Can the Nation's Mayors Save the Federal Government from Itself?

The press has planted a phrase in our heads – dysfunctional government.  It’s hardly a phrase the man on the street would invent.  Yet, it has overtaken the economy as voters’ biggest concern.  Sounds like a problem we should try to solve, doesn’t it?

There’s a central truth to this issue that most are missing.  The government was designed to be dysfunctional.  If you were designing a system to function efficiently, would you come up with this?

Indeed, if one were to design a government system to function efficiently, one might choose the British Westminster system.  In the UK, elections can be called at irregular intervals to throw the bums out and the leader of the party who achieves a majority appoints the ministers (from among those elected) who run the bureaus of government.

No separation of powers, no process of advice and consent, no oversight committees or any of the other nonsense that clogs up the works in D.C.

In the midst of all this federal Sturm and Drang, many states have stepped into the breach.  And, why shouldn’t they?  In a nation that is geographically larger than all of Europe, it makes sense that we would have diverse cultures with different values.  Continental Europe certainly does.

Former Indiana Governor Mitch Daniels forged a new path by selling some of the state’s assets – including highways -- to pay down their debt and balance their budget without raising taxes.  It was a bold move.  What can we learn from Indiana’s experience?

In California, new/old Governor Jerry Brown chose a different direction.  He raised taxes on the wealthy to address the state’s budget issues. Unlike Indiana, California benefits from thriving entertainment and technology industries and geographically important seaports like Long Beach and Oakland.  A recovering economy has boosted state revenues and balanced the budget.  The very wealthy haven’t abandoned the state to move to Indiana or even to Arizona or Texas.

Texas pursues a different model.  A no-income tax state, it benefits from a booming energy industry and low costs of living and doing business.  Want to move from high-tax states like California, Illinois or New York?  No problem.  You’ll be welcomed. 

That Texas and California can pursue such different models and both thrive is an expression of the diversity of our economy.  There’s no need for the federal government to be involved.

Last June’s Supreme Court ruling allowed each state to make its own decision about gay marriage.  And, each state is doing so.  Easy?  For some yes and for others no.  But, the decisions made at a local level are more likely to reflect local values.

Mississippi will never have it.  Vermont always will.

Contrast that to the 40-year-old Supreme Court ruling on abortion.  Proponents and opponents are still marching in the streets. 

Enter the nation’s mayors. 

More than 80% of the population now lives in or near a big city.  So, our mayors are likely to have an increasing impact on society.

Many focus on economic development.  Denver has established a Business Incentive Fund that has attracted large national companies like Southwest Airlines to its environs.  Raleigh, NC has a well-educated workforce and has attracted financial companies like Fidelity, Credit Suisse and MetLife.  Seattle benefits from a resurgent Boeing and has also attracted technology companies like Amazon and Google to build new operations there. 

But, it’s not all about economics.  Cities may also serve as laboratories for social experiments. New York’s new mayor, Bill de Blasio, ran on a platform of taxing the rich to fund universal pre-K.  If he receives the necessary support of the state government, we’ll get to see if that experiment works before liberals in Washington take a crack at it.  Will Wall Street big shots relocate their HQ’s to White Plains, Princeton or Greenwich?  It will be interesting to find out, won’t it?

Seattle’s city government considers raising the minimum wage to $15 per hour.  Will the rise in incomes lift local businesses and cause the city to thrive or will it drive out local employers who reckon they can’t carry that burden? Will Seattleites be buying Tex-Mex from Taco Bell or from Burrito Box?

Conservatives point to the first principles of economic freedom as drivers of prosperity.  The elected governments of California and Seattle have chosen a different direction.  Liberals see the divergent incomes at the top and bottom of the economic ladder as a challenge they must address directly.  The elected governments of Indiana and Texas have chosen a different direction. 

I don’t know about you.  But, I would rather see how these many experiments work on a small scale before imposing them on the entire nation. 

