Wednesday, December 13

The Obama Adminstration: Leveraging Nothing, Accomplishing Nothing

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The only other major piece of legislation that has been passed was the initiative to impose more regulations on the financial services industry. But we now know that this legislation is also likely to be a failure for three reasons. First, the legislation avoids dealing with Fannie Mae and Freddie Mac, the primary mortgage drivers in the country, both of which are hemorrhaging red ink to the tune of billions of dollars a  month. Second, consumer car loans were left out of the legislation, probably due to strong lobbying efforts. If you leave out home mortgages and home buying along with car loans, the two largest consumer financial transactions imaginable, you really have not reformed anything. Third, most of the regulations have not been written yet or included in the legislation, that has been left up to the government bureaucrats, to be done down the road. So you really cannot say you have a good piece of legislation if it changes virtually nothing upfront and hopes the bureaucracy gets it right later and you ignore the two biggest components that you wrote the law for in the first place.

That’s about it. Everything else this administration has tried has usually failed miserably. They tried a lot of stuff, you would have thought that the probability of getting something right would have happened just out of dumb luck. But alas, none of the following initiatives seemed to work out:

– Cash For Clunkers – gave away taxpayer money to car buyers who probably would have purchased a new car anyway, it just moved up the decisions to purchase when the Clunkers rebate money was available. If you look at the car purchase rate over time, total volume really never increased, it just got redistributed.

– First Time Home Owners Rebate Program – same problem as with Clunkers, first time home buyers may have purchased a home sooner than they originally planned but once the rebate program was over, home sales dropped significantly. Overall demand just changed timing, it did not change volumes.

– Cash For Caulkers, Cash For Appliances – same reason for failure as Clunkers and First Time Home Buyers, these programs just gave away taxpayer money for no reason without fundamentally changing demand.

– Economic Stimulus Program – absolute failure since all the program did was create short term work projects (e.g. fixing a road, fixing a bridge, etc.), it did not fundamentally change demand or grow the economy. Once the stimulus money was gone, the work projects were done and no lasting job creation was made.

– Mortgage Program – an unmitigated failure, according to the government inspector general responsible for the program. We have millions and millions of houses in this country that have gone into foreclosure or have been abandoned by the homeowners and the track record of this program shows that very few homes, as a percentage of the total number of homes in foreclosure, were saved by this program.

– Internationally, we are no closer to peace in the Middle East, Iran is two years closer to having nuclear arms and North Korea is as dangerous as ever and also two years closer to being a nuclear power.

– The War On Drugs continues to be an absolute failure, resulting in an evolving and violent narco state just south of our border.

– Unemployment continues to run very high levels for a very long time and none of the small business tax credits and programs that the political class have come up with have impacted it much at all.

What did all of these failure have in common? The common thread through all of them is that there was no overarching, integrated plan, there was no glue to make these programs “sticky,” in other words there was no leverage. A good definition of leverage is as follows:

“The ability to strategically influence a system or an environment in a way that multiplies the outcome of one’s efforts without a corresponding increase in the consumption of resources, i.e. doing a lot with a little.”

Think about it. What was strategic in any of this administration’s policies? What multiplied the desired outcome without a corresponding increase in resources?

– Consider Cash For Clunkers. There was no multiplying effect of car sales as a result of the rebate program. It was a straight linear proposition: give away money, sell more cars. Don’t give away money, sell even fewer cars since you lost demand to the rebate program without multiplying sales going forward.

– Consider stimulus money to fix a bridge. Provide stimulus money for the work and people are employed. Stimulus money runs out, people go back to being unemployed. No multiplying effect whatsoever if you consider the high

– Consider Obama Care. Most health care experts, but not our politicians, know what drives a large percentage of our outsized health care costs in this country: Americans smoke too much, Americans eat too much of the wrong kind of foods, Americans do not exercise enough and America is getting older. What does the legislation focus on? More taxes, more fees, more bureaucracy, more regulations, etc. It has little focus on the leverageable attributes of the situation, get Americans to smoke less, eat better, exercise more, and aggressively attack aging diseases such as cancer and dementia-like diseases. For example, a little bit of effort to reduce smoking in America will multiply savings in all kinds of diseases including lung cancer, heart disease, etc.

