Cato is Shocked that the Three “de’s” Produce a Criminogenic Environment

By William K. Black

(Cross-posted with

James Bovard of Cato wrote an article entitled “The Food-Stamp Crime Wave” on June 23, 2011 for the Wall Street Journal.

Bovard shows no awareness of criminology, but what he described was the creation of a criminogenic environment. A criminogenic environment has such perverse incentives that it produces widespread crime in a particular field of activity. Non-criminologists frequently have difficulty believing that fraud can become common. They often believe that fraud can only arise among “a few rotten apples.” This view is naïve and crimionological research falsified the claim over a half century ago. Bovard is correct, therefore, that fraud can become common in an industry. This is particularly true if fraud produces a “Gresham’s dynamic.” George Akerlof explained this point over 40 years ago in his famous article on a market for “lemons” (1970).

“[D]ishonest dealings tend to drive honest dealings out of the market. The cost of dishonesty, therefore, lies not only in the amount by which the purchaser is cheated; the cost also must include the loss incurred from driving legitimate business out of existence.”

Bovard purports to be a libertarian, yet he ascribes the creation of the criminogenic environment in food stamps to the three “de’s” – deregulation, desupervision, and de facto decriminalization. He is also upset that the federal government, in the context of food stamps, has failed to sufficiently distort consumer decision making. I address his substantive position on food stamps in another column.

This column explains his argument as to how the three de’s created a criminogenic environment in food stamps and shows how his reasoning would compel him to demand the end of the far more powerful and destructive criminogenic environments that drove the Great Recession (and the second phase of the S&L debacle and the Enron-era accounting control frauds).

The first element Bovard cites as producing a criminogenic environment is deregulation.

“Thirty-five states have abolished asset tests for most food-stamp recipients. These and similar “paperwork reduction” reforms advocated by the United States Department of Agriculture (USDA) are turning the food-stamp program into a magnet for abuses and absurdities.”

The second element he cites is de facto decriminalization due to the Obama administration’s near indifference to fraud.

“The Obama administration is far more enthusiastic about boosting food-stamp enrollment than about preventing fraud.”

Bovard argues that desupervision led to de facto decriminalization.

“The USDA’s Food and Nutrition Service now has only 40 inspectors to oversee almost 200,000 merchants that accept food stamps nationwide. The Government Accountability Office reported last summer that retailers who traffic illegally in food stamps by redeeming stamps for cash or alcohol or other prohibited items “are less likely to face criminal penalties or prosecution” than in earlier years.”

Bovard is implicitly raising the danger of a Gresham’s dynamic among retailers. Large, fraudulent retailers can obtain vastly more from food stamp fraud than can recipients. An honest retailer cannot compete against a large, fraudulent retailer. This turns market forces perverse and can drive honest retailers out of business. Fraud begets fraud.

Bovard appears to recognize that vigilant regulation is essential to successful fraud prevention and prosecution. When the regulators do not make anti-fraud efforts a priority the prosecutors are so overwhelmed that the criminal justice system breaks down. He cites the example of Wisconsin.

“The Wisconsin Policy Research Institute concluded: “Prosecutors have simply stopped prosecuting the vast majority of [food-stamp] fraud cases in virtually all counties, including the one with the most recipients, Milwaukee.””

In criminology, we refer to this as a “system capacity” problem. Bovard argues that the desupervision has effectively destroyed the capacity of the system to respond to the “crime wave” produced by the criminogenic environment. Bovard concludes that the criminogenic environment was inevitable because cheaters can profit with greatly reduced risk of prosecution.

Environments become intensely criminogenic when the federal government engages in the three “de’s” and preempts state anti-fraud efforts. This was an infamous feature of the Bush administration’s response to the fraudulent mortgage lenders, and Bovard argues that the Obama administration is intensifying a criminogenic environment in food stamps by following similarly fraud-friendly policies.

“The Obama administration is responding by cracking down on state governments’ antifraud measures. The administration is seeking to compel California, New York and Texas to cease requiring food-stamp applicants to provide finger images.”

So, how much does the food stamp fraud cost? Bovard does not provide the published estimates, but notes that 44 million Americans are recipients of food stamps at a total cost of $77 billion, or under $2000 per recipient. Individual frauds, therefore, obtain relatively small proceeds. Fraudulent retailers are the ones who are enriched by food stamp fraud. Bovard, however, concentrates entirely on fraudulent recipients and several corrupt public officials.

The GAO estimated, prior to the adoption of electronic benefit transfers (EBT) that food stamp trafficking represented 3.7% of annual benefits. Food stamps are now paid through EBT. This has greatly reduced the incidence of fraud by recipients, in some studies by an estimated 75-81 percent. Whitmore, Diane. “What are Food Stamps Worth?” (July 2002: p. 6 & n. 5).

Bovard missed the real food stamp crime wave (in terms of a much higher incidence of fraud) that peaked over a decade ago.

What we need now is to get Bovard and the Wall Street Journal to apply this same reasoning and passion about the dangers of the three “de’s” producing intense criminogenic environments to the three “de’s” that produced our recurrent, intensifying financial crises. My prior columns have explained at length how the three “de’s” produced the criminogenic environment that drove the “epidemic” of accounting, securities, mortgage, and appraisal fraud that hyper-inflated the bubble and led to the Great Recession. Bovard’s column was the most e-mailed WSJ article for two days. Food stamp fraud is important and Bovard’s rhetoric stirred the WSJ readership to rage. The accounting control frauds that drove the S&L, Enron era and ongoing crises are massively greater and more destructive and they involve our most elite CEOs becoming spectacularly wealthy at the expense of the public. The incidence of banking and mortgage fraud is far greater than food stamp fraud. The direct dollar losses due to these frauds are massively greater than food stamp fraud. The moral culpability and the financial gain of the CEOs who led the accounting control frauds are incomparably greater than that of a typical fraudulent food stamp recipient. The typical fraud consists of a recipient who is actually eligible for food stamps because she is impoverished selling some of those stamps to obtain income to purchase non-food items. Those non-food items can range from paying the rent and health care costs to illegal drugs. The systemic damage caused by the fraudulent CEOs – the Great Recession – has no counterpart in the food stamp context.

