Friday, December 14, 2018

Leading at the Top beyond Appearances: The case of John Boehner, Speaker of the U.S. House of Representatives

In the wake of President Obama's mission to execute Osama bin Laden, Speaker Boehner issued a statement complimenting his rival in the White House. In contrast, Sarah Palin gave George W. Bush all the credit. The Speaker, too, could have gone with political expediency. Therefore, for the Speaker to have publicly acknowledged Obama's victory as America's more generally involved political self-discipline. Speaker Boehner had sought to apply self-discipline, moreover, to his decentralized leadership style from the moment of his swearing in. Given the consolidating nature of power, such a leadership style in the U.S. House of Representatives faced considerable head winds.


On January 5, 2011, John Boehner was sworn in as Speaker of the U.S. House of Representatives. He had promised to decentralize the power that had been so tightly held by the previous Speaker and others further back.  Indeed, it had been Gingrich's micromanaging of Boehner in 1995 that may well have prompted Boehner to want to give more power to lower-level party leaders and committee chairs. Boehner even promised to better provide for the minority party in that proceedings would be more open and fair.  Of course, obstructionism, favoritism, and in general the realities of governing all can be used to consolidate power. The exigencies of Boehner's position could have trumped any bad memories of having been one of the low men on the totem pole.  It is only human nature, after all, to identify with and prefer the present at the expense of the past. Hence, the concept of the net present value of money. Additionally, consolidating power into a few select hands may seem necessary to getting the trains to run on time.
Indeed, Boehner might have been tempted to add trains. Noting the inherent difficulty in having one legislature (albeit consisting of two separate chambers) governing an empire-scale union, the anti-federalist (and pro-commerce) Agrippa of Massachusetts wrote in 1787, "A diversity of produce, wants and interests, produces commerce, and commerce, where there is a common, equal and moderate authority to preside, produces friendship." (Agrippa, Letter 8, 4.6.30). Agrippa was bemoaning the consolidation that he feared would ensue from the powers granted by the U.S. Constitution to Congress (at the expense of the state governments). Agrippa was by in large right. The dual-sovereignty in American federalism has largely been eclipsed by decades of encroachments by the general government. It would have taken self-discipline for Congress not to have encroached when it could. Similarly, self-discipline is required for a Speaker of the House, which is a constitutional office, to preside, which is to say, to look to the overall interest of the whole rather than to engage in partisanship.    In spite of Boehner's intentions to return some power to the states and to decentralize his power in the House, he was from the start already likely to reverse himself in practice. The nature of power may well be paradoxical: those who love it most tend to find it most offensive to give even some of it up to others. It takes maturity for a leader who does not crave power to trust others in decentralizing it; I can scarcely imagine a person who climbs the difficult mountain to the head of a governmental body (or business corporation) to suddenly work on the newly won power. So I am led to wonder, what exactly was Boehner's motivation in publicly stating his vision of a more decentralized power structure in the U.S. House of Representatives? Perhaps he knew that people out across the lands would approve of him as a result. There is the appearance of power and there is real power. I'm not convinced that the citizens who vote in a republic are able to get behind the appearance, if efforts behind the scenes are intensely invested in keeping the public awash in appearances. 


Sources:

Naftali Bendavid and Patrick O'Conner, "New Speaker Vows to Share Power--a Tricky Proposition,The Wall Street Journal, January 4, 2011, pp. A1, A6.

Agrippa, in Herbert J. Storing, ed., The Anti-Federalist, Chicago: University of Chicago Press, 1985, p. 243

See Skip Worden, Ethical Leadership, a booklet available at Amazon. See more generally, Essence of Leadership, a book available at Amazon.

