TARP Paid Off: But What about the Foreclosures?

TARP, the "bailout" for banks rather than mortgage borrowers, was the first big issue facing the Obama administration before the roughly $800 billion stimulus plan and the health insurance overhaul that stoked the rise of the Tea Party movement. After supporting TARP, several Republicans lost in the elections of 2010 largely because of their votes. For many Americans, TARP is a symbol of big government at its worst, intervening in private markets with taxpayers’ billions to save Wall Street plutocrats while average Americans continued to struggle to make mortgage payments or lost their houses outright.  “This is the best federal program of any real size to be despised by the public like this,” said Douglas J. Elliott, a former investment banker now associated with the Brookings Institution. “It was probably the only effective method available to us to keep from having a financial meltdown much worse than we actually had. Had that happened, unemployment would be substantially higher than it is now, the deficit would have gone up even more than it has,” Mr. Elliott added. “But it really cuts against the grain for a public that is so angry at banks to think that something that so plainly helped the banks could also be good for the public.” TARP was good for the public not in that the funds enabled Wall Street bonuses; rather, the good was solely on the macro level, as the frozen credit markets eventually thawed such that the financial system meltdown was averted.  However, this does not mean that it was "the only effective method available."

Specifically, the TARP funds could have been used to subsidize mortgage borrowers demonstrating difficulty in making the payments. On a CBS news show May 15, 2011, Speaker Boehner was asked about the four foreclosure programs of the U.S. Government. "They have all failed," he told the journalist. However, the Speaker then refused to have the government get involved; the best we can do is wait for the market to solve the problem as more buyers enter. However, that would only spur foreclosures, as more buyers would make it easier for banks to sell their foreclosed houses. It is interesting that hundreds of billions of taxpayer dollars could go the big banks, enabling record executive bonuses, whereas all we can do is rely on the market to mitigate the foreclosures. This squalid double-standard can be explained by simply looking at the bankers' interest, which is at odds with that of the mortgage borrowers. Considering the problematic way in which the sub-prime mortgages had been produced (e.g., liars' loans and no-document mortgages), I contend that the interests of the banks' customers ought to be given primacy here. The problem is that the borrowers are dispersed, whereas the bankers have concentrated leverage via their capital and lobby over government officials who would like to be re-elected. In a republic, the leverage ought to go in the opposite direction: elected representatives coming down on the bankers for their shaddy lending and related double commissions at the expense of the borrowers.

Laying the power reality aside, an alternative to TARP can be envisioned. This exercise, although inexorably futile, can tell us something about the opportunity costs involved in enabling the powers that be rather than holding them accountable. Along with a federal law limited the rate resets on the ARM sub-prime mortgages (resisting the pressure of the banking industry that recklessly had originated or bought the mortgages), subsidies could not only have removed a major toxic element from banks' balance sheets and thus opened up lending, but also perhaps fortified the housing markets in the U.S. such that homeowners duped into houses over their heads could have had some time to sell and find more suitable housing. In other words, the "two birds with one stone" could have applied, instead of the top-directed infusion. TARP did not come with requirements that lending reach a minimum level so even though the banks did not fail, it took even the TARP banks a long time to raise lending again; the return to lending should have been immediate.

It could be argued that the TARP funds put into banks gave the U.S. Government the corresponding benefit of bank stock. To be sure, selling the stock has made up a large part of the TARP funds already by 2011, but it was at that time uncertain whether the government would make a profit. In the fourth quarter of 2010, the U.S. Treasury projected that taxpayers wouuld lose less than $50 billion at worst, but at best could break even or even make money. Its best-case assumptions, however, assume that A.I.G., which had received $182 billion in TARP funds, and the auto companies would remain profitable and that Treasury would get a good price as it sells its corporate shares in coming years.

In May 2011, AIG and the Treasury Department announced that they would sell $9 billion in stock altogether, but for less than half of the expected price. As of May 10th, the AIG stock pre-market price was thirty cents off from the government's breakeven point. AIG stock had slid from the mid 40s to the mid 20s. I submit that these considerations of U.S. profit-taking, although appealing from a capitalist standpoint, misses the bigger picture in terms of a government's mission. I contend that governments do not exist to make profits. Furthermore, a government's primary charge is to protect citizens, whether from foe or famine. Failing to mitigate or obviate foreclosures even as banks got funds to keep them afloat is thus a blight on the U.S. Government. To be sure, maintaining the viability of the financial system is legitimately part of the government's job, that function could have been accomplished by protecting citizens who otherwise lost their homes. This is not to say that the homeowners deserved to stay indefinitely in houses too big for them; rather, it is to say that homeowners could have been kept from being tossed onto the street. The U.S. Government could have helped two birds with one bag of birdfeed while meeting its own obligations as a government.

Sources:

Jackie Calmes, “TARP Bailout to Cost Less Than Once Anticipated,” The New York Times, September 30, 2010.

The Huffington Post, "AIG, U.S. Will Sell $9B in Stock -- But for Less than Half of Expected Price," May 11, 2011.

The Receding Chinese-American Economic Paradigm in 2011: Imbalances within Mutual Benefit

“For decades,” according to The Wall Street Journal, “plentiful Chinese labor kept down costs of a range of goods bought by Americans.” Then, roughly in 2010, the Chinese government began supporting higher wages to reduce labor unrest and boost domestic consumption while reducing reliance on exports. Partially as a result of this, the world saw higher prices for commodities in 2011; oil was another factor as protests in the Middle East increased political risk in the calculations of future supply (amid speculation). A shrinking workforce in China was also putting pressure on the labor cost. Even though relatively cheap labor was still in the interior of the country, higher transportation costs mitigated the cost advantage. The prevailing paradigm was showing cracks. To be sure, it certainly had them.

In that paradigm, inflation was “damped pretty dramatically in the U.S. because it exported work to China and other places at 20% or 30% of the cost,” Hal Sirkin of the Boston Consulting Group said. Imports into the U.S. from China had increased China’s foreign currency reserves to over $3 trillion in the first decade of the twenty-first century; two-thirds of the reserves were U.S. dollars. The Chinese government used some of those dollars to purchase U.S. Treasury bonds; those purchases in turn relieved pressure on U.S. interest rates to increase. The continued cheap credit made it more possible for American consumers to purchase Chinese imports. It was a marriage of Chinese workers and American consumers, with both governments happy to oversee the nuptials.

Although in some ways good for all parties, the positive feedback loop made it difficult for China and the U.S. to have balanced economies. China relied too much on exports—with a supportive yuan currency making them artificially cheap for Americans—while the U.S. was enabled to accumulate trillions in additional federal debt without much self-discipline.  Therefore, from the rising labor costs in China and the related emphasis on domestic consumption (and a slowing appreciating yuan), inflation in both China and U.S. could be expected. It is no coincidence that the price of gold was quite high as the paradigm began to shift.

