Category Archives: Economics

Travel Ban Aftermath: A Challenge to the Foreign Policy Monopoly?

In case you lived under a rock for the few weeks, the media was dominated by President Trump’s executive order banning citizens from 7 predominantly Muslim countries (Libya, Iran, Iraq, Somalia, Sudan, Syria, and Yemen) from entering into the United States regardless of status. This was followed by an overruling by a Federal district judge in Seattle and the confirmation by the 9th Circuit Court of Appeals in San Francisco. While opponents of the travel ban celebrated the courts’ decision and move on to other battle lines against the administration, an interesting aberration in government precedent has creaked open that can disrupt the Executive Branch’s long enjoyment of dominating foreign and national security policy.

American foreign policy and national security against foreign threats falls, by and large, under the purview of the executive branch. While Congress certainly has influence on major decision making (i.e. declaring war, finalizing trade agreements, and/or approving funding for major executive decision making), they for the most part act as an oversight committee on foreign policy and leave the direction and day-to-day decision making of American foreign policy and national security to the president. However, even then, that oversight is, by and large, not controlled by major mechanisms of the U.S. Constitution.

The precedent for this lies in a 1936 Supreme Court decision United States v. Curtis-Wright Export Corp. (1936), which largely stands unchallenged since. In a 7-1 ruling, the court explicitly defined which branch of government would by and large dictate foreign policy where it was once vague in the Constitution. Howard Zinn, in his book Disobedience and Democracy: Nine Fallacies on Law and Order (p. 62-63), expands on the decision and analyzes it as doing two major things:

It declares that in foreign policy the government is not as limited by the Constitution as in domestic policy; it assigns enormous power to the President in the making of foreign policy…

Zinn then quotes the court’s majority opinion:

‘…The broad statement that the federal government can exercise no powers except those specifically enumerated in the Constitution, and such implied powers as are necessary and proper to carry into effect the enumerated powers, is categorically true only in respect of our internal affairs…’

And Zinn concludes:

The court spoke of ‘the very delicate, plenary and exclusive power of the President as the sole organ of the federal government in the field of international relations–a power which does not require as a basis for its exercise an act of Congress.’ And when it adds that this power ‘of course, like every other governmental power, must be exercised in subordination to the application provisions of the Constitution[,]’ we must remember that the Court had just declared that in foreign affairs the government was not subject to the restrictions of the Constitution as in domestic affairs!

Since then, that decision has become a defining moment in legal precedent for allowing egregious violations of constitutional rights such as the internment of Japanese-Americans and the seizure of private property and businesses during “times of crisis” and/or war.  Therefore, the drumming up of fear and imminent threat has become the modus operendi of any and all president’s that have desired to push their policy and agenda with minimum legal opposition. In other words, it is like a first step in a Guide to Legally Establish Draconian/Dictatorial Laws in your Democracy flowchart.

As such, it should come to no surprise that the campaign rhetoric and policies coming out of the Trump administration fits the tried and true pattern. They were audacious enough to make such a broad and sweeping executive order. In fact, I would even speculate that they had their bases covered on being allowed to do so legally.

However, this time, with both Washington State and Minnesota suing the federal government on the grounds of economic damage and injury caused by the order in conjunction with an constitutionality argument, Judge Robart broke away from precedent. Judge Robart asked for evidence to support the executive order, which the Federal government could not supply. Instead, the Federal government challenged the authority of the Judicial Branch of the United States in reviewing decisions made by the Executive branch. Judge Robart quickly rebuffed such an argument.

The judge then concluded:

The work of the court is not to create policy or judge the wisdom of any particular policy promoted by the other two branches.That’s the work of the legislative and executive branches, while it’s the work of the judiciary to ensure laws and executive orders comport with the Constitution. The court concludes that the circumstances brought before it today are such that it must intervene to fulfill its constitutional role in our tripart government.

While the legal battle over the travel ban specifically is not close to over and will continue to work its way through the legal process up to the Supreme Court, there is a different subtext that can possibly play out where a possible avenue for challenging the Executive Branch’s near monopoly on determining foreign policy and national security can be formed. For the first time in a while, a case is being presented to the court that individual states are able to challenge a near century long precedent in American governance and legal ruling that gives the President sole power to dictate foreign policy. (The irony being that such a challenge started with the Republicans challenging Obama’s executive authority in a previous court case.)
It would be hyperbolic to claim that even the most favorable decision would reign in the President’s ability to dictate foreign policy, but it would creak open the door that was once shackled shut. That small creak could grow wider if individual states leverage the argument of economic damage and injury with evidence of US foreign policy causing direct economic damage that is amplified by globalization. It might be a bit of a long shot and likely would require juxtaposing an unconstitutionality argument, but the fact that a U.S. state is able to successfully sue the Executive Branch on a foreign policy and security decision (though it’s blurred as being also a domestic issue since it deals with immigration) might be able to pave the way of reigning in the monopoly on foreign affairs.
Another interesting detail is the close relationships that businesses and universities from these states (that make up the economic back bone of the state) worked closely with their local government to establish a strong legal case. The companies that overwhelmingly opposed the ban were from industrial sectors that rely on highly skilled and educated individuals, which have an over-represented Asian workforce that are directly affected by the ban (e.g. tech). While issues of diversity in the workforce (even in high-tech) is a problem and should be addressed, it should be noted that this may be an emerging area of influence in dictating policy, especially in booming sectors like tech and engineering that are starting to become more affluent in politics.
These increasing diversity factors (using a high-skill labor lens only, for now) can further solidify that bridge of foreign decision making to domestic repercussion streamline. As such, this may further embolden individual municipalities and states to keep challenging the President’s foreign policy that disrupts constitutional guarantees and could continue to chip away at his ability to roll out his policy.
If he continues to be disruptive, he could not only lose his own ability to establish his foreign policy agenda without aberration, but also for other presidents to come.
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Why I Will Vote for Obama – A Capitalist Viewpoint

