Sunday, May 15, 2016

Donald Trump: The Ineffectual Leader

This was an old paper I wrote during October 2013. The prompt was to identify somebody and assess whether or not they are an effective leader, applying an article or two from Harvard Business Review’s 10 Must Reads in Leadership. I decided to write about Donald Trump because he has pulled some outrageous stunts in business decisions that you can’t even dream of reading on The Onion. 

I suddenly remembered that I wrote about it, and thought it would be relevant given, well, that he actually has a serious shot at the presidency. Seriously, that’s freaking terrifying.

The son of a middle-class real estate developer, Donald Trump has been an enduring media figure and eccentric celebrity infamous for many stunts. He began has real estate career in his father’s company, Elizabeth Trump and Son, while still a student at the Wharton School of Business in the University of Pennsylvania. Trump’s faced existential challenges in the early 1990s to the amount of $3.5 billion in corporate debt.[1] In 1991, he filed for Chapter 11 bankruptcy protection for the Trump Taj Mahal, accumulating $900 million in personal debt in the process.[2] Another bankruptcy followed the next year with the Trump Plaza Hotel.[3]            

Evidently, Trump’s career had mixed results. Although he was able to substantially reduce these debts by 1994, he declared two additional corporate bankruptcies: once in 2004 with Trump Hotels and Casinos, and again in 2009 with Trump Entertainment.[4] Overall, he’s had a number of business failures in 17 years.[5] Despite this, Trump has a net worth of around $3 billion and has had several successful ventures.[6]

Does Trump display the impressive capabilities showcased by Level 5 Leadership outlined by Jim Collins or the Strategist described by Rooke and Torbert? The answer is no on all counts: Donald Trump, by any definition, is not a particularly effective leader.

Collins identifies Level 5 Leaders as those who incorporate “personal humility” with “professional will.” Even if Donald Trump may have some degree of professional will, his ego is extremely large even when compared to other successful entrepreneurs. Trump often credits himself with his perceived successes. The (auto)biography featured on his website waxes poetic about his achievements, comically calling him “the very definition of the American success story” and “the archetypal businessman.”[7] He has written many books trumpeting his personal achievements. During his potential presidential run in 2011, Trump boasted that he was a superior businessman and possessed higher net worth than Mitt Romney, going as far as calling the former CEO of Bain “basically a small business guy.”[8]  When business soured, Trump did not hesitate to immediately externalize the blame. During the real estate downturn in the 1990s, when he defaulted on loans made to him, he “figured it was the bank’s problem, not mine [that they lost money on him].”[9] In the 2009 collapse of the Trump Ocean Resort Baja Mexico, Trump immediately insulated himself by saying that he was merely a spokesman and declined any financial responsibility. In the bankruptcy of Trump Entertainment Resorts the same year, Trump emphasized that he was a chief executive not involved in day-to-day operations.[10] Consequently, despite several temporary spurts, Trump has not been able to achieve what Level 5 Leaders can: consistently high growth and returns in his businesses.

Rooke and Tobert define a Strategist as one who “exercises the power of mutual inquiry, vigilance, and vulnerability” to “generate organizational and personal transformations.” However, when measuring Donald Trump among the seven types of leaders, he is best classified as an opportunist. He is highly self-oriented and believes most strongly in winning, finding creditors and investors expendable people to be “crushed” and to “take the benefits.”[11]

Innumerous examples abound of Trump throwing others under the bus for selfish personal gain. In 2007, Trump halted the construction of Trump Tower Tampa, a 52-story condo building. No buyer was refunded for the $200,000 to $1.2 million in deposits made. In fact, initial sales went so smoothly that deposits were returned in order to charge even higher prices.[12] In 2008, when Deutsche Bank demanded $40 million of the $640 million used to finance Chicago Trump Tower, Trump decided to sue the bank for $3 billion, essentially demanding a yearly interest of negative 1,250 percent.[13] When the bank noted in court that Trump has had many prior instances of overdue debt, he filed another suit for defamation. Eventually, Deutsche Bank dropped the case, indicating a willingness to lose $40 million rather than remain associated with Trump. In 2009, after collecting $32 million from investors, the Trump Ocean Resort Baja collapsed. It informed the investors that construction will be canceled; however, the contract stipulated that the company was still allowed to use the deposits anyway.[14] Trump even said that the investors were “lucky” because they would have lost more money had the Resort actually been built.[15]  In 2011, while attempting to develop a golf course in Scotland, Trump first applied for planning permission on land he didn’t own, and, when that failed, tried to force a couple out of their 20-year home by fencing off their entire house without their permission and then sending them a $4,000 bill for his work.[16]

Meanwhile, Trump’s leadership style and treatment of subordinates are best exemplified when he issues verdicts at the end of episodes on The Apprentice. Everyone who judges with him always agrees with his decision without fail: his highly self-centered personality inevitably results in groupthink, where even those with differing opinions would not want to be seen as undermining him and subsequently fired.

Although Trump will likely continue making profitable real estate ventures, his deficiencies as a leader are clear. His enormous ego and predatory behaviors sap his potential as a leader and prevents his businesses from achieving inspirational success.

[1] Claire O’Connor, 4th Time’s A Charm: How Donald Trump Made Bankruptcy Work for Him, Forbes, Apr. 21, 2011
[2] Id.
[3] Id.
[4] Id.
[5] Markus Allen, Donald Trump Bankruptcy: The Truth about Trump and His Failures,, Apr. 22, 2011
[6] Claire O’Connor, 4th Time’s A Charm: How Donald Trump Made Bankruptcy Work for Him, Forbes, Apr. 21, 2011
[7] Donald J. Trump Biography,
[8] Michael Falcone, Donald Trump Says His Huge Net Worth Makes Him Qualified to Run For President, ABC News, Apr. 18, 2011
[9] Floyd Norris, Trump Sees Act of God in Recession, New York Times, Dec. 4, 2008
[10] Id.
[11] Id.
[12] Alex Frangos, Stalled Condo Projects Tarnish Trump’s Name, Wall Street Journal, Nov. 16, 2007
[13] Floyd Norris, Trump Sees Act of God in Recession, New York Times, Dec. 4, 2008
[14] Howard Kurtz, The Trump Backlash, Newsweek, Apr. 24, 2011
[15] Id.
[16] Victoria Ward, Donald Trump Angers Neighbor After Erecting New Boundary Fence and Then Billing Him, The Telegraph, Jun. 4, 2011

Thursday, March 31, 2016

First Past the Post, Two-Party Rule, and the Artificial Support of Republicans and Trump

One aspect of political structural flaws that has not been widely discussed is how unfair our voting system is.

