Archive for the ‘Economics’ Category.

Bubble? What Bubble? This Bubble – CYNK

You may not know it but there’s a greater than zero chance that your 401k is invested in the following company: CYNK

CYNK “was founded as a web based social network that allows individuals to post a profile and link their profile to other friends and organizations.”

According to official filings it has 1 employee, no revenue, and no assets. Until June it was a stretch to call it a penny-stock. Today though it’s trading between $12-15 a share. It is at the time of this writing worth over $5 billion.

In case you are curious to what this looks like, here’s a quick chart of the stock.

What scares me is that someone is buying this stock, and while that person/algorithm may not lose his job, someone is going to get hurt once reality reasserts itself. When you have some commentators at ZeroHedge suggesting it would be immoral to short the stock, you know the situation is bizarre.

Update 7/11/2014: Trading has been suspended by the SEC. It is unlikely to resume. There are firms now holding around $5 billion of worthless stock in their portfolios. Those portfolios represent the sweat and hard work, money earned by real people that cannot be recovered. Let’s just hope that most of that $5 billion was instead owned by the idiots blowing up the current stock market bubble.

Update 7/15/2014: This trader lost his job by shorting the stock too early and getting burned on it the next day during a short squeeze. Of course he doesn’t blame himself; he blames the SEC even though, to quote the now unemployed trader, “My 10-year-old knew it was a scam. It was a complete joke.” Yet neither he – nor the investors who paid for his stupidity – are laughing.

SCOTUS Hobby Lobby Decision Proves Flaw of Employer Based Health Insurance

Although I support the Hobby Lobby decision rendered by the US Supreme Court, the decision merely points to a bigger problem: employer based health insurance. As an IT professional I have frequently switched jobs or worked for myself, and the health insurance coverage available to me is expensive and often non-existent. I have bought health insurance on the individual market exactly as I do with my car insurance, and the fact that the individual market is regulated to death, provides little competition unlike the auto insurance market and is outrageously more expensive is puzzling. I can spend 15 minutes to save 15% on car insurance yet it would take me twice as long to find a provider in my area and determine which insurance products were available to me then cost me twice as much just doesn’t make sense.

Paul Waldman writing for the Washington Post points out that employer based health insurance is rare in the industrialized world and is the result of an accident of history.

 

The system has its real roots in World War II, when the government imposed wage and price controls. Although there had been some health insurance plans sold through employers before, when companies couldn’t offer increased wages during the war, they began offering health benefits instead. When the IRS ruled that those benefits didn’t count as income and so were tax-free, the momentum toward employer-sponsored insurance was all but unstoppable (the deduction for employer-provided coverage is now the largest tax expenditure in the federal budget, dwarfing even the mortgage interest deduction).

 

Waldman points out that through employer based health insurance I use pre-tax dollars to pay for the insurance whereas when I buy on the individual market I have to use post-tax dollars. This makes any health insurance I purchase on the individual market more expensive depending on my tax bracket.

Now we have the IRS involved in our health insurance system. What next? The EPA to regulate the amount of carbon dioxide we exhale? The NSA to handle our medical records? How about the VA to handle appointment scheduling?  It seems to me you couldn’t design a worse health insurance system than the one we have today.

So conservatives shouldn’t cheer the Supreme Court’s decision to loudly and liberals should stop freaking out. Instead they should work together to end this crazy legacy of World War 2 so that companies can focus on making money and employees can take care of themselves as they see fit.

Update: Laurie Rice, writing for the Atlas Society, adds this:

(G)overnment involvement in the market is the reason why so many women have to get insurance through their employer in the first place. That government involvement in women’s health means today’s contraception victory is tomorrow’s political bargaining chip, to be traded by people like Kathleen Sebelius. That state power is more inescapable, more inflexible, and more insidious to women’s freedoms than any Hobby Lobby conservative craft store could ever be. Feminists need to embrace free-market capitalism.

 

Feminists need to embrace free-market capitalism? Given the alliance with Big Government and Leftism I’m not holding my breath.

Immigration For Idiots

Because Evidently Smart People Have Gotten Really Stupid About the Subject

Imagine you arrive at work one morning to find a group of people standing around your desk or workstation. You notice similar groups standing around the desks of your colleagues. Everyone is perplexed. Finally your boss arrives and explains, “These are your potential replacements.” She points to one, “See Miguel here? He’s actually a harder worker than you are and is willing to work for half of what I pay you. Sure his English isn’t the best, but Rosetta Stone Spanish is half-price on Amazon right now, Eso es mucho, ¿eh Miguel?” Miguel nods vigorously.

“The only thing holding me back from hiring him is immigration reform,” she says, “But since both parties are committed, I guess it’s only a matter of time…” She walks away, then says over her shoulder, “Oh, and until it’s passed you might want to remember Miguel and his amigos when you come to my office for your next evaluation.”

We like to believe we are indispensable in our jobs, that the company cannot run without us. The truth is that unless you work for yourself your company CAN run without you, and in many cases may do so better. The only reason you have a job is that the company you work for gains more from your labor than the cost of employing you. So if it pays you $20 an hour, it expects to make at least that back through your labor. If it doesn’t you won’t have a job for long because the company will go out of business. Say it makes a 25% return on your employment, netting the firm $5 an hour after paying you your wage. Would it pass up an opportunity to pay less for your position, say turning that 25% return into a 100% return by paying $12.50 an hour?

This is an oversimplification of course. Many employees don’t make their firms any money at all. If you are in infrastructure, whether a middle manager or an IT developer, you are only employed until your company figures out how to get rid of your position. Somewhere within your company someone is trying to figure out how to do away with your job in the name of “streamlining” or “efficiency.” It’s no different to what you do at home when you look at your bills and try to figure out how to make your money go farther. Your position is an expense, and right now it’s necessary, but it won’t be forever of course. And in the meantime your firm will do whatever it can to maximize profits while minimizing costs, and your salary or wage is a cost that it will work very hard to minimize.

The Labor Market is no different than any market. The price of anything on the market is determined by its supply and demand. If the supply is plentiful, it’s price will be relatively cheap. As it becomes rarer, the price rises. For those of us who have grown up in free(ish) market economies we take this fact for granted for everything from gasoline to gold. But for some reason when it comes to jobs we get stupid about it.

In a free market whenever there’s a shortage of something, whether it’s pork bellies or Playstations, the price skyrockets. For the past 15 years high tech firms have been complaining about labor shortages in the STEM fields, and call for increased numbers of H-1B and J visas to fill the supposed shortage. If this were true we would expect that the salaries for such jobs would be sky-high.

The Chronicle for Higher Education investigated the STEM field labor shortage claims and concluded the STEM labor shortage is a myth. Salaries in these fields have been stagnant and in many cases, in decline. So why do so many people believe the myth? “The claims about STEM shortages come from employers, along with their lobbyists and trade associations, claims Michael Teitelbaum, who a fellow in science policy at Harvard University and a senior advisor at the Alfred P. Sloan Foundation.”

There is no labor shortage, just a shortage of labor willing to work for the wages set by companies. Companies want to pay their employees less, and the only way to do that in a free(ish) market economy is to boost the potential supply of its workforce. Why wouldn’t it support immigration reform if it meant more aspirants for your job? This potential pool of applicants allows it to find a cheaper replacement for you or at the very least keeps you from asking for a raise.

Why Unions Support Immigration Reform

Today’s unions aren’t your father’s grandfather’s unions. Back in the day unions raised wages and working conditions for their members because they controlled the supply of labor either directly, by determining whether their members worked, or indirectly by making crossing a picket line dangerous to one’s health. They also fiercely resisted immigration, viewing immigrants as increasing the labor supply and driving down wages for their members.

