Nature Credits in the E.U.

One of benefits of the market mechanism, by which, for example, economic goods are bought and sold, is that self-interest is relied on; people don’t have to be told to buy or sell a product because it can be in their self-interest to do so if the price is right. As an alternative to regulatory standards, a government can create units of pollution-allowance that businesses can purchase so to be lawfully able to pollute in so far as a purchased unit allows. In the E.U.’s emissions trading system, “operators of power plants and factories have to buy tradeable allowances to cover every tonne of carbon dioxide they emit.”[1] Business could buy and sell allowances so as to cover the amount of pollution that is anticipated. In this way, the market mechanism efficiently allocates pollution in line both with the interests of the companies and the public interest—the latter being made concrete in the decision on how much pollution per allowance and how many allowance units to create. Crucially, the company private interests are put within the purview of the public interest; the tail is not directing the dog. In political economies in which political-campaign contributions by businesses are high, especially if unlimited, the tail can indeed wag the dog, such that the public interest is determined by private interests. This is one reason why the Citizens United (2010) U.S. Supreme Court case is so significant. It allows corporations and labor unions to spend unlimited amounts of money on political campaigns and directly on advertisements—both being beneficial to elected officials in positions to curry favor through legislation and regulations favorable to business (or labor). The informal exchanges of political donations and legislation or regulation comprise a market of sorts. So, the market mechanism, which is created or at least regulated by government, can serve for good or ill, from the standpoint of the public interest.  Using the mechanism, such as the E.U. president proposed in 2024, on behalf of ecosystems, is for good rather than ill, and thus using, in effect, the self-interest of farmers could be better than relying on regulatory requirements that farmers expend some money and effort to beef up their local ecosystems.

The full essay is at "Nature Credits in the E.U."

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1. Robert Hodgson, “Von der Leyen Moots ‘Nature Credits’ Market to Avert Ecosystem Collapse,” Euronews.com, September 13, 2024.

On the Supply and Demand in Housing Markets: Rent Control in California

In February, 2019, Oregon’s legislature passed rent-control legislation limiting rent increases to 7% annually plus inflation. New York’s legislature strengthened the existing local rent-control regulations in New York City. Roughly six months later, California’s legislature passed rent-control legislation limiting annual rent increases to 5% after inflation and strengthening other tenant protections.[1] Not even the largest landlord group and the California Business Roundtable had opposed the legislation in spite of the fact that rent-control even as a concept flies in the face of the free-market ideology that has been so popular in America. Indeed, economists “from both the left and the right have a well-established aversion to rent control, arguing that such policies ignore the message of rising prices, which is to build more housing.”[2] Accordingly, only four of the American states (and Washington, D.C.) had some kind of local rent-control. So what accounts for the rent-control fever that had taken hold in 2019? I want to point to the immediate context then in California, and then to a more theoretical explanation that calls for distinguishing shelter from real-estate investing.

The full essay is at "California Rent Control."

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1. Conor Dougherty and Luis Ferré-Sadurni, “California Approves Statewide Rent Control to Ease Housing Crisis,” The New York Times, September 12, 2019.

Facebook Defies Markets: No Accountability for Unethical Managements

When Facebook announced a record $6.9 billion profit for the final quarter of 2018, up 61% from the last quarter of 2017, the company’s management could also boast of an estimated 2.7 billion users of Instagram, WhatsApp, Messenger and Facebook each month, 1.52 billion of whom used Facebook every day.[1] This was particularly surprising at the time because the company had “earned the ire of users and regulators [in the E.U. and U.S.] for a growing list of privacy issues, including the Cambridge Analytica data scandal and a massive security breach.”[2] Cambridge had improperly used information on tens of missions of Facebook users, and hackers had accessed the telephone numbers and email addresses of 30 million users. Even though Facebook’s CEO, Mark Zuckerberg “touted the steps taken by the company [in 2018] to deal with the missuse of the platform,” his company had been criticized on the eve of the announcement for being in violation of the agreement with Apple regarding an iOS app (Facebook Research) distributed to employees and customers through Apple’s “Enterprise Development Program.”[3] That program prohibited distribution to customers and accessing “information such as private messages, web searches and location data.”[4] How could users not have reacted negatively, hence bearing on Facebook’s stock-price and profit-level? How could a company’s unethical management—a point I had documented in Taking the Face Off Facebook in 2015, prior to the scandals—not be punished by the market?

The full essay is at "No Market Accountability on Ethical Companies?"

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[1] Seth Fiegerman, “Facebook Posts Record $6.9 Billion Profit Despite privacy Scandals,” CNN Business, January 30, 2019.

