“Pope’s views against idolatry…and more,” The Colorado Springs Business Journal, January 3 – 9, 2014, 17.

Against Idolatry

 We recall the image of Jesus entering the temple in Jerusalem, driving out the merchants and overturning the tables of the money changers. This was a stern reminder to separate the holy from the mundane.

Likewise, we recall the image of a golden calf molten in the absence of Moses on Mount Sinai. Were precious metals more seductive to the impatient Israelites than an invisible power?

But we probably have forgotten the work of Liberation Theology in Latin America (1950s-1960s), where Catholic teachings were used to fight economic, political, and social inequalities. This movement wasn’t condoned by Rome, but had widespread support from local Bishops who tended to their oppressed flocks.

We also haven’t made much of the US Bishops’ Pastoral Letter(s) on the Economy (1970s and 1986) that railed against economic inequalities and the departure from Christian principles of brotherly love and helping the poor.

Economic reality, we have been led to believe, isn’t dictated from above—God or the Treasury Secretary—but moves naturally in the cycles of the “invisible hand”. So invisible, in fact, that any crisis is explicable after the fact in terms of “market forces” or the “laws of supply and demand.” Human agency is absent.

The recent “Apostolic Exhortation” by Pope Francis focuses on human agency in our economic system. Perhaps it’s because of his experiences in Argentina, perhaps it’s because his theological interpretation of a moral life here and now is intertwined with the economy.

To be sure, this is a Catholic view steeped in two-thousand years of tradition; it is also one that saw the fortunes of the Mother Church depend on wars and wealth accumulation. Being the single largest denomination of any religion on earth, the significance of the “exhortation” is global. The action, though, should be local.

Mindful that he speaks as the Vicar of Christ, Pope Francis deliberately fuses theological concerns of evangelism with economic reality: “The great danger in today’s world, pervaded as it is by consumerism, is the desolation and anguish born of a complacent yet covetous heart, the feverish pursuit of frivolous pleasures, and a blunted conscience.” This situation, for him, means that “there is no longer room for others, no place for the poor.”

The Pope describes our economy as one of “exclusion and inequality.” But his description becomes more critical when he says: “Such an economy kills.” It’s not an economy that hurts or overlooks, benefits some at the expense of others; it kills. Referring to news-media, he asks: “How can it be that it is not a news item when an elderly homeless person dies of exposure, but it is news when the stock market loses two points?”

When the stock-market index hovers around 16,000, why do commentators even bother to claim the Dow is “up” or “down” when it moves a few points in either direction? The percentage change is so negligible that the very reporting seems hubris. Do greed and fear consume our daily lives? Do these numbers help to reassure us?

Reminding us that the poor are excluded from our midst, he continues: “Today everything comes under the laws of competition and the survival of the fittest, where the powerful feed upon the powerless.” Have you heard this assessment lately at your church? Are there more important theological issues?

For the Pope, as for some critics of hyper-capitalism, the economy is part of his theological message: its principles either follow or undermine moral principles. If market exchange of goods and services is exclusively defined in monetary terms, moral hazards are bound to appear. If economic transactions are justified by their potential benefits—the end justifies the means—what happens in the meantime? Will “trickle-down economics” indeed reach the poor?

The Pope answers: "Some people continue to defend trickle-down theories which assume that economic growth, encouraged by a free market, will inevitably succeed in bringing about greater justice and inclusiveness in the world. This opinion, which has never been confirmed by the facts, expresses a crude and naive trust in the goodness of those wielding economic power." In fact, “the excluded are still waiting.”

The “tyranny” of the current system and the “culture of prosperity” are harmful, according to the Pope. “We have created new idols,” he continues, and we continue to worship them. There is “idolatry of money and the dictatorship of an impersonal economy lacking a truly human purpose.” Should we continue to live like this?

Whether one is Catholic or not, as Christmas is celebrated and New Year resolutions are being made, it behooves us to think of Pope Francis’ words: “I exhort you to generous solidarity and to the return of economics and finance to an ethical approach which favors human beings.”

Raphael Sassower is professor of philosophy at UCCS. He can be reached at rsassower@gmail.com See previous articles at sassower.blogspot.com

 

 

 

 

 

 

“Altcoin mania makes it onto stage, but for how long?” The Colorado Springs Business Journal, November 29-December 5, 2013, 17.

BITCOIN MANIA

The recent Senate Homeland Security and Governmental Affairs Committee’s hearings on the potential of digital currencies to be used as donations for PACs may be of interest.

We have known virtual currencies that don’t involve banks: from Monopoly or poker, to more sophisticated video games where “money” is earned at various stages; likewise, they are used in closed-communities and resorts.

Detractors believe this to be a short-lived digital craze, while promoters believe this will become a game-changer. Whether called “digital currency,” “e-Money,” “electronic cash system,” or “altcoins,” these innovations push the conceptual and practical limits of what we mean by “money.”

