Where Are the Constituents’ Yachts?

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In my lifetime, the government footprint has grown tremendously. When I was born, for instance, way back in 1961, there was no such thing as Medicare, Medicaid, student loans, seatbelt laws, and background checks for handgun purchases. The national debt was only $289 billion (versus $23 trillion today), and the federal register only contained 12,792 pages (versus over 60,000 today). Now, it’s hard to think of anything in our life that isn’t taxed, subsidized, or regulated.

Interestingly, as the government’s footprint has expanded, the wealth of your everyday American has become much more precarious. Take away credit cards and coerced charity (i.e., government welfare and subsidies) and your everyday American would be in a world of hurt. My parents’ generation, by contrast, was able to stand on its own without any credit cards, without nearly as much coerced charity, and typically without the benefit of a paycheck-earning spouse (most married women didn’t work outside the home).

This wasn’t the deal, of course. Our politicians promised us that surrendering ever more control of our wallets and autonomy to them would bring us ever more wealth. So what the hell happened? Where are all of our yachts?

Why Government Sucks at Spreading Wealth Broadly

The fact that over three-quarters of American workers are living paycheck to paycheck is ample proof that our government isn’t very good at spreading wealth. It’s much more adept at spreading debt, dependency, and degeneracy. The big question is why. Why does our government suck so badly at spreading wealth broadly among the governed?

The answer lies in an intrinsic flaw of government called “honest graft.” Let me explain.

I worked for a rinky-dink highway department on Long Island for 21 years, and for the first half of my career, I saw a lot of things that didn’t make sense. Here are some examples:

• I saw co-workers who were utter bums getting “merit” raises for outstanding work.
• I saw plumb overtime opportunities going to the same people over and over again.
• I saw people appointed to assistant deputy commissioner positions who couldn’t compose a grammatically correct sentence, much less craft a useful spreadsheet or set up a database.
• I saw civil service exams for mid-level management positions that didn’t require a college degree in business or management but did require an odd assortment of qualifications that only one person in the department met (e.g., 13 years of civil service experience, nine college credits in botany, and a CPR instructor certification).
• I saw a contractor who won the concrete contract by bidding one penny per linear foot for curbs (an insanely low price for curbs) and $16 per square foot for sidewalk (a ridiculously high price for sidewalk) get a lot of sidewalk work and no curb work. Why? Shouldn’t my municipality have loaded up on the curb work instead? After all, at a penny a linear foot, the $500,000 concrete contract could have replaced 94 miles of curbs.
• I saw another contractor who won the drainage contract not get a single work order for the first half of the construction season. But then, after a meeting called at the behest of the commissioner, the work orders began to flow. What happened at that meeting?

I don’t recall the reason, perhaps I was griping about yet another example of wanton managerial stupidity, but around the tenth year of my pointless civil service career, a mid-level supervisor took me aside and gave me the follow-the-money talk. And this talk cleared up everything. What I deemed insane was actually perfectly sane. My mentor, if you will, explained that the Republican Party—the party that ran my municipality and thus my rinky-dink highway department—cared more about monetizing its decision-making authority than running a highly efficient operation. Thus, if one wanted to get ahead financially, whether one was a civil servant, contractor, or consultant, one would be better served by donating money to the Republican Party than doing outstanding work. In other words, those who gave unto the Republican Party were giving unto in return, and those who didn’t weren’t.

My mentor called this quid pro quo scam of my municipality “politics.” When I was in graduate school, I learned a better name for it: “honest graft.”

Quick aside. The term “honest graft” was coined by the late-1800s Tammany Hall politician, George Washington Plunkitt. Check out the book “Plunkitt of Tammany Hall” if you get a chance. It’s only 128 pages, and it’s one of the best books on government I’ve ever read.

