2019: The Year in Pre-view

Who died?  Who thrived? What happened? Who cares?  It was 2018.  It’s over!  So, let’s take a look at what happens next.

Foreign affairs: All eyes are on Syria and ISIS as we end 2018. But, the country to watch is Turkey. 

It is said that nature abhors a vacuum. Pundits adopted the phrase as an idiomatic description of President Obama’s strategy in the Middle East.  His “Pivot to Asia” intended to leave Middle East wars, terrorism and the refugee crisis for Europe to deal with while the US worked to develop beneficial trade relationships with the fast growing economies of Asia.  It seemed to make sense in the context of a shrinking defense budget and economic competition from China and the EU. President Trump’s decision to withdraw our troops from Syria is another step in this direction.

There’s one big problem with this strategy: the vacuum it creates will be filled by Russia.  It’s fair to say that Russia is not much of a military threat to the US.  Their economy is in shambles and, lacking economic power, they don’t have the military might to challenge our global interests.  But, to understand their motives, you must brush up on your geography because geography is destiny.  

To play a role in the global economy, you need access to the sea.  Russia’s access is limited.  Bounded by China to the East, Europe to the West, the Arctic to the North and the southern Asian countries from the Himalayas to the Mediterranean, they are choked off from global trade.  In that context, it’s easy to understand why they would annex the Crimea, support the Assad regime in Syria and create an alliance with Iran.  Ultimately, they hope to exploit cracks in the NATO alliance. So, I expect them to increase pressure on Turkey, a NATO member, by increasing their troop presence not only in Syria but also in Ukraine.  

Is it any wonder Russia wanted Trump in the White House?

Economics:Both the US and global economies have been pumped up by Central Bank interventions and extraordinary growth in government and corporate debt.  

Is the party over? Well, the US Federal Reserve took the punchbowl away when they stopped buying up bonds and started raising interest rates.  So, construction is slowing and the stock market is taking a hit.  Compound those troubles with the economic inefficiency of a trade war and you have the making of a recession. 

It’s fair to say the new Fed Chair is taking appropriate steps to restore interest rates to their natural level.  My greater concern is that they do so while allowing the Fed’s balance sheet to run off. In other words, they are playing with two independent variables simultaneously.  So, when the economy responds, how will we know the cause of that response?

As rates rise, many corporations will incur permanent damage from too much debt and a drop in consumer demand. Our recession may be brief but the deadly combination of overleveraged companies, shoppers rapidly moving from bricks to clicks, a trade war and the Fed’s actions will have a longer lasting effect. 

Going local:  As a nation, we have ceded too much control to a federal government ill suited to address our needs. Liberals have long argued for federal solutions to problems; and lately, conservatives, from the Tea Party to Trump, making bold promises of federal intervention, have joined them.  Yet, nearly everything we need is generated at a local level.  We need better healthcare, better schools, more new businesses, more innovation, more financing, more giving, more connectedness… In short, we need more local control over the institutions that affect our communities.  

It will begin with our schools. Federal and state mandates have imposed unfunded costs on the last important institution over which we have a modicum of local control.  Here in Rochester, our inner city schools have been rated worst in the nation.  Our progressive governor told our local editorial board that he would support reform if and only if it was initiated at a local level.  He was being politically crafty a la Pontius Pilate. He also created an opening for local initiatives to make a difference. 

I hope it will be the beginning of a trend.

Business: Low unemployment and a workforce lacking the skills demanded by highly technical work environments will accelerate the adaptation of artificial intelligence (AI) to practical uses.  It’s already showing up in marketing, warehousing and machine maintenance.  The next wave will likely affect selling. AI will identify cross-selling opportunities, optimize prices and forecast revenue.  It will improve itself by learning from the results.

Like all disruptive technology, the pioneers in this field will be big corporations that can afford the R&D expense.  And, like all disruptive technology, it will eventually become affordable to smaller businesses and trickle down.

Companies that succeed in this new environment will be those that can best capture data, analyze it and generate actionable insights.  

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Predictions are a tricky business.  Will these trends and events take root in 2019?  I’m not sure.  However, I am fairly confident we’ll see them soon enough. 

WHO WILL LEAD? 

Platitudes vs. Principles

Americans now reflexively expect the government to solve our problems, whatever they may be.  I am incredulous.

We have expected our government to guide our economy.  The result has been inequality and deteriorating infrastructure.  We have expected our government to ensure we all have adequate health insurance.  The result is a morass of inefficient bureaucracies and escalating cost.  We have expected our government to improve the prospects of our least fortunate citizens (remember the war on poverty?).  The result is that poverty has become entrenched in our inner cities and has extended to rural communities. 

How did we get here?

Politicians of both parties have abandoned principle in favor of an unstated philosophy that has been embraced by the public: “government should enforce what I think is right.” Whenever 50% of the population is imposing its beliefs on the other 50%, we have lost track of the basic American principles of freedom and rule of law.

Instead, we get platitudes.  What’s a platitude?  I recently saw a definition that cuts to the quick: a platitude is and idea that (a) is admitted to be true by everybody, and (b) isn’t true.

