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The Other Approaching Cliff

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In 2011, world financial markets and elected leaders more or less avoided the U.S. debt ceiling cliff.  At the end of the 2012 calendar year, the so-called fiscal cliff awaits, subject to a short-term or long-term detour created by a seemingly less-than-creative U.S. Congress.  Yet, it seems another cliff is appearing on the horizon, a cliff receiving little or no attention like the iceberg that sank the Titanic.

 

During the last five decades of my observing the U.S. electorate, hopefully filtered through increasingly critical thinking and emotional intelligence, it seems that two foundational elements of the U.S. system of governance are eroding.  Historically, the keys to effective U.S. governance have been an informed and educated electorate.  These two crucial characteristics depend on a free press and an effective public education system, two factors that seem increasingly ineffective.

 

Test scores and other indicators of comparative educational performance show the U.S. collective student body continuing a long decline compared to their colleagues in other countries.  This decline appears systemic and may point to a simultaneous decline in the absolute performance of U.S. students and improved test scores by their counterparts elsewhere in the world.  Teachers and their unions may be too easy a target for blame.  Ineffective teachers need to improve or seek new careers, but many teachers in the U.S. lack lack appropriate and necessary instructional resources and parental support to meet societal expectations.

 

Anecdotally, the decline in U.S. student performance seems to parallel the rise in two-income families.  When both parents work outside the home, especially if one or both parents work two or more jobs, mom and dad have no time to help with homework.  Seemingly simultaneous with the rise in two-income families in the U.S., in some cases driven by need as much as want, is the rise in participation in after-school sports and other extracurricular activities.  So students have less time for homework and parents have less time and, in some communities, less ability to help with that homework.  As a consequence, generations of students enter the workforce and electorate under-prepared by school systems and parents to make decisions in the workplace and in the voting booth.

 

The press in the United States is failing in their chosen calling of reporting news; in doing so, the fourth estate provides less information on which this increasingly under-educated and under-prepared workforce would otherwise rely.  Newspapers, magazines, electronic media, and cable and network television promote agendas rather than pursuing truth.  A so-called news program interviews two or more people who stridently assert inherently conflicting positions as fact.  Although both positions cannot possibly be true, the anchor or moderator or reporter rarely makes the effort to reconcile the positions and separate truth from fiction.

 

During the recent string of presidential debates, network fact checkers proved themselves unworthy of their titles or positions by failing to distinguish true from false.  News should simply be news and editorial clearly opinion without forcing the audience to classify the two.  News should be presented as fact and be consistently, reliably true with retractions or corrections presented when necessary.  However, the U.S. news media presents programming as commercial entertainment to secure advertising dollars.  The press may be free, for the most part, of government influence, but it is not independent.

 

So, the upcoming cliff may just be the continued degradation of the revered system of U.S. governance facilitated by an under-educated electorate and a less-than-independent press.  Unless leaders in the U.S. consciously and quickly begin to address the rebuilding of the three legs of our governance stool, the inevitable consequence seems to be continued societal fracturing and an eventual collapse over the cliff of basic governance.

 

An Arab Fall

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This morning Fareed Sakaria noted the need to view the words of politicians as being politically motivated and within a political context.  When a politician speaks, we need to consider the intended audience and remember the political context.  Susan Rice, U.S. Ambassador to the United Nations, interviewed by CNN’s Candy Crowley, and others observed that this week’s anti-West and anti-U.S. actions, resulting in destruction of U.S. property and the death of the U.S. Ambassador to Libya, three other Americans, and uncounted others in more than 20 countries, was the act of a large group of people, who collectively represented a small minority of the residents of those countries.

The violent acts are troubling, disappointing, even enraging, but to respond against those nations as if the nations have attacked the U.S. would be as misguided, even ignorant, as the apparent inciting of the violence by a rumored anti-Islam film as being representative of and endorsed by the U.S. and the West collectively.  The West, and particularly the U.S., needs to respond, but that response must have focus, on the perpetrators and their leaders not the general population.  The identity of the perpetrators may be difficult to ascertain.

