J. Bradford DeLong's Blog, page 1145

Weekend Reading: Paul Krugman: Review of Jeff Madrick, 'Seven Bad Ideas'

Paul Krugman: 'Seven Bad Ideas,' by Jeff Madrick: "The economics profession has not, to say the least...

...covered itself in glory these past six years. Hardly any economists predicted the 2008 crisis — and the handful who did tended to be people who also predicted crises that didn’t happen. More significant, many and arguably most economists were claiming, right up to the moment of collapse, that nothing like this could even happen.

Furthermore, once crisis struck economists seemed unable to agree on a response. They’d had 75 years since the Great Depression to figure out what to do if something similar happened again, but the profession was utterly divided when the moment of truth arrived.

In “Seven Bad Ideas: How Mainstream Economists Have Damaged America and the World,” Jeff Madrick — a contributing editor at Harper’s Magazine and a frequent writer on matters economic — argues that the professional failures since 2008 didn’t come out of the blue but were rooted in decades of intellectual malfeasance.

As a practicing and, I’d claim, mainstream economist myself, I’m tempted to quibble. How “mainstream,” really, are the bad ideas he attacks? How much of the problem is bad economic ideas per se as opposed to economists who have proved all too ready to drop their own models — in effect, reject their own ideas — when their models conflict with their political leanings? And was it the ideas of economists or the prejudices of politicians that led to so much bad policy?

I’ll return to those quibbles later, but Madrick’s basic theme is surely right. His bad ideas are definitely out there, have been expressed by plenty of economists, and have indeed done a lot of harm.

So what are the seven bad ideas? Actually, they aren’t all that distinct. In particular, bad idea No. 1 — the Invisible Hand — is pretty hard to distinguish from bad idea No. 3, Milton Friedman’s case against government intervention, and segues fairly seamlessly into bad idea No. 7, globalization as something that is always good. As an aside, this sometimes makes Madrick’s argument more disjointed than I’d like, with key propositions spread across nonconsecutive chapters. But there is an important point here, and Madrick has clarified my own thinking on the subject.

Adam Smith used the phrase “invisible hand” only once in “The Wealth of Nations,” and he probably didn’t mean to say what most people now think he said. But never mind: Today the phrase is almost always used to mean the proposition that market economies can be trusted to get everything, or almost everything, right without more than marginal government intervention.

Is this belief well grounded in theory and evidence? No. As Madrick makes clear, many economists have, consciously or unconsciously, engaged in a game of bait and switch.

On one side, we have elegant mathematical models showing that under certain conditions an unregulated free-­market economy will produce an efficient “general equilibrium,” in the sense that nobody could be made better off without making anyone worse off. Yet as Madrick says, these assumed conditions — including the assumption that people “are rational decision makers, and that they have all the price and product information they need” — are manifestly not met in practice. What, then, do the elegant models tell us about the real world?

Well, in a different chapter Madrick recalls Milton Friedman’s dictum that economic models should be judged not by the realism of their assumptions but by the accuracy of their predictions. This lets general equilibrium off the hook, sort of. But has the proposition that free markets get it right ever been vetted for predictive accuracy? Of course not. Friedman’s own polemics on behalf of free markets consist mainly of “assertions based on how free markets may work according to the Invisible Hand,” Madrick writes, with hardly any evidence presented that they actually work that way.

In other words, economists arguing for free markets and limited government try to have it both ways: They claim that their doctrine is a deep insight derived from first principles, but dismiss as irrelevant the overwhelming evidence that these assumed principles don’t hold in practice.

Matters are even worse when it comes to the performance of financial markets. Here the proposition that markets should get it right — that major speculative bubbles can’t happen (bad idea No. 5) — doesn’t just depend on conditions that clearly don’t hold in practice, but is directly contradicted by evidence on herd behavior and excess volatility. Yet “efficient markets theory” has maintained its academic dominance. Eugene Fama of the University of Chicago, the father of efficient markets, still denies that financial bubbles even exist — and last year he shared a Nobel in economic science.

Still, all of these failings of mainstream economics were obvious long before the 2008 crisis. What has really come as news is the seeming inability of economists to agree on a policy response to mass unemployment. And here is where my quibbles with Madrick get louder.

No. 2 on Madrick’s bad idea list is Say’s Law, which states that savings are automatically invested, so that there cannot be an overall shortfall in demand. A further implication of Say’s Law is that government stimulus can never do any good, because deficit spending by the public sector will always crowd out an equal amount of private spending.

But is this “mainstream economics”? Madrick cites two University of Chicago professors, Casey Mulligan and John Cochrane, who did indeed echo Say’s Law when arguing against the Obama stimulus. But these economists were outliers within the profession. Chicago’s own business school regularly polls a representative sample of influential economists for their views on policy issues; when it asked whether the Obama stimulus had reduced the unemployment rate, 92 percent of the respondents said that it had. Madrick is able to claim that Say’s Law is pervasive in mainstream economics only by lumping it together with a number of other concepts that, correct or not, are actually quite different.

Now, it’s true that the relative handful of economists claiming that stimulus can’t possibly work, or that slashing government spending is actually expansionary, have a much higher profile than their numbers or their influence within the profession warrants. Why? Partly, the answer is that the news media — especially but not only partisan media like The Wall Street Journal’s editorial page — have promoted the views of economists they like for political reasons. Partly, also, it’s because politicians listen to economists who tell them what they want to hear. I’m not saying that mainstream economists bear none of the blame; the decades-long retreat from Keynes has undoubtedly allowed old fallacies to make a comeback. But austerity mania has to a large extent spread despite mainstream economics, not because of it.

I’d make a further observation here: Academic economists have much less influence in Europe than they do in America. Yet the policy response to the crisis, while poor on this side of the Atlantic, has been much worse on the other. Politicians don’t need bad advice from economists in order to go off the rails.

Such quibbles aside, “Seven Bad Ideas” tells us an important and broadly accurate story about what went wrong. Economists presented as reality an idealized vision of free markets, dressed up in fancy math that gave it a false appearance of rigor. As a result, the world was unprepared when markets went bad. Economic ideas, declared John Maynard Keynes, are “dangerous for good or evil.” And in recent years, sad to say, evil has had the upper hand.

SEVEN BAD IDEAS: How Mainstream Economists Have Damaged America and the World. By Jeff Madrick. 254 pp. Alfred A. Knopf. $26.95.

For the Weekend: In the Mourning/Landslide

Afternoon Must-Read: Nick Bunker: Labor Market Slack

About half of the decline in labor force participation since 2007 is due to well-identified demographic trends plus extrapolated age and gender specific trends. About one-sixth of the decrease comes from the well-established fact that when the unemployment rate is elevated labor force participation declines. But how much comes from the fact that the downturn and jobless recovery were not only deep but long? We do not know, because we have never seen anything nearly as deep and long before. The cyclicalists say that there is a strong presumption that a deep and long employment downturn casts a strong shadow on participation, and are agnostic about whether and how rapidly participation would pick up in a high-pressure economy. The structuralists say that the decline would not be reversed in a high-pressure economy, but do not claim to have any insight into why the excess decline in participation occurred.

