Allstate CEO Complains About Government Debt -- Because It's Pinching His Investments
Allstate (ALL) CEO Thomas Wilson is complaining that governments lack the "intestinal fortitude" to balance budgets. Apart from the fact that deficit-cutting is a tremendously bad idea right now, this griping is really rich stuff coming from an insurance executive on so many levels.
In an interview with Bloomberg Television, Wilson laid it on thick, with a litany of clichés aimed at politicians:
"Government borrowing is way out of control." ... "We need to get our house in order." ... "Nobody has the intestinal fortitude to actually move forward to try to change anything," Wilson said of government debt at the federal, state and local levels. "They're just sort of sitting there waiting for disaster to happen."I'll grant you that there's a culture clash, an eternal difference of views between the private and public sectors, that explains some of this. CEOs get paid big bucks to make hard decisions or lose their jobs, and can't understand how politicians who do perform in a similar fashion would not lose theirs. Theirs is a culture of think and act decisively. Public policy is built on deliberation. Corporations cannot be run like democracies; governments in this country have to -- at the very least -- make a stab at it.
However ...
Insurance companies make money by taking premiums and investing them for a profit. So what's Wilson really complaining about? The municipal bond market. (To be fair, he even told Bloomberg as much.) He's not worried about defaults, but about lower valuations for his munibond investments. In other words, he's just another CEO lamenting that public policy does not maximize his profit. Get in line, Tom, there are a lot of those.
Also, it's simply wrong to say that there is no "intestinal fortitude out there." Every state in the union save Vermont is bound by a balanced-budget rule, so states have been slashing away -- getting their "house in order" -- just like Wilson wants. And their hacking away has had a ripple effect down to the municipal level, since localities can no longer rely on key grants from state capitals. This is destructive stuff by the standards of enlightened macroeconomic policy. But absent additional federal stimulus to ease the pressure, it's going to continue.
Then there is the federal government. Recall that during the first half of the year, Congress made a mighty effort to pass healthcare legislation, a central plank of which was cost containment. That was the grand bargain opposite the new promise to cover almost all Americans, and a credible case can be made that healthcare cost control, rather than spending cuts or tax increases have to be the central element of any fiscal consolidation plan.
And what industry went after healthcare reform with unmatched gusto? Yup, insurance. Allstate alone pumped $2.7 million into state and federal election campaigns during the 2008 cycle, according to the Center for Responsive Politics. It spent $1.5 million in the second quarter on lobbying.
Far from being a courageous CEO willing to denounce bad policy, Wilson's complaints amount to an extension of that work -- lobbying, this time via the media. He should not be surprised if the political system has the "intestinal fortitude" to resist his demands.
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