Friday, September 28, 2018

CEOs in 2012: Avoid the “Fiscal Cliff”!

Reporting in November 2012 in anticipation of the across-the-board budget cuts and end of the Bush tax cuts, together expected to amount to around $500 million for 2013 alone, the Wall Street Journal observed that some large American corporations were “making plans to slow investments, lay off workers and pay less-generous dividends if Congress and the Obama administration don’t find a way to avert the so-called fiscal cliff.” Such plans could represent a self-fulfilling prophesy wherein a hit of just over a half trillion dollars in an economy of over $16 trillion is nonetheless depicted by the media as a cliff. In actuality, it could be more like taking a step down the stairs rather than falling off a cliff. Even if the federal budget cuts and end of the Bush tax breaks in 2013 would not in themselves drive the U.S. economy off the cliff into an economic abyss, the assumption of economic Armageddon could build-up downward momentum to something even far worse than a return to recession. The culprits are those in business, government and the media who were engaging in a series of steadily loud exaggerations. It could justifiably be asked, what’s the difference?
The difference is that a downturn from exaggerated rhetoric on the public airwaves would not inevitable, even were sequestration to occur. Even the sequestration alone was not in itself inevitable as 2012 was coming to an end, as Congress and the president had ample opportunity go beyond posturing to avert the $500 million hit by reaching a deal on budget-cuts and revenue increases. Making matters perhaps worse, the corporate executives who were discussing their plans publically in November 2012 may have been depicting their intentions overly pessimistically in order to manipulate the contours of an eventual deal between Congress and the White House, or just to press the federal officials to get to a deal—anything. In other words, as laudable as it is to pressure elected representatives to work together for the good of the entire economy, advertising exaggerated corporate plans to do it could play into the self-fulfilling prophesy.

Bank of America CEO Brian Moynihan said at an investor conference in New York in November that uncertainty about U.S. tax and spending policies had already prevented many clients from investing in 2012. At a meeting of CEOs hosted by the Wall Street Journal, Mark Bertonini of the health insurance company, Aetna, said, “The American people are going to suffer, because we’ll lay them off.” Besides the fact that stoking fears as a means to manipulate public opinion and federal lawmakers is ethically problematic, the CEO’s claim might be exaggerated, or at least overly simplistic even as it is in line with the financial interest of an insurance company that would be negatively affected by the budget cuts to hospitals.

The Journal itself provides a reality-check in making the following observation: “To be sure, there is a difference between CEOs issuing warnings to influence a policy debate and actually making cuts. Companies juggle a range of factors when deciding whether to hire, fire or invest, and many say privately they are more influenced by broader shifts in technology and demand than the fiscal cliff.” Merely in using the term cliff, however, the Journal is unwittingly complicit in the game. About a week later, the Journal would blatantly state that for investors, the stakes   were high.

Bertonini’s claim of eventual layoffs could have very little to do with Aetna’s actual contingency plans—the claim being primarily to manipulate rather than inform. Even defense contractors and hospitals, which would be directly impacted by the sequestration (but also by a Congressional agreement, albeit less so), had probably already factored the possibility into their operations in 2012 so any further downturns in 2013 from the sequestration would probably be more muted than the cliff rhetoric would suggest.

Already in 2012, the eurozone’s quarterly GDP numbers, including the third-quarter “slump” of -0.2 percent, was “weighing on” executives at American companies in terms of their cautiousness in investing and hiring at a time when consumer demand in the U.S. was running at its highest level since mid-2007. That is to say, world events prior to the anticipated “fiscal cliff”were also playing a role in the business outlook in America.

Warren Buffett, the founder of Berkshire Hathaway, said the U.S. has a "very resilient economy" and so going over the so-called cliff would not be permanently crippling. To be sure, the senior statesman of business could have been trying to manipulate Democratic leaders to push for higher tax revenue from the rich. However, Seifi Ghasemi, CEO of Rockwood Holdings, a specialty chemical manufacturer, said in late 2012 that preventing another war in the Middle East and bolstering Europe’s economy were bigger concerns” at the time than avoiding the sequestration of across-the-board budget cuts. With the exception of Newt Gingrich saying on ABC This Week that the U.S. economy was big enough to handle a $500 million hit, Buffett and Ghasemi were lone wolves in the wilderness in downplaying the "cliff" theatrics that the sky would fall should the budget ax fall early in 2013. At the conference of CEO’s hosted by the Wall Street Journal in November 2012, 73 percent of the executives said they were more concerned about sequestration than even the E.U.’s debt crisis—this in spite of the fact that the Economist had just come out with a major piece on the uncompetitiveness of France representing a new danger to the euro.

The involvement of CEOs in the chorus of “the sky is falling” rhetoric in order to manipulate public policy for financial gain should strike us as nothing new. It is crucial to note, however, that the topic here was systemic in nature, meaning that the U.S. economy as a whole and the fiscal viability of the U.S. Government itself were presumably at issue. The stakes are perhaps too large where the risk is systemic for CEO’s to “hyper-drive” the public discussion into hysteria just so profit won’t be as negatively affected by government cuts.

Whereas corporate public affairs offices are typically oriented to getting favorable regulations (i.e., strategic use of regulation) or deregulation oriented to a particular industry, the “fiscal cliff” would impact the entire economy—the question being how much. Using the sequestration “debate” to eke out more financial gain or avoid a loss for one’s company can be dangerous for the system as a whole if the manipulation distorts the problem. In my view, fiscal cliff is inherently distortive, and thus any public manipulation based on it is also problematic. To “join in”for financial gain is not exactly being socially responsible.