Nick Bunker: Labor Market Slack: "There are two major reasons behind the decline in participation...

...the Great Recession... the aging of the Baby Boomer generation.... Obama’s Council of Economic Advisers... found that aging accounts for about half of the decrease since the last quarter of 2007... one-sixth of the decline... from [normal] cyclical factors... one-third of the decline comes from 'other factors'.... Janet Yellen is keening aware of the lack of stark divide between cyclical and structural labor market factors.... Policymakers, while not sailing blind, are still in a considerable amount of fog.

Afternoon Must-Read: Sahil Kapur: The Halbig Truthers

It is very interesting: to overturn Chevron vs. NRDC would instantly require the substantial rewriting of every single administrative law textbook in the United States, and reopen a substantial proportion of administrative law cases adjudicated since 1984, plus all administrative determinations made under the shadow of the Chevron Doctrine. Five justices could do a Bush v. Gore--claim that this decision is sui generis and not a precedent for anything. But that is embarrassing enough that it is hard to imagine that Roberts, Scalia, Alito, Thomas, and Kennedy would do that for anything less than the presidency. But it is also hard to believe that Roberts, Scalia, Alito, Thomas, and Kennedy would make a hash of administrative law doctrine. And it is equally hard to believe that any of the Five Horsemen would want to alienate their patrons in the Republican Party further.

The only way out, I think, is for the Five Horsemen to take refuge in delay and demand that the plaintiffs bring them a split among the circuits before they take the case. But the very smart Robert Litan has long thought that Halbig has legs, and wrote something at http://bloomberg.gov a while ago predicting it would go 5-4 at the Supreme Court--and that the health exchanges in the red states would then go into adverse-selection meltdown...

Sahil Kapur: Why This Conservative Lawyer Thinks He Can Still Cripple Obamacare: "The top lawyer arguing a case to overturn Obamacare subsidies...

...believes he can succeed at crippling the law even if it's upheld in every district and appellate court.... Michael Carvin... expects the justices to view an expected D.C. Circuit ruling in favor of the law as corrupted by politics and agree to review it. 'I don't know that four justices, who are needed to [take the case] here, are going to give much of a damn about what a bunch of Obama appointees on the D.C. Circuit think.... This is a hugely important case.... I'm not going to lose any Republican-appointed judges' votes on the en banc — then I think the calculus would be, well let's take it now and get it resolved.' And if the case reaches the Supreme Court, Carvin expects all five Republican-appointed justices to rule that the federal exchange subsidies are invalid. Asked if he believes he'd lose the votes of any of the five conservative justices, he smiled and said, 'Oh, I don't think so'."

Noted for Your Lunchtime Procrastination for September 26, 2014

Over at Equitable Growth--The Equitablog

Nick Bunker: Labor market slack attack - Washington Center for Equitable Growth
Robert Lynch: U.S. Census highlights rising economic inequality - Washington Center for Equitable Growth
What Should Monetary Policy Be?: Thursday Focus for September 25, 2014 - Washington Center for Equitable Growth
Morning Must-Read: Charles Evans: Patience Is a Virtue When Normalizing Monetary Policy - Washington Center for Equitable Growth
Morning Must-Read: Michael Lewis: Occupational Hazards of Working on Wall Street - Washington Center for Equitable Growth
Morning Must Read: David Weigel: The CBOghazi of Chris Cilizza (and Others): Journalists have no idea "what will matter" in an election. - Washington Center for Equitable Growth
Morning Must-Read: Peter Theil: Robots Are Our Saviours, Not the Enemy - Washington Center for Equitable Growth
Morning Must-Read: David Card and Laura Giuliano: Gifted Education - Washington Center for Equitable Growth

Plus:

Things to Read at Lunchtime on September 26, 2014 - Washington Center for Equitable Growth

Must- and Shall-Reads:

Rhys R. Mendes: The Neutral Rate of Interest in Canada
Bull Market
Zeynep Tufecki: "Hah. Slate's higher-ed columnist says of course she exaggrates, skips on research, simplifies to bring on vitriol" https://t.co/PARzQ6mmEp
Philippe Legrain: Germany’s Economic Mirage
George Magnus: Xi Jinping’s Pure Party
Joseph E. Stiglitz: Europe’s Austerity Zombies
Laura Tyson: Paying for Productivity

And Over Here:

Weekend Reading: Michael Berube (1996): Review of Dinesh D'Souza, "The End of Racism", with Bonus Dixie D'Souza Commentary! (Brad DeLong's Grasping Reality...)
Liveblogging World War II: September 26, 1944: Polish Home Army Trapped in the Warsaw Sewers (Brad DeLong's Grasping Reality...)
Feds Crack Down on Two KC-Based Predatory Lenders: Live from the Roasterie (Brad DeLong's Grasping Reality...)
Over at Equitable Growth: What Should Monetary Policy Be?: Thursday Focus for September 25, 2014 (Brad DeLong's Grasping Reality...)
Liveblogging World War II: September 25, 1944: Arnhem: The End (Brad DeLong's Grasping Reality...)

Someday I Am Going to Have to Figure Out What Happens to People When They Start Writing for the Washington Post... (Brad DeLong's Grasping Reality...)
Department of "WTF?!" (Brad DeLong's Grasping Reality...)

David Card and Laura Giuliano: Study by UC Berkeley professor, colleague questions effects of gifted education: "Students with high standardized test scores but relatively lower IQs than their “gifted” counterparts experience the most improvement in their test scores--particularly those from disadvantaged backgrounds who are commonly excluded from gifted and talented programs.... David Card and... Laura Giuliano... one of the only two studies evaluating the effects of gifted education. “Unfortunately, there’s not enough scientific knowledge on how any of these programs work,” Card said... a large, urban district in Florida. Students within the district are admitted to gifted programs, determined by a high IQ score. To fill out empty seats in the gifted class, the district would admit students who scored at the top of their third-grade class in standardized tests. Researchers found that these students improved more in their standardized test scores as a result of enrolling in the gifted class..."

Peter Theil: Robots Are Our Saviours, Not the Enemy: "Americans today dream less often of feats that computers will help us to accomplish...[and] more and more we have nightmares about computers taking away our jobs.... Fear of replacement is not new.... But... unlike fellow humans of different nationalities, computers are not substitutes for American labour. Men and machines are good at different things. People form plans and make decisions.... Computers... excel at efficient data processing but struggle to make basic judgments that would be simple for any human.... [At] PayPal... we were losing upwards of $10m a month to credit card fraud.... We tried to solve the problem by writing software.... But... after an hour or two, the thieves would catch on and change their tactics to fool our algorithms. Human analysts, however, were not easily fooled.... So we rewrote the software... the computer would flag the most suspicious trans­actions, and human operators would make the final judgment. This kind of man-machine symbiosis enabled PayPal to stay in business.... Computers do not eat.... The alternative to working with computers... is [a world] in which wages decline and prices rise as the whole world competes both to work and to spend. We are our own greatest enemies. Our most important allies are the machines that enable us to do new things..."