Money has both value and function, being exchanged for actual commodities or services according to a certain cultural logic that legitimates it. Georg Simmel suggested over a century ago that it is “the most ephemeral thing in the external-practical world; yet in its content it is the most stable, since it stands as the point of indifference and balance between all other phenomena in the world.”

Are we all meeting at the public square and expect the backing of government agencies and banks or rather in virtual space that allows for anonymity and complete disregard of state institutions. How long did it take us to trust paying bills virtually?

A group of cyberpunks was intent on challenging government authority. In 1998, Wei Dai proposed “b-money” as an untraceable digital currency. Ten years later, Satoshi Nakamoto (a pseudo-name) released his version of bitcoin. In his manifesto, he says that “what is needed is an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party.”

A coin is defined by Nakamoto as “a chain of digital signatures” or “hash.” A cryptographic hash function is an algorithm that configures an arbitrary block of data and affixes to it a hash value. With a “timestamp” one knows the time-line of each movement from one user to another, cannot be reversed, thus avoiding double-counting. Though users remain anonymous during the exchange, the exchange itself is public. Bitcoin owners are required to “mine” them: finding a solution to a difficult problem with high-powered computers and sophisticated programs.

More recent developments include “PeerCoin,” “Litecoin,” and “anoncoin.” Unlike the recluse originators of bitcoin, Charles Lee is open about his creation of Litecoin. As a former programmer at Google, he believes in advancing the future of cyber transactions—why not have more choices?

The value of one bitcoin has ranged from as little as $2 a couple of years ago, spiked at $2,000, to over $900 now; total value in circulation is billions of dollars. Surely this cyber-“ecosystem” is comprised of earnest cryptographers showing off their expertise, but it also invites criminals who are looking for ways to hide from scrutiny.

Promoters praise “peer-to-peer electronic cash system” because it eschews “third party” reliance on governmental central banks or commercial banks and replaces “trust” with cryptography; this presumably avoids the collapse of money value because of inflation (without the gold standard since 1971), and eliminates transaction costs levied by credit card services or banks.

The issues spawning this movement can be rewritten as individual freedom, distrust of government, trust in technology as a neutral and fair method, and distaste for waste. A strong libertarian streak is evident here!

Altcoins aim to appeal to merchants who trade through the Internet. What happens once these altcoins are exchanged for dollars? Will they then become traceable and regulated?

Will altcoins undermine the authority of the federal mint to print money? With claims to safety and reliability, trustworthiness and increased use, the bitcoin experiment is limited to about $20-40 million and will never threaten the status-quo of trillions of dollars in annual transactions. Are altcoins counterfeit money? Are they new ways to launder money? What about taxes? Hence the Senate hearings.

Do you recall the so-called Swiss Dinar in Iraq? Though backed by the Iraqi government before the 1990 Gulf War, it was “disendorsed” after the war and a “Saddam Dinar” was introduced in its place. The fascinating fact is that in northern Iraq the Swiss Dinar retained its trading value while the Saddam Dinar was affected by hyperinflation after the 2003 invasion of Iraq. No gold reserves and no real value; was it the faith individuals put in the Swiss vs. Saddam) name of the currency?

Unlike Monopoly money or the coins you get at all-inclusive resorts, altcoins need to have a moral gravitas that anchors them in something other than the encryption world of programmers. They need the sanction of transparency and good faith, and more universal acceptance than by speculators alone. Till then, let me stay with dollar bills.

Raphael Sassower is professor of philosophy at UCCS. He can be reached at rsassower@gmail.com See previous articles at sassower.blogspot.com

 

“Detroit’s lessons might affect answers on retirement,” The Colorado Springs Business Journal, September 6 - 12, 2013, 21.

Labor, Anyone?

I grew up in Haifa (the Red City of Israel), a place where there were annual May Day parades--with red flags and street dancing, speeches and a day off for all. I loved this carnival, though my parents hated the unions and all they represented, especially their political power that could, at a drop of a hat, call for strikes in any sector of the economy. A mixed upbringing, to be sure.

As much as my parents despised those unions and their leaders, and as much as they strove to succeed as capitalists in a hybrid economy, they treated their company as a large dysfunctional family, with my Mom serving as the matron saint. She stood five feet tall with little formal education. She helped the pregnant unmarried secretary and scolded wayward men who cheated on their wives. Yes, these were her employees, but she felt responsible for their well-being.

As the Labor Day sales were announced across America last week, most of us think less of unions than about the picnic we attended. Perhaps we take for granted the benefits from the hard-won battles of yesteryear between labor and capital that the former was able to win—elimination of child labor, workplace safety, and paid vacations. Perhaps we simply ignore unions because of their anemic political power (less than 9% of the private workforce) or caricature them as represented by Jimmy Hoffa.

Every politician in every election, local to national, promotes job creation, though none has asked if work is a right or privilege. None has referred to microeconomics textbooks where “full employment” is defined in terms of 7% unemployment. And while we’re at it, how are we measuring unemployment? What about those who have drifted off the unemployment benefits lines? What about part-time employees?

