Sunday, July 7, 2019

On the Political Power of Capitalism in American Society

In his confidential memorandum, “Attack on American Free Enterprise System,” Lewis Powell, later to be a justice on the U.S. Supreme Court, wrote in 1971 that the “leftists” were launching a frontal assault on the “free enterprise system,” “capitalism,” or the “profit system.” Powell saw this as an attack on, rather than a defending of the “American political system of democracy under the rule of law.” That the corporate profit-interest might be a threat to “one person, one vote” apparently did not occur to the future Justice. Rather, what is good for GM he presumed must be good for American democracy. Moreover, both, he presumed, are consistent with, or perhaps even foundational for American values.
Powell goes on to write, “A visiting professor from England at Rockford College gave a series of lectures entitled ‘The Ideological War Against Western Society,’ in which he documents the extent to which members of the intellectual community are waging ideological warfare against the enterprise system and the values of western society.” Powell notes in his report that almost half of the students on twelve representative college campuses favored socialization of basic U.S. industries. He cites Stewart Alsop, who had written that “Yale, like every other major college, is graduating scores of bright young men who are practitioners of ‘the politics of despair.’ These young men despise the American political and economic system.” It is strange, therefore, that, forty years later, the American political and economic system would be so well-undisturbed—having been so un-molested by the minions of educated young voters who had gone on to become leaders in that system. Yale, after all, contains in its mission the intent to educate the future leaders of America (and perhaps the world as well). There must have been a giant collective change-of-mind among the myriads of socialists before the Reagan landslide of 1980.
Powell goes on to suggest that business managers (including executives) “have not been trained or equipped to conduct guerrilla warfare with those who propagandize against the [business] system. . . . The traditional role of business executives has been to manage, to produce, to sell, to create jobs, to make profits, to improve the standard of living, to be community leaders, to serve on charitable and educational boards, and generally to be good citizens.” The practitioners here are the citizens; Powell is not pointing to what would come to be called “corporate citizenship,” a marketing slogan designed to get customers to feel better about buying more widgets. Nor is Powell pointing to the related notion of “corporate social responsibility,” which was invented by businessmen (rather than by “socialists” adding to corporate obligations) in the late 1950s.
Absent from Powell’s description of the businessman is the role of corporations even in 1971 in lobbying Congress for favorable legislation and/or regulation that would translate into higher profits. Powell would be hard-pressed to account for the role of the banking lobby in getting the U.S. Senate to vote down Senator Durbin’s amendment that would have given bankruptcy judges the authority to modify mortgages in foreclosure. This is how the “free enterprise system” has fought back “attacks” from “socialists.” After the Citizens United decision of the U.S. Supreme Court (2010), corporate money in unlimited amounts could go toward political advertising—including for or against a candidate—anonymously through “social welfare” non-profits. This is how corporate America has gone after its “attackers.”
Generally speaking, corporate American knows very well how to shut down its opposition in the halls of Congress. Powell’s memo pushes beyond the need for “public relations” and “governmental affairs” to urge a “scale of financing available only through joint effort” and related “political power” through the U.S. Chamber of Commerce. Business must learn the lesson “that political power is necessary…it must be used aggressively and with determination.” The corporation—created by the government—must, one might say—become the government, necessarily from within—through the system—rather than via revolution.
This sally into the political arena includes funding a highly competent staff of lawyers at the U.S. Chamber to argue before the courts in line with corporate interests. In the 2011 term, the Chamber’s ensuing legal defense department batted 100% on U.S. Supreme Court decisions. Powell could well have added that business’s lobbying and campaign dollars could be directed to not only defeating threatening legislation and regulations, but also influencing the nomination and confirmation of justices to federal (and state) courts. The astonishingly high success rate was therefore no accident.
In short, the threat to American democracy and even to the American principle of market competition may come not from “socialists” in academia and the media, but rather from the supposition that political power oriented to the corporate good rather than the public good is itself a good. That is to say, Powell’s memo may have the story turned around. His antagonists may have been oriented to saving the American system, whereas his proponents would actually subvert it in line with their narrow self-interest.


Lewis Powell, “Attack on American Free Enterprise System.” Memorandum, 1971. See pdf download at page-bottom of:

“USA!” at Ryder Cup 2012: Silent “EU!” Wins

The Ryder Cup of 2012, held in Illinois, can be read as payback for the European team at the expense of the Americans because the latter had come back from the same 10-6 deficit to win at the previous Cup.  The Associated Press reported that the European team’s “rally was even more remarkable, carried out before a raucous American crowd that began their chants of "USA!" some three hours before the first match got under way.” I can just imagine the looks on the Europeans’ faces amid the primal shouts some three hours before play. “Why are they doing that now? Should we get our few people in the crowd to start pumping their fists in the air while shouting “EU! EU! EU! EU!”? I can just hear a German on the team (if there was one) ask, “But what purpose would that serve?” A Brit would interrupt to make his observation known, that he cannot take part in such a cheer as it diverts from “hip hip!” and thus may interfere with being proud to be British, as Maggie used to say. A Belgian of Flemish and Walloon parentage (if such a thing exists) would try to split the difference in proposing that the small crowd of European groupies chant “hip hip EU!” The Brit would undoubtedly veto that one in a split second and the European team would be left with having to listen to the primal chants of the Americans. Of course, the warlike chant has no meaning in itself. Even a patriotic American would wonder why in the midst of a fireworks show on July 4th young men (16-25ish) suddenly feel the need to aggressively shout “USA!

