The further to the left or the right you move, the more your lens on life distorts.

Friday, July 31, 2009

Abandoning the Center?

Ed Kilgore of the Left-leaning The New Republic writes:
… [T]he "Obama has abandoned the center" narrative is a staple of conservative and some "centrist" criticism of Obama, particularly on the current hot topics of health care reform and climate change legislation. David Brooks made the case most luridly in a July 20 New York Times column entitled "The Liberal Suicide March." Clive Crook of The Atlantic followed up with a piece claiming that by "splitting with moderates," Obama was "repudiating one of the most brilliant campaigns ever seen." And pointing to the difficulties the administration is having with the Blue Dogs, Republican speechwriter Troy Senick of RealClearPolitics attributes all the blame to Obama, suggesting he is "perilously close to breaking the coalition that was built for him."

Kilgore goes on to argue that the “repositioning” is purely right wing politics and that Obama has not abandoned the Center.


Kilgore conveniently fails to note that Obama’s rapid decent in the polls over the past month have been predominantly due to widespread loss of independents, most of whom could accurately be characterized as centrists. Could it be that irresponsible spending and taxation proposals, ruinous cap and trade legislation that is based on belief, not factual data, health care proposals that just don't seem to pass the smell test, and a foreign policy that embraces our enemies (without reciprocation) and castigates our allies (think: Israel) might cause centrists a bit of heartburn?

But no matter, Kilgore argues, those of us in the Center are reviled by both sides of the aisle. He writes:
Now you can make the argument that this whole question of positioning is irrelevant, and there are certainly a lot of Democrats and Republicans who despise the very idea of "the center," as a place where principles are sacrificed and deals with devils are cut. But like it or not, there is political value in "the center" in a country where "moderate" remains the strongly preferred ideological self-identification, and on complex issues like health care reform and climate change where voters feel better if proposals have broad support and can claim to be "pragmatic."

So … those of us in the Center are perfectly willing to sacrifice principles and cut deals with the devil?

I don’t think so, Ed. In fact, the Center sometimes seems to be the only place where rational, commonsense thinking replaces the ravings of talking heads and politicians who proudly characterize themselves as either “Conservative” or Progressive.”

We in the Center tend to pick and choose domestic and foreign policy based not on ideology but on what would lead to real world, practical solutions. We try to avoid delusional thinking, recognizing that hard data and historical precedent are far more reliable than soaring rhetoric and “belief.” We recognize that some problems are intractable and that rather than trying to "solve" them, we should be trying to manage them in the sensible way.

Ed Kilgore wonders whether the Center matters. I can answer him pretty simply. Without it, Barack Obama will become a one-term president.

Wednesday, July 29, 2009

Strategic Patience

There are two things that are reasonably predictable when the U.S. embarks on new foreign policy initiatives against heretofore implacable foes such as Iran. Those on the Left will: (1) counsel patience, hoping against hope that the implacable foe will somehow cleanse itself from within (thereby eliminating the diplomatic problem), and (2) that any overt act of aggression (e.g., severe sanctions) will cause the foe to hate us even more and therefore become a roadblock to further (futile?) diplomatic efforts.

In an interesting article in The Nation, a reasonably representative voice of the Left in America, Robert Dreyfus counsels “strategic patience” when President Obama establishes new policy with respect to Iran.

Dreyfus correctly notes that Iran is in turmoil and suggests that recent events (i.e., their bogus election) have given strength to the opposition. He further notes that President Mahmound Ahmadinejad’s position may itself be in jeopardy, suggesting that Iran’s real leader, Ayatollah Ali Khamenei, may bounce the little man.
It's gotten so rough that some hardliners, including a group close to Ali Larijani, the speaker of the parliament and a key conservative, are warning that Ahmadinejad could be deposed, i.e., ousted. Another bloc of hardliners, including Mohsen Rezai, the founder of the Revolutionary Guard, and his allies -- among them, the former mayor of Tehran, Mohammad Bagher Qalibaf, and Ali Akbar Velayati, an adviser to Khamenei -- continue to oppose Ahmadinejad. On June 12, Rezai ran against Ahmadinejad, and he's keeping his powder dry: two weeks ago, Rezai appeared silently beside Ayatollah Ali Akbar Hashemi Rafsanjani, the former president and billionaire, when he delivered a blistering, opposition sermon at Friday Prayer in the presence of Mousavi and Karroubi.