Perhaps we are too busy to think through our views about labor: should there be unions, altogether? Our K-12 teachers are unionized, yet most don’t look at them the way we do at the Teamsters. Do police officers and fire fighters use collective bargaining, or as my dear friend calls it collective begging? What about our men and women in uniform?

Some (teachers, fire-fighters, police officers) enjoy pensions under various conditions. UCCS professors don’t have pensions, classified staff do. Why? Should they all have pensions, or should none? What about health insurance?

Recently I was in Detroit with a friend to see what a “bankrupt” municipality looks like. As Mark Twain quipped, the news of its demise has been greatly exaggerated. The downtown looks thriving, with some major corporate headquarters intact. Yes, there are some outlying neighborhoods that are boarded up or that are being razed with plans for rebuilding, no different from what is seen outside any metropolitan area where urban renewal is an ongoing process.

The city’s bankruptcy, just like that of GM and Chrysler a few years ago, is partially about underfunded pensions. Should the courts eventually allow the city to shirk its pension liabilities? Do we fundamentally deserve to have pensions, or is this idea outdated? Now that workplaces are for the most part safe (some refineries in Louisiana still emit dangerous chemicals), now that minimum wage is a federal law, is it time to revisit pensions?

If it’s time, let’s separate the practical from the theoretical. In theory we should ask ourselves if, after years of hard labor, one deserves to retire with benefits. When it comes to the military, our national answer is a resounding yes! Depending on many variables, pensions are granted to military retirees (over 100,000 are residents of our fair city). For the sake of consistency, should this answer apply to everyone?

It is argued that our men and women in uniform have risked their lives for our nation, and therefore deserve a pension. True, but since 1973 military service is voluntary, and is no different, in this sense, from those serving as teachers, police officers, fire fighters, and utilities employees. Should a pension be owed to them all?

Even when we agree to offer pensions to all employees, can we, practically, afford to do so? The answer is simpler than it sounds. All we need to do is adjust our outdated spreadsheets and the formula used to determine retirement benefits. As we live longer and are healthier later into our lives, we should work longer for our benefits; we should also contribute a greater percentage of our current wages (matched by employees) for future benefits.

Otherwise, the system isn’t sustainable, as is also the case with Social Security. Change the formula, and you can save the system. Keep it, and it’ll be in a crisis, the kind that becomes an excuse for bankruptcy. If we plan better, we can provide all working citizens an “honorable discharge” from their place of work with benefits commensurate with their contributions to them.

 

Raphael Sassower is professor of philosophy at UCCS; rsassower@gmail.com See also sassower.blogspot.com

“Financial inequities persist under Obama”

You don’t have to be a Republican to sling some mud at our lame duck president. Senator Kirsten Gillibrand (D-NY), dared suggest that student loan rates should equal those charged to large banks, 0.75%; she’s appalled by the “business-as-usual” mindset found in Washington.

After much haggling, Congress has passed a bipartisan legislation that pegs student loan rates to the economy, hardly a comforting compromise for the largest debt in the economy (around $1trillion in 2012). Amidst the euphoria associated with a rare legislative agreement, the silly idea proposed by the junior senator has been quietly laid to rest: how dare she compare the mighty commercial banks to students?

Regardless of an estimated 8.7% drop in student enrollment in 2013 (compared to 2012), and regardless of graduates’ economic prospects in the new digital economy, let’s follow the mega commercial banks. If you recall, the Emergency Economic Stabilization Act of 2008 gave roughly $700 billion to banks to avert an impending economic catastrophe. Economic historians will debate for years the effects of this Act.

Fast forward to 2013, and these same banks have done tremendously well. Just look at their reports for the 2^nd quarter of 2013: Bank of America’s revenue $22.9 billion, $4 billion net income ($97 billion bailout); Goldman Sachs’s revenue $8.6, $1.93 billion net income ($10 billion bailout); Citigroup’s revenue $20.5 billion, $4.2 billion net income ($220.4 billion bailout); JPMorgan Chase revenue $26 billion, $6.5 billion net income ($94.7 billion bailout). You see the picture—the banks are doing extremely well after a well-intentioned (but misplaced) taxpayers’ assistance. Couldn’t this money have been given directly to homeowners to avoid foreclosures? Should their “prime discount rate” be fixed at 0.75%, while ours is so much higher?

Given this collaborative relationship between banks and government agencies that regulate them—bailouts when needed—you’d hope that banks would behave like good citizens. Instead, these commercial banks have been disregarding federal laws with a level of impunity not seen since the Gilded Age.

The latest headlines are quite telling: “Lawyers Present Closing Arguments in Former Goldman Trader’s Fraud Case,” “Ex-Stock Analyst Charged With Insider Trading in Case Tied to SAC Indictment,” and “Morgan Stanley Fined for Selling Exotic Funds to Unwary Elderly.” At least these cases ended up in court. Many, though, have been settled out of court.

