Sunday, September 30, 2012

Early Indications September 2012: Party platform comparison

It should be stated explicitly that all views are my own and do not represent official policy or any other attribute of my employers. Politics is always delicate territory and I have tried both to critique and respect both parties in my analysis.
Given the stubbornly high un- and under-employment numbers, the rapidly diverging fates of the very rich and everyone else, and the increasing speed of technological change, it appears that the U.S. economy is in the midst of some fundamental transitions. Consider the evidence:

*Apple, with a trillion-dollar valuation in range, employs fewer than 50,000 U.S. workers, not counting retail store personnel. Facebook, said by Wall Street to be worth $100 billion at one point, employs only about  3,000. Not only are their overall numbers small, these highly-prized jobs create very few "multiplier" jobs for lower- and middle-class workers the way the automobile did. Where will large numbers of new jobs come from? In most cases the old ones are not coming back.

*Municipalities in multiple states are declaring bankruptcy, and unlike the 1994 Orange County precedent, these are likely to be followed by more. It is also likely that a U.S. state will have to declare bankruptcy, or something similar. Between direct hiring of employees as well as support of homebuilding (through the mortgage interest deduction and deep involvement in mortgage markets) and public works, government-fueled employment has helped counter a long-running loss of manufacturing jobs. As the wave of government hiring from the last 65 years bequeaths us its total costs -- in extremely generous health care and retirement benefits -- how can we afford the past hiring at the federal, state, and local levels, much less the governments of the future?

*A college education historically contributes to higher earning histories, but the price of that education is also growing at an unsustainable rate. According to the College Board, the average cost of a 4-year public college education has more than quadrupled since 1981, after counting the effects of inflation. Student loans are available to cover this ever-increasing sum (thus creating a moral hazard for the universities?), with the result that student loan debt has crossed a trillion dollars. Insofar as student loans are not able to be discharged by bankruptcy, and given that requiring high credit scores along with a large down payment is now standard practice in the mortgage industry, many of the students who leave college with these loans will not be buying houses any time soon. How can we educate students in tomorrow's skills without saddling them with excessive debt?

Given these interconnected forces, the role of elected officials in encouraging job creation is limited: governments are shedding police officers, fire fighters, and teachers. Much as every president loves a construction boom, most housing markets are still digesting excess capacity built in the 2003-2006 period even as they are more boomer home-sellers than there are Gen Y couples to buy real estate. Even though the benefit of more education used to be axiomatic, honest discussions of student aptitude and projected debt should be a factor in college choice in more and more cases.

Thus I believe that the nation is at a crossroads, a historical moment when new approaches are necessary. What can voters look forward to? Rather than try to decode the speeches of the presidential candidates, I examined the two parties' platform documents. Sadly, there is little indication that either party is approaching today's unique challenges with an adequate arsenal of ideas.

The Democratic platform is long on punchlines: "We see an America that out-educates, out-builds, and out-innovates the rest of the world," it repeats at several junctures. The next American economy needs to be built "from the middle out," not from the top down. The proposals in this vein have the overall whiff of a free lunch: middle-class tax cuts, refinancing options for mortgages under water, "accessible, affordable, high quality health care," and a promise that "we will find a solution to protect Social Security for future generations." How will this last goal be accomplished? Later retirement, higher taxes, and/or lower benefits are not mentioned as the only ways out. The document is short on the necessity of sacrifice.

As for education, the Democratic platform focuses more on teachers than on students. While "Democrats believe that getting an education is the surest path to the middle class," the cost of bad teachers for tax payers and students alike is never addressed. Instead, in a nod to union resistance to removing underperformers, "We also believe in carefully crafted evaluation systems that give struggling teachers a chance to succeed and protect due process if another teacher has to be put in the classroom." For every "struggling" teacher, however, hundreds of students are denied an adequate education, but they are not mentioned.

This commitment to public-sector unions appears in another passage, one that implies that high-paying government jobs have no discernible price. Compared to the labor-management strife that fueled the big industrial unions, teachers' and police officers' economic interests are opposed not to bosses but to taxpayers: the teachers' neighbors. Nevertheless, "we will fight for collective bargaining rights for police officers, nurses, firefighters, emergency medical technicians, teachers, and other public sector workers -- jobs that are a proven path to the middle class for millions of Americans." But who pays that bill? In France, the government (followed by the post office) is the largest employer and the top marginal tax rate is 75%. Such an end-game feels unsustainable in a country as large as the US.

In the transportation domain, it's hard to see anything encouraging. In addition to the "all-of-the-above energy policy" and encouragements for investment in clean energy, the "Democratic Party supports a broad-based strategy to further strengthen an American renaissance in manufacturing," including "incentives to build advanced vehicles in the United States." The particulars (what's an "advanced vehicle"? The Chevy Volt from Government Motors?) are nowhere to be found.

In sum, much of the Democratic platform document is given over not to specifics, as we have seen, but to fear-mongering about what a Romney presidency might entail. For what is ostensibly a policy document, the Democratic platform could have done far better.

Which brings us to the other ticket. Richer in specifics, the Republican platform is so dominated by trickle-down ideology that job creation and economic recovery at the scale necessary seem extremely unlikely: the document looks into an idealized rear-view mirror on an America that never existed in the first place -- then apparently wants to bring it back, never mind the actual forces at work both then and now. Tax cuts, reductions in regulation (particularly the environmental variety), and hot-button social issues (immigration, firearms, Judeo-Christian religion, gay unions, the gold standard) dominate. Just as with the Democratic document, the Republican platform spends a lot of time name-calling, rather than constructively moving forward. Part of this behavior is the nature of our times, I realize, but I persist in believing the majority of the American people are sick of partisan bickering.