Dreyfus suggests that no one in the West seems to understand how all of this will play out, and therefore our course of action should be, well, inaction. There are two problems with this: (1) the real power is Ayatollah Ali Khamenei and he is a hardcore Islamist and a true proponent of a nuclear Iran, and (2) even in the extremely unlikely event that Khamenei is deposed, the people who would replace him are far from pro-Western and would continue to be virulently anti-Israel.

So what do we gain by exercising “strategic patience?” Time? No, it can’t be time, because even the most conservative estimates give Iran a nuclear weapon in 3 to 5 years and inaction only healps them get the job done. Leverage? No, we have almost no leverage now, so how does inaction improve our leverage position?

But no matter, we must be patient because anything else would anger Iran and we certainly wouldn’t want to do that. Again from Dreyfus:
Other hardliners [on the American Right] are weighing in, too, and in response both Gates and Hillary Clinton have started making more and more noises about supposed "deadlines" for the US overture toward Iran. Unfortunately, President Obama has fed that fire, first with his talk in May -- during his news conference with Bibi Netanyahu -- about a December timetable for measuring progress with Iran, and then during the G-8 meeting in Europe when there was talk about setting a deadline of September for the start of talks.

In fact, neither deadline will be met. Perhaps September will come and go, with no talks. So what? By moving toward a harder line -- say, unilateral Western sanctions or a gasoline blockade -- Obama will strengthen the hardliners in Iran. He'll undo a lot of the progress made by the opposition in Tehran, and he'll give Khamenei and Ahmadinejad a justification for a tougher attitude toward the West -- and a more violent crackdown on the opposition.

It’s almost funny, if you think about it for a moment.

According to many on the Left we should do nothing, hoping against hope that change will occur within Iran. But doing nothing will more likely allow the Iranian Islamist regime to strengthen it hold on Power and at the same time ensure that they’ll have a nuclear weapon that might completely destabilize the region. Because if we do anything, the Left argues, it will allow the Iranian Islamist regime to strengthen its hold on Power and at the same time ensure that they’ll have a nuclear weapon that might completely destabilize the region.

The Obama administration has to have a better foreign policy that that. Don’t they?

Monday, July 27, 2009


One of the things that worries me about President Obama is that his eloquence often masks the flaws in his stated policies and causes many to overlook the exaggerations that often creep into his statements. His promises are so heartfelt (or so it seems) that we have little choice but to believe them.

And yet, if you dig a little deeper and look past the rhetoric, problems begin to surface.

Over the past few months, the Obama administration and its many, many supporters in the media have argued that health care “reform” is what current proposed legislation is all about. Who can argue? There’s little question that reform is required.

Robert Samuelson addresses this issue:
The most misused word in the health care debate is "reform." Everyone wants "reform," but what constitutes "reform" is another matter. If you listen to President Obama, his "reform" will satisfy almost everyone. It will insure the uninsured, control runaway health spending, subdue future budget deficits, preserve choice for patients and improve quality of care. These claims are self-serving exaggerations and political fantasies. They have destroyed what should be a serious national discussion of health care.

The health care conundrum involves a contradiction that the administration steadfastly obscures: In the short run -- meaning four to eight years -- government cannot both insure the uninsured and rein in health spending. Here's why. The notion that the uninsured get little or no care is a myth: They now receive about 50 percent to 70 percent of the health care of the insured. If they become insured, their health care would rise toward 100 percent; that would increase both government and private health spending, depending on how the insurance is provided.

The “uninsured” lie at the heart of the problem. But the number of uninsured bandied about by the administration and parroted without critical assessment by the media requires some examination.

In one of the best discussions of the current health care situation that I’ve seen on the Web, Dr. Bala Ambati (hat tip: The Belmont Club) dissects the current debate and offers solutions that seem to elude many of the children in Congress. Of the “uninsured” he writes:
On the 47 million people without health insurance point, that too is a statistic where there is less than meets the eye. First, health insurance does not equal health care (there are not just emergency rooms but cash-based clinics, and conversely, a lot of people with insurance don’t get good health care). Second, of that 47 million, 14 million are already eligible for existing programs (Medicare, Medicaid, veterans’ benefits, SCHIP) yet have not enrolled, 9.7 million are not citizens, 9.1 million have household incomes over $75,000 and could but choose not to purchase insurance, and somewhere between 3 and 5 million are uninsured briefly(<2 months) between jobs. That leaves about 10 million Americans who are chronically without insurance. Needless to say, extending the blanket of coverage to this group should not cost $1.5 trillion and require a wholesale overhaul of all of medicine.

