Monday, December 31, 2012

Emerging Fiscal Cliff Deal: Good Deal, or Bad?

Congress over the past couple of years has orchestrated a round of automatic spending cuts (sequestration) and taxes increases which are set to take effect tomorrow.  If we go over this fiscal cliff, we will all feel it. 

There is general consensus across the political spectrum that implementing sequestration and returning to pre-Bush tax levels at the same time will provide another blow to our teetering economy.  We also have agreement that we must address long term structural problems with the cost of social programs and the amount that we are currently taxing.  In short we are not taxing enough to sustain our social programs, and we don't have enough young workers coming in and too many workers retiring to sustain our social programs at the current levels without raising taxes.  Finally, we have agreement that the deficit presents a long term problem.  The deficit is large and growing due to 1) the Bush tax cuts, 2) the Iraq and Afghanistan wars, and 3) our structural problem with social programs and tax rates. 

There is disagreement between the parties regarding the solution to these problems.  Republicans advocate drastically less spending on social programs, and no increase in tax rates (although they are open to base broadening elimination of tax exemptions).   Republicans believe their approach would invigorate the economy like a New Years Day polar bear swim.  They believe the underlying dynamism in the market would grow the economy and lift all boats.  Democrats are advocating a balanced approach of some tax increases, and some spending cuts, but no (substantial) cuts to social programs.  Democrats believe that if social spending is reduced, the market will not fill the gap to provide for all members of society.  They believe we must spend on medicare, medicaid, social security, education, mental health, etc. in order to take care of a large percentage of the population that would not otherwise be provided for by the market. 

Democrats don't want to go over the fiscal cliff because it will result in across the board spending cuts in social programs that they don't want to see happen at all, because it will result in too-sudden spending cuts that will shock the economy, and because it will result in too-sudden tax increases for our anemic economy.  Republicans don't want to go over the fiscal cliff because it will result in tax increases they don't want to see happen at all, because it will result in too-sudden spending cuts for our anemic economy, and because it will result in cuts to military spending they don't want to see happen at all. 

There is a lot of sideline commenting going on as to who has leverage in this negotiation and how it should be played.  Should we go over the fiscal cliff now because this might give one side more leverage later?  Some say Democrats would have more leverage later because they will have pocketed the automatic tax increases and they might find political support for social spending priorities once those cuts actually bite.  Of course, in the meantime, social programs will be cut.  Some say Republicans would have more leverage later because they will have pocketed spending cuts, and they may be able to extract more concessions on taxes in the context of the next debt ceiling increase, which is coming right up, thank you very much.

As of 7:00 p.m. (EST) on the 31st, it looks like the House will vote on Tuesday on a plan cobbled together by Senate minority leader Mitch McConnell and Vice President Joe Biden--technically over the cliff, but before the Congressional session ends on Tuesday. 

Here are the deal parameters as reported by the NYT


  •  Income taxes to 39.6 percent from 35 percent on income over $400,000 for single people and $450,000 for couples.
  • Dividends and capital gains tax rates to 20 percent from 15 percent on income over $400,000 for single people and $450,000 for couples.
  • Phase out of personal exemptions and deductions at $250,000 for single people and $300,000 for couples.
  • Rise in estate tax on estates over $5 million to 40 percent, up from the current 35 percent.
  • A five-year extension of  child tax credit that goes out as a check to workers who do not earn enough money to pay income taxes, an expanded earned income credit, and a refundable credit for tuition.
Under the deal, the new rates on income, investment and inheritances would be permanent.  All combined, the new package would raise about $600 billion of revenue over 10 years. That  is approximately 85 percent of the revenue Democrats had wanted to raise under Obama’s initial proposal, which would have raised around $700 billion.
  • Democrats secured a full year’s extension of unemployment insurance without strings attached, a $30 billion cost.
  • Democrats were able to stave off sharp cuts for one year to health care providers who treat Medicare patients. That cost, about $30 billion, would be paid for with cuts to other health care programs.
A final deal is reportedly still being held up by one last question: What to do about $110 billion in automatic spending cuts set to begin Jan. 2.

So did Obama sell out?  Thus far it does not apear so.  On the taxing side, this deal would secure $600 billion of revenue over ten years.  It's not what we'll need, but we don't want it all at once;  we'll want to add revenue slowly as the economy grows stronger, and Obama has made clear that he'll be asking for additional revenue in connection with discussion on spending reductions.   On the spending side, there are no cuts here to Social Security, Medicaid, or other social programs so far.  Let's see what happens with that $110 billion in automatic spending cuts.  If those are deferred, that's the right thing to do for now... 

