Are you able to work up indignation about cronyism at this point? Or did your sense of moral outrage glaze over so long ago that you barely even notice now?
The tremendous apparatus dedicated to rewarding cronies of the Obama administration, and other elements of the Washington establishment, is mind-blowing, in its way. We talked last week about the extortion side of state regulatory power. Today, we’ll look at the cronyism side, with a peek at an under-the-radar project to spend national security funds on Democrats’ cronies in the uneconomic biofuels industry.
When we hear “defense biofuels,” most of us think “$16 a gallon” (or, more correctly if we’re talking about unblended biofuels, $26 a gallon). But the issue is much bigger and more Hydra-headed than that. A wildly excessive price per gallon, in one Navy fuels purchase, is just one short-term effect. The more insidious and longer-term effects are the ones we really need to worry about.
Blame it on national security
The Defense Production Act (DPA) of 1950, like many things, seemed like a good idea at the time. The law enables the federal government to take extraordinary economic measures in the interest of national security. In 1950, of course, the context for this was foreseen as the actual threat of military confrontation or intimidation by a foreign power (e.g., the Soviet Union).
For decades, the relatively small Defense Advanced Projects Research Agency (DARPA) was the main manifestation of DPA use. Congress didn’t intend for the DPA to be used by the president as a means of getting around congressional intent. The DPA defined a basis for federal authority, but it didn’t simply confer unlimited authority on the executive.
Enter the Obama administration, which in 2009 began working on ways to expand its authority using the DPA. In early 2012, Obama put out a new executive order (EO) on how the federal executive would handle its DPA authorities. (The last such EO had been issued by Bill Clinton in 1994.) Although most conservative commentators were focused on whether the DPA and the Obama EO authorized martial law, the “money” clauses of the new EO were about just that: money.
Obama did two important things with his EO. He delegated decisions about “assessing” and “fostering” defense infrastructure to the heads of federal agencies. That effectively put this very politically freighted process – one that the Senate has always, quite properly, expected to play a major role in – under the radar. He also included language that specifically identified uneconomic – failing, unprofitable, non-viable – market niches in emerging technologies as the priority for DPA spending.
In the 2012 piece (last link above), I summarized it this way:
[T]he strategic plan is to invest taxpayer money in market failures.
Writing this into the EO – the backing of market failures – creates the impression that the Obama administration is just carrying out the “law” by doing it with defense funds under the DPA. And, of course, Team Obama is putting taxpayer money in market failures.
The crony spending
A recent announcement caps the ongoing saga of biofuels in the military. Last week, the secretaries of Agriculture and the Navy announced that the Navy would begin regular purchases of biofuel blends for fiscal year 2015. (I.e., these would not be experimental projects, but part of the Navy’s routine annual expenditures on fuel.) The plan has been in the works for some time, under the auspices of the DPA, and the same cast of characters – major Obama donors and Democratic bundlers who run biofuel companies – has been receiving federal funds along the way.
There are three key things to know about the crony-biofuels-for-defense program:
1. The biofuels are not price-competitive with fossil fuels. To pretend that they are, the “routine fuels purchase” will rely on money from Agriculture’s Commodity Credit Corporation (the old New Deal agency) to “offset” the difference between the market price of fossil fuel and the higher price of the biofuel blends.
The mechanism is simple: whatever the amount by which the per-gallon price of the biofuel blends exceeds the market price of traditional fuel, the CCC will make up, from a stash of $161 million which has been committed by the administration to that requirement.
Hilariously, this is depicted in the biofuels-advocacy press as biofuels being purchased by the Navy at a market-competitive price. Your average moron can see that either way, the U.S. taxpayer is spending more to buy the biofuel blend than he would to buy fossil fuel. But we can expect the mainstream media to go along with the charade.
2. Under this non-competitive condition, the biofuels companies in question are not profitable. The media, again, are likely to proclaim that the market is at work with the Navy biofuels purchase. But this is a politically directed purchase: so political, in fact, that it is being arranged to misrepresent the issues of price and competition.
3. To make this purchase, in spite of congressional resistance to the biofuels cronyism, Team Obama is arranging it under the authority of the DPA. Biofuels advocates are quite explicitly thrilled about this:
As for how the contracts were awarded despite strategic opposition in Congress, that would be under the Defense Production Act (DPA). As noted on this site last year, DPA is a 1950′s era law that enables federal support for materials and systems deemed vital to national security, and as such it is relatively immune from year-to-year political posturing.
Notably, this characterization of the DPA is itself invalid. The DPA was never held to be immune from year-to-year political posturing; not, that is, until a presidential administration took office that wanted to have instruments of authority possessing such immunity. There’s no such thing in our system of government as sources of spending or regulatory authority that are immune from political posturing. More on that in a minute.
At any rate, see here for more DPA-related high-fiving from 2012.
Conditions and consequences
Here are some reasons to be very concerned about how our political environment is being transformed through such dramas of falsehood and cronyism.
