Archive for September, 2009

If Airlines Were Run Like Health Care.

Saturday, September 26th, 2009

Here’s a funny piece about trying to book an airflight if the airline industry were run like our health care industry.  From the National Journal Magazine.

If Air Travel Worked Like Health Care

Fasten your seat belts — it’s going to be a bumpy flight.


 

“Hello! Thank you for calling Air Health Care, the airline that works like the health care system. My name is Cynthia. How can I give you travel care today?”

“Hi. My name is Jonathan Rauch. I need to fly from Washington, D.C., to Eugene, Oregon, on October 23.”

“Yes, I’d be happy to assist you with that. It does look like we can get you on a flight on January 23 at 1 p.m. or February 8 at 3 p.m. Which would you prefer?”

“Neither. I need to be in Eugene on October 23. As in, the 23rd of October.”

“I’m sorry, we have nothing open on that date. You might try another carrier.”

“I suppose I’d better. Who has availability?”

“I’m afraid I have no way to know that. I have no way to look into their systems.”

“Who would know?”

“You can call them individually and ask. I’m sure you can find one.”

“Look, I don’t have time to call two dozen airlines. It’s important that I get to Eugene on the 23rd. There must be something you can do.”

“Well, it looks like maybe we could squeeze you in on October 26, if you don’t mind departing Washington Dulles at 5:35 a.m.”

“Good grief. All right, I suppose it will do.”

“I’m sorry, sir, we don’t use e-mail to transmit records and other personal or secure documents. We keep our records on paper.”

“Great, thank you, I’ll be happy to make that booking for you. That’s one flight from Washington Dulles to Chicago O’Hare on October 26. Will there be anything else?”

“Wait, hold on. Chicago? I’m going to Eugene. It’s in Oregon.”

“Yes, sir. The Eugene portion of your trip will be handled by a western specialist. We’ll be glad to bring you back from Chicago to Washington, though.”

“You mean I have to call another carrier and go through all this again? Why don’t you just book the whole trip?”

“Sorry, sir, but you do need to make your own travel appointments. We would be happy to refer you to some qualified carriers. May I have your fax number, please? Before I can confirm the booking, we’ll need you to fill out your travel history and send that back to us.”

“Cynthia, I have filled out my travel history half a dozen times already this year. I’ve told six different airlines that I flew to Detroit twice and Houston once. Every time I fly, I answer the same battery of questions. At least a dozen airlines have my travel history. Why don’t you get it from them?”

“We have no way we could do that. We do not have access to other companies’ records, and our personnel have our own system for collecting travel history.”

“But 95 percent of these questions are always the same. Don’t you know that every time I fill out one of these duplicative forms I increase the chance of error? Wouldn’t it make more sense to hold my travel information centrally, so that everyone could see the same thing?”

“Sorry, sir, we have no capability for that, and we do need to have your travel history at least two weeks before you fly.”

“I don’t suppose I could fill out these forms online?”

“No, sir. The forms are only about 30 pages, though. Did you have that fax number, please?”

“I don’t have a fax machine. No one faxes anymore. Just e-mail me the forms.”

“I’m sorry, sir, we don’t use e-mail to transmit records and other personal or secure documents. We keep our records on paper.”

“What century is this? You think paper is secure?”

“We do keep all your travel records on low-acid paper and in fire-retardant file drawers. When someone needs access to your records, we make a photocopy and put them in the mail. Or fax. How many items of luggage were you wanting to bring?”

“Two.”

“OK, good. We suggest you make luggage arrangements with Rapid Air Transport, though of course you’re free to use any luggage company you like.”

“Luggage company?”

“Yes, sir. You’ll need to arrange baggage transport. Would you like a phone number for Rapid, or would you prefer to find your own baggage company? I’m sure Rapid would be pleased to work with you. All you need to do is sign the Personal Travel Records Release form. Where would you like me to mail that?”

“Release form?”

“Yes, sir. You’ll need to sign and fax or mail that back to our Travel Records Department so that we can release your travel records to Rapid. Under the privacy rules, we’re not authorized to tell them when or where you’re flying without your written permission.”

“I suppose I couldn’t just e-mail you this permission, or grant it online?”

“No. Did you want a list of luggage carriers for your Chicago-Eugene leg?”

“Let me guess. Rapid doesn’t operate out West. I have to find a separate luggage company for the second leg.”

“Yes, sir.”

“And they’ll need more copies of all the same paperwork. And they’ll ask me all the same questions. And I’ll have to arrange to get my travel records to them by mail or fax. And I’ll repeat all this nonsense five or six separate times between here and Eugene, because the providers aren’t equipped to talk to each other and my records aren’t digitized and no two providers use the same system.”

“Yes, sir, that’s right! Did you have a preferred fuelist, or did you want a reference for a company to provide jet fuel for your flight?”

“Fuelist. That would be a fuel specialist, I suppose.”

“We can make a fuel arrangement for you, but please be advised that the fuelist’s charge will be billed separately and you will be responsible for it. We’ll need to know where to have that bill sent.

“May I have your flight-insurance information, please?”

“Millennium Travel Care, group number 068832, ID number RS-3390041B.”

“I’m sorry, sir, we’re not in Millennium Travel Care’s provider network.”

“You’re listed on their website. It says you accept Millennium.”

“We did until last week. If you like, you can pay out of pocket for your ticket.”

“How much would that be?”

