Bootleggers & Baptists: How Economic Forces and Moral Persuasion Interact to Shape Regulatory Politics (13 page)

President Herbert Hoover, concerned that the veterans represented a threat to the government, chose not to meet with them. On July 28, 1932, two veterans were killed when police attempted to empty a building they had occupied (Alter 2006, 122). That in itself was bad enough, but that afternoon, the U.S. Army was ordered to clear out the rest of the Bonus Army. A young General Douglas MacArthur aided by two deputies, Dwight D. Eisenhower and George S. Patton, led a contingent of troops supported by tanks and forced the veterans to abandon their camp. The tragic event occurred in the midst of a presidential campaign that would bring Franklin Roosevelt’s New Deal to office. On hearing about the army’s attack, Roosevelt is said to have turned to his aide Felix Frankfurter and remarked, “This elects me” (Hiltzik 2011). Mr. Roosevelt was swept into office in 1932 and installed New Deal programs that established the largest Bootlegger/Baptist playground yet to exist. The veterans received their bonus payments in 1936 (Nasar 2011, 330).

We now move forward to that grand epoch of social regulation that started in the 1970s with Earth Day. The event, organized by Wisconsin senator Gaylord Nelson with a lot of help from others nationwide, generated a 20 million-person turnout and ushered in the heyday of federal environmental regulation. Earth Day activities included marches in cities, programs in grammar schools, speakers at universities, and a surprised recognition by politicians that environmental protection was a hot-button topic that must be considered in an election bid. The Earth Day activists had one message: the Earth has been abused, and we environmental sinners must change our ways. Much like the Wall Street protesters, the anger of the Earth Day protesters was focused on corporate America. There was a clarion call for the federal government to get tough on corporate polluters. Unfettered greed was the problem, as the protesters saw it.

Interestingly, the federal government was just on the verge of taking action in 1970, but most politicians had no way of knowing that 20 million people cared enough about the environment to march in the streets. The first Clean Air Act was being formulated in Sen. Edmund Muskie’s Senate Public Works Committee, and another statute creating the EPA was winding its way through Congress. Meanwhile, what would become the Federal Water Pollution Control Act of 1972 was just getting organized.

The 20 million Earth Day protesters had an effect, perhaps more than they could realize. They became Baptists for early emerging environmental Bootleggers. At stake at the time was the presidency. Sitting president Richard Nixon had sponsored the formation of the EPA; he wanted to be known as the environmental president, especially after learning that 20 million Americans were turning green. Senator Muskie also wanted to be president. The two competed in an effort to be tough on polluters while singing the praises of the Earth Day movement (Yandle 2013).

Senator Muskie’s draft Clean Air Act had called for the creation of incremental performance standards that would be imposed on all major sources of air pollution across the land (Manheim 2009, 41). These standards would set the precise pollution reduction goals to be accomplished in a stated time. Polluters could accomplish the goals any way they wished; what mattered was cleaner air. The use of performance standards would encourage competition and creativity in finding new, lower-cost ways to clean up. But just what specific technologies would emerge—and whom they would benefit—was surely less clear than the effect of a mandate laying out concrete engineering standards. Unlike other regulatory approaches, performance standards offered few opportunities for corporate Bootleggers seeking pork. Mr. Muskie’s performance standards were soon to be scratched. Ralph Nader, a leading public interest voice at the time who was inspired by the Earth Day crowds, accused Muskie of being soft on polluters (Manheim 2009, 41). In response, the good senator lowered the boom on corporate America: his committee revised the draft Clean Air Act to require costly technology.

Now enter the Bootleggers. The revised Clean Air Act not only required a one-size-fits-all technology-based solution, it imposed stricter standards for new sources than for old sources. The act thus created barriers to entry for new competitors. Existing manufacturing plants had to adopt specified machinery to clean up, but new competitors had to spend even more money. In this case, the protesters were successful. They got what they wanted, and some Bootleggers made the most of it. Bootleggers and Baptists both wanted a one-size-fits-all approach, and established manufacturers must have liked the fact that the new laws would raise competitor costs.

