more from Schweizer: “The permanent political class does not produce any goods or services. Their ability to make money rises from their ability to extract wealth by leveraging it from others. Politicians can write legislation that can destroy corporations or help them prosper. They can perform constituent services to benefit friends or punish enemies. They can intervene with bureaucrats in a way that can reap billions for a company. They have access to information that can dramatically affect the economy and financial markets, information that few other people have. All of this crony capitalism comes at a high price for the rest of us. Under free-market capitalism, the idea is that a rising tide lifts all boats. Henry Ford wanted Americans to become more prosperous because then he could sell them more cars. Crony capitalism is a zero-sum game. Crony capitalists don’t care whether a rising tide lifts all boats. They just want to buy their way onto the big party boat. All too often people assume the corporations and special interests have the real power that politicians are mere corks [xxiv] tossed around in the rough surf of capitalism. The fact is that the permanent political class has immense formal and informal powers that are both blunt and subtle. For example, your chance of getting audited by the Internal Revenue Service often depends on who your congressman is. One study found that the IRS actually shifts enforcement away from congressional districts represented by legislators who sit on committees with oversight of the IRS. [xxv] A study by Stanford University’s Rock Center for Corporate Governance found evidence that firms that make political contributions and hire lobbyists are less likely to face enforcement actions by the Eecurities and Exchange Commission. And if they are subject to an SEC enforcement action, there likely “to face lower penalties on average.” Two professors found that companies that hire lobbyists are, on average, much less likely to be detected for fraud, or they can evade detection for 117 days longer than average. These firms are also 38% less likely to be detected by regulators. The scholars note that “the delay in detection leads to a greater distortion in resource allocation during fraudulent periods. It also allows managers to sell more of their shares.” Having friends in Washington can be extremely valuable. Washington’s financial leveraging power can be found even in something as seemingly innocuous as the Endangered Species Act (ESA). The act can have an enormous economic effect on property owners and developers. Scholars at Auburn University found that the implementation of the ESA has been highly political. Politics determine which species get listed as threatened or endangered and how quickly (or slowly) a certain species gets recognized and protected. The researchers found that states with House members on the budget oversight subcommittee responsible for funding the U.S. Fish and Wildlife Service and the Environmental Protection Agency had significantly fewer listings than other states. As the re- [xxv] searchers put it, “Congressional representatives who sit on the Interior subcommittee of the House Appropriations Committee use their position to shield their constituents, at least partially, from the adverse consequences of ESA.” [xxvi] By looking at Department of Housing and Urban Development grants designed to combat economic blight and help “distressed” cities, researchers found that there was no evidence that these factors had any real effect on how the HUD grants were awarded. The decisions were instead based on political influence, by bureaucrats rewarding friends.” [xxvi]
Posted on: Sat, 02 Aug 2014 20:31:54 +0000
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