Sunday, April 5, 2020

Cuomo and Crozier: contrasts in leadership

Governor Andrew Cuomo

We returned from a shortened seven-week vacation last week.  Part of getting resettled in our home was reinstalling a Roku we’d taken with us.  It’s an easy task I’ve done many times before.  Nevertheless, I tested it to make sure it worked properly.  Coincidentally, I turned it on as Governor Andrew Cuomo was giving his daily press briefing.  I never watch TV news (see Stop Watching Cable News Now); so, I hadn’t seen our governor in action despite hearing wonderful things about his leadership during the current pandemic.  

Regular readers know I am not a fan.  Yet, I was struck dumb as I listened to him.  Who is this guy? I thought.  He is calm, rational and articulate.  Where is the arrogance to which we’ve become accustomed?  Even his tone of voice had changed.  He answered questions directly without evasion.  If he didn’t know the answer to a question, he said so.  If a member of his team couldn’t provide a good answer, he said they’d find out.

There is no doubt he will have to make some tough choices in the days and weeks ahead.  He’ll move equipment to where it is most needed, move patients to facilities better prepared to handle them and approve triage protocols that sacrifice some in favor of others (much like it’s done on a battlefield).  The trust he has engendered will give him the credibility to make those decisions on behalf of the citizens he serves.  

Contrast Cuomo’s leadership with that of Captain Brett Crozier who, this week, was relieved of the command of the USS Theodore Roosevelt, a nuclear-powered aircraft stationed in the western Pacific.  The whiners in the Twitterverse and the great grandson of the man for whom the ship is named have called him a hero.  I submit that not only is he not a hero, he has failed in his basic responsibilities as Commanding Officer.  

I must digress for a moment.  Americans take the security provided by the military for granted.  It took one hundred fifty years for the US Navy to achieve dominance of the seas.  In the post-Revolutionary War years, American ships were attacked routinely by the British Navy and the United States did not have the sea power to respond.  We have achieved our current status by virtue of the century-long pursuit of Manifest Destiny, our victories in World War II and the Spanish-American War (in which the aircraft carrier’s namesake was a central figure) and a deal made by FDR to take over the North Atlantic British naval bases prior to entering World War II.  Despite our diminished status (the US Navy has half the ships it had a decade ago), no foreign power would dare challenge the US Navy directly.  
Captain Brett Crozier (USNA '92)
What the military does to ensure our security is described as “readiness.” There is a lot of protocol or S.O.P. involved.  In battle, no one should have any doubts who’s giving the orders.  So, we observe a chain of command.  Since readiness is what we must achieve to go to war at the drop of a hat, we provide reports of our status up the change of command. Today, as has been the case since well before I received my officer’s commission, the movement of ships and their readiness to go to war are highly classified. 

An aircraft carrier is at the center of the Navy’s military capability and strategy.  To reveal its operational status on an unsecured communication channel is an egregious breach of a process meant to ensure the national security of our nation.  That’s why Crozier should have been and was properly relieved of his command.  

In his op-ed in the New York Times, Tweed Roosevelt describes Captain Crozier as a hero because he sacrificed his career to do what he thought was right.  Unfortunately, he wasn’t right.  The official statement of the Secretary of the Navy outlines the reasons why. 

As a midshipman at Crozier’s and my alma mater (U.S. Naval Academy), we were trained to say, “I’ll find out” rather than “I don’t know.”  We were trained to say “no excuse” when asked why we screwed something up.  The admiration heaped upon Cuomo has rightly resulted from his adoption of those kinds of responses.  He has exhibited true leadership where Crozier failed.


Thursday, March 26, 2020

The Aftermath: the future is now

We left on a two-month vacation the day after Presidents Day – February 18.  At the time, there were only 25 cases of Coronavirus reported in the U.S.  Like most of you, we were caught flatfooted by the pandemic and its astounding spread.  A graphic in the online New York Times tells the tale.  China’s delay in recognizing the disease and its effects led to millions of people leaving Hubei province, many carrying the virus, over two months.  Nine hundred per month were destined for New York now the epicenter of the crisis in the U.S. 

