More Probability Suckage

Source: xkcd

I have often noted (see here too) that we generally suck at math, to our great detriment. I have also noted that we are especially poor at dealing with probabilities. If a weather forecaster says that there is an 80 percent chance of rain and it remains sunny, instead of waiting to see if, in the aggregate, it rains 80 percent of the times when his or her forecast called for an 80 percent chance of rain, we race to conclude — perhaps based upon that single instance — that the forecaster isn’t any good. Data trumps our lyin’ eyes, but we don’t routinely see it (and even deny its efficacy).

Further evidence – as if it were needed – in support of my thesis has been offered this week in the reaction to Nate Silver’s projection that Republicans have a very real chance of gaining control of the Senate later this year. This forecast (“a Republican gain of six seats, plus or minus five”) is hardy earth-shattering to anybody who has been paying attention. The configuration of seats up for election favors Republicans and the Democratic President’s approval ratings are dreadful. There isn’t much reason to expect an upswing in Democratic support either, even though (obviously) almost anything could happen over the next few months. Dealing with probabilities necessarily means being wrong sometimes.

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Exhibit A

I have often warned against making investment decisions based upon political commitments, and I am hardly alone. A wonderful/dreadful example is provided by Stephen Moore, who announced this week that he is leaving The Wall Street Journal to become Chief Economist for the Heritage Foundation. Quite obviously, Moore opposes the policies of President Obama vociferously (“Everything he’s done has been such a massive failure…”).

That is his right, of course, and I take pains to keep Above the Market away from politics as much as possible. My point is that Moore’s political commitments foolishly override more objective analysis and thus impact his economic and investment outlooks negatively.

What Will 2030 Look Like?

The National Intelligence Council is composed of the 17 U.S. government intelligence agencies.  The Council’s Global Trends Report has, since 1997, worked with a variety of experts both in and out of government service to examine factors such as globalization, demography and the environment to produce a forward-looking document to aid policymakers in their long-term planning on key issues of worldwide importance. 

“We are at a critical juncture in human history, which could lead to widely contrasting futures,” wrote Christopher Kojm, the Council’s Chair, in his introduction to the current Report, published just this week.

The Report is intended to stimulate thinking about the rapid and vast geopolitical changes characterizing the world today and possible global trajectories over the next 15 years. Significantly, it does not seek to predict the future – we have a dreadful track record in the regard – but instead it seeks to provide a framework for thinking about possible futures and their implications.

The Report argues that the breadth of global change we are facing today is comparable to that during and surrounding the French Revolution and the rise of the Industrial Age in the late 18th century, but it is being realized at a much faster rate. While it took Britain more than 150 years to double its per capita income, India and China are set to undergo the same level of growth in a tenth of the time, with 100 times more people.

I encourage all investors to read it carefully.  Despite the vital importance of the “long cycle,” it isn’t likely to change your current portfolio outlook, but it will provide a helpful backdrop to your overall thinking and to your longer-term outlook and analysis.

Among the Report’s conclusions is that there are certain “megatrends” that are relative certainties and that we should prepare to deal with them.  These include the following (and note that all have investment implications, some of them potentially enormous).

• For the first time in history, a majority of the world’s population will no longer live in poverty by 2030, leading to a healthier global population and a major expansion of the middle classes in most countries.
• Life expectancies will continue to expand rapidly.  “Aging” countries (such as those in the West – particularly Europe – and Japan) face the possibility of a significant decline in economic growth.
• Asia is set to surpass North America and Europe in global economic power, but there will not be any hegemonic power.
• Demand for resources will increase owing to global population growth from 7.1 billion people today to about 8 billion by 2030.
• Demand for food is likely to rise by 35 percent and energy by 50 percent over the next 15-20 years.
• Nearly half of the world’s population will live in areas with severe water stress by 2030.  Fragile states are most at risk, but China and India are vulnerable to volatility of key resources.

