Skip to content
 

Prison terms for financial fraud?

My econ dept colleague Joseph Stiglitz suggests that financial fraudsters be sent to prison. He points out that the usual penalty–million-dollar fines–just isn’t enough for crimes whose rewards can be in the hundreds of millions of dollars.

That all makes sense, but why do the options have to be:

1. No punishment

2. A fine with little punishment or deterrent value

3. Prison.

What’s the point of putting nonviolent criminals in prison? As I’ve said before, I’d prefer if the government just took all these convicted thieves’ assets along with 95% of their salary for several years, made them do community service (sorting bottles and cans at the local dump, perhaps; a financier should be good at this sort of thing, no?), etc. If restriction of personal freedom is judged be part of the sentence, they could be given some sort of electronic tag that would send a message to the police if you are ever more than 3 miles from your home. And a curfew so you have to stay home between the hours of 7pm and 7am. Also take away internet access and require that you live in a 200-square-foot apartment in a grungy neighborhood. And so forth. But no need to bill the taxpayers for the cost of prison.

Stiglitz writes:

When you say the Pledge of Allegiance you say, with “justice for all.” People aren’t sure that we have justice for all. Somebody is caught for a minor drug offense, they are sent to prison for a very long time. And yet, these so-called white-collar crimes, which are not victimless, almost none of these guys, almost none of them, go to prison.

To me, though, this misses the point. Why send minor drug offenders to prison for a very long time? Instead, why not just equip them with some sort of recorder/transmitter that has to be always on. If they can do all their drug deals in silence, then, really, how much trouble are they going to be causing?

Readers with more background in criminology than I will be able to poke holes in my proposals, I’m sure.

P.S. to the impatient readers out there: Yeah, yeah, I have some statistics items on deck. They’ll appear at the approximate rate of one a day.

18 Comments

  1. Ed says:

    For some historical perspective, the invention of prisons where criminals could be confined for long periods was a huge gain for human rights. And prisons are a fairly recent invention.

    For most of human history, there were places where prisoners were held pending trial, but it was rare to confine people once convicted. After conviction, criminals would either be executed, mutilated, exiled, or enslaved. The Byzantines preferred mutilitation since they thought it was the most humane option, given the alternatives. Exile was no fun, it basically meant not having the protection of the law if anyone wanted to do anything bad to you.

    In most of human history, the sort of white collar criminals we are talking about would have been executed, maybe along with their families. In gentler times, its important that they get the standard criminal punishment and be separated from society where they can do no more damage. So a long prison term is fine.

    I actually don't have a problem with more confortable "white collar" prisons for non-violent offenders, if only because some of the brutality in the other kind may be needed to control violent criminals, who tend to be, well, violent.

    Also, in sentencing, what harm the criminal is likely to do in the future should be a bigger consideration, maybe the most prominent. Some people are going to be habitual criminals and need to be separated from society. For white collar criminals, once you disbar them/ permanently yank their licenses, you might render them harmless enough to be relatively lenient on the rest of the sentence. But some of these guys are very good at fraud and would still be dangerous. The punishment component should revolve more around public humiliation and shaming.

    One thing coloring this argument is that prisons in the US tend to be pretty terrible. Not only is there no rehabilitation, they do the opposite of rehabilitation, they take criminals and make them more hardened.

  2. Andrew Gelman says:

    Ed:

    Sure, but with today's technology, I think we can do a lot better than prison.

  3. numeric says:

    The central problem is the accumulation of resources to the very top of the population (24% of national income going to top 1% in 2007, versus less than 9% in 1976). Stiglitz is suggesting making being in this top 1% a little less secure (threat of prison), but the true solution is to lower this percent. Political Scientists are _finally_ starting to understand this (Hacker et. al.), but really, its been clear for thirty years. The consequence is the Great Recession and a decade or more of high unemployment.

  4. Wayne says:

    Andrew,

    "… with today's technology, … we can do a lot better than prison."

    Better in what way: more humane, more effective in preventing future crimes, less expensive? I'd think that today's technology actually works against you with white collar crime: laptops, phones, cellphones, FAX's, mail, etc. Putting an ankle bracelet (for example) on someone who manipulates financial markets doesn't seem like it would be much of a barrier to recidivism.

  5. Mark Palko says:

    I know I've quoted this NPR story, but it's still highly relevant to your post and Ed's comments.

    http://www.npr.org/templates/story/story.php?stor

    The morning that Cash played may have been the high-water mark for Folsom — and for the California Department of Corrections and Rehabilitation.

    The men in the cafeteria lived alone in their own prison cells. Almost every one of them was in school or learning a professional trade. The cost of housing them barely registered on the state budget. And when these men walked out of Folsom free, the majority of them never returned to prison.

    It was a record no other state could match.

