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vs. The Washington Crony Economy
WASHINGTON – House Financial Services Committee Chairman Jeb Hensarling (R-TX) will deliver a speech to The
Heritage Foundation on May 20, 2014 entitled, A Time for Choosing: The Main Street Economy vs. The Washington
Crony Economy. The following is text of the speech as prepared for delivery at 3:30pm ET and is embargoed until that
I am truly honored to be with you here at the Heritage Foundation, where so many great ideas have been born and so
many important debates have taken place. We have all been blessed by the vision of Ed Feulner and the Heritage
scholars who have furthered it. And who better to carry the vision forward than my former House colleague, Jim
DeMint? To me, he’ll always be a House guy.
I consider speaking to you from a Heritage podium a great privilege because few organizations do more to strengthen
and invigorate the cause of liberty in America than Heritage.
I recall something my daughter, Claire, said a few years ago. I was stuck in Washington for votes, so I called home to tell
the kids goodnight. After asking me where I was and why I wasn’t there to tuck her in, Claire paused and asked, “Is
Washington, DC in America?”
As we observe a federal government that has grown too big, too powerful, too intrusive, too expensive and too
arrogant, a child’s innocent question about geography a few years ago remains a serious question about principle today.
It seems most liberals tend to equate their country with their government. They look to an enlightened, centralized, and
coercive Washington government to resolve all questions and disputes – a government of the elite whose principal
purpose, incidentally, is to redistribute incomes and ensure equality of outcomes. To them, Washington, DC is their
We conservatives know differently. The genius of our Republic is not to be found in Washington’s corridors of power
and favor. Instead, we conservatives find the true America in the founding and enduring bedrock principles of our
Republic – namely faith, limited government, unlimited opportunity, individual freedom and free enterprise.
Today, more and more Americans are experiencing the failures of liberalism’s Washington – from the broken promises
of Obamacare, to the abuses of the IRS, to an economy of shrinking paychecks and growing food stamp dependency. So
the moment is ripe for us to make our case to the people – that our Republic’s bedrock principles are not just our
heritage and birthright, they remain our vision for a better future. A vision of growth, not austerity. One of hope and
opportunity, not pessimism and dependence. A vision where honest men and women, who work hard and play by the
rules, have the opportunity to succeed, regardless of the circumstances of their birth. It’s a vision that accepts no limits
to how far we can go – because we are Americans.
But first our movement must have a frank discussion and common understanding about one of our bedrock principles,
namely the principle of free enterprise. How we think about it and act upon it is the subject of my talk today.
First, there is probably no better discussion of the principle to be found, than that which is contained within Milton
Friedman’s classic work Capitalism and Freedom. If only everyone with a Washington, DC office address would read it
and understand it.
Although I haven’t lost hope, I recall what Phil Gramm, my political mentor and former Texas A&M economics professor,
once told me: “I’ve taught economics to Aggies and I’ve taught it to Senators. Aggies are smarter.” As both an Aggie
and a member of the House, I agree.
Whether it is termed public-private partnership, mercantilism, industrial policy, or crony capitalism, regrettably a great
deal of economic activity that masquerades today as free enterprise is not. For the sake of our Republic, our movement
had best unmask the imposters and come down clearly on the side of free enterprise.
Now, I must confess I’ve never liked the phrase “crony capitalism.” It suggests capitalism is corrupt when American free
enterprise is actually the most fair and moral economic system ever devised by the mind of man. No other economic
system has lifted more people out of poverty. There has never been a better housing program, health care program, or
anti-poverty program than American free enterprise. No other system allows people to earn their success through hard
work, creativity, personal responsibility and individual initiative. No other system generates greater shared prosperity.
This is the economy most Americans want to work in. I think of it as the “Main Street competitive economy.”
“Crony capitalism” is something different. With crony capitalism, success is arranged through government-granted
favors to those with the best political connections. “Crony capitalism” slows economic growth and redistributes income.
