Tuesday, December 20, 2016

Snowden

If a picture is worth a thousand words, then how many words are moving pictures worth? Add in a script and you have actual words—potentially quite substantive words—grounding all that pictorial worth. Moving pictures, or movies for short, are capable of conveying substantial meaning to audiences. In the case of the film, Snowden (2016), the meaning is heavy in political theory. In particular, democratic theory. The film’s value lies in depicting how far short the U.S. Government has slipped from the theory, and, indeed, the People to which that government is in theory accountable.

The full essay is at "Snowden."

Monday, December 12, 2016

How American Presidents Are Selected: Beyond Russian Interference

Most delegates in the U.S. Constitutional Convention in 1787 recognized the value of constitutional safeguards against excess democracy, or mob rule. The U.S. House of Representatives was to be the only democratically elected federal institution—the U.S. Senate, the U.S. Supreme Court, and even the U.S. Presidency were to be filled by the state legislatures, the U.S. President and U.S. Senate, and electors elected by citizens, respectively. The people were to be represented in the U.S. House and the State governments in the U.S. Senate. The Constitutional Amendment in the early twentieth century that made U.S. senators selected by the people rather than the governments of the States materially unbalanced the original design. In terms of the selection of the U.S. president by electors, the political parties captured them such that whichever party’s candidate wins a State, the electors there are those of the winning party. Even if the electors could vote contrary to the popular vote in a State, such voting could only be a rare exception given the party-control. Hence the electors have not been able to function as intended—as a check against excess democracy. The case of Russian interference in the presidential election of 2016 presents an additional use for the Electoral College, were it to function as designed and intended. Of course, this is a huge assumption to make, even just in taking into account the American mentality regarding self-governance.

Suppose, for example, that a presidential election were to take place only months after an attack by another country, such as the one at Pearl Harbor on December 7, 1941. The American people might be inclined to vote for whichever candidate has promised to nuke the belligerent power off the face of the Earth. Clearly, such a knee-jerk reaction would not be in the best interest of the American people. Were the electors in the Electoral College free of party-affiliation as well as any law requiring them to vote according to their State’s popular vote in the “presidential election” (i.e., actually for the electors), the electors of the College could elect another candidate—one not so inclined to beat the war drum to capitalize on the momentary passions of the people.

In short, American voters elect electors by state, and said electors in turn then meet in their respective state capitols to cast votes for president roughly a month later—that being the actual presidential election. This system reflects the delegates' fear that the masses voting directly would be risky because people have difficulty resisting their immediate passions. Demagogues running for office can too easily take advantage of the ignorance and inattention of the electorate, especially when the “campaign season” lasts 14 months!

That a population even as large as 7 million in the U.S. in 1789, and even more one of 310 million in 2016, must depend on the media for information on candidates—it being extremely unlikely that all but a tiny fraction of the people could meet the candidates—adds merit to the value of having electors whose task it is to act as a check on deficiencies in a democratic election on such a scale. As for the number of electors in the Electoral College, each State has as many as the total number of its U.S. senators and U.S. House representatives. The number is few enough that the electors could actually meet the candidates in person and question them. Additionally, the electors could more feasibly have access to information on the candidates and even U.S. intel. In voting for these electors, the American people would be voting for people whose judgment is deemed to be up to the task.

So it is fitting, given the purpose and design of the Electoral College, that the electors could receive U.S. intel on Russia’s interference in the 2016 presidential election. Hillary Clinton’s presidential campaign chairman, John Podesta, supported a proposal that electors be given “an intelligence briefing on alleged political interference by Russia.”[1] A group of 10 electors had written to the Director of National Intelligence to request a briefing. Those electors cited their role as a “deliberative body” designed in part to prevent foreign powers from trying to influence elections.[2] Although I am not aware of any direct reference to foreign interference as an explicit reason for the Electoral College in the Constitutional Convention (via Madison’s Notes), the rationale can fall within the broader one of the College serving as a check on deficiencies in the presidential election (i.e., the election of electors by the American people).

As the American people themselves selected the electors to in turn select the federal president, the extant federal officials, as agents of the People, were duty-bound to defer to the electors for such a purpose bearing on the task of electing the next president. It is up to the electors to decide whether any new information gained after the presidential election warrants the selection of someone other than the candidate whose party controls the majority of the electors (i.e., “won” the Electoral College). It does not necessarily follow that the electors should select the candidate who came in second.