Today’s unions are pale shadows of their former selves, representing only a sliver of the non-government workforce. Because they can no longer control the supply of labor in most industries, it only makes sense for them to focus on the low paying service industries where they can still exercise some control. These industries happen to employ the most illegal immigrants, so starting a decade or so ago, the unions gave up their resistance to immigration and embraced it.  Now unions like the SEIU see each illegal immigrant from Honduras or Mexico as a dues paying member. Since the minimum wage provides a floor to wages, the unions no longer have to worry about decreasing labor supply to boost wages; they’ll just push for a higher minimum wage, and that’s exactly what the unions have done. The primary weapon of unions is no longer a picket line, but the cash desperately needed by politicians to win elections.

By expanding their rank and file with immigrants, the unions then have the cash to provide to politicians who can then raise the minimum wage to boost the salaries of its members. From the perspective of the rank and file, the union leadership and the politicians who receive their cash, everybody wins. The only losers are the middle class consumers who pay more for goods and services provided by unionized companies as well as pay the higher taxes required to support the large cheap labor pool, and the constituents of the politicians who are in the pockets of the unions.

 Why Liberals Support Immigration Reform

Let’s face it, these immigrants aren’t coming from places where Ayn Rand and Adam Smith are cultural icons. They are coming from collectivist societies where Che Guevara is more than an image on a t-shirt, used to living under strong states, albeit ones with failed policies bad enough to drive them to risk everything to cross our border. The teeming masses awaken the natural impulse within liberals to help, and that help in the liberal’s mind can only come through a strong, all-encompassing State. Liberals also don’t like borders, viewing nationalism as a scourge that will eventually disappear along with such barbarities as the Plague and GMO food. Modern liberals are by nature trans-nationalists, and nothing is more trans-national than a bunch of brown people who have suffered under the neo-colonial policies of the Western Powers flooding into the USA. Each Mexican or Honduran represents a chicken of past colonial aggression coming home to the United States to roost.

Additionally, hard core Leftists believe the Marxist interpretation of Capitalism that inequality deepens as wealth follows its natural tendency to accumulate with the upper class, and that it’s the job of the State to confiscate that wealth and redistribute it to the lower classes. Marx himself viewed this as an untenable state of affairs that would eventually lead to communism and the concept of wealth would disappear and vegan unicorns would frolic in a low-carbon world.  Until that time the State would tax the bejeezus out of the wealthy and hand it over to the poor in welfare payments. More poor immigrants require more taxes from the wealthy, helping make that Communist Paradise one-step closer to reality.

Of course all liberals aren’t steeped in liberation ideology and the politics of identity. To Democrats each immigrant is a potential Democratic voter. Immigrants traditionally vote Democrat at least for a generation or two until they assimilate. Pew Research finds 31% of illegal immigrants self-identify with the Democratic Party vs. 4% for the Republican Party. Converting those illegal immigrants into voters has the potential to make the Democratic Party the majority party in the US and consign the Republican Party to History’s wastebasket. Given the potential payoff Democrats would be stupid not to support immigration reform, and for all its faults the Democratic Party has never been known for its stupidity.

The Stupid Party of American Politics

And why is the GOP establishment keen on immigration reform? Because the Republican Party is the Stupid Party in American politics. The GOP’s Big Business/Big Government wing is determined to push through reform in order to provide its corporate base with the cheap labor it demands even if it means the party’s suicide. While the libertarian/populist/small government wing of the party fights back in primaries, showing its power in Eric Cantor’s primary loss, the GOP establishment believes that it must pass immigration reform to continue receiving support from its corporate patrons and to counter the Democrats charge of racism. It pins its hopes on the social conservatism of the Hispanic community, that the community will see what swell, non-racist guys the party is and will switch party affiliation. This has about as much chance of happening as Joe Biden winning the presidency in 2016.

So there you have it. Hopefully this article adds some clarity to the issue. Where your opinion falls should reflect whether you compete with immigrants for your job or not. If you don’t, then you should favor their arrival. But if you do, you should think twice about supporting immigration reform you racist.
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In 2003 after being forced to train his own replacement on an H-1B visa, Scott Kirwin made the cover of Wired Magazine and founded the IT Professionals Association of America and worked for 3 years to counter the myth of the high-tech labor shortage. In 2006 he threw up his hands and quit, having received little support from IT professionals and lots of badly written though amusing threats from Indian workers.

 

 

 

 

 

 

Guess I Am Racist Too

Allison Pearson writing for the Daily Telegraph lays out the end result of political correctness run amok in her piece, Are We All Racists Now. She starts with a conversation between her children, her mother and herself when  her kids call her mother “racist” for using the term “negro spiritual.”

“Grandma is not racist…“Heinrich Himmler is a racist. Grandma, not so much.”

“Who’s Henry Himmer?”

“Heinrich HIMMLER was a foul, Jew-exterminating, Nazi fiend whom your grandmother’s parents and their whole generation fought a world war to defeat in order that she could sit here 70 years later and be called racist by her sanctimonious and ungrateful grandchildren. Anyone for crumble?”

She then takes on the rising tide of the European Right which makes me wonder whether Great Britain’s experience be the future of America’s.

As shell-shocked politicians from the main parties struggle to discern the causes of Ukip’s deafening electoral success, here’s a tip: look in the mirror, chaps! It is politicians, not the British people, who are to blame for a resurgence in racism; politicians who have ignored public opinion and created the conditions in which resentments fester and grow. Specifically, though not exclusively, it is New Labour who welcomed workers from the new, accession countries of the EU at a time when countries such as France and Germany wisely exercised their right to keep them out for another seven years. According to Jack Straw, this was a “spectacular” error. And Jack should know, because he was Home Secretary at the time. The plan of Tony Blair’s government, as laid bare by Andrew Neather, then a Blair speechwriter, was to banish that old, hideously white, retrograde England and usher in a new, vibrant, multicultural country which, rather conveniently, would vote Labour. Mr Blair now works in international conflict resolution, having stored up enough conflict in his homeland to keep future generations busy for centuries.

America appears to be on the cusp of granting millions citizenship. The government is scrambling to care for tens of thousands of children crossing illegally into the US apparently in the hope of being granted citizenship. Pearson suggests that the elites in Europe have lost touch with the common people, and that the common people are beginning to revolt. And the Democrats and their Republican allies aren’t ready for it.

The Democrats see the demographics of the immigrants and become positively giddy. These immigrants aren’t coming from libertarian meccas like Switzerland. They are coming from collectivist societies where they were taken care of by the government so they’re expected to vote Democrat, although if that worked so well, why are they leaving? Big labor sees more dues paying members in the few remaining private sector unions.  The GOP supporters are in the pockets of big business. They see the world in purely supply and demand terms. By boosting the supply of workers the cost of labor will go down, which is just peachy for businesses that employ lots of low-skilled labor in the food processing, service and manufacturing industries.

Because of the demographics in my area, I tend to associate with some very decent people from humble circumstances. These people will be directly impacted by the immigrants. They will compete directly with them for jobs and will have to suffer lower wages as a result of the increased supply of labor. At the same time their taxes will go up to pay for the increased services consumed by the newcomers. Now imagine a situation where America was flooded by lawyers, businessmen and wealthy immigrants. The price of attorneys and salaries of company leaders would tumble, while at the same time the costs of beach homes in the Outer Banks and prime properties in the Hamptons and Cape Cod would skyrocket. One wonders whether the elites would brand themselves as “racist” for questioning the flood of immigrants as those on the Right here and in Europe have been.

Such a wave of high-skilled, wealthy immigrants isn’t possible. The door has always been open for those, and there simply is fewer of those than there are low-skilled and unskilled poor people in the world. But it would be nice if the elites experienced life as an ordinary citizen or even TRIED to imagine life. I suppose it’s much easier to turn them into non-entities, vaporizing them in a flash from their thoughts with the term “racist.”

