- UK Sending 800 Troops To The Arctic To Target Russia
As AntiWar.com’s Jason Ditz reports, UK troops will join Norway, US troops every winter…
The British Defense Secretary announced that 800 commandos are being deployed into Norway starting next year, and continuing every winter for at least a decade. The troops will join US and Dutch troops there, and are targeting Russia.
Speaking before travelling to Birmingham to make the speech, Mr Williamson said:
“We see Russian submarine activity very close to the level that it was at the Cold War, and it’s right that we start responding to that.
“If we could turn back the clock 10 years many people thought that the era of submarine activity in the High North, in the North Atlantic, and the threat that it posed did disappear with the fall of the Berlin Wall. This threat has really come back to the fore.”
The program is built around claims of Russian aggression, and the idea that global warming will lead Russia to stake out new claims in the far north, near where old Soviet-era bases exist, for natural resources.
Britain has no natural claims this far north, but that isn’t stopping them from throwing troops at the region with an eye on clashing with Russia, and officials say it is vital to “demonstrate we’re there” in the Arctic Circle.
There has long been speculation of a rush to claim resources in the north, but NATO nations have been sending more and more troops to every Russian frontier area for years now, always nominally to counter “aggression” that exists purely as a talking point to justify more military spending.
- Spain: IMF Highlights Rising Risks
Authored by Daniel Lacalle via DLacalle.com,
The International Monetary Fund can be criticized for many things, but its analysis of countries’ debt risk tends to be worth a read.
In this case, the International Monetary Fund has once again warned Spain of the risk of reversing reforms and increasing imbalances.
It asks to deepen in the labor reform to end structural unemployment and credible measures for the 2019 budget.
The IMF is often criticized on many sides. It is often accused of being “neoliberal” despite the fact that in almost all its recommendations aim to prevent spending cuts. It is wrongly criticized, on many occasions, for being negative on countries. It is exactly the opposite. The IMF is often too diplomatic and, above all, undemanding with governments.
A clearly diplomatic IMF has verified in its last report the important risks facing the Spanish economy. As growth slows down more quickly than expected, the risks that threaten the recovery have increased and many of the socialist government’s announcements could be counterproductive and accelerate a relapse.
In a very diplomatic but forceful way, the IMF warns about the governments’ optimistic and inflated estimates of tax revenues. No wonder, because the average error in revenue estimates for new taxes in Spain is very important, an average of 5.8 billion euro annually.
Inflated estimates are an easy trick to square budgets. Making impossible estimates of tax revenue while spending increases are very real. Then, when deficits soar, blame an external enemy.
The graph below shows the historical overestimation of tax revenues (5.8 billion euro per annum more tax revenues estimated than actually collected).
The Spanish Treasury Inspectors themselves have warned: “It would also be very interesting that those who speak again and again of these striking figures will provide the studies on which they are based to compare them. From previous unsubstantiated studies, inadequate and impossible proposals arise”(Tax Inspectors, January 2015).
That’s the IMF’s first diplomatic warning. In Spain, since 1998, fiscal consolidation has never been achieved via revenue measures and increasing expenses.
The IMF is aware, in addition, that Spain does not have fiscal space to increase deficitsand alerts that increasing the deficit and spending in a growth period will lead to harder and more severe cuts when the economic cycle changes.
Budgetary buffers, which were exhausted during the crisis, must be rebuilt, and that is not done by increasing spending and taxes, because the IMF and any of us know that the estimated revenues will not be met because they are calculated in a political and fallacious way, while the expenses will likely soar above the budget.
It is almost impossible for Spain to achieve its deficit goals increasing spending, because in order to do so, the government assumes a rise in tax revenues that has not happened even in growth periods.
(Graph below shows growth in direct tax revenues. Tax revenues actually increased after tax cuts)
The IMF warns that governments always resort to raising taxes to cover excessive spending (“the adjustment tool preferred by the government”), and warn that these could cause distortions and have a negative impact on growth. To avoid this, “a careful design of fiscal measures is key”.
Empirical studies from more than 200 countries show that “a tax increase of 1% of GDP in periods of fiscal consolidation leads to a 1% drop in GDP in eight quarters” (IMF, Dabla-Norris, Lima).
