“Why Isn’t Wall Street in Jail?”

These are just some great paragraphs from Matt Taibbi, and I should’ve posted them several weeks ago:

So there you have it. Illegal immigrants: 393,000. Lying moms: one. Bankers: zero. The math makes sense only because the politics are so obvious. You want to win elections, you bang on the jailable class. You build prisons and fill them with people for selling dime bags and stealing CD players. But for stealing a billion dollars? For fraud that puts a million people into foreclosure? Pass. It’s not a crime. Prison is too harsh. Get them to say they’re sorry, and move on. Oh, wait — let’s not even make them say they’re sorry. That’s too mean; let’s just give them a piece of paper with a government stamp on it, officially clearing them of the need to apologize, and make them pay a fine instead. But don’t make them pay it out of their own pockets, and don’t ask them to give back the money they stole. In fact, let them profit from their collective crimes, to the tune of a record $135 billion in pay and benefits last year. What’s next? Taxpayer-funded massages for every Wall Street executive guilty of fraud?

The mental stumbling block, for most Americans, is that financial crimes don’t feel real; you don’t see the culprits waving guns in liquor stores or dragging coeds into bushes. But these frauds are worse than common robberies. They’re crimes of intellectual choice, made by people who are already rich and who have every conceivable social advantage, acting on a simple, cynical calculation: Let’s steal whatever we can, then dare the victims to find the juice to reclaim their money through a captive bureaucracy. They’re attacking the very definition of property — which, after all, depends in part on a legal system that defends everyone’s claims of ownership equally. When that definition becomes tenuous or conditional — when the state simply gives up on the notion of justice — this whole American Dream thing recedes even further from reality.

 

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“Guard Labor” and Our Capitalist Economy

The term guard labor, for me, calls to mind situations in developing countries in which the wealthy feel the need for multiple armed guards around their estate to keep out possible intruders. The mansions sit on the hill, likely looking out over a valley of slums, paintintg a portrait of a highly unequal society. However, this situation need not be limited to the third world- US inequalities are great enough such that the US employs guard labor strikingly. Mark Thoma to a piece discussing the economist Samuel Bowles, who has done work on inequality and its relationship with guard labor.

“Prior to about 20 years ago, most economists thought that inequality just greased the wheels of progress. Overwhelmingly now, people who study it empirically think that it’s sand in the wheels.” … Bowles offers a key reason why this is so. “Inequality breeds conflict, and conflict breeds wasted resources,” he says…

Inequality leads to an excess of what Bowles calls “guard labor.” […] Roughly 1 in 4 Americans is employed to keep fellow citizens in line and protect private wealth from would-be Robin Hoods.

There is also a clear relationship across states between the state’s gini coefficient and it’s proportion of guard labor. There is thus a clear mechanism by which inequality is not just unfair but inefficient:

The problem, Bowles argues, is that too much guard labor sustains “illegitimate inequalities,” creating a drag on the economy. All of the people in guard labor jobs could be doing something more productive with their time—perhaps starting their own businesses.

Thoma writes,

With progressive taxes the lucky do pay a little extra, and that allows society to provide social insurance to the unlucky…if the guard labor hypothesis is correct, it provides yet another rationale for a progressive tax code.

My question is: is a progressive tax code enough to address this societal ill? Redistribution programs are great when they work, but the political space for them is limited. Perhaps our economic structure has endemic fissures like these; in that case, studies like this one call for a deeper look at our society’s basic mechanisms of distributing wealth, rather than retooling around the margins.

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Blackwater and the Black Market

From The Nation:

A former Blackwater employee and an ex-US Marine who has worked as a security operative for the company have made a series of explosive allegations in sworn statements filed on August 3 in federal court in Virginia.

[…]

In their testimony, both men also allege that Blackwater was smuggling weapons into Iraq. One of the men alleges that Prince turned a profit by transporting “illegal” or “unlawful” weapons into the country on Prince’s private planes.

[…]

Among the additional allegations made by Doe #1 is that “Blackwater was smuggling weapons into Iraq.” He states that he personally witnessed weapons being “pulled out” from dog food bags. Doe #2 alleges that “Prince and his employees arranged for the weapons to be polywrapped and smuggled into Iraq on Mr. Prince’s private planes, which operated under the name Presidential Airlines,” adding that Prince “generated substantial revenues from participating in the illegal arms trade.”

Doe #2 states: “Using his various companies, [Prince] procured and distributed various weapons, including unlawful weapons such as sawed off semi-automatic machine guns with silencers, through unlawful channels of distribution.” Blackwater “was not abiding by the terms of the contract with the State Department and was deceiving the State Department,” according to Doe #1.

