By Daniel Rose
America
is approaching a state of political paralysis because militant ideologues of
Right and Left have taken control of the national dialogue. Extremists on the Right demand “small
government”; those on the Left call for “big government.” Few voices call for
“smart government,” with cost-effective, pragmatic solutions to short term,
intermediate and long term challenges.
In
discussions of “spending,” no distinctions are drawn between “consuming for
today” and “investing for tomorrow”; and we watch in silence as the
underpinnings of American society weaken while competitive nations strengthen. The “quick fix” has become our national obsession, with no
concern for the unsustainability of current trends. A society once proud of building canals and railroads and sacrificing
the present for the future now sacrifices the future for the present. We will eventually pay a price for our
“present-mindedness,” and it may be painful.
Some
optimistic observers like Singapore’s Lee Kuan Yew or Harvard’s Larry Summers
believe that after some “mid-course corrections” we will right ourselves, but
we should recall Oliver Wendell Holmes’ observation that “the mode by which the
inevitable comes to pass is called ‘effort.’” And that effort must be ours.
We,
the sensible middle—the moderates, centrists and pragmatists—must enter the
game before a crisis strikes, not after. For the common good, we must work
to help our society regain its forward momentum.
Today,
a polarized American public contemplates its social progress with satisfaction
but its political and economic problems with foreboding. Dramatic changes—both for better and
for worse—have not yet been fully digested and have left us feeling off
balance.
A
black Democratic second-term president giving a rousing State of the Union
speech responded to by the official Republican spokesman, a Latino senator; gay
marriage legalized in many states; women permitted in combat; the United States
approaching energy independence from Middle Eastern oil—none were seen as
likely a decade ago.
On
the other hand, America ranking below all European countries in social
mobility, with a degree of financial inequality greater than all other
developed nations; U.S. high school students scoring poorly in international
academic rankings; U.S. births to unmarried mothers skyrocketing; America’s
physical infrastructure deteriorating seriously before our eyes—these, too, were
previously unthinkable.
Most
disturbing, however, is our growing loss of trust in the competence and
integrity of our national leaders; the loss of confidence that our national
institutions are working fairly for the public benefit; and the increasing loss
of hope that the future will deal fairly and kindly with our children and
grandchildren. Public opinion
polls in all these areas make grim reading.
Public
approval of U.S. banks and of our public schools are at or near all-time lows.
Congressmen are widely seen as “for sale” to large campaign donors. Over half the public has lost
confidence in the politicized Supreme Court, and even organized religion is
losing support. Only the military,
small business and the police are admired and respected. Revival of public trust, confidence and
hope is our most pressing national challenge; and we—as citizens and as real
estate professionals—must play a part in that restoration.
As
concerned citizens in what has become a more combative rather than cooperative
culture, we must address the process by which our legislators are nominated and
elected and how our political decisions are made. How our legislation is written, passed, implemented and
eventually reviewed and reconsidered—all deserve our critical thought and
action.
Some
challenges, like those of our deteriorating physical infrastructure, are
relatively easy for an aroused citizenry to change. Others, such as technical improvements to the operations of
our dysfunctional Congress, are possible only if voters demand them. Crucially important issues such as the destructive
role of money in the political process must be faced frankly. Still others—like the painful
“present-mindedness” of a society that refuses to face the future realities of
an aging and needy population along with poorly-educated younger people—must be
discussed, analyzed and resolved “before the fact” rather than after.
Some
observers feel that only a crisis will force us to implement the necessary
changes. The Triangle Shirtwaist
Fire of 1916 was a necessary precursor to the important industrial safety and
health measures that followed; the 1929 stock market crash and the Depression were
required before a New Deal was possible; Russia’s Sputnik was a necessary goad
before America decided to head to the moon.
Such
crises could occur in at least four areas, unless an aroused public demands
action beforehand. These are: A)
Physical Infrastructure, B) Banking and Finance, C) Public Education and D) National
Government Administration.
A) Physical Infrastructure
If New York’s outdated and deteriorating Tappan Zee
Bridge (now scheduled for repair) were to collapse as did Minnesota’s I-35W
Mississippi bridge (killing 13 people and injuring 145), the nation might
finally read this month’s report of the American Society of Civil Engineers,
which gave our nation a grade of D+ on its infrastructure. With 70,000 U.S. bridges rated
“structurally deficient” by the Federal Highway Administration, someone should
take notice. Our water and sewage
systems, dams and levees are in equally bad shape; our airports, public
transportation systems and hazardous waste disposal facilities are only
marginally better; our electrical grids are inadequate for the 21st
century; and some authorities insist that our 104 aging nuclear reactors should
be replaced with newer, safer technologies.
