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Tuesday, February 8, 2011

A Tax Unfair to Big Banks?

The Securities Industry and Financial Markets Association claims that the bank tax proposed by the Obama Administration as part of the Financial Reform Act of 2010 might be unconstitutional because the levy would unfairly single out and penalize big banks.  For his part, President Obama urged the financial lobby to stand down when he introduced the tax proposal. “Instead of sending a phalanx of lobbyists to fight this proposal or employing an army of lawyers and accountants to help evade the fee," he said, "I suggest you might want to consider simply meeting your responsibilities.” The banks had tried to head off criticism by starting new charitable programs and by structuring executive bonuses in line with principles set by the federal pay adviser, like paying bonuses mostly in stock instead of cash and deferring the payout of some bonus money in case business declines again.  However, new charities and stock compensation should not obfuscate the fact that banks too big too fail precipitated the financial crisis of 2008 and returned soon thereafter to trading on their own equity (e.g., Goldman Sachs), thanks in part to the TARP funds from Teasury.  That the bank lobbyist organization was oriented nevertheless to void the new tax through lobbying and litigation, claiming it would hurt the big banks disporportionately, demonstrates that the bankers just didn't "get it." They should be glad that the resulting Reform Act left undisturbed the very existence of banks too big to fail. 

Source: http://www.nytimes.com/2010/01/18/business/18bank.html?ref=politics

Political Campaign Coverage: A Question of Substance

Popular election presumes meaningful discourse on current issues and political philosophy so the voters can distinguish the candidates.  Too often, however, the media takes its eyes off the ball and orients its coverage to the process rather than the content.  For example, on the eve of the 2010 US Senate election in Massachusetts, the New York Time reported, “Volunteers and campaign workers staffed phone banks for each of the candidates in the Senate race here, as they concentrated on energizing voters to get to the polls on Tuesday.”  Besides being rather obvious, this topic carries with it an opportunity cost—namely, the article that could have been written on the candidates’ political philosophies that go beyond an obsession on the health-care before Congress at the time.   Although it is short-sighted to use a Senate election as a referendum on a current issue, even that would be better than a focus on the campaigns’ mechanics.
Too often in presidential campaigns, media reports are on the process rather than the issues (forget political philosophies).  Because such campaigns are mostly retail rather than grass-roots (after the first few primaries), most voters rely on the media for information on the candidates.   There is a saying that might be pertinent: garbage in, garbage out.  We could do better.

Source: http://thecaucus.blogs.nytimes.com/2010/01/18/get-out-the-vote-pitches-in-massachusetts/

Hints of a Shift Back to Federalism?

In the US Senate race in Massachusetts between Scott Brown and Martha Coakley, there was some resistance to the proposed federal health care legislation. This pushback was in line with reinvigorating a federal system for the United States.

Several independent voters said they wanted to elect Mr. Brown to block the health care bill being considered by Congress.  They denounced the US House and Senate bills as full of deals for special interests — though several said they thought Massachusetts’ law extending near-universal coverage, one of the models for the national bill, had been largely a success. “It’s not perfect, but why should we have to pay again when we have health care?” said Ms. Grenham, who works as a physical therapist.

That it is easier for a state government than the federal government to legislate on something like healthcare is no accident; the founders designed the US Government to be cumbersome precisely so most of the domestic legislating would be done by the state republics, which are closer to the people.  Hence Massachusetts has close to universal coverage while the majority of Texans might want to pass.  One size does not fit all in a heterogeneous empire-level Union.  For the US Government to go beyond its enumerated powers to duplicate what is already in Massachusetts would be to demonstrate the folly of consolidation and the related fallacy that every political unit in a federal system must have the same policy.  Although I firmly believe in universal coverage as a right rather than a privilege, I respect the right of the people of, say, Texas, to disagree and have a republic without it.   Such tolerance is necessary to a viable federal system.  Too many people imposing their agendas far from home must surely end in consolidation, which entails duplication where state governments are not already impotent.

