On Educated Representatives and Large Districts: A Critique of Democracy

Democrat Georgia Congressman Hank Johnson said during an Armed Services Committee hearing in late March, 2010 that Guam would be in danger were more US troops sent there. “My fear that the whole island will become so overly populated that it will tip over and capsize,” he said in all seriousness. “We don’t anticipate that,” responded Adm. Robert Willard. Did Hank Johnson's constituents want their representative in the U.S. House of Representatives to be at least nominally educated?  Lest one replies with "of course," it could also be that people may want their represenatives to be like them, or at least to reflect what they value. 

It could be that Rep. Johnson's district was inhabited by people who didn't value education. My hometown is such a place. Going to graduate school is tantamount to evading the real world. The implication is that investing in one's education is to waste one's time on something of little value. Of course, you can't fight ignorance or change people's values where they are convinced that they are correct.  It is perhaps not a surprise that representatives could be found in government having that mentality where it is common among constituents.

It is also true that larger the electorate, the less it can make an informed decision regarding the candidates campaigning to represent it. This is why the delegates to the US Constitutional Convention said there is more democracy at the level of state legislatures (e.g., more retail, less wholesale, politics). The EU Parliament has almost 800 reps (newly expanded, though I understand not yet filled), yet is not twice the US population, so the electorates per rep are smaller. However, a governmental body so large is apt to be cumbersome. The state governments in the EU, like those in the US, have smaller districts for their legislative lower houses (and perhaps their senates as well). In smaller districts, the candidates and the elected representative are more apt to be known by a given voter (or by someone the voter knows). Two (or even three) degrees of separation are better than relying on tv commercials, which are geared to presenting a given candidate as he or she wants to be seen. A viable republic ought not rely on a candidate’s preferred self-presentation because judgments in governance involve the actual person–hence the voters ought to know it.

A major implication from my reasoning here is that both American and European state governments ought not allow the balance of power to shift too much to the US and EU level, respectively. On the last day of the U.S. Constitutional Convention, George Washington, who had kept quiet throughout in his role in presiding, asked the delegates if they would make one change. Rather than a U.S. House representative to represent at least 40,000 inhabitants, the minimum should be 30,000 because that would allow for greater democracy. Of course, the setting of a minimum is far different than a maximum; the average district population has never been 30,000.  At the turn of the twenty-first century, it was more than 600,000.  The constitutional delegates would have thought such an arrangement to evince an aristocrisy, there being so few representatives relative to the population. The average citizen's voice would surely be lost, the designers of the U.S. constitution would be wont to say.  I suspect their response would be not just to send more power back to the state governments, but also to urge many of the large and medium states into federal systems themselves. Particularly where a state is heterogeneous, it makes sense for it to have a federal system with states ranging from large metro areas to four or five counties (as in Germany, whose Lander span from Bremen to Bavaria).  Unsere grosse Staaten sollten von Deutschland lernen. It could be that in modernity, the West has grown too accustomed to larger and larger electorates.  Has the E.U., for example, set any limit to its expansion from the vantage point of its democracy deficit?  Furthermore, has the U.S. tackled the problem of how to reconcile the large districts in the U.S. House with the problem of that body itself having too many members?  If it continues to be assumed that Congress can and should legislate on virtually anything, the tradeoff between representation and the size of the House must be addressed.

Corporate America's Apathy toward Federalism

In October of 2009, the U.S. House Financial Services Committee voted to give the federal government the power to block the states from regulating large national banks in some circumstances. The compromise approved by the House allows the Comptroller of the Currency to override the states, but only if that office found that the state law “significantly” interfered with federal regulatory policies.  This clears the way for a new federal agency to protect consumers from abusive or deceptive credit cards, mortgages and other loans.  Adoption of the compromise was a partial setback for the banking industry, which would have preferred to avoid having to comply with state laws that are sometimes stricter than federal rules.  Barak Obama and Barney Frank were pushing in the other direction—for subjecting banks to the relatively strict state laws with no chance of appeal to the US. Government.

This case of compromise points to the influence of large corporations on the Congress as a culprit in the on-going eclipse of federalism.  Large corporations operating in many of the American republics would rather have one regulatory infrastructure, so they push the U.S. Government to assert itself at the expense of the State governments using pre-emption.  Even where the federal government is silent in a policy domain, it can keep the State governments out. This is not to say that industry is the only force behind the march toward consolidation.  Obama and Frank were no doubt assuming that health-care and education are properly directed at the level of the U.S. Government rather than by the States.  This involves adding strings to the spending clause of the U.S. Constitution.

