Category: News and politics

Keystone XL pipeline madness

By his own admission President Obama’s rejection of the Keystone XL pipeline project is political rather than scientific.

Two environmental concerns have been raised. The first is that the emissions of greenhouse gases are about 17% higher for oil from oil sands compared to conventional sources. However, the rejection of the pipeline proposal will not materially change the production and consumption of Canada’s oil shale crude, which will now be transported to market by more expensive means. “Rail transport has expanded to carry oil sands to the United States, soaring from just 16,000 barrels in 2010 to 51.2 million barrels in 2014 before dropping somewhat this year. But rail transport is more expensive than pipeline transport…. Royal Dutch Shell’s chief executive, Ben van Beurden, said last year that the company had bid for space on another pipeline to move its oil-sands crude to Canada’s east coast and from there to world markets, including Gulf Coast refiners. ‘We’re covered. I’m good,’ he said in an interview. He said that ‘the argument that Keystone is a bad idea because it will somehow enable development of resources in Canada is to some extent flawed,’ adding that other alternatives would emerge.” (This and other quotes are from today’s Washington Post in the article linked below)

The second environmental concern arises from the possibility of oil spills from breaks in the pipeline. This possibility needs to be compared with the possibility of spills from rail accidents or breaks in alternative pipelines.

Because the pipeline would cross international boundaries it must be approved by the State Department. As the application was being reviewed, then Secretary of State Hillary Clinton stated on October 15, 2010 that the department was “inclined” to approve project. “We’re either going to be dependent on dirty oil from the Gulf or dirty oil from Canada,” she said. On August 26, 2011 the State Department issued its final environmental impact statement determining “there would be no significant impacts to most resources along the proposed project corridor.” And again on March 1, 2013 the State Department issued another environmental review that raised no major objections to the Keystone XL oil pipeline saying that other options to get the oil from Canada to Gulf Coast refineries were worse for climate change.

Canada’s new liberal Prime Minister, Justin Trudeau, supported the project. “TransCanada’s president and chief executive, Russ Girling, issued a statement saying his company was ‘disappointed. Today, misplaced symbolism was chosen over merit and science — rhetoric won out over reason,’ Girling said…. Terry O’Sullivan, general president of the Laborers’ International Union of North America, said Friday that ‘Obama has also solidified a legacy as a pompous, pandering job killer.’” (same Post article).

“As Obama rode from the White House to the campus [Georgetown on June 25, 2013, he], said he would approve Keystone XL only ‘if it does not significantly exacerbate the climate problem.’” But his own State Department found that it does not. So what is going on?

“By late 2013, Obama and Kerry had concluded that the pipeline failed their climate test — not because blocking it would guarantee that Canada’s fossil fuels would remain in the ground, but because denying the permit would strengthen America’s position in international climate negotiations…. ‘The reality is that this decision could not be made solely on the numbers — jobs that would be created, dirty fuel that would be transported here, or carbon pollution that would ultimately be unleashed,’ Kerry said in a statement. ‘The United States cannot ask other nations to make tough choices to address climate change if we are unwilling to make them ourselves.’”

In short the President lied (not an uncommon practice among politicians, but we might hope for a higher standard from American Presidents). But apparently not. The Obama administration has authorized the selling of coal owned by the U.S. government that would not meet our C02 emission standards to third world countries, which helps our emission record but not the world’s. https://www.washingtonpost.com/world/us-exports-its-greenhouse-gas-emissions–as-coal-profitable-coal/2015/10/08/05711c92-65fc-11e5-bdb6-6861f4521205_story.html

“The Washington Post’s editorial on the pipeline today began: “President Obama rejected the Keystone XL oil pipeline on Friday, ending an unseemly political dispute marked by activist hysteria, GOP hyperbole, presidential weakness and a general incapability of various sides to see the policy question for what it was: a mundane infrastructure approval that didn’t pose a high threat to the environment but also didn’t promise much economic development. The politicization of this regulatory decision, and the consequent warping of the issue to the point that it was described in existential terms, was a national embarrassment, reflecting poorly on the United States’ capability to treat parties equitably under law and regulation.”

https://www.washingtonpost.com/blogs/post-partisan/wp/2015/11/06/obama-ditches-evidence-to-capitulate-on-keystone-xl/

https://www.washingtonpost.com/news/post-politics/wp/2015/11/06/obama-set-to-reject-keystone-xl-project-citing-climate-concerns/

Cayman Financial Review, Q3 2015

Dear Friends,

The Third Quarter issue of the Cayman Financial Review is now available on the web: http://www.compasscayman.com/cfr/. I am on the Editorial Board and have two articles in this issue that might interest you. The first discusses the continued decline of U.S. world leadership exemplified in the case of the new Asian Infrastructure Investment Bank located in China: http://www.compasscayman.com/cfr/2015/08/19/US-leadership-and-the-Asian-Infrastructure-Investment-Bank/

The second is the final installment of my series on the Kabul Bank scandal. The failure of Kabul Bank in Afghanistan was probably the biggest bank failure and fraud in history on a per capital basis.  As this final article looks at some of the legal issues and developments in recovering stolen assets held abroad and Afghanistan’s uneven struggle to strengthen its criminal justice system, Gary Gegenheimer, a lawyer who also worked in Afghanistan, joined me to write this third installment: http://www.compasscayman.com/cfr/2015/08/19/The-Kabulbank-scandal–Part-III/

I hope that you enjoy them.

