Memoirs of the Addams Administration 4.

In his second week in office, President Trump issued an executive order requiring that any new regulation must be accompanied by the removal of two existing regulations.[1]  Given the cumbersome mechanism for removing existing rules and regulations, this should put a stop to new rules and regulations for a year.[2]  (He allowed an exception for national security-related issues.)  A cost-benefit analysis of this issue is murky.  The Office of Management and Budget suggests that regulations drain-off $110 billion a year from the economy.  On the other hand, the same regulations may save the economy an estimated $872 billion a year.  The “benefits” of regulation actually are non-monetary and can be difficult to calculate in a conventional manner.[3]  In short, neither the “costs,” nor the “benefits” of regulation can be calculated.

President Trump nominated Neil Gorsuch to fill the Supreme Court vacancy created when Antonin Scalia augured-in.  Judge Gorsuch is a highly-regarded jurist, as was Judge Merrick Garland, who was denied even a hearing in a shameless piece of Republican obstructionism.[4]  He’s also 49 years-old and could sit on the Court for decades, short-circuiting every Democratic initiative launched by the turn of semi-annual or quadrennial elections.  Democrats demonstrated dismay.  “This is a stolen seat,” declared Senator Jeff Merkley (D-Oregon); the “Republicans stole this seat from Obama” declared the Charlotte Observer (D-North Carolina); while the Atlantic (D-Massachusetts) denounced it as a “deal with the devil.”

Still, the Republicans controlled the Senate when President Obama nominated Judge Garland.  They weren’t going to approve a pro-Democratic Justice when the election tides had been running against the Democrats for three out of four successive elections.  Hearing followed by rejection isn’t any different than rejection through no hearings.  The assumption in the White House appears to have been that whichever party held the White House got to choose which ever justice it wanted for the Supreme Court.  If that’s true, then what about Robert Bork?[5]

[1] “Washington: Trump orders regulatory rollback,” The Week, 10 February 2017, p. 32.

[2] See Emmarie Huetteman, “How Republicans Will Try to Rescind Obama Regulations,” NYT, 31 January 2017.

[3] Perhaps not everything can be reduced to a balance sheet.  Still, do we want a flight into mysticism and “personal feelings” on behalf of people whose standard of living depends upon other people generating wealth?

[4] “Battle lines drawn over Supreme Court pick,” The Week, 10 February 2017, p. 5.

[5] See: https://en.wikipedia.org/wiki/Robert_Bork

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What government can accomplish 1.

People want to live in San Francisco.[1]  However, the price of housing is really, really high.  So, people want to live in Oakland as a fallback.  Here the price of housing is merely really high.  Even so, Oakland rents have spiked by 70 percent over the last five years.  Oakland rents for a one bedroom apartment now average $2,500 a month, or $36,000 a year.  However, many of the potential tenants are “artsy”—musicians and artists–so they don’t have any money.  (I suppose they could live in North Richmond.[2]  However, North Richmond lacks panache, in addition to other deficiencies.[3])  How to square this circle?

The Fruitvale[4] section of Oakland provided an alternative solution.  Chor Nar Su Ng had bought an old warehouse in 1988; in 2013, she rented the building to Derick Almena.  Almena then sub-let space in the warehouse at a really low rate of $600 a head.  This became the now-gruesomely-named “Ghost Ship” warehouse/art space/residence.

On 2 December 2016, a fast-moving, smoky fire broke out during a concert and party at the “Ghost Ship.”  In the end, 36 people died.  Now, people want to know why.

The state of California requires that certain buildings be inspected on a regular basis, but most other buildings are inspected on local initiative.  Oakland’s Fire Department compiled a database of buildings to inspect in about 2000.  According to Oakland authorities, the Fire Department’s database had become outdated.  Oakland’s Fire Department had been without a Fire Marshall for three years before Teresa Deloach Reed won the position in Spring 2016.  Oakland’s Fire Department still is 62 people under complement, in spite of adequate funding.

Reed had a lot of ground to make up.  Neither the Oakland Fire Department nor the Building Department had inspected the warehouse that came to house the “Ghost Ship” in thirty years.  However, several near-by businesses said that they had been inspected on an annual basis.  The warehouse had been inhabited for several years, but the men in the firehouse 200 yards down the street had never noticed people—rather than trucks—going in and out of the “warehouse” at all hours.  From 2014 to 2016, someone filed five complaints about the “Ghost Ship” building and an adjoining lot with the Building Department.  The complainants alleged “unsafe conditions.”  So, why didn’t anyone inspect the “Ghost Ship”?  Well, building inspectors needed the approval of the owner to enter the building.  Apparently, no such approval was forthcoming, so no inspectors entered the building.   Finally, the concert, during which the fire broke out, was required to be registered with the city.  No one registered it.