Going over the cliff is bad for the economy, bad for seniors and kids, bad for the military, bad for the country.  In light of this fact, it's irresponsible to advocate going over the cliff just to (perhaps) increase leverage in the upcoming debt ceiling negotiation.  If we can prevent sequestration now and get agreement on $600 billion of tax revenue over 10 years, and defer discussion on cuts.... let's do it!

Sunday, December 23, 2012

The Power of Tradition.

You’d think that 57 years of life and 33 years of marriage would be enough to get your traditions in order.  It’s not.  Traditions are like your kids growing up; every time you think you have them figured out, they change on you.

Take Christmas, the central tradition of my childhood.  The Christmas tree is not an easy tradition to bring to a mixed Christian-Jewish marriage.  The roots of the Christmas tree lie in Germany where they do Christmas really well.  The Germans, and Swiss Germans in my case, don’t water this holiday down to a generic Happy Holiday.   It’s Wheinachten.  It’s a holy night, no questions asked.  It’s magical.  It’s a month of Advent and wreaths, and Stollen, and Handel, and snow, and stockings, all culminating, like Burning Man, with family and friends basking in the glow of fire.  For us, two dozen live candles on an eight foot Noble Pine. 

The trouble is, for a short while Germans also hung Swastika ornaments in their Christmas trees, and for my mother in law, who escaped from Vienna on her own Kindertransport, the season is too proximate to Kristallnacht for comfort. Burning candles on a Christmas tree is somehow connected with the fires of 95 burning synagogues in Vienna.   So I studied Maimonides and we were married under a Chuppah and broke a glass for good luck to set us off on our own traditions. 

Living as newlyweds in Seattle, away from family, we joined with other young adults trying to figure things out.  For ten years we gathered with friends for Thanksgiving, in apartments, in newly mortgaged houses, and on our boat that served as our apartment.  We joined in Seders.  We lit Hanukah candles. 

But we were restless, so we left. We left work behind and sailed the waters of British Columbia, the Pacific, and Mexico, ultimately settling in the Bay Area near family.  Young professionals now, energetic, without child, we joined a circle of friends around biking.  Our traditions became the Grizzly Peak Century, the Markleeville Death Ride, the Marin Century.  There was skiing in December and January; later there was squash, tennis, and music.  For several years we attended Camp Harmony music camp on New Years, Fiddletunes in summer.  There were weekly music lessons. 

But we moved on.  Kayla arrived.  Soon there was Halloween, birthdays, play-dates, and the JCC pre-school, which, for a brief time, enhanced the profile of the Jewish calendar for us.  Then there was soccer, and for ten years our life revolved around practices, games, and the struggles of a team progressing from recreational to competitive, to elite competition.  But that too ended. 

Through it all Christmas was present through its absence.   Our first two years in the Bay Area we put up a tree, but it did not take.   The tradition soon succumbed to spousal discomfort and our desire to give a non-mixed identity to our daughter.  But what were we thinking?   We celebrated Hanukah and Passover, and noted the passing of Rosh Hashanah and Yom Kippur.  We did not observe Shabbat, Rosh Kadesh, Tu B’Shevat, Purim or any of the other holidays on the Jewish calendar.   How do you instill religious traditions in a secular household?

And now Kayla has moved on.  We are left behind with all traditions inconstant.  Hanukah is long past, this year, and somehow the absence of Christmas has hit hard.  So this morning we walked the Haight, ate a tuna melt sandwich at the Ice Creamery on Cole, and returned with a Christmas tree from Cole Hardware.  We dug out the old ornaments from the back of the closet, put 18 candles on the tree, and called our daughter.  “It makes me want to come home,” she said.  And all is well with the world.  

Tuesday, December 11, 2012

The Sea, John Banville (2005)

A couple of years ago, my friend Kathy Hirsh, a Plein Aire painter of the highest caliber, a wit, and voracious reader, recommended JohnBanville’s The Sea, the 2005 Booker prize winner.  No wonder.  The book has been living in my Kindle for some time and I just got around to reading it.  It is full of poetic and insightful writing, with fresh and unusual observations of adolescence, first loves, and lost loves.  A graceful meditation on budding life and death.

The sixty something protagonist of this story, Max Borden, returns to a boarding house on the Irish seaside to “live amidst the rubble of the past.”  He is a scholar of Pierre Bonnard, a matter of special interest for any plein aire painter.  But Bonnard did not paint many seascapes.  A founder of the Nabi movement (the Prophets) in Paris in 1888 or so, he preferred to capture images in photographs and paint them later in the studio.  His pictures were predominantly of interiors, his circle of friends, his wife.  The sea makes an appearance through open French windows and across rooftops in the South of France.  But it’s not the subject matter of Bonnard’s work that matters here, but the muted colors, and blurred images that are evocative of memory. 