    Things have changed. California's prisons are all in a state of crisis. And nowhere is this more visible than at Folsom today.

    Folsom was built to hold 1,800 inmates. It now houses 4,427.

    It's once-vaunted education and work programs have been cut to just a few classes, with waiting lists more than 1,000 inmates long.

    Officers are on furlough. Its medical facility is under federal receivership. And like every other prison in the state, 75 percent of the inmates who are released from Folsom today will be back behind bars within three years.

    California's prison system costs $10 billion a year. Its crumbling, overcrowded facilities are home to the highest recidivism rate in the country. And the state that was once was the national model in corrections has become the model every state is now trying to avoid.

    … It's really about the money."

    And lots of it. California can't afford its prisons. Taxpayers spend as much money locking people up as they do on the state's higher education system.

    Experts agree that the problem started when Californians voted for a series of get-tough-on-crime laws in the 1980s. The state's prison population exploded immediately. It jumped from 20,000 inmates, where it had held steady throughout the 1960s, 1970s and early 1980s. Today there are 167,000 inmates in the system.

    California wasn't the only state to toughen laws in the throes of the 1980s crack wars. But Californians took it to a new level.

    Voters increased parole sanctions and gave prison time to nonviolent drug offenders. They eliminated indeterminate sentencing, removing any leeway to let inmates out early for good behavior. Then came the "Three Strikes You're Out" law in 1994. Offenders who had committed even a minor third felony — like shoplifting — got life sentences.

  6. Ben Grunwald says:

    In general, I think criminologists are pretty sympathetic to your basic point. Prison is just way too expensive. Criminals have already burdened society with their crime, why let them impose a double burden by forcing society to spend, in some states, up to $45,000 per year to imprison them? That's especially true given that prison doesn't appear to exert a strong deterrent effect against recidivism (something like 50-60% of ex-prisoners are rearrested within three years). Alternatives to incarceration, especially through emerging surveillance technology, is a pretty hot topic these days.

    I think you'd get more resistance from legal scholars than criminologists. Attaching an audio recording device to a white collar criminal or drug dealer would render them incapable of any private conversation. Sure, prisoners can't speak privately to their friends and family outside the institution. But at least they have some social privacy within the prison. Using heavy fees against white collar criminals raises an equity issue. You can't heavily fine a white collar criminal who doesn't have much money to begin with. You'd need some other form of non-financial punishment for these guys, and it would be troubling to punish them differently because of their wealth.

    This is a pretty general theme in criminology. Scholars have found interesting ways to reduce recidivism, but many of them are inconsistent with constitutional jurisprudence.

  7. Hankest says:

    "….require that you live in a 200-square-foot apartment in a grungy neighborhood."

    Some of us NYers are paying over $1200 a month for that privilege, and we're happy to do it.

  8. Quetico says:

    WTF!!!! Are you kidding me? No prison for financial fraudsters? As one whose parents lost most of the their life savings to Art Nadel's Ponzi scheme, I can tell you that the ONLY solace my parents have is that he is now serving 16 years. Of course the receiver has confiscated all of his assets as well. But you want this guy sorting cans and living in his own apartment, but taking away his internet? That's simply ridiculous.

    Who knows how many Bernie Madoffs there would be without the threat of prison. For the handful of ponzi schemers out there who have actually been caught and sentenced, the cost to society for imprisoning them is tiny compared to the havoc that they caused. My guess is that prison (and a large bunkmate) was by far the biggest deterrent and fear for these psychopaths.

    Nonviolent drug offenders not sent to prison–OK, I'm with you there. But treating ponzi schemers in the same manner as those who commit victimless crimes is insane.

  9. Andrew Gelman says:

    Ben:

    I don't have so much sympathy for these people's privacy rights, if they've been lawfully convicted. In any case, I'd think this could be tweaked in some ways to get what you want. For example, give the convict 2 hours a day of private conversations and keep him under house arrest. Sure, the other bad guys could come over and talk with him–I seem to recall Junior Soprano following such a strategy–but I think it would be pretty effective.

    Hankest:

    OK, make that a really grungy neighborhood.

    Quetico:

    I have no problem with punishment. I just don't see the point of jail. If you want to punish and deter, you can be as harsh as you want without prison. You can put someone below the poverty line for 20 years, you can subject him to caning, you can restrict his mobility as much as you want, and so forth. At least in theory. I recognize that in the current system, we're pretty much limited to options 1, 2, and 3 above. But I don't think that's how it should be.

  10. Sebastian says:

    Isn't this a question of where you start? I think a future in which we're not going to imprison non-violent drug offenders is a very, very unlikely future. And since the weed dealer is going to jail, so should the fraudulent derivative dealer.

    If we're engaging in more utopian thinking, I agree with Andrew that neither of them should. But politically speaking I'm suspicious of any argument that doesn't take the drug dealer as the starting point.

