Diatribes of Jay

This is a blog of essays on public policy. It shuns ideology and applies facts, logic and math to economic, social and political problems. It has a subject-matter index, a list of recent posts, and permalinks at the ends of posts. Comments are moderated and may take time to appear. Note: Profile updated 4/7/12

30 November 2008

Saving the Big Three

One of my favorite pundits, Bob Herbert, published a poignant column Saturday. In it, he described the human devastation that the Big Three would cause by closing. It was a moving piece.

Herbert didn’t exaggerate the consequences of a Big-Three shutdown. But neither did he answer the $64 trillion dollar question. How would our society gain by saving firms that make overpriced, lousy cars?

In order to solve a problem, you must understand it. Why are the Big Three’s American cars unlike all other cars in the world? Why are they more expensive, bigger, heavier, less efficient, and mostly of lower quality than their European and Japanese counterparts?

Every member of Congress, pundit, and think tanker who looks at our auto industry should answer those questions first. Until we do, we will only throw good money after bad and save nothing.

Careful readers will note that I referred to the Big Three’s American cars. That’s not a redundancy.

In 2000, I rented an American-label car in Europe. I think it was a Ford Focus. It was small, well designed, and well built. The doors clicked, not clunked, when they closed. It ran well over 100 MPH on Europe’s highways, many of which have no speed limit. It turned like a tiger, tracked like a rail car, and jumped like a rabbit. Although I didn’t check it myself, I presume that the mileage was passable in Europe, that is, about twice ours [fifth from last paragraph].

In other words, this foreign Ford Focus was as good as a Japanese car. Why couldn’t—or didn’t—the Big Three offer cars like it in their home country? Until we answer that question, no rational rescue is possible.

And don’t tell me they did. In 1973 I bought my first new car, as a young man with a good job. I spent days shopping. I tried a thing called the Chevrolet Vega, and I still recall how awful it was. The engine sounded like a sewing machine, ran irregularly, and made lots of noise even at idle. The tire roar was deafening even on surface streets, let alone the freeway. The steering was loose and imprecise, and the cabin interior looked like something from a Soviet factory. The car was a piece of junk. So I left the showroom to look at Japanese cars and never came back.

In the years since I have rented many an American car. It’s always been the same story. Foreign cars—especially Japanese—were demonstrably better in every respect. Even the early Hyundais were better. I still remember a rented Hyundai Sonata that drove almost like that European Focus. Now I’ve given up. Whenever I rent now (inside the United States) I don’t accept an American car without an argument. They just don’t measure up.

What kind of management would pursue such an abysmal business strategy over 35 years? Don’t the Big Three’s managers understand that brand loyalty begins with renters and first-time buyers? Are they brain dead?

The answer is costs—“legacy” costs in particular. Our auto workers’ health-care and pension expenses give the Big Three a $1,500 cost disadvantage for every car they make in the United States.

A whole chain of bad business decisions unraveled from those legacy costs. Because of them, the Big Three abandoned the small-car market, which is also the entry market, and went for size.

A $1,500 cost disadvantage is not as decisive in a $40,000 car as in one priced under $15,000. So the Big Three went for higher price. Since the quality of their cars couldn’t justify a higher price, they justified it by making the cars bigger, heavier and more powerful.

Not only did the Big Three seek to dwarf their legacy costs. They sought to regain the protected monopoly they had enjoyed before the foreign “invasion.” They didn’t just make bigger, heavier and less efficient cars; they made the biggest, heaviest and least efficient. They sought to create a new monopoly market for themselves alone.

For a time they succeeded. The Big Three had the dinosaur market all to themselves. Foreign car makers thought they were crazy and didn’t even try to compete.

But slowly, over a decade or so, foreign makers were tempted to share some of the easy profit from dinosaurs. They were always careful to position themselves just on the smaller, more rational side of size, just in case. Toyota bet its pickup success on the Tacoma—a truck smaller, more nimble, and more efficient but less powerful than the F-150 or the GMC. The same thing occurred in SUVs. This strategy collapsed for everyone when oil prices skyrocketed.

From a “bottom line” perspective, the Big Three’s counterproductive decisions might have seemed like rational business responses to their predicament. But those decisions were enormously antisocial. They wasted steel, aluminum, rubber and energy to make huge cars. The cars themselves wasted gas horrendously. The decisions accustomed a generation of Americans to a lifestyle of excess and profligacy, which came back to bite them when gas prices exploded.

And that was not all. The Big Three’s advertising compounded the evil. It led Americans to associate size, weight, power and excess with success and happiness. Then the Big Three loosed a scourge of Sherman tanks on our roads. In accidental collisions, they devastated more sensible cars. Exploiting that fact, the Big Three sold their excess as prudence, arguing that Americans preferred the relative safety of their inefficient Sherman tanks. The reductio ad absurdum was the Humvee, a commercial version of a gas-guzzling army personnel carrier.

Thus did financial necessity and the genius of American public relations combine to make “virtues” of anti-social conduct. For two generations, this unholy duo subverted the natural frugality, conservation, and moderation of a once Puritan, Calvinist society.

How did the Europeans and Japanese avoid these traps? Simple. Their governments paid for health-care for their workers and gave all workers above-subsistence pensions as a right of citizenship and employment. So the foreign makers had no legacy costs and no legacy-cost disadvantage.

Who is ultimately responsible for this dismal picture? The answer might surprise you—or maybe not. The culprit is the party of business, the very political party that once claimed to stand for moderation, frugality, and prudence.

In its modern, simplistic guise, the GOP now promotes two absolute propositions: (1) private business is always better than government; and (2) social obligations are best privatized. It has propounded this dogma for about forty years.

Taken together and translated into policy, these dogmatic principles have two consequences. First, the Big Three’s financial necessities—and the anti-social conduct that flows from them—are “virtues” because business always knows best. At least they serve the greater good of “consumer choice.” (Somehow “conservative” analysts never seem to question whether consumer “choice” is really free or deliberately conditioned by billions in advertising.)

Second, according to Republican orthodoxy, no one can take the health-care and pension millstones from around the Big Three’s necks because social obligations belong to the private sector, not government. So unions and management fought a decades-long war over these obligations, which our foreign competitors treat as burdens of their entire societies.

In all this our brilliant Republicans ignored another of their own dearest principles, economics’ most basic law: there is no such thing as a free lunch. In a civilized society, someone has to pay for health care and retirement.

If workers pay (in dollars or reduced benefits), many will forego health care, burdening the rest of us with the social consequences of high-cost emergency-room visits and poor health that could have been ameliorated by routine care. Some poor folk will just suffer and die. As for private pensions, we all know now what market downturns can do.

If the car companies pay (as has been our practice), their payments appear in the prices of their cars. The legacy-cost millstone renders them uncompetitive.

Only if government—the whole society—pays can workers have real security and the Big Three shed their legacy costs. Only then can the Big Three compete on a level playing field with foreign manufacturers that enjoy robust national health-care and pension systems.

Our Pension Benefit Guaranty Corporation is a tacit admission of these facts. To some extent, it is complicit in chiseling workers by whittling down their benefits through the miracle of bankruptcy, after which the PBGC takes over pensions. As I’ve argued in a separate post, the consequences are loss of social cohesion and societal weakness.

But the PBGC also has another, more salubrious purpose. After bankruptcy has “downsized” pensions, the PBGC makes sure they are paid. Although not supported by general tax revenues, it is a program administered by the federal government and created by federal legislation. It
serves the same purpose as government-sponsored pensions in our trading partners—getting “legacy” costs off the back of industry.

Unfortunately, the PBGC requires a prior bankruptcy proceeding to achieve that end; without it, contractual legacy-cost obligations remain in place. And there’s the rub. In virtually every competitor nation, the government provides health care and reasonable pensions. In Europe and Japan, the pensions are more generous than our Social Security, but similar in form. So European and Japanese car makers have no legacy costs and don’t have to go through bankruptcy to shed them.

In contrast, our Big Three have to go through bankruptcy to shed their legacy costs, in the process chiseling their workers and raising questions about their warranty service, parts supply, and long-term viability. Compared to Europe and Japan, we have a lose-lose system, a Catch 22 of our own making.

Why is our system so dysfunctional? Because the Republican “conservatives” who have controlled our business and government for the last two generations are conflicted and self-contradictory. They want an unfettered, competitive private sector, but they weigh it down with health-care and pension costs that every other industrial nation pays collectively.

Why are they so confused? Because they fear the word “socialism” as much as they fear terrorists. They treat social obligations as unmentionables.

This attitude toward collective social obligation is destroying our society and rendering our nation uncompetitive. It obliterated our consumer electronics industry and is decimating our auto industry. It has nearly erased our fine New England virtues of frugality, moderation, conservation, prudence, and mutual helpfulness. It has produced the most profligate and wasteful transportation system on Earth, and it is undermining our personal morality.

