Dan J. Harkey

Master Educator | Business & Finance Consultant | Mentor

Government as Racket: How Power, Policy, Access, and Paydays Converge

When people say “the system is rigged,” they may be closer to a macro truth than a slogan. Here’s the evidence-driven anatomy of how public authority routinely converts into private gain—and what it would take to unwind the racket.

by Dan J. Harkey

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1) Follow the Money: Lobbying as a Business Model, not a Side Hustle

In Washington, the influence industry is not a cottage trade; it’s a growth sector.  Federal lobbying hit record highs in 2024, surpassing $4.4–$4.5B, with more than 13,000 registered lobbyists working the Hill—roughly twenty for every Member of Congress.  The heaviest spending comes from industries with the most at stake in regulation and procurement, including pharmaceuticals/healthcare, technology, finance, energy, and defense. 

Lobbying spend isn’t just about “educating” lawmakers; it buys agenda-setting, bill text, and “ring-fencing” rules that protect incumbent profits.  Decade-long trendlines indicate that the total outlay has roughly doubled since the late 1990s, with policy debates over taxes, healthcare, and AI regulation among the recent drivers of the surge. 

2) The Revolving Door: From Regulator to Regulated—and Back

Influence does not end with a campaign check.  It deepens when regulators and staff cycle into the industries they oversaw, creating structural incentives to please tomorrow’s employer.  An NBER study tracking U.S. patent examiners found they granted more (and lower‑quality) patents to firms that later hired them; the leniency extended even to prospective employers.  That’s textbook regulatory capture operating through career incentives. 

Health care shows similar risks.  A Stanford Law analysis of the FDA’s revolving door—highlighted by controversies around Aduhelm and Exondys 51—argues that post-government opportunities can bias judgment (consciously or not), undermining perceived impartiality and institutional legitimacy.  The paper advocates for stricter cooling-off rules and enhanced conflict-of-interest safeguards.

Not every empirical study finds a simple quid pro quo: a Fed/academic study of banking regulators observed complex flows in and out of agencies that weren’t always associated with laxer enforcement.  But even in more benign readings, the career pipeline blurs loyalties and complicates public trust. 

3) Cronyism in Uniform: Defense, Audits, and the Cost‑Plus Culture

Nothing illustrates the pathways from government to profit more clearly than the defense sector.  The Pentagon has failed every full-scope audit since audits began in 2018, receiving another disclaimer of opinion for FY2024, with auditors citing pervasive weaknesses across systems that control over $4 trillion in assets.  The GAO now warns that reaching the congressional mandate for a clean opinion by 31 December 2028 will require “accelerated” progress across dozens of material weaknesses. 

Program-level data reveal how cost growth and schedule slippage foster rent-seeking.  The F-35—the most expensive weapons system in U.S. History—has seen sustainment cost estimates rise from $1.1 trillion (2018) to $1.58 trillion (2023), even as availability and planned flight hours declined.  The GAO has issued 43 recommendations, most of which remain unimplemented.  The program office disputes some framing and notes cost-per-flight-hour declines, but the long-run bill continues to grow—driven by life-extension and modernization delays (TR-3, Block 4). 

Meanwhile, the global arms industry is experiencing a surge in activity.  SIPRI reports that the Top 100 defense firms booked $632 billion in arms revenues in 2023, up 4.2% year-over-year; U.S. companies captured about $317 billion of that (roughly half), with elevated demand tied to tensions in Ukraine, Gaza, and Asia.  When budgets swell and procurement stays opaque, margins follow.   

The playbook: under-audited agencies, cost-plus contracts, serial “capability refreshes,” and Congress’s district-anchored jobs create a political economy where overruns are a feature, not a bug.  Taxpayers pay; contractors bank.