It can breed corruption and undermines the legitimacy of both government and free enterprise. It is what I call the
“Washington insider economy.” But regardless of its name, for generations it has been a threat to our conservative
Consider this: The same year our Founders rejected tyranny for freedom by signing the Declaration of Independence,
The Wealth of Nations was published. In it, Adam Smith repeatedly warns against businesses that attempt to use
political connections and influence to manipulate government into doing their bidding.
Listen to Smith’s words: “People of the same trade seldom meet together even for merriment and diversion, but the
conversation ends in a conspiracy against the public or some contrivance to raise prices.”
Later, Smith gets even more direct, warning: “The proposal of any new law or regulation which comes from
[businessmen] ought always to be listened to with great precaution, and ought never to be adopted till after having
been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention.”
I sure wish someone – anyone – in the Obama Administration would have given some much-needed “suspicious
attention” to Solyndra.
Smith’s warnings from two centuries ago demonstrate that it has long been the norm for certain business interests to
use their money, influence and connections to seek from government special treatment not available to others. It is
why business’s interests are not necessarily freedom’s interests. To support business does not necessarily support free
Our nation’s original patriots understood this. It is why they threw three shiploads of English tea into Boston Harbor in
1773. They didn’t do this because the Tea Act of 1773 raised taxes – it actually lowered taxes on colonial tea importers –
but because it granted tax-free status to the favored East India Company – giving it a virtual monopoly. You might say
the East India Company was an early Government Sponsored Enterprise.
Those American patriots knew cronyism when they saw it, and so must we.
The Main Street competitive economy relies upon hard work, creativity, perseverance and “can do” optimism to create
wealth. The Washington insider economy, in contrast, relies on earmarks, regulatory barriers to entry, subsidies, tax
preferences and political influence.
The Main Street competitive economy is exemplified by people like Wayne Williams, who lives in the Fifth Congressional
District of Texas that I have the privilege to represent. After serving nearly four years in the Navy, Wayne came to
Mesquite, Texas and got a job at the local Ford dealership. To earn some extra money, he started repairing cars on the
weekends and built a reputation for good, honest, hard work.
Like many, Wayne dreamed of someday being the boss. So he sold his Jeep, his pickup truck and his boat; got a small
loan from the local bank; and opened his own repair shop in 1972. Today, Williams Paint and Body has 21 employees.
The business is so successful, Wayne and his wife Evelyn were able to pass it on to their children. “That’s what’s so great
about our country,” Wayne says. “I was just a poor country boy who wanted my family to have better than I had.” And
thanks to Wayne’s hard work and the Main Street competitive economy – they do.
The Washington insider economy, on the other hand, is exemplified by people like Chris Gronet, the founder and former
CEO of now-bankrupt Solyndra, who personally lobbied for what became its $535 million taxpayer-backed loan
guarantee. And when it arrived, he famously sent an email to fellow Solyndra executives calling the Obama
Administration “The Bank of Washington.” Regrettably, when Washington is the “Bank,” taxpayers usually end up
“losers” as well.
You may recall that this loan went bad for the so-called “Bank” and we all ponied up for another bailout. As Governor
Romney famously told the president, “You don’t just pick winners and losers. You pick losers.”
Americans in the Main Street economy aren’t looking for or expecting a government bailout. They’re not looking for a
subsidy, earmark, tax preference or legislated advantage. No, the good folks of the Main Street competitive economy
simply want their success to depend on how hard they work in their hometowns, not who they know in Washington.
Confusion between the two economies has caused many to view success with suspicion. That, in turn, makes it easier
for liberals to mislead with calls for bigger government to ensure “fairness.”
For too long, conservatives have shied away from talking about fairness – seemingly content to yield that value to the
Left. This we do at our peril. All Americans have the right to expect their government will treat them fairly. That means
everyone must be bound by the same rules. Not one set of rules for the politically well-connected and another for
Let’s look at a few examples of how the Washington insider economy is unfair to hardworking American taxpayers in the
Main Street competitive economy.