This is not the first time an allegation has surfaced that Blackwater used dog food bags to smuggle weapons into Iraq. ABC News’s Brian Ross reported in November 2008 that a “federal grand jury in North Carolina is investigating allegations the controversial private security firm Blackwater illegally shipped assault weapons and silencers to Iraq, hidden in large sacks of dog food.” Another former Blackwater employee has also confirmed this information to The Nation.

And that isn’t even the worst of it…

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Dubner on Body Parts

Stephen Dubner (of Freakanomics fame) has a post on the recent corruption scandal, mostly in New Jersey, but stretching across the globe.  He makes sure to point out that some of those involved dealed in black market body parts:

Note that the case even involved some trafficking in human organs:

“Another man in Brooklyn, Levy-Izhak Rosenbaum, was accused of enticing vulnerable people to give up a kidney for $10,000 and then selling the organ for $160,000. Mr. Dwek pretended to be soliciting a kidney on behalf of someone and Mr. Rosenbaum said that he had been in business of buying organs for years, according to the complaint.”

Remember this story the next time someone brings up the need for a legitimate, regulated market for human organs, as we’ve discussed here many times in the past. Many people’s objection to such a market is that poor people would suffer because a) they won’t be able to afford to buy organs; and b) they may be coerced into selling them. But with the current black market, poor people are already being excluded from getting organs (because there’s a scarcity of donated organs) and being lured into selling them — although in this case, it appears that a middleman got to pocket $150,000 while the “donors” got only $10,000.

To summarize Dubner’s logic: if it exists, make a market of it.  Since criminals are already dealing in body parts, we could do better by allowing (regulated) trade, on an open market, so normal, hard-working individuals can buy and sell as if body parts were like candy bars.  I wonder if he would make the same argument for the already-existing black markets in sex slavery, narcotics, or industrial waste? (though Larry Summers beat him to the punch on the last one)

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Crime and the Economy

From the LA Times:

The economy is a wreck, and crime is down. Does that mean hard times and lawbreaking aren’t linked?

[…]

As L.A.’s most recent crime data suggest, high unemployment doesn’t necessarily translate directly into high crime rates. But that’s because the specific economic pinch in itself is not the immediate cause of criminal activity. What does seem to translate into crime is long-term economic trouble. One theory holds that the motivation toward criminal acts increases with prolonged social strain. Strain is the pressure people feel between their goals and their means to achieve them. One consequence of unrelieved strain is that the desire to achieve one’s goals leads some to use illegitimate means to get where they want to go.

“Long-term material conditions are important,” UC Irvine criminologist Elliott Currie told me. “They can affect values and the belief in what kinds of conduct are acceptable or not. If you put people in really lousy conditions, they’ll begin to think differently about school, drugs or gangs.”

[…]

the discrepancy between what many of us want and what we can get will deepen, social strain will increase, and maybe not today, maybe not tomorrow, but someday, the other shoe will drop.  In the meantime, count your crime statistics blessings, but don’t fool yourself: Crime and hard times do go hand in hand.

A not completely unrelated piece of art (one of my favorites by Banksy in New Orleans):

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Crisis a Boon for Italy’s Mafia

From the AP:

While businesses around the world are hunkering down for survival, the Italian mob is living a golden moment.  Italy’s various organized crime syndicates – often lumped together colloquially as Mafia Inc. – are gobbling up gas stations, muscling in on supermarket franchises, making loans to cash-starved businesses, taking over trattorias and acquiring buildings in swank neighborhoods in Rome and Milan, investigators say.

Big money:

The Rome-based Eurispes think tank has estimated that in 2008, “Mafia Inc.” earned euro130 billion (then $167 billion), or about 8 percent of Italy’s GDP, from its criminal activities, nearly half of that from drug trafficking.  Eurispes, which analyzes social, economic and criminal trends, said loansharking brought in an estimated euro12.6 billion ($17 billion) of that income. It calculated that some 180,000 merchants and other businessmen got their loans, directly or indirectly, through organized crime in Italy.

And it’s not just drugs:

Trafficking in fake designer goods – which investigators suspect the Camorra is also peddling in the United States, France, Britain and Germany – is now becoming more profitable for the Neapolitan syndicate that dealing in cocaine and hashish, said Mainolfi, the customs and tax police general.  He has calculated that for every euro it costs to manufacture the counterfeit designer goods, the Camorra earns 10 euros, while for every euro spent to run drug trafficking, it earns six or seven euros.

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