Prognosis for the Chinese Economy

At the end of February 2012, the World Bank released its “China 2030” report in Beijing. The bank’s president, Robert Zoellick, said that China’s economic growth model is unsustainable, so significant reforms are needed. The report projects growth down to five or six percent annually by 2030, down from the ten percent annual growth in the thirty years up to the issuance of the report. Given the nature of the reforms, the Chinese government officials have their work cut out for them.

For instance, the report calls for “further reforms of state enterprises,” including “separating ownership from management.”[1] Even in the case of the private sector in the U.S., such a separation has been daunting, as CEO’s typically control their respective boards—even being chairman of the board. For state enterprises, management may blur into the government officials under whom the enterprises are run. Moreover, the public or state interest is typically more salient in state enterprises, so separating management from the ownership can raise problems of legitimacy and accountability. Furthermore, lacking an independent judiciary, China is not exactly the sort of system wherein the checks and balances of a separation of ownership and management could viably function. In other words, hierarchical accountability wherein a boss tells a subordinate what to do is more in keeping with the macro political economy of China.

Secondly, the report urges China to build several “world-class research universities.”[2] Here again, the lack of an independent judiciary may make foreign scholars wary of living in China. On the plus side for China, strengthening research domestically may relieve the pressure to pirate technology from foreign companies (sharing technology is often a condition of foreign direct investment). More research done in China may result in relaxed FDI requirements and less industrial spying. The result could be higher economic growth rates both in the short term and beyond.

Lastly, the report urged more of a focus on environmental technology and more spending on social programs (ironic advice given to a communist country). Just months before the report, Beijing had agreed to make public the measurements of finer pollutants in the city (as the U.S. embassy had been publishing its own numbers there anyway). While environmental technology could make a dent, the ultimate problem for the Chinese concerning not just pollution, but economic sustainability as well, is the huge population—over a billion. Simply put, having more people means more must be consumed. Whether in terms of food or more cars on the road, the population itself may not be sustainable, especially as more of it has become densely-packed in urban centers. Ultimately, sustainability for our species has to do with whether we can limit ourselves, not just individually or even in our cities, but also as a species.

1. Bob Davis, “World Bank Chief Urges Reforms for Beijing,” The Wall Street Journal, February 27, 2012.
2. Ibid.

Corporate Legal Personhood in the Kiobel Case

In Kiobel v. Royal Dutch Petroleum, the U.S. Supreme Court waded into the murky waters of corporate legal personhood, at least potentially, in hearing oral arguments in late February 2012. The issue in the case is whether corporations can be held liable to the extent that they are complicit in a foreign government’s human rights abuses. Legal personhood would say that they could be. This would represent an obligation that goes with legal personhood. The question is whether the justices who conferred in the Citizens United decision the right of corporations, based on their legal personhood, to make unlimited political donations would also be willing to view obligations as “part and parcel” with such personhood. If not, then legal persons, unlike human persons, would have the benefits of personhood without any of the obligations—an oxymoron to corporations to be sure. In other words, such an asymmetry would render the legal personhood doctrine itself as akin to a one-sided coin—which cannot exist, let alone stand.

As in any legal analysis, it is best to include a bit on the particular case itself. “In Kiobel, about a dozen Nigerians contend that Shell Oil's parent company aided and abetted their government in its torture and extrajudicial killing of environmental and human rights protesters resisting Shell's operations in Nigeria in the 1990s. . . . The plaintiffs brought their suit under a law, commonly called the Alien Tort Statute, passed by the first Congress in 1789 to allow foreign nationals to bring civil suits in federal courts ‘for a tort only, committed in violation of the law of nations or a treaty of the United States.’”[1] The law is silent on whether corporations can be sued under the law. Because of this silence, the U.S. Supreme Court can decide the case on the basis of whether corporations are legal persons, and, if so, whether obligations go with such personhood.

For its part, the U.S. Government submitted a brief stating in part, “Corporations have been subject to suit for centuries, and the concept of corporate liability is a well-settled part of our 'legal culture.'"[2] In other words, corporate personhood entails obligations, one of which is to refrain from contributing to human rights abuses abroad. On the other side, corporations and their allies have been submitting briefs arguing that they should not be subject to the law. It is only natural to want benefits without obligations. Corporate power could indeed enable “legal persons” to shamelessly enjoy the benefits without being subject to any of the obligations—even as such “persons” extoll their “corporate citizenship” for public relations purposes. That is to say, the U.S. Supreme Court could maintain the legal person doctrine for corporate contributions and essentially ignore it in refusing to include corporations as the “persons” subject to the Alien Torts Statute.

Indeed, in oral arguments, the high court seemed split five to four, with the conservative majority looking to exempt corporations even as it had cited their personhood in granting them the right of “wealth as free speech” in political contributions. Justice Kennedy, for example, said that “the case turns in large part” on the point that “international law does not recognize corporate liability.”[3] However, U.S. law is not limited to what is recognized in international law. In fact, the U.S. does not even recognize the International Criminal Court. Chief Justice Roberts and Justices Alito and Scalia expressed hostility toward the Alien Tort Statute itself. Alito noted that the lawsuit had been brought by foreign plaintiffs against a foreign defendant for acts that took place in a foreign country. “What business does a case like that have in the courts of the United States?” Justice Ginsburg noted that the U.S. Supreme Court had already allowed such cases to be brought under the Alien Tort Statute. She reminded the Court that the question was whether only individual defendants or also corporate defendants are liable—not whether the law itself is constitutional. Alito’s ploy at subterfuge—subtly attempted by pivoting on “the issue”—had been rendered transparent by the veteran justice. Unfortunately, however, the doctrine of legal personhood itself was not given center stage in the oral arguments.

