Tuesday, July 15, 2014

Wall Street’s Maker-Taker Rebate: An Inherent Conflict of Interest

On June 14, 2014, the U.S. Senate Investigations Committee held a hearing on “High-Speed Stock Transactions and Insider Trading.” The issue at hand concerned the payments that wholesale brokers and exchanges make to brokers for going through the brokers and exchanges, respectively. An academic study had found that the broker or exchange that pays the most is not typically the most efficient, and thus in the best interest of the investor. Essentially, the payments give rise to a conflict of interest for the retail broker, who is supposed to put the client’s financial interest first, before his or her own. Is greater disclosure, such as Sen. Levin suggested, sufficient? I contend that a conflict of interest that is inherently unethical warrants removal rather than countervailing measures.   
 

Investors assume that exchanges such as the New York Stock Exchange are not tilting the game-board. Empirical evidence indicates that this assumption does not hold up. (Image Source: Reuters)

The full essay is at Institutional Conflicts of Interest, available in print and as an ebook at Amazon.

Saturday, July 5, 2014

Can the Euroskeptic States Topple the E.U.?

Can we say that an E.U. state is Euroskeptic? If so, Britain would be a consistent candidate for the label. Yet what about when Tony Blair was the prime minister? Poland and the Czech Republic have also swung back and forth in line with the electoral winds within those states. If states are less fixed than typically thought with respect to being Euroskeptic, then what looks like intractable skepticism may in fact be more easily overcome at the state level. It follows that the E.U. itself has more chance than typically presumed to obviate its own decline and dissolution.

Did the residents of the Czech Republic suddenly become pro-Europe when a pro-integrationist party took power in the Castle, or are the labels more a function of partisan politics? 

The full essay is at "Essays on the E.U. Political Economy," available at Amazon.

Friday, July 4, 2014

Distrust of the E.U.: Prompting European Integration?

A Eurobarameter poll conducted by the European Commission between 10 May and 26 May, 2013 found that the number of Europeans who distrust the E.U. had doubled over the preceding six years to a record high of sixty percent from thirty-two percent.[1] The trust was lowest in the “bailed out” states of Greece and Cyprus. The people polled cited the five bailouts, record unemployment, and low economic growth as significant factors. In the state of Britain, 68% of the residents said they have little faith in the Union. Yet there is reason to be cautious in predicting the E.U.'s demise. In fact, closer European integration may actually result. 

The full essay is at "Essays on the E.U. Political Economy," available at Amazon. 


Hobby Lobby: On the Significance of the Case

For all the controversy stirred up by the case of Hobby Lobby v. Sibelius(2014) on whether an employer must comply with the mandate for contraceptives coverage in the Affordable Care Act, the significance of the decision handed down in a 5-4 majority opinion by the U.S. Supreme Court may be less than some commentators were predicting. 

As evangelical Christians of the Southern Baptist section, the Greens did not object to 16 of the 20 contraceptives mandated for employer coverage in the Affordable Care Act. Indeed, fundamentalist Christians “largely support the use of birth control by married couples.”[1] The Greens considered Plan B, Ella, and two intrauterine devices as tantamount to abortion, in that the means prevent a fertilized embryo from implanting in the womb.[2] Blocking implantation would “terminate life,” Green argued. “We won’t pay for any abortive products. We believe life begins at conception.”[3] Ending human life after that time, Green wrote in an open letter, is "something that is contrary to our most important beliefs."[4]

Arguably, a Hobby Lobby check to the company’s insurance company for the employee health plan pays for the plan itself, rather than for particular items that the insurance company pays for when a medical practitioner prescribes them for employees. In other words, it is the insurance company’s business, literally and figuratively. Even so, Steve Green would undoubtedly have felt blameworthy morally and religiously had he not explicitly excluded the offensive medical products from the plan for his company's account, for without his decision abortions would occur. Yet here too are several problems, which effectively mean that the significance of the case has been blown out of proportion.

Firstly, killing a few human cells may be immoral to some people, yet is the practice irreligious in nature? Theologically, the Creation is not the same as the biological process by which a human being begins. Furthermore, Jesus is not represented in the New Testament as prohibiting abortion, even though he did include other moral teachings in his preaching. Steve Green may have been conflating a theological doctrine with a moral principle and a biological process.  Put another way, abortion can be reclassified as a moral issue, in which I suspect it would be easier to come to a compromise, societally.

