Why Elizabeth Warren Could Have Saved Capitalism (published Oct. 1, 2019)

At last, the libertarians have found a candidate who actually has a chance of winning. Her name is Elizabeth Warren.

So far, she has masterfully concealed her libertarian tendencies. While her declaration that she is a “capitalist to my bones” is by now an old standard, Warren has built her brand by concocting a $20 trillion health plan and scaring the hell out of the mainstream Democrats who are preparing denounce her as a Stalinist at the next debate.

Yet why were Rand and Ron Paul recently seen waving “We Persist” signs at a Warren rally? If you are a left wing progressive, the truth may shock you. They were there because they know something that most people don’t — Warren’s capitalist to the bone mantra is not just fluff. Warren really means it. Her platform aims to reform capitalism, to fix it, to make it work better. As preposterous and contrarian as it may sound, Warren may be exactly the right leader to build a new reformist coalition that can save capitalism from itself, and the world from Donald Trump.

Trump will taunt her as a radical left wing socialist (in polite moments), but Warren’s plan for reforming capitalism makes for a strong counterargument. She can offer “a new capitalism for the 21st century and beyond” and can put it in stark contrast to Trump’s economic policy: crony capitalism lubricated by tax cuts for the rich. Warren is not challenging capitalism, she is challenging Trump’s capitalism: a tactically smart approach, because with the economy still expanding and unemployment at 50-year lows, a categorical rejection of American free enterprise itself would not be Warren’s most persuasive platform.

2020 of course is more about saving Western civilization than it is about policy. Populist disruption continues to foment instability and to empower authoritarians and xenophobes across the globe. In contrast to the bromides of moderate Democrats, Warren offers an alternative populism, a progressive populism of the left. It’s a platform that clearly breaks from Bernie’s democratic socialism, while at the same time addressing the core issues of growing inequality and declining economic opportunity. Her vision for a new capitalism has the sort of reformist energy and future-oriented big ideas that can appeal to independents: Gary Yangers, swing voters and, yes, libertarians. Her emphasis on reversing inequality and helping parts of the country that are hurting can expand her reach beyond independents to include marginalized rural and economically disadvantaged voters who tipped the electoral college in 2016.

Warren the primary candidate is operating in a Democratic Party with a large and influential base that has gone Maoist. She has proposed a sweeping statist agenda that would radically expand government. Nevertheless, our hope for Warren is that if she can win the nomination, she will turn to a platform that drops ambitious but unwise programs that can’t pass Congress. She can win by staying with, and building on, what she has already declared to be the main theme of her campaign, an agenda that requires no taxing or spending at all.

Why Corruption Is a Necessary, And Winning, Central Theme

Elizabeth has a lot of plans, but they’re really one simple plan: We need to tackle the corruption in Washington that makes our government work for the wealthy and well-connected, but kicks dirt on everyone else, and put economic and political power back in the hands of the people. — What Elizabeth Will Do

In this populist era, Warren has wrapped her campaign around a forcefully populist central agenda: “Tackling Corruption in Washington.” It hits Trump where he’s most blatantly vulnerable — he has spent his term oozing in a miasma of corruption. As a theme for the primaries, hammering on a powerful corruption agenda has been a key driver of Warren’s rise to the top, because the Bernie progressives she is competing for can happily join her in an anti-corruption crusade: they believe that corruption is an inevitable byproduct of capitalism. But the theme of “corruption” need not be an indictment of capitalism. To the contrary, Warren has already made it clear that rooting out corruption is the first, highest priority of her plan to cure American capitalism of its current ills. Warren the undercover libertarian proposes to restore fairness and competition to the market, not to fundamentally alter the way capitalism works.

Capitalism depends on free and efficient markets governed by an objective system of rules — rules that define and protect property rights. Corruption breaks the system because corrupt players use power and money to violate or influence the rules, usually working through government. Corruption destroys the efficiency of markets, working to the advantage of those with power and to the disadvantage of the powerless.

Corruption’s most evident stranglehold is through the distorting influence of money in politics. It’s nothing new to bemoan Citizens United, dark money, lobbying, and the revolving door of Government Sachs, but the incapacity to do something about it has bred widespread cynicism. Warren has made it her centerpiece, her constantly repeated talking point, her call for a political moonshot. The numerous and detailed anti-corruption plans cut across all branches of government, with restrictions on conflicts of interest, lobbying, and the revolving door. She calls it the biggest political reform platform since Watergate — and her plan would, in fact, be the first comprehensive reform since the wave of campaign finance restrictions and other legislation that passed Congress in the mid-1970s.