“Yes, sir, I’ll be happy to get that price for you. That would be $17,885.70.”

“What? For a flight to Chicago? Does anyone actually pay that?”

“I’m sorry, sir, I wouldn’t know. I can tell you that different clients and insurers pay different rates. For individuals, the rate is $17,885.70.”

“Oh.”

“In a sane system, I would call an airline and it would give me a price for the whole trip, not just for one part of it.”

“Plus tax. And fuel.”

“Is anyone else cheaper?”

“Sir, again, I couldn’t tell you that. Carriers don’t have public rate sheets. Prices are privately negotiated, so there’s really no way you could comparison shop.”

“Oh.”

“Did you want to go ahead, then?”

“No. I DO NOT WANT TO GO AHEAD. I do not want to go anywhere! I want to jump off a cliff!

“This system is insane. It is fragmented to the point of incoherence. Record-keeping is stuck in the 1960s. Communication is stuck in the 1980s. None of the systems talks to the others. Everyone reinvents the wheel at every stage of the process. There is no pricing transparency.

“In a sane, modern system, I wouldn’t have to arrange each leg of my flight myself. I wouldn’t have to fax documents around, find and juggle multiple providers, fill out again and again what are essentially the same forms every time I use a provider.

“In a sane system, I would call an airline and it would give me a price for the whole trip, not just for one part of it. It would sell me a safe round-trip journey, instead a series of separate procedures. It would have back-office personnel using modern IT systems to coordinate my journey behind the scenes. The systems and personnel would talk to each other automatically. At the press of a button, once I entered a password, they would be able to look up my travel history. We’d do most of this stuff online.

“In fact, Cynthia, I would be able to arrange a whole trip with a single phone call!”

“Sir. Please. Calm down and be realistic. I’m sure the system can be frustrating, but consumers don’t understand flight plans and landing slots. Even if they did, there are thousands of separate providers involved in moving travelers around, and hundreds of airports, and millions of trips. Getting everyone to coordinate services and exchange information just isn’t realistic in a business as complicated as travel.”

“Yes. I suppose I’m dreaming.”

“Was there anything else I could help you with?”

“No.”

“My goal today was to provide you with outstanding service. Did I accomplish that?”

[click]

The Feds Have Put Up $17.4 Trillion To Help Banks.

Saturday, September 26th, 2009

An interesting piece that appeared in the Nation explains all the cash and commitments the Federal Government is using to shore up banks.  Not all banks, of course, primarily the larger ones who reside on Wall Street.   Thanks to the website Alternet.com for the link.

The article does this explaining, however, in a unique way:  By using a fictional couple who have run into financial problems.  

“As we mark the end of the first year of the financial bailout, the public seems to regard the government’s actions with a toxic combination of rage and confusion. People are pissed off but too bewildered to know what to do with that anger. The confusion isn’t an accident. The government hasn’t exactly been forthcoming about how it’s made buckets of money available to the banking sector. When it does disclose some information–such as in July’s SIGTARP report from the Treasury or the Federal Reserve’s weekly balance sheet–it’s in the form of intimidating descriptions, accounting mumbo jumbo and technical reports that do little to illuminate just what the hell is going on.

What’s worse, banks and the establishment press have portrayed TARP as the sum of the banking industry’s federal subsidies. An August 30

New York Times

article, “As Banks Repay Bailout Money, U.S. Sees a Profit,” gives the impression that taxpayers should be happy to have made $4 billion on the deal, as if our checks were in the mail. But when the government became Wall Street’s bank, it wasn’t just $700 billion of TARP money that flew north to Wall Street. TARP was but a small fraction (roughly 4 percent) of the full $17.5 trillion bailout and subsidization of the financial sector. The details of this total bailout are complicated, but the basic mechanisms aren’t beyond the average citizen’s grasp. We’re going to walk you through it.

Five Easy Pieces: The Tale of Joe and Katie

There are five ways the Treasury, the Fed and other government entities have propped up the banking sector. In order to understand how each of these works, let’s consider how this assistance might have looked had it been directed at a household, rather than a bank, teetering on the edge of bankruptcy. The analogy isn’t exact, but considering the bailout in this manner helps make the whole thing a lot clearer.

Imagine a couple living in a three-bedroom house outside the Twin Cities. Call them Joe and Katie Hazzard. The Hazzards own a small off-track-betting (OTB) business and have some investments and a mortgage on their house. But business is terrible (no one has extra money to make bets); Katie recently lost her job; their investments have hemorrhaged value; and they can’t make their mortgage, car or credit card payments. So they ask their local bank for a loan. “No dice,” says the bank. “We can’t give you money to pay your debts because you’re no longer a good credit risk for us.” That’s more or less what happened to the banks last fall: they couldn’t and wouldn’t lend to one another.

Capital Injections and Direct Loans

So the Hazzards go to the Federal Bailout Bank, which says, “Here’s some money. Do with it what you want, and someday down the road, if and when you’re out of the woods, you’ll have to pay us back with a little bit of interest.” That’s roughly what the $700 billion TARP was: a direct injection of capital to purchase preferred shares, which is really more like extending a loan than making the investment the government said it was, with some very light strings attached.

But then Joe says that the handout isn’t enough. It turns out that not only does he own a gambling business; he has a bit of a gambling habit. Joe made big money in previous years betting on the New England Patriots to win the Super Bowl and figured he couldn’t go wrong placing the same wager again. But then Tom Brady injured his knee last year, and Joe got creamed. Inveterate gambler that he is, he’s doubled down on the Patriots this year, but he won’t be paid off (if, that is, the Patriots win) until later in the year. But Joe has a boatload of outstanding gambling debts he needs to pay now.

