Petulant Politicians and their Piss-Poor Performance

I've been pretty sick the past few days with a 103 degree fever, but the silver lining is that the time at home has given me the chance to catch up on some reading.  An excerpt from Michael Grunwald's new book, "The New New Deal," boiled my blood far more than the fever ever could.  Enough to get me back on the wagon again and start posting.

The part I read focused on the time shortly after the 2008 elections, when Barack Obama won the presidential election on a platform of hope and change.  The Democrats had also won strong majorities in the Senate (58 of 100 seats) and in the House of Representatives (257 of 435 seats).  Understandably, the Republicans were humbled, and were nursing their wounds at a strategy session.  The quotes -- not just the narrative, but the quotes -- that Michael Grunwald uses to describe the Senate Minority Leader, Mitch McConnell, make me furious:

The owlish, studiously bland Senate minority leader from Kentucky was the unlikeliest of motivational speakers.  He was a strategy guy, cynical and clinical; he reminded his members to stay calm, stay on message and stay united.  Obama had promised postpartisanship, and Republicans could turn him into a promise breaker by withholding their support.  "We got shellacked, but don't forget we still represent half the population," McConnell said.  "Republicans need to stick together as a team."  Or as Ohio Senator George Voinovich summarized the strategy, "If Obama was for it, we had to be against it."

...

But McConnell believed Republicans had nothing to gain from me-too-ism.  He reminded his caucus that Republicans wouldn't pay a price for opposing Obama's plan if it succeeded, because politicians get re-elected in good times.  But if the economy didn't revive, they could return from the political wilderness in 2010.  "He wanted everyone to hold the fort," Voinovich later explained.  "All he cared about was making sure Obama could never have a clean victory."

Excerpted from The New New Deal, copyright 2012 by Michael Grunwald, published by Simon & Schuster, August 2012.

I cannot explain my outrage at this kind of philosophy using even marginally polite language.  Is this how we teach our kids to play on the playground?  That if you don't get your way, the next best thing to do is be obstinate and destructive until you get your way?  I fail to understand why our Senators consider themselves above the most basic behavioral traits we try to instill in our youth.

This.  Is.  Disgusting.

This has nothing -- nothing -- to do with political ideology, or about Republicans vs. Democrats.  There are many tenets of the Republican party that I find appealing.  For instance, some elements of Representative Paul Ryan's budget plans are uncomfortable and different from what we are used to, but they are required to address the uncomfortable and different budget problems we face today.  The Republican ideal of a smaller, less intrusive government is broadly appealing to many people.  But Senator McConnell's uncompromising, obstructionist, screw-the-other-guys-at-all-costs is antithetical to everything that this country was founded on and stands for.

When James Madison was asked, "Are there any principles by which the American government works?" he responded, "Yes, there are three: compromise, compromise, compromise."

Look, dammit, you don't win your way back to popularity by being petulant and throwing a tantrum.  You win your way back to popularity by proposing a compellingly better path forward; by being more in tune with what people want; by making a positive case that you can address the current administration's shortcomings.

In business, in the military, and in engineering (and I've been involved in all three), you make your case for your position or your proposed path forward.  Sometimes you win and sometimes you lose.  The team's success requires you to execute the chosen task to the best of your ability, whether it was what you wanted or not.

That is how I expect elected officials to behave, whether I voted for them or not.  Anything less is disgusting.

A Roadmap for America

In his State of the Union Address, President Obama made reference to getting manufacturing back in America.  In fact, he explicitly said that "this blueprint begins with American manufacturing."

That made me squirm.  This post is to describe why I think all of America should squirm, and what we should do instead.

The Problem

I squirmed because it strikes me as a wistful desire to return to a bygone era, one that has passed us on and we need to embrace the new change.  We've been through this before, with housing prices:

In the 2009-2010 era, I distinctly remember politicians saying "we have got to restore housing prices! Get them back up to where they used to be!"  (Sadly, a Google News search couldn't bring up any direct quotes.)  But the ugly truth was that housing prices were a bubble, and prices were not going to go back up.  For the housing market, it was a great ride up from 2003 to 2007, and we've been "taking our medicine" ever since.