When Warren launched, she put her campaign at risk by declining to take money from PACs and by foreswearing big money fund raising events. She understands that the rest of her agenda has no chance if Washington is controlled by lobbyists from the health care industry, Wall Street, tech companies and other business interests. At the same time, she understands that money in politics has created many of the problems that make her agenda necessary in the first place — corruption explains the drift toward sharp economic inequality and reduced opportunity for much of the population. Corruption has pushed the political economy to a breaking point, contributing in a big way to the populist wave that began with the Tea Party and continued with Trump’s election.

The Economics of Capture and Rent Seeking

It’s only in recent years that the true impact of systemically engrained political corruption is being understood. Economists with extremely pro-capitalist, University of Chicago credentials have led the way in studying and measuring corruption, which in academic circles is more politely called “regulatory capture” and “rent seeking.”

Capture is what it sounds like: interest groups gain influence over the regulators, courts, law enforcement agencies, and politicians whose job it is to watch over them. Capture is when money and the revolving door control public policy. Polluters pollute. Opioid distributors sell millions of pills. Banker sell subprime mortgages, crash the system, get bailed out.

On the stump and in interviews, Warren often refers to “capture” of government by special interests. It would surprise many Warren supporters to learn of capture’s distinguished libertarian pedigree: It was University of Chicago economist George Stigler who first used the term in the economics literature. Stigler is perhaps the second-best known Chicago economist after Milton Friedman (they both won the Nobel Prize). Stigler’s name lives on at Chicago’s Stigler Center for the Study of the Economy and the State, led by iconoclastic financial economist Luigi Zingales. Zingales wrote a remarkably prescient 2012 book, A Capitalism for the People, a wide ranging, pro-market critique of the failings of modern capitalism. Responding to the growing populist sentiment emerging with Occupy Wall Street and the Tea Party, Zingales warned that an even more widespread populism was on the way. In other more recent work, Zingales co-authored an influential article on the social responsibility of publicly held corporations and consulted with the Warren campaign on a proposal for a tax on lobbying.

The Stigler Center’s relentless output of new research zeroes in on the impact of capture throughout the economy. In its earlier incarnation, the Chicago school argued that deregulation was the best way to avoid capture, and also focused on the ills of corporate welfare and the dangers of “public-private partnerships.” Now the Center has become a leader in the growing movement for more forceful antitrust action against big tech and other oligopolistic industries. The Center’s mantra is “pro market, not pro-business.” A new Chicago School has dawned.

“Rent seeking” follows from “capture.” “Rent” is how economists try to measure the profitability of capture to those who are doing the capturing (rent can be obtained from other inefficiencies in markets, but capture is a leading source of it). So, if I hold you up with a gun and take $20 out of your wallet, and there’s no cop to do anything to stop you, that $20, which I wouldn’t get if I followed the rules, is your rent payment to me. It would be the same principle if Huge Megacorp XYZ commits antitrust violations and puts its competitors out of business, allowing it to charge $20 more for each widget. That $20 is the same kind of rent. And in the American economy, it adds up to the hundreds of billions.

Big companies and the rich capture government and use that capture to generate rent. That rent comes from the pockets of those who are less powerful. As Warren and many others now argue, the capture and rent problem is only getting worse as the economy has come to be dominated by monopolies and oligopolies, and the middle class is paying that rent.

There’s little dispute that the economy has become less competitive and more concentrated.  Between 2008 and 2016, mergers of primarily domestic US companies totaled more than $10 trillion; while government anti-trust enforcement has been minimal. Concentration has increased in about 65% of corporate sectors.

At the same time, the corrupt machinery of capture and rent seeking has grown. Last year, corporations spent $2.6 billion in lobbying, employing 11,400 lobbyists. Business interests contributed $3.4 billion during the last Presidential election cycle, and $2.8 billion during the 2018 cycle. These numbers don’t reflect the deeper, more insidious form of capture — the cronyism that evolves as regulators and politicians cycle in and out of the machinery of government and lobbying.

