The Bad CEO Gets Religion

A lot of things in Ron Suskind's article on Bush deserves a very close reading and will surely draw extensive, thoughtful commentary over the next week or two. It is amazing how Suskind has parlayed his access to just two marginalized figures from the Bush White House -- John d'Iulio and Paul O'Neill -- into the closest thing to a real inside view of the administration. Most attention will surely be paid to the sentences in which White House officials dismiss critics as representatives of "the reality-based community," and of course his promise to a mega-donor luncheon that he would privatize Social Security in a second term has already triggered the pre-written press releases from the Kerry campaign.

What interested me most about the article was that it resolved a puzzle about the administration that seems to have come up in a half-dozen conversations recently. I've tried to expand on the managerial argument for the profound domestic and international failures. Based on no knowledge at all except what I've read in Suskind, Woodward, etc, I have always imagined that the president is one of those bad managers who is so focused on making the decision ("I'm the one who decides") and on short, conclusive meetings that he doesn't allow a full airing of information to come out, or to hear disagreements. The meeting that in the Clinton White House would have stretched into two hours, blowing the entire day's schedule but ultimately leading to a smarter result, is in the Bush White House "resolved" when the CEO speaks, and everyone leaves the room, most of them a little doubtful about the choice but loyal to the commander-in-chief. A lot of people I've talked to think that managerial analysis is short-sighted: "It's religion. It's got something to do with religion and fundamentalism," they respond.

I always had my doubts about the it's-all-about-religion argument. It didn't seem to fit with Bush's conduct as governor, or what I knew of his life. And, as Amy Sullivan pointed out, if you're so darn religious, why do you never, ever seem to attend church? I know that there is an aspect of evangelical protestantism in which the church as the community of believers is far less important than one's individual faith, but still -- to never go to church, and yet to be considered the most profoundly religious of American presidents?

Suskind's article largely confirms my speculation about Bush's managerial style: Doesn't ask many direct or penetrating questions. Limits sharply the number of people who have access to him. Reaches decisions abruptly, and then treats doubts or alternative views as disloyalty, etc. And as a result, he has wound up way, way over his head. Here's the priceless paragraph:

Considering the trials that were soon to arrive, it is easy to overlook what a difficult time this must have been for George W. Bush. For nearly three decades, he had sat in classrooms, and then at mahogany tables in corporate suites, with little to contribute. Then, as governor of Texas, he was graced with a pliable enough bipartisan Legislature, and the Legislature is where the real work in that state's governance gets done. The Texas Legislature's tension of opposites offered the structure of point and counterpoint, which Bush could navigate effectively with his strong, improvisational skills.

But the mahogany tables were now in the Situation Room and in the large conference room adjacent to the Oval Office. He guided a ruling party. Every issue that entered that rarefied sanctum required a complex decision, demanding focus, thoroughness and analytical potency.

For the president, as Biden said, to be acutely aware of his weaknesses -- and to have to worry about revealing uncertainty or need or confusion, even to senior officials -- must have presented an untenable bind.

And the solution, in addition to tightening the circle even more, was the turn to religion. Suskind quotes the Jim Wallis of the liberal religious organization Sojourners (an odd source, but he seems to have had more interaction with Bush than one might expect): ''When I was first with Bush in Austin, what I saw was a self-help Methodist, very open, seeking,'' Wallis says now. ''What I started to see at this point [2002] was the man that would emerge over the next year -- a messianic American Calvinist. He doesn't want to hear from anyone who doubts him.''

So that's the answer: It's the bad CEO, first, but his solution for the crisis he's created is a turn to an ever more absolutist religious certainty. Religious faith is not a constant anchor in his life, as it was for Jimmy Carter and to a lesser degree Clinton and I think also, based on his fascinating answer the other night, Kerry. Rather, it is a quick fix for an untenable situation, with one piece of religion -- Calvinist certainty -- pulled out of the whole and used to deal with a secular problem. I don't sleep better knowing that, but I'm a little less confused.

Posted by Mark Schmitt on October 17, 2004 | Permalink | Comments (14) | TrackBack

Religious Freedom in Texas

The news that the state of Texas has decided that the Unitarian/Universalist church no longer qualifies as a legitimate religion like Scientology, because it does not require that its adherents profess belief in a higher being, says a lot about Texas but also brought to mind something I learned some time ago about religious freedom. (For the full article about the Texas decision, see this entry on Garalog, which happens to be my boss's blog, about which more later.)

A decade ago, in DC, our downstairs neighbors, who lived in a tiny half-basement apartment, were a lovely, frail couple in their late 80s/early 90s. The first thing we noticed about them is that they seemed to wear only purple. I speculated that they were Theosophists, although I had only the vaguest idea what Theosophists were or even if there were any left from the era of Yeats and Madame Blavatsky. But I wasn't too far off the mark. As we got to know them better, we learned that they were adherents of a religion called "I Am." "I Am" was a huge fad of the late 1930s, a prototype of New Age faiths, founded by one Guy Ballard, who claimed that he had met various inspirational figures when climbing Mount Shasta, including notably the Archangel Gabriel and Saint Germain but also Hindu deities and "Ascended Masters" from almost every other faith. He also claimed to have been George Washington in a past life, and that his wife had been Benjamin Franklin.

