Wednesday, May 31, 2017

Goldman Sachs’ Venezuelan Bonds: Power Behind the Throne

Goldman Sachs paid about $865 million for $2.8 billion worth of bonds in May, 2017. This represents 31 cents on the dollar and translates into an annual yield of more than 40 percent.[1] The high yield is due to the high risk that is involved, for the bonds had been held by Venezuela’s central bank in what “the government’s opposition decried as a lifeline” to the regime then in power.[2] Indeed, the central bank’s foreign-currency reserves increased by $442 million to $10.8 billion the day the bond deal was completed, and the government needed to raise money it owed to key allies like Russia and China.[3] In indirectly aiding that government, Goldman Sachs risked the ire of the opposition. Writing to Goldman Sachs, Julio Borges, head of Venezuela’s opposition-controlled legislature, indicated that he would “recommend to any future democratic government of Venezuela not to recognize or pay on these bonds.”[4] Hence, the high risk, high return. Though I submit that the risk might have been considerably less than meets the eye on account of the influence of the bank on the U.S. Government.

Goldman Sachs had been “steadily increasing its Venezuelan holdings in recent months, betting that a change in government could more than double the value of the debt if the country, which sits atop the world’s largest oil reserves, reforms its economy.”[5] The American bank could arguably dismiss Borges’ ominous threat because of the bank’s formidable influence, or power, in the U.S. Government. Besides the lavish political-campaign contributions that the bank no doubt extended to members of Congress, prospective candidates, and to the sitting president at the time, the bank had an insurance policy of sorts in that one of its alums, Steve Mnuchin (formerly a partner at Goldman) was serving as U.S. Treasury Secretary and another, Gary Cohen (who had resigned from being the President at Goldman), was the U.S. President’s Chief Economic Advisor (i.e., head of the National Economic Council). Additionally, Steven Bannon, the chief strategist in the Trump administration, had worked in the bank. Ex-Goldman bankers thus held very senior positions in the U.S. Government as the bank was betting that future regimes in Venezuela would recognize the validity of the debt owed to the bank.

The expression, “power behind the throne,” expresses the underbelly of power that has existed without doubt since the dawn of human organization. The advent of the large corporation, whose astonishing accumulation of wealth stems from principles of the Industrial Revolution, meant that private power could trump publicly held power to an unprecedented extent. The governmental discretion of lawmakers and even heads of governments may actually be diminished because of the sheer power behind the strings. In spite of the dubious democratic legitimacy and the horrendous human-rights record of the regime in power in Venezuela when Goldman Sachs bought the bond that had been issued by the state oil company Petroleos de Venezuela, the policy of the U.S. Government could easily be to “look the other way” and even prop up that regime or support any prospective regime that agrees to “toe the line” on repaying the debt owed to Goldman. The power behind the American throne, in other words, might reduce to the bottom-line financial transactions of the large American banks, which, by the way, are too big to fail yet sufficiently powerful to vanquish even public debate on whether the banks should be broken up for the overall interest of the U.S. economies and financial system. In short, follow the money, not the ideals or even enlightened self-interest. The world, moreover, may be in a driverless ship—one whose route is simply a matter of large financial transactions. Those transactions themselves may be the true power, for not even the CEO at a major bank can realistically deviate from seeing them through; the shareholders would have his head.

The discretion, whether in the large corporations or in the halls of government, may really only reside at the point at which the decisions are taken to proceed with a given large transaction. Only an investment banker would know how much discretion is truly present in the decision of whether to commit funds to an investment. In the case of Goldman’s purchase of the Venezuelan state-related bonds, the anticipation of the artificial risk-reduction by means of financial-to-political power could mean the allure of a 40% return on investment is too much to resist (i.e., greed). Yet such a prospect being deemed realistic could mean that Goldman’s managers faced a de facto fiduciary duty to the stockholders to make the non-bet “bet.” The availability of alternative profitable uses of the funds available for a bank like Goldman Sachs could give the bank’s managers some leeway in line with not propping up a regime that suffers democratically and in terms of human rights. It is only on the margins, I suspect, that ideals can get a glimpse of sunlight in a political economy in which large financial transactions hold sway in terms of both financial and political power. Yet the greed leaning strongly toward the 40% return, which crucially is made so realizable only by the bank’s power over political power in the U.S. Government, is hard for human nature to resist, especially that which is well ensconced in the culture on Wall Street. Accordingly, large financial transactions may take on a deterministic hew.

