Bacon's Rebellion

Notes for a rainy Monday:

In Saturday’s WaPo the Real Estate section was 6 pages long. The story that occupied most of the first page? “Getting home on two wheels,” a feature on the importance of bicycles in marketing residential real estate in the Core of the fourth largest, and one of the most prosperous, New Urban Regions in North America.

On Friday, Steven Pearlstein looked at the prospects for ‘commercial’ side of real estate in “‘Wait and pray’ won’t work for commercial real estate.”

Fundamental Transformation of human settlement pattern anyone?

In WaPo‘s Sunday Business section the big story was about infrastructure. “Materials are cheap. Labor is plentiful. It’s the perfect time to invest in INFRASTRUCTURE.” The settlement patterns is dysfunctional. Before ANY resources are spent on ANY infrastructure it must be redesigned to support sustainable settlement patterns. Understanding the need for Fundamental Transformation of human settlement patterns is the first step.

In Sunday’s Metro section: “Va. Faces complex redistricting? Fundamental Transformation of governance structure anyone?

Where is AntiPartisanism in the debate? How about redistricting that starts with a blank slate and Alpha Community centered districts? Why is no one pointing out that the current administrations government efficiency effort is less than rearranging the deck chairs?

In Sunday’s Business section Michelle Singletary provides a sound bite from Robert Reich’s new book After Shock. Fundamental Transformation of the economic system?

Cutting spending AND raising taxes is not even a start because it does not address the Core problems of the Wealth Gap, Peak Resources and citizen obliviousness – The Anger of Ignorance.

Does anyone else see the irony of the ‘T’ ‘E’ ‘A’ in Tea Party standing for ‘taxed enough already’ when Agencies, Enterprises, Institutions and Citizens / Households are ALL paying far less than the commutative costs of their actions?

EMR

In recent history, the United States has survived at least three major financial debacles: the Savings & Loan crisis around 1990, the bursting of Internet bubble around 2000, the collapse of the real estate bubble that began in 2007. What’s next? When I was writing “Boomergeddon” earlier this year, I expected the next traumatic financial event to be the default by the United States and other sovereign nations on their debt. But I didn’t see the U.S. hitting the skids until the mid-2020s.

Meredith Whitney, the superstar financial analyst who first warned how the real estate crash would create a disaster for U.S. banks, now warns of a looming sovereign debt crisis — but the sovereigns she refers to are not Greece, Ireland or Portugal. They are California, New Jersey, Illinois and Ohio.

In a new 600-page report (which I am trying to lay hands on), she argues that the next systemic risk in U.S. finance is state and municipal government. In an interview with CNBC, she said she sees scary parallels between the fiscal condition of states/municipalities and the banks, including widespread off balance-sheet borrowing and a lack of transparency. Indeed, no one — including the bond-rating geniuses at Moody’s, Standard Poor’s and Fitch, I might add — had compiled all the information she believes is necessary to truly understand the risk. So, she set the staff of her boutique firm onto the job. “The Tragedy of the Commons” is the result.

Fortune magazine has the best coverage of the report. Whitney rates the condition of the nation’s largest 15 states (as measured by GDP) on four criteria: their economy, fiscal health, housing and taxes. Only two states — Texas and Virginia — get positive ratings. The states with the worst ratings are, in order of awfulness:

California
New Jersey, Illinois, Ohio (tie)
Michigan
Georgia
New York
Florida

The middling states are Washington, North Carolina, Pennsylvania, Maryland and Massachusetts.

There is a giant gap between the states’ spending and tax revenues, which she estimates at $192 billion, or 27% of their budgets, for fiscal 2010. That pressure will continue building, especially upon municipalities that rely upon property tax revenues, as real estate market continue to implode. Whitney expects the states to look after their own finances first, leaving many cities to fend for themselves. Accordingly, she expects municipalities could start defaulting on bonds in large numbers.

The worst-off jurisdictions are states and municipalities where housing prices grew the fastest, tax revenues and spending soared, and local governments borrowed heavily to finance the growth. The collapse of housing prices and property tax revenues leaves them the most exposed.

