Regulation

The Coronavirus and the Limits of Capitalism

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“Lankenau Hospital” by Montgomery County Planning Commission licensed under CC BY-SA 2.0

It’s easy to look at the coronavirus as a one of a kind.  After all, who expected this cataclysm that came from nowhere?   How could anyone have predicted it?

In fact the world is full of low-probability events that you have to care about.   The coronavirus is on a par with airplane crashes and oil-rig explosions.  Capitalism is not good at dealing with any of them.

There’s a myth about that sort of thing.  Of course we don’t need airline or aircraft regulation, because the companies in question know what a disaster would mean and will take care that such things don’t happen.  That’s a nice story, but it’s false.   People don’t get promoted because of events that didn’t happen.  They do get promoted by saving money wasted on something that’s never going to occur.

If you’re going to stop that sort of thing from happening, you need a different mindset.  Government has to spend money on regulation and public health and safe, comprehensive infrastructure.   No one else is going to do it.  We now know unequivocally that we decided we didn’t have to care about the CDC.  It has come back to haunt us.  There’s more where that came from.

In fact there’s a whole bunch of other things we’ve decided we don’t have to care about.  After all, “I don’t have to care” has been the liberating elixir of our age.  Many of these we’ve talked about before, but it’s worth recalling some here:

– Climate change

– Avoiding a depression (clearly relevant now)

– Nuclear proliferation

– Losing our edge in science and technology

We’ve washed our hands of all of this, blithely punting to a private sector that is no more prepared than for the coronavirus.

The message from the coronavirus is that bad things really can happen, no matter how much we may want to avoid thinking about them.

The coronavirus is the canary in the mine.   We’ll get over it somehow, but we’ve had our warning.

Regulation

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“Boeing 737-8 MAX at BFI (N8702L)” by wilco737 is licensed under CC BY-NC-SA 2.0

I was struck by an article in today’s NY Times about a new scandal around the Boeing 737 MAX.  Apparently there was another Boeing 737 crash in 2009 where similar issues (for an earlier 737 version) were hushed up under US pressure.

The scandal was shocking enough, but what provoked this piece was the discussion of cultural issues at Boeing—specifically the attitude toward the FAA.   There were many quotes from emails talking about regulators as barriers to be overcome by any means necessary.  If you believe the project manager emails, there was no recognition of any legitimate concern at all.

That’s horrifying.  It’s a serious problem with Boeing’s culture. However, it’s important to recognize that the situation is not unique.  The relationship of a regulator with the regulated company is always adversarial and difficult.  The issue goes beyond Boeing.

I worked for some years for telephone companies, at Bell Labs and later at GTE.  We were a regulated utility.  The role of the regulator was less critical—what was at stake was service quality and cost—but they did have a significant influence on what happened.  We didn’t regard them as hostile exactly, but overall the culture was that we provided good service more despite them than because of them.  From the inside that’s what happens.  Even at a working level, you see your side of the picture.  And phone companies are anything but angels.

That’s precisely why regulation is important.  You can’t let the regulated companies tell you in all sincerity that the regulators are idiots and the process is nuts.  They always will.

At the EPA and elsewhere we’ve now decided that the only people worth listening to are the regulated.  We’re all passengers on a 737 MAX.

The Great Trump Korean Trade Deal

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As usual we need to put two and two together for these announcements.

  1. The biggest, highest profile provision of the deal is the raised limit on the number of cars each American manufacturer can sell in Korea. However, no American manufacturer has come close to the current limit.
  2. American auto manufacturers have recently made clear how interested they are in foreign markets. The industry’s lobbying group—the  Alliance of Automobile Manufacturers—recently released a report full of fabricated challenges to the idea of climate change in support of a regulatory request for relief from new auto emissions and fuel economy standards.

In other words they’d rather come up with the next SUV—a product niche initially unique to the US—than fight it out in the more competitive international market where such standards hold sway.  (Even the Korean deal actually had to include an exemption from such rules, or we couldn’t sell anything!)

So we have theater instead of economic policy.  Too bad we can’t just export media events.

Guns

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Despite all that has been written about guns and their consequences, there are still important topics that haven’t received much press.  This note is about two interrelated subjects:

  1. Why the NRA and the gun lobby are as powerful as they are.
  2. Why the pro-gun campaigns are as damaging as the guns themselves.

Both are important in thinking about what needs to happen with public policy.

 

  1. Why the NRA and the gun lobby are as powerful as they are.

The point here is that the usual stories explain influence but nothing like the absolute veto power wielded by the NRA.   Most articles describe NRA contributions to candidates and gun manufacturer contributions to the NRA.  The stories are compelling, but the money just isn’t there for absolute power.

