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Thursday, January 9, 2014

Irrational Exuberance in Taxing and Regulating Marijuana in Alaska

As the citizens as well as legislators of Colorado were no doubt marveling in astonishment at the seismic $5 million figure for just the first week of legalized marijuana sales, Alaska Lt. Governor Mead Treadwell received a petition to legalize recreational use. With over 45,000 signatures, of which only 30,169 are sufficient, the petition correlates with polls in early 2013 revealing that 54 percent of voters support the legalization.[1] As with many other governmental matters, the devil is in the details.

Already, the legislative proposal would levy a $50 tax on each ounce of pot sold. Just imagine if such a tax were levied on each ounce of alcohol sold! Alaska lawmakers may have insisted on the exorbitant tax as part of the proposal from a desire to bilk the consumers as if they were a golden egg (or bowl), or to discourage them on moral or public health grounds from ingesting the particular product. The “crowding out” effect on State taxing power due to more and more federal taxation was certainly a political force behind the support of legislatures in Colorado, Washington, and Alaska starved for revenue.

Yet the hypocrisy practically leaps off the page in Bill Parker’s statement that marijuana is “a substance objectively less harmful than alcohol.”[2] Parker had been a legislator and the Alaska Public Safety Commissioner. Similar hypocrisy infects the comparison with tobacco, in that at least one study in 2012 reports that moderate pot recreational use does not harm the lungs whereas cigarette use does.[3] So the proposal’s prohibition of pot-smoking in public (as already was the case in Colorado) is at the very least irrational, if not reefer madness unplugged. Even the restrictions on drinking alcohol in public may be excessively paranoid, given the passing of the religious taboo against alcohol.

Nevertheless, the proposed prohibition on public smoking of marijuana (without a corresponding ban on tobacco use in outdoor public places on account of the danger posed by second-hand smoke) did not stop Tim Hinterberger, one of the proposal's principal sponsors and a professor of developmental biology at the University of Alaska in Anchorage, from accepting the proposed system of “sensible regulation,” not to mention taxation.[4] “Replacing marijuana prohibition with a system of taxation and sensible regulation will bolster Alaska’s economy by creating jobs and generating revenue for the state." The professor cheers the end of the black market in pot without realizing that the proposed $50 tax per ounce would keep the underground alive. 

Generally speaking, the highest tax rate does not necessarily proffer the most tax revenue. One could even say that the more greedy and unreasonable a sales tax, the more the underground market can be expected to thrive. Once unleashed, freedom naturally finds its own way home.

In short, it would seem that irrational exuberance is not limited to Wall Street. Perhaps the real question is why human beings have so much trouble getting over not only prejudice and moralizing, but also overreacting to the unknown. It is as if legislators and regulators assume that regulations cannot be added if needed as unforeseen dangers are uncovered or encountered. The sheer rigidity and overreaction as evinced in the regulation of the recreational use of pot may even point to a subterranean fault in the American psyche. Perhaps at least some of the widespread pot use stems from the natural frustration in being repeatedly slapped in the face by a hypertrophic fear of change and the supporting pathological ignorance that can’t be wrong and presumes itself as fully justified in snatching whatever authority it has.

[i] Hunter Stuart, “Marijuana in Alaska Gets One Step Closer to Full Legalization,” The Huffington Post, January 8, 2014.
[ii] Ibid.
[iii] Mikaela Conley, “Marijuana Smoke Not as Damaging as Tobacco, Says Study,” ABC News, January 19, 2012.
[iv] Stuart, “Marijuana.”

Wednesday, January 8, 2014

Should Britain Leave the E.U.?

The real purpose of the E.U. is not economic, but political. It began as the ECSC, which was geared to making sure that Germany would not re-militarize by extracting iron from the Rhine region. The purpose of the E.U. is to obviate the sort of bloodshed that Britain saw in WWI and WWII. If the British people don't want to be in the E.U., then you should leave. I don't believe that even your own government should keep you from deciding such a matter as a people, directly. That said, with great power comes great responsibility, and this applies to popular sovereignty. In other words, the people taking up the mantle of direct democracy in a constitutional referendum should make an informed decision, looking beyond even the people's own immediate interests. The stakes are much, much higher than whether being in the E.U. is an economic net loss or gain to Britain on a yearly basis, or even whether the City is crimped or inconvenienced. Much more is at stake.