I feel similarly, although not identically, towards manufacturing.  There has been a fervor recently over how iPhones and solar cells are manufactured in China and not in the US.  Why is that?

First of all, the Chinese are willing to work in conditions that would not be tolerated in the US today.  This is described eloquently in the famous piece done a few weeks ago by This American Life.

Secondly, they're willing to do it for far less than minimum wage.  Shenzhen has the highest minimum wage of any city, at about $207 per month.

Third, the Chinese government is backing production in a big, big way:

• They built their own production factory, at government expense, anticipating the next order from Apple.
• China has outlayed almost $800 billion for its solar cell manufacturing from 2011 - 2020.  Compare that to the outcry over Solyndra going under, at a cost of about $500 million.  

Admittedly, the electronics industry has the worst labor practices of any industry, but it's telling of how far the "other guys" are willing to go.  When President Obama asked Steve Jobs about why Apple can't make iPhones in the US, Steve replied, "Those jobs aren't coming back."

He's absolutely right.  Manufacturing in China is a step or three below what manufacturing was like in Pittsburgh in the early 20th century:

I openly admit -- and heartily welcome -- the fact that Chinese wages are rising (21% last year alone).  I hope that someday in the near future the Chinese worker will have parity with a laborer in the western world.  But that does not mean that the manufacture of iPhones, or most other commodities, will move back to the US.  Instead, they will move to southeast Asia ... or possibly Africa ... wherever the cheapest labor in the world can be found.

The Solution
So, what do we do instead?  America should strive to be an innovator, and stick to the high technology, high capital investment stuff, where the employee has to be smart, skilled, and resourceful.

Here's one example: a government sponsored, nationwide wireless network.  I have no idea how legal this would be, and here's where I need help.

In the 1950's, then-President Eisenhower embarked upon the Eisenhower Interstate System: a network of high-speed roads that would connect the US and allow commerce to flow freely and quickly.  It immodestly touts itself as "The Greatest Public Works Project in History."  The cost in 1991 was estimated to be $128.9 billion (starting in 1956), but wow has it enabled growth in this country.

Why not do something similar for the wireless / networked world?  Roll out a "wireless highway" that anyone can get on to, with bandwidth limits (the 21st century equivalent of speed limits) so that all may partake?

I see two hard parts:

1. Making it forward compatible.  Unlike today's LTE / WiMax / 4G battles, the US network would ideally be upgradeable as technology advances.  The US government has tons of frequencies available for its, so more headroom exists for it to grow than exists in private industry.  I'm not an actual network engineer, but I'm willing to bet this isn't easy.
2. Making Verizon, AT&T, Sprint, and T-Mobile happy.  There are laws prohibiting the government from competing with private industry.  And those 4 mobile carriers (and many other, non-national carriers) have spent billions of their own nickels in developing and deploying their own super-fast wireless networks.  But maybe if the government makes the frequencies available to all, then it wouldn't really be competing?  After all, the US Postal Service, FedEx, and UPS all seem to get along okay, right?

This would be innovative.  It would require a large cadre of network engineers to design, deploy, and maintain.  It would train the next generation of electrical engineers, electricians, construction crews, phone developers, and computer makers to take advantage of our "wireless highway system."  And it might unleash a whole new division of commerce (well, actually, just continue to boost the industry we already have) to take advantage of this new highway system.

That, and examples like it, are my idea of a blueprint for America.

Moon Bases and Other Baloney

The political grandstanding -- and pandering to potential voters -- is in full swing, and it absolutely drives me up the wall.

The most recent blood-boiling incident is Newt Gingrich's promise to Florida voters that he would have a moon base established by the end of his second term, or 2021.  Mr. Gingrich is either lying through his teeth in a shameless pitch to grab the votes of the hopelessly uneducated, or is mind-numbingly ignorant about the difficulties of what he is proposing.  In either case, such a gross mis-representation of what a President can (and cannot do) in today's society puts him in the same league as Michelle Bachmann, who promised back in August that if she were President, she would make gasoline $2 per gallon.

Wrong, wrong, and wrong.  When politicians put forth abject lies like that, in my opinion it should disqualify them for being President.

