CHAPTER SIX

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Trickle-down Corruption

For those who are part of the Winning Class, or trying to be, there are plenty of reasons to cheat. The rewards are bigger and the rules are toothless. Yet many Americans with more modest ambitions and more humble means are also cheating.

Take the mild-mannered bookkeeper as an example. He is, by all appearances, an honorable man. He neither drinks nor smokes, and is quiet and dependable in the way of many bookkeepers. He rarely misses a day of work or tarries on his lunch break. When United Way comes around, he always contributes. He and his wife lead an orderly life with their two polite children and spend Sunday mornings at church.

The bookkeeper works hard during the early years of his job and finally gets up the gumption to ask for a raise of $100 a month. He is crushed when the request is denied. But the bookkeeper seems to get over his disappointment and soldiers on. He still arrives punctually every day. He never calls in sick when, in truth, he is well.

After twenty years, the bookkeeper finally retires. The company throws a small farewell party for him and gives him a watch. He and his wife pack up for Florida to start their golden years. A new bookkeeper takes his place. Poring over the financial records, this new bookkeeper finds that something is wrong. Things aren’t adding up. He flags his concern to the company. No, no, he’s told, the old bookkeeper would never get into any fishy business. He was a rock of reliability, the soul of integrity.

And yet, when the new bookkeeper completes his investigation, the facts are incontrovertible. The old bookkeeper, it is clear, engaged in a systematic pattern of embezzlement. The pattern is oddly consistent. Year after year, the amount of money stolen is never greater and never smaller, nor is it particularly large. It is $100 a month.

The thieving bookkeeper exists in an apocryphal story passed down over many years among fraud examiners who probe workplace theft. The story is told to illustrate a point these investigators know all too well: that people are prone to invent their own morality when the rules don’t seem fair to them. This tendency explains a lot of cheating in America today.

There are roughly four reasons why people obey rules. First, we may toe the line because the risks of breaking the rules outweigh the benefits. Second, we might be sensitive to social norms, or peer pressure—we follow the rules because we don’t want to be treated as a pariah. Third, we may obey rules because they agree with our personal morality. And fourth, we may obey rules because they have legitimacy in our eyes—because we feel that the authority making and enforcing the laws is just and ultimately working in our long-term interests.

When people don’t obey the rules, you’ll often find several things going on at once. The Winning Class cheats so much because there’s more to be gained nowadays and there are fewer penalties, either legally or socially. Students often cheat for the same reasons: the stakes of academic competition are higher and the normalization of cheating means that there’s little peer pressure to be honest.

Motives like these are not hard to understand. Cases like the bookkeeper are more complex. A simple risk/benefit analysis doesn’t explain everything, since the bookkeeper was running a serious risk for only a modest sum of money and could easily have taken more. Nor do social norms offer much insight, since the bookkeeper’s thefts were not condoned by his peers. Instead, the bookkeeper operated by his own moral code to take from the company what he felt it owed him.

A lot of Americans have been inventing their own morality lately. Tens of millions of ordinary middle-class Americans routinely commit serious crimes ranging from tax evasion (a felony), to auto insurance fraud (also a felony), to cable television theft (yes, a felony as well in some states), to Internet piracy of music and software (more felonies). Most of these types of crimes are committed for small potatoes: to receive $700 more on a tax refund, to save $400 a year on an insurance premium, to get $40 a month worth of premium cable or an $18 CD for nothing. These crimes are being perpetrated by people who see themselves as law-abiding citizens, people who don’t imagine themselves above the law and who don’t have big-shot lawyers on call.

Day-to-day criminality among ordinary Americans is nothing new. “Unlawful behavior, far from being an abnormal social or psychological manifestation, is in truth, a very common phenomenon,” commented the authors of a 1947 article about “law-abiding law-breakers.”¹ However, evidence indicates that this familiar problem has worsened in recent years—even as conventional street crime has fallen dramatically.

What is going on here?

Much of the answer, I suspect, lies in our broken social contract. An orderly democratic society depends on having a social contract in place that delineates people’s rights and responsibilities. It also depends on people having faith that the social contract applies fairly across the board. The social contract will break down when those who play by the rules feel mistreated, and those who break the rules get rewarded—which has been happening constantly in recent years.

John Q. Public need not to be versed in John Locke to feel that he has a legitimate cause for cynicism. He knows that white-collar criminals walk free, that fat-cat tax cheats get off the hook, that corporate money buys political favors, and that Ivy League schools are filled with kids whose rich parents greased the system to get them in. He also knows that when there’s a war, it’s working-class kids who fight it; when there’s a tax cut, he probably won’t get more than peanuts; and when there are layoffs, it’s those lower down the totem poll who’ll get the ax.

