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Saturday, March 5, 2011

A Recipe for Regulatory Recidivism: the MMS and FAA

In 2010, the Inspector General of the US Interior Department made public a report on the federal Minerals Management Service, which regulates the oil industry and profits from leases to it.  In addition to this glaring conflict of interest, MMS has apparently not only been “cozy” with the industry it is regulating, the two have been as one.   One inspector said, “We are all the oil industry.” 

The full essay is at Institutional Conflicts of Interest, available in print and as an ebook at Amazon.

Friday, March 4, 2011

The Bicycle Principle of Business Ethics: Walmart as Mediocre

I once bought a bike at Walmart.  To my chagrin, the bike had very little coasting ability. After riding down into a valley, I looked forward to some momentum on the up side. However, there was very little upside. Shortly after passing the lowest point, I would have to begin pedaling again.  In fact, if the down-hill was not steep, I had to pedal so as not to de-accelerate while going down hill.  In regard to Walmart, it could be concluded that not every product fits into a low-cost strategy (to say “cost-leadership” would gild the lily, besides engage in fad-jargon). While pedaling from the bottom of a hill just after having come down another, I constructed a young theory of business ethics.  Namely, that it was unethical for Walmart to sell the bicycle-brand (which I do not recall) because I deserved some coasting credit. You might say that if I didn’t have to pedal going down hill, I don’t deserve any “credit” in going up hill; the ease going down is paid for by the effort going up. However, even if I had not had to pedal while going downhill, I still would have believed that I deserved some “credit” on the up side. Why should I be exempted from benefiting from the laws of nature?  It is not fair if I am excluded from the phenomenon of mometentum through no fault of my own. Walmart had unwittingly put a wrench between me and momentum by essentially “spending” it by releasing it. So I was left with the impression of an asymetry that was unnatural. Of course, gravity and friction take their toll, so one can not expect to go without any effort on the up side.  But where a product eviscerates the benefits ensuing from a natural law, the product can be reckoned as inferior from the standpoint not only of quality, but as undeserved by any buyer.  There is thus a bicycle principle of ethics, which is a sort of naturalistic ethical theory based on the principles of fairness and desert–namely, that it is unfair to deprive certain people of public goods such as momentum while others indulge. An inferior product can be reckoned in such terms.

Wednesday, March 2, 2011

BP's CEO notes delete edit Tony Hayward: A Golden Parachute Despite Failing on Safety

In terms of corporate governance setting executive compensation to align the employee's incentives to the financial interests of the company even beyond his or her term of employment, it is apparently quite easy to go overboard. This can include severance packages for top managers--packages that may not reflect the performance of the executive. At the very least, it would appear that corporate lawyers are not writing very good contracts. Worst yet, insider board-management friendships may mean that the gap between achievement and severance pay may be intentionally wide. Sadly, the innocent non-management investors whose interests are not adequately represented in the board room pay the price, even if they don't perceive it on an individual level.  Even so, the lack of fairness alone calls for an end to the insider luxuriating.  The case of BP, whose rig exploded in the Gulf of Mexico in 2010, provides a good case study.

The full essay is in Cases of Unethical Business, which is available at Amazon.

The ECJ Decision on Gender-Based Insurance: Political, Philosophical and Business Implications

On March 1, 2011, the European Court of Justice, the EU's Supreme Court, declared illegal the widespread practice of charging men and women different rates for insurance, setting in motion an overhaul of how life, auto and health policies are written across Europe. Although tied to commerce, the ruling involves non-economic elements as per the high court's citation of the EU's Charter of Fundamental Rights, which enumerates 14 categories on which discrimination is prohibited; sex is the first. A separate provision states that "equality between men and women must be ensured in all areas." Because fundamental rights go to the core of what a political domain stands for, at least in the case of a republic, an implication is that the EU is indeed a political federal state, rather than simply a WTO for Europe. The fact that the states of the EU must abide by the ECJ's ruling on the fundamental rights means that some governmental sovereignty has indeed shifted from the state governments (and their respective constitutions) to the EU.  Like the US, the EU is a federal system of governance characterized at its core by dual governmental sovereignty, which in turn is sourced in popular sovereignty.  Other, less fundamental, implications can also be drawn from an analysis of the ruling.

The full essay is at Essays on the E.U. Political Economy, available at Amazon. 

Tuesday, March 1, 2011

Immigration and Federalism in the U.S.: Should States like Arisona Participate?

On July 1, 2010, on the precipice of another July 4th celebration, President Obama told an audience that immigration was, in sum, “broken.” Furthermore, “everybody knows it.”  Yet neither he nor the Democratic leadership in Congress had any expectation of passing an immigration law in 2010.  Into this void, Arizona had months earlier passed its own law aimed at tightening enforcement. The New York Times reported that in his speech in July, Obama “used the opportunity to repeat his opposition to Arizona’s new law requiring law enforcement officers to question the immigration status of anyone they stop for other reasons if they suspect that they are in the country illegally, calling it ‘ill conceived’ and ‘divisive’.” The President said, “We face the prospect that different rules for immigration will apply in different parts of the country, a patchwork of different immigration rules where we all know one clear national standard is needed… . Our task then is to make our national laws actually work, to shape a system that reflects our values as a nation of laws and as a nation of immigrants.”  Different rules sounds like different immigration policies—as in who can enter the US.  If the President meant this, then he had a point. However, if he was arguing that tailoring different enforcement mechanisms to different regions, it could be argued counterwise that e pluribus union in a federal system not only allows for it, but thrives by it. In other words, the empire-scale of the US warrants a diversity of approaches. Furthermore, a federal system enables and indeed is strengthened by it.

