Book, inside job, how government insiders subvert the Public Interest. His book looks at the sources of national decline. Typically when people think about national decline, they often look outside government, add special Interest Groups that try to coop governments for their own benefit. However, mark takes a different approach and looks at the sources of national decline. Com from inside government, from government insiders. It may cause even more harm to countries and civilizations than the harms that come fro outside government. We are looking forward to hearing from him today. The way we will frame todays book form, first we will hear remarks from him and then we will have comments from Jonathan Rauch at the Brookings Institution and myself. First i would like to introduce doctor zupan. He began his tenure as the 14th resident of Alfred University on july 2016. He was at the Business School of rochester from january 1, 2004. He served as dean and professor of economics at the university of Arizona College of management from 1997 until 2003. Before his appointment at arizona, he taught at the university of Southern CaliforniaMarshall School of business where he also served as associate dean of masters program. He was also a Teaching Fellow in harvards department of Economics Department while pursuing his doctoral studies at mit. He has been a faculty member of business and administration at dartmouth university. He has a bachelors degree in economics from harvard and a phd from the Massachusetts Institute of technology. I turn the time over to doctor zupan. We look forward to this exciting conversation. [applause] thank you emily for the kind introduction. Thank you all for being here. A special shout out to jim dorn in the back, the editor of the cato journal who provided me a space while i was on sabbatical and a lot of interesting leads and thoughts about articles and research i should be familiar with to pursue this work. It has been a work in progress for about 30 years. The sabbatical year end half ago finally provided the opportunity for these ideas to come to fruition. The book has probably gotten more topical in light of our most recent president ial election. When you look at the Pew Research Poll that is done annually on trust in government, the percentage of americans that trust government either all the time or most of the time is at an alltime low. Right now at 19 , as of 1966 and the pool has been done for over 50 years at 77 . It is. It is lower now than i was at watergate. There is probably some correlation between that assessment and the rise of candidates like donald trump embry sanders. Like emily said, the book deals with the topics that have been with us for a while. Why do nations succeed and fail . That is a topic that has been extensively thought of whether by economist, clinical sciences, social outages, philosophers, et cetera. Looking at hypocrisies, democracies or both. The economic model of politics has been around roughly 50 years. It has grown out of a time where democracy has been the focus, and it conceptualizes politics like other settings in life that is looked at. Its marked on the demand side of interest that compete for rulings and policy decisions that generate positive wealth transfers for them. Whether the interests our businesses, labor, labor unions, consumer activists or general citizens. The supply side, according according to this model is comprised of rulers or political leaders but we can also think of those that are appointed to execute policies, bureaucrats and also if we think broadly, the military and Public Employees. When things go wrong, as as emily mentioned earlier, the common belief among economists has been there has been capture of the system from the demand side of this political marketplace. George sigler, who won a nobel prize in economics for this idea initially conceptualized this model and believed the producers that would be most likely to coop the system. Very similar to how karl marx looks at what happened in politics. That conceptualization got broadened by other economists like gary becker, poser, and others to be expanded to expand other Interest Groups from the demand side. We can certainly find cases where we found consumers who were coopting the process for their benefit or environmentalists or 1 ors. Any good criminal investigator, when you are trying to find out who made the at fault, what you look for is motive, means and opportunity. Those are all present on the supply side of politics. Had we not been looking at just the last 50 years, had we looked more broadly the last several centuries where hypocrisies were the norm, we would probably have a different perspective on this marketplace. When hypocrisies were were the norm, the belief would be that the rulers owned the state, the country and its citizens, as in louis the 14t 14th. Its not to say that government cant advance the Public Interest. They are human beings like the rest of us whether they populate business settings, everyday workplaces, they have capacity for great good and great evil. Anyone who has been to the beaches of omaha in normandy cant be but moved by what people do to sacrifice for the greater good. The political scientists, to paraphrase his definition of politics, it was who gets what, how, why, when and where. What this book does is looks at the fundamental questions. If we were to pry open the black box on the supply side, who is it . What and why are they motivated to coop the system, how do they do it, and, and when and where have they done it . Its an important enough question in the developed world. They now account for 50 of gdp and 28 of the workforce. Who