Charles Evans: Patience Is a Virtue When Normalizing Monetary Policy: "At the end of the second quarter of 2014, the labor force participation rate was between 1/2 and 1-1/4 percentage points below trend... as much as 3/4 of a percentage point below predictions based on its historical relationship with the unemployment rate.... Virtually all the gap during this cycle has been due to withdrawal from the labor market of workers without a college degree.... If skills mismatch were an ongoing problem, we’d expect to see wages rising for those with the skills in demand.... Pools of potential workers other than the short-term unemployed, notably the medium-term unemployed and the involuntary part-time work force, substantially influence wage growth at the state or metropolitan statistical area level.... Current circumstances and a weighing of alternative risks mean that a balanced policy approach calls for being patient in reducing accommodation.... The biggest risk we face today is prematurely engineering restrictive monetary conditions.... If we were to... reduce monetary accommodation too soon, we could find ourselves in the very uncomfortable position of falling back into the ZLB environment.... There are great risks to premature liftoff.... And the costs of being mired in the zero lower bound are simply very large..."

Michael Lewis: Occupational Hazards of Working on Wall Street: "Technology entrepreneurship will never have the power to displace big Wall Street banks in the central nervous system of America’s youth, in part because tech entrepreneurship requires the practitioner to have an original idea, or at least to know something about computers, but also because entrepreneurship doesn’t offer the sort of people who wind up at elite universities what a lot of them obviously crave: status certainty.... The question I’ve always had about this army of young people with seemingly endless career options who wind up in finance is: What happens next to them? People like to think they have a 'character', and that this character of theirs will endure.... It’s not really so.... The best a person can do... is to choose carefully the environment that will go to work on their characters. One moment this herd of graduates of the nation’s best universities are young people.... The next they are essentially old people... gaming ratings companies... designing securities to fail... [to] make a killing off the... dupe[s]... rigging various markets at the expense of... society... encouraging... people to do stuff with their capital... they never should do.... All occupations have hazards. An occupational hazard of the Internet columnist... is that he becomes the sort of person who says whatever he thinks will get him the most attention rather than what he thinks is true, so often that he forgets the difference. The occupational hazards of Wall Street are... the pressure to pretend to know more than he does... hard to form deep attachments to anything much greater than himself... enormous pressure to not challenge or question existing arrangements.... So watch yourself, because no one else will."

Rhys R. Mendes: The Neutral Rate of Interest in Canada: "A measure of the neutral policy interest rate can be used to gauge the stance of monetary policy. We define the neutral rate as the real policy rate consistent with output at its potential level and inflation equal to target after the effects of all cyclical shocks have dissipated. This is a medium- to longer-run concept of the neutral rate. Under this definition, the neutral rate in Canada is determined by the longer-run forces that influence savings and investment in both the Canadian and global economies. Structural forces have likely reduced the neutral rate by more than a percentage point since the mid-2000s. The Bank’s estimates of the real neutral policy rate currently stand in the 1 to 2 per cent range, or 3 to 4 per cent in nominal terms. The current gap between the policy rate and the neutral rate reflects policy stimulus in response to significant excess supply and in the face of continuing headwinds. As long as these headwinds persist, a policy rate below neutral will be required to maintain inflation sustainably at target."

Should Be Aware of:

Austin Frakt: Do falsification tests. (Day of week as an instrument for length of stay

 

Jim Sleeper: For Yale in Singapore, It's Deja-vu All Over Again: "Once again, the liberal-arts college in Singapore to which Yale has given its name, prestige, energy, and talent finds itself dancing awkwardly with the government over a right that liberal education depends on and should foster: the right to show Pan Tin Tin's documentary film, "To Singapore With Love," which criticizes Singapore's way of turning political and artistic citizens into exiles."

Melissa Bell: Vox’s New Homepage, Explained: "Vox.com has a fancy new homepage.... We've built a homepage that's designed to link together the stories we've done over time. If the slots look unusually tall to you, that's because they are: they're designed not for one headline, but for many headlines. That way, if something happens in, say, Ukraine, we're able to offer both our newest story on the topic, but also the stories leading up to today. I'll be honest: I have no idea if this is going to work. It'll require a different type of curation and we need to build a robust taxonomy behind the scenes. And even if we get that right, there's no guarantee that readers will want to consume our stories this way. But if it doesn't work, we'll change it..."

Ilya Shapiro: Eric Holder: Worst Attorney General Ever :: Cato @ Liberty: "With Eric Holder’s departure, the nation can begin to heal. His was the most divisive tenure of any attorney general I can recall, tearing the country apart on racial and partisan lines. From politicizing Justice Department hiring beyond the wildest accusations against the Bush administration, to running a bizarre guns-to-gangs operation that even Alberto Gonzales couldn’t have concocted, to advocating a racial spoils system at all levels of government, Holder has tarnished the nation’s highest law enforcement office more even than Nixon’s AG John Mitchell. Indeed, the main difference between Holder and Mitchell is that Holder hasn’t gone to jail (yet; the DOJ Inspector General better lock down computer systems lest Holder’s electronic files “disappear”). Of course, Holder has been cited for contempt by the House and referred to a federal prosecutor for his involvement in Fast & Furious – which referral went nowhere due to invocations of executive privilege (sound familiar?). And who knows what role he may have played in the IRS’s targeting of the administration’s political enemies (and even those who merely educate about the Constitution)? Just as bad Holder’s legal violations and contempt for the separation of powers, however, is his racialist view of the world. Like a modern-day George Wallace, Holder has called for racial preference now, racial preferences tomorrow, racial preferences forever. According to our outgoing attorney general, and the 14th Amendment, Civil Rights Act, and Voting Rights Act only protect some citizens (members of the right kinds of racial minority groups) – and should be used to extract political and financial concessions for them. Still, it must be said that Holder was a “uniter not a divider” on one front: under his reign, the Justice Department has suffered a record number of unanimous losses at the Supreme Court. In the last three terms alone, the government has suffered 13 such defeats – a rate double President Clinton’s and triple President Bush’s – in areas of law ranging from criminal procedure to property rights to securities regulation to religious freedom. By not just pushing but breaking through the envelope of plausible legal argument, Attorney General Holder has done his all to expand federal (especially executive) power and contract individual liberty beyond any constitutional recognition. Eric Holder will not be missed by those who support the rule of law."

Morning Must-Read: David Card and Laura Giuliano: Effects of Gifted Education

David Card and Laura Giuliano: Study by UC Berkeley professor, colleague questions effects of gifted education: "Students with high standardized test scores...

...but relatively lower IQs than their “gifted” counterparts experience the most improvement in their test scores--particularly those from disadvantaged backgrounds who are commonly excluded from gifted and talented programs.... David Card and... Laura Giuliano... one of the only two studies evaluating the effects of gifted education. “Unfortunately, there’s not enough scientific knowledge on how any of these programs work,” Card said... a large, urban district in Florida. Students within the district are admitted to gifted programs, determined by a high IQ score. To fill out empty seats in the gifted class, the district would admit students who scored at the top of their third-grade class in standardized tests. Researchers found that these students improved more in their standardized test scores as a result of enrolling in the gifted class...