So before anyone asks for my tax dollars to save the Big Three, I’d like them to answer some questions. How can we get the same quality in cars that the Big Three sell here as in ones they sell abroad? Can we do that without changing management down to its roots and rebuilding our domestic factories? If not, how do we make change without making things worse? Would receivership work, and how long and how much would it take? Finally, can we lift the legacy costs off the Big Three’s backs without stiffing workers and without abandoning our national delusions about health care, pensions and “socialism”?

While a good business plan might answer some of these questions, no business plan short of bankruptcy can shed legacy costs. And no plan that fails to shed them will be more than a charade.

Sleight of hand cannot make legacy costs go away. That approach has led our industry to the brink of bankruptcy. Nor should we expect workers—especially those nearing retirement—to surrender their benefits out of misguided “patriotism.”

So our leaders had better not join the national delusion, or they will lose all credibility. Instead, they must answer these questions—all of them—before adopting any bailout plan.

Unless and until they do so, a bailout will be a universally unpopular act (except among auto industry insiders) notwithstanding natural sympathy for displaced workers. More important, we will face additional future bailouts as far ahead as we can see. Failing to deal fairly and decisively with legacy costs will just kick the can down the road.

We “won” the Cold War. We are still free and capitalist. We don’t have to fear the ghost of Karl Marx. He is long dead, and his ideas are as thoroughly discredited as anyone’s could be. What we do have to fear is our own ideological stupidity, which none of our international trading partners or competitors shares.

Until we shed that, there will be no comfort or profit for what remains of our heavy industry, the Big Three, or their workers. We will keep losing industries, jobs, and market share to more rational and humane competitors, i.e., to those who lack our internal conflict about sparing their industries the burdens of social costs. Maybe if Republicans think of foreign health-care and pension systems as a subtle and entirely legal form of trade protectionism, inviting retaliation, they will understand at last.


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28 November 2008

Why the New $800 Billion Bailout is a Non-Starter

[For comment on Paulson’s and Bernanke’s performance generally, click here. For a skeptical comment on the earlier bank bailout, click here.]

1. Been there, didn’t do that.
2. Let’s leave stupid, greedy people in charge.
3. Let’s make moral hazard official government policy.
4. Pricing complex assets is hard.
5. Keep it simple, stupid!
6. If you build it, they won’t come.
7. The Plan poisons the well for the incoming president.

Coda: Paulson, Bernanke & Co. and the Decline of American Industry
Life Mimics Art

While we were all preoccupied with the Obama presidential transition and the Thanksgiving holiday, the Bush Administration laid its latest egg. It plans to spend $ 800 billion dollars buying securitized credit—$600 billion for mortgages and $200 billion for car loans, student loans, and loans to small businesses (the “Plan”). The Fed, not Treasury, will buy these assets, using its unlimited authority to spend taxpayers’ money.

Here are seven reasons why the Plan is a terrible idea:

1. Been there, didn’t do that. Less than two months ago, Congress adopted the TARP (“Trouble Asset Relief Program”), appropriating a separate sum of $700 billion to buy toxic assets. Paulson & Company never spent the money for that purpose. Instead, they preferred to “inject capital” into troubled institutions, in exchange for equity and a degree of government control.

Buying bad paper was a bad idea then because it’s risky and gives the taxpayer little or no upside or and no control over management or events. Nothing in that regard has changed. It’s still a bad idea now.

2. Let’s leave stupid, greedy people in charge. As far as I’ve been able to tell, not a single private-sector manager who helped cause our economic meltdown has been replaced (or even demoted) as a result of government action. Citigroup’s Board elected Vikram Pandit its new Chairman months ago, before the government got involved. The government did make management changes at institutions it now controls, like Fannie Mae and Freddie Mac. But I’m not aware of any management changes even at Sallie Mae (Fannie’s and Freddie’s counterpart for student loans), let alone any management changes forced by government action in the private sector.

Insofar as still-private financial institutions are concerned, the new bailout would spend another $ 800 billion without forcing any changes in the people who brought us this mess. Instead, it would reward their misfeasance, malfeasance, greed and stupidity by giving them new money to manage badly.

3. Let’s make moral hazard official government policy. The Plan implicitly asserts that the government now effectively controls credit markets. No one will lend, the story goes, without government aid. Yet the government has refused to exercise its control by curtailing imprudent and predatory lending.

The government may have exerted some indirect control over lending through the loan securitization process that it, through Fannie and Freddie, now controls. But if private institutions make the loans and package the loan-backed securities that the government buys, private parties will set their terms. The same dumb, greedy people who brought us this debacle will be free to make the same imprudent, predatory loans.

4. Pricing complex assets is hard. An important reason for Paulson’s dropping the earlier asset-purchase plan was pricing. No one knows how to price securitized loans or their derivatives because no one knows (1) how many there are, (2) what kinds there are, (3) what their value is, or (4) what real risk they entail.

The “clever” mathematical models used before the collapse to estimate risk and trade these instruments were self-evidently based on false assumptions. For example, most didn’t even try to assess the risk of a downturn in the housing market. They simply ignored that risk as unlikely or too hard to estimate.

As computer folk used to say in the old days, “Garbage in, garbage out.” That’s what the Masters of the Universe used to manage risk and price these instruments: mathematical garbage.

The housing-market meltdown and the current economic maelstrom only exacerbate the risk and uncertainty. Price too low, and no private party will sell, so credit markets remain frozen. Price too high, and you exhaust the bailout fund early, encourage risky behavior, and waste taxpayers’ money in useless expense that we can never recover. Nothing about any of these points has changed since Paulson rejected using TARP money for toxic-asset purchases. Instead, the problems have gotten worse.

5. Keep it simple, stupid! The Plan presupposes perpetuating the complex, opaque and risky financial practices that brought us our multiple economic crises. It will securitize loans and resell them in private markets. There the same clueless rating agencies, investment banks and financial institutions, without further regulation, will split up the securities, rate the pieces, and guarantee them with an unknown amount of poorly understood credit-default swaps and other derivatives.

In other words, the whole opaque, complex and wholly unregulated house of cards that created this mess will continue to stand. Not only will it stand; we will make it higher and shakier with $800 billion of new taxpayers’ money.

The notion that new credit alone can halt the housing-price collapse is a doubtful proposition at best. Yet even if it has some merit, wouldn’t giving the same money directly to Fannie and Freddie be more effective?

Surely $ 600 billion of new loan money will support our catatonic housing market at least until President-Elect Obama takes office. Fannie and Freddie could use the money to make prudent loans on standard, sensible, government-prescribed and nonpredatory terms, that is, if anyone wants them. If necessary, Fannie and Freddie could securitize the loans and sell the securities later, after Congress had time to study the debacle and prescribe new, sensible regulations for securitization and derivatives markets. Shouldn’t we repair and rationalize these dangerous, failing markets before we dump the better part of another trillion dollars down the same rat hole?

6. If you build it, they won’t come. The Plan is based on the assumption that lack of liquidity is the only thing holding credit markets back. That assumption appears false. At least nothing resembling evidence or careful study supports it.

Common sense suggests that much more powerful forces are retarding our credit markets. No one is buying homes now because their prices are still in free fall. Who wants to take on so much debt, only to watch the purchase’s value drop? As for cars, people are holding back because: (1) they don’t want to spend money when they don’t (or soon may not) have a job and (2) they think the Big Three might go bankrupt early next year.

There may be a few people who want house and car loans and can’t get them. But many of the new home loans will be refinancings, which don’t help build anything or stimulate the real economy. Anyway, general economic uncertainty and fear are much bigger factors in the financial slowdown than unavailability of credit. The same holds true for small businesses. They are loath to take on new debt in the current economic climate.

The only exception might be student loans. Perfecting one’s education is always a good idea. It’s an even better idea when no jobs are available. But most student loans are already committed for the current academic year, and there is plenty of time to arrange new ones after January 20 and before next September.

7. The Plan poisons the well for the incoming president. As I write this, the government has committed over $ 2 trillion dollars to stabilizing credit markets. And that’s not counting guarantees, which bring the total close to $ 7 trillion. A trillion here, a trillion there, and soon you’re talking real money.

Judging the Bushies by their actions, not their words, a cynic might conclude that their motives are political. Are they are trying to deprive the incoming Administration of all financial flexibility and kill its chances for economic success? Or are they simply acting with all the haste and impulsiveness—and with the consistent disdain for deliberation, care, evidence and study—for which they are notorious?

* * *

I don’t lightly impute evil motives. But the Plan is so inconsistent with common sense and good governance as to invite conspiracy theories. If we wait but a few weeks, we can base economic policy on the broader expertise and more careful study and planning that the new administration promises.

In the interim, what can we the people do? We could raise holy hell, writing letters to the editor, fomenting on talks shows, and filling the streets with grass-roots protests. Many probably will. We could demand that the new Congress (which meets two weeks before President-Elect Barack Obama takes office), begin summary impeachment proceedings for Bush, Cheney, Paulson and Bernanke as its first order of business.

