Regulating the economy is great, except for this one thing – Carosa

In 1895, after decades of the Louisiana lottery being infiltrated by a New York crime syndicate, the United States banned all lotteries.

That didn’t stop people from playing them… legally. The mob quickly filled the void, paving the way for speakeasies, the Roaring Twenties, and a litany of Hollywood Gangster movies.

It’s been said when George Robert Blakey drafted the language under section 901(a) of the Organized Crime Control Act of 1970, he was inspired to use the acronym “RICO” because it was the name of Edward G. Robinson’s infamous character in the 1931 classic Little Caesar.

“RICO” is the short name for the “Racketeer Influenced and Corrupt Organizations Act.” While the law has been used (and some say abused) in several celebrated cases, its value in stopping the crimes it intended to stop has been questioned.

That shouldn’t surprise you. Most of the laws targeting organized crime proved ineffective. This wasn’t because they failed to produce convictions. Like the RICO Act, they did. It was because, like the RICO Act, they didn’t stop the crime. If there’s one lesson we can take away from this, it’s great (and honorable) to regulate bad behavior, except for one thing: it doesn’t work.

There’s a good chance we’re going to a new example of this in New York State (see “Is ‘Active Share’ the New Phrenology?” FiduciaryNews.com, April 24, 2018). Like most economic regulations (and investments are merely a subset of economics), people’s natural urges override almost any artificial construct government may attempt to impose.

It’s important to recall what we learned from the various “anomalies” Modern Portfolio Theory failed to explain. We cannot quantify behavior, despite having the full spectrum of statistics at our disposal. The only rational thing we can say about people’s behavior is that they don’t behave rationally. Collectively, humanity is nothing more than a global casino – a huge numbers game. Or, if you were George Robert Blakey in 1970, you might even call it a “racket.”

What we’re witnessing with the New York State Office of the Attorney General’s Investor Protection Bureau’s report is the same repeat of “measure for the sake of measurement” that has led to consistent failure. Is that a batting record you’d want to bet your life savings on? And yet, this may be what New York is foisting upon its citizens.

Here’s the problem. People don’t like complicated games or puzzles, unless they’re actively seeking some form of leisure. And most people, unless they’re in the business, aren’t seeking leisure when it comes time to deal with their finances and investments. What’s the usual solution? Shortcuts and relying on experts.

Who are the experts? Well, professionals, of course. Who are more expert than the experts? Why the government that regulates those professionals.

And when the government suggests an unproven metric might be a useful shortcut, you can bet (no pun intended) the average citizen will follow those instructions.

Guess what happens when the expert professionals explain to those citizens that even the inventor of that metric suspects its doesn’t offer what it purports to? The good citizens won’t believe them. After all, those more expert than the experts have given that metric their seal of approval.

What happens next? Like the outcome of RICO, expect the NYSOAG to get a few trophies here and there. But don’t expect bad behavior to stop.

RICO didn’t kill the underworld rackets. The seeds for that were set six years before RICO became law. In 1964, the state of New Hampshire began to remove the 70-year void of legal lotteries. Today, 47 states and territories offer completely legal and low-cost lotteries, with huge and — let me repeat myself — legal payouts. There’s no way any organization — honest or dishonest — can compete with those numbers.

Or at least so the people think. Some say the reality is the most the mob ever skimmed from the rackets was roughly 20-40%. The government takes 50%. And we can never be quite sure if the spirit of Louisiana still lives.

Mother of Mercy, is this the end of RICO?