Colleagues of mine look at me funny when I rant about this.  They say, "They're politicians; that's what they do.  They lie."  I'm reminded of an old adage from a former job: What do valves do? They leak.  (You normally think of a valve stopping flow in a pipe, but in real-world applications, they leak.  And sometimes on purpose.)

I guess it's the naive schoolboy in me still poking through, wistfully hoping that our vaunted politicians would have the highest ethics and the highest moral standards as they pursue these powerful and important positions governing the United States.  Alas, human nature comes through and shows that people will be as slimy as they can to garner votes, and are willing to say whatever they need to say.  Perhaps the ends justify the means, in their minds.

The truth is, to build a base on the moon requires a heavy-lift human-rated rocket, which the United States does not begin to have.  As I have posted previously, a GAO Report stated that the now-defunct Constellation program would have cost $97 billion to complete, through 2020 (and this was back in 2009).  And the $97 billion doesn't begin to cover the costs of the actual lunar base.  If I had to estimate, a lunar base would be at least half as hard as building the International Space Station -- which had an all-in cost of about $100 billion.  NASA's budget in 2012 is almost $18 billion -- which includes a lot of staffing and a whole host of ongoing missions. The Augustine Report from 2009 recognized early on that the grandiose plans people had from NASA were not going to happen without a major retooling.

Look, as an engineer, I would like nothing more than to have a high profile, shoot-for-the-moon project like this country had with Apollo.  It would be so inspiring, it would have so many offshoot benefits, it would motivate a whole new generation of scientists and engineers ... but it is flat-out not going to happen in today's economic times.  I believe it is irresponsible to be considering those types of projects when our financial debt has now exceeded 100% of our annual GDP.  We have got to get our own house in order first before doing these grand science projects.

I sincerely hope the people of Florida are smart enough to see through these ridiculous promises.

The Loan Guarantee Program Gets a Bad Rap

I've been planning this post for months, but the recent Solyndra press (and the negativity that it's bringing on the whole program) has spurred me into getting off my duff and actually writing about it.

Initially, the government gave a $535 million loan guarantee to a company called Solyndra, which needed additional funding to help start up its innovative new way of making solar panels.  The term "guarantee" is important here, because the government is just providing a guarantee -- it's not actually loaning out any money.

So, on the face of things, the Loan Guarantee Program is a great program:

• It doesn't cost the taxpayers any money up front,
• It has the potential for making money through the credit subsidy cost that the government charges in return for the loan guarantee,
• It supports innovative, new technologies for making electricity, and
• It creates jobs.

The federal government isn't on the hook for any money unless the company defaults and goes bankrupt.  And -- even if the company does go belly up -- the government usually secures the right to be "first in line" for grabbing any leftover assets that the company may have had.  So, if the unthinkable does happen, at least the government can go in, collect all the inventory, and hopefully auction it off and salvage some of the money.

Initially, the reports on the Solyndra case were very negative.  "OMG!!" they reported.  "A government funded program went bankrupt!!"

This really upset me.  The whole purpose of the loan guarantee program is to promote risky, high tech industries that can't get funding elsewhere.  From the 2005 Energy Act language that started the whole program:

Section 1703 of Title XVII of the Energy Policy Act of 2005 authorizes the U.S. Department of Energy to support innovative clean energy technologies that are typically unable to obtain conventional private financing due to high technology risks. [Emphasis added]

No matter how you slice it, higher risk == higher potential of failure.  At first, I thought people were unwilling to accept this.

But then things got juicy, when it appeared there may have been a connection between Solyndra, one of its financiers, and the Obama Administration.  And then the Solyndra executives are going to plead the 5th amendment when they have to testify? Yeesh.

It also appeared that, back in May or so, the government re-structured the loan guarantee so that it no longer had first-rights to the assets in case Solyndra went belly up.  Giving up these first rights was apparently a last-ditch effort to raise more funding for Solyndra.

So, who is to blame for all of this?  Did the Obama administration really reach in with its Noodly Appendage and skew the loan towards benefitting one of the administration's donors?  Perhaps.  But there's an easy way to figure this out, and satisfy everyone:

MAKE PUBLIC THE INDEPENDENT ENGINEER'S REVIEW.

