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Saturday, September 10, 2011

On the Perils of E.U. States Being In Charge

Wolfgang Schäuble, the finance minister of the state of Germany, does not mince words when it comes to the state of Greece sticking to its promise to reduce its deficit in order to receive aid from the E.U. through its Financial Stability Facility. Aid will be paid, he said on September 8, 2011 in a radio interview, “if Greece actually does what it agreed to do.” If monitors do not sign off on Greece having fulfilled its promises, then “Greece has to see how it gets access to financial markets without help from [the E.U. facility].” Ouch! Meanwhile, the state government of Finland was still insisting on collateral from Greece as a condition for contributing to the aid. Adding still additional pressure on the Greek government, Mark Rutte, prime minister of the Netherlands, had said on the previous day that states receiving aid should either cede control over their budgets or drop the euro. According to the New York Times, many economists believe that the ripple effects from Greece’s departure from the euro “could be catastrophic for the world economy.”

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

Thursday, September 8, 2011

Balancing Budgets: Italy vs. Wisconsin

In what could be dubbed a tale of two states, Scott Walker of Wisconsin bragged about bringing the budget into balance without raising taxes while Silvio Berlusconi broke his pledge not to raise taxes in order to balance his budget for 2013. Walker relied on spending cuts and constricting the collective bargaining of government employees, while Berlusconi agreed to a package of tax increases, spending cuts and fewer labor protections to make up for $76 billion (54 billion euros) by 2013. The tax increases include raising the value-added tax from 20 to 21 percent and imposing a “solidarity tax” of 3 percent on state residents who earn more than $420,000 (300,000 euros). The latter tax would run through 2013. At a news conference in August, 2011, “Berlusconi acknowledged that he had pledged never to raise taxes, but that the attention of world markets had forced him to do so.” Was breaking his pledge a vice or a virtue?

Scott Walker would undoubtedly say “A VICE!” To be sure, there is merit in Walker’s feat in balancing a government’s budget without asking more from residents in terms of taxes. However, there is also merit in Berlusconi’s decision to “spread the pain” fairly even to the rich. Solidarity is a value that implies that we are all in it together so everyone sacrifices—not just those least able to do so. Choosing a spending-cuts-only approach wherein sustenance of the poor is compromised while the rich are not asked to contribute evinces not only a certain set of priorities, but also a certain value-set, which is antipodal to the principle of solidarity. From this standpoint, Berlusconi’s breaking of his pledge can be pardoned.

However, if excess government spending (i.e., not affecting the sustenance level) exists, it may be unnecessary to raise anyone’s taxes to balance a budget. To be sure, legislatures can pad lobbyists’ pockets by inflating budget items, and it is virtuous to cut such spending particularly to balance a budget. Also, labor unions can gain excessive power and demand too much from governments as well as workers. For example, in Wisconsin even part-time temporary instructors at public junior colleges must pay union dues amounting to a significant part of their pay per class. Someone teaching one class for one term only has different interests than a career instructor who teaches full-time at a college, yet the teachers’ union does not discern this difference. The problem comes in when a supermajority in government goes beyond correcting for such excess power in seeking to balance the budget on one segment of the population while another segment is allowed to go unaffected. The basic principle of fairness is violated in such a case.

The core principle not to be violated by any government may be put as follows: Instead of affecting the safety net on the sustenance level, taxes should be raised on those residents able to afford the additional tax. Being able to afford a tax justifies not depriving the poor of basic living requirements such as food, shelter and medical services. Contributing where one is able without undue hardship and a human right to sustenance can be said to be the two pillars of the principle of solidarity. Without this principle, a society is merely the sum of parts—a mere aggregate wherein selfishness rules rather than bows to a higher good. That is to say, solidarity thwarts misordered concupiscence while being necessary for genuine society.


Rachel Donadio, “Italian Senate Approves Austerity Plan,” New York Times, September 8, 2011. http://www.nytimes.com/2011/09/08/world/europe/08italy.html

E.U.: Ever Closer Energy

Günther Oettinger, the energy commissioner at the E.U. Commission (the E.U.’s executive branch), said at a news conference on September 7, 2011 that the E.U. needs to look “beyond its borders to ensure the security of energy supplies.” Having the states “act together and speak with one voice” through their federal government is the rationale for ever closer union. To be sure, ever closer union has its limits; the hominization of Europe via political consolidation would ignore the innate diversity that exists within any empire-level union of states, whether the E.U., A.U. or U.S. Even so, fear of consolidation need not hamper Europe from being able to benefit from united action.

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


Wednesday, September 7, 2011

Are There Constraints on a Supermajority?

