Sustenance: A Human Right in America?

In the fall of 2010, the following was said on Fox News: “The government should spend more on the war in Afghanistan in order to fight terrorism. The problem is that the government has gotten into entitlements.”  The latter presumably includes food stamps, public housing, Social Security, Medicare, and Medicaid.  To say that government ought to be engaged in defense and not in supplying needy citizens with food, shelter and health-care is distinct from saying that the federal government should concentrate on foreign policy and defense, while entitlements are formulated and funded by the state governments as their domestic programs. In other words, advocacy for a certain priority in government and for less government is distinct from advocacy for restoring balanced federalism.

Most Europeans in the E.U. undoubtedly view the redistributive right for sustenance resources as founded on human rights and thus as a legitimate part of government.  In contrast, Americans do not typically apply a human rights justification to entitlements for other Americans even as foreign aid may be justified in part on this basis.

For example, on June 3, 2011, Donald Trump told a forum in Washington, D.C.: "A certain Republican representative, two nights ago -– I watched on television -– Representative Cantor, who [sic] I like, said we don't want to give money to the tornado victims, . . . (a)nd yet, in Afghanistan we are spending ten billion dollars a month but we don't want to help the people that are devastated by tornadoes -- wiped out, killed, maimed, injured. We don't have money for them but we are spending ten billion dollars a month in Afghanistan. We are spending billions of dollars in Iraq where they have the second largest oil fields in the world … and we can't help people that got flooded in Mississippi that got hit horribly by tornadoes." The U.S. House Majority Leader was holding up funds for basic necessities at home as leverage in debt-ceiling negotiations with the Democrats, while allowing billions of dollars to continue to flow in foreign aid (and to the U.S. military in Iraq and Afghanistan).  Canter’s antipathy toward government aiding citizens who would otherwise be left to the state of nature represents a rather warped understanding of a social contract.

People such as Eric Canter believe that the market mechanism trumps any right to have one’s basic needs satisfied. Resources are viewed as commodities produced and distributed by private enterprise, even though the market does not guarantee that every citizen’s basic needs are met. Even so, it can be asked whether the right to survival (i.e., life) is part of the American social contract. If so, then relying on the market mechanism alone is not sufficient.

If life is not part of the social contract, then the hungry and homeless, as well as the untreated sick, are (and can legitimately behave as if) in the state of nature. As much as some of the rich do not want to be taxed so the least fortunate can survive, the prospect of the latter behaving as if in the state of nature must surely be even less palatable.

James Madison writes in Federalist #51, “the weaker individual is not secured against the violence of the stronger” in the state of nature. Nor is the weaker secured against starvation and sickness.  Without the police to protect their property, are the rich sufficiently strong to ward off the hungry and homeless? Who is the strong and who is the weak in a dog-eat-dog contest between two human beings—one with a bank account and the other with a left hook? Life, Thomas Hobbes writes, is “solitary, poor, nasty, brutish and short” in the state of nature are all equal in the sense that any one of us can be killed in our sleep. Suddenly having some of one’s tax directed on a human-rights basis may not sound so bad.

What keeps those whose survival is so tenuous from simply taking from the rich is of course the funded social contract that protects property with police force even as there is no guarantee for survival. Such a warped social contract is an aberration in terms of social contract theory.

  The social contract undergirding a political society is meant to alleviate the fear of the want of necessities (and self-defense) while working for the happiness of the members.  In other words, there is a right to shelter, food and medical care. Otherwise, the society is only marginal or partial in obviating the insecurity that exists in the state of nature.

Therefore, to say that government should merely defend citizens from the insecurity of foreign invasion does not go far enough from the standpoint of why government is instituted as part of a social contract that takes people out of the state of nature. However, to say that an empire-level government ought to be charged with protection from foreign invasion, while the individual republics are tasked with ascertaining their citizens with protection from starvation, the elements, and sickness. Without anxiety, foreign or domestic, every citizen—rich or poor—would be freed up from a basic insecurity that without a viable social contract is simply part of life.

Sources:

The Federalist, ed. Jacob E. Cooke, Hanover, N.H.: Wesleyan Press, 1961.

Sam Stein, “Trump Takes Aim at Cantor, Krauthammer, U.S. Foreign Policy,” The Huffington Post, June 3, 2011.

Uncovering the Root of Poverty: An Addictive Habit

Addictive pain-killers killed 64,000 residents in the U.S. in 2016, in part because physicians tended to rely on patients’ self-determined ratings of pain on a scale of 1 to 10.[1] Such subjective ratings were of course vulnerable to self-seeking motives willfully negligent or even reckless in terms of health. A habit or marked tendency in favor of choices at the expense of a person’s own long-term well-being stems, I submit, from weak impulse-control. This, plus the related lack of consideration for other people, either causes or is associated generally with poor people at least in the United States.

Poverty, it has been said, is the cruelest form of war, for such war can go on and on and wreck subtle though tremendous damage on the afflicted. Yet the mentality that can get a person into such a war and associated bad choices can be easily overlooked by elites that deign to study the problem of poverty.

The full essay is at "An Addictive Habit."

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[1] Gregory Korte, “U.S. Waging Tech War against Opioid Epidemic,” USA Today, November 24-26, 2017.

Conflicting Business Models at Singapore’s Airport

Singapore’s Changi may have been “the world’s most fabulous airport” in 2011, according to Scott McCartney of the Wall Street Journal. To be sure, the airport’s amenities were amazing. How they are were being operated, however, detracted in certain respects with the goal. “We wanted to transform the way travel is done and create a stress-free experience,” Foo Sek Min of the airport’s management said. This goal dovetailed with the airport being “a key economic development element” for Singapore. Accordingly, the state-owned company that ran the airport received “plenty of government support.” In line with these goals was there a business model that was long-term oriented? Rather than trying to “nickel and dime” customers so as to minimize the funding from airlines and the government while maximizing revenue on a daily basis, resisting such urges in order to provide a truly stress-free experience would, I contend, be more consistent with the goals. 

I contend that a stress-free experience in a pure (and realistic) sense does not include feeling manipulated or pressured to do or buy something. More concretely, paying for X and Y during one’s stay brings with it stress. Even the thought of one’s credit card or cash balance brings with it some stress. To be stress-free, an experience should not include even the thought of money—much less using it. This is where Changi fell short of its own mission: to attract more flyers to the airport and ultimately to (indirectly) add positively to Singapore’s economic development.

Not charging for the local bus tour that for immigration purposes was considered within the airport is perhaps the epitome of how the stress-free and economic development objectives dovetail with a business model. The lack of stress that comes with not having to do anything but get on the bus and take in the sights could have led to interest in investing in Singapore in some way. Indeed, potential business deals may even have been negotiated during the tour as tourists chatted. The lack of stress (i.e., lack of demands) on the people using the airport could thus have benefitted Singapore down the line, whereas charging for the tour, collecting the fare, and having the passengers go through immigration would hardly have been conducive to a mood to invest or even visit Singapore.