"I Am" had a large temple in Chicago, which may still exist, as well as a presence in Mount Shasta, and, now, a web site or two as well as the requisite anti-"I Am" site. In addition, there was a small temple in DC -- a townhouse around the corner from us, which we had never noticed because the words "I Am" above the door were in white letters against a white background. (The temple is still there, on north side of the block of Calvert Street between the bridge and Connecticut Avenue. ) We also learned that the wearing of purple was only for healing purposes. Purple represented "The Violet Consuming Flame" of well-being. Later, the two decided that they needed to return to Mount Shasta, and embarked on a journey by bus and train, and the last we heard of them was a postcard telling us they had made it safely back to their spiritual home.

But the most interesting thing I learned about "I Am" was that it led to one of the most important freedom-of-religion cases in our history. Mr. Ballard was prosecuted for mail fraud and making false claims, on the grounds that his claim to have met Gabriel and Saint Germain on the foothills of Mount Shasta were demonstrably false. In a 5-4 decision, the Court ruled that no jury or government agency can ever be asked to decide the truth or falsehood of a religious belief. That may seem obvious, but it was evidently not at the time, and apparently it is not obvious in Texas. Here's the key section of Justice Douglas's opinion in United States vs. Ballard (1944):

The First Amendment has a dual aspect. It not only ?forestalls compulsion by law of the acceptance of any creed or the practice of any form of worship but also safeguards the free exercise of the chosen form of religion. Thus the Amendment embraces two concepts, freedom to believe and freedom to act. The first is absolute but, in the nature of things, the second cannot be. Freedom of thought, which includes freedom of religious belief, is basic in a society of free men. West Virginia State Board of Education by Barnette [1943]. It embraces the right to maintain theories of life and of death and of the hereafter which are rank heresy to followers of the orthodox faiths.

Heresy trials are foreign to our Constitution. Men may believe what they cannot prove. They may not be put to the proof of their religious doctrines or beliefs. Religious experiences which are as real as life to some may be incomprehensible to others. Yet the fact that they may be beyond the ken of mortals does not mean that they can be made suspect before the law. Many take their gospel from the New Testament. But it would hardly be supposed that they could be tried before a jury charged with the duty of determining whether those teachings contained false representations. The miracles of the New Testament, the Divinity of Christ, life after death, the power of prayer are deep in the religious convictions of many. If one could be sent to jail because a jury in a hostile environment found those teachings false, little indeed would be left of religious freedom.

The Fathers of the Constitution were not unaware of the varied and extreme views of religious sects, of the violence of disagreement among them, and of the lack of any one religious creed on which all men would agree. They fashioned a charter of government which envisaged the widest possible toleration of conflicting views. Man's relation to his God was made no concern of the state. He was granted the right to worship as he pleased and to answer to no man for the verity of his religious views. The religious views espoused by respondents might seem incredible, if not preposterous, to most people. But if those doctrines are subject to trial before a jury charged with finding their truth or falsity, then the same can be done with the religious beliefs of any sect. When the triers of fact undertake that task, they enter a forbidden domain. The First Amendment does not select any one group or any one type of religion for preferred treatment. It puts them all in that position. Murdock v. Pennsylvania [1943]. As stated in Davis v. Beason [1890], ?With man's relations to his Maker and the obligations he may think they impose, and the manner in which an expression shall be made by him of his belief on those subjects, no interference can be permitted, provided always the laws of society, designed to secure its peace and prosperity, and the morals of its people, are not interfered with.?? So we conclude that the District Court ruled properly when it withheld from the jury all questions concerning the truth or falsity of the religious beliefs or doctrines of respondents?

Posted by Mark Schmitt on May 20, 2004 | Permalink | Comments (0) | TrackBack

"The Wrong Morons"

An article in the Financial Times mentioned this
editorial yesterday in the Army Times newspaper, but I haven't seen it cited anywhere else, so I thought I would post it here:

Published: May 17, 2004

Editorial: A failure of leadership at the highest levels

Around the halls of the Pentagon, a term of caustic derision has emerged for the enlisted soldiers at the heart of the furor over the Abu Ghraib prison scandal: the six morons who lost the war.

Indeed, the damage done to the U.S. military and the nation as a whole by the horrifying photographs of U.S. soldiers abusing Iraqi detainees at the notorious prison is incalculable.

But the folks in the Pentagon are talking about the wrong morons.

There is no excuse for the behavior displayed by soldiers in the now-infamous pictures and an even more damning report by Army Maj. Gen. Antonio Taguba. Every soldier involved should be ashamed.

But while responsibility begins with the six soldiers facing criminal charges, it extends all the way up the chain of command to the highest reaches of the military hierarchy and its civilian leadership.

The entire affair is a failure of leadership from start to finish. From the moment they are captured, prisoners are hooded, shackled and isolated. The message to the troops: Anything goes.

