The nurses and staff at the Ambulatory Surgery Center were all most enjoyable and apparently competent. I have only positive things to say about them.
I do, however, have one concern regarding the urologist. My concern is this: He is not a man of his word. He apparently finds it relatively easy to break commitments. Further, he does so with apparent impunity – or at least thinks he does. I refuse to do business with people like that.
Here are the details:
I received a call on Thursday, Nov 20 indicating that my follow up appointment scheduled for Nov 24 would need to be rescheduled to Dec 1 because the urologist had a higher priority patient that he was scheduling for Nov 24. While I applaud the doctor’s humanitarian concern about helping the sickest first, that isn’t all that is going on. This is as much about the doctor’s financial concerns and personal schedule as it is helping ‘his’ patients.
First, note that the patient newly scheduled for Nov 24 was not in a true emergency. That can’t have been possible since I was notified 4 days in advance, after the patient had already been scheduled. If this had been a true emergency, it would have been addressed the same day. Instead, the doctor probably just rationalized that this patient X needed to be dealt with sooner than others like me. And since the doctor was unwilling to hand off patient X to another doctor with a less crowded schedule and was unwilling to treat patient X after hours, the choice apparent to the doctor was to move his other appointments (including mine) to a different day.
And note what the doctor did. When I received a call asking me to reschedule, I was asked to see the doctor on Dec 1. There was no consideration given to the possibility that I might have already made plans, that any delay would impact me financially or otherwise. The decision to push things out was simple made by the doctor. The doctor had other choices, had he been interested in taking them, but those were ignored. Perhaps they were ignored because the doctor really wanted to make money from all the patients. Perhaps they were ignored because the doctor simply did not want to stretch out his work day. Perhaps it was a combination of both. Perhaps it was another reason.
Further, though I asked for it, I could get no guarantee that the rescheduled appointment would be any more sacred than the one being broken. Given the doctor’s apparent motivation, I could easily see my appointment being bumped for other ‘higher priority’ patients indefinitely.
If this doctor were a man of his word, he would be willing to pay the price for it. That would mean that he would uphold commitments previously made, making adjustments around those commitments rather than throwing them out wholesale.
In the Innovator’s Dilemma, Clayton Christensen identifies 4 key factors for any purchasing decision. In order of importance they are: capability, quality, convenience and price. I sincerely doubt that this doctor is among the elite who are irreplaceable – although he might think that. For my needs, any competent urologist will fill the needs of both capability and quality. Next comes convenience. Key ways to measure convenience include not just location and office hours, but also the ability to rely on scheduled appointments. When I arrange my commitments based on a scheduled appointment, I expect it to occur. When it doesn’t, I have to rearrange my schedule. This inconveniences not just me, but others I work with. It can also affect travel plans, physical activity, and more.
I understand that everyone has emergencies. Sometimes unplanned things happen. But when a doctor bumps me because he wants to see another patient, it isn’t an emergency unless no other doctor can solve the problem and the problem has to be solved right now. This is not one of those cases.
If this doctor truly believes he is irreplaceable, then I’ll prove him wrong right now by replacing him as my doctor.
This essay was originally written in the summer of 2009. With the recent shelling of Yeonpyeong by the North Koreans, it seemed appropriate to post it now.
“We will never again take part in such talks and will not be bound by any agreement
reached at the talks.” – North Korean response to UN sanctions following its March 2009 missile launches, referring to the Six Party Talks.
The Six Party Talks, a creation of the United States
in 2003 in response to North Korea’s desire for bilateral negotiations regarding security and denuclearization on
the Korean peninsula appear to be in shambles. Instead of tete-a-tete, recent interactions have been tit for tat, with
Secretary of State Clinton referring to the North Koreans as “unruly children”,
to which they responded calling her a “primary schoolgirl”[SH1].
As far as the North Koreans are concerned, the talks are “over” and “dead” – or
so they say.
The US and North Korea appear to be playing a
game of nuclear chicken. While their actions appear rational on the surface,
given their stated interests, a pathway that eliminates the incentive and
justification for nuclear threats and, instead, creates positive incentives in
the North Korean population is available. All it requires is creating an
American mentality in individual North Koreans[SH2].
The Korean War stopped in 1953 when the US, China and North Korea
signed an armistice agreement, ending hostilities with the peninsula divided at
the 38th parallel.
However, South Korea
refused to sign, leaving the Koreas
technically at war.
Subsequently, the ROK/US
Mutual Security Agreement placed 50,000 US troops permanently on South
North Korea was founded from the
Soviet controlled portion of the Korean peninsula following the Soviet Union’s rejection of a plebiscite on a unification
government after WWII.Kim Il-sung was declared Prime Minister and
later consolidated power partially through the creation of a personality cult
so intense it disturbed even his Soviet benefactors. While the Korean Worker’s Party (KWP) claims
to be progressive, North Korea is much more akin to a Confucian monarchy than a
North Korea’s policy of Juche (“self-reliance”) initially resulted in an
economy second only to Japan’s, but the oil price shock of 1974 combined with
over investment in the minerals industry (to create foreign exchange) and
military (spending that foreign exchange) slowed economic growth. By the 1980’s, industrial output was declining. North Korean trade with the West (principally
Japan) peaked in 1974, and then collapsed after North Korea defaulted on its
currency requirements from Russia in 1991 and China in 1992 put additional
pressure on the DPRK.
Subsequent floods and droughts further exacerbated domestic problems.
South Korea was formed from the UN
sponsored plebiscite rejected by the Soviet Union
after WWII. While native Koreans, having chafed under Japanese rule for four
decades, had planned on recreating a united Korea based on democratic
principles, the ignorance and lack of interest in Korea displayed by American
occupation forces combined with US concerns over the leftist leanings of most
of the post WWII Korean leaders led to a US rejection of indigenous formation
of a Korean government and, instead, the installation of Syngman Rhee, a Korean
exile who had resided in the US for decades.
This resulted in a US backed succession of authoritarian governments, with the
first stable democratically elected government coming to power in 1987. While democracy was slow in coming, South Korea’s
liberal economy resulted in rapid economic growth.
The United States’ significant involvement in
Korea began with the General Sherman Incident in 1866 when an attempt at
establishing a trade treaty with the Korean government failed. Further attempts in 1871 also resulted in
Although trade treaties were established by 1882, the next significant
involvement did not occur until after WWII. Korea, having
been occupied by Japan
in 1910 at the end of the Russo-Japanese War, was still a Japanese colony when
WWII ended. As head of the military occupation of Japan, the US was forced
to do something about Japan’s
Fearful of a Communist takeover of Korea, the US installed a
favored regime in the South and came to its aid during the Korean (Civil) War. The
establishment of the ROK/US Mutual Security Agreement created strong military
and, consequently, economic ties between the two countries. These
economic ties have continued to expand since WWII. In addition to economic ties with South Korea, the US also has strong economic ties with Japan that also evolved out of the post WWII occupation.
Currently North Korea’s most significant
trading partner and the neighbor with the longest land and sea borders, China’s role in
began with the establishment of the Provisional Government of the Republic of Korea in exile in Shanghai in 1919.
That role expanded rapidly when China
entered the Korean (Civil) War in October 1950,
which Mao saw as necessary to protect the progress of Communism in Asia.
is also the recipient of a large number of North Korean economic and political
As the descendant of the USSR, the
initial sponsor of North
Korea and Kim Il-sung, Russia has had
continuous political and economic ties with the country since its inception. These
have waxed and waned as North
Korea has moved closer to China. With the
breakup of the Soviet Union and the installation of hard currency trade, trade
dropped dramatically but has rebounded as initially promised supplies of fuel
oil from South Korea and the US (in exchange for the destruction of the
Yongbyon nuclear plant) have fallen short. North Korea
currently pays for most of its foreign trade with Russia by supplying free labor,
much of which is used in the Russian Far East timber and logging industry. Russia shares
an 18 Km border with North
Korea along the Tumen river.
Besides security and economic concerns common
to the region, Japan
has an additional interest in resolving the status of a number of Japanese
citizens kidnapped by North Korean intelligence. While
the numbers are small – North
Korea admits to 13 – this has become a huge
emotional and political issue. Pyongyang
would like to improve ties with Tokyo
(hence the admission) but is seen as prevaricating on the details of this issue. This,
combined with recent missile and nuclear tests, has created severe distrust on
the part of the Japanese population, making any retreat from the kidnapping
status issue effectively impossible for Japanese politicians.
The basic game revolves around a desire for
economic and political stability on the part of all the regimes in the Six
Party Talks. The North Korean political establishment, in order to stay in
power, must contend with a struggling economy. According to the Bank of Korea,
in 2008 the per capita Gross National Income (GNI)
of North Korea
was 5.5% of that of South
Korea. While North Korea has made some moves
towards a market economy, these have been limited - some say this is due to
fears of a concomitant desire for political liberalization. They have used military sales as a way to
prop up the economy, currently around $20B US GDP, and
obtain foreign exchange.
However, official trade is now so low
(less than 10% of the economy), that the impact of this foreign exchange is
probably only felt by the elite. The
primary reason is that North Korea simply has little, except raw materials and
weapons, that others want to buy.
In addition to economic and short term
political stability, South Korea is also interested in potential reunification.
Because many families still remain split across the DMZ, there is interest at
both the familial and national level in this possibility. The early part of the
decade was marked by a thaw in relations with the North, with increases in
investment and family exchanges. There has not been complete trust due to the
aggressive posture of the Northern regime and the South continues to maintain a
strong US presence as a defense. The May 2009 nuclear tests finally pushed the
South to join Proliferation Security Initiative, which
the North described as “an act of war”. In
addition, South Korea must be concerned about the potential of millions of
refugees flooding across the border in the event of political collapse.
Japan, of course, has strong interests in repatriation
of kidnapped Japanese citizens as well as general regional stability and
economics. In addition, there are strong concerns about DPRK political
stability and potential missile attacks. North Korea’s nuclear ambitions
have resulted in Japan
rethinking its defensive only military posture. This has even included talk of
examining the need for a nuclear deterrent, though official policy discounts
China and Russia have
strong economic interests due to their trade with the DPRK. They also have
refugee concerns – particularly China,
which, as of 2005, had between 10,000 and 300,000 DPRK refugees.
In addition, China
have developed strong economic ties with both Japan and South Korea,
supplying most of the energy for the region and China being the investment
destination for many Japanese and South Korean companies, making anything that
would impact those relationships of concern.
While the US has negligible economic
interaction with the DPRK, it has
strong economic ties to the entire region.
Disruptions in trade with Japan, China, or South Korea
would have an immediate impact on the US economy.
Changes in the balance of power are a stated
concern to the US
likely interested as well. China
is deeply concerned about changes in the nuclear balance in the region in light
of recent talk in Japan
about the need for a nuclear deterrent.
has both specific defensive interests of its own, due to DPRK missile and
nuclear technology, as well as global concerns due to North Korean exports of
military (particularly nuclear) technology.
likely share these global concerns as well since terrorist organizations could
just as easily strike at their interests.