                                     Europe's Martin Kaymer celebrates Europe's win at the Ryder Cup.     Reuters

USA!” as if the exploding bombs (i.e., fireworks) were some signal known only to them that we were about to invade another country. I witnessed this at a Fourth-of-July fireworks at an upscale golf course in 2012. The chants seemed so out of place, coming out of nowhere, that I could not help but wonder what was behind the impulsive act.
Was there a sort of blind, patriotic “America the Powerful” brewing at a primal level among guys who are at the prime age for military service? Is there some instinct for war in young men that was not getting satisfied by the 11-year-old war in Afghanistan? Or was it simply a problem of not getting enough sex?  Maybe the pounding fists in the air and shouted grunts are some kind of instinctual way of attracting American females who are otherwise too obsessed with their careers.  I suppose it is preferable to pissing to mark one’s territory. Nietzsche would point to the instinct “will to power,” though it is difficult to see how much of that can come out of hitting a little white ball into a hole. It seems to me that American football would be the more fitting venue.
Today I met two Europeans, one from Spain and the other from Poland. I suggested that perhaps they had not realized how much they have in common as Europeans until they came over to America. Relative to the Americans, the two women could see how much more they have in common. “Yes!” the two women added as if on cue. “You know that many Euro-skeptics over there think there is no such thing as being a European,” I stated matter-of-factly. The both nodded affirmatively. “But now you can see that there is—that you can be both Spanish and Polish and European.” Again, they nodded, perhaps more surprised to be hearing such a thing from an American than to be suddenly aware of their own federal nature—both Spanish/Polish and European. Things like this can sneak up on a person perceptually, even though it is happening to oneself.  One might not see it in oneself even though outsiders do.
So even though the Europeans in the crowd at the Ryder Cup did not add “EU!” to replace the chants of “USA!” as the Europeans turned their deficit into victory, pro-Europe slogans will come, though hopefully without the fist-pumping and aggressive shouting.  Sometimes it takes time for the perception to catch up with the changed situation on the ground.

Christopher Clarey, “Europe’s SurgeLeaves Americans in Shock,” The New York Times, September 30, 2012. 

Starbucks Apologizes in spite of Overzealous Police Presence in a Store

On July 4, 2019 in Tempe, Arizona (Tempe borders Phoenix, which is to the west), a Starbucks' employee requested that the six police employees in the small restaurant move from the bar area where customers picked up drinks, or else leave. Because the six did not come in together, customers were provided with the special treat of a prolonged police presence throughout the store before the cops huddled near the bar. Even as the police huddled, they did so with eyes strategically perched so as to maintain visuals on the customers. One cop in particular repeated glanced over his shoulder with a darting eye towards the customers as if they were threats. That customers might be uncomfortable even with the sheer number of police in the small store was obviously lost on the police there as well as Starbucks’ employees. Yet the company was strangely without any policy on the maximum number of police who could be in a store at one time and for how long (i.e., when no incident is occurring). This is strange given the high incident of police brutality, especially in Phoenix.  Just a week later, a protest took place against the brutality in Tempe. It is natural, especially in such a context, that at least some non-criminal customer would feel uncomfortable.  Meanwhile, the police felt entitled to disrespect the customers by showing such a huge presence in the small store. Ironically, the police felt instead that it was disrespectful for a Starbucks’ employee to ask them to step away from the bar or leave after a customer complained about feeling uncomfortable with such a significant non-incident police presence. This is thus a story about institutions not taking responsibility for their own respective roles in a problem.

The police circulated in the store for some time as they did not come in together, and then huddled near where customers pick up drinks. One of the police (front left) turned his head every few minutes to glare at the customers. Who would not feel uncomfortable? 

For its part, Starbucks sought to mischaracterize the customer as “anxious, nervous or uncomfortable” when the customer actually said he or she was uncomfortable. Starbucks’ spokesman Reggie Borges also claimed that the customer “continued to ask about the officers” as if obsessed.[1] Actually, the customer approached the Starbucks employee twice, and without the “anxiety” or obsession that Borges claims the employee wanted to relieve. That the customer spoke with the employee twice suggests that the employee had not been very motivated to act on behalf of customer experience. Also reflecting a disregard for customer experience, Starbucks’ allowance of any number of police in a store at a time was part of the underlying problem, not some heavily caffeinated, hyper-strung or "problematic" customer. Deliberately mischaracterizing the customer was just Starbucks' way of denying its own deficiency in not having a policy on a maximum police presence. According the the manager of another Starbucks' store, the company should have had such a policy rather than intimating that the customer was uniquely distraught. I submit that that virtually anybody would feel uncomfortable with so many police walking around in such a small space. The customer reportedly later asked the shift manager why Starbucks did not have a policy on a maximum number of police on break in a store at one time, to which the manager reportedly retorted, “I’m going to end this conversation.” 
As for the police in the store, a certain arrogance can be said to be in people who do not act out of respect for others—such as by showing such a huge police presence in the midst of customers trying to enjoy their drinks—while perceiving a request to move or leave given the disrespect as being inherently disrespectful. Clearly, the police taking their break in the store had no concern for the customers’ comfort, given the perception that the request to move or leave was itself out of line. Perhaps the public servants in Arizona held the view that the public should take whatever the police want to do, so even a request for the police to back off would be viewed as an affront. Just as it cannot be assumed that the customer was a shaking, hyper-caffeinated anxiety case, nor can it be assumed that the customer had a criminal background, as some people on social media suggested, for even innocent customers would understandably feel uncomfortable with six police walking around with guns visible in a small room.
I contend that the local police had no recognition of having too much of a presence in the store because intimidation as a deterrent by a very visible, ubiquitous presence in the public was at the time the standard tactic, especially in the city of Phoenix. The light rail company had the same view, for it was not unusual to see four or even five security guards (with police-like badges) on just a half of a car staring at passengers. 
On a Saturday on a train, I was standing with my bike, which is lawful, so imagine my surprise when I looked up and saw three security employees wearing sunglasses standing confrontationally near me and staring at me! I put on my sunglasses and stared back. Welcome to Phoenix.

Three security guards clustered in the back half of a car. Were so many guards and such clustering really necessary?

Once a passenger sitting near me asked a guard about the huge presence without an incident, to which the guard retorted, “There can be as many of us as we want; get it?!?” His aggressive tone alone raised a red flag for me in terms of the wisdom of allowing so many security employees in a small space—not to mention giving them any authority in the first place.

A stationary Phoenix policeman on a weekday keeping a close eye on a platform as a matter of routine rather than an incident. How might waiting passengers have felt? Should this have been factored in? 

