Amazon and Hickey Freeman: two kinds of incompetence

By now, you have no doubt heard that New York City, co-winner of the Amazon lottery, blew it by so alienating Amazon’s corporate management that HQ2 of the world’s most valuable corporation will not be located within the five boroughs. Opponents of HQ2 decried the $3 Billion tax giveaway cobbled together by the city’s mayor and the governor.  Of course, they were giving away something that they weren’t going to get if Amazon didn’t choose New York in the first place and won’t get from someone else any time soon.  

I am empathetic to the forces that succeeded in rejecting Amazon.  Their primary motivation was to preserve their community in a city where gentrification has left few neighborhoods affordable for middle- and working-class families.  They could see events trending in the direction of San Francisco and Seattle and didn’t like what would happen.

On the other hand, Republicans and center-left Democrats understand that economic growth relies upon innovation and efficiency created by high tech enterprises.  The high-skilled, highly paid labor that HQ2 would attract would increase the city’s tax base and beget other high-tech enterprises. Bowing to the whims of a minority of citizens enabled by a handful of extremist politicians is a mark of how incompetent our political leaders are. 

Not noticed nationally but a big story here in Rochester was a $4.2 Million private investment in Hickey Freeman that was nearly matched by $4 Million from the state.  It was hailed by one and all because it retains a handful of low skilled jobs in a failing enterprise.  There’s enough bad news here to make it difficult for me not to toss my cookies.  I’ll try to control my gag reflex long enough to unpack it. 

The Hickey Freeman news is just the latest example of Blue State Folly. The state has taken money out of the economy and reinvested it in businesses that can’t attract sufficient capital on their own. In this case, they’ve invested in a company that makes clothing for the WWII generation rather than allowing the free market for capital to do its work.  

The state’s investment was made through the Finger Lakes Upstate Revitalization Initiative established by one of our governor’s famous contests.  (I wrote about the perversity of taking money out of the economy just so we can compete to get it back in the Rochester Business Journal when the winners of a similar competition were announced.)

Like New York City, San Francisco and Seattle, Rochester has a highly capable workforce and business leadership with the technical skills to support any innovative enterprise owing to the legacy of the vanishing Kodak and Xerox.  We are supported by a local network of more than a dozen colleges and universities and have a low cost of living.  What holds us back is high taxes and a state bureaucracy that makes it difficult to operate a business.

Our greatest challenge is to continue our legacy into the next generation.  Unlike New York City, we are not threatened by gentrification but rather by its opposite.  We may be unable to thrive unless we, as a community, can do something about a failing school system and inner-city poverty.  Perhaps the governor should focus on that for a while.

WHO WILL LEAD? 

#justanoldwhiteguy

Something happened while I wasn’t paying attention.  It was a slow, subtle shift that took place over many years.  Consider this:   the death of Elvis was barely a footnote on the evening news when it happened in 1977.  When Michael Jackson died, some three decades later, it was the lead story for days.  What happened? How is the death of a pop star the most important news of the day?  Any day? What has this manifested?

Well, here’s an example: an actor I’ve never heard of who stars on a show I’ve never watched is accused of making a false police report alleging he was attacked by the evil forces of #MAGA.  Aside from feeding the #fakenews narrative of our prevaricating president, the event has made me wonder what’s happened to our society.  Perhaps if we weren’t so focused on Pop Culture, the foolish acts of a C-List actor wouldn’t be national news. 

What I’m reading

Tom Freidman speculates we may become a “Four-Party State” in his weekly column in the New York Times. I hope we are….  David Houle writes in his blog about the social and economic effects of Millennials and Digital Natives (those born since 1981) now outnumbering Baby Boomers…   Economist Greg Ip writes in the Wall Street Journal about the “Unrealistic Economics of the Green New Deal.” 

A different view of the healthcare debate… The poll… What I’m reading

In his great book “Civilization: The West and the Rest,” historian Niall Ferguson identifies what he calls 6 killer apps that made western civilization the preeminent system of government and economics.  Number four on the list is Medicine.  The seeds of modern medical science, sown in 19^thCentury Europe, led to a “major improvement in health and life expectancy.”  Now as then, we need a healthy population to ensure a stable society and a productive economy.  Given our federal fiscal disaster, the future of the US depends in large part on how much healthcare we want and how we pay for it.  

Despite my libertarian leanings, I love Medicare.  And I worry that it will go broke before I draw my last breath.  We are already in the midst of a fiscal crisis about which neither political party seems to care.  Many economists predict another Great Depression unless we tend to it. So, there are a few principles that should guide us in developing a system that extends high quality healthcare to all and does so cost effectively.

First, the government should provide a social safety net.  Many Republicans forget it was conservative economist Friedrich Hayek who coined the term “safety net.”  In his master work “The Road to Serfdom,” he wrote: “There is no reason why in a society which has reached the general level of wealth which ours has attained the first kind of security should not be guaranteed to all… Nor is there any reason why the state should not assist… in providing for… common hazards of life against which… few individuals can make adequate provision… The case for the state’s helping to organize a comprehensive system of social insurance is very strong.”  That’s why the expansion of Medicaid was the most important element of the Affordable Care Act (ACA).  Making it available to middle-class families enabled them to make an informed choice about purchasing private insurance or sticking with a government program.  

