Monday, May 26, 2008

To Do Nothing is to Die a Little

The hardest thing about any kind of decline is watching its victims take it lying down.

Lying down also takes the form of sheer ignorance, and standing up can take the form of correcting it. So on Memorial Day it's worth also remembering the teachers and the journalists who devote themselves to setting the record straight. The Sacramento columnist for the LA Times, George Skelton, offers a nice example of the genre today, correcting a few instances of massive middle-class dumbness about taxes and what they pay for.

Speaking of the uncorrected, our Governor has been spreading the myth that private companies will rebuild California more efficiently and cheaply than government can. His ode to public-private partnerships in his State of the State address last January is worth quoting in full:

Now, also over the next 20 years we have $500 billion worth of infrastructure that needs to be met. Now, as we head into this new century, we also need digital infrastructure to keep our economy growing. So the question is: How do we meet all those needs?

There isn't enough money in the public sector, we all know that. Can't do all of it. We need to expand partnerships where government and the private sector work together to meet the needs of the people. These partnerships can often deliver infrastructure faster, better and cheaper.

For instance, in British Columbia, public/private partnerships are common for building highways, bridges, rapid transit, water treatment and so on, and everyone is happy. The political leaders are happy, business is happy, the public is happy, the economy is happy, the future is happy.

Well, bond investors are happy. As Skelton points out, Arnold's champion borrowing has tripled the amount of state money that goes directly to service the states' debt. His latest plan, to increase state revenue by issuing bonds backed by future state lottery revenues, is another in his series of Wall Street Full Employment Acts - the fees and returns on these customized investment vehicles are huge.

In reality, private money increases returns by reducing costs, and one time-honored way of doing that is to externalize costs by getting the public to pay for them. You can make more money with your trucking business if the entire public builds and maintains freeways, rather than putting most of the cost on truckers themselves. The same is true of universities, as our two reports have shown: sponsorships and philanthropy flow to focused activities of interest to the donor, and not to general education. The reason is obvious once you start thinking about it: donors want effective results, and they leverage public money to do it. They use state-funded laboratories, federally-sponsored graduate students, and the like.

Other forms of private "partnerships" spring to mind:
  • corporate sponsorships of Gov. Schwarzenegger's public events puts businesses with a financial interest in state decisions into the statehouse
  • privatized utilities around the world, including electricity in California: one of the unavoidable cost increases that the University of California can't figure out how to pay for next year are elevated utility costs. Privatization has encouraged underinvestment in the electricity distribution system in many countries, as nicely summarized on page 10 of this book on solar energy. The logic is obvious: you make money by operating a grid that previous generations of taxpayers or fee payers already bought, not by investing in it. The same goes for the once-great British Rail and London Underground systems which pale by comparison with the far cheaper and more efficient SNCF and urban Metro systems in France.
What the hey. People do stand up a lot and figure things out. Leading recent examples are the California State Supreme Court decision legalizing gay marriage, which was written by a Republican jurist who said he was inspired by the Black civil rights movement (and the case Perez v. Sharp).

And there was also Barak Obama fighting back when Bush implied in his speech to the Israeli Knesset that the Democrat opposition are appeasers of terrorists. This is the only thing that will allow Obama to win in November - standing up.

And there is the memory of the war dead today - the ones who caught bullets and bombs thanks to the dumbness of the living, neither in vain nor forgotten, we will make sure of that.