Polls confirm that many Americans see “the system” as rigged against them. When asked who runs the country, many say corporations and special interests. When asked who benefits from the tax system, most say the rich. When asked who is underpaid in our society, most agree that lots of people are underpaid: nurses, policemen, schoolteachers, factory workers, restaurant workers, secretaries. And when people are asked whether it is possible to get ahead just by working hard and playing by the rules, many say that it is not.²

It is commonly said that Americans tolerate huge income gaps and other unfair advantages of the rich because they think that they themselves will be rich someday. But polls show that most people don’t actually see great wealth in their future. Less than half of Americans think they will ever be rich, and up to half believe that their children will be worse off than they are. At the same time, nearly half of Americans surveyed in 2001 said they saw U.S. society as divided between haves and have-nots, compared to about a quarter of Americans who felt that way in 1988. More startling, after years of prosperity, is that the percentage of Americans who identify themselves as being among the have-nots has nearly doubled, to a third, since then.³

As wealth and power inequities have grown in America—as the rich have grabbed most of the new wealth and come to live in their own moral community with its own set of rules—ordinary Americans have taken note. Many Americans see plenty of evidence of a broken system in their own economic struggles. Polling shows that as many as 50 percent of Americans worry that they will be poor at some point in their lives. Extensive economic data that compares wages with the cost of living in America shows that over a third of all households do not earn enough income to meet basic needs. Opinion polling confirms that a third of families consistently report that they are “pinched” or not making ends meet.⁴

Economic insecurity is nothing new to the bottom third of American households. But the downsizing phenomenon of the ’80s and ’90s has also meant less job security for professionals who should reside securely within the middle class. Most of those who are downsized find other jobs, but these jobs often pay less and carry few pension or health-care benefits. Those who survive downsizing find themselves expected to work harder and produce more, although often with greater pay. “Work in the past 20 years has grown more insecure,” conclude Neil Fligstein and Taek-Jin Shin, two scholars who examined trends between 1976 and 2000. “Job tenure is down for everyone and the possibility that workers will have to take temporary work or work involuntarily has risen. . . . The changes in the security of work were mirrored by changes in benefits and health and safety at work. Over time, health and pension benefits decreased for all workers.”⁵

None of this means that Americans are ready for a socialist revolution. As David Brooks and a thousand other social critics have pointed out, Americans vote their dreams, not their realities. The middle class and the working class consistently elect politicians who actively work against their economic interests. Perhaps at no time in American history is this more true than today.⁶

The psychological fallout from people’s economic struggles has been significant. People worry intensely about their finances, especially the heavy debt burdens that they often carry.⁷ Many people are also less happy. “Happiness and satisfaction with life are, in many ways, the ultimate bottom line, a test of the good society,” observes scholar Michael Hout. Yet in the past quarter century, Hout’s work shows, gains in happiness have not been shared evenly in a U.S. society more divided by income: “the affluent are getting slightly happier and the poor are getting sadder; the affluent are increasingly satisfied with their financial and work situation while the poor are increasingly dissatisfied with theirs.”⁸

Such endemic unease might itself be a corrupting force in society. But economic struggle is all the more dangerous when mixed with high expectations of well-being—that is, the expectation that one that should be as happy as the shiny rich people on television and in magazines seem to be. Writing in the mid-twentieth century, the sociologist Robert Merton observed that Americans are taught that everyone can succeed if they work hard enough. America was “a society which places a high premium on economic affluence and social ascent for all its members.” But Merton also pointed out that there is no “corresponding emphasis upon the legitimate avenues on which to march toward this goal.” Americans worshipped financial success without being too concerned about how people got ahead. “The moral mandate to achieve success thus exerts pressures to succeed, by fair means if possible and by foul means if necessary.” These pressures were especially poisonous, Merton said, in a nation where not everyone actually could succeed—where there were limits on the economic opportunities that were available.⁹

Merton could have made these points yesterday. The pressures on Americans to make a lot of money are extremely high—higher, maybe, than they’ve ever been before. To be sure, there are many legitimate opportunities to do well financially. Yet ultimately the opportunities are finite. America needs only so many skilled and well-paid professionals. In an economy where structural conditions allow only the top fifth or so of earners to really get ahead, the other four fifths of Americans are stuck in the bind that Robert Merton identified: they live in a society with insanely high material expectations but with limited ways to meet these expectations.

What to do in this conundrum? Whatever you can get away with.

And how do ordinary, moral people justify doing wrong to do well? Often, they point to the unfairness around them—to the structures that keep them struggling while others thrive, to the ways that bad guys easily climb to the top, to the cheating that goes on by the rich and powerful every day. “People in subordinate positions make moral judgments about existing social arrangements and assert their prerogatives to personal entitlements and autonomy,” writes Elliot Turiel, a leading authority on moral development. Turiel is fascinated with why people break rules, and much of his analysis centers on what he dryly calls “asymmetrical reciprocity implicit in differential distribution of power and powers”—in other words, feelings of injustice. Turiel observes that “in daily life people engage in covert acts of subterfuge and subversion aimed at circumventing norms and practices judged unfair, oppressive, or too restrictive of personal choices.” These acts may place people on the wrong side of the law, or the established rules, Turiel says, but their true ethical implications are often a fuzzier question. “In my view, it would be inaccurate to attribute these types of acts of deception to failures of character or morality. Many who engage in these acts are people who generally consider themselves and are considered by others as responsible, trustworthy, upstanding members of our culture.”¹⁰

It is easy to cheat like crazy and yet maintain respect for yourself in a society with pervasive corruption. It’s easy, for example, to justify cheating in a country like Brazil where oligarchical families have been abusing the little people for a couple of hundred years and are still doing it, or a country like Pakistan where government ministers and their pals in business live in luxury while millions rot in the slums of Karachi.

And more and more, similar rationalizations can work just fine in the United States.

