A (Garden) State of Corruption?

America’s least corrupt state is . . . New Jersey.

That’s not a punchline.

The Center for Public Integrity recently released its State Integrity Investigation, aimed at measuring state corruption. In their words “The Investigation is not simply a tally of scandals that have occurred in state governments.” Fair enough, except they don’t really define what “corruption” means. Rather, states are graded based on 330 “corruption risk indicators” (measured by local journalists polling state officials, among others). The study boils down to how many laws states do (or don’t) have aimed at fighting corruption—things like political financing, ethics enforcement agencies, internal auditing, public record laws, etc. Simply, the more anti-corruption laws a state has, the higher they score in integrity.

But surveys like these—aimed at measuring rather undefinable things (like “happiness”)—ultimately say more about the group putting them together than what they aim to measure.

Full disclosure, I was born and raised in New Jersey. A lovely place with decent people. But just three years ago, a decade-long investigation into allegations of money laundering and organ trafficking netted at least 44 people (so far) including a handful of NJ mayors, state assemblymen as well as members of a religious charity organization. Google “New Jersey corruption scandal” and your computer will start smoking.

I’m not saying every single state and local government official spends weekends dropping off windowless vans in shady locales and receiving cash along with admonitions to, “Don’t look in the back of the van, and don’t ask no questions,” (which a friend of mine may or may not have spent summers in high school and college doing for his uncles). But it’s certainly possible New Jersey has so many anti-corruption laws because of the simple forces of supply and demand.

The Center for Public Integrity would have you believe that, yes yes, New Jersey has a checkered past, but all its laws now mean further corruption should be greatly reduced. (Cue the Sopranos opening credits.) In their minds, more laws mean less future criminal activity.

I’d guess the reverse. New Jersey didn’t suddenly write all these laws in the past 3 years. Most have been on the books for years. More keep getting written—not because money laundering (accepting bribes, embezzling, trafficking human organs, etc.) isn’t already illegal, but perhaps because some of New Jersey’s criminally-while-civically minded are just much more creative than most.

By their study, Georgia is the most corrupt state, in part because “about 2,000 Georgia officials, including one in five sitting legislators, have failed to pay penalties for filing their disclosures [regarding campaign donation sources] late, or not at all”. Oh, well, heavens! Failing to comply on time with what are often confusing and conflicting local campaign finance laws! South Dakota, the 2nd most corrupt state, “does little to require public officials, other than judges, to disclose their income and assets”. Does little! Oh the horror.

To be fair to New Jersey (whose beaches are really lovely and if you haven’t been canoeing in the Pine Barrens, you really must), often “corruption” is in the eye of the beholder—making it hard to measure accurately, as this study illustrates. Actions we call “corrupt” are often illegal because we arbitrarily say they are. Like certain campaign finance laws which are often bred from a desire to promote fairness. Which is nice, but often a gray area. Unlike something like, accepting hundreds of thousands in bribes to direct taxpayer money to certain vendors or outright stealing, which we can all agree isn’t any kind of gray.

Corruption is, in essence, abdication of trust by someone in power. In government, the trust abdicated is that of taxpayers. So couldn’t a good measure of higher corruption potential be states where there’s more opportunity to double-cross taxpayers? In other words, more money in the till per capita as temptation?

Looking at state budgets per-capita, New Jersey is ranked 5th highest—its state government spends $37,000 per New Jerseyan. Ranked lowest is North Dakota—its government spends a whopping $493 per citizen—not much temptation for would-be evildoers. (Unrelated: North Dakota’s unemployment rate is 3.2%, and New Jersey’s is 9%.) My method doesn’t seem any more or less valid than any other (and I’m at least aware it betrays my biases—preferences for smaller government and a more robust private sector).

I can certainly believe New Jersey isn’t the most corrupt state in the union. After all, New Jersey is a go-to for (often undeserved) potshots. But least corrupt? Yeah right, and the Boss wasn’t from exit 8.

Markets Never Forget But People Do by Ken Fisher (CEO of Fisher Investments) and Lara Hoffmans is available now.

 This constitutes the views, opinions and commentary of the author as of April 2012 and should not be regarded as personal investment advice. No assurances are made the author will continue to hold these views, which may change at any time without notice. No assurances are made regarding the accuracy of any forecast made. Past performance is no guarantee of future results. Investing in stock markets involves the risk of loss.

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