For every loan that is granted (and for those that are not), the Loan Program Office brings in an independent engineering firm to review the project from top to bottom, soup to nuts.  The Independent Engineer writes a (sometimes exhaustive) review to characterize the risks and the likelihood of success.  It should be readily apparent from this review (along with any follow up reviews that may have been done) whether the Solyndra business venture was really viable or not.

The fact that it hasn't been released is somewhat concerning to me ... I have a suspicion that if that independent review was a glowing one, then it would have already been released.

Taking a Step Back

I decided to take a step back, and thought, "What else has the Loan Program Office been up to, and what investments tend to have the biggest payoff for the taxpayer?"

Conveniently, the Loan Program Office lists all of its projects funded to date, the amount of the loan guarantee, and some other stats about the project.  Most notably for me, the total expected number of megawatt-hours (MW-hr) each project is supposed to produce, annually.

In layman's terms, the annual MW-hr figure is the amount of JUICE the plant can crank out per year.  So, which projects crank out the most juice for the lowest investment cost?  I copied the data as published on the DOE site, and compiled it into a table.

Wow.  Geothermal is cheap.  I was surprised at that.  Right after that is nuclear, which I was pleasantly surprised to see.  And solar, no matter how you slice it, is still pricey.  Wind is somewhere in the middle.

I was, however, encouraged to see that the rooftop solar project (putting solar panels on rooftops, and in this case at military installations) was the most affordable of the solar bunch.  Personally, I have always liked that idea -- we're not using our rooftops for anything else, so we might as well stick some solar panels up there and use the energy productively.

If I had more time, I would color-code the bars based on what technology each one is, but it's getting late and this post is getting long.  Please support your local engineer.  :)

Budget Cuts: Are They Real?

There were two articles recently in the WaPo that caught my interest:

This one, where the CBO finds that the $38 billion isn't all from direct program cuts, and an insightful opinion piece by Ezra Klein on how the $38 billion can be reduced as far as $350 million if you slice it right.

The headline is indeed attention grabbing -- did the politicians really swindle us into thinking they had made a fairly significant cut, when all they had been doing was a shell game?  But then I read the articles, and found many examples of where spending had been effectively taken away from budget swindlers.  Unfortunately, I have been party to those budget swindles many, many times.

Bottom line: at the end of the day, this will result in some real funding not being spent that would have been spent by government.

The first WaPo article makes mention of a few projects for which funding was no longer necessary: $560 million for an Education Department program that no longer exists (holy moly!  that's huge for DoEd!!), $15 million for a US Capitol building that already exists.

I assure you, department budget weenies had one word on their mind:
Reprogramming.

This happens all the time: money is appropriated for one project, and it either comes in under budget (which actually happens from time to time, you just never hear about it), or the priorities change.  At which point, the money is reprogrammed: it is removed from this project and transferred to that project.  This usually requires a few levels of approval, but unless Congress specifically appropriated the money in Congressional language, departments have a fair amount of authority to shift money around.

Which, ultimately, is a good thing, because you don't want Congress to have to micromanage every department.  They do a crummy enough job managing their own finances, as it is.

So, this budget compromise, among other things, effectively prevents budget weenies from reprogramming the money and spending it elsewhere. Which is a good start.

But, for the record, $38 billion is a drop in the bucket (1%) compared to a $3.6 trillion annual spending budget.  Time to start hitting Social Security, Medicare, Medicaid, and even national defense.

When Norm Speaks, I Listen

Norm Augustine is my hero.

No, seriously -- if there is anyone who has significantly contributed towards making the world a better place through prolonged hard work and dedication (rather than a singular invention or product), it's Norm Augustine.

Aside: OK, you could probably argue that Steve Jobs, Bill Gates, and the Google Guys have had an equally impactful role in society.  But Norm is in a different class of engineering: metal, carbon fiber, and freaking large institutions.  End Aside.

So, wow, did my ears perk up when I saw this article in Forbes by Mr. Augustine: America is Losing Its Edge In Innovation.  When Norm speaks, I listen.

• On Practicing Engineering - I read this as an engineer early in my career, and it has been a continuing source of inspiration for me. (You might have to register to see this link, but it's worth it.)
• Rising Above The Gathering Storm - Congress asked him, and others, to look at the state of education in 2005.
• Rising Above the Gathering Storm, Revisited - (Big PDF there) 5 years later, Norm takes another look at education.
• The Augustine Report on Space Travel - I've blogged about this before.  Norm was asked to take a hard-nosed look at the state of space travel today.

