The Republic of Virtue. F. H. Buckley

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СКАЧАТЬ didn’t produce a healthy recovery, the government pumped trillions of dollars into the economy through the TARP bailouts and a quantitative easing program of buying long-term government bonds. Politically connected banks received larger bailouts than financial institutions that spent less on lobbying or political contributions.¹⁵ Senator Elizabeth Warren (D-MA) has pointed to a chummy relationship between major banks such as Goldman Sachs and the Federal Reserve, which is supposed to monitor them.¹⁶

      As the number of government regulations has increased, so too have the rewards from having a hand in shaping them. Our regulatory regime, ostensibly designed to help middle-class buyers, begins to resemble a form of consumer protection for billionaires that cartelizes our economy and squeezes out competition from below.¹⁷ Even the burdens of regulation can turn out to be an anticompetitive blessing for the major firms that enjoy economies of scale in coping with them. For a large firm, with its battery of lawyers and compliance experts, it’s simply a cost of doing business. For smaller firms, however, the startup costs of conforming with the regulations can be prohibitive. To mention but one example, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, itself 1,000 pages in length, has already spun off 22,000 pages of regulations. Imagine a new entrant into the market trying to work its way through all of that before it can open its doors for business.

      Lee Drutman of the New America foundation describes how a seemingly simple rule can become a regulatory nightmare. Dodd-Frank’s “Volcker Rule” began as a three-page proposal to prevent banks from engaging in proprietary trading (where a firm invests its own money rather than that of its depositors). When enacted, this had turned into ten pages, but it soon became 298 pages of rules. That left too many questions unanswered, however, and when finally released the rules were nearly 1,000 pages long. Even then the Federal Reserve criticized the rule’s lack of specificity.¹⁸

      Complexity in government advantages the large firm that can invest in the legal resources to work its way around the plethora of rules, and that’s especially true if the firm invests in lobbying. One of the largest companies in the world, General Electric, paid no taxes in 2010. At the same time, it spent tens of millions of dollars to lobby for changes to the tax code.¹⁹ GE wasn’t alone in this arena, either. The Sunlight Foundation reported that the ten Fortune 100 companies that lobbied on fifty or more bills over 2008–11 paid an average effective tax rate of 17.1 percent, while the publicly traded companies that lobbied on fewer than twenty-five bills paid a rate of 26.0 percent.²⁰ What complexity offers to large firms is not only economies of scale in regulatory compliance, but also the ability to bend the rules in a way that’s hidden from public view.²¹

      Rent-seeking and crony capitalism may bring benefits to particular companies or industries, but they are drags on the overall economy. They’re also highly unjust, for they amount to a transfer of wealth from those who lack access, to those who have it—from the outsider to the corporate welfare bum. The new man without connections is less likely to start a firm or expand an existing one when the scales are weighted against him. Because these practices are wasteful and unfair, people on both sides of the political fence have condemned them, yet they also find beneficiaries and therefore defenders on both sides, too.

Measuring Corruption

      Objective measures of corruption are hard to come by, and generally unreliable. But a subjective measurement is readily available and quite useful. Transparency International, a highly regarded German NGO, produces a Corruption Perceptions Index (CPI) every year, rating countries on the basis of reporting by respected observers, including businessmen and experts from the country itself.²² People are asked such questions as:

       • Are misbehaving public officeholders prosecuted or penalized?

       • Are there effective public auditors?

       • Is corruption a problem in the court system? The tax bureau? Inspection bodies?

       • Is the executive accountable to oversight institutions?

       • Has the government been captured by special interests?

      The responses to these questions are used to score each country on a scale of 0 to 100, with higher scores meaning less corruption. The CPI has been criticized for its subjectivity,²³ but any ranking system of this nature must inevitably rely on judgment calls, and the CPI is in fact the most widely followed measure of public corruption.

      How does the United States do? In 2014 it scored 74 out of 100, giving it a rank of 17th place behind higher-scoring countries.

      As Table 1 shows, Denmark beats us hands down on government integrity, with a score of 92.

TABLE 1

      Transparency International’s Corruption Perceptions Index 2014

      Frank Fukuyama has said that “getting to Denmark” should be the goal of public policy.²⁴ That might seem an impossible dream, though, since Denmark is much more ethnically homogeneous, and societies where people are more alike have been shown to be generally more trusting²⁵ and less corrupt.²⁶ But we couldn’t turn America into Denmark, and we wouldn’t even want to do so. As a self-styled “nation of immigrants,” America prides itself on its diversity, and we’re not about to change that. Moreover, some countries that beat us in the CPI rankings are far more welcoming to immigrants. While 14 percent of American residents (legal and undocumented) are foreign-born, the figure is 20 percent in Canada and 26 percent in Australia, the true nation of immigrants. Canada scores 81 on the CPI, and Australia comes in at 80. Evidently, ethnic diversity isn’t an excuse to throw up our hands over corruption.

The Cost of Corruption

      Corruption is a silent killer of the U.S. economy, and it’s possible to put a number on this. The dots in Figure 1 represent 107 countries, with their 2014 CPI score on the horizontal axis and their 2015 per capita gross domestic product on the vertical axis.²⁷ Through a standard econometric estimation technique described in Appendix A, the diagonal straight line estimates how corruption affects a country’s wealth (per capita gross domestic product). From corrupt and poor Afghanistan up to honest and rich Luxembourg and Singapore, less corruption means a higher GDP.

      The model tells us that if America’s CPI score were to rise to Canada’s score of 81, its per capita GDP would increase from $54,629 to $59,914. Were the CPI score to increase, per impossibilia, to the level of Denmark at 92, per capita GDP would rise to $68,219. For America as a whole, that would amount to an 18 percent or $3.2 trillion increase in the country’s wealth. Think of that missing wealth as the tax that corrupt politicians, regulators and judges impose on all Americans.

      The results shown in Figure 1 are consistent with the many cross-country, empirical studies on how public corruption impoverishes people.²⁸ Within the United States as well, there’s a penalty for living in corrupt states. Measuring differences in corruption state by state is tricky: looking at the numbers of state prosecutions of government officials might not be very helpful, since fewer prosecutions could mean either that officials are more honest or that state prosecutors are themselves corrupt. The way around this problem is to look at prosecutions brought by the federal government, since the Justice Department can be presumed to employ uniform standards across СКАЧАТЬ