Friday, October 17, 2008

A Canadian’s View on the 2008 Campaign
By Alistair Davidson,
Draft 1.5

Being a Canadian in the US means that you see the US election a little differently than Americans. Not all of my American friends follow politics closely. As a result, one of my less political friends asked me to put down on paper some of the ideas about politics that I had suggested in a conversation that reflect my perspective.

So at the risk of stating the obvious to some, I have put down the following ten observations about the US politics -- thoughts and ideas that seem to get lost in the shuffle of sound bites and partisan analysis of “political marketing” campaigns. They reflect an outsider’s perspective. Obviously I like the United States. I live here. So my comments reflect the perspective of someone who has lived and been educated in the UK, Canada and the US.

The Ten Observations
1. Throw the bums out regularly
2. Good performance should be rewarded
3. In troubled times, a decisive government is required
4. Women’s rights matter
5. Leadership and vision matters to America’s position in the world
6. Regulation is always required
7. Shameless nationalism is embarrassing and dangerous
8. Democracy is about political “voice” and civil rights being available to everybody
9. Policies do make a difference in your personal life
10. The US seems reluctant to consider structural change

Observation 1: Throw the bums out regularly
The genius of democracy is that it provides a way of changing government peacefully. People often lose sight of this fact. And changing government is important. Power corrupts. Parties run out of ideas. A new government breaks cozy relationships between governing parties and suppliers to government of goods, services and policy ideas.

What complicates the issue in the United States, unlike in Parliamentary democracies in the UK or Canada is that you need to change government in three institutions – the White House, Congress and the Senate. You need to control both Congress and the Senate to empower a President for change.

So when a Presidential debate starts to focus too much on the personality of the candidates, it is always a “big lie”. Yes, the decision to elect a President is important, but if you want change, real change, you need to effect change in all three institutions simultaneously. Because senators don’t all get elected at the same time, it’s particularly hard to change the composition of the Senate in one election.

The importance of controlling all three institutions has been demonstrated in the 2006-8 period because it is has been difficult for both Democrats to be effective because they lack the minimum of 60 votes needed for procedural control in the Senate. And of course, the President retains his veto.

The last election was fought largely around issues of corruption. But in this election voters should remember to pay attention to the need to change all three levers of government if you really want change and if you wish to punish the governing party for incompetence.

Observation 2: Good performance should be rewarded and bad performance punished
Politics is, in some ways, quite simple for a voter. If a government (i.e. the combination of the party and the President) performs well, you should reward it by reelecting it. If it performs badly, you should throw it out of office. Rejuvenation of a political party by appointing a new leader to run for President does not generally change the nature of or the ideology of a party. So in a sense, when you choose to vote, you are voting for an ideology and its effectiveness. What this means is that strategic voting is important. You may like your senator or representative, but if you really care about change, you should vote a party line. In multi-party democracies, strategic voting for a party is much more prevalent, but curiously many American seems indifferent to the consequences of splitting their vote.

When we look at the current administration, most neutral parties would observed that the past administration could be characterized by:

1. The largest financial collapse since the Depression;
2. A housing bubble that could have been avoided;
3. A low rate of job growth and a failure to create a high rate of high paying new jobs. (It’s important to remember that not you need to create somewhere between 100,000 and 200,000 jobs a month just to keep up with population growth, so anything less than 1.2-2.4 million jobs per year is just standing still. The current administration has created about 5.5 million jobs over its time in office, in other words, barely keeping pace with population growth.)
4. A massive increase in government and consumer debt;
5. A relative decline in the competitive standing of the US in the world;
6. A massive transfer of wealth to China and oil producing countries which in the long run will decrease the value of the American dollar further and increase the purchase of American companies by foreigners;
7. A decline in the value of the American dollar
8. The continued deindustrializing of America;
9. Decline in the maintenance of infrastructure in the US. Levees are inadequate. Bridges are not maintained. States have difficulty in financing education and healthcare.
10. Alienation of allies;
11. Alienation of the third world;
12. A pattern of devaluation of science;
13. A disastrous response to global warming;
14. Ill-thought out decisions to go to war;
15. Operational incompetence and corruption evidenced by FEMA and New Orleans, abuse of prosecutors in the Justice Department, incompetent war planning, incompetent nation building;
16. A lack of respect for the constitution as evidenced by illegal domestic spying, presidential letters attached to legislation in an attempt to increase the power of the presidency;
17. The corruption of the Republican K Street Project which attempted to tie legislation to donations
18. A pattern of inaction on renewable energy and energy import replacement including senseless policies that have weakened one of the more important industries in the US – the automobile industry – by not forcing development of energy efficient cars and trucks.
19. Increased income disparity.
20. No solution to illegal immigration.