Linking pension costs to the CPI is another error that they warn about. Because it is deeply antisocial, endangering the entire system and future pensions for not including other essential factors when valuing pensions, such as sustainability and the population pyramid. It would increase pension spending between 3 and 4 points of GDP to 2050 and send Spain to a debt crisis.
The report recalls the importance of “re-launching the structural fiscal adjustment and preserving the spirit of labor market reforms,” that is, the opposite of what the current socialist government intends to impose.
Those who criticize the IMF for being neoliberal will be surprised because all it shows in this report is common sense: Increase imbalances and expenses in times of economic boom will lead us to take much tougher measures and further cuts when unemployment rises and we enter in recession.
Spain does not need to spend more. Increasing spending, deficits and taxes now is not a social policy, but an antisocial one, because it means bigger and worse cuts in the future.
Increasing taxes is counterproductive when they were already raised during the crisis and all the regions increased their tax components. In addition, it weakens Spain’s tax bases in the face of a slowdown.
Increasing expenses is completely unnecessary when the 2018 budgets already included a 4% generalized increases in the main items. Increasing spending today is multiplying the cuts later.
Spain is facing a moderate slowdown, which should be a unique opportunity to attract more investment and more jobs from all over the world, not announcing measures that make the Spanish economy more fragile, that weaken tax bases and raises the risk of debt and deficits with it, just as interest rates rise.
None of the current governments’ measures have anything to do with a social policy. Putting the country at risk of another debt crisis with science fiction revenue estimates and increased political spending is not social. Itanti-socialial.
- Where Super Rich Populations Are Growing Fastest
A Wealth-X report from earlier this month found that the U.S. has the largest population of ultra-high-net-worth individuals (UHNWIs) worldwide. Defined as being worth $30 million or more, the U.S. has 80,000 such individuals (31 percent of the global population), higher than Japan, China, Germany, Canada and France combined.
However, as Statista’s Niall McCarthy notes, even though the U.S. is the dominant country for the super rich, it lags behind in UHNWI population growth.
You will find more infographics at Statista
An economic boom in Asia has seen the region churn out increasing numbers of billionaires in recent years.
For example, China saw its UHNWI population grow 19 percent between 2016 and 2017, twice the growth rate of North America. Over the past five years, another and unlikely Asian nation has been leading the world in super rich population growth.
According to Wealth-X, Bangladesh saw its ultra-rich club expand by 17.3 percent between 2012 and 2017. During the same period, China’s UHNWI population grew 13.4 percent while Vietnam’s increased 12.7 percent. The U.S. came tenth for UHNWI population growth with 8.1 percent.
- Pakistani Poker: Playing Saudi Arabia Against China
Authored by James Dorsey via Mid East Soccer blog,
Desperate for funding to fend off a financial crisis fuelled in part by mounting debt to China, Pakistan is playing a complicated game of poker that could hand Saudi Arabia a strategic victory in its bitter feud with Iran at the People’s Republic’s expense.
The Pakistani moves threaten a key leg of the USD60 billion plus Chinese investment in the China Pakistan Economic Corridor (CPEC), a crown jewel of Chinese President Xi Jinping’s Belt and Road initiative.
They also could jeopardize Chinese hopes to create a second overland route to Iran, a key node in China’s transportation links to Europe. Finally, they grant Saudi Arabia a prominent place in the Chinese-funded port of Gwadar that would significantly weaken Iran’s ability to compete with its Indian-backed seaport of Chabahar.
Taken together, the moves risk dragging not only Pakistan but also China into the all but open war between Saudi Arabia and Iran.
Pakistan’s first move became evident in early September with the government’s failure to authorise disbursements for road projects, already hit by delays in Chinese approvals, that are part of CPEC’s Western route, linking the province of Balochistan with the troubled region of Xinjiang in north-western China.
In doing so, Pakistan implicitly targeted a key Chinese driver for CPEC: the pacification of Xinjiang’s Turkic Muslim population through a combination of economic development enhanced by trade and economic activity flowing through CPEC as well as brutal repression and mass re-education.
The combination of Pakistani and Chinese delays “has virtually brought progress work on the Western route to a standstill,” a Western diplomat in the Pakistani capital of Islamabad said.