Thursday, December 13, 2018

Auto vs. Oil Industries on Emission Standards: Putting a Part Above the Whole

When a company or an entire industry skips over the good of the whole—the public good—in lobbying for legislation that only reflects the needs or desires of individuals (qua consumers only), the society itself (and even the Earth) is slighted and thus more at risk. For the good of the whole is more than just the cumulative needs and desires of individuals in part because the latter do not take into account the wider effects of their choices. When an individual company or industry takes this point into account and rebuffs favorable legislative proposals because they would do too much damage to society and/or the planet, social responsibility is at hand. Companies or industries that do not are thus irresponsible from the standpoint of the whole, which, through government, is justified in keeping an eye on them (especially in making transparent their efforts to influence legislation and regulation. The American auto and oil industries can be distinguished in this regard.
“When the Trump administration laid out a plan” in 2018 that would have eventually allowed “cars to emit more pollution, automakers, the obvious winners from the proposal, balked. The changes, they said, went too far even for them.”[1] Too far even for the obvious winners—an amazing statement, considering that companies and industries generally try to get as much as they can in terms of deregulation and favorable laws.
Another industry, however, fueled by the efforts of Marathon Petroleum, “was pushing for the changes all along.”[2] The campaign’s main argument “for significantly easing fuel efficiency standards” was “that the United States [was] so awash in oil” that energy conservation need no longer be a worry.[3] This statement blatantly misses the point that the standards that were in place then were also to reduce emissions of CO2 from what they would otherwise have been from entering the Earth’s atmosphere.
Interestingly, the American oil industry must have missed the memo on the continuing increases in the emissions.
In fact, 2017 saw a record amount of emissions added to the atmosphere; the Paris Accord in 2015 was already proving to have been a failure.  Issued in early October, 2018, a “landmark report” from the UN’s Intergovernmental Panel on Climate Change “paints a far more dire picture of the immediate consequences of climate change than previously thought.”[4] The report states that if “greenhouse gas emissions continue at the current rate, the atmosphere will warm up by as much as 2.7 degrees Fahrenheit (1.5 degrees Celsius) above preindustrial levels by 2040, inundating coastlines and intensifying droughts and poverty.”[5] This was the context in which the oil industry was running “a stealth campaign to roll back car emissions standards.”[6]
The industry’s rationale reduced everything to the needs and desires of individual customers with no consideration of the impact on even them, not to mention humanity—including possibly its very survival. “With oil scarcity no longer a concern,” Americans should be given a “choice in vehicles that best fit their needs,” read a draft of a letter that Marathon helped to circulate to members of Congress over the summer. Official correspondence later sent to regulators by more than a dozen lawmakers included phrases or sentences from the industry talking points, and the Trump administration’s proposed rules incorporate similar logic.”[7] Of course, that a “quarter of the world’s oil is used to power cars, and less-thirsty vehicles mean lower gasoline sales” was not missed on either Marathon or its industry as a whole.[8] But the notion of a whole apparently stopped at the industry level; externalities beyond that, even one bearing on the future of mankind, were apparently of no concern.
Marathon Petroleum even “teamed up with the American Legislative Exchange Council, a secret policy group financed by corporations as well as the Koch network, to draft legislation for states supporting the industry’s position. [The] proposed resolution, dated Sept. 18, describes [the then] current fuel-efficiency rules as ‘a relic of a disproven narrative of resource scarcity’ and [urges that ‘unelected bureaucrats’ shouldn’t dictate the cars Americans drive.”[9] The resolution’s language doubtlessly included the council’s talking points, which, in staying on the “resource scarcity” rationale for standards, neglect the obvious link between emissions and climate change. Furthermore, the smack on “unelected bureaucrats” demonstrates no regard for government as standing for the interests of the whole when externalities from cumulative individual decisions are too much from the perspective of the whole. To be sure, with industries swaying legislators and regulators in democracies, laws and regulations can indeed benefit a part at the expense of the whole, but this deplorable flaw does not negate the need to protect the whole from parts from exploiting conflicts of interest. Unlike the auto industry, the oil industry sought to exploit its conflict of interest by putting its narrow interest ahead of that of the whole where the whole supposed to be paramount—in the halls of government.
I suggest, therefore, that heightened scrutiny is warranted where a company or industry (or the business sector—still but a part of the whole) seeks to influence lawmakers, regulators, or the general public in line with the private (profit) interest. This is especially needed in a culture that is generally in line with its business sector’s values. People and government officials alike in such a culture (such as that of the U.S.A.) find it difficult to realize the need to see that such conflicts of interest are not exploited. In fact, in my book, Institutional Conflicts of Interest, I argue that a conflict of interest is inherently unethical even if it is not exploited. A few other scholars on the subject argue in contrast that if a conflict of interest is not exploited, no harm is involved, but I contend that another reason exists why arrangements or situations that include conflicts of interest are unethical. I actually met one of those scholars on the Loyola campus in Chicago, but once in his office, I found he only wanted to talk about Obama. So much for scholarly exchanges.



1. Hiroko Tabuchi, “The Oil Industry’s Covert Campaign to Rewrite American Car Emissions Rules,” The New York Times, December 13, 2018.
2. Ibid.
3. Ibid.
4. Coral Davenport, “Major Climate Report Describes a Strong Risk of Crisis as Early as 2040,” The New York Times, October 7, 2018.
5. Ibid.
6. Hiroko Tabuchi, “The Oil Industry’s Covert Campaign to Rewrite American Car Emissions Rules,” The New York Times, December 13, 2018.
7. Ibid.
8. Ibid.
9. Ibid.

