Complex, Critical, and Urgent (1)

Daniel Boone was America’s first Libertarian. Whenever he saw smoke rising from a neighbor’s cabin, he moved his family west. Government wasn’t the problem, government wasn’t the solution – at least until the Indians came a’callin’. Oliver Wendell Holmes, Jr., appointed to the Supreme Court at age 62, once said “In the law, an ounce of history is worth a pound of logic.”

Today’s problems are far too complex, critical, and urgent to be solved by either Libertarians or logic – or even lawyers. We need to use the best science available to design and test government’s moves against present and emerging societal (and planetary) problems. And those sciences aren’t biology and physics. They’re systems theory, systems dynamics, and computer simulation, among others – the whole lot of the sciences developed since World War II. Names like Norbert WeinerJohn von Neumann, Stafford Beer, and Jay Forrester are not familiar to the lawyers who make up the vast majority of legislators and staff on Capitol Hill. Such subjects don’t come up in law school – ever!

Take global climate change (Please!). Last week Steven Pearlstein of the Post wrote a column about the complexity of the Waxman-Markey bill. In it he says:

“There remains a robust argument over whether the American Clean Energy and Security Act of 2009 represents a crucial step in preserving life as we know it. But there is no question that there are few pieces of legislation that are likely to have a more profound effect on the U.S. economy. It would bring about dramatic changes in the relative prices of energy and goods produced by energy-hungry industries. It would redistribute trillions of dollars in business sales and household income and generate hundreds of billions in government revenue. And it would represent the most dramatic extension of government’s regulatory powers into the workings of the economy since the early days of the New Deal.
“For all that, there are probably not more than a few hundred people who really understand what’s in this legislation, how it would work and what its impact is likely to be. As it moves through the legislative process, it’s worthy of closer attention.
“The other thing to say about it is that it is a badly flawed piece of public policy. It is so broad in its reach and complex in its details that it would be difficult to implement even in Sweden, let alone in a diverse and contentious country like the United States. It would create dozens of new government agencies with broad powers to set standards, dole out rebates and tax subsidies, and pick winning and losing technologies, even as it relies on newly created markets with newly created regulators to set prices and allocate resources. Its elaborate allocation of pollution allowances and offsets reads like a parody of industrial policy authored by the editorial page writers of the Wall Street Journal. The opportunities for waste, fraud and regulatory screwup look enormous.”

(Another article in the Post, well worth reading, says “The proposal is far more complex than anything tried before in this country, and a close parallel in Europe turned out to be seriously flawed.”)

I like Pearlstein; I don’t find him an ideologue at all. When he’s nervous, I’m nervous. And the entire column is worth reading – twice. But there’s one sentence that’s entirely wrong: “For all that, there are probably not more than a few hundred people who really understand what’s in this legislation, how it would work and what its impact is likely to be.”

Unless and until someone tells me that there’s a very good simulation model of the US economy, and that Waxman-Markey has been plugged into it under a broad variety of assumptions, I don’t think that there’s ANYONE who understands how it would work and what its impact is likely to be!

Wanna bet? Wanna bet the economy or the planet?

A Safer Financial System — Try Enterprise Architecture!

An article in Friday’s Post reports that “The board in charge of sanctioning mortgage lenders who violate Federal Housing Administration policies is ineffective and slow at a time when the volume of loans backed by the agency is exploding, according to an inspector general’s report scheduled for release today.” This board has ruled on only 94 cases since October, although 12,641 lenders do business with FHA.

I began to wonder if ANYONE had “the big picture” of how the Federal Government interacts with the financial sector’s myriad actors. While I’d love to see a serious attempt at simulating the overall system, at minimum we need an Enterprise Architecture for the government side. And we know how to do that!

The article continues: “The concern is that some lenders may be using the same abusive tactics that contributed to the collapse of the subprime market and that the FHA may not have the resources or policies to stop them and protect itself against losses. The agency insures lenders against defaults.” So here we go again!

An “Enterprise Architecture” is a set of models of the enterprise showing the relationships between its people, processes, and information. That’s a simple definition – the topic gets into the weeds quickly, as you’d expect from a discipline developed at the Pentagon.

But EA is spreading: the Clinger-Cohen Act of 1996 mandated EA programs at each agency, sponsored by the local Chief Information Officer (CIO). There’s a Federal Enterprise Architecture Framework (FEA) issued by the CIO Council in 1999 to standardize it across agencies. And now OMB requires an EA for funding approval and oversight. And once OMB requires something, it’s really in!

That means we have a language, and a community of those who speak it, that can accurately describe “the people, processes, and information” involved in the oversight of the financial system. With luck, EA might also describe the financial system itself!