The ouroboros structure of the novel begins with the sea,  perhaps grandiosely, but memorably:

They departed, the gods, on the day of the strange tide.  All morning under a milky sky the waters in the bay had swelled and swelled, rising to unheard of heights, the small waves creeping over parched sand that for years had known no wetting save for rain and lapping the very bases of the dunes.  The rusted hulk of the freighter that had run aground at the far end of the bay longer ago than any of us could remember must have thought it was being granted a relaunch.  I would not swim again, after that day. 

… and it ends a compact 195 pages later with a young Max Borden standing in the quiet surf.

“in a sort of driving heave, the whole sea surged, it was not a wave, but a smooth rolling swell that seemed to come up from the deeps, as if something vast down there had stirred itself, and I was lifted briefly and carried a little way toward the shore and then was set down on m feet as before, as if nothing had happened.  And indeed nothing had happened, a momentous nothing just another of the great world’s shrugs of indifference”

While an old Max Borden recalls this penultimate image...  “A nurse came out then to fetch me, and I turned and followed her inside, and it was as if I were walking into the sea.” 

In between, the novel weaves seamlessly and masterfully between young and old (Max Borden, truth be told, feels much older than my mid-sixty year old friends), and between the far past, the recent past, and the present.   The drama is contained in the memory, and it is peeled back patiently and lovingly as the story unfolds without chapter breaks in one long stream of consciousness.   The book is a phenomenology of memory.  And it is phenomenal.  

Saturday, December 1, 2012

Obamacare: A Matter of Allocation--Or Regulating the Low Wage Job Creator Moocher Class

Approximately 61 percent of adults in the U.S. are covered by an employer sponsored health plan.  The percentage is higher for whites, lower for Hispanics and blacks, and lower overall in light of the recession.  Ezra Klein of the Washington Post provides a serviceable explanation of how this came about. 
 The hinge question in health care reform is "where do you get the money?" And the main … pot of money in health care reform comes from the employer tax exclusion. … [It] is a World War II-era tax quirk. The Roosevelt administration had instituted wage and price controls to prevent profiteering. Excess profits were taxed at (very) high rates. Wages were frozen so employers couldn't offer raises. But the government decided to exempt health benefits from these rules. So corporations took their wartime profits and plowed them into health care benefits. In 1953, with the war over, the IRS tried to overturn the rule. Congress overruled the IRS. 
And so here we are. If you walk out, on your own, and attempt to [purchase health insurance], you're taxed on that dollar. If your employer [purchases insurance] on your behalf, that dollar is not taxed. As a result, getting health insurance through your employer [is] a much better deal than purchasing it with your wages. This … made employer-based insurance the default. 
Obamacare won’t change this.  In fact, Obamacare is trying to increase the percentage of workers covered by employer sponsored health plans.  Effective in 2014, employers with more than 50 employees must offer health insurance and if they don’t, they will be taxed $2,000 per employee. This has led to some recent impolitic statements by angry CEO’s about lay-off’s and converting full time jobs to part-time jobs in light of Obamacare. 

Many on the right have been arguing for years that it’s bad policy to rely on employers to provide health care coverage, and we should stop it.  For example, the libertarian CATOInstitute argues that it would be better if workers controlled their own health care coverage, e.g.  through an expansion of HSA accounts (tax deductible accounts used to purchase health care).  CATO argues that a lack of employee control creates a disconnect between the consumer and the provider:  employees are apt to be more wasteful, less sensitive to cost implications of their health care choices; employer sponsored plans are regressive because higher compensated employees get better plans; it puts pre-paid plans like Kaiser, which tend to be more efficient, at a competitive disadvantage because efficiency is less valued by consumers who do not pay for their own health care; and it generally depresses competition because employers, in order to save administrative costs, tend to offer few plans.  But on a broader philosophical level, CATO objects that giving employer’s control over health care plans of workers means employers, with the encouragement of the government, control “28 percent of the $2.5 trillion sloshing around America’s health care sector.” 