In my view, rather than focus on the relationship between U.S. and international law, the justices should have used the oral arguments in Kiobel to decide in a definitive way whether “personhood” extends to corporations. Given the Court’s Citizen’s United decision, which allows corporate “persons” to give unlimited amounts to political action committees, a decision on Kiobel could have “laid down the law” not only on “abstract” legal personhood, but also more specifically on whether both benefits and obligations go along with personhood in a legal system based on laws. If corporations are able to cherry-pick legal opinions through inconsistent conservative justices in the majority—the Court itself reflecting a more general partisanship rather than the coherency that law itself must have—then we are no longer a people based on law rather than the power of the most powerful of our institutions. In other words, corporations may indeed be able to get away with all of the benefits of personhood without any of the obligations, with the cost being “passed on” in terms of the viability of the United States themselves.

1. Mike Sacks, “Corporate Immunity Looks Likely: Supreme Court Seems Ready to Side with Shell in Human Rights Suit,” The Huffington Post, February 28, 2012; Mike Sacks, “Corporate Personhood Case Forces Supreme Court to Hack New Path,” Huffington Post, February 27, 2012. 
2. Ibid.
3. Ibid.

Ailing the E.U.: Unbalanced Federalism and the Euro

Lest it be thought that the economic safety net for the neediest led some of the E.U. states into excessive public debt toward the end of the first decade of the twenty-first century and beyond, the existence of some counter-examples suggest that the actual culprit was misapplied modern federalism. In early 2012, Sweden still had a very generous welfare state and yet had the fastest economic growth of any E.U. state. Leaving Malta and Cyprus aside, ranking the 15 E.U. states that were using the euro at the time by the percentage of GDP that they were spending on social programs before the debt crisis shows that of Greece, Ireland, Portugal, Spain and Italy, only the latter was in the top five—and with a welfare state smaller than that of Germany. In other words, an economic safety net for the poor does not necessarily translate into unsustainable government debt.

The complete essay is at Essays on Two Federal Empires.

Moral Hazard in Mortgages

“The cherished American ideal of self-reliance has a flip side”[1]  Before getting to the implications, or flip side, I want to fill out what informs this ideal. One could add to it the ideological stance that came into its own in 1980 with the election of Ronald Reagan, who declared that government is the problem. This implies that government should be minimized, and otherwise corrected as much as possible. Government is hardly to be viewed as the solution. This is the legacy of the Kennedy assassinations of the 1960s, the Vietnam War, and Watergate as well as Ford’s pathetic “WIN” buttons and Carter’s micromanagement and failure in regard to the hostages in Iran. I was not old enough for the Kennedys’ truncated optimism (and that of Martin Luther King) to resonate; I knew the political (and economic) pessimism of the 1970s and the energizing “fix it” mentality of the early 1980s. Of course, Reagan’s “new federalism” failed, as did his aim to balance the federal budget, and the jury is still out on whether “peace through strength” pushed the USSR off the cliff.

The full essay is at "Moral Hazard in Mortgages."

1. Shaila Dewan, “Moral Hazard: A Tempest-Tossed Idea,” The New York Times, February 26, 2012. 

American Regional English: Vestiges of an Empire

In 2012, a mere fifty years after the project had begun, the fifth volume of the Dictionary of American Regional English (DARE) was finally done. Sadly, the project’s director, Frederic Cassidy, had died in 2000 at the ripe old age 90. “On to Z” had been his typical way of ending phone conversations. Visiting the dictionary’s offices some years ago—ironically to use their French dictionary—I had no idea of the size of the project. Instead, I engaged a few of the staff on my thesis that regional “Englishes” in the U.S. are only natural, given the empire-scale of the republic of republics. In fact, I would argue that it is unnatural that there are not more linguistic differences from Maine across the continent and up to Alaska and over to Hawaii.

The full essay is at Essays on Two Federal Empires.

Germany’s Wulff Toppled While Wisconsin’s Walker Fights On

At the beginning of 2012, Wisconsin and Germany were both suffering from the plight of compromised figureheads. In the case of Wisconsin, the figurehead is also the chief executive, whereas in Germany they are distinct offices, so the situation in Wisconsin was more intractable. Germany’s figurehead office has much less political power, so any occupant is more dependent on maintaining credibility and stature.

In Wisconsin, Scott Walker faced a petition for a recall vote. Assuming Walker is recalled, the vote would be followed by an election for the office. Even if recalled, he could be a candidate in that election. Wisconsinites could vote to recall him then conceivably vote him back into office. Because recall pertains to a duly elected incumbent, the bias in the procedure is to respect the result of the election (i.e., “elections matter”). This bias makes sense in the case of the recall movement against Walker because it was not predicated on scandal or any charge of illegality against him. The recall is not an impeachment. Rather, the movement was in reaction to a piece of legislation that Walker had supported that took away some bargaining rights of the government employees’ union. The law’s intent was to help reduce a $3 billion projected budget deficit in 2011.[1] Walker did manage to balance the budget, with help from the law to enabled the government to save money on public employees.

 Opponents of Walker gather as the recall petitions are turned into the government.  

Tannen Maury/European Pressphoto Agency

In terms of the recall, the issue is thus whether the four year term of Walker’s office as figurehead and chief executive of Wisconsin should be cut short because of disagreement with a law that Walker signed. In other words, the matter is not an impeachable offense; rather, the question is whether the popular sovereign—the people—should have the right to circumvent one of the hallmarks of a republic (i.e., representative government): the fixed term of office, which is meant to protect the officeholder from the popular passions of the moment in order to make difficult decisions. Put another way, if it were easy to recall an elected representative, none would be likely to make the difficult decisions that we look to be made for our own good. While valid from the standpoint of direct democracy, easy recall undercuts what distinguishes a republic.