At 4 million words, the U.S. Tax Code is mind-numbingly complex and costs Americans $225 billion a year to comply
with. It’s a disgrace. You ask, “Why?”
Perhaps the biggest reason is because Washington loves to use the tax code to pick winners and losers. A host of
powerful and well-connected interests – from professional sports leagues to Broadway producers to the president’s
“green energy” cronies – receive special privileges and preferential treatment not available to hardworking shopkeepers
on Main Street. That’s not fair.
It’s time for action. Let’s turn Americans’ frustration and resentment with our unfair tax code into a groundswell for
fundamental tax reform. Today I call upon every Republican in Congress to agree to scrap the code. Let’s tell K Street
“No” so we can tell the American people “Yes.” Be it Fair Tax or Flat Tax, let’s not just say we’re for fundamental tax
reform – let’s actually vote for it.
In addition to our unfair tax code, there’s Washington’s collection of crony subsidies that distort the economy, impose
unfair burdens on taxpayers and are especially damaging given America’s spending-driven debt crisis.
As my friend Stephen Moore here at Heritage recently pointed out in a report, Washington pretends that business
subsidies are just a small, inconsequential part of the budget. The reality is these subsidies are a “large mountain of
cash” that has amounted to more than $20 billion in direct income-transfers to corporate America. “On average, each
Fortune 100 company received about $200 million in such handouts” from hardworking American taxpayers, Stephen
Then there is the Byzantine array of subsidy programs, government production quotas, import quotas, and mandatory
target price programs that constitute the farm program. The beneficiaries of these programs like to hide behind the
image of the sainted, poor, iconic family farmer. But in 2012, median farm household income exceeded the median U.S.
household income by 34 percent. In fact, the median income of households associated with commercial farms was over
$208,000 per year.
Nowhere in America, and certainly not in the Fifth District of Texas, is an income of over $200,000 considered “poor.”
In addition to the iconic family farmer there is the iconic symbol of “American apple pie.” But it is shameful to think that
every one of those American pies has baked into it Soviet-style sugar. This Washington insider sugar program is a sweet
deal for 4,500 sugar growers whose lobby is inordinately powerful in the Washington insider economy, but it’s not a
sweet deal for the millions of hardworking taxpayers and consumers of the Main Street competitive economy who are
forced to pay for it.
Now, please know I proudly stand before you as a third generation farmer. I grew up working on my dad’s poultry farm.
My first job was to clean out chicken houses, which incidentally is wonderful training for serving in Congress. Everyone
on the farm worked hard and there were some tough times. But I know firsthand that you can farm in America without
taking a taxpayer subsidy.
The fair way to help family farmers is to strengthen private property rights, expand trade opportunities, kill the death tax
and rein in the EPA. I call on all Republicans in Congress to make the next Farm Bill the last Farm Bill by phasing out the
farm program once and for all, and allowing all farmers the freedom to farm.
I am sure you have been as troubled as I have been to see recent headlines like: “Lawmakers increase calls to bring back
the bacon in spending bills,” and “Pork spenders push to undo congressional earmark ban.”
It just goes to show that in politics there are no permanent victories.
As my friend Tom Coburn said, earmarks are the gateway drug for spending addiction in Washington.
Earmarks epitomize the Washington insider economy, where too often power triumphs over merit, secrecy over
transparency, and special interests over the national interests. I call upon all Republicans in Congress to leave the
earmark ban in place.
Now let’s turn to bailouts.
Chrysler, GM, Wall Street, Fannie Mae and Freddie Mac – the Washington insider economy is enshrining America as a
Few Americans have ever been interested in occupying Wall Street. Most of us are just tired of bailing it out. And we
certainly don’t want a federal government that tells some they’re Too Big to Fail and tells everybody else they’re too
small to matter. In America, if we lose our ability to fail, we’ll soon lose our ability to succeed.
And how is it that in the GM and Chrysler bailouts, the president’s UAW allies made out just fine and thousands of
secured creditors were left holding the bag? That’s the Washington insider economy at work.
