naked capitalism

Submitted by Lune

(N.B.: this post, and a subsequent Part II regarding the legislative process, are focused on the political processes of DC rather than economics per se. However, to the extent that the future of the financial world is now being determined in Washington, I figured there might be some value for Naked Capitalism’s readers in better understanding the processes that are reshaping the economy and the financial industry.)

As the government becomes increasingly involved in the financial world, finance- and economics-types have by now become well acquainted with America’s answer to Japanese Kabuki: the Congressional hearing. Just as Kabuki is famed for its focus on dramatic poses and stylized maneuvers over story or plot, so the modern Congressional hearing now appears to be nothing but a set of ritualized maneuvers and poses (such as the Feigned Outrage, the Somber Gravitas, and the occasional Sleepy Grandfather), performed for the audiences, followed by a quick exeunt with little insight gleaned into the topic at hand.

While both can be highly valued for their entertainment value, Congressional hearings are supposed to have a higher purpose. That hearings have degraded so egregiously is indeed troubling. Yet to really understand the problem, one must place hearings within the context of the larger issue of how Congress informs itself about the issues of the day and uses that information to create policy. In that context, the Congress of today is doing both better and worse than the Congresses of before.

But first to answer the pressing question of the day: are hearings today really so much worse than hearings of yesteryear? Yes. At least the ones we’re interested in. And that’s primarily for two reasons:

1) C-SPAN: Hearings used to be about allowing Congress to gather information from experts / relevant sources so as to inform a committee’s actions; and in the absence of any means to score direct points with the public, that’s what most hearings used to be. But with the intense media coverage that important hearings get these days, they’ve turned into nothing more than scripted media events, with witnesses called not for their ability to illuminate an issue but to make political points, and questions and opening statements all crafted beforehand by staff and fed to the Congressperson for recitation (with appropriate Kabuki-esque melodrama) in front of the cameras.

That said, even today, not all hearings are that bad, for the simple matter that the vast majority of hearings get almost no media attention. Congress holds probably a dozen hearings a day when in session, most of which get dutifully taped by CSPAN and filed away in archives with nary a viewer or listener outside the beltway. You can get the schedule for any given day on THOMAS (and yes most of the hearings are as painfully boring as their titles imply…). In my experience, the hearings with the least amount of public interest tended to be closest to the ideal. While the topic may be mundane or arcane, without the pressure of media attention, there’s usually much more of a focus on gaining information. Unfortunately, this means that the most pressing issues of the day, generating the most public interest, tend to get the worst kabuki-type hearings, while the ones of least public interest are conducted in a more worthy fashion.

2) To counterbalance this tendency, however, Congress now has immeasurably better ways of gaining information than conducting hearings. Hearings were a relic of a time before telephones and rapid transit, when no piece of information traveled faster than a horse, and when just getting the experts together for a frank and spontaneous exchange was no small feat. These days, if a Senator wishes to speak with a panel of economists, he could get them on a conference call, if not have them fly in for an impromptu private discussion (not to mention he could read all their papers without having to meet them at all). In other words, part of the reason hearings have become so worthless for their original purpose is because their original purpose is often better served with more modern methods of information gathering.

A useful analogy is to the Library of Congress: originally the LoC was chartered to serve as a central repository of all the world’s information so as to make it easily available to Congress. At the time of the LoC’s founding, if a Congressperson was interested in an issue and wanted to learn how it affected both California and New York, and also read about how France and Britain addressed the same problem, he could write letters to a dozen libraries and government archives around the world, then wait six months as the requested materials slowly arrived, all the while hoping that there wasn’t some critical source that he didn’t know about and consequently didn’t request. Thanks to the LoC, he could instead send one request, and the LoC would search its extensive holdings that it had already painstakingly gathered, and send back an extensive (and frequently exhaustive) package of materials within a few days.

But now, when much of the world’s information can be looked up instantaneously on the internet, a Senator’s access to Google and LexisNexis is far more valuable. Yes, the LoC is still unbeatable when you need to hunt down some obscure or ancient source, but for the important issues of the day, the LoC is no longer needed.

On balance, the volume and quality of information available to Congress now, when all sources are taken into account, are vastly better than they were decades ago. It’s just that hearings are the public face of that information-gathering process, and they have degraded as they’ve become less useful.

So to answer our original question: are hearings useless these days? For the important issues of the day? Yes. But to address the broader point, does Congress have better or worse access to information than before? Undoubtedly better.

And now for a more subtle question: for all this extra information, is Congress actually better informed than before? Not necessarily. And that brings up the final wrinkle in Congress’s information gathering process.

As information has become more voluminous, specialized, and complicated, Congress very rarely uses primary research, since most elected officials and their staff are not academics or able to keep current with nor understand academic research. Conversely, as the process of legislating has become more complex, fewer researchers have a feel for how to translate their findings into policy proposals.

I’d assert that as a result, most staffers in DC get their policy ideas not from original academic work but from think tanks (a term I apply broadly to many foundations and public interest / advocacy groups). This isn’t because staffers don’t value academic work, but rather because it’s frequently difficult to translate academic findings and recommendations to fully fleshed out, politically viable solutions. And that’s frequently what think tanks do.

For example, an academic publishing a paper on the harmful effect of options volatility isn’t nearly as useful as an economist in a think tank who takes that paper and drafts a proposal for changing the CFTC guidelines to reduce that volatility. The academic economist usually doesn’t understand specific CFTC rules (although they probably understand the general regulatory environment), and the staffer usually doesn’t understand the arcana of Black-Scholes equations (although they probably understand the concept of options volatility and its side effects). The think tank economist can bridge that divide.

While this is all well and nice, lobbyists have figured out this weak link, and have taken advantage of it. While it’s fairly difficult for lobbyists to influence academic work (thanks to the long histories of most reputable departments, tenure, peer review, and the inbred nature of the ivory tower), it’s very easy to influence think tanks, and even set up whole think tanks for your own purposes. The conservative movement, for example, figured this out, and rather than fight for influence within “liberal” academic departments, created think tanks like the American Enterprise Institute, the Heritage Foundation, and the Cato Institute to bypass academia.

This hasn’t gone unnoticed by other lobbying firms. The most sophisticated lobbying efforts now center around surrounding policy makers within a world created and sustained by the lobbyists themselves. Thus, you have lobbyist-funded original research in academia, lobbyist-created think tanks translating that academic data into legislative proposals, lobbyist-sponsored mediagenic experts to go on TV / newspapers advocating those proposals and setting the terms of the debate, and lobbyist-generated astroturf (i.e. fake grassroots) campaigns to simulate voter approval and public pressure. Quite a far cry from when lobbyists literally just stood in the lobby of the Senate floor begging for a few minutes of the Senators’ time.

So in summary, hearings have become media non-events because they have been supplanted by more modern information gathering tools (while becoming more useful as PR thanks to CSPAN). The rise of those tools means Congress has access to more and better quality information than ever before. Yet the increasingly specialized and complicated nature of that information (and of the policy process) means there is a longer pipeline to digest that information and translate it to public policy. And finally, the longer that pipeline grows, the more vulnerable it has become to influence from lobbyists and other groups.

How this and other changes have affected the legislative process will be addressed in a subsequent post. Stay tuned!