Ukraine dominated the week. There was lots of news, but little enlightenment. But let’s
start this Sunday with a much-repeated story about Rep. Paul Ryan (R-WI). Paul
Krugman was pitch-perfect:

Ryan’s story was lifted from a book
written by an advocate of nutritional assistance. The story is true,
but who cares? Paul Ryan attributed the story to Eloise Anderson,
who serves as the Secretary of the Wisconsin Department of Children and
Families. Ms. Anderson had
testified before Ryan’s committee that she had met with the child. In fact, the real event happened 25 years ago,
when Mr. Ryan was 19. The child is now in his late 30’s.

The whole point of
the book is that children shouldn’t go hungry. But, Ryan twisted it into an argument for letting kids starve.
This led to a twitter shame-fest at
Ryan’s expense. Here are a few:

Mr. Ryan gives evidence for today’s homily. Use the following quote to shame him some more:“DC is a place where the facts are negotiable.”

Senate rejects DOJ Nominee with the same “negotiable facts” that were acceptable for Chief Justice Roberts:

The real story on Crimea:

The real story of Crimea, Part II:

John Kerry’s guardian angel tries to warn him:

GOP poutrage then and now:

Its a vicious circle when the people try to replace Autocrats:

What’s Wrong Today:

This morning we read that Russia sunk an old warship in the mouth of a harbor where the Ukranian Navy had some of its ships at anchor, effectively preventing their access to the Black Sea. From the Daily Mail:

Congrats Vladimir Putin, you win Crimea! Nice Crimea you got there Vlad, it would be a shame if something happened to it. But, the devil is always in the details. From the Monkey Cage:

 

 

Wow, Crimea for the win! Putin will have to provide Crimea access to these resources from Russia, at what will be a huge cost.  Putin might have to spend an amount similar to what he spent to build the Sochi Olympics infrastructure, or, slightly less than the value the Russian stock market lost on Monday. More from the Monkey Cage:

 

 

Building or creating these capacities in Crimea could put a huge strain on the Russian budget. 

Maybe Putin expects to cut a deal with Ukraine to keep supplying water and electricity in return for which, he will shelve (temporarily) any demands for more Ukranian territory

 

Part of Putin’s big win will be the job of pacifying the Tatars. 12% percent of Crimea’s population is ethnically Tatar. The Tatars have called for Turkish mediation and are refusing to recognize the seizure of power in Crimea as legitimate. Russia’s annexation of Crimea might lead to the guerrilla war we discussed yesterday.

 

Annexing Crimea will also cause a deterioration in Russia’s relations with its post-Soviet neighbors. The former Soviet states must be having serious security concerns as they watch Putin’s actions in Ukraine. Specifically, the annexation may be perceived as extremely threatening by neighboring and somewhat friendly states, such as Belarus and Kazakhstan, where large Russian-speaking populations reside.

 

As we said yesterday, annexing Crimea could put an end to Moscow’s reintegration projects such as the Custom Union. Ukraine could be pushed to protect its security by seeking NATO membership.

We could get lucky and escape a self-inflicted wound. America tried to pull a fast one by energizing a Ukrainian “democracy movement” that was a well-organized mob. That mob included a significant number of nationalist thugs. When things with the mob went south, Mr. Obama did not employ a defensive diplomatic position where he might have agreed with Russia’s concerns about the mob and the coup.

We could have agreed that the new Ukranian government had little legitimacy, that it should have been more inclusive, that the parties should work together to avoid the appearance of a coup, provided ousted president Yanukovych was not brought back.

All of that would have been relatively easy to say via back channels.

But Mr. Obama, and the “haircut in search of a brain”, (h/t Jim Kunstler), Sec. of State John Kerry, made increasingly strident statements including vague threats. Now, we have sanctions, a reasonably predictable next step.

Mr. Obama seems to be forcing a showdown with Russia, and Mr. Putin personally. Let’s assume that Mr. Obama is trying to blunt Republican attacks on his ability to manage our foreign policy, so grandstanding is required for home consumption, particularly with Congress in play in the 2014 elections.

But, ceding Crimea is likely to be a win for Ukraine, America and the EU.

Why can’t we let Putin weaken his economy further by propping up Crimea?

What’s
Wrong Today:

Today,
let’s visit Russian history. There are two threads to discuss, Vladimir Putin’s view of the
world, and whether he is a successor to the legacy of Peter the Great. Second,
we look at a few troublesome facts from history that limit our actions in Ukraine today.