Pakistani Railways Minister Sheikh Rashid, in a further bid to bring Pakistani government expenditure under control that at current rates could force the country to seek a $US 12 billion bailout from the International Monetary Fund (IMF), has cut $2 billion dollars from the US$8.2 billion budget to upgrade and expand Pakistan’s railway network, a key pillar of CPEC. Mr. Rashid plans to slash a further two billion dollars.
“Pakistan is a poor country that cannot afford (the) huge burden of the loans…. CPEC is like the backbone for Pakistan, but our eyes and ears are open,” Mr. Rashid said.
The budget cuts came on the back of Prime Minister Imran Khan’s Pakistan Tehreek-e-Insaf (PTI) party projecting CPEC prior to the July 25 election that swept him to power to as a modern-day equivalent of the British East India Company, which dominated the Indian subcontinent in the 19th century.
PTI criticism included denouncing Chinese-funded mass transit projects in three cities in Punjab as a squandering of funds that could have better been invested in social spending. PTI activists suggested that the projects had involved corrupt practices.
Pakistan’s final move was to invite Saudi Arabia to build a refinery in Gwadar and invest in Balochistan mining. Chinese questioning of Pakistan’s move was evident when the Pakistani government backed off suggestions that Saudi Arabia would become part of CPEC.
Senior Saudi officials this week visited Islamabad and Gwadar to discuss the deal that would also involve deferred payments on Saudi oil supplies to Pakistan and create a strategic oil reserve close to Iran’s border.
“The incumbent government is bringing Saudi Arabia closer to Gwadar. In other words, the hardline Sunni-Wahhabi state would be closer than ever to the Iranian border. This is likely to infuriate Tehran,” said Baloch politician and former Pakistani ports and shipping minister Mir Hasil Khan Bizenjo.
Pakistan’s game of poker amounts to a risky gamble that serves Pakistani and Saudi purposes, puts China whose prestige and treasure are on the line in a difficult spot, could perilously spark tension along the Pakistan-Iran border, and is likely to provoke Iranian counter moves. It also risks putting Pakistan, Saudi Arabia and Iran, who depend on China economically in different ways, in an awkward position.
The Saudi engagement promises up to US$10 billion in investments as well as balance of payments relief. It potentially could ease US concerns that a possible IMF bailout would help Pakistan service debt to China.
A refinery and strategic oil reserve in Gwadar would serve Saudi Arabia’s goal of preventing Chabahar, the Indian-backed Iranian port, from emerging as a powerful Arabian Sea hub at a time that the United States is imposing sanctions designed to choke off Iranian oil exports.
A Saudi think tank, the International Institute for Iranian Studies, previously known as the Arabian Gulf Centre for Iranian Studies (AGCIS) that is believed to be backed by Saudi Crown Prince Mohammed bin Salman, argued last year in a study that Chabahar posed “a direct threat to the Arab Gulf states” that called for “immediate counter measures.”
Written by Mohammed Hassan Husseinbor, an Iranian political researcher of Baloch origin, the study warned that Chabahar would enable Iran to increase its oil market share in India at the expense of Saudi Arabia, raise foreign investment in the Islamic republic, increase government revenues, and allow Iran to project power in the Gulf and the Indian Ocean.
Mr. Husseinbor suggested that Saudi support for a low-level Baloch insurgency in Iran could serve as a countermeasure. “Saudis could persuade Pakistan to soften its opposition to any potential Saudi support for the Iranian Baluch… The Arab-Baluch alliance is deeply rooted in the history of the Gulf region and their opposition to Persian domination,” Mr. Husseinbor said.
Noting the vast expanses of Iran’s Sistan and Baluchestan Province, Mr. Husseinbor went on to say that “it would be a formidable challenge, if not impossible, for the Iranian government to protect such long distances and secure Chabahar in the face of widespread Baluch opposition, particularly if this opposition is supported by Iran’s regional adversaries and world powers.”
Saudi militants reported at the time the study was published that funds from the kingdom were flowing into anti-Shiite, anti-Iranian Sunni Muslim ultra-conservative madrassas or religious seminaries in Balochistan.
US President Donald J. Trump’s national security advisor, John Bolton, last year before assuming office, drafted at the request of Mr. Trump’s then strategic advisor, Steve Bannon, a plan that envisioned US support “for the democratic Iranian opposition,” including in Balochistan and Iran’s Sistan and Balochistan province.