In Germany, Christian Wulff was facing a vote from the legislature removing “immunity from prosecution” from his figurehead office. On February 17, 2012, with the SPD and Green parties having come out in favor of making Wulff subject to charges of improper ties to business executives, he resigned. The scandal first broke in the previous December. It gained traction not only because of the special gifts that Wulff had received while the executive of what is comparable to a county in Wisconsin. Meanwhile, one of Scott Walker’s aids was being convicted of corruption from when Walker was the executive of a county in Wisconsin (Milwaukee county). The immediate difference is that Walker was not implicated whereas Wulff was (by the Hanover prosecutor’s office). I would add that Walker could make use of the political power that came with his authority as the chief executive whereas Wulff had no such power and thus succumbed to the pressure by resigning. In both cases, the man at the top was compromised and this in turn impacted the respective states dramatically. Because of the “dual” nature of Walker’s office, Wisconsin faced a prolonged fight over Walker in 2012 whereas German parties already settled on a new figurehead just days after Wulff resigned. It might be wise of Wisconsites to consider splitting the head office into two—one a figurehead and the other the leader of the majority party in the lower legislative chamber. Wisconsin would still be a republic.

I refer to Wisconsin and Germany as states both in the sense of having a government and in being states in unions of states. That is, both republics were at the time semi-sovereign; the U.S. and E.U. taking up the rest of the governmental sovereignty, respectively. This basis of comparison is typically undercut. For instance, regarding Wulff, the “scandal first emerged in December with the news that [he], while serving as governor of the state of Lower Saxony, had taken a private loan from the wife of a wealthy friend worth about $650,000.”[2] However, there is no such office as “governor” within Germany. The Wisconsin office of governor applied to Germany would be to combine the figurehead and chief executive (or chancellor) offices (i.e., Wulff and Merkel) of the German government. Furthermore, Lower Saxony is a Land, not a Staat. Translated into English, Land means land, region or territory whereas Staat means state. You can see how similar English is to German here. Auf Deutsch, the German regions are called Länder, nicht Staaten! Also ist es nicht richtig zu Lower Saxony “state”heissen. [so it is not correct to call Lower Saxony a state]. Lower Saxony is about the size of a county in Montana, and Germany itself is the size of Montana. In addition to scale, both states (Germany and Montana) are semi-sovereign states in unions that in turn have some governmental sovereignty. It would be utterly misleading of a European to refer to Scott Walker as having been the governor of the state of Milwaukee in Wisconsin, but this is how Kulish describes Wulff as the executive of Lower Saxony in Germany. Das ist seltsam. (This is strange).

Germany is not in itself a United States of Europe. Nor for that matter is Britain or France, even though they are large states in the E.U. Neither for that matter is California or Texas a United States. These are all semi-sovereign republics that are member states of comparable scale (though not in population though clusters relative to the populations of the two unions) in unions also of comparable scale (and population) and with both political and economic aspects. Considering Kulish’s “report,” it is no wonder that the category mistake survives as the default. It would be more accurate of me to refer to Merkel, Sarkozy and Cameron as governors (i.e., executives of states in the E.U.) than for Kulish to refer to Wulff as having been the governor of a region of one of those states. Any American state could itself have a federal system. Considering the cultural differences within Wisconsin (e.g., Madison vs. Reinlander—itself a Land or resembling the Länder along the Rein?)—not to mention Illinois and California each being incredibly diverse internally—giving their respective Länder some autonomy might not be a bad idea. Calling the regional or county executives “governors” and the regions or counties themselves “states” would be utterly misleading, as both terms refer to polities that are members of empire-level unions and yet are comparable in scale and government to independent states in the world.

In the cases of Wisconsin and Germany, correcting for the category mistake, we can say that the political risk in the credibility of Walker and Wulff being undercut or weakened in late 2011 was mitigated by the fact that both republics are states in unions of such states. In other words, Wisconsinites did not have to count only on the government of Wisconsin and Germans did not have to count only on the government of Germany. Therefore, the recall and possible prosecution were not so risky to political stability that they should not be undertaken for that reason. It turns out that category mistakes really do get in the way in political analysis, and that correcting them allows for insights that would not otherwise be possible.

1. Monica Davey, “Organizers Say 1 Million Signed Petition to Recall Wisconsin Governor,” The New York Times, January 17, 2012.

2. Nicholas Kulish, “German Chief Could Lose his Immunity,” The New York Times, February 17, 2012. See also, Melissa Eddy, “Merkel Backs Rivals’ Choice for President of Germany,” The New York Times, February 20, 2012. 

 

E.U. Presses Italy to Tax Church Businesses

One of the chief benefits of federalism is the ability of one system of government to check another within the overall federal system. In the European Union, the state governments have so much power at the federal level—in the E.U. institutions—that it is difficult for the E.U. Government to check excesses and abuses in the state governments. E.U. law, regulation and directives rely on the state governments, albeit to varying extents. In the United States, the case is the reverse. The U.S. Government holds so many of the cards that the state governments cannot act to check abuses in the federal government. Actually, for all of the power that the U.S. Government has amassed, it does a horrible job in aiding citizens against abuses in their own state governments. Fortunately, we can look to Europe for a bright spot: the E.U. Commission and Italy, á grace de Mario Monti who is both governor of the state of Italy and a former commissioner in the E.U. Commission (the E.U.’s executive branch).

The full essay is at "Essays on the E.U. Political Economy," available at Amazon.

Sarkozy’s Electoral Campaign in the E.U.: Not for the U.S. Presidency

On February 15, 2012, France’s President Nicolas Sarkozy formally announced his intent to file as a candidate for the office in what would be his second term. The announcement took place just over two months from the election (April22nd). If no candidate wins an absolute majority, the two top candidates would be on the ballot in a runoff held on May 6, 2012.[1] The European sense of a decent length for a campaign “season” could be taken to heart by Americans.