And if we had common understandings of how the system works, and graphic displays of the parts and their interactions, and maybe even color coded indications of the competence of the regulators (the Mortgage Review Board would be RED), maybe we’d have a better handle on how to fix it. What a concept!

Just google “enterprise architecture for beginners” for starters.

“Failsafe” and “Too Big to Fail” — #3

There are many good reasons to do what it takes to come up with a financial system that’s “fail-safe.” One of the best is that then maybe China will keep investing in America.

A recent article in the New York Times magazine, The China Puzzle by David Leonhardt, talks about how intertwined America’s economy is with that of China. I find it really scary, even though it ends on a hopeful note.

Some selected quotes:

“Over the past decade, China and the United States have developed a deeply symbiotic, and dangerous, relationship. China discovered that an economy built on cheap exports would allow it to grow faster than it ever had and to create enough jobs to mollify its impoverished population. American consumers snapped up these cheap exports — shoes, toys, electronics and the like — and China soon found itself owning a huge pile of American dollars. Governments don’t like to hold too much cash, because it pays no return, so the Chinese bought many, many Treasury bonds with their dollars. This additional demand for Treasuries was one big reason (though not the only reason) that interest rates fell so low in recent years. Thanks to those low interest rates, Americans were able to go on a shopping spree and buy some things, like houses, they couldn’t really afford. China kept lending and exporting, and we kept borrowing and consuming. It all worked very nicely, until it didn’t… The most obviously worrisome part of the situation today is that the Chinese could decide that they no longer want to buy Treasury bonds.” [Emphasis nervously added]

“Were China to cut back sharply on its purchase of Treasury bonds, it would send the value of the bonds plummeting, hurting the Chinese, who already own hundreds of billions of dollars’ worth. Yet Wen’s comments, which made headlines around the world, did highlight an underlying truth. The relationship between the United States and China can’t continue on its current path.” [Emphasis added]

“Throughout most of the 1990s, China’s current account surplus — the value of exports minus the value of imports — equaled less than 2 percent of its gross domestic product. As late as 2001, this surplus was only 1.3 percent of G.D.P. But then it began soaring. Last year, it was 10 percent of G.D.P., according to the World Bank. In more concrete terms, China sold $338 billion worth of goods to American consumers and business, more than the combined annual revenue of Microsoft, Apple, Coca-Cola, Boeing, Johnson & Johnson and Goldman Sachs. [Emphasis added!] American businesses sold only $71 billion to the Chinese.”

“At the end of a discussion with Lardy [Nicholas Lardy, a China expert at the Peterson Institute for International Economics in Washington] about the imbalances between the U.S. and China, I asked him what forms of leverage he thought the Obama administration had. ‘We have no leverage,’ he replied.”

A recent story in The Business Times says that China is still buying, and as of March had $767.9 Billion in Treasuries. That may not sound like a lot of money to you these days, but I’m still working on my first $1 million!

Leonhardt’s concern is that inflation caused by our stimulus packages will bring a decline in the value, and thus the desirability, of the Treasuries. Might happen.

MY concern is that the Chinese might also recognize that the American economic system is inherently unstable, since we’re still allowing (and indeed encouraging the growth of) financial institutions that are “Too Big To Fail.”

And have you read The Black Swan about unlikely events that aren’t planned for? And do you know about chaos theory, how sometimes things don’t end with a whimper, but with a bang?

And so if AMERICA remains “Too Big To Fail,” then a sensible policy by the Chinese would be to pull out, slowly if possible, more rapidly if necessary.

I’m for a “fail-safe” financial system. Now.

“Failsafe” and “Too Big to Fail” — #1

On May 9th, a Bloomberg News headline read: “Obama Administration Said to Favor Fed as Systemic Risk Agency.”

The article says that one candidate for Systemic Risk Agency (or SRA) is the Federal Reserve Bank. Others in the Administration favor a council of regulators. That would be an SRC, or Systemic Risk Council. This will take awhile to sort out.

And the article goes on to quote Senator Dodd (D, CT): “Senate Banking Committee Chairman Christopher Dodd said in a May 6 hearing that ‘It is my preference that authority not lie in any one body; we cannot afford to replace Citi-sized financial institutions with Citi-sized regulators,’ referring to Citigroup Inc., one of the largest U.S. financial firms.”

Barney Frank talked about systemic risk regulators several months ago. A Systemic Risk Regulator would be designed to assure that all those financial entities that are “too big to fail” wouldn’t even get CLOSE to failing, ever again.

MY problem is that any reasonable person would want to get rid of the systemic risk to the financial system, not regulate or oversee it. That reasonable person would want to break up any entity that was “too big to fail.” Is that rocket surgery?