Bovard’s column allows us to test two rival theories. Hypothesis one: Bovard and the WSJ readers were enraged that the three “de’s” produced a criminogenic environment and led to a “crime wave” of fraud because they are enraged by fraud and the theoclassical dogmas that lead us to repeatedly adopt the three “de’s” despite the recurrent disasters they cause. Hypothesis two: Bovard and the WSJ readers were enraged by fraud by poor people and refuse to apply the same logic and moral outrage to the vastly greater and more damaging crimes led and generated by elite financial CEOs. Instead, they will blame “the government” and make excuses for the elite frauds. My bet is on the second hypothesis, but I hope to be proven wrong.

10 responses to “Cato is Shocked that the Three “de’s” Produce a Criminogenic Environment

  1. The whole welfare system… seems perfectly designed to force people to lie for their very survival. Those who do so are far more likely to be caught and punished than any better-off person who takes the option of increasing his income by fraudulent means; while the best outcome a welfare recipient can typically hope for is the bare survival that such programs were intended to assure in the first place.And yet everyone is sure, and indignant about it, that large numbers of people are making off with a lush, comfortable living from welfare programs, at the expense of everyone else attempting actual, useful work. Instead of looking for successful parasites in the rich suburbs and high office buildings where any rational person would expect to find them– they imagine them to be lurking in the most wretched and degraded neighborhoods. How strange, how very strange.

  2. Wrong! The whole point of the article is that people who are not poor and should not qualify for food stamps are in fact getting them. Nice try at slandering WSJ readers.

  3. It is not possible to slander WSJ readers.They are a cancer on democracy, and a bunch of neo-liberal disaster capitalists.

  4. Hypothesis Two looks to be the more likely scenario. Austerity and criminal behavior only apply to the "little people". That's the common perspective of those gazing at the world through rose-colored glasses from the perch of their ivory tower.

  5. Conservatives believe that people should be given free choice to make their own decisions – unless they are poor. Just eliminate food stamps and give the poor cash grants.

  6. "Eliminate food stamps and give the poor cash grants" would be an improvement– but is unlikely to be implemented. Doling out survival needs via many separate programs… has several political advantages: The programs can be chosen to benefit some legislator's favorite constituents, ie large farm owners in the case of food stamps, property owners in depressed areas in the case of housing assistance programs. The programs need not provide all of everyone's needs, but only those of a select few, enabling the legislator to claim 1) We're helping! and 2) We're being frugal. Selective bits of largess allow whoever administers the program to concentrate their efforts conveniently on "worthy poor" clients, who know that if they don't play nice they can be replaced with someone more cooperative.Probably Wray's view of the psychology of all this is correct; the general resentment of employed people against anybody idle, even involuntarily, is so great– that the only sustainable policy for aiding the poor is probably an 'employer of last resort' program, with even the thoroughly disabled being expected to do _something_. But "conservative" resistance to that idea has always been fierce; they can see its vast potential for allowing the help to get uppity!

  7. Should bill gates get social security since he paid into the system, so if michigan taxed lottos wouldn't the lotto winner be entitled to get food stamps or social security, after all he is a taxpayer, the republicans care about taxpayers, making a big deal about high taxes and abuse, and who pays the most, the gop tax cut help him more than $175 a month in food stamps.

  8. Good argument. Let's see what the response it, but we'll no doubt get old waiting for it.The food stamp fraud faux-outrage is another version of the old and tired "waste, fraud and abuse" excuse for the country's "problems," shifting the blame far from where it lies.

  9. "Bovard purports to be a libertarian" – This quote says it all. No wonder Bovard is an ignorant disingenuous moron who is attacking the poor. Bovard's article is nothing more than right-wing propaganda aimed at eliminating social programs that benefit the middle class, workers, and the poor and deflecting the public's attention and blame away from those parties who are truly guilty of causing the present economic crisis – namely, the corrupt politicians and pro-corporate bureaucrats in Washington, the right-wing, the wealthy 1%, greedy CEOs, and the Wall Street Banks.I often wonder why conservatives like to attack the most vulnerable in society as if the poor can donate millions of dollars to political campaigns in order to buy politicians who will then write the laws on their behalf. Right-wing village idiots act as if food-stamp recipients were the ones who successfully lobbied Congress and the White House to eliminate Glass-Steagall. You stupid libertarians should stop placing the poor in the crosshairs of your guns and start focusing on the corrupt, illegal, and unethical practices of the rich! After all, none of the members of Congress and no one in the White House or Supreme Court are food stamp recipients! The politicians in Washington are nearly all members of the top 1%! Thus, it should be no surprise why the Federal Government colludes with the wealthy in the private sector to loot the middle class and the public in order to enrich the few and the rich!The tragedy (it would be comedic if the consequences were not so dire) of Bovard's article is that so many middle class Americans (i.e. the Tea Party) are so stupid that they can be totally fooled by right-wing propaganda and PR such as Bovard's article into voting against their own interests in every single f'ing election.

  10. "… so many middle class Americans (i.e. the Tea Party) are so stupid that they can be totally fooled by right-wing propaganda and PR such as Bovard's article into voting against their own interests in every single f'ing election."Ding! Ding! Ding!We have a winner!Give that man a cigar!