About 50 years ago, Fidel Castro stepped out of the Cuban jungles at the head of a ridiculously small group of rebels and took control of the country. His aim: to take Cuba’s economy out of the hands of a privileged and corrupt elite and put it to worrk for the benefit of the entire population.
Unfortunately, several things went wrong. First, Castro himself was a little too proud and too much of an ideologue to be able to accommodate himself or his government to practical politics. Second, he dared to voice approval of Communist ideals at a time when Americans were being told that Communism was the greatest threat to peace and prosperity that Western Democracy had ever known. And third, his revolution simply took place too late.
By the 1950s, Cuba’s economy was the playground of big US financial interests working hand-in-glove with a rich Cuban elite. It was obvious to Castro when he took over the country that the only way to separate the elite from its power base was to remove the source of its funding. And the only way to prevent the wealth generated by Cuban labor and resources from flowing directly into US bank accounts instead of into local development was to take the major national industries out of US hands.
In an ideal world, a country devoted to improving the lot of the world’s citizens — a country such as the US claims to be — would do its best to work with a group that had just deposed a repressive dictator and was seeking to provide education, health care, and economic opportunity to its citizens. Isn’t that the kind of thing the US claimed it itself was doing in Iraq? Isn’t that kind of freedom what the American Revolution was all about?
What Drives US Foreign Policy
But the US has not operated in the interests of the ordinary citizens of the world for a long time. What drives US foreign policy — and what has driven it since the US became an acknowledged world power following the First World War — are the interests of major American businesses. If these interests were enlightened this would not be a great problem. If American business realized that developing the economies of poor countries would increase markets and expand prosperity, then American business would be behind efforts at democratization and development.
But just as it did when dealing with mortgages in the US, American business tends not to look at the Big Picture. Rather than plan for long-term prosperity and a viable future for coming generations, American business, with a few minor exceptions, opts for maximizing short-term gain, whatever the future costs. If there are poor people or countries in the world, America doesn’t think about improving their condition and turning them into possible purchasers of American goods; instead it sees them as sources of cheap labor and raw materials as long as they can be kept poor.
When President Eisenhower warned against the “military-industrial complex”, he wasn’t only talking about collusion between the military establishment and weapons manufacturers. He was talking about American industry’s drive to dominate the world, and the economic power could wield in convincing government to back them politically and militarily.
And that’s where things stood when Castro took over Cuba. American business used its clout to convince the US government to resist Castro instead of negotiating with him, to focus on overthrowing his regime instead of concentrating on the welfare of his people. An embargo was put in place, and it exists to this day.
The Practical Effects of US Policy
The embargo has been a failure on one hand and an unfortunate success on the other. It has not managed to topple the regime. Cuba has effectively been kept poor, but that has not been enough to convince the population to rise up in anger. Perhaps the fact that the population isn’t significantly worse off than it was under the brutal dictatorships that existed before Castro has some part in this response. Perhaps the fact that education and decent health care have been made accessible to all citizens, despite by the country’s starved economy, has made the population feel that the Castro regime has some positive aspects. The embargo has not succeeded in its stated goals. All it has managed to do is keep ordinary Cubans poor and their country underdeveloped.
Contrast the US policy toward Cuba with its policy toward China. China is a little too large and a little too distant to bully effectively. For a long time the US maintained a policy of ignoring China and hoping it would go away. Then American business began to see some potential in China — how many McDonald’s burgers, Nike shoes, Coca-Colas and Starbuck’s coffees could be sold in a land of a billion or more people? Even if they were poor? So where the US tried to shut Cuba down, it sought to open China up.
And we can see the result of US economic cooperation with China all around us. First, lower cost goods are available at Walmarts across the land. Second, China’s economy is growing by leaps and bounds. Even during the current world recession, China’s economy is not shrinking — it’s simply growing a little more slowly. Without that economic growth and China’s tendency (following years of poverty) to save, China would not be in the economic condition to provide us with the loans we need to fight the current downturn.
Was China signally more democratic or more supportive of human rights than Cuba? Clearly not. But the US wanted to make money in China, and Cuba was small enough to ignore. And what has happened to democracy and human rights in China since they opened to US and other Western business interests? They have expanded. As the threat from the West decreases and China’s ability to provide decent opportunities to its citizens grows, the need to exert force to control the citizenry and the need to resist popular control of government both decline.
Wouldn’t it have been nice if the US had adopted this approach to Cuba a long time ago? America might have had a democratic, prosperous trading partner by the 1980s, instead of ensuring itself of an enemy into the 21st century.
Cuba Is Not Alone
Cuba is far from the only example of this wrong-headed, business-driven tradition in US foreign policy. Look at Viet Nam, Iran, Chile, Panama, Iraq, and other cases. And look at places like Darfur, where an activist policy could actually do some good.
In Vietnam, French colonialism supported a corrupt regime not unlike that attacked by Castro in Cuba. Ho Chi Minh, a leader of the popular resistance to this regime, approached the US for assistance in bringing democracy to Vietnam. Across the world, ordinary people shared his assumption that the US government espoused the values that led to America’s own successful revolution. But the US of the 20th century was not the US imagined by America’s founding fathers. Instead, the US chose to back American business interests that associated themselves with the same ruling elite the French had supported. To do this meant demonizing Ho Chi Minh and the resistance movement, now the government of North Vietnam. The easiest way to do this was to call them Communists and trust in the knee-jerk reaction of patriotic Americans.
Were the North Vietnamese Communists? Of course they were. But the people who start Communist movements do so out of idealism. Before their movements bring them to power, they are in prime condition to be worked with in a practical way to make sure that their efforts lead to peaceful, successful democracies that promote the interests of their populations. Unfortunately, almost since the success of its own idealistic revolution, the US has refused to work with other idealistic revolutionaries. The first successful Communist revolution was in Russia, where an autocratic ruler and his powerful elite were overthrown. Did the US provide aid, counsel, or guidance to the new government? No, the US chose to send assistance to the White Russians seeking to restore the Romanovs to power. If the present US, following its present foreign policies, were to be able to send troops back in time to the American Revolution, they would have been ordered to fight on the side of King George.
So what happened in Vietnam? Thousands of US soldiers died, an entire country was ravaged and polluted, and a host of new enemies was trained to hate the US where once the US had had eager supporters. And still the popular revolution ended up succeeding. The US then imposed embargoes and rejected diplomatic relations. The regime in Vietnam has not been turned out since then, but the embargoes have been severely reduced, diplomatic relations have been restored, and Vietnam is developing. All those lives gone, all those emotions scarred, and for what? For nothing. For the short-sighted demands of American business, which can’t see the forest for the trees.
In Iran, American business interests (notably oil interests) received support from the Shah, and in return the US government gave him aid, including training his vicious secret police. The result of this collaboration: most of the population kept in poverty while the elite succeeded, thousands brutally tortured. Efforts at democratization kept being thwarted with US approval, until finally the population could take no more, and rose up in rebellion. The Shah was driven out. Did moderates come in to replace him? Of course not. The US had made sure the moderates were no longer trusted and no longer had a power base. The only people left in opposition were the fundamentalist hard-liners, including some who’d been the most abused by the US-trained secret police. Once again, by following short-sighted American business demands, the US ensured that it would have no voice in the popular regime that followed the dictator, that that regime would be as paranoid and anti-rights as possible, that the country would face severe economic difficulties, and that the US would be denied a market.
In Chile, forces favoring democracy finally managed to establish an electoral process. One of the first beneficiaries of this shift to civilian rule was the popularly-elected Salvador Allende. Like Castro, he saw that the conservative elite would maintain real power if they were not separated from their source of wealth, and once again there were significant American business interests affected. So what happened? America’s CIA supported and guided a coup that left Allende dead and the right-wing dictator Pinochet in place for years. Pinochet returned the elite to their positions of dominance and went on to rule by torture. His regime proved so objectionable that cases were brought against him for human rights violations as far away as Europe.
Everywhere it goes, US foreign policy carries on this tradition to some extent. In Panama, the overthrow of Noriega had business overtones. In Nicaragua, a ruling dictator and a wealthy elite, supported by the US, were driven from power by Communist revolutionaries. Oddly enough, the revolutionaries set up democratic systems, and when they were voted out of office in later years they turned over power gracefully. This is what the US was fighting to supress? And now, in Iraq, control of oil is at stake.