In any case, once a transaction is committed to, power goes to the transaction itself, with its private and public defenders feeling they have little practical choice but to act in the transaction’s own interest. Indeed, bank managers can be fired and government officials can be turned out if they don’t “play along.” The logic of the existing financial transactions may be determinative for the ship of state as well as an economic system. It is no wonder, therefore, that the general public should fear the prospect of a distant iceberg coming unawares over the bow, and that ideals for a better world should fall off along the way like ice melting off the rails. 




1. Kejal Vyas, Anatoly Kurmanaev, and Julie Wernau, “Goldman Sachs Under Fire For Venezuela Bond Deal,” The Wall Street Journal, May 30, 2017.
2. Ibid.
3. Ibid.
4. Ibid.
5. Ibid.

Sunday, May 28, 2017

Violence at a Trump Campaign Rally Spurs Lawsuits against the Candidate: A Case of Incitement?

Is it natural for people to become enraged at other people at political events? Is violence simply part of the territory? Even if war stems from political differences, a political rally is a long way from being on a battle-field. The psychology, I submit, should be very different, and yet some people at campaign rallies cross the line as if they have no control over their emotions and behavior. That some protesters and a Trump supporter sued U.S. President Donald Trump for his role in inciting violence at one of his campaign rallies makes the matter of rage and violence at political events more public, and thus subject to analysis. The issue, I submit, goes beyond whether Don Trump incited violence against protesters at his political rallies. 
In Ceder Rapids, Iowa on Feb 1, 2016 at a Trump-for-President rally, the candidate told supporters there to “knock the crap out of” anyone preparing to throw a tomato.” He added, “I promise you. I will pay for the legal fees. I promise. I promise.”[1] The next month, at a similar rally in Louisville, Kentucky, he bellowed, “Get ‘em out of here!” in response to several protesters interrupting his rally.[2] Matthew Heimbach, a Trump supporter, “gave a hard shove in the back” to Kashiya Nwanguama, “who had been holding up a poster depicting [Trump’s] face on the body of a pig.”[3] Implying that Trump had incited the violence, Heimbach would go on to say of Trump, “He knew what he was asking for.”[4] So Nwanguama and two other protesters sued Trump, contending incitement—the legal argument being that the candidate was legally liable because the violent Trump supporters had been acting as his agents. In fact, Heimbach also filed a civil suit against Trump, arguing “he was responsible for any injuries [Heimbach] might have inflicted because [Trump] directed him and others to take action.”[5]
According to Samuel Issacharoff, an instructor of constitutional law at New York University, the central issue raised by the federal civil suits “is how society should deal with the passions which are necessarily unleashed in political events. The courts bend over backward to protect the freedom of political exchange in this country, even when it’s ugly.”[6] Trump’s lawyers argued that the candidate’s public statements are protected by the First Amendment. Moreover, the lawyers contended that there was no evidence that Trump intended for his followers to harm anyone. As an eye-witness to another case of incitement at a Trump rally, I question this claim.
At the rally I attended, Trump repeatedly urged that protesters be taken out of the arena. At one point, a small section of protesters behind him interrupted, and he asked explicitly for his private security employees to remove the protesters. When one such employee later in the rally was removing a lone (Caucasian) protester who was wearing a KKK hood to protest Trump as a racist, Trump continued to bellow, “You’re disgusting!” even as a Black military man—a Trump supporter—jumped into the aisle, threw down the protester, and, in intense motions, literally stomped on the protester. I saw Trump watching the stomping as he was continuing to denigrate the protester. This, I contend, is particularly revealing: that the candidate was continuing to bash the protester while watching the violence. I was left with the clear impression that Donald Trump not only condoned and was inciting the violence, but also actually enjoyed it. I said to the black woman sitting next to me, referring to Trump, “I don’t think he values democratic principles.” Observing the Trump supporters in our area, I added, “I thought it was just hyperbole, but this really does feel like what the Nazi rallies must have been like.” The woman next to me shook her head in agreement and we both looked on in silence—both of us feeling the surreal nature of that particular rally.
So I do believe that Donald Trump as a candidate did not respect people who protested his candidacy. I suspect that his anger was directed at the disapproval itself. As for the military man who felt compelled to stomp on the protester, whom I think was a woman, the matter may go beyond the incitement, which I believe existed. Both the intensity of the anger of the Trump supporters at the rally directed to the (mostly isolated) cases of protest and the “flash-point” intense violence of the military man suggest to me that Issacharoff’s assumption that passions are necessarily unleashed in political events may be wrong. Heimbach’s legal argument may contain the assumption that he had no choice but to act as Trump’s agent at the rally in Kentucky, or at least that acting violently as Trump’s (self-appointed?) agent was normal for the type of occasion.
I question whether such extreme passions as can so easily “jump the fire line” onto violent acts are necessarily a part of political events—whether our expectation that such acts are just part of political life is valid. Alternatively, what we may be seeing is mental illness on full display thanks to the societal excuse of sorts that tacitly permits or normalizes rage at political events. It does not follow that just because someone holds a firm belief—whether it be political or religious—that violence-level anger inexorably kicks in against a “non-believer.” In the realm of religion, Feuerbach, a nineteenth-century European philosopher of religion, argues in his text, The Essence of Christianity, that faith contains a malevolent principle predicated on the salience of belief. That is, hatred toward non-believers is part and parcel of having faith in a belief, such as that God exists. Hence the many atrocities in the name of religion may stem from religious faith itself. I think we can broaden this out to any firmly held belief.
I do not find a reasonable enough basis for a person to feel severe or intense anger in the presence of a person merely disagreeing with a strongly-held belief, for homogeneity of belief is not part of the human condition. In other words, the expectation that you and I have that people should naturally believe what we respectively believe may be the underlying problem. The flawed assumption here may trigger the anger, which may actually be angst railing against the truth of the matter—that firmly holding a belief is not as important as we think or feel it to be, and that people are naturally going to have divergent beliefs. I don’t believe that the anger is a reflex against the latent (psychological or empirical) threat in the “I disagree with your belief.” Rather, I think we humans have an instinctual dislike of people who hold a divergent belief or opinion, yet the level of the dislike is not in itself, I submit, enough to trigger violence. Rather, flawed thinking in some people supports the fallacy of an expectation that people should naturally hold the same beliefs (especially one’s own!) and psychological pathology exaggerates the anger for some people such that they lapse into violence. Free speech should not give open license to normalizing this dysfunction at political events; in fact, the culprits, whether protesters or supporters, should be called out even just on their excessive emotion, and certainly the violence should be stopped as soon as it erupts. Continuing to denigrate the victim can thus be labeled as part of the pathology, rather than as natural to politics.



