The DNC's Ultimatum Game with Progressives

Economists and rationalists got something important dead wrong.

They sorted it out in an oft-repeated experiment called the Ultimatum Game.  It's an exceedingly simple game and experiment. People play in pairs. They are told they are to split some money -- say $10. One person is assigned the role of deciding how to split the loot. 50/50? 60/40? 90/10? All for me and none for you (the Trump move)?

The second decides if he or she will take the offer. If he accepts the offer, they split the money according to the rule proposed. If she declines the offer, neither get anything.

Economists argued for a long time that rational people take ALL OFFERS (other than 100/0). That is, if I offer to take $9 and leave you $1, then you are being offered a choice between $1 and nothing, and rationally choose the dollar. If I offer to take $9.99 and leave you one penny, you are being offered a penny -- or not -- and take the penny.

The problem with this sort of rational analysis is that it may be that rational people take the penny (or the dollar) but real-life people DO NOT. In thousands of runs of this experiment, real life people tend to reject offers in which they are treated very unfairly. In fact, the data from these thousands of experiments show that people tend to reject offers in which they are being offered less than 20% of the original prize. Make an offer of 75/25 and most of us take it begrudgingly, but offer 85/15 and most of us reject the 15, preferring nothing at all to allowing you to take 85.

Why is this relevant right now? Because the Democratic establishment is counting on Progressives to be rational, and take something over nothing. Take Hillary over Trump or Cruz, because 25 is better than 0. Some Progressives are of course irrational -- many or most people are irrational -- so they may reject the offer because they are too angry to think clearly or because they are confused. BUT THE DEMOCRATIC PARTY ESTABLISHMENT IS WRONG TO THINK ALL PROGRESSIVES ARE IRRATIONAL. Many are smart human beings who understand that they have to take 25 begrudgingly, but should reject 15 because the level of unfairness would not be tolerable and should not be incentivized. That is, many Progressives who are balking at a vote for HRC are not confused about Cruz or Trump being the 0 and Hillary being better, but they are thinking that Hillary is the 15 that should be rejected in order to discipline the DNC into behaving more fairly and not the 25 that should be taken begrudgingly.

The lesson is clear: the DNC *must" find a way to make Hillary the 25 (the choice that we take begrudgingly even if we feel we have been treated unfairly) and not allow her to be seen as the 15 (the choice that is so unfair we would rather take 0 and thus punish the DNC into changing in the future). This will include substantial offers to Sanders and Progressives to write parts of the party platform.

I do understand that Obama got away with offering Hillary too little in 2008 and yet won, anyway. But had the economic crisis not hit us in September of 2008 closely following McCain's admission that economics was not his strong suit, the outcome of that election may well have been different. Obama should have offered more to Clinton supporters to earn their votes (his sense of entitlement was not right IMO). In fact, because Clinton supporters in 2008 played the part of DNC loyalists and supported Obama then, many of them consider it very unfair that Sanders supporters are being such poor team players now (and some of them are lousy team players). So Obama's selfishness then is hurting us now, as well. It is surely better to earn votes through consultative programs and doing good for your constituencies than through demands for loyalty oaths and dues-paying. Progressives are not soldiers sworn to die for the flag. They are people in need who expect politicians to try to do their jobs and serve the people fairly. The DNC can say correctly that they are the lesser of two evils, but remember the 80/20 rule: if you are the 15 instead of the 0, people who care about fairness (and liberals care more about fairness than others) will reject you. It is human nature to do so.  If the DNC wants to win in November, it must be the 25.

The DNC's Ultimatum Game with Progressives

Economists and rationalists got something important dead wrong.

They sorted it out in an oft-repeated experiment called the Ultimatum Game.  It's an exceedingly simple game and experiment. People play in pairs. They are told they are to split some money -- say $10. One person is assigned the role of deciding how to split the loot. 50/50? 60/40? 90/10? All for me and none for you (the Trump move)?

The second decides if he or she will take the offer. If he accepts the offer, they split the money according to the rule proposed. If she declines the offer, neither get anything.

Economists argued for a long time that rational people take ALL OFFERS (other than 100/0). That is, if I offer to take $9 and leave you $1, then you are being offered a choice between $1 and nothing, and rationally choose the dollar. If I offer to take $9.99 and leave you one penny, you are being offered a penny -- or not -- and take the penny.