The accretion of special interest lobbying and its impact on the federal taxes and regulations violate Americans’ sense of fair play.  The decentralization of American governance can only serve to make elected officials more responsive to the electorate and the results better aligned with our values and beliefs.  The folks in Washington will not endeavor to slow the momentum of our central government.  Change must be driven from outside the system and it’s more likely to be driven by political, social and economic forces at play in our states and cities than by those who pretend to represent us in Washington.

WHO WILL LEAD?

Open the border! Wait, it’s already open!

I lived in Denver for a few years and had the experience of being referred to as an Anglo when I visited places like Santa Fe and Tucson.  Being from New York, it struck me as odd.  When I was a kid the W.A.S.P. crowd made sure I was aware of our ethnic difference.  I was not Anglo-Saxon or Protestant.  So, why are all these Mexican-Americans referring to me as an Anglo

The US has seen many non-Protestant waves of immigrants from the Irish to Italians and certainly many non-Anglo-Saxon waves of immigrants as well.  But other than Mexicans, none have had a historical claim to American territory.  Texas, Arizona, New Mexico, California, Nevada and Utah were part of Mexico until the 1840’s.  Even after those states became part of the US, there was a substantial footprint of Mexicans throughout the territory.  Even today, Mexicans who arrive here “enjoy a sense of being on their own turf” according to Boston College professor Peter Skerry.

In this context, it seems that Tea Party Senator Rand Paul is a little late to the party when he pronounced last week that, "Prudence, compassion and thrift all point us toward the same goal: bringing these workers out of the shadows and into becoming and being taxpaying members of society."  The fact that he has come to this conclusion suggests that we may yet get comprehensive immigration reform. 

Many conservatives insist that we must “secure our border” first.  But it’s fair to say that the border has never been secure.  The geography of the southwestern US and northwestern Mexico is dominated by desert.  There is no natural geographic boundary like a wide river or a mountain range. 

And, it’s also fair to say that the status quo hampers the progress of long-time productive residents by ensuring they will always operate in the shadow economy.  Legalizing their status will give them upward mobility and provide their children with an opportunity to succeed.

Our focus on the Middle East over the last 10 years has absorbed over $1T of American capital as well as the attention of two presidents, four secretaries of state, four secretaries of defense, the people in the administration who work for them, the Congress and our intelligence establishment.  It has also cost over 5000 American lives and impaired our economic prospects. 

Meanwhile, a massive state failure was developing on our southern border with more profound implications for our long-term future.  No other industrialized country has such a long land border with a third world nation.  Perhaps it’s time for us to direct our attention and our resources southward.

The challenges of the porous Mexican-American border are not part of the daily consciousness of Washington elites.  Not only are they not dealing with platoons of illegal entrants crossing their property and inhabiting their cities, but also they aren’t paying the bill.  The costs – education, medical care and crime prevention – are primarily borne by the states. 

Yet, the challenges of integrating massive waves of immigrant Mexicans and Central Americans pale in comparison to the threat of Mexican drug cartels in the rugged terrain of the mountains adjacent to Ciudad Juarez.  It may be that the only way to defeat them is through military action. Yet cross border tension and our focus on illegal immigration hamper our ability to create the right kind of alliance between two countries that lack the legal framework to cooperatively address that challenge.

There are millions of Mexican, Central and South American immigrants in this country illegally. The vast majority of them are law-abiding people seeking to work and support their families.  Why not legalize their status?  There are also millions who cross the border illegally to work and send money home to their families.  Why not legalize their visiting worker status?

The legalized status of these people will enable us to focus on the real challenges of our relationship with Mexico.  It is essential that the Mexican government not be allowed to fail.  We have spent hundreds of billions of dollars ensuring historical outcomes in the Middle East.  Yet we are amazingly passive about what is happening to a country with which we share a long land border.

The only question is:  WHO WILL LEAD?

Greedy or Simply Needy?

I lived in Denver for a few years, back in the 1980s. It was a great experience for a guy who grew up in NY and I wouldn’t mind going back someday. I worked in a national credit card business at the time so the local economy didn’t affect me too much. Others weren’t so lucky.


