Wednesday, February 15, 2012

Standing Semi-Corrected

A bit ago, I criticized the Chrysler superbowl commercial, in which they touted Detroit as a model for the re-invigoration of America. I didn't explicitly state, but strongly implied, that it would be disastrous if the country followed the same path as Detroit, with corruption, bailouts, destruction of industry, and all the other maladies Detroit has brought upon themselves. I suppose you could extend the sentiment to Michigan as a whole, with Detroit being the major city there, but it turns out that would not be entirely fair: there is something pretty interesting going on in Michigan, which I think the country could indeed learn from.

I was not aware, until recently, of the Emergency Financial Manager law/system in place in Michigan, and in effect in several of the more destitute cities there. Basically, the law allows the state to appoint a financial manager if the city finances get critically bad, and empowers the manager to fix the problems (by cancelling contracts, firing government employees, reducing costs, etc.). Essentially, it allows for some fallback adult supervision if the irresponsible children/idiots running the city do a poor enough job. And... I think it's a great idea.

Granted, there is a substantial potential for abuse, and I would be very wary of such if adopting this paradigm in a broader sense, but the idea is fairly sound. Basically, it's a strong incentive for local government to not be reckless and irresponsible, and allow the financial situation to deteriorate through mismanagement and corruption. It also may allow for a certain amount of "cleaning house" in otherwise entrenched corrupt government, and incentivizes the organizations which do business for and/or with the government to not steal quite as much public money (lest their contracts be cancelled by the EFM, and their work contracted to less corrupt organizations). It doesn't solve any of the systemic problems, but it does give the people a fighting chance to right the ship after problems arise, rather than being held hostage to the unions and such.

Imagine, for example, if the EU were able to impose such a mechanism on Greece. There would be no more wrangling, negotiation, and double-talk to get ongoing bailouts; the EU would impose a EFM, who would unilaterally make the appropriate changes to restore fiscal sanity (ie: firing all the current corrupt government officials, cutting pensions, raising the retirement age, privatizing 90% of the current government's functions, selling assets, etc.). It would be a painful transition, to be sure, but Greece would then actually have a chance to restore its economy free of the socialist leadership which has destroyed it, and rebuild to prosperity, instead of wallowing in a perpetual austerity program where only the political elite have any chance of prosperity.

Moreover, the threat of such would serve as a powerful, real incentive for the governments of Greece and the other EU countries, to not stray too far down the path of overspending, borrowing against the future, and/or unsustainable entitlements. With the appropriate mechanisms in place, you wouldn't need bailout provisions, loan guarantees, negotiations about appropriate austerity measures, or anything of the sort. The EU could simply allow each country to manage its own finances however it saw fit, stepping in if and only if a country demonstrated a pressing need for responsible adult intervention, and staying only long enough to clean house, and get the country back on a fiscally sustainable path. You might even be able to convince politicians to be more responsible stewards for the countries in general (the holy grail of public policy governing governments, if you will).

So my hat off to you, Michigan: I stand semi-corrected in my thought that you had nothing positive in the way of public policy which could be emulated elsewhere. I think a great many governmental entities could benefit from EFM's or the like, and the ability to "clean out" existing government bureaucracies and entitlements could be a huge boon for a lot of people.

Sunday, February 12, 2012

What the US Really Needs

With the election season getting underway, and America once again approaching the time when they will choose between two statist, freedom-abolishing, debt-ignoring, big government blowhards, an interesting thought occurred to me: what would be the single most beneficial thing which could be done for the country? Obviously, in light of the equally horrible choices for the presidency, a Congress which is the #1 enemy of the people with an approval rating to match, and a government which is absolutely out-of-control, it's a fairly hypothetical mental exercise, but one with an interesting outcome. You see, while there are a lot of good things with could be done, virtually none of them would be overwhelmingly good in isolation: America has a lot of large, pressing problems, and no single fix would be sufficient to alter the course to eventual collapse enough.

Rather, I was thinking about the situation in Greece, and how it pertains to America. Greece is, in many ways, a window into our future: a country with an unsustainable entitlement system, little remaining non-service industry, a crippling debt, and little responsibility or accountability among the general populace. In the same way as us, there's no one solution for Greece's problems, and in their case they are well past the point of feasible course correction before their inevitable national default. However, their largest problem currently is not any of their structural problems, but rather the fact that they have no plan in place for an orderly default, and no path beyond. In essence, this uncertainty is what is crippling the markets, causing social unrest within Greece, and impeding what might otherwise be a fairly non-disruptive obvious end-result of their chosen political policies.

Along the same lines, I think if the US could only have one positive change, I think the thing we need most is collapse and restructuring plan for our entire economy. Like funeral planning, this could take much of the stress and uncertainty out of our eventual default, and try to make the transition to a new, less entitlement-based system much less painful. After all, we know we're going to default: there's no political will to fix our debt problems of live within our means, and our population is incapable of making responsible decisions. At least we have a chance, though, of being able to recognize this, and plan ahead for when the weight of all our bad decisions crushes what's left of the economy, and put some real honest effort into thinking about how to move forward after that event.

For example, we could start thinking about ways to move US people's savings out of direct or indirect investment in government debt; when the country defaults, all that debt will be written down, and if that loss can primarily effect foreign governments, that would be better for the American people. The US government could also start forming a transition plan for the months when the country's currency is worthless, and putting in place a structured bartering system. We could start planning for decentralized police, fire, and emergency services, to keep local communities functional if the federal and/or state government is in transition. Obviously you would also want to ween people off public support and entitlements as much as possible as well, as those will certainly be at least temporarily disrupted when the country goes broke. All of these would be good, prudent steps to take, when eventual default is all but inevitable.