Secondly, Steve Green's labeling some contraceptive devices as means of abortion is a subjective call. Is preventing a fertilized egg of a few cells from implanting on the wall really like killing a fetus? Relatedly, as Green points out, even those abortive instruments are just a subset of contraceptives. The notion that the company’s health insurance plan for employees excluded or would exclude the pill (as distinguished from the “morning-after pill) is thus a popular misconception. That is to say, the claim that the ruling means that women working at Hobby Lobby would not have contraceptives covered is incorrect, so the importance of the court’s decision likely escalated beyond merit in this respect too.

So too, the breadth of the closely-held corporation limitation in the ruling was immediately debated, with Ginsberg predicting in her dissent that the door would eventually be open for virtually any company with any sort of religious conviction to use the ruling to obviate a law that the executives or majority stockholder do not like. “Although the court attempts to cabin its language to closely held corporations,” she wrote, “its logic extends to corporations of any size, public or private.” She added that corporations could object to “health coverage of vaccines, or paying the minimum wage, or according women equal pay for substantially similar work.”[5] However, Alito wrote that the Religious-Freedom Act applies only to closely-held for-profit corporations run on religious principles. To be sure, wriggle-room exists even within this delimitation, for Alito wrote that those corporations would be unlikely to prevail if they object even on religious grounds to complying with other laws than the Obamacare mandate.[6] What is unlikely to Alito is not necessarily so to other justices, as it is a judgment call. Even so, Ginsberg's leap to any for-profit corporation seems to be untenable given the explicit delimiting stipulation in the majority opinion. 

So it is vital that the controlling small group or family of owners apply principles from their religion to their commercial enterprise. Without the separation of ownership and control that is typical of a large corporation, a closely-knit group or family of owners can indeed orient their company to religious as well as commercial purposes. Hence the Greens referred to their business as a matter of stewardship.[7] This situates their commercial objectives within a bubble of religious aims. Adam Smith situates his Wealth of Nations within his theory of moral sentiments; religious sentiments can also serve as a buffer.

On opening Hobby Lobby, Steve Green's father declared its Christian principles. Like Chick-A-Flick, the stores would be closed on Sundays “to allow employees time for family & worship”—according to a sign on the front doors.[8] The Green family’s foundation, whose funds presumably have their source in Hobby Lobby, extends charitable gifts to gospel outreach efforts as well as social services in Oklahoma.[9] A court would presumably want to find such evidence of religious claims in action, as well as assess the salience of the aims relative to attention paid to commercial objectives. To the extent that those agendas contravene the cited religion or religious principles, the case for religious exemption is undercut. 

It follows that the ruling hangs on the manager-owners' religious objectives, with strong control element rendering the company as an instrument. So I think the nexus being situated at corporate legal personhood is misplaced, even if Alito does make use of the doctrine. In her dissent, Ginsberg makes the point that human beings are religious. The "exercise of religion is characteristic of natural persons, not artificial legal entities."[10]


Alito comes closer to this point than many people realize, for he links Green's religious objectives to the doctrine, writing that a "corporation is simply a form of organization used by human beings to achieve [their] desired ends. When rights, whether constitutional or statutory, are extended to corporations, the purpose is to protect the rights of these people."[11] In the case of a closely-held corporation, the corporation is an extension of the will of the few who both own and control. Similarly, my (limited) bank account does not itself enjoy religious rights, but I can use it (because I control it) to fund religious causes by writing checks. Put another way, the sum as more than the parts applies to corporations that have many stockholders because none of them controls their respective corporation as an extension. 

Therefore, even though Alito’s majority opinion is based in part on his interpretation of a corporation as a legal person, the exercise of religious freedom goes through the corporation as an extension rather than being based in the artificial person itself; that is, the closely-held caveat implies that the operative right was being exercised by Steve Green and any other close owners. Their specifically religious imprint on the for-profit company—that is, using it for religious as well as commercial purposes—means that they, rather than the company itself, are the source or basis of the religious agency that extends itself through the corporate structure extending beyond their fingertips. 

