Wednesday, December 30, 2009

Climate Change Mitigation Policies

President Obama has quite a few very major political and legislative issues to deal with in the next year or two, but this one on climate change may well prove to be the most complex and challenging. I'll explain why.

Between December 7th and 18th delegates consisting of scientists, environmentalists, political negotiators, and government leaders representing more than 100 countries, including all the major players, met at the highly publicized climate change conference held in Copenhagen, Denmark. The conference took place essentially to follow up an earlier conference held in Kyoto, Japan in 1997, at which 187 countries, excluding the U. S., signed and ratified the so-called Kyoto Protocol dealing with actions to combat global warming and reducing harmful atmospheric emissions, especially carbon dioxide.

The recent Copenhagen conference, it was originally hoped, would conclude with a more specific global action plan to cut emissions and other related steps to help stabilize climates around the planet and thereby reduce the very serious risks associated with global warming, including especially the real possibility of a substantial rise in ocean levels leading eventually to massive flooding of coastal areas, a significant reduction in our critical global water supply and very volatile and harmful weather patterns. With respect to ocean levels, some scientific studies have concluded that water levels could rise at least 3 feet, and possibly to as much as 5-6 meters by the end of this century! That would be catastrophic.

While the Copenhagen conference was very useful in obtaining general agreement on the seriousness of the risks the delegates were discussing, sharing information on desirable action steps, and laying out the national interests and policy directions of the major players and regional groups of other countries, the conference did not achieve agreement of a specific global action plan. The expectation now is that President Obama will work with the Congress to come up with legislation laying out the U. S. government's plan some time late in the first half of this year and that another global conference will convene in the second half of the year with the objectives of agreeing on a plan that will include specific emission control commitments of individual countries and a satisfactory financing mechanism that will assist developing countries meet their commitments.

This is a highly complex and challenging issue for the Obama Administration and the Congress for a number of important reasons. While the great majority of recognized climate scientists, environmentalists and heads of state are very convinced that global warming is a very serious problem requiring a series of urgent, far-reaching and costly action steps world-wide, a vocal minority, including many Republican Party leaders, view it as a much less alarming and natural phenomenon. Global warming, its causes, potential consequences and appropriate mitigation measures are very complicated subjects involving many different areas of scientific knowledge, research and analysis, as well as highly technical climate related computer modeling. It is therefore very difficult for most of us to fully understand and follow the debate. However, given the above points, I don't see how one can not reasonably agree that it must be a high priority of world leaders to move forward urgently on an effective, pragmatic action plan.

It will be difficult for the Obama Administration for many good reasons. He has many other high priority policy issues to deal that must be judged even more important, at least in the short term, starting with additional more bipartisan efforts to stabilize the economy, generating quality jobs, and reducing the unemployment rate. Republican leaders will likely withhold support, in part due to a different view of the seriousness of the global warming problem and anticipated higher governmental spending to combat it, in part due to lobbying by the business sector who are legitimately concerned with higher costs for them associated with compliance with the expected action plans.

Another big reason it will be difficult is stubborn resistance from China and India to equitably participate in the global action plan, though they are very major emission pollutors, because they feel the more developed countries, especially the U. S., are primarily responsible for global warming problem we face. In their biased view, the developed countries should therefore commit to relatively greater emission controls and pay the lion's share of financial assistance needed by less developed nations. That will be very hard for budget-strapped developed countries to swallow, particularly considering the vast financial resources of China and status as the world's largest atmospheric polluter.

Additionally, it doesn't help that Obama and the still Democrat controlled Congress are faring poorly in public opinion polls and facing stiff challenges in the upcoming mid-term elections in November. The general public will most likely not support a costly global warming action plan until they are much less concerned about the economy, see meaningful reductions in unemployment rates, and gain more satisfaction with their personal financial and job security situations.

Over the next several months Obama needs to have his lieutenants working behind the scenes on building support for a sensible global action plan. This should include trying to build an even greater consensus among leading scientists about the problem. Even more important, though, is working with the major developing countries, especially China and India, but also Brazil and Indonesia, to obtain greater pragmatic agreement on the best plan.

However, clearly the top priority needs to be very specific and meaningful progress on the key domestic issues: the economy and jobs! He will most probably not be successful if he and his cabinet and staff, as well as the leading Democrats in Congress, do not reach out and collaborate much more closely with Republican leaders and independents in both parties.

Friday, December 11, 2009

Washington's Increasingly Blatant Partisanship

Perhaps I'm overreacting to what may be a largely unavoidable aspect of American politics, but I'm getting more and more disappointed and disturbed by what I view as increasingly blatant partisanship displayed by our elected representatives in Washington, D. C. By blatant I mean discourse that very inaccurately represents views of the speaker or writer's political opponents, that is purposely misleading, often mean-spirited, immature, unprofessional, and usually counter-productive in achieving its aims. Moreover, this discourse serves to sidetrack or slow down needed progress on important issues.

This partisanship is practiced by both Democrats and Republicans, and I'm thinking especially about members of Congress, where the volume and scope seem to be more prominent by those members who are in the minority, currently, of course, the Republicans. However, we also see it from time to time employed by the president and members of his administration.

We see examples of this inappropriate partisanship almost every day, particularly in discussions or negotiations dealing with major and controversial legislative issues, such as health care and our economic recovery, and in related media interviews. It's certainly not difficult to detect. Examples are Republican leaders accusing the Obama administration of supporting the government's "takeover" of health care in this country, by originally calling for the so-called "public option," and criticizing the Democrats' health plan as leading us to employ "death panels" in deciding the fate of ill seniors. Another related example is Oklahoma Senator Tom Coburn proclaiming on how health reform will affect seniors, saying "I have a message for you: you're going to die sooner." Still another is associating Obama's policies with Communism and Nazism. Outrageous!

These comments are, of course, intended to mislead the public, increase conservative and right-wing passion and support from their Republican base, slow down and weaken progress in Congress on legislation they disagree with, and build up their support for the upcoming mid-term congressional elections. It's also clear that these comments purposely provide fuel for highly partisan criticism and cynicism by the popular conservative media, especially radio and TV talk shows.

The Democrats are not completely innocent of strong partisanship, but it doesn't seem as blatant and as common as is the case with Republicans, and it's no doubt in part because they currently control the Congress and have their man in the White House. My impression, for example, is that by unreasonably exercising their political power, Speaker Pelosi and Senate Majority Leader Reid have frequently not given Republican colleagues equal and fair opportunity in committee meetings to provide their opinions on legislative issues. I have no facts on this, but I suspect it's reasonably correct.

I give President Obama generally good marks on seeking bipartisanship and civil and pragmatic political discourse, but occasionally he may have gone a little too far. An example is when he recently publicly commented that some Republican leaders appeared to be rooting for him to fail, implying this was so even if it was not in the country's best interest.

My objective is not to allocate blame among Democrats and Republicans. My point is that blatant partisanship, as I tried to define it, while in most cases not illegal, is unethical and reflects poorly on the individual practitioners and on our political community at large. Our voters and taxpayers deserve better.

What can and should be done about it? President Obama should continue to try and set a good example and congressional leaders should rein in abusers and make it clear how their elected representatives and staffs should behave on this subject. Perhaps with greater effect, the public should assertively advise their elected representatives what they expect and the responsible media should highlight and criticize obvious abuse in their newspaper articles and editorials and radio and TV shows. Furthermore, voters should reflect their disdain in future elections and vote against serious violators.

Do I think this will happen? Probably not much, but at least I'm getting this off my chest. What do my readers think about this?

Monday, December 7, 2009

U. S.' Looming Fiscal Crisis

It's most probably not much on the minds of most Americans at this time, but with our current federal government debt and large budget deficits, we have a major fiscal problem facing the country which requires serious corrective actions that will have a big impact on virtually all of us, as well as on the whole world economy.

In brief, the major fiscal problem is that our U. S. government debt, commonly called the "public debt" or the "national debt," has grown a great deal in recent years in absolute terms and, more importantly, in relation to the growth of our economy as measured by our gross domestic product (GDP). This has been happening for a number of reasons, but it's largely reflected in our increasing and substantial annual government deficits, primarily the difference between government receipts and spending. Income tax collections and Social Security tax receipts have been increasingly greatly exceeded by expenditures, including especially Medicare and Medicaid, Social Security payments, and defense.