We Need a Change
Is it any wonder at all that people around the world, looking at this history, would fail to see an America that is supportive of democracy or the welfare of ordinary people? America seems willing to see its own young citizens die, see foreign lands bombed to rubble, see national economies disrupted and foreign populations kept repressed and poor, all in pursuit of American business interests that aren’t even carefully considered. Should Americans be surprised that their government has become the symbol for economic colonialism around the world? Should they be startled when extremists see America as their most legitimate international target?
This is a Change America desperately needs. We need to adopt a foreign policy based on the legitimate long-term interests of a safe, peaceful, and prosperous world, not a world in which short-term greed demands the encouragement of conflict and repression. We can see what happens when we work with other nations for mutual benefit.
Let’s stop fighting world development and start encouraging it. Cuba is the perfect place to begin.
Friday, April 17, 2009
Saturday, April 11, 2009
Helpless in Somalia
I really don’t understand the confusion about how to deal with the pirates off the Horn of Africa. It seems so obvious to me.
The news reports assure us that there are so many millions of square miles of water to patrol that it is impossible to be find those speedy little pirate vessels. In the case of the hijacking of the “Maersk Alabama” this past week, the USS Bainbridge had to travel hundreds of miles to reach the attacked vessel.
Unfortunately, it isn’t true that the navies of the world don’t know where the pirates will attack. The pirates will attack where the commercial ships are. To keep the pirates away from these ships, all you have to do is provide escorts.
This, of course, is a ridiculous notion. There are not enough navy ships in the region to escort every tanker, cargo ship, or cruise liner.
But, wait a minute. Wasn’t there a similar kind of problem several years ago -- a problem that was even worse but for which a reasonable solution was found? Let’s see -- what was that problem called?
Oh, yes. It was called WORLD WAR II, and it involved U-boats attacking the ships that carried needed supplies across the Atlantic to Europe. And what was the solution? CONVOYS.
Would it be convenient for the ships that want to travel through the waters off Northeastern Africa to assemble at certain points, wait until certain times, and then travel in groups escorted by small, fast protective vessels like PT boats? Perhaps not, but it might be a lot more convenient than being hijacked and held for millions of dollars in ransom.
Would it be convenient for the navies of the countries whose vessels ply the African waters to work together to set up a coordinated program to provide protective escorts to convoys? Perhaps not, but it might be a lot more convenient and less expensive than sending larger numbers of military ships to wander around the region aimlessly.
Think about it. In order to protect the African shipping lanes, you don’t need large, expensive ships capable of launching ballistic missiles, dropping depth charges on submarines, or carrying aircraft. All you need are small, fast, well-armed boats that are much better designed for fighting than the pirates’ own boats, and are kept near the pirates’ targets.
In the final analysis, which is better -- to spend millions having a large ship with a large crew patrol the empty sea out of reach of the commercial ships they’re supposed to be protecting, or to have a couple of smaller boats with smaller crews spend far less actually accompanying several ships grouped together?
It’s a no-brainer.
The news reports assure us that there are so many millions of square miles of water to patrol that it is impossible to be find those speedy little pirate vessels. In the case of the hijacking of the “Maersk Alabama” this past week, the USS Bainbridge had to travel hundreds of miles to reach the attacked vessel.
Unfortunately, it isn’t true that the navies of the world don’t know where the pirates will attack. The pirates will attack where the commercial ships are. To keep the pirates away from these ships, all you have to do is provide escorts.
This, of course, is a ridiculous notion. There are not enough navy ships in the region to escort every tanker, cargo ship, or cruise liner.
But, wait a minute. Wasn’t there a similar kind of problem several years ago -- a problem that was even worse but for which a reasonable solution was found? Let’s see -- what was that problem called?
Oh, yes. It was called WORLD WAR II, and it involved U-boats attacking the ships that carried needed supplies across the Atlantic to Europe. And what was the solution? CONVOYS.
Would it be convenient for the ships that want to travel through the waters off Northeastern Africa to assemble at certain points, wait until certain times, and then travel in groups escorted by small, fast protective vessels like PT boats? Perhaps not, but it might be a lot more convenient than being hijacked and held for millions of dollars in ransom.
Would it be convenient for the navies of the countries whose vessels ply the African waters to work together to set up a coordinated program to provide protective escorts to convoys? Perhaps not, but it might be a lot more convenient and less expensive than sending larger numbers of military ships to wander around the region aimlessly.
Think about it. In order to protect the African shipping lanes, you don’t need large, expensive ships capable of launching ballistic missiles, dropping depth charges on submarines, or carrying aircraft. All you need are small, fast, well-armed boats that are much better designed for fighting than the pirates’ own boats, and are kept near the pirates’ targets.
In the final analysis, which is better -- to spend millions having a large ship with a large crew patrol the empty sea out of reach of the commercial ships they’re supposed to be protecting, or to have a couple of smaller boats with smaller crews spend far less actually accompanying several ships grouped together?
It’s a no-brainer.
Monday, March 30, 2009
Is Obama Taking On Too Much?
This is a pretty simple topic, really. As always, it doesn’t pay to get so distracted by the details that you can’t see the Big Picture. Seeing the Big Picture is the primary element of the Change We Need. Once you see the Big Picture, you begin to understand why a lot of the smaller quibbles are either beside the point or downright destructive to our getting where we need to be.
Is our president taking on too much?
Imagine this situation: Our Hero Jim has been handed a pickup truck and told he can make a fine living delivering groceries. There’s only one problem. The truck is completely worn out. The motor is broken down, the tires have not only gone bald but have blown out, the muffler has rusted off, and the gas tank is completely empty.
So what should Jim do? He reasoned that in order to deliver any groceries he’s going to need to get the truck repaired, so he went to his friend Bill, the out-of-work mechanic, and asked him to do the work for him on credit. Jim pointed out that he had a good job working for a good company, and all he needed was to get the truck running in order to start raking in the paychecks. He’d be able to pay Bill off in no time.
Well, Bill said, things aren’t as easy as all that. Sure, he’d love to fix the truck. Nothing would please him more. But even though fixing Jim’s truck is the only job possibility he’s got right now, still, it would be taking a risk. What if Jim lost his job later? What if people stopped ordering groceries?
But you won’t have any income at all, yourself, if you don’t fix the truck, Jim argued. Isn’t it work the risk?
All right, Bill said. I’ll meet you halfway. I’ll fix the motor, but I won’t fix the tires or the muffler or give you any gas until you’ve earned enough money to pay off the motor repairs.
It was a fair compromise. Bill only had to spend half as much time working before he could sit back and wait to get paid. Unfortunately, since only part of the truck was repaired, Jim wasn’t able to go to work, he lost his job, and Bill not only did half the job, he didn’t get paid for any of it.
When I look at the attitude of the U.S. Legislature to the Obama Administration’s requests for support, I get the same feeling, only I’m a little more frustrated because I’m personally involved. First, the senators and representatives reluctantly approve the Stimulus Package, quibbling over some of its details. Then they balk at the budget. Their arguments seem to center around the notion that since we spent a lot on the Stimulus, we now have to economize on everything else. This is kind of like taking some money out of your pocket with your left hand, then putting it back into your pocket with your right hand, and claiming that you’ve accomplished something.
What they don’t seem to get is that just because it costs money to repair things, that doesn’t mean that you save money by putting off the repairs. It also costs money to try to operate with tools and machinery that are broken.
The US health care system is broken, and costs billions more to operate than it should. Obama wants to fix it. But the legislators say that fixing it will be expensive, so let’s waste a lot of money now and spend the money to fix it later, when the economy has recovered. Unfortunately, they ignore the fact that it is much harder for the economy to recover when it is staggering under the burden of a broken and inefficient and extravagantly expensive health care system.
Obama understands that the Economy is not simply a group of factories that are either making goods or not. It is not simply a group of banks and other financial enterprises that are either loaning money or not. It is the Whole Ball of Wax. If you want the Economy to operate efficiently enough to get us out of this mess, YOU HAVE TO FIX THE WHOLE THING, OR THE WHOLE THING WON’T WORK.
