The text below is a transcript of audio from Episode 26 of Onward, "The Insider's Lobbyist: How lobbying really works, with David Carmen."
Disclaimer: This transcript has been automatically generated and may not be 100% accurate. While we have worked to ensure the accuracy of the transcript, it is possible that errors or omissions may occur. This transcript is provided for informational purposes only and should not be relied upon as a substitute for the original audio content. Any discrepancies or errors in the transcript should be brought to our attention so that we can make corrections as necessary.
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Ben Miller:
Hello and welcome to Onward, the Fundrise podcast, where you can find out more about what's happening at Fundrise and where you'll hear in depth conversations about the big trends affecting the US and global economies. My name is Ben Miller. I am the CEO and co-founder of Fundrise. My guest today is David Carmen, founder of the Carmen Group. David Carmen is one of the top lobbyists in Washington, D.C. After almost 40 years working in dc, David knows more about how the system works than almost anyone. Considering how many opinions people have about government, I'm excited today to help pull back the curtain to hear from someone who really knows. Before we get started, I want to remind you that this podcast is not investment advice. It is intended for informational and entertainment purposes only.
David.
David Carmen:
Ben.
Ben Miller:
Welcome to Onward.
David Carmen:
Thank you. It's great to be here.
Ben Miller:
Yeah, I'm excited to have you on the show because you are really the true insider's insider in Washington, D.C. Everybody has opinions about Washington and government, but probably very, very few people know it as deeply as you, how it really works, and I thought it'd be interesting for people to hear some of your stories, some of your insights, because you've been at this for a while now.
David Carmen:
I have been for 38 years.
Ben Miller:
Would you mind giving a quick thumbnail sketch and then I'll go deeper after that?
David Carmen:
Great. Yeah, first I want to say I was enjoying your last podcast on the economy, which I encourage people to listen to because you have a very outside Washington view, which is rare. And in Washington on the economy, we have a sense that the recession is not going to happen, and I think your podcast made it pretty clear why that is not the case, and I think most people in America are aligned with your podcast. But here in town, that view is not shared by many. So I just say that as a way to say that in Washington, we got a very distorted view of all things, and it's my job to try to bring some of America into Washington occasionally. As far as my background, I was originally interested in theater and film direction and set design, and that is why I came to Washington because we have the best show on Earth right here. No, I needed a real job because theater and film, unless you're famous, don't pay very well.
My father came here with Ronald Reagan in 1981 from New Hampshire where we were all from, and he was able to get me a job for $22,000 a year with the Republican National Committee writing speeches. From that, I was able to eventually open a business in 1985, which was focused on helping people deal with government, who had issues with the federal government. And I was a participant in a movement that was going on, which I would say is similar to what occurred with management consulting in the seventies and eighties where Peter Drucker, the original management consultant, he wrote a book. He would go around and charge people a lot of money to speak to their corporations, and he was a guru and that's what a management consultant was.
But then by the time you get to the nineties, you have the Boston Consulting, the McKinsey, the professionalization of management consulting in an accepted way with transparent methods of charging and whatnot and a clear economic benefit. The same thing happened to lobbying, which is that if you go back to the seventies, there was something called Five Percenters. They were people that were friends or relatives of elected officials or government officials. They would make 5% of whatever the economic value was they were working on. They were typically hidden inside of law firms. That was, of course, a nasty business that resembled more Third World countries than the United States. Over time, that was regulated out of business and in its place in fits and starts a professional industry grew up that we now know of as modern day lobbying.
I'm proud to say that we were very much a part of that movement so that it wasn't about us living next door to a member or being their best friend or whatnot. It was about being able to be an effective advocate for interest based on the merits of a case and our knowledge of the process in order to get to a good outcome. That's the history of the firm, and I say to the interns that come here, "We might not go to heaven for everything we do, but we wouldn't go to hell for anything that we do," and sometimes we get to go to heaven.
Ben Miller:
That's a great way to kick this off because what I want to do is try to get behind the scenes here and show people how the system works. There's a lot of crazy ideas out there, decent amount of ignorance. Let me just try to walk through different episodes of work you've done or periods, because you've gone through a lot of evolutions over the years. And then after that I want to get to some of your insights because I think you're a deep thinker and you have some interesting insights about people and systems and process. But let just start with some of the more sensational stuff. So you have advised US presidents, governors, mayors, so can you talk a little bit of who and how that works? What does that mean?
David Carmen:
Yeah. I think that's a little bit grandiose, but what happens is we are blessed as a company to have built a pretty substantial reputation, and therefore I say to people, when we were first hired in the eighties, I thought it was because I was the smartest guy that ever lived, and I found out later that it was because no one else would take the crappy cases that we were being presented with, and so we were the last stop on the tour. But now of course over the years when you win and you achieve some things, you get better and better cases. So you get to participate in a lot of really interesting things like the cleanup around Ground Zero, New York City, like Katrina and Saving New Orleans and the District of Columbia when it went under financially. These are rewarding things to be part of.