These megatrends will inevitably lead to a variety of vexing and potentially “game-changing” questions.  Each has profound political, economic, market and human implications.

1. Will divergences and increased economic volatility result in more global breakdown or will the development of multiple growth centers lead to increased resiliency?  For much of the West, the challenges involve sustaining growth in the face of rapidly aging populations. For China and India, the main challenge will be to avoid “middle income traps.” In general, the global economy will be increasingly crisis-prone and won’t return to pre-2008 growth levels for “at least” the next decade.
2. Will current governments and international institutions be able to adapt fast enough to harness and channel change instead of being overwhelmed by it?  While this sounds generally like the investment challenge we face daily, there are a variety of major global issues in this regard.  Potentially (more) serious government deficits driven by rapid political and social changes are likely to exist. Countries moving from autocracy to democracy are often unstable and about 50 emerging market countries fall into this major risk group.  All of them could – at least potentially – grow out of their governance incongruities by 2030 if economic advances continue.
3. Will rapid changes and shifts in power lead to conflicts?  The general answer is surely duh, with uncertainty only as to the number, extent and nature of the conflicts.  Limited natural resources—such as water and arable land—in many of the same countries that will have disproportionate levels of young men—particularly in Sub-Saharan Africa, South Asia, and parts of the Middle East—increase the risk of intrastate conflict.  It is particularly troubling to note that any future wars in (at least) Asia and the Middle East may well include a nuclear element. Many of these conflicts, once begun, would not be easily containable and would (obviously) have global impacts.
4. Will regional instability, especially in the Middle East and South Asia, spill over and create global insecurity?  See the commentary re #3 above.  Wash; rinse; repeat.
5. Will technological breakthroughs occur in time to solve the problems caused by rapid urbanization, strains on natural resources, and climate change?  The report identifies 16 key “disruptive” technologies with potential global significance out to 2030. They are generally grouped around potential energy breakthroughs, food- and water-related innovations, big data and the forecasting of human behavior, and the enhancement of human mental and physical capabilities, including anti-aging.
6. Will the United States, as the leading actor on the world stage today, be able to reinvent the international system, carving out potential new roles in an expanded world order?  The Report anticipates that the U.S. will likely remain primus inter pares (first among equals) among the other great powers in 2030 because of the multifaceted nature of its power and legacies of its leadership.  But it also expects that the “unipolar moment” is over. Overall, power will likely shift to networks and coalitions in a multipolar world. The United States’ (and the West’s) relative decline is seen as inevitable but its future role in the international system is much harder to project. China is deemed unlikely to replace the U.S. as international leader by 2030.  Non-state actors and even individuals, empowered by new media and technology, will be an increasing threat.  A reinvigorated U.S. economy – spurred perhaps by U.S. energy independence – could increase the prospects that the growing global and regional challenges would be addressed. However, if the U.S. fails to rebound, a dangerous global power vacuum would be created.

From these building blocks and issues, the Report posits potential  futures including a best-case scenario of increased cooperation between the U.S., China and Europe as economic and security interests increasingly align, a worst case scenario of conflict and fragmentation in a stalled global economy where political, social and economic inequalities work against integration and stability, and a scenario involving a “nonstate world,” where the nation-state does not disappear, but countries increasingly organize and orchestrate “hybrid” coalitions of state and nonstate actors which shift depending on the issue.

There is no earth-shaking news here.  But it is helpful to take a step back and look at the bigger picture once in a while.  Because change is so often incremental, it is easy to underestimate how quickly it can happen and how much impact it can have in the aggregate.  In the markets as in life, caveat emptor.

Vote (and some related implications)

As regular readers already know, I am deeply concerned about the deep polarization and dysfunctionality of our political process (see here, for example).  I also expect that, irrespective of which candidate wins tomorrow, it will be extremely hard for him to govern.  Moreover, the depth of our problems do not portend easy solutions anyway, even if the president really had as much power over things (and especially the economy) as people generally think and even if Congress cooperates.  All that said, I strongly encourage you to vote.  I generally resist writing about politics and I assume that you are as sick of people everywhere trying to tell you how to vote as I am.  I won’t try to tell you how to vote but I will beg you to vote.

