WikiLeaks, Or: A Slightly Premature Entry for Lawsuit of the Week

The WikiLeaks story is not quite ready for Lawsuit of the Week status...yet. But the website which has caught the eye of the nation, and indeed the world, has also undoubtedly caught the eye of the Justice Department, putting it in a precarious position and leading many to think that legal action could be on the way. Much of the conversation around whether or not the Government will prosecute the company, or more specifically founder Julian Assange, stems on whether it is practising First Amendment rights akin to a newspaper, or if it is rather engaging in espionage which is putting the lives of US citizens in danger.

Attorney General Eric Holder acknowledged himself that the answer may not be so clear when he recently noted that there may be some loopholes in the laws of the US that would need to be closed before any potential prosecution were to occur. However, it is clear that, loopholes or no, the US government is not going to let the embarrasment it has faced at the hands of the site go entirely unpunished. Indeed, based on the complexity of the operation, it is possible that today's cyber-attack on the site is just the first step. For anyone who would easily brush aside such conspiratorial notions however, The Washington Post provides details on more traditional threats to the site and its founder here.

WikiLeaks: A Fascinating View into Modern History

Is WikiLeaks a threat to democracy, or is the disclosure it provides the best chance for democracy to survive? Is founder Julian Assange as detestable as some reports suggest he is, or is there really a global plot to defame and discredit him? Should contributors be hailed as patriots, or be hung as traitors?

The answers to these, and other questions, may be too complex to be answered with simple legal or economic analysis. As much as models and rules help to explain the world, some things are too morally and socially complex to have simple answers.

However, despite debate over the appropriateness of posting some of the most secret communications of governments, once the information is public, it does undeniably provide some amazing materials for the historians, news junkies and just plain curious among us. The New York Times outlines some of the juiciest details of the latest round of leaks, which can rightfully claim to rival the plots of any bestselling spy novel or political thriller, here.

November IEA Oil Market Report

Here is the latest from IEA on the state of the oil market. Foremost among nuggets from the latest report is the surprising increase in prices during the reporting month, as benchmark crude prices rose from monthly lows of around $75 per barrel to nearly reach the $90 level once again. The IEA also revised its annual global demand forecast upward on a stronger than expected third quarter.

Der Solar-REIT: Ein Ausblick auf die Zukunft der deutschen Solar-Entwicklung

Here at Blawgconomics we have for some time been strong proponents of the idea that the real estate investment trust (REIT) regime in the United States could be Utilized, with a few minor adjustments, to stimulate the development of solar infrastructure in the country. More recently, we tried to apply some of the same principles to Germany.

Though we did so with no small amount of trepidation considering our lack of expertise on German company and tax laws, there are many reasons to think that the principles that could make the REIT solar a reality in the U.S. would apply to Germany as well. Indeed, though the G-REIT sector is in nascent stages, it was developed as a mirror to its U.S. counterpart. In addition, Germany has a well established renewables movement. These factors both attest to a desire to develop a robust REIT sector and a desire for a cleaner, less dependent energy sector; Essentially the perfect petri dish for a Solar REIT regime to develop.

However, as we are often aware when we try to comment on situations in foreign lands, there are political, social, economic, and legal realities on the ground that are impossible to grasp from the outside. That said, both the original posting as well as this translation by friend of the site and native speaker Christian Schilling represent to attempt to, at the very least, stimulate discussion and plant the seeds of ideas in the minds of readers. Ultimately the hope is that, by putting this idea in the public, that some of these realities can be addressed by those with specialized knowledge. Or, as Mr. Schilling notes:

,,Viele der im Folgenden beschriebenen Ideen haben eher visionären Charakter und mögen mit dem derzeit geltenden Recht im Hinblick auf Details nicht vollkommen übereinstimmen. Es ist hier Sache des Gesetzgebers, Freiraum zu schaffen für flexible und attraktive Strukturen, die das Postulat nach der ,,Energiewende" Wirklichkeit werden lassen."