Best wishes,

Warren

Greece: What should its creditors do now?

Following Sunday’s NO vote in Greece, what ever that might have meant, it is tempting to tell Greece to get lost and be done with them. Aside from the unseemly lack of compassion for our suffering fellow man, the further collapse of the Greek economy and society that would likely follow Grexit (the Greek exit from the Euro and introduction of its own currency) would open unknown and potentially very dangerous risks to the rest of Europe from its southern periphery. However, any new deal between Greece and its creditors should be mutually beneficial for Greece and the EU in the long run and achievable and practical in the short run. What are the key elements needed for such an agreement?

Greece’s second bailout program with its creditors (the EU, ECB, and IMF) expired June 30 after a four-month extension without disbursing the final installment of around $8 billion dollars. It cannot be resurrected. Thus any further discussions between Greece and its creditors will concern a third bailout program.

Greece’s recently replaced and unmissed Finance Minister, Yanis Varoufakis’, stock speech said basically that Greece does not need or want more loans because it is bankrupt rather than illiquid. In short, it wants debt forgiveness. In fact, many European officials have acknowledged the possible need to write off (reduce the present value one way or another of) existing Greek debt but insisted that any such consideration be put off for a new program. Discussion of a new program has now arrived.

The foundation of any financial assistance program with the IMF is its assessment that the borrowing country can repay the loan. This assessment is contained in the IMF’s “Debt Sustainability Analysis.” This analysis imbeds the agreed (or assumed) level of government spending and estimated tax and other government revenue and of the level of economic activity (GDP growth) upon which it depends in a forecasting model of the deficit and debt/GDP ratios expected from implementation of the agreed policies. The IMF was badly embarrassed by its acceptance of overly optimistic assumptions about income growth government revenue in its first bailout program in 2010 with the EU and ECB. Under political pressure from the EU and ECB, these assumptions allowed the IMF to conclude that Greece’s debt would be sustainable thus avoiding the need for some debt write off favored by the IMF but opposed by Germany and France, whose banks held large amounts of that debt. The second bailout program included a write off of about 70% of the privately held Greek debt. However, this came too late and the adjustment in the Greek government’s annual deficits required by the first program proved too severe causing a much larger and longer lasting contraction in the Greek economy than expected and assumed in the IMF Debt Sustainability Analysis at that time.

On June 26, 2015 (i.e. prior to Greece’s default on its $1.7 billion payment to the IMF and to the July 5 referendum) the IMF released a draft Debt Sustainability Analysis based on the information available at that time. It concluded that “If the program had been implemented as assumed, no further debt relief would have been needed under the agreed November 2012 framework…. At the last review in May 2014, Greece’s public debt was assessed to be getting back on a path toward sustainability, though it remained highly vulnerable to shocks. By late summer 2014, with interest rates having declined further, it appeared that no further debt relief would have been needed under the November 2012 framework, if the program were to have been implemented as agreed. But significant changes in policies since then—not least, lower primary surpluses and a weak reform effort that will weigh on growth and privatization—are leading to substantial new financing needs. Coming on top of the very high existing debt, these new financing needs render the debt dynamics unsustainable…. But if the package of reforms under consideration is weakened further—in particular, through a further lowering of primary surplus targets and even weaker structural reforms—haircuts on debt will become necessary.”

In short, the Greek economy was finally beginning to recover by the end of 2014 but the reversals by the new Syriza government of some of the policies contributing to that gain and the loss of market confidence in the muddled and amateurish behavior of the new government reversed the recovery and further increased Greek deficits. In addition, increasing capital flight has been financed by short-term emergency liquidity loans from the ECB, thus adding to Greece’s over all indebtedness. Capital flight per se should not reduce banks’ capital, as they lose the same amount of assets and liabilities, as long as they are able to liquidate sufficient assets by selling them or by using them as collateral for loans from the ECB or other banks. These loans and the process of transferring Euros abroad are described in the paper I presented in Athens May 19 at the Emergency Economic Summit for Greece: http://works.bepress.com/warren_coats/32/.