Posted by Mark Schmitt on May 11, 2004 | Permalink | Comments (8) | TrackBack

"Hardworking Individuals and Married Couples"

This happened a couple of weeks ago, but a link in Tim Noah's story in Slate about Kerry's international tax proposal led me to actually look at the Treasury's politically motivated analysis of the Kerry tax plan. This attracted a bit of attention, because public employees are prohibited from working on such political projects. (In this case, they prepared the analysis at the request of Tom DeLay, so it might more accurately be called the DeLay tax plan.)

In addition to the obvious misuse of public resources, I noticed three things in this analysis that I hadn't seen mentioned before:

1. The Treasury actually did a distributional analysis, of sorts, on the Kerry plan. This is exactly the kind of analysis that they have not been willing to do on most of the Bush proposals, leaving independent organizations such as the Tax Policy Center of the Brookings Institution and the Urban Institute to do the work of figuring out how policy changes would affect different income classes.

2. Treasury didn't use the standard categories that would go into a distributional analysis, such as income quintiles or households with income in certain ranges. Instead, they used a category of their own devising: "Hardworking Individuals and Married Couples."

3. And what's the definition of the new population category called "Hardworking Individuals and Married Couples"? To me, it brings to mind the guy who guts chickens for a living ten hours a day and his wife who works at Wal-Mart. But I must have too bleak a view. Apparently this category refers to people who earn more than $200,000 and get much of their income from dividends and capital gains. I don't want to engage in class warfare, and I'm sure some of these people are very hardworking, but that just doesn't seem like the appropriate term.

This whole thing is just disgraceful. To top it all off, every Treasury release now has the following useful public service announcement at the bottom:

America has a choice: It can continue to grow the economy and create new jobs as the President's policies are doing; or it can raise taxes on American families and small businesses, hurting economic recovery and future job creation.

I'm sure Brad DeLong can confirm that this is the kind of thing that, in the Rubin/Summers Treasury Department -- and in fact in every Treasury Department from Hamilton and Gallatin forward -- not only would not have been done, but wouldn't even be considered.

Finally, by the way, Noah's piece wasn't about this at all, but rather, made the very important point that there's nothing protectionist about Kerry's international tax proposals. Sure, Kerry talks about "Benedict Arnold companies," and there's a little populist bluster there. But basically this is a proposal to restore tax neutrality between foreign and domestic income, which is something everyone agrees is desirable, and to eliminate the incentives for purely paper transactions that have no value except to reduce taxes. It took a long time for someone to point that out!

Posted by Mark Schmitt on April 16, 2004 | Permalink | Comments (6) | TrackBack

Welfare As We Knew It

The Senate has once again begun to debate the reauthorization of the 1996 welfare reform bill (a reauthorization now two years overdue), and as Mickey Kaus gets predictably flibbety-gibbety about welfare reform, there is a key point that never seems to be made, or, if it is, I haven't heard it:

Welfare, as a government program, is almost irrelevant. President Clinton pledged to "end welfare as we know it," and he did. There are currently barely two million families receiving help under Temporary Assistance for Needy Families, most of them for a fairly short period. The argument that Kaus and others want to engage in is about whether these low caseloads, even through the recession, are a bad thing (too many needy/eligible people being cut off or discouraged from applying) or a good thing (formerly dependent families making it more or less on their own, with work, child support payments, other government programs, and help from other family members.) Statistics can support either position. But of one thing, there is no doubt: welfare is now a very small program. Compare those two million families currently receiving help under TANF -- less than 2% of all households -- with the four million people currently receiving Unemployment Insurance, plus another million whose benefits have run out but they remain unemployed. Or compare it to the 40 million people dependent on Medicaid. Or, more importantly, the 20 million households with income below $18,000, roughly the bottom 20% of the income distribution.

And yet, where are Congress, Kaus and the Heritage Foundation when it comes to "Unemployment Insurance Reform"? (The program is surely broken when only a quarter of female workers are eligible and the "extended benefits" promised in a recession never actually kick in.) Where are they on Medicaid reform, when that program is under profound stress, from state budget cuts and other factors? And where are they on the overall question of the conditions of life at the low end of the wage scale? Continuing to talk about poverty principally in terms of the tiny program called welfare is just a way of avoiding these questions. Welfare is convenient, it has a political and racial edge to it, but it's irrelevant to the facts of poverty in America.

I have no nostalgia for the old welfare system, and I'm willing to say that welfare reform "worked." It's always a good thing to get people out of the depression and alienation of welfare and into the job market. Even if one's only concern is the material well-being of poor families, everyone is better off with even a $6.00/hour job (as long as they have child care, Medicaid and the Earned Income Credit) than with benefits that averaged about $400 a month. But welfare reform worked mostly because for most of the five years after its passage we had the Clinton economy, which meant pretty steady job growth of 300,000 jobs a month, about the same level that is being called "remarkable" when it occurs just once in the Bush administration. The other effect of the good economy is that the block grant to states for welfare, which was based on their caseloads in 1993 -- the previous Bush recession -- stayed the same rather than decreasing, as the federal payments would have under the old system. That meant the states had more than twice as much money to spend on each remaining case in the system, which made it possible to concentrate a lot of resources on creating jobs and providing other support to those people who were able to work.

