Tag: politicians

Things Fall Apart

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California voters in every county except far left San Francisco County and far right Orange County approved Proposition 14 which changes the state constitution to require the primary election to select the two highest vote recipients, without respect to their political party.

http://en.wikipedia.org/wiki/California_Proposition_14_(2010)

California may once again be on the leading edge of American history.  This change seems to be a rejection of the current primary system where candidates in both parties are required to pander to the extremists and activists before tacking back to the center to win in general elections.  Ironically, the Tea Party movement seems to be tapping some of this frustration by the average centrist voter, while at the same time pulling the Republican Party even further to the right.

In the shadow of “The Great War”, William Butler Yeats wrote:

Things fall apart; the centre cannot hold;
Mere anarchy is loosed upon the world,
The blood-dimmed tide is loosed, and everywhere
The ceremony of innocence is drowned;
The best lack all conviction, while the worst
Are full of passionate intensity.

http://www.online-literature.com/donne/780/

http://en.wikipedia.org/wiki/The_Second_Coming_(poem)

The optimistic progressive consensus of 1880-1910 among the leading classes had been severely weakened by the war.  World War II shattered the last idealistic sentiments in Europe, leading to the post-war time of European community, skepticism and limited idealism.  The United States picked up the progressive banner with the New Deal, WWII, post-war global organizations and economic recovery, the cold war, New Frontier and Great Society.  Temporarily derailed by the Vietnam War, Energy Crisis and Japanese competition, the U.S. once again embraced the optimistic progressive spirit in the 1980’s, but with a distinctively right-wing flavor following the Reagan revolution.  Twenty years of economic and geopolitical progress delivered a new sense of American exceptionalism, leading to the Bush administration’s overreach in Iraq in response to the perceived terrorist threats after 9/11.   Most commentators agree that we now face a more uncertain multi-polar future (see 2/1/2010).

How did the American public reach this point where most voters clearly see that the political system does not work (see 1/26/2010)? 

Congressional and state legislator gerrymandering has played a major role.  The average voter can see that many legislators are simply incompetent party hacks with extremist, populist rhetoric, but no sense of responsibility for governing on behalf of the citizens.  The advantages of incumbents have lead to their re-election and increased voter cynicism (see 12/12/2009).    This year, unprepared voters elected Alvin Greene as the Democratic SC senate candidate and nominal Democrat, 29 year-old Tim Crawford to oppose Dan Burton.

http://en.wikipedia.org/wiki/Gerrymandering

As the financial and volunteer resources required for election have grown, the power of extremist/activist groups in both political parties has grown significantly.   As the country’s population and standard of living have grown, narrow economically rational voters have reduced their participation, thereby increasing the power of those with strong ideological views.

Citizens of all political views have become more independent, decreasing the role of many individual and institutional influencers who once promoted the center (think US News & World Report in the 1960’s).   Politicians and political parties have become far more sophisticated in identifying and capturing the resources of those with the strongest beliefs.

After the break-up of the Democratic Party’s “solid south” position following passage of the 1960’s civil rights legislation, the Republican Party developed a more philosophically consistent right wing position on all economic, military and cultural issues.  The Democrats have tried to move towards the center, but the left-right and Democratic-Republican dimensions of American politics have become synonymous for almost 40 years.  The Republicans have effectively attracted millions of Catholic, Baptist, working and middle class voters from Democratic strongholds, while the Democrats have rode demographic trends and recaptured some socially moderate and upper middle class voters on the coasts.

The modern media has returned to its 19th century roots, adopting explicit political and populist positions in order to sell advertising.  This promotes partisan posturing and coverage.

Politics no longer attracts citizen legislators with moderate views.  Political positions have very low compensation compared with other options for highly competent citizens.  The price of entering a campaign is so high that only individuals with hopes for a 20 year political career, radical idealists or the very wealthy rationally pursue elected office.

Non-party primaries, campaign finance reform, independent districting commissions and grass-roots political participation can all help to return our political system to the center, where reasonable compromises can be found for the benefit of all.  Without some structural changes, we run the risk of having the divisive and unproductive political results seen in Italy, Greece, Mexico, Venezuela, Japan and Germany.  A solid majority of the American people desire centrist solutions to our challenges.  Structural changes can help to ensure that we have a self-improving system, or at least that we do not see “things fall apart”.

Banking in Bedford Falls

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As the Great Recession moves along into its third calendar year, the focus in Washington is on “Financial Reform”.   The backlash at Democrats and Republicans alike over the “bank bailout” continues to grow.  The politicians are posturing to allocate credit for the so-called reforms, but seem destined to “give the people what they want”.  It might help the politicians and the people if there was a shared understanding of the inherent factors universally at play in the home lending market.

I propose that everyone take an evening off and watch the classic 1946 film “It’s a Wonderful Life”, starring James Stewart as George Bailey, the initially reluctant but eventually heroic, manager of the Bailey Building & Loan Association in Bedford Falls.

http://en.wikipedia.org/wiki/It’s_a_Wonderful_Life

The essentials of banking are exhibited in this film.  Bedford Falls is the whole universe.  All of the actors know one another.  The cast is composed of depositors, owners, board members, bankers, borrowers, regulators and landlords. 

