The E.U. Investigates an Online Travel-Reservation Company: Consumer Protection in Hospitality

The case, or rationale, for government regulation and oversight of the “hospitality” industry (e.g., hotels, booking companies, etc.) is not merely made on the basis of monopoly or oligarchy in the industry at the expense of market competition, but also on issues concerning business ethics and managerial competence at not only hotel companies (as well as with franchisees), but also separate travel-reservation companies. The European Commission was therefore on solid ground in launching an investigation into a online travel-reservation company in 2026.

To be sure, running a hotel, with customers staying at such short intervals, is admittedly difficult, given the need for constant coordinating amid the comings and goings. This is no excuse, however, for dysfunctional management, such as in hiring incompetent or “misaligned” employees in the first place, and later retaining such hires as are discovered to have task or attitude deficiencies. Furthermore, the hotel/motel industry’s franchise model seems particularly prone to franchisees whose obsession on reducing expenses by trifling with amenities goes on as if the customers, or “guests,” do not pick up on the underlying pettiness and greed. Ending the “complimentary” breakfast at 9 a.m., for example, as some Marriot hotels were doing at the time to reduce the number of customers being able to make it in time is unethical if done to reduce expenses on the food. So too is the practice in hotel house-keeping departments to conveniently interpret the placement of a “Do Not Disturb” sign on room doors as meaning that housekeeping service is not wanted that day, even in the afternoon. Housekeepers can reduce their workload by such a convenient assumption with impunity, and lying about whether a sign is on a room’s door can be easily used to reduce a workload even more. Even in how reservations made not directly through the hotel’s company, but, rather, online using a travel-reservation service/company to get lower rates, front-desk managers of hotels are known to relegate those “cheaper” reservations to inferior rooms, such as ones near elevators and not having views. To be sure, a case can indeed be made that customers who pay higher rates warrant better rooms, or at least preference in choosing rooms, but the typical prejudice of hotel managers against “third party” reservations as being inferior can easily translate into such customers, or “guests,” feeling inferior as victims of prejudice. In short, the profit-motive is alive and well in the hospitality industry, where even extending a reservation must contend with the contractual mindset of hotel companies wherein rate for each additional night is to be maximized by demand and supply; daily expediency trumps investing in repeat business by building a customer basis and even customer loyalty. In short, loyalty does not compute in a daily revenue-maximizing, transactions-oriented managerial mentality. At least in the U.S., that mentality really got going once people could shop online for rates in the 2000s or 2010s. In short, the case for government oversight of the “hospitality” industry is an easy one to make, especially since the advent of computer technology used by the industry. The E.U.’s investigation of Booking.com, an online travel-reservations company, announced in October, 2026 should therefore not come as a surprise.

The E.U.’s “investigation into online travel platform Booking.com” came amid “concerns that it has failed to adequately address fake listings and phishing scams.”[1] A phishing scam is one in which personal/financial information of customers is extracted for nefarious purposes such as identity theft. E.U. federal authorities accused the management of Booking.com of having “underestimated the impact of fraud and unlicensed accommodation on its platform and has not done enough to prevent users’ data from being exploited by scammers.”[2] The E.U. commissioner for technology, Henna Virkkunen, said at the time that E.U. citizens “should be able to book their holidays without fear of being scammed.”[3] Additionally, the Commission was taking a look at Booking.com “because it did not clearly label as ads those listings whose providers paid for a higher ranking in search results shown to users.”[4] This charge shifts the focus from the providers using Booking.com to that company’s own management. Together, the opportunity of collusion at the expense of the “users” is high enough that government oversight was justified.

Another American travel-reservation online platform, that which was run by Super.com, was also ripe for investigation because that company operated at the time in travel, financial tech, and savings company—all of which came under the Super+ membership. How the company’s hybrid prepaid Mastercard, useful for cashback and credit-building, and the cash advances feature of the savings feature related to the travel-platform could have been examined by regulators for possible structural conflicts of interest. Even just within the travel platform itself, the company could have been accused of false advertising because once a potential customer clicks on an advertised rate, a new page comes to the fore (“checking for rates”) and often times a new, higher rate appears as the only option. In other words, one rate may be shown when a customer is deciding whether to use Super.com, Travelocity, or Priceline, but once the rate shown by Super.com is clicked, Super.com’s algorithm checks for rates! This process is inherently unethical because the initial rate shown on a list of rates shown by other travel-platform companies is shown as the rate that Super.com is offering; there should not be any need for that company’s algorithm to then check for rates, and even worse, for a higher rate to then be presented as the lowest possible in using Super.com. 