But the fact that the giant bet on the economy that was welfare reform "worked" doesn't make it good policy. If you borrow your kid's college fund and bet it on the New England Patriots to win the Super Bowl, and they win, your strategy may have "worked." But don't expect anyone to consider you a good parent.

But we're past that, welfare is reduced to a minor safety net, mostly temporary and, when not, pared down to those families where the adult just can't work for one reason or another. With just two million families on welfare, it's time to focus instead on the fact that life at the low end of the wage scale is a pretty hellish existence. You're least likely to have employer-provided health care, so that as your wages go up, you face the likelihood of losing Medicaid. You have the least job security, risk losing the job if you take a week off with a sick child, and if you do lose the job, there's nothing. No unemployment insurance, no welfare. Forget about pension coverage.
The category of people we call "former welfare recipients" is a tiny fraction of the people in the low-end job market.

Yes, Congress has a responsibility to reauthorize the legislation it passes -- although it is no more likely to reach agreement this year than last. But it is a real embarassment that we are still arguing about "welfare reform," while another million workers lose health insurance every year, while the minimum wage slips further and further behind reality, while basic economic security slips away. I'd take Mickey Kaus or the Bush Administration a lot more seriously if they showed an interest in any of these issues.

Posted by Mark Schmitt on April 1, 2004 | Permalink | Comments (7) | TrackBack


(First of 2 posts about the role of ideas in liberal politics...)

If it weren't for Kevin Drum, I would never know that there was anything interesting -- even if wrong -- on National Review Online. But Kevin took note a few days ago of a provocative claim by Jonah Goldberg:

One thing that really does fascinate the generalized ignorance or silence of mainstream liberals about their own intellectual history. Obviously this is a sweeping -- and therefore unfair -- generalization. But I read a lot of liberal stuff and have attended more than a few college confabs with liberal speakers speaking on the subject of liberalism itself. And it seems to me that liberals are intellectually deracinated. Read conservative publications or attend conservative conferences and there will almost always be at least some mention of our intellectual forefathers and often a spirited debate about them. The same goes for Libertarians, at least that branch which can be called a part or partner of the conservative movement.

To which Kevin responds:

But isn't the answer to this pretty obvious? Conservatives ...are absorbed by the past. What's more, their message doesn't change much over time (tradition is good, stable society is good, the masses should get back to work and stop complaining) so it makes perfect sense to keep reading them.

Liberalism is precisely the opposite. We don't wonder what Charles Beard would think of something? Of course not. The whole point of liberalism is change, so who cares what Beard would have thought? By now he's just an old fuddy duddy.

I assume Kevin had his tongue-in-cheek, although without smileys it's hard to be sure. His answer -- that liberals don't need an intellectual tradition because we look forward, not back -- only makes sense as a joke. It's not a matter of asking, "What would Charles Beard do?," but ideas can't live without a history, and understanding the roots and evolution of modern liberalism -- not just in theory, as in Mill or Rawls, but in practice -- is essential to being able to do anything constructive with those ideas.

The glib answer to Goldberg, of course, is that if he's right, his erudite crowd, compared to the school-of-hard-knocks liberals, makes a pretty bad advertisement for book learning. But it's worth considering what Goldberg might be getting at, without suggesting that he's right.

A little more from Goldberg:

Just look at the conservative blogosphere. There's all sorts of stuff about Burke, Hayek, von Mises, Oakeshott, Kirk, Buckley, Strauss, Meyer, the Southern Agrarians, et al. I can't think of a single editor or contributing editor of National Review who can't speak intelligently about the intellectual titans of conservatism going back generations....[But] When was the last time you saw more than a passing reference to Herbert Croly? ...for mainstream Democratic Party liberals one gets the sense that the history of their movement is all about action and emotion and very little about ideas.

Of course, this is mostly nonsense. I don't know if National Review contributors are better read in their tradition than, for example, the editors of The American Prospect are in ours, but I do know that the last time one "saw more than a passing reference to Herbert Croly" (co-founder of The New Republic and an influence on Theodore Roosevelt) was just a few years ago, when Croly was all the rage and liberals were obsessed with the applicability of his and other Progressive Era models to our time. Michael Lind's The Next American Nation was largely an effort to bring Croly's liberal nationalism, and his "Hamiltonian means for Jeffersonian ends" into the modern context. E.J. Dionne took the Progressive Era model equally seriously in They Only Look Dead, which included extensive discussion of Croly. Both books were among the more prominent political books of the mid-1990s, and most liberals are familiar with them, even if they have not bothered to work their way through Croly's great book, The Promise of American Life themselves.

(The Progressive-Era parallel to our own times has some problems however, as commentor R Wells pointed out here a few days ago, noting just how limited TR's concessions to social and economic justice were. And Croly's nationalism turned out to be as readily adaptable for a certain kind of conservatism as to liberalism, and David Brooks and Bill Kristol claimed his heritage for their own brief embrace of "National Greatness Conservatism." Jeffrey Isaac's book, The Poverty of Progressivism presents a strong, though dense, argument against using that analogy for our times.)

