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Thursday, September 6, 2012

ECB Bond-Buying: Democracy Deficit


In September 2012, the European Central Bank unveiled the Outright Monetary Transactions program in which the central bank would purchase bonds from debt-laden E.U. states that use that euro and agree to “strict and effective” budget policy. The bank’s head, Mario Draghi, insisted that the program is within the bank’s mandate to protect the value of the euro. Indirectly, if a state government that uses the euro were to default, the currency itself would face downward pressure that could cascade into the collapse of the currency.

                                                                                                        Will the ECB be the one to save the euro?     Estonian Free Times

Another virtue of the program is that it obviates the need of E.U. officials to confront state officials in Germany who have vehemently opposed the issuance of “Eurobonds.” Rather than issue such bonds and lend or give the proceeds to states such as Greece and Spain, the ECB can effectively fund those states by purchasing their debt, which in itself should lower their borrowing costs in issuing more state debt of their own.

The drawback can be said to be in terms of the long-run charge that the E.U. evinces a democracy deficit, for the ECB, unlike a state legislature and the E.U. Parliament, is an unelected body. To be appointed by elected officials is not the same as being elected. As in the case of the Federal Reserve in the U.S., the E.U.’s ECB is designed to be buffered from political pressure, but this virtue is also a vice in terms of democratic accountability.

Put another way, the stalemate between the state governments regarding the issuance of Eurobonds can be obviated by the ECB, but such a “pressure release” suffers a want of democratic legitimacy. Behind the Eurobond stalemate is the refusal of the E.U. citizenry to render a decision on whether the E.U. should continue toward “ever closer union” in line with Jean Monnet’s dream or reverse course into a kind of international organization or trade union/network. The Eurobond question, like the “assumption” debate in the Washington administration in the 1790s in the U.S., stands for a larger question—that of whether a significant additional shift of governmental sovereignty should be made from the states to the union.

One of the casualties of the ECB’s new program is an answer to this vital question in Europe. Put still another way, should the ECB be the party to decide, in effect, the vital question even though the action obviates the frustration in the democratic stalemate? The easiest route is not necessarily the best. Ultimately, making choices that are difficult reflects on the character of a people, and in a republic (or a republic of republics), a virtuous citizenry is indispensable. Sidetracking democracy is in effect a tacit admission that the citizenry is not up to self-government, and thus the republican form of government. Das ist nicht gut. Ich glaube, die Leute mag besser als das. Les gens voudraient decider les-memes dans une republique, mais les gouvernements de les etats ont peur de ca. C’est plus facile de avoir le ECB decider. Je parle ici directement avec mes amis Europeens. J'essaie a vous aider avec des nouveux idees.

Source:

Reuters, “ECB to Revamp Bond-Buying”, Deutsche Welle, September 6, 2012. http://www.dw.de/dw/article/0,,16223493,00.html

 

Should Greece Cut Military Spending?

As the government of Greece was in the process of working out a 11.5 euro austerity plan that would involve forced retirements in public sector and pension cuts so the E.U. would approve another installment of the bailout to the state,  one Greek remarked, “Mark my words. In the coming months, there will be a revolution, and this government will fall.” This sounds a bit like “buyer’s remorse” concerning the June election wherein the anti-bailout/austerity party barely lost. What about all the Greeks who voted for Samaras? Were they so quickly turning into radicals? Is democracy so fickle?  If so, the notion of terms, extant in republics other than in Walker’s Wisconsin, is vital. That is to say, if a people would so soon turn on their own votes, it is important that the elected representatives have some protection from the momentary passion of the masses.
 
On the other hand, the German-led “austerity-only” approach to Greece had clearly exacerbated the Greek fiscal condition, as rising unemployment demands more cash from the state government so people don’t starve. Absent any sort of admission of error on the part of Angela Merkel, revolution could be the only option for a people suffering from the wrong course. That is to say, revolution is justified when government officials refuse to admit to and correct a course of action that is counter-productive and even ruinous.

