...Archive for May 2018

Exiting the Iran deal is a blow to financial transparency and US control

Over the past decade, the United States has succeeded at exercising an extraordinary degree of “extraterritorial” control over the Western financial system. The apotheosis of this exercise was perhaps the nearly $9 billon penalty levied against BNP Paribas in 2014. Other non-US banks caught in the extraterritorial US net include HSBC, which paid $1.9 billion in 2012 for violating sanctions against Iran and laundering money in Mexico (for which it is in trouble again), Commerzbank, and many others.

The United States’ remarkable success at exercising control over overseas banks was never a foregone conclusion. Before there was the #resistance, there was La Resistance. Many European bankers and public officials never believed it right that transactions which might be perfectly legal under their own domestic law, and which in no obvious way involve any US entity, should be blocked by whim of the American government. Re l’affaire BNP, American Banker noted:

French government officials have repeatedly mentioned that BNP’s alleged actions don’t violate European law, even though it’s irrelevant to the debate at hand. The Justice Department doesn’t care if BNP’s actions violate European law; by operating in the U.S. (through Bank of the West and First Hawaiian Bank), BNP has agreed to follow U.S. law. And U.S. officials view sanctions violations seriously. (The violations do not have to occur in the U.S. for American authorities to act.)

More recently, Europeans have chafed as the US government has chipped away at Swiss banks’ vaunted secrecy and the prerogatives of other European tax havens, while allowing places like Delaware and Nevada to pick up the business that American authorities are dismantling overseas.

Nevertheless, thus far, the Europeans have played along, and the West’s dominance of global finance has meant that the US effectively controls conduits which are the lifeblood of non-Western powers like Russia and China as well. Russia, itself bitterly subject to American sanctions, hopes to escape the noose by deploying a blockchain-based parallel infrastructure for international transactions. Whether such an enterprise will prove laughable and quixotic, or whether it might pierce meaningful holes in the US-dominated conventional system, depends a great deal on how policymakers, bankers, and entrepreneurs around the world react to it.

Prior to, well, yesterday, the US could claim a moral high ground. Its extraterritorial financial control might be objectionable, yes, but absent some coordinating mechanism like that, there would always be a competitive race among politicians and bankers to allow themselves to be persuaded that Mexican drug lords are just legitimate businessmen from a hardscrabble country and why should the Iranians be prevented from getting nukes when the world winks at the Israelis? The US may not be the ideal global financial policeman, but like every other kind of global policeman that it is, it may be better than no policeman at all.

However, now, specifically with respect to its enforcement of financial sanctions on an apparently compliant Iran, it is the United States that seems, even among its Western partners, to be the rogue state in need of policing. However begrudging European acquiescence to extraterritorial US sanctions may have been two days ago, it is more begrudging today.

More than that, the remaining counterparties of the Iran nuclear deal — China, France, Russia, the UK, and the EU — all want the deal to continue. They will be at pains to persuade Iran that it continues to enjoy significant sanctions relief relative to what it would face if it abandoned the deal. Which puts those countries between a rock and the hard-place of extraterritorial enforcement by the US of reimposed prohibitions. At a policy level, the remaining signatories now have an active interest in enabling, even encouraging, evasion of US financial controls, an interest that is morally and politically defensible. All of a sudden La Resistance among sullen French bankers isn’t just about the juicy fees foregone, but a heroic struggle to #resist Donald Trump, to prevent the renuclearization of Iran. And policymakers might agree.

That might mean taking some of the pressure off of European and vacation isle tax havens, reversing the recent, American-enforced trend towards transparency. It might mean partnering with China and Russia to participate in the parallel, alternative financial arrangements that those countries seek to develop. It plainly puts at risk the hard won, absolutely extraordinary, hegemony that American regulators have over global finance.

All of this might seem contrary to American interests. But then on questions of financial transparency and control, not all Americans actually have the same interests. And for those among the US #resistance who see Vladimir Putin beneath every strand of orange hair, what Donald Trump has just done makes the possibility of a new Russian SWIFT considerably less laughable.