The problem with this sort of rational analysis is that it may be that rational people take the penny (or the dollar) but real-life people DO NOT. In thousands of runs of this experiment, real life people tend to reject offers in which they are treated very unfairly. In fact, the data from these thousands of experiments show that people tend to reject offers in which they are being offered less than 20% of the original prize. Make an offer of 75/25 and most of us take it begrudgingly, but offer 85/15 and most of us reject the 15, preferring nothing at all to allowing you to take 85.

Why is this relevant right now? Because the Democratic establishment is counting on Progressives to be rational, and take something over nothing. Take Hillary over Trump or Cruz, because 25 is better than 0. Some Progressives are of course irrational -- many or most people are irrational -- so they may reject the offer because they are too angry to think clearly or because they are confused. BUT THE DEMOCRATIC PARTY ESTABLISHMENT IS WRONG TO THINK ALL PROGRESSIVES ARE IRRATIONAL. Many are smart human beings who understand that they have to take 25 begrudgingly, but should reject 15 because the level of unfairness would not be tolerable and should not be incentivized. That is, many Progressives who are balking at a vote for HRC are not confused about Cruz or Trump being the 0 and Hillary being better, but they are thinking that Hillary is the 15 that should be rejected in order to discipline the DNC into behaving more fairly and not the 25 that should be taken begrudgingly.

The lesson is clear: the DNC "must" find a way to make Hillary the 25 (the choice that we take begrudgingly even if we feel we have been treated unfairly) and not allow her to be seen as the 15 (the choice that is so unfair we would rather take 0 and thus punish the DNC into changing in the future). This will include substantial offers to Sanders and Progressives to write parts of the party platform.

I do understand that Obama got away with offering Hillary too little in 2008 and yet won, anyway. But had the economic crisis not hit us in September of 2008 closely following McCain's admission that economics was not his strong suit, the outcome of that election may well have been different. Obama should have offered more to Clinton supporters to earn their votes (his sense of entitlement was not right IMO). In fact, because Clinton supporters in 2008 played the part of DNC loyalists and supported Obama then, many of them consider it very unfair that Sanders supporters are being such poor team players now (and some of them are lousy team players). So Obama's selfishness then is hurting us now, as well. It is surely better to earn votes through consultative programs and doing good for your constituencies than through demands for loyalty oaths and dues-paying. Progressives are not soldiers sworn to die for the flag. They are people in need who expect politicians to try to do their jobs and serve the people fairly. The DNC can say correctly that they are the lesser of two evils, but remember the 80/20 rule: if you are the 15 instead of the 0, people who care about fairness (and liberals care more about fairness than others) will reject you. It is human nature to do so.  If the DNC wants to win in November, it must be the 25.

The Too Big to Fail Meme Explained

The Too Big to Fail (TBTF) meme is, if understood, a shorthand for something more than the size of the Wall Street investment banks.

TBTF is of course the idea that because banks are interconnected in our financial system, the failure of a large bank has repercussions on the rest of us. Hence, we are obliged to rescue them when they are on the brink of failing.

The three key questions that arise are: (1) what’s wrong with having to rescue a failing bank, (2) can it be avoided and (3) are there other issues here not being discussed directly?

(1) What’s wrong with having to rescue a failing bank? Those who wish to let failing banks fail without our help are in a few camps. One camp says that they don’t deserve to be rescued for poor performance and misconduct of their own doing, especially when others, more innocent and more vulnerable, e.g., homeowners, were not rescued. It smacks for good reason of favored person status among the plutocrats. (Recent revelations of the SEC turning a blind eye even on actual convictions of hedge fund investors reinforces this view as does the extraordinary lack of criminal charges in the case of the financial crisis.) Another camp – most mainstream economists are in this group – care very little about what is fair and more about efficiency and the role of incentives. These folks worry about so-called ‘moral hazard’ which is the idea that if a firm knows in advance that you will rescue it if the risks it takes on blow up in a downside scenario, that firm will take on too much risk and impose too much risk on the rest of us. (In its financial decision making, they are now discounting the downside of highly volatile investments, thus raising the ranking of those that impose the greatest risks on the enterprise and on the rest of us.) In other words, we not only rescue banks for failing normally, but we distort their incentives so they are more likely to fail. Still another camp is comprised of “free-market” ideologues (the subset who are not charlatans merely promoting the power and profit of business, but the group who actually believe in markets) who do not want the government bailing out anyone; they want firms to be unfettered to both succeed and fail. The bailouts make them unhappy for obvious reasons.