Second, any new system must address the underlying cost structure.  The highly regulated, high cost Fee-for-Service system we have today must be overhauled.  The ACA proposed Accountable Care Organizations that would be compensated on the basis of medical outcomes.  Absent a mandate, the experiment unfortunately fizzled out.  

Those who favor Medicare for All (M4A) don’t seem to care about cost.  Their proposal would pay for additional coverage with a tax on the wealthy. The US has the most progressive tax code in the industrialized world.  The top 20% pay over 88% of income taxes. In Europe, a large part of government’s budget is covered by a Value Added Tax (VAT), usually adding about 20% or more to the price of goods purchased.  Would our so-called progressive politicians propose a regressive tax like the VAT to pay for M4A?  I’d like to see them try. 

Third, there must be room for competitive enterprises in the system.  Capitalist enterprises have innovated new treatment protocols, extraordinary medical devices and amazing pharmaceuticals.  Were it not for competition, we wouldn’t have laparoscopy, implanted defibrillators or ACE inhibitors.  Scandinavian countries providing free healthcare have no significant pharmaceutical or medical device industries.  They keep costs low by negotiating lower drug prices, for example, but rely on innovations from other countries. 

And, lastly, everyone should have some skin in the game.  I recently pointed to Singapore’s system as an example where consumers spend their own money first in buying healthcare services. Providers respond to competitive pressure from consumers to keep prices low. 

How would an alternative system look?  We can’t be sure.  There are too many entrenched interests making too much money for politicians to mount the courage to overthrow the current paradigm.  I would point to one example to give you an idea how a creative approach could improve outcomes. In France, the hospital comes to you.  Mobil advanced life support units, staffed by doctors and nurses, back up first responders. The result is better medical outcomes because people promptly get advanced treatment at home and lower cost because fewer patients go to the hospital.  Could you see that happening here?

I’m sure you’re waiting for me to tell you how we should design this new system.  But, I can’t!  I am not sure anyone can.  However, I believe that starting with a set of sound principles will lead to a better system than either M4A or the ACA.

WHO WILL LEAD?

The Poll

Recently I created a poll asking if you preferred longer essays like this one or the short takes I’ve been publishing since the beginning of the year.  Thank you to those of you who responded.  Unfortunately, you are deadlocked 50/50.  The poll is still open; so, if you haven’t voted, please do so by clicking HERE.  Thanks.

What I’m Reading

Sarah Lawrence College professor Samuel J. Abrams tells us the American Dream is alive and well in the 21^stCentury in his essay in the New York Times…  The Green New Deal proposed by Democrats will hurt working-class Americans most according to Brandon Weichert… Just finished a great book by Chris Voss, who developed the FBI’s hostage negotiating techniques.  It’s called “Never Split the Difference.”  Don’t think it’s only for business people negotiating deals. It’s a prescription for dealing with important people in your life too. 

I hate memes… I hate government regs… I hate taxes

 

I hate memes

A well-designed meme, like this one spotted on Facebook, resonates so well with so many people that it either forms the basis of new beliefs or confirms a bias.  Bankers are evil, the story goes.  They caused the financial crisis and screwed all of us. So, this meme will get shared by many. 

I see it in a larger context of people depending on others to protect them from their mistakes.  Sorry if you suffered during the financial crisis. So, did I.  So did many others.  But, when you sign up for a bank account, you sign an agreement to keep your account balance positive or pay an overdraft fee.  Giving you and anyone in your circumstances a break increases costs for the bank.  So, it’s reasonable to ask who should bear those costs.  Should it be the shareholders of the bank?  Before your amygdala prompts an immediate “yes,” consider that, if you own shares in a mutual fund, you and your mutual shareholders probably own stock in banks.

But if not the shareholders, then who?  Well, those costs will be passed on to other customers in some way – perhaps in higher ATM fees or higher interest rates.  No one will know exactly except the bank’s senior officers.  But, trust me, someone will pay.

And, so, here we are. 

People get themselves into bad situations and sometimes make mistakes.  That’s life. But who should take responsibility for those mistakes other than those who made them?

I hate government regs

It’s fair to point out that banks have raised fees in the years since the financial crisis.  Under pressure to reduce risky lending and strengthen their balance sheets, they sought new ways to generate revenue.  Our government has played a huge role in creating this unintended consequence and the crisis itself.  The Clinton administration liberalized the way in which the main providers of mortgage financing – FNMA and GNMA –could raise capital. In turn, those quasi-government institutions expanding their portfolios of mortgage bonds.  The Federal Reserve lowered interest rates during the Bush administration and GWB ran for reelection in 2004 promoting the highest rate of home ownership in our history.  We all know what happened next.  

In the wake of the financial crisis, Congress passed the Dodd-Frank act which directed government regulators to create rules that discourage risky lending and required banks to increase the amount of capital they hold to protect against losses. Seems reasonable, right?  But it wasn’t the big banks at the heart of the crisis of that suffered under this new regime.  It was community banks, those more connected to their customers and community, who were seriously challenged to comply.  The result is that many sold out to larger competitors, creating more big banks.  