Hypothetically, events taking place between the “presidential election” and the electors’ own vote could warrant the election of another candidate than the one who “won” the electoral college. New information on either of the major candidates could also justify such an outcome. The overall point, or aim, is that the best possible selection is made for the United States and its people. Holding to popular vote, whether by State or nationwide, pales in comparison, and is not necessarily optimal. One delegate, for instance, argued at the Convention that “the people at large . . . will never be sufficiently informed of characters.”[3] Another delegate said, “The people are uninformed and would be misled by a few designing men.”[4] That delegate felt this problem so grave that “the popular mode of electing the [president] would certainly be worst of all.”[5] Still another delegate argued that the selection of the president should be “by those who know most of the eminent characters & qualifications,” not “by those who know least”—meaning millions of people across an empire.[6] Such delegates were not themselves government officials, so the recognition of the limitations of a popular election by people like themselves is itself awe-inspiringly humble. For a people to recognize its own deficiencies and design safeguards even at the expense of their own future electoral preferences renders such a people worthy of self-government. Maturity, in addition to being educated and virtuous as Jefferson and Adams insisted, is requisite for self-governance.

I submit that Americans in 2016 were overwhelmingly—and conveniently—deficient in governmental maturity. Instead of a willingness to face their own complicity in standing by or enabling as presidential campaigns had become so sordid and devoid of policy or even debate, a blind charge could be heard immediately after the election toward a new system based on an unprotected, and thus vulnerable, (nationwide) popular vote. Legitimacy supposedly hung in the balance, and the People could not be wrong. So it is ironic that the need for safeguards against the electorate itself were so easily dismissed. In other words, it is nothing short of astonishing that such an electorate would assume that an overhaul was not necessary on how presidents are selected and, moreover, that no safeguards would be needed for going by a nationwide majority vote. The underlying problem can be put as a question: Does a people that refuses to recognize the need for safeguards on itself, even for its own protection (i.e., in its own best interest) deserve self-government? Can such government function for long without the electorate being willing and able to keep their system of government in good condition? What if a people cannot recognize brokenness, whether in itself or in how its president is selected? Can such a people self-govern for long?

It is much easier to focus on foreign interference than to be willing to recognize deficiencies much closer to home. Taking the most comfortable route, rather than making difficult choices, is lethal for a viable republic especially when the lack of character is combined with ignorance as to what constitutes good and bad public-governance systems. It is particularly revealing that a people most in need of safeguards is most apt to make the convenient assumption that they are not necessary. The rise and fall of mammoth empires is the stuff of history. Every empire in history has come and gone. The fall of even a modern-day empire can come from within, as from a squalid mentality that absolves itself of even the possibility of being wrong about itself. This, I submit, is the American blight, and plight.

 


[1] Cody Derespina, “Clinton Campaign Backs Call for Electors to Get Trump-Russia Intel Briefing,” Fox News, December 12, 2016.
[2] Ibid.
[3] James Madison, Notes of Debates in the Federal Convention of 1787 Reported by James Madison (New York: W. W. Norton, 1966): 306.
[4] Ibid., 327.
[5] Ibid.
[6] Ibid., 405.

Wednesday, December 7, 2016

A Business Surtax on Income Inequality: Target the Proceeds


The medium compensation in 2015 for the 200 highest-paid executives at publicly-held companies in the U.S. was $19.3 million; five years earlier, the figure was $9.6 million.[1] CEO pay compared with the earnings of average workers surged from a multiple of 20 in 1965 to almost 300 in 2013.[2] “Income inequality is real, it is a national problem and the federal government isn’t doing anything about it,” said Charlie Hales, the mayor of Portland, Oregon in 2016 when that city passed a surtax on companies whose CEO’s earn more than 100 times the medium pay of their rank-and-file workers.[3] According to the law, set to take effect in 2017, companies whose ratios are between 100 and 249 would pay an additional 10 percent in taxes; companies with higher ratios would face a 25 percent surtax on the city’s business-license tax. Whether the new law would make a dent in reversing the increasing income-inequality was less than clear.
The most direct route to reversing the trend of growing inequality would be to use the proceeds from the surtax to increase the average incomes of the poor. Cash assistance to city residents below the poverty line, for instance, or increased rent subsidies would qualify. Alternatively, the city council could pass and fund a minimal-income level for local residents. As still another option, the financial assistance could be meted out more specifically to workers in the companies subject to the surtax, or local companies more generally. Unfortunately, the proceeds were set to go into city’s general fund, only part of which increases the incomes of the poor. “City officials in Portland estimated that the new tax would generate $2.5 million to $3.5 million a year for the city’s general fund, which pays for basic public services such as housing and police and firefighter salaries.”[4] If rental assistance is included and expanded, then the inequality of effective income could be impacted locally, though adding more police and firefighters and perhaps even buying more police cars and firetrucks would not affect the ratio.
In short, for the surtax to address the matter of income inequality most directly, the use of the tax revenue would have to be targeted to increasing the effective incomes of the poor (and middle class). Simply increasing the city’s budget dilutes the impact substantially.
On the CEO-pay end, the assumption that the surtax would result in lower CEO compensation figures is also subject to critique. What a board offers a prospective CEO must contend with what that particular labor market will bear. Furthermore, it is not clear that even 25% of a local license tax is enough money to motivate a board to reduce top executive salaries. It is also not clear that $2.5 to $3.5 million would appreciably raise income levels in a city the size of Portland—Oregon’s largest city. Were the city to increase the tax to motivate companies to bring down CEO pay and/or make a dent in the incomes of the city’s poor, companies could simply move; they could even stay in Oregon.
To be sure, Portland’s mayor at the time admitted that the surtax is “an imperfect instrument” with which to tackle the momentous problem of increasing income-inequality in the U.S.[5] A better instrument would be at the State or federal level, with the proceeds going to fund a minimum income for all citizens. Lest such a “Robin Hood” approach be too stark, proceeds could be targeted more closely to the worker-CEO ratio by increasing the incomes or disposable incomes of workers.