And no discussion of bailouts would be complete without mentioning the mother of all bailouts, Fannie Mae and Freddie
Mac. In their heyday, few equaled their Washington influence. And Washington, in turn, rewarded them with virtual
monopolies. These virtual monopolies allowed them to privatize their profits and socialize their losses.
We all know they were at the epicenter of the financial crisis. It’s time to end the boom, bust, bailout cycle in our
And I say to my friends in the housing industry, the best housing program is not a subsidy or federal guarantee, it’s a
It’s time for the Republican Party to live up to its pledge to end Fannie Mae and Freddie Mac and end their nearly $200
billion bailout, which is exactly what the PATH Act does.
The PATH Act – which stands for Protecting American Taxpayers and Homeowners – has passed the Financial Services
Committee and will end these crony-corrupted mortgage giants forever.
It is time for action. I call on all Republicans in Congress to support the PATH Act.
The last issue I wish to discuss today is the federally-chartered Export-Import Bank, whose authorization expires at the
end of September. Given that probably only 1 in 1,000 have ever heard of the Bank, and given that it is relatively
modest in size compared to the roughly 10,000 other Federal departments, agencies and programs supported by the
taxpayer, it begs the question: Why is the issue of its reauthorization so important?
It is important because there is probably no better poster child of the Washington insider economy and corporate
welfare than the Export-Import Bank. Its demise would clearly be one of the few achievable victories for the Main Street
competitive economy left in this Congress. I believe it is a defining issue for our party and our movement. The
reauthorization debate clearly goes to the heart of the question: which economy do we believe in?
Most taxpayers would be surprised to learn that this government-run bank takes their hard-earned money and lends it
out to China and Russia – nations that openly challenge our economic and security interests. It also lends their money to
oil-rich countries like Saudi Arabia and the United Arab Emirates. It even lends taxpayer money to the likes of Congo,
which has a demonstrated history of human rights abuses. I doubt most taxpayers believe this is either wise or fair.
As many of you know, these loans and credit guarantees to foreign entities arguably serve the purpose of supporting
U.S. jobs through the expansion of U.S. exports. Supporters of Ex-Im push forward Jenny Fulton of Miss Jenny’s Pickles
as the face of the Bank. I’ve never met Ms. Fulton, but I’m sure she’s a fine lady who exports a good pickle.
Ms. Fulton and small business owners like her are not the significant beneficiaries of the Ex-Im Bank.
The real beneficiaries – the true face of Ex-Im – are multi-billion dollar corporations like GE, Ford and, of course, Boeing.
That’s because more than 60 percent of Ex-Im’s financing benefitted just 10 big corporations last year.
Roughly half of the Bank’s book of business supports Boeing’s aircraft exports alone, earning the Bank its common
nickname – “the Bank of Boeing.”
These multi-billion dollar companies would do just fine without the Ex-Im Bank’s corporate welfare.
Don’t get me wrong. I like and respect these companies and, more importantly, the jobs they provide. But I think most
taxpayers would be scratching their heads, if not throwing a fit, at the prospect of their government using their money
to support a boutique export credit agency for some of the largest and deepest-pocketed corporate titans in America.
Although few Americans have ever heard of the Export-Import Bank, I know they’ll be hearing a lot more from the Bank
as we get closer to the end of its authorization.
You’ll hear from Ex-Im: “We create jobs.” And they have numbers and photo opportunities and testimonials to prove it,
they say. But here’s the truth: Ex-Im is not showing you both sides of the ledger.
Rather than actually creating net new jobs, Ex-Im simply shifts production from one sector of the economy to another.
This is precisely why the Government Accountability Office reported that government programs like the Export-Import
Bank – quote – “may largely shift production among sectors within the economy rather than raise the overall level of
employment in the economy” – unquote.
Or as Professor Donald Boudreaux of George Mason University neatly sums it up: “…at best the Ex-Im Bank creates jobs
in export industries by destroying jobs in non-export industries.”
