The SEC and Nonsense Upon Stilts

The SEC and Nonsense Upon Stilts

The following commentary/analysis is one I wrote in my capacity as a senior fellow at “the nation’s oldest consumer protection agency,” Consumers Research, where, among other things, I compile a weekly letter for public pension-fund managers.  I am sharing it here today because I thought it might be useful to some of you.


The American Bureaucratic Bastardized Hybrid

The two biggest stories in ESG-world in the last week were, inarguably, the SEC’s approval of a climate disclosure rule and Bloomberg’s profile of Andrew King, the business strategy professor at Boston University, who has spent the last several years debunking the academic research that formed the foundation of the case for ESG.

Looking at those stories, and knowing that I have, for years, insisted that the core promise of ESG – “doing well by doing good” – was betrayed by the facts on the ground, I thought that I would use this space this week to discuss Professor King and his work.  As fate would have it, however, I did so already, beating Bloomberg to the punch by nearly two-and-a-half months:

The claim that ESG is purely about performance and risk assessment has always been dubious, although one of the authors of the paper in question, Robert Eccles, continues to make that claim in print and continues to mock and belittle those who question it.

Part of the problem here is that many in the ESG community suffer from what Hayek called the inability to distinguish science from scientism.  They confuse math with science and expect their results to be taken as established fact, even, as in this case, when they’ve done the math wrong.  The bigger part of the problem, though, is that many in the social sciences are guided in their research by wishful thinking.  They find ways to manipulate their research to produce the results they hoped to find in the first place.  Most of the time, no one notices, and no one cares.  Every once in a while, however…it matters.

Given this, I figured a better use of our time would be to address the other story of the week in greater depth, the ongoing attempt to address value-laden policy concerns through the bureaucratization of capital markets.

The Securities and Exchange Commission’s final rule on climate disclosures is a sad, watered-down version of the rule as it was originally proposed.  The reasons for this are numerous, but mostly, it’s the result of concerted pushback by those who understand the devastating impact that the original rule would have had on the American economy and the threat of litigation in the post-West Virginia v EPA regulatory environment.

Despite the fact that the new rule is a hollowed-out husk of the original version, it still represents a significant risk to American businesses and their shareholders, largely because it affirms a value scheme that is both anti-democratic and contrary to the reliable operations of free and fair capital markets.

When discussing bureaucracy and its moral impact, one of the key terms to understand is “dehumanization.”

Dehumanization comes in two principal forms.  The first of these – and the best known variant – is what is termed “animalistic” dehumanization, which is a byproduct of the ideological process of scapegoating.  Animalistic dehumanization is the opposite of anthropomorphism, the process by which less than human objects (animals, plants, inanimate bodies) are given human characteristics.  When animalistic dehumanization occurs, people – those in the “out-group” – are stripped of the characteristics that make them human; they are denigrated to the point where they are perceived to be “animals” or other lesser creatures and are, therefore “not human” and not deserving of basic human rights.  The members of the out-group are alleged to lack higher-level intelligence, appropriate emotions, the capacity for moral behavior, etc.

For centuries, Europeans dehumanized the Jewish people.  To “in-group” Christians, Jews were not men; they were monsters, sub-human creatures lacking souls, who killed Christians, who abducted Christian children, and used their blood to make bread (the very definition of “blood libel.”)  Likewise, slaveholders in the West dehumanized captured Africans.  They considered them less than human, unable to think on a human level, and thus little more than mere “chattel,” suitable for nothing other than servitude.

In this way, slavery, anti-Semitism, common discrimination, and a whole host of other evils have been rationalized and justified.  If the “victim” is not human, after all, then how can he possibly be a victim?

The other principal form of dehumanization is known as “mechanistic dehumanization.”  As with animalistic dehumanization, mechanistic dehumanization is a process by which human characteristics are denied to a specific subset of people, only in the mechanistic case, the members of the target population are likened to machines, to automatons.  These targets too are denied their basic humanity, but in a way that makes them more efficient, more calculating, less emotional than normal humans.

The history of political thought in the late 19th and early 20th centuries is also the history of what can be called the victory of scientific materialism, i.e. the belief that all that can be known is that which can be known through science.  From Marx and especially Engels with their claims of “scientific socialism,” to Comte’s Positivism and his belief in the possibility of scientifically ordering the affairs of man, the era was rife with the fantasy that science and scientific principles could not only control the natural environment but the political environment as well.

In much of the Western world, the most successful manifestation of this scientific materialism was the idea of scientific administration, the belief that government’s functions can and should be managed in a rational manner, harnessing the authority of science and the knowledge of experts, and utilizing the benefits of division of labor.  This rule of the “experts” was largely labeled “technocracy” in Europe and “public administration” in America.  And in both cases, it depended entirely on the presence of a large, rational, and impersonal bureaucracy, designed in principle to eliminate bias, emotion, and prejudice in the administration of government.  Max Weber described the benefits of bureaucracy – particularly from the scientific materialist perspective – as follows:

From a purely technical point of view, a bureaucracy is capable of attaining the highest degree of efficiency, and is in this sense formally the most rational known means of exercising authority over human beings.  It is superior to any other form in precision, in stability, in the stringency of its discipline, and in its reliability.  It thus makes possible a particularly high degree of calculability of results for the heads of the organization and for those acting in relation to it.   It is finally superior both in intensive efficiency and in the scope of its operations and is formally capable of application to all kinds of administrative tasks.