By refusing to fix the whole thing at once, the legislature (and the part of the public they frighten into following them) will make sure that the recovery fails to be robust. And as a result, the deficits we face will not fall, because the GDP will not be high enough to generate the revenues that could beat those deficits down. And then the legislators will say, after having prevented the recovery, See? We told you it wouldn’t work. Isn’t it lucky that we didn’t let you spend any more money?
No, it isn’t lucky. It will be the failure to spend the money to improve our Health Care system and our Energy system and our other basic services that will be responsible for dragging the recovery out over years and years instead of enabling it to take effect quickly, allowing us to move on to further improvements.
Is our president taking on too much?
Imagine this situation: Our Hero Jim has been handed a pickup truck and told he can make a fine living delivering groceries. There’s only one problem. The truck is completely worn out. The motor is broken down, the tires have not only gone bald but have blown out, the muffler has rusted off, and the gas tank is completely empty.
So what should Jim do? He reasoned that in order to deliver any groceries he’s going to need to get the truck repaired, so he went to his friend Bill, the out-of-work mechanic, and asked him to do the work for him on credit. Jim pointed out that he had a good job working for a good company, and all he needed was to get the truck running in order to start raking in the paychecks. He’d be able to pay Bill off in no time.
Well, Bill said, things aren’t as easy as all that. Sure, he’d love to fix the truck. Nothing would please him more. But even though fixing Jim’s truck is the only job possibility he’s got right now, still, it would be taking a risk. What if Jim lost his job later? What if people stopped ordering groceries?
But you won’t have any income at all, yourself, if you don’t fix the truck, Jim argued. Isn’t it work the risk?
All right, Bill said. I’ll meet you halfway. I’ll fix the motor, but I won’t fix the tires or the muffler or give you any gas until you’ve earned enough money to pay off the motor repairs.
It was a fair compromise. Bill only had to spend half as much time working before he could sit back and wait to get paid. Unfortunately, since only part of the truck was repaired, Jim wasn’t able to go to work, he lost his job, and Bill not only did half the job, he didn’t get paid for any of it.
When I look at the attitude of the U.S. Legislature to the Obama Administration’s requests for support, I get the same feeling, only I’m a little more frustrated because I’m personally involved. First, the senators and representatives reluctantly approve the Stimulus Package, quibbling over some of its details. Then they balk at the budget. Their arguments seem to center around the notion that since we spent a lot on the Stimulus, we now have to economize on everything else. This is kind of like taking some money out of your pocket with your left hand, then putting it back into your pocket with your right hand, and claiming that you’ve accomplished something.
What they don’t seem to get is that just because it costs money to repair things, that doesn’t mean that you save money by putting off the repairs. It also costs money to try to operate with tools and machinery that are broken.
The US health care system is broken, and costs billions more to operate than it should. Obama wants to fix it. But the legislators say that fixing it will be expensive, so let’s waste a lot of money now and spend the money to fix it later, when the economy has recovered. Unfortunately, they ignore the fact that it is much harder for the economy to recover when it is staggering under the burden of a broken and inefficient and extravagantly expensive health care system.
Obama understands that the Economy is not simply a group of factories that are either making goods or not. It is not simply a group of banks and other financial enterprises that are either loaning money or not. It is the Whole Ball of Wax. If you want the Economy to operate efficiently enough to get us out of this mess, YOU HAVE TO FIX THE WHOLE THING, OR THE WHOLE THING WON’T WORK.
By refusing to fix the whole thing at once, the legislature (and the part of the public they frighten into following them) will make sure that the recovery fails to be robust. And as a result, the deficits we face will not fall, because the GDP will not be high enough to generate the revenues that could beat those deficits down. And then the legislators will say, after having prevented the recovery, See? We told you it wouldn’t work. Isn’t it lucky that we didn’t let you spend any more money?
No, it isn’t lucky. It will be the failure to spend the money to improve our Health Care system and our Energy system and our other basic services that will be responsible for dragging the recovery out over years and years instead of enabling it to take effect quickly, allowing us to move on to further improvements.
Tuesday, February 17, 2009
Effectively Addressing the Foreclosure Problem
As we’ve discussed before, achieving real and effective Change requires stepping back and understanding the problem. If rabbits are eating up all the carrots in the garden, our first instinct is to grab for a gun. But killing rabbits may not be the answer. The problem is not the rabbits; the problem is the insecurity of the carrots. There are many possible solutions, and shooting rabbits may not be the best solution, or even a good solution. We’ll never know if we simply jump up, grab the shotgun, and head out the door.
The foreclosure and mortgage crisis is causing us serious problems. But what are those problems, and what is the best way to address them?
First, banks and other financial institutions that have Toxic Assets on their books simply aren’t trusted by other institutions, and have trouble getting credit themselves. Banks that can’t get credit can’t lend money. Banks that are asked to lend money to financial institutions at risk won’t do it. As a result, lending has dried up. The government has pumped money into many of these banks, but because the demands on the financial system fluctuate from place to place and from time to time, the system’s operation depends on frequent lending and paying back, even among banks that have money. And the banks aren’t willing to lend to each other. They now have nice piles of government cash, but that cash is going nowhere.
Second, without credit flowing, people willing to buy homes can’t get loans and can’t buy. Homeowners who need to sell drop their prices. All over the country, home values are falling, sometimes drastically, but almost always significantly.
Third, the credit crunch affects businesses that depend on short term loans to cover the costs of capital improvements, of payroll, and of other major expenditures. The result is that purchases aren’t made, profits are lost, businesses go into the red or even fail altogether, and employees are laid off. These employees lose their purchasing power, and can’t pay their mortgages. Foreclosure rates skyrocket.
The banks end up not only with “toxic” sub-prime mortgages, but with prime mortgages that have gone sour as well. When they foreclose, they’re stuck with managing properties that are dropping in value, don’t make up for the value of the original loans, and for which there are no buyers in any case.
The problem is not just about the property owners, and it is not just about the banks and their lending practices. The problem is about the complex system that unites them both. The solution to the problem must address the entire mix.
Here’s my proposal:
1) The government should create a new entity, which we can call the National Mortgage Bank (NMB). This entity will buy all of the Toxic Assets held by the banks — that is, all of the subprime mortgages, and all of the other mortgages that are heading for foreclosure.
2) To purchase these mortgages, the government will give the banks bonds guaranteed by the government. Why? Because the bonds will be trusted to retain their value where the mortgages are not.
3) The purchase price for the mortgages will be in line with the current value of the properties involved. This way the banks will not lose any money they haven’t already lost, and the government will not pay more than the actual value of the properties. The drain on the banks will cease, and they will no longer be viewed as risks by other financial institutions.
4) The NMB will then renegotiate all the mortgages it has bought. These renegotiated mortgages will be valued at the price the government paid for them, but the terms of the mortgages will be determined by the abilities of the borrowers to pay. One of the provisions of these new mortgages will be that if the borrower loses his or her employment and therefore the ability to make payments, there will be a temporary moratorium on making those payments (how long this moratorium might last will need to be determined — perhaps it should be for as long as unemployment benefits last, with the understanding that this should give the homeowner time to sell in the new, more stable economic environment that will follow the establishment of this policy).
5) When a homeowner does sell, he or she will pay off the mortgage, with the added proviso that one quarter of any money the homeowner makes above the value set on the renegotiated mortgage will be given to the government. Today this seems like it will give the government nothing, but as stability returns to the economy over the next few years, housing values will rebound, and by the time a long-term homeowner sells, the difference between the house’s value today and its value on the sale date could be considerable.
Let’s look at how this works in a brief example. First, a bank buys a mortgage for $1 million dollars. Then the economy falls apart, at the same time that the house payments jump up in size. The value of the home drops to $750,000, and the homeowner suddenly finds herself unable to make the payments. The bank forecloses. The one-time homeowner is now out on the street. The house stands there, empty, while no one buys. The bank pays for maintenance on the home to keep it from losing more value. Someone would like to buy the home for $600,000, and the bank is willing to sell, but not willing to write a loan, and no other bank is ready to write the loan either. So there’s no sale. What is the value of this property to the bank? There is an asset on the books, but it can’t be turned into cash.