Whether in public or “behind closed doors,” corporate involvement in the public policy process has more legitimacy ethically speaking when the effort is to “save the ship” where the “ship” is the system as a whole, and thus far from narrower benefits, such as to the companies themselves. To be sure, companies have a financial interest in the general condition of the macro economy, but the more systemic the suggestion, the less immediate the financial benefit to a particular firm. The more immediate the benefit is to a company, the less credible are its managers’ efforts to manipulate public opinion and officials.

Rather than “fear mongering,” the CEOs at the meeting hosted by the Wall Street Journal in November 2012 could have suggested possible ways that sequestration could be obviated by an agreement by Republicans and Democrats leaders in the U.S. Government. Specifically, the executives could have oriented their comments to suggesting new ways that Congress could raise revenue and cut the federal budget in ways that are wiser than simply across the board. Optimally, the suggestions would be oriented to the problem at the systemic level and thus reflect such a perspective.

Implying that a corporation’s particular financial interest is never completely overcome by a societal perspective, the Wall Street Journal reported in November 2012, “Different business sectors are split over what policy makers should do. Some have called for Congress to extend all expiring tax cuts for at least another year. Others have said Congress should raise taxes as part of a broader deficit-reduction plan that cuts spending on Medicare and Social Security. . . . (S)ome say fears of the fiscal cliff are overblown.” The split by sector suggests that the prescriptions even at the macro, or societal level at the very least take into account an industry’s own financial interest. It is as if what is good for the part is presumed to be good for the whole. To be so inclined does not make a CEO or company look good in the public discourse.

A suggestion with even an indirect financial benefit to one’s firm can easily be discounted by public officials and even the general public as lacking sufficient credibility to be trusted. An executive’s venture into the public square can easily be for naught under such circumstances. It would be better to remain quiet than suffer the loss in reputational capital. The alternative to either one is for the CEO or public affairs director to limit the company’s particular benefit from a systemic-oriented suggestion to public relations, which is itself a valuable long-term intangible asset. That is to say, time and energy spent coming up with the most respectable (i.e., clever) suggestion can do much more for one’s own company than trying to profit more directly from manipulating public discourse in a self-interested way. The numbers will take care of themselves. Ever notice that when people recognize a clever suggestion made by someone, they don’t accuse the person of trying to manipulate things, but, rather, praise him or her for the insight? CEO’s wanting a share of the leadership podium at the societal level might keep this observation in mind.

Given the expertise and societal position, at least potentially, of CEO’s, contributing toward solving system-wide problems in the political economy can even be regarded as a part of corporate social responsibility, as long as the financial benefit implied by a given suggestion is not too direct or exclusive to the executive or his/her company. Financial self-interest exculpates the ethical merit that is inherent in the very notions of responsibility and duty that are salient in ethics. In public discourse, it is better to be oriented to mapping the general course of the ship (i.e., the political system and/or financial system as a whole) around icebergs rather than trying to reserve a deck chair with a better view. We expect people to wrangle for position, whereas we take notice when individuals take a stand in spite of themselves for the greater good of the system.

 J.P. Morgan led banks in bailing out Wall Street in 1907.  Source:

Consider, for example, J.P. Morgan’s decision in 1907 to take the weight of the banking crisis on his own shoulders by leading banks to save Wall Street by infusing the needed capital into the system. Contrast this vaulting of business leadership to the societal level with the vaunted self-protective orientation of Wall Street bank CEOs in September 2008. Business leadership raised to the societal level is rare indeed, and thus particularly valuable—and yet countless CEO’s settle for strategic leadership of significantly less value.
It is not as though opportunities are rare. In November 2012, President Obama presented CEOs with just such a platform at the White House just as he was entering into negotiations with Congressional leaders on a possible deal that would avert the “sky from falling.”To have optimal credibility with the president, the CEOs would have had to treat the meeting as falling under “corporate social responsibility” in that they would have had to take the perspective of the U.S. as a whole, and thus be on the same page as the president, to be credible. Put another way, the president would hardly have been expecting this, so a CEO achieving such a height would have stood out above the crowd and thus have had the president’s ear.

As an example of a perspective oriented to the political system and at the same time justifying business leadership on the societal level, David Crane, CEO of NRG Energy, said in referring to members of Congress and the president,“I think everyone just has this fear that they just do as they’ve done the last four years and just lob grenades at each other. CEO’s, whether they’re Republicans or Democrats, they’re deeply pragmatic people and you just don’t play with craziness like our government is playing with right now.” This statement is more oriented to a systemic flaw—that of gridlock in the federal government—than to getting something for NRG. Furthermore, the pragmatism, and one could add experience, of CEO’s could come into play should executives feel like doing some “pro-bono” work for the American people.

In conclusion, distorting public discourse in order to gain financially can contribute toward the general sense that a cliff is just ahead. Such participation is not constructive. In contrast, being oriented to coming up with a clever suggestion geared to a societal problem even (and especially!) though one’s company would only rise or fall along with all the other boats (i.e., the benefit of which being systemic in nature), can raise a CEO from strategic leadership to societal leadership. Only at this level can duty be reconciled with benefit in terms of credibility and the related reputational capital. CEOs following JP Morgan’s example in 1907 in willing the leap to societal leadership wherein the focus is on saving the system could make all the difference on whether the U.S. survives its own accumulated icebergs. Regarding the question of survival and the related implicit call to CEOs to “step up to the plate” for the good of the “team” (or ballpark), the U.S. Government’s gigantic accumulated-debt of over $16 trillion and deficits of over $1 trillion stood out even in 2012 as huge red flags much more dire than any $500 million so-called “fiscal cliff.”


Kate Linebaugh and Stobhan Hughes, “Companies Warn About Cutbacks,” The Wall Street Journal, November 14, 2012.

Damian Paletta and Sudeep Reddy, “Business Leaders Spooked by Fiscal Cliff,” The Wall Street Journal, November 14, 2012.

Brian Blankstone and William Horobin, “Euro-Zone Economy Shrinks Again,” The Wall Street Journal, November 16, 2012.