The North Koreans political establishment
publicly perceives external threats from the US. As such, their interests are in reducing that
threat. However, they also know that their military technology is the only
significant bargaining chip they have to extract economic aid from the West. With a need to deliver economically, they get
multiple benefits from the ongoing development of nukes and missiles – they can
create nationalist pride (particularly at their ability to stand up the US), improve
their ability to earn foreign exchange, and create increasingly valuable
bargaining chips to extract concessions from the West.
The US, ROK,
have incentive to participate in order to stave off nuclear war and/ or
societal collapse in the DPRK. While
they have this incentive, they also feel constrained to avoid a one-sided
negotiation. The US,
in particular, doesn’t want to be seen as simply giving in to DPRK demands – it
demands a quid pro quo. The October 1994 Agreed Framework was based
on this principle, where the DPRK would verifiably dismantle their nuclear
facilities in exchange for 2 new light water reactors and 50K tons of fuel oil
annually from the US and ROK until those new reactors were completed. The
quid pro quo broke down over US concerns over the DPRK’s continued uranium
enrichment program and the
fuel oil shipments were interrupted (to be replaced by imports from Russia). Now,
wants to hold the DPRK to those original commitments before any more movement
occurs. In the mean time, the UN has authorized interruptions to the DPRK’s
export of weapons and military technology.
It is unclear if DPRK fear of US attack is
real or merely an attempt to distract the population from the inability of the
political establishment to deliver economically. It is clear that the DPRK is undergoing its
second leadership transition. Kim Jong-il apparently suffered a stroke in 2008
and was recently diagnosed with pancreatic cancer.
Recent instructions to DPRK embassy staff indicate that his third son Kim Jong-un
may be the chosen successor, but that transition is still underway.
During this transition, no one in the current establishment will want to be seen
as soft on the enemy.
As part of this transition, continued nuclear weapons development and missile
testing may simply be for domestic consumption – done as a way to create
“street cred” for the newly appointed leader.
If this is the case, then there will be no resolution because resolution isn’t
the current goal of the DPRK establishment.
It should be noted that, given prior famines
in North Korea, the population may not be as easily distracted as the elite
would like to believe. While Kim Jong-il tries to portray Bill Clinton’s recent
trip to Pyongyang as a diplomatic coup, the
explosive growth in local markets and trading (and the subsequent regulatory
balancing act the central government is trying to pull off) probably indicate
that the population is more focused on bread and butter issues than politics. Unless
the government can deliver on these basic issues through jobs or some other
distribution of wealth, they are likely to see an erosion of power from the
bottom up as the people hold to the form of government economic regulation
while denying its substance. On top, control may also evaporate if
significant factions reject Kim Jong-il’s attempt to solidify his dynasty.
Already some succession moves have failed with the announcement and then withdrawal
of a promotion for one of his sons, along with a cabinet shakeup earlier this
it isn’t clear whether the average North Korean will directly challenge the
party apparatus, breakdown in control at the top will likely embolden the person
on the street to ignore more of the economic strictures the KWP has tried to
institute. It isn’t clear how long this would need to go on before reaching a
tipping point against party control but the DPRK political elite would do well
to learn the lesson of Rumania - Nicolae Ceausescu went from dictator to dead
man in the space of one week in 1989 as the pro-democracy movement swept thru
the Warsaw Pact.
The US may also be playing a meta-game.
While the US
does perceive the DPRK as destabilizing, the US insistence on the involvement of
and South Korea
when the DPRK wanted bilateral talks may reveal an additional interest. While
the inclusion of South Korea
is obvious, and Japan not surprising because of the US military presence there, the
inclusion of Russia
is telling. Pragmatically, the US
recognizes them as the original and current sponsors of the DPRK and thus more
likely to have influence over an eventual outcome.
In addition, however, the US may have
recognized that involving these two nations provided a context to improve
diplomatic relations with both of them at a time when those relations were
deteriorating. The Six Party Talks began
shortly after the Russian crackdown on Yukos, its largest privately held oil
company. Western concerns about this and other actions subsequently led to a
strained relationship between Putin and George Bush. By involving Russia in the Six Party Talks, it
on the world stage in a way that Russians, and Putin himself, had seen as their
Similarly, the involvement of China may have
had similar overtones. The US China relationship has grown increasingly complex
has become the low cost supplier to the world.
providing the low end manufacturing capability for many industries and the
foreign exchange to purchase now over $2T in US Treasuries, the economies of China and the US are tightly
interlocked. In addition, as the two largest Pacific military powers, the US and China must work
together on many regional security issues. Prior to the Six Party Talks, the
Bush Administration had been criticizing the PRC for its human rights record on
everything from Tiananmen Square to Tibet. While this has not stopped, the Six Party
Talks provide an additional way for China and the US to mature
their relationship so that individual disagreements do not interrupt overall
relationships. And, as with Russia,
the explicit recognition of the value of China in these talks feeds Chinese
national pride in seeing their country take what they believe to be its
rightful place on the world stage.
Beyond this, the Six Party Talks provide a
unique forum for illustrating future US involvement in the Asia Pacific
arena. This approach, in sharp contrast to the perceived “go it alone” approach
is inclusive and respectful of relevant parties. As such, it helps dissolve ill
will by eliminating perceptions of US arrogance – which has particular
value in Asian Muslim countries such as Indonesia, Malaysia and
By eliminating a potential foundation for anti American sentiment, the US makes it
harder for Islamic terrorist organizations to find a strong foothold in that
At first glance, the DPRK and US stances in
these various games seem appropriate given their objectives: Nuclear strength can
be an effective deterrent protecting the DPRK regime and US insistence
on a quid pro quo seems necessary to avoid creating undesirable precedent.
However, the evidence indicates that these stances have not resulted in
resolution – and the status quo is certainly not satisfactory to the US. A more
nuanced look indicates that both stances really aren’t as good as they seem.
While the DPRK regime is interested most of
all in self preservation and, by extension, improved economics, they don’t seem
to realize that despite US
rhetoric, democratization really isn’t that important to the US government.
While it may have been the mantra of the Neo-Conservatives during the Bush II
history shows that the US government easily tolerated non democratic friendly
governments during the Cold War and still does where significant economic
interests would be disrupted by regime change (ex: Saudi Arabia). Further, the US has been involved in the
destruction of democratic regimes when it perceived them as unfavorable (ex: Cuba, 1952; Iran, 1953;
1963?;Chile, 1973, Honduras, 2009?).
Because of this, the DPRK really needn’t spend itself into an economic corner
has no incentive to interact with, much less attack, North Korea if it isn’t a military
threat. Instead, they should take a lesson from the USSR, which collapsed in 1991
because military spending had bankrupted the economy.
On the flip side, the US position of
isolation and economic sanctions until the DPRK caves on its nuclear ambitions
is also counter-productive. While the US is rightly
concerned about nukes in the hands of madmen, there seems to be a failure to
understand the lesson of suicide bombers – those with nothing to lose are much
more likely to attempt to take down the enemy even at the risk of
self-immolation. This amounts to the classic game of Chicken – except one of
the drivers doesn’t mind dying. In the DPRK scenario, if continued sanctions
create a population so poor that it sees nuclear ambition, even at the risk of
Armageddon, as a no lose gamble, then the US has clearly failed.
not lost, however. There is a possible resolution if the key objectives of the
basic game are properly analyzed. There is the objective of North Korean
economics, particularly energy sufficiency. In addition, North Korea
also cares about security, national sovereignty and “face”. Current and future
security are the primary objectives to the US - current security in the North
Pacific specifically around North
Korea; future security as it relates to how
others may act to threaten US security interests. The other parties also care
about regional security, economic impact and the threat of social collapse and
refugees. The lynch pins are energy and security in North Korea. Signals from the DPRK indicate
they want to tie economic measures to any settlement. While energy and security
must be addressed, economics are an
inherent part of any security arrangement because economic collapse in a
proto-nuclear state would create obvious security concerns. The October 1994
Agreement was to replace Yongbyon with light water reactors and fuel oil until
those reactors were operational. The DPRK publicly views this as a need for
energy. The US
views this as an excuse for continued nuclearization. The underlying worry here
is that any reactor still uses nuclear fuel and thus still creates some
uneasiness about potential diversion for nuclear weapons, though negotiations
included transfer of spent fuel to Russia to prevent diversion.
However, reactors are not the only option to
provide for North Korea.
Recent advances in alternative energy technology provide a plethora of choices. Because
does not have a modern infrastructure, the
cost effectiveness of these approaches can be measured as part of the total
cost of creating alternative infrastructures rather than simply the incremental
cost of adding to an existing infrastructure. In the West, such calculations
make it difficult for alternative energy to be cost competitive. The advantage of using the DPRK as an
alternative energy test bed is that it not only meets real energy needs, it
enables companies to scale production so that it will be cost competitive in
more modern markets.
Most importantly, it also side steps the
security and legal problems involved in transfers of nuclear technology. Current legal restrictions literally require
an Act of Congress which can be (and has been) scuttled by only a handful of hawkish
Representatives or Senators. Alternative technologies carry no such restriction
and don’t generate security concerns either.
In addition to addressing the fundamental
need for energy, this approach is the first step in addressing broader economic
concerns. Replacing economic sanctions
with investment in and trade with the DPRK can further resolve economic
concerns while also contributing positively to improved security.
One of the underlying problems is differences
in attitudes towards the continued existence of the current DPRK regime. US
hawks favor regime change, seeing it as the only real solution to the security
problem, while the Chinese and South Koreans, as well as others in the US, are
concerned about the resulting refugee problem. It does not appear that either
side recognizes the value of economic self interest. Simply making North Koreas wealthier can solve
the security problem. Here’s how:
Economic sanctions are based on the premise
that by stripping away a society’s economic security, the people will
eventually rise up against the regime. These rarely work. Instead, they let undesirable regimes blame
the sanctions for all their problems.
They can even create a population with so little to lose that it will
easily embark on a suicidal path. When you back a dog in a corner it will fight
everything it sees.
If, instead, you make a population wealthy, self
preservation takes a different form. People have an inherent tendency to value
what they have and protect it as a result. This makes individuals much more
risk averse. We see this now on the Korean peninsula. Seoul is less than 30 miles from the DMZ and
is within easy reach of DPRK artillery. The impact is obvious – the South
Koreans are very concerned about security.
If individual North Koreans were equally wealthy, they would have
similar concerns and those concerns would limit the belligerence of DPRK
The US has obvious concerns about appearing
to cave in to nuclear blackmail. China and Russia have no
such concern since there is no appearance that they are directly threatened.
could provide initial investment, both in alternative energy as well as other
economic development. In
addition, if they can be seen as convincing the US to drop bans on companies
doing business with the DPRK, they would not only look good on the world stage,
but the US would also have a way to gracefully back down, without directly
capitulating to the DPRK. Further, these developments should start near the
South Korean, Chinese and Russian borders. Besides being the most easily
accessible to cross border trade, these areas are within easy range of
conventional weapons from those countries. This creates a dual carrot and stick
approach – the creation of wealth in the DPRK and the simultaneous creation of
fear of losing that wealth.