But what if the NMB stepped in before the foreclosure? The NMB gives the bank $750,000 in government bonds, which the bank can trade or sell. This immediately gives the bank liquidity. The NMB then renegotiates the loan with the homeowner, who can stay in the home but with much reduced payments. After a year, the economy begins to improve. After three years, the value of the house has risen to $800,000, and the homeowner has obtained a better job. After eight years, the house value is back up to $ 1 million, and the homeowner decides to sell. The government has received the renegotiated house payments regularly, and is now paid the remaining principal on the mortgage, along with an additional $62,500, the government’s 25% benefit for performing this service. The homeowner who would have broken even at $1 million if she had been able to maintain her payments and not risked foreclosure, now finds herself $187,500 to the good.
Who loses? The bank. But the bank loses much less than it would otherwise, and is able to get back to the business of banking instead of simply being a money-losing real estate maintenance firm.
Who gains? The person who didn’t lose her house, and was able to survive through tough times thanks to the help of her fellow citizens.
And what about those citizens? What about their taxpayer dollars? Well, they didn’t actually lose much of anything, in the long run. The NMB merely held the assets in good condition for a longer period of time than a bank could, with less pain to the homeowners, and with a decidedly beneficial effect for the economy.
What about that $62,500? Well, that helps pay some of the interest on those bonds given to the banks, and it helps to defray some of the cost of operating the NMB. Is the government going to come out with a profit? Maybe not directly, but if this kind of approach to the mortgage crisis can help stabilize the economy and start getting it turned around, then everyone, including the government, benefits indirectly.
The taxpayers don’t lose on this one, even if they put out some funding to start the process moving.
The foreclosure and mortgage crisis is causing us serious problems. But what are those problems, and what is the best way to address them?
First, banks and other financial institutions that have Toxic Assets on their books simply aren’t trusted by other institutions, and have trouble getting credit themselves. Banks that can’t get credit can’t lend money. Banks that are asked to lend money to financial institutions at risk won’t do it. As a result, lending has dried up. The government has pumped money into many of these banks, but because the demands on the financial system fluctuate from place to place and from time to time, the system’s operation depends on frequent lending and paying back, even among banks that have money. And the banks aren’t willing to lend to each other. They now have nice piles of government cash, but that cash is going nowhere.
Second, without credit flowing, people willing to buy homes can’t get loans and can’t buy. Homeowners who need to sell drop their prices. All over the country, home values are falling, sometimes drastically, but almost always significantly.
Third, the credit crunch affects businesses that depend on short term loans to cover the costs of capital improvements, of payroll, and of other major expenditures. The result is that purchases aren’t made, profits are lost, businesses go into the red or even fail altogether, and employees are laid off. These employees lose their purchasing power, and can’t pay their mortgages. Foreclosure rates skyrocket.
The banks end up not only with “toxic” sub-prime mortgages, but with prime mortgages that have gone sour as well. When they foreclose, they’re stuck with managing properties that are dropping in value, don’t make up for the value of the original loans, and for which there are no buyers in any case.
The problem is not just about the property owners, and it is not just about the banks and their lending practices. The problem is about the complex system that unites them both. The solution to the problem must address the entire mix.
Here’s my proposal:
1) The government should create a new entity, which we can call the National Mortgage Bank (NMB). This entity will buy all of the Toxic Assets held by the banks — that is, all of the subprime mortgages, and all of the other mortgages that are heading for foreclosure.
2) To purchase these mortgages, the government will give the banks bonds guaranteed by the government. Why? Because the bonds will be trusted to retain their value where the mortgages are not.
3) The purchase price for the mortgages will be in line with the current value of the properties involved. This way the banks will not lose any money they haven’t already lost, and the government will not pay more than the actual value of the properties. The drain on the banks will cease, and they will no longer be viewed as risks by other financial institutions.
4) The NMB will then renegotiate all the mortgages it has bought. These renegotiated mortgages will be valued at the price the government paid for them, but the terms of the mortgages will be determined by the abilities of the borrowers to pay. One of the provisions of these new mortgages will be that if the borrower loses his or her employment and therefore the ability to make payments, there will be a temporary moratorium on making those payments (how long this moratorium might last will need to be determined — perhaps it should be for as long as unemployment benefits last, with the understanding that this should give the homeowner time to sell in the new, more stable economic environment that will follow the establishment of this policy).
5) When a homeowner does sell, he or she will pay off the mortgage, with the added proviso that one quarter of any money the homeowner makes above the value set on the renegotiated mortgage will be given to the government. Today this seems like it will give the government nothing, but as stability returns to the economy over the next few years, housing values will rebound, and by the time a long-term homeowner sells, the difference between the house’s value today and its value on the sale date could be considerable.
Let’s look at how this works in a brief example. First, a bank buys a mortgage for $1 million dollars. Then the economy falls apart, at the same time that the house payments jump up in size. The value of the home drops to $750,000, and the homeowner suddenly finds herself unable to make the payments. The bank forecloses. The one-time homeowner is now out on the street. The house stands there, empty, while no one buys. The bank pays for maintenance on the home to keep it from losing more value. Someone would like to buy the home for $600,000, and the bank is willing to sell, but not willing to write a loan, and no other bank is ready to write the loan either. So there’s no sale. What is the value of this property to the bank? There is an asset on the books, but it can’t be turned into cash.
But what if the NMB stepped in before the foreclosure? The NMB gives the bank $750,000 in government bonds, which the bank can trade or sell. This immediately gives the bank liquidity. The NMB then renegotiates the loan with the homeowner, who can stay in the home but with much reduced payments. After a year, the economy begins to improve. After three years, the value of the house has risen to $800,000, and the homeowner has obtained a better job. After eight years, the house value is back up to $ 1 million, and the homeowner decides to sell. The government has received the renegotiated house payments regularly, and is now paid the remaining principal on the mortgage, along with an additional $62,500, the government’s 25% benefit for performing this service. The homeowner who would have broken even at $1 million if she had been able to maintain her payments and not risked foreclosure, now finds herself $187,500 to the good.
Who loses? The bank. But the bank loses much less than it would otherwise, and is able to get back to the business of banking instead of simply being a money-losing real estate maintenance firm.
Who gains? The person who didn’t lose her house, and was able to survive through tough times thanks to the help of her fellow citizens.
And what about those citizens? What about their taxpayer dollars? Well, they didn’t actually lose much of anything, in the long run. The NMB merely held the assets in good condition for a longer period of time than a bank could, with less pain to the homeowners, and with a decidedly beneficial effect for the economy.
What about that $62,500? Well, that helps pay some of the interest on those bonds given to the banks, and it helps to defray some of the cost of operating the NMB. Is the government going to come out with a profit? Maybe not directly, but if this kind of approach to the mortgage crisis can help stabilize the economy and start getting it turned around, then everyone, including the government, benefits indirectly.
The taxpayers don’t lose on this one, even if they put out some funding to start the process moving.
Saturday, February 14, 2009
Toward a Saner Drug Policy
One of the key characteristics of the Change we really need is that it doesn’t start where the failed approaches of the past have brought us. Instead of thinking, “How can we modify the way we do things to make our situation better?”, we need to ask, “What do we want our situation to be, and what is the best way to get there?” Then we can look at the difference between how we’ve been doing things and how we need to do things, and figure out whether minor modifications will work, or whether we really need Change.
Current drug policy is an excellent example of government trying to solve problems not by thinking about what will work, but by looking for ways to modify what doesn’t work.
Our current policy (and this concept covers all the interrelated — and occasionally conflicting — policies of the different levels of government in the US, as well as the policies in place in most other countries and in agreements between countries) is not only ineffective, it is counterproductive, and in several ways:
• First, efforts to halt drug use and drug trafficking require huge amounts of manpower and extensive outlays for hardware, much of it high-tech.
• Second, the more “successful” our current anti-drug programs are, the more crowded our prisons become, and, as a result, the less effective they are at promoting rehabilitation.
• Third, the more “successful” these programs are, the harder it is for suppliers to get drugs to users, and therefore the higher the prices must be for the drugs. This results in increased efforts to provide supply, which in turn encourages increases in the cultivation of the plants that provide some of the drugs, and the manufacture of those drugs that aren’t biologically-based.