The Obama stimulus package gave states a reprieve in fiscal 2010 by making up roughly one-third of their budget shortfall. On CNBC, Whitney speculated that there will be intense political pressure in Congress for another bail-out, but that would simply transfer liabilities to the federal government, which has its own balance sheet issues, and create even more moral hazard.

The Old Dominion may be better off than most other big states, but that is no reason for Virginians to rest on our laurels. No one to my knowledge (other than Whitney, perhaps) has recently calculated how much debt Virginia’s cities, counties and independent authorities collectively have accumulated. And no one has carefully examined the consequences of still-falling real estate prices on the ability of Virginia municipalities to carry that debt. We may be OK. But, then, we might not be. It should be a top priority of Gov. Bob McDonnell’s commission on government reform and restructuring to find out

This just in from Bloomberg BusinessWeek: “TARP’s bank bailouts are turning a profit and TARP overall may cost about $50 billion, hardly the boondoggle many pols charge.”

In a core plank of the “Pledge to America” unveiled earlier this month, the GOP leadership of the House of Representatives promised to repeal Obamacare and put in place “real” health care reform. Insofar as Obamacare represents a massive transfer of wealth and gums up the health care industry with over-regulation, it does need to be scrapped, shredded and incinerated.

But the Pledge’s idea of what constitutes reform inspires little confidence that Republicans have a credible alternative to runaway costs and shrinking access to health care. Indeed, the vacuous verbiage of the Pledge suggests that its authors have only the most superficial understanding of what ails America’s health care system and will fail miserably to fix the problem when they take charge of the House next year, as they seem poised to do.

The Pledge’s critique of what’s wrong with Obamacare was mostly on target. The new law will raise taxes and increase costs. Because it will barely pay for itself, if at all, the law does not seriously address the nation’s long-term fiscal crisis. While expanding benefits for some working Americans, Obamacare strips Medicare Advantage benefits for millions of seniors. (The GOP could have broadened its indictment by noting that the “reform” also will discourage innovation and competition by driving many small insurers and physician-owned hospitals out of the marketplace.)

But the Pledge omits any mention whatsoever of a revolution in thinking that has emerged from the health care industry: The way to contain escalating medical spending over the long run is not through traditional cost-containment measures but by bringing productivity and quality up to private-sector standards. It’s as if the Republicans had been put in charge of building the world’s most powerful bomb during World War II and they tried to tackle the job without alluding to nuclear fission.

Let’s cover some of the Pledge’s concrete ideas:

Enact medical liability reform. Congress has largely missed the boat. While Congress dithered, many states have already reformed their laws, with the consequence that the worst abuses have been curtailed. Tort reform might help on the margins, but it will not create the massive savings that congressional Republicans think it will.

Purchase insurance across state lines. Republicans contend that opening up health care insurance to competition across state lines will allow consumers to buy lower-cost plans with fewer state-mandated requirements from insurers in other states. State mandates are a very real problem. But if this reform were enacted, the medical lobbies would simply shift their attention from state governments to Washington, D.C. Over time, mandates would become national in scope, obliterating the pockets of lighter regulation that now exist.

Expand Health Savings Accounts. HSAs do encourage enrollees to exercise more care as consumers: buying generic drugs, using urgent care centers instead of emergency rooms, shopping for the best deals on labor and delivery, and the like. But those savings apply only to the simplest and most routine of encounters with the health care system. Americans lack the information to make intelligent consumer choices based on price and quality of care for cancer, heart bypass surgery or even the treatment of chronic disease like diabetes or kidney failure, which account for the bulk of health care spending.

These ideas may do modestly more good than harm, but they will fall far short of transforming the healthcare industry on the sweeping scale that the country needs to avert fiscal calamity. Congressional Republicans have failed to articulate a vision for entrepreneurial, market-driven change as an alternative to Democrats’ vision of bureaucratic, top-down reform.