Our role in these things is very technical. It's really about using the experience we have and the creativity that we have in deploying that experience to come up with a solution to a tough problem where the people that count win and we're unable to see that. That's how we get in the room. So when you say advise presidents or advise members of Congress, it's more about solving a problem. I'll give you an example of that works. So this would be 9/11. So 9/11 happens in New York City. We had represented New York City for other matters previously, and also a group of private sector folks who were the contractors, the heavy construction people in New York because we did a lot of infrastructure work. So the people that build the bridges, the tunnels, whatnot, it's an association.
9/11 happened and the mayor picked up the phone and called the construction association and said, "Hey, I need your guys to come down to Lower Manhattan and clean this thing up." If you remember, there were some real issues with the cleanup, obviously environmental issues, but at the time there was a theory that there is something underneath Lower Manhattan, which they refer to as the bathtub, which is basically a whole bunch of old ships and construction stuff and everything that keeps water at bay and keeps Lower Manhattan, which is below sea level, from flooding. And the fear was when they started cleaning up the steel and the beams and all of that, they would somehow puncture that bathtub and flood all of Lower Manhattan.
So the contractors had an issue because some of the contractors were public corporations like [inaudible]. Others were big family companies like Tully, construction companies. Nobody had a balance sheet sufficient to offset the loss of Lower Manhattan.
Ben Miller:
Right. If they got it wrong, they would be sued.
David Carmen:
Yeah. So they couldn't sign a contract with the city of New York to clean up Lower Manhattan because they couldn't take the liability of that. And so they went to the mayor and they said, "Our workers want to clean this place up. We want to be part of this. It's 9/11, it's patriotic, but we can't sign a contract." And so they didn't have a contract and they shook hands, the mayor and the contractors, and they went to work and they called us and they said, "Figure this out." We got into it and we had some specialists here that were specialists in something called the Stafford Act, which is the act that underpins FEMA regulation. That staffer was able to find a provision which allows jurisdictions to reimburse private contractors for insurance necessary during the cleanup. So exactly this situation. Typically, for a guy with a pickup truck that's picking up trees in North Carolina, so he or she can buy insurance and FEMA can reimburse that cost of insurance while they're cleaning up the streets. Here, of course, much broader use, massive cost.
So we found that and we said, "Okay, now we know that the contractors can charge insurance to the city and be reimbursed for it so that they won't have this liability during the cleanup." We thought we'd solve the problem. So we go to the insurance market to say, "Okay, issue a policy, bill the city in New York, whatever it costs," and they come back and they say, "Yeah, it costs $4 billion as a premium." And essentially the entire risk they wanted in advance upfront. That wasn't going to work because New York City had just been attacked. They didn't have $4 billion lying around for insurance during the cleanup.
What we did is we figured out in discussions with some insurance experts that there's something called a captive insurance policy. Captive insurance policy means that you set up a policy that is only for this event and you pay premiums into a fund that is set aside for that event, and it only pays out claims from that event. That's what the term captive means. It turns out that there was only one state in the nation that actually did captive insurance policies, the only one regulator that sat over there, that was in the state of Vermont. And so we had the idea, we'll set up a captive somehow in the state of Vermont, and we will get the federal government to put in a lot of money into this captive, which we knew hopefully wouldn't have to pay claims for some time, and it will grow from whatever the federal government puts in to some larger number, and then we'll put commercial insurance up above what the federal government is willing to pay.
So we thought we had skinned the cat, we went back to the city of New York, we went back to FEMA and the federal government and we were like, "Okay, we think we have this figured out." They said, "Okay, we'll take it to the president." I'm thinking to myself, "Okay, the president who was dealing with a lot of things" at that time, like reopening national airport that was closed and other things, "I don't know how excited the president's going to be, A, about helping New York City," which politically was not aligned with President Bush in this way, and two, whether he wants to hear this nutty idea, all of that.
So again, people may remember at that time that there was a bill moving through the Congress for $20 billion to assist the affected areas primarily in New York, but also Washington and Pennsylvania relative to the attacks. And the thinking was, "We'll just attach this to that bill if we can get the President to approve it." Meanwhile, it was a airplane that went down by Kennedy Airport over Queens, unrelated to 9/11, but there were theories that there had been a terrorist attack in all of this, and the Congress decided in their wisdom, they would attach that to the bill in addition to the 20 billion, "Let's help the people of Queens."
And so there was this Christmas tree happening on the legislative side of endless things being added to the 9/11 money, which is very tragic looking back on it, but it's the Rahm Emanuel thing, never let a good crisis go to waste. We went back to the president and we said to the president, "Look, we need to do this on the administration side, executive side, not on the legislative side." And so I had a conversation with Mitch Daniels who was the head of OMB, later the governor of Indiana and head of Purdue University, and I went to Mitch and I said, "Okay, this is the deal. This is what has to happen." And he said, "Okay, I'll take it to the president."