Tuesday, December 11, 2018

Investor Assessments of Political Events

Although the various investors in the financial markets doubtlessly pay great attention to important political events, such as were a state in the E.U. to default on its bonds, I suspect that market analysts overstate the importance of more commonplace political events. For example, the New York Times reported in late September 2012 that investors were shifting their portfolios to reduce risk out of uncertainty regarding the upcoming American elections and the ongoing negotiations in Congress to avoid the huge budget cuts and tax increases set to begin automatically at the beginning of 2013 and run for a decade. Additionally, fears that E.U. leaders might hesitate on moving forward with the bailout program oriented to indebted states were prompting investors to be more risk-averse. Generally speaking, analysts were “anticipating that politicians may not act until forced,” both in the U.S. and E.U., “setting the markets up for weeks of angst.” In my view, this account is overstated.
“Right now, we’re much more defensive than we were a few weeks ago,” Martin Leclerk of Barrack Yard Advisors said at the time. He had shifted 20 percent of his company’s assets to the safety of cash. More broadly, investors were cashing in their gains, according to the Times, “on riskier stocks and moving into bonds and safer stocks, like consumer discretionary companies that are not as susceptible to a downturn in the economy.” Rather than presume that all this stemmed from uncertainty regarding the American elections or even the anticipated budget sequestration of the U.S. Government and the E.U. bailout program, I submit that the investors were taking a general reading of the global economy to assess how much economic growth would be likely in 2013. In this regard, the announcement by the Chinese government of stimulus spending is more significant than who wins what offices in the U.S. or whether the E.U. officials are really hesitating on Greece and Spain. The minor presidential election drama fueled by an all-too-innocent media and even the manipulatory threats by E.U. leaders as if jockeys bending the whip to get Greece to pony up rather than lax off are both dwarfed in financial importance by assessments of how the world economy as a whole is likely to do. Specifically, the question is whether the lower growth in China will be tolerated by government officials, and if so, whether that growth would be enough to offset the sluggishness in the E.U. and U.S. The U.S. economy in 2013 would not likely hinge on which party wins the White House because the other party typically has a veto in the U.S. Senate thanks to the ubiquitous filibuster. In the E.U., hesitations should be read more as efforts to manipulate certain recalcitrant state governments than as serious attempts to scuttle the bailout program. Elections do matter and programs do change, but the trajectory based on the status quo has such tremendous gravitational pull that even mandates tend to get watered down by the time they get implemented.

 Does expertise on these make one an expert on politics?  
Therefore, I suspect that the market discounts political “news” that you and I are presented with as “important” and “vital.” Often times, the importance is magnified in order to sell ads. The world economy is remarkably steady-state, and wise investors undoubtedly take a long-term perspective rather than allowing themselves to become ensnared by the titillating excesses fomented by the media. To be sure, jolts such as the effect the financial credit-freeze in September 2008 had on world trade do matter in terms of contractions in the world economy, and investors are smart to become more risk-averse in anticipation of such periods. Even so, a near collapse of the global financial system can be distinguished from which corporate party wins the White House in a certain election cycle or how an internal tiff among E.U. leaders (or states) gets resolved. My point is simply that elections are not usually the beginning of major course changes (and I am not even sure those have such a bearing on the economy as a whole), and that squabbles in the E.U. do tend to get resolved somehow or other. Neither "event,"  therefore, is earth-shattering even if it makes for good television. I suspect that investors know this and discount the white noise accordingly.

Source:

Nathaniel Popper, “Fearing Fiscal Cliff, InvestorsCash In and Seek Safety,” The New York Times, September 28, 2012. 

Mitt Romney’s “About-Face" in the 2012 U.S. Presidential Election: A Candidate’s Conflict-of-Interest

As was demonstrated in September 2008 as banks began to stop lending to each other even overnight, trust is the foundation, or grundlagen, of a market. The same is true in relationships between people. I would be surprised were a marriage ever the same after even a contrite spouse has had an extramarital affair. The same is true in politics; once the electorate has been lied to, it is very hesitant to remove the asterisk next to the politician’s name. The relevance of a politician’s extra-marital affair, such as the flowery lapse of Gary Hart or the sordid stains of Bill Clinton, is that the people conclude that they, like the wives, could be betrayed. Once established, a lack of trust tends to spread like an invidious cancer until it has encompassed the entire body politic. The shift is from justice to a lack of harmony on many levels.
Plato theorized that justice is the harmony within the rational psyche and polis (city, or country) as well as between the heavenly spheres (planets and stars)—the harmony between the rational and the vibrations of the spheres being in sync, which is justice itself. It follows that a person who lets his or her desires run rampant is in line with a squalid or aggressive city, and that neither of these shares in the musical/mathematic harmonious vibrations of and between the heavenly spheres. Lack of trust at the personal, business, or civic level can be said to be a symptom of the shift from the condition of harmony, and thus justice, to discord.
It follows that in a republic or union thereof, it is vital to maintaining justice (as harmony) that the electorate not be as sheep in taking in that which a politician claims regarding what he or she “really believes.” Once a candidate has stupidly lapsed in terms of trustworthiness, the electorate should be cognizant of the conflict of interest in the candidate later dismissing the substance of his or her real feelings or beliefs. In general, if a candidate’s statement is in line with him or her getting elected, a due dose of salt should be taken with that dish.
I have in mind Mitt Romney’s statement at a closed-door fundraiser in September, 2012 that nearly half of Americans don’t pay income taxes, view themselves as victims, and refuse to take responsibility for their lives, wanting to live off entitlement programs instead. Some seventeen days later, after even prominent office-holders in his own party distanced themselves from his view, the presidential candidate stated publically, “In this case, I said something that’s just completely wrong.” The question is whether this electorally-convenient “change in belief” is believable, given its consistency with electoral victory.

