Hidden capital

There is a problem with government accounting that drives me around the bend, but that I rarely see noted elsewhere. When corporations build a factory, it is considered a positive, the creation of a capital asset. But when government builds a road or a school, it’s an expense. It’s simply spending money, treated the same as the most frivolous waste. Why can’t we have a system of accounting that gives government credit for the creation of genuine assets like bridges and schools?

Consider the alternative

I agree with those who say both parties are responsible for the sorry state of Washington, but isn’t it time to face the fact that much more than half the guilt lies with the Republicans? I say this even though I agree with much of the criticism of the Democratic Party and of Barack Obama that I find in the words of the liberal commentariat, in the centrist Matt Miller’s call for a third party, and even in Ron Suskind’s new book Confidence Men. But I also think it is foolish for thoughtful Americans to waste much more time focusing on the shortcomings of the Democrats and of the president. They indulged in a similar orgy of faultfinding in 2010, with the result that too many of them failed to vote and the country elected the worst House of Representatives in memory. There is a real danger that next year the Democrats will lose not only the presidency but also the House and the Senate.

To wake up to the danger, think about your choice. Obama and the Democratic Congress gave us national health care and Wall Street reform. Both were admittedly far from perfect. But do you really think that a Republican administration and Congress would have done—or will do—better?

Who gave us gays serving openly in the military, which had been such a great goal of liberals? It wasn’t Bill Clinton or any Republican. Who got Osama bin Laden, which was a goal of conservatives, as well as the rest of us? It wasn’t George W. Bush. Who was the first president to take on the issue of teacher quality, one of moderate Matt Miller’s main concerns? Neither Clinton nor Bush faced it and did something about it, as Barack Obama and Arne Duncan have done with their Race to the Top program.

The company you keep

One of the most disturbing trends is the one away from Obama among so many liberal American Jews. Are they going to let themselves be swayed by the right wing that has taken over Israel? That Rick Perry and his ilk are standing 100 percent behind Israel’s present leaders—see Perry’s recent Wall Street Journal op-ed “The US Must Support Israel at the UN” and the article “House GOP Finds a Growing Bond with Netanyahu” in the New York Times—should be warning enough against following Netanyahu and his American apologists. Thomas Friedman puts it bluntly, calling Netanyahu’s “the most diplomatically inept and strategically incompetent government in Israel’s history.”

They know not what he does

One little-noted Obama accomplishment was recently acknowledged by Kevin Sack in the New York Times. He reports that, according to the Centers for Disease Control, the number of uninsured young adults aged eighteen to twenty-five has dropped by a margin of 900,000. This reduction was recorded just one year after the effective date of the Affordable Care Act, which made parents’ health insurance cover their dependents up to age twenty-six. Before, typical insurers had dropped coverage at age eighteen or twenty-one.
The Times ran this story on its front page. Unfortunately, this was not the case in any other newspaper I’ve seen, a fate that has been typical of the majority of the national media’s treatment of Obama’s policy successes, as emphasis is given to politics over substance.

The result is a recent New York Times poll that showed only 34 percent of Americans approved of Obama’s handling of the economy but also found that more than a majority support every item in his current stimulus proposal, including 80 percent who think it’s “a good idea to spend money on the nation’s infrastructure like bridges, airports and schools.”

The takeover

In previous columns I have noted that congressional staffers now dream not of becoming members, as they once did, but of earning big bucks as lobbyists. Now comes a study with the hard evidence, produced by the transparency advocacy group LegiStorm, finding that almost 5,400 current and former staffers “have gone through the lobbying ‘revolving door’ in the past decade alone.”

Lobbying firms also have reverse influence by farming out their employees to serve as staff on influential congressional committees. For example, the Washington Post has reported that there are thirteen former lobbyists on the tax-writing House Ways and Means Committee and twelve serving as staff for the debt reduction “super committee.” To top it all off, the Project on Government Oversight reports that a former Goldman Sachs official is now employed by the House Committee on Oversight and Government Reform, “helping the committee chair, Rep. Darryl Issa (R-California), write letters to banking regulators questioning the need for new derivatives oversight.”

Talk about letting foxes into the chicken coop!

