“Well written and an interesting perspective.” Clan Rossi --- “Your article is too good about Japanese business pushing nuclear power.” Consulting Group --- “Thank you for the article. It was quite useful for me to wrap up things quickly and effectively.” Taylor Johnson, Credit Union Lobby Management --- “Great information! I love your blog! You always post interesting things!” Jonathan N.

Saturday, May 14, 2011

Debt and Deficits: The U.S. and E.U. Federal Systems Compared

The willingness of U.S. Government officials to print money rather than tackle tough debt-cutting measures is in sharp contrast to the approaches to relieving the public debts in the E.U.  The state of Ireland, for example, nearly doubled its package of spending cuts and tax increases in 2010 to rein in its huge deficit.  Even so, borrowing costs in the states of Spain, Portugal and Greece spiked upward again in late 2010 and in 2011 amid bailouts by the E.U. via contributions from the state governments. The issues are as much political as economic.

The complete essay is at Essays on Two Federal Empires.

Friday, May 13, 2011

The E.U. States on Bailouts and Immigration: Where Lies the Vulnerability?

The history of the E.U. and its predecessor, the EEC, can be characterized as a series of fits and starts. For example, at one point France vetoed the accession of the U.K. as a state. Before long, Britain was in and the EEC could step forward. At another point, the proposed “constitutional treaty” was voted down in referendums in two states. A few years later, the Lisbon amendment was ratified and the E.U. could adjust, albeit piecemeal, to being larger. Without knowing the overall pattern in this history, one could easily take one of the backward steps for the demise of the union. Even an awareness of the pattern is not sufficient to arrest doubts. Moreover, a back step can be of sufficient symbolic value that it breaks even the “fit and start” pattern with truly dire consequences. Given the overall pattern, however, it is difficult to discern such a baleful symbolic move back.

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

Wednesday, May 11, 2011

Wall St. Bonuses and TARP: A Tale of Two Cities

Wall Street profits totaled $21.4 billion during the first three quarters of 2010. The prior year's record of $61.4 billion was fueled by the bailout financed by American taxpayers. Wall Street paid out $20.3 billion in bonuses on the 2009 profits. According to New York City Comptroller John Liu, "The astounding recovery of financial firm profitability in 2009 has been followed by a mixed year in 2010, yet total compensation in the industry is expected to be up modestly once year-end bonuses are paid." Goldman Sachs’ CEO Lloyd C. Blankfein and his top subordinate executives collected about $111.3 million in stock in January 2011. It was a delayed payoff from 2009 and the bank’s record-setting 2007 bonuses, according to a Bloomberg News report. Within a year after the bonuses had been approved, Goldman Sachs took $10 billion from the U.S. Treasury, converted to a bank and was borrowing as much as $35.4 billion a day from Federal Reserve emergency programs, Bloomberg reported. In 2010, the bank paid $550 million to settle U.S. regulators’ fraud charges related to a mortgage-security company sold in 2007.

The full essay is at Bonuses and TARP.

Sunday, May 8, 2011

Regulating Smoking in China: An Ethical Conflict of Interest

Government ownership and control of a (or the) means of production is socialism. It can applied to an entire economic system or to particular enterprises. Socialism involves a structural conflict of interest for government when it seeks to regulate that which it owns. Specifically, where a government as owner enjoys the benefit of profit from the enterprise, that government has a financial interest that is antithetical to the restriction of the produced product. Such a restriction could be warranted by public health or safety, for example. In short, the public good can be opposed to a government’s own financial interest even as that government is charged with acting in the public interest. It is the incorporation of a private interest into a government, which is inherently in the public interest, that sets up the conflict of interest. Public health in China provides a case in point.

Three hundred million Chinese smoke. This number is roughly equivalent to the entire U.S. population in 2000. The addiction kills an estimated 3,000 people a day in China. In 2010, there were 1.2 million tobacco-related deaths. One out of three cigarettes smoked worldwide is smoked in China. It is estimated that smoking will kill about a third of Chinese men under 30. On May 1, 2011, the Chinese government banned smoking in indoor public places. However, the law contained no penalties. According to Time magazine, the law is not likely to have any effect.

The reason for the lenient regulation may come down to the powerful China National Tobacco corporation. In 2010, taxes and profits from the state-owned monopoly were roughly 7% of the government’s revenue. That gave government officials a disincentive to issuing regulations that could be expected to reduce the consumption of cigarettes in China.