Then he called me back the next day and the request at the time was a billion dollars, put a billion dollars into this fund, let it grow, and then we'll have the commercial insurance on top of that. Mitch called me the next day. He said, "The president says yes." And I said, "What? How is this possible?" And he said, "Yeah, the president says yes, and he thought you might be surprised." And I said, "Yes, I am surprised." And he said, "He told me to tell you, David, that sometimes you just have to do what's right."
That was an amazing moment, and we did fund it. I will say this, that the workers from the construction companies that cleaned the site up in seven months, it was projected to take nine months. They completed it in seven months under budget without one day of sickout by any party. It was the most amazing thing. And then of course, papering this captive insurance fund was a disaster because if the governor of New York decided he didn't want the money going to Vermont. So this legislature of New York State had to pass a special law creating captive insurance ability in the state of New York, which they did. And then the workers wanted to be able to dip into the fund for their insurance from environmental hazards, which ended up happening so that this could pay not only claims, which did not happen of the bathtub collapsing, but this ended up being the fund that provided actually for workers that got [inaudible]. So we're very proud of that, but that had to be added to the whole thing.
In the end, it took only seven months to clean up and it took two and a half years to paper and fund. But anyway, that's a story about advising presidents, I think that's more how it comes into play. It's always over some technical issue like this where we bring some expertise to solving a problem that they're facing.
Ben Miller:
That's a great microcosm. So let me just see if I can abstract it out a little bit together with you because people don't appreciate that in order to solve a problem, you have to have some legislative or regulatory permission. The government can't do something unless it's permitted to do it. It has to be permitted to do it one way or the other. So it's not like, "Oh, there's a problem, 9/11" or there's "Lehman Brothers is going bankrupt, can we save it?" There's a question of are we permitted to? And if there's no permission, then they can't.
David Carmen:
Very important observation that very few people know, which is that the difference between the private sector and the public sector is in the private sector you can do anything except what is not permitted by law. In the public sector, you can only do what is permitted by law.
Ben Miller:
And so then you have nearly infinite complexity of what's permitted across the entire government. You have to know what's permitted. So you literally have a staffer who understands one piece of legislation around FEMA, which stands for the Federal Emergency-
David Carmen:
Management Administration.
Ben Miller:
So manages hurricanes and other kinds of crises. And so I think about my company and if we had some issue, new regulations get passed or trying to build something, we don't know the regs, we don't know what's permitted, we don't know how the system works, we have to go hire somebody who does. That's a company like you. And there's obviously companies are different than you, but it's because of the scale and the complexity the government, there's just a necessary need for a professionalized industry that assists companies and nonprofits and other governments to basically interact with our government.
David Carmen:
The government in general, federal, state and local is such a behemoth now and touches everyone in so many complicated ways that fortunately it does take a lot of expertise to be able to cope with that piece of enterprise. We built a business around that, so I have to be grateful for it, but it is sometimes very distressing. For instance, I had a company that just was talking to me yesterday about wanting to open a factory in the United States, which they've never done, and this group of engineers, and they just could not believe the regulatory challenges that they would face in the United States versus Mexico or Malaysia or some other place, and they literally couldn't believe it. They were asking me, "Are these things true?" So in a lot of ways we're the France of my parents and yours.
Ben Miller:
Let me try to give another example that I know from you it's interesting. Because lobbying also has a bad name. You've often been in situations where you have a good company trying to do a good thing, but their competitors have hired lobbyists to stop that. I think about if you're willing to talk about this Sprint and T-Mobile as a good example of basically SoftBank and Masayoshi Son were trying to create another major competitor to the big carriers which are Verizon and AT&T, and those big companies did not want that. And so it wasn't just about getting the regulatory solution correct, it's also about managing counter forces.
David Carmen:
I say to people, there are no lobbyists in North Korea. The reason why we have lobbyists is because we have a free society and it's the contention of interests that play out here. And so it's a sign of health, not a sign of disease. That's self-serving to say, but it is the case that we have a fairly transparent system, more so every day, and we are at war with each other all the time, meaning interests are, trying to get a solution. But the good news is that those battles happen, they actually refined solutions. In the case of T-Mobile and Sprint that you mentioned, Masayoshi Son and SoftBank, which was my client, they made the largest investment into the United States in the history of the United States from outside of the United States when SoftBank purchased Sprint in 2012, over $23 billion at that time.
And then the insight was Masa had a very unique insight, technical insight, which is that Sprint owned some very special spectrum that they were not using, which at the time was not thought of as valuable. It was called Clearwire that owned the spectrum. And Masa had understood that that spectrum was going to become extraordinarily valuable for video and broadband uses because it just operates in such a way that it fits with a densification of network and that's what you need for video as opposed to voice or email, that sort of thing.
