The New York Fed: A Case of Regulatory Capture

According to The Wall Street Journal, a study sponsored by the Federal Reserve Bank of New York in 2009 uncovered “a culture of suppression that discouraged regulatory staffers from voicing worries about the banks they supervised.”[1] Whereas the report points to excessive risk aversion and group-think as the underlying problems, a fuller explanation is possible—one with clear implications for public policy.

The full essay is at A Case of Regulatory Capture.

The Last Emperor: A Curious Case of Limited Absolute Power

People either obey a powerful government official or rebel. A rebellion does not typically include continued loyalty to the sovereign. The French Revolution demonstrates this point. Yet in China in the 1910s as the Qing dynasty lost power, the authority of the emperor became more complex—or maybe it had been so throughout the dynasty.

The full essay is at “The Last Emperor” 

CEO/worker Pay: Perceptual Shortcomings

According to one study of people around the world, people of different cultures, incomes, religions, and other differences show “a universal desire for smaller gaps in pay between the rich and poor” than was the actual case at the time of the survey in 2014.[1] Interestingly, the respondents didn’t have a clue how much of a gap actually existed in their respective economies. The difficulty in estimation means that the public discourse on economic inequality has been rife with erroneous assumptions. Where the error lies in the direction of minimizing the gap, we can postulate that public policy allows for greater economic inequality than would otherwise be the case.

The United States, for example, surged past Peter Drucker’s wall of 20 to 1 (CEO compensation to average worker pay), hitting 40 to 1 in 1994 and then 400 to 1 in 2005. Why would America’s silent majority put up with such economic inequality? The short answer might lie with the power of corporations in using media corporations to lull television viewers into supposing that the difference in compensation is not very significant—significance involving not only perception, but judgment as well. That is to say, whether the gap is perceived to be significant is a value judgment that can be subtly manipulated.

In spite of an actual gap of 350 to 1 (CEO compensation to unskilled worker pay) in 2014, the Americans surveyed estimated the ratio to be 30 to 1.[2] Such a perceptual judgment could have been influenced by the lack of attention on the topic in the media. The ideologicalization of American broadcast journalism—the blurring of the lines between reporting and advocating—points to just how much estimates of significance can be subject to external influence.

Considering the relatively wide actual gap being allowed to exist in the American States as of 2014, what would the public policy have looked like had the perceptions of the American public been adjusted up to 350 to 1? Would the decentralized individual voters forming majoritarian blocks demanding limits put enough pressure on their elected representatives to mitigate the power of wealth in the halls of legislatures as elections loom?  

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[1] Gretchen Gavett, “CEOs Get Paid Too Much, According to Pretty Much Everyone in the World,” The Huffington Post, September 24, 2014.

[2] Ibid.

The Scottish Referendum: A Political Analysis

Any political analysis of the Scottish referendum on secession from Britain should include not only the Scottish National Party (SNP) and Westminster, but also other large E.U. states and even the E.U. powers at the federal level. Such an analysis may leave the cynic wondering whether the question could even conceivably be decided by the Scots themselves—so much being on the line for state and federal officials and their respective institutions.

I

How much say do the voters really have? Are they actually pawns being moved without their knowledge? Perhaps large vested interests are the real deciders. David Cheskin (AP)

that keeping the British pound would be incompatible with “sovereignty.”[7] I would not be surprised to learn that Westminster was behind this timely warning to the Scots.  

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

Beyond Breaking California Up into Six States: A Federalist Alternative

In any epoch and in any culture, the human mind displays a marked tendency to accept the status quo as the default—being so ensconced in fact that efforts at real change almost inevitably face formidable road-blocks. In this essay, I analyze the 2014 failed ballot-petition that would have put the proposal of breaking California into six separate states to Californians. I contend that the proponents could alternatively have taken up a more optimal alternative—one much easier to put into effect. Interestingly, that idea comes from the E.U. rather than the U.S.

The full essay is at Essays on Two Federal Empires.

Ebola in Liberia: The Government’s Fault?