Dr. Ambati proposes an eight point program (read it as his site) that is practical and more important, will not bankrupt the country. The only problem is that it threatens the Democratic majority’s favored interests.

For example, Ambati suggests that tort reform in the medical arena could save tens of billions annually in unnecessary tests and exorbitant insurance costs that are passed directly to the consumer. But the trial lawyers are among the Democrats biggest contributors. He argues that “Eliminating television and direct to consumer pharmaceutical marketing” could save almost $60 billion annually (just about as much as big pharma spends on R&D) and allow doctors to prescribe older, cheaper but no less effective medications.But big pharma contributes heavily to Congress bloated campaign funds.

There are solutions to health care. A lone physician outlines a workable strategy in a few pages. Sadly, rather than proposing something that might actually work, the Congressional majority and our President would prefer to make empty promises.

Friday, July 24, 2009

Push Back

Over the past few weeks, I posted a number of pieces on health care legislation. In each, I’ve tried to emphasize the utter irresponsibility of recommending (in the case of Congress) or supporting (in the case of the President) a health care bill that the Congress’ own CBO says will INCREASE health care costs by close to a trillion dollars over 10 years. And that’s after instituting a “tax the rich” fantasy (for Nancy Pelosi, at least) in a phony effort to pay for it, even though increasing taxes in the heart of a serious recession is folly.

Our president tries to blame the minority party for his problems with health care, but it’s his own party that is balking at this craziness. Maybe that’s because very little real reform (something we undoubtedly need) exists in the legislation so far.

Charles Krauthammer (an ex-physician) comments on one crucial element of any meaningful reform. An element that is mysteriously absent from the discussion, much less the legislation:
This is not about politics? Then why is it, to take but the most egregious example, that in this grand health care debate we hear not a word about one of the worst sources of waste in American medicine: the insane cost and arbitrary rewards of our malpractice system?

When a neurosurgeon pays $200,000 a year for malpractice insurance before he even turns on the light in his office or hires his first nurse, who do you think pays? Patients, in higher doctor fees to cover the insurance.

And with jackpot justice that awards one claimant zillions while others get nothing -- and one-third of everything goes to the lawyers -- where do you think that money comes from? The insurance companies, who then pass it on to you in higher premiums.
But the greatest waste is the hidden cost of defensive medicine: tests and procedures that doctors order for no good reason other than to protect themselves from lawsuit. Every doctor knows, as I did when I practiced years ago, how much unnecessary medical cost is incurred with an eye not on medicine but on the law.

Tort reform would yield tens of billions in savings. Yet you cannot find it in the Democratic bills. And Obama breathed not a word about it in the full hour of his health care news conference. Why? No mystery. The Democrats are parasitically dependent on huge donations from trial lawyers.

When the president and the majority party get serious about true, targeted reform, I suspect the country (and yours truly) will support their efforts. But when they insist on fantasy legislation and empty promises of cost cutting, and couple that will higher taxes and no meaningful reform, I and tens of millions of others in the center will push back—hard.

Thursday, July 23, 2009


There does appear to be one war that President Obama is perfectly willing to fight—no diplomacy, no soft rhetoric, no measured attempt to understand the “other.” It’s a war that fits nicely with the President’s overarching ideology, and a war that dovetails wonderfully with the core beliefs of his most rabid supporters. It’s a war that is backed by no less than Speaker Nancy Pelosi, with adherents that span a broad spectrum of our “leadership”—people like Charlie Rangel, Chairman of Ways and Means and Harry Reid of the Senate. And of course, like all politically correct wars, it’s bloodless.

If you watched the President’s news conference last night, I suspect you know which war I’m talking about—it’s class war and unlike any President before him, it appears that President Obama is openly engaged.

It seems that his weak solution for funding irresponsibly large and costly health care legislation is to tax the “rich.”

Bonnie Erbe is progressive columnist who writes for US News and World Report, and is certainly no enemy of Barack Obama and his administration. Yet, she writes:
Perhaps Democrats are developing some sensitivity on their "tax the rich" theme. I can't see NOT taxing the rich. It's just that I disagree with the Democrats' definition of rich. The only way to fairly assess all Americans for the ridiculously expensive programs Democrats are pushing is to enact a flat income tax. Then upper-income persons necessarily pay more in taxes, as 10 percent of $100,000 is a lot more than 10 percent of $20,000. But that'll never happen, so tax-hungry Democrats are going the route of class wars.