The recent bi-partisan budget deal is exhibit #1.  Rep. Mark Sanford (R-SC) called it a deal that “makes us weak as a civilization.”  Meanwhile, Sen. Charles Shumer (D-NY) called it a “win for the American people.”  So, which is it?

Well, you can be sure that whenever you see both Chuck Shumer and Mitch McConnell smiling, the taxpayers will be paying a bigger bill. (In this case, a mere $288B.) Such compromises always results in rewarding political friends, engaging in social engineering, and supporting businesses by socializing losses incurred by so-called capitalists.

Some media like to focus on examples of government waste from studying the sex lives of Japanese quails to printing reports that no one reads.  While that’s great fodder for social media LOL’s and angry faced emojis, it’s not the right place to focus our attention. 

The “free market” (not that it’s really free) is responsible for our prosperity but also is the cause of much pain. Society may benefit from higher average incomes but is harmed when businesses with near monopoly power eliminate the competition or when the side effect of our prosperity is damage to the environment.  To advocate policies in support of business while ignoring the negative side effects is irresponsible.

Our strategic competitors – primarily Russia and China – have been investing in military technology while we have shrunk our global presence and are burdened by a wasteful bureaucracy (the Navy has more Admirals than ships).  Yet, rather than debate the defense budget from the standpoint of strategy, we quibble about the size of the budget and what programs should be saved in defense of jobs in one Congressional district or another. 

We should be having healthy debates based upon principles.  What are public goods that should be supported by government? Does it include protecting natural areas?  How much should our budget commit to the Smithsonian Institution or national monuments?

What is government’s role in protecting the privacy of its citizens?  Should the government guarantee a minimum standard of living?  How should we restructure Social Security and Medicare to ensure benefits for an aging population without overwhelming the generation still at work?  How should our immigration policy be redrawn to ensure our economic growth while treating those who wish to come here humanely?

These are the debates we should be having.  Instead, conservatives focus on how to undermine the effectiveness of institutions that provide women’s health services, while liberals endeavor to restore the 20^th Century glory of a now obsolete trade union model. 

Both liberals and conservatives can agree in principle on the need to ensure our prosperity while providing an effective social safety net.  Both can agree that we need to maintain a leading edge in military technology in order to ensure our national security.  Both can agree that our environment must be protected by government regulation.  We should have a healthy debate on all these matters. 

Unfortunately, we can’t do so until we get past the perceived need to govern by platitude rather than principle.

WHO WILL LEAD?

We Trust the Government We Don’t Trust

American’s trust in government has been in decline since the Kennedy/Johnson administration according to Pew Research.  Yet we seem to ask more and more of it.

Trust is more likely to occur in local communities because we tend to trust information we take from direct experience.  We relax a bit when dealing with people we know or with people whose reciprocal expectations match our own.  In countries with small, relatively homogeneous populations, government can successfully play a larger role in daily life.  The Scandinavian countries, so often cited as a model by liberals, are good examples.  Each has a population smaller than New York State that is over 90% native born.

The US, on the other hand, has a population that includes over 40 million immigrants, closing in on 15% of the total.  If we add first generation Americans, we have about a quarter of the population whose reciprocal expectations are not aligned with more established citizens.  The last time we found ourselves in a similar demographic mix was shortly after my grandparents immigrated here in the 1910’s and 20’s (from what was then a s***hole country).  What followed was a backlash and, in 1924, Congressional legislation to limit immigration, the remnants of which form the basis of policy today.

The social mechanisms that have enabled us to assimilate have been left behind as technology – from ATM’s, smart gas pumps, and self-checkout at Wegmans to video games and social media – replaces person-to-person social interaction.  People from different walks of life simply don’t talk with one another as we once did. 

In parallel, we have observed a breakdown of trust in institutions.  We stopped trusting our government when government stopped being trustworthy -- during the Vietnam War and Watergate.  We stopped respecting social institutions -- political parties, organized religion, national media -- when they stopped meeting our needs.  And, we stopped trusting people with different political beliefs when their politics became more extreme. 

So, at a time when we need to learn to engage our neighbors, become more welcoming to immigrants and litigate our differences locally, the social fabric necessary to our success has been torn.  At a time when more of our resources should be directed within our communities, Washington is in a pitched battle over how our money should be distributed.

And, let’s not overlook how money affects this paradigm.  The lion’s share of our taxes is not collected by our local communities or state government but rather by Washington.  It takes money to administer laws and enforce them.  So, the rules made in Washington affect us more than those made locally.  We can see the impact in our schools and our transportation infrastructure.  State and local governments can’t do much without federal support. 

So, the cycle reinforces itself.  More money goes to Washington; more of the laws that affect our local communities are made there; and, we ask more of Washington than of local governments that could be more responsive to our needs.  By paying taxes and demanding programs of our Congressional representatives, by asking them to legislate right and wrong, we express our trust in the federal government implicitly.

Isn’t it ironic?

WHO WILL LEAD?

We Shouted; They Listened

When I tell folks I moved to Rochester from Florida, they think I’m nuts.  “This is a great community,” I tell them.  But, they don’t get it.  This week’s interaction with the management of the NYS Canal Corporation validated my theory.  Indeed, we live in a great community. 