So the Federal Bailout Bank decides it’ll help out. To cover the truly pressing debts (the bookie is about to send over some goons with baseball bats), the bank will just write a check. That’s what the Fed did to back the losses of AIG’s credit default swaps and other businesses, and what the Fed and Treasury did together by providing protection to Citigroup in the event that more of its toxic assets lost value. The money–$1.4 trillion–was structured as a loan, but it’s a bit unclear how it will ever be paid back.

In addition to his bets on the Patriots, it turns out, Joe’s been making bets on just about anything, the outcomes of which have yet to be determined. The Hazzards are scared that a lot of these bets don’t look too promising (e.g., Joe’s wager that Kanye West will win this year’s Nobel Peace Prize). What they want is to unload their positions in those bets, to have some other gambler pay them the original sum they put down and take on the risk. If the bet makes good, the new gambler would get the rewards. If it doesn’t, he would take the loss. But they can’t find anyone to do that because so many of Joe’s wagers were so reckless.

Once again, the Bailout Bank steps in to sweeten the deal, telling would-be gamblers it will put in $6 for every $1 they put up. That means Joe’s Kanye West bet for $100 (at very long odds) can now be purchased by a fellow gambler for just $14.28. If Kanye does, in fact, win the Nobel, then this lucky gambler will get paid as if he had put up the whole $100. If not, he’s only out fourteen bucks. That’s the crux of Tim Geithner’s $1 trillion Public-Private Investment Fund, which would bring the full amount of capital injections and direct loans to $2.4 trillion.

Indirect Loans and Guarantees 

The Hazzards come back and claim that wasn’t enough; they’re still screwed. So the bank says, “We can give you some more short-term, thirty-day loans to get you through (even longer-term ones if that doesn’t work), but you have to post collateral. It doesn’t have to be very valuable: your old bicycles in the garage, your basement sofa-bed, maybe that baseball card collection you planned to use to pay for your kids’ college educations. And if you still need more at the end of the thirty days, you can post some more junk from your attic as collateral.”

This more or less corresponds to the newly established Federal Reserve facilities (think: credit unions for banks), which provide money to banks in exchange for various assets as collateral. Both the Federal Reserve and the Federal Reserve Bank of New York administer these facilities. They run the gamut from the $1.8 trillion Commercial Paper Funding Facility, created to provide more credit for households and businesses (which, to be fair, did help calm the markets; but it didn’t get to households or to most small businesses), to the $540 billion Money Market Investor Funding Facility, created to back private funds owned by banks, insurance companies or investment advisory companies.

Joe comes back again to Bailout Bank and says that he’s still short, but he has a proposal. “I’m not going to ask you for any more loans. Promise. Instead, I’m going to see if someone else will lend me money. The problem is, I’m such a terrible credit risk I need someone to back me up. Maybe instead of me asking for a loan, I could kind of use your name to ask?” That’s the role the FDIC played for Goldman Sachs and other firms, which took advantage of $940 billion in FDIC guarantees to raise cheap money for themselves and another $684 billion of backing for their trading accounts as an additional perk.

All in all, these kinds of guarantees, along with the indirect collateral loans for the banking industry, total $6.7 trillion, and there is precious little transparency coming from the Fed regarding most of it. In fact, Ben Bernanke told Congress in November that too much transparency about which banks got which loans and for what collateral would be “counterproductive.”

General Backing and Subsidization

Bailout Bank isn’t done helping the Hazzards. It turns out that the couple also has a vacation condo that’s lost some value. As part of propping up their balance sheet, the Bailout Bank promises to guarantee the price of the condo. In other words, if Joe and Katie are forced to sell the condo for less than its value before the housing crisis, the Bailout Bank will write them a check for the difference in price.

This is considered “general backing,” and in the bailout economy it applies to all kinds of things that weren’t supposed to lose value but did and might continue to do so in the future–most important, money market funds. About $4.4 trillion was set aside for general backing of financial firms, including $3.7 trillion to mitigate any future problems with money market funds and an extra $700 billion for the FDIC to continue to back depositor funds. (The banks didn’t want to pony up more premiums to do it themselves. Can you imagine just deciding you don’t want to pay your insurance premiums, yet receiving insurance anyway? Well, it’s like that.)

Government-Sponsored Entities Help

Another part of what’s putting the hurt on the Hazzards is the plummeting value of their big investment in what had been the rock-solid, blue-chip ABC Corp. This was supposed to be one of their safest investments, but now they can’t sell the stock without taking a massive loss. So the Bailout Bank steps in. It starts buying tons of ABC stock, flooding it with capital and creating an inflated price for the stock in the process. This in turn raises the value of the Hazzards’ investment. Bailout Bank even goes so far as to start buying ABC’s products, hoping to increase its sales and thus its stock price.

Though a bit imprecise, this is basically how the Fed and Treasury propped up Fannie Mae and Freddie Mac and in the process helped the banks. The Treasury bought Fannie and Freddie stock and also the mortgages that the two enterprises sell, plus it gave them some extra money to lend. All the government’s financial assistance to prop up entities that were considered safe at one point comes to $2.2 trillion.

