Remember Animal Farm?
In his dystopian allegory, George Orwell takes us on a journey to another land where the pigs rule, the other animals work, and gradually, through trickery and force, the pigs re-write history and take unearned rewards to cushion their lives. The remaining animals suffer, but somehow continue their allegiance to both the pigs and the ideology they spout. Even as they die, broken, they somehow believe that they inhabit the best of possible societies, and the changes that would improve their lot, so readily seen by an outside observer, go unrealized.
When we read the tale, we were certain that it referred to communist Russia. It was a cautionary tale, but we always took it as caution against communism, for the evils portrayed in Animal Farm were seen as a direct (and unavoidable) consequence.
Perhaps we were wrong, or too narrow minded.
For along has come Andrew Ross Sorkin, and he has retold the tale in his latest book. The setting has moved to a modern democratic capitalist nation, but the pigs still rule, still write history. Sorkin has spiced it up with the feel of a modern spy novel, with multiple parallel threads racing towards some convergence – as we read, we get swept up in the contributory actions of the characters, fearful of the outcome.
The story traces the trajectory of an impending financial collapse – the industry in which pigs are employed. As the pigs gather and take actions to stave off banking failures, we see the Animal Farm rubric of 'All animals are equal, but some are more equal' replaced with 'All corporations are equal under the law, but some are Too Big To Fail' – from which Sorkin titles his book.
Money is transferred from the workers (equines) to the bankers (pigs) under the guise that all will suffer if it isn't done. As they decry the horror that has potentially befallen them, the pigs line their pockets with bonuses and golden parachutes, and all across the country, the equines, instead of dropping dead from overwork, are sent home without jobs, to lose their homes, possessions, and dignity.
To illustrate how much control the pigs have, in one memorable sequence, a candidate for major public office (for this nation apparently has open, democratic elections), suspends his campaign to rush to the capital to do the pig's bidding, to insure that sufficient money is transferred from the workers to the bankers. Imagine!
Such is the pig's control that in the end of the book, the government itself is used as a major transfer mechanism to undermine the country's underpinnings of meritocracy and equality. As the book closes, the pigs are shaken, but unrepentant, and Sorkin has updated a major allegory to demonstrate how greed and unearned privilege are dangers that tear and subvert the well functioning of society.
What is most disquieting in Sorkin's retelling is that it leaves a reader with the sense that, like the original, the events are not the outcome of a fertile imagination, but rather they are a close approximation of real events in a real nation. This nation, too, not unlike our own, is decidedly uncommunist, and yet the outcome was the same as in Animal Farm. So, we must honestly confront the question:
Could It Happen Here?
Sunday, March 21, 2010
Saturday, March 20, 2010
Influential Books
I was going to do a post on Orwell, but it will have to wait. As too frequently happens, I stumbled upon something tonight that ended up taking a fair amount of my time, and I have precious little left for serious writing.
It was this post by Matthew Yglesias on the 10 books that influenced him most. Not necessarily his 10 favorite, or the 10 best that he's read, but the 10 that influenced his future thinking the greatest amount.
Seeing Nietszche, Dennett, Dostoevsky, Rorty, and Kuhn in his list made me read on. And On, through the comments, where quite a lively (and uncommonly civilized) discussion of the relevance of various philosophers and writers is occurring.
There are interesting references in there, too: Julian Jaynes, Wittgenstein, Quine, Chomsky, Rawls. Foder, Davidson, and Nagel make the list, also, as the various commenters reveal different influences, and discuss why.
It was refreshing to see an actual exchange - and others putting up their lists. More books, more ideas to meet and digest! I'm often disappointed in what I run across on the web (or, more accurately, the blogosphere) - I imagine that with blogging, people putting up ideas, discussing, proposing, etc. that it could be a wonderful re-creation of the free-for-all discussions that took place in the common room during my college days as we grappled to understand the information pouring at us. Too frequently, however, it's a reasonable post by someone positing or proposing an idea (or attempting to back one up), and a lot of name calling and ad hominem attacks following.
There's an interesting question here, too: Will the next generation provide a list of their 10 most influential books, or will digital media change it to their 10 most influential sites? Or, in the hopeful words of Yglesias, "...I hope and think digital media will mostly crowd out relatively low-value book-reading experiences and still leave room for some of the big deal reads."
I still can find no substitute for the reward that comes from engaging for a serious time an author's ideas by grappling with a large-scale book of ideas, and so, I'm inclined to suspect that he is correct.
It was this post by Matthew Yglesias on the 10 books that influenced him most. Not necessarily his 10 favorite, or the 10 best that he's read, but the 10 that influenced his future thinking the greatest amount.