The advent of computer technology in the making of hotel reservations has heightened rather than diminished the need for government oversight and regulation. The profit-motive clearly plays a significant role in the writing of the algorithms, and this should come as absolutely no surprise because companies are profit-making machines and are thus oriented to their own financial interest. In a hotel room, a card that urges customers to reuse a bath towel because “we care about the environment” can and should be taken as a subterfuge; the motive behind the sign is exclusively to reduce the expense that the hotel pays for its linen and towels to be laundered. The appeal to caring can even be looked at as mendacious, or at least as raising the specter that a management is fine with misleading customers. An organizational culture of unethical conduct at the expense of customers can indeed be glimpsed by such small “red-flags.” “Hospitality” managements can indeed be very petty—going so far as to dilute orange juice and reduce the thickness of waffle-makers, for example, so as to reduce the costs of the foodstuffs to the hotels. Hotel and especially motel managers and franchisees can be incredibly selfishly and greedily shortsighted at the expense of repeat business. That is, the hospitality industry is rife with exploits that can and should be of interest to government officials who are oriented to consumer protection rather to the financial interests of (regulated) companies or industries whose political-campaign donations to elected representatives and candidates for such public offices can be very persuasive both in legislatures and regulatory agencies. The associated theory is called regulatory capture. In investigating Booking.com, the E.U.’s executive branch may have been resisting that, though it is possible that a more politically-connected competitor of Booking.com had been pushing for the investigation in what is known as the strategic use of regulation to gain market share and even heighten the barriers to entry by potential competitors. An effective regulatory apparatus should both investigate companies and ensure that markets remain competitive rather than become oligopolistic or monopolies.

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1, Greta Ruffino, “EU probes Whether Booking.com Is Doing Enough to Tackle Fake Listings and Phishing Scams,” Euronews.com, 21 October 2026.
2, Ibid.
3, Ibid.
4. Ibid.

Independent U.S. Regulatory Agencies: Undermining the Chief Executive

On June 29, 2026, the U.S. Supreme Court ruled that the federal president has the authority to terminate the employment of heads of independent federal agencies at will, rather than only for cause. The latter requirement (i.e., due cause) would still hold for the Federal Reserve, which raises the question of whether a central bank should be distinguished from regulatory agencies. The value in buffering monetary policy from political pressure is why the Federal Reserve is not part of the executive, legislative, or judicial branches of the U.S. government, but is instead an independent central bank within that government. As a consequence, monetary policy does not require approval from either the U.S. president or the Congress. Hence, the “for cause” requirement for removing someone from the Fed’s board of governors cannot be disagreement with the person’s preferences or decisions regarding monetary policy. As for independent regulatory agencies in the executive branch, their independence undermines the unitary executive as well as the president’s role in implementing existing law.

As with virtually any institutional arrangement in government, drawbacks are paired with benefits. In the case of the Federal Reserve, the main drawback lies in the difficulty in coordinating fiscal and monetary policy because Congress and the White House decide fiscal policy while monetary policy is decided by the Federal Reserve, which is buffered from pressure from all three branches of the federal government. So a fiscal policy could be in place to stimulate the economy even though high interest rates slow down economic growth. In the 1970s, for example, the term “stagflation” was coined because high inflation existed along with economic stagnation. During that decade, fighting inflation by monetary policy would have run counter in its economic effects to stimulating the economy by fiscal policy. Typically, inflation and stagnation alternate rather than occur at the same time. Paul Volker, as chairman of the Federal Reserve in the early 1980s, used monetary policy to reduce inflation even though the high interest rates exacerbated economic stagflation and, without sufficient fiscal stimulation to counter the higher interest rates, quickly produced a recession in President Reagan’s first years in office. So there is value economically in coordinating monetary and fiscal policy, and buffering the Federal Reserve from pressure from Congress and the White House (as well as not allowing a Federal Reserve chairperson to dominate those two branches) comes with a price. An iconic line from a European in the film, The Godfather, Part III, is relevant: “All our ships must sail in the same direction.” Separating monetary and fiscal policy institutionally comes with a cost in that ships could be going in opposite directions, producing chaos.

The Federal Reserve is a central bank, and therefore it is not an independent regulatory agency in the executive branch. The very notion of an independent regulatory agency is problematic constitutionally because if such an agency is free of a president’s control and yet still within the executive branch, then separation of powers prohibits direct control by Congress or the judiciary. The Court “held that presidents have free rein to fire agency heads at will, despite federal laws that require a cause for such dismissals” and a 1935 Supreme Court case known as Humphrey’s Executor that held that presidents could not fire heads of federal agencies without cause.[1] That precedent, which the Court overruled, is problematic because assuming a regulatory head does nothing for cause, the person would be free to make regulatory policy at will even if the chief executive officer of the government, the president, disagrees. Because the federal presidency is an office elected by electors of the member-state held to the popular votes in the respective states whereas the head of a regulatory agency is appointed, regulatory agencies being independent of the president incurs a democracy deficit. In other words, the head of an independent agency has too much power given the amount of accountability that is available if termination of employment for cause is not an option due to good behavior.

Furthermore, carving out independent turfs within the executive branch denies the unitary nature of that branch that is implied by the president’s title as chief executive officer. Because the presidency is an elected office, heads of independent regulatory agencies within the executive branch who resist presidential pressure obstruct the “will of the people” from being implemented. Ideally, besides presiding as a neutral figure-head representing the United States of America, the presidency is tasked with implementing law, including defense. Hence it is Congress that has the constitutional power to declare war, for example, and the president is obliged to implement that declaration as the commander in chief. The role of implementing is hardly glamorous, and it has tended to be given insufficient time and energy by presidents who have been more interested in influencing the enactment of law, which is the task of the legislative branch, even though the veto is a negative power and thus designed to be a check on Congressional abuses of power rather than a mandate to legislate in a positive sense.