• Fourth, as drugs get harder to get and prices rise, the drug user’s need for funds increases, and more criminal activity becomes necessary in order to obtain those funds.
• Fifth, as anti-drug techniques improve, drug users and drug traffickers are pushed farther underground, and development of new techniques becomes necessary. The new techniques must be more sophisticated, and as they become more sophisticated the cost of their development grows exponentially.
• Sixth, if efforts at interdiction of drugs become more successful, the supply is lessened, and replacement supply is needed by traffickers. This means more encouragement for opium farmers in Afghanistan, and consequently growing profits making their way to terrorists.
Is that a long enough list of the impact of current policy?
And what happens to the users under this system? Are they being cared for? Helped to kick their habits? No. As noted above, in order to maintain their supply, they have to meet the traffickers halfway, which means going underground, avoiding notice, keeping a distance from authority. This makes helping them all but impossible.
So let’s start over by asking the basic question, “What do we want our situation to be, and what is the best way to get there?”
We really want to do several things. We want to help users kick the habit. We want to reduce crime and the costs of crime. We want to make things tougher on terrorists. We want to have better information about where our problem populations are.
How can we do all of these things if we don’t form armies of police and send them around the world?
The basic answer is pretty simple, really. Decriminalize drugs.
If the government dispenses drugs to users in government facilities, what happens?
• First, the cost of drugs plummets because the government authorizes their legal production by private business concerns.
• Second, the users don’t need to turn to criminals to get their drugs. Why should they, when the drugs are far cheaper from the government?
• Third, without a market, criminal production and trafficking dries up.
• Fourth, the need for law enforcement to police the criminals is dramatically reduced.
• Third, the amount of crime committed in order to get funds to buy drugs drops dramatically, reducing both the costs of law enforcement and the need for prison construction.
• Fifth, the terrorists lose a prime revenue source, and efforts to discourage poppy cultivation in Afghanistan, not to mention the trafficking of the opium worldwide, become far less necessary.
• Sixth, in order to get their drugs, the users must make themselves known, so we can work with them and help them.
• Seventh, the facilities where users get their drugs do not have to offer long term care; they just have to be medical facilities where users can come, take their drugs, be monitored until they are capable of behaving appropriately outside the facility, then let out. One reason we have tried to lock people into such centers in the past is that we hope to get them “cured” before they are released. If not cured, they may start buying drugs again, and indulging in anti-social behavior such as committing crimes in order to get the money to buy drugs. But our new system allows them access to the drugs without anti-social behavior, and ensures that they will come back to the facility if they need drugs, not go elsewhere. But getting this government help won’t be a free ride. It will involve working with specialists who can try to help these people get off drugs, or find appropriate situations in which to live if they can’t.
The cost of decriminalizing but monitoring drug use will be a drop in the bucket compared to the costs of current policy, but the social benefits for all concerned will be tremendous.
A quick look at the effectiveness of Prohibition gives us a comparison, though the repeal of Prohibition failed to supply us with an effective method for controlling the use of alcohol. During Prohibition we had extensive illegal activity prompting widespread disdain of the law (a bad situation to get into in its own right!), intensive criminal activity spilling over into violence against the citizenry at large, and heavy costs associated with efforts at enforcement.
Most of the Prohibition-related problems declined significantly once Prohibition was repealed. We now have regulation of sales, and we have acceptable control over distribution, and the major profits reaped by serious criminals have generally disappeared. These improvements have led to healthy social and financial improvements for the government. On the other hand, deaths and costs due to drunk driving, impaired decision-making leading to crime and injury, and incredible health expenses related to alcohol abuse, among other difficulties, still remain to be addressed effectively.
The nature of drinking as a social activity complicates the effort to come up with a more satisfactory solution to the problems drinking causes, but that is not the case with drug use, and shouldn’t discourage us from addressing the problems associated with drug use now. All we need is a little creativity in how we design, locate, and operate our drug-use establishments, systems, and regulations.
This means Change for our policy on drugs. Our Standard Operating Procedure has proved inadequate. Tinkering with it won’t help. We need to start over from scratch. Figuring out the details of how to decriminalize drug use is an excellent place to begin.
Current drug policy is an excellent example of government trying to solve problems not by thinking about what will work, but by looking for ways to modify what doesn’t work.
Our current policy (and this concept covers all the interrelated — and occasionally conflicting — policies of the different levels of government in the US, as well as the policies in place in most other countries and in agreements between countries) is not only ineffective, it is counterproductive, and in several ways:
• First, efforts to halt drug use and drug trafficking require huge amounts of manpower and extensive outlays for hardware, much of it high-tech.
• Second, the more “successful” our current anti-drug programs are, the more crowded our prisons become, and, as a result, the less effective they are at promoting rehabilitation.
• Third, the more “successful” these programs are, the harder it is for suppliers to get drugs to users, and therefore the higher the prices must be for the drugs. This results in increased efforts to provide supply, which in turn encourages increases in the cultivation of the plants that provide some of the drugs, and the manufacture of those drugs that aren’t biologically-based.
• Fourth, as drugs get harder to get and prices rise, the drug user’s need for funds increases, and more criminal activity becomes necessary in order to obtain those funds.
• Fifth, as anti-drug techniques improve, drug users and drug traffickers are pushed farther underground, and development of new techniques becomes necessary. The new techniques must be more sophisticated, and as they become more sophisticated the cost of their development grows exponentially.
• Sixth, if efforts at interdiction of drugs become more successful, the supply is lessened, and replacement supply is needed by traffickers. This means more encouragement for opium farmers in Afghanistan, and consequently growing profits making their way to terrorists.
Is that a long enough list of the impact of current policy?
And what happens to the users under this system? Are they being cared for? Helped to kick their habits? No. As noted above, in order to maintain their supply, they have to meet the traffickers halfway, which means going underground, avoiding notice, keeping a distance from authority. This makes helping them all but impossible.
So let’s start over by asking the basic question, “What do we want our situation to be, and what is the best way to get there?”
We really want to do several things. We want to help users kick the habit. We want to reduce crime and the costs of crime. We want to make things tougher on terrorists. We want to have better information about where our problem populations are.
How can we do all of these things if we don’t form armies of police and send them around the world?
The basic answer is pretty simple, really. Decriminalize drugs.
If the government dispenses drugs to users in government facilities, what happens?
• First, the cost of drugs plummets because the government authorizes their legal production by private business concerns.
• Second, the users don’t need to turn to criminals to get their drugs. Why should they, when the drugs are far cheaper from the government?
• Third, without a market, criminal production and trafficking dries up.
• Fourth, the need for law enforcement to police the criminals is dramatically reduced.
• Third, the amount of crime committed in order to get funds to buy drugs drops dramatically, reducing both the costs of law enforcement and the need for prison construction.
• Fifth, the terrorists lose a prime revenue source, and efforts to discourage poppy cultivation in Afghanistan, not to mention the trafficking of the opium worldwide, become far less necessary.
• Sixth, in order to get their drugs, the users must make themselves known, so we can work with them and help them.
• Seventh, the facilities where users get their drugs do not have to offer long term care; they just have to be medical facilities where users can come, take their drugs, be monitored until they are capable of behaving appropriately outside the facility, then let out. One reason we have tried to lock people into such centers in the past is that we hope to get them “cured” before they are released. If not cured, they may start buying drugs again, and indulging in anti-social behavior such as committing crimes in order to get the money to buy drugs. But our new system allows them access to the drugs without anti-social behavior, and ensures that they will come back to the facility if they need drugs, not go elsewhere. But getting this government help won’t be a free ride. It will involve working with specialists who can try to help these people get off drugs, or find appropriate situations in which to live if they can’t.
The cost of decriminalizing but monitoring drug use will be a drop in the bucket compared to the costs of current policy, but the social benefits for all concerned will be tremendous.
A quick look at the effectiveness of Prohibition gives us a comparison, though the repeal of Prohibition failed to supply us with an effective method for controlling the use of alcohol. During Prohibition we had extensive illegal activity prompting widespread disdain of the law (a bad situation to get into in its own right!), intensive criminal activity spilling over into violence against the citizenry at large, and heavy costs associated with efforts at enforcement.