Christie as cynic

Back to Obama. I agree with the criticism that he has spent too much time reaching out to Republicans. But I do understand and admire his desire to find common ground. His own experience at the Harvard Law Review and in the Illinois legislature seemed to prove that he could get conservatives and liberals, Democrats and Republicans to work together. But of course he underestimated the extent to which the rigid right has come to dominate the Republican Party in Washington.

Maddeningly, Governor Chris Christie, in his recent speech at the Reagan Library, asked, “What happened to State Senator Obama? When did he decide to become one of the ‘dividers’ he spoke of so eloquently in 2004?” This is so cynical! Christie is not stupid. He knows that Obama tried again and again to reach out to the Republicans, only to be rebuffed again and again. Christie says he “thought hard” about the Reagan speech, which means we can be relieved by his final “no” to running for president.

Regulation is not the problem

Conservatives with minds as capable of subtlety and irony as David Brooks’s are rare. Recently, however, Brooks fell into an outrageous right-wing cliché, asserting that “a growing government sucked resources away from the most productive parts of the economy—innovators, entrepreneurs and workers—and redirected it to the most politically connected parts. The byzantine tax code and regulatory state has clogged the arteries of American dynamism.”

What sucked away resources from innovators and entrepreneurs was Wall Street’s emphasis on trading and creating exotic new financial instruments instead of helping new businesses get started and existing ones expand. And money that the government might have spent on financing new jobs through investment in schools and infrastructure had to be devoted to wars that Bush’s tax cuts did not pay for. As for regulations, our present economic distress stems far more from too little than from too much.

A survey of small businesses conducted by McClatchy newspapers came closer to the truth than Brooks had done. Though one owner declared that “higher taxes aren’t good for business,” another argued that “the rich have to be taxed,” and the study concluded that “there was little evidence” that a “fear of higher taxes” was responsible for tepid hiring.

Finally, the study found that “none of the business owners complained about regulation in their particular industries.”

The danger of doing nothing

“Imagine a football field packed 20 feet high with highly radioactive nuclear waste,” as Mark Moremond of the Wall Street Journal recently asked his readers to do. That, he explains, is the amount of nuclear waste sitting around at various sites in this country. The bad news is that nothing is being done about it. There is no good news.

Learning on the job

If Solyndra was a mistake, it was, as my friend Joe Nocera made clear in a recent New York Times column, an understandable one. But it also illustrates Obama’s greatest weakness as he began his presidency: the lack of understanding of the executive branch that, for example, led him to leave spending too much of the stimulus money to the Department of Energy. As this column noted in 2009, the DOE has a terrible record when it comes to effective spending. Indeed, as of mid-September of this year the DOE had “only two weeks left [in the fiscal year] to commit the [stimulus loan] program’s remaining $9.3 billion,” according to the Washington Post‘s Joe Stephens and Carol Leonnig. Obama has since acknowledged his early innocence about whether a project was truly “shovel ready” or not, so I am hopeful that he will do better in the future. I am fortified in this view by his appointment of Jack Lew to succeed Peter Orszag as head of the Office of Management and Budget. Lew, as a knowledgeable OMB veteran, understands the bureaucracy much better than his predecessor.

When going public was bad for the public

If the age of greed did not officially begin until the 1980s, there were some early signs that it was on its way. One was the craze for “going public” that took root a few years earlier. A Wall Street firm would descend on prosperous businesses that were either controlled by families or a small group of backers and tell them that they should let the firm assist them in selling their stock to the general public. The idea was that the sale would produce enough money to enrich the owners and, incidentally, give a hefty cut to the Wall Street firms. If the company appeared to be in good shape, the formula usually worked, and everyone did well. Often very well. There was almost no liberal criticism of this practice because “going public” sounded so thoroughly virtuous.

There was however, a downside: the former owners found themselves at the mercy of Wall Street’s habit of rating companies on the basis of constantly growing quarterly earnings. This made it difficult, for instance, for the original owner to keep all his employees on the job during a business downturn. The pressure from Wall Street and the stockholders was to cut expenses—like payroll—in order to protect earnings and make the company’s bottom line look good.

Thus many of these companies in the current recession have found themselves eliminating jobs, often losing employees that they would like to keep. On the other hand, a family-run business, as long as it manages to break even, has the option to keep everyone on the payroll. This is exactly what has helped soften the world recession in Germany, as Steven Rattner makes clear in a recent issue of Foreign Affairs. In Germany, family-owned businesses, called Mittelstand, are a major part of the medium-sized manufacturing sector. They can, as Rattner points out, “put a higher priority on employing Germans than do public traded companies,” because they are freer “to focus on long term growth than on short term profits.”