And, oh by the way, he used to be CEO of Lockheed Martin during some of its most innovative years.  Anyhow, that's all just for background in case you didn't know who the guy was.  Or you can check out his wikipedia page.

Back to the Forbes article that is the point of this post.  There are many good quotes in there, but this one really, really rang true for me:

In fact, scientists and engineers are celebrities in most countries. They’re not seen as geeks or misfits, as they too often are in the U.S., but rather as society’s leaders and innovators. In China, eight of the top nine political posts are held by engineers. In the U.S., almost no engineers or scientists are engaged in high-level politics, and there is a virtual absence of engineers in our public policy debates.

I have seen the pitfalls of this in many, many government circles.  People making dumb decisions for the wrong reasons.  Alas.

He goes on to extol the virtues of proper spending on education, engineering, and science in this country, and how "greatness must be worked for and won by each generation."  All a few days ahead of the President's State of the Union address.

But enough from me.  Just go and read the article -- it's not long.  And enjoy.

The Continuing Resolution

The Continuing Resolution (CR) that our government is currently under is really, really hurting the country, and it's not getting enough coverage in the news.

While an under-reported piece of news like the CR is not new or noteworthy, I think it's worth some rational discussion when Congress is actively wasting time making symbolic statements and political posturing about Obamacare.  The act was provocatively named "Repealing The Job-Killing Health Care Act" and reviewed by the Congressional Budget Office.  It has a very, very small chance of being passed by the Senate and zero chance of being signed by the President (he said as much in a press release).

I freely admit that there may be room for improvement in Obamacare.  For example, I never quite grasped how forcing health care companies to accept nearly all applicants won't cause rates to rise dramatically.  I do, however, applaud the idea of making almost all preventive medicine covered.  And I'm actually supportive of requiring people to get health care -- an ounce of prevention is worth a pound of cure.

But, whatever.  The point of this post is not to debate the merits of Obamacare.  It's to lament the dog-and-pony show that the House is putting on with this Act (they spent three days debating the bill) when there are far, far more pressing and important issues to be dealt with.  Namely, THE BUDGET.

Do your job, Congress.

Passing a budget is perhaps the single most important thing that Congress can do each year.  And they missed it badly for FY2011.  See, in the normal budget cycle, there are 12 bills that are individually passed (one bill from each of the twelve subcommittees of the House Committee on Appropriations) and then signed by the President.  Often, things don't go swimmingly, and they have to roll some or all of them together in an "omnibus spending bill".  In fact, that usually happens.  From 1997 through 2007, there were only 3 years  (Table 1) where at least one bill wasn't combined with another to form some kind of omnibus bill.  And in 1987 and 1988, ALL subcommittee bills were combined into one, whopping document.

And then, there are other years where Congress really doesn't get its act together and doesn't pass a spending bill by October 1st.  In fact, the Congressional Research Service states the following (page 13):

In 26 of the past 31 years (FY1977-FY2007), Congress and the President did not complete action on a majority of the regular bills by the start of the fiscal year.  In eight years, they did not finish any of the bills by the deadline.  They completed action on all the bills on schedule only four times: FY1977, FY1989, FY1995, and FY1997.

So what happens when they don't pass a budget?  Then you're in the dreaded realm of the Continuing Resolution:

• Each month, you're only allowed to spend 1/12th of last year's budget;
• No new contracts can be awarded or new projects started;
• When the Continuing Resolution ends, you must spend whatever new money you receive in a shorter period of time to not have excessive carry-over in the next year.

This wreaks havoc on anyone trying to plan their program.  We are now ~ 4 months into FY2011, and no one has a budget.  As a government program manager, chances are, you can't build.  You can't expand.  You can't grow.  And for a country that's trying to reduce its 9.8% unemployment rate, that's a big deal.

And yet Congress (well, at least the House) prances about, passing an irrelevant bill that will never be signed.  "Re-arranging the deck chairs on the Titanic" doesn't cut it -- at least people USE deck chairs occasionally.  This is like handing out maps of Cincinnati on the Titanic.