Maureen Farrell, "Buffett Not Worried About Fiscal Cliff," CNNMoney, November 16, 2012.

Jonathan Cheng, “Investors Show Optimism That Cliff Will Be Avoided,” The Wall Street Journal, November 20, 2012.

Constructing a Constitution: Egypt in the Arab Spring

Concerning a new constitution, which is more important: the process or the content? In Egypt in 2012, that most secularists and the Coptic Christian representatives walked out of the assembly working on a constitutional document suggests that the final product would not have legitimacy for all of Egypt. To be sure, it is possible for a partisan group to design a system of basic law that is not overtly self-serving at others’ expense. The document that emerged from the assembly weakens the presidency and strengthens the parliament. This shift was in line with the popular protest in “the Arab Spring.” However, the assembly left in place a “longstanding article” grounding Egyptian law in the principles of one religion. Furthermore, a provision on women’s equality was left out, and the military generals would keep their existing power. Moreover, anticipating dissolution from Mubarak-appointed judges, the assembly began its work from the last Egyptian constitution.
Do the members of the constitutional assembly look liberal or conservative?  Reuters
Basing deliberations on the status quo works against the process needed to arrive at a new constitution, especially if the last constitution had been constructed in a very different time. The Wall Street Journal reported at the time that legal experts indicated that the assembly’s final document was “almost identical to the 1971 constitution written by former President Anwar Sadat”—hardly a democratic document.
The construction of a new constitution from scratch would have had particular value in allowing the old political system to “catch up” to the contemporary context. The default, in short, in a constitutional assembly’s deliberations should not be based in the status quo. This point is easily missed, particularly when the other weakness of a partisan group dominating the assembly is also the case.
In the best of all possible worlds (Leibniz’s expression), delegates from all of the principal segments of society should be included in a constitutional assembly, with no group having a majority. Where such a majority is the case, a certain percentage of the minority should be required for an article to be adopted. Second, rather than being based on the last constitution, the starting point could be based on a new blue-print formulated in very basic terms by a committee (composed of delegates from the major segments of society). In the case of Egypt, delegates favoring particular major religions as well as secular society should have been on such a committee, and, moreover, active in the deliberations of the committee of the whole—the assembly itself.
A constitutional assembly should be a microcosm of the macro society, and thus inclusive of the powers and the non-so-powerful. Ideally, Rawls’ “veil of ignorance” should apply, wherein no delegate knows which segment he or she is in. Hence, no segment is apt to be left out or expunged. The veil would apply as well to the existing or prior constitution, so ever its assumptions would not serve as the default for deliberation. In short, a constitutional assembly should “reinvent the wheel” in the context of where a society is, rather than was. This does not mean that the resulting document would necessarily be progressive, particularly if a given society is traditionally-oriented.
In the case of Egypt, the “new” constitution drafted by the assembly, unlike the constitution that had been written by Anwar Sadat, includes a reference to the laws of a particular religion. In fact, both the state and “society” are given the authority to “ensure public morality.” Lest it be supposed that Egyptian society had become more traditionalist and religious in terms of a particular religion since 1971, the changes from the status quo document could simply have been a reflection of the partisan make-up of the assembly. 
In conclusion, all major segments of society must ratify a proposed document of basic law for it to have legitimacy and a real chance at a sustained run. Absent such approval of a super-majority or of all of the major elements of society, a proposal should be read as partial or incomplete. Rather than returning to it, a new assembly of delegates should “start from scratch” so a document can be crafted with presuppositions freed from the tyranny of the status quo and any major faction.


David Kirkpatrick, “Islamists Rush Through Egyptian Constitution and Prepare to Vote on It,” The New York Times, November 30, 2012.

Sam Dagher and Matt Bradley, “Egypt Adds Islamic Influence to Constitution,” The Wall Street Journal, November 30, 2012.

Saturday, September 22, 2018

Expansion at Volkswagen: Minimizing Risk in E.U.?

It is perhaps common among gigantic corporations, such as the major automobile manufacturers, to assume that current profitability is likely to be augmented by expansion. Economies of scale are presumed to outpace diseconomies as even a large company expands. At a more basic level, it is generally assumed that if a company is not expanding, it is necessarily facing its downfall. The notions of equilibrium and steady state are fundamentally at odds with the more, more, more mantra of mammon. Accordingly, it can be asked whether efforts to strengthen a company’s equilibrium are more in line with long-term profitability. The very expression, strengthening an equilibrium is étranger or foreign to business parlance.
By the end of 2012, Volkswagen had announced plans to invest €50 billion ($65 billion) in the global operations over the next three years. Much of the money was directed to expand the company’s operations outside of Europe. Two other European auto companies, BMW and Daimler, were also engaged in record investment programs outside of Europe. Taking advantage of greater-than-expected auto sales in North America and China can be a good way to limit the recessionary impact of the European debt-crisis and the related “austerity” budget-cuts at the state level. I say “can be” because assessing the automobile market in China from Europe involves risk. The workings of the Chinese government are not exactly transparent and the Chinese culture is not necessarily well-understood by Europeans (or Americans), so the Chinese auto market could quickly shift in quantity and even desired type of cars being sought without European managers seeing it coming. Even so, shifting operations globally away from problematic countries is generally a benefit of being a multinational corporation in terms of reducing the recessionary head-winds facing the company. This requires that the “flaps” on “both wings” shift so the entire plane can turn decisively.
However, if the motive is expansion per se, the international strategy is not one primarily of hedging risk. That is, the hedging effect can be muted. In fact, there could be little impact on risk-exposure, or it could actually increase. Of the €50 billion oriented to international expansion at Volkswagen, €23 billion was to be directed, en fait, to modernizing and expanding plants as well as research and development sites in the E.U. While of benefit to the E.U. in countering the recessionary impact of budget cuts in some states (though expanding in the state of Germany while Greece and Spain continue to founder could further compromise European integration), expanding in the E.U. effectively undercuts the hedging function of expanding abroad. Moreover, the underlying motive can be said to be expansion rather than reducing risk.
Whereas reducing overall risk strengthens or reinforces a company’s equilibrium, expansion taken as an end in itself, going outward as if the spray shooting out of a shotgun, can actually increase the risk because more is at stake. Expansion, being inherently general, can obfuscate efforts to be strategic. Furthermore, once the economies of scale in being a major multinational corporation have been achieved, further expansion risks triggering diseconomies of scale outpacing any additional economies from a still-larger scale. So it might be worth pondering how an equilibrium can be strengthened in a way that does not simply feed the urge for more, more, more—an instinct that can be counter-productive in the long term.  

