Undermining the Dodd-Frank Act: An Incessant Desire for Profit

In the Dodd-Frank financial reform Act of 2010, financial firms in the U.S. are required to set aside higher reserves to cover losses on trades of securities, including those that “swap” the risk of default of a given security, such as bonds based on subprime mortgages. Almost immediately, the Wall Street bankers set about minimizing the new hindrance.  
Traders in the banks set about getting around the “margin requirements” by treating the “swaps” as futures, which do not require the higher reserves in Dodd-Frank. Whereas a futures contract for corn to sell at a certain price limits residual risk, swapping the risk of the default of an investment puts a party on the line for the entire investment. Moreover, unlike futures contracts, swaps have significant systemic risk because claims can all be made at once, overwhelming the parties assuming the liability in the swaps (e.g. AIG in September 2008). 
Managers at Wall Street firms have tended to not only minimize safeguards even though they protect the banks (from themselves), but also discount or even dismiss such high-risk, low-probability outcomes as come with risk to a bank as well as the entire financial system (i.e., systemic risk). Meanwhile, less money held in reserve means more money available to be lent or put into high-risk investments such subprime mortgages or bonds based bundles of such high-risk mortgages. 
Accordingly, the gradual trajectory already as of the beginning of 2013 was toward yet another systemic collapse of the financial system should enough housing markets take a down turn. “As the market gravitates to the cheaper platform—and it’s cheaper because it’s unsafe—that creates risk for everyone,” said James Cawley, CEO of trade execution firm Javelin Capital Markets.[1]  Put another way, market participants were operating according to the greatest profit, the greater risk notwithstanding. “In a distress scenario, you basically have what you had from AIG in 2008,” Cawley said; “Then someone has to step in, and we all know who that someone is: the U.S. taxpayer.”[2] So the question at the time was perhaps whether the SEC had the taxpayer’s back or was reflective of, or enabling a cozy revolving door between the federal government and Wall Street firms.
To be sure, the Volcker Rule, part of the Dodd-Frank Act, would, unless weakened, bar banks from short-term proprietary trading (i.e., on their own accounts, except for market-making), and from taking ownership states in private equity funds and hedge funds. U.S. Senator John Hatch speaking at Jack Lew’s confirmation hearing in early 2013 raised the question of whether Lew would act as U.S. Secretary of State to constrain banks’ risky proprietary trading, given that he had headed units at Citigroup that were involved in just such practices that would violate the Volcker Rule. 

Jack Lew at his confirmation hearing for U.S. Treasury Secretary. Lew had been the chief operating officer at units at Citibank.     NPR

Lew had been the COO of Alternative Investments at Citi. MAT and Falcon investment funds were sold as low-risk even though those funds were actually hedge funds with high risk.  As COO, Lew refused to offer the misled customers full refunds.  At least fourteen arbitration panels subsequently gave the customers the full refunds they had sought. Although he had not been involved in selling the funds, he did manage units that engaged in risky proprietary trading. The public would be justified in wondering if they too would be left on the hook as taxpayers rather than protected should Lew favor Wall Street's incessant desire for profit over the government's role to place that desire in check for the good of the system/whole.
After Lew, during President Trump's first term, the Federal Reserve Bank voted unanimously in late May, 2018 to weaken the Volcker Rule. The move was consistent with the president's desire to deregulate Wall Street. The flip side of the move that would enhance Wall Street profits was that the government would be doing less to protect the financial system as a whole even though the systemic risk of the largest five banks had increased with their growth. As Senator Dick Durbin had said after the financial crisis when people were looking to Congress to protect even the banks from themselves, “Congress is owned by the banking lobby.” So looking to the legislative branch should the executive be in sync with Wall Street's financial interests may not play well. Even after semi-stringent regulatory constraints have been passed, Wall Street can still have the edge in circumventing or mollifying the speed-bumps even though they are in the bank's own long-term interest, which can come to roust even in the short term as in 2008.

See Essays on the Financial Crisis, available at Amazon.

1. Eleazar Melendez, “Wall Street Setting Itself Up For Next Derivatives Crisis, Market Participants Warn,” The Huffington Post, February 14, 2013.
2. Ibid.

On the Gravitational Pull of Clearinghouses in Congress after the Financial Crisis

Lest it be assumed that the Dodd-Frank financial-reform Act, which became law in 2010, two years after the financial crisis, would render it less probable that taxpayers would again be faced with having to bail-out financial institutions even without strings attached in order to keep the financial system intact and the American economy from collapsing, Gretchen Morgenson of The New York Times wrote two years after the Act's passage that “failing to confront the too-big-to-fail question is a serious oversight.”[1] For one thing, disproportionately increasing the amount of money that the biggest banks must hold against a rainy day once again neglects the possibility that every bank is having such a day on the same day and so none of the banks will loan to other banks (i.e., the commercial paper market). When a financial system itself is sick to the extent that it cannot stand, all the heavy dominoes may topple, one after another, even though each has more support. Secondly, widening the too-big-to-fail category enables more financial institutions to engage in risky bets because the expanded net could limit any eventual downside. Sure enough, Morgenson points out that the legislation “actually widened the federal safety net for big institutions. Under the law, eight more giants were granted the right to tap the Federal Reserve for funding when the next crisis hits.”[2] Those institutions, including the Chicago Mercantile Exchange, the Intercontinental Exchange, and the Options Clearing Corporation were even able to avoid the penalties for failure specified in the Act. The clearinghouses had successfully argued that even though only banks had been allowed to borrow from the Fed’s discount window, the clearinghouses are not financial institutions; rather, they are financial utilities. So, should they fail, they should not have to be “wound down” by regulators. This is essentially having it both ways and getting away with it. To explain this comfortable arrangement, we would need to look under the hood, so to speak, where I suspect we would find an exclusive world wherein vast private wealth is itself political power even apart from any attendant lobbying activity.