In addition, the US should formalize diplomatic
relations with the DPRK and sponsor student exchanges. Beyond this, the US need not –
and should not – do anything as a nation. No attempts at exporting democracy;
No foreign aid beyond humanitarian relief; No loan guarantees for investment; No
posturing – nothing. Since the US has
effectively normalized relations through the Six Party Talks, it makes sense to
formalize them. This gives North Korea one
of their objectives without creating bad precedent. There is already a North Korean ambassador to
the UN on US
soil. Adding one in Washington,
while significant to North
Korea, can be seen as insignificant on the
world stage. By limiting US
direct engagement to diplomats, the US does not cave to nuclear
Further, limiting US engagement to solely the
diplomatic level while dropping economic sanctions on those who would do
business with North Korea frees businesses (including US ones) to engage on
their own. North Korea is rapidly becoming one
of the last bastions of cheap labor in the world, even compared to China. Because
of this, raw economics can drive investment, just as it has done in the rest of
Asia. The North Koreans need only look at US investment
or Indian investment in Pakistan
for a lesson on how cross border investment creates both peace and stability.
Sponsoring student exchanges has several
values: 1) It creates a forum for cross cultural understanding; 2) It
introduces North Koreans to capitalism; and 3) It increases the intellectual capital
of the students themselves. The value of
the first is well known. The value of the other two is in their viral nature –
once exposed, these students will return to North Korea as internal ambassadors
for a way of life that will improve their lives and the lives of those around
them while simultaneously subverting any interest in negatively impacting a
system that will ultimately benefit them.
It should be noted that this approach does
not address the issue of North Korean nuclear weapons. Given the DPRK’s failure
to honor previous commitments in this area, some may wonder if they can be
trusted to fulfill future agreements. There is no need for that trust because
there is no need for an agreement on nukes, at least not with the US. Removing the reason for the nukes is a sufficient,
albeit slow way, to eliminate them. As the DPRK becomes wealthier, the downside
risk of nuclear destabilization to the DPRK itself will create stronger and
stronger disincentives for continued investment. It may be that the Chinese and
Russians will condition their investments on limiting or eliminating North
Korean nuclear weapons – this would be understandable and psychologically
easier for the DPRK to implement because of the lack of prior direct conflict.
Such a pathway requires buy in from all
sides, primarily the DPRK and the US. The buy in for the DPRK is simple – by
controlling outside investment, the DPRK government has the ability to favor
loyalists with economic benefits. While internal markets can’t easily be
stopped, external investment requires coordination with the political
establishment. In addition, these external investments also benefit the state
by providing access to hard currency. The North has already created several Special Economic
Zones based on the Chinese model, the
most ambitious being Kaesong, from which it earned US$33.5M last year in taxes
alone. Kaesong has 38,000 North Korean jobs which,
including dependents, may directly support as many as 150,000 people. Kaesong
was initially co-sponsored by the ROK as part of its Sunshine Policy, but the
current ROK government is linking progress on security issues to continued
this perspective, it appears the North has already bought in. The only question
remaining is whether or not they will stay the course[SH4] .
In March, the North temporarily shut border crossings and halted telecom links
during joint ROK – US military exercises. This
threatened to shut down Kaesong which, while it would impact the South Korean
businesses established there, would likely have a larger negative impact on the
North simply because the North’s economy is 1/18th the size of the
South’s. Since this appears to have been done solely for political reasons, it
isn’t clear that the KWP understands or cares about the economic impact of its
The US faces issues on security, human
rights and working conditions in the DPRK. While
it is possible for the Administration to simply stop enforcing some of the
current embargoes on North Korea, until commercial
interests are sure there will be no retaliation from the US government, they
may be hesitant to invest. However, this
concern largely affects only multinationals – regional companies would be
beyond the reach of US
retaliation. And assurances through the Six Party governments could be used to
alleviate any lingering concerns.
The primary problem the US faces is principle
vs. pragmatism – but this is something that a new Administration may be able to
Obama’s pragmatism mantra could
serve him well here, allowing his Administration to take some credit for
improving security and the environment while also changing the way we deal with
dictators. And because most of what needs to be done can be done simply by
choosing not to act on existing sanctions regimes, he has little risk of being
stymied by a recalcitrant Congress.
Does it matter that the DPRK has nukes? Sure.
Are we going to convince them to get rid of them? Probably not immediately –
because it’s all they have. Does it matter what form of government controls Korea? Not
really, as long as it provides for the needs of the population and doesn’t
disturb its neighbors. Government structures are not magical, despite what the
Neocons might think. They are a framework that must rest on and take advantage
of the cultural context they are in. We need only look at many “democracies”
around the world that have form without freedom to see that the key is the
underlying culture. Creating wealth in
the country independent of the political establishment creates a lot of
internal incentive for peace and stability. When a population can rise above
the necessities of life and start to think about the future, they begin to
think about politics. And the first
thing they think is “Don’t screw this good thing up.” A political framework
that supports capitalism and free thinking appropriate to the culture will
evolve over time if that context is there.
If North Korea becomes wealthier and
no longer has a civilian justification for nuclear power, the expense of
maintaining a nuclear threat will quickly be seen as a drag on the
economy. Further, the DPRK elite will
quickly see that nuclear threats are counterproductive in an era where value is
not measured in land and materials, but in the intellectual capital of the
population. The simple conclusion is 1) there is no value in conquest because
that intellectual capital is not subject to forced expropriation and 2) people
under threat are less productive because they are distracted by the threat.
This might seem like a hard sell when it
appears that the DPRK gets everything and everyone else gets nothing. Prior attempts at a quid pro quo have gone
back and forth as one agreement after another has been broken. However, we’re
not really asking the US
to “do” much other than get out of the way. The real work of investing could go
on through the other nations of the Six Party Talks. While it’s possible that North Korea
would attempt to flaunt an agreement that appears to be one sided in their
favor, they may be wise enough to recognize that such behavior could easily
subvert the entire thing. If all the US is doing is stopping enforcement
of existing laws, it would be easy enough to restart that enforcement if
required for domestic political reasons. And it should be fairly easy to
communicate that to the North Koreans.
Further, playing the Basic Game this way also
allows the DPRK and the US to succeed at their Meta Games. Properly handled,
the resulting prosperity will, at least in the short term, help shore up Kim
Jong-il’s successor. And since this solution is inherently multilateral, the US
can succeed in repairing and creating stronger ties with China and Russia that
will be needed as we continue to work through the aftermath of the economic
tsunami of late 2008.
Investment, dialogue and education will plant
an American mentality in the North Koreans involved. It will give them the economic ability and
mental capacity to keep their leaders in check. And that’s all we really care
Republic of Korea, the official name of South Korea.
The ruling party in North Korea. There is little distinction between the party
apparatus and the actual government of North Korea.
- Bank of Korea
- DPRK Economy 2008
See also http://en.wikipedia.org/wiki/Proliferation_Security_Initiative
Democratic People’s Republic of Korea, the official name of North Korea.
While the Bush Administration rhetoric included “Axis of Evil” and “We don’t negotiate
with evil” (see http://www.counterpunch.org/leupp10202006.html),
the Obama administration has the opportunity to take a different tack.
U.N. Security Council Resolution 1874 – see http://www.un.org/News/Press/docs/2009/sc9679.doc.htm
. See also http://www.globalsecurity.org/military/world/dprk/leadership-succession1.htm.
Id. This article describes an
interesting game vendors play with government regulators attempting to enforce
For a history of coup attempts and internal dissent, see http://www.globalsecurity.org/military/world/dprk/leadership-succession.htm.
There are allegations of US
involvement though the sources I found didn’t seem of the highest credibility.
At best, there seems to have been no resistance to the coup by the US government.
Suggested approaches include http://www.fpif.org/fpiftxt/6056
A good source of both energy and energy efficiency ideas can be found at http://www.rmi.org/. A historical perspective
can be found at http://en.wikipedia.org/wiki/Alternative_energy.
Other examples can be found at http://nationalatlas.gov/articles/people/a_energy.html
; http://www.altenergy.org/ ; http://www.alternate-energy-sources.com/index.html
As of 1999, North Korea
generated less than 30 billion kwh of electricity against a demand between
50-60 billion kwh. It also has a failing power grid. See http://www.asiatradehub.com/n.korea/power.asp.
relies primarily on trains, with few roads (due to lack of oil). It also has
limited telecom connections. See also http://www.nationsencyclopedia.com/economies/Asia-and-the-Pacific/Korea-North-INFRASTRUCTURE-POWER-AND-COMMUNICATIONS.html
Some outside investment is already occurring in North Korea. South Korea’s Sunshine Policy has resulted in
several industrial parks (see http://www.fas.org/news/skorea/1999/990412-sunshine.htm
). In addition, there are scattered international investors who see a long term
opportunity. See http://en.wikipedia.org/wiki/Economy_of_North_Korea
The North Koreans may close Kaesong
as part of the current round of tensions (see http://english.chosun.com/site/data/html_dir/2009/05/18/2009051800226.html).
This could have huge ramifications.
[SH1][Clinton can’t catch a
break – as soon as she gets a little attention, her husband steps in and
essentially does her job for her]
reason that this is really a “pathway” or something of a stepping stone is that
the program could start small almost as a pilot and expand to match levels of
North Korean follow-through and continued good behavior – i.e., the more they
do to unwind their nuclear program and the longer they stick to it, the more
support (or at least less U.S. restrictions on trade) – and of course the
program could contract again as needed to encourage better behavior on the part
of the North Koreans.] — I disagree. I don’t think this should been seen as
contingent on anything, considering everyone benefits, the US even more so if
North Korea is growing away from cooperative policies.
is a very interesting precedent and key piece to include, I think. I tend to agree that North Korea would
support and follow this arrangement, but there still is the question of what
guarantees do they have in terms of protection from U.S. intervention if no
nuclear deterrent anymore? Do they worry
about that? I actually think you have
addressed by demonstrating how their real security interests are about internal
threats, not so much external invasion or less overt interference from the U.S.]
this mean timing is an issue – the pathway better get cranked up fast?]
and they can take (some) credit for at least tamping down the flames on this
fire, plus maybe even a little climate change / greening of the planet / test
tube for market-driven, multilateral-cooperation-supported green solutions,
etc. from a rather eloquent President would go far these days.]
There has been a perception that electricity generation and distribution is a natural monopoly since Samuel Insull decided to employ the Wright demand meter and the rotary convertor to build a central – substation styled electricity generation and distribution system in Chicago. The rotary convertor provided the technical capability to build a combined AC-DC system where central generation with distributed substations proved economically feasible. The Wright demand meter provided the economic tool to apportion fixed and variable costs between large and small customers in a way that kept large customers, who could build their own generators, and incentivized small customers, by making their incremental cost lower than that of alternative power sources. This approach, coupled with control of several key patents, made it possible for Insull to develop a “complex of holding companies that exercised control over most of the electric utilities in the United States.”
From that time until now, electricity providers have been regulated as public utilities; businesses granted legalized monopolies with a concomitant duty to serve. This has not kept the US free from blackouts or (perceived) high prices. With retail electricity prices varying widely across the country, and with realization that the natural monopoly really only exists in the system that delivers power from producer to consumer, has motivated regulators to reconsider whether the legalized monopolies were “natural” or even desirable.
