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Game of Thrones

By Vijay Prashad. This article was first published on Frontline.

NICHOLAS KAMM/AFP President Donald Trump speaks at a rally at Orlando Melbourne International Airport, in Melbourne, Florida on February 18. The next day, Swedes reacted with confusion, anger and ridicule on to a vague remark by Trump at the rally that suggested that something terrible had occurred in their country.

IT is hard to predict what will happen in the Trump White House. A senior diplomat tells me that he would prefer to watch old episodes of House of Cards rather than watch news programmes. A veteran of the Barack Obama administration predicts that President Donald Trump will not last even a few months. The rigours of the actual presidency will wear him out. Trump likes the theatre, but he will not have the stomach for the grind. Speaking to a woman in the State Department is amusing. She says that the analysts suffer from whiplash. The political direction comes from Twitter in the rush of messages dispatched from the President early in the morning but then is modulated and shaped by his advisers later in the day. “We don’t know what is going on,” she said. These are all seasoned Washington, D.C., insiders. None of them sees anything normal about the Trump White House.

It would be easier to report on the Trump presidency if it were plagued by scandals. That is familiar territory. What you have instead is a power battle inside the Trump administration that does not seem capable of being controlled. This is more Game of Thrones than House of Cards. Chief of Staff Reince Priebus is at loggerheads with Chief Strategist Steve Bannon. White House counsellor Kellyanne Conway says things that are at odds with what is reported by White House press secretary Sean Spicer. Rumours flood Washington that various factions inside the Trump administration are leaking stories in order to damage their competitors. Trump, says one insider, is content being the emperor above them, a Mortal God who allows his underlings to wage a war of all against all. Trump, in his bathrobe, eating his Big Mac on a silver plate, watching television in the dark—he is a cross between the overestimated Wizard of Oz and the omnipotent Leviathan of Thomas Hobbes.

Meanwhile, Trump’s nominees for his Cabinet to run the major Ministries of the federal government idle their time. He has sent so many billionaires with such thin resumes and such thick ideological dispositions that the Senate, which has the right to oversee these appointments, simply cannot digest the information fast enough. The people who have taken their seats are stunningly incompetent or adversarial to their own posts. Betsy DeVos, the Education Secretary, is a billionaire who has financed campaigns against public education. Tom Price, the Health and Human Services Secretary, was a former Congressman who fought Obama’s health care plan as if it were the greatest threat to the United States. These are people with little broad credibility.

No wonder that James Mattis, the Defence Secretary, and Rex Tillerson, the Secretary of State, seem stable. Mattis believes against all evidence that Iran and the Islamic State—fundamental adversaries—are somehow allied. Tillerson, as head of Exxon, has shown little capacity for statesmanship outside corporate interest. Nonetheless, in comparison to the others, these men seem the epitome of distinction. As the ship of state splutters, these men struggle to control the tiller.

To Russia with love

It sometimes seems as if Russia, not the U.S., won the Cold War. Democratic Party politicians continue to suggest that Russia was able to sufficiently influence the election to prevent Hillary Clinton from winning. Suggestions of contacts between the Trump campaign and Russian intelligence bedevil the political discourse. The “deep state” in the U.S.—namely the intelligence agencies—has perhaps leaked sufficient information to damage quite seriously any possibility for Trump to ease the tension between the U.S. and Russia. The resignation of Trump’s National Security Adviser, Michael Flynn, was the first casualty of these leaks. Others will follow. The “deep state”, abused in public by Trump, will not be taken lightly. He made a grave error in crossing the Central Intelligence Agency (CIA) and its more mysterious cousins. They will make Trump pay.

Meanwhile, the National Security Council is in serious disarray. Trump’s closest ideological ally, Steve Bannon, has brought politics into the heart of what is often considered as a sanctum for intelligence and military analysts. They do not want domestic politics to intervene in their decision-making. This is their conceit. Bannon’s presence brings American political considerations into discussions of national security. Sitting near Bannon is an art historian with no experience in the world of intelligence or security. Professor Victoria Coates writes a blog at the RedState website and helped former Defence Secretary Donald Rumsfeld on his book. Perhaps she is there because she will help Trump digest the conversations. He likes one-page presentations “with lots of graphics and maps”, according to The New York Times. One official in the White House told the newspaper: “The President likes maps.” He is a deeply visual person. Reading irritates him. His ex-wife Ivana Trump once said that beside his bed, Trump kept a copy of Hitler’s Mein Kampf. One should rest assured that he most likely never read it.

It was perhaps reasonable for Trump to consider what the Americans call a “reset” on its policy with Russia. Tensions between the U.S. and Russia have damaged U.S. power both in Europe and in West Asia. Threats over the North Atlantic Treaty Organisation’s (NATO) expansion eastward have pushed countries inside Europe to either become more belligerent against Russia—and thereby damage relations with a major supplier of natural gas—or to move closer to Russia—and thereby threaten the unity of Europe. In the 1980s, the Soviet Union lost much of its toehold in North Africa and West Asia, particularly when the Egyptian government pivoted from the Soviet Union to the U.S. around 1979-80. Now, with U.S. policy in the region in disarray, the Russians have strengthened their position in Syria, Iran, Egypt and Libya. Trump’s theory of a reset was logical from the standpoint of U.S. power. It would have served to rein in Russian ambitions. But that is now in the past. It would be too suspicious for Trump to make a deal with the Russians. The “deep state” will insist that the bellicosity be maintained. Trump will preside over the further decline of American power.