But there is no need to flail about. It’s the holiday season. Let’s enjoy it, secure in the knowledge that we will have rational government in a few weeks.

All we need do is remain rational economic actors and react to current economic conditions. Let’s sit on our hands. Let’s adamantly refuse, individually and collectively, to burden ourselves with new debt until our government does something—anything—to rectify the meltdown in the real economy. At least let’s wait to incur new debt until the new president takes office.

No doubt the financial system is important. But we have spent far too much time, effort and money on it already, much of it fruitlessly. If we continue to focus on shuffling loan paper (let alone derivatives), rather than putting people back to work and money in their hands, we will only make things worse.

We must have real economic activity to have any reason to borrow or lend. The new administration promises to take care of that, and its economic team is smart enough to tell cause from effect.

From now until January 20, let’s all help rationalize the credit markets by buying, if at all, only for cash. That’s not a bad habit to get into, especially for a nation that has gorged itself on credit for the last twenty years.

Coda: Paulson, Bernanke & Co. and the Decline of American Industry

Let me be clear. I do not believe Paulson, Bernanke & Co. have ill motives. Furthermore, I don’t doubt their expertise. Although he talks like Dubya (do inarticulate folk flock together?), Paulson is reputedly one of the smartest guys on Wall Street. Bernanke is a well recognized macroeconomic and monetary-policy expert. He made an additional specialty of what caused the Great Depression, which we soon may repeat.

These are experts with relevant expertise. The problem is that their expertise is narrow and their team shallow. They have no one who represents or understands industry, let alone science.

If you hire a plumber and an electrician to build your house, you’ll get great bathrooms and lighting and lots electrical outlets, but little else. We are trying to rebuild our economic house with finance and banking alone. But what we need is new industry and new basic research. We also need an architect, someone with all-encompassing strategic vision.

By now it should be clear to anyone that we have holistic problems that demand holistic solutions. The collapse of our housing bubble tanked our construction industry. Our auto industry needs life support because it has high costs and has had bad management and virtually no innovation for half a century. Microsoft has become a sleepy, stagnant, unresponsive monopoly, like IBM in the 1970s. Boeing is nearly a year behind in delivering its fuel-saving “Dreamliner.” Kodak, although still in business, had lost its lead in cameras to the Japanese. Big pharma has produced no big new class of drugs (like the statins) in over a decade. The impact of DNA’s discovery, now half a century old, is still experimental. Google is a marvelous company, but it doesn’t make anything tangible.

What real domestic industry have we left but Apple with its Macs, iPods and iPhones? Our few remaining excellent industrial companies, like Boeing, Caterpillar, Cisco and the non-financial part of GE, seek growth abroad because their domestic markets are saturated and declining.

So we have simultaneous collapse or stagnation in finance, housing, cars, drugs, biotechnology, computers, aircraft, and cameras. We long ago outsourced consumer electronics to Asia.

Part of the explanation is lackluster investment in basic scientific research. Over the last three decades we have diverted our industrial research spending almost entirely into applied research. Even that money is aimed mostly at narrow, short-term product improvements. The great industrial basic-research laboratories of our Golden Age, such as the old AT&T Bell Labs and IBM’s materials science labs, are gone, or they are shadows of their former selves. In their place we have lemming-like venture capitalists chasing the latest Internet fad.

We have neglected the oldest fields of basic science: astronomy and physics. NASA focuses on popular “demonstration” projects like Mars missions, neglecting basic exploration of the Universe and our nearby extraterrestrial environment. CERN’s Large Hadron Collider—humanity’s latest and most impressive effort to explore basic physics—sits near Geneva, not in the United States. Nothing better illustrates our fall from global scientific leadership than that single troubling fact.

We desperately need to ramp up investment in basic physics, basic biology (including stem cells), and basic materials science (including research that might lead to good batteries)—among other fields. And we must do so under the management of real scientists, not political commissars. Spending $800 billion on securitized loans and financial derivatives without a new dime for basic research is about the most short-sighted thing we could do.

As if these troubles were not enough, the stupidity, short-term thinking, arrogance and greed that ruined our financial markets have infected our industry, albeit (we hope) to a lesser extent. How else can you explain all the backdating of stock-options in Silicon Valley (including Apple!), or the torrent of venture capital flowing into “me, too!” Internet “community” companies that are travesties of real industrial innovation?

We’ve put far, far too much emphasis on finance and software. It’s not just Paulson and Bernanke, Microsoft and Google, or all those look-alike Internet startups. Even Warren Buffet (except for his recent GE bailout) has devolved from real industrial companies to finance, insurance and reinsurance.

We’re at risk of becoming a nation of farmers and paper pushers (if you classify software as paper, which I do). We are forgetting how to explore our natural world and how to design and build real things. We have forgotten how to dream.

Although no industrialist or scientist himself, Barack Obama understands all this. That’s why he wants us to get back to basics like real science and real industry, including rebuilding and enhancing our infrastructure. That’s why he’s ready to mold industrial policy for, and invest money in, wind power, solar power, a new health-care infrastructure, a new air-traffic control system, and (I hope) nuclear power. He knows that we cannot maintain our wealth, our greatness, our world leadership, or even our standard of living, if we stop exploring our universe and designing and building things that have weight and heft. He is our architect in chief.

So with all due respect to Paulson and Bernanke and their frantic, sleepless effort to put their fingers in our economic dike, we need a new team. We need more industrialists and basic researchers and fewer financiers. We need a broader range of builders, and we need an architect in charge.

The best we can do for ourselves—in the short, the medium and the long term—is to put Obama and his team in place as quickly as possible, ready to hit the ground running. And we can best insure a successful transition by not spending all of our money before the transition comes.

Life Mimics Art:

This Ann Telnaes animation captures perfectly the spirit of the Bush Administration in its final days.


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25 November 2008

Thanksgiving Message 2008

It is a dangerous time. It is a scary time. But it is a hopeful time as well.

As we stand on the brink of another Great Depression, we have much to give thanks for. We have elected a great leader, the most promising of my six-decade lifetime—maybe since Lincoln. The Civil War is really over after 143 years.

Best of all, we have begun to rediscover ourselves. Dimly now, more clearly soon, we will know anew who we really are.

America is not big cars or mighty armies. She is not opulence, open space, or the power of industry. She is not the Internet or the iPhone. Far less is she getting something for nothing.

America is possibility. She is what good education and hard work can bring. She is the chance that comes from all children being born equal. She abides in helping each other when we are down.

We have always known these things. During our great westward migration, neighbor helped neighbor build house and barn. During the Great Depression, farmers made sandwiches for wandering migrants looking for work. After we suffered and won the greatest war in history, we opened our hearts and our pocketbooks to help rebuild Europe and Japan. After Katrina, our youth flocked to New Orleans to rebuild homes for those who had lost them.

That’s who we are. That’s who we have always been. And that’s who we can be again.

On this day we should know these things. As I wrote last year, our first Thanksgiving exemplified them. We built a new society, based on Reason and Hope, in what seemed an endless wilderness.

We built America with humility. We were humble before the great land that beckoned us. We were humble before our fellow creatures, great and small. We were humble before all the tribes of humankind, including the misnamed “Indians” who helped us survive our first winter.

From time to time we forget. But we can remember and begin anew. We can and will become America again. We will get through this together. And we will be wiser, nobler and stronger when we do.

Happy Thanksgiving!


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22 November 2008

Obama’s Meritocracy

[For thanks and links to related blogs, click here. For comment on Eric Holder, click here. 11/29/08: For comment on Samantha Power, click here.]

We now know enough about President-Elect Obama’s choices for his team to see the trend. As I had hoped and predicted, he is assembling a collection of experts. Nearly all his picks so far are superbly qualified by talent, experience and temperament to do their new jobs. Even David Brooks is impressed.

Obama’s picks for official positions include not a single crony. Every one has an independent power base—a source of political support other than Obama and his campaign. So we will have no Michael Browns or Alberto Gonzaleses after January 20.

Some picks—especially on the economic team—have stellar academic credentials. All are centrists and pragmatists. None is an ideologue. The canard about a “far-left liberal” Obama administration is history.

Obama’s choices also have another virtue. All but two mirror Obama’s own temperament. They are steady, low-key people who can make headway without making waves. Tim Geithner (Treasury), Tom Daschle (Health and Human Services), Bill Richardson (Commerce) and Robert Gates (if indeed he stays on as Secdef) are of this mold. Although less well known, so is Janet Napolitano (Homeland Security).

So it now looks as if the mantra “No Drama Obama” will continue well into the new administration. That’s a good thing. With our global economic meltdown, our planet in peril, and two wars, we have enough drama on the merits. We can happily dispense with artificial drama wrought by oversized egos, thoughtlessness, or lack of diplomatic or political skill.