It follows that the hiring process should include explaining to the prospective employees that they too would be part of that extension. Hence, Green has stressed that the “greatest misconception” about the case “is that we are trying to impose our religion on these workers or others. Not at all! That would violate our religion to do that.”[12] As he saw it, anyone agreeing to work for Hobby Lobby knows of, and agrees to, the dual purposes of the closely-held corporation. Perhaps part of the problem is that Green’s hiring subordinates did not make this point clear (without discriminating, of course).

It could also be argued, however, that the anti-abortion stance is not a fundamental or important Christian belief. After all, Jesus does not even mention the issue in the New Testament. Recall Green's statement that he applies Christian principles to his business; the implication is that those principles are important theologically. In fact, the Greens' stance may actually be moral in nature, rather than theological, as Creation can be distinguished from the biological process by which an egg is fertilized its cells multiply.  

Therefore, the stance may not actually find adequate cover under Christian auspices understood theologically. Traditionally, the Court has required that accommodations on account of the freedom of religion passage in the First Amendment be based in an established religion; claiming that your own religion or your own version of an institutional religion requires you to enact a pot-smoking ritual every night is not going to cut it. Clearly, opposition to abortion on religious or moral grounds is not frivolous or made up by individuals, but neither is the stance a central tenet theologically in Christianity. This could open the door to other claims of other religious issues whose importance in religious terms may be overblown, and thus without meriting accommodation.

Moreover, basis of Green’s case may not even be religious freedom; rather, property rights could be the underlying issue, for Steve would also have the right to orient the business to serving social causes, for example, as in the case of Ben & Jerry’s (ice-cream), even at the expense of profit maximizing. Generally speaking, the profit-maximization principle is merely the default, with stockholders of a corporation having the right to alter the aim of their combined, incorporated wealth even at the expense of profitability.

As a personal aside, I have been inside a Hobby Lobby store only two times; the first was to buy a mother’s day gift, and the second constituted my attempt to buy a candle, the melted wax I would use to make up for a deficit in a half-burnt candle at home. So I was not picky about the candle, just that I needed only one. When I saw two long, thin candles connected as if Siamese twins joined by a wick-like umbilical cord at the tip of their tiny heads, I asked the front-area manager if I could buy just one of them, as both candles were broken.

“They come as a pair!” the stern woman crowed as if blissfully unaware that they were broken.

“But they are broken,” I sheepishly replied as I held them up to give her a good look.

“Makes no difference,” she said as she walked away. Her attitude resonated with the dysfunctional culture infecting businesses and other sectors back in my hometown.

From this curt exchange, I had the impression that the Greens should attend to more pressing “bread and butter” concerns than whether the insurance company used for employee health insurance pays for a few morally objectionable medical items. All the attention and energy that the Greens devoted to what in business terms is a minor issue, and perhaps even their dual-purpose approach itself may suggest that Steve Green really is not that good at management, at least in regard to hiring and training. 

At a deeper level, I see a pattern in that both the “contraceptives issue” and the “candle issue” may both involve “making a molehill into a mountain”—that is, overdoing relatively small things and thus missing the big picture. In my case, Hobby Lobby lost not only revenue on the candle, as I left the store in disgust, but also a future customer. 

Sometimes I suspect that human nature itself contains a short-circuit when it comes us being able to calibrate the importance of matters we take to be important. Perhaps this is a matter of conceit, being all puffed up with our own determinations, as if we could not possibly be wrong. Sadly, other people can suffer needlessly as a result, and this may be a cost that is all too invisible even to the well-meaning religious among us.



1. Daniel Burke, “Hobby Lobby: The Bible Versus Behind the Battle,” CNN, June 29, 2014.
2. Ibid.
3. Cathy Grossman, “Hobby Lobby’s Steve Green Stands on Faith Against Obamacare Mandate,” Religion News Service, March 17, 2014.
4. Patricia Walston, "Letter from Hobby Lobby Founder and CEO," Examiner.com, March 27, 2013.
5. Adam Liptak, "Justices Rule in Favor of Hobby Lobby," The New York Times, June 30, 2014.
6. Ibid.
7. Grossman, "Hobby Lobby's Steve Green."
8. Ibid.
9. Ibid.
10. Richard Wolf, "Birth Control Ruling Deals a Blow to Obamacare," USA Today, July 1, 2014.
11.Grossman, "Hobby Lobby's Steve Green."
12. Burke, "Hobby Lobby: The Bible"