No Sympathy for Fast Food Worker Strike Here

Today fast food workers are striking in several US cities according to USA Today. “Naquasia LeGrand, 22, of Brooklyn, says this was her sixth strike since 2012… “These corporations are taking everything from us. They are making all this money.”

Like many Americans I have worked jobs for minimum wage, and once was held up at gun point for the trouble. But also like many Americans, I got an education and developed skills that were worth much more to an employer than minimum wage. And even as I approach the mid-century mark I’m still learning. I recently added a skill to my resume that should make me even more attractive to potential employers in the future.

If Ms. LeGrand used the time she spent on striking (6 strikes in 2 years? I doubt UAW workers struck that much back in the ‘70s) to learn marketable skills instead of striking she wouldn’t have to worry about the government setting her wage; she would be able to set her own.

And that brings up a second point. Ms. LeGrand and her striking comrades betray a failure to grasp basic economics when they say corporations are “making all this money.” According to Entrepreneur less than half of food franchise earn profits of more than $50,000 per year. This may sound like a lot to someone earning minimum wage, but it’s not when you factor in start up costs of $500,000 to $1,000,000. To get that start up capital fast food franchisees often cash in their 401ks and borrow against their homes. If their store goes bust it’s not Subway or McDonalds who loses their retirement nest eggs and homes. Risking financial ruin for $50k a year doesn’t seem worth it to me, especially when considering the long hours franchise owners put in often working for free.

There’s something wrong with making a career out of minimum wage jobs. These jobs are meant to be a starting point in one’s working life and provide supplemental income for those who have retired and want to remain active. They provide flexible hours that students and retirees need but those in their working prime don’t, and teach basic skills like customer service and basic professionalism that are needed in better paying jobs. Unionizing might appeal to union bosses whose salaries come out of the checks of workers, but it shouldn’t to anyone who wears a name tag and says “Would you like to supersize that?” as part of their job.

Update: Some in favor of  raising the minimum wage point out the average age of a minimum wage earner is 35, and 36% are 40 or over. What they don’t say is the number of retirees making the wage, which would skew the average age upward, nor do they state the median age of a minimum wage worker. Another useful statistic would be the average length of time these older workers spend earning minimum wage.

We are not a feudal society. There is social mobility between classes. Instead of providing anecdotal evidence of 35 year old mothers of 4 making minimum wage they should determine why these people are making minimum wages in the first place. If they are stuck earning minimum wage, figure out why. Do they lack education? Adequate child care? Are they recovering from addictions or returning to society after being imprisoned?

If we as a society want to improve the lot of the working poor, we shouldn’t be flooding the market with low-skilled immigrants who compete for the jobs of American citizens and keep wages low. Yet the very same voices calling for a higher minimum wage are the ones calling for amnesty for illegal immigrants.

 

The Coming Two-Tiered Medical System

Scott W. Atlas, writing at the Wall Street Journal, warns about the coming two-tiered medical system.

About one-third of primary-care physicians and one-fourth of specialists have already completely closed their practices to Medicaid patients. Over 52% of physicians have already limited the access that Medicare patients have to their practices, or are planning to, according to a 2012 survey by Merritt Hawkins for the Physicians Foundation. More doctors than ever already refuse Medicaid and Medicare due to inadequate payments for care, and that trend will only accelerate as government lowers reimbursements.

In order to cut costs insurance plans are narrowing their networks, removing access to the best hospitals in the country (including Barnes Hospital in my hometown.)

For cancer care, the overwhelming majority of America’s best hospitals in the National Comprehensive Cancer Network—including MD Anderson Cancer Center of Houston, New York’s Memorial Sloan-Kettering, Barnes Hospital in St. Louis, and the Seattle Cancer Care Alliance uniting doctors from Fred Hutchinson Cancer Research Center, UW Medicine and Seattle Children’s—are not covered in most of their states’ exchange plans.

Elements of this are already in place. The best paying jobs on physician job boards are “closed practices” run by large companies for their employees, or concierge practices that do not accept insurance.

Meanwhile, concierge practices are increasing rapidly, as patients who can afford it, along with many top doctors, rush to avoid the problems of an increasingly restrictive health system. The American Academy of Private Physicians estimates that there are now about 4,400 concierge physicians, 30% more than last year. In a recent Merritt Hawkins survey, about 7% to 10% of physicians planned to transition to concierge or cash-only practices in the next one to three years. With doctors already spending 22% of their time on nonclinical paperwork, they will find more government intrusion under ObamaCare regulations taking even more time away from patient care.

Moving towards socialized medicine inevitably leads to a two-tiered system. Having lived for 5 years under socialized medicine in Japan, I’ve seen the both tiers, and the quality of care diverged significantly between them to the point where we chose a private hospital for the birth of The Kid. The only question will be whether the quality of care good enough for the vast majority of Americans, or the care will stagnate and decline as the best and brightest health care providers move into the higher-paying private practices and hospitals.

A Concise Review of Flash Boys by Michael Lewis

Wall Street is rigged more than you thought and at lightning speed.

Obamacare Tax Is Here for Individuals Too

Pity the small business. The federal government treats small business owners as cheats and shows them no mercy. Every month small businesses regardless of size must file payroll taxes which include the other 7.5% of each employee’s FICA plus withholding taxes. Every quarter the business also must file estimated taxes for the current fiscal year. Life is simpler for W-2 employees. Most of the work is hidden from them because if the average worker was responsible for carrying his or her share of the burden to comply with local, state and federal regulations, there would be riots in the streets. So instead governments burden the employers who must write it off as the cost of doing business in our society, and workers believe their tax refund is a “gift” from a benevolent government.

Much is being said about Matt Drudge’s “Liberty Tax”, and it’s clear that none of the critics have ever had to file a small business corporate return. If they had they’d understand how taxes are collected in this country and would recognize that Drudge isn’t lying. One issue I haven’t seen mentioned, however, is the individual penalty. Although Congress has raised the issue of delaying the individual penalty for those who opt out of Obamacare, it doesn’t appear likely to pass anytime soon, meaning that the penalty is already in force. We just don’t feel it yet.

Those who opt out, or carry a policy that doesn’t meet Obamacare’s minimum criteria of providing maternity care to men or Viagra to women, should increase their withholding amounts immediately or risk a surprise tax bill next year. How much will the penalty be? Here is an ACA Penalty Calculator that will estimate the amount due next year. For example, if you are filing as single with no dependents and make $75,000 this year, you will pay an additional $649 in 2014 rising to $1,339 next year and $1,725 the year after that (assuming 3% wage growth). Assuming the worker didn’t want to be stuck with that bill and was paid 26 times a year, she’d have to boost her withholding amount by another $25 a check this year, another $26.50 the next, and another $15 in FY2016. Things get complicated real quick with other permutations. Nothing the IRS does is simple, and handling Obamacare penalties is no different.

Most people don’t think about taxes until a few weeks before they are due, so I don’t expect this issue to get much airplay until early next year. But if you don’t have employer-sponsored health care or your plan isn’t qualified, then don’t kid yourself. You’re paying the penalty now.

 

What Pro-Life Groups Can Learn From Death Penalty Opponents

NPR ran a story about the difficulty state governments are having acquiring the drugs they need to execute criminals using lethal injection. No American pharmaceutical companies make the drugs, and the EU bans their sale to US authorities because capital punishment is illegal in the EU. The sensible choice would be for states to source the drugs from China, which executes more people than the US and harvests their organs to boot, but currently the quality of the drugs is below standard.

Perhaps the Pro-Life movement could learn from the EU and target the makers of equipment used in abortion. Companies are very sensitive to bad publicity, especially over sales that provide a tiny fraction of their profits, and it wouldn’t take much effort on the part of Pro-Life groups to make it more difficult for abortion clinics to buy or repair equipment.

