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.


  1. Interesting read. EFMs seem so much faster and more efficient than waiting for elections to boot the bums out and then vote similar bums in. If only we had an EFM that would do something sane about the federal deficit. But that might require a new federal agency (people will scream about big government) or UN / World Bank intervention in US affairs (Fox News anchors' heads would probably explode). I can dream.

    If only unions would self police better, fight internal corruption, and demand fair benefits, not max benefits. In the US, say "union", and so many just think "entitlements" and "mob ties" and *gasp* socialism. (not saying you do, just many people) Because some unions go overboard, people lose sight of the good unions have done, and why they're needed. Wish they'd compare the safety record of US coal mining companies with unions and those without, just one example.

    While in no way defending the government of Greece, nor their ghastly mismanagement of the economy, I submit Sweden's economic reforms of the 1990s as an interesting case study. They had huge, harmful welfare burdens, high unemployment, a sluggish economy. So they cut benefits, raised the retirement age, increased privatization, just as you recommend. However, they did not cut benefits / services to the high degree I believe you recommend, if I understood you correctly. It was a badly needed correction and a big shift to the right, politically and economically. However, it was not an abandonment of the socialist system and they're still very left leaning compared to the US. I believe that's in line with your "whatever works, so long as it works, and is responsible" ideal. Not really arguing with anything you said, just pointing out one can have high benefits and government services that are sustainable, they needn't be only either excessive or low.

    I really should read up on Norway and the current situation in Poland, and the pros/cons of the British Labour party. I'm sure people get sick of hearing Sweden all the time. ;)

    In case this interests you, I think these are worth a read. If not, no worries. I'm glad I looked for these, because now all those economy references in Girl With the Dragon Tattoo make more sense.

  2. Unions, at one point, were beneficial entities, which served as a valuable counter-force to abuse from business. Perhaps not surprisingly, I largely blame the government for their denigration, both in benefit to workers and public perception. If not for laws which forced participation in labor unions, open-ended bribery allowances under the guise of "campaign finance", and lack of transparency within union organizations, unions would probably still be fine today, instead of the symbols of incompetence and corruption which they have become.

    As for government plans, I do think that plan would be fine. As I've said before, I have no issue whatsoever with government support programs, provided the cost (or more specifically, the state-sanctioned theft from the people with wealth in the society) is contained. For example, say the US had a fixed, limited, maximum tax rate of, say, 15% of income plus 1% of net worth, and the government was forced (through Constitutionally-mandated and court-enforced automatic cuts) to maintain a strict balanced budget. Under that scenario, if the government wanted to pay for health care coverage for 100% of the population, and they were able to fit it into the budget, I would be all for it.

    My problem is with the taxation limits and spending controls, not the distribution of funds within the government's budget. If you can fix the former problem, the latter will work itself out automatically (that is, the government will spend money on the things which are most important for the society as a whole, in general).