In fact, even before the recent attempts at retail competition in electricity, regulators began finding ways to insert competition into the mix. In Otter Tail Power v. US, 410 US 366 (1973), the Court held that distributors are required to make their distribution networks available to all electricity generators, as long as it is “necessary or appropriate in the public interest”. This interconnection for the purposes of “wheeling” power from non associated generators had the effect of keeping wholesale prices low. That has been followed by the Public Utilities Regulatory Policy Act (PURPA) in 1978, which include rules to encourage cogeneration by authorizing FERC to require utilities to purchase or sell electricity from qualifying facilities (QFs). This was combined with regulatory quid pro quo whereby FERC required open access transmission in exchange for the approval of market based rates or utility mergers as a way to introduce more competition into electricity markets.
As competition grew, market based rates and incentive rates were introduced as a way to drive down retail costs. Market based rates allow electricity suppliers that can show they possess no significant market power over buyers to set their rates at whatever the market will bear. Incentive rates, on the other hand, encouraged dominant suppliers to find cheaper methods of generation, distribution and or transmission by allowing the dominant utility to keep a portion of the savings in the form of a higher rate of return for shareholders.
The “final” step in this evolution was put into motion in 1996 with FERC Order 888, which effectively split utilities into generation, distribution, and transmission units. This required utilities to separate for the purpose of determining costs, whether or not the functional unbundling involved actual legal restructuring. The goal of this regulation was to make it clearly possible for independent power generators to compete at the wholesale level . Subsequently, FERC Order 889 required transmission utility participation in OASIS, a real-time market for wholesale power, which provided a basic market mechanism to effect the intent of order 888.
The effect of these market mechanisms have not been what was originally envisioned. Subsequent to their creation, a flourishing wholesale spot market in electricity developed in 1998, only to result in fluctuating prices that peaked more than 2 orders of magnitude higher than the previous average wholesale price and, in the case of California, the bankrupting of Pacific Gas and Electric. In addition, grid reliability did not improve, as evidenced by the August 2003 blackout.
These problems can be traced to a realization that Samuel Insull made when he first began to put together is network of electric utilities: Because electricity could not be stored, electricity supply and demand were required to match each other on a real time basis. Until there is technology that can create appropriate storage buffers for electricity (just as we have for water or gas), electricity production must match demand on a near instantaneous basis. Since demand levels can fluctuate significantly, any system built to be reliable must be able to handle peak demand, whatever that demand is and whenever it occurs, regardless of how much that demand differs from the average.
Peak demand presents particular problems in a market driven industry. Efficiency concerns mean that there is no incentive on the part of any particular generating company to keep any more capacity available than it can reasonably hope to sell. Because peaks and averages can be widely different, insuring that peak capacity is available at all times means that some facilities will be underutilized, perhaps significantly. This can result in a game of investment musical chairs, where some investors are left without customers. If this is coupled with a requirement to sell on the spot market, the lack of long term contracts could easily scare off investors in incremental capacity.
Currently, attempts to mitigate peaks in demand have focused on demand management, which can be done in several ways. Demand can be passively managed through the use of devices that respond to fluctuations in incoming power automatically with adjustments in the load they put on the supply. These devices are not widespread yet (and may never be because they require adding supply management circuitry to each device). “Smart Grid” approaches use out of band signaling to deliver real time pricing information to consumer endpoints with the hope that the consumer will modify their consumption based on this information. So far, this approach hasn’t had the desired results.
There are other solutions, however. Current work on large scale energy storage facilities can provide the needed buffer by storing energy during times of low demand and then feeding it into the grid during periods of high demand. Currently these approaches are being tried at the wholesale level as a way to mitigate the rapid fluctuations that can occur in wind power generation. In that case, the energy storage deals with fluctuating supply – the complement of the fluctuating demand problem. They are also being tried at the retail level by “off grid” homeowners. A quick search on the ‘Net reveals a number of companies that market battery packs for an entire home. In both these cases, we have converted the energy generator from one form (it’s original, be that coal, gas, solar, wind, etc.) to another (a battery).
In Insull’s time, significant energy storage mechanisms (other than pumped storage) didn’t exist. As a result, it made sense to create monopolies as a way of amortizing the cost of excess capacity across the largest possible customer base. If we are to successfully move away from the regulated monopoly model of electricity generation and delivery, we must develop energy storage mechanisms significant enough to decouple energy production from demand. In order for this decoupling to be economically feasible, the amortized storage costs must be significantly lower than the average original generation cost.
Further, the location of the storage facility can determine the level of competitiveness on the supply side. The more closely sited the storage facilities are to the ultimate customer, the greater the choices of that customer as to the original source of power. The storage facility can even be at the retail destination, allowing the retail customer to perform energy arbitrage by purchasing cheap power at times of low demand and then reselling it back onto the grid at times of high demand. This of course requires demand based pricing - with significant enough variations in prices to justify the investment in storage technology. This, however, is the end result of the Smart Grid.
If you want to consider the security future of the smart
grid, you need to consider the success of Digital Rights Management
(DRM) in music. More specifically, the lack of success.
I realize this may seem to be completely unrelated, but it’s not for a
fundamental reason: secure protocols are about enabling A & B to
communicate while simultaneously keeping C from knowing what they are
communicating. It can never completely resolve the problem of A
communicating with B while simultaneously controlling B’s access to the
information communicated. Vendors of copyrighted material (music,
video, books) have watched repeatedly as one encryption scheme after
another has been broken, with the result that purchasers of DRM’d
material have been able to copy the end product at will in an
What does this mean for the smart grid? There is no way to prevent
those who would attack the grid from becoming part of the grid and
attacking it from the inside. No matter how much encryption is used,
someone will be able to break the encryption scheme because the
destination end point must be given both the cyphertext and the key at
some point. Intercepting this transmission at the appropriate point
isn’t difficult. Once that is done, malicious smart grid end points
will be able to send false information back into the grid, doing such
things as creating rapidly fluctuating demand signals, make false
responses to received commands, etc. Depending on what the endpoints
are instructed to do and how they are coordinated, this could create
some very interesting problems.
There’s another problem with the smart grid - emergent behavior and the
inherent weakness of complex systems. As systems become more complex,
they begin to exhibit reliability problems and other inherent
weaknesses. Attempting to correct this problem by adding additional
checks and counter checks only makes the resulting system even more
complex, which creates more potential points of failure. As the number
of places that can fail increases, we inexorably move towards a point
where we the probability that something has failed at any given time
approaches 1. On top of this, complex systems also exhibit emergent
behavior - where the whole behavior of the systems is greater than the
sum of its parts - in ways that have not been predicted or planned for.
And all of this occurs even if there’s nobody malicious out there
attempting to exploit the system.
The history of the Internet is instructive here. The origins of the
Internet go back to the last 60’s when ARPAnet first came online. It is
now 2009 and we still run into problems with things like denial of
service attacks – 40 years later. While, we’ve obviously learned some
things during this time and can avoid many of the problems of the past,
we should also have learned that getting things right the first time is
probably impossible. The difference between failure on the Internet and
failure in the power grid, however, is that we have backup systems if
the Internet fails. We can use telephone (provided it isn’t VoIP) or
even snail mail. If the power grid fails, we have no system wide backup
plan that enables those at the end points to continue functioning while
the power grid comes back online.
Further, the goal of the smart grid is efficiency. Private
enterprise, and the shareholders that fund it, desire efficiency
because it means a better return on assets. Individual investors don’t
want capital tied up in non income producing assets. The government
also wants efficiency because wasted energy production contributes
greenhouse gas and other environmental problems. The problem with
efficiency is that it means operating at close to capacity on a
continual basis. When capacity drops suddenly, systemic failures
occur. Further, it only takes a small change in the relationship
between supply and demand to cause this problem to occur. And once the
problem occurs, it can require demand dropping not just to prior levels
but significantly below them in order to clear out the congestion. One
need only look at a traffic jam to see a common example of this
In this era, when it takes minutes to distribute a successful exploit
worldwide, but can take months to fix it, the asymmetrical nature of
the threat dictates a radical response. Eventually, proponents of the
smart grid are going to realize this. When they do, they’ll realize
that the smartest thing for the grid is no grid at all. In other words,
distributed generation and islands of power. Physical isolation
ultimately is the simplest way to protect any grid if you’re going to
make it smart. Of course, if you keep it dumb, this isn’t a problem.
Typically, this concept is used as a justification for regulating monopolies – specifically, monopolies that affect the prices consumers pay. And the regulation typically takes several forms – either price regulation, quantity and quality of service requirements, or both.
Monopolies result when fixed costs are high and variable costs are low. In particular, when variable costs are so low that the average cost of goods continues to fall as quantity increases across the entire demand curve, there will be a natural ability for the dominant seller in the market to lower prices below the average cost of other sellers and still be able to make a profit. When this can happen, there is a fear in this country that the dominant seller will lower prices temporarily to drive competitors out of business and then raise prices after the competition has disappeared. Naturally, consumers of the product, having become accustomed to low prices don’t like the idea (or reality) of having to pay higher prices for the same good at a later time – particularly when they have no apparent alternative or negotiating leverage over the price.
The flourishing of various natural and legislated monopolies (such as the Charles River Bridge) from the colonial period through the late 1800’s ultimately led to the populist reaction illustrated in Munn v. Illinois . By the end of the nineteenth century, courts generally perceived that monopolistic control of some resource of significance implied an obligation to the public, usually in the form of a requirement to furnish an “adequate supply or service without discrimination” (Harr and Fessler, “The Wrong Side of the Tracks”). Courts used four different rationales to justify this requirement:
1) Imposition of a right of common access based on the concept of a “public calling, essential to individual survival within the community”
2) The duty to serve all equally as an outgrowth of natural monopoly power.
3) The duty to serve all parties alike, as a consequence of a grant of the power of eminent domain
4) The duty to serve all equally, flowing from consent express or implied.
The fundamental assumption behind all of these is built into the definition of “adequate supply”. Realistically, this means at a price significantly lower than optimal price a monopolist would charge, because such a price would result in reduced consumption – in effect, price driven rationing. For goods such as energy which have a significant impact on society, this rationing was perceived to be unacceptable due to collateral societal impacts – the poor, for example, may not be able to afford to heat their homes in the winter, which could result in some of the poor freezing to death.
In order to forestall such unacceptable scenarios, state and federal governments were required, if they were to regulate prices, to determine a price regulation scheme that would minimize consumer prices to the extent practicable while still incentivizing private industry investment in the regulated markets. In electricity markets, the scheme ultimately settled is formulated as:
R = B*r + O
R is the monopoly revenue requirement (the total amount needed to recover costs and return a profit sufficient to incentivize investors.
B the rate base, which is based on capital investment in plant and other assets
r the allowed rate of return
O operating expenses / variable costs such as fuel and labor
Once R has been determined, price is simply
P = R/V
P is the price per unit volume
V the volume of units expected to be sold.
This formulation, while apparently simple, has some implications and complexities. The most obvious implication is the strong incentive for investment in capital equipment over labor or other variable costs. This incentive has led in some cases to abuses, which has, in turn, led to a need to closely monitor what can actually be included in B, the rate base.
This eventually led to the rule that, in order for capital to be included in the rate base, it must be deemed “used and useful” in supplying consumers. Costs for capital not meeting that requirement could still be recovered by recovering the ongoing capital expense as part of the operating expense O. This kept investors from losing money, but did lower their mean rate of return.
