Monthly Archives: May 2012

May 28 2012

Another Sad Day for Nepal

The Constituent Assembly did not reach agreement by their final deadline last night on how many Federal districts Nepal should have, their geographical boundaries or, most contentiously, if they should be set up on ethnic lines.

Prime Minister Bhattarai recommended that President Yadav should dissolve the CA and hold elections for a new assembly on November 22.  “We have no other option but to go back to the people and elect a new assembly to write the constitution,” he announced on TV. “We had completed the army integration process by taking a big risk and tried to forge consensus but the peace and the constitution drafting process could not move forward.”  He said leaders of other parties were “not cooperating with the government’s move to draft the constitution based on the principle of federal structure”.

Bhatterai said executive powers now rest with him and his cabinet who will serve as the interim government and hold the election to replace themselves.

Five major parties promptly demanded Bhatterai’s resignation, declared his move “unconstitutional” and issued a joint statement: “The Prime Minister’s unilateral move to conduct fresh election by allowing to dissolve the most representative Constituent Assembly was aimed at capturing power and this has created frustration in the minds of the general public  …  It has ended the politics of consensus and created a situation in which people’s democratic rights are suppressed”.  The public has long been more than frustrated, the CA never did exhibit politics of consensus and the people have yet to experience democratic rights.  The CA was elected to develop the Constitution and reintegrate the Maoist soldiers into society within two years.  Instead, they wasted four years.

The Nepali Congress leader said the CA should be replaced by a national unity government to hold the election because “one who is not a member of the Parliament cannot hold the post of the PM.”  These politicians would never agree on who would lead such a government, of course.

A senior CPN-UML leader said Bhatterai’s proposal is not viable because there is no provision in the Interim Constitution for another CA election.  He said:  “The PM should have made attempt to amend the provision of the constitution before announcing the fresh election by forging consensus”.  These politicians could never agree even on a forgery.

President Yadav must now rule on the legal issues and decide what to try next so Nepal’s secular democratic republic can become a reality.  Today is a public holiday observing Republic Day when Nepal’s Parliament abolished the Hindu monarchy on May 28, 2008.

May 22 2012

Capitalists and Other Psychopaths

A recent piece in the New York Times, “Capitalists and Other Psychopaths”, achieves lift-off from: “4% of a sample of corporate managers met a clinical threshold for being labeled psychopaths, compared with 1% for the overall population”.  Buried in this horse-shit are a pony the author points to and a horse he overlooks.

The horse-shit:  An earlier version of the piece said 10% of people who work on Wall Street are clinical psychopaths.  It also failed to note the study’s disclaimer that the sample, 203 corporate professionals, was not representative.  The writer had a conclusion and failed to respect the data.  The sample is both not representative and too small – 1% of 203 is only two people.  What he wanted to say is the statistics are unsurprising because “Wall Street is capitalism in its purest form, and capitalism is predicated on bad behavior”.  He offers a jumble of factual examples – accounting frauds, environmental damage and so on – that also fail to support his conclusion.  Frauds are crimes.  Crimes are not unique to capitalism but occur in every part of every society.  Environmental damages are market externalities (e.g. pollution costs the public not the polluter so it must be regulated).  Capitalism, like every other system, does not resolve every issue for any society.

The pony:  The writer’s anger about “so-called job creators who deserve our gratitude not our envy” leads him to some very important points for tax policy:

  • Entrepreneurs use wealth to create jobs for workers, workers use labor to create wealth for entrepreneurs
  • Neither party aims to benefit the other but both do gain from the exchange
  • Most of the rich are not entrepreneurs.  They are executives of established corporations or people who inherited money

The horse:  It may not be 1% but psychopaths are plentiful at every level of society.  This writer is angered by rich ones, others by poor ones.  This writer admires moms who single-handedly support themselves and raise good kids.  Others focus on successful entrepreneurs who become philanthropists or those born with nothing who never take a handout.  We see demons, “Fatcat CEOs”, “Welfare Queens” and such, and heroes, “Job-creating Investors”, “Fingers-Worked-To-The-Bone Grandparents” and so on.  Demons and heroes do manifest reality, that’s why they have power, but all they do is point out aspects of reality.  Our job is not to hate or worship them.  We must get past the entertainment they provide and take the indicated actions.

It really doesn’t matter if 4% or some other percentage of the 1% who have most of the wealth in our society are psychopaths, or if 1% or some other percentage of the other 99% are psychopaths.  Every society always has been sprinkled with psychopaths.  Cultures throughout the world and from the dawn of history have depended on an ethic of reciprocity expressed as a Golden Rule, “treat others as you would like to be treated” and Silver Rule, “do not treat others in ways you would not like to be treated”.  Behavior according to those rules is self-reinforcing.  It works automatically in all people blessed with empathy.  But societies must legislate and enforce the Silver Rule because it does not work for psychopaths who by definition lack empathy.

In the same way, while Adam Smith’s great insight that free markets work automatically means the “invisible hand” should be allowed to work its magic, regulation is necessary for market externalities and those regulations must be enforced.