At the root of this, of course, is a huge fallacy.  Says CATO:
 A survey by economists Michael Morrisey and John Cawley found that 91 percent of health economists agree that the money that employers use to purchase health insurance comes out of workers’ wages. In other words, if employers were not providing health benefits to workers, they would have to return that $9,000 to workers in the form of higher cash wages. That implies that, rather than encourage employers or shareholders to spend their own money on workers’ health benefits, this tax break instead gives employers control over a significant portion of their workers’ earnings.
 But that is just plain wrong.   As explained in this NYT article, the problem is that many businesses operate on profit margins and wages that are so low that neither the employer nor the employee can afford to pay $6,000/year for health insurance.  Hence the large pool of employed uninsured—a problem Obamacare is trying to fix.
 “Like many franchisees, Robert U. Mayfield, who owns five Dairy Queens in and around Austin, Tex., is always eager to expand and — no surprise — has had his eyes on opening a sixth DQ. But he said concerns about the new federal health care law had persuaded him to hold off. … “Any dollar that gets diverted, whether it’s through Obamacare or increased tax rates, puts franchisees one dollar further away from being able to expand their businesses,” said Don Fox, chief executive of Firehouse Subs, a fast-growing chain of 559 restaurants based in Jacksonville, Fla. At the 30 stores the corporation owns, only full-time managers are offered coverage. Mr. Fox is wrestling with whether to absorb the considerable cost of covering 100 more employees or pay the penalties — which would probably cost him less — but risk losing valued employees to competitors who choose to offer coverage.
 Employee health coverage now averages nearly $6,000 for an individual plan. That is considerable for businesses like restaurants in which the majority of workers make $24,000 a year or less, according to research by the Kaiser Family Foundation. The foundation found that only 28 percent of companies that employ large numbers of low-income workers offer health benefits. “This is where the biggest set of hurdles is,” said Gary Claxton, an executive with Kaiser.”
The problem faced by Papa John’s and the Dairy Queen franchisors is real.  Consumption of fast food is sensitive to price and if they have to raise prices on their product to cover the $6,000/employee for health care coverage, or the $2,000 in tax penalty for not providing coverage, this may make them hold back from expansion, or it may force them to cut back. 

But should we be encouraging “job creators” to create jobs that don’t pay enough for workers to eat and obtain basic health care?   If jobs don’t pay enough to live on, then society must subsidize those jobs through food stamps, Medicaid, and the like.  Job creators like that are moochers.    They pocket profits enabled because society subsidizes their workers. 

Ronald Coase won a Nobel prize in economics back in 1991 for his work on how many things that are regulated can in fact be better handled by private party negotiation, i.e. by the free market.  But Coase also recognized that when practical difficulties prevent private parties from negotiating an efficient contract with each other, then government must step in and make an approximation and enforce a rational cost benefit transaction.   In the United States today, we can afford to create jobs that pay enough to eat and obtain basic health care.    However, because there is an oversupply of unskilled labor the free market does not assure that employers will pay a living wage.  Therefore, government must step in to enforce rational wage structures that allow workers to eat and obtain health care. 

In part, that’s what Obamacare does.  It enforces rational wage structures that properly allocate the cost of providing health care for employees to the job. This regulation is necessary because, if the market is allowed to work without restriction, the low wage job creator class will mooch off the rest of society by having society subsidize their workforce.  

Tuesday, October 30, 2012

The New Kashrut

It used to be God and the rabbis told us what we could and could not eat, and how we should prepare our food. These days, although the government imposes some restrictions on foods deemed to be dangerous or corrupting we are mostly left alone to choose. But in order to choose wisely, we must have knowledge.

Proposition 37 aims to arm us with knowledge about the foods we eat: specifically, whether it was genetically modified. Is this a good proposition? Since everyone agrees that knowledge is good, the short answer is: Duh! But still, does it matter what’s in the law, how it will operate, who will be hurt by it and how, or what knowledge it will truly arm us with. Well, yes, that too. So how does Prop 37 stack up?

As citizen legislators, here’s what we should know about this proposed law. It would state: “Any food offered for retail sale in California is misbranded if it is or may have been entirely or partially produced with genetic engineering and that fact is not disclosed.”

Retailers will be required to mark food that may have been genetically engineered with the slogan “Genetically Engineered,” either on packages, or on a label near the display bin at the grocery store. For processed foods, the label must read “partially produced with genetic engineering”, or “may have been produced with genetic engineering.” The law encourages individuals to sue, it encourages class action lawsuits, and it subjects offending retailers to pay the attorney fees of successful plaintiffs.

Alcohol, meat raised on genetically engineered feed, processing enzymes, and certified organic foods are all exempt from the labeling requirements. Also exempt is any food produced “without the knowing and intentional use of genetically engineered seed or food.” However, in order to take advantage of this exception any retail seller must have a sworn statement from whoever he or she obtained the food that (1) the food has not been knowingly engineered, and (2) has not been genetically commingled with any genetically modified foods. Let’s call them the new certificates of Kashrut.

