Saturday, September 27, 2008

A Government Ill Executed - Clarity of Command

(Note: this is part of an ongoing discussion of Paul Light's book A Government Ill Executed. Other posts on this book can be accessed by clicking the tag below)

In his second chapter of A Government Ill Executed, Paul Light looks at the current composition of the federal work force, the trends, and what they imply for the ability of the federal government to operate proficiently.

Noting that his 2nd characteristic of of an energetic federal service is clarity of command, Light thinks this is one area where Hamilton nods to Jefferson. Hamilton, as Secretary of the the Treasury, was noted for the details of his orders, down to the armaments that would be on each Coast Guard cutter. "Nothing was too trivial for his attention," says Light. In addition, the federal government work force is undergoing with Light calls "thickening," which refers to the addition of more and more layers between those who run the agencies and those on the front line who execute policy and gain the insight as to what's really happening on the ground.

Additional layers are the result of two things, says Light. The first is additional missions that bring with them their own bureaucracy. The second is the misperception that more leaders equals better leadership. Instead of just a Secretary and a couple of Assistant Secretaries overseeing the civil service, we now have so many layers, especially of political appointees, that we now have people with titles that can barely fit on a business card: "Associate Principal Deputy Assistant Secretary." Modern developments along these lines include a proliferation of "Chief of Staff"s and C-level (e.g., Chief Financial Officer, Chief Acquisition Officer, etc.) to further confuse the thicken the executive branch hierarchy.

As a result, communication of what is expected from the top to the bottom becomes obscured and makes it all the more difficult for the President to get his agenda enacted. Also, key information from the "front lines" never gets to the decision makers at the top. Accordingly, we get faulty government responses to crisis like Hurricane Katrina, doubts about weapons of mass destruction never get aired at the level where decisions are made, and safety concerns about the space shuttle getting lost.

We also have a problem when we consider this with the broken confirmation system we'll discuss later. Because so many offices remain vacant for long periods of time, important information and decisions sit on empty desks. The more layers, the more opportunities for this to occur.

The key is to reverse this trend, says Light, "thin the system."

In this respect, Light looks to Jefferson rather than Hamilton for inspiration. Hamilton believed in highly prescriptive edicts that would filter down through a broad chain of civil servants. Jefferson believed in delegation, following broad principles rather than detailed orders and the use of informal communication over normal bureaucratic modes. Light noted that Jefferson understood that with new missions come new bureaucracy, which obscures clarity of command. Although the often start out flat, they have a tendency to thicken over time he observed.

While Light does a masterful job of describing the problem and the reasons for its evolution, he is much less enlightening on how to thin the federal government. He notes that most Presidents since Carter have understood the problem and endeavored to correct it, but little has been accomplished on this front other than cosmetically.

A few thoughts. First, a "thick" federal bureaucracy seems to be another price we pay for too many missions in addition to not having enough resources as we discussed earlier. Second, it's important to realize than "thinning" the government in this regard doesn't mean cutting workers but rather flattening so that information from the front lines goes through fewer hands on its way to the Oval Office.

Reforming the civil service in this way is clearly important, but it will require a big overhaul that will meet with fierce opposition from government employees and the unions that represent them. Perhaps one helpful step would be for the next President not to appoint someone to every box on the org chart. That would mean abstaining from awarding a "plum" however (and the political juice it creates for him). It's unclear whether that's asking too much.

Friday, September 26, 2008

A New Twist on the Nigerian Bank Scam

Although it's about a very serious subject, this joke spam is hilarious:





Subject: SUBJECT: REQUEST FOR URGENT BUSINESS RELATIONSHIP




DEAR AMERICAN:

I NEED TO ASK YOU TO SUPPORT AN URGENT SECRET BUSINESS RELATIONSHIP WITH A TRANSFER OF FUNDS OF GREAT MAGNITUDE.

I AM MINISTRY OF THE TREASURY OF THE REPUBLIC OF AMERICA. MY COUNTRY HAS HAD CRISIS THAT HAS CAUSED THE NEED FOR LARGE TRANSFER OF FUNDS OF 800 BILLION DOLLARS US. IF YOU WOULD ASSIST ME IN THIS TRANSFER, IT WOULD BE MOST PROFITABLE TO YOU.