As the paradigm began to shift, it could be expected that should the Chinese foreign currency reserves be reduced, less foreign demand of U.S. Treasury bonds could eventuate, which in turn would put pressure on U.S. interest rates to increase. The rates could increase anyway to thwart the import-led inflation even if there is not excessive money supply. In other words, it could be expected that the imbalances in the slipping paradigm would give rise to corresponding imbalances afterward.

It is perhaps all too easy for us to tolerate imbalances as long as there is an overall equilibrium. China’s increasing dollar reserves and the U.S. Government’s increasing debt could co-exist with a tacit agreement wherein both Chinese workers and American consumers would benefit. Mutual benefit is not, however, a sufficient justification for tolerating fundamental imbalances either within a country or in the global economy.  For a sustainable economic paradigm, mutual benefit is necessary but not sufficient; they system as well as its parts should be in balance. To insist on this amid mutual benefit requires self-discipline because part of the benefit is spent in the restoration and playing out of balance. It is thus perhaps not an accident that the paradigm of imbalances amid mutual benefit was dominant for decades; the system itself might tell us something about modernity and ourselves.

Source:

Shai Oster, “China’s Rising Wages Propel U.S. Prices,” Wall Street Journal, May 9, 2011, p. A2.

Other Priorities and Side-Shows Eclipsing a Historical Debate on the U.S. Government's Deficit and Debt

Writing in November of 2010, Fareed Zakaria opined that the “fate of the U.S.” would be decided “over the next year.” In truth, the fates may have pronounced their verdict on the “city on the hill” long before the end of the first decade of the twenty-first century. Denial can be a strong palliative in the midst of a pattern of sustained lapses in self-disciple and civic virtue—qualities that the American Founding Fathers had presumed are necessary to any viable republic.

The debate in 2010 on whether the Bush tax cuts should be extended for the wealthy pitted the interests of the rich against the need to bring down the deficit of over $1 trillion. In 2011, the debate on whether to extend the debt ceiling on U.S. Government debt pitted the two major parties against each other not only on whether spending cuts should be a precondition for the extension, but also on whether revenue increases should be in the mix at all. The two debates were replete with internal contradictions and being relegated to other, less serious, public policy objectives. In a sense, the debates on U.S. Government deficits and debt with respect to tax and spending policies were treated like step-children even as the union itself hung in the balance. In other words, missing throughout the debates was the matter of priority.

Fareed Zakaria, for example, wrote that “no matter how many programs you cut, you will need more tax revenue.”  In contrast, U.S. House Speaker stated on May 9, 2011 that tax increases would keep the GOP House from extending the debt ceiling. Meanwhile, Sen. Baucus’ Finance Committee held a hearing on May 12^th to consider ending the oil industry’s tax credits, given the high profits being enjoyed by oil companies on account of crude being at roughly $100 a barrel (Brent at $110). The oil industry CEOs testifying were talking “shared prosperity” even as the Democratic senators were in the realm of “shared sacrifice.” The two sides were not even on the page.

Debating between killing the Bush tax cuts and ending some deductions seems a bit pedantic in the context of deficits of over a trillion and a debt of over $14 trillion. Even so, such false dichotomies have been indulged. Exacerbating the distraction, other public policy points were thrown into the mix. This is apparent from Zakaria’s suggestion in 2010 that the mortgage-interest deduction should be ended.

The deduction costs the U.S. Government $130 billion a year in lost revenue. In comparison, the tax cuts for the rich costs the government $700 billion. Even though Congress’ experience with tax reform in 1986 demonstrated the staying (lobbying) power of the mortgage deduction, Zakaria argued in 2010 that the deduction does not make sense because it undoubtedly facilitated the spurious sub-prime mortgages in which people were misleadingly put in houses that they could not afford. In other words, the deduction “encourages people to take on too much debt, inflates the housing market and has no real effect on homeownership.” Zakaria was apparently under the illusion that rational argument could stand up to the raw power of business lobbyists on K Street. For that matter, Sen. Baucus was apparently under the influence of the same drug in supposing that the oil industry lobby and its party would somehow roll over backwards as the oil industry tax credits are repealed.

The position that the Bush tax cuts should be extended for the wealthy in the midst of the 2010 deficit of over $1 trillion contained in itself a problem that the advocates scarcely admitted to, let alone recognized. The inconsistency in the position is transparent in U.S. Sen. Jim DeMint’s call for smaller deficits and a permanent extension of the Bush tax cuts for all earners. It is as if the senator was stating a death-wish to make things harder on himself as if he were urging another mile even while being about to collapse while running. The senator was essentially subordinating the deficit problem to his goal of shrinking the U.S. Government (or of government in general, without respect to restoring federalism). This is like someone who should be on the way to the hospital in an ambulance deciding to drive himself so he could make a detour on the way—as if his heart-attack were of secondary concern to picking up his dry cleaning.

In short, priorities and a recognition of the problem of powerful vested interests (and internal inconsistencies) are sorely needed as the U.S. Government wrestles with a debt that even at $14 trillion was perhaps beyond the point of no return (not to mention the $20 trillion years later). Perhaps it is from the standpoint of a reality of hopelessness that the matter itself is allowed to be relegated, and maybe even turned into a circus of sorts. In the end, it may be the failure to recognize and accept the hopelessness in the condition that is the root cause of the insufficiency in the proposed remedies.

Sources:

Fareed Zakaria, “Fixing the Deficit: Our Biggest Test,” Time, November 18, 2010.

Fareed Zakaria, “The Last Chance,” Time, November 29, 2010, p. 26

Michael Crowley and Jay Newton-Small, “Leading the Rebel Brigade,” Time, November 29, 2010, pp. 34-37.

Corporations as Citizens: A Right to Make Political Donations?

In Citizens United, the U.S. Supreme Court held that corporations and unions “should have the same right as individuals to pay for election ads and other electioneering,” according to The Wall Street Journal. Not addressed in the court’s decision was whether corporations and unions also have “the same right as individuals to donate money directly to candidates for Congress or the White House.”

After the ruling, the U.S. Court of Appeals for the 8^th Circuit upheld the ban on direct donations, “saying the [U.S.] Supreme Court recognized Congress could enact such restrictions as a way of deterring corruption.” Given that corporations and unions can contribute to political campaigns through "independent" groups that air commercials favoring certain candidates, one might wonder whether the restriction on direct donations is of any importance whatsoever. Moreover, one might wonder whether any potential restriction could even channel the influence of powerful corporations in Congress and over regulatory agencies (even their own!). That is, the underlying problem is that the large concentrations of wealth and property in corporate form may be inconsistent with democracy. 

