Monday, January 26, 2015

The Political Reality of Syriza and the Political Sustainability of Capitalism

The stubborn insistence of the Eurozone authorities on unending austerity in the face of an epic economic downturn blew up in Europe's face yesterday with the political triumph of Syriza, and its leader Alex Tsipras.

Syriza is a coalition of left and radical left parties that now controls the Greek Parliament.  They have promised Greek voters a negotiated write-down of Greece's massive sovereign debt and an end to austerity in Greece; others in the Eurozone say that is simply not possible. Greece thus now poses a major threat to stability in the Eurozone, a risk I raised in a blog post in December and in a series of posts over the past few years.

Here is how the WSJ.com characterizes Syriza's platform:
A Syriza victory marks an astonishing upset of Europe’s political order, which decades ago settled into an orthodox centrism while many in Syriza describe themselves as Marxists. It emboldens the challenges of other radical parties, from the right-wing National Front in France to the newly formed left-wing Podemos party in Spain, and it sets Greece on a collision course with Germany and its other eurozone rescuers.

And, this is how the Economist sees a potential path to the dreaded Grexit from the Eurozone:
A Grexit could happen if Syriza, the left-wing opposition party led by Alexis Tsipras, which is currently ahead in the polls, wins the election and confronts Greece’s creditors with demands they find incompatible with Greece staying in the monetary union. A political decision to expel Greece could be enforced by the European Central Bank cutting off Greek banks from its liquidity operations and payments system. 
The same Economist article also lays out an alternative scenario whereby a Grexit is avoided. The key point, however, is that in coming weeks Greece and Germany are going to be playing "chicken" with the Eurozone. Any miscalculation on either side could lead to Greek exiting the Eurozone.

Photograph of Barry EichengreenOf course, everyone knows that at the first sign of Grexit, all those holding Euros in Greece would face temptations to move their money to safer place lest they be forced to accept Drachmas (sure to lose value) in exchange for their Euros. Further, those holding Euros in Spain, Italy, Portugal and other troubled Euro nations would need to confront the reality that Eurozone membership is not inviolable, and they too would move their cash to safer climes. If enough cash moves fast enough banks will fail throughout the Eurozone  that a financial crisis is apt to result. Then loses would be distributed through the non-transparent and government subsidized derivatives markets to who knows which banks. Renown international economist Barry Eichengreen believes the ensuing crisis would be "Lehman squared." It is very hard to disagree with Professor Eichengreen and his analysis is in accordance with mainstream economic thinking. The only good news is that Mario Draghi foamed the runway last Thursday through his massive $1 trillion quantitative easing program. Still that will likely not prove enough to stem a panic-induced contagion across the periphery of the Eurozone--at best it will simply mitigate the inevitable downturn a bit.

Greek currently faces billions in debt repayments this year. The next payments are due March 1, with more due in the summer. The Greek banking system is basically kept afloat right now only with ECB support. The government debt burden amounts to over 170 percent of GDP. Unemployment is 28 percent and GDP has plunged 26 percent since the onset of the crisis. Youth unemployment is over 50 percent. These numbers reflect a true humanitarian nightmare with little real economic hope for Greece, particularly its youth. While I am always suspicious of leftist solutions to anything (think North Korea or compare old West Germany to Old East Germany), one can hardly blame the Greeks for responding to severe economic pain in the same manner that US voters did in 1932. They voted for uncertainty over certain economic pain. It could have been worse. Consider Germany in the 1930s, or Russia in the depths of the manifest misery of World War I.
Economist CC c      c
Capitalism must be defended politically by governing elites to assure its viability at the polls. This means that growth-retarding elites must be disempowered under the rule of of law from entrenching their own privileges at the expense of a true competitive meritocracy. Real economic growth must be permitted based upon the talents and innovations of a fully empowered population. Growth and opportunity must be broadly shared to assure maximum political viability. Crony capitalism whereby law and markets are rigged in favor of the few is ultimately politically doomed.

Unfortunately, with respect to Greece, it appears the aid rendered by the troika (ECB, IMF and Eurozone) ultimately aimed to buy time for Eurozone banks and gave little thought to the well-being of the people of Greece. Instead, they (particularly Germany) prescribed poison. Now, the Eurozone must deal with the political whirlwind of that ill-starred decision.