The list could be longer, but, by any standards, it represents poor performance particularly for a party that controlled all three levers of power for the first six years of the administration. Even if one argued that some of these problems date back further than the Bush administration, there has been no real action on improving the competitive position of the US economy with the possible exception of making sure that large companies are making a lot of money.

Observation 3: In troubled times, a decisive government is required

While there are many virtues to the separation of powers, in troubled times, a country needs decisive and effective government. Few would argue that the US is facing difficult times in terms of climate change, energy policy, a failing educational system, R&D, diplomacy with allies and problem countries, wars in Iraq and Afghanistan. Voting so that a government can implement its decisions by having control of the executive and Congress is critical in a crisis.

Demographically, economically, and militarily, I think it is fair to claim that the decisions the US must make today have never been so important. Control of legislature and executive by one party is no guarantee that good decisions will be made, but making no decisions on energy policy, climate change, Medicare and Social Security is likely to be costly and to become even more costly the longer that decisions are put off.

Perhaps more importantly, in the American system, the budgetary role of the US President is actually quite weak. Unlike the Parliamentary systems in the UK or Canada, the separation of powers between Congress and the President makes government less decisive and budgeting more prone to pork barrel spending. I could go on with the many deceptions in the budgeting system in the US, but among the litany of deceptions are
(1) failing to account for incremental war expenditures, (2) failing to report on the actuarial liabilities from not funding Social Security and Medicare, and (3) failing to distinguish between infrastructure investment and non-infrastructure investments.

Being bi-partisan is a virtue according to many. In my view this belief is wrong: a little understood truth is that it is the purpose of the Opposition in a democracy to criticize the government in power. It is not their job to support the party in power except in times of crisis. And bipartisan consensus is impractical when parties are too different in views or too insulated from the voter as a result of gerrymandering.

Observation 4: Women’s rights matter
Lost in the discussion of culture wars is the simple observation that women’s rights matter. Countries with more equality and career access for women do better economically. Just look at the Middle East as an example of how not to preserve women’s rights.

With equality for women, there is a bigger pool of smart people to draw upon. And if you don’t believe this, look at how the educational system has gone into decline since women have had more choice. It used to be that smart women had limited career choice except in teaching or nursing. Now, they have as much choice as men. Teaching is no longer subsidized by smart women and we have not increased teaching salaries to make teaching more attractive for the men and women who dedicate themselves to the important job of teaching.

The next president will replace aging members of the Supreme Court and the consequence of these appointments are important for anyone who wishes to preserve the right of American women to control their own bodies and destinies.

If the Supreme Court were determining whether men could have sex, and if they had sex, whether they could work and be economically independent, I find it hard to imagine that there would not be a revolt by men. The only surprise to me is that so many Republican women will vote for a party that treats them like second class citizens incapable of making medical and moral decisions. Talk about voting against your own interest or that of your daughters.

In Canada, Parliament could not agree on rules for guiding abortion decisions, so the decision was made to leave it a medical decision between a doctor and his/her patient. This seems eminently reasonable to me if I wear a libertarian hat and equally as reasonable if I wear a liberal hat. It only seems reasonable to restrict medical decisions if I believe that my religious beliefs should trump your rights. However, individual rights under the US Constitution are designed to prevent the tyranny of the majority and to prevent one religion from imposing its values upon members of another religion.

And even if you don’t agree with a woman’s right to control her own pregnancy, then I have difficulty with those who believe that contraception is a bad idea. It’s intellectually inconsistent. If you are against abortion, you should be in favor of sex education and easily available contraception. If you are against both a woman’s right to abortion and contraception, then you are against sex. And if you are against sex, then you are against an American’s right to the pursuit of liberty and happiness. Or maybe you are just weird.

In terms of sex education and contraception, the equation is clear: more knowledge and access to contraception means fewer unwanted pregnancies. In the Netherlands, where contraception is taught early and is easily available, teenagers postpone having sex until older and have fewer teenage pregnancies than in the US. In other words, contraception is better for abstinence than education on abstinence. Those of us who are pragmatic are in favor of results that work. Those who work on faith should not be upset if their objective is met by pragmatic means.