Even the ban on direct donations has been challenged. Specifically, Federal Judge James Cacheris of the Eastern District of Virginia ruled on May 27, 2011 that corporations and unions can donate directly to political candidates. In his decision, he wrote, “Citizens United held that there is no distinction between an individual and a corporation with respect to political speech. Thus if an individual can make direct contributions within [campaign-finance] limits, a corporation cannot be banned from donating the same thing.” At the time, federal law limited an individual’s donations to a particular candidate at $2,500 per election. Corporations could donate $5,000 per election to candidates through political action committees, which are funded by voluntary donations from employees.

Cacheris is on solid ground concerning drawing out the logic in Citizens United. Even so, it is the premise of that case that is vulnerable to critique. To claim that there is no distinction between an individual and a corporation (or union) with respect to political speech is to commit a category mistake regarding citizen and free association thereof. In spite of the faddish “corporate citizenship” slogan, a group of citizens is not itself a citizen. To claim otherwise is to engage in anthropomorphism. In other words, having a right to freely associate with other citizens does not give the ensuing group itself the rights of citizenship; only citizens, which are human beings, can have the rights of citizenship.

As retired Justice John Paul Steven pointed out in suggesting that the U.S. Supreme Court would need to clarify its reasoning in Citizens United, "it will be necessary to explain why the First Amendment provides greater protection to the campaign speech of some non-voters [i.e., domestic corporations] than to that of other non-voters [i.e., foreigners who were barred at the time from making campaign contributions]." In referring to corporations as non-voters, Stevens is saying that they are not citizens, and thus the rights of free speech, petitioning the government, and making political contributions do not apply. Relatedly, from the “legal person” judicial doctrine, which limits stockholders’ own liability, has come the spurious notion that money is somehow speech (another category mistake). With certain collective legal persons being deemed citizens, the right to free speech at the corporate level translates into spending money. In short, we as a society seem blind to some rather blatant category mistakes, and this lack of awareness just happens to be in the interest of the large corporations and banks. I'm reminded of the "church lady" who was a character on Saturday Night Live. "Well, isn't THAT convenient!" she used to say rather sarcastically to any given guest on her "talk show." 

It is perhaps beyond coincidence that in a society and polity wherein large corporations are powerful, they have been deemed not only legal persons, but citizens as well—and with the rights of free speech, petition, and campaign contribution. I suspect that beyond the sheer power exists a pro-business ideology in the society, which enables this double-counting of citizens who associate in corporations and unions. A manager, for instance, can exercise rights of citizenship not only individually, but also in directing an organization (association) in its public affairs department.

Rather than worry about whether relaxing particular restrictions might enable corruption, we might examine whether our fallacies (i.e., category mistakes) are both a result and facilitator of it. Our parents and grandparents willfully created an organizational world, such that organizations could gain such assumed legitimacy that they have been able to become citizens having much more wherewithal than the human kind. Merely to write “the human kind” demonstrates how warped the default has become. One might wonder if it is still possible to wind back the line to contain the absurdity from becoming the accepted logic.

Sources:

Brody Mullins and Brent Kendall, “Court Lets Corporations Give to Candidates,” The Wall Street Journal, May 28-29, 2011, p. A4.

Mike Sacks, "Citizens United Attacks from Justice Stevens Continue," The Huffington Post, May 30, 2012. 

Democracy and the Courts: Alternative Checks on Austerity in Greece

In May 2011, “Athens agreed to impose a new $9 billion round of tax increases and spending cuts and speed up nearly $75 billion in promised privatizations.” In early June, a new round of tightening was being planned by the Greek government. It was feared that those cuts would deepen the recession and thus further shrink the tax base, making it even harder for the government to cut its deficit. Meanwhile, Reuters reported, “Greeks are showing signs of reaching the limits of their endurance as budget cuts imposed under Greece's first bailout a year ago have helped to push unemployment close to 16 percent.” The news service cited police reports of more than 80,000 people packing the main Syntagma square outside parliament on June 6^th—the 12^th consecutive day of protesting there.

                                              Reuters

Reuters reported that George Papandreou, the Prime Minister of the parliamentary state government, “used his parliamentary majority to ram through successive rounds of austerity including cuts to pensions and civil servants' salaries. But faced with the popular anger, some PASOK lawmakers [were] becoming uneasy.” The extent of protests suggests that the cuts may have been hitting up against bone. Short of a coup, however, protests do not in themselves arrest a government.

Interestingly, pressure from the E.U. on the Greek state to get its public finances in order has not been countered by intervention by the ECJ or a state court to protect constitutional obligations of the state toward civil servants, the unemployed, and the poor. In the case of some of the American states that have been instituting rather severe austerity programs, the governments have been reminded of their respective constitutional obligations in ways that have forced the governments to back off on some of their cuts. Specifically, the republics’ respective constitutional courts have been stepping in on behalf of the people (and the constitutions). North Carolina, Kansas, and New Jersey illustrate this dynamic, which is curiously lacking in the case of Greece.

The New York Times reports that in June 2011, “A judge in North Carolina has scheduled a hearing . . . to examine whether education cuts there violate previous court orders. ‘The current financial difficulties of the state do not relieve, justify or excuse the State of North Carolina from its constitutional obligation to provide each and every child in North Carolina an equal opportunity to obtain a sound basic education,’ the judge, Howard E. Manning Jr. of Wake County Superior Court, wrote in announcing the hearing.” How is Greece doing on its constitutional obligation?

The newspaper adds, “School districts in Kansas have filed a lawsuit arguing that with recent cuts in education spending, the state has effectively reneged on the promises it made to abide by old court rulings — a charge the state denies. ‘Just because the checkbook is empty doesn’t mean that the constitutional standard is swept away,’ said John S. Robb, a lawyer for the school districts, adding that Kansas had cut taxes as it cut education spending. ‘Especially if you are cutting taxes and claiming poverty,’ he added.” In the case of Greece, part of the problem may be tax evasion rather than a tax cut “solution” to deficits. Both Kansas and Greece should raise as much revenue as possible without sparking a recession; a tax cut or looking the other way in tax collecting is a luxury that neither state can afford.

Finally, “’Like anyone else,’ the New Jersey Supreme Court ruled, ‘the state is not free to walk away from judicial orders enforcing constitutional obligations.’ The court ordered the state to spend another $500 million in those districts. . . . Governor Christie of New Jersey, a Republican, complained after the schools ruling that ‘as a fundamental principle, I do not believe that it is the role of [New Jersey’s] Supreme Court to determine what programs the state should and should not be funding, and to what amount.’” At the same time, Christie could blame the high court for having to institute tax increases as he thanks the justices for relieving him of the political fallout from the cuts that he would have had to make. As of early June 2011, Papandreou could not avail himself of such a cover, and he had the other European states breathing down his back through the E.U. (and the world through the I.M.F.). Consequently, he was facing mass protests, whose utility in pushing back on the cuts does not have the force of a judicial ruling. It is ironic that the least democratic of the governmental branches may be the ultimate protector that a people can call on to counter lapses by their own government.