I.  Putin’s
Worldview

The
NYT’s David Brooks had an interesting perspective
on Mr. Putin:

Putin
was personally involved in getting Ilyin’s remains re-buried back in Russian
soil. In 2009, Putin went to consecrate the grave himself. The event sent him
into a nationalistic fervor. On that day, Brooks reports Putin as saying:

Brooks
cites Ilyin’s 1948 essay, “What
Dismemberment of Russia Entails for the World,” in which Ilyin describes
the Russian people as the “core of everything European-Asian and, therefore, of
universal equilibrium.” Yet the West is
driven by “a plan of hatred and lust for power.”

Brooks
concludes:

But
as history shows, Russia’s (and Putin’s) relationship with Crimea isn’t simple.
The Greeks held it, as did the Romans, the Byzantines, the Mongols, the Tatars,
the Ottomans, and in 1753, the Russians annexed it. In 1853, the French,
British, and Ottomans began a war in Crimea against Russia that was devastating
and ended with Russia defeated, but still in control of Crimea.

II.  Peter
the Great

Peter founded the modern Russian state. As Robert K. Massie’s
book, Peter the
Great, His Life and World shows, when Peter was born, Russia was still very deep in the Middle
Ages. Peter understood that a landlocked Russia could never be a great power,
or be able to even control its own geography from outside invaders. Much of his
career was dedicated to developing access to the Baltic Sea to the north and to
the Black Sea to the south. He built a modern army and navy.

Sweden’s monarch, Charles XII, was
Peter’s adversary in both the Baltic and the Black seas, and Peter’s lifelong
duel with Charles XII shaped Russia’s borders and its role in the world. As a
result of these wars, Russia extended its European frontiers southward to the Black Sea, southwestward to the Prut River, and south of the
Caucasus Mountains. Present day Ukraine was a major battlefield in many of these
wars.

Peter
founded the city of St Petersburg in 1703, allowing Russia to secure its
presence on the Baltic. He reformed the calendar and simplified the alphabet. He founded schools of Medicine,
Engineering, Science and Navigation and Mathematics. By the end of his reign, Russia
was a major power in Europe.

So, is Putin
the second coming of Peter the Great? No.

Expansion of its
domain from the interior to the seacoasts was the glory of Peter, while holding
sway over all the Slavic-speaking peoples was the triumph of the Soviet Union. Putin’s
plans by contrast, may echo the Tsarist dream of a powerful and expansive
Russia, but he is simply trying to recreate the trade bloc of the former Soviet
Union.

In fact, what David
Brooks really shows is how similar Mr.
Putin’s logic and rationale resembles that of some political zealots here in
the US. Think about it: To advance their cause, they need a worldview
that one side is pure and the other evil; that modern day changes are ruining
the nobility of the American spirit (in Russia’s case, this is the threat of the
gays), and that anything done in the name of God and country is preordained,
and thus good.

He’s a Great Putin, not
Peter the Great.

III.   Random,
Ukraine-related history

• The Budapest Memorandum: The US and UK signed the Budapest
  Memorandum in 1994 with Ukraine and Russia, to govern the removal of nuclear
  weapons from Ukraine to Russia, who was to dispose of them. Part of that memorandum was that Ukraine’s sovereignty was
  guaranteed. Due to their signatures, the US and the UK are both on the hook to resist incursions
  into Ukrainian territory. So, even if a majority of the population in Crimea
  now favors either independence or becoming part of Russia, we may have a duty
  to support the Ukraine’s objections.

Maybe
Obama and Cameron will forget about this document. Putin sure has.

• The
  unraveling of the USSR and its Soviet bloc (the Warsaw Pact) dismantled the largest
  empire in modern history. The NATO alliance was the outside threat that had
  held the Soviet Union together, so Russia had real concerns that could only be
  met by assurances that NATO would not
  move into the Warsaw Pact states. George H. W. Bush assured Gorbachev
  that if the Soviets dissolved the Warsaw Pact, NATO would not fill that vacuum.
  But as Steven Kinzer in the Boston
  Globe noted:  

This
may explain some of Putin’s belligerence after we and EU attempted to engineer
the Ukraine’s ascension into NATO and the EU trade bloc.

• In the event there is a
  need to escalate in Ukraine or Crimea, US
  and NATO access to the Black Sea may blocked by Turkey.

After the hostilities in
Georgia in August 2008, Turkey prevented the US and NATO from sending large
naval ships into the Black Sea. Turkey did so under the 1936
Montreux Convention which makes Turkey
the gatekeeper to the Black Sea and lays down the rules to be applied
by Turkey in allowing the entry of warships from the Mediterranean.

The US is not a party to the Convention. The
Convention contains a provision for
the parties to the Convention to amend it, but it gives Turkey a veto over any amendment
voted on by the conference.