If you were to ask Delta Airlines and other U.S. air carriers, they would point out that Ex-Im’s loans to foreign airlines
have killed as many as 7,500 domestic airline jobs because the Bank subsidizes their foreign competitors.
Caterpillar was a recent beneficiary of Ex-Im’s taxpayer financing that went to an iron ore mining project controlled by
Australia’s richest citizen. And an American iron ore company called Cliff’s Natural Resources said it will no longer be
able to effectively compete with its Australian competitors due to the subsidy.
Another American competitor feeling the sting of Ex-Im is Valero Energy, which employs more than 10,000. Ex-Im is
lending $641 million to a Turkish company to build a new petroleum refinery in Turkey. Ex-Im’s actions “jeopardize U.S.
refining jobs and undermine the strength of the U.S. refining infrastructure,” Valero’s CEO wrote to the Chairman of Ex-
Again, Ex-Im’s claims about creating jobs are dubious at best when you look at both sides of the jobs ledger.
Speaking of accounting, you’ll also hear from Ex-Im: “We make money for the taxpayers.” But if that were the only test,
perhaps we should go and purchase a profitable hamburger chain and rename it “Uncle Sam’s Burgers and Fries.” Of
course, if run by the federal government it would assuredly not remain profitable. More importantly, that’s not the
proper role of government in a free society.
Besides, the Ex-Im Bank’s supposed “profitable” operation is suspect.
If Ex-Im were to use fair-value accounting, as the Congressional Budget Office recommends, there is an argument that it
might actually show a $200 million loss. Using fair-value accounting, we’d see that the Banks’ programs operate at a
significantly higher subsidy rate than it currently shows in its budget. This means the programs cost American taxpayers
far more to operate and deliver far less in revenue as a return than the Bank claims.
Does this remind anyone else of the accounting gimmicks that the cronies running Fannie and Freddie used to mask the
true financial picture of the GSEs during the late 1990s and early 2000s?
And even if the Export-Import Bank was making money, as it claims, we’d do well to remember that Fannie and Freddie
made money until they didn’t; the National Flood Insurance Program made money until it didn’t; Social Security used to
make money until it didn’t.
History teaches us that, sooner or later, every government insurance and guarantee program – almost without fail – will
The next argument you’ll hear from Ex-Im is: “We fill in financing gaps.” What gaps? 98 percent of total American
exports are financed without the Export-Import Bank. In other words, almost every American exporter is perfectly
capable of securing financing without forcing the taxpayer to be a partner in the deal.
Does Ex-Im mean they’re providing financing where the private sector won’t? Doesn’t that beg the question: if the
private sector won’t undertake this risk, why is Ex-Im forcing taxpayers to?
Most find it inconceivable that gigantic corporations like Boeing and GE and Caterpillar can’t sell their products overseas
without taxpayer assistance.
The next argument Ex-Im uses comes directly from President Obama, who said: “As long as our global competitors are
providing financing for their exports, we’ve got to do the same.” I hear this argument frequently from my children:
“Everybody else is doing it; why can’t we?” I’ve never found it terribly persuasive.
If other countries want to subsidize the products they sell us, maybe we should thank them instead of copying them. I’m
not interested in engaging in a taxpayer-funded subsidy arms race with the rest of the world.
Besides, the truth is that only a little more than one-third of the Export-Import Bank’s book of business is used to
compete with our foreign competitors’ export subsidies.
As the reauthorization debate heats up, some of the Bank’s beneficiaries and supporters are running ads claiming
Ronald Reagan was one of the Bank’s biggest fans. The truth is President Reagan tried three times to zero out the Bank’s
direct lending program and succeeded in reducing its authorization by 50 percent.
On Ex-Im, listen to the Great Communicator get to the point: “Is it fair to ask taxpayers to help pay billions for export
subsidies to a handful of America's biggest corporations?” he asked.
And the resounding answer from our audience today is ______?
Perhaps what is most disturbing about the Export-Import Bank is its political lending, both ideological and crony-based.