Sources:

Michael Cooper, “Courts Upend Budgets as States Look for Savings,” The New York Times, June 7, 2011.

George Georgiopoulos, “Greek Austerity Plan Draws 80,000 to Athens Square,” Reuters, June 5, 2011.

“Kicking the Can,” The New York Times, June 6, 2011.

Marx and Chinese Dynasties: A Postmortem on Occupy Wall Street

My essay that suggests that the Occupy Wall Street protests should have focused on the large corporation itself (i.e., that the large corporate form be expunged from modern society) rather than on a myriad of redistribution agendas resonates with Marx’s theory of revolution. In that theory, the proletariat finally throws off the chains and subdues the hitherto hegemonic capitalists in a materialist reading of Hegel's idea that history progresses toward greater freedom of the human spirit. The redistributive push of the Occupy movement fellf short because even increased redistribution advocated would have been within extant the political-economic system that the corporations dominate and run (i.e., including Congress). If the protesters were in fact serious about confronting corporate capitalism, their movement should have been radical rather than reformist because reforms are within the system that works for and by corporations.
A radical agenda makes the existence of the modern corporation itself the issue. Absent taking that entity out of the equation (i.e., system), corporations will be able to relegate any proposal geared to “reforming” the system. In 2011, the movement itself was enabling this by allowing the protesters’ general message to pivot from "corporate capitalism" to "crony capitalism." This subtle shift was in the corporations' interest, for it meant that they themselves were no longer the target (i.e., only the "bad" ones).
Even the radical alternative, wherein the very existence of the huge concentrations of private capital are the target, may have been doomed to the sidelines of American political discourse, and thus utter failure, considering the power of corporations over the (corporate) media, which could turn a radical impulse in to a reformist whimper. Additionally, corporate CEO's could press Congress to set the FBI and even the CIA against (even a reformist) movement deemed to be a threat to the moneyed interests.
Cutting large corporations down to size from within the system so as to be consistent with being contained by democratic means may be like expecting water to go up-stream. There's the expression, You Can't fight City Hall. This holds especially if city hall is hidden at the top of towering skyscrapers on Wall Street. A lot of pressure would need to build up for an external “shock” to overcome such a system, given the inherent tendency of corporate capitalism to mitigate the power of radical agendas by labeling them as "extreme." Marx believed that at some point the pressure from the proletariat would reach the threshold at which the lava of discontent can break out of the strictures of the system undergirding the huge private concentrations of capital. I tend to agree, though I think a lot of pressure would need to build up for the energy to be sufficient to overcome the momentum of the system’s status quo. The process of pressure-building is perhaps much longer than the protesters suspect because they discount the corporations' wherewithal to effectively use the media and political elite to preserve the system by relegating threats.
It may be that we need to view the pressure-building process from a longer-term perspective. Rather than getting caught up on the sensationalistic “play by play” stories on the protests in various cities around the world, we could view the movement itself as a wave on a rising tide that might not reach shore as a tsunami until well after we are dead and gone. The tide itself, even if not the tsunami, is perhaps inexorable if the system is indeed heavily biased in favor of the "haves" at the expense of the "have-nots." In other words, in the self-perpetuating political economy, the holding companies will only get stronger; individual companies may downsize, but that is oriented to making them stronger. Even so, the efficiency in economy of scale suggests that as long as the current system continues to exist, the large corporation will endure as a basic form in corporate capitalism.
The Occupy Wall Street movement can be interpreted in retrospect as having said that the injustice latent in the large corporation itself outweighs its greater efficiency. That injustice transcends that of economic inequality to touch on the injustice of a republic-turned-plutocracy. Even the protesters recognized that a clear break from the present system would be necessary to thwart the trend away toward increasing economic inequality and decreasing representative democracy. In other words, reform is not sufficient, and yet the power needed to propel a radical alternative requires overwhelming pressure.
A political-economic cycle going back and forth between democracy and plutocracy may be natural; it may express the dynamic tension between popular rule and concentrated power. Such a cycle may be like that of Chinese dynasties through Chinese history. At some point, a given dynasty (such as the Ming) would inevitably fell on its own corrupt weight only to be replaced by a new one (the Qing) that would in turn eventually likewise fall. To be sure, democracy was not in the mix (until 1911, and then only briefly), but the cycle is relevant in that it says something about the nature of concentrated power to eventually collapse from its own weight rather than from an external shock or force. 
Confucius lived when the Chou dynasty was in decline. Could he have known how close that dynasty was to succumbing to the next one? Similarly, do Americans know precisely when the volcano of popular discontent will erupt and level or at least greatly reduce the power of Wall Street?  Given the amount of vested power invested in the status quo, considerable pressure is requisite. It is easy to see, therefore, why the Occupy Wall Street movement was marginalized so.

Two Conflicting Views of E.U. Federalism: Accounting for Brexit

"You have lost a good opportunity to shut up," Sarkozy said to Cameron during a bitter two-hour exchange which held up a meeting of all 27 European Union states on 23 October 2011, according to the  Guardian. Translating the relatively polite European English into American slang, Sarkozy’s statement becomes, Shut the fuck up. "We are sick of you criticizing us and telling us what to do," Sarkozy added. "You say you hate the euro, and now you want to interfere in our meetings." Cameron had insisted on participating in the euro zone meetings because he anticipated that, perhaps along the lines of taxation without representation, unfavorable regulations would be imposed on Britain without its consent, according to The Telegraph. Cameron also claimed that the euro zone crisis was having a "chilling effect" on all European states, including Britain. He insisted that all 27 E.U. state governments, rather than just the 17 using the euro, should be able to have the final say over Europe's rescue package, according to The Guardian. I submit that the argument portends in retrospect, at least, the decision taken by the British to secede from the Union. 

Was Cameron trying to have it both ways by having refused to transfer the governmental sovereignty necessary for monetary union yet going on to demand being entitled to a vote on monetary policy regarding the euro? Might it be that the prime minister presumed himself to be in a superior position from having evaded the common-currency trap, and thus he felt entitled to tell the E.U. “euro” states, which had found themselves in a pickle, what to do? Alternatively, if British banks are called on to take sizable losses on their Greek debt holdings and/or to increase capital reserves, the state government would indeed be entitled to participate in the decision-making process at the E.U. level on those proposals.