The A.S.C.E. estimates that we should spend $2.2
trillion on national infrastructure repairs and upgrades over the next five
years. They point out that every
billion dollars spent on infrastructure creates 18,000 jobs, almost 30% more
than if the same amount were used to cut personal income taxes. Bond interest rates are low today, as
is construction industry employment. The time is ripe.
What should you, as real estate professionals, hoping
to keep New York competitive in a global economy fight for, with your Op-Ed
pieces, political contributions, etc.?
A good start would be active support for the No. 7 subway line extension
from Citi Field in Flushing to Grand Central Terminal to the proposed Hudson
Yards development and on to the Lautenberg commuter rail station in
Secaucus. Another would be active
support for Amtrak’s Gateway project to connect the northeast corridor lines in New Jersey to Penn
Station in Manhattan. A third
would be support for a revival of the now-forgotten Bloomberg congestion
pricing program, which has worked so well in London, Singapore and Stockholm in
reducing traffic congestion, shortening commutation time and reducing air
pollution. (This time the proposal
should specifically designate all revenues raised to improve mass transit in
the outer boroughs.) The proposal
would have passed last time but for opposition by the corrupt N.Y. State
Legislature, led by Sheldon Silver.
Silver, although supposedly representing New York City, also killed
N.Y.C.’s commuter tax, which raised $350 million annually to cover costs the city
spends to benefit suburbanites.
A redesigned and substantially improved Penn Station
and a relocated Madison Square Garden are also important and timely steps we
should advocate and encourage. We
can’t move the tracks but we can move the arena, and we should do it NOW!
These are positive steps. A worthwhile negative step would be to oppose the current
proposal to landmark—to save unchanged for all time—the uninspired 1.5 million
square foot tower at 270 Park Avenue.
No rational person would confuse that humdrum 1958 office structure with
Chartres Cathedral or the Parthenon, but the Landmark Commission must keep
busy, so they must landmark something.
Whatever your feelings, speak up!
B) Banking and Finance
The major “market failures” of recent years—Japan’s
economic crash of 1989, the dot.com bubble of 2000, the world financial
explosion of 2009—took most observers by surprise. Charles Mackay, the author of the 1851 classic Extraordinary Popular Delusions and the
Madness of Crowds would not have been among them. He recognized Bernie Madoff under another name, and his
study of the Dutch Tulip Craze, the South Sea Bubble, etc. would have prepared
him for the recent credit default swaps, unregulated derivatives, sub-prime
mortgage fiasco, etc. But even he
might have been surprised that after the collapse of Barings Bank in 1995, Long
Term Capital Management in 1998 and Enron in 2000, we had to wait for Lehman
Brothers and A.I.G. to implode in 2008 before asking who in the
financial world was doing what to whom.
Albert Einstein defined insanity as doing the same
thing over and over, expecting different results. Those who expect unregulated financial “free markets” not to
soar in booms and to crash in busts are in that category, as are those who
believe that an unregulated “wild west” banking sector will not eventually come
to grief.
A complex commercial and financial world requires a
complex and sophisticated banking system; but effective government regulation
must prevent the bad lending practices, bad risk management and outright fraud
and deception so prevalent in the banking world; and the public deserves a
“fire wall” between an insured depository institution and a non-insured
investment bank. And elimination
of absurdities such as favorable tax treatment for hedge funders’ “carried
interest” would increase public confidence in the fairness of the system.
One obvious answer to the problem is to require higher
equity-to-loan ratios for banks; more of their own “skin in the game” would
presumably encourage more prudent risk-taking. Greater transparency in all ways—to bank regulators, to shareholders
and to the public—would presumably bring constructive scrutiny that could rein
in untoward activities.
Most important, however, would be prison sentences for
criminal financial activities rather than mere “wrist-slapping” civil
fines. After HSBC admitted to
laundering $881 million for Columbian and Mexican drug cartels and admitted to
violating our sanctions against Iran, Libya, Cuba, Burma and Sudan, they merely
paid a fine. True, at $1.9
billion, it was the largest ever imposed on any financial institution, but HSBC
shares rose .5% on the news, showing that stockholders expected “business as
usual.” No one will go to jail, because the toothless S.E.C. can only levy fines and other government agencies involved that
could bring criminal charges choose to let the statute of limitations do its
magic. The message to our “crony
capitalism” bankers is clear—you have a free pass to commit crimes without
going to jail.
The topic of our inept rating agencies and our sleeping
government regulators is complex.
The ancient Romans asked “Who will guard the guardians?” and we should
ponder the same question.
A sustainable banking system is in everyone’s
interest. Speak up!
C) Public Education
If our physical infrastructure is a cause for alarm,
our national pre-college educational systems are in equally poor shape. The shocking 1983 federal education
report A Nation at Risk began with
the comment, “A rising tide of mediocrity threatens our very future as a Nation
and a people.” Thirty years later,
that warning is more relevant than ever. The dismal ratings of U.S. high school
students in comparative international ratings should be a cause of national
outrage and cries from employers that they cannot find enough qualified
employees must be heard.