[1] Gretchen Morgenson, “Portland Adopts Surcharge on C.E.O. Pay in Move vs. Income Inequality,” The New York Times, December 7, 2016.
[2] Ibid.
[3] Ibid.
[4] Ibid.
[5] Ibid.

Monday, December 5, 2016

Analysis of Italy’s 2016 Referendum: Beyond the Euro and the E.U.


The predominate axis of analysis in the wake of the Italian referendum in early December, 2016 centered on the euro, the federal currency of the European Union. For example, an article in The Wall Street Journal begins with the following: “Sunday’s referendum vote in Italy reinforced a widening split between the economics needed to sustain Europe’s common currency and the continent’s rising tide of populism.”[1] At the time, however, the populism in the E.U.’s states had more to do with immigration than the federal currency. Even so, analysts predicted that Italian parties antagonistic to the currency could be expected to benefit. Stephen Gallo at BMO Financial Group went so far as to claim, “Eurozone breakup risks are rising,” given “the political currents at work in the Eurozone.”[2] Although he makes a good observation in noting the lack of a political will in the States “to finish building the missing architecture of the single currency area”—implying that the underpinnings of the euro were inherently unstable—he overlooked the matter of the distribution of wealth, and in particular the element of fairness, which I submit is salient in the Italians’ ‘No’ vote as well as in the rising anti-establishment, or shall we say, anti-elite, populism of the day.
The constitutional changes proposed in the referendum were “aimed at streamlining lawmaking and boosting competitiveness”[3] Whereas The Wall Street Journal adds that the ‘No’ vote marked “a sobering start to a defining year ahead for the European Union,” I submit that the pro-business nature of the proposed changes is more salient.[4] Mateo Renzi, Italy’s prime minister who resigned after the vote, had argued in defense of the changes that Italy needed to be more competitive by making it easier for companies to do business there.[5] Translation: the changes would have enriched businesses in the State. To be sure, boosting the State’s economic output would have positively impacted the euro’s underlying stability as well as that of the Union itself. Even so, it is interesting to contrast the pro-business impact of the proposed reforms with the populist, or antiestablishment 5-Star Movement party’s platform’s proposed income guarantees for all Italians.[6] The contrast gets to the real meaning of populism—the populous, or people, as distinct from the mutual-reinforcing economic and political elites. In this light, the resounding 60% ‘No’ vote can be understood as a rejection of the mutual-reinforcing dynamic as well as the increasing concentration of wealth rather than as being primarily about the euro or even the E.U. If so, the question is whether such populism can concentrate enough power of its own to overcome the resistance/power of the financial and political elite. In other words, can populism result in a wholesale change in the political elite when so much money funnels in from the business world. This is a question for every republic, rather than just for E.U. states that use the euro currency.



1. Stephen Fidler, “Italy’s ‘No’ Opens Harrowing Year for EU,” The Wall Street Journal, December 5, 2016.
2. Jon Sindreu, “Euro Falls as Italian Reject Renzi’s Changes,” The Wall Street Journal, December 5, 2016.
3. Fidler, “Italy’s ‘No’.”
4. Ibid.
5. Ibid.
6. Ibid.