Right now, we follow something called first-past-the-post. Under this system, voters can only pick one choice per ballot, and the candidate with the plurality (not the majority) wins.

In his coverage of a cute animal kingdom, CGP Grey has detailed the flaws of this system in one of an excellent series of videos on different voting systems. Let’s examine the different flaws one by one and apply them in the context of US elections.

Minority Rule and Two-Party System

According to game theory, the inevitable result of first-past-the-post is two-party rule. This is an extremely bad problem in several major aspects.

First, few Americans would consider either the Democrats or the Republicans their first choice. According to the Pew Research Center, in 2014, self-identified Democrats accounted for 32 percent of the voting age population, 23 percent identify as Republicans, and a stunning 39 percent are either unaffiliated or identify as independents (while it’s unclear whether this represents likely voters or all voting age Americans is unclear, but more and more Americans have identified as independents over time). These results are echoed by Gallup data, which estimated that 43 percent of Americans identified as independents in 2014.

Perhaps even more troubling, a different Pew survey found that a record 24 percent of Americans have an unfavorable view of both the Democrat and Republican Party in 2015. What’s clear from this data is that a plurality of Americans do not especially identify with either party.

However, thanks to a combination of strategic voting and the spoiler effect, there is an entrenched two-party system in the US. What’s been happening more and more often is that Americans vote for the party they dislike least rather than a party or candidate that truly aligns with their values.

It’s these people who list neither party as their first choice that are most likely to become disillusioned with the democratic process and drop out entirely. It might also help explain why the US has abysmal turnout rates compared to the rest of the developed world: we ranked 4th to last among OECD countries in turnout when comparing most recent presidential or parliamentary elections.

This two party system also has unsettling implications. It allows Republicans to drift ever farther to the right and Democrats to become increasingly corporatist with relative impunity. The modern Republican congressman must first be worried that he will face a far-right primary challenger if he does not sufficiently tow the line. What’s notable was that the decline in self-identified Republicans was much sharper than the drop in self-Democrats.

Democrats, meanwhile, have increasingly gotten in bed with corporate interests. As Jacob Hacker and Paul Pierson note in Winner-Take-All Politics (2010), it has gotten to the point where Democrats’ “populist tradition more and more appeared like a costume—something to be donned from time to time when campaigning—rather than a basis for governing.” Robert McChensey quipped in Dollarocracy (2013) that the difference between Democrat or Republican control is “whether AT&T openly or covertly writes the laws.”

A side effect of a two-party system is that major issues are often portrayed as only having two sides. In 2013, Jon Stewart lambasted CNN for oversimplying nuanced concepts into whether it was a “good thing” or a “bad thing.” There are often multiple viewpoints and even solutions to any issue, and the creation of false dichotomies encourages polarization and close-mindedness towards potentially better alternatives.

On major issues that are popular with Americans of all ideologies – the public option, universal background checks on firearms, increasing the minimum wage, overturning Citizens United, the belief that a small elite has excessive influence in governance – you will find lukewarm support at best from Democrats and staunch opposition from Republicans. If representative governance is designed to the responsive to the will of the people, our current system is not one.

The Spoiler Effect

Because candidates only require pluralities rather than majorities to win a race, first-past-the-post makes it extremely difficult for third parties to gain traction. A third party will almost always draw support from a voter’s second choice, making it more likely that the party they dislike most will end up winning.

The most prominent example is happened in the 2000 presidential election, when Bush won Florida by a margin of only 0.0092 percent and where Ralph Nader won 1.63 percent of the vote in that state, arguably “spoiling” the election (the electoral college itself is extremely unfair, but should be the subject of a different post). Even in that election, Ralph Nader only won 2.74 percent of the popular vote. In order to qualify for federal funding, third parties must win at least 5 percent of the popular vote; that 5 percent can easily swing a close election.

Even in House races, the spoiler effect can lead to unintended results. Witness in 1988, when Bernie Sanders ran as US representative: he split the liberal vote, ultimately losing 41 percent to 38 percent (to be fair, the Democrat with a meager 19 percent of the vote was the spoiler, not Bernie). In a scenario of a runoff or even an instant runoff, there would be no spoiler effect.


The final major issue of the first-past-the-post system is its susceptibility to gerrymandering. Every 10 years, when the Census Bureau makes a comprehensive survey to collect demographic information of the American populace, state legislatures will redraw congressional districts. Because Republicans swept state races in 2010 (fueled by low turnout and the rise of the Tea Party), they redrew some bizarre looking lines.

Source: Govtrack

Seriously, what the hell is that? Despite Austin and the greater Travis County’s reputation as liberal areas, five of the six districts within the Austin area are currently held by Republicans.

In the 2012 election, Democrats actually won the overall popular vote in the House by 1.17 million votes, with 50.59 percent voting for a Democrat congressman. Nonetheless, the Republican Party had 234 seats to 201 for Democrats, a substantial 33 seat advantage and 18 seats above the number needed for a majority. That represents a 4.38 percent error in representation.

To be fair, gerrymandering is not limited to Republicans: where state houses and governorships are under Democrat control, you see gerrymandering favoring Democrats as well. However, current gerrymandering behavior is disproportionately Republican, and it is incredibly unfair regardless of who perpetrates it.

Artificially reinforcing presidential candidates

Here’s where things get scary. In recent presidential elections, a presidential nominee from either major party can expect to get a minimum of 37 percent of the popular vote (even in landslides such as the election of 1964, the election of 1972, the election of 1980, the election of 1984). Since 1980, any Democrat or Republican nominee has gotten a minimum of 40 percent of the popular vote.

So what does that mean for an extremist like Trump? Recall earlier that only about 25 percent of Americans identify as Republicans. Of those, maybe 40 percent support him. That translates to an overall support of just 10 percent who would plausibly support him as the first choice.

Yet that number will be amplified to a minimum of 35-40 percent should Trump get the nomination. Under any remotely inclusive system that embraces independents and uses instant-runoff, the Republican nominee would be far more moderate than the far-right, awful, awful choices we have gotten in recent years.

