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What Ted Cruz's Goldman Sachs loan tells us about running for Congress

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Today's big GOP primary news is that, per the New York Times, Ted Cruz obtained $1.2 million in low-interest loans from Goldman Sachs and Citibank to fund his 2012 Senate bid. These loans were improperly concealed from election officials. Also Cruz's wife, Heidi, was a managing director at Goldman Sachs at the time, which may have helped. (She is now on leave.)

Naturally, the optics of this are terrible for Cruz. For one, it fuels the criticism of Cruz as a sleazy hypocrite, privately benefiting from the big banks that he publicly bashes and then lying about it by calling the money "personal funds." It also highlights that his wife worked at Goldman Sachs, which undercuts some of his cultivated outsider credibility. The allegations that he is permanently in debt to Goldman write themselves.

Cruz, of course, claims that the failure to report was "inadvertent" and that this is a non-story. My guess: There will be a few days of back and forth as other candidates try to make this into the Rosetta Stone of his true character. And then we will move on to the next moment of outrage.

But while we have this story in front of us for the moment, let's zoom out to the bigger picture: With rare exception, you have to be superrich to run for federal office these days. Which is itself a tremendous problem — far bigger than Cruz's accounting shenanigans.

The Millionaires' Club

Cruz's estimated net worth is about $3 million. When he was elected, his estimated net worth was about $1.8 million. This is a lot of money. The New York Times story implies that one reason Cruz felt he had to put the extra money into the campaign was that his opponent in the Texas GOP primary, Lt. Gov. David Dewhurst, was spending $24 million of his own money. Money that he conveniently had lying around.

Most senators are very wealthy personally. As of 2014, the median net worth of a sitting US senator was $2.7 million, with a millionaire supermajority in the chamber. The median net worth of a US House member was about $900,000. That's considerably more than the median American.

By contrast, there are very few working-class people in Congress. And Cruz's imbroglio illustrates one reason why: Goldman Sachs probably isn't going to give that kind of a loan to somebody who doesn't have Cruz-like personal net worth.

In general, working-class people have a hard time fundraising. They're not in the right networks. They don't know a lot of rich people. And rich people disproportionately fund campaigns.

If you worry that our economic policy is perpetuating inequality, a Congress of millionaires turns out to be a problem. As political scientist Nicholas Carnes has demonstrated, a Congress full of personally wealthy individuals tends to prefer policies that benefit people like them. Or as Carnes put it in White-Collar Government, his recent book on the subject, "[T]he shortage of people from the working class in American legislatures skews the policy-making process toward outcomes that are more in line with the upper class' economic interests."

By looking at variation across states, Carnes finds that states with more working-class legislators spend more on social programs. In Maine, for example, one in seven representatives comes from a blue-collar job (making it the most working-class state legislature). Maine devotes 30 percent of its budget to social programs — one of the highest rates of any state. By contrast, states with higher percentages of business owners tend to have less generous support for unemployment and lower corporate tax rates. Carnes summarizes his findings in the book:

The effects on the well-being of working-class Americans are staggering. Business regulations are more relaxed, tax policies are more generous to the rich, social safety net programs are stingier, and protections for workers are weaker than they would be if our political decision makers came from the same mix of classes as the people they represent.

This leads Carnes to the conclusion that:

Even if we somehow stem the tide of money in Washington, even if we guarantee equal participation on Election Day, millionaires will still get to set the tax rate for millionaires. White-collar professionals will still get to set the minimum wage for blue-collar workers. People who have always had health insurance will still get to decide whether to help people without it. If we want government for the people, we've got to start working toward government by the people.

Yes, we should get more working-class perspectives in Congress. Instead, we have a system where congressional candidates are increasingly wealthy individuals.

The Ted Cruzes of the world can get a low-interest loan from Goldman because they have assets and family connections to back up the loans. This allows them to do things like run for Senate. Most of us don't. That's the real story here.

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