I've heard it said that corporate greed isn't as bad a problem as corruption in American politics is. We have stories like today's out of Chicago to remind us of this truth. Yahoo News carries an early story:

CHICAGO (Reuters) – Illinois Gov. Rod Blagojevich was arrested on criminal charges on Tuesday, including trying to sell the U.S. Senate seat being vacated by fellow Democrat President-elect Barack Obama, federal prosecutors said.

Blagojevich was also accused of threatening to withhold substantial state assistance to the Tribune Company in connection with the sale of the Chicago Cubs' baseball home Wrigley Field "to induce the firing of Chicago Tribune editorial board members sharply critical" of him.

He was seeking a "substantial" salary for himself at a nonprofit foundation or union affiliated organization, a spot on a corporate board for his wife, promises of campaign cash, as well as a cabinet post or ambassadorship in exchange for his Senate choice, the FBI affidavit added.

1. Corruption in the U.S. is common.

This is a very high profile case, but it's not uncommon. Search "arrest corruption" and you'll find that Blagojevich isn't the only corruption case making the news today. In fact, the Department of Justice reports that it arrests about 1,000 state and local government officials across the country each year. The DOJ conviction data are comparable across states since it's the same DOJ convicting crooked cops in Connecticut, jailing jobbery judges in Jersey, and locking up legislators in the Land of Lincoln. Yeah, I was curious about Illinois, so I looked it up. Over the past 20+ years Blagojevich's state is the 6th most corrupt.

The economists Ed Glaeser and Raven Saks analyze these data and find some cool patterns.

We use a data set of federal corruption convictions in the U.S. to investigate the causes and consequences of corruption. More educated states, and to a less degree richer states, have less corruption. This relationship holds even when we use historical factors like education in 1928 or Congregationalism in 1890, as instruments for the level of schooling today. The level of corruption is weakly correlated with the level of income inequality and racial fractionalization, and uncorrelated with the size of government. There is a weak negative relationship between corruption and employment and income growth. These results echo the cross-country findings, and support the view that the correlation between development and good political outcomes occurs because more education improves political institutions.

I guess we shouldn't be surprised to learn that corruption rates vary with states' socio-economic indicators and harm economic growth. But it is a good paper. They also include an appendix ranking states by corruption rate over 1976-2002. They got the data from Corporate Crime Reporter. I use these same data in a paper explaining the states' legislative responses to the Kelo backlash, but corruption rate is a non-factor in our results.

So corruption in the American states is fairly common. An obvious limitation to these data is that convictions depend on enforcement levels, and the enforcers have their own agendas. Which brings up another interesting point...

2. Corruption and Public Choice Theory

Twice today I have heard economists say that this is a victory for public choice theory. Notch one in the W column for the cynical old Virginia School. I am not so sure. Public choice theory doesn't say that politicians are bad. But it does say, if we want to understand politics, that we mustn't merely assume or romantically hope that politicians are always good. So yeah, I can see the connection. Still there's nothing particularly special about public choice in this regard. The shared political heritage of the American founding is to embrace a healthy mistrust of government power. James Madison wrote famously in Federalist 51:

If angels were to govern men, neither external nor internal controls on government would be necessary. In framing a government which is to be administered by men over men, the great difficulty lies in this: you must first enable the government to control the governed; and in the next place oblige it to control itself. A dependence on the people is, no doubt, the primary control on the government; but experience has taught mankind the necessity of auxiliary precautions.

So I think this is just a victory for better government.

I see a stronger influence of public choice in drawing our attention to the behavior of the federal prosecutors, and to the effect of political incentives on their level of enforcement. A state's corruption ranking may reflect the state’s political standing among federal policymakers, particularly in the executive branch. The actual or near sacking of dozens of US Attorneys in the spring of 2007, followed by its dramatic political fallout (the U.S. Attorney General's resignation), strongly suggest that the fervor and priorities that a U.S. Attorney brings to her job are under the microscope from the highest levels of the federal pecking order. It's possible that corrupt officials are more likely to be bad people, but it doesn't follow that they're more likely to get convicted for it. My co-authors and I write about this in our empirical Kelo paper. So that actually brings up my third thought...

3. Corruption and the Scottish Enlightenment

My opening quip contrasting political with corporate corruption was not a throw away line. It's not that people who go into politics are worse people than those who go into business, or vice versa. At least that's not what's important to economists, who want to explain not just describe. Good political economics begins with what Buchanan and Tullock call "methodological symmetry," which means treating the butcher, the brewer, and the politician as having self-interested ends. Here on DOL, for example, Larry White likens greed to gravity. It's always there. In the corporate board room as well as on the floor of Congress.

That said, it's a subsequent question whether and to what extent natural self-interest is channelled into behavior that is beneficial for society rather than desctructive to it. And here is where public choice makes a fundamental point. It's not bad people but bad institutions that deliver bad outcomes, such as greater corruption in politics than in business. Simply put, the rules of the political game do not exert as much discipline as market competition does, and political actions are at best zero sum while market exchange is generally positive sum. For the most part, we owe healthier, longer and more comfortable lives to the profitable exchanges that are possible under market competition. And, for the most part, we owe the post office, pork barrell spending, wars of expedience, and 90%+ re-election rates to political institutions. Not to mention corruption.

The Scottish philosophers of the enlightenment worked with the idea that we do not have to hold altruistic or public spirited intentions in order to contribute to the general good. The opposite, actually.

Thus every Part was full of Vice, [155]
Yet the whole Mass a Paradice;
Flatter'd in Peace, and fear'd in Wars
They were th'Esteem of Foreigners,
And lavish of their Wealth and Lives,
The Ballance of all other Hives. [160]
Such were the Blessings of that State;
Their Crimes conspired to make 'em Great;
And Vertue, who from Politicks
Had learn'd a Thousand cunning Tricks,
Was, by their happy Influence, [165]
Made Friends with Vice: And ever since
The worst of all the Multitude
Did something for the common Good.
Bernard Mandeville, from The Fable of the Bees

And of course Adam Smith in ...

Every individual necessarily labours to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the publick interest, nor knows how much he is promoting it. By…directing that [labour] in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.

Public choice takes up the Scottish Enlightenment because it uses rational choice theory to analyze how self interest impacts public interest within political institutions. And in the spirit of the Scots, public choice applies reason to design improved rules. Here is Buchanan and Tullock in The Calculus of Consent (p. 23, 27 Michigan edition).

The Scholastic philosophers looked upon the tradesman, the merchant, and the moneylender in much the same way that many modern intellectuals look upon the political pressure group. Adam Smith and those associated with the movement he represented were partially successful in convincing the public at large that, within the limits of certain general rules of action, the self-seeking activities of the merchant and moneylender tend to further the general interests of everyone in the community. An acceptable theory of collective choice can perhaps do something similar in pointing the way toward those rules for collective choice-making, the constitution, under which the activities of political tradesmen can be similarly reconciled with the interests of all members of the social group. Insofar as possible, institutions and legal constraints should be developed which will order the pursuit of private gain in such a way as to make it consistent with, rather than contray to, the attainment of the objectives of the group as a whole.

I guess one of those legal constraints would be: you can't auction off a seat in the U.S. Senate, not if you're a state governor anyway.