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Saturday, June 25, 2011

Is States' Rights in the E.U. Racist?

Thousands of Romania’s Roma people (also known as Gypsies) headed for the wealthier Western E.U. states, setting off a clash within the European Union over just how open its “open borders” really are. Migration within the 27 states of the E.U. became a combustible issue during the economic downturn. The Union’s expansion that brought in the relatively poor states of Romania and Bulgaria in 2007 renewed concern that the poor, traveling far from home in search of work, would become a burden on the state governments of the wealthier states. The migration of the Roma also raised questions about the obligations of Romania and Bulgaria to fulfill promises their governments had made when they joined the Union. Romania, for instance, mapped out a strategy for helping the Roma, but financed little of it.

The full essay is at "States' Rights in the E.U."

The European Union: Dissolution or Consolidation?

In its 1993 Maastricht decision, the German Constitutional Court ruled that national authorities are not bound to respect and apply Community law to the extent that it exceeds the outer boundaries of Germany’s transfer of sovereignty to the E.U.  The Court also ruled that no transfer of sovereignty is valid to the extent that it results in a violation of the fundamental individual rights guaranteed in the German Constitution.  Nevertheless, the Court’s latest ruling on this subject indicates a willingness to rely on the European Court of Justice (ECJ) for the vindication of those fundamental rights.

The complete essay is at Essays on Two Federal Empires.

Friday, June 24, 2011

A Professional Misnomer: Self-Proclaimed Professionals

By the turn of the twenty-first century, the term, "professional" had become such a cherished word in the American lexicon that every American had decided that he or she is one. Evincing the Lake Wobegon effect—the tendency of most people to describe themselves or their abilities as above average—nearly everyone is wont to say, “I am a professional.” On housing listings on Craigslist, for example, people routinely use the word to signify that they are not students. In fact, even some students characterize themselves as professionals (though not as professional students!). Such common usage belies the term's claim to having a specific meaning. Moreover, the tendency of non-professions to deem themselves as professions nonetheless may evince one of the downsides of democracy—namely, its proclivity to excess in terms of self-entitlement. This is particularly likely to ensue from a citizenry that is lacking in self-discipline, virtue and knowledge. 

The full essay is at "A Professional Misnomer."

The European Council: Head of State of the E.U.

Concerning the European Council and the Council of the E.U., it can reasonably be asked whether such similar nomenclature is really necessary. It can be quite confusing. For example, I didn't realize that the European Council does not legislate; I had assumed that the Council of Ministers (a.k.a. the Council of the E.U.) handled the technical aspects of E.U. legislation while the European Council votes on broad and highly significant legislation.  Instead, the European Council "sets the EU's goals and the course for achieving them. It provides the impetus for the EU's main policy initiatives and resolves issues that cannot be settled at the ministerial level. It does not legislate." In contrast, the Council of the EU (aka the Council of Ministers) "adopts EU laws, a responsibility it shares with the European Parliament in most policy areas."  The Council of the E.U. also "concludes international agreements between the EU and other countries . . . ; plays a key role in the development of the EU's Common Foreign and Security Policy (CFSP), based on guidelines set by the European Council." It is the Council of the E.U., rather than the European Council, that corresponds to the U.S. Senate. Beyond both bodies representing state governments, the unique foreign policy role is shared by both “upper chambers.” An implication is that cabinet secretaries in the American state governments could replace U.S. Senators (and, conversely, the people of the European states could elect delegates or senators to represent their states in the Council of the E.U.).  In my view, the use of state cabinet secretaries (and having the governor’s association set the U.S. agenda) would be an improvement on senators (and the U.S. President in setting the Union’s agenda).  Such a change would reinvigorate American federalism against continued consolidation.

The complete essay is at Essays on Two Federal Empires.

Thursday, June 23, 2011

On the Belgium Stalemate: The E.U. to the Rescue?

On June 22, 2011, Philip Claeys, a representative in the E.U. Parliament, once again repeated his demand for Flemish independence, calling for the "orderly break-up" of Belgium. His call came as Belgium was entering its second year without a viable state government. It is no wonder, therefore, that a E.U. legislator would get involved. Repeated attempts had been made in Belgium during the previous year to resolve the political disagreements between Flanders and Wallonia—getting nowhere.