                                                                                  Is keeping Greece in the euro worth the austerity?    source: times.com
 
The good in enabling elected representatives to “do the right thing” even when the masses at the moment feel otherwise can be distinguished from the bad in a stubborn politician whose ideological policy is ruinous to the people. The problem is how to design a democratic process wherein the good is protected while the bad is thwarted. Samaras needs some space to do what might not match the momentary passions of the mob, but at the same time the people need some way to “just say no” to a policy shown to have made fiscal matters worse. Recalling a head of state, such as Scott Walker in Wisconsin, just because of disagreement with a bill signed by the official is not only jejune, but also counter to the protection an elected official needs in order to be a statesman. How, therefore, can the Greek citizens “just say no” to still more austerity without eviscerating representative democracy in their state? The problem is one of constitutional design permitting statesmanship while checking tyranny. I cannot say I have a solution.
 
In terms of the austerity proposal itself, I suspect that much more could be cut without having to touch pensions or sustenance programs. Specifically, I would point to the Greek defense budget and ask whether the state requires any military at all. Greece is a state in the E.U. which mitigates the need for Greece to have a military. For instance, whereas formerly armies were needed to resolve conflicts between states, now the European Court of Justice or the European Court of Human Rights can be appealed to in resolving a dispute. Furthermore, simply being in a union reduces the likelihood of a conflict that would reach the need for military action. Lastly, the E.U. itself has a military force (at one point this was set at 60,000 troops). The notion that every E.U. state needs a defense budget is antiquated. To be sure, the American states have armies, which the U.S. president can use, but these national guards are I suspect much less costly to the U.S. states than are the defense budgets of the E.U. states.
 
In short, the Europeans may be looking too closely at budget items in cutting spending. A broader perspective is needed, from which I suspect a lot more money can be cut without “reaching bone.” Put another way, the Greek people need not suffer so much, if only their state officials would reconfigure their notions of Greece as a state in a union. The status quo can become antiquated yet people can fail to realize this. Such a deficient perspective can prevent alternatives that would show current choices to be unnecessarily difficult. Perhaps there are other broad categories of spending that Greece could reduce with relative impunity from the standpoint of citizens feeling the need to revolt. I contend that a paradigmatic shift is necessary for such benefits to be realized.

Source:

Liz Alderman, “Greek Government and Public at Odds Over New Cuts,” The New York Times, September 6, 2012. http://www.nytimes.com/2012/09/06/business/global/greek-government-and-public-at-odds-over-new-cuts.html

 

Aid to Egypt vs. Paying Down Debt

The debt of the U.S. Government—some $16 trillion in 2012—can be difficult even to grasp conceptually. One does not run into a trillion of anything in daily life, much less sixteen times a trillion. Without any tangible examples that can give us some inkling of the magnitude of the number, “sixteen trillion” can easily become a number one rattles off as if a “oh, by the way,” as in, “Oh, by the way, that sort of number will never be paid off.” One can point to the debt as a symptom of a systemic imbalance, as in that of consolidation over the constitutional federalism. That is to say, the magnitude of the debt can point to the lack of limitations facing Congress in its appropriating capacity. It could be argued that the ballot box is such a limitation, but what if the electorate themselves have a similar imbalance in terms of spending what they don’t have. With student loan debt at $1 trillion as of 2012 and a third of the amount in default, the federal debt can easily be seen as a manifestation of a more basic or fundamental imbalance of the psyche that transcends yet subtly fuels policy.


 
 
In reading of the Obama administration’s preparation of a pact to cut $1 billion from what Egypt owes the U.S. Government for agricultural purchases, I was stunned to read that “money that would otherwise pay down the American debt” would instead be spent on “training and infrastructure projects in Egypt intended to attract private investment and create jobs.” To be sure, rising unemployment in Egypt could undermine the democratically-elected Morsi government, so a strategic argument could be made on behalf of the American aid. However, the almost cavalier attitude toward paying down the federal debt is rather strange, and misplaced, given the gravity of the problem. Put another way, to put a strategic objective primarily oriented to the unemployment of a state that is not in the U.S. above paying down U.S. debt can be viewed as a questionable priority. It seems to indicate a desire to fix another’s problems at the expense of making a dent in one’s own. The scenario of the homeowner who lets his own grass grow out of control yet lends his mower to his neighbor whose lawn is has become “unbecoming” captures this sort of mentality.
 