Global Market and Credit Expansions

Finally, just to make sure the Hazzards can get by, the Bailout Bank decides to help everyone who might use their business with some capital of their own. Since the couple runs an OTB business, when the bank gives a shot of money to everyone in town, a few people start gambling with the Hazzards again. In effect, that’s what the Fed did when it dumped $905 billion into international markets to move things along and another $881 billion into domestic ones. Throwing cash here and there into the markets is the Fed’s job; throwing the amounts it did was an act of desperation, although almost certainly needed.

It’s important to remember that not everything the government did was solely bank-friendly. The Fed and Treasury extended $1.82 trillion in fiscal support, including about $1 trillion in direct consumer assistance (including the Recovery Act, the Cash for Clunkers program and first-time homebuyer tax breaks). It gave another $881 billion to help guarantee various federal home mortgage programs, which really did help homeowners. But this help is dwarfed by the mountains of dollars thrown at Wall Street [See Tags: , ,
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Democrats Are More Fiscally Responsible Than Republicans.

Saturday, September 26th, 2009

It’s curious but true:  Democrats are the fiscally responsible party in America today.

If you don’t believe this, then you disagree with Bruce Bartlett, an economist, a Republican and a fiscal conservative. 

In his most recent article in Forbes Bartlett writes:

“What we face is a game of chicken. Republicans think if they wait until the last possible second to support the smallest possible tax increase necessary to make a budget deal work, they can get the largest possible spending cuts. The problem is that there is not one iota of historical evidence that this strategy will work. The budget deals of the 1980s and 1990s were all roughly 50-50: half tax increases, half spending cuts.

At some point, taxes have to be back on the table as the price that must be paid for profligate spending. Only then will the American people realize that they can’t have their cake and eat it too, as Republicans have preached for the last decade. Only when the American people go back to believing that spending must be paid for will they stop demanding something for nothing and put the country back on the path to fiscal sanity.”

I’ve argued many times on this website that we must “pay our bills.”  The real argument between Democrats and Republicans should be about what’s important:  That we honestly discuss our priorities for spending and then honestly determine the tax consequences involved in getting what we really want (at least what the majority want, it is a Democracy after all). 

Instead we keep having this fantasy argument about the level of taxes independent of deciding what we really want.  This is an argument that mistakenly assumes we don’t have to really pay for what we want.

And I, like the conservative Republican Bartlett, blame the Republican party for this problem.  It’s the Republicans who’ve preached to America that there is a free lunch.

Consider health care reform.  President Obama has been roundly attacked by Republicans for his proposals to reform health care and by doing so reduce overall spending.  The only real Republican proposal is one that ends Medicare, once enacted, for anyone under the age of 55.  No Republican even mentions this proposal in public anymore because to do so would result in being thrown out of office.  So instead of being honest about their proposal, Republicans instead attack Obama’s ideas of controlling health care costs.

The point is you can’t have it both ways.  Democrats have put forward their proposal, and it is aimed at controlling costs, but the Republicans haven’t countered with theirs.  This kind of dishonesty, if it continues, will probably destroy the Republican party in its current form.

And that would not only be good for the country, but good for Republicans because the “new” Republican party would at least be honest about their priorities and intentions.

Have Free Market Capital Movements Ruined Our Economy?

Thursday, September 24th, 2009

Professor Duncan K. Foley, in a lecture entitled “The Anatomy of Financial and Economic Crisis” given April 17, 2009 at Bernard College, notices similarities in our current economic crisis and those that smaller economies have suffered due to liberal encouragement of capital movements and freely traded currency exchange rates.

We’ve long argued that the large trade deficit America has been running, and the long term loss of manufacturing factories and skills, is inimical to our long term economic and political independence.  The rush to outsource just about everything, we’ve believed, has had direct negative impact on investment levels in America.   

We need more investment in America, not overseas.  The so-called “efficiencies” provided by low cost labor is ephemeral, in our opinion, and have rather hurt our economy and incomes. 

“Since the 1980s the United States government has aggressively pursued an international policy of promoting free capital movements.  This policy, enforced in many cases as “conditionalities” of International Monetary Fund loans to distressed national borrowers, requires national governments and central banks to remove regulatory obstacles to the free purchase and sale of capital assets across national boundaries.   While a few large economies, notably China and India, were able to resist these pressures, many other important economies, including Russia, Brazil, Argentina, Indonesia, South Korea and Mexico, adopted this system of financial liberalization.  Each of these countries experienced a similar type of financial crisis as a result.  In the initial stages the liberalizing economy experiences a large inflow of foreign capital, which supplies a lot of funds to its financial system.  Typically this inflow of funds results in a rise in the economy’s exchange rate (which is “floating” or market-determined under the liberal regime),  which makes it difficult for its industries to export and leads to a deindustrialization of the economy combined with a consumption binge as imported foreign goods become cheaper.  In these episodes, the external capital flows finance not only a consumption binge but a bubble in local assets such as real estate.  When this bubble pops the financial system of the country experiences a severe crisis, with a chain reaction of bankruptcies and defaults, and the real economy experiences a severe dowturn with negative rates of growth of GDP (Gross Domestic Product) and sharply rising unemployment.  In the case of the economies I just mentioned, the crisis culminates in a sharp fall in the value of the national currency in relation to the rest of the world.  These experiences seem to indicate that the regime of international financial liberalization based on freely floating exchange rates determined in speculative markets greatly amplifies the financial fragility inherent in financial capitalism.