Another Bloomberg article purports to report back from 2088 about our financial crisis and its aftermath. Deeply suspicious of government action, the article lists several unintended consequences, and starts with this truism: “The U.S. Congress, which excels at preventing the last crisis from recurring, enacted new rules and regulations before the last bank had extricated itself from the government’s grip.” [Emphasis added]

We shouldn’t settle for a good faith effort to try to create ways to restrain firms that are Too Big To Fail. We don’t just want to avoid repeating this financial meltdown. We need to avoid such failures no matter what. We need a financial system that’s fail-safe. “Fail-Safe” is not a new idea.
And has America ever before faced this issue of keeping corporate entities from becoming too large and too powerful? Why, yes. We called the issue “monopoly” and the laws “antitrust laws.” The Wikipedia entry for the Sherman Antitrust Act tells you more than you want to know.

The (several) antitrust laws were designed to keep large businesses from harming consumers by monopolizing trade and thereby becoming able to set prices without competition. Before it atrophied, there used to be an Antitrust Division within the Justice Department, believe it or not!

And if America decided a century ago to set limits to corporate power in order to protect consumers, why can’t we do so today to protect the entire financial system?

Why can’t we aim for a financial system that’s fail-safe? Shouldn’t that be our design goal?

Mary Jones, meet Mary Peters!

Today’s New York Times has a story above the fold that’s REALLY about “The Department of Mary Jones.” Some may call it “integrated case management” when it REALLY should be called “integrated service management” but there it is: For Recession Victims, Patchwork State Aid.

The article begins “As millions of people seek government aid, many for the first time, they are finding it dispensed American style: through a jumble of disconnected programs that reach some and reject others, often for reasons of geography or chance rather than differences in need.
“Health care, housing, food stamps and cash — each forms a separate bureaucratic world, and their dictates often collide. State differences make the patchwork more pronounced, and random foibles can intervene, like a computer debacle in Colorado that made it harder to get food stamps and Medicaid.
“The result is a hit-or-miss system of relief, never designed to grapple with the pain of a recession so sudden and deep. Aid seekers often find the rules opaque and arbitrary. And officials often struggle to make policy through a system so complex and Balkanized.
“Across the country, hard luck is colliding with fine print.”

The article runs for 21 column inches (including headline and a small picture) across the front page of ‘America’s Newspaper of Record,” and another FULL PAGE inside the first section. NOWHERE is there the slightest suggestion that there might be any solutions to the problems so well laid out. Just problems, problems, problems.

There’s been no apparent attempt to find out if this is a new problem, or just one that’s come up during the recession. There’s no attempt to find out if anyone anywhere is trying to deal with the obvious problems outlined.

There’s no mention of the possible application of “information technology” to the problems. So sad!

What the article does NOT say is that the people who are seeking help from these programs are ALWAYS in a recession of their own. It does NOT mention that each application process can take a person’s whole day waiting in line, filling out paperwork, getting it checked. It does NOT suggest that there might be problems getting transportation to the various offices involved, or that child care is often not available at the drop of a hat.

When Mary Peters came to Washington to become George W. Bush’s Federal Highway Administrator, and later Secretary of Transportation, she was told that to get the staff moving she “might have to kick ass and take names.” Her immediate response was, “Why would I want to take names??”

Creating The Department of Mary Jones will require that spirit!

“Alone of human beings the good and wise mother…

“Alone of human beings the good and wise mother stands on a plane of equal honor with the bravest soldier; for she has gladly gone down to the brink of the chasm of darkness to bring back the children in whose hands rests the future of the years. ” — Teddy Roosevelt, The Great Adventure (1918)

I send this around every year at Mothers Day. Robert Knisely

Unintended Consequences (and Jay Forrester)

Today’s Washington Post reports that General Motors is likely to be building more cars overseas after it’s restructured (see

The lead paragraph: “The U.S. government is pouring billions into General Motors in hopes of reviving the domestic economy, but when the automaker completes its restructuring plan, many of the company’s new jobs will be filled by workers overseas.”

And later, “Essentially in control of the company, the president’s autos task force faces an awkward choice: It can either require General Motors to keep more jobs at home, potentially raising labor costs at a company already beset with financial woes, or it can risk political fury by allowing the automaker to expand operations at lower-cost manufacturing locations.”

This will likely happen when Fiat takes over much of Chrysler, leaving the United Auto Workers with a large stake in a company who’s “salvation” lies in eliminating the jobs of their members.  How fun.