Ironically, the very existence of independent regulatory agencies with directors free from presidential pressure has freed up presidents from their implementing role, and thus enabled them to spend more time and energy on legislating new law rather than implementing existing law.  Unlike formulating new law, implementing existing law, including declarations of war, is consistent with the neutrality that a figurehead needs to be credible and thus to represent the United States as a whole. That such neutrality politically has been disregarded is evinced when American citizens state that a sitting president “is not my president.” The baleful warnings of expansive presidential power made by Arthur Schlesinger in his seminal 1973 book, The Imperial Presidency, would be less of a concern were presidents willing to constrain themselves to focus on being a figure-head uniquely credible enough to represent the United States as a whole rather than just one political party, and implement existing law by running the executive branch (including the defense department), rather than usurp Congress’s legislative prerogative as per the separation of powers. The Court’s 2026 decision allowing presidents to fire heads of previously independent regulatory agencies in the executive branch is a step in the direction of presidents attending more to functioning as the chief executive of the U.S. federal government when not called upon to preside.  

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1. Mark Sherman, “Supreme Court Says Fed’s Cook Can Keep Her Job for Now, But It Upholds Other Trump Firings,” APnews.com, June 29, 2026.

The U.S. Supreme Court Reining in Regulatory Agencies: Implications for the Imperial Presidency

In Loper Bright Enterprises v. Raimondo handed down by the U.S. Supreme Court on June 28, 2024, a majority of the justices overruled Chevron v. Natural Resources Defense Council, which had been the precedent giving regulatory agencies considerable discretion in coming up with specific regulations, given the penchant of the Congress to write vague laws. In the overturning case, a group of fishermen had objected to having to pay for government observers to board the fishing boats to monitor the fishing. On the merits, it does seem unfair for regulatory agencies to charge the regulated to be regulated. In overturning Chevron, however, Loper has much broader implications, chief among them being in terms of separation of powers—specifically in reining in the expanding power of the executive branch, here at the expense of the judiciary.   

Chevron had “required courts to give deference to federal agencies when creating regulations based on an ambiguous law.”[1] Loper could stimulate thought on whether Congress must necessarily promulgate law using vague language. Certainly Congress is capable of being quite specific when writing in loop-holes, or “carve outs,” for particular companies or industries in exchange for political campaign contributions. Moreover, from hearings, Congressional committee staff are surely capable of narrowing the discretionary area in which regulators can exercise considerable power that is essentially that of law-making. So one effect of Loper could be a shift of power from the executive to the legislative branch.

The decision also stood to “shift the balance of power between the executive and judicial branches.”[2] Although CNN goes on to claim that the decision “hands an important victory to conservatives who have sought for years to rein in the regulatory authority of the ‘administrative state’,” strengthening the role of the judiciary to look at administrative rulings is not in itself pro-business, as a judge could come down on an agency as being too lenient to an industry. The notion of regulatory capture, wherein whether from relying on data from a regulated industry or in exchange for lucrative future jobs in the industry for regulators, especially given government salary levels, means that giving courts more of a role in being able to evaluate and overrule agency rule-making and decisions could be a needed check against compromised regulators. At the same time, it is true that because the Supreme Court is the head of the judicial branch of the federal government, a decision that shifts power from one or two of the other branches to the judiciary puts the Court in an institutional conflict of interest (and the justices in personal conflicts of interest as their power would likely increase). Perhaps Congress should have been the branch to decide on the role of the judiciary with respect to the agencies in the executive branch.

Shifting power from the executive branch to the two other branches, especially the judiciary in this case, can also be viewed as a mild correction to the steadily increasing power of the U.S. presidency. In The Imperial Presidency, Arthur Schlesinger traces the increasing power that has come at the expense of the other two branches. The claim of such a correction may be problematic, as reining in regulatory agencies is not the same as reining in a president’s power, such as in exercising the bully pulpit in being able to speak directly to the American people directly as well as through a president’s surrogates. Also, a president as commander in chief and in promulgating foreign policy is unaffected.

It can even be argued that as presidents have typically been oriented to proposing broad policies for Congress to enact through law, that a president’s attention has been minimal in running the administrative agencies—essentially in supervising the cabinet secretaries in their administrative roles at their respective agencies. Such overseeing geared to specific regulations is, I submit, a function that presidents should attend to even more than proposing policies for Congress to enact. In other words, presidents should resist the sensationalistic allure of forming and publicly and privately “selling” policies or ideas for new programs to the extent that the time and effort of a president is monopolized thereby such that functioning as head of the executive branch, which implements law, is slighted. It could even be argued that the latter function should be primary. Were it in fact primary, then Loper would indeed be capable of redressing the historical trend of the imperial presidency to some extent because taking an active role at the regulatory stage would be a significant part of the actual power exercised by presidents. As of 2024 at least, Loper did not really touch the problem of the imperial presidency increasingly compromising the balance of power between the three branches of the U.S.’s federal government.