Thursday, July 3, 2014

On the Political Power of Nuclear Power: Japan's Radioactive Plutocracy

Reversing his campaign pledge to reduce Japan’s reliance on nuclear power even as he had just been elected as prime minister of Japan in 2012 (Tepco’s Fukushima Daiichi nuclear-power plant meltdown having occurred in 2011), Shinzo Abe announced that he would have more nuclear reactors built in Japan. “They will be completely different from those at the Fukushima Daiichi nuclear power plant,” he said in a television interview.[1] Adding a silver lining on to a rather gray, radioactive cloud, he said, “With public understanding, we will be building anew.”[2] This change in policy is dramatic, for the previous government, that of Yoshihiko Noda, had sought to phase out nuclear power in Japan by 2040. In fact, Abe’s own party, the Liberal Democratic Party (LDP), had in its platform the goal “to establish an economy and society that does not need to rely on nuclear power.”[3] That the shift took place within the LDP suggests a shift in its power-dynamics, with the pro-nuclear sub-faction astonishingly having gained the upper hand over its rival while memories of the tsunami-triggered meltdown were undoubtedly still fresh.

                Prime Minister Shinzo Abe of Japan at the Fukushima Daiichi Nuclear Power Plant. (Image  Source: Itsuo Inouye)
It is perhaps no accident that Japan’s biggest business lobby, the Keidanren, was publicly lobbying for the government to restart the closed nuclear reactors in Japan. One might add to the mix the political influence of TEPCO, the company that owned and ran the dangerous Fukushima Daiichi reactors. Abe’s abrupt turn-about constitute a rarely visible sign of the actual political influence that large business lobbies weld even over prime ministers.

Moreover, the case suggests that powerful private interests can indeed be at odds with the public good—even when that constitutes the very survival of a people. Because private interests are likely to have tunnel vision relative to a view of the whole without such a rigorous gravity of their own interests, a plutocracy—rulership, either de facto or de jure, by wealth—is apt to be purblind in steering the ship of state ahead. When rocks lurk just below the water’s surface or icebergs silently stand by in the dark of night, a course taken incrementally and in the interest of just one part of the ship is apt to be purblind. To continue in this way not long after icebergs have been sighted and the ship has been hit borders on the insane; at the very least, the tacit acquiescence by the rest of society to let a powerful sector dictate to a government constitutes a reckless enabling not unlike someone who gives car keys to someone who is drunk and caused an accident just the year before (and is still intending to drink and drive!).

The larger problem lies in assessing whether democracies tend to degenerate not into mob rule as Plato and Aristotle had thought, but, rather, to being ruled by a few wealthy private interests that have figured out how to convert their huge stock of capital into political muscle. It is no accident, for example, that by 2014 the big American banks that were considered too big to fail in 2008 had 30 percent more in assets, and U.S. Government officials had absolutely no intent to break up those mammoth banks. Even if a causal relationship cannot be established, a restorative remedy may be elusive and extremely difficult to implement, practically speaking.




[1] Hiroko Tabuchi, “Japan’s New Leader Endorses Nuclear Plants,” The New York Times, December 30, 2012.
[2] Ibid.
[3] Ibid.

Monday, June 30, 2014

An Ethical Meltdown in Japan: On the Toxicity of Tepco's Nuclear Power

Without doubt, Japan’s largest power provider, Tokyo Electric Power Co. (Tepco), faced the biggest challenge of its 50-year-history in "recovering from the damage done to its nuclear facilities and power systems by a devastating earthquake and tsunami" in 2011.[1] The New York Times reported that "foreign nuclear experts, the Japanese press and an increasingly angry and rattled Japanese public are frustrated by government and power company officials’ failure to communicate clearly and promptly about the nuclear crisis. Pointing to conflicting reports, ambiguous language and a constant refusal to confirm the most basic facts, they suspect officials of withholding or fudging crucial information about the risks posed by the ravaged Daiichi plant."[2]