Seeing Nietszche, Dennett, Dostoevsky, Rorty, and Kuhn in his list made me read on. And On, through the comments, where quite a lively (and uncommonly civilized) discussion of the relevance of various philosophers and writers is occurring.
There are interesting references in there, too: Julian Jaynes, Wittgenstein, Quine, Chomsky, Rawls. Foder, Davidson, and Nagel make the list, also, as the various commenters reveal different influences, and discuss why.
It was refreshing to see an actual exchange - and others putting up their lists. More books, more ideas to meet and digest! I'm often disappointed in what I run across on the web (or, more accurately, the blogosphere) - I imagine that with blogging, people putting up ideas, discussing, proposing, etc. that it could be a wonderful re-creation of the free-for-all discussions that took place in the common room during my college days as we grappled to understand the information pouring at us. Too frequently, however, it's a reasonable post by someone positing or proposing an idea (or attempting to back one up), and a lot of name calling and ad hominem attacks following.
There's an interesting question here, too: Will the next generation provide a list of their 10 most influential books, or will digital media change it to their 10 most influential sites? Or, in the hopeful words of Yglesias, "...I hope and think digital media will mostly crowd out relatively low-value book-reading experiences and still leave room for some of the big deal reads."
I still can find no substitute for the reward that comes from engaging for a serious time an author's ideas by grappling with a large-scale book of ideas, and so, I'm inclined to suspect that he is correct.
Saturday, March 13, 2010
Hypothesis Testing
I've often wondered if the changes in the size of government could really be attributable to the party in power. Said another way: Could an outside observer use data over our history to accurately discern which party was in power by looking at the changes in the size of government?
To test this, we need a hypothesis. I submit the null hypothesis:
There is no statistical difference between the growth in government dependent upon the party in power.
Mathematically, if we sum the changes in government size and compute the averages when the Republicans are in power, and the average when the Democrats are in power, we have:
Average Republican Growth – Average Democratic Growth = 0.
I gathered the following information: Yearly GDP, Yearly Federal Government Outlays, and who holds the office of the President, and the majority of each house of Congress, all for the past 40 years.
For purposes of government size, I divided Yearly Fed Gov Outlays by Yearly GDP. This normalizes the size and removes changes due to inflation (and presumable, population growth). Interestingly, The size of our Federal government has been relatively constant, moving between 18.84% in 1970, 22.86% in 1983, 19.78% in 2000, and back to 20.66% in 2008.
For Party in power, I decided that it would be two out of three: Whichever party held at least two of: Majority of Senate, Majority of House, and Presidency, would be tagged as the party in power.
Also, since budgets (hence Federal outlays) are done for the following year, I imposed a one year lag between when a party rises to power and when they effect the size of government. So, we have the following:
1970 – 1981: Democratic
1982 – 1987: Republican
1988 – 1995: Democratic
1996 – 2007: Republican
2008 – on: Democratic
What we are going to do then is compute the averages, the standard deviations, and run a standard double tailed hypothesis test, to see if we can reject the null hypothesis (i.e., that instead Average Republican Growth – Average Democratic Growth is NOT equal to zero.) We'll use a 95% confidence interval, which will answer the question: Can we say with 95% certainty that the difference is not zero?
Computed Data:
Republican: Average – 99.62%; Median – 99.32%, Standard Deviation: .0307
Democratic: Average – 101.86%; Median – 99.92%, Standard Deviation: .0557
(Interestingly, more than half the time, government decreases under either party, hence the medians below 100%. For the Republicans, 11 of 18, for the Democrats, 12 of 22)
To reject the null hypothesis at 95% confidence, the normal distribution table says we need a value of greater than 1.96 after we compute the answer to the equation:
Ave D – Ave R / SQRT((R stddev squared / 18) + (D stddev squared / 22))
And we get?
1.61.
Since 1.61 < 1.96, we cannot reject the null hypothesis at 95% confidence that the two are indeed different. So, my hypothesis withstands statistical analysis. An outside observer cannot discern the party in power by looking at changes in the size of the Federal government, because there is not enough evidence that the underlying distributions are different.
What about relaxing the statistical standards? For instance, could we reject the null hypothesis at 90%?
No. Although it is really close – we would need a value greater than 1.64.
So – What does this say? Basically, we cannot determine, with certainty, that the difference between the averages reveals an actual underlying difference between the two distributions. The two overlap almost entirely – and that there is a slight difference today between the averages may very well be an aberration. Or maybe not. We would need more data covering the time frame in question. However, there is no more data – we've got all 40 years. Data from previous to 40 years ago may help answer the question: In the past, was there a difference, that is gone today? But it doesn't directly help us today.
