The target are, I suppose, the rich. We could start a discussion on the welfare state, distribution of wealth within and beyond national borders, economic inequality, or some of Ayn Rand philosophy. Could be interesting but I’m going to keep it simple.

Briefly pause on Timo’s statement. Does it actually tell anything? The obvious difficulty which, in my opinion, partly clears the statement of any real meaning is who exactly defines what ability to pay concretely means. I suppose, the correct answer is the government. As a member of society you typically have the duty to comply with whatever progression your government comes up. If you don’t like it you might have the freedom to leave.

I comply, but not without some thoughts. What is my ability to pay? The government’s answer to me is 23.7%. It is, however, entirely obscure to me why that figure should reflect my ability to pay. To some extent, there is actually no lower bound. Whatever percentage I must pay, I cannot invest otherwise. Thus, if I would like to maximize investing otherwise, my ability to pay (taxes) is zero. Sure, I enjoy a whole range of public services and support for the less fortunate is moral imperative which is why, we are told, the lower bound for government taxation can’t be zero. I suppose, this reasoning resonates with most readers, unless you advocate zero government.

What about the upper bound? Not so clear either. My upper bound currently floats around 80-85% which excludes food, apartment rent, minor things like toilet paper and books. Thus, I could retain as little as 20% of my wage and, aside from my wage, tax and bank statements, I would hardly notice the difference.

So, what is my ability to pay? A very fuzzy concept, indeed. Even if we answer the question who is entitled to collect taxes, the ability to pay of a single individual can technically lie anywhere between 0% and 80% or more and could be as high as 100% in an Utopia where the government entirely cares for subsistence. This fuzziness is the reason why in my opinion arguing that taxes should be set according to an individual’s ability to pay is nonsensical.

As per April 27, 2010, the long and short term Issuer Credit Rating for the Hellenic Republic are rated BB+ and B, respectively, by Standard & Poor’s. A more accurate description than ‘Junk’ status is “considered highest speculative grade by market participants” for BB+ and “more vulnerable to adverse business, financial and economic conditions but currently has the capacity to meet financial commitment” for B. While this might not sound like complete ‘Junk’ it doesn’t sound good, especially given that we are talking about sovereign debt rating. But then, one might wonder how valid S&P ratings are in first place.

I have never been to Greece for holidays and I never moved to Greece for work. Therefore, my knowledge about Greek government, its structure and functioning, the Greek economy and the people of the republic is to be considered zero. Further, I have not studied the recent events in depth. As such, I should perhaps not comment at all. That said, I would like to leave a thought. It is actually not specific to the Hellenic Republic.

I consider financial responsibility to be an imperative, for individuals, corporations, sovereigns, or supranational. An entity on the brink of default to me signals first and foremost failure to meet this responsibility. Actually, I consider default the last stage of not meeting financial responsibility. Not being able to zero debt monthly equals to not meeting the responsibility. Though, my view might be a bit too strict the apparently widespread nonchalance w.r.t. financial responsibility, starting at the level of individuals, is distressing.

You might argue that meeting financial responsibility requires different sacrifice by individuals living in different countries. True. A good example is a US student who struggles with tuition fees vs. a Finnish student with no such fees, a few hundred Euro each month pocket money issued by the government plus subsidized housing and lunch. Very different realities, indeed. Though, I still argue, it doesn’t actually matter. No matter how the conditions, it is your personal responsibility to meet financial liabilities, at least in an economy where this is theoretically possible.

From my perspective, going on strike because the seat belts might feel too tight under dire circumstances equals to not having understood that financial responsibility is an imperative. Whatever the reason for the circumstances, I think there is no other way out of debt than fasten the seat belts. Yes, possible misconduct at sovereign or corporation level eventually drips down to the individual level which might be unfair, awful, wrong, mad, inhumane, unethical, amoral, whatever. However one may feel, nothing changes at the basic reality, whether as individual or as individual citizen of a country.

Unless proven wrong, I don’t think bailing out corporations or governments is the right thing to do. It is not the responsibility of Germany or any other country to clean up the mess by pouring billions into a failed entity even if for decades countries have been housing funds of massive tax evasion, a practice that might not have been blocked but is decided and carried out by the tax evader who rests alone responsible for his or her actions. Pointing at Goldman Sachs for having the ultimate tricks to pull white rabbits out of black top hats might not be completely wrong but not complete either as the magician was most likely hired to perform the tricks.