When a spokesperson for Tepco said early in the morning on March 16th "that a fire had broken out at the Daiichi plant’s No. 4 reactor, a reporter naturally asked how the fire had begun, given that just the day before the company had reported putting out a fire at that same reactor. The executive’s answer: ‘We’ll check. . . . We don’t have information here,’ he explained. After about two hours, the Tepco representative had the information: Turned out the smoke was coming not from reactor No. 4, but from reactor No. 3. If Tepco’s information had been delayed and vague, the reporters’ response was quick and direct. ‘You guys have been saying something different each time!’ one shouted. ‘Don’t tell us things from your impression or thoughts, just tell us what’s going on. Your unclear answers are really confusing!’"[3]


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


Tuesday, June 17, 2014

Legislating Politeness: The Chinese Government Takes on a Dysfunctional Culture

In June, 2014, the “Capital Civilization Office” in the Chinese Government began a half-year campaign to “encourage Beijing’s 20 million residents to behave better.”[1] Targets include “people who are noisy, smoke in public, curse at sports events, fail to line up for buses, run red lights, drink while they drive, and drive aggressively.” It seems to me this list could equally apply to Miami, and, at least in terms of driving, to the entire Northeast coastline of the United States. Perhaps urban modernity is to blame, or maybe it is simply the old truism pertaining to the rise and fall of great empires, and thus to cities as well. Chinese history is no stranger to this cycle in the form of a succession of dynasties. Perhaps we would be wise to view the modern city in such terms too.

The Chinese civilization office informed Beijing residents that they are to “dress properly, show grace in speech and manner and say ‘hello,’ ‘thank you’ and ‘sorry’ more often.” Lest this list conger up images of George Orwell’s “Big Brother” figure in the book, 1984, the gargantuan task can be regarded as futile at best. Although Chinese officials were set to utilize “guidance, education and relevant laws and regulations,” including fines, some of the unseemly conduct was at the time not against the law. The underlying problem may be whether arresting cultural decadence is even possible when it has come to characterize the culture in a particular geographical area.

Visiting Beijing a number of years ago, I was immediately struck by the lack of lines, or queues, in public places. It was as if the phenomenon of waiting one’s turn had been lost in a society whose culture stretched back thousands of years. Once the Confucian ethic has been lost, how does a society regain it? A government cannot very easily legislate “building civilization,” though Jan Longbin, deputy director of the Capital Civilization Office cites “immense results” from the Olympic manners campaign six years earlier. “Building civilization is not something that can be done in a single day,” he admits. This may be a tremendous understatement, owing to the self-reinforcing mechanism that is a part of human culture.

Decadence in a society, which is to say, among people who live in the same geographical area, may have a downward, intensifying dynamic that makes any reversal especially arduous. Once a particular assumption, such as that it is ok to ignore the people in line and go directly to the front, reaches a critical mass in terms of the proportion of people having adopted it, they proceed with added confidence in doing so. This second assumptions operates as a kind of protective bubble by giving the individuals the mistaken sense that the primary assumption cannot be wrong. Efforts to force those people to wait in line must contend with this “gravity,” such that when the enforcement ends the original rudeness is likely to re-emerge virtually unscathed.

I have witnessed this descending cycle of cultural decadence through visits to my hometown in Illinois. In spite of the city having been hit hard by the loss of machine-tool plants in the early 1980s and the subsequent increase in crime as well as unemployment, most new comers and visitors such as myself cite the predominate attitude of a high proportion of the local inhabitants are particularly problematic. The sordid demeanor, based on a lack of education—the city being among the least educated in the U.S.—can be characterized as ignorance that cannot be wrong, backed up by whatever authority it thinks it has. 

Ironically, the decadence manifests particularly in the low-level office workers and in the service sectors. Bus drivers, for example, are said to be particularly boorish and even aggressive, and office workers tend to be rigidly obsessed with their tiny policies at the utter detriment of common sense, not to mention plain decency and workability. Neither unemployment nor crime can be blamed for the pretention; rather, the arrogance of ignorance, operating as a sort of self-entitlement as if on stilts during a flood rather than rightfully submerged, seems to be in play as the particularly intractable pathology plaguing the rust-belt city. 

