[Note: To get this blog site up and running, I am reposting a few of my Facebook posts from recent months. This is one of them. It was first posted to Facebook on the date listed, though these first few posts to Neighborfy are being uploaded in June 2017. I’ve made minor edits to some of the Neighborfy versions. Because these posts were originally posted to Facebook, unfortunately the original comments from readers are not copied here.]
I’m going to tell you a true personal story. Don’t worry – it won’t be (shouldn’t be) too controversial, regardless of your political party, but it’s about growing up to be smart, pragmatic, principled citizens. My wish would be that this story of regret and painful experience in a “politically relevant” chapter of my own life might benefit a few folks. Here goes:
In the midst of the financial meltdown of 2008, lots of people lost their jobs, and then they lost their homes. You all know this. Some of you reading this were those folks.
In the last days of President Bush’s presidency, Congress passed and President Bush signed a large stimulus package. It was widely criticized, mostly because it was passed so quickly that it included little requirements for accountability regarding how the money got used by the financial institutions (banks) that received it. (It’s ok if you disagree with that characterization – it’s not central to the story that comes.). When President Obama took office, the economy was still reeling, and he/Congress passed a second set of stimulus measures, including a bailout of the U.S. car industry. Like the Bush stimulus, the Obama stimulus got lots of stout criticism. Republicans called it “socialism,” because the Government temporarily held stock in the bailed out companies. (So that we’re historically accurate, the Government put strict rules in place so that the Government didn’t exercise business management over those companies. Once those car companies were on their feet again, the stock was sold. The U.S. Treasury actually made a modest profit. In addition, much of the remaining stimulus funds required repayment to the government, virtually all of which was accomplished. Thus I would argue that the second stimulus learned from the criticisms of the first stimulus, because it put in place, and followed up on, some very real accountability measures. Again, it doesn’t matter if you agree on this characterization, because it’s not central to the following story.)
With that history in mind, it’s quickly clear why the first year of President Obama’s presidency had an especially large budget deficit (because it spent the Bush stimulus), and also why the following year had a similarly large deficit, because it spent the second stimulus. But that’s where the story gets interesting, because the second stimulus wasn’t fully spent, and it was slow to reach the public — a fact, I’m sad to say, I was personally a small part of. More on that below.
For the record, after the stimulus packages, the annual deficit was reduced until it was significantly lower – reduced by roughly a trillion dollars per year! We still have a significant budget bulge in large measure because, under the Bush budgets, we simultaneously executed large tax breaks, predominantly for more affluent taxpayers, while we prosecuted large-scale military actions abroad. We couldn’t exit the wars right away, and didn’t want to reverse the tax cuts right in the middle of an economic crisis, so the portion of the deficits attributable to those factors persisted. Those are issues still to be resolved. When folks talk about the debt rising under President Obama, to be fair you need to understand the origins of that debt, most of which was unrelated to the two stimulus packages. In fact, most of it wasn’t about anything that Obama did at all, unless you want to fault him for neither stopping the military actions sooner nor reversing the Bush-era tax cuts. But I digress. This story isn’t about stimulus packages or national debt. It’s about the limitations of federal power, including Presidential power. Here goes:
Part of the Obama stimulus (the second stimulus package) was about providing refinancing of homes. The Government realized that many families could pay reasonable mortgages, but they were caught by ballooning mortgage interest rates. Under the “balloon” structure of many mortgages, there’s a low interest rate initially, followed by a higher rate later. Families take these mortgages because they can pay the monthly mortgage at the lower rate, and they plan to refinance before the higher rate kicks in. The problem: Once the economy tanked, they couldn’t refinance (especially if they lost jobs), so they were stuck with the unpayable higher rates, which is why they were in jeopardy of losing their homes. Remember all that? So the Obama plan was to offer support to those families by means of guarantees on their mortgages, if they refinanced to the reasonable rates.
It’s a little complicated, but it works like this: Banks are told that they can issue mortgages at lower rates to these families, because they’re good bets. In fact, if the mortgage is “conforming” to the program requirements, the independent agency created way-back-when by the Government, Fannie Mae, will buy those mortgages from the banks and then Fannie Mae will take the risk of payment/non-payment, but the Government will guarantee the payment. If you’re a bank, that’s a good deal. If you’re a consumer who might lose your home, for you it’s a gift. If you’re the American public, it’s great public policy because it stabilizes the market, keeps families in their homes, and avoids all the very real negative impacts to our economy and communities that would occur if even more folks lost their homes. Great idea, Mr. Obama. Kudos. Really.
But as with all HUGE programs like this, the devil was in the details. In order to get the program off its feet, all the systems needed to be put in place to process applications. Here’s where the story turns bad. Now, I can’t share real names or too many details on this point, due to client confidentialities, but I can share that I was heavily involved in this process as a lawyer. I can tell you that, in order to connect all the participants in this ecosystem (all the banks, etc.), you have to think about the minute details, the mundane logistical things. Details like software that would be helpful for connecting the players and administering the program. That’s were I come in. As a lawyer who represents tech companies, I negotiated deals that made highly, highly specialized software available to organizations involved in setting up these programs. Nothing too sexy. In truth, very boring stuff. Just meticulously detailed contracts, the kind I do every week. Except that, in this particular set of deals, I encountered opposing lawyers who were, shall we say, “personalities.” They were just difficult guys. I wouldn’t even say they were nasty or mean people, certainly not unethical people. They were just the kind of lawyers who fight over every little thing, the kind who can’t distinguish between what’s important and what’s not. They were simply impractical. (The best lawyers are the ones who know what NOT to fight about when negotiating deals.) To be clear, they weren’t politically partisan. Political issues never came up. They weren’t negotiating in extraordinary ways. They were just difficult when they negotiated (and, when not negotiating, actually seemed like decent people). Unfortunately, I negotiate opposite that kind of attorney pretty routinely. (I also encounter, far more often, very nice lawyers who are reasonable and pragmatic and nice. The difficult ones are the minority.)
