vast majority to individual campaigns) and spent over 9 million dollars in lobbying in 2013 and 2014.  This placed Citi among the top 99.99% of donors.  Tellingly, Citigroup gave to over 300 individual candidates – with incumbency, not party, being the main determinate.  Citi literally spread their wealth among the parties.  Of their top five donations to individual candidates in 2014, two were to Democrats [Sen. Cory Booker (NJ);  Rep. Joseph Crowley (NY)] and three were to Republicans [Sen. Rob Portman (OH); Rep. Shelley Moore Capito (R-WV); and now Senator-elect Mike Rounds (SD)].  Citigroup gave a total of over 148K to the Republican Senatorial Campaign Committee and 77K to the Democratic Senate Committee in the last cycle.  Here in the Bay State, Democratic Congressmen Michael Capuano ($10,400), Richard Neal ($9500), and Joe Kennedy ($3350) all received donations and in the contested MA-6 Citi played it safe giving to both Seth Moulton ($1750) and Richard Tisei ($500).  Citigroup even gave donations to half of the Senate in 2014, 27 Dems and 23 Republicans – despite the fact only a third were up for reelection!

And what interested Citi the most in the 113th Congress?  Swaps.  And what got added to the omnibus bill? Provisions undercutting Dodd-Frank making federal bailout of big banks engaging in credit-default and other swaps possible again.  Indeed of the top six bills Citi lobbied on before this Congress, four had the term “swaps” in the very name of the legislation. The bill they most frequently lobbied on in the 113th congress: HR. 992 Swaps Regulatory Improvement Act.  

You get the picture.  Regular citizens participate less in government, report more cynicism, and lower levels of political efficacy – the feeling that they have the ability to influence government and government will listen to them.  Senator Warren’s speech so resonated because she named how that feeling was being exercised in the recent spending bill.  Political Science calls this overall practice elite driven public policymaking and, while it does not comport to many of our lofty ideals, is it regularly how government works on economic issues.  Systematic empirical research demonstrates this and mainline Democratic, Independent, and Republican voters across the country do not like it.  The research does not always show a direct quid pro quo where donations mean the donor gets to write the policy.  But it does show that with money comes access – the kind of access and influence for the very top donors that make slipping incredibly unpopular policy re-incentivizing credit-default swaps into a budget bill.

The difference this time is someone called them out.  Senator Elizabeth Warren did so and it struck a chord.

The most popular question after all of this has been:  will she run for President?  For me, the more telling question is:  will she influence the political parties?  And there the answer turns on these broad theories of democracy.  To the degree that elite theory remains inevitable, her influence will always be checked by the fact she is a rarity among Democrats and Republicans who are nearly equal in indebtedness to elite economic interests.  Remember:  the bill passed with ease even as both sides said they did not like the provision – a provision they added and could just as equally strip.  Alternatively, if pluralism stands a chance, grassroots organizing that calls out the culpability of Democratic and Republican elected officials in these actions is necessary to help Warren permanently alter the parties.

We talk about bipartisanship a lot in government.  On economic matters we have it – it just isn’t in the interest of regular folks. The divide worth naming is economic elites and their elected lackeys vs the rest of us.  Who are, incidentally, the majority.  

Elizabeth Warren, swaps, political donations, elite theory, pluralism, Citigroup, credit-default swaps

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