The complete essay is at Essays on Two Federal Empires.

Monday, February 28, 2011

FIFA Improving the World Cup: A Matter of Thinking Outside the Goal

Two things stood out for me in the wake of the World Cup of 2010: the sheer number of low-scoring games and the number of bad calls. The latter is the easier to fix. FIFA can relax its opposition to instant replay even though it is not feasible technologically or financially for every game in the world.  FIFA could simply state that every game in the World Cup is subject to instant replay. The problem of low-scoring games is seemingly more intractable, but actually quite easy to solve.  One possible solution would be to elongate the goal area so it is more difficult to defend.  If that doesn’t work, the area could be heightened—then it would be a matter of skill in kicking the ball in the added area above the defending players’ reach.  The problem lies in the status quo. Even though low-scoring games are more boring, some people would object that too much scoring would get to be boring as well.  There would be a solution for that too, as the goal area could be retracted a bit. In fact, a twenty-first century way of approaching the problem would be to have the goal parameters movable according to a computer program that enlarges the area if there is little or no scoring and retracts it if there has been too much.  Such changes would presumably only be made when the score is tied so not to disadvantage the losing side.  My main point is that we are woefully slow in thinking in terms of the twenty-first century.

 Of course, the stats-oriented fans would object to the problems terms of the consistency of records. To be sure, there is a downside to every improvement.  I contend that improving the enjoyment of the game is worth the interference with comparisons with prior years.  Particularly with regard to sports as a past-time, the primary concern should be the present time. Sadly, the forces of the status quo give today short thrift.  Moreover, change itself, even to improve something, often faces and up-hill battle.  Perhaps this is partly because most people in a position to make changes are old, and thus too used to the way things have been.  The road for change seems to be uphill, with the status quo enjoying hegemony.  My reaction to this is: life is too short. We ought to do what we can to enjoy it more.  With its constant action, soccer, or football, could become a very exciting game.

Related on the World Cup: http://nbcsports.msnbc.com/id/38190556/ns/sports-world_cup/

Who Should Get the Trophy--the Team Captain or Owner? On the Value of Wealth in American and European Society

Just after winning the World Cup of 2010, FIFA officials handed the trophy to the team captain of the Spanish team rather than to the coach or a team owner (in this case, an official of Spain).  In contrast, at the Kentucky Derby, the honors went to the horse’s owner, rather than to the jockey. The distinctively American value on wealth could not be more evident, and the contrast with the World Cup confirms it.  

The full essay is in Cases of Unethical Business, which is available at Amazon.

Sunday, February 27, 2011

Regulating Commerce by Mandate: The Death of American Federalism?

The mandate to buy health-insurance may be an unconstitutional encroachment of the U.S. Government onto the liberty of its citizens. Furthermore, the rigid federal rules in the health-insurance reform law of 2010 may represent yet another way by which the state governments have been rendered servile in begging Washington for breathing room--and in a domain that may be rightly theirs, constitutionally (i.e., extrinsic to the enumerated powers assigned to the U.S. Government). The bigger story in this jurdical piece on health care is perhaps whether American federalism itself was finally being extirpated and expunged in favor of consolidation. 

The full essay is at Essays on Two Federal Empires.

Weening Businesses off Debt: A Difficult Recovery?

The near credit-freeze that came to a head in September of 2008 meant that even in the ensuing recovery, managers at American companies would be hesitant to spend their companies’ cash reserves. $838 billion for S & P’s 500 Index in March, 2010, was up 26% from March, 2009. Accordingly, managers have been hesitant to hire. From late 2007 to late 2009, payroll employment dropped by nearly 8.4 million by July, 2010; only 11% of the lost jobs were regained. Robert Gordon, an economist at Northwestern University, points to the shift in executive compensation more in the direction of stock options. This arrangement gives managers more incentive to cut costs more in recessions and hold off in hiring in recoveries so that profits might surge first. However, one could point to the mandatory delay stipulated in some executive’s options to buy stock as giving them an incentive to look to the longer term.  Lynn Reaser, another economist, points to the lack of available external credit even more than a year after the financial crisis of 2008. She argues that managers conserved cash because they couldn’t rely on outside financing. However, firms like Apple, Yahoo, and Google are debtless and doing very well, so I would question the premise that outside credit is something to be desired.  Managers betting on leverage typically allow their irrational exuberance to distort their debt-to-assets and debt-to-profit benchmarks. If managers have become more averse to debt, maintaining higher cash reserves is not a bad thing, even when little interest is made on the cash. Once the new level is achieved, then only replenishments would be needed, so the diminishment of a firm’s investing in equipment or new hires would be temporary—to build the reserves and then to keep them stocked.  Drawing on their firm’s cash reserves rather than asking a bank for a loan or selling bonds proffers more freedom and self-reliance—qualities that are valuable even though they are difficult to quantify.  So we might view the recovery from the financial crisis of 2008 as a systemic correction in which managers were weened off their reliance (i.e., addition) on debt. Of course, the key lies in holding to the correction rather than falling off the wagon. Perhaps there should be an AA for debt-ridden businesses.

Source: Robert J. Samuelson, “The Big Hiring-Freeze,” Newsweek (August 2, 2010), p. 26.