In
Conclusion:

We
messed with Russia after the fall of the Soviet Union by not living by Bush 41’s
handshake about NATO. Our tangle of alliances, including Turkey through NATO, limits
our ability to move military assets into the Black Sea.

Our
European allies are dependent on Russian gas. Al-Monitor reports
that around 80% of EU gas imports from Russia pass through Ukraine. Turkey
uses Russian gas to produce 32% of its electricity. These countries have
experience with Russia cutting off their supply. In 2006 and 2009, Russia used
its gas monopoly as a political weapon in its dispute with Ukraine,
cutting gas flows to the EU via Ukraine.

We have no good options
for military engagement in Crimea or Ukraine, but we are looking at a win if we proceed on a hands-off basis.

Really?
 

The chances are that the Ukraine
(minus Crimea) will become a pro-Western, pro-EU government. That is the strategic
prize that Putin’s bellicose action has dropped in the lap of the West. If Russia accepts
the legitimacy of Ukraine’s new government in return for a partition that takes
Crimea back to Russia, we have a win, albeit with a price tag of $25 billion in aid. 

If the Ukrainians and their military
are determined to resist any further Russian incursions with force, then Putin’s easy territorial win comes to a
screeching halt and he faces the prospect of a guerrilla war, one that
is not likely to remain just in Ukraine.

That would be a huge loss for Putin.

The more that NATO, the EU and the
US intrude loudly in this process (that means you, John McCain), the less room
Putin has to back down, and the more likely Ukrainian military officials will have
to move to defend their own country.

Do we want a win, or are we just itching
for a fight?

You may have missed the news last week that bankers at Credit Suisse used cloak and dagger tactics to help wealthy American clients stash $ billions in assets out of sight of the IRS, according to a Senate report.Credit Suisse is under investigation by the US Justice Department for allegedly aiding tax evasion by its rich American clients. The bank opened a special Zurich airport branch identified with only a code name (SIOA5) so customers could fly in, meet their private bankers and quickly hit the slopes, or quickly fly back to the US.

In the US, VIPs would use a secret elevator without buttons and operated by remote control to be whisked to Credit Suisse private banking suites. The Senate report says that bankers hid bank statements in the pages of Sports Illustrated rather than sending account statements and leaving paper trails.

According to CNN, there were some really fun ways that Credit Suisse customers moved their money:

Surely, that was legitimate money being transported for legitimate purposes by a person who was very concerned about being illegally separated from her dough.

According to the Senate report, Credit Suisse held more than 22,000 accounts for US customers, with assets valued at between $10 billion and $12 billion. Up to 95% of the accounts weren’t reported for tax purposes to the IRS. Sen. Carl Levin, (D-MI) who heads the Senate committee that produced the 175-page report, criticized the US Department of Justice, the bank and Swiss authorities, saying at the hearing: (brackets by the Wrongologist)

That’s 1% of the total, for those of you keeping score at home.

Credit Suisse is the just the latest Swiss bank to come under scrutiny. The government cracked down on the Swiss bank UBS in 2009, which paid $780 million to settle similar allegations.

Hiding this information is the reason that the US Congress passed the FATCA legislation in 2010. The purpose of the law is to make foreign financial institutions identify accounts held by US taxpayers and report them to the IRS. FATCA also requires US citizens, including individuals who live outside the US, to report their financial accounts held outside of the US.

The United States and Switzerland signed a FATCA agreement in February. But the information exchange pact cannot go into force without Senate ratification of the US-Swiss tax treaty originally executed in 2009.

If you think that everyone in the Senate must be in favor of eliminating tax evasion
and this will be easily ratified in the Senate, you would be wrong. In fact, good ol’ boy Sen. Rand Paul (R-KY) has been the sole blocker of a vote to ratify the treaty with the Swiss.

Rand may be trying to run out the clock. The Treaty was written in 2009, and the statute of limitations is (generally) five years. So maybe we can expect Paul to change his mind and vote for ratification in 2014? Isn’t the past 5 years sufficient time for anyone wanting to cover their tracks to move their untaxed assets from Swiss banks to another jurisdiction that has yet to sign a treaty with the US?

Kentucky’s Tea Party darling says the treaty infringes on privacy rights. From Sen. Paul:

Nice. Sen. Paul believes that you need proof of a crime for which it is impossible to develop the facts to make the case that a crime was committed, without the treaty he is holding up.

Naturally, Credit Suisse is hiding behind Sen. Paul’s blockage of the Treaty. At the hearing in Washington last week, Credit Suisse’s American operation’s CEO, Brady Dougan said: (emphasis by the Wrongologist)

Paul’s protest of the Treaty is also linked to his desire to repeal FATCA, because the “privacy rights” of criminals hiding billions of US taxpayer dollars is more important than the government’s right to collect taxes.