In 2011, the CME Group, the parent company of the Chicago Mercantile Exchange, made almost $3.3 billion in revenue. Craig Donohue, the CEO, received $3.9 million in compensation and held an additional $10 million worth of equity outstanding. With this kind of money comes inherent influence, politically speaking. A very large concentration of wealth has a certain mass, by analogy, that bends space itself and thus has the force of gravity on other masses. This subtle force operates on legislators and regulators too, and thus complements both the influence of lobbying and campaign contributions. Even beyond the ability or wherewithal of great wealth to reward and punish, money talks; it is respected in itself. 

So great concentrations of wealth, like giant planets warping the space nearest to them, intrinsically warp a democratic system, which facilitates the natural tendency of great masses of wealth to attract even more. Hence after the financial crisis and the TARP and Fed infusions of cash, the five largest American banks were even bigger, and thus carried more systemic risk from the vantage-point of the financial system as a whole. In other words, it was even more likely that any of those banks, should it fail, could bring the system down. Additional reserve requirements seems like a paltry means of countering this natural law of great concentrations of wealth. Given their inherent and practiced influence, it should come as no surprise that they leverage the natural law by using even elected officials to bend the space appreciably more. 

It should be no surprise, according to Sheila Bair, the former head of the Federal Deposit Insurance Corporation, that just when the managers at the clearinghouses “were drooling at the prospect of having access to loans from the Fed, top officials at the Treasury and the Fed, over the objections of the F.D.I.C.,” pushed Congress to allow the non-banks access to the Fed’s discount window as part of the Dodd-Frank Act even while saving the clearinghouses from being subject to the law’s “wind-down” requirements.[3] Approving members of Congress likely either saw the huge amount of clearinghouse wealth as impressive and thus eminently worthy of being tapped for political contributions or were already tapping. It is as the density of the wealth had a warm glow even though a cold winter. 

According to Morgenson at the time, the clearinghouses had "considerable clout in Washington. From the beginning of 2010 through [November 2012], the CME Group . . . spent $6 million on lobbying.”[4] Warping space even more by redesigning artificial contours is apparently not cheap. 

As though a rationale were needed, managers at CME argued that once their institution received Dodd-Frank’s designation of “systemically important,” the Fed “should provide access to emergency lending” and without strings.[5] Without strings! It would seem that a certain presumptuousness comes from prolonged exposure to the warped space near the immense concentrations of wealth. Not included in the Act’s penalties for failure, CME hardly deserved an “offsetting” benefit. The lack of symmetry alone is indicative of the sheer influence of great wealth. Would such wealth, as almost the entire wealth on the planet concentrated, be a black hole? No one could escape its pull! 

More realistically, when, according to Morgenson, “large and systemically important financial utilities that together trade and clear trillions of dollars in transactions appear to have won the daily double—access to federal money, without the accountability" in being wound down after failing—the rest of us can legitimately wonder how much of the Dodd-Frank Act can be relied on to protect the financial system and economy, and thus us, after the warping effect of the giant planets. Shouldn't they be pared down, given their sizable risk to the system? If so, democratic government would be less warped and thus more directly oriented to the public good. For if a government is thwarted in this role, who is going to look after our macro systems, whether they be economic, political, or societal in general? 

See Essays on the Financial Crisis: Systemic Greed and Arrogant Stupidity, available at Amazon. 

1. Gretchen Morgenson, “One Safety Net That Needs to Shrink,” The New York Times, November 3, 2012.

2. Ibid.

3. Ibid.

4. Ibid.

U.S. Attorney General Barr's Decision on the Mueller Investigation of President Trump: On the Invisible Personal and Institutional Conflicts of Interest

On March 24, 2019, U.S. Attorney General William Barr sent to Congress his summary of Robert Mueller's report on whether President Donald Trump's 2016 campaign had colluded with the Russian government and whether the president had obstructed justice. According to Barr, Mueller had found no evidence of collusion. As for obstruction, Barr wrote that Mueller "did not draw a conclusion one way or the other as to whether the examined conduct constituted obstruction."[1] On this point, Mueller himself had written that 'while this report does not conclude that the president committed a crime, [the report] also does not exonerate him."[2] Mueller had laid out evidence and arguments on both sides of the question of obstruction, and Barr determined that the "evidence fell short of proving [that the president] illegally obstructed the Russia inquiry."[3] The New York Times went on to call this "an extra-ordinary outcome."[4] 
Barr did not detail his reasoning in deciding the matter of obstruction. According to the New York Times, he "appeared to be focusing on the question of whether investigators could prove that [President Trump] had 'corrupt intent' in instances where the available evidence about his motivations was ambiguous."[5] But in focusing on a lack of evidence that the Trump campaign reached any agreement with the Russian government on sabotaging the election, legal experts said," Barr "left out other reasons the president may have had for wanting to stymie a wide ranging investigation: It could uncover other crimes and embarrassing facts."[6] In other words, Barr's parameters may have been too narrow. 
The way Barr framed the contours for his decision might not have been an accident, given his personal conflict of interest. More important than this, I submit, is the continuing institutional conflict of interest facing the Justice Department in investigating its boss, the chief executive. After Congress had received Barr's summary, U.S. Sen. Lindsey Graham pointed on Fox News to former Attorney General Jeff Session's personal conflict of interest (Sessions had been part of Trump's campaign that was being accused of collusion with the Russians). Unfortunately, the senator mentioned neither Barr's personal conflict of interest or the broader institutional one facing the Justice Department. Such denial may have been partisan in nature, but I contend that institutional conflicts of interest tend to get a pass in American society. In the case of the Mueller investigation, Americans as a people put the conflicts of interest aside in looking forward to the conclusions from within the Department of Justice. This point, I submit, ought to be viewed as extraordinary. I turn now to the conflicts of interest.
According to The New York Times, when Barr "stepped in to make the determination," he brought "the specter of politics back into the case."[7] I submit that any Attorney General would, and I submit should trigger partisan suspicions in making a determination on a matter in which the chief executive (i.e., the president) is being investigated. 
As for the personal conflict of interest, even though Barr "had taken over the Justice Department [just a month earlier] pledging to defend its independence," he "ended up clearing a president who [had installed] him in the post."[8] This is significant not just because President Trump had been emphasizing loyalty (and dismissing the disloyal) from his subordinates in the executive branch; any pledge of independence represented a personal conflict of interest for Barr and an institutional conflict of interest for the Justice Department, as neither were legally independent of the chief executive, the boss. 
In fact, President Trump's choice of Barr was likely tied to the Mueller investigation. Barr had written a memo as a private citizen to Justice Department officials in June, 2018 insisting that special council Mueller's obstruction inquiry was "fatally misconceived." [9] A president's use of executive powers are beyond the reach of criminal law, regardless of the motive.[10] Such uses include firing a subordinate and directing the Justice Department to close a case. It is just human nature to be motivated to direct the department to close a case against the person himself. Even so, Barr argued that "Trump asking then-FBI Director James Comey to let go of the investigation into former national security advisor Michael Flynn and later firing Comey [were] within [the president's] powers as head of the executive branch." and thus not subject to being investigated, according to Trump's Attorney General before he was nominated.[11]
That Barr's memo would have gone unnoticed in the Trump administration and especially in President Trump's subsequent decision to nominate Barr for Attorney General is too incredulous to be taken seriously. In appointing Barr, the president was essentially securing his rightful control of the branch under him. This point alone gives us an indication of the gravity of the institutional (and constitutional) conflict of interest in the Justice Department investigating its boss, the president--the chief executive, which includes chief law enforcer. 
It stands to reason that none of the departments under the chief enforcer can enforce the law on the chief. I contend that President Trump was exploiting this conflict of interest to give the public the appearance of a credible investigation having been done with the president coming out clean. This appearance, if taken seriously, ignores the underlying conflict of interest that should be recognized as blatant. 
The Justice Department cannot investigate its boss, the president, without risking the extortion of the institutional (and perhaps personal) conflict of interest. That is, the executive branch investigating its boss constitutes a conflict of interest that essentially eliminates that branch as being able to perform such an investigation, at least in terms of credibility. Unfortunately, the American people ignored or dismissed the conflict of interest by relying so much on Mueller's report and Barr's subsequent determination. 