Cameron would doubtless go further, insisting that just the fact that Britain would be adversely affected economically by a Greek default justifies the British prime minister in having a seat at the table. At the time of the E.U. conference, the Huffington Post observed: “Europe already is entering a continent-wide economic slowdown, as manufacturing output recently reached an 18-month low, according to the Wall Street Journal, and European economic growth fell to its lowest rate in two years,  according to The New York Times.” Any mishandling of the Greek situation could easily rock the European economic boat, which Britain is in. In other words, if the debt crisis had gone well beyond the matter of the euro, then Cameron had a legitimate point that the entire E.U. should decide on a solution. This could mean that all 27 states contribute to the European Financial Stability Facility, for otherwise it would be difficult to bracket the involvement of the non-euro states in the decision-making process. In other words, if the most serious of the financial problems involve European banks and wayward E.U. states rather than centering on the euro itself, then all of the states should be involved in the decision-making at the E.U. level.

Sarkozy and Cameron eventually reached an arrangement on October 23^rd that the 27 E.U. state governments “would initially debate the measures to write down Greek debt, increase the size of the bailout fund, and recapitalize European banks, but ultimately the euro zone would have final say over the rescue package  [on October 26^th] , according to The Guardian.” Presumably British banks would not be called on to write down their Greek debt, and this might cause banks in the “euro zone” states to demur. The same goes for any recapitalization requirements. As for the bailout fund, that would rightly be governed by the states that had contributed to it.

Perhaps the squabble between the two state leaders can be seen by the rest of us as a harbinger of the difficulty involved not just in achieving fiscal integration within the “euro zone” requisite for stable monetary union, but also in there potentially being two levels of fiscal integration in the E.U. itself. The E.U. would have a major structural/procedural/political problem if the “euro zone” states were to cede additional governmental sovereignty regarding their fiscal or budgetary/tax policy and Britain were to insist nonetheless on having a vote on particular “euro zone” fiscal policy proposals that might affect it even though it had not agreed to cede the sovereignty to being subject to “euro zone” decisions, including those on which Britain participates. That is to say, extending the “two tracks” tradition of the European Union to fiscal policy (including state budgeting and taxation) could mean that an “outer” state such as Britain is negatively impacted by a decision made by the players in the “inside track” and yet not be able to have any formal involvement in the decision-making. Rectifying this would mean that the “outer” state government could participate in “inside” policy while not be subject to it. Is the prospect of being negatively impacted by others’ policy sufficient in the E.U. to justify the right to vote on the policy even without being subject to it? It would seem that exasperating its “two track” tradition might put the Europeans in a double-bind. If so, it may be that E.U. state governments may all have to bite the bullet and cede more governmental sovereignty, whether or not they adopt the euro.

Source:

Bonnie Kavoussi, “Nicolas Sarkozy To David Cameron: ‘You Have Lost a Good Opportunity To Shut Up’,” The Huffington Post, October 24, 2011. 

Inequality in Corporate Capitalism: Beyond Redistribution

I contend that a concern that too much income or wealth is concentrated “at the top” in the U.S. does not necessarily translate into a demand for redistribution; rather, the inequality itself may be thought dangerous to the viability of a representative democracy (i.e., a republic form of government) and inherently unfair. Even though redistribution may be entailed as large banks and business corporations are dismembered, ridding the system of the concentrations of wealth does not in itself mean that those “at the bottom” should or would necessarily become richer. For example, to say that CEOs should not be allowed to make millions of dollars, especially when their companies or banks lose money, does not imply redistribution because there is no claim that the compensation be directed to others for their benefit. The point is that the compensation itself is unfair. Indeed, saying that corporate capitalism is itself unfair because some people benefit beyond what they deserve is not to say that their benefits should be redistributed; rather, the point is simply that such benefits should not be allowed.

The Occupy Wall Street protesters should have started out by demanding that corporate capitalism be extirpated or expunged from the American society and polities without demanding redistribution. Neither corporate downsizing nor selling off businesses or divisions would necessarily entail redistribution to the lower and middle classes. I suspect the beneficiaries of the transition would be stockholders (while upper echelon executives see less almost immediately in cash and stock income). Even though lower and middle income people could gain, the real driver behind the decrease in the economic inequality would be that the super-rich are not so rich. This is not to say that economic equality would be the goal; talent and effort justify more compensation. The problem is when the system is tilted so the inequality in compensation is allowed to far beyond its legitimate basis. To the extent that the system of corporate capitalism was itself in the protesters’ crosshairs, then simply redistributing wealth to momentarily mitigate the amount of economic inequality would fall short.

In fact, the protesters would have been more credible (and successful) were they to have distanced themselves from the topic of redistribution because they would quite obviously stand to gain from it. In refusing to police the “redistribution” signs opened the protesters up to a conflict of interest wherein their own private interests could be seen to bias their claim to acting for the good of the whole.

Sadly, the protests were enervated from within by a lack of resolve to focus on a few key points; the movement’s own failure to delimit itself in terms of demands allows for such competing agendas as redistribution to emerge and gain a footing. The Wall Street Journal dispatched reporters in five cities to interview over 100 protesters. “The picture that emerged is a motley conglomeration of people with widely varying goals—and some with no clear-cut goals at all other than to denounce greed.” There is “a tolerance—and, sometimes, sympathy—for causes well outside of the mainstream.” Inside the demonstrations, “there is broad acceptance of a wide range of opinions and agendas—even those that occasionally border on the absurd.” This atmosphere provided the context in which redistributive agendas could encroach on the more fundamental point that corporate capitalism itself should be replaced with something perhaps more akin to Adam Smith’s version (i.e., not necessarily with socialism).

Douglas Schoen, a former strategist for Bill Clinton, surveyed 198 protesters in New York City. Schoen reports his results as the following: “The demonstrators believe in redistribution of wealth, government-provided health care and education no matter what it costs, increased regulation and protectionist trade legislation.” Schoen concluded the protesters were well to the left of the independents needed by the Democrats to win the White House in 2012, so his summary may be biased to show the movement in a less than favorable light. For instance, he missed the objectives voiced by some of the protesters to eliminate the “legal person” status of a corporation—and, indeed, corporate capitalism itself. Even so, his survey shows that it redistributive goals were among the protesters’ agendas. The same thing can be seen in a report in the Huffington Post.

According to the Post “The gap separating the richest 1 percent of Americans from the rest of the country has emerged as arguably the single most prominent rallying cry of the Occupy Wall Street movement. . . . The Occupy protesters identify themselves as "the 99 percent" —referring to the majority of the population that has had to contend with limited economic and social opportunities while money continues to accrue to the very wealthiest citizens.” The “limited economic and social opportunities” intimate a desire for redistribution from “the very wealthiest citizens.”