For example, as Nicolas Sarkozy was undergoing two or three months of campaigning in France, Scott Walker had been campaigning for months already in Wisconsin, well in advance of a recall election that could still be six months away. I suspect that generally speaking, the campaigns in the U.S. states are much longer in duration than in the E.U. states. Perhaps Europeans are less tolerate of excess, or more willing to “just say no.”

Comparing a state-level campaign season with the election of an office at the empire-level (i.e., of a Union of such polities) is problematic. For one thing, at the E.U. and U.S. level, the states themselves would expect to have a say. Hence, primaries and caucuses to nominate a party candidate for the office of the President of the United States are by state. This involves several problems, such as what to do if a state voting later has a narrowed range of possible candidates from which to choose. Having every state nominate on the same date, with a run off a week or two latter, would be an improvement, but it would take away the distinctiveness of the states—something Europeans appreciate.

The American Electoral College, wherein electors vote for the President of the United States by state (literally in the capitols), is also not convertible into elections at the state level. It would make no sense to apply such a mechanism to a state itself (i.e., voting by state). My more general point is that it is hazardous to compare state and federal electoral politics and processes because the nature of a federal union does not apply to a particular state thereof. Yet this is typically ignored and I’m sure many people are trying to compare Sarkozy’s campaign with that of Obama.

This raises a much larger point: what to do with a societal category mistake that has become the legitimate default. The human proclivity of ignorance to presume that it cannot be wrong only complicates the matter of correction. Treating the U.S. as if it were a state in the E.U. with a large backyard conflates apples and oranges. Moreover, the error involves treating an empire as if it were on the kingdom level (i.e., a part of itself). It is like treating one person in his entirety as if he were equivalent to another person’s arm. The problems with such a comparison become clear once clothing is considered. What covers your arm is not going to cover my entire body, and going with it in January in Wisconsin or Wyoming would be dangerous. Similarly, it is dangerous to a polity to disregard what it is and treat it as if it were something else.

Therefore, although the U.S. Presidential campaign “season” (now two years!) is entirely too long and is in urgent need of reform, it would be a mistake to look at Sarkozy’s announcement, coming just two months before of his election, as a basis of comparison. Perhaps it is because empire-level federal unions of states have added elements (as well as scale) that complicate (and thus extend) the selection process of an empire-wide office such as the Presidency of the United States that the European Union has so far decided not to have an elected president. Given the nature of the level and scale of the E.U. and U.S., there is a lot to be said of the proposals in the U.S. Constitutional Convention wherein state legislatures or chief executives select the U.S. President. As it is, the U.S. House of Representatives, voting by state, elects that office where no candidate has an absolute majority of the electors in the Electoral College. Because the delegates in the convention thought it unlikely that any one person could be so well-known even in the empire of 13 republics, I suspect that they presumed that most presidents would be elected by the democratically-elected federal representatives, voting by state as the U.S. is a union of states (i.e., the states being members too).

No one would be happier than me were the American presidential election reformed to have a two or three month campaign season, but given the fundamental difference between the U.S. and E.U. on the one hand and their respective states on the other, we could expect problems because a category mistake would be involved. For instance, two months given the empire scale would mean that grass-roots campaigning would be virtually impossible; the television media would be the conduit, and perhaps with undue manipulation from the funded-pundits and media “personalities.” There is a reason why in traditional federal theory, officials of the states select the empire-wide office holders. The state officials themselves having been elected (after a two month campaign!), their involvement would not be at the expense of democracy. In fact, it would heighten public attention on the state-level elections, as is the case in the E.U. Put another way, were the E.U. to have an overall president (rather than one of a given institution, such as the European Council), I doubt it would be a simple election decided only by the E.U. citizens as a whole. That would be to conflate the E.U. with one of its states. See what I mean? If so, you will see the mistake being made over and over again as a matter of course, as a generally accepted default rather than a gross error. Welcome to my world.

1. Gabriele Parussini and David Gauthier-Villars, “Sarkozy Launches His Bid for New Term,” The Wall Street Journal, February 17, 2012. 

Democracy and State Governments at the E.U. Level

In mid-February 2012, Mario Monti of the E.U. state of Italy addressed the European Parliament. In his speech, he advocated increasing the legislative body's power. The Parliament's 754 representatives represent E.U. citizens just as the members of House of Representatives represent U.S. citizens. The representatives in both of the legislative chambers are democratically elected to represent the people in local or regional districts rather than states more generally. The chambers are “national” in that they bypass the state governments. The latter are represented in the European Council of Ministers and in the U.S. Senate, both of which are legislative in nature and thus can be stylized as the “upper chamber” in federal lawmaking.

The complete essay is at Essays on Two Federal Empires.

Gay Marriage in New Jersey

Just after New Jersey’s legislature passed a law legalizing gay marriage, Gov. Chris Christie followed through on his promise to reject the bill by quickly vetoing it and renewing his call for a ballot question to decide the issue. In returning the bill to the Legislature, Christie reaffirmed his view that voters should decide whether to change the definition of marriage in New Jersey. "I am adhering to what I've said since this bill was first introduced – an issue of this magnitude and importance, which requires a constitutional amendment, should be left to the people of New Jersey to decide," Christie said in a statement; "I continue to encourage the Legislature to trust the people of New Jersey and seek their input by allowing our citizens to vote on a question that represents a profoundly significant societal change. This is the only path to amend our State Constitution and the best way to resolve the issue of same-sex marriage in our state.”[1] Why stop at issues requiring a constitutional amendment? Although technical legislation requires representatives to wade through and discern specific ramifications pro and con, broad policy questions could also be subject to binding referendums. That is to say, representatives could be seen as doing only what the electorate cannot viably do.

Whether enacted by a legislature or by direct democracy, a law that takes basic rights away from a minority such as gays could be illegitimate even though passed democratically. Democrats in the New Jersey legislature argued “that same-sex marriage is a matter of civil rights, and that civil rights should not be subject to referendum.”[2] In other words, there are limits even to direct democracy, and the courts have a legitimate role in interpreting whether individual rights have been inordinately oppressed by the will of the majority.