Weekend Reading: Michael Berube (1996): Review of Dinesh D'Souza, "The End of Racism", with Bonus Dixie D'Souza Commentary!

Weekend Reading: Michael Berube (1996): Review of Dinesh D'Souza, "The End of Racism", Transition http://www.jstor.org/stable/2935241?

Strolling through the Detroit International Airport on my way to my parents' home in Virginia Beach, I came upon a newsstand-bookstore that was devoting eight or ten shelves of space-roughly one-quarter, I believe, of its "new bestsellers" wall-to Dinesh D'Souza's The End of Racism. I had heard a great deal about the book before it was published, and had just recently been asked (twice, actually) by the Chicago Tribune to re- view the thing. I declined, partly on the grounds that I've already read more D'Souza than any human should, having perused both Illiberal Education (1991) and his rarely mentioned first (and best) effort, Falwell: Before the Millennium (1984). That's the book where D'Souza writes:

listening to Falwell speak, one gets a sense that something is right about America, after all.

So why would I want to read the new seven-hundred-page D'Souza, the magnum opus, the D'Souza Ulysses? Do I really have any obligation to keep plowing through the bookshelves of the Right, demonstrating again and again that there's no there there?

Within hours I was in my parents' living room, asking my father whether he thought a Tribune review from me would make any dent in the media campaign bringing bulk shipments of The End of Racism to airport bookstores, or whether I wouldn't just be giving the book greater visibility and credibility simply by agreeing to treat it as a serious object of some kind. "Well,Michael," my father replied, "you may not have to worry. From what I hear, the book isn't doing very well, in reviews or in sales. "When I asked where my father had heard such a thing, he turned to me and asked,with a straight face, if I hadn't seen the new "desperation" ads the Free Press was running for the book. "Two for one deal," he said. "Buy The End of Racism at the already low, low bargain price, and receive The Mark Fuhrman Tapes for free."

Of course, it's manifestly unfair to compare D'Souza and Fuhrman. To my knowledge, D'Souza has never personally beaten or framed a black person, nor has he suggested creating a large bonfire of black bodies. In The End of Racism, he merely proproposes a theory of "rational discrimination" based on the recognition that there are vast "civilizational differences" between black and white Americans. At the close of his first chapter, D'Souza offers a brief catechism on the subject: the main problem for blacks is not racism,but "liberal antiracism";t he civil rights movement failed because "equal rights for blacks could not and did not produce equality of results"; and, consequently, the cause of "rational discrimination" is "black cultural pathology." D'Souza's middle chapter ("Is America a Racist Society?") expands on the premises of rational discrimination, which may be unfair to individuals but valid about groups-as-wholes:

Only because group traits have an empirical basis in shared experience can we invoke them without fear of contradiction. Think of how people would react if someone said that "Koreans are lazy" or that "Hispanics are constantly trying to find ways to make money." Despite the prevalence of anti-Semitism, Jews are rarely accused of stupidity. Blacks are never accused of being tight with a dollar, or of conspiring to take over the world. By reversing stereotypes we can see how their persistence relies, not simply on the assumptions of the viewer, but also on the characteristics of the group being described.

This, perhaps, is right-wing sociology's finest moment :reversal of stereotypes. Why didn't we think of that? OK, now let's get this straight. Koreans are not lazy, His- panics do not try to make money, Blacks are spendthrifts, and... hey! wait a minute! those clever Jews really are trying to take over the world! Get me Pat Robertson!

Many of my black friends were understandably alarmed to hear that D'Souza's book endorses the practice of "rational discrimination." One told me that she'd read only so much of the book-up to the point at which, on page 169, D'Souza notes that the civil rights movement failed because it did not consider its political consequences, namely,that "racism might be fortified if blacks were unable to exercise their rights effectively and responsibly." After that, she decided the book might as well be called The Negro A Beast, after Charles Carroll's best-seller of 1900. Such a title, I replied, would almost surely keep the book out of major airport bookstores, and so was probably rejected by the Free Press's marketing department. But then again, I added, there's no reason to think of D'Souza as antiblack; on the contrary,the theory of "rational discrimination" may prove even more dangerous to white Americans than to any other group. It doesn't take a Malcolm or an Ishmael Reed to figure this one out: White people blow up federal buildings. White people pillage savings and loans. White people built Love Canal. White people commit horrid, unthinkable murders of helpless children and pregnant women, and then they blame them on black men. All the great serial killers of the West are white people. Now, don't get me wrong. I'm not saying that all white people are crazy or greedy or dishonest. Some of my closest friends are white. But would you want your daughter to marry one?

I presume that many of my readers are familiar with some of D'Souza's more extraordinary arguments in The End of Racism. Still, it may be worth pausing
briefly over some of the highlights. For I believe this book, together with The Bell Curve, is an instance of a wholly new genre of encyclopedic pseudoscience, and it is fundamental to the workings of this genre that the books in question be too bloated and overstuffed for the ordinary reader to fathom. In this new genre, measured commentary, reportage, and scholarship are blended with ultraconservative and even fascist policy recommendations, regardless of the logical relation between the scholarship and the recommendations. (D'Souza's book differs from Herrnstein's and Murray's in that it also includes extended hallucinations masquerading as "historical overview."More on this below.) The authors of these books then appear,calm and composed, on national media, saying they know their work is bound to cause controversy but should at least be granted an honest hearing. (See also,under this heading, David Brock's The Real Anita Hill.) Phase two of their mission accomplished, they then head back to base camp at Commentary magazine to write assessments of their reception, showing that despite their honesty and all-around reasonableness,they were sav- aged and brutalized by the knee-jerk liberal press. All of which demonstrates a fortiori the liberal stranglehold on political discourse in the United States; for as the ever-reliable Eugene Genovese memorably put it in a recent issue of the National Review, surveying the public response to The Bell Curve, "once again academia and the mass media are straining every muscle to suppress debate."

So much for the new genre and its characteristic media-saturation strategy. Now for some of the highlights of The End of Racism.

The popular conception seems to be that American slavery as an institution involved white slaveowners and black slaves. Consequently, it is easy to view slavery as a racist institution. But this image is complicated when we discover that most whites did not own slaves, even in the South; that not all blacks were slaves;that several thousand free blacks and American Indians owned black slaves. An examination of these frequently obscured aspects of American slavery calls into question the facile equation of racism and slavery.

The American slave was treated like property, which is to say, pretty well.

Most African American scholars simply refuse to acknowledge the pathology of violence in the black underclass, apparently convinced that black criminals as well as their targets are both victims: the real culprit is societal racism. Activists recommend federal jobs programs and recruitment into the private sector.Yet it seems unrealistic, bordering on the surreal,to imagine underclass blacks with their gold chains, limping walk, obscene language, and arsenal of weapons doing nine-to-five jobs at Procter and Gamble or the State Department.