(2) Can it be avoided? The simpler TBTF critics want us to believe that by making banks smaller, they will be small enough to fail. This may not be right for a few reasons. (1) Small banks are still interconnected, so small bank failures will still lead to small charges to the rest of us – the problem that they are not being forced to fully subsume their own costs and mistakes goes on; (2) Break large banks into many small banks and if they fail the sum of those small charges may still add up to a lot of problems for the rest of us, demanding a rescue of some sort, anyway; (3) the chaotic/ catastrophic aspect of financial systems means that a butterfly flapping his wings can cause a tsunami – so even small bank failures that are still connected can cause outsized harm. (If you unplug a supercomputer you have tampered with a tiny part of it but you have caused a major problem.) So interconnectedness counts as well as size and it may be too complex for us to forecast and manage.

(3) The other issues not being discussed were highlighted in The Big Short where we learn that the investment banks are problematic for reasons apart from their size and interconnectedness. We see firsthand that the big investment banks (especially Goldman Sachs) have displaced the market altogether – fixing prices when it would cost them profit until they can manipulate buyers into taking on toxic assets and only then moving prices in line with market pressures. THIS MARKET DISPLACEMENT is (1) illegal, loosely, but should be punishable by extreme measures; (2) a product of power and opacity more than size; (3) a product of incompetent regulation, although it may not even be possible to regulate this sort of behavior. THIS FEATURE IS ARGUABLY MORE IMPORTANT THAN SIZE. All arguments in favor of markets, all arguments in favor of finance capitalism, all arguments that say that we have to take the bad (gross inequality) to get the good (supposed efficiencies) go out the window if THERE IS NO MARKET, but instead there is a profit-seeking vulture at the heart of the system fixing prices for their own profit.

So this problem cuts at the heart of finance capitalism. If you solve it, the system we have may be justified (with other fixes). If you don't solve it, all the formal arguments for finance capitalism go out the window and you may as well try socialism or something else.

In this last, both political extremes, socialists and social democrats at one end, and Tea Partiers on the other, can agree. Mainstream and radical economists can agree. We need a financial system in which banks are not so interconnected that their mistakes make us sick – but that is hard to fix. We need a financial system in which banks are not so big that their failure will cause crises – but making them small is not a complete solution. And, arguably most important, we need a financial system in which markets function honestly and players are never so powerful, opaque, or “made” (like a mobster) that they can manipulate prices of billions of dollars without vigilant regulation and extreme prosecution.

The surprising rise of American Fascism and what to make of it

In my youth, we often sat around wondering how it was that men like Mussolini and Hitler took power. Where were the good and moral people when they were needed to stand up to them? We and our teachers were perplexed by the idea of a Good German, the fellow who found the Fascists' promises of a return to Glory so compelling they would look away at tragic displays of discrimination and violence.

We are rapidly learning, by watching many of our fellow countrymen in 2016 embrace a narcissistic, sociopathic fascist, how the terrors of the 20s and 30s came to power and did so much evil in the world.

Some of those furtive American fascists were obvious to us all along. They were quick to defend violence against innocent black teens in our own streets, quick to defend violence perpetuated against innocent Muslims running from our bombs overseas. While few defended the confederate flag or outright racism, they were awfully quick to find examples of their distorted, self-imagined concept of "reverse racism." We saw through them then. They did not hide their evil from us, despite displays of high handed morality.

But admit it: some of those who have come out of the woodwork, some of those excitable followers of the madness, the Trumpery, of our time, were not so obvious. You saw them on social media, in the street, in your workplace, and you thought, admit it: deep down, he's a nice guy.

And now you don't know what to think. Here's my suggestion: the Good German was not evil -- he was simply human. Sociopathic marketing geniuses like Mussolini, Hitler and Trump can see through them and turn them into willing foot soldiers more easily than you can imagine. Stalin and Mao had the advantage of communist regimes to back them up, but Mussolini and Hitler and Trump are the products of democratic processes. They sell a bill of goods to the disenfranchised, angry, underclass -- and the selling is good.