With the Ebola virus “spreading like wildfire” in Liberia, “devouring everything in its path,” Brownie Samukai, the state’s defense minister, went on to tell the U.N. Security Council on September 9, 2014 that “Liberia is facing a serious threat to its national existence.”[1] With more than half of the epidemic’s deaths in that state—1,224 out of at least 2,2296 in West Africa as of September 6, 2014—and new cases “increasing exponentially,” the World Health Organization (WHO) declared that “the demands of the Ebola outbreak have completely outstripped the government’s and partners’ capacity  to respond.”[2] Meanwhile, the International Monetary Fund (IMF) reported that the illness had severely handicapped the mining, agriculture, and service sectors of the state’s economy.[3] Quite understandably, pleas for the government to do more peeled like frightened bells across the state. “The patients are hungry, they are starving. No food, no water,” a terrified woman told journalists. “The government needs to do more. Let Ellen Johnson Sirleaf do more!”[4] Even if valid, such blame is hypocritical to the extent that the people themselves had been refusing to do what is necessary to stop such a virus from spreading.

Concerning the validity of woman’s charge that the government was not doing nearly enough, Samukai pointed out that the “already weak health infrastructure” was overwhelmed.[5] That is to say, the government had to deal with an already-insufficient healthcare system. Why insufficient? Two theories of development give different answers. According to dependencia, or dependency theory, the infrastructure of a colony is oriented to getting commodities out to the colonizer rather than to developing an internal, web-like system. Roads of a coastal colony, for example, are prioritized that go from the interior to the coast, where ships can pick up the goods and transport them to the core economy (e.g., Europe). The colonists and even their successors cannot be blamed for the lack of internally-oriented infrastructure, yet at some point after a sufficient amount of time as a sovereign state the lack of any progress is surely blameworthy.

The modernization theory says that what holds a developing country back is not its colonial infrastructure, but, rather, things like tradition and ignorance that a people stubbornly cling to even when offered a better way. Superstition, for example, may keep people from working on certain days while tradition has it that a person should stop working as soon as he or she has enough for subsistence living. This inverse of the Protestant work ethic can keep capital from accumulating to the point that reinvestment can broaden an agrarian economy to include manufacturing industries. Rigidly sticking with the custom that puts child labor above education, a people can keep its young from becoming professionals, business entrepreneurs, and managers. Quite understandably, executives of foreign corporations are hesitant to start operations where such a base labor pool exists and reinforces itself.

Taken together dependencia and modernization theory can account for the weak health infrastructure in Liberia and other former colonies in Africa. Health-care of the natives had not been a priority of the colonizers. Additionally, education and investment, as well as even foreign direct investment, may be lacking even though they would contribute much to building a sound healthcare system.

Applied to the Ebola outbreak, we can look beyond the government and healthcare infrastructure to apply modernization theory to the people themselves. The funeral custom, for example, of touching the body the deceased friend or relative is great for the virus, which spreads by touch rather than air. Even so, the African who have this tradition stubbornly and/or ignorantly held to it even as the epidemic was spreading. Additionally, villagers took to hiding sick residents rather than allowing visiting healthcare workers to take the infected people to makeshift treating facilities out of fear that people go to die at such places; meanwhile, the villagers themselves could become infected. In some cases, villagers even attacked the visitors, stubbornly ignoring their pleas.

Scared villagers in Liberia stand far away from the healthcare worker, even as they risk getting the virus by rubbing up against each other--ignoring the worker's pleas. (Image Source: The Washington Post)

Simply maintaining a distance from other people, rather than continuing to touch them, would have done a lot to smite the Ebola. Especially sordid is the assumption that the healthcare workers and government officials don’t know what they are talking about, especially if the person also assumes that he or she cannot be wrong—such as in knowing that touching a dead body brings with it benefits that can keep the person healthy or safe. Ignorance that cannot be wrong, backed up by tradition, can indeed be a silent killer, the odor of which can only be pleasing to the Ebola virus. Blaming the government rings hollow from such a putrid drum, even if officials could be doing a better job in mopping up the mess.

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[1] Abby Ohlheiser, “Ebola Is ‘Devouring Everything in Its Path.’ Could It Lead to Liberia’s Collapse?” The Washington Post, September 11, 2014.

[2] WTO, “Ebola Situation in Liberia: Non-Conventional Interventions Needed,” September 8, 2014; Elahe Izadi, “Ebola Death Toll Rises to 2,296 as Liberia Struggles to Keep Up,” The Washington Post, September 9, 2014.

[3] Anna Yukhananov, “IMF Says Ebola Hits Economic Growth in West Africa,” Reuters, September 11, 2014.

