Three weeks ago, Byron York’s column in The Washington Examiner quoted an unnamed Democratic strategist. With what’s been going on in the Senate the last couple of days, the comments in York’s column are looking eerily precient:
… Yes, Democrats certainly understand that voters don’t like the current bills, he told me, and they are fully aware they will probably pay a price next year. But they have found a way to view going ahead anyway as the logical thing to do, at least in their eyes.
You have to look at the issue from three different Democratic perspectives: the House of Representatives, the White House and the Senate.
“In the House, the view of [California Rep. Henry] Waxman and [House Speaker Nancy] Pelosi is that we’ve waited two generations to get health care passed, and the 20 or 40 members of Congress who are going to lose their seats as a result are transitional players at best,” he said. “This is something the party has wanted since Franklin Roosevelt.” In this view, losses are just the price of doing something great and historic. (The strategist also noted that it’s easy for Waxman and Pelosi to say that, since they come from safely liberal districts.)
“At the White House, the picture is slightly different,” he continued. “Their view is, ‘We’re all in on this, totally committed, and we don’t have to run for re-election next year. There will never be a better time to do it than now.'”
“And in the Senate, they look at the most vulnerable Democrats — like [Christopher] Dodd and [Majority Leader Harry] Reid — and say those vulnerabilities will probably not change whether health care reform passes or fails. So in that view, if they pass reform, Democrats will lose the same number of seats they were going to lose before.”
That explains it. What has happened is that the theoretical principles of Democracy have broken down. The theory is that elected officials will do what’s in their own best interest. They’ll do what they believe their constituents desire so that they get re-elected. But in this case, vulnerable Democrats are not acting in their own self-interest, which means they’re going against their constituents view.
This reminds me so much of the banking crisis. Beginning in the late-1990s under Robert Rubin, Alan Greenspan, Larry Summers and Phil Gramm, a new theory of banking regulation developed that was based on the the concept that banking executives would act in their own self interest. To tie their self interest to that of the firm, nearly all their compensation was tied to the company’s stock price.
The problem is during the late stages of the housing bubble, executives did not act in the long-term interest of the firm. What happened is that the executives were paid in stock nearly every year. When the bubble really started in earnest in 2005 and 2006, things were so good, these executives cashed out a sufficient amount of stock to be wealthy beyond their wildest dreams. For instance, Dick Fuld of Lehman held a billion dollars worth of Lehman stock that went to zero. While that seems awful, what’s not widely known is that he had already sold $500 million worth of stock before the collapse.
With that much money already in hand, many executives simply stopped worrying about the risks they were taking with their firm’s money. There was no “self-interest” that tied them to the firm’s long-term prosperity. If the firm died the next day, so what. The executives already had their billions. At that point, the self-regulating system broke down. As Alan Greenspan said after the crash, “Those of us who have looked to the self-interest of lending institutions to protect shareholder’s equity (myself especially) are in a state of shocked disbelief.”
That’s essentially what is happening now in politics. Self-regulation is broken. Politicians are ignoring their constituents because they — the politicians — don’t care about the consequences. Retiring guys like Dodd and Dorgan, they’ve made their money, and are cashing out while they can. To paraphrase Greenspan, anyone who have looked for the self interest of politicians to cause them to act in their constituents’ interests are in a state of shocked disbelief.