Generally speaking, charging for each service in order to (ideally) cover the airport’s operating costs on a daily basis is eons away from the business model that is oriented to long term investment even with regard to particular services. Having the roof-top pool free to customers who stayed in one of the airport’s in-transit hotels while costing people going through the airport $11 not only added to stress monetarily, but also insinuates an insider/outsider exclusivism that was not going to endear the travelling public to Singapore, whether to visit or invest in economically. Similarly, having a four-story amusement-park type slide “tied into retail” at the airport by requiring users to show a receipt from an airport merchant showing roughly $8 or more in purchases or else only the bottom one and a half stories of the slide could be ridden evinces a pettiness that even in itself could be expected to have given rise to stress in others—not to mention the stress involved making sure your receipt is “enough” as your kids pull at you demanding a FULL ride. Feeling manipulated to buy something at the airport’s “mall” just added to the stress. Considering the limited cost of the slide and how eliminating the financial “rules” and price itself would make a huge difference in terms of stress (both for the employees and the public), one might wonder if the stated goals were authentic, or even known by the managers themselves. 

My favorite example of Changi’s management working at cross-purposes with its own mission unnecessarily would have to be the $17 for 20 minutes—are you ready for this?—“to put your feet in a tank with tiny fish that eat dead skin.” Similarly, charging $23 for three hours in a nap room could paradoxically add to wallet-stress for people already under stress en transit. 

Thank goodness the bus tour of Singapore was free—people could finally relax after having their dead skin eaten off and being woken up by some noise or demand for more money after having had to deal with a child not terribly convinced by the need for only a $7.50 receipt. Lest the butterfly garden seem like an alternative escape (it was free), it was also apparently a smoking garden. There were, however, two (smoke-free) complimentary movie theaters. 

In short, while the innovative approach at Changi airport does warrant some praise (e.g., free wifi and movies, and in general for the extent of amenities), the major inconsistencies within this business model demonstrate how difficult it is to shift from the dominant model in business to one characterized more for its long-term investment orientation to eventual pay-offs. Given the government’s involvement in the state-owned corporation, the airport’s management company should have had enough cushion from competitive pressures to be able to go all-out with the new model. Either amenities like the pool and nap rooms would have been free, or else perhaps everyone passing through the airport could have paid a general airport fee that would cover all of the perks (other than in the merchants’ stores, of course). The fee would either have been low enough that it was not stressful and inconvenient (given the sheer volume) or, more ideally in terms of the new model, money would have been “recouped” in future tourism and foreign investment instead of any fee on air travelers. The government’s involvement in the operating company could effectively support the longer-term and less direct financial loop, as well as buffer any “pressures” from the old model for specific charges to be added during customers’ “experience.”

Imagine the stress-relief among the flying public just in knowing that for a few hours nobody would demand money for something or other. Business managements seem blind to the benefit to a business from such an approach. In knowing that you don't have to worry about money—even from being reminded of it in being manipulated into using it—you could spend a few hours in an oasis of sorts where “real life” is put on hold. Is this not part of the allure of going to a movie theater, where you can sit for a couple of hours without any demands or pressures?  

So my verdict on the most fabulous airport in the world—which, admittedly, I have not seen in person—is: so close and yet so far. The sad thing is that the airport’s management need not have been so far from it's own objectives. Given the gravity of the “maximize daily revenue” business model that assumes that a constant focus on getting and an uncompromising rigidity are necessary in dealing with customers, a rocket—rather than merely a jet—is undoubtedly necessary to travel to the sort of business model that I have in mind, and not just for airports. If I am correct in this, then business schools are perpetuating the problem in their training rather than teaching alternative business paradigms. That dog is chasing its own tail.

Behind the new model hinted at (but not achieved) by the example of Changi airport is the basic feeling that life doesn’t have to be as hard as we make it. We don’t have to check receipt totals before letting a kid slide down a slide. It is as though managers set up jungle-gym bars right in front of themselves (and their customers) and then convince themselves (and others!) that the equipment must be navigated in order to get to the other side. Moreover, managers seem to have great difficulty simply in relaxing enough to play and enjoy other’s playing. Beyond the greed and urge to manipulate others (i.e., selfishness), the modern managerial mentality is too constricted, even as it paradoxically assumes that societal rules do not apply to it. So, for example, we have managers redefining words such as “guest” to suit a business interest; the rest of us are somehow obliged to recognize the validity of the misuse as a legitimate use, as in “customers are guests” (who must pay nonetheless). It is as though managers as so fixated on manipulating others without any limit or external constraint that the too-serious creatures cannot let themselves or other people simply enjoy something without required procedures and an immediate monetary exchange. The new model rejects the typical managerial mentality as too petty—too small.

I suspect that many elderly people on their death-beds shake their heads as if in achieving distance from us they have suddenly been freed in the awareness that the world is much more petty in what it takes as important and necessary that it knows. We moderns, complicit stewards of the hegemonic business model, micromanage ourselves right out of life experience itself, and we even impose our modern sickness on others. Then we act surprised when they get annoyed at us!

It is like the steward on the Titanic who (in Cameron’s film at least) shouts (little men do that), “You’ll have to pay for that!” to the young couple just after they have broken through a wall to escape the rapidly rising water. Everything must be paid for. No free ride, even on the Titanic on its way down to the darkness. This is the modern dogma that has been instilled in all of us, and we are utterly ignorant of the fact that it is exceedingly petty and narrow-minded even in its ideal. In the movie, the steward gets hit (justifiably) by the hero.  In cheering this, we, the audience, feel the hero’s natural reaction is our own, vicariously. We regard it as a valid verdict on the extant business model that stood for modernity itself back in 1912. A century later, that model had become the default—“the way the world is.” Even so, this need not have been so. Modernity could have developed differently than it did. The example of Changi airport hints at a better alternative in terms of business models. So in advertising a “stress-free experience” only to undercut it by demanding money for various “amenities” and making explicit (or creating) different classes of customers (which is also a theme in Titanic), the managers running Changi airport deserve annoyed customers and charges of insufficiency and even outright hypocrisy. Even so, we can take the Changi example as at least pointing to a different alternative.

Source:

Scott McCartney, “The World’s Best Airport?” The Wall Street Journal, December 1, 2011. 

The Tea Party on Congress & Popular Sovereignty

Mark Meckler, a co-founder of Tea Party Patriots, characterized the lame-duck session of the Congress at the end of 2010 as presumptuous because the Democratic-controlled House would be controlled by the Republicans in the upcoming session. In other words, the Democrats had just lost the right to control the House in the elections, so their continued control of the House was at odds with the “will of the American people.” According to Meckler, "For them to legislate when they've collectively lost their mandate just shows the arrogance of the ruling elite. I can't imagine being repudiated in the way they were and then coming back and saying 'Now that we've been repudiated, let's go pass some legislation. . . . I'm surprised by how blatant it was."