As I write this, the Senate has approved a $2 trillion stimulus package to keep the economy on track during the Coronavirus crisis.  In a post last week, I suggested now is not the time to worry about fiscal deficits.  Let’s focus on keeping people healthy first.  But the virus and our response to it will have some long-lasting effects – some good, some bad, some ugly. 

The Good

The future is now!  Trends predicted to take shape over the next decade or two have taken root overnight.  We are telecommuting and teleconferencing at work.  Similarly, universities have moved coursework online, shedding expensive infrastructure and adopting a model I predicted in 2015.  Will there be a snap back to the old model, or will there be a shift to a new way of working and learning? 

Traffic is lighter just about everywhere.  Demand for fuel has dropped dramatically (I paid $1.99/gallon the other day).  That means reduced emissions and stress on our infrastructure.  Will work at home become a lasting effect of the crisis?  

No one will be denied healthcare because of a lack of insurance during this crisis.  Bernie Sanders points to the need to nationalize healthcare like, you know, Italy… um, maybe not a good idea.  And, Republicans are unlikely let go of their objections to any solution.  It is perhaps Joe Biden’s incremental approach to reforming Obamacare that might lead to the best outcome.  Will that lead to universal coverage?

Crisis response has necessitated that government regulations pretending to protect us have been set aside to, well, protect us.  FDA has eased up on guidelines for testing drugs and manufacturing ventilators, and companies are repurposing without the obstacle of licensing rules.  Will the crisis cause us to question the need for all those regulations? 
New York Governor Andrew Cuomo
Governors are stepping up to respond according to the needs of their individual states. Wyoming doesn’t need what New York needs. So, there is a renewed focus on the effectiveness of regional and local response.  States have powers not afforded to the federal government according to Constitutional experts.  Only states have police power to enforce quarantines or compel vaccinations, for example.  Will governors finally press the point and take back authority they have abdicated to Washington? 

The Bad

In the last twenty years, we have consistently been failed by our institutions of government. The 9/11 attacks revealed a weakness in national intelligence, particularly the CIA.  Hurricane Katrina placed the failures of FEMA at center stage.  The Great Recession was caused primarily by banking regulators not doing their jobs.  And, now there’s COVID-19 which has revealed the soft underbelly of our ability to protect our citizens from a pandemic.  Meanwhile, congressional politicians can’t seem to set aside their dysfunctional behavior for the sake of the nation.  

The era of free trade, that was nailed into place by China’s entry into the World Trade Organization, has restructured supply chains so that we no longer have the manufacturing capacity to make critical supplies.  Meanwhile, China is providing Europe with masks, gloves and other medical supplies.  It sounds like an echo of the Marshall Plan. It’s another way in which we have abdicated our role in global leadership. 

The Ugly

This ain’t the 1950’s, a time when the nation was led by a war hero whose minimalist approach to governance resulted in the paydown of war debt while maintaining a balanced federal budget, the construction of the interstate highway system and the inception of NASA.  No, Democrats, we aren’t going to raise marginal tax rates to 90%.  And, no, Republicans, we aren’t going to shrink government to balance the budget.  Bipartisanship in the 21st Century means more government spending and debt not less.  That’s how the coronavirus stimulus went from $1 trillion to $2 trillion in the course of a week.  

A former business partner suggested a scenario I deem likely.  Likely because of the way in which the nation’s institutions responded to the financial crisis a decade ago.  The first round of QE or Quantitative Easing by the U.S. Federal Reserve Bank in 2009 was viewed as a positive step toward getting investors to invest and get the economy moving again.  In this process, the Fed purchased U.S. Treasury bonds and mortgage-backed securities to keep interest rates low and encourage the acquisition of assets.  Low interest rates help those who can invest in stocks and real estate but they penalize savers and retirees.  

Back to my former partner’s prediction:  the Fed will not only purchase the additional U.S. Treasury debt but also will write it off, he says.  In other words, since the Fed can create as much money as it wishes, they can also reduce the government’s debt with the stroke of a pen.  