The Wrongologist wrote in February that the Republican National Committee (RNC) approved a resolution that added the repeal of FATCA to its 2014 platform.

That means any effort by Harry Reid (D-NV) to bring the Treaty ratification to the whole Senate in order to override Sen. Paul’s blocking, would require some Republicans to join with Democrats in the override effort. Plus, ratification of treaties requires the vote of 67 senators. That isn’t likely, now that their 2014 platform opposes the underlying law that enabled the Treaty.

Despite Sen. Paul’s privacy concerns, no one is asking the rich to pay unfairly − they already get all kinds of tax breaks − but to encourage tax evasion seems to be far beyond the Republican’s usual pale.

How about having the rich simply pay their fair share and watch the federal deficit which they are so concerned about, fall, without requiring Americans to give up food stamp subsidies or funding for long term unemployment benefits?

It is always so curious. Republicans talk about cutting the deficit, but their 2014 platform underwrites tax evasion instead of tax compliance for their wealthy overlords.

Those of us who pay our taxes, work all our lives, and watch our children’s opportunities for a good life vanish due to the horrific economic disparity that is now America, require more of Congress.

We’re running out of cake ….

 

What’s
Wrong Today:

It
has been the practice among key players in the tech industry not to poach
employees from competitors, particularly employees with technical knowledge
like software (SW) engineers. Tech firms see the move of a key engineer to a
competitor as a potential risk, since product innovation that uses even a small
piece of knowledge brought by an engineer to a competitor can quickly move the new
company to a better competitive position. The employment market in Silicon
Valley is among the most competitive in the country, and job hopping of SW engineers
and other employees is common.

In
early 2005, as demand in Silicon Valley for SW engineers boomed, Apple’s Steve
Jobs entered into a pact with Google’s Eric Schmidt and a few other firms to agree
not to recruit each other’s employees. Apple in particular threatened to punish
companies that violated the arrangement.

The
NYT reported last week about a class-action
lawsuit
in San Jose Federal Court that will head to trial in the spring. It involves
64,000 programmers and seeks $ Billions in damages. The suit names Adobe,
Apple, Google, Intel, Intuit, Lucasfilm and Pixar as defendants. From the NYT:

Santa
Clara County, in the heart of Silicon Valley, has the highest average wage in
the country, but even though Silicon Valley’s SW engineers make really good
money, the court filings call the SW engineers “victims of a conspiracy” who
were cheated by their bosses. According
to Joseph Saveri, a lawyer for the plaintiffs:  

The
actions described in the lawsuit were first uncovered in an investigation by
the Justice Department, which concluded with an antitrust complaint against a
half-dozen companies. In September, 2010, the companies settled
with the Justice Department. The terms of the settlement are confidential, but
the companies agreed to drop the no-poaching practice.

However,
the settlement did not preclude affected SW engineers from pursuing their own
case against the companies. The class-action lawsuit quotes emails and other
communications from some of Silicon Valley’s biggest names:

• On
  February 27, 2005, Bill Campbell, a member of Apple’s board of directors
  emailed Jobs to confirm that Eric Schmidt “got directly involved and
  firmly stopped all efforts to recruit anyone from Apple”

• When
  Google’s co-founder, Sergey Brin, tried to hire from Apple’s browser team, Jobs
  warned: “If you hire a single one of these people that means war”

• In
  2007, when a Google recruiter slipped up and contacted an Apple engineer, Mr. Jobs
  immediately complained. Google fired the recruiter within an hour

• Eric
  Schmidt said he preferred that the company’s Do Not Call list be shared orally,
  “since I don’t want to create a paper trail over which we can be sued later”

• An
  Intel recruiter asked Paul S. Otellini, then CEO, about a hands-off deal with
  Google. Mr. Otellini responded in an email: “We have nothing signed,”…We have
  a handshake ‘no recruit’ between Eric and myself. I would not like this broadly
  known”

The Times reports that these
“no poaching” deals might have been more widespread. The Justice Department is
currently pursuing a case against eBay, accusing it of having an illegal
no-poaching deal with Intuit. The Times
reports that eBay is in settlement talks with the government.

At
issue in the class-action suit is an offense under antitrust laws called an
“unlawful group boycott,” which is an agreement by two or more direct
competitors not to do business with specified targets.

In
this case, the “targets” were the SW engineers employed by the alleged co-conspirators,
so the case presents a twist on an ordinary group boycott. Usually, the aim of a
group boycott is to hurt a competitor by depriving it of supplies or access to
customers that it needs. Here, the aim of the boycott was to deprive the SW engineers
of a competitive marketplace for their services by the firms that
would be primarily interested in using those services.