Increasingly it appears that it is liberal antiracism that is based on ignorance and fear: ignorance of the true nature of racism, and fear that the racist point of view better explains the world than its liberal counterpart.

Almost as striking are D'Souza's incisive rhetorical questions:

If America as a nation owes blacks as a group reparations for slavery, what do blacks as a group owe America for the abolition of slavery?

How did [Martin Luther] King succeed, almost single-handedly, in winning support for his agenda? Why was his Southern opposition virtually silent in making counter- arguments?

Historically whites have used racism to serve powerful entrenched interests, but what interests does racism serve now? Most whites have no economic stake in the ghetto.

Yet these are merely the book's most noticeable features-the passages that make a reviewer suppose that the easiest way to slander D'Souza is to quote him directly. The End of Racism is not, however, the sum of its pull quotes. More important are its characteristic tics and tropes, which are harder to convey but crucial for an understanding of how his text operates. There is, for instance, the repeated insistence that behind every civil rights initiative looms the specter of cultural relativism,and that the father of cultural relativism is Franz Boas. The last time I encountered this argument-and I am not making this up-I was reading neo-Nazi pamphlets on the cultural inferiority of the darker peoples. D'Souza is unique, however, in finding the evil Boas everywhere he looks, from the founding of the NAACP to the unanimous majority in Brown v. Board of Education.

Indeed, the only figure who comes in for as much abuse as Boas is W.E. B. Du Bois, apparently because Du Bois was so simplistic as to blame white people for lynchings, Jim Crow, and the race riots of 1906 (Atlanta) and 1908 (Springfield). (Actually, to be fair to D'Souza, his book nowhere mentions those riots.) As D'Souza explains at some length, Du Bois was a cultural relativist. And once you've been tarred by D'Souza as a cultural relativist, there is no hope for you. Everything you say testifies only to your moral turpitude. Henry Louis Gates,Jr. suggests that it's racist to say to him,
"Skip, sing me one of those old Negro spirituals" or "You people sure can dance," and D'Souza replies:

Why are [these statements] viewed as racist? Because contemporary liberalism is constructed on the scaffolding of cultural relativism, which posits that all groups are inherently equal.

A century earlier, Du Bois had called for "anti-lynching legislation" and "enfranchisement of the Negro in the South"; D'Souza remarks that "this represented a program strongly influenced by Franz Boas and Boasian assumptions." Johnnetta Cole writes that the "problem" with single-parent households "is that they are deprived of decent food, shelter, medical care, and education," and D'Souza writes that "Johnnetta Cole finds nothing wrong with single-parent families"-and that, more broadly,"leading African American intellectuals abstain from criticizing and go so far as to revel in what they describe as another alternative lifestyle." Houston Baker writes a book claiming that 2 Live Crew was rightly banned in Broward County for obscenity, and sure enough, D'Souza cites him (and his book) as one of the Crew's leading defenders. How can this be? You guessed it-cultural relativism. "Instead of seeking to counter the cultural influence of rap,leading African American figures unabashedly condone and celebrate rap music as the embodiment of black authenticity."

In The End of Racism, we find that successful black people are especially whiny (unless they're conservatives); accordingly, they draw from D'Souza a scorn that is indistinguishable from hatred. In 1993, Senator Carol Moseley-Braun argued that the Senate should not recognize the Confederate flag as the official symbol of the United Daughters of the Confederacy; D'Souza calls her protest "histrionic"-and, because he knows who pays his bills, fails to mention that Jesse Helms made a project of taunting Moseley-Braun thereafter. In his penultimate chapter he takes up the narratives of middle-class blacks who deal with countless racist slurs and slights every day, and reacts with disbelief to their professions of resentment:

These are the observations of relatively well-placed men and women :an executive, a government worker, and a college professor. Since no reasons are given that would justify such reactions [i.e., D'Souza did not cite them], one might conclude that we are dealing with cases of people who live in a world of make-believe, in mental prisons of their own construction. For them, antiracist militancy is carried to the point of virtual mental instability. It is hard to imagine whites feeling secure working with such persons...

D'Souza's ability to empathize with beleaguered white persons is admirable, and no doubt if he continues to succor the hurt feelings of his powerful white colleagues who don't see why Skip gets so huffy when he's asked to sing "Roll, Jordan, Roll," his career as a prominent right-wing intellectual-and his fellowship from the American Enterprise Institute-is pretty much guaranteed. It was not long after the book was pub- lished, in fact, that the Wall Street Journal devoted half a page of op-ed space to an excerpt from D'Souza's concluding chapter-the part where he finally gets around to delivering his payload, his brief for the repeal of the 1964 Civil Rights Act.

D'Souza's rationale for repeal is clear: ever since the passage of the Fourteenth Amendment, he claims,the federal government has been "the primary threat to black prospects." In a truly free market, by contrast, racial discrimination would not exist, since "discrimination is only catastrophic when virtually everyone colludes to enforce it." D'Souza's case in point is major league baseball, about which he poses a truly novel thought-experiment: "Consider what would happen," he writes, "if every baseball team America refused to hire blacks." Lest we are unable to imagine such a thing, D'Souza guides us step by step:

Blacks would suffer most, because they would be deprived of the opportunity to play professional baseball. And fans would suffer, because the quality of games would be diminished. But what if only a few teams-say the New York Yankees and the Los Angeles Dodgers-refused to hire blacks? African Americans as a group would suffer hardly at all, because the best black players would offer their services to other teams. The Yankees and the Dodgers would suffer a great deal, because they would be deprived of the chance to hire talented black players. Eventually competitive pressure would force the Yankees and Dodgers either to hireblacks, or to suffer losses in games and revenue.

There's something disingenuous about D'Souza's plans for integration, since D'Souza had argued earlier, citing Joel Williamson, that Jim Crow laws were "designed to preserve and encourage" black self-esteem. But let's assume, for the nonce, that D'Souza is serious here, and let's assume also that franchises like the Celtics or the Red Sox of the I98os could not win games without a sizable contingent of black ballplayers. How precisely is this argument supposed to work in American society at large? Are we supposed to believe that bankers and realtors don't discriminate against black clients for fear that their rivals down the street will snap up all those hard-hitting, base-stealing young Negroes? Or is it that when black motorists are tired of being pulled over in California, they will simply take their business to the more hospitable clime of Arizona?

Few commentators have noted that Dinesh D'Souza is himself the most visible contradiction of the right's major premise in the culture wars-namely, that campus conservatives are persecuted by liberal faculty and intimidated into silence. For here, after all, is perhaps the most vocal Young Conservative of them all, a founder and editor-in-chief of the Dartmouth Review who's since gone on to Princeton University, the Reagan administration, and lucrative fellowships from the Olin Foundation and the American Enterprise Institute. He is, in short, a phenomenon. No matter how diligently his critics pore through his work, demonstrating time and again that the stuff doesn't meet a single known standard for intellectual probity, he is taken seriously.