Update History:

  • 10-May-2018, 9:05 p.m. PDT: “European bankers and public pubic officials” (thanks commenter Typo)


I like this piece by Kate Aronoff looking back on WPA “boondoggles” in the context of a suddenly much discussed job guarantee. A lot of people deserve congratulations for the suddenly much-discussedness of job guarantee proposals. People like William Darity, Darrick Hamilton, and Mark Paul, Pavlina Tcherneva, Randy Wray, and others have worked doggedly through years of winter to keep this (by no means new) idea alive while no major political faction in the United States was willing to give it the time of day. Now, all of a sudden, Democratic Party(ish) bigwigs including Kristen Gillibrand, Cory Booker, and Bernie Sanders are racing onto the bandwagon. Persistence pays (although perhaps not quite a living wage).

Let’s get this part out of the way. I’m for it, if it’s well implemented. What about a UBI? I’m for that too, if it’s well implemented. Do we need both? Well, they do complement each other: Pairing a job guarantee with a UBI would mitigate the risk that the “guarantee” would transmogrify under political pressure into a punitive workfare program. Pairing a UBI with a job guarantee would mitigate the risk that we neglect the broader project of integrating one another into a vibrant society, that we let a check in the mail substitute for human engagement. If we could get both a UBI and a JG, that’d be great. (Of course, if we did get both, we’d want the numbers to be different than either as a standalone.)

However, I am not so worried about an embarrassment of riches. We’ll be fortunate to get one, either one, implemented well enough not to subvert its purpose. I see no reason not to advocate both. People make this stupid argument about how we have to choose where we want to “expend our political capital”. There are times, in the context of some specific negotiation, where it might be reasonable to imagine “political capital” as a thing akin to hoarded gold, a commodity that must be spent either here or there. But most of the time this quasi-material analogy is worse than dumb. Political capacity is much more like muscle than gold, the more you use it the more you have. Advocating for UBI and advocating for a job guarantee are complementary activities. Both push against the present, barbaric consensus, under which human sacrifice to a drunken god of business cycles and market forces is defended by the fearfully fortunate as a price that must be paid. The way we squander our political capacity is not by arguing for UBI when we should be arguing for JG or vice versa. It’s when we argue with one another about which we should argue for, when we could be taking these ideas to a broader public. Whether we get either, both, or we just terrify our complacent Mandarines into using more conventional tools to run a hotter, fairer economy, persuading the public is how we will make progress.

I have nothing more to say on the normative “should we? shouldn’t we?” question. Unfortunately, in my view, much of the take-making on the subject of a job guarantee has been driven first and foremost by authors’ self-positioning as advocate or critic. But away from all that heat, the details and implications of what is proposed are fascinating. Suppose we did this thing? What would happen? What would our country look like with a Federally funded but locally administered program to exploit the talents and capacities of all those who otherwise would not be employed for a decent wage? In between the certainties of Labor Paradise or Stalinist Hellhole are more modest possibilities and pitfalls that are worth thinking through.

One of the things that I think is a mistake in the current job guarantee debate is a focus on productivity too narrowly defined. Where will be the work for all these people? Will it just be make-work? Isn’t a job something where a need is identified in advance, and then a human is hired to fill it, rather than something determined by the existence and capabilities of the human?

I think this frame is very limited and limiting. In the hallowed private market, it is not uniformly the case that a need is identified and then the cog — um, I mean, the body — is hired to fill it. Successful firms define roles to make the most of unusually talented people they are fortunate to have. An increasing share of private work cannot be easily codified and Taylorized, but involves ongoing improvisation, collaboration, and negotiation between individuals and employers to achieve business goals. A job guarantee that had an unlimited number of slots on a mid-20th Century assembly line producing valuable, salable widgets might be easy to defend as “productive”, but would be wasteful of worker talents and poor preparation for participation in the modern economy. In actual, current practice, managers with very imperfect information hire teams of people they hope will have a mix of skills to accomplish various purposes, and then do a great deal of work trying to understand and cajole the humans they find they have to make useful things happen. The luckiest managers, those who hire at high salaries for prestigious firms, do much of their work by selection. From a large pool of applicants, they can choose the very few who are not only disciplined and capable of performing the work, but who are also able to convincingly demonstrate they are disciplined and capable during a hiring process. The vast majority of managers at the vast majority of firms, however, cannot be so choosy. Managers try to select those with the highest probability of being disciplined and capable, or perhaps more accurately, those for whom they will not be blamed if a hire turns out to be difficult and unprepared. Once the hiring is done, management is the art of building true from crooked timber. The world is not made of stylized firms with slots and then workers to fill them, but with humans who improvise, including managers who cajole, threaten, and guide in the thrall of incentives that define what counts as “productivity” or “success”.