On the surface, there’s nothing illegal or unethical about making donations to a political party. Nor on the surface is there anything illegal or unethical about politicians and bureaucrats making decisions. There is something illegal or unethical, however, if you only make a donation to a political party because you want the government to fleece the taxpayers on your behalf. And there is something illegal or unethical if you’re a politician and you decide to fleece the taxpayers in order to make a donor happy. But here’s the rub. Unless the fleecing is explicitly expressed and documented—a politician, for instance, is caught on a hot mic telling a civil servant that a “merit” raise is his or hers to have and it will only cost him or her $500—the fleecing is impossible to prosecute. You can follow the money and infer that something slimy has occurred. But you can’t prove it in a court of law, and that’s why “honest graft” is a much better term for the quid pro quo scam that was endemic in my municipality.

Three Ways Honest Graft Hurts the Bulk of the Governed

In order to build wealth, you need disposable income to invest. In order to have disposable income, you need discipline, of course, but you also need opportunity and faith. Without the opportunity to exploit your talents and an abiding faith that your hard work will be rewarded, you’ll have a tough time generating disposable income. Honest graft hurts the bulk of the governed because it reduces disposable income, dampens opportunity, and crushes faith. Here’s why.

Honest graft makes things more expensive. Honest graft is the enemy of efficiency. I’m sure there are exceptions, but in general, people don’t give money to the political class because they want less pay, fairer rules, and more accountability. They mainly make “donations” because they want the political class to rip off the public on their behalf. Politicians are thus naturally inclined to overpay for civil servant labor, to be indifferent to the quality of the service their organizations provide, and to coddle contractors, consultants, and crony capitalists. This was certainly the case at my humble little municipality, and because of this, we provided very mediocre service for a very dear price. My guess is that for every dollar we received from the taxpayers, we gave the taxpayers 50 cents worth of service in return. Now a question. If you’re a taxpayer and you pay 2x for a given amount of government rather than x, do you think you’ll have an easier or harder time generating disposable income? If you said “harder,” go straight to the head of the class.

Wherever the government treads—whether it’s the business of fixing potholes or the business of regulating the healthcare industry—you can expect honest graft to follow in its footsteps. And goods and services marred by honest graft never become affordable. They always become more costly. In addition to being the enemy of efficiency, then, honest graft is a destroyer of disposable income.

Honest graft favors the powerful. When I began my civil service career, my municipality had a regulation that limited its pool of potential employees. It could only employ people who lived within its jurisdiction.

As time went on, however, this regulation became increasingly untenable. Housing prices in my municipality’s jurisdiction were some of the highest in the nation, so most of my co-workers couldn’t afford to live within my municipality’s jurisdiction. It was thus a common practice for people employed by my municipality to have two addresses: a real address for the house that they bought in a less expensive jurisdiction and a fake address for the house within my municipality’s jurisdiction that they used for cover.

Finally, as my civil service career was winding down, my municipality relented a little. To be hired or employed by my municipality, you no longer needed to live within my municipality’s jurisdiction. But if you wanted to be eligible for a promotion, you still needed to live within my municipality’s jurisdiction.

Now I have another question for you. Why do you suppose these assaults on management’s hiring and promoting prerogatives ever came into existence? If you said “because years ago local residents decided that they didn’t want to compete against non-local residents for municipal jobs,” you get another gold star.

This is a classic example of honest graft. The powerful loathe competition and politicians—for a price—happily create a less competitive environment.

In the above example, power was based on geography and chauvinism, and the currency of that power was votes. In most examples of protectionist honest graft, however, the power is market share and the currency of that power is money. The biggest players in a given field or industry exchange campaign donations for protectionist laws and regulations. And that’s why the federal register—the list of all federal regulations—is over 60,000 pages. Yes, a lot of those regulations have to do with safety and ethics. But a lot of those regulations also have to do with making sure the little guys have a harder time competing against the big guys (see here, here, and here).

America’s regulatory state is enormous. Every level of government has regulatory powers and every level of government abuses those powers by pooping on equal protection of the laws and making sure the powerful have less competition. The end result is that America doesn’t have nearly as much opportunity as it could have.