To be sure, if the economic/political power of “the very wealthiest citizens” is a threat to the republics (and unfairly gotten), a tax on them would be justified and this implies redistribution through government spending. Even so, that spending can be for the good of the whole rather than funneled to the poor exclusively means that the redistribution can be to the whole rather than from X to Y within the whole. Furthermore, the redistribution itself would not be the point, and as such would only be a temporary byproduct as the concentrations of excessive private wealth that constitute an inherent threat to the viability of representative democracy are rendered innocuous to the body politic (and the economy). 

While not without merit, the ancillary “redistributionist” demands brought with them a certain opportunity cost in foregone focus. In fact, I would not be surprised to find that pro-business groups funded “redistribute” signs amid the protests; it was undeniably in the business interest to discredit the demand that the modern corporate form itself (including the “legal person” doctrine) be made illegal beyond a certain cut-off in assets and/or revenues. This demand is particularly toxic to American business because both corporate capitalism and its sordid impact on the American system of representative democracy are front and center, and thus at risk in themselves. It is not about limiting a CEO’s bonus or taxing corporations more for entitlement programs; rather, the mega-corporation itself—as an economic template—is the target. In short, the protesters missed a great opportunity to make the focused claim that extreme economic inequality itself is inherently unfair (i.e., without adding into the mix the virtues in redistribution) and that modern corporate capitalism itself causes it and leverages it in corrupting the halls of government with still greater inequality as a result.

It is the inherent unfairness of extreme economic inequality, rather than any of the benefits from redistribution, that lies at the root of the rise again to populism and is the basis of the complaint; the system of modern corporate capitalism is culpable too as the structure or conduit through which the inequality is magnified. The extent of the inequality can be seen in the following comparisons: the total income of the top 1% is the same as the total income of the bottom 60 percent, and the total wealth of the top 1% is the same as the total wealth of the bottom 90 percent. That is, one percent of the population has as much wealth as ninty percent have.The wealth of the one percent is thus extremely concentrated. 

On October 26, 2011, the Huffington Post reported some statistics on the degree of economic inequality in the U.S. at the time. The report is worth quoting at length:   

“Income for the wealthiest Americans has nearly tripled since 1979, while remaining relatively stable for the rest of the country, according to figures released this week by the Congressional Budget Office. The numbers offer a striking illustration—the latest one in a long series—of how wide the gap has grown between America's richest citizens and everyone else. For the richest 1 percent of Americans, income rose a full 275 percent between 1979 and 2007, —accounting for inflation—according to the CBO. For the poorest 20 percent of Americans, meanwhile, income rose just 18 percent in the same time period. For the middle 60 percent of earners—that is, the 21st through 80th percentile—income grew by just under 40 percent. And for the 80th through 99th percentile, income grew by 65 percent. That's a rapid climb, but the top 1 percent experienced a rate of growth more than four times as fast.”

“Above all else, the CBO's figures suggest that the richer you are, the richer you'll get over time. But this is far from the first report to reach that conclusion: Numerous studies have shown that America's very highest earners have been steadily pulling away from the rest of the population for a generation. Even as income for the richest 1 percent has nearly tripled since 1979, wages for the lower and middle classes have hardly moved. . . . Today, the 400 richest people in the country control more wealth than the bottom 50 percent of households, and the U.S. ranks roughly alongside countries like Uganda, Cameroon, Ecuador and Rwanda  in terms of the gap between its poorest and wealthiest citizens.”

It is highly probable that the extent of the inequality in wealth had arguably surpassed that which could be justified in terms of fairness (i.e., from more compensation for greater effort and talent). Behind the figures lay a system of corporate capitalism that had furtively rendered the republican form of government into a plutocracy (i.e., ruled by and in the interest of wealth). This is the point—not that more income should be redistributed within the existing system.

In conclusion, redistribution short-circuits the more fundamental demand that the political economy itself be re-configured—rid of the mega-corporations and the billionaires—because the system itself has become inherently unfair as evinced by the extreme inequality in income and wealth. Besides being unfair in terms even of Adam Smith’s moral sentiment, mega-corporate (rather than small and medium business) capitalism engenders or facilitates concentrations of wealth even after they have become dangerous to both the economy and democracy. The systemic risk to which the market is vulnerable is that the system itself is geared predominately to further increase those concentrations at the expense of economic justice and political democracy. In other words, corporate capitalism knows no limits within itself concerning concentrations of capital. Regarding externally-imposed limitations, the large corporation inherently seeks to enervate any extrinsic obstacle, including legislatures and regulatory agencies. The mega-machines will continue to amass capital unless the large corporation itself becomes the target and is found by a threshold of people in a society to be irreconcilable with fairness and accountability. Efforts to merely refine the existing system will surely founder. In other words, the point is not increased redistribution, even if that is a byproduct in the transition.

See related essays: "Occupying Wall Street: A Self-Regulated Protest?" and "Protest Movements 101"

Sources:

Alexander Eichler, “One Percenters’ Income Nearly Tripled In Last Three Decades: CBO,” The Huffington Post, October 26, 2011. http://www.huffingtonpost.com/2011/10/26/income-inequality_n_1032632.html

Douglas Belkin, Tamara Audi, and Danny Yadron, “Protests Put Democrats in Bind,” The Wall Street Journal, October 25, 2011. http://online.wsj.com/article/SB10001424052970203911804576651410222669534.html

Chinese Censorship: Beyond the FCC in the U.S.

Regarding the Chinese government’s attempts to rein in microblogging and television programming, the New York Times observed in 2011, “Political censorship in this authoritarian state remains absolute.” It is therefore perhaps all the more surprising that bloggers in China have been able to post “whistle-blowing” reports at the expense (and embarrassment) of the political elite. That this has occurred at all suggests that once a Jennie gets out of its bottle, it is difficult to reverse course. This is the traditional Western view. Using television programming as a case study, I submit that the picture is actually more complex than the antiquated "black and white" version may suggest. 

On October 25, 2011, the State Administration of Radio, Film and Television ordered 24 regional television stations to limit themselves to no more than two 90-minute entertainment shows per week. The requirement is aimed, according to the ministry, at rooting out “excessive entertainment and vulgar tendencies.” The additional requirement for two hours of news every evening suggests that “excessive entertainment” may refer not only to the decadent sort of programing commonly called “reality shows” in the West, but also to the desire to have a balance of programming available on the public airwaves. Lest the regulations seem too draconian particularly to Americans, having a check on the proliferation of decadent programming spurred on by its low production cost may be something that many Westerners over 30 might favor. That public airwaves are public means that the public, through its government, has a right to regulate the content. For example, American televisions must include public service ads (PSAs) among the paid ads. Even so, the Chinese ministry’s order that television stations ignore audience ratings goes too far in the other direction.