Source: http://www.nytimes.com/2010/01/18/us/politics/18massachusetts.html?ref=politics

The Aristocracy of the Moneyed Corporations

“I hope we shall crush in its birth the aristocracy of our moneyed corporations.” Thomas Jefferson

In Citizens United v. FEC on January 21, 2010, the US Supreme Court held by 5 to 4 that because US corporations are legal persons, they can contribute to political campaigns.   The assumption here is that corporations are more than the sum of an aggregate of persons—that is, more than citizens associating.  The corporate entity has rights in itself.  Ginsberg and Sotomeyer questioned in oral arguments whether free speech applies to spending money, and, moreover, whether corporations should be considered legal persons, much less citizens.  After all, they can’t be drafted, or vote.

On the American Lag in Reorienting to the Reality of the EU

I suppose most Americans are unaware that the EU has a Supreme Court, a Parliament and a Council/Senate.   Few Europeans are wont to admit that these institutions constitute a government, so perhaps we can’t be blamed here in America for not taking greater notice of the relatively new government across the pond.  So it is no surprise to read that President Obama decided to skip the 2010 EU-US summit in Europe.  

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

South Sudan as a Sovereign State: Governmental Change in Slow Motion

Announced in Sudan’s capital, Khartoum, on February 7, 2011, voters in the oil-producing south overwhelming chose to secede from the Arab north. According to the New York Times, 98.83 percent of the more than 3.8 million registered voters in the south chose to separate from the north. The referendum had been agreed to as part of the peace agreement in 2005, after two long and brutal civil wars between the Arab Muslim north and the mostly animist and Christian south. “Today we received these results and we accept and welcome these results because they represent the will of the southern people,” President Bashir said in a statement on state television, according to Reuters. In Washington, the White House released a statement by President Obama congratulating the people of south Sudan and announcing “the intention of the United States to formally recognize southern Sudan as a sovereign, independent state in July 2011.” The New York Times reported that actual independence would be declared on July 9, when the peace agreement that set the stage for the vote expired. In the meantime, issues regarding citizenship, oil-revenue rights and the contested and volatile region of Abyei would be settled.


The referendum is in line with the political principle that popular sovereignty (i.e., of the people) transcends the authority of governments. That is to say, people have the right to establish government (rather than vice versa). In this case, the southern Sudanese decided to form a new and separate state. The result of the vote, being almost unanimous, proffers an excellent snapshot of a will of the people.  Typically, this term is abused, such as when a candidate wins reelection by a margin of fifteen or twenty percentage points.  Receiving 65% of the vote does not represent the will of the people; rather, it is the will of a majority of the people. There is a difference. In the case of south Sudan, we can say with confidence that it was the people's will to separate. That is to say, the people spoke with one voice. How rare it is for there to be a will of the people; hence we treat the view of a bare majority as such--essentially over-generalizing.  Politicians typically do the same with mandates.

What is unclear from the referendum is how the people feel about waiting until July for actual independence.  To be sure, there are outstanding issues that need to be worked out, but is it really necessary for independence to wait for everything to be worked out; President Bashir has already announced that his government would recognize the independence of the south. The acceptance of July by the Obama administration is similar to that administration's decision at the time not to push President Mubarak of Egypt to step down before September when elections would be held even had there not been mass protests.  In short, government officials seem to be oriented to time in slow motion.