The Bank is mandated to support specific sectors of political lending. It has a “green” energy quota. It permits almost
no assistance for coal projects. It has a mandate to specifically support exports going to sub-Saharan Africa. It has a
small business mandate as well. In other words, as Milton Friedman said, Ex-Im substitutes the judgment of bureaucrats
for that of the marketplace.
Then there is the Bank’s crony-based political lending. Again, last year more than 60 percent of Ex-Im’s financing
benefitted just 10 big corporations that have a strong political presence in this town. Recently, Abengoa, a Spanish
multi-national corporation, received a $33 million Ex-Im loan while former Energy Secretary Bill Richardson
simultaneously sat on its advisory board and on Ex-Im’s as well. And Ex-Im guaranteed $10 million in loans to benefit the
I am reminded that Apple Computers got its start in a garage. It makes you wonder if Solyndra got its start at an Obama
I have no doubt that an overwhelming number of Democrats will support reauthorization of the Export-Import Bank.
They want to allocate credit in our economy as part of a political process. Democrats are always happy to subsidize
corporate America as long as they can also regulate and control it.
Let them stand up for the Washington insider economy. But not us. Let us proudly stand for fairness. Let us proudly
stand for the Main Street competitive economy. Today I call upon every Republican in Congress to let Ex-Im expire. Let
the American taxpayers exit Ex-Im once and for all.
The smart and fair way to help American exports is with a conservative agenda: fundamental tax reform; strong free
trade agreements; a freeze on most regulations; and greater American energy independence with projects like the
As we see, in a war against cronyism, Washington is a target rich environment. I have not run out of examples, but I am
running out of time.
What’s the cost of the Export-Import Bank and the rest of the Washington insider economy? Academic studies suggest
7 to 22 percent of GDP. For the U.S. economy, this means the annual cost may range from $1 trillion to $3.5 trillion. But
its true cost is, today, too many Americans believe that “the system” is rigged and unfair.
You know how the argument goes. The Left says, “This is a 99 percent versus 1 percent country. The greed of the few
has impoverished the many. And if you have become successful, surely you did it through luck, larceny or political
influence.” And so success is suspect; something to be vilified. We all have become familiar with their narrative –
because they do such a good job repeating it over and over.
Our narrative must be that only free enterprise is fair. Only free enterprise is moral. Only free enterprise is based on
merit. Only free enterprise is empowering. It is the only economic system that frees ordinary people, like my
constituent Wayne Williams, to achieve extraordinary results.
Another such person is Christian Gheorghe. He escaped to America from Communist Romania by swimming across the
Danube River in 1989. When he arrived in the U.S., the immigration officer asked him: “Why are you here?”
“Freedom,” he replied.
To make ends meet and learn English, he took a job as a New York City limo driver. Today, just 25 years later, he is a
Silicon Valley CEO whose company recently raised $13 million from investors for its cloud-based analytics platform.
Only in America. Only in the Main Street competitive economy.
“The most amazing thing that America has given to me is the gift of freedom to build something from nothing,” he said.
Freedom. That’s what this debate – and really every debate in this town – is about at its core.
It is the debate over whether we should continue to be the free Republic that shook the world in 1776 or whether we
are destined to become a European-style social welfare state of the 21st century?
The answer to that question lies collectively in the hands of our movement and our party. It is our opportunity and
imperative to reform the corporate welfare state. It is both right and necessary. For then – and only then – will we have
the moral authority and the people’s trust to reform the social welfare state. This is the whole point of my talk today.
This is a call to action for Republicans and conservatives to reject the Washington insider economy and embrace the
Main Street competitive economy – its fairness, its empowerment, its morality. And when we do, America’s future will
be one of unparalleled freedom, opportunity and growth. A future where all children are bound only by the size of their
dreams. A future where you succeed because of your abilities and ambition, not because of who you know in
At the end of the day, the future is not in my hands as a member of Congress. It is in our hands as citizens of this great
Republic. As Jefferson wrote Madison: “The people are the only sure reliance for the preservation of liberty.”
This action might not be possible to undo. Are you sure you want to continue?