While it might be more convenient to have Washington as the point-person, we might miss the checks and balances permitted by a viable federal system wherein the State governments can hold back an encroaching federal government.  Moreover, we might wonder whether one legislative size fits all in a Union of republics that spans a continent.  There is a reason why the delegates in the constitutional convention designed a federal system; they weren’t just acting on a whim.

So here is my basic point: the present holders of power might have incentives to use it at the expense of the long-term viability of our system of public governance.  In other words, it might not be in the interest of our federal officials and corporation executives and boards to maintain the viability of our federal system. To the extent that their interest prevails in spite of the inherent diversity in the United States, this could be the empire’s undoing before our eyes.

Source:  Compromise Bill Could Block States on Bank Rules

Instant Gratification Rules in American Fiscal Policy

With an expected deficit of $1.2 trillion for 2018-2019, the U.S. Government in December, 2017 enacted a tax cut with an expected revenue loss of nearly $1 trillion over a decade (assuming some growth from the tax stimulus) and, two months later, a budget deal passed adding $300 billion to federal spending in the next fiscal year.[1] All this was done with the U.S. debt at over $20 trillion—higher than the annual GDP at the time. With the  economy humming along with a low unemployment rate, the prospect for any fiscal discipline was bleak. Put another way, if budget surpluses could not come at the boom end of an economic cycle, then deficits would be likely in good times and bad. Behind the structural imbalance of contiguous deficits and an ever-growing debt is the all-too-human preference for instant gratification without a corresponding value being placed on self-discipline.

In a republic, the electorate elects representatives in part because direct democracy has no constraint on the immediate passions of a people. In the case of the U.S. Congress and White House,  the representatives had not by 2018 at least resisted the instinct for immediate benefit for the good of the American republics and their peoples—which together constitute the United States. Thomas Jefferson and John Adams agreed in retirement that an educated and virtuous citizenry is vital to a viable republic. The $20 trillion federal debt reflects back on Americans not in a good way in this respect.

For a republic—including one that is also a federation of republics—to be viable over the long term, some allowance for the long term must be made in the form of fiscal discipline. This is essentially self-discipline on a societal level. In the case of the tax cut and additional federal spending, Americans could “expect some of the strongest economic growth” in years.[2] This made the urge for instant gratification particularly alluring. In the medium term, Americans would face “more risk of surging inflation and higher interest rates—fears that were behind a steep stock market sell-off” in early February, 2018.[3] Notice that the negatives begin only in the medium term; hence they do not detract from the instant gratification. In the long term, the U.S. could have less flexibility fiscally in enacting a stimulus to combat a recession or even a crisis like that which had hit Wall Street in September, 2008. Additionally, “higher interest payments could prove a burden on the federal Treasury and on economic growth.”[4] The short term boost in an already booming economy could be expected at the time to hamper economic growth perhaps at a time of recession! Yet the force of this anticipation had no power in the enacting of the tax cut and additional spending. Knowledge, it appears, requires virtue manifesting as self-discipline. That it was missing reflects especially on the elected representatives of both parties, but also on the American electorate that elects and re-elects those representatives with impunity.

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[1] Neil Irwin, “Austerity Era Comes to End,” The New York Times, February 10, 2018.

[2] Ibid.

[3] Ibid.

[4] Ibid.

Foreign Policy in International Business: BP Trading a Libyan Terrorist for Libyan Oil

Senator Kirsten Gillibrand, D-NY, claimed in July of 2010 that the UK government should investigate what role BP played in Britain’s decision to free Abdel Baset al-Megrahi in August 2009. Al-Megrahi is the only person convicted of carrying out the 1988 bombing of a Pan Am airliner in which 270 people were killed over Lockerbie, Scotland. This is not to say that he acted alone. In February, 2011, Gadhafi's justice minster, Mustafa Abdel-Jalil, who resigned in protest against Gadhafi's massacre of unarmed protesters, told a Swedish newspaper that Gadhafi had ordered the attack. Abdel-Jalil also claimed that Megrahi threatened to "spill the beans" unless his return to Libya were secured. It would appear that BP, a publically-traded stock corporation, played a vital role between Gadhafi and the British government. If so, then aside from Gadhafi's sordid role, this case presents us with an issue of business ethics. Specifically, does a corporation, which is essentially private wealth but with responsibility befitting the power that comes with such wealth, cross a line when its employees engage in foreign policy? The ethical problem inherent in interfering in a juridical sentence is troubling enough; if an unelected corporation becomes so powerful that it can affect international relations between (and foreign policies of) countries, then the issue involves not only business ethics, but also democratic governance. As the line between private and public blurs, the respective bases of legitimacy can become conflated or transposed.