Wednesday, January 21, 2015

New Study Adds to Evidence that Diversity Furthers Entrepreneurship and Innovation


This blog has long advocated the financial and macroeconomic benefits of cultural and cognitive diversity. The basic premise is that differing perspectives results in knowledge elaboration for firms and when properly embraced through appropriate policies and best practices these diverse perspectives can drive innovation. This approach to diversity defines these differing perspectives very broadly--whether arising from gender, race, or even profession--and thereby demands inclusion for all even (in an underrepresented institutional context) white males. As I wrote in 2000, in Diversity and the Boardroom: "properly managed diversity can bring merit in a facially neutral manner." Or as a recent post on Forbes.com concludes: "diversity management in America’s corporations can no longer be viewed as an expense, but rather as a strategic investment in the future." Strong empirical evidence supports the case for diversity. "Whether talking about creativity, innovation, or productivity, research in Western Europe and the US regularly finds support for a ‘diversity dividend.’"

Yet another recent study demonstrates the power of cultural diversity. Specifically, a new working paper shows:
the impact of cultural diversity on the entrepreneurial performance of UK regions. We focus on two largely overlooked factors, the measurement of diversity, and the skills composition of diverse populations. First, more than demonstrating the importance of cultural diversity for entrepreneurship, we show that the type of cultural diversity measured is a decisive factor. Second, the skill composition of diverse populations is also key. Diversity amongst the ranks of the highly skilled exerts the strongest impact upon start-up intensities. The empirical investigation employs spatial regression techniques and carriers out several robustness checks, including instrumental variables specifications, to corroborate our findings.
In other words diversity drives innovation and entrepreneurial activity, particularly when cultural diversity is measured by highly skilled recent immigrants. This idea is hardly new. Nevertheless, this study reaches a very refined conclusion that even within the findings linking diversity to entrepreneurial outcomes, it is the influence of recent immigrants with skills that exerts the strongest influence on new business formation. The policy prescription is very clear: we should immediately open the borders of our nation widely to skilled immigrants. Unfortunately, Congress is sentencing our nation to a second rate economy by keeping the level of skilled immigration to the US too low. "While the United States allows unrestricted flows of capital into the country, known as foreign direct investment, Congress has limited the flow of modern-day capital -- skilled engineers and tech workers -- by capping H-1B visas at a level that American technology companies know is far too low." Currently there are bills pending in Congress that take steps in the right direction. I advocate even more aggressive steps, such as open immigration for all persons with a college degree.

The US is suffering from a dangerous decline in business start-ups. For the first time in history the number of businesses closing in America exceeds the number of start-ups. This is unacceptable for a nation that has traditionally led the world in innovation and entrepreneurial activity.


In fact, according to the OECD, the US lags almost the entire developed world in employer enterprise birth rates, as shown on the chart above. We must do more to foster entrepreneurship in the US and opening the borders for entrepreneurs and highly skilled workers is one sensible way to achieve this. Those in favor of free market capitalism must also favor the elimination of barriers on the free movement of human resources--especially skilled workers.

Wednesday, January 7, 2015

Law and Policing Reform

photo courtesy of Wikimedia Commons and Fibonacci Blue
Law professor and writer David Danté Troutt has imagined a safer and more just policing policy in the United States in his recent The Nation article "Is Racial Justice Possible in America?"  With the recent deaths of Michael Brown, Eric Garner and Tamir Rice at the hands of police officers, Troutt suggests that we need to change the way we think about police brutality raising our disdain for such behavior to the level of our abhorrence of pedophilia, rape, and domestic assault.  Troutt suggests reform policies which we must consider adopting if the U.S. is to end the scourge of police violence and the killing of unarmed African American citizens. 

Per Troutt: "We probably don’t need another national conversation about race as much as we need one about law reform. And let’s be clear: justice is far from impossible to imagine. What’s required is more constructive policing methods to rebuild trust:

§ Cops must wear cameras and microphones to preempt exculpatory storytelling.

§ Cops must be well trained in avoiding implicit bias, so they don’t dehumanize the public they serve. In fact, judges should be urged to allow juries to hear evidence of implicit bias among police officers.

§ Police departments must finally keep reliable records on their use of deadly force so we can stop guessing at the numbers.

§ Prosecutors should more aggressively seek manslaughter charges rather than murder charges, so that lethal mistakes don’t go unpunished.

