Saturday, March 21, 2015

Inequality predicts corruption

Imagine for a moment, that you're on the playground as a nine year old kid. You've just been assaulted by the local bully so you talk to the monitor. She asks if anyone else saw it happen. Sure, so you name names of people who were there. But no one is talking. Why? The bully has paid everyone off. Where did he get the money to pay everyone off? Extortion from the very kids who saw what happened. This is the current state of American inequality in a nutshell.

Granted, there are people who actually worked to make their money, and they work hard. The problem is, that once someone has "made it" beyond the point where he has to every day to ensure his survival, it is possible for attitudes to change.

This morning, I found a paper which claims to be the first systematic study of the relationship between inequality and corruption. In many ways, what we're seeing in American politics looks a lot like the scene on the playground. An oil company does something wrong, you know, like Deepwater Horizon. After years of legal wrangling, the government discovers that the political will to punish the company simply isn't there. Not in Congress, not in the justice system. And when I say "punish" I mean to seriously disrupt the business so that it can no longer function.

In my mind, Deepwater Horizon should have been the end of BP. Litigation should have killed that company, with the assets sold off and the executives in jail. None of that happened. This is likely because BP has enough money to buy the influence it needs to buy the protection needed to keep the company going.

Here's an interesting economic and legal analysis on the Wikipedia page concerning that oil spill:
"In January 2013, Transocean agreed to pay US$1.4 billion for violations of the US Clean Water Act. BP had earlier agreed to pay $2.4 billion but faces additional penalties that could range from $5 billion to $20 billion.[57] In September 2014, Halliburton agreed to settle a large percentage of legal claims against them by paying $1.1 billion into a trust by way of three installments over two years.[58] On 4 September 2014, U.S. District Judge Carl Barbier ruled BP was guilty of gross negligence and willful misconduct under the Clean Water Act (CWA). He described BP's actions as "reckless," while he said Transocean's and Halliburton's actions were "negligent." He apportioned 67% of the blame for the spill to BP, 30% to Transocean, and 3% to Halliburton. BP issued a statement strongly disagreeing with the finding, and saying the court's decision would be appealed.[59]"
The upper bound for financial liability ascribed to the companies involved is about $20 billion. It has been estimated that BP earns about $93m in profits every day. If the eventual punitive cost of the disaster works out to $20b, BP can pay it off in less than a year, or about 215 days. The most likely scenario is that they will be able to spread the cost out over time and they will find ways to use the eventual judgement as a way to mitigate their tax liability.

No one goes to jail. Everyone at the top skates. This is what inequality can do. Inequality can influence the outcome of events in ways that defy the merits of political and legal decisions. We saw it in Deepwater, we saw it on the subprime mortgage scandal, we saw it with HSBC and their laundering of nearly a billion dollars of drug money.

The paper cited above also notes that inequality actually predicts for corruption. In other words, where there is greater inequality, there is greater motive and opportunity for corruption. To put it differently, a wealthy man may never has to go to jail for his crimes because he can often pay everyone else off to prevent actual jail time.

This is the strongest argument yet against Reaganomics. Trickle Down economics doesn't work, it only makes everyone else more desperate for money, so they're more compliant and willing to accept corruption as normal behavior. Don't believe me? Just ask the Kids for Cash Judge, a judge who was convicted of sending kids to a private detention center for money. He's probably the tip of the iceberg, the only one who got caught. How many more are out there?

Reducing inequality helps to remove the incentives for corruption and acceptance of the same. When more people have more money, they will not just accept the conditions around them. They will be empowered to effect change.

Reducing inequality is not just about money, it's about time, too. When people are working 2 or 3 jobs just to pay their bills, they don't have time to mind their government. Reducing inequality means giving people time to relax and charge up for another week of work. That time can also be used to engage with the government so that their voices can be heard.

The current state of inequality in America provides little breathing room for the poorest of Americans. Given that 93% of the economic gains in the last 5 years have gone to the top 1%, it is hard to believe that the top 1% are interested at all in reform, but they may not rest assured that some sort of reform is impossible to achieve.

As with many other social movements, the inequality movement is young yet, and it may be another ten years or so before effective change can be made. But as we saw with women's suffrage, civil rights and equal rights, it is an eventuality. Why? The wealthy still need everyone else to be wealthy.
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