Under these circumstances it would be desirable (i.e. consistent with and/or required by a European desire to keep Greece in the Euro Zone while returning it to fiscal balance and sustainability over a reasonable, if somewhat longer, period of time) for Greece’s creditors to forgive some of the debt held by the ECB and IMF and to lower the structural fiscal surpluses initially required in a follow on program for the next few years (this latter element had already been offered by the creditors before the referendum). In short, by reducing Greece’s debt service payments and lowering its primary fiscal surplus, it would endure less “austerity.” Former Finance Minister Varoufakis actually proposed a sensible risk sharing form of refinanced Greek debt indexed to the economy’s economic performance. Creditors would do better than expected on their concessional loans if the economy performed better than forecast and would suffer losses if it did worse. This would give both sides a financial incentive to get the pace and balance of fiscal adjustment right (growth maximizing). While Europe’s political leaders sort out the details, the ECB should continue to provide liquidity credit to the extent that, and as long as, Greek banks can provide realistically valued collateral.

The purpose of these adjustments by the creditors should not and must not be to throw more good money after bad allowing a continuation of decades of corruption, rent seeking and government inefficiency. Long before it joined the Euro Zone, Greece suffered poor government services by a bureaucracy overstaffed by friends and supporters of the government in power at the time. Not receiving expected government services, many Greeks have decided not to pay for what they are not getting. Hence tax evasion and a large underground economy added to Greece’s deficits. Quoting from Bret Stephens’ July 6 column: “Greeks retire earlier and live longer than most of their eurozone peers, which means they spend close to 18% of GDP on public pensions, compared with about 7% in Ireland and 5% in the U.S…. As of 2010, Greek labor costs were 25% higher than in Germany. [As a result of internal devaluation since then, this is no longer true.] A liter of milk in Greece costs 30% more than elsewhere in Europe, thanks to regulations that allow it to remain on the shelf for no more than a week. Pharmaceuticals are also more expensive, thanks to the cartelization of the economy…. Greece wanted to be prosperous without being competitive. It wanted to run a five-star welfare state with a two-star economy. It wanted modernity without efficiency or transparency, and wealth without work. It wanted control over its own destiny—while someone else picked up the check.”

Changing this behavior by Greek governments and the Greek public will not be easy if it is possible at all. The still very strong support by the Greek public for keeping the Euro suggests a strong awareness of the need for some restraints and discipline of its government’s spending. But is the desire for a truly better deal (from their own government) strong enough to overcome the resistance of the entrenched and favored interests, who would lose from liberalizing the economy and cleaning up the patronage mess and tax non compliance, etc.? The best hope is the formation of a unity government that strongly endorses a well balance program of gradual further fiscal adjustment and the continuation of the structural reforms so badly needed. Close monitoring by the creditors of Greek compliance with its promises and the phasing of financial assistance tied to such performance benchmarks, is the IMF’s standard approach to enforcing compliance with the measures the government agrees to. There are risks in agreeing to a third program and risks in not doing so and thus Grexit.

Grexit, even with total default on all external debt, will surely force more austerity on Greece than would any program now contemplated, even before taking account of the almost certain collapse of all of Greece’s already “temporarily” closed banks. The Greek government will hardly be in a position to bailout its banks suffering a surge of non-performing loans. Depositor bail-ins will need to cut all the way into “insured” deposits. The pain will be largely felt only in Greece, and unfortunately mostly by the ordinary Greek citizen.

Baltimore—Saving a City

Few serious problems have a single explanation or cure. The decay of large parts of Baltimore is no exception. An interesting article in the Washington Post explores the diligent efforts of its former mayor, later the governor of Maryland, Martin O’Malley to fix it. http://www.washingtonpost.com/local/baltimores-blight-puts-omalley-on-defensive-in-bid-for-presidency/2015/05/29/9dffe1d0-0541-11e5-8bda-c7b4e9a8f7ac_story.html. The Baltimore mayor depicted in the TV series The Wire, Tommy Carcetti, was inspired by O’Malley. (I was surprised after watching five seasons of the Game of Thrones to learn that the actor who played Carcetti in The Wire, Aidan Gillen, is Littlefinger in the Game of Thrones. His O’Malley character in The Wire was much more interesting.)

O’Malley went after the usual suspects, improving transportation and other infrastructure, improving education, etc. – all of the things we look to government to provide in the name of equal opportunity for all. He also instituted tough policing inspired by the “Broken Windows” theory first expounded by James Q. Wilson and George L. Kelling in 1982. This introduced the intensive use of “stop, question, and frisk” of recent controversy in NYC. In retrospect, the approach alienated the police from the communities they were supposed to protect, and was much in the news when 25 year old African-American Freddie Gray died in April from injuries received while in police custody. His funeral in Baltimore was followed by riots that did much damage to the already impoverished neighborhood in which he lived.