I also encourage you to pick-up some investing insights from the current political landscape.

The Project for Excellence in Journalism studied the slant of media coverage of the current presidential election and found that with “horse-race” stories removed (which would skew the results toward the candidate the polls show to be winning at any given moment), media news coverage of the presidential election was generally balanced.  With respect to President Obama, 15 percent of campaign stories were positive, 32 percent were negative and 53 percent were mixed. With respect to Governor Romney it was 14 percent positive, 32 percent negative and 55 percent mixed (these numbers have been rounded). 

The study also reveals the degree to which the advocacy media — predominantly MSNBC and Fox — stand out from other mainstream media outlets even when the so-called “opinion shows” (such is O’Reilly and Maddow) are not considered. On MSNBC, 71 percent of the “news” segments about Romney were negative in nature, compared with just 3 percent that were positive.  That’s a ratio of roughly 23-to-1 negative. On Fox, 46 percent of the “news” segments about Obama were negative, compared with 6 percent that were positive.  That’s a ratio of about 8-to-1 negative. These results make MSNBC and Fox unusual among outlets that identified themselves as news organizations.  For example, CNN’s coverage was roughly balanced (after “horse race” stories were removed).

The obvious take-away is that MSNBC and Fox News are dreadfully biased organizations such that any use of “news” in connection with them probably requires scare quotes.  But that’s hardly a surprise to anyone who has watched them.  I’m struck, instead, by the extent to which the public at large is intentionally seeking out “news” sources that actively cater to their biases.  All the evidence points to the idea that we want to stay within our chosen echo chambers where we won’t have to hear anything that threatens our preferred ideology.  Fox is the clear leader in cable news ratings, but MSNBC crushes CNN (and all others) too.  In the aggregate, the public rejects cable news coverage that purports (or even tries) to be impartial. I suspect that consumers of finance news and information, both professional and amateur alike, are prone to the same problem.

Our behavioral biases make it difficult for us to discover anything approaching objective reality even when we are consciously aware of them and are actively on the look-out for information that might question our preconceived notions.  If we are going to succeed at investing, which necessarily focuses on what works rather than on an overarching ideology, aggressively seeking out data and viewpoints that conflict and contrast with our own is vital.  The current environment provides a glut of media and investment outlets and sources.  It’s easy to read/watch/interact only with those that agree with us and are on “our side.”  However, to reiterate a point I make often, information is cheap but meaning is expensive.  Staying within one’s bubble of comfort when it comes to understanding the markets — no matter how strongly we feel like doing so — is a recipe for disaster.

Finally, I am struck by how few people actually vote.  Despite some controversy about how to measure who can vote, there is no dispute that roughly 40 percent or more of potential voters don’t bother to go to the polls in presidential election years.  There is no reason to expect tomorrow to be significantly better.  Far fewer people vote in “off-year” elections.  That’s a national disgrace.  Yet, if anything, we in the investment world are even worse when it comes to using our ownership clout to impact the governance and management of the businesses in which we have ownership interests.

American businesses do a number of stupid and even evil things to the detriment of their shareholders’ interests.  To pick an easy example, take a look at executive pay.  It has increased wildly over the past few decades with no evidence that the current obscene pay levels impact corporate performance positively.  Yet the mutual funds, money managers and pension funds that are the primary holders of stocks (beyond a few notable exceptions) are complicit with this theft of shareholder value by refusing to be active contributors and voters at shareholder meetings and otherwise. Corporations and their executives have a fiduciary obligation to maximize shareholder value.  Over-paying executives directly damages the company’s bottom line.  Much of that money could be better used for investment in a new product line (for example) or simply by paying dividends to shareholders.  That we don’t actively work to protect our interests in this regard is both dreadful and inexcusable.