Okay, time for another question. Who do you suppose benefits more when it’s harder than necessary to start certain businesses and enter certain trades or professions? The people who currently dominate those certain businesses, trades, and professions (i.e., the powerful)? Or the people on the outside looking in—the young, the poor, the uncredentialed, and the unorthodox (i.e., the weak)? If you said “the people who currently dominate those businesses, trades, and professions,” I have yet another gold star for you.

Honest graft locks in stupidity and failure. For my last ten years of gainful employment prior to retiring, I worked for a private business, and believe me, my bosses, co-workers, and I made a lot of mistakes. But those mistakes were fixed in short order because no one benefited from them. In other words, stupidity and failure didn’t have a constituency. If you continued to behave stupidly and continued to fail, you would be fired. Not so with government. Because of honest graft, stupidity and failure have a constituency—and that constituency is often very powerful. Politicians thus have a very strong incentive to maintain the bizarro status quo. They keep making dumb decisions from the governed’s perspective because that’s what keeps the “donations” rolling in. And that’s why things run or heavily regulated by the government rarely if ever improve. Here’s just one example of what I mean. In the mid-1960s, the Coleman Report was commissioned because our vaunted leaders back then were wringing their hands over the black-white achievement gap in education. Well, here we are nearly 55 years later, and our vaunted leaders are still wringing their hands over the black-white achievement gap.

This is pure conjecture, of course, but I got to believe that the intractable suckiness of so many critical aspects of our society has to wreak havoc on the faith of the governed. I mean, how can it not? If you’re the average joe or josephine, and you’re living paycheck to paycheck, and everything around you has been subpar for years—jobs keep coming with crummy wages, city buses keep providing desultory service, banks keep feasting on overdrafts, ATM transactions, and meager balances, landlords keep raising rents, public schools keep transforming children into incurious dolts, and hospitals keep bankrupting patients for relatively minor ailments—you can hardly be faulted for losing faith. And what happens when you lose faith? You refuse to try—that is, you self-jail yourself behind the bars of your current fiscal condition. And if the bars of your current fiscal condition happen to be made out of debt, stagnant wage growth, and an inability to save, your prospects of ever escaping to the sweet land of financial security are grim.

The Ramifications of Big Government and Honest Graft

When the government spends little and regulates little, honest graft is an annoyance. When the government spends a lot and regulates a lot, honest graft is a huge problem. And that’s where we find ourselves today. The federal budget alone is nearly four and a half trillion dollars. If the federal government is as efficient as my former municipal employer, the annual grifting bill that federal honest graft imposes on the governed is in excess of two trillion dollars. Two…trillion…dollars!

Yep, the government grifters get the yachts and the government griftees get the rowboats. And nothing illustrates this better than the following two videos. Check them out (nothing like getting homework from a blogger) and we’ll look at our three honest graft side-effects when you’re done.

Honest graft makes things more expensive. Some small-time musician with a big heart can supply a homeless person with a housing upgrade for $1,200. The City of Los Angeles needs $500,000 to supply that same homeless person with a housing upgrade.

Honest graft favors the powerful. Who do you think is going to benefit the most from the $1.2 billion earmarked to help the homeless? The homeless? The taxpayers? Or the big construction firms and trade unions that donate tens of thousands of dollars annually to Los Angeles politicians and get to build those $500,000 housing units?

Honest graft locks in stupidity. If the City of Los Angeles sent out a clarion call to its citizens and told them it would reimburse them up to $1,200 for every tiny-home homeless shelter they produced, the City of Los Angeles would have housing units for every homeless person in its jurisdiction in less than a year and it would only cost it $70.8 million (59,000 times $1,200). That would leave the City of Los Angeles with nearly $1.13 billion to locate the tiny-home villages (vacant city lots would be more than adequate) and arrange for all the services the numerous homeless encampments would need (i.e., porta-potties, MASH-like showers, meals on wheels, mental-health services, addiction counseling, job training, etc.).