Forgive them. But don't stop trying to get them to see what is wrong with electing the last president of the United States of America.

Market Fundamentalism is an Existential Threat

I did not know when I was a young man that my field of study, economics, would some day become the basis of a religion, one powerful enough to threaten the very existence of human beings.

Neoclassical economics was rightly proud of one of the more brilliant proofs in the history of the world. The proof began with clear and focused inspiration by Adam Smith, carried on through the 19th century, especially with Ricardo, the Austrian marginalists, and Walras; was modified critically by Pareto; and was parsed and formalized by the modern general equilibrium theorists and greats such as Arrow and Debreu.

That proof said something extraordinary. It said that if certain exacting conditions could be fully met, a free market system is provably the best economic system imaginable, best meeting the needs of individuals in a society that embraces it.

This is not merely an ideological assertion. Not rhetorical. Not a point of view. This is the product of a massive compilation of mathematical and logical argument. It is not to be dismissed merely as a matter of politics -- at least, not by the rational.

Many took this quite seriously, as they should. Many argued very forcefully that capitalism must be assertively advanced at the expense of other, lesser, systems. The belief in markets, the belief in capitalism, took on a religious fervor. In its extreme form, it took on the form of faith-based dogma, a body of belief best described as market fundamentalism.

Good economists understood that the proof, nifty and clever as it was, is subject to those "exacting conditions." Good economists understood that the proof says IF those conditions are met perfectly THEN the case is made.

Unfortunately, two things are undoubtedly true, and all good economists know both.

One, those conditions are never met, and have never been met. That is, the proof in favor of capitalism is a proof in favor of one economic system over another in a fictitious world of theory only.  A world that does not and has never existed.

Two, and it took another profound proof to understand this, economists discovered the second best theorem that says, in short, that if you do not meet all those exacting conditions perfectly (say you meet them all approximately) there is no guarantee that the results will resemble the results of perfect competition at all. In other words, economic systems are subject to a form of chaos such that 100% of the conditions lead to something optimal, yet 99% of the conditions may lead to something awful. Catastrophe theory in action.

As the conditions are never met, there is no economic theory that says that in the real world there is actually a general case for capitalism. The case for capitalism must be made on a case-by-case basis, examining the well being of people before and after they move to and from capitalism to and from other economic systems.

None of this has stopped the Market Fundamentalists from carrying on, quite dishonestly, as if economists have provided them with a sacred text that says that unfettered markets are good for all of us. They fill the Congress, think tanks, and other places of influence, pushing for the interests of the few (capitalism does remarkably well for the 1%) but pushing for them disingenuously in the name of a political-economic system that they claim, feverishly, is good for everyone. But the evidence says this is palpably untrue. Some forms of capitalism in many places have done the poor grave harm; life-and-death harm is exceedingly common.

And it is not just about inequality. It is also about human survival, as capitalism allows powerful parties who are grossly enriched by unfettered environmental regulation to destroy our air and water and biosphere broadly for profit. They do so in the name of market fundamentalism, literally mocking those who would ask, can we not do better by collectively acting as if we all matter? If extinction by environmental devastation is the outcome on the one hand, we must surely consider alternatives to a system that is killing us (and many innocents who have neither say nor profit in our system).

As Naomi Klein says, "this changes everything." Political economic discourse must admit that capitalism, at least in its current form, may be lethal. Reasonable people examining alternatives may disagree. E.g., is Sanders' social democracy, what he calls democratic socialism, nearly enough?  But those who would trot out their market fundamentalism, and deny most of the scientific and other evidence before our eyes, in order to continue to profit from their special place in the system, are guilty of negligent homicide -- of entire species, homo sapiens, and many others. This is a hanging offense, but if we do not stop them, there will be no one left to hang them when we reach what the Cambridge University Center of Catastrophe Studies considers the limit beyond which the last 100,000 human beings, living in a stone age of sorts, can never be expect to bounce back. This tragic end to humankind may take place in the next century.