According to the New York Times, the Federal Energy Regulatory Commission agreed to settle with JPMorgan to the tune of $410 million. The regulator accused the bank, and more specifically its senior executive, Ms. Blythe Masters, of “manipulative schemes” that resulted in charging more for energy than was warranted at the time (2010-2011). We should leave the details of the facts in this case and its eventual settlement to lawyers. But should we ignore the moral hazards associated with ongoing abuses by bank executives, the beneficiaries of low borrowing costs and a federal safety net if they fail?

The argument about a rogue trader here and there that takes unduly advantage of unsuspecting investors or the public trust is one thing; when it’s a systematic behavior that is condoned (because not stopped) by CEOs and Board members, then American capitalism isn’t living up to the promises its founders made for its integrity.

Large commercial banks, like JPMorgan Chase, are public entities at least inasmuch as they collect individual deposits that are insured by the FDIC, they are publicly traded (hence publicly owned), they enjoy the largess of taxpayers (even though never consulted) when they are about to fail, and they are regulated by the US government. They are private insofar as their profits remain under the control of the management team whose compensation packages don’t require public (or government) consent. The choice of playing the public or private card is always at the discretion of these banks.

What should we make, then, of the $410 million settlement? Defrauding customers apparently is the new normal. Getting caught rarely happens. If it happens, fines are paid, and no one goes to jail. Powerful Wall Street lawyers cut a deal that doesn’t ruffle any feathers: it’s a win-win settlement (favorite cliché in Business Schools). Neither Ms. Masters nor Jamie Dimon (the CEO) went to jail, and the fines JPMorgan paid will be forgotten in the annual financial statement (which will amount, at this rate of profitability, to 1.6% of $25 billion). Likewise, the Federal Energy Regulatory Commission scored big in levying $410 million in fines in comparison to its latest settlement with a bank of $1.6 million (NYT).

Have we lost our moral outrage? Have we accepted financial scandals. We continue to deposit our paychecks in mega-banks for 0.1% interest and pay 6.99% interest for small business loans. No wonder banks’ facades are made of marble.

Raphael Sassower is professor of philosophy at UCCS; rsassower@gmail.com See also sassower.blogspot.com

 

“New concepts change face of higher ed” The Colorado Springs Business Journal, July 12 - 18, 2013, 21.

The Cost of Efficiency

Years ago the University of Phoenix spooked higher education. What does it mean to have a for-profit university (a subsidiary of Apollo Group, NASDAQ: APOL)? Despite drastic enrollment declines recently, it boasted some 600,000 students in 2010 (founded in 1976). Will this new model change the face of higher education?

The answer is a definite yes! Labor costs are low since faculty members are underpaid, and quality learning is less important than the coveted degree at the end of coursework. With many online courses offered at competitive prices, this model is thriving.

By contrast, large public universities, whose budgets have been cut because of financial constraints, saw something they liked about this model that lowered labor costs and managed to do away with tenure. Our state funds about 5% of the CU budget and about 75% of it is allocated to faculty and staff compensation.

There is only so much “green savings” out of operating budgets. Tuition increases have a tolerance threshold for students and their parents as well. So, to lower costs, why not go after faculty and staff, the largest portion of the budget? Staff members are protected by state legislation, the jobs of tenured faculty are protected by law, so the wages of non-tenured faculty remain targets.

Additionally, large campuses instituted large courses with enrollment in the hundreds. A professor gives a weekly lecture, and graduate students meet with sections and grade assignments. Graduate students are cheap labor when compared to having to hire more professors to lecture and grade.

Moreover, when a faculty retires, passes away, or resigns, replacement is always at the part-time level with huge salary savings ($80,000à$20,000). Universities’ reliance on the army of under-employed and over-educated young teachers has been so great that overall less than 30% of all courses are taught by tenure-track professors.

Should this worry us? The quality of education remains the same with good guidance, mentorship, and highly qualified faculty members who cannot find full-time employment. Are they more transient? Not necessarily, because opportunities are equally thin around the country. Are these part-time employees less committed? Not at all: their good behavior could translate into a full-time job in the future.

With the advent of technology, this business model has been perfected. What in the past were additional course materials—lectures by great experts and scholars, videos of faraway places, films of historical significance—have been recently proposed as a partial replacement of faculty. MOOCs (massive online open courses) have been developed by private companies and are offered to universities, private and public alike, at various fee structures. Once adopted, are professors needed at all?

Perhaps this is part of the ongoing trend towards greater (digital) productivity; perhaps partial replacements will become permanent. According to the Economic Policy Institute, economic productivity grew 80% from 1973 to 2011; it grew 23% between 2000 and 2011. Digital technologies have much to do with it, and therefore we are facing a jobless recovery. Are MOOCs a natural wave of the future?

CU President Benson welcomes the introduction of MOOCs but proposes hybrid courses, where some time is still spent in classrooms. This model, however implemented, misses the point of trying to increase enrollment without the need for faculty or classrooms—a virtual academy.