It’s shocking to read Erbe suggest a flat tax, but maybe it’s a more liberal idea than some realize. With a flat tax, everyone truly does pay his fair share and as a consequence, everyone contributes to pay for national health care reform. With current legislative proposals, one percent of taxpayers will carry the burden for the other 99 percent. That is unhealthy for any democracy.

But President Obama and his Speaker are undaunted. Rather than focusing on cost savings before increasing entitlements, some in the Congress and almost everyone in the executive branch insist on rushing ahead. I sometimes wonder if they truly understand the complexity of the problem and the gargantuan difficulty of crafting an effective solution.

It’s as if Boeing Aircraft designed a new airplane seating two thousand people, but decided that a six-month engineering effort was all that was required and no prototyping or testing was necessary. “Load the plane up and let’s fly her. After all, we need to go to market with this sucker.” Most observers would call that line of thinking irresponsible.

The health care legislation that the President is suggesting will carry 300 million people, and he is, in essence, suggesting “Load it up and let’s fly her.” No real engineering, no prototyping, no testing, no time for detailed analysis of consequences.


Wednesday, July 22, 2009

Give Me a Break

ABC’s Jon Stossel is among the growing number of mainstream media types who have begun to question the irresponsible legislation that is increasingly referred to as “Obamacare.” Stossel writes:
It's crazy for a group of mere mortals to try to design 15 percent of the U.S. economy. It's even crazier to do it by August.

Yet that is what some members of Congress presume to do. They intend, as the New York Times puts it, "to reinvent the nation's health care system".

Let that sink in. A handful of people who probably never even ran a small business actually think they can reinvent the health care system.

Politicians and bureaucrats clearly have no idea how complicated markets are. Every day people make countless tradeoffs, in all areas of life, based on subjective value judgments and personal information as they delicately balance their interests, needs and wants. Who is in a better position than they to tailor those choices to best serve their purposes? Yet the politicians believe they can plan the medical market the way you plan a birthday party.

Leave aside how much power the state would have to exercise over us to run the medical system. Suffice it say that if government attempts to control our total medical spending, sooner or later, it will have to control us.

Also leave aside the inevitable huge cost of any such program. The administration estimates $1.5 trillion over 10 years with no increase in the deficit. But no one should take that seriously. When it comes to projecting future costs, these guys may as well be reading chicken entrails. In 1965, hospitalization coverage under Medicare was projected to cost $9 billion by 1990. The actual price tag was $66 billion.

The sober Congressional Budget Office debunked the reformers' cost projections. Trust us, Obama says. "At the end of the day, we'll have significant cost controls," presidential adviser David Axelrod said.
Give me a break.

Every politician at the federal level has a very large ego. It goes with the territory. And most suffer from so much hubris that they begin to believe their own bullshit. (excuse the language, but its appropriate in this context).

They tell us "If you like your current health-care plan, you can keep it" even though any government sanctioned health care option will slowly invade the private medical insurance landscape like crabgrass, forcing private options to wither and die.

They argue that their legislation will lead to “savings” even though the non-partisan Congressional Budget Office clearly states that no “savings” will be achieved under the current legislation.

They believe that they can run 15 percent of the economy even though the vast majority of legislators and our President have never run a business of any kind, never met a payroll, and never balanced a budget.

They tell us that 47 million people go without health insurance, even though no one can substantiate the number or put it into context (e.g., as many as 10 million are illegal aliens). They fail to mention that (doing the math with their inflated numbers) 84 percent of Americans are insured and have immediate access the world-class medical care.

And then, our President tells us that the current problems facing American business, job creation, and the economy in general are somehow tied to health care. To quote a commenter named "Cowboy" at The Belmont Club,
This is absurd. Our financial panic never had anything to do with health care, but rather the ticking time bomb of securitized mortages and various similar financial instruments which spread risk wantonly all over our financial sector. Doctors and Big Pharma didn’t cause this pain.

Would targeted reforms of health care be a good idea? Of course, but a total restructuring of the system is … well, it’s through-the-looking-glass crazy. But then again, what more can we expect when the designers’ strongest attributes are ego and hubris.

Monday, July 20, 2009

Owning the Solution

On yesterday’s Sunday morning talk shows, President Obama’s coterie of economic advisors and political allies tried to blunt the growing unrest, even among members of an overwhelmingly friendly media, with his domestic policies. The much-vaunted $780 billion economic stimulus has done nothing to blunt unemployment numbers Health care and cap and trade legislation have even moderate Democrats really, really concerned.

