Public Policy and Governance – Page 321

That Housing Bubble

I rarely read George Will’s columns, and I stopped completely when he wrote one that blatantly lied about the findings of a university research center in an effort to debunk global climate change. (The center involved issued a statement protesting the mis-characterization of its research, but if the Washington Post ran it, I didn’t see it.)

Evidently, Will used a recent column to resurrect a horse that should have been dead long ago. When the housing bubble first burst, conservative pundits immediately blamed the whole mess on the CRA–the Community Reinvestment Act. The big bad government had forced lenders to make bad loans out of a misplaced “compassion” for non-creditworthy slackers. I knew this was bullshit, because I’d spent several years as a real-estate lawyer, and was well-acquainted with the Act and the practices of the banks that were covered by it.

Dean Baker has responded to Will’s effort to resurrect that argument with an excellent (and–gasp!–factual) smack down. It’s worth quoting at some length:

“There is not much ambiguity in the story of the housing bubble. The private financial sector went nuts. They made a fortune issuing bad and often fraudulent loans which they could quickly resell in the secondary market. The big actors in the junk market were the private issuers like Goldman Sachs, Citigroup, and Lehman Brothers. However, George Will and Co. are determined to blame this disaster on government “compassion” for low-income families.

The facts that Will musters to make this case are so obviously off-base that this sort of column would not appear in a serious newspaper. But, Will writes for the Washington Post.

The first culprit is the Community Re-investment Act (CRA). Supposedly the government forced banks to make loans against their will to low-income families who did not qualify for their mortgages. This one is wrong at every step. First, the biggest actors in the subprime market were mortgage banks like Ameriquest and Countrywide. For the most part these companies raised their money on Wall Street, they did not take checking and savings deposits. This means that they were not covered by the CRA.

Let’s try that again so that even George Will might understand it. Most of the worst actors in the subprime market were not covered by the CRA. The CRA had as much to do with them as it does with Google or Boeing. …”

Nuff said.

Thoughts for the Holiday Weekend

This is the 4th of July holiday weekend, and most of us are planning cookouts, fireworks celebrations and the like. In my house, we’ve been getting ready for a long-planned European trip–giving instructions to the graduate student who has graciously agreed to “house sit,” making sure our packing list is complete, etc.

But it is also an appropriate time to think about the state of our country and its government. So as this celebratory weekend gets off to a start, allow me to share some random concerns.

One of America’s great assets has been the fact that, as a nation, we’ve never been particularly ideological. We’ve been one of the newest and most pragmatic of countries, and as a result we’ve escaped some of the worst results of hereditary privilege, class resentment, and zealotry. That seems to be changing.

Checks and balances were meant to ensure that no branch of government got too powerful; is it possible that we have gone too far toward “checking” and lost our “balance”? The founders didn’t have political parties, and I doubt they envisioned a time when a political party in the legislative branch would close ranks and simply refuse to co-operate or negotiate with the administration. Whether this is due to ideology or politics hardly matters–it makes governing virtually impossible. (The Democrats would undoubtedly love to do the same thing if the situations were reversed, but they lack the ideological consistency and organizational discipline to pull it off.) Structures matter more than current punditry might suggest, and when lawmaking is structured to require a measure of participation and compromise from all sides, the absence of that co-operation is a very serious problem.

This country has given so much to its citizens, yet some of those who have benefited the most seem least willing to acknowledge that debt, and least willing to pull their own weight. The other day, a wealthy man of my acquaintance told me that he’d made his money without help from anyone, and didn’t see why he should pay taxes to support people who hadn’t worked as hard and been as successful. No one gave me anything, he said. Of course, his parents were able to raise him in a stable society, and could send him and his siblings to good public schools. Public agencies made sure his food was safe to eat. When he graduated from his (public) university and started his business, he didn’t have to pay off the local authorities. He had access to public roads that allowed him to receive raw materials and ship his goods. Municipal police and firefighters ensured the safety of his home and business. Impartial courts decided his disputes with customers or suppliers. The existence of a stable, regulated economy meant he could borrow necessary capital. And on and on…..These are assets that people in many other countries lack. Good governments create the conditions that make free enterprise possible. It constantly amazes me that so many people fail or refuse to understand that.

Our governments–state and federal–are far from perfect, and some of our policies are positively insane. (We may or may not agree on which ones those are.) But dammit, patriotism isn’t wearing a flag pin on your lapel. Patriotism is civic involvement in the nitty-gritty of politics and governance–voting, attending public meetings, writing letters to elected officials. And paying taxes–so that America can continue to provide a social and physical infrastructure that allows people to succeed.

Happy Fourth of July.

A Seemingly Simple Question

The job of the School of Public and Environmental Affairs, where I teach, is to produce thoughtful public and nonprofit managers—people who can deal with the increasing complexities of public and regulatory policy. That requires spending a good deal of time analyzing what rules government should and should not enact.

Rulemaking is an especially important task of the various agencies set up to regulate highly technical industries like telecommunications. Too little regulation and the strong will take advantage of the weak; too much, and it can stifle competitiveness. In highly specialized, technical areas, corporate interests can—and do—lobby in relative secrecy for sweetheart deals, or—even worse—to prevent passage of regulations that would benefit the general public.

Case in point: mobile phones and broadcast radio.

Around the world, over 1.1 billion phones contain chips that allow them to receive radio broadcasts. Although it is estimated that 33% of phones here in the U.S. have those same chips (which cost approximately 30 cents each), in our phones they’ve been turned off. So people living elsewhere can and do listen to radio on their cell phones, but we Americans can’t.