Bibi and Donald

Israeli Prime Minister Benjamin Netanyahu and his wife, Sarah, are in deep trouble inside Israel. They face charges of corruption and might very well see the inside of a prison cell before Netanyahu, also known as Bibi, leaves office. This was the context of their visit to the U.S., where Trump gave them a royal welcome. They were photographed inside the Oval Office, sitting on the cream coloured chairs with Trump and his wife, Melania. It was as if the Trumps and the Netanyahus had not a care in the world.

At their joint press conference, Netanyahu seemed deeply enamoured of Trump. Bibi spoke in his customary baritone voice, but he laughed in a totally uncharacteristic way—almost flirtatiously. Trump fumbled his way through a discussion about Israel’s occupation of Palestine. He offered, with no real assessment, that the two-state solution was no longer U.S. policy. Netanyahu seemed to revel in this new period, with the idea that the Palestinian state was no longer on the table an appealing one for him. But this idea of the one-state solution should trouble all parties. What would it mean? No journalist was permitted to ask a question about this new reality. Would Israel annex the West Bank and East Jerusalem, both areas now treated as occupied territories under international law? If Israel does annex these areas, would the Palestinians who live there be granted full citizenship of Israel? If this happens, it is likely that the Palestinians in Israel would be in the demographic majority. The idea of the “Jewish State” would be annulled by the new facts on the ground. If Israel does not give the Palestinians full citizenship, then will the Palestinians of the annexed regions have to live in a permanent apartheid situation? Would the international community tolerate such apartheid rules? None of this was raised in the press conference, nor did the leaders explain it.

Trump was happy to be there with a man who fawned upon him. It made the press conference palatable. Facts are intolerable to Trump. He likes spin and perception. Adulation is what he requires. In a testy exchange with CNN’s Jim Acosta, Trump said: “I would be your biggest fan in the world if you treated me right.”

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When Was America Great?

By Andrew Levine. This article was first published on Counterpunch.

Photo by Nicolas Raymond | CC BY 2.0

Photo by Nicolas Raymond | CC BY 2.0

Donald Trump ran for President on the slogan “Make America Great Again,” implying that America had been great once, but no longer is.

True to form, Hillary Clinton’s rejoinder was clueless.  America is great now, she would insist every chance she got — indispensably great, “exceptional” even.

Could there be a more empty-headed exchange of views!

After all, Trump was neither asserting nor implying anything; he was pitching a line to a demographic that he, advertising himself, wanted to target.  Therefore, no rebuttal was called for; least of all, one as inane as Clinton’s.

But, of course, she was pitching a line too.

A cottage industry has lately sprung up analyzing the pathologies of Donald Trump’s personality.  His public persona is inscrutable, however; it defies analysis for the simple reason that there is no there there.

Trump is a con man for whom reasons and evidence matter only insofar as they serve his purposes.   He is whatever he needs to be at the moment.

Meanwhile, Clinton took her lead from the Ronald Reagan, “morning in America” playbook.  The Gipper sold his snake oil by projecting a shallow, but infectious, optimism.  However, for that to work, a sunny disposition is required.  Hillary isn’t a good enough actor to pull it off.

All she could do was scare a lot of voters – a majority of them, it turned out — with the specter of the orange haired monster.  As for promoting herself, she was hopeless.

Moreover, her take on the morning in America meme only fed the hostility of her detractors.   How could it not?  In their minds, she represented the “elites” behind the losses they felt.

They were right about that.

Meanwhile, Trump knew exactly how to play his marks by making them think that he could restore a past that they look back upon with nostalgia.

In reality, though, Trump cannot do anything of the sort, and wouldn’t if he could.

This is why, before long, “Make America Great Again” will stick in the craw of Trump voters in much the way that Obama’s “hope and change thingee,” as Sarah Palin called it, still plagues disillusioned Obamaphiles.

Obama was vague about what he wanted people to hope for, and what changes he saw coming.  Trump is vague as well.

But it is obvious enough what he wants people to hear when he speaks of making America great — again.

Since Trump’s target audience was comprised mainly of people who are at least middle aged, it would be fair to say that his goal was to get them to think of post-War America as their personal Paradise lost.

This is nonsense, of course; but, by now, the span of time between the late forties and early sixties is remote enough to be looked back upon in ways that Trump could and did successfully exploit.

***

The man is anything but subtle.

He wanted his marks to yearn for a Golden Age in which hard working white men could make a decent living doing honest, productive labor in jobs that were not about to go away; and in which everybody else knew his or her place: blacks in the back of the bus, women standing by their men, gays in the closet, Hispanics in Mexico or Central America.

The pundits tell us that “Make America Great Again” is a dog whistle slogan – meaning that its meaning is audible to Trump’s target audience and no one else.   Like so much else that liberal pundits tell us, this is nonsense.  What Trump wanted people to hear was audible to everybody.

