"Of the various works that I had in progress, which engaged me the longest in contemplation, and at which I worked with the greatest satisfaction, upon which I would have gladly worked my entire life, and which would have placed the seal upon my reputation was my Institutions politiques… my views had been greatly extended by the study of the history of manners. I had come to see that everything was connected radically to politics, and that, no matter what course one followed, no people could be of a nature other than that which its government gave it; and thus this great question of the best possible government seemed to me to be reduced to just that. What is the nature of the right government which will create the most virtuous, the most enlightened, the most wise people, in the end to take this word in its greatest sense. I had thought this question close to another even if it was different. What is the government which by its nature adheres today most closely to the law? And from that, what is the law?"
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–Jean-Jacques Rousseau, Confessions, bk ix (1770)
Who Needs Democracy When You Can Have Order
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Scholar Samuel P. Huntington died at the age of 81 on Christmas Eve. Fareed Zakaria in Newsweek has a good piece on what he learned from him and offers some insight on how his lessons still apply to today’s global problems.
At least recently, Huntington is most noted for his 1993 Foreign Affairs essay warning of an impending “clash of civilizations.” It is a theory that is not without significant flaws, but nonetheless, has certainly fueled more than a few impassioned debates and scholarly writings.
As Zakaria points out, Hungtington’s more vital contribution that pre-dated his 1993 work was his understanding of democracy promotion. Instead of focusing on modernization projects and promoting democracy, Huntington argued that societies yearned for stable government that can provide order. Even if authoritarian, an orderly society that is imposed is still more legitimate than a haphazard, fledgling democracy that cannot control its polity. It is a concept that has had currency in political Islam for a long time, as rulers today are still quite cognizant of the adage that it is better for there to be “100 years of tyranny is better than 1 day of anarchy.”
I wonder what folks in Iraq would think of Huntington’s theory today.
AIG and Legal Chutzpah
Crying….all the way to the bank
It’s probably a good idea not to wear your Man U. soccer jersey around town if you live in the states. The soccer club is famously sponsored by A.I.G., which has earned the wrath of politician and commoner alike.
But is the criticism warranted? Using $165 million in taxpayer money to pay bonuses in these harsh economic times sounds absurd on it’s face. It’s an even more audacious attempt when considering that the money will pay off AIG officials whose business acumen lost the company $99 billion in FY 2008. Meanwhile, the millions of taxpayers who are literally paying for their poor decisions are losing their jobs.
AIG claims that their hands are tied and that they are contractually obligated to make these “retention payments” under Connecticut law. The argument goes that these are employees who hold very complicated derivatives positions and constitute the very brain power required to pull off sophisticated transactions as the company continues to grow out of their financial black hole. The failure to make these payments, and presumably retain their services, would mean that companies doing business with AIG could forgo paying them billions since the quality of their services would be diminished.
Not so fast though AIG. Connecticut Attorney General Richard Blumenthal doesn’t think the bonuses would be subject to Connecticut law and could therefore be revoked.
NPR has a money interview that you can listen to with Steven Thel, a professor with Fordham Law School and former SEC enforcement lawyer who breaks down why AIG’s legal claims lack any serious merit. Guaranteed bonuses unconditioned on performance are not unheard of, but $165 million paid to 370 people seriously undermines the legitimacy of these contract clauses. Where is the moral hazard, after all, when an analyst or executive can decide how to spend trillions when they will always receive a bonus at the end of they day no matter how much they’ve lost? Such a system inherently invites greater risk taking and reckless speculation, the very type that led AIG knee-deep into toxic subprime and credit default swap investments that bailout funds are now needed to cover. Especially since it appears that AIG knew it would have to “unwind their derivatives” - or take a complete bath on their billions in losses - these clauses were designed to ensure that AIG could maintain their talent edge. It’s as if AIG decided to pay out bonuses to individuals whom they knew would lose them money.
President Obama has instructed Treasury to pursue “every legal option” to prevent these bonuses from being paid out. It’s worth checking out Glenn Greenwald’s posts on what these options might entail.
For their part, the House is taking steps to dissuade AIG and any other firm who has accepted a minimum of $5bn in bailout funds from paying out any bonuses. A House bill set for vote today would impose a 45% excise tax on the company and the individual receiving the bonus for a 90% net bonus tax.
This measure falls 10% too short though. If this fight is about principle, why should a single cent of American taxpayer money be paid in bonuses to any AIG employee? To this extent, law professor Sandy Levinson over at Balkinization explains why Congress could actually impose a 100% tax:
But why isn’t the “legal avenue” broad enough to drive a Mack truck through? Congress could pass an act literally in the next week stating that a) no contracts between banks or other financial entities receiving any federal bailout money and their employees relating to bonuses be implemented; and b) that all bonuses received by employees of banks and other financial entities receiving any federal bailout money since, say, Dec. 1, 2008 (this would apply to Merrill Lynch just fine) be taxed at the rate of 100%. If a state did the former, there would be a Contract Clause problem. But the Contract Clause prohibiting the “impairment” of contracts applies, textually, only to state governments, not to the national government.
The point of all of this is that if AIG really wanted to avoid paying the $165 million in bonuses it could have at least tried not to. It didn’t, and instead of AIG lawyers pursuing “every legal option” to preclude bonus payments, it is the Obama adminstration having to make the legal case. I understand the argument that AIG is too big to fail. It is/was the largest insurer in the world and allowing it to crumble would have thrown global financial markets into even greater disarray. But the issue of AIG bonuses goes beyond saving it from catastrophy; rather, it is $200 million spent to ensure that it can maintain its own global insurance hegemony.