If democracy is ever at risk in the U.S., it would likely succumb to the hubris of an imperial president rather than to lawmakers in Congress writing laws with more specificity or judges overruling regulatory rulings. According to General Haig, President Nixon considered sending military forces to the Capitol to stave off impeachment during Watergate. Decades later, in December, 2023, protestors of the Congressional counting of the presidential votes of the states’ electoral colleges headed over to the Capitol from President Trump’s rally at the White House and successfully delayed the counting. On the very same day as its Loper decision, the U.S. Supreme Court handed down a ruling on another case—a decision that “limited the power of prosecutors to pursue obstruction charges” against the January 6^th protesters at the Capitol.[3] To the extent that that ruling could enhance the imperial presidency itself, June 28, 2024 at the Court may actually have been a net-gain for the presidency.

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1. John Fritze, “Supreme Court Overturns 1984 Chevron Precedent, Curbing Power of Federal Government,” CNN.com, June 28, 2024 (accessed June 29, 2024).
2. Ibid.
3. John Fritze et al, “Takeaways from the Supreme Court’s Decision on January 6 Charges and What It Means for Donald Trump,” CNN.com, June 28, 2024 (accessed June 29, 2024).

The FAA Deferred to Boeing on the 737 MAX Jet

After a misfiring-prone automatic stall-prevention device on the 737 MAX jet had caused two accidents in which 346 people died, an internal review at the U.S. Federal Aviation Administration, a regulatory agency, found that the regulators had relied too much on Boeing employees to conduct the safety inspections of the planes. Incredibly, Congress expanded the industry-reliance practice of the agency in 2018. Both the FAA and Congress were admittedly motivated by the added efficiency that such “sub-contracting” could bring. However, to focus on the economic benefit while ignoring the inherent (and obvious) conflict of interest in “sub-contracting” to the very companies that are regulated by the FAA is itself a red flag. A subservient or over-reliant regulatory agency cannot be a check on a company’s claims of not having sacrificed safety or even safety checks in order to focus more on profitability.  Of course, the political influence of a large company such as Boeing may have played a role in the FAA’s “back-seat” approach, but in this case the government’s own interest in stretching the coverage of its human resources may have been dominant. That such an interest could involve minimizing or ignoring outright such a blatant conflict of interest may point to a wider culture in which institutional conflicts of interest are presumed to be innocuous or even benign rather than too toxic to permit even if they have not been actively exploited.  

During the FAA certification process for the 737 MAX, Boeing didn’t flag the automated stall-prevention feature as a system whose malfunction or failure could cause a catastrophic event.”[1] The FAA’s report does not point to any fabrication on the part of the company. The problem is that “FAA engineers and midlevel managers deferred to Boeing’s early safety classification.”[2] No check on the company’s determination could be in such deference. It is astounding that managers at a regulatory agency could have neglected or ignored this basic point, which gets at the raison d’etre of any regulatory agency. C’est vraiment incroyable.

In fact, the company’s initial safety classification allowed “company experts to conduct subsequent analyses of potential hazards with limited agency oversight.”[3] The operative assumption in this practice seems to be that experts cannot be initially wrong, or that they could eventually catch their own errors, and that such experts are not subject to pressure from managers to get the planes in the air and generating revenue that can at least cover payments on the planes themselves.

Even worse, the FAA classified certain Boeing employees as “designated agency representatives.”[4] Employees of a regulated company cannot represent the regulatory agency, for such a designation is itself an institutional conflict of interest. It is, in effect, to designate one wolf as a police-wolf around a hen house! How can this not be obvious? I submit that only in a permissive culture can such blind-spots thrive. The FAA’s practice of designating some employees of regulated companies as being able “to act for the agency” was set up by the FAA and “endorsed and expanded” by Congress with “the aim of freeing up government resources to focus on what are deemed the most important and complex safety matters.”[5] Was not something that had killed hundreds of people an important safety matter? FAA managers might retort, “But we didn’t know this except in hindsight.” Exactly. This is precisely what minimizing or ignoring a huge conflict of interest can do.

See Institutional Conflicts of Interest, available at Amazon.

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[1] Andy Paztor, Andrew Tangel, and Alison Sider, “FAA Left 737 MAX Review to Boeing,” The Wall Street Journal, May 15, 2019.

[2] Ibid.

[3] Ibid., italics added.

[4] Ibid.

[5] Ibid.

BP and MMS: A Case of Regulatory Capture

In the U.S. Constitutional Convention, James Madison in particular stressed the nepharious quality of faction in relation to the public good. He argued that if a republic is extended in scope sufficently that there are more factions, none of them would be able to dominate and the public good would emerge. In a republic in which there are only a few major parties, the people's perspectives can become delimited by the parties' paradigms in an either-or dual macro-framework. That is to say, societal blind-spots can exist. To the extent that both BP and the relevant U.S. Government regulatory agency, MMS, were both culpable in the Deep Water Horizon rig explosion in 2010, both the Republican defense of business and the Democratic defense of government fall short. Even so, these respective defenses went on undaunted in the wake of the disaster and in the next year. To be sure, old paradigms die hard.

Albeit an oversimplification, it can be said that the Democratic party in the United States stresses the power of business as the problem, whereas the Republican party there views the problem as being government.  In campaigning for President in 1980, Ronald Reagan bluntly said that government was indeed the problem.  Deregulation ensued and industry self-regulation was like a fad. The idea was that the checks and balances in goverment that protect the liberties of the citizens could be applied at the industry level such firms would provide a check on eachother automatically. Lost in the buzz was the extent to which an industry would be willing to sacrifice its own long-term viability in order to protect even the bad among its own.