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

Wednesday, June 22, 2011

Burn Baby Burn: Moral Hazard & Fairness

On a call with another of the company’s traders when a wildfire in California was putting some electric wires at risk, an energy-desk trader at Enron quipped, “Burn Baby Burn!”  The loss of the electricity wires would have decreased supply, thus jacking up the price of electricity, which Enron was only too glad to provide.  Similarly, “Burn Baby Burn!” can be put in the mouth of any one of the firefighters of the South Fulton fire department in Tennessee who watched Gene Cranick’s home burn to the ground because he had not paid the $75 annual fee that residents outside of city limits had to pay in order to receive the “service.”  When Cranick called 911 as his house was on fire, he was essentially told, “I’m sorry, sir, but you are not on the list for that service. Have a nice day.” 

The full essay is in The full essay is in Cases of Unethical Business: A Malignant Mentality of Mendacity, available in print and as an ebook at Amazon.com.

Sunday, June 19, 2011

Mind-Games: On the Self-Regulatory Market

Two days after the LTCM bailout was agreed to in 1998, a worried Alan Greenspan, leaning toward raising rates at the time, cut the federal funds rate. It was not enough to calm the markets, and he cut it again three weeks later. . . . It was not the self-correcting powers of the markets but aggressive central bank intervention plus a new round of irrational speculation that provided a floor under the downward financial prices and the calamitous consequences of bad Wall Street decisions. It was not even the LTCM rescue alone by private banks that saved Wall Street” Madrick, p. 281).
“Alan Greenspan learned no lessons from these events about the inherent instability of a completely free market in finance. He still insisted markets regulate themselves” (Madrick, p. 282).
Milton Friedman believed that government regulation keeps markets from being efficient; he assumed that the market mechanism is capable of regulating itself. That increasing uncertainty and risk might reach a point that a market mechanism would freeze up, or collapse, rather than simply incorporate the increased volatility through pricing is a point extrinsic to the efficient market thesis. That theory submits that markets tend toward equilibrium, rather than spiraling out of control.
Testifying before Congress after the credit crisis of 2008, Alan Greenspan was asked by Henry Waxman (D-Calif) whether the government-averted credit-market collapse had prompted any revision of the retired Fed Chairman’s economic paradigm. Greenspan admitted to a flaw in the ointment of self-regulatory market theory. In spite of 40 years of evidence to the contrary, official Washington’s font of economic wisdom had drawn a blank.
Lest the human mind be left without an operative paradigm by which one can make sense of the world, by mid June 2011, Greenspan had mentally reduced the fly in the ointment to a mere footnote. Asked by Charlie Rose on The Charlie Rose Show what how the crisis had changed his understanding of the market mechanism and economics, Greenspan admitted his surprise that bank CEOs do not always operate their banks so as to keep them solvent. This is how the financial crisis of 2008 had changed his view of the market mechanism after all. Of course, such a fault could be attributed to distortive government regulation (e.g. regulation Q limiting deposit interest) rather than to some inherent weakness in the market mechanism being able to regulate itself.
Greenspan had backtracked; he had unlearned his lesson much like an alcoholic “forgets” that he or she has admitted to having a drinking problem.  Faced with a fundamental flaw in a paradigm on which it relies, the human mind can succumb to retreating to the safety of denial. In his Structure of Scientific Revolutions, Thomas Kuhn tells us that it can be a generation before the downfall of a reigning paradigm is finally recognized, after the current proselytizers have passed and the people to come, without a vested interest in the prevailing paradigm, have taken their place. Perhaps it is only the human mind writ large (i.e, intergenerational) that advances, or really learns.
Lest we have to wait for the dead to bury themselves, we can affirm and acknowledge right now that the market-mechanism is not inherently self-regulating, and that this flaw is not caused by government regulation. Instead, markets can collapse—just as a human being freezes up from fear when risk and uncertainty hit a certain threshold—only to be revived by governmental intervention.  

Jeff Madrick, Age of Greed: The Triumph of Finance and the Decline of America, 1970 to the Present (New York: Alfred A. Knoff, 2011).