One reason why Washington keeps getting bigger is that so many business people are willing to throw their competitors under the government bus. The Washington Post today describes how a major lobby group representing small banks cut a secret deal with Rep. Barney Frank to not oppose his big-government financial bill if it excluded small banks from regulations and shifted $1.5 billion in annual fees from them to the big banks.
We saw a similar jockeying of lobbyists with the Obamacare health bill, and we see it with legislation on the agenda right now. With the Internet tax bill before Congress (the Marketplace Fairness Act), giant Amazon has switched sides to support expanding online sales taxes, and thus throwing smaller retailers and consumers under the bus.
With corporate tax reform under discussion, all firms want a lower rate but some firms not targeted by base broadening seem willing to throw those that are under the bus. The problem is that some of the proposed base broadening is bad policy, so legislation could end up making road kill of economic growth.
What about the ethics of all this? It’s appalling to see how bad legislation like Dodd-Frank gets passed on the strength of special-interest payoffs. But lobbyists—such as the head of the small-bank association profiled by the Post—surely think that acting in the interests of their members is the ethical thing to do.
As for legislators, most of them probably think that you can’t make an omelette without cracking eggs. So while they may know that they are causing some damage, they also have warm feelings for the people they are helping—friends in the lobby groups they smooze with, other legislators they owe favors to, and businesses in their home districts. Furthermore, legislators can absolve any nagging ethical doubts they may have by demonizing the groups that the government is running over in legislation.
The problem is that when Washington acts to expand an already big government, it nearly always damages society overall. That’s because government legislation coerces people to take actions that they would not freely choose. Reducing freedom nearly always means reducing prosperity. So while Capitol Hill horse-trading may seem like a good sport, the end result is often more mandates and taxes enforced by police power. It is usually a zero-sum game, or much worse.
Private markets work on fundamentally different principles. The main one being that voluntary trade is mutually beneficial. If individuals and businesses are acting in an honest fashion and not trampling anyone’s rights, freedom of trade is a win-win for all involved. It generates value and leads to overall growth and prosperity in society.
So while the ethics of lobbyists is a concern, a more important problem in Washington is that too many legislators think they can solve society’s problems with mandates and taxes. Dirty Harry said “a man’s got to know his limitations.” And so do policymakers because their good intentions are not enough to overcome the inevitable damage caused by further expansions in government power.