Meckler was undoubtedly reflecting a view of human nature with respect to the urge to power that was expressed by Anti-federalist opponents of the U.S. Constitution as it was being ratified in the several states.  Brutus, for example, writes, “This principle, which seems so evidently founded in the reason and nature of things, is confirmed by universal experience. Those who have governed, have been found in all ages ever active to enlarge their powers and abridge the public liberty” (Brutus, Letter 2, 2.9.25).  Brutus continues, "power, lodged in the hands of rulers to be used at discretion, is almost always exercised to the oppression of the people, and the aggrandizement of themselves; yet most men think if it was lodged in their hands they would not employ it in this manner" (Brutus, Letter 4, 2.9.54). In other words, there is not only a tendency in human nature to overextend political discretion; there is a built-in presumption whereby the drive is blind to itself. Presumption may be hardwired in human nature, such that we unknowingly walk on stilts made of empty straws.

Therefore, it is essential in a republic that the elected representatives be accountable to popular sovereignty. The Anti-federalist Brutus wrote back in 1788, "Perhaps no restraints are more forcible, than such as arise from responsibility to some superior power.—Hence it is that the true policy of a republican government is, to frame it in such manner, that all persons who are concerned in the government, are made accountable to some superior for their conduct in office.—This responsibility should ultimately rest with the People" (Brutus, Letter 16, 2.9.197, p. 187). Even so, the results of an election are not retroactive.

That is to say, the 2009-2010 Congress was not beholden to the election of 2010. Rather, the repudiation applied to the next Congress. Besides, the Democrats did not concur that their partyh had been totally repudiated.  It could be argued, for instance, that the moderate or conservative Democrats lost while the liberal Democrats such as Barney Franks and Dennis Kucinich survived. Nancy Pelosi was handily re-elected. Was she to view her votes in the lame duck session as inherently presumptuous? In other words, the foray of the Democratic Party onto Republican turf was pushed back--the Republicans taking back more of the Red states. To be sure, the Democratic Party certainly did not gain ground. At the same time, the resulting party may well be more coherent and thus on message.

In short, while Meckler is undoubtedly correct that elected representatives are beholden to their constituents, who can “toss the bums out,” he errs in holding the special session in 2010 to the election for the next Congress and he overstates the repudiation "message" of the 2010 midterm election. In general, so many factors go into elections that it is difficult to gleam one message from the outcome, especially if there are many races. Voters vote for a variety of reasons, even in one race. Superimposing one as a mandate may well be artifice.  Even so, Meckler can be forgiven for responding on the basis of the view of human nature espoused by the Anti-federalists, for it is only human nature to try to get as much passed as possible before losing control of a legislative body.

Sources:

Kate Zernike, "As New Congress Begins, Actions of G.O.P. Leaders Anger Tea Party Activists," The New York Times, January 2, 2011, p. 13.

Brutus quotes are from Herbert J. Storing, ed., The Anti-Federalist (Chicago: University of Chicago Press, 1985).

Obama and the War Powers Act: On Libya

In June 2011, a bipartisan group of members of U.S. House of Representatives objected to the refusal of the Obama administration to obtain Congressional approval in line with the War Powers Act of 1973 for the U.S. military’s continued involvement in Libya. On June 17, 2011, The New York Times ran a story which indicated that Barak Obama had gone against the views of the top lawyers at the Justice Department and the Pentagon in his decision not to seek Congressional approval.

“Jeh C. Johnson, the Pentagon general counsel, and Caroline D. Krass, the acting head of the Justice Department’s Office of Legal Counsel, had told the White House that they believed that the United States military’s activities in the NATO-led air war amounted to ‘hostilities.’ Under the War Powers Resolution, that would have required Mr. Obama to terminate or scale back the mission after May 20 [2011].” The president went instead with the view of the White House counsel, Robert Bauer, and the State Department legal adviser, Harold H. Koh , “who argued that the United States military’s activities fell short of ‘hostilities.’ Under that view, Mr. Obama needed no permission from Congress to continue the mission unchanged.”

According to the Times, “Presidents have the legal authority to override the legal conclusions of the Office of Legal Counsel and to act in a manner that is contrary to its advice, but it is extraordinarily rare for that to happen. Under normal circumstances, the office’s interpretation of the law is legally binding on the executive branch.”

The U.S. House speaker, John A. Boehner, said. “The White House says there are no hostilities taking place. Yet we’ve got drone attacks under way. We’re spending $10 million a day. We’re part of an effort to drop bombs on Qaddafi’s compounds. It just doesn’t pass the straight-face test, in my view, that we’re not in the midst of hostilities.”

It is indeed difficult to imagine that dropping bombs does not constitute or contribute toward hostilities. To parse the War Powers Act as not applying to dropping bombs does not give one much faith that the president has much common sense (or aptitude as a constitutional lawyer). Also raising concern is the possibility that Barak Obama had succumbed to the lust for power. Furthermore, ethically speaking, it is troubling that he would be fine with the conflict of interest wherein the commander-in-chief has the power to decide whether the U.S. military and those of the states (i.e., the militias) will be drawn into a new action. The commander-in-chief has a power-interest in making the policy decision in a direction favoring military activity. The War Powers Act was designed to prevent this conflict of interest. “Hostilities” is simply one way of referring to the military doing what it is designed to do, whether as troops on the ground, ships, or planes (or drones). To split hairs like a micro-managing lawyer not only enables the conflict of interest, it also falls short of the big-picture presiding role of a U.S. president. In other words, Obama's parsing makes him look small and self-serving.

Much more statesmanlike would have been for the president to have addressed Congress in a joint session at the beginning of the involvement of the U.S. military in Libya and asked for a resolution. In other words, the War Powers Act should never have been allowed to become an issue. In standing for the Union, the president could have presided over the question by asking Congress for its yea or nay, proffering his view as a secondary consideration for the Congress. To be sure, acting on a human rights basis to stop a brutal dictator is a worthy cause. I can emphasize with the president for wanting to carry through this agenda. Even so, he should not have allowed what he wanted to eclipse his role in presiding and Congress’ role in forestalling his conflict of interest and representing the people.

I suspect that the typical American on the street read the story and concluded that Barak Obama had succumbed to the elixir of power—not an uncommon occurrence in official Washington. To get a president who is immune from this drug of choice, the Electoral College would have had to draft a duty-bound citizen into serving in the office for a term rather than select among the candidates chafing at the bit to get it. There is something unseemly about someone tooting his or her own horn in order to gain the office, particularly if a lot has to be done to get it. We ought not to be surprised, therefore, when such a candidate gets attached to the power while in office.