As for the states, they can get by on firing squads, the gas chamber or the electric chair. Sure the condemned prisoners will suffer more but at least death penalty opponents will be able to sleep at night, at least until the Chinese pharmaceutical companies take over.

 

The Dollars and Sense of a College Education

If you peruse this website you’ll see I think deeply about many subjects. Two subjects that are dear to my heart are medicine and higher education. Why? The first is obvious: I’m married to a doctor and have a nice perch from which I can view the industry’s operation and development. The second is not so obvious. Although I am a college graduate I have no particular love for my alma mater. In fact when I visited it a few years ago I was surprised by how little a connection I felt on campus. It had changed as I had, but there was something else. I felt that I had been processed, just one of thousands that graduated from the university that by-gone year. It was a very mechanical operation. I paid my money, got my card punched for the required classes I needed, and received a certificate and a handshake at a forgettable ceremony at the end.

Yet I still think about and worry about higher education. I recognize its importance in a free society, which is why I rail against its takeover by leftists and fret over its cost. I also I have a child who will soon be college age, and so I’m mindful about the choices and opportunities higher education offers him.

Medicine and higher education also share one thing in common. Their prices are completely opaque. I recently lost my health insurance as a direct result of  Obamacare, and as I get older I worry more about how long my body can last without seriously breaking down. Take for example a hernia repair. I had one done in 1999 and was similarly under-insured at the time. The price back then was $3,000 and was split 50-50 between my insurer and me. As I begin to prepare the farm for Spring (funny to think about considering I’m waiting to be walloped by a deadly winter storm as I write) I’m moving heavy things around. Every once in a while I get a twang in my lower gut on the opposite side of the repaired hernia and it scares me.

How much would a hernia operation cost me today?

I have absolutely no clue. I can go online and find the price of nearly any car. I can search real estate sites and learn the prices of houses in any neighborhood in North America. I can even find out how much companies charge to clean out my septic tank, but I cannot tell you how much the local hospitals are charging for hernia repair. All I know is that it’s probably going to cost me more than $1,500. Probably a lot more.

Why is this?

Similarly I can look up the cost of tuition at any college or university in North America. In many cases such numbers aren’t easily found, and when they are they really don’t mean much. For one thing the costs don’t include many mandatory fees that one has to pay. They also often don’t provide the cost of living one has to pay to attend. And finally, the tuition figure is a lot like “manufacturer’s suggested retail price.” Hardly anyone pays that number except for wealthy foreign students who tend not to be price sensitive thanks to their parents being members of some kleptocracy in the Third World. In most cases the cost of tuition will be lowered by need-based grants or scholarships.

Other costs are never mentioned. For example opportunity costs. For arguments sake let’s imagine that my son will attend college and graduate in four years. Not only will I have to account for the direct cost of his education such as tuition, fees and books, but I’ll have to include indirect costs like room and board, transportation, food, entertainment, clothing etc. On top of that there’s the cost of lost wages. During those four years he could have worked full time and earned say, $20,000 a year. That’s $80,000 in earnings he’s forfeited and that he will have to make up through better earning power of his degree. If he graduates and earns just $20k a year, then he’s wasted his time and I’ve wasted my money.

But by far the largest unmentioned cost is compound interest. As Einstein once said compound interest is the most powerful force in the Universe, and anyone who’s ever paid back a student loan knows he was right. Every month I cut a check to pay back the Wife’s medical school loans and the balance barely budges, and the reason it doesn’t is compound interest. Students may not understand that when they borrow $10,000 at 5% interest to attend school, they aren’t paying back $10,500 after they graduate. While they are in school that loan is capitalizing, and the interest is compounding so that by the time they pay back that $10,000 loan ten years after graduation they will have paid back $20,000 on top of the $10,000 they borrowed.

So how much does a year of college really cost?

Again, it’s difficult to say. The best I can do is estimate it.

I’ll start with my alma mater, University of California – San Diego which is to education what factory farming is to the poultry business. UCSD off-campus cost including tuition, estimated room, board, transportation is roughly $30,000 for the 2014-15 school year. I’ll assume my kid gets some grants, knocking the cost down to $25,000.

Say I throw in $15,00o leaving him to come up with $10,000. Since he’s a typical teenager, he won’t understand compound interest, so he’ll borrow his $10k and pay it off after he graduates. Because it will take time for him to pay it off, that original $10,000 will become $30,000 by the time he authorizes the last debit to his account for his student loan creditor. Adding in my original $15k means his year at my alma mater will really cost us both $45,000.

To reiterate, that’s the cost for one year at a public school in California based on the following assumptions:

  1. He graduates in 4 years. This is a big if these days. Many kids are taking 6 years or longer. The longer they take, the worse the compound interest on their student loans as the interest on the deferred loans compounds while they are in school.

  2. He gets $5,000 or roughly 17% in need based grants or scholarships. UCSD provides need-based aid to 70% of undergraduates, and some of that includes loans according to an admissions officer at the university I spoke to.

  3. I provide $15,000. That’s more than my entire stay at UCSD cost back in the 1980’s by the way…

  4. He borrows $10,000 and takes 10-15 years to repay it.

One of the dirtiest yet most effective ways to manage one’s time I’ve learned as a per-hour professional contractor is to determine the cost of whatever I’m doing or not doing in terms of a dollars per hour figure. What would it really cost my son to attend an hour long class at UCSD?

UCSD requires 180 units to graduate. So based on our assumptions that’s 45 units per school year of 30 weeks. Dividing the cost of the school year $45,000 by 30 weeks gets us $1,500 per week. In order to maintain our assumptions and finish in 4 years, our student will need to take 15 units per quarter, which translates into 15 classroom hours a week. Dividing the cost per week ($1,500) by classroom hours per week (15) provides us the cost of a classroom hour: $100.

We’ve all heard about dumb classes kids take.  Rutgers University is offering “Polticizing Beyonce” ostensibly to explore race, gender and sexual politics. Assuming Rutgers charges the same as UCSD, I wonder how popular the class would be if students had to peel off a Benjamin each time they entered the classroom. Would they be as willing to explore race, gender, and sexual politics in a classroom for the same price they could explore race, gender, and sexual politics with a moderately priced hooker in private? Granted one doesn’t have to worry about catching an STD by attending class; then again with some of the types I’ve seen on university campuses these days, I’m not so sure about that.

People alter their spending habits when they know what the price of something is and can estimate its value, and the fact that both are hidden from us whenever we consider medicine or higher education should make us stop and ponder “Why?” The free market is a ruthlessly efficient thing. If students had to pay for each class they took when they took it, one could bet that higher education spending would be revolutionized.

Universities would focus on providing better teachers that students would be willing to pay for. They would be forced to cut costs, cutting back on the administrative bloat that inflates the cost of tuition. After all, a typical undergraduate core subject class at UCSD might have as many as 150 students in it. Multiply that number by a $100, and it’s quite likely the adjunct professor teaching the class and the dozen graduate students TA’ing the course see a pittance of that $15,000, the TA’s working for free and the adjunct prof earning about $25/hour. Where did that $14,975 go?

It went several places. To pay down the loan on the new student rec center. To pay off the new training equipment for the track and field team. And on administrators, hordes of administrators, a veritable plague of administrators. As this article shows, a new study finds the number non-academic administrative employees at US colleges and universities has doubled at the same time the number of part-time faculty has grown from a third in 1987 to half of all teachers today. University presidents contend they are doing everything to cut costs, but Richard Vedder, an economist and director at The Center for College Affordability, calls them liars.

“I wouldn’t buy a used car from a university president,” said Vedder. “They’ll say, ‘We’re making moves to cut costs,’ and mention something about energy-efficient lightbulbs, and ignore the new assistant to the assistant to the associate vice provost they just hired.”