As Jack Bogle points out, the move from ownership capitalism to management capitalism has had dramatic and deleterious effects on shareholders.  Even so, Vanguard (Jack’s baby and a huge owner of corporate shares) has failed to institute positive corporate governance policies that could really help in this regard too.  We need to vote and to take a more active interest in the process both with respect to politics and to corporate governance alike.  Our future success (or simply our future) depends upon it.

Bias Blindness and Political Polarization

If you doubt the power of confirmation bias or the bias blind spot, simply consider some “analysis” of the presidential election. After last week’s vice presidential debate, polling data suggested that the contest ended roughly in a tie.  Whatever one makes of the data, there was certainly no clear winner.  But if you were watching MSNBC, you saw the pundits there crowing about an overwhelming victory for Vice President Biden.  Last night’s debate appears to have been a narrow victory for the President but, not surprisingly, Fox News disagreed. 

We live in a politically polarized time.  Even Facebook is full of political messages and imagery. My Facebook news feed today includes multiple passionate defenses and vociferous criticisms of each presidential candidate among my friends. Relationships are being fractured because of it. Just as predictably, ways to avoid the political morass have been created too.  The divisiveness is pervasive.

My sense is that the key element here is that most partisans see “their side” as not just true, but obviously true. It’s a by-product of the bias blind spot.  We tend to see bias in others but not in ourselves. Therefore, our strongly held positions aren’t really debatable — they’re objectively and obviously true.  After all, if we didn’t think our positions were true, we wouldn’t hold them.  And (our thinking goes) since they are objectively true, anyone who makes the effort to try should be able to ascertain that truth. Our opponents are thus without excuse. 

If they disagree with me, they are denying reality.

Accordingly, few partisans accept that their opponents are generally people of goodwill who simply disagree about what is best for the country.  They are deemed as necessarily being engaged in denialism.  To hear the Republican zealots tell it, President Obama is intentionally trying to ruin the country.  Similarly, Democratic ideologues insist that Governor Romney’s primary goals are to start another war and cut taxes for the rich so as to stick it to the middle class and the poor. Because the assumption — steeped in bias blindness — is that the “other side” is not generally acting in good faith, the necessary conclusion is that they must be stupid, delusional or dishonest to take the positions they do.  

Sometimes it’s true that the “other side” (whatever side one chooses) is what I’ll call irrational with intent. But I doubt that it’s the usual case.  We should never underestimate the power of confirmation bias and bias blindness. 

Brad DeLong is an excellent economist.  He’s also a very active partisan (not there’s anything wrong with that).   Ramesh Ponnuru is a fine writer.  He’s also a very active partisan (not there’s anything wrong with that).  After the debate last night, Ponnuru tweeted the following.      

Like the veep debate. Obama stopped the liberal handwringing, so that’s a victory. Otherwise a draw.

Given the closeness of the debate overall (per the data) and Ponnuru’s strong position favoring Governor Romney (our confirmation bias means we all tend to see what we want to see), his conclusion is perfectly understandable.  Given DeLong’s strong position favoring President Obama (confirmation bias and bias blindness are at work in him too, as in all of us), it isn’t surprising that he sees things differently.  He takes his position as being objectively true – not merely his opinion based upon an interpretation of the facts.  Accordingly, the bias blind spot we all suffer – again, we may recognize behavioral biases generally, but we don’t think we are susceptible to them – likely caused DeLong to conclude that Ponnuru was not just wrong, but dishonest.  DeLong’s tweet follows (my emphasis).   

When Ramesh Ponnuru claims he thinks that the debate was a draw in the eyes of America, I know that he is lying to me.

