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Type 2 Political Corruption: Sources, Impacts, Solutions

Feb 2012
Working Paper
By  Bruce Owen
That Congress is corrupt is no secret. Polls show that it is held in very low esteem by the public. Why is that? The effectiveness of voter control of public policy in a system of representative government depends on compatibility of representative incentives with voter preferences. Many non-salient policy issues, among them both the details of complex legislation and most policies of administrative (regulatory) agencies, escape electoral discipline because voters rationally lack relevant preferences and information. Further, voters as consumers face barriers to effective collective action, such as diffuse interests and free rider problems. Consequently, consumer interest groups able to participate in effective lobbying and campaign financing do not form. Meanwhile, political agents (politicians) are forced by the electoral system to compete for campaign resources, while effective interest groups have a demand for favorable treatment by administrative agencies. Many such agencies are controlled by Congressional committees rather than by the Executive and are accorded substantial deference by the judiciary. The result is what Lessig calls lawful and systemic “Type 2” political corruption, in which policies favorable to prevailing interest groups are supplied by committee chairs and other Members of Congress allied with compliant agencies. There is strong evidence that these policies generate welfare losses. They also contribute to occasional disasters such as the 1980s S&L Crisis and the 2008-2009 financial collapse. The absence of accountability in the administrative state is chiefly caused by the U.S. campaign finance system. Another root cause is the Supreme Court’s tacit amendment of the Constitution in Humphrey’s Executor, 295 U.S. 602 (1935), repealing the “implicit non-delegation doctrine.”