There is a perfect storm brewing:

1. Congress was unable to come to an agreed-upon spending bill (twice) in December, and they have now pushed the Continuing Resolution until March 4th.  And, by the way, the House is in session for 9 days in February and only 3 days in March before that deadline hits. That leaves very little time to negotiate and debate a fix to this problem.
2. The Treasury Department estimates that we'll hit the current debt limit ceiling of $14.3 trillion sometime between March 31 and May 16. 
3. The GOP has told the White House that they're not likely to raise the debt ceiling.

I'm sad that the above situation isn't being reported in the headlines.  Sure, it's buried in bits and pieces, but I don't think it's getting the attention that the whole package deserves.  Congress needs to figure out a budget, and figure out a way to raise the debt ceiling acceptably.

But what I'm afraid will happen is that Congress will keep kicking the can down the road: do a stop-gap increase in the debt ceiling, and make ALL of FY2011 a Continuing Resolution ... resulting in a null year that could have accomplished so much, and at a time when so much was needed.  Alas.

Yucca Mountain Spotted Fever #2

Back in February, I posted about the shenanigans that are taking place around the Yucca Mountain issue.  To summarize, the Department of Energy basically threw up its hands and said, "Forget it.  Burying spent nuclear fuel at Yucca Mountain is becoming too much of a hassle, and we're going to go back to the drawing board."

The Nuclear Regulatory Commission (NRC), which has been dutifully processing and reviewing the DOE's Yucca Mountain request for the past 3 years, didn't want to get directly involved with this matter.  So the NRC asked the Atomic Safety Licensing Board (or ASLB, a particularly brainy division of the NRC) to look at the DOE's decision in detail and give a recommendation back to the NRC.  Makes sense, right?  "Here, go take a look at this thorny issue and tell us what you find."

In June 2010, the ASLB issued a statement (PDF), waving the "baloney" flag vigorously.  That pdf is one of the most brilliantly written pieces of governmental language I've ever read, and it truly gives me hope in the future governance of our country.  Seriously.  It's clear, direct, thorough, and actually readable -- if a bit long after page 16 or so.  It states:

For the reasons explained below, we conclude that Congress directed both that DOE file the Application (as DOE concedes) and that the NRC consider the Application and issue a final, merits-based decision approving or disapproving the construction authorization application. Unless Congress directs otherwise, DOE may not single-handedly derail the legislated decision-making process by withdrawing the Application. DOE’s motion must therefore be denied.

There are some other really juicy quotes in there.

Did Congress, which so carefully preserved ultimate control over the multi-stage process that it crafted, intend—without ever saying so—that DOE could unilaterally withdraw the Application and prevent the NRC from considering it? We think not.

So the ASLB came back to the NRC and said, "No Way."  Per the law, if Yucca Mountain is to be truly axed, it must be done by Congress.

And here's where it gets really interesting.

The NRC never officially took action on the ASLB's report.  And the NRC unilaterally decided to stop processing the Yucca Mountain application last week.

Why, oh why, would the NRC do this?  Its own brainy division told it that it couldn't stop the review, even if DOE wanted to.  One strong possibility is the lingering connection between the Chairman of the NRC, Gregory Jaczko, and Harry Reid, Senate Majority leader from Nevada who has tried to stop Yucca Mountain from being operated in Nevada at all costs.  Before becoming chairman of the NRC, Jaczko was Harry Reid's appropriations director.

Huh.

So, earlier this week, Senator James Inhofe from Oklahoma again restored my respect and hope in those who govern this country.  In a letter to each of the NRC Commissioners, he politely and directly asked two questions:

1. Have you voted on the ASLB's recommendation?  If so, when?
2. If not, when do you plan on voting?

This is brilliant in its simplicity: hold governmental organizations accountable.  I wish there was more of this.  I sent a letter to Senator Inhofe, congratulating him, and asking if he'd received any response from the commissioners.  No word yet, but I'll be happy to pass it along if I hear anything.

When your only tool's a hammer ...

... all the world looks like a nail.

The above quote is attributed to Abraham Maslow, and it rings true time and time again.  In this particular case, I think it applies to The Federal Reserve.