How “extreme” can a legislative supermajority get? Complicating an answer, the term extreme may be applied to a piece of legislation by one person and refused by another. I come from a medium-sized city in the Midwest, where extreme includes commuting to work by bicycle during the summer (such things are likened to “thinking outside the box”). Where a pathological fear of change grips a town, you don’t have to go far to find someone proscribing something or other as too extreme. At the level of the U.S. governmental institutions, one party might deem universal health insurance through extant private insurance companies as extreme—tantamount to demonic European socialism—while another party might view the reform as unduly constrained by the status quo (i.e., via private enterprise, absent even a public option). Extreme, it turns out, depends on the observer.

It follows that it is extremely difficult to determine whether a supermajority has gone too far in legislating its will through a government. Concluding the resultant legislation is too extreme, given the legitimacy that comes with the democratic process, is subject to critique and repudiation. What limits exist on a supermajority’s legislative prerogative? What limits should exist? Should any exist?

In the E.U., states have certain planks in their basic law that cannot be changed by amendment. This represents a limit on what a supermajority can do. The American states have no such permanent basic law; any part of a constitution can be changed through amendment. Of course, both the E.U. and U.S. contain limitations on what can be in a state constitution. For instance, an E.U. state cannot add a plank to its constitution nullifying all E.U. laws while remaining a member of the union. South Carolina tried such a move in 1830 only to be rebuffed by Andrew Jackson in the White House. So being in a political union can act as a limit on a supermajority in a state legislature.

Additionally, having to satisfy other parties in the governing coalition in a parliament can act as a constraint on any one party getting too extreme. Furthermore, having a bicameral (i.e., two chamber) legislature can permit divided government. Two-party systems tend to rely on this constraint. When a supermajority controls both chambers and the executive’s veto pen, the courts become the final constraint other than possibly the next election. In the American context after the 2010 election, Republicans had a supermajority controlling the legislatures and chief executives in several of the republics. The question of limits moved to the fore.

For example, the Republican Party enjoyed a supermajority of 124 to 41 in the Kansas legislature—plus control of the executive branch. Rather than contending coalitions checking each other within the party, a conservative bloc guaranteed a united supermajority. As a result, a series of anti-abortion bills were quickly made law. Enter the federal court in the summer of 2011. The judges imposed injunctions preventing two of the new laws from taking effect pending the outcome of suits against them. The New York Times observes that “in a year in which expanded Republican majorities in many states have been able to operate without the usual obstacles presented by divided government—threat of veto from a governor, split chambers or even minority opposition large enough to force compromise—these court challenges amount to the first real efforts to slow the crush of conservative legislation.” The paper goes on to note that such efforts are no guarantee that the crush would necessarily be lessened.

In Wisconsin, the republican legislative and executive branches pushed through limits on collective bargaining of government employees, including teachers. The Wisconsin Supreme Court subsequently affirmed the legitimacy of the law. One might say that the Republican Party had an insurmountable majority in all three branches of government. Where this is the case, one might wonder how—in James Madison’s language—the minority can be protected from the tyranny of a majority. The judiciary has the role of protecting individual rights against a government, but that branch can effectively be controlled by the same party that holds the supermajority. Also, were the judiciary is at the union level, the effect can be one of political consolidation, which creates pressures particularly when the union is on the empire scale (e.g., U.S. and E.U.). This must be weighed against the power of local elites in the judiciaries of the states. The abortion cases in Kansas demonstrate how the rights of individuals can hang in the balance (i.e., not just of minority political parties).

Lest divided government be lauded as the answer, however, one might recall that gridlock can bring inaction more than compromise when different parties control the legislative chambers (and/or executive branch). An intractable problem, such as having over $14 trillion in government debt (the U.S.), may require significant governmental action that can be stymied by stubborn gridlock. The cost of partisanship was evident in July 2011 as Congress’s “handling” of the debt-ceiling resulted in a AA rating from AAA by Standard & Poors and a public approval rating of only about 20 percent.

Moreover, a patchwork of laws, each based on particular compromises made by the contending parties, may enervate the economic or political system itself. So rather than preventing one party from being able to enact its program by relying on divided government, Americans might want to consider structural limitations that are not triggered before any legislation is passed. Making the judiciary less partisan by how judges are selected might be a step in this direction. Also, making it easier for more than two political parties to be represented in a two-party-system legislature might temper the impact of any one party’s ideology from carrying the system too far—too extreme—in one direction. Such constraints are better than the alternative of gridlock paralysis, particularly at the state level—given the extent of political consolidation in the U.S.

Divided government can be less relied on at the state level that at the federal level. This differential alone would structurally “push” more domestic government back closer to the people and accommodate the innate cultural differences that exist across a continent and beyond. Oklahoma is not Vermont (even if most Europeans tend to mesh them vaguely as “American”). Systemic thinking, such as is evinced in allowing—by structural design—for divided government more in Washington than in Austin, is urgently needed in America. Even so, Americans are more oriented to going from issue to issue—even while observing that the system is somehow fundamentally broken—than looking at the system itself and proffering and voting on systemic proposals apart from any particular partisan issue.