Some of my friends have commented that my arguments attack the liberal arts and that I focus too much on STEM courses that provide good job opportunities after graduation. I don’t have a grudge against the liberal arts per se. In fact one of the most useful courses in terms of my career as a systems analyst I ever took was a philosophy course on logic. Some of the English courses were excellent too in terms of value.  Being able to communicate to a broad audience is critical in business these days, yet so many students lack the basic ability of crafting a memo let alone being able to articulate complex subjects to non-technical audiences. If I could go back in time, I would happily peel off a Benjamin to pay for an hour of that logic course. It was worth it to me, and would likely be worth it to others. I’m advocating a system of price transparency and reform that will likely save such classes because the administrators who are waking up to the threat posed by parents like me are scrambling to cut costs by cutting teachers and courses instead of cutting their own jobs. Maybe Politicizing Beyonce is a great course well worth the cost, but the market, those paying for the class, should be given the opportunity to decide its true value.

Would a Different Software Methodology Have Saved Obamacare?

A long time ago I wrote a fiction novel. 120,000 words whittled down from about 175k. It turns out it wasn’t any good although looking at it now some 20 years later it does have its moments. A nice turn of phrase here, an interesting description there. Although it was never published it was written and stands complete. For a week I outlined the novel, sometimes working on chunks then arranging those into a puzzle with pieces missing. I then added scenes to link these chunks together to create a narrative that I thought made sense. After another week or so of arranging the outline, I sat down and every day wrote 2,500-4,000 words, starting at one in the outline and ending at the next. By following the outline and writing from one element to the next, focusing only on the goals laid out in the outline while avoiding detours caused by tangents that weren’t relevant to the plot or the characters, within eight weeks I had completed a rough draft of the novel. I then spent the next four years editing and revising it, reviewing and rereading and re-everything , doing anything I could think of to make the novel shine. But it never did. It was still terrible. Hackneyed and predictable plot. Unbelievable characters who would be complimented by being called “two dimensional.”

Fast forward two decades and I’ve achieved my dream of being a paid writer. Sort of. As a systems analyst in the financial industry I am paid to write requirements documents and detailed software specifications. I have put together specs longer than my novel that could be measured by their thickness in inches if anyone dared print them out (people stopped doing that about 10 years ag0.) I have also put together specs that could fit into a PowerPoint presentation with enough space for goofy stick figure clip art. What differentiates the two is not my writing skills or even the size of the project: it’s the software methodology used by the institution.

Basic software design follows this process: People get together and decide on a solution to a problem they have and create a set of business objectives. A typical business objective that I deal with might be, “Let’s cut down the time it takes to report on delinquent accounts to senior management.” These objectives then determine the business requirements (the “what” of the project) which determine the functional requirements (“how” the business requirements are achieved), followed by the detailed design specs which tell the developers and coders what they need to build. The coders then code following the design spec and afterward conduct basic tests on their code to make sure it functions. The testers then work backwards, creating a test plan based on the functional requirements, then actually test what has been coded to make sure what the developers and coders coded actually matches what was laid out in the functional requirements specifications. Wrap the whole thing in a traceability matrix that ties the project objectives to the business requirements to the functional requirements to the tech specs to the testing documents, add in issues tracking for the inevitable bugs found and corrected before rollout, and you have a software project.

In software design there are two fundamental methodologies: “waterfall” and “iterative.” Waterfall methodology uses the metaphor of a series of waterfalls with one waterfall feeding another downstream. This requires all the project objectives to be clearly defined at the beginning of the project, the “waterfall top.” It assumes that you know everything there is to no about your business environment and needs up-front. The objectives cascade down to the business analysts who develop the business requirements before passing the documentation to the systems analysts, who produce the functional specs. Each team member does his or her assigned task without input from those who created the documentation “up stream” and is not involved in the consumption of the spec s/he creates  by “downstream” developers, coders and testers. Once you produce your delivery artifact, the requirements document or functional spec for example, your role on that project is complete and the documents you created are expected not to change.

The iterative methodology starts with the business objectives, but instead of defining them all so that they can be codified into requirements, the expectation is that they will change and be added to throughout the process. In contrast to the waterfall methodology, the expectation is built into the process that you do not know everything about a particular system or business process at the project’s beginning, and you will learn as you go along. Documentation for these types of projects tend to be brief with lots of edits and versioning.

There are several different types within each methodology. Common iterative approaches are “Agile“, the first true iterative methodology developed in the early 1970s and “Extreme Programming,” developed in the 1990s but based on lessons learned during the Apollo space program. Some try to combine aspects of both methodologies. For example Scrum, an iterative methodology, takes what I consider a more waterfall approach by breaking up business objectives and spreading them throughout a project. This provides a more flexible approach to meeting a particular business requirement without changing the business objectives set at the project beginning which do not change through the project.

Most  software projects fail. The reasons for these failures depend on who you talk to. As an analyst I often blame poor requirements documentation and questionable analytical techniques as well as spaghetti coding by developers who never invested time in reading the requirements and testers who were more concerned about ticking off check boxes than they were in actually using their brains and finding errors. But by far the greatest source of project failure is upstream with the decisions made by the business at the project’s inception.

What got me thinking about all this was an excellent piece by Clay Shirky on the failure of the Obamacare website. He cites Waterfall methodology. “The preferred method for implementing large technology projects in Washington is to write the plans up front, break them into increasingly detailed specifications, then build what the specifications call for. It’s often called the waterfall method, because on a timeline the project cascades from planning, at the top left of the chart, down to implementation, on the bottom right.”

Waterfall methodology has its place, although where that place is eludes me right now. The problem I have with waterfall is that it’s great for simple projects with a small set of clearly definable project goals and requirements. But complexity demands too much from the methodology which is why I find its pure form so rarely used in design these days. Most projects I’m involved are huge project impacting numerous business lines, data warehouses, and outside vendors. It is impossible for management to know all there is to know about their own business processes and systems, and the smart managers don’t even try. They speak in very broad, general terms and leave the impacted technical teams to hash out the details. That “hashing out” usually requires in depth analysis and reverse-engineering of the impacted systems designed by developer no longer with the institution from poorly detailed and written specs that were stored on someone’s hard drive that got wiped once they quit.

Shirky continues, writing, “By putting the most serious planning at the beginning, with subsequent work derived from the plan, the waterfall method amounts to a pledge by all parties not to learn anything while doing the actual work. Instead, waterfall insists that the participants will understand best how things should work before accumulating any real-world experience, and that planners will always know more than workers.”

This is a particular conceit of the Obama administration and bureaucrats in particular. One of my core beliefs is that the Law should leave a “light footprint” on a free society. It is impossible for legislators to write laws that are capable of responding to every circumstance, therefore laws should be written carefully to give the citizenry the benefit of the doubt, and give prosecutors and judges latitude to decide violations of the law on a case-by-case basis. It’s one reason why I oppose mandatory sentencing rules and making abortion illegal even though I recognize it as murder. Unfortunately legislators and bureaucrats don’t see their job that way. They strive to make new laws and write new regulations instead of making those that exist more effective and less onerous on the citizenry.

In the case of Obamacare the Obama administration thought it understood how to design software. It is a typical show of arrogance coming from the administration who brought us the “Reset with Russia” resulting in a new Cold War, supported the Arab Spring which has resulted in everyone in Egypt hating America instead of the two-thirds of Egyptians who hated us prior to the Obama administration,  and now the Iranian Nuke Deal which results in Iran acquiring nuclear weapons. Giving this administration power was like giving hookers, cocaine, cars and guns to a group of teenagers. It’s going to take decades to undo the damage this administration has caused.

But in the meantime we have Obamacare. As the one lemming said to the others, “Forward!”

