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

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