So he bought Sprint and then the concept was he wanted to create, as you said, a powerful third competitor to Verizon and AT&T, which would [inaudible] duopoly controlling things at that time. And yes, the duopoly had the view that wouldn't be good for them obviously, but the way they sold it was to say it wouldn't be good for the nation because Masa would be eliminating the fourth upstart competitor by combining with T-Mobile, and there would only then therefore be three companies instead of four, which of course we said, "It'll be three companies instead of two." That was a debate that took a long time. There were three separate efforts to make that merger, which was very sensible happen. And finally, it is the case now. That's a good sight of a case of a lot of contention of different interests brought to bear on that.
Ben Miller:
Could you take us behind the scenes? How does that conflict get mediated with the DOJ or the FTC?
David Carmen:
It's a little hard to go there because of course that's a client specific set of activities, but I'd just say generally that the domains that are involved in telecom, a lot of people don't know this, is that the government has unique business relationships with telecom because there are things that they need to know that happen on the telecom lines and the abilities they have to have. They're also a vendor to the government. Historically, AT&T has a very strong relationship with the federal government that goes way back for the military industrial complex type of relationship. So that gives them very special perspective. Plus they're American-owned and they are union.
So all those things give them a warm fuzzy in the political system and make them very strong to the point that, Don Graham, the former publisher of the Washington Post in a very candid conversation with Masa, almost came close to questioning Masa's sanity for taking on AT&T. And coming from the Washington Post, who at that time was very powerful, still powerful, but at that time very powerful, to hear that chastening from Don Graham gives you a sense of how powerful AT&T is and was.
In any case, what did it involve? Here are the arenas that it involved. So the first thing is whenever you have a merger that is the subject of controversy, department of Justice first looks into it. They have a period to decide whether they care or not. It's called a Hart-Scott-Rodino filing that the company has to make. Then if they decide that they do have an interest in it, in the case of telecom, it also goes to the Federal Communications Commission, the FCC, because the heart of every phone company is the spectrum that the signals move on. And the spectrum originally are public property, which the FCC conveys the rights to companies to use. So the FCC comes into play.
And then in the case of telecom where there's foreign ownership involved, which was the case with Sprint, you then have something called Team Telecom in the government, which is 23 federal agencies that work together to opine on whether a merger is desirable, whether the investors can be cleared through something called CFIUS process, and what, if any, agreement between the federal government and this new ownership of these phone companies will exist in something called a national security agreement that any telecom has if they have foreign ownership of a certain level. Long story short, it's extremely complicated process is what I would say, and to be inside of it was very interesting. One of the great things about my business is I get my master's in other people's business every time we go down one of these roads.
What I would say that might be more interesting to some of your listeners is that I think most people think that the government is very broken and operates very poorly and in some sort of favoritism way, whatever it might be. What I would say is it does not operate as poorly as people think. It operates much better than people think. If it ever operated as poorly as people think we'd be in a real mess. Definitely government has its challenges and is very far from perfect, a lot of problems, but it isn't as bad as people think. And in the end, I draw a line on a chalkboard sometimes where I say, if you had infinite time and money, your problem would get solved in a reasonable way that would stand up to a transparent scrutiny. But of course the problem is people don't have infinite time and money.
Ben Miller:
You're getting to some of the bigger insights I'm interested in getting into because I'm interested in your use about government, but let's get there a little bit later. I want to do a couple more episodes. Before I do those and since you're [inaudible] FTC general category, I'm interested in AI. Recently, I think the FTC's one who opened a investigation into OpenAI, which is the leading LLM AI company in world. And I'm curious if you know anything about that, your view of it. Because it seems strange to me and I didn't understand it, thought maybe you'd have an interesting perspective on it.
David Carmen:
You have a perspective on it, and I have a bias too, so I have to share the bias first so that people can understand where my comments are coming from. So I think that AI is going to be a wonderful tool. It's going to change the face of the Earth a hundred x times the internet in the way that the internet changed the world, but a hundred x to that. Medically huge. It's going to be fabulous for education. It's going to make people's lives easier in very real ways, and it is common that hysteria ensues when such changes are on the horizon. Yes, people will steal from each other, and guess what? They are doing that now. And yes, people will commit fraud and they're doing that now. So to me, I get very impatient because I say, "The government should get busy. Instead of investigating people for whatever they're doing, they should get busy trying to build sensible rules of the road that are practical," knowing that they'll be 10 years behind because we're always 10 years behind the innovation. So I think that should be the perspective.
Now, it gets a little confusing because there is a national security perspective to AI, which dodges in and out of people's regular lives, and let's use TikTok as the simplest example. Let's just go there. Parents don't like TikTok. Okay, so that's an issue, it has nothing to do with AI. TikTok is annoying to parents, either way, rock and roll music was annoying to my parents. The parents can tell them to turn the music down or never go to a rock concert or whatever they might want to develop as a policy, but I'm not sure we need to prevent TikTok's existence because parents don't like it. Okay, that's number one.
