When Graft Is the System

I love the Wall Street Journal—the daily diary of American despair. Even if some of the stuff isn’t exactly news, or news of the “I told you so” variety.

The Manhattan Institute’s excellent Steven Malanga reports that states and their hangers-on have tried to cover up the state pension crisis. Kind of like Mrs. Kirchners’s Argentina, where economists got fired (or worse) for publishing the actual inflation numbers. Difference being, Argentina is cleaning up its act and we aren’t.

Also, the WSJ carried a piece by Andy Koenig, on the cash that flows from bank settlements to liberal advocacy groups for “fair housing” and to state pension funds. The author urges Congress to get a handle on the diversion of funds that by law belong to the Treasury. Good luck with that: it can’t be done. For starters, those advocacy groups have never been anything but creatures of Congress (for example, through the Community Reinvestment Act, which permits the groups to hold up bank mergers). The entire “99 percent” and “Occupy Wall Street” movements have been bank-financed from day one. Charlie Calomiris and Stephen H. Haber have explained it. So have Chris DeMuth and I, here  and elsewhere. For another thing you can’t stop the diversion of penalties because both the government and its “enforcement” targets will be better off by settling outside a system that already demands the payment of penalties to the Treasury. How exactly is Congress to patrol that? And what exactly are its incentives so long as the deals throw off some money for the Treasury?

Told you once before (and I won’t tell you no more): you cannot eliminate graft from the system when and because graft is the system. And we are becoming Argentina, with the same quasi-feudalist social structure and the same institutional pathologies. I’ll say this, in defense of our system: it has thrown up two presidential candidates who completely get it, and most pristinely embody it.


The Debt Trap, Part (3): Cristina Kirchner’s Constitution

There’s been a lot of talk that our federalism might come to look like the EU, with Illinois starring in the role of Greece or Italy. However, the institutional differences are far too great for meaningful comparison. For example, Chancellor Merkel can depose the Italian Prime Minister with a phone call; our Constitution does not give the President, the Congress, or for that matter the National Governors Association any such agency in the affairs of a member-state. For another example, the EU (outside the egregious but fairly small Common Agricultural Policy and a few other slush funds) isn’t a transfer union. Our federalism is or rather has become that sort of union. That doesn’t mean we have a smaller problem than the EU; it just means that we have a different problem. For purposes of comparison and instruction, you want to look at a federal system that shares our problem. Come visit Argentina: you’ll see the future, and it doesn’t work. Read more