A recent article clarifies the situation.  As with much of today’s politics, the real story is in the dark.   The vast majority of the money spent by the NRA actually doesn’t go directly to candidates but to political action committees.   And the source of that money is also dark and from far deeper pockets.  Specifically the NRA’s Institute for Legislative Action, and Political Victory Fund are supported by conservative Super PACs and the Koch brothers’ organization.

Nothing says that guns are necessarily close to the hearts of the Koch brothers, but the rhetoric around guns is.   The central argument of the Koch agenda is that governments can do nothing, so we need to shrink government, shrink controls, and above all shrink taxes.  We’ve talked about this before:

Government is corrupt and inept.   Sometimes, as with the EPA, it is actively malicious.  It makes laws that impinge on our freedoms.  It wastes money with social welfare programs for ungrateful non-white cheats.  Education is useless indoctrination.  Even the police cannot be trusted to do their job—we need more good people with guns.

In that context the Kochs have every reason to support the gun lobby, and the pro-gun movement has to viewed as just one more aspect of the Koch organization that has already delivered unimaginable tax cuts for the ultra-rich.

That leads to the next topic.

  1. Why the pro-gun campaigns are as damaging as the guns themselves.

The first point here is obvious but needs to be emphasized.   The whole notion of “good people with guns” is an attack on the rule of law. The Kochs may not have to care about it—they certainly have their own law enforcement—but for the rest of us this is terrible.   No one should be cheering for laws that say it is okay for people to go execute each other with only the vaguest notion of self-defense.

That gets us to the main point:  the pro-gun movement is not just supporting guns—it is supporting vigilante action.  This is important, because it undermines the “guns don’t kill people, people kill people” argument.  We’re actually glorifying citizen executions.

And if there is anything that stands out in virtually all cases of mass shootings it’s that.

 

So now the question is what we can do about it.  Anything in this piece is of course pure speculation, but here goes.

Fighting the whole Koch agenda is impractical, so we have to separate this part out.   It seems that a first step is to go after the “good people with guns” notion explicitly and with support from law-enforcement and anyone else willing to stand up for rule of law.  Guns are for defense, not vigilantes.  Basic gun control (background checks and no assault weapons) is intrinsically part of the package.  Ideally that could be an acceptable compromise and could also make gun issue less productive for the Kochs.

It’s worth noting that nothing in the second amendment supports vigilante action, and no one can possibly believe that the eminently respectable founding fathers wanted to encourage it!

The State of Our Future

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After the many other commentaries on Trump’s State of the Union speech, there are two reasons for this one:

  1. Trump seems to have gotten away with more than he should have.
  2. We seem to understate the magnitude of the danger.

On the first point it seems that Trump has pulled a truly remarkable sleight of hand.  The whole first part of the speech was about economic success.  He cited record low unemployment numbers as proof that his program was working and that the tax cuts would bring success.  To some extent this was the kind of distortion of reality we’ve come to expect, since Trump’s own job creation numbers were actually below all of Obama’s last five years.  What’s really shocking though is that he seems to have succeeded in using the ongoing mainstream world-wide recovery as a validation for the radically different and dangerous economics embodied in his tax plan!

Presidents generally can’t do much to change the economic situation in a first year, just because the ship is too big to turn around.   The numbers in the following job creation chart show just that for Trump.

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You can give the Republicans points for creative packaging of the results, but nothing more. (Today’s January statistics show more of the same.) That’s not surprising, since on economic policy Trump’s fights with Congress left him unable to enact much of anything before the tax cuts.  And the stock market had its own reasons for upswing—it has been overhanging the tax cuts all year, and that money will be going straight into profits.

By contrast, one cannot overstate the dangers posed by Trump’s economic plan.   We are doing a massive, deficit-funded stimulation of an economy at essentially full employment while eliminating all oversight of speculation and other bad behavior.  Economists expect that cannot end well.  It is at the least inflationary and likely worse.  The giddiness is beyond the level that gave us the 2008 crash, and this time there’s no guarantee that the people managing the crisis will remember the lessons of the 1930’s.  This is not a natural disaster or other unforeseeable event.  We are choosing to do this.

One revealing point: in his speech Trump boasted of the current strength of the American economy and talked about the urgent need to cut business taxes in order to make American companies competitive.  Say what you will, that doesn’t add up.  There’s a good reason why American companies are doing ok—in the aggregate they aren’t paying those high tax rates because of all the loopholes and other special provisions engineered by decades of lobbyists.  Real tax reform would have eliminated the loopholes, made the tax code more equitable, and paid for much of the rate reduction.   We didn’t do that; instead we just delivered a gift to companies and investors.  And we’re so excited about the gift that we can’t be bothered to look at consequences.