§ The appointment of special prosecutors in questionable cases should be routine, to avoid the conflict of interest between prosecutors and police.

And when the local politics are insurmountable, we need an amended federal statute with a legal standard that cherishes the protection of life—the greatest civil right. These reforms would bring a lot less shooting and a lot more accountability. That would bring us closer to justice."

Sunday, January 4, 2015

What Does The Great Derivatives Wizard Know?

This blog has long argued against the non-transparent and highly subsidized derivatives activities of the megabanks while also recognizing the legitimate role of derivatives in facilitating risk management. Most recently, I suggested that any financial losses arising from turmoil in Greece, Russia or the global oil collapse could land in surprising places thanks to the derivatives markets.

Derivatives allow megabanks to sell their government backing to third parties for a lower price than what would be implied by the third party simply investing in government bonds. The megabanks under-price the risk of their derivatives transactions because ultimately the US taxpayer (and by extension the economy as a whole) bears the costs not executives at the megabanks who make millions no matter what.

Recently, the megabanks used their prodigious political power to short-circuit the efforts of lawmakers to curb the derivatives activities of the megabanks under the Dodd-Frank Act. The megabanks managed to insert a provision in an omnibus funding bill that effectively repealed the Dodd-Frank mandate that federally insured banks "push-out" their riskiest derivatives activities to other megabank affiliates. Due to their express federal insurance the bank subsidiaries enjoy higher credit ratings than the megabanks as a whole.

This stealth repeal of part of Dodd-Frank means that the banks now offer a safer, less risky derivatives product to their counterparties. That, in turn, means more pricing power, greater megabank profits and higher bonus payments to senior management.

Some megabank apologists suggest that this all matters little or that it is all about technical rules beyond comprehension. Do not buy that sanguine story. Essentially this dispute is about whether the riskiest derivatives--including credit default swaps (CDS) like those that sank AIG in 2008--can be housed in federally insured depository institutions. Huge sums are at stake. Jamie Dimon himself lobbied for this partial repeal of Dodd-Frank. Citigroup apparently drafted the bill. According to the Vice Chairman of the FDIC: "There is about $10.4 trillion in notional CDS exposure that would have been subject to the push-out, and one insured bank owns $4.6 trillion of that exposure. That is three times the amount of notional CDS AIG had when it was bailed out at a cost of $85 billion." In other words, the very derivatives (credit default swaps) that figured so prominently in the 2008 financial collapse are subject to this partial repeal, but in far greater amounts.

Government subsidies like those available to insured depository institutions should not extend to support risky derivatives transactions. The only logic behind this partial repeal is for megabank CEOs to garner excess compensation for taking on too much risk and the raw political power that the megabanks now hold in Washington.


Given the incestuous relationship of derivatives traders (a small number of global banks dominate the market) why did this regulatory indulgence make it to the top of their agenda now? Do the megabanks know something about their exposure to Greece, Russia, and the oil collapse that makes federal backing of their riskiest derivatives particularly urgent?

Thursday, January 1, 2015

Happy New Year


Following an eventful 2014, we at the Corporate Justice Blog wish all of our readers and supporters a happy and healthy 2015.  As has been the case since our inception in 2008, we endeavor to highlight corporate injustice and promote corporate justice, a concept that we believe challenges corporations and corporate leaders to "do no harm" in their pursuit of profits and shareholder gain.  Corporations, as fictional persons, have an obligation to contribute positively to the communities in which they do business, be it local, regional, national or global.  We hope for a bright and fair 2015.  We appreciate your support and comment.  Happy new year!

Sunday, December 14, 2014

The Powerful Menace of Debt-Deflation 2014

Global PPI
Debt-deflation poses the ultimate threat of economic pain. At its worst, the very viability (politically and economically) of capitalism itself can be called into question under the pain of debt-deflation. The Great Depression furnishes the most painful example of debt-deflation thus far in modern capitalist economies. In the US, unemployment soared to 25 percent and in the election of 1932 the communist and socialist parties attracted 1 million votes.

Why is debt-deflation so dangerous?

First, in a deflationary reality, people will rationally slow down all spending, constantly delaying purchases of all sorts to take advantage of lower prices. This spending slow-down then spirals, as firms respond to lower revenues by slashing costs, especially employees. As unemployment increases spending necessarily falls further, necessitating more spending cuts in the business sector. In an economy where about 70 percent of all economic activity is consumer-driven, as ours is today, it is easy to see that the threat of deflation can quickly spiral out of control leading to massive unemployment and macroeconomic pain for all.