In short, the debt of $16 trillion can be read as a mirror of sorts of a certain mentality—one that falls far short of that which a virtuous and responsible citizenry would have. It is no accident that Jefferson and Adams agreed in their later correspondence that such a citizenry is necessary for a republic to remain viable.
Source:

Steven Myers, “U.S. Is Near Pact to Cut $1 Billion from Egypt Debt,” The New York Times, September 4, 2012. http://www.nytimes.com/2012/09/04/world/middleeast/us-prepares-economic-aid-to-bolster-democracy-in-egypt.html?pagewanted=all

 

Wednesday, September 5, 2012

Facebook Holds Employees to Declining Stock

With Facebook’s stock trading at $17.73 a share just after Labor Day 2012, down more than half from the IPO issue-price of $38, further downward pressure was anticipated due to the upcoming expirations of the lock-up. Employees would be able to cash in approximately 220 million shares at the end of October, 780 million shares in mid-November, and still more in December and then in the following May 2013. Experts were not putting much stock in Mark Zuckerberg’s decision to hold onto his options for at least a year. Rather than trying to assess the impact of the downward pressure on where the price might go, a business ethicist would be apt to notice a subtle point of fairness by class pertaining to when the options can be sold.

                                                                                     
The full essay is at "Taking the Face Off Facebook."

Bulgaria Shrugs Off the Euro

In early September 2012, Reuters reported that Bulgaria had “abandoned plans to adopt the single currency in response to deteriorating economic conditions and rising uncertainty over the prospects of the European Union. Finance Minister Simeon Djankov was quoted as saying as much.  Bulgaria was at the time the poorest state in the E.U. (similar perhaps to Mississippi in the U.S.). It is significant that Bulgaria was one of the least indebted states and was “trying to stick to tight fiscal discipline to avoid risks to the lev currency, which [was at the time] pegged to the euro.” In this regard, Bulgaria was like Finland and Germany in that it faced the prospect of paying for other states’ profligacy and lack of self-discipline. From this vantage point, it makes perfect sense for Bulgaria to demur. However, the perspective may be short-sighted in another respect. Specifically, Bulgaria risked missing the boat on the E.U.
 
Djankov’s comment on the rising uncertainty on the European Union itself is too broad; even if the euro currency fails, it would be a long shot to say that the E.U. itself would follow suit. After all, the E.U. existed before the euro went into circulation. To be sure, irrational reactions to the demise of the euro could prompt a self-fulfilling prophesy concerning the E.U. itself, but such a self-inflicted suicide would not necessarily follow from the loss of the euro. In fact, the increased integration among the states using the euro could leave the E.U. in a strengthened position for those states. In focusing on its own particular fiscal interests, the Bulgarian state government risked missing out on that E.U.

 
"Right now, I don't see any benefits of entering the euro zone, only costs," Djankov said in an interview with the Wall Street Journal. "It's too risky for us and it's also not certain what the rules are and what are they likely to be in one year or two." Such a focus on rules evinces a micro perspective. Alternatively, Djankov could have assessed whether a shift of more governmental sovereignty from the states to the union would be a good or bad thing for the E.U. (i.e., not just for Bulgaria). Looking beyond likely rules, in other words, would itself have been in Bulgaria’s interest. Looking above particular rules to the viability of the federal system is what I am getting at here. Part of the reason why more sovereignty needed to be shifted to the E.U. during the debt crisis is precisely because of the narrow strategic perspectives of state officials such as Djankov.
 
