Political Ratholes

Recently by Gary North: John Boehner’s ‘GobGop’ Plan to Sell Out the Tea Party in 2013. It Will Begin in January 2011.

Where a person spends his money reveals his priorities in life. A eulogist at his funeral could begin by describing his check stubs. Of course, no one does this. “Always speak well of the deceased at his funeral.”

Meg Whitman spent $141.5 million of her own money to finance her campaign for governor of California. In a Republican landslide year, she got 41% of the vote, running against Jerry Brown, ex-Governor Moonbeam, the defeated general of the 1981 medfly war. The 72-year-old routed her. His campaign cost $32 million. It is not known if he contributed to it. He got a little help from his friends. Labor unions spent an additional $25 million.

Pulling 41% of the vote gives her credit for more common sense than she possesses. Ms. Whitman (aka Mrs. Griffith Harsh IV — really) paid $141.5 million to get about one extra percentage point of the vote. Any Republican candidate who is breathing can get 40%.

An economist compares the marginal cost with the marginal return. He would say that the marginal cost was astronomical, and the marginal return microscopic.

For her $141.5 million, she will be remembered as the most financially naïve novice political candidate in American history. No one else comes close. Yet she and her hired author wrote this in her campaign autobiography:

I really hate waste. I’m one of those people who reaches to flip light switches off when I leave a room, whether I happen to be paying the light bill or not. (The Power of Many, p. 107)

It will take a lot of flipped off light switches to save $141.5 million (after taxes).

Prior to November 2, she had not voted for 28 years. This gives some sense of her commitment to politics as a means of social change. Voting was not worth her time. She was busy, among other things, serving on the board of Goldman Sachs.

Like so many other rich candidates for high political office, she was found to have hired an illegal alien, i.e., “undocumented worker.” Frugal!

She was not content with running for state representative or state senator, let alone running for city council. Instead, she ran for governor in a state with a history of political suicide missions by multimillionaires who thought they could buy their way to victory. Only Arnold did, and he was Arnold. Here are some others. You have never heard of them: Norton Simon, Michael Huffington, Al Checchi, Steve Westley. Their political expenditures are gone with the wind.

Here is the famous bottom line: Meg Whitman dropped $141.5 million down a rathole. Why?


Here is what she would have won if she had won. A state with the following, according to her campaign site:

1. A gigantic debt2. A gigantic annual deficit3. A declining school system4. High unemployment5. A rotten business climate (48th worst)

Why did she think she could fix all this? The word “megalomania” comes to mind. (“Meg-alomania” would make a great one-word title for some enterprising author of a book on the most expensive self-funded political campaign in history.) Yes, she is a billionaire. Yes, she hit pay dirt once. So, we were assured on her campaign site:

As one of the most effective corporate leaders in America, Meg learned how to manage big, complicated organizations.

She made a billion dollars with eBay. The question is: In what way is eBay anything like the ponderous, bloated, near-bankrupt government of the state of California? I can’t think of anything significant.

The promotion continues:

She knows how to motivate people to bring about change.

Yes, she does: pay large salaries, offer senior managers stock options, and fire anyone who can’t cut it. Most of all, avoid getting unionized. Somehow, these skills do not seem transferable to any civil government, especially California’s.

Meg has a vision to create a stronger, more prosperous California that is borne out of the lessons learned from working in world-class businesses such as eBay, Disney and Hasbro, where if you don’t deliver, you’re shown the door.

On November 2, she was shown the door by the voters.

The voters did not buy what she was selling. It is almost as if they were familiar with Austrian School economics. Austrian School economics teaches that success in business does not prepare anyone for dealing with the problems of civil government.


In 1944, Ludwig von Mises’s book, Bureaucracy, was published by Yale University Press. It is short, to the point, and a masterpiece. He argued that there are two kinds of management: bureaucratic management and profit management. They are completely different, because they are financed differently.

Government bureaucrats are financed by politicians who voted on the bureaucracies’ budgets, which means that bureaucrats have government-guaranteed income. To earn their keep, bureaucrats by law are supposed to do everything by the book: a book written in the past. Bureaucrats are therefore past-oriented.

In contrast, profit-management firms are financed by investment, and they are focused on the future: how to meet customer demand. Their employees are intensely future-oriented. They have no guaranteed income financed from on high.

Gaining management skills in one sector provides few management skills in the other. The bureaucrat has never met a payroll. The entrepreneur has never had government-guaranteed income.

Civil government operates by putting guns in the bellies of those under its authority. A business operates by putting choices in front of customers. These are two radically different procedures.

A politician can lose his office by one vote. It’s all or nothing. A businessman who loses by 50% plus one keeps 49.9%. The rules are different. The strategies are different.

The businessman who can make the transition into politics is rare. Michael Bloomberg has done it, so far. Goldman Sachs’ Jon Corzine did it, without great success. He was booted by the voters.

The idea that a businessman can in any way impose business methods on government is one of the most ludicrous myths in politics. There may be a few voters who believe this myth, but such faith derives from a misunderstanding of the financing of the two management systems.

The basis of order in a bureaucracy is a top-down system of funding. The government is at the top. It relies on the threat of violence to collect the funds.

The basis of order in a profit-seeking business is a bottom-up system of funding. Customers are at the bottom, making purchases or refusing to make them. The money flows up from the sales force. No coercion is involved.