A hypothetical scenario of Clinton vs. Trump would be extremely unique in that both candidates have an overwhelmingly negative net favorability rating. Right now, Hillary’s net favorability rating is negative 14.4 percent. Trump’s is an astounding negative 31.9 percent. However, the combination of a two-party system, electoral college rules, and spoiler effects discouraging voting third party would mean that there is actually a plausible scenario where Trump’s support among working-class whites would win him the presidency.

That is terrifying. It is something I would not fathom happening in a different voting system.


Other Voting Systems

So we have painstakingly shown how first-past-the-post system makes a complete mockery of American politics all by itself. What are some ways to combat this distortion?

CGP Grey outlines two good solutions, each with its distinct pros and cons. The first option is the Single Transferable Vote (STV). The second option is the mixed-member proportional (MMP) system. Either system would make it easier for alternative parties to become real forces by eliminating the spoiler effect and maximizing representation. Both would ensure that both Republicans and Democrats are held accountable to voters. Both systems have inherent defenses against gerrymandering. Meanwhile, instant runoff in presidential elections would reward centrist and charismatic presidential candidates over partisan hacks or dishonest flip-floppers.

Which system is better? Ultimately, I think that is up to preference. MMP would institutionalize parties as part of the electoral process. I think STV is slightly more susceptible to gerrymandering. Nonetheless, if well designed, you really can’t go wrong with either.

Here is a table summarizing the different alternatives.

 Blanket “Non-Partisan” Primaries

Here’s another interesting system that can be implemented regardless of the voting system. Instead of having a different primary for each party, have a single blanket primary with ranked choice voting where liberals, independents, and conservatives alike can cast votes. Candidates can still identify their partisan affiliations, but all candidates regardless of affiliation will be part of this initial primary process. From here, reallocate votes above a certain threshold (say 20 percent), then start eliminating candidates with the weakest support, redistributing their second choices among those remaining. From here, you can choose to have a runoff with the 2-4 candidates who got the biggest share of the initial vote.

One major advantage of a blanket primary is that if a given district is heavily liberal or heavily conservative, they can have multiple liberal or conservative candidates in the subsequent general election. Moreover, in general, centrist-minded incumbents need not worry about being challenged by extremist fringes: rather, they should worry about challenges moderately from the left, moderately from the left, or even from the center.

Generating wholesale political reform

Hopefully this post convinces you that first-past-the-post voting is extremely anti-democratic and produces multiple distortions that harm political discourse. Unfortunately, reform will probably not go anywhere because both Democrats and Republicans benefit tremendously from the current system (Republicans disproportionately so).

To the extent a constitutional convention can be held in the future, hopefully first-past-the-post come to the forefront as a target of institutional reform that would improve representative governance and restore health to our troubled democracy.

Wednesday, March 9, 2016

Why I will not be settling for Hillary if she gets the nomination

In this election cycle, there is only one major presidential candidate who has meaningful goals towards curbing the immense concentration of economic and political power of billionaires and corporate interests and redistributing it back to the people: Senator Bernie Sanders.

If Bernie doesn’t get the nomination, I will not #SettleWithHillary. Honestly, if she ran a clean campaign as a proud moderate and did not have all the baggage she has, I might have reluctantly voted for her. Instead, having already been effectively disenfranchised by the electoral college in Texas, I will be voting Green instead in the hopes that they can gain 5 percent of the vote and get access to federal funding.

My staunch opposition to Hillary comes from four areas:

First, Hillary has no real plan for addressing the institutional corruption of American governance via the campaign finance system.

As I’ve noted in a previous post, Congress is severely paralyzed and unlikely to pass anything meaningful unless there is comprehensive campaign finance reform. None of the issues we care most deeply about – climate change, health care, progressive taxation, financial reform, decriminalized drug policy, or education reform – can be substantially changed without addressing the immense power special interests groups have on the election of congressmen and the way they govern.

While Hillary has proposed a modest publicly financed campaign system in the form of matching small donations, she hasn’t done much to address the problem of big donors in politics. Here’s her specific proposal:

Hillary will establish a small-donor matching system for presidential and congressional elections to incentivize small donors to participate in elections.

As the costs of running a campaign continue to skyrocket, congressmen will inevitably become more dependent on big donors over time. Campaigns are unlikely to meaningfully track the issues small donors care about; however, for bigger donors who give close to the legal limit of $2,700, their concerns are taken seriously. And this still gives lobbyists a lot of power, for they could multiply their influence by bundling multiple donors who max out, or threatening to raise large sums of money for opponents if a congressman demurs on their concerns.

In addition, this system can potentially support speech we fundamentally oppose. Just imagine your taxpayer money going to fund the campaign of Ted Cruz. Or Donald Trump. Or Mitch McConnell. Yeah.

What’s worse, the way Hillary has campaigned so far inspires little confidence in her willingness to push even her modest proposal. She has raised close to $190 million in Super PAC money. 77 percent of the $130 million she has raised for her campaign committee have come from large donors, those who donated more than $200; close to $60 million came from those who donated the maximum amount. She regularly holds fundraisers with Wall Street and other powerful corporate interest groups. She has taken millions from corporate lobbyists, Super PACs, Wall Street, the health care industry, and even private prisons. While I realize there is some use in using the system to help destroy it, there is serious risk in becoming dependent on the very system you are trying to change.

I think Hillary and the Democratic Party stand to lose far too much to be able to mount a serious commitment to change the way campaigns are financed. When a similar proposal, the Fair Elections Now Act, was proposed in the House in 2010 while Democrats had strong majorities in both houses of Congress, it didn’t even come up for a full vote. And good luck getting anything through a Republican majority.

While Bernie would also face an uphill battle in passing sweeping reform, he is more likely to attract progressive congressional coattails who are committed to reform, and he can more effectively use the bully pulpit to urge people to flood their congressmen with messages and pressure them to follow suit. His initial tenure as mayor of Burlington serves as a useful guide: when the city council shut him out, he governed via alternative means, embracing grassroots activism. I just don’t think Hillary is quite capable of doing the same thing, particularly when large numbers of Americans distrust her (even less than Donald Trump!) and her net favorability rating is negative.

Second, even without the aforementioned institutional barriers, Hillary is far too moderate to effect the magnitude of change we need.

Even assuming all of Hillary’s plans pass overnight, we would still not have done enough (and I have serious doubt she will follow through with her platform given her solicitation of campaign contributions from opposing special interest groups).