It is a noxious message, and a false one: even white men didn’t have it so good back in the day.

Nevertheless, as with much else that Trump says, there is something to it – just not what he intended.

For one thing, the political scene really was better in the Truman, Eisenhower and Kennedy years.  Republicans were pernicious, of course, but no worse than Democrats are today.  And the New Deal spirit still survived in sectors of the Democratic Party.

Democrats now, especially since Election Day, are many times worse than they used to be.  Cold War Democrats had at least some measure of common sense and proportionality; Democrats today, for no plausible reason whatsoever, are hell-bent on taking the world to the brink of destruction, or beyond.

Hillary lost, but, within the ranks of the party she led, her Russophobic, neoconservative warmongering has taken on a life of its own.   Can any sane person not be nostalgic for a time when Democrats were better than that?

It is all well and good to question the “legitimacy” of Trump’s presidency.   There are so many questions that could be raised about that: voter suppression topping the list.

But Democrats cannot find it in themselves to do anything more edifying than blame those damn Ruskies.

This is not only preposterous; it is criminally reckless because all it does is prepare the public for war.

On this, “progressive” Democrats are as bad as the others; as bad even as Republicans like that perennial miscreant John McCain and his sidekick, Lindsey Graham.

Shame especially on “civil rights icon” and Clinton stooge John Lewis.  The guardians of the status quo now find it useful to place him on a pedestal, just as they find it useful to de-radicalize and then venerate Martin Luther King.

In exchange for the honor, he does them yeoman service – as when he conflated still unanswered questions about Russian hackers with the legitimacy of Donald Trump’s election.

Civil rights icon indeed; the man belongs in a museum.  Along with most of the rest of the Congressional Black Caucus, and nearly the entire membership of the incongruously named Progressive Caucus, he should just get out of the way.

Cold War Democrats were anything but “great,” but at least they didn’t make starting World War III their life’s work.

Trump obviously has no interest in transforming the Democratic Party for the better, and neither did voters who thought that a Trump presidency would make America great again.

Nevertheless, along with all the really bad stuff that Trump, and many of his fans, actually did have in mind, the nostalgia for the fifties and early sixties that he churned up does suggest a thought that is well worth taking on board — that neither Republicans nor Democrats need be quite as awful as they actually are.

Ironically too, Trump’s implicit appeal to post-War American values and norms helps sustain (small-r) republican ways of thinking about politics that are generally progressive and diametrically opposed to all things Trumpian.

From the sixteenth century on, there have been political thinkers in Western countries for whom ancient Sparta and the Roman republic served as political models.  What they esteemed was their egalitarianism (applicable, however, only to free male citizens) and their ideal of civic virtue, according to which the public good takes precedence over individuals’ private interests.

In the ideal world envisioned by republicans, small, mainly rural, largely self-sufficient households prosper together – with no one rich, no one poor, and everyone happy.

America’s founders were influenced by republican thought – Thomas Jefferson, most famously – and, early on, strains of republican thinking found a welcome home in the collective consciousness of the American people.

The fortunes of republican thinking have waxed and waned in the years that ensued, as has the appeal of republican values – in part because republicanism’s fortunes and capitalism’s are thoroughly intertwined.

(Small-r) republican societies may not be full-fledged capitalist societies, according to one or another account of what capitalism involves, but they are relevantly like mature capitalist societies in supposing private ownership of major means of production and market relations.  They therefore give rise to concentrations of wealth that undo the conditions for their possibility.

In this sense, their vision of ideal political-economic arrangements is utopian, unrealizable in real world conditions.  Full-fledged capitalism, on the other hand, is astonishingly resilient; and, as everyone nowadays understands, it is capable of sustaining enormous levels of inequality.

In the years that people in Trump’s target audience look back upon yearningly, the inegalitarian tendencies inherent in the logic of capitalist development were effectively held in bounds by circumstances that cannot now be reproduced, and by the sustained efforts of a political class for whom memories of the Great Depression of the 1930s remained vivid.  Those days are long gone.

Moreover, for nearly the entire post-War period, rampant, corporate and state sponsored consumerism has been militating against republican notions of civic virtue.

Even so, vestigial republican attitudes survive in the deepest recesses of the American psyche.   In recent years, there has even been a revival of republican political philosophy in respectable academic precincts.

Therefore, one plausible understanding of “Make America Great Again” would be to see it as a call for America to recover its republican roots – by building a politics around the notions of freedom, equality, and virtue associated with the republican tradition.

Needless to say, this is not what Trump was promising.   He stands for everything republicanism rejects.

Trump voters are obviously capable of believing almost anything, but it would strain even their credulity to see Trump’s “Make America Great Again” slogan as a call for equality, virtue, and the simplicity of manners and morals inherent in the republican ideal.

Perhaps this is why, to hear Trump and his defenders tell it, what has been lost that is worth restoring is not exactly the ways that American society accorded a semblance of homage to what republicans care about but something more pedestrian associated with it: the economic security that existed when manufacturing jobs abounded. That is what he claims he can restore.

But, of course, he cannot – not with what he is peddling.  He can only do what mountebanks generally do: sell crap to the gullible and the desperate, counting on the power of suggestion to keep them on board long enough for him not to be run out of town.

