A Look back at the Elections of 2012

The elections of 2012 are behind us, but before I begin treating my new subject, business, and in particular the concepts of leadership, teamwork, customer satisfaction, and employee morale, I will allow myself a few observations on those elections.

Observation 1: Although the election campaigns were seemingly endless, little of substance was discussed.  Most of the major party candidates, including those running for president, spent most of their time attacking each other.  The message seemed to be, "a vote for my opponent is a vote for misery and hopelessness."  Those candidates who did take a principled stand – Ron Paul against wars and military bases world-wide or Paul Ryan for a voucher plan for Medicare, and I'm sure there were others – were instantly caricatured and demonized.  

Observation 2: Many critical issues were addressed only at the ragged edges or not at all.  The goals, return on investment, and criteria for success of our foreign wars received scant attention. The concept of balancing environmental concerns with energy investments was not discussed.  Taxes were discussed, in the context of our federal deficit, but tax reform and the incentives and disincentives of our current system were not addressed.  The deficit was put forward as a central problem, when in fact it masks the central issue of government spending and the transfer of funds from the public to the private sector, from young to old, and from those who work to those who do not.  Immigration and so-called undocumented aliens received only passing mention even though many of these people have become an integral part of our economy.

Observation 3: Less than two weeks after the election, as we approach an automatic reduction in government spending coupled with tax hikes, the so-called "fiscal cliff," the standoff between the major political parties threatens a re-run of the Affordable Care Act, the so-called "Obama care."  In the latter case, early in the president's first administration, health reform was pursued with the objective of insuring the un-insured and those thought to be uninsurable (with "pre-existing conditions").  In the battle over whether and how to do this, a rare opportunity to decrease the cost of the current system (if we can call it that) was missed.  The ACA does not address outsized malpractice awards, government subsidies to private industry for health insurance (which drive up prices in general and the cost of insurance for those who don't work for favored companies in particular), and a lack of competition across state lines by insurance companies.

The fiscal cliff offers an opportunity – in the shadow of a growing government burden on the citizenry – to discuss just how big government should be and how we can pay for it without crushing our young workers under unbearable debt and taxes.  However, early signs are that one party is obsessed with tax rates rather than tax reform and the other is obsessed with preserving our current system of redistribution of funds from young to old, and from workers to non-workers.  Moreover, most legislators are hesitant to reduce the Defense Department budget, even though they know that DoD acquisition does not deliver excellent products or services to our armed forces.

Observation 4: A ray of hope, buried in the election returns, was the showing of the Libertarian Party, the party of limited government, separation of church and state, and individual responsibility; they attack issues rather than people.  They represent a necessary force, however small, an island of sanity, and an alternative to the major parties which are living in the past.  The Libertarian Party is a force for constructive change, desperately needed now more than ever.  Even if it never becomes a "major party," the Libertarian Party is already a candidate to be the conscience of our nation.

Moving to Higher Ground, Part 5

The list of what to discard is long indeed; this is not surprising in the face of the huge flood of debt at the federal level. We need to refrain from sending our young men and women to fight when we or our close allies are not directly threatened. We should leave behind the attitude that the purpose of our defense budget is to provide jobs; rather, we should spend only what we need to keep the country safe from attack. We should phase out programs like Social Security and Medicare which tax the young to subsidize the old; we should save for our own needs and use government money to assist only the truly needy. We should abandon our current tax code in favor of a negative/flat tax (described by Dr. Milton Friedman) and abandon tax policies which favor income from interest and capital gains over income from work. We should abandon the corporate income tax which reduces the flexibility of our corporations; rather we should tax the profits when people receive them (dividends or capital gains). Our federal government should leave behind subsidies for food, mortgage interest, health insurance, and education; subsidies tend to raise prices and the money which we send to the Department of Education in Washington is needed at the school down the street where we send our kids.

Our federal government should leave behind support for unions, public and private; unions institutionalize adversary relationships which weaken companies, cities, and states and contribute mightily to the flood. Our federal government should re-learn the lessons of the prohibition of alcohol (our 18th amendment to the constitution) and its repeal (our 21st amendment) and apply those lessons to repeal drug prohibition. We must leave behind anti-trust laws which kill innovation or prevent companies from gaining efficiencies; government regulators are never smarter than free markets. The government should leave behind tariffs which interfere with free trade and penalize consumers. We must leave behind the unregulated jungle of tort actions and class-action lawsuits that lead to company-killing penalties and outrageous medical malpractice awards (in the absence of criminal intent), and unaffordable malpractice insurance. Our government should repeal the law against work, the so-called "minimum wage;" we need all the willing, able-bodied workers we can find and now is not the time to prevent people from working just because they cannot command a wage set arbitrarily by people who know nothing about their situations or about the situations of their potential employers.