The light rail company also played a role in the excessiveness shown by the local police. Twice I saw three or four passengers on a light-rail platform surrounded by about 15 police and rail-security guards for not having had a ticket. Motorists who get a ticket for speeding were not treated to such a police presence, so I suspect the reason for the over-reaction on the train has to do with the ridership.
As another example, at a light-rail platform about a half mile from the gay-pride festival during a Saturday afternoon in a local park in April, 2019, four police cars with lights continuously flashing were parked all afternoon in the street along the light-rail platform. As I passed on a train, I saw an empty platform. When I passed by again in the early evening, I saw the four jeeps whose lights were still flashing, but this time I saw four police employees with a dog going back and forth on the platform in spite of the fact that only twenty or so people were waiting for trains. 

About a half-mile from a gay-pride fest in a city park, four policemen with a drug-sniffing dog patrol a nearly empty rail platform. 

Yet when the train picked up baseball fans in downtown Phoenix, no such show of deterrence was shown. If you can visualize four police jeeps with lights flashing next to an empty rail platform, you have grasped the distinctive over-kill mentality of Arizona. My point is that given that mentality, both the police and Starbucks employees should have realized that virtually any customer would naturally feel uncomfortable with so many police in the store. That that case took place just over a month after a notorious case of police abuse of power makes it all the more perplexing to me why the customer would be treated as a special case.
Writing about an atrocious police incident that occurred on May 27, 2019 in Phoenix, Arizona, Cedric Alexander, a former police employee, police chief, director of public safety, and deputy mayor in Rochester, New York writes that a Phoenix police employee approached a newly parked car and said, “I’m going to f---ing put a cap in your f---ing head!” Why such anger? Why such rage? The four-year-old in the car had stolen a doll from a discount store.[2] Was the enraged employee of the police department so intent to put a bullet in the girl’s head because of the nature of the crime, or else the presumed sordid little criminal? An image of a Nazi SS officer shooting a small Jewish girl may come to mind. Or did the Arizona variant determine that the mother should pay with her life because her young daughter walked out of a store with a doll and the mother had not noticed? Did the fact that a discount store had made the complaint trigger the police employee’s anger at the poor?  Admittedly, it is the poor in Phoenix who regularly ignore traffic lights and even cross-walks in crossing even very busy roads. The lack of respect for law is endemic and thus astounding there—to say nothing of the lack of consideration for other people. “The public” is a term rightly with a sordid reputation in the Phoenix valley in Arizona. So I can understand why the local police could become demoralized, even disgusted and angry, but this is not an excuse, especially as police are given the governmental power of lethal force. Human nature itself may not be up to the task, given such immense power on an interpersonal level. The Stanford Experiment in the late 1960’s, for example, demonstrated how quickly people (i.e., students) given authority over others could resort to violence even though it is expressly prohibited in the authority given. Did we not learn anything regarding human nature and police power from that experiment?
The judgment that shooting someone in the head could be appropriate rather than outrageous in the case of shoplifting by a young child (assuming the child had known what she had done!) is so warped that this itself can be taken as a red flag concerning the human mind, at least on the Phoenix police force, and having the authority to use lethal force. Cedric Alexander writes that the police employee’s conduct was “unthinkable.”[3] Perhaps the human brain or mind is altered in some fundamental sense—and not in a good way—when a dose of pure power is taken in.
The girl’s mother, along with a 1-year-old, was in the back of the car. When the police employee ordered the mother to put her hands up, she was holding the younger child and so she replied that she could not raise her hands in the air. The employee then ordered the mother’s fiancée, who was in the driver’s seat, out of the car. In spite of the fact that the man complied, the police employee pushed the guy against the car and kicked his legs apart. “When I tell you to do something, you f---king do it!” That the employee had been wrong about the driver (for he had done as commanded) brings up the troubling matter of the toxicity of power when it is mixed with cognitive issues or simply stupidity. At the time, Arizona had one of the worst systems of public (K-12) education, and faulty assumptions and incorrect conclusions were quite common even in entry-level office positions (even as managers were relying on them to deal with “the public”).
Of course, the police employee may have meant the mother, who was not able to put up her hands, but then his verdict that she was nonetheless culpable would of course be warped. The employee’s decision to take the anger out on the complying driver demonstrates bad judgment (perhaps from excessive anger), aggression, and cognitive lapses. Even when the mother shouted that her door would not open, the “understanding” employee shouted, “You’re going to f---king get shot!”[4] The assumption that putting the fear of death in the woman would somehow fix the door is interesting from the standpoints of the employee’s cognitive ability and state of mind.
Even if the employee assumed from a generally negative bias or actual experience with the poor in Phoenix (who seemed too quick to lie and even become aggressive) that the mother must be lying, the disproportionate judgment that shooting the woman would fit the lie (i.e., that the lie justified death) suggests that the employee’s mind could not handle having the power of lethal force. This would presumably be a basic matter in a police department’s hiring process as well as for police supervisors.
If the police employee was enraged because his order was not being instantly followed, both his notion of human nature in others (i.e., fallible rather than robotic) and his own psychology could be flagged. To be able to get other people to do against their will what you want is a basic definition of human power. Accordingly, the employee’s power-urge was too much for him to handle the power to kill other people. Once the mother was out of the car, the employee tried “to grab the one-year-old child” out of the mother’s arms.[5] The employee clearly had an urge for instant power, and he evinced no basic compassion. Perhaps, as in a Nazi SS officer plying Jewish kids off their parents before boarding them all on separate train cars or even trains, the human mind high on pure power chocks off any sentiment of compassion.