When the last woman standing pounds her fist into the earth and curses the rest of us, it will be far too late to say "I told you so."  Can the market fundamentalists be defeated in time?  We may have already run out of time, but our only hope is to take action today.  A Republican Congress is likely to stand in the way of implementing the Paris Agreement on Climate Change, as it is a very late attempt to turn around environmental destruction. The fate of humankind may well hang in the balance of the Congressional elections of 2016. 

Ferguson, De Tocqueville, and the American Center

The shooting and subsequent police behavior and protests in Ferguson, as well as the responses of so many to the crisis, including media talking heads, ideologues, and racialized survey responses*, have gotten me to thinking about the American and the French Revolutions. 

Just to remind those of you whose history education was insufficient or has faded, the American Revolution was a mere skirmish in contrast to the French.  They were not remotely comparable in scale.  By any reasonable estimate, the death toll and the total devastation in the French Revolution was at least 100 times that of the American.  Further, what followed in France was decades of war and then decades of deprivation.

It is of course not surprising that de Tocqueville devoted one of his two major works (The Old Regime and the Revolution -- of course you all remember the other, Democracy in America) to the contrast between the two.

One of Tocqueville's points stands out for me.  He argued that one of the factors that made the American Revolution vastly more benign was the strong proclivity on the part of the American founding fathers to focus on The Rule of Law, while the French revolutionists focused, instead, on The General Will of the People.  Those of you who have read some political theory may, as do I, recall the very moment that you read Rousseau and his glowing account of the Noble Savage corrupted by civilization and became a convert to the Liberal cause.  I remember the fall of 1971 and my 18 year old self convulsed in desperate and even tearful relief that I could safely reject the brutish view of mankind presented by Hobbes, and believe -- in good company -- that good and gentle humans could rule themselves intelligently, gracefully, and peaceably.

I am no longer so enamored with mankind or Rousseau, nor so rejecting of Hobbes, but that is not surprising, as I am now old.  In any case, that is another matter.

To the point: in Ferguson we have true and erudite Conservatives (I am not talking about run-of-the-mill Republicans, nor about racists who care little about Michael Brown and his family and community or worse, wish them ill) worrying aloud about the the apparent desire to try Officer Wilson in The Court of Public Opinion. They think, and I think rightly, that The Will of the People, being a Leftist impulse, shades just a bit too easily into mob rule, and they wish to hold back against that tide and let The Rule of Law have its say.

On the Left we have those who believe -- and I also think rightly -- that we have systematized racism from the outset of this country, merely formalizing it, hypocritically, in the Constitution; that the wisdom of crowds, and not mob rule, is manifest in the street protests we see in Ferguson, and that unless they speak truth to power, the blue line will envelop and protect pathological, racist killers who hide behind a badge.  In the end, trying Darren Wilson in the Court of Public Opinion is thus more, not less, just than would be allowing a corrupt and unjust legal and police system takes its normal course of action.  But is this so?

The Center Left, what is called the Liberal class in the USA, is so often insufferably accommodating and lacking in backbone, but in this matter I think they are not only pragmatically, but even principally, correct.  The American Liberal is enamored of the American and not the French Revolution; gratified that we found a way to replace Monarchy with Republicanism without regicide, separate Church and State without the confiscation of Church lands and lives (as was the case in Revolutionary France); and avoided enduring class and sectarian warfare that led to wave after wave of victims at the guillotine.  In the case of Michael Brown, Darren Wilson, and Ferguson, the American Liberal says that the Will of the People is indeed dangerously close to mob rule, but the Rule of Law, so proudly waved about by Conservatives, is so poorly applied to black Americans that it is a farce.  That is, the American Liberal, as I understand him, says that the Just and Universal Application of Just Law should take precedence over both the Conservative’s smug and deceitful view that the Rule of Law in America (the Ghosts of John Locke and Hobbes) is justly applied to people of color but also take precedence over the Leftist’s naïve view that the General Will of the People (and the Ghost of Rousseau) will find justice in the street.

Of course, as a man on the Left, I am immensely sympathetic to the view that blacks in America should not have to wait another minute for the promise of America to be redeemed, for the writing and enforcement of just laws to be justly and universally applied.  But on this occasion, I do think the Centrists who understand that the Leftist confidence in revolution is no more satisfying (nor safe) than the Conservative’s willingness to let a systematically racist society ponderously move toward justice without a kick in the pants.