Two years ago, the election of Rep. Anastasia Ocasio-Cortez made a big splash in the national news.  Among her more controversial suggestions was that the nation’s economy could be managed by Modern Monetary Theory (MMT) – the creation of money out of thin air.  There was a minor uproar in business and economic circles.  Now, under the cover of a pandemic, MMT may become the government’s tool of choice to feed our addiction to debt.  

Conservatives warn this approach will result  in hyperinflation, citing Post-WWI Germany as the relevant example.  Liberals, led by Nobel economist Paul Krugman, have pointed out that we’ve been pursuing MMT for the last ten years and inflation is low.  They’re both looking in the wrong place.  Hyperinflation hasn’t occurred in consumer prices.  It has occurred in asset prices – stocks, bonds and real estate – enriching those with the capital to invest at the expense of everyone else.  

Once the crisis has passed, we’ll applaud those who have crafted and voted for the $2 trillion package and reelect them in the Fall.  And, there will be no one to stop this juggernaut. 


Wednesday, March 18, 2020

Coronavirus and the Economy

It’s hard to imagine all the economic impacts of the current Coronavirus crisis.  A recession – official or unofficial – seems likely.  (An official recession is defined as two consecutive quarters of declining GDP.)  If the crisis lasts for only three months, there will be a “Newtonian” surge (an equal and opposite reaction) in demand in the third quarter that will even out the economy for the year.  

Government can and should play a role in managing the economic crisis.  But what is that role and how should they play it? 

Generally speaking, there are two kinds of shocks the economy can experience: a demand shock and a supply shock.  The first occurs when consumers develop some fear – rational or irrational – about their near-term economic future.  In that case, they hold back on purchases, first of durable items like cars and appliances and then more routine purchases like clothing and eating out.  A supply shock occurs when there is some disruption in the supply of essential goods and services driving prices up dramatically.  The Arab oil embargo of the 1970’s is a good example.  

A demand shock often can be effectively dealt with by the Federal Reserve lowering interest rates thereby lowering the cost of purchasing durable goods.  Supply shocks are tougher to deal with as they may be caused by factors outside the government’s control.  Again, the Arab oil embargo serves as a good example.  

The US economy was stable at the beginning of the year.  When demand and supply are balanced, the economy is said to be at potential real output.  But the coronavirus response may cause both a demand and a supply shock simultaneously.  Demand is down because people are staying indoors affecting large purchases like cars and homes as well as routine small purchases.  A supply shock might occur if supply chains providing essential products are disrupted -- if, for example, workers cannot go to work in domestic factories.  In the case of a supply disruption prices will rise at a time when many Americans are out of work.  It is not straightforward to recover from a recession clobbered from both sides. This is the worst possible case because neither Fed action (monetary) nor Congressional action (fiscal) can maintain a supply chain or get people back to work.  So, the Fed can react or do nothing.  Lowering interest rates keeps unemployment low but raises prices causing inflation.  Doing nothing keeps inflation low at the expense of higher unemployment. So, the best government can do is try to lay some foam on the runway to ensure a soft landing.  

Many government and health officials have been praised for their candor, decisive action and leadership in this crisis.  We need the same degree of honesty about the economy.  There will be an economic disruption lasting three to six months.  We should not overreact.  Inflation and deficit spending will increase, and we shouldn’t be too worried about it in the short term.  Remember: borrowing is cheap right now.  So, let’s do what we need to do without too much handwringing. 

The Fed is doing the right thing by lowering borrowing costs for government and businesses.  Congress and the President are doing the right thing by providing stimulus for the near term.  The stimulus should be targeted to those who really need it: low income families and small businesses who don’t have the cash reserves to survive a sustained drop in demand.  

I have seen more than a few memes suggesting buying gift cards from local businesses and over tipping service staff.  These are all good measures we can take as citizens to flatten the economic curve during this crisis.  Let’s hope that government action can also flatten the curve of the health crisis.  


Saturday, March 7, 2020

Okay.... It’s a two-man race. So, now what?