The Obama administration's announcement that it would recognize south Sudan as a sovereign and independent state might not seem fitting, as the new state would presumably be a new state in the African Union (AU).  However, that union, unlike the EU and US, is a confederation akin to an alliance wherein the states continue to hold all of the governmental sovereignty. In contrast to confederations such as the AU, modern federations divide governmental sovereignty between two systems of government--that of the federation and that of the state governments.  That the AU had not intervened in the internal discord in the Ivory Coast, Egypt and Sudan suggests that that union is simply a league of friendship, merely able to mediate if invited, as in Zimbabwe during the crisis between the President and prime minister. The feckless condition of the AU can also be seen in the fact that it took so long for south Sudan to even vote on independence in spite of the fact that it was the will of the people in south Sudan. Was it really necessary, for example, to wait until 2011 when the peace treaty was signed in 2005? A union with teeth might have been able to expedite things. Unlike the states of the EU and US, the typical state in the AU is run by a dictator rather than being a republic in fact as well as name. The American Founding Fathers believed that a federal system could only have republics as members; dictators would guard their power too much and thus be too inclined to break off. Unlike a dictator, government officials in a republic are used to sharing power, so ceding some sovereignty to an empire-scale federation is not so hard. However, it can be in the political or economic interest of even a Leviathan dictator to transfer some governmental sovereignty to a federal union. Specifically, a dictator may be expected to benefit from the economic and political gains that come from a united political front and a common market. Twenty percent of 100 is more than 100% of 10. A federation of non-republic states is thus possible.

In terms of south Sudan, the cost of a weak AU was having to suffer a snail's pace on the road to independence. To be sure, such a pace was in the interest of Sudan's government. However, issues are only intractable if they are seen as such, and the people in the south could have voted on a date as well as on whether to secede. The dissolution of the Soviet Union attests to how quickly polities can change.Just as it was not clear in Febrauary, 2011 that President Mubarak had to stay in office in Egypt for seven months in order for there to be order, it should not have been presumed that south Sudan had to wait until July. Even if top government officials are typically old people, governments need not move in slow motion. The dragged-out pace evinced by south Sudan's independence even after the overwhelming 99% voting to secede suggests that governmental time is not our time and that we, the people, can move the old clocks an hour ahead in keeping with the increasing daylight. Whereas the progress of the twentieth century was largely technoligical, in the twenty-first century the human race may reach a threshold of perception wherein the dogmatic or arbitrary nature of governments is finally seen for what it is, and exercise greater popular sovereignty to make our governments more responsive. As of 2011, a critical mass of perception had not yet occurred; hence it could not yet be said that the human race itself had reached a new sense of its power over its governments.


Monday, February 7, 2011

Unaccountability at Bank of America

Andrew Cuomo, who was the Attorney General of New York in February of 2010, filed suit then against Bank of America and two of the bank’s employees, Ken Lewis and Joe Price.  In his complaint, Mr. Cuomo said that the bank first chose not to disclose the losses involving Merrill Lynch, which topped $16 billion, to its shareholders who were voting to approve the deal. Then, the bank told federal officials that those same losses had persuaded bank executives to consider backing out of the deal, unless the government provided a second bailout. “Throughout this episode, the conduct of Bank of America, through its top management, was motivated by self-interest, greed, hubris and a palpable sense that the normal rules of fair play did not apply to them,” Mr. Cuomo said. “Bank of America’s management thought of itself as too big to play by the rules and, just as disturbingly, too big to tell the truth.”

While “too big to play by the rules” and “too big to tell the truth” are striking  and warrant serious reflection in an economy wherein corporations are allowed to continue to operate even though they are too big to fail, my eyes are caught on something else in the quotes that is apt to be missed by many readers in the present era of corporate capitalism.  Consider “the conduct of Bank of America, through its top management…”  Does anything seem odd to you about this phrase?  In the wake of the US Supreme Court’s decision that corporations’ “free speech” is protected by the US Constitution’s first amendment, the debate on whether corporate entities should be considered legal persons has emerged from law school classrooms into the public square.  Reading “the conduct of Bank of America, through its top management,” I wanted to rewrite it as “the conduct of Ken Lewis and others in their capacities in working at Bank of America”.  This would be more accurate.  That corporate conduct must be through human beings means that corporate entities cannot themselves act or have conduct.  Accordingly, to say that a corporation apart from its human beings is a person does not make sense (because conduct applies to persons).  To say that BOA conducts itself through people is really to say that the conduct is done by the (human) persons.  