There are two exceptions to this attractive picture. Rahm Emanuel, the new White House Chief of Staff, is renowned as a bulldog and pit bull. Yet the drama he creates is likely to stay behind the scenes, and his experience and skill in dealing with Congress will be invaluable assets in the Obama White House.

Then there is Hillary Clinton (at State).

Let’s begin with the positive. There are millions of political reasons for appointing her—eighteen million in fact. Clinton is a symbol and bearer of the aspirations of Obama’s most important political constituency: women, especially young women.

Women made the difference when the chips were down. They saw through the “spin” and Sarah Palin’s false glitter. Their votes gave us the best candidate in the presidential race and one who has the potential to be our best president since Lincoln.

Without women’s support for Obama, we might be facing a McCain presidency, more failed Republican ideology, and rapid demotion to third-world status. In recognizing Clinton’s heroic but doomed presidential bid, Obama acknowledges their vital contribution to his and our victory.

Women are a natural political constituency for much of what Obama has to do. More than men, most women support universal health care, fixing the economy, saving our planet, winding down two wars, creating a more inclusive and cooperative international atmosphere, and devoting our national talent to our huge unmet domestic needs.

In order to maintain popular momentum for his difficult agenda, Obama must keep women’s loyalty and earn their continuing support. That’s a worthy political goal.

Appointing Clinton also serves three other important political goals. First, it helps neutralize her as a political threat within the Democratic party. In order publicly to criticize the Administration or run for president, she will have to resign her office, giving the world notice of her personal goals. While not insuperable, that awkward step will be a barrier to her ambition.

Second, having Hillary at State neutralizes Bill. No one but he knows how much he owes his wife for his own prominence and success. Now it’s payback time. The extraordinary restraints that Bill reportedly has accepted on his speaking and consulting suggest that he will do a lot to help his wife (and coincidentally our nation) succeed. He may even keep quiet when he should and so avoid undermining the president.

Third, Clinton at State may help give the lie to the common perception at home and abroad that Obama is a feckless intellectual, a brilliant wimp. That notion is ridiculous. Obama is the iron fist in the velvet glove, the like of which our trash-talking culture only vaguely remembers. Even Maureen Dowd has stopped calling him “Obambi”—and for good reason. Yet the false notion of his weakness persists, even among thoughtful people who should know better.

Hillary Clinton spent much of her primary campaign trying to overcome the false notion of the “weaker sex” by feigning machismo. So her presence at State may provide an antidote to the inaccurate and dangerous perception of Obama’s weakness.

These are all important political goals. Perhaps they are essential to building the continuing support that Obama will need as he faces grim reality and asks us all to make the compromises and sacrifices that we must make.

In these political calculations I defer to Obama’s vastly superior political wisdom. Yet on substance choosing Clinton is risky. Her judgment on international affairs has been consistently poor. It’s not just that she voted for war in Iraq without reading the crucial intelligence report. She also failed to recognize: (1) the need to pursue Al Qaeda Central into Pakistan; (2) the danger posed by Musharraf’s inept military rule in Pakistan; (3) the risks of coddling Musharraf to Benazir Bhutto and nascent Pakistani democracy; (4) the counterproductive effect of war-mongering toward Iran, and the possibility of dialogue there; (5) the inadvisability of being perceived as Israel’s unfair partisan; and (6) the fact that talking with our enemies, without preconditions, has been a consistent feature of our foreign policy for half a century.

Clinton’s poor judgment is not confined to foreign affairs. Unfunded mandates were one of two chief reasons why her 1993 health-care proposal failed. Yet she not only insisted on them again in 2007; she used them as the chief means of differentiating her health-care proposals from Obama’s.

That approach was both poor economics and poor politics. No doubt it was a reason why Obama chose Tom Daschle, rather than Clinton, to push through health-care reform. More than any words, that decision of Obama’s is a telling commentary on Clinton’s lack of skill and success in managing the single issue about which she cares most and has the most knowledge and experience.

Poor judgment is not Clinton’s only defect. Her 1993 health-care proposal failed in part because she froze out members of her own party. She made enemies of natural friends. In the presidential debates, she threatened to “obliterate” Iran if it attacks Israel, and she accused Obama—inaccurately—of proposing to “bomb Pakistan.” (What he really proposed was targeting Al Qaeda operatives in Pakistan, as we have been doing openly for the last six months.)

You can argue that these were only “slips of the tongue,” made in the heat of a campaign or debates. But in high-level diplomacy such slips can destroy months of dogged work and trigger unnecessary conflict. The level of diplomacy doesn’t get much higher than our Secretary of State.

Perhaps Obama hopes that Joe Biden’s enormous experience (and good judgment!) in foreign affairs will compensate for Clinton’s deficiencies in experience, diplomatic talent, negotiating skill, and substance. Maybe so. But Biden has a loose tongue problem, too. Flawless diplomacy will have to come from somewhere.

What all this means is that Obama ultimately will have to provide more adult supervision of foreign policy than he may have planned, distracting his attention from our urgent domestic agenda. At the least, he may have to mediate between Biden and Clinton as each tries to take control. He will hardly be able to put State and foreign affairs on autopilot, even for a moment.

I would never presume to question Barack Obama’s judgment on politics. I doubted his handling of Hillary Clinton during the primary campaign, and I was wrong. Perhaps I’m wrong about this, too. Perhaps Clinton in office will be a different person than Clinton the candidate. Perhaps Obama’s superbly prescient judgment left her little room to differentiate herself as a candidate without being wrong or seeming silly. (That certainly was the case with McCain.) Perhaps she has good judgment after all. Perhaps she will at least be a team player once offered the chance, for the first time in her life, to do something real on her own. Obama is a good judge of character, and perhaps he sees all this in her.

But right or wrong, I can only call things as I see them. I see Hillary Clinton as a person who relentlessly promoted herself far beyond her native talent and outrageously exaggerated her real experience. I think she will need constant supervision and hand-holding to avoid mistakes, perhaps serious ones. Unlike Obama, she is not a fast learner. Fourteen years after her initial failure, she still hadn’t learned that unfunded mandates are a political non-starter.

Unlike all Obama’s other picks so far, without exception, Clinton is a needy, high-maintenance personality. I see a significant risk that this marriage of convenience will break down, perhaps at a critical moment, undermining the political benefits that now seem the chief reasons for this pick. Only Obama’s stellar talent, in my view, might avoid or reduce these risks. Whether he can manage Clinton, let alone control her, is an open question.

Politics aside, there are better choices for State than Clinton. I continue to hope that Dick Lugar—with his diplomatic temperament, strategic vision, and rare Republican independence—will find a place in the Cabinet, perhaps as Energy Secretary.

But for now, I expect the best from Obama’s choices. Except for Clinton, they promise us a true meritocracy, the like of which we have not seen in over forty years. We will need all these strong horses—straining as far as their native talent, long experience and independent political bases go—to pull our wagon out of the mud.

P.S. Eric Holder at Justice

As I was checking hits on this piece, I occurred to me that I had failed to mention Eric Holder, Obama’s pick for Attorney General. If appointed and confirmed, Holder will replace Michael Mukasey as head of the Department of Justice.

No one chided me for my omission, perhaps for the same reason that I think caused it. I know little about Holder. In fact, I was barely aware of his existence before reading of his probable appointment.

Does this mean that he is an exception to the rule of meritocracy? I’m not so arrogant as to think so just because I know little about him. Apparently, like most of Obama’s other picks, he is a low-key hard worker who doesn’t make waves.

Ideally, I’d like to see someone with a higher national profile and therefore more power to resist orders to cut corners, even from Obama. But Holder has a basis for independent judgment. He has been a U.S. Attorney, judge and partner in a prestigious national law firm. He was also number two in the Clinton Justice Department for three years and appears to have independent support in the Democratic “establishment.”

The main rap against Holder is his role in facilitating (and perhaps advancing) Bill Clinton’s egregious pardon of fugitive financier and Clinton contributor Marc Rich on the last day of Clinton’s presidency. Holder has been harshly criticized for his role in the pardon, which was hardly admirable. But I think it’s unfair to judge a person by a single act, especially one committed on the way out the door, when people in positions like his are naturally preoccupied with landing on their feet.

Undoubtedly Holder’s role in the Rich pardon will come out at his confirmation hearings if he is nominated. So, evidently, will lots of praise for him. He seems to be universally admired as competent and a straight shooter. So at the moment I’m agnostic about his place in Obama’s meritocracy. We’ll just have to wait and see.

P.P.S. Samantha Power: Inside Watchdog? (Update 11/29/08)

Samantha Power, a chaired professor at Harvard’s Kennedy School of Government and a Darfur advocate, was fired from President-Elect Obama’s campaign staff for calling Hillary Clinton a “monster” during the primary campaign. Now Power has secured a new position in Obama’s State-Department transition team. The Washington Post speculates that she might win a more lasting role as an advisor at State.

