Centrarian.Com

People have long complained about porkbarrel spending - and it continues largely unabated. An editorial in the New York Times today describes all the porkbarrel spending included in the $103 billion supplemental appropriations bill that Congress just passed (and Bush is expected to veto).

But this old-fashioned form of porkbarrel spending (roughly $20 billion each in the House and Senate Bills), as much as it needs to be controlled, is now being dwarfed by the new Bush version of patronage: outsourcing. As an article in this month’s Vanity Fair describes, this new form of patronage is not just tens of billions but hundreds of billions. This makes it’s scale totally different from ordinary porkbarrel projects:

To get some idea of the scale: contractors absorb the taxes paid by everyone in America with incomes under $100,000. In other words, more than 90 percent of all taxpayers might as well remit everything they owe directly to SAIC or some other contractor rather than to the IRS.

You undoubtedly have heard of Halliburton which, according to Congressman Waxman’s committee, has received contracts valued at an estimated $25.7 billion for its work in Iraq - and which is now moving its headquarters from Houston to Dubai. But have you heard of SAIC (Science Applications International Corporation) which has a workforce of 44,000, has been awarded more individual federal government contracts than any other private company in America (currently 9000), and has more than a hundred contracts worth more than 10 million apiece? Prior to the war, SAIC was awarded seven contracts, together worth more than $100 million, without competitive bidding.

But the issue is not simply the waste of money. There is also the danger that the federal government has allowed internal government experience to waste away in the process. As described in an editorical in today’s Wall Street Journal, “the number of private federal contractors has soared to 7.5 million, four times bigger than the federal civilian work force itself . . .” As anyone who has hired a consultant knows, even when consultants are honest and knowledgeable, they cannot make up for a lack of in-house expertise.

Political conflict between individuals, interest groups and political parties is as old as politics and government. For much of the history of the United States, in fact, this conflict has been essential to social stability, serving as a means of avoiding more dangerous forms of conflict.

In the past few decades, however, the public has become increasingly impatient with partisan politics - for good reason. While politicians have been attacking each other, fighting highly emotional battles over symbolic issues of little real substance, undermining or reversing whatever progress had been achieved by the other party, they have been doing little to address a mounting list of serious long-term problems that face this nation. These problems - which include declining economic competitiveness, an educational system that is failing our youth, a mounting national debt, exploding health care costs, a trade deficit, a growing technology deficit, and global warming - remain ignored or inadequately addressed because such problems require political agreement and long-term cooperation, two things that our current system of politics cannot provide.

A New Economic Environment That this is happening now is no accident. It follows from the fact that we have just passed through one economic era (based on mass production) and entered another (driven by innovation and rapid technological change). Under mass production, companies used high volume production of standardized products to compete based on price within national economies. During this period, the public was focused primarily on material goals and advancing the nation’s standard of living while the primary role of government was to regulate the economy and settle disputes between interest groups over material resources. Within this role political conflict was not particularly harmful - in fact, it was used as a means of sorting out who should get resources. Those individuals, interest groups or political parties that pushed the hardest for their interests were rewarded with economic resources in the form of government programs, legislation and/or tax breaks.

Under the new economics, however, all this has changed. Instead of using mass production to compete nationally based on price, companies now use innovation to leapfrog their global competitors with new or essentially new products. This means government has a much different role to play. Continue reading ‘Why We Need A New Kind of Politics’

The U.S. has finally come to accept that something needs to be done about global warming. The question now is how to do it. The fact that we don’t know how much of a reduction in emissions is necessary or how much a given reduction will cost makes the choice very difficult. Although the cap-and-trade has become the mechanism of choice in the United States and is the clear favorite for curbing greenhouse gases (eg. the Environmental Defense Fund supports cap-and-trade), there are still doubts. For one thing, as Samuelson says “no plausible ‘cap and trade’ program would significantly curb global warming.” For another, with quantity-based systems, there is no yardstick for determining equity among countries. Since the main reason the United States gave for refusing to ratify the Kyoto Protocol was that undeveloped countries were not asked to do their fair share, this is no small problem.

In theory, using a price-based mechanism like a carbon tax would be better 1) nationally because incentives could be set at an affordable level and the market used to find cost-effective solutions and 2) internationally because having every country control to same marginal cost would be a good basis for equity. But politically the carbon tax is impossible and any politically acceptable tax would be insufficient to have much impact.

It is to resolve this impasse that a feebate makes perfect sense: it uses prices to drive reductions in greenhouse gas emissions but it does so without collecting any net revenue.
Continue reading ‘A Feebate for Greenhouse Gases: Better than Either a Cap-and-Trade or a Carbon Tax’

There has been a flurry of arguments about inequality ever since Bernanke made his remarks on the subject, a few weeks ago. After wading through these arguments - which Mankiw (correctly) sums up as all coming back to Rawls versus Nozick, one concludes that this argument could go on forever because there is little or no basis for rational agreement. But there is a new, more promising way of framing the issue that comes out of left-libertarianism.