“No
poaching” is very different from “no hiring”. The companies agreed to stop
calling employees working at a competing firms and offering them jobs. If an
employee wanted to apply for a job at a competing firm, they might or might not
be turned away, and whether a turn-down was really a part of the side deal
would be extremely difficult to prove.

Another
point: These are the same firms who lament the shortage of American
workers with the technical skills they need. They decry the sorry state of the
American education system that fails them by not producing the kind of workers
they want to hire. Then they hire thousands of H-1B visa indentured servants to
fill positions for which there just
weren’t any qualified American applicants. This serves just one purpose:
to maintain downward pressure on the wages of IT workers.

Never
underestimate the ability of the one-percent to invent ways that strangle the
middle class.

Yes,
these no poaching deals had something to do with protecting the firm’s
intellectual property, but it was primarily about wage suppression. Engineers
work hard to acquire and maintain expert knowledge with important economic value
to prospective employers. The salaries of the top people could only be
suppressed through artificial deals and questionable immigration policies.

Robber Barons
was a term used in the late 1800’s to describe industrialists who used exploitative
practices to amass their wealth. Their practices included exerting control over
natural resources, buying political influence, and paying extremely low wages.

In
the 2000’s, the Tech robber barons tried to corner the market on human capital instead
of the market for natural resources. Like the robber barons of old, the Tech barons
still try to develop all the political influence that they can.

Any
settlement that emerges from these lawsuits will amount to nothing compared to the stock price increases
and the profits made by the companies that colluded in “no poaching”.

Corporate
welfare, collusion, buying off the government − still the face of gangster
capitalism in America.

What’s
Wrong Today:

Steven
Cohen on CNN
this weekend made a point that has not
been covered clearly about Ukraine’s proposed deal with the EU: (brackets
and parentheses by the Wrongologist)

Cohen
is professor emeritus at New York University and Princeton University. His
books include “Soviet Fates and Lost Alternatives: From Stalinism to
the New Cold War.”

So,
the West’s plan was to bring NATO through Ukraine right onto the Russian border.
Unsurprisingly, the Russians are not prepared to accept that. Specifically, they’re
not prepared to accept NATO forces in Ukraine, or the possibility that subsequently,
NATO could gain a base near that of the Soviet Black Sea Fleet based in Crimea.

The
grandstanding politicians (Sen. Lindsey Graham) and the pundits who say we need
to be more muscular in our response to Russia in Ukraine are morons.

Sen.
McCain (R-AZ) said this weekend that all Putin sees around the world is America’s
weakness and withdrawal from conflict and that emboldened him to move against
Ukraine. It was actually our “muscular” approach to snag Ukraine for NATO that emboldened
Mr. Putin (after Russia’s competing deal to the EU deal) with Putin’s puppet, Yanukovych, died when Yanukovych
fled Ukraine.

Putin’s move is no
threat to us, and we have no responsibility to come up with a counter-move in
Ukraine. Putin
wins this round, he out-thought the US and gets Crimea for his efforts.

Let’s
remember that Russia is no longer the USSR. It is not a threat to Europe, and
it is certainly not a threat to the US.  It is a corrupt, resource-rich
state with a big army and nukes. It controls a lot of
territory, but the idea that it would win a full-on war with America is moronic.

We
also should remember that Ukraine is poor, and mostly corrupt, run by wealthy
oligarchs who have skimmed off the top for years. Subsidized diesel fuel is a
huge part of Ukraine’s economic problems. Ukrainians pay about half the price for
diesel that people do in Europe. In fact, a liter of diesel in Ukraine is the
cheapest in the world. At the same time, Ukraine uses a lot of it, behind only
to Germany and Russia. One of the IMF’s and the EU’s early requirements for
loans was that diesel prices be raised. Next winter might have been very harsh
for the average person in the Ukraine if their government had agreed to that
IMF requirement.

Finally,
Ukraine has an industrial base, but their factories are Soviet era, and supply
nothing we want. They have agriculture, but they produce primarily for the
Russians. Our subsidized agricultural production would make buying from Ukraine
uncompetitive, so we are not an economic alternative for them.

Ignoring
any humanitarian issues, there is little reason for the US to get involved just
because Russia is involved. This kind of cold warrior, knee-jerk reaction has
caused us more financial problems since the 1950’s than any other US foreign
policy response, except for our Al-Qaeda global response for the past 12 years.

We
were out-strategized by Mr. Putin. Is Mr. Obama completely bereft of advisers who know
something about Russia? It should have
been a Rumsfeldian “known-known” that Mr. Putin would react to any
move that would possibly put NATO in his shorts.