For two reasons, that is among the most encouraging bits of news I’ve heard since the leaking of Clinton’s probable appointment as Secretary of State. First, it suggests that Obama’s “team of rivals” will extend below the Cabinet level. There will be checks and balances everywhere. That’s a wonderful idea.

Second, it promises an FDR-like, as well as a Lincolnesque, approach to governing. One of the things that made FDR a great president was his penchant for maintaining multiple sources of information, well beyond official channels, with different points of view. He didn’t rely on his underlings’ official reports to find out what was going on. President-Elect Obama may be doing the same thing.

Both points are comforting. Whether Power serves as an advisor, a check and balance, or simply as a spy, her presence—and Clinton’s knowledge of it—will help keep Clinton honest, circumspect and focused on the nation’s business, rather than her own.

P.P.P.S. Links

Thanks to Nancy Mickenbecker for directing fruitful links to this blog and for her high praise of it. Her comment linking to my post led me to The Field, which argues persuasively that Senator Clinton’s appointment at State is not yet a done deal. I hope so.


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21 November 2008

Lack of Imagination II: Making the Volt Succeed

[For a more recent and more upbeat post on the Volt’s marketing prospects, with links to the EPA’s decision to certify it at 230 MPG, click here.]

A little less than four months ago, I published a post decrying our woeful lack of national imagination. The post’s specific subject was small, remotely piloted aircraft (RPA). I argued that they could be—and should be—decisive in managing the twenty-first century’s chief military and intelligence challenges: finding and destroying terrorists and WMD with minimal collateral damage. Yet as far as I can tell, we are doing little or nothing to develop them, although doing so would cost a tiny fraction of what we are spending in Iraq.

Why are we sitting on our hands? The only reasons I could think of are lack of imagination and the persistent bloating of our military-industrial complex (MIC). Small RPA simply don’t promise the profit that obsolete Cold-War weaponry does. So our MIC would rather produce expensive monstrosities that will be largely useless in any foreseeable twenty-first century conflict, including the ones we are now fighting.

Just as puzzling is the lack of imagination regarding our auto industry. That industry hasn’t marketed a significant innovation in half a century. Yet its leaders seem to think all they need is few short-term loans and a little more time to squeeze their workers a little harder. Then their industry will rise triumphant from the stagnant dung heap of engineering on which it has settled for the last five decades.

Even Congress is having a tough time swallowing that one. But Congress, or at least its Democrats, fear what might happen to all the workers now sullenly feeding from Detroit’s desiccated tits.

I like the idea of field trips. So I propose a field trip for every member of Congress, especially those with committee jurisdiction over a proposed auto-industry bailout.

The trip begins in California’s so-called “Silicon Valley.” The members visit just three companies, spending a day at each: Apple, Google, and Hewlett-Packard. Auspiciously, H-P just reported a respectable profit, despite the general economic meltdown.

What the members see is what modern industrialists call “horizontal” company structure. They might ask the workers how many layers of management lie between them and their divisions’ bosses or the CEO. They might enquire how long it takes to make an important product decision. But they don’t really have to ask. All they have to do is look at the architecture.

If the members observe closely, they will see telltale signs of horizontal organization designed into the buildings themselves. They will see large open spaces with tiny cubicles and plenty of meeting areas, but very few private offices. They will see rooms designed for what look like fun and games, but which (on closer inspection) appear to provide enticing opportunities for workers to talk—even to their counterparts in different departments and divisions.

What the members won’t see is executive dining rooms. Instead, they’ll see multiple dining and catering areas where all from the CEO to computer technicians mingle, and where those who need to work hard can get high-quality food fast and take it back to their desks or labs. The members won’t see whole floors of private offices occupied by people who spend their days shuffling paper and going to meetings.

The field trip’s second part takes us to Detroit, also to three companies: Chrysler, Ford and GM. There the members will see large, exclusive executive dining rooms. They will see row upon row of private offices sheltering paper shufflers and meeting goers. While the cubicles of Silicon Valley reminded them of a beehive, the quiet and largely empty corridors of Detroit’s executive suites will remind them of tunnels left by large but long-extinct dinosaurs. The only thing in Detroit that resembles a beehive is the shop floor, and even that seems empty compared to the Silicon Valley’s beehives.

The architectural differences won’t stop there. If the members get out and about, they will notice another striking difference. Executives in Detroit don’t mingle with workers at all—not in the factory, and not in town. They live in mansions in a different part of town, and they socialize among themselves, in their own country clubs. While executives in Silicon Valley have fine homes, too, they drink and dine in local hangouts with everyone who makes the industry hum. There venture capitalists, would-be entrepreneurs, engineers, scientists, technicians, and workers meet and mingle at lunch and after work every day.

Having taken this field trip, members of Congress will understand something important. They will know that Detroit’s stagnation is not the product of a few bad apples in senior management, far less a temporary spate of bad luck. Social and technological stagnation are built into Detroit’s culture, the architecture of its communities, and the very buildings in which people work.

Detroit is a nineteenth-century town trying to survive in the twenty-first century. A simple bridge loan will not turn it into Silicon Valley any time soon.

Yet there is one small part of Detroit which, with the exercise of a little imagination, might begin to resemble Silicon Valley. That’s the part working on the Chevy Volt.

I’ve written two long posts about the Volt (1 and 2), and I won’t recount their substance here. I’ll just state one undeniable truth. The Volt is the only real product on which stodgy old GM appears ever to have stolen a march on Toyota. If my crude outsider’s estimates are right, GM is about a year ahead of Toyota, maybe more. That is better than any American car company has done in several decades.

If you want to see how little the Volt’s team resembles Detroit as usual, read Jonathan Rauch’s incisive article in The Atlantic, appropriately entitled “Electro-Shock Therapy.” Although much shorter, it reads like Hard Drive, the story of Bill Gates’ rise to industrial power. It is a tale of risk-taking, sleepless nights, and unrelenting hard work toward an elusive but attainable goal.

Yet even the Volt’s team has an imagination deficit. Most of the Volt involves non-innovative technology: things like axles, bearings, electric motors, generators and heavy-duty solid state electronics to control the electricity. That stuff was old before the Prius.

What is new is the heavy-duty lithium-ion batteries, which GM has left to outside suppliers to develop. The batteries have had some trouble. They aren’t as reliable as GM hoped. Sometimes they overheat. And their latest cost figures brought the Volt’s price up to the $40,000 range—a third more than the initial price goal of $30,000.

So what did GM’s executives do? They got stuck. They had promised a car with a daily (single-charge) range of 40 miles, and their manhood wouldn’t let them back off. That’s just the kind of rigidity that made Detroit what it is today.

But suppose the Voltians showed a new kind of imagination and flexibility. Suppose they cut their batteries in half.

As Rauch described it, the engineers have already designed the battery box for a forty mile range. If they spread half the battery cells out in the same space, they would have plenty of room for heat sinks and dead space to cure the overheating problem. The battery—which is by far the car’s heaviest component—would weigh half as much, improving the car’s performance. And the battery’s estimated $15,000 cost would drop by half, to $7,500.

Together with the $7,500 per-car subsidy that President-Elect Obama has promised, that would reduce the Volt’s price to $25,000, the same as a Prius’.

Who wouldn’t prefer the Volt to a Prius at the same price, when the Volt could commute daily without using any gasoline at all? Not only would drivers save much of the cost of gas, even at today’s prices. They wouldn’t have to go to the gas station; they’d just plug in their Volts overnight.

The price for this change, of course, would be reducing the Volt’s single-charge range from the hoped-for forty miles to twenty (actually a bit higher, based on the weight reduction). But the Volt wouldn’t stop dead after twenty miles; it would just start its flex-fuel engine and run on fuel like any other small car.

My own commute is seven miles each way. I’d be delighted to pay $25,000 for a Volt that would make my daily round-trip commute by plug-in recharging alone. My earlier post pledged to buy a Volt at a much higher price, and I renew that pledge today.

More generally, GM estimated that a forty-mile range would cover 78% of Americans’ commutes. How many would fit in the twenty mile reduced range? Suppose the answer is only 20%. That’s still a large market, and the lower price would entice many more early adopters like me to buy the Volt. Haven’t these guys heard of the law of supply and demand?

Maybe a forty mile-per-charge range is a worthy longer term goal. But selling shorter-range vehicles quicker would give GM time to perfect the larger batteries. More important, it would build brand identification and convince the world that Detroit is not brain dead.

The most important of GM’s promises, by far, is getting a Volt that works—any Volt—out the door and into showrooms by fall 2010, as promised. If GM can get sales started by late summer, the traditional start of the model year, so much the better. November will be too late, just in time for Detroit’s funeral. This is a race of titans that GM must win and win decisively.