In 2008 the United States financial system experienced its worst crisis since the 1930s.  The broad patterns of this crisis were strikingly similar to those experienced by other smaller economies over the years of international financial liberalization….”

Beezer here:  The speaker then goes on to discuss the collapse of the housing market, and the freezing of credit to many parts of the world, particularly Europe and the United States, where in better times large amounts of money could be lent without any collateral being put up by the borrower.  But after that discussion, he goes further:

“When an equilibrium such as the practice of collateral-free lending among financial institutions breaks down, typically a new stable equilibrium emerges at a much lower level of lending and much less efficient use of scarce capital funds.  Efforts of policy makers to restore the ”old” equilibrium face two formidable obstacles.  One is that key factors, such as rapid growth of the world economy that supported the old equilibrium may no longer exist, so that the old equilibrium itself may have evaporated.  A second is that the low-level of low borrowing and extremely tight credit availability may be stable, so that individual incentives to financial institutions tend to restore it, making policy ineffective or self-defeating.

In my view this is the reason the financial “bail-out” policies pursued by both the Bush and Obama administrations are highly uncertain to work and risk incurring large amounts of Federal debt to transfer money to private firms and managers without solving the underlying problem…..

“The trouble is that the “flat earth” globalization we have been pursuing over the last twenty five years in the world economy rests primarily on investments to cut costs by moving productive activities to lower-wage regions of the world rather than increasing productivity.  These cost-cutting investments can promise very large private returns, but it is doubtful that the social returns are commensurate.  While the private investor who relocates production to reduce costs reaps the full increase in profitability, a side-effect of this investment is the economic obsolescence of abandoned productive facilities and capacities in high-wage regions.  Furthermore, the incentives to invest under “flat earth” policies have not proved to be particularly strong; the “world savings” glut Ben Bernanke and others have identified is a sign that growth in real investment spending has tended to fall short of the enormous growth in profits that globalization has fostered.  This structural imbalance induced the flood of capital into the US economy that overwhelmed its capacity to find profitable investment outlets, and ultimately destabilized our financial system…..

The philosophy of flat earth globalization pursues the realization of a world division of labor in which every tiny piece of every productive process is out-sourced or reallocated to the very lowest cost producers.  If we look at this process from the point of view of national or regional economies, its logical consequence is a high degree of specialization of each region in a small part of the spectrum of social production.  Every economy depends on the whole world economy, and is vulnerable, as we are experiencing now, to its disruptions.  The study of complex systems of many kinds suggests that this pattern of economic development is not robust.  This means that it is vulnerable to the catastrophic spread of small failures.  These reasons for this lack or robustness are not hard to understand.  Cost-minimizing allocation of global production leads to a stituation in which there is only one supplier at each critical stage of production, and in which the failure of that one supplier to function for whatever reason, whether a natural or human-created financial disaster, disrupts all the other links in the productive chain.  Regional and national economies share this vulnerability due to the disappearance of redundancy and backup systems.  A country whose connection to the rest of the world is for any reason interrupted finds itself unable to supply basic needs to its people…..To revive global and US aggregate demand I believe that the incentives for investment, both public and private, will have to be re-oriented to more traditional patterns of diversification and deepening of national and regional economies.  Until the credibility and long-run profitability of such investments is established, it is unlikely that attempts to reflate global effective demand by one or another form of credit expansion (including government borrowing to finance deficit spending) will foster a sustained world economic expansion.”

Beezer here:  Professor Foley then acknowledges such a change in policy will probably require, at times,  “government control over key prices, including interest rates, exchange rates, energy prices, and wage and profits through income policies, and in some cases even direct intervention in trade through the imposition of tariffs.”  

“Economists have elaborated the ways in which these policies impose “real social costs,” and in the static, idealized world of traditional economic modeling there is little rationale for these measures.  Enthusiasm for flat-earth globalization has been driven by the chimerical hope that maximizing absolute economic efficiency will somehow provide the resources to deal with global poverty.  As we have seen, the reality is that globalization reproduces the global divide between rich and poor, even as it maximizes indices of economic efficiency, such as profit rates and gross products.  We are also now learning the hard way that the single-minded pursuit of economic efficiency imposes higher and higher degrees of economic insecurity.  (At the purely financial level this tradeoff appears as the choice between risk and return.)  To achieve more economic security, for example, by creating a world system of robust, redundant, and diversified regional economies, we are going to have to give up some theoretical economic efficiency.”

The Conservative Delimma: Ideology Produces Incompetent Government.

Thursday, September 24th, 2009

Today’s conservatives have a serious problem which came to fruition during the Bush II years when Republicans controlled both the White House and Congress:  If you really shrunk government (a conservative goal) you get voted out of office.

So what government do you actually end up with if you have this conflict?  An incompetent one.   Not surprisingly, the public swiftly handed both the White House and Congress over to Democrats.  Just as the nation did the last time this happened in 1932.

Alan Wolfe, a political science professor at Boston College and author of “Does American Democracy Still Work?” studies these type of things in detail.  Back in the summer of 2006 when Bush still occupied the White House and Republicans controlled Congress, Wolfe published an article in the Washington Monthly entitled “Why Conservatives Can’t Govern.”

“The collapse of the Bush presidency, in other words, is not just due to Bush’s incompetence (although his administration has been incompetent beyond belief). Nor is it a response to the president’s principled lack of intellectual curiosity and pitbull refusal to admit mistakes (although those character flaws are certainly real enough). And the orgy of bribery and special-interest dispensation in Congress is not the result of Tom DeLay’s ruthlessness, as impressive a bully as he was. This conservative presidency and Congress imploded, not despite their conservatism, but because of it.