To be sure, Congressional oversight exists when another party controls the U.S. House or Senate (or both), but this renders the judgment subject to political forces, or at least as being viewed as partisan. Facing the conflict of interest within the Justice Department and the political oversight of the U.S. House, Mueller may have chosen the latter anyway, laying out whatever evidence he had for and against obstruction. He doubtlessly knew of Barr's memo, which likely reflected the attitude at the top of the department towards the investigation of any obstruction of justice. 
In general, the American people have risked a corrupting government structure in being so naive about institutional conflicts of interest within the U.S. Government. Simply put, corruptible conflicts should be deconstructed. For example, an alternative to department in the executive branch should be created or chosen when the chief executive is the subject of the investigation. Congressional oversight could be used if another party than the president's controls at least one chamber. An alternative would need to be created should Congress lack the political will to launch an oversight investigation. That this has not been done says something unfortunate about how Americans view even constitutional conflicts of interest.   

See Institutional Conflicts of Interest, available at Amazon.

1. Eli Watkins, "Barr Authored Memo Last Year Ruling Out Obstruction of Justice," CNN.com, March 24, 22019.
2.Mark Mazzetti and Carol Benner, "Mueller Finds No Trump-Russia Conspiracy but Stops Short of Exonerating President on Obstruction," The New York Times, March 24, 2019.
3. Charlie Savage, Mark Mazzetti, and Katie Benner, "Barr's Move Ignites a Debate: Is He Impartial?" The New York Times, March 26, 2019.
4. Ibid.
5. Ibid.
6. Ibid.
7. Ibid.
8. Ibid.
9.Watkins, "Barr Authored Memo."
10.Savage, Mazzetti, and Benner, "Barr's Move Ignites a Debate."
11.Watkins, "Barr Authored Memo."

Monetary and Fiscal Policy and Structural Reform: Each Had a Role to Play after the Financial Crisis

With fiscal policy hamstrung by public debt in both the E.U. and U.S., monetary policy was a major beneficiary of the financial crisis of 2008 and the ensuing state-debt crisis that stammered on at least until 2013 in Europe. Lest it be concluded that central bank policy had reached an unassailable peak of salvation, the expanded role actually made its limitations transparent, at least in financial circles.
Speaking to Charlie Rose on March 11, 2013, Jeremy Grantham of a Wall Street firm argued that the U.S. Federal Reserve Bank's extremely low interest-rate policy would be unlikely to spark an increase in employment even in the severe recession following the financial crisis. In fact, a low interest rate is a transfer of wealth from the poor to the rich. Fiscal policy, such as the Conservation Civilians Corps of U.S. President Franklin Roosevelt's New Deal in the 1930s, is a much better tool to achieve full employment. Yet even the New Deal did not have enough fire-power to bring the U.S. economy out of the Great Depression; it took the breaking out of a second world war to get America's military-industrial complex to create enough jobs. One implication is that a competitive market alone is not sufficient to reach full employment. Even though such a market can sport great efficiency if kept competitive by the enforcement of anti-trust law, natural consumption levels have been unable to spark enough jobs for full employment to be achieved. Not even low interest rates can do that, as per the decade of the 2010's. We ought to accept that a lot of fiscal stimulus is needed to achieve full employment, even if it is not optimally efficient. 
Meanwhile, Jens Weidmann, the president of the Bundesbank, argued that monetary policy in the E.U. “can only buy time at best..” He went on to say he was “a bit concerned about some of the expectations around the power and potential of monetary policy.”[1] In other words, the ECB should have gotten back to monetary policy in a stricter sense, rather than trying to spark economic growth and employment through low interest rates and buying state-government bonds.
Behind the view of interest-rate, or monetary, policy as being capable of giving us economic salvation was the paralysis of fiscal policy determination in both federal unions.  Divided government at the federal level stymied fiscal policy in the U.S. after President Obama’s insufficient “stimulus” package in 2010. In the E.U., the vetoes retained by the fiscally- and debt-conservative state governments such as Germany at the federal level through the European Council put pressure on state governments strapped fiscally to take on even more debt even just to avoid defaulting on existing debt, not to mention keeping their fiscal policy-levels sufficient that their residents would not be imperiled. Increasing debt-loads for fiscal reasons did not serve states like Greece and Spain well. Fiscal redistribution at the federal level is one of the benefits of federalism, and yet the E.U. was stymied because each state government had too much power at the federal level (quite unlike the states in the U.S. at its federal level). 
In short, much of the allure of monetary policy actually came from fiscal frustration at the federal levels of both unions. Alternatively, both fiscal and monetary policy could have been used, and pointed in the same direction: toward full employment. Using low interest rates and the issuance of debt, respectively, to pull up an economy out of severe recession and even as political coverage (in the U.S.) or leverage (in the E.U.) for needed structural reforms of a financial system and indebted states, respectively, may not have been sufficient or even smart. Taking on a corruption-induced financial system in the U.S. required a lot of political guts, which not even the Obama administration had, for the Dodd-Frank Act of 2010 did not go far enough in deconstructing the conflicts of interest in the system. Also, feeding Wall Street with infusions of government money appropriated by Congress and much more created by the Federal Reserve Bank, with no strings attached, did not make the bankers at the big banks any more willing to accept structural reforms even though they would have protected the banks by fixing the system. Not even fiscal stimulus plus low interest rates could keep the U.S. out of a severe recession, though arguably the U.S. could have entered a severe depression otherwise. Both fiscal and monetary policy and going politically after dysfunctional systems, whether that of Wall Street or those of heavily-indebted E.U. states, all must be used so none of the tools is over-relied upon and thus overused.  

