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.
Tuesday, February 17, 2009
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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