It’s not simply quantity vs. quality. Nor is this a self-serving rant about professors. Instead, this constitutes a rethinking of what the university is all about. When President Kerr of the California system promised industry that his campuses would prepare students for future jobs, he promised skill sets and discipline (1963/2001). But is this really what businesses want?

Paypal founder Peter Thiel offers high-school graduates $100,000 not to go to college (because the real world is where lessons are learned) as a bold retort to Kerr’s agenda: why waste money on higher education at all?

Instead of only framing the discussion of MOOCs as a debate over labor rights and assault on faculty tenure, we should also frame it in terms of what future citizens we’d like to live with. Where do we teach team-work or leadership? Where do we learn about our history and values? Where is the balance between individual rights and duties examined?

Without these fundamental lessons, we’d be lost to fear and greed; without these experiences, we’d be careless and thoughtless. Do businesses want that? Or do they want instead creative and challenging employees that one day will change the world? The jury is still out on whether MOOCs are up to the challenge. If the ire over for-profit online learning is not directed in the right place, neither the university nor the business world is served.

Raphael Sassower is professor of philosophy at UCCS who wrote A Sanctuary of Their Own: Intellectual Refugees in the Academy. Contact: rsassower@gmail.com; Other: sassower.blogspot.com

 

A Vindication for Tim Leigh!

A Vindication for Tim Leigh!

Raphael Sassower

The allegations made the front page; the details of the accusation were the talk of the town. One can argue that Tim lost his council membership this year because of this cloud of suspicion, one that wouldn’t go away in time for the election. Oh, yes, some people made sure this cloud stayed over his head—more precisely, over his integrity—so that it would cast such an ugly shadow that to vote for him would be to vote for the wrong guy.

When the vindication came today at council’s meeting (7/8/13) no one cheered. In fact, no one even bothered to call the fellow…except for his son-in-law that saw it on Facebook—really, this is how an accused learns of his fate?—and John Hazelhurst who wanted a quote for his blog—not for a front-page piece…maybe if Tim died he would be as kind to him as he was to Judy Noyse, maybe not. She, too, was a councilmember years ago. I guess we can’t expect proper etiquette from a bunch of local politicians, but should we?

It was local politicians at various levels and positions who were glad that Tim was a loudmouth when it came to CSU; yes, they were glad he asked the hard questions, and they could hide behind him and observe from a safe distance how the mighty CEO, Jerry Forte, would retaliate (“the best defense is offense,” as the cliché goes). They were right; Tim was a target, a big one with get-the-anti-vote efforts, an ethics investigation, and even a lawsuit. Really? Just for asking questions?

I teach my UCCS students to ask questions; I implore them to question me, the texts we are reading, their colleagues, and their families. They eventually get the value of this excersize. And here is Tim, trying to ask questions as a board member, and being rebuffed. When he doesn’t relent, he’s being accused of ethical misconduct, really? So, I asked him what it (the ethics inquiry) was about. And once he told me, I laughed…it was about an expense report, and whether or not he meant to be helpful in setting someone up from North Dakota with Neumann …really? We are talking about $400 that took $17,000 of legal fees to explain away.  Now Tim is a successful businessman (meaning he’s rich enough to pay for his own travel), and would he be that foolish knowing he’s picked a fight with Forte, the most powerful man in town?

So, the question isn’t about Tim’s motives or his actual expenses—now that he is cleared of all misconduct, but about Forte and what he’s up to—what is his agenda? First, who’s he working for? Second, who supervises him? Third, what are his qualifications (I asked once for his resume and couldn’t get it)? Fourth, how is he serving our community? Obviously the so-called strong mayor and the nine councilmembers can’t reign him in, let alone get an answer from him about Neumann. Fifth, isn’t it time to have a change of leadership (even if anyone can make an argument that he’s qualified to run a $1.2 billion operation)?

As for Tim, please join me in recognizing him as someone who probably was a gadfly—an honorific label assumed by Socrates in ancient Greece—when one was needed to wake up, if not simply to get the attention of, a sleepy town too complacent to realize it needed to be needled. Was he your classical statesman? Absolutely not. But as the philosopher Gunther Andres years ago stated (about the dropping of atomic bombs on civilians in Japan) that one cannot be expected to behave normally under abnormal circumstances. Tim got it in the context of our city, and his outrage was on behalf of all of us. And for that, we should be grateful.

 

“Is the time right for tax reform, or is it already too late?” The Colorado Springs Business Journal, May 7 - 31, 2013, 21.

IS THE TIME RIGHT FOR REIT?

Now that those who are punctual have paid their taxes in an annual ritual of disbelief and disgust—I still owe money? where does it go?—perhaps it’s time to plan for next year. As Nathaniel Popper reported in The New York Times earlier this week, corporate America is not only planning, but plotting to evade federal taxes altogether.

What may seem a novel idea is actually practiced by many mom-and-pop operations that set themselves up as Limited Liability Companies and though different are treated by the IRS as S Corporation which allows such entities “with 100 shareholders or less the benefit of incorporation while being taxed as a partnership. This means that any profits earned by the corporation are not taxed at the corporate level, but rather at the level of the shareholders.”