So far we have anger, impaired judgment, cognitive issues, aggression, and a will to power. This is a toxic cocktail to be sure, and it has no place in a human brain on a police force. Extreme care in hiring is thus important, and we can deduce that the Phoenix police department had been lax in this regard too. Adding tinder to the fire was the cultural ideological “authoritarian” assumption generally in the Phoenix valley that intimidation is an effective deterrent. A major flaw in the ideological stance is that people with good motives also get intimidated, as when the police presence is ubiquitous. This can include police helicopters as well as police cars—the former flying low even on normal routine patrols and the latter circling or standing still (i.e., patrols that cease to be mobile). The key is the frequency or amount being excessive to not only human sensitivities to being nearly constantly watched or intimidated, but also having merit in actually stopping a crime. It is no surprise, therefore, that more police were sent to the scene of the doll-heist. I would bet the number of police cars was excessive given the actual threat. To be sure, the police employee probably exaggerated it in his own mind and thus to others. Maybe the police in the Tempe Starbucks store regarded the employee’s request as a threat, given that rarely had they probably gotten push back. Similarly, bullies tend to regard anyone standing up for the bullied as a threat, and even as disrespectful!
Cedric Alexander points out in his piece that government gives police employees their legal authority to use lethal force, but police “also need legitimacy,” which according to the 2014 report by the Police Executive Research Forum “lies within the perceptions of the public.”[6] The perception of employees abusing their privilege to use lethal force does nothing to help legitimacy. 
So I am not surprised at all in reading Cedric Alexander’s report that the police chief, Jeri Williams, said in a public forum on May 27, 2019 that real change “doesn’t start with our police department. Real change starts with our community.”[7] With the excessive show of police generally (in order to intimidate so as to deter), it was difficult to view that city as a community at all. Alexander writes of the Phoenix police department that “as professionals under oath, they have the responsibility to start the ‘real change.’”[8] Such responsibility was all the more justified because police employees were part of the problem. The police chief said in the forum that the employee’s conduct (and attitude?) on the doll shop-lifting case “unacceptable.” Cedric Alexander writes critically of this antiseptic and bureaucratic word. “Terrifying, traumatizing” are more fitting, he writes; the lift-threatening behavior of those Phoenix [public servants!] cannot be written off as ‘unacceptable.’”[9] Yet this is exactly what a department not being held accountable and certainly not holding itself accountable does. Its deterrence method of saturating the city with non-incident police presence is therefore unfortunate. More than this, it can be reckoned as a passive-aggressive instance of callousness and impaired judgment.
The incident with the little girl is a case in which police believed they had considerable discretion on how they could treat (and regard!) the public. Less extreme, the police in the Tempe Starbucks store assumed that they could bring in as many police as they wanted even if the customers could rationally be expected to be uncomfortable. Criticizing Starbucks’ reaction as disrespectful is akin to the Phoenix chief’s refusal to take responsibility; it’s the other guy’s fault. The police association even brought up the irrelevant point that some of the police in the store were veterans, and so the military was disrespected![10]  Starbucks’ request was not disrespectful toward the police, given the thoughtlessness of the police in disregarding the fact that so many police would naturally cause discomfort. Such a showing goes beyond feeling safe, especially given the police employee who felt the need to keep an eye on the customers. If he did not feel safe in the store, he should have left rather than make at least one customer feel uncomfortable. The association representing the police was so busy feeling disrespected that no thought at all went into why customers could rightly feel uncomfortable with so many police in a small store.
So in apologizing to the Tempe police department for having had the good sense to follow up on a customer feeling uncomfortable, Starbucks ignored or dismissed an entire side of the story—one in which people in the Phoenix valley understandably felt uncomfortable when the local police go too far. “When those officers entered the store and a customer raised a concern over their presence, they should have been welcomed and treated with dignity and the utmost respect by our partners (employees). Instead, they were made to feel unwelcome and disrespected, which is completely unacceptable,” according to Rossann Williams, a vice president of Starbucks.[11] So much for customer experience! By Williams' strong-handed response, the customer’s legitimate concern about the excessive police presence should have been ignored and that presence in fact greeted! I submit that the Starbucks employee had rightly judged the customer’s concern to be valid, as the police presence was rather severe for a break, and that Williams would have been fine with customers awash in police presence. In effect, Starbucks backtracked in apologizing such that the police could feel free to disrespect customers by having too much of a presence in a given store. Starbucks would no longer stick up for its customers who feel uncomfortable with the over-kill of police who do not respect customers enough to limit the police presence. Instead, Starbucks would continue to greet as many police employees as want to inundate a given store. In effect, Starbucks would enable the “intimidation as deterrent” authoritarian tactic that is so ingrained in the Phoenix-area culture. It is, “a police state,” as several new arrivals have observed. In such a state, customers wanting a break from it while enjoying a drink at Starbucks could hardly be blamed, but sadly this did not stop Starbucks from tacitly doing so. Meanwhile, like the Phoenix police chief who had viewed the public as needing to take the initiative even after the police abuse of the four-year-old shoplifter, the Tempe police chief could only see his employees being disrespected. This tells me that neither department was used to being held accountable. The prerogative to being able to get away with disrespectful conduct easily views any push-back as disrespectful. It’s always the other guy. Starbucks, meanwhile, should have stood up for its customers because six cops in a small store are simple too many for customers to feel comfortable. The uniform and the lethal right to use force render police qualitatively different than customers, hence Starbucks’ refusal even after the fact to come up with a policy protecting the experience of customers is also telling.

