Reform of Government by addressing Conflicts of Interest
I saw an interesting article today. It plays into a concern that I have about modern government. Conflicts of interest.
As a lawyer who works on corporate issues both for businesses and charities and on estate planning trusts, I am intimately familiar with the concept of "conflicts of interest."
Since today's liberal society plays the concept of conflicts of interest as a club to batter Republicans with business experience and strong ideas (e.g., Dick Cheney and G.W. Bush in the prior lives running or owning oil businesses), Republicans are not comfortable using this claim against Democrats. Yet, the Democrats are some of the strongest users of conflicts of interest as political strengths. They have a very high proportion of their efforts done by union members whether trade, teacher, or government-employee unions.
The first thing these elected officials do is hire the partisans who placed them in office. Fine. Makes sense. Hire the reliable and similar thinking. That's good business. Why would it not be good office management, too?
But we have a severe problem growing in our society that Derbyshire in the above article only alludes to: the concentration of same thinking from a few unions. Think of it this way, how many union members are represented by the AFL-CIO president? How many managers are represented by the chairman of General Motors? Do GM, Ford, and Daimler Chrysler always agree?
How large a percentage of modern union membership is government employees? Why should these government employees be able to double dip in affecting your life. First, they make and enforce the rules you have to live by in paying taxes, the exhaust that emits from your car, the construction standards of your house, the working conditions of your business, the rules for how you withdraw money from your retirement plan, the rules for when your mother's nursing home is paid by government. These employees propose the government spending budgets, which always increase (even when we are told they have made cuts, a/k/a baseline budgeting). These same employees then get to organize as a union and make political demands from the government -- including active involvement in the elections process.
Don't get me wrong. Citizens voting makes sense. Government should enforce rules. However, the problem is the pervasive nature of the same people having so much voice being paid for by the other citizens.
In my world of law, conflicts of interest occur when the rights of one group require the rights of another group to come into conflict. For example, a member of a charity's board of directors cannot receive a grant from the charity of any significant size, otherwise the charity can be punished. A corporate board member cannot learn about a business opportunity at the board meeting and then start his own competing company to seize that business opportunity. To handle these conflicts of interest specific procedures are put into place. The usual means to resolve is to announce the conflict and take the person with the conflict of interest out of the decision-making process. The effect of not using the transparency is the board member can be punished and the company punished.
This system works well in small groups. It is difficult to apply on a governmental level. Yet, the idea is important. Transparency in these small groups is the key part of the process.
Government transparency is needed with these double-dipping unions. The default on these conflicts of interest need to be toward benefitting taxpayers when conflicts occur, rather than benefitting government employees.
Wednesday, May 28, 2003
Friday, May 23, 2003
Is there a cycle of violence?
In today's National Review Online, an article appeared questioning the commonly accepted wisdom of a "cycle of violence."
The article is correct. Terrorism is an attack on a civilian population the same way that harrassing actions are an attack on a military unit. The difference is the target. I find no moral basis for attacking civilians unless and until those same citizens take up arms as a militia, in the minuteman sense. Otherwise the attack on civilians is merely assault, battery, attempted murder, capital murder, and, oh by the way, suicide. These are not merely "homicides." Hitting a pedestrian who jumps in front of traffic is a homicide. Is rape intercourse? Yes, and so much more. Intentional homicide is homicide but it is so much more. It is murder.
Any first year student of criminal law can define the difference between a crime and an accident. Running a red light is illegal. It can lead to an accident. It is an accident if the driver was temporarily blinded by his passenger throwing a drink at the driver's face. There is no intent to harm or knowledge that the light had changed potentially leading to a collision.
It is the mind set of entering the intersection on red seeking to hit an old girl friend's car that is criminal. This mind set is typically illustrated in television crime stories with the refrain "means, motive, and opportunity." The mind set is the motive. Why did the suspect act?
In the Middle East, there is no end to the hatred on either side of the fence between Gaza and Israel. Since this is not a conflict with in one country or state, it is hard to say that this is simply a matter for criminal law and the justice system.
As I have mentioned before, criminal procedure and protection of life, liberty, and property are the benefits of living within a civil society. How a civil society should react to attacks from outside that civil society need to be clarified.
The Treaty of Westphalia makes the first stab at giving a nation state the absolute right to not be molested by outside forces. This gives increased growth to the modern notion of sovereignty. At sovereignty's core, the state will not be lorded over by another state. One state will not molest the other's internal affairs. This doctrine grew in its scope with the Treaty of Vienna in 1815, bringing the Napoleanic Wars to a close.