Source:

Charlie Savage, “2 Top Lawyers Lost to Obama in Libya War Policy Debate,” The New York Times, June 17, 2011.

Real or Incremental Change?

On October 13, 2010, Fox News reported a poll that found that women were turning on Obama.  The reason cited was that they feel there has been too much change—that it has been “jarring.”  I was stunned—wondering if I was listening to a broadcast from another planet. I remembered that when I had been sampling a fattening food item in a grocery store in my antiquated home town in Illinois; the old woman who gave me the sample, said, “We have lots of devils here!” as she was handing me the sample.  She was referring to the array of food samples in the store that day a few weeks before Thanksgiving.  My reaction, which I charitably did not share with her, was, Oh, horrors! I wondered what century she was from (probably Calvin's, I concluded privately as I chewed a “devilish” olive). I wondered, moreover, why some people magnify little things into horrendous sins. Such people, I concluded, cannot seem to let go of what is to the rest of us so utterly antiquated and get with it. That is, why are some people so resistant to change? Why do they perceive small, incremental changes as somehow momentous—even jarring?

In a preface to one of his books, Milton Friedman wrote, "Only a crisis—actual or perceived—produces real change. When the crisis occurs[,] the action taken depends on the ideas that are lying around.” That is to say, human nature is not exactly designed in favor of substantial change—being more inclined to the incremental variety. When a culture says that real change is to be feared and people don’t bother to come up with a broad array of ideas, even a crisis may not result in real change. Such can be said of modern American society, even as “change” shows up consistently in American political campaigns.

In terms of the jarring change being reported on Fox News, the journalist pointed to the health-insurance reform law as a case in point.  In spite of its purported “socialism,” the law relies on private health-insurance companies, whose lobby pressured Obama into dropping his “public option” requirement and adding a mandate that requires Americans to become customers of those companies.  If relying on extant private companies—giving them a guaranteed and vastly enlarged customer base—is somehow “jarring” change, I have to start wondering about whether some people have a pathological issue with change itself.

One need only point to the Dodd-Frank financial regulation law of 2010, which subjects banks deemed too big to fail to additional capital requirements and requires the banks to develop liquidation contingency plans. This “change” pales in comparison to breaking up the banks having $1 or more trillion in assets so they do not pose a danger while extant. That some people might find increasing capital requirements as jarring boggles the mind. Are such people familiar with real change—even if they voted for it in 2008? I suspect they would not recognize it if it jumped up and bite them on their asses, and yet political campaigns are ostensively all about change—or the illusion thereof—but just enough to tell people what they want to hear.

Not surprisingly, much of the campaigning in the 2010 midterm elections was oriented to incremental change on a variety of issues, rather than to real change, even though the latter would have been more fitting given the systemic negative effects of the financial crisis of 2008. Even in states bordering on bankruptcy, like California, Florida and Illinois, campaigning as usual belied any purported crisis. 

For example, I watched a candidate forum that was being held in Illinois and one of the main questions was why a candidate’s business was so successful.  Meanwhile, the last governor had been impeached and removed from office by a nearly-unanimous vote in the legislature, and the government was borrowing $18 billion in 2010 alone.  The forum struck me as an exercise in “rearranging the deck chairs on the Titanic” as if the ship of state was not on the verge of sinking.  In other words, it was business as usual in a context that demanded substantial change. Clearly, the candidates knew of Illinois’s fiscal (and corrupt) condition. It occurred to me that they were either bereft of ideas or too accustomed to going along on the track of status quo to proffer any real alternatives. Lest one heap all the blame on the candidates at the forum, it is important to note that it was a citizen of Illinois who asked about the candidate’s business. Perhaps the society in Illinois is too entranced by custom and thus insufficiently equipped for real change—ironically even as one of Illinois’ former U.S. senators was serving as the “real change” president of the United States.

Lest the pallid phenomenon be presumed to be limited to the heartland, the California Governor’s race between Jerry Brown and Meg Whitman also evinced politics as usual. The two candidates had a chance in their debates to persuade a California-wide audience that they could turn around the economically-troubled republic. Instead, they resorted—at least in their third debate—“to many of the personal attacks that have dominated the last few weeks of the campaign,” according to MSNBC, whose verdict can be said to apply to American politics even in the wake of a crisis: “Neither candidate presented any new ideas.”

Source:

Jeff Madrick, Age of Greed: The Triumph of Finance and the Decline of America, 1970 to the Present (New York: Alfred A. Knoff, 2011).

Political Staying Power: Ethanol Subsidies

“A broad bipartisan majority of the Senate voted [on June 15, 2011] to end more than three decades of federal subsidies for ethanol. . . . [At the time,] Gasoline blenders [received] a tax credit of 45 cents for every gallon of ethanol they blend[ed] with motor fuel. The amendment would have repealed that as well as a tariff of 54 cents a gallon on imported ethanol. . . . The tax breaks . . . cost about $6 billion a year. The House [was] expected to reject the repeal as unconstitutional because tax bills must originate in that chamber, and the White House opposes it. But the 73-27 vote signals that once-unassailable programs could be vulnerable.  [The intent was] to end subsidies for wealthy interest groups and [to make some] cuts before slashing social-welfare programs. [Thirty three] Republicans joined 40 Democrats and Independents in supporting [the] repeal. (E)thanol has come under increasing fire from diverse groups, including food industry groups concerned about rising corn prices and environmentalists who had concluded corn ethanol wasn't an effective way to reduce greenhouse gas emissions.”

At the time of the vote, much of the gasoline sold at service stations across the U.S. contained up to 10% ethanol, in part because of federal regulations that effectively require it. The Obama administration “proposed pushing the blend limit to 15%, despite objections from auto makers worried that higher ethanol levels would damage engine components in cars. Auto makers design many so-called ‘flex fuel’ vehicles to run on ethanol blends up to 85%. But few service stations outside the Midwest offer such fuels.”

“The ethanol industry and its supporters, who have been bracing themselves for an end to the tax break, were critical of the vote. ‘We need a glide path, and not a cliff, for the only alternative to oil,’ said Sen. Amy Klobuchar (D., Minn.). ‘We're talking about pulling the rug out from an industry that provides 10% of the nation's fuel supply.’ . . . The Renewable Fuels Association, an ethanol industry group, criticized the action, noting that the Senate ‘voted less than one month ago to preserve billions of dollars in taxpayer handouts to the oil industry.’ . . . The tax break benefits the ethanol industry, which is dominated by commodity giants” such as Archer-Daniels-Midland “by sweetening the financial incentive for gasoline retailers to use ethanol.”