  11. Criminal justice lacks coherent first principles and solid grounding in the best of 2010 science.

    Given that free will isn't settled science (if anything I think the evidence is against it) retribution-based punishmnet isn't good science, unless it's narrowly tailored to make the criminal justice system sufficiently legitimate prevent another less enlightened regime from replacing it.

    Recidivism is where I'd focus -what way of managing prisoners gets our most cost-benefit bang for the buck.

    White collar criminals often have real, valuable skills. I think we should look for ways for society to make use of them while protecting society from recidivistic harm, using cost-benefit analysis.

    I summary, society's focus should be cost-benefit analysis, using our best 2010 science.

  12. Ed says:

    OK, it seems the question is whether we have better technologies to handle convicted criminals than jails (my point was that jail itself was once a new technology).

    I'm not sure, and I think Hopefully Anonymous makes an excellent point that first we need to agree on a set of principles for what we want to see out of the system in the first place.

    The public would like retribution, but I think this is the one possibility that should be excluded from the legal system. The entire point of having a legal system in the first place is to do away with retribution. Otherwise you could just make it perfectly legal for people to settle outrages against members of their families themselves. The whole idea is for the government to interpose itself between the perpetrator and the victim and his family.

    This pretty much guarantees that I will take an extremely liberal view of this in terms of current American discourse. I think there actually is a core of sociopaths/ psychiopaths who are irredeemable criminals. Other people turn to crime basically because their lives have gotten into such a mess that that may actually be their best option ("circumstance"), or for social or political reasons, for example most gang members. So the idea would be to separate the first group from society permanently, rehabilitate the second, and separate the gang members from the gangs. I think the current system may actually be backfiring on the third task.

    Instead of retribution, could the government pay the victims and their families on the grounds that the police and legal system failed in its duty to protect them? Then it could handle the criminals purely as an issue of criminals vs. the government. The retribution factor may be increasing crime as it turns prisons into breeding grounds for hardened criminals.

    The key may turn out to be repealing laws against some "crimes" where the harm to society is negligible, cutting the prison population down to a manageable size. Unfortunately Californians just bungled a chance to do that.

  13. Michael says:

    Interesting discussion. Like Ed I think we need to separate socio/psychopaths from the rest of society. They are predators beyond redemption–there is no hope of rehabilitation. The trick is identifying the socio/psychopaths–not all of them are violent criminals, some are financial fraudsters. (Many years ago I was told that a large percentage of murderers were spouses of the victim and posed no general threat to society. But we keep them locked up for decades.)

    We should move to minimize environmental damage to those who would not be criminals except for their environment. (I have only sketchy thoughts on how this might be accomplished, but preventing crimes in the first place is clearly better than trying to punish them after-the-fact.)

    I have no problem with punishment/deterrence as a goal, but deterrence only happens when punishment is both swift and certain. The drug dealer or con-man may go for years without suffering any consequences of their actions. No punishment can serve as a deterrence under those circumstances.

    For certain minor offenses we might be able to put into place a rapid punishment system. The first time drunk driver, instead of being bailed out and waiting weeks for a trial, would get booked, taken to night court, and sentenced to 48-72 hours confinement in a 6' x 8' cell. Quick, certain, and not enough to ruin your life–but enough to make most folks reconsider drunk driving in the future.

    A first principle of protecting society is consistent with locking up socio/psychopaths and being more creative with punishment for other criminals. But it demands different treatment for different offenders committing the same offenses and that disturbs our fundamental belief in "equal treatment for all." That is a hard belief system to change, despite plenty of public outrage at isolated examples of clear injustices resulting from "equal treatment."

  14. Steve Sailer says:

    I've got to believe that putting Mike Milken in jail for a few years really did have a deterrent effect for a number of years afterwards.

  15. Andrew Gelman says:

    If the only options are 1, 2, and 3, sure, I agree that ya gotta go with 3. It just seems to me that there are better options out there (if the laws were changed appropriately). Not a practical solution right now, I know, but maybe something to aim for.

  16. phonon says:

    The Atlantic had an article about this recently…it was quite good..

    http://www.theatlantic.com/magazine/archive/2010/

  17. Popeye says:

    HA is right — free will is not scientifically supported. I'd love to change the legal system to reflect that, but of course our lack of free will also means we can't do anything abut it.

  18. What jumps out at me from that Atlantic article is the efficiency that would result if we allowed people (or alternatively, rebuttably forced them) such paternalistic controls without the prerequisite of a criminal record, given that "Criminals typically differ from the broader population in a number of ways, including poor impulse control, addictive personality, and orientation toward short-term gratification rather than long-run consequences."

    http://www.theatlantic.com/magazine/archive/2010/