The social theorist Max Weber was among the first scholars to explore how people’s views of “legitimacy” shape their respect for rules. He argued the commonsense point that people are more likely to follow rules or laws that seem fair and are made by an authority that deserves its power. There was nothing actually path-breaking about this point when Weber made it a century ago. Numerous big thinkers going back to Plato had made similar arguments, and support for this idea cut across fields—from political science to anthropology to sociology to education. Yet if the idea seemed like common sense, what Weber and other scholars typically lacked was the empirical “proof.” How can you really tell why people either obey the law or break it? How can you weigh legitimacy as a factor when there are so many other influences on people’s behavior? I may speed for many reasons: because I’m late or I’m a thrill seeker or I think it’s wrong for the federal government to impose speed limits and usurp local authority on this issue. Short of hearing me and lots of other speeders out and somehow verifying that we’re telling the truth about our motives, who can say why people like me drive so fast?

Proof that views about legitimacy explain ethical decisions remains hard to come by. But the evidence has gotten a lot more compelling since Weber’s day. In his 1990 book, Why People Obey the Law, Tom Tyler picked up the legitimacy baton and ran with it into new empirical terrain. Tyler marshaled data going back thirty-five years in arguing that most people are inclined to obey the law, but that this reflex can easily be undermined if the law is widely seen as lacking legitimacy. He looked at studies of juvenile delinquents in England, college students in Kentucky, middle-class workers in Germany, and poor black men in Newark, among others. He also conducted his own large surveys of Chicago residents. Tyler’s conclusion after all of this? Pretty much what Weber said a hundred years earlier.¹¹

Yet if the link between respecting authority and following the rules has found more support in general, this is still complex terrain. Much of the time when people break rules you’ll find a sticky wicket of conflicting evidence about their motives and no easy way to nail down what they were really thinking. Most people don’t like to talk openly about cutting corners. Also, the root causes of why people break rules can be obscured when cheating becomes so routine that people no longer give it much thought.¹²

 

THE CANDOR OF Jennifer Bennett (not her real name) sheds some light on what is going on in many American households—and, in particular, how cynicism and anger might cause a person who normally wouldn’t even run a red light to commit a felony that is punishable by up to five years in prison.

Bennett should be one of the good guys in my story. She was raised in New Jersey by parents who taught her to play by the rules. She works in the arts in New York City but is obsessed with neither money nor status. She just wants to do her art and get by. She believes that government can make a difference in people’s lives and, if anything, that taxes should probably be higher than they are.

Yet every year, come April 15, she submits a work of fiction to the IRS.

“Much of the money I earn is off the books—it’s money earned in cash through private teaching or tutoring. I generally claim a portion of this money, but not all of it,” Bennett says. “It’s the money I earn to support my pursuit of a career in the arts. I put thousands of dollars a year into this career, pay my own insurance, and receive no benefits. I guess that’s the way I justify writing off as much as I can and claiming as little as I can. I feel that most other first-world countries support their artists and the arts in a much stronger way than we do, and that the wealthy in this country are the ones with the real benefits.”

Bennett has struggled financially for years, despite her Ivy League degree. Meeting the rent has often been an adventure, and she now lives 130 blocks north of Times Square, in a low-income neighborhood near the George Washington Bridge. “When I see people getting million-dollar bonuses for moving money around, who then walk in free to city museums because their companies are corporate sponsors, my jaw drops. Most artists I know can’t afford to attend arts events on a regular basis. I figure the amount of money I earn is so tiny compared to what most people in this city are earning, and that if I had to pay thousands of dollars in taxes at the end of the year, on the relatively small amount I earn, I couldn’t afford to continue doing what I’m doing.”

Bennett has anguished about her tax cheating—for, like, three seconds—over the past five years. “I don’t think it’s the ‘right’ thing to do, but personally, I don’t really care. I know that one wrong doesn’t right another wrong, but until I see any sign of a real move to universal health-care coverage or the closing of loopholes for the rich, or increased benefits for those making their living in the arts, I don’t feel particularly inclined to be honest. When I read about the IRS going after those in lower-income brackets, it makes my blood boil.”

Another tax cheat, a man who drove a cab in New Jersey for many years while putting himself through school, says much the same thing. “I hardly reported any of my income. I was barely making enough money as it was and there was no way I was going to hand it over to a government that doles out tax breaks to the rich and leaves students like me to starve.” Again and again, tax cheats say the same thing. “I am honest in every other aspect of my life,” says a man who claims false charitable deductions every year, a common practice. “I rationalize it by saying that wealthy people and big businesses have much larger loopholes that they’re taking advantage of, so that it is very low down on the scale of crimes. The only guilty feeling I have, is the fear of getting caught.”

These attitudes toward cheating on taxes are typical. A 2001 poll found that 43 percent of respondents indicated they had cheated, that they would cheat, or that they thought it was okay to cheat. Although other polls indicate that the vast majority of Americans think that it’s wrong for anyone to cheat on their taxes, acceptance of tax cheating appears to be on the rise.¹³ Estimates of lost revenues by the IRS underscore the widespread nature of tax evasion. As we saw earlier, the most egregious tax cheats can be found among the wealthy—those savvy enough to know that they can get away with thumbing their nose at the IRS—but widespread cheating by more ordinary Americans may make up as much as half of the $250 billion lost every year to tax evasion.

