We the (Easily Confused) People

We the people whose Constitution “promote[s] the general Welfare, and secure[s] the Blessings of Liberty” are easily confused. We have the habit of trusting ideas about what things are and how they work.

We must trust our ideas in everyday life: we’d be paralyzed if we always had to figure everything out from scratch. But we trust too far. We tend not to notice facts that conflict with our ideas.

Fairleigh Dickinson University recently surveyed 1,185 respondents on which news sources they used and what facts they knew about current events. The results are quite distressing.

On average, respondents correctly answered only 1.8 of 4 questions about international news, and 1.6 of 5 questions about domestic affairs. On average, we don’t know or are wrong about more than half the facts of what’s going on. Why?

Because news media do not aim to provide facts but entertaining opinions, especially about the stupidity of those with other opinions.

Media coverage of the survey was more eye-catching than analytical. Left-leaning commentators trumpeted that those who watch FOX News got only 1.04 correct answers to domestic questions while those with no exposure at all to the news got 1.22, and they got only 1.08 correct answers to international questions while those with no news exposure got 1.28.

But do these survey results mean watching FOX News makes you more ignorant? Do they mean watching MSNBC leaves you as ignorant as those who follow no news media? Not exactly.

What the survey demonstrates, since liberals watching FOX News and conservatives watching MSNBC are much less likely to know the facts than those who follow no news media, is that our opinions, our preconceptions, our ideas lead us to ignore the facts.

Facts presented on FOX News are much less likely to be noticed by liberals. Facts presented on MSNBC are much less likely to be noticed by conservatives.

How can we have a good future if the average American doesn’t know or is wrong about so much of what’s going on in the world? We’ll vote for candidates who also don’t know or who lie about what’s going on and we’ll support the wrong policies.

What to do? Why do news media leave us as ignorant as we would be without them, or more so? Well, since most of their revenue comes from advertisers, they must provide what advertisers want – people motivated to buy things – and since buying is motivated not by facts but by stimulating emotions, the media stimulates emotions and anesthetizes intellects that might say, “do I really need that?”

However, an excitingly large 27% of “we the easily confused” now gets news from blogs or political websites. Much of that content is also entertainment, it’s true, but this is a medium where we can contribute. We cannot increase the factual content of the mainstream media but we can use blogs to disseminate facts, stimulate analysis and promote fact-based proposals for change.

And we can encourage media businesses beginning to find ways to serve those who want facts. The Tampa Bay Times’ PolitiFact project, for example, notes that my State’s Governor’s assertion that “about 47 percent of able-bodied people in the state of Maine don’t work” is of “pants-on-fire” quality.

At the start of this topic I wrote: “Honesty in the media has always been problematic but the impact of today’s big media seems more powerful than in the past.” There are now, however, so many other sources of facts and analysis along with media where I can debate what the facts suggest with folks whose preconceptions are different from mine. That is a highly encouraging development.

How many of us must work at “disseminating facts, stimulating analysis and promoting fact-based proposals” to head us in a better direction? Speculating about that is a waste of time. Society’s direction will change for the better if every individual who cares about it does the work.

Feb 6 2014

Democracy, the Least Worst Way to Govern

By: Guest Author – in response to Protecting the Minority of the Opulent Against the Majority

I’ve always liked that quote of Winston Churchill’s. I think his imperialist/monarchist/aristocratic self warred with his democratic side.

My conclusions about searching for the ideal forms of economic, social and government systems are based on recognizing the basic or crude nature of humans: self-interested above all, greedy, aggressive, power-seeking tempered somewhat, but not always, by familial or tribal affiliation (maybe even love). This leads me to believe that some form of capitalism will always win out over socialism.

Humans will amass money and privileges and power for themselves regardless of the form of government. The highest members of the communist party always had better jobs, housing and status then the comrades. Revolutionaries who lead revolts to bring dramatic change to “the people” often end up as dictators. Robert Mugabe is just one example, or the return of military rule to Egypt.

There will always be some form of class system as people like to be better off than their neighbors and be highly regarded for it. A reason why utopias, and pure communism, if there ever was such an animal, fail. Hybrids, like the various social democracies in Europe can succeed but are always being assaulted by the usual forces from the left and right.

The clever, innovative, ruthless will exploit others, like the workers, whenever they can get away with it. Those at the top want to stay there and will do everything in their considerable power to stay there. I think you’re right on about representative government being the only way that the unfettered opulent minority (including the utterly reprehensible Tom Perkins), can be controlled. They don’t need protection at all. They need laws and regulation to moderate what otherwise would be unchecked greed in keeping with human nature.

One hundred plus years ago, in the U.S. the opulent minority such as Ford, Rockefeller, Vanderbilt, Morgan, amassed huge fortunes doing whatever they pleased. Moderates and progressives passed a bunch of laws, including the income tax, and regulations on interstate commerce, food safety, antitrust to remove some power from these robber barons and restore a small part of equity to the economy. Later we brought in labor unions, New Deal social programs and even the Great Society. All pushed and protected by government.

Today the pendulum has swung in favor of the opulent. We need to get it to reverse its course and come back toward the majority.