[2] Ibid.

[3] Kaya Yurieff and Ahiza Garcia, “Apple Says Facebook’s Controversial Market Research App Violated Its Policies,” CNN Business, January 30, 2019.

[4] Ibid.

Judge Allows ATT Purchase of Time Warner: Vertical Integration Escapes Anti-Trust Objection

Typically horizontal mergers, as when one company merges with another that makes similar products, have trouble when it comes to anti-trust, restraint of trade, objections. The go-ahead of the ATT merger with Time Warner in mid-2018 suggests that vertical combinations, such as when distributor buys a content-creator, survive on anti-trust grounds. Even if trade is not restrained, another problem is present—that of conflicts of interest. Anti-trust law is oriented to preventing restraint of trade rather than such conflicts. Accordingly, just because the ATT merger survived on anti-trust grounds does not mean that a regulatory gap did not exist at the time.

The full essay is at "Vertical Integration and Anti-Trust Law."

ECB Poised to Approve Italian Bailout of Monte dei Paschi Bank: An Instance of Federal-State Collusion?

Under the E.U.’s banking law enacted after the 2008 financial crisis, the state governments “are not supposed to inject fresh taxpayer money into a bank if it is deemed insolvent. When a bank gets into financial trouble, shareholders and bondholders, assumed to be sophisticated investors aware of the risks, are supposed to take the hit and bear the losses.”[1] Much of the banking reforms were intended, moreover, “to prevent banks from becoming so big and so risky that they could hold the global economy hostage. Politicians and policy makers didn’t want taxpayers to be on the hook for the banks’ mistakes.”[2] What about a mid-sized bank whose financial plight puts a state’s economy and reigning political elite in jeopardy? Should the E.U.’s central bankers look the other way and allow the state’s government to finance a bail-out so stockholders and bondholders need not feel the brunt?

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

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1. Jack Ewing, Gaia Pianigiani, and Chad Bray, “Bailout for Italy’s Oldest Bank Tests Too-Big-to-Fail Rules,” The New York Times, June 1, 2017.

2. Ibid.

Is Undoing Financial Reform In Line with Free-Market Ideology?

Legislating on the basis of an aversion to government intervention in financial markets can paradoxically result in more massive intervention. The latter can come to pass even amid an anti-interventionist ideology on account of the emergency conditions that call for the extraordinary incursion of government into a market. Undoing the Orderly Liquidation Authority of the Dodd-Frank Act in the U.S. is a case in point.

The full essay is at "Financial Reform and Free-Market Ideology."

The Golden Age of Innovation Refuted

“By all appearances, we’re in a golden age of innovation. Every month sees new advances in artificial intelligence, gene therapy, robotics, and software apps. Research and development as a share of gross domestic product [of the U.S.] is near an all-time high. There are more scientists and engineers in the U.S. than ever before. None of this has translated into meaningful advances in Americans’ standard of living.”[1] The question I address here is why.

The essay is at "Golden Age of Innovation."

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1. Greg Ip, “Economic Drag: Few Big Ideas,” The Wall Street Journal, December 7, 2016.

Modern Day Mercantilism: Donald Trump Intervenes at Carrier

The tension between the free-market philosophy and mercantilism (e.g., an industrial policy) has been longstanding. I contend that the philosophy of international business (or international economics) is flawed terms of how far comparative advantage is applied, even at the expense of full employment at the city or country level. The case of Carrier in Indiana points to the legitimacy of government intervention even at the expense of comparative advantage.

The full essay is at "Modern Day Mercantilism."

 

Springtime for China's Coal Industry: Is China Too Big to Swerve Enough to Avoid the Climatic Iceberg Ahead?

Even as Chinese government officials “called on the United States to recognize established science and to work with other countries to reduce dependence on dirty fuels like coal and oil,” China was “scrambling to mine and burn more coal.”[1] Notably, short-terms concerns were dominant. “A lack of stockpiles and worries about electricity blackouts” were “spurring Chinese officials to reverse curbs that [had] once helped reduce coal production.”[2] By December, 2016, coal mines were reopening, and with them coal miners were returning to work. The renewed activity would of course make it more difficult for China and the world to meet CO2 emissions targets, “as Chinese coal is the world’s largest single source of carbon emissions from human activities.”[3] In fact, China’s use of coal results in more emissions “than all the oil, coal, and gas consumed in the United States.”[4] The implications for being able to contain the global rise in temperature within 2 degrees C are not bright from this real-life scenario. It is important, therefore, to grasp the underlying dynamics behind China’s plight.