is on the supply side . We think of rulers and their rotary, in democracies we think of elected officials, people like ms. Cannon pointed out, we also have to worry about people who populate our bureaucracies. They arent perfectly policed, they have latitude to design and implement policies. Also, Public Public employees in the military, there is a recent book review done of the guard in the roman empire and the role they played in both figuring out who is going to be in power, stay in power, and in many cases to the detriment of the roman citizenry. There have been other similar reviews of recent books on alexander the greats army or the military troops that defended the star. The supply side shows up in a few places. This is what first got me started on the question, back in the 80s with a colleague, looking in democratic settings , we were trying to test george siglers model. What other account is have done was to find out what extent Interest Groups could actually explain individual issue outcomes. We started looking at voting on legislation and while there was some explanatory power from the demand side, it was surprisingly limited. It also surprised us to what extent we could explain senators votes on stripmining legislation with how they voted on abortion bills. There is something about these ideological motives, perhaps they were policed around election time but they seem to matter. Even when we looked at the broader bundles of settings in democracies that there seem to be in present Day United States some latitude, they had different do you viewpoints to pursue their objectives. What are the motives . We often think of club talk or see as a model and there are examples we can point to in the press, officials in places like malaysia or what was revealed in the Panama Papers were even further back in china, the Dominican Republic whose Family Wealth was one 100 of gdp of the country and accounted for 60 of the hiring decisions. We certainly can find examples of that, but we also have to leave room for other motives, for good or for ill. We can point to the killing, what hitler accomplished in power and was able to move germany from a democracy to an attacker see. Its not to say it just occurs on the supply side or the demand side. The book argues we often see symbiotic cases. Its like dna. There are four nuclear typefaces, site unseen. Some only bond with. [inaudible] even if the catch occurs on the demand side, we should expect to see something right on the supply side, or if the capture is motivated from the supply side, there will be something it kilter on the demand side. Rose friedman had this observation that theres nothing so permanent than a Government Program and other washington pendants have observed the staying power of policy even though the explanations may vary over time why they have their lasting nature. When we think about both sides and what the vested interest might be in keeping those policies in place, that inertia becomes a little easier to understand. Where and when does it occur . If you look at paul kennedys work, and its now been 30 years, the the rise and fall of great powers, what is striking in rereading his two stories, he goes back to 141500 asks the fundamental question, if we were to predict, what would be the dominant powers nowadays, we would put china and the empire. How they unwound themselves, its hard not to construe that as a supplyside story. From looking at the population, the technological advances in the military prowess of the chinese empire and how under the ming dynasty they started to turn inward due to the bad emperor problem in terms of shipbuilding restricting trade, shifting the border inward as to restrict trade, the skepticism about entrepreneurship, the bureaucracy started to weigh in on and supporting technological innovation. Likewise in the empire, i think they call it the idiot sultan problem and there were certainly cases we can point to in succession planning that wasnt well thought out that often lead to who could get to istanbul the fastest with the most us because of the number of male errors to a sultan, but also the bureaucracy, the elite fighting group. They figured out a very creative way to avoid favoritism. They would raid christian lands to identify ablebodied males for conserving their army and brought them back to train them and dr. Nate them. It was a one generation base military. It was a feared fighting force that ensured the spread of the empire, but once in place, some of the seeds of decay lay with anna series. It became a nonhereditary, if im here, why not my son, and then the benefits they started to bargain for. Two psalms were murdered in attempt to promote reforms, and the Ottoman Empire became the sick man of europe. It wasnt just the anna series. Also the large army of scribes who are threatened by the Printing Press and similar worries in china about the spread of information. As they talk about it, the Ottoman Empire went 225 years without a Printing Without a Printing Press. By 1800 only 2 of the empire was literate where places like germany and england had 50 literacy rates. Its very much a supplies side story if you read the book 30 years later. The kingdom of ancient egypt, ramses the second, he has a greek name and a famous poem. Beyond his military conquest, when when you look at the histories and the extensive building projects, the palaces, putting a larger priesthood on the payroll, part of the Public Employment was 30 was accounted for by Land Ownership by priests and scholars that had studied that period. It became increasingly hard to sustain under the new kingdom of expenses that went with it. The regime, the