Most of the rest of the world thinks that democracy with representatives of the citizens having voice and command is the best system. But built in are battles between various majorities and minorities because personal interests will always conflict.

I think we could make our current systems work better if we could return to compromise being considered the honorable way to rule and, secondly, get as much money as possible out politics. This means finding people far different from the type of Democratic and Republican leaders we have now.

Feb 3 2014

Protecting the Opulent Against the Majority

A few days ago, billionaire venture capitalist Tom Perkins wrote that the way progressives are starting to treat the super rich reminds him of how the Nazis treated the Jews. Soon after his letter was published in multi-billionaire Rupert Murdoch’s Wall Street Journal, he had to apologize for his politically incorrect phrasing. He would have done better to quote James Madison, “Father of the Constitution” and author of the Bill of Rights.

When the Federal Convention of 1787 turned to the question “whether the republican form shall be the basis of our government,” Madison pointed out: “In England, at this day, if elections were open to all classes of people, the property of the landed proprietors would be insecure. An agrarian law would soon take place.”

The implication, he continued, is: “If these observations be just, our government ought to secure the permanent interests of the country against innovation. Landholders ought to have a share in the government, to support these invaluable interests, and to balance and check the other. They ought to be so constituted as to protect the minority of the opulent against the majority.” (emphasis added)

A widely held belief has developed that the US Constitution offers protection for all minorities. That was not its intent. Madison’s much more limited aim was to protect the wealthy minority. Whether or not we like the result, we should recognize that our Constitution is working as intended.

How does it work? A republic is where power is held by elected representatives whose actions are bound by a Constitution. People in a republic vote for candidates who promise changes they like. The risk is that a small majority could make changes with unacceptable negative impact on the rest of the population. That’s why a Constitution is necessary, to prevent such changes by defining ‘unacceptable.’

I’m thinking about this because I’m reading Noam Chomsky. His diagnosis of why our government acts as it does, regardless which party is in power, feels spot on. He shows example after example of actions by our government that benefit the opulent minority and work against the interests of the majority here and throughout the world.

But Chomsky’s proposed solution is misguided. His central beliefs are that power corrupts and capitalism concentrates wealth, which, based on long first-hand experience and close study of history, are truths I hold to be self-evident. The question is, would his solution, anarcho-syndicalism, be better? Could it even work?

Anarcho-syndicalists are socialist libertarians. Like capitalist libertarians who enjoy President Reagan’s signature joke: “The nine most terrifying words in the English language are: ‘I’m from the government and I’m here to help'” they oppose central power. The difference is anarcho-syndicalists say the inevitable concentration of wealth by capitalism exploits the majority.

Attractive increases in freedom are promised by both kinds of libertarians. In real life, however, the system does not scale. A libertarian (i.e., unregulated) society cannot protect shared resources or universal needs: local societies often manage local resources (e.g., forests) sustainably but resources managed by non-locals are polluted and/or depleted. And small societies cannot retain freedom: they cannot defend themselves against more powerful exploiters.

It is true that a fundamental problem for large scale enterprises is that central planning cannot work: there’s too much change to comprehend at the center. An ingenious programmer I once hired was directed to model how many tractors Soviet factories should plan to build. He tried combinations of many, many factors without success before at last seeing how to produce results that pleased the planners. How? By plugging the number of tractors that were going to be built, anyway.

Big businesses fail for the same reason – they lose contact with changes in their market.

Another problem is many things that start small seem destined to grow big but central planners too often fail to identify which are worth the investment. Small societies with property managed at the local level would make better choices but they lack the necessary resources. Today’s semiconductor and internet infrastructure, medical technology and etc required enormous investment.

So history tells us that democracies with a constitution tend to be better for people than autocracies, that market-based economies tend to deliver better results than centrally planned ones, and that capitalism seems essential to generate disruptive technology and deploy it on a large scale.

Speaking in Parliament in 1947, not so long after he lost the election following WW2, Winston Churchill famously said: “Democracy is the worst form of government, except for all those other forms that have been tried from time to time.” The same looks to be true of capitalism in the economic sphere and nation states in the sphere of sovereign entities. They do all tend to concentrate power and wealth but the alternatives are worse.

So, “if these observations be just,” how can the non-opulent minorities who make up the majority get protection? Curtailing the inevitable abuses of power is achieved by incremental legislative changes that adapt Constitutional definitions to changes in society.

Because the fundamental structure of the system results in the wealth and power of the opulent minority always nudging the law’s evolution in their favor, other minorities must speak more loudly.

It is healthy that voices are now speaking loudly enough about too-high and rising inequality to be heard by Perkins and others. It indicates that our system is working as it should.

Jan 28 2014

The Practice of Transformation

First, some background to the epiphany (an experience of sudden and striking realization). Twenty-odd years ago I joined Dun and Bradstreet’s advanced services division as Director of Program Management. I was not the only one unfamiliar with what that job might be. When my business cards came, they identified me as Director of Program Manglement.