A person who has developed skills in one of these management systems is likely to find herself ill-equipped to provide leadership in the other.

The voters of California figured this out.


Meg Whitman spent $141.5 million on a lost campaign. It was as good as lost on the day she filed her papers as a candidate.

California is Brown-Pelosi-Boxer-Feinstein country. Any Republican who thinks he or she can get into the governor’s office had better be a movie star. The electorate is predominantly urban, Democrat, and liberal. The state’s fiscal condition reflects this: facing bankruptcy.

Everyone has his or her priorities in life, but getting elected to political office in a nearly bankrupt state defies understanding.

I think elections are popularity contests. That is what it is in high school. Maybe Ms. Whitman always secretly wanted to be elected student body president. I can understand this. That was my goal in life at age 16. I achieved it. By age 20, I knew that campus politics was a meaningless ritual. There was no power that accompanied the office.

What about the real world? A governor has power, but it is surely limited by circumstances . . . and by other politicians. In a major crisis, a governor exercises temporary power, but for the most part, it’s all show. The person who sets the governor’s schedule is the person with power.

I ask: “What else could she have accomplished with $141.5 million?”

She could have set up a foundation for distributing educational materials that promoted her worldview. But what is her worldview? We cannot discover much from her campaign website, other than she thinks there is a lot of waste in government. Her expenditure on running for governor surely matched this waste.

What vision does she have for America? This is also not clear.

What books has she read that have shaped her thinking? I tried to find out. I could find no reading list.

We can see what a person most believes in by looking at his or her donations. Her biggest donation was $30 million to Princeton, just as her son was applying at Princeton. (Yes, he got in.) She got a 500-resident student dorm named after her.

My thought: Why give money to a Left-wing propaganda mill such as Princeton, home base of Ben Bernanke and Paul Krugman?

Anything else on her list? Paying to lock up some prime land in Colorado.

Anything else? No.

I admit: pouring $141.5 million down a political rathole certainly beats giving it to Princeton. It does far less harm. But there were other choices.

Priorities are important in life. Politics became her priority for the first time in 2009. Why, I cannot say. She surely did not make this clear.

Candidate Arnold promised to clean house in Sacramento in 2003. A broom was his symbol. He was unsuccessful. The Augean stables are as full as ever.

This time, when he departs, he will not say: “I’ll be back.” I hope he avoids “hasta la vista, baby.” It would not be dignified . . . not even for the Governator.


Meg Whitman had priorities. They were not my priorities. I have no idea what her top priority is for her next $141.5 million. I hope it’s not a donation to a large, rich, liberal university that doesn’t need her money and will put it to counter-productive uses.

One of the rules of thumb I have used over the years is this one: donate money or time to an organization that would miss it if you didn’t donate. This means a small, under-funded organization. The big ones that a lot of people have heard about don’t need your money.

For generations, rich conservatives have donated money to the colleges that granted them degrees 50 years earlier. The only rich conservative who ever got his money’s worth was Sun Oil’s J. Howard Pew (d. 1973). He gave a lot of money to Grove City College, a four-year college in Western Pennsylvania. Its faculty is more conservative than most.

Why do they do this? Fools and their money may not be soon parted, but eventually they are. These rich donors never figure out that their success was based on a set of free market institutions that are hated by most salaried faculty members, a point made by Harvard economist Joseph Schumpeter in 1942, and which has gotten worse since then.

Where can you get the most bang for your buck? From institutions operating in the shadows — institutions that are not in a position to grant prestige in exchange for tax-deductible money.

Where else? By starting small businesses that can hire people. The creative process of profit-seeking business is an ideal legacy to pass on to your fellow man.

The waste associated with rich businessmen who go into politics is hard to match. Their skills are unsuited for politics. Their skills are ideally suited for starting businesses.

People seek validation. Rich men run for political office. They see votes as validation. They have received validation in the form of money. The marginal value of additional money declines. The marginal value of votes is high for those who still seek applause. So, they spend money to get elected.

What about the marginal value of employees? That seems to me to be a high priority. But it’s just “more of the same” for successful businessmen. They want different kinds of applause.

What about the marginal value of minds changed, lives transformed, and non-profit projects completed? Why are these not high priorities? Answer: no public applause. Bad answer. Jesus said:

Take heed that ye do not your alms before men, to be seen of them: otherwise ye have no reward of your Father which is in heaven. Therefore when thou doest thine alms, do not sound a trumpet before thee, as the hypocrites do in the synagogues and in the streets, that they may have glory of men. Verily I say unto you, They have their reward. But when thou doest alms, let not thy left hand know what thy right hand doeth: That thine alms may be in secret: and thy Father which seeth in secret himself shall reward thee openly (Matthew 6:1—4).

There is applause, all right. But it is not the applause of the crowd.


Find ways to serve others. If you need income, charge for what you supply. If you don’t need income, you have the luxury of not charging.

If you need applause as motivation, re-think your priorities. Exactly whose applause do you need? Why? Where? When?

Avoid ratholes that promise ersatz applause. Even if you get it, what good does it do?

November 9, 2010

Gary North [send him mail] is the author of Mises on Money. Visit http://www.garynorth.com. He is also the author of a free 20-volume series, An Economic Commentary on the Bible.

Copyright © 2010 Gary North