In terms of legitimacy, passing gay marriage by referendum is the most legitimate, and without any need for the courts to step in to look at the matter of individual rights. Next legitimate would be such a law passed by a legislature. Again, the judiciary would not need to look at whether a minority is being tyrannized by a majority. Where a referendum or legislature passes a law or constitutional amendment forbidding gay marriage, as in 30 of the American republics at the time of Christie’s action, the democratic rights of a majority are pitted against the civil rights of a minority. Courts could look at existing constitutional articles to assess whether an amendment is constitutional. However, it is conceivable that such articles could be changed such that an amendment that refuses the right of a minority could not be touched by a court.

To take another example, all of the federal and state constitutional articles that prohibit slavery could be repealed and a new amendment making the practice legal would make it constitutional. No court could touch it because courts are limited to interpreting constitutions. In the case of gay marriage, the current equal protection language could be used to declare a federal amendment barring gay marriage unconstitutional. What if the due process language were changed by amendment and an anti-marriage amendment added? The U.S. Supreme Court could be forced to defend the new amendment if nothing else in the U.S. constitution could render the addition unconstitutional. Where the amendment is to a state constitution, planks from the federal constitution could be used, as was the case in California on Proposition 8 a week or two before the New Jersey legislature passed gay marriage.

From this, we can take away the following points:

1. On matters of broad policy, in which ideological judgment is more salient than technical knowledge, direct democracy is more legitimate than representative democracy. Such policy need not be limited to matters requiring constitutional amendment. Invading Iraq and extending the federal debt ceiling are two cases in point.

2. The majority acting to protect minority rights by legislative means or a referendum is the best case scenario in a republic because no constitutional interpretation by judges is necessary. 

3. Where legislation or a referendum bars a minority from exercising a right, the legitimacy of majority rule is pitted against that of individual rights. Accordingly, the judiciary has a legitimate interpretive role as such matters must be judged.

1. Angela Santi, “New Jersey Gay Marriage Bill Vetoed By Chris Christie,” The Huffington Post, February 17, 2012. 
2. Kate Zernike, “Gay Marriage, Passed, Awaits Veto by Christie,” The New York Times, February 17, 2012.

Russian Private Property: Based on Fairness or Legality?

n a move to shore up popular support before the presidential election in 2012, Vladimir Putin called for a windfall levy on the dishonest privatisations of the 1990s. “We need to close the problems of the 1990s, of what, speaking honestly, was dishonest privatisation,” he told tycoons meeting at a congress of Russia’s big business lobby. He went on to say, “We need to establish the social legitimacy of private property itself and social confidence in business.”[1] The implication is that just acquisition is requisite to private property being recognized as legitimate, societally.

Directly contradicting Putin’s assumption, Mikhail Prokhorov, the Russian billionaire who was running at the time against Putin for the presidency, said, “To review the [privatisation] results now would destroy the legitimacy of all property rights in the country. The problem is fundamental—everything that was done then was legal even if it wasn’t just.”[2] In other words, the acquisition need not be just for the property to be legitimate. In fact, it is the taking of private property that was acquired legally that undercuts the legitimacy of private property. If this is because such a taking is unfair, then why wouldn’t the unfairness in the privatisations in the 1990's also negate the legitimacy of the private property?

1. Catherine Belton, “Putin Calls ForWindfall Levy on “Dishonest” Privatisations,” Financial Times, February 10, 2012. 
2. Ibid.

Distinguishing Entitlements from the Safety Net

In 2012, Congress lost sight of the fundamental purpose of a safety net, extending it beyond the difference between life and death. By zeroing in on the purpose of a safety net, Congress can both save money and better provide for the survival of those who are not providing it for themselves. Of such people, where survival itself is at stake, questions of being deserving pale in comparison to society’s obligation to fend off starvation, sickness and homelessness. Ironically, by extending the safety net beyond survival, Congress has undercut its role in providing for its citizens’ survival.

The “government safety net was created to keep Americans from abject poverty, but the poorest households no longer receive a majority of government benefits. A secondary mission has gradually become primary: maintaining the middle class from childhood through retirement. The share of benefits flowing to the least affluent households, the bottom fifth, . . . declined from 54 percent in 1979 to 36 percent in 2007,” according to a Congressional Budget Office analysis published in 2011.[1] Making the secondary mission primary undercuts the primary mission by putting it at risk.

Objections to the secondary mission as unnecessary can spill over as criticism of the primary mission as if it too were not necessary. “Many people say they are angry because the government is wasting money and giving money to people who do not deserve it. But more than that, they say they want to reduce the role of government in their own lives. They are frustrated that they need help, feel guilty for taking it and resent the government for providing it.”[2] A wealthy retired person drawing social security insurance ought to feel guilty; the insurance program is not a savings account. Criticism of this category mistake can impact politically the funding of social security for those who need it. For example, even as wealthy retirees draw on social security, the social security disability program is work-based, meaning that a minimum number of quarters of work are necessary even for one to apply for benefits. Making a safety net dependent on a work history cuts off the long-term ill from the safety net. Moreover, the requirement implies that a person who has a disability does not deserve to survive independently of work. For a safety-net program to be dependent on anything means that the program is not part of the safety net, as safety nets are by definition not conditional. Yet where a society so values work as a source of a person’s value (e.g., “I am a plummer”), a program can easily be assumed to be part of the safety net without actually being part of it.

