RALEIGH – Follow the money.
As a tool for sorting out the particulars of corruption cases, this is excellent advice. But its usefulness isn’t limited to the sphere of political criminality. Following the money can help you better understand why certain institutions and industries advance the positions they do in contentious political debates.
For example, who makes up the most active political constituency for North Carolina’s Medicaid program? The North Carolinians enrolled in Medicaid don’t just have lower-than-average incomes (with some important exceptions). They also have lower-than-average voting rates, and typically don’t provide cash or volunteer resources for political campaigns. The more-powerful constituency protecting Medicaid from significant reform consists of those who actually get the money that Medicaid pays out: hospitals, doctors, dentists, pharmaceutical and medical-device manufacturers, and other medical providers. If fewer people are on Medicaid, or it spends less, they lose sales.
Similarly, the Food Stamp program has enjoyed decades of protective lobbying by the farming interests whose products are purchased with the federal dollars. And the movement to expand North Carolina’s Housing Trust Fund is supported not only by political activists and self-appointed advocates for the poor but also by developers, builders, and their vendors, who actually get the money that the trust fund leverages to bring new housing stock to market.
That trade associations and special-interest groups support a given cause does not inherently make it contrary to the public interest, however. While I happen to think we spend too much taxpayer money on Medicaid, Food Stamps, and housing subsidies, I think we spend too little on building and resurfacing North Carolina’s roads. So do lobbies for highway contractors, paving companies, and quarries. Whether my position is correct cannot be determined simply by observing their financial interest in more highway spending.
I also think that many carry the “follow the money” rule too far by ignoring the beliefs and arguments of politicians and other political actors, in favor of assuming that whatever they say must be a lie purchased by special-interest cash. While there are politicians willing to sell their views and votes to the highest bidders, particularly on issues that lack a clear-cut definition by party or ideology, most people enter politics with a core philosophy about the role and operation of government. They take specific positions on issues based on their philosophy, after which donors and interest groups judge them to be friendly or unfriendly and act accordingly.
But when talking about institutions that are organized around economic interests rather than political philosophy – be they industry groups, professional associations, labor unions, or something else – “follow the money” turns out to be a pretty useful guide for figuring out why they take the positions they do, and why certain government programs persist long after their original justification loses its luster.
The Mercatus Center’s Veronique de Rugy provides an interesting example of the phenomenon in the most recent edition of Regulation magazine. For more than half a century, the Small Business Administration has handed out loans. You might think that the small-business lobby is the main lobbyist for keeping and expanding the SBA loan program, but that conclusion is undercut by two facts. First, only a tiny percentage of U.S. small businesses will ever secure an SBA loan, so the program rarely shows up on the priority list for most entrepreneurs. Second, the SBA loan program is really a federal guarantee for loans issued to small businesses by large banks.
She goes in detail about how the program allows banks to shift lending risk to taxpayers and convert the loans into marketable securities at a lower cost than they could on their own. “Lawmakers sell the SBA loan program as a program that helps small business, an important and popular institution in the United States,” de Rugy concudes. “In reality, though, the SBA loan program is a form of corporate welfare for America’s biggest banks.”
Differences in political philosophy are important. I’d be the last to deny that fact, given what I do. But in trying to understand why special-interest groups line up the way they do in specific political controversies, it’s often helpful to follow the money. Big government makes lots of big (and small) businesses lots of money. They’ll fight hard to keep the spigot open.
Hood is president of the John Locke Foundation.