Given the rigid defense mechanisms protecting the dysfunctional mentality that is shared by many there, any civic effort to render the city more livable would almost certainly be fraught with difficulty, if not founder at the outset. As it is, the healthy people—those who recognize the banality so widespread—tend to leave town, if they can, and this self-selection out intensifies the proportion of sickness in the town, which of course pushes any fix even further away. The decadence, or garden-variety crassness, is as though predestined to pursue its own path until the black hole can be distended, or bloated, any further. 

In short, once a squalid mentality, or set of assumptions regarding interpersonal and organizational behavior, sets in in a particular geographical area, the decadence is likely to continue downward until it hits rock-bottom rather than be staved off by government intervention. The tools available to government are no match for the self-reinforcing defense mechanisms of a dysfunctional culture.

For example, even though my banal hometown consistently ranks near the bottom of livable cities in the U.S, local residents in the thick of the pathology (i.e., in utter denial) try to claim that every city has the mentality, which in terms of the rankings is a mathematical impossibility. The denial feeds the arrogance, and the pathogens go on in their ways with a misplaced confidence rather like bloated fish walking on stilts during a flood. When rudeness, or even meanness, as new-comers tend to characterize it, is backed up by the sheer presumptuousness of ignorance that cannot be wrong, a hard shell is formed that may succumb only when the rotten core as reached it, rather than from external efforts at reform. 

However, it does seem theoretically possible that an influx of enough healthy souls can put the indigenous weakness on the defensive, essentially knocking it off its perch in the work-places and in public spaces. In a city of 20 million, such as Beijing, such an intervention would be too huge to be at all realistic; and so it is that as is the case for any great civilization, so too modern cities are subject to the rise and fall of being human, all too human after all. 




[1] For this quote and all others in this essay: Calum MacLeod, “Be More Polite, Beijing Residents Told,” USA Today, June 11, 2014. 

Thursday, June 12, 2014

U.S. House Majority Leader Cantor’s Election Loss: On the Corporate Connection

It is not every day that the majority leader in the U.S. House of Representatives loses—and badly at that—to a primary challenger in an intra-party contest. In the wake of Jim Cantor’s defeat in June, 2014, journalists wasted no time in reducing the defeat to one issue: immigration. Such a reductionist ex-post facto divination of voter intent—as if an electorate were one monolithic mind writ large—is fraught with difficulties. Beyond the sheer artifice, such an interpretation offers an easy cover for less convenient, subterranean political shifts underway and expressed in the vote.

Leaping to the immigration rationale whereby arch-conservative, or “Tea-Party” Republican voters punished Cantor for having been willing to work with Democrats on a compromise involving amnesty in some form, Ali Noorani of an immigration lobbyist group opined that the primary’s result would make it tougher to get a bill through the U.S. House in the current session.[1] Frank Sharry of America’s Voice, “said Cantor’s loss blows up a last-minute attempt by Republicans to organize support for an immigration bill.”[2] No doubt both Noorani and Sharry were going off media reports as early as election night that immigration reform had brought the majority leader down.

To be sure, more elaborate analyses, such as one by The Washington Post, broadened the explanation to include Cantor’s votes in general and his lack of attention to his district.[3] Preoccupied with gaining power over his colleagues by raising money, Cantor missed the warning signs, and this alone could have annoyed Republican voters back home. Additionally, as put by Jamie Radtke, co-founder of the Virginia Tea Party, Cantor had “made an enemy of his friends.”[4] Put another way, pundits wanting to extrapolate the primary results onto the national stage may be overlooking the idiosyncratic elements that do not generalize or go forward.

For all the points needlessly cut off by the reductionism to immigration or even Cantor’s willingness to compromise with Democrats, the most important received scarcely any media coverage. Specifically, interviews with some voters suggest that Cantor lost in part because he had done the bidding of big business at the expense of the small businesses in Richmond. Stung by bailouts without strings to the large Wall Street banks that had dangerously over-leveraged themselves on risky mortgage-backed securities and a dearth of prosecutions on fraud, Republican voters could not have missed the apparent collusion between corporate and campaign coffers; Cantor had raised nearly $5.5 million to have a 27-to-1 financial advantage over his challenger.[5] As astonishing as Dave Brat’s win is, given this financial disparity, the real lesson from the primary may be that elected officials willing to cut the financial strings to corporate America may actually do better at home because the positions and votes would be more closely tailored to the constituents.