Second, once deflation takes root, investment is bound to falter. During the Great Depression investment plunged by over 80 percent between 1929 and 1933. Falling prices, unemployment and reduced consumption simply do not inspire investment. Risk aversion becomes the norm as creditors will even accept negative interest rates as investment opportunities shrivel away and currency becomes more valuable over time. These negative rates both reflect and amplify dire investment options and ultimately lead to financial disintermediation as people opt for cash rather than even bank deposits. The withdrawal of capital from the economy then operates to further restrict growth.

Third, and most ominously, consider debt in a deflationary environment. Debt taken out in a non-deflationary environment (often during a bubble) becomes unsustainable in a deflationary environment because dollars by definition become more valuable and scarce. So, debt burdens soar in real terms. Defaults necessarily soar too, and the financial sector then succumbs to losses. Capital freezes, much like what occurred in the wake of the Lehman failure in 2008. Highly indebted societies feel the greatest macroeconomic pain from debt-deflation.

Three simple steps toward macroeconomic catastrophe.

Of course, it could never happen today, right? Wrong--it is happening as you read. As the chart above shows, the world has been flirting with deflation for years. Even before the oil price plunge of recent weeks, as The Economist shows, virtually the entire developed world was already perched on a deflationary precipice. Deflationary pressures are growing dramatically, as I demonstrated last week with this blog post.

Most particularly, the recent plunge in crude oil constitutes the greatest deflationary shock to the global economy since the failure of Lehman Brothers. A huge part of the decline is demand driven, as the International Energy Agency and others continually cut demand estimates, including on Friday which led to the stock market carnage. The price of oil is simply now in a free fall:



In fact, late last week the price fell off the above chart to $57 per barrel. The price drop reflects massive economic slow-downs across the world especially China, Germany, the Eurozone in general, and Japan. Now oil and other commodity price plunges are dragging nations like Norway, Russia, Venezuela, Nigeria into recessions. The deflationary spiral has begun. This deflationary price spiral bodes ill for the global economy.

Far worse, however, is its impact on asset values and accompanying losses in the financial sector. For example, both Russian and Venezuelan bonds seem headed for default. Energy now constitutes 16 per cent of the US junk bond market, up from 4 percent ten years ago. So, high yield debt markets are silently crashing. The fear is now spreading beyond energy. In fact, the flight to safety has turned into a mad rush--as evidenced by plunging yields in US Treasury debt.

So where precisely in the financial sector will those losses fall. Only the great derivatives wizard knows for sure but a good place to guess is the US megabanks who control 95% of the derivatives market in the US, as I will discuss in my next post.

Can this all be averted? Of course, through vigorous and broad based monetary and fiscal stimulus. I will address these mainstream solutions in a subsequent post.

Friday, December 12, 2014

Greece and a Gathering Perfect Storm in Financial Markets

Events have turned suddenly around the world in a way that promises to spawn macroeconomic disruptions. Basically, several powerful deflationary pressures now grip the global economy. Let me simply survey the worst storms that seem to be emerging around the world:

1) Greece and the possibility of a Grexit from the Euro Zone is back in the news. The Greek Prime Minister has called a snap election that could derail the bailout of Greek debt. The Athens financial markets literally crashed in the wake of this development. The Parliament in Athens will vote first on December 17, and if the government loses there then a general election will follow shortly thereafter. Worst case scenario: months of uncertainty followed by catastrophe.

2) The Euro Zone is in terrible shape and appears to be worsening. The ECB appears totally sidelined by the Germans at this point. It would be hard to imagine that the Euro Zone could withstand an event like a Greek exit from the Euro Zone. Even without an exit, it seems destined to suffer a recession and to export deflation worldwide. This is a key reason commodity prices are crashing.

3) China apparently racked up a mountain of bad debts that initially helped fuel its stellar growth but now leaves it with a massive hangover of underutilized assets and loan defaults. The future is not looking good across the Pacific. China is also exporting deflation as its slowdown (of unknown proportions) is clearly causing commodity prices to plunge across the world.

4) In fact, the Bank of International Settlements recently warned that many nations (Russia, Venezuela and a host of others) and private firms face declining revenues and soaring debt burdens because commodity revenues are shrinking as dollar-denominated debt increases in cost due to a surging dollar that is a natural outcome of the commodity bust. This could lead to a rash of defaults.