What was almost totally missing from the Post article was the need for jobs. While the over all unemployment rate for metropolitan Baltimore is only slightly above the U.S. average (5.7% compared to 5.6%), black unemployment is dramatically higher. “For young black men between the ages of 20 and 24, the unemployment rate was an astounding 37% in 2013, according to the most recent data available from the U.S. Census Bureau. That’s compared with 10% for white men of the same age.” (CNN Money) Much of the city’s heavy industry and the jobs they provided (steel processing, shipping, auto manufacturing, and transportation) left Baltimore decades ago. Many workers moved with those jobs but some stayed. The increase in service economy jobs of recent years employs workers with different and generally higher level skills than did the lost manufacturing jobs. Johns Hopkins University and Johns Hopkins Hospital are now Baltimore’s largest employers. Baltimore’s population peaked at around 950,000 in 1950 and dropped to 622,000 in 2013. Improving Baltimore’s infrastructure for those who have stayed is pointless if they can’t find jobs.

It is not that infrastructure and education are not important. They are important both for the quality of life and for attracting enterprises that provide jobs. But they are only part of the package companies consider when deciding where to locate. The cost of providing and maintaining them relative to their quality is important as well, and education needs to be relevant for the jobs potentially attracted. Taxes, both state and local are an important port of the cost of doing business. When companies evaluate where to locate new facilities they will want the best bang for their buck. Maryland is an expensive state (35th from the top in CNBC’s list of the best states for doing business). During his term as governor of Maryland O’Malley:
• Raised the top personal income tax rate from 4.75 to 5.75 percent. With local taxes on top, Maryland’s top rate is 8.95 percent.
• Raised the corporate tax rate from 7.0 to 8.25 percent.
• Raised the sales tax rate from 5 to 6 percent and expanded the sales tax base.
• Raised the sales tax rate on beer, wine, and spirits by 50 percent.
• Raised the gas tax by 20 cents over four years, almost doubling the rate from 23.5 cents.
• Doubled the cigarette tax from $1 to $2 per pack.
• Imposed higher taxes on vehicle registration.
• Imposed a storm water mitigation fee on property owners, or a “rain tax.”
(Chris Edwards: Cato)

The quality of government services in Maryland, however, is also fairly high. Last year I incorporated my consulting business in Maryland as an LLC. It took me 30 minutes on line sitting in my office from start to finish, including the email delivery of the signed and sealed document of incorporation. In addition, the cost of property and labor in Baltimore is low. This is a natural market reaction to the loss of industry and residence. The city’s efforts to revive its poorer neighborhoods also need to focus on improving its competitive advantage as a place for businesses to locate.

Crony capitalism and the Export Import Bank

An important and fundamental principle of the rule of law is that laws should have wide or universal applicability to everyone. This principle is generally violated when governments subsidize specific activities. These subsidize might take the form of tax breaks, loans at preferential interest rates or even grants to favored enterprises or activities. The Export Import Bank is a government program for granting such favors in the name of promoting exports.

If the EX-IM Bank only provided information to American firms that helped them satisfy foreign requirements for selling their products abroad or to connect with services available for marketing such produces—following the model of the Small Business Administration or the Agricultural Extension Services provided by many states—their continued existence might be defensible. However, like so many government intrusions into the private sector, it provides huge subsidize to a limited number of customers (about 30% of the total to Boeing to subsidize the sale of its planes to foreign carriers) at the expense of others. American carriers like Delta complain that EX-IM Bank subsidies to Boeing benefit their foreign competitors, who are able to buy Boeing planes more cheaply than they are. “The Airline Pilots Association of America estimates that the bank’s subsidizing of Boeing airline purchases abroad has forced our domestic airlines to cut about 7,500 jobs – decreasing the airline workforce by almost 2 percent.” (The Blaze, May 29, 2015)

While the cost of the EX-IM Bank to U.S. taxpayers is trivial, it is one more drop in the growing pond of crony capitalist connections to the government. Boeing moved its headquarters from Seattle, where most of its production was traditionally located, to Chicago and has diversified its production and suppliers around the country precisely to have more representatives in congress with an interest in its well being. Like many other large companies seeking government favors, it has hired key people from government such as Kevin Varney, former chief of staff at the Ex-Im during Obama’s first term. The stakes for Boeing are large so you can be sure it is spending a lot of money one way or another to protect its interests. This is the nature of crony capitalism, which gradually diminishes real market competition and chokes productivity.

Creating programs that grant favors also creates strong incentives for less subtle and more overt, traditional style corruption. “For example, Johnny Gutierrez, an Ex-Im Loan Specialist, pled guilty on April 22, 2015 of accepting up to $78,000 in bribes in return for recommending the approval of unqualified loan applications to the bank, among other misconduct. During this period, Ex-Im gave Gutierrez nearly a 20 percent pay hike and paid-out thousands in performance bonuses. “ (Adam Andrzejewski, Forbes, http://www.forbes.com/sites/adamandrzejewski/2015/05/31/the-export-import-bank-and-the-art-of-picking-losers/ )

The Ex-Im Bank and dozens of programs like it are economically unsound and wasteful and politically corrupting. It and others like it should be killed when ever possible. Here is a rare case where congress can do good by doing nothing (i.e. by not renewing the Bank at the end of this month).