[1] David Zucchino, “A Trump Campaign Rally Led to Shoving, and Legal Wrangling, Too,” The New York Times, May 27, 2017.
[2] Ibid.
[3] Ibid.
[4] Ibid.
[5] Ibid.
[6] Ibid.

Thursday, May 18, 2017

Washington’s Political Elite and President Trump: Obstruction of Democracy Going after Obstruction of Justice?

The political elite’s view of President’s Trump alleged obstruction of justice in the Flynn investigation may be more complex than what meets the public’s eye. As the existence of former FBI director James Comey’s memo on a talk with President Trump on the Flynn investigation came to light, the Republican elite began to buckle before it enforced party discipline. Yet there is reason to suspect that the elite as a whole supported the president, or would continue to do so, given the cascade of controversies spilling out of the White House. Very subtly, in fact, the Republican elite in Washington doubtless had little respect for the populist element of the president’s political base; that “such people” could have their man in the White House may have been a drag on the Trump presidency even with respect to his own party in Congress. Yet “such people” are American people, and thus part of the popular sovereign, so part of the tension may have been an eruption of what is normally rather subdued—namely, the antipathy between a political elite and the People, even in a democracy. In evaluating a political elite, I submit that a bit of translucent light never hurts, especially when charges of obstruction of justice are in the air.