Congress needs to understand that Detroit’s rare lead over Japan, Inc. in four decades is something to cherish and nurture. The Volt is the future of America’s auto industry, period. Let it lag, and we’ve lost Detroit forever. Make it work, and we’ve got a chance to sell cars with an American logo for another generation or so.

So our members of Congress, too, need a little imagination. They don’t have to restructure the whole of the American auto industry; they may have to let it go. But they should do everything they can to preserve the plans, plants, engineering teams and dealers to design, build, sell and service the Volt. They should do so even if they have to take over the project (temporarily) and cut the batteries in half with their own hands.

If it succeeds, the Volt project will jump start not just our auto industry, but our energy infrastructure and our national pride as well. It is too important to be run by folks who, for several decades, have forgotten what imagination means.


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16 November 2008

The Transcendent Need for Real Talent at State

[For a more recent comment on Bill Richardson, click here. For a later comment on the “vetting” process, click here.]

It’s hard to recall now, but Secretary of State was once the second most important post in our entire executive branch. That was before Dick Cheney filled a vacuum of brains, vision and power and engineered his bloodless palace coup. That was before we replaced diplomacy based on evidence and knowledge of others’ national interests with reflexive resort to military power. That was before State became a parade ground for domestic identity politics.

The paradigm—and one of the best secretaries ever—was former general George Marshall. Before anyone else, he saw how a peaceful, prosperous Europe could rise from the ashes of history’s most disastrous conflict. The European Union is his legacy.

I am too young to have seen George Marshall in action. But I know two things about him. First, he was a tough cookie. He insisted that FDR address him as “Mr. Marshall” and show respect for his military service, talent, and office. Marshall could say “no” to the twentieth century’s greatest political figure and a man whom the nation rightly revered as a redeeming deity.

Much more important, George Marshall had strategic vision. Our nation had just endured a hideous war thrust upon us by evil empires. It would have been easy to lapse into isolationism or a punitive state of mind, like the one that made such a mess of the Armistice after World War I. Instead, acting on Marshall’s vision, we rebuilt Europe and Japan with cultural delicacy, diplomatic skill, and huge doses of social and physical engineering.

The results were so spectacular that today we take them for granted. Once a millennial battleground of warring tribes, Europe is now the world’s largest (in population) peaceful, prosperous, and fully modern democratic society. Once the playground of shoguns and feudal-age militarism, Japan is now a peaceful, modern, democratic nation with the world’s second-largest national economy.

That was a secretary of state! We have not seen George Marshall’s like again. Perhaps we never will. But we have seen extraordinary talent in other forms.

Whatever you may think about his Metternichian approach to international relations, Henry Kissinger in his prime was an impressive strategic thinker. So was (and is) Zbigniew Brzezinski, who as national security advisor overshadowed his secretary of state in both intelligence and vision. When you listened to either of these men (or both!) discuss world affairs, your invariable reaction was “Wow, what intelligence! What strategic vision!” Both men could think many moves ahead in the global game of chess.

Colin Powell provided another model for a good secretary. Lacking Kissinger’s or Brzezinski’s academic glitz, he has extraordinary personal skill and unerring judgment. As I’ve outlined in another post, he made the right calls on Gulf I, our current war in Iraq, the Chinese spy-plane crisis, and the Israeli-Palestinian conflict. Not only that: he made them in the face of conventional wisdom and formidable opposition. Powell also is a natural diplomat, with clear and precise articulation, a soft voice, a pleasing personality and inveterate understatement.

In the end, Cheney’s palace coup, Rumsfeld’s idiocy, and the cluelessness of our commander in chief neutered Powell’s native talent. His soldierly unwillingness to stand up to Dubya didn’t help. But you wonder what his superb judgment and talent for diplomacy could have achieved in an administration that recognized and exploited them.

Does Hillary Clinton or John Kerry measure up? Please. Clinton has never shown the slightest trace of strategic vision in anything but political campaigning. She has shown consistently poor judgment on international affairs. She lost the primary campaign—and quite rightly so—because her domestic political “vision” degenerated into gender politics, personal braggadocio, racial innuendo and slime. She let the Rove clones in her campaign take over her mind. John Kerry lost to Dubya because he never showed any vision at all, strategic or otherwise. And his stiff New Englander’s personality made enemies of people who should have been his friends.

Equally important, neither Clinton nor Kerry has shown any special understanding of foreign cultures. The last thing we need now is another good old American pol barging into the international arena as if it were just another Senate arm-twisting session.

To appoint either of these deeply flawed domestic pols as secretary of state at this critical stage in our history would be a grave error of judgment unworthy of President-Elect Obama.

So whom should Obama appoint? We may not have another George Marshall waiting in the wings. But in a nation of 300 million people, we should be able to find someone as talented as Kissinger, Brzezinski, or Powell. Perhaps Powell himself could be persuaded to serve, at least for an extended transition period, despite his disavowal on Meet the Press.

Senator Richard Lugar (R., Ind.) also has promise. He has shown independent strategic vision on Iraq and energy policy. He has a thoughtful, low-profile, understated personality, and he may have a natural talent for diplomacy. He also has experience with international negotiations involving arms and nuclear nonproliferation. I don’t know enough about him to make a strong recommendation, but he is certainly someone who should be vetted. Anyone who could break the lemming-like Republican lock-step has independent judgment worthy of respect.

If we cannot find someone with strategic vision and international training or experience, we might seek yet another model for a successful executive-State partnership. Barack Obama himself has immense strategic vision. That’s why he’s President-Elect. Joe Biden has immense experience in international affairs. That’s why he’s Vice President-Elect.

Maybe we can get by with an experienced, understated diplomatic negotiator like Richard Holbooke or Christopher Hill. President Obama could oversee the strategic vision. Vice President Biden could prefect it and temper it with experience (in private, to avoid gaffes). Then Holbrooke or Hill could implement the collaborative vision with a low profile, out of the public limelight, using much-honed negotiating skill.

But whatever happens, we have to change the approach to State that we’ve taken for the last two decades. Our military is thin and overstretched. Our economy is on the ropes. If we are to regain our influence in world affairs in the near future, we must make diplomacy a serious business again. We cannot continue to use it as a showcase for domestic identity politics.

That means finding the best talent in our entire nation of 300 million people, whatever it takes and however surprising the appointment might be—even a middle-aged, white male! It doesn’t mean rewarding political supporters or political celebrities who have never demonstrated the slightest strategic vision or talent for diplomacy. The office of Secretary of State is not a sinecure or a political plum. It’s a real job.

P.S. Bill Richardson. New Mexico Governor and erstwhile presidential candidate Bill Richardson also has been mentioned for State. He has a pleasing, low-key personality and a natural talent for diplomacy. He served as our United Nations ambassador for two years and helped in discussions with North Korea. He grew up partly in Mexico and has deep bicultural roots in the Hispanic community.

So Richardson may have half the equation—the half that relates to diplomatic talent and understanding of foreign cultures. But he showed little evidence of strategic vision during the long presidential primary campaign, let alone the intelligence or accurate, independent judgment of Kissinger, Brzezinski or Powell. All his substantive views seemed echoes of other candidates’.

No one can predict what challenges the next Secretary of State may face. So strategic vision and original strategic thinking are the sine qua non. Senator Lugar’s greater strategic vision easily trumps Governor Richardson’s edge in diplomatic experience.

We can and should do better than Richardson. But he would be a better choice than either Clinton or Kerry, who lack both diplomatic talent and strategic vision.

P.P.S. The “Vetting” Process: Aggrandizing Trivia. If you want to understand how lawyers and “gotcha!” political operatives like Karl Rove are destroying our nation, you need look no further than the “vetting” process for the Obama Administration’s political appointees, as described in today’s Washington Post.

We are speaking here of the great offices, beginning with Secretary of State, that will round out our top leadership team. The executive branch is a huge and unwieldy organization. No one—not even someone as talented as Obama—can run it all alone. The key appointments announced in the next few weeks will make or break the Obama Administration and perhaps our nation.

So what are the monstrous “vetting” teams focusing on? Tax returns, unreported gifts above $50, proper treatment of domestic workers, and youthful indiscretions like smoking marijuana. All that effort spent on trivia would be laughable if it were not so tragic.

Take the secretary of state, for example. In the foregoing essay, I boiled down that post’s key qualifications to two: diplomatic ability and strategic vision. But two other personal characteristics also matter.

First, a Secretary of State must have intimate, intuitive knowledge of foreign cultures. He or she must understand, deep in the bones, that foreigners play by different rules.

Failure to “get” that point led to our defeat in Vietnam and the present Iraqi quagmire. We can’t let that sort of thing happen again. No matter how capable on his or her home turf, a good ol’ American pol has no valid credit in the international arena.

Second, a good Secretary of State must have fully independent judgment and be able to command the president’s attention. He or she must have enough integrity and independent political power to force a showdown, resign in protest with equanimity, or at least threaten to resign and go public on an issue of sufficient importance.