“Repeal supporters said the $6 billion-a-year subsidy amounts to wasteful support for a fuel whose promises of cost savings, lower pollution and energy efficiency have not materialized. ‘This industry has been collecting corporate welfare for far, far too long,’ said Sen. John McCain (R., Ariz.), who's been fighting the subsidy for years. Mr. McCain offered another measure, to block federal funding for ethanol pumps and storage facilities, which failed 41-59. The House adopted a similar amendment.”

“Food companies and livestock farmers “have complained that their costs have exploded as five billion bushels, or 40% of all the corn grown in the U.S. last year, was consumed in ethanol production. The price of corn has traded above $7 a bushel for much of the spring [of 2011], twice the year-ago level. Some economists doubt that the tax credit is now crucial for the industry. The ethanol industry only began to grow rapidly five years ago when new energy legislation required gasoline retailers to use corn ethanol: 12.6 billion gallons [in 2011], moving to 15 billion gallons in 2015. The tax credit is part of the reason the gasoline industry buys more than one billion gallons a year than required by federal mandate. But if it expires, ethanol demand wouldn't fall below the mandate, preventing financial calamity for producers, said Bruce Babcock, an Iowa State University economist. ‘The ethanol industry doesn't need the tax credit anymore,’ he said.”

It is remarkable that even though the ethanol industry did not need the tax credit, it could still count on the White House and the U.S. House of Representatives to keep the benefit around. This was in spite of the inefficiency of ethanol, the negative impact of ethanol on food prices, the existence of the duplicative mandate, a U.S. budget deficit of over $1 trillion, and a contentious budget-cuts/debt-ceiling debate going on in which cuts were being sought by legislators. The size of the deficit alone (and the accumulated U.S. debt) should have made the affordability of the tax credit a foregone conclusion, yet astonishingly denial seemed sufficient to enable the status quo to continue unabated. That is to say, if a current U.S. Government deficit of over $1 trillion didn’t make the non-essential subsidy a non-starter, what could suffice to do so? To be sure, that the U.S. Senate voted by a substantial margin of senators to end the credit was notable. Politically, however, it merely reflected the split of the agricultural interest on the issue due to the impact of ethanol on the price of corn.

Even considering the U.S. Senate’s action, the staying-power of the status quo in the face of the unsustainable U.S. Government debt of over $14 trillion is truly remarkable in what it says about the ability of a political union based on representative democracy and federalism to deal seriously with dire problems. In other words, one might reasonably ask whether a republic is capable of change sufficient to avoid a train-wreck. Can a people govern themselves when it really counts, or is democracy a matter of convenience? Perhaps part of the problem lies in priorities.

As the U.S. Senate was voting on the ethanol subsidies, the U.S. House was simultaneously rejecting attempts to reduce farm subsidies while cutting the Women, Infants and Children program, “which offers food aid and educational support for low-income mothers and their children,” by $868 million (which represents a 13% cut), and an international food programs that provides emergency aid and agricultural development by $50 million (which represents a 33% drop), according to USA Today. In a governmental context in which budget cuts were very much in the air, the staying power of the ethanol subsidies in the House even as food for the hungry was deemed expendable reveals questionable priorities in terms of budget policy, unless it is the case that large corporations are more in need than women and children. That is to say, if House Republicans were voting in line with an ideological preference for less government, wouldn’t that proclivity apply to corporate subsidies as well as food aid?

Ethanol subsidies, international food-aid, and aid to impoverished people domestically can be prioritized in terms government. For example, it can be argued that feeding citizens (or residents) who are otherwise without enough food is more of a government’s responsibility than is either giving corporations subsidies or sending food aid abroad in exchange for influence in foreign governments. The distinctions between foreign and domestic and necessity and profit are useful in isolating core from peripheral functions of government. In times of budget-cutting, the core should be treated differently than the peripheral. Additionally, it might be asked whether in a federal system the subsidies and food-aid are properly federal or state domains. It could be that federal food aid should be cut completely in order to be picked up differentially at the state level.

Sources:

Naftali Bendavid and Stephen Power, “Ethanol Suffers Rare Loss in Senate,” The Wall Street Journal, June 17, 2011.

The Associated Press, “House Spares Farm Subsidies, Targets Food Aid,” USA Today, June 17, 2011.

Fannie and Freddie: A Lavish Corporate Lifestyle after the Financial Crisis

Fannie Mae and Freddie Mac spent more than $640,000 to send 100 employees to a mortgage-industry conference in Chicago in the fall of 2011. According to a letter from the Federal Housing Finance Agency, which oversees Fannie and Freddie, the spending included nearly $342,000 for travel, food, hotel and meeting-room space. Incredibly, $74,000 was spent on four invitation-only dinners for mortgage-lending companies that are regular customers of Fannie and Freddie. Because Fannie and Freddie at the time dominated the U.S. mortgage market, "purchasing and guaranteeing about 70% of new loans from mortgage lenders,” who in turn thus had few alternative potential buyers, managers at Fannie and Freddie still felt the need to wine and dine their customers under the subterfuge of valuing “face-to-face meetings with customers as a way to understand their needs,” according to the Wall Street Journal. Apparently the folks at Fannie and Freddie were not familiar with customer surveys or even the telephone. Instead, Freddie spokesman Doug Duvall bragged, “[We were able to meet] with our lender customers in a cost-efficient way. In just two days we held approximately 200 meetings.” Undoubtedly some of those “meetings” were held at the dinners, each of which cost the taxpayers $18, 500.

The $640,000 spent on the conference can be racked up to the lack of competitive pressure facing a government-owned organization that is close enough to the private sector to want to enjoy perks that are no doubt common on Wall Street. In other words, while it might be less bothersome to us to see stockholders’ money spend on corporate luxuries, it is not clear that Adam Smith would feel very comfortable amid modern corporate capitalism (and he did include a role for government in his economic theory).

The particularly sad thing about the lavish spending by managers at Fannie and Freddie is that those agencies had been firmly opposed to refinancing the mortgages of borrowers “under water” since the collapse of the housing bubble. Over 3 million foreclosures had taken place in the three years since September 2008. The luxury amid harm bespeaks such inequity that even underlying societal values may be at issue—namely, I should be able to eat, drink and be merry while people I don’t know lose their homes. Beyond the ethical problems with this attitude, it evinces a pathology—that of malignant narcissism and perhaps even sociopathy. It is interesting (i.e., convenient) that no terms could be given up on even the questionable (i.e., the producers’ role) mortgages, while plenty of money was available to be spent on lavish dinners ostensibly for guaranteed customers. The managers at Fannie and Freddie could not very well say that they could not afford to relax some of the overly-stringent terms of the ARMs in the sub-primes (and Alts). In fact, given the roles of policy makers and mortgage producers in enabling the housing bubble with questionable mortgages, a moral obligation exists for the government (and the related agencies) to act so as to obviate the foreclosures (which would have obviated the need for TARP for the banks, as the toxic assets were based on the bad mortgages in default). Had the managers at Fannie and Freddie recognized this point rather than stood on sanctity of contract, the Obama administration might have found a way to compensate the two agencies for doing so—perhaps even throwing their managers a lavish dinner at the White House.