This is all he can do for much the same reason that social democrats, these days, cannot hold back the neoliberal tide: because capitalism cannot be transformed or even tamed by government fiat alone.

Marxists were spot on right when they maintained that far-reaching changes of the kind that are desperately needed nowadays can only come about through class struggle.  This is why, in the absence of a collective agent, able and determined to transform the underlying structure of capitalism itself, the broad contours of the status quo are regretfully secure.

Because neoliberal economic realities, and neoliberal state policies, have effectively reduced the labor movement to a shadow of its former self, leaving no functional equivalent in its place, this is indeed the situation we now find ourselves in.

Therefore, even if Trump wasn’t just blowing air – even if he really did want to restore manufacturing jobs — he would be unable to do anything of the kind.

Being both an opportunist and a showman, he will likely collude with a few of his fellow capitalists for a while — making them offers, at the taxpayer’s expense, that they cannot refuse.  But without a counter-systemic social movement leading the way, he cannot defy the inherent logic of the system.   No one can.

At this point in its development, that system has two major requirements, both of which militate against restoring anything like the conditions that, decades ago, created a large and secure middle class.  It requires consumers able and willing to spend enough to keep aggregate demand at acceptable levels; and it requires a domestic work force that that is insecure and poorly paid, and therefore quiescent.   These exigencies are at odds; precarious work situations and depressed wages depress consumption.

Neoliberals square the circle by transferring manufacturing jobs to low wage countries and then flooding the domestic market with goods that are so cheap that most Americans can still afford them.

Obviously, this “solution” doesn’t address any of the fundamental contradictions of neoliberal capitalism.  If anything, it exacerbates them.

Trump owes his election, in part, to the discontents it generates.  If those discontents continue, or intensify, he will have hell to pay.

Barring a radical change of course, the day of reckoning is sure to come; the only question is when.

If, in a vain effort to keep his supporters on board for as long as he can, Trump ratchets up more of the same – and what else could he do with the cabinet of dunces he has appointed, and without being a traitor to his class and to his own venality? – it could well come on his watch.

This will be wondrous to behold.

Had the Democratic Party not rigged the nomination process against Bernie Sanders, he would probably now be President, and he would find his efforts to restore the gains of the New Deal – Great Society era, and then to move beyond them, thwarted not just by the obstacles that (big-R) Republicans and rightwing Democrats (is there any other kind?) would put in his way, but by the same fatal contradiction.

The problem with Sanders’ “political revolution” was not just that it wasn’t radical enough or that it was too empire friendly; it was that, after the neoliberal assault on what little (small-d) democracy we had, there can be no fundamental changes at the political level without taking on capitalism itself.

But since Sanders was denied the nomination, that is a problem for another day.  Trump is the problem now.

Surely, at some level, many, maybe most, Trump voters have known all along that there is nothing he could do that would restore the economic security they crave.  They voted for him anyway, however.  That is how desperate they were.

And so, he won; and, as surely as the sun will rise tomorrow, the shit will hit the fan.

Notwithstanding the willful blindness that is so rampant in liberal quarters, the problem now, had Hillary not flubbed so badly, would be to keep her and her fellow Russophobic neocons and “humanitarian” imperialists from vaporizing the world.

But because he is such a loose cannon, and in so far over his head, what lies ahead with Trump seems even scarier than that – even on matters of war and peace.  If he does derail the War Party, then more power to him.  But he is no more to be trusted to use the American juggernaut, nukes and all, wisely than any normally immature adolescent boy chosen at random.

Expect turbulence ahead!  The time when it is still possible to postpone the inevitable choice between socialism – not the social democratic – Sanders version, but the real deal — or barbarism is fading fast.  Thank Trump for that.

ANDREW LEVINE is a Senior Scholar at the Institute for Policy Studies, the author most recently of THE AMERICAN IDEOLOGY (Routledge) and POLITICAL KEY WORDS (Blackwell) as well as of many other books and articles in political philosophy. His most recent book is In Bad Faith: What’s Wrong With the Opium of the People. He was a Professor (philosophy) at the University of Wisconsin-Madison and a Research Professor (philosophy) at the University of Maryland-College Park.  He is a contributor to Hopeless: Barack Obama and the Politics of Illusion (AK Press).

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Quis custodiet ipsos custodies? Jean Tirole’s Proposal to Appoint Felons to Monitor CEOs

William K. Black February 18, 2017     Roma, Italia (5th in my series on Jean Tirole)

When in Rome, trot out a venerable Latin quotation from Juvenal: “Who will guard the guards?”  I have “buried the lead” in this series of article about Jean Tirole by relegating my discussion of his proposal for fixing the problem of the criminal CEO – appoint a criminal “monitor” – to the fifth article in this series.  His proposal is in his 2001 article titled “Corporate Governance.”

Tirole’s proposal for optimal monitoring of CEOs is supposed to prevent predation by CEOs against shareholders.  Tirole begins his article with a catalog of some of the many ways that CEOs predate on shareholders.  His list includes this passage.

They may collect private benefits by building empires, enjoying perks, or even stealing from the firm by raiding its pension fund, by paying inflated transfer prices to affiliated entities, or by engaging in insider trading [p. 1].