Increased economic concentration and capture have altered our political economy in ways that have contributed to inequality, according to multiple academic studies. The Chicago Stigler Center has sponsored and distributed many of them. At the same time, many left-leaning economists have also focused on capture and rent to explain capitalism’s malaise: they include Robert Reich and Nobel winners Angus Deaton and Joseph Stiglitz.  They have even incorporated ideas previously thought of as libertarian in their advocacy for policy change, most notably a reconsideration of occupational licensing (which restricts the supply of workers in regulated industry) and restrictive zoning and land use policies (which restricts the supply of housing, particularly in places where real estate prices have skyrocketed).

Capture and rent seeking have been a major factor in raising prices, depressing wages, inflating profits, hindering startups and fostering inequality. Fewer new businesses are being started. Existing businesses get bigger and more entrenched. People move less to get better jobs. Employers gain more leverage — profits go up, wages stagnate. A winner takes all economy evolves, where some sectors thrive and others stall out, where some regions and metropolitan areas flourish, and others whither. It’s a self-reinforcing cycle. Companies get bigger and face less competition. Their political leverage increases. Capture and rent seeking advance. Corruption reinforces the system.

Big Tech – End of a Beautiful Friendship

Today’s big tech companies have too much power — too much power over our economy, our society, and our democracy. They’ve bulldozed competition, used our private information for profit, and tilted the playing field against everyone else. And in the process, they have hurt small businesses and stifled innovation.Elizabeth Warren

A very clean sort of corruption allowed big tech to gain unprecedented monopoly power, with profound implications for democracy and privacy. Warren was an early-comer to big tech skepticism — as a senator she flagged the anticompetitive practices of the technology companies well before the fiasco of Facebook and Russiagate changed the game. More recently, she boldly planted a “Break Up Big Tech” billboard next to a Bay Area freeway and engaged in a feisty exchange with Mark Zuckerberg.

Warren’s contentious relationship with big tech breaks sharply from the close — some would say corrupt — connection between tech and the Obama administration. In the crucial tech growth years of Obama’s two terms, Silicon Valley’s relationship with the White House is a study in corporate capture and rent seeking. Even after corporate America was tarnished by the 2008 financial crisis, the technology companies and the billionaire founders enjoyed almost unfettered political access and a glowing public image. Venerated as heroic innovators and job creators, they were welcome in Washington and filled many important Obama administration positions. As tech firm monopoly power mounted, antitrust enforcers failed to take action.  Recommended actions were spurned by the White House, and the privacy concerns raised by the tech firm’s ownership and abuse of personal data were not heeded.

Obama’s cozy relationship with big tech began during the 2008 campaign, when Facebook co-founder Chris Hughes ran Obama’s 2008 election digital operations. Many others from Silicon Valley joined the administration early on. Google had particular clout in the Obama White House. Eric Schmidt, Google’s CEO, went to the White House 18 times between 2009 and 2015, and was directly involved in running Obama’s 2012 voter targeting. Google received little regulatory or legal scrutiny. In 2012, the FTC concluded an extensive investigation of anticompetitive practices at Google, recommending that the government initiate litigation against the search giant. Google executives, including Schmidt, had a series of meetings at the White House. Following that, the FTC closed the Google investigation. As the Obama administration left Washington, many decamped directly to Silicon Valley, including Obama’s campaign manager, attorney general, and even the head of the EPA.

Warren would restore antitrust scrutiny of big tech, a first step in a broader increase in antitrust enforcement. She has called specifically for a series of divestitures, with Facebook, Amazon and Google spinning off some of their major acquisitions of the past 10 years. Antitrust plays well with the progressive primary voters, angry about the political damage caused by Facebook, Amazon’s growing marketplace domination and Google’s spooky ubiquity in search, advertising, video and cell phones.

Do rust belt swing voters really care if Facebook is required to divest What’s App? Probably not too much. But the clear connection between corruption and monopoly makes for a more rousing political call to action, a fight against economic power that threatens democracy itself. In this, Warren reaches back to the trust busting of the late 19th century, early 20th century Progressive reformers to revive “political antitrust.”

The pro-market economic renegades at Chicago have also embraced political antitrust. “The more firms have market power, the more they have both the ability and the need to gain political power. Thus, market concentration can easily lead to a ‘Medici vicious circle,’ where money is used to get political power and political power is used to make money,” Zingales of the Stigler Center writes in his influential paper, “Toward a Political View of the Firm.” “The size of many corporations exceeds the modern state. As such, they run the risk of transforming small- and even medium-sized states into modern versions of banana republics, while posing economic and political risks even for the large high-income economies.”