Besides questioning the corporate legal person judicial decision and the related decision that corporate “persons” have the same right to free speech as human beings have, I would argue based on my analysis here that the individual employees who were involved in the alleged understatement of losses and overstatement of an intent (and ability) to pull out of the deal (i.e., holding the economy hostage to get the feds to pony up in the deal) should be viewed as the recipients of the punishment.  Because a corporation is wealth rather than a person (i.e., it cannot go to jail), a fine could also be imposed on it even as the guilty employees go to prison for their conduct (regardless of the size of the fine on the bank).  But this wouldn’t mean that the corporation is being punished.  Rather, the stockholders (and anyone else who could otherwise draw on the retained earnings) would be punished  for lax corporate governance. If the employees’ fraud circumvented reasonable corporate goverance, however, perhaps the stockholders should not be punished/fined.

My point is that we should hold the individual decision-makers (and implementers) accountable (if they committed fraud) because they are persons.  Human beings commit fraud—not corporations.  So we should not fall under the illusion that some corporate entity greater than the sum of its human parts is somehow responsible (i.e., as if a corporation could make decisions apart from the human beings working in it).   A corporation doesn’t have hubris; persons do, which is to say human beings.  Projecting human qualities onto legal entities may feel good and be convenient for those who want to evade responsibility; what concerns me is when the rest of us unthinkingly go along with the illusion and take it for real, writing statements like ”the conduct of Bank of America.”  Reading this, one ought to think to herself, ”that doesn’t even make sense.”  Unfortunately, the lapse is so ubiquitous that few of us object to it, not to mention notice it.  When something that does not make sense comes to be routinely taken as a given, something is really wrong in a society.  The problem is particularly lethal when it is not even transparent because it is akin to flying blind.  Let’s just say that it is the financial interest of those human beings who benefit from corporate wealth that we continue to fly blind.

Invigorating Popular Sovereignty

A republic is characterized by the citizenry electing representatives, who in turn legislate (i.e., make law). As an alternative, the citizenry itself could vote directly on legislative proposals. The latter is called direct democracy. Ancient Athens, for example, practiced it. In the United States, the republic form is the prevalent form of government.  In spite of Wilson’s comment made in the constitutional convention that representation “is made necessary only because it is impossible for the people to act collectively,” direct democracy has typically limited to an occasional “referendum” question even though more vital questions could be put to the body politic directly. Typically, referendums have to do with elections (and thus with representative rather than direct democracy) or with general taxing or spending limits for a government. The rationale for putting general taxing or spending limits up for referendum is that they apply to a government as a whole—this perspective being from that of popular sovereignty (i.e., the citizenry, whose electoral power transcends their government). Rarely, an “issue” is put up to be decided directly by the voters. In 2010, for example, Californians decided on whether to legalize pot in California. I contend that many more matters of policy could be decided directly by the voters. Since the elected representatives represent the citizenry, the former should not be presumed as having the definitive right of such decision. Deciding on matters of general policy are primarily value-judgements, rather than requiring expertise.  Issues such as abortion, gay marriage, the Bush tax cuts, and the Iraq and Afghanistan wars could—and I would argue should—be decided by the voters directly. Beyond issues, the voters could decide more general governance questions, such as whether federalism should be continued. Such a question could lead to more specific proposals at the next election. For example, if the majority of American voters want the US to be of federalism, representatives could work on not only constitutional amendments, but also proposals for the voters on which broad areas of power would be transferred back to the states (or the voters could be asked—assuming a majority still want federalism—whether X or Y areas of power should be transferred back to the States). Should elected representatives counter that we should not trust the people to make such decisions, I would argue that it is nonsensical for an agent to contend that his principal is somehow inferior to himself. In a representative democracy, the representatives are the agents of the people; it is not the other way around.