And if you believe in religious freedom, the basis of the United States, how can you take seriously religious claims to special insights about reproduction? Since the birth control pill was invented in the 1950s, women have been given control of their biology. No significant religious founder ever faced the issues that birth control technology now offers. And few religions have treated women as equals. So why should we listen to their ancient writings that cannot possible address an issue they could not have conceived of, particularly in a secular democracy with multiple and competing religions.

In truth, abortion is a convenient theme for political parties that wish to distract their voters from more important issues. And we do have many more important issues rather than debating unresolvable conflicts or “settled law” as the current Supreme Court Justice, John Roberts has indicated in hearings. Jonathan Swift, 18th century English satirist, created an imaginary conflict around Big Endians and Little Endians (i.e. which end of the boiled egg you ate first) as an example of this political technique.

Observation 5: Leadership and vision matters to America’s position in the world
Many Americans are frustrated today by the loss of America’s moral authority. Guantanamo, Abu Ghraib, policies on torture, the mangled legal thinking of the current administration has proven a public relations disaster for the United States around the world. It seems strange to me for Republicans to claim ownership of American traditional values and culture, when they have this blind spot for America’s international reputation.

What is the cost of this loss of moral authority? Dollars and death. The US’s inability to build coalitions to prevent genocides has already been demonstrated in Dafur. Continued motivation of jihadists is the other obvious result.

Observation 6: Regulation is always required
Republicans have over the past eight years argued for less government regulation. An early Republican head of the SEC in this administration, Harvey Pitt, stated upon his appointment that his objective was a “kinder gentler regulation” by the SEC, an ill timed objective, just before the collapse of Enron and some of the largest frauds in American history.

The reprivatization of Freddie Mac and Fannie Mae represents one of the largest financial fiascos in US history, one that will potentially cost the US taxpayer and US economy tens if not hundreds of billions of dollars.

The additional failure to regulate sub prime mortgages properly and the failure to limit $50+ trillion of credit default swaps is more than a small regulatory lapse. It will cost the US and other economies for years to come and could cost more than the $600 billion bail-out. The Economist magazine suggests that a financial melt down has an average cost of around 6% of GDP so by any standards, the financial system melt down is a poor reflection on the current administration.

Eventually, markets recover, but there is a cost to the recovery process, one that often destroys the lives of individuals, small business owners, cities and regions. Good regulation creates value. One only needs to look at the success of well regulated stock markets where good disclosure exists vs. bad stock markets where promoters regularly rip off naïve investors. The more regulated markets work better and attract more listings. Gresham’s Law about fake currency: “Bad money drives out good.” is equally true for financial products. Bad financial instruments drive out good.

The ideological insight is not that markets don’t work. Markets do work and they are efficient. But there are many ways of structuring and regulating markets. Markets don’t exist in some platonic single ideal. One would not, for example, like to see deregulation of maintenance for airplanes. Yes, in the long run, markets will punish airlines that have a higher rate of crashes. But who wants to be killed on a poorly maintained plane in the time period before the market punishes a poorly performing airline?

Financial markets regularly have bubbles unless they are regulated. And the cost of preventing a bubble is much less than fixing the bubble. One only has to look at the Great Depression as an example.

The problem with regulation, and also with the related issue of industrial policy is that ideologically, many people deny that the US has a formal industrial policy. But the sum of the individual tax policy and regulatory decisions add up to a de facto industrial policy. Those that deny the existence of this de facto industrial policy stick their head in the sand and refuse to analyze, anticipate or intervene to prevent ugly consequences. A lack of deductions for savings and a deduction for home mortgages has led where one would expect – low savings and overinvestment in housing. Low energy prices discourage businesses that develop more efficient products.

Observation 7: Shameless nationalism is embarrassing and dangerous
After the Second World War, the United States was in the fortunate position of being the preeminent military and economic power in the world. Today, the success of capitalism globally is such that the US is proportionately less important in the global world economy. It is a mark of capitalism’s success that the world economy has grown. In a multi-polar world with 6 billion inhabitants, there are opportunities to benchmark US performance against other successful countries and to learn from what they do well.

Only the arrogant and the insular would think that the US does everything right. You only have to drive on French autoroutes, visit new Asian airports, use health care systems in other countries, understand how much faster and cheaper Internet access is in Korea or Japan, see the successful energy policies of Brazil which is now energy sufficient, to understand that the US does not lead in all areas. In a world, where Europe and Asia have similar levels of economic power to the US, they will be more successful in some industries and less successful in others. But innovation requires learning quickly from what works. In the past, the US was more innovative because it had a bigger market. Today the market is global. Learning needs to be global.