The same might be said for John Dewey, certainly a key intellectual forefather of liberalism and the subject of several books in the 1990s, and more recently a figure in Louis Menand's deservedly best-selling The Metaphysical Club.

But there is a sense in which Goldberg is right: We haven't heard much of this in a few years. The 1990s felt like a time of great intellectual ferment among liberals, a constant, desperate searching for historical roots and deeper ideas. In addition to the interest in Croly, Dewey, and Progressivism, there were the communitarians, critiquing liberalism for an overemphasis on individual rights and seeking to recast it in terms of responsibility. There was the incoherent "politics of meaning" group that converged around Michael Lerner, founder of the liberal Jewish magazine Tikkun and briefly influenced Hillary Rodham Clinton's language. There were grand political projects that envisioned a third party and a complete realignment of expectations to help poor and working people join forces and claim power. And there was a vast area of thought that went under the nearly meaningless rubric of "civil society," ranging from the statistical reasoning of Robert Putnam, whose 1995 article "Bowling Alone" introduced the idea that we needed to regain the "social capital" of institutions such as bowling leagues and civic associations, to an argument that the non-profits and neighborhood efforts of local civil society were the best way to move forward in a world where government action was discredited and the only alternative was the private values of the market. There were efforts to turn liberalism on its head, to use "bottom-up" initiatives like local empowerment zones in place of the strong national government that had been the defining objective of modern liberalism.

And those efforts of the 1990s to understand the past (Croly, Dewey, etc.) seem to me inseparable from the ability of liberals to develop a vision for the future.

And then it all seemed to come to an end. The 2002 election cycle passed without Democrats offering even an alternative economic vision, much less a broad new perspective on the relationship between government and citizens. There is right now little apparent sense of either history or the future. Perhaps most of this debate in the 1990s was directed at an audience of one, Bill Clinton, much as The Prince was written for Lorenzo diMedici. Or perhaps it is the degree to which the Bush Administration has left liberals and moderates simply sputtering with rage, too defensive to look forward. (There are plenty of liberal books right now, and they probably sell better than E.J.'s and Mike Lind's of the 1990s, but they all have the words "Bush" and "Lies" in the title.) Whatever the reason, it does seem like there is something missing. The closest thing we have now to a grappling with ideas is the "framing" analysis put forward by the Berkeley cognitive scientist George Lakoff, which, whatever might be said of its merits, is totally ahistorical and has more to do with the presentation of ideas than with the content or evolution of liberal ideas themselves.

The second point I took from Goldberg's post is that, whether conservatives read more books or not, they do have a canon of great books and thinkers. They have a very strong, specific sense of just who their "intellectual forefathers" are, which goes with a story that they have largely created for themselves: the wilderness years; the lonely voices of "The Remnant"; the anti-modern Agrarians; the exile economists Hayek and von Mises and their Mont Pelerin Society; God and Man at Yale; Russell Kirk, that Midwestern Causabon toiling over Burke and Adams in the Michigan woods; the Goldwater campaign, etc. It's a story that's been as fascinating to liberals as to conservatives. (Sidney Blumenthal wrote a good book about it, The Rise of the Counterestablishment and John Judis has written a biography of William F. Buckley, a project also undertaken, and now put on hold, by the new editor of the New York Times Book Review, Sam Tanenhaus.) And there are a few books that one can assume every clean-cut young winger has read, like Milton and Rose Friedman's Free to Choose. Liberals, on the other hand, have, not surprisingly, a much more diverse and contested sense of intellectual roots. We don't have a shared sense of our story, as conservatives have, though not because there is not a story to tell, but because there are many.

But the one story liberals don't tell, it seems, is that of the immediate post-war era. It's ironic that most of those Goldberg identifies as the "intellectual forefathers" of current conservatism are figures of the late 1940s-1960s, the very era when liberalism was at its high tide and conservatism seemingly vanquished. For better or worse, our world was created in those years, and they are far more relevant thant the Progressive Era. Yet the liberal thinkers of the postwar era, such as Arthur Schlesinger, Jr., John Kenneth Galbraith, Daniel Bell and others are almost forgotten. Their liberalism was rejected by both the left and the right in the late 1960s, and we are inclined to hold them responsible for the shortcomings of the Great Society (which, as one commentor noted in reference to an earlier post, are trivial compared to the accomplishments of that period). Perhaps we think of them as utopian, wooly-headed and soft. Yet nothing could be further from the truth. To be an anti-Communist liberal of the the 40s and 50s required mental toughness, political savvy and creativity, as well as a spirit open to debate. The founding convention of Americans for Democratic Action in 1947 would be as exciting a story as the emergence of the Right from the wilderness, if anyone cared to tell it. I'm confident that over the next few years, as we begin to relax about the failures of postwar liberalism, the strengths of that tradition will begin reemerge and in the rediscovery of this vital tradition liberals will find the intellectual roots that will help us look forward with more than rhetoric.