              Mitt Romney and Paul Ryan, in an image tailor-made as "brand image" for generic consumption.  Reuters
For an electorate to be like sheep is to ignore the conflict of interest and take at face value whatever a candidate says. Simply being on television brings with it the veneer of official truth, so it is difficult for a “mere viewer” to discount the veracity of the celebrity’s claims based solely on one’s own subjective judgment. In a democracy, however, such judgments constitute popular sovereignty, under which governmental sovereignty is exercised by public officials. Therefore, the citizenry has a responsibility to place its judgment above the larger-than-life asseverations made by candidates or office-holders at mass rallies or on television. The deck, I fear, is stacked against popular sovereignty in favor of the agents, and television has exacerbated the problem even as the medium has enabled voters in an “extended republic” to “see” more of the candidates (or their marketed “brand” image).
To aid the electorate in its subjective judgment made in the privacy of each mind, a few principles may be helpful. First, as stated above, a candidate’s statement made in contradiction to an earlier one and in line with his or her electoral success on election day is subject to a conflict of interest. In other words, the claim that the candidate had been wrong should not be taken at face value if it, unlike the earlier claim, is in line with getting elected.
Mitt Romney’s statement disparaging nearly half of the electorate can reasonably be assumed to be at odds with him winning the election (even making such a statement privately may be a lapse of judgment effectively disqualifying a candidate from any high office in which using good judgment is crucial).  Romney's later claim that his earlier privately-expressed view had been “just completely wrong” can be taken to be in line with his political interest. This pattern, or "switch" in line with political interest, constitutes a conflict of interest because he could reasonably be assumed to be lying in his later statement in order to improve his chances of winning. That the earlier statement had been made in private whereas he announced his “change of heart” publically involves a second principle.
That which is said privately can be taken to have more credibility than that which is stated publically. This is a less direct way of looking at the conflict of interest. A candidate may express his or her authentic beliefs privately because doing so publically would not be in line with winning the election. The switch from private to public after the private statement is leaked is particularly suspect because it is reasonable to assume that the public statement is not genuine, but, rather, is geared to reducing “political damage.”  For the public to assume that the candidate has recognized his or her error and that the public statement is a sort of contrition ignores the conflict of interest. In other words, the sheep mentality is naïve, more a matter of idealistic projection than in what is actually motivating the candidate.
Self-governance, whether of a psyche or in a republic (or union thereof), includes governing one’s own fantasies and projections in order that one can more accurately assess candidates for office and office-holders. Here again is Plato’s notion of justice in the reason-governed psyche being in line with the reason-governed polis (electorate). Being intellectually honest in one’s assessment of even one’s ideologically-favored candidate can be said to be one of the duties of citizenship if self-governance is to apply both to a person and a republic. Letting candidates get away with double-talk is a case of an undisciplined psyche and electorate of a polity not worthy of government by the people.
Whichever way an electorate leans in its collective judgment in a given election, it is my hope that the judgment illustrates the best in popular sovereignty. It is essential, albeit difficult for a large electorate, to hold the agents (even as candidates) accountable to the will of the people, such that the collective will is rendered as clear as possible and that the agents implement it rather than assume (or presume) a superior position to it.

For more on conflicts of interest in government and business, see Institutional Conflicts of Interest, available at Amazon.

Source:

Colleen Nelson, “Romney Backs Off Remarks About the 47%”, The Wall Street Journal, October 5, 2012.

Thursday, December 6, 2018

Was Goldman Sachs Really Politically Impotent amid Public Scrutiny in the Wake of the Financial Crisis?