May 16 2012

Nepal’s Constitution

Nepal’s Constituent Assembly (CA) just settled one of the remaining big issues for the new constitution.  There will be a directly elected President and a parliament-elected Prime Minister.  Unresolved issues include the most contentious of all, how the states should be structured.  The Maoist party, whose vice-chairman Baburam Bhatterai is currently Prime Minister, wants eleven federal states.  The other big parties, the Nepali Congress and CPN-UML, want eight.  The alliance of small Madhesi parties wants a single province for the Madhesis who make up around half of Nepal’s total population.

The fundamental issue is whether states should be based primarily on language/ethnicity, economics or geography.

The CA was elected on 10 April 2008 to establish a new constitution within two years.  Earlier election dates in June and November of 2007 had been missed.  When the CA failed to meet its April 2010 deadline they granted themselves another year.  With little progress made by then, they granted themselves a further year.  When they missed that deadline, too, they were given a hard one of May 27.

The Maoists had gotten a third of the seats in the CA in the 2008 election by promising representation to Nepal’s ethnic minorities.  Four years later, as the May 27 deadline draws near there are rallies, protests and strikes all across the country.  Hard deadlines usually don’t mean much in Nepal but the people are angry at long last.  There’s no electricity 14 hours a day, food and fuel prices are rising fast, unemployment is high and soaring.  Everything is hard and getting worse for almost everyone except the politicians.  They are getting richer and, Nepalis say, doing nothing.  There could be mass violence if the CA is still deadlocked on May 27.

The pressure is high enough it seems likely the CA can pass a constitution by May 27 with everything resolved except state structure.   They might defer that to a new commission, which would likely be acceptable to UN observers following the process and India, which would have to intervene if Nepal became overtly ungovernable.

Baburam Bhatterai is the only politician who commands any respect from Nepalis.  He surprised almost everyone by resolving the equally long-standing issue of reintegrating the Maoist “soldiers” into society and he may succeed in getting a compromise of this kind accepted.

May 2 2012

Tax Rates and Employment Rates

Many in Congress are pledged never to raise taxes.  They say we must, in fact, further cut the “tax wedge”, the difference between an employer’s cost for a worker and the employee’s after-tax reward.  The tax wedge grows when taxes go up so it costs more to employ workers at a given after-tax wage.  If taxes go down, it costs less to employ workers at the same after-tax wage.  That means to cut unemployment we should cut taxes, right?

New data from the Organization for Economic Cooperation and Development (OECD) show there is in fact no correlation between size of tax wedge and rate of employment.

The USA is a low-tax country with a tax wedge of 29.5%.  Three-quarters of OECD countries have a larger tax wedge on average workers.  The data in the last column is workers employed as a % of the working-age population, a better indicator of labor market health than unemployment rate, which fluctuates for many reasons and is counted in many ways.

Key take-aways:  Almost half the countries with a bigger tax wedge employ a larger percentage of their working-age populations than the USA.  More than half of those with a smaller tax wedge have lower employment ratios.

Hat-tip to Bruce Bartlett who held senior policy roles in the Reagan and George H.W. Bush administrations and served on the staffs of Representatives Jack Kemp and Ron Paul.  He concludes http://economix.blogs.nytimes.com/2012/05/01/taxes-and-employment/ by saying: “There is simply no evidence that cutting taxes at the present time will do anything to raise employment.”

 

May 2 2012

USA Government’s Topmost Challenges

The 2012 election is no more than a 24/7 entertainment program.  It distracts us from our government’s most important challenges:

  • Manage public spending
  • Manage the financial sector
  • Eliminate government corruption.

Manage public spending includes:

  • Ongoingly raise sufficient revenue to cover the cost of ongoing services, e.g. the military
  • Issue debt to fund infrastructure investments that can only be made by the public sector, e.g., the interstate highway system
  • Increase taxes to fund large unforseen expenses, e.g. wars

Fundamentally, it means MANAGING the top and bottom lines, not letting them drift.  It does not mean managing them to an ongoing level.  The electorate can change what services are publicly provided.  Infrastructure investment should vary as opportunities (and threats) arise.  Public spending must be managed in the context of national strategy, which will change. The mess we’re in now requires a turn-around plan.

Manage the financial sector includes:

  • Prevent private financial institutions from taking risks insured by the public, e.g. dismantle the TBTF banks
  • Prosecute finance executives who broke existing laws
  • Regulate the derivatives and other currently unregulated markets

Dodd-Frank etc will not prevent another collapse triggered by financial executives who will be made whole by a traumatized public.

Eliminate government corruption includes:

  • Eliminate political influence via campaign contributions

Arguably, this is the most important of all “to-do’s” because good governance is paramount no matter which direction we want to go.  Public spending is not being managed because our governing body is corrupt.  There has been no meaningful reform of our financial sector for the same reason.  Elected representatives should represent all constituents, not favor those who contribute to their election, i.e., we want the reality of one person one vote.

There will always be a spectrum of opinion about matters of culture.  I have opinions about those but they’re not on my list because I do not expect everyone to agree.  I do believe everyone will agree with the 3 “to-do’s” above although not necessarily their relative importance or even that they are the most important three.   What do you say?