Source:

Alan Zebel, “Fannie, Freddie Spend $640,000 on Conference,” The Wall Street Journal, December 1, 2011. 

Obama Standing up to Wall Street: Fact or Fiction?

An interesting bit of news-reporting from the time of the Obama Administration sheds light on business and government: “What haunts the Obama administration is what still haunts the country: the stunning lack of accountability for the greed and misdeeds that brought America to its gravest financial crisis since the Great Depression. There has been no legal, moral, or financial reckoning for the most powerful wrongdoers. Nor have there been meaningful reforms that might prevent a repeat catastrophe. Time may heal most wounds, but not these. . . . After the 1929 crash, and thanks in part to the legendary Ferdinand Pecora’s fierce thirties Senate hearings, America gained a Securities and Exchange Commission, the Public Utility Holding Company Act, and the Glass-Steagall Act to forestall a rerun. After the savings-and-loan debacle of the eighties, some 800 miscreants went to jail. But those who ran the central financial institutions of our fiasco escaped culpability (as did most of the institutions). . . . The weak Dodd-Frank financial-reform law that rose from the ruins remains largely inoperative, since the actual rule-writing was delegated to understaffed agencies now under siege by banking lobbyists and their well-greased congressional overlords. . . . Rather than purge the crash’s crimes, Wall Street’s leaders are sticking to their alibi: Everyone was guilty of fomenting this “perfect storm,” and so no one is. Too-big-to-fail banks are bigger than ever, and ­Masters of the Universe swagger is back.”

Analysis:

 The hegemony of the moneyed interest in any republic renders the public weal subject to a plutocracy—rule by wealth. In the wake of the credit crisis of 2008, U.S. Senator Richard Durbin of Illinois observed that the banking lobby still owned Congress even as the public regarded the banks as at least partially culpable for the crisis. Durbin made his remark after the Senate defeated his amendment that would have allowed foreclosure judges to modify mortgages in trouble. Even though mortgage companies had written steep interest rate hikes into the subprime mortgages that the mortgage writers must surely have known the borrowers could not afford, the servicers stood by the vaunted sanctity of contract doctrine—a faithfulness conditioned, no doubt, by the article serving their interests. Financial influence over elected representatives enabled the U.S. Government to provide cover, or at least to refrain from going after the financial institutions that had been so culpable. That government also refused to break up the banks too big to fail, whose very concentrations of wealth, increased by the TARP program, stood even more as systemic risk.

 Historically, Americans have looked to independently-minded occupants of the U.S. Presidency to stand up to powers of the day to protect the viability of the states. Andrew Jackson, for example, stood up to the moneyed interest before his reelection in 1832 in depleting the Second National Bank of the United States of funding (the bank ended in 1836). Doubtless Jackson spent many nights before the election worried that standing up to money might cost him the election. Of course, he won and enjoyed distinct respect.

 I suspect that Barak Obama did not enjoy respect in the wake of the credit crisis precisely because he did not stand up to the banking lobby. Relatedly, he caved to the demands of the health insurance industry lobby that he no longer push for a public option and resist a mandate for guaranteed customers. I suspect that people sense a lack of political courage and recalibrate their respect accordingly. The political weight of such a collective judgment at the ballot box is an open question; the reward such as Jackson received in 1832 is likely more certain even as it is thought less. Herein occupies the political trap wherein the path of least resistance may gain the upper hand in a president’s political calculation. Faith in the people rewarding courage against concentrated interests can be difficult to embrace even as such reward is perhaps germane to the office as it was designed and intended. Americans seem to innately know this, even as their collective judgment is difficult for politicians to discern.

 In the want of a Jacksonian presider standing for the public weal against being overrun by the private moneyed interest, the historical answer would have been to look to normative, even religious, constraints. Frank Rich includes this type among the more contemporaneously popular legalistic and economic ones where he writes, “There has been no legal, moral, or financial reckoning for the most powerful wrongdoers.” Even so, he concentrates on government regulation as essentially the only means available to constrain the unrepentant greed of Wall Street. Historically, ethical constraint against greed was thought to depend on religious, and specifically Christian, auspices. Frank Rich’s focus alone may be read as rendering a verdict on the efficacy of Christian ethics in countering the fundamental desire for more. Yet how many Jackson’s have the States seen that we may rely on presidential leadership and any ensuing regulation to constrain the moneyed interest?  Moreover, what if greed is so entrenched in human nature that virtually any bulwark must ultimately be found wanting?  

 Source:

 Frank Rich, “Obama’s Original Sin,” The New Yorker, July 3, 2011.

Related essay: “Godliness and Greed”

The Tail Wagging the Dog: Congress under the Influence

Congress may be like a drunk, unaware that it is being handed one drink after another by vested interests oriented to legislation with specific financial objectives. On February 28, 2010 on CNN’s State of the Union, Nancy Pelosi, Speaker at the time of the U.S. House of Representatives, said that the health insurance companies didn’t want a government-financed and operated "public option" for American citizens, so it was off the table. Her statement resonates with the earlier one by U.S. Senator Richard Durbin just after his forclosure-assistance amendment failed: "The banking lobby owns Congress." That the health insurance companies and Wall Street banks were generally viewed as at least partially culpable even as they still had Congress in their pockets points to a serious corruption in American government.

Even when companies (or an industry) are at fault, they can still call the shots in Congress when their interests are at stake. At the very least, they can encourage diversions that enable them to safeguard planks in legislation that protect their interests. Consider, for example, Representative Dennis Cardoza, a Democrat of California in the U.S. House. The husband of a family practice physician, he is intimately familiar with the failings of the American health care system. His wife “comes home every night,” he said, “angry and frustrated at insurance companies denying people coverage they have paid for.” Even so, he is on the fence on the Democratic health-care reform proposal because he wants stronger anti-abortion language and more cost control. Were he really angry like his wife, he would be pushing for the public option and for real restrictions on the insurance companies, rather than allowing secondary issues to get in the way.

I don’t believe Dennis Cardoza was all that angry at the companies that have been refusing to fuffill their responsibilities to their customers who have paid premiums. Moreover, he was allowing himself to succumb to the self-interested manipulation of the insurance companies that had purported sparked his anger. It is in the health insurance companies' interest that costs are reduced because then their expenses are reduced. If he were really angry like his wife, he would not be so willing to do something that would benefit them so much; rather, he would be working to take power and money away from them by insisting on a public option.