All of this does not bode well for CPEC. China may be able to accommodate Pakistan by improving commercial terms for CPEC-related projects and Pakistani debt as well as easing Pakistani access to the Chinese market. China, however, is likely to find it far more difficult to prevent the Saudi-Iranian rivalry from spinning out of control in its backyard.
- These Are The US Cities With The Best And Worst Job Markets
The market took Friday’s jobs print pretty hard, with interest rates resuming their surge and hitting stocks. But the hurricane-affected data had a few highlights – namely the unemployment figure, which slid to 3.7%, below consensus estimates and on par with the Fed’s year-end forecast. That level also happened to be the lowest unemployment print in 48 years.
In short, the American economy, which is strengthening thanks to the combination of Trump’s tax cuts and his expanded deficit spending, is booming. That means for students who graduated in the spring, or are preparing to graduate next spring, should have options when it comes to finding a job. While thousands of students dream of moving to New York City, San Francisco or Washington, DC, contrary to popular belief, job markets in these hubs aren’t as robust as many believe.
In an analysis of regional BLS data, CNBC showed that the bulk of America’s tightest job markets aren’t found in coastal regions. Of the 20 top metro areas where unemployment rates are roughly half the national average or less, only five are situated along the coasts, according to the Bureau of Labor Statistics. Ames, Iowa boasted the lowest unemployment rate with just 1.7%. Four other metro areas on the list are in Iowa, while three are in Idaho.
Still, eight of the metro areas on the top 20 list were in California, which has an unemployment rate of 4.2%, slightly higher than the national rate.
The city with the highest unemployment rate is Yuma, Arizona, with 22%.
But the low unemployment rates might not last much longer. Given the importance of manufacturing and farming to the midwestern economy, President Trump’s tariffs could kill thousands, if not hundreds of thousands, of jobs.
The BLS releases a regional breakdown of its labor-market data roughly two weeks after the national numbers. In a few months, economists will have a better idea of what kind of impact Trump’s tariffs will have on the Midwest.<!–
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- Dershowitz: ACLU's Opposition To Kavanaugh Sounds Its Death Knell
Authored by Alan Dershowitz via The Gatestone Institute,
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So why did the American Civil Liberties Union oppose a Republican nominee to the Supreme Court and argue for a presumption of guilt regarding sexual allegations directed against that judicial nominee? The answer is as clear as it is simple. It is all about pleasing the donors. The ACLU used to be cash poor but principle-rich. Now, ironically, after Trump taking office, the ACLU has never become so cash-rich, yet principle-poor.
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The problem is that most of the money is not coming from civil libertarians who care about free speech, due process, the rights of the accused and defending the unpopular. It is coming from radical leftists in Hollywood, Silicon Valley and other areas not known for a deep commitment to civil liberties.
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The old ACLU would never have been silent when Michael Cohen’s office was raided by the FBI and his clients’ files seized; it would have yelled foul when students accused of sexual misconduct were tried by kangaroo courts; and it surely would have argued against a presumption of guilt regarding sexual allegations directed against a judicial nominee.
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When the ACLU’s national political director and former Democratic Party operative Faiz Shakir was asked why the ACLU got involved in the Kavanaugh confirmation fight, he freely admitted, “People have funded us and I think they expect a return.”
President Trump greeting Brett Kavanaugh and his family. Why did the American Civil Liberties Union oppose a Republican nominee to the Supreme Court and argue for a presumption of guilt regarding sexual allegations directed against him? (Photo: Wikimedia Commons)
Now that Brett Kavanaugh has been confirmed, it is appropriate to look at the damage caused by the highly partisan confirmation process. Among the casualties has been an organization I have long admired.
After Politico reported that the American Civil Liberties Union (ACLU) was spending more than $1 million to oppose Judge Kavanaugh’s confirmation to the Supreme Court, I checked the ACLU website to see if its core mission had changed — if the ACLU had now officially abandoned its non-partisan nature and become yet another Democratic super PAC. But no, the ACLU still claims it is “non-partisan.”
So why did the ACLU oppose a Republican nominee to the Supreme Court and argue for a presumption of guilt regarding sexual allegations directed against that judicial nominee?