DeLong knows no such thing.  It’s possible, of course, that Ponnuru is lying, that he thought President Obama dominated the debate last night but engaged in activist spin simply because he is (in DeLong’s expression), a lying hack. But there is no evidence to support the claim.  The more likely explanation is that Ponnuru simply saw things differently.  Our behavioral biases provide more than enough basis to support my explanation as the appropriate default, without clear evidence of nefarious intent.

If we are to have any hope of seeing leaders with different viewpoints working together to solve problems, it ought to start with the idea that those who disagree are generally people of goodwill acting in good faith.  In other words, they may be wrong, but they aren’t necessarily (or even likely to be) stupid, delusional or evil.  Recognition of the reality and the power of our behavioral biases would provide a good start toward making some progress in that direction.

We can only hope.

__________

Update: The Wall Street Journal‘s consistently excellent Jason Zweig pointed me to this famous 1954 study which focuses on “selective perception” concerning a Princeton v. Dartmouth football game.  It provides further support to my argument.  Thanks, Jason.

A Cautionary Tale for our Times

It’s rarely a good thing when one’s local school district and its finances — in this case the district which has graduated my three children, which employs my wonderful wife as a teacher and which generally has remarkable common purpose — is covered in The New York Times. As the Times reports (in a story broken by a local blog), the Poway Unified School District borrowed money at 6.8 percent tax-exempt despite its Aa2/AA- ratings last year via a bond which provided for no debt service payments for more than two decades.   These so-called “capital appreciation bonds,” which raised $105 million in 2011 for needed improvements to district facilities, will require $877 million in interest payments between 2033 and 2051.  To make matters worse, the bonds are non-callable; to add call provisions would have added about $100 million in costs due to the higher coupon the bond would be required to offer. 

No one should be surprised that the local community is not happy with this turn of events.

In a statement attempting to justify the deal, the district noted that the bond issue was the fifth part of a plan to modernize the 24 oldest schools in the district and argued that while this particular bond “has a total repayment ratio of 9.3 times the principal amount,” the overall borrowing program has a repayment ratio of 4.2 (for every dollar borrowed, $3.20 in interest will be paid). In that context it doesn’t sound so bad overall until one recalls that a typical 30-year mortgage at the same 6.8 percent interest rate would require $1.35 in lifetime interest payments for each dollar borrowed, or a repayment ratio of 2.35 and that a more normal tax-exempt bond deal would have required barely 4 percent in interest payments. Moreover, the district’s statement (and a subsequent presentation at a School Board meeting) skirts the issue of why this particular (and particularly rich) bond was deemed necessary and appropriate. “Our job is to educate these children, to make sure they have a future,” said District Superintendent John Collins, as if that settled the matter.

In California, unlike most of the rest of the country, schools are largely financed at the state level, with only certain construction costs among the things funded locally.  What this bond measure means is that someone living in a home with an assessed value (the median market value is closer to $500,000) of $300,000, who currently pays about $165 per year in SFID (School Facility Improvement District)property taxes, will see those taxes rise to $710 per year by 2033 and $842 by 2051.  That’s a huge increase.

So what happened? The district seems to have made a Faustian bargain by following the letter of the law (but not the spirit) to achieve what was deemed necessary but unavailable otherwise.

In 2008, voters gave the district permission to borrow more money to finish a modernization plan that had been begun earlier but which was under-funded because (surprise!) it took longer and cost more than expected.  It was the “planning fallacy” on full display.  But that approval came with a major promise and commitment from the duly elected school board:  no tax increases.  It was clear at the time that no matter how badly the work was needed (and many of the schools were dreadfully run-down and in desperate need of repair), the electorate would not fix the problems if it meant higher taxes (prior such bond measures were repeatedly voted down).  If you think that sounds like our state-wide and federal situation — demands for no tax increases and even tax cuts but no reduction or even an increase in services — you’re onto something, Captain Obvious. 

