McCloskey Wants to Change the Title and the Substance of Her Article on Corruption

March 9, 2015
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By William K. Black. Quito: March 8, 2015

Deirdre McCloskey has responded with two comments (to date) to my series of articles critiquing her book review in the Wall Street Journal of two new books about corruption.  We welcome her to the pages of New Economic Perspectives and invite her to provide an article or series of articles presenting her views on elite white-collar crimes such as fraud and corruption of whatever length she thinks best.  The harm done by these crimes is so severe that these topics well warrant extended discussion and debate.  NEP is one of the rare economic blogs that devotes considerable space to these topics.

A word about NEP and its mechanics.  Our comments are moderated.  Anyone who has experienced how non-moderated websites’ comments tend to spin out of control and drive away thoughtful people understands why many sites moderate comments.  We also (very briefly) review proposed articles prior to publication.  Our authors will attest that we do not do this for any nefarious purposes.  McCloskey, should she decide to accept our invitation to publish articles on NEP, will face no censorship of your views.  NEP has one person who posts all our comments and articles.  Devin Smith is our invaluable unpaid volunteer from our UMKC economics program.  He has heavy demands on his time from family, work (graveyard shift), school, and NEP.  So, let me begin, on behalf of everyone involved with NEP, by thanking Devin for his selfless work and good cheer.

These acute resource constraints mean that, depending on our joint availability, it can take a bit of time for us to approve and post articles and comments.  Many of my posts appear a day after I submit them and some take over 48 hours to be posted.  This is life in a small public university where all our NEP activities are done without compensation, often at very odd hours.  Our rule on replies by those our authors criticize in the pages of NEP is straightforward.  We will print your replies in our comments and we will invite you to respond at length through an article or articles on the subject.  There are potential limits on this – none of which we have ever had to impose.  You cannot, obviously, go on a homophobic, racist, anti-Semitic, libelous, etc. attack on other people.  If someone were pretty clearly suffering a psychotic break we wouldn’t publish ramblings.  If someone became clearly obsessive and endlessly repeated personal attacks in dozens of posts we would stop publishing at some point.

I approved McCloskey’s responses to my articles about her book review without reading them because she was quite properly invoking her right of reply to criticisms I made of her article and policies.  I was busy prepping to give what turned out to be over a three hour lecture/discussion with Ecuador’s procurement oversight authority’s senior managers about procurement fraud.  Procurement is McCloskey’s second of her three “cheers for corruption,” and will be the subject of my third article in our series of articles about her book review.  I knew I would be tied up all day, so I approved publishing her comment without any review because (1) NEP’s policy is that she has a right of reply, (2) I was certain, because I know and have appeared on Kilkenomics panels with McCloskey that none of our potential limits on replies would be relevant, and (3) I wanted her comment to be posted as soon as we could do so.  Devin did so.

But, of course, the rule in every society is that no good deed goes unpunished.  McCloskey wrote a second comment that reads it full.

“Dear Professor Black,

You have grossly misread my piece. But I have said this my previous comment, which you have not printed. is that the policy on your blog, to make absurd accusations and then not allow the victim to respond?

Sincerely,

Deirdre McCloskey”

I’ve described our general procedures and our specific treatment of McCloskey’s comment in the hopes that a gentle answer might turneth away wrath.  Substantively, I will now turn to why I do not believe I even slightly misread her book review.  Rather than making “absurd accusations” I quoted relevant passages from her book review repeatedly in my pieces, to show what she argued and then to explore the logical implications of what she argued in her book review.  As to the “victim” claim, I would point out as a criminologist that the “victims” are the victims of the corruption and fraud that she supports.  McCloskey is encouraging the people who victimize the public through corruption and fraud.  That makes her the opposite of a victim.

More generally, McCloskey seems stunned that white-collar criminologists would criticize those who give “two cheers for corruption” in the WSJ.  Sorry, but we read the WSJ because in our field it is the Nation’s crime blotter.  The WSJ’s news section is filled with acts of elite white-collar crime and its opinion sections are filled with excuses for elite white-collar crime.  An enormous part of our responsibility as social scientists is to critique these apologias.

Here is the full text of her substantive comment.

“Submitted on 2015/03/05 at 9:33 pm

Dear Mr. Black,

I am astonished that you think I am in favor of “bribery, fraud, and extortion,” You cannot have read much of my work. Nor have you read my little piece in the Wall Street Journal with care (by the way, you need to know that authors do not choose the headlines on such articles; I do not approve of the title the editor chose, but it was published without my permission; I would have called it “State of Thieves”).

But on the other hand, let me put this case to you. Homosexuality is illegal in Uganda. It is regulated. Would you approve a little bribery to keep a gay man from being jailed for life? Or is your principle that any law of any state is to be obeyed, and not evaded?”