Tirole defines “insider trading” by the CEO as a form of “stealing from the firm.”  Tirole’s proposed “natural” way to prevent the CEO from stealing from the firm through insider trading is to have the shareholders hire a “monitor” of the CEO who will be compensated through –insider trading.  The insider trading by CEOs that Tirole deplores and the insider trading by the monitor that Tirole proposes both constitute felonies.  Tirole refers to “insider trading rules,” so he knows that insider trading is prohibited [p. 13].  He does not, however, either note or discuss the fact that his proposal calls for shareholders to induce the monitor to commit a felony, making them co-conspirators.

Tirole’s optimal (and he thinks “natural”) method should have set off a series of warning bells in his own head.  Tirole seeks to institutionalize the felony of insider trading.  His euphemism for the monitor’s proceeds of his felony is a classic – “adequate incentives.”

A natural approach would be to hire a designated monitor and to provide this monitor with adequate incentives.  Suppose for instance that the monitor is given at the initial stage s options at striking price equal to par…. That is, the potential monitor will be able to buy (before the final outcome is realized) s shares costing [par] each and paying dividend R each in case of success and 0 in case of failure [emphasis in original, p. 12].

Tirole then explains that the monitor and the CEO will simultaneously gain from insider trading if the CEO behaves properly.

Assume that the entrepreneur indeed behaves. The passive monitor's options are valueless if there is no monitoring. Their expected dividend is then … equal to the striking price. Suppose in contrast that the monitor incurs cost c, and thereby receives (privately) the signal. In case of a bad signal he knows that the shares are overvalued … and therefore does not exercise the options. A good signal implies an undervaluation and an expected profit … per option; so the monitor exercises the options, which reveals that he has received the good signal [p. 12]

Let me translate Tirole’s plan into English and explain its legal implications.  Officers of a firm cannot “tip” other people through the release of “private” information about the firm and the person receiving private information from the officer in what they know to be a breach of the officer’s fiduciary duties cannot trade on that leaked information.  Doing so constitutes insider trading, which is a felony.  A conspiracy to commit a crime is itself a crime.  The CEO under Tirole’s plan knows that the monitor intends to trade on private, insider information that the CEO is leaking to the monitor.  Tirole’s plan is for the CEO and the monitor to conspire together to commit a crime.

The purpose of Tirole’s plan is supposed to be preventing the CEO from predating on the shareholders.  Tirole’s answer to the problem of CEO predation is to add a predatory monitor to conspire with the predatory CEO.

What could possibly go wrong with Tirole’s plan?

It turns out that Tirole knows that his “optimal” plan is illegal and that it would fail and increase predation by bad CEOs against shareholders.

In practice, though, this natural way of creating passive monitoring is not frequently observed. This is perhaps due to the fact that the entrepreneur and the designated monitor have an incentive to collude. Suppose for example that the monitor commits, in exchange of a bribe, to always exercise the options.  Incentives to monitor are then destroyed and so are the incentives for the entrepreneur to behave.17 (One possibility is that the bribe is paid from corporate resources (reducing the probability of success …but without any consequence for the entrepreneur, who receives compensation based on the exercise on the options) [pp. 12-13]).

“Is not frequently observed?”  The true statement would be “is never observed.”  Even Tirole knows that Tirole’s plan would be disastrous – and he understands only a tiny portion of the reasons it would increase CEO predation and harm the economy.  Tirole’s admission that his plan would fail and make CEO predation worse does not discourage him.  He lives so deep down the rabbit hole of orthodox economics that his every urge is to keep digging seeking the elusive pixie that will make laissez faire work.

A market has more integrity. Any participant in a stock market for example de facto has call (as well as put) options on the shares of the firm, in very much the same way our designated monitor had call options. But with a market (cum insider trading rules) it becomes much harder for the entrepreneur to capture the passive monitoring process. This may explain why in practice managerial compensation is based on the value of the firm's stock and thus on "anonymous passive monitoring" rather than on the exercise of options by a designated monitor. More work on the relationship between market monitoring and the "optimal collusion-proof passive monitoring scheme" is warranted, though.

Why does a “market” have more “integrity” than a monitor?  Tirole’s answer is that the transaction costs of the CEO bribing many shareholders are far higher than bribing a single monitor.  Tirole even drops a footnote to explain that CEOs could probably bribe the monitor very cheaply, which does not say much for the monitor.  Tirole does not stop to analyze the implications for other supposed corporate monitors such as outside auditors, appraisers, and credit rating agencies.  Shareholders while harder to bribe, should be vastly easier to deceive than an expert monitor with access to insider information.

Tirole, however, assumes that shareholders can “monitor” CEO performance.  Worse, he assumes that the stock price is the accurate product of that monitoring and that it is therefore appropriate to base CEO compensation on the current (short-term) stock price.  Remember, he is writing these things shortly after the collapse of the largest bubble in history – the stock market bubble in dot-com shares and after a series of crises driven by CEOs inflating the stock price to enrich themselves.  Naïve is too weak a word to use to describe Tirole.