Let’s go through some of her core proposals:

Minimum wage. Hillary supports a $12 federal minimum wage. Assuming a 40 hour workweek and 50 weeks of working a year, that translates to an annual rate of $24,000. It’s certainly better than the current level, but a $15 wage would translate to $30,000 a year, a $6,000 or 20 percent increase. Under a $12 wage, if a single person were supporting a family of four, that household would be below the poverty line. Looking elsewhere, Denmark has an effective minimum wage of $18, and the world hasn’t fallen apart. People there could afford a reasonably comfortable lifestyle even with minimum wage work.

Health Care. Hillary has belatedly added the public option back onto the table, albeit with an emphasis on setting it up for individual states. This could provide a path towards universal coverage, and there are estimates that a public option could offer lower premiums by as much as 30 percent.

However, even if the public option is able to gain substantial leverage on pricing, private insurers will still struggle to keep prices down. As Steven Brill notes in A Bitter Pill:

Insurers with the most leverage, because they have the most customers to offer a hospital that needs patients, will try to negotiate prices 30% to 50% above the Medicare rates rather than discounts off the sky-high chargemaster rates. But insurers are increasingly losing leverage because hospitals are consolidating by buying doctors’ practices and even rival hospitals. In that situation — in which the insurer needs the hospital more than the hospital needs the insurer — the pricing negotiation will be over discounts that work down from the chargemaster prices rather than up from what Medicare would pay. Getting a 50% or even 60% discount off the chargemaster price of an item that costs $13 and lists for $199.50 is still no bargain. “We hate to negotiate off of the chargemaster, but we have to do it a lot now,” says Edward Wardell, a lawyer for the giant health-insurance provider Aetna Inc.

So under the public option, health care costs overall can go down, perhaps even by upwards of 15 percent (best case scenario). Even after that, the US will still be spending 15 percent more per capita than the next highest country, and 50 percent more than the OECD average.

On top of that, Americans will still be paying substantial costs in premiums, deductibles, and copays. A major illness may cost considerably less, but it will still cost dearly – and the public option probably won’t make a sizable dent to the prevalence of medical bankruptcy in the US.

By contrast, Bernie’s single payer plan would place immense downward pressure on prices, decreasing current private insurance reimbursement rates to hospitals by as much as 40 percent. It would also only feature premiums in the form of increased payroll taxes; without deductibles or copays, any major illness would no longer devastate a family’s finances.

Higher Education. In addition to lower interest rates, Hillary’s plan involves a $2,500 tuition tax credit every year. Given the average tuition rate at a public university was $9,410 this year and will only go up, this only covers a little more than a quarter of tuition costs at best (and that’s before costs in housing, food, textbooks, etc.) Should a student choose to enroll in an out-of-state public university, this would be even worse. In addition, this tax credit is unlikely to expand access to college for working class families: tuition is paid at the start of the school year and the credit cannot be claimed until April, so it is unlikely to materially influence spending decisions. While this tax credit could be used for private non-profit universities, they can also potentially be used on for-profit colleges, which provide subpar education, saddle students in the highest debt load compared to public or private non-profit universities, and give them few employment prospects after graduation.

More troubling, such tax expenditures only expands the presence of the submerged state. It has the effect of hiding the true role of government, causing Americans to underestimate the role of government in shaping social policy and believe that they want a smaller government than they actually prefer. This makes them deeply hostile to future expansions in government policy, even where they can get the job done far more effectively than the private sector. If Americans also don’t realize the government is benefiting them, it reduces motivation for civic participation as well.

Bernie’s higher education plan would instead provide free tuition at all 4-year public universities, which would cost $62.6 billion a year. It would make college far more affordable and accessible to the working class and even the middle class. And if wealthy parents choose to send their kids to public universities, chances are they will have more than paid for it via the Wall Street speculation tax Bernie proposes to finance his proposal.

Wall Street. It appears Hillary has copied some of Bernie’s platform since the last time I checked (because nothing says leader like following someone else). There are some decent ideas, such as taking on the shadow banking system.

However, Hillary doesn’t really address the fundamental issue that banks are too big to fail. They have actually gotten more consolidated than before the financial crisis: the top 5 banks in the US collectively own nearly 45 percent of the industry’s total assets. If any of these banks were to go under, the result would be so catastrophic that the US would have no choice but to bail them out. Consequently, the underlying moral hazard of excessive risk taking, knowing the government will pick up the tab if things go south, remains.

Bernie, on the other hand, has been unambiguous in his stance on breaking up the big banks. While that alone is not quite enough, Hillary has also taken at least $6 million in donations from Wall Street, translating to about 7.2 percent of all of her funding. I wouldn’t trust her to enact any meaningful reform because she is so beholden to them.

Third, Hillary has a neoconservative foreign policy that will lead to disastrous military adventurism abroad.

While Secretary of State, Hillary consistently expressed more hawkish views than the rest of the Obama administration. She voted for the war in Iraq, which has resulted in close to 150,000 civilian casualties and more than 4,600 US military deaths. It has also been a crucial catalyst for the rise of ISIS and cost the US an estimated $2 trillion.

Hillary played a substantial role in the 2009 coup in Honduras, a move that caused deterioration of diplomatic relations with Latin America. The subsequent weak and corrupt government coincided with an escalation in drug-related violence in the following years as the war on drugs displaced traditional supply lines via the Caribbean and cartels rerouted them through Central America. For better or worse, the coup likely exacerbated the migrant crisis from Central America in mid-2014 – which Hillary responded to by unapologetically stating that they should be sent back to “send a clear message.”

Hillary also supported intervention in Libya, where the diffusion of arms after the fall of Qaddafi triggered severe unrest in neighboring African countries such as Mali and where 20 months of civil war have given ISIS an opportunity to establish a front there.

In Syria, Hillary has pushed for a no-fly zone and advocated arming “moderate” rebels more aggressively than President Obama did. The issue is that there is little real information on the ground, and the so-called “moderates” we are arming may very well be more barbaric than Assad and his Russian allies.

Even if the US succeeds in dislodging Assad, we will probably see a repeat of the scenario in Iraq – in the ensuing power vacuum, we will see heightened sectarian warfare between the majority Sunni population and minorities such as Alawites, massive civilian deaths, continued proxy warfare from Turkey, Saudi Arabia, Iran, and Russia, and an environment of chaos where ISIS and other militant groups such as al-Qaeda-affiliated al-Nusra can thrive.