4) Privatizing Gains, Socializing Losses: Bailouts and Backstops

2008–2012 (TARP/AIG). The government disbursed $443.9 billion under TARP (authorized initially at $700 billion, later reduced to $475 billion).  CBO’s final tally places the net subsidy cost at approximately $31 billion, with significant outlays to housing programs, AIG, and the auto industry.  The Treasury ultimately recorded a positive return on AIG-related interventions once equity sales and special vehicles were unwound.  Whether you view that as success or a moral hazard, it shows how the state guarantees losses when systemic players misprice risk. 

Behind the balance‑sheet neatness were transfer channels—for example, counterparties (including large banks) were made whole on AIG exposures during the rescue.  The official record emphasizes system stability; forensic narratives remind us who got par. 

2020–2021 (Pandemic).  The Fed, utilizing Section 13(3) emergency powers (with Treasury backing), launched facilities that backstop corporate bond markets and other credit channels.  Even after limited take-up, the announcement effect compressed spreads, delivering an immediate boon to issuers and asset holders—precisely those best placed to leverage recovery.  The Secondary Market Corporate Credit Facility explicitly bought bond ETFs and corporate debt, a remarkable step in U.S. central bank History. 

The Paycheck Protection Program (PPP) demonstrates how design details steer distribution.  Early rounds favored larger “small” firms and banked geographies; the GAO found that 42% of Phase 1 loans went to firms with 10–499 employees (only 4% of small businesses) and that rural and better-banked counties received earlier access.  Later tweaks improved reach to underserved borrowers, but heterogeneity persisted.  Microdata studies estimate $20k–$34k per employee per month retained and show racial disparities in take-up mediated by bank channels.

5) The Quiet Subsidy Machine: Tax Expenditures and the Corporate Burden

Much of the “racket” is off-budget.  The tax code contains hundreds of tax expenditure credits, exclusions, and accelerated depreciation that function like spending by other means.  The Joint Committee on Taxation pegs total tax expenditures (individual + corporate) in the trillions over a five-year window; Treasury’s tables list the largest (e.g., employer health exclusion at $231B in FY2024).  These provisions powerfully—if opaquely—shape who pays and who benefits. 

Despite a 21% federal statutory rate, the effective corporate tax burden is materially lower; corporate receipts have hovered near 1.3% of GDP, which is below that of most G7 peers.  The 2017 reforms (TCJA) significantly reduced effective rates for the public, multinational, and large firms.  In contrast, many private/domestic firms saw little relief or even increases—evidence that lobbying leverage pays most for the most globally mobile balance sheets. 

In parallel, policy has shifted from broad expensing to targeted industrial credits (e.g., IRA).  JCT and independent analyses note the trend toward activity-specific subsidies, which can entrench incumbents and complicate neutrality—again, a terrain where seasoned influence shops have a distinct advantage. 

6) Debt, Interest, and Who Collects the Coupon

When governments finance deficits, interest flows become their own redistribution machine.  Globally, low- and middle-income countries paid a record $1.4 trillion in external debt service in 2023, with IDA-eligible economies facing sharply higher interest burdens, which crowd out social spending.  While those figures aren’t U.S.-specific, they illustrate the general principle: creditor classes collect the coupon; ordinary citizens face the services squeeze. 

At home, the pattern rhymes: low corporate tax take, high exceptional interest deliverables, rising mandatory outlays, and audited-in-name-only megabudgets (DoD) create a fiscal environment where entrenched beneficiaries are reliably paid first. 

7) So—Is Government a Racket?

“Racket” is blunt.  It’s not that public goods aren’t delivered (they are).  It’s those rules of the game—lobbying scale, revolving doors, opaque tax expenditures, bailout mechanics, and procurement incentives—that consistently tilt outcomes in favor of well-organized elites.  The pattern recurs across various sectors, including health, finance, energy, and defense.  The receipts—audits, watchdog reports, and statistical series—tell the story.

A Counter‑Playbook: Six Reforms That Would Actually Bite

·       Ban secrecy in public contracts and loans.  Publish all federal contracts, delivery milestones, and deviations, and mandate disclosure of side letters and performance fees.  Tie progress payments to verifiable outcomes.  (Think F-35 incentive fees versus delivery performance.)

