Thursday, May 30, 2013

Federalism on Different Levels: Switzerland Capitulates to the E.U.

In 1960, Switzerland was one of the two founders of the European Free Trade Association. All of the countries participating in that free-trade agreement except Switzerland went on to ratify the EEA (European Economic Area) free-trade treaty, an agreement akin to NAFTA in America. In a referendum in December 1992, the Swiss turned down the proposed treaty. Rather than gain access to the E.U.’s domestic market through EEA, the Swiss opted to do so through bilateral treaties with the E.U. by which the independent state agreed to E.U. laws relevant to the single market. Switzerland also signed on to the  Schengen arrangement, which became an E.U. law in 1999, and provisions concerning security and asylum. Even so, changes to the relevant E.U. federal law are binding on Switzerland via the bilateral treaties only if a bilateral commission approves. Admittedly, “Bilateral” is somewhat misleading here, as a basic equivalence is erroneously assumed between the E.U. and Switzerland.


The complete essay is at Essays on Two Federal Empires.


 Switzerland, shown in orange, would not even be a large state in the E.U.    Source:  battlecat.net


Tuesday, May 28, 2013

Merkel Siding with China against the E.U.: Federalism Imploding?

In May 2013, German Chancellor Angela Merkel interjected herself into the brewing trade conflict between the E.U. and China. At issue was the European Commission’s proposal to impose import tariffs on some Chinese solar and telecommunications products in response to suspected dumping by China. Merkel’s involvement involves a conflict of interest for her and exploits a vulnerability in the E.U.’s federal system.

Although the flags of the E.U. and China both have stars, the E.U. has a federal system while China is centrally governed.  Both forms of government have drawbacks, but at the "empire level," federalism usually works better than a central government, given the expanse.   Source: ipolitics.ca
The full essay is at Essays on the E.U. Political Economy, available at Amazon.

Friday, May 24, 2013

Taxes and Health Insurance: The United States Diverge Toward a Stronger Union

One of the main benefits of federalism is that it allows for both the tremendous power that can come from member states taking a united stance and cultural and related political interstate diversity. In other words, federalism is not only a means of checking governmental power by means of splitting governmental sovereignty between two systems of government—state and federal—but also a way of giving empires the advantages of both united action and diversity. In the case of the U.S., the power of uniting forces far surpasses the allowance for interstate diversity because consolidation in Congress and the White House has come to eclipse the power of the state governments. Although it is not sufficient to restore a semblance of balance between the two systems of government in the American federal system, it is nonetheless significant that “red” and “blue” states moved in different directions subsequent to the 2010 elections both in terms of tax and health-insurance policy. 

The complete essay is at Essays on Two Federal Empires, available at Amazon.

Tuesday, May 21, 2013

Jamie Dimon Wins Stockholder Vote: Exploiting Conflicts of Interest Undercuts Fairness

Chairman of JPMorgan since 2006 and CEO a year longer, Jamie Dimon faced down a daunting stockholder vote on May 21, 2013 on whether he should be allowed to retain both roles. Despite the bank’s $6.2 billion trading loss, deeply flawed risk-management oversight, and “credibility issues” with regulators, only about 32% of the votes cast were in favor of the nonbinding resolution that the chair and CEO jobs be separated. Interestingly, not only does the chair/CEO duality have an inherent conflict of interest because part of what a board (including its chair) does is hold management (including the CE) accountable, the means by which the pro-duality side campaigned also included conflicts of interest. I cannot help but wonder whether Jamie Dimon, his immediate subordinates, the bank’s board directors and even the stockholders who altogether voted a supermajority of shares in support of Dimon’s two roles were negligent ethically in failing to even recognize the institutional conflicts of interest involving Dimon and the board. To the extent that recognition existed, permitting the conflicts to exist and in some cases knowingly exploiting more than one at a time are even more squalid than merely being oblivious to them. To the extent that structural conflicts of interest were enabled through the campaign and in the election results, JPMorgan Chase can be likened to a house of cards. This does not bode well for the financial system and broader economy to the extent that the largest American bank holds systemic risk (i.e., “too big to fail”). I look at the campaigning first, as doing so will lead us directly to the main conflict of interest that is at issue here.

 Jamie Dimon, CEO and Chair of JPMorgan Chase.  The duality of roles can benefit him both personally and institutionally. NYT

The full essay is at "JPMorgan: An Unethical Monstrosity?" and at
Institutional Conflicts of Interest, both available in print and as an ebook at Amazon.