In May 2007, BP signed a $900 million exploration agreement with Libya. Also that month, Britain and Libya signed an agreement that paved the way for al-Megrahi’s release from a Scottish prison. A spokesman for BP has admitted that people at the company lobbied the British government over the prisoner transfer deal with Libya in late 2007, but the company’s spokesman denied that the lobbying played any role in the government’s decision to release al-Megrahi nearly two years later. Senator Charles Schumer, D-N.Y., argued that ”the whole thing has deep circumstantial evidence that points to the fact that there was a trade-off — release the terrorist in exchange for an oil contract.” Schumer and three other US senators — Kirsten Gillibrand, Robert Menendez and Frank Lautenberg — wrote to Secretary of State Hillary Clinton asking that the State Department investigate whether BP had a hand in the release. “Evidence in the Deepwater Horizon disaster seems to suggest that BP would put profit ahead of people — its attention to safety was negligible and it routinely underestimated the amount of oil gushing into the Gulf,” they wrote. “The question we now have to answer is, was this corporation willing to trade justice in the murder of 270 innocent people for oil profits?” The answer appears to be “yes.”

In an interview with the Daily Telegraph (September 4, 2009), Jack Straw admits that when he was considering in 2007 whether the bomber should be included in a prisoner transfer agreement (PTA) with Libya, Britain’s trade interests were a crucial factor. When asked in the interview if trade and BP were factors, Mr Straw admits: “Yes, [it was] a very big part of that. I’m unapologetic about that … Libya was a rogue state… . We wanted to bring it back into the fold. And yes, that included trade because trade is an essential part of it and subsequently there was the BP deal.” In short, BP employees have admitted to the lobbying and Jack Straw has admitted that BP’s contract was a factor—the two sides meet and the knot is tied.

Analysis:

Even BP’s lobbying effort was not decisive in the exchange agreement, the involvement of BP managers even as they and BP stood to gain from an oil exploration contract evinces a conflict of interest that should have been barred by ethics guidelines at the company. Moreover, the company had no standing in the prisoner exchange matter such that it had any business in lobbying. At most, the legal person legal doctrine and the associated “money as free speech” doctrine pertain to a company’s main business. The doctrines ought not give a company all rights of citizens because corporate charters are delimited to particular domains or functions. Furthermore, to expect a company to put ethics ahead of profits is to conflate a firm with a human being.  To be sure, a company is made of people (and capital). However, the association is focused rather pointedly on one thing: maximizing shareholder value through profits. Accordingly, managers know legal requirements, whereas ought and should are more difficult to translate into cost-benefit analyses. In other words, a company is like a shark in that both are single-minded feeding machines. To expect a machine to obviate its next feeding because of an ought is to treat it as something other than what it is.  I suspect that as onlookers we tend to project our own values onto company managements—even companies themselves—instead of coming to terms with what a company is.  It is a feeding machine with one directionality and an expansive appetite, which includes venturing into other domains such as (hypothetically)  lobbying for an exchange of prisoners in exchange for a lucrative oil contract. In other words, companies are designed to transgress even their own charters. They are like Hal in the film 2001—the computer that took on a life of its own. Ideally, a company would convert anything in a given society into a commodity, with price being the universal measure. The US senators are objecting, in effect, to the commodization of the prisoner exchange, and to the “boundary issues” of BP.

The “so what” of this analysis is the following: it is particularly dangerous for a company or industry to be so powerful that it can unduly influence a government both in terms of a judicial sentence and in relation to other countries. Given the expansive nature of a company, society must have a means of keeping corporations within their proper domain of providing goods and services.  In a plutocracy (rule by wealth),  private wealth is the basis of government. This is not the case in republics, which are characterized by representative democracy.