Recommended: Bucking Starbucks' Star, available at Amazon. 

1, Sandra Garcia, “Starbucks Apologizes After 6 Police Officers Say They Were Asked to Leave,” The New York Times, July 8, 2019.
2. Cedric L Alexander, “The Police Overreaction to Case of 4-year-old and Barbie Doll Isn’t Just ‘Unacceptable’—It’s Outrageous,” (accessed June 20, 2019).
3. Ibid.                
4. Ibid.
5. Ibid.
6. Ibid.
7. Ibid.
8. Ibid.
9. Ibid.
10. Amir Vera, “Starbucks Apologizes after Six Officers Say They Were Asked to Leave a Store in Arizona,” July 6, 2019.
11. Amir Vera, “Starbucks Apologizes after Six Officers Say They Were Asked to Leave a Store in Arizona,” July 6, 2019.

Saturday, July 6, 2019

Presidential Authority and Bureaucracy: Regulatory Agencies

Circulating in Congress in the fall of 2012 was a bill that would have allowed "the White House to second-guess major rules and mandate that agencies carefully study the economic effects of new regulation. The change could, in effect, delay a number of rules for the financial industry. Those who support preserving the status quo where Wall Street regulates itself will find much to like in this legislation," said Amit Narang, a regulatory policy advocate at Public Citizen, a nonprofit government watchdog group.[1] President Obama had received $1 million from Goldman Sachs as a campaign contribution in 2008. Yet of how much value to Wall Street is a mere delay in regulation? Some, surely, but not enough to make this the decisive issue here. Rather, I submit that the president's control as chief executive of the regulatory agencies and the added bureaucracy are more salient in this case study. 
In terms of Wall Street’s interest, the proposed bill would have permitted the White House only to delay proposed regulations until further explanation is provided; the president would not be able to veto them. The issue from this case can thus be said to be whether the U.S. president as the chief executive in the U.S. Government must have control over even independent agencies such as the SEC. To be tasked with the enforcement of U.S. law and yet not to have the right even to be consulted by agencies as varied as the FCC, the FDIC, the SEC and the CFTC puts the chief executive in a bind—that of constitutional responsibility without the requisite authority. 
At a much less significant level, the added bureaucracy could have been a problem, given how much bureaucracy was in the agencies themselves: “at the minimum a 13-point test for rule-making. That includes finding ‘available alternatives to direct regulation,’ evaluating the ‘costs and the benefits,’ drafting ‘each rule to be simple and easy to understand’ and periodically reviewing existing rules to make agencies ‘more effective or less burdensome.’”[2]

1. Ben Protess, “Lawmakers Push to Increase WhiteHouse Oversight of Financial Regulators,” The New York Times, September 10, 2012. 
2. Ibid.

Friday, June 28, 2019

Speculators and Price Volatility: The Case of Gasoline

According to The Huffington Post, “Oil prices took a nosedive [on May 5, 2011] in a historic selloff, erasing weeks of gains and indicating that the months-long climb in energy prices may have hit a ceiling. Crude oil plunged 10 percent as startled investors unloaded their positions and a weeklong decline accelerated into an outright freefall. The price of U.S. crude went from triple digits to double digits, falling below $100 after opening at close to $110. Brent crude, a European benchmark, lost $12 at one point in a sell-off that exceeded the one following Lehman Brothers' collapse.”  The question, for course, is why, the answer of which can lead us to consider some public policy recommendations. Understanding the previous price rise is a first step both to answering this question and for evaluating public policy solutions.
The price of oil had been increasing, according to the Huffington Post, “as fighting escalated in the Middle East and investors feared a supply shortage.” Even as the Organization of Petroleum Exporting Countries was pledging to correct any oil supply disruption, the price of a barrel of crude continued to rise. Before the drop, Brent was up 50 percent compared to the same time the year before. Indeed, the rise could not be explained in terms of actual supply being threatened, as Libya represented only 2 percent of world supply at the time.
The fear was likely of a domino-effect that could potentially compromise even Saudi crude—as if Sunni protesters in Bahrain would spill over into Saudi Arabia (rather than tanks from the latter “spilling over” into Bahrain).  The fear, in other words, may have been exaggerated—even facilitated by speculators taking advantage of the general sense of instability in the Middle East. "Clearly these markets were overblown," said Nariman Behravesh, chief economist of IHS Global Insight. "We've been saying all along the fear factor has probably added 10 to 15 dollars to the price of a barrel." The ensuing “freefall” might have been a correction for this “fear factor.”
However, that the oil-price drop was accompanied by other commodities and even stocks could suggest that larger forces were involved. According to Reuters, “World stocks fell and the 19-commodity Reuters-Jefferies CRB index dropped more than 4.9 percent, heading for its biggest weekly decline since December 2008.” An oil-centered drop alone could be expected to result in higher stock prices as expected lower gas prices would be expected to have a stimulating effect on the U.S. economy. So it would appear that broader factors were at play—things that could have triggered the fear-correction.
Reuters reports that “(w)eak economic data from Europe and the United States fed concerns that have battered commodities all week. German industrial orders fell unexpectedly in March while U.S. weekly jobless claims hit eight-month highs, sparking a fourth day of profit taking in early trade. . . . Additional pressure came from news OPEC was considering raising formal output limits when it meets in June to convince oil markets it wants to bring prices down and reverse the impact of fuel inflation on economic growth.” However, it is not clear that the market was being so rational.
"This is just a market that rolled over and started feeding on itself," said John Richards, head of North American strategy for the Royal Bank of Scotland, according to the Huffington Post. "There was no triggering single event of news that would account for this. It's just much more the market's own internal dynamics taking prices down here," Richards added. “Internal dynamics” sounds a lot better than “feeding on itself.” The latter implies a growing disjunction between price and the “underlying” supply and demand for the commodity, whereas the former intimates a self-sustained system tending to equilibrium. 
Broadly speaking, the question may be whether a market for X tends internally to a homeostatic state of equilibrium or a schizogenic condition wherein a maximizing variable breaches any equilibrium-enforcing features. In ecological terms, by analogy, the question is whether a species tends to maximize its growth even at the expense of the overall ecosystem. In terms of the oil commodity market, the question is whether people simply betting on the price without any intended future use effectively divorce the market price from the actual and expected supply and demand. Moreover, does the disjuncture increase such that the betting acts as a maximizing variable at the expense of any equilibrium-tending mechanisms of the market itself?
Even if the “freefall” drop in the price of oil evinces a return to equilibrium closer to supply and demand, the disjuncture itself caused people to put off vacations and spend less on even necessities, and generally feel poorer. There is thus an ethical question regarding the legitimacy of betting on a commodity that people need. This includes not only oil, but food as well. Specifically, is the freedom to bet on necessities (even if necessities in the short run) worth the ensuing harm to consumers? Moreover, is trading on a commodities market inherently intended or designed for bets or, more narrowly, to arrive at a price whereby consumption demand meets supply? What, in other words, if economic liberty undoes the purpose of a market?
According to Bart Chilton, a top regulator at the Commodities Futures Trading Commission (CFTC), the number of speculative bets on oil and food were at record levels at the time of the price increases in both oil and food. President Barack Obama created an oil market fraud group in April to provide enhanced regulatory scrutiny of potential fraud and manipulation in the oil futures and derivatives markets, but most speculation was perfectly legal at the time so the reach of the group was rather limited in comparison to the problem.
Eric Holder, the U.S. Attorney General, wrote in a letter to the group, "Of course, there are lawful market forces that lead to price fluctuations and to differences between wholesale and retail price trends in these markets.” He urged the group “to identify whether fraud or manipulation played any role in the wholesale and retail markets as prices increased. If wholesale prices continue to decrease, fraud or manipulation must not be allowed to prevent price decreases from being passed on to consumers at the pump." However, manipulation in the form of betting was legal at the time. Even so, the financial reform bill passed in 2010 requires the CFTC to craft rules reining in excessive speculation. Nevertheless, citing inadequate market data, the agency failed to meet a key deadline on those rules in early 2011.
Accordingly, U.S. Sen. Bernie Sanders (D-VT) sent a letter to President Obama on the day of the “freefall” urging that regulators impose limits on oil speculation. “There is mounting evidence that the skyrocketing price of gas and oil has nothing to do with the fundamentals of supply and demand, and has everything to do with Wall Street firms that are artificially jacking up the price of oil in the energy futures markets,” Sanders wrote. “In other words, the same Wall Street speculators that caused the worst financial crisis since the 1930s through their greed, recklessness, and illegal behavior are ripping off the American people again by gambling that the price of oil and gas will continue to go up.” The question is whether “artificially jacking up” prices of commodities that people need ought to be illegal, and, if so, whether such a law could even be enforced.
Should futures traders be required to take delivery and use the commodity they have purchased? If so, people seeking to hedge risk may not be able to do so. Is not the “too big to fail” story about too much risk? Perhaps other means of hedging could be used. Furthermore, it may be that the government officials were not going far enough structurally. Were they to have incorporated anti-trust law, applying it strictly, perhaps a more competitive oil market would obviate the baleful effects of speculators. Even if there would be some opportunity costs in the reduced economies of scale enjoyed by oil companies (and gas stations), a market mechanism running on more competition would be worth that cost to the particular firms. The common good outweighs that of individual companies.
In going after “excessive” speculation or oligopolies, the devil may be in the details. For example, regulation may be difficult to write—assuming the corporate lobbyists do not obstruct it from even getting to that point (e.g., the failure of the CFTC to issue regulations)—not to mention enforcement. In a system of corporate capitalism, moreover, representative democracy may not be able to provide a homeostatic remedy after the horse has run out of the barn.