There is something interesting here, too. The computed value doesn't meet the requirements for a 90% confidence, but it is really close. You might be tempted to think that there is an actual difference – and that perhaps the inclusion of state government data would push it over. And that may be true. But what I find intriguing is that it was an outcome of a very similar nature that had everyone saying that the Global Warming hypothesis was null. If you recall, one of the scientists revealed that the near-term data (last 15 years), just missed the mark for the 95% confidence interval, and so he couldn't reject the null hypothesis on that data alone.
Perhaps you agree. Perhaps you'd like to declare Global Warming dead. But understand this: There is statistically more evidence for Global Warming than there is that Republicans and Democrats influence the overall size of government differently.
Footnote: I did not expect this outcome. Like almost everyone I know, I really expected that the data would damn the Democrats, and that our conventional wisdom would be upheld. I had started to suspect that it may not be fully true during the last decade, and especially recently. I will have to gather more data – I suspect now that the source of our conventional wisdom was planted during the 1930's – that government did grow, but its size appears to have stabilized.
I was tempted too to not include the past two years. 2009 was the only year during the 40 I looked at were GDP fell – which if used as a yardstick imposes an enormous growth on government even if it maintains the same dollar outlays – which it didn't, due to the stimulus bills. But that reveals even more that differences in size are more likely due to other causes than the party in power: 2009's 19% growth goes against the Democrats, and if the underlying distribution can absorb a value that far off the average without pushing it past the 90% confidence interval, then the null hypothesis is very, very solid.
To test this, we need a hypothesis. I submit the null hypothesis:
There is no statistical difference between the growth in government dependent upon the party in power.
Mathematically, if we sum the changes in government size and compute the averages when the Republicans are in power, and the average when the Democrats are in power, we have:
Average Republican Growth – Average Democratic Growth = 0.
I gathered the following information: Yearly GDP, Yearly Federal Government Outlays, and who holds the office of the President, and the majority of each house of Congress, all for the past 40 years.
For purposes of government size, I divided Yearly Fed Gov Outlays by Yearly GDP. This normalizes the size and removes changes due to inflation (and presumable, population growth). Interestingly, The size of our Federal government has been relatively constant, moving between 18.84% in 1970, 22.86% in 1983, 19.78% in 2000, and back to 20.66% in 2008.
For Party in power, I decided that it would be two out of three: Whichever party held at least two of: Majority of Senate, Majority of House, and Presidency, would be tagged as the party in power.
Also, since budgets (hence Federal outlays) are done for the following year, I imposed a one year lag between when a party rises to power and when they effect the size of government. So, we have the following:
1970 – 1981: Democratic
1982 – 1987: Republican
1988 – 1995: Democratic
1996 – 2007: Republican
2008 – on: Democratic
What we are going to do then is compute the averages, the standard deviations, and run a standard double tailed hypothesis test, to see if we can reject the null hypothesis (i.e., that instead Average Republican Growth – Average Democratic Growth is NOT equal to zero.) We'll use a 95% confidence interval, which will answer the question: Can we say with 95% certainty that the difference is not zero?
Computed Data:
Republican: Average – 99.62%; Median – 99.32%, Standard Deviation: .0307
Democratic: Average – 101.86%; Median – 99.92%, Standard Deviation: .0557
(Interestingly, more than half the time, government decreases under either party, hence the medians below 100%. For the Republicans, 11 of 18, for the Democrats, 12 of 22)
To reject the null hypothesis at 95% confidence, the normal distribution table says we need a value of greater than 1.96 after we compute the answer to the equation:
Ave D – Ave R / SQRT((R stddev squared / 18) + (D stddev squared / 22))
And we get?
1.61.
Since 1.61 < 1.96, we cannot reject the null hypothesis at 95% confidence that the two are indeed different. So, my hypothesis withstands statistical analysis. An outside observer cannot discern the party in power by looking at changes in the size of the Federal government, because there is not enough evidence that the underlying distributions are different.
What about relaxing the statistical standards? For instance, could we reject the null hypothesis at 90%?
No. Although it is really close – we would need a value greater than 1.64.
So – What does this say? Basically, we cannot determine, with certainty, that the difference between the averages reveals an actual underlying difference between the two distributions. The two overlap almost entirely – and that there is a slight difference today between the averages may very well be an aberration. Or maybe not. We would need more data covering the time frame in question. However, there is no more data – we've got all 40 years. Data from previous to 40 years ago may help answer the question: In the past, was there a difference, that is gone today? But it doesn't directly help us today.