Finally, I don’t think this is a Greek only problem but increasingly so an eurozone concern and from there, you bet, it becomes in a matter of minutes a global issue. (Just consider the DJIA today at the close: -213.04 (-1.90%).)

For the records. Though I had no exorbitant tuition fees, covering costs in Zurich required a yearly income of roughly $25k which implied one or more part-time jobs throughout the years leading to a delayed graduation by a few semesters to make sure I do not fall into debt. Currently, my wage is as low as 10 years ago and it was clear to me from day one that I had to scale back in everything to meet financial obligations. Of course, the real cost to society of my existence likely exceeds total balanced liabilities but one can only balance what is actually measured or measurable. As such, I consider a balance sheet to be positive when all liabilities are met, typically when there is no unpaid check left at the end of the month. With this I don’t want to claim I’m better. I was just lucky to have had an upbringing where financial responsibility and savings were almost sacred.

I’m sure Mr. Schäuble is a reasonable man and I respect his opinion. Cross-border tax cheats as well as banks that resort to illegal practices are a problem that likely contributes to the financial destabilization of countries [1] and is probably pronounced in our ever more global world and in times of recession. However, I’m not sure if stating that “we will disestablish the bank secrecy in Europe” (Wolfgang Schäuble, interview with NZZ) is the most sensible approach.

What Mr. Schäuble does not appreciate is the core idea of the Swiss bank client confidentiality, namely, the freedom of financial privacy. Disestablishing the “bank secrecy” equals to giving up individual freedom and move power into the hands of a few, the likes of Mr. Schäuble or government at large, a dynamic that is inherently problematic. Homo sapiens with power has yet to evolve into knowing and wise.

Freedom never comes for free. With respect to bank client confidentiality, Swiss law sets decisional power into the hands of each individual. You, as holder of a Swiss bank account, are free and responsible to do the right thing, a privilege that comes with a price tag, i.e. to file a tax return faithfully knowing you could do differently. In the interview with NZZ, Mr. Schäuble argues that “he wants to assure the people of Germany that nobody can withdraw from tax liability.” I quote,

Er [Herr Schäuble] wolle vor allem den Menschen in Deutschland das Gefühl geben, dass sich niemand seiner Steuerpflicht entziehen könne. (NZZ)

Do we really trust an anonymous, transient, non-transparent, government made of people more than our neighbor or, for that matter, a random person, that it will not abuse of power? To me, Mr. Schäuble’s parental-like authority sounds more like the irate voice of a teacher who feels the urge to castigate students because (s)he has lost the attention of a few. My voice goes more along Pink Floyd’s lines “We don’t need no education//We don’t need no thought control,” Mr. Schäuble.

On the contrary, I wonder what speaks against introducing bank client confidentiality everywhere.

[1] Werner Vontobel und Viktor Parma. Schurkenstaat Schweiz?: Wie sich der größte Bankenstaat der Welt korrumpiert und andere Länder destabilisiert. C. Bertelsmann Verlag, Januar 2009, ISBN: 978-3-570-01083-9

I’m subscribed to the Avaaz mailing list and within a few days I got at least two emails on the recent U.N. Climate Change Conference in Copenhagen. I would like to discuss two statements that are part of the email I got a few hours ago. According to Avaaz,

Leaders disappointed the entire world in Copenhagen last weekend. (Emphasis added.)

Avaaz mentions the “polluting industry lobbyists,” to be the only not disappointed. I’m fairly confident, the statement is not correct. Without searching too far, personally I didn’t expect anything more so I’m not disappointed. The statement I have most difficulties with, however, is the following,

Let’s show the polluter lobby that we can’t be silenced, and show politicians that the future belongs to people, not polluters.

That the polluting industry out there wants to stick to the status quo is obvious. Provided an oil company is an example for such a polluting industry, it is rather naive to think its managers will change anything that might, in their opinion, negatively affect what the industry does: to extract, process and sell oil. This is about optimizing rational self-interest and not everything about this moral is bad. (My caveat is on rational and the, I think, necessary condition of cost internalization — which I would love to discuss and understand better.)

