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Friday, January 18, 2013

Leadership at Goldman Sachs: Mice or Men?

Inevitably, with any focus comes the opportunity cost of the benefits that could have come from alternative agendas. Put another way, a sustained focus on particular trees means losing the benefits that go with looking at the forest as a whole. One might ask whether Wall Street bankers, even those in lofty positions, are too focused on marginal differences even as the bankers stay away from operational oversight. Goldman Sachs, being led by a former trader, may have been a case in point as 2012 succumbed to 2013.
The full essay is in Cases of Unethical Business, which is available at Amazon.

Can an American State Secede?

A war was fought over it. In early 2013, the White House made it explicit in replying to a petition. Yet still there was a sense among at least some Texans that something was amiss. Following Barak Obama’s re-election, citizens of Texas, Louisiana, Alabama, and five other republics in the Union signed petitions for the White House to allow their respective states to secede from the Union. At the time, few people other than the secessionists themselves took the petitions seriously. Yet the underlying contending principles deserve more serious reflection. Most importantly, the matter concerns how and whether rights are to be circumscribed in a federal Union founded on the protection of the rights of man against an encroaching state.
In his reply to the petitions, Jon Carson, director of the White House Office of Public Engagement, argues that the American Founders did not provide a right for states to “walk away” from the Union, it being perpetual. He cites Texas v. White, a U.S. Supreme Court case in 1869 that ruled that individual states do not have a right to secede. The republics constituting the Union consisting of citizens, the decision translates into a declaration of a non-right of a state’s citizens.
                                             The flag of Texas, a republic in the United States. Texas is a bit larger than France.   source: austinflag.com
For his part, the communications director for the Texas Nationalist Movement, Jeff Sadighi, pointed to the section of the Texas constitution that asserts Texans have the right “to alter, reform or abolish their government in such a manner as they may think expedient.” That constitution being that of Texas, however, the government being referred to must be that of Texas, rather than the United States. Even were Texans to abolish their government, Texas itself would still be a state in the Union. The section of the Texas constitution is actually in tension with that of the U.S. constitution that requires every state to be a republic (i.e., representative democracy as its form of government).
I find that Europeans in particular are surprised to learn that the American states are republics, for to European ears that signifies countries or nations. Being semi-sovereign constitutionally, the American republics are indeed equivalent as polities to the semi-sovereign states in the E.U. Indeed, the Texas Nationalist Movement itself suggests that Texas is essentially a nation within a Union. The problem is that semi-sovereignty is taken in the U.S. (but not the E.U.!) to effectively disenfranchise a republic from being a country.
Joe Straus, the Speaker of the Texas House of Representatives, told lawmakers, “Our economy is so vast and diverse that if Texas were its own country . . . , we’d be the 14th-largest economy in the world.” Just as E.U. states are characterized as having their own economies in spite of the fact that the E.U. has a common market (and thus an economy), we can refer to the American member states as having economies. I have often heard references to California, for instance, as having the 6th largest economy in the world. That the California Republic (see California’s flag for this name!) is semi-sovereign does not mean that California somehow does not have the 6th largest economy in the world. Therefore, it can justifiably be said that Texas has the 14th-largest economy in the world, whether or not Texas is its own country. This phrase is itself suspect, for does being semi-sovereign mean that Texas country is no longer Texan? Put more directly (I was playing on words), being “one’s own” country is not requisite to being a country, even if foreign policy is one of the competencies shifted to the Union. That is, Texas is commensurate to a European country even if people outside the U.S. are only touched by the U.S. Government.
Were there less relegation of the American states, especially relative to the European states, perhaps there would be less impetus to secede from the American Union. Were state in the American sense remembered to be synonymous with republic or country—the states having been sovereign states before and under the Articles of Confederation—rather than as referring to a country’s province or region, perhaps people would not conclude that secession is the only option left for their respective states as polities.
Moreover, given the value put on rights in the United States—and the role of such principles as the glue holding the Union together—denying citizens of a particular state a right may backfire by virtue of the hypocrisy alone. Are we so afraid the United States will disintegrate were the right to secede recognized? Did not the Founders believe that the rights held by the states, and the citizens, to be residual rather than limited to what the government specifies? No one would contend that the Bill of Rights exhausts the rights. Indeed, the 10th Amendment explicitly refers to the residual (i.e., unspecified) powers being held by the states and the people, rather than the U.S. Supreme Court, the Congress, or the U.S.President. Is not a power a right? That is to say, is not the right to secede the power being recognized to secede? If so, the 1869 case violates the 10th Amendment of the U.S. Constitution.
To remove secession from among the residual powers of the states, a U.S. constitutional amendment would be necessary. The power/right would have to be specified in order to be renounced. Such a step would evince weakness, rather than the self-confidence of a free people. To the extent that the U.S. is still sufficiently strong, a proposed U.S. constitutional amendment could be proposed that would specify how states can exercise what is now a residual right—that of secession. Should a state ever become serious about wanting out of the Union to become an independent rather than semi-sovereign country, it will be too late for measured rational discussion and prescribed procedure. The result would inevitably be chaos and violence rather than order.
The irony is that telling the citizens of the several states that they do not have a group right to secede from the Union may actually push some closer to the exit. Specifying safety procedures should anyone otherwise bold for the exits could relieve anxiety and facilitate the dream of perpetual union. Perhaps the lesson is the perpetual cannot really be forced, but must ultimately be desired, at least among a free people.