There is something interesting here, too. The computed value doesn't meet the requirements for a 90% confidence, but it is really close. You might be tempted to think that there is an actual difference – and that perhaps the inclusion of state government data would push it over. And that may be true. But what I find intriguing is that it was an outcome of a very similar nature that had everyone saying that the Global Warming hypothesis was null. If you recall, one of the scientists revealed that the near-term data (last 15 years), just missed the mark for the 95% confidence interval, and so he couldn't reject the null hypothesis on that data alone.
Perhaps you agree. Perhaps you'd like to declare Global Warming dead. But understand this: There is statistically more evidence for Global Warming than there is that Republicans and Democrats influence the overall size of government differently.
Footnote: I did not expect this outcome. Like almost everyone I know, I really expected that the data would damn the Democrats, and that our conventional wisdom would be upheld. I had started to suspect that it may not be fully true during the last decade, and especially recently. I will have to gather more data – I suspect now that the source of our conventional wisdom was planted during the 1930's – that government did grow, but its size appears to have stabilized.
I was tempted too to not include the past two years. 2009 was the only year during the 40 I looked at were GDP fell – which if used as a yardstick imposes an enormous growth on government even if it maintains the same dollar outlays – which it didn't, due to the stimulus bills. But that reveals even more that differences in size are more likely due to other causes than the party in power: 2009's 19% growth goes against the Democrats, and if the underlying distribution can absorb a value that far off the average without pushing it past the 90% confidence interval, then the null hypothesis is very, very solid.
Monday, March 1, 2010
Article V
The other day we were discussing whether or not populist democracy was allowed in America. We all know that our government properly labeled is a representative democracy. Most of the time, that is what we want, too: Let our elected officials design and debate the laws that will govern. The majority of us lack the training, expertise, (and often the interest!) to really consider a law, its potential ramifications, and think outside our own self-interest to determine if it may be good for society.
However, Colorado's Constitution has been used in recent years to promulgate a kind of popular democracy. A friend had heard that someone was going to bring a lawsuit against that behavior under the grounds that we are not a populist democracy, and that such lawmaking by the people was unconstitutional.
As he pointed out, too, such lawmaking has the flavor of lawmaking by coin-toss: The resultant laws seem almost random, unconsidered. Might it be better to let our elected officials make the laws, and defer to a representational form of government?
As a side project, I'm working my way through Akhil Reed Amar's "America's Constitution: A Biography". In one of those wonderful coincidences, I was to the section that discusses Article V - Which outlines the manners in which the Constitution should be amended.
So, I read with great interest Amar's recounting of the facts of Article V's Text, the history the surrounded it, and even more, as he delved into exactly this topic!
Article V sets out that amending the National Constitution can be done by a two-thirds convention of Congress, which must then be approved by three-fourths of the states. And here's where a little ambiguity and interest sets in. Although it would indicate that the approval process would be done by the elected officials, it doesn't exclusively say that must be so. And, Amar points out: The Constitution itself was ratified by popular vote. Would it not be reasonable for the people to retain and return to popular democracy when the need arose?
Contemporary arguments at the Nation's founding by James Wilson would also back that up. Wilson argued that "The people may change the constitution whenever and however they please. This is a right of which no positive institution can ever deprive them." "A majority of society is sufficient for this purpose." Furthermore, Wilson's arguments where supported by the actions of many state legislatures as they re-wrote and subsequently amended their constitutions after the ratification of our new, National Constitution. Populist Democracy was in the air.
It would be unfortunate if a ruling was made that we couldn't alter our laws by popular vote: It would give a monopoly to lawmakers, who could then alter the underlying structures of government to give themselves new, greater powers - perhaps even to post-pone elections, change voting requirements, so that they could no longer be held accountable through regular elections and removed when we grew tired of them, or determined that we wanted society (and its laws) to proceed in a new direction.
So, although I agree that in general we (as in the general populace) shouldn't be making our laws, I fully believe that we need to retain the power and the possibility of full popular, or direct, democracy.
The matter is hardly settled, either. Amar indicates that James Madison's opinion is currently more popular: That Article V supplants our right to direct democracy (rather than supplements and implements it). But, as he says, there is still a lot of constitutional history to be written. And, Amar points out that interpreting the Constitution by looking at contemporary laws, both those that fed into its drafting and those that were not considered, shows us that our Founders had a different, and in many ways, much more populist idea of how democracy should be.
References: Amar, Akhil Reed. America's Constitution - A Biography. Random House, 2005. Pages 302-305. Quote page 303.