One last point: Obamacare has enacted a component that is essential to evolving a market-driven health care system: a mechanism for collecting and publishing medical outcomes data. Patients cannot exercise informed consumer choices without knowing how hospitals and doctors compare in the quality of the care they deliver. It will take years to put this mechanism into place. It would be insanely self-defeating for Republicans to scrap this and other productivity/quality initiatives in their zeal to repeal Obamacare. But the hatred of Obamacare burns so fiercely that congressional Republicans appear likely to indiscriminately jettison the good with the bad.

So, we finally know what the Republican congressional leadership has in mind for fixing America’s problems. “A Pledge to America,” unveiled earlier this month, sets clear-cut priorities: creating jobs, reducing the size and scope of government, repealing Obamacare, keeping America safe and restoring trust in Congress. It’s a pretty good set of priorities, and the specifics are pretty good as far as they go. But make no mistake: This is not a revolutionary document. This is not Rep. Paul Ryan’s “Roadmap for America.” It is, more or less, a promise to return the U.S. to the way it was… under George W. Bush.

“A Pledge to America” sounds the right rhetorical notes. On the economy: “Washington’s heavy-handed approach is not working. … It is time to end this liberal Keynesian experiment and stop the attacks on our employers. … We need private sector jobs, not more government.”

And on the national debt: “Our debt is now on track to exceed the size of our economy in the next two years. The lack of a credible plan to pay this debt back causes anxiety among consumers and uncertainty for investors and employers.”

All very true. But the Pledge disappoints. It is like persuading a smoker to cut back from four packs of cigarettes a day to three — he will still end up with cancer. To maintain long-term credibility with bond investors — the guys who bankroll the national debt — the U.S. needs to close a budget gap of roughly $1 trillion through reduced spending or higher taxes. The Pledge barely makes a down payment on that sum. The most substantive deficit-cutting proposal in the entire document vows to cut government spending to pre-stimulus, pre-bailout levels, saving $100 billion a year.

One hundred billion dollars down, only $900 billion a year to go.

Otherwise, the GOP Pledge promises mainly to stop throwing more money onto the bonfire — cancel unspent stimulus funds, scrap what’s left of the Troubled Asset Relief Program (TARP), end subsidies to Fannie Mae and Freddie Mac, and trim Congress’ own budget. Longer term, the Pledge would endeavor to restrain future spending growth by applying “strict budget caps” to limit federal spending on an annual basis, imposing a hiring freeze on non-security federal employees, and adopting sunset legislation.

Congratulations, Mr. Fireman, you have turned off the gas line that has been feeding the blaze. How do you actually propose to put out the fire?

Oh, and then there’s this hard-hitting promise to the American people:

We will make the decisions that are necessary to protect our entitlement programs for today’s seniors and future generations. That means requiring a full accounting of Social Security, Medicare and Medicaid, setting benchmarks for these programs and reviewing them regularly, and preventing the expansion of unfunded liabilities.

That’s it, the full sum and substance of what the Pledge has to say about entitlement reform. Wow, a “full accounting.” Benchmarks. Regular reviews. That will reassure hard-nosed bond vigilantes, for sure!

I acknowledge that Republican leaders must walk a fine line. They need to be specific enough to make it look like they’re serious, but vague enough to avoid giving Democrats any ammunition. My problem is that the Pledge shows no indication that its authors fully comprehend just how serious the country’s fiscal condition is, how small the window of opportunity is for fixing it, or the magnitude of the changes that must be made.

Publishing “The Pledge to America” actually may be worse than doing nothing at all. It creates the illusion that Republicans are serious about correcting the nation’s grievously flawed fiscal imbalance. In so doing, it displaces any serious discussion about the radical surgery that we need to perform. Returning to the fiscal condition of 2007 will not begin to undo the damage we have afflicted upon ourselves.

(This column was first published in the Washington Examiner.)

Some things don’t change.