From: "Should Britain Secede from the E.U.?"

Bankers at JPMorgan Escape Criminal Prosecution as Five Madoff Employees Are Tried

Along with paying $2.6 billion to settle criminal and civil charges for having “failed, and failed miserably,” according to Manhattan U.S. Attorney Preet Bharara, to notify the SEC of warning signs that could have short-circuited Bernie Madoff’s $17 billion Ponzi operation, J.P. Morgan Chase had to acknowledge that its actions were improper.[1]  The electronic evidence was too damning. According to USA Today, “JPMorgan had suspicions about Madoff’s operation as early as December 1998, when a bank fund manager warned the investment returns were ‘possibly too good to be true.’”[2] Without submitting any “suspicious activity reports” to the U.S. Government as required by law, the bank pulled $275 million of its own “feeder funds” from Madoff’s fund two months before Madoff’s financial services firm collapsed.[3] In other words, the bankers connected the dots well enough for the bank and perhaps even themselves, yet strangely no one could manage to do so for the outside world even though federal law mandated it and responsibility urged it.

A scholar in business might study empirically whether being strenuously pressured into making a public acknowledgement of impropriety accomplishes any internal improvement both in terms of the corporate culture, including the pervasive attitude toward responsibility relative to profits, and institutional practice, including policies and procedures. As a prerequisite to this inquiry, I address here the underlying problem of whether a corporate acknowledgement of guilt or failure even makes sense. In other words, I want to put the major premise under the microscope. Stated in terms of organizational theory, I want to challenge the popular presupposition that an organization itself can admit to criminal or improper actions. If so, must we assume that a firm is more than the sum of its parts? But I digress, for my aim here is to analyze whether particular managerial or non-supervisory employees at JPMorgan should have been criminally charged, with the bank remaining subject to civil damages.

Anthropomorphism, which is the projection of human characteristics onto non-human animals or things, including collectives such as a company, government, or religious organization, is, I submit, the underlying problem rendering the justice insufficient in the case at hand. To render the affliction transparent for all, I submit the following questions for your consideration. Did JPMorgan acknowledge that its actions were improper?  Did JPMorgan have suspicions? Human beings acknowledge and act. An organization can do neither, for, as an abstraction and in some cases having achieved only a legal fiction of “personhood,” a company of people has neither a consciousness nor mind—not to mention any bodily limbs. This fact is apt to be slighted or ignored outright in a society whose population (i.e., real persons!) overwhelmingly values business and thus wants to feel a stronger affinity to the abstractions.

J.P. Morgan hitting a man as if to demonstrate that criminal law applies to human beings rather than organizations. Image Source: Wikimedia Commons

Fortunately, a “flesh and blood” person in the vaulted business world by the name of Dennis Kelleher (of Better Markets) answered the JPMorgan settlement by observing, “Banks do not commit crimes; bankers do.”[4] Kelleher made the paradigmatic statement to support his criticism of the lack of charges against bank employees, whether managerial or non-supervisory. After all, five former Madoff employees charged with aiding the fraud were on trial at the time. Which employees at JPMorgan played major roles at least in keeping the suspicions under wraps by illegally failing to notify government officials? Who decided to pull the money in the bank’s feeder funds from Madoff’s fund two months before Madoff informed government officials?

Moreover, must we depend on the guilty to announce themselves? In the case of the SEC and Madoff, it was not as if the financial regulators would discover the fraud, even in stumbling over it. It is reasonable to conclude, therefore, that government officials were relying on the legal obligation of counterparties to report suspicious activity as a backup. If human beings, rather than organizations themselves, make decisions and act, then the leverage that Wall Streeters have over members of Congress and the White House should not keep Bharara from going after the criminals rather than only their cover.

1. Tim Mullaney and Kevin McCoy, “JPMorgan to Pay $2.6 billion in Madoff Case Settlements,” USA Today, January 8, 2014.
2. Ibid.
3. Ibid.
4. Ibid.