So let’s start with the beginning.  She can hardly be “astonished,” that readers would think that someone who published a piece entitled “Two Cheers for Corruption” would think the author was in favor of (some) corruption.  Corruption is an amalgam of “bribery, fraud, and extortion.”  If the WSJ article title was written without her permission, and contrary to her will (and that can happen), then the next line of her comment to NEP logically would have been – “and I demanded that the paper retract and correct the title because the title they drafted falsely indicated that ‘I am in favor of ‘bribery, fraud, and extortion.’”  Under her own version of the origins of the title, McCloskey is the “victim” of the WSJ’s notoriously pro-white-collar crime editorial staff.  We’ll be happy to aid McCloskey in demanding a retraction from the WSJ.   Her passion, under her own telling of the tale, should be redirected at the WSJ wackos who she (implicitly) says “grossly misread my piece” and created a title that contradicts her beliefs about corruption and fraud.  McCloskey has demonstrated twice to NEP that she knows how to write an intense comment letter and she obviously knows people at the WSJ she could write to in order to demand the retraction.

But, of course, the issue goes deeper than the title, as my series of articles makes clear, for McCloskey did support three specific forms of corruption and fraud.  The WSJ apologists for elite white-collar criminals read that as McCloskey “cheer[ing]” for corruption in some fields.  The WSJ apologists for white-collar crime that framed the title of her article are innumerate, so they somehow translated her three specific examples of how corruption could supposedly make a nation more “efficient” and “just” into “two cheers for corruption.”  My series of articles discusses each of these three cheers for corruption.  I have already written my critique of McCloskey’s endorsement of CEOs engaging in bribery, extortion, and fraud to secretly violate building safety codes that the CEOs consider “bad.”  So whether you consider what she wrote a “cheer” or an “apologia” for bribery, extortion, and fraud to secretly violate building safety codes that is the example she – not the WSJ wackos – chose to make her first illustration of the types of corruption and fraud that she encouraged.

In her comment on my article, McCloskey chooses an example she did not put in her book review.

“But on the other hand, let me put this case to you. Homosexuality is illegal in Uganda. It is regulated. Would you approve a little bribery to keep a gay man from being jailed for life? Or is your principle that any law of any state is to be obeyed, and not evaded?”

McCloskey’s example is deliberately outside the context of white-collar crime.  The three examples of corruption she chose as her examples of forms of corruption she felt should be encouraged to make society more “efficient” and “just” were each examples of elite white-collar crimes.  The criminals committed those crimes to get wealthy though a crime aimed at harming the public.  The example she now presents represents a hypothetical selfless act by a stranger or desperate act by the individual about to be arrested because his society has decided that the normal rules of law do not protect LGBT individuals because they are the despised and feared “other.”  The Ugandan paying the bribe for another not only will never get rich through such a corrupt favor, he also risks being imprisoned and made a social outcast because he has tried to protect a homosexual from persecution.

As a lawyer, criminologist, student of history, someone who taught in a public policy school for many years, and a former financial regulator I have faced variants of this question in theory, my writings, the classroom, and in practice.  Some answers, including the one to the Ugandan question she poses, are easy.  Others are more complex.  Her question is a milder variant of one we present to our students about the Gestapo coming to your door and demanding to know whether you or your neighbors are hiding Jews who they wish to take to extermination camps.  We teach that you it is would show exemplary to ethics to lie.  We teach that it moral to bribe, blackmail, or even kill the Gestapo to protect the Jews from capture and murder.

There are at least two things going on in the Gestapo example that push in the same direction.  First, Germany was a dictatorship.  Second, Germany had defined the Jews as the “other” to whom (the exceptionally limited German rule of law) provided no protection.  In many cases there was a third factor, the Gestapo was operating in conquered nations where there was a moral right to resist the conqueror.

Today, well-functioning democracies broadly get the “rule of law” part right as a protection for individuals.  (This is under assault in the perpetual war against terrorism/massively increased NSA-capability era, but that is a far broader discussion.)  Even the most vaunted democracies, however, long got wrong two aspects of the “rule of law.”  They define people as “the other” and exclude them from the protection of the rule of law.  Blacks, women, indigenous people, various ethnic groups and nationalities, disfavored religions, and LGBT are classic examples of repeated terrible failure of ethics.  One of the great improvements in democracy has been the continuing expansion of inclusion of groups as being entitled to the protection of the rule of law.

As I quoted Bastiat explaining in my earlier pieces, even the top democratic societies also allow elites to commit terrible crimes with impunity in part by producing apologias for such crimes.  This flaw in the rule of law has expanded greatly in the last two decades in the U.S. and the UK in the financial context – and these are the two dominant global financial centers.

So, even in a (mostly) democratic state that excluded “the other” from the protection of its rule of law I consider the Society of Friends’ leadership role in the “underground railroad” to represent exemplary ethics and would consider it moral to bribe people to free black slaves and moral for black slaves to engage in violence to escape slavery.  I believe that it was moral and just for Japanese-Americans (and German-Americans) to oppose their “internment” and the confiscation of their property in the World Wars and I believe it would have been moral for them to bribe officials to prevent seizures of persons and confiscations of property.  I do not consider it ethical to bribe witnesses to falsely testify in order to convict elites who are in fact criminals and will otherwise escape prosecution.