See Institutional Conflicts of Interest, Essays on the Financial Crisis, and Essays on the E.U. Political Economy. All are available at Amazon.

1. Katy Barnato, “Central Banks Alone Can’t Fix Europe: Weidmann,” CNBC, March 12, 2013.  

Weak Corporate Governance at UBS Amid a $2.3 Billion Trading Loss in 2011

UBS chief executive Oswald Gruebel resigned on September 24, 2011 over the $2.3 billion trading loss by one of the Swiss bank’s traders, Kweku Adoboli. Kaspar Villiger, UBS's president, said the board regretted Gruebel's decision but had decided to accept it. "Oswald Gruebel feels that it is his duty to assume responsibility for the recent unauthorized trading incident," Villiger was quoted as saying in the statement. "It is testimony to his uncompromising principles and integrity."[1[ In presumably not pushing for the CEO’s resignation because of the magnitude in the lapse of risk management in the system, the bank’s board of directors did not take the initiative in holding the management accountable. Accordingly, shareholders have reason to be concerned about the protection of their owner’s equity, at least in terms of corporate governance providing accountability on the management. The culprit may be corporate governance itself, which as structured may proffer too much power to the CEO.

In the case of UBS, the shareholders ultimately had to rely on Gruebel’s  integrity rather than corporate governance for accountability. To be sure, the resignation of the CEO does not necessarily mean that the management itself has been held accountable. Ethical leadership thus has its limits in this respect. Where a problem is systemic in a company and has been allowed to perpetuate itself by many people in upper- and middle-level management, the resignation of the CEO is not sufficient in terms of accountability. Had the CEO embezzled over $2 billion, the resignation would have been sufficient, but relying on the CEO’s integrity would be foolhardy in such a case.  

In short, the case of UBS suggests that corporate governance ought to be strengthened or fortified with respect to enforcing accountability on a management so as to protect stockholder interests. Villiger said Gruebel, who was brought in to help revive the fortunes of the Zurich-based bank, had achieved "an impressive turnaround and strengthened UBS fundamentally." But surely there must have been some lapse in Gruebel’s oversight of the bank’s system; for over $2 billion to be lost by one trader is itself a red flag concerning the bank itself and its management as a whole. Depending on ethical leadership at the top to step aside in the interest of the design and implementation of a new system does not go far enough.

1. “UBS CEO Oswald Gruebel Resigns Over Rogue Trading Loss,” The Huffington Post, September 24, 2011. 

Structural Reform and Economic Sustenance in European Austerity

Speaking at the World Economic Forum in Davos, Switzerland on January 25, 2013, Mario Draghi, president of the European Central Bank(ECB), said the bank’s program to buy the bonds of heavily indebted E.U. states had been “very helpful” in reducing the perception that the euro was on the verge of collapse. He also pointed to the structural reforms that heavily indebted states had enacted as “now bearing fruit.”[1] He urged those governments to continue to implement structural reforms so those states could take advantage of the ECB’s low interest rates and easy credit to banks. In short, the strategy of the ECB was to use monetary policy as leverage for long-term-oriented structural reforms at the state level. Political risk analysts listening to the central bank official likely came away with a more optimistic stance on the long term prospects for the E.U. economy.

Even though the progress achieved already on the debt crisis provided “light at the end of the tunnel,” the matter of structural reforms at the state level was subject to politics and was thus more uncertain. Also, economic conditions could worsen, hence making it politically and economically more difficult to make the needed structural changes. Chancellor Angela Merkel of the state of Germany warned the governors of heavily-indebted states such as Greece and Spain against the impulse to reduce the pace of structural reform in the face of economic stagnation. She pointed to the record unemployment numbers announced in Spain on January 24, 2013 as fodder for the anti-austerity political forces there. She further observed that “experience tells us that often pressure is required to enable structural reform.” The obstacles could have come from political officials or bureaucrats at the state level, and even from the people, upset at the economic austerity cut-backs hitting themselves and even the poor who depend on funding for sustenance. Advocates for those people were doubtlessly contesting that survival in the short run should not be sacrificed for long-term structural reform. 
Interestingly, making a qualitative (i.e., difference in kind) distinction between government programs that keep people alive on a daily basis and all the other budget items could actually permit more budget cutting because so much would be found to be subject to cuts without risking lives. In the U.S. at least, the qualitative difference has typically been made between domestic and military spending. This dichotomy has enabled huge increases to military programs even as cuts to food assistance have been proposed. Of course, the unemployment caused by a cancelled defense contract could put people in danger of losing their house or going without food. However, such individuals would be covered by the continuance of the programs providing sustenance as long as they were held apart from the other spending categories. Having an indirect effect on sustenance, such as military contracts can, does not render a particular budget item itself in the category of vital programs for sustenance, such as building more halfway houses for the mentally ill who are homeless.  This reflects the American culture more, wherein much more is deemed conditional than in Europe, where the principle of solidarity has been and is still more salient politically.
In short, long-term fiscal reform need not be at the expense of people eating and having shelter as well as medical care. Based on the firm foundation of human rights, programs primarily geared to sustenance can be isolated and protected such that the structural reform can be implemented more smoothly. Buffering sustenance programs from the massive cuts everywhere else would significantly reduce the vehemence of the protests and soothe the path of structural reform by isolating the entrenched officials and bureaucrats as the only primary obstructionists. 