But no. Little wooden shacks aren’t good enough for LA’s homeless. Those broken and desperate people deserve much better. How many $500,000 housing units will $1.2 billion buy? Twenty-four hundred—just a mere 56,600 units short of what the situation calls for. All I can say is that this degree of planned ineptitude reminds me of some Rolling Stone wisdom.

In the sweet old country where I come from
Nobody ever works
Nothing ever gets done [emphasis mine]
We hang fire, we hang fire

What to Do

On Wall Street, the little guys no longer have to fund the cost of their brokers’ yachts. Thanks to Jack Bogle, the little guys can effectively sidestep the Wall Street scam by investing in passively managed, low-cost index funds.

When it comes to government, however, there’s nothing equivalent to passively managed, low-cost index funds that will allow the little guy to effectively sidestep the government scam of honest graft. But this doesn’t mean the little guy is totally helpless.

Reduce the Government Footprint

Here’s an ironclad rule of government that every freedom-loving soul should have seared into his or her brain: The more money and power is giving to government, the more debt, dependency, degeneracy, and Hunter Bidens the governed get in return.

The best way to mitigate the scourge of honest graft, then, is to reduce the government footprint.

But that ain’t going to happen anytime soon. We are sadly locked in a vicious dependency trap. Too many Americans are dependent on the government for their sustenance. In order to break this dependency—and make a reduced government footprint socially and politically palatable—large numbers of dependent Americans will need to become much better stewards of their lives and finances. And that’s not likely to happen because Americans have been conditioned—and will continue to be conditioned—by schools, journalists, entertainers, business people, and politicians to embrace the very behaviors and attitudes that make them culturally and financially weak.

The dependent will thus always be with us in great numbers, and so will big government.

Since reducing the footprint of government is out of the question, we have to look for other ways to mitigate the bite of honest graft. Here are four such ways.

Earn a Lot of Money

Honest graft exacts a terrible cost on society. But if you’re in the top 10 to 15 percent of income earners in your particular city, you’ll more than likely have enough money to cover the cost of honest graft and the cost of providing yourself and your family with a very comfortable life.

Become a Grifter Rather than a Griftee

Another way to be on the winning side of honest graft is to play the honest graft game. Give money legally to politicians, and politicians will legally help you.

The problem with this strategy, however, is threefold:

First, you have to want something that politicians frequently sell. If you want a sinecure, a regulation that humbles your competition, or a tax loophole, you’re in luck. Politicians are always selling those things. But if you’re just a run-of-the-mill citizen, and all you want from politicians is decent public goods and sensible regulations, you’re in trouble. The entrepreneurial spirit never seems to grab our politicians when it comes to hawking good government.

Second, you have to have the money to buy what politicians are selling. This was certainly a sticking point for me. I learned about honest graft halfway through my civil service career, but I couldn’t play the honest graft game until my career was nearly over. The reason? I was living paycheck to paycheck for the vast majority of my civil service career and politicians don’t accept credit cards for honest graft payments. Once I married the fabulous Mrs. Groovy, however, my household income went up dramatically and my ability to play the honest graft game went up dramatically as well.

Finally, third, you have to be devoid of a conscience. I dabbled in honest graft a total of two times. And even though it was for small potatoes, it’s something I’ll never live down. Oh, sure, I can rationalize the extra compensation I received—I was one of the few municipal employees who actually gave the taxpayers an honest day’s work, after all—but deep down I know I cheated. Honest graft is only for those who have a morally casual attitude toward duplicity. If you do have a moral sense, and you get sucked into the honest graft game, it will haunt you for the rest of your life.

Achieve IPAR FIRE Plus

Like the one-percent, Mrs. Groovy and I are largely shielded from the onerous costs of honest graft. But unlike the one-percent, we don’t have a monster income for a shield. Our income is actually quite low. So how do we do it?