I continue to notice that by direct reference or by less-than-subtle implication, each Obama advisor metaphorically shrugs his or her shoulders and says, “What could we do, we inherited this mess from (the evil and reviled) George W. Bush, therefore we’re innocent victims, just like you (John Q. Public) are.”

Six months into his Presidency, it’s becoming increasingly difficult for Barack Obama (and his spokespeople) to claim that it’s all someone else’s fault, but let’s grant that the President inherited a very bad situation (By the way, that’s nothing unusual. Bush, for example, inherited a very dicey economic and International situation, and no one in the media cut him any slack at all).
In an earlier post I noted that President Obama can still claim he doesn’t own the problem, but he most certainly owns the solution. And it’s the solution, even more than the problem, that has me worried.

Robert Samuelson of Newsweek comments:
It's not surprising that the much-ballyhooed "economic stimulus" hasn't done much stimulating. President Obama and his aides argue that it's too early to expect startling results. They have a point. A $14 trillion economy won't revive in a nanosecond. But the defects of the $787 billion package go deeper and won't be cured by time. The program crafted by Obama and the Democratic Congress wasn't engineered to maximize its economic impact. It was mostly a political exercise, designed to claim credit for any recovery, shower benefits on favored constituencies and signal support for fashionable causes.

As a result, much of the stimulus' potential benefit has been squandered. Spending increases and tax cuts are sprinkled in too many places and, all too often, are too delayed to do much good now. Nor do they concentrate on reviving the economy's most depressed sectors: state and local governments; the housing and auto industries. None of this means the stimulus won't help or precludes a recovery, but the help will be weaker than necessary.”

Barack Obama promised his supporters a “new kind of politics.” Those of us who were a bit more skeptical about his experience, his ideology, and his political reformist bent decided to reserve judgment until actions, rather than rhetoric, could be assessed.

Obama’s early actions can now be evaluated quantitatively. As Samuelson correctly points out, based on the results and proposals to date, those actions are “mostly a political exercise, designed to claim credit for any recovery, shower benefits on favored constituencies and signal support for fashionable causes.”

Matt Welch and Nick Gillespie in The Washington Post discuss our President’s predilection for implying that everything is a “crisis” and that legislation must be rammed through without careful deliberation. They writes:
On this last point, Obama is a perfect extension of Bush's worst trait as president. In the wake of the Sept. 11, 2001, attacks, the Bush administration pushed through the Patriot Act, a massive, transformative piece of legislation that plainly went unread even as Congress overwhelmingly voted aye. Bush whipped up an atmosphere of crisis every time he sensed a restive Congress or a dissatisfied electorate. And at the end of his tenure, he rammed through the TARP bailout at warp speed, arguing that the United States yet again faced catastrophe at the hands of an existential threat.

But contrary to the dreams of dystopians and paranoiacs everywhere, there simply is no outside threat to the American way of life. No country can challenge us militarily; no economic system stands to dislodge capitalism; no terrorist group can do anything more than land the occasional (if horrendous) blow. And as history has shown, the U.S. economy is resilient enough to overcome the worst-laid plans from the White House.

Bush learned the hard way that running government as a perpetual crisis machine leads to bad policy and public fatigue. Obama's insistence on taking advantage of a crisis to push through every item on the progressive checklist right now is threatening to complete that cycle within his first year.

What are his options? First, stop doing harm. Throwing money all over the economy (and especially to sectors that match up with Democratic interests) is the shortest path to what Margaret Thatcher described as the inherent flaw in socialism: Eventually you run out of other people's money.

Indeed, the first responsibility of the President of the United States, much like the responsibility of health care providers, is to "first, do no harm" in the legislation he champions. For a such a smart guy, it appears that the President has not yet learned this lesson.

Saturday, July 18, 2009

Pointy Objects

In their frenzied rush to pass bills that will completely restructure the nation’s health care system, Congressional Democrats have decided that ideology is more important than deliberative, careful analysis of the impact of their efforts. Their long-held belief is that health care “justice” can only be achieved when every person in the country has medical insurance. But in their fervor to see their goals realized,they have become blinded to the long term effects of their irresponsible and costly legislation.

Writing in the The New York Times, Robert Pear and David Hershzenhorn , suggest that many Democrats are beginning to grow wary of Congress’ rushed effort to reform medical care:
Democrats had three reasons for concern. The director of the Congressional Budget Office warned Thursday that the legislative proposals so far would not slow the growth of health spending, a crucial goal for Mr. Obama as he also tries to extend insurance to more than 45 million Americans who lack it.