Assume we have a company whose profits are $100,000. The company pays 35% in corporate taxes ($35,000), and after that dividends are distributed to shareholders some of whom might pay as much as 39.6% marginal rate, for potentially a total tax rate of 74.6% ($74,600). If the company is no longer a C corporation, its profits flow to individual shareholders who then pay taxes only at their own marginal rate—saving the 35% bite up front—and avoiding double taxation.

This has been known for years, and shouldn’t raise any controversy. Many small businesses set themselves up in such a way, whether or not owned by one family or few investors. What has raised some eyebrows in this season of congressional debates over taxes and budgets is whether or not what’s right for small LLCs (with as few members as one and as many as one hundred) should be right for large corporations (with thousands of shareholders, including large pension funds).

The legal and tax designation of a Real Estate Investment Trust–REIT—was set up already in President Eisenhower’s days. Its main purpose, as distinct from other businesses, was to recognize that since their holdings were exclusively real estate, these trusts represented passive investment that should be treated differently by the tax code. As Popper suggests, over one thousand companies have slowly converted their tax status, with IRS approval, to be taxed as REITs. Is it right?

On the one extreme of the spectrum are those who say, absolutely! If you are not violating the law, if you are approved by the IRS (which is vigilant about one’s status), then by all means minimize your tax burden as much as possible. As long as your actions are legal, they are ipso facto moral as well!

One may challenge this answer, and ask: but aren’t the overall taxes collected less than if the entity stayed a C corporation, and if so, wouldn’t this undermine government activities, such as national defense?  Shouldn’t overall national concerns override individual temptation to reduce one’s tax liability?

On the other extreme of the spectrum are those who claim that though legal, the REIT move is unfair. Why benefit only a select few corporations? Moreover, if REIT-designation is available, eventually no corporation would ever pay corporate taxes. Either way, this unequal treatment, though legal, is immoral.

This discussion may be academic: 83 out of the 100 largest publicly-traded companies game the tax code to the tune of $150 billion annually, according to some estimates. Forbes reported that 26 companies paid their CEOs more than they paid in federal taxes in 2012. Obviously this is legal. But isn’t it time to revisit the very notion of corporate taxes? Do corporate taxes make the US less competitive? ABC reported in 2007 that Halliburton (the one that got billions of dollars in contracts during the Iraq war) was moving its corporate headquarters from Houston to Dubai in the United Arab Emirates. Dare we ask why?

Perhaps we are asking the wrong questions, and instead of worrying about the REIT tax loophole, we should ask about overall tax reform. Oh, if only tax policy were discussed in logical and moral terms, what a wonderful world we’d have!

 

Raphael Sassower is professor of philosophy at UCCS. He can be reached at rsassower@gmail.com See previous articles at sassower.blogspot.com

 

 

 

 

Keeping The Pressure On

KEEPING THE PRESSURE ON

The little distraction about CSU’s wasted funds on water tours is laughable compared to the real waste CSU can be credited with. By now the infamous Neumann puzzle is even more confusing to someone who has just been invited to hear about “Dave Neumann's new Education Foundation.” Really?

Perhaps not everyone is puzzled by the timing of such a presentation; perhaps it makes sense to those of us who pay utility bills every month. It makes almost as much sense as the “Sponsorship Program” of CSU.

The first paragraph is right on the mark, and serves as a disclaimer of sorts: “The most critical contribution we make to the community is to provide safe, reliable competitively priced energy and water services. To help achieve the lowest rates for our customers, we have a very limited sponsorship program.”

What “very limited” as opposed to none at all? Think about it for a moment: whose money is being dispersed as “sponsorship”? It’s us, the citizens and consumers of Colorado Springs, who have paid for supposedly the “lowest rates”. But wait, these rates include enough “fat” so that sponsorship is possible. This makes no sense.

Let us pay less, and with the extra money we save, we will sponsor whatever programs we want. Instead, CSU collects extra fees to be able to disburse them as it wishes and buy “goodwill” not on our behalf, but on its own behalf—oh, that lovely CSU generously sponsored my kids’ event. Really?

As CSU’s website boasts: “Our sponsorship program supports local community projects and nonprofit events. Projects or events that are eligible for corporate sponsorship are finite in nature, located and serve citizens within our service territory or locations significantly impacted by our operations. Because of budget constraints, only events or organizations that have a strong alignment with Springs Utilities business priorities will be considered for financial sponsorship…”

It’s almost as if CSU claimed to help local dealerships because it’s buying new cars for its managers every year or new expensive trucks every six months. Let us waste your money in order to improve the local economy. Incidentally, CSU repeatedly refuses to provide a list of vehicles it owns, year, model, and assignment. It’s possible to legally force the issue, but it, too, would be wasteful.

Looking over the 2011 budget report, one cannot find how much “sponsorship” costs CSU, that is, us. It could be millions, for all we know. But CEO Forte has fortified his castle so that no information is available; even his board remains in the dark most of the time, or simple votes yes.

