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Friday, September 14, 2012

Bailouts, Bond-Buying: E.U. Plows Ahead!

On September 12, 2012, a psychological threshold was reached in the E.U. on the way toward “ever closer union.” That is to say, at the end of that day Europeans could feel an overdue sense that come what may, the euro would be protected. Moreover, the E.U. (at least for the states willing to sign up for greater E.U. enforcement of state deficit and debt limits) would proceed along with further incremental shifts of governmental sovereignty from the states to the union thereof. The sense of relief was palpable in Europe as state and federal officials as well as commentators and citizens breathed a collective sigh of relief.
Most pressingly, the constitutional court of the state of Germany announced that that state could in fact contribute to the fund to bailout indebted states. The court held that the state legislature would have to pass any increases because the further integration of the E.U. must not be allowed to proceed without commensurate democratic legitimacy and the rule of law. The President of the E.U. Parliament observed that this holds at the E.U. level as well.

The full essay is at "E.U. & U.S."

Wednesday, September 12, 2012

Should Catalonia Be a New E.U. State?

                                      Catalons rally in favor of secession from the state of Spain.     Globalpost.com

A crowd estimated at 1.5 million rallied in Barcelona on September 11, 2012 to urge the secession of the Catalonia region from the E.U. state of Spain. I put it this way because the fact that Spain was at the time a semi-sovereign state of the European Union mitigates the importance of whether Catalonia becomes a separate state or not. Similarly, the Egypt region of the U.S. state of Illinois had thrice in the history of Illinois hosted a movement to secede from that republic to form a new state in the U.S.

Whether a Catalonia in the E.U. or Egypt in the U.S., the fact that federal law would presumably still apply lessens the impact of the change, especially in the U.S. because of all of the competencies or domains that had been claimed by the Union at the expense of the powers of the state governments (something the Europeans have been assiduously trying to avoid).

A week after the march in Barcelona, Artur Mas, Catalonia's leader, Artur Mas, had his tax revenue redistribution plan scuttled by Spain's Prime Minister, Mariano Rajoy. Coming on the heels of the march, the proposal can be read as a sort of extortion. At the very least, the plea may have been an attempt to use the rally as leverage to get better terms. To be sure, Madrid had pushed the region to enact more fiscal discipline in exchange for an emergency influsion of $16.5 billion from Madrid. "The effort that the central government is making in terms of reducing spending is inferior to what it is asking the regions to make," Mas argued. However, Catalonina was at the time Spain's most indebted region, with $54 billion of the $181 billion of debt owed by Spain's 17 regions. In this respect, Catalonia resembled the San Bernardino region of California. Mas had been hoping to persuade the prime minister to "allow Catalonia to reduce its contribution to a fiscal system that redistributes part of the tax revenue to other, poorer regions." To be sure, Mas had a point: the most indebted region should put its resources into reducing its debt rather than subsidizing other regions. Concerning secession, however, Mas himself admitted that the rationale went far beyond money.

For one thing, there is an issue of perceived trust and credibility between the region and the rest of Spain. This problem dwarfs the differences in culture and language. In the case of Illinois, the southern region has a distinct culture and dialect, which are much disrespected in the northern regions. In short, the southerners are viewed as country hicks (whereas the rural northern regions escape this verdict). This perception, more than the redistribution of tax money to projects in Chicago, probably accounts for the repeated petitions of Egypt to secede from the republic and join the Union independently. While rid of Chicago, new challenges would undoubtedly be in store for the new state. Similarly, Catalonia would not likely find relations with the E.U. to be an easy street.

Financially speaking, Catalonia as a new state in the E.U. would quickly find the E.U. Commission and the ECB interested in what the new state must do to reduce its debt in exchange for bailout funds. Furthermore, Catalonia would have to contribute funds to the ESF, though it could be argued that it had been doing so already through Spain. On the plus side, however, the "bad blood" or climate of distrust between Catalon officials and Madrid would be obviated by having to deal with federal agencies and officials directly. Indeed, Catalon officials could argue that their region could constitute a state among the existing E.U. states.

With its 6.5 million residents, Catalonia is the size of Bulgaria (and Virginia in the U.S.). The Catalon economy matches that of Portugal. So Catalonia is large enough to qualify or fit at the state level. The fact that Catalonia would presumably still be in the E.U. mitigates the change entailed in secession from the state of Spain. E.U. rules, regulations and directives would still apply. In fact, because the E.U. does interact directly with regions to some extent, the federal-state relationship would not be entirely new to the Catalon officials.

The upshot is that it is not such a big deal as one might suppose were the region to break off from the state of Spain. Accordingly, I would lean toward self-determination over maintaining some kind of "national unity" in a state that is in actuality semi-sovereign as part of a Union. Considering the E.U.'s problems, a primacy ought to be placed on European unity. Acrimony between Spain and one of its regions or large counties does not further such unity. Put another way, there was at the time already enough strife between states on whether still more governmental sovereignty should be transferred to the federal government (or even on whether the E.U. has such a government!). Europe can ill-afford the long-standing discord within a state, whether that state is Spain or Belgium. That is to say, giving the Wallons their own state would also enable people to focus on the defining issue of the day in Europe: What is the European Union?