Vanessa Fuhrmans, “German Car Makers Hit Road,” The Wall Street Journal, November 25, 2012.

John Kerry: An American Politician

Just after President Barak Obama announced that he would nominate Sen. John Kerry of Massachusetts to be the U.S. Secretary of State, the occupant of the corresponding office in the E.U., Catherine Ashton, welcomed the prospect of working with Kerry.

U.S. President Obama nominates U.S. Sen. John Kerry to be U.S. Secretary of State.    Reuters

"I am delighted by the nomination of Senator John Kerry to succeed Hillary Clinton as US Secretary of State. I have had the privilege of meeting Senator Kerry on a number of occasions. His considerable experience, not least as chair of the Senate Foreign Relations Committee, makes him an ideal candidate for this crucial position. Pending Congressional confirmation, I look forward very much to working closely with him, and continuing the excellent relationship established with Secretary Clinton."
Whether Ashton knew it at the time or not, she would be working with an American politician. After all, Kerry had already run for the American presidency. To be sure, he was not taking up the foreign affairs post to build his resume. I believe he genuinely wanted the job. The problem is, is trying to please all the people all the time, a politician's patina (or deeper?), best in foreign affairs? In this essay, I focus not on this question, but, rather, on the patina itself in the case of John Kerry so the underlying problem behind the question of fit with foreign affairs can be more transparent to the wider public.
I, too, have had the privilege of meeting Senator Kerry. He struck me as a warm yet very ambitious man. At the time, I was on a deficit-reduction kick, so I asked him how his “big government” ideology was consistent with reducing the federal deficit. “I’m a fiscal conservative!” he insisted as he put his arm around my shoulder and smiled. “Oh, come on,” I countered in rather obvious disbelief. “I believe that government programs should be run efficiently,” he explained. “That’s good, but I don’t think that’s fiscal conservativism,” I said, “and it doesn’t necessarily make a dent in the deficit because you could simply add more programs that are efficiently run.” Perhaps Kerry as the U.S. Secretary of State might put his arm on Katherine Ashton’s shoulder and mollify her with something like, “Of course the E.U. is not a federal system,” or “the U.S. is firmly in support of the E.U. and ready to help.” Bill Clinton could even provide background music by playing his sax. Would the European succumb to the “I’m essentially whatever you want me to be”?
I would like to think that at least behind closed doors, politicians are capable of real talk rather than appearance and manipulation. What is the essential nature of a person who would make his or life that of politics? Do we ever really know them? Is there substance under the shells? Moreover, are the best people ruling? Does the democratic process proffer the best or merely the most pleasing appearance? As the E.U. struggles with the appearance of suffering from a democratic deficit, Europeans might want to reflect a bit on whether “technocrats” are really so bad. At least they don’t have quite the skill to conflate themselves into chameleons. Ashton might indeed have had Kerry’s number, yet no one would ever glimpse this from her glowing statement. Are she and Kerry two of a kind—both politicians managing appearances? How would the rest of us ever know? And yet we are the ones who are tasked with pulling the levers on election-day.

Friday, September 21, 2018

Preparing for the U.S. Presidency: Build a Resume

How should an aspiring candidate for President of the United States go about attaining that esteemed office?—an office whose occupant was regularly referred to as “the leader of the free world” when part of that world was behind an iron curtain. Mitt Romney spent six years of his life campaigning for the job only to lose it to an incumbent whose record on “pocket-book issues: was mixed at best. Perhaps it is possible to want something too much. Fortunately, a more substantive alternative is also possible.