The deadline to change my voter registration from Republican to Democrat in New York was February 14, Valentines Day.  (See “It’s Official: I’m a Democrat”) When I did so, I didn’t expect the Super Tuesday massacre.  I switched so I could vote for Bloomberg in the New York Primary.  I could still do that.  But that would be the wasted vote I eschewed when I flipped parties.  So, now what?

In a Biden vs. Sanders race, the obvious choice for me is Uncle Joe.  But why?  A review of the candidates’ websites suggests their positions on the issues are the same:  reducing income inequality, higher taxes on the wealthy and corporations, universal healthcare.

Of course, their rhetoric on the campaign trail is something different.  Sanders is a class warrior, a dogmatic politician as divisive and out of touch as the President he would like to replace.  Biden on the other hand is more pragmatic — and, it’s that word “pragmatic” that separates him from other Democrats (and Republicans).  He has a long history of working toward bipartisan agreement.  A great example is outlined in Bob Woodward’s book “The Price of Politics” in which the award-winning journalist describes the process by which the Obama White House reached a compromise with a Republican Congress on the budget and debt limit in 2010.  Woodward’s book suggests that the joint effort on the part of Republicans and Democrats to break the impasse was floundering until Uncle Joe began working  with another old Senate hand, Mitch McConnell.  A series of convos and a handshake later, we had a budget compromise that lasted for years.  

Sanders hasn’t achieved anything like Biden’s track record.  Dogmatists rarely do.  They sit in their corner certain of their righteousness and refuse to compromise.  They never have to apologize because they never do anything.  In a democratic republic that relies on bipartisan legislation to achieve lasting change, Uncle Joe is the guy.  

So, what do these candidates want to achieve?  Sanders no longer calls himself a socialist in favor of the more current label Social Democrat.  He calls for the implementation of a regime of government benefits that emulates that of Scandinavian countries:  free healthcare, free tuition, mandatory paid family leave and so on.  

In theory, I don’t have a philosophical objection to this paradigm.  In practice, I do.  (I am more pragmatic than dogmatic.)  Sanders proposals — Medicare for All, Free Tuition, Student Loan relief — would easily double the size of the federal budget.  He says he’ll fund it by taxing corporations and billionaires.  Setting aside the economic impact of those policies for the moment (and they are substantial), I have to say I don’t believe it.  Ultimately, if not immediately, he’ll come for you and me — the middle class.  Think about it this way: if the goal is to eradicate billionaires, the tax base will shrink.   So, where will he go next?

I also have a moral objection to his approach.  If we — the electorate — want government to do certain things, we should be willing to pay for those things. It’s noteworthy that the US already has a more progressive personal income tax regime than any of the EU countries.  European nations offering free healthcare and college tuition impose a Value Added Tax (which functions like a sales tax) of about 20% on sales at a retail level no matter how rich or poor you are.  In other words, all citizens pay for what they ask from government. 

Sanders sidesteps this sticky argument by declaring the system is rigged (as does Trump).  Well, yes, it’s rigged in favor of those who work hard and play by the rules.  For those who think the world owes them a living, not so much.  As someone who scrimped and saved so my kids could graduate from college without debt, I wonder why others should not have to.  As someone who has assumed risks to my livelihood by owning a business, I wonder why anyone thinks they should reap the rewards without assuming the same risk.  

I am a classical liberal not a political liberal.  I believe in a freedom agenda: free enterprise, free choice and freedom to succeed or fail on one’s own merits.  That makes me more libertarian than liberal and that’s how I have voted in the past.  So, how do I square my beliefs with the concepts of social democracy?  

What few seem to understand is that the social democracy that Scandinavians enjoy relies on free market capitalism to be viable.  The remaining candidates (sorry to see you go, Mike) would impose new limits or costs on business.  In making such proposals, they take our prosperity for granted.  Treating corporate America like something that needs to be healed, they fail to see that every surgical cut to corporate profits undermines the attractiveness of the US economy to foreign investors, reduces available capital to invest in future endeavors and threatens to leave the patient bleeding to death.  I would like to see a candidate who adopts the approach implied by the Hippocratic Oath taken by doctors: primum non nocere (first do no harm).  