If the American financial houses on Wall Street are among the most powerful forces in American politics-- powers, as it were, behind the throne--does it make sense that the strongest bank would be politically impotent?  In other words, can a public blemish nullify the power of all that capital?
According to The New York Times, Goldman Sachs employs perhaps the country’s most well-connected stable of Washington lobbyists, and it spent $2.8 million [in 2009] to bend the ear of federal officials and lawmakers. Goldman executives and its political action committee gavve more than $24 million to federal candidates in the first decade of the twenty-first century, including nearly $1 million to Obama’s 2008 presidential campaign. Even so, the pounding in the media that Goldman Sachs took in April, 2010 left it sidelined — at least in public — as Congress moved toward a decision that could reshape the very industry it rules.  In particular, the SEC filing of charges and eleven hours of grueling testimony before Sen. Levin’s Investigations Committee left the bank a lobbyist persona non grata, if only for a day.  However, even then, the reality behind the scenes was doubtlessly very different.  Even as politicians publicly vilified the bank, they were picking up lucrative campaign contributions sourced in the bank, even if through intermediaries; any large scale electorate is notoriously bad at tracing links.  To be sure, The New York Times was reporting that Goldman Sachs was trying to find a way to influence the debate, even if it could not play as visible a role as it otherwise could have.
Goldman Sachs managers declined to comment the day after the hearing before Carl Levin's committee at the U.S. Senate. The question that the bankers were refusing to answer was on the impact that the bank's legal and public relations troubles were having on its Washington lobbying operations. Even so, one person briefed on its plans spoke on condition of anonymity because of the firm’s continuing legal and political troubles. He or she said it was still trying to push its agenda. The New York Times reported that according to industry officials, the bank had been “largely relying on trade groups, like the Securities Industry and Financial Markets Association. However, this could have been a smoke screen. The real deals could have been made behind closed doors, even by industry standards.  According to the paper, “More often, the firm — whose lobbyists and outside lawyers include such Washington luminaries as Richard A. Gephardt, the former House majority leader, and Ken Duberstein, the former Reagan administration official — has relied largely on intermediaries because politicians are worried about being associated with it, government and industry officials said.”  Members of Congress were worried about public association, but willing to be influenced through intermediaries. Therefore, even though Sen. Blanche Lincoln, who was in a tight race at the time, canceled a fund-raiser at the bank’s New York offices after the SEC filed its lawsuit, I would not be surprised that she accepted contributions by an intermediary.
Most voters are too far away from Washington to get the real scoop, and journalists who want to continue with their career are not apt to dig too deep. We are left with the surface, and can only guess as to the subterranean dynamics.  It seems to me that traces of the underground rumblings can be discerned in lines such as “at least in public.”  We are left wondering how deep the wells of gold run.  Perhaps only the goldman knows.  The actuality can be far different than appearances.  If possible, a study on the real influence of Wall Street in Washington would be very helpful. For this reason, it is apt to be a difficult task with many self-interested obstacles.  In any case, we ought not be so incredulous as to rest on the public appearances. Even as Lloyd Blankfein was testifying, senators turned increasingly friendly to him–with the exception of Carl Levin and perhaps John McCain.  The Democratic side in particular almost made excuses for the CEO, saying that any number of firms should be there with him. Those senators had given their soundbites to be picked up at home; it was time to make sure they were not cutting off one of the ruddy fat hands that feeds them. This expression comes from Nietzsche’s description of businessmen and their propensity to overreach. 
To be sure, Nietzsche is no advocate of modern morality; he viewed it as a defense of weakness.  Weakness cannot be other than weakness, he writes. So too, strength, he writes, cannot be other than strong.  So I contend that we ought to take reports of the political impotence of Goldman Sachs with a rather large grain of salt (or gold, in this case).  He or she who has the gold makes the rules. There is no natural law stating that this process must be transparent.  My question is: can we, the American public, get to it, or does the well of gold run too deep for our patience and perseverance?


See also "Essays on the Financial Crisis," available at Amazon. 


Source: http://www.nytimes.com/2010/04/29/business/29lobby.html

CEO Compensation: How Much Is Too Much?

From the previous year, the medium value of salaries, bonuses and long-term-incentive awards for the CEOs of 350 major American companies increased by 11% in 2010 to $9.3 million, according to the Hay Group.  Corporate net income increased by a medium of 17% and shareholders medium returns, including dividends, increased by 18 percent. Share prices also increased more than the CEO compensation. However, bonuses increased 19.7%, which is just barely more than the percentage increases in corporate profit and shareholder returns.
Of course, comparing percentages can be misleading because the base amounts can differ markedly. Ten percent of 100, for example, is less than ten percent of 1000. The issue regarding CEO compensation may have less to do with comparisons to corporate net income and stockholder returns, as these are different categories, than to the absolute amount of the compensation.
One might compare, for example, the amounts earned by a typical CEO and a typical worker. In 2000, on average, CEOs at 365 of the largest publicly traded U.S. companies earned $13.1 million, or 531 times what the typical hourly employee earned. The corresponding ratio in 1990 was 85 and in 1980 it was only 42, according to Finfacts. It is unlikely that the contributions, and thus value, of CEOs to corporate bottom lines were increasing accordingly--both in absolute terms and relative to the sweat of hourly employees. In fact, Sarah Anderson points out that many of the executives responsible for the financial crisis of 2008 used it as a springboard financially. Specifically, at ten of the financial firms that received bailout money, executives were awarded stock options when the market was at bottom. After the taxpayer funds helped lift the price of the stocks, "the executives who brought the global economy to the brink of disaster" saw their portfolios increase in value by $90 million. This surely violates the maxim of justice as fairness, especially as theorized by John Rawls.
Furthermore, it is doubtful that American CEOs are more talented than those in Europe and Asia. According to Finfact, income inequality in the U.S. was, as of 2003, greater than anywhere else in the industrialized world. One could be excused for asking whether the highest CEO figures are beyond even what one person could reasonably spend (without giving tens of millions away at a time without a thought) even in a very comfortable life of luxury.
Viacom CEO Philippe Dauman, for example, topped the list at $84.3 million, more than double his 2009 pay. Even if a significant portion of this figure are stock options that cannot be sold for several years, the total amount is so far beyond what a person can use even for luxuries that one might wonder what impact it could have on the CEO. Moreover, the amount dwarfs by many times the salaries even of middle level managers, not to mention workers. The amount itself is sufficient to raise some questions.
For example, can the worth of a particular CEO to a corporation really be worth $84 million?  Is that amount necessary to motivate or sufficiently reward a manager who happens to be the CEO? Is the potential CEO labor market really so limited? Is corporate governance itself at issue? Given the influence that CEOs can have over the boards tasked with overseeing them as well as setting executive compensation, the obscene numbers may be indicative of the conflict of interest.  Where a CEO is chairman of the board too (i.e., duality), the conflict of interest is structural and bears on corporate governance itself. That American CEOs get paid more on average than European CEOs suggests that the American compensation amounts may be due to arrangements pertaining to American corporate governance rather than occurring naturally from a competitive labor market.
From a governmental standpoint in a republic, the high CEO compensation signifies concentrated private power. Such power may be an inherent threat to representative democracy wherein each citizen able to vote has one vote. In other words, the pay may incur systemic risk to the republic itself as a representative democracy. Such concerns can and should constrain even private contracts, for individual transations should not be allowed to put the whole at risk.Yet if concentrated wealth already has bought the mainstream candidates and government officials such that they are in its grip, the high compensation amounts are effectively protected and the republic can be expected to run without contradicting this particular powerful vested interest. The only way out of this negative feedback group is for the people to recognize the manipulation and corruption in the halls of their government and vote accordingly. The problem is that such action is apt to be decentralized unless candidates outside the vested interests can raise above the din of the party lines.