Monday, May 20, 2013

President Obama as Chief Executive? Too Busy Leading and Legislating to Catch the IRS

Has the presidency become too big for one person? This question was salient in the 1970s, as Americans endured Nixon’s Watergate plight, Ford’s frustrations with stagflation, and Carter’s failure to free the American hostages being held in Iran. Meanwhile, none of those presidents were able to take on OPEC (an Arab Oil Cartel). Reagan’s answer was that big government, not an overwhelming office, was the problem. Leaving aside the ideological question of whether the U.S. Government had indeed grown too big (especially relative to the state governments), I contend that occupants of the White House have serially misunderstood the nature of the office. In short, the presidents have allowed their efforts in partisan leadership to crowd out being the chief executive of the executive branch. I suspect that the explanation involves a mix of self-centeredness and simply wanting to shirk the boring stuff for more exciting activities.
 
To preside literally means to stand before. In the Constitutional Convention in 1787, Ben Franklin referred to the proposed office as sitting “in peaceful Council … merely to preside over our civil concerns, and [to] see that our laws are duly executed” (Madison, Notes, p. 55). Referring to the first role, which I take to be that of presiding, Governeur Morris stated on July 19 in convention that the President should be “a firm guardian of the people and of the public interest” (Madison, Notes, p. 324). In this respect, the office of the American presidency is thus geared to looking over the viability of the whole, leaving the partisanship and legislating to the legislative branch. When these two are not left to the Congress (the veto being originally intended to protect the whole rather than for ideological purposes), the credibility of presiding is compromised. Further, the administrative tasks in seeing that “our laws are duly executed” are unduly delegated or simply ignored.
 
In presiding, the president stands for the Union, which includes protecting its system of governance at the macro level and the Union itself, whether from internal dissolution (e.g., Lincoln) or foreign invasion (e.g., FDR). The Presidential leadership that is most credible is at this “high altitude” level. Because the office is not primarily oriented to partisanship on every single issue before the Congress, partisan leadership, such as on a garden-variety issue, is ultimately bad for a president both in terms of credibility and opportunity cost (i.e., the value of tasks closer to the office  that are crowded out).
 
George Washington can be cited to support the thesis that the office is oriented to flying above all but the highest storm clouds. The first president had both Thomas Jefferson and James Hamilton in his cabinet.  Listening to the two men debate, the presider could discern where the national interest lay rather than risk ideological group-think oriented to using the office to push an agenda. President Jackson was oriented to the good of the whole rather than a partisan ideology when he opposed Congress funding roads entirely within a given state (Missouri) and yet sent troops to South Carolina after it passed the Nullification Acts that purported nullified federal laws that hurt the state’s interests. It is not clear if the president was a federalist or an anti-federalist, as his focus was on keeping federalism in balance because that would support the viability of the Union.
 
The results of a 2010 focus group reported by the New York Times indicated that Americans wanted a president who resists the temptation to engage in partisan fighting. They wanted a leader who would stand for things on which most Americans agree, such as that American society should be more civil. Such leadership is oriented to a vision of the whole that transcends partisanship. For example, Barak Obama could have run in 2008 explicitly as a multiracial (rather than black) candidate capable of personifying what America was rapidly becoming: a true melting-pot wherein multiracial persons are seen as the leading wave of the future. Taking a partisan stand on virtually every issue that come out of Congress so as to have as much as possible his way undercuts the credibility of “personification leadership” because people on the other side of a given issue will resist accepting the president as personifying anything involving themselves. In other words, Obama’s political opponents will not buy into any America that he personifies—period.
 
As a general principle, partisanship undercuts presiding. Paradoxically, a president wanting to maximize his influence on every issue winds up undercutting his influence that is most in line with the design and nature of his office and thus effective. In wanting so much to go his way, a president’s ego obstructs his performance on tasks that only he is in a position to accomplish. Lost in the backwash of partisan spit is not only presiding, but also executing the law as the chief executive. It is counterintuitive to conclude that a sort of presidential leadership (i.e., the partisan or ideological variety) is bad because it crowds out the more fitting administrative role. Properly understood, (presiding) leadership applies to the presidency without crowding out the administrative tasks in holding agencies accountable. Sadly, presidents typically try to get involved in as many issues as possible—hence the office appears to have grown too cumbersome for one person.
 
Joe Hagin, George W. Bush’s deputy chief of staff, observed while still in office that there “was much less time [under the second Bush] to catch your breath during the day.” A constant juggling of issues—from wars down to cleaning up after hurricane Katrina often taking place all at the same time—had exhausted the White House staff. “There’s only so much bandwidth in the organization,” Hagin admitted.  “Can any single person fully meet the demands of the 21st century presidency?”  Doris Goodwin has argued that the growth in the number of things expected of the president has expanded exponentially since WWII. “The President’s inner circle can become stretched by the constant number of things labeled ‘crises’ that land on his desk.” Just because the media labels some issue as a crisis in order to increase viewership does not mean that the issue measures on the “presiding” scale. Surely the Presidency, being intentionally designed as one person rather than a presidential council, was not initially intended to micromanage every issue in public discourse. The proliferation of news sources has increased the pressure on the President to weigh in on more things. Meanwhile, his administrative tasks are neglected even more.
 