The answer is as clear as it is simple. It is all about pleasing the donors. The ACLU used to be cash poor but principle-rich. Now, ironically, after Trump taking office, the ACLU has never become so cash-rich, yet principle-poor. Before Donald Trump was elected President, the ACLU had an annual operating budget of $60 million dollars.[1] When I was on the ACLU National Board, it was a fraction of that amount. Today it is flush with cash, with net assets of over $450 million dollars. As the ACLU itself admitted in its annual report ending 2017, it received “unprecedented donations” after President Trump’s election. Unprecedented” it truly has been: the ACLU received $120 million dollars from online donations alone (up from $3-5 million during the Obama years).
The problem is that most of the money is not coming from civil libertarians who care about free speech, due process, the rights of the accused and defending the unpopular. It is coming from radical leftists in Hollywood, Silicon Valley and other areas not known for a deep commitment to civil liberties. To its everlasting disgrace, the ACLU is abandoning its mission in order to follow the money. It now spends millions of dollars on TV ads that are indistinguishable from left wing organizations, such as MoveOn, the Democratic National Committee and other partisan groups.
As the New Yorker reported on the ACLU’s “reinvention in the Trump era,”
“In this midterm year…as progressive groups have mushroomed and grown more active, and as liberal billionaires such as Howard Schultz and Tom Steyer have begun to imagine themselves as political heroes and eye Presidential runs, the A.C.L.U., itself newly flush, has begun to an active role in elections. The group has plans to spend more than twenty-five million dollars on races and ballot initiatives by [Midterm] Election Day, in November. Anthony Romero, the group’s executive director, told me, ‘It used to be that, when I had a referendum I really cared about, I could spend fifty thousand dollars.'”
This new strategy can be seen in many of the ACLU’s actions, which would have been inconceivable just a few years ago. The old ACLU would never have been silent when Michael Cohen’s office was raided by the FBI and his clients’ files seized; it would have yelled foul when students accused of sexual misconduct were tried by kangaroo courts; and it surely would have argued against a presumption of guilt regarding sexual allegations directed against a judicial nominee.
Everything the ACLU does today seems to be a function of its fundraising. To be sure, it must occasionally defend a Nazi, a white supremacist, or even a mainstream conservative. But that is not its priority these days, either financially or emotionally. Its heart and soul are in its wallet and checkbook. It is getting rich while civil liberties are suffering.
There appears to be a direct correlation between the ACLU’s fundraising and its priorities. When the ACLU’s national political director and former Democratic Party operative Faiz Shakir was asked why the ACLU got involved in the Kavanaugh confirmation fight, he freely admitted, “People have funded us and I think they expect a return.” Its funders applaud the result because many of these mega donors could not care less about genuine civil liberties or due process. What they care about are political results: more left-wing Democrats in Congress, fewer conservative justices on the Supreme Court and more money in the ACLU coffers.
When I served both on the National and Massachusetts Boards of the American Civil Liberties Union, board members included conservative Republicans, old line Brahmans, religious ministers, schoolteachers, labor union leaders and a range of ordinary folks who cared deeply about core civil liberties. The discussions were never partisan. They always focused on the Bill of Rights. There were considerable disagreements about whether various amendments covered the conduct at issue. But no one ever introduced the question of whether taking a position would help the Democrats or Republicans, liberals or conservatives, Jews or Catholics or any other identifiable group. We cared about applying the constitution fairly to everyone, without regard to the political consequences.
As the New Yorker described these more innocent times: the ACLU “… has been fastidiously nonpartisan, so prudish about any alliance with political power that its leadership, in the nineteen-eighties and nineties, declined even to give awards to like-minded legislators for fear that it might give the wrong impression.”
Those days are now gone. Instead we have a variant on the question my immigrant grandmother asked when I told her the Brooklyn Dodgers won the World Series in 1955: “Yeah, but, vuz it good or bad for the Jews?” My Grandmother was a strong advocate of identity politics: all she cared about was the Jews. That was 63 years ago. The questions being asked today by ACLU board members is: is it good or bad for the left, is it good or bad for Democrats, is it good or bad for women, is it good or bad for people of color, is it good or bad for gays?
These are reasonable questions to be asked by groups dedicated to the welfare of these groups but not by a group purportedly dedicated to civil liberties for all. A true civil libertarian transcends identity politics and cares about the civil liberties of one’s political enemies because he or she recognizes that this is the only way that civil liberties for everyone will be preserved.