Dennis Hastert and the law

Former congressman Dennis Hastert has been charged with failing to tell his bank why he was withdrawing his money (up to $3.5 million withdrawn in smaller amounts over a few years). It appears that he was being blackmailed by someone threatening to expose a sexual relationship long ago that Mr. Hastert does not want disclosed. Blackmail is a crime that I understand, but I have yet to read that the blackmailer has been charged with any crime. I assume that that is coming.

Mr. Hastert is being charged with violating our Anti Money Laundering (AML) laws.
These laws allow arresting and convicting people for moving money (as Mr. Hastert was doing) that the government thinks was the proceeds of crime (not the case with Mr. Hastert, his crime was failing to report what he planned to with his money), when they are not able to prove that there was a crime in the first place. As far as I know, paying a blackmailer (which is what Mr. Hastert apparently did) is not a crime, though demanding and receiving such money is. The United States has pushed such legislation and the new bureaucracies needed to enforce it all over the world at the cost of billions and billions of dollars (that could have been used for poverty reduction or other more pressing things) with very little if any benefit to show for it. Charging Dennis Hastert with AML violations is a rare exception. Wow, what a benefit for such intrusions into our private lives. I consider AML laws more than a costly waste of money. They are another expansion of the arbitrary power of governments that can be used for good or ill with limited oversight. They lower the standards required for convictions of the real crime, what ever it was, and to that extend diminish the rule of law as we have always understood it.

It is hard to grasp how far our government has evolved from the freedoms we were guaranteed in our constitution. Most of these incremental intrusions have been in the name of protecting us from ourselves and our neighbors. The unlawful (according to a recent court ruling) spying on its own citizens by the NSA exposed by Edward Snowden is now well known and tomorrow we will see what congress does about it. https://wcoats.wordpress.com/?s=snowden. In another example, The Washington Post and others have exposed the shocking abuse of civil forfeiture laws (modern highway robbery by the police). https://wcoats.wordpress.com/2014/09/10/the-abuse-of-civil-forfeiture/.

These are the tips of an alarming iceberg of regulations contained in tens of thousands of pages of laws and regulations from banking to buying cereal. Charles Murray, a very thoughtful and out of the box thinker and observer of our times, makes an intriguing proposal for fighting back. Like me, he is a student of the 60s when civil disobedience seemed the only weapon left to us against an abusive government: http://www.wsj.com/articles/regulation-run-amokand-how-to-fight-back-1431099256

Has our preference for security over freedom swung so far? What are some people smoking to think that government bureaucrats at homeland security, the IRS or the Veterans Administration can more efficiently meet our needs than we can arrange ourselves in the private sector? I have commented on these alarming developments many times before:
https://wcoats.wordpress.com/2014/06/22/big-brother-is-getting-bigger/ https://wcoats.wordpress.com/2013/03/08/protecting-our-civil-liberties/
https://wcoats.wordpress.com/2014/06/30/the-rule-of-law-2/

Emergency Economic Summit for Greece

I just returned from a conference in Athens on the Greek economy. Yanis Varoufakis, Greece’s controversial Finance Minister, gave the (almost) final presentation to the 500 attendees making his usual point that Greece is insolvent not illiquid, meaning that its unsustainable debt should be written off (partially at least). While he is surely correct in that assessment, as usual he failed to discuss or even mention the structural reforms Greece needs to make to improve its productivity and thus lift its standard of living, which are also part of the conditions of the existing assistance program with the IMF/EU/ECB. He wants Greece’s creditors to forgive its debts first with reforms (which the new government says it wants to revers to some extent anyway) to come after. As past Greek behavior has destroyed any trust by its creditors and potential investors, the Troika (IMF/EU/ECB) is unlikely to agree to the Minister’s demands. The highlight of the conference was the critic of the Minister’s remarks by Nobel Prize economist Tom Sargent given immediately after and providing the actual concluding remarks for the day.

Here is an article on the conference that includes a short TV interview that I gave on the side.  http://fnf-europe.org/2015/05/20/fnf-greece-emergency-economic-summit-for-greece-stirs-up-unprecedented-media-coverage/

A video of the full conference and my presentation with be on the Atlas Network website later. https://www.atlasnetwork.org/news/article/how-greece-can-escape-from-economic-crisis?utm_source=AtlasNetwork+World10%3A+Highlights+from+the+global+freedom+movement&utm_campaign=a14b0b99fb-World10_5_6_15&utm_medium=email&utm_term=0_d4bce382cb-a14b0b99fb-26641201

The paper that I prepared for the conference can be found at: http://works.bepress.com/warren_coats/32/

All the best,

WarrenGreece EESG

The Obama’s on race and poverty

Riots in near by Baltimore and elsewhere following killings of unarmed black men by police have reignited a public discussion of approaches to policing, causes and curse for poverty, and race relations in America. Good. We will never have final, definitive answers to these questions and it is good that we continue to discuss them and to search for better ways of addressing them.

