Friday, January 29, 2010

The Massachusetts Message

In Massachusetts recently, the unthinkable happened: the senate seat held by John and Ted Kennedy for 50+ years went to a Republican. All the hysteria and post-election punditry notwithstanding, what does this portend about the next ten months of 2010 political reporting? Some thoughts …

“It ain’t over till it’s over,” in sports and in politics. No election is a guaranteed outcome, regardless of what one may think going in. The good campaigners always know they could lose, and campaign fully from day 1 through election day.

A lousy candidate has a lousy chance to win, regardless of party affiliation or political beliefs. By all accounts, Massachusetts Democrats could not have picked a lousier candidate. Did Scott Brown win, or did overconfident Martha Coakley lose? All too often, never underestimate the Democratic Party’s ability to blow an opportunity. (See “a 60-vote supermajority.”)

Once again, Republicans showed that – all other conditions being equal – as a party they are typically the far better campaign strategists. And they can run a far more effective campaign – if “effective” is winning being the total objective at any/all cost – though they are likely to not run a more ethical or intellectually honest campaign. Democrats too often are really bad tacticians. (See Willie Horton, Swift Boat, racial ads in Tennessee, and Florida elections.)

Meanwhile, Democrats usually stand flatfooted against a Republican steamroller campaign and have never really learned how to counterpunch political attacks, even when grossly false. They have never learned the British art of the surgical oratorical cut, the comeback that exposes the untruth of your opponent in one sentence. Sometimes, no matter your druthers, you just have to fight back and respond in kind and call dishonesty out. Americans do not like dirty politics or blatant misdeeds, but they do like a fighter who will show strength about his/her convictions and a willingness to stand and fight for them. (See Michael Dukakis and John Kerry who didn’t, versus Bill Clinton who did.)

A political campaign is no place for a philosophical discussion. The voting public does not have the time or the attention span for that. You need simple goals expressed in simple tag lines with the details in the file cabinet (or web site) – but not too many details! (See Ronald Reagan presidential debates, Richard Nixon’s “secret peace plan,” versus Al Gore and John Kerry speaking in tongues in paragraphs.)

Scott Brown rode in a pickup truck and proposed “a Jack Kennedy tax cut” while simultaneously decrying deficit spending. We already tried that from 2000 – 2008, when Republicans piled on the spending rather than cutting it, and can we see the results? But the juxtaposition of these two conflicting ideas has never bothered any Republican. And it has always left Democrats scrambling on the defensive for how to say “no” to tax cuts without seeming to pick the middle class pocket. (See George W. Bush on the ranch in his pickup, looking like everyman’s beer buddy.)

American voters have such a short memory. The last three Republican presidencies each ended on a financial downturn from events accumulated during their term. Reagan, who began the dismantling of financial regulation, ended with a collapse of the savings and loan (remember those?) industry (a preview of the 2008 bank collapse), with an unstable voodoo economic instrument (remember “junk bonds”?), and large deficits from tax cuts that never trickled down to the middle class. George H.W. Bush left the country in recession, which Bill Clinton turned into an economic boom with a government budget surplus by 2000. George W. Bush left us nearing depression from the almost-collapse of the entire financial infrastructure world-wide, based upon yet another phony financial instrument (derivatives) along with our first trillion dollar deficit. So why would we turn to that same political party espousing the same economic policies who have no credibility to restore fiscal stabilization?

In the wake of Republican wins in 2 governorship and 1 senate races, the media and Republican leadership talk is all about some supposed Republican comeback. This restoration is supposedly built on a middleclass revolt against Democratic proliferate spending. But I think that is a false read. Is the populace angry? Yes, that seems clear. But I think they are now mad at everyone in political power, regardless of party or philosophy, particularly the “independent” voter. Mad at national, state and local incumbents. They are angry at being ignored, left behind, looking at a governing system that is lost and aimless, and not working almost anywhere. The political process is ugly, the wealthy are overtly calling the shots in the backrooms, the only economic trickle is up, corruption and dishonesty among politicians seems rampant, and political gamesmanship is the only thing seemingly important. Republican political stonewalling is as repugnant as Democratic deficit spending when people are looking for responsive solutions. Everyday middle class people, just trying to make it through the day, who need basic services and fairness from all levels of government, are feeling left out, powerless, unheard, and overwhelmed by it all, with no productive place to put their frustrated energies. So before anyone counts their electoral chickens prematurely, I suspect most all incumbents should be concerned. Is a whole new deck of cards held by brand new players the only way to break the impasse of these last years?