In 2010, the Republican paradigm whereas business is good and government is bad resulted in some Republican office holders defending a piriah (BP) and continuing to urge deregulation in order to excoreate against the US Government and frustrate the Obama Administration.  The ranking Republican on the US House Energy and Commerce committee apologized to BP’s CEO for the “shakedown” by Obama in extracting a $20 billion fund for the claims in the Gulf region. Meanwhile, Democrats were hard-pressed to admit that a goverment regulatory agency, namely MMS, could be so inept and corrupt.  It was not so much a matter of more regulations being needed; rather, the problem was government regulation itself.

Democrats could point to the encroaching nature of big business over the regulators, but absent a shakedown in the size of the biggest companies, the wherewithal of the regulators not to “partner up” with the regulatees may be an intractable problem in government regulation.  The traditional argument in capture theory that regulators depend on their respective industries for information doesn’t even break a sweat in what is needed to explain the extent of the power of big business over government regulatory agencies.  The imbalance of power is systemic: government officials being too feckless and corrupt. and big business being too powerful for the good of the republic.  In their letters, Jefferson and Adams agree on the need for a natural aristocracy of virtue and talent, rather than the artifical sort of wealth and birth.  Absent a natural aristocracy, systems whether business or government, cannot but be ineffective and corrupt.

In 2010, BP’s sordid safety record and its explosion in the Gulf of Mexico challenged the paradigms of both parties.  In actuality, business and goverment, as well as business and government, contain problems that exceed and transcend a particular paradigm. In treating the two party paradigms as a dichotomy, we miss the interaction effect that exists among the respective sectors’ problems.  It might be that the founders were correct in their suspicion of factionalism, as it does indeed detract from the common good.  Where a paradigm keeps one from acknowledging problems that are in the radar of an “opposing” paradigm, a person is not apt to serve the public interest.  In other words, both paradigms are limited.  The BP-MMS interaction and the subsequent explosion and responses exposed the delimited nature of the partisan paradigms.

For more on MMS, see Cases of Unethical Business, which is available in print and as an ebook at Amazon.

The E.U. Goes After Google: Where Was the U.S.?

In fining Google a record 2.4 billion euros (2.7 billion dollars) in June, 2017, for unfairly favoring its advertisers in its online shopping service, E.U. officials went “significantly further than their American counterparts.”[1] At the time, Google held more than 90 percent of the online search market in the E.U. Why would the E.U. go further than the U.S. in pressing anti-trust violations against a technology company that could be expected to gain monopoly profits? Presumably Google was favoring its advertisers on searches in the U.S. as well. Americans would mind too when an advertiser’s higher-price product comes up rather than a comparable product at a better deal. Was the E.U. more interested in protecting consumers and less concerned about pleasing a large company? The company’s sordid, self-serving practice nullifies any contending claim that the government’s motive was to go after a foreign company. I submit that the E.U. government’s action unwittingly points to a pro-business bias in the corresponding American government.

With the demand that Apple repay $14.5 billion in back taxes in the E.U. state of Ireland, an investigation into Amazon’s tax practices in the E.U., and “concerns about Facebook’s gathering and handling of data,” the E.U.’s anti-trust division was “laying down a marker for more hands-on control of how the digital world operates.”[2] Why no such marker in the U.S.’s anti-trust division? Clearly, concerns about Facebook were not uncommon there. The E.U. “is setting the agenda,” Nicolas Petit said at a European university.[3] Suddenly America looks like the Old World.

Especially after the Citizens United decision by the U.S. Supreme Court in 2010 allowing unlimited spending by companies on political campaigns, the question of the power of large companies in the halls of Congress as well as in the White House at the expense of consumers became more important even if the media kept the issue largely off the public’s radar screen. Is what is good for GM good for America? The fallacy that what is good for a part is necessarily good for the whole is enough to settle that question. The problem, therefore, lies in certain parts having inordinate influence over the whole—more specifically, on the rules by which the whole operates. Insufficient regard for the public good by public officials who don’t want to risk offending corporate chieftains is like the captain of a ship steering according to the desires of certain wealthy passengers instead of looking out ahead.

So it is telling, I submit, that the E.U.’s anti-trust division essentially shamed its American counterpart in being willing to stand up to very powerful private interests. The “proof in the pudding” lies, I suppose, in the dearth of cases in which the U.S.’s government (and those of the member states) has spoken truth to the powers behind the throne and gone on to act on that truth in enacting laws and regulations that protect the public. All too often, American regulatory agencies are captured by the very companies that are to be regulated. Beyond the agencies’ reliance on their respective regulatees for market information and the regulatees’ ability to hire former regulators for lucrative jobs, a company’s monetary influence in electoral campaigns gives elected representatives a powerful incentive to pressure the regulatory agencies to go easy on even an entire industry. From a company’s standpoint, unwanted regulations can be softened or averted outright, or new regulations can be used strategically at the expense of typically smaller competitors that are less able monetarily to comply with stiffer mandates. So it is not simply more regulations that attest to a willingness to “speak truth to power.” Government officials with the courage (and fortitude) to protect the public cannot simply enact laws and regulations that are in a dominant company’s interest. Clearly, the E.U. passed this test in being willing to stand up to Google.