Today, the “known unknown” question is how Ukraine will be
partitioned. The Western part of the country will reach towards Western Europe.
Crimea will default to Russia. The Eastern parts of Ukraine, where its industry
is located, could go either way.

In the all of our bouts of bluster with Russia over the past 50 years, the Cuban Missile Crisis was the scariest. Everything since then has been either theater
or a prelude to a proxy war the US wants, and gets.

Ukraine isn’t one of them.

Last
week, we learned that an Arizona Tea Party group believes that the 1st
Amendment is
only for Christians:

Hmmm. We also learned that
there is plenty of global unrest.
Here is a partial list of countries to be worried about:

Afghanistan

Burma
Central
African Republic
Libya
Iraq
Somalia
Syria
Thailand
Turkey
Ukraine
Venezuela

With so much
uncertainty in the world today, please use the chorus from Bob Dylan’s “Ballad of a Thin Man” as the inspiration
for your homily:

“But something is happening here
And you don’t know what it is
Do you, Mister Jones?”

Ukraine is a losing position
for Obama:

The BBC reports today
that Russia’s upper house of Parliament has approved President Putin’s request
for Russian forces to be used in Ukraine. This is essentially a Russian version
of our Authorization for the Use of Military Force (AUMF) that was requested by
George W. for Afghanistan and Iraq. Let’s spell out a few things:

• The
  US, the EU and NATO will, if push comes to shove, acquiesce in the partitioning
  of Ukraine

• The
  US, the EU and NATO will not offer Ukraine a serious bailout. The EU offered Ukraine
  $700 million. In contrast, the Russians offered $15 billion

So, Mr. Putin has
called Mr. Obama’s bluff. What will Mr. Obama do? Maybe cancel his appearance
at Sochi G-8. In the end, nothing. Let the bloviating begin!

In a related story,
Sec. of Defense Hagel announces cuts in Pentagon budget:

Facebook makes billionaire of welfare recipient founder of Whatsapp:

Arizona gets reprieve from corporate boycott:

Enjoy the Oscars tonight. Democrats want to run from their award:

What’s
Wrong Today:

The
Netherlands is emerging as Europe’s Delaware, so says The
Economist:

That’s
3 different locations for 3 of the company’s key functions. The Economist went on to say that “Even
the most industrious executive cannot be in three places at once”. Why are
firms doing this? More from The Economist:
(emphasis by the Wrongologist)

Having Fiat’s
tax residence in the UK is an immediate benefit since, unlike Italy or the
Netherlands, the UK levies no withholding tax on the distribution of dividends
from foreign operations. Multinationals play down tax as a reason for splitting
their legal residences, but it always
factors into the decision. British tax law looks kindly on firms
using complex ownership structures that involve other low-tax jurisdictions, structures
that allow them to shuffle payments between subsidiaries and thus minimize tax
bills.

The Economist closes with this
observation:

These
firms are moving from the realm of  the “multinational”
to the “transnational”. Their decision-making is driven by accountants and
lawyers as much as by markets.

The trouble with
transnational organizations is that while governments have a moral imperative
to look out for the interests of their citizens both rich and poor, to be good
stewards of infrastructure, human capital and natural resources, transnational
firms have no such imperative.

Only
their shareholders can call them to account and then it’s usually about profit.
While some firms show occasional moral awareness, it’s not a requirement, and
is often ridiculed by some of the global elites.

We are witnessing
the morphing of capitalism into a singular global system.

This shift in capitalism has created a transnational
capitalist class.
Capital is more mobile than people. Mobility between economic classes in a given country’s
population is less and less dependent on that particular nation’s big businesses.
It has become more dependent upon smaller, service-oriented firms that cannot
deliver their services from abroad, and do not offer the same middle class job
opportunities.

Transnational
capitalists have become a ruling class that operates the controls of a powerful
transnational superstructure, managing assets and production of both commodities
and goods. Members of this new class (and their companies) have deeper connections
to each other than to their home nations, since their business and financial interests
are globally linked, rather than exclusively local or national in origin.

The world
is still organized into discrete national economies, but the transnational
capitalists, and their lawyers and accountants, have constructed a
superstructure that overlays their interests on a world of markets and nations.
Like Fiat, their business interests may or may not coincide with those of their
country of origin or of its citizens. Yet, at the same time, this worldwide decentralization and
fragmentation of the production process has taken place alongside a centralization
of command and control of the global economy by these transnationals.

This has cemented
the world into a single production system. One outcome of transnational capitalism
is that a large gap between the global rich and the rest of us has developed,
one which exists not simply on a national level.