I AM WORKING WITH MR. PHIL GRAM, LOBBYIST FOR UBS, WHO WILL BE MY REPLACEMENT AS MINISTRY OF THE TREASURY IN JANUARY. AS A SENATOR, YOU MAY KNOW HIM AS THE LEADER OF THE AMERICAN BANKING DEREGULATION MOVEMENT IN THE 1990S. THIS TRANSACTION IS 100% SAFE.

THIS IS A MATTER OF GREAT URGENCY. WE NEED A BLANK CHECK. WE NEED THE FUNDS AS QUICKLY AS POSSIBLE. WE CANNOT DIRECTLY TRANSFER THESE FUNDS IN THE NAMES OF OUR CLOSE FRIENDS BECAUSE WE ARE CONSTANTLY UNDER SURVEILLANCE. MY FAMILY LAWYER ADVISED ME THAT I SHOULD LOOK FOR A RELIABLE AND TRUSTWORTHY PERSON WHO WILL ACT AS A NEXT OF KIN SO THE FUNDS CAN BE TRANSFERRED.

PLEASE REPLY WITH ALL OF YOUR BANK ACCOUNT, IRA AND COLLEGE FUND ACCOUNT NUMBERS AND THOSE OF YOUR CHILDREN AND GRANDCHILDREN TO WALLSTREETBAILOUT@TREASURY.GOV SO THAT WE MAY TRANSFER YOUR COMMISSION FOR THIS TRANSACTION. AFTER I RECEIVE THAT INFORMATION, I WILL RESPOND WITH DETAILED INFORMATION ABOUT SAFEGUARDS THAT WILL BE USED TO PROTECT THE FUNDS.

YOURS FAITHFULLY MINISTER OF TREASURY PAULSON

Tonight's Debate

We're still unclear as to whether we're on for a debate tonight.

(Update: 3:01 PM - we're ready to rumble)

The debate, hosted at the University of Mississippi, will focus on foreign policy. It's slated to begin at 9 EST. The four broadcast networks, NPR and C-SPAN are all planning to carry it.

While we can expect the candidates to segueway to discuss domestic politics, particularly the financial crisis, there are still some really important issues to discuss regarding foreign policy. They include:

(1) The war on terrorism - first and foremost. Terrorism is still the biggest foreign threat to the US despite everything else that has happened.

(2) Iran - the mullahs are pushing forward on nuclear power. Iran is a terrorism supporting state according to the US State Department (a designation that both Republican and Democratic administrations have made). A nuclear Iran is definitely a major concern from the standpoint of non-proliferation.

(3) Non-proliferation - it used to be that nation state cooperation was necessary to develop weapons of mass destruction. Today, that's not the case. The next administration needs a new approach for a new problem.

(4) Russia - Russia recently invaded and trashed the independent Republic of Georgia over an ostensible border dispute. The real purpose was to send the message to the US that Russia is still a world power to be reckoned with.

Hopefully, those doing the questioning will hold the candidates' feet to the fire on these issues.

Happy Friday

A cartoon from The Hill provides some insight into the initial skepticism to the Treasury's bailout, er, rescue proposal.

Obama - a good moment and a bad one

Senator Obama has generally been speaking in favor of the financial bailout concept. Agree or disagree with him, he's shown some leadership.

Senator McCain has not given any indication of his views on this, which is very troubling. His intervening in the process, then, is pointless showboating at best.

So far, Obama has shown a steadier hand in dealing with our nation's most pressing domestic issue.

On the other hand, Senator Obama has not shown an understanding of the nation's financial health that previously I credited him with having. When asked whether the bailout would alter his ambitious health care plan, he said "no":

Barack Obama told CNBC's Chief Washington Correspondent John Harwood that his plan to reform the nation's health care policy won't fall victim to the government's $700B bailout plan.

HARWOOD: So no change in your health care plan?

OBAMA: Well, the--but keep in mind, my health care plan is paid for. And I continue to believe that rolling back the Bush tax cuts on the wealthiest Americans makes sense. They are still going to be wealthy after those are rolled back. I still believe that it is important for us to make college more affordable. And I think it's important that all those things are paid for in light of this huge additional potential expense.

Huh?

It may have been paid for, but the bailout isn't.

That's like saying that you had planned to buy a new car and had saved for it. Now that you find you need a new roof, and don't have any money saved. Are you still buying the car?

Not if you're responsible, or as Paul Krugman likes to call it, a "grown up."

"The Adults in the Room"

Today's Wall Street Journal headlines the largest banking failure in US history:
In what is by far the largest bank failure in U.S. history, federal regulators seized Washington Mutual Inc. and struck a deal to sell the bulk of its operations to J.P. Morgan Chase & Co.

