Tuesday, April 29, 2014

Thinking Big Because We Have To

Thinking Big Because We Have To

In the United States, we’re having a heated debate about the appropriate roles of the federal and state governments.  While many Americans and even their political leaders agree on the country’s basic problems, they are deadlocked when it comes to solutions because they can’t agree on whether the states or Washington should have primary jurisdiction over the issue.   We even debate whether a rancher should have to compensate the government for grazing his cattle on federal (our) land. In my view, the two biggest issues facing us make the debate over American federalism look trivial.


In Thomas Piketty’s new book, “Capital in the 21st Century”, he lays out the consequences of gross income inequality and the global nature of the problem.  Mr. Piketty proposes a global tax on wealth (rather than income) in order to slow the accumulation of wealth and power by a tiny elite.  Many critics see Mr. Piketty’s solution as impractical and wrong-headed.   In the US, we’ve spent the last decade fostering wealth accumulation by virtually eliminating the estate tax on wealthy people and larding our tax code with loopholes, so it’s no surprise that Mr. Piketty’s proposal has been met with derision.  Mr. Piketty’s specific proposal is actually beside the point.  The key is to understand that gross wealth disparity is a worldwide problem.  If an economist’s view isn’t convincing to you, I suggest you consult Pope Francis, who is making the same argument.

In a tiny example of this phenomena and the inability of any one government to control the accumulation of wealth, Pfizer is proposing a merger with Astra Zeneca.   Why?  Pfizer would like to escape US corporate taxation by renouncing its corporate citizenship.  I’m sure Pfizer’s executives will continue to want the full protection of the US government when it comes to their safety, their ability to conduct business anywhere in the world, and their right to spend unlimited amounts of money influencing our political process.  They just don’t want to pay for it.  America alone can’t arrest this phenomena; it’s going to take a global approach.

When it comes to maintaining adequate levels of capital in big global banks, we once again see the limits of national and state bank regulators.  While bank regulators set tougher global standards in a set of regulations called Basel III, the big banks are racing around the planet to get government regulators to water down those standards.  After Bank of America’s announcement that it has miscalculated its capital levels by about $4 billion, I would prefer if we built in a good margin of safety in the global banking system.  However, it won’t happen if we don’t take a global approach.

Recently the United Nations issued its latest report on global warming.  The report paints a grim picture of the consequences of our failure to act on reducing carbon emissions.  It’s clear from reading the report that meaningful solutions will require a level of global cooperation that heretofore has been impossible.  While the earth slowly heats up, here in North Carolina we can’t even come to an agreement on whether the federal EPA or State DENR should have primary responsibility for regulating the coal ash that is polluting our rivers.  However, our biggest environmental threats will require us to take a global approach.  We’re going to have to do better than issuing press releases on the last day of global warming summits.


I’m not a fan of big government.  I’d love to live in a world in which all our problems could be solved by our city councils and state legislatures.  However, our biggest problems are even bigger than our federal government.  We’ve let wealth accumulate at dangerous levels in a small group of corporations and individuals.  We’ve let carbon dioxide reach dangerous levels.  We’d better start thinking and acting big, instead of small, if we’re going to address these problems.

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