WASHINGTON -- The American political elite have never really been riled up over Elizabeth Warren's policy positions. They're just frightened by the culture war she's waging against the soft corruption of Beltway careerism.
Sure, Warren is tough on Wall Street. But such left-wing radicals as Sen. John McCain (R-Ariz.) and former Citigroup CEO Sandy Weill support reinstating Glass-Steagall and its restrictions on risky securities trading. On most issues outside economic policy, Warren is a conventional Democrat. She doesn't talk about foreign policy much, and when she does, she gives progressives little to cheer.
But when she takes on the revolving door between Washington policymaking and corporate cash-outs, tempers flare all over the city. Her campaign against Wall Street tax-inversion guru Antonio Weiss? "Political grandstanding" and "fratricide" from a know-nothing eager for a "scapegoat," they say. Her letter highlighting corporate conflicts of interest in the research of (now former) Brookings Institution scholar Robert Litan? That's "bullying" and "McCarthyism," a "crusade" born of a "power rush," they claim.
"I got the death penalty," Litan told Politico -- an impressive metaphysical feat, if true.
Listen to the latest "So, That Happened" podcast embedded above for more on Warren's revolving-door efforts.
This much, at least, is certain. Brookings forced Litan -- a former Clinton administration economist -- to resign his unpaid position as a non-resident senior fellow at the prestigious think tank.
Warren did not call for Litan's ouster, but her letter to Brookings did publicize some embarrassing details about his work. In July, Litan testified before a Senate committee against a Department of Labor proposal to protect retirement accounts from unscrupulous fund managers. The rule would impose a fiduciary duty on investment professionals, requiring them to manage accounts in the best interests of their retiree clients, barring them from selecting investments simply because they come with side perks for the account manager. While well-intentioned, Litan argued, the DOL proposal will ultimately end up costing low-income savers a lot of money.
This testimony raised quite a few eyebrows, since a great deal of credible research on the topic has reached the opposite conclusion. The Obama administration estimates Americans lose $17 billion a year from conflicted investment advice. And it turns out the study Litan conducted to draw this conclusion was paid for by the Capital Group -- an investment company actively fighting the DOL rule. The company paid him $38,800 and provided editorial input on the paper.
Litan was introduced at the hearing as a Brookings fellow. And while his written testimony included a footnote disclosing the "support" he received from the Capital Group, nobody watching the event would have known that Litan was being paid by a financial firm with a stake in the outcome of the policy fight.
Neither, for that matter, would the readers of a Washington Post letter to the editor by American Council of Life Insurers CEO Dirk Kempthorne, who cited Litan's work and his affiliation with Brookings but somehow forgot to mention who funded it.
In an email to HuffPost, Litan noted that Brookings didn't seem to care much about the hearing during the three months between his testimony and the release of Warren's letter. And he has told reporters that he wishes his critics would focus on the caliber of his work rather than its funding source.
The Beltway outrage directed at Warren for sending the letter, of course, has nothing to do with the quality of Litan's research or his ability to publish it. The First Amendment has not been repealed. Nothing prevents Litan from doing all the industry-funded research he wants and letting the public evaluate its merits.
What Litan can no longer do, however, is capitalize on Brookings' centrist, scholarly reputation when performing favors for flush corporate clients. This is a scary thing in the nation's capital, where this sort of thing happens all the time. Corporate interests pay for a lot of economic studies that end up being used as lobbying cudgels. People in Washington are accustomed to cashing in on their reputations and those of prestigious institutions.
And Litan's supporters at The Wall Street Journal and the National Review have not heralded the rigor of his work -- only its corporate-friendly conclusions. His study simply isn't very good. Unlike academic papers, it was not peer-reviewed by experts before publication. Litan instead received feedback from the Capital Group.
Litan's main finding, that the rule could cost consumers $80 billion, has been touted by industry lobbying and PR efforts. It's a big number, but flimsy. Litan derives it by assuming low-income people will have nothing but "robo-advice" to rely on after DOL's rule goes into effect, and then further assuming these robots will not persuade them to ride out huge stock market downturns. When savers sell en masse at the trough of an investment cycle, they will lose tons of money.
This is as speculative as it is silly. One reason Litan thinks low-income savers will all be driven to automated services is his conclusion that humans won't be able to make money off poor people without charging commissions. But the DOL rule doesn't actually ban commissions. And the metrics he uses to calculate the cost of "robo-advice" aren't actually derived from automated programs sending out alerts and warnings to investors -- they're derived from Vanguard's data on target-date retirement funds.
One could be forgiven for concluding that work of this caliber had been corrupted by the corporate interests who paid for it. Indeed, a blog post from Brookings fellow Jane Dokkow titled "Caveat Emptor: Watch where research on the fiduciary rule comes from" is one long, implicit dig at Litan's study. (Warren cited the post in her letter to Brookings.) Dokkow says low-income savers can already get good, unbiased and unconflicted investment advice from both people and software, and that these sources won't dry up with the DOL rule. At a Brookings forum this week, Harvard behavior economist David Laibson and MIT economist Antoinette Schoar also backed the DOL rule.
These are not wild visions of egalitarian utopia or issues of intellectual freedom or thought-policing. In a way, Warren's critics are selling themselves short by accusing her of waging an ultraliberal witch hunt. Cheating your investment clients and peddling corrupt research aren't conservative values -- they're Washington values.
The "So, That Happened" podcast is produced and edited by Adriana Usero and Peter James Callahan, and engineered by Brad Shannon, with assistance from Christine Conetta. To listen to the podcast later, download it on iTunes, where you can rate, review and subscribe to the show. If there's something you'd like to hear discussed on "So, That Happened," email firstname.lastname@example.org.
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