House of Cards

During the Clinton years much was said about "bridging the digital divide." On Charlie Rose recently Leo Apotheker, CEO of German software giant SAP referred to enterprise-wide computer networks as a "nervous system." In listening I drifted back to the time just before the event of 9-11. What if government computers (at C.I.A., F.B.I., etc.) had all been able to "talk" and share/analyze/intelligate aggretized data? What if there had been an interchangeability and exchangeability? Aren't these largely the kind of "hi-tech" public works projects we need in today's economy? (Many have warned of the negative impacts of excess efficiencies with respect to excessive automation, largely a result of internet and related technologies. But America is desperate.) Government bureaus and agencies are no different than subsidiaries of large corporate holding companies: getting systems to interact and share intelligence creates greater efficiencies. During the Bush years, a huge emphasis on guns, versus butter. A lot went into defense, but not necessarily aimed at the high-tech/technology transfer side. (As a side note, and speaking as a moderate independent centrist, in my view Rove ruined Bush.)

We need hi-tech projects--i.e. more government contracts--as part of the stimulus. More computer literacy and training, perhaps a coupon for a laptop for every family, bundled with varying levels of training. (Is there non-combat training the military could do more of with our young people?) We need more intra-agency network communications that are seamless. And we need policies that hire U.S. workers here in the U.S. to do this hi-tech retrofitting and implementation. We need most of the heavy lifting to come from U.S. plants. We can't borrow Chinese inflows simply to turn around and pay U.S. workers to then go to Best Buy for Chinese-made goods.

The much touted Resolution Trust (Aggregator) Bank will supposedly take all the toxic debt now on bank balance sheets and it may issue 30-50 year bonds. Similar to the Resolution Trust Corp. for the American S&L's back during the Reagan era.

In light of California's deficit, Gov. Schwartzenegger has announced an initiative to consolidate redundant state agencies, in hopes of increasing efficiencies, thereby reducing costs. (At the Federal level, Obama is doing the same.)

The systemic contradiction is that greater efficiencies promote more layoffs. Our ultra-efficient tech age has translated into Chinese factories that at half-capacity can out-produce world consumption rates three-fold. One wonders: is war (or recession) the only means to diminish excess systemic capacity (and hence raise scarcities)?

The Hidden Cost of Globalism

Despite what the Cato Clowns claim, the U.S. Trade Deficit tells the real tale. Housing is a symptom. It's not just about capital inflows to an attractive, stable U.S. market. It's about real value creation, which is what design and manufacturing are all about, and which today is mostly carried out in Asia. When a $15/hr. job in the U.S. is transferred to a lower cost $3/day zone--and its product later reimported back to the higher cost zone--a net liability is incurred. (The entire supply chain is also off-shored when a job is transferred.) Consider the differential in terms of buying power distortion. Someone making the product in the $3/day zone should be buying it there. (The imbalance occurs when there's inter-zonal trading. It's not a bad thing, but it does create imbalance.) The higher cost zone is effectively borrowing, not buying, the so-called "savings," booked as profit by the private enterprise. The public sector absorbs/realizes this net liability, and accordingly profit is posted in the private entity that transferred the higher production cost to the lower cost zone. Our public liabilities show up proportionate to China's surplus (and indeed, it's more complicated because we're dealing with a global system that includes trade with other nations and includes petro dollar transfers, too). But the fact remains that--for accounting reasons--goods should remain in the zones they are produced in to avoid imbalance. Is this practically feasible? For the most part, no it is not. Hence, a global trade adjustment factor (i.e. an algorithm, deflator or multiplier) is needed to offset imbalances as they occur--at the point when trade exchange crosses zones. Not so much resembling an actual tariff, but a data adjustor in terms of global accounting metrics. Not unlike--in theory--the way a graduated lock system in say, the Panama Canal Zone, works. It's designed to prevent major flooding and offset the sea level differentials. (The trend toward outsourcing cannot be blamed on unions only--it has affected all industries, even non-union service industries. Adding a surcharge to all undocumented or outsourced labor is a similar strategy...but it is basically a tax.)At the very least, outsourcing due to cheaper labor costs off shore has served to reduce real wages here at home--and I submit this is key to understanding the housing problem.