 

The Rich Get Richer Thanks to the Fed

Bloomberg’s Matthew Klein has an article describing how Fed policies backed by the Obama administration continue to benefit the wealthy at the expense of everyone else. Walter Russell Mead writes, “This type of thing is an all-too common feature of blue politics. Despite the egalitarian and ‘social-justice’ impulses of the naive blue liberals at the grassroots, a decaying blue social model inevitably creates more inequality and privilege. Well-connected insiders get sweetheart deals from government, for example, and insurance lobbyists get to wield a veto power over Obamacare’s re-structuring of the American health care system. Most of the so-called green policies we’ve seen are basically ways to channel money from ordinary consumers to political insiders who invest in clever enterprises engineered to suck in subsidies or to thrive in protected, artificial markets created by regulations. Now Obama’s pick for Fed chief wants to add juice the economy by boosting the savings of the rich.”

Let’s put it in easy to understand terms. Say you have a checking/savings account with $10,000 in it. For argument’s sake we’ll imagine your bank pays you 1% on your money. This is pure imagination on my part because my bank pays a fraction of that. So after one year of leaving that money sit, you will have $10,100 in your account. Not great, but at least you got something for your money, right?

Wrong. According to this CPI calculator, you’ve lost money: Your $10,100 in 2013 is now worth only $9,903 in 2012 dollars. This is due to inflation which is officially running at 1.5% annually. This number is notorious for being easily manipulated by the government since it is a politicized statistic, and if it were calculated today the way it was by the government in 1990 the inflation rate would be closer to 5%.

Losing money is by design; it’s exactly what the Federal Reserve wants to happen to you and anyone else with money in the bank. When you earn a return less than inflation, economists say you are suffering the pain of “negative interest rates.” Klein writes, “Harming at least some savers, however, may be part of the plan, at least if Yellen agrees with Charles Evans, the president of the Federal Reserve Bank of Chicago. He has argued that the threat of wealth confiscation by negative interest rates is necessary to restore spending and “risk-taking” back to “normal levels.””

So wealth confiscation is necessary to force you to spend that $10,000 or risk it on the stock market. And some wonder why ordinarily sane people are attracted to Ron Paul’s “End the Fed” crusade.

In the grand scheme of things $10,000 isn’t a lot of money. It won’t get you a new car, or even a decent used one. It might get you a great vacation in the US for your wife and two kids, but abroad? Forget it. Airfare alone to Europe would eat up half that sum, and the while you can make do with the remaining $5k if you are smart with it, you won’t be living large by any stretch of the imagination during your vacation.

Of course if you spent it on a vacation, you’d have something to show for it: memories and snaps of you and the kids at the Arc de Triumph.  On second thought, screw France. You and the kids outside Buckingham Palace. But then you’ll come home and your car breaks down and needs a new engine, or your furnace breaks and you’re looking at a $2,000 bill for a new oil heater. Where do you get that money?

Instead of a vacation, you decide to invest it in the stock market. In case you haven’t heard, the stock market is at all-time highs. Over the past 14 years we have had two financial bubbles: one in the stock market and the other in real estate. Do you see anything similar between today’s stock market and those bubbles? Do you believe the market will go up long enough for you to make money on your investment if you buy at the top of the market?  There’s a South Park parody that shows what happens to small investors in this stock market: the money evaporates before their eyes.

Can you make money in this market? Of course, just like you can make money at roulette in Las Vegas. The only difference between investing in the stock market and betting it in Las Vegas is the speed at which you lose it. The end result is the same. There are ways to make money when the market collapses, but bear market investors and those who short the market have been burned over the past two years as the market has continued to defy rationality. As economist John Maynard Keynes once said, “the market can remain irrational longer than you can remain solvent,” and while the economic theory that bears his name sucks, the man at least knew a thing or two about markets.

Why is this happening? Why are the poor and middle class, those with more of their assets in bank accounts than the wealthy and particularly those on fixed incomes like seniors losing money? Because of the Federal Reserve’s policy of Quantitative Easing. QE makes money cheap by flooding the market with cash. In short what it is doing is buying debt from the federal government and then lending it to banks, thereby increasing the dollars in circulation. If the bank can borrow from the Fed for free, it doesn’t need to pay interest to savers. Additionally, increasing the supply of something makes that something worth less which is why many skeptics of the Federal Reserve are suspicious of official inflation statistics. The amount of dollars in the market should boost inflation, and it has; prices of products such as food and fuel are not included in the CPI, and everything from the smaller Dollar Menu at McDonald’s to the decreasing product sizes in the stores tell of inflation within the economy. Yet this “stealth inflation” goes unrecorded by official statistics.

Just as one might feel the pull of taking out that $10,000 and buying stock, the wealthy do too. The only real difference is that one’s $10,000 might represent 100% of one’s net worth whereas the wealthy have diverse portfolios that protect them regardless which way the market moves. That $10,000 might be your retirement nest egg. The wealthy don’t have a single egg, they have many and they have multiple baskets to put them in: stocks, bonds, offshore accounts, real estate.

But you have something with that $10,000 in the bank that they don’t: liquidity. You can go to the bank and within a minute or two leave it with $10,000 in hand. It’s hard to take that Soho apartment and turn it into cash instantly, so they borrow against it. From where? Banks of course. But wealthy people aren’t stupid; at least the ones who stay wealthy aren’t. They are sensitive to interest rates when they borrow money just like most people are. When interest rates are high, they’ll avoid taking. Low interest rates encourage them to take liens on their assets and turn it into cash – or rather chips for the Wall Street casino.

Providing them with cheap money to gamble encourages them to gamble more, and that’s exactly what the Fed wants.

The logic behind this is that by allowing the wealthy to get wealthier by gambling with cheap money society benefits because house prices rise and companies whose stock rises are more likely to invest in new jobs or equipment. Klein disagrees, writing, “The tens of millions of Americans who own neither shares nor their own homes may have benefited indirectly as relatively wealthy people got even wealthier, but that’s not much different than saying lower taxes on the rich improve the well-being of the poor. The increase in asset prices and collapse in real yields have also meant that workers have to save a larger chunk of their incomes to get the same quality of life in retirement.”

And speaking of retirement, a common argument used to justify policies that benefit Wall Street is that the common person benefits because their 401k is invested in the market. Therefore a rising stock market is good for everyone.  The problem with this argument is everyone doesn’t have a 401k. I don’t, and neither does 53% of the American population. 401k’s are also highly illiquid; it’s not easy to convert them to cash without incurring serious penalties, so most people only do so when they have life-changing events. These events tend to be random, as does how the market is performing during a window when a 401k holder is thinking about retiring. For working people a 401k statement during a bubble  is a psychological benefit. It makes them feel wealthy. But that profit is only worth as much as the paper it’s printed on until the person retires. Today those who are retiring and beginning to cash in their 401k’s are doing well. This wasn’t the case 5 years ago, and who is to say what things will be like in five years?

The Federal Reserve policies supported by this administration through it’s choice of Janet Yellin to head the Federal Reserve proves that both are redistributing wealth from relatively poor taxpayers to the wealthy. In a sense it is a tax on the poor whose proceeds are is then passed to the rich. Is this what President Obama’s supporters expected when they signed on for “hope and change?” This doesn’t even touch the moral issue of  the Federal Government running extraordinary deficits that will have to be borne by future generations in order to support today’s wealthy.

Nurse Practitioners Aren’t the Solution to the Collapsing American Medical System

Let me begin by stating that my primary care provider is a nurse practitioner, as is my son’s. My mother’s is a physician’s assistant, and she trusts him more than some of her children. But let’s make something very clear: physicians, nurse practitioners and physician assistants are not the same. They do not receive the same training, do not have the same responsibilities and do not treat the same. They all have their role in health care, but you cannot replace one with the other and expect the cost of treatment to go down and quality to remain the same.

And there is no shortage of primary care physicians.

