We have to address ‘soft corruption,’ and it won’t be easy

In the history of economics, you can draw a straight line from its beginning with Adam Smith (1723-1790) to David Ricardo (1772-1823), and there is a good reason to do so even in our more complex world of today. Ricardo understood political corruption.

Like Smith, Ricardo was a keen observer of the world around him and had the wisdom to understand it, a rare gift then and now. He was a successful banker and investor and served in Parliament.

Ricardo is revered among economists not only for his insightful analyses of such things as foreign trade and diminishing returns to scale but also for broadening the scope of how issues and problems were addressed. It wasn’t enough to understand the economic variables such as price, quantities and competition. To understand an issue you often must examine other forces in play, especially politics.

Ricardo made use of his financial and political experience to explain why tariffs on grain imports continued despite the widespread suffering they caused. The tariffs caused prices to rise because demand for food was what economists today call “inelastic.” People need food to live and the amount demanded doesn’t change much if the price goes up.

When the price goes up, owners of existing, active farmland get a higher profit from their land. Another economic effect is that the higher price means that less productive land becomes profitable to farm. The price of land, then, goes up. Whether the landowner farms the land or sells it, the tariff represents a windfall profit.

What Ricardo added to his economic analysis was to point out who the landowners were — the ones into whose pockets the windfall profits from the tariffs would fill. They were the aristocracy, the ones who controlled the Parliament that set the tariffs in place.

Is the link between the landowning aristocracy and the tariffs as described by Ricardo political corruption? Absolutely. It is not the usual form that can be prosecuted, with envelopes full of cash and payoffs by mobsters, but it is an abandonment of public interests for personal ones just the same.

Thomas Jefferson came to believe that every government, even the ones he himself had had a hand in shaping, contained “some germ of corruption.” It isn’t difficult to imagine how he would react to seeing today’s federal government, especially the Congress and its surrounding environment of what we now call the “establishment” or, derisively, the “swamp.”

There are all sorts of influence peddlers in the swamp. The professionals are called lobbyists and the good ones are expensive. The best lobbyists are not corrupting in the usual understanding of that term. They do the research and analysis that the legislators and the staffers would normally have to do themselves. They compile facts, information, and research results selected to some extent to show their client in the best light.

Is this a form of corruption? Probably. More accurately it is what we might call “soft corruption” in the form of decay, a gradual deterioration of the way Congress and the federal government do business.

With these factors and questions in mind, how should we react to the news item that prior to the 737 MAX crashes Boeing had lobbied in Washington, D.C. to reduce direct supervision by the FAA?

Boeing’s lobbying was successful; the law was changed by Congress to allow the aerospace firm more freedom from federal bureaucracy. The change, in fact, was supported by the FAA, which believed that Boeing’s commitment to aircraft safety was demonstrated by the admirable record of its planes over decades of experience.

With the wisdom of hindsight, we can now see that Boeing’s excellent safety record might just as easily have been attributed to the close supervision of the FAA — and therefore, why alter the system? Instead, maybe the change should have been accompanied by the phrase often used in the securities industry: Past performance is no guarantee of future results.

Boeing’s seeking the change is understandable. Already burdened with a reputation-tarnishing record of production delays, the company was seeking an edge in its competition with its European government-subsidized rival. The FAA, which is tasked legally with supporting the U.S. aviation industry, felt it could safely streamline the system.

It is, however, symbolic of the kind of soft corruption of Congressional voting on bills so large that members have to trust others to judge their contents. Often that trust is validated…but not always.

The process of changing the Boeing-FAA regulatory relationship is also symbolic of the need for a major, structural reformation of how Congress functions. It won’t be easy; the world is a complicated place. But we have to do it. Soft or hard, corruption isn’t a good thing. Ricardo knew that; so do we.