We may want to go back a year and recall the Memorial saga, one we all suffered through with raised eyebrows at some point, and raised voices at others. Should we go through the same ordeal again? Have we learned nothing from that experience?

Certain city officials were so supportive of CEO McEvoy that they deemed all critics as unpatriotic if not outright dumb. Certain claims by the CEO were discovered later to be unfounded, perhaps deliberately so. Will this scenario repeat itself with CSU and its CEO?

What’s upsetting some people right now is that Steve Schuck has convened a fact-finding group to ask some simple, if fundamental questions. Why not thank him? Why not have multiple groups convene to ask questions?

Wake up, Colorado Springs! It’s not too late to avert another potential disaster. We should be grateful that citizens in this town are taking the initiative; apparently the Chair of CSU’s board is asleep at the wheel, and the rest of the board is confused and scared. This is the same board that almost fumbled the Memorial deal. Should we trust such leadership?

Politicians cling to their positions out of convenience and pride: they like to be addressed “the honorable,” even when they don’t deserve to be honored at all. They think they “deserve” their seat at the table because they were elected to that seat. But they forget what responsibility they have to the city and its future. Theirs should be the long view, the bird’s view from high above, warning us of dangers to come.

Theirs shouldn’t be the view from within that circles the wagons against critics; nor should it be a defensive posture. At the end of the day, they should welcome criticism and implement changes. They should invite experts and recuse themselves—it takes a lot more than voter support to oversee a $1.2 billion entity.

Once again, let’s invite the CSU board and its CEO to resign; let us secure a better future for the city than any of them can honestly promise.

[This piece was submitted to the Colorado Springs Business Journal on September 24, 2012 as my weekly column. On September 27, 2012 I was informed the column was terminated.] 

 

“Framing the campaign for Obama and Romney,” The Colorado Springs Business Journal, September 21 - 27, 2012, 19.

IT’S THE ECONOMY…

Having listened to two national conventions in so many weeks, you’d think that these two characters, Obama and Romney, were demons from a bygone era. Not only are they probably nice people you’d like to have dinner with, they probably don’t mean most of what they say, and don’t say what they really mean.

We forget sometimes that they can’t help themselves, being as they are politicians first and decent people second. Since decency and civic discourse isn’t possible in the era of sound-bites and 24/7 sensational reporting/blogging, perhaps we should discount everything we hear and search for the meaning behind their appearances.

But let’s not make the mistake of the ancient Greek philosopher Thales who was looking at the sky and fell inadvertently in a well, or the silly one who looked for his lost car-keys under the street-lamp because there is where he could see best.

Instead, we should ask serious questions not only about the facts of the matter, but also about the framing of these facts. As any trial lawyer will remind you, framing the facts ultimately influences how they are judged.

Starting with frames, which frames matter more than others? Three frameworks weigh heavily on the American mind: the economy, national security, and religion—and not necessarily in any particular order.

The religious framework is front and back in every discussion, from one’s character, trustworthiness and faith, to one’s personal choices, primarily about marriage and sex.

For secularists and those believing in the separation of state and church, there is an important lesson to be learned about the character argument: if one believes in God and afterlife, one is more likely to be moral and fearful of one’s ultimate judgment.

As for personal choices driven by religious belief, there are many arguments about following the Bible as God’s laws of human behavior as opposed to those humans have voted on over the years. Sometimes these arguments are focused on the wrong issues, such as abortion (as a form of murder) rather than on the antecedent conditions that bring about such choices (abstinence, safe sex, loving marriage, financial basis for child-bearing, and pre-natal care).

Is either of these demons, Obama and Romney, religious enough to be moral? Have they both been role models to others? Will their faith fill them with humility? Will their faith ensure that love is the most important factor in their decision-making process? The jury is out on both of them, since love isn’t foregrounded in their rhetorical outbursts.

The second framework is national security. Most would argue that this means military might and international presence, which translate in our case to close to 24% of the federal budget of $3.8 trillion in 2012 (close to 5% of our GNP). Outside of Saudi Arabia (10% of GNP), the US spends twice as much as any other country (as percentage of GNP, not to mention in real dollars), and accounts for 41% of the global military expenditure.

Neither presidential candidate offers any ideas on how to spend less on a smart military force which would be more effective. When it comes to national security, it’s an article of faith that more is better.

Why not transform the debate about national security and include in it education? Why not include in it sustainable energy sources? Or, water in the drought age? Perhaps include health care provision? 

The third framework is the economy—Adam Smith looked at it, so did Karl Marx. John Keynes had some ideas, so did Milton Friedman. They all agreed that it was fundamental in human affairs and deserves inquiry. What ideas do the candidates have?

According to the NYT, “Since bottoming out a year after Mr. Obama took office, private-sector employment has risen by 4.6 million; but government employment, which normally rises more or less in line with population growth, has instead fallen by 571,000.” How should we frame this?