Time and time again, Hillary has demonstrated exceptionally poor judgment on foreign policy. It’s striking that Hillary takes cues from Henry Kissinger, who among other things contributed to a genocide in Camodia killing 3 million by bombing the entire country. Hillary has drawn support from other neocons as well, such as Robert Kagan. A Clinton administration will result in disastrous militarist adventurism, damaging America’s reputation abroad and directly feeding international instability.

Fourth, and perhaps most importantly, Hillary has a serious lack of integrity and comes off as dishonest, untrustworthy, and inconsistent.

Like her husband Bill, Hillary is a triangulating politician who has picked up a number of inconsistent views over the years. She has flip-flopped on many issues: Gay marriage, TPP, Wall Street, Keystone, and Iraq, just to name a few examples. In conjunction with taking so much money from special interests, it is hard to tell what Hillary stands for, and what she will actually support if she becomes president.

She and her surrogates have also pulled a number of dirty campaign tactics. They have engaged in the use of push polling, which are essentially character assassinations masquerading as polling. On the day of the Massachusetts primary, Bill Clinton made stops outside and even inside polling locations, which may have broken electoral laws blocking the solicitation of votes within 150 feet of a polling location and, more importantly, effectively stopped voting for several hours as voters could not bypass his phalanx of security.

Hillary and friends have also attempted to swiftboat Bernie’s record on multiple occasions (see here, here, and here), trying to smear him with accusations that are misleading or even downright false. Just recently at the Flint debate and Michigan town hall, Hillary has attempted to equate her moderate plans with Bernie’s far more sweeping ones. When it comes to attacks on transcripts or the 1994 crime bill, her first defense is “Bernie did it too.” Throughout the primaries, Hillary and the DNC have actively worked to effectively depress voter turnout, which will come to hurt Democrats in the general election.

Moreover, there are serious ethical questions with the 91 paid speeches Hillary has made from 2013 to April 2015, making a total of $21.7 million, adding to her already immense wealth. These include $1.6 million to Canadian pro-Keystone groups (which she now “opposes”), and talks to Goldman Sachs, which was reportedly “rah-rah” and where “she sounded more like a Goldman Sachs managing director.” More alarmingly, she continued to make 50 speeches netting more than $10 million even when she seriously considered running for president by 2014. At this point, even The New York Times, which has endorsed Hillary, has called for the release of the transcripts. At best, these speeches represent a serious error in judgment. At worst, they are ethical violations that should make us question whose interests she really serves.

Finally, there’s the trump card: a serious ongoing FBI investigation on Hillary’s use of private servers while she was Secretary of State. 30,000 pages of emails were deleted from the server; there’s been reports that the emails were insecure for 2 months, and multiple foreign groups (such as Russians) have attempted to gain access to the server; former Secretary of Defense Robert Gates reckons they may very well have succeeded. Among other things, these emails have revealed that Hillary secretly lobbied for the Columbia free trade deal – at the same time she publicly pledged to oppose it. The investigation may be concluded as early as May, and may or may not lead to an indictment.

As with the transcripts, at best, this entire investigation has demonstrated a serious error of judgment on Hillary’s part. At worst, this may result in an indictment and prison time. No other presidential candidate in history has had an active federal investigation before – and none would have been expected to survive the fallout.


Despite all this, there is still some reason to respect the policies Hillary supposedly stands for. There is a material difference in her policy positions compared to whoever emerges as the Republican nominee. If you live in a swing state, I encourage voting for her anyway, for Supreme Court nominees and the ability to veto bad legislation or pass good ones are at stake.

However, if you live in an uncompetitive state like I do, should the worst happen and Hillary ends up being the nominee, I strongly urge looking towards a third party option. Jill Stein has very similar positions to Bernie, and in some cases takes even stronger stances. Whoever becomes the Libertarian nominee will probably provide a nice combination of fiscal conservatism and socially liberalism. If a third party gets 5 or more percent of the popular vote, then they will qualify for federal funding, which could substantially improve their outreach and make them a contending force, starting the process of breaking up the two-party duopoly.

Friday, February 26, 2016

Balancing Growth with Sustainability - Why there should be a stronger emphasis on social responsibility in business strategy

 As a business and economics student, I have been inundated with a core set of tenets. Firms exist to maximize profitability. And firms must presumably limitlessly increase growth and profits year after year or face market backlash, activist investors, and/or going out of business.

The underlying theory is that this maximization of profits eventually optimizes societal welfare; meanwhile, the desire for growth will drive innovation, moving the production frontier and increasing the volume of goods and services society can provide over time. While valid in many cases, it has also been pushed uncritically and relentlessly as an absolute truth.

But does this pursuit for growth and profits always provide value? Is there a limit? At some point, when does value creation stop and slide into zero-sum redistribution, or even devolve into a net reduction in societal welfare?

In his book Capital In the Twenty-First Century, French economist Thomas Piketty painstakingly establishes what happens when returns to capital outpace economic growth over long periods of time. Eventually, income and wealth becomes increasingly concentrated in the hands of the owners of capital, raising inequality. In conjunction with this, multiple studies have established a connection between very high levels of inequality and reduced social mobility. In other words, equality of opportunity, a core tenet most of us value, gets undermined: in a world of equality of opportunity, we expect social mobility to be high and frequent movement of individuals across income percentiles. Instead, more born poor remain poor, while those born rich retain their wealth. As the wealthy gain power, they also have an incentive to keep it. We’ve seen this through their immense influence in political and academic circles, as their money funds policy research and critical operations in each.

But perhaps all this is too abstract for many people to observe. What are some more tangible ways to express the dangers of growth?

Perhaps we can first dive into the processed food and beverage industry. As Michael Moss documented in Salt, Sugar, and Fat, we have seen dramatic growth in this market over the past couple decades. Companies create innovative new formulas and a combination of flavors and textures designed to meet a “bliss point” – where our taste buds would be maximally satisfied. They have complemented this product design with extremely successful marketing campaigns, building highly valuable brands over time (PepsiCo, for instance, has 22 brands worth $1 billion or more). They executed their strategies at an inflection point of societal change, where the entry of women into the workforce and the decline in home economics awareness drove the need for on-the-go food and products requiring little prior preparation. From a business strategy perspective, their work overall has been absolutely phenomenal, and the book sometimes reads like a series of one successful business case after another.