All disclaimers aside, anything is possible with the right political will and support. Therefore, any imperfections in the vision outlined below should be viewed as a starting point for dicussion and not necessarily legal advice or commentary. Without further ado, what follows is a translation of our original piece on The Possibility of a German solar REIT. For those interested in the original concepts behind the idea, a full paper can be viewed here. Additional links and pictures can be found in the original article, comments and thoughts are both welcome and appreciated:

Regelmäßige Leser kennen vielleicht bereits unseren Vorschlag, Betreibern von Solaranlagen die Möglichkeit nahezulegen, von der steuerlichen Struktur der Real Estate Investment Trusts (REITs) zu profitieren, um die Entwicklung in den USA anzuheizen (eine ungekürzte Fassung findet sich hier).

Es ist beispielsweise nicht immer ausgemacht, ob Behörden Steuernachlässe gewähren oder gesetzliche Lenkungsmaßnahmen und Anreize in Zukunft fortbestehen werden. Dies trägt zu den Risiken potentieller Investoren bei. Darüber hinaus hat man herausgefunden, dass in Zeiten der Wirtschaftskrise Investoren ihre Aktivitäten auf dem Solarsektor merklich zurückfahren und zwar insbesondere in den USA. In diesem Lichte besehen stellt unser Vorschlag einen Versuch dar, die marktimmanenten Anreize für Investoren für die Entwicklung, Errichtung und den Betrieb von Solaranlagen zu erhöhen, indem wir ihnen einfach die Möglichkeit an die Hand geben, dieselben steuerlichen Strukturen wie gewerbliche Investoren im Immobiliensektor zu nutzen. Obwohl es zur Zeit noch unklar ist, ob eine solche Konstruktion nach dem US-Steuerrecht zulässig wäre, würde eine Klarstellung seitens der Internal Revenue Service (IRS) – die Bundessteuerbehörde der Vereinigten Staaten – hier jeden Zweifel beseitigen.

The Week Ahead

As earnings season winds down international issues look set to be the focus of traders this week as fallout over Irish bailout rumors and a lack of action out of the G20 are on the top of the agenda Monday morning. The Fed's QE2 plan is also on the minds of investors (and central bank governors) as the last full week of trading before the holiday season begins.  Reuters has further details here.

Op Ed: Foreign Leaders are Right to Complain

Blawgconomics considers itself to be a bit more internationalist than many Americans. We seek out and try to discuss views from around the world, keep abreast of political and economic developments abroad, and often get our news from places that do not include Washington or New York City. Despite this, we are under no illusion that most of the time, when heads of state speak out against American policies, they are motivated by everything from national interest to self-interest to politics to plain old posturing. Oftentimes, this means that foreign prime ministers or presidents decry the policies of US not because they are bad policies, but simply because they are contrary to their own interests. In other words, everything every world leader says about the US, or any other nation for that matter, should be viewed with a grain or two of salt.

However, sometimes the world is right when it complains about US policies. In retrospect, one example was the US invasion of Iraq. There, a lot of nationalist pride mixed with incorrect information and data led many, including your author (and just about all of Congress) to brush aside the opinions and criticisms of sceptical world leaders as if there were merely a language barrier that didn't allow them to see our impeccable and inscrutible logic. A more recent example, one that tellingly sees many Americans agreeing with foreign leaders, is the current economic policy of the US.

Why Isn't Mexico Rich?

Why isn't Mexico rich? That is both the title and the main question of a recently released and very readable literature review (tip of the hat to Steven Dubner at Freakonomics). The background premise which makes the question interesting is that Mexico has made just about all of the long-term, textbook moves necessary to stimulate growth but has still managed to drag behind peers. Professor and paper author Gordon H Hanson  explores pure economic factors for this, such as credit markets and business structures in the country, but also other factors, including the political footballs of the drug trade, education and emigration. From the abstract:

Over the last three decades, Mexico has aggressively reformed its economy, opening to foreign trade and investment, achieving fiscal discipline, and privatizing state owned enterprises. Despite these efforts, the country’s economic growth has been lackluster, trailing that of many other developing nations. In this paper, I review arguments for why Mexico hasn’t sustained higher rates of economic growth. The most prominent suggest that some combination of poorly functioning credit markets, distortions in the supply of non-traded inputs, and perverse incentives for informality creates a drag on productivity growth. These are factors internal to Mexico. One possible external factor is that the country has the bad luck of exporting goods that China sells, rather than goods that China buys. I assess evidence from recent literature on these arguments and suggest directions for future research.