Conducting research is an interesting journey. It can even be an emotional rollercoaster at times. It is fun (at least for me) to see the hypotheses or worldviews I possess in regards to politics, society, etc. is supported by factual evidence. Although, sometimes doing research can completely discredit your beliefs as well. In the case of my last blog post, the journey of doing research uncovered an incorrectly held belief/opinion (once again).

What you saw in the last blog post still remains correct. Both Obama and Romney refuse to address or lower the exorbitant defense budget and they both do not address the giant subsidies the United States pays to special interests, which burns a hole in our national debt. However, my intention when I first wrote the blog was to add a third piece as well. I was going to write that both candidates have not put legislation (or proposed/supported legislation in the case of Romney) into place that addresses the economic fubar that got the entire country into the economic disaster we are currently in. Had I included that into the blog without doing the proper research, I would have been wrong.

The reality is that President Obama did address the horrific wall street practices that brought the United States economy to a near standstill (wiki of Dodd-Frank). In fact, he addressed it emphatically. And, if you’re a capitalist…excuse me…a smart capitalist, you will know how important the passing of this bill was and how important it was in stopping the bleeding of the American economy. If you don’t know, let me break it down:

  1. When Bill Clinton acquired the presidency, he wanted to prove that he was a pro-business Democrat. So his administration began unraveling various government regulation that oversees wall street in the name making it easier for business to do…well…business.
  2. The detrimental piece of legislation that allowed wall street to run wild was the Commodity Futures Modernization Act, which allowed all derivatives to be unregulated and expressly forbade the CFTC (Commodity Futures Trading Commission) from regulating it.
    1. What are derivatives? — Wiki here, but the way Lawrence Lessig explains it is easier to understand:
      “Derivatives are assets whose value is derived from something else, where ‘something’ could mean literally anything. I could have a derivative that pays me if the price of gold falls below $1,000 … A derivative is just a bet entered into by two or more parties. The terms of the bet are limited only by the imagination of the parties … Derivatives serve a valuable purpose. As with any contract, [the] aim is to shift risk within a market to someone better able to carry it.
  3. When derivatives became unregulated, there was no oversight to see if whether parties (bankers, investors, hedge funds, etc.) contracted/bound themselves to derivatives so risky that it became detrimental to the overall macroeconomic structure. This is precisely what happened with the mortgage bubble and collapse of 2008 (click the link!!), which subsequently caused financial firms to go under (Lehman Brothers) and caused General Motors to beg the government to bail them out because Wall St. would no longer let them borrow money for their bad business model.
  4. Alan Greenspan, Chairman of the Federal Reserve during the time financial deregulation was taking place, was flabbergasted that his life-long championing of deregulation and laissez-faire economics would cause such a detrimental financial collapse. In the end, he had to admit he was wrong at a congressional hearing and concede that regulation is a vital piece to an economy.
  5. Sources: Lawrence Lessig’s Republic, Lost (unless I hyperlinked otherwise)

As a result of all this, President Obama championed an overhaul of the deregulated financial sector of the United States and pushed Congress to pass a financial reform bill, which it did with Dodd-Frank. The most important piece to that bill is the Volcker Rule, which keeps banks (or an institution that owns a bank) from amassing too much risk and participating in hedges or derivatives that could be deemed too risky without having adequate insurance or capital to support those risks. It also prevents banks from engaging in investments that are not deemed to be in the interest of its clients (conflict of interest).

Therefore, if you like capitalism…excuse me, intelligent capitalism…you will like the spirit and direction in which President Obama has taken the American economy. This is not to say that Dodd-Frank is adequate. In fact, it’s still far from it, but it does tighten the glaring loophole and puts the economy in the right direction. Candidate Romney on the other hand has threatened to “repeal and replace” Dodd-Frank, which has garnered the attention of financial institutions on Wall Street to pour millions of dollars of into Romney’s campaign. Even the conservative newspaper, The Economist (read: no friend to the Democrats and strongly dislikes Dodd-Frank), find Romney’s economic policies unpallatable. While, I do not agree with certain aspects of the article (which I could delve into in another blog), they seem to come to a similar conclusion as I do to vote for President Obama for a second term:

“As a result, this election offers American voters an unedifying choice. Many of The Economist’s readers, especially those who run businesses in America, may well conclude that nothing could be worse than another four years of Mr Obama. We beg to differ. For all his businesslike intentions, Mr Romney has an economic plan that works only if you don’t believe most of what he says. That is not a convincing pitch for a chief executive. And for all his shortcomings, Mr Obama has dragged America’s economy back from the brink of disaster, and has made a decent fist of foreign policy. So this newspaper would stick with the devil it knows, and re-elect him.”