Most of the Prohibition-related problems declined significantly once Prohibition was repealed. We now have regulation of sales, and we have acceptable control over distribution, and the major profits reaped by serious criminals have generally disappeared. These improvements have led to healthy social and financial improvements for the government. On the other hand, deaths and costs due to drunk driving, impaired decision-making leading to crime and injury, and incredible health expenses related to alcohol abuse, among other difficulties, still remain to be addressed effectively.
The nature of drinking as a social activity complicates the effort to come up with a more satisfactory solution to the problems drinking causes, but that is not the case with drug use, and shouldn’t discourage us from addressing the problems associated with drug use now. All we need is a little creativity in how we design, locate, and operate our drug-use establishments, systems, and regulations.
This means Change for our policy on drugs. Our Standard Operating Procedure has proved inadequate. Tinkering with it won’t help. We need to start over from scratch. Figuring out the details of how to decriminalize drug use is an excellent place to begin.
Friday, February 13, 2009
Understanding What Economic Stimulus Means
When you watch the news these days, you see and hear a lot of people arguing about what will or won’t Stimulate the Economy. As far as I can see, most of these people don’t get it. Barack Obama gets it, because he has a Big Picture approach to the problems we’re facing. Unfortunately, he’s not saying what he needs to say so that other people can get it.
It isn’t only money, and it isn’t only jobs. What we have to stimulate is the whole economy. What does that mean? That means we have to take actions that are going to result in the whole economic system running more efficiently, more effectively, and more cheaply, so that the businesses of the country have a good shot at continuing to make progress after the Stimulus funds run out.
Let’s consider how this works. When you improve a highway, you put construction people to work. Those construction people can then go out and spend their earnings buying things. The stores that sell those things and the companies that make those things can then afford to keep their own employees on the payroll, because the orders are coming in. When those employees keep their jobs, they keep money flowing into the economy to help other stores and businesses. In addition to all this, every person who’s employed puts money into the government through taxes, and puts more money into government by no longer needing financial support through unemployment insurance payments and food stamps. And so on.
But that’s just the surface of the situation. We started with improving a highway. When that improvement is finished, traffic flows will be improved. The road should be safer, and should be able to move more vehicles faster. Faster transport lowers the cost of moving goods for business, freeing up more money for hiring employees (!) or even reducing prices (which would allow our newly employed road-builders to spend their dollars on a wider range of goods).
If the plan is well-designed, by the time the construction projects are completed — and that will be a long time — the economy will be building up again and workers will be needed for other construction projects, such as erecting business offices or manufacturing premises.
One reason this works is because the Stimulus plan is not limited to improving highways. There is the redesign and rebuilding of the energy grid, to improve its capacity to carry energy produced by alternative technology to the places where that energy is needed. An upgraded grid will be more efficient and will help reduce the cost of power down the line. In an information age, a stable electric system will be critical to expanding business.
Significant, organized expansion of our communications system, improving broadband access, is another important step to make sure American businesses remain competitive in an age when China and India are making great strides in technology.
Sure, all of this is infrastructure work that will require a large number of workers, but it doesn’t stop stimulating the economy when the construction is over. It will stimulate economic growth for years to come.
But let’s not stop there. What else can the government do to improve the business climate? For one thing, it can support the adequate training of our future work force, our future managers, our future businessmen, our future engineers and technologists. How? By improving the schools, both in terms of the physical buildings and in terms of what those buildings contain — good teachers and administrators, developing good students. Refusing to spend money on education because it “doesn’t stimulate the economy” is like refusing to buy quality ingredients for a restaurant and then wondering why the food doesn’t attract customers.
What about the computerization of medical records? Eliminating the wasteful expense of maintaining paper-based record systems in our medical facilities will reduce the overhead passed on to the patients. This in turn cuts into the amount of insurance needed, which should lower premiums. Where does that savings go? Right back into the economy. Not only is the hospital running more efficiently and handling internal and external information demands more rapidly (thus saving lives and reducing medical complications as a marvelous bonus), it is also saving money and allowing more money to flow where it really is needed.
Are there other systems that the government could beef up in order to enhance the smooth running of business? Of course. The post office is threatening to cut back service because it can’t meet all its expenses. Will slowing the flow of the mail be good for America’s business? And if keeping the mail moving is a basic need of the economy, why are we asking those who send first class mail to bear most of the cost? Shouldn’t this be subsidised by the taxpayer in the long term, in the best interests of the citizenry as a whole?
And what about Amtrak? America is a big country, and there’s a lot of empty space between population centers in the West. Who should pay for people to move from place to place? As long as we don’t treat our rail service seriously as a form of mass transit, we’re encouraging people to buy private transport and burn foreign-source fossil fuels to move from place to place. Will it stimulate the economy to improve our rail system, both for passenger travel and for freight movement as well? You can be sure of it.
The cost of moving goods by rail is far less per mile than other forms of transport, but all we’ve done to encourage the use of rail is talk about it. The service on Amtrak, compared to train service in Europe and Japan, is a joke. The improvement of the rail system has to go beyond merely straightening a few rails. We need to add lines, so Amtrak and freight trains can use them simultaneously. We need to improve service, so using trains is more satisfactory. We need to increase service, so it’s actually available when people need it. We need to recognize that a government subsidy may be needed in order to make this vital economic element of our system workable.
The same thing is true of mass transit systems in our urban areas. If we really want people to leave their cars out of the central cities (thus reducing fuel use, relieving congestion, and eliminating need for expanded parking), we have to make it more satisfactory to ride the bus. This means more routes, more frequent travel and lower fares. Will the bus service pay for itself? Probably not, but why should it? When we look at what our economy is gaining by providing this service below cost, it more than pays for itself in savings.
This is one of the major problems that we have faced when talking about the Stimulus Package. People think about the major element involved in the package, and how that stimulates the economy — like the hiring of construction workers — but they forget to go beyond that and see the incredible array of side effects. People don’t think about the interrelated nature of all of these actions and how every little boost given by one program is multiplied by boosts coming in from every other direction as well. People don’t look at the Big Picture, and don’t ask the Big Question:
How can we spend our money so that it really stimulates the economy — and how can we measure whether the economy is stimulated?
There are a few key premises that have to be kept in mind.
• First, giving tax breaks to people who have lost their jobs and so don’t pay taxes does those people little good.
• Second, giving money to people who already have money is not going to get that money into the economy. It is the lower-earning worker who is guaranteed to put his money back into the economy, while the higher-earning worker can simply save his extra earnings against the time when he feels it safe to invest again. Hiring three workers at $30,000 each will do more for the economy than hiring one person at $90,000, partly because it takes two more people off the unemployment rolls!
• Third, spending money in endeavors that are labor-intensive is more effective than spending it on expensive equipment — unless that equipment is going to provide long-term savings that will make the economy run significantly more smoothly. Cost effectiveness has to be examined carefully. A prime example of non-stimulating spending is the buying of expensive weapons systems, which are used once and destroyed in the process of use. Sure, a few people work in the weapons factories, but when you look at how effectively the spending of money on weapons has improved our economy (especially when you consider how effective those weapons have been, per dollar spent, on achieving the purpose for which they were made), you can only sigh.
• Fourth, the government needs to focus on providing the services necessary to keep business moving effectively. Infrastructure is more than such physical things as roads, bridges, and high-power lines. It is also services like the mail, education, health care, and mass transit. There are many functions that government performs that have become serious bottlenecks to progress — the FDA doesn’t have enough inspectors to thoroughly check our food, and bad meat and produce are reaching our stores as a result. Recalls are an incredible waste of everyone’s money, and are brought on by the “savings” of reducing inspection staffs. The same is true of our Air Traffic Control system, other regulatory agencies, our court systems, and so on. The impact on the economy of all these poorly operating, glacially-moving systems is incredible, and all that’s really needed is a little manpower. Why don’t we have this manpower already? Because too many people think that government involvement is “Socialism”. Well, you can’t have it both ways. Either the governnment provides the services the country needs, or the entire country and its economy suffer.
In the final analysis, the stimulus that works is the stimulus that pumps as much money into the economy (as opposed to under people’s mattresses) as possible, gets as many people off of unproductive government funding (like unemployment and food stamps) as possible, and simultaneously improves for as long as possible the efficiency of the system in which business works. No project that does all of these things is “Pork”, and that’s all there is to it.