Darren Wilson must be tried in a Court of Law, as must all men who kill, even behind the protection of a badge.  Our police, attorneys general, and judiciary must cleanse themselves of racist sin – as fast as possible.  But Wilson and others like him must be given due process under the Law, or we risk losing everything.   Many have lost patience with the American experiment – and who can blame them?  Many wish to storm the American Bastille. But many millions of lives were lost and generations were ruined because the French took that path two hundred years ago, and the Soviet and Mao experiments were not gentle, either.

Can we do better?  Is the Center correct this time?

_____

*http://www.mediaite.com/online/poll-62-of-white-st-louisans-think-michael-brown-shooting-was-justified/

Can we find our way back or is the moral compass lost?

Finkelstein's work at Tuck examining the failure of CEOs is very clear that an open culture that allows honest discussion of problems is both essential and uncommon. It is usually lacking in an organization that fails. A couple of arenas in which Finkelstein is not expert are social psychology and ethics, but there is research in the intersection of these two fields that has an important bearing on this matter. I'd like to draw on this research to make a few points here.

The intersection of social psychology and ethics seeks to ask how it is and under what circumstances social structures (such as business, political, academic, and military organizations) induce individuals to act against their consciences. That is, when are people most inclined to fail to do what they believe to be the right thing to do or fail to tell the truth? There are alarming conclusions to this research -- going back more than half a century.

Some of you know about the Milgrom and Zimbardo studies, I hope. Milgrom's were the Yale studies in which research subjects were induced to painfully shock* others under the guise of a scientific research experiment. A shocking proportion of people, despite showing great discomfort, induced pain, suffering, and even unconsciousness in others, merely because a man in a white lab coat stood by and said it was okay. A few complained, fewer still abandoned the project before the end -- refusing to go on. NONE sought to stop the scientist from continuing to hurt the victim; NONE sought to rescue the victim directlly or indirectly. NONE morally reproached the scientist.

Zimbardo ran the famous prison experiments at Stanford in which perfectly ordinary, randomly selected students, quickly became monstrous when merely assigned the role of corrections officer in a fake prison in the basement of the building. The students assigned the prisoner roles were abused badly within a matter of days. Even the lead scientist, Zimbardo himself, got so caught up in his role as Warden that he became abusive and out of control. (He describes the whole descent into hell -- which is really everyday organizational life in significant ways -- in his large volume The Lucifer Effect.)

Hundreds, perhaps thousands, of subsequent studies have corroborated and refined these results. Consistently, people placed in Milgrom/Zimbardo-like situations FAIL to do the right thing. They fail to confront an abusive, dishonest authority. They fail to make any attempt to rescue the victim. They fail to morally reproach the man in charge.

However, there are other wrinkles. For example, if the victim is dehumanized (no name, no visible face, identified by a number, or as an "other" in a discriminatory culture) they are treated even worse. Sometimes worse than the scientist even asks of the subject.

On the other hand, if the scientist is not present -- but calls or emails his instructions to the subject -- the subject is much more likely to stop the abuse before the scientist tells him or her to do so. The subject is much more likely to call it quits if the scientist is not there, in person. When I say much more likely, I am not being casual -- compliance in torture drops from 90%+ to 30% in some studies.

Of course, all of this has great bearing on and has been applied to the Holocaust, Abu Ghraib, and other circumstances of great shame and evil. But one significant lesson, drawn out by Ravven, an ethicist, is relevant to organizational life. And that is the point about moral reproach.

Ravven shows that moral reproach is unidirectional, in almost all societies. That is, the parent reproaches the child, not the other way around; the colonel reproaches the enlisted man, and not the other way around. And to my point, the boss reproaches the subordinate, and not the other way around. In fact, Ravven shows, moral reproach from subject to scientist is non-existent because moral reproach from subordinate to superior is so severely circumscribed in most societies.

But of course this is not just an Achilles heel that can lead to the Holocaust of Jews in Europe, Armenians in Turkey, the slaughter of ethnic Tutsis and moderate Hutus in Rwanda, or the torture of Islamic fundamentalists in the Guantanamo Camp or extradited to black sites by the CIA. (I feel a drone headed my way now.) It is also a major problem for most organizations. After all, when things are going wrong with the plan from above, it is the middle or front line manager, or even the guy on the shop floor who sees the flaws first. When sales are not hitting targets, the salesmen are feeling it first. When the bank is lending illegally or unethically with false documents, or when it is foreclosing illegally and immorally with insufficient process and protection of consumer rights, it is the originator or other bank underling who sees the problem before the CEO.