There is no better way in such a situation than Steve Jobs’ approach: “When you don’t know where to start, start somewhere.” I did what needed doing for a complex new service that was being developed in New York and tested and rolled out in country-specific variants all across Europe, then used that experience to establish a methodical software development process.

The first step in the process is a Vision Statement. Its purpose is to imagine and articulate “how great it will be when.” Because our mission was to develop and deploy “advanced services”, we had to imagine new ways our customers could do their work to get better results.

Vision Statements imagined people using radically new software to do business in new ways with far more effective results. We illustrated how pieces of the software might look and got feedback from innovative customers to identify the best ideas.

Then came the Scope Statement. That’s where, based on our image of “how great it will be when,” we defined what the first software version would and would not do. Scope transformed an ultimate vision into something we could actually do. That became the basis for the Project Plan.

So, the Vision Statement harnesses intuition: the Scope Statement employs the intellect. The Vision Statement is expansive: the Scope Statement is restrictive — that’s where you discipline yourself to say, “No, we don’t have to do that piece yet.”

By the time I took over as General Manager of that division then went on to establish D&B’s global “Technology Strategy, Architecture and Frameworks” I’d realized the same method of harnessing intuition disciplined by intellect was applicable to transformational business strategy.

No transformation is possible if you have no vision of “how great it will be.” At best you will find only quicker, cheaper ways of doing the same things you always did.

Now the epiphany: a couple of days ago, I realized Tibetan Buddhism is built on the same foundation.

In a long traditional set of rituals I practice every morning, supplemented by study and reflection later in the day, I imagine becoming deities that flawlessly manifest behavior I want to perfect. The only difference from business Visions is instead of imagining freedom from business limitations, I imagine freedom from emotional and conceptual habits.

In the same way as Vision Statements include illustrative stories, Tibetan Buddhist texts include tales about exemplary beings.

But unlike the process for product and business transformation, Tibetan Buddhism requires no Scope Statement. New products and services or business strategies take substantial time and investment which makes rigorous scope management of a stepwise transition essential.

Tibetan Buddhist practice is more like bug-fixing. All features exist, they’re just buggy. Because they’re so buggy, it’s hard to imagine all the defects gone, so we visualize deities that reveal in purified form what we cannot see even though it is already there.

How to proceed when there are so many bugs? The proven method in the business world is “continuous improvement.” One of its early leaders, W. Edwards Deming, was instrumental in Japan’s mastery of manufacturing. They summarize his teaching that errors are opportunities for learning to generate improvements as “every defect a treasure”.

Continuous improvement is an unremitting process of noticing defects, rigorously identifying their root causes, and incrementally eliminating those factors.

Tibetan Buddhism is a continuous improvement practice. My teacher says two to four hours of formal practice every day is necessary for transformation. Some change seems to be taking place since I upped my own practice to two hours. But it’s the same as in business, my aim must be to stay alert throughout the day, notice every defect, identify why it happened, and steadfastly uproot its cause.

I was lucky in my business life to get transformative teachings at Harvard Business School and elsewhere. I am lucky now to get transformative Tibetan Buddhist teachings. And I’m blessed above all by my parents’ teaching, “I don’t know, let’s work to find out.”

Epiphanies result, if at all, from long hard work whose aim may not even seem to be discovery. They are surprising because arriving at the realization is unexpected. The realization itself, however, is immediately recognized to be obvious truth.

It’s not surprising that both transformational Tibetan Buddhism and transformational business strategy use envisioning integrated with continuous improvement. My surprised feeling was because I hadn’t noticed that before. It’s lucky that what I learned in business was such good preparation for what I’m doing now.

Sep 8 2013

Chemical Weapons and the Law

Syria is subject to the jurisdiction of the International Criminal Court (ICC), which makes the recent use of chemical weapons there a crime. UN Weapons investigators analyzing evidence collected in Syria need about another week to establish if the weapons were used by Syrian government forces, if Syria’s leader authorized their use or was informed later, if they were instead used by rebel forces, or if more evidence is required to make a judgment.

President Obama says Syria’s leader is responsible for the crime and proposes unilateral retaliatory military action. Congress is debating whether to authorize that. Its vote is scheduled for two days hence, before the UN team completes its analysis. President Obama says he has the authority to take military action even if Congress votes no.

Unfortunately, US governments always have placed their faith exclusively in military power and refused to accept the rule of international law. President Bush’s UN representative formally excluded the USA from ICC jurisdiction. President Obama, despite his law degree and Nobel Peace Prize, is acting the same way.

Banning chemical weapons has been a long and tortuous challenge. The first attempt was the 1925 Geneva Protocol following the use of poison gas in WW1. Another attempt was initiated following the WW2 Holocaust but was stymied by the Cold War. In 1962 the US and USSR proposed elimination of all such weapons to the UN but between then and 1971 the US sprayed nearly 20 million gallons of chemical weapons in Vietnam, Laos and Cambodia which resulted, according to the Vietnam Red Cross, in as many as 400,000 people killed or maimed, and half a million children with birth defects.