– Consider our dealings with Iran and North Korea. Nothing has been done from the State Department that leverage a little effort into a large return. As a result, we continue to pay for a high level of military preparedness while the two countries go about their daily building of nuclear weapon capabilities.

What has this administration done, or any recent administration done, that was a well thought out, strategic, and leverageable plan? There are very few examples, if any. All of their efforts are very singular, standalone that leverage nothing and as a result, they are almost always a bust and almost always very expensive. That is why when you divide the amount of money spent on the economic stimulus projects by the number of jobs the administration says it “created” or “saved,” you end up with each job costing over $200,000. You certainly do not have leverage when it costs you significantly more to create or save a job than what that job is likely to pay.

And the administration has recently shown that it has not learned much about leverage despite the past two years of failure:

– In his recent state of the union message,the President hyped the advent of electric cars  and is constantly promoting them as the answer to our energy and green house gas problem. But Charles Lane writing for the Washington Post, as summarized in the February 11, 2011 issue of The Week magazine, pointed out that even if the President attains his goal of a million electric cars on the road by 2015, those million cars would constitute less than one half of one percent of all cars in America. Thus, even if you attain your goal, your likelihood of success in the bigger strategic issues, energy policy and greenhouse gases is still likely to be unaffected and unattained. And the only reason you might attain that million car goal is because you give away taxpayer money in the form of rebates to people that buy an electric car. No rebate money, likely no electric car purchase. Sounds a lot like cash For Clunkers, doesn’t it? (note: this does not even take into account that fact pointed out by Mr. Lane that in cold weather, electric cars’ batteries lose about 50% of their output, further reducing the limited range of these cars. Not a good, leverageable strategy when your goals could be affected by the weather.)

– Egypt is another example where this administration has no leverage. We have used bribery, money and military equipment, to be “friends” with Mubarak over the decades. That may have given us some limited leverage with this dictator, assuming that we kept paying him. But it gives us no leverage with the protesters now demanding freedom and liberty in Egypt. And we have not paid Mubarak enough or have enough leverage over him to get him to leave office and we have no influence in shaping what the demonstrators want and when the want it. The administration is just floating along with the rest of the world, captive and powerless to what is going on in Tahrir Square because they have not laid the groundwork with the protesters beforehand, groundwork that might have had a multiplying effect now. The administration has no leverage on the street because they have ignored the street or not understood the street in Egypt.

Maybe this is why our problems are so big and our deficit is so big, the thinking of our political class has been so small and our leverage to solve problems has been so small. Lack of leverage is the constant theme across all of our problems, whether you are talking about financial issues, domestic issues, or foreign affairs issues. Our political class does not know how to think strategically, their thinking and approaches are always linear and simplistic.

To get more strategic thinking in Washington,  you need strategic thinkers and that probably involves dumping the current set of politicians in office. The following suggests some steps to do that:

* Step 1 – implement term limits for all Federal government politicians. If you have been in office for decades and have not come up with any thing leverageable and strategic, it is highly unlikely you will ever do so. Best to step aside, or be forced aside with term limits, to change that Washington mentality.

* Step 2 – require all Washington politicians to take and pass a course on basic economics, which hopefully will give them some basic thinking skills on leverage and strategy.

* Other steps – change or implement a number of other steps in the gerrymandering  of Congressional districts, campaign financing rules and laws, and such so that new, better thinking people can get into office and start the leveraging process.

The old “Mission Impossible” TV show understood leverage. A small, trained set of agents every week would strategically solve a major problem against overwhelming odds without an gigantic, expensive, and ineffective government bureaucracy approach. The current TV show, “Leverage” on TNT does the same thing where a small group of con artists, working for the good side, every week exploit weaknesses and leverage points to defeat the supposedly stronger, richer, or meaner bad guys. Hollywood understands leverage, why can’t Washington?

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