There are several causes of our K-12 educational
failure; but foremost—and almost never discussed—is our casual acceptance of
the deficiencies of our worst K-12 teachers. The best (and there are many good ones) should be
appropriately rewarded; the worst should be separated.
In Finland, with the world’s highest high school test
results, teachers come from the top 10% of the nation’s academic pool. In the U.S., public school teachers come from the bottom quartile of all
students. In the rest of the
world, bad teachers are fired. In
the U.S. they get life-time tenure.
Students in the most advanced nations, who
substantially surpass ours, are instructed by teachers who consider themselves
members of a prestigious and well-paid profession, like doctors, lawyers or
engineers. With high educational
entrance standards, continuing encouragement for growth and development,
rewards for the best performers and removal of the worst, they are the pride of
the nation. Internationally,
America’s public school teachers are seen as protected union members with a
civil service mentality. Entrance
standards are the lowest in the developed world, performance is not evaluated
and virtually no teachers—even the worst—are ever fired.
Some day we will require our public school teachers to
pass the educational equivalent of a Bar examination or medical Boards, and
some day we will remove bad teachers at the same rate we disbar bad lawyers or
decertify bad doctors.
D) National Governmental Administration
One argument supporting claims of “American Exceptionalism”
has been the fairness, wisdom and sound judgment displayed by our Founding
Fathers in writing our Constitution.
These thoughtful men, however, never considered the
possibility that angry, capricious and continuing use of filibusters could bring
effective government to a halt; that delayed approval of qualified Presidential
appointments could be used to blackmail a President; that legislators would
routinely leave government service much richer than they entered, only to
become highly-paid K-Street lobbyists on leaving government; or that the
“legalized bribery” of campaign contributions would become the most significant
factor in influencing our legislation.
Our Founding Fathers believed their
separation-of-powers system avoided the vehemently adversarial politics of a
parliamentary system. They never
anticipated a Tea Party “No Tax Pledge” or that in the 110th
Congress (2007-2008) filibusters would be employed 52 times vs.
one-per-Congress in the 1950’s.
Nor did they anticipate that a 60 vote Senatorial supermajority could be
required to pass any significant legislation.
Furthermore, many believe that when the Founding
Fathers wrote of free “speech” they never equated it with “money” and when they
wrote of the rights of individuals they never would have thought of those
rights applying to artificial legal creations called “corporations.” They took for granted the bipartisan
legitimacy of the Supreme Court, not anticipating endless 5-4 votes based on
politics rather than on law.
They did give us the rights of impeachment and of
Constitutional amendment, and if a Constitutional amendment is required to
overturn the monstrosity of “Citizens United” (the worst Supreme Court decision
since Dred Scott), so be it.
The Code of Hammurabi (1700 B.C.) states in Law #5
that a judge in obvious error “shall be publicly removed from the judge’s
bench, never to sit there again to render judgment.” Ham, where are you when we really need you?
Conclusion:
As
thoughtful people like Lee Kuan Yew and Larry Summers point out, America is
fundamentally strong—economically, politically and socially; but we are going
through some difficult times.
Economically,
we must rethink and reform our tax system to make it simpler, fairer, more
growth-oriented and more ecologically sensitive. Some exemptions, such as home mortgage interest, should be
rethought; some impositions such as a carbon tax, must be considered. And a V.A.T.—Value Added Tax—which every
other developed nation has, taxing consumption rather than income, must be on
our agenda. With sensible
exemptions for food, clothing and housing, a V.A.T. can be progressive, and it
can fairly give us the revenue we need.
Politically,
we must return to a climate of reasoned discussion based on agreed on facts, with
greater mutual respect and civility and with more openness to consensus and
compromise—in which each party gains by sacrificing something valuable to the
other but by which the national status quo has been improved. Vehement election campaigning is one
thing, governing competently and fairly thereafter is another, and the latter
is what we need.
Socially,
we must aim at vigorous, effective measures to increase the “equality of
opportunity” and social mobility that are the hallmarks of an effective society. In the 21st century, we
realize that education doesn’t “cost,” it “pays.” If some potential Isaac Newton, Marie Curie or Leonardo Da
Vinci goes unrecognized and undeveloped in an inner city slum or an Appalachian
backwater, we all lose.
Friends,
we have our work cut out for us.
If a slogan is required, let it be Hamlet’s, “The time is out of
joint. Oh, cursed spite that I was
born to set it right.”
Positive
change can only occur when good (and smart) people act.
Let’s
start now.
(Daniel Rose’s talks may be found on
www.danielrose.org)
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