We knew Iraqi troops were routinely using chemical weapons against Iran in the early 1980s, and supplied them with a couple of batches each of anthrax and botulism bacteria in 1986. The Senate unanimously passed the Prevention of Genocide Act in 1988, which would have banned any military assistance to Iraq and import of Iraqi oil, but it did not pass in the House. We continued to supply Iraq with equipment we knew was for use in their chemical and nuclear weapons programs until Saddam Hussein misjudged our friendliness and invaded Kuwait.

In 1993, the UN called for destruction of all existing chemical weapons, no more manufacture, and an inspection body. Congress reluctantly ratified that statute in 1997 but then passed legislation so we could refuse inspections.

At last, the genocide in Yugoslavia and Rwanda sparked the UN in 1998 to initiate creation of an International Criminal Court, an enforcement mechanism. The court’s independence and jurisdiction were major issues. Could it be prevented from launching a prosecution by a veto from the US, Russia, China, the UK or France? Would it require approval to prosecute from the country where a crime was committed? Could it prosecute if there was already a court proceeding in that nation? Could it prosecute crimes committed in civil wars? Could it prosecute crimes committed before it was established?

We said we supported the ICC. In fact, we worked hard to emasculate it. We demanded that no US citizen could be indicted without our approval. We required veto power over any indictment. We insisted that the ICC could prosecute crimes only in nations that are a party to the ICC Convention. We said the ICC could have jurisdiction only if national courts failed to act. We demanded that national security and/or a superior’s orders must be accepted as grounds for defense.

Even though those severe constraints were reluctantly accepted, we voted against creation of the court. The vote was 120 in favor, 7 opposed and 21 abstentions. The court would become effective when ratified by the 60th nation. We worked hard to prevent that. In 2001, the Senate passed an act that would have prohibited us from cooperating with the ICC in any way, barred military aid to any country supporting the ICC and required us to use any means to release US citizens held by the court.

When in 2002 the 60th nation ratified the ICC and it came into force, we notified the UN that we refused to be a party to the treaty.

At this time 122 nations have ratified the ICC and 31 more, including Russia, have signed but not ratified the Statute, 3 of which, Israel, Sudan and the US, have withdrawn their signatures. 41 other UN member nations have not signed the Statute, including China and India.

Governments of nations that have refused ICC jurisdiction tend to be engaged in activities the ICC might well prosecute, e.g., Israel’s settlements, India and Pakistan’s activities in Kashmir, China’s in Tibet and Xinjiang, ours in Afghanistan, Pakistan, Yemen and etc.

The ICC has so far opened investigations only into 8 situations in Africa. It has indicted 30 people, issued arrest warrants for 21 and has 5 in custody. The atrocities being committed in Syria should be prosecuted by the ICC and we should be insisting that it do so. We should consider other options only if the ICC is barred, e.g., by a veto from Russia, from that investigation.

We should stop telling the world we are its judge and executioner and start supporting the international rule of law.

Aug 11 2013

Economic Consequences of Inequality

More than nine in ten Americans want the top 20% to have about one third (32%) of society’s wealth not 84% as they do now. Is that a good thing to want? Would a more equal distribution be bad for growth? Is the current distribution a problem, anyway?

The instinct of those who think the middle 60% should have close to 60% of society’s wealth is good. When the middle class has only a quarter of that share and it is shrinking, they cannot drive enough consumption of basic goods. That’s a big problem because 70% of our GDP is consumer spending.

Unequal wealth distribution results from unequal income income distribution. The opportunity to become more wealthy is important for economic growth. Is there an income distribution that maximizes growth? Is there a point where the wealthy have too much? I have found no definitive answer, but there has been a high correlation between extreme inequality and economic crises.

Is that correlation just happenstance? Probably not. Our economy was strong in the 1950s and 60s when everyone shared in income growth. It collapsed in the 1920s and 2000s when an extreme share of income growth went to the top 1% and a tiny percentage went to the bottom 90%.

The reason seems to be that when the middle-class falls behind to the extent it did in the 1920s and 2000s, governments promote easy credit. Both times, the middle class borrowed heavily as their earnings stagnated and the wealthy got more. In the 1920s, it was farm credit, installment loans and home mortgages – mortgage debt was almost three times higher in 1929 than in 1920. In the 2000s, it was home buyers putting no money down and investment banks lending $30 for each $1 they held.

When easy credit drives down the yield on traditional investments, investors become speculators. The wealthy piled into stocks in the 1920s driving the Dow from 64 in 1921 to 381 in 1929. In the 2000s the bubble was in seemingly safe but disastrous mortgage-backed securities.

The influential 1975 book, Equality and Efficiency: The Big Tradeoff, theorized that more equal distribution of incomes reduces the incentive to work and administrative costs waste some of what is taken from the rich for redistribution. Contemporary research summarized in this 2011 International Monetary Fund paper, Equality and Efficiency, suggests the opposite – equality is an important ingredient in promoting growth, and inequality in less sustained growth.

Income distribution is strongly associated with the duration of growth spells along with well-established growth factors such as quality of political institutions and trade openness. The chart below, which covers 1950 to 2006, shows the increase in expected duration of a growth spell for a given increase in several factors, keeping the others constant. Some inequality is necessary in a market economy but too much results in financial crisis.