Sources:

Joann Slublin, “CEO Pay in 2010 Jumped 11%” The Wall Street Journal, May 9, 2011, p. B1.

Michael Hennigan, "Executive Pay and Inequality in the Winner-Take-All Society," Finfacts, August 7, 2005.

Sarah Anderson, "Can Europe Pop the U.S. CEO Pay Bubble?" CommonDreams.org, September 2, 2009.

See related essay: "Wall Street Bonuses and TARP: A Tale of Two Cities"

Monday, November 26, 2018

Christianity by State: The Religious Dimension of Federalism

According to the  2010 U.S. Religious Census of Religious Congregations & Memberships Study by the Association of Statisticians of American Religious Bodies, less than 50 percent of the people living in the United States identified themselves as Christian adherents in 2010. There were more than 150.6 million out of 310 million. Even so, candidates for the U.S. presidency still felt the need to vocalize the fact that they are Christian (while the opponent doesn't quite measure up in that respect). President Obama made a point during his first two years in office to stress his Christianity as if it were the membership card to the Oval Office. It would seem that the litmus test was already antiquated and thus needlessly constrictive on potential candidates.
The study also discerned differences between the states, once again giving evidence of the heterogeneous nature of the empire of fifty republics. States where more than 55% of the residents identified themselves as Christian were either in the South or in the Midwest. Mississippi (59%), Utah (57%), Alabama (56%), and Lousiana (54%) top the list. Interestingly, the two clusters of dark red on the map point to two distinct Christian cores in the United States. It would be interesting to study whether or how the two cores differ. One indication is that there were differences is that all of the states in the southern core had the death penalty at the time, whereas two of the three states in the northern core did not. I suspect that the southern core was more ideologically conservative in nature (i.e., social issues)--the Northern core's conservatism being moderated perhaps by the tradition of Hubert Humphrey.
States where less than 36% of the residents identified as Christian were in the West and New England. Vermont (23%), New Hampshire (23%), Maine (25%), and Massachusetts (28%) have the fewest Christians on a percentage basis (the map incorrectly shows MA as bright red). In these states, it would be particularly untenable were public services and offices to close on Good Friday and the following day. Unlike Christmas, Easter does not have the secular holiday component (which is recognized as a national holiday in the U.S.).  In fact, the sheer extent of difference between states like Mississippi (high 50s) and those like Vermont (low 20's) suggests that holidays should be declared on the state rather than the federal level. The question of whether the U.S. Constitution's establishment of religion clause applies at the state level is also relevant.
In short, the multi-colored map of the U.S. in terms of Christianity suggests that a "one size fits all" approach through Congress has the significant downside of ignoring significant cultural and religious differences. In other words, to take Vermont and Mississippi and "split the difference" is not likely to fit with the condition in many states. The fact that those two states are in the same union testifies to the fact that the union itself is on the empire-level, meaning that its member states are themselves commensurate with countries around the world that are not themselves on the empire-level. It should be no surprise, then, that federalism, which originated at the empire level in alliances, is a system of governance particularly well-suited to accommodate the sort of diversity that exists in the U.S. (and E.U.). The key to enabling federalism to accommodate the different religious makeups of the states is to keep the imperial-level government from stifling the state governments. In other words, they need to have enough space to produce legislative action that is tailored to their respective religious cultures. In states that are dark red, it makes sense that Good Friday would be a recognized holiday, whereas such a practice in Vermont or Oregon would impose too much on too many people. 

On Federalism in America and Europe, see Essays on Two Federal Empires: Comparing the E.U. and U.S., Essays on the E.U. Political Economy: Federalism and the Debt Crisis, and British Colonies Forge an American Empire, all available at Amazon.

Source:

The Huffington Post, "Most and Least Christian States in America," May 29, 2012. 