Walter Russell Mead disagrees. He quotes Amelia Thomson-Deveaux’s piece in American Prospect who argues the solution to this shortage is to allow nurse practitioners to practice on their own without supervision of a doctor.

As you know my wife is a primary care physician (PCP) practicing in a rural underserved area. I’m a systems analyst who once ran a non-profit dedicated to fighting Industry’s efforts to flood the market with cheap H1-b and L-1 visa holders from abroad as they decried a “shortage of IT workers.” There was never a shortage of IT workers, just a shortage of those willing to work for the money IT companies wanted to pay.

Why is it that people become irrational when talking about professionals? If the price of something goes up, it means demand outstrips supply. This is a concept we innately understand. We know that the price will remain high until demand weakens, or the high price encourages producers to expand supply. This combination of reduced demand and increased supply inevitably leads to the price of that something declining. It could be natural gas, LCD televisions or salaries.

There is no shortage of primary care physicians. There is a shortage of PCPs willing to work long hours in disadvantaged areas for less money.  I’d love to see where that $189k average PCP salary quoted by Thomson-Deveaux comes from because it sure isn’t paid out here in the Styx. Salaries out here should be higher to encourage docs to come here, and they are somewhat higher than in big metropolitan areas with lots of amenities. But a shortage means salaries are rising, and they should be rising faster out here than elsewhere – but they aren’t. Why not? Because there is no shortage.

The shortage is a myth perpetuated by those who want to manipulate the market to their advantage. Hospitals want nurse practitioners because those in our area are paid $50k per year, roughly 2.5x less than the average PCP salary here, but they bill out at 75% of a PCP. NP associations are working to remove obstacles for allowing NPs to practice unsupervised. That’s fine – as long as physicians aren’t held accountable for their mistakes.

There is a reason a primary care physician goes through 4 years of medical school, followed by 3 years of residency and internship: exposure to a much broader range of conditions and treatment modalities than an NP receives. According to the American Academy of Family Physicians, a family physician receives 21,700 hours of training verses 5,300 for a nurse practitioner. This added training teaches doctors to differentiate between horses and zebras, to know when a condition is presented is either common or uncommon, and to do so without additional tests.

NPs order more tests than physicians, and since those tests are conducted often within their practice or hospital, these tests benefit the providers who pay them. But the cost of that testing is then passed to the insurance company and patient, so they do not benefit from the lower salaries paid to NPs, while the patients suffer the consequences of inexperienced care. Most of the time it won’t matter – remember, I go to an NP  as does my teenage son – but I’m healthy as is he. It would be a different matter if one of us were chronically sick.

KevinMD believes this argument between family physicians and nurse practitioners is a red herring. The problems with primary care go way beyond the threat posed to PCPs by nurse practitioners. He cites statistics showing specialists providing 41% of primary care office visits. He believes this is due to patients skipping the gate-keeping role of the PCP and going directly to the specialist because of the perception that they are more qualified. There is no reason for someone with a cough to see a pulmonologist unless he has been directed there by a primary care physician  first. This only makes sense because a patient does not incur the cost of seeing the specialist beyond the extra few dollars in the co-pay.

Look, everyone knows the medical system in the USA is a disaster. I’ve lived under socialized medicine (the Kid was even born under it), and I’m not instinctively opposed to it the way some are. But we need to be honest about the problems and avoid scapegoats; there is plenty of blame to go around, starting with the patients themselves. But that’s another essay…

Failure – The Obama Administration’s Foreign Policy Legacy

I’m fascinated by disaster and failure. I’m not talking natural disaster; although fascinating in themselves (who around back then does not recall when Mount St. Helens blew up in 1980?) natural disasters don’t provide teachable moments the way a man-made failure or disaster does. Soon the Discovery Channel and The Science Channel will simulcast a scripted movie about the Challenger disaster. The movie is based on Dr. Richard Feynman’s memoir “What Do You Care What Other People Think” and will invariably show how Science and the human analytical mind went from a cloud of smoke and debris at 50,000 feet to the reason for the disaster: an O-ring seal in a solid rocket booster. Such failure analysis is why travel on large aluminum jets is the safest method of transportation in human history, going from perhaps the deadliest form of transport to the safest in less than a century. Such success came about through hard detective work the scene of each disaster, followed by a long period of investigation and analysis where the failure was pinpointed and most importantly, having the lessons learned applied to the rest of the industry.

The bible for those interested in the study of failure is German professor Dietrich Dorner’s 1996 book, The Logic of Failure. The book is based on a set of cognitive experiments done with software simulating a small town’s society in the US, and a fictional area in the Sahel. The studies found that while participants came from varied walks of life and backgrounds, “People court failure in predictable ways.” It then ties the experiments to real life failures such as the nuclear catastrophe at Chernobyl. As a systems analyst involved with complex multi-million dollar software development programs, I consider the book “must reading” for everyone in IT. Feel free to pass along a copy to those behind the Obamacare rollout.

Five years ago the people of Iraq had, thanks to the blood of thousands of American and allied soldiers, achieved a level of freedom unparalleled in their history. The national sport of kite flying was legal again and girls headed to school in Afghanistan. al Qaeda and its affiliates were on the run and confined to lawless patches in northern Pakistan, northern Nigeria and Somalia. Iran was boxed in between biting sanctions that undermined the regime internally, successful American military operations on either side of it, and an Israel ready, willing and backed by American leadership to attack Iran to stop it from acquiring nuclear weapons. China was busy flooding the world with cheap crap, content to use North Korea as its proxy to stir up trouble in favor of the regime in Beijing. Our relationship with Russia had begun drifting away from engagement towards confrontation over its aggression towards Georgia, but Russia was clearly a state in decline both internally and internationally. Even Syria was seen as a player, with Democrats having genuflected at Bashir Assad’s feet, Nancy Pelosi having claimed “the road to peace begins in Damascus” in 2007, four years before Vogue’s schmaltzy interview with the Assad family, “A Rose In the Desert.”

Today Iraq is a client state of Iran, its skies filled with Iranian cargo planes resupplying the Assad regime in Syria and Hezballah in Lebanon, its social fabric once again ripped by car bombs as the Sunni/Shi’a war rages on the ground. The Obama administration, convinced of its failure before it took office walked away from American success in Iraq by its refusal to negotiate a status of forces agreement with Baghdad. Historians will one day ask “Who lost Iraq?” and the answer will be Barack Obama. Immediately after setting up their base in Afghanistan in 2001, the Marines buried a piece of steel taken from the World Trade Center rubble on the site. Soon the Taliban and their al Qaeda allies will reclaim this as a war trophy as the kites and girls disappear from the streets, and the music that has filled the air in Kabul since 2001 will be replaced once again with silence punctuated by gunfire and explosions. Again historians will ask “Who condemned these people to savagery? Who lost Afghanistan?” Again the answer will be President Obama, a man who once called Afghanistan “the good war.”

After taking power President Obama fluttered around the world on what critics like me called his “Apology tour,” apologizing for American misdeeds both real and imagined, in the belief that the new-found humility would please our friends and sway our enemies. The Obama Administration has accomplished exactly the opposite. Today Iran is expanding its “Shi’a Crescent” throughout the Middle East, and the only ones standing in the way is Israel in an unlikely (and unspoken) alliance with Saudi Arabia and the Gulf States. This after a popular rebellion took the streets in 2009 that could have changed the course of History, but it received no hint of support or backing from the Obama administration and it was ruthlessly crushed. It will be decades before the people rise up against the theocracy, if they ever do.