As an immigrant to the United States and a great admirer of many things American, I enjoy talking about politics and economics. I am, however, frequently astounded by Americans who resent an immigrant talking about American politics, institutions and the economy. If I am slightly critical of something or suggest that it is done better in other countries, they will often ask: “Well, if you are so critical, why did you come here? Why don’t you go back home?”

It is also a mark of disrespect by such critics, and dare I suggest, a mark of ignorance to suggest that the US cannot learn from other countries. As a melting pot, the US is a magical place that has historically been able to take the best from the rest of the world.

(This defensiveness is surprising to an immigrant from a smaller country. People from smaller countries like Canada always have to be more knowledgeable about bigger countries. The late Canadian prime minister, Pierre Elliott Trudeau described the relationship between Canada and the US as being similar to a mouse sleeping in bed with an elephant.)

I suspect these defensive reactions are from the same people who complain that immigrants don’t speak English rather than seeing the bilingual capabilities of immigrants as a plus. Compare European business people who typically speak a minimum of two or three languages, at least their native language and English. In Canada, the well-off send their children to school in their non-native language in order to give their children more mobility. In the US, most Americans would be reluctant to do so.

When the United States is in crisis along many dimensions, perhaps there is an opportunity to benchmark the world and see what we can learn from other countries. The Swedish model for bailing out its banking systems successfully (by investing in the banks) seems but one example of a foreign success that finally seems to being belatedly followed.

Observation 8: Democracy is about “political voice” and civil rights being available to everybody
There is a huge debate in the US about illegal immigration. There appear to be two basic views. The first view is that illegal immigrants have broken the law and should be punished. It’s hard not to be sympathetic to such a view if you believe in the rule of law.

The second view is that illegal immigrants are second class citizens who are abused by employers and who have no recourse to the courts, political representation or unions. In other words, they are abused by being unable to appeal to a rule of law.

Strangely, the people that hold the first view -- that immigrants should be punished -- have a blind spot around the moral issue of having a second class group of citizens without political voice or civil rights. Independent of the issue of how they got here, or what should be done about them, illegal immigrants have many obvious parallels to a class of slaves.

My personal view on illegal immigration is straightforward. Slavery is bad. As Thomas Jefferson wrote, slavery is bad for the slave owner and for the slave. Whether you believe that illegal immigrants should be sent home or whether you believe their status should be regularized, they should not be abused and should not exist outside the system of laws within the United States. In fact, the Supreme Court has ruled in a similar way about habeas corpus in the more difficult case of dealing with Guantanamo detainees.

America has a tradition of pragmatism. If there is no practical way of sending so many immigrants home, then surely the approach should be to minimize the existence of a lawless economy and individuals operating outside the law.

Observation 9: Policies do make a difference in your personal life
In the sophisticated marketing culture of the US, where consumers can debate the relative merits of an iPod vs. a Zune, a PC vs. a Mac, a Toyota vs. a Porsche, the variety of political debate is wide, but the majority of the debate has become bastardized. Sound bites and slogans substitute for real debate in much of the media.

The examples are everywhere. Energy policy, tax policy, immigration military spending, health care, birth control, global warming – all are complex areas. But policy and economic analysis do matter. Consider these examples:

