The investment theory of politics

I respect honest politicians who do what is right but unpopular.  I understand pragmatic politicians who do what is wrong but popular.   I can understand why politicians refuse to enact laws that are desirable but unpopular.  But what we have now are politicians who are refusing to do things that are obviously necessary and highly popular, such as break up and rein in the “too big to fail” banks.   Why would they do that?

Some light is thrown on this by a book I read recently, Golden Rule: the Investment Theory of Political Parties and the Logic of Money-Driven Political Systems, by a political scientist named Thomas Ferguson.  I became interested in Ferguson’s ideas when I saw him on the on-line Real News Network.

Golden Rule was published in 1995, and incorporates articles published before then, but it is highly relevant.   Ferguson’s analyses of the 1988, 1992 and 1994 elections, with name changes and minor rewrites, could just as easily have been written about the elections of 2004, 2008 and 2010.

Ferguson’s Golden Rule is “to understand who rules, follow the gold.”  This idea is hardly original with him, he did this on a much more granular level than most people.  He contended American politics is about policies—high tariffs vs. free trade, loose money vs. tight money, industrial policy vs. unregulated free enterprise—that some business interests favor and others oppose.

Businesses invest in candidates and political parties, and expect a return on their investment.  Since they have conflicting interests, the public gets to throw its weight onto one side or the other.   But proposals that are adverse to business as a whole don’t get on the public agenda.  According to Ferguson, no political party has ever supported a measure adverse to a business or corporate interest, unless there was some other business or corporate interest behind it.

Ferguson’s research explains a great deal that is otherwise hard to understand—why Bill Clinton, like Barack Obama, ran on a platform of economic growth and then abruptly changed to George H.W. Bush’s priority of bringing down the federal budget deficit.  It is because he could not afford to antagonize Wall Street financial institutions, such as Goldman Sachs.

Rep. Rahm Emanuel once reportedly told his staff:

• The first third of a campaign is money, money and money.
• The second third is money, money and press.
• And the last third is votes, press and money.

By this account, money is six times as important as votes.  That is why there is bi-partisan support for such unpopular policies as the North American Free Trade Agreement, the bank bailouts and “reform” of Social Security.

The influence of corporate wealth is more than just campaign contributions, or even financing right-wing magazines, TV networks, research institutions and advocacy groups.  Wealthy people and organizations have ready access to information that the middle-class voter does not see or even know about.  They understand where their interests lie, and exactly how those interests are affected by governmental action, which is difficult for the average voter to learn. Members of the corporate and financial elite are personally acquainted with members of the political and intellectual elite.  They interact with each other and influence each other, away from the eyes of the public.

President Franklin Roosevelt’s support of organized labor was a partial exception to Ferguson’s Golden Rule.  Organized labor in the 1930s was one of the few examples in which a non-business interest had the same organizational power and political savvy as the leaders of the large corporations.

But even here, according to Ferguson, the New Deal could not have prevailed without the backing  a coalition of capital-intensive, internationally-minded corporations for whom a pro-labor policy was an acceptable tradeoff for opposing the high tariffs historically supported by the Republican Party.  Being capital intensive, the pro-FDR businesses had less interest in keeping wages down than being able to operate in world markets.

Ferguson went into great detail, using both statistical analysis and archival research, about particular industries and businesses and particular politicians and elections.  For example, he documented a split among the Wall Street banks in 1932, with the Morgan banks, involved with heavy industry, supporting Herbert Hoover, and the Rockefeller banks, involved with the oil industry (another part of the New Deal coalition) supporting FDR.

I don’t think the American political system is as incorrigible as Ferguson’s book implies.  There have, after all, been periods of progressive reform.  Slavery was abolished, child labor was outlawed, workers won the right to organize unions, Social Security was established, African-Americans at long last won equal rights before the law.  And of course not everything favored by business is wrong.

But I do think Ferguson was correct in saying that money power normally outweighs public power, and that candidates and issues without the backing of big money don’t normally come before the public.

To change all this, he wrote, will take more than campaign finance reform.  It will take major changes in society—flourishing unions, inexpensive media, thriving cooperatives and community organizations, and third parties on a level playing field with the Democrats and Republicans.

It’s unfortunate that his book is out of print and not widely available.   In its place I reluctantly recommend the video documentary, The Investment Theory of Politics.  The trailer is above and the full-length feature is below.

The reason I recommend it reluctantly is that although it contains important information and good insights, these are mixed with far-fetched accusations not backed up by evidence.

An example of important information:  When congressional representatives die, there is often an immediate drop in the stock prices of companies that invested in them.

An example of good insight:  A consumer economy + flat wages = debt.

An example of a far-fetched accusation:  Rockefeller (which one?) backed the Nazis.  When? How? Based on what evidence?  The documentary doesn’t say.

Golden Rule is more a tribute to Ferguson than an exposition of his ideas.  He may or may not agree with everything in the documentary.  If you don’t want to watch the whole thing, just fast-forward through all the parts except those in which Ferguson appears.

Click on Tom Ferguson on money and politics and Tom Ferguson on the debt ceiling for some of Ferguson’s recent appearances on the on-line Real News Network.

Although I criticize Democrats more than Republicans in this post, I hope I don’t give the impression that the Republican Party is any better than the Democratic Party.   The Republican leadership is flagrant and obvious about representing big business interests, the Democratic leadership is less obvious.

Tags: Golden Rule of politics, Investment theory of politics, Money and politics, Thomas Ferguson, Tom Ferguson