It should be noted that regulation has not been uniformly successful. This is largely because regulators have failed to recognize occasions when legal or market forces no longer give the regulated entity a monopolistic advantage. In the case of Market Street Railway Co. v. Railroad Commission of Ca., Market Street Railway continued to face price regulation even though it competed with a municipal railroad as well as rising automobile traffic and, after years of declining service and revenue, went bankrupt. It isn’t clear whether Market Street would have survived had it been unregulated, but the fact that its ridership and revenues continued to decline should have been a signal that it no longer possessed monopoly power, assuming it ever did.
This illustrates the core problem with government regulation: once started, it can be very hard to stop. Technology changes and monopoly power changes with it. Canals had lucrative monopolies until railroads came along. Railroads had monopoly power until cars became affordable. Failure to recognize this change can create systemic problems that are never allowed to heal.
In fact, regulation could well thwart rapid innovation. Because regulation keeps prices (artificially) low, it can delay the introduction of new technologies that could enervate the existing monopoly. This is particularly true in the field of energy. By regulating retail prices, we lessen the incentive to develop conservation technologies. While high prices can be painful in the short term, that pain is exactly the incentive that motivates investment in cheaper alternatives.
Saving Detroit is not about saving Chrysler, Ford and GM. It is about saving jobs. It is also about saving a large portion of the manufacturing base in the US. The only way to save those jobs is to focus those jobs on making things that people want to buy. Any approach that does not have this as an end result will not solve the problem. And the only way to do this in a reasonable amount of time is to make these facilities available to manufacture things we ALREADY know people want to buy. In fact, given the capital and skills involved, the simplest solution is to make these facilities available as contract manufacturers to the car companies that make the cars people want to buy.
This solution isn’t really as radical as it might sound. The automotive industry is already fairly close to this model due to the large number of suppliers they currently have. This would only take that approach to the next logical step by contracting out assembly of the entire vehicle.
Nor is this approach unusual. Chip manufacturers have moved rapidly to this model in the last decade as the disparity between the cost of designing chips vs. the cost of manufacturing them has ballooned. Taking this approach in the chip making business has enabled continued innovation in design because the risk to manufacturing capital is borne by contract manufacturers who can make any kind of chip. While there are big distinctions between the chip and auto industries, it will still be possible to sort out the allocation of risk. For example, the auto design companies will probably have to supply specialized molds and tooling whereas the contract assemblers will supply plant, workforce and logistics. The point is that such allocations can be made fairly simply as part of contract negotiations.
In such a scenario, Congressional involvement need largely involve facilitation of the process of creating contract manufacturers. The current stockholders of the Detroit 3 are likely to have enough incentive to move forward (given the complete loss of capital as an alternative) with such an approach. Contracting companies such as Toyota or Honda may require some guarantees in order to become involved in such an approach, but that shouldn’t be much since they will be able to expand production without incurring the risk associated with a large investment in additional plants, equipment or personnel.
It may be, given the sudden downturn in the economy, that even this won’t be enough in the immediate turn. If there is anything good that can come out of the war in Iraq, it may be the opportunity it provides to resupply the military. By turning some of that production towards creating swords instead of plowshares, we may be able to find enough work to keep the factories busy until the economy recovers. Absent enough demand there, we can to look at opportunities in a second New Deal - tools and materials for infrastructure, particularly alternative energy.
Complex solutions often don’t work. Complexity breeds error – particularly the first time something is tried. The shorter the time span available, the less room there is for error. Therefore, attempting a solution that relies on many conditions is not wise in the current situation. Converting some or all of the manufacturing facilities currently owned by GM, Ford and Chrysler to the production of other vehicles may prove to be the least complex solution to an otherwise complex problem.
A Congress that passes this bailout bill is no different that the Congress that decided to go to war with Iraq. What we have is a deliberative body that isn’t deliberating. They are simply letting someone else (the Administration – AGAIN) define both the problem and the solution and doing tinkering around the edges – at most. They ought to step back and really think this through – at least some in the House have done so and recognized that this doesn’t really solve the problem.
The key in this kind of situation, is always implement the cheap solutions first: 1)Change mark-to-market rules – see On the Bailout for a way to deal with that; and 2) Publicize where the money is – if the problem is that people can’t get loans, it may really be that they just can’t get them as easily or as cheaply. There is a difference between hard and impossible. It is still possible to get money - it just may not be a 5 minute process like it has been in the past. For example, it is possible to bypass banks using services like Prosper. com (and others). Those in charge should be doing everything they can to publicize where the money is so that those looking for loans will know where to look.
The Treasury and the SEC have deliberately withheld cheap solutions like these from the market because they believe that to put them in play would relieve the pressure to pass the bailout1. Of course it would – and that is exactly the point.
1. see http://online.wsj.com/article/SB122290736164696507.html?mod=googlenews_wsj
The current economic crisis and no vote by the US House on the bailout package is on a lot of minds. There is the belief that if something isn’t done, the economy will go into a death spiral or something close to it. And all of this is due to “toxic loans” and the resulting impact they have under mark-to-market accounting standards.
There is obvious benefit in mark-to-market accounting which is why some stakeholders, including the major accounting firms, are opposed to changes in the current rules1. In that particular case, the concern is that a lack of mark-to-market accounting will result in a return to the days of the S & L crisis of the 1980’s. In the meantime, some legislators, concerned with complete market failure, see changing the rules as a way to help alleviate the current pricing problems. The problem, of course, with mark-to-market is that when there’s no market, there’s nothing to mark against - the asset then has no value.
Both sides of this debate seem to be making a fundamentally flawed assumption - they both seem to be assuming that this is an either-or choice. Who says it has to be that way? Why can’t we have a both/and approach?
I would like to propose the following:
In addition to valuing assets under mark-to-market rules, each institution could also value assets under a net present value model based on the cash flow from the asset. For fixed rate mortgages, this is a straightforward process. Obviously, for ARMs, interest rates will vary. In those cases, it is still possible to value the mortgages conservatively using the minimum interest rate of each loan.
Of course, not everyone will pay their mortgage, so conservatively estimate the performance characteristics of mortgages based on current national foreclosure rates - with some added margin for safety. So, for example, if 15% of mortgages fail nationally, then each mortgage holder would estimate their portfolio performance based on a 20% failure rate. Additional limiting factors could be added to insure that the resulting estimate is conservative. This value will still fluctuate, but it will be less subject to market whims. While some firms might complain that this unfairly punishes them when their performance is better, the goal here is to provide a floor valuation that people can trust - not come as close to the perfect number as possible.
If both values (mark-to-market and conservative performance based numbers) are made available on a daily basis, investors will be able to better determine what to believe. These are both present values of the assets - just calculated in different ways. Between them, they should give some idea of the actual worth of the asset. If there are legal requirements based on the valuation of one or the other, picking the higher of the two values should still give a conservative result.
There may be many other approaches that might yield usable results as well without whipsawing us from one accounting peril to another. The more different valuations investors and regulators have, the better. We live in an age of spreadsheets and databases - we can handle all the information that can be made available. And the more we get, the better able we’ll be to understand what each company is really worth.
1. For example, see Auditors Resist Effort To Change Mark-to-Market
President Bush is once again on the campaign trail trying to sell the American public on the war in Iraq. What I find disturbing about all this is that both Bush and his opposition seem to have completely missed the point. They’ve both defined the debate in a way the precludes any real thought. The President keeps reiterating “stay the course”. Those opposed to “staying the course” have reduced their comments to timetables for withdrawing from Iraq. In other words, we’re faced with a discussion that we either do it the President’s way or we hit the highway.
Neither of those alternatives is feasible. And neither of them really addresses the fundamental problem the American public has with the war. The unarticulated uneasiness we have with the war isn’t over the justice or injustice of it. It isn’t over whether or not Saddam had WMD. It isn’t even over whether or not Iraq is the frontline for terrorism. The uneasiness is over the perception of ongoing incompetence at the highest levels that has resulted in one misstep after another.
The President and his aides have recently begun calling terrorism/ militant Islam “the new fascism”. They’ve then described the war in Iraq as the equivalent of WWII. That analogy is not entirely correct. The current situation in Iraq is more akin to Europe AFTER WWII - during the period of the Marshall Plan. Except that the Marshall Plan era went smoother. While there can be no mistake that suicide bombings and sectarian violence were not de rigeur in post WWII Europe, the goals of the Marshall Plan were essentially the same. There was a recognition at the time that rebuilding the infrastructure of Europe was essential to avoiding a descent into chaos.
There might be cries that it is “unfair” to compare the societies of post WWII Europe with that of the current Middle East. Some might say that 1940’s Europeans didn’t have a penchant for roadside bombs or other forms of sabotage and that, as a result, success in Europe was easier to come by than it is now in Iraq. Such arguments, even if they are true, are irrelevant. It is the responsibility of those go to war to count the cost BEFOREHAND1. Those who do not are not worthy of continuing to hold positions that affect the lives of so many.
The debate today should not be a false choice between “staying the course” when that course runs into a ditch OR “cut and run”. Instead, the debate today should focus on how to fix the problems that exist. Neither major party is helping to achieve this goal. Both seem so focused on politics that neither is able to carry on a reasonable discussion of the real issues. We have a President who is barely able to admit that he’s ever made any mistakes and legislators in both the House and Senate who seem to think that the only alternative is to wash our hands and leave. AND we have a press corps that is so focused on sound bites that they reduce what should be an important national dialogue to political sniping.
Resolving the issues in Iraq requires a true understanding of the culture, geography, and environment of the country and region. It requires enough security to enable rebuilding the economic infrastructure. It requires jobs for Iraqis so that they have a stake in their future. And it will require 20 years worth of education in democratic free market capitalism before we can be relatively sure they won’t slip back into despotism.
The cost is going to be high. And it’s going to get higher if we don’t start addressing this in a realistic manner.
1) Luke 14:28-32
This article presents some of the problems and some potential solutions to dealing with asymmetrical warfare. Given the current trouble in the MidEast and because this problem will continue to get worse as long as States have no effective way of dealing with it, it seemed to me important to address the issue.
The first thing to keep in mind is that there are 2 types of asymmetrical warfare (AW): defensive and offensive. These are critically different even though in places like the Gaza/Israel/Lebanon they intermingle. This difference is important because each requires different approaches.
Offensive AW continues because there are many lightweight mobile weapons, or things that can be used as weapons. Defeating offensive AW requires creating physical or psychological impotence. The advantage here is that there are no civilian casualties on either side. But by rendering the offensive warrior impotent, he1 loses the power that comes from being able to inflict damage.
It is possible to effect impotence psychologically. Stetson Kennedy used it effectively when he infiltrated the KKK after WWII and funneled Klan secrets to the “Superman” radio show, where they were used as background for a series of incompetent villians. The resulting ridicule helped discredit and dismember it2. Given the current nature of AW, with guerillas siting their weapons, headquarters, etc. in civilian areas, a campaign ridiculing them for “hiding behind women and children” could be very effective. This might be particularly effective if done in a comparative way - for example: “Usama bin Laden is willing to suffer in the uncomfortable reaches of Afghanistan for what he believes in, but Hezbollah wants to live in the comforts of Lebanon and hide behind women and children.”