Put another way, voters may be hungry for political courage that shakes the conventional “wisdom.” Teddy Roosevelt must have discovered as much when he went after the mighty trusts like Standard Oil in the early twentieth century, and Andrew Jackson nearly a century earlier when he refused to fund the Second Bank of the United States for fear of encroaching federal power. This is a message that the powers that be in 2014 doubtless would not want getting out, and the media dutifully complied with the subterfuge of immigration reform being in all probability dead for the time being.



[1] Alan Gomez, “Immigration Bill Looks Doubtful,” USA Today, June 12, 2014.
[2] Ibid.
[3] David Fahrenthold, Rosalind Helderman, and Jenna Portnoy, “What Went Wrong for Eric Cantor?” The Washington Post, June 12, 2014.
[4] Ibid.
[5] Susan Davis And Catalina Camia, “Contests Loom for Top GOP Posts,” USA Today, June 12, 2014.

Friday, June 6, 2014

GDP and Poverty: Is Economic Growth the Answer?

From 1959 to 1973, the American economy grew 82 percent, per person. It is easy to assume this is why the poverty rate decreased from 22% to 11 percent.[1] From roughly 1985 to 1990 and then again from 1995 to 2000, heady growth rates are also correlated positively with declining poverty rates. But correlation is not causation. Indeed, had the correlation in the 1959-1973 period continued, the subsequent per capita growth would have ended poverty in 1986. What then are we to make of the relationship between GDP and poverty?

According to Heidi Shierholz, an economist at E.P.I., the “very tight relationship between overall growth and fewer and fewer Americans living in poverty” broke apart in the 1970s.[2] In spite of the OPEC oil cartel’s inflationary shocks in 1973 and 1979, the poverty rate remained relatively constant through the decade of “stagflation,” spiking only once Reagan took office—perhaps on account of David Stockman’s domestic budget cuts that hit the poor especially hard and Paul Volcker’s high interest rates at the Fed (to decrease the inflation rate) that increased the cost of borrowing money. To be sure, the recessions in the early 1980s and the early 1990s are associated with increases in the poverty rate, which even lags the subsequent recoveries, and the rate fell as the economy was humming along in the late 1980s and 1990s. Even so, eleven percent seems to be the rate’s floor. Perhaps this is why the relationship broke apart in the 1970s?

According to Thomas Piketty, the period from World War I to the 1970s is unusual economically because the shocks reduced returns on capital relative to the growth rates of income and GDP. The economist suggests that inequalities in income and even wealth narrow under this rather artificial arrangement; typically, returns on capital have outsized increases in income, thus increasing the inequalities. Perhaps the inverse relationship we are looking at holds only when the rate of return on capital is low relative to the GDP rate. However, as I indicate above, heady growth periods after the 1970s can be found in which the poverty rate is decreasing, and recessionary periods in which the rate is increasing.

So we are back to the 11 percent floor. When the relationship broke apart in the early 1970s, the poverty rate was indeed at 11 percent. Instead of continuing downward, the rate hovered, when up a bit, then slightly downward until just above 11 percent before heading starkly upward in 1981.[3] What might be behind the floor? It seems doubtful to me that 11 percent of the adults in America are simply unable to work for non-economic reasons. It seems more likely that the market mechanism, which can support wages at the minimum wage without any upward pressure (e.g., from labor shortages), functions at an equilibrium short not only of full employment, but rising wages (relative to returns on profits and stock appreciation) as well. In other words, we cannot look to the market to “grow” us out of poverty. While undoubtedly a help, the market is only part of the solution.

The question is thus how we can fill in the rest of the solution. What, outside of the economy, can make up the difference? As the source and enforcer of societal rules, government is not intrinsically the answer, for to be the “man in charge” does not in itself connote supplying materials (including jobs). Yet the government could direct that materials and or jobs be provided outside of private industry, such as by non-profit organizations receiving funds from tax revenues and thus directly under government oversight. Even now, the Full Employment Act of 1946 directs that everyone who wants a job should be able to have one—that this is a task of government to oversee. Lest employment be viewed as an end in itself rather than a means, we could stipulate that everyone has at least a minimum amount of money and wealth. Hence the unemployable veteran, for example, would not have to suffer in poverty. Lest breaking through the 11 percent floor make it more difficult for Walmart or McDonalds to pay cashiers the minimum wage of just over $7 an hour, we might remember that a part of the solution is not in itself more important than the solution itself.