Take the Blue Pill
The New Republic’s Noam Scheiber on former Treasury Secretary and current Obama senior economic advisor, Larry Summers. Apparently, he needs to be freed.
Art by Kerry Waghorn.
Learning that Summers was a policy debater while an undergrad at MIT makes me sleep better at night. He was a big fan of the business confidence disad not surprisingly.
The argument goes a little something like this: the affirmative plan is well-intentioned but decreases business confidence which leads to a catastrophic decline in the economy and ultimately….nuclear war. Therefore, the affirmative plan should not pass. Silly and far-fetched, yes, but these are the types of arguments that can ultimately win or lose a debate round.
Some of these ideas seem to have stayed with Summers when he became a tenured econ professor at Harvard at the age of 28. Waghorn writes:
The way Summers saw it, the Great Depression had been a problem of “multiple equilibria” gone awry. That is, he believed the economy could just as easily have been booming as shrinking. All it took was for everyone to believe that everyone else would start producing again, and they would too. But, since everyone believed everyone else would stay idle, they had no incentive to produce anything either. There was no good reason the economy should have been in this rut. But, once there, it was spectacularly difficult to get out.
If it’s true that the Great Depression was a chance circumstance and that the aggregation of human beliefs is what created economic paralysis, might the solution to the current economic crisis be in a business confidence pill? After all, we do have pills that activate in individuals greater levels of mental focus (Adderall), sexual confidence (Viagra), and general happiness (take your pick). Maybe Pfizer, Geithner and Summers could team up to promote the “Biz Con” pill, to be ingested every morning with a cup of coffee or diet coke by worker and corporate suit alike. Within 20 minutes, anxiety levels will subside, confidence in the economy will skyrocket and business production and growth will become more robust. It would be a stimulus in every sense of the word.
Users, however, may have to contend with a few minor side-effects that include dry-mouth, nausea, 4 hour erections, irregular heartbeats, sleeplessness and the sudden urge to flip out on people.
Good look to Louis for the article.
Protect Us from Protectionism?
Fareed Zakaria, on why the recent populist wave sweeping the world has been bad for free trade. He elaborates further on this nugget of information:
But in a report released last week, the World Bank has gathered some disturbing facts. Since the financial crisis began, countries around the world have proposed or implemented 78 trade measures. Of these, 66 turn out to be new restrictions on trade. For example, Russia raised tariffs on used autos; China has banned outright various European goods (Irish pork, Italian brandy, British sauces and some Belgian chocolates, if you’re wondering). India has banned Chinese toys.
Especially if the toys looked anything like this I probably would too:
As bad as this is for globalization right now, it can’t be too surprising that countries are taking a more nationalist free trade agenda when their own domestic industries are suffering badly. The pertinent question is whether these trends become a committed ideological “retreat” from globalization or just an application of the brakes. The former would be far worse for the evolution of human civilization while the latter, perhaps, necessary for sustaining globalization well into the future.
Torture is in the Eye of the Beholder
Case in point found in today’s NYTimes Obit seciton:
Harold E. Fischer Jr., an American Flier Tortured in a Chinese Prison, Dies at 83… .
From April 1953 through May 1955, Colonel Fischer — then an Air Force captain — was held at a prison outside Mukden, Manchuria. For most of that time, he was kept in a dark, damp cell with no bed and no opening except a slot in the door through which a bowl of food could be pushed. Much of the time he was handcuffed. Hour after hour, a high-frequency whistle pierced the air.
After a short mock trial in Beijing on May 24, 1955, Captain Fischer and the other pilots — Lt. Col. Edwin L. Heller, First Lt. Lyle W. Cameron and First Lt. Roland W. Parks — were found guilty of violating Chinese territory by flying across the border while on missions over North Korea. Under duress, Captain Fischer had falsely confessed to participating in germ warfare.
G.Greenwald hits on the obvious double standards embedded in how we evaluate our own interrogation techniques. I’m only half kidding here - but perhaps the bright line question to ask in determining whether a technique constitutes torture or an “enhanced interrogation technique” is what we would consider it to be if the Chinese did it to our own soldiers. The decision calculus - regardless of who is the subjector and subjected - should be no different.
Gallup: More Americans Love Babies than Hate Them
From a new 5/7-5/10 Gallup poll, more Americans are pro-life than they are pro-choice by a margin of 51% - 42%. Gallup has been asking this question annualy since 1995 and this is the first time that a majority of respondants have considered themselves pro-life. Notably, the Gallup results also support recent findings by Pew Research that tracked a similar attitude shift in the population on the issue of abortion.
As for how people view the legality of abortion, here’s how the results broke down:
Numbers can tell you a lot of things. Here, it’s obvious that just in the course of a year, 5 percent fewer people believe abortion should be legal in any circumstances while 5 percent more believe it should be illegal in all circumstances. Pro-choice advocates can still point to the 74% of the population that still believes abortion should remain a viable alternative at least in some circumstances, if not most. In other words, Roe v. Wade is still in accordance with the public’s stance on abortion. It is clear, however, that the 2008 national election has shifted more conservatives and moderates into the pro-life camp:
“With the first pro-choice president in eight years already making changes to the nation’s policies on funding abortion overseas, expressing his support for the Freedom of Choice Act, and moving toward rescinding federal job protections for medical workers who refuse to participate in abortion procedures, Americans — and, in particular, Republicans — seem to be taking a step back from the pro-choice position. However, the retreat is evident among political moderates as well as conservatives.
Looks like the GOP has a glimer of hope to rally around again. Joy.