Another approach that might work is to focus on what these organizations don’t actually accomplish for those they claim to represent. Hamas and Hezbollah are both political as well as military organizations3. They provide numerous social services. However, many of the people that could benefit from their services still live in refugee camps - 60 years after leaving what is now Israel. Repeatedly reminding the potential beneficiaries of these organizations what they could have already had but don’t could take the luster off of their military agendas. (Play the guns vs. butter argument against them).
Physical impotence means that military strikes become ineffective. Either passive or active means of stopping attacks, incursions, etc. could be used. For example, if Israel had a 5 mile high missile proof wall, the current missile attacks would be futile - obviously futile. Hezbollah wouldn’t seem very impressive militariliy to the Lebanese in this case. The specific ways this could be done vary according to the environment and available techonology - I won’t attempt to list them here.
Defensive AW is all about hearts and minds. Control cannot be established in a location if the population doesn’t want you there. You simply can’t build a tight enough police state to make this work unless you’re willing to spend years and be VERY brutal. The only way to really succeed in this case is to sell the population on how they will get a better deal with the new regime that they could possibly get siding with the guerillas. Again, there are both psychological and physical components to this.
Physically, you must give people something to lose. Further, they must have it long enough to become attached to it and grow to fear losing it. Exactly what they fear losing may not matter, but something that makes life a lot more comfortable/ convenient is probably a good place to start. Attempts to do this in Iraq, by building schools, fixing the electrical grid, etc. have been hampered both by a complete lack of planning on the part of the US military and, later, by guerilla activity.
Psychologically, you must have a consistent campaign that explains to the population that the guerillas are the ones keeping them from something even better. You may not need to convince them to sell out the guerillas - just stop cooperating with them. All defensive AW campaigns require domestic support for supply, etc. Lack of support in this area will gradually strangle guerilla organizations because they have to spend larger and larger parts of their time just financing their own existence - and less time on actually doing anything.
It is possible to win an asymmetric war - but it requires thinking differently.
A consistent conundrum in American politics for the last 40 years has been the perceived antithesis between being “pro-business” and being “pro-environment”. The Democrats choose the environment and the Republicans choose business. Neither seems to be able to see that it is possible to choose both. The reason for this is that businesses decry environmental regulation because they believe it will increase costs. Given this, politicians feel that they are forced to choose between something that will cost businesses more and help the environment OR cost the environment and help business. This is a false dichotomy.
There are two key reasons why:
1) The law, properly constructed, creates a level playing field for all businesses. When this is done, any costs added are added to all, which keeps the competitive environment the same as it was.
2) Every regulation must be implemented - and every solution requires a supplier. In other words, these costs, while incurred by some company, result in business for other companies.
This false dichotomy exists because politicians fail to realize that they are listening to existing businesses only. They don’t hear from new businesses - because those may not exist yet. The impact on existing businesses whose costs will change is focused - and so their reaction is strong. The positive impact on others is initially diffuse - and so that reaction is more muted.
The fact is that the entire world will have to become environmentally conscious if we are to survive. And those that solve the environmental problems first will have the solutions that everyone needs. For example, the US has the lowest CAFE1 standards in the world. Our persistence in keeping the standards low at the insistence of GM and Ford2 has probably done more harm to these companies than good. Why? Because many of the cars made to American standards cannot be sold in places like the EU, Japan or China because their standards are higher than ours. However, cars made there can be sold here. This gives companies who meet the higher standards more markets to choose from, and thus more sales possibilities to amortize those costs. Further, because those companies have already solved the problems involved in meeting these standards, they now have IP3 available for licensing to those who lag behind, which also becomes a source of revenue or a way to create a competitive advantage.
This same kind of scenario can be true in any area. With the increasing importance of IP in business, the first mover advantage becomes tremendous. Because of this, public policy should encourage the creation of IP here so that the revenue streams from it come here. And the straightforward way to do so is to create the highest standards in every area. When other countries realize the significance of the first mover advantage in IP, and the fact that all nations must become more environmentally friendly if we are to survive on this planet, we’ll see a virtuous cycle of countries competing for the highest standards possible as a way to spur innovation.
And we’ll have something that’s good for the environment AND good for business.
PS - Less waste, energy or otherwise, lowers the dependence on those who supply the materials being wasted. In aggregate, this can reduce the “strategic interests” of the US to the point where we no longer have a reason to be involved in as many world crises, which can reduce the cost of the US military, thus creating what amounts to a tax cut.
1. CAFE = Corporate Average Fuel Economy. Background on current US standards can be found on Wikipedia. Commentary on Chinese standards is here
2. Chrysler, as part of Daimler Chrysler, is no longer technically an “American” company.
3. IP = Intellectual Property
What I find disturbing about this debate is the lack of discussion about how stem cells are already being used. It is already legal to do research on stem cells. It is already legal to use stem cells. It is already possible to get Federal funding for research using non embryonic stem cells. It is even possible to get Federal funding for certain lines of embryonic stem cells. The issue here isn’t stem cell research - it’s over who is going to pay for it.
We should keep in mind that the Federal government has no obligation to pay for any kind of research. We should also keep in mind that any good businessman who sees a good investment won’t hesitate to move on it. So why do we need Federal funds for this kind of research? Because it’s risky. While some businesses have invested in this research, there appear to be scientists out there who’ve haven’t managed to convince investors to fund them, so they’re looking for money from the Feds. And yet, these same people will want to benefit financially if something does come of this research.
Even if businesses won’t invest “enough” in this research, the public still can. If the public supports research in this area, let those who support it fund it. The March of Dimes, St. Judes, the Komen Breast Cancer Foundation and many other publicly funded institutions have been funneling money into medical research for years. Organizations like this have proven that many small contributions can result in a lot of money. And with the Web, it’s now easier than ever to raise money. In fact, in the race to decode the human genome, a grass roots campaign funded much of the research, and put much of the that research in the public domain. If some of the public wants to pay for something controversial, voluntary contributions are a simple, non controversial way to proceed. By requesting Federal funding, the public is really saying that they don’t believe in the research very much because they don’t want to take the risk investing their own money.
Those clamoring for Federal funding for embryonic stem cell research should keep in mind that those opposed to embryonic stem cell research are philosophically opposed to embryonic stem cell research of all types. By continually clamoring for more, they run the risk of a backlash that would make all fetal stem cell research illegal.
There is no reason that the US taxpayer should be required to pay for this kind of research.
I would normally be hesitant to speak ill of those in authority. Not because I fear them, but because I don’t want to undermine them. However, having made several comments in some entries on this blog regarding the current Bush Administration that could be seen as negative, I owe an explanation of why I have chosen to color my comments the way I have.
Leadership is hard. Leadership in a society of “independent thinkers” is even harder. It requires the ability to clearly articulate a vision, and inspire people to strive for it. It also requires a clear understanding of values, an ability to collect, listen to, and learn from many good advisers, and an ability to see a path to an ultimate goal that doesn’t violate those values. Leadership is as much by example as by words - probably more so. Ultimately, leadership is about taking a stand even if no one stands with you.
In other words, leadership isn’t for everyone.
My comments about the current Bush Administration have been solely due to my perception that there is currently a lack of leadership in the White House. Clearly, many in the Bush Administration have management experience that should indicate leadership skills. Corporate management, however, doesn’t require true leadership (it can certainly benefit from it - it’s just not required). Why? Because in a corporation, the top down power will garner a certain amount of automatic acquiescence. That doesn’t happen in politics.
I’m sure President Bush is well intentioned. He might even be a nice guy - that’s certainly what the media reports indicate. But for some reason, at least to me, I don’t see in him those characteristics that describe true leadership. He has had flashes - the brightest one was at Ground Zero just after the 9/11 attacks. But in the day to day he only appears to be someone who avoids the slightest confrontation and seems unable to adjust to realities that don’t fit his perspective. And he’s not inspirational.
When it comes to those around him, I respect that he values loyalty. But it seems that he should value competence more.
It’s not all bad. I will credit Bush with sticking with his principles. I just wish his principles were better informed. I wish President Bush the best. I just wish he were a better leader. Our country could certainly use one.
The recent Supreme Court ruling in Hamdan vs Rumsfeld striking down the Bush Administration’s use of Administration constituted tribunals in the prosecution of potential war criminals brings to fore the issue of the limits of Presidential power. While I’m glad that this decision was finally reached, it saddens me that it took a lawsuit to make explicit something the Administration should have known long ago.
Regardless of whatever justification was used immediately after 9/11 to expand Presidential powers, that justification no longer exists. The “War on Terror”, like any struggle against non state groups, will never end. Wars against states end when the loser capitulates. Struggles against individuals end when those individuals are killed, captured or incapacitated in some way. Struggles against amorphous groups are never so clean. Dealing with them is more like squeezing a balloon - pressure in one place just causes it to expand in another. As long as a group of people is motivated by an ideology, they can replenish their ranks. Even if the quality of the constituent members varies, these groups can perpetuate themselves a long time. Consequently, if we do not find a way to operate under these conditions that reasonably approximates the way we operated before, we will have forever lost key elements to what has made our society successful and desirable.
It could be said that the reason to abandon the immediate post 9/11 approach is that intolerance and fear are antithetical to creativity. While fear might make us more creative in finding ways to create a safe environment - to specifically conquer our fears, it makes it harder for us to focus on other things. Intolerance creates mental rigidity, stifling the flow of ideas that are the core of creativity. That would be reason enough due to the long term economic cost to our society this will have.
The real reason, though, is that our law is a description of our society and its values. It creates a measure that is greater than the individual statutes and court decisions. In particular, the US, because of the system described by its laws, has been seen as a “city set on a hill”1, a beacon to others showing a better way. Others can look at the bounty of this country, and easily see that the value of the system that governs it. As long as the light shining from that hilltop is good, the beauty can be seen and admired from a distance. But if that light ever dims or turns bad, it will just as quickly be seen by others at a distance and decried.
While it may seem that the urgency of the moment dictate that some action - any action - be taken to respond to the evil of things like 9/11, public policy should dictate a stronger urge to return to normalcy as rapidly as possible. While people are forgiving of the rage of grief, they don’t expect it to last forever. A sign of maturity, in both individuals and societies, is how we deal with injustice. Will we choose to maintain our own principles in the face of stress? Or will we listen to the Emperor of Evil who tempts us: “Strike me down with all your hatred and your journey towards the Dark Side will be complete.”2. Winning isn’t the only thing - what we must do is win without sacrificing what makes this country worth saving.
Doing so won’t be easy. It could be very costly - we can be certain that the enemy won’t “play fair”. This places a tremendous burden on those who want to be leaders. They must speak honestly about the price. We must resist the urge to lower our standards in an attempt to win this war. In fact, we may well need to raise them. This may well result in the guilty going free. It may result in more losses on American soil. But as these costs mount, we are purchasing anew the moral authority we had on 9/11 that has since been squandered. As our innocence becomes clear, the evil done to us also becomes clear. Lies come from the darkness - but a single light drives the darkness away.
