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A Scheme That Runs on Goodwill Is Cheap, and Cheapness Is Fragile

original Society & Ideas

Continuing from last time

Last time, I took apart an organization called FIFA.

Two threads came out of it. The non-profit form doesn’t prohibit generating profit — it prohibits distributing profit to outsiders. And when there’s no one outside to receive a share, there’s no one left to calculate gains and losses from the outside either.

I also wrote about where my prediction missed. The FFE plan was withdrawn within 4 days. What stopped it was a member association sitting inside the organization, holding a production factor. Not voice, but exit. That was never a monitoring mechanism for the organization, though — only a veto over a single transaction. The take, and the vacuum of oversight, both remain exactly as they were.

This time picks up from there. The same mechanism isn’t unique to sports bodies.

The same structure as a tax-shelter corporation, implemented with weaker oversight

There’s a familiar story: a business owner sets up a corporation for tax savings, and eventually the inside of it turns rotten. In theory, this fits into exactly the same box as FIFA. The absence of a residual claimant, the disappearance of any incentive to monitor, the conversion of surplus into perks. Same equation.

But the source of the take differs. And that difference determines who has standing to police it.

For the tax-shelter type, the source of the take is a tax subsidy. The party bearing the loss is the taxpayer, and the taxpayer’s agent is the tax authority. The tax authority has teeth. In the US, there’s excise tax on private foundation self-dealing (IRC §4941), tax on excess benefit transactions (§4958), and mandatory disclosure via Form 990. In Japan too, the route of using a general incorporated association to avoid inheritance tax was closed off when the FY2018 tax reform created inheritance tax on directors of “specified general incorporated associations.” There are also restrictions on the proportion of directors who may be family members.

For the FIFA type, the source of the take is monopoly rents. Broadcasters and sponsors are the ones paying. Taxpayers, shareholders, and creditors can’t step in from outside and exercise a claim by saying “we took a loss.” There was never a standing monitor to begin with.

In other words, the tax-shelter corporation is still, comparatively, being watched. FIFA is the same structure, implemented the worse way.

And the tax-shelter loophole was closed by legislation. It could be closed because there was a standing monitor outside — the tax authority.

An unused power is also an untouched share

Here I want to place a single proper noun. Not to pass judgment, but as one data point to check the structure against.

In 2025, President Trump imposed “fentanyl” tariffs and “reciprocal” tariffs on the basis of IEEPA (the International Emergency Economic Powers Act, enacted 1977).

The statute uses the word “regulate.” It doesn’t say tariffs may be imposed. But it can be read as one form of regulation. Whether this is legal or illegal can’t be settled from the text alone. In fact, three Supreme Court justices read the statute and precedent as authorizing the imposition of tariffs.

On February 20, 2026, the Supreme Court ruled 6–3 that this was unlawful (Learning Resources, Inc. v. Trump).

What matters here isn’t the outcome but Chief Justice Roberts’s reasoning. Across IEEPA’s half-century history, no president had ever used this statute to impose tariffs — the ruling cites that fact as one ground for holding that the power didn’t extend that far.

For 48 years, a power that might have been readable into the text sat unused. Because it went unused, it came to be treated as unusable.

A power left unused is an untouched share. It sits there simply because no one went to claim it. Formally, it’s the same thing as the non-monetary take that accumulates under the non-distribution constraint.

And the same three conditions from last time line up in the same order. A share exists (a power left unused, still sitting there). Monitoring is weak (legislators of the same party are insiders. They occupy the same position as a member association, but they don’t hold the production factor that a member association held. A seat belongs to the person who holds it; it’s not a commodity of the administration). And the outrage constraint has flipped sign (because you can hold your own base, criticism becomes a resource rather than a penalty).

But there’s one large difference.

Here, there was a court. FIFA has none.

Immediately after the ruling, the executive order in question was rescinded, and refunds of already-collected tariffs — said to exceed $166 billion — began moving (the practical mechanics are still being contested). If even one external monitor remains standing, 48 years’ worth of inventory gets sent back. If none remains, a century’s worth of assets simply walks out the door.

