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November 16, 2009

where the corruption lies

I haven't seen polling on corruption, but I suspect that most Americans see some aspects of our society as "corrupted" in an important sense of that word. Institutions' appropriate, original purposes have been twisted or adulterated until they serve harmful purposes. The great dividing question is, Where do you see the most corruption?

The libertarian/conservative story is that the federal government was created for very limited purposes (the enumerated powers of the Constitution) and has since been corrupted by elites to serve their own illegitimate ends at the expense of individual freedom. One can debate whether the functions of the modern federal government are appropriate and beneficial. Regardless, I disagree with the premise that the federal octopus keeps expanding. As a percentage of GDP, federal revenues have been steady at about 17-20% since the Depression. That means that if increased taxation is a sign of corruption, FDR corrupted us but there has been little change since. What has changed is the nature of federal regulation and activism. Forty years years ago, the national government was involved in welfare (AFDC) and school integration (busing), it drafted many young men to fight in an unpopular and deadly war, and it regulated the financial markets, which were basically public stock and bond exchanges. It has retreated in all those important--and potentially invasive--areas.

I do see other profound forms of corruption:

Financial markets are supposed to allocate resources to the most productive purposes, but the cost of the financial sector has grown from 1.5 percent of the economy in the 1800s to almost 8 percent in 2008--a sure sign (along with Wall Street bonuses and other blatant evidence) that this sector is seizing value for itself and not allocating it productively.

Corporate boards are supposed to oversee companies in the interests of shareholders; and in a competitive market, whatever serves customers best should benefit shareholders as well. But boards seem eager to protect the salaries and job security of senior managers, with whom they interlock.

Medical science is supposed to develop objective understand of diseases, which leads to treatments that will be employed in the maximum interest of patients and with full respect for patients' dignity. (Health care uses 16% of GDP.) Instead, drug companies ghost-write journal articles advocating for their products and block independent studies designed to compare the efficacy of different treatments. Insurance companies decide how patients are treated.

The courts and criminal justice system are supposed to protect the peace and promote individual liberty and security, but they now absorb massive social resources to incarcerate 2.3 million Americans. Lawyers, companies that build and staff prisons, towns that house prisons, law-enforcement agencies, and organized crime syndicates are some of the institutions that benefit from this diversion of resources.

Legislatures are supposed to deliberate in public about the common good, but Genetech lobbyists were able to write floor statements for 42 Members of Congress (22 Republicans and 20 Democrats). Of course, that is just a window into the pervasive influence of well-funded lobbyists on lawmakers.

Universities (almost 3% of GNP) are supposed to enhance people's knowledge and wisdom, but they seem as likely to sell research to industry, field professional sports teams using unpaid athletes, and select privileged young people and grant them diplomas after housing them in Club-Med-like arrangements.

I think corruption (writ large) is a major political issue. Perhaps John McCain understood that when he made corruption on Wall Street a signature theme (much to the dismay of Dick Armey). But McCain offered no serious policy response, because he always personalized the problem. Systemic corruption arises because of the rules, incentives, or norms of large institutions. Punishing a few malefactors is rarely more than a small part of the solution.

November 16, 2009 12:44 PM | category: none



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