This is viewed by the media as “ironic,” but in truth it’s an excellent example of what Jay Forrester of MIT explains in a memorable chapter of Urban Dynamics (1969) – unintended consequences resulting from intervening in the workings of complex systems. If you “push” on a complex system, it is quite likely to react in EXACTLY the opposite direction than you intended.

A city is a complex system. An industry is a complex system. Economies are complex systems. Countries are complex systems.

The listing of Urban Dynamics is a good place to explore – it lists 100 books that refer to it.

Another is Forrester’s wikipedia page.

It starts: Forrester was born in 1918 on a cattle ranch near Anselmo, Nebraska, in the middle of the United States. His early interest in electricity was spurred, perhaps, by the fact that the ranch had none. While in high school, he built a wind-driven, 12-volt electrical system using old car parts — it gave the ranch its first electric power.[1] After finishing high school, he had received a scholarship to go to the Agricultural College. Three weeks before enrolling, he realized a future of herding cattle in Nebraska winter blizzards had never appealed to him. So instead in 1936 he enrolled in the Engineering College at the University of Nebraska to study Electrical engineering. As it turns out this study was about the only academic field with a solid, central core of theoretical dynamics.[2].

After finishing the University in 1939 he went to the Massachusetts Institute of Technology, to become a research assistant and eventually spend his entire career. In his first year at MIT he was commandeered by Gordon S. Brown who was the pioneer in “feedback control systems” at MIT. During World War II his work with Gordon Brown was in developing servomechanisms for the control of radar antennas and gun mounts. This work was research toward an extremely practical end that ran from mathematical theory to the operating field. Experimental units were installed on the USS Lexington, and, when they stopped working, he volunteered to go to Pearl Harbor in 1942. He fixed the problem when the ship sailed off-shore during the invasion of Tarawa.[2]

That’s an intro that makes the entry hard to close! Last I knew, Forrester is still alive – more about that later.

The point here is that if you hope to design a governmental intervention that will have its desired effect, you’re in deep and dark waters – there are a lot of unintended consequences waiting for you! Like growing old, designing government is not for sissies!

As one f’rinstance, would YOU like to be in charge of redesigning how government(s) regulate the finance industry?

Have you noticed that since we discovered that some financial institutions are “too big to fail” many of them have gotten bigger, by swallowing their smaller, weaker cousins?

Does that result make the financial system more stable? Stay ‘chuned…

Confucius and the Emperor

Many centuries ago, the Emperor of China was looking for a new Prime Minister. He called in Confucius, knowing his reputation as a wise man. The Emperor asked Confucius, “What would be the first thing you would do as Prime Minister?” Confucius replied, “I would call everything by its right name.” He did not get the job.

FACEBOOK and “The Department of Mary Jones” (v2.0)

FACEBOOK and “The Department of Mary Jones” (v2.0)

During Vice President Gore’s National Performance Review, some of the staff began to fantasize about reinventing social services to create “the Department of Mary Jones.” FACEBOOK can make that fantasy a reality. This could bring unity to the most dispiriting, inefficient stovepipes* in American government today.

The idea behind “The Department of Mary Jones” was that the organizing principle of social services should be the client, not the providers of health, welfare, housing, education, etc. We were ‘reinventing government’ back then, and what would make more sense?

Our “Department of Mary Jones” (for I was a Deputy Director of the NPR) would have provided immediate access to all of the information about Ms. Jones, and encouraged/facilitated/mandated coordination among her contacts with food stamps, Section 8 Housing, the police, the juvenile justice system, her welfare case worker, the guidance counselors at her children’s schools, and so forth. Such a system would enable the social worker to find out if there was a problem with food stamps or housing, and the school guidance counselors to notify the social workers of suspected abuse within minutes of seeing a bruised child.

Last year my wife and I became CASAs – Court Appointed Special Advocates – for a dysfunctional family with six kids. They absconded from Maryland and are now four hundred miles away, in a different state. Recently my wife took a call from the principal of the “special school” where the eldest boy is now enrolled. The principal was trying to get in touch with the family’s Children and Family Services caseworker. The principal and the caseworker are less than fifty miles apart and in the same county, far to the west; my wife was in Annapolis, MD. What’s wrong with this picture?

This inability to communicate and collaborate across agencies (and within them!) is neither new nor novel. Kids can get killed because information and actions taken aren’t shared. For just one example, see “Review Finds Agencies, Nonprofits Failed to Coordinate in Jacks Case” (Washington Post, April 2, 2009, and the underlying DC Inspector General’s report at:

FACEBOOK could be the solution to this problem, in so many ways. First, if everyone involved became a “fan” of Mary Jones, then whatever they posted would be instantly and automatically available to everyone else. A quick review of her page at any hour would bring each worker fully up-to-date. The caseworkers’ workloads would be more easily (and quickly) accessed, from their FACEBOOK homepages. Supervisors at each agency, also enrolled as fans, could check on their workers’ efforts just as quickly and easily. All staff could work from anywhere that has Internet access. Such a system should be both more effective and more efficient.