·       Harden the revolving‑door firewall—five-year cooling-off periods for senior officials; lifetime recusals on specific matters; real-time employment disclosures.  Empower IGs to audit compliance. 

·       Audit or freeze—no exceptions.  Withhold topline growth from agencies that can’t produce auditable statements; reallocate to units that achieve clean opinions.  (DoD has a statutory 2028 clock—tie funding to milestones.)

·       Sunset and score tax expenditures.  Require JCT/Treasury five-year sunset on significant tax breaks, with plain‑language distribution tables and renewal votes.  (If a subsidy can’t survive daylight, it shouldn’t live forever.)

·       Crisis facilities with citizen covenants.  When the Fed/Treasury backs up markets, it requires parallel instruments that are shared with the public (e.g., equity warrants or revenue-linked features) and publishes beneficiary lists within 30 days. 

·       Procurement competition by default.  End “vendor‑locked” sustainment; modularize software/hardware; penalize late deliveries with automatic fee claw backs and ban “paid lateness.” (GAO has already flagged misaligned incentives.)

The Civic Ask

For citizens, three habits beat cynicism:

  • Read the tables, not the tweets.  Treasury, JCT, CBO, GAO, USAspending, and SIPRI publish the numbers.  Follow them. 
  • Track the incentives.  If a rule or program creates predictable profit for a narrow group with opaque risk to the public, assume the lobbyists will keep it alive.  Then ask who wrote the rule. 
  • Organize for procedural reform, not one-off outrage.  Cooling‑off, open contracting, sunset clauses, credible audits—these are boring but decisive.

For Your Social Teaser

Government can be a racket—because the rules let it be.  Lobbying money, revolving doors, opaque tax subsidies, bailouts, and under-audited contracts funnel public wealth upward.  The fixes aren’t ideological; they’re procedural.  Let’s change the rules.

Local Case Files: How It Plays Out in Southern California

1) Anaheim’s stadium saga & the tourism influence machine

  • The sale that imploded.  In 2020, Anaheim approved a $320M sale of the Angel Stadium site to an entity controlled by the team’s owner.  After the FBI alleged a Corruption scheme involving the then‑mayor (who later resigned), the City Council voided the sale in May 2022.  In 2024, the city settled the team’s claim by granting a $2.75M credit against future shared revenues—no cash, but still a fiscal concession—while clearing the way for a fire station on the site.   
  • State enforcement on the land deal.  Separately, the California Attorney General pressed Anaheim to resolve alleged Surplus Land Act violations tied to the transaction—requiring approximately $96 million for a local housing trust fund, plus onsite affordable units (totaling more than $123 million in housing commitments under the proposed stipulated judgment).   
  • Independent probe: resort interests & money flows.  Anaheim’s 350-page independent investigation (JL Group) found pervasive influence by resort interests and “loose regulation” of lobbyists; it flagged the Anaheim Chamber of Commerce as operating “virtually as a money‑laundering operation,” and detailed alleged diversion of $1.5M in COVID relief via Visit Anaheim to a Chamber-linked nonprofit.  (Visit Anaheim’s CEO later resigned.)
  • State Auditor’s follow-up.  A January 2024 State Auditor report concluded that the city failed to manage contracts with Visit Anaheim and the Chamber properly, resulting in over $100 million to Visit Anaheim and more than $6 million to the Chamber over a decade.  The report cited unallowable spending and unmet deliverables, urging tighter oversight and renegotiation of the contract.

Why it matters: Land deals, tourism authorities, and political intermediaries can become off-budget channels for influence and public money—precisely the kind of shadow governance that thrives on weak contract monitoring and lax lobbying rules. 

