Category Archives: Random Blogging

Spending? Or Investing?

What happens when we fail to recognize the difference between spending and investing?

That question was triggered by a recent column by New York Times columnist Joe Nocera. Nocera was writing about corporate activists and a pending proxy battle between one such group and the DuPont Company, and most of his column dealt with the specifics of that situation. What struck me, however, was the following paragraph, in which he quotes an observation by a corporate lawyer named Martin Lipton. Lipton’s observations have implications that go well beyond a single corporate proxy dispute.

“Activism has caused companies to cut R & D, capital investment, and most significantly, employment,” he said. “It forces companies to lay off employees to meet quarterly earnings.”

“It is,” he concluded, “a disaster for the country.”

Lipton’s focus on employment is important, and has obvious implications for the health of the economy. But even more important, in my view, is the equally undeniable fact that the current fixation on generating an immediate shareholder return has resulted in corporate management diverting monies from investments that will pay dividends in the future in order to satisfy shareholder demands in the present.

Nor is it only corporate America that has become so shortsighted. The U.S. Congress is dominated by slash-and-burn “conservatives” who refuse to invest in critical infrastructure, preferring instead to indulge ideology and/or reward donors by reducing taxes on the wealthy (already at historic lows) still further. The recent slashing of Amtrak’s budget–even in the wake of a horrific derailment–is but one recent example.

I put quotation marks around conservative in the preceding paragraph, because I am old enough to remember when “fiscally conservative” described policymakers who believed in paying for programs—and wars—when they were authorized, rather than financing them “off budget” or putting them on the national credit card. ( We may criticize “tax and spend,” but it’s surely preferable to “borrow and spend.”)

Genuine fiscal conservatives also understood the difference between capital and operating expenditures and the importance of investing in the nation’s future.

Drawing parallels between individual households and the federal budget can be misleading, because there are significant differences between behaviors that are personally prudent and those appropriate to government. Nevertheless, to use a household example, your home mortgage is an investment; your new suit isn’t. Most of us would have very different opinions of two families carrying the same level of debt—in one case a mortgage and in the other a credit card balance from a shopping spree. And most of us would be very critical of a homeowner who chose not to repair the leaky roof so that he could use the money for a vacation instead.

Allowing assets to deteriorate while we indulge more immediate political appetites is hardly “fiscally conservative.”

When businesses fail to invest in necessary equipment, when they cut back on research and development, they risk obsolescence and loss of market share. They lose their competitive edge. That’s bad news for them.

When government fails to invest in infrastructure—bridges, roads, railroads, the electrical grid, new energy technologies, basic medical and scientific research—that’s bad news for us. We all suffer the consequences, because the whole nation’s economic performance is dependent upon the adequacy and accessibility of that infrastructure.

I believe it was Eric Hoffer, the longshoreman-philosopher, who said a nation should ultimately be judged not by what it builds, but by its ability to maintain what it has built.

Comments

The Age of the Bankster

Remember Mr. Potter, the banker in “It’s a Wonderful Life”? He wasn’t exactly a paragon. In fact, it wouldn’t surprise me to learn that his character reflected how people of that era viewed their local banks and bankers.

Potter-like or not, however, bankers used to live in their communities and tended to have a pretty accurate picture of their needs, not to mention the credit-worthiness of the merchants and working folks who made up those communities.  (I grew up in a small Indiana town, and remember our local bank president with some affection; if I was overdrawn, he’d just call my father, who would transfer some money into my account. No embarrassing surprises, no fees. Just a parental lecture.)

So this report is troubling.

Here’s a statistic that ought to alarm anyone interested in rebuilding local economies and redirecting the flow of capital away from Wall Street and toward more productive ends: Over the last seven years, one of every four community banks has disappeared. We have 1,971 fewer of these small, local financial institutions today than at the beginning of 2008. Some 500 failed outright, with the Federal Deposit Insurance Corporation (FDIC) stepping in to pay their depositors. Most of the rest were acquired and absorbed into bigger banks….

In 1995, megabanks—giant banks with more than $100 billion in assets (in 2010 dollars)—controlled 17 percent of all banking assets.

By 2005, their share had reached 41 percent. Today, it is a staggering 59 percent. Meanwhile, the share of the market held by community banks and credit unions—local institutions with less than $1 billion in assets—plummeted from 27 percent to 11 percent. You can watch this transformation unfold in our 90-second video, which shows how four massive banks—Bank of America, JPMorgan Chase, Citigroup, and Wells Fargo—have come to dominate the sector, each growing larger than all of the nation’s community banks put together.

Whatever one’s opinion of the bank shenanigans that precipitated the Great Recession, of “too big to fail,” or Dodd-Frank–whether or not you agree with Elizabeth Warren about the need for additional financial regulation–concentrations of power of this magnitude are cause for concern.