Second, even with House committees working in marathon sessions this week, it was clear that Democrats could not meet their goal of passing bills before the summer recess without barreling over the concerns of Republicans and ending any hope that such a major issue could be addressed in a bipartisan manner.

Third, a growing minority of Democrats have begun to express reservations about the size, scope and cost of the legislation, the expanded role of the federal government and the need for a raft of new taxes to pay for it all. The comments suggest that party leaders may not yet have the votes to pass the legislation.

I’m hopeful that the adults among the Democratic majority will take the pointy objects away from the many children in the room. But the leader of the children’s group, Speaker Nancy Pelosi, and her play group of extreme-left Congresspeople, seem bent on reform, no matter the costs or the consequences. They seem perfectly willing to risk legislation that may irreparably damage health care coverage that 83 percent of the populace (in recent polls) rates as good or excellent.

Worse, the President of the United States is usually is the first to take pointy objects away from the children in Congress, but in this case, it appears that Barack Obama has joined the play group—not as a adult supervisor, but as a child.
Mr. Obama tried Friday to shift the political narrative away from the grim forecasts of the Congressional Budget Office [the CBO predicted that this new legislation, along with existing health care entitlements such as Medicare and Medicaid, would essentially bankrupt the country by 2035]. He said he and Congress had made “unprecedented progress” on health care, with even the American Medical Association endorsing the House bill this week.

He acknowledged a treacherous path ahead, saying, “The last few miles of any race are the hardest to run,” but insisted, “Now is not the time to slow down.” And he vowed: “We are going to get this done. We will reform health care. It will happen this year. I’m absolutely convinced of that.”

Be careful what you wish for, Mr. President.

Update (7/18/2009):

Jeff Hanson touches on another key aspect of the rush toward heavy government involvement in our health care—not only will we not “save” any money, it will cost us far more than private options:
Since 1970, Medicare and Medicaid's combined per-patient costs have risen from $344 to $8,955, while the combined per-patient costs of all other US health care have risen from $364 to $7,119.

Medicare and Medicaid used to cost $20 less per patient than other care. Now they cost $1,836 more. (And that's even without the Medicare prescription-drug benefit.)

In fact, if the costs of Medicare and Medicaid had risen only as much as the costs of all other health care in America, then, instead of costing a combined $807 billion last year, they would've cost a combined $606 billion. That savings of $201 billion would have amounted to more than $1,750 per American household last year alone.
But no matter, the children in Congress have their vision and they will not be denied—unless the adults demand a time-out to allow a rational consideration of the consequences of their irresponsible actions.

Monday, July 13, 2009


Even as the economy shows little sign of recovery and unemployment rockets toward double digits, my progressive friends keep telling me to give President Obama a chance. After all, they correctly point out, it’s been only 150 days since he became President, and “the economy is all Bush’s fault anyway.”

It’s reasonable to assert that to date, Barack Obama doesn’t own the problem—that came on another President’s watch. But he most certainly owns the solution, and that’s what worries me.

Barack Obama, with the help of an overwhelmingly Democratic Congress passed a “stimulus package” that, so far at least, has done almost nothing to stimulate anything. $750 billion, Ca-Ching. He has suggested that we’ll need to spend almost $1 trillion dollars (Ca-Ching) over the next 10 years to “save” medical care in the US, and he’s advocating a ludicrous cap and trade bill whose cost to business and consumers (in a time of deep recession) is difficult to determine, but very, very significant (Ca-Ching).

But it’s his takeover of GM, at a cost of a mere $40 billion or so (Ca-Ching), that provides insight into both his philosophy and his inexperience.

My progressive friends become entranced when they talk about President Obama’s intelligence. It’s as if a Harvard Law degree inoculates someone from making bad decisions. It. Does. Not.

Barack Obama may be smart. But in business matters, Andy Grove is smarter—much, much smarter. In case you don’t know who he is, Andy Grove is the former CEO on Intel, one of the most successful computer companies on the planet. In an intriguing article in The Wall Street Journal, Grove suggests that the auto industry is undergoing a transformation that is analogous to the transformation that occurred in the computer industry during the 1980s and 1990s. He writes:
The transformation of an entire industry does not happen very often. It only occurs when a number of factors align, such as a change in consumer demand, a shift of parts of the major supply chain from one country to another, and the emergence of key technological changes.

This is what happened in the computer industry in the 1980s and '90s. Previously, each company produced its own mainframe computers using proprietary hardware and software. The company's sales force then sold these complex and expensive products.