5) Meanwhile, in the US a dramatic fall in oil prices poses an existential threat to the highest growing part of our economy--energy. Jobs in the oil patch account for virtually all job growth in America over the past five years and new jobs beyond energy pay little. Much of the American high yield debt market is centered in the oil patch. With oil in a literal free fall this sector of the US economy may well be doomed. Can the US economy withstand the job losses and loan defaults implicit in very cheap energy?

There are more threats. Banks across the world still need to deleverage, raise capital and therefore reduce lending. Ukraine faces financial collapse. These problems are manageable alone. The above issues are in combination far more dangerous.

All of this suggests that despite an apparently buoyant US  stock market (now standing at 17,411) caution must temper any optimism. "This week's financial headlines sound like a recap of the horror stories of the last six years." There is an increasing probability that a major financial crisis looms as deflationary pressures overwhelm an increasingly fragile global economy.

Wednesday, December 3, 2014

Ferguson, Eric Garner and Occupy Wall Street



     A New York grand jury has decided not to indict the police officer who choked Eric Garner to death in Staten Island.  I was too young to march with civil rights leaders in the 1960s.  I am too old to demonstrate with the young people who have protested against the Ferguson grand jury’s decision and have kept the issue of police criminality, brutality and implicit bias in the headlines.  I can’t demonstrate with them, but I’m proud of and grateful for them.

 

     As many others, including Roland Martin, have said, these protesters have started a movement.  It is a movement precipitated and inspired by the string of young men across the nation who died at the hands of police officers and vigilantes like George Zimmerman. 

 

     I was proud also of the demonstrators who participated in the Occupy Movement.  I even went to observe and encourage the Occupy Wall Street protesters in Zucotti Park in lower Manhattan.  I am profoundly disappointed that the Occupy Movement has all but disappeared.  Many accused the Occupiers of being unfocused, and disorganized with no meaningfully unifying concept.  The recent protests about police brutality and the targeting of Black men are focused and unified in a way that the Occupiers never achieved.  I thank God for them.  This latest movement makes me hopeful that we will see a resurgence of political and social activism – including a rebirth of Occupy Wall Street.

 

     I teach law at St. John’s University.  The day after the Ferguson grand jury’s decision was announced, several students of African descent stopped by my office to discuss the decision.  They told me they felt powerless, helpless.  They are now studying for exams.  I can only imagine how they feel as future lawyers trying to earn a law degree as Black vulnerability – physically, emotionally, economically (this is why Occupy Wall Street was so important)—increases exponentially.  The protesters, I hope, inspire them.  Like me, they may not decide to take to the streets, but they will engage in some type of activism in their communities, and at our law school.

Wednesday, November 26, 2014

Statement on Ferguson, Missouri - Society of American Law Teachers

The Society of American Law Teachers (SALT) issued a formal statement in connection with the chaos ensuing in Ferguson, MO.  The statement is below:

November 21, 2014

The Society of American Law Teachers (SALT) calls for the upholding of the rule of law in relation to the death of Michael Brown. Michael Brown’s death and the subsequent protests in Ferguson remind us of the consequences when the community loses faith and trust in America’s policing and judicial systems. SALT is concerned that violence by the police against unarmed Black people is becoming increasingly common. The actions of the police in Ferguson and the community reaction are a microcosm of the inequalities and profound mistrust that pervade many communities around the country that must be addressed.

SALT and its members are committed to ensuring that the system of justice in the United States operates effectively in a manner that affirms the principles of equality and justice. In keeping with our mission, and as a community of engaged law professors, we would like to offer the support and expertise of our members to help address systemic inequities that erode faith in our justice system and to facilitate discussion, dialogue, and concerted action to address the issues that Michael Brown and the Ferguson protests have raised at the local and national level. We must ensure that our system of justice gives historically subordinated populations assurance that the laws are being executed fairly. By acting in solidarity with the people of Ferguson, we seek to promote adherence to and the sanctity of civil and human rights principles in the United States.

In the wake of the events in Ferguson, we call for:

(1) upholding the principles of equality before the law;

(2) implementation of a system of police accountability, oversight and integrity regardless of race, class or social standing;

(3) safeguarding the right to speak freely and peacefully protest and acting to quell excessive police force that inhibits the exercise of these fundamental rights; and

(4) working to eliminate divisive policing and justice policies and practices that demean people of color and view them as objects of threat and fear.