Sunday, May 11, 2008

The New Dark Ages

The signs are everywhere that we continue to move backwards into the political past. One of the most important is the return to private government.
  • A good piece on Gazprom in Russia describes the extent to which the country's monopoly gas and oil company controls the state. Putin's handpicked successor as President was Dimitri A. Medvedev, Gazprom's Chairman. Here he is, thumbs up, posing with his favorite rock group, Deep Purple. Deep Purple was my favorite rock group too - for a few months in 1972. Why do moguls and hedge-fund managers like groups who long ago stopped having anything to say? OK, I answered my own question. Back to Gazprom - their taxes constitute 20% of the Russian state's budget, may soon surpass everyone's favorite oil company Exxon Mobil as the world's largest, will start to raise domestic gas prices 25% per year (Medvedev's brilliant idea), and is about to accept the man Putin is replacing as Prime Minister, Viktor Zubkov, as its new chairman. Musical chairs - or neofeudalism.
  • The US State Department has renewed Blackwater's contract to provide security for US diplomats, the NY Times reported yesterday. Blackwater had been under investigation for starting a Baghdad firefight that killed at least 17 Iraqis last September. Oh well. Rep. Henry Waxman says he can't understand the renewal. He's right to be upset, but wrong not to understand it. "The chief reason for the company’s survival? State Department officials said Friday that they did not believe they had any alternative to Blackwater, which supplies about 800 guards to the department to provide security for diplomats in Baghdad. 'We cannot operate without private security firms in Iraq,' said Patrick F. Kennedy, the under secretary of state for management. 'If the contractors were removed, we would have to leave Iraq.' The US government is neither large nor independent enough to protect itself. A little harmless outsourcing - or neofeudalism.
  • Finance historian Peter Bernstein starts his column today with this: "In the darkest days of the Depression, Treasury Secretary Andrew W. Mellon, one of the richest men in the United States, opposed any government action to stem the tide of plunging business activity and soaring unemployment. Instead, he urged a policy of supreme indifference. 'Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate,' he said. 'It will purge the rottenness out of the system,' he added, and values 'will be adjusted, and enterprising people will pick up the wrecks from less competent people.'" Vicious, lazy, rich-man pseudo-Darwinism? No - just neofeudalism. Bernstein rejects it, but his piece is so defensive in suggesting it was ok for the Fed to intervene in the credit crisis this year that it's clear that modern government is in his financial circles a beleaguered thing.
  • Same goes for Gretchen Morgenson's headline, "Big Rescues Can Work," which summarizes the difficult collaboration among banks, unions, governmental bodies, etc. that refinanced New York City's bad debt in 1976. She notes that President Gerald Ford's attitude really was "New York: Drop Dead" until he went to "an economic summit outside Paris sponsored by President ValĂ©ry Giscard d’Estaing of France and Chancellor Helmut Schmidt of West Germany." These leaders told him that if he didn't fix New York he'd have "a global dollar crisis." Ford didn't care about New York, but he did care about the dollar, in part because he cared about himself, and his election campaign.
Politics as usual - or neofeudalism? Ford was the starting point of Pitiful Government as we know it today. I vote for the latter once again.

Saturday, May 10, 2008

Dum n Dummer 2

The LA Times had a poll today showing John McCain losing to either Clinton or Obama, which is good news for the economy. The bad news is that although 56% of the folks in this poll think the economy is "the top priority for candidates running for president to address," only 25% of them thought this in December 2007. Too late - you're already screwed!

"This American Life" ran a good show today on the subprime and credit crises. A former trader at Morgan Stanley's mortgage-backed securities desk said that they realized it was all going wrong around Halloween of 2006. Over a year later, only a quarter of the general public was very worried about the economy, and this was five months after the blow-ups of August. Why so slow, people? At this rate, we'll never turn it around.

Sunday, May 04, 2008

Rediscovery For a Change

There are limits to dumbness:
  • This weekend I've been at a family reunion in Marin County in honor of my brother's father-in-law Murray Kaufman's 90th birthday. If I were a media anchor I would call him a great American. Murray was a leftist CCNY student in the 1930s, in the US Army in France in World War II, was a printer in New York before becoming a high school teacher in Rossalyn on Long Island, where among many other things he coached the tennis teams and started one of the country's first high school curricula in environmental studies. Murray has never stopped fighting against unfairness and screw jobs in all their stupid forms. This is why his example is so important, why his company is such a pleasure, and why he has lived so long.
  • I was in Oaxaca during the Obama-Jeremiah follies, where the media finally figured out how to play the race card - the ghost of panther-nationalism. I haven't had time to write about Oaxaca properly. We visited about a dozen frontyard, backyard, and cottage workshops of every kind. Some people make high-end crafts for tourists, some make art so expressive and direct it is hard to imagine it coming from the United States. Some get up before dawn to make animal characters they've invented out of pieces of scrap wood that they spend 12 hours in the local market trying to sell for the equivalent of 2-3 dollars or so. Nobody in the US who doesn't know how the Oaxaca half lives should ever lecture about entrepreneurship again.
  • Meanwhile, a vacation did Tom Friedman good. He's got a sense of our royal American screw-ups much deeper than before. Maybe he's less screened by the effects of his regular diet of CEO kool-aid. He even borrows a title from an old book by one of the country's best business journalists, the Nation's William Greider ("Who Will Tell the People" - that their leaders' dumb ideas have sunk them). Here he is: "millions of Americans are dying to be enlisted — enlisted to fix education, enlisted to research renewable energy, enlisted to repair our infrastructure, enlisted to help others. Look at the kids lining up to join Teach for America. They want our country to matter again." That's a good start. He spoils it a bit by adding that America's Youth want it to "be about building wealth and dignity — big profits and big purposes. When we just do one, we are less than the sum of our parts. When we do both, said Shriver, 'no one can touch us.'" Well, no. The big stuff - teaching, research, invention, change - isn't about winning. You can't measure progress with profits. The search for profits is what has largely destroyed our search for purposes. But at least Friedman is starting to see what happened to the country while he was drinking the CEO drink.