[4] Abby Ohlheiser, “Ebola.”

[5] Ibid.

Letter to the Scots: Read between the Lines

The answer may be staring you in the face. Such might be the best feedback the rest of the world could give the Scots as they discern whether their region should break off from the state of Britain. How do the English feel about the Scots? The answer is presumably relevant, as who wants to remain where they are not liked? On this matter, the Scots could do worse than read between the lines of a poll done roughly a month before the referendum on what the English think should be Scotland’s relation to Britain if the region leaves and if it stays.[1]

"It is striking how tough people in England are on Scotland whatever the referendum outcome," Jeffery said. The message appears to be, 'Vote yes, by all means, but if you do, you're on your own.'" In the poll, two in three respondents in England said they would not want Scotland to use the British pound even though the Queen would continue as the head of state (i.e., Scotland would be in the British Commonwealth of nations--a partial residual of the British Empire). Only 1 in 4 were in favor of Britain helping an independent Scotland negotiate its accession as a state alongside Britain in the European Union and membership in NATO.[2]

If the residents in the Scottish region vote against breaking off from the state, English voters would overwhelmingly be in favor of giving the region more autonomy from the state government. Lest this seem too good to be true, those voters "also want to cut funding to Scotland and prevent Scottish members of the British Parliament from voting on issues concerning only England." The message here, according to Jeffery, one of the study's authors, is: "By all means have more devolution, but you can't then have a role at Westminster you do now, and don't expect any funding to flow northwards from England."[3]

Either way, the not so subtle message for the Scots is that they are hardly welcome. Such tension between two groups that both self-identify as a people in one state is doubtlessly counter-protective from the perspective of the state itself; two separate states in the E.U. would be more optimal, for the E.U. federal system permits both homogeneous political subunits, or states, and a diverse empire-scale polity—hence the advantages of both. A state of two contending peoples, proverbially at each other’s throats, is thus far from optimal for the federal system, not to mention the state itself. Put another way, arguing that the UK is just such a political arrangement that works best with such a basic contentious difference in terms of group-identification treats the E.U. state as if it were like the E.U. (or U.S.) itself, rather than a state thereof. A state in the E.U. cannot logically be equivalent to the E.U., or then a subunit would be commensurate to that to which it is a subunit. 

For the Scots, the simple message is that it is not good to remain in close quarters with a people who want the worst rather than the best for you. Reading between the lines, the English want you out. I submit that this factor ought not be a trivial one as the Scots deliberate on whether their region should break off from the E.U. state to become a new, relatively homogeneous one, and thus more conducive to both Britain and Scotland as states, and to the E.U. as well.

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1. YouGov conducted the survey of 3,695 adults living in England via the internet on April 11-12, 2014

2. Katrin Bennhold, "How Scottish Independence Relates to Larger Tax Fights," The New York Times, August 21, 2014.

3. Ibid.

Natural Rights in Europe and America: Shoring-Up Each Other’s Weak Spots

The Declaration of Independence made by the thirteen newly sovereign American states in 1776 recognizes “that all men are created equal, that they are endowed by their Creator with certain inalienable rights, that among these are Life, Liberty and the pursuit of Happiness.” These rights are not dependent on any government, and thus exist equally so in the state of nature. The Declaration of the Rights of Man and the Citizen, made in Europe thirteen years later, omits any mention of a creator-deity. “Men are born and remain free and equal in rights.” The equality here is more limited, being solely in terms of rights, “man’s natural and imprescriptible rights” in particular. These “are liberty, property, security, and resistance to oppression.” We can thus compare and contrast the two sets of rights, which important implications for public policy for both America and Europe.

The entire essay is at "Natural Rights in Europe and America."

The Scots Weigh Independence from Britain as the British Consider Leaving the E.U.

The debate over whether the Scottish region of Great Britain should secede from the UK extends beyond whatever provincial interests unite and divide the state’s regions; it "is also part of a larger question that extends well beyond Britain, to Texas and Colorado, for example, and elsewhere: What are the benefits and drawbacks of larger, politically diverse countries, compared with smaller, more homogeneous ones?"[1] Yet is Britain a large, heterogeneous country even as it is a state in the European Union? Texas is much larger, and yet  it too is a state in a union of relatively homogeneous states. 

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