2) The City of Bell: salaries, “personal loans,” and illegal taxes

When watchdogs are absent, the most basic guardrails fail.  In Bell (2010), the State Controller found virtually nonexistent internal controls, illegal taxes/assessments (approximately $6.8M), and grossly inflated compensation (the city Manager's salary was nearly $800k, while council members received around $100k), alongside $1.5M in low-interest “personal loans” to insiders.  Multiple officials were eventually convicted.  The scandal triggered new state transparency mandates for local compensation reporting. 

Why it matters: Bell is a classic: opaque pay, passive councils, captured staff.  It shows how small cities are not immune—indeed, they can be easier to capture.

3) Orange County’s 1994 bankruptcy: leverage, derivatives, and lax oversight

Orange County’s treasurer leveraged the public investment pool more than 2.7 times and loaded it with inverse floaters/structured notes, violating the basic hierarchy of safety, liquidity, and yield.  The strategy imploded after the rate hikes, resulting in approximately $1.69 billion in losses and the largest municipal bankruptcy of its time.  The State Auditor described it as imprudent and reckless, with record alteration and misallocation of earnings identified in the post-mortem.

Why it matters: This remains the local cautionary tale for financial engineering with public funds—and a reminder that governance + oversight are as crucial as return.

4) Regulator capture on our doorstep: CPUC, PG&E, and “judge shopping”

Emails released in 2014–2015 revealed improper ex parte communications between PG&E and the California Public Utilities Commission, including efforts to influence which administrative Law judge would handle a pivotal rate case.  The CPUC fined PG&E $1.05M and imposed further restrictions, while critics called it a systemic breach that “severely harmed the integrity” of the process. 

Why it matters: Even when fines follow, the damage to trust (and the potential rate Impact from litigation delays) is real.  It’s a clear example of how private backchannels can influence public decisions. 

5) San Onofre settlement: back-room terms and a Warsaw hotel note

After the San Onofre nuclear plant shut down, a hotly contested $4.7 billion settlement had to be reopened amid revelations about improper ex parte contacts, including a 2013 meeting in Warsaw, Poland, where then-CPUC President Michael Peevey discussed a settlement framework with an Edison executive.  Investigators later described probable cause for criminal violations of ex parte rules tied to that contact.  (Regulators and SCE have disputed specific characterizations, but multiple inquiries documented irregular communications.)

Why it matters: When regulators and regulated entities negotiate in private, ratepayers often end up footing the bill.  The San Onofre record shows how process shortcuts can unravel complex settlements. 

Red Flags & Fixes for Local Readers

Watch for these local red flags:

  • Land deals with minimal competitive bidding, or settlements that convert cash liabilities into non-transparent credits (e.g., future‑revenue offsets). 
  • Tourism/“destination marketing” contracts that funnel large sums to private nonprofits without granular deliverables, audit rights, or real-time reporting.
  • Off-budget entities (authorities, JPA’s, chambers) that become conduits for public funds with weak city oversight. 
  • Ex parte culture—private emails or meetings in regulatory matters where the rate or fee impacts roll downhill to residents. 

Concrete fixes you can press locally:

·       Open‑contracting by default: Publish scopes, deliverables, amendments, invoice-level payments, and performance dashboards for all city contracts >$50k.  (State Auditor’s Anaheim findings make the case.)

·       Lobbying sunlight: Mandatory real-time lobbyist logs; disclose all meetings, materials shared, and requested actions; ban closed‑session leaks.  (JL Group flagged the leak problem.)

·       Ex parte zero‑tolerance locally: For commissions and rate-setting boards, adopt CPUC-style ex parte bans with teeth and prompt disclosure of any inadvertent contact. 

·       Independent audits & clawbacks: Insert clawback clauses for unmet deliverables; commission third-party performance audits for any contract or subsidy >$1M. (See State Auditor’s recommendations.)

·       Investment governance: Codify the safety‑liquidity‑yield hierarchy and independent oversight for city/county investment pools to avoid Orange County-style risk drift.

Sources & Further Reading