Polls show that Americans have little faith in tax fairness. Between a third and a half of Americans think that the taxes they pay are not fair. More than half said in 2003 that high-income families didn’t pay their fair share, while middle-income families paid more than their fair share. Half of respondents also said that the single thing that bothered them most about the tax system—more than their own tax burden or the complexity of taxes—was that “some wealthy people get away not paying their fair share.”¹⁴

Accountants hear such rationalizations nearly every day. “The perception that Congress is intentionally allowing wealthy taxpayers and big business to escape taxes legally can be a strong motivation for others to create their own [illegal] tax savings,” the leader of the American Institute of Certified Public Accountants once remarked to a congressional panel. “Some perceive that the IRS enforcement practices are applied in an uneven and inequitable fashion,” he explained, “whereby low- and middle-income taxpayers are harassed over small amounts, while insufficient attention is paid to the wealthy.”¹⁵

Other Americans hate taxes for the simple reason that they hate government. Antitax zealotry has risen over the past two decades as we’ve been repeatedly told that the free market can solve all of our ills and that government is a waste of money or, worse, a plot to deprive us of our rightful private property. If government is the problem, not the solution, why give it a dime? And if government no longer represents “ordinary” Americans, why let it grab a good chunk of our income every year? “There is no difference between an income tax and slavery,” proclaimed a 2001 article in the right-wing magazine, Human Events.¹⁶

Complaints about taxes are bad news for the IRS. Scholars who have examined “the psychology of taxation” say that a tax system is in big trouble if it lacks legitimacy. Distrust in a society also spells trouble for tax collectors. Research across nations has found that tax evasion is higher in societies with lower levels of trust between people. People must want to pay taxes at some level, believing not only that their tax bill is fair, but that their destiny is bound up with that of their fellow citizens. A great many Americans, however, don’t feel this kind of social solidarity.¹⁷

Of course, tax evasion is not just about legitimacy. Such beefs may be a prime motive for some tax cheats and not a motive at all for others. Many people cheat simply because “everybody” cheats and few people get caught. (A 2003 poll found that 95 percent of Americans believe that “other people” cheat on their taxes.) “My rationalization is that everybody does it,” says a woman from the Midwest. Like Jennifer Bennett, this woman is a straight arrow. While it’s hard for her to imagine shoplifting a pack of gum, she doesn’t think twice about committing a felony every April. “It’s the game you play at tax time, and you’re kind of a sucker if you actually report accurately and honestly.”

The fear that following the rules makes you a chump can lead to what experts on academic dishonesty call the “cheating effect.” People otherwise not prone to cheating come to do so because they don’t want to needlessly pay more or put themselves at a disadvantage. Arguments that “everybody does it” serve as a key rationalization for the tax cheating of ordinary middle-class Americans, as well as other kinds of cheating. The pervasiveness of this rationalization shows how easily cheating can create a downward spiral: The more cheating there is, the more it becomes a routine part of life. The more it’s normalized, the less it becomes a conscious choice driven by any meaningful motive at all.

What is tricky in these situations, and often impossible, is tracing this cycle back to its origins and making judgments about underlying causes. Why did “everybody” start doing “it” in the first place? Why didn’t somebody stop the cheating before it became commonplace? Why is so much cheating tolerated, even though the authorities recognize its prevalence?

Data is not available to fully answer these questions when it comes to tax evasion. For example, nobody has ever conducted regular surveys over a period of years that asked large numbers of tax evaders why they cut corners. Here, as with many other forms of cheating, we can only speculate about what is going on by synthesizing our knowledge of larger trends and attitudes with anecdotal accounts of cheating.

My own informed guess is that economic anxiety and perceptions of unfairness serve as prime rationalizations for many middle-class tax cheats, maybe even for most. And it can be said far less speculatively that the attack on government during the past two decades is what largely accounts for the IRS’s weak enforcement of the tax laws. “Everybody” cheats on their taxes because they can get away with it. And why is that? Because government enforcers, deliberately starved and hobbled, have had little choice but to allow so many people to do so.

 

PERVASIVE EMPLOYEE theft by ordinary Americans is another problem that is tricky to unravel. But here, too, you can see at work the toxic cynicism that fuels cheating in a society rife with unfairness.

Employee theft is actually the biggest area of cheating by the middle class—and it’s been rising fast in recent years. This includes everything from taking home pens from work to padding one’s expense account to outright stealing of large sums of money through insider financial schemes. The Fraud, Forensic & Investigative Services Group at Ernst & Young estimated the total cost of employee theft and fraud at a staggering $600 billion in 2002—or $4,500 for each U.S. employee and 6 percent of the national GDP.¹⁸

The biggest losses to an organization occur through high-level white-collar thefts, but the sheer scope of wrongdoing by lower-level employees also adds up to a great deal of money. Taking into account only those employees who got caught, one in every 22.4 retail employees stole from his or her employer in 2000. A study sponsored by the National Food Service Security Council found that restaurant employees stole an average of $204 each in cash or merchandise in 2000—more than twice as much as the average take in 1998. Business losses to check fraud by employees, including forgeries and mailroom theft, doubled between 1994 and 1998, with firms surveyed in a KPMG study reporting an average of $624,000 in losses. The same survey revealed that misuse of ATM cards had resulted in an average loss of $300,000 per firm—once again doubling 1994 losses in the category.¹⁹

All these trends, it should be noted, occurred at the same time that shoplifting and other street-level property crimes were decreasing. On the other hand, this was a period of rising disparities in pay, growing consumerist and cost-of-living pressures, the spread of harsh new management ideas like “forced ranking,” and a decline in the security and fringe benefits offered by many jobs.