Under federal (U.S.) statutes, sections 1503, 1505, and 1512 of Title 18 make it a crime if someone “obstructs, influences or impedes any official proceeding,” including FBI investigations.[1] Although the White House put out the following statement on May 16, 2017, “The president has never asked [former FBI director] Comey or anyone else to end any investigation, including any investigation involving General Flynn,” Comey had written a memo following a meeting with President Trump in which Comey quotes the president, “I hope you can see your way clear to letting this go, to letting Flynn go.”[2] A day earlier, the president had accepted Flynn’s resignation following revelations that Flynn had lied to Trump’s transition team regarding contact with the Russian ambassador. So the president knew that Flynn had lied and was under investigation and yet still asked the FBI director to drop it. I submit that the president’s request satisfies the statutory prohibition against influencing an investigation so as to impede it. In fact, given the fact that the FBI director serves at the pleasure of the president—the latter being the chief law-enforcement office in the U.S. Government—the president’s request can be taken as an attempt to pressure the director from a higher position of power (i.e., to obstruct or block an investigation). Even if the president did not intend to do so, the making of the statement was itself obstructing or impeding.

James Comey, as director of the FBI, testifying before Congress before being fired by President Trump in part due to his handling of the Russian investigation. (Source: NYT)
Lest it be countered that assessing what was actually said at the meeting comes down to one man’s word against another’s word, Comey’s memo “was part of a paper trail [that the FBI director] created documenting what he perceived as the president’s improper efforts to influence a continuing investigation.”[3] That is to say, Comey presumably had other indications of improper efforts. Even without contemporaneous memos of such efforts, an FBI agent’s “contemporaneous notes are widely held up in court as credible evidence of conversations.”[4] Furthermore, that Comey wrote the memo of his meeting with the president at the time means that the writing of the memo could not have been retaliation for Trump eventually firing him. In short, Comey took the customary measures to ensure that his memo could be regarded as credible.
It is important that the investigation into Flynn was separate from the “broad investigation into possible collusion between Russia and the Trump campaign.”[5] So the appointment of Robert Mueller as special counsel in the FBI for the second investigation should be distinguished from the question of whether the president obstructed justice regarding the Flynn investigation. That is to say, the appointment of Mueller did not tuck the matter of the obstruction away, even if the public is led to believe that the problem had been solved by the appointment of an independent counsel. Put another way, Mueller could find no evidence of collusion between the Trump campaign and the Russian government and yet separately the president attempted to obstruct, influence, or impede justice in regard to the Flynn investigation.
Unfortunately, the “official narratives” provided by the news media can “smooth over” even important distinctions. Even just unintentionally, the “sound-bite” approach to news can itself give the false impression that the fact that an independent counsel had finally been appointed just after the Comey’s memo came to light sufficed as sufficient accountability.
Forces less than transparent to the general public at the time, such as from powerful elements of the political elite, were likely playing a formidable, albeit stealth, role. Congressional lawmakers of the president’s political party doubtless had reason to resist Democratic calls for impeachment proceedings. Hence just days after requesting that the FBI turn over records of communications between Comey and the president—even indicating that he was willing to issue a subpoena to obtain Comey’s memo as possible evidence of obstruction of justice!—Rep. Jason Chaffetz, chairman of the U.S. House Oversight Committee, suddenly felt the need to resign from Congress at the end of the next month. To be sure, he had earlier announced that he would not seek re-election in 2018, but the fact that he had no immediate career plans after June 30th suggests that he was pushed out even just for having tweeted, “I have my subpoena pen ready.”[6] How brutal and stealth the elite’s hard hands are on the levers of raw power! I bet an example had to be made, either by the Trump White House or its allies in the Congressional leadership. It is strange that the public was so beguiled this connection did not become transparent. Had it been so, the credibility of the memo as evidence against the president would have appreciated considerably in value, for why else would chairman with a subpoena pen need quickly to be shown the door?