In case you haven’t heard, the Canal Corp. has begun a project to clear the earthen embankments of all vegetation along 122 of the canal’s 524 miles. They were so confident they’re doing what’s right, they plunged ahead with no public hearings and barely a heads-up to those affected.

Local politicians have supported the community’s call for officials to address the reasons for the project and its sense of urgency.  So, senior management arrived in our region this week to conduct a series of meetings to convince the community of the wisdom of their plan.

They told the editorial board of the local paper their sense of urgency results from an imminent danger of a breach of the earthen structures that protect adjacent properties.  When asked if there was anything or anyone that would stop or slow their project, they replied that only a “higher power” would do.  I’m not sure if they meant God or the courts.

At their first town hall meeting, they played the “Fear Card”, showing how a breach could affect the Jefferson Avenue School in Perinton.  Yet they haven’t notified anyone in jeopardy of imminent danger.  As for why there has been no breach in the last century, despite the existence of vegetation on the embankments, they have no answer other than to say it could happen at any time.  Where’s Nostradamus when you need him?

A local citizens group led by Fairport’s Elizabeth Agte did some research in anticipation of the meeting.  Their conclusion:  they’ve cherry-picked the science to support their plan, refusing to consider alternative guidance. The owner of a local excavation company told me he faces similar challenges almost daily. Vegetation should be removed if the soil is clay, he asserts.  On the other hand, if the soil is sandy, root systems stabilize embankments.  The approach would vary depending upon not only the type of soil but also the types of trees.  Deep root systems stabilize banks.  Shallow ones do the opposite.  You would have to take soil samples and analyze what types of trees are present before taking action. 

When I asked if soil samples had been taken, we were told us it wasn’t necessary.  Yet, when challenged by a Perinton resident whose 5-acre property is mostly sand, they responded, “we'd need soil samples.”

Faced with a possible lawsuit by three towns, they backed down.  Thursday night, they announced a modified plan – one that takes into consideration possible differences in soil types and vegetation.  We got what we asked for. 

"Yes," I thought. "Rochester is a great community."

Governor Cuomo, thanks for the big, fat favor

Welcome to New York… That’s what my property tax bill might have said when we moved back to our home state.  My taxes are higher than my mortgage payments.

I suppose that may or not be true for every resident of the state.  However, this much is true:  New York has the highest tax burden and the secondhighest amount of public debt per capita in the country.  So, despite taking more of my income than any other state, our government can’t seem to improve its balance sheet.

All of this was rolling around in the back of my mind while I was listening to one of my favorite talk shows on public radio.  At noon each weekday, Evan Dawson interrogates reality on WXXI, our local NPR affiliate.  He is incisive and upbeat.  Listening to his show is a great way to learn about our community – locally, nationally and globally.

Last Tuesday’s show featured University of Rochester President Joel Seligman and others leading an initiative to “win” one of three $500 Million economic development “prizes” being offered by the state government and touted by our governor, Andrew Cuomo, as part of his commitment to upstate New York. 

I came away impressed by Seligman and his colleagues and feeling that our endeavor was in good hands. 

But, here’s the question no one bothers to ask…  Why are competing to “win” back our own money?

The very idea that we should compete for the benefit of tax dollars is appalling. 

And, if we “win” (I can’t seem to stop myself from putting the word in quotes), the governor will no doubt show up in town and act like he is doing us a big, fat favor.

He’s done it before.  During his reelection campaign, he designated $3 Million to the environmental cleanup of a new commercial development in a nearby Finger Lakes community and then declared that it was the kind of “investment” the state would make “all day long”, as though he was doing us a big, fat favor. 

No doubt the project will create some construction jobs for the duration of the project.  And, no doubt the resulting development will provide some retail and service jobs for the longer term.  However, the $3 Million goes into the pockets of the already wealthy real estate owners and developers driving the project.

Thanks for the big, fat favor, Andy.

This paradigm is so ingrained in the public mind that no one even questions it anymore. 

The mentality also affects our thinking in other endeavors.  The state takes some of our tax dollars and gives it back to the school districts that educate our children.  Now, the governor – in an apparent effort to make scapegoats of teachers – is specifying how they should be evaluated.

Whether you agree with his ideas on how to evaluate teachers of not, you have to wonder why our money has to go to Albany so that some group of bureaucrats can decide how our school systems should be managed. 

There is a financial cost to sending money to a central government (economists call it ‘agency cost’).  And, there is a non-financial cost to our community to placing our future in the hands of people who don’t live here and are subject to political and social agendas that don’t necessarily serve our local interests.

It’s time to place these events in perspective.  Our high taxes and bureaucracy have cost us jobs and endangered the future of the (once) Empire State.  Local employers who have the resources often invest in projects to expand their businesses in other states.  Others have left the state completely.  Meanwhile, a recent study has judged New York to be one of the hardest states in the nation to start a small business. 

If the governor wants to do us a big, fat favor, he could start by eliminating a bloated state bureaucracy and lowering our tax bill so we don’t have to compete to “win” back something that was ours to begin with.

Then he can stop doing us big, fat favors.

WHO WILL LEAD?