The difficult task of balancing the fact that the airwaves belong to the public with the equally valid point that programming to at least some degree should reflect what people want to see, as per the definition of entertainment, can be evaded by running to either pole; it is far more difficult to manage the competing points. Programming the public airwaves need not succumb to “bottom feeding,” such that one or two segments of the population are effectively allowed to define entertainment for the whole even if this is in the networks’ short-term financial interests (i.e., cheapest programming and largest audience). No constraint on catering to the lowest common denominator can have the effect of facilitating a cultural trajectory into decadence.

At the same time, entertainment cannot be imposed; people simply won’t watch a boring show on public safety. Even forcing people to watch does not mean that they will be entertained. Authoritarianism may seem powerful, but it cannot easily access the inner recesses of the human being. Acting to protect the public airwaves from being monopolized at the expense of the whole need not slip into a control fixation. Indeed, the proliferation of television channels and internet programming even beyond television programming means that particular networks can specialize on specific market segments (either in terms of programming or audience) without segments of the public at large being ignored.

Whereas the Chinese government is too extreme in the authoritarian direction, the FCC in the U.S. could also be criticized for standing by as television networks maximize their profits by catering to “reality show” viewers at the expense of programming that bothers to use actors. Of course, people do not have to watch such shows, but if such programming dominates a significant number of programming venues, the wider public may have a legitimate claim—if not to equal time, then at least to a bit more being offered that is oriented to their tastes. For example, some people might not be edified by Jerry Springer or Jersey Shore—wanting something more like West Wing, LA Law or Boston Legal even though such shows are more expensive to produce. Should the content on the public airwaves be decided by profitability alone?

Imagine, if you will, turning on your television and finding either news shows serving as mouthpieces for certain talking heads, or series “show-casing” low-class, non-actors engaged in “drama” (the term itself has morphed from its ancient Greek association with temple-worship to the absence of any self-discipline, similar to how “professional” has become democratized to fit virtually any occupation). Even though the Chinese government is not known for its lightness of touch, its decision to try to impact programming at the expense of popularity contests might not be as outlandish as it seems. This is my point, rather than that the Chinese government should be defended for having a draconian demeanor. Both consumer demand and the public interest can be reflected in what is broadcast on television. Government regulation along with a market economy is, as of 2011 at least, the best the human race has come up with to accommodate both points. The picture is not black and white (or at least anymore). Perhaps both the Chinese ministry and the FAA could move a bit to the center.

While the market mechanism can function well in allocating non-essential goods and services, it may be vulnerable to succumbing to the “systemic risk” of being reduced to a lowest common denominator functioning like a vortex or black hole of sorts. It is a legitimate function of government to look after the public good, and this can include stepping in when a market mechanism succumbs to some decadent exuberance wherein a minority preference trumps the good of the whole. A government need not be obsessed with maintaining public order and decency (as though in 1950's America) to exercise its duty with respect to the public airwaves.

Source:

Sharon LaFraniere, Michael Wines, and Edward Wong, “China Reins in Entertainment and Bloggers,” The New York Times, October 27, 2011. 

The SEC and the Courts on Wall Street Settlements in 2011

The SEC enforcement staff, including its chief, Robert Khuzami, decided to kick a gift horse in the mouth rather than to “take a lesson” and perhaps come out stronger for it. At issue was the rejection by U.S. District Judge Jed Rakoff of the SEC’s proposed $285 million settlement with Citigroup. In his ruling, Rakoff denounced the penalty as “pocket change” to the bank, which would not even have to admit to any wrongdoing. Investors duped into buying into a $1 billion deal called Class V Funding III had lost $700 million. Betting at the time of issue against half of the assets in the deal, Citigroup did not share knowledge of its hedge with the investors.

The reaction of the SEC staff in Khuzami’s department was simply to “put down their pencils” and wonder how they should go about arranging settlements with financial firms accused of misconduct before and during the financial crisis of 2008. The SEC “doesn’t know what to ask for anymore in the settlements,” one of the people familiar with the Citigroup settlement said. Rather than take the judge’s judgment to heart, Khuzami urged the five-person commission running the SEC to vote to approve an appeal, and they did so. Rather than take the less convenient course of insisting that the banks too big to fail that manipulated their own clients at least admit wrong-doing and reimburse the losses, Khuzami viewed the judge’s ruling as if it were a political obstacle to be obviated by asking an appellate court to ignore it. Given the political muscle that must surely go with Citigroup’s wealth, Khuzami could have been assuming that the bankers would see to it that sufficient pressure would plied on enough appellate judges to make the obstacle easily avoidable. In other words, Khuzami was likely assuming that Rakoff was a fluke, given Citi’s influence—perhaps even in the SEC itself.

Considering the power of regulated banks such as Citigroup, it is not unreasonable to expect the chief executive of the U.S. Government, the President of the United States, to deviate from his avocation of influencing legislation far beyond his minority role as a veto. Rather than spending so much time hitting the stump to get voters to 1) influence their representatives in the legislature and 2) re-elect him, the president could get involved in the question of whether the verdict would be appealed. Lest it be said that that would introduce politics into the mix, I would counter that politics were already very much in the mix both in terms of the five-person SEC vote and in Khuzami’s response to the ruling (i.e., as an obstacle rather than as something to incorporate into future settlement offers). I would even say that politics was involved in Treasury Secretary Tim Geithner’s blessing of the decision to appeal, and therefore also likely a factor in the president’s decision not to intervene. Citi (and one of its major stockholders) had been Geithner’s sponsor when he was chosen to be president of the New York Federal Reserve.

Politics might also have been involved in the timing of the SEC’s announcement on the day following the appeal decision that the agency was suing the former chief executives of Fannie Mae and Freddie Mac for misleading investors and Congress on the volume of subprime mortgages on the books. Khuzami made the announcement himself, and it was well-covered in the media. Lest the decision to appeal in order to save a settlement deemed by a judge as too friendly to a major Wall Street bank be viewed with lackluster by the public, the timing of the Fannie and Freddie announcement could be anticipated to quickly impose a perception of going after the bad guys—even if the two conveniently-demonized organizations had been taken over by the very government that was suing them. The public would not be likely to suspect a double-standard for private-sector, well-connected banks, such as Citigroup.

Regardless of the political connections of Wall Street banks, for the U.S. president to tell the public that Wall Street should be held accountable only to look the other way on the SEC’s appeal decision—perhaps with the stated reason that politics should not be involved—seems duplicitous at best. As the chief executive, the president has a legitimate superordinate role to play in overseeing the decisions in the agencies within the executive branch. For a chief executive to claim that he or she should not impose on a subordinate department is a good indication that a subterranean agenda is in play. Furthermore, such an excuse evinces a refusal to assume responsibility (see #2 above). Too accustomed to seeing presidents obsess over pending legislation and propose still more (and act as commander in chief as well as figure head), the American citizenry has nearly lost any appetite for holding its presidents accountable as the chief executive of the executive branch—which extends beyond the West Wing. In the case of the SEC’s decision, the president was doubtless not willing to overrule his Treasury Secretary for political reasons.