Hillary Clinton as U.S. Secretary of State.           
As Hillary Clinton was nearing the end of her tenure as U.S. Secretary of State, Michael Bloomberg, who was nearing the end of his own mayoralty in New York City, encouraged her to run for his office. Being every bit “New York,” the New York Times refers to the option as “trading international diplomacy for municipal management on the grandest scale.” In case anyone misses my sarcasm here, I should add that being mayor of New York City is not merely executive experience on a grand scale. Being chief executive of The City could be comparable to being governor of some states. Accordingly, becoming mayor of the city that never sleeps could give the former legislator and chief diplomat significant experience as a chief executive. Ironically, the latter could be most essential to the presidency.
Alternatively, were Hillary Clinton really intent at the time on running for presidency, political consultants might have been whispering in her other ear, “you need to get up to New Hampshire and over to Iowa.” However, early and regular visits to those states do not, as the case of Mitt Romney suggests, necessarily translate into winning come election day. This is not to say that a third alternative, such as taking a well-deserved break—maybe writing a book—might not be preferable to being mayor of New York City. Nevertheless, in the choice between never-ending campaigning and governing, it would be nice to think that the American people would reward substance over excess eagerness. The people have not exactly demanded of a president that he (or she) be a senior statesman when it comes to governmental experience. John Adams had been U.S. Ambassador to Great Britain (besides having had a hand in the writing of the U.S. Constitution) before being elected president. Thomas Jefferson had been the U.S. Secretary of State (besides having had a hand in, well…you know). Had he lived, James Hamilton might have been president after having served as Washington’s Secretary of the Treasury. Experience can even be ex post facto, as when President Taft joined the U.S. Supreme Court after serving as president.
From the perspective of having several substantive governmental offices, an occupant of the office of U.S. president can have both wisdom and perspective. That is, such a person would be more likely to discern instinctively the forest from those particular trees that demand too much attention. Such a person would be more oriented to the system as a whole, as President Jackson was when he opposed funding the Second National Bank of the U.S. even as he opposed South Carolina’s nullification act (by which the state legislature could invalidate U.S. laws detrimental to the state’s interest). That is to say, the president was oriented to protecting what he saw as a balance in the federal system. His perspective was systemic and thus not primarily partisan or even bureaucratic in nature.
To be sure, putting someone in the office who might be suspected of sporting a suitable countenance is ultimately up to the American people—whether we value it enough. Lest it be pointed out that few candidates could be found, it is also up to the candidates themselves—whether they are willing to substitute more governmental experience for the seemingly endless parade of chicken dinners. To those candidates, I would say: focus on the knitting and the campaigning will take care of itself; focus on the campaigning, however, and the sweater could slowly unravel from all the waving and handshakes. In short: have faith that investing in governing now will pay off later. This could mean trusting in the judgment of the American electorate, or being a leader (hence gaining leadership experience!) by providing a higher example of real presidential material. Of course, the people may not be wise or virtuous enough of character to grasp such leadership, in which case the republic itself will decline even in spite of the suitable candidates.

Michael Barbaro, “Clinton for Mayor in ’13?Bloomberg Asked Her to Consider Succeeding Him,” The New York Times, December 4, 2012.

Luring Business: “Job Creators” in Texas

As of December 2012, Texas was giving out more financial incentives—mainly in the form of tax breaks and subsidies—to business than was any other American state. The government was handing out around $19 billion annually, while at least $80 million was being spent in the U.S. overall, according to the New York Times. Although at the time Texas had half of all the private-sector jobs created in the U.S. during the preceding decade, the Times points to “a more complicated reality behind the flood of incentives.” It cannot simply be assumed that good jobs will be created.
For example, Texas had the third-highest proportion of hourly jobs paying at or below minimum wage. In fact, Texas had the 11th-highest poverty rate in the union. “While economic development is the mantra of most officials, there’s a question of when does economic development end and corporate welfare begin,” Dale Craymer of the Texas Taxpayers and Research Association said. In other words, one might ask how much the benefits from the financial incentive extend beyond the recipients themselves to the general public and Texas. Even though businesses cite “job creation” as a benefit of government help, one might ask what kind of job as well as how many?
That the government may have been relying on the businesses themselves or their “consultants” even as they would stand to gain suggests that a conflict of interest may have blurred the line between decision-maker and beneficiary. Indeed, political contributions from companies to re-election campaigns may have exacerbated the problem.
For example, Brint Ryan, a tax consultant specializing in finding incentives for large companies, was “a familiar presence at the state comptroller’s office . . . which must sign off on many tax breaks”—potentially blurring the line between beneficiary (agent) and decision-maker. He also donated $250,000 to Gov. Rick Perry’s ill-fated run for the White House. Texas had been largely bereft of financial incentives for big business when Perry became the head of state in 2001. He had smarted when Texas lost out to Illinois on a new Boeing plant and he was not going to repeat that mistake. Years later, he could point to expansions by Facebook, eBay and Apple in Texas. “They’re coming because it is given, it is covenant, in these boardrooms across America, that our tax structure, regulatory climate and legal environment are very positive to those businesses,” he said. This does not mean, however, that they deliver on well-paying jobs for Texans. There is also the opportunity cost to the government. As Texas spent more to lure big business, the education budget took a hit. Brint Ryan may have had Gov. Perry’s ear when students and even the poor probably did not.
In short, government officials engaged in industrial policy would be wise to distinguish corporate welfare from “economic stimulus.” The influence of money in the American political system doubtless created a conflict of interest blurring the line between the beneficiaries and the decision-makers. The temptation for policy makers might therefore be to lapse into corporate welfare at the expense of basic services. CEOs who are looking for financial incentives from the government as a way to make more money may claim that their respective companies are “job creators,” but the reality is that those companies are “profit creators” with jobs being a byproduct of sorts. The case of Texas suggests that market equilibrium may naturally be well short of full-employment. If so, government officials should not go overboard with the financial incentives in the mistaken belief that some full-employment market utopia is possible, even if providing corporate welfare does not hurt their own political welfare either.


Louise Story, “Lines Blur as Texas Gives Industries a Bonanza,” The New York Times, December 3, 2012.  