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Of Deficits and Hurricanes

There’s nothing like a natural disaster to remind us of our (in)famous institutions that snap into action in providing disaster relief–especially in an election year. The blogosphere and web-pundits stormed in (pun intended) on each candidate’s record and positions on disaster relief and found the Romney/Ryan ticket having proposed 80% cuts in disaster relief funding. As online pundits argue over the pros and cons of such cuts, it touches upon one of the centerpieces of the election debate: Excessive spending and what to do about it.

The United States is in a deep hole, $1.1 trillion federal deficit and $16 trillion dollar national debt to be exact, and both president and nominee have different approaches as to how they will close that gap–supposedly (I will get to that later). During the debates President Obama talked about raising taxes for high income households and allowing certain business and household tax cuts to expire in order to close the gap. Mitt Romney’s plan is to cut taxes even further, adding $456 billion hole to the already enormous debt, but has claimed he will make up the lost revenue with “economic growth” and spending cuts. Unfortunately, the numbers don’t quite add up for Romney’s plan. As Bill Gale, from the independent Tax Policy Center, critiques Romney’s debt solution:

“Even if all the available tax expenditures were closed in the most progressive manner possible, it would not raise enough revenue among high-income households to offset the tax cuts they would receive. This was true even when we adjusted the revenue estimates to allow for the impact of potential economic growth, and even when we gave the campaign a trillion-dollar mulligan by ignoring the cost of the corporate tax cuts.

As a result, we concluded that if Romney did not impose new taxes on savings and investments, the only way to finance his tax cut proposals and reach revenue neutrality was to raise taxes on households with income below $200,000.”

This difference excites left-leaning pundits. Some so much so they’re calling it a “New”, New Deal. However, it may be a bit premature, if not totally off-base, to give Obama’s plan such a title. The fact remains, both are unwilling to cut the enormous defense budget and discussion of the bad American subsidy burden policy is non-existent (if you are to click on any one of my links, this is the one you should click on for sure). These two (especially the latter) causes a considerable amount of fiscal waste and only large corporations benefit from the industries these policies support. In fact, according to Lawrence Lessig, author of Republic, Lost, “10% of the recipients of farm subsidies collect 73% of the subsidies.” As a result, small-scale farmers can’t compete with large agriculture corporations because their bottom-line is leveraged far more than a competing small-scale farm. And yet, nobody talks about this.

I am not arguing that subsidies are all bad. Subsidies are an important tool for governments to support a nascent industrial sector so that it can grow and compete in the global market. For example, subsidies for green energy are an important piece of legislation that can help jumpstart a viable green industry sector. The problem becomes when to take the training wheels off. Subsidies artificially lower prices (as already noted in a previous link) and inhibits the free market to push-pull industrial sectors into other areas when they become less viable in one location and more viable in another. As a result, this creates a bubble and wastes an enormous amount of tax payer dollars, which increases the debt/deficit. It’s simply common sense that the oil/fossil fuel industry doesn’t really need subsidies to support their business because it’s already a proven commodity. Yet, we still pump $1 trillion in subsidies globally to get cheap gas and eliminate green energy competition.

At this point, it might seem clear that subsidies have to go, but here lies the conflict. Unfortunately, neither president nor nominee can simply slash subsidies completely tomorrow. There are many businesses, small to large, that are tied up in government subsidies and not allowing them time to transition their business models to seek revenue away from subsidies would cause a whole lot of people to lose their jobs and prices on food and fuel to skyrocket. In essence, it would be like implementing Iranian policies on the United States–not very smart.

The solution would be a long-term plan that must be designed to withstand successive presidents. It would have to be strategic in addressing concerns of rising costs that could be associated with subsidy cuts, which is usually addressed by lowering tariffs for cheaper imports. The money saved by subsidies can be reinvested in burgeoning sectors such as green technologies, high-tech services, and education to create a workforce that can support the demand for such positions.

Such a policy creates jobs, creates the workforce to perform those jobs, and saves the government a lot of money on waste. Cutting subsidy expenditures also allows proposals for tax cuts to actually be feasible by offseting the lost revenue caused by said tax cuts.

Unfortunately, that’s perhaps political suicide for both candidates as their campaigns rely on the contributions of those who benefit from subsidies. In other words, our tax dollars go to companies that pay candidates money to never address this problem. This hits on another issue of campaign finance reform, but that might be addressed in a different blog or you can read Lessig’s book (highly recommended).

In the meantime, we’re left with two politicians that blow harder than Sandy ever could.

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