*****

Good luck to us all in the rising flood of debt. As we seek higher ground, the better decisions we make, regarding what to take and what to leave behind, the better chance we will have to survive and to gain a higher quality of life. As I survey my own situation and the situation of the company where I work, I have a good idea of what to keep and what to abandon. When it comes to my local, state, and federal governments and the candidates for office in the coming elections, I intend to support those whose concept of what to save and what to leave behind comes closest to my lists above. If those candidates fail to win election, I fear that the flood will be wide, deep, and long.

Moving to Higher Ground, Part 4

State government, the mid-level of the public sector, has shown a capacity to enrich our lives and impoverish us. In my own state, I have seen the establishment and growth of an enormous system of state universities, colleges, and (two year) community colleges. While it is highly debatable whether our formal educations need to be quite so long – into our 20s and even our 30s – there is no doubt that the universities, public and private, of California have spawned a diverse private economy. To the extent possible, I would like to keep most of this system. The state is also responsible for highways, water resources, prisons, and parks. Although there are many opportunities for economies (staggered work hours to reduce traffic congestion, market pricing to conserve water, decriminalizing drug use (a federal issue) to reduce court caseloads and prison populations, and user fees from parks kept separate from the general fund), I recommend that the state continue to provide these services.

To make state government more affordable, I recommend that state employees be made responsible for their own health and retirement plans. As for cities, state public-employee unions should be discarded. Where there are shortfalls, it will fall to students to make up the difference between the cost of their education and what the state is able to fund. One approach to closing this gap is for students to do more of the maintenance and administration work of their educational institutions. This would give students real work responsibilities and experience at a time when, for some, formal education has become disconnected from the private workplace. It would also give students a greater stake and more pride in their own campuses.

Moving to Higher Ground, Part 3

At this time (summer 2012), with the seemingly endless political campaigns about to enter their final phase, it will be interesting to see whether our aspiring decision makers mention the flood and whether they appear to perceive the potential effects. More to the point, it falls to us, the voters, to select those candidates who are aware.

Even though they tend to claim less media attention and a smaller share of our taxes, local governments do most of the work and have the greatest impact (among the public sector players) on our lives. I value and suggest that my city government continue to provide these services: police and fire protection; municipal, superior, and small-claim courts; detention facilities; street and sidewalk maintenance; traffic supervision and safety; sanitation and trash collection; elementary and high-school education; city parks; libraries; and support for construction in the form of zoning, licensing, and inspections.

In order to continue to provide those services, I would like my local government to discard budget deficits, closed council meetings, and unions. Deficits have no place in city government which (thankfully) is neither authorized to print money nor entitled to spend more money than the taxpayers can afford. All spending decisions need to be made in open meetings, accessible to city residents. Public unions represent a clear conflict of interest: union members use taxpayer money and campaign for city council members who further union goals regardless of the cost to taxpayers. When the union negotiates with the town council regarding wages and benefits, they are effectively negotiating with themselves. The advent and growth of public-sector unions have also brought a rise in so-called defined-benefit pension and health-care plans, both of which we need to leave behind. These have been shown to be unsustainable and will not allow us to fund the services cities require to offer a high quality of life. Finally, we need to leave behind the monuments – great sports stadiums and convention centers – which are rightfully the province of private enterprise.

Moving to Higher Ground, Part 2

Private companies, large and small, make up the heart of our economy. The profits from these companies, created invariably from the vision, spirit, and sweat of an individual or small team, are the lifeblood of our society. The people who comprise these companies provide food, shelter, clothing, transportation, and countless products and services that not only enhance our lives, but also enable the public economy which we have created to provide for the common good. Of course, these companies are as susceptible as individuals to the flood of debt. We depend on them and their leaders to make good decisions for they are the ones who will provide most of the energy to take us to higher ground. It's no secret that these companies are comprised of people like us.

I suggest we work, within our companies, to retain a sense of team spirit, from top to bottom, and continue to strive to raise employee morale as high as possible by training and empowering employees to make decisions appropriate to their level, by encouraging employees to learn and take increased responsibility, and by sharing the rewards of success. Employee morale generally goes hand-in-hand with customer satisfaction – we who believe in the company we work for and in its products and services want our customers to be satisfied.

I suggest that our companies avoid excessive management pay which can lead to envy and the appearance of uncaring. In the hard times, when profits fall and salaries may fall as a result, I suggest that our companies leave behind the attitude that management should be spared the pain that other employees suffer. I suggest that companies avoid the shortcuts and temptations of crony capitalism and restraints of trade; companies whose products and services are continually exposed to the fires of competition tend be the tall trees in the forest. Above all, I recommend that we leave behind attitudes which could lead to unions at our companies. If I am careless about my nutrition, exercise, hydration, or sleep, my resistance will fall and I could catch cold or worse. Likewise, if the owners and managers of my company are careless about sharing success and pain, employee morale could fall and our company could catch a union. A union carries the potential of sapping our energy and destroying our company. This emergency, the flood of debt, is a time for unity, not the divisiveness that unions bring. This is no time to set one part of our company against another such that owners, managers, and workers no longer pull in the same direction for the good of all.