In a day or two, I'll pick this topic up again, with thoughts that follow from another comment from someone else about liberalism and ideas that, unlike Jonah Goldberg's, has the advantage of being true.

Posted by Mark Schmitt on April 1, 2004 | Permalink | Comments (21) | TrackBack

The Economy Summed Up: Pay Any Price, Bear Any Burden, to Avoid Creating Jobs

[Note: updated slightly in response to good comments below.]

The political analyst Charlie Cook's weekly column, available by free e-mail subscription here is a real treasure, and even though he's a horserace analyst, it usually offers much more than just the horserace. There's a single paragraph in today's column that I think sums up what we need to know about the economy and jobs better than anything I've read:

In December, the CEO of a California-based high tech firm told me that "there is no amount of overtime that we will not pay, there is no level of temporary services that we will not use, there is no level of outsourcing or offshoring that we will not do, in order to prevent us from having to hire one new, permanent worker in the U.S." As I travel around the country, meeting with business leaders, I hear similar, though less succinct thoughts in almost every sector and every part of the country. U.S. wages, health care, and other benefit costs have gotten so high -- and the press by investors for high stock prices is so great -- that the premium is on wringing every last bit of work out of as few employees as possible, to do anything but incur the costs of adding permanent employees. [emphasis added]

There is a lot to this anecdotal paragraph. First, it puts outsourcing/offshoring in context. It is not a phenomenon to be studied and accepted or discouraged or encouraged in isolation, but part of a larger trend that include various techniques to avoid actually hiring people.

I know of plenty of companies, large and small, as well as foundations and nonprofits where the stock price is not an issue, that are currently obsessed with limiting the "headcount" in just this way. They might spend more on consultants, on training short-term staff, on overtime, or on technology, but as long as they keep the actual number of employees from increasing, everyone's happy, or, I should say, management and shareholders are happy. This is a new phenomenon, different from the management-tier downsizing of the early 1990s, and also different from a recession in which companies are trying to cut short-term costs. Our entire nation is in the grip of Headcount mania.

Second, it strengthens a point that was true in the prosperous period of the late dot-com boom as well as today: We have been consistently invited to give up security in exchange for short-term prosperity. More overtime, more consulting, and more domestic outsourcing mean that some people and their families are doing well -- often better than they would be doing on a salary, and often with the chance to start their own businesses, even if it is doing just the same thing they used to do as an employee. Other examples of the tradeoff: We are rapidly giving up defined-benefit pensions, which ensure a fixed income for life, in favor of defined-contribution plans, which involve individual stock market investments, with the potential for greater returns but more risk. In calling once again for private accounts in Social Security, Bush is asking to do the same with that portion of national savings. We are giving up savings that used to be held in passbook accounts and certificates of deposit, in favor of mutual funds and stocks. These tradeoffs are not all bad. For many people, especially when we have a certain amount of security in the form of skills, or financial support or a home, there is vastly more opportunity in this economy than in the economy of the 1970s. But the loss of security comes at a huge price.

This must be part of the case for government going forward. Government, under the liberal consensus of the New Deal through the 1970s, did not redistribute income. Rather, government's greatest achievement was to create SECURITY -- the kind of security that created the opportunity to join the middle class. Deposit insurance, pension insurance, COBRA (the provision that allows people to maintain health insurance after losing a job), unemployment insurance, etc. -- these were the great achievements of American liberalism. And they are either becoming irrelevant, or completely neglected in the current climate. In the recession of the early 1990s, for example, there was a huge bipartisan effort to ensure that Unemployment benefits were extended again and again, even though, under the budget rules at the time, every extension had to be paid for with cuts elsewhere in the budget. Even though there is no such budgetary constraint today, we have now allowed the average period of unemployment to reach a record, and yet allowed the extended federal program that provides benefits beyond 26 weeks to lapse months ago.

As a candidate, Kerry should begin to talk about the role that government can play in providing the security that people need to navigate the rough waters of the economy. It is a role that Bush completely overlooks, or opposes, but that even liberals rarely talk about.

Third, the Cook paragraph shows that we must do something about the costs that prevent American businesses from hiring. Wages, at the low end, are not too high -- they're too low. (This resistance to hiring must not be used as an excuse to put off raising the minimum wage from its scandalous level of $5.15/hour, since the problem is not with low-wage workers but with workers whose skills allow them to demand higher wages.) The part of the problem that we can solve, must solve, is health care. In addition to the many injustices, inequalities and hassles in our health care system (to the extent that it can be called a system), there is the fact that it is a huge disincentive to job creation. Health care costs can represent up to a quarter of a low-wage worker's compensation, but most of all, they are totally unpredictable and going up rapidly. It means that every time a good (i.e., health-insurance-providing) company hires a permanent employee in the U.S., they take on a totally unpredictable burden, the cost of health insurance.

There is no reason that risk should be the burden of some employers, while other employers evade health care costs entirely. This is why I find the idea of a system in which health insurance is attached to the individual rather than the job so appealing. It not only ensures near-universal coverage, it gives business predictability in their health care costs and requires all businesses to contribute, rather than letting some employers take advantage of others. The New America Foundation has the most detailed approach here, in a readable and persausive paper.

