The Problem of Systematic Corruption

– December 10, 2020 Reading Time: 6 minutes

What the Left calls Systemic Racism and the Right calls the Deep State or the Swamp represent ideological shadings of a bigger problem sometimes called Systemic Corruption, the corruption that America’s Founders and Framers and European classical liberals like Frederic Bastiat most feared. If we could scotch that snake, most socioeconomic problems would dissipate and some would evaporate.

Most readers are conversant with individual corruption, like when a public official wants a bribe to expedite issuance of a permit. Such acts resemble a user fee but they are arbitrary and difficult to enforce, and the permits themselves are usually unnecessary, so individual corruption abets economic inefficiency. Most countries rightly try to scrub individual corruption out of existence. All ultimately fail, but some tamp it down enough to be better off for it.

Systemic Corruption constitutes a much more serious problem because it is not only legal, it bears the imprimatur of the State. Its existence becomes crystal clear when its pernicious impact is personal but when it helps specific individuals they tend to praise it to high heaven. For most people most of the time, Systemic Corruption lay hidden in the grass, a deadly viper ready to rear its ugly head and poison its victims before slithering back into hiding.

Systemic Corruption occurs whenever laws, rules, or regulations (LRRs) remain in effect despite not leading to announced outcomes. Some refer to this as unintended consequences but intentions remain opaque while announcements, while subject to some interpretation, tend to be relatively transparent.

Who knows what President Obama really intended but the consequence announced in the title of his one major piece of domestic legislation, the Affordable Care Act, has clearly failed because healthcare costs continue ever upward in real terms. The rate of growth slowed but remained well above general inflation. Moreover, the slowing was not clearly because of the legislation and if merely slowing growth was its sole intent, it should have been called the Going Bankrupt from Medical Bills Slightly More Slowly Care Act. Yet Obamacare remains the law of the land. Why? Systemic Corruption.

Many LRRs do not improve human lives on net. Deposit insurance prevents noisy Great Depression-style bank runs, for example, but at the cost of allowing bankers to take on more risk because depositors have no incentive to discipline them by withdrawing insured funds. Several studies have concluded that deposit insurance is approximately a wash, making depositors’ lives easier but taxpayers’ lives worse when called upon to bail out failed banks.

The net effect of many other LRRs remains unclear, which likely means they have close to zero net effect too. So why suffer them any longer? While their individual effects may be negligible, their combined weight drags on innovation and threatens to turn America from a free country, where one can do as one pleases unless expressly forbidden by a LRR to do so, to a despotism where one must seek permission lest government “blow all our brains out if we stept [sic] out to piss,” as the unlettered farmer-republican William Manning so colorfully put it in his 1798 manuscript The Key of Libberty [sic].

All such LRRs could be written off, perhaps, with reference to general human incompetence or laziness. But continuation of LLRs that clearly create net costs, many while doing the opposite of that promised, clearly constitutes corruption of the highest order. America’s many so-called “wars” on drugs, poverty, and Covid represent prime, but hardly the only, examples.

Many failed LLRs continue because businesses profit from them and most people do not know or care enough to push legislators to repeal or reform. For instance, American governments could reduce prisoner recidivism rates by paying NGOs to help ex-cons obtain employment and stay out of trouble as the Doe Fund and the Prisoner Entrepreneurship Program have shown they can do. (See here for more details.) Instead, some contract with private prisons and parole companies in ways that induce them to raise recidivism rates through the roof. Other governments rely on their own programs, ones that most prisoners rightly remain reluctant to use.

Other failed LLRs continue because politicians easily confuse constituents by citing faulty statistics, drawing incorrect inferences from correct data, or confounding cause and effect. The great revolutionary Thomas Paine warned us that if LLRs became too complex, “the nation may suffer for years together without being able to discover in which part the fault lies, some will say in one and some in another, and every political physician will advise a different medicine.”