Tirole is also self-contradictory, for he premises his criminal insider-trading plan on the explicit assertion that shares are systematically mispriced in the markets due to the shareholders’ inability to know whether the CEO was “behaving” or “misbehaving.”  He says that the reason that the monitor will profit is that the markets “undervalue” the firm’s shares if the CEO is “behaving” and “overvalue” its shares if the CEO is misbehaving.  Those premises require that the stock markets are not able to discern whether the CEO is a fraud or “good” person.  Two paragraphs later, he inexplicably (and implicitly) makes the opposite assumption.

It is the last sentence of the quotation above, however that is most telling about Tirole’s crippling dogmas.  He asserts, without any attempt at logic or evidence that what economists need to be doing is “more work” on his “optimal collusion-proof passive monitoring scheme.”  No, economists need to stop this search for the holy grail of laissez faire.  There is no such thing as a “collusion-proof” scheme for CEOs.  Because a “scheme” for CEOs cannot be “collusion-proof,” orthodox economists also need to stop talking about “optimal” CEO “schemes.”  Precisely because there is no reliable way to prevent CEOs from colluding, there cannot be an optimal CEO “scheme.”

Assumption is the Mother of Error

Tirole’s proposal to encourage the CEO and the monitor conspire to engage in illegal insider trading implicitly assumes out of existence one of the most important drivers of CEO fraud – the magnitude of the reported profits.  He relies on the explicit, but false, assumption that shareholders can “verif[y]” the firm’s true profitability.  This allows Tirole to make the implicit, but false, assumption that the CEO’s reports of the firm’s profits are irrelevant because the the CEO’s reports cannot deceive shareholders.  Tirole then makes the explicit, but false, assumption that if the CEO “behaves” the firm’s chance of being (truly) profitable increases.  Tirole implicitly, but falsely, assumes that he need not determine whether if the CEO behaves the firm will falsely report profitability because Tirole has explicitly assumed that the CEO’s inflation of reported firm profits cannot influence shareholders.  Tirole then implicitly, but falsely, assumes that the magnitude of true profits and the magnitude of the CEO’s inflation of reported profits have no effect on the monitor, the CEO, or the shareholders’ actions.  The magnitude of the gain from fraud, however, is critically important to CEO and monitors under Tirole’s own model (if one inserts reality into his assumptions).  Each of Tirole’s assumptions is contrary to reality and multiple fields’ literature findings.

Part of the problem is that Tirole fails to understand that what it means under orthodox economists’ twin dystopian assumptions of self-interest and rationality for a CEO to “behave” is that he will lie, cheat, steal, maim, and murder.  This contradicts the definition of “behave” that humans use and it has powerful and perverse consequences for Tirole’s plan to encourage felonies in order to prevent CEO abuses that he ignores.

Three Real World Examples of the Frauds that Tirole Ignores

First, Tirole assumes that the monitor will receive $0 if the CEO sends the “bad” signal – if the monitor sends the accurate (bad) signal to the shareholders by refusing to exercise his stock options and buy the firm’s overvalued shares.  Tirole’s plan, however, is premised on the monitor’s incentive to become rich by engaging in insider trading when the private information he receives is the good signal that the CEO is “behaving.”  Why would the monitor not profit by insider trading when he received the private information that the CEO was “misbehaving?”  The monitor simply has to short the shares – secretly so that the shareholders do not learn what he is doing.

Second, Tirole ignores what would happen if the monitor learned that the CEO was bribing EPA inspectors to ensure that the firm could get away with illegally disposing of toxic waste in a manner that would harm public health.  In Tirole’s terms, the toxic CEO is “behaving” rather than “misbehaving” because it is far cheaper for the firm to pay the small bribes in order to gain a huge cost advantage over honest competitors that safely dispose of their toxic waste.  The monitor would therefore send the “good” signal to shareholders by exercising his stock options.  The public would realize that the stock was undervalued and would react by biding up the stock price.  The CEO’s stock would surge and he would be wealthy.  Tirole says that he designed his “corporate governance” proposals to help all stakeholders, but his actual proposals would encourage the CEO and the monitor to collude to predate on the public and honest competitors.

Third, what if the monitor found that the stock price had surged due to the CEO running a different kind of fraud in which he predated primarily on the creditors and shareholder by using accounting fraud to inflate the firm’s reported profits and hide its real losses and insolvency.  The advantages of this form of accounting control fraud include the fact that it is a “sure thing” and it leads the firm to report record profits that will cause a sharp increase in the firm’s stock price.  Under Tirole’s twin dystopian assumptions, the monitor would exercise his stock options when he discovered the CEO’s fraud.  The monitor would publicly praise the firm and its CEO.  The monitor would later, gradually and secretly, sell his shares in the company before it collapsed.  The CEO does not need to bribe the monitor to send the “good” signal that the CEO is “behaving.”  The monitor will eagerly send the false signal because exercising his stock options and covering up the CEO’s accounting control fraud are the two things he needs to do to become wealthy from sharing in the CEO’s fraudulent “sure thing.”  If the monitor were to take a bribe from the CEO it would materially increase the risk that both could be prosecuted.  Tacit collusion would be the optimal strategy whenever the CEO and the monitor were corruptible.

