Lobbying Pays Off 500-to-1

I suppose we should not be shocked: businesses that spend money for lobbying and campaign contributions get more favors from government than those that do not. I spent the weekend at Creighton University in a seminar sponsored by the Institute for Humane Studies. I asked Creighton Associate Professor of Economics Diana Thomas about her research on the unintended consequences of regulation. One thing led to another and the next day I downloaded her 2013 paper “Corporate Lobbying, Political Connections, and the Bailout of Banks.” Here is a summary of what can be supported with scientific (statistical) evidence about the influence of big money on big government:

  • Campaign contributions and lobbying influence the voting behavior of politicians.
  • Campaign contributions and lobbying have a positive effect on wealth for the shareholders of the companies that spend.
  • Businesses that pay lobbyists before committing fraud are 38% less likely to get caught; even when they get caught they are able to evade detection almost 4 months longer than those that do not pay for lobbying.
  • Firms with political connections are more likely to receive government bailouts in times of economic distress.

The US government has a long history of bailing out private industry. In 1970, the Federal Reserve provided financial support to commercial banks after Penn Central Railroad declared bankruptcy. Throughout that decade federal financial support was provided to private companies, banks and municipal governments: Lockheed, ($1.4 billion) Franklin National Bank ($7.8 billion) and New York City ($9.4 billion) were all recipients Uncle Sam’s largess. In the1980s, it was Chrysler Motors ($4.0 billion), Continental Illinois National Bank ($9.5 billion) and the savings and loan industry ($293.3 billion). The data available at OpenSecrets.org doesn’t go back further than 1990, but last year the finance industry spent nearly half a billion dollars on lobbying and campaigns – the most of any industry sector. Just after the terrorist attacks of September 11, 2001, the airline industry received $5 billion in compensation and $10 billion in federal credit. For these favors, the airlines spent barely $15 million in 1996-2000.

These are all pittances in comparison to the money handed out in 2008 and 2009. NewGeography readers know that the average member of Congress who voted in favor of the $700 billion Bank Bailout received 51% more campaign money from Wall Street than those who voted no – Republicans and Democrats alike. The main finding in Dr. Thomas’ paper is that banks that paid lobbyists and made political campaign contributions were more likely to receive TARP money. To put a fine point on it, for every dollar spent lobbying in the 5 years before the bailout, banks averaged $535.71 in TARP bailout money! We knew the bank bailout was rigged, but that is a better rate of return than even Warren Buffett got for his contribution to the bailout of Goldman Sachs.

The only good news is that spending – at least the spending that can be tracked – was down in 2014 from 2013. Spending by most industry categories has been in general decline since 2010. Between Congress and the Federal Reserve, businesses benefited from an estimated $16 trillion in government assistance since 2008. They are either having a “why bother” moment or the 2016 Presidential election will be another record breaking year for campaign spending.


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What about smart growth promotion by big property investors?

What I would like to know is what is the return to the Rockefellers, George Soros and others, in funding "smart growth" promotion, in terms of appreciation in the value of their own property portfolios?

RE: What about smart growth promotion

If you can find a source for data I would be interested in running the numbers on it. However, the names you are asking about are not ones that reveal a lot of public information. If the 'promotion' money you are thinking about is in the form of political contributions, you might find something at ProPublica or OpenSecrets.org. But you would still need to tie it to property records.

Thanks for reading and commenting! Let me know if you find the numbers.


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