How does your neighborhood grocer obtain such a certificate? The law states that “in providing such a sworn statement, any person may rely on a sworn statement from his or her own supplier.” The idea seems to be that the seed store obtains a kosher certificate from the manufacturer of the seeds (Monsanto), the farmer obtains it from the feed store, and the wholesaler obtains it from the farmer, and the retail merchant obtains it from the middleman. Depending on the supply chain this could be a whole bunch of certificates.

A kosher certificate can also be provided by “an independent organization” which may perform “sampling and testing” pursuant to procedures to be approved in regulations adopted by the State.

How many kosher certificates will your grocer need to be safe? How many different items of food are sold in the grocery store? That’s how many. Since virtually any food “may have been” produced with some genetic engineering, the only way to avoid potential liability will be for every last item of food in the grocery store to either have a certificate on record, or it will require a label that it is or may have been genetically modified. If not, the grocer will be sued by this new litigation cottage industry. If you’ve been on the fence about going to law school because the job prospects look bad, you may want to reconsider.

I don’t know who paid for the signature gathering to get Prop 37 on the ballot, but the leading supporters are the businesses who will benefit from its passage: natural and organic food growers, the very ones who are also exempted from the labeling requirement, although (to be fair) this exemption may also be related to federal preemption concerns. Organic food is regulated by the FDA.

Passage of proposition 37 is a guaranteed headache for the food industry, and not just for Monsanto and Pepsi. It will foster a new cottage industry of litigation. Small and large businesses will be put through the ringer and incur great expense, and this will not be correlated to good guys or bad guys. Will the public be any wiser? Chances are that most stores will find an innocuous way to label virtually everything as “may have been genetically engineered.” The end result will be that the public will be no wiser as to what is actually genetically engineered than they are now. If you really care about the food you eat, you will still have to educate yourself about your food sources, and look for natural food just like you have to do now.

I’m voting no on Prop 37.

Tuesday, August 28, 2012

Barry Eichengreen Plays Flute with my Sister-in-Law

Barry Eichengreen is another successful El Cerrito High School alum from the David Shearn generation.  He receives high praise from his UC Berkeley colleague Brad DeLong :
“Barry Eichengreen of the University of California at Berkeley, the National Bureau of Economic Research, and the Center for Economic Policy Research is without a doubt the world's leading expert on the international monetary economics of the Great Depression of the 1930s and, by virtue of that expertise, an expert on today. He is the only one still living of the four economists--Bagehot, Minsky, Kindleberger, and Eichengreen--whom last year Larry Summers told Martin Wolf knew the most about what has happened to the world economy since 2007.”
Wow. And my sister-in-law Wendy gets to play flute with him. Cool.

Thanks to Wendy and her husband Pat I just ran across his article in The National Review reviewing the Ron Paul arguments for why we should return to the gold standard.  Although the Ron Paul delegates are acting up at the GOP convention today, Paul Ryan, of course, is the current poster child for this brand of nonsense.  So, although the article is a year old, the arguments are timeless and the GOP adoption of a proposal to study a return to the gold standard at the current convention gives it fresh currency.

Eichengreen is very, very polite.  But the inescapable conclusion he leads us to is that the Paul Ryan school of economics which advocates a return to the gold standard is bankrupt of good ideas. After examining the pro-gold standard arguments with patience to a fault, Eichengreen's bottom line is that there is no argument to be made for it. He is the kind uncle to Krugman, DeLong, and Reich’s more hot tempered (and entertaining) manner of family feuding.

The Ryan prescription for stimulating the economy--and is it or is it not Romney's now--is for government to do nothing.  Romney/Ryan want to be the do nothing team!  Boehner/Cantor want to lead a do nothing Congress. Trouble is, as Eichengreen points out, doing nothing in time of economic depression inflicts pain on everyone through severe unemployement.   Economists actually do know some things, and one thing they know is that inflicting pain by severe unemployement is not the best way to curb the over-exuberance of financial markets.  They also know that precipitating depression, as Ryan's medicine would do, is not the most expeditious way to cure bank and corporate balance sheets. 

It's better for government to act proactively to stabilze economic activity and to encourage strong expansion of the economy so debtors can grow out of bad debt.  It's better for government to help the economy recover now and regulate better later. 

The modern GOP prefers for government to regulate worse now, regulate less in future, and precipitate deflation now through deep spending cuts.  They would like to enact measures, like returning to the gold standard, that would prevent future Fed holdings and that would prevent significant Fed involvement in the economy in future.  So says the news.  So says Eichengreen, politely.

These people don't deserve such politeness. 