Today, too few people are asking: Is it good or bad for civil liberties?
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- New Report Says Trump Wants Chinese Parts Out Of American Weapons
Top defense officials said last week that the Pentagon intends to invest in domestic manufacturing to reduce it over-reliance on Chinese and other foreign-made parts in American weapons.
The Pentagon’s reliance on China is a major topic discussed in a new report about the overall status of the defense industrial base that President Trump is scheduled to release. Some other areas include “accelerating workforce development efforts to grow domestic science, technology, engineering, mathematics, and critical trade skills,” said Defense One.
“This assessment recognizes the global nature of our supply chain and really addresses the need for strengthening alliances and partnerships so that we can jointly address industrial base risk,” Ellon Lord, undersecretary for acquisition and sustainment, said Thursday evening during a press briefing at the Pentagon.
Pentagon officials are expected to ask Congress for additional funding for mitigating efforts in its fiscal 2020 budget request to Congress early next year.
“We already have existing industrial-base mitigation tools,” said Eric Chewning, the deputy assistant defense secretary for industrial policy, said during the briefing. “There’s already money available to address some of these challenges.”
According to Defense One, the new report says China is the only manufacturer of various chemicals needed in missiles and bombs, Europe and Japan are the only supplies of certain carbon fibers used in missiles, satellites, and rockets; Germany is the sole supplier of high-tech vacuum tubes for night vision goggles.
China is a major focal point in the report, mentioned more than 200 times, it seems US government agencies are rushing to halt weapon parts from the country. Some of the report’s findings and recommendations on reworking supply chains are considered classified because they describe vulnerabilities in US supply chains.
“I wouldn’t think of this just as an additional ask for money,” Chewning said. “We also need to be spending what we do more wisely. This isn’t just an investment fix. There’s legislative fixes, there’s policy fixes, there’s regulatory fixes. We need to be able to hit all of those levers.”
It is not that the Pentagon has not been investing in domestic manufacturing, he said. “Sometimes we’re just not spending money in the right way.”
Lord said the US defense industry supports roughly 2.4 million jobs and accounts for $865 billion “in annual industry output” and $143 billion in exports.
She said the report’s timing “is really excellent because it provides a site picture on industrial-base issues just as receive the [2019] budget that really allows us to address many of those issues.”
Hawk, Carlisle, president and CEO of the National Defense Industrial Association (NDIA), said the report indicates a “sobering picture” of the defense industrial base. NDIA was one of the trade groups that helped the Trump administration develop the report.
“Reliance on single producers within the supply chain, dependence on unstable or unfriendly foreign suppliers for critical components, and misplaced presumption of continued preeminence of American military superiority are examples of findings that should be immediately addressed,” Carlisle said in a statement.
The Aerospace Industries Association, another trade group that participated in the review, said: “Ultimately, while it is essential that the Administration focus on addressing the specific challenges facing the industrial base, none of the advancements in acquisition policy, key capabilities or workforce will matter without adequate DOD budgets.”
There are two bottlenecks that arise from the Pentagon wanting to rework their global supply chain network: first, it is costly, and second, it could lead to global trade disruptions.
Government officials have stated that DOD budgets would have to increase to rework supply chains to produce more domestic parts for weapons.
The need for more defense spending comes as the Trump administration has set a record for military expenditures in 2018.
Defense spending plus tax cuts have pushed the US budget deficit over the $1 trillion mark for next year. Already, the net supply of Treasury securities have doubled this year, to over $900 billion, and could rise to nearly $1.2 trillion in 2019.
Treasury auctions are now having difficulty digesting the new supply, as the 10-year yield has hit a seven-year high. More military spending to rework supply chains could add further Treasury supply and continue pushing yields higher. Record military spending with out of control deficit spending via the Trump administration could strangle the real economy with borrowing costs on the rise.
Reworking the Pentagon’s supply chains also come at a time when global openness has peaked, and the old economic order from a post World War II recovery to hyper-globalization has ended. As a result, supply chain disruptions tend to trigger a slowdown in global growth momentum.
The Pentagon is not alone in the attempt of reworking their supply chains. Many multinationals are digesting President Trump’s trade war that is causing much uncertainty and rewriting trade routes from country to country, due to tariffs.