Well, for starters, our low income is accompanied by four very important factors: we live in a low-cost state (North Carolina), we’re completely debt-free, we have an investment portfolio worth more than twenty-five times our annual living expenses, and we’re retired. Yep, Mrs. Groovy and I have achieved income poor-asset rich FIRE in a low-cost state (IPAR FIRE Plus, for short)

In order to see how IPAR FIRE Plus makes for a very effective shield against honest graft, you have to ask yourself where the biggest hits from honest graft are coming from. Since government has its hands in everything, you need only look at the most costly programs or sectors in our economy. For my money, then, the biggest hits from honest graft are coming from entitlements, defense, education, housing, and healthcare.

Now let’s see how IPAR FIRE Plus shields us from the onerous costs of honest graft.

1. Because Mrs. Groovy and I are no longer working, we no longer have to pay payroll taxes. This, in turn, means we no longer have to support the two biggest entitlement programs on the face of the earth: Social Security and Medicare.
2. Mrs. Groovy and I make roughly $30,000 a year (pension plus dividends). Since the standard deduction for a married couple is $24,000, this means we pay very little in federal income taxes (roughly $600 annually). It also means we contribute very little to the largest defense program on the face of the earth.
3. North Carolina is a low-cost state. Our property tax bill for this year is $1,840. Since roughly half of that bill goes to public education, this means we only contribute $920 annually to one of the most honest-graft-riddled sectors of our economy. Had we remained on Long Island, and lived in a comparable home, our annual public education bill would easily be six times higher (roughly $6,000 to $7,000).
4. Another benefit of living in low-cost North Carolina is low-cost housing. Mrs. Groovy and I own our home outright and this means our monthly budget no longer has to contend with mortgage or rent payments.
5. Finally, IPAR FIRE Plus is a great shield against honest graft because it entitles you to very generous healthcare subsidies. For 2020, Mrs. Groovy and I are entitled to an Obamacare subsidy of $18,984. Since the combined premiums for our respective 2020 Blue-Cross plans will only total $18,640, this means IPAR FIRE Plus has effectively reduced our healthcare insurance costs to zero. If you know a better way of negating all the honest-graft nonsense that permeates the healthcare sector, please let me know.

The one big downside to achieving IPAR FIRE Plus, however, is that it requires a lot of discipline. You have to say “no” to yourself and you have to say “no” to a society that is constantly imploring you to spend, spend, spend. And since more than three-quarters of Americans are living paycheck to paycheck, it is quite evident that that amount of discipline is in exceedingly short supply.

Move

Joe from Retire By 40 made the following comment on one of my recent posts:

“[I]f the financial apocalypse hits the US, [I’d] sell everything and go live abroad for a few years. The cost of living is so much cheaper in Asia.”

And Joe ain’t wrong. In many parts of the world now, you can get standard Western amenities for very bargain prices. Check out the following video. It shows five countries where you can live comfortably on two-thirds of the average monthly Social Security check.

Now admittedly, this is a drastic step, but if you’ve had your fill of honest graft, and you’re neither super-wealthy, grifter material, nor IPAR FIRE Plus, you can escape the financial indignities of honest graft by simply moving abroad.

This doesn’t mean, of course, that honest graft is less of a problem outside of America. In fact, I firmly believe that honest graft is a much bigger problem outside of America. But fortunately for Americans with an adventurous streak, the cost of foreign honest graft is very often much less than the cost of our honest graft. In other words, a working-class American income can easily handle the combined costs of first-world comforts and honest graft in many parts of the world.

Final Thoughts

Okay, groovy freedomist, that’s all I got. What say you? I say the government sucks at spreading wealth broadly among the governed and a big reason for this is honest graft. I also say that giving the government more money and power will only make the situation worse. But what the heck do I know? I’m just some schmuck blogger from North Carolina. Have a Merry Christmas and a Happy Hannukah and I look forward to hearing your thoughts. Peace.