However, Colorado's Constitution has been used in recent years to promulgate a kind of popular democracy. A friend had heard that someone was going to bring a lawsuit against that behavior under the grounds that we are not a populist democracy, and that such lawmaking by the people was unconstitutional.
As he pointed out, too, such lawmaking has the flavor of lawmaking by coin-toss: The resultant laws seem almost random, unconsidered. Might it be better to let our elected officials make the laws, and defer to a representational form of government?
As a side project, I'm working my way through Akhil Reed Amar's "America's Constitution: A Biography". In one of those wonderful coincidences, I was to the section that discusses Article V - Which outlines the manners in which the Constitution should be amended.
So, I read with great interest Amar's recounting of the facts of Article V's Text, the history the surrounded it, and even more, as he delved into exactly this topic!
Article V sets out that amending the National Constitution can be done by a two-thirds convention of Congress, which must then be approved by three-fourths of the states. And here's where a little ambiguity and interest sets in. Although it would indicate that the approval process would be done by the elected officials, it doesn't exclusively say that must be so. And, Amar points out: The Constitution itself was ratified by popular vote. Would it not be reasonable for the people to retain and return to popular democracy when the need arose?
Contemporary arguments at the Nation's founding by James Wilson would also back that up. Wilson argued that "The people may change the constitution whenever and however they please. This is a right of which no positive institution can ever deprive them." "A majority of society is sufficient for this purpose." Furthermore, Wilson's arguments where supported by the actions of many state legislatures as they re-wrote and subsequently amended their constitutions after the ratification of our new, National Constitution. Populist Democracy was in the air.
It would be unfortunate if a ruling was made that we couldn't alter our laws by popular vote: It would give a monopoly to lawmakers, who could then alter the underlying structures of government to give themselves new, greater powers - perhaps even to post-pone elections, change voting requirements, so that they could no longer be held accountable through regular elections and removed when we grew tired of them, or determined that we wanted society (and its laws) to proceed in a new direction.
So, although I agree that in general we (as in the general populace) shouldn't be making our laws, I fully believe that we need to retain the power and the possibility of full popular, or direct, democracy.
The matter is hardly settled, either. Amar indicates that James Madison's opinion is currently more popular: That Article V supplants our right to direct democracy (rather than supplements and implements it). But, as he says, there is still a lot of constitutional history to be written. And, Amar points out that interpreting the Constitution by looking at contemporary laws, both those that fed into its drafting and those that were not considered, shows us that our Founders had a different, and in many ways, much more populist idea of how democracy should be.
References: Amar, Akhil Reed. America's Constitution - A Biography. Random House, 2005. Pages 302-305. Quote page 303.
Thursday, February 18, 2010
Curbing CEO Pay
We want an America where hard-work, intelligence, and accepting responsibility get you ahead. I should add 'honest' before both the hard-work and the responsibility. But the Randian philosophy that CEO's, and especially banking CEO's, are earning their money because of those qualities, and that in so doing they are providing a useful service has been severely strained during the past year.
With apparently reckless abandon, the major banking institutions increased their risk exposure, and the system of CEO compensation not once put on the brakes as hoped. So, we all know the outcome: Men like Jamie Dimon, Lloyd Blankfien, Dick Fuld earned $100 of millions before the companies they ran went insolvent (oh, wait: They didn't actually have to declare bankruptcy, we bailed them out!) With no money back for our effort.
How can CEO pay be restructured so that it provides the proper incentives to the individuals running the show? How can it require longer term exposure, so that risky bets that pay short term (but may fail spectacularly later) are fully carried as a liability to the CEO, so that they have to wait for maturity also to get paid?
I've had some ideas, but I really like it when those more familiar with the financial system get involved. So I was particularly interested to read this open letter from Yves Smith (of naked capitalism) to Sheila Bair (Chairwomen, Federal Deposit Insurance Corporation). She starts out with some good observations, specifically that we (the communities) end up paying the excessive CEO pay without a good return:
Along the way, Ms. Smith observes that 'every academic study' that she has seen on bank size is inversely correlated: Bigger banks do not gain an efficiency that allows them to run cheaper, contrarily, they have higher cost to asset ratios. But, it balloons executive pay (and the outgoing execs as the result of a merger are given hefty golden parachutes.)
And so to the meat of her request:
There's substantially more, plus a link to the current FDIC proposal, along with enlightened remarks by many readers at naked capitalism.
Let's face it: Any institution that has grown 'Too Big Too Fail' is really just too big to exist under our current scheme, for the monopolistic power it then holds over the entire economy suppresses advancement, both for individuals and society. If the incentives for executive pay give them incentives to grow their companies without regard to long term survivability or potential damage to other entities and communities, then those incentive structures are wrong.
