“Baby on Board” – Dealing with Reality

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In the July 18, 2011 issue of Time, Joel Stein reflected on air travel with children and other sometimes-awkward realities. Mr. Stein suggested that airlines offer a section at the rear of coach for passengers traveling with young children. On a flight to Tokyo today, a passenger reminded me of the article; Mr. Stein recognized the realities of air travel for those of us who do not travel with children of our own, but frequently travel with
passengers who travel with their children, and the realities of those parents who travel with their children. Sometimes, passengers who travel without their children simply act like children. Sometimes, a reality check is healthy, but we do not always see consensus on what reality is.

Somehow, the debate on whether to raise the debt ceiling in the U.S. and, if so, by how much has devolved into politics. It is no longer about differences between political parties because, and the reality is, consensus within the two dominant parties in Washington, DC is, at best, poorly
defined and, more likely, hard to find at all. Pundits want to make the debate a Republican versus Democrat battle, but strong disagreement on a way forward seems just as present with each party as across party lines.

Blog postings by colleagues of mine point out how many times the U.S. Congress raised the debt ceiling during presidential administrations dating back to Ronald Reagan, as if a history of doing anything is a compelling argument for continuing to do something. With that kind of thinking, as the current television commercial suggests, people would still think the world is flat (actually it says that without innovation the world would be flat – preposterous since it never was flat – but that is a topic for another day).

The national debt of the United States has never been higher and has never been a larger percentage of the nation’s Gross Domestic Product. Some people believe that the United States needs to take steps to control it’s national debt before the United States faces a debt crisis like Greece and other European nations. I suspect in a de-politicized arena most representatives elected to national office in the United States might actually
agree that growth in the nation’s national debt cannot continue indefinitely, but we would find, and are observing, strong disagreement on how and when to resolve a potential debt crisis. Whether our representatives like it or not, they campaigned long and hard to be in the position in which they find themselves. Perhaps next time they will be careful what they ask for or, perhaps, we simply have the wrong people, collectively, in office.

When I am flying, I must accept certain realities that are not necessarily included in the terms and conditions listed on the ticket. Reality 1: I am not in a position to charter my own plane and, as a consequence, I must accept that I am going to be on an airplane with other passengers. Reality 2: Sometimes my fellow passengers include children, and people who behave like children, and that is included in the price of admission. Reality 3: Sometimes when I am fortunate to sit in the big seats in the front of the plane, my fellow fortunates will include passengers with small children; that is not my opportunity to revert to childlike behavior myself. Reality 4: The parent of an unhappy child is not any more thrilled to be traveling with an unhappy child than I am and they have the added discomfort of having fellow passengers look at them as if there was something they should be doing to control the child.

Looking at our elected representatives and their plethora of appointees, the electorate might find it refreshing to hear non-spun explanations of reality from politicians. Reality  A: Non-spun, politically neutral explanations of anything are unlikely from anybody elected to public office in a nation’s capital. If the first responsibility of a leader is to define reality, as asserted by Max DePree, then if those we elect to leadership positions somehow refuse to define reality and to communicate a compelling vision for a new reality, the electorate in the United States may need to face Reality B.

Reality B: Those who serve in elected office are not inherently leaders.

Reality C: Not all people in elected office are public servants.

Reality D: If e want people in elected office to lead us, we may need to elect leaders.

Reality E: the leadership vacuum crosses party lines; the party only helps clarify the possible vision.

It seems increasingly clear, facilitated by a potential crisis on the horizon, that the time is ripe for a leader to emerge. Will one?

“Wall Street, whose excesses caused this mess” – Really?

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In the June 27, 2011 print U. S. edition of Time, Joe Klein, in the context of suggesting that Republicans are against regulating Wall Street, made the statement in quotes in the title. Did it really?

Wall Street is not a club of innocents. On the other hand, the strongest case that Wall Street caused the current economic downturn is that analysts in Wall Street exercised their contractual right, and their obligation to investors and, probably, the SEC to return mortgages to originating lenders that appeared under-collatealized. That action did squeeze lenders into liquidity crises and cause the houses of cards to collapse. Why is nobody willing to probe beyond Wall Street. Do reporters like Mr. Klein simply stop at the first and easiest answer?

Mr. Klein cites presidential candidate Mitt Romney as suggesting that President Obama caused home values to collapse. Really? What caused home values, or prices, to rise to, unrealistically high levels in some markets, in the first place?

Some time ago, home ownership became part of the so-called American dream. Fulfilling that part of the dream seems to have always been dependent on where one lives in the country. Home prices naturally vary based on supply and demand.