The ECB as the E.U.'s Bank Supervisor: States in the Driver's Seat

Although the establishment of a federal regulator of major banks in the E.U. was as yet not approved by the European Parliament or ratified by the governments of states using the euro as well as any other states opting in, the European Council of Ministers signed off in December 2012 on an amendment that would give the European Central Bank authority over banks that have at least €30 billion in assets, make up more than 20% of their state’s economic output, or operate in at least two states (i.e., interstate banking). At the very least, three banks per state would come under the central bank’s oversight. Other banks would remain the responsibility of state regulators. This is an interesting “working out” of federalism, distinctively European-style.
For one thing, that the Council of state finance ministers—representing their respective governments—formulated the proposal while the representatives of E.U. citizens would then presumably have only an “up or down” say on the matter reflects the salience of the state governments at the E.U. level relative to the elected representatives of the people. That is, appointees of elected representatives at the state level have more power at the federal level than do the federal legislators who directly represent the people (i.e., without respect to state).
German Finance Minister Wolfgang Schäuble at the E.U. Council of Ministers discussing the bank supervisor amendment.   WSJ
One implication of the imbalance of the “confederal” chamber based on international principles over the federal chamber based on national principles (i.e., representing citizens rather than states) is that the interests of the whole can be held up by the vested interests of a particular state government (e.g., Germany).
Another implication is that of a democracy deficit because the directly elected federal legislators are essentially in the back seat. To be sure, the state leaders who are driving the union are elected too, but to state office. Put another way, the legislators elected specifically to the E.U. level are playing second fiddle to officials elected to act in the interest of their particular state. This mismatch is a deficit in democratic terms.
Therefore, rather than focusing only on the substantive powers proposed for the ECB, attention might be given to the process by which the amendment to the E.U.’s basic law (i.e., constitutional) was formulated and sent through to be officially proposed and ratified. At a fundamental level, the states both designed and would ratify the proposal—a conflict of interest due to the relative subordination of the E.U. Commission and Parliament. It is as if the state legislatures would sit in judgment of what they themselves designed, effectively patting themselves on the back while the people’s federal representatives merely nod as though a footnote.


Gabriele Steinhauser and Laurence Norman, “EU Reaches Deal on Bank Supervisor,” The Wall Street Journal, December 13, 2012.

Exaggeration on the U.S. Economy “Going Over the Cliff” after the Financial Crisis of 2008

As the U.S. Government faced down its own deadline in 2012 before the Bush tax cuts would expire and across-the-board budget cuts would commence, the Federal Reserve, which had been struggling to prop up the economy by buying bonds and keeping interest rates low, would, according to the Chairman, Ben Bernanke, be largely powerless to do more in the face of a recessionary policy on taxes and spending. "We cannot offset the full impact of the fiscal cliff," he said of the Fed. "It's just too big." That he had written a doctoral dissertation on the Great Depression and had specialized on it as a professor at Princeton lends a lot of weight to his judgment on the matter. However, he had also managed to be re-appointed to the Fed and thus knew how to play the game. In the case of the automatic budget cuts, major power-brokers, specifically in the military industrial complex, had a lot riding on Congress and the White House making a deal that would obviate the cuts in defense spending. The chairman of the Fed could have been carrying their water.
Ben Bernanke, Chairman of the Federal Reserve, in front of the lights.   Reuters
In September 2012, Bernanke had announced an open-ended mortgage-backed-security purchasing program that would put $40 billion a month into the economy. At the time, he said, “If we do not see substantial improvement in the outlook for the labor market, we will continue the MBS purchase program, undertake additional asset purchases, and employ our policy tools as appropriate until we do. We will be looking for the sort of broad-based growth in jobs and economic activity that generally signal sustained improvement in labor market conditions and declining unemployment.” Presumably the Fed would continue the mortgage-bond purchases were the automatic budget cuts and end of the Bush tax breaks to forestall a “broad-based growth in jobs and economic activity.”
In terms of economic impact, a stimulus of $40 billion a month, or $480 billion annually, would just about match the anticipated $500 billion hit from the “cliff.” How is it then, that the latter is “just too big”? Were the $480 billion insufficient, the Fed would be free to increase its purchases.  Time magazine describes the stimulus mechanism as follows: “Open-ended purchases of mortgages will have the effect of lowering interest rates, helping more people qualify for mortgages or refinance. But more importantly it will — in theory — have the effect of creating an expectation of generally higher asset prices in the future, which will motivate people to get off their duffs and spend money now. If companies and individuals are indeed convinced that prices will rise in the future, that would encourage them to spend, hire, and jump-start the economy out of its chronic underperformance.” Whereas monetary policy was contracted in response to the Great Depression, the scholar of that mistake could presumably do the opposite should we—in his words, “go over the cliff.” His $480 billion mountain of money could turn his $500 billion cliff into a mere bump.
To be sure, purchasing mortgage-bonds can only do so much. As David Dayen of Firedoglake argues, there’s only so much the lifting of asset prices can do without appropriate fiscal policy to accompany it: “(Y)ou have to question the role of monetary actions by themselves to generate an economic boost, especially at this time. Lower mortgage rates may or may not prove helpful . . . without fiscal stimulus and a reversal of the current trajectory of deficit reduction, we will never get to the desired trend for growth.” However, the Fed could presumably buy up more than mortgage-bonds, freeing banks up to lend more in the process.
Most telling is Bernanke’s claim that the Fed could not increase its stimulus enough to counter the anticipated $500 billion hit from sequestration and the end of the Bush tax breaks—and yet the Fed was already on record that it would spend $480 billion in 2013 unless the economy improved in the meantime. His inflexibility seems arbitrary, or dogmatic, in other words, given what the Fed can do, and this leads me to the alternative explanation that the chairman was actually doing someone else’s bidding rather than proffering a judgment steeped in decades of study. The real task would be one of locating the real power-brokers whose financial interests were so threatened.
Whereas the expiration of the Bush tax cuts and cutting entitlement programs had been perennially on the block for years, the sacred-cow of defense spending was all of a sudden susceptible as well. Hence, I believe, all the dire doomsday warnings coming out of Washington to the contrary, the pressure on a political deal was oriented to protecting the status quo of the military-industrial complex rather than obviating certain economic collapse. That is, even more fundamental than the interest of politicians and the media to over-dramatize “going over the cliff” in order to gain attention, the subterranean financial interest of the American military-industrial complex may have been pulling many strings—many puppets—to veer the debate toward a deal. Even as the major players on stage were posturing, a two-step could have been going on behind the scenes—dancing around the sacred cows. Perhaps the real news behind the Bernanke’s warning is that even the “non-politicized” central bank was “doing the dance.”

John Cushman, “To Bernanke, ‘Cliff’ Says It All” The New York Times, December 12, 2012.