Thursday, February 20, 2020

A False Notion of Prosperity

This post was originally posted on the Rochester Beacon website on February 17, 2020 under the title Albany's False Notion of Prosperity.

The factors that made Rochester a bustling, growing center of economic activity in the 19th and 20th Centuries are no longer relevant.  Founded around a river that emptied into the busy shipping lanes of the Great Lakes and connected to the Port of New York by the Erie Canal and railways, Rochester was a shining light on the western frontier in the early 19th Century.  Its fortunes rose during the second industrial revolution as George Eastman founded Kodak, an enterprise that not only was a center of innovation but also attracted human capital.  

Our city has always occupied a middle space between urban centers like New York, Chicago and Los Angeles and rural company towns that rely on one major employer for their economic well-being.  In the last quarter century, Rochester has been treading water while manufacturers in company towns migrated their workforce to low-wage countries leaving them to the ravages of economic irrelevancy.  Some have taken matters in hand, embraced 21st Century industry and created conditions that promote prosperity.


At the end of every supply chain is a consumer.  We buy goods and services depending upon our whims and capacity of our wallets.  Companies competing for our dollars have moved us from cable TV to streaming video, from landline phones to mobile and from postage stamps to email.  The home cities of firms driving those changes benefit from the downstream effects of their success.  Those cities – Boston, Seattle, Palo Alto -- attract the attention of investors and the momentum of investments creates boomtowns.

It’s possible for smaller cities to become magnets for investment too. Chattanooga, TN (population 179,000) famously transformed itself from fading rustbelt casualty to tech center boomtown by investing $330 million to bring no-latency internet to citizens and businesses.  The non-profit Kauffman Center outlined three intertwined layers leading to the success of the initiative. The drive for 21st Century relevance began with the mayor’s vision of his low-cost-of-living hometown as a magnet for technology startups.  Abandoning the usual dogma of the left and right, business and government worked together cooperatively to obtain a federal grant to fund one-third of the project.  Not satisfied with “If you build it, they will come” city government sweetened the pie with financial incentives for I.T. professionals to move to their city.  Small though it may still be, Chattanooga’s metro area population has grown 11% in the last decade. 

Charlotte, NC – once the same size as Rochester and now two and a half times its size – attracted new businesses and jobs the old-fashioned way.  Lower taxes and proactive city and state governments worked for decades to make the city what it is today.  Rochester could duplicate that success.  We have a highly qualified workforce, entrepreneurial energy and an enviable array of colleges and universities. 

So, how do we New Yorkers (and Rochesterians) ensure we get a larger slice of the pie?  

A group of local business organizations has created ROC2025.  Describing itself as a “powerful new alliance of economic development organizations,” they have declared themselves in favor of Mom and apple pie.  It’s difficult not to support any of their initiatives:  workforce development, support for existing businesses, enhancing new business attraction and so on. But, in the end, we’re just whistling past the graveyard.  The overhead of high taxes, a heavy regulatory burden and a city school system that doesn’t graduate students prepared for the real world of work is simply too much for our local economy to bear.  

A prominent feature of Governor Cuomo’s administration has been economic development programs targeted at upstate New York.  And, for good reason.  The state only shows good economic results by virtue of the overwhelming success of Wall Street.  The governor took office as the nation (and Wall Street) was climbing out of the deep hole dug by the Great Recession.  So, while he loves to tout his record of having “created” over a million jobs during his reign, it is noteworthy that the rate of job growth is below the national average.  Also noteworthy is that over 70% of those new jobs were created in the New York metropolitan area.  

The non-partisan Citizens’ Budget Commission estimates the state spent roughly $10 billion on economic development in 2018.  Nevertheless, New York leads the nation in population loss.  Business interests and the conservative Empire Center claim the high tax and abysmal regulatory environment is the culprit (a claim with which I agree).  The governor claims it’s our lousy winter weather. Whatever the reason, it’s fair to say that so-called investments by government haven’t created a booming upstate New York economy.  