That leads to two questions: why not, and why does it matter?

Cell phone users in the U.S. can’t choose to have radio on our phones because when the ability to download first threatened the music industry’s business model, the carriers—AT&T, Verizon, etc.—thought including broadcast radio would undermine their ability to sell music packages. With the passage of time, and development of free services like Pandora, it became obvious that there wasn’t going to be a market for such sales, but carriers continue to block radio from cellphones.

That refusal mystifies me. When you download news or music to your Blackberry or IPhone, you are using a lot of bandwidth, and bandwidth costs carriers a lot of money. (Granted, they pass along the cost to users when they can.) Turning on that 30 cent chip would free up badly needed bandwidth and save carriers money. As an observer with—admittedly—a very minimal understanding of the industry, I find their continued resistance to offering radio puzzling.

If the issue was just that carriers are making a seemingly dumb business decision, it wouldn’t make much difference to most of us. (I’m certainly not going to lose sleep over AT&T’s profit margins!) The reason this matters to the rest of us is that it significantly affects public safety.

When natural disasters occur—think Joplin, Missouri—the government needs to be able to issue immediate alerts, and those alerts need to reach the widest possible audience in the shortest possible time. It is literally a matter of life and death. In 2006, the federal government passed the Warn Act, requiring wireless providers to develop the capacity to issue those emergency alerts. Thus far, the industry has done very little to build the widespread text-messaging system that it is developing to satisfy the Act.

Adding radio to cell phones would allow government to use the existing emergency broadcast system, which has proven much more reliable than cell phone towers. (When electricity goes, so does the cell system.) Furthermore, texting may get the attention of young people, but many of the older Americans most vulnerable to natural disasters are unlikely to check regularly for text messages.

The lack of an emergency notification system is a problem government can solve tomorrow by passing a simple regulation requiring carriers to use that 30 cent chip. Experts insist that there are no technical impediments, and costs would be far less than building out a text-based notification system.

Why doesn’t the government require this? What am I missing?

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Selling Indiana: Update

This past weekend, the LA Times and the Northwest Indiana Times both had stories about Mitch Daniel’s privatization initiatives.

The Northwest Indiana article reported on the impending default of the private operator of the Indiana Toll Road. While a default would probably not cost Indiana taxpayers–the private operator paid us in advance–it might well cost us what little control we retained over the Toll Road, and depending upon how the default played out, might require some legal fees.

The LA Times article, on the other hand, was the sort of in-depth reporting that has become all too rare nationally, and virtually non-existent here in Indianapolis. It traced the disaster that was Indiana’s effort to contract out welfare intake, and it is well worth reading in its entirety. High points include a description of ACS ties to Indiana political figures and “movers and shakers”–especially Stephen Goldsmith, Mitch Roob and the Barnes Thornburgh law firm–together with a list of associated campaign contributions, and several examples of the harm done to vulnerable elderly and disabled people who depended on the program.

The Star did do several stories early on, when the failures of IBM and ACS were at their most glaring, and again when Daniels admitted defeat and pulled IBM’s (but not ACS’) contract. And it ran a story when IBM sued the state. But there was no effort to “connect the dots” and nothing even close to the comprehensive investigation provided by the LA Times.

That lack of a full picture matters, because without it, reporters fail to recognize the context within which we must understand related information.

A couple of weeks ago, the Daniels Administration announced that it had received an award from the federal government for cutting the food stamp program’s negative error rate–how often cases are incorrectly closed or denied. The Administration bragged that Indiana’s error rate was below the national average. The Star dutifully reported the (accurate) claim. What didn’t get reported was the fact that from 2001 to 2007–prior to welfare privatization–Indiana’s error rate had also been below the national average, but in 2008, one year after IBM and ACS took over, the error rate had more than doubled, to 13%. It was the largest increase in the country, and the celebrated “improvement” was measured from that high point.

Context matters. So does journalism.

Surprise, Surprise

Last week, there was a fair amount of publicity about a study issued by the Justice Policy Institute that found—drum roll, please–that private prison operators lobby for more stringent criminal laws.

In other news, the sun rose in the east yesterday.

There are certainly instances in which government outsourcing makes sense, but operating prisons is not one of them. As many observers of what I call “privatization ideology” warned when the first private prisons began operating, incarceration for profit is simply untenable: the incentives involved are inconsistent with good public management. Prisons aren’t businesses, and they cannot and should not be run as businesses.

When a company’s profits depend upon jailing more people for longer periods, it shouldn’t come as a surprise that those companies will lobby for ever-more draconian laws and extended sentences. If that lobbying is successful, it will cost taxpayers much more than they saved by outsourcing (assuming the much-touted savings are real to begin with.)

It isn’t just prison outsourcing that threatens to distort policy-making. The United States no longer has a military draft, and we currently have more “contractors” in Iraq and Afghanistan than we do citizen-soldiers. As I pointed out in a paper several years ago, in the wake of the Abu Ghraib scandal, there are significant moral, legal and strategic problems that arise when governments essentially hire mercenaries to do their dirty work. For one thing, it is far easier to opt for a military “solution” to a problem when the Congressman casting the vote can simply “hire” soldiers, and doesn’t have to go home to his district and justify drafting his constituents. For another, the multi-national companies that provide the “soldiers for hire” have a vested economic interest in military combat.

Private prison operators lobby for stricter sentencing. Does anyone really believe that private companies providing combat services won’t lobby for war?

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