But for a job guarantee program, what should count as productivity or success? It can’t (and shouldn’t) be a “market test”. The state and nonprofits are not in the business of making goods to sell. One version of a job guarantee would focus on production within and for the employee: Is she flourishing in her role, is she learning and demonstrating skills and habits that will increase her ability to gain more remunerative private sector employment? These are all good things, but I don’t think it would be a good idea to define the success of a JG job primarily in these terms. If the job itself is for the benefit of the worker, and she is getting paid for it as well, there will be a hazard that the broader public will not perceive JG “workers” as actual workers, but as beneficiaries of taxpayer largesse twice over. For the program to survive, and for it to confer the “dignitarian” benefits thought to come with paid work, a job guarantee job must be socially coded as a job, as fair pay for value — social, rather than market, value, but still value — and not as a “handout”. Importantly, the public should very directly perceive the value provided by JG workers. The job guarantee program should yield visible, popular amenities. During economic booms that draw people out of the job guarantee program and into private-sector employment, the public should notice and lament the loss of those amenities.

In much of the conversation about a job guarantee, advocates understandably work hard to argue that employment on the proposed terms can provide “real” value, and so emphasize activities whose importance and moral worth is difficult to deny — eldercare and childcare, protecting the environment, services for vulnerable and underserved communities. But I think there is a kind of paradoxical danger in focusing too exclusively on the things that are easiest to defend as valuable. It is like how we eviscerate education by shedding arts programs and focusing on STEM and demanding ever more testing. Tradeoffs that from a narrow, goal-directed perspective make perfect sense end up undermining the broader ecology under which a meaningful education is possible, ultimately subverting even the particular goals the “hard choices” were meant to support. In a job guarantee context, I don’t think we will get to keep the valuable but largely hidden eldercare if there are not also things whose social worth will be more contestable by naysayers and scolds but also visible and enjoyable to a broad base of voters and taxpayers. Wherever the job guarantee is, there should be festivals and block parties. There should be children’s theater in the park. There should be visible beautification, beyond just the cleaning of litter — trees planted, community gardens established and tended, decaying park benches replaced with custom carpentry. Perhaps ironically, job guarantee workers could help remedy the toll our society’s increasing fetishization of formal labor has taken on civil society. With extra human energy, neighborhood association meetings could be more frequent, more festive, and publicized more invitingly than the often drab affairs that they often are, dominated by interested insiders and people unusually motivated by resentments. With a well-subscribed job guarantee, cities could provide help with organization, catering, and clean-up to anyone interested in organizing open-to-the-public meetings and events.

Should a locally administered, Federally funded job guarantee program come to exist, a litmus test for its success will be the reaction of localities. Usually, localities compete with one another to shed the unemployed, to encourage them to move elsewhere. San Francisco will happily — and so compassionately! — buy a bus ticket for any homeless person to, um, help them get “home”. In this tradition, many localities’ initial response will be to sabotage rather than embrace a job guarantee, to make the work punitive in hopes that labor-market losers look elsewhere rather than stick around and trouble the citizens. The job guarantee will succeed only if officials who reverse that impulse, who welcome job guarantee workers (and the Federal money they bring), are rewarded at the voting booth for doing so. And that will only happen if voters in municipal elections, whose behavior is notoriously not driven by altruistic or progressive impulses, perceive tangible benefits that outweigh the hassles and scandals and declamations of “boondoggle!” that will inevitably arise. We will know that a job guarantee has succeeded when the conventional incentives have flipped, when localities compete to attract job guarantee workers rather than to try to shift the burden of this otherwise marginally employed population elsewhere.

Update History:

  • 3-May-2018, 8:50 p.m. PDT: “under which human sacrifice to a drunken god of business cycles and market forces is defended by the fearfully fortunate as a price that must be paid by the fearfully fortunate.”; “and declamations of ‘boondoggle!’ that will also inevitably arise”; “that we let a check in the mail substitute”; “look like with a Federally funded and guaranteed, but largely locally administered, program”; “performing he the work”

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interfluidity is migrating to hellish modernity, a new server, https rather than http links.

So exciting, I know.

I’m sorry to pollute your feed with this, a test post.