The national debt grew from roughly $2 trillion in 1980 to $5.8 trillion in 2008, and, according to the Congressional Budget Office (CBO), is projected to increase to $14.3 trillion in the next ten years, from 41% of GDP to as much as 68%. The annual deficit for the fiscal year ended 6/30/09 was more than $1.4 trillion, about 11.2% of GDP, the largest deficit as a percent of GDP in the last 60 years. As most Americans probably know, major factors in the deficit in FY 2009, aside from those related to our continuing huge social programs, were the economic stimulus packages to pull us out of our deep recession, and the fast growing expenditures for Homeland Security and fighting the wars in Iraq and Afghanistan.

The major problem these developments pose is that they weaken our country financially, politically and militarily, in both absolute and relative terms. Our federal government will have to spend more and more of government receipts on making interest payments on our national debt (it was $383 billion in FY 2009) and have increasingly lower amounts available for discretionary expenses, including Defense Department money for fighting wars, Homeland Security, expenditures for environmental protection and combatting global warming, as well as energy independence. Potentially impacting our national security and foreign policy flexibility in this regard, about $800 billion or 23% of our national debt is held by China and another $750 billion or 21% by Japan.

The crisis is not something most Americans are thinking or unduly concerned about, because they are understandably much more concerned about their personal financial issues, including getting and keeping their jobs, paying the bills, avoiding home foreclosures, dealing with troubling and expensive medical issues, and trying to save for college educations for their children and grandchildren, as well as to finance their own retirements. Another contributing factor on this subject is that national fiscal issues are rather complicated and not that often discussed in the general media. Senior federal government leaders, including President Obama and his staff, while quite familiar with our fiscal problems, are preoccupied and more concerned with immediate priority issues, like managing the wars in Iraq and Afghanistan, negotiating the final terms of the pending health care reform legislation, promoting their views on financial institutions reform, preparing for mid-term congressional elections next year, and other largely partisan matters.

What can and should be done? Frankly, we're in a tough position and needed corrective actions will be quite difficult, politically very controversial, and, in many cases, not likely to be well received by much of the public. This is especially so given our high unemployment rate, the fragile state of our economic recovery, low consumer spending, state budget deficits, the continuing concern with global terrorism, and the wars in Iraq and Afghanistan with much more aid seemingly to be spent over the next few years in Pakistan. However, we need to move toward a balanced budget as quickly as possible and plan to keep the budget balanced on a continuing basis.

There are three obvious actions for the federal government to pursue: a) cut spending, b) increase taxes, and c) find more ways to eliminate waste and improve efficiency and productivity. Among relatively reasonable actions likely to be well received by most of the public: tougher negotiations with other countries to share more equally in the costs of fighting global terrorism, accelerating plans to implement exit strategies in Iraq and Afghanistan, increasing income taxes and their enforcement on the wealthy and upper level of middle income Americans, and temporarily cutting back salaries and the cost of benefits for at least the upper tier of federal employees. Another long overdue and obvious action is overhauling the IRS and greatly simplifying and streamlining the tax code and our unnecessarily complex and expensive income tax return preparation and reporting process.

Among needed actions which are likely to be unpopular to many or most Americans: reforming and cutting back the future costs of Medicare and Medicaid, imposing a hiring freeze for federal employees, substantially increasing sales taxes on gasoline to create more revenue and serve as an inducement to drive more energy efficient cars and trucks, and eliminating subsidies to agriculture/farmers and religious and most non-profit institutions. These actions should include serious bipartisan efforts to reduce the federal costs of the pending health care legislation, at least for the next three to four years until our economy fully recovers and tax receipts increase to facilitate balanced budgets.

Thursday, December 3, 2009

Obama's Afghanistan Surge

As expected, there were very mixed reviews of President Obama's well-delivered speech at West Point Military Academy to the nation on Tuesday evening on his strategies for dealing with the difficult, complex and increasingly unpopular war in Afghanistan. As could have been predicted, the primary controversial issues had to do with the number of additional troops to be soon deployed, the high costs associated with the surge, and the timetables for transitioning greater responsibility to the Afghan government and for starting to bring our troops back home.

Somewhat ironically, most Republicans in Congress seem to generally support his plans, while a high percentage of Democrats, especially the liberals on the left, his original main base of supporters, seem to have understandable serious objections and concerns, especially with the longer-term costs, expected casualties, and how long we will end up continuing this war, distracting us from adequate progress on important domestic priorities.

It is quite clear President Obama had no easy options with probable outcomes and consequences we could live with. After lengthy deliberations with his many advisors, he basically agreed with the bulk of advice and recommendations made primarily by Defense Secretary Gates and field commander General McChrystal, and, noteworthy, passing on most of the advice of Vice President Joe Biden. Aside from big concerns with expected overall costs and casualties, here are my major concerns:

1. The very uncertain capability of Afghan President Hamid Karzai and his administration to do what they have to do in order for Obama's strategies to work successfully, including gaining broad national support for his weak government, eliminating the deep-rooted and endemic corruption at almost all levels, consistently delivering basic services to the population, dealing effectively with the tribal warlords, and managing the badly needed development and performance of his administration and the national military and police forces. With respect to the latter, part of my concern is based on the significant fact that the overall illiteracy rate in the country is a shocking 72%, while in the Afghan Army it is estimated even higher at 90%!

2. A key and appropriate part of Obama's strategy is working, assisting and coordinating closely with the government and large military of neighboring Pakistan to combat the insurgents and help stabilize this country as well. While very necessary, this is an added burden for the U. S. in terms of financial and equipment resources, manpower and logistics management. This represents another big risk, because if we aren't successful in Pakistan, we probably won't be successful in Afghanistan. Many of the bad guys will simply continue to hide out in Pakistan and move back to Afghanistan when we start eventually withdrawing our troops.

3. Since the 30,000 additional U. S. troops and hoped for additional allied mostly NATO country troops will all not have arrived in Afghanistan until June or July next year at the earliest, it is unrealistic that we will know by December next year whether or not we can start withdrawing some of our forces in the summer of 2011, only six or so months later, as planned by Obama. We should reasonably expect that withdrawal of our 98,000 or so troops will very possibly be stretched out over a longer period, with a concomitant adverse impact on our war costs. If we get out too soon, the Al Qaeda and Taliban insurgents will probably have little difficulty in building up their forces again with new recruiting.

4. Another concern is with our own apparent capability and effectiveness in monitoring the extent to which our equipment, reconstruction and financial aid is appropriately deployed in Afghanistan. This was especially brought to my attention in an interview I heard on the radio yesterday with retired Major General Arnold Fields, Special Inspector General - Afghanistan Reconstruction (SIGAR), whose unit is responsible for much of this. To the interviewer's amazement and my own, General Fields said that only 25-30% of U. S. money for reconstruction ends up being used for the right projects, and roughly 10% is needed for private security. This means that as much as 60-65% of our taxpayer moneys is completely unaccounted for!! That's obviously outrageous and unacceptable.

Considering all the stakes, President Obama took a major risk in deciding on his announced strategies for Afghanistan and Pakistan, at a time when we're still in Iraq, we're concerned with Iran's nuclear build-up, our economy is still in the early stages of recovery from a deep recession, and he's trying to get a highly expensive healthcare reform package approved by the Congress. All Americans should hope he will be at least relatively successful in the Middle East. If his plans don't work, one must expect there's a fair chance that Democrats will lose control of Congress in the elections in 2010 and that he will be fortunate to win reelection in 2012. Much worse, the U. S. will have wasted a great deal of national resources in terms of military casualties and financial assets.

Saturday, November 14, 2009

Fighting the Smoking Plague

Despite much more consumer knowledge about the high risks and required cigarette pack health warnings, each year in the U. S. smoking still kills more people than AIDS, alcohol, other drug abuse, car crashes, murders, suicides, and fires - combined! Causing more than 430,000 deaths annually, it's the leading preventable cause of death, reflected in statistics for those dying from heart disease, cancer and stroke, and direct medical costs are estimated at as much as $50 billion annually, according to the U. S. Center for Disease Control.

It's noteworthy that the estimated cost of implementing the healthcare reform bill approved by the U. S. House of Representatives a week ago is $1.2 trillion over the next ten years, broadly criticized by many as much more than we can really afford, even though that's on average a relatively almost acceptable $120 billion annually. The $50 billion direct medical costs from smoking is nearly 42% of that number. My guess is that after the Senate provides their input, we'll end up with final bill approved by the Congress at a lower ten year cost between $950 billion and $1.0 trillion, increasing the smoking associated 42% number to 50% or more.