That’s probably the point of putting the two side by side.

Why does it all happen at once?

It looks as though people who shake a system that has run largely on good faith for nearly a century, by exploiting gaps in the rules, are appearing everywhere at the same time. This too has a name.

The name for the act is constitutional hardball, from constitutional scholarship (Tushnet, 2004): a move that doesn’t violate the text but violates the unwritten norms that made the system work. In Levitsky & Ziblatt’s terms (2018), it’s the collapse of institutional forbearance — the disappearance of the practice of deliberately not exercising a power to its full legal extent. “Doing everything you possibly can” negates the very definition of forbearance.

The name for the simultaneity is a cascade. Kuran’s (1995) preference falsification. A norm only suppresses what people actually think, and the cost of suppression depends on the observation that “everyone else is also complying.” So once one conspicuous violator appears, suppression can be released all at once. Sunstein discussed this under the title “Unleashed” (2018). There’s empirical evidence too. Bursztyn, Egorov & Fiorin (2020, AER) experimentally measured how much an election result raises people’s willingness to voice exclusionary opinions openly.

There are three candidate answers to “why now.”

Olson (1982): long-run stability is itself the cause. Distributional coalitions accumulate in a stable society. The longer a system has held together, the larger the accumulated take, the better known the seams are, and the higher the expected payoff to deviating.

Turchin’s elite overproduction: when aspirants outnumber the available seats, complying with norms becomes a competitive disadvantage. This is the most direct explanation for why it happens simultaneously across so many fields. But methodological criticism of this thesis is substantial, so it needs to be discounted accordingly.

The third connects back to last time’s outrage constraint. That constraint implicitly assumed public opinion was monolithic. In an age of fragmented attention, where you can hold your own base, outrage turns from a penalty into a resource. Hahl, Kim & Zuckerman Sivan (2018, ASR) show that, for a segment of the population that feels the existing order has lost legitimacy, openly violating norms functions as a signal of “authenticity.” The sign of the constraint has flipped.

The weak points, stated plainly

This argument has two weak points.

First. Research on constitutional hardball includes an unresolved dispute over which side does more of it. Fishkin & Pozen (2018) argue for asymmetry, and Bernstein (2018) rebuts them in the same journal. The concept itself is useful, but the moment you try to use it to allocate blame, it becomes contested.

Second. Whether this is distinctive to the present era isn’t self-evident. The same argument existed in the Gilded Age and in the 1930s. Whether what has increased is the number of such people, or the probability that such people win, is a separate question. The latter is measurable; the former is hard to measure. I believe it’s the latter, but this remains no more than a hypothesis.

Fragile in exact proportion to what it omits

To sum up.

A system that runs on good faith is cheap precisely because it can dispense with enforcement machinery. No audits, no collateral, no penalties, no lawsuits required. That’s why it spreads widely. And it’s fragile in exact proportion to what it has dispensed with.

This has the same shape as Minsky’s “stability breeds instability.” The longer a period of success runs, the fewer people remember why the fence was put up in the first place. That’s always exactly when Chesterton’s fence gets torn down.

And the difference between the cases examined across these two posts ultimately came down to a single variable: whether anyone capable of stopping it remains.

There were three ways it could go. If a tax authority remains, the tax-shelter loophole gets closed by legislation. If a court remains, 48 years’ worth gets sent back. If neither remains, the only option left is for an insider holding a production factor to threaten to walk out.

The first two are standing mechanisms. The third is never anything more than an ad hoc coalition, assembled at high cost each time it’s needed. What worked in the FIFA case was the third. That it worked at all is good news, but it’s also the flip side of the fact that not a single standing mechanism remained.

Good faith is an excellent fuel for running a system cheaply. It is not, however, a mechanism for protecting it.

References

This piece was conceived and directed by Kuzuryu, with the writing done by AI.

Originally published in Japanese at https://clazytech.com/2026/08/1740/. Translated with LLM assistance and reviewed before publication.