Now fast-forward one last time to the fall of 2011, when hundreds and then thousands of protesters took to parks and streets, first in America, and then across the globe, as part of a movement called Occupy Wall Street. On September 17, 2011, Occupy Wall Street began with a few hundred disgruntled citizens camped out in Zuccotti Park in the heart of New York’s financial district (Pepitone 2011; Walters 2011). They were young, for the most part, with a heavy contingent of unemployed recent college graduates. One of the protesters dubbed their camping area Solyndra Park, named for the solar energy firm that had recently received a half-billion dollars in taxpayer loan guarantees, only to go bankrupt and default on the loans (Graham 2011). Solyndra’s baptism with taxpayer money had been a much-celebrated event in the Obama administration’s effort to stimulate green energy production while stimulating the economy. In a way, even Solyndra had some Bootlegger/Baptist flavor. Clean energy, which is moral high ground for environmentalists, was the political rationale offered for corralling and distributing taxpayer money. Bootleggers like Solyndra, General Electric, and others were simply looking for lower-cost funds. Unfortunately, however, neither Solyndra nor the economy responded favorably to the money shower.

Though perhaps inspired by the 2011 Arab Spring, which saw young people in another world taking to the streets to protest and foment revolutions, these American autumn protesters were not interested in toppling the government. They were angry about the U.S. political economy. Over time, every gripe possible was aired: bailed-out banks, corporate greed, bankrupt homeowners, the vanishing middle class, growing income inequality, war, and even natural gas extraction by way of hydrofracking (Lallanilla 2011). By one observer’s count, the two dominant signs held high in the protester parades were “The banks got bailed out. We got sold out.” and “We are the 99 percent” (Hedler 2011).

As the protest moved across major American cities to smaller towns and then to Europe, there was a recurring theme of dissatisfaction with special interest influence in politics and a burgeoning sense that American democracy just doesn’t seem capable of righting itself. Indeed, some of the 99 percent held signs quoting the Declaration of Independence about the right of the people to reform government. As one protester put it: “It doesn’t matter what you protest. Just protest” (Driscoll 2011). The number of locations and people involved eventually rose to the point that media commentators, politicians, and others tried to determine just what they were saying. What was the protest about? And, if and when that was understood, how could their concerns be addressed?

The 99 percent were clearly onto something in recognizing the massive Bootlegger/Baptist economy that has emerged in the United States since 1970. Occupy Wall Street was a sign that the 99 percent were finally recognizing the vast plunder of public coffers by well-organized Bootleggers—even if they routinely misdiagnosed it as a symptom of “free-market” policies run amok. This is understandable because the 99 percent are rationally ignorant about most political activity; they are busy earning a living, looking for jobs, and trying to figure how to make ends meet. They generally have no time to read daily issues of the
Federal Register
and track special interest lobbying in Washington. Indeed, many have probably never heard of the
Federal Register
, but they know something is wrong.

This episode also demonstrates just how Bootlegger/Baptist coalitions constantly evolve to provide benefits across this moral divide. For example, Mary Kay Henry, president of the SEIU, endorsed the Occupy movement and added a pure Baptist signal urging support of President Obama’s American Jobs Act. That statute, coincidentally, calls for funds to expand the ranks of public service employees (Henry 2011). Perhaps Ms. Henry hoped that she had joined the moral high ground. When asked about the burgeoning movement, President Obama said this about Occupy Wall Street, “I think people are frustrated, and the protesters are giving voice to a more broad-based frustration about how our financial system works” (Isidore 2011).

The Zuccotti Park occupants called capitalism the problem, but the culprit needs to be a bit better identified. The problem is regulatory capitalism and what some call crony capitalism. We understand how easy misidentification is in the opaque world of special interest legislation. After all, what could be more noble than enabling people everywhere to experience the American homeownership dream, even if they lack the income to qualify for regular loans? Yet perhaps it is not so noble when families by the thousands are bounced from their homes when they cannot pay their monthly mortgage. Very few of the protesters had reason to know that the great housing bubble and its collapse were rooted in a complex witch’s brew of special interest legislation and that Bootlegger/Baptist–driven legislation had spurred the expansion of such risky loans.