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[i] Mark Scott, “Google Fined Record $2.7 Billion in E.U. Antitrust Ruling,” The New York Times, June 27, 2017.

[ii] Ibid.

[iii] Ibid.

How to Regain Reputational Capital: The Case of Wells Fargo

How does a firm rebound from the toll taken in reputational capital from a track-record of unethical practices? Paying $175 million to settle accusations without admitting any wrongdoing, such as Wells Fargo did in 2012, does not suffice, but neither does merely admitting culpability without real change going forward. The case of Wells Fargo may provide an explanation for how reputation recovers.

The full essay is in Cases of Unethical Business, available in print and as an ebook at Amazon.com.  

Tech Industry Self-Regulation: Sufficient to Handle the Ethics of A.I.?

Five of the world’s largest tech companies—Google’s Alphabet, Amazon, Facebook, IBM, and Microsoft—had by September 2016 been working out the impact of artificial intelligence on jobs, transportation, and the general welfare.[1] The basic intention was “to ensure that A.I. research is focused on benefiting people, not hurting them.”[2] The underlying ethical theory is premised on a utilitarian consequentialism wherein benefit is maximized while harm is minimized. The ethics of whether the companies should be joining together when the aim is to forestall government regulation is less clear, given the checkered pass of industry self-regulation and the conflict of interest involved.

People at the companies were concerned at the time that regulators would “create rules around their A.I. work,” so the managers were “trying to create a framework for a self-policing organization.”[3] I submit that the self-policing itself is problematic. For one thing, industry self-regulation can be less than fully effective, as companies have an immediate self-interest in colluding so the industry body lays off from enforcing all the planks agreed-to, even as the self-regulatory body presents a solid front to outsiders. Put another way, people’s faith in companies notwithstanding, senior managers of an industry’s companies can all agree to let the industry’s own regulatory body ease up on enforcement so all of the companies—or even just the market-leader—will benefit. Hence, industry self-regulation can devolve into the proverbial story of the wolf guarding the hen house.

More broadly, the intention to forestall government regulation (with or without industry self-regulation) is ethically problematic in that it presupposes a lawlessness, or inherent weakness, beyond the companies and their industry themselves. Put another way, the pernicious mentality that government control is for the other guy can be behind such an intention. Incredibly, Wall Street bankers still felt that financial deregulation was needed after the subprime-mortgage based bond scandal that nearly brought down the American and perhaps even the global financial system. Image such a mentality—of not needing government regulation in spite of known industry flaws—going with self-regulation. The mentality that the other guy is to blame—in that case, the mortgage borrowers—is conducive to intentional lapses in self-regulation.

   

Back to the tech companies, also in September, 2016 the Stanford Project issued a report that was funded by a Microsoft researcher. The report “attempts to define the issues that citizens of a typical North American city will face in computers and robotic systems that mimic human capabilities.”[4]  The report is a mixed bag.

On the one hand, the report claims that attempts to regulate A.I. would be misguided due to the lack of any clear definition of A.I. and “the risks and considerations are very different in different domains” of it.[5] Regulations are naturally oriented to specifics, however, so they could indeed be tailored to fit the distinctiveness of any given domain of A.I.

On the other hand, the report’s authors wanted to “raise the awareness of and expertise about artificial intelligence at all levels of government,” according to Peter Stone, one of the authors of the report.[6] “There is a role for government and we respect that,” said David Kenny of IBM’s A.I. division. Therefore, the attempt to stave off government regulation would be foolish. Yet a sustained practice of giving information to a regulatory agency can risk regulatory capture, wherein the agency comes to rely on the information so much that the regulated wind up manipulating (via slanted “information”) the agency—and even controlling it. So all levels of government should keep their information sources diverse such that none—especially those of the industry—get in a position of being able to manipulate or control the government on the matter of A.I.

Ideally, the industry and government should work together to keep the companies within acceptable boundaries, yet crucially without the government giving up alternative sources of information, by which the veracity of the industry’s own information can be checked and the government kept from being captured. There is indeed a legitimate role for government regulation, as opposed to relying on an industry to regulate itself; the profit-motive is just too strong for going exclusively with self-regulation. Even Adam Smith maintained that there is a role for government even in a perfectly competitive industry. Now, just how many truly competitive industries are there?

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[1] John Markoff, “Devising Real Ethics for Artificial Intelligence,” The New York Times, September 2, 2016.

[2] Ibid.

[3] Ibid.

[4] Ibid.

[5] Ibid.

[6] Ibid.