Colorado is a boom or bust state. In the 80s, it boomed early on high oil prices. It went bust later on the collapse of oil prices. Big Oil closed all their Denver operations when it became economically infeasible to explore for oil in the Rockies. The contractors, most of whom were geologists and engineers went bust along with them. Many left town leaving a declining real estate market and failed regional banks and S&L’s behind.

Sound familiar? It was a microcosm of our national banking crisis. The difference? The banks weren’t too big to fail. The Federal Deposit Insurance Corporation (FDIC) spent about $900B to take over failing banks (an amount which they later recovered by raising rates on its member banks), the banks’ shareholders lost all of their stock, none of the executives walked away with multi-million dollar severance packages and no one occupied Denver.

Too bad it didn’t work that way in the financial crisis of 2008.

Last week, the press reported on an Organization for Economic Cooperation and Development (OECD) study that concluded that the wealth gap between young and old is growing. The report went further in concluding that economic mobility from lower to upper income strata was more evident in Canada and many European countries than it is in the US.

Naturally, this information is used as fuel for those sympathetic to the Occupy Wall Street movement (OWS). I wonder how many of those who reported on the OECD study actually read it (which you can do by clicking HERE).

What the report actually said was that upward mobility was primarily a function of parental influence on education starting in early childhood and extending through college. The gap between young and old, rich and poor is the result of how well educated you are.

To quote directly from the report: “Parental or socio-economic background influences descendants’ educational, earnings and wage outcomes in practically all countries for which evidence is available.”

Many pundits have speculated that the fervor behind OWS will peter out when the weather turns too cold to camp out in city parks. Even if that happens, the underlying problem – young adults who have worked hard and played by the rules can’t find jobs – will not vanish with the first snow. However, over time something must change.

Here’s my prediction: in the absence of jobs, many will start businesses. Yes, comrades, they will become capitalists. They will go from being needy to being greedy. As one pundit put it, their Plan B will become Plan A. And, there’s an app for that. "Start Your Own Business" will set you back $.99 in the iTunes store.

I have sat in on many presentations on how the Internet – Google, Facebook, Retargeter.com, Tumblr.com, YouTube, etc. – are changing the way business is done. When they are over, the middle aged listeners in the audience usually remark that they don’t get it. If I were 25 today, I would see those folks as too fat, dumb and happy to stand up to the competition I can offer.

Those too sluggish to adapt to the new world will end up like the last buggy whip manufacturers. We live in a world where $600 can buy a disk drive that would store all of the world’s music, where 5 billion mobile phones are in use and 30 billion pieces of content are shared on Facebook every month (according to the McKinsey Global Institute).

Creative entrepreneurs have figured out how to use technology to destroy old business models in healthcare, music, journalism, libraries, education, travel, supply chain management and the credit card industry – among others. Just as the transition from an agricultural to an industrial economy caused economic disruption – lost incomes among those whose skills weren’t adaptable – the transition to a global information/Internet based economy is doing the same right now.

And, just as the OECD study concluded, education is critical to making the adjustment.

What if you’re not an A student and can’t figure out how to disrupt an old business model? Dilbert cartoonist Scott Adams wrote of his experience creating new businesses for himself while in college in an Op-Ed piece in the Wall Street Journal last April. Titled "How to Get a Real Education", he outlined the real world skills required to make a business work – any business. Not just those that are disruptive.

Free market capitalism has been the basis for American prosperity since our nation’s founding. Successful business people act in their own self-interest. It doesn’t result from greed; it results from need. That one man’s success can cause another man’s failure is part of the natural order. Those who seek to change it must consider that our prosperity will suffer.

Back in Denver, one enterprising geologist opened a micro-brew pub in an old industrial part of town called LoDo (Lower Downtown). Wynkoop Brewery became a popular restaurant in a bad part of town. His Plan B became Plan A.

Today that successful entrepreneur is governor of Colorado.