Related to the political cost of criticism of superfluous programs (i.e., beyond survival) is the refusal to fund true safety-net programs sufficiently. Congress has “expanded the safety net without a commensurate increase in revenues, a primary reason for the government’s annual deficits and mushrooming debt. In 2000, federal and state governments spent about 37 cents on the safety net from every dollar they collected in revenue, according to a New York Times analysis. A decade later, after one Medicare expansion, two recessions and three rounds of tax cuts, spending on the safety net consumed nearly 66 cents of every dollar of revenue.” One “benefit” of tax cuts is that they “starve” entitlements, which are all grouped together and presumed to be unnecessary rather than serving a true safety-net function.

The result of the prejudice and related starvation is that over the next 25 years from 2012, “as the population ages and medical costs climb, the budget office projects that benefits programs will grow faster than any other part of government, driving the federal debt to dangerous heights.”[3] In other words, safety-net programs are fair game on the chopping block without respect to whether people die without them or are merely inconvenienced. The failure to distinguish between these two is dangerous to the abject poor. Were the distinction made, corporate welfare and even middle-class welfare could be cut by more, I submit, than the additional funds needed to provide the least well-off with sustenance. In other words, we as a society can have a solid survival-oriented (and limited) safety net that is not conditional while actually saving money as benefits are narrowed to people who really need them.

The key is focus in place of upward drift. As just one example, money saved from a means test for social security retirement insurance could be spent in expanding social security disability such that its benefits are not conditional on the long-term ill somehow having worked thirty or forty quarters in the last ten years. How exactly is a retarded adult supposed to find and hold a job for that many quarters?  Making the benefits unconditional with respect to work history is crucial, as the social security supplemental income program is insufficient to meet sustenance needs. It is unconscionable to expect the long-term disabled to have worked in order to receive enough to live on while the middle class receives entitlements classified as “safety net.” The key to making survival a human right is recognizing the need both to expand programs at that level and severely restrict programs aimed at higher levels. Whereas middle- and high-income beneficiaries of government largess can justifiably be blamed, it is sheer cruelty to blame those who are not able to meet even their own basic needs from work for receiving subsidies.

In my rather ignorant, presumptous hometown, an unemployment rate of around 20% went with the recession of 1980 as the machine tool industry went to Europe. The city had the highest unemployment rate in the state in the post-September 2008 recession, and yet the first vote the re-elected U.S. House representative made in 2010 was to cut off unemployment compensation. His claim was that people should get off the dole and work for a living. It was apparently beside the point that there were no jobs; the unemployed were supposed to have them anyway. This is like telling people that the empty space on a table is to be imagined as spaghetti and then getting mad at them for not eating it—as if they should be expected to eat air. Such warped, illogical thinking as the Congressman evinced in 2010 in the rustbelt of America can be linked to reducing a true safety net to a society of entitlements. To hold the poorest of the poor to such warped thinking is utterly cruel as well as ignorant. I hope American society has not come to such a selfish and short-sighted end. The society is only as good as we treat the least among us, for such treatment reveals our true colors.

1. Binyamin Appelbaum and Robert Gebeloff, “Even Critics of Safety Net Increasingly Depend on It,” The New York Times, February 12, 2012. 
2. Ibid.
3. Ibid.

Obama’s Educational Waivers: Toward the Political Consolidation of an Empire

A decade after the No Child Left Behind federal law was enacted, “President Obama freed 10 states from some of its crucial provisions.”[1] The states’ freedom from a deadline for bringing all students to proficiency in reading and math by 2014 came with strings—accepting Obama’s own educational agenda, which focuses on accountability and teacher effectiveness and includes higher standards than the ones set in NCLB. Many state education officials have criticized the 2014 deadline as “an impossibly high bar” that “did not take into account the needs of some of the most disadvantaged children.”[2] In announcing the waivers from the deadline, Obama said that the goals of NCLB should be met “in a way that doesn’t force teachers to teach to the test, or encourage schools to lower their standards to avoid being labeled as failures.”[3] However, if the standards are to be even higher, might even fewer schools wind up passing—even if the deadline is extended?

In assuming that the setting education policy is one of the enumerated powers of the Federal Government, Obama was applying a “one size fits all” approach over what is essentially an empire of differing republics. Furthermore, having so much power over the states on education policy, the Obama administration was compromising the check and balance feature of federalism wherein the states are to act as a check on federal encroachment just as the federal government is to act as a check on states violating the rights of, or not providing for, their respective citizens. In other words, the significance of NCLB and the Obama administration’s own attempt to standardize education policy in the states through the spending clause of the U.S. Constitution (which alone is a stretch) goes well beyond education policy. The viability of the system of government in the United States can be seen to be severely compromised just in the president’s attitude toward the states—as if they were children and he was daddy.

Ken Wheare argues in his text, Federal Government, that state governments need be autonomous of federal authority in only one area for modern federalism to work. Wheare also extolls the mutual check and balance feature of federalism (as distinguished from a confederal alliance). The point I would like to make is that if the states of a federal system are “free” only in one domain, they do not have a sufficient basis of power on which to act  as a viable check against the encroachment of federal power over that of the states.

Where the federation is on the empire scale, such as the E.U., Russia, and the U.S., the consolidation that comes with federal encroachment means that inherent differences across the lands within the federation are stifled or ignored. Built-up pressure is not good for ongoing political stability. Policy itself tends to be of compromise that no one would independently want, rather than tailored to the particular political societies within the federation. As of at least the beginning of 2012, Europe has seemed more aware of the need of particular states to legislate for their respective polities  than has America.

As Justice Sandra Day O’Conner once said, “Congress is acting like a state legislature.”[3] Such a significant category mistake cannot be good for the viable of a republic of republics—what Montesquieu referred to as wheels within a wheel. If all of the wheels within the wheel of the whole cannot operate at least partially independently, then any problem in the mechanism can quickly bring the entire mechanism to a quick stop. Like genetic diversity with respect to health, semi-sovereign diversity is necessary for political stability where the federation is on the empire-scale (i.e., inherently heterogeneous). We focus only on the substance of education policy at the expense of the impact of  the “how” on our system of public governance at our own peril. As long as it has interlarded itself into the classroom, perhaps the Federal Government should mandate that federalism be taught in Civics. It is more than a little disconcerting that the White House staff and their boss might need to attend such a class before being able to grasp the importance of the topic.