See also Essays on the E.U. Political Economy, available at Amazon.  

1. “Davos: ECB’s Draghi Says ‘Real’ Economy Still Stagnant,” Deutsche Welle, January 25, 2013.

Pruning Back an Ideological "Re-Definition" of Socialism

Should language lose its integrity for ideological purposes? On Fox News in the wake of the passage of Obamacare, Brit Hume and Newt Gingrich, a former Speaker of the U.S. House of Representatives, both (re)defined socialism as “government control of private property.” Their rendering falls short, however. According to the Random House Dictionary (via Dictionary.com), socialism is “a theory or system of social organization that advocates the vesting of the ownership and control of the means of production and distribution, of capital, land, etc., in the community as a whole” (italics added). Whereas government regulation of privately-owned means of production and distribution involves some of the control being in the hands of the community as a whole through its government, socialism includes the vesting of both ownership and control with the government. 
Hume and Gingrich doubtless believed that words can be redefined to suit ideological objectives. Public discourse is difficult enough in a democracy. The dialogue "across the aisle" becomes more difficult when one or both sides decide that language can (and even should!) be subordinated to ideology to the extent that dictionary definitions (and common usages) are presumed to be changeable simply by applying a new meaning to the words on the public airwaves or speeches. Ideologically akin people will doubtlessly follow along, and soon the word has a meaning that contradicts the dictionary definition.  
Going further, to intentionally scare people by redefining a word in such a way that the word appears worse than it actually is nothing short of misleading manipulation. Even in such a case, not even the opposing partisans alert the people through the media or speeches that X means Y rather than Z according to dictionary definitions. No one stands up for language, so ideology can have its way and prey on words.
If government control via regulation is not convenient to the business sector and its advocates, what about government ownership without control! As per the definition of socialism, government ownership without formal control does not constitute socialist enterprise. Ownership and control can indeed be separated. Bearle and Means, in their classic treatise, The Modern Corporation and Private Property, point to the separation in modern large corporations, wherein stockholders as a group are the owners and control is maintained by managers. Theoretically, a government could own a company that is controlled by its management. Perhaps public policy would be served by the ownership alone, or the managers could have taken de facto control away from the government officials.
Therefore, the definition of socialism is more delimited than typically thought. To be sure, the meaning of words can change naturally, but such shifts are gradual as per changing times and thus uses, rather than sudden, as from being artificially interlarded for short-term political use. In the case of socialism, the term has historically applied to an entire economic system, such as those of the U.S.S. R. and China before capitalism made such inroads. A person would not say that healthcare is socialism, or even that taxes are socialistic. In Arizona, the dominant ideology has viewed taxes as theft.
With the fall of the command-and-control economic systems of the U.S.S.R. and China, socialism has come to be increasingly applied to governments owning and controlling particular enterprises rather than every means of production and distribution. Hence a capitalist economic system can contain socialist enterprises. For example, the Green Bay Packers’ football team in Wisconsin has been socialist because the citizens of the Green Bay together have owned the team. The community need not transfer ownership formally to a government for an enterprise to be socialistic. So too has the China National Tobacco Corp. 
In short, socialism can be distinguished from government regulation of privately-owned economic enterprise. Conflating the two by effectively redefining the word, socialism, muddies the public discourse and sows confusion, neither of which is helpful to viable republic. Furthermore, socialism can be applied to particular enterprises as well as to an entire economy whose means of production and distribution are owned and controlled by the community as a whole (often through its government). The application to particular enterprises does not reduce socialism to control alone. 

Including Voter Judgments on Broad Policies in Elections: An Expansion of Active Popular Sovereignty

Days after the 2018 Congressional elections in the U.S., the Minority Leader and soon-to-be Speaker of the House of Representatives, Rep. Nancy Pelosi, declared, “Healthcare was on the ballot and healthcare won.”[1] As the new Democratic-controlled House worked on a budget the next Spring, Pelosi was still insisting that healthcare was what that election was about. Perhaps she based her statement on exit polls in which most voters claimed that they had voted chiefly the basis of candidate positions on healthcare. This does mean, however, that the voters voted on healthcare, for as only a choice of candidates could be made, the voters were left with inferring or even hoping that the favored candidate would act on, or at least stay with, his or her position on the issue. I contend that the next leap in the theory and practice of representative democracy could be to no longer keep an electorate, the popular sovereign, limited to selecting among candidates.