And then there's the issue of somehow there's some data that is being extracted from young people's interaction with TikTok, and I'm going to use this as an example of the larger issue. I'm not avoiding larger issue, but I'm just going to get you there. There's data being taken that isn't known to the participants and is being used in some terrible way because in China they're developing something that is terrible and somehow all the children are going to explode on contact because they watch TikTok or something once the Chinese push the button. So that is interesting as a policy debate, but isn't about AI either. That's just about data and we've had a horrible problem trying to legislate the uses of data in a transparent way on every internet app, not specific to TikTok. TikTok incites people more because of the young people that are obviously interacting with it. But again, nothing to do with AI.
Then there's the concept that's growing now of DeepFakes or what could be done on the platform through the use of AI that would somehow be too influential on people and therefore horrible impact. That I equate with 1960s and Madison Avenue when people invented really what we think of today as modern advertising and forced us to drink Coca-Cola and get breast implants that we wouldn't otherwise want because of advertising. So there's really no difference. So again, that's something that can be dealt with, the United States regulated advertising in lots of different ways. They could do the same relative to TikTok and in general to the use of AI to influence people in content, I guess. And that's not the biggest issue.
The biggest issue that the government is concerned about, and it gets to the heart of AI and the real war that's going on is that to make advances in AI and control the military, security, economic supremacy, all of those impacts that come out of what is coming as AI innovation requires an AI machine of enormous size from a data standpoint. So the data is the uranium or the plutonium in the Manhattan Project. If you think about Oppenheimer, the movie, it's basically China, the Middle East, Russia to a lesser extent, Israel, many people are out trying to build this thinking learning AI machine applied to lots of different uses. In order to have a prayer of doing that, they have to have the uranium or the plutonium. What is that? That is a huge data suck that allows for the machine to learn things and get smarter. And TikTok was the most efficient data suck known to man after its introduction to the public.
And so the concern from the United States was we knew that the thinking brain location of the TikTok system was in China and was benefiting from all this data, and that's what the United States was really trying to shut off, the people that were really working on this. I think that the big picture AI piece of this is, from a national security perspective, can we hang on to supremacy in terms of military capabilities and economic prowess in a world where we're not supreme in the application of AI? And I think the thinking is no. Let's follow that logic out. When you think that, why would all the deckhands on the deck of the ship be trying to frustrate the improvements in AI? It would be as if while we were building the Manhattan Project in New Mexico, we were starting to pass laws saying you can't drive cars up to Los Alamos. You'll have to walk up there.
Ben Miller:
I have a similar view. That's what I don't understand
David Carmen:
Because what I would say is that politically all this mixture of side issues involved that excite people, and then of course there are forces that... We're registered lobbyists doing mundane things, but there are people that don't register as lobbyists but are entering the debate that are stoking those fears. And why are they stoking those fears? They're stoking those fears because they want to frustrate the US advance in the space against their own interests, and so they're trying to slow down. It is a Manhattan Project thing where Germany's trying to get the bomb before the United States, and this is now the way you fight that war is by scaring people that the robots are coming.
Ben Miller:
I thought of it as like OpenAI domestic competitors, but you're saying also it's not just domestic, it's foreign influence.
David Carmen:
Yeah, it is, and it's a big issue, but meanwhile it's politically popular to say no TikTok in Montana or... It's a noisy atmosphere. It's very noisy. And the greatest advantage the United States has over other nations as a people is that we are innovative and still have a system that rewards innovation with capital. We should be the winners of this AI race. I hope we are.
Ben Miller:
We've been investing in AI and working on internally, so I know a little bit about it. It goes back to this operative matrix that we were touching on, which is how do you manage as an individual, as a company, as a university, or how do you manage your interaction with government? And it's just unbelievably complicated.
David Carmen:
It's tough. You didn't raise this issue, but I think it's germane to what you're talking about, which is that people ask me, how did the Tower of Babel happen?
Ben Miller:
People ask you that?
David Carmen:
How did we get to this place? You talk about the AI, and I say to people, "Maybe they could solve immigration first and then we'll get to AI" because immigration is a ridiculously simple problem to solve technically, but we haven't done it-
Ben Miller:
But not politically.
David Carmen:
Not politically, but technically. And we need to solve it because we need workers from overseas. Everybody knows, we need people to be able to get asylum who really need it, and we need to keep out people that shouldn't be here. And if I can get an Amazon package delivered to my house the same day as I order the thing, really it should be possible to screen people getting into the country shorter than two and a half years time or whatever it is. Anyways, so we can't solve these problems. How is it... That's the Tower of Babel and say, how did we get to the place where we can no longer solve these very important problems in a pretty efficient way? And I have a very simple answer for that.