By the time the last of the financings needed to complete the project in 2011 was on tap, it became clear that without increasing taxes, the district couldn’t afford to borrow money conventionally. The creative solution invoked involved these capital appreciation bonds with no clear statement to the voters of what was going on. This bond structure — no payments for over 20 years — means that no new taxes were needed (we’ll see about 2033, when other bonds are paid off but the extremely high debt service on the new bonds goes on-line).  The full 2,200-word ballot statement from 2008 makes no mention of capital appreciation bonds and provides little detail about the nature of the financing.  The bond measure even received an endorsement from the San Diego County Taxpayers Association, which now regrets having done so and says it was misled.

What we have here is a cautionary tale for these difficult times. The lack of planning that underlies the whole situation is typical but unacceptable. The lack of transparency as well as the lack of full and clear disclosure is shady and disappointing.  The willingness to “kick the can down the road” and foist our problems onto future generations is disgusting.  But in a political environment where more and more is demanded from government but where tax increases are not permitted, the district’s actions are perfectly understandable while, at the same time, being utterly deplorable.

As I noted earlier today in another context, we need more responsible government at every level.  We need a responsible citizenry just as badly.  Tragically, neither seems to exist, especially in this instance.

UPDATE (8.27.12): Barry Ritholtz (The Big Picture) added some additional, excellent commentary here.

One Man’s Opinion

On This Week this past Sunday, Jake Tapper hosted an interesting panel discussion entitled “Is the U.S. Headed Toward Bankruptcy?” Video is available here (Part I) and here (Part II). 

As ever, I was frustrated in that the best approach to the fiscal and economic problems we face seems pretty obvious to me but nearly impossible to implement.  It has three component parts. 

• The top priority is a healthy and growing economy.  All sides agree that economic growth is absolutely necessary to escape the morass we’re in.  There will be lots of political arguing about this, but the unfortunate reality is that the government can’t do a lot to rescue the economy except at the margins and around the edges. 
• We also desperately need fiscal responsibility which includes a comprehensive plan to deal with government spending and deficits.  Our current path is simply unsustainable.
• That said, now is not the time to be cutting programs designed to help people in trouble and survive what is still a very lousy economic environment. Moreover, firing government workers when there are few job prospects for them in the private sector doesn’t strike me as a good plan for fixing things. 

All of this suggests a pretty straightforward (if difficult to execute) solution — use governmental resources to keep things from getting worse in the near-term and go about doing those things that only governments can do (like fixing our collapsing infrastructure). Even though it is a monumental longer-term problem, we can borrow money today at extremely cheap rates to do so.  When economics conditions improve, we can then attack the fiscal problems head-on.

But here’s the problem.  There is not a whit of evidence that our bloated and entitled government will ever have the discipline to impose austerity by curbing its spending habits without being forced into it by political mandate.  Even worse, it is least likely to do so when times are good, revenues are high and political largesse is easy to bestow.

Sadly, that means I have no clue what is the best way forward.  The approach most likely to succeed in the long-run is probably to impose austerity now since there seems to be some real support for it, election results allowing.  But if we follow that approach we need to recognize that doing so will force some dreadful near-term impacts, many of them forced upon those least able to manage them successfully. 

The better solution (assuming a more perfect world) risks longer-term financial ruin without responsible government and leadership (how often have we seen that recently?) and has potentially nightmarish consequences for our children, who already assume that they will never have Social Security and Medicare benefits even as we Boomers are whining about any potential cuts to that which we are “entitled” (in a social compact we made with ourselves without the consent of our children, who we expect to pay for it).

If anybody has a plausible solution, I’d love to hear it.

Obamacare and the Markets

I was in Washington, D.C. and stood in front of the Supreme Court Building for a while on Monday watching the spectacle as the world (or at least the country) awaited the Court’s historic decision on healthcare (“Obamacare”).  Unfortunately for me, the decision was delayed until Thursday, by which time I was in Phoenix.  When it came down, the experts were surprised that the law was upheld, albeit not based upon the Commerce Clause (the Administration’s stated grounds), but rather upon the taxing authority of the Congress (a basis that the President had specifically denied).  Predictably, the stock market reacted negatively that day, but that reaction was only so much noise and has little relation to the value of the market longer term.  However, there are at least three respects in which the decision and the legislation it upheld are relevant to the markets over the longer-term.