Young Japanese: An Early Verdict on Climate Change

Is the verdict in, and have we, mankind, lost our own self-inflicted climate battle? Is this what Japanese millennials were saying in 2016 when, according to a government survey, only 75 percent expressed interest in climate change, whereas close to 90 percent of the same age group (18-29) had expressed interest just a few years earlier?[1] Their intuition may have been the proverbial canary in the coal mine.
Midori Aoyagi, a principal researcher at the National Institute for Environmental Studies in Japan, reports that the young people in her focus groups “always felt a kind of hopelessness” toward their daily lives, their jobs, and social issues.[2] She suggests the pessimism might be “a result of having grown up during a prolonged period of economic stagnation known as the lost decades,” but this would not account for the drop from 90% to 75% in just a few years.[3] Interviews with Japanese aged 22 to 26 elicited a similar attitude. “These young people cited the huge scale and timeline of the problem, a feeling of powerlessness, silence from the media and preoccupation with more important issues.”[4] I want to unpack this revealing piece of evidence.
The huge scale and silence of the media, combined with the political power of the extant energy sector, whose financial benefits are grounded in the status quo, suggests that nothing short of sustained effort aimed at transitioning to clean energy could possibly suffice to obviate the worst of climate change in the decades to come. Not sensing such effort, as per the silence of the media, the young people may have intuited that their time would be more usefully spent on other societal problems, which still had a chance of being solved. To be sure, unforeseen technological developments could at least in theory still redeem the species in spite of its self-destructive urge for instant gratification. Yet without a hint of promise from the species' unique tool-making ability, the young people could not but sense a slipping away of the window for solving the climate-change problem. Indeed, because they could live to see the worst of climate change as it unfolds, the sense of hopelessness makes sense. So it is particularly telling for the rest of us that more of them were moving on to tackle other, more solvable societal problems.



[1] Tatiana Schlossberg, “Japan Is Obsessed with Climate Change. Young People Don’t Get It,” The New York Times, December 5, 2016.
[2] Ibid.
[3] Ibid.
[4] Ibid.

Friday, December 2, 2016

Business CEO’s Overstating Political Uncertainty in the United States


The impact on business of political uncertainty in countries that are seized by revolution can be substantial—so much so in fact that CEO’s and board directors are motivated to avoid the uncertainty itself. I submit that business analysts of political risk tend unwittingly to routinely overstate the uncertainty arising from incoming U.S. presidential administrations. If I am correct in this claim, CEO’s and board directors pay too much heed to political uncertainty itself in the making of major strategic decisions involving operations in the American context.
Although American culture welcomes and even encourages leaps in technological development capable of transforming daily life, another sort of change—one more subject to societal control—is tolerated only if made incrementally. Otherwise, the change is dubbed as radical, which is a charge made more out of fear than according to any objective measure. Clutching at the status quo unduly translates politically into the tyranny of the status quo as powers both in business and government that profit as things are hold back all but incremental change that does not threaten the current basis of benefits. The many points of access into the federal legislative and executive machinery enable the stultifying influence a virtual veto over proposals of serious, or “real,” change. Such change tends to be pulled back until only the tolerated incremental change remains.
A few examples reveal the pattern. In 1986, amid large budget deficits caused in part by the tax cuts of the early 80’s, Ronald Reagan pushed for a wholesale change in the federal income tax, ridding it of its myriad of deductions. Yet as the U.S. Senate debated the tax code, individual senators came forward with rationales for all of the major deductions. The “powers that be” were exercising their prerogatives to continue their respective benefits, which Reagan’s vision for change would put at risk. Business practitioners anxiously pointing to the political uncertainty of a revised tax code were in retrospect overreacting, and thus putting too much emphasis on the uncertainty itself.
In 2008, Barak Obama campaigned under the slogan of “real change.” After his election, political risk analysts were doubtlessly impressed with the sheer uncertainty latent in the very notion of real change. Yet when Congress was considering the Affordable Care Act, Obama dropped his proposal for a public option, which would be useful should private insurers leave the planned exchanges. The president gave into pressure from the insurance industry lobby, the members of which stood to lose benefits should Obama’s healthcare plan instantiate real change even just in terms of there being a public health-insurance option. The resulting law was incremental because the private health-insurance companies were still to be relied on. The anticipated uncertainty regarding the American health insurance system turned out to be much less. The analyses of CEO’s making strategic decisions based in part on avoiding the American context due to the uncertainty would have been distorted, and thus not optimal.
In 2016, when Donald Trump was elected president, the uncertainty in terms of political risk must have been palpable in corporate boardrooms. Trump’s proposal of a substantial tax, or tariff, on American companies that take advantage of lower labor-cost countries and import the resulting products back into the large U.S. domestic market undoubtedly stocked the uncertainty without much thinking-through of how political compromise could take its toll on the proposal as it moves through Congress. Similarly, fears of trade wars resulting from the proposed tariff may have been overblown. That American companies would be subject to the penalty means that foreign companies manufacturing outside of the U.S. and importing into the large domestic market would have a competitive advantage. Pressure from Chinese companies could mitigate the likelihood of a Chinese-stoked trade war even though the pulling out of American companies (i.e., the loss of some manufacturing plants) would have a detrimental impact on the Chinese economy. Of course, such a scenario assumes that the actual tariff is enough to motivate American CEO’s to return their manufacturing to America; the political compromise that may be needed to pass such a tariff might reduce it to an insufficient level and thus effectively discredit the very idea of using public policy to alter the financial calculus of American companies such that they have a financial incentive to return voluntarily in line with maximizing profit.
The American preference for incremental over systemic change puts any genuinely new political proposal at risk of being shrunk to fit through the contours of the status quo, which is so dear to the vested interests. The uncertainty typically thought to exist in the advent of a new presidential administration tends to be overblown in retrospect. The American economy suffers from this bloated condition to the extent that CEO’s and corporate board directors move operations away from the geographically delimited hyper-uncertainty.