America’s Health Insurance Plans, a lobbyist for the insurers, announced in March 2010 as Congress was considering health-insurance reform that the organization was buying more than a million dollars’ worth of television advertising time in order to "explain" why insurance premiums had been rising. Such a claim of educating the public is a subterfuge behind a financially-induced intention to manipulate public opinion to shape the health insurance law in the interest of the insurers (even as their practices of exclusion had been part of the problem). The week before, the White House had indicated that the industry’s rationale for the raised premiums was unconvincing, but how many people got this information through the din of the lobbyist's commercials?

All too often without realizing it, citizens allow industries to get away with their misrepresentations that are geared to thwart reform. The health insurance industry’s ads convince us that the companies really aren’t sharks; we ignore Sen. Rockefeller’s likening of the companies to sharks—you don’t know there is a shark until you see its fin and feel its sharp teeth. In other words, our anger is too easily (and conveniently…for the sharks) dissipated. In other words, we let the bad kids off the hook and go on as if the problem were somehow no longer out there. This puts the misbehaving kids in a position to thwart any parenting. We ignore the inherent conflict of interest in this scenerio as the kids steer public policy to our detriment.

I suppose it is only natural that sick kids would not feel culpable for their illnesses. Even so, the sick kid sitting on the table in a physician's office does not get to decide on his own treatment even if he or she is from a rich family. If there is an adult in the room, the kid is overruled in his own case and the shot is given over the kid’s objection. In the case of health reform, one might reasonably ask: where are the adults, or are the sick insurers in the driver's seat even as they are on the table?

 Source:

 David M. Herszenhorn and Robert Pear, “Parliamentary Hurdle Could Thwart Latest Health Care Overhaul Strategy,” The New York Times, March 9, 2010.

Occupying Wall Street: A Self-Regulated Protest?

The right to protest as a manifestation of freedom of speech is held societally as sacred the United States, but the question of how far protest goes before it becomes simply living in a park is one of those gray areas that tend to be decided by the judiciary far from the tarps and sleeping bags. The protesters’ premise that living in a public space eventuates in the achievement of their goals is tenuous where the goals are broad. Undergoing a hunger strike to get a certain anti-corruption bill voted on by India’s parliament is far different than camping out in Zuccotti Park in New York City until corporate capitalism is ended in the U.S. In short, the tactics used should be oriented to the sort of objective being sought. Moreover, the tactics and indeed the objectives themselves require a protest group to self-police such that it does not wander too far off course or spread itself too thin. Protest movements may be too prone to die a slow death from self-inflicted wounds without even the slightest recognition of the cause of death. The Occupy Wall Street protest movement had the capacity to self-regulate, but fell well short of that which was necessary for the group to achieve its anti-corporate goals.

To be sure, the movement evinced some capacity to regulate itself. Faced with the prospect of an imminent clean-up of Zuccotti Park—perhaps a salubrious subterfuge actually geared to permanently dislodging the park’s new residents—some of the protesters scurried around “with brooms and trash bags, moving mountains of sleeping bags, backpacks and jackets out of the way,” according to The New York Times. Meanwhile, others gardened. These tasks doubtlessly tapped into the young protesters’ ideal of working toward something larger than themselves, which they tend to label as “community.”  The impetus on the upkeep was geared to forestalling the park’s owner, Brookfield Properties, from clearing the park a third at a time for a “once-over” by a clean-up crew, after which new rules proscribing camping, tents, tarps and sleeping bags would be enforced. But was it even in the group’s interest to allow camping to become a major issue? Secondly, could the energy of self-regulation have been put to better uses than clean up, given the group’s anti-corporate goals?

Taking the first question first, it should be obvious that occupying a park is not occupying Wall Street. If the protesters were serious on their occupation, they would have sat own in streets in New York’s financial district and blockaded the bank entrances with sit-downs—perhaps even occupying bank lobbies akin to the anti-war protest at Columbia University in 1968. This “actual occupation” strategy would have been more likely to involve the police, but the occupation would have been real—at least for a time. This strategy is distinct from protest marches, which as a strategy could have been an alternative or addition to that of actual occupation of the streets and banks. Allowing the issue to be whether camping takes place in a park can thus be seen as a diversion that is not in the protester’s own interest. Indeed, getting sick by living in a crowded park night after night would also enervate the protest (besides justify the public authorities in clearing the park for public health reasons).

Regarding the second question, the self-regulation evinced by the protesters cleaning up on their own volition can be read as supporting the argument that the protest movement could have policed itself regarding delimiting its topic and presenting a positive image for public relations purposes. Protesters could have volunteered, for example, to make the rounds to eliminate any off-topic signs, such as those for the environment and against the war in Afghanistan. Allowing the protest to be a virtual grab-bag of leftist causes deprived the movement of broader support and gave the opposition ammunition with which to relegate the movement. Even in shifting from an anti-big-corporation message to redistribution undercuts the group’s original anti-corporate (but not necessarily redistributive) goals.

Butting up against the movement’s own efforts to regulate itself was the ideology or illusion that the movement had no leaders. “Every action you see here is autonomous,” one protester said as he was filling plastic bags with trash. “Autonomous enough for people not to be doing it,” another protester added, as reported by The New York Times. That protester went on to describe his “autonomous plan” as if that label itself, and his belief in it, rather than a single-minded aim of ridding American society of large corporations were the main point of him being there.

In other words, the protesters themselves suffered from a lack of priorities and this hurt the attainment of their original anti-corporate goals. Even though the voluntary clean-up effort demonstrates that the movement was capable of self-regulation to delimit and protect the priority of its original, anti-corporate goals, the refusal to delimit the topics (based on the illusion that there were no leaders) and keep the distracting ideologies at bay undercut the group’s self-regulatory potential and ultimately the group’s realization of its anti-corporate goals. Indeed, their lip-service to the contrary, many of the protesters may not have been sufficiently interested in those goals in the first place.

In a letter to the local police commissioner, the chief executive of the property company that owns Zuccotti Park reported that there had been neighborhood complaints of “lewdness, groping, drinking and drug use.” Without self-policing such behavior, the movement risked undercutting its own legitimacy in the eyes of the wider public. Without legitimacy, the movement would face an uphill battle even to be heard. Furthermore, the behavior could be viewed as having an opportunity cost—that of the foregone focus on how to achieve the anti-corporate aims of the movement. Actions speak louder than words; from my vantage-point, it seems that the protesters could have been more devoted to the cause that presumably brought them to Zuccotti Park.

So while it might be fun for young people to relish their “autonomous plans,” get high and camp out with other like-minded people in the zest of life, the refusal of the group to self-regulate itself may have been the seed of the group’s eventual dissolution without the movement having attained its goals—whatever those happened to be. It is an interesting question whether an aggregate of "autonomous plans" can regulate a movement without even a leader as a spokesperson. But why risk "the cause" to find out?

