Libertarian welfare recipients: More on the ethical morass 

It's stupid to attack Michele Bachmann's husband for accepting Medicaid as a form of payment. It undermines one's authority in battling against Big Government when one also lobbies for subsidies, like the U.S. manufacturing lobby.

So my last two columns tried to lay out some bookends on the morality of taking subsidies and favorable government policy (liberals are, to some extent, bracketed out of this conversation, because they don't see Big Government as bad). Passively accepting government subsidies or protection seems unobjectionable to me, especially when those subsidies have distorted the market so that you're paying for them anyway (think student loan subsidies). Actively lobbying to create or expand government subsidies for yourself seems clearly wrong to me.

But there's plenty of middle ground.

To further your thinking on this topic (and for many other reasons), I highly recommend this piece by Anthony Effinger at Bloomberg, profiling banker Andy Beal.

Beal's main business model is using FDIC insurance as a way to eliminate risk on his investments -- in short, he gets investment banks to deposit money in his banks, then he makes risky investments with those deposits, knowing Uncle Sam will backstop them. One banking expert aptly calls this "an FDIC-insured hedge fund."

Here's another way Beal makes money:

Beal also mines cheap money from the Federal Home Loan Bank of Dallas. It’s one of the 12 private cooperatives set up in 1932 to encourage lending for housing and development. The FHLBs have the implicit backing of the U.S. government, meaning that investors expect that the Feds won’t let them fail, just as the government took over mortgage lenders Fannie Mae and Freddie Mac in 2008 rather than let them collapse.

Also, he banks on HUD houses and tried to set up a business to contract for NASA. In other words, this sounds like the sort of subsidy suckler and regulatory robber baron I normally write about. But while other Big Government profiteers -- like developers or GE's CEO -- will openly praise "public-private partnerships" as some more mature, advanced way of doing business Beal sings a different tune:

Beal’s politics -- he’s a self-declared libertarian -- seem an odd fit for a banker who relies on federal guarantees to attract deposits. He loathes big government and gives money to politicians who vow to dismantle it. Until they do, he plans to avail himself of federal programs to make money just like the next guy.

“I hate big government,” Beal says in an e-mail between a series of interviews granted, he says, only to ensure that the facts about his banks are correct. “I don’t like the government- issued paper currency rules or the laws that require its use. But those are the rules, and I live by them.”

I understand this argument. In the abstract I might buy them. But here it rubs me the wrong way.

First, think about the morality of what could happen here. Say Beal's banks fail, and his banks can't repay the depositors -- most of whom are really banks. Say this is part of a broad banking crisis, and the FDIC can't cover all of its liabilities. What we'll have is taxpayers paying off the deposits of investment banks that a hedge-fund billionaire -- Beal -- lost for them. That's the sort of thing that's morally objectionable enough that nobody should want to make it more likely than it already is.

Another problem: The near occasion of sin. What do you do when your business is deeply invested in some subsidy, bailout, or distorting regulation, and suddenly that government policy goes on the chopping block? What if it's difficult to extract yourself from a position where you depend on the subsidy?

In other words, investing in government creates an incentive for you to lobby for more government. If you're a libertarian, that's a morally compromising position.

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Timothy P. Carney

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