The collapse of the Seattle thrift, which was triggered by a wave of deposit withdrawals, marks a new low point in the country's financial crisis.
Here's the most important paragraph, though:
the fact that no bank was willing to buy WaMu until it failed shows how badly confidence has eroded in a banking system awash with record profits just a few years ago. Faced with deepening losses on mortgages, credit cards and other loans, big and small banks across the country are struggling with what many bank executives say is a crisis far deeper than the savings-and-loan debacle.
Although he veers a little into the lunacy that has gained him some readers he shouldn't covet and lost him some he should, Paul Krugman asks the right question - Where are the grownups?

His answer, though, that they're to be found in Congress, is fairly laughable (see yesterday's post for one example).  Further, some of his criticisms are part of the "bad Paul" (the NY Times political columnist) rather than the "good Paul" (the Princeton economics professor).

Meanwhile, House Republicans are pushing an alternative approach.  Rather than having the government purchase the bad investments from banks, they would prefer an alternative where the banks would buy insurance from the government for the debt.  

I'm not entirely clear on the details of this proposal and it doesn't sound like it would address the problem of banks having too little equity to debt to continue to lend.  However, the Journal reports only 30-40 House Republicans will support the proposal on the table between the Administration and Senate Democrats.

House Republicans, however, are in the minority.  Democrats control both chambers of Congress.  They are afraid, however, that the public will blame them for their costs of the bailout and are unwilling to proceed without strong Republican support, even though it's not need for passage.

In short, Krugman's "adults in the room" are playing CYA, big time.

Will WaMu's failure change the dynamic and get what looks to be a good compromise between Senate Democrats and the Treasury back on track?

Stay tuned.

Thursday, September 25, 2008

The list for Profile in Courage Awards...

just got shorter.

House Speaker Nancy Pelosi takes her name out of the running by declaring that she won't support a bailout unless a significant number of House Republicans (who are of course in the minority in that chamber) vote for it:

House Speaker Nancy Pelosi is telling Democrats that she will not support President Bush’s $700 billion bailout of the financial sector unless there is significant Republican support for the controversial plan...The politics of the bailout are tricky and dangerous for both political parties...As a result, Pelosi (D-Calif.) has effectively sent the message that if she is going to jump off a cliff to rescue Wall Street, she wants House Minority Leader John Boehner (R-Ohio) and George W. Bush holding her hands when she leaps.

This may make sense politically. There will be a fair amount of political backlash for the bailout plan.

As I've stated below, however, there are good reasons to be skeptical. But whether Speaker Pelosi supports it should turn on something other than how much political cover she has, don't you think?

Wednesday, September 24, 2008

Former Bush Economist Voices Concerns Over Plan

If you only read one thing today about the Treasury's proposal to purchase bad Wall Street debt, make it this:
The financial system is the heart of our economy and it is in trouble. If we do not fix it soon, we risk a serious recession...Bold action can be designed with lower costs to taxpayers, while accomplishing the goals Treasury Secretary Henry Paulson has laid out. Elected officials should act quickly -- but carefully.
This quote contains only the beginning and end so you can see where the authors, including former Chair of the Council of Economic Advisers Glenn Hubbard (a Bush appointee) and his co-authors are coming from.

We need to act, they say, but we also need to get it right. Hubbard gives the Administration credit for taking urgent, decisive action, but he also gives due props to Senate Democrats who want to add some good ideas as well (unfortunately, some Democrats have less helpful ideas though). He and his co-authors provide three concrete suggestions for improving the Administration's proposal.

This article is the exact opposite of 90 percent of what I've seen and heard on the situation - one with no exterior motive to help position one candidate or ideology.

Art: the cartoon accompanied the original article in the online Wall Street Journal.

Tuesday, September 23, 2008

Skepticism Over The Treasury Plan


I don't want to pretend I know what you're thinking when it comes to the government's plan to address the mess in the financial system. It may be something like this though:
Thank goodness someone has a plan. Don't bother me with the details, just do what it takes to fix it and let's get on with our busy daily lives.
That's pretty much how I reacted when I learned we had termites in our walls.

When the bill ranges in the billions of dollars, though, we probably should bother to stop, learn a little bit more, and ask a few questions before plunging ahead.