Bloomberg's Game Changers

There are some people who, usually due to varying parts drive, timing, luck and intelligence, have the ability to impact the smaller, or less-known, or more insulated worlds they operate in to such an extent that they have an impact on the world at large, often becoming part of the social consciousness and even pop-culture in the process. Bloomberg calls such visionaries 'game changers' and has recently started highlighting some of the individuals (Henry Kravis, Jon Stewart, Steve Jobs) and teams (Brin and Page) that fall into this category in its aptly named Game Changers series. We recently reviewed the Kravis episode and can highly recommend it for all budding entrepreneurs and would-be buy-out kings. And though it is not available yet, a look at the lead-in to each installment would suggest that a Jay-Z episode is forthcoming, which should likewise be good for all budding entrepreneurs and would-be rap stars. A list of all available episodes can be found here.

Apparently more in common than we were led to believe...

The List: America's Richest and Poorest Counties

From time to time a news outlet or publication will come up with a list of the wealthiest US cities, states or counties. Such lists can be misleading for many reasons. First, there are obviously very different areas in states or counties, and within cities wealth disparities even between neighborhoods on either side of a street or avenue can be very significant. Additionally, most of these lists do not actually count wealth, but income, two very different things. This is, of course necessary because the best data points for such things are tax filings and Census information. However, pure income does miss some very important components of wealth, including investments and property. Finally, these lists do not factor in the critical cost of living disparities between different parts of the country. For example, while someone in a city might make over $100,000 a year, they are also paying more for everything from apples to apartments.

On the other end of the spectrum are the poorest areas in the Union. Some of the same problems that plague the rich lists can also create problems for poor lists. Not everyone in even the poorest counties is 'poor' and wide gaps can exist between citizens of any area. Additionally, as many of the counties on the poor list are rural, it is possible that the wealth of many citizens of such counties is tied up in property, whether it be a farm or the actual land they live on. Presumably the cost of living in such areas is lower as well. Because of these factors it is therefore difficult to know whether 'income' is a true reflection of, for example, standard of living in both the 'rich' and the 'poor' areas.

The Solar REIT: A Vision for the Future of German Solar Development

Frequent visitors to the site may be familiar with our proposal to allow solar developers to take advantage of the real estate investment trust (REIT) tax structure to stimulate development in the US (an unabridged copy can be found here). It is our belief that providing the tax benefits of the REIT regime and the broader investor base that would come with it would help to conquer certain existing up-front hurdles and allow the solar sector to grow even in a world of rapidly changing political and economic realities.

For example, it is not always clear that government created rebates and incentive schemes will be available indefinitely, adding certain risk factors to the calculations of potential investors. Additionally, it has been noted that during economic downturns, and particularly in the US, investor appetite for funding solar development declines substantially. In light of such factors, our proposal was an attempt to facilitate market-based incentives for solar development simply by affording solar developers the opportunity to use the same tax structures as commercial real estate developers. Though it is unclear whether this is currently possible under US tax law, clarification from the Internal Revenue Service (IRS) would help overcome any doubt.

As part of that proposal, we suggested that developers in other countries might eventually take advantage of such schemes as well, and since the initial posting we even posted a small blurb about the potential for a solar real estate investment trust (S-REIT) regime in Italy (albeit with little to no analysis on how such a change would be facilitated). Today our attention shifts slightly north of the Italian peninsula to Germany, another very logical candidate for S-REIT adoption. Germany currently has a comparatively robust renewables sector, greatly aided by current government regulatory schemes, most notably feed-in tariffs. However, feed-in tariffs are not permanent, and may outlive their useful lives. In this light, and based on the desire of Germany to continue to increase its percentage of energy mix from renewables, developing a more permanent means for facilitating solar development might be an attractive solution.

How To Balance a Budget

It has previously been noted on this page that American politicians are likely mistaken if they feel that they can spend their way out of economic malaise. Despite the belief of some pundits that spending is the only way to save the US economy, there are undoubtedly negative impacts of Keynesian policies, both in the short and long term, that cannot be ignored. Despite possibly saving jobs, an undoubtedly worthy endeavor, increased spending and its partner loose monetary policy damage the currency, increase debts to foreign powers, increase inflation, and potentially lead to the bubbles of the future. American voters seem to agree that this is not the right course as the stimulus packages and big government were at least two of the most oft cited qualms of the people who gave control of the House of Representatives to Republicans.