Saturday, August 11, 2012

Corporate Management: Monkey in the Middle Between Shareholders and the Public Good

Nick Nocera in the NYT has an article that points to the new movement in business schools that turns the paradigm of corporate purpose on its head. My friend Victor says:
Not sure where I stand on this. It would be easy to wrap every failure with the term stewardship in the short to medium term.
Victor’s friend Mark gets his dander up, but in a very nice corporate lawyer kind of way:
Victor: Corporations are legal fictions by which investors (“shareholders”) turn over their money to others (directors, officers and employees) to earn a profit without the investors being liable for the obligations of the corporation. The only purpose of a corporation is to make money for the shareholders, and that is very clear in Delaware corporation law. However, in order to do that the corporation must properly incentivize management, employees and the communities in which the corporation operates.

This is not a debate about “shareholder value;” it is a debate about how best to incentivize the management, employees and communities to help earn that profit. There is no “one size fits all” answer to this incredibly complex question. It depends on the nature of the business and the corporate culture that best suits the shareholders’ long term interests. For example, the incentives at Proctor & Gamble or Pacific Gas & Electric should be different from the incentives at the latest Silicon Valley tech company to go public. Current SEC regulations make it very difficult to shape different incentive arrangements, but it can be done.
Mark says there are questions of how best to incentivize management, and the short, medium, or long term maximization of shareholder value, and ancillary benefits, like jobs, and payment of taxes flows from the enterprise—but it’s all about shareholder value.  But Nocera references the debate in my last post which questions the gospel conflating corporate interest with shareholder value.

One reason we can't conflate corporate interest with shareholder value is that shareholders come and go on a short cycle, whereas corporations have long term existence. Shareholders jump on the bus for a time while the ride is smooth and quick, but they soon jump off when it gets too bumpy or curvy, even as the bus lumbers on down the road, or gets stuck in the mud for a time. Another reason is that shareholders receive immunity from personal liability for their investment in a corporation courtesy of the state, and that is ultimately a political question.

It is by the grace of our social contract that shareholders receive immunity by investing in corporations. By dint of that social contract we can shift the emphasis of what corporations are about. That's what Lorsch at Harvard business is doing, as quoted by Nocera, when he says that “the function of business in a society is not just a return to investors, but to provide goods and services, provide employment, pay taxes, and so on.” He is questioning the conflation of corporate purpose with maximization of shareholder price.

Nocera suggests that the gospel of conflating corporate purpose with maximizing shareholder value started with T. Boone Pickens and other corporate raiders in the 80’s. The first English joint stock company was the The Russian Company, formed to search for the Northwest Passage. If it failed, the stockholders would not be personally liable for debts (loans for the outfitting of ships and so on); if it succeeded it would make them fabulously wealthy. However, the reason this protection was granted to The Russian Company is that discovery of the NW Passage would also be of great benefit to English trade and English society. So is was the company’s purpose purely private (shareholder price maximization) or was it partly private and partly public (because discovery of the NW passage would also be of great benefit for English society as a whole)?

The Hudson’s Bay Company, founded in 1670, is reported to have served as a de facto government in parts of North America for a time. That sounds like partly public, partly private. Today, the company continues to operate as a retail trade empire in Canada. Is that a purely private purpose, or does a larger public stake in this company continue?

The “movement” identified by Nocera, and reflected in my last post, argues that in exchange for receiving protection from shareholder liability, corporations must serve a public purpose. The state grants the corporate franchise because the corporate business provides rewarding and good paying jobs and other socially positive things, not because it maximizes shareholder value. The creation of shareholder value is a necessary condition for long-term corporate health. A Corporation won’t be around for long unless it makes money for shareholders. On the other hand, a corporation can take the long view and create meaningful work, pay taxes, be a good stewart of the environment, and all the rest, and be around for the long term, without necessarily maximizing shareholder profit.

Both society and shareholders have a claim on corporations. Corporate managers, therefore, must mediate between the two. One small way to do this is, as my friend Will Cummings points out, is for corporate management to take the long view and not be driven by short term shareholder value.

The corporate raiders of the world, or (euphemistically speaking) Romney and Ryan, would take corporate mangagement to task for failing to maximize shareholder profits in the short and medium term.  In order to give cover to corporate mangers from shareholder lawsuits complaining about this, social do-gooders have started the Benefit Corporation movement.  (Hat tip to CMF)

Here's the Wikipedia entry:
Benefit corporations must create a material positive impact on society, and consider how their decisions affect their employees, community, and the environment. Moreover, they must publicly report on their social and environmental performances using established third-party standards.

