Cross Postings

As noted under “About,” I have started writing columns for the “Better, Faster, Cheaper” website run by the Ash Institute for Democratic Governance and Innovation at Harvard’s Kennedy School. For a number of years I’ve also been a judge for the Innovations in American Government Awards, run by the Ash Institute for the past twenty years.

Here are the three columns I’ve written this year:

1. Data to the People – A Tour of DC

One local’s experience with DC’s Apps for Democracy, which puts public information into the palm of your hand—literally

2. Not Being There

Report Reviews Use of “Telework” by Federal Agencies

3. Homelessness: Think Strategically, Act Humbly

The problem of homelessness has proven vexing for a long time. There were homeless people before that couple in a stable, and there still are – two thousand years later.

As we lawyers say, the columns are “not unrelated” to the design of government – those issues are just not explicitly addressed.

Happy New Year!

Teenagers and Bankers

If you asked your 16 year old son to clean up the garage, but told him that he’d get no dinner until he’d cleaned up his room, would you be surprised the next day to find the garage as messy as ever? Not hardly.

Now suppose you were Daddy Hank (Paulson) or Uncle Tim (Geithner) passing out billions to the biggest American banks. You tell them you’d really like them to resume lending, and get America on its way out of the Great Recession. But you also make it clear that they won’t get to set their own salaries (and bonuses!) until they repay the billions you’re lending them. Would you be surprised to find that they’re paying back the loans without doing any appreciable lending? Not hardly.

So — recently, the Bank of America paid it all back so they could make “a decent offer” to someone to come in and be the boss. And now Citibank is about to repay its loan. And are they lending to help homeowners and small businesses weather the recession? Not so much.

(As an aside, according to the Times article cited above, Standard and Poor’s “wrote a remarkably candid research note that suggested the $45 billion repayment didn’t really matter, because if the bank got in trouble again, taxpayers would be there with another bailout.” That’s probably true. Cf “moral hazard.”)

And today’s news is that Grandpa Obama is taking the bankers to the woodshed because they’re not lending. Do you really think that this will be effective? You’re alone…

Some guy writing under the pseudonym “Smith” wrote the last word on this some years ago: “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own self interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities, but of their advantages.” — Wealth of Nations, Book 1, Chapter 2.

So going back to your 16 year old son for a moment. Suppose you told him that he could drive your old pickup to school if (and only if) he dropped off his younger sister at school – each day. Or if you said, if your soccer team wins State, you’d give him the car? Do you think that’d change his behavior on an ongoing basis? At least until that championship game? Have you ever been a 16 year old that wanted a car?

In the Federal government’s Executive Branch there’s been an emphasis on identifying and measuring “inputs, outputs, and outcomes” for some years. Using this paradigm, one can discuss how the Feds might have leveraged the big bankers into helping others besides themselves.

First, the “inputs” are (a) the bailout money, (b) the ongoing efforts of the banks’ staff, and (c) the ingenuity of the banks’ management. No surprises there.

Second, some useful “outputs” might have been the leveraging of the bailout monies into useful loans to small businesses and homeowners. We might have said to Citibank: “You won’t get the right to set your own salaries and bonuses unless and until you show us that you’ve put that bailout money to work!” And there are metrics for that.

Third, we might have focused instead on “outcomes.” We might have said to the big bank bosses assembled, “Since we just saved your ass(ets), we will control your salaries and bonuses until the unemployment rate goes down to, say, 7%. YOU go figure out how to make that happen.”

And then the interests of the big banks and the government and America itself would have been aligned, which is always useful. And since the big bank bosses are the thought-leaders of their industry, they could have influenced the behavior of all the lesser banks as well.

And yeah, I know it’s probably not quite that simple. Maybe we’d have had to say, “Reduce unemployment at a steady rate through actions that don’t increase inflation beyond such-and-such.” Given that the economists working for the banks are not THAT much smarter than academic economists (although my guess is that industry modeling is better than academic modeling), I think that we could have defined “where the ditches are” with adequate accuracy.

So the TARP legislation was written in such a way that a 16 year old could have gamed it, much less the Masters of the Universe. And that leads to a question: Didn’t the Paulson team (and it’s inheritors) REALIZE how easily it would be gamed? Or was the structure of the bailout “suggested” by the industry itself, and not considered thoroughly? Or did the Bush Treasury team really think that the big banks would have refused a more stringent plan? Perhaps we’ll never know; there’s not that much transparency in government!

The underlying premise of this blog is that insufficient consideration of (a) unintended consequences and therefore (b) alternatives are at the heart of such governmental failures. After all, it was John Brademus, then a Congressman from Indiana and now retired president of New York University, who said, “Congress never gets anything right the first time. After five or six years, we have to revisit our solutions and correct them.”

Unfortunately, we are living in a time where the problems are both complex and urgent, and the solutions can’t always be ‘revisited’ and corrected later. Try health care, much less global warming.

(BTW, I refuse to believe that the big banks had such a stranglehold on our government that they could dictate the terms of legislation that was so easily gamed. That may well be true, but if so it signals the transition from Republic to Empire that brought on the Dark Ages when it happened in Rome. That is, when private interest trumped public interest without question. I’m just not going there.)

So if we need more attention to how government interventions in society’s outcomes and in the workings of the private sector (Note: while under TARP, the big banks were part of the “semi-private” sector, which includes the defense industry. GM is still there…), then we need better “design.” There are at least three ways to get there.

First, we need more attention to the formal world of “design,’ as for example taught at “the d-School” at Stamford. More on that in upcoming posts.

Second, we might go with “Legislative Impact Statements,” as now required in Australia and New Zealand. See Bob Zarnetske’s comment (#3) to my posting entitled “Legislative Impact Statements.” This would require some sort of institution, itself subject to manipulation. It’s worth considering, though.

Third, we might go beyond the “notice and comment” procedures now used in the Federal regulatory process and go directly to wide-open web-wide commenting. Massive collaboration seems the wave of the future anyway. This, too, would require real people to sort and review the comments, but they would be under widespread scrutiny as they did so.

There’s a fourth way: All of the Above.