Every group must necessarily have leaders. Whether centralized or decentralized, leadership is part of any organization. Whether accountable or stealth, leadership is there, and whether as spokespersons or committees, leadership is also there. To eschew mechanisms like majority rule and group decision-making so that every person can feel fully autonomous is not only antithetical to there even being a group, it is also at odds with the realization of the movement’s goals, which presumably are necessary means to the greater autonomy being sought outside of a city park.

In short, the protesters undercut themselves from the get-go by wanting too much both ways. They refused to self-regulate their ideology. They would hate reading this, but I suspect that a crucial error of the movement early-on was to give young people too great a role in, yes, running it. Even forestalling necessary decision-making at the group level constitutes a default-decision. In a way, to eschew any leadership at all evinces a puerile or jejune mentality of stubbornness at the expense of one's goal of reducing the impediments to greater economic liberty. This mentality may also have manifested in the failure of the young in the movement to defer to more seasoned leaders. We can do it better ourselves this time and we want it both ways. We don't want ANY limitations. To this mentality, I echo Burl Ives as the snowman narrator of Rudolf the Red-Nosed Reindeer, where he shakes his white head of snow, smiles, and says almost fatalistically, Ah, youth.

In Homer's story of the Trojan War, Achilles' youthful exuberance defers quite uncomfortably to the experience of King Agamemnon; a war led solely by youthful passion would be a mere series of battles. In Lawrence of Arabia, Alec Guinness as King Faisal tells Peter O'Toole as Lawrence to leave the room so the British and Arab leaders can negotiate on Damascus. Some things must be left to old men, the king teaches the youthful warrior with a credible tone of fatalism at the expense of volition. Successful youth are mature and humble enough to know they can't do it all themselves. Successful leaders can then tap into youthful passion and direct it strategically.

Had the Occupy Wall Street movement self-regulated itself beyond cleaning up the park, the group could have enforced and sustained sufficient focus (and thus energy) on the original anti-corporation goals, wherein corporations no longer own Congress and the largest banks and corporations are broken up because of their systemic risk to the financial system, the economy, and representative democracy. The opportunity cost in broadening the movement is sad, particularly as theTea Party could have readily agreed to protest against big business and the banks. That leftist causes, even that of redistribution, were allowed to join the movement out of sheer ideological convenience and an immature refusal to admit the necessity of leadership demonstrates that the self-regulation evinced in the clean-up of the city park did not go nearly far enough for the movement's own good, and that of the republic for which we stand united for life, liberty and the pursuit of happiness.

Source:

Anemona Hartocollis, “Tidying UP, Pre-emptively, But Showdown May Loom,” The New York Times, October 14, 2011. 

See related essays: "Occupying Wall Street" and "Political Protest 101" and "Police Against Protesters: Sadism or Politics"

The Saudi Crackdown: A Cause for Market Confidence

The Saudi government sought to confiscate cash and other assets worth as much as $800 billion in ostensibly cracking down on corruption in late 2017. More than 60 princes, officials, and business practitioners were initially detained. Both the figure and the number of arrests reflect merely “the initial stages” of asset seizures and arrests, according to a Saudi spokesman.[1] It was not long before 500 had been detained.[2] I submit that both the swiftness and scope left international investors and foreign businesses in Saudi Arabia unnecessarily rattled. Doubtless uncertainty as to the real reason for the crackdown unnerved the business elite. Corruption was endemic in the Saudi political economy, so the sudden need to crack down on it understandably left people to wonder as to the real reason, which, as it turns out, was nothing for business to fear.

The first point to make regards the spuriousness of the prime facie anti-corruption motive. At the time, Saudi laws “included little or no regulation of the sprawling royal family and its closest clients.”[3] For example, a major Saudi investment firm founded by one of King Salmon’s sons and then chaired by another owned “a significant stake in a conglomerate” that did “extensive government business.”[4] Indeed, princes “were known for borrowing money and simply never paying it back, which nearly led to the collapse of the National Commercial Bank.”[5] Prince Alwaleed bin Talal, curiously one of the detainees, told the American ambassador in 1996 that a handful of senior princes controlled billions of dollars in off-budget programs.”[6] Bringing about accountability in princely self-aggrandizement at the expense of the government can only be an oxymoron when said government belongs to the royal family. To apply democratic accountability would only be to demonstrate a foreigner’s base ignorance of the Saudi political economy.

The New York Times observed at the time that “if corruption is defined as private profit at the public expense, the practice is so pervasive that any measures short of revolutionary change may appear to be selective prosecution.”[7] Such change was clearly not in the cards. Doubtless the Crown Prince, who headed the anti-corruption force, shielded his allies and supporters and took advantage of the opportunity to take some detractors out of play, but his motive likely went beyond merely consolidating power, given the precariousness of the economy’s oil-dependency in the twenty-first century amid global calls for lower use of fossil fuels. Indeed, being dependent on any industry is not sound economic practice for any government or ruling family.

Crown Prince Mohammed bin Salman said that going after corruption at the highest level would be necessary to moving the Saudi economy off its dependence on oil, but the pervasiveness of “unlawful gain”—as if the law touched the royal family—undermines the claim. Were the Crown Prince determined to rid the political economy of corruption, an entirely new system would be needed; such a prospect would indeed legitimately raise caution-flags among investors and businesses, but they needn’t have worried as corruption itself was still safe in Saudi Arabia given the continuance of the royal family as the economic and political sovereign.

The riddle as to the actual motive is solved once it is realized that the assets seized would go to the state, and thus be available for investment to diversify the economy. The prolonged period of low oil prices had “forced the government to borrow money on the international bond market and to draw extensively from foreign reserves, which dropped from $730 billion at their peak in 2014 to $487.6 billion in August” 2017.[8] Eurasia Group, a political risk advisory firm, claimed that the crown prince needed “cash to fund the government’s investment plans.”[9] Like other countries in the Middle East, Saudi Arabia was facing time pressure to diversity economically while oil-money could still make it possible. The low oil prices simply meant that more than on-going oil revenue would be needed. So rather than being spooked by the uncertainty unleashed in the dramatic crackdown, investors and business practitioners having an interest in the Saudi economy should have felt more secure, for a diversified economy enhances stability for the long term.

---

[1]Margherita Stancati, “Saudis Target Up to $800 Billion in Assets,” The Wall Street Journal, November 8, 2017.

[2] Nicholas Kulish and David Kirkpatrick, “Arrests Reveal Blending of Kin and Kingdom,” The New York Times, November 8, 2017.

[3] Ibid.

[4] Ibid.

[5] Ibid.

[6] Ibid.

[7] Ibid.

[8]Margherita Stancati, “Saudis Target Up to $800 Billion in Assets,” The Wall Street Journal, November 8, 2017.

[9] Ibid.