Smoking is a societal plague for several reasons, aside from the high medical costs for the nation grappling with our high national debt, large budget deficits and near record unemployment, and the high number of fatalities caused by this source. As individual smokers know, it's a very expensive habit at a time when a great many Americans are needing to hunker down financially, including most likely a high percentage of those 46 million U. S. adults over 18 who were smokers in 2008. At a national average cost of roughly $5 a pack and smoking at a rate of 1 1/2 packs a day, the annual cost is more than $2,700. At two packs a day it's $3,650 annually. This is, of course, aside from any medical costs to be incurred treating diseases caused or contributed to by smoking, costs for trying to contain or eliminate the addiction to tobacco, and the costs of dry-cleaning clothes and cleaning the air in homes fouled by the nasty habit.

Another very troubling fact is that so many teenagers are smoking, fully 28% of high schoolers in this country, and at least 4.5 million are addicted users of cigarettes. Furthermore, 6,000 teenagers under 18 reportedly are picking up the habit every single day and nearly one third of these are expected to become regular adult smokers. Finally, for this post, a further significant concern, as far as I'm concerned, is the completely unnecessary and unacceptable littering done by smokers with their cigarettes and cigars and the concomitant fire danger this can pose.

What can and should be done to better fight this plague? The answers are fairly obvious for the most part, but they still bear repeating:

1. Make sure that no smoking is allowed in any of our schools funded by taxpayer dollars and that there is strict enforcement and sanctions for any violations, for both student violators and uncooperative school officials.
2. More effective teaching of the dangers of smoking beginning in the 7th or 8th grades and through high school.
3. High school sports coaches should be encouraged by school officials, if not done so already, to exclude smokers from their teams and to support efforts of smoking athletes to break the habit.
3. Since smoking rates are in general higher for the less well educated, continue current efforts to improve our education system with higher high school graduation rates and more students going on to college.
4. Increase the cost of tobacco products by even higher federal and state tax levels. It's noteworthy that there's a very substantial difference among state sales tax levels. In New York the state has a sales tax of $2.75 per pack, while in South Carolina it's only $0.07 per pack and in Missouri it's just $0.17 per pack. Interestingly, but not surprisingly, South Carolina and Missouri are among the states with relatively high numbers for percentage of smokers.
5. In the final healthcare reform bill to be approved by Congress, make sure there are adequate provisions to financially incent people to stop smoking or at least to reduce their level of smoking, as well as discouraging people to start. Concerned citizens should immediately contact their senators and representatives to pass on their point of view.
6. Insurance companies providing coverage for health, home and autos should be incented by Congress and/or market competition to establish or increase more meaningful discounts for non-smokers.
7. Fines and community service terms for tobacco product litterers should be increased significantly with appropriate publicity in local newspapers and TV news programs.

Monday, November 9, 2009

Healthcare Reform Update

This past Saturday the U. S. House of Representatives finally passed their massive healthcare plan by a very close vote of 220 to 215, with only one Republican supporting it and 39 conservative Democrats voting against the plan. It is now the U. S. Senate's turn to come up with a bill their chamber can approve. President Obama has for many months been hoping he can sign into law before the end of the year a final bill approved by the Congress, but it's very possible the legislative process will drag into January or February, given the strident opposition and filibustering opportunities available to the Republicans in the Senate.

I mentioned in my post on Healthcare Reform in June that I was confident reform legislation would be approved by Congress and signed into law by the end of the year. I'm still confident, but possibly I may have been a little too optimistic on the timing. I also mentioned in June that I was hopeful the legislation would be the product of genuine bipartisan debate and consensus. Unfortunately it's clear this didn't happen. Looked at narrowly, the approval in the House was a victory for President Obama and the Democratic leadership and a loss for Republicans. However, the result in my opinion was not in the best interest of the American people. A bipartisan bill incorporating the best ideas of Democrats, Republicans, as well as Independents, in a more balanced manner would have been much better.

In fact, the bill could most probably have been significantly improved if it also took into account some of the best features of the health care systems employed in several of the other advanced democracies in Europe and Asia, as covered in Frontline's recent TV presentation, "Sick Around the World." Primary among those countries, as I perceived it, were Japan, Taiwan, the U. K., the Scandinavian countries, Germany and Switzerland. Taiwan used this very approach in effectively reforming their apparently very successful system. Some of the main features highlighted in their broad survey were a generally high degree of patient satisfaction with the systems, good quality care, no medical bills for patients, no bankruptcies of patients resulting from high medical bills, limited and improving waiting times for patients, and much lower administrative costs to operate their systems. In the U. S. administrative costs reportedly were about 16% of total healthcare costs versus an average of about 5-6% in these other countries.

Clearly, huge savings in healthcare costs could be achieved if we could learn from the experiences of these other countries and follow their leads in substantially reducing administrative expenses. Has this been seriously explored by politicians and medical experts advising them? Or have both groups essentially been dissuaded by the private sector healthcare industry and their lobbyists?

It's not too late, but I'm not optimistic about a good bill coming out of the Senate within a reasonable timeframe. I'm afraid serious ideological differences, as well as motivation by Republican leaders to do what they can to deter President Obama from achieving a major legislative victory on a high priority issue, will make it unlikely the Senate will come up with a sensible, pragmatic and bipartisan result that best serves the great majority of the American people. Another obstacle will be the impact of expected campaign contributions for the approaching congressional elections. I hope I'm wrong and that these points can be overcome.

Friday, October 2, 2009

Afghanistan War Strategy Revisited

President Obama is still debating with his national security team and certain NATO leaders how the Administration and the Congress should respond to the recent report and recommendations of the U. S. commander in Afghanistan, General Stanley McChrystal, which includes a substantial increase in U. S. troop strength in that country. Obama is definitely right to take his time and make a well considered decision. He's in a very difficult situation and will likely be seriously criticized no matter what he ends up doing.

As was evident in my post on this subject back in December 2008, I've had very mixed feelings about our engagement there for a long time. I have more concerns now than I had then.

Our original mission when the war began exactly eight years ago, in response to the 9/11 attacks, was to find Bin Laden and other high-ranking Al Qaeda leaders, put them on trial, destroy the organization, and remove the allied Taliban regime which supported Al-Qaeda and gave them protection. With NATO partners we've had some success in killing and capturing some mid-level leaders and removing the Taliban regime, but we haven't found Bin Laden or destroyed the organization. And the Taliban appears to be getting stronger and stronger. Now our mission seems to be moving towards a prime focus on nation-building and winning the hearts and minds of the Afghan people.

It's a noble mission, but should that be our role and can we really afford what that entails in terms of much larger resources and a much longer time commitment, given our country's poorer financial position, other international obligations, and, more importantly, our critical domestic policy needs?? I don't think so! According to the Congressional Research Service, we've already spent $223 billion in Afghanistan for war costs alone! Separate from war costs, we've also spent a great deal of money on development aid and it's growing annually. It was $982 million in 2003 and it grew to $9.3 billion in 2008! And what about the immeasurable costs in military casualties, which number seem to be increasing on an almost daily basis?

A year ago we had 48,250 troops in the country. Now the total is very close to 60,000, and General McChrystal wants that increased substantially up to 40,000 more with a goal to make Afghanistan a relatively stable country. It would be nice to have Afghanistan a stable country, but is that realistically achievable, and at what costs and expected timeframe, and, importantly, should the U. S. be paying for the bulk of this?? I think not. How many other "unstable" countries are there in the world with Al Qaeda cells present? There are several dozen in Africa, including especially Somalia. And what about the Palestinian territories? How about Cambodia? We simply can't stabilize every country. And we can't go to war in every country that has Al Qaeda or Taliban insurgents.

Aside from the costs and other factors referred to above, I have big concerns with the widespread corruption in the Karzai government, clear fraud in their recent national election, the problems posed by the powerful, independent and untrustworthy warlords in the tribal regions with their own private militias, and the vast opium fields which heroin, surpassing 90% of the world's production, financing much of Al-Qaeda and the Taliban's total needs.

What to do? We need to make it very clear to the Afghan leaders, like we did in Iraq, that, while we want to continue helping them, we will not have combat troops there for an extended, indefinite period and we need to see more tangible results from them. The results must include a satisfactory clearing of the air surrounding the recent election, a strong and satisfactory commitment evidenced by specific actions to largely eliminating governmental corruption, and more productive negotiations with the warlords to gain their support and cooperation. We also need to develop a more effective program to deal with the opium fields and helping farmers move to other crops that can provide a decent living.

The U. S. and our NATO allies are not the only countries that have strong strategic interests in achieving a stable Afghanistan and that goes also for neighboring Pakistan. We shouldn't continue to bear the brunt of needed military actions, the resultant casualties, development aid, and the direct and indirect financial costs involved. India and China should also play significant roles, and so should the oil rich countries in the Persian Gulf, of course including Saudi Arabia. Isn't this a virtual no-brainer?