What troubles me most about the statement above is this dualism of polluter industry and the people, where the latter seems to be separate from the former. Now, I think, this is beyond ridiculous. Not just is life probably inherently associated with polluting habits and some scientists “estimate the extra emissions of fossil carbon dioxide that an average individual causes when he or she chooses to have children” [1], the quoted Avaaz statement contradicts basic economics. I’m far away from understanding the field but I believe I might get this one straight based on what I recall from my economics university classes: It’s all about supply and demand. So, what an industry does is to try to match demand with supply. There is no industry where there is no demand. Who is fueling the demand for the supply those polluting industries provide? You may guess it: We, the people.

I’m not saying, there is no room for improvement, being cost externalization probably my main concern, but suggesting that there is no link between the polluting industry and the people is, I think, nonsense.

You might, perhaps correctly, argue that I did pick a single statement and had a knee jerk reaction about it. Maybe. However, the entire email, and increasingly so the Avaaz Copenhagen mission, has this dualistic aftertaste that is, I think, disconcerting.

Hyvää Joulua.

[1] Paul A. Murtaugh and Michael G. Schlax. Reproduction and the carbon legacies of individuals. Global Environmental Change. Volume 19, Issue 1, February 2009, Pages 14-20.

In a nutshell. The natural gas — a by-product of crude oil extraction — is burnt off to mimic the Old Faithful Geyser. The gas could be stored, distributed (e.g. to a needy local market) and be profitable but Shell’s answer is: Not profitable. The local market would require an investment (e.g. infrastructure, security) which Shell argues is an assignment for the government. The government blames Shell saying it ought to act responsibly.

I’m sure, Shell did the maths and the decision is certainly rational w.r.t their best interest. Unethical? Perhaps. Should Shell act more responsibly? Probably. So, why don’t they care? I’m sure they do care; they just care for some dimensions a lot more than probably you and me do. For obvious reasons.

Provided there is an association between the flaring and social, human health and/or environmental damage what we have here are billions of external costs no one is accounting for. Let’s assume there is an association between the flaring and higher rates of cancer, children with asthma, infertility, noise and environmental damage. Would it still be rational, in their best interest, to burn the natural gas if Shell would have to account for the cost of the damage associated with the practice? Unlikely. Would it decide to invest now in storage and distribution of the natural gas? You bet.

Come on, you creative minds out there: How can we fully internalize social, health and environmental costs in every human action?

A search for 350 on Twitter does show some activity but right now it doesn’t look like it is a trending topic. (Halloween and — ouch! — Windows 7 seem to be more trendy.) Though, this might well change over the next few hours as twitterers west of the Atlantic wake up.

I think, to me this event falls into the “make [...] history”-category of global events, e.g. Live Aid. Nice pictures, nice music, nice party, nice people, nice drinks, nice quotes but I wonder if there is anything beyond that.

Distressing, I believe, is the hope many have for global negotiations, the belief a bunch of people sitting around a table will do “the right thing.” This urge to march on the streets (or bring a 350 t-shirt up to the highest peaks) to let those “in power” know they need to take action and tell us what actions to take, troubles me, unless the purpose is to have fun. The “debate is over” but we fail to take individual action? A brief example, although simplistic; Where I currently life, I constantly have to switch off the lights in shared rooms.

I think, if we individually make independent, informed and rational decisions we will most likely head in a better direction than whatever direction is drafted by “global” negotiations. The question is, of course, how can we support independent, informed and rational individual decisions? What rational is, should not (and cannot) be decided and dictated by a few sitting at the table of global negotiations but, instead, should emerge from global knowledge. I would like my action to be rational also w.r.t people who are required to walk 20 miles a day to collect water.

It took me a few seconds to realize it. Where did I, we all, recently, get to constantly hear this word? The answer is obvious. Should it be that obvious?

Hope has a t-shirt, a poster, a font, a sticker, an artist. It echoes in Washington DC as a key word of an ingenious marketing strategy for a presidential campaign. Think about it for a second: Hope abused for … politics! I’m trying to convince myself this is hilarious though I’m afraid it might more likely be deeply troubling.

Somehow it feels like hope has been stolen, imprisoned behind iron bars in the cellar of a white house built by black slaves; the echo, its cry of fear to be on death row. No, it won’t die. It never will. Right now I’m just wondering whether its liberty will one day mark the free fall decline of its kidnapper.