In the case of Social Security, the nation has suffered for almost a century from a policy deliberately designed to be difficult to unwind. It soon became the third (i.e. electrified) rail of American politics despite the fact that it keeps poor families poor by forcing them to invest in life annuities instead of assets that can be passed to heirs. The relative poverty of blacks (hillbillies) gets blamed on Systemic Racism (their own ignorance and sloth a la Hillbilly Elegy) instead of the true culprit, FDR’s economic ignorance and political hubris.

Meanwhile, well-meaning scholars such as Darrick Hamilton push policies like so-called baby bonds designed to counter the ill effects of Social Security with more government redistribution! When I personally told Hamilton at a conference in Montana a few years ago that Social Security was the key cause of intergenerational poverty, a point established by NBER researchers decades ago, he refused to even consider calling for its reformation.

Systemic Corruption hobbles the economy, preventing America’s economic mustangs, its entrepreneurs, from roaming freely over hill and dale in search of novel resources and solutions. Just running brings many people great joy, even if it necessitates dangerous leaps of faith that destroy their nascent businesses. Nothing ventured, nothing gained. Systemic Corruption, however, teaches aspiring entrepreneurs that nothing will be gained, so don’t bother to venture. Asian, black, Hispanic, Jewish, or white, male, female, or trans, keep your dreams small because if politicians think it will help their careers, they will not hesitate to destroy you and your business, and even claim it is for your own good. No matter how outrageous the LLR, good luck reversing it because sundry twits and dimwits will box and doxx you into submission.

The Covid crisis has of course rendered Systemic Corruption even more palpable and virulent. Governors shat upon the US and even their own state constitutions and found they could get away with it without inconveniencing themselves or their families. A few, some allege, went so far as to rig the recent U.S. presidential election. Why not? They suffered no ill consequences for maiming a generation of aspiring innovators, the very lifeblood of economic growth: What child kept home from school for no good reason, perhaps as his or her parents lost their life savings and business, also for no good reason, will dream of innovating or inventing some new good or service that might enrich the lives of millions or billions? Nary a one, I suspect, but while America suffers from anemic economic growth, governors Gruesome, Witless, and Nomo will be just fine, so long as society doesn’t completely fall apart.

Remember early in the pandemic when it was fashionable for grave voiceover artists to note that Americans had suffered before yet “we” persevered and even triumphed and that this time would be no different? This time things are different because never have so many been tricked by such flimsy evidence into waiving core rights for so little in return. Too many fell too quickly for claims that “the” science indicates this or that (e.g., no masks, then any old masks, then certain masks, then two masks, the masks before 10 p.m., etc.) and became and remain the complicit tools of tyranny. Too many fail to see that Old Media is now more op ed than news and that New Media will do whatever it takes to foist its own, self-interested version of events on America’s miseducated masses.

The Covid crisis will eventually subside due to some combination of natural and artificial immunity but it was a “gimme” question that our systemically corrupt society completely botched. Once the few remaining Constitutional checks and balances tumble, wholesale policy changes regarding climate and race and gender will be foisted on the American people. All the promises of productive reform will soon expose themselves as false, misguided, or excessively expensive but they will not be rolled back, not by legal means anyway, so long as Systemic Corruption waxes ascendant.

What is to be done? We have to keep the promise of liberty, especially of voluntary association and competitive markets, alive and remember that no matter how bad things get, the solution to most of our problems, radically smaller government and greatly increased economic freedom, can always be implemented tomorrow, one way or another.

Robert E. Wright is the (co)author or (co)editor of over two dozen major books, book series, and edited collections, including AIER’s The Best of Thomas Paine (2021) and Financial Exclusion (2019). He has also (co)authored numerous articles for important journals, including the American Economic Review, Business History Review, Independent Review, Journal of Private Enterprise, Review of Finance, and Southern Economic Review. Robert has taught business, economics, and policy courses at Augustana University, NYU’s Stern School of Business, Temple University, the University of Virginia, and elsewhere since taking his Ph.D. in History from SUNY Buffalo in 1997. Robert E. Wright was formerly a Senior Research Faculty at the American Institute for Economic Research.