venetian republic, the dominican republi republic, but also democratic examples and Steve Walters is back there and gave a marvelous book year end half ago about boom and bust towns in the United States, looking at places like boston and San Francisco and when they became extracted, an example being curly in boston that has an effect named after him for the ability to not only grand eyes also to chase out opponents. And then, looking closer to hom home, my hometown, until recently was rochester, new york, and the state of new york that a Public Investment made it a boom town. The erie canal, lowered transportation costs by 90 . Rochester went from 15 people in 1817 to being the United States 13 largest city by 1840. Gross, the advent of railroads slowly loosened some of the preeminence, but rochester and the rest of upstate new york dont start falling off the wagon until the 1940s and the 1950s. It is a story that cant be connected to the demise of kodak or bausch lomb or carrier but can be correlated to new york state becoming a high tax state. The recent book i Stephen Moore look at nine states without income tax versus the ten highest income tax states, growth rates and migration rates. Theres a very similar story which is in seattle last week for an alumni event and its striking how many cranes are there that are largely absent in my former hometown of rochester. More modern examples, we read read about them in the news, whether they are hypocrisies or democracies, north north korea, three generations of the kims, russia and vladimir putin, the Iranian Revolutionary guard, by conservative estimates owns 33 of their country, what chavez and majuro have been doing in venezuela, but it applies to democracies. In india, most recent year that a survey has been taken, 54 of citizens report having to pay for bribe to get a public service, even higher for the lowest income class, 75 . 34 of recent electoral candidates are under criminal indictment. It pays to be in the assembly when you look at growth in the political economy articles or you look at argentina and anybody who has traveled to argentina, how under the kershners there were three Different Exchange rates and the best one was the corner bakery where the suites are good in argentina but the foreignexchange was treating even more briskly. Some of the challenges in the e eu, the book the euro trap and some of the challenges the European Union has faced, especially in the periphery countries. These issues apply to china and the u. S. , whether we look at china under mouth, an interesting read is the most recent economist issue and the consolidation of power on the Upcoming Congress in the fall and the worries if the trend will continue. Also in the United States, there is a chapter that that deals with some of the challenges we face in the Worlds Largest democracy, whether its a more professional congress and tenure lengths of being roughly doubled over the past 100 years, robert caro has a wonderful book on lyndon johnson, how he was one of the first to figure out if you can do Facilitation Services while it would insulate you from the voting that you undertook and it would increase your tenure and political power, whether you look at unfunded pension liabilities, they will argue its only in detroit, but whether its feeling cities like stockton and san bernardino, or puerto rico or philadelphia, yesterdays news in new jersey, dallas or houston, josh rao and they estimate these unfunded liabilities to be our second biggest fiscal challenge in the United States conservatively at 5 trillion. Whether you look at how more monopolize our Education Sector has gotten, the number of districts since 1950 has decreased by over 80 . We are spending, in real terms per student, three times more than in 1960. A Public Sector union rate and some of the challenges that daniel pointed too. There are some issues for us to really think about on the supply side in the United States. It is a simple book in one respect. There is only one figure, one equation and two tables. Here is the equation. Just to conceptualize if we are to capture the process that government insiders gleam, it is a combination of how much potential there is to be captured. The slack on the supply side, how imperfect were the slack can vary from zero to one with zero being no slack at all and perfectly pleased to supply side and one being perfectly untethered, and how much interest is there in exploiting the slack . Michael sandel, earlier philosophers will also argue about the importance of needing to instill civic mindedness when relying on virtue. Even when there is slack we can rely on the factor to diminish the fact that those on the supply side will operate not to the benefit of the Public Interest. There is a chapter on what drives the potential gains, the perks, the patronage, the bureaucracy, the transactions cost, potentially, this is something that a ruler in persia argued in the 500 a. D. That if i let the economy grow , that will mean more tax revenue for me. There there is a potential that one could argue to have the economy be productive to allow the gate greatest gains to the government insiders, but their transaction cost with operating a government, tax and transfer programs which have been studied the most extensively, how porous and we can argue that if we want to transfer 50 cents, a basically chews up a dollar 50 to create that transfer so two thirds of the tax gets chewed up along the way either in disincentives or the management of the tax and transfer policies. There are economists like jerry becker and Steve Whitman that will argue, just like other markets, adam smiths invisible hand should w