The only reason the Pentagon would want to rewrite their supply chains and become less reliant on the rest of the world is that they see a war on the horizon. War tends to disrupt global trade, the US government is now preparing for conflict by securing its supply chains.
- Elon Musk And America's Toxic Cult Of The CEO
Authored by David Dayen via The New Republic,
He could have been banished for securities fraud, but the government feared the consequences for Tesla’s shareholders…
Last Wednesday, Tesla CEO and chairman Elon Musk rejected a settlement with the Securities and Exchange Commission over claims he lied on Twitter about having “secured” funding to take the automaker private at $420 a share. Under the settlement, Musk and Tesla would’ve paid fines of tens of millions of dollars, Tesla would’ve added a couple of independent board members, Musk wouldn’t have had to admit guilt, and he would’ve lost his chairmanship for two years.
Three days later, Musk agreed to a settlement on mostly the same terms, only he’ll have to step down as chair for three years.
In between those 72 hours, the SEC filed a thoroughly detailed lawsuit against Musk showing that funding for a takeover offer was in no way secured. Musk “had never discussed a going-private transaction at $420 per share with any potential funding source, had done nothing to investigate whether it would be possible for all current investors to remain with Tesla as a private company via a ‘special purpose fund,’ and had not confirmed support of Tesla’s investors for a potential going-private transaction,” according to the suit.
The SEC determined that Musk made materially false statements, leading to significant run-ups in the stock price, which subsequently crashed when Musk backtracked. This is securities fraud, and the lawsuit sought a heavy penalty, prohibiting Musk from acting as a director or officer of any public company, permanently. But days later, the SEC reverted to nearly the same settlement Musk had turned down, with a slap-on-the-wrist fine, a little adult supervision from the board, and prescribed monitoring of his tweets (seriously).
If you have a CEO this dead to rights on securities fraud, why let him continue as CEO? According to the SEC, Musk was indispensable. In a statement, SEC Chair Jay Clayton said “holding individuals accountable is important and an effective means of deterrence,” but that he must take the interests of investors into account, and “the skills and support of certain individuals may be important to the future success of a company.”
This is mistaken and counter-productive – even dangerous. No one man or woman is or should be so vital to a company’s existence that they cannot be punished for wrongdoing. This is essentially the principle of too big to fail, brought into every corporate boardroom. If you have a reckless CEO who can’t be fired because it would hurt the company, then you don’t really have a company; you have a cult.
You could say that removing Musk’s chairmanship and giving him a boss represents some deterrent. But the SEC’s own actions are a hint to whoever becomes Tesla’s chair that Musk cannot be held fully accountable because he is too important to the company and its shareholders. The agency has tied the hands of the chairman – which, with enough support from the board of directors, could oust him – before the position is even filled.
How did we get to this cult of the CEO? It has grown in tandem with the shareholder value theory, the idea that companies operate solely to maximize stock returns. Shareholders are not the only ones with a stake in a company’s success: workers, communities, and the government all play a role. But if investors are the only stakeholders recognized, any disruption to a company, even if it might improve long-term performance, cannot be abided if it would drop the stock price. That means punishing a CEO for fraud is disallowed; or at least, the punishment must be balanced by an interest in keeping the stock stable, as in the SEC’s conception.
Then you have the media’s treatment of CEOs as masters of the universe who are singularly responsible for making companies grow. Steve Jobs was treated as such, but engineers built the iPod and iPhone, designers created its look, and marketers made it attractive to consumers. Thousands of people contributed to those products, not one guy in a turtleneck. Apple hasn’t shrunk into irrelevance after Jobs’s death because a successful company relies on more than a charismatic CEO and ineffable qualities like “leadership.”
The valorization of CEOs creates several distortions. First and perhaps most important, it fuels their obscene pay packages, which are 361 times the pay of the average worker at companies in the S&P 500. Second, it ascribes brilliance to their decision-making even when it’s lacking, and increases the potential for con artistry; the cult of the CEO is how we ended up with Theranos’ Elizabeth Holmes.
In the case of Musk, he’s now been given license to continue his recklessness. “Naughty by Nature,” he tweeted early Monday, after reaching the deal with the SEC on Saturday. Tesla’s stock jumped 17 percent on Monday.