No doubt there is substantial social value in what these companies did. By creating needs that people did not even know they craved until they experienced it, these food companies literally created value. Surely one would struggle to come to terms with a world without Classic Coke, Lay’s, Lucky Charms, or any one of hundreds of products that have become classic treats or even staples. They support the lives and passions of hundreds of thousands of employees. When public health concerns mounted, they buoyed other industries such as dietary supplements and healthier food products and juices. And at least recently, companies had made a point to do philanthropic work and to emphasize sustainability and social responsibility.

But all this growth came at terrible social and ethical cost. The “bliss points” in taste happen well beyond when a product would be considered unhealthy. Their combination of addictiveness and low satiety encouraged overeating. Time and time again, companies marketed to low-information consumers, who may lack awareness of the nutritional implications. They even made product lines and marketed them explicitly for children, who would develop dependence on the unique taste while they were still cognitively developing and who could uniquely pressure parents to make these purchases.

In combination with more sedentary lifestyles and reduced time or willingness for physical activity, obesity rates jumped. This placed great burden on health care, not just due to increases in heart attack and strokes, but also from the need to constantly monitor someone with diabetes or hypertension. And food companies bore almost none of the burden for this massive negative externality for which they were at least partially responsible.

The rise in dietary supplements and “healthy options” is similarly suspect in terms of value. Oftentimes, dietary fads play completely on a consumer’s need for instant gratification, and do not produce tangible results. They can come with deceptive advertising and sham endorsements from popular figures such as Dr. Oz. While healthy options are more legitimate, they more often than not only offer an appearance of health or freshness, with only modest reductions in calorie count, and carry similar risks of low satiety and overeating. Sometimes, they simply become an additional, high-margin apparatus of food companies.

Surely some employees saw through the enormous harm that was done and tried to counteract it? The truth is, they tried. But the same goals of growth and profit that incentivized this behavior made it very hard to correct it. When Campbell’s soup attempted to reduce the sodium content of its soups, what was left was a bitter, metallic taste. When other companies tried to increase the sustainability of the growth by, for instance, pushing healthier products and reducing marketing towards children and low-information consumers, Wall Street rebelled, and the subsequent drops in share price and market evaluations forced them to reconsider. Spurred by the quest for profits, their hands are now tied by the same mechanism.

But perhaps that is simply an extraordinary example with a product category that had a clear negative effect on public health. Surely the extraordinary success of a company like Apple offers a more inspiring story?

Sadly, the growth in demand for consumer electronics, particularly smartphones, in combination with a need to maximize profits, had a lot of negative side effects. In 2010, 18 workers of Foxconn, a subcontractor for Apple and a number of other consumer electronics companies, attempted to commit suicide due to harsh working conditions and low pay.

Even though Apple made some changes through its commission of the Fair Labor Association, there is still work to be done. Wage increases have not kept up with productivity: although they have increased by 9 percent, quotas have risen 25 percent. Purchasing power has also been eroded with sharp increases in food and housing costs. Workers still exceed the 49 hour limit per week stipulated by Chinese law. New issues such as insufficient lighting and high noise levels have been found. Moreover, Apple has not relaxed Foxconn’s harsh contractual conditions or provided any money to finance the improvements, reducing Foxconn’s ability to make reforms quickly. Clearly, even the current pace of reform has left much to be desired.

To be sure, the direct financial benefits in accelerating reform are uncertain, but the costs are significant and tangible. It may be difficult to push change faster than the current pace taking place. Of course, one could argue that despite these harsh conditions, they may still represent an increase in the standards of living for Chinese workers. But Apple and other multinational firms could have done so much more to accelerate this. Still, the welfare of nearly a million Chinese workers at Foxconn is at stake. Moreover, any breakthrough there would send ripple effects throughout the Chinese manufacturing industry, help transition China towards a consumer economy and a bigger market for Apple, and accelerate international convergence in wages.

It’s quite telling that “if iPhones were assembled in the United States – assuming labor costs ten times [in 2008, it was 25 times] that in China, equal productivity, and constant component costs – Apple would still have an ample profit margin, but it would drop from 64 percent to 50 percent. In effect, Apple makes 22 percent of its profit margin… from the much higher rate of exploitation of Chinese labor” (from The Endless Crisis, Robert McChesney and John Foster). Even if Apple asked Foxconn to double wages and slash worker hours, the impact to its margins would be minor – 2 percent at most. That it does not do so suggests the sheer power of the gospel of profit maximization, along with Wall Street’s rigid enforcement of this tenet, and the relative lip service companies give to social responsibility in comparison.

A final example is not as visibly harmful, but the implications are nonetheless troubling. Here’s Tom Ford on why marketing Gucci is critical:

A black pair of pants from Gucci, to be honest, is not that much different from a black pair of pants from Prada or a black pair of pants from any of our other competitors… But in the customer’s mind, this basic pair of pants can be endowed with a quality that makes her feel she’s wearing the right basic pair of pants, the cool pair of pants, the pair of pants that’s going to make her whole life come together, and that’s in a sense also what you’re selling.

Again, there is some justification to differentiation on an emotional basis. For instance, it is one of the most effective signals that a given brand exudes quality or trendiness. Nonetheless, there is something ethically unsettling that playing on emotions and psychological need is able to trump actual differentiation in terms of materials and product features.

Even if this strategy is not zero-sum by growing the market instead of redistributing market share, a different issue arises: sustainability. In the case of any tangible product, manufacturing more product requires the use of natural resources and energy. Pursuing infinite growth in sales and profits, whether by emotional manipulation or actual differentiation, increases the risk of over-consumerism, which crowds out spending in other areas that are more sustainable, and also places immense strain on natural resources and the environment.

At its core, the pursuit of infinite growth and profits is an excellent strategy for the individual firm. What is not so clear is whether that same benefit extends to the industry as a whole, or even to society as a whole. Eventually, this relentless pursuit raises the risk of increased inequality, worker exploitation, psychological manipulation, and environmental strain. There needs to be a much stronger emphasis on sustainability, and multinational corporations should be leading the charge.

Sunday, February 14, 2016

Restoring congressional independence: increasing legislative and research staff to reduce capture by lobbyists

While doing some reading last night, I came across a great idea for political reform that hasn’t gotten much attention. I decided to do a short post. This may be the first of a series on institutional failure and reform.