Liberal heavyweight champ Richard Rorty is tapped to take his book apart in the New York Times Book Review; Harvard's Stephan Thernstrom weighs in with a trenchant critique in the Times Literary Supplement. On the other side of the aisle, both Genoveses stand up to testify to the book's importance, calling it "impressive" and "courageous." D'Souza is denounced and celebrated, defended and reviled. He appears in Forbes, the Atlantic, the American Scholar. Meanwhile, over on page A4 of the hometown paper there's a story about how the Philadelphia police have terrorized the city's black citizens for years; on page B10, an NFL star's brother, a young black businessman, has been stopped by highway police and beaten to death. No probable cause, no previous record. No one notices.

Not long ago Michael Lind wrote about what he called "the intellectual death of conservatism," recounting how he watched in amazement as Heritage Foundation founder Paul Weyrich suggested lacing illegal drugs with rat poison-and no one in the room demurred. The publication of The End of Racism seems to me a larger version of the same
phenomenon: not only a deliberate and at times terrifying attempt to move the center of political gravity as far right as possible, but also so egregious an affront to human decency as to set a new and sorry standard for "intellectual" debate. It is remarkable, I think, that this latest and most virulent brand of postwar American conservatism has so far produced only one prominent defector, only one conscientious objector-the afore-
mentioned Michael Lind. And it is similarly remarkable that D'Souza's book has one from provoked only resignation from the AEI--that of prominent black conservative Glenn Loury.

Still, however much one might lament the resolute ideological conformity on the right, it strikes me as a gesture of political impotence for commentators on the left to criticize The End of Racism for failing to meet any reasonable standard for sound scholarship, informational accuracy, or logical coherence. It's rather like complaining, after your arms have been removed from their sockets, that your opponent has failed to abide by Robert's Rules of Order. Does anyone seriously expect that Lynne Cheney, say, will tender her resignation to the American Enterprise Institute as well, on the grounds that D'Souza has flouted the intellectual standards of which she claims to be the defender? And what of Adam Bellow, son of Saul,who, according to D'Souza, "worked closely with me throughout the preparation of the manuscript"? Wasn't there anything he could have done to make The End of Racism a saner,a more respectable book? Or was he too busy searching the world over for the Tolstoy of the Zulus?

I think it is important that the American right is now so supremely self-con- fident, so assured of its control over the direction of public policy and political debate, that no one at the Free Press or the AEI worried whether The End of Racism might damage the credibility of conservatism. Such self-confidence is altogether impressive,even sublime. What does it betoken? The Wall Street Journal excerpt of the book should probably be our guide. It's significant that theJournal trumpeted only D'Souza's call to repeal the Civil Rights Act of 1964; apparently, the time is not yet right for the Journal to reprint neo-Nazi pamphlet material on the omnipresent cultural influence of Franz Boas. But outright repeal of the Civil Rights Act is still unthinkable in
American politics; the most the American right can do, for the moment, is to shoot holes in the Voting Rights Act of 1965, and torpedo those liberal intellectuals, like Lani Guinier, who actually take the legislation seriously. The "race issue" of 1996 wasn't supposed to be civil rights in toto; it was supposed to be the abolition of affirmative action, spearheaded by the so-called Civil Rights Initiative in California. Isn't D'Souza jumping the gun? Isn't the Civil Rights Act too ambitious a target?

But perhaps the jumping of the gun is precisely the point. D'Souza's not writing for 1996, or even for 2000; he's writing for generations yet to come. Like Bob Dornan's presidential candidacy, The End of Racism may be a short-term disaster but a long-term success in pushing the rightward edge of the envelope for what can be plausibly considered as a substantive contribution to public debate. It is a disgraceful book by any measure, but it may yet be a landmark-even though, like the Lyrical Ballads, Fauve painting, and, say, Mein Kampf, it be maligned and ill-understood upon its first appearance. And who knows? Maye the times they are a-changing, and soon it will be as common as rain to hear Dornanesque presidential candidates call their opponents "pot-smoking, triple- draft-dodging adulterers" and to see policy analysts guffawing about how ridiculous it would be to create jobs programs for gold-chained, limping black men. Once upon a time Barry Goldwater was considered an extremist-so much so that the presidential race of 1964 was the only election since 1852 in which a Democratic nominee other than FDR won more than 50 percent of the popular vote. Now, with his defense of gay military personnel and his dismissal of personal attacks on Clinton, Goldwater has almost become the custodian of the party's "liberal" wing. What if The End of Racism ,like Goldwater's nomination, is merely a shot across a bow? What if, by the year 2016, the American right has carried out Rush Limbaugh's jocular suggestion that a maximum of two liberals be kept alive on each college campus-and those few thousand of us who remain amidst the rubble are sighing nostalgically for the days when there were still liberal Republicans like Dan Quayle who were at least ambivalent about the prospects of sterilizing populations with measurable "civilizational differences" from whites?

Allow me my phantasmic scenarios. I now live in a nation where a mainstream, nationally syndicated columnist like George Will can defend Bob Dornan's candidacy on the grounds that it's exciting and will shake things up. I live in a nation where it is not considered "extreme" to eliminate capital gains taxes or to turn social programs over to the states so that Republican governors can undo the deleterious effects of the Fourteenth Amendment. I live in a nation where Dinesh D'Souza is considered a "courageous, insightful, and eloquent critic of the American social scene" (Linda Chavez) and a book like The End of Racism appears on airport-bookstore shelves festooned with no fewer than eight testimonial blurbs-including those of Chavez, Eugene Genovese, Charles Krauthammer, and a few token liberals like Andrew Hacker and Gerald Early,who really ought to have known better.

What, finally,does the publication of The End of Racism say about the relations
between the "responsible" right and the "extreme"right? In the wake of the Oklahoma City bombing, American conservatives were outraged that anyone could have drawn a connection between Rush Limbaugh's or Gordon Liddy's mirthful, hypothetical incitements to murder, and the deadly explosives used by right-wing fanatics. Many on the American right, to their credit, denounced the bombing-usually a few hours after denouncing those few pinkos and bleeding hearts who had had the gall to suggest that the bombers might not have been Islamic fundamentalists. Not a single white conservative,however, has voiced any reservations or regrets about the publication of The End of Racism. Adam Bellow has not stepped forward to admit that mistakes were made; Bob Dole has not charged that the book will erode our moral fiber; Gertrude Himmelfarb and Lynne Cheney have not confided to Commentary their worries that the book may not meet the ideal of scholarly objectivity. Perhaps it will not be considered outrageous, then, for liberals like me to draw the obvious conclusions-that there are no rightward boundaries for what conservatives will consider acceptable public discourse on race,and that the WallStreet
Journal's editors are willing to flirt with anything, even crypto-fascism, so long as it promises to unwrite Federal commitments to social justice. As I contemplate The End of Racism, I await the requisite soul-searching on the right. But in all honesty, I'm not holding my breath.

Morning Must-Read: Peter Theil: Robots Are Our Saviours, Not the Enemy

The extremely sharp but differently-thinking Peter Theil:

Peter Theil: Robots Are Our Saviours, Not the Enemy: "Americans today dream less often of feats that computers will help us to accomplish...

