Scott Sumner  

Dennis Hastert and Colorado pot dealers

Student Loans and Bankruptcy... Ghost World and Zombieland...

It was always understood that some people might have a legitimate need to withdraw large amounts of cash from banks, perhaps if they ran businesses that had to make a lot of cash transactions. The law against structured withdrawals of cash was aimed at people trying to hide other illegal activities. Blackmailing someone is a crime, whereas paying money to a blackmailer is not a crime. And yet it was Dennis Hastert who was prosecuted.

I've been pleasantly surprised to see a number of liberals criticize the prosecution of Dennis Hastert. Here is James Fenton:

There has been no sign that Individual A will face charges for blackmail, or that his handling of large sums of cash--$1.7 million by the time Hastert was indicted--has been held to be felonious in any respect. It is as if the large sums of money, as soon as they left Hastert's hands, lost their radioactivity. They became uncontroversial in the eyes of the law.

What is Hastert being prosecuted for, and is it the same thing as what he is being punished for? If he is being punished for the large "structured" withdrawals of cash from his own bank accounts, then why should the involvement of Individual A not come under public scrutiny as well?

. . .

Very few people seem to have a problem with the idea that Hastert could be prosecuted for one thing and punished for another. Alan Dershowitz was among the few protesters:

"This case just smells.... I'm shocked that a prosecutor would allow this kind of case to be brought knowing that it will reveal the secrets, that it would open doors up to things that are alleged to have occurred almost half a century ago."

The statutes about structuring cash withdrawals, Dershowitz said, "were intended to prevent money laundering, to prevent drug dealing, to prevent income tax evasion." But the payment of hush money is not illegal and it

"is not within the heartland of what this statute was intended to cover. And then to have an indictment which essentially reveals that which Hastert was trying to conceal puts the government in the position of essentially being part of the blackmail--and it's just not right."

One problem with giving the government a lot of regulatory power is that it can be used to go after politically unpopular groups (like closeted gay Republicans), even in areas that were not envisioned when the regulations were drafted. George Selgin has another great example of this phenomenon:

[T]he Federal Reserve is now in the business of enforcing the U.S. government's drug laws, even if that means making a mockery of both state governments' right to set their own drug policies and the Fed's own governing statutes.

The Fed's involvement in drug prohibition became official last month, when the Federal Reserve Bank of Kansas City informed Denver's Fourth Corner Credit Union -- a non-profit cooperative formed by Colorado's state-licensed cannabis manufacturers -- of its decision to deny its application for a master account. Since asking any sort of depository institution to operate without such an account, and hence without access to the Fed's payment facilities, including its check clearing, wire transfer, and ACH facilities, is like asking a commercial airline to make do with propeller-driven biplanes, and established banks don't want the extra hassle that comes with dealing with pot growers, the Kansas City Fed's action forces Colorado's marijuana industry to do business on a cash-only basis, with all the extra risk and inconvenience that entails.

It gets worse, even the deposit insurance system is involved. I strongly encourage people to read the entire post. The government has already made it illegal to deal with large amounts of cash, at least if you are doing things that the government does not approve of. Now they are trying to force unpopular businesses into the underground economy, where they can be prosecuted for the "crime" of using currency.

Here's something for liberals to think about. Obama won't be president forever. Scott Walker has also been the recipient of some politically motivated investigations. If Walker becomes president, how will he use the federal government's vast powers? We can certainly hope he doesn't have Richard Nixon's personality, and doesn't use those powers to go after his enemies in the progressive community and labor unions.

And how about Hillary Clinton? Would she use federal powers to settle scores? I'd rather that a President Walker or Clinton not be tempted in the first place, which is one reason why I support a radical deregulation of the US economy. Abolishing the income tax and legalizing drugs would be a good place to start.

Comments and Sharing

COMMENTS (21 to date)
ThomasH writes:

I certainly agree that decriminalization of drug use and commerce is desirable, but I'm not willing to agree that use and commerce should be completely unregulated.

Concerning much criminal law which outlaws certain practices ancillary to the commission of other crimes, I do not think they should be grounds for prosecution without at least a strong presumption that prosecutors would have to establish before a jury, that the action had a criminal intent.

As for regulations in general surely they can be abused just as prosecutes abuse the criminal law. Regulations, just like legislation, should be guided by cost benefit analysis whose analysis is public. If that results in more or less regulation (if quantification is even appropriate), so be it.