Very few people saw what had gone wrong with the economy in the 1930s. One who did was not an economist but an extremely successful businessman. Marriner Eccles saw how his customers were reacting to the economic crisis and made recommendations to a Senate Finance Committee just before Roosevelt was sworn in as President in 1933. FDR’s actions that year were much like his predecessor Hoover’s and equally ineffective. Then he made Eccles Chairman of the Fed. He remained there until 1948 and later summarized his observations, quoted in The Great Recession.

Eccles wrote (paraphrased for simplicity): “mass production must be accompanied by mass consumption. That implies a distribution of income sufficient to provide buying power for the economy’s products. Instead, a giant suction pump had by 1929-1930 transferred purchasing power from mass consumers to investors. Investments were not made, however, because there was insufficient demand. Income was concentrated in fewer and fewer hands. Consumers could stay in the game only by borrowing. When their credit ran out, the game stopped.”

In other words, too much income going to the top chokes the life out of the economy. Now, for a variety of reasons, the same thing has happened again. How does it happen?

Extreme concentration of wealth starts slowly, builds unobtrusively, gains first influence then power and if unchecked, results in extreme corruption. As President Wilson wrote in 1913: “If there are men in this country big enough to own the government of the United States, they are going to own it”.

Boushey and Hersh’s comprehensive 2012 review of research into what makes an economy grow or stop growing, Income Inequality and the Strength of Our Economy, comes to the same conclusion. Extreme concentration of wealth corrupts the political and economic institutions that underlie economic success. Acemoglu and Robinson offer compelling evidence of it from 15 years of original research which they summarize here.

Extreme income inequality leads to political instability. That not only discourages investment, it also makes it harder to raise taxes or cut public spending to avoid a debt crisis, and it curtails poor people’s access to education. Increasingly extreme inequality makes government ever more polarized as demonstrated by Poole’s research summarized in: Ideological Polarization and Income Inequality and illustrated in the following chart:

Income inequality in the USA is not on a par with other advanced economies, members of the OECD, but with Bulgaria, Iran and Uganda.

How can we re-establish a more equal distribution of income and the associated economic growth? I’ve posted about changes to our financial (too-big-to-fail banks), healthcare and defense sectors and our tax system, but how can we get any such changes?

It’s time to explore governance. Every society is ruled by an elite. Our elite is elected to represent the interests of all. It does that at different times to a greater or lesser extent, substantially lesser at this time. What factors make the difference? What changes to our government should we consider?

Jul 24 2013

Traveling In A Dangerous World

I emigrated from the UK to the USA, I’ve traveled on business in Belgium, Canada, Denmark, Finland, France, Germany, Italy, Mexico, the Netherlands, Norway, Portugal, Spain, Sweden, the UK, the USA and more, I’ve traveled to learn in Bhutan, Nepal, Sikkim and Tibet, I’ve traveled for pleasure in – well, I’ve moved around a lot. Here’s what I learned: almost all travel just confirms our preconceptions. We go someplace new, we see something new, we fit that into the concepts we brought with us.

Only by spending long enough in an unfamiliar world with senses and mind truly open can we notice enough detailed differences and similarities to learn from travel.

Senator King (I-ME) recently visited Syria. He’s a good man who was of course horrified by the suffering he saw at first hand. He returned wanting us to end that suffering by intervening militarily in Syria’s civil war. The suffering he saw reinforced the concept he took to Syria. Better he had not gone because military intervention is the wrong concept.

When I came to the USA, we were intervening militarily in Vietnam. One of those who was there long enough to learn, Colin Powell, was Chairman of the Joint Chiefs of Staff during the 1990/1 war in response to Iraq’s invasion of Kuwait. His doctrine, successfully applied in that war was: (1) Clear objectives, (2) Sufficient Force, (3) Exit Strategy, (4) Plan for unintended consequences.

The Powell doctrine was not applied in President Bush’s war in Iraq or President Obama’s in Afghanistan. It was partially applied in Libya where in addition to the objective of killing the nation’s leader there was an exit strategy, just stop, but no plan for the unintended consequence of civil war fought with the ex-government’s weapons that spread into neighboring Mali.

Senator King is right about many things, not about warfare. Here’s something he’s right about: On Facebook today, he links to his press release entitled: “The most serious threat to national security is the United States Congress – Senator King reiterates need for Congress to pass a budget to replace sequestration”.

A nation without a government is on an inevitable path to failure, the people we elected are not governing just arguing. As Senator King says, it’s as if they’re saying: “Have you noticed it’s raining? Yes, you’re right, it is raining” but nobody puts up an umbrella or goes inside.

So far so good. In the 7 minute video linked to from the press release, his sincerity is obvious. He went to Washington to try to get our government working. He’s questioning a defense analyst from the conservative Heritage Foundation think tank. They agree health care is the greatest challenge to our national budget. They disagree about tax strategy. The Heritage Foundation is committed to cutting the deficit by spending cuts. Senator King believes there must also be tax increases, chiefly by capping deductions on high incomes.