...[and] more and more we have nightmares about computers taking away our jobs.... Fear of replacement is not new.... But... unlike fellow humans of different nationalities, computers are not substitutes for American labour. Men and machines are good at different things. People form plans and make decisions.... Computers... excel at efficient data processing but struggle to make basic judgments that would be simple for any human.... [At] PayPal... we were losing upwards of $10m a month to credit card fraud.... We tried to solve the problem by writing software.... But... after an hour or two, the thieves would catch on and change their tactics to fool our algorithms. Human analysts, however, were not easily fooled.... So we rewrote the software... the computer would flag the most suspicious trans­actions, and human operators would make the final judgment. This kind of man-machine symbiosis enabled PayPal to stay in business.... Computers do not eat.... The alternative to working with computers... is [a world] in which wages decline and prices rise as the whole world competes both to work and to spend. We are our own greatest enemies. Our most important allies are the machines that enable us to do new things...

Liveblogging World War II: September 26, 1944: Polish Home Army Trapped in the Warsaw Sewers

World War II Today: Polish Home Army trapped in the Warsaw sewers:

The battle in Warsaw had now been grinding on for almost two months. Gradually the German forces were were reducing the areas held by the Polish Home Army to isolated pockets. There was no way to get around the city except by going underground – into the sewers. Soon the Germans were aware of this and began trying to block the sewers or force people out with gas.

For one anonymous fighter the sewers that were the only possible means of escape soon turned into a deadly trap. He was trying to evacuate a badly wounded female fighter along with two companions, it was a desperate business and it soon became more desperate:

It was 26 September. For the last fortnight I and my radio group had been in Mokotow, where the situation was critical, not to say hopeless, just as it had been in the Old Town a month earlier. We were on a narrow strip of territory like an island, with the Germans all round. We carried her in turns, stumbling over corpses, knapsacks and arms. It was horrible. Ewa’s demented howling mingled with other unearthly screams. She was not the only one. I felt my strength ebbing away. At one point I lost my footing and fell heavily. My companions, Oko and Geniek, helped to put me on my feet again.

We set Ewa down and covered her with overcoats; we had to rest. She sat, propped against the side wall of the sewer, no longer screaming, and with glassy eyes. A procession of ghastly phantoms kept filing past us, some of them howling as Ewa did only a short time ago. Those screams, multiplied by echoes, were about as much as one could stand. Then a new party approached. I wanted to warn them that we were resting, but before I could do so one of them had fallen, and the others, no longer aware of what they were doing, went over him, trampling him down into the bottom of the sewer — automatically, quite unconscious of the fact that he was still alive. In the same way they would have walked over us.

When they had passed we got up. Ewa no longer gave any sign of life, nor did the man who had been trampled on. We walked on. We passed a barricade put across the sewer by the Germans. After some time we caught up with the group which had passed us. Then we came to another barricade. This one was well built and was a real obstacle. There was no way through here. I turned back with my group, and some of the others followed. When we came to the first barricade, the one we had just passed, we met a party of people who told us feverishly that the sewer beyond the barricade in the direction of Mokotow was flooded. So we should never get to the top! A despairing argument took place between the two groups, the one that had brought the news of the flooding and the one that had come up against the impenetrable barricade. By then people had lost their senses; they were shouting in their fury and anguish.

Some remnant of judgment indicated a return to Mokotow. It was not very likely to succeed, but it was the only way of keeping alive — no matter for how long; the only thing that mattered was not to die in the sewer. The gas was affecting our eyes more and more the whole time. I felt just as if I had sand under my eyelids; my head, too, was rolling to one side in a queer way. The mass of people all round were still arguing how to save themselves. From time to time a hideous bubbling was heard, as one more person whose strength had gone slipped into the foul liquid. But even more unbearable would be the voice of some woman pulling him out: “Look, he’s alive, he’s smiling! My darling, you’ll soon be on top again!” Oh God, not to see it, not to hear it!

I realized during my increasingly rarer spells of clarity that I was beginning to lose consciousness. I held on to one thought: to get back to the surface. I did not want someone else to hear the splash and the bubbling which my ears would not hear. I shouted then, at the top of my voice: “Make way, I’ll lead you out!” But the angry yells which met me on all sides were the worst thing yet. “Who said that? Fifth columnist! Shoot him!” This shouting, like a sharp lash, spurred me to an extra effort. I escaped. I had enough sense left to realize that at such a moment what they threatened could well happen. Edging sideways close to the wall, my group and I crossed the barricade unnoticed by the rest. We were over on the other side. We were going back, come what might.

At once we were deep in it. After a few steps we could no longer feel the bottom, but with the help of planks, knapsacks and abandoned bundles, we managed to keep our heads above the surface. After a short time we again felt the ground under our feet. The cold water and the absence of the blasted gas helped to clear our heads, and, holding each other’s hands, we crawled slowly forward. Forward, that was what mattered. I knew that by following that sewer we were bound to come out in Dworkowa Street. We had to make it.” At 4 p.m., seventeen hours after we first went down into the sewers, we were pulled out of them by S.S. men in Dworkowa Street.

This account first appeared in: The Unseen and Silent: Adventures from the Underground Movement Narrated By Paratroops of the Polish Home Army.

Feds Crack Down on Two KC-Based Predatory Lenders: Live from the Roasterie

Every time I think that the east and west coasts are too over-bureaucratized I visit the Missouri-Mississippi-Ohio valley and find something like this--and I haven't even gone to the real south, or to Texas.

Remind me again why the Federal Reserve hasn't Incorporated every single American as a bank holding company? It makes payday loans for banks, so why doesn't it make payday loans for individuals? Remind me again please why you don't have a post office small banking and payday loan business?

David Hudnall, in Kansas City:

David Hudnall: A closer look at the Feds' crackdown on two KC-based predatory lenders: "On Wednesday, September 10...

...U.S. Marshals, local law enforcement and a temporary receiver appointed by a federal judge arrived at the headquarters of CWB Services LLC, at 6700 Squibb, in Mission.

Larry Cook, the temporary receiver, ordered all employees present to step away from their desks. Photos and video were taken of the premises. Employees submitted to in-depth interviews and filled out questionnaires about their roles in the company. All items in the office that could contain information about the business — desktop computers, laptops, filing cabinets, phones — were seized.

Tim Coppinger, whom investigators say owns CWB Services, was served papers informing him that the Federal Trade Commission had filed a civil lawsuit charging him with operating a payday-lending scheme. Every bank account on which Coppinger was a signatory — CWB Services accounts, other business accounts, his personal accounts, his family members' accounts — was frozen. Around the same time, authorities changed the locks at 7301 Mission, the Prairie Village office from which, according to the FTC, Ted Rowland assisted Coppinger's operation. All of Rowland's assets were also frozen. And in Waldo, at 2 East Gregory Boulevard, the feds were unplugging computers and confiscating documents at the headquarters of the Hydra Group, a separate alleged payday-lending scheme, charged the same day by the Consumer Financial Protection Bureau. Like Coppinger and Rowland, Hydra Group's owners — whom the CFPB contends are Richard F. Moseley Sr., Richard F. Moseley Jr. and Christopher Randazzo — suddenly found their credit cards not functioning.