Wednesday, June 17, 2009

Healthcare Reform

Healthcare reform is needed and there will very probably be reform legislation approved by the Congress and signed into law by President Obama by the end of the year. The big question is what will be incorporated into the legislation. Hopefully it will be the product of genuine bipartisan debate and consensus.

While a significant percentage of Americans are apparently reasonably happy or at least satisfied with their current personal healthcare providers and the relative costs, there is no question that there are substantial weaknesses in our overall healthcare system when looked at from an objective and national basis. I don't see how any informed American can honestly disagree with President Obama that healthcare status quo is "untenable." That's really a no-brainer. However, clearly one can disagree with what changes should be made, what it would cost, and how the changes should be financed.

Probably the biggest weakness, as almost everyone knows, is the fact that healthcare is quite expensive for most Americans on an absolute and relative basis and its costs are growing unsustainably fast, with serious consequences for the majority of American families, businesses providing healthcare benefits, the healthcare industry and the nation as a whole, reflected in the troubling outlook for Medicare and Medicaid, the federal budget, and the national debt. What's the evidence? Healthcare costs in the U. S. were at 9% of GDP (Gross Domestic Product) in 1980 and doubled to 18% of GDP in 2008, compared to an average for OECD countries (30 higher income, developed countries) of just 8.5%, less than half of our rate! It is widely considered unsustainable, because if we don't make major changes to correct the trend, the projections indicate that costs will rise approximately 2.5% faster than GDP each year and grow to as much as 50% of GDP by 2080! It doesn't take a rocket scientist to understand that's not going to work.

No matter what else is included in our reform legislation, unless government, businesses, the healthcare industry, and individual Americans all take effective actions to seriously contain costs, we will be in big trouble.

Another major weakness is the fact that more than 15% of our population, about 46 million people, have no health insurance, and, very importantly, millions of other who have some insurance are underinsured, are not covered for pre-existing conditions, are vulnerable to losing it they lose their job or leave their job voluntarily, or are having trouble paying healthcare costs without cutting their tight budgets for other vital needs such as housing, college education for children or savings for retirement. A critical related factor is that a great many families have had to experience personal bankruptcy, or are fearful of going bankrupt, due to highly expensive and critical unforeseen medical operations or treatments that to a large extent may be outside of their control.

On this subject I must say very frankly that I don't think we should feel obligated to find viable solutions and finance healthcare costs for our 12-15 million illegal immigrants, except basic care for their children under, say, 18 years old. Although most of them come here to find work at higher wages, so they can help their poor families living in the countries they came from, providing free or subsidized healthcare is another incentive for many of them. We need more disincentives. If this is adhered to, we will very materially reduce the number of uninsured we need to account for to less than 34 million.

Healthcare reform is a complicated subject and I certainly don't have all the answers, but I feel strongly that components of legislation and actions by stakeholders, meaning all of us, should prioritize: a system characterized by more widespread coverage, high quality care, simplicity, efficiency, fairness and affordability; individual choice of insurance providers and doctors and dentists; and individual accountability with meaningful financial incentives for good healthy behavior within one's own control. By the latter I'm talking about fitness, diet, and exercise to optimize personal health and thereby limiting healthcare expenses.

On the subject of behavior I was impressed by an article written by the CEO of Safeway, Inc., the large supermarket chain, that was printed in the Opinion section of the Wall Street Journal on o6/12/09. He indicated that they have a healthcare plan for their non-union employees where the combined costs for the company and the employees have not increased on a per capita basis for the last four years, compared to a reported 38% increase for most American companies. The key for them, he indicated, is that their plan rewards healthy behavior, influenced heavily by their striking finding that 70% of all healthcare costs are the direct result of behavior! With their particular plan they have determined that the rewards have reduced average annual premiums for individuals by up to $780 and for families by up to $1,560. That's substantial.

In terms of solutions, the most contentious political issue seems to be President Obama's proposal for a government insurance option for Americans unhappy with private insurers' policies currently available. Many Republican leaders, including Newt Gingrich, strongly oppose a government option, claiming it would drive private insurers out of business and fairly quickly lead to an undesirable and unsatisfactory one option universal healthcare situation run by the government. I don't buy that at all, but of course it would depend on how the government option is set up and financed. It also obviously depends on how private insurers would react and adjust.

Not everyone will be entirely happy with the final outcome of the federal reform legislation and the associated resultant actions taken by private insurers, businesses, and state governments. But the outcome should hopefully provide access to an acceptable level of affordable quality healthcare for every American and put Medicare and Medicaid on a well thought-out path towards financial viability over the long term. It's also important that the outcome helps to contribute to a) healthcare costs not growing more than GDP on a consistent basis; b) balance in our federal budgets and sustainable national debt levels; and c) a competitive, healthy, efficient, and innovative healthcare industry over the longer term.

Friday, June 12, 2009

Executive Compensation Revisited

In a lead article in yesterday's Los Angeles Times Business section, "Plans to Rein in Exec Pay Announced," we read about President Obama's latest plans to clamp down on executive pay. As expected, they have generated support from most Democrats and vocal opposition from many leading Republicans. None of this is surprising. Why write about this and what's going to happen?

My regular readers may remember that I posted two blogs on this subject in past months. On 1/31/09 I commented that the strong and widespread criticism of substantial and inappropriate bonuses paid Wall Street executives were in most cases highly justified. My conclusion then was that meaningful actions to deal with this will most probably be taken by the Congress, the Obama Administration, the regulators, some boards of directors and many shareholder groups. On 8/29/08 my blog commented on the then recent historical trend of excessive compensation, defining what was excessive, who's responsible and what possible actions might be taken.

In my view it's still appropriate to write about executive compensation, because it has a bearing on what's going on in our poor though hopefully slowly improving economy, on a likely changing corporate culture, as well as the pluses and minuses of the federal government's growing influence and control over our overall economy and our vital business community. Executive compensation has had a very significant bearing on our economy because it has in too many cases, through its structuring, led to imprudent high risk taking, which in turn has led to corporate failures, needs for federal taxpayer funded rescues, massive layoffs, and huge adverse impacts on federal and state financial budgets affecting all of us. Furthermore, all of this has been instrumental in contributing greatly to the world-wide recession and clearly been a major factor in falling stock and bond markets, eroding the values of savings and retirement portfolios of tens of millions of American families.

One prominent and controversial part of the Administration's plan is to appoint a "pay czar" to approve compensation for the highest paid employees of major companies, like Bank of America, Citigroup and AIG, as well as others who have received bailout funds from the federal government. Another part involves support for legislation to give shareholders a larger voice in compensation issues. Treasury Secretary Geithner also laid out broad principles on executive compensation, such as tying incentives more to long-term performance to contain short-term risk-taking, particularly by bond, currency and commodities traders. The various restrictions would likely last until the companies repay their bailout moneys and other financial obligations. Geithner stressed that the government does not intend to cap how much executives would be paid.

Ideally, executive compensations should be decided by an effective, independent company board of directors or its compensation committee, guided by experienced compensation consultants, often supported by recommendations of the CEO for compensations for those who report to him or her. The problem has been that to many directors and CEO's didn't do their jobs well, and too many directors were not really independent. Another contributing, but less important weakness has been that company auditors and rating agencies have not generally commented critically on compensation practices.

I think an executive compensation bill will pass, but it will probably require some concessions on both sides. I'd expect it to include more power for shareholder groups to vote, perhaps non-binding, on compensation for the top 4-5 executives and also pressure from regulators and the SEC to enforce more independence of the board directors. I'd expect more companies to expedite repayment of bailout moneys to generate some more freedom in compensation matters. I'm also sure that most company directors in future will be more sensitive to imprudent compensation structures and act more responsibly. Finally, I'd hope the "pay czar" position would be eliminated as the economy gets solidly back on its feet and the several stakeholders have learned their lessons on how best to deal with this.

Sunday, April 26, 2009

Foreign Policy Position on Pakistan

Thinking about our continuing controversial political and military involvement in Iraq, though it should be winding down a great deal over the next year or two, and our growing, troubling involvement in and commitments in Afghanistan, I'm one of those who is even more concerned with what's going on in neighboring Pakistan with its 173 million almost entirely Muslim population and the consequent potential impact on our military forces and our limited available financial resources.