Yet it is possible that some elements of the political elite in Washington, even paradoxically Republican lawmakers, may privately have been wanting to impeach President Trump and remove him from office in favor of VP Pence. “For Republicans reeling at a daily stream of troubling revelations about President Trump, the prospect that Vice President Mike Pence would assume power . . . [was] a remote possibility” at the time.[7] Sen. McConnell, the Republican Majority Leader of the U.S. Senate, had just days earlier said out loud (to journalists!) that he was worried that the litany of continuing controversies coming out of the White House—bottom line, Trump’s fitness to handle the job—was becoming a distraction, and thus an obstacle to the Republican policy agenda being enacted into law.
Wall Street and evangelical Christian leaders—representing two major parts of Republican base—would I strongly suspect prefer the stable and authentic Pence to Trump. In fact, those parts and their power brokers in the Washington elite likely have little respect—and plenty of disdain—for the salient populist part of Trump’s political base of unskilled and uneducated angry people, who can be so easily manipulated and used. We are now into the murky undercurrents that can unfortunately run between an entrenched and centralized political elite and the popular sovereign in a representative democracy. The impact at this level is admittedly subtle, even unconscious, rather than direct and predominant, yet important nonetheless.
A political elite naturally has little if any respect for people it views as behaving at the outer fringes of society. It is perhaps a perceptual matter of degrees of civilization, not to mention manners. Even while exclaiming a commitment to democratic principles, political insiders tend to look down on outsiders, especially those who are disgruntled and not socialized into the mores of the polite, rarified society of country clubs and K Street (i.e., the corporate world of lobbyists in Washington, D.C.). If the “masses” have their aim set on knocking the political elite off its perch, this is all the more reason for power-brokers to resist even the elected officials whose elections the populists made possible.
This underlying tension pertains to intra-party dynamics as well. The schism between the DNC insiders and the Bernie Sanders "grass roots" supporters in 2016 is a case in point. So too, the Republican Party's elite likely had scant regard, truth be told, for what must assuredly had been referred to at D.C. dinner parties as the party's "trailer trash" that had voted in droves for Donald Trump—a billionaire miles above, and thus qualitatively unlike, those voters. In fact, President Trump’s rather unpresidential conduct during at least the first several months of his presidency may have been viewed in some Washington-elite, even Republican circles as reflecting back on his populist base's ignorance, gullibility, and lack of good judgement in deciding whom to put in the White House.
Put another way—one considerably more charitable to Trump’s uneducated, angry, and unwealthy populist supporters—the question of President Trump’s “suitability for office” may come down to whether the political elite in Washington could continue to stomach a president whose support comes directly from average Americans. In other words, I wonder whether that elite—especially the portion thereof (in both major parties!) that has business interests as political paymasters—even respects those Americans. They may not have made the best judgment on which candidate is most conducive to (i.e. could survive in) the presidency, but in the American philosophy of representative democracy such people are more than worthy to have their man (or woman) in the White House, for the government is tasked with representing the people rather than a political or financial elite. It cannot help itself from looking down its nose on people living on the other side of the railroad tracks on Main Street. How easy it is for the raw power at an elite’s disposal to follow from even just dislike under the subterfuge of respectable-sounding “Congressional hearings” and even “Impeachment proceedings.” It is the use of such subterranean power by the elite even of Trump’s own party that I suggest we track, for a variety of motives can easily be in play in disturbing obstacles even in the same party. Interestingly, an obstruction of democracy (e.g., distain for the unique element in Trump’s own base) may turn out to fuel efforts—which are themselves fully legitimate!—to go after an obstruction of justice by a president who had never been welcomed by the political (or New York business) elite. To be sure, the predominant elite-mentality is for a party to protect its own—but as an Italian scholar visiting New York once told me, there’s a limit to everything.



1. Charlie Savage, “What Is Obstruction of Justice? An Often Murky Crime, Explained,” The New York Times, May 16, 2017.
2. Ibid; Michael S. Schmidt, “Comey Memo Says Trump Asked Him to End Flynn Investigation,” The New York Times, May 18, 2017.
3. Ibid.
4. Ibid.
5. Ibid.
6. Christina Marcos, “Chaffetz Ready To Issue Subpoena for Comey Memo,” The Hill, May 16, 2017.
7. Julie H. Davis, “Amid Trump Turmoil, Some Begin Eyeing Mike Pence,” The New York Times, May 18, 2017.