I don’t believe that the American voters, as a group—perhaps just of the minority of eligible voters who cast votes—do very well in assessing candidates and making a judgment. According to CNN, “Who the candidate is, really, plays an absolutely critical role in the presidential decision.”[2] Did the voters who had voted for Richard Nixon have even a clue regarding who the man really was (i.e., a criminal)? Did the voters who voted for Don Trump know enough about his personality to make a good judgement? I am not qualified to assess the mental health of those men. I doubt that voters who have very limited, even superficial information on a candidate via the media, and perhaps a bit more information, albeit mostly on policy, from listening to a full speech, can viably include whom the candidates really are in the voting judgment. Not even U.S. Senator Elizabeth Warren’s sharing of a bad economic experience during her childhood tells us much about whom she is underneath. At the time, an editor at CNN referred to the personal sharing as a glimpse into Warren herself and what was motivating her to run for the federal presidency. “At root,” the editor continues, “people usually vote for president based on a belief that the person they are choosing ‘gets’ them in some fundamental way.”[3] Can we assume that Warren identified with, or had compassion for, poor people several decades after her family’s economic plight? Time and a drastically changed financial situation can both change a person. It was possible that the emotional sharing on prime-time television before a live audience could have been impacted by the nature of this medium of delivery (i.e., by enabling acting). After all, “that retelling of [Warren’s] childhood [was] a staple of Warren’s stump speech,” which, by the way, the vast majority of the presidential electorate will not have heard by election day. So to just get nominated by a major party, a candidate, at least in the 2020 campaign season, had “to be able to perform when the bright lights come on and everyone is watching.”[4] What an audience gets from a candidate under the bright lights is likely to be superficial from the standpoint of whom the person really is.

From the Nixon-Kennedy debates in 1960, even Nixon’s pale, sweaty face was not enough for the audience to conclude much about the man himself. Could all of his crimes in office have been predicted? That his “checker’s speech” was generally deemed to clear him of corruption in voters’ eyes suggests that even in the face of a candidate’s checkered past, the American electorate (and the media) was naïve. Is it asking too much to suppose that voters watching the Trump-Clinton debates in 2016 could have suspected how Trump would behave personally while in office (putting aside the question of corruption)? I think so.

So why has the American electorate been limited to selecting candidates, giving them the power to go back on policies that they have advocated during a campaign? In other words, if the electorate has not known the candidates (e.g. what makes them tick), it seems foolish for elections to rely so much on voters selecting candidates, who, because they are unknowns underneath, cannot really be relied on to follow through on their campaign platforms.

Because popular sovereignty, the authority of a people as a whole, supersedes a government’s sovereign in a representative democracy, the people should be able to expand their active use of their sovereignty over that of their government by including their judgments on major public policies, or “issues,” in voting.  For example, the voting electorate could say yea or nay on whether Medicare should be expanded to all as a single-payer system, and whether health insurance should be entirely private. Hopefully the American electorate would not be schizophrenic in answering yes on both!  Whereas the private health-insurance industry may have an inordinate influence on elected legislators due to lobbying and campaign contributions, even on policies in which a clear conflict of interest exists, an electorate could restore its primary influence by expanding ballots to include decisions on broad policies, which the elected representatives would then implement. Should Congress and the president implement a tax cut (the details to be worked out by the officeholders)? Should taxes be raised or spending cut, or both, to reduce budget deficits? Congress and the president would still have substantial power (i.e., discretion) in implementing such broad policies. The American electorate could even have re-elected George W. Bush in 2004 and voted to end the war in Iraq. The president would have had to abide by the vote on his prize issue.  So the expansion in the exercise of popular sovereignty would need the protection of law—most properly a constitutional amendment.

The reduced reliance on voters assessing candidates and judging between them would be beneficial in itself, given the difficulties in knowing the candidates themselves, and the expansion in the electorate’s sovereignty would re-prioritize the electorate over its representatives tasked with implementing broad policy directives. I would even say that American voters would be better at making broad policy judgments than picking candidates. I submit that American democracy has been designed to counter or even block what an electorate is best at, while funneling all of its influence through what it is worse at!

Especially in cases in which the electorate is large, the proportion of which that really knows the candidates is small. Hence the Electoral College in the U.S., where the electorates of the states elect a small number of electors to vote for president. Unfortunately, that has not worked since the beginning, as parties took over the College. The Anti-federalist stance that most governance should be done at the state level where the districts are smaller than at the federal level was justified by the belief that voters in a small district tend to know the candidates better than do voters in a very large district. The U.S. went on to become a very large district, with over 310 million people by 2015. How many of those people could possibly have the real story on Hilary Clinton or Don Trump?

By the twentieth century, even the state level could have been considered to be too big, yet no state adopted a federal system made up of what Europeans call regions or provinces. Interestingly, the E.U.’s principle of subsidiarity pushes decisions to the state or local level if feasible; the people are literally closer to their state governments that that of the E.U. The states in both empire-scale unions could improve democracy by federalizing themselves. Meanwhile, federal elections in both unions could be widened both conceptually and in practice to include judgments on policies, which voters are able to make, so as to take the pressure off the importance of selecting the better candidate. The percentage of eligible voters might even increase if voting on policies is found to be more interesting than just voting on candidates. If I am correct, the office-holders have been allowed to have too much power at the expense of their respective electorates, which have had too little, whether unwittingly, voluntarily, or beguiled/pressured by their own agents.

See Essays on the E.U. Political Economy and Essays on Two Federal Empires. Both are available at Amazon.

---

[1] Kimberly Leonard, “Nancy Pelosi: ‘Healthcare was on the ballot and healthcare won,” The Washington Examiner, November 7, 2018.

[2] Chris Cillizza (CNN’s Editor-at-large), “Elizabeth Warren Just Had Her Best Moment of the 2020 Campaign,” CNN.com, March 19, 2019 (accessed same day).

[3] Ibid.

[4] Ibid.

Saudi Arabia Going After Dissenters Abroad: On the Egregiousness of Concentrated Power

After having been selected by his father as the crown prince, Mohammed bin Salman of Saudi Arabia “authorized a secret campaign to silence dissenters—which included the surveillance, kidnapping, detention and torture  of Saudi citizen—over a year before the killing of Jamal Khashoggi, according to American officials” with access to the classified reports.[1] The killers of Khashoggi had been involved in at least 12 other such operations starting in 2017. The sheer egregiousness of the operation under the crown prince says something about not only dictatorship, but also the nature of power itself.

According to the American officials, “(s)ome of the operations involved forcibly repatriating Saudis from other Arab countries and detaining and abusing prisoners in palaces belonging the crown prince and his father, King Salman.”[2] Although Saudi law forbids torture as it is considered an abuse of power, and confessions made under duress are inadmissible in Saudi courts, dictators can easily ignore the force of law as if it were just a moral imperative. Furthermore, Saudi officials acknowledged after Khashoggi’s murder “that Saudi intelligence service had a standing order to bring dissidents home.”[3] Hence the torture and murders involved international relations, a fact that points to not only the extent of the crown prince’s use of power to go after dissent, but also the sheer brazenness and even the underlying mentality.