1. Winnie Hu, “10 States Are Given Waivers from Education Law,” The New York Times, February 10, 2012. 
2. Ibid.
3. Personal Correspondance. 

Conflicts of Interest and Paradigm-Shifts: The Case of Financial Regulation

It is perhaps all too easy to perceive a sea-change in perception when the reality of societal change is much more gradual. There is something to the argument that John D. Rockefeller’s reputation was salvaged in the 1930s not because the old man was passing out dimes, but, rather, simply because he had outlived his critics. Similarly, Thomas Kuhn, in his text on paradigm changes in scientific revolutions, bemoans that the advocates of a default theory must finally die off before their darling can finally be replaced by a new one. In other words, any given person is not apt to shift paradigms. The culprit, I suspect, is pride, which Augustine suggests in his writings is inherently self-idolatrous. I believe the human brain is capable of accepting inter-paradigmatic change, just as a person can be humble. That this is not the norm does not mean that we ought not raise our expectations to it.

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

Windfall Oil Profits

Conoco Phillips reported a 66% increase in earnings for the fourth quarter of 2011, “attributed to high crude prices and asset sales.”[1] With the prices of most crudes above $100 a barrel, the company gained a windfall that vastly made up for a drop of nearly 3% in its refining and marketing business. Chevron, on the other hand, reported a 3.2% decline in fourth-quarter earnings due to “poor refining results” that “overwhelmed higher revenue from oil sales.”[2]

Meanwhile, Exxon Mobil reported net income of $9.4 billion for the fourth quarter, up from $9.25 billion the year before. The company’s revenue of $121.6 billion was up 16 percent. The improved earnings reflected the $100 plus prices for many benchmark crudes, which resulted from “continuing unrest in the Middle East and North Africa and strong demand from China and other developing countries.”[3] To be sure, the company’s purchase of XTO Energy for $25 billion in 2010 meant that the plummet in natural gas prices also had a significant impact on the company. Even so, a company making nearly $38 billion on an annual basis raises questions on the sheer size alone, and whether any market can be competitive with such a giant.

Furthermore, the legitimacy of the windfall profits coming from political instability rather than any merit on the company’s part should also be questioned, as well as why Congress balked on a windfall profits tax for the industry in 2011. In other words, the market power is not the only kind of power we should be concerned about in looking at Exxon Mobil. Such a concern could extend to why George W. Bush decided to invade Iraq, given that that that country’s ruler had kicked American oil companies out in 1993 after the U.S. intervened to move the Iraqi army out of Kuwait. We could even ask whether the oil companies, or their agents in government, have had anything to do with the inciting some of the political stability behind the astronomical crude prices.

To be sure, Chevron shows us that even a big oil company can manage not to benefit from a $100-plus crude-price windfall. Moreover, oil executives could argue that windfalls are “necessary” as “cushions” against the prospect of a glut in natural gas, for example, or the need to do major work on aging refineries. Even with the inevitable vicissitudes that come with dealing with raw material markets, however, that the prices of crudes have gone so much higher than the costs of getting oil out of the ground suggests that the market mechanism has not been functioning as Adam Smith would have predicted—meaning an oligopoly has replaced a competitive marketplace.

John D. Rockefeller, whose effort to coordinate the refining industry in the U.S. via a huge monopoly called Standard Oil (of which Exxon Mobil is a descendant), could point to all the bankruptcies amid the “excessive competition” in the 1860s as justifying even a monopoly in place of any competition at all. He used means that would be considered very unethical today to get competitors to “agree” to be bought out by the combination so there would be no “destructive competition.” Even if it was necessary in the early years of the oil industry, we ought not assume that huge oil companies are necessarily the legacy we must pass on to the next generation.

1. Clifford Krauss, “Higher Oil PricesRaise Earnings at Exxon Mobil,” The New York Times, February 1, 2012. 
2. Ibid.
3. Ibid.

Direct and Representative Democracy: Colorado on the Hot Seat

In ancient Athens as well as Renaissance Florence, direct and representative democracy co-existed. The representatives elected or chosen by lot were viewed (and viewed themselves!) as standing in for the people assembled. From a practical standpoint, it is difficult even to legislate by town hall meeting or by a series of referendums on election day. Accordingly, power in democracies has been delegated to representatives and even appointees. In February 2012, this principle, and direct democracy itself, were set to be challenged in a federal lawsuit against Colorado. In my view, the principle is valid whereas the suit is not. Direct democracy outranks representative democracy—the latter having been created not to save a people from themselves but out of sheer practicality.

Colorado's Capitol (seat of government)       Matthew Staver/NYT

The object of the lawsuit is Colorado’s 20-year-old taxpayer-controlled budgeting process known as Tabor, which requires that tax increases (and presumably spending increases) be passed by referendum rather than legislative vote. The 33 plaintiffs argue that Colorado’s Taxpayer Bill of Rights “blocks the ability and jurisdiction of the . . . Legislature to properly do its job.”[1] The rationale is that subjecting tax increases and budget figures to popular referendum usurps Colorado’s legislature’s prerogative. In the early U.S., James Madison had “pushed strongly for a barrier between the passions of the popular will and sober governance . . . through a legislative branch.”[2] Representative governance, in other words, has the benefit of acting as a check on popular passions in the best interest of the people. This objection could be obviated by requiring a revote in a year or two to make the referendum’s results final.