Sunday, November 25, 2018

God's Gold through the Centuries

In the wake of the financial crisis that came to a head in September of 2008, people might have been wondering if sufficient moral constraints on the greed on Wall Street are available, even possible. The ability of traders to create complex derivative securities that are difficult for regulators to regulate, much less understand, may have people looking for ethical or even religious constraints. It would be only natural to ask if such “soft” restraint mechanisms really do have the puissance to do the trick. Here’s the rub: the tricksters are typically the last to avail themselves of ethical or religious systems, and they the wrongdoers are the ones in need of the restraint. Blankfein said of his bank, Goldman Sachs, that it had been doing God’s work. About a week after saying that, he had to walk his statement back and admit that the bankers had does some things that were morally wrong. Although divine omnipotence is by definition not limited by human ethical systems, it is hard to imagine a divine decree telling bankers to tell their clients one thing (buy subprime mortgage derivatives) while taking the opposite position on the bank’s proprietary position (shorting the derivatives, beyond being a counterparty to clients). Divine duplicity seems to represent an oxymoron on a megascale rather than a justification for greed. As the crisis erupted and was subsequently managed by public officials in government and new managers brought in to salvage AIG, I was researching the history of Christian thought on profit-seeking and wealth. I have since published an academic text and a nonfiction book, which develops further on the treatise on the topic. As the book is too recondite for sane people (i.e., outside of academia), I am writing a non-fiction book on the topic for a broader readership. To whet the appetites of those of you who are waiting for something more readable that a recondite thesis, I present a brief account of my original research on the topic here. 


For the full essay, see "God's Gold through the Centuries."
________________________

See related essay: "Religious Sources of Business Ethics"

The academic treatise: Godliness and Greed: Shifting Christian Thought on Profit and Wealth 

Larry Summers Bowed Out of the Race for Fed Chair: “Advise and Consent” Triumphant

On September 15, 2013, the White House announced that Larry Summers, Barak Obama’s prior chief economic advisor and a Secretary of the U.S. Treasury during the Clinton administration, no longer wanted to be considered to fill the upcoming vacancy as chairman of the Federal Reserve. In the announcement, Obama (or an advisor) wrote, “Larry was a critical member of my team as we faced down the worst economic crisis since the Great Depression, and it was in no small part because of his expertise, wisdom and leadership that we wrestled the economy back to growth and made the kind of progress we are seeing today.”[1] Unfortunately, this statement suffers from a sin of omission, which admittedly had been minimized by the media as well. Accordingly, the Democrats in the U.S. Senate who had just come out against a Summers nomination can be regarded as done the nation a vital service. Moreover, the “check” of the “check-and-balance” feature of the U.S. Senate’s confirmation power worked.
With all its open points of access, democracy can have a splintering effect on a point worthy of public debate. The media dutifully plays its “scattering” role before any reasoned train of thought can gain traction in the public domain. For example, at the time of Summers’ retraction, the New York Times reported that a “reputation for being brusque, his past comments about women’s natural aptitude in mathematics and science, and his decisions on financial regulatory matters in the Clinton and Obama administrations had made [Summers] a controversial choice.”[2] A reader could be forgiven for concluding that personal vendettas, public gossip, and single-issue (not even monetary policy!) political activists have points just as important as the matter of Summers’ past decisions on financial regulation.
Any political interest having succeeded in getting its point to a microphone is deemed just as relevant or decisive as any other. Democracy is the great relativiser. The great equalizer. Is rule by "members of the club" the only practical alterative, or is it American democracy merely its front, only superficially relativising and equalizing the relevant and the less-than-relevant?

       Alan Greenspan, Larry Summers, and Robert Rubin. In the late 1990s, they pressed Congress to keep financial derivatives unregulated. A case of government doing Wall Street's bidding?   Image Source: pbs.org


Obviating the scattering effect, we can zero in on Obama’s attribution of “expertise, wisdom and leadership” and ask whether they apply to Summers when he joined Alan Greenspan and Robert Rubin in the late 1990s to lobby Congress to remove the CFTC’s authority to regulate financial derivatives. At the time, Brooksley Born, chairwoman of the CFTC, was recommending to Congress that mortgage-backed derivatives be regulated. That the unholy triumvirate, blessed by Clinton and supported by Wall Street, succeeded with the help of Sen. Phil Gramm in discrediting Born kept the financial system vulnerable to being blind-sided by a collapse in any of the securitized derivatives markets.
It is difficult to fathom how financial regulatory expertise, wisdom, or leadership could possibly pertain to Summers in his lobbying capacity during the Clinton administration, even if he did go on to help Obama mop up the fiscal thaw after Lehman's bankruptcy. Yet, sadly, Summers’ down-right discraceful bullying of Born, and being wrong on top of that on whether financial derivatives should be regulated were barely mentioned in the public discourse leading up to Summers’ decision to withdraw his name from the president's consideration.
Fortunately, the public can rely on the informed advise and consent power of the U.S. Senate. Is it just a coincidence, however, that bullish financial markets answered Summers' decision? Or was it the other way around: Summers' decision being the answer to a message he had received from Wall Street?
To be sure, Summers was "generally considered to be in the pocket of Wall Street."[3] Citibank had been paying him for what the Federal Reserve refers to as "participation" in "Citi events."[4] Additionally, his efforts to keep financial derivatives, including CDOs, unregulated enabled Wall Street banks to make "kazillions of dollars."[5] However, bankers have short memories, given the inertia of the financial interest of the moment. Traders and bankers tended to favor Yellen, according to a poll conducted by CNBC; whereas Yellen got 50 percent, Summers came in at a mere 2.5 percent.[6] Besides sporting an abrasive (Harvard?) manner, Summers had given vocal hints that he might tighten monetary policy, even reduce the Fed's bond-purchase program sooner than Yellen would.
Particularly given Summers' nature, I have trouble believing that he woke up one nice fall morning and decided to cave in to anticipated "political obstacles" to his getting confirmed by the U.S. Senate. Put another way, more was likely behind his loss of support among Democrats on the Senate committee than even concerns the senators might have had about Summers' prior participation in turning Congress against Born's plea to regulate derivatives. Could it be that Wall Street CEOs were pulling the strings, reaching from Boston to Capitol Hill without even leaving finger-prints?    