So these are the sine qua non for State: (1) diplomatic talent; (2) strategic vision; (3) deep, personal understanding of the foreignness of foreign cultures; and (4) rock-hard independence and personal integrity. Next to them, the “gotchas” on which the vetting teams are focusing are fluff in the wind.

Barack Obama is President-Elect in large measure because he has the strategic vision and sense of perspective that all the other candidates lacked. We haven’t seen his kind of leadership in a long, long time.

But he is only one man. He can’t attend to all the details himself. Nor can he respond to every crisis personally and immediately.

So we, the people, can only hope and pray that his so-called “vetting” team has the skill and perspective to weigh what’s really important in preparing the short lists for his review. Woe unto us if we select the rest of our top leadership based on who has the fewest peccadilloes.


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15 November 2008

Hillary Clinton: A Bad Idea Then, a Bad Idea Now

My first reaction on hearing that President-Elect Obama is supposedly considering Hillary Clinton as Secretary of State was, “you’ve got to be kidding!” Here are seven reasons why she should not be, and probably won’t be, appointed to that or any other similarly visible Cabinet post:

1. Hillary Clinton is no diplomat. She’s a self-proclaimed “fighter,” a skilled legal advocate, and a superb self-promoter. Decorum, understatement, and subtlety—the traits of diplomats—are not her thing.

2. Hillary Clinton has no experience in diplomacy. Nothing but phantom “experience” emerged from her extended primary campaign, including her supposed landing in Bosnia under sniper fire. The closest she got to real diplomacy was some ceremonial work with women’s groups in Northern Ireland.

3. Hillary Clinton has terrible judgment on matters of foreign policy. She supported the War in Iraq without ever reading the key pre-war intelligence report. She failed to recognize the need for skepticism toward Musharraf’s military rule in Pakistan, or the desirability of pursuing Al Qaeda into Pakistan. Like John McCain, she failed to recall that negotiating with our enemies has been a feature of our diplomacy for half a century.

4. Hillary Clinton is not a team player. In her campaign and stump speeches, she used the first-person singular more than any politician I can remember. Both she and her husband have super-sized egos ill-suited to teamwork, let alone teamwork in diplomacy. Diplomats have to be willing to work for months in secrecy and obscurity, caring only about getting the job done, not who gets credit.

5. Hillary Clinton’s positions on foreign policy have been risky and dangerous. Remember her threatening to “obliterate” Iran during the presidential debates? Having her leading State would make us less secure. Among other things, it would risk squandering the extended honeymoon that global admiration for President-Elect Obama now promises.

6. Neither Hillary nor Bill ever had much interest in foreign policy. Domestic policy was their thing. Bill (like Dubya) missed a chance to get bin Laden, resolved too late to fight the genocide in Bosnia, and failed (despite valiant effort) to advance the cause of peace in the Middle East. This is far from a stellar record. Hillary may cite it as vicarious “experience” (as she did during the campaign), but it is nothing to brag about.

7. Millions of voters, like me, supported Barack Obama because he has so much more to offer than either of the Clintons. We are overjoyed to have a true adult in charge of our nation—someone quiet, thoughtful, dignified, circumspect, self-effacing and self-restrained.

We have no doubt of Obama’s toughness, but toughness doesn’t require trash talk. We are tired of hucksters and self-promoters running and representing our country. We wanted to see the Clintons’ backs and still do. We want a fresh start, especially in foreign policy.

In his running mate, President-Elect Obama has one of the most experienced hands in foreign policy in all our national leadership. He doesn’t need the advice of someone who never negotiated with any foreign leader for real, i.e., while bearing responsibility for results.

He does need the help of patient, skilled, experienced international negotiators like Richard Holbrooke and Christopher Hill. They both have shown they can work tirelessly in relative obscurity for months at a time to achieve a limited but important result. Who would even think of Hillary Clinton for a post requiring those skills—after all we learned about her during the primary campaign?


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11 November 2008

The First 200 Days: Fourteen Priorities

1. Close Guantánamo
2. Bring back biotechnology research
3. Rescind Dubya’s last-minute environmental depredation
4. Redirect federal energy subsidies and tariffs from the past to the future
5. Stop corporate welfare
6. Make our bloated military-industrial complex (MIC) lean and mean
7. Save the Chevy Volt
8. Create a National Battery Development Consortium (NBDC)
9. Invest massively in wind power, right away
10. Invest in the right kind of infrastructure
11. Keep people in their homes
12. Avoid losing ground in health care
13. Upgrade our health-care infrastructure
14. Upgrade our air-traffic control system

President-Elect Obama’s mandate for change—plus the enormous good will he has in the international community and our most productive states—gives us an extraordinary opportunity to remake our society. Our multiple crises provide motivation for strong action.

Those who say we should go slow are dead wrong. Of course we should avoid impulsiveness and undue haste; they’re what got us in this mess. We also must shun profligacy (always!). But we must act boldly while our desperate situation still commands everyone’s attention and while the honeymoon lasts.

Many of our problems are decades old. Those of us whose minds have not been clouded by the Little Book of Free-Market Fairy Tales have been thinking about the best solutions for a long, long time. Now is the time to act.

Here’s my own list of what we should do in the first 200 days, in chronological order, with simplest and easiest things first:

1. Close Guantánamo. Close this shameful chapter in our history ASAP. Transfer the prisoners to our mainland. Try admitted “enemy combatants” like Khalid Sheikh Mohammed in courts martial under the Uniform Code of Military Justice. Try people who claim (credibly) not to be enemy combatants in civilian criminal courts. Give them all the civil rights of accused criminals, but make procedural changes needed to protect intelligence and sources. Let civilian judges decide what new procedures are needed, on a case-by-case basis, based on evidence provided by military and intelligence authorities, in secret if necessary. Case-by-case procedural development may take time, but we’ve wasted nearly seven years already.

2. Bring back biotechnology research. Immediately rescind all federal restrictions on funding stem-cell research. To stanch the brain drain caused by Dubya’s misguided policies, increase federal funding for leading-edge biotechnology research, including stem cells. (We’re talking only a few billion here, less than we spend on foreign oil in a month.) Resolve never again to let religion—let alone cynical political manipulation of religious sentiment—govern science. Adopt new regulations to that effect.

3. Rescind Dubya’s last-minute environmental depredation. Rescind all the Bush Administration’s executive orders and regulatory changes relating to land use and the environment during its last 200 days. For example, we don’t need eleven million acres of Utah wilderness overrun by offroad vehicles, which destroy the tranquility of nature, damage delicate desert ecology for decades, waste fossil fuels, and contribute to global warming.

4. Redirect energy subsidies and tariffs from the past to the future. Repeal all federal subsidies for oil and coal, including oil shale and tar sands. Divert the money to start-up subsidies and research for wind power, solar power, and safe and terrorism-resistant nuclear plant design and waste disposal. Commission our nuclear-related national laboratories (Lawrence and Los Alamos) to review and certify all commercial nuclear plant-designs as meltdown-proof and terrorism resistant, with power to force design changes. Provide limited subsidies for converting cars and gas stations from gasoline to natural gas. After area-by-area environmental review, open up closed domestic territory to natural-gas drilling and provide limited subsidies for commercial distribution of natural gas as a transportation fuel. Repeal special taxes and tariffs on imported cane-based ethanol. Consider imposing tariffs on foreign oil to promote domestic production and alternative energy.

5. Stop corporate welfare. Immediately suspend further bailouts of financial and industrial firms pending review. Require any firm receiving federal bailout money to suspend all bonuses, dividends, distributions to owners, and excessive compensation. Make sure that every government investment earns interest at a risk-based rate, involves an ownership stake with a significant chance of appreciation, or both.

Assemble a blue-ribbon panel of economic, financial and industrial experts (preferably including Warren Buffet and Maurice “Hank” Greenberg) to determine whether and how bailed-out firms need assistance in risk management or changes in management. Impose federal receivership when needed to force changes in policy, avoid too risky or risk-averse business plans, or improve management. Sweeten the medicine by preserving what remains of shareholder value, plus the possibility of upside gain if and when receivership ends and private management is restored. End receivership as soon as each bailed-out firm is on track and profitable.

6. Make our bloated military-industrial complex (MIC) lean and mean. The Cold War is over, but our military-industrial complex hasn’t gotten the message. Assemble a blue-ribbon panel, like the base-closing panel, to review all high-ticket military expenditures. Make sure the panel includes prominent, well-qualified, and independent scientists, engineers and economic experts. Have them review the evidence, provide a “reality check,” and curtail waste on infeasible “Star Wars” systems.