The PC changed this. In a period of just a few years, the industry was pulled apart and reassembled. The entire industry began to rely on common hardware elements (microprocessors) and packaged software; selling was handed off to third parties. In business we call this moving from a "vertical" structure (where a company handles its own development, manufacturing and distribution) to a "horizontal" structure (where some companies specialize in building components while others integrate them and handle distribution tasks).

The result was that the computer industry became more dynamic as old participants (such as Burroughs and Digital Equipment) faded away and new types of companies (such as Compaq and Dell) emerged.

The same thing happened to the U.S. auto industry, but they failed to react and as a consequence, faced extinction. To the rescue came the Obama administration, taking an ownership position in a failed company, all in the name of saving jobs.

Again, Grove comments:
Imagine if in the middle of the computer transformation the Reagan administration worried about the upheaval and tried to rescue this vital industry by making huge investments in leading mainframe companies. The purpose of such investments would have been to protect the viability of these companies. The effect, however, would have been to put the brakes on transformation and all but ensure that the U.S. would lose its leadership role.

The government's investment in General Motors might be directly helpful if the auto industry only had the recession to contend with. But that is not the case. The industry faces the confluence of a world-wide recession, rising fuel prices, environmental demands, globalization of manufacturing, and, most importantly, technological change involving the very nature of the automobile.

A smart guy like Barack Obama and his team on Ivy league geniuses should pay attention to a guy like Andy Grove. He actually lived through the transformation and came out the other side successfully.

Instead they invested (and will continue to invest) in a dinosaur. Despite all of the glitzy new commercials and the promises of a new GM, the old structure remains entrenched—high burdened labor costs, an unimaginative management team, and a business plan that relies of Chevy and Cadillac in an emerging era of EVs and PHEVs.

Finally, the ex Intel CEO summarizes:
The U.S. government is investing in the automobile industry with the intention of preventing jobs from being lost. This may improve GM's ability to operate within today's structure. But there is no comparably large investment being made to develop the capabilities that could serve the company in a new era of electric cars.

China appears to be making a different bet. It's not clear precisely how the Chinese government influences industrial strategy. But China is putting a great deal of effort into developing and manufacturing batteries. Essentially, it is betting that it can take the lead in creating the foundation technology of what will likely be the new structure of the auto industry.

Which is the better investment strategy? It is too early to say. In the short term, the U.S. strategy will likely save jobs. The long term is much more problematic. We do not yet know when and if the automobile industry will shift into a horizontal structure. The stakes, however, are very high. The strategic bets being placed by each country may determine which one will end up as the world's leader in automotive technology and manufacturing.

Looks to me like the man of hope and change is banking on the “vertical.” He put his money on the internal combustion engine, instead of providing significant incentives for EV start-ups that just might take us into the next era of the automobile.

As ironic as it seems, it makes sense. Barack Obama is a believer in big government as the solution. GM, with all of its inertia and inefficiencies, is eerily similar to big government. Ca-Ching.

Sunday, July 12, 2009

Out of Africa

President Obama gave the first brutally honest, on-target speech of his Presidency yesterday, and for that he should be applauded.

Unfortunately, the speech was not directed at American citizens, but at an audience in Accra, Ghana. The topic was not about the troubles with the US economy and realistic ways to address them, it was not about energy policy and brutally honest approaches that will make America energy independent, it was not about health care and a realistic approach to a medical system that serves 90 percent of our populace by providing the best, most accessible medical care in the world.

Instead, and appropriately, it was about Africa.

The West has poured well over a trillion dollars (there was a time when that was considered a lot of money) into Africa over the past four decades. Yet the continent continues to struggle. Corruption, violence, nepotism, disease, poor education, tribalism are endemic.

President Obama began with a simple well-stated truth: “We must start from the simple premise that Africa's future is up to Africans.”

But he went much further, confronting the postmodern notion that the West alone is somehow responsible for the continent’s problems:
Now, it's easy to point fingers and to pin the blame of these problems on others. Yes, a colonial map that made little sense helped to breed conflict. The West has often approached Africa as a patron or a source of resources rather than a partner. But the West is not responsible for the destruction of the Zimbabwean economy over the last decade, or wars in which children are enlisted as combatants. In my father's life, it was partly tribalism and patronage and nepotism in an independent Kenya that for a long stretch derailed his career, and we know that this kind of corruption is still a daily fact of life for far too many.