Credit cards are a favorite vehicle for employee abuses. The company expense account presents a unique temptation to live a financial life other than one’s own, to close the gap between material expectations and real-life opportunity. It is easy for those with company credit cards to get carried away; and it’s also easy for those who don’t have company cards to get hold of the card numbers and engage in unauthorized spending. According to the KPMG survey of employee theft and fraud, abuse of company credit cards increased by a factor of three between 1994 and 1998, resulting in an average loss of $1.1 million per firm. Expense account fraud, meanwhile, averaged $141,000 per firm in 1998—seven times as much as KPMG had identified in its 1994 survey.²⁰

There are no surveys that reveal the motives of thieving employees, and it is risky to generalize about people’s rationalizations for their behavior. But perceptions of fairness do seem to play a big role here. “If someone feels inadequately compensated or poorly treated, they might look for other compensation,” comments Joseph Wells, who is founder and chairman of the Association of Certified Fraud Examiners, and a former FBI agent who worked the white-collar crime beat. Wells may know more about patterns of employee theft than anyone in America. “Companies who treat their employees badly generally have a bigger fraud problem,” he says.

Another expert, a lawyer who works with Wells, puts the situation this way: “You see the guy down the street who cashed in his stock options and is now worth a million dollars, and you’re still making $30,000. . . . It makes it easier to rationalize fraudulent behavior.”²¹ Recall the bookkeeper and the $100 a month. Embezzlement or chiseling offers employees a chance to give themselves the compensation they believe they would get if the world were fair.

Other thieving employees may fancy themselves as modern-day Robin Hoods. A New Jersey man who worked for a large financial services company described to me how he stole the equivalent of tens of thousands of dollars from his employer—all for a good cause, he insisted. He worked full-time for the company in a computer job that actually required minimal attention. “The job was a joke that took about half a brain cell,” he says. So every week for several years straight, he spent much of his time in the office working on his true passion—his religious volunteer activities. And he went further than just theft of services. He also used company office supplies to photocopy and send out huge mailings for several conferences focused on troubled youths that he organized on a shoestring budget. “I wouldn’t have been able to put together the conference without company stuff,” he says. “I did a photocopying job that amounted to 18,000 sheets of paper.” Late one night, alone at the photocopier, he ran into a company lawyer who looked at him askance but ultimately didn’t raise any questions. At one point, he stacked boxes of photocopied materials in his office, in plain sight of his supervisor, but she never asked any questions. “Nobody cared,” the man said. “A lot of the people in my department cut corners in one way or the other and had the attitude that it was okay to live off the fat of the company.”

While many companies got leaner and meaner in the ’90s, this particular company tolerated plenty of fat as it raked in record profits during the bull market of the ’90s. Like many financial services companies, this one was engaged in some shady practices during the boom, which were no secret to the employees who worked there. “I certainly didn’t care about ripping them off,” says the man. “You had the CEO making $50 million a year, and he and all the others are lying to investors. And there I am making $50,000 a year and trying to do something worthwhile in the world.”

As with tax evasion, it’s hard to say how much employee theft is rationalized by ideas of fairness and how much is just unthinking criminality. Polls paint a complicated picture of why Americans may or may not be prone to steal at work. While the majority of Americans say they are happy with their jobs, other evidence points to a more jaded and even poisonous mood in the workplace. Only two thirds of workers say that their employer is loyal to them even as over four fifths say they are loyal to their employer—quite a loyalty gap. And, according to a 2002 survey of 13,000 workers, just 39 percent of employees trust senior managers. Another survey found that less than half of employees felt that “their senior leaders are people of high integrity.” Polls also find that large percentages of employees say they’ve witnessed something illegal or unethical happening at work over the past year. At the same time, only half of workers say they get a sense of identity from their job, a third say they’d be happier in another job, and nearly half say they are stressed out a great deal of the time at work. Many workers also gripe about how much money they make (not enough), their health insurance benefits (or lack thereof), and their chances for promotion (poor). While job satisfaction is relatively high, it has been declining over the past decade, and loyalty among most workers is paper thin: One 2002 survey found that only a quarter of workers plan to stay at their jobs for at least two years and that half wouldn’t recommend their company to someone else. Barely a majority of workers in this survey said their employer treated them fairly and, on balance, the survey classified only 24 percent of workers as “truly loyal.” Millions of Americans, in short, don’t arrive at work every day with what might be called a positive attitude, and this might explain why employers are being ripped off left and right.²²

Whatever the motive for employee theft, economic booms have historically been a good time to get away with bad behavior at the office. “At any given time there exists an inventory of undiscovered embezzlement,” wrote John Kenneth Galbraith in The Great Crash of 1929. But this inventory tends to be higher during booms. “In good times people are relaxed, trusting and money is plentiful. But even though money is plentiful, there are always many people who need more. . . . Under these circumstances the rate of embezzlement grows, the rate of discovery falls off, and bezzle increases rapidly. In a depression, all this is reversed. Money is watched with a narrow, suspicious eye.”²³

The 1990s saw a subtle variation on this theme: things were indeed flush, but employees were also under mounting financial and work pressures during these “good times.” In other words, there was plenty of money sloshing around for the taking, and people had plenty of motives to grab it.