Over the past 30 years, the number of congressional and research staff dramatically decreased. The Government Accountability Office (GAO) and Congressional Research Service (CRS) both have 20 percent fewer staff today than in 1979. At the same time, the number of committee hearings declined as well, and subcommittees had less autonomy to choose their own topics as leadership dictated what kind of legislation they wanted to pass. This trend accelerated in 1995, when anti-government Newt Gingrich and friends laid off a lot of this staff. This included institutions like the Congressional Research Service, the Congressional Budget Office, and the Government Accountability Office (which is so successful at reducing waste that it saves $90-100 for each dollar invested!). It accelerated again in 2011, when the Tea Party wave reduced support even further.

Now, we have overworked and underpaid staffers (given the high cost of living in DC) who are increasingly dependent on external sources for knowledge. This reduction in institutional support coincided with enormous increases in societal, technological, and political complexity. “The U.S. code of federal regulations grew from 71,224 pages in 1975 to 102,295 pages in 1980 to 174,545 pages by 2012,” in part even because they are explicitly written to hide their impacts.

Filling this void are think tanks and lobbyists, happy to provide subject matter expertise, with the added bonus of their bias towards the interests they serve and their tendency to make misleading or even false claims. In fact, the Heritage Foundation played a central role in the government shutdown in 2013 because they were so influential within the GOP and wrongly believed that Democrats would capitulate.

In 2010, the House spent $1.37 billion and employed between 7,000 and 8,000 staffers. That same year, corporations and special interests spent twice as much—$2.6 billion—on lobbying (which excludes billions spent on other forms of influence) and employed 12,000 federally registered lobbyists, according to Sunlight Foundation.

The result is capture by lobbyists, which are overwhelmingly business interests: 80 percent of all spending is made by corporate interests, while 90-95 percent of lobbyist organizations represent businesses. In conjunction with the infinite need of money and the need for congressmen to fundraise endlessly, they have immense influence over the legislative process, while congressmen don't know enough to ask the right questions because they aren't at their committee meetings.

To close to the circle, a lot of these overworked and underpaid staffers eventually seek to enter the revolving door towards lobbying, where they make multiples off their current public salaries (Lawrence Lessig estimates a minimum of six times their current salaries). Turnover is also extremely high: of the staffers that started in 2005, 82 percent of Senate staffs and 70 percent of House staffers left by 2012.

The solution is relatively simple: "double the committee staff, and triple the money available for salaries." The increase would be split into specialized committee staff under committee chairs and an additional committee staffer on a congressman's detail. This allows for long-term staff unaffected by electoral change who would have the historical knowledge and expertise to advise congressmen on policy issues.

Another interesting idea, brought up by Craig Montuori in a Quora answer, is a hyperlinked and connected database for the Code of Federal Regulations and the United States Code, which includes showing how it changes over time. It could be combined with CBO projections per section.

Right now, 0.2 percent of all spending funds Congress and the Senate, or $6 of the $3000 we spend per American. If we simply tripled that amount, we would be able to provide far better oversight, anticipate implementation issues, and provide a powerful check towards special interests.

Further reading:

The Big Lobotomy: How Republicans Made Congress Stupid – Washington Monthly, Summer 2014

A New Agenda for Political Reform – Washington Monthly, Spring 2015

Saturday, February 6, 2016

A reading list for those interested in the urgent issues of today

Over the past five years, I've read a number of books that have been instrumental in informing my views. I'd like to give a list of some of the books I found most useful, separated by category.

I have not read all of them; I will specifically notate which books I have not yet read but am interesting in reading.

In case you didn't notice, I found out about a lot of books on this list via a combination of Foreign Affairs reviews, The Economist reviews, and Daily Show interviews. I recommend all three for finding new books!

Inequality - economic and political failure

Winner-Take-All Politics: How Washington Made the Rich Richer--and Turned Its Back on the Middle Class - Jacob Hacker and Paul Pierson (2010) (Amazon link) (Foreign Affairs Review)

  • Thirty-year political history spanning the start of the Carter administration to the first two years of the Obama administration showing how government has time and time again tilted policy in favor of the rich, how special interest groups have had a meteoric rise in power, and how policy proposed to help the middle class were watered down or failed - a concept known as policy drift.

Republic, Lost: Version 2.0 - Lawrence Lessig (2015) (Amazon link) (Daily Show interview with Lessig) (TED Talk) (The Grant and Franklin Project - key solution)
  • Carefully documents how money in politics has a serious corrupting influence on members of Congress. Also shows how it makes it politically impossible for both the left and the right to pass the policies they care about. Key solution is a publicly funded election: it involves a voluntary program where politicians can solicit donations from a $50 voucher given to all voting age Americans, which can be complemented by up to $100 in individual donations. To participate, they must reject large donations and PAC money.

Dollarocracy: How the Money and Media Election Complex Is Destroying America - Robert McChesney and John Nichols (2013) (Amazon link)
  • Like Republic, Lost, it shows how money in politics is destroying political efficacy. It also conducts a thorough analysis of how media has consolidated over time and been increasingly dependent on commercial interests and on coverage cues from those in power. One section even talks about data mining, and how that exacerbates the effects of echo chambers and polarization. A fantastic read.

The Crash of 2016: The Plot to Destroy America--and What We Can Do to Stop It - Thom Hartmann (Amazon link)
  • Talks about the tendency for there to be a serious crisis in our country every 80 years. The first crisis was the Civil War. The next, the Depression. Every 80 years, incoming generations forget about the lessons of previous generations and repeat mistakes; the balance of power of so-called royalists (originating from people who supported the British during the American Revolution) consequently increases. One thing I loved about this book was its thorough coverage of a shadowy organization called the American Legislative Exchange Council, a conservative coalition of powerful special interest groups that writes so-called "model" legislation to be introduced in state legislatures, such as extremely strict "right-to-work" legislation. Here's John Oliver's coverage of that.

Saving Capitalism: For the Many, Not the Few - Robert Reich (2015) (Amazon link) Have not read
  • By former secretary of labor under Clinton administration; now one of the most important and articulate supporters of Bernie Sanders.

Capital in the Twenty-First Century - Thomas Piketty (2014) (Amazon link) (Book club series on The EconomistHave not read
  • Central premise: as long as the return on capital is greater than economic growth (r > g), then the distribution of wealth will increasingly trend towards the owners of capital rather than working people. This has troubling implications for income inequality.