Hope, defrauded, devalued?

On a side note, U.S. tells Poland it could host new interceptors. Update: There it goes the hope for hope’s artist.

(Yes, I’m increasingly skeptical.)

On one occasion, three leaders stand on a podium, with serious faces, wearing each an anthracite-black suit, tie and almost certainly well polished black shoes — hopefully without white socks. They accuse Iran of building a secret underground plant to manufacture nuclear fuel (a site the three leaders knew for years and Ahmadinejad calls completely legal; so, please explain, secret? legal? I’m confused). The accusation sounds somewhat similar to Iraq’s WMD just that instead of having only one leader we now have three+. Apparently, the new coalition already got its echo. On a side note. The three egregious men are leaders of three governments all of which have nuclear warheads, in sum roughly 10,000 of which 3,000 are active, and one of them is leader of the only government that has ever used one to kill humans.

Next. The Group of 7 elite club seems to have been permanently replaced by the much broader Group of 20, who together represent about 85 percent of the world economy. The following thought is for those of you wary of the “too big to let fail corporation crowd.” I believe, we recently had it: You know, those super-sized limited liability legal entities that expand their branches all over the world, tax-evading-power-concentrating machines plotting for the single aim of satisfying shareholders with ever growing profits. I was recently reminded that the powerful leave their moral coat at home when they wear their corporate CEO suit & tie — you all would look truly elegant if only Gottfried Keller wouldn’t have been right. Who will bail-out our powerful leaders?

You know what, I wouldn’t be surprised for a second if the President of Finland, Tarja Halonen, would come up with far superior solutions for any Group of 20 issue. What a shame she is not invited to speak. Almost certainly, an arbitrary Buddhist monk would show up with far superior solutions. Too bad, they don’t wear a suit & tie and well polished black shoes, not even white socks. I’m afraid our powerful leaders may have difficulties with pointing Helsinki on a map and the enlightened mindset would only be labeled as way out of touch with reality — you know, the monk’s speech just isn’t in harmony with the politics of fear.

According to some, Obama was apparently not specific enough, nice talk with no substance. You might argue, rightly so, the 100 heads will work on the specifics in December at the UN Climate Change Conference in Copenhagen. Perhaps.

I wonder, if anyone can explain me why I should believe those 100 heads will accomplish anything. I just don’t get it, likely because I’m not nearly as smart as the least smart of the 100 heads.

I believe, most of us hope and wait way too much and way too long for them to decide, to take action, to do something and tell us what to do. We spend so much time discussing with friends, lovers and families the products of those 100 heads. Whatever they come up is printed in the media, analysed and perpetuated in all world languages. We have been told that we can vote them to power and later we are continuously reminded that we can spam them with emails, phone calls, letters to let them know our opinions.

In all this, I wonder if we forget that the real power to do the right thing — whether or not you believe in climate change — lies not within those 100 heads but among us all.

Assume a new product that is expected to hit the market within weeks and contains a chemical compound for which long term health and environmental effects are unknown. The seller does some research to figure out a price — which, of course, reflects her own self-interest — and consumers express their opinions by voting with their wallets. Over time, the market will settle for the right price or the product will disappear. Sounds straightforward, at least on paper.

I think, there is at least one problem: The lack of information about the health and environmental effects of the new chemical compound. Being the effects unknown, I believe, the price the market will settle on is likely to be wrong. Thus, if we care about getting it right, I think, we must see this as a market failure.

Now, if it turns out that the new chemical compound has no negative health or environmental effects, we might argue that the price was right — at least w.r.t. those two dimensions. If, however, if turns out that the introduction of the chemical compound does indeed negatively affect, e.g., the environment, then, I argue, the price was not right.

History is plentiful with examples. A past example: The introduction of CFC in refrigerators. How much would a CFC refrigerator have cost if the price had accounted for the environmental damage (Ozone depletion)? A present example: Cigarettes. How much would a cigarette cost if we internalize the costs of its adverse health effects? A future example: What would the price of a cell phone today be if tomorrow they are banned from public places because of better knowledge on (possible) adverse health effects of wireless communication technology?

On a side note, I believe health and environmental effects are not the only critical dimensions.