Because our goal is a wealthy society, as much as possible free from the scourges of poverty, and because the means to achieve that goal have been to allow individual monetary enhancement does not mean that we can't curb individual takings when those takings prove disastrous to our goal. I'm heartened that there is finally some work being done - although this is only a first step, unless we can remove the spectre of 'Too Big Too Fail', we will always have to live with the threats of Deep Recessions or future Depressions.
Good Work, Yves!
With apparently reckless abandon, the major banking institutions increased their risk exposure, and the system of CEO compensation not once put on the brakes as hoped. So, we all know the outcome: Men like Jamie Dimon, Lloyd Blankfien, Dick Fuld earned $100 of millions before the companies they ran went insolvent (oh, wait: They didn't actually have to declare bankruptcy, we bailed them out!) With no money back for our effort.
How can CEO pay be restructured so that it provides the proper incentives to the individuals running the show? How can it require longer term exposure, so that risky bets that pay short term (but may fail spectacularly later) are fully carried as a liability to the CEO, so that they have to wait for maturity also to get paid?
I've had some ideas, but I really like it when those more familiar with the financial system get involved. So I was particularly interested to read this open letter from Yves Smith (of naked capitalism) to Sheila Bair (Chairwomen, Federal Deposit Insurance Corporation). She starts out with some good observations, specifically that we (the communities) end up paying the excessive CEO pay without a good return:
Dear Chairman Bair,
America can no longer afford to have a banking system that serves the ends of its executives rather than those of taxpayers and communities who have been saddled with cost of reckless profit-seeking. The FDIC proposal to tie deposit insurance premiums to the incentives in executive compensation programs would be an important step forward towards making sure that bank managers operate in a way that reflects the value of the extensive government support and safety nets they enjoy. Bank officers should not be encouraged, as they are now, to take “heads I win, tails you lose” bets with deposits.
There is no question that the annual accounting/bonus cycle is badly out of line with the time horizon of many of the wagers that financial institutions take. Unfortunately, the belief that using stock options or restricted shares as an important part of compensation would lead to responsible behavior has proven wildly false. Both Bear Stearns and Lehman had substantial equity ownership at both the executive level and among the rank and file. By contrast, when Wall Street was dominated by private partnerships, so the management group was jointly and severally liable for losses, the sort of profligate risk-taking that took place in the run-up to the global financial crisis was virtually unheard of.
Along the way, Ms. Smith observes that 'every academic study' that she has seen on bank size is inversely correlated: Bigger banks do not gain an efficiency that allows them to run cheaper, contrarily, they have higher cost to asset ratios. But, it balloons executive pay (and the outgoing execs as the result of a merger are given hefty golden parachutes.)
And so to the meat of her request:
I strongly encourage the FDIC to remove the incentive for executives to bulk up their banks solely to pay themselves more. One way might be to require that executive bonuses be set in relationship to the pre-acquisition peer group for a substantial initial period (at least three years, better yet five) and be benchmarked against the new peer group of bigger banks only if the merged entity had met certain operational performance targets.
There's substantially more, plus a link to the current FDIC proposal, along with enlightened remarks by many readers at naked capitalism.
Let's face it: Any institution that has grown 'Too Big Too Fail' is really just too big to exist under our current scheme, for the monopolistic power it then holds over the entire economy suppresses advancement, both for individuals and society. If the incentives for executive pay give them incentives to grow their companies without regard to long term survivability or potential damage to other entities and communities, then those incentive structures are wrong.
Because our goal is a wealthy society, as much as possible free from the scourges of poverty, and because the means to achieve that goal have been to allow individual monetary enhancement does not mean that we can't curb individual takings when those takings prove disastrous to our goal. I'm heartened that there is finally some work being done - although this is only a first step, unless we can remove the spectre of 'Too Big Too Fail', we will always have to live with the threats of Deep Recessions or future Depressions.
Good Work, Yves!
Wednesday, February 10, 2010
On Bias
Tom Tancredo doesn't read my blog. Apparently, he should.
Although I've covered the subject of voting tests before, I think there's an additional point to be made – especially if someone in our government still thinks they are a good idea.
One of the difficulties that we face with our modern society is one of scale. There are so many people, with so much going on, that we realistically perceive only a slice of all that is occurring. If you are like me, you attempt to gather more information than just what's on the 5 o'clock news. But, if we're honest with ourselves, despite our sometimes voracious appetites for information, we're only gathering a subset. We don't know all the laws, all the interactions between the government and the population, all the intended and unintended consequences of those interactions.