Today from Morocco across northern Africa to the Sinai, and from Nigeria across the continent to Somalia Africa burns with Muslim extremists allied with al Qaeda. Obama’s support of the rebellion to replace Mohammar Khaddafi in Libya has opened a Pandora’s Box of weaponry built over decades by Libya’s Great Loon, handing AK-47s, RPGs, and anti-aircraft missiles to everyone with an axe to grind and a Koran burning a hole in their hearts. Where there had been one failed state 5 years ago, Somalia, there are now at least 3 (Somalia, Mali, Libya) with numerous others (Algeria, Chad, Mauritania, Nigeria, Niger, Western Sahara) circling the drain. After Khaddafi’s fall al Qaeda training camps sprouted like mushrooms across North Africa and the Sub-Sahara, breathing the lawlessness that the Libyan Debacle created, and repaying the Obama administration for its “lead from behind” strategy by killing an American ambassador and his three bodyguards in the first such incident in 30 years.

Although the administration’s failure vis-a-vis China is not as bad as the disaster it has created in the Middle East, the Obama Doctrine of placating our foes while dissing our friends has been noticed in Asian capitals. South Korea is developing closer ties with China at the same time Japan rearms and prepares to ditch its anti-war constitution ghost written by Gen. Douglas MacArthur. Nations like Pakistan who haven’t really decided whether they are American allies or its enemies see no downside to throwing their lots in with the Chinese or Iranians. Pakistan even provides China the tail-section of a top-secret stealth helicopter used in the operation to kill Osama Bin Laden, America’s enemy number 1 watching porn in air conditioned comfort on Pakistani soil. There is no blow-back, no consequences suffered for entertaining the man responsible for the deaths of 3,000 Americans, and none for handing over the tail rotor section to America’s greatest military adversary. And to top it off, the true hero of the event, a local doctor who had the guts to help the Americans confirm Bin Laden’s identity, sits in jail as a traitor to his people. If anything playing up to America’s adversaries almost wins respect from the Obama administration itself. China understands this best, waging a cyber war against the US government and private industry without retribution.

Then there’s Europe. When the Obama Administration hasn’t sacrificed its allies to appease its enemies in Teheran and Moscow, it bugged their phones, proving yet again this administration’s inability to differentiate friend from foe. “Everyone does it,” is not an acceptable excuse for a superpower. There is absolutely no reason the US should be bugging Angela Merkel’s phone just as there is no reason it should be spying on 10 Downing Street. Perhaps the mushy-headedness that comes with moral relativism has blinded the administration to the differences of say, between Angela Merkel and Vladimir Putin, or David Cameron and Ayatollah Khamenei.  The “Special Relationship” with the UK is special for a reason, one that is much older than the inhabitants of the West Wing and much more sublime than the political wonks can comprehend. Ditto the German Chancellor. Frau Merkel was born in East Germany and has first hand experience with illegal and unjustified surveillance. Unlike some of her predecessors, she has not risen to power on an anti-American platform, and has done an exemplary job of aligning the interests of Germany with the broader interests of Europe and the United States. Spying on her was a stupid idea that should never have been approved, and once approved, it should have been cancelled, and if not cancelled it should never have been revealed. Yet a contract DBA waltzed off with the keys to the entire American Intelligence in the worst espionage failure since Klaus Fuchs handed the Soviets the Bomb. Again, no consequences. No one fired let alone jailed.

Many on the right have concluded that this is all by plan, that the Obama administration and his Democratic party supporters have been intent on taking the ship of state and intentionally running it aground because they are socialists or communists. In the Irving Kristol Lecture to the American Enterprise Institute on February 10, 2004 Charles Krauthammer suggests it is more complex and subtle than that:

“What I do know is that today it is a mistake to see liberal foreign policy as deriving from anti-Americanism or lack of patriotism or a late efflorescence of 1960s radicalism.

On the contrary. The liberal aversion to national interest stems from an idealism, a larger vision of country, a vision of some ambition and nobility – the ideal of a true international community. And that is: To transform the international system from the Hobbesian universe into a Lockean universe. To turn the state of nature into a norm-driven community. To turn the law of the jungle into the rule of law – of treaties and contracts and UN resolutions. In short, to remake the international system in the image of domestic civil society…

And to create such a true international community, you have to temper, transcend and, in the end, abolish the very idea of state power and national interest. Hence the antipathy to American hegemony and American power. If you are going to break the international arena to the mold of domestic society, you have to domesticate its single most powerful actor. You have to abolish American dominance, not only as an affront to fairness but also as the greatest obstacle on the whole planet to democratized international system where all live under self-governing international institutions and self-enforcing international norms.” – Things That Matter: Three Decades of Passion, Pastimes and Politics

Seen in this light, Obama’s foreign policy has not been a failure at all. It has accomplished exactly what it was intended to do. It has weakened America’s foreign policy hand across the board. America’s military is weakened through political purges of its officer corps, lack of direction and budget cuts. Its diplomatic corps is undermined by the lack of protection of its staff, as proven in Benghazi, by the White House’s high-handedness shown towards America’s closest friends the UK and Israel, and the spying program targeting American allies as well as its enemies that State Department personnel are forced to explain in their host countries. Its adversaries Syria, Iran and North Korea are all in better positions than they were five years ago. Ditto China and Russia. As the US weakens its enemies strengthen, and its allies are then forced to either band together (EU standing up to Russia and encouraging Ukraine to join, ASEAN nations co-coordinating efforts to balance China) or leave its sphere of influence entirely (Saudi Arabia, Egypt and perhaps Israel in the Middle East, South Korea in East Asia).

Obama has domesticated America on the international stage, to use Krauthammer’s term: so now what? Where is the Golden Age promised by Locke and the internationalists? If they are correct, a humbled America should encourage its enemies to stop their own military buildups (they don’t need offensive military capability with America’s gone). North Korea and Iran no longer need nukes now that American nukes are rusting away awaiting destruction as Obama unilaterally disarms. Without American backing Israel should engage its enemies diplomatically in a desperate bid to secure peace with the Palestinians. The world should be much better today than it was five years ago.

Is it? I suppose that depends on your perspective. Five years ago Americans could have traveled safely throughout Africa except for one nation Somalia. Today I’d hesitate to walk through the narrow streets of Zanzibar as I once did freely nearly two decades ago, and have struck Valley of the Kings in Egypt off my bucket list until further notice. Northern Kenya, Mali, Eritrea, Mauritania, Nigeria, Chad, Niger, Western Sahara, and Libya are now no-go areas for Westerners. I suppose that’s great if you can’t help but shout Allahu Akhbar every time you touch an AK-47, but for the rest of us things have gotten worse not better under the new regime.

Dietrich Doerner writes, “For them (people who failed most often at complex analytical tests) to propose a hypothesis was to understand reality; testing that hypothesis was unnecessary. Instead of generating hypotheses, they generated ‘truths’.” The Obama administration came to power proposing a hypothesis, that the world would be a better place with the United States weakened. It treated this hypothesis as a truth, steadfastly refusing to let go of it, sacrificing ambassadors, diplomatic relationships built over generations, and American influence in the process. When Doerner’s study participants failed, they invariably blamed others for their failures just as the Administration has focused the blame on the GOP.

When the Obama administration took power I and many others had hoped it would govern from the center, that things wouldn’t be as dire as we had feared. We hoped that it would try its crazy ideas, learn they didn’t work, then try something else. But they didn’t learn. They stuck to their “truths.” Five years on our foreign policy is a shambles, America weaker and friendless as it has been at no other time in its history. The disaster is worse than we expected, and we still have 3 full years left in this president’s term.

Will America be able to survive this epic failure? Thirty-two years ago Ronald Reagan took power and turned around foreign policy debacles of the previous Carter administration pretty quickly. Will a Republican president be able to do the same after eight years of disaster? And what if the GOP selects the wrong candidate and Hillary Clinton wins in 2016? How much failure can this country accept and still survive?

Yet Another Victim of a Lie: Me

Like many others I’ve recently been notified that my current health insurance policy will be cancelled and I will have to find another.

Thank you President Obama and his Democratic Party.

 

 

Hat tip: Snoop the Goon