A.G. Sulzberger, “Courts Put the Brakes on Agenda of G.O.P.”, New York Times, September 6, 2011. http://www.nytimes.com/2011/09/06/us/06legal.html

The German Court in the E.U.: Exasperating or Mitigating Germany's Veto in the E.U.?

Did Angela Merkel violate the property rights of residents in the state of Germany by agreeing to the initial bank bailout in the E.U.? Should she have gotten the approval of the Bundestag first? According to a German state court on September 7, 2011, “no and a qualified yes.” The court ruled that the approval of the Bundestag’s budget committee is necessary for significant increases in the European Financial Stability Facility.

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

Tuesday, September 6, 2011

Slovak Resistance to Expanding the E.U. Bailout

Richard Sulik, Parliament Speaker of the Slovakian legislature, has argued that the only real solution to the debt crisis in the E.U. is rigorous enforcement of the E.U. regulations on budget deficits and public debt. He has been particularly angered by his state, the second poorest in the E.U., having to bail-out a richer state that has consistently violated the E.U. regulations. Additional debt, he has insisted, is not a way out for the PIGS. Slovakia, after all, had to adhere to strict limits on everything from budget deficits to inflation rates in order to be able to adopt the euro. “Now when I see what is being allowed for Greece and Italy, it really makes me angry,” Sulik admits. “We have to pay because of this double standard. It’s a real injustice.” Indeed it is. Bailing out Greece so the state won’t default effectively rewards that state government for profligate spending and tax avoidance in violation of the E.U. regulations.  

Solely from the standpoint of debt, adding more is not a way out, according to Sulik. “The more we let [states] violate the rules, the worse things will get,” he said. So he opposes expanding the bailout. Undoubtedly putting a chill in the halls of banks in rich states such as France and Germany, he has bluntly stated, “Greece has to go into bankruptcy.” This would demonstrate that the E.U. is not an agency of the big banks holding questionable semi-sovereign state debt.

At the very least, having a state government official resist the interests of the big banks and their politicians in the “core” states is in the interest of a fuller debate within the E.U. as a whole on how to deal with “bad” states. In fact, potentially at least, a state like Slovakia can serve as a check on plutocracy gaining a foothold in the E.U. According to Sulik, it simply is not fair to ask poor Slovaks to bailout the big banks and richer states—even apart from the latter’s violation of the E.U. regulations. In short, the E.U. should not be run in the interest of French and German banks. At the same time, giving each state government a veto is a recipe for impotence at the E.U. level.

If the bailout must be expanded to obviate a financial collapse of the E.U., then having one hold-out can be a very expensive price to pay to avoid giving the E.U. additional competencies in fiscal matters. Were a qualified majority needed to augment E.U. competencies, Sulik's argument could still win the day--but his points would have to be sufficiently persuasive among the poorer states. If the banks' interest must be satisfied in order to avoid financial collapse, enough of the neutral states could turn from Sulik, who might otherwise be able to prevent the E.U. from avoiding catastrophe.

See Related Essay: Slovakia Stands Up to the E.U.


Gordon Fairclough, “Slovak Official’s Delay of Rescue Fund Vote Poses Problem for Euro Zone,” Wall Street Journal, September 6, 2011. http://online.wsj.com/article/SB10001424053111903648204576552504140991880.html

Monday, September 5, 2011

Federalizing Fiscally: E.U. looks to Early U.S.

I suspect many Europeans would bristle at the suggestion that Europe could learn a thing or two from American history.If the E.U. corresponds to the U.S. and has a federal balance-of-power roughly the same as that which existed in the U.S. at, say, 1820, then the Europeans could do worse than look at American history for lessons both in what to emulate and what not to do. 

The complete essay is at "Is the E.U. a Federal System?"

AOL Ignores TechCrunch’s Conflict of Interest

According to the New York Times, “When Michael Arrington, the editor of the popular Web site TechCrunch, told his bosses at AOL that he was forming a venture capital company to finance some of the technology start-ups that his site wrote about, they did not fire him or ask for his resignation. Instead, . . .  they invested about $10 million in his fund.” Tim Armstrong, AOL’s chief executive, issued the following statement when CrunchFund was announced: “TechCrunch is a different property and they have different standards. We have a traditional understanding of journalism with the exception of TechCrunch, which is different but is transparent about it.” As for Michael Arrington, Arianna Huffington claimed that he would have no influence on coverage—that there would be, in effect, a Chinese wall between TechCrunch’s news site and venture-capital firm. However earlier on the same day, Arrington stated, “I am TechCrunch and TechCrunch is me.” 

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