Moving to Higher Ground, Part 1

When we are in their paths, floods, hurricanes, and wildfires have a way of getting our attention. The need to evacuate our homes in the face of imminent disaster brings wrenching decisions. Although helpful, no amount of preparation can completely eliminate the anxiety, doubt, or pressure of time. When a threatening situation arises, we are likely to receive warnings as firsthand witnesses, from our neighbors, or via the media, to evacuate. First and foremost, we must protect the safety of our family and others in our care. Next, we may wish to preserve important documents and family photos (which, these days, may simply be on a digital device). Given a little time and some forethought, we should be able to take items necessary to our survival (food, drinking water, blankets, etc) and the kids' favorite toys.

However, we must leave many things behind, knowing that if and when we return, we may find that some were destroyed or are simply gone. And as important as they were – the garden we cultivated during years of hard work, the furniture passed down through generations, and the house we cared for and which kept us safe and warm – and as sad as we will feel about their loss, we will be alive to work and rebuild.

Tragedy is an unfortunate risk of being alive, but tragedies can be compounded by denial. When we fail to recognize the danger posed by the approaching flood and choose to ignore warnings to move to higher ground, we increase risk. Of course, it is possible that the hurricane will change course, that the wind driving a wild fire will change direction, or that a sudden drop in temperature will slow the snowmelt and decrease the flood danger. However, if we ignore warnings about high threat and low margin of safety, we increase the probability of injury and death and of turning tragedy into catastrophe.

*****

To live in America today is to experience warnings of economic disaster. Is this life-threatening? Isn't there always someone telling us that the end is near? Why is this time any different? And if we heed these warnings, aren't we simply giving in to panic? While it may not seem as dangerous as a wildfire or a hurricane, economic disaster can have widespread, direct impacts on the lives of many; the Great Depression of the 1930s bears this out. Warnings of economic disaster are a reason for concern.

Assertion: our country is facing a rising flood of debt at the personal level, the business level, and the city, state, and federal government levels. At the personal level, some people are trying, with mixed success, to service credit card debt, student loans, and mortgages which in some cases exceed the market value of their homes. Many have been subject to foreclosure, unable to service mortgage debt. Still others have thrown up their hands and declared bankruptcy to cut losses and get on with the rest of their lives, albeit with altered self-images and lower credit ratings. These are signs that the flood has already arrived for many.

 At the business level, while some companies have kept positive cash balances, many have not. Some have been reduced in size or simply closed up shop, as we can see from the surplus of commercial real-estate. And on the "flip side" of consumer debt, banks and credit agencies are carrying loans on their books that will never be repaid. Acutely aware of the flood, lenders have turned cautious and this caution has prevented many credit-worthy businesses from obtaining loans.

City governments, where public unions and city councils have worked together to establish unsustainable pension and health-insurance plans, are now running deficits and several (three, at last count, in California) have declared bankruptcy; take this as another sign of the rising flood.

Many state governments are running deficits making them unable to help cities in need and forcing them to raise fees for everything, most notably, to attend college. State workers and students in state colleges and universities are in the direct path of the flood.

Our federal debt is at legendary levels, so much so that our federal government is trapped in a low interest rate environment, terrified that any increase in the prime rate will immediately result in an unsustainable debt-service requirement that will crowd out many other forms of federal spending.  This part of the flood threatens to sweep away services and jobs and to spill over to join other parts of the flood.

I have stayed away from statistics in this discussion, but if you doubt that the flood of debt is rising rapidly and that it is time for us to move to higher ground, you may want to invest a little time examining your own finances and those of your company and your local, state, and federal governments. You might also want to check out the situation in Europe to imagine how a debt flood like theirs might play out here.

I submit that, if we fail to recognize the dangers of the flood of debt, we are in denial and we risk turning tragedy into catastrophe. The opposite of denial is acceptance, not panic. If we accept the need to move to higher ground, we empower ourselves to make the rational decisions that evacuees make when faced with the need to save their lives and to leave behind things they cannot carry. Once we accept that we face potential catastrophe unless we move to higher ground, we must next decide what to keep and what to leave behind.

Back in Business

Having decided that "it's time to put the mistakes of the past behind me and get on with the mistakes of the future," I have gathered up and published my most brilliant insights as an ebook on Smashwords under the title Returning America to Prosperity.  I will field any queries here regarding that work and will attempt to post on a somewhat regular basis as I gather material for updates.