And so, to a degree, we trust in the working of the institutions upon which our Constitutional Democracy is based. We trust that if the legislative branch passes a law that undermines our rights unduly, that would create inequality, or give too much power to groups rather than maintain it spread amongst all the people, that the executive branch would step in with its veto. If that doesn't happen, laws are challenged in court, and again, the judicial branch would rule against any law that doesn't comport with our ideals as set out in our Constitution.
One has to admit that it has worked fairly well. Despite the rather myopic understanding of personal freedom and democracy exhibited by our founding fathers, (John Adams ignoring his wife's pleas to “remember the ladies,” the 2/5ths clause concerning slavery, landowning requirements for voting), our institutions have endured, and in using them, participation in the process of democracy has been increased. Previously discriminated groups have had some of the most egregious discrimination lifted. Women no longer have to stay in poor, abusive, or violent marriages for financial reasons – they are recognized participants with rights to own and purchase property, work, and vote.
While it seems plausible that everyone should have some understanding of the workings and history of our government, since none of us can gather it all: Which subset is the important subset over which we should test? Does it really matter if someone can't name a single dead white guy who once held the office of president? If you've never had to go to court, and can't name the local judge, is your understanding of government deficient? If you can't recite the fifteenth amendment to the constitution in its entirety, trusting instead that those who study and practice law can, should you no longer able to participate in democracy?
Through my life's experiences, through the people I've met, the subjects I've studied, I find myself most interested in how we can build a society of equality. My empathy for those who don't start out with the gifts of money, my perception that groups too often wield unreasonable power, that a modern corporation resembles not our ideal of democracy but rather a feudal oligarchy lead me to study those aspects of government and its interactions that could redefine society and allow greater opportunities to all. Were I to design a voting test, through no intention, but due to the history and ideas that I find most compelling; if it were to impart a bias upon its takers, it would be a liberal bias that matches my own.
Tom Tancredo, by his own admission, recognizes that a test designed by him would naturally cover those subjects that he finds compelling, those subjects that would impart a conservative bias.
Only a very naive person would make the mistake of thinking that if only Mr. Tancredo and I could get together and jointly design a test that it would somehow be neutral. Although you could draw a line between my position and his, we are not just two points in a one-dimensional world. Rather, we are two points somewhere inside a three-dimensional box: There is no reason to believe that the midpoint of the line between us represents any meaningful position inside that box, that it's in any way close to the center, or that the center itself is meaningful.
All voting tests would represent the bias (or biases) of their author or authors. Since individual bias is built on impartial knowledge, and the only group that actually encompasses all knowledge is the complete group (all members of society), the only way to leverage all of society's knowledge is to allow all of its members to participate in the governing process. Any test, by its very nature, would eliminate those individuals who don't possess a specific subset, but there is no reason to suspect (or prove) that the knowledge they do have isn't valuable.
It's also one of the tenets of our democracy: No matter who you are, no matter where you came from, no matter the circumstances of your life, you have a right to participate in matters that concern you. Any exclusion of full participation creates an oligarchy – antithetic to our ideals.
So, let's put the ideas of voting tests behind us for good. Building an inclusive society is hard. But, in looking at the expansions in freedoms for individual members made over the last 200 years, surely it is rewarding and worthwhile.
Although I've covered the subject of voting tests before, I think there's an additional point to be made – especially if someone in our government still thinks they are a good idea.
One of the difficulties that we face with our modern society is one of scale. There are so many people, with so much going on, that we realistically perceive only a slice of all that is occurring. If you are like me, you attempt to gather more information than just what's on the 5 o'clock news. But, if we're honest with ourselves, despite our sometimes voracious appetites for information, we're only gathering a subset. We don't know all the laws, all the interactions between the government and the population, all the intended and unintended consequences of those interactions.
And so, to a degree, we trust in the working of the institutions upon which our Constitutional Democracy is based. We trust that if the legislative branch passes a law that undermines our rights unduly, that would create inequality, or give too much power to groups rather than maintain it spread amongst all the people, that the executive branch would step in with its veto. If that doesn't happen, laws are challenged in court, and again, the judicial branch would rule against any law that doesn't comport with our ideals as set out in our Constitution.
One has to admit that it has worked fairly well. Despite the rather myopic understanding of personal freedom and democracy exhibited by our founding fathers, (John Adams ignoring his wife's pleas to “remember the ladies,” the 2/5ths clause concerning slavery, landowning requirements for voting), our institutions have endured, and in using them, participation in the process of democracy has been increased. Previously discriminated groups have had some of the most egregious discrimination lifted. Women no longer have to stay in poor, abusive, or violent marriages for financial reasons – they are recognized participants with rights to own and purchase property, work, and vote.
