Big Government

Washington's Parasite Economy

Adapted from The Libertarian Mind: A Manifesto for Freedom

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"Bidding wars are breaking out. Foreign buyers are moving in. A new wave of contemporary architecture is taking hold. And a growing class of tech executives is helping to fuel the boom," reported The Wall Street Journal's Mansion section in 2013. "As other American cities have been buffeted by an uneven economy, Washington's property market has been buoyed by two forces specific to the capital city: a surge of federal contractors and a rising tide of government spending. The result: what real-estate agents and developers are calling an unprecedented real-estate surge." The number of homes selling at over a million dollars—over $5 million—is soaring.

Sort of like the Capitol in The Hunger Games.

A rising tide of government spending may be bad for the American economy, but it's great for the Washington area. Washington is wealthy and getting wealthier, despite the very slow recovery in most of the country. Seven of the ten richest counties in America, including the top three, are in the Washington area. That partly reflects the fact that federal employees make substantially more money than private-sector employees—more than double at last count. And it also reflects the boom in lobbying and contracting as government comes to claim and redistribute more of the wealth produced in all those other metropolitan areas. 

Money spent in Washington, as with most national capitals, is taken from the people who produced it all over America. Washington produces little real value on its own. National defense and courts are essential to our freedom and prosperity, but that's a small part of what the federal government does these days. Most federal activity involves taking money from some people, giving it to others, and keeping a big chunk as a transaction fee.

Every business and interest group in society has an office in Washington devoted to getting some of the $4 trillion federal budget for itself: senior citizens, farmers, veterans, teachers, social workers, oil companies, labor unions, the military-industrial complex—you name it. The massive spending increases of the Bush-Obama years have created a lot of well-off people in Washington. Consulting and contracting exploded after 9/11. New regulatory burdens, notably from Obamacare and the Dodd-Frank financial regulation bill, are generating jobs in the lobbying and regulatory compliance business.

Walk down K Street, the heart of Washington's lobbying industry, and look at the directories in the office buildings. They're full of lobbyists and associations that are in Washington, for one reason: because, as Willie Sutton said about why he robbed banks, "That's where the money is."

As President Obama began his first term with a massive "stimulus" bill—called "Porkulus" by Tea Party activists—the Washington Post reported that "more than 90 organizations hired lobbyists to specifically influence provisions of the massive stimulus bill." The number of newly lobbying registrations peaked on the day after Obama's inauguration and continued to grow as the bill worked its way through both houses of Congress.

Lobbying didn't start with the Obama years, of course. President Bush increased annual federal spending by a trillion dollars, so it's no wonder that more money was spent on lobbying in 2008 than in any previous year. And then even more was spent in 2009.

When you lay out a picnic, you get ants. When you hand out more wealth through government, you get lobbyists. The federal budget is the biggest picnic in history.

As Craig Holman of the Ralph Nader–founded Public Citizen told Marketplace radio after a report on rising lobbying expenditures during the financial crisis, "the amount spent on lobbying… is related entirely to how much the federal government intervenes in the private economy." Marketplace's Ronni Radbill noted then, "In other words, the more active the government, the more the private sector will spend to have its say… With the White House injecting billions of dollars into the economy [in early 2009], lobbyists say interest groups are paying a lot more attention to Washington than they have in a very long time."

Lobbying never stops. One week in December, the Kaiser Health News reported that "growth opportunities from the federal government have increasingly come not from war but from healing." That is, "business purchases by the Department of Health and Human Services have doubled to $21 billion annually in the past decade." And who showed up to collect some of the largesse? Well, General Dynamics was having trouble making ends meet with defense contracting, so suddenly it managed to become the largest contractor to Medicare and Medicaid. "For traditional defense contractors," wrote Kaiser Health, "health care isn't the new oil. It's the new F-35 fighter."

Of course, the old F-35, despite a decade or more of running behind schedule and over budget, is still doing pretty well. That same week Congress passed the $1.1 trillion "Cromnibus" spending bill, including $479 million for four F-35 fighters from Lockheed that even the Pentagon didn't want. The Wall Street Journal reported that the bill "sparked a lobbying frenzy from individual companies, industries and other special interests"—pretty much the same language you could have read in earlier stories about Porkulus and Obamacare. Every provision in the bill—from the $94 billion in Pentagon contracting to $120 million for the Chicago subway to an Obamacare exemption for Blue Cross and Blue Shield—has a lobbyist or several shepherding it through the secretive process.