ThomasH writes:

I also want to agree on the part about eliminating the income tax but only if it is replaced by a progressive consumption tax.

I do think that a consumption tax has the potential to be less complex and therefore less subject to abuse, but realistically it would still be an administrative monster as personal expenditures get classified as consumption or savings/investment or preferential consumption (charitable contributions? health insurance premiums? taxes?)

And it would still need a huge (hopefully somewhat less complex) system of oversight of business income to see that (a) all business income is imputed to owners and (b) that expenses are not disguised consumption of owners or employees.

khodge writes:

One massive government database is truly a technocrat's dream and a nightmare for the rest of us. My first thought is a combination of the unannounced confiscatory tax of Cyprus married to the economics of Piketty. Prepping the bureaucracy is just the first step.

Scott Sumner writes:

Thomas, I agree about the progressive consumption tax. I have an open mind on drugs, perhaps a stiff tax would be best. That's sort of like decriminalization; you are essentially imposing a fine. My fear is that the tax might lead to renewed smuggling, if set too high. So we need to be careful there. And it's regressive.

khodge, Elsewhere I've pointed out that 1984 is almost here, and no one seems to care.

khodge writes:

Scott, re: one seems to care because, since we are close to the apocalyptic world, immediate stimulation matters more than reading. I've recently purchased Max Headroom on DVD and it is almost shocking how well it has aged.

JLV writes:

This completely misunderstands politics as it actually stands.

Let's review:

Since 1980, the ideological distance between parties has roughly doubled. Essentially all of this is due to the Republican party moving to the right.

Since 1980, Congress has become increasingly less productive.

Given this, not surprisingly, executive power has increased (I would argue the expansion mostly happened under Republican presidents, especially George W. Bush, but both presidents of both parties have used expanded powers).

As long as legislators are refusing to do their job (this is essentially the result of polarization) of course the executive is going to step in. Think about how polarization happened. Think about who you are purportedly addressing in this post. Ponder the disconnect.

Kenneth Duda writes:


Check out John Cochrane's take on the regulatory situation:

It's really frightening.


Jose Romeu Robazzi writes:

Congrats Prof. Sumner, we need more posts like this. Regulation often have unintended side effects that last longer than needed and become a hassle on those it was initially intended to protect, citizens and consumers.

Edogg writes:

Did you miss that Hastert has been publicly accused (not legally charged) of sexually abusing children?

"One problem with giving the government a lot of regulatory power is that it can be used to go after politically unpopular groups (like closeted gay Republicans)..."
This is misleading. I expect most people who haven't previously heard of the Hastert story would think he is being blackmailed just for being gay. The example is only very weak evidence for the idea that the government will go after closeted gay Republicans.

Scott Sumner writes:

JLV, You said:

"Since 1980, the ideological distance between parties has roughly doubled. Essentially all of this is due to the Republican party moving to the right."

So when the head of the Democratic Party was recently asked what is the difference between Democrats and Socialists, and couldn't think of a single difference, and when half of Democrats say they have a positive impression of socialism, and when the Democrats have moved from Bill Clinton to Sanders and Warren being the darlings of the party, you see no sign the Democrats are moving to the left? Not on regulating Wall Street? Not on the minimum wage? Not on foreign policy? (Recall that many supported the Iraq War.) Not on taxing the rich? Not on international trade deals? Not on gay marriage?

Thanks Ken, I'll take a look.

Thanks Jose.

Edogg, There have been lots of vague charges on the internet, and perhaps some are even true. But that has no bearing on this post. Thus far the press has not even identified a victim, so we have nothing to go on other than rumors.

I certainly do think that the fact that Hastert is (apparently) a closeted gay Republican has a bearing on how people reacted. President Clinton was accused of forcible rape, but the accusation (from a specific person, and made publicly) was treated far less seriously than the vague reported claims against Hastert. (And I'm not saying they should have also gone after Clinton, just the opposite.)

Zeke writes:


There is a constant refrain that "Congress isn't doing its job." I would think the job of any Congressman was to vote for what he or she believes is best. If that leads to gridlock, Congress hasn't failed in "doing its job."

If you think Congress' job is to pass good legislation, I really don't see much evidence that the Congress of the past 20 years is any worse than the Congress of the 20 years preceding it.

I hope we can all agree that the job of Congress is not the passing of legislation.

Scott Sumner writes:

Ken, Yes, that's a great essay by John.