The tune-up

Speaking of Steven Rattner reminds me of another Obama triumph, the rescue of the auto industry, in which Rattner was the administration’s point man. This effort saved more than a million jobs in the auto and related industries—and, in helping inspire reform of the business, promises future growth with more jobs to come.

How both sides got wiser

Many of the reforms are in management management, which is becoming more flexible and innovative. But one significant reform, reported by the Wall Street Journal, came from big labor. The UAW is now agreeing to link wages and benefits to company performance instead of, as had become union practice, demanding increases regardless. Incredibly, when the farsighted UAW leader Walter Reuther proposed just that kind of arrangement to the auto industry back in 1946, they turned it down.

Medical laissez-faire

“At least 15 drug and medical device companies have paid $6.5 billion since 2008 to settle accusations of marketing fraud or kickbacks,” reports the Washington Post. These kickbacks were typically paid to the doctors who prescribed the drugs. Yet, reports the Post, “not one of the doctors has been prosecuted or disqualified by state medical boards.”

This reminds me of the time when I was approached by a local physician after I’d written several items expressing skepticism about some of the lawyers who bring medical malpractice cases. The doctor thought I might become an ally in opposing these lawsuits. I told him I was ready to support replacing malpractice litigation with a system of no-fault compensation for injured patients, but that I had one reservation: without the threat of lawsuits, I saw no way of punishing unethical or incompetent physicians, who, to my knowledge, were rarely (meaning very close to never) disciplined by their local medical societies or state licensing boards. I said it was a problem that could be solved by adding enough independent members to the doctor-dominated groups that govern accountability in the medical profession. If physicians would support such a reform, I said, I would be glad to join their effort. I never heard from that doctor again.

Who’s in charge

In case you live in the Washington area and worry what would happen in the event of another event like 9/11 or the Cuban missile crisis—during which the possibility of a nuclear attack on the city rose for a few days from the realm of possibility to the realm of probability—the Washington Post‘s Robert McCartney says your concerns are not unfounded. “Ten years after the Sept. 11 attacks, the Washington region still hasn’t decided exactly who’s responsible for ordering an evacuation of the District and its neighbors,” or how to “communicate such decisions to the public.” Who is in charge during an emergency? The answer is unclear. But not to worry: the Post says that “a regional working group is studying the matter.”

How the Washington, D.C., area got rich

In 2010, the Washington metropolitan area enjoyed the highest median income of any in the country. A major factor in the growth of our wealth has been government contracts.

The contracting out of the functions of the federal government was pioneered by the Pentagon as its military and civilian officials discovered that the process of contracting out enabled them to kill two birds with one stone, disguising the growth of their own bureaucracy while providing lucrative employment opportunities for their retirement years, which in the case of the military could begin in their early forties. Then, once Bill Clinton had declared an end to the era of big government, his Reinventing Government initiative had to focus on downsizing the number of federal employees. The result: other agencies quickly adopted the Pentagon’s solution of contracting out so that they could appear to downsize by transferring employees from direct hire to contract. Then the Bush administration responded to 9/11 with its giant national security program and the wars in Afghanistan and Iraq and their attendant reconstruction efforts, all of which provided vast new worlds of opportunity for contracting, especially with Republican officials loath to admit they were increasing the size of government.

Some contracts are for things government employees cannot do, like making planes or tanks, but many, including most of those in the Washington area, as Annie Gowen illustrates in a recent article in the Washington Post, are for personal services. And here is the problem: according to the Project on Government Oversight, “the government is now paying contractors nearly twice as much as it would have to pay federal employees to do the same job.”

The right time to propose

In only its second issue, March 1969, this magazine exposed one secret of the clever contractor. It was to make his proposal toward the end of a fiscal year, when the agencies usually had money they needed to spend, because otherwise it would revert back to the treasury.

Even though there have since been several reforms, opportunities for this tactic still exist: the Department of Energy, for instance, did not commit the final $4.9 billion of its solar loan funds until September 30, the final day of the 2011 fiscal year.

Charles Peters

Charles Peters is the founding editor of the Washington Monthly.