Wall Street – The Big Capture

For decades, Washington has lived by a simple rule: If it’s good for Wall Street, it’s good for the economy. Rich Wall Street donors have pumped millions of dollars into the political system to enforce this rule. And the revolving door between Wall Street and the federal government ensures that Washington follows the rule on decisions big and small.Elizabeth Warren

Corruption on Wall Street, and denunciations of it, are a long running show. Warren built her career with determined efforts to expose predatory practices in financial services. First in her academic legal research, then as the architect of the Consumer Finance Protection Bureau and then as a senator. Before Warren started her public battle with Zuckerberg, there was Warren’s memorable interrogation of the Chairman of Wells Fargo, and her remarkably blunt question: “How is it possible that you haven’t been fired?”

The dominant narrative about the 2008 financial crisis blames the crash on the financial deregulation of the 80s and 90s. There’s an alternate viewpoint, one that’s in keeping with both Warrenism and a more pro-market worldview. And again, it returns to corruption (capture and rent seeking). Capture and rent seeking are what enabled a handful of too-big-to-fail firms gain immense political power, using that power to promote deregulation, while simultaneously receiving implicit government subsidies for high risk speculation. The subsidy came in the form of the largely unstated promise from the government to bailout Wall Street in the event of a crash — memorialized as the “Greenspan put.” Capture and the put made the huge bailouts after the crash an inevitability. And along the way, Wall Street received massive rent in the form of the unusually big chunk of the economic pie taken by Wall Street and the disproportionately huge amount of money made by bankers.

Capture was obtained and supported by campaign contributions, lobbying and the Wall Street to Washington revolving door. Capture is so complete that it becomes profoundly existential, a phenomenon that goes beyond regulatory capture to become “cognitive capture.” In the days of the crash and its aftermath, it was as if Wall Street had seized the collective brain of the nation’s leadership: in the darkest moment, former executives from Goldman Sachs and the New York financial establishment, now making decisions for Obama, declared that we faced the greatest crisis since the Great Depression, and any failure to act would destroy the world economy. You had to believe them. The world could end if you didn’t.

Corruption didn’t take a breather after the financial crash. In the period after the 2008 crisis there was some hope that economic reform would put the country on a new path. Instead, partisanship quickly paralyzed government, and little was done to help homeowners losing their homes. The Dodd Frank reform bill passed Congress, but lobbyists diluted the regulations, swarming over Congress and the regulatory agencies, obfuscating Dodd Frank as it expanded to 26,000 pages, and going to court to block other crucial parts of the attempted new regulations. Not a single high-ranking executive went to jail, in large part because the justice department had also been captured via the cronyism of the Wall Street legal establishment. If the public interest was unable to prevail after the biggest economic crash since the 1930s, when can it?

Health Care – What Big Pharma Doesn’t Want You to Know about Patents

Medicare should aggressively negotiate with drug companies. We should crack down on rampant abuse of the patent and regulatory system. And we should import drugs from countries that sell the same medicines and meet strong safety standards but that charge their citizens a fraction of our costs.Elizabeth Warren

Corruption is a huge problem in health care, but arguing about Medicare for all has left little time to focus on how capture and rent seeking have inflated costs and restricted choice. Capture and rent seeking largely explain why prescription drugs prices in the US are double of what they are in other major countries, and why US total health care spending takes up about twice as much of our GDP as in other industrialized economics. Ending corruption would lower prices and improve competition — all with no new taxes.

Health care companies excel in the art of capture: the industry accounts for more than 15 percent of total lobbying, spending about $567 million last year. Big health care’s clout is bolstered by its economic power: health care employs more than any other industry and consumes about 18 percent of GDP. The federal government pays for about a third of health care spending, and the tax break for employer health care contributions is the biggest tax benefit in terms of revenue lost. And the industry is increasingly concentrated — with more and more major markets served by only one hospital for example. It’s a setup ripe for corruption.

In the first years of the Obama administration, just as the financial lobby was beating back Wall Street reform, the powerful pharmaceutical lobby maneuvered to keep drug price reform out of the Affordable Care Act. The first reform proposals would have reduced drug price increases by allowing Medicare to directly negotiate prices with the drug companies. The second would have opened a door to importing drugs from abroad. A political deal was made. Obama and his chief negotiators cut a deal with big pharma, in which Obama agreed not to pursue the cost control measures, in exchange for pharma’s support of the ACA, including a pharma-sponsored lobbying and PR campaign.