Analysis of Inferences and Assumptions: A Homework Assignment for “We the People”

Thomas Jefferson and John Adams both strongly believed that the continued viability of a republic depends on an educated and virtuous citizenry. Public education and even the practice of some of the professional schools (e.g., medicine and law) since at least the early twentieth century to require a degree in another school (e.g. Liberal Arts and Sciences) before being admitted to the undergraduate program (i.e., the M.D. and J.D. or LLB, respectively). This lateral move is unique to the U.S.; entering medical and law students in the E.U. need not already have a college degree. I submit that the Founding Fathers’ firm political belief in the importance of an educated electorate concerns the value of not only having a broad array of knowledge, but also reason being able to assess its own inferences, or assumptions; for inferences, or leaps of reason, go into political judgments. Ultimately, voters make judgements, whether concerning the worthiness of candidates on a ballot, their policies, or proposals on a referendum. To the extent that subjecting assumptions to the “stress test” of reasoning is not a salient part of secondary education, an electorate is likely to make sub-optimal judgements, resulting in suboptimal elected officials, public policies, and laws.

Government ultimately by “We the People” can be risky business, especially if any plank of a constitution can be changed by amendment. Were a super-majority of Americans intent on bringing back slavery, the constitutional-amendment process would enable the people through their elected representatives to repeal the 12^th Amendment to the U.S. Constitution. The constitutional amendment prohibiting the sale, production, importation, and transportation of alcoholic beverages was repealed in 1933 after thirteen years. Clearly, the assumptions that had gone into the passage of the Eighteenth Amendment turned out to be faulty. Had the American electorate have subjected those assumptions to better critical-analysis  when that amendment was being debated in the first place, perhaps organized crime would not have prospered and grown as much as it did. My assumption here is in need of critical analysis, however, as I know very little about the history of Prohibition. Yet I just made the assumption nevertheless. I contend that such a making of assumptions—out of very, very imperfect information yet made nonetheless—is a huge problem that remains largely invisible in representative democracy as a form of government. My aim here is to improve it by making one of its fault-lines transparent, and thus potentially treatable.

Speaking recently with a construction worker—a man of about 30 years old—I was impressed with his knowledge of how to put windows on buildings. “If you use a finger to smooth out the caulking around a window, you are getting chemicals such as the oil on your finger on the caulk, and this could diminish the sealing ability.” I was stunned that something I would admittedly do without a thought would be in his eyes an elementary error. “Even some of the guys who do residential windows don’t know this,” he said. He worked on office buildings. He went on to complain that the company, with his union’s consent, takes as much out if his paycheck for health-insurance as from the paychecks of workers who have families insured. “It’s just me,” he lamented, “so I’m subsidizing my union brothers whose health insurance covers their wives and kids.” I agreed with him that the arrangement seemed unfair.

Then, unfortunately, he turned to politics. It was as though he was suddenly on drugs. “I’m for Hillary,” he asserted. “Bill Clinton was one of the best presidents, and if Hillary were president, the two of them would talk in bed about stuff. Bill would be president again. Hillary had influence when Bill was president.” I asked why Bill Clinton was such a good president, to which my interlocutor replied, “Unemployment was low, the economy was humming, and the [federal] government had a [budget] surplus.” Exhausted just from contemplating the guy’s leaps in reasoning alone, I did not comment.

I could have added that Bill Clinton had signed off on legislation repealing the 1933 Glass-Steagal Act forbidding commercial banks to do investment-bank work and vice versa. The risk taken on by many of the largest banks in the U.S. would play a significant role in freezing up of the commercial paper (i.e., overnight inter-bank lending) market in September 2008. Additionally, Clinton’s Treasury Secretary, Robert Rubin, played a significant role in lobbying Congress to keep financial derivative securities, such as the bonds that are based on risky home-mortgages, unregulated. With Larry Summers, also in the Clinton Administration, and Alan Greenspan, chairman of the Fed, Rubin lobbied members of Congress to ignore the pleas of Brooksley Born, chair of the Commodity Futures Trading Commission, to give her agency oversight of the off-exchange markets for derivatives.[1] She resigned in 1999, just after Congress passed legislation prohibiting the CFTC from regulating derivatives.[2] As a result, Treasury Secretary Henry Paulson and Fed chair Ben Bernanke had no idea how many subprime-mortgage-based bonds existed when so many of them defaulted in 2008. In that financial crisis, the U.S. Government was flying purblind, as if the Titanic in the North Atlantic at night.

Viable assessments of Bill Clinton’s presidency would have to include the above, whereas the impact of his administration on unemployment and GNP-growth is more questionable. That the dot.com bubble collapsed in 2000 may suggest that any impact Clinton may have had on the U.S. economy was not necessarily good in the long-run. Even so, my interlocutor simply assumed that Bill Clinton was largely responsible for the economic boom.

Even to assume that Clinton should get the credit for the federal government’s budget surpluses ignores the vital role that the Speaker of the U.S. House of Representatives, Newt Gingrich, played. Furthermore, to the extent that a president does not have an appreciable impact on the U.S. economy as a whole, any surplus due to increased tax revenues from the economic boom could also not be credited to Bill Clinton. In fact, that he decided to spend half of the surpluses rather than use all of the extra money to reduce the government’s accumulated debt—perhaps under the assumption that the boom would continue for decades—can be said to be problematic, or at least short-sighted.