The press release says: “Senator King, a member of both the Budget and Armed Services Committees, worked with his colleagues earlier this year to develop and pass a FY 2014 Budget Resolution that would not only replace sequestration, but would also pave a credible path toward fiscal stability by promoting economic growth and job creation while responsibly addressing the country’s debt and deficits.” It continues: “Republican objections have stalled the budget process, however, by preventing the appointment of members to a Conference Committee that would be tasked with reconciling the Senate budget with that passed by the U.S. House of Representatives. On May 8th, Senator King called on his colleagues to proceed with the Federal budget process. 122 days have passed the Senate passed its budget.”

Here’s an article on how the budget process is meant to work and what is happening instead: “stalemates in the budget process … predictably result in bad policy outcomes … we are currently stuck with sequestration … a policy designed to be so awful that Congress was expected to go to the lengths necessary avoid it.” The Executive branch, the House and the Senate have all produced budgets but there has been no move toward agreement and little prospect of any this year.

That means sequestration will continue to force cuts in spending while those who signed Grover Norquist’s pledge will continue to block any increase in revenue. Senator King is right about all that.

Here’s where he goes wrong, what he focuses on in his press release is the effect on defense spending: “Sequestration has already resulted in a $37 billion cut in defense spending for Fiscal Year 2013. In Fiscal Year 2014 the Department of Defense is projected to face a $52 billion budget cut due to sequestration, and many high ranking officials, including Secretary of Defense Chuck Hagel, have stated that the shortfall will severely compromise national security by reducing military readiness and limiting the capacity to respond to crises.”

Senator King’s press release makes no mention of what in the video he correctly identifies as our greatest budget challenge, healthcare spending. He ends his questioning with the following prepared statement, which he also posts to Facebook: “Our country is paying a heavy national security price because of sequestration. We live in the most complex and dangerous world that any of our military and intelligence experts have seen, and at the same time, we are gutting our military and hollowing out our readiness. Like I said at a committee hearing today, I think that’s a tragedy.”

We are not gutting our military. We are not hollowing out our readiness. There is no successor to Soviet Russia that could threaten us today.

We are are also not setting a military strategy. All we’re doing is telling the heads of our defense forces to cut spending to an extent they cannot predict because it is governed by no policy.

I will soon return to the topic of these posts, Afghanistan, Pakistan, Iran and More, Evaluation of War on Terror Strategy and Military Operations Strategy. We have by an enormous margin the world’s greatest defense force, we have by far the world’s greatest warfare industry, and we have since the start of this century had Executive Branch leaders who increased demand for our warfare industry’s products and services with cripplingly expensive wars without clear objectives or exit strategy , and by encouraging ever greater weapons exports, e.g., 84 F-15 fighter jets to Saudi Arabia.

We have not one but three great threats to our national security, only two of which Senator King has identified: Congress, healthcare spending and the military/industrial complex.

May 13 2013

Campaign Finance and Free Speech

Because only bad government is possible until we reform campaign finance, I recently signed a petition supporting House Judiciary Resolution 29 (H.J.Res.29). I asked others to join me or point me to a better approach. It will be a while before I can do the necessary research to find a better approach – if there is one – so in the meantime this is an anchor for comments thus far.

H.J.Res.29 is a proposed Constitutional amendment that would make the rights extended by the Constitution apply only to natural persons and provides a basis for fundamental campaign finance reform. It was introduced in the House of Representatives on February 14, 2013 and referred to the Committee on the Judiciary. It reads:

`Section 1. The rights protected by the Constitution of the United States are the rights of natural persons only. Artificial entities, such as corporations, limited liability companies, and other entities, established by the laws of any State, the United States, or any foreign state shall have no rights under this Constitution and are subject to regulation by the People, through Federal, State, or local law. The privileges of artificial entities shall be determined by the People, through Federal, State, or local law, and shall not be construed to be inherent or inalienable.

`Section 2. Federal, State and local government shall regulate, limit, or prohibit contributions and expenditures, including a candidate’s own contributions and expenditures, for the purpose of influencing in any way the election of any candidate for public office or any ballot measure. Federal, State and local government shall require that any permissible contributions and expenditures be publicly disclosed. The judiciary shall not construe the spending of money to influence elections to be speech under the First Amendment.

`Section 3. Nothing contained in this amendment shall be construed to abridge the freedom of the press.’.

The intent of Section 1 is to establish that artificial entities such as corporations do not have constitutional rights. The intent of Section 2. is to establish that money is not free speech.

My overall view is:

(1) Our government today is unacceptably bad so we must make a substantial change

(2) A more effective form of democracy is possible, e.g., using social media technologies, that was unimaginable 250 years ago but we’re not going to change the current system

(3) Any legislative change will have negative as well as positive effects so we should make the best change we can, then make more based on future results

May 8 2013

Qualities of an Excellent Tax System

Noting at the start of this project that our tax system has no defined goal and grows ever more bewildering – the Federal tax code alone grew in the past 10 years from 1.4M to 3.8M words – I asked: “What if we had a tax goal and a budget management plan?” The posts summarized below explore results of the current system to identify what should change.