Extending the reach to include Saudis in other countries points to the egregious extent to which the crown prince went to stifle dissent. “Saudi Arabia has a history of going after dissidents and other Saudi citizens abroad, but the crackdown escalated sharply after Prince Mohammed was elevated to crown prince in 2017, a period when he was moving quickly to consolidate power. Since then, Saudi security forces have detained dozens of clerics, intellectuals and activists who were perceived to pose a threat, as well as people who had posted critical or sarcastic comments about the government on Twitter.”[4] That writing a critical or even sarcastic comment on a blog or on Twitter could justify being kidnapped in another country and killed there or brought back to Saudi Arabia points back to a dictator’s attitude toward power—that a person cannot have too much of it, and thus that any external (or even internal!) constraint is to be regarded as not only pliable, but easily pushed aside altogether.

When a Saudi group linked to the crown prince killed and dismembered with a bone saw inside the Saudi Consulate in Istanbul, Turkey’s government was using surveillance video and audio recordings to uncover the crime.” According to Bruce Riedel a former CIA analyst, “the team’s sloppiness showed that it was used to operating freely inside the kingdom and not under the watchful eye of an adversary’s intelligence service.”[5] The brazenness may suggest that as condensed in a dictator, power warps the mind’s perspective. 
By analogy, gravity warps time and space. As the mass of power increases, perhaps past a threshold point, the normal perception and judgment of having gone too far may be skewed by the power itself. Perhaps similar to additions, the high from the intense pleasure from having a lot of power occasions the warping of perception and judgement regarding one’s own power and the illusion that complete control over other people, hence with zero dissent politically, is achievable. Other operative mental defense-mechanisms doubtlessly include denial. If so, then checks on substantial power being held by political officials (as well as religious, educational, and business officials) are grounded in what having a lot of power does to the human mind. Put another way, a limit exists as to how much power is compatible with human biology.

---

[1] Mark Mazzetti, “Saudi Prince Ran Brutal Campaign to Stifle Dissent,” The New York Times, March 18, 2019.

[2] Ibid.

[3] Ibid.

[4] Ibid.

[5] Ibid.

Political Power and Jesus' Way: A Dictator Comes to Value the Kingdom of God

Religion and political power can be dangerous if combined and aimed at people deemed to be apostate or heretical. In calling for the Crusades, our Roman Catholic popes put their political power behind the theocratic and political goal of taking back Jerusalem “for Christ.” Those popes and the kings and soldiers who went to war with the Muslims there wittingly or unwittingly violated Jesus’s preachment to love rather than fight enemies. Christianity and political power have not mixed well, historically. The U.S. Constitution forbids the federal government and, presumably, the states, to establish or sponsor a religion or even favor one. Theocracies, such as those in the Calvinist colonies in New England (except for Rhode Island, which allowed freedom of religion), would be excluded as a political form for the Union as well as its member-states. Rather than meaning “sub-unit” or “province” as in Normandy in the E.U. state of France, the American Continental Congress has applied “state” in the generic sense of a polity with a yet-to-be-determined political system. Hence while the Articles of Confederation were in force, before the U.S. Constitution, the states could legally form theocracies. The film, The President (2014), is fictional, but this doesn’t stop its portrayal of a toppled president in hiding from looking realistic, given the cases of Muammar Gaddafi in Libya and Saddam Hussein in Iraq. The character arc of the president while he is in hiding, or “on the run,” captures a generally unknown way in which Jesus’ preaching on how to enter the unknown Kingdom of God can apply to political power in a good way. This is not to advocate theocracy, however. Rather, individuals who wield power, whether in government or business, can come to see the very nature of power differently and gain new insight into the Kingdom of God preached by Jesus.

The full essay is at "The President."

It’s Only Fair

Astonishingly, organizations can violate their own mission statement without any manager or non-supervisory employee being aware of the violation. This can happen even when the people in an organization really do take their mission seriously. At Goodwill, the mission is to end poverty, a laudable goal. It follows explicitly (i.e., according to a sign in the stores) that “every customer has an equal opportunity to purchase any item for sale.” Although the sign bases this point on the fact that the goods “come from public donation,” I submit that ending poverty by giving the poor access to relatively low-priced merchandise is hampered if some customers are permitted to fill their carts with on-sale (i.e., color of week) items when the doors open. Certainly allowing those resale-minded customers to deprive other customers of a selection of items on sale (especially clothing, which even homeless people need) is not fair.

According to the sign, possible violations include any employee or volunteer of a store being able to purchase items in the store whether for themselves or others. “Nor may merchandise be reserved or set aside for anyone.” To be sure, recognition is also given to the possibility that a customer might think that the organization is not being fair. When I interviewed a store manager about whether allowing customers who resell items on sale in “garage sales” conveniently misconstrued as businesses to buy in such bulk that effectively deprives other customers, whose use for the clothing is for personal use, she dodged the question itself but took my point implicitly by admitted that she knew of no way in which the practice could be thwarted. I told her I had a few ideas, but she was not interested in them. I topld her I am a business ethicist and would be writing on this case. Patronizingly, she quipped, “Have fun writing your paper!” In retrospect, I wish I had replied, “Have fun managing!” How interested would the organization’s management be? I wondered at the time.

Goodwill could indeed have stepped in to prevent the obviously unfair practice of certain customers, who actually compete with each other in going around—as part of their re-selling businesses—to different Goodwill stores to swoop up as many shirts or pants on sale. 

A "garage sale" of a reseller open for business at her personal residence. Beyond the cars is the Goodwill store at which I had observed the opening of a major, half-off, sale on shoes and clothing (and misc) just a week earlier. Some of the athletic shoes, which sold for $7 without any negotiation (a sign that a reseller is hosting the "garage sale"), I had seen in a cart full of such shoes at the beginning of the sale at the Goodwill store. 