Modern Day Mercantilism: Donald Trump Intervenes at Carrier


The tension between the free-market philosophy and mercantilism (e.g., an industrial policy) has been longstanding. I contend that the philosophy of international business (or international economics) is flawed terms of how far comparative advantage is applied, even at the expense of full employment at the city or country level. The case of Carrier in Indiana points to the legitimacy of government intervention even at the expense of comparative advantage.
A mix of ominous threats from Donald Trump as U.S. President-Elect, and enticing financial incentives worth $7 million from Indiana kept roughly 1000 out of 2000 jobs at Carrier, a unit of United Technologies, from being transferred to Mexico. The company had expected to save $65 million by relocating not only the fan coil manufacturing lines, which would still go, but also the lines that build medium- and high-efficiency gas furnaces, which would now stay in Indiana.[1] Carrier’s management must have factored in the likelihood of the upcoming Trump Administration and Republican Congress imposing steep tariffs on imports entering the United States from American companies that have moved production to other countries in order to take advantage of lower wages and comparatively lax regulations. In fact, Trump’s intervention with Carrier undoubtedly had the benefit of reminding other such company managements of the possible additional cost to manufacturing abroad and yet still having access to the huge American domestic market via importing (a tariff would make specific-company interventions unnecessary). So, the single-minded maximizing-profit calculus notwithstanding, we can understand why Carrier’s management agreed to take a bit—albeit just a bit—of a financial hit. “Every penny counts, but if we step back and I’m looking at earnings of $6.60 per share this year, 2 cents is an easy concession if the president-elect listens to some of the company’s bigger concerns,” noted Howard Rubel, a senior equity analyst at Jefferies.[2] The 2 cent per share reduction could in fact be offset (and more) by the possible redressing of such “bigger concerns,” especially if the company and its workers make politically strategic campaign contributions.
Unfortunately, pressures on company managements to focus on quarterly stock prices mean that assuming even a long-term profit-metric can be difficult. The allure of producing abroad and importing products back into the U.S. would likely continue; hence the rationale for a tariff. Lest it be feared that trade wars might be triggered, the companies subject to the tariff would be American rather than Chinese or European. Regarding the free-market alternative, the comparative-advantage philosophy of international business omits the practical need for manufacturing and low-skilled jobs in virtually any geographical area. Not everyone in a given population can be retrained to work in computer-tech industries, or educated to become CPAs, physicians, and lawyers. To say the U.S. (or E.U.) is a knowledge economy leaves a lot of people out—people who could be expected to be dependent on government benefits to live. Therefore, a mercantile government policy oriented to retaining a manufacturing sector makes sense for any government. The free-market logic applied to international economics is flawed because a sizable proportion of a country’s workforce cannot (or will not) be part of a “knowledge economy,” for instance. It also follows that not everyone is going to participate in a “manufacturing economy.” Geographically, economic diversity reflects the diverse makeup of the labor force. Put academically, the logic of international economics has its limits, or drawbacks, and so international political economy is a better, more realistic, approach.



[1] Nelson Schwartz, “Trump Sealed Carrier Deal with Mix of Threat and Incentives,” The New York Times, December 1, 2016.
[2] Ibid.