1. Health care. The United States spends more of its GDP on healthcare than any other country in the world. Estimates vary but the US spends around 18% of its GDP on healthcare and other countries spend around 8-11%. Even worse, the outcomes in the US are typically worse than all other developed countries. And major US industries such as the automobile industry have been weakened and put at risk because of these high medical costs which have historically made them uneconomic and lose market share. And from a moral perspective, roughly 45 million Americans have no healthcare, sometimes for reasons of costs, sometimes for reasons of prior conditions disqualifying them from obtaining healthcare. But studies suggest that much of the healthcare spending is due to (a) defensive medicine, (b) malpractice costs, and (c) the higher administrative costs of having 1500 insurance companies in the US each with different policies and payment procedures. As well known strategy professor, Michael Porter and his coauthor Elizabeth Olmstead Teisberg have pointed out in their book, Redefining Healthcare, Creating Value Based Competition on Results, we have structured the healthcare system so badly that its performance continues to deteriorate. Radical reform would use a single-payer system to provide universal access and encourage competition on the basis of outcomes and innovation. The net result would likely be a dramatic increase in coverage and a lower percentage of the GDP devoted to healthcare administration – a clear win for both voters and businesses.
2. Military spending. The US spends more on its military than all other major countries put together. R&D in the US is heavily influenced by the military. And while military R&D does sometimes have civilian spin-off, whole industries have or are disappearing from the US. Perhaps some of these dollars could be better spent on basic research and non-military areas. The McKinsey Global Institute has suggested that energy conservation and renewable energy represent a road to solving about 40% of greenhouse gas consumption with side benefit of producing positive ROI (typically around 17%).
3. Energy policy. Writers as diverse as the NY Times’ Tom Friedman, Henry Kissinger and Martin Feldstein (former head of the Council of Economic Advisors) have commented US is transferring massive quantities of wealth to often undemocratic regimes by purchasing their oil. The US has purchased foreign companies for years. Americans may not feel so comfortable when US companies are purchased by foreigners from undemocratic or totalitarian regimes.

Much of the debate about these important issues operates at the level of slogans and simplistic analysis. Advertising seems more important than debates or written material. And the media itself is the beneficiary of this simplistic political advertising. It is a revenue source to them worth billions in election years. In contrast in other countries, government funding of campaigns and free media time reduce the barriers to getting elected and reduce the power of incumbency.

Nowhere is this desert of policy analysis more obvious than in the discussions of spending and taxes. The non-partisan Tax Policy Center, for example, has done an analysis of the proposed spending and taxes policy of the two parties in the 2008 election year. And the net result is that the Republican proposals add up to bigger deficits, primarily due to higher tax cuts. In fact, this is a historical trend. Republicans typically run much higher deficits than Democrats. The three largest deficit spenders in history have been George W. Bush (43), Ronald Reagan and Franklin Delano Roosevelt. But one would be hard pressed to learn that the Republicans are the party of big spenders and big borrowers unless you penetrate beyond the rhetoric.

More generally, research out of the Andersen School of Business at UCLA suggests that since the Second World War, economic growth has consistently been higher under Democratic administrations.

Observation 10: The US seems reluctant to consider structural change
It is hard to argue with the success of the US constitution and the US as a country. It has many attractive and brilliant features and has provided political stability for most of two centuries. (Though to be fair, the Civil War and the subsequent loss of political rights for African Americans after the Reconstruction are sometimes overlooked by Americans.) However, even the US needs to consider modernizing its system of government from time to time, as has Canada and the European Community in recent years.

It seems to an outsider that many in the US assume that the American system of government is perfect or as perfect as it can be. Others believe that the US system is imperfect but not reformable. But the litany of problems with which the US faced, suggests three basic conclusions:

1. Immediate change is required. In the short term, change requires one party to be able to reshape the economy, simplify taxes and change the energy policy of the United States as a minimum. Gridlock in the American system of government would also reduce the economic power of the US.
2. The power of the individual must be enhanced and the power of lobbyists minimized. Because the Supreme Court has ruled that political spending is “free speech”, reducing the power of lobbyists and the political voice of corporations seems absolutely necessary for reform. While more populist fund raising in elections through the use of the Internet may have has some small effect, reduction in the power of lobbyists may well require a constitutional amendment to overcome the Supreme Court rulings.
3. The United States has the resources for change, but not under the current budgetary system. Imagine the impact of reducing health care costs in the US by 4-5% of GDP, a scenario that is possible and has been mapped out in some proposed healthcare reforms. Imagine if the US were not the largest energy importer in the world, but rather was a lead exporter of renewable energy and conservation. Imagine if the US were making money off selling its carbon rights because it was a hotbed of renewable energy and did not need carbon credits in a global cap and trade system. Countries that have run large deficits have often had to change the rules of the game for their economy. And the US is no exception. The US may be exceptional but the rules of economics make for no exceptions.

We live in a world where the microcomputer, networking and biology have been improving by orders of magnitude. Change is being forced upon us. Population growth, the rising incomes of less developed countries, ecological limits, heterogeneous populations and cultures, water shortages present us with a world of huge risks and opportunities to improve our planet. But our institutions evolve slowly.

In the first half of the twenty-first century, we will have to make more difficult, more complicated, and more long-term decisions than we have ever been faced with. Political gridlock will neither solve our problems nor create the opportunities that future generations deserve. If you agree with the ten observations in this paper, then you should vote for change.

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