Although Rawls in A Theory of Justice developed a complex and elegant argument to show that if self-interested, rational people were engaged in a bargaining game to establish a society they would agree on limiting inequalities to those that benefit the least advantaged group, there are a number of reasons why this argument is not convincing. For one thing, we are not in the position of establishing a society so it is not very relevant (we might very well be willing to accept such a society if we were born into it but that is not the same as being willing to change from our current system to that one). Also Nozick’s counter-argument in Anarchy, State, and Utopia is, I believe, devastating: that such a “patterned” system would require redistribution after virtually every transaction (because it would likely undo the previously acceptable distribution) and would be unjust because it would conflict with any kind of property right or “entitlement.”

Where does this leave us? The predominant view is that this is just one of many examples of our inability to find common ground for values and we simply have no choice but to accept this state of affairs. Others, such as Alasdair MacIntyre (see After Virtue) argue that this is the result of the failure of the “enlightenment project” which, in destroying the traditional religious and Aristotelian context for morality and failing to establish a new one, left modernity with fragments of what was once morality without providing a common ground for values. As a result, our debates about values ultimately rest on personal feelings or opinion and take the form of “my goal is better than your goal.”

Continue reading ‘Inequality: Beyond Rawls vs. Nozick’

Whether Gretchen Morgenson has stepped near the edge or over it in her recent column Memo to Shareholders: Shut Up seems to be triggering a debate. Brad DeLong introduces it in his blog - Gretchen Morgenson Has Eaten Her Wheaties, and Tears into Marty Lipton… with: “Marty Lipton has driven the New York Times’s Gretchen Morgenson into shrillness:”

Gretchen says that efforts by shareholders to make directors more accountable to owners seem to be working. The proof is that Martin Lipton, the country’s premier takeover lawyer and inventor of the poison pill, is complaining that many board of director candidates are declining to serve. He claims that the activists are “destroying the role, focus and collegiality of the board of directors” and that it is “time to recognize the threat to our economy and reverse the trend.” Morgenson argues that if this were really a problem, the costs of directors’ and officers’ liability insurance would be skyrocketing. But instead, these costs have plummeted by almost 40% in 2005 and another 10% last year. She ends by saying “Mr. Lipton’s fear-mongering . . . won’t stop the train.”

I hope she is right, that the worm is turning, that publicizing the undeserved rewards given to executives even though they have clearly screwed up will curb the behavior. I also hope that board members are forced to take their responsibilities more seriously.

But anyone who has been a CEO, worked alongside one and/or been married to one knows how difficult, lonely and all-consuming these jobs can be. While there certainly are CEOs that take the money and run, or coast along comfortably, those that actually succeed - especially those that successfully transform mediocre organizations into high-performing ones deserve to be rewarded handsomely for that success.

This is the other side of the story: transforming an organization from mediocrity to excellence requires top-down control by a CEO who knows what excellence involves and demands excellence from everyone. This cannot be a democratic process. Until the organization is fully transformed, in fact, democracy and equality are the enemy of excellence. Not only are there individuals who will actively fight this process before they are won over, but there will be many who will have to leave because they are just not capable of contributing to excellence. That can make the job of the CEO particularly arduous, lonely and all-consuming. Anyone who has been a CEO, worked alongside one and/or been married to one knows this very well.

Let’s not let this movement to curb undeserved rewards turn into anti-executive populism. If we do, mediocrity will drive out excellence.

There has been much written about our political system being broken. But very little about the specifics, of what exactly has gone wrong and what are the systemic causes.

Mostly people describe how money has corrupted the process and call for election reform to fix it. Take, for example, Public Funding of Elections. While this certainly needs to be done, it also needs to be made clear that this is not enough. Otherwise, people are disappointed and become discouraged when they finally get reform and it doesn’t really solve the whole problem.

Worse still is when reform bills get passed and they don’t even achieve their intended result. Take the recent attempt by Democrats to curb the influence of lobbyists: Congress Finds Ways to Avoid Lobbyist Limits.

More unusual are articles like You Want to See Broken Politics: Just Look at the Casinos which spell out the problems with the political decision-making process itself. Here we get detailed analysis of what was wrong - 1. Last minute, haphazard decision-making . . . Unfortunately, there are just not enough articles like these that really try to define the problem. How can we expect to fix a problem if we don’t even know specifically what the problem is?