The Arab Spring phenomenon awakened unrest long nearly dormant because freedoms of speech and expression were historically more constrained than today.  The protests somehow connected to this ill-advised film, if it exists, simply would likely not have been possible less than twelve months ago in any of the countries where embassies and consulates have been attacked.  Somehow the countries that could suppress expression under previous regimes are no longer capable of providing security to the diplomatic community. That seems likely to be an indication of lack of will onthe part of government officials and community leaders.

Despite the lack of will or ability by leaders in Tunisia, Libya, Egypt, Yemen, Sudan, and elsewhere, little or no evidence appears to indicate that the people in these countries have animosity toward the United States, the West, our leaders, or our citizens.  On the contrary, every current indication is that the perpetrators are not representative of the the general population and at least some of the elected leaders.  More to the point, the acts of violence seem to be more likely the result of a fringe element as unhappy with their new leaders as with the West and taking advantage of too many young people with not enough tondo as a result of high unemployment among the young, countries and regions desperate for leadership, and economies in desperate need of sustainable change.

Solyndra and Innovation Support

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Michael Grunwald (2012) discussed Solyndra within the context of the appropriateness of government investment in innovation.  Conceptually, government support for innovation has a lengthy precedent.  What few pundits discuss is that the Solyndra loan under the stimulus plan represented 97.7% of all loans under the program made within the state of California, $535 million directly to Solyndra and $284 million to Rudolph & Sletten, a prominent green energy general contractor, as a subcontractor to Solyndra.  The balance of the loans in California went to government agencies and Native American entities.

Under the stimulus plan, California-based entities received more than 12,000 grants, most seemingly for infrastructure, research, or education projects.  The sheer scale of the stimulus program would seem to make the prospects for a “where are they now?” type of report.  Nearly three years after the receipt of many of these awards, an accounting of the taxpayers’ investments would be interesting and appropriate, even if an overwhelming undertaking.

Government support of innovation seems generally connected to new or newly emphasized policies.  In the Solyndra example, the policy was to support green energy in general and solar in particular.  Grunwald (2012) observed that the solar industry has grown dramatically since 2009.  The Solyndra example would seem, then, to have been a bad investment in an otherwise good industry for investment.

Individuals, governments, and investment firms, including venture capital, private equity, and angel groups, make bad investments every day, collectively that is.  Unless investment decisions are the result of some secret sauce or proprietary black box assessment that somehow produces above-market success rates and returns, any investor would be unwise to put all her or his proverbial eggs in one basket.  In the case of the US investment in Solyndra debt, the investment was 0.1% of the total portfolio of loans, grants, and contracts, certainly not an all-in-one-basket scenario.

Was Solyndra a bad investment of taxpayer money?  Certainly, if the standard is return on investment.  Was Solyndra an unwise allocation of risk capital?  No, since 0.1% of the portfolio would not seem to be over-allocation into one investment.  Was Solyndra risky?  Yes, but probably not any more risky, and possibly less risky, than other ventures at the same stage of development.  Should the Solyndra experience cause government decision makers to use a different assessment of innovation potential?  Probably, but the Solyndra failure should not become an excuse for governments to stop investing in innovation.  Early stage companies in innovative industries are risky investments; they always have been and always will be, and that is why investors demand and recieve the potential returns that they do.

References

Grunwald, M. (2012, August 27). Yes, more Solyndras. The solar company failed, but the decision to invest in it was the right one. Time, 180(8), Business 4.

Globalization and U.S. Domestic Jobs

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In the August 27, 2012 issue of Time, Rana Foroohar (2012) wrote about globalization.  Foroohar asserted that globalization was originally all about creating a lop-sided benefit for companies and workers in the United States.  On the surface, this is a rather parochial, if not absurd, concept.  Foroohar, in effect, proposed that globalization’s purpose was economic colonialism, overcoming boundaries, borders, and barriers.

The Levin Institute (2012) noted that international trade both causes and results from globalization.  The proliferation and distribution of products from the United States is an example of globalization as is the availability of goods and services from Japan, South Korea, China, Germany, France, Italy, and Mexico.  Trade negotiations effectively negated the consequences of any intended one-sided, eco-colonialism.