Yesterday I posted a Washington Post op-ed by Richard Cohen addressing criticisms of the First Lady’s public statements on race and the “black experience.” http://www.washingtonpost.com/opinions/michelle-obama-criticized-for-the-sin-of-being-black/2015/05/11/c077b10a-f800-11e4-a13c-193b1241d51a_story.html

The evolutionary process has predisposed us to bond with and trust most easily our own families and tribes—to be most comfortable with what and who is most familiar to us. Traits that served us well as hunters-gatherers are often less useful or actual impediments to life in larger communities and cities. Civilization is, in part, the process of taming some of these primitive impulses.

At the dedication of a museum in NYC recently, the First Lady stated that: ““I guarantee you that right now, there are kids living less than a mile from here who would never in a million years dream that they would be welcome in this museum,” This surprised many of us, especially here in Washington DC, where the percent of blacks in the population has just recently slipped below 50%, and where it is hard to imagine any building in which blacks would not be welcomed. But though I have many black friends, and don’t give it a second thought, I can remember when I lived in Hyde Park, Chicago as a student at the University of Chicago, I was apprehensive about penetrating more than a block into Woodlawn, across the midway from my classes. This is the South Side Chicago almost all black neighborhood Michelle Obama grew up in. There was something about being the almost only white man in an all black neighborhood that was uncomfortable. Nonetheless, I was shocked a few months ago when the black friend of a houseguest expressed some nervousness at driving into my neighborhood (though a few black families are among our 61 home community).

While some of this is in our genes, some of it is fortified by experience. What can we do to remove baseless apprehensions between ourselves and our fellow man and more importantly what can we do to help left the likes of those living in West Baltimore from destructive cycles of poverty, crime, and other destructive behavior? There are no magic bullets. Many factors are at play and I admire the First Lady’s contributions to improving these lives.

I disagree with much of President Obama’s policy views, especially domestic policies, but I have admired his and his wife’s advise to African Americans. On several occasions the President has told young blacks to avoid thinking of themselves as victims and to focus on what they can and must do themselves to better their lives. Yesterday at Georgetown University he said: “The stereotype is that you’ve got folks on the left who just want to pour more money into social programs, and don’t care anything about culture or parenting or family structures. And then you’ve got cold-hearted, free market, capitalist types who are reading Ayn Rand and think everybody are moochers. And I think the truth is more complicated.” Indeed it is and I welcome his and the First Lady’s contributions to finding better ways to better lives. http://www.washingtonpost.com/local/in-frank-language-obama-addresses-povertys-roots/2015/05/12/5acfa3fc-f8dd-11e4-a13c-193b1241d51a_story.html

Balancing Religious Freedom and Civil Rights

The adoption last week of Indiana’s Religious Freedom Restoration Act (RFRA) has set off a loud public debate about religious freedom and civil rights. The debate is over the best balance between our cherished beliefs in both religious freedom and civil rights, which includes tolerance of those with religious beliefs different than ours. A standard formulation of the scope of individual freedom is that it is our right to live and do as we like as long as it does not infringe on the rights of others to do the same. How we should put meat on those bones is the essence of ongoing, serious public debate.

I have blogged on this challenging topic a number of times starting with the following in November 2008: https://wcoats.wordpress.com/2008/11/11/church-and-state-in-america/ and followed in April 2010 by: https://wcoats.wordpress.com/2010/04/18/when-values-clash/

and in August 2013: https://wcoats.wordpress.com/2013/08/30/liberty-and-the-overly-prescriptive-state/

and in December 2013: https://wcoats.wordpress.com/2013/12/20/more-on-the-balance-between-the-public-and-private-sectors/

and most recently in February 2014: https://wcoats.wordpress.com/2014/02/28/arizona-and-religious-and-person-liberty/

Indiana’s RFRA is similar but not identical to the law of the same name signed into law by President Clinton in 1993 with overwhelming bipartisan support. These laws and other efforts to balance religious and other individual freedoms against the expectation of tolerance are based on the First Amendment to the US Constitution reproduced below (the first item in the Bill of Rights) and the guarantee of equal protection under the law contained in the Fourteenth Amendment adopted after the Civil War, in part to remove discrimination against African Americans. Success in establishing a good balance is critical to a healthy, vibrant and free civil society and depends more on social attitudes than on laws. David Brooks provides an insightful and balanced discussion of this issue: http://www.nytimes.com/2015/03/31/opinion/david-brooks-religious-liberty-and-equality.html?_r=4

_________________________________________________

First Amendment

Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press, or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances.