The full essay is at "Springtime for China's Coal".

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1. Keith Bradsher, “Despite Climate Vow, China Scrambles for Coal,” The New York Times, November 30, 2016.

2. Ibid.

3. Ibid.

4. Ibid.

California Passes Stricter Pollution Targets: Bringing Business Around

California’s legislature approved a bill (SB 32) in August, 2016 that extends the climate targets from reducing greenhouse-gas emissions from 1990 levels by 2020 (the former target) to just 40 percent of 1990 levels by 2030.[1] A second law, which includes increased legislative oversight of California regulators and targets refineries in poor areas, passed as well. Diane Regas of the Environmental Defense Fund pointed to California’s climate leadership. “As major economies work under the Paris Agreement to strengthen their plans to cut pollution and boost clean energy, California, once again, is setting a new standard for climate leadership worldwide.”[2] At first glance, it would seem that the legislature had freed itself from big business to pass the bills, but the sector itself was split. I submit the anticipation of a refreshed “cap and trade” program as an alternative (or mitigating factor) to stricter regulations played a role. Simply put, using the market mechanism in government regulation makes the stricter targets more palatable to market-based enterprises.

The full essay is at "California on Greenhouse Gases."

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1. Chris Megerian, “’A Real Commitment Backed Up by Real Power’: Gov. Jerry Brown to Sign Sweeping New Climate legislation,” Los Angeles Times, August 25, 2016.

2. “Landmark Climate Bill Passed by California Legislature,” August 26, 2016.

Property Rights in China: On the Separation of Ownership and Control in the Stock Market

It is too simplistic to say that economies around the world converged as capitalistic after the collapse of the Soviet command-and-control economy. Even the notion that China’s communist party has embraced capitalism does not do justice to the ways in which China’s capitalist system is unique. This became particularly apparent in early July 2015, when the bubble burst in the Chinese stock market.

The full essay is at “Property Rights in China.”

Democracy as an Anti-Trust Criterion: The Comcast Time-Warner Merger

As the U.S. Department of Justice and the SEC were reviewing the proposed merger between Comcast and Time Warner in April 2015, six U.S. senators signed a joint letter opposing the $45 billion deal. Comcast would control about 30 percent of the pay-television subscribers in the U.S. and an estimated 35 to 50 percent of the American broadband internet service.[1] That more senators had not signed on is telling with respect to how business-oriented American society had become.

The full essay is at “Democracy and Anti-Trust Law.”

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[1] Emily Steel, “6 Senators Urge Rejection of Comcast-Time Warner Cable Deal,” The New York Times, April 21, 2015.

Anti-trust Enforcement in the E.U. and U.S.: Business, Government and Society

In 2014, the E.U. depended on Gazprom, a state-controlled Russian gas company, for one-third of the natural gas used in Europe. Meanwhile, Russia depended on the company for export-earnings. Moreover, both the E.U. and Russia view Gazprom from not only commercial vantage-points, but geopolitical ones as well. Both dimensions were in the mix as the European Commission weighed bringing anti-trust charges against the company in April 2015. At the time, the E.U.’s executive branch was already formally pursuing Google on anti-trust grounds. Relative to anti-trust enforcement in the U.S., the E.U.’s own represents a formidable attempt to open up competitive markets. We can generalize, in fact, to posit a more balanced “check and balance” between business and government in Europe.

The full essay is at “Anti-trust Enforcement in the E.U. and U.S.”

Oil Supply: Problem or Panacea?

Between June 2014 and January 14, 2015, crude oil prices fell by 57 percent. Between November 1985 and March 1986, the prices had fallen by 67 percent.[1] That time, it took nearly two decades for oil prices to rebound. Would it take that long again? The answer has implications for how efficient the market mechanism itself is, and in turn for public policy on energy and global warming.

The full essay is at “Oil Supply.”

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[1] Russell Gold, “Back to the Future? Oil Replays 1980s,” The Wall Street Journal, January 14, 2015.

Is Dark Trading Ethical?

“Dark trading” has a subterranean connotation, as if it were done by slithering snakes in the river Styx. In actuality, the term refers to trading in stocks that is done on computers that are less public than the exchanges. That is to say, the bid-and-ask quotations on a given computer network are known only to participants on it, and not to the traders on the public exchanges. Ethically, the public-private dichotomy is relevant. I submit that it reflects a wider trend in American society.

The full essay is in Cases of Unethical Business, available in print and as an ebook at Amazon.com.  