Honeywell’s David Cote: Carrying the Water in Washington

In the midst of the talks in Washington in 2012 to avoid the so-called fiscal “cliff” with a bipartisan deal, the Wall Street Journal reported that David Cote, the CEO of Honeywell, a $48 billion “industrial giant,” was at the time “the business executive most in the middle of the fiscal-cliff debate.” The Senate Finance Committee Chairman Max Baucus (D., Mont.) said, "People on both sides of the aisle are sending messages through Dave. He's become an active participant.” For a sitting CEO to have ensconced himself so deeply among the power-players in Washington did not come controversy-free. Even though his company had a vested interest that a deal be reached, the matter of his involvement raises larger implications, positive as well as negative.
David Cote, CEO of Honeywell. Civic duty or getting "his people" back in line in Washington?       Bloomberg News
 "I'm being accused of all kinds of nefarious motives just because I'm a CEO," Cote claimed. He also conceded his cause diverts a lot of time from his job but says he tries to make it up from his personal time. In any case, "the best for my shareholders is a robust economy," he explained, "which can't happen if the country is gridlocked over debt." True enough—a rising tide benefits all boats. However, as the Wall Street Journal points out, “Cote's efforts could benefit his business. Absent a cliff deal, deep cuts in federal spending on defense and many other programs will kick in. Success in averting them could help Honeywell, an aerospace and defense contractor that draws 10% of its $38 billion in annual sales from the government.” This point could not have been lost on the CEO. Honeywell’s stockholders were not volunteering their CEO in a sort of civic duty or good “corporate citizenship.”
Moreover, that the CEO of a major defense contractor was spending so much of his time as a go-between in Washington so a deal that would obviate automatic cuts including defense spending might have a better chance of being reached by Republican and Democratic leaders points to the depth of interest by the military-industrial complex in the task. I would not be surprised to learn that various government officials, including the Federal Reserve chairman, Ben Bernanke, were not themselves “carrying the water” for the government-dependent sector in stirring up doomsday predictions lest a deal not be reached in time to avoid “falling off the cliff.” Besides influencing the debate itself through ads and other, less transparent means, the sector with the most to lose was “bucking up” to keep the defense contracts coming. From this standpoint, it is surprising that Washington’s political elite had not fallen into line and come up with a deal by November.
“We’re not confident that our guys can govern anymore,” Cote observed as he was carrying messages between Republican Congressional leaders and the White House. While this observation could be oriented to the lack of responsiveness to the “sway” of the military-industrial complex in the halls of power, he said his role as political-deal-facilitator has been a "revelation” on how dysfunctional Washington had become simply in terms of being able to get along. "I meet people on both sides I like and find reasonable,” he said, “but they aren't working together." This is particularly significant, given the interest of the complex that a deal be reached. Might it be that ideological differences on government (or even immaturity) can actually bristle at, or even resist the power of money in Washington?
For instance, has ideology in the Republican Party on the role of government in the economy gone against the interests of Wall Street or corporate America, or is the ideology effectively a reflection of the whatever that base determines is its rightful interest? I suspect that there was no way that Republican leaders were going to let a deal slip by, even given the appearances to the contrary in the meantime as the leaders sought to get better terms by waiting until the last possible moment to seal a deal. However, were such a resolution “in the cards” given the underlying “marching orders,” why would Honeywell’s CEO have been spending so much time “carrying the water” in Washington?
That there might have actually even been a chance that the military-industrial complex could be subject to budget cuts is amazing, considering the power of money in the United States. Put another way, why would a man whose total direct compensation in 2011 was $25 million and whose retirement package assets were at $78 million feel the need to carry anyone’s water—especially given that his “Fix the Debt” non-profit had raised $43 by mid-December 2012 and could unleash television ads against “dysfunctional” elected officials who had not “gotten the message.” Something is really up when a real insider feels compelled to get so explicitly and personally involved—even given Honeywell’s financial interest that a deal be reached.
In short, there are wider implications for David Cote’s involvement amid the political class in Washington. His own, his company’s, and his sector’s financial interests notwithstanding, that a person of his stature would roll up his sleeves and get to work in “dysfunctional” Washington suggests that he is exactly the sort of person to who the American Founders would have called on to serve his country out of a sense of civic duty. Even as Obama was being urged to put Cote in his cabinet as Treasury or Commerce secretary, the CEO was saying, "I can't wait to get out of here and back to my day job." This sentiment, rather than a desire to run for office, should be “just the ticket” needed for admission to a fixed term of “duty” in Washington—then freedom. This is what citizenship means—realistically in the context of even vested interests. Even as Cote doubtless had his in mind, he was also going beyond the pale as a CEO actively working to craft a deal in at the highest level of the U.S. Government.
To be sure, David Cote could have been a rare snapshot of the military-industrial complex getting  "its people" back into line in a Washington "unhinged" from its real principals. However, it could also be that the man deserves a lot of credit for stepping up to the plate in a ballpark not typically frequented by CEOs not only to protect his company, but also to tackle the systemic imbalance evinced in a public federal debt of over $16 trillion at the time. If so, the President would have been well advised to use him well—rather than too much—out of respect for the man’s public service. A restoration of the civic duty of citizenship can indeed be distinguished from the threat of plutocracy to a republic.


Monica Langley, “Honeywell CEO in the Middleof Fiscal Cliff Standoff,” The Wall Street Journal, December 13, 2012.