1. The elaborateness of the set-up. The crony-biofuels-for-defense drama should help clarify the mind-bending gigantitude of our current concept for federal government. There’s something in our array of laws and agencies for every conceivable kind of policy advocate to exploit for his purposes – and then dare Congress to do anything about it. The infrastructure was there long before Obama took office. We’ve been setting ourselves up for Team Obama for decades.
With the eyes and brains of the public glazing over, you might wonder: Why go to all the trouble of looking for duly-enacted laws to exploit, and creating earnestly propounded fictions about what’s going on?
The answer seems to be: to set the precedent. To establish a manner for continuing to do this, over and over again, with the apparent stamp of lawfulness and duly constituted policy. There seems to be no limit to what you can impose on people – at least on the American people – if they think you’re acting incrementally and within the bounds of the law.
2. Things like crony-biofuels-for-defense change our expectations and definitions. If you asked citizens up front whether an administration should use public funds — in the teeth of consistent opposition from Congress – to pay its big political donors to sell the military an overpriced, unprofitable commodity, the citizens would of course say no. It would sound like rank corruption.
But put the same transaction through a multi-tiered defense-washing process, and let third parties – the media, the biofuels advocacy industry – explain it to the public, and if you don’t parse it too closely, it can come off sounding like duly constituted “policy.”
Again, what makes this especially different from the typical defense-procurement transaction is that Congress is ignored and bypassed. Congress can be very annoying, and quite as dysfunctional as the executive agencies, but its role in defense procurement is essential for applying checks and balances, not only on potential corruption but on policy. It isn’t normal, nor is it a good thing, for congressional opposition to be meaningless in defense procurement.
But if you vaguely think it might be, your expectations can be shaped that much more easily by deception. The bigger government is – the more programs it has for buying and managing things – the more scope there is for you to be in ignorance and have your expectations shaped deceptively.
In principle, this is the same “legitimating” process by which Western governments, in spite of their pride in ethical accountability, have triangulated themselves into approving things like euthanasia for individuals who aren’t even legally competent to decide their own affairs. Creating the impression that policy has been duly constituted is very persuasive to the modern Western mind, regardless of the content of policy. Meanwhile, buried premises in communications from the media make us think we “know” a lot of things that aren’t even true, like the Clean Technica reporter’s cheery, drive-by – and false – implication that executive authority under the DPA is meant to be immune from political posturing.
3. In light of #2, we shouldn’t be surprised that the Obama administration treats cronies and favored industries very differently from the way it treats unfavored industries and the rest of us. Take a minute to think about how Team Obama makes money flow to its big-donor cronies at biofuels companies. Then compare that to the cavalier manner in which the same administration is stripping millions of Americans of their health insurance, and leaving insurance companies, doctors, hospital corporations, and the taxpayer holding the bag for poorly conceived insurance-exchange products, which many customers are guaranteed to dislike, avoid, and want to walk away from at some point.
Again, if you asked citizens up front whether groups should be treated so differently, even under the laughably obvious pretense of market conditions, they’d say no. We should at least have pretend economics applied to us all equally.
But the elaborate procedural charades involved in implementing the policies keep the equality question from even being posed. This should alarm us, because it’s how governments get from the starting line to the point of treating people very differently in other, more dreadfully evil ways.
4. Evil does manifest itself in banality. Accepting that government should manage more and more aspects of our lives means that evil will present itself, more and more, as mere regulatory policy.
It doesn’t have to attack, frontally or overtly. It can do its work through the incremental encroachments of regulation. It can do its work through seemingly minor rhetorical errors, left uncorrected, as with the implication that the DPA is immune from current politics. It does its work through the careless elision of ideas, as when people thoughtlessly refer to cronyism as “crony capitalism.” “Capitalism” can’t be about politically guaranteed financial outcomes; it can only be about the risk of market investment. To define it at all is to stipulate that. What’s going on is cronyism, not risk.
This probably seems unimportant to at least some readers. But it is a trademark practice of evil, to cause us, through a series of logical ellipses and rhetorical nuisances, to adjust our expectations in vague, marginal ways that confuse us and put us in danger. We are actually buying into a whole, inimical worldview when we don’t fight back against associating “cronyism” with “capitalism,” or when we fail to insist that the DPA is meant to be subject to current politics. We’re making big mistakes, not small ones. But who can keep up his enthusiasm for truth and fact under the onslaught of little compromises?
If we don’t want to have to fight our battles on this mind-numbing, pedantic-seeming ground, the only remedy is to rein government in by reducing its scope of authority. It was always going to be hard to keep an instrument of law like the DPA inside safe boundaries. But then came the dramatically increased use by presidents of the executive order, and along with it, the rise of the regulatory state, which exchanged the straightforward, if corruptible, idea of government buying things it needs for the much more dangerous idea that government ought to be intervening continuously to foster vague outcomes which the market, or any other naturally occurring mechanism, is too stupid to produce.
It’s the latter idea of government that creates moral hazards big enough to drive a semi-trailer through. One of those hazards is the cronyism so endemic in the current administration. But there are worse hazards on the horizon.