A union is more than the sum of the parts, and definitely more than the strategic interests of the stronger states, such as Germany. In opting out of the euro, Bulgaria unwittingly was placing itself on the periphery, yet again, as well as on the side of the states outside the euro that oppose additional shifts of sovereignty in the federal system (those states, such as Britain, even deny the federal system itself, supposing the E.U. to be some kind of network). It makes sense in a narrow fiscal sense for a responsible state such as Bulgaria to beg off having to rescue states that had been much less responsible fiscally. However, the state’s interest belies a lack of responsibility in the larger sense—in what one might call statesmanship. The hypertrophy of state power in the E.U. makes this kind of responsibly rare indeed (which is why the U.S. went early to shift relatively more sovereignty to the federal level—albeit not to consolidate).

Source:

Reuters, “Bulgaria Abandoning Eurozone Push on Concerns over Debt Crisis, EU Economy,” The Huffington Post, September 3, 2012. http://www.huffingtonpost.com/2012/09/04/bulgaria-eurozone_n_1852995.html?utm_hp_ref=business

 

Tuesday, September 4, 2012

Frank Lloyd Wright: Modern Renaissance Man

Perhaps no greater Renaissance man has been cited in American history than Thomas Jefferson. He wrote on the native plants of his country, Virginia, ran a plantation, designed buildings, founded a university, surveyed land,  was the head of state in Virginia, wrote a declaration of independence, and was the third president of the new American Union. More than two centuries after Mr. Jefferson, however, a cleft had become well-ensconced in American society between being an intellectual and a practitioner. The typical lawyer or physician, who holds two undergraduate degrees due in part to the political sense that a well-rounded citizenry makes a good electorate, has scant interest in intellectual endeavor. Indeed, one might even say that the “professions” place scant value on such activity; it is not “real work” or of the “real world.” The disdain is palpable, particularly in among the self-righteous in America. Yet Mr. Jefferson was able to bridge this gulf; so too can we. More contemporary examples can be cited to illustrate the mere possibility. The requisite delimiting "pruning" self-discipline might come as a surprise to people who presume that Renaissance breadth is borne of a wayward inability to "stay put."
 
When it was announced in 2012 that Frank Lloyd Wright’s archive was to be moved from his foundation to Columbia University and the Museum of Modern Art in New York City, it was reported that the architect had some six hundred manuscripts, as well as more than 23,000 drawings and forty large-scale architectural models and more than 300,000 pieces of correspondence. He also had a formidable art collection, though it would stay with the foundation. The number of manuscripts is what caught my eye. How many manuscripts is a leading lawyer or physician likely to written, even in his or her own field of work? What was behind Wright's foray into writing?

It can be said that Wright was a genius. In a world populated by victorian houses, he saw something very different. Seeing something different (having that genius) might have been enough to stir the jealousy of the city bosses in his native Madison in Wisconsin—they twice ignored the results of the referendums (which they wrote!) to ok the construction of a city building designed by the famous architect. Genius, however, does not account for Wright's foray into writing; rather, he must have valued the endeavor and sensed that he could do it very well. Even though he could have rested on his architectural laurels, he wanted to excel beyond his native fauna, and he was willing to put forth the effort.
 
                                                                                         Frank Lloyd Wright's "Falling Water" house.           FLW Fdn Archives/NYT
 
Similarly, the famous  clothing designer in the E.U., Karl Lagerfeld, came to excell at more than one field. Specifically, from having taking pictures of the models wearing his designs, he branched off into photography in its own right late in his career (instead of taking retirement), even though he could have rested on the reputation of his clothing line. He gained a reputation as a photographer from publishing a book of his photos taken at the French palace.

It is not that a genius in a field feels entitled to venture onto other fields as if doing so is of value in itself. Rather, there must be a sense of being able to extend one’s excellence without sliding onto mediocrity. This does not necessarily mean that the two fields are related. Excellence can be found in a disparate discipline. Yet this does not mean trying anything. Even within one's native field, one must limit oneself to what one can do well.
 