1. More Deficits; More Gridlock; More Uncertainty. Irrespective of one’s policy preferences, the President’s healthcare initiative is an expensive one.  Therefore, it will add to an already problematic situation about which all the major players are fundamentally dishonest.  Foolishly (if not surprisingly), the public at large wants a full complement of services without having to pay for them.  The Republicans would have us believe that the budget can be balanced without addition revenue — via spending cuts and perhaps even tax cuts.  The Democrats would have us believe that no major spending cuts are necessary.  All are wrong and obviously so.  We need more revenue and everyone will have to contribute — “the rich” (however defined) simply don’t have enough money to solve the problem alone.  We also need spending cuts and not just to discretionary programs (defense and entitlements must be cut too).  The “fiscal cliff” is a serious problem.  The country is deeply divided. Expect even more dysfunctionality over the debt limit this time.  That’s not good. 
2. Perhaps More Activist Taxation.  That the Court upheld Obamacare as a tax may provide an impetus for the government to be more aggressive in implementing policy via the tax code. For example, a bill providing a 10 percent corporate income tax on companies that don’t export jobs and a 35 percent tax on those that do would have a lot of populist appeal.  But it would have a dreadful impact upon the economy and the markets.  That’s something to be concerned about.   
3. A Victory for the Rule of Law. I was struck on Thursday that everyone right up to and including the President was waiting for the Supreme Court to announce its decision without any idea of what that decision would be or the grounds upon which it would be decided.  Unlike most places in the world, there was no major fear that “the fix was in.”  This confidence in the American rule of law goes a long ways toward explaining why the dollar is the world’s default crisis currency and why U.S. Treasury bills, notes and bonds are the world’s default investment in the face of almost any sort of trouble.  Thursday was a pleasant reminder of at least that comfort.

We are long ways from seeing what Obamacare will ultimately look like and how it will work out (even though many of us have strongly held views in that regard).  In the meantime, we can be sure that it is a big enough issue that the impact it will have on the markets and the country as a whole will be a major one.

A Case for Less-Principled Government

During the classic 1976 Ford-Carter debate sketch on the first season of Saturday Night Live, Gerald Ford (Chevy Chase) famously responded to a question as follows.

Liz Montgomery [Jane Curtin]: “Yes. Mr. President, you said that the Humphrey-Hawkins bill will cost a possible sixty billion dollars. But isn’t it true that the jobs provided by the bill will create up to a hundred and fifty billion dollars in increased production — using Walter Heller’s figure that for every one percent unemployed, there is a resulting thirty-seven billion dollar loss in GNP. Now, at the present rate of taxation on GNP of thirty-nine percent, doesn’t this come to about the same sixty billion dollars in increased revenue?”

President Gerald R. Ford: [ sweating ] “It was my understanding that there would be no math… during the debates. Now, I — I am prepared to answer any domestic, uh — questions. Perhaps you would like to know something about me and Betty?”

That delightful phrase:  “It was my understanding that there would be no math.”

I, on the other hand, love math and the data that supports it.  Our politics should be full of it (as opposed to simply being full of it — if you know what I mean).  Today’s politics (and especially political campaigns) is all about principles and sadly deficient in explanations of how what it offered or proposed would actually work.

In other words, today’s politicians always seem to have what they claim is the right answer to every question, but they don’t show their work.