And that is that up until the mid two thousands since the history of United States, the Congress was run in such a way that the president delivered a budget to the Congress. The leadership of the Congress divided that budget up into 13 parts. They then fought about what the president was asking for in those 13 areas over the course of the year, and then they decided on what the number would be in each of those 13 areas, and they voted it through and they gave the president the budget that he would get. And then that's how the country ran. The way the leadership of the Congress controlled its members is that essentially, this is an overstatement, but just for the sake of this discussion, they essentially said, "Okay, the majority will get 60% of the spoils of the budget. They'll get to decide 60% of where the budget goes. The minority will get to side 40%." And it was different on every committee, but just use that as a rule of thumb.
And then the majority and the minority would separately go about their work putting together their wishlist for the 60 and the 40 using something called earmarks. And they would come back to their chairman and they would say, "We're really excited. We've pretty much agreed on our 60% that Democrat members want and our 40% that the Republican members want." And then the chairman would hold a markup and they would pass that one of the 13 sections out of the committee with usually a pretty good majority vote because there was a lot in there that both sides wanted. And then they would pass it up to the full Congress. And the full Congress who already had done trading with the committees to say, "You vote for my bill even though I'm not on the committee, and I'll vote for your bill because I'm on this committee." That was all part of the pumping blood of the system. And you would get a budget passed in time, and then that's how the country would run and you'd get airports and bridges.
And by the way, civil rights, this is how Lyndon Johnson passed civil rights. He gave a farm subsidy to some votes in Nebraska and exchange, whatever. That is the currency of what was the government for 200 some odd years, is this bargaining system of taking the federal budget and using it as a negotiation tool to pass bills. I'm sorry to say that in the early two thousands, the Republican Party overly used this system in a different way and it created a scandal. And the answer to the scandal was everyone decided, stop us before we kill again. We're going to ban earmarks. There will be no more earmarks. What that meant was no member could put in a provision specifically of interest to their congressional district or state.
What happened is they sucked all the blood out of the body. There was nothing left to discuss, there was nothing to negotiate. There was no giving and taking of anything real. And so being in Congress stopped being about that essential deal-making and in the process that eroded the power of the chairs, it eroded the power of the leadership and it eroded the ability of the President to negotiate with the congressional leadership over anything meaningful. And people decided that instead of fighting about whether they would get their $2 million for a bridge or a hospital or a provision in exchange for that, for some bill they really believed in. Instead, they would start to communicate with their constituents by railing about certain very broad political issues, right to life or guns or whatever it might be because there was nothing else that they could really talk about.
That produced a great dysfunction inside the legislative branch, which still exists to this day because essentially the currency of the legislature was removed. And so that has created a big problem. The government people were very focused on the Trump administration and think there's some problem in the executive branch. Executive branch is very healthy. It is the legislative branch that it has a challenge right now.
Ben Miller:
I don't feel like I've heard that narrative out there.
David Carmen:
There are people that have talked about it, but I've been railing about this for years. Nancy Pelosi interestingly started to bring back the earmarks, but in a very limited fashion. The sooner we bring it back, the faster the ship will get righted, because then people will have to be up all night and negotiating with each other and they won't be able to call each other names because they need each other's votes.
Ben Miller:
I'm actually just shocked. I don't know enough to debate, okay, it's something else in Congress that's polarization. And Congress to me is clear that it's the source of the dysfunction, the lack of fine middle ground on important policy. So to hear that's essentially the cost of doing business is the earmarks and worth it strategically, even though it's easy to rail about cranberries being funded in Iowa.
David Carmen:
And interestingly, you were asking for specifics inside baseball. At the beginning of the Trump administration. I was involved and there were others involved that wanted to change this immediately because the president wanted to pass an infrastructure bill coming out of the gate. And there were some people that wanted to pass the repeal of Obamacare out of the gate, which is what they ended up trying to do. Failed, but they tried to do it. The people that wanted to pass an infrastructure bill out of the gate, in order to do that, it was obvious you needed earmarks because the way an infrastructure bill gets built up is from specific projects. So it was going to be a great opportunity to bring the earmarks back, illustrate their importance, and get a big infrastructure bill passed that the country would care about and it had the opportunity to usher in a completely different era of congressional politics, and it would've been a great success for the Trump administration right out of the gate.
What ended up happening is that the speaker at the time who was Paul Ryan, great guy, fabulous guy, and very smart, and a reluctant speaker who wanted to be chairman of Ways and Means. He felt that if he made that change, which required the speaker had to make the change, if he made that change, that his caucus would remove him. And I don't mean that he felt that he was trying to save his personal skin. It wasn't about that, but he was afraid that there would be chaos in the Congress for the majority. And so he didn't want to have that happen at the top of the administration. And so that was part of the calculus of why they did go with the Obamacare repeal rather than the infrastructure bill, which I think was a shame. Missed opportunity.