At this point in the business cycle we should be using our resources to make the country stronger.  Trump himself mentioned some of the problem areas that need focus:  the opioid crisis, infrastructure, job training (his first acknowledgement that business profits won’t help everyone).  All of those take money, and Trump’s speech said very little about that part.  The current Trump opioid plan is an unfunded joke.

This country and the rest of the world have come back from the 2008 crash to the point where we now have money to invest in infrastructure and people—including Trump supporters—and instead we’re giving it away and borrowing more to solve a problem that we don’t currently have.  That stimulus would have been handy five years ago; now it is a lost opportunity as well as an invitation to inflation (which certainly costs jobs) and another crash.

 

The economy, however, is only one of the danger areas mentioned at the beginning.  In an earlier note on policy risks we listed four areas of concern:  the economy, war, Russia, and climate change.  Trump’s State of the Union speech was worrisome in the other three areas as well.

War:  Trump spent a considerable portion of the last half-hour talking about North Korea.  This included two different sets of invited guests (the parents of murdered Otto Warmbier and the injured Christian defector Ji Seong-ho) to underscore his message of evil.  He blamed his predecessors for the North Korean problem, but presented nothing at all to show what he intended to do about it.  That omission made the episode eerie, particularly when we learned just before the speech that the administration ended the nomination process of a proposed ambassador to South Korea when the person expressed uneasiness about plans for “bloody nose” limited military actions.  Some commentators worried about preparation for war.

Russia:  Here the problem was not what was said but what wasn’t.   Russia was simply absent as a major concern.   In all the repeated military chest-beating there was no acknowledgement of past Russian behavior as a current threat.  The Russian regime has demonstrated its ability and willingness to penetrate public and private data networks including the NSA.  And Russians (inside and outside the state) are a major source of viruses as a kind of private cyberwarfare.  As a threat Russian cyberwarfare ranks with North Korea, but somehow it gets a pass.  (This recent article finally shows some concern in the press.)

Climate change:  Trump’s speech was a frontal attack on the whole idea of climate change.  He began with a list of natural disasters the country had overcome—including hurricane Harvey and the wildfires in California.  All his examples were cases that had been linked to climate change, and his mentioning them without comment showed how politically confident he felt in his climate denial.  He then went on to gloat about his (questionable) successes in pushing the energy sector and “clean coal” in particular.   For climate change there are many valiant efforts to work around Trump, but we should not believe that US behavior doesn’t matter.  International unanimity on climate change is crucial to stop cheating, and we—with probably the most to gain from the process—are the cheaters in chief.

 

Many people, including TV commentators, tend to discount State of the Union speeches as political hullabaloo without real consequences.   This one was more than that.   Not because Trump announced anything really new, but because it confirmed the crazy and dangerous path where he the “genius” is taking us.

As we’ve said before—people easily forget what happened with the last set of geniuses under George W. Bush.   We barely avoided catastrophe that time.   This time we have ample evidence that it will be worse.

As a country we have had many years of stability, so we tend to think somehow things will just work out.  In practice that means we try to normalize the craziness around us.  But we are abandoning peace and prosperity to follow lies and fantasy.  And once again, unless we change course, there will be hell to pay.

Open for Business at Davos

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Welcome to the United States.   We’re a great place to do business.

In America you come first!  Just look at what we’ve got:

  • Powerless unions.
  • No stupid rules for working conditions.
  • Do what you want to the environment.
  • Hire and fire as you please.
  • Healthcare plans optional.
  • Employers win all legal challenges.
  • Play states against each other for gifts.
  • Lowest taxes anywhere—the “locals” are not your problem!

You may have lost your colonies, but now there is the new America:

The land where you don’t have to care!

A Net Neutrality Catalog

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The repeal of net neutrality is outrageous on so many fronts that it becomes a sort of catalog of the kinds of damage that the administration is doing wherever it can.  Here are a few points, one by one.

  1. Bad policy

As point of departure, net neutrality is the doctrine that separates internet service providers from the content they carry.  ISP’s carry bits, content is not their business.  End users can access any server on the network, and service providers just connect like anyone else.

Without net neutrality, ISP’s are free to provide service classes and pricing based on server identity, traffic characteristics, or anything else.  It’s hard to predict precisely what will come out of it, but one thing is clear.  The big ISP’s (Verizon, AT&T, and Comcast) have spent a fortune to get this ability for differential services and pricing, so that’s what we’re going to see.  The universal internet is no more.  One way or another we’ll be nickel-and-dimed forever.