In terms of Bill and Hillary’s relationship, I must confess complete and utter ignorance. In the movie Dave, the fictional U.S. president and his wife hate each other and thus perpetuate the illusion that they are sleeping in the same bed. The assumption itself of any knowledge of the Clinton’s relationship, and more specifically even who would “be president” were Hillary elected in 2016, is a red flag. In other words, that the construction worker presumed so much on a matter so private, and so very distant, told me just how carried away people can get in making assumptions and yet be wholly unaware of how deeply problematic the sheer making of the assumptions is. In other words, I saw no evidence of an internal feed-back corrective in the man’s mind, such that he might beg off his declaratory asseverations. 

Moreover, I realized that his faulty chain of inferences would play a key role in the construction worker’s eventual vote for U.S. President in 2016. I contend that he is by no means alone. In fact, bad assumptions may play a very significant role the American—and indeed any—electorate’s votes.

Consider, for example, how many Americans have declared that Barak Obama is a Muslim. The very ideational act of presuming to know the faith of a person so distant is itself a red-flag. If the assumption played a role in how some of the electorate voted in 2008 and 2012, and if the assumption is wrong, then the phenomenon of unchecked assumptions really does play a significant role in how an electorate—the popular sovereign—does as the “We the People” of a representative democracy. In other words, popular sovereignty itself, to which governmental sovereignty (i.e., governments) is, theoretically at least, an agent, has a rather basic downside, or vulnerability.

If I am correct, then public education in any representative democracy should include assumptional analysis, wherein students are taught how to assess their assumptions and any “supporting” inferences. As a result, the future electors should be able to get a better grip on how far they go in making inferences based on no or scant information. I contend that representative democracy would be a much better form of government were the human, all too human, assumptional “brain sickness” made transparent and treated.

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[1] Peter S. Goodman, “The Reckoning: Taking a Hard New Look at a Greenspan Legacy,” The New York Times, October 9, 2008.

[2] Michael Hirsh, Capital Offense: How Washington’s Wise Men Turned America’s Future Over to Wall Street (New York: John Wiley and Sons, 2010).

Wasteful Agency-Spending: Employee Bonuses as a Solution

Use it or lose it. I am referring to “the habit of [U.S. Government] agencies spending all surplus funding at the end of the fiscal year in order to avoid budget reductions the following year.”[1] By spending the entire amount allotted for the budgetary year, a federal agency can avoid a lower base-line for the following year’s allotment from Congress. The incentive in this system is to spend every dollar in the budget, whether efficiently or profligately. The challenge is how to replace that incentive with another—one that results in efficient public budgeting. Unfortunately, relying on an incentive presupposes discretion, and one person can never be sure what lies behind another person’s use of it.

In May 2015, a bipartisan group of U.S. Senators proposed to “give agency inspectors general the ability to grant $10,000 bonuses to federal employees who identify surplus or unneeded funding at their agencies.”[2] According to one the senators, “the bill helps combat the perverse incentive to spend leftover money by offering employees a positive incentive to help IGs save money.”[3] That perverse incentive is what made the U.S.S.R. so inefficient economically, as state-owned (i.e., socialist) and controlled (i.e., regulated) enterprises (as well as government agencies) operated likewise. In that political economic system, quotas both in budgets and widgets were the currency by which the system operated. Such bloat, inefficiency and mismanagement that weakened the Soviet Union from within also hampers good government at the federal level in the United States.

The proposed law would amend the 1974 Congressional Budget and Impoundment Control Act, which gave Congress more authority in the budget process. “The Act was inspired by Richard Nixon’s refusal to disburse nearly $12 billion of congressionally-appropriated funds in 1973-74 through the executive power of impoundment.”[4] Nixon cited the impact of the federal budget deficit on inflation as the reason for refusing to spend appropriated funds. The rationale is problematic prime facie because the U.S. president is tasked with enforcing the law rather than selectively enforcing it. Not contradicting the law would have meant going back to Congress with a recommendation that a law be passed withdrawing the surplus funds.

Even though the proposed law in 2015 would place the discretion with civil-service employees rather than politicians, a Democratic U.S. Senate aide said “that the amendment’s language may [allow] federal government administrators to defund key agency functions for ideological or political reasons.”[5] Civil servants are human too, and, besides, they can be subject to pressure from politicians higher up the food chain. In other words, we are back to the same problem—that which is inherent to discretion. Sen. Mike Enzi can have all the faith in the world in “the people holding the shovel who really know how to solve problems”—that “the folks responsible for administering individual programs know where the money is, what is needed and what is being wasted”—but all this does not necessarily mean that the civil servants would flag a budget item as “surplus” because it really would be wasteful to spend the money. Even a bureaucrat holding a shovel could provide an efficiency rationale for cutting one budget-item so as to get out of having to do a boring  ideologically-objectionable task or program. The bonus would be, well, a bonus. That is to say, a perverse incentive.

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[1] Andy Medici, “New Bill: Point Out Surplus Funds, Get a $10,000 Bonus,” Federal Times, May 21, 2015.

[2] Ibid.

[3] Ibid.

[4] Regional Oral History Office, “1974 Congressional Budget and Impoundment Control Act,” The Bancroft Library, University of California-Berkeley, March 7, 2011 (accessed May 23, 2015).

[5] Daniel Marans, “Rand Paul Amendment Would Increase Executive Branch Power,” The Huffington Post, May 22, 2015.