Literally as I was writing these paragraphs, I got an email newsletter from "a pioneering public relations firm that integrates sophisticated digital strategies with traditional communications tactics to advance our clients' public affairs or business agendas" with advice on how to get a member of Congress to visit your business and get him "to support the widget association's causes, such as asking the lawmaker to support a particular bill, write a letter to a regulatory agency, contact the president or some other ask."

Not every business goes to Washington seeking a subsidy, of course. Some just seek to be left alone —to be taxed or regulated or mandated less. Either way the lobbyists get paid.

As government expands, more people and businesses find themselves entangled with it.

In the past few years I've had many occasions to write articles about Washington's parasite economy sucking in another company—Microsoft, Google, Apple, and so on. It's always the same story. Entrepreneurs get rich the only way you can in a free market: by producing something other people want. A lot of brilliant people work long hours producing computer software—or any other product—that millions of people choose to use, in the midst of a highly competitive market that offers lots of other options.

Then politicians notice the company's success—and wealth—and begin circling around it. Competitors try to win in Washington what they couldn't win in the marketplace. The lobbyists and congressional aides send messages through the media: "They don't want to play the D.C. game, that's clear, and they've gotten away with it so far. The problem is, in the long run they won't be able to." (A congressional aide re: Microsoft, 1998)

Nice little company ya got there. Shame if anything happened to it.

And companies get the message: If you want to produce something in America, you'd better play the game. Open a Washington office and hire some well-connected lobbyists. Contribute to politicians' campaigns, hire their friends, go hat in hand to a congressional hearing and apologize for your success.

The tragedy is that the most important factor in America's economic future—in raising everyone's standard of living—is not land, or money, or computers; it's human talent. And some part of the human talent at America's most dynamic companies is now being diverted from productive activity to protecting the company from political predation. The parasite economy has sucked another productive enterprise into its destructive maw. And even if the company was just trying to protect itself at first, pretty soon its new lobbyists point out ways that it can use the tax laws and tariffs and regulations and grant programs to victimize its competitors.

The slowdown of the American economy over the past few decades can be blamed in large measure on just this process—the expansion of the parasite economy into the productive economy. The number of corporations with Washington offices has shot up, along with the number of CEOs who visit Washington regularly.

In 1998, after Microsoft went through that process, then-CEO Bill Gates wrote, "It's been a year since the last time I was in D.C. I think I'm going to be making the trip a lot more frequently from now on."

And that's what the parasite economy is costing America. The founders of Apple and Google and other innovative companies waste their brainpower on protecting their companies rather than thinking up new products and new ways to deliver them.

And for those who like big government, I have to say: This is the business you have chosen.

If you want the federal government to tax (and borrow) and transfer $4 trillion a year, if you want it to build housing for the poor and fine-tune economic growth, if you want it to supply Americans with health care and school lunches and retirement security and local bike paths, then you have to accept that such programs come with incentive problems, politicization, corruption, waste, and a wealthy parasite class.

Reason TV recently interviewed David Boaz about his book and ideas. Go here for video and a full transcript.

From THE LIBERTARIAN MIND: A MANIFESTO FOR FREEDOM by David Boaz. Copyright © 1997, 2015 by David Boaz.  Printed by permission of Simon & Schuster, Inc.

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  1. Apparently David needs to be reminded that he didn’t build that.

  2. It’s not a “Parasite” economy. It’s a “Multiplier” economy!

    /Progonomics

  3. The most powerful argument libertarians have is the pragmatic one. Most people realize government and politicians are corrupt, but they seem to think of it only in an abstract sense or forget it when an individual politician wants to regulate something. More needs to be done to connect the grime to the individuals and discredit them.

  4. Isn’t it time to start listening to what the anarchists have to say? Minarchists just spin their wheels. Has government ever shrunk? Ever?

    1. Nope.

      “The natural progress of things is for liberty to yield, and government to gain ground.”