Government is unduly influenced by special interests and even the best and most ethical participants are unlikely to get it right for one big reason: They don’t have their own money invested in the enterprises they endeavor to help.  As for the enterprises, those seeking money from the government would rather spend the taxpayers’ money than their own as they should or would otherwise.  

Economic prosperity is rooted in private capital invested in promising enterprises.  Rochester could create the conditions that enabled Chattanooga’s success with local leadership embracing a vision and seeing it through.  But that vision, whatever form it takes, would be undermined by a state government addicted to the notion prosperity should  and can only be enabled by central government.  


Thursday, February 6, 2020

Mitt Romney has his Spartacus moment

Kirk Douglas as Spartacus

I awoke this morning to the headlines that Trump had been acquitted, Romney was the sole Republican voting for his impeachment and Kirk Douglas had died.

In Douglas’ most famous role, he plays the escaped Roman slave Spartacus.  Based on a true story, Spartacus led a slave revolution in ancient Rome.  In the film’s climax (spoiler alert!) – probably not true – the Roman General who defeats Spartacus’ army gives all the slaves the opportunity to be spared if they point out the real Spartacus.  First, one soldier and then another and then all of them stand and declare “I’m Spartacus.” They all heroically choose to die rather than give up their hero.

Yesterday, Senator Mitt Romney (R.-UT) had something of a reverse Spartacus moment.  Choosing principle over political expediency, he stood up in the Senate and voted to convict a president of his own political party.  No Republican stood with him. 

I’m something of a movie nut.  So, I was reminded of a different Kirk Douglas film (my personal favorite).  In it, Kirk plays the role of an old-fashioned cowboy resisting the march of time in the 20th Century.  The film’s title says it all: Lonely Are the Brave


Monday, February 3, 2020

It’s Official: I’m a Democrat

Everyone I know describes themselves as “fiscally conservative and socially liberal.”  And, yet, neither political party ever gives us a candidate who fits that description.  I asked a veteran of political campaigns why.  She said, “there aren’t enough of you.”  And, she’s right.  Suburban swing voters like me constitute about 20% of the electorate.  

When I moved to Deep Blue New York, I registered as a Republican reasoning that would be closest to the center.  Along the way, I began voting for Libertarian candidates (fiscally conservative; socially liberal). Many people consider a third-party vote to be a wasted vote.  But, in a state where all the electoral votes always go to one party, all votes are wasted votes.  I first expressed my frustration in a guest column last year (Stranger in a Blue Land: The Plight of a Political Moderate).

What knocked me out of this rut was Michael Bloomberg’s announcement that he’s running for President.  A politically moderate party switcher like me, I wonder if he could make a difference in deadlocked Washington.  And, in the primaries, my vote matters. 

Like many Americans, I was shocked at the 2016 election results.  Initially, I believed that establishment Republicans would keep Trump in check.  But those who spoke up were punished at the ballot box.  And, so, those who remain support a morally reprehensible, irresponsible president whose destructive behavior will echo for years or, perhaps, decades after he leaves office.  

I could remain in the Republican Party if it was true to its values.  But the days of fiscally responsible, small government Republicans are over.  The 2017 tax bill is great for the upper and middle classes.  But it also leaves us with trillion-dollar annual deficits. 

Mike Bloomberg
There’s some scary stuff on the other side of the aisle too.  The party of “free stuff” would eliminate capitalist prosperity in the name of social justice.  The Green New Deal would reverse a century of economic progress. And, social democracy is merely the act of taking money from those who have earned it honestly and giving it to those who haven’t. 

Enter Michael Bloomberg.  His views on gun ownership and climate change mirror my own. Will all his ideas be enacted or, if enacted work?  And, where will the money for all these great ideas come from? I can’t say for sure.  While it’s easy for me to point to the flaws in proposals from Sanders and Warren, it’s difficult for me to imagine that a self-made billionaire might not understand business and economics.

And, so, I am leaving the party of no ideas for the party of bad ideas. I confess it’s not very comfortable over here.  But, for now at least, I think it’s the right thing to do.