The Submerged State: How Invisible Government Policies Undermine American Democracy - Suzanne Mettler (2011) (Amazon link) (Foreign Affairs Review) Have not read
  • Central premise: a lot of governmental policies designed to help the people are effectively invisible: the primary example of this are tax expenditures. This causes Americans to routinely underestimate the actual role government plays in shaping distribution and inequality, and consequently to demand a smaller government than would be effective.

Media and the Newsroom

The Death and Life of American Journalism: The Media Revolution that Will Begin the World Again - Robert McChesney and John Nichols (2010) (Amazon link)
  • An in-depth account about the decline of media since the 1970s. Amazingly, even before the Internet and the financial crisis accelerated the financial troubles of news publications, they were already aggressively slashing the size of the newsrooms on Wall Street's demand. Moreover, there are two trends that undermine the ability for media to be a watchdog: first, they tend to take cues for coverage from the official sources in power, which distorts their agenda. Second, the need for ratings drives sensationalist garbage (Exhibit A: Buzzfeed, tabloids, celebrity news). McChesney and Nichols outline three main solutions: first, generous tax credits for news publications; second, a voucher for the American people to publicly fund our news; and third, a dramatic increase in funding for existing public news outlets like PBS and NPR.

Manufacturing Consent: The Political Economy of the Mass Media - Noam Chomsky and Edward Herman (2002) (Amazon link) Have not read
  • Not familiar with what specifically the book covers, but I think it's probably very similar issues to the book above (i.e. the unholy marriage between media and commercial interests).

Banking and Wall Street

13 Bankers: The Wall Street Takeover and the Next Financial Meltdown - Simon Johnson and James Kwak (2010) (Amazon link)
  • A fantastic background on what happened in the run-up to the financial crisis, and how early attempts of relief and reform were badly undermined by their continuing influence (for news coverage, see The Economist's excellent posts). Also has a great proposal to break up big banks: capping commercial banks' assets to 4 percent of GDP, and investment banks' assets to 2 percent of GDP (at least 5-7 banks are currently too big for these definitions).

Energy and Climate Change

The Carbon Crunch: How We’re Getting Climate Change Wrong—and How to Fix It - Dieter Helm (2012) (Amazon link) (Economist review)
  • Has some interesting views about renewable energy. Right now, because of their cost structure and intermittent nature of sun and wind, they are ironically encouraging coal power plants as an alternate source in Europe. Renewable energy subsidies also represent a substantial market distortion that ignores that other approaches towards reducing emissions may be most cost effective (i.e. energy efficiency). I think it is too sanguine on its views on the ecological damage of fracking or the impact of methane, but it raises a good point that natural gas can represent a good transition energy source. In the meantime, Helm believes the best approach is a carbon tax (to correct the externality) and aggressive R&D towards the next generation of renewable energy sources (particularly energy storage).

The Last Hours of Humanity: Warming the World to Extinction - Thom Hartmann (2013) (Amazon link)
  • A succinct account on what climate change looks like, and why the problem is so urgent. This really is an existential crisis.

K-12 Education

The Death and Life of the Great American School System: How Testing and Choice Are Undermining Education - Diane Ravitch (2010) (Amazon link)
  • One of the first and most authoritative pushbacks against the neoliberal trend towards Accountability, Standardized tests, Choice (charter schools and school vouchers), Merit Pay, and hostility towards teacher unions. Shows how standardized testing and excessive reliance on data-driven strategy only promotes teaching towards the test and values the ability to test-take over actual mastery of course material. Criticizes charter schools and vouchers for private schools as crowding out resources towards public schooling. Shows how merit pay doesn't have a material impact in performance, and could actually undermine it by decreasing cooperation.

Higher Education

Excellent Sheep: The Miseducation of the American Elite and the Way to a Meaningful Life - William Deresiewicz (2015) (Amazon link) (Foreign Affairs review)
  • Another pushback towards neoliberal trends, this time in higher education. Laments the increasing concentration of Economics and Business majors, and the increasing share of students going into investment banking or consulting. Meanwhile, support staff has shrunk, administrative roles have proliferated, and universities tend to treat students as customers, investing in endowments and flashy buildings like student centers and stadiums and becoming like a corporation in every sense of the word. Argues that in some ways, top universities have been getting less diverse over time, particularly with the drive towards income and prestige. Also critiques the test preparation industry for affluent students, and their drive towards a million extracurricular activities.

Degrees of Inequality: How the Politics of Higher Education Sabotaged the American Dream (2014) - Suzanne Mettler (2014) (Amazon link) currently reading
  • Shows a clear gap between prestigious private universities, 4-year public universities, community colleges, and for-profit colleges. For the latter, for-profit colleges have consumed the lion's share of federal aid for student loans, and yet have the highest drop-out rates and fewest employable graduates, leaving students with huge debts. Shows how where you go to college, in addition to the background influencing where you end up, has a very material impact on outcomes.


Salt, Sugar, and Fat - How the Food Giants Hooked Us - Michael Moss (2013) (Amazon link) (NY Times review) (Daily Show interview)
  • Shows how different food companies chemically engineered food-like products to maximize different "bliss points" and then successfully marketed them to the detriment of public health. They are strongly incentivized to stay the course or face Wall Street's wrath. One of the most striking examples was when Campbell's soup tried to reduce its sodium content: it became bitter and metallic in taste. In conjunction with this, government policy encouraged large increases in the consumption of cheese, red meat, and processed food ingredients such as corn (corn syrup and corn-based chips). This trend continues worldwide, where international expansion of these companies almost always coincides with increases in obesity rates, along with diabetes and heart disease. This places a lot of stress on our health care system.

Pharmaceutical Drugs

Bad Pharma - How Drug Companies Mislead Doctors and Harm Patients - Ben Goldacre (2012) (Amazon link) (brief Foreign Affairs synopsis) currently reading
  • From Foreign Affairs: "According to Goldacre, major drug companies have financed the ghostwriting of papers supposedly penned by reputable scholars in respectable scientific journals, systematically withheld experimental drug-testing data from public and professional scrutiny, and failed to run promised trials to detect side effects after drugs have been approved for sale. In the face of this unethical behavior, regulators on both sides of the Atlantic [UK] have been complacent and negligent."