What We Tax shows how much of what kinds of tax is collected at each level of government. Federal revenue is chiefly from income and social insurance taxes. State and Local governments rely mainly on property, sales and inheritance taxes. Total tax revenue grew steadily as a % of GDP to a peak in 2000 and has since dropped very sharply on two occasions although government spending has not. Federal taxes are half the total. Personal income tax is 30% of the total and social insurance 20%.

Who We Tax shows how much tax is paid by each income group. The lowest fifth whose income averages $12,400 pays 16% of that in sales and other such taxes. They do not earn enough to pay income tax. The middle 20% who average about $33,400 pay 25% in taxes overall. The topmost 1% who average $1.3 million pay 31%. Tax paid relative to income is similar for all income groups – the top fifth gets 59% of all income and pays 64% of all taxes, the bottom fifth gets 3.5% of all income and pays 2% of all taxes.

The Dept of Health and Human Services judging who has “insufficient income to provide the food, shelter and clothing needed to preserve health” determines that the entire bottom fifth has insufficient income, as does a family of four in the next fifth, and even a family of five in the middle income group. The bottom fifth, after subtracting the 16% they pay in taxes has $10,400 to support themselves.

What We Do Not Tax examines why our system is so complicated. Nobody fully understands all the provisions that exclude some income from taxation. These deductions and payments made via the tax system total almost a third of overall Federal spending, more than $800B in 2012. That is more than our spending on our three most costly programs, Social Security, defense, and Medicare.

Tax exemptions are popular with politicians because they are less visible than spending programs and generally do not need annual funding decisions. All the big exceptions have a lot of support with the possible exception of the Earned Income Tax Credit, which benefits only the bottom fifth. Although the other exemptions are imagined to benefit society in general, they primarily benefit the top 20% and some disproportionately benefit the top 1% income group.

Business Tax explores how our taxes on corporate and other businesses compare to other nations. Although our top corporate tax rate is among the world’s highest, many of our largest corporations use tax exemptions to pay much lower rates. GE paid none at all in 2010. Multinationals manage their accounts to show profits in tax haven countries to avoid US taxes. All large ones have the advantage of tax deductible debt financing. What our corporations pay is half the OECD average.

An exceptionally high percentage of our businesses that together produce half of all business net income is not incorporated, which blurs the distinction between business and personal taxes and facilitates legal tax avoidance.

Purpose and Performance of Our Tax System examines its effectiveness, overhead, fairness and clarity. The system is ineffective, failing by a wide margin to fully fund government activities and allowing illegal evasion on almost a fifth of taxable income. Its overhead at 30% on income tax is much too high. It is unfair, only two of five considering it even moderately fair. Finally, it fails utterly on clarity.

Our current tax and budget management system allows 61% of us to believe the federal deficit can be cut substantially without raising taxes while at the same time opposing cuts to programs that account for 62% of all spending. Social security cuts are opposed by 79%, Medicare by 76% and defense by 58%. While opposing cuts to any programs with significant costs, three in four believes almost half of government spending is wasted and imagines cutting programs with relatively tiny costs would be a solution.

That huge compendium of public opinion research confirms in more detail what we in fact already know: we hate taxes, we love benefits. Home owners hate property taxes but love the mortgage interest deduction. Almost everyone hates inheritance taxes although hardly anyone has to pay any. And so on. What this means is a better tax system will be impossible unless we first agree how we want the tax revenue to be spent. We will get nowhere considering changes in isolation and make progress only by assessing the impact of potential changes on the outcome we want.

Taxes, Wealth and Fairness explores the outcome we want. The previous post explored public opinion about fairness and noted, for example, that 66% of us believes “everyone should pay some minimum amount of tax to help fund government”, the implication being that some do not, e.g., the 47% Romney noted who pay no income tax, although as we saw above, the bottom fifth in fact pays 16% of their income in taxes. This post turns from exploring mechanisms to results, what we mean by saying our tax system should have a fair outcome.

Nine out of ten Americans want a society with a relatively equal distribution of wealth. The average of our opinions is that the top fifth should have 32% of the total wealth. What we think they have is close to twice that percentage (59%). In fact, they have 25% more even than we imagine, a full 84% of our society’s total wealth, and their share is growing fast at the expense of every other group. Despite great disagreements over policies that affect wealth distribution, e.g., tax and welfare, a great majority of us appears to believe that wealth should be distributed far more equally than we imagine it is, and we imagine it to be distributed much more equally than the reality.

In the next post I will begin exploring different tax approaches to get the system we appear to want, a system that:

Fully funds all authorized government activities, not necessarily every year, but on average
Makes it easy to understand the impact of proposed tax and spending changes
Leads toward the distribution of wealth we democratically choose
Has a low collection cost and allows minimal illegal evasion
Does not disadvantage US business in the global economy

My biggest surprise from the research is the relatively equal distribution of wealth nine out of ten of us appear to want. I interpret that to mean we want relatively equal opportunities to become wealthy, which would include relatively equal access to high quality education and health care, for example, as well as relatively little unfair opportunity based on parental wealth.