When that power is concentrated in large national banks removed from community relationships and concerns, the result is more foreclosures and fewer small business loans.

But perhaps the most important reason to treat the decline of community banks as a national crisis is that, while megabanks devote much of their capacity to activities that enrich their own bottom line, very often at the expense of the broader economy, local banks are doing the real work of financing businesses and other productive investments that create jobs and improve our well-being….

 While credit unions and small and mid-sized banks account for only 24 percent of all banking assets, they supply 60 percent of lending for small businesses.

The inverse is true of megabanks: they control 59 percent of the industry’s asset, but provide only 23 percent of small business loans. Given how much ground these giant banks have gained over local banks in the last seven years, it’s not hard to understand why small business lending has continued to shrink even as the economy has recovered.

Sometimes, bigger is better. Sometimes, it most definitely is not.

Comments

Lone Star Lunatics

Okay–I really wanted to ignore this whole thing.

I mean, what can you say about people who are freaked out because the Department of Defense is mounting  a  military training exercise (with the admittedly bizarre name Operation Jade Helm)–because they think it’s all a plot to declare martial law and “take over” Texas?

Obama’s bringing in the U.N. or ISIS (depending on which loony you believe), and will round up Texans and put them in camps which are (inexplicably) located in abandoned Walmarts that are connected by underground tunnels that were somehow constructed without anyone noticing (and without, evidently, generating any large deposits of dirt to attract anyone’s attention).

And aliens have landed in Lubbock and are having sex with antelopes….

I suppose I should be over letting weird stuff that happens in Texas surprise me. After all, Texans keep electing Louis Gohmert, and the Texas legislature recently passed a bill to
“protect” churches from having to officiate at gay weddings, communicating to one and all that none of them had ever read the First Amendment, which already does that.

And it’s not even like Texas lunacy is new. I still remember Molly Ivins’ explanation of how members of the Texas “lege” had handled reports  that more Texans died annually from gunshots than on state highways. They raised the speed limit.

Still.

It’s bad enough when paranoia grips ordinary Texans (I started to say “ordinary citizens,” but ordinary, sane folks evidently live elsewhere. Like Utah, for example, where the menacing Jade Helm is also taking place, and everyone’s ignoring it), but Governor Greg Abbott has called up the Texas Guard (a group of interesting folks who probably shouldn’t be armed and shouldn’t be confused with the National Guard) to ensure that Obama won’t impose martial law. Then reliable nut job Ted Cruz promised to “look into it.” Because, if there were some plot, DOD would surely share that information with Ted Cruz if he asked nicely.

The utter insanity of all this boggles the mind.

News flash, Texas! You’ve already been assimilated by the Borg…er, U.S. (though I personally would like to reconsider the decision to make you a state–I wonder if Mexico would take you back?), so we have no reason to “conquer” you. And if for some reason the Army did roll in, do you really think your ragtag Guard could stop tanks and missiles?

I’d ask what you could possibly be thinking, if I thought you could think.

On the Daily Show, Jon Stewart noted that similar military exercises seven or eight years ago had generated absolutely no reaction, saying “I wonder what’s different?”

A picture of President Obama flashed on the screen, and he said “Ah, yes.”

Racism explains a lot of crazy.

Comments

Graduation Day

Today is Sunday, Mother’s Day–and graduation day for IUPUI and SPEA, where I teach. When the speaker originally scheduled to speak to our SPEA graduates had a conflict, I was asked to pinch-hit: here’s what I will tell the class of 2015.

——————————————————————————-

I know some of you are disappointed that Chief Hite is unable to be here, and instead, here you are getting yet another lecture from a SPEA professor. But—as I’m sure the Chief would tell you—the nature of public service is that you serve the public: when duty calls, convenient or not, you answer.

That reality—the nature of public service, of stewardship—is what has triggered the few observations that I’d like to share with you today.

You know, I often say that I would turn this country over to my students in a heartbeat. People in my age cohort too often criticize younger generations, because you occupy a world we have trouble understanding, a world that makes a lot of us uncomfortable. But those criticisms are misplaced—they are a product of discomfort with the inevitable, which is change.

My experience with your generation, and especially with SPEA students, gives me a lot of hope for the future, because I see in you a concern for the common good that has been absent from far too many people in my own generation.

Many of you are criminal justice majors who will work in various capacities to protect the citizens of your communities and keep the streets of our cities safe. Others of you plan to enter organizations in the nonprofit sector, working with others to “mend the gaps,” to address the unmet needs of society. Still others of you have ignored the constant drumbeat of rhetoric denigrating government and public service and will go to work in our much maligned but irreplaceable public sector as managers and policymakers.