That is to say, hits taken at the margins to part of the solution as the rest of the solution is added should not outweigh the solution itself, for the end is more important than any one of the means. Too often, I fear, the American public discourse obsesses on the downsides on the margins to a means, being all too willing to preempt a full solution just so the particular means is not slighted in any way. I suppose this is a sort of tunnel vision, with greed playing a supporting role. Death and taxes may be inevitable, but surely poverty is not. Indeed, it may be viewed as an artificial byproduct of human society and thus as fully within our powers and responsibility to eliminate rather than take as a given.




[1] Neil Irwin, “Growth Has Been Good for Decades. So Why Hasn’t Poverty Declined?” The New York Times, June 4, 2014.
[2] Ibid.
[3] Ibid.

Tuesday, June 3, 2014

What We Know about Coal and Natural Gas: The EPA’s Coal Emissions Targets

Coal is the bad guy. At least it is the antagonist in the U.S. Environmental Protection Agency’s 645-page carbon-emissions plan unveiled in early June, 2014. In spite of the fact that the 30% reduction in CO2 emissions from the level in 2005 being set for 2030, critics showed their oligarchic focus on today by pointing to what the current likely costs would be. Electric bills increasing $4 or so a month in West Virginia. Lost jobs—as if the criteria of capital were also those of labor. In short, short-term inconveniences without a hint of the other side of the ledger. I submit that this is precisely the element in human nature that can be likened to the proverbial “seed of its own destruction” in terms of the future of our species. As menacing as such “reductionism to today” is, the assumption such as underlies the EPA’s proposal that coal is the definitive obstacle—and, furthermore—that we are not missing any other huge but invisible danger—is just as problematic from the standpoint of the species’s survival.

I have in mind the EPA’s projections by fuel type going out to 2030 from 2012. From 37% of the electricity generated in 2012, the comparable projected figure is 32% for 2013.[1] While at least the direction is downward in relation to the other fuel types, climatologists would doubtless say more of a drop is necessary to stave off more than a 2 degree C global increase.  As damning as this “ok but not good enough” scenario is pertaining to coal, the more damning feature of the report is that it may be very wrong about something it takes to be an improvement.

For example, the natural gas category is projected to go from 30% in 2012 to 35% in 2030[2]. That’s good, right, because it’s the clean gas. Not so fast. Independent empirical studies of leaks in Utah, L.A., and Washington, D.C. have shown much higher levels of methane escaping into the atmosphere than the 1% touted by the producers and adopted (without independent confirmation) by the EPA. In the observations, the actual percentages of leakage were double-digits. The problem is that the break-even point with coal in impacting global warming is 3 percent. Methane, which natural gas gives off before being burnt, turns out to have ten times the impact as coal.

My point is that even though by now we are used to the contingents that put today’s convenience above the risk to the future of the species, we don’t know what we don’t know, and this can be even more dangerous. In other words, what we assume to be a good thing may in actual fact be doing a lot of damage under our very eyes. We may not have a clue as to how what we are doing today is impacting the planet’s atmosphere. This may be one reason why scientists have repeatedly had to accelerate their projections of when the ice sheets would melt at the poles.

Human nature may be much more problematic from the standpoint of the species’s own survival than we know. Not only have 1.8 million years of natural selection engrained in us a focus on today (e.g., fight or flight) at the expense of tomorrow; we may be very wrong about stuff we assume we got right and yet be totally unaware of it. It is as though our species were a person with long hair who never bothers to use a mirror to make sure that the hair in back is brushed. The laugh is on that person, and yet she (or he) has no idea. The industrialists who are instinctively wetted to the status quo out of a desire for financial gain may just be the tip of the iceberg; we had better look underneath before it has totally melted.



[1] Wendy Koch, “EPA Carbon-Cutting Plan Could See Power Shift,” USA Today, June 3, 2014.
[2] Ibid.