 

KEEP FOLLOWING the logic about middle-class cheating and consider music piracy over the Internet. Different rationalizations blend in even murkier ways here than elsewhere—and yet beefs about fairness are never too far from center stage.

Napster debuted in 1999, the brainchild of a college dropout named Shawn Fanning. The software program allowed users to search hard drives of other PC users for the music they wanted and then download that music into their own computer. Napster’s use spread like wildfire, especially on college campuses. It had 65 million registered users by 2001. Other file-swapping programs quickly appeared, including Kazaa, Morpheus, and Grokster. Napster was shut down by court order long ago, but other programs continue to thrive. Kazaa has over 100 million registered users. There are now several million people engaged in music file swapping at any given moment of any day, and it’s estimated that 2.6 billion music files are downloaded every month, mostly in a way that is a federal felony. Surveys show that nearly 50 percent of teenagers and a quarter of all Americans have downloaded music in the past month. Forty-two percent of admitted music pirates report having copied a CD rather than buying it.²⁴

Fanning defended his invention by arguing that Napster actually was good for the industry in that it allowed consumers to sample different kinds of music “in a way that gives them control over how they experience it,” thus creating more demands for CDs. This argument may have had plausibility early on, and initial survey research of music file swappers seemed to confirm the claim. But there is now unambiguous evidence that Internet music piracy is hurting the recording industry. Sales of CDs have dropped over the past several years and research links much of this drop to music piracy. However, at least one kind of CD is selling more briskly than ever: 1.7 billion blank CDs were sold in 2002, an increase of 40 percent over 2001. Internet music piracy, in short, represents intellectual property theft of major dimensions.²⁵

Big companies like Sony are taking a hit and so are musicians. In some cases where the hot song on a band’s new CD has already been widely pirated over the Web, the consequences for sales of the CD can be serious. Such incidents are unnerving. In the unforgiving music business, a single CD that flops can spell permanent failure for a band. While some recording artists have embraced music swapping as a path to larger audiences, many artists agreed with the leaders of Metallica when they compared music swappers to “common looters loading up shopping carts because ‘everybody else is doing it.’” Metallica’s drummer, Lars Ulrich, added this about music swapping: “It’s not the Metallicas . . . that take the hardest hit, it’s the 10 developing bands each label has on its roster every month. That gets trimmed to three. . . . Young artists won’t have a chance.”²⁶

There is nothing extraordinary about people who pirate music over the Internet. Although the computer world has always had a criminal hacker element, music piracy doesn’t rise to this level. Music piracy isn’t like hacking into the Strategic Air Command or Citibank. Felony or not, it’s a mundane and routine activity for millions of Internet users.

And how do these users justify their thieving behavior? “I don’t justify it,” said one music pirate with a shrug. “I haven’t really thought about it.” This nonchalance is not atypical. Surveys show that less than 10 percent of music swappers think that piracy is wrong—even though 20 percent believe it hurts artists and not just the record companies.²⁷

Those who do bother justifying their actions offer several rationalizations. Some music pirates echo Fanning’s original defense of Napster, saying that the Internet has opened their eyes to new music. “It’s a chance to discover new bands and new songs,” says another veteran music pirate. “And once you know you like something, you feel better about buying the whole CD.” This man draws the line at burning CDs. “I’m against people downloading a whole CD. . . . I feel better if go out and buy a CD.”

More legalistic rationales—used by Napster’s lawyers when record companies went on the warpath—focus on the rights of individuals to make copies of music or videos for their own personal, noncommercial use as affirmed by the Audio Home Recording Act and a 1984 Supreme Court ruling. One is allowed to make a digital copy of a CD one owns and store it on one’s home computer, and also to give the file to a friend—just as it is legal to mix a cassette tape and give it to a friend. Music file-sharing programs simply facilitate this long-established behavior on a much greater scale.

But scale is exactly the catch here. It’s one thing for people to occasionally pick a flower in a public park; that shouldn’t be criminal. It’s another thing if numerous people go into the park every day to assemble bouquets. Because “everybody” can now get free music, occasional sharing has snowballed into mass stealing. Recent court opinions have endorsed this distinction in a blow for music swappers.

This is where the second defense of music piracy comes in: that such stealing is okay.

“It’s a rebellion against the high price of CDs,” says a music pirate who works as a day trader on Long Island. “Artists aren’t making the money, just the CD makers.” Mick Brady of E-Commerce Times voiced a commonly held view about record company losses when he said it “serves them right after abusing artists all these years” and also mistreating consumers. Music swappers, he said, “rose against oppression.”²⁸ Other commentators have compared music piracy to the Boston Tea Party and the Civil Rights movement—as just disobedience against an unjust regime. College students in particular see themselves as victims of the music industry’s greed. The price of a CD has risen to as much as $18 or more at the same time that the music industry’s huge young consumer base is struggling with rising college tuition costs and escalating student debt burdens.

Music swappers fighting “the power” also stress that they are liberating high-quality music from the clutches of corporate America. “It’s harder and harder for small bands to break out these days given the dominance that conglomerates have over what gets played on the radio or on MTV,” says a music pirate. Music swapping creates an audience for bands that would otherwise languish in obscurity. Never mind that such swapping can also doom any commercial prospects the bands might have.