    2. It’s because government doesn’t shrink that I don’t often listen to anarchists. For the same reason you shouldn’t expect a blow job when you can’t even get a peck on the cheek.

  5. If recent trends continue, the disparity between the Capitol City and the rest of the country will resemble the Hunger Games. The fatuousness of DC society is already similar. The whole Hunger Games story seems to be pretty silly, but real life DC is as well.

  6. Has government ever shrunk? Ever?

    Just wait. President Christie, working closely with the many dedicated small government Republicans in the House and Senate, will slash federal regulations and roll back spending to 1999 levels.

    1. (sound of Internet breaking)

    2. It’s sad I can’t tell if this is serious or not.

  7. This is what I used to think of whenever I heard former Gov. Martin O’Malley brag about how wealthy Maryland is. He was just bragging about how much wealth was stolen from the rest of the country by the federal government. A guy I used to work with, whose wife is a real estate agent, used to bring in a book of the high end properties in the DC area. They weren’t just large, luxurious houses; they looked like they belonged in Beverly Hills.

    1. Washington is like Rome at it’s apex. It steals from and abuses everywhere that is not Rome. Doing so creates the illusion of working, but ultimately shall seal it’s own fate; doom.

  8. If the wealth of Washington was capped to represent the average of the rest of the nation then we’d see real change for the better almost overnight.

    1. John Galt|2.9.15 @ 5:01PM|#
      “If the wealth of Washington was capped to represent the average of the rest of the nation then we’d see real change for the better almost overnight.”

      Not sure about this. Public Choice Theory says quite a few of the scum-bags are not really interested in money, just the exercise of power.
      What you suggest wouldn’t get rid of those folks, and they are arguably the most dangerous.

      1. “quite a few of the scum-bags are not really interested in money, just the exercise of power.”

        Can’t argue that’s not true.

  9. Look, why all the hate at Washington? All those bueracrats are just hard working servants of the people. Surely they deserve to be rewarded for all their hard work? And we all know lobbyist wouldn’t exist if we just had a little bit more socialism to check the evil capitalist! Besides, if it wasn’t for BOOOOOSSSCHHH we wouldn’t even be talking about D.C. in a negative manner.

    My best Tony. How did I do?

    1. i was wondering when Tony the turd would show his fascist/socialist face. but yes you got him down pretty good.

      1. What ever happened to Tony? Did he finally take a big fall over his child molestation service?

  10. Don’t call it Washington. Call it Versailles-on-the-Potomac.

    1. Qu’ils mangent de la brioche!

  11. Great interview Nick! Always like to see “cross-pollination” between Cato and Reason.

  12. I think George Washington would be very upset that what the Capital has become bears his name.

  13. “Lobbying never stops”

    Hi David,

    If this really is a problem– and I might agree with you that it is– maybe we should just outlaw lobbying and prohibit political contributions. It was largely how the US was run for the first 175 years. Why not just let the electorate decide how much and which industries are regulated without corporations being able to buy off the politicians?

    1. There was relatively little lobbying in the 19th and early 20th centuries precisely because the government did not have a fraction of the powers it has usurped in this “progressive” age. If the state has no favors to give, there is no incentive to lobby.

      1. Lobbying Washington when Washington had little power would be like trying to secure a high dollar loan from the occupants of a homeless shelter.

    2. american socialist|2.9.15 @ 8:01PM|#
      …”If this really is a problem– and I might agree with you that it is– maybe we should just outlaw lobbying and prohibit political contributions”…

      Doncha just LOVE it folks?! I mean, here’s one of our fave shitpiles coming up with this brand-dew idea no body EVER thought of and, wham! Our problems are solved!
      You brain-dead ignoramus, how do you ‘outlaw’ lobbying? And did you ever hear of the 1st Amendment?
      What a fucking idiot!

      1. Hi,

        Do you think the reason why there is so much money in politics is due my ingenuity or because the current system benefits monied special interests?

        We have a virtual ban on cigarette ads and a 1st amendment. I’m not saying its a perfect 1-to-1 comparison, but I’d like to do to political advertising what we did to the Marlboro Man. I always check my $3 box to fund public campaigns.