It saddens me that the current Administration squandered it’s moral authority by attempting to change the law in such crucial areas as justice for “enemy combatants” or the definition of torture. The pressure of the moment revealed the true values of those in charge3. But, given the current opportunity, we need to return to our roots - for our own sake. As Thomas More expressed this eloquently in Robert Bolt’s A Man for All Seasons when assailed by his son–in–law with the charge that he would give the devil the benefit of law:
MORE: Yes. What would you do? Cut a great road through the law to get after the devil?
ROPER: I’d cut down every law in England to do that!
MORE: Oh? . . . And when the last law was down, and the Devil turned round on you—where would you hide, Roper, the laws all being flat? . . . This country’s planted thick with laws from coast to coast—man’s laws, not God’s—and if you cut them down . . . d’you really think you could stand upright in the winds that would blow then? . . . Yes, I’d give the Devil benefit of law, for my own safety’s sake.
An Administration without introspection or humility cannot learn - because it doesn’t believe it has anything to learn. There is a great deal of wisdom in the precedents of the past. Those who think that change is needed should tread lightly and consider the true cost of any changes they might make. Otherwise, those changes may well turn us into the very thing we fear and hate.
1. Matthew 5:14
2. Star Wars VI: The Return of the JedI, DVD Chapter 37, 1:45:00
3. It is easy to say we believe in something when those beliefs have no cost attached to them. What we truly believe is what we’re willing to pay a price for.
Irrespective of any legal decisions made regarding the level responsibility for the Abu Ghraib scandals, everyone in every chain of command involved with that prison should be discharged dishonorably. While this might seem drastic to some, the reasoning here is simple:
First, even in civilian prisons, multiple studies show that the extreme imbalance of power corrupts rapidly and deeply1.
In addition, rape and torture have been part of war since war began. It can’t possibly come as a surprise to the military brass that left to their own devices, some soldiers will cross the line. Further, anyone in any leadership position should understand the phenomenon of group evil - humans tend to follow whatever path is set - even if it’s a bad one. It takes intense courage to object to any stated course of action or attitude. This is particularly true in an environment where there is an extreme imbalance of power - like a prison. Given these known tendencies in human nature, everyone in the military hierarchy should be well aware of the dangers of running a prison.
From a PsyOps point of view, the top brass of the military should have been aware of public relations side of war. We’ve known since Vietnam that war against non state actors will be a guerilla war and cannot be won without winning the “hearts and minds” campaign. They should also know the PR skill of al Qaeda. al Qaeda had already made effective use of both TV and the Internet long before the war in Iraq started. And even if they hadn’t, a simple exercise in examining human nature could easily reveal that the opponent doesn’t have to “fight fair” and won’t - the smart opponent is the one who defines the battle to their advantage.
Being aware of the dangers of human behavior, and the danger of losing the “hearts and minds” part of a military campaign, the brass should have been extremely alert to the downside of military misbehavior. And they should have been prepared with means to prevent it, discover it, and deal with it immediately - both judicially and publicly.
They were not. And because they were not, they threw away the moral high ground. This kind of absolute failure to simply be prepared would result in the responsible officers being drummed out of the military if the high ground had been physical instead of psychological.
No matter what Muslim world might have believed about us before Abu Ghraib, the failure of military command at every level in this incident gave an opening to the enemy to change those beliefs for the worse in ways we still don’t understand. It was inexcusable. And that assuming that there was no policy advocating torture.
While it does appear that the situation has improved some (the rape case against the 502nd Infantry Regiment took less than 2 months to surface), this doesn’t change the fact of what happened.
Further, all we’ve seen from those at the top is a retreat to legalities. Rather than look at the moral cost of these errors, a fierce internal loyalty has caused those at the top to circle the wagons. When doctors find cancer, they cut it out - ALL OF IT. The body as a whole is more important than any one part of it.
Apparently the President doesn’t understand that.
1. A full description of the 1971 Stanford Prison Experiment (with references to Abu Ghraib) can be found here.
I’ve written elsewhere (here and here) about specific instances where poorly created law can result in undesirable consequences. I attempt now to address the core issue that causes these specific instances to occur.
I’ve written before that Law is our attempt to make Morality and Economics coincide. The key thing is, how do we go about properly constructing laws? To do this, we need to understand the distinction between ends and means.
Any incentive system incents a particular behavior. The thing that it incents is the end. Unless specifically prescribed or proscribed, nothing is said about the means used to acheive that end. This is a universal truth. However, when the thing incented is really just the means to some other end, the connection between the original end and the newly defined end can be lost. When this happens, it is possible to follow the letter of the law while missing the spirit of it.
The problem with some laws is that they they confuse means and ends. This isn’t unusual. Many people don’t know how to analyze a problem to determine what the real problem is. In my essay on Smoking Bans, I pointed out how the goal is to improve public health by prevent diseases caused by second hand smoke inhalation. Instead of properly articulating and remaining focused on this key issue, various lawmakers instead wrote law that allowed for only one kind of solution. In my essay on Child Pornography, I pointed out how legislators lost sight of the goal - stopping the distribution of child pornography - and instead focused on one particular process that might help stop it. The failure here is that the chosen solutions may not acheive the desired results, and could have undesirable side effects, which, given the slow pace of change in the law, can result in needless suffering.
While focusing on the ends is critical, that is not to say that we should never have laws that deal with means. As stated previously, the state has an interest in encouraging childrearing. Even though there is a strong interest here, we don’t allow children to be raised to be slaves, nor do we allow incest as a means of procreation. Why is that? It is because we recognize that the side effects of some things are in and of themselves undesireable, even if we can’t properly or completely articulate what they all are. Given the complexities of human behavior, it can be difficult to fully describe an end that properly delineates which means are allowed and which aren’t - we humans are very creative in finding ways to push the envelope. For practical considerations, it is often simpler to proscribe swaths of behavior than attempt to articulate all the ill effects they engender.
Having said that, we shouldn’t lose sight of why we do this - we proscribe means because of a multitude of unarticulated ends. The goal should always remain to focus on the ends that matter, avoiding addressing means if at all possible. This will keep the law flexible and resilient - and able to keep up with changing times.
Attempts to pass a Federal Constitutional amendment defining marriage have caused me to think. After looking at the definition (you can see the wording and some background on Wikipedia), it leaves me with the distinct impression that such an amendment, if ratified, would only be the beginning. Here’s why:
Clearly the State has a compelling interest in the institution of marriage. Families form the basis of society. It is within a family that children learn appropriate behaviors through the words and actions of their parents. It is also within this environment that children form the emotional and moral foundations that inform decisions for the rest of their lives. Raising children that will have a net positive contribution to society is one of the best measures of a successful family. And families are typically based around a marriage.
Families have historically been based around a marriage because, until relatively recently, we humans were unable to separate the process of conception from the process of childbirth. Prior to artificial insemination, sexual intercourse was the only way to procreate. Likewise, until recently, we humans were unable to separate the process of sex from conception. While intercourse did not always result in pregnancy, it did so frequently that once we figured out the connection, we no longer viewed sex as primarily recreational (if we ever did). The strong natural tendency to connect sexually drives the survival of the species. But because maturation takes so much longer with humans than with other species, childbirth is not the end of the work in creating the next generation. It’s just the beginning. As human groups became larger and human interactions more complex, we figured out that there was tremendous value in involving both parents in the post birth maturation process of the young. And the institution of marriage was born1.
The increasing complexity of human society means that good role models are even more in demand than they used to be. In the past, even as recent as 150 years ago, humans with poorly developed social skills could still find a frontier where interactions with others were limited. This frontier was breathing room that allowed for a lack of societially approved coping mechanisms by eliminating the “society”. That is rarely the case today. The few remaining parts of the world that are without significant societies are that way because they do not provide significant resources that would be of value to humans.
Given the growing crowdedness of our world and the consequent need for training of all immature humans in social norms, the value of parents as role models continues to grow. Further, as more and more societies move from manual labor to knowledge based economies, the economic value of children at home shrinks. And with the advent of society-based safety nets, children as a retirement program becomes less common, and certainly not assumed. Children in modern societies are now viewed as luxuries rather than necessities - we raise them because we love them, not because we need another pair of hands to help harvest the crops. In other words, the economic dynamic that drove the formation of families (because it made economic sense for the parents) no longer exists. It has been replaced in modern societies by a relationship based on psychic rather than economic value.
None of this changes the effort required to raise children. Being a good parent requires effort - a lot of it - on a constant basis. It is often thankless, and you almost never get a vacation. Society as a whole banks on the assumption that most will be “decent” if not “good” parents. The cost to society when this is not the case can be significant, both in real dollars (for the costs of prisons, drug rehab, etc.) and emotional costs (for example, the damage done by violent crime can leave lifelong emotional scars). This dependence on the family is so significant that in some cases societies will punish parents for the actions of their children.
If there is to be this much responsibility, there must be a payoff. Without a payoff, some people will simply decide that the investment is not worthwhile. And given the ease with which we can now separate sexual activity from its natural consequence, it becomes fairly easy to stop having kids. While this might make sense on an individual level, it is disastrous as a national policy2. Both social safety nets as well as private economics depend on a fresh supply of workers and consumers. Population decline means economic decline. A country without a population is not a country at all - it’s just real estate that’s up for grabs.
This being the case, how does the State convince individuals to fulfill this crucial objective of having and raising stable kids? Where’s the payoff? The payoff, whatever it is or will be, is in the law. The law is the codified policy of the State, created to encourage certain behaviors while discouraging others. The “marriage” contract already has a special place in the law, with benefits that are not conferred on other contracts3. Those benefits, if properly constructed, should create an environment where individuals perceive a payoff in becoming parents. Further, done properly, those benefits can be targeted in a way where the quality of the parenting affects the value of the payoff. If we want to encourage a particular behavior, we should recognize the gradations in the quality of that behavior within our incentive system4.
The US Constitution is the highest law of this land. If we are going to address the issue of marriage at all, we should address why it’s important and what we believe should be done. Simply defining a marriage as “the union of a man and a woman” says nothing about the quality of that union. And, consequently, nothing about the quality of the family environment in which children will be raised. It equates the union of a winner of “Parents of the Year” with one of Ma and Pa Barker5. Further, it says nothing about the nurturing qualities expressed by others who, despite their lack of a traditional marriage, take it upon themselves to do the work of raising stable children. Further, it doesn’t address the temporal aspect of marriage - this country, despite it’s strong aversion to parallel polygamy, has become quite comfortable with serial polygamy6.
Raising stable children usually requires good role models - rarely do children have the internal sense and fortitude to make good in life despite the role models around them. And children benefit most from having both positive male and positive female role models from which to learn - and for the same reason. The degree to which children can adapt and “fill in the gaps” left by the role models they have is not yet predictable - some will do better than others, but there’s no easy way to predict that up front. Given that, and the State’s interest in the rearing of stable children, the State has a strong interest in encouraging the kind of family environments that produce these children. To what degree the State is willing to tolerate or encourage arrangements that are less than ideal is a matter for public policy debate.
The issue of marriage as a public policy debate should only exist to the degree that it matters to the State. Where a compelling State interest exists, that debate should be carried on fully - not in a limited fashion. Clearly the State has an interest in how children are raised. If we are going to debate the topic of marriage at all, the impact it has on childrearing must be part of that policy debate. And that goes to why marriage is, not what it is.