Saturday, September 15, 2018

Occupying Wall Street

At the “Occupy Wall Street” protest in Washington, D.C. in 2011, a man was preaching the Gospel as protesters pleaded with him to stop. While I suspect that the hackneyed secular/progressive vs. right-wing Christian dichotomy is reflected in this dynamic, the protesters may also have been “policing” the contours of their movement as anti-corporate and anti-Wall Street. Yet one of the pleading protesters was holding a sign, “Create Peace,” which does not really get at the anti-business theme. Another of the protesters pleading with the evangelical had a bongo drum handing down from around his neck, which could suggest that he would be out for any left-wing protest. Still another protester, perhaps from the peace movement, held a sign “2 Wars equals = Deficits!” Even morphing into a protest against the horrendous debt of the U.S. Government would miss the mark on the anti-corporate, anti-Wall Street target. 
In the New York protest, an elderly black man held two-part sign: “Obama: One Brilliant American Moving America” and “Upward a Standard of America.” Standing next to him, a young woman was holding a hand-written note, “This Guy Is Clueless” with an arrow underneath pointing to the man. Her expression said, “What is this guy doing at our anti-Wall Street protest?” His expression said, “I’m confident in what I believe and I’m not backing down.” Neither one looked angry.
My question is this: In a free society in which people enjoy the right to protest on public property, how can a given protest movement enforce the limits of its message? If a group secures a permit to protest in a certain area, can that group establish gate-keepers along the parameters to keep out signs that do not reflect the group’s message? I am sympathetic to permitting protests this self-regulatory function. In attending protests in the past, I saw people interlarding their own causes where they were obviously on topics other than that stated of the protests. How selfish of them! I remember thinking. It is as though such people assume that the rules don’t apply to them. They are like those people who show up to a private party uninvited then are offended when they are asked to leave. Essentially, they are arrogant and presumptuous; such an air belies any cause.
The anti-corporation, anti-Wall Street protests are not religious revivals; neither are they pro-Obama rallies. The rallies aren’t even geared to protesting the fiscal mess of the U.S. Government, even though the deficits and debt can be partially explained by the largess pressured by industry lobbies (including banking) and bail-outs occasioned by the greed and fraud extant in the mortgage and investment bank sectors. In short, the protests need not be an opportunity for virtually any progressive cause that wants to promote itself as though it had been invited to interlard its own agenda.
The Wall Street Journal reports that at a “protest off Pennsylvania Avenue in Washington, D.C., it was unclear what the protesters stood for, much less if they’d accept political support from the Democratic Party. A man on stage beat on a drum while reciting free-verse poetry lines such as ‘Revolution is the solution,’ and ‘then we can all sit down and have a lollipop.’ The group at one point participated in Yoga stretches.” In contrast, the populist protests in the Arab Spring were focused and had tangible goals (i.e., the removal of a regime). The American protests can be just as radical with respect to breaking down the system of corporate capitalism, whose oily tentacles have made it around the throats of nearly every government official in Washington, playing those wind pipes like Scots.
By availing themselves to virtually any sort of professional hippie, the American protest movements in the fall of 2011 were relatively wan or pallid—not likely to result in anything other than venting on a variety of left-wing causes. Failure to delimit a movement makes it possible for the point to be the protesters themselves, the various causes all blending into each other like a rainbow of colors. Given the lack of accountability on the Wall Street banks that received TARP by elected officials and the fact that banks helped write the Dodd-Frank financial reform law, even as the banks and Congress refused to obviate the mass-foreclosures, the ambiguity permitted by the protest movement’s organizers was unfortunate; it actually served the interests of the corporations and banks by diffusing and thus dissipating the opposition.
The Occupy Wall Street movement could have potentially turned into a Tea Party of sorts on the left capable of pulling the Democratic Party along similar to the impact that the Tea Party has had on the Republican Party. Sen. Charles Schumer (D. NY) exemplifies the sort of careful Democrat that the Occupy Party could replace. The Wall Street Journal reports that he “enjoys strong backing from financial services firms and wouldn’t comment on the protests on Wall Street.” Bought and paid for, one could reasonably conclude. That senator would not be one to push through structural reforms sufficient to thwart the plutocracy that has taken root in America. For such reforms to be effective, the large corporate form itself (i.e., massive concentration of private capital), which is inherently a threat to a republic, would have to be exculpated and extirpated from the legal and economic landscapes. An economy of small and medium-sized businesses would appeal to Democrats who castigate the towering corporate salaries and bonuses, and to Republicans who value the extent of competition that Adam Smith wrote of, wherein producers are price takers rather than oligarchic makers and therefore not quite so supercilious (and powerful).
Instead of debating the “legal persons” doctrine and whether corporations should be allowed to make campaign contributions, the very existence of the large corporate entity itself can be placed front and center. “Too big to fail” and “systemic risk” could have served as context. The Occupy Wall Street Party could have potentially crystalized around the very existence of the modern corporation and megabank. Playing drums, campaigning for Obama, demonizing the Republican Party, saving souls, protesting war and deficits, and doing yoga won’t cut it. Let’s just say it is in the financial interests of Wall Street and Corporate America, and thus their sycophantic agents in Washington, to keep the Occupying Wall Street movement diffused and chaotic, such that the various protests could have eventually blended in adiaphorously with the cacophony of campaign issues in 2012. Perhaps the plutocracy’s power extended to being able to furtively relegate its opposition by moving it onto peripheral issues, as if a magician making a white dove suddenly disappear—the animal supposing itself still on stage. Perhaps the question is whether corporate capitalism can be eradicated by democratic means. That the protests sport signs advocating revolution may provide us with a baleful glance at the answer. It may be that economic (and political) inequality will continue to expand until the pressure builds to such a point that the sluggish, somnolent masses finally have had enough from the super rich, proffering to the world an American Spring. Although perhaps a harbinger, Occupying Wall Street is in all likelihood yet another garden-variety protest rather than a game changer sporting real change.


Jonathan Weisman and Laura Meckler, “Democrats’ Populist Puzzle,” Wall Street Journal, October 7, 2011. 

Mark Landler, “Protests Offer Obama Opportunity to Gain, and Room for Pitfalls,” New York Times, October 7, 2011. 

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