President Obama recently reprised his proposal for a longer school year. On Monday, Barack Obama was interviewed on NBC’s “Today” Show where he explained that a longer school year for American children would help close the gap between US school-children and kids from other countries. You can read more here.

This is not the first time that President Obama has made this point. In March, 2009 Obama made essentially the same point. The matter was reported by the Seattle Times. The article can be found here.

Barack Obama is basically right with his belief that American children spend too little time in school. However, he’s only scratching the surface. Our problems in education go beyond the hours per day or months per year that school is in session.

Here are just a few additional ideas for President Obama to consider:

Schools should be competitive. Many Americans wring their hands over the strengths of Japanese school-children, especially in math and science. Since I happen to be in Japan I asked a few people about the schools here. Their descriptions of education in Japan went beyond mere months per year. Japanese students must apply to the best high schools. And where you go to high school has a big bearing on where you’ll go to college and end up in life. This is Thomas Jefferson or Maggie Walker writ large. When I asked if this was fair they bluntly said, “No, but life’s not fair either.”

Schools should be intense. A Frenchman told me of his daughter’s semester abroad in America. She described her time in a top grade American school as a vacation. Her assigned homework was much less in America than in France. She loves her expanded social life but understands that her studies are slipping while she slacks off in America.

Schools should use cutting edge technology. One of my friends has a son attending a private school in Northern Virginia. Mandatory laptop computers for every high school student. The lessons are online, there is online tutoring and some homework assignment questions are instantly graded as either right or wrong – with an explanation. A new netbook computer costs about $450 (retail) and (arguably) could last all 4 years of high school. Is this really too much?

Teachers should be paid for performance. The teaching profession has become old, stale and obsolete in the United States. In New York City it’s so hard to get rid of under-performing teachers that there are special “rubber room” buildings to stockpile teachers while their performance reviews drag on – sometimes for years. You can read more here. Bad teachers should be dispensed with quickly. Good teachers should be paid more than they presently receive.

Barack Obama is wrong about many things. However, his continuing focus on education is admirable. I especially applaud his practical thinking – if you want to be good at something spend more time doing it.

Education is the only long term antidote to Boomergeddon.

USA Today has done a public service by investigating what NCAA schools spend on athletic programs. Among the findings, several Virginia universities support athletic programs through mandatory fees. Six schools — Radford, James Madison, Norfolk State, Longwood and VMI were mentioned by name — charged $1,000 or more in the 2008-2009 school year.

Bereft of ties and jackets, the three, trim congressmen, coyly glancing this way and that, stride purposefully toward the camera. “These are, The Young Guns!,” says the announcer in an authoritative voice.

It might have been a Saturday Night Live parody of a trailer for “The Magnificent Seven,” the classic Western movie. Instead, it is, in all seriousness, a Web-streamed ad for a new book by three very ambitious Republican congressmen, Kevin McCarthy of California, Paul Ryan of Wisconsin and Eric Cantor, the House minority whip and wunderkind from Henrico County.

Released this week, “The Young Guns: A New Generation of Conservative Leaders,” published by a division of Simon & Schuster, pushes the three reform-minded hotshots as the new generation of America’s conservative movement. Ryan, for instance, touts his own “roadmap” for America’s future while McCarthy tackles strategy. Cantor is the “leader” who admits that Republicans fell short on principles in the past and can do much better.

I haven’t read the book yet, although I tried to find it at my local Barnes & Noble today. According to reviewers, the trio has already raised eyebrows among the GOP elders for being so shamelessly self-promotional.

In their book, apparently, they rarely mention such Republican powers as House Minority Leader John Boehner, House Republican Conference chairman Mike Pence, RNC Chairman Michael Steele and Senate Republican Leader Mitch McConnell.

There also seems to be something ironic, if not downright amusing, about Cantor’s positioning himself as some kind of dynamic populist. Given the success of the Tea Party in ousting Republican mainstays in primaries this week, it might indeed be important to portray oneself as a man of the people. But Cantor’s anything but. As the representative of Virginia’s 7th District, he is about as radical as a bowl of Virginia spoonbread.