News flash for those who have been living under a rock: housing prices have NOT been rising indefinitely (as many investment products were designed to take advantage of), and when this pyramid scheme began to unravel (I love mixed metaphors), a ton of things happened very rapidly.  Credit markets dried up; countless business plans that were based on aggressive growth failed; countless more projects dried up or did not get funded in the first place, and unemployment shot up above 10%.  The Fed pulled the biggest lever it could, and dropped its lending interest rates like a rock:

Source: http://www.tradingeconomics.com/Economics/Interest-Rate.aspx?Symbol=USD

Look again.  The interest rate has been almost ZERO since January 2009.  Twenty months and counting.  Historically, it's usually around 5%, but was as high as 20% in March 1980.  Banks and other major financial institutions can borrow money for free.

This is a slightly indirect way of pumping money into the economy.  Allowing borrowers (big banks, in this case) to borrow money on the cheap is an attempt to loosen things up a bit in the financial markets, and hopefully stimulate new projects, new industries, and new jobs.

But it just hasn't been enough.  And here's the point of this post: the Fed is considering new ways of pumping more money into the economy.  They've got their hammer, and they're lookin' for nails.

What has been the result of the absurdly low interest rate over the past 20 months?

1. It has probably stemmed the loss of jobs in this country.  Sorry, I don't have a definitely source to cite for that; it's just my opinion.
2. It has not turned the economy around.  (See current unemployment rate.)
3. Large companies, given the opportunity to borrow large amounts of money basically for free, have been investing in themselves and buying back their own stock.

Let me underscore that "buying back their own stock" point: there has been $258 billion dollars in stock buyback this year, compared to $52 billion at this time last year.  And they're getting the money to do it from Uncle Sam.

Imagine the corporate boardroom discussions, happening all around the US:

Chief Financial Officer: "Hey, we can get a loan from XYZ financial institution for $2 billion at 0.1% interest per year.  That's the lowest cost of money, ever."
Chief Executive Officer: "Sounds like a good deal.  I want each of my division leaders to examine what they could do with an extra $500 million this year."

---THE NEXT WEEK---

Chief Financial Officer: "Boss, all of the divisions say they can start some projects, but can only estimate a return of 3-4% in the next year on our investment."
Chief Executive Officer: "What??!?  3-4% return on investment?  That's a miserable deal for our stockholders!  I expect our stock price alone will go up 10% this year!  Why would I invest in R&D at a 3-4% return when I can invest it in myself and make at least 10%?  The stockholders will be happier, too."

Hopefully I've made the point pretty clear by now.  The Fed has a hammer: the interest rate it sets when loaning Fed money to banks.  It's a really big hammer.  It can be very effective when the economy is chugging along.  But when it's sputtering, it's not a very effective hammer.

The road to recovery is not paved by giving money to corporations so they can buy their own stocks back.  That doesn't create new jobs, and it really only helps those people who already own vast amounts of stock.  It doesn't put bread on anyone's table that isn't already covered in filet mignon.  Instead, I think the Fed needs to find new ways to *directly* create new jobs, or provide better incentives that will push industry to create new jobs.  If the Fed can't do it, then stand back and let another government organization stimulate the economy.  This kind of "new thinking" isn't the message we've been getting from the Fed.

I'm worried about the "quantitative easing" measures that are bandied about now -- another fancy way of pumping money into the system.  They don't address the problem at hand, and they have a cost that we'll have to pay off (specifically, my generation) in the future.  And it didn't really work for Japan when they tried it before, but they're trying it again anyhow.

A hammer is a very poor choice of tool for a screw.  And the economy looks screwy to me.

President's Day 2010

Today is the observation of President's Day.  Technically, President's Day falls on Washington's birthday (Feb 22nd), but the federal government chooses to observe it on the Monday between Washington's birthday and Lincoln's birthday (Feb 12th).  The thinking is that it allows all states to celebrate all Presidents, not just Washington.

So, I thought I'd take a look at who our President chooses to surround himself with.  That would be the Cabinet, and associated Cabinet-level staff members.