U.S. Imports, Exports, and Trade Balance by Year (in $millions)

Trade negotiations did not seem to reduce either exports or imports.  Despite the economic downturn that struck most of the world’s economies in 2008, imports and exports since the beginning of globalization continue their upwards march, albeit with a noticeable dip in both imports and exports in 2008 and 2009.  The assertion by Foroohar (2012) that globalization harmed the wages and upward mobility of workers in the U.S. would not seem to be related to a reduction of exports, as measured in dollars.  Globalization seems to have increased exports and imports.

The detrimental phenomenon related to globalization, or not, is that U.S. imports have exceeded exports every year since 1975.  The steady rise in exports since 1975, only dropping briefly in 2001-2002 and 2008-2009, would seem to have enhanced wage and mobility opportunities for workers in the U.S..  Similarly, the parallel rise in imports would seem likely to have had a corresponding influence on the economic well-being of  workers in the countries from which the U.S. imports goods and services.  Foroohar (2012) notwithstanding, perhaps the opportunity in the U.S. is not to somehow try to put the brakes on globalization, as if the U.S. is in control of such phenomenon, but to reduce the overall trade imbalance by taking steps through policy, innovation, and better management.  Slowing globalization would seem to have the potential to reduce imports and exports; the objective should be to narrow or close the gap by some combination of continued growth in exports and a slowing of the growth in imports.

References

Foroohar, R. (2012, August 27). The economy’s new rules: Going global. Time, 180(8), 26-32.

The Levin Institute. (2012). Trade and globalization.  Retrieved September 2, 2012 from http://www.globalization101.org/trade-introduction/

Job Creation and Deficit Reduction

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The August 13, 2012 issue of Time examined the financial implications of the 2012 presidential campaign.  Letters to Time’s editor printed in the August 20, 2012 issue noted, among other things, that the money spent on presidential campaigns, particularly the 2012 edition but possibly generalizable to other elections, could have been used to create jobs.  It might be argued that different spending creates different kinds of jobs in different locations, but it seems that most spending on most elections directly or indirectly employs somebody somewhere.  With all the conversation about jobs moving offshore, it might also be interesting to see how much election-oriented spending stays in the United States to employ residents of the U.S. rather than employing residents of other countries.

During this election cycle and the previous one in the U.S., pundits frequently expressed the desire to end the U.S. military’s involvement in Iraq and Afghanistan and, almost in the next breath, proclaimed the need to fix unemployment.  Some pundits added the need to reduce government spending and to make government agencies more efficient.  Reducing the number of service members deployed would seem to eventually reduce the number of people serving in the military and reducing government spending would seem to rather quickly result in fewer government workers; in both cases, wouldn’t unemployment probably rise as a result of both actions?

It seems that the only way to reduce government-related payroll, whether civilian or military, and government spending and not increase unemployment is to create a coordinated, comprehensive plan to stimulate sustainable job creation that is synchronized with implementation of a strategy to improve efficiency of government services and reduce government payroll.  Treating them as unrelated would seem to offer dire consequences for unemployment and the economy.

Klein (2012) encouraged President Obama to redouble his efforts to reduce the budget deficit and the national debt.  Klein noted that the Simpson-Bowles plan received minimal support in part because it was not comprehensive enough to allow anybody to ascertain the consequences.  It seems that politicians frequently vote for legislation that leaves too much to chance or unwritten future laws and policies.  Perhaps one of the challenges of governing the United States in 2012 is that the systems and structures have grown too complex and too intertwined for simple or straightforward solutions to practical problems.  As demonstrated by the attempt at comprehensive healthcare reform, it may also be that attempts at comprehensive legislation also do not get read by those who vote.

The United States still seems to have the best system with the most peaceful regime change in the world, but sometimes it surely seems that a better way must be out there somewhere.

References

Klein, J. (2012, August 20). The trouble with Simpson-Bowles. Obama has tried to reduce the long-term deficit, but he should try harder. Time, 180(8), 19.

Various authors.  (August 20, 2012). White House for sale. Time, 180(8), 4.