As a bonus, by taking these steps, the country could alleviate or reduce several of their other problems by side-effect. For example, by educating people about how to be prepared for when the country defaults, perhaps we could finally get the message across to all the ignorant sheeple that the country's spending trajectory is utterly unsustainable. Weening people off entitlements would force a discussion about the dangers of creating a society too dependent on the government, and perhaps help stop socialist-leaning politicians from getting traction in the US government. Moving social services to a more local level would have lots of benefits, not the least of which could be shrinking the federal government itself. Who knows... with enough of the beneficial secondary effects from this one simple change, we might actually be able to avert a catastrophic collapse of the country in the first place.

Here's hoping we can get a solid transition plan in place, though, at least, before our country goes through the same inevitable collapse as so many have before, and seemingly all eventually do.

Wednesday, February 8, 2012

Greece: Bailout Handling Still Moronic

This is a quote, in this article, from an economist in Greece:

"It's lunacy," said Yanis Varoufakis, an economist at Athens University. "Greece should default, and the European Union should finally accept and deal with the inevitable, instead of pushing it under the carpet, like children trying to avoid being spanked."

A second Greek bailout, he added, would "just throw good money after bad. What's the purpose of getting an additional loan when it's unlikely Greece will be able to repay it?"

Greece's people (most of whom are union and/or public service employees, or retired) are protesting the terms of the new bailout funds as unacceptable. Public opinion in Greece of the country's leadership is rapidly declining. Public opinion of the other EU countries and their leadership is also souring. Many people in Greece don't want to accept the austerity measures the other EU countries are insisting on, and most seemingly have no interest whatsoever in enacting reforms to fix Greece's broken and bankrupt economic system.

The other EU countries are fighting a losing battle for no good reason. It's akin to convincing a drug addict to give up drugs and get clean, when the addict can still get drugs, and doesn't even admit a problem. Meanwhile, the addict is lashing out at you more and more, because you're trying to take away their drugs, the thing they value the most, for no reason they can currently fathom. The people of Greece clearly cannot even comprehend that their country is bankrupt, much less that their socialist entitlement system has led them to this point. Heck, the EU is only asking them for the metaphorical equivalent of showing up to a treatment facility to get their fix, which they are still willing to give them, and even that is so burdensome as to provoke mass protests.

What the heck is the problem? The Grecian people don't want a bailout. The EU people don't want to throw more of their good money after bad. The bond holders certainly don't want to take a haircut without concessions, at least "voluntarily". Nobody wants the years of legal wrangling that trying to legally categorize a default as a "voluntary write-down" would likely entail. Greece will not be able to fix themselves until the people realize how fundamentally broken their entitlement-laden socialist system is, and that cannot happen until they experience a full economic collapse. There's absolutely no benefit in trying to shove a bailout down their throats, and a whole lot of downside.

Get with the program, EU people: figure it out, cut you losses, and make sure your sides of the border are secure. I'll wager the people will be a whole lot more receptive to your conditions after a year or so of hyper-inflation and social unrest. Plus, there's a small chance they might learn something too, which is not only good for them, but could be good for the EU in general.

Monday, February 6, 2012

Halftime in America Commercial

Chrysler ran a commercial during the superbowl which is generating a fair bit of controversy; if you didn't see it, feel free to youtube it. Opinions vary: some people think it was inspirational, others pandering. What is more interesting, to me at least, is that if the news media is to be believed, there are two ways to view the political slant of the commercial, depending on your own viewpoint; in fact, one of the articles described it as a rorschach test for political views. Meanwhile, both Clint Eastwood (who narrates the commercial) and the producers insist it's not intended to be political, which is odd, since it clearly is.

What struck me, though, is how dumb the message actually is. Essentially, the commercial is holding out Detroit, and Chrysler, as examples of doing what's necessary to "right" the country, and that if the rest of the country can follow their example, we can forge a path back to prosperity. I don't think that logic holds up, though, regardless of the inspirational tone of the message.

Consider Chrysler, for example. This was an auto company which received a government bailout, which ultimately cost taxpayers $1,300,000,000 (not as much as the GM bailout, but still pretty substantial). Its bankruptcy was the model of government corruption, with the government manipulating the proceedings to deprive shareholders of their value in the company, while transferring large amounts of value to the unions. The emergence from bankruptcy is a metaphor for the outsourcing of manufacturing, as the company is now majority owned by a foreign company (Fiat). Meanwhile, the "restructuring" did nothing to fix the systemic problems of union labor costs and underfunded retirement benefit obligations; it did save some jobs in Detroit, at least for now, but at a huge cost, and uncertain future.

What of Detroit, then... is that the shining example we should all aspire to emulate? Detroit is a city in crisis, budget-wise, trying to stave off state takeover due to fiscal disaster. It's trying to negotiate concessions from the unions, but they may not be enough, even with the high tax rates and regulation which drive business away. Detroit has some of the worst slums in the entire country, and aside from the auto industry bailouts, would have virtually no industry left. If anything, it's a prime example of what happens with a socialist-style government and the destruction of a manufacturing base: this may be an apt metaphor for what the country might look forward to, but seems hardly an example to emulate.

America is at a crossroads, to be sure, and we could really use some beneficial new direction to get back on a solid path. However, there's not a small amount of irony in holding out Detroit and Chrysler, two of the worst examples of the "wrong" path, when pointing out the need to change direction to fix what's wrong.