Monday, November 3, 2014

Risk Management and the Interagency Diversity Standards: Opportunity and Peril


Change is afoot in the financial services industry as key elements of the Dodd-Frank Act (finally) take root. Three regulatory initiatives in particular are now at the forefront of bank compliance efforts. First, under section 165(h) of the Dodd-Frank Act, the Federal Reserve issued Enhanced Prudential Regulations (Reg. YY) for large bank holding companies which will take full effect on July 1, 2015. Second, the Office of the Comptroller of the Currency has similarly promulgated new risk management standards applicable to large insured banks and thrifts. Third, the Fed, the OCC, the FDIC, the SEC, and other financial regulators have proposed interagency guidelines for assessing the diversity policies of regulated entities, issued pursuant to section 342(b)(2)(C) of the Dodd-Frank Act.


I have previously blogged about the new risk management standards applicable to banks and other financial institutions. I also have previously blogged on the positive impact of cognitive diversity. In this post, I argue that these new regulatory initiatives should be taken as an invitation for every firm to upgrade their policies to fully embrace cognitive diversity and to move to enhanced risk management policies and procedures. While each firm should customize its approach for its business environment, the empirical evidence suggests that large firm value and performance gains are possible for firms at the cutting edge of these issues. On the other hand, risk and diversity mismanagement can inflict huge costs on firms.

In past posts I have summarized the outsized gains in financial performance for those firms taking a more optimal approach towards ERM. Similarly, it is clear that enhancing the cognitive diversity of a board leads to outsized performance gains. Thus, one recent study found that sound ERM is associated with firm value gains of up to 20 percent. Another recent study found that firms benefiting from the cognitive diversity implicit in having an attorney on the board enjoy a 9.5 percent valuation advantage. These are simply a sample of studies that find such gains.

There are no studies that I know of that assess the positive gains available to firms that seek to optimize their approach to both ERM and diversity, simultaneously.

Logically, ERM and embracing diversity go hand-in-hand. For example, diversity policies that prohibit any hostile environments for any workers will give a firm an advantage in worker productivity as well as limiting the risks from Title VII litigation. Firms should assure they foster business cultures with a zero tolerance approach for discrimination and harassment. Broadly embracing diversity assures the most skilled workforce possible. Similarly firms should seek more diverse leadership can draw upon broader cognitive insights to assure that the firm adhere to ethical norms and expectations that mirror those of diverse constituencies ranging from investors, employees, consumers and suppliers. In sum, diversity is critical to the sound management of legal, regulatory, and reputational risk.

Moreover, aside from the potential gains from optimizing a firm’s approach to risk management and diversity, business leaders should also consider the likelihood of negative outcomes from failing to bring the best learning to bear on these issues to their firms. We learned from the financial crisis that less diverse firms engaged in risker subprime lending activities. Financial firms with superior risk management policies also fared better during the crisis. Failure to embrace ERM and cognitive diversity leads to financially impaired performance.

I will be writing more on these new regulatory initiatives. Today I simply write on a single point: all businesses should reflect on the opportunities as well as the perils presented by the best learning on ERM and diversity management. As I will show in my next posts, these new regulations reflect and further our understanding of ERM and diversity management.

Saturday, October 18, 2014

Prison Populations Declining in the United States

Excellent news reported in the Wall Street Journal for those opposed to mass incarceration in the United States.  Since 2009, prison populations have been on the decline in both the state and federal prison systems.  Relaxation of incredibly harsh drug sentencing policies as well as state leadership recognizing the economic consequences of imprisoning its citizens at never-before-seen levels, has resulted in a concomitant drop in prison populations across the country.

This drop in prison populations for the first time in over 35 years has resulted in some prisons built during the mass incarceration era to sit empty and many are "for sale."  The following tone-deaf statement by a Texas politician to the new trend in relaxing out-of-control drug sentencing policies reflects the reaction of some to the drop in prison populations: "'There’s a prisoner shortage,' said Mike Arismendez, city manager for Littlefield, Texas. 'Everybody finds it hard to believe.'"