Contemporary conservatism is first and foremost about shrinking the size and reach of the federal government. This mission, let us be clear, is an ideological one. It does not emerge out of an attempt to solve real-world problems, such as managing increasing deficits or finding revenue to pay for entitlements built into the structure of federal legislation. It stems, rather, from the libertarian conviction, repeated endlessly by George W. Bush, that the money government collects in order to carry out its business properly belongs to the people themselves. One thought, and one thought only, guided Bush and his Republican allies since they assumed power in the wake of Bush vs. Gore: taxes must be cut, and the more they are cut–especially in ways benefiting the rich–the better.

But like all politicians, conservatives, once in office, find themselves under constant pressure from constituents to use government to improve their lives. This puts conservatives in the awkward position of managing government agencies whose missions–indeed, whose very existence–they believe to be illegitimate. Contemporary conservatism is a walking contradiction. Unable to shrink government but unwilling to improve it, conservatives attempt to split the difference, expanding government for political gain, but always in ways that validate their disregard for the very thing they are expanding. The end result is not just bigger government, but more incompetent government.”

Beezer here.  An academic, Wolfe is able to explain the origins of this conflict, pointing out it’s been a problem for conservatives since the country’s inception.  His article provides a necessary context to understand modern conservatism.

“Odd men out in America’s liberal political culture, America’s conservatives were never very unified. Alexander Hamilton and John Marshall wanted to see a strong national government created to improve America’s economic prospects, even if they retained an aristocratic sense that only social superiors should control that government. (John Adams outdid them on behalf of a strong executive; he thought our first president should be addressed as a monarch). But this kind of New England Federalism would go into abeyance once America’s democratizing forces were unleashed. Others insisted that this country should embody timeless Christian principles; they, however, soon ran up against the skepticism of the Founding Fathers and conceptions of religious liberty associated with dissenting Protestantism. With the decline of both, the only significant conservatism left would come from defenders of slavery such as John C. Calhoun. Once the advocate of a strong national government, Calhoun, putting the rights of slaveholders first, viewed this country as a compact among states, not as a unified society. His ideas would live on in the voices of those thinkers, primarily Southern, who objected to relying on national power to promote equal rights for all.

As this litany of lost causes suggests, our conservatives, while representing different regions and economic interests, were united by their irrelevance in the face of history. If the term reactionary is too pejorative, let’s call them reactive. In this entrepreneurial, mobile, innovative, and individualistic country, conservatism was constantly on the defensive, aiming to preserve things–deference, reverence, and diffidence, to name three–that most Americans were anxious to shed. Deprived of both a church and state to defend, American conservatives became advocates for privileges determined by birth, suffrage restricted to an elite, and rural virtues over urban realities.

And so conservatives faced a dilemma from the moment the first shots were heard around the world. They could be true to their ideals and stand on the sidelines of political power. Or they could adjust their principles in the interests of political realism and thus negate the essential conservative teaching that principles are meant to be timeless. All the conservatives that played any role in America’s history since the age of Jackson chose political relevance over ideological purity. The Whigs abandoned aristocracy to nominate a popular military leader in the 1840s, hoping thereby to out-democratize the Jacksonians. An emerging business elite defended the free market–an 18th-century liberal innovation detested by agrarian-oriented conservatives–to protect the very kind of privileges that Adam Smith hoped the free market would curtail. Isolationists abandoned the cosmopolitanism of Hamilton, perhaps America’s greatest conservative, for a populistic nativism suspicious of worldly grandeur. Clergy from evangelical churches played down such depressing doctrines as original sin and predestination in favor of the wonders of salvation for all. European conservatism had defended authority against liberty and social standing against equality. American conservatives used the language of liberty to justify inequality and promoted democracy to stand against change.

A conservative in America, in short, is someone who advocates ends that cannot be realized through means that can never be justified, at least not on the terrain of conservatism itself. In the past, the ends sought were the preservation of hierarchy, even if the means included appeals to democratic sentiment. In more recent times, conservatives promised order and stability through means dependent upon the uncertainties and insecurities of the market. Unwilling to accept the fact that government was here to stay, conservatives stood on the sidelines as conditions kept arising that demanded bigger and more effective national authority. Westward expansion required Washington to settle the issue of slavery, and the recalcitrant South ultimately lost. Industrialization forced the country to deal with trusts and workplace oppression, and the Gilded Age leaders ultimately lost to the Progressives. The Depression demanded stronger government action even more urgently, even as the advocates of laissez faire opposed the New Deal. Similarly, the rise of fascism necessitated a vast expansion of federal power; and again, the conservative impulse, in the form of isolationism, lost.”

Beezer here: Bush II was something new, Wolfe points out.  Republicans hadn’t controlled the White House and Congress since 1932. 

“If government is necessary, bad government, at least for conservatives, is inevitable, and conservatives have been exceptionally good at showing just how bad it can be. Hence the truth revealed by the Bush years: Bad government–indeed, bloated, inefficient, corrupt, and unfair government–is the only kind of conservative government there is. Conservatives cannot govern well for the same reason that vegetarians cannot prepare a world-class boeuf bourguignon: If you believe that what you are called upon to do is wrong, you are not likely to do it very well.