His chief aims have been to boost the interests of the monied classes in Richmond, mostly white Henrico County, where he was a real estate lawyer, and other places. He’s an accomplished fund-raiser and talks the usual GOP game about cutting budgets — until it hits home. He’s been a strong backer of federal spending for higher-speed rail so Richmond’s pooh-bahs can get to Washington for meetings without the hassle of Interstate 95.

And he has backed spending for a jet engine for the new F-35 fighter that the Pentagon doesn’t want. This is because Rolls-Royce, which would help make the engines, has its regional headquarters and is building a big manufacturing plant in Virginia.

In other words, “Young Gun” Cantor is very much a Main Street Republican.

The other odd thing is why he considers himself “young.” Cantor is 47 and McCarthy is 44. Ryan is just about to turn 40, making him the baby of the group, relatively speaking.

Peter Galuszka

Here’s a hot one for you: This January, the General Assembly will consider proposing a constitutional amendment. The so-called “Repeal Amendment” would give two-thirds of the states the power to repeal any federal law or regulation. Here’s the text:

“Boomergeddon” is getting traction in France.

Barring a legal miracle Teresa Lewis will be killed by the Commonwealth of Virginia on Sept 23. She will be the first woman executed in Virginia in nearly 100 years. One of the few hopes Ms. Lewis has left is a grant of clemency by Gov. Bob McDonnell. I believe Gov. McDonnell should grant clemency.

Teresa Lewis is a bad woman. On Oct, 30, 2002 two hired killers murdered Ms. Lewis’ husband and stepson. The killers were hired by Teresa Lewis for $1,200 and a promise to split the proceeds of the stepson’s life insurance policy. The murders were premeditated, cold blooded and heinous.

Teresa Lewis is guilty. In a plot line which could have come from an episode of Law & Order the murders of Julian and CJ Lewis involved sex, drugs and the suicide of one the hit men. However, in stark contrast to a Law & Order show there has never been much doubt about what happened on that October night in 2002. Teresa Lewis hired two men to slaughter her family. A more detailed account can be found here.

I don’t want McDonnell to offer clemency because Teresa Lewis is a woman. I could care less. I don’t want her life spared because she has an IQ of 70 or because she was addicted to prescription drugs at the time of the murders. I don’t care about the new theory that one of the hit men was the real mastermind and Teresa Lewis was a patsy.

I want to see Teresa Lewis’ sentence converted to life without parole because I don’t trust the criminal justice system. I don’t trust the lawyers, I don’t trust the judges and I don’t trust the police. At least, I distrust trust enough of the lawyers, judges and police to want to stop the Commonwealth from killing people in my name. My personal disgust with the whole system was born during the first OJ trial. However, that was far from the only miscarriage of justice which ought to give everybody pause.

In 1984 Earl Washington was convicted of murder and sentenced to death in Virginia. Like Teresa Lewis, Earl Washington’s “crime” was horrible – the rape and murder of a 19 year old mother of three in her home. Like Teresa Lewis, Earl Washington confessed. Like Teresa Lewis, Earl Washington had a very low IQ (in the general range of 69). Like Teresa Lewis today, Earl Washington was within 9 days of being killed by the state. However, Earl Washington did not murder Rebecca Lynn Williams. In fact, he was subsequently eliminated as a suspect in that crime. He was the mentally challenged victim of a rush to judgement which involved a series of abuses by “the system”. Once Earl Washington was exonerated by DNA testing (after 17 years on death row) the real killer was ultimately found. You can read about it here.

The simple and obvious fact is that Virginia has condemned people to die for murders they did not commit. Can there be any doubt that Virginia has also executed people for murders they did not commit?

I don’t want Teresa Lewis to get clemency because she’s not guilty. She almost certainly is guilty. I don’t want Teresa Lewis to get clemency because I am a liberal. I’m not. I want Teresa Lewis to get clemency for the most conservative of reasons – I don’t trust the justice system. And neither should Bob McDonnell.