According to the Wall Street Journal:  "The incarceration rate is declining largely because crime has fallen significantly in the past generation. In addition, many states have relaxed harsh sentencing laws passed during the tough-on-crime 1980s and 1990s, and have backed rehabilitation programs, resulting in fewer low-level offenders being locked up. States from Michigan to New Jersey have changed parole processes, leading more prisoners to leave earlier."

This trend is a positive step in the right direction, as the Corporate Justice Blog has railed against mass incarceration and U.S. carceral policies for many years.

Monday, September 1, 2014

31 August 1914

One hundred years ago, Europe plunged into mass self-immolation in the service of dim and corrupt monarchs. After a short skirmish to determine lines of defense, WWI settled into massive trench warfare for more than four years, and the blood flowed in Europe like never before. By the end of August 1914, everyone had declared war on everyone, and the long march of death commenced.

Among the millions of dead are the approximately 10,000 souls whose unidentified bones rest at the Navarin Ossuary in northern France, as depicted above. The ossuary is located just north of the Champagne region, and they still occasionally find unidentified bones today, in the nearby fields and the remains of the adjacent network of trenches and surrounding bomb craters. The machinery of death ground up soldiers so thoroughly that it was impossible to identify who belonged to which bones so they threw up monuments like the above, and took a wild guess at the number of dead.These ossuarys are all over northern France, I simply stumbled across the one above, along with numerous military cemeteries. If you really need to further ponder the carnage of WWI, go here, for example.

This war was not necessary. Law cannot abolish wars, but it can absolutely minimize them. The problem with World War I is that the ineptitude of monarchs and their concentrated power caught up with the world. As the US Constitution shows law can fragment power, and law can help assure that meritocratic competition determines who is the most competent and ethical for purposes of wielding power. Simply stated law can curb and channel power productively.

Many believe that WWI was inevitable, that alliances and militarism caused WWI. Former Secretary of State Henry Kissinger recently took that position. I argue that the world spins from crisis to crisis. That in order to manage these crises, it is essential to have the best and the brightest at the helm and the full costs and benefits of crisis resolution or irresolution must fall on those with power. Monarchies reflect the opposite of these principles. These monarchs were not the best and the brightest, simply the most inbred. When they decided to let slip the dogs of war, they calculated that the costs would be borne by their people, not themselves.

The corruption of Tsar Nicholas, the ineptitude of Emperor Franz Joseph, and the arrogant stupidity of Kaiser Wilhelm caused WWI, not a group of abstract notions. In closing let me offer some quotes from some of the new scholarship on the causes of World War I.

On the folly of the Kaiser and Germany: "how would an Austro-German alliance of 120 million defeat an Entente alliance of 260 million that wielded more troops, more ships, and 60 percent more national income? Superb at tactics, the Germans were appalling at strategy, avoiding the net assessments of themselves and the Austrians that would have led them to seek a diplomatic solution, not war, in July 1914." (Wawro, 373).

On the ineptitude of the Emperor and the Austrians: "[Austria] was a desperately conflicted power that thought nothing of throwing all of Europe into the flames to preserve its ancient rights to lands like Bohemia and Hungary--lands that had lost all interest in the Hapsburg connection and were trying to break away. Austria's Great War was built on the reckless gamble that the monarchy's internal problems could be fixed by war. They couldn't." (Wawro, 383).

But my own favorite example of a dim-witted and corrupt monarch is Tsar Nicholas. His support of state-sponsored terrorism (knowingly or otherwise) is the proximate cause of WWI. It led directly to the source of ignition--the assassination of Franz Ferdinand. His blundering decision to mobilize for war in late July of 1914 made war inevitable. He held the last clear chance to avert war and he unleashed war knowing it would lead to a bloodbath:
"The decision for European war was made by Russia on the night of 29 July 1914, when Tsar Nicholas II, advised unanimously by his advisers, signed the order for general mobilization. General mobilization— as he knew— meant war. So clearly did the tsar know this that, on being moved by a telegram from Kaiser Wilhelm II, he changed his mind. 'I will not be responsible for a monstrous slaughter' is the key line of the entire July crisis, for it shows that the tsar, for all his simplicity—knew exactly what he was doing when he did it. He knew exactly what he was doing when he did it again, sixteen hours later, after agonizing all day about it." (McMeekin, 398).

Tsar Nicholas "opportunistically" pushed for Russian expansion into the Balkans and for a warm water port and thereby triggered a "monstrous slaughter." (Wawro, 51).