Raphael Minder, “Spain: Hundreds of Thousands Demand Independence For Catalonia, as Budget Cuts Bolster Separatism," The New York Times, September 12, 2012.

Raphael Minder, "Spain's Leader Fails to Reach Deal with Catalonia," The New York Times, September 21, 2012.

Fiscal Cliff of Cuts and Taxes: Downgradable?

In anticipation of the “fiscal cliff” due to go into effect for ten years from January 2013, Moody’s Investor Service served notice to Americans and the U.S. Government that the sequestration of $1 trillion over the ten years and the immediate end of all of the Bush Tax Cuts would mean a downgrade in the credit rating of the U.S. Government. The New York Times reports that the rating agency, like S&P before, “emphasized political dysfunction more than soaring government debt. The agency said that Washington must come to agreement to head off billions of dollars in simultaneous tax increases and spending cuts scheduled to begin in January—and to put the government on a sustainable fiscal trajectory. Only then would the United States keep its AAA rating.” Moody’s pointed to the need for “specific policies that produce a stabilization and then [a] downward trend in the ratio of federal debt to G.D.P. over the medium term.” There is reason to question whether the agency was being dogmatic (i.e., too arbitrary), even (God forbid) political, in its demands.

                                                                                                  Moody's Investor Services                                         Reuters
Significant reductions in spending over ten years, plus an immediate end of the tax-rate reductions that George W. Bush had signed into law, would presumably produce a downward trend in the ratio of federal debt to G.D.P. over the medium as well as long term unless the ensuing recessionary impact would be such as to counter the effect from the sequestration and tax increase. Economists could tell us what the impact on G.D.P. would likely be. The negative impact on the debt would presumably be muted by the sequestration on the spending side, though tax revenues would undoubtedly be less, other things equal.
If the “fiscal cliff” would produce a downward trend in the ratio of U.S. debt to the G.D.P. of the union, then the agency’s insistence on “specific policies” is not necessary. That is to say, if the ratio’s trend is favorable in spite of the “political dysfunction,” then the political point that such dysfunction is not desirable can and should be regarded as an aside rather than a requirement.
To be sure, the responses of Congressional leaders that the failure to prevent the “fiscal cliff” is all the other guy’s fault reaffirms the sense at the rating agency that the elected representatives are not mature enough to manage such a debt-load. The American people can be blamed for having elected such a mentality to high office. Even so, the intentional “roadblocks by design” in the U.S. Government are not “political dysfunction.” Rather, the delegates at the federal constitutional convention in 1787 intended that such a design “push” as much of the lawmaking as possible to the system of state legislatures (i.e., one of the two systems of government in the federal system). To demand that we toss off separation of powers or that more than one political party can have a role in the U.S. Government is not to demand that we stop the “political dysfunction.” Rather, a wholesale re-design of the American constitutional system would be necessary. Surely a credit-rating should hinge on such a demand.
Indeed, the $16 trillion (and counting) federal debt can be taken as a manifestation of the failure of the federal constitution’s design to prevent political consolidation. Since the New Deal especially, the long-term trend has been in that direction. It could therefore be argued that rather than trying to eliminate the “political dysfunction” in Washington, the federal government itself should be tasked with much less, while the states reassume their dual-sovereign functions and residual sovereignty. This, more than anything else, would produce a downward trend in the ratio of federal debt to the economic output in the U.S. as a whole (though state debt might increase if the increase in power is not managed well fiscally).
Absent a realignment of federalism, Moody’s insistence for “specific policies” in lieu of a downward trend produced by the “fiscal cliff” may very well be dogmatic, or arbitrary, from the standpoint of reducing the federal debt-load (relative to G.D.P.).


Jonathan Weisman, “Moody’s Warns That U.S. May Face Debt Downgrade,” The New York Times, September 12, 2012.

Monday, September 10, 2012

Putin Likens Protesters to "Weak Birds"

At the conclusion of the 2012 Asian-Pacific Economic Cooperation meeting in Russia, the host president, Vladimir Putin, likened the birds that had not following his motorized glider south to the Russians who did not follow him. “Only the weak ones,” he quipped. “The weak ones didn’t follow me.” Elaborating, he added, “not all of the cranes flew, and the leader, the pilot, has to be blamed because he was too fast in gaining speed and altitude and they were just lagging behind; they couldn’t catch up.” In other words, the Russian protesters had been blaming him for what was in actuality their own weakness—not his. A leader must accept the inevitable misappropriation of blame because being erroneously blamed goes with being a leader.