Matthew Robinson, “Oil Crashes 10 Percent in Record Rout,” Reuters, May 5, 2011.

William Alden, “Oil Prices Plunge in Record Sell-Off,” The Huffington Post, May 5, 2011.

Zack Carter, “Eric Holder to Fraud Squad: Oil Price Plunge Should Benefit Consumers,” The Huffington Post, May 6, 2011.

Thursday, June 27, 2019

Ownership and Compensation Conflated: The Case of Bill Gates and Paul Allen at Microsoft

Paul Allen claims in his memoir that Bill Gates tried on more than one occasion to reduce Allen’s relative ownership interest in Microsoft. Of course, the veracity of Allen’s explanation can be questioned even if the ownership changes in percentage terms are a matter of public record. Whereas The Wall Street Journal focused on Allen's credibility in making his claim, I see a case study on the difference between ownership and compensation for labor.
Allen claims in his book that in the mid-1970's, when he and Bill Gates were two college dropouts based in New Mexico, Gates asked for 60% of their partnership because of his greater contributions to the creation of software for running the BASIC programming language on an early PC, the MITS Altair 8800. Allen insists he had assumed that the partnership was evenly split, but he agreed Gates' request anyway. Several years later when the two men established Microsoft as a formal partnership, Gates asked to change their respective shares in the business to a 64-36 split, a demand to which Allen again agreed. However, in the early 1980s, Gates rebuffed Allen after he asked for an increase in his own Microsoft shares because of his work on a successful Microsoft product called SoftCard. Allen writes that he was deeply disappointed in Gates’ response; after all, the two men had known each other since they were students at a prestigious private school in Seattle. "In that moment, something died for me," Allen writes in his memoir. "I'd thought that our partnership was based on fairness, but now I saw that Bill's self-interest overrode all other considerations. My partner was out to grab as much of the pie as possible and hold on to it, and that was something I could not accept." Allen recounts that he sucked it up and thought, "OK…but one day I'm out of here."[1]  Gates had put money above not only friendship, but also a stable, enduring partnership. 
In 1982, Allen eavesdropped on a discussion between Bill Gates and Steve Ballmer, who would go on to become the company's CEO, in the Microsoft offices in Bellevue, Washington. Allen claims in his memoir that he heard the two men talking about his recent lack of productivity and how they might dilute his equity in the company by issuing options to themselves and other shareholders. Allen said he burst into the room and confronted the two men, both of whom later apologized to him and backed down from their plan. "I had helped start the company and was still an active member of management, though limited by my illness, and now my partner and my colleague were scheming to rip me off. . . . It was mercenary opportunism, plain and simple."[2] To be sure, Allen admits that his work was limited by an illness. Gates's attempts to lower Allen's stake in the company reflected Gates' concerns that Allen wasn't working hard enough and wasn't committed to the company, say people familiar with the relationship.[3] That was one reason, those people say, why Gates had put a provision in the first partnership agreement that would allow him to buy out Allen if Gates thought there were irreconcilable differences. In his memoir, Allen refers to the provision but does not include a reason for it, or why it was not mutual. 
The link between productivity or work accomplished and ownership stake may, however, not sufficiently distinguish between compensation and ownership. To be sure, additional ownership shares can be part of a compensation package, but Gates sought to change the founding ownership agreement by reducing his partner's share of ownership, which attends to founding the company. In other words, Gates should arguably have gone after Allen's salary and additional stock options, for those are more oriented to the quality of work and productivity. If a person owns a business, he still owns it if he performs badly for a year; of course, what he could take out as salary might be less than the prior year. 

1. Nick Wingfield and Robert Guth, "Microsoft Co-founder Hits Out at Gates," The Wall Street Journal, March 30, 2011.
2. Ibid.
3. Ibid.

Wednesday, June 26, 2019

Anna Hazare: A Modern Incarnation of Gandhi?