First, a summary of the problem via Paul Krugman:

1. The bursting of the housing bubble has led to a surge in defaults and foreclosures, which in turn has led to a plunge in the prices of mortgage-backed securities — assets whose value ultimately comes from mortgage payments.

2. These financial losses have left many financial institutions with too little capital — too few assets compared with their debt. This problem is especially severe because everyone took on so much debt during the bubble years.

3. Because financial institutions have too little capital relative to their debt, they haven’t been able or willing to provide the credit the economy needs.

4. Financial institutions have been trying to pay down their debt by selling assets, including those mortgage-backed securities, but this drives asset prices down and makes their financial position even worse. This vicious circle is what some call the “paradox of deleveraging.”


Next, a summary of the Treasury's proposal to address it. The Treasury would be legally empowered by an Act of Congress to purchase troubled assets to promote market stability and "unclog" our financial markets. The limit on this authority would be set at $700 billion. The assets are "intended to be residential and commercial mortgage-related assets, which may include mortgage-backed securities and whole loans." The government would sell off the assets once they regained some value.

One big question will be "how much will the government pay?" As law professor Hal Scott notes, pay too much and the public will be outraged. Pay too little, though, and we'll fail to accomplish our objective. Another is whether this is even the right model. Some, such as Krugman, have suggested that the Fannie Mae bailout from a few weeks ago is a better model, with the government actually taking ownership.

I'd like to think that there's a little time for rationale discussion and that the markets, knowing that help is on the way in one form or another remain calm. Otherwise, we'll just need to buckle in.

Quote of the Day

"When normal Americans know who the Secretary of the Treasury is, that's not good."


Normally, we're all for people know more, rather than less, about key government policy makers, but there's a more than a grain of truth to the above. At right is Andrew Mellon, who was Treasury Secretary during the stock market crash of 1929. Mellon would have been decidedly opposed to the Federal Government's proposal to purchase assets from financial institutions (or "cash for trash" as Paul Krugman has dubbed it).

Don't Leave Town for the Weekend...

is the recent lesson I've learned.

A few weeks ago, I came back into town to learn that the Federal Government had taken over Fannie Mae and Freddie Mac.

On Monday, the Wall Street Journal reported that Wall Street as we knew it was over, as the two largest remaining investment banks had opted to convert to bank holding companies:



With Goldman Sachs and Morgan Stanley becoming commercial banks, and the other three big investment banks/brokerage houses being acquired by commercial banks, politicians and the press won't have Wall Street to kick around anymore. Headlines now shout about a $700 billion "Bailout for Wall Street." Yet strictly speaking, Wall Street as we knew it no longer exists. (emphasis added)

You know, you go out to the country to pick some pumpkins and buy some cider, and Wall Street goes out of business. This is becoming all too typical. What's next perhaps? The Onion gives us a clue in the photo above.

Monday, September 22, 2008

A good laugh...

is what we could use right now rather than a civics lesson. This is a personal favorite from The Politico.

Sunday, September 21, 2008

What Might a McCain Presidency Look Like?

Last month, John Fortier of the American Enterprise Institute asked an important question. How would John McCain govern?

He noted a few McCain character traits:
McCain’s governing style displays a healthy balance between loyal insiders and outside advice. McCain has attracted loyal long-term staffers, such as chief of staff and co-author of his best-selling books, Mark Salter, but he also seeks counsel from a wide range of advisers inside and outside his campaign...
This is important because one of the chief failings of the current administration, in my view, has been insularity. People from inside Bush World were given key posts, even when not suitable. Outsiders who were tapped really didn't wield real power. Compare that to Ronald Reagan who made his chief GOP rival's campaign manager his Chief of Staff. A good leader will reach out and hire the best people, regardless of their past affilations.
With McCain’s emphasis on fiscal responsibility, lower spending and cutting congressional pork, a McCain presidency would likely see vetoes of appropriations bills and budget showdowns with Democrats. On this front, McCain would probably find strong backing from his Republican colleagues, who while in the minority would support fiscal restraint wholeheartedly.
As a Republican President with a strong record of fiscal restraint dealing with a Democratic Congress, McCain would likely do a fairly good job keeping spending in line. That's a big advantage he's got in my view over Senator Obama, who likely will go along with Congressional spending wishes because he's got some ambitious plans of his own, e.g., health care.

Fortier surmises that McCain's record of bi-partisanship and independence from his own party's line means that he'd work better with a Democratic Congress than any of his GOP rivals would have, which I find to be a reasonable assertion.