Durning the Clinton Administration, a decision was made to make home ownership more feasible by loosening credit, by making qualifying for a mortgage easier. With more people able to enter the home-buying market, home prices rose, at least in some areas and neighborhoods in the United States. Concurrently, with fewer restrictions placed on lenders, prospective buyers discovered that they qualified for larger mortgages, even “jumbo” mortgages. Some buyers, wanting to capitalize on rising home prices, accepted mortgages with low “teaser” rates in anticipation of
selling or refinancing before the ultimate mortgage payments became due. Some home buyers accepted mortgages for more than the appraised value of the house. In addition, some appraisers seemed willing to appraise the home for more than the then-current value. With low or no down payments required, an apparently large number of homes were over-valued and under-collateralized.

In order to increase the pool of money available to fund mortgages, Wall Street received encouragement from Washington to create securities,
collateralized debt obligations, to provide mortgage lenders with a source of fresh capital with which to make more mortgages. These new securities allowed Wall Street to return individual mortgages to the original issuer for specific reasons, including insufficient collateral. These returned mortgages required cash compensation to Wall Street.

In 2007, Wall Street began taking a closer look at the mortgages it was buying, and began returning some, but not all, to the mortgage lenders. Soon, some mortgage lenders began facing a cash and credit squeeze. The squeeze prevented the issuing of new mortgages by an increasing number of lenders. With credit tightening, the number of eligible home buyers reduced. With fewer buyers, the prices of homes dropped and the construction industry entered a tailspin.

The credit crunch was detrimental to other sectors of the economy. Financial institutions that have no funding for mortgages also have no money for commercial credit lines and other purposes. The economy in the United States and other economies tied closely to it entered a downturn, the result of greed by some, and not just Wall Street, the decision by Washington to not regulate these new debt instruments, and a well-intended, even if politically motivated, desire to stimulate home ownership and the pursuit of the American dream.

Wall Street played a part, to be sure, but Wall Street had plenty of help from lenders, appraisers, real estate agents, and home buyers, all anxious to make an easy windfall courtesy of loose credit and artificially-rising home prices. People all over the country made artificial commissions or artificial profits. Some simply got caught when the house of cards collapsed. Mr. Klein and others find it so much easier to blame Wall Street than to blame everybody else who bought into the “greed is good” mentality.

The right kind of leadership and the right expertise

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From my previous postings, it may be clear that I have an interest, even a fascination, with the ongoing discussions of job creation  by people in positions of leadership about job creation.  I posted a question on LinkedIn last week asking how many of our senators and representatives in
Washington, DC have a background suggesting experience in creating jobs.  I raised the question because evidence indicating such experience seems thin after more than two years of conversation about economic recovery and the need to reduce unemployment through job creation.

Since several people responded that I raised a good question and nobody seemed able to answer the question, I spent part of my 4th of July weekend reviewing the biographies of each member of the U.S. House of Representatives and Senate, as found at house.gov and senate.gov.  The chart below shows the combined number from both chambers.

In these charts, I use the term “politician” to mean anybody whose indicated background includes only positions involved in negotiating and defining public policy or having no experience other than in those positions since 1980.  I use the term “entrepreneur” to mean experience owning, building, or starting a small business.

The data shows that 300 of 538 current officeholders in the House and Senate are almost equally divided between politicians and attorneys. 111 of our national legislators were businesspeople or entrepreneurs prior to election to public service and five more were accountants (one of which was also an entrepreneur); among the “Other” is one senator who was both a physician and an entrepreneur. Twenty were either physicians or nurses with two among the “Other” identified as dentists and one each of the “Other” an optometrist, a scientist, and a psychologist. Twenty-nine educators, eight engineers (one of which was also an entrepreneur), fourteen farmers, twelve members of the military, eight members of the law enforcement community, four community organizers, three homemakers, and three journalists round out the remaining non-“Other” legislators.  The “Other” include a football player, ordained ministers, community organizers, communications professionals and journalists, an entertainer, a health administrator, an ironworker and a millworker.

My research on leadership suggests that our culture shapes our perception of appropriate roles, practices, and behaviors of leaders.  My research also seems to indicate that the roles that we fill or play in life shapes our individual interpretations of culture, which itself reflects or defines our norms and values, and, therefore, influences how we view the world and how we lead in it.  We can expect, therefore, that
politicians view the world differently from attorneys who view the world differently from farmers and businesspeople and accountants and ministers.