The second sentence of the Republican document begins with a bold assertion: "Prosperity is the product of self-discipline, work, savings, and investment by individual Americans." The converse is clearly implied: lack of prosperity is the product of weak moral fiber, laziness, careless spending, and short-sightedness by individual Americans. The rich are rich because they existentially deserve their wealth, and taxation is thus a form of theft on behalf of those who are not prosperous, presumably because of the aforementioned factors.

The problem is that many who are wealthy inherited their fortune (what Warren Buffet calls the "lucky sperm club"), while still others had the good fortune to be in the right place at the right time. And luck works both ways. Most restaurants fail, notwithstanding chefs' 80-hour weeks. People pick economically unfortunate college majors or slow-track entry-level jobs. Factories close. Jobs get outsourced. Illness happens. Across geographic and ethnic lines, family units vary in size, strength, and respect for education; unfortunately, children can't pick their parents. Can anyone say these individuals are less morally worthy than the fortunate few wealthy? This resistance to acknowledge the role of luck -- alongside intelligence, prudence, and effort, I hasten to add -- in people's lives contributes to the overall tenor of the Republican economic plan.

Furthermore, the document is counterfactual at several points. Despite the sluggish economic performance of the decade during which the Bush tax cuts were in force, the Republican platform nonetheless asserts that "lowering taxes promotes substantial economic growth" and later bemoans the current federal budget rules' refusal "to recognize the beneficial budgetary impact of lower tax rates." Similarly, the party of creationism and of politicized redactions to climate research in the Bush White House states that "We must restore scientific integrity to our public research institutions."

In addition to denying the relevant past, the party document gives the ability of the market system to create positive outcomes undue credit: infrastructure, paid for with public tax dollars, should be privatized even though the track record for such projects, such as various toll roads, is mixed. Likewise, mortgages, student loans, and Social Security should be subject to the free market of financial services firms. Health care, too, can be fixed with more free market dynamics. Even schools -- choice via vouchers -- can be repaired with market mechanisms. Following the money may be useful here: who stands to gain under each scenario? Will the nation be stronger overall? Consider that in health insurance, rational behavior for the insurers, whose CEOs earn handsome salaries, is to deny as much care as possible. Somehow, maximizing shareholder return does not seem to be the overall point of this particular exercise.

Despite serious issues with their overall vision, give the Republicans credit for specificity. The platform contains some economic ideas that definitely should be tested further:

-workforce retraining programs should be modernized

-the tax code should be simplified

-immigrant innovators should be welcomed rather than turned away

-the Telecom Act of 1996 is "woefully out of date"

-the 130-year old Civil Service system should be reformed

-tort reform should deliver measurable benefits to both health care costs and physician service in rural areas, which are often underserved

-new systems of learning and new models for life-long skills refreshment should be a priority.

If the Democratic drift is toward free lunches without sacrifice, the Republican platform venerates wealth but says little about not-wealth: the sick, the aged, those left behind by economic change. Similarly, while Democrats were criticized for not mentioning God in their platform, from a policy standpoint the Republican refusal to acknowledge climate change is more worrisome.

Okay, the reader may reasonably ask, so it's easy to poke holes. What would you offer that's better? Fair question. Here are five big proposals that could be adequate to the times we face and, more important, recognize that the status quo is inadequate: we, and especially our children, deserve better. Looking back in 20 years, will we honestly be able to say we did the best we could? Just as important, the rest of the world is looking for leadership amidst tremendous potential and instability. Will they find it here?

1) Invest in our nation and in our future: initiate national service for 18-19 year olds. Make it compulsory and universal. Mormons back from their mission and Israelis who serve in the defense forces both are more skilled and more mature than 20-somethings without the experience. From the nation's perspective, national service should increase the skills base, reduce welfare and similar payments, and create roads, parks, libraries, literacy programs, broadband networks, and other projects of lasting value. Giving potential college students a taste of the work world should either a) make them more motivated students or b) convince them they're better suited for trade craft or other non-college work. Letting teens earn some of their future tuition could help address student loan debt too.

2) Stop paying for so much waste in health care delivery. a) If we spent less on insurance processing, and yes less on tort-driven behaviors as per the Republican platform, quality of care should go up while costs drop. I'm not pretending to know what combination of single-payer, health savings accounts, and/or lifestyle change would be required, but addressing the problem is imperative. b) A vastly disproportional share of health care expense is incurred at the end of life. We as a culture need to stop trying to "beat" death and start acknowledging the life that was lived and comforting the individuals in transition. Physicians need to feel, and be allowed to feel, human and neither like gods nor life-extension technicians in such moments.

3) Increase funding for DARPA. Given stealth aviation technology, GPS, and of course the Internet, this agency has paid for itself many times over. Their current emphasis on robots is going to be similarly game-changing, I predict.

4) Fix the trademark and patent system. Intellectual property law is a disaster in that those without rights can profitably stall progress while those with certain rights are protected for far too long.

5) Attack the obesity epidemic with the same vigor of putting a man on the moon. Diet, exercise, mental health care, workplace arrangements, incentives and disincentives -- the problem can and should be fought on many fronts. Given the Olympic success of this great nation, it is clear that we can devise physical and related programs so that no adult and especially no child should lose quality of life or overload the healthcare system with preventable weight gain. While such measures could be read as intrusions into individual liberty, the precedent of smoking is relevant, I believe.