                                                                     Putin could not have been entirely objective on the protests against him.      Source: Democracy Chronicles
It might be asked, therefore, why doesn’t the pilot (or leader) pull back on the speed so the weak birds can keep up? Why not use the weak as the referent for how much change one demands within a certain period? According to Putin, “during certain circumstances, when there is strong wind and bad weather, the pilot has to lift very speedily—otherwise the vehicle, the flying machine, could overturn and capsize.” In other words, Russia would collapse were he to relax or compromise on his agenda for change.
Is it really the case that a leader’s platform must be followed to the letter or the government, economy or society will collapse? Is stalling truly a risk for a country like Russia? Was there the political, economic or social equivalent of “strong wind and bad weather” facing Russia at the time? It could be argued that Putin was applying “leadership in a crisis” to “leadership in the status quo.” In the midst of a tsunami, for example, there is not time to question or debate the directions from a leader; people must get to higher ground as soon as possible. Absent such a pressing need for safety, it is not clear that societal collapse follows from governmental protests. In fact, the voice of the opposition, whether in government or in the streets, can halt a policy that is actually destructive to the country.
Furthermore, to protest under the threat of being hit or arrested without due process evinces courage, not weakness. It is more likely that the weak are those who are dependent on a leader rather than deciding where they stand on the basis of their internal authority. Strength, it turns out, may lie in making one’s internal authority one’s leader.
In his book, Transformational Leadership, James Burns defines such leadership in terms of developing the capacities of followers, which presumably includes being able to become a leader oneself. Leadership is stronger than followership because followers who develop their inner authority, which can be said to be necessary to becoming a leader, are stronger and are no longer in need of being led by another person. 
The political opposition of a leader such as Putin contends on the basis of leadership by letting go of the comparatively secure passivity of followership. If this is so, then Putin’s efforts to liken his political opponents as weak are actually a reaction to their strength. In other words, his analogy belies or hides his sense of feeling threatened by the strong who exercise leadership by refusing to fly behind his little glider. Such fear does not come out of a self-confident sense of strength. Neither, according to Nietzsche, does a desire to be cruel in order to dominate. The truly strong feel no such need, having a surplus of self-confidence based in strength. So the protesters may actually be stronger than Putin, which could explain why he wants us to believe they are weak.


David Herszenhorn and Steven Lee Myers, “For Putin, a Flight of Fancy at a Summit Meeting’s Close,” The New York Times, September 10, 2012.

More Regulatory Bureaucracy: A Cure or Disease?

Circulating in Congress in the fall of 2012, a bill would “allow the White House to second-guess major rules and mandate that agencies carefully study the economic effects of new regulation. The change could, in effect, delay a number of rules for the financial industry,” according to the New York Times. "Those who support preserving the status quo where Wall Street regulates itself will find much to like in this legislation," said Amit Narang, a regulatory policy advocate at Public Citizen, a nonprofit government watchdog group. At first glance, one might add that this would depend whether the sitting U.S. president is a Republican or Democrat—though candidates of both parties do well in terms of contributions from Wall Street (as shown by the Dodd Frank Act of 2012, which does not break up banks that are too big to fail).

The issue can be said to be whether the U.S. president as the chief executive in the U.S. Government must have control over even independent agencies such as the SEC. To be charged with the enforcement of U.S. law and yet not having the right even to be consulted  by agencies as varied as the FCC, the FDIC, the SEC and the CFTC puts the chief executive in a bind—that of constitutional responsibility without the requisite authority. If the politicalization of regulations is the fear, then the presidency should be separated constitutionally from the chief executive function.
In terms of Wall Street’s interest, the proposed bill would permit the White House only to delay proposed regulations as they are subject to further explanation. This is distinct from being able to veto them. The cost to the U.S. here is not so much in terms of the regulatees having a new means to capture their regulatory bodies; rather, it is the still-more bureaucracy in terms of procedures that is particularly problematic, given how much bureaucracy is extant in the agencies themselves. It is not as though they write a regulation today and enforce it the next day.
The proposed increase in bureaucratic procedures involving the White House falls short, moreover, in terms of the constitutional role of the U.S. president as chief executive. In other words, this role can be streamlined in lieu of “at the minimum a 13-point test for rule-making. That includes finding ‘available alternatives to direct regulation,’ evaluating the ‘costs and the benefits,’ drafting ‘each rule to be simple and easy to understand’ and periodically reviewing existing rules to make agencies ‘more effective or less burdensome.’” Culturally, American society may be too comfortable with bureaucracy as a solution. Meanwhile, we miss the big (i.e., constitutional) principle.


Ben Protess, “Lawmakers Push to Increase White House Oversight of Financial Regulators,” The New York Times, September 10, 2012. http://dealbook.nytimes.com/2012/09/09/lawmakers-push-to-increase-white-house-oversight-of-financial-regulators/


Sunday, September 9, 2012

Should Entitlement Programs Be Cut?

If human beings have survival among our inalienable rights as citizens for whom both rights and duties apply, then we as a society must grapple with how sustenance can be guaranteed to those among us who are not meeting their own needs. I put it this way to highlight the lack of conditionality in the right. That is to say, if it is inalienable, then it is irrelevant whether the person is lazy or of a bad temperament.

The entire essay is at "Should Entitlement Programs Be Cut?"