Unintentional Irony in the State of the Union

While pointing out what a great country America is and implicitly comparing us to our competitors such as China, Obama made the following remark in his most recent State of the Union Address:

China is building faster trains and newer airports. Meanwhile, when our own engineers graded our nation's infrastructure, they gave us a "D."
We have to do better. America is the nation that built the transcontinental railroad, brought electricity to rural communities, constructed the Interstate Highway System.

The irony comes in using the transcontinental railroad as way to highlight how capable Americans are.  The toughest part of building the transcontinental railroad was laying track across the Sierra Nevada's.  The American workers were unreliable, so Chinese workers were brought in to do the job.

These workers quickly earned a reputation as tireless and extraordinarily reliable workers--"quiet, peaceable, patient, industrious, and economical." Within two years, 12,000 of the Central Pacific railroad's 13,500 employees were Chinese immigrants.

Almost 150 years ago Chinese workers were brought in to do a job that Americans weren't willing or able to do*. Obama's speech writers were trying to make a more general point about the value of infrastructure in general while touching on the feel good notion that Americans can accomplish anything. It is amusing to contrast this message with the idea that 145 years ago the Chinese work ethic, technological expertise and cheap labor were what drove this particular American success.

*This isn't the only way history seems to be rhyming if not repeating. In response to the Chinese competition there was rampant protectionism of white labor with the passage of the Chinese Exclusion Act to prevent Chinese immigration along with many local laws attempting to prevent Chinese labor competition from impacting white Americans.  These discriminatory laws ultimately led to a Chinese boycott of American goods in 1905-1906.
Edit: There is more. Chinese laborers in the US were also known as better savers back then, as many of them were able to refrain from spending a large portion of their paycheck on alcohol.

 

 

Trying to set a dangerous precedent

Lawyers and NGOs smell blood. They are trying to use the court system to get damages for climate related disasters from companies responsible for emitting carbon dioxide.  So far, no damages have been paid out by the courts.  That's a good thing, because it seems like lawyers and NGOs want to be able to sue any company emitting greenhouse gasses for any negative weather event.  There would a giant swooshing sound as more resources in the economy flowed out of productive enterprises into the hands of lawyers.
 

Fixing Broken Government - A Reaction

I just saw a speech given by Philip J. Howard on the topic of Fixing Broken Government.  The LongNow introduces Philip J. Howard as "a conservative who inspires standing ovations from liberal audiences."  They fail to mention that he does this primarily by making fun of Sarah Palin and the Tea Party.

In a very convincing speech, he highlighted how there are many problems that originate from overly complicated rules that are more effective at creating paperwork than in getting the job done. A lot of more of these rules exist today because old laws stay on the books while new ones are added on by a congress who doesn't feel like its job is to fix older laws and regulations.

While he has been involved in attempts to fix regulation on a micro level, Philip has three main reforms that he believes would help solve many of these issues on a systematic level.

1. Laws need to sunset automatically.  This would stop laws from piling up and make the special interests actively fight to protect their favored laws rather than let them target any lawmaker who decides to do anything about their laws.

2. Government officials need to be able to use more discretion in the performance of their jobs.  This would allow for simpler laws and prevent bureaucratic disasters. It will also allow the government to hire more competent employees, the kind who can get the job done without being bogged down by paperwork or always having to follow a poorly planned checklist of procedures.  There also needs to be someone who can green-light a project once a reasonable amount of background research has been done. The interstate highway system was built in 15 years, but today it takes 10 years of feasibility studies and environment assessment before they are even thinking of building windmill off the coast of Massachusetts. 

3. Government officials need to be more accountable for their performance.  This basically means that they need to be able to be fired.  This makes it so the government officials who aren't handling the responsibility they are given can be gotten rid of.

Unfortunately, I became even more pessimistic about fixing broken government after hearing this part of the speech.  The problems that were outlined were much more salient than the solutions that were offered.  When more and more laws sunset automatically, special interests will become more adept at getting them renewed. If a reform that automatically sunsets old laws is ever passed it will hopefully be in conjunction with a congress who is willing to do something about the problem of old laws cluttering the books at the same time. However, once congress grows complacent about this issue and the special interests remain vigilant, it is hard to see how even a large procedural change will do much good in the long term. 

The next two steps go hand in hand. Workers who cannot be fired cannot be given very much leeway in their jobs. In China, local bureaucrats who have discretion with their jobs but are not accountable to anyone but party elders have made millions of dollars selling the land of villagers to large corporations. 

But even if government workers can be fired (by their superiors for lower ranked workers or the higher ranked ones by voters), there are many other problems with giving government workers too much discretion.  In many cases, the government is deciding on whether to award permits that could be worth millions of dollars to businesses who can easily afford to buy the decision maker.  The corruption can happen either directly or indirectly. In Japan, the indirect corruption is subtle: regulators get appointed to the boards of private corporations after they retire. Giving government workers more leeway and accountability might still be better than the status quo, but it will open up a whole new can of worms.

While expanding the three solutions to all of government might take some work, the school system is one area where these types of changes could create an immediate positive impact. One scary statistic is that it cost the Los Angeles School Distract $3.5 million dollars when it tried to fire 7 teachers over the last 10 years. This means that teachers are not by any means accountable once they get their tenure. Another statistic comes from a study which finds that the US would be on top of international math and science educational rankings if we replaced the bottom 5 to 8% of teachers with average teachers.  If the reforms that Philip is pushing were applied only in schools then there could be real progress.

While the chance of a larger fix to the problem of bad governance happening anytime soon doesn't look too likely, it is good to know that there are people identifying and coming up with potential solutions to these types of problems.
 

Krugman to his commenters

Krugman is a little upset with some of his commenter's insults.

Get your insults right. There is, I believe, a fair bit of evidence against the hypothesis that I’m stupid. What you mean to say is that I’m evil.

I think what his commenters are trying to say is that he often makes stupid arguments because he is evil (which in internet discourse means they have different ideologies) or because he is too obsessed with his clever models that he underestimates the real world consequences of some of his arguments.

The basic point is that the recession of 2001 wasn't a typical postwar slump, brought on when an inflation-fighting Fed raises interest rates and easily ended by a snapback in housing and consumer spending when the Fed brings rates back down again. This was a prewar-style recession, a morning after brought on by irrational exuberance. To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.

 

About

I studied Bioengineering at the University of California at San Diego. While there I served as a trustee on the investment committee of the UCSD Student Foundation, a group that manages an endowment to fund scholarships. While in college I applied my interest in finance and economics by working as a summer associate at Clarium Capital Management, working part time my senior year, and joining full time when I graduated in 2006, staying there through August 2010. I am currently working as a portfolio manager at another global macro hedge-fund in the Presidio (And blogging about more directly market related ideas at their restricted blog). I’ve been focusing on quantitative finance, currencies, commodities, the interplay between finance and politics, demography and other long term trends.

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