On August 21, 2011 in New Delhi, India, tens of thousands marched in support of Anna Hazare, then in the sixth day of his hunger strike in support of the Jan Lokpal anti-corruption bill. He told the crowd, “Even if the prime minister comes, I will not withdraw my hunger strike until the [bill] is passed in the Parliament. I can die but I will not bend.”[1] What a unique and intriguing statement! To be sure, the man's “professed unwillingness to compromise,” as well as his “occasionally belligerent tone, . . . attracted criticism.”[2] Even so, he inspired mainly hope, particularly from the young. His main constituency, however, was the middle class, who felt alienated and unfairly treated. Hazare self-consciously embraced the model of Gandhi. That model, including the principled unbending, is no stranger in India, yet I am surprised that it took until 2011 for a societal figure so Gandhi-like to emerge and galvanize a mass protest using Gandhi’s methods. Of course, the likeness between the two men could be overstated. How much like Gandhi was Hazare and his political action? For example, would Gandhi have stopped eating simply out of preference for one of two bills before the Parliament? Putting a stop to widespread violence is arguably much more significant than reducing corruption. Also, the demand that conduct be changed is more direct than that a law be enacted unless to abolish an unjust one. 

The uncompromising rectitude plays out differently in the two cases  Gandhi's underlying moral concern made his unwillingness to compromise laudable. Such stubbornness can fall on its face in a legislative context in which political compromise is inherent to the process. In appealing directly to the people for their malicious behavior to stop, Gandhi sidestepped the incrementalism of legislative politics. 
For a refusal to compromise to be a virtue, some pretty convincing principles must be at stake and a clear distinction must be drawn. In other words, a serious moral wrong must be involved. Typically, such a wrong involves great human suffering. Wide-scale  corruption, especially if it involves extortion of the poor and middle class incurs human suffering, but arguably not that which is involved in widespread societal violence that even results in death. In subjecting himself to death, Hazare may thus have been acting disproportionately. Taking up the mantle of Gandhi's method is perhaps not as simple as it may appear. 

1. Jim Yardley, “Thousands Back Antigraft Hunger Strike in New Delhi,” New York Times (August 22, 2011). 
2. Ibid.

On the United Technologies-Raytheon Merger: The Macro Level of Analysis

In analyzing a merger, incorporating the macro context is vital. For very large mergers, for instance, public policy concerns inevitably surface even if they are typically ignored not only in merger analyses, but also by in societal and even governmental public discourse. Analysis at this level takes a societal standpoint, including on the relationship of business and government. This does not diminish the salience of firm-level analysis, for even how the respective organizational cultures would mesh is very important to a functional merged company. This is even true regarding the respective business-ethics climates, for it is not a given that a healthy organizational culture dominates an unethical one.
In June, 2019, United Technologies “doubled down on the aerospace market with an all-stock deal to merge with defense contractor Raytheon Co., after UTC executives early chose to exit from the escalator and air-conditioning businesses.”[1] The anticipated combined company, “valued at more than $100 billion after planned spinoffs, would be the world’s second-largest aerospace-and-defense company by sales behind Boeing.”[2] The annual revenue for 2019 would be $74 billion. UTC’s CEO at the time estimated a billion dollars in cost-savings. Additionally, spending on research could be increased.
On the macro scale, the merger would intensify the consolidation in the aerospace and defense industry. Better terms from supplies and the Pentagon had been putting pressure on contractors “to cut costs and invest more of their own money in new technologies, such as space systems and cyber security.”[3] Consolidation has a major drawback, however, in that competition and thus trade can be stifled. Society, through its government, rather than consolidated industries must resolve anti-trust problems, and this is difficult when those industries have significant power over legislative bodies and regulatory agencies. Hence, for example, anti-trust law had not been applied to the five largest American banks even after their complicity in the financial crisis of 2008. In fact, the bankers were able to use government funds to pay themselves bonuses!  So the question can legitimately be raised whether anti-trust law even can be enforced when the consolidated company or industry is not in favor.
If very large consolidated companies can rebuff regulatory attempts to constrain or limit those companies, then even very unethical managements can enjoy perches of power that are worrisome from a societal standpoint. In the late 1990’s, for example, Hughes Aircraft merged with Raytheon Missile Systems. In 2002, dioxane, a carcinogenic chemical that Hughes Aircraft/Raytheon had been using as a solvent, was discovered in the ground water under South Tucson, Arizona. Previously, Hughes had used cancer-causing trichloroethylene since 1981, and several local residents had won settlements on that chemical from Hughes.[4] Perhaps Raytheon’s management fail to use adequate oversight over Hughes, especially given that company’s track record, or was the purchasing company tacitly involved. Something to ponder for a company on the cusp of growing substantially through another merger in 2019, for an environmentally callous group to be so big would indeed be a big deal.
At the company level, a board of directors subservient to management or even a sordid corporate culture, such as that of Enron, can be enough to thwart efforts to clean up from unethical conduct. Wells Fargo, for instance, faced an entrenched corporate culture in “efforts” to stop charging customers for unordered products. Plutocracy, or the rule of wealth, at a governmental level means that such companies can not only continue acting unethically but also extract monopoly or oligarchic rents. In the case of the defense industry, the increasing power of the major contractors can even result in pressure on lawmakers to go to war when diplomacy would have been a better route. Indeed, a government’s spending can become loop-sided in favor of defense because the major contractors are powerful enough to demand it because it is good business. Hence U.S. President Lyndon Johnson kept the Vietnam conflict going in large part because he was getting kick-backs from certain contractors. In short, from being able to evade anti-trust enforcement to being able to pressure or pay off presidents in favor of military engagements, consolidated defense contractors can be said to have too much power. 

[1] Cara Lombardo and Doug Cameron, “Merger to Create Aerospace Giant,” The New York Times, June 10, 2019.
[2] Ibid.
[3] Ibid.
[4] Tony Davis, “South-side Tucsonans Mobilize for Another Water-Pollution Struggle,” Arizona Daily Star, April 16, 2017.

Sunday, June 16, 2019

Hong Kong’s Chief Executive Caves in on a Proposed Extradition Law: Yielded to the Street, Business, or Beijing?