Whether the right takes this mini-mandate and attempts to reduce the deficit, or if it instead continues along the money printing path that frankly began with its supposedly fiscal conversative predecessors during the Bush years remains to be seen. However, if austerity is to take hold in the US, there are clearly difficult decisions ahead. Where to cut from, how much to reduce, who is impacted, what will the result on unemployment be? These are all difficult questions, both politically and socially, with few easy answers. In other words, the Republicans might end up realizing that they should have been careful what they wished for. However, even the most ardent defender of social programs will realize that there is a lot of spending in the US budget that is unnecessary and wasteful in the best of times, nevermind when the economy sits on the brink.

I wonder if you can see Russia from here...

The Week Ahead

Unlike last week, when mid-term elections, jobs data and the big Fed announcement were all clear signposts for traders, this week is expected to be light on news items and economic data. Therefore, momentum might be the term of the week as traders weary of missing out on a bull run continue take cash off the sidelines and push equities higher. As noted by Chuck Mikolajczak of Reuters,  'It is difficult to see the market fighting Fed-led stimulus, strong corporate results and labor force improvements.'

All dancing and merriment aside, it would be anticipated that some of the companies signing sales contracts in India might see a positive boost this week as well. However, some analysts are warning that the market could be a bit overbought after the recent run. Additionally, things typically slow down more the closer we get to the holiday season. Therefore with little data to look for this week, and technical factors coming into play, traders would do well to mind their charts even as they remain positive.

Economics for Lawyers (aka Dummies): QE2

Frequent readers might be familiar with a recurring series on the site, Economics for Lawyers. These posts are an ongoing attempt to take make some of the economic concepts and theories that underpin many of the posts on the site more understandable and accessible to some of Blawgconomics' most frequent visitors; individuals in the legal community.

Lawyers are not, of course dummies, at least not all of the time. However from observations in Corporate Law classes to discussions of Judge Posner's decisions to arguments on the roots of the financial crisis, it is fairly clear that the concepts of the economic world are no more comfortable to discuss for some lawyers than explaining the enigma of the Sphinxian silence of Justice Thomas would be for most economists. Therefore, as noted, the mission of these posts, and indeed perhaps the site as a whole, is to bridge the gap between these two fascinating worlds which can individually, and in combination, can go so far toward explaining so many of the intricacies of modern society.

To this point, we have focused on some of the simplest of concepts that one might find in an introductory micro- or macroeconomics text, some of the most well-known and widely discussed topics in the economics literature. Topics such as supply and demand and deflation were both useful and, in the case of the latter, continue to be timely. M3 money supply veered ever so slightly from the list of topics that most first or second year economics students might be familiar with, but the concept of money supply and why different measurements are important is nonetheless firmly rooted in the orthodoxy of economic theory.

Lawsuit of the Week

This week the eyes of the legal world (and the music-enjoying public) have been glued to a case about a woman who the Recording Industry Association of America (RIAA) sued for illegally sharing music online, a violation of copyright law. After a long and winding road (considering the subject matter of the posting, maybe a nod to The Beatles would be appropriate here?) which has included settlement offers and two previous jury decisions, a third jury decided that Jammie Thomas-Rasset owed the RIAA $62,500...per song. As it was found that Ms. Thomas-Rasset willfully violated copyright laws on 24 songs, that totals a hefty $1.5 million penalty. Ms. Thomas-Rasset claims she cannot pay any amount and her lawyer has vowed to appeal on constitutional grounds. The Associated Press provides more details here.

Understanding the Latterday Teutonic Titan

Germany is a fascinating place, full of promise, full of contradiction. At the heart, both geographically and economically, of the sometimes tenuous and often contentious EU experiment, it at times both responsibly recognizes its difficult history and emphatically attempts to draw bright lines under the episodes of the past. However, challenges of the past are not the only ones facing the nation. In its own way, its lineup of current political pressure points could easily be mistaken for those of the US. For example, topics such as immigration, financial bailouts (albeit for EU neighbors) and employment issues are all as likely to be found in the headlines of leading German dailies as they are to abut the title sections of The New York Times or The Washington Post. For more on this economic powerhouse, The Economist provides a guide.