The chartering of benefit corporations is an attempt to reclaim the original purpose for which corporations were chartered in early America. Then, states chartered corporations to achieve a specific public purpose, such as building bridges or roads. Their legitimacy stemmed from their delegated charter, although they could still earn profits while fulfilling it.  Over time, however, corporations came to be chartered without any public purpose, while their purpose degraded to one of being legally bound to the singular purpose of profit-maximization for its shareholders. Advocates of benefit corporations assert that this singular focus has resulted in a variety of societal ills, including the thwarting of democracy, diminished social good, and negative environmental impacts. 
Maryland was the first state to adopt such a statute in 2010, and several states have adopted them since.  However, it is unlikely that your average Fortune 500 company will change its charter to a Benefit Corporation anytime soon.

The point of the movement identified by Nocera in his article today, and by the articles and talk discussed in my last post, below, is that ultimately all corporations are public benefit corporations.  Corporate management owes a duty to the public good as well as to shareholders.

Stay tuned whether Romney's selection of Ryan will move this discussion forward, or not.

Monday, July 23, 2012

Jeff VanDuzer, Ross Douthat, and Daniel Pink: Toward a Liberal Christian Conception of Business

In a recent article in the NYT, Ross Douthat asks can liberal Christianity be saved?  The vibrant mega-churches are politically conservative but theologically shallow, teaching a message of health and wealth, he notes.   But on the liberal end of the spectrum, the Episcopal Church has suffered precipitous drops in membership and Sunday worship as it has become more and more liberal. 

“But if conservative Christianity has often been compromised, liberal Christianity has simply collapsed. Practically every denomination — Methodist, Lutheran, Presbyterian — that has tried to adapt itself to contemporary liberal values has seen an Episcopal-style plunge in church attendance. Within the Catholic Church, too, the most progressive-minded religious orders have often failed to generate the vocations necessary to sustain themselves.”
What should be wished for, says Douthat, is that liberal Christianity should recover a religious reason for its existence, one deeply rooted in Bible study and the traditions of the faith. 
“Today …the leaders of the Episcopal Church and similar bodies often don’t seem to be offering anything you can’t already get from a purely secular liberalism. Which suggests that perhaps they should pause, amid their frantic renovations, and consider not just what they would change about historic Christianity, but what they would defend and offer uncompromisingly to the world.”
Jeff VanDuzer, a high school class-mate of Bobbi’s, offers one such vision.  He is Dean of the School of Business at Seattle Pacific University, a small Christian College.  In an inspiring lecture at the Redeemer Community’s CFW Gospel & Culture lectures in New York City, on May 18, 2012, he turns on its head the dominant business paradigm that the mission of business is to maximize return on investment for shareholders:  the mission of business is to serve all stakeholders in an enriching and sustainable manner.   Generating profits are a necessary tool to serve that end, but he freely acknowledges that the profit maximizing goal and the sustainable enrichment goal of business won’t always lead to the same place. 

VanDuzer roots his view in a close liberal reading of the bible.  But, as Douthat suggests, one can surely root such a view of sustainable and meaningful and enriching business in purely secular liberalism.  We don’t need God to tell us that meaningful work, and business that is creative and sustainable across a broad spectrum of modern secular values, is a positive thing.  We can root the idea that business should promote the opportunities for rewarding and sustaining work in self-interest and notions of justice rooted in the social contract.  It takes a village.  These values are not more noble if rooted in the glory of God than in liberal secularism, as Douthat seems to suggest; and they are not less noble for being rooted in a liberal conception of Christianity. 

Daniel Pink, failed lawyer and ex-speech writer has a TED lecture with 3.7 million hits on the “Surprising Science of Motivation.”   The hits are a story in themselves:  VanDuzer’s talk, is far deeper, more profound, more inspirational; it has 30 hits.  Go figure!  Anyway, Pink shares the good observation that studies show (it’s TED, it must be true) that incentivizing workers to solve cognitive tasks is counterproductive.  If you give a bonus for faster performance, you’ll get slower problem solving.  The reason is that cognitive problems require workers to have a broad view, to look for solutions in surprising ways and places.  It turns out incentivizing for speed causes workers to focus in close, thus missing the big picture, missing the innovative, surprising solution.  

Pink suggests that what workers want from work is three things:  1) autonomy, 2) mastery, and 3) purpose.  Purpose … that is the same message that VanDuzer has for business.  The purpose of business is to offer rewarding work to all stakeholders in a sustainable way, says VanDuzer.  In order for workers to find work rewarding, work must have a purpose, and workers must be allowed to pursue this purpose in an autonomous way.  The bottom line counts, but it’s not about the bottom line.  It’s about purpose, and the journey… and sustainability.