Being willing to let go of what is beyond oneself is part of being able to extend one’s excellence. The director of the Frank Lloyd Wright Foundation, for example, was willing to give up most of the valuable archive because he recognized that Columbia and the museum were better-fitted to house it. “It’s what guarantees the deepest impact, the highest level of conservation and access in perpetuity, said Sean Malone. “The potential for new audiences far outweighs the personal desire to have it close by.”  All too often, people feel a clinginess to what they have, or want to have something both ways. We want to retain our cake and eat it too. In being willing to give up something valuable out of a recognition that another institution would be better suited to house it, Malone evinces the sort of mature mentality that modernity could use. Moreover, delimiting what his foundation can do well enabled Malone to ask: “what else can I do excellently?” It is ironic that pruning lays the groundwork for a Renaissance person being able to extend his or her excellence (a virtue) on to other, even disparate, fields. In Malone’s case, in being freed up from the care of an archive for which is organization was ill-suited for anyway, he freed himself up to apply his strengths to other vintures, such as writing on virtue ethics, for example.

Beyond intelligence, a certain mentality that includes character or a virtue ethic involving self-discipline undergirds the bringing together of intellectual endeavor and praxis in the “real world” in a way that exudes excellence. A willingness to strive while others snooze and a value on excellence can catapult a person from the confines of a profession. A deeper, or more enriched sense of what it means to be human can result as one experiences the best in more than one domain of human experience. Just as a Buddhist would say that the “other shore” does not really exist (at least as another shore), one could say that the gulf between academia and the excellent practitioner exists only in the mind. It is a societal illusion perpetuated by a certain culture that values some things and not others. Fortunately, examples that transgress this illusion exist even in modernity. It is up to the rest of us to notice, and then decide whether we have it in ourselves to go the extra mile on a second or third course.

In the end, it is the human spirit that flourishes in the context of excellence achieved in more than one way. No one is inherently trapped in the routine of a lifeless job whose boredom reduces the task to money. Nevertheless, I suspect that sometimes it takes the words of a friend or two to enlighten a person so trapped as to where his or her passion lies. Then it is up to the person to seize the excellence within (carpe diem) and put forth the effort, to be active rather than static before it is too late.

Source:
Robin Pogrebin, “A Vast Frank Lloyd Wright Archive Is Moving to New York,” The New York Times, September 4, 2012. http://www.nytimes.com/2012/09/04/arts/design/frank-lloyd-wright-collection-moves-to-moma-and-columbia.html

Monday, September 3, 2012

China: Modest Growth or Full Employment?

As summer slid into fall in 2012, the Chinese government was giving no hint of any ensuing economic stimulus program. This was more than slightly unnerving for some, as a recent manufacturing survey had slumped more than expected, to 49.2 in August. A score of 50 separates expansion from contraction. A similar survey, by HSBC, came in at 47.6, down from 49.3 the previous month. Bloomberg suggested that China might face a recession in the third quarter. So why no stimulus announcement?  Is the Chinese government really just one giant tease?

 
Wang Tao, an economist at UBS, explained the “very reactionary, cautious approach” as motivated by the desire to avoid repeating the “excesses of last time.” Specifically, the stimulus policy in the wake of the 2008 global downturn sparked inflation and caused a housing bubble. According to the New York Times, China was avoiding “measures that could reignite another investment binge of the sort that sent prices for property and other assets soaring in 2009 and 2010.” Any binge cannot be good, particularly given the irrational excitement that can take on a life of its own in the market.
 
So too much stimulus can cause inflation and put people’s homes at risk of foreclosure, whereas a lack of stimulus means that a moderate growth rate is likely, rather than that which could give rise to full employment. It almost comes down to a choice between stability of shelter and income.  Is there no way out of this tradeoff?
 
Targeted government spending directed at providing jobs beyond that which the market is providing can unhinge the employment criterion from the management of the macro growth rate. That is to say, the Chinese government could see to it that citizens who want a job have one (paid for by the Chinese government). The government would not need to balance employment with inflation and housing in deciding whether to stimulate the economy. A modest growth rate can co-exist with full employment, but it takes a partnership between government and the market.

