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Regulations make America even more unequal

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People seem surprised that economic inequality has continued to grow despite recent tax increases imposed on the wealthy. (Actually, the income of the middle 60 percent of America fell relative to both the bottom 20% and the top 20 percent, during the Obama administration, suggesting that the middle class may now be shrinking.)

But inequality often grows along with the size of the government and the favors it can bestow on the politically-connected few. The rapid spread of government rules and regulations increases economic inequality, since powerful people and big companies know how to shape and manipulate the regulatory process to harm their rivals and enrich themselves at the expense of the public. As the Roman senator and historian Tacitus observed, ‘The more corrupt the state, the more numerous the laws.” Moreover, regulations disproportionately increase the cost of consumer staples that are a larger part of middle class people’s budgets than of rich people’s budgets. And big companies are better able to keep abreast of, and adapt to, complicated and difficult-to-understand regulations than their smaller rivals.

The recent growth of major regulations during the Obama administration has created an explosion in lobbying and wealth here in the Washington, D.C., area, even as much of America suffers economically. This transfer of wealth to Washington from the rest of America has led to many people here having incomes I can only envy (I still live in a little two-bedroom house with my wife and daughter). Neighborhoods full of government contractors and lobbyists have much higher incomes than other neighborhoods in the region. A Washington Post article last year discussed this avalanche of lobbying-related wealth that has enriched the Washington area at the expense of America. (Actually, it understated things a lot. It reflected narrow legal definitions of lobbying that understate its growth and prevalence.)

As the Washington Post explained,

The avalanche of cash that made Washington rich in the last decade has transformed the culture of a once staid capital and created a new wave of well-heeled insiders.

The winners in the new Washington are not just the former senators, party consiglieri and four-star generals who have always profited from their connections. Now they are also the former bureaucrats, accountants and staff officers for whom unimagined riches are suddenly possible. . .They are the lawyers, lobbyists and executives who work for companies that barely had a presence in Washington before the boom.

During the past decade, the region added 21,000 households in the nation’s top 1 percent. No other metro area came close. . .big companies realized that a few million spent shaping legislation could produce windfall profits. They nearly doubled the cash they poured into the capital.

The signs of the new Washington are everywhere — from the Tiffany store that Fairfax County (Va.) development officials boast is the most profitable in the country to the new Tesla dealership in Tysons Corner. . . .Power still animates the city, but so increasingly does the pursuit of wealth. . .It’s hard to say exactly how many of Washington’s households in the top 1 percent draw their incomes from the broad business of serving, supplying or influencing the government. But an analysis of tax data by the Economic Policy Institute shows that the area’s 1-percenters are most likely to be lawyers and executives. . .Nearly 1 in 10 of those households is headed by a government worker. . .

Government relations has become so important to the bottom line of a modern company, Becker said, that it should be a required course at business school. The numbers suggest she’s right. Companies spent about $3.5 billion annually on lobbying at the end of the last decade, a nearly 90 percent increase from 1999 after adjusting for inflation, political scientist Lee Drutman notes in a forthcoming book, “The Business of America Is Lobbying.” . . .The more companies spend on influence, the lower their effective tax rates and the higher their stock returns compared with competitors’, according to recent research. A company called Strategas has built an index to track the stock performance of the 50 companies that lobby the most; last year, that index outperformed the rest of the market by 30 percent.

In the current political climate, what matters is political influence, not justice or fairness. In the recent government shutdown, the Obama administration used the shutdown as an excuse to needlessly and illegally close many small businesses that lease land from the government, while leaving open politically-connected large businesses with lobbyists in Washington, D.C. In the auto bailouts, non-union retirees, pension funds, and bondholders got ripped off, while the powerful UAW union, which endorsed Obama, got special, preferential treatment and a big chunk of the automakers’ stock.

Legal inequality in the criminal justice system has gotten worse under the current administration. Ordinary people get prosecuted for trifles, while politically-connected people escape punishment despite far worse behavior. A whale-watcher was criminally prosecuted merely for lying about whistling at a whale. But former New Jersey Governor Jon Corzine, a big Obama booster, was never prosecuted, despite his investment firm’s massive, illegal diversion of funds from client trust accounts, which cost customers hundreds of millions of dollars. Dairy farmers in Maryland were prosecuted by the federal government for “structuring” — breaking up bank deposits into deposits of less than $10,000 at a time to avoid scrutiny — and ended up having to forfeit more than $30,000 to the government to settle the prosecution. But former New York Governor Eliot Spitzer got a free pass for the very same offense, even though he (unlike the hapless dairy farmers) used the practice in order to hide criminal activity.

Under the current administration, citizens get prosecuted in a viewpoint-discriminatory fashion, in violation of the First Amendment. For example, the Obama Justice Department has mounted baseless prosecutions of peaceful, law-abiding anti-abortion protesters, leading judges to impose sanctions against the Justice Department for frivolous prosecutions. In U.S. v. Pine, taxpayers had to pony up $120,000 when a judge ordered the Justice Department to pay the attorneys fees of a protester persecuted by the Obama Justice Department in a transparently baseless prosecution. By contrast, if you are an Obama campaign worker, you can get away with menacing behavior that intimidates voters, and avoid any federal charges.

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