We need to prepare ourselves for a tough 2010. I wish this would not be so, but I am doubtful. More incumbents opting to bail out of the 2010 election. Complete paralysis of Congress as obstructionist senate Republicans hold it hostage to the 60-vote filibuster rule, rejecting any presidential/Democratic initiative just to prevent a success, so that nothing substantive gets done. Politics becomes even more of a simple blood sport, to no one’s benefit except the politicians themselves. And cable news incites everything to a screaming frenzy. In this period of irrelevant governments, most of us will be left to find our own solutions in spite of government.

After all of this is done, where will we find ourselves on Wednesday, November 3, 2010?

Sunday, January 17, 2010

Amputation of the Invisible Hand

When I was a young university freshman majoring in business administration eons ago, one of my obligatory courses was Principles of Economics. I do not remember a whole lot that was said back then. But there were two themes that we all had to minimally take with us:
· Supply & Demand: the quantity of available supplies would balance and thereby equal the price people were willing to pay for them;
· “Invisible Hand”: Adam Smith’s principle that “if consumers are free to choose what to buy, and producers are free to choose what to sell, an ‘invisible hand’ will cause markets to settle on products and prices beneficial to all. I.e. self-interest will drive everyone to beneficial behavior.”

So why is this mini-Economics 101 lesson relevant to us? Because these days we hear a lot of people complaining about the federal government’s supposed takeover of the American free-market economy. Complaints about: “GM” now means Government Motors; federal ownership of banks and financial institutions; government funded jobs instead of private industry jobs; and out of control deficit spending. The supposition is that, if we could just get government out of the way and let “natural market forces” be free to do their thing, all would be economically right with the world. Adam Smith, Ayn Rand, and innumerable conservative politicians and free-wheeling CEOs would then be vindicated. And we would all become wealthy.

Wealthy is perfectly fine unto itself. How one achieves that wealth should always be a wholly separate discussion. When one achieves business success working within these basic economic principles, that success can be admired. The problem today (and for most of America’s history) is a rigged game. And the rigging is not due to the government intervening to disrupt the marketplace; the rigging is by our Captains of Industry, in many instances with that rigging then reinforced by government law, regulation or program.

The capitalism/free-market system that we aspire to presumes: a) a large population of buying consumers; b) a large number of innovators, producers and suppliers to service these consumers and their needs; c) easy-in penetration of new suppliers and innovation into the marketplace. Within this open framework capitalism can thrive, probably towards the community benefit that Adam Smith envisioned. But that “market openness” is not what is present today.

Instead, supplies of desired or needed goods are being deliberately controlled or withheld, artificially distorting price. The number of suppliers continues to contract into fewer national/international mega-companies capable of dictating market position. Given that product creation and market distribution is so concentrated in huge companies, the high cost of entry into the market is prohibitive to most would-be new suppliers seeking to expand consumer options.

Supplies of home heating oil sit in tankers off the coast of New England, holding back their cargo until the price moves up into a greater profit. When gasoline hit $4/gallon last year, the Saudi Arabian oil minister correctly said, “We are still producing what we have always produced; there is plenty of oil out there.” That $4 came from commodity traders bidding up a barrel of oil from $40 → $140 just because everyone in the production chain could make money along the way – until the market topped and fell back to $40, leaving all those late buyers holding the empty oil can. The Big 3 automakers over the years repeatedly blocked new carmakers or innovations, and ignored consumer desires for their automobiles, in order to protect their status quo. As we have now learned, the financial industry concentrated its wealth into a handful of giant institutions that effectively dictate lending rates, credit card fees, and credit terms while previous competitors disappeared in merger-mania. As various retail outlets dissolve into bankruptcy, 2-3 lenders in each industry at either the low-end or high-end of price effectively dictate price, product, and customer service. (Is there really any difference in the merchandise in Lowe’s or Home Depot?) Corporate agriculture continually tries to block the growth of organic or local foods, while price support payments from the Department of Agriculture primarily underwrite corporate profits versus the small farmer.

Two real exceptions to the marketplace barriers are technology (2 guys in a basement can still make an impact) and home construction, both of which can provide real opportunities to the wanna-be entrepreneur. We like to trumpet America’s small businesspersons as our economic backbone, and that’s the ideal that economic protestors like to point to. The reality is that there are vast numbers of them, but the few national companies and their branches/franchises control product, pricing, and wealth. The small business person tries to survive in the economic alleyways left over, frozen out of the real Main Street. All those pizzas from our corner mom-and-pop pizzerias are still the minority of the pepperoni.

How we can genuinely open the American free market to the entrepreneurs that deserve it, rather than just give more market power to an already small club of players, needs far more discussion. When we clamor for a more free market system, just exactly who are we really helping? Should not today’s protesters of economic socialism also be equally protesting serfdom under the economic barons of this land? This is not a question of class warfare nor a debate of economic philosophies. It is rather a question of enforcing ethics and fairness. In the meantime, does anyone really doubt the return of $3.00/gallon gas soon? Or $4.00 once again?