What this means in practice is that a bureaucracy adheres to specific tenets, which Weber outlined in his “ideal type.”  And chief among these is the principle of detachment, the obligation that both the bureaucracy and individual bureaucrats remain personally indifferent to their task and its clients.  Again, as Weber put it:

When fully developed, bureaucracy stands . . . under the principle of sine ira ac studio (without scorn and bias).  Its specific nature which is welcomed by capitalism develops the more perfectly the more bureaucracy is ‘dehumanized,’ the more completely it succeeds in eliminating from official business love, hatred, and all purely personal, irrational and emotional elements which escape calculation.  This is the specific nature of bureaucracy and it is appraised as its special virtue.

The “scientific administration” embraced in the West, and especially by the Left in the late 19th and early 20th centuries, not only accepted, but encouraged the mechanistic dehumanization of the administrators in question, the bureaucrats and their bureaucracy.  Only by losing themselves in the spirit of the bureau, only by becoming what Weber calls “cogs in the machine,” could bureaucrats serve their designed function and promulgate the favored administration by experts.

As Weber notes, there are immeasurable benefits to this sort of mechanistic dehumanization in the context of bureaucratic administration.  But there are also immeasurable detriments as well.

Perhaps the best known and widest read expositions on these detriments those offered by Hannah Arendt, who in her later work addressed this second form of dehumanization in great detail, spelling out the unspeakable dangers that lurk in the bureaucratic apparatus and in the mind of the bureaucrat himself.

In her Reflections on Violence, Arendt noted the effect of bureaucratization on government.  She also acknowledged that, in the end, this effect leads nowhere good.  Specifically, she wrote:

These definitions coincide with the terms which, since Greek antiquity, have been used to define the forms of government as the rule of man over man — of one or the few in monarchy and oligarchy, of the best or the many in aristocracy and democracy, to which today we ought to add the latest and perhaps most formidable form of such dominion, bureaucracy, or the rule by an intricate system of bureaux in which no men, neither one nor the best, neither the few nor the many, can be held responsible, and which could be properly called the rule by Nobody.  Indeed, if we identify tyranny as the government that is not held to give account of itself, rule by Nobody is clearly the most tyrannical of all, since there is no one left who could even be asked to answer for what is being done . . . .

The greater the bureaucratization of public life, the greater will be the attraction of violence.  In a fully developed bureaucracy there is nobody left with whom one could argue, to whom one could present grievances, on whom the pressures of power could be exerted.  Bureaucracy is the form of government in which everybody is deprived of political freedom, of the power to act; for the rule by Nobody is not no-rule, and where all are equally powerless we have a tyranny without a tyrant. 

In her far better known and far more controversial work, Eichmann in Jerusalem, Arendt addressed the ultimate end of the mechanistic dehumanization created by the adoption of a belief in the “scientific” – and therefore unerring – nature of bureaucratic administration.  Bureaucrats, who want nothing more than to be part of the team, to be one of those cogs in the machine, tend, by and large, to follow their directives, even, in many cases, if those directives are utterly depraved.  This, Arendt famously wrote, is the “banality of evil.”  It is not monsters and devils who carry out monstrous and devilish acts, but mere functionaries.  To wit:

The trouble with Eichmann was precisely that so many were like him, and that the many were neither perverted nor sadistic, that they were, and still are, terribly and terrifyingly normal.  From the viewpoint of our legal institutions and of our moral standards of judgment, this normality was much more terrifying than all the atrocities put together . . . .

Of course it is important to the political and social sciences that the essence of totalitarian government, and perhaps the nature of every bureaucracy, is to make functionaries and mere cogs in the administrative machinery out of men, and thus to dehumanize them.

Now, it’s important to note that both Weber and Arendt were wrong about how fully mechanistic dehumanization can impact bureaucratic functionaries.  The “system” can be efficient enough to create the conditions under which near-total dehumanization takes place, but it cannot compel the functionary to act without the additional stimulus provided by the alignment of his “values” with those of the organization.  In other words, yes, the German bureaucratic system enabled and empowered Eichmann, but he never would have committed his crimes had he not been inclined to do so in the first place.  Contra Arendt, Eichmann was a monster.  He was, in fact, a vile and aggressive anti-Semite who took pride not just in being a good bureaucrat but also in being a good bureaucrat in the pursuit of the Final Solution.

As I discuss in detail in Chapter 2 of The Dictatorship of Woke Capital,  the contemporary bureaucratic structure in the United States has evolved to the point where it accommodates both the creation of near-total functionaries and the incorporation of their near-uniform values into their decision-making processes.  What this means in practice is that, in bureaucratic organizations, we now have mechanistic dehumanization coupled with the expression of values that align almost entirely with those of the organization or the state more broadly.

In short, American bureaucracies combine the worst of all worlds to create a bastardized hybrid structure, one that will work to advance the values of the government, not the governed.

In a long post on Twitter/X, Matt Cole, the CEO of Strive Asset Management argued that BlackRock, State Street and the other big asset managers all supported the SEC’s new climate rule and advocated on its behalf. “It’s easy to look at the SEC’s new mandatory climate disclosures for corporations and conclude it is government overreach,” Cole wrote, “While true, it misses the bigger story” of support and advocacy from the big firms.

The reason that these firms all felt so comfortable getting in bed with the SEC on this is that they all share the same values as the “near-total functionaries” in the bureaucracy.  They all believe, nearly uniformly, that their stewardship of corporate behavior is better and more likely to result in a “proper” outcome than is the broader market.  This is, to borrow a phrase from Bentham, nonsense upon stilts.  It is arrogant.  It is ignorant.  And it serves the interests of only a narrow constituency.

Scope 3 emissions or no Scope 3 emissions, this rule is a mistake of epic proportion.

Stephen Soukup
Stephen Soukup
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Steve Soukup is the Vice President and Publisher of The Political Forum, an “independent research provider” that delivers research and consulting services to the institutional investment community, with an emphasis on economic, social, political, and geopolitical events that are likely to have an impact on the financial markets in the United States and abroad.