President Obama delivered 57 speeches in October, 2010 alone; he had seven speechwriters at the time. It would be interesting were someone to analyze those speeches to see how many pass muster in terms of presiding rather than being partisan on topical issues. The opportunity costs of getting into every issue in hopes that each one will go the way he wants include not only foregone presiding opportunities but also administrative lapses in executive branch agencies that the chief executive and his immediate staff could have caught and rectified at an early stage.
 
In May 2013, President Obama claimed that he had learned that the IRS had been targeting conservative groups for audits “only with the rest of you.” This statement “drew criticism,” according to the Wall Street Journal, by “focusing attention on his management style and whether he has kept himself sufficiently informed about the agencies under his authority.” I suspect that the president enjoys giving partisan speeches more than overseeing many agencies. In other words, he allowed the time-expansive sort of (partisan) presidential leadership to eclipse his administrative duties. Even the American people tend to view the presidency as a leadership rather than administrative position—so the president gets away with trying to get as much as possible to come out his way, politically.
 
The problem can be viewed as one of self-discipline. While in the U.S. Senate, Sen. Obama did not enjoy the committee hearings, but attending them was part of his job. Whereas in the Senate his leader, Harry Reid, could hold him to task on the monotonous parts of the job, no such authority in the White House exists over a president. To do more administratively as chief executive of the executive branch agencies, Obama would have had to rely on his own self-discipline, which appears to be in short supply. In regard to the partisanship in the IRS, it could be asked why neither the president nor his White House staff had caught the problem in their administrative capacity as the conservative groups were being targeted. Perhaps the president had been too busy giving campaign speeches or negotiating with Republican legislators on legislative proposals.


Sources:

Daniel Stone, “Hail to the Chiefs,” Newsweek, November 22, 2010, pp. 30-33.

Matt Bai, “Voter Disgust Isn’t Only About Issues,” The New York Times, October 6, 2010.

Peter Nicholas, “Obama’s Counsel Was Told of IRS Audit Findings Weeks Ago,” The Wall Street Journal, May 19, 2013.

James Madison, Notes in the Federal Convention of 1787. New York: Norton, 1987.

 

 

 

Thursday, May 16, 2013

Hollande Proposes Economic Government for Euro-Zone: Muddying the Water?

At a press conference marking French President Francois Hollande’s first year in office, the powerful head of the large E.U. state called for an economic government for the euro zone.  One might be tempted to ask, what exactly is an economic government? By definition, a government is a political entity. Show me a government without politics and I’ll pack up and head to the Himalayas for a life of other-worldly contemplation. What, pray tell, is an economic government exactly?

The complete essay is at Essays on Two Federal Empires.

           President Francois Hollande of France proposing an economic government for the euro-zone. What exactement is an economic government?    Source: Reuters


Tuesday, May 14, 2013

A "Banking Union" or Coordinated State Laws and Regulations?

A subtle though important difference exists between American and European federalism, each of which covers both the "kingdom" (i.e., early modern, now mostly republics) and "empire" (i.e., ancient and early modern, now usually huge federal systems) scales. So I am referring to federal systems like the U.S., E.U. and Russia (and U.S.S.R), rather than to federal systems within any of their respective political subunits (e.g., Belgium, the Netherlands, and Germany). The difference between the E.U. and U.S. that I discuss here can be grasped by looking at the two competing proposals for federal bank regulation in the European Union. The crucial question facing the E.U. finance ministers concerns which system of government. 


The complete essay is at Essays on Two Federal Empires.

This picture depicts the distinctive European model of modern federalism wherein the state governments play a salient role in implementing (and modifying) federal law.   source: mapperywordpress.com


Monday, May 13, 2013

Bloomberg News "Speed" Journalists Exploiting Terminal Subscribers: On the Failure of Firewalls

In 2012, I was stunned to hear an official of Deloitte place all his faith in the internal firewalls that he had constructed in the CPA firm to inhibit the exploitation of the conflict of interest that exists between the auditing and consulting divisions. A year later, Matt Winkler of Bloomberg apologized because reporters in the news division had used clients’ proprietary information from the Bloomberg terminals to report financial news stories before other news organizations. The firewall between selling terminals and reporting news had not been sufficient to prevent exploitation of the conflict of interest. There is a lesson here for any multi-divisional company or bank that is relying on firewalls.