The Cabinet, in the order of succession to the President, is:

• Vice President (Joe Biden)
• Secretary of State (Hillary Clinton)
• Secretary of Treasury (Tim Geithner)
• Secretary of Defense (Bob Gates)
• Secretary of Justice (Atty Gen. Eric Holder)
• Secretary of Interior (Ken Salazar)
• Secretary of Agriculture (Tom Vilsack)
• Secretary of Commerce (Gary Locke)
• Secretary of Labor (Hilda Solis)
• Secretary of Health and Human Services (Kathleen Sebelius)
• Secretary of Housing and Urban Development (Shaun Donovan)
• Secretary of Transportation (Ray LaHood)
• Secretary of Energy (Steven Chu)
• Secretary of Education (Arne Duncan)
• Secretary of Veterans Affairs (Eric Shinseki)
• Secretary of Homeland Security (Janet Napolitano)

Other positions have cabinet-level rankings:

• White House Chief of Staff (Rahm Emanuel)
• Administrator for the Environmental Protection Agency (Lisa Jackson)
• Director of the Office of Management and Budget (Peter Orszag)
• US Trade Representative (Ronald Kirk)
• US Ambassador to the UN (Susan Rice)
• Chair of the Council of Economic Advisers (Christina Romer)

I thought it was interesting to note that the constitution (Article 2, Section 2) doesn't explicitly call out the existence of a Cabinet, although it makes a general reference to "principal Officers of the executive Departments" and "Heads of the Departments."

What will be the subject of a later post (kinda busy, gotta run) will be the question, "Are these the right set of advisers to help run and manage the country in the 21st century?  And how does that compare to how other large corporations and other entities are organized?"  I'd also like to jot down in what year each of those departments was established.  It's a subject for a later post because I've got to run.

Change Management

As an engineer in the DC area, I inevitably have to do some engineering-related work with and for the government.  I have been on both sides of the fence (both as a Federal employee "calling the shots," as it were, and as a contractor, trying to meet the requirements and expectations of a Fed), and I've seen some troubling trends in the way so much business is done.  Or isn't done, in some cases.

I think it fundamentally comes down to the fact that the government doesn't have to show a profit at the end of the quarter. Or year. Or ever. So the government is the one organization uniquely suited to be completely oblivious to the effects of change on a process.

The commercial world, however, needs to show a profit every so often. And therein lies the difference.

What a pain.

So I get a little concerned when reading reports about program that overrun their budgets.  Or things not progressing according to schedule.  It's easy for the government to tell its side of the story loud and clear ... the contractor is not going to bite the hand that's feeding it and point out the endless lists of scope creep, changing requirements (or sometimes flat-out wrong requirements), and unrealistic expectations on the part of the government.

Many government organizations endlessly add scope and tasks to a given project.  Seriously, the movie "Pentagon Wars" is not an exaggeration for many government institutions.  Many contractors, trying desperately to appease the monster that is the US government, acquiesce, and try very hard to incorporate those changes.  Hey, we're trying to give the best value to the government, right?

"Contractor does good job for Dept of Defense" doesn't get news headlines.  "Contractor charges $600 for a toilet seat" does.

But I applaud Defense Secretary Gates's efforts to enforce some discipline, and sometimes making difficult decisions, if for no other reason than making an example of what not to do.  It's a little heavy-handed -- the people I believe who are really at fault for causing these messes aren't getting the appropriate "attention" -- but hopefully there will be a trickle-down effect.

Here's my point: Secretary Gates just recently removed Marine Major General David Heinz from leading the F-35 development program.  At $300 billion dollars, this is the military's Largest. Weapons Procurement. Ever.  I have the utmost respect for Marines, and usually generals to boot, but a brief review of his biography shows that he has program management and acquisition experience off and on since 2002.  While he has a stellar flight record (a test pilot and astronaut candidate, for crying out loud!), I'm not sure he's the most qualified person to try and lead the Pentagon's largest defense acquisition program.

President Obama made big waves by signing and Executive Order saying that lobbyists could not serve in his Administration, in an attempt to shut the revolving door.  On one hand, that sounds encouraging -- no more graft and a lot less pork.  On the other hand, you're shutting out a lot of the people who are best qualified to run the large programs that the government likes to run.

In a big storm, who better to have at the helm than an experienced skipper?