While it seems plausible that everyone should have some understanding of the workings and history of our government, since none of us can gather it all: Which subset is the important subset over which we should test? Does it really matter if someone can't name a single dead white guy who once held the office of president? If you've never had to go to court, and can't name the local judge, is your understanding of government deficient? If you can't recite the fifteenth amendment to the constitution in its entirety, trusting instead that those who study and practice law can, should you no longer able to participate in democracy?
Through my life's experiences, through the people I've met, the subjects I've studied, I find myself most interested in how we can build a society of equality. My empathy for those who don't start out with the gifts of money, my perception that groups too often wield unreasonable power, that a modern corporation resembles not our ideal of democracy but rather a feudal oligarchy lead me to study those aspects of government and its interactions that could redefine society and allow greater opportunities to all. Were I to design a voting test, through no intention, but due to the history and ideas that I find most compelling; if it were to impart a bias upon its takers, it would be a liberal bias that matches my own.
Tom Tancredo, by his own admission, recognizes that a test designed by him would naturally cover those subjects that he finds compelling, those subjects that would impart a conservative bias.
Only a very naive person would make the mistake of thinking that if only Mr. Tancredo and I could get together and jointly design a test that it would somehow be neutral. Although you could draw a line between my position and his, we are not just two points in a one-dimensional world. Rather, we are two points somewhere inside a three-dimensional box: There is no reason to believe that the midpoint of the line between us represents any meaningful position inside that box, that it's in any way close to the center, or that the center itself is meaningful.
All voting tests would represent the bias (or biases) of their author or authors. Since individual bias is built on impartial knowledge, and the only group that actually encompasses all knowledge is the complete group (all members of society), the only way to leverage all of society's knowledge is to allow all of its members to participate in the governing process. Any test, by its very nature, would eliminate those individuals who don't possess a specific subset, but there is no reason to suspect (or prove) that the knowledge they do have isn't valuable.
It's also one of the tenets of our democracy: No matter who you are, no matter where you came from, no matter the circumstances of your life, you have a right to participate in matters that concern you. Any exclusion of full participation creates an oligarchy – antithetic to our ideals.
So, let's put the ideas of voting tests behind us for good. Building an inclusive society is hard. But, in looking at the expansions in freedoms for individual members made over the last 200 years, surely it is rewarding and worthwhile.
Monday, February 8, 2010
Oh, The Irony!
Xenophobia is the fear of others.
In our society, xenophobia is most often expressed through our discrimination and distrust of those in groups other than the group with which we identify. Different ethnic backgrounds, different sexes, different religions, different educations are all means used to identify, group, and distrust, if not out-right discriminate.
During the Civil Rights movement, realization dawned that combating discrimination was more than just passing laws: It was also completely removing from our minds discriminatory attitudes. Our speech often reveals our underlying attitude, and pointing out discriminatory speech as an aid to recognizing hidden attitudes became acceptable. Ethnic jokes and put-downs revealed our inner thinking, and we became intolerant. Sexism and Racism entered our vocabulary, as did PC, or Political Correctness.
PC bites us all sometimes. That old family joke about that other ethnicity? No longer repeatable. Poking fun at someone dressed differently? No.
The aim is tolerance. Acceptance of the others that make up our varied society. Ultimately, inclusion – allowing every individual the same rights, responsibilities and freedoms that we would give ourselves and those in 'our' group.
There have been those who chafe under the new rules. They want to maintain the status quo. We often see this in their standing in the way of laws that prohibit discrimination. “Women shouldn't have the right to vote”. “Business should be able to choose those who aren't tattooed, pierced, or require modes of dress, etc.”
This defense of the status quo, this backlash against what they see as overreach into our individual attitudes as become identified with the Conservative movement. “Those darn liberals,” they cry, “taking away our ability to force people to look and talk and behave like us!”
So it was with great surprise last week that one of the most un-PC of the conservatives, one who has reveled in her very lack of correctness, should call someone out for uttering a discriminatory put-down. When Sarah Palin called out Rahm Emmanual for his transgression, she gave tacit approval to the idea that what we say reveals what we think – and that we should attack our discriminatory attitudes where they live.
But do you think the concept of reciprocity will enter her thinking? Do you think that she will realize that by extension, that discriminating against any other group is unacceptable? Will she, and other like-minded conservatives, realize that we still have far to go to admit all other groups into society as equal members?
Gays may soon be able to openly serve in our military. When will we give them the right to marry? Come on, Sarah. You've said the words against discrimination: Can you live up to their promise, and start supporting equality for all?
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