Forbes reported
that corporate wealth is becoming more concentrated. In fact, the top 147
transnational corporations control
roughly 40% of the entire economic value of the world’s transnational
corporations. And it is worse than that:

That is
out of a total of 43,000 transnational corporations analyzed by the Swiss Federal Institute of Technology in Zurich. They built a
model of who owns what and what their revenues are, and thus mapped the entire
edifice of economic power.

It
is not clear how this concentration of wealth which has no loyalty to country will
play out in the 21st Century. In America so far, it has meant that the
rich employing the near-rich to tell the middle class that everything is the fault
of the poor.

We
have accepted the fantasy of a free market, the acceptability of 6% unemployment
as the best we can do, of the uselessness of unions; that equality is unnecessary,
and that privatization is sacred.

And
above all, that it is absolutely necessary for private industry to
self-regulate.

Unchecked,
the transnational firm will be the triumph of fascism.

What’s
Wrong Today:

James
Surowieki in The
New Yorker:
(emphasis by the Wrongologist)

And
here is Krugman writing yesterday about Surowieki’s
article: (emphasis by the Wrongologist)

How
much social mobility occurs in a society if politicians think the only goal is “equal
opportunity for all”? In America, not much, and that hasn’t changed in 40
years, according to a study by a team of economists from
Harvard and Berkeley led by Raj
Chetty. According
to Chetty:

A
time-honored meme is the Horatio Alger story, the American dream that anyone
can, through dedication and a can-do spirit, climb the ladder of success. But,
according to Surowieki: (emphasis by the Wrongologist)

Horatio
has a smaller chance of making it big here than in say, France, since we have had the
same amount of economic mobility for the past 40 years. When politicians emphasize
mobility as opposed to decent living standards for all, or economic security, it becomes
easy to blame the “victims”, that is, the very poor, the unemployed, the fringe
members of society: What’s the matter with you, why aren’t you upwardly mobile
in this, the land of opportunity?


But today in the US, the pressure on mobility is mostly downward, not upward. That
is due to the confluence of several trends:

• Corporate
  influence on our tax and labor laws to the advantage of the few

• The
  mass movement of skilled, labor-intensive jobs to low cost countries

• The
  rapid development in computer-assisted manufacturing and design that has
  radically reduced the availability of solid middle class jobs

• The
  huge growth in liquid assets employed in foreign tax havens, not in US businesses

Then,
the Citizens United decision sealed the deal for those entrenched at the top. Today,
most Americans don’t even know if
there could be a better way to build the economy.

Ironically,
these trends have been sold to voters as the next stage of the American free
enterprise system. Thus, the upward wealth transfer has been institutionalized
and accepted by many as necessary to keeping our country strong and for ensuring future
job growth.

It
has done neither. When 40% of Americans can’t buy anything other than food and
gas, that hurts all of us.

What made
the US economy so remarkable for most of the twentieth century was the fact
that even if working people never left their economic class, over time they saw
their standard of living rise sharply. Median
income doubled in the US between the late 1940’s and the 1970’s. The
chart below shows that income growth has stagnated since the early 1990’s:

That’s
what has really changed in the past forty years. The economy is growing more
slowly than it did in the postwar era, the average workers’ share of the pie
has been shrinking, and fewer people are working today than in 2007. It’s no surprise that people in
Washington prefer to talk about mobility rather than about this basic reality.

Raising
living standards for ordinary workers is hard: you need to get wages growing,
or to “prime the pump” with infrastructure jobs. Talking about things like
“redistribution” and “more taxes” scares politicians, but austerity will not
improve economic growth, or lower our deficit.

Most
of us want a decent
society for everyone, including for the less talented and less fortunate. We
will always have some inequality, some people whose living standard is too low,
so there should be a decent floor which people can’t fall below.

We
call that the safety net and we can agree or disagree with where the floor
should be established, but without a concept of how to make our economy benefit
more of our citizens, we risk political upheaval.

Today there are rumblings of change,
but nothing coherent has emerged. People know something isn’t right, but they
can’t put their finger on it, and there is no organized push to develop a
coalition around modifying our capitalism to improve living standards for all
in the working classes.

The fact that the working
poor have flat screen TVs at home, or have iPhones does not mean that they have
a good standard of living. Many people
in the third world have those devices, along with the same food and job
insecurity we have here in America.

The next financial/economic
crisis will toss more people out of the middle class. The ladder of opportunity
will be shorter, excluding even more people.

 

We need to create a unifying
message that people will understand and rally behind, one that will cause them to stop voting
against their economic interests.