The List: The World's Most Powerful People

Forbes has released its annual list of The World's Most Powerful People. It is not entirely clear whether it was intended to provoke thought or serve as a true reflection of the magazine's views (or perhaps serve both purposes), but American President Barack Obama was supplanted at the top of the list by Chinese president Hu Jintao. Forbes cites the potential for increased obstruction of the president's agenda after a tough mid-term election cycle as the main reason for the slip-up. Interestingly, being number two on the power list doesn't even gain Obama bragging rights in his own home; First Lady Michelle Obama was listed as The World's Most Powerful Woman by the same publication about a month ago...

Demystifying the Double Irish

Over the past few weeks the media has been buzzing over a few exotic tax schemes with even more exotic names, the Double Irish and the Dutch Sandwich. Though such strategies have been utilized since the late 90's when a liberalization of tax laws in Ireland facilitated the ability to put them in place, the special attention given to them recently is a result of an article Bloomberg published in which the author threw around some truly eyecatching numbers.

For example, Google, which was used as the centerpiece of the article, has annual global tax savings in the billions of dollars and an effective foreign tax rate of under 3%. To put this in context, one analyst quoted in the Bloomberg piece estimated that keeping its tax rate so low has added as much as $100 to Google's approximate $625 share price. In other words, if true, this would mean that tax strategies alone are responsible for at least 16% of the tech giant's market value.

So, how exactly is Google able to concurrently avoid the IRS and delight shareholders? The actual details are quite complicated and explaining the parts of the tax code that the structure rely on would be neither easy to write nor rewarding to read. However behind the creative names and the seemingly labyrinthian corporate structures are some fairly easy to grasp concepts. Essentially an American company with some form of intellectual property rights (usually tech or pharma based) licenses an offshore entity to co-produce the product. That company is registered in Ireland, but typically located in a slightly sunnier locale. That company then licenses yet another subsidiary, which is both registered and located on the Emerald Isle, to sell the product in overseas markets.

A Closer Look at The Fed

Though many Americans might have a general understanding of the Federal Reserve Board and its dual mandates to keep inflation low and employment high, it is probably also true that many people are less familiar with the broader Federal Reserve Bank system and how it operates. As a government entity, there is actually quite a bit of information available if one wishes to gain more insight into just how the American Banking system actually works. For a quick primer, this three-pager gives a good basic overview. Meanwhile, those who have run out of warm milk or have not been able to master sheep counting might want to tackle the Bank's slightly more detailed annual report.

The William McChesney Martin Building, home of The Fed

Free Tickets = Higher Revenues?

Would cutting ticket prices and making them free allow small market baseball teams to become more profitable? Though teams are allowed to take their gate revenues without any sort of profit-sharing scheme (one of the main reasons new stadiums with more expensive luxury boxes are always under various stages of consideration and construction around the US), an executive from of all places the drag racing world believes that the increase in parking, souveniers, concessions, and advertising revenue from a fuller stadium would more than balance out lost revenues from ticket sales, at least in those cities with low average attendance. Most interestingly, he knows this from experience. More details can be found on SportsBiz.

When 'Ifs' Turn to 'Buts'...The Complicated Moral Question of Microfinance

Back in July I had a bit of a moral exercise with myself, wondering whether profiting from the poor was immoral and/or if it even mattered. Of course the answer to the latter was and remains yes. On the former, perhaps even asking the question itself showed the chinks in the moral armor I ultimately clothed such practices as microfinance in, however I was driven to conclude that profiting from the poor could indeed be moral if a good result were obtained...a sort of beneficent reverse Machiavellianism of societally positive ends justifying what some might see as morally questionable means. Quoting myself:

Answers, as with many such questions, are difficult to come by. That is the nature of a question that can only be answered by using not just logic, but gut feelings shaped by environment, years and generations of experiences, religion, upbringing...the list could easily go on almost indefinitely. However, one answer, and one that is undoubtedly shaped by my own life in a mostly free-market country under representative government is that it is moral to profit from the poor if you are able to help more of them by doing so and are doing so in a way that provides them with opportunities they would not otherwise have had.

The Week Ahead...

As noted previously, we are going to make a conscious effort to post Reuters' preview of the events anticipated to impact trading for the coming week. In what is being touted 'Stocks' week of reckoning' by the wire service, trading is expected to be particularly volatile as US mid-term elections and a two day Fed meeting take center stage in the minds of traders both there and around the globe. There are also a number of earnings numbers being reported, which could exacerbate the impact of any surprises from the polls or the Fed. Further details can be found here.