I began this research because year after year we keep borrowing, not to fund investments for our future, but to keep consuming, and that’s unsustainable. Better we work our way out of this downward spiral than be forced to when it is more painful. That motive is the origin of the first bullet point above. But I now see the deeper problem. The tax and budget management system we have is not at all what we want. That’s the origin of the remaining bullet points.

It will be extremely hard to get the tax system nine out of ten of us appears to want. Inequality as extreme and fast growing as we have (net worth of the wealthiest 7% grew 28% in the past three years while the lower 93% lost an additional 4%) results only when political power based on wealth is shaping government policy. When we see our tax system’s enormous and confusing volume of laws, we imagine its apparent chaos to have grown randomly. It can be no accident, however, that it results in wealth flowing always and only to the top.

I will be grateful for any comments about the research, analysis and conclusions so far. Have I failed to research anything essential, made any flawed analyses, or come to any unwarranted conclusions?

May 5 2013

Barbarous Legislation, Dysfunctional Governments and What to Do

Truck Driver’s Insurance in Nepal explains why a Nepali truck driver who injures someone goes on to kill them. Sasi Kala commented: “This is one of the most barbaric insurances I’ve ever known” and asked: “Can we do something to change this madness?” That led me to answer a bigger question; why should Americans be interested?

In 2006 when the civil war ended, the monarchy fell and several long visits had given me a sense of Nepal’s economic situation, I thought: “I have decades of experience in enterprise strategy as a consultant and executive, I studied it at Harvard Business School, I should be able to see a strategy for Nepal”. I wasn’t expecting it to be helpful but if I came up with something compelling I’d presumably have tried to get it heard. What happened is, I realized I was trying to answer the wrong question. It’s not just that there’s so little to build on in Nepal, it now has neither government nor leader.

Distressingly little has changed in the months since I last posted about Nepal’s political situation, or even in the seven years since 2006. The “movers and shakers who never move and rarely shake” continue only to fulminate. The Constituent Assembly elected to draft a new Constitution within two years that failed to finish in four still has not been replaced so there is still no progress on the Constitution, and no government or leader.

An alliance of 33 parties is protesting against a proposed election to be held in November. They say they will not participate. Party leaders who say they will participate are resisting setting an election date until they have their alliances nailed down. The caretaker government headed by the Chief Justice is not empowered to do anything, which suits the politicians all too well. Meanwhile, daily life gets steadily worse for most everyone else.

The truck driver’s insurance is just one manifestation of a much greater madness. There’s little we can do until that’s healed. We can’t expedite the election to complete the Constitution, or its drafting, or the eventual election of a government. All we can do in the meantime is, if we have contacts there, help them understand what should be in the new Constitution and what legislation the new government should establish. That’s worth doing.

The existing truck driver insurance seems normal to Nepalis because it’s always been that way. Justice always has been subordinate to the Executive in Nepal so its government officials always have been above the law and that, too, seems normal. We’ve lived over two centuries with the Constitution of a secular republic and a democratically elected government, so we can more easily see some things Nepalis should change.

But what if we have no contacts in Nepal? Why should we be interested in Nepalis’ situation, anyway? Because it illustrates where we’re heading.

Nepal has dramatically inadequate infrastructure of every kind because it has no government. That’s a fundamental problem. If there’s no electricity 14 hours a day, there can be no wealth-producing enterprises with jobs for educated people. Fully a quarter of Nepal’s GDP is money sent home by Nepalis doing manual work overseas. “What’s the point of educating our children if there are no jobs for them?” one of my Nepali friends asks: “They’ll either leave us behind or make another war.”

Because the US government used to be effective, we have electricity, road and rail networks, school systems and the other services necessary for a strong society. It’s easy to start a business here and grow it quickly to any size. But our infrastructure that makes such things possible is now, day by day and year by year growing weaker. Why? Because our government no longer invests effectively for the future of our economy and society.

Why do we behave as if that’s OK? Because the results are accumulating at a pace we don’t notice. It’s like not changing the oil in a truck. The wise trucker does that and other maintenance and at the appropriate time gets a new and better truck. He doesn’t just drive the one he inherited into the ground. Like Nepalis, we’re accustomed to what our government is failing to do.

We say government should get out of the way of business. Nepal shows business is impossible without government. It’s not just that you can’t operate a business without electricity and you can’t access markets if there’s no railroad or highways. It’s not even worth trying if there’s no legal protection. Over the last few years I’ve explored with Nepali friends half a dozen business ideas that could have produced worthwhile products, profits and employment. They’d all be easy to do here. Not one is viable there. There’s so much missing and what is present is undependable.

I like business. I had fun and satisfaction doing it for forty years. But I have no experience in government and little understanding of how it works. That’s a problem. We all have biases about how much of what kinds of things government should do. Bias is unavoidable but ignorance is not. We all should form not just opinions but educated and actionable ideas about government, test them against ones that don’t match our biases, think them through, then work to get them established.

The goal of my original blog and this one was at first just to help me identify and define what would be better and worse. That is necessary but it no longer feels sufficient. We must stop our government and future from getting worse, and have our government do what it must for a better future.

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Tag Archives: Governance