These three examples of how Tirole’s proposal to encourage the CEO and the monitor to conspire to commit the felony of insider trading illustrates would produce an epidemic of elite fraud illustrate the saying about what a “tangled web” we weave when first we practice to deceive.  The Swedish Central Bank, of course, did not find it remotely disqualifying to award their “Nobel” prize to Tirole.  The recipients of the world’s top prize in economics can get the economics hideously wrong and propose to make bad ethics and criminality ubiquitous in the C-suite without any negative repercussions.  The thing that could be disqualifying would be for to propose effective regulation of CEO compensation to reduce the perverse incentives that are the norm

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Democrats need to stop throwing everything they can at Trump

By Norman Solomon. This article was first published on The Hill.

Democrats need to stop throwing everything they can at Trump
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Thirty-five Democrats in the House have sent a letter to Attorney General Loretta Lynch urging her to appoint an independent Special Counsel because Donald Trump “has repeatedly engaged in actions constituting unauthorized foreign policy in violation of the Logan Act.”

Dating back to 1799, the law has resulted in a grand total of one indictment (during Thomas Jefferson’s presidency) and no conviction. But the Logan Act remains a convenient statute to brandish against disruptors of foreign-policy orthodoxies.

The Jan. 12 letter — relying on an arcane and wobbly relic of a law — is an example of opportunism that isn’t even opportune. Worse, it’s an effort to spur Justice Department action that would establish a dangerous precedent.

 

When the letter charges that “in several cases Mr. Trump’s actions directly contravene and undermine official positions of the United States government,” the complaint rings hollow. In our lifetimes, countless private citizens — and quite a few members of Congress — have sought to contravene and undermine official U.S. positions. Often that has been for the better.

The members of Congress who signed the letter should know that. Many are ostensibly aligned with the kind of dissent that has been — and will be — essential to pull this country away from disastrous wars overseas. More than half of the letter’s signers — 19 of the 35 — are in the Congressional Progressive Caucus.

It should be obvious that the Logan Act is antithetical to free speech and other vital liberties. The law provides for up to three years in prison for “any citizen of the United States” who — without authorization from the U.S. government — “directly or indirectly commences or carries on any correspondence or intercourse with any foreign government,” with intent to influence that government “in relation to disputes or controversies with the United States.”

Steve Vladeck, a professor of law at the University of Texas, points out that the First and Fifth Amendments “do not look too kindly on either content-based restrictions on speech (which the Logan Act clearly is), or criminal laws that do not clearly articulate the line between lawful and unlawful conduct (which the Logan Act may well not do).”

In recent decades, the specter of the Logan Act has been used to threaten legislators who went outside an administration’s policy boundaries. In 1975, Sens. George McGovern and John Sparkman faced accusations that they’d violated the Act by going to Havana and talking with Cuban officials. In 1984, President Ronald Reagan said that Jesse Jackson’s efforts in Cuba and Nicaragua may have violated the Logan Act.

Later in the 1980s, Reagan’s National Security Council considered invoking the Logan Act to stop House Speaker Jim Wright’s involvement in negotiations between the Sandinista government and the Contra forces that the CIA made possible in Nicaragua. Twenty years later, in 2007, another House speaker — Nancy Pelosi — faced accusations that she’d run afoul of the Logan Act by going to Damascus and negotiating with Syria’s President Bashar al-Assad.

Now, it’s sad to see dozens of Democrats trying to throw the Logan Act at Trump when there are so many crucial matters to address — healthcare, civil rights, environmental protection, social programs and much more. While a multitude of legitimate and profound issues are at hand — with an urgent need to concentrate on blocking the GOP’s legislative agenda — the letter clamoring for a Logan Act investigation of Trump is an instance of counterproductive partisan zeal run amuck.

The idea that a U.S. citizen — whether Donald Trump, Jesse Jackson or anyone else — does not have a right to dialogue with officials of foreign governments is pernicious and undemocratic. We should assert that right, no matter who is in the Oval Office.

While some members of Congress are indignant that Trump’s actions “directly contravene and undermine official positions of the United States government,” the history of U.S. foreign policy warns against automatic deference to official U.S. positions. Citizens have often been wise when they sought to contravene and undermine the U.S. government’s positions.

Today, entrenched forces in Washington remain committed to foreign policies more in line with what Martin Luther King Jr. called “the madness of militarism” than the statecraft of real diplomacy. Citizens should push back against officials at either end of Pennsylvania Avenue who cite the Logan Act as an argument for conformity or use it as a tool for intimidation.

Norman Solomon is co-founder of the online activist group RootsAction.org, which has 750,000 members. He is executive director of the Institute for Public Accuracy.

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A foreign policy of cruel populism

By Vijay Prashad. This article was first published on The Hindu.

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Leaders like Donald Trump are offering a harsh cultural agenda to address the West’s economic problems

Just before he was inaugurated as the U.S. President, Donald Trump laid out some principles of what appeared to be his non-interventionist foreign policy. “We will stop racing to topple foreign regimes that we know nothing about, that we shouldn’t be involved with,” he said in North Carolina. “Instead our focus must be on defeating terrorism and destroying ISIS, and we will.” What Mr. Trump implied is that his administration would not conduct regime-change operations — such as against Iraq in 2003 during the George W. Bush administration — and certainly not indulge in nation-building outside the United States. He promised nation-building within the United States and to enhance the military “not as an act of aggression, but as an act of prevention”.

