This is the fourth installment of my series of articles about the absurdity of the Swedish Central Bank’s selection of Gary Becker for its Prize in 1992 on the basis of his embarrassing imperialistic forays into other disciplines. One of the forays the Swedish Central Bank cited was Becker’s work on crime. Becker was a terrible criminologist, just as he embarrassed himself in his related work on families, “human capital,” and discrimination. He may have done the most damage in the field of criminology because he, and his disciples, influenced harmful policy changes. As I have explained in earlier articles in this series, parents were far smarter than Swedish Central Bankers. American parents ignored his advice that it was “optimal” not to educate girls. Conservative politicians involved in setting our policies about crime, sadly, loved Becker’s ideas.
Becker confessed to a similar inability to understand basic concepts that normal human beings would understand in his Prize speech in 1992.
“In the early stages of my work on crime, I was puzzled by why theft is socially harmful since it appears merely to redistribute resources, usually from wealthier to poorer individuals. I resolved the puzzle (Becker [1968, fn. 3] by recognizing that criminals spend on weapons and on the value of the time in planning and carrying out their crimes, and that such spending is socially unproductive – it is what is now called “rent-seeking” – because it does not create wealth, only forcibly redistributes it. The social cost of theft was approximated by the number of dollars stolen since rational criminals would be willing to spend up to that amount on their crimes. (I should have added the resources spent by potential victims protecting themselves against crime.)”
No, not even close. Becker ignores ethics and the implications of theft for ethics. He ignores violence and the destruction of property that accompany theft. He ignores the feeling of violation, rage, and fear than afflict the victims of theft. He misses nearly all the most important negative externalities of theft. In the context of elite frauds, the negative externalities can be extraordinary. The three epidemics of accounting control fraud that drove the recent crisis and the Great Recession cost an estimated $21 trillion in lost production and over 10 million American jobs.
Becker’s Policies Applied to all Law Enforcement
In his essay entitled “Crime and Punishment: An Economic Approach,” Becker begins by signaling in his second sentence his disdain for non-criminal laws against “discrimination” – he puts the word in quotation marks to indicate his disapproval of the entire concept. His first sentence is nostalgic about the passing of laissez faire. His second sentence, in context, also complains that there are now laws against cartels and laws requiring that building materials meet minimum standards of safety (e.g. that concrete be reinforced with rebar so that it does not collapse and kill and maim).
Becker’s Optimal Deterrence Model
Becker focuses entirely on one aspect of the criminal justice system – punishment. He considers this reductionist approach his great strength, arguing that it means that vast ranges of criminology are irrelevant.
“[A] useful theory of criminal behavior can dispense with special theories of anomie, psychological inadequacies, or inheritance of special traits and simply extend the economist’s usual analysis of choice.”
I will explain why I think Becker’s reductionism leads to fatal weaknesses in his analysis and policy recommendations.
Becker Fails to Understand or Deal with Elite White-Collar Crimes
Becker isn’t simply upset that the United States has laws against “discrimination” and cartels he also denigrates the kinds of crime I research as “so-called white collar crime.” Becker’s article on crime admits that data are not even collected for the costs of most white-collar crimes. His model, however, requires him to know the incidence of each type of crime and the costs of each type of crime. His model, by definition, must fail when it comes to fraud because the incidence and cost of fraud is unknown.
Becker’s cost estimates also fail because they are overwhelmingly driven by police costs. The police, however, rarely investigate elite white-collar crimes. The regulators and the FBI’s white-collar crime section investigate such crimes.
Becker Urges That the Wealthy be allowed to Buy their Way out of Prison
Becker argues that fines, rather than imprisonment, should be the default punishment. He anticipated the argument that this would allow the wealthy to buy their way out of prison, while putting the poor into prison for the same offense, but note that he actually evades the point.
“One argument made against fines is that they are immoral because, in effect, they permit offenses to be bought for a price in the same way that bread or other goods are bought for a price. A fine can be considered the price of an offense, but so too can any other form of punishment; for example, the ‘price’ of stealing a car might be six months in jail. The only difference is in the units of measurement: fines are prices measured in monetary units, imprisonments are prices measured in time units, etc.”
Becker admits some of the reasons why elite white-collar defendants are much more difficult to prosecute than are poor defendants. He then constructs a fable that purports that relying on fines rather than imprisonment would make it far easier to convict elite defendants. There is no logic to his claim.
“Offenders with higher earnings have an incentive to spend more on planning their offenses, on good lawyers, on legal appeals, and even on bribery to reduce the probability of apprehension and conviction for offenses punishable by, say, a given prison term, because the cost to them of conviction is relatively large compared to the cost of these expenditures.
Similarly, however, poorer offenders have an incentive to use more of their time in planning their offenses, in court appearances, and the like, to reduce the probability of conviction for offenses punishable by a given fine, because the cost to them of conviction is relatively large compared to the value of their time. The implication is that the probability of conviction would be systematically related to the earnings of offenders: negatively for offenses punishable by imprisonment and positively for those punishable by fines.”
Becker misses the biggest differences, both of which arise from corporations. Corporate officers can have the firm pay for the legal advice (and supporting opinions from professionals such as accountants) that will dramatically reduce the risk of committing fraud in a manner than can be successfully prosecuted. If the prosecutors do investigate the officer the CEO leading the fraud can cause the corporation can pay for his defense and the CEO can agree to a larger fine to buy de facto immunity from prosecution and civil suits against the officers. The shareholders will bear the cost of these fines – not the officers who became wealthy by looting the corporation.