The music industry is fighting back against piracy. Ominous warnings are popping up on the screens of music swappers that spell out the legal consequences of hitting the download button. Subpoenas are being dispatched to egregious offenders nationwide. Universities are also beginning to crack down on the problem, trying to stay one step ahead of the recording industry, which is increasingly targeting student music swappers. One student at Michigan Tech was sued by the Recording Industry of America for $98 billion for indexing 650,000 songs on an Internet site. He settled out of court for $15,000.²⁹

The recording industry is fighting an uphill battle, especially with more homes getting broadband Internet connections. Its only hope is that music swapping can be channeled into legal venues, such as Apple’s new iTunes initiative for sharing files. Like other forms of low-level cheating, music piracy long ago passed into the “everybody does it” zone and is now utterly normal. “Ripping off the music industry is just part of the culture,” says the day trader, whose nighttime activities continue to include music piracy.

 

CABLE TELEVISION theft and auto insurance fraud get a lot less attention than music piracy, but these problems are much more costly. Industry estimates peg the annual losses from cable television theft at more than $6 billion. Cable piracy can diminish the picture quality for cable subscribers by weakening the signal moving through a cable network—resulting in unhappy customers and more service calls. It also may result in higher rates for subscribers than would otherwise be the case, as the unrealized revenues from potential customers who cheat are made up through charges to actual customers.

Cable theft hardly tops the list of America’s most pressing national problems—or even makes that list. But it is not a victimless crime, and its pervasiveness offers yet more unsettling news about the state of American ethics.

Wherever there is cable, it seems, there is also theft of cable services. It is estimated that 100,000 households steal cable service in Chicago alone, or roughly a tenth of households. Cable theft is so much a part of the fabric of American life that it has been the subject of plotlines in television shows like Seinfeld, The Simpsons, and Mad About You.³⁰

The cable pirate generally sees himself as a law-abiding citizen. “I think for a lot of people, this is the only illegal act they ever do,” commented a city official in Chicago who launched a special initiative to go after cable pirates. In one case in New Bedford, Massachusetts, it was revealed that the police department was receiving illegal cable television programming. The cops were getting not just the New Sports Network channel without paying but also Spice, a premium channel that carries adult content. Nobody in the station house thought much of this scam until AT&T investigators showed up.³¹

The justifications for cable theft track closely with those for music swapping. The cable television industry has even more enemies than the music industry. Cable providers often have a local monopoly, and they are loathed for any number of reasons: because they overcharge, because they don’t provide good service, and because they are rude to customers. Cable horror stories are a staple of American chitchat, and have even inspired a Jim Carrey movie, Cable Guy, about a whacked-out cable serviceman who causes chaos in an ordinary American household. Much of the hostility toward cable companies can be traced to the corporate takeover of this industry. As one industry analyst commented: “While some cable systems—particularly those that were once small, independent operators with deep roots in their service communities—made customer service a religion, many lost the true faith as they were gobbled up by increasingly large competitors.”³²

Exacting revenge against tyrannical cable companies strikes many Americans as a just cause if ever there was one. Those engaged in cable theft regularly cite the misdeeds of cable companies to justify their behavior. A favorite excuse uses the logic of expropriation—that the cable companies are making so much money by gouging consumers that they should be forced to pay some back. This same logic can be found among employees who steal from their company and among music pirates.

And then there are those who just don’t give cable theft much thought. “I didn’t go out looking,” said a Chicago man busted for cable theft after he paid a cut-rate price to get an illegal hookup. “I was talking to some guys and I just said: ‘Yeah, why not.’”³³

More Americans are also saying “why not” when it comes to ripping off their car insurance company. And here, too, when they do think about their cheating, they justify it with righteous anger of a hated system.

Auto insurance is like a dull backache in many people’s lives. Insurance rates have climbed to unbearable levels in various places and seem to always be going up. Americans spend $100 billion annually on auto insurance, and it’s not uncommon for a household with new two cars to be paying more than $3,000 a year. Exorbitant rates rise even higher for those with a tarnished driving record, and insurers are inevitably uninterested in the fine points of why a driver got ticketed. Auto insurers are also notorious for bumping up the rates of people who’ve been in accidents—regardless of where the blame lies. This practice makes many people hesitant to use their overpriced insurance when they actually need it. Nearly every day, gripes like these are vented on www.screwedbyinsurance.com, a consumer complaint Web site that gets plenty of traffic.

Auto insurance is required by the government and by banks that make loans on cars, but many states don’t strongly regulate an auto insurance industry whose many lobbyists buzz around state capitals like flies. This leaves captive consumers to get gouged by a small group of leading insurers who often enjoy healthy profits at the expense of millions of policyholders. In California, for example, a study by a consumer group found that profiteering by the insurance companies led state drivers to pay $5.2 billion more in auto insurance than they should have between 1995 and 1997.³⁴

High insurance premiums take a bite out of everyone’s finances, but they fall particularly hard on middle- and lower-income drivers—serving, in a car-centric society, as a regressive de facto tax. While rising health-care costs have gotten a lot more play in the media, the rising burden of auto insurance is another part of the squeeze on working families.

Auto insurance fraud of an explicitly criminal nature is a major problem in the United States, and includes staged accidents, bogus claims, and the like. But low-level cheating around auto insurance by otherwise law-abiding citizens is also pervasive and there is evidence that it has grown in the past decade. This cheating takes various forms. For starters, many people lie about who is driving the insured car. If a wife has a good driving record and the husband has a bad one, both family cars may get registered in the wife’s name. Or maybe the presence of a teenage driver in the house won’t be disclosed—a piece of information that can change the price of a policy by hundreds of dollars.