Monday, May 15, 2017

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

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

In May, 2017, the U.S. House Financial Services Committee approved the Financial Choice Act, which would replace Title II of the Dodd-Frank Act—its orderly liquidation authority of banks going under. Rather than having “orderly liquidation authority backing up the bankruptcy code in times of extreme financial stress,” the Choice Act “would rely on bankruptcy only.”[1] Like Chapter 11 bankruptcy, the proposed Chapter 14 of the Choice Act would rely on private debtor-in-possession financing to keep a bank operating during bankruptcy. In a major financial crisis, such as that in September, 2008 when the commercial paper market ceased to function, “the debtor-in-possession lenders would be the ones in trouble” so they would not be willing or able to provide the funding.[2] This is because in a condition of systemic risk, multiple financial institutions face going under. In terms of bankruptcy, in other words, the financial sector is a unique bird. The funding needed to keep one or, more likely, several large banks operating during their respective bankruptcy proceedings would be more likely to come from the U.S. Government—that is, bailouts.

From the standpoint of the laissez-faire ideology of political economy, government intervention in a financial institution’s bankruptcy process—to keep it going in an orderly manner—is less intrusive than in a bailout. Yet in a period of severe stress on a financial system, “free-market” advocates in Congress may have little choice if the alternative is a defunct financial system in a matter of days. In headier days, the ideologically-driven lawmakers face little headwind in taking out a relatively less invasive incursion of the government—the proposed Chapter 14—yet with scant anticipation of the massive intervention that may be more likely in the long term during a financial crisis or panic. Hence Paul Volcker, who was President Reagan’s Chairman of the Federal Reserve, urged policymakers to preserve the Orderly Liquidation Authority precisely because under it “there is no taxpayer bailout.”[3] Volcker’s advice is in sync with the ideology that prefers as little government intervention in an economy as possible. In fact, breaking up the largest five U.S. financial institutions would also be in line with the ideology, for not only would more competition be possible, not even the orderly liquidation authority would likely be needed because the fall of one (smaller) bank would not be catastrophic. In other words, one bank in bankruptcy would not be as likely to involve systemic risk—in particular, the risk that other banks would also face ruin as a result and thus would not be able to provide financing for the bank as it goes through bankruptcy.

Perhaps the underlying problem behind the legislative proposal being entertained in the U.S. House of Representatives goes along with ideology itself—namely, the failure of the human mind ensconced in an ideology to accurately anticipate even in line with the ideological preference. Hence the failure of George W. Bush’s administration to apply anti-trust law to the largest U.S. banks may have precipitated Treasury Secretary Henry Paulson having to swallow proposing an $800 million financial bailout—something that could only be anathema to a conservative Republican. Looking on as the financial markets consolidated may not have been the best way to uphold the laissez-faire ideology in retrospect. Generally speaking, using governmental power to keep markets competitive in their structure (i.e., many small producers rather than an oligarchy or even a monopoly) may thus pay off in ideological dividends down the road.



[1] Stephen J. Lubben, “A Dodd-Frank Rewrite That Would Increase the Chance of Bailouts,” The New York Times, May 9, 2017.
[2] Ibid.
[3] The Volcker Alliance, “Volcker Urges Global and U.S. Policymakers to Stay Committed to Financial Reform,” PR Newswire, April 19, 2017.

Monday, May 1, 2017

President Trump: Revisiting Presidents Jackson and Lincoln on their Statesmanship


In an interview in 2017, U.S. President Donald Trump said he wondered why the issues leading to the U.S. Civil War “could not have been worked out” to prevent the republics from exiting the U.S.[1] “People don’t realize, you know, the Civil War, if you think about it, why?”[2] In particular, “People don’t ask . . . why was there the Civil War? Why could that one not have been worked out?”[3] The reigning assumption has been that President Lincoln could not have resolved the dispute short of going to war. Trump then suggested that had President Andrew Jackson been president rather than Lincoln, we “wouldn’t have had the Civil War.”[4] Aside from the point that Jackson was a Southerner, his feat in resolving the Nullification Crisis without a shot being fired suggests that Trump had a point; the war between the C.S.A. and U.S.A. could have been averted. More importantly, the mentality that won the war may not be as salubrious as we suppose.

