The Sausage Factory

by Russ Roberts on January 10, 2006

in Antitrust, Archaeological Economics, Politics

A number of people are glad that Jack Abramoff is headed to jail.  In this unintentionally funny Washington Post story (rr), we discover one such group.  The story opens:

ELTON, La. — The dizzying downfall of lobbyist Jack Abramoff means
more than just another Washington political scandal in this rural
outpost of tin-roofed homes and fraying trailers.

It is a measure of vengeance.

Led on by what they say were his false promises of political access,
leaders of the Coushatta Tribe of Louisiana, which is based here, paid
Abramoff and his partners about $32 million for lobbying and other
services — more than $38,000 for each of their 837 tribal members. By
their accounting, they got very little in return.

I first read this story in the print version of the Post where it was a front page story.  That $38,000 figure gave me some pause.  Where does any group of 837 people find $38,000 apiece to pay for lobbying services?  Why would any group be willing to pay someone $32 million for lobbying services?  But the focus of the piece is instead the injustice of those fees:

It was thievery, tribal members said, that echoes the historic losses of Native Americans to European settlers.

"Abramoff
and his partner are the contemporary faces of the exploitation of
native peoples," said David Sickey, a member of the tribal council. "In
the 17th and 18th century, native people were exploited for their land.
In 2005, they’re being exploited for their wealth."

Pretty poignant, huh?  But where did that money come from to pay Abramoff?  And why did tribal leaders agree to it?  After a discussion of Abramoff’s insulting language in emails about tribe members and how the Tribe used to only deal with Democrats until Abramoff came along, we discover that the tribe did get something in return for their investment:

In some instances, the Coushattas got what they paid for: Abramoff was
able to help quash a rival tribe’s proposed casino, protecting the
Coushatta Casino Resort.

Okay, that’s something.  Just how valuable was that service?  A partial answer to that question comes about half way through the story and tells us what might have been worth mentioning nearer to the top of the piece:

Revenue from the operation is estimated to be about $300 million a
year, and each tribal member is given a quarterly sum from the profits.
Tribe finances are not disclosed publicly, but estimates of those
checks per member have ranged from $30,000 to $40,000 annually. Members
also receive free medical care and education, as well as financial aid
to buy a home. Many have used the money for better cars and better
homes.

That’s $30,000-$40,000 per member.  Does that mean that a family of four would get about $140,000?  The article doesn’t say, but it does tell us:

The per capita prosperity has also kicked off a baby boom, tribal
leaders said, and today 342 of the tribal members are under the age of
18.

I suspect it isn’t the prosperity that’s encouraging the baby boom but the incentives implicit in how casino revenues are divided.

Any time the government hands out monopoly rights, it’s not surprising that the beneficiaries will pay large sums of money to keep those rights intact and free from competitors.

I sure would like to know how the Coushattas rather than another tribe came to be chosen for the casino in that area.  I have a feeling it wasn’t a lucky spin of the roulette wheel or drawing the high card.

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{ 8 comments }

doinkicarus January 10, 2006 at 12:23 pm

Sounds familiar. Where I went to undergrad, at Central Michigan University, the local Chippewa Indian tribe had a large casino resort. Their dividends were to the tune of $52,000 per adult over 18, per year, with an allowance of $20,000 per minor child who resided with them. So yeah, about $140,000.00 per year, for a family of four.

But most of the reservation, strangely enough, lived in absolute squalor and abject poverty. I never could understand that.

Ivan Kirigin January 10, 2006 at 2:41 pm

I'm not sure incentives for indiginous peoples to have more children are bad.

Either way, I would prefer my mobsters have an interesting cultural background, rather than a bunch of NJ italians :)

William January 10, 2006 at 3:30 pm

Good old-fashioned rent-seeking. Isn't it nice when it's so easy to pick out?

thingsbetterwithkoch January 10, 2006 at 8:29 pm

Government for sale to the highest bidder. Is that Libertarianism? Where is your righteous indignation? Oh, that's right, if we didn't have government, there wouldn't be a problem. Or better yet, if I'm the government, everything will be ok. But it fits with Darwin economics. The Indians couldn't handle their money well and were parted with it. Right?

Timothy January 11, 2006 at 9:57 am

Each member traded basically a year's worth of casino compensation to ensure that they kept exclusive rights. Even of those rights last only another few years it was more than worth the investment, even with a reasonable discount rate.

And it's not like we're shocked government is for sale to the highest bidder: people respond to the incentives they have, government creates many perverse incentives. The individuals involved are still responsible for any violations of law or ethics, but it's hard to be surprised. One might say that with as large a central government as we have this sort of thing is inevitable.

John P. January 11, 2006 at 1:29 pm

thingsbetterwithkoch — Your reference to "Darwin economics" has me wondering if you are the same person who previously posted as "faultolerant." If you are, I posted a question a few threads back that may have been overlooked: What job do you have that pays $250k per year, while you have yet to earn your first degree?

Antonis Roussos January 12, 2006 at 4:24 am

Please see also this interesting analysis in the Becker-Posner blog.
http://www.becker-posner-blog.com/index.html

Nancy February 5, 2008 at 12:19 pm

Great blog.Thanks for the info.

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