Ben Miller:
But a lot of stimulus got passed in the last few years. So how did that happen, considering what you're saying is the root problem?
David Carmen:
Yeah, so I think what happened was President Trump did not share the traditional Republican view of fiscal policy and was definitely a fan of properly used borrowing. Back to my statement about Rahm Emanuel's maxim about, let no crisis go to waste. When COVID happened, the president was quick to see that this was a chance to, in a bipartisan way, insert a lot of stimulus to deal with the COVID problem, but also to get things done for the country that I think he thought should be done. So I think that's what happened. And the Democrats traditionally have always wanted stimulus, the Republicans traditionally were the restraint, but President Trump doesn't come from that section of the Republican Party.
Ben Miller:
I have a couple more topics. I want to go to a state level because I think it's interesting just to go one level down, and I feel like there's a lot of interesting parallels to what's happening now to downtown cities and what happened before in the eighties. I'm from DC and I remember when Washington, D.C. went bankrupt. It was a mess. You were involved in that. It'll be interesting, so talk about that period and then maybe some of the patterns or lessons you take from that era that may be replaying again.
David Carmen:
I can't discuss this chapter without mentioning your dad and the fact that your dad really was the architect of the saving of Washington, D.C. in that period. And that's a fact.
Ben Miller:
Wow, I didn't know that.
David Carmen:
What do I mean by that? I mean that the city at that time, let's just refresh, was broke. It essentially was bankrupt and it had crime in the streets. The Black middle class had moved out to Maryland and the schools were a mess. The hospitals were being paid by the city for their Medicaid about two years late on bills. Just to give you a sense of how bad it was, the city was physically boarded up. Retail was non-existent. We had very few residents in the northwest section of the city, which had traditionally been the tax base. All of which you say it was very, very bad. Only your dad who had been a native of the city and responsible for so much economic development could look at that and say, "I see something different for the city." And he had a very visionary view of where the city could go as the nation's capital in a growing America.
That vision was the critical ingredient because without that vision, nobody would've done anything. It just would've looked like pouring money down a rat hole, whatever was asked for. But because of this vision of a gleaming capital city that could happen, which was articulated very specifically by your dad. In other words, 7th Street, which had been the traditional market street of the city, becoming the new heart of the city and bringing sports teams to the city as part of the experience, engaging city activities that would bring residents back and scenting residents to come and live in the city. All these things were part of a vision that excited businesses to come together and politically disparate people to come together, Marion Barry and Newt Gingrich, for example, to try to articulate this vision and make it happen.
And so underneath that was a very complicated series of actions. The control board, which was politically controversial, which is a fiscal control on the city during the period of change. A vast list of changes in the relationship between the federal government and the city that eventually was codified in the Balanced Budget Amendment Act district revitalization section that Bill Clinton and a Republican Congress passed and signed. Lots of new kinds of incentives and suppression of outdated regulation, a commitment to fight crime and drugs for real and to improve the schools for real, which helped move people back into the city. Incentives for retail, sports and those kinds of things. And it's hard to believe the city that we're living in today if you were able to somehow make a 4D experience of the old city for people to walk through.
But to your point, having said all that happy talk, to your point, it does feel like we're headed back towards that former state. And there are no people left in the government that were in the government at that time. They've all retired or left or gotten beaten. There are no people left in Congress who have the sympathetic view that Republicans and Democrats had in that period. And that view came about because your dad really... It was the judo moment because the district was so bad off and the rest of the country was pretty well off. It was politically appetizing to help the district. Now I think the district is looked at as very wealthy and rich by comparison to much of the country so it's politically much less appetizing to help the city.
But we're back sliding towards where we were before, which is pushing people out. As Marion Barry used to say, "The people that pay have to be here to pay for the people who need." We were upside down in 1994 in that way, and we're headed that way again. We're pushing people out of the city that can pay and we're attracting people that need, to the city, and that's a recipe for disaster.
Ben Miller:
Wow. So I didn't know that story really. I guess I should have. For me just to hear that story, I guess I've heard that from my father, but I never really, just vaguely, and I was never really believed him.
David Carmen:
Yeah. Well, it's true. [inaudible] a longer time, you and I talking about it. There would be no waterfront without your dad. He was the one that saw the vision of what the waterfront could be. So the waterfront project that exists today. There would be no sports teams. Absolutely. Baseball wouldn't be here, soccer wouldn't be here.
Ben Miller:
Basketball.
David Carmen:
Basketball. [inaudible], that whole history, probably more important there would be none of these restaurants and retail and all these experiences, bike paths and all that stuff was things that your dad had experienced in other retail environments that he had worked in around the world. And he brought together a team of about 200 people of the best and brightest architects and city managers and all these people. And he funded all that to show the district what the district could be.