Republicans should delight that government jobs have decreased, as they want small government; instead, they count all jobs and decry Obama’s failure. Democrats are delighted having done something to reverse job-loss trends of the Great Recession. But with high unemployment rates—official and unofficial—there is nothing to crow about.

Religious faith and defense spending, the two other frameworks, depend on the economy being vibrant. You can have all the right religious beliefs (Carter) and still fail economically; you can end the Cold War (Reagan) but increase government jobs by 238,000. Or you can be morally corrupt (Clinton) and leave a huge government surplus.

I predict that economic data reports will be splendid for the next two months, especially in light of the Federal Reserve Bank’s latest commitment for long-term intervention—anyone surprised?

Raphael Sassower is professor of philosophy at UCCS. He can be reached at rsassower@gmail.com See previous articles at sassower.blogspot.com

 

“We need to raise ethical expectations,” The Colorado Springs Business Journal, September 14 - 20, 2012, 21.

ETHICAL BEHAVIOR

Just as behavioral economists incorporate the insights of psychologists in their economic models in order to portray a more accurate picture of human behavior in the marketplace and predict trends, commentators should be concerned to focus on ethical issues that are ignored when corporate lawyers sanction the behavior of their clients.

As Michael Rothfeld reports (WSJ), when it comes to corporate crime, we have a different standard by which to judge or mete punishment: “Known as ‘deferred prosecution’ or ‘nonprosecution agreements,’ these deals let the U.S. negotiate fines, put companies on probation and get them to change practices.”

With 1% of the population in prison, with overcrowding and shrinking state and federal budgets, one must be sympathetic to any judgment that excludes prison time. The standard questions of deterrence vs. fairness may fall by the wayside if we cannot afford to staff prisons nor have enough cells for inmates.

When talking of white-collar crimes, corporate crimes that are perceived to be victimless, why worry about Libor interest-rate manipulation, or about the tax-evasion of hedge funds counting fees as “capital gains” with 15% income tax rate rather than “ordinary income” warranting 35% marginal tax?

Recall the “too big to fail” mantra that kept inept banks intact with government bailout funds? Oh, those socialist bankers enjoying the largess of taxpayers’ generosity? All of a sudden there was a role for government intervention! Does it hold in the case of bank indictments?

Now we have the “too big to indict” mindset which suggests banks are in position to defend themselves for years, costing millions to taxpayers’ representatives, District Attorneys and Prosecutors. Where is the bank headquartered? Who licenses it (Barclays) to do business on our US shores? 

Barclays had no problem paying $453 million in fines after a criminal probe to its Libor fraud. Think about it: is it simply the “cost of doing business”? Are the bank’s activities in the US so profitable that such a fine is just another deductible cost?

If it is, we are in trouble, because no deterrence is in place, and whatever “agreement” was reached with the authorities will not deter it from continuing to lie to other banks and the public. If it isn’t, then why did Barclays agree to pay such a high fine?

Barclays is in good company, though. JP Morgan Chase, Deutsche Bank, UBS, and Credit Suisse Group have reached similar “agreements” in the past few years. It has become a common practice. As such, it neither bespeaks of deterrence—other banking entities aren’t deterred, nor of compliance—they and others continue to violate American laws with impunity.

“Three strikes and you are out” remains applicable in baseball and for petty criminals around the country, not for the captains of finance. In the last “mortgage bubble,” with clear intent to defraud, few bankers ended up in jail, and few banks and investment houses were crippled by fines. If you plan on being a criminal, don’t rob a bank; instead, become its CEO! You are bound to enjoy a hefty end-of-year bonus.

Gibson Dunn & Crutcher, a law firm that follows these so-called agreements, claims that the Justice Department has collected over $31.6 billion in fines since 2000 from some 230 agreements. Is that number staggering? Does it say anything about our rule of law?

Common sense and practice suggest that our laws reflect our moral principles and social norms. Once we agree among ourselves what is and isn’t acceptable we turn it into law—enshrining our values in a legal system (social contract). The Ten Commandments were a bit different insofar as Moses got them from God, rather than his fellow Israelites. Perhaps that’s why some cherish them more than the malleable laws we have in regards to corporate crimes.

But the laws are there, in plain view. It’s their enforcement that is being challenged daily by the titans of finance. With the brain-power of Ivy-League graduates, they find ways to remain legally out of jail, pay fines, and promise to change their ways. But they have lost their moral compass along the way.

It was Rousseau long ago that warned the promoters of the Enlightenment that the study of the arts and sciences makes us clever but not moral, that we can argue our way out of any moral quandary without realizing that along the way we have lost our humanity, our compassion for other people and their needs.

Instead of “too big to indict” we should demand “big enough to be moral,” requiring wealthy financial institution moral leadership rather than monetary returns.

It is our collective help they turned to when in need; now that they don’t need us, should they forget us?

Raphael Sassower is professor of philosophy at UCCS. He can be reached at rsassower@gmail.com See previous articles at sassower.blogspot.com