Finally, we should think about how we can change the culture of the corporation so that they feel less pressure from investors on the stock price. I don't expect politicians to make the argument that corporations should feel some responsibility to someone other than their owners, even though the limited-liability corporation is a creation of the government, and in fact another way of providing security so that people can take risks, and therefore the public has a right to ask for certain behavior in return. But even short of that horribly radical idea, companies should feel some flexibility to take a long-term approach, one that might depress the stock price in the short term but lead to a more profitable and vibrant company in the long term. I won't say more about this, because I know very little about it, but it does seem to be part of the story of the economy.

Posted by Mark Schmitt on March 9, 2004 | Permalink | Comments (34) | TrackBack

A Heavy Accusation

Do Senators routinely profit on short-term stock trades, based on greater knowledge than the average investor? That's the implied charge in an article about an academic study linked to in a number of good blogs this week. (Kevin Drum, Tyler Cowen -- via Daniel Drezner, Jane Galt)

The study found that, in the period 1993-1998, based on extrapolations from financial disclosure reports, Senators buying and selling common stocks beat the market by 12%, while ordinary investors lag the market and corporate executives beat the market by only 5%. The study cited concludes that "These results suggest that Senators knew appropriate times to both buy and sell their common stocks."

That's a heavy accusation, and it piqued my curiosity, so I got a copy of the study by Alan Ziobrowski of the Real Estate Department at the J. Mack Robinson School of Business at Georgia State. (It's not yet published.) I was a little skeptical, not because I doubt that many Senators are corrupt and take advantage of their positions, but because it's a little hard to understand exactly how most Senators would come to have the knowledge needed to time stock transactions. 90% of Senate business is unlikely to have any predictable effect on any specific company's stock price. And of the things that do -- such as the Telecommunications Act of 1996 -- it's hard to see when the Senators have a real information advantage. If, for example, you knew that an amendment would pass on the telecommunications bill that would give an advantage to, say, AT&T, you could theoretically make some quick money buying the stock before the vote. But if you as a Senator know the amendment will pass, chances are, so do the hundreds of specialized reporters and lobbyists that are feeding information back into Wall Street. You might have a few hours advance notice that a company in your state is getting a federal contract. But if you're like most Senators, your #1 priority is to get credit for announcing it, so you don't really have time for a quick call to your broker before you hit the Senate press gallery or fax out a press release.

On the other hand, Senators might obtain profitable inside information or access to intitial public offerings of stocks from lobbyists, friends or contributors as a kind of bribe, which is a more serious charge. During this period of time, at least two Senators had been investigated for making quick profits on initial public offerings and penny stocks: Al D'Amato and Bob Toricelli. So I was curious if those two had distorted the study. In a footnote, the study says that IPOs were not included at all (why not?), so neither D'Amato nor Toricelli, nor the most identifiable type of actual corruption, figure. The study does note that of the 6,000 stock transactions he tallied in the six-year period, more than half were accounted for by only four Senators: the late Claiborne Pell of Rhode Island, John Danforth of Missouri, John Warner of Virginia, and Barbara Boxer of California. The first two retired in the mid-1990s, well before the period covered in this outdated study ended. Danforth, Pell and Warner are also all heirs to great estates (Warner's first wife was a Mellon heiress), and Pell and Danforth were Senators of absolute, unquestioned integrity. (Not to denigrate the other two.) Boxer, as it happens, was a stockbroker by profession before entering politics, so perhaps knows what she's doing.

The Ziobrowski study recalculates the results by another statistical method (which I am not qualified to evaluate), that he says weights the Senators equally and thus eliminates the distortion of the four heavy traders, finding by this method a smaller but still statistically significant advantage in the Senators' stock purchases, though not their sales. Ziobrowski concludes based on this method that "trading with an informational advantage is common among Senators." Yet in the first years of the study, which is when the advantage appears, only 25-27 of the hundred Senators traded stocks at all. So it is not "common," since it is actually not common for Senators to trade stocks at all. In the last two years of the study, the number of Senators actively trading stocks rose into the high 30s, but in those later years, the Senators' advantage over the market also disappeared.

The study performs various other statistical breakdowns of the data, by party, by committee assignment and by seniority, but with each breakdown, the sub-sample of the 25 actively trading Senators naturally gets even smaller. He concludes that first-term Senators do better than Senators with more seniority, but that's a counterintuitive result: If Senators were trading on either information about congressional action, or on information provided by lobbyists, in either case Senators with greater seniority, and hence greater power, should be at an advantage. Counter-intuitive results such as this should suggest that the results are mostly statistical anomalies resulting from the small samples. And it also seems to me that, before concluding that Senators trade on an information advantage, there should be some effort to determine what the information advantage is and whether the stocks in question were those on which a Senator might have some information.

It is a provocative study, and should not be written off altogether. And IPO profits should certainly be included. But for the most part, this seems like public choice theory run amuck.