Sources:
http://www.msnbc.msn.com/id/38256677/ns/world_news-africa/
http://www.heraldscotland.com/news/home-news/megrahi-threat-to-reveal-truth-over-lockerbie-1.1087516?utm_source=twitterfeed&utm_medium=twitter

On the Danger to the United States of Living off Government Debt: The Case of the Dollar as World Reserve in 2010

Given the $13 trillion of U.S. Government debt in 2010, the dollar was losing out at the time in percentage terms to other currencies as the global reserve currency. To be sure, in absolute terms, there were still more dollars being held abroad than twenty or thirty years earlier, but as a report from Emma Lawson of Morgan Stanley showed, other currencies were taking on more of a relative presence. The lesson concerning excessive public debt was not grasped at least through the 2010's, as the debt continued to increase trillions of dollars more.

The Euro had been making the greatest strides in percentage terms, particularly in 2002. The slight downturn in 2009 might have reflected the impact of the financial crisis of 2008 in Europe, though the Greek debt issue had not yet reached a boil (it would be interesting to see the figures from 2010).  In any case, the dramatic drop in the dollar’s percentage terms also came in 2002, before the Iraq war and the bank bailout spending (i.e., the $13 tillion dollar debt). The drop could have been in reaction to September 11, 2001, though it would seem an exaggeration even then to say that the US financial system would be undone by the attack.  Even so, as we know from 2008, irrational exuberance can take hold in even a global market. We ought nevertheless not lose sight of the fact that the number of dollars held in reserves around the world increased. The pie got bigger, and even though the dollar piece became larger, it was a smaller proportion of the pie in 2010.  Even so, the $13 tillion in US Treasury debt, the decision of the Chinese to allow their currency to appreciate to a limited extent, Russia’s call for a mix of global reserve currencies, and the EU’s bailout of the Greek bonds all pointed to trouble for the US dollar as “the” reserve currency. Also troubling was the UN report at the end of June, 2010, which urged that the US dollar is no longer stable enough to be the world’s reserve currency. Ouch! The dollar slid %5 in June. Fortune reports that central banks had been preferring gold to the greenback.

Lawson believed that  ”over time we anticipate that reserve managers may reduce their holdings further.” She is looking at the significance of small percent changes over a short time—and this I see as perhaps susceptable to overblowing small trends. For example, she found that central banks had dropped their allocation to U.S. dollars by nearly a full percentage point to 57.3% from 58.1%, and calls this “unexpected given the global environment.” But was such a change, relative to those shown in the chart, really significant? She argued that other dollars - the kind that come from Australia and Canada - had been benefiting from skiddishness on the dollar. The allocation to those currencies, which fall under “other” in the data, rose by a full percentage point to 8.5%, accounting almost exactly for the drop in the U.S. dollar allocation. She was undoubtedly assuming that the trend would continue, but a look at the chart can demonstrate that even the dramatic changes in 2002 had not continued at such a rate (e.g., for the euro and the US dollar). 

Even so, Treasury’s huge debt could not but undermine the US dollar over the long term. This point ought not to be minimized or ignored under the fiscal pressure to push the US economy out of recession. Even if the US did not admit that the debtload was too high to be paid down one day (the debt then approaching the annual GNP of the US), the market rendered its verdict. Relative the huge debt facing the US dollar (and remember there are huge state debts, such as in California, Illinois and Florida!), the “crisis” facing the euro in 2010 paled in comparison.  As of mid 2010, the euro was still over $1.20. Years earlier, it had been at parity. The media frenzy on Greece's debt in 2010 ought therefore to be put into some kind of perspective, and the impact of the dollar’s public debt not be lost. 

It’s not clear to me that the human mind can conceptualize a trillion, not to mention thirteen of them. Yet we glide over the public debts in the US as though they were sustainable. If the US falls, it will be from within--from consolidation at the empire-level.  Such a fall will likely come as a surprise to most Americans, who in being oriented to external threats tend to miss the gravity of the black hole amassing under our very noses.  To be sure, the additional debt enables us to live beyond our means as a society, and such a condition can be very addictive.  Perhaps the parallel question for us to reflect on is whether Rome fell from within or simply from the Goths.

Sources:

 http://www.businessinsider.com/morgan-stanley-dollar-euro-reserve-holdings-2010-7#ixzz0tBDYFjMd

 http://wallstreet.blogs.fortune.cnn.com/2010/07/09/central-banks-start-to-abandon-the-u-s-dollar/