Both lawsuits are civil, not criminal. None of the five Kansas City businessmen was arrested. But the actions sent a clear signal from the federal government to the notoriously shady online-lending industry, which has deep roots in Kansas City. The steps taken in both cases are unusually severe for a civil complaint. The FTC's and the CFPB's lawsuits were filed under seal in federal court the week prior to the raids. On September 9, U.S. District Judge Dean Whipple granted motions for ex parte temporary restraining orders in both complaints. He found good cause to believe that the defendants have engaged in, and were likely to continue to engage in, practices that violate several federal laws and acts and put U.S. consumers in harm's way. Whipple also was convinced that giving advance notice to the defendants would allow them to transfer and conceal their assets. Moseley Sr., for example, had $10.6 million in bank accounts as of August 31. "Because of Defendants' ties to Nevis and New Zealand, Defendants are likely to move this money offshore upon notice of this action," the CFPB's attorneys wrote in the filing.

Richard Cordray, head of the CFPB, explained Hydra Group's foreign connections and intentionally complex structure in colorful terms. "Rarely is a company so appropriately named," Cordray said in a joint FTC-CFPB announcement of the charges September 17. "Like the multi-headed serpent in Greek mythology, the Hydra Group is actually a conglomeration of about 20 businesses with various names. ...Although their payday lending operations are based in Missouri, many of the companies are incorporated offshore in New Zealand and the Commonwealth of Saint Kitts and Nevis. Their maze of businesses and shell companies seems designed to evade effective law enforcement and includes names like SSM Group, Hydra Financial Limited, and Piggycash Online Holdings." (Yes, really: Piggycash Online Holdings.) Both lawsuits charge that the companies deceived consumers about the cost of their loans. Instead of assessing a one-time finance fee for the loans (often $90 on a $300 loan — already an extraordinary rate), both defendants, the agencies say, made repeated withdrawals of $90 every two weeks from borrowers' bank accounts, without ever reducing the principal.

Readers of The Pitch will be familiar with that particular scheme. As we've noted in several articles, many businessmen and investors in town have become millionaires using this predatory model. But there is a new twist in this round of charges. The feds allege that both CWB Services and the Hydra Group debited money from the accounts of people who had never requested loans. How does that happen? Most people who apply for online payday loans are unaware that the application site at which they've entered their personal information — bank account number, Social Security number, address — is not operated by the company that will lend them the money. These sites are instead "lead generators," which then auction off their consumer data to the entities that do the lending.

Both lawsuits allege that the various business entities controlled by Coppinger and Moseley Sr. bought from lead generators the data of customers who were shopping for loans but had not authorized the issuance of a loan. The suits contain dozens of sworn declarations from consumers who say they were confused to discover unsolicited deposits into their bank accounts from Coppinger and Moseley Sr.'s various business entities. Those consumers have told investigators that they were then charged fees and interest on those unauthorized loans — and subsequently harassed by debt collectors. That aggressive practice is a possible explanation for how Coppinger's companies made $18 million in an 11-month period in 2013, as the FTC's analysis of CWB Services' various bank accounts indicates. Hydra Group's companies issued $97 million in loans and also profited roughly $18 million over a 15-month period, according to the CFPB.

Where all this money went, and how it commingled with the personal interests of the owners of these companies, also makes for interesting reading. According to the lawsuits, Coppinger transferred $19,000 from a CWB Services account at Missouri Bank to Indian Hills Country Club in less than one year; spent $14,000 at various Las Vegas casinos, courtesy of a CWB Services account; and transferred $53,000 from a CWB Services account into another Missouri Bank account, for a company called DWTC Enterprises LLC. DWTC is described in account-opening documents as "a holding account for the purpose of gathering deposits and paying expenses relating to the ownership of a suite at the new soccer complex for the team Sporting KC." Moseley Sr.'s attorney, John Aisenbrey, did not respond to a request for comment. Coppinger's attorney, Pat McInerney, says, "At this point, Mr. Coppinger and his related entities dispute the allegations in the FTC complaint."

Phil Greenfield, Rowland's attorney, says Rowland "denies all the charges leveled specifically at him and his companies." Greenfield adds: "Mr. Rowland and his affiliated entities only provided the money that was loaned. Moreover, Mr. Rowland voluntarily — and unrelated to the allegations in this matter — ceased business operations months prior to the FTC bringing this suit. So there was no basis for the FTC to seek an injunction limiting Mr. Rowland's business practices because he was not in business and had no intention of re-entering the business." Christopher Koegel, of the FTC, tells The Pitch, "When we see evidence that a group of companies are commingling assets, have common ownership and have common officers, we allege what's called a 'common enterprise.' That extends liability to everybody involved in the enterprise — monetary involvement, in particular. Here, Rowland was a signatory on related bank accounts and was an officer that helped incorporate these lending entities that represented themselves on loan agreements with consumers. We saw a lot of evidence that all these companies were functioning as one common enterprise in terms of unlawful practices harming consumers."

Given the highly complex nature of the online payday-lending industry, the more evidence there is, the more blame can be shifted. "Look for everyone involved to point upstream," is how one person with close ties to the local payday-lending industry has explained it to The Pitch — meaning that Coppinger and Moseley Sr. will likely argue that they didn't know they were buying unauthorized leads from the lead generators. One of those lead generators, eData Solutions, is mentioned in the FTC lawsuit as a source of those phony leads. As The Pitch noted in a previous article, eData Solutions was founded by Joel Tucker, brother of race-car driver and payday-lending pioneer Scott Tucker. Joel Tucker sold it to the Wyandotte Nation Indian tribe a few years ago, but it remains unclear how much control of the operations he gave up. The feds have acknowledged that Tucker is on their radar, a fact that probably does not bode well for him.

The feds' actions are also bad signs for the "loan portfolios" or "marketing companies" whose information or names turn up on the computers that the FTC or CFPB confiscated September 10. Sources say Coppinger's operation did "back office" work for several local funds and entities that preferred the appearance of staying a few steps removed from predatory online lending. The FTC and the CFPB haven't yet indicated how closely they intend to look at the investors who dumped money into these unsavory businesses and at the lawyers who assisted in drafting the loan agreements and setting up dubious offshore business filings. But it's clear that more will fall. There likely will be more federal lawsuits, and more finger-pointing and accusations and civil suits among the local payday players. These operations generated significant money for their operators and investors — money they'll fight to protect.

It's also money made on the backs of poor people. At their core, these enterprises are designed to drain the bank accounts of low-income American citizens. Maybe Ted Rowland didn't ask enough questions about Tim Coppinger's businesses. Maybe Tim Coppinger didn't ask enough questions of his lead vendors. Maybe. But now the government has taken their things and is asking them questions. It'll be interesting to hear their answers.