Becker adds a footnote he thinks supports his proposal to sell indulgences for crime to the wealthy.
“The same idea was put amusingly in a recent Mutt and Jeff cartoon which showed a police car carrying a sign that read: ‘Speed limit 30 M per H—$5 fine every mile over speed limit—pick out speed you can afford.’”
It’s all very funny right up to the point that the rich frat kid chooses to drive 80 mph, loses control of his car in a curve, and kills or paralyses your daughter. Becker writes that fines can restore the “status quo ante.” That is the rare case in any violation that produces serious harm. Becker blithely assumes that “optimal” fines fully compensate victims, which would rarely be true.
“[I]f punishment were by an optimal fine, minimizing the loss in income would be equivalent to compensating “victims” fully….”
Becker is hostile to the use of the criminal law to declare an act intrinsically morally wrong. This is one of the most important roles of the criminal law.
“First and foremost, the primary aim of all legal proceedings would become the same: not punishment or deterrence, but simply the assessment of the ‘harm’ done by defendants. Much of traditional criminal law would become a branch of the law of torts, say ‘social torts,’ in which the public would collectively sue for ‘public’ harm. A ‘criminal’ action would be defined fundamentally not by the nature of the action but by the inability of a person to compensate for the “harm” that he caused. Thus an action would be ‘criminal’ precisely because it results in uncompensated ‘harm’ to others.”
In sum, the prisons would simply be debtor’s prisons in which those who could not buy their way out of prison by paying a fine. There would be a “menu” of crimes and prices (fines) that the perpetrator had to pay to commit such crimes. “If you can’t pay the fine; don’t do the crime” would be the new mantra. But if you can afford the fine, then there are no moral implications of doing the crime. It is positions like this that make it clear to normal human beings that theoclassical economists are not simply terrible at economics and criminology – they are ethically impaired because they pander to the wealthy even when they are criminals. Becker even urges that corporations not be enjoined from continuing to violate the law. They can pay the fine, so they can do the crime in perpetuity.
The Deterrence Trap
Becker ignores the well-known deterrence trap in prosecuting corporate crimes where the remedy will be fines. The losses that control frauds cause are so enormous, particularly given their extreme negative externalities that prosecuting the firm will lead to its failure. (Not “cause” the failure – the frauds “cause” the failure.) Prosecutors overwhelmingly refuse to bring such cases and juries are hostile to such cases – particularly in the firm’s home town where the job losses will be most severe.
Further, under Becker’s concept of optimal deterrence the fines would have to be weighted by the extreme difficulty that Becker admits exists in detecting and prosecuting elite white collar crimes.
“Actually, fines should exceed the harm done if the probability of conviction were less than unity. The possibility of avoiding conviction is the intellectual justification for punitive, such as triple, damages against those convicted.”
This would multiply those already huge losses by a factor of roughly 100 when it came to elite white collar crimes led by the CEOs of seemingly legitimate firms. The deterrence trap would become essentially universal whenever a corporation was engaged in a serious crime. Becker’s optimal enforcement model fails against large corporate crimes.
Becker’s Caricature of the Rational Criminal
Becker, in the course of complaining about caricatures of neoclassical economics’ absurd assumptions, unintentionally self-caricatures economic models. He offers a fine example of why the assumptions are so preposterous and produced failed so many predictions.
“The approach taken here follows the economists’ usual analysis of choice and assumes that a person commits an offense if the expected utility to him exceeds the utility he could get by using his time and other resources at other activities. Some persons become “criminals,” therefore, not because their basic motivation differs from that of other persons, but because their benefits and costs differ. [C]riminal behavior becomes part of a much more general theory and does not require ad hoc concepts of differential association, anomie, and the like, nor does it assume perfect knowledge, lightning-fast calculation, or any of the other caricatures of economic theory.”
Well, actually, under Becker’s equations, it would require criminals, and public policy decision-makers to have “perfect knowledge” and “lightning-fast calculation” – and non-human brains that engaged solely in rational thought and action. The “caricature” was created by Becker’s preposterous mathematical model. Becker could have designed a model that did not require any of these false assumptions, but he chose instead to adopt a model that relied on a series of assumptions he knew to be false and knew would cause his predictions and policy recommendations to be incorrect. I can understand his tenderness about his assumptions, but they were an unforced error.
Becker’s central problem was not assuming that criminals often have rational thoughts – it was in excluding the fact that they also frequently have irrational thoughts and behaviors (at least as Becker defines rationality in his model). No one that has actually dealt with criminals would assume pure rationality. Becker makes his model more realistic, but even more impossible to employ, by stating that criminals may gain psychic utility from the act of committing a crime even if they lose income from the crime. That is true, but how is the government supposed to know which felons and potential felons (which is everyone under Becker’s model) derive such psychic utility and how much utility do they derive? Without such knowledge the government cannot employ the model.
Note that “psychic” joy is another variety of a cheat by Becker. Whenever he wants to assume irrational behavior he simply defines the issue as a question of “taste.” If a CEO has a “taste” for discriminating against women that will reduce his income he is not irrational. Similarly, if a criminal has a taste for sadism that is likely to make him the top priority for law enforcement (thereby gratuitously greatly increasing his risk of being arrested, successfully prosecuted, and punished severely he is not irrational. This is similar to the point people make about those suffering from delusions – given their belief in their delusion, their response to the delusion is rational. Under Becker’s cheat, delusional criminals are the epitomes of rationality.