In the end it took a few months to negotiate the deals to make the specialized software available to support the mortgage refinance programs. In the meantime, the programs got started, but they were less efficient than they eventually became once the software was available. For me personally, the painful part is this: I’ll never know how many families lost their homes before the system got up and running, but it sometimes burdens me to think how, if our negotiation about a piece of software had gotten accomplished more quickly, more folks might not have suffered. I’m sorry if you were a family that the program couldn’t reach fast enough. I did my best, I promise.
There are a few morals to this story: First and foremost, it’s an illustration that Presidents don’t control every little thing. President Obama’s policy was a good one (even widely acknowledged by the Republican side of Congress at the time), and it did ultimately help lots of Americans. But it was temporarily delayed due to logistical realities that were out of his control. The second point is pretty straightforward: Practical implementation of policies, even the best policies, is ENORMOUSLY complex. The sound-bite-driven, pop-media versions of these discussion usually fail to capture that complexity. A third moral to the story is that we, as citizens, really need to have reasonable expectations about the impact of Presidential policies and actions. Sometimes they just can’t do the things they promise to do, because it’s not something in their control, or because they just can’t implement the policy fast enough. A fourth moral to the story: bad lawyers suck. But you probably knew that already. (A fifth moral to the story might be that, in hindsight, maybe I could have followed some different approach to the negotiation, but I’ll have to fight those demons on my own.)
These are the unavoidable realities: Huge, economy-wide programs involve massive complexity, are hard to implement, and are dependent upon lots of factors that can’t be controlled (like stubborn lawyers who won’t negotiate pragmatically), so the intended policy effects sometimes don’t reach the intended beneficiaries.
Why do I tell you this story? Surely these real-world examples have relevance to how we view politics and public policy, right? There are applications of these points relevant to the current President, but I think they are useful ideas to keep in mind whenever we’re thinking about ANY policy or political issue.
As for the current President’s issues, you might, for example, apply these lessons when you consider the President’s promise to “bring back manufacturing.” In truth, there are limits to what President Trump can do about the kinds of manufacturing previously done in the United States. These are just global realities. We will never again be able to manufacture many kinds of things more efficiently than competitors in other countries, especially because, e.g., maximum efficiency has already been achieved in those countries due to their use of the very same technologies we would use – all the tools we would use are now in their reach, too. And their labor is cheaper. We CAN be a global leader in manufacturing some things, especially when the manufacturing requires a level of technological sophistication or capital investment that other countries don’t have. For example, we are probably better suited for manufacturing advanced solar systems. These realities are why, when the current president considers his options for recovering lost factory jobs, his only real tool is some form of protectionism (i.e., barriers to entry for goods from other countries), but that approach punishes American consumers and can never be a permanent solution – we suffer in the long run when our trade partners impose similar, reciprocal barriers against our goods and services. Better approach: Invest in retraining for the industries where we CAN be a manufacturing leader, like the solar industry. You might not be aware, but that’s one thing President Obama did. I hope President Trump will also continue those investments, whatever else he might elect to do.
This acknowledgment of complexity and “externalities” (things outside the President’s control) also applies to the travel bans that the President just enacted. It’s easy to over-simplify discussions about deterring terrorism. But, in reality, the issues are very complicated, and – my own opinion — the travel ban won’t actually help. Sadly, the mere announcement of the travel ban has already damaged America’s relationship with millions of people worldwide, and I fear that damage will have a long life.
But my point today isn’t to debate the specific policies. My point today is to encourage you to hear my personal story, and to embrace the sad lessons from that story. I want to encourage you to think about those lessons when you hear the nightly news or read that next political blog. Be smart and mature in your assessment of the policy proposals of the day. And be real when you evaluate the steps that the current President is undertaking.
I welcome well-reasoned, respectful comments.
[Just a side note: I didn’t want the thesis of my diatribe above to be too policy-specific, so I didn’t mention the following point. But I do think the lessons of complexity and “externalities” in public policy do have real relevance to lots of current policy debates. So here’s one I would nominate as particularly relevant: I think this lesson is particularly relevant to tax policy. There really are some practical limitations to what presidents can accomplish with the tax code, especially over a short period of 4 or 8 years. For example, there’s an intuitive attraction to the idea that, if we cut taxes on the wealthy, they’ll spend money by paying vendors and service providers, who in turn will spend by paying others, who in turn will spend and pay others, until the middle class and poor begin to receive economic benefit. Some of you call that “supply side” tax policy (i.e., the policy is attempting to add more supply of spending to the economy). Some of you call this “trickle down” economics. (The first President Bush once referred to this as “voodoo economics,” and mid-way into his presidency he did decide to shift course by reversing some of the Reagan tax breaks.). The complexity of our economy, however, results in outcomes that, empirically, have always failed to reach the people of modest income. The data have shown that fact over and over. In fact, during both the Reagan/Bush era and the later/second Bush era (i.e., the 2 periods when that tax policy was implemented), the wealthy got wealthier and the poor got poorer, whereas, during the Obama era, the wealthy still got wealthier – albeit at a much-maligned slower rate – AND the middle class ALSO recovered. Yes, the recovery was slower than hoped, but the principle still holds.]