This summer, former House Majority Leader Eric Cantor was defeated in unprecedented fashion in his primary race. Since losing the election, Cantor has declined to finish the remainder of his term, instead taking a job with the Wall Street investment firm Moelis & Company. Politicians taking jobs on Wall Street is nothing new, and while it’s not inherently illegal, it raises some important ethical questions about how our economy and government should function.
Many have criticized Cantor’s move to the financial sector, including Sen. Elizabeth Warren (D-Mass.). In an interview with Katie Couric, she expounded on the larger trend of politicians who “head straight out into the industry, not because they bring great expertise and insight, but because they’re selling access back in to their former colleagues who are still writing policy, who are still making laws.” What she is referring to is known as crony capitalism, defined by Wikipedia as “an economy in which success in business depends on close relationships between business people and government officials.”
At this point, no laws or ethics have been violated. A former politician is free to pursue whatever career he wants. Theories about the plans and motivations behind this deal are merely speculative. Perhaps Eric Cantor has always dreamt of being a financial advisor. And maybe Moelis & Company were willing to shell out for someone with no experience in the mergers, acquisitions and recapitalizations that they specialize in, simply on the off chance that he will be a ‘natural.’ But more likely, they are hoping he will return to Washington in the future, and having bought his loyalty, he will use his political power to help his friends on Wall Street.
Whatever the case, this story sheds light on the broader issue of the overlap between Wall Street and Washington. Many current and former economic advisors in Washington, such as Jack Lew (Citigroup), Henry Paulson (Goldman Sachs), Alan Greenspan (Paulson & Co.) and many others, worked in Wall Street before and/or after their stints as Federal Reserve Chairman/Secretary of the Treasury. Although it is important to have experienced people determining the country’s economic policy, drawing those experienced people almost exclusively from the most powerful Wall Street firms creates a conflict of interest. Public servants are supposed to do what’s best for the American people, but when the alternative will give their company in particular or Wall Street in general a boost, they are likely to favor Wall Street, because they know the favor will be repaid after they leave office.
Dave Brat, the Tea Party candidate who upset Eric Cantor in the primary, was critical of such crony capitalism. “I’m not against big business, I’m against big business in bed with big government,” he said.
There’s nothing inherently wrong with Wall Street or government itself, but when connections between the two rig the game in favor of those who know the right people, and when those responsible for keeping Wall Street in check are former and/or future employees of Wall Street, there is something wrong.