Source:

Bettina Wassener, “As Growth Flags, China Shies From Stimulus,” The New York Times, September 3, 2012. http://www.nytimes.com/2012/09/04/business/global/as-growth-flags-china-shies-from-stimulus.html?_r=1&hp

 

Sunday, September 2, 2012

Losing the Middle Class: An Educational-Industrial Policy


Beneath the headlines showing new figures on unemployment (which do not include the unemployed who are no longer looking for work or applying for unemployment compensation) is the story of the changing distribution of jobs in the American economy. That distribution in turn can give rise to cultural or societal changes. When the jobs in the economic middle are disproportionately lost, American society increasingly resembles a tale of two cities—and by this I do not mean Augustine’s heavenly and earthly cities though the realms of the “haves” and “have nots” could admittedly be called as such by materialists.
 
According to CNBC, a “report looked at 366 occupations tracked by the Labor Department and clumped them into three equal groups by wage, with each representing a third of American employment in 2008. The middle third — occupations in fields like construction, manufacturing and information, with median hourly wages of $13.84 to $21.13 — accounted for 60 percent of job losses from the beginning of 2008 to early 2010.” The job market turned around since then, but those fields represented only 22 percent of total job growth. “Higher-wage occupations — those with a median wage of $21.14 to $54.55 — represented 19 percent of job losses when employment was falling, and 20 percent of job gains when employment began growing again. Lower-wage occupations, with median hourly wages of $7.69 to $13.83, accounted for 21 percent of job losses during the retraction. Since employment started expanding, they have accounted for 58 percent of all job growth. The occupations with the fastest growth were retail sales (at a median wage of $10.97 an hour) and food preparation workers ($9.04 an hour).” By mid 2012, each category had grown by more than 300,000 workers since June 2009.

 
Essentially, the job expansion in the wake of the 2008 recession proceeded on two fronts—the high and low ends, rather than in the middle. Microsoft, Google, and Facebook represent high-end employers, while McDonalds, Walmart, and Starbucks hire at the lower end. The wealthy increasingly shopped at Whole Foods while the service industry employees bought their food at Walmart. This rendering is of course simplistic, but separation of two distinct cultures based on wealth is clear as gated communities were becoming increasingly popular among the upper middle-class and the rich in the first decade of the twenty-first century.
 
In terms of education, the wealthy can send their kids to an Ivy League college, while the pro-profit colleges give a training-based inferior education to the service employees. In actuality, those employees are being trained rather than educated. The lack of education can be seen by the reliance on scripts for employees at many retail establishments. The unthinking herd mentality can be observed from the ubiquitous “have a good one!” which is grammatically incorrect and generally vacuous in meaning. A good what? The antecedent is never specified. The sheer reliance on scripts suggests that were the customers to gleam the true condition of the employees, there would be shock and awe, as in, how could we as a society have so failed the younger generation? Put another way, the centralized training of the chains (we are born free but chained to the culture invented by retail) supplants the education (not training!) that every young person should have. The eclipse of the value of education is a salient though invisible feature of the earthly city, while the inhabitants of the heavenly city make sure that their kids are well-educated. In the earthly city, the blind are leading the blind, and nobody believes he or she can be wrong. Yet how different is the actual condition on the ground!
 
In the post-industrial society, government policy can emphasize education for the masses, such that the higher-end vocations are “filled to the brim” and the lower-end jobs minimized. The United States can and should orient its citizenry to areas of comparative advantage rather than simply relying on the labor market to assign the distribution of jobs. For example, after its import-substitution policy, India stressed “home grown” computer science and engineering vocations in line with the view of G.D. Birla and J.N. Tata that British India needed to replicate British industry rather than be dependent on it (Gandhi opposed this strategy). In the United States of the twenty-first century, expanding excess to college and university education that is not immediately eclipsed by training would ironically enable people entering the workforce for the first time to go into the higher-end professions. In short, America needs an industrial policy that highlights education such that the upper- and middle-income professions expand proportionately at the expense of the lower-end jobs.
 

Source:

Catherine Rampell, “Majority of New Jobs Pay Low Wages, Study Finds,” The New York Times, August 31, 2012. http://www.cnbc.com/id/48858760