Three examples–FEMA, Medicare, and Iraq– should be sufficient to make this point. Because liberals have historically welcomed government while conservatives have resisted it, it should come as no surprise that the Federal Emergency Management Agency worked so well under Bill Clinton and so poorly under Bush I and II. True to a long tradition of disinterested public management, Clinton, in the wake of Hurricane Andrew, appointed James Lee Witt to head FEMA. Witt refocused FEMA away from civil-defense efforts to increasingly predictable national disasters, fought for greater federal funding, achieved cabinet status for his agency, and worked closely with state and local officials. For all the efforts by Republicans to attack their enemies, no one has ever put a dent in Witt’s reputation. Government under him was as good as government gets.

Upon assuming office, George W. Bush turned to former Texas campaign aide Joe Allbaugh to run FEMA and then shifted it into the new Department of Homeland Security (whose creation he had opposed). Allbaugh, and his hand-picked successor Michael Brown, like so many Bush appointees, were afflicted with what we might call “learned incompetence.” They did not fail merely out of ignorance and inexperience. Their ineptness, rather, was active rather than passive, the end result of a deliberate determination to prove that the federal government simply should not be in the business of disaster management. “Many are concerned that federal disaster assistance may have evolved into both an oversized entitlement program and a disincentive to effective state and local risk management,” Allbaugh had testified before a Senate appropriations subcommittee in May, 2001. “Expectations of when the federal government should be involved and the degree of involvement may have ballooned beyond what is an appropriate level.” There was the conservative dilemma in a nutshell: a man put in charge of a mission in which he did not believe.

Long before Katrina destroyed New Orleans, Allbaugh and Brown were busy destroying FEMA: privatizing many of the agency’s programs, shifting attention away from disaster management, and shedding no tears as scores of agency staff left in dismay. Human beings cannot prevent natural disasters, but they can prevent man-made ones. Not the Bush administration. Its ideological hostility toward government all but guaranteed that the physical damage inflicted by a hurricane would be exacerbated by the human damage caused by incompetence.

The question of whether Medicare reform will prove politically fruitful for Republicans is still open. But the question of whether it has proven to be an administrative nightmare is not. There were two paths open to Republicans if they had been interested in creating an administratively coherent system of paying for the prescription drugs of the elderly. One was to give the elderly nothing and insist that every person assume the full cost of his or her medication. The other was to have government assume responsibility for the costs of those drugs.

It is significant that in America’s recent debates over prescription drugs, no one, not even the Cato Institute, argued that government should simply not be in the business at all. As a society, we accept–indeed, we celebrate–the fact that older people can live longer and better lives thanks to radically improved medical technology as well as awe-inspiring advances in pharmacology. A political party which consigned to death anyone who could not afford to participate in this medical revolution would die an early death itself.

But Republicans were just as unwilling to design a sensible program as they were unable to eliminate the existing one. To prove their faith in the market, they gave people choices, when what they wanted was predictability. To pay off the pharmaceutical industry, they refused to allow government to negotiate drug prices downward, thereby vastly inflating the program’s costs. To make sure government agencies didn’t administer the benefit, they lured in insurance companies with massive subsidies and imposed almost no rules on what benefits they could and could not offer. The lack of rules led to a frustrating chaos of choices. And the extra costs had to be made up by carving out a so-called “doughnut hole” in which the elderly, after having their drug purchases subsidized up to a certain point, would suddenly find themselves without federal assistance at all, only to have their drugs subsidized once again at a later point. Caught between the market and the state, Republicans picked the worst features of each. No single human being could have designed a program as unwieldy as this one. It took the combined efforts of every faction in today’s conservative movement to produce a public policy so removed from common sense.”

Beezer here:  So we got K Street lobbyists thanks to Newt Gingrich and Tom DeLay.  We got an incompetent FEMA under Bush.  And an incompetent financial regulatory administration under Bush.  Wherever Americans looked, from defense to disaster planning to Wall Street, conservative impulses to “starve the beast” created incompetence.   Read the entire article and you’ll learn much more, including what Wolfe thinks conservatives need to acknowledge in order to succeed, both for them and for the country.

Distrust Of Government Insures Its Failure.

Thursday, September 24th, 2009

Sometimes it seems like government employees check their brains in when they enter service.  The failures of government programs have become legion.  Obviously government employees are as smart as any other population group, so why the general impression of incompetence?

The first thing to be admitted is that failures get the attention whereas the day to day functioning success is not news.  That’s just the way people think.  If there’s a car accident we notice.  In fact everyone driving by, often in the hundreds of vehicles if not thousands depending upon the highway, don’t notice that everyone driving by the accident is successfully navigating the highway.  It’s the accident that gets all the attention.

In a similar vein, when it comes to government, people don’t “notice” that government might have played a key role in a newsworthy success.  A drug company brings to market a new cure for whatever malady and it’s news.  That a government funded academic research project may have made the initial scientific breakthrough is not noticed.

That the Valdez oil spill in Alaska rightly gained infamy is commonly understood.   But what of all the non-accidents caused by government mandates for double hulled tankers? 

Failures are famous, successes much less so, particularly when it comes to government.  This breeds a distrust among the general population, and this distrust in turn helps generate failure.  It’s a vicious negative “feedback loop.”

How does one break this loop?  How does one generate a positive “feedback loop?”  The simple fact is, without an objective look at the truth, removed from prejudice and self-interest, breaking the bad “loop” is impossible.   