What's going on and why am I very concerned? Religious conservatives in the Swat Valley in the northwest of Pakistan close to the border with Afghanistan have been rebelling against the secular laws of the federal government since 1969 when the formerly independent region became part of Pakistan. A consequence of this is that these conservatives have increasingly become sympathetic to the radical Islam Taliban movement whose primary battleground for many years has been Afghanistan. In December 2008 Taliban insurgents captured the Swat Valley, surprisingly without a lot of resistance from the large Pakistan army. Among other anti-social policies in the area, they immediately banned education of girls, use of televisions and the playing of music.

In February this year, in an effort to secure peace in the region, the captive regional government of the area, supported by the weak and fragile government of Pakistan President Asif Ali Zardari and Prime Minister Yousaf Raza Gillani agreed with a leading Taliban cleric that harsh Islamic or Sharia law should replace the current secular laws.

Since that time the Taliban has moved forces into the adjacent Buner District only 60 miles from the Pakistani capital of Islamabad. The U. S. has been suspicious for years that elements in the Pakistani military and especially in Pakistan's Inter Services Intelligence (ISI) agency, though officially denied, have been secretly working against the policies and interests of the Pakistani government in support of some of the insurgent groups.

There is increasingly widespread concern, as evidenced recently by blunt statements by Secretary of State Clinton and some high-ranking British sources, that the Taliban pose a major near-term threat to the rest of the country and its federal government. President Obama's special representative for Pakistan and Afghanistan, Richard Holbrooke said in an interview yesterday that "Pakistan is an emergency situation." We should all be greatly oncerned because Pakistan has nuclear weapons and the Taliban have recognized links to al Qaeda. Our worst fear would be that al Qaeda gets even close to control or access to any nuclear weapons.

The U. S. therefore needs to continue and further increase its political pressure on the Pakistan government and its military leaders, including the head of the army, Ashfaq Kayani, to get much more serious in dealing effectively with this Taliban threat. It's positive that Chairman of our Joint Chiefs of Staff Admiral Mike Mullen has recently talked to General Kayani, and that Mr. Holbrooke has been regularly talking to Mr. Zardari, who is scheduled to come to Washington, D. C. on May 6th to talk to President Obama and Afghan President Hamid Karzai about how to combat the threat that is a continuing danger to both nations and also a potential danger to U. S. interests. Hopefully Mr. Obama will make it extremely clear what we expect and how their subsequent actions will impact continuing U. S. aid and financial support.

That this threat has been allowed to develop as it has is ridiculous! Pakistan has 650,000 active, reasonably well-trained duty personnel in the military, a paramilitary force of 300,000, and reserves of 520,000, giving a combined military force of nearly 1.4 million! The Taliban apparently has a comparatively small force of some 5,000 fighters. What's the problem? As I understand it, the problem seems incredibly to be primarily two-fold: questionable national political consensus and will and, secondly, the fact that the military has 80% of their troops firmly positioned near the Indian border, in anticipation of another possible war with that country, especially in view of the massacre in Bombay in November 2008 committed by Pakistanis, possibly assisted by some ISI insiders. Of course, another major factor in the Pakistani deployment is the longstanding national tensions associated with territorial disputes in the Kashmir region.

It should not be necessary for the U. S. to get directly involved militarily in dealing with this threat, at least with combat troops on the ground. If the Pakistani government and military allow the Taliban to capture the country's nuclear facilities, or significantly increases its control of other regions in Pakistan, the U. S. should seriously consider disabling or destroying the nuclear facilities in collaboration with the other members of the U. N. Security Council and our major allies.

This is obviously a highly sensitive and challenging situation for many reasons. The Security Council would most likely be divided on any appropriate military action. Despite the serious threat, China and Russia would probably veto any U. N. supported military action proposed by the U. S. and perhaps try to conduct bilateral negotiations with Taliban leaders, even though Russia had a bitter war with the Taliban in Afghanistan from 1979 to 1989. China supplied much of the technology used by Pakistan for their nuclear facilities and probably is concerned with maintaining a balance between the military power of Pakistan and India for greater stability in the region.

Considering everything already on their plates, President Obama and Mrs. Clinton will deserve a lot of credit if they can get this matter resolved satisfactorily. Most preferably, this would be convincing the Pakistani leaders not to be unduly concerned with any threat from India, redeploying their forces as needed, and to quickly retake control of their country without requiring any significant U. S. military or financial assistance. Since the Taliban have been active moving fighters and training camps back and forth across the loosely guarded northern Afghan Pakistani border with ease for years as opportunities for their terror and mischief campaigns arose, success in killing or capturing militants in Pakistan will help the U. S., our allies there and Karzai's government in Afghanistan as well.

Wednesday, April 15, 2009

Amnesty for Illegal Immigrants?

President Obama will apparently reveal publicly in May his plan for a comprehensive reform of our legislation on immigration to include de facto amnesty and a "pathway to citizenship" for the 15-20 million illegals living in this country. He brought the issue up again at a speech in Costa Mesa, California, on March 18th. House Speaker Nancy Pelosi seems to be strongly in favor of the expected plan. My guess is, therefore, that it will be difficult for opponents to stop the legislation, although it will probably be feasible to influence some of the specific provisions.

Some of my readers may remember that I posted a blog on the subject of Illegal Immigration way back on 9/22/07 and a related one titled U. S. Mexico Border Fence on 4/02/08 in which I gave many of my views on this general topic. While I think President Obama is doing a good job overall so far and I support him on most issues, I will most probably not agree with him on what one can expect to see in his plan, and I intend to pass on my views to his Administration.

I suspect the most sensitive and controversial part of his prospective plan will be the "path to citizenship" to be offered to most illegals, presumably those not convicted of any crime other than breaking the law by entering the country illegally or over overstaying their visas. Keep in mind that the majority of these 15-20 million illegals have broken one or more other laws such as driving a car or truck without a valid license, driving without insurance, lying on one or more employment applications, using fake Social Security numbers, and not filing income tax returns and paying amounts due. Depending on one's definition, virtually any "path to citizenship" is a de facto amnesty, even if the path requires payment of a fine, proper registration with federal, state, and local authorities, payment of income taxes owed, and if the applicants for citizenship have to go to the end of the line.

The history of amnesty legislation in recent times goes back to 1986 when President Reagan signed the Immigration and Reform Control Act which made hiring undocumented workers illegal and provided a blanket amnesty for 2.7 million illegal aliens. There have been six other pieces of legislation since 1986 that have provided amnesty for various groups of illegal aliens. The amnesties were well intended, as President Obama's no doubt will be, but they haven't worked in terms of stopping or even slowing down more illegal immigration, which in most cases was one of the objectives.

One of President Obama's main points in justifying the de facto amnesty plan is that "we can't deport them all." Unfortunately that's probably true. However, we know from our long experience that a big part of the problem has been a lack of proper enforcement of existing laws and regulations and inadequate border patrolling. We also know that the Mexican government has not done very much to help, such as government reforms and initiatives to provide better education and job opportunities for the illegals in Mexico, making it much less necessary and attractive for the illegals to risk their lives trying to cross the border into California, Arizona, New Mexico and Texas.

As I mentioned in my earlier blogs, there are substantial costs and risks associated with the illegals, although there is no question that the great majority of them work very hard, especially in lower wage jobs in construction, picking crops in farming, garden maintenance, and the food service and hospitality industries. The majority of illegals do not own property and therefore do not pay property taxes. In addition, the majority do not pay income taxes, either because they don't earn enough or because they don't file returns in order to help evade detection and their tax liability. Yet their children go to public schools, their families use emergency medical services at our decreasing number of hospitals, and, like the rest of us, use most other municipal and state services, including, unfortunately, for many thousands a lot of time in our court system and space in our costly prisons.

So what should be done, then? Obama's plan to be revealed in May should include a requirement for immediate compliance for businesses in not hiring any illegals, with stiffer penalties for violations, and much more effective border controls. Those actions should not require new legislation, unless it proves necessary for new funding. Obama needs to follow up with Mexican President Calderon to seriously discuss joint efforts to stop illegal immigration as much as possible. I'm confident he will pursue that, though I frankly don't expect to be favorably impressed with the outcome.

In the plan to be presented to Congress there should be a provision to deport those who have come across the border in the recent past, say 12 months, those who have no job, reasonable prospects for a job, or other legal means to reasonably support themselves, and those who have committed any felonies. A "path to citizenship" should be reserved for those who have lived in the U. S. for at least five years, have learned to speak and write English at some elementary or better level, and have a track record of employment and acceptable "citizenship" in terms of obeying our laws and paying taxes. It should not be automatically made available to every illegal, just by paying a modest fine and agreeing to learn English. The third group, those who should not be deported and don't yet qualify for citizenship, should be considered for a guest worker program or an extended visa, depending upon individual qualifications and family issues.