The full essay is at Institutional Conflicts of Interest, available in print and as an ebook at Amazon.
 

Obama Mimics Cameron's View of the E.U.

President Obama has said he “wants a strong UK in a strong EU.” In his joint news conference with David Cameron of the EU state of Great Britain on May 13, 2013, the president elaborated on his earlier statement in a way that reveals his view of the EU as an entity. In short, he shares Cameron’s view that the EU is essentially a number of economic relationships rather than a political union of states.

The full essay is at Essays on Two Federal Empires.

Thursday, May 9, 2013

Big Banks Opposing Anti-TBTF Regulations: A Conflict-of-Interest

Being able to count on a person or company thereof having sufficient motivation to provide a self-defense is no feat, for self-interest is a staple—perhaps the staple—in human nature.  It should be no surprise, therefore, that after raking in $102 billion in subsidies, including lower lending costs due to the general perception that the government would bail them out, and repaying the TARP money, the biggest American banks were sufficiently re-energized (i.e., self-motivated) to go on the offensive to protect their places on the perches under fire. Specifically, they planned a lobbying campaign to fend off increasing Congressional calls to break up the banks to solve the too big to fail problem (which includes the subsidy problem that exacerbates the wider problem). There are problems with the lobbying itself—problems caught in America’s blind-spot even as they subtly undermine the body politic.


The full essay is at Institutional Conflicts of Interest, available in print and as an ebook at Amazon.


Monday, May 6, 2013

Does Austerity Work?

Does raising taxes and cutting government spending reduce a government’s deficits and thus debt? Confine consideration to more tax revenue and less spent and the theoretical answer is yes; it being a simple matter of mathematics. Include the impacts of raising taxes and cutting spending and the answer become far less straightforward. More paid in tax means less disposable income, which means less consumption and thus less produced (i.e., GNP). A government spending less also means less consumption in the economy, and therefore even less to be produced to meet demand. In short, austerity is recessionary. Whether the ratios of deficit and debt to GDP increase depends on how much the numerators drop relative to the decrease in GDP. We can look at the E.U. for some empirical evidence.


 If austerity kills dignity, then pressure on governments to relax spending cuts can be expected.   source: rt.com
The full essay is at "Essays on the E.U. Political Economy," available at Amazon.

Saturday, May 4, 2013

Gilding the Dandelion: Management as Leadership

Wendy Lea, the CEO of a customer “experience” start-up, discusses her leadership approach in an interview with the New York Times. I contend that what she takes to be leadership is actually management. Put another way, she is gilding the leadership lily. Unfortunately, that practice is ubiquitous in the business world. 

Material from this essay has been incorporated in The Essence of Leadership, also available at Amazon in print and as an ebook.

Source:

Adam Bryant, “A Leader’s Test: Balancing Drive andCompassion,” The New York Times, May 3, 2013.

Monday, April 29, 2013

Should Icelanders Push for E.U. Statehood Anyway?

In late April 2013, a slight majority of Icelanders who voted in the parliamentary election went for a return to the center-right Independence and Progressive parties even though they had been responsible for the banking crisis that bankrupted Iceland. The two parties promised to forgive or renegotiate the Icelanders’ personal debt and end the four years of austerity by lowering taxes, ending capital controls and stimulating foreign investment, according to the New York Times. The center-left governing parties, including the Social Democrats, had cut spending and raised taxes, making the carrots being offered by the center-right parties all that more alluring. Although not the main issue of the election, the prospects for Iceland becoming a state in the European Union lessened significantly with the ousting of the center-left government. Unlike that government, the center-right parties voiced skepticism and advocated a referendum before any the government would take any further steps. In the wake of the election, it might be helpful to reflect on whether Iceland should become a state. After going over some economic and political factors, I want to highlight subtler factors whose influence is typically understated in newspaper headlines.


The complete essay is at Essays on Two Federal Empires.


From this perspective, it can be said that Britain are Ireland are part of Europe, but what about Iceland? Source: luventicus

Sunday, April 28, 2013

Return of the Mortgage-Based Bonds: Another Bubble in the Making?

In case it has been a while since you have been entertained by going around in circles while sitting on a painted wooden horse, permit me to re-introduce you to the Merry-Go-Round, a staple at virtually any amusement park.

The world itself might just be such a ride, with us mere earthlings playing out our respective roles while spinning around and around as the world goes by once and then again, and again. Lest it seem monotonous to go around in circles, it is possible—at least in principle—to learn something new on each pass.  Weighing against a learning-curve that might thwart an eternal recurrence of past failures are other, less salubrious proclivities of the mind. These include (but are not limited to) avarice, power, and even the force of habit. More damning still may be the arrogance of pride—the hubris of presumption. 

The full essay is at Another Bubble.