Scrap most weapons systems designed for massive conflicts between technologically advanced powers. Keep and streamline projects for intelligence, surveillance, reconnaissance and force protection. Redirect military expenditures toward twenty-first century missions, including finding and neutralizing terrorists and finding and destroying WMD and WMD factories. Provide substantial new money for small, remotely-piloted aircraft, including start-up funds for new industries to make them. Revise procurement procedures to provide: (1) more scientific, engineering and economic input from experts independent of both the military and civilian contractors; (2) more discretion of politically independent military experts within our armed forces, with independent civilian expert advice; and (3) a reduced role for lawyers, accountants and litigation.

In the midst of two wars (one of which we’re losing), we can’t continue to let lawyers and accountants run our military procurement, as they did in holding back our tanker-plane procurement for going on four years. Nor can we afford to base vital (and expensive) military procurement decisions on which member(s) of Congress have seniority and whose district(s) most need employment. We have to go for quality, military necessity, efficiency and speed, as we did in World War II. The MIC we have today would have lost that war.

7. Save the Chevy Volt. The Chevy Volt—a plug-in hybrid that can go 40 miles a day on electricity alone—is the best of our auto industry and its only significant technological innovation in half a century. Scheduled production is less than two years away. GM has assigned several hundred engineers, now about 500, to the project. For the first time in decades, GM appears to be leading Toyota in bringing a new kind of car to market.

Few, if any, of GM’s, Ford’s or Chrysler’s other products can succeed in global competition. If we want a viable auto industry in this country, we cannot let the Volt project die. Nor can we let our auto industry’s many problems hold it back. This is the gem of our once-great industry.

Put the Volt project in receivership or nationalize it (temporarily) if necessary, but keep it running on schedule. Provide subsidies when needed to advance production, lower costs and ramp-up production quickly to meet demand. These subsidies will be the most cost-effective investment in jobs, industry, infrastructure, our environment, and global climate stabilization that we could make.

(My recommendation to save the Volt is purely disinterested. I have no financial interest in GM or any of its suppliers. On saving the rest of what remains of our Big Three, I am agnostic. I have never bought a new American car. From the time I was old enough to afford one, none could meet the competition. I see little benefit in supporting uncompetitive industries with tax money, but I would put my own money in a Volt spin-off.)

8. Create a National Battery Development Consortium (NBDC). As I’ve outlined in another post, good batteries can go a long way toward resolving our energy crisis. They can store wind and solar power for times when the wind doesn’t blow and the sun doesn’t shine. In cars like the Chevy Volt, they can convert our transportation infrastructure from fossil fuels to electricity, including wind, solar and nuclear power. Outside of cars, they can make possible a whole new world of electrical infrastructure—distributed, local generation of wind or solar power, coupled with household storage.

Nothing we could do about energy—in the short or long term—would be more helpful than making the Chevy Volt’s batteries reliable, easy to produce, and cheap. (The rest of the car’s technology is straightforward and non-innovative.) We cannot leave this nationally vital project to a few private companies that compete instead of collaborating. The NBDC provides a way to combine public and private resources, maintain private economic incentives, reward private innovators (including existing competitors) and get the job done fast, with a nationwide full-court press. Done right, it will not require much government expense, just a new approach to public-private partnerships.

9. Invest massively in wind power, right away. Windmills and the power lines to bring their power to our cities are the best infrastructure investment we can make. These technologies are in production and work now. They need no further research or development. They promote energy independence. They reduce pollution and global warming. Although they cost money to install, they provide unlimited energy at very low marginal cost: the cost of maintaining windmills and power lines.

Best of all, when put in our empty deserts and plains, they provoke little, if any, NIMBY resistance. They create jobs quickly. They take months, not years, to plan, build and install. In contrast, nuclear power plants take ten to fifteen years to design, site and build. And GE, one our own few “excellent” companies still standing, is among the top five global producers of windmills and perhaps the most technologically innovative. If we are serious about creating new jobs with new infrastructure, there is no better place to start than massive investment in wind. Even T. Boone Pickens, former oilman and corporate raider, agrees.

10. Invest in the right kind of infrastructure. Investment in infrastructure can create millions of new jobs virtually overnight. But it has to be the right kind of infrastructure. We don’t need more new roads and highways that encourage more people to live farther form work and burn more fossil fuels.

Do invest in mass transit, bicycle paths, bicycle-sharing arrangements in cities (especially in the Sun Belt), innovative community design, and electrical infrastructure designed to support plug-in hybrids like the Volt. Upgrade our intercity railroads, water and sewer systems, wetlands (especially in hurricane country), and Internet access and speed. Repair the crumbling roads, highways, bridges, water supplies and sewer systems we already have. A blue-ribbon panel of city and regional planners, civil engineers, and scientists might be helpful in selecting and prioritizing projects, but only if it is independent from political influence in composition and procedure and can work quickly.

11. Keep people in their homes. Pass a law allowing the federal government to condemn (confiscate, with “just compensation”) all parties’ interests in toxic mortgages and mortgage loans at a “fair price.” Have federal regulators set the fair price—perhaps the “prudent price” at which loans would have been made before all the subprime insanity began. Create a new agency, perhaps within Treasury but advised by the Fed, to condemn, acquire, revise and sell loans and mortgages in or nearing foreclosure. Arrange the acquisition and resale prices to promote a private market in revised loans, as I have outlined in another post.

We cannot wait for private markets to resolve the crisis they have created. Nor can we wait for bankruptcy courts to chew on millions of individual bankruptcies, as President-Elect Obama has proposed. With a condemnation procedure, people can be kept (or put back) in their homes with sustainable payments now, and litigation over “just compensation” can proceed later. This procedure would put the burden of litigation on the managers who caused the crisis, or those who seek to profit from it by buying troubled paper, rather than on mostly innocent ordinary homeowners.

12. Avoid losing ground in health care. During the next two years, millions of people are going to lose their health care because they are going to lose their jobs. Whatever we do with health care in the long run, immediately enact some “stop-gap” measures. Extend COBRA (the federal law that allows you to purchase an individual health insurance policy from your employer after your employment ends) from eighteen months to thirty months. Have HHS or a blue-ribbon panel design a national model low-cost health-care policy focusing on preventive care, urgent care (for patients disabled or in acute pain), and catastrophic care (urgent care for life-threatening conditions). Make sure that policy covers pre-existing conditions. Let private markets develop policies that fit the model and apply for federal certification. Subsidize premiums for certified policies for people who have lost their jobs, perhaps with additional unemployment insurance, which President-Elect Obama already plans to extend.

13. Upgrade our health-care infrastructure. Private medicine’s resistance to computer technology is scandalous. The average small business, lawyer’s office or accountant’s office makes far better use of modern technology than does the average doctor or hospital. We must cure this modernity deficit ASAP. Doing so will improve efficiency, reduce costs and provide jobs for millions of computer programmers, consultants, and workers in the computer hardware and software industries.

Without delay, have the federal government, in consultation with private standards-setting organizations, develop no more than two or three alternative transmission and storage formats for medical data, including lab reports and radiological images. Include existing industry formats like HTML or XML. Make the federal standards flexible to accommodate future development. Make sure they are mutually compatible and permit interchanging data and equipment. Develop at least one standard based on “open-source” software. Then pass a law requiring, as a condition or federal reimbursement (including Medicare and Medicaid), that every doctor, medical laboratory, clinic and hospital adopt and implement one or more of the listed standards within twenty-four months. Provide subsidies where needed, for example, in rural clinics and hard-pressed big-city hospitals.

14. Upgrade our air-traffic control system. Convert our air-traffic control system to a GPS-based system, using radar only near airports and as a backup. To create massive new employment—in good jobs with high pay, in electronics, airport management and the software industry—get this project up and running quickly. Boost the quick start by specifying flexible, open standards that encourage industrial competition. Jump-start the conversion with limited subsidies for “showcases” at designated city pairs (cities between which there is massive air traffic with consistent delays). After specifying standards and supporting demonstration projects, let the private sector do the rest, subject to regulation for safety and reliability.

Conclusion. If you scan this list carefully, you’ll see that most items don’t require a lot of federal money. What they do require is expertise, competence and sound management in the public interest.

The federal government need control only the direction, organization and initial management, in some cases with the aid of blue-ribbon panels. Once it has given the private sector a new direction and stripped it of bad management, naked greed, and anti-social business models (like expensive, heavy, gas-guzzling SUVs and multiple, mutually incompatible health-care data formats), private ownership and management can return. None of these suggestions need involve long-term government ownership or control of commerce or industry or more than temporary government supervision.

We the people elected Barack Obama to provide just that sort of direction and management. We did so because the private sector has failed us miserably, demonstrably and repeatedly. Call it industrial policy if you wish. But please don’t call it “socialism” or “big government.” It’s neither.

As we were reminded so repeatedly and painfully during the last eight years, elections have consequences. This sort of industrial policy is what a decisive majority of our people want and what the overwhelming majority of our national productivity elected Obama to do.

Every one of our global competitors has an effective industrial policy and competent national planning. We should, too. Let’s get to work.


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