It turns out that the “Ghost Ship” is but one of at least a dozen similar arrangements.  There are hints that the city gave them a conscious pass on safety regulations. According to the New York Times, “Oakland is trying to strike a difficult balance: keeping residents safe without making them homeless.”

It is worth asking if there are limits to what government regulation can achieve.   This isn’t a libertarian tirade against all regulation.  Regulations have to be enforced to be effective.  Enforcement depends on adequate human and financial resources.   Those aren’t always available.  Regulations can increase faster than do resources.  Then, social and political circumstances can change, as when Oakland became home to an arts community.

To some—uncertain—degree, personal judgment and responsibility are essential.

[1] Thomas Fuller et al, “A ‘Ghost Ship’ All but Unseen, Until 36 Died,” NYT, 23 December 2016.

[2] See: https://www.roadsnacks.net/these-are-the-10-worst-bay-area-suburbs/

[3] See: https://en.wikipedia.org/wiki/North_Richmond,_California

[4] See: https://en.wikipedia.org/wiki/Fruitvale,_Oakland,_California

Annals of the Great Recession X.

Jeff Madrick, once a New York Times economics columnist, argues that America’s economic decline can be traced to the 1970s.[1] Beginning with the Great Depression, governments had imposed tight controls on American financial markets. These controls had made banking boring. That was a good thing for anyone who had ever lived through a financial panic (or watched that scene in “It’s a Wonderful Life” where Jimmy Stewart abandons his honey-moon to save the savings-and-loan when the town bank collapses. However, it also restricted the opportunities for profit in one sector of the economy. Economists at the University of Chicago, inspired by the writings of Milton Friedman, pushed an “extreme free-market ideology.” Embraced by greedy financial industry leaders, then by the Republican Party in the era of Ronald Reagan and later by Democrats as well, these ideas led to the de-regulation of the American financial industry. “And Hell followed with him.”[2]

Reckless lending became progressively ever more deeply entrenched among bankers. Successive crises of ever greater severity sprang from these practices: wild real estate speculation in the 1980s; the Latin American lending binge; the “dot.com” bubble; and then the nightmarishly complicated real estate investments that ended in the financial crisis of 2007-2008. The government repeatedly had to step in to bail-out reckless bankers in order to avert an even worse disaster for the whole economy. Thus, profits were privatized while losses were socialized. Not exactly what Milton Friedman had in mind.

To a historian, some of Madrick’s argument appears kind of rickety. He, among others, appears to believe that the American prosperity and global economic domination of the period from 1945 to 1975 was somehow “normal.” However, it is at least equally possible to regard this situation as “abnormal” and bound to end. The financial industry (or just “greed”) can hardly be blamed alone for the complex changes that have undermined America’s position.

Then, for purposes of analysis and argument, he separates out free-market thinkers and financial industry leaders. However, in real life they existed within and responded to an evolving context of beliefs and influences. Thus, the inflation of the Vietnam years intersected with government regulations on the interest banks could pay depositors. People wouldn’t keep money in banks unless they could get a higher rate of interest. So, the interest rate regulations had to be relaxed.

Then, he appears to believe that “greed” drives the elite, but that the same behaviors by people lower on the income pyramid are unexceptionable. In 1970, 381 major strikes hit American companies as workers drove for higher pay and benefits at a time when foreign competition had begun to exert heavy pressure.[3] Why is one act greed, the other not?

Then, a lot of the American economy was deregulated from the 1970s on. Takes airlines as an example. Between 1980 and 2009, inflation-adjusted air fares fell by fifty percent.[4] Air travel increased, but crashes did not increase. (I’ll grant you that the air travel experience now reminds of a trip I once took on a Mexican bus.)

So, the part is not the whole. Blanket statements about regulation don’t get us very far.

[1] Jeff Madrick, Age of Greed: The Triumph of Finance and the Decline of America, 1970 to the Present (New York: Alfred A. Knopf, 2011).

[2] Revelation, 6:8.

[3] See: “American union, stay away from me uh.” March 2015.

[4] See: http://www.theatlantic.com/business/archive/2013/02/how-airline-ticket-prices-fell-50-in-30-years-and-why-nobody-noticed/273506/