In 1828, when John Quincy Adams was the federal president, a tariff—a tax on imported manufactured goods that originally went into effect in 1816—was increased even beyond the increase in 1824. The intent was to protect the nascent American manufacturing sector, which was mainly in the Northern states, from cheaper European imports. As a result of the tariff, Southern plantation owners had to pay more for manufactured goods from Europe, and Europeans had fewer dollars with which to buy Southern exports, of which cotton and rice were particularly important to the Southern agrarian economy.
In 1829, Andrew Jackson became the U.S. President and John C. Calhoun became the Vice President. The latter, who was from South Carolina, proposed the doctrine of nullification, wherein a state government could constitutionally nullify any federal law injurious to the state’s interests. Even from the standpoint of a loose federation, or a confederated Union of mostly sovereign republics, the doctrine was specious; for it would eviscerate virtually any federally-agreed-to constraint on the states. The former president John Quincy Adams argued more practically that the U.S. Supreme Court, not the state governments, had the ultimate authority to declare federal law unconstitutional. For his part, President Jackson sided with Adams out of fear that state-nullification could potentially lead to the break-up of the Union.
Meanwhile, South Carolina’s government declared the tariff to be unenforceable in the state. European firms could export their goods to buyers in South Carolina without having to pay the tariff. Hence, the buyers would get the lower prices, and the sellers and their compatriots would have more dollars with which to buy South Carolina rice and cotton. The tariff would remain in effect in the U.S. where the toll on economies was less. Interestingly, Calhoun also argued that the federal government had constitutional authority to use tariffs only as a means to raise revenue for that government, rather than to favor certain economic sectors; such picking and choosing—essentially between states—was going too far, especially as a certain region of states was losing power in Congress as the Union added new states. I submit that South Carolina’s government officials and Calhoun pushed their favored confederal approach or interpretation of American federalism too far in incorporating the nullification doctrine precisely because the plantation economy was becoming less and less, proportionally speaking, of the American economy, and the Southern states, less and less, also proportionately, of the total number of states in the American Union. This dynamic, not its symptom of slavery, was the underlying cause of the war between the C.S.A. and the U.S.A. How this interpretation differs so from the victor’s moralistic, almost apolitical narrative! How bound we are, without even realizing it, to the narrative!—alternatives being deemed nothing short of heresy! Abominations!
President Jackson diffused the changing dynamic—shifting regional power in the Union in the midst of two starkly different preferences of federalism (confederalism and modern federalism, respectively)— by signing tariff legislation in 1832 and again in 1833 that lowered the tariffs even as he stated that South Carolina’s nullification law was null and void and sent federal troops down to the state to enforce the law. The deal, in other words, was a much lower tariff in exchange for the state’s repeal of its nullification law. Because the president pressed Congress to repeal its increased tariff, essentially giving that one to Calhoun’s point on the federal use of tariffs for revenue only, Jackson cannot be said to have been staunchly on the side of the federal government—which is something, considering that Jackson headed one of its three branches! Rather, the president gave something to South Carolina—putting the state’s interests ahead of the other states and the federal government. Yet the state’s government had to pay a price—giving up on its cherished, albeit over-extended, doctrine of nullification.
South Carolina’s legislature had prepared a secession, or “exit,” document—Calhoun himself was involved in crafting it. The same document would be used in 1861 for the “SoCarexit”—to borrow from the E.U. secessionist state’s lexicon. Interestingly, Congress had again just enacted a tariff increase in 1858. It is possible that this old issue, as much as new free states being admitted to the Union, sparked renewed impetus to divorce from the U.S.[5]
The threat to the Southern plantations in 1861 was not the imminent end of slavery there. The threat was indirect and more diffused, coming in the form of new states with different economies being admitted to the Union. The theory of confederalism insists that the enumerated and residual sovereignty of each state is protected—hence the balance of power resides with the states. The Southern fear was that the balance was already shifting in favor of the federal head, and this made the decreasing proportion of the Southern states in the enlarging Union particularly worrisome. In other words, the “nationalist” variant of federalism (modern federalism) was gaining over confederalism, and the interests of the Southern states—political, economic, cultural, religious—were becoming more of a minority in an increasingly heterogeneous, larger empire: the United States. The tariff and slavery were only symptoms.