Posted by Mark Schmitt on February 27, 2004 | Permalink | Comments (6) | TrackBack

Definition of marriage, for 2-year-olds

This is a sappy little story, but relevant.

Our 2-1/2-year-old daughter was trying to figure out the different relationships in our family today. It started, I think, when she wanted to know why I didn't want to address my wife as "Mommy." So I explained, and she said, "Okay, she's my Holly and she's my mommy. And she's your Holly and she's your wife."


"And you're my daddy and my Mark."


"And you're mommy's Mark and mommy's wife."

"Uh, no, I'm her husband."

And then I decided, on this of all days, let's not start her off with George W. Bush's definition of marriage. "Forget that. I'm her partner. She's my partner, and I'm her partner."

"But she's my partner, too," my daughter replied. "You're my partner and she's my partner. And I'm your partner and her partner. We're all partners."

Who's going to argue with that? I'll have to find another angle.

Posted by Mark Schmitt on February 24, 2004 | Permalink | Comments (15) | TrackBack

Does McCain-Feingold Help (Or Not Hurt) Democrats?

Here's a working link to Wednesday's provocative story in the Wall Street Journal, "McCain-Feingold Helps Democrats Stay Competitive"

Campaign finance regulation is always the realm of unintended consequences, some of which are good and some bad. The Journal's John Harwood points out two ways the law has, contrary to assumptions, helped Democrats this year. The first is the "stand by your ad" provision, requiring candidates to appear in their ads if only long enough to state briefly that they have approved the contents of the ad. That prevents the kind of hit-and-run attack ads that might backfire on a candidate if he or she were personally associated with them, and it is credited with the fact that the primary campaign has been almost entirely free of negative ads, with the exception of the anti-Dean ads aired by an independent group.

The "stand by your ad" provision (which, by the way, might well be found unconstitutional if challenged, since it regulates the content of a broadcast communication with the intent reducing negative advertising, rather than the "time, place and manner" of speech) wasn't particularly controversial, or considered an important part of the legislation. But it's often the little overlooked things in campaign finance regulation seem to matter most. In Arizona, for example, which has a system of full public financing for state elections, it's not the public money, but the system of qualifying for public financing -- by collecting a certain number of $5 contributions, to show broad support -- that captured the imagination of the public and politicians. The state commission that runs the program created a bolo-tie, cowboy-hat-wearing cartoon character called "Five-Dollar Bill" to promote the program, and the current governor, Janet Napolitano, boasts of throwing "five dollar parties" throughout the state.

More importantly, Harwood argues that the ban on soft money forced the Democrats to adapt by developing a small donor base, which had fallen far behind the Republicans. Indeed, it appears that the Democratic party committees have raised more in hard money (that is, contributions under the $2,000 limit, from individuals, which can be used for anything) than they had raised at this point in the previous election cycle in hard money and soft money combined.

The invaluable Professor Rick Hasen, who writes the Election Law blog dissented, noting that Republicans, with the now-$200 million raised by Bush still have a huge advantage that the Democrats can no longer use soft money to offset. Hasen also cites Nate Persily, another brilliant young academic in this field as arguing that "if raising small donations was really advantageous to the Democrats, they would have done more of it while raising soft money was still legal."

In a separate listserv, Tom Mann of the Brookings Institution argued in response that "Democrats got lazy going after soft dollars in large denominations. The new law forced their hand. The chairman of the DNC has said as much. And Howard Dean has led the way. The Democratic presidential candidates have raised collectively as much money as Bush has. The Democratic party committees are doing very well in their hard-money raising and especially with cash on hand. The national Democratic party committees are likely to invest more in GOTV in this cycle than they did in the 2000 cycle. And on and on."

Mann and Harwood are right here. Political fundraising operations have a culture. Either they go after big dollars (easy), or small dollars (usually more difficult). People who know how to schmooze big donors and walk out with $50,000 checks are very different from the people who know how to set up an operation that finds small donors and cultivates ever-expanding numbers of them. (Not that $2,000 is so small, by my standards, but it still takes a lot of them to finance a presidential campaign.) The Democratic fundraising operation was always based on cultivating large donors, sometimes ideologically motivated donors but often business donors who were persuaded that the Democrats were always going to control the House of Representatives or the Presidency, and so they had to hedge their bets. This wasn't always the best money to have, because it came with strings, and it was unreliable -- lose power and the money goes with it. The Republicans, in years out of power, had built a more reliable base of small and ideological donors, on top of which Bush added an unprecedented system for bundling contributions through business leaders.

The Democrats' escape from dependence on large contributions and soft money will certainly have its benefits. McCain-Feingold obviously forced the issue, but so did the fact of being out of power; the unifying and energizing presence of Bush, which has given Democrats a feeling that they have a stake in being DEMOCRATS that was missing in much of the Clinton era; and the fact that the internet can dramatically reduce the transaction costs of asking for a small contribution and all but eliminate the costs of asking for a repeat contribution. Dean didn't invent this, but he did show the way, and other candidates, and the party itself, will follow.

Posted by Mark Schmitt on February 20, 2004 | Permalink | Comments (5) | TrackBack