My second interaction with Eliot Spitzer

I’ve only met Eliot Spitzer once, back when he was the state Attorney General. I was part of a group presenting the findings of a study of racial patterns of police stops in the city. (See here for a writeup of our findings.) Spitzer asked a few questions during the meeting, and I was impressed by his intelligence. Maybe that’s how people feel after meeting Bill Clinton, I dunno.

Recently, I had an opportunity for another interaction with Spitzer, this time indirectly, when Sarah Binder, John Sides, and I wrote a brief discussion of an article he wrote in the Boston Review on government’s proper role in the market. Spitzer argues for a clearer definition of the role of government as a setter and enforcer of rules in the financial marketplace; as he puts it, “even though private companies compete, only government can ensure that there is competition. Everybody in business wants to be a monopolist. There’s nothing wrong with wanting more market share. That’s how you make money.” He has lots of good stories:

When an investment bank does an IPO, and the IPO is hot–the stock is going to jump on that first day of sale–they give some of these hot stocks to the CEOs of their clients. Why? To keep them happy, so they stay as clients. As attorney general I said that should not be permitted; it violates the fiduciary duty of the CEO to the company. If the investment bank wants to give away something of value to keep a company as a client, it should give it to the shareholders, not the CEO. There’s an uglier term for spinning: commercial bribery. In 2002 we negotiated a global deal and outlawed it. People got outraged. One extremely powerful regulator today, a Peter-Principle-on-Steroids survivor, asked me then, “Don’t CEOs have any rights anymore?”

Spitzer makes a pretty convincing case that the current system (in which rich dudes pass multibillion dollar favors back and forth to each other) isn’t good. I mean, sure, we all help out our friends, but I think there’s a difference between giving your brother-in-law the contract for paving your parking lot, and these big-money financial deals.

I think the conservative argument against Spitzer’s position would be that, sure, it would be great to have an impartial referee but that, realistically, the government is itself a special interest, and that in the economic realm businesses might need more protection from the government than from each other. I’m guessing that, in response to this particular argument, Spitzer might say that, yes, government corruption (or simply inefficiency or even well-meaning but obstructive regulations) are indeed a concern, but that such concern can best be addressed by more clearly defining the role of government intervention in the financial system, rather than by first denying such a role and then rushing in with the occasional trillion-dollar bailout.

The Boston Review article is accompanied by discussions from Dean Baker, Robert Johnson, and Binder/Sides/Gelman, and a response from Spitzer.

In our discussion, Sarah, John, and I don’t address the substance of Spitzer’s proposals–none of us being economics experts–but instead talk about how his ideas might fare in public opinion and in Congress. We write that political and institutional hurdles for lawmakers are high and could put serious reform out of reach:

The public also manifests considerable ambivalence about government regulation, consistently opposing regulation in general terms, while supporting it in specific cases.

In a January 2010 Gallup poll, just over half of respondents were “worried” about “too much regulation of business by the government,” while just over a third worried about insufficient regulation. Similarly, half believed that government should be “less involved in regulating business,” compared to a quarter who thought government should be more involved (the rest thought “things are about right the way they are”). . . .

Yet, perhaps reflecting the “angry populism” Spitzer cites, majorities in recent surveys support regulations that would limit the size and activities of the largest banks, create a special tax on large bonuses, and take steps to limit CEO pay at large companies. This ambivalence vis-à-vis regulation might be a product of views on business itself. . . . majorities oppose certain business practices and, in the case of the financial crisis, blame financial institutions. Majorities of Americans are willing to regulate businesses implicated in the financial crisis even as most oppose government regulation of business in generic terms.

What might our elected representatives do? We write that “they disagree over how future crises could and should be averted. . . . the intense partisan polarization of recent years could derail new legislation, even if lawmakers agree on a policy.”

Given that a majority of Americans support reforms to the financial industry, wouldn’t opposing reform be costly? Not necessarily. Policymakers routinely escape punishment when they are out of step with majority sentiment. In fact, one of Spitzer’s examples of “core values”–the minimum wage–demonstrates this directly. As Princeton political scientist Larry M. Bartels documents in Unequal Democracy, most Americans–upwards of 80 percent, in some surveys–support an increase in the federal minimum wage. But actual increases are few and far between, and the minimum wage has declined substantially in real-dollar terms.

The financial crisis may prove a more salient issue than the minimum wage, making Americans more attentive to congressional action or inaction, but this remains to be seen. Americans are typically more attuned to the performance of the economy than to the specifics of policies that could affect it.

The financial bailout in 2008 was bipartisan–I assume that the experts told George W. Bush that this was something that had to be done, or else the economy would fall off a cliff. Barack Obama and many leading Democrats supported the emergency actions also, perhaps from similar feelings of economic urgency, or perhaps for fear that an even more drastic plan would have to be implemented after the Democrats’ anticipated victory in November, or maybe for other reasons. In any case, that bipartisan moment seems to have passed.

1 thought on “My second interaction with Eliot Spitzer

  1. Spitzer's comeback attempts amaze me. Are we supposed to forget that as New York’s attorney general, in addition to his campaign against Wall Street fraud and corruption, he prosecuted upscale escort services just like the one he was caught frequenting as governor? His views on the role of government will be forever tainted by his rank hypocrisy. Client 9 belongs in jail with the rest of the johns.

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