 

What’s
Wrong Today:

Turbulence in Turkey
is growing. It started with the Gezi Park demonstrations last year that the Wrongologist
reported on here,
that left six people dead and 8,000 injured. At the time, Prime Minister Recep
Tayyip Erdogan repeatedly accused outsiders of being behind the protests. In a NYT Op-ed, Elif
Shafak wrote:

In December came the
major corruption
case involving Mr. Erdogan’s administration and his AKP party. That led Prime
Minister Erdogan to frame the probe into the corruption as an “attempted coup”
by the US-based Sunni religious leader Fethullah Gulen. Mr. Erdogan also blamed
the US as the mastermind of a plot against his government. He raised
the possibility of expelling Francis Ricciardone, the US ambassador to
Turkey, soon after the scandal broke.

Then on
Feb. 15th, Reuters reported
that Turkey’s parliament approved a law boosting
Mr. Erdogan’s control over the appointment of judges and prosecutors,
after a heated debate and a brawl that left one opposition lawmaker
hospitalized. Mr. Erdogan blamed Fethullah Gulen for instigating the corruption
investigation, and is threatened by Gulen’s rumored control over many in the
judiciary. Lots ‘o turbulence.

So, little
reason to be surprised when Al-Monitor reported
that on Feb. 19th:

That phone call
should have been routine, because Mr. Erdogan has enjoyed the reputation
of being the foreign leader that Mr. Obama spends the most time with on
the phone. That was, until Gezi Park in the summer of 2013. Only two weeks before the
Gezi events, Mr. Erdogan’s visit to DC was received with the highest levels of protocol.
But, after Gezi, they had a chilly encounter at the G-20 meeting in St.
Petersburg on Sept. 5-6, and just one brief phone conversation since.

Their call took place
on the same day that the Turkish parliament passed
restrictive Internet legislation that would allow the government to block
individual URLs without judicial review. It also obliges ISPs to store users’
personal Internet data for up to two years.

You might get the
impression that previously, there were no regulations or controls on the Internet
in Turkey, but that is incorrect. According to al-Monitor,
40,000 websites are inaccessible
in Turkey today. YouTube has been blocked for months at a time, and Vimeo has
been temporary blocked in the last couple of months, there were also a lot of adult entertainment sites such as https://www.sexfreehd.xxx/ that have also been blocked.

If all of
this was not enough, whatsupturkey.com
along with many news outlets has reported on a new scandal:

Most of the
conversations on the leaked recordings allegedly took place between Tayyip Erdogan
and his son, Bilal Erdogan on the 17th of December, the same day as
a graft probe was unexpectedly initiated against ministers and sons in Mr. Erdogan’s own government.

The gist of the
conversations is that Mr. Erdogan needs to urgently move a LOT of cash.

In later recordings,
Bilal Erdogan calls back to his father and reports how the work is proceeding.
After a day of collecting enormous amounts of cash, allegedly about USD
1 billion from 5 different houses and making it disappear by buying apartments
and making advance payments to businessmen they work with, he still hadn’t been
able to hide it all. Bilal says: (emphasis by the Wrongologist)

Mr. Erdogan agrees on
the call. How these leaked phone call recordings will influence the upcoming
local elections March 30 is unclear. The opposition parties, naturally,
immediately called for Mr. Erdogan to resign, while the Prime Minister has claimed
that the 11 minutes of conversation was a fabricated montage.

Then
there is today’s report from the BBC:

Where is
all of this heading? Turkey has been an important US ally for a long time. The Turkish government has increased
its control over the judiciary and the media. It has exacted a high price in
terms of freedom of press, speech, and assembly, and has hurt Turkish economic
growth, which has been the strong point of the AKP’s appeal to voters.

In the process, the
“Turkish model” — a successful mix of democracy, market capitalism and Islamic
conservativism — that Mr. Obama and other Western leaders have celebrated, has
been endangered.

These major internal
tensions are unfolding just before municipal elections (Mar. 30, 2014). That
will be followed by the first-ever presidential election by popular vote
(August 2014) and then by a general election in June of 2015. The AKP should
make another strong showing in March, but it will be at the expense of government
transparency, the rule of law, the separation of powers, and a free media.

There’s little the US
or the EU can do to prevent Mr. Erdogan and the AKP from becoming more
dictatorial. The only force that can prevent that is the Turkish electorate, and it is
unclear whether it will embrace that idea. Mr. Erdogan and his Justice and Development Party have a
very different ideological worldview from that of the West. They gather in
protest in front of the US Embassy, they provoked the civil war in
Egypt and support the Salafi groups in Syria.

It is clear that the
Turkey-US relationship could be derailed at anytime.

In
the past, Turkey has concentrated power in the military or in the incumbent party.
In 2014, it appears that it is elections, the economy, and very limited international
pressure that will determine what happens next in Turkey.