JLV writes:


To be a bit more concrete: in my estimation, the best way to characterize ideology is to infer a position on the right-left axis via the revealed preference of legislators (i.e. roll call votes). Probably best method is McCarty, Poole and Rosenthal's DW-NOMINATE. Using that measure, my statement is unambiguously true, see here for a bunch of graphs:

Admittedly, similar measures (see Shor and McCarty, 2010) for state legislators are a bit less clear, but the polarization in state houses is asymmetric as well, with the bulk of polarization due to Republicans moving to the right. (see here for state-level graphs:

Your comment, on the other hand, seems to be suggesting we should use legislator's stated preference (stump speeches, survey responses). I'm unconvinced as to why this is a better measure of ideology, but I'd be happy to be convinced.

Mark V Anderson writes:
To be a bit more concrete: in my estimation, the best way to characterize ideology is to infer a position on the right-left axis via the revealed preference of legislators (i.e. roll call votes). Probably best method is McCarty, Poole and Rosenthal's DW-NOMINATE. Using that measure, my statement is unambiguously true, see here for a bunch of graphs:

What is unambiguously true is that the graph on the link indicates more polarization among Republicans. I don't see where they explain how they have created this liberal/conservative split, so it certainly isn't convincing to me. There has to have been a lot of judgment calls in building this graph, considering the constant change of issues over the 150 years of the graph. It may well be that Reps have become more polarized than the Dems, but this graph certainly doesn't prove it.

JLV writes:


Look, ideal point estimation is a whole thing. Poole teaches a whole graduate seminar on it. You can read his class notes if you need to be convinced:

Scott Sumner writes:

JLV, I'm not disputing that the GOP has moved to the right since 1980. I think it's quite likely that they've moved further right then the Dems have left. Indeed on economic issues the Dems actually moved right between the 1970s and the 1990s. But since that time they've clearly moved sharply to the left, it's not even debatable. In 1986 Ted Kennedy voted for a 28% top income tax rate---try to imagine that happening today.

That study probably has trouble adjusting for the change in the mix of issues. Issues like gay marriage weren't even on the radar screen in 1980. So while it may be true that the GOP is more monolithically right than the Dems are monolithically left (I can't say) the definition of what it means to be "liberal" has certainly shifted since the Clinton era.

Another way to make my point is that neoliberals of the 1990s that stay put (say Mickey Kaus?) seem increasingly conservative as time goes by. More often, they've sharply adjusted their views (as with Krugman.)

And by the way, I'm certainly not defending the GOP, which is even worse than the Dems on issues like the war on terror and the war on drugs.

JLV writes:

Scott -

DW-NOMINATE allows legislator ideology to "drift" over time. And its true that many legislators who have served since the 1980s have become more liberal. But that doesn't mean that the average ideology of Democrats has gotten more liberal. Composition effects are more important.

I don't want to accuse you of derp, but I would just say that your perception of the average ideology of Democrats (or Republicans) may not be an unbiased estimator of the true mean.

JLV writes:

Also, I apologize for excess snark and mixing frequentist and Bayesian metaphors. I will let you imagine which I am more mortified about.

I have no idea what Alan Dershowitz is thinking when he says the government is somehow put in the place of the blackmailer... That makes no sense to me.

Scott, as usual a good economic mind and a good political mind appear to be substitutes. Hastert is a political non-factor, has been for years, I doubt most Americans even know his name, and to the extent that anyone cares about him at all, in the regulatory state and in the news, it's because a) he apparently broke the law, regardless of the identity and motivation and culpability (or lack thereof) of Individual A and Dennis' alleged misconduct from decades ago, and b) it appears likely that he is a pederast, which is what precipitated the (other?) law-breaking... not because he is a closeted gay Republican. "It's the criminality and pederasty, stupid!"

(Individual A, btw, may or may not have engaged in blackmail, but nobody seems to be even alleging that, not even Dennis Hastert, not to mention the other two kids he's been alleged to have abused...)

I agree 100% about the vast regulatory power of the state, how problematic that is politically and otherwise, how that should not be a partisan issue, etc. Dennis Hastert is just not a very good example of that problem.

AntiSchiff writes:

[Comment removed for rudeness.--Econlib Ed.]

NZ writes:

Are they still "pot dealers" if they have a brick-and-mortar storefront and are operating within the law?

If so, then Starbucks is just a bunch of caffeine dealers.

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