It isn’t only money, and it isn’t only jobs. What we have to stimulate is the whole economy. What does that mean? That means we have to take actions that are going to result in the whole economic system running more efficiently, more effectively, and more cheaply, so that the businesses of the country have a good shot at continuing to make progress after the Stimulus funds run out.
Let’s consider how this works. When you improve a highway, you put construction people to work. Those construction people can then go out and spend their earnings buying things. The stores that sell those things and the companies that make those things can then afford to keep their own employees on the payroll, because the orders are coming in. When those employees keep their jobs, they keep money flowing into the economy to help other stores and businesses. In addition to all this, every person who’s employed puts money into the government through taxes, and puts more money into government by no longer needing financial support through unemployment insurance payments and food stamps. And so on.
But that’s just the surface of the situation. We started with improving a highway. When that improvement is finished, traffic flows will be improved. The road should be safer, and should be able to move more vehicles faster. Faster transport lowers the cost of moving goods for business, freeing up more money for hiring employees (!) or even reducing prices (which would allow our newly employed road-builders to spend their dollars on a wider range of goods).
If the plan is well-designed, by the time the construction projects are completed — and that will be a long time — the economy will be building up again and workers will be needed for other construction projects, such as erecting business offices or manufacturing premises.
One reason this works is because the Stimulus plan is not limited to improving highways. There is the redesign and rebuilding of the energy grid, to improve its capacity to carry energy produced by alternative technology to the places where that energy is needed. An upgraded grid will be more efficient and will help reduce the cost of power down the line. In an information age, a stable electric system will be critical to expanding business.
Significant, organized expansion of our communications system, improving broadband access, is another important step to make sure American businesses remain competitive in an age when China and India are making great strides in technology.
Sure, all of this is infrastructure work that will require a large number of workers, but it doesn’t stop stimulating the economy when the construction is over. It will stimulate economic growth for years to come.
But let’s not stop there. What else can the government do to improve the business climate? For one thing, it can support the adequate training of our future work force, our future managers, our future businessmen, our future engineers and technologists. How? By improving the schools, both in terms of the physical buildings and in terms of what those buildings contain — good teachers and administrators, developing good students. Refusing to spend money on education because it “doesn’t stimulate the economy” is like refusing to buy quality ingredients for a restaurant and then wondering why the food doesn’t attract customers.
What about the computerization of medical records? Eliminating the wasteful expense of maintaining paper-based record systems in our medical facilities will reduce the overhead passed on to the patients. This in turn cuts into the amount of insurance needed, which should lower premiums. Where does that savings go? Right back into the economy. Not only is the hospital running more efficiently and handling internal and external information demands more rapidly (thus saving lives and reducing medical complications as a marvelous bonus), it is also saving money and allowing more money to flow where it really is needed.
Are there other systems that the government could beef up in order to enhance the smooth running of business? Of course. The post office is threatening to cut back service because it can’t meet all its expenses. Will slowing the flow of the mail be good for America’s business? And if keeping the mail moving is a basic need of the economy, why are we asking those who send first class mail to bear most of the cost? Shouldn’t this be subsidised by the taxpayer in the long term, in the best interests of the citizenry as a whole?
And what about Amtrak? America is a big country, and there’s a lot of empty space between population centers in the West. Who should pay for people to move from place to place? As long as we don’t treat our rail service seriously as a form of mass transit, we’re encouraging people to buy private transport and burn foreign-source fossil fuels to move from place to place. Will it stimulate the economy to improve our rail system, both for passenger travel and for freight movement as well? You can be sure of it.
The cost of moving goods by rail is far less per mile than other forms of transport, but all we’ve done to encourage the use of rail is talk about it. The service on Amtrak, compared to train service in Europe and Japan, is a joke. The improvement of the rail system has to go beyond merely straightening a few rails. We need to add lines, so Amtrak and freight trains can use them simultaneously. We need to improve service, so using trains is more satisfactory. We need to increase service, so it’s actually available when people need it. We need to recognize that a government subsidy may be needed in order to make this vital economic element of our system workable.
The same thing is true of mass transit systems in our urban areas. If we really want people to leave their cars out of the central cities (thus reducing fuel use, relieving congestion, and eliminating need for expanded parking), we have to make it more satisfactory to ride the bus. This means more routes, more frequent travel and lower fares. Will the bus service pay for itself? Probably not, but why should it? When we look at what our economy is gaining by providing this service below cost, it more than pays for itself in savings.
This is one of the major problems that we have faced when talking about the Stimulus Package. People think about the major element involved in the package, and how that stimulates the economy — like the hiring of construction workers — but they forget to go beyond that and see the incredible array of side effects. People don’t think about the interrelated nature of all of these actions and how every little boost given by one program is multiplied by boosts coming in from every other direction as well. People don’t look at the Big Picture, and don’t ask the Big Question:
How can we spend our money so that it really stimulates the economy — and how can we measure whether the economy is stimulated?
There are a few key premises that have to be kept in mind.
• First, giving tax breaks to people who have lost their jobs and so don’t pay taxes does those people little good.
• Second, giving money to people who already have money is not going to get that money into the economy. It is the lower-earning worker who is guaranteed to put his money back into the economy, while the higher-earning worker can simply save his extra earnings against the time when he feels it safe to invest again. Hiring three workers at $30,000 each will do more for the economy than hiring one person at $90,000, partly because it takes two more people off the unemployment rolls!
• Third, spending money in endeavors that are labor-intensive is more effective than spending it on expensive equipment — unless that equipment is going to provide long-term savings that will make the economy run significantly more smoothly. Cost effectiveness has to be examined carefully. A prime example of non-stimulating spending is the buying of expensive weapons systems, which are used once and destroyed in the process of use. Sure, a few people work in the weapons factories, but when you look at how effectively the spending of money on weapons has improved our economy (especially when you consider how effective those weapons have been, per dollar spent, on achieving the purpose for which they were made), you can only sigh.
• Fourth, the government needs to focus on providing the services necessary to keep business moving effectively. Infrastructure is more than such physical things as roads, bridges, and high-power lines. It is also services like the mail, education, health care, and mass transit. There are many functions that government performs that have become serious bottlenecks to progress — the FDA doesn’t have enough inspectors to thoroughly check our food, and bad meat and produce are reaching our stores as a result. Recalls are an incredible waste of everyone’s money, and are brought on by the “savings” of reducing inspection staffs. The same is true of our Air Traffic Control system, other regulatory agencies, our court systems, and so on. The impact on the economy of all these poorly operating, glacially-moving systems is incredible, and all that’s really needed is a little manpower. Why don’t we have this manpower already? Because too many people think that government involvement is “Socialism”. Well, you can’t have it both ways. Either the governnment provides the services the country needs, or the entire country and its economy suffer.
In the final analysis, the stimulus that works is the stimulus that pumps as much money into the economy (as opposed to under people’s mattresses) as possible, gets as many people off of unproductive government funding (like unemployment and food stamps) as possible, and simultaneously improves for as long as possible the efficiency of the system in which business works. No project that does all of these things is “Pork”, and that’s all there is to it.
Thursday, February 12, 2009
The Fundamental Nature of the Change We Need
One of the reasons the talking heads on TV are having difficulty coping with our new President’s approach to Change is that they tend to break everything into bite-sized (perhaps even “sound-bite-sized”) chunks for easy swallowing. A Fast Food approach to thinking. But Obama doesn’t think that way. He isn’t only thinking of the bites, or even a whole burger or a Big Meal Deal or a Family Pack. He’s thinking in terms of balanced nutrition for a healthy lifetime.
What does this mean? This means that saying, “He can’t spend so much money on Stimulus without putting off Health Care Reform” makes absolutely no sense. Health Care Reform is a necessary part of reducing the cost of living for the average person so that any Stimulus package has greater impact. Improving working conditions and pay for teachers means Education will be a more expensive proposition. But having a better-educated workforce a few years from now will result in such improvements in efficiency and productivity that we will more than make up the costs.