Jackson’s peaceful resolution of the Nullification Crisis lays in stark contrast to Lincoln’s “take it or leave it” approach to the Southern secessionist states. Whereas Jackson had the federal government retreat voluntarily on its tariff, Lincoln’s approach can be seen as being one-sided because he did not even offer to have the federal government step back at all from its position. When all the political heavy-lifting is put on the other side—for it to do the backing down—it is no wonder that resistance is encountered and a long, bloody war results. I submit that Lincoln could reasonably have compromised and yet save the Union in the sense of retaining all of its existing states.
For example, Lincoln could have assuaged the Southerners’ fears by proposing a qualified majority voting system in the U.S. Senate and perhaps even in the U.S. House of Representatives. Such a system would be designed such that legislation could not pass without at least some Southern support. The federal government would thus not be able to turn on the South—which I submit was the underlying fear. In the E.U., for instance, qualified majority voting in the federal legislative chambers—the European Council and the European Parliament—requires at least 55% of population of the Union and 55% of the states be represented on the yes side of votes for the bills to become law. Lincoln and Congressional leaders could have entertained novel ideas on how to craft such a system. A Council of Regions, for instance, wherein only the major regions of the U.S. were represented—each region having a veto--could have been added as a third legislative chamber, or perhaps even to replace the U.S. Senate! Even beyond Jackson’s fine job in 1832, thinking outside the box in such occasions is invaluable in thwarting violent conflict from engulfing all other possibilities of resolution.
For the slavery-reductionist advocates, I submit that the Southern states were a significant portion of the Union and so were justified politically in wanting to feel that they would not be rolled over in federal chambers—even though the institution of slavery was squalid, especially to our modern sensibility in the twenty-first century. The institution is for us unthinkable, undenkbar, vorbotten even in retrospect (i.e., in a historical context). For us, to think of other human beings as wild animals or property is nothing short of pathological. Even so, we must allow ourselves to admit that because the Emancipation Proclamation did not occur until 1863 (and did not apply to the five slave states that remained with the Union, and had no effect in the rebel states), the immediate point of contention in 1861 was not slavery itself where it existed. The fear was more future-oriented, and generalized, and the anger was informed by political theory—namely, two contending versions of federalism—and declining political power. Accordingly, the conflict at hand could have been resolved short of war without the South having to give up the institution of slavery. The demand that Jackson's approach applied back in 1861 include the abolition of slavery where it then existed is unfair, for not even the new Republican Party was demanding then that the South give up its sordid institution! 
Had Lincoln adopted Jackson’s approach at that time, the South might then have moved years later to put its slavery in play. Perhaps the Southern states would have accepted federal financial help with a new plantation labor system in exchange for a repeal of the 1858 tariff, combined with the region having a veto on federal legislation in a Council of Regions or a stiff qualified-majority voting system in the U.S. Senate—either of which could have been enshrined as a constitutional amendment. To be sure, any of these items could have been used in 1861 to walk back from war. At any rate, ensuing incremental agreements, progress without war, might have been possible once cooler heads could again prevail. My point is that we cannot assume that were Jackson’s approach put in place in 1861, slavery would have endured for decades. But I digress.
Jackson was able to resolve his “either/or” by putting together a deal in which both sides—the federal government and the state—gave something and got something in return. Such an approach is superior to Lincoln’s “my way or the highway” stance—that of making demands of the other side without any accommodation or retreat on his side. Rigidity begets rigidity, and much harm came ensue when two pieces of sandpaper are rubbed against each other. Even beyond Jackson’s paradigm, however, of resolving a seemingly intractable “either/or” within itself is the ability to see a third, fourth, and even fifth alternative that may never be even thought of in holding fiercely onto the typical “either/or” paradigm. In short, I think we make things more difficult than they need be, even in assuming that the Civil War had to be fought. We do not even recognize our own mental cages, so we go on making the same mistakes over and over. To arrest this pattern, revisiting even “sacred cows” can be invaluable.




[1] Jonathan Lemire, “Trump Makes Puzzling Claim About Andrew Jackson, Civil War,” The Sacramento Bee, May 1, 2017.


[2] Ibid.


[3] Ibid.


[4] Ibid.


[5] The use of the term divorce is incorrect as it assumes two equal or equivalent parties. A state is not equivalent to a union of such states, hence the use of the term for the secession of a state involves a category mistake. In the context of “Brexit,” for example, “divorce” can be read as presumptuous for the secessionists.