Rather than deciding to appeal the ruling, the SEC should have accepted—with the president’s (or Treasury Secretary’s) intervention if necessary—the judge’s feedback as valid. Given the power and “too big to fail” risk of financial institutions like Citigroup, the government regulators act recklessly in accepting a “pocket change” no-guilt settlement. In announcing the decision to appeal, Khuzami said Rakoff’s position was “at odds with decades of court decisions that have upheld similar settlements by federal and state agencies across the country.” Precedent for precedent’s sake could merely be a vote for the status quo that favors even the fraudulent on Wall Street. We cannot assume that the stream of past court decisions necessary warrant being kept.

Clearly, Khuzami believed that requiring wrongdoers on Wall Street to admit to the wrongdoing would backfire on the government. Requiring an admission of guilt from defendants “could in practical terms press the SEC to trial in many more instances, likely resulting in fewer cases overall and less money being returned to investors,” Khuzami said. Just because powerful banks have a lot of money and power to throw at a trial, however, does not mean that the U.S. Government should cower over in trepidation or try to out-maneuver an inconvenient ruling that can actually be useful. Had he kept to the judge’s ruling, Khuzami could have gone back to Citi to say that more would be needed to avert a trial. It would not be his own opinion, after all, and contrary to Khuzami’s view, a judge’s opinion is not just an opinion; it is a ruling.

As for the issue of money damages and the number of trials, Khuzami was missing the forest for a few trees. For the viability of the U.S. and global financial system (and economy), banks too big to fail should be held accountable. It is therefore worthwhile even going to trial and staying the course through any appeals fueled by the banks’ deep pockets. At the very least, establishing a few precedents in terms of seeing that justice is served might have aided in the SEC’s credibility in negotiating settlements with teeth. Higher money damages would undoubtedly have followed.

In short, it would appear that the staff at the SEC needed more of a public service mission in which they could feel that they were making a difference in standing up to real power. In other words, they were not sufficiently fighters for the public good—the viability of the financial system and the economy as a whole. Instead, they were too interested in taking the route that is most convenient in terms of fear and stasis. It is in this realm that the chief executive can and should lead, if indeed he has that fire in his belly.

Sources:

Jean Eaglesham and Suzanne Kapner, “SEC Cops Want to Fight U.S. Judge,” The Wall Street Journal, December 15, 2011. 

David Hilzenrath, “SEC to Appeal Federal Judge’s Rejection of Citigroup Deal,” The Washington Post, December 15, 2011. 

Chad Bray and Nick Timiraos, “SEC Sues Former Fannie, Freddie Executives,” The Wall Street Journal, December 16, 2011.

A U.S. Visa Fast-Track For Rich Investors

The New York Times reported in December 2011 that affluent foreigners had been rushing to take advantage of a U.S. immigration program. The foreign applicants must invest at least $500,000 in construction projects within the United States. The number of applicants had nearly doubled since the end of 2008 to more than 3,800 in the 2011 fiscal year. The intent of the program is to spur economic development at a time of high unemployment. Yet the program has also been characterized as a cash-for-visas scheme. Besides the question of whether the program’s rules have been stretched in New York City to qualify projects in prosperous areas for special concessions, an ethical question can be raised concerning who should get a visa.
Obviously, the program’s designers must have known that only wealthy people could qualify. A public-interest ethical argument could be made that they deserve a green card because they contribute to economic development out of which jobs for Americans can ensue. Indeed, to the extent that the additional investment results in more economic activity, the visitors making the investment in 2011 could have been helping to forestall a double-dip recession. This was a distinct possibility at the time, given the E.U. debt crisis.
The ethical issue is in the exclusion of people who are not wealthy. The principle of fairness would seem to mandate that just as many non-rich foreigners be granted green cards above the ordinary limit. However, this would seem to be rather artificial—a sort of tit for tat—as in “we’ll accept your tax cut if you accept ours.” Moreover, in the context of high unemployment, any such increase in visas should not add to the supply of labor.
John Rawls suggested that in designing such a system as applying for a green card, a veil of ignorance as to whether one will be rich or poor should be utilized. Rawls’ thinking was that if the designers cannot know whether they or their friends will be rich or poor, then the proposed system design will be fair (i.e., there would be the chance that one’s friends are poor foreigners unable to get a green card). While fair in itself, this ethical device may not adequately take into account the public interest that could be satisfied by only one segment (e.g., the rich). Should the U.S. renounce the possibility of more economic development, particularly at a time of high unemployment, just because poor and middle-class foreigners cannot participate?
Related to the matter of income and wealth, it can be asked from both the public interest and ethical standpoints whether capital investment is more valuable economically than highly skilled and educated foreigners. To be sure, the latter ought not crowd out citizens and existing residents who have comparable skills and knowledge, and it is presumably possible to further train and educate existing citizens and residents.
For example, the very same issue of the New York Times containing the story of the green cards for foreign investors reported that M.I.T. was announcing an expanded program that would still allow anyone anywhere to take M.I.T. courses online free of charge, but would add online labs, self-assessments and student-to-student discussion. Also, for a small charge, a certificate can be obtained. At the time, the university’s free OpenCourseWare included nearly 2,100 courses and had been used by more than 100 million people. Rafael Reif, the provost, gave the following as the operating assumption: “There are many people who would love to augment their education by having access to M.I.T. content, people who are very capable to earn a certificate from M.I.T.” To be sure, a certificate would not be a degree, but in terms of non-professional jobs the former may be sufficient. “The most important thing is that it’ll be a certificate that will clearly state that a body sanctioned by M.I.T. says you have gained mastery,” Reif added. The notion that cost (and debt) ought not be an obstacle to a natural drive to learn more, whether in terms of skills or knowledge, is foreign in the United States (and increasingly in Europe as well).
Yet from the standpoint of economic development as well as jobs, viewing education as an investment rather than as a purchased product would likely pay substantial dividends. Where such an approach to vocational training and higher education falls short for citizens and residents, welcoming the best and the brightest from abroad—even training and educating them at online programs such as M.I.T’s—may be an investment policy even more beneficial than that of attracting additional capital investment in construction projects.

Sources:

Tamar Lewin, “M.I.T. Plans to Expand Its Free Online Courses,” The New York Times, December 19, 2011.

Patrick McGeehan and Kirk Semple, “Rules Stretched as Green Cards Go to Investors,” The New York Times, December 19, 2011.