It seems that the question we should ask ourselves, before we cast our votes, is does this person have the worldview and the background necessary to solve our problems and do we need people to develop solutions or are we better served by people whose background is in policy or in law? I realize that the problems of today are not necessarily the problems of yesterday or of tomorrow, but would we be better served by staff who know how to write policy and legislators who know how to fix things and make things work?  It appears that, when job creation and economic recovery is essential, we have too few elected leaders who have ever created jobs or stimulated a local or national economy and an abundance of people who should know how to negotiate and convince and write policies and laws. Does the United States have the right leadership with the right expertise?

The following four pie charts show the breakdown for democrats and republicans and for each of the two chambers. I leave it to the reader to draw your own conclusions.

 

Living beyond our means

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The May 23, 2011 issue of Time magazine presented data on the national debt of 10 major economies. The presentation by Josh Sanburn includes an assessment of the risk of each country defaulting on its national debt,  based on Moody’s credit ratings, which seem to be based first on the portion of debt held outside the country and second on the size of the debt compared to the country’s Gross Domestic Product (GDP). Japan and the United States are the only two of the ten countries not in Europe.

The level of debt combined with the significant foreign ownership, except in Japan, of that debt may indicate a tendency for these Westernized economies and cultures to live beyond our means. As individual nations, we have increasingly chosen to spend more than we earn or produce. At some point, this becomes unsustainable. When the United States may reach that point has been a subject of debate in recent weeks as the U.S. Congress considered, and has now chosen, to raise the debt ceiling.

Reports that the debate has simply been political grandstanding are disturbing. The issue is serious and significant. Resolution is feasible.

The United States and other nations can reduce current spending levels, a decision which is politically challenging in an era of near-perpetual campaigning for national and local elected office. The alternative most discussed is raising taxes to bring budgets more in balance, another politically dicey proposition. A third alternative, which receives little attention, is to raise GDP. The lack of attention may result from the difficulty in achieving this.

Raising GDP requires increased production, which requires increased demand and increased disposable income at a macro level, which, on average, requires the same at the personal level. The months, now years, since the fanfare-accompanied stimulus packages in many of these same economies suggests that legislators and their staffs know how to write legislation but know very little about job creation. They know how to create public-private work programs and how to buoy failing companies until those companies regain sustainability, but seem to know little about stimulating innovation, creation of sustainable jobs, and growing GDP.

Elected representatives in the United States and elsewhere seemingly need a wakeup call in the form of a dose of reality. Leadership does not require legislation or legislative expertise, but effective legislation seems to require leadership. Regardless of ideology, philosophy, or party affiliation, if the current course is unsustainable, then somebody needs to change something. Academically and pragmatically, leaders are agents of change; maintaing the status quo requires no leadership. In representative forms of government, citizens elect other citizens to lead the community or nation in the right direction. All elected representatives assume the role of change agent. The direction and scope of the change is the significant variable.

If we, whoever we may be, do not like our current direction or it’s consequences, we need leadership. We do not need rhetoric or politics or slogans or grandstanding. We need change, feasible, sustainable change. We need leaders who define and collaborate and negotiate a new direction that most of us can accept, if not embrace. Then, those of us who elected people to positions of leadership need to follow, to let our leaders lead, and to hold them accountable to lead as we elected them to do.

Followers leading following leaders

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An article by Omar Waraich, Mark Benjamin, Massimo Calabresi, and Mark Thompson in the May 23, 2011 issue of Time, on the topic of U.S.-Pakistan relations included a provocative quote. The authors quoted Pakistani Prime Minister Yousuf Raza Gilani, a person elected to a position of leadership in Pakistan, as follows: “If public opinion is against [the U.S.], then I cannot resist it to stand with [the U.S.]. I have to go with public opinion.”

In the above quote, the leader seems to be following. When the leader becomes follower, the follower becomes leader. The Prime Minister, admittedly out of context, seems to be saying that his opinion makes no difference. While I believe that leaders in many contexts forego their self interests for the good of the people they serve, disregarding one’s personal opinion to align with public opinion gives the appearance of concern with re-election rather than direction.

Leaders should be mindful of public opinion and not simply or necessarily give into public opinion. Leaders should take people where they need to go and not simply or necessarily where they want to go. Leaders need to make hard decisions about necessary change, changes which may require people to think about the past, the present, and the future in new ways with new consequences. Leaders need to help people embrace a vision for a future different from the present and the past. Leaders who fail to do these basic elements of leadership may be seen as poor leaders.

A leader who embraces prevailing public opinion, who tries to govern and legislate in parallel with public opinion polls, is abdicating leadership. When a leader defers to public opinion, the public effectively is leading and paying the elected representative to follow. When followers are leading the leaders, who are following rather than leading, the people may lack both a rudder and a keel.