How the Lone Star State Legalized Highway Robbery

Megan McArdle is a Bloomberg View columnist. She wrote for the Daily Beast, Newsweek, the Atlantic and the Economist and founded the blog Asymmetrical Information. She is the author of "“The Up Side of Down: Why Failing Well Is the Key to Success.”
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Corruption is something that's supposed to happen in other countries.

Certainly, we're supposed to be free of the worst sort of exploitation -- what I called "entrepreneurial corruption" when I wrote about Iraq a few years ago:

After 70 years of communism, Russia had adapted its culture and institutions to living in a command economy. When we ripped out the old system, they didn't simply adopt our values; they adapted what they already had to the new system. The result was widespread corruption and violence against which Russia still struggles.

Despite that lesson, we sort of did the same thing to Iraq. We didn't prepare for the insurgency that surged into the power vacuum left by Saddam's fall, and we also didn't prepare for what institutions that had grown up under Saddam's rule would turn into in a post-Saddam economy. According to Frank Gunter, one of the experts to whom I spoke, corruption is now getting worse. The Saddam regime was bad, but it had reached a basically stable equilibrium. Once we got rid of that, the corruption became was he calls "entrepreneurial," with ministries competing with each other to extract bribes.

And how do you best extract bribes? You enact regulations for people to violate. Iraq's regulatory regime is actually getting worse, not better, according to Gunter, pushing businesses into the grey economy. Though some conservatives and libertarians have sort of a soft spot for people who protest excessive taxes and regulations by disappearing into the cash economy, this is terrible for the economy as a whole. Grey market firms have little access to capital, difficulty enforcing contracts, and are constantly vulnerable to the whims of officials who extort favors or money.

We hear about things like this and we shake our heads, tut-tut and murmur how terrible it must be to live in a country where the government not only tolerates corruption, but institutionalizes it, creating rules for the purpose of extracting money from unsuspecting citizens.

Which indeed it is. And if you read Sarah Stillman's chilling New Yorker article on how small towns and big cities are using civil asset forfeiture to fund their operations -- and their employees -- you quickly realize that we are living in one of those terrible countries.

David Guillory started his research by driving his cluttered red Volkswagen Jetta to the Shelby County courthouse, in Center, Texas, where he examined the ledgers that listed the past two years of the county's legal cases. He wanted to see "any case styled 'The State of Texas versus' anything that sounds like a piece of property." The clerk began hauling out one bulging accordion file after another.

"The eye-opening event was pulling those files," Guillory told me. One of the first cases that caught his attention was titled State of Texas vs. One Gold Crucifix. The police had confiscated a simple gold cross that a woman wore around her neck after pulling her over for a minor traffic violation. No contraband was reported, no criminal charges were filed, and no traffic ticket was issued. That's how it went in dozens more cases involving cash, cars, and jewelry. A number of files contained slips of paper of a sort he'd never seen before. These were roadside property waivers, improvised by the district attorney, which threatened criminal charges unless drivers agreed to hand over valuables.

Guillory eventually found the deal threatening to take Jennifer Boatright and Ron Henderson's children unless the couple signed away their money to Shelby County. "It's like they were memorializing the fact that they were abdicating their responsibility to fight crime," Guillory said. "If you believe children are in sufficient danger that they should be removed from their parents -- don't trade that for money!" Usually, police and prosecutors are careful about how they broker such exchanges. But Shelby County officials were so brazen about their swap-meet approach to law enforcement, he says, "they put it in the damn document!"

Patterns began to emerge. Nearly all the targets had been pulled over for routine traffic stops. Many drove rental cars and came from out of state. None appeared to have been issued tickets. And the targets were disproportionately black or Latino. A finding of discrimination could bring judicial scrutiny. "It was a highway-piracy operation," Guillory said, and, he thought, material for a class-action lawsuit.

Why are these police departments and local governments stopping innocent citizens on the road through their town and holding them up for their valuables? Because they get to keep the cash. In one case, Stillman reports that the county prosecutor's salary was being paid entirely out of the civil asset forfeiture fund.

You see this sort of...well, call it "tax arbitrage"... a lot in emerging markets with big corruption problems. The local government doesn't want to raise taxes to pay government workers decent salaries, so instead, they pay them a pittance, and let them make it up in bribes.

In fact, you saw this a lot in big U.S. cities during the 19th century. The New York City police department was notoriously rife with graft. It could cost thousands of dollars in bribes to buy your way into a plum position in the department -- far more than you could ever hope to earn as a policeman. Once there, you were expected to make it back in quasi-legal extortion, including the money kicked up to you by lower-ranked officers running their own rackets.

The modern American version is very slightly less venal -- often, the thefts are used to fund equipment for local law enforcement operations, though Stillman also reports it being used for salaries and bonuses paid to local law enforcement, as well as things like contributions to groups that the district attorney wanted to support her campaign. But that doesn't make it any more just for the people whose things are taken by a system they are powerless to fight.

Obviously, this is a terrible way to run a government. (However much you dislike taxes, extortion is an even more inefficient and immoral way to fund government operations.) But these are the incentives set up by civil asset forfeiture laws that allow localities to fund themselves by basically stealing things from the powerless -- the people who have no voice, and too little money to make it worth hiring a lawyer when you steal what little they do have.

I think we should get rid of civil asset forfeiture laws entirely. But if we must have them, then we should structure them so that the people enforcing the laws get no benefit at all from the seizures -- not salaries, not better equipment, and certainly not parties and campaign donations. If you give people incentives to take things, then they probably will. And the government already has quite enough incentives to take our stuff.

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To contact the author on this story:
Megan McArdle at mmcardle3@bloomberg.net