________________________________________

It is quite beyond my limited legal knowledge to tease out exactly what the Indiana law provided (it has already been amended to address the fears that it was an excuse for discrimination). Much has been written on the subject, some of it uninformative and/or inflammatory, others wise and insightful. I would like instead to outline the spirit and attitude of a proper balance between religious freedom and civil rights that makes sense to me.

Most of us assume that our freedom to believe what we choose and to express those beliefs publicly includes what some others might disagree with or consider “wrong” or obnoxious, such as racial prejudice. Freedom of speech means nothing if not the right to state what most of us consider wrong. The right to say stupid or repugnant things should never be confused with accepting or encouraging such views. Particular condemnation should be directed to those who use their freedom of speech purposely to offend rather than to defend their beliefs. The best defense against bigotry, whether racist or homophobic, is to use our freedom of speech to counter such views and to promote the virtues of respect, diversity, and tolerance of alternative beliefs (as long as they do not limit our own). In short, building broadly shared attitudes of respect toward the rights of our fellow men (and women) are necessary for the maintenance of a decent, free society.

What might this mean in practice? In my private life I should never have to associate with people I don’t like. I should not have to invite them into my home or my club. It was absolutely right that the Boy Scouts of America were allowed to exclude gays and that we were allowed verbally to attack them for such misguided behavior. They are gradually coming around to a more enlightened policy with better long run results than if forced by law to open up to members they did not want. Churches are quite rightly not forced to accept members that do not embrace their beliefs or otherwise satisfy whatever their membership requirements are.

The above examples are obvious. The difficulties begin to arise when we move outside our homes and private groups. Aside from the obvious question of why two lesbians in Texas insisted on the services of a photographer for their wedding who refused to accept their request (were they looking for a fight or the best photographer), I think any service provider should be free to choose their customers just as customers are free to choose where to shop. While mafia dons and other murderers and bad people have a right to legal representation, why should a particular objecting lawyer be required to provide it?

Should a Christian bookstore be required to sell the bible or whatever to atheists or Jews? For starters it would be quite contrary to their goals and evangelical nature to refuse to do so, but should they have the choice? Should Muslims be required to touch and serve pork or should Mormons be required to tend the cocktail and coffee bars of their employers? Once again it is hard to see why this is raised to the level of public policy. If a Mormon doesn’t want to serve alcohol (though it wasn’t a problem for the Mormon owned Marriot Hotel to do so), she doesn’t have to and shouldn’t work for a bar. For larger operations, such as restaurants with a bar, it is not that difficult for the manager to assign employees to tasks that respect their religious or ethical beliefs. The free market, profit motive would lead employers to do just that.

For many, the pace of progress against discrimination in the more public sphere of commerce and certainly in government bodies was not fast enough leading to the adoption of the 1964 Civil Rights Act, which outlawed discrimination based on race, color, religion or national origin in hotels, motels, restaurants, theaters, and all other public accommodations engaged in interstate commerce; but exempted private clubs and the renting of the bed room in my basement. If you are open for business to the general public you are not allowed to discriminate on the above bases. The LGBT community has been working to add sexual orientation to the above list, something that was missing in the original Indiana RFRA law.

The recent Hobby Lobby decision of the Supreme Court (Burwell v. Hobby Lobby) concerned the mandate in Obama Care for employers to provide government specified contraceptives as part of the employee health plans. The Christian family owners objected to the mandatory inclusion in the list of what is often called the morning after pill. Raising wages sufficient to compensate employees for the cost of buying their own insurance would sacrifice the tax exception (i.e., subsidy) of employee provided health insurance. The Court ruled to allow closely held for-profit corporations to be exempt from a law its owners religiously object to if there is a less restrictive means of furthering the law’s interest. Such exemptions are allowed for churches and directly religious organizations but this was the first time that the Court has recognized a for-profit corporation’s claim of religious belief.

This whole situation has more objectionable parts than I can count. First, it is bad policy to give a tax break for employer offered health insurance. For one thing, tying heath insurance to ones employer makes it more difficult for employees to change jobs and increases the cost to them of losing a job. Second, it is outrageous that the federal government is dictating the list of contraceptives that an insurance policy must provide and that everyone must have such policies. This is before we get to the issue of which, if any, private companies should be exempt from such requirements and for what reasons. Such micro management of our lives by the government has gone way too far and makes the balancing of rights I have been discussing much more complicated and difficult. A tradition of polite accommodation of differences generally trumps efforts to spell it all out in law.

Marriage equality, i.e., extending the same right to marry enjoyed by heterosexual couples, takes away no rights from traditional couples other than perhaps to be spared the anger/horror/sadness over something someone else is doing. Get over it. Having to serve LGBT couples commercially does not imply agreeing or disagreeing with their status. Fortunately society is moving rapidly to accept the virtue of extending the institution of marriage to LGBT couples. If marriage is a good thing for loving committed couples, it should be available to all such couples. Those people and religious groups that continue to disapprove are free to as long as they do not deprive others of their freedoms and rights.

