The Cost of Corruption and Abuse

Copyright 1994 Constitution Society. Permission is granted to copy with attribution for noncommercial purposes.

The Measure of Corruption

During the past several decades, American citizens have become increasingly aware of corruption and abuse in this society, both official and corporate. Many by being the victims of it, or by personally knowing its victims. Others through the many exposes that have been written. However, most of these provide only anecdotal evidence. What is missing are estimates of the extent of this corruption, and the costs of it to our country. Such estimates must of necessity be very rough, as reliable statistics are generally not accessible if they exist at all, but we can come up with working numbers until better ones become available, based on both public and insider information.

Market Corruption. This covers all those commercial transactions made not on the basis of price or merit but as the result of bribes, kickbacks, or extortion. It includes rigged bids on construction contracts, excessive prices on items sold, labor padding, and bribes paid to secure peace with labor. It also includes the excess costs of red tape intended to prevent such abuses, which would not be necessary if the threat were not as great, although such measures seldom prevent waste or abuse and often serve more to cover up the abuse than reduce it. In many jurisdictions, such corruption is endemic, and few if any areas avoid it. It has been variously estimated that such corruption adds between 5 and 15 percent to the cost of all goods and services. The latter figure is probably closer, and it may even be higher.

A general excess cost of 15 percent is the equivalent of a tax to the average worker, with a median annual income of $23000, of $3450 per year. If made available for productive purposes, that could be expected to increase the number of jobs by about 10 percent, or about 12 million jobs, which would be more than enough to absorb the entire unemployed population of the U.S., estimated to be about 10 million, and could also be expected to raise average income by about 10 percent, and add about .5 percent to the average annual growth of the GDP.

Narcotics. Illegal drugs are estimated to drain about $200-300 billion from the economy each year, which amounts to about 4-5 percent of the GDP. Contrary to disinformation about a "war on drugs", that volume of trafficking is made possible only by official protection or participation, probably at least 80 percent of it. It is estimated that about 40 percent of all cocaine and heroin is smuggled in directly by such federal agencies as the CIA, DEA, and FBI, especially the CIA. The "war on drugs" is only to keep prices high, limit competition, and deceive the public. Some of the money is used to finance covert or illegal government operations, but much of it is used to enrich officials, international bankers, and to acquire assets. The results of that acquisition is to bring an increasing proportion of the economy under the control of criminals, and with it increasing political power.

To the direct costs of the drugs must be added the costs in increased crime, law enforcement to deal with that crime, and the cost in lost lives, health, and property. Taken together, we can estimate that the aggregate cost amounts to about 12 percent of the GDP, 80 percent of which is attributable to official corruption, equivalent to a tax of about $2300 per year for the average worker. It can be estimated that more than half of that money is not returned to the economy as consumption or new investment, but is used to acquire existing assets without creating any new value, resulting in a loss to the economy of about 8 million jobs, or almost as many as the number of unemployed. It also makes a major contribution to the balance of payments deficit, perhaps as much as $40 billion a year, since most of the money is removed from the U.S. and only returns from abroad to acquire assets or purchase U.S. government bonds, the interest on which is then repatriated abroad. This balance of payments deficit increases the cost of imports to U.S. consumers, especially oil, which is the major product imported, which in turn contributes to increased costs for everything. At the same time it increases the capital available for creating jobs abroad that compete with U.S. workers, further contributing to unemployment, far more than the effects of reduced tariffs.

Raiding. This covers a variety of attacks on productive assets, including financial institutions, businesses, and individuals, by corrupt parties, including several agencies of the U.S. government. The largest category of this raiding was the contrived collapse of the savings and loan industry, mainly under the direction of the CIA and Justice Department. Thrift institutions were induced to make bad loans to members of the conspiracy, then taken over, looted, and seized, their owners wiped out, and their assets sold to the conspirators at firesale prices, paid for with the same money obtained by the bad loans. This process placated the public during the 1980s by stimulating a real estate boom, which created a brief period of prosperity, but led to the recession of the 1990s when the real estate boom failed. It is estimated that the collapse of the thrifts diverted about $1 trillion from productive use, about half of which went into the offshore coffers of the CIA and other corrupt interests. It resulted in an increase in the national debt which may cost the average worker about $2000 a year for the next 50 years, and will cost the economy about 8 million jobs a year over that period.

Lesser but still important forms of raiding include bankruptcy fraud, not just the kind in which the bankrupt commits fraud, but the kind in which parties who file for Chapter 11 protection have corrupt judges and trustees contrive to cause them to lose all their assets, which are then bought up by cronies of the judges and trustees for pennies on the dollar. Again, the CIA has played a prominent role in orchestrating this kind of raiding.

Another approach to raiding is done by having subsidized government-owned businesses called proprietaries compete with ordinary businesses, forcing them into financial distress, then manipulating their financing sources to force them to liquidate or sell. Once the agencies gain control of the businesses, they either loot them of their assets and cover their tracks by putting the business into bankruptcy, or else continue to operate it and to bring strategic sectors of the economy under agency control. Again, the CIA has been one of the major agencies doing this. It is estimated that this approach is costing the economy more than $100 billion a year, or about 1 percent of GDP. It also results in increased unemployment as looted or sold businesses lay off workers, and although many of them get other jobs elsewhere, there is a net loss during the period they are unemployed, and a loss in reduced wages after they do get other work.

Legal abuse. This is essentially a conspiracy of most of the legal profession against the public, resulting in an excess of legal costs over what they should be of about 80 percent, which in turn increases the costs of goods and services by about 2 percent, on the average. In some cases, by much more. For example, about 70 percent of the cost of a new aircraft is due to the cost of liability insurance, which is the indirect result of this legal conspiracy. It also takes other forms. Attorneys often sell out their clients to the opposition, resulting in their clients losing their cases. They also often conspire to defraud the heirs in probate, manipulating appraisals and diverting the assets to themselves or their cronies. More than half of all judges are compromised, and pervert the judicial process to serve the interests of the Power Elite.

Vote fraud. Most computerized elections can be rigged whenever the Shadow Government chooses to do so. It goes through the motions of influencing elections with large contributions and manipulation of the mainstream media, but if those methods fail, the voting machines give the result that was predetermined. This results in a terrible cost of a loss of public confidence in the political process and the legitimacy of the established institutions of society, a loss of morale and confidence, and reduced cooperation and compliance with voluntary taxation.

[] Rodney Stich, Defrauding America, 1994, available from Diablo Western Press, Inc., PO Box 5, Alamo, CA 94507, 800-247-7389, $27.25 Ppd.

[] James M. & Kenneth F. Collier, Votescam: The Stealing of America, 1992, available from Victoria House Press, 67 Wall St #2411, New York, NY 10005, $10.00 Ppd.

For more information contact:

Constitution Society
2900 W. Anderson Lane #C-200-322 Austin, TX 78757 512-299-5001


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