1.Annie Lowrey and Michael D. Shear, “Summers Pulls Name from Consideration for Fed Chief,” The New York Times, September 15, 2013.
2. Ibid.
3. Mark Gongloff, "Larry Summers' Withdrawal from Fed Race Is Good News for Wall Street and the Economy," The Huffington Post, September 16, 2013.
4. Reuters, "Fed Contender Larry Summers Cancels Citigroup Events," CNBC, September 14, 2013.
5. Gongloff, "Larry Summers."
6. Mark Gongloff, "Wall Street Overwhelmingly Favors Yellen Over Summers for Fed Chair: CNBC Poll," The Huffington Post, July 26, 2013.

The Banks’ Consultants: Guarding the Hen House

Leaving it to consultants hired by mortgage servicers to right the wrongs that the services inflicted on foreclosed homeowners was the unhappy consequence of bank regulators giving ambiguous guidance and failing to install viable oversight mechanisms. According to the Government Accounting Office, “regulators risked not achieving the intended goals of identifying as many harmed borrowers as possible.” Even if the reviews had been completed, there was on guarantee that wronged mortgage borrowers would have received any compensation. On the other side of the ledger, the banks had received billions from the U.S. Treasury with no strings attached. Whether intentional or not, the banking regulators put too much stock in the consultants, who, after all, had been hired by the mortgage servicers."
The report confirms that the Independent Foreclosure Review process was poorly designed and executed," Rep. Maxine Waters (D-Calif.) said. The "report confirms what I had long suspected -– that the OCC’s oversight of the supposedly independent consultants hired by the servicers was severely deficient. The report should serve as a wake-up call.” By referring to the consultants as supposedly independent, Rep. Waters implies in her statement that the flawed review process put the consultants in the position of being able to exploit a conflict of interest.
On the one hand, the flawed oversight means that the consultants were the ones to protect the public interest. The public had to rely on them to correct the wrongs in the interest of the foreclosed. We can label this the consultants’ “public interest” role. The consultants’ other role  was in working for the servicers. As Benjamin Lawsky, the superintendent of New York's Financial Services Department, pointed out, "The monitors are hired by the banks, they're embedded physically at the banks, they are paid by the banks and they depend on the banks for future business." This is the consultants' other role, which can compromise the first role. 
In a conflict of interest, one role can circumvent another, more legitimate role. Even if the conflict is not exploited with the more legitimate role taking the hit, a person or institution in such a position can be reckoned as unethical, according to some scholars. Other scholars argue that only the actual exploitation of the more legitimate role by the other is unethical.
In my view, if exploitation can be seen as a possibility in the relation between two roles, the relation itself is unethical. Put another way, it is unethical to put a person or organization in such a position, even if actual exploitation does not occur. In my view, to create or perpetuate the condition wherein a person or organization can exploit a conflict of interest is unethical.
It follows that the government has a moral responsibility to eliminate the conflicting roles even if they are not being exploited. Furthermore, the person or organization having two such conflicting roles  as can be counted as a conflict of interest is also ethically obliged to pick one role or the other. Often this is not convenient from a short-term financial standpoint, so business practitioners tend to look the other way, rationalized that since no actual exploitation of the conflict of interest has occurred, there are no ethical issues. They are wrong. The mortgage servicers should never have hired consultants to monitor the servicers. This circle itself is problematic, ethically speaking.
The regulators rather than the consultants should have been the key enforcers, and thus protectors of the public interest. The regulators can be faulted not only for their lack of competence, but also ethically in having allowed the conflict of interest to exist.  A business should not be allowed by the regulators to guard the hen house. To permit this to happen is unethical even if no hens are eaten.  


For more on institutional conflicts of interest, see my book, Institutional Conflicts of Interest: Business & Public Policy, available at Amazon.

Sources:

Ben Hallman and Eleazar Melendez, “GAO Foreclosure Report Finds Bank Regulators Failed to Provide ‘Key Oversight’,” The Huffington Post, April 3, 2013.

 Dan Fitzpatrick, "'A Dose of Healthy Competition' For Banking Regulators," The Wall Street Journal, April 18, 2013.