The recently announced acquisition of SunTrust Bank by BB&T is the most visible of these events. When concluded, the merged entity will be America’s sixth largest bank.  The merger is driven by the need to drive down costs in order to retain more capital, invest in new technology and comply with Dodd-Frank’s regulations. Ironically, one of Dodd-Frank’s architects, Senator Elizabeth Warren (D-MA), has criticized the merger because it will create another “too big to fail” bank.  But it’s the conditions imposed by the law that are driving the consolidation of the banking industry.  

No one should be surprised by this. Sen. Warren seems to live in a parallel universe where what’s right is wrong and vice versa. 

I hate taxes

In the latest episode of The Blue State Follies, there’s a kerfuffle in Albany over a shortfall in tax revenues.  That’s bad news for New Yorkers as the legislature begins to develop the state budget. Last November’s election turned complete control of the state legislature over to Democrats.  So, what do you suppose their reaction to this bad news might have been?  Wait for it… Yes, that’s right!  Let’s raise taxes.

But I’m getting ahead of myself.  The US Census Bureau has reported that New York’s population loss has exceeded that of any other state. During the campaign season – while running for a reelection that matched his father’s three terms as governor – Andrew Cuomo informed us that New York was losing population not because of high taxes and inhospitable business conditions but rather because of lousy weather.  As I sit here in upstate New York in February, it’s easy to agree with that assessment.  

To his credit, when his party cried out for higher taxes to close the gap in our state’s budget, he responded that he was concerned that people would move out of New York to avoid paying higher taxes. 

Wait!  What?

WHO WILL LEAD?

Crowdsourcing the news… Trump vs. Republicans… How you like it

Crowdsourcing the news

About the time we were to take off, Southwest Airlines made the announcement that the TSA had ordered the evacuation of our terminal at Orlando International Airport.  What happened next was surprisingly orderly. There was no panic or press of the crowd.  Everyone simply grabbed their stuff and headed to the tram that returned us to the main terminal.  We made new friends, exchanged cynical wisecracks and did as we were told without much fuss.  It took about an hour before we – thousands of us – were back in line to go through security again.  

Naturally, the bureaucracy did what it always does: give orders without telling us what happened or what to expect next.  Also, naturally, the crowd turned to their smartphones.  Rumors abounded.  There were gunshots.  There was a fire.  As it turned out, neither of those were true.  How do I know?  Well, first the Miami Herald posted a story with lots of gaps describing the possible suicide of a TSA employee who jumped from the balcony of the airport hotel. He hit the floor so hard that it sounded like a gun shot and everyone started running, including the TSA employees who were scanning passengers and luggage.

A more complete report was posted on the website Heavy.com.  Being careful to cite the source of each quote, they simply compiled a story from social media posts.  The first of them was used by both the Herald and Heavy.  It included a Tweet from Kindy Segovia who posted a picture of the mob including yours truly (that’s me in the black sweater below the N in Hudson News).  Everything worked out okay and we were on our way after a rescreening and a three- and-half-hour delay.  

I was struck by how a complete picture emerged whereby every social media post constituted pieces of a puzzle.  The Herald’s caution in quoting unknown sources yielded a less complete picture than Heavy.com who was careful to use quotation marks around what people had posted, misspellings included.  I was reminded of a scene from the movie “Absence of Malice,” in which Paul Newman’s character tells off a reporter played by Sally Field.  “You don’t print the truth,” he says.  “You print what people say.  There’s a difference.  The truth’s not that easy to come by.”

Trump vs. Republicans

I recall a wise quote from Cokie Roberts, daughter of two members of Congress and veteran pundit. “The only way to do business in Washington is ‘as usual’,” she averred.  In other words, disrupters beware.  You won’t know what happened to you until it’s already happened.

Was Donald Trump done before he started?  The common wisdom is that veteran Republicans rolled over and played along with the current resident of the White House.  They voted with him over 90% of the time.  Matthew Glassman, a Senior Fellow at the Government Affairs Institute, takes a different view.  “In reality,” he says.  “Republican legislators have hidden their influence, purposefully disguising a weak president with little clout on Capitol Hill while also preserving party unity.”

His essay in the New York Times outlines the strategy: they have simply declined to take up his agenda. During the last Congress, there were no votes on the border wall, immigration policy or protectionist trade policies.  Wary of publicly stating their opposition and incurring the wrath of both him and his stooges at FOX News, they simply work against him by not acting.

On those matters requiring action, they have quietly dismissed his ideas.  Hence, he proposes cuts to non-defense spending and Congress delivers a budget that does the opposite.  It will be interesting to see how the dynamics change with Democrats in control of the House. 

How you like it

Regular readers will have noticed that I switched formats around the first of the year. Previously, I wrote long essays exploring ideas that interest me.  Lately, I’ve been writing shorter pieces that summarize my thoughts with less in-depth research. So, I’d like to know which format you prefer.  Please take a moment to answer this one-question survey: Click HERE.

WHO WILL LEAD?