The idea of how to deal with rogue nations in this scheme has always been easy -- declare war, wage war until the other side sues for peace, and dictate the terms of the peace treaty. Effective treaties end the conflict permanently -- Japanese Instrument of Surrender. Bad treaties perpetuate the conflict -- the Treaty of Versailles. Admittedly treaties are only paper. Actions carrying out the victor's intent are the real magic. Nevertheless, the point here is that this traditional system works well between nations.
But how do we deal with persons outside the system? The Founding Fathers recognized an old fashioned method: Letters of Marque and Reprisal. Congress is given the power "To declare war, grant letters of marque and reprisal, and make rules concerning captures on land and water." These old techniques were interesting and effective. So effective that they were outlawed internationally in 1856. In their original character, they were meant to allow a country to sanction an individual to commit acts of bordering on military hostility in a foreign nation to right a private wrong. The notion of interest to me is not that an individual could be empowered to commit acts of war -- that is a privateer, a pirate in a white hat. The notion of interest is that the Letter of Marque was to focus on a non-nation target -- like an individual merchant.
Imagine what would happen in the Middle East if Israel could issue Letters of Marque against specific terrorists in advance. Then when the terrorist was found, his death would have at least been placed before the Knesset. This would look less like cold blooded killing. The Palestinian murdering bombers would more clearly appear to be the criminal thugs they are.
This false circle of violence would be shown to be what is -- continual escalating attacks by Palestinian terrorist with attempts to punish criminal where no criminal justice system can exist. No criminal justice system can be housed on border between Israel and Palestine.
In today's National Review Online, an article appeared questioning the commonly accepted wisdom of a "cycle of violence."
The article is correct. Terrorism is an attack on a civilian population the same way that harrassing actions are an attack on a military unit. The difference is the target. I find no moral basis for attacking civilians unless and until those same citizens take up arms as a militia, in the minuteman sense. Otherwise the attack on civilians is merely assault, battery, attempted murder, capital murder, and, oh by the way, suicide. These are not merely "homicides." Hitting a pedestrian who jumps in front of traffic is a homicide. Is rape intercourse? Yes, and so much more. Intentional homicide is homicide but it is so much more. It is murder.
Any first year student of criminal law can define the difference between a crime and an accident. Running a red light is illegal. It can lead to an accident. It is an accident if the driver was temporarily blinded by his passenger throwing a drink at the driver's face. There is no intent to harm or knowledge that the light had changed potentially leading to a collision.
It is the mind set of entering the intersection on red seeking to hit an old girl friend's car that is criminal. This mind set is typically illustrated in television crime stories with the refrain "means, motive, and opportunity." The mind set is the motive. Why did the suspect act?
In the Middle East, there is no end to the hatred on either side of the fence between Gaza and Israel. Since this is not a conflict with in one country or state, it is hard to say that this is simply a matter for criminal law and the justice system.
As I have mentioned before, criminal procedure and protection of life, liberty, and property are the benefits of living within a civil society. How a civil society should react to attacks from outside that civil society need to be clarified.
The Treaty of Westphalia makes the first stab at giving a nation state the absolute right to not be molested by outside forces. This gives increased growth to the modern notion of sovereignty. At sovereignty's core, the state will not be lorded over by another state. One state will not molest the other's internal affairs. This doctrine grew in its scope with the Treaty of Vienna in 1815, bringing the Napoleanic Wars to a close.
The idea of how to deal with rogue nations in this scheme has always been easy -- declare war, wage war until the other side sues for peace, and dictate the terms of the peace treaty. Effective treaties end the conflict permanently -- Japanese Instrument of Surrender. Bad treaties perpetuate the conflict -- the Treaty of Versailles. Admittedly treaties are only paper. Actions carrying out the victor's intent are the real magic. Nevertheless, the point here is that this traditional system works well between nations.
But how do we deal with persons outside the system? The Founding Fathers recognized an old fashioned method: Letters of Marque and Reprisal. Congress is given the power "To declare war, grant letters of marque and reprisal, and make rules concerning captures on land and water." These old techniques were interesting and effective. So effective that they were outlawed internationally in 1856. In their original character, they were meant to allow a country to sanction an individual to commit acts of bordering on military hostility in a foreign nation to right a private wrong. The notion of interest to me is not that an individual could be empowered to commit acts of war -- that is a privateer, a pirate in a white hat. The notion of interest is that the Letter of Marque was to focus on a non-nation target -- like an individual merchant.
Imagine what would happen in the Middle East if Israel could issue Letters of Marque against specific terrorists in advance. Then when the terrorist was found, his death would have at least been placed before the Knesset. This would look less like cold blooded killing. The Palestinian murdering bombers would more clearly appear to be the criminal thugs they are.