Capture and rent seeking in pharmaceuticals reach deep into the abstruse but hugely corrupt realms of drug patents, FDA regulations and generic drug restrictions. The drug companies have always argued that rigorous patent restrictions are necessary to incentivize research and development. Most studies have found the restrictions to be excessive, and the result is the continuing escalation of drug prices, reducing the quality of health care and vastly inflating drug company profits. Patent protection laws engineered by the drug industry, with the support of both political parties, cause the US to spend more than $440 billion on drugs that could cost as little as $80 billion without manipulated intellectual property protection.

Warren the Manchurian Libertarian has almost fallen into a ditch with her zig and zagging on Medicare for all and with the recent release of her detailed financing plan. Was it her inner libertarian that held her back from clicking send on a policy paper that explicitly endorses forcing people with private insurance to give it up? Did the little Milton Friedman deep inside her brain keep her from fully endorsing a plan that would raise taxes and create an enormous government bureaucracy? Warren’s left brain won out on that one, and it’s mortifying to contemplate the possibility that the health plan will fatally damage her electability. So much could be accomplished to improve health care with the corruption agenda alone.

Warren, the Libetarian Vote and a Crazy Scenario that Leads to Victory in 2020

Admittedly, this crazy exploration of Warren as a libertarian crashes head-on into a wall of contrary evidence pretty fast: it’s not only Medicare for all, but most of Warrenism that wildly conflicts with the anti-government thrust of libertarianism (or for that matter moderate Republicanism, or neoliberal Clintonism). There’s the trillions in spending: free tuition, wiping out college debt, Green New Deal, universal pre-K. There’s a good bit of government meddling and regulation: accountable capitalism, gun control, protectionist trade policies. And there’s ready my lips trillions and trillions of new taxing.

All of this spending and taxing amounts to an effort to redistribute wealth and income. Corruption may be Warren’s central theme, but the central intended result is to reduce inequality and to increase opportunity. Antitrust, restrictions on lobbying, and campaign finance reform may not be a fast enough way to bring the new Gilded Age to an end, and Warren hasn’t hesitated to advocate for a massive array of new government initiatives that would be the biggest expansion of government since the New Deal. As libertarians will be quick to note, Warren’s agenda suffers from a serious internal contradiction: one of the best ways to increase corruption — including capture and rent seeking — is to expand government.

The 3.28%

It would certainly require advanced oratorical skills for Warren to convince the eccentric, outlier libertarian community that she would be better for capitalism than Trump. Reason Magazine and the Cato Institute are not about to endorse her. But if Warren can succeed in making that argument, it could matter in a very significant electoral way. Third party voters count, as Hillary Clinton recently made clear when she accused the 2016 Green Party candidate and Tulsi Gubbard of being dangerous Soviet assets


Trump Margin: 119,770
Libertarian Vote: 206,007

Trump Margin: 14,000
Libertarian Vote: 172,000

Trump Margin: 44,292
Libertarian Vote: 146,714

Trump Margin: 33,00
Libertarian Vote: 105,000

Gary Johnson was the Libertarian Party candidates for President in 2016. Nationally, Johnson won 3.28% of the national popular vote. Johnson did better than that in four fateful states: Florida, Michigan, Pennsylvania, and Wisconsin. Do the math in these states, and you can see that Warren’s path to the presidency could be paved by libertarian votes. Here’s how it would work. First, assume that everywhere else the popular and electoral votes remain the same as in 2016. The only voters to change their votes would be Libertarians. If a third of Libertarians in PA switched from third party to Warren, and a third of the Libs in WI switched, and 8 percent in MI switched, Warren would win.  If Libertarians in FL flipped, Warren would only have to retake Libertarians in either WI or MI.

In these insanely partisan times, crazy little things like the Libertarian vote can matter. The New York Times estimates that 15% of swing state voters are “persuadable,” and that of those, 19% voted for Johnson or the Green Party in 2016.

Those of us who value freedom, distrust institutions and abhor bureaucracy often don’t vote, or vote in protest. But frivolous protest gestures can’t be justified in the face Trump’s authoritarian populism, his crony capitalism, his disregard for truth and civility, and his violations of the Constitution.

Therefore, today we are thrilled to announce our new political movement, Libertarians for Warren.*

*Donations from all PACs and high net worth individuals are enthusiastically encouraged.