Manny Fernandez, “White House Rejects Petitions to Secede, but Texans Fight On,” The New York Times, January 16, 2013.

Tuesday, January 15, 2013

Should Iceland Be a State in the E.U.?

Is a state’s strategic interest simply the sum total of political and economic expediency? In the case of Iceland becoming a state in the E.U., the suspension by the Icelandic government of talks that began after Iceland’s banking sector took a major hit in 2008 may have been a political means of countering the “tough competition” from parties that have been skeptical about the sovereign state joining the Union. With parliamentary elections coming up, the parties in the government did not want to be found wanting on the unpopular side of a major question.

The complete essay is at Essays on Two Federal Empires.

Sunday, January 13, 2013

Greek Austerity: Trees for Heating

“While patrolling on a recent cold night, environmentalist Grigoris Gourdomichalis caught a young man illegally chopping down a tree on public land in the mountains above Athens. When confronted, the man broke down in tears, saying he was unemployed and needed the wood to warm the home he shares with his wife and four small children, because he could no longer afford heating oil. ‘It was a tough choice, but I decided just to let him go’ with the wood, said Mr. Gourdomichalis, head of the locally financed Environmental Association of Municipalities of Athens, which works to protect forests around Egaleo, a western suburb of the capital.” Tens of thousands of trees had disappeared from parks and forests in Greece during the first half of the winter of 2013 alone as unemployed Greeks had to contend with the loss of the home heating-oil subsidy as part of the austerity program demanded by the state’s creditors. As impoverished residents too broke to pay for electricity or fuel turned to fireplaces and wood stoves for heat, smog was just one of the manifestations—the potential loss of forests being another. On Christmas Day, for example, pollution over Maroussi was more than two times the E.U.’s standard. Furthermore, many schools, especially in the north part of Greece, had to face hard choices for lack of money to heat classrooms.
                                  Greek forests were succumbing  in 2012 to the Greeks' need to heat their homes as austerity hit.   source: Getty Images
Essentially, austerity was bringing many people back to the pre-modern living. I would not be surprised to find that there had been resurgence in vegetable gardens during the preceding summer. At least in respect to the wood, the problem is that the population was too big—and too concentrated in Athens at least—for the primitive ways to cohere with the environment. To be sure, even in the Middle Ages, England had lost forests as the population (and royal plans) grew. In December 1953, many Londoners decided to use their fireplaces to burn wood, resulting in pollution blanketing the city. As a result, thousands died and the city outlawed the use of fireplaces. No one probably thought to ask whether the city had gotten too big—and too dense. No policy was enacted that would result in a shift in population out of the region.
In short, the population levels made possible by modern technology are simply too large for a return to pre-modern ways of life. The modern edifice of expanded population and huge cities is on tenuous ground when modern technology, which includes government subsidies, is suddenly pulled back and people are forced to fend for themselves to meet basic needs.  