I read an article recently - Kaizen, That Continuous Improvement Strategy, Finds Its Ideal Environment - describing how high tech companies like Apple and Google are using Kaizen to rapidly and repeatedly improve their product. Kaizen “refers to a disciplined process of systematic exploration, controlled experimentation and then painstaking adoption of the new procedures. In the original formulation, kaizen was applied to manufacturing, where experimentation could determine whether a new process resulted in quality improvements or cost savings in a matter of months. It is much more difficult to apply kaizen to product design, since it can easily take years to design and market a new product.”

It made me ask, why can’t government take a problem, actually provide a solution for its customers and then actually begin a process of improving that solution?

The conventional answer, of course, is that government isn’t designed to work that way. But that is precisely what we need to do - to consider how it can be redesigned to work that way.

Obviously, this involves more than just reform - how to reduce corruption and influence so that the people have more say in public decision-making. Reform cannot make politicians accountable for actual results rather than rhetoric. Reform cannot assure us that solutions will be found - in fact, more democracy may actually be counter-productive. Many of our most flagrant failures are the direct result of voters insisting on conventional solutions that have persistently failed in the past (think “being tough on crime” or “the war on drugs”). Reform cannot assure us that once solutions are found they become permanent and automatic, or that these solutions are built upon and continuously improved.

What is needed is much more than mere reform.

Gretchen has another good article on executive pay, this time on what Congress is contemplating doing about it - Is the Fix Worse Than The Problem?. It seems that Congress claims to have a “fix” to the problem of excessive executive compensation plans but this will do more to hurt midlevel workers saving for retirement and workers who have recently changed jobs than to limit greedy executives’ takes.

So how should we fix the problem? A later article - The C.E.O.’s Parachute Cost What? - suggests that just publicizing the issue may be enough. It seems that the whole reason all of this is coming to light in the first place is that new regulations forcing greater disclosure of executive pay - especially exit pay received by executives in pension plans and buyouts - are making them public. The problem may already be well on the way to being solved just because directors are suddenly having to justify these packages.

So maybe instead of making things worse, Congress ought to wait and see if disclosure solves the problem. On the other hand, if pressure is brought to end the disclosure requirements they need to stick to their guns.

When George Bush starts complaining about executive pay - Bush takes aim at executive pay - you know it’s got to be bad. How can we call this a merit system when executives can brazenly take advantage of their power to extract undeserved rewards?

I emphasize undeserved. Recently it was reported that Robert L. Nardelli - Nardelli article - is expected to exit from Home Depot with a package worth more than $210 million (added to his more than $10 million per year while he was there) even though the company’s stock has fallen by roughly 20% during his tenure.

A month before that it was reported that Hank McKinnell, previously head of Pfizer, recieved a $200 million exit package (see McKinnell article). This package included a pension of $6.65 million a year for as long as he lives (worth $82.3 million), $78 million in deferred compensation, and an estimated $18.3 million in “performance-based shares.” As Gretchen Morgenson, author of the article points out, “perhaps it would be more accurate if these were identified as failure-based shares”, given the fact that Pfizer shares dropped from $46 to $26 a share under his tenure.

Unfortunately, there are lots more examples. Mostly because “incentive” compensation plans pay off no matter what - even if stockholder value has been destroyed.

What to do about it? Will Congress fix it or make it worse? I will certainly come back to that.

Wouldn’t it be nice if we could all agree on a vision for the future and just begin working together to achieve it - instead of getting stuck in ideological arguments before we begin?

Think, for a moment, about what this nation accomplished after the attack on Pearl Harbor. In less than four years, we managed to transform an economy crippled by the Great Depression and producing few war-related products (soldiers initially trained using broomsticks and trucks to take the place of rifles and tanks) into the most awesome war machine in history. By the end of those four years, this country had produced almost 300,000 planes, more than 70,000 ships, and millions of guns and bombs.

In terms of complexity, that transformation from a peacetime to a wartime economy was at least as complex as most problems we face today. Yet today we have lost confidence in each other and our government to resolve these problems. What is the single most important difference between then and now? We were united then. We are divided today.

The purpose of this website is to provide a basis for us to come together again so that we can solve the significant problems that confront us. How? Part of the answer is hinted at by the name of the site — Centrarian — by centering politics and economics. But centering politics does not mean centering politics in the conventional sense of Triangulation between the two sides as in the Third Way. What it does mean is that the skewed perspectives of the left and the right must be “unskewed” by correcting the faulty assumptions on which they are built. And politics cannot be centered without also centering economics.

Another part of the answer is taking a systems approach to politics. Most bloggers, pundits, interest groups, and politicians advocate particular political policies without taking into account, or trying to change the underlying political, economic and ideological systems. But this only makes matters worse by encouraging the endless conflict between interests. Instead of continuing to argue about whose interests and whose policies need to be advanced, we need to begin a cooperative effort to make our political and economic systems work better for everyone.

Centrarian.Com will attempt to remedy that. Please return February 1, 2007 when the site is complete and the blog begins.