Sinister Marginalia

Notes around the edges, with a lefty spin

The Holes That Can’t Be Closed

August 3, 2017 No Comments

Or, the Sad Impossibilities of Regulating Intent

As stated, I try to live by compassion and empathy. But human nature is hard to change, I was raised with a rather cruel sense of humor, and sometimes it’s fun to watch bad things happen to people. One of the greatest sources of schadenfreude for me over the past couple of years has been watching crypto-currency Libertarian zealots discover why each and every part of the regulatory apparatus they so loathe exists.

There is a very sadly misunderstood constant of human behavior – rules exist for a reason. Usually, that reason is that someone already did it.

Take, for example, the rules for Pennsic War, an annual camping event for approximately 12,000 people1*I use this example because, in this case, I actually know the stories behind at least a couple of those rules. The rules are, this year, 8 printed pages long, and often painfully detailed – for good reasons. This document is the result of 40+ years of meetings where people collectively nursing enormous headaches have repeatedly asked the question “What do we need to make sure doesn’t happen again?”

In law and the public sphere, this generally holds true, as well – regulations and laws are crafted in response to events, trying to constrain or otherwise deal with some form of inappropriate behavior. After the Great Depression began, controls on finance and investing were put into place. After Sept. 11, reinforced airplane cabin doors have made traditional hijackings obsolete. Building codes get amended based on flaws, or advances in technology. And so on.

Unfortunately, however, there are certain things that cannot simply be made to conform to words on a page, and mindsets are one of them.

For example, in the Federalist Papers, Alexander Hamilton wrote “The process of election affords a moral certainty, that the office of President will never fall to the lot of any man who is not in an eminent degree endowed with the requisite qualifications.” I’d say that the intervening history has proven that idea to be almost blissfully optimistic.

Trump is, obviously, a highly visible example of this flaw – which I call “a violation of the assumption of goodwill”. The underlying assumption, or principle, is that a person seeking a position of responsibility implicitly has the well-being of the organization in mind. This applies in business, government, nonprofits and volunteer groups… and there are big examples of these violations in a number of areas lately.

In addition to Trump not understanding the rights and responsibilities of the Presidency, in addition to its powers and perks, he also seems to have massive contempt for any part of the federal government that doesn’t suit his whims. While earlier Republican presidents may have been unhappy with the EPA, Trump’s choice of administrator, Scott Pruitt, has made a career out of hostility to the very existence of the agency! Betsy Devos, at the Department of Education, would be very happy2*Probably the fulfillment of a life-long dream to see the vast mechanism of public education in the US largely dismantled, and leave private education completely unregulated, free to discriminate and preach hateful ideologies.  The list goes on… In addition to the horrible appointments, Trump seems to have zero regard for traditions or norms he doesn’t like, such as hosting an Eid al-Fatr dinner at the White House, or refraining from publicly threatening Senators whose votes he doesn’t like. If we make it to November, I wouldn’t be surprised if Trump refuses to pardon any turkeys “Because what have they done for me lately, eh!?”

But sadly, that’s not where these examples stop. Take Eddie Lampert.3*Please! Eddie is an Objectivist. Eddie grew up at least solidly middle-class, and upon graduation from Yale got a job at Goldman Sachs. After a few years there, he started his own hedge fund, and made A Lot Of Money. However, to Objectivists, there’s no such thing as too much money, so he bought out KMart when it went bankrupt. He then used KMart to take over Sears, and in 2013 appointed himself as CEO. He then began running the company along Objectivist principles. For example, all business units received two annual budgets – one in US dollars, for external spending, and one in an internal-only currency for payments to overhead units like IT and Human Resources. In turn, IT and HR had to bill their “internal client” departments for their services, and show profits on internal P/L statements.

It went further. BUs were now explicitly told, and incentivized, to stop cooperating with each other internally and instead compete for resources like store floor space, ad circular space, and employees. They turned cutthroat, and stopped supporting each other in any meaningful way. Meetings would turn to screaming matches, and any pretense of corporate values that weren’t based in purely financial results went out the window.

The result? Sears’ stock has lost over 80% of its value since Eddie took over.

But wait, folks, there’s more!

As noted, Eddie is an Objectivist – which means putting his own interests first, always, no matter what. To paraphrase another serious asshole, never let a crisis go to waste, eh? As Sears’ finances have gone more or less directly to shit, Eddie has found ways to continue to benefit. In addition to a multi-million-dollar salary4*To be fair, exclusively in stock, not cash, but that is also likely by design, Sears has become so toxic that there’s only one lender who will continue to provide them with cash – Eddie’s hedge fund. So with each loan to Sears, each promissory note gives him tighter control over the real assets of the company when the inevitable bankruptcy comes.

When Sears finally comes apart at the seams, tens of thousands of people will lose their jobs, but Eddie will have ironclad ownership over all of Sears’ stores, distribution centers, and other real estate. Hundreds of millions of dollars will have been, effectively, taken from the corporation and put directly into Eddie’s pockets. All completely legally, since bad business decisions are not, technically, illegal.5*Although one of the cases that hinges on that principle has a longer, wordier statement of my general idea here – “directors of a corporation… are clothed with [the] presumption, which the law accords to them, of being [motivated] in their conduct by a bona fide regard for the interests of the corporation whose affairs the stockholders have committed to their charge”.

And for the record… I do not wish to give the impression I feel that Eddie has deliberately engineered the destruction of Sears – just that he has continued to find a way to make profit of the situation, in accordance with his sincerely held ethical principles. Perhaps it’s a distinction without a difference, but I do believe that intent matters. Still, it can be… dispiriting to think about problems like this, since they don’t have easy solutions – mostly, we have to make better collective decisions in the future. I’m going to hope, but not expect much.

Clever Asides   [ + ]

1. I use this example because, in this case, I actually know the stories behind at least a couple of those rules
2. Probably the fulfillment of a life-long dream
3. Please!
4. To be fair, exclusively in stock, not cash, but that is also likely by design
5. Although one of the cases that hinges on that principle has a longer, wordier statement of my general idea here – “directors of a corporation… are clothed with [the] presumption, which the law accords to them, of being [motivated] in their conduct by a bona fide regard for the interests of the corporation whose affairs the stockholders have committed to their charge”
  • Published On : 2 years ago on August 3, 2017
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  • Last Updated : August 3, 2017 @ 4:41 pm
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