In short, I contend that popular sovereignty ought to be strengthened rather than vitiated. Elected representatives are best suited to working out the technical details rather than deciding broad questions of policy.  An election campaign is a bricollage of factors; it is rare for a victor to be able to claim a mandate on a particular issue. In fact, a representative may be elected for reasons having nothing to do with his or her positions on “the issues.” The midterm election of 2010, for example, could be informed by a mix of factors; it was not even clear whether people voting Republican, for example, were saying yes to that party’s platform or no to the previous two years of legislation (which was informed by both Democratic and Republican law-makers—neither party being able to enact its platform as given).  Even voters blaming the Democratic Party for the resulting legislation is not strictly speaking accurate, as compromises had to be made with Republicans.  So an election of representatives is a broad brush that cannot be divined as a mandate on particular issues.  Regarding particular policies—even foreign policy, such as whether the US Government should continue to support Israel—the only way to know if there is a mandate is to put the matters up for decision by the voters. Political parties could have a say on how the questions are worded so they are objective (or two versions could be provided). Courts would still be able to declare the resulting law unconstitutional, but even here constitutional amendment is possible.  Even in terms of amendments, the voters, rather than their constitutional delegates or state or federal representatives, could decide directly.  For example, the voters could decide whether US Senators should continue to be elected, or whether they should be appointed by the state governments or be the governors themselves (the US Senate being like the European Council of the E.U.). The voters could also decide whether abortion should be decided by the state or US courts, or directly by the voters—by state or US—as an amendment.

At the very least, basic decisions would be made that have been mired in disputes between governmental institutions and/or government officials. We are depending much too much on elected and appointed government officials to “make” policy. Ultimately, the will of the people should be freed up and exercised beyond the confines of simply electing representatives—being subject only to the judiciary protecting individual rights (which can be overruled by constitutional amendment, which can be of the people).  Sadly, those in power—the elected representatives—will naturally and ironically resist efforts to expand the will of the people. Because the election of a representative involves many elements, an elected representative could easily get around interpreting his or her victory as a mandate to expand the will of the people.  This is precisely part of the problem, and it maintains the monopoly of power that our elected representatives enjoy.  I suspect this is no accident. Hence I am not optimistic on any expansion of popular sovereignty any time soon.  Even so, I hope my thoughts here are thought-provoking. Although not the best person to cite, Richard Nixon pointed in one of his books to the need for political development: “In terms of material progress, the twentieth century has been the best in history, but in terms of political progress the record has been disappointing.”  (See Richard Nixon, 1999 Victory Without War, New York: Simon and Schuster, 1988, p. 16). What I am suggesting is that our political system is so antiquated that were it to develop as technology has, our use of elections could make quite a leap forward.  In spite of all the technological change, we tend to hold very rigidly to the way things have “always been done” in politics.  It is time for politics to catch up. In fact, the technological progress could facilitate the expansion of popular sovereignty.  For example, voters could surf the internet for information before voting on general policy areas. The challenge may well be in how to enable illiterate voters to be able to take part.  As one possibility, voters could vote at desks (as in a classroom) while a reader reads through the questions on the ballot. My point is that we can begin to think outside the box and shake loose our assumptions.

Source of Wilson quote: James Madison, Notes in the Federal Convention of 1787. New York: Norton, 1987, p. 74.

Efficiency, Corporate Social Responsibility and Full Employment: Squaring a Circle

The New York Times reported that President Obama urged American businesses on February 7, 2011 to “'get in the game' by letting loose trillions of dollars being held in reserves, saying that they can help create a 'virtuous cycle' of more sales, higher demand and greater profits that will put people back to work and turn around the sluggish economy.” Obama continued, “If there is a reason you don’t believe that this is the time to get off the sidelines — to hire and invest — I want to know about it. I want to fix it.” In the speech at the U.S. Chamber of Commerce, Mr. Obama said that companies have a responsibility to help the economy recover. The trouble is that responsibility is a rather vague term that can be variously applied. This is one reason why the corporate social responsibility concept could mean providing society with the products and services that are sought via the marketplace (e.g. Milton Friedman of the Chicago school) while meaning for others increasing corporate philanthropy to alleviate a society problem such as poverty. In other words, responsibility can be made concrete in various ways that can accommodate and indeed reflect the ideologies of those applying the term.

The full essay is at "Efficiency and CSR."