Your preparation for these roles has revolved around a central question: how do we work together to construct a just society? That question has lots of “subparts”: How do we mediate the tensions between the rights and prerogatives of individuals, on the one hand, and the common good, on the other? Who gets to decide what the common good is? Can government institutions ensure justice and maintain social order without doing unnecessary damage to individual rights? How? And how do the roles you plan to fill advance the common good?

In your classes, you have come to understand essential elements of what John Locke called a “Social Contract,” a reciprocal relationship between the institutions of society—predominately government—and its citizens. Social contract theory holds that the many benefits we share as members of a polity carry with them obligations for informed civic participation. I have no doubt that each of you will fulfill those expectations and discharge those obligations—I just hope you will encourage others to become involved in America’s ongoing experiment with self-governance as well.

Finally, I hope you have gained an appreciation for the importance of the physical and social infrastructure upon which everything else ultimately rests.

These days, too many Americans seem oblivious to the immense importance of that infrastructure, the multitude of systems and institutions—both physical and social— that our cities, states and nation need in order to function, let alone flourish. We take for granted that we can walk safely on most of our streets and sidewalks, that our garbage gets picked up, the streetlights come on at dusk, that firefighters rush to the scene when there is a fire—We take for granted that someone is watching our air quality and preventing industry from dumping waste and polluting our waterways—that someone “downtown” somewhere is ensuring that the buildings we enter meet safety standards and the zoning regulations that protect our property values are upheld. As I have often told my classes, I’m grateful that I can go to the local Kroger or Marsh and buy a chicken without having to personally test it for e coli. So I’m grateful for the FDA, and especially grateful that I rarely have to think about its existence.

I think we’re all grateful that our toilets flush.

I know that all of that sounds boring and mundane and unromantic—but when those largely invisible, taken-for-granted networks of support don’t work—or when they have been corrupted or co-opted so that they only work for some groups and individuals—the whole society fails to function as it should. We Americans like to applaud entrepreneurs and others who provide the goods and services we purchase in the marketplace, and they deserve that applause, but we need to remind ourselves that those marketplaces can’t function without the physical and social infrastructure that you have been trained to provide and facilitate and supplement.

The American motto is e pluribus unum—out of the many, one. Those of you in this room today are preparing to engage in perhaps the most critical task implied by that motto: creating the means by which the many unite into the one.

Many of you in this room who have been my students have been nothing short of inspirational. I know that you leave SPEA with the smarts and the skills and the heart to make a real difference in our communities. What each of you will do is more important than you may recognize right now, and I know you will do it with intelligence and integrity.

So—congratulations, best wishes….and I hope you will keep in touch with those of us on this stage. Your old professors will be rooting for you!

Comments

Experience Really Does Matter

When I grow up (like that will ever happen!), I want to be Gail Collins.

The witty New York Times columnist has an uncanny ability to hit political nails on their pointy little heads. Most recently, she considered the emergence of Presidential candidates like Carly Fiorina and Ben Carson, both of whom are touting their total lack of political experience as a reason to vote for them.

Virtually every elected president in American history — not counting the occasional military hero — made his way to the top by getting elected to other offices first. There are a couple of exceptions who just served in the cabinet, like Herbert Hoover. We can all look forward to hearing a candidate vow to return us to the golden days of the Hoover administration.

(Here in Indianapolis, we have some recent experience with a chief executive who knew nothing about politics or the governance of a city–or even what a city ought to look like– when he was elected. His steep learning curve has cost Indianapolis in numerous ways.)

When she was in business, I doubt that Fiorina would have hired a high-level executive who had no experience relevant to the position being filled, so one wonders why she thinks her own lack of experience somehow qualifies her for the presidency. (I won’t even raise the issue of her ignominious departure from Hewlett-Packard, after controversies which suggest she wasn’t all that successful in the private sector, either.)

I’ll leave the final word to the better wordsmith. As Collins wrote

People who run for president boasting that they aren’t politicians are frequently just trying to compensate for a lack of political skill. Carson (who presumably wants to run government like an operating room) is going to appeal to the folks who think the military is plotting to take over Texas, but otherwise, his only political gift seems to be for making outrageous statements. Fiorina ran for the Senate in 2010 and was beaten by Barbara Boxer, who was thought to be a vulnerable incumbent until Fiorina got hold of her, racking up a grand total of 42 percent of the vote.

On the plus side, Fiorina’s campaign produced one of the all-time great attack videos, in which her more moderate primary opponent was depicted as a Demon Sheep, portrayed by a man crawling across the grass with what looked like a wooly rug over his back and a piece of cardboard on his face. After that it was downhill all the way.

If you’re shopping for candidates with no experience in the business they want to lead, I’d say at least go for the one with the Demon. But really, there are smarter buys.

Comments