If Christianity can find it’s way back from the current view that equates Adam Smith’s invisible hand with the hand of God, to a liberal Christian view that business, in order to serve the Kingdom of God, must serve all stakeholders (broadly defined) in a sustainable manner, this will be a good thing.  If that means Christianity shrinks, and we base a concept of rewarding sustainable work on the “merely secular,” that will be o.k. too.  

Friday, July 6, 2012

High politics vs. Low politics

The Sturm und Drang on the right continues about Justice Roberts' switching sides to become the swing justice upholding the healthcare act. The right is accusing Roberts of selling out his principles for political considerations. 

To the extent that Roberts acted from political motives, and surely this played a big role in this decision, he was playing high politics. He acted in the interest of the court and the nation and contrary to his partisan interest. High politics is unavoidable and often necessary.

T-A-S-K (Thomas, Alito, Scalia, and Kennedy) engaged in low politics. The charge, and it is as serious a charge as it is plausible, is that if the ACA had been proposed by a Republican Congress and Republican President there would have been a 9-0 vote to uphold it. To the extent that this is true, whether they admit it to themselves or not, T-A-S-K acted from low partisan political motives. Low politics undermines the court and the rule of law.

Friday, February 17, 2012


I was on an early flight to Los Angeles last Tuesday. Entering the air space of the LA Basin, the sun had just risen over the eastern desert giving the crisp winter air a warm glow. No smog on this day. Light and shadows were crisp and clear past Newport Beach to the south, Avalon to the west, Claremont, Pomona, and Chino Hills State Park to the East, and the Angeles National Forest to the north. Glorious. We descended down the southern flank of the Santa Monica Mountains, over Hollywood, the comfortably spaced skyscrapers of downtown Los Angeles, made a leisurely semicircle over the great expanse of Vernon warehouses, and turned back west over miles and miles of flat residential blocks that cover the expanse of this coastal plain on the approach to LAX.

LAX on the ocean’s edge looms like a landing strip for space aliens in the film Chariots of the Gods, pointing to Japan. I had time in hand and decided to stay off the freeways and drove directly north from the airport through the maze of middle class suburban streets of Westchester: parents walking kids to elementary and middle school, tree lined suburbia. Pepperdine, nestled near the I-405, and Loyola Marymount on the bluff overlooking Marina Del Rey, have supplanted defense industries.

Public spaces of L.A. are focused on its beaches: Venice, Ocean Park, and cosmopolitan Santa Monica. But inland across the basin the public commons are highly commercialized and unnatural. There is the spider web of freeways, golf courses and cemeteries; there is Dodger stadium, Staples Center, the Angels baseball stadium, and Disneyland; there is the Getty museum and Disney Concert Hall; USC and UCLA. But no river runs through it, and no Bois de Vincennes, Bois du Boulogne, or Golden Gate Park provide respite and balance. It’s cars, and motorcycles, speedways, and sports stadiums, tall buildings, all in filled with suburbia. It’s what gives LA it’s hard libertarian, motorized edge, and distinguishes it from San Francisco, a much more European city.

San Francisco is dominated by its parks: Crissy Field, Fort Mason, the Presidio, Golden Gate Park, Buena Vista Park, Duboce Park, Tank Hill, Kite Hill, Alamo Square, Dolores Park, Glen Park Canyon, Twin Peaks, and lots of small neighborhood parks in between. San Francisco, a city of renters, lives in its parks. There are dog parks, skateboarding parks, kite flying parks, hang-gliding parks, and hiking parks. There are parks for drum circles and parks for Tai Chi. There are public stairs up and down the hills of San Francisco, up to Telegraph Hill, through Chinatown, to Nob Hill, and down to the Castro. People walk, they run, they play tennis, they drum, they sleep. Citizens walk through the city to the museums, to the theater, to restaurants near and far. San Francisco has its Ocean Beach, and Baker Beach, but these are much colder and more rugged, almost Northwest. On sunny warm days we migrate to the ocean, but more commonly, public life in San Francisco is focused on the green public spaces woven into the fabric of the city. San Francisco’s private golf courses are shoved to the extreme southwest, almost out of the city into the ocean. Our football stadium is near an old naval yard on the opposite, southeast side of the city, and it will soon go away altogether. We have a baseball stadium, but it is urban. People go there by BART, by Muni, by walking. There is more parking for boats in Covey Cove than parking spaces for cars. It’s what gives San Francisco it’s collective, Bohemian edge. It makes us elect Nancy Pelosi.