The tenor of Mr. Trump’s statements suggested that the United States would have a much less interventionist foreign policy. It would not be overthrowing governments or struggling to rebuild them into a liberal, market-friendly paradise. The concepts of regime change and nation-building — so fundamental to the consensus within the U.S. since the 1990s — now seem to be in retirement. Mr. Trump’s main concept — America First — suggests that he would take the country into an isolationist period, with foreign adventures off the table and with the United States gradually pulling out of alliances such as NATO.

Misplaced targets

The U.S. President’s agenda is part of the emergence of a cruel populism that has emerged across the West, inaugurated by the Brexit vote in the United Kingdom. The heart of this cruel populism is that the people of the West have been ignored by their ‘globalist’ leaders, who care more for free trade deals than for the haemorrhaging of jobs in their own homelands. In this they are correct. What makes them cruel is that rather than actually get to the heart of joblessness — which is partly due to unshared productivity gains through mechanisation — they offer a harsh cultural agenda to solve an economic problem. It is hatred of Muslims and other religious, sexual and ethnic minorities that focus the attention of Mr. Trump and France’s Marine Le Pen, Holland’s Geert Wilders and Germany’s Frauke Petry. They want to do such things as ‘de-Islamise’ their countries, ban minarets and secure their borders against refugees.

Building walls against migrants — simple campaign fodder — will not address the economies of the West, which are fundamentally integrated with the rest of the world. The global commodity chain has enabled Western corporations to enjoy large profits as countries in the chain struggle to underbid each other on wages and regulations.

To secure and control this global commodity chain, the West has used its vast military footprint — from bases to aircraft carriers — and it has used its military and political power to pressure countries to honour intellectual property rights and to fix currencies to advantage the global elites. No wonder, then, that the eight richest persons have as much wealth as the poorest half of the world’s population. This global 1%, with a majority in the West, has truly benefited from globalisation.

Isolation from this global commodity chain would seriously threaten the reproduction of wealth for this small minority. It is unlikely that the cruel populists — for all their ranting against free trade regimes — would be able to move an agenda that undermines this global footprint. Their isolationism is more rhetoric than policy. Economic sovereignty is not possible for their states, which is why they strive for cultural sovereignty. Demagogy is the prize for this kind of populism. ‘Keep out the Muslims’ stands in for economic policymaking.

Inhumane intervention

We have not entered into a period of isolation. Nor is the old doctrine of humanitarian intervention alive and well. It has certainly been set aside. Our new period, with the cruel populists in power, is defined by ruthless inhumane intervention. Bombs will fall, no doubt, but these will not be dropped to draw countries into the global order. Their purpose will be to encage areas seen to be lesser and inherently dangerous.

The doctrine of humanitarian intervention came into its own in the 1990s, when the United States began to justify its military operations based on the idea of ‘human rights’. Wars against Iraq and Yugoslavia as well as designations of Iran, Iraq, North Korea, Libya and Syria as ‘rogue states’ set the terms for humanitarian or liberal interventionism. The general idea was that these states were holdouts against globalisation and that pressure against them — sanctions or armed force — was utterly justified. A notion of universal humanity guided this theory, since it was assumed that violence would tutor lesser societies into the global commodity chain. The idea of ‘regime change’ required the idea of ‘nation-building’ to complete its task. Not only would governments be overthrown, but they would be replaced by regimes that acceded to the neo-liberal policy slate and to the institutions of globalisation.

The cruel populists do not accept the theory of universal humanity. For them, the world’s people are divided along the axis of culture — Christendom, on one side, against Islam, on the other. Mr. Trump has vowed to rebuild the U.S. military so that “no one will ever mess with us”. What is this military to be used for? “I would bomb those s******,” Mr. Trump said of the Islamic State and its oil infrastructure. “I’d blow up every single inch,” he said, so that “there would be nothing left”. But the use of force does not end there. “And you know what, you’ll get Exxon to come in there, and in two months — you ever see these guys? How good they are, the great oil companies. They’ll rebuild it brand new.” It is suggestive that Mr. Trump’s Secretary of State is Rex Tillerson, who ran ExxonMobil for 10 years. Would ExxonMobil re-build the oil infrastructure for Iraq? No. “I’ll take the oil,” Mr. Trump said brashly and against international law.

The U.S. President’s instinctual militarism is evident with his appointment of Generals to his cabinet and his habit of continuing to call them by their military rank. These are not ordinary Generals. They have demonstrated a virulent anti-Muslim streak, which is in keeping with the cruel populism of the Trump agenda. Such prejudice blinds them from reality. Against all logic, Defence Secretary James Mattis said, “I consider ISIS nothing more than an excuse for Iran to continue its mischief.” That Iran and the Islamic State are fierce adversaries is of no consequence. For this General, they are both in the camp of Islam. War against them is instinctual. It will not be to draw the people in their societies into the global order. Inhumane intervention serves as a prophylaxis against the fantasy of cultural sovereignty.

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