As to tyranny, I am an American.  I am not a pacifist.  I think we were correct to revolt from England, even if it was (for that era) one of the more democratic states within what it defined as its democratic sphere, i.e., not the colonies (and Ireland was essentially a UK colony).  I consider with Edmund Burke, that the Penal Laws were a classic example of turning the “rule of law” into a vile oxymoron for “the other” (Irish Catholics) and I think it was the moral right of the Irish to bribe officials to evade those laws and to take up arms against the UK and seek their independence.  But we should also stress that bribery provided Irish Catholics with no meaningful protections from the UK.  The big money in fraud and corruption is for the wealthy and powerful, not the poor who have been stripped of meaningful political power.

I faced a variant of this problem as a financial regulator.  After Charles Keating used the “Keating Five” and   Speaker of the House James Wright, Jr. to successfully extort Danny Wall to remove our, the Federal Home Loan Bank of San Francisco’s (FHLBSF), jurisdiction over Lincoln Savings because we refused to withdraw our recommendation to place it in conservatorship, I became aware that Lincoln Savings was selling uninsured, worthless junk bonds of its holding company through its branches located in retirement communities.  I am a serial whistle-blower, but I decided that going public about those sales would not only get me fired, but support Keating’s claim that we leaked information to the media as part of a vindictive campaign to destroy him.  I also did not think that if I went public it would even slow the sales because Wall would have issued statements backing Keating and attacking me.  I did, however, inform the House Financial Services Committee of Lincoln Savings many crimes and abuses and the Wall administration’s refusal to take effective action against those crimes and abuses.  We also made criminal referrals.

I even confess to making two related jokes while I was a regulator that I felt captured the truth.  First, for a fraudulent S&L CEO the highest return on investment was always a political contribution.  Second, we should take the Management Consignment Program (MCP) (S&Ls we had put into receivership and brought in a new management team to run because we did not have any money to resolve the failure through an assisted acquisition) and create McPac.  We could have saved tens of billions if we had been able to get Congress to act.  With $10 million dollars in McPac money that we could control we could have secured massive influence in Congress to support legislation to give us the money and the renewed conservatorship powers (they had “sunset”) to put the remaining S&L frauds out of business.

Conclusion

Questions about when we should teach our children to violate the laws in defense of individuals targeted and excluded from the rule of law because of some trait that makes them “the other” and excludes them from the protections of the rule of law are important, often complex, and interesting. But those questions have nothing to do with the book review that McCloskey wrote.  She chose her three examples of “good” corruption and they were examples of elite white-collar crime where the elite criminals committed bribery, extortion, and fraud because those crimes made the CEO wealthier and the politicians more powerful and wealthy.  And then McCloskey ended her article by saying that we (society as a whole, and teachers in particular) need to preach consistent “sermons” arousing “pervasive indignation” in the public against corruption.  The WSJ may well have made obvious McCloskey’s logical, ethical, and evidentiary incoherence by entitling her article “Two Cheers for Corruption,” but McCloskey created those flaws and she is now running not just from the title of her article, but also the examples of bribery, extortion, and fraud by elite white-collar criminals that she chose and praised as making the world more “just” and “efficient.”

A Closing Repeat of Our Invitation to McCloskey

If McCloskey wants to write an article for NEP entitled “State of Thieves” explaining her views on the ethical desirability of bribing Ugandan officials as one tactic in a strategy designed to block their immoral attacks on their gay citizens (or those someone thinks is gay) we would be delighted.  The effort of elite white-collar criminals such as the Texas frauds and Charles Keating and their political allies such as Speaker Wright to block our crackdown on the S&L frauds by leading an assault on gay regulators was one of the most effective tactics they employed.  They, in league with Danny Wall, forced out of office the Nation’s most prestigious financial supervisor, Joe Selby.  Selby would be an excellent subject for a “sermon” on ethics.  He rose through the ranks of the Office of the Comptroller of the Currency (OCC) to twice become its “Acting” head.  As a professional supervisor he was, of course, ineligible to be the permanent head supervisor because that would be too logical.  Edwin Gray, Wall’s predecessor, personally recruited Selby for district (Texas and much of the Southwest) that was Nation’s leading hotspot for the epidemics of “control fraud.”  Gray talked to many people who knew financial supervision well and asked them who the best financial supervisors in America were.  He hired Selby and Mike Patriarca (also a good choice for a “sermon”) and put them in the two states with the greatest deregulation and desupervision (prompted by the “regulatory race to the bottom”) – Texas and California.  Those two states’ S&Ls accounted for over 60% of total S&L losses.

NEP and I (sometimes in other blogs as well), have written many articles on LGBT issues.  I have close loved ones who are gay, but we all hope that one needs no personal connection to continue one of the great developments in democracy – the continued extension of the rule of law to protect those that were once denied that protection because they were defined as “the other.”

I think that we have much common ground that we could develop and many different views worth debating.  So, I will continue to write about McCloskey’s support in her book review of procurement fraud and corruption and corrupt political parties while inviting her to publish a “do-over” article in NEP about corruption with the title she prefers and the Ugandan war on LGBT peoples that she now wishes that she had made her example of moral bribery.  We encourage our authors to author the title of their articles.