The personal-use customers can have little chance, or practical opportunity, to get an item on sale because Goodwill allows customers even at the opening of a sale to fill their carts entire of one kind of item (e.g., athletic shoes). Even if a wife/mother is buying athletic shoes for her husband and teenage kids, a whole cartful is suspicious. I witnessed a woman head immediately to the shoe section when the doors open and quickly throw as many athletic shoes in her card as she could before other customers had a chance to take advantage of the sale. Clearly, the monopolistic character of the woman’s behavior and that her commercial interests could eclipse the personal-use interest of other customers who would do without as a result not only reek of unfairness, but also violate the “equal opportunity to purchase any item in the store.”

A reseller had her cart full just seven minutes after the Goodwill store opened with a sale that would practically guarantee that the reselling would be lucrative. The number of men's shorts alone in this cart points to something beyond personal use. The resellers do not pay taxes on their profits because the sales, primped as "garage sales," are easy not to report. Legally, the income from genuine garage sales is taxable.

Meanwhile, Goodwill looks the other way undoubtedly because more revenue and less risk of having items unable to be sold are obtained when the re-sellers buy in bulk. In other words, the lack of recognition of the tilted status quo and of ideas on how to restore balance may not be accidents. A false premise that the status quo must be balanced, or that the status quo does not justify effort to achieve balance may also be in the mix. A policy could be put into effect that limits the number of same-classification items on sale that can be purchased by each customer.

Already I can think of ways in which the commercial customers could get around this limitation, for profit-seekers hate limits, whether internal or external. They could bring along family and friends to divide up the quickly stashed merchandise. They could fill their respective carts when the doors open and carefully stash their carts so to be able to make multiple trips to different cashiers.

At some point, however, store employees and even managers can be relied on to help enforce the policy by being on the lookout for such tricks. A customer’s claim that she needs a cartful of sneakers in order to try them on to find one that fits can be easily rebuffed. Only six items are allowed in the fitting rooms anyway. Such games and how to deconstruct them could be incorporated into training. It is not difficult, for example, to see people quickly filling their respective carts with one or two item-classifications shortly after the doors open. The store manager with whom I spoke had no problem in identifying the re-sellers who buy in bulk. Her hands’ off, laissez faire attitude was problematic as it did not fit with the organization’s mission to reduce poverty in a fair way, which in turn requires equal access to the merchandise. Hiding behind the relatively effortless status quo, as if it were intractable or even as fair as possible, evinces a willingness to live with an unfairness that could otherwise be reduced even if it cannot be eliminated. Not having any ideas when imperfect measures could make a dent evinces an unwillingness to think too far from the status quo (i.e., outside the box).

See "A Lack of Good Will at Goodwill."

See also Cases of Unethical Business: A Malignant Mentality of Mendacity, available at Amazon. 

Holding the U.S. Debt-Ceiling Hostage: A Case of Political Expediency over Statesmanship

In April of 2011, S & P lowered expectations on U.S. Government debt from “stable” to “negative.”  Astonishing, the $14.2 trillion U.S. debt was still rated as AAA. The shift in expectations did not trigger higher borrowing costs because the market presumed that a political deal lowering the deficit would be facilitated by the warning-call. At the same time, Congress and the U.S. president were grappling with the need to extend the federal debt ceiling. The federal government was projected at the time to reach its borrowing limit by May 16, 2011, though the Treasury secretary, Tim Geithner, said he could use accounting options to push the date back to July 8. He assured the public that Republicans in Congress had told President Obama that they would go along with a higher limit. “I want to make it perfectly clear that Congress will raise the debt ceiling,” the Geithner said.  He also said the Republican leaders had assured the president that they “couldn’t play around with the government’s credit rating. They recognize it, and they told the president that.”[1] Such a recognition and statement by the Republican leadership, if true, would evince statesmanship over political expediency, for Republican lawmakers could have leveraged their votes on raising the ceiling to get more in negotiations on the budget. This would be particularly notable considering that appropriations to keep the U.S. Government's non-essential operations going were pawns in a Congressional-presidential power-struggle during the Trump administration. 

However, Rep. Paul Ryan, chair of the U.S. House Budget Committee and later to become Speaking of the House, said that while it was true that nobody wanted the U.S. Treasury to default, “(w)e want cuts in spending accompanying a raising of the debt ceiling. And that is what we have been telling the White House.” A spokesperson for Obama said a debt ceiling vote could not be contingent on upcoming negotiations over the budget.  So, in effect, the matter of default on the U.S. debt was being used for leverage in negotiations rather than held as untouchable.  It is no wonder S & P lowered its expectations concerning the ability of U.S. Government officials to avoid default by failing to raise the federal debt limit. Had the lower expectations been assumed to be a wake-up call for federal lawmakers and the executive, S & P would have been naive.

To say that no one wants default but then to hold it ransom is disingenuous and duplicitous. It is as if to say, “I don’t want to do it but I have to,” when in fact the deed does not have to do it. We see such statements from corporate managers and customer service employees. “Unfortunately, that can’t be done”—weakness that seeks to dominate typically takes assumes the passive voice as if to hide—when in fact the person or especially his boss could. Company policies are in actuality guidelines. Sadly, customers typically enable the false rigidity by taking it at face value rather than questioning it by going above the employee or even manager. 

Rep. Ryan could have resisted the temptation to gain greater advantage on the budget by holding the debt ceiling hostage. Even if he made the statement to cover himself with his political base in Janesville, Wisconsin, he bore responsibility for giving the appearance of putting partisan advantage over statesmanship.  

Given the encroaching nature of expediency whether for power or profit (or both), even verbal statements can get the ball rolling even for other political parties. Soon the government's duty to act in the public interest becomes a mere byproduct, as if by accident rather than primary intention. Given human nature, political expediency and the desire to make even more money are inherently antithetical to any self-enforced limitation. Hence in government, we can say that statesmanship involves voluntarily giving force to a self-imposed constraint or limitation. 

1, “Geithner Confident Congress Will Raise Borrowing Limit,” USA Today, April 18, 2011, p. 6A.