Homelessness in the U.S.: A Reflection of American Values

According to a report by the National Center on Family Homelessness in 2014, nearly 2.5 million American children were homeless at some point in 2013.[1] The U.S. Department of Education had reported that 1.3 million homeless children were going to school. California, which accounted for one-eighth of the U.S. population at the time, had one-fifth of the 2.5 million, which comes out to nearly 527,000. The relatively high cost of living and shortage of low-income housing, along with a largely stagnant minimum wage, are the more visible factors behind the gap.

The full essay is at "Homelessness in the U.S."

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1. David Crary and Lisa Leff, “Number of Homeless Children in America Surges to All-Time High: Report,” The Associated Press, November 17, 2014.

An Ebola Vaccine: A Lesson for Obamacare

With the Ebola virus confined to impoverished states in Africa until 2014, drug companies had little financial incentive to develop a vaccine. “A profit-driven industry does not invest in products for markets that cannot pay,” Margaret Chan, the director general of the World Health Organization, said in late 2014.[1] At the time, at least 13,567 people were known to have contracted the virus in the outbreak, with nearly 5,000 people dead. It cannot be said that the profit-motive in a market economy is efficient in this case.

The full essay is at “Ebola Vaccine.”

1. Rick Gladstone, “Ebola Cure Delayed by Drug Industry’s Drive for Profit, W.H.O. Leader Says,” The New York Times, November 3, 2014.

Efficiency and Ethics: On the Fairness of High-Speed Trading

Two months into 2012, the SEC announced that it had been examining the trading activities of high-frequency trading firms.  According to the Wall Street Journal, the SEC was “examining, among other things, whether high-frequency firms benefit from delays in the dissemination of prices from various corners of the markets. . . . High-speed firms use direct feeds from exchanges that can give them a leg up on slower traders.” High-frequency traders “can access prices a split second faster through their access to direct feeds.” This is accomplished by placing the trading computers in the same data center that houses the exchange’s computer servers. Just over a year later, the Wall Street Journal reported that high-speed traders were using “a hidden facet” of the Chicago Mercantile Exchange’s computer system “to trade on the direction of the futures market before other investors get the same information.” Even getting the confirmation of a high-speed trade just one to ten milliseconds faster can enable a computer to know the direction a commodity is going and trade on it. According to the Wall Street Journal, the “ability to exploit such small time-gaps raises questions about transparency and fairness amid the computer-driven, rapid-fire trading that increasingly grips Wall Street and confounds regulators.” Both the increasing use of high-speed trading and the problem of accountability from a regulatory point of view raise the stakes in determining the ethics of the practice. 

The full essay is in Cases of Unethical Business, available in print and as an ebook at Amazon.com.  

Greece & Italy: Undercutting Market Confidence in the E.U.

As a federal system, the E.U. can be expected to contain a certain amount of economic disparity. The state bond yields in October 2011, for example, were—one could say—“diversified.” Investors relishing high risk-return could partake in Greek bonds while retired investors could safely stick to the German variety. A healthy federal system proffers something for nearly every taste, while constraining the outliers for the sake of unity. It does not require uniformity. However, too much diversity can cause a federal system to come apart due to divergent pressures seeking more expression. Also, if the high-risk “end” is sufficiently risky, the ensuing atmosphere of uncertainty can undo the federation’s financial system. Uncertainty, like anxiety, can subtly eat away at a system to the point that it cannot pull itself out of its funk.

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

Wall Street Banks: Price-Making and Law-Breaking?

The U.S. Senate Permanent Subcommittee on Investigations found in 2011 that “two Goldman employees, Deeb Salem and David Swenson, tried to manipulate prices of securities used to bet against mortgages. Both tried to help Goldman pile on larger bets against the mortgage market, and they wanted to be able to buy such negative bets more cheaply, the report said. Goldman, as a broker, was able to affect prices in the market through the bids and offers it gave out. Mr. Swenson wrote in May 2007 that the bank should try to ‘start killing’ prices on certain positions so that Goldman would be able to ‘pick some high quality stuff,’ according to the Senate report. The strategy, Mr. Swenson wrote, would ‘have people totally demoralized.’ The pair were unsuccessful in their attempt, and both denied making it to the Senate committee. Mr. van Praag said last week that the report had no evidence of manipulation. Still, the Senate report said that ‘trading with the intent to manipulate market prices, even if unsuccessful, is a violation of the federal securities laws.’”[1] I submit that it was also unethical. 


The full essay is in Cases of Unethical Business: A Malignant Mentality of Mendacity, available at Amazon.com.

1. Louise Story and Gretchen Morgenson, “S.E.C. Case Stands Out Because It Stands Alone,” The New York Times, May 31, 2011.