1. For those with a Christian bent, the charge of childrearing is central to marriage: Genesis 1:27-28 says “And God blessed them, and God said unto them, Be fruitful, and multiply, and replenish the Earth, and subdue it: and have dominion over the fish of the sea, and over the fowl of the air, and over every living thing that moveth upon the Earth”
2. Singapore has a (the only?) government run dating service, specifically to address a declining birth rate. You can see it here.
3. Whether or not those benefits are the right ones is not the topic of this essay.
4. We already do this to some degree - parents can be jailed for child abuse. Again, whether or not our incentive/ disincentive system is properly constructed is not the topic of this essay.
5. This Wikipedia entry and this give some background. I’m not trying to say that Ma Barker was a criminal. I am trying to say that she could hardly be accused of being a good parent.
6. Further, I suspect that the emotional trauma caused by serial polygamy is much worse than that of parallel polygamy because parallel polygamy, if entered into openly by all the participants, does not require the rending of relationships as does serial polygamy. The destruction of parental relationships is known to be traumatic to children.
The boom in college education in this country started as part of the GI Bill after WWII. In an effort to make reabsorbtion of demobilized troops easier to handle, the Federal Govt created subsidies for continuing education in order to motivate a percentage of the population to stay out of the work force for a time. It worked, and the economic boom that followed continued through the 60’s.
After Sputnik, the sudden jolt to our sense of world leadership reinvigorated the concept of government sponsorship of education. At the time it was seen as critical for competitiveness - and resulted in the National Defense Education Act of 19581. Since that time there has been there has been a steady increase in percentage of the population with a college education - from 4.6% in 1940 to 24.4% in 20002. We have reached the point where college degrees are as common today as high school diplomas were in 19403.
Unfortunately, in many cases, they’re also worth just about as much.
There is (at least) one major difference between the high school diploma of 1940 and the college education of today - access to public education means that you don’t have to pay for a high school education. Most people have to pay for college.
Except that many people don’t really understand the implications of that while they’re getting an education. They blithely sign the papers for student loans - at best vaguely aware of the repayment costs. And they can easily end up with debt burdens whose monthly payments exceed any salary they can hope to make from the training they received.
This presents the taxpayer with a problem, because many of these loans are guaranteed by the Federal government. While a skilled workforce is good, those skills only matter if they are the ones that employers want. Should the taxpayer be on the hook in case the educated poor can’t repay their loans? Doesn’t this punish those with the foresight to pick fields that have economic value?
My wife and I have had to deal with this issue recently. She is currently completing an MBA, some of which is covered by student loans, while I’m beginning law school. In both cases, we had to evaluate the economic potential of both degrees against the cost of obtaining them. We’ve used such resources as the Occupational Outlook Handbook to determine the expected economic value of each degree. My wife has also seen a friend of hers drop out of graduate school because the friend suddenly realized that she couldn’t afford to pay for the loans she had already accumulated, much less the new ones yet to be incurred.
You see, the question we really need to ask today is “Is getting a college education really that important?” Between libraries, bookstores, and the Web, there is more information available for free or cheap than any one person could hope to absorb on almost any topic imaginable. Learning for the sake of learning is there to be had. There is interactive media of every conceivable kind available today - so that no matter how you learn, the tools are available for you to learn. There is no need to pay college tuition if all you want to do is learn.
So then the value of an education must be in the value of the education brand - be it Harvard, State U., or the local community college. The proliferation of paid education alternatives make it possible for everyone to evaluate the price performance of the educational brand they choose to purchase. This value includes both the life cycle cost AND the life cycle income that can be produced because of a particular degree with a particular brand. If the Net Present Value of a particular education is negative, then that education must be deemed a hobby rather than an investment. And those taking on the cost of that education should seriously question what they are doing. And those asked to guarantee the debts (in this case, taxpayers) should simply refuse.
It used to be that getting TO a college education required so much effort that only those who had really thought through the value of the education bothered5. It also used to be rarer, and therefore more precious. Today, neither is the case. We as education consumers AND as taxpayers should closely evaluate the kinds of education expenditures we’re willing to make - not all of them will be good investments.
1. See History of Student Financial Aid
2. See United States Educational Attainment of the Population 25 Years and Over: 1940 to 2000
4. The Debt-for-Diploma Crunch
5. I am excluding those who don’t go into debt for the education. While this essay is primarily focused on those who pay for an education with debt, all education should be viewed as an investment - of time and money.
We’ve had smoking bans in place where I live for a while now. Currently, they’re county wide - but there’s some talk of a statewide ban just to level the playing field. While I’m interested in health, I’m not convinced this is the best approach.
The reason is this: Anytime you legislate to a particular process rather than against an outcome, you run the risk of enabling that outcome via a different, previously unimagined path. And, because techonology always moves faster than the law (at least it does in this century), this can mean that lots of harm can occur along that unintended path before the law catches up.
Let’s use smoking bans as an example. What’s the real goal here? Smoking bans are based on a public health issue. We know that smoke, either first hand or second hand, is a significant agent in the instigation of many diseases. Because of that, we want to improve public health by limiting people’s exposure to smoke. Until we legislate smoking out of existence (which is very unlikely), we must resort to other means to limit the health effects of smoking on the population.
The approach where I live is to ban smoking in a whole list of public places, including restaurants and bars. What this does is drive the smokers outside (flashback to the high school “smokehole”). This is an example of legislating a particular process. It doesn’t eliminate the second hand smoke from outdoor spaces though - we just assume that the pollution will waft away and be diluted in the atmosphere.
A better, more complete approach, would be to simply legislate the desired outcome - that enclosed spaces can contain no more than so many parts per billion of various pollutants. Then leave it to the owners/ operators of those spaces to figure out how to acheive that goal. They might choose to ban smoking on their premises. Or, they might choose to use clean room technology1 to filter the air. Similar to the way a kitchen stove top hood works, this techology can be used to vacuum up the pollutants before they circulate. The advantage of the second is that, while it is more expensive, it keeps the smokers out of public places where the pollution they create isn’t filtered.
Without an approach that looks to the real issue of airborne pollutants, we could easily end up with the creation of other nicotine transfer devices that don’t involve “smoking” and thus are not banned under currently law, but yet still create just as much of a health hazard because they create just as many airborne pollutants.
It’s easy to pass laws that address specific problems. It’s harder to really think through the issues to determine what the real problem is. But this extra work will pay off in the long run - because it will result in laws that truly express their underlying philosphy and, as a result, are durable in the face of change.
1. The technology used to keep semiconductor fabs clean enough for chip manufacturing.
Leadership in society is based on moral authority. Regardless of the law, there comes a point in which the tide of public sentiment will not be controlled by boots and guns alone. Even in authoritarian regimes, there is very often an appeal to “divine right”, “tradition” or “the danger of the enemy” in order to control a population. This is particularly true today when societal wealth is based on the ability to think. Being able to think means being able to think about anything - and a certain percentage of the population will think about the political structures that control society.
Moral authority is significant because it creates a perspective from which to view the words and actions of those who have it. Conversely, the lack of moral authority can engender cynicism against even the most benign activities. Moral authority, however, is not easy to come by. It is one of those things that is hardest to acheive when we openly seek it. Why? Because when we openly seek it, we create a higher standard. And since success and failure are defined by comparison against that standard, we can be judged as failures against a high standard even when we have exceeded the standards by which others are measured. Further, moral authority does not come from what we say - it comes from what we do. There are simply too many watchers waiting to expose any potential hypocrisy.
Given this, it’s not hard to see why the current President Bush has fallen so far in the polls. The continual string of non-existent “reasons” for the war in Iraq, the justification of torture, illegal military courts, warrantless wiretaps and now surreptitious searches of banking records have produced an ever growing skepticism1. The ability to “walk the line”2 of legality depends very heavily on trust. And trust comes from moral authority. In President Bush’s case, I doubt that many question his intent - most probably think he wants to do the right thing. However, there appears to be a growing distrust in his understanding of what the right thing is. Like many zealous to stamp out evil, he seems to have forgotten that the evil is as much in the process as in the result. And in doing, he fails to see that “fighting fire with fire” means that we all end up in Hell. And there’s no moral authority there.
It may be “unfair” that Bush is being held to this higher standard when we recall that the Taliban and al Qaeda seem to have a penchant for summary executions and terrorism. But complaining about that is crying over split milk. Bush created the standard by which he wanted to be judged - he has chosen to say that we’re in Iraq because exporting democracy is a good thing. By asking to be judged on a moral standard, he has invoked that moral standard on everything that happens in connection with Iraq and the “War on Terror”.
Bush had moral authority after 9/11 because of the suffering inflicted by the strikes. That authority evaporated as he chose paths that could not be OBVIOUSLY justified to the whole world. No one objected to the invasion of Afghanistan after repeated attempts to convince the Taliban to hand over bin Laden. The connection was clear to the entire world. The connection to Iraq was not clear - as evinced by the resistance prior to the war. The fact that Bush had to use Colin Powell’s moral authority3 because he didn’t have enough of his own should have been a wakeup call.
Moral authority can be used as a basis for war. The war in Afghanistan was not the first time the U.S. has successfully used moral authority. President Roosevelt, despite his concerns about Nazi Germany, was not able to involve the U.S. in WWII until after Pearl Harbor - because it was there he received the moral authority for war. Interestingly, had Hitler not felt bound by treaty obligations with the Japanese to declare war on the U.S., Roosevelt might not have had the authority to fight in Europe.
While moral authority is hard to obtain when we openly seek it, there are circumstances under which even the most repugnant can believably claim it - and being on the defensive is one of the easiest. This may be because all humans have an innate tendency to believe “us vs. them” constructions even when they come from the mouths of known liars. The consequence is that even innocent missteps can be radically reinterpreted in harmful ways if we don’t have the moral authority that enables others to see our intentions as good even if our actions are flawed.
Can President Bush recreate the moral authority he had after 9/11? Maybe - but it will be extremely difficult. Gandhi acheived moral authority through suffering and humility. While neither of these appear to be part of President Bush’s character, he could still attain moral authority through principled consistency. Former President Jimmy Carter was often maligned for what some perceived as naivete while in office. History has since shown him to be consistent in his commitment to the the principles he claimed at that time - he will be much better treated in retrospect than he was then. President Bush, if he can communicate how the policies and actions he has chosen are consistent with the principles he claims to believe in, could possibly regain the moral high ground. Unfortunately, White House communication so far doesn’t seem to contain much that would demonstrate that connection. Instead, it appears to be a flaccid combination of feel good messages and damage control as the ship of state springs one leak after another.
In turbulent times, moral authority is the strongest ally we have as imperfect humans. Since we aren’t perfect, we need to make it clear to all that we are doing are best to adhere to the principles we believe in. And we need to be ready to ask forgiveness when we fail. If we are the first to recognize our mistakes, we disarm our enemies. I pray the President can regain the moral authority he used to have. Much depends on it.
1. I’ve deliberately avoided incidents such as the Abu Ghraib scandals because those (so far) have no proven official policy behind them. Since the administration has attempted to distance itself from those as aberrations, they won’t be included at this time.
2. Apologies to Johnny Cash.
3. In the speech to the UN on Iraqi attempts to acquire African yellowcake.