US Global Leadership – More on AIIB

Following the end of the second of two devastating World Wars within three decades, the world came together to establish international institutions and norms meant to prevent another world war and to promote the shared economic and political interests of all peace loving countries. The United States led this effort and has dominated the resulting global governance structure (the UN, IMF, World Bank, WTO to name a few of the best known). The one-country-one-vote structure of the UN has limited its effectiveness. The International Financial Institutions like the IMF, on the other hand, are governed on the basis of votes and financial contributions proportional to their economic importance. Their effectiveness and legitimacy depend, in part, on maintaining such relative voting strength as countries’ economies grow.

Resolving conflicts without world war has been a magnificent achievement. But the opening of the world to freer trade and finance with broadly agreed rules under which it is conducted are dramatically important achievements as well. Economic growth is not a zero sum game. Every country has benefited from global financial cooperation. Estimates (by Bradford DeLong and the World Bank) of Global World Product rose from $1.1 trillion dollars in 1900 to 4.1 trillion in 1950 but exploded there after reaching $41.1 trillion in 2010 (all in 1990 US dollars). According to the World Bank, global poverty has been cut in half in the last twenty years.

The dominant role of the US in International Financial Institutions reflects its economic size and military strength but equally the perception of the rest of the world that the liberal, free markets and trade model promoted by the US was indeed the right one for each country’s growth and prosperity. The world’s continued acceptance of the US’s leadership rests on the general belief that the US is an honest broker, fairly promoting rules that serve the general good rather than seeking special advantage for its own people and industries. The US cannot expect other countries to abide by such international norms of behavior if it is not willing to conform to them itself (i.e. subjugate its sovereignty to international agreements in these areas).

America’s record is not pure by any means. The increasing crony capitalist nature of our military industrial complex, about which we were so presciently warned by President Eisenhower, is hardly a model of competitive market capitalism. But the political structures established after WWII have generally worked well to coordinate national cross boarder activities peacefully and without wars. To cite one example, the International Telecommunications Union has developed rules and procedures for allocating radio spectrum, satellite orbits and technical telecommunications standards that have made possible efficient and interconnected global communications systems. You could not telephone anyone you want any where in the world from anywhere in the world (not to mention the Internet) without them.

The International Monetary Fund is another example of an international cooperative agreement, in this case for facilitating the financing of trade and capital movements (cross border investments). It has played an important role in removing economic restrictions on global trade and finance, though that role has been undermined to some extent and made more complex by the US abandonment of its obligations to redeem its currency for gold under the gold exchange standard imbedded in the IMF’s Articles of Agreement when President Nixon killed what was left of the gold standard.

Few countries want the leadership provided by the US replaced by China or anyone else, but as China and many other country’s economies and trade have grown relative to the US and especially to Europe, they rightly expect to have a larger role in organizations that act for the entire world. The US congress has very shortsightedly and foolishly refused to approve the adjustments in the governance of the IMF that would accomplish that. As a result it is undermining the foundation of the US’s leadership role. “Indeed, Treasury Secretary Jacob Lew made this point implicitly in testimony this week in which he also restated U.S. reservations about the AIIB: Our continued failure to approve the IMF quota and governance reforms is causing other countries, including some of our allies, to question our commitment to the IMF and other multilateral institutions that we worked to create and that advance important US and global economic and security interests.

…The IMF reforms will help convince emerging economies to remain anchored in the multilateral system that the United States helped design and continues to lead.” http://www.lobelog.com/washington-misses-bigger-picture-of-new-chinese-bank/#more-28547

While there are legitimate arguments over whether an Asian Infrastructure Investment Bank is a good thing or whether such funds would be better spent through the Asian Development Bank (China, which would lead the new AIIB, doesn’t have such a great record with the quality of its own infrastructure spending), the real issue is whether the world will remain united in the post WWII international order and presumably under US leadership of the International Financial Institutions it helped establish. The principles of inclusiveness and a level playing field that have always been the foundation of US promoted institutions clearly call for and would be promoted by supporting the expanded role of China in these institutions in keeping with its increasing involvement in the world economy. US opposition to the IMF governance reforms and its reaction against the AIIB appear duplicitous and are undermining the foundations of its leadership. “The decision by the UK, and subsequently, France, Germany, and Italy, to participate is therefore significant not only because they will be major shareholders, but also because the decision by traditional U.S. allies signals that Washington is increasingly isolated.” http://www.cfr.org/global-governance/bank-too-far/p36290

Everyone has a strong interest in having China join and work within the established liberal economic order rather than going its own way with a competing order. Recent US behavior hardly promotes that goal.

For my earlier comments on the AIIB see: https://wcoats.wordpress.com/2015/03/18/the-asian-infrastructure-investment-bank-aiib/