I would support a plan along the above lines that sharply reduces illegal immigration from all countries, deports new illegals and the group mentioned above, is fair to the millions of illegals who have lived here for more than five years and are in good standing with their communities, and reasonably protects the unemployed millions of Americans who are seeking new jobs at this very moment. However, the plan must also be fair and reasonable to the legal American taxpayers and take account of our current very serious national, state and local economic circumstances. This point should not be sacrificed to serve the interests of those politicians who seek Hispanic votes at upcoming elections or those who insist we must demonstrate compassion by offering citizenship to everyone. As also mentioned in the earlier blogs, I still think that the 14th Amendment giving automatic citizenship to children of illegals born here should be repealed or reinterpreted by the courts to take away this benefit.

It's a difficult issue in several respects, but that doesn't justify no action or anything close to a blanket de facto amnesty. The new plan must differentiate between different categories of illegals in a pragmatic, reasonable and fair manner. Furthermore, we must not find ourselves in a similar position five or ten or more years down the road, facing what to do with many more millions of illegals.

John Demjanjuk Case

Who the heck is John Demjanjuk and why do you bother spending time posting a blog on him? These are fair questions many of my readers are no doubt asking. Mr. Demjanjuk, 89, is a naturalized U. S. citizen who has gained notoriety after being accused of car crimes related to alleged Holocaust involvement in World War II. I'm writing about this case because I see it as an example of the federal government wasting a lot of taxpayer moneys at a time when we're in an economic crisis, have a large budget deficit, and certainly have many other higher priority needs for funding that are not being met.

His is a complicated, long drawn-out legal case, but, born in the Ukraine, he is believed to have been a Nazi SS guard at the notorious Treblinka extermination camp in occupied Poland in 1942 and 1943, as well as at one or two other similar camps, and allegedly was actively involved in torturing and exterminating many thousands of prisoners, primarily Jews. He, his wife and a child came to the U. S. in 1952 and became citizens in 1958, apparently aided by the concealment of most of his activities during the war.

At the request of Israel he was deported to that country in 1986 to stand trial. In 1988 the Israeli court found him guilty on all charges and sentenced him to death by hanging. However, in 1993 five Israeli Supreme Court judges overturned the guilty verdict on appeal, based on doubt about the validity of some of the evidence brought out in his trial. Demjanjuk was then released and returned to the U. S.

In 1999 the U. S. Justice Department filed a new civil complaint against him, having to do with his guard jobs at two other Polish camps and one in Germany. He was put on trial in 2001 and 2002 and the court agreed that the Justice Department had proved its case, resulting in their ruling that Demjanjuk could be stripped of his U. S. citizenship. In 2005 an immigration judge ordered him to be deported to Ukraine. Demjanjuk appealed all the way to the Supreme Court but was unsuccessful. Then out of the blue Germany announced it would seek his extradition for trial there for his role in the Holocaust. But the latest is that deportation was halted and he has for now returned to his home in Ohio.

There is little doubt that Demjanjuk was a guard in several Nazi death camps during the War and participated in some horrible activities. I understand those who maintain that he should be held accountable, regardless of age. But how much money is the government going to spend on prosecuting and deporting this guy?? How many federal employees are going to be involved when they could be doing more important things for the benefit of the country? We should also keep in mind that he was acquitted in Israel of similar charges to those brought up in the U. S. and Germany. Furthermore, not only is he 89, he is extremely frail and highly likely would not survive what is believed to be a prospective two year trial in Germany.

Far too much federal money has already been spent on this case. I think the Obama administration should advise Germany that the U. S. Government has decided for pragmatic and humanitarian reasons to cease any further action against Demjanjuk, discourage any extradition, and let him live his remaining limited days with his family in Ohio. I would think Germany also has better things to do with their taxpayer Euros. This is also another case which demonstrates why we need reform in our justice system to speed up prosecutions and our appeals process to conserve taxpayer dollars.

Sunday, April 12, 2009

Somali Piracy

After a one month European trip, it's time to get back to work, and I thought Somali Piracy, while seemingly an odd choice, is an appropriate subject, given a number of significant factors. Before I provide some brief background and provide my personal views, I want to make it clear right off that I feel strongly that the international community victims have handled this criminal piracy activity incredibly poorly.

For those that are not very familiar with Somalia or this subject, this is an Islamic country of 9.5 million largely poor people located on the horn of Africa, with the Gulf of Aden on the north, the vast Indian Ocean on the east, and the countries of Ethiopia and Kenya on the west and south. Its size of 246,000 square miles makes it just a little smaller than California. For the most part the people are Sunni Muslims and the languages spoken are Somali and Arabic. The capital is Mogadishu and the current country was formed in 1960 when British Somaliland and Italian Somaliland became independent and merged. There's a very weak, dysfunctional coalition central government with alleged links to al-Qaeda.

Piracy has been a threat to international shipping since the civil war which took place in the early 1990's. There's not a lot of reliable available information on the pirates, but they seem to be based in a number of smaller seaports and villages on the Indian Ocean coast, especially in and around the port of Eyl in the northeast and to a smaller extent on the northern coast by the Gulf of Aden across from Yemen. Ransoms collected from several ship seizures last year apparently totaled between $30 million and $50 million, which we understand have been used to cover their living expenses and to purchase weapons and related pirate equipment.

Most noteworthy among recent seizures were a Ukrainian ship carrying 33 battle tanks and a Saudi Arabian tanker vessel carrying $100 million worth of crude oil. The current total of seized vessels is more than twenty with 300 hostages. U. S. interest got greatly escalated when on April 8th, only a few days ago, a small number of pirates temporarily seized the U. S. registered 17,000 ton "Maersk Alabama" container ship bound for the Kenyan port of Mombasa with a cargo of food aid for several African countries, but at the time an estimated 400 miles off the coast northeast of Mogadishu. The ship is operated by a U. S. subsidiary of the huge Danish shipping concern, A. P. Moeller Maersk Group headquartered in Copenhagen.

As most people who follow international news know, the 20 member crew of the "Maersk Alabama" managed to expel the 4-5 pirates, but they managed to escape in their covered lifeboat with the ship's American captain, Richard Phillips, as a valuable hostage. Subsequently the lifeboat apparently ran out of gas and was bobbing relatively idle alone several hundred miles off the coast. Shortly afterwards the U. S. Navy's destroyer "Bainbridge" and frigate "Halyburton" arrived on the scene to monitor the situation and be prepared to take whatever action is decided upon by their superiors and the Pentagon. Clearly their top priority is keeping Phillips safe and rescuing him, secondarily trying to apprehend the pirates. So far no military action has been taken, but some radio contact has apparently been made with the pirates.

What has been done by the international community over the past year to deal with this highly unacceptable situation? In October 2008 the U. N. Security Council adopted Resolution 1838, calling on nations with vessels in the area to apply military force to repress acts of piracy in the area. India has called for a U. N. peacekeeping force under a unified command to tackle the piracy. But nothing much further been done, though yesterday the French navy initiated a military operation against pirates who had seized a French luxury yacht with 30 or so people onboard that appears to have been successful, though one or two hostages apparently died.

This is obviously a significant U. S. political issue at the moment, since an American vessel has been attacked by pirates for the first time in about 200 years, an American is held as a hostage, a sizable ransom appears to have been demanded, the Somali government is linked to al-Qaeda, and the U. S. is the key member of the U. N. Security Council which has voted to deal with this situation. Furthermore, those involved include the U. S. Department of Defense, the FBI, CIA, State Department, and probably also the National Security Council and President Obama himself.

Limited U. S. action to date to deal with the pirates no doubt is due to the facts that no U. S. vessel was seized before April 8th, our federal government has been understandably preoccupied with higher priority issues including, but not limited to, rescuing our economy and fighting the wars in Iraq and Afghanistan, and because the U. N. Security Council typically is not geared to come to agreement and follow up resolutions with effective action. As far as the shipping companies are concerned, their primary motives appear to be the safety of their crew and keeping their ships sailing as much as possible, quickly agreeing to ransoms which are covered by freight revenues and insurance against piracy. These are not adequate excuses, at least now.

It would be nice if there were a strong, unified central government in Somalia that could take effective action against the pirates under serious international pressure. However, that will most likely not happen in at least several years. I think the shipping companies should quickly reconsider their current widespread policy of having their crews unarmed with no hired security guards onboard. The risk to the safety of crews should be fairly limited with training and arming their crew with modern weapons and/or hiring a half dozen or so trained and experienced guards. The economic incentives of keeping their ships sailing and not paying ransoms should be adequate to do so.