It was an honest and inspirational speech. I can only hope that Africa’s people and leaders were listening. But I won’t hold my breath.

I only wish that the President would be equally honest with the American people and state a number of simple truths:

  1. Government cannot and will not solve all of their their problems. Big, unrestained government is like a hemorrhagic virus that will slowly bleed the life blood out of our country.

  2. National indebtedness on a scale unimagined only a few years ago will be a burden that Obama’s strongest constituency (young people) will have to bear over the rest of their and their children’s lives. Wishful thinking and naive projections will not reduce the deficit - but spending cuts just might.

  3. Energy independence is about addressing targeted inefficiencies, improving infrastructure, and encouraging entrepreneurship—NOT a ridiculous cap and trade scheme that will have a deleterious effect on an already weakened economy.

  4. Medical care in the USA is NOT in crisis. Do changes have to be made? Yes. But they should be small and well-targeted. Heavy government intervention into a system that is expensive, but not broken (according to 73 percent of the public when asked about their own health care regime), is both ill-advised and irresponsible.

  5. The “rich” cannot pay for everyone else. First, it’s dishonest to say that they can—there simply isn’t enough tax revenue no matter what the rate. Second, it’s very bad tax policy and very dangerous for the country. When 10 percent contribute 70 percent of income tax revenues and close to 50 percent pay none, something is wrong.

We need Africa-like speeches on each of these topics—factually based, stating hard truths that some of the President’s constituency might not want to hear. I can only hope that Barack Obama decides to give these speeches. But I won’t hold my breath.

Monday, July 06, 2009

Children's Rules

There is an interesting phenomenon that has occurred repeatedly in at least a few Northeastern blue states. The electorate sends a liberal legislature to do their business, but in what might seem to be a counter-intuitive twist, elects a more fiscally conservative Governor (often a Republican) to reign them in. It’s as if the electorate’s inner child wants lots of juicy government programs, but at the same time it wants an adult to control the children in the legislature so that they don’t get too rowdy.

When I look at the massive new Federal programs being proposed by the Obama administration, particularly in the context of the current recession and the already massive debt that will weigh down any recovery, I worry that the national electorate has also indulged its inner child by electing an overwhelming Democratic majority in the Congress. But it somehow forgot to put an adult in the White House to reign them in. Hence, we see irresponsible spending proposals totaling trillions of dollars, with no suggestion as to how to pay for them.

Fred Hiatt, the Editor of The Washington Post’s opinion page, and certainly no enemy of Barack Obama, comments of this situation:
"The systematic widening of budget shortfalls projected under CBO's [the non-partisan Congressional Budget Office] long-term scenarios has never been observed in U.S. history," the CBO pointed out in its usual dry style. And: "All in all, the U.S. economy could contract sharply for a long period."

Obama's response has been to acknowledge the seriousness of the problem -- and make it worse. I'm not talking about his record-breaking stimulus plan, which was essential (if not ideally shaped) given the recession he also inherited. Rather, it is Obama's long-term budget that would more than double the projected deficit over the next 10 years, to $9 trillion, by extending most of the Bush tax cuts and limiting the alternative minimum tax while creating new programs and entitlements (to college tuition scholarships, for example) and refusing to cut back on existing ones.

And that's not to mention his top priority, universal access to health care. Obama has said that reform must be paid for, and he hopes it will lead to a slowing in the growth of health-care costs. That would hugely improve the long-term budget outlook.

But the prospects of cost control are tenuous, experimental, distant and politically fraught; by comparison, creating an expensive new entitlement is easy. [emphasis mine] Obama has proposed to pay for part of universal access by collecting more income tax from the wealthy, which would make the existing deficit that much harder to close. The cost of the entitlement could rise more quickly than the revenue paying for it. There is a good chance, in other words, that whatever emerges from Congress this summer will worsen the budget prognosis.

I’d be less than honest if I didn’t admit that I’m worried about the future, and it has nothing to due with vacuous claims that Cap and Trade will somehow “save the planet” or that universal health care will magically reduce the federal deficit while at the same time improving the economy and business climate – all without raising taxes on any but “the rich.”

I’m worried because with each passing month, it appears that children—full of good intentions and idealism—are running the government. The problem is that those good intentions and idealism have to be tempered by adult common sense. You know, by real grown-ups who recognize that nothing is free, and sometimes the best approach is to do a little less than you’d like because you really can’t foresee the unintended consequences of doing it all.

No worries though. My friends keep telling me that Barack Obama is a really smart guy, and he has it all figured out. Hope so.