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Government Shakedowns May 4, 2014

Posted by federalist in Government Regulation, Markets.
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He knows that it’s cheaper to settle than it is to fight this investigation.

Most government shakedowns don’t get coverage like this in the Wall Street Journal. But then, as the FERC lawyers paraphrased above noted, most people realize it’s cheaper and easier to just settle.

In its legitimate role the government enforces clear laws and applies well-defined penalties to lawbreakers. In practice the government has promulgated so many laws that they are uncountable. Executive agencies ostensibly ordained to enforce these laws then compound them with rules and regulations so extensive and opaque that even expert enforcers often cannot say with certainty what is or is not permitted.

I have previously noted that the greatest peril of this situation is selective enforcement. I have since observed a more nefarious phenomenon: the government shakedown.

What motivates regulators in a system in which one can argue that virtually anyone is doing something wrong? Criminal convictions for clear violations of the law are great, certainly. But evidently when it’s too hard to find or convict criminals the next best thing for a regulator is a settlement. And, like all gangsters, the government goes after people with money.

I’ve seen this from traffic courts to tax assessors to market regulators: Pick an amount that is low enough that the target will decide it’s cheaper to settle than to fight. When you run out of criminals start with the wealthy, or just pull people over at random. Threaten them with laws and rules that may not even exist. Find the highest number they’ll pay to avoid further hassle, and if they turn out to be fighters just close the case and move on to the next target. There are no penalties for government enforcement agents who engage in such harassment. On the contrary, it seems, they are rewarded for “settlements” even if no wrongdoing was admitted or even committed. And since shakedowns are easier than full-scale prosecutions that could be lost under the judicial scrutiny of the courts and juries it often appears that enforcers would rather accumulate these token settlements than pursue the hard criminals they were created to take down.

We need more public scrutiny of the everyday government shakedown. And we need more people like the Gates brothers to stand up and say, “Even though it’s cheaper for me to pay you to leave me alone, I’m going to fight you because what you are doing is wrong.”

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