This false circle of violence would be shown to be what is -- continual escalating attacks by Palestinian terrorist with attempts to punish criminal where no criminal justice system can exist. No criminal justice system can be housed on border between Israel and Palestine.
Monday, May 19, 2003
A New Method to Analyze the Economy: Basic Accounting Principles
All too often the discussion about whether to raise taxes or lower taxes focuses on how best to stimulate the economy. It becomes a large question of Keynes vs. Laffler. This is highly esoteric. The real answer is buried in De Soto, not the explorer but his modern name sake.
Hernando De Soto suggests that speed of transactions are important to the success of an economy. That is not surprising. Accountants would have told you that a long time ago.
In a store, assuming that all other accounting is well thought out and implemented, the easiest method to determine if the store is profitable is how fast the inventory of the store is completely replaced. If the inventory turns once a year, revenues are x. If the inventory turns three times a year, revenues are 3x. Simple algebra. In economics the number of times a dollar goes through the economy in a given time period is said to have a multiplier effect. Inventory turns like this could be said to have a three times multiplier.
The biggest problem in our economy today, is that so few persons in politics are lawyers and completely devoid of knowledge of economic theory and history. These lawyers learn early to read financial statements by looking at the bottom line. Unfortunately they do not understand how that bottom line number can be achieved.
Simply put, the government needs to stimulate business in ways that cause an increase in the speed of revenue generating transactions.
A little-known, dirty secret is that money paid to the government has a lower multiplier effect. Think about it. An employee has taxes withheld. In the average, small business, this money is held in a separate "tax account." The money may be deducted and saved for the first two-week pay period of the month. When the second pay period comes, the IRS payment deadline comes quickly thereafter. The employer deposits the money for the two pay periods with the IRS by various banking means. The first money is held for two weeks outside the economic system. This money is slowed down and has an impact on the overall mulitplier effect.
Once the money gets to the government, the money does not get dispersed immediately. Large chunks of money come in on January 15th, April 15th, July 15th, and October 15th from estimated taxes. Similar chunks come in from the above withholding on a monthly basis. Each of these chunks need to be dispersed. Large portions of this money are dispersed in Social Security and similar entitlement payments at the start of each month. This means chunks of money are kept out of economic circulation for at least 2 weeks. This has a braking effect on the overall economy.
The braking is even worse if you consider that a large number of tax refunds have to be issued each June after tax returns are filed. What does this tax refund money come from? Assuming that additional treasury bond issues are not a different analysis, the money is being held out of the economy, too. Another brake on the economy.
This problem may be unavoidable. I don't know. I am no CFO.
Suffice it to say, does it not make sense that the system could be helped by reducing the amount of money that is being temporarily taken out of the system?
The unspoken advantage of reducing tax rates is that it puts more money into the economy each pay period. If an employee had a 1% reduction his tax rate on his $100 bi-weekly tax withholding, that means that each month he has $2 immediately going to his pocket. This continues 13 times per year. Now this person can reliably change his behavior. He can reliably predict that he can afford $26 to be spent that he could not afford before to, say, go out to dinner.
Now the restaurant owner has another diner. Of course, if everyone in the neighborhood is getting $26 more in their pocket, the restaurant owner is likely to have many more diners. Is the restaurant owner paying taxes either income or indirectly with greater employee withholding? Can he afford not to put another waiter on his staff to turn the tables faster and thereby increase the restaurant's revenues -- and hopefully profits?
The restaurant owner can now afford to buy a new car. So can many other restaurant owners and even their waiters. Will the government make more taxes from autoworkers' wages and withholding?
The autoworkers can afford more college education for their children. The professors can afford more travel. The pilots can afford more mortgage payment. The realtor can afford a new car. The autoworker can afford not just tuition but a new barbeque. The retailer moves another grill off his shelf.
The system needs these fast movements of money. Electronic banking has the ability keeps this moving faster and faster. Why not make tax policy allow money to move faster?
An example of slow money braking the system can also be seen in business. Many of the litigation cases that I handle for clients are to collect on their accounts receivable. This means the businesses are owed money. Until the money is paid to my clients, my clients must either borrow money (increasing their costs through the cost of interest paid to the bank) or wait for the money from their tardy client. This means that construction companies that want to put crews to work this summer may not be able to afford as many workers on the payroll. Businesses that have fast payment from clients are able to hire new workers faster. This idea of speeding up the circulation of money to increase the multiplier effect is crucial to understanding how business works.
The government cannot change the behavior of the business's clients, but it can make more money move through the system. Less taxes will put more money into play and allow some businesses to pay their accounts receivable faster. And so the benefit of lower taxes continues.