The net neutrality fight has a long history, going back to the breakup of the Bell System and the regulatory distinctions between basic communications and enhanced services.   Telephone companies and later ISP’s have always wanted to use their communication networks for competitive advantage.  They’ve also tried to kill new competitive internet-based technologies such as VPN’s, FaceTime, and Skype.   Net neutrality has kept the internet competitive and unconstrained, so they’ve fought it for decades.  Their cover story has always been that they need extra profits to expand and modernize their networks, but they’ve been doing just fine all along.

With the repeal they’ve hit the jackpot.   There are no constraints on what services they can provide, no constraints on what they can do to the competition, and no follow-up to make sure those extra profits benefit anything but the bottom line!

  1. Supported by outright lies

Here is a quote from the new FCC chairman Ajit Pai (a former Verizon executive) in support of the decision:

“Returning to the legal framework that governed the Internet from President Clinton’s pronouncement in 1996 until 2015 is not going to destroy the Internet. It is not going to end the Internet as we know it. It is not going to kill democracy. It is not going to stifle free expression online. If stating these propositions alone doesn’t demonstrate their absurdity, our Internet experience before 2015, and our experience tomorrow, once this order passes, will prove them so”.

That is an amazing piece of deliberate deception.

The “internet experience” from 1996 until 2015 was net neutrality.  It was used to push back against one carrier-sponsored violation after another.  (That’s what kept VPN’s, FaceTime, and Skype.)  The “legal framework” changed in 2015, because constant carrier legal challenges caused the Obama administration to put net neutrality on a more solid legal footing.  There was no change in regulatory behavior in 2015, and the only thing that history proves is that the carriers cannot be trusted without explicit regulation.

Contrary to what Mr. Pai says, his repeal of net neutrality is not moving us back to a pre-2015 world.   This is a whole new carrier-sponsored future.

  1. Selling out the future to the past

It already tells you something that the repeal is a case of Verizon, AT&T, and Comcast against Apple, Google, Microsoft, and Facebook.  That isn’t saying Apple, etc. are angels, but they are the current bases of American economic preeminence—as opposed to the technical equivalent of the coal industry.  And the situation for new, innovative companies is even worse.

Instead of doing everything possible to encourage innovation, we have behaved as if innovation was the enemy, cutting funding for education and research and shutting down the influence of science in government.   This is just one more example.

  1. Selling out the population to big business

The net neutrality repeal goes under the triumphant title of “The Restoring Internet Freedom Order”.

However the freedom they’re talking about is freedom from public scrutiny.  The repeal order punts away responsibility for oversight of Internet Service Providers—just at the time when the internet is becoming a more and more essential part of everyone’s life.   It has already become the carrier for most voice services and is in the process of taking on that role for cable.

The repeal gives that responsibility to the FTC, which is in no way equipped to handle that class of issues.  The FTC’s own FTC, FCC Outline Agreement to Coordinate Online Consumer Protection Efforts describes nothing more than data to be supplied by the ISP’s.   There is no discussion of enforcement for wrong-doing or even of basis for oversight.

Broadband access is anything but a competitive industry—at best there are two players in any locality.  As one commentator put it, the repeal is “a wholesale dismantling of oversight for some of the least-competitive and least ethical companies in America”.

  1. Ideology over reality

In the Regan years Republicans were already gung-ho for deregulation.  But at least they used to give reasons why they thought it would work.  When they killed the “Fairness Doctrine” for even-handed television coverage, the argument (from former FCC commissioner Fowler) was “the common man isn’t stupid and is quite capable of forming reasoned opinions among a welter of competing voices”.  I.e. the proliferation of channels—particularly with cable—made regulation in their eyes unnecessary.

This time there’s no attempt (other than a misstatement of history) to explain why the repeal “is not going to stifle free expression online”.  In fact with at best just two broadband carriers in a local area, we’re talking about a concentration of influence that dwarfs anything that existed for television.  Without net neutrality we have two gatekeepers—with their own interests—managing the world as we see it.   And there is a lot of history to say where that can lead.

  1. Media censorship

This final point may seem exaggerated, but the threat is real.  We’ve just seen that ISP’s have the power.  It’s only a question of who wants to use it and how far they will go.

The Trump administration has engaged in anti-democratic policies across the board and has repeatedly threatened news media with legal action to suppress criticism.  Repealing net neutrality makes censorship just a matter of directing a handful of carriers.

Given the wide unpopularity of the network neutrality repeal, we have to consider that carrier benefits and Republican ideology may not be all there is to it.   Whether or not the Trump people have actual plans for managing the carriers, it’s hard to believe they haven’t thought about it!

So there’s no getting around it—net neutrality is a protection we can ill afford to lose.