Ben Miller:
Okay. We have to take this offline because I'm interested in a personal level, but to go back, your understanding of machinery, whether that's state or federal, what that tells you about how they should think about the system, what the lessons are. For most people I think are apathetic these days and don't really know how to engage or what's the point? How do you think about that for a rising generation?
David Carmen:
I think it's a big problem. I think that if you are entrepreneurial and you're trying to make something happen, there's a hundred X more resistance to that than there was 30 years ago. People that are building things in Latin America and parts of Asia and Africa even, amazingly, are experiencing less resistance than here in the United States. When Ronald Reagan was elected at that time, we had a higher tax rate, personal tax rate than Sweden, which Sweden had always been famous for having the highest tax rate in the world, being socialist country. And people didn't know that. They didn't understand that the country had gotten so out of whack that it needed to be readjusted. And with some small readjustments, it really helped the country get back on track from a tax policy standpoint.
Now what we have is the equivalent of that on the regulatory side. People do not understand the weight of regulation and government, state and local, to your point, and federal, on innovation and enterprise and opportunity. It's huge. The weight is huge, I don't even know how to calculate it. And it's so much bigger than many, many other parts of the world, even though we all think as Americans that we have the least. And so the debate is we actually need more because in France they have a better environmental policy or whatever.
So the United States needs to collapse a lot of its regulatory clap trap so that, to your point, young people can believe again that they can thrive, start a business, get capital. For anyone that's been in FinTech or finance to look at what it's like inside of a bank, people don't realize it's just like being in a hospital. We have done to the financial industry what we did to the healthcare industry, which is to say made it a Rube Goldberg machine, and all those costs have been added onto the system. And so luckily there has been some innovation in the FinTech companies like Fundrise and SoFi and these other companies that are smaller that are like that, that are trying to get in the gaps.
So the answer to your question, you have to look at the world always as an opportunity. Every entrepreneur does. And you have to say, "Okay, this is reality. You can't deny reality. How can I be part of something that changes reality?" And I will just leave this example, which I just love this example, and again, I use it with my interns, which is Uber. No matter what you have to say about Uber, there's all kinds of issues now that Uber is a mature company. When Uber started, they had a concept which was completely illegal in the United States of America. Their business concept was illegal. And let's just play it out in Washington, D.C. as an example.
So Washington, D.C. had something called the Cab Commission run by a very well-meaning 80 year old man whose business I bought in 1994, Ron Linton. Cab drivers were a very politically powerful group here in town, and the cabs were dirty, a mess, not fun and expensive. And Uber wanted to open up the Washington marketplace because it was an affluent community, they wanted to be here. And the CEO came and interviewed a bunch of lobbying firms, including ours, and it was like [inaudible] they got told what's necessary to pass a change at the Cab Commission and how many years it would take and all of that. And meanwhile, while he was interviewing all these people, he had absolutely no intention of hiring any of us. He was deploying Uber in Washington and customers were using Uber.
And before the cab drivers even realized it, I think there were a hundred thousand users here. And then the cab drivers started to scream and say it was illegal and the commission started to arrest Uber drivers or pull them over or give them tickets or whatever. And meanwhile, the community was like, "Where's my Uber? I'm pissed off." And they flipped the whole politics over so that the politicians that normally would've defended the cab situation and worked with lobbyists to try to incrementally destroy Uber's business while they were paying for the lobbying, the politics flipped and everybody realized, "Hey, we have to deliver Uber. People want Uber."
And so they enabled Uber without any lobbyist shots being fired or anything else, and the world changed. And basically they did the same thing, a different version of the same thing all over the country, all over the world, because they had a great idea and the balls to go do it. I say that as an example because I don't want people to be discouraged that these things can't happen. They do happen, and the system does absorb disruption and society does get better. Disruption is an overused word, but I think it's a very important real word that is our path forward. We have to do everything possible to embrace disruption where we can.
Ben Miller:
That seems like a great place to finish up. It's really inspiring, David, so I really appreciate you taking the time.
David Carmen:
Yeah, I love this, Ben, I think it's incredible what you've accomplished with Fundrise and watched you pull that together from the beginning. It's an example of disruption, obviously. You're one of the success stories and the answer about what you do about young people is to make sure they know about what you did. Anyway, thanks for having me on. I look forward to watching for the success of Fundrise, and I'll be listening to your podcast too, not just because I'm on it now that I'm more aware of it and heard this July one. I look forward to hearing who comes on next.
Ben Miller:
Onward.
David Carmen:
Onward.
Ben Miller:
You have been listening to Onward, the Fundrise podcast featuring David Carmen, founder of the Carmen Group. My name is Ben Miller, CEO of Fundrise. We invite you again to please send your comments and questions to Onward at fundrise.com if you like what you've heard. Rate and review us on the Apple Podcast and be sure to follow us wherever you listen to podcasts. For more information on Fundrise-sponsored investment products, including relevant legal disclaimers, check out our show notes. Thanks so much for joining me.