Most of the Occupy group were aware that huge financial firms were indeed bailed out with taxpayer money, but they may not have realized that this happened after the Federal Reserve changed policy, tightened credit, and in doing so, pricked the housing bubble. By then, it was too late to do much more than bail out the banks so that our monetary system would continue to operate. Yet in all this, the black hats were placed on the heads of bankers who earned lots of money moving the money. And the white hats? They generally went on the heads of the good public servants who, while earning millions, ran the federal housing finance organizations, the very organizations that went belly-up because of poor management and were nationalized, bailed out by the 99 percent.

We can only speculate about where Occupy Wall Street may take us. But we can be more certain regarding what happened in the aftermath of the 1893 panic, the Bonus March on Washington, and Earth Day. In those cases, the protesters satisfied a necessary Baptist requirement for later legislation that would feather the nests of some important Bootleggers. We hasten to say that this does not mean that real problems were not resolved, or that the world, on balance, was necessarily made worse off. What we do claim is that the early protest movements did not bring an end to Bootlegger and Baptist lobbying. We also note that the 1893 protesters, Bonus March veterans, and Earth Day protesters were not tightly focused on precisely how our political economy had gone awry. They had specific, self-interested outcomes in mind. Thus, the more focused the message, the more helpful the cover for the eager Bootlegger.

Final Thoughts

We began this chapter with a series of questions about political rhetoric and why politicians and special interest group leaders systematically speak in moral if not religious terms. The questions were a predicate for the larger question: Why Baptists? The question we have addressed goes far beyond the theory of regulation that motivates this book. The question is fundamentally about human nature, social order, and the interaction of politics and religion. The wisdom of Adam Smith and David Hume provided a foundation for examining what experimental economics tells us about human behavior in simulated exchange-and-bargaining situations. Human subjects in experimental interaction are systematically other regarding in their behavior. Put another way, the experiments tell us we are dealing with a moral animal. This discovery sheds important light on our question: Why Baptists?

Having observed what appears to be a preference for moral behavior, the literature from evolutionary psychology and the biological sciences helps explain why moral behavior tends to dominate some categories of human action. Humans survived in groups, and group survival requires cooperation. The genes of cooperators were passed on. Those of defectors were not. Modern man is predisposed to cooperate, to be other regarding in his behavior. Being predisposed, we hasten to add, does not mean that all humans will be altruistic. There is more to human behavior than genetic predisposition. In addition to nature, nurture and incentives affect outcomes. But the moral predisposition shows that the cost of long-run survival can be reduced when people cooperate, as when they engage in mutually beneficial exchange.

Another finding in our search for an explanation of political rhetoric relates to how knowledge of cooperation’s critical value is passed from one group to another and from one generation to another. The story we constructed emphasizes the economic importance of ethical behavior and illuminates why economically successful communities maintain a moral or religious sector. If truth telling and promise keeping can be made a common part of community culture, then transaction costs will fall, and markets will flourish. With this in mind, politicians have even more reasons to use ethical, moral, and religious terms when communicating with the public, as do interest groups. But this is not the end of the story.

When the state is seen as the provider of basic human needs and the protector of the weak and downtrodden, and when regulation and fiscal policy activities expand to address these basic human demands almost without limit, then Bootlegger activity expands and politicians become even more engaged in brokering politically determined benefits across competing groups. Instead of putting a society on a superior growth path to higher wealth and well-being, moral rhetoric becomes associated with a state that is engaged in almost perpetual political resource churning that in the end reduces human well-being.

Why Baptists, then? The Baptist component of the Bootlegger/Baptist theory is present because of deeply embedded genetic and cultural habits of the heart. Politicians and others who wish to gain the support and patronage of the larger community must earn the public’s trust by speaking in symbolic terms that signal membership in the ethical community. Interest groups that seek political support must do the same. When constitutional constraints limit the domain of political action, ethical engagement can lead to a stronger, more efficient economic outcome. When those constraints are lacking, the same behavior writ large can lead to a weakened, high-transaction-cost regulatory state where Bootlegger/Baptist and other anti-capitalism coalitions flourish. As we show in the next four chapters, these appeals to our moral sympathy have the unfortunate effect of lighting the fires that fuel the barbecue feast for Bootleggers in line for pork.