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Bill Black: Is it Cynical to Believe the System is Corrupt?

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Via Naked Capitalism

Jerri-Lynn here. This Real News Network interview with Bill Black evaluates evidence that the US political and economic system is corrupt. A new NBC News/Wall Street Journal poll shows most US citizens believe the political and economic system is rigged against them, and Senators Bernie Sanders and Elizabeth Warren also echo this sentiment. Black is a a white collar criminologist, former financial regulator, and associate professor of economics and law at the University of Missouri, Kansas City. He’s also the author of the book, The Best Way to Rob a Bank is to Own One and a frequent contributor to Naked Capitalism.

GREG WILPERT: Welcome to The Real News Network. I’m Greg Wilpert in Baltimore.

A new opinion poll released by NBC News and the Wall Street Journal last Sunday shows that 70% of Americans are “angry” because our political system seems to only be working for the insiders with money and power. Both Senator Bernie Sanders and Senator Elizabeth Warren have also reflected on this sentiment during their campaigns. Sanders has said that we live in a “corrupt political system designed to protect the wealthy and the powerful.” Warren said it’s a “rigged system that props up the rich and powerful and kicks dirt on everyone else.”

A New York Times opinion article written by the political scientist Greg Weiner felt compelled to push back on this message, writing a column with the title, The Shallow Cynicism of ‘Everything Is Rigged’. In his column, Weiner basically makes the argument that believing everything is corrupt and rigged is a cynical attitude with which it is possible to dismiss political opponents for being a part of the corruption. In other words, the Sanders and Warren argument is a shortcut, according to Weiner, that avoids real political debate.

Joining me now to discuss whether it makes sense to think of a political system as rigged and corrupt, and whether the cynical attitude is justified, is someone who should know a thing or two about corruption: Bill Black. He is a white collar criminologist, former financial regulator, and associate professor of economics and law at the University of Missouri, Kansas City. He’s also the author of the book, The Best Way to Rob a Bank is to Own One. Thanks for joining us again, Bill.

BILL BLACK: Thank you.

GREG WILPERT: As I mentioned that the outset, it seems that Sanders and Warren are in effect taking an open door, at least when it comes to the American public. That is, almost everyone already believes that our political and economic system is rigged. Would you agree with that sentiment that the system is corrupt and rigged for the rich and against pretty much everyone else but especially the poor? What do you think?

BILL BLACK: One of the principal things I study is elite fraud, corruption and predation. The World Bank sent me to India for months as an anti-corruption alleged expert type. And as a financial regulator, this is what I dealt with. This is what I researched. This is a huge chunk of my life. So I wouldn’t use the word, if I was being formal in an academic system, “the system.” What I would talk about is specific systems that are rigged, and they most assuredly are rigged.

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Let me give you an example. One of the most important things that has transformed the world and made it vastly more criminogenic, much more corrupt, is modern executive compensation. This is not an unusual position. This is actually the normal position now, even among very conservative scholars, including the person who was the intellectual godfather of modern executive compensation, Michael Jensen. He has admitted that he spawned unintentionally a monster because CEOs have rigged the compensation system. How do they do that? Well, it starts even before you get hired as a CEO. This is amazing stuff. The standard thing you do as a powerful CEO is you hire this guy, and he specializes in negotiating great deals for CEOs. His first demand, which is almost always given into, is that the corporation pay his fee, not the CEO. On the other side of the table is somebody that the CEO is going to be the boss of negotiating the other side. How hard is he going to negotiate against the guy that’s going to be his boss? That’s totally rigged.

Then the compensation committee hires compensation specialists who–again, even the most conservative economists agree it is a completely rigged system. Because the only way they get work is if they give this extraordinary compensation. Then, everybody in economics admits that there’s a clear way you should run performance pay. It should be really long term. You get the big bucks only after like 10 years of success. In reality, they’re always incredibly short term. Why? Because it’s vastly easier for the CEO to rig the short-term reported earnings. What’s the result of this? Accounting profession, criminology profession, economics profession, law profession. We’ve all done studies and all of them say this perverse system of compensation causes CEOs to (a) cheat and (b) to be extraordinarily short term in their perspective because it’s easier to rig the short-term reported results. Even the most conservative economists agree that’s terrible for the economy.

What I’ve just gone through is a whole bunch of academic literature from over 40-plus years from top scholars in four different fields. That’s not cynicism. That’s just plain facts if you understand the system. People like Elizabeth Warren and Bernie Sanders, they didn’t, as you say, kick open an open door. They made the open door. It’s not like Elizabeth Warren started talking about this six months ago when she started being a potential candidate. She has been saying this and explaining in detail how individual systems are rigged in favor of the wealthy for at least 30 years of work. Bernie Sanders has been doing it for 45 years. This is what the right, including the author of this piece who is an ultra-far right guy, fear the most. It’s precisely what they fear, that Bernie and Elizabeth are good at explaining how particular systems are rigged. They explain it in appropriate detail, but they’re also good in making it human. They talk the way humans talk as opposed to academics.