Take for example, Republican Presidential candidate (for now, at least) Rick Santorum’s recent brief dialogue with a student at a Christian college in Iowa who challenged him on healthcare.  The student told Santorum, “I don’t think God appreciates the fact that we have 50-100 thousand uninsured Americans dying due to a lack of healthcare every year.”  Santorum replied, in pertinent part, “People die in America because people die in America. And people make poor decisions with respect to their health and their healthcare. And they don’t go to the emergency room or they don’t go to the doctor when they need to. And it’s not the fault of the government for not providing some sort of universal benefit.”  He added that people should be free to make their own choices on healthcare and not be under a federal mandate.

Notice that the issue is framed entirely in principled terms.  Universal healthcare is either a moral imperative (per the student) or a governmental program that undercuts the morally superior value of freedom. 

I would frame the issue differently.  I would begin by asking whether health insurance coverage is a good thing.  Since I presume we could (mostly) all agree that it is, I would then ask how best to accomplish it.  The best answer might include a governmental component or it might not.  But that answer should depend upon the data — not upon a principle. 

I am not claiming that principles have no place in politics, simply that appeals to them are overused. I understand why politicians rely on them the way they do.  Sounding principled is generally a good thing — it makes them seem strong.  Principles also make for better sound bites than the sometimes intricate (but imperative) weighing of data. 

As a governmental and political skeptic, I need to be shown that government can be effective in an area before I can endorse a proposed policy.  I would prefer to see and hear many more debates about the effectiveness of a proposed policy based upon solid data and less about its being required (or prohibited) as a matter of principle.  Unfortunately, neither major party has much of place for me in this regard.  Both place far too much faith in government for my taste, albeit largely in different areas. Each side has their own set of sacred cows.  Sometimes (see this post I wrote yesterday, for an example), both sides ignore the data to perpetuate some alleged principle.

Give me more data and less principle.  Please.

Nice Work if You Can Get It

Nearly every elected official today agrees that we need to reduce our huge federal deficit.  Virtually all outside experts agree although some, such as Paul Krugman, want us to delay doing so until the economy improves. 

Traditional conservative thought favoring limited government asserts that government tends to be inefficient and wasteful because it isn’t burdened by competition.  Sadly, few politicians today seem to subscribe to this idea anytime, and especially when the Pentagon is involved.

However, a good illustration supporting this concept hit the papers today with news that Aerospace Corporation, which oversees many of the nation’s most classified programs, including the development of multibillion-dollar spy satellites and the rockets that lift them into space, paid $2.5 million to settle Justice Department allegations that the company defrauded the Air Force for years by billing for an employee’s time when it knew he was rarely at work. 

In a fascinating tale of corporate and bureaucratic incompetence, the employee (one William Grayson Hunter) would only occasionally show up at Aerospace in the morning and work for an hour before heading to a second job at Analytical Services & Materials Inc. (another prominent defense contractor) — or simply out to have some fun.  Incredibly, Hunter apparently ran the scheme from 2003 until 2008 and sometimes billed more than 24 hours of work in a single day, even though credit card records show that he was often at a local watering hole called Liquid Zoo, visiting Disneyland or going to the movies.

In addition to submitting fraudulent time cards, Hunter falsely claimed to hold a doctorate from Oxford even though he had only a high school education.

Nice work if you can get it. 

According to a government attorney involved in the investigation, Aerospace knew that Hunter was not working the hours he claimed and billed the government anyway.  Despite proposed cutbacks in government spending, Aerospace’s budget increased to about $900 million in fiscal 2011.

Nice work if you can get it. 

The scam was only discovered when yet a third defense contractor from which Hunter sought employment, Tybrin Corporation, inquired about his security clearance.  Sadly, Hunter died before he could face charges.

Apparently Hunter was still able to garner “mixed reviews” from supervisors despite his lack of work.  As long as the billings keep getting paid, what’s not to like?  Aerospace spokeswoman Pamela Keeton said that the position Hunter held, which paid him $137,000 per year (his ASM salary remains undisclosed), “gave him a lot of autonomy and discretion. Unfortunately, he abused this privilege.”

Indeed.