"How could a morally perfect, all powerful God," asks McCloskey, "create a universe in which occur such moral evils as cruelty, cowardice, and hatred, the more especially as these evils constitute a rejection of God Himself...?" The typically given answer is that "free will alone provides a justification for moral evil. ... men have free will; moral evil is a consequence of free will; a universe in which men exercise free will even with lapses into moral evil is better than a universe in which men become automata doing good always because predestined to do so." (217) This version indeed has the difficulty that it would also perversely justify a world with no moral good and unshakeable moral wickedness. As a result, theists must insist that "in fact men do not always choose what is evil."
McCloskey then brings up the question of why free will and absolute moral goodness are incompatible. At the very least, he suggests, free will should be compatible with must less moral evil than marks this world. In what follows, I will reply to this objection.
Beside physical and moral goods, there is further metaphysical good such as indeed free will which McCloskey does not identify as such. In discussing it, it will help to divide it into "levels." On level 1, the metaphysical good is the degree of perfection of creaturely essences. To illustrate: Socrates is better than a pig metaphysically; Socrates is better than a fool morally; and Socrates satisfied is better than Socrates dissatisfied physically. Here metaphysical evil is the distance between the completeness of a creature and the completeness of God, with God being perfect and containing zero metaphysical evil.
However, it will immediately be apparent that each creature is content with being what it is; thus, frogs do not dream of wanting to be cats; nor cats, humans; nor (it seems) humans, angels. Despite the fact that a cat has the cat nature and not the divine nature, the cat is at peace and does not envy God. On level 2, there is no metaphysical evil at all!
Level 3 comes in when we admit that humans are a unique and astonishing exception to the rule. Humans are the only creatures with an ineluctable tendency to corrupt their own nature, as the Christian story of the Original Sin indicates. Now the story of man's fall from grace is compatible with old earth, etc. if we follow Dembski and propose that Adam and his Garden may have been created billions of years ago, but the universe was created still earlier with physical evil in anticipation of Adam's sin which God had foreseen.
In thus sinning originally, Adam and Eve brought the entire lower world down with them, which explains animal suffering. Both human and external nature are now partially corrupt; moreover, actual sin follows on original, and men can now act in morally evil ways.
Human corruptibility is a unique metaphysical defect of the human nature. When tempted with the promise that "you will be like gods," man, by unjustly coveting the divine nature, despised and therefore corrupted his own human nature. (God made us as good as possible, and though it was not good enough, God's ad extra omnipotence is safeguarded.) It was therefore impossible to make humans who would always choose good. Provisions were made through the incarnation of the Son much later for the partial amelioration of this defect. "For God so loved the world that he gave his only Son," etc. We cannot hope to deal with the problem of evil without rightly understanding early Genesis.
So much for revelation. But reason suggests the same answer. We need to undo our corruption. We must purposely purge the evil from our souls, purify our nature of its innate corruption evident to everyone (and not just to Christians). It is ironic that our physically evil environment reflects our fallen nature and proneness to commit moral evil. The world is as wild and savage and merciless physically as man is wild morally. The only way for us to succeed in staying alive and avoiding pain and physical disorders of every kind is to cooperate and in so doing relentlessly abide by natural law and justice. God is not sticking it to us, rubbing our noses in our flaws with this irony. The point was to make justice toward men the crucial means to success in subduing the earth. Mastering the natural world -- and the concomitant alleviation of physical evil -- depends greatly on mastering one's own human nature. Physical suffering is an incentive to us to be moral.
The moral good promoted by physical evil is not heroic sainthood or glorious works of mercy inspired by divine grace but merely purity of the human nature. It is not divine Christian love but merely absence of demonic hatred. But that is sufficient. For one, corrupt nature is the greatest obstacle to grace. Heal the nature, and God will not disappoint us with His supernatural gifts. McCloskey considers the argument that "pain is a goad to action and that part of its justification lies in this fact." I agree with him in rejecting this defense, because even absence of pleasure (coupled with anticipation of future utility) is sufficient for action, not any pain. It would seem that in paradise that will be precisely the reason for the everlasting economic improvement. It could have been this way in this world, too, and the reason why it's not is the corrupt human nature which makes occasional physical pain necessary in order for man to regain his full humanity.
Nor is physical evil a good incentive to charity. Even without this evil, one can be motivated by a desire to improve his neighbor's welfare. Even if one could not relieve the neighbor's pain under no-physical-evil, he could still create pleasure for him. But does not physical evil grow charity more efficiently? Is man best motivated by the plight of his fellow men than by opportunity to bring about pleasure? Further, under pure nature and no physical evil, nature alone suffices to yield fastest economic progress. What use is there for charity then? And isn't it a mighty spiritual achievement to learn to love people who ought to be loved but are somewhat unlovable? Well, charity makes practical interpersonal utility comparisons possible. Therefore, one is enabled to improve overall happiness through some sacrifices of own smaller interest for the beloved's greater interest. This can be accomplished even in a physically perfect world. Now Jesus said: "No one has greater love than this, to lay down one's life for one's friends." (Jn 15:13) But in a no-physical-evil world there is never a need to lay down one's life. Hence expressions of perfect love are impossible in an Earthly Paradise. I do not know how great a loss this would be, but my guess is not enough of a loss to justify physical evil.
Moral goods like courage and prudence, too, can co-exist with absence of physical evil. Courage can be cashed out as tactical mastery, athletic performance, presence of mind, and so on. There is no need for violent aggression toward fellow men in order to manifest courage.
To conclude, a world in which physical evil is plentiful but not overwhelming is justified by the need for it for purification of human nature. A world in which further moral evil is plentiful but also not overwhelming is justified as an inevitable result of free will. It's not the case that every particular physical evil is an essential part of the overall good. A given moral evil can never be justified, but moral evils are permitted by God through His mercy for the metaphysically problematic human nature: "Never again will I curse the ground because of human beings, since the desires of the human heart are evil from youth; nor will I ever again strike down every living being, as I have done." (Gen 8:21)
Note again that (1) the presence of both physical good and evil means that the world is physically, regarding narrow happiness, ambivalent;
(2) the presence of both moral good and evil means that the world is morally evil, since even a single sin or vice can ruin a person;
(3) finally, the world is as metaphysically good as it can possibly be which means that it is metaphysically good tout court.