Facing huge violent protests, Carrie Lam, the chief executive of Hong Kong, a semi-autonomous region of China, decided on June 15, to indefinitely suspend her proposal to open extradition to mainland China and Taiwan. As the Chinese government demonstrated during the protests at Tiananmen Square decades earlier, holding a mass protest in China was not among the ways to impeded proposed legislation. Why, then, did Lam seem to cave into the popular protests in Hong Kong?
Perhaps it is naïve to claim that even in China, when popular protests are so large government officials cannot but conclude that enough of the people are advocating that Rousseau’s general will has spoken. Of course, a highly visible protest need not be from a majority of citizens. Often the political extremes show up to protest while the centrist majority stays home. In fact, the regularization or ubiquity of political protests in the E.U. and U.S. may dilute the ability to stand out in such a way that the intended change will happen. The Arab Spring’s mass protests in the Middle East demonstrate that even huge protests can be “regularized” within the control of a government. So I think the efficacy of protests has diminished as they have become increasingly hackneyed. It follows that the large, violent protests in Hong Kong in 2019 against the extradition bill were not decisive in the legislation’s untimely demise.
Alternatively, that local business leaders turned away from Lam on the issue could be said to be the decisive change that led to Lam’s decision to indefinitely shelve the bill. In the U.S. especially, the loss of support of corporate leaders could indeed stop legislation from progressing. The power by which corporations can use campaign contributions and lobbying in Washington, D.C. had indeed become formidable by 2019. In contrast, however, the Chinese government was relatively strong against the power of amassed private capital (i.e., large companies). With the support of the Chinese government, Lam could have handled the errant business elite, but did she have the central government’s support?
Government officials in Beijing “were starting to question her judgment in picking a fight on an issue that they [regarded] as a distraction from their real priority: the passage of stringent national security legislation in Hong Kong.”[1] So rather than yielding to the streets or the business sector, Lam yielded to the central government. The implication is that Hong Kong’s semi-autonomous status within a dictatorship could be questioned. In fact, semi-autonomous is an oxymoron in a dictatorship—that is to say, a façade.

1. Keith Bradsher, “In Hong Kong, Leader Yields to the Streets,” The New York Times, June 16, 2019.

Thursday, June 6, 2019

The Impact of Federalism on Corporate Power in American Legislatures: The Case of Health-Insurance Reform

Florida, like about a dozen other states, debated in 2009 a proposed amendment to its state constitution that would have blocked, at least symbolically, much of the federal health-care insurance overhaul on the grounds that it tramples individual liberty. Behind the amendments was an industry with a vested interest—an industry that made substantial campaign contributions to the supporters of the amendment. I contend that there is an ethical conflict of interest lurking here, even if it is constitutional (assuming that wealth constitutes free speech, which itself is a problematic assumption), but the main issue here is how the blockage of federal law applying in Florida (and other states) would have affected federalism. What would have been better for the American federal system: federal or state legislation, or perhaps a combination? 
It was not just ideology that united the proposal’s legislative backers in Florida. The amendment's 42 co-sponsors, all Republicans, were almost all recipients of out-sized campaign contributions from major health care interests, a total of about $765,000 in 2008 alone. Around the 2008 election, moreover, the groups that provided health care contributed about $102 million to state political campaigns across the U.S., surpassing the $89 million the same donors spent at the federal level. 
The conflict of interest for the 42 co-sponsors in the Florida legislature opened them and their health-insurance backers to attack by those who wanted the federal government to be involved in health-insurance. Indeed, those federalists argued that the magnitude of the health-care industry’s contributions demonstrated the dangers of leaving such a question up to individual states, where campaign finance and ethics rules varied at the time from strict to negligible. The industry had enormous power at the state level, those federalists contended, and very few states had state-level consumer groups that were able to lobby effectively against the industry-legislator nexus. 
On the other hand, federalizing health-insurance law contributed to the consolidation-tendency of the "extended republic" at the expense of its member republics, or states. Indeed, the matter of the U.S. Government’s enumerated (i.e. limited) powers was not lost on the state legislators of several states who  were opposed to a federal health-care law. “We are trying to prepare, and trying to send a message that there is no reason for those decisions to get made at the federal level,” said Representative Linda L. Upmeyer, a Republican who was leading efforts in Iowa's legislature to prevent the anticipated federalization by the federal president, Barak Obama.[1] Upmeyer and anti-federalists knew that without “opt-in” or “opt-out” provisions in the federal legislation, state constitutional amendments would be preempted even should Congress refuse to reform health insurance. 
To be sure, states opting out of the eventual Affordable Care Act could have compromised the economies of scale assumed by the federal cost-saving measures. However, not even the cost-efficiency of proposed federal legislation should always overrule the contribution of the bill on the system of federalism. This focus had been a factor in the trend since the 1860's toward the consolidation of power at the federal level at the expense of the diversity-expressive power of the states. Too much "one size fits all" with not enough taking into account the differences between the member-states in an empire-level political union leads to an unbalanced system of federalism and thus eventual demise of the union itself. This point is lost when the focus is on particular pieces of legislation, and more specifically on their respective redeeming cost-efficiencies. 
What if industry power over legislation is strongest at the state level? Would not another incremental movement towards political consolidation at the expense of federalism have the virtue of protecting democracy from the encroachment of plutocracy, the rule by wealth? Yet leading up to Obama's Affordable Care Act of 2010, the president dropped his public-option for health insurance when the lobbyist for the private health-insurance industry threatened to withdraw its support. Obama's political calculus was doubtless that the vote would be so close that he would need the industry's support--hence, as often is the case in American legislation--incrementalism is the rule and large packages like FDR's New Deal are the exception. 
Therefore, even though the member-state legislatures are perhaps more easily dominated by big business, the federal head is also capable of being controlled or steered. Perhaps part of the solution to the problem of industry dominance over government lies in enabling the state governments to be able to check the federal government, and vice versa. In other words, the worst enemy of corporate corruption of public officials at either government may be balanced federalism.

1.  David D. Kirkpatrick, “Health Lobby Takes Fight to the States,” The New York Times, December 28, 2009.