There are inherent conflicts between the roles.  Depositors don’t really trust the bank as shown by the bank run.  Landlords would like to see lending restricted to boost rents.  The owners are motivated by self-interest (enlightened or not) and set policy accordingly.  The board seeks a trustworthy banker to be its agent, and provides incentives to attract and retain him.  The banker has fiduciary and personal motives.  The regulators enforce the laws, unaware of all key facts.  The borrowers want loans, even if they can not afford them, in order to escape the costs of the landlords.  People act out of self-interest.  They respond to incentives.  There are trade-offs to be evaluated and decisions to be made.

A bank fills a valuable social role, attracting deposits in order to lend money.  A bank profits by the spread.  A bank is in business to lend money whenever it sees a profitable opportunity, irrespective of the moral concerns of owners, depositors or borrowers.  Banking is subject to real risks such as bank runs.  Banks are subject to poor decisions by bankers, mistakes by employees and fraud by anyone involved in any transaction. 

Historically, banks have operated by the 4 C’s of credit: capacity/cash flow, capital/collateral, conditions and character.  This is especially effective in a small town such as Bedford Falls.  Although George and the audience might hope that every citizen should qualify for a loan, some may not have the earnings to cover the principle, interest, insurance and maintenance of a home.  Some may not be able to save for a down payment to create adequate collateral.  As business conditions change, the income of the citizens is at risk and the ability of the bank to manage its affairs fluctuates.  A banker with a long-term perspective and proper incentives adjusts lending accordingly.  Finally, character counts.  Past financial and personal performance are good predictors of future performance.  Character is part objective and part subjective.

Even in this simplified setting, risks abound.  Public pressure for universal home ownership can result in too many loans.  Regulators can enforce laws mechanically while missing larger problems.  Institutional knowledge can be lost through staff turnover.  A single fraudulent act can threaten a bank.  Changing external business conditions can disrupt the bank.  Lending policies can be too loose or too tight.  Business judgments can be wrong.

The film delivers an escapist, idealist, overly simplistic view of life.  Mr. Potter is the evil bank owner and plotting, fraudulent landlord.  George Bailey is the selfless hero.  Yet, behind the scenes, we have a social institution performing a social function.  We need banks to provide the social function of collecting deposits, allocating credit and collecting from borrowers.  In spite of the vastly more complex institutional structures today, the role of a “building & loan association” is essentially the same.  As a society, we allow these institutions to connect savers and borrowers across varied time frames because this is a necessary function.  Our laws and regulations should be based on this real-world understanding, not upon the simplistic dualism of “good and evil”.

Indiana Redistricting Proposal Adds Value

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“For the want of a nail, the shoe was lost; for the want of a shoe the horse was lost; and for the want of a horse the rider was lost, being overtaken and slain by the enemy, all for the want of care about a horseshoe nail.”  —  Benjamin Franklin

 Now, more than ever, society must rely on real economic growth to make the pie larger and allow us to choose how to divide the pie.  In the hot policy areas – global warming, health care, unemployment, alternate energy, retirement security, national security, adequate food – all solutions depend upon our ability to grow the economy.

 The private sector, especially in the last 30 years, has demonstrated its nearly unlimited ability to create value.  The contrast between productivity growth in the competitive sectors (ag, manufacturing, distribution, communications, mining, transportation, media, banking, IT, services) and the others (government, social services, utilities, education, health care) is instructive.  About 60% of the economy delivers 3-5% annual productivity improvements, while the other 40% is stuck at 0-1%.

 The slow growth sectors are all in areas where market failure is the rule – sometimes because services are natural public goods and sometimes due to natural monopolies, externalities, or unequal information.  In each case, there is a key role to be played by the government in shaping these industries to pursue continuous improvement as happens naturally in other sectors.

 Unfortunately, our political system does not produce “philosopher kings” who cooperate to find optimal solutions.  In a two-party democratic system, the best that can be hoped for is that the two parties will define contrasting, yet centrist policies and employ politicians who can seek re-election by solving some problems rather than merely demonizing the other side.

 The gerrymandering of Indiana congressional, senate and representative districts every 10 years encourages a polarized political environment.  The party in power draws districts to maximize their representation by creating as many 55-60% safe districts as possible, while consolidating their opponents into as few 80-90% majority districts as possible.

 This process results in extreme left and extreme right candidates winning nearly all races.  Centrist candidates have no chance in stacked districts.  Centrist voters have no influence in stacked districts.  The political parties attract extremist candidates.  They attract extremist supporters.  Only in a small minority of districts do voters have a choice between two qualified centrist candidates who mainly differ by a modest degree on the political spectrum. 

 The Indiana Senate’s Republican Caucus, Secretary of State Todd Rokita and Carmel representative Mike Delph have floated various proposals to turn redistricting over to some form of non-partisan commission, required to take advantage of the computer software which can define boundaries to maximize the compactness of each district, without considering socio-economic, religious, racial or political factors. 

 A visual example of the current skewed districts versus neutral districts is shown at http://bolson.org/dist/IN/.

 Members of both political parties should be able to see that the skillful use of gerrymandering today is a recipe for failure.  Even California voters are now seeing that structures that lead to polarization can bankrupt a state.  Indiana voters who care about the future should pursue this “good government” initiative.