The single most responsible party to this problem is the media.  Journalism, if you will.  The vast majority of Americans don’t have the time to analyze what’s really going on.  They rely on the media to sift through the facts and to report unprejudiced and vetted information quickly and understandably.  In this critical function, modern day media fails spectacularly.  They’ve become ambulance chasers.  They take any information, any at all, and immediately pass it on to their viewers, or readers.  The days of investigative research by media has almost disappeared.  The quack and the court jester are given equal standing  alongside the wise man.  

The following is a brief article written by Jeffrey Sachs, who is director of the Earth Institute at Columbia University.  It was printed in the the magazine Scientific American, a terrific publication that you probably won’t see on many kitchen tables or living room side-tables.   In fact the magazine industry is probably the last bastion of thoughtful, well written, journalism.  Television, radio and the vast majority of daily newspapers have long abandoned their responsibility to parse fact from fiction for their audiences.  As almost always, thanks to Economist’s View for the link.

“The crisis of American governance goes much deeper than political divisions and ideology. The U.S. is in a crisis of policy implementation. Not only are Americans deeply divided on what to do about health care, budget deficits, financial markets, climate change and more, but government is also failing to execute settled policies effectively. Management systems linking government, business and civil society need urgent repair.

The recent systems failures are legion and notorious. The 9/11 attacks might well have been prevented if the FBI and the intelligence agencies had cooperated more effectively in early 2001 when they were receiving various signals of a possible terrorist attack. Hurricane Katrina caused mass devastation and loss of life because recommendations to bolster the levees shielding New Orleans and other protective measures were neglected for decades despite urgent expert warnings, and because the federal emergency relief effort failed completely after the storm. To this day, reconstruction efforts in New Orleans are paralyzed and many poor communities there have been abandoned. The U.S. occupation of Iraq was marked by massive and shocking corruption, incompetence, and implementation failures by U.S. agencies. 

On the economic front, the current financial crisis is a remarkable systems failure. Government regulatory agencies completely dropped the ball while overseeing the surge of several dangerous financial instruments, especially sub-prime mortgages, collateralized debt obligations (CDOs), and credit default swaps (CDSs). The supply of CDSs in particular soared from nearly zero in 2000 to an estimated $60 trillion in 2008 with almost no regulatory attention. These unregulated CDSs underpinned the reckless lending that eventually burst in the Great Crash of 2008.
 
The list, alas, goes on and on. Military procurement systems are, according to retired military leaders, so broken that they now jeopardize national security: the U.S. is buying armaments that are overpriced, unneeded and technically defective armaments. Our system for financing the costly federal health care system subsidizes the overuse of advanced technologies while underfinancing highly effective and lower-cost public health measures. Public construction systems are failing to keep up with urgent national needs. Roads, bridges, rail, water and sewerage systems and many dams are in dangerous disrepair around the country; large sections of New Orleans remain wrecked and highly vulnerable; and even ground zero of 9/11 remains a hole in the ground because of endless bickering. Similarly, despite nearly a decade of planning, the government has failed to build and test even a single coal-fired power plant that captures and sequesters its carbon dioxide. This so-called Future-Gen project, vital for the transition to a low-carbon economy, has still not been launched.

We need a better scientific understanding of these pervasive systems failures. It is wrong to think that they illustrate the inevitable failure of government. Other governments around the world more successfully manage infrastructure investments, health systems and environmental resources, apparently with greater flexibility, less corruption, lower costs and better outcomes. America should be learning from their experiences. 

Several factors are at play. A key one has been the flawed privatization of public-sector regulatory functions. Wall Street firms hold excessive sway over government regulators, so that dangerous behavior has been unconstrained. Private insurance companies and health care providers block measures to curtail the overuse of costly technologies. Private military suppliers drive the procurement of unneeded weapons systems. 

A second has been the collapse of planning functions within the federal government. A remarkable feature of the recent debates over climate change, energy systems, infrastructure rehabilitation and health care reform is the lack of detailed forward-looking government proposals and plans. The Obama administration has stated general principles (very admirable ones) but too often without clear targets and the operational strategies to achieve them. Planning has been replaced by lobbying and backroom deals in Congress that are nearly opaque to the public. 

A third, and paradoxical, factor is the chronic underfunding of government itself. It sounds like the old joke about the bad restaurant: that the food was lousy and there wasn’t enough of it. The public is wary of putting more funds into government having witnessed one public sector failure after another. Yet without investing more resources in skilled public managers in health care, energy systems, and national security, we are probably doomed to remain stuck in the hands of vested interests and lobbies. 

Fourth, today’s challenges cut across technical specialties, government departments and public and private sectors. In health care and energy, for example, the private sector holds the key technologies but the public sector is needed to finance research and development, to regulate sustainable practices (for example, for emissions reduction and primary health standards), and to ensure access for the poor. Public health must be addressed not only through curative medical care but also through nutrition, food systems and a safer built environment. Energy systems must respect ecological as well as economic constraints. Yet our government agencies are not designed to take a holistic approach.

In short, we have arrived at a point where the challenges of sustainable development —including public health, infrastructure, energy and national security—require changes not only to policy but also to basic public management systems. In many crucial areas, tinkering will no longer suffice: we need an overhaul to regain government control over regulatory processes, reduce lobbying, restore public planning and ensure the adequate financing of skilled public managers, and align public management systems with holistic strategies.”




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