I submit, however, that Madison’s concern is trumped by a more basic relationship that undergirds the relationship between direct and representative democracy: that between the popular sovereign and government. Arguing on the basis of a benefit such as checking passions, for example, is not to furnish a rationale for prerogative. In other words, that the popular sovereign may not always be wise or prudent does not mean that its agents therefore trump their principals—the people. Even if an agent has expertise that his or her principal does not have, this does not, as in the business judgment rule, necessarily mean that the agent becomes the principal (and the principal, the agent). In the case of corporations, maximizing profit is merely the default—something the owners should be able to deviate from and their hired hands (e.g., executives) would be obliged to devise strategy in line with the new mission.

If, as the plaintiffs claim, Colorado’s legislature is “unable to raise and appropriate funds” and thus “cannot meet its primary constitutional obligations” under the “guarantee” clause of the U.S. constitution, it is because the principal has taken that constitutional role back, through fully constitutional means, which the popular sovereign, as the principal, has the right to do. Remember, the people as a group have delegated authority to representatives.

In other words, popular and governmental sovereignty are not incompatible. Constitutions are ratified not by the member governments, but, rather, by the people, precisely because the authority of the people goes beyond that of their agents. The popular sovereign does not have to continue even with its constitutions. Indeed, that sovereign could change any American constitution in any way that sovereign desires, as per the Constitutional Convention of 1787. We could even hold a convention proposing a totally new constitution and with its ratification the current one would instantly be dust. Remember that the Constitutional Convention of 1787 tossed out the guidelines set by the Continental Congress limiting the convention to amending the Articles of Confederation. The convention started over and invented modern federalism in the process. I raise this point only to show that a popular sovereign trumps its government—really by definition. Yet it seems that the legislators in Colorado have their arrows crossed concerning this relationship—most likely a case of good old-fashioned arrogance.

Rather than the Colorado legislature being hamstrung, it is the obligation of the dutiful agents to furnish their master, the popular sovereign, with options that do not privilege the agents themselves or their body over the principal. General tax policy and overall budget numbers decided by the popular sovereign are more legitimate than had they been decided by legislative means even if the people are stupid and willful. This difference in legitimacy exists because the popular sovereign is politically superior to its agents. It is not really a question even of getting the best policy—“best” at this level involves judgment rather than the expertise of a legislator, professional or scholar, anyway.

Instead of being usurped by agents who take themselves as principals and thus somehow illegitimate in a democracy, direct citizen lawmaking is an ideal toward which we should strive to the extent that it is practicable. The agents have too often succeeded in limiting the actual sovereign to speaking once every two or four years, and then only on the vague decisions of filling offices, leaving policy decision to themselves. All too often, this means nothing gets decided, which I submit reflects the tenuous authority of the agents to be definitive for the people. One reason why the Congressional vote on health-care did not settle the matter is because the people themselves did not have a direct say on such an important, life or death, matter. Similarly, the ongoing controversy on abortion partially reflects the “limbo” status from how it was decided (i.e., not by us, as in direct democracy).

Policies like declaring war (in a non-emergency), abortion, whether to extend a tax cut, overall deficit spending, overall drug policy (e.g., legalization), and especially constitutional amendments bearing on government should be up to the people, with the judiciary stepping in when needed to protect individual rights against either legislative or popular encroachment via majority rule. Should abortion be decided by the states? Should the Bush tax cuts be extended for all or excluding the rich? Should the U.S. get out of Afghanistan?  (Should the U.S. have invaded Iraq?)  Should pot be legalized?  Should financial regulation be strengthened or is deregulation the general principle we want to follow? Considering health-insurance, should it be by a public single-payer, a public option with private options, or exclusively by existing private insurers? Should everyone be covered or just those who can pay? The questions would have to be very basic and oriented to basic judgment calls, rather than requiring expertise; our legislators could see that it is incorporated under the rubric of the general principles decided by us.

Along this line, constitutional questions bearing on our system of government are particularly legitimate for direct decision—such as on the role of the states and whether we should have more of a federal or consolidated system. Should corporations be considered as persons, politically? Should money be deemed as “speech” politically? A degree in law is not required to make a judgment on such basic governmental questions. Even the Greek slave Meno knew geometry without being taught, according to Socrates. In fact, experts, like legislators, are properly agents of the popular sovereign, rather than being an alternative wiped out by direct democracy but somehow integral to the legislative process. Federal constitutional amendments in the U.S. could be ratified by referendums (as is already the case in some of the E.U. states in ratifying amendments to E.U. basic law). Amendments could even be sourced in referendums. As it stands, the American people have no direct say on changes to the U.S. Constitution—either in proposing or ratifying amendments. Nor do we have the opportunity to have a say on the existing planks—something Jefferson thought every generation has as a right. Would it be so traumatic were sections of the U.S. constitution forced to compete with a few alternatives, taking say one Article every four years? This is just one of many ways the American people could decide on what binds us.

Admittedly, such changes expanding direct democracy would indeed alter the nature of legislative business; it would more closely resemble what one would expect to find from agents (e.g., technical working out of broad policies already decided and working on submissions for further “instructions”). As a people, we have allowed ourselves to be hoodwinked into viewing our agents as our principals, and this is reflected in the power they have with respect to a near-monopoly on decisions. It is no wonder that the Colorado legislators feel threatened by something that is decided by others. Those legislators suffer from a rather basic category mistake: conflating themselves with their principals. Out of this error has come the representatives’ assumed false entitlement to the near-monopoly that they have enjoyed while the rest of us have been asleep. I can’t even add “at the wheel,” for we have ceded that to our driver without even supposing that we have the right—as the owner of the car—to tell him where to go. We are Ms. Daisy sleeping off a hang-over in the back seat while Morgan Freeman decides where we’ll go. We even expect him to decide, as if it were his job. We are indeed quite asleep. Perhaps we don’t deserve direct democracy?

1. Kirk Johnson, “Colorado Lawsuit Challenges Wisdom of the Ballot Box,” The New York Times, January 31, 2012. 
2. Ibid.