        I thought the first amendment covered speech, the press, and freedom of assembly. You mean the fact that it has been interpreted by right-wing cranks to cover campaign contributions by bored octogenarian plutocrats is a problem to be posed to socialists? I’ve been telling you this country sucks and should be broken up ever since I’ve got here. You think I have some respect or misty reverence for a document written by slavers? Use it for kindling, I say.

        1. I’m not sure anyone here supports bans on cigarette ads, either.

          I’m sure socialists do like the concept of public campaigns. I’m also sure a certain cadre of entrenched politicians like the reality of it even better because they can use tax money to make their election a foregone conclusion instead of coming up with it themselves. If they were strictly public, you wouldn’t even have to worry about pesky outsiders that might shake things up having the ability to campaign.

          When you ban people saying things or printing things they want to say and want you to read or hear, you are banning the press. Opponents to Citizens United want to ban a movie. Here in Maryland, County level “RHINO” Republicans used states laws to investigate and intimidate pamphlets made by some Tea Partier types.

          It’s your misty reverence for a political philosophy that has been an abject failure at every turn and that has consistently used people and their basic rights as kindling that boggles my mind.

          1. Outside murder, theft and a couple other no brainers there are no bans that have my support.

        2. “I thought the first amendment covered speech, the press, and freedom of assembly.”

          Then you are wrong. The first amendment only applies to one thing and one thing only: Congress. Specifically that they shall make no law…..

      2. Sick’em!!

    3. Better yet, take the First Amendment at its face and repeal all campaign funding restrictions on U.S. citizens. All the parasites in DC thump loudly for campaign finance reform, which tells me that if it ever happens it will help them more than it held us.

      OTOH most of them seem to turn a little green at the suggestion that since 47 layers of previous campaign finance reform only seem to have made matters worse, they should repeal a few layers.

      1. I notice our fave shitpile never quite gets around to addressing the concerns that her/his ‘plans’ raise.
        My personal theory is that s/he is so fucking stupid that the ‘plans’ are trotted out and shitpile has no idea how to make them practical.
        The alternatives are that s/he is hoping others are as stupid as s/he is and swallows them whole. Or that s/he hopes someone is smart enough to take what amounts to ‘ideas’ and turn them into some workable form.
        Having read shitpile’s posts these many months, I’m guessing 1) fucking stupid; 2) stupid and stupidly hoping and 3) stupid and stupidly hoping.
        And aren’t we glad shitpile actually represents a smaller group than libertarians!

      2. “Better yet, take the First Amendment at its face and repeal all campaign funding restrictions on U.S. Citizens”

        Yes, because the most likely thing a person who makes 20k/yr is going to spend on is a big check to a politician.

        It’s pretty interesting to watch libertarians bitch and moan about collusion between big business and big government and then propose dumb ideas that will make that relationship even more snuggily.

        1. Libertarians complain about collusion and then offer ideas to render it irrelevant just as it was for the first 175 of our republic. The ironic part is the era you are bitching about began under a president you probably term one of the best we’ve had and you don’t suggest methods to reduce said collusion outside of “lol ban it.” Because rich and powerful agencies always play by the rules and limiting civil liberties always works out so well.

  14. Google, Facebook and Microsoft joining forces could crush D.C.

    Food for thought.

    1. Google, Facebook and Microsoft don’t have IRS agents or gun-in-your-face goons galore like Guv Almighty does. And they don’t know how to shoot your dog.

      1. Lure the armed Federal Agents into Texas, and set them at odds with the populace there. I suppose one or two might make it back. The only reason that didn’t happen with WACO was they were focused on Koresh and no matter what may have been said later, these schismatic sects always seem to annoy the neighbors.

      2. “Google, Facebook and Microsoft don’t have IRS agents or gun-in-your-face goons galore like Guv Almighty does.”

        True, but they supply guv with plenty of cash and it’s goons with copious intel.

    2. Google’s now the biggest whore in DC by most accounts, spending more on lobbying than any other tech firm.

      1. Unfortunately, much as I despise the ‘Do No Evil’ bullshit, they have no real choice.
        MS didn’t tithe for quite a while and then got nailed with that fucking idiotic anti-trust suit.

        1. Right, its like being a patent troll. You have to do it to be competitive in this quasi socialist society with some remnants for a free market.

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