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That’s what the right fear is more than anything, that people will basically get woke. In this, it’s being woke to how individual systems have been rigged by the wealthy and powerful to create a sure thing to enrich them, usually at our direct expense.

GREG WILPERT: I think those are some very good examples. They’re mostly from the realm of economics. I want to look at one from the realm of politics, which specifically Weiner makes. He cites Sanders, who says that the rich literally buy elections, and Weiner counters this by saying that, “It is difficult to identify instances in American history of an electoral majority wanting something specific that it has not eventually gotten.” That’s a pretty amazing statement actually, I think, for him to say when you look at the actual polls of what people want and what people get. He then also adds, “That’s not possible to dupe the majority with advertising all of the time.” What’s your response to that argument?

BILL BLACK: Well, actually, that’s where he’s trying to play economist, and he’s particularly bad at economics. He was even worse at economics than he is at political science, where his pitch, by the way is–I’m not overstating this–corruption is good. The real problem with Senator Sanders and Senator Warren is that they’re against corruption.

Can you fool many people? Answer: Yes. We have good statistics from people who actually study this as opposed to write op-eds of this kind. In the great financial crisis, one of the most notorious of the predators that targeted blacks and Latinos–we actually have statistics from New Century. And here’s a particular scam. The loan broker gets paid more money the worse the deal he gets you, the customer, and he gets paid by the bank. If he can get you to pay more than the market rate of interest, then he gets a kickback, a literal kickback. In almost exactly half of the cases, New Century was able to get substantially above market interest rates, again, targeted at blacks and Latinos.

We know that this kind of predatory approach can succeed, and it can succeed brilliantly. Look at cigarettes. Cigarettes, if you use them as intended, they make you sick and they kill you. It wasn’t that very long ago until a huge effort by … pushback that the tobacco companies, through a whole series of fake science and incredible amounts of ads that basically tried to associate if you were male, that if you smoked, you’d have a lot of sex type of thing. It was really that crude. It was enormously successful with people in getting them to do things that almost immediately made them sick and often actually killed them.

He’s simply wrong empirically. You can see it in US death rates. You can see it in … Hell, I’m overweight considerably. Americans are enormously overweight because of the way we eat, which has everything to do with how marketing works in the United States, and it’s actually gotten so bad that it’s reducing life expectancy in a number of groups in America. That’s how incredibly effective predatory practices are in rigging the system. That’s again, two Nobel Laureates in economics have recently written about this. George Akerlof and Shiller, both Nobel Laureates in economics, have written about this predation in a book for a general audience. It’s called Phishing with a P-H.

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GREG WILPERT: I want to turn to the last point that Weiner makes about cynicism. He says that calling the system rigged is actually a form of cynicism. And that cynicism, the belief that everything and everyone is bad or corrupt avoids real political arguments because it tires everyone you disagree with as being a part of that corruption. Would you say, is the belief that the system is rigged a form of cynicism? And if it is, wouldn’t Weiner be right that cynicism avoids political debate?

BILL BLACK: He creates a straw man. No one has said that everything and everyone is corrupt. No one has said that if you disagree with me, you are automatically corrupt. What they have given in considerable detail, like I gave as the first example, was here is exactly how the system is rigged. Here are the empirical results of that rigging. This produces vast transfers of wealth to the powerful and wealthy, and it comes at the expense of nearly everybody else. That is factual and that needs to be said. It needs to be said that politicians that support this, and Weiner explicitly does that, says, we need to go back to a system that is more openly corrupt and that if we have that system, the world will be better. That has no empirical basis. It’s exactly the opposite. Corruption kills. Corruption ruins economies.

The last thing in the world you want to do is what Weiner calls for, which he says, “We’ve got to stop applying morality to this form of crime.” In essence, he is channeling the godfather. “Tell the Don it wasn’t personal. It was just business.” There’s nothing really immoral in his view about bribing people. I’m sorry. I’m a Midwesterner. It wasn’t cynicism. It was morality. He says you can’t compromise with corruption. I hope not. Compromising with corruption is precisely why we’re in this situation where growth rates have been cut in half, why wage growth has been cut by four-fifths, why blacks and Latinos during the great financial crisis lost 60% to 80% of their wealth in college-educated households. That’s why 70% of the public is increasingly woke on this subject.

GREG WILPERT: Well, we’re going to leave it there. I was speaking to Bill Black, associate professor of economics and law at the University of Missouri, Kansas City. Thanks again, Bill, for having joined us today.

BILL BLACK: Thank you.

GREG WILPERT: And thank you for joining The Real News Network.

 

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