The efficiency of modern technology, including in regard to utilities and food distribution, is often hidden, so we are surprised at the impacts on the environment when masses of people “return to nature.” It is a shock to nature as well. Particularly in industrial countries, societies are reliant on modern technology because without it the bulging population is unsustainable. Put another way, we have distanced ourselves from nature, and our growth in numbers in the meantime has made it impossible for us to “get back to nature” all together. It is in this sense that governmental austerity programs that cut back on sustenance are dangerous for a society as a whole. Given the population levels made possible by modern technology, forcing even a portion of the Greek residents back to nature could be expected up front to impair the environment. Accordingly, by mid-January the Greek government was considering proposals to restore heating-oil subsidies. It is incredible that the financial interests of institutional creditors, including other governments, were even allowed to put the subsidies at risk.
In general terms, people’s sustenance takes priority ethically over a creditor’s “need” for interest. The sin of usury reasons back to the origins of lending as an instance of charity. When someone was in trouble financially, someone with a surplus would lend some extra with the expectation that only that extra would be returned. The demand for interest on top was viewed by the historical Church as adding insult to injury (i.e., the bastardization of charity into a money-making ruse). Then exceptions were made for commercial lending, wherein a creditor could legitimately demand a share of the profit made from the borrowed money in addition to the return of the principal. As commercial lending came to characterize lending, the demand for interest became the norm, even on consumption loans when no profit would ensue. The notion that interest is conditional on a borrower having enough funds was lost, causing much pain to many in the name of fidelity of contract, as if it or the creditor’s financial interest were an absolute. Put another way, the default has swung over from the borrowers to the lenders to such an extent that society may look the other way as people literally have to cut down trees to heat their homes because creditors have demanded and won austerity touching on sustenance programs.
The subtext is perhaps that modernity is not all that it is cracked up to be. It has enabled the danger of a population level too large were our modern conveniences to be suddenly yanked away. Secondly, modernity has been purchased, in effect, by creditors as enjoying the default presumption. That lending began in antiquity as a form of charity—helping someone out—only makes the modern default that much more untenable—the demand for interest being not only unconditional, but also the default to be satisfied even if much harm is incurred by borrowers. I am not suggesting that people should be profligate with borrowed funds. Rather, just as Adam Smith’s Wealth of Nations is bracketed by his Theory of Moral Sentiments, so too an economy (and financial system) functions best when it is lubricated normatively such that no extreme is permitted at another’s dire expense. Put another way, a sense of security can buttress a web of economic transactions such that preferences over all are optimized for the greatest number. In these utilitarian terms, more is not necessarily better—if that “more” refers to population without limit or interest regardless of the borrower’s ability to pay. Population would be more stable were it more closely tied to natural limits and the economy would not be so restricted, or “sticky,” were borrowers forced to lose heat or even their homes just because creditors are demanding interest.


Nektaria Stamouli and Stelios Bouras, “Greeks Raid Forests in Search of Wood to Heat Homes,” The New York Times, January 11, 2013.

Bank of America: Taxpayers Subsidize a Wrong

According to the New York Times, money paid to “settle a company’s actual or potential liability for a civil or criminal penalty is not deductible.” However, if the payments are meant to be remedial rather than a penalty, they are deductible. In effect, such payments are subsidized by the American taxpayer. The question of whether this arrangement should be changed can be approached as an ethical problem.
The full essay is at "Essays on the Financial Crisis."