There are now over 200 million users of FACEBOOK worldwide, so there’s unlikely to be a learning curve for many workers. If you’re a user of FACEBOOK, you can readily imagine how such a system would work!

What’s not to like? Well, there’s the privacy issue. In practice, it would be trivial to put the FACEBOOK software onto secure servers, and the information could be made as secure as anything that the Central Intelligence Agency is involved with. Caseworkers already work with a great deal of confidential information.

Also, recent attempts to create an integrated case management system in Fairfax County, Virginia, have foundered on both the data sharing (privacy) issues and because “the rules” do not permit commingling administrative grants across TANF, Food Stamps, etc., to pay for an integrated system.

It would be nice to think that all we’d need is a few “Yes Lawyers” rather than all the “No Lawyers.” In fact, both the data sharing issues and the commingling of grant monies would require changes in legislation as well as policy and regulation. But the vision of a FACEBOOK-driven integrated services delivery system should not be hard to sell in an Administration as “wired” as this one!

Of course, it might be an incentive to know that Canada (and other countries are well on the road to developing such systems, with or without America’s “high tech” Web 2.0 services, such as FACEBOOK. IBM’s Center for the Business of Government published a research report in 2008 entitled Integrating Service Delivery Across Levels of Government: Case Studies of Canada and Other Countries (available in full at

(If we succeed in developing such a system, it will soon become apparent that the next steps must be a transfer pricing model and the channels needed to move resources quickly to where they are needed. But that’s another story.)

If we really care about children and families at risk, we need to solve the problem of coordinating multitudinous agencies and workers. FACEBOOK could make it happen, in a New York Minute.

Robert A. Knisely
*As we now know, only on the East and West Coasts do we refer to “stovepipe” agencies. In the Midwest, they’re known as “silos.” We can’t even agree on the same terminology for the vertical focus of most government agencies. We’re caught in the same trap!

Design Issues in Government (DIG it!) — November, 2008

Design Issues in Government (DIG it!)

As the world’s problems grow more complex, more urgent, and more substantial, governmental responses must keep pace.
The design of governmental responses to issues such as the financial meltdown and perhaps the global meltdown is increasingly an issue – terms like “unintended consequences” are becoming more common in the press.
The “systems sciences” – what Herbert Simon wrote about in The Sciences of the Artificial (see – are tools that should be brought to bear on the design of government – from cybernetics to systems dynamics, Washington needs all the help it can get.
Here are just a few of the issues in the news on November 14th, 2008, where deeper understanding of the problems, and better design, would have assured a better outcome.
(A) Nebraska’s Safe Haven Law allows parents to abandon teenagers at hospitals. See
(B) AIG to Pay Millions To Top Workers — Move Comes on Heels Of Revised Bailout (Washington Post, November 14, 2008). See
(C) The Washington Post’s Stephen Pearlstein on the need to “fix” the rules of international capitalism. See
(D) Aid to Fannie, Freddie May Top Expectations (Washington Post). See Three paragraphs from this story illustrate the problem:
(1) “’Fannie Mae and Freddie Mac are completely exposed to the housing market,’ said Howard Shapiro, an analyst at Fox-Pitt Shelton. ‘Until home values stabilize and delinquency trends stabilize, we’re going to continue to have this discussion: What are these losses are going to be?’”
(2) “Finally, the government itself has taken steps that make it more likely Fannie Mae and Freddie Mac will need its cash. The government has introduced several programs to protect debt issued by other institutions, such as banks. Fannie Mae and Freddie Mac lack this explicit federal guarantee and that has made their debt comparatively less attractive to investors, increasing what the companies have to pay to raise capital in private markets.”
(3) “Moreover, the decision by Treasury Secretary Henry M. Paulson Jr. to abandon the plan to buy the troubled mortgage-related assets from banks and other financial firms poses a problem for Fannie Mae and Freddie Mac. Not only do the companies lose the chance to sell any of these assets to the government, the announcement Wednesday that the program had been shelved caused the value of the assets to fall.”
A longer perspective on the difficulties presented by our present “version” of capitalism can be found in Capitalism 3.0 by Peter Barnes, who sees our economic system as much like a computer’s “operating system” and argues that its terms are subject to adjustment – ie design — depending on conditions and our desired outcomes. Barnes has a number of suggestions. See