It is in fact the CEO who can best be counted on to see and promote the financial well being of the organization and the rank and file who can best observe deviations in behavior from ethical norms. It is true that there are times when only senior leadership knows that the chemical formulation is far more toxic than they are letting on, but most ethical deviations are at the interface of the organization with the environment. It is my contention that if deviations from explicit and implicit moral values cannot be reported up the hierarchy, the organization is much more likely to do harm. And, of course, such upward reporting -- whistle blowing, in general -- is neither the social norm nor formal organizational policy in 99% of the places we work.

In fact, it has also been shown, so-called corporate "ethics" policies, including training programs, have been studied and it has been revealed that they NEVER treat actual ethical breaches of the company broadly or those of their senior leadership. In fact, ALL corporate ethics programs studied have diverted attention from the actual ethical issues of the company (are we profiting by deviating from moral principles) to CONTROL OF THE BEHAVIOR OF THEIR EMPLOYEES. Civility training with respect to customers and employees might prevent a lousy boss from yelling at a subordinate now and then, but by and large it controls the behavior of subordinates to advance the interests of the company's leadership. Further, a lot of effort in these programs goes into making sure the employee does not shirk (used company email or supplies for personal use, talked on the phone during the work day about their kid's softball game, etc.)

The bottom line is that AN ORGANIZATION THAT WANTS TO BE ETHICAL MUST FIGHT AGAINST SUBSTANTIAL SOCIAL FORCES AND BUSINESS PRACTICE TO ENCOURAGE AND PROTECT WHISTLE BLOWING. It must CREATE AN ATMOSPHERE IN WHICH MORAL REPROACH CAN BE SAFELY DIRECTED UP THE HIERARCHY.

As you can see upon reflection, this is much more demanding than the creation of an "open" culture that allows constructive criticism. Bank of America employees needed the power to do more than make suggestions about how to make BoA more profitable at the expense of innocent victims. They needed to be able to say THIS IS MY JOB AND THIS UNETHICAL BEHAVIOR THAT IS DESTROYING THE LIVES OF THOUSANDS OF FAMILIES MUST STOP NOW. And they need to be rewarded for saying it.

Not easy!

The NY AG was recently interviewed by Hayes on MSNBC and asked how the likes of Bank of America could ever be reigned in. They are prosecuted, the lose, they are enjoined by law to behave better, and they keep on breaking the law. They pay their penalties and they consider them a cost of doing business.

Well, I have a few suggestions.

One, we need to adopt the concept of treble damages here. In antitrust cases, if you are charged and convicted in a civil proceeding with a violation of the law you are liable for TREBLE damages. We need that here. When a homeowner has lost his home through malfeasance, he is now often awarded $300! He should be receiving THREE TIMES THE VALUE OF HIS DAMAGES. Watch how fast that rule would change BoA.

Two, we need prison terms for senior executives of big banks, Wall Street firms, and manufacturing concerns that are doing us harm. Under federal statutes, it is per se illegal to fix prices. Per se illegal, so no defense. And executives can go (and have gone) to jail for it. We need to extend both per se illegality and prison sentences into much of corporate criminality. (It is currently too hard to prosecute.)

Three, we need federal protections for whistle blowing of all kinds. We need to make whistle blowers heroes. Many of you are in the minority who honor those who take grave personal risks to tell the truth and let us know what is really going on. But most people are socialized to believe that rule breakers are to be punished and condemned (if they have even gotten to stage 4 in Kohlberg's moral development). OUR ONLY CHANCE TO BECOME AN ETHICAL SOCIETY IS TO FORMALIZE THE CELEBRATION OF WHISTLE BLOWING AND TRUTH TELLING.

Moral reproach up the organizational hierarchy must be carefully nurtured, supported, encouraged and rewarded. Or all is lost.

___

*The "victims" were actors, what scientists call "confederates," so they did not actually suffer. But the subjects did not know this.