Then there is lying about the location of the insured car. Many people mislead insurers with the help of friends and relatives who live in cheaper insurance zones. Those with two homes have an easier time. An L.A. Mercedes is registered in Malibu; a Boston Lexus is registered in the Berkshires; a Land Cruiser garaged in Manhattan is registered in East Hampton, and so on. In one Catskills county ninety miles north of New York a district attorney estimated that out of the 74,000 vehicles registered in the county, 5,000 belonged to people from outside the county, mostly New Yorkers.³⁵

More advanced auto insurance cheating involves lying about claims. A car owner who skimped on collision insurance or went for a higher deductible will finally cough up the money for better coverage—after the damage has occurred that he wants to get fixed. I did this myself once with a cracked windshield, at the suggestion of my friendly Allstate representative. Or, on a bigger scale, people make false claims about injuries in auto accidents. This kind of fraud alone may cost insurers over $6 billion a year. A harmless fender bender, it seems, is yet another way to make a quick buck.³⁶

In a 1991 public opinion survey about attitudes toward auto insurers, large numbers of respondents said it was okay to lie and cheat about car insurance. A third said it was okay to lie about the number of miles they drive each year in order to get a lower premium. A quarter said it was okay to lie about their address. Others endorsed such cheating as lying about one’s driving record, lying about the value of a stolen car, and lying about the scope of medical problems caused by an accident.

“A good many of these people probably don’t consider these things fraud,” said Donald Segraves, executive director of Insurance Research Council, an industry group. “That’s part of the problem. To them, it’s like fudging a bit on the speed limits. They think it’s OK to fudge a little, and they do not regard themselves as being criminal or perpetrating a fraud.”³⁷

Auto insurance, in other words, is just one more area where the cheating culture flourishes.

 

IS AMERICA TURNING into a corrupt nation akin to Brazil? Is the rising tide of low-level cheating around taxes, workplace theft, car insurance, and cable television eroding the fabric of national life?

It depends on how you look at the problem. All this low-level cheating doesn’t add up to a pressing crisis—though it certainly makes us all pay more to subsidize those who cheat. But what’s most troubling is what it says about the cynicism of the American public and the ways that cynicism acts as a corrosive agent on people’s integrity.

Who’s to blame for all this cynicism? Mainly those at the top of our society.

America’s most powerful and wealthy individuals have always shaped our culture in innumerable ways. This is truer now than ever, with the media devoting more attention to the doings and opinions of VIPs. At various earlier times, elites took the responsibility that comes with influence and visibility seriously. They embraced notions of noblesse oblige, a commitment to public service, and informal edicts against conspicuous consumption. None of this is to say that yesterday’s elites were angels; they weren’t. But life at the top has grown much uglier since the ’70s. The past quarter of a century has seen more scandals among the rich and powerful than any period since the Gilded Age. Again and again, celebrities that millions of Americans worship turn out to have dark sides. For instance, consider the letdown of Martha Stewart’s fans in the heartland as they read biographies of her that are jam-packed with shocking stories about horrible behavior—the long trail of betrayals that fueled her rise in business, the vicious feuds with neighbors in Westport and other places where she has homes, and now a federal indictment for lying to prosecutors. Or think of the example that slugger Mark McGwire set for young athletes when he admitted using steroids the year he broke Roger Maris’s home-run record? Or think of how amateur investors—ordinary people trying to grow their nest eggs—must have felt when it was revealed that Henry Blodget, a CNBC guru that everyone loved, was pushing stocks he privately bad-mouthed. Think of how these investors feel now, with their nest eggs hollowed out and Blodget sitting on a huge personal fortune.

The actions of the Winning Class send a message to the Anxious Class. The message isn’t just that the world is unfair and the rich can get away with murder; it’s that people who cut corners get ahead. Most of us don’t get a chance to cut corners in any big way. We don’t get the chance to earn $12 million a year by lying to millions of people on TV, or to make a killing by cashing in on insider trading tips. Yet we get plenty of small chances to make an extra buck. And now it seems that more than ever, we seize those chances. Should this really come as any surprise?

America is a long way from becoming Brazil, and many areas of American life are less corrupt than they were fifty years ago. Government operates more cleanly than it ever has, leaving aside all the legal bribery of the campaign-finance system. Labor unions are also less corrupt, while the influence of organized crime has declined notably in many sectors. And believe it or not, stronger ethical codes have been enacted in nearly all of society’s major institutions over the past quarter century—especially in the business world. Another major victory for fairness and equal justice has come from the triumphs of feminism and multiculturalism since the ’60s, which have slowly weakened the exclusionary bonds of old-boy networks in numerous sectors of society.

Still, amid all these important gains, “the Brazilianization” of American society marches forward and could grow worse.³⁸ If vast income gaps are left unaddressed, as they are in Brazil; if so many Americans continue to feel economically insecure, as so many Brazilians do; and if a two-tier system of justice continues to prevail—one for the rich and one for everyone else—as it does in Brazil, more and more people will question the basic legitimacy of the social contract governing our society, as many long have in Brazil. More of us will make up on our own ethics and rules. And more forms of cheating will become so commonplace that people won’t even think to justify their behavior.

And one day, perhaps not so far in the future, Americans may wake up and realize that they are living in a place quite similar to Brazil—but without the great beaches.