Even if the government’s expense in covering health-care costs for the 3,000 Chinese a day who die of smoking exceeds 7% of the government’s total revenue, even a partial loss of revenue would likely be resisted by government officials.  Aside from the possibility of kick-backs related to the revenue, attention to revenue can dwarf that to costs where there is no market competition.

Ethically, the government officials otherwise tasked with regulating so as to protect the public health in China and thus prevent deaths from smoking suffer from the structural conflict of interest wherein the government’s financial and public health interests are in conflict. That is to say, the officials not only have their own ethical dilemmas to resolve; there is also a larger institutional problem akin to a house being designed to be at odds with itself. 

As Lincoln said in 1863, a house divided against itself cannot stand. This truth pertains not only to a psyche, but also to an institution (as well as to a system of institutions, such as a political economy). Lest the structural or institutional conflict of interest be ignored or relegated by advocates of “ethical decision-making,” rectifying an institutional conflict of interest can obviate any related individual dilemmas. In contrast, even the person who comes to a conclusion regarding his or her own ethical position within the overview of an ongoing institutional conflict of interest still suffers from the tensions inherent in the larger conflict until it is resolved.


“A Smoking Ban without Teeth,” Time, May 20, 2011.

See related essay: Socialism Where You Might Least Expect It.

Socialism Where You Might Least Expect It: Pruning Back a Partisan "Re-Definition"

On Fox News in the wake of the new law in 2010 that would expand health-insurance to the poor beginning in 2014, Brit Hume and Newt Gingrich (former Speaker of the U.S. House of Representatives) both (re)defined socialism as “government control of private property.” Their rendering falls short, however. According to the Random House Dictionary (via Dictionary.com), socialism is “a theory or system of social organization that advocates the vesting of the ownership and control of the means of production and distribution, of capital, land, etc., in the community as a whole” (italics added). Whereas government regulation of privately-owned means of production and distribution involves some of the control being in the hands of the community as a whole through its government, socialism includes the vesting of both ownership and control (and not a portion thereof) in the community as a whole through its government.

By implication, government ownership without formal control does not constitute socialist enterprise. That ownership and control can indeed be separate in practice even if not formally is persuasively put forth by Bearle and Means in the classic treatise of 1932, The Modern Corporation and Private Property, which is on the separation in modern large corporations. Theoretically, a government could own a company that is controlled by its management. Although if this is as in managements usurping stockholders' control, the control would de facto rather than de jure (i.e., in practice rather than legally) and thus the enterprise in question would be considered socialist legally and privately-controlled in practice. Of course, if a government formally hands over control of an enterprise while retaining ownership, technically that enterprise would not be socialistic.

Therefore, the definition of socialism is more delimited than one might expect from all the chatter from the talking heads. Accordingly, the attempts made by the usual suspects to render the new regulations on health-insurance as somehow socialist must be considered to be specious. Otherwise, we shall have to admit that dictionaries are for naught and that anything goes linguistically. That would be the height of puffed-up arrogance and decadence. Because Gingrich holds a doctorate in history (equivalent to the J.S.D. in law and the D.Sci.M. in medicine), it is reasonable to conclude that he should have known better. A highly educated person intentionally distending the meaning of a word at the expense of clarity for political expediency evinces hypocrisy, if not duplicity. Sadly, the general public is apt to run with such “redefinitions” under the reasonable assumption that hosts and regular guests on news networks having a global audience have a competence deserved by the stature just from being a "celebrity" a major network.

To be sure, the meaning of words can change, but I contend that such shifts are gradual rather than artificially constructed for short-term political use. In the case of socialism, the term has historically applied to an entire system of social organization (political and economic elements folding into it in so far as the government, a political organization standing for a community as a whole, owns the means of economic production and distribution). 

With the fall of the U.S.S.R. and China’s allowance of private enterprise, socialism has manifested in governments owning and controlling particular enterprises rather than every means of production and distribution. For example, the Green Bay Packers’ football team is socialist because the city of Green Bay Wisconsin owns the team. So too is the China National Tobacco Corp. Lest it be objected that the latter is a monopoly whereas the Packers organization is not the only American professional football team, the NFL itself is a monopoly that has obtained an exemption from U.S. anti-trust law. Anyone who buys a ticket to an NFL game can readily feel the pinch of monopoly rents.

In short, socialism can be distinguished from government regulation of privately-owned economic enterprise. Furthermore, socialism can be applied to particular enterprises as well as in theory to an entire economy whose means of production and distribution are owned by the community as a whole (presumably through its government).  

See related essay: Regulating Smoking in China