In other words, Obama is taking a holistic approach, not a piecemeal approach. He understands that “fixing” one thing does no good unless everything else is adjusted to take advantage of the change. What we’re looking for here is an approach to organizing the activities of the US government in a way that will have the highest return of benefits for “costs” (whether those costs are measured in terms of dollars or effort or political capital, or whatever) over the long term.
How are these benefits to be measured? That is another matter for debate. A system that will allow every American to own a Winnebago now but will result in the destruction of the world due to global warming in another century could be considered as offering some benefit, but in my opinion the long term costs are too high. The economic system that has dominated this country since the Second World War has been one that has focused on making short-term profits at the expense of long-term benefits. It will take a long time, and a lot of powerful resistance will have to be overcome, to re-educate the public about ways of measuring success and happiness that will not lead to disaster in the long term.
The basic nature of this Change has been evident in Obama’s thinking from the nation’s first real introduction to him. When he spoke at the Democratic convention in 2004 and said that we are not Red States and Blue States, but the United States, he was talking about the need to join together to solve our problems. The party-line bickering that has characterized government for several years has led to decisions being made not on the basis of what will work or what is good for the country, but on the basis of who can defeat who and rub their noses in it.
It’s still going on, but I’m betting Obama can get beyond it simply by not stooping to that level. When he says he’s going to listen to everyone, he means it. But he’s not like the man who took his son and his donkey to market and reacted to every passerby’s snide comments by changing who rode or led or carried whom or what.
Instead, he has a plan. This plan is not written in stone. It’s not a matter of “My way or the highway.” The Obama plan — and each part of that plan (it is the parts that Congress and the Senate will address, one at a time) — has at its essence a practical approach to improving the way things work in America. The details are not critical, and can be adjusted to accommodate the needs and desires of the public and its representatives, whichever side of the aisle they stand on.
As an example, look at the developing Stimulus package. As originally conceived, this package did not include the kind of tax cuts that it now features, because from one viewpoint, those tax cuts were not seen as necessary. But the Republicans begged to differ. So now there are more tax cuts included, though many Democrats object. The key purpose of the Stimulus package remains unchanged, but there are some elements in it for each constituency. Does that make it ideal? Not at all, from either perspective. But can it be accepted? Perhaps there will be a need for further massaging, but eventually both sides should be able to accept the compromise that results. And achieving effective compromise can only happen if sincere input is obtained from all sides, whether or not one particular group could push through a “purer” version through sheer weight of numbers.
This is an essential element in Obama’s notion of Change. Our intentions as a People and as a Country should be to work with others to achieve common solutions. For too long we have operated in the interests of powerful forces — notably economic interests — that have been focused on immediate gains for a limited group rather than on long-term goals that will benefit humanity as a whole and all Americans as a consequence. These limited interests have led us to odd and ultimately disastrous choices in our approaches to foreign policy, and these choices have in turn led to the destructive acts of war rather than to constructive efforts that could have saved thousands of lives, reduced international tensions, and provided millions with higher standards of living than they now have.
We are the People. We have a great System set out for us in the form of the US government. But for many years we allowed a privileged few to control that System and use it for their own ends. The low esteem in which the public now holds the government is evidence of the success of that approach. President Obama’s Change aims to reclaim the government for the People. Because “the government” and “the People” really should be synonymous terms. The Obama Administration is now welcoming us in. We have to enter, and we have to stay inside and active. As soon as we put up our “Mission Accomplished” banner and fall asleep under it, someone else will start making our decisions for us, and we will once again find ourselves on the outside looking in.
This is why I’m writing “Change” with a capital C. The Change we need is not simply an accumulation of little policy changes, little tweaks to the system. It is a completely new vision of where this country is going and how the whole System has to work as an integrated unit in order to get us there. Obama understands this. The real Change we’re looking for will happen much more smoothly as the rest of us begin to understand it — and act accordingly — as well.
There are many aspects to the Change that is upon us. My next entries in this blog will detail my views on several of them. I’ll be interested in your responses.
What does this mean? This means that saying, “He can’t spend so much money on Stimulus without putting off Health Care Reform” makes absolutely no sense. Health Care Reform is a necessary part of reducing the cost of living for the average person so that any Stimulus package has greater impact. Improving working conditions and pay for teachers means Education will be a more expensive proposition. But having a better-educated workforce a few years from now will result in such improvements in efficiency and productivity that we will more than make up the costs.
In other words, Obama is taking a holistic approach, not a piecemeal approach. He understands that “fixing” one thing does no good unless everything else is adjusted to take advantage of the change. What we’re looking for here is an approach to organizing the activities of the US government in a way that will have the highest return of benefits for “costs” (whether those costs are measured in terms of dollars or effort or political capital, or whatever) over the long term.
How are these benefits to be measured? That is another matter for debate. A system that will allow every American to own a Winnebago now but will result in the destruction of the world due to global warming in another century could be considered as offering some benefit, but in my opinion the long term costs are too high. The economic system that has dominated this country since the Second World War has been one that has focused on making short-term profits at the expense of long-term benefits. It will take a long time, and a lot of powerful resistance will have to be overcome, to re-educate the public about ways of measuring success and happiness that will not lead to disaster in the long term.
The basic nature of this Change has been evident in Obama’s thinking from the nation’s first real introduction to him. When he spoke at the Democratic convention in 2004 and said that we are not Red States and Blue States, but the United States, he was talking about the need to join together to solve our problems. The party-line bickering that has characterized government for several years has led to decisions being made not on the basis of what will work or what is good for the country, but on the basis of who can defeat who and rub their noses in it.
It’s still going on, but I’m betting Obama can get beyond it simply by not stooping to that level. When he says he’s going to listen to everyone, he means it. But he’s not like the man who took his son and his donkey to market and reacted to every passerby’s snide comments by changing who rode or led or carried whom or what.
Instead, he has a plan. This plan is not written in stone. It’s not a matter of “My way or the highway.” The Obama plan — and each part of that plan (it is the parts that Congress and the Senate will address, one at a time) — has at its essence a practical approach to improving the way things work in America. The details are not critical, and can be adjusted to accommodate the needs and desires of the public and its representatives, whichever side of the aisle they stand on.
As an example, look at the developing Stimulus package. As originally conceived, this package did not include the kind of tax cuts that it now features, because from one viewpoint, those tax cuts were not seen as necessary. But the Republicans begged to differ. So now there are more tax cuts included, though many Democrats object. The key purpose of the Stimulus package remains unchanged, but there are some elements in it for each constituency. Does that make it ideal? Not at all, from either perspective. But can it be accepted? Perhaps there will be a need for further massaging, but eventually both sides should be able to accept the compromise that results. And achieving effective compromise can only happen if sincere input is obtained from all sides, whether or not one particular group could push through a “purer” version through sheer weight of numbers.
This is an essential element in Obama’s notion of Change. Our intentions as a People and as a Country should be to work with others to achieve common solutions. For too long we have operated in the interests of powerful forces — notably economic interests — that have been focused on immediate gains for a limited group rather than on long-term goals that will benefit humanity as a whole and all Americans as a consequence. These limited interests have led us to odd and ultimately disastrous choices in our approaches to foreign policy, and these choices have in turn led to the destructive acts of war rather than to constructive efforts that could have saved thousands of lives, reduced international tensions, and provided millions with higher standards of living than they now have.
We are the People. We have a great System set out for us in the form of the US government. But for many years we allowed a privileged few to control that System and use it for their own ends. The low esteem in which the public now holds the government is evidence of the success of that approach. President Obama’s Change aims to reclaim the government for the People. Because “the government” and “the People” really should be synonymous terms. The Obama Administration is now welcoming us in. We have to enter, and we have to stay inside and active. As soon as we put up our “Mission Accomplished” banner and fall asleep under it, someone else will start making our decisions for us, and we will once again find ourselves on the outside looking in.
This is why I’m writing “Change” with a capital C. The Change we need is not simply an accumulation of little policy changes, little tweaks to the system. It is a completely new vision of where this country is going and how the whole System has to work as an integrated unit in order to get us there. Obama understands this. The real Change we’re looking for will happen much more smoothly as the rest of us begin to understand it — and act accordingly — as well.
There are many aspects to the Change that is upon us. My next entries in this blog will detail my views on several of them. I’ll be interested in your responses.
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