Effectively immunizing risk-taking CEOs can hurt investors far more than it helps them. Under Musk, Tesla violated labor law by threatening worker stock options if they unionized. It has a mountain of debt as it burns through cash to reach production goals. To achieve this, Tesla built thousands of cars under a tent in the parking lot of its factory, with questionable quality control. Tesla’s drive to produce enough cars has led to unendurable parts and service delays; it can take weeks to get one of its cars fixed.
All these actions, potentially fatal to Tesla over the long term, are by-products of a single-minded, irresponsible CEO who views the law and product quality as a trifling interference on the road to profitability. It’s not good for investors to have someone with this mentality in charge. But Musk has inspired such a celebrity following that he’s inextricably linked with Tesla in the public consciousness, such that dislodging him for fraud was never seriously considered, it seems.
Extrapolate that out, and there are time-bomb CEOs scattered throughout the economy. This builds hubris into the corporate class and further severs the justice system in two, with one arrangement for the powerful and another for everyone else. It doesn’t create better products and stronger companies, just more entitled CEOs willing to set money on fire, harm workers and consumers, and laugh in the aftermath. Plus, it can make corporations fragile and introduce unnecessary risk. Losing a CEO should not create a panic, but when the CEO is a cult leader, it surely does. And that makes the stock market an incredibly hazardous place to invest money.
Regulators should hold corporate officers to the same set of rules as everyone else. This wouldn’t harm stock investments but strengthen them, forcing companies to focus on institutional capacity and selling good products and services at a fair price. The way to end the cult of the CEO is to treat workers and managers as equal contributors in corporations’ economic success.
- Justice Elena Kagan: Legitimacy Of The Supreme Court Is Now At Risk
Associate Supreme Court Justice Elena Kagan said that the highest court in the land risks losing legitimacy without a centrist swing-vote, reports Bloomberg.
In Friday comments made just hours after the US Senate cleared the way for USSC nominee Brett Kavanaugh’s confirmation, Kagan said that the court benefitted from having centrist Justices Sandra Day O’Connor and Anthony Kennedy over the past 30-plus years.
The presence of O’Connor and Kennedy “enabled the court to look as though it was not owned by one side or another and was indeed impartial and neutral and fair,” Kagan said to an audience at Princeton University. “And it’s not so clear that, you know, I think going forward that sort of middle position — you know, it’s not so clear whether we’ll have it.”
She added: “All of us need to be aware of that, every single one of us and to realize how precious the court’s legitimacy is.” –Bloomberg
Of course, accusing a Supreme Court nominee of orchestrating a high school gang-rape scheme with zero evidence may also wear on the court’s legitimacy, but we digress.
Kavanaugh’s ascension to the USSC will give the court a five-justice conservative bloc, led by Chief Justice John Roberts who will set the pace for how quickly the court will move on various matters.
Without mentioning Kavanaugh by name, Kagan appeared with fellow Obama-appointed Justice Sonia Sotomayor – both Princeton graduates – where they sought to distance themselves from the political circus that has dominated Washington over Kavanaugh’s nomination.
“We have to rise above partisanship in our personal relationships,” Sotomayor said. “We have to treat each other with respect and dignity and with a sense of amicability that the rest of the world doesn’t often share.“
Justice Elena Kagan: “In the last, really 30 years, starting with Justice O’Connor and continuing with Justice Kennedy, there has been a person who found the center or people couldn’t predict in that sort of way.” pic.twitter.com/7Yr78M3cke
— The Hill (@thehill) October 6, 2018
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Kagan expanded on that, saying: “This is a really divided time, and part of the court’s strength and part of the court’s legitimacy depends on people not seeing the court in the way that people see the rest of the governing structures of this country.”
Kagan said the court needs to protect its institutional reputation by staying “somehow above the fray, even if not always and in every case. It’s an incredibly important thing for the court to guard.”
She said the justices can’t afford to hold grudges because they would lose the ability to persuade their colleagues in future cases. –Bloomberg
“We live in this world where it’s just the nine of us,” Kagan added. “We are the consummate repeat players.“
Yes, we’re sure Kavanaugh won’t hold a grudge after his entire life’s work was reduced to unfounded and refuted claims of sexual assault 36 years ago.
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