Another practical option would be organizing to have the ships sail in periodic convoys, like in World War II, protected by a multinational naval force manned especially by the U. S., the British and the French, but also other NATO navies on a rotational basis to limit costs to any one country. This should be fairly easy to do, and be very effective, keeping in mind the pirates have
no submarines, like the Germans and Japanese during the war, and limited resources and weaponry. Isn't this really a no-brainer?

Wednesday, February 25, 2009

Evaluation of President Obama

I find it interesting and revealing that critics of President Obama, seeming to be primarily ideological conservatives on the right of the political spectrum, especially in the U. S. Senate and certain media talk show hosts, have been quick and rather critical in evaluating his performance to date.

Ladies and gentlemen, he's only been in office for a little over five weeks! He inherited a deep recession, a very serious financial market crisis, a big housing problem, a huge federal budget deficit, a large and increasing unemployment rate, a sharp decline in the stock and bond markets, and two difficult, expensive wars in Iraq and Afghanistan. He also inherited critical Social Security and Medicare programs that for many years have needed restructuring and reform. Let's be reasonable and give him some more time to perform.

He and his staff have stumbled a little in vetting a number of important nominations for his cabinet and perhaps more details could have been provided earlier for their plans for dealing with the troubled banking system. However, given what's on his plate and how short a time he's been in office, I think he and his administration have done quite a bit and very well. With an approval rating averaging 70% since he became President, and very recently at 63%, the general public seems to agree.

In domestic affairs, of course, despite noisy partisan objections, he has obtained approval by Congress and signed into law the $787 billion stimulus package called the Recovery and Reinvestment Act. He has also developed and promoted plans to invigorate our very weak banking system to get badly needed credit flowing again, developed a housing plan to stem foreclosures, made an outstanding speech on his vision for domestic initiatives and priorities to Congress, and presented a massive and comprehensive $3.6 trillion budget for the fiscal year beginning October 1st. In foreign affairs he has traveled to Ottawa to meet with Canada's Prime Minister Stephen Harper and by all counts had a very cordial and productive meeting with the leader of our biggest trading partner. Secretary of State Hillary Clinton recently returned from a useful trip to the Far East where she met with senior government leaders in China, Japan, South Korea, and Indonesia, among the most important countries in Asia and vital trading partners. A new strategic plan for our sensitive military and political activities in Afghanistan is in the works.

His Republican critics have a right to be concerned with a much bigger and activist federal government, more large budget deficits, and growing national debt. I am as well, particularly if they become long lasting. However, given current circumstances, what realistic options are there, at least for the next two three years? There is virtually no chance that a passive federal government would work. Neither would employing primarily thinly regulated free markets, leaving everything for the private business sector or individual Americans to turn the economy around. There is also no good reason to believe that the stimulus package could have been more effective if it had had a smaller level of infrastructure and other federal projects , and a corresponding higher level of tax cuts, as many congressional Republican leaders have long maintained. It isn't very instructive to point to any historical political example to support one's view. We're living in a different new world now with a unique, highly globalized economy and key technologies that largely did not exist 20-30 years ago.

Almost everyone agrees that the position of President of the U. S. is the most important and probably the most challenging of any in the world, especially today. I think we are very fortunate to have a man as bright, articulate, self-confident, and cool-headed as Barack Obama serving in the prime of his life. It is reassuring that he has surrounded himself with a lot of experienced and capable people who are not afraid to provide their opinions, and that he is a good listener. We certainly do not know for sure that he will ultimately be successful. We do know that he has a highly ambitious agenda and that he will face serious partisan political obstacles in getting many of his initiatives approved in the form he will be seeking.

However, even many strong critics maintain that he is very likely to be reelected in four years if he and his policies are able to do just two things: turn our economy around on a reasonably sustainable track, and keep us free of any terrorist attacks in this country, regardless of what else he does not get done. I'm not sure if that's entirely true, but I'm cautiously optimistic he will be reasonably successful. All Americans should hope that it works out this way, because we are all important stakeholders, especially those of us who happen to earn less than $250,000 annually. Let's not forget that. He needs and deserves our strong support.

Wednesday, February 18, 2009

Justice Reform for Taxpayers

Reading two inconspicuous articles in the California section of today's Los Angeles Times reminded me of the need to reform our justice system in fairness to us taxpayers, while maintaining the current basic civil rights for our citizens and legal alien residents.

In one article, a Superior Court jury in San Diego yesterday found that four male firefighters were sexually harassed while driving a fire truck in a 2007 gay pride parade and were entitled to $34,300 in damages from the city, which apparently plans to appeal. The firefighters had sued the city because they were ordered to drive the truck in the 90 minute parade, even though firefighters in previous gay pride parades had reported being taunted with sexual innuendos. In his arguments to the jury the successful attorney for the firefighters claimed the city "disrespected these men and violated their rights." Understandably, after the lawsuit was filed, the Fire Chief changed department policy and made participation in gay pride parades voluntary.

I have several reactions. There are too many attorneys looking for clients. Too many jurors are not really qualified to serve capably. A case like this should not be decided by a jury, but by a judge, if it should be adjudicated at all. The fire fighters should have been able to deal with the harassment without resorting to lawsuits, especially when they should have known that it was likely going to take place. The gays involved should have behaved better and not doing so probably harmed sympathies for their rights in the community at large. The city should win on an effective appeal. Far too much taxpayer moneys were used, because of how this case was handled, not only for the $34,300, but the probably larger and unnecessary courtroom costs involved.

The other article reported that a San Quentin inmate on death row for murdering a 12 year old girl in 1981 died of natural causes at 65, after spending twenty-two years fighting execution. The girl had been on a camping trip with her mother and a friend in Cleveland National Forest in Orange County. The girl's friend was also shot, but survived. The inmate apparently didn't know the girls at all, and his motive for shooting the girls never clearly emerged in the lengthy trial held originally in 1983.

All inmates, especially those on death row, should, of course, have the right to appeal their sentences. No one can credibly argue that point. However, it's not reasonable and not fair to the taxpayers that a legal appeal process can last more than twenty years. It really should not be necessary and appropriate to last more than five years in most cases and ten years in exceptional cases, without unfairly affecting their civil rights. At 1/1/08 there were 3,309 death row inmates in the U. S., of which 667 were in California, 397 in Florida, and 373 in Texas. It is difficult to come up with accurate figures, but the cost of legal appeals, housing, feeding, guarding and providing medical care to these inmates adds up to a great deal of money, probably in the hundreds of millions of dollars annually. My understanding is that the average time spent on death row is more than 20 years. If the appeals process could be limited to an average of, say, eight or ten years, these very large total costs could no doubt be cut in half, with huge savings for taxpayers.

The highly sensitive subject of capital punishment is another important different, though closely related, issue. Some people favor abolition of capital punishment, others favor retaining capital punishment for the most serious crimes, and still others favor swifter capital punishment for a broader category of crimes. Justification for their respective views vary. The majority of the justifications seem to include concern that some of those scheduled for execution may actually be innocent, which I share, a desire for "justice" for those murdered or otherwise harmed, a perception of deterrence to other prospective criminals, and a desire to save unnecessarily spent money for the taxpayers, which I also share. Certainly all these views have merit and should be respected, though many experts maintain that capital punishment is not really a deterrence to a great many hardened criminals.

In any case, it's obvious that we have material weaknesses with our current system of justice. A comprehensive and serious review of how best to improve it is needed. One of the major objectives of such a review, aside from maintaining basic and reasonable civil rights for the accused and convicted, should be clearly identifying and quantifying how an improved system of justice can appropriately save taxpayers unnecessarily spent moneys.

Tuesday, February 17, 2009

Campaign Finance Reform

The significant level of criminal, illegal, unethical, inappropriate and generally unacceptable behavior by our elected representatives in federal, state and local governments in recent years has been shameful and embarrassing. Recent scandals demonstrate that some politicians are more than happy to trade away their offices for private gain, often referred to as "pay-to-play" practices. It understandably but unfairly makes voters cynical and suspicious of all our politicians, the great majority of whom are most probably honest and hard-working, and also has had an adverse impact on the governments' productivity and efficiency to the detriment of the public's best interests.

It's my view that much of poor behavior is directly associated with campaign financing practices and the complex and frequently violated underlying laws and regulations. Major reforms are needed in one form or another. It was therefore rather surprising and disappointing that so little attention to this issue seemed to be given in last year's presidential campaigns.

What unacceptable behavior am I thinking about? Two of the most notable decades ago were those involving U. S. Senator Joe McCarthy and his very questionable congressional hearings held in the early 1950's, and the the Watergate scandal involving President Richard Nixon in the early 1970's, forcing his resignation.