High taxes slow the economy. Literally. Talk to your accountant about what turning inventory means to a store. Soon you too will want the IRS to move money faster. Even better have IRS play a smaller role.
All too often the discussion about whether to raise taxes or lower taxes focuses on how best to stimulate the economy. It becomes a large question of Keynes vs. Laffler. This is highly esoteric. The real answer is buried in De Soto, not the explorer but his modern name sake.
Hernando De Soto suggests that speed of transactions are important to the success of an economy. That is not surprising. Accountants would have told you that a long time ago.
In a store, assuming that all other accounting is well thought out and implemented, the easiest method to determine if the store is profitable is how fast the inventory of the store is completely replaced. If the inventory turns once a year, revenues are x. If the inventory turns three times a year, revenues are 3x. Simple algebra. In economics the number of times a dollar goes through the economy in a given time period is said to have a multiplier effect. Inventory turns like this could be said to have a three times multiplier.
The biggest problem in our economy today, is that so few persons in politics are lawyers and completely devoid of knowledge of economic theory and history. These lawyers learn early to read financial statements by looking at the bottom line. Unfortunately they do not understand how that bottom line number can be achieved.
Simply put, the government needs to stimulate business in ways that cause an increase in the speed of revenue generating transactions.
A little-known, dirty secret is that money paid to the government has a lower multiplier effect. Think about it. An employee has taxes withheld. In the average, small business, this money is held in a separate "tax account." The money may be deducted and saved for the first two-week pay period of the month. When the second pay period comes, the IRS payment deadline comes quickly thereafter. The employer deposits the money for the two pay periods with the IRS by various banking means. The first money is held for two weeks outside the economic system. This money is slowed down and has an impact on the overall mulitplier effect.
Once the money gets to the government, the money does not get dispersed immediately. Large chunks of money come in on January 15th, April 15th, July 15th, and October 15th from estimated taxes. Similar chunks come in from the above withholding on a monthly basis. Each of these chunks need to be dispersed. Large portions of this money are dispersed in Social Security and similar entitlement payments at the start of each month. This means chunks of money are kept out of economic circulation for at least 2 weeks. This has a braking effect on the overall economy.
The braking is even worse if you consider that a large number of tax refunds have to be issued each June after tax returns are filed. What does this tax refund money come from? Assuming that additional treasury bond issues are not a different analysis, the money is being held out of the economy, too. Another brake on the economy.
This problem may be unavoidable. I don't know. I am no CFO.
Suffice it to say, does it not make sense that the system could be helped by reducing the amount of money that is being temporarily taken out of the system?
The unspoken advantage of reducing tax rates is that it puts more money into the economy each pay period. If an employee had a 1% reduction his tax rate on his $100 bi-weekly tax withholding, that means that each month he has $2 immediately going to his pocket. This continues 13 times per year. Now this person can reliably change his behavior. He can reliably predict that he can afford $26 to be spent that he could not afford before to, say, go out to dinner.
Now the restaurant owner has another diner. Of course, if everyone in the neighborhood is getting $26 more in their pocket, the restaurant owner is likely to have many more diners. Is the restaurant owner paying taxes either income or indirectly with greater employee withholding? Can he afford not to put another waiter on his staff to turn the tables faster and thereby increase the restaurant's revenues -- and hopefully profits?
The restaurant owner can now afford to buy a new car. So can many other restaurant owners and even their waiters. Will the government make more taxes from autoworkers' wages and withholding?
The autoworkers can afford more college education for their children. The professors can afford more travel. The pilots can afford more mortgage payment. The realtor can afford a new car. The autoworker can afford not just tuition but a new barbeque. The retailer moves another grill off his shelf.
The system needs these fast movements of money. Electronic banking has the ability keeps this moving faster and faster. Why not make tax policy allow money to move faster?
An example of slow money braking the system can also be seen in business. Many of the litigation cases that I handle for clients are to collect on their accounts receivable. This means the businesses are owed money. Until the money is paid to my clients, my clients must either borrow money (increasing their costs through the cost of interest paid to the bank) or wait for the money from their tardy client. This means that construction companies that want to put crews to work this summer may not be able to afford as many workers on the payroll. Businesses that have fast payment from clients are able to hire new workers faster. This idea of speeding up the circulation of money to increase the multiplier effect is crucial to understanding how business works.
The government cannot change the behavior of the business's clients, but it can make more money move through the system. Less taxes will put more money into play and allow some businesses to pay their accounts receivable faster. And so the benefit of lower taxes continues.
High taxes slow the economy. Literally. Talk to your accountant about what turning inventory means to a store. Soon you too will want the IRS to move money faster. Even better have IRS play a smaller role.
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