Who really runs our government? This is a fair question … even though the true answer is mostly hidden from view.

    The term “Deep State” is of Turkish origin (late 1780s) and often described as a “state within a state,” composed usually of military, security, judicial, financial and criminal controllers. A modern, coincident phrase coined in 1974, describing features of government manipulation, is “rent seeking.”  This means “spending wealth on political lobbying to increase share of captured wealth without creating wealth,” which is a convoluted way of saying political bribery for financial gain.

    Last month, this column briefly examined the subject of our unresponsive government, created by politicians and operated by bureaucrats. In this column, we look at the driving forces, rent seekers and conditions that create an American Deep State. According to many studies, the effects are dramatic on society –
reduced economic efficiency, less beneficial allocation of resources, lost tax revenues, national decline and heightened wealth inequality. 

    It is important to distinguish between rent seeking and profit seeking. Economists say the former implies extraction of uncompensated value from others without making any contribution to productivity. The latter seeks to extract value by engaging in beneficial work that creates wealth.

    Studies indicate that as nations become increasingly dominated by interest groups, they lose economic vitality and experience decline. Economists say that rent seeking decreases total U.S. income by as much as 45% and “costs the sum of aggregate current income plus the net deficit of the public sector.” When rent seekers capture a regulatory agency, the result is usually worse than lack of regulation, and the more complex the regulatory environment, the higher the levels of corruption. Further, businesses have incentive to control anything that has power over them, including media, academia and popular culture. These are real American issues and deserve attention.

    Government is awash with specific examples of rent seeking, most of which are outside of public view or scrutiny. Here are some examples.

•   Over two years ago, metals trader-turned-whistleblower Andrew Maguire explained (before the event) to the Commodity Futures Trading Commission about manipulation of precious metals markets in a scheme amounting to trillions of dollars annually. Nothing has happened since then except talk of regulating the futures market. The rent seekers were stalwarts in the banking community.

•   The EPA has publicly maintained since 2004 that hydraulic fracturing (fracking) in oil and gas production is acceptable, but the topic has been studied by the House and Senate without any commitments or changes due to payments received from energy-production industry rent seekers to members. The issue is not at all about the merits of fracking but about political campaign contributions to ensure that the matter is ignored.

•   The Office of the Comptroller of the Currency and the Securities and Exchange Commission have been accused of failures in both the subprime mortgage  crisis and acting in the interest of the banking industry regarding insider trading and hedge-funds mismanagement. The rent seekers here are the collective banking sector of the economy, which rotates favored personnel in and out of the regulatory agencies.

•   The disastrous website construction for Obamacare enrollment is a graphic example of rent-seeker actions by Obama friends, who gave $80,000 to the White House. This is more a case of bribery than anything else. 

 

    What is obscured and therefore unknown is the shifting and devious maneuvers that are standard practice by rent seekers. For example, Burlington Northern Santa Fe (BNSF) Railroad owns most of the tracks from western Canada through the Midwest to Texas. These tracks are used to haul 80% of crude oil to Gulf Coast refineries. This is done because there is no (Keystone XL) pipeline. The Berkshire Hathaway-owned rail line, whose chairman is Warren Buffet, gave extensively to Democrat party causes and candidates via PACs and “bundled money.” The railroad charges $30 per barrel for oil transport and earns $28 billion annually for this and every year that this freight method is the only mode available.

    It is evident that this rent-seeking exercise benefits BNSF and the political establishment that has not approved the pipeline. When this matter publicly emerged, Buffet then joined the expositions urging pipeline construction. Rent seeking often involves playing a game both ways.

    What is described here is an American problem that must be corrected. Elimination of Deep State practices and corruption, which will kill our imperiled society and its history of world leadership and excellence, must be achieved soon and, it appears, must be led by citizens like you and me. IH