More recently, a noteworthy example is associated with disgraced former lobbyist Jack Abramoff, who provided free lunches, luxurious golf outings, and luxury box seats at professional sporting events to well-known politicians in return for legislative favors helpful to Abramoff's clients in violation of government rules. Abramoff pleaded guilty to three felony counts, including conspiracy to bribe lawmakers, mail fraud, and tax evasion. Some of those implicated were President Bush's senior advisor, Karl Rove, former Congressman Bob Ney, and former House Majority Leader Tom De Lay.

Other examples include the scandal involving former Congressman Randy Cunningham, who resigned in November 2005 for taking $2.4 million in bribes from defense contractors, and former Congressman Mark Foley, who sent solicitative emails and sexually explicit text messages to young men who previously served as congressional pages. Then we have the recent scandal involving U. S. Senator Ted Stevens of Alaska, convicted of seven corruption counts in October 2008. Finally, among many others, there's former Illinois Governor Rod Blagojevich, arrested for trying to sell his nomination to replace Barack Obama as Senator for the state who's possibly facing up to thirty years in prison.

There's no doubt that greed, a deep desire to gain and maintain political power, and a belief many of these characters have that they will never be caught and prosecuted were factors in this very poor behavior. However, I think it's clear that a bigger factor in most of these, and many other examples that could be cited, are the increasingly high costs of election campaigns and our complicated campaign finance laws and regulations.

In the 2004 presidential election the candidates spent a total of $718 million. In the 2008 presidential election Barack Obama reportedly spent $730 million alone and John McCain spent another $333 million. It's crazy. The way it is now you can't compete unless you are very wealthy or are prepared and able to spend a great deal of time and effort in fundraising to support your campaign financing needs. Most of the larger contributors expect tangible political favors, good jobs in the administration, or special access for themselves or hired lobbyists after the elections. As we've seen, this breeds actual or de facto corruption and impedes efficency and good government. Major reform is needed, notwithstanding objections from those who lean heavily on First Amendment rights related to free speech.

Campaign costs need to be greatly reduced and regulations need to be greatly simplified with limited, if any, loopholes. An important goal of the reform should be to make running for office more affordable and attractive, and make massive and time-consuming fundraising less necessary. One approach to this is strong bipartisan support for reasonable spending limits. Another approach is to pursue voter approval for public financing covering, for example, up to 50% of presidential and congressional campaigns with a fixed upper limit. A third approach, which perhaps is best, is to use the leverage of the Federal Communications Commission to secure a certain level of free and equal TV and radio time for the major candidates in general elections, coupled with an agreed spending limit for other needs.

Regrettably I'm frankly not optimistic about the near-term prospects. There are so many other important issues that seem to have a higher priority, including foreign policy, healthcare, education, energy, and Social Security. In addition, legislative efforts to rein in campaign spending have almost always attractived stiff resistance. Unfortunately, there are so many entrenched interests who want to retain the status quo, including incumbent politicians, the hospitality industry, and wealthy individual and corporate campaign contributors who want favors in Washington.

Monday, February 9, 2009

Economic Stimulus Package

I agree with President Obama that we need to get this bill urgently approved by Congress, signed into law, and begun to be implemented as soon as possible, no later than the middle of next week. That obviously doesn't mean any bill will do. However, given the staggering and growing layoffs and unemployment numbers reported almost daily, a "better" bill in 30 days may not be as effective as the final compromise bill Senate and House representatives should be able to come up with and voted favorably on by Friday or Saturday this week.

I also agree with most of what long-time "MoneyTalk" host Bob Brinker said about the final bill on his radio show yesterday:

1. No pork projects must be allowed to creep into the bill, just because a legislator wants to satisfy lobbyists, constituents or campaign contributors, or any personal ideological view.

2. Infrastructure projects that are not "shovel ready" to stimulate the economy in the short term should preferably not be incorporated, even though they are good projects that are beneficial and appropriate over the medium or longer term. That said, I'm certain there are many needed public infrastructure projects that can be made "shovel ready" on a very fast track to stimulate the economy with tens of thousands of new jobs within a short 3-6 months time frame.

3. Even though it's apparently not being considered in the Congress so far, a temporary reduction in the payroll tax would be a prudent tool because it puts more money in the the hands of both employers and employees, and it would be easy and quick to implement. I'm talking primarily about the 6.2% currently withheld from an employee's pay and equally contributed by the employer for Social Security and the current 1.45% for Medicare .

4. To help stabilize the housing market, I like the idea of a temporary 10% tax credit of up to $15,000 for the purchase of foreclosed properties as a primary residence for, say, the next six months, with the possibility of an extension for the remainder of 2009.

5. Keeping in mind that the U. S. has about the highest corporate income tax rates among the major developed countries, and that this has induced many companies to move headquarters and operating units to lower tax jurisdictions abroad, I think lower corporate tax rates could stimulate near-term investments in new machinery and equipment and reduce pressure for more layoffs.

To the Congress members working on reconciling the respective House and Senate bills in the next several days, I say that the American people expect you to work expeditiously on a bipartisan basis to do what's in the country's best interest. No more politics as usual. Earn your generous pay and benefits! Get it done!

Saturday, January 31, 2009

Executive Compensation - Supplement

There's been a great deal of justified criticism in recent weeks about annual bonuses totaling a reported $18.4 billion paid or promised largely to investment bankers on Wall Street for their performance in 2008. This was at the same time as their employers are reporting huge financial losses, many of them have applied for and received substantial federal bailout moneys, tens of thousands of primarily lower paid and mid-level employees in their industry are receiving pink slips, and the country is in the worst economic recession since the Great Depression in the early 1930's.

Particularly newsworthy was the imprudent and inappropriate decision by former Merrill Lynch CEO John Thain and its board of directors to approve between $3-4 billion in bonuses to a large pool of their investment bankers at a board meeting on December 8th, when they knew, or should have known, that Merrill Lynch would be reporting a loss exceeding an incredible $15 billion for the 4th quarter alone! Furthermore, they decided to speed up the payments to later in December, rather than the customary January period, because, I think, they feared the possibility of Bank of America's CEO Ken Lewis and the bank's board downsizing the bonuses after their merger deal became official on December 31st. However, and it may have been another factor, Thain's reported rationale for the speeding up was that he wanted his senior executives to allocate the bonus pool to the respective beneficiaries before the merger and many of them left for other employers.

Additionally, the reported rationale from Mr. Thain and his supporters in paying the bonuses was the fear of losing many of their best performers, who no doubt would be quite unhappy if no bonus were paid. Critics, including myself, maintain that there couldn't have been that many top performers last year if the firm lost as much money as they did. And where would they go, since almost all the better firms in the industry are laying off people, not hiring?

On Thursday President Obama blasted Wall Street executives and board members for their actions in paying the bonuses, calling it the "height of irresponsibility" and "shameful." I think he was right to do so, even if the actions were legal. And I say that as a former investment banker who spent ten years in the industry. But to be fair to Mr. Thain, though originally apparently seeking a $10 million bonus for himself, I understand neither he nor the top four other executives at Merrill Lynch, were actually paid any bonus.

In my experience, bonuses to investment bankers are typically paid based on performance against pre-agreed personal objectives, especially involving revenue generation, and the level of individual contributions to the firm's financial results. However, limited bonuses were paid to anyone if the firm didn't achieve satisfactory overall financial results as measured against stated corporate objectives. By this standard, certainly, the bonuses, though much smaller than for performances in 2007, seem quite excessive and definitely inappropriate.

Given the public and media uproar on this subject, and understandings about limiting executive compensation for companies receiving federal bailout moneys, congressional investigators have called on the banks to justify their actions. In addition, New York Attorney General Andrew Cuomo has instituted his own investigation to determine if some of the executives have violated their fiduciary duties to shareholders, creditors and other employees. Apparently he has already subpoenaed Mr. Thain and Bank of America's Chief Administrative Officer J. Steele Alphin to testify. I'm fairly certain he will press hard for some meaningful convictions or similar outcomes, depending on the evidence he can come up with, particularly if this covers clear and unwarranted harm to shareholders, creditors or other employees.

What's going to be the end result? As I discussed in my post published last August, there will be even more pressure by the Congress, the media, the regulators, rating agencies and a great many shareholders for the boards of directors and CEO's of these firms to be more careful and a little more rigid and disciplined in how salary compensation levels are established and what policies will apply to incentive compensation, also often referred to as bonuses. I also would not be at all surprised if a number of additional CEO's and board members of these banking firms retire or are forced to resign.