(Indeed George Soros has discussed this surcharge mechanism rather extensively, and has been talking about it for years, primarily as a trade-only currency adjustment metric. See the Balassa-Samuelson Theory, wherein purchase power parity=exchange rate.) The fact is, China's trade surplus is in large part a result of various accounting. And, our excessive trade deficit is also largely the result of accounting inaccuracies, in the way trade (and inflows, outflows, currency differentials, etc.) is measured. (Also, see the Big Mac Index for reference.)

Again, the policy key is to avoid a liquidity trap. The aim is not just to reflate, but to create knowledge worker jobs (and long-term sustainable wealth) from the bottom-up. Tax cuts are great, sufficient taxable income is first needed for folks to be paying taxes. Wiping away consumer credit card balances would only mask the underlying problem. Simply driving new consumer purchases--by rebate checks--sends dollars back over to China, and really does not promote capital formation here in the form of new investment. The big box stores are a huge contributor to our problem right now. Even large capital projects benefit primarily union trade labor, and service workers only secondarily. Wealth creation originates with innovations financed at a ground base level, often through localized incubators. Much of the "top down" financial engineering innovation from Wall Street--aimed at automation and cost reductions--didn't work, and resulted in more debt and exported jobs. We need a new approach. M&A alone does not create value.



the problem with this

are really bad DoD contractors who bid and get these projects. That is SAIC, Accenture, Boeing.

Of course these are great projects but I have no idea how/why they cannot take these in house with U.S. citizen engineers, manage them properly so they actually get real working code without "cost bloat".

I think the FBI paid SAIC $150 billion dollars (or was it millioins?) but they got zero lines of working code, not a one.

You can do a very well funded start-up for $24 million dollars and start this project, easily, get the deliverable in a couple of years....seriously they could.

So, something is very wrong in the bid system the contract award and they frankly we need more DoD type "start-ups" or contractors who are engineers, software engineers, who know how to manage a high tech project some how connected to get this government money.

Something is seriously wrong right now and maybe the DoD needs to "meet the VCs" or have an "outreach" conference or something to get organizations started who can actually design and deliver on those need technologies.

Big Bloated Government Projects

It's the same companies that keep on winning the big projects: IBM, Lockheed Martin, SAIC, Northrop Grumman, Accenture..
One of them will be prime on project A, then the rest will be subcontractors.
On Project B, Lockheed Martin will be prime and IBM will be subcontractor. It's always the same players and the wheel just rotates on who is prime contractor and who are subcontractors.

The government starts big with a lot of personnel and sites.By the time they discover that the infrastructure and technology don't work they have spent millions of dollars. The daily burn rate on these projects are enormous like a million a day. They should start a small project, validate the infrastructure before going full bore.

I had this idea

Back when I was working for the state. It would be EXTREMELY unpopular among Government Employees, but in the long run would save *any* government a good deal of money.

Bureaucracies are an excellent example of an expert system.

Just about any Bureaucratic job (and I'm personally really bad at this, which is how I got myself fired) is an if-then-else tree of Policies, Laws, Use of Public Funds, and Self Ethics. The first three are EXTREMELY well defined, the last not so well, which is where most of the mistakes in government come into play (including my own, I'll readily admit- being a member of the internet generation, I have a different definition in my Self-Ethics on proper use of public funds than Baby Boomers do).

However, having said this- this means 99% of what government bureaucracies do in serving the public can be regulated to a website with a relational database or LISP back end. It's just a matter of asking the questions, first from the policies then from the laws, and finally calculating the budget hit and fitting it into the budget, and then returning a simple Yes or No answer on the proposed action.

Computer programmers have been doing that sort of thing since the Animals program that came with the Apple IIe- it's not exactly cutting edge science to program an AI Expert System at that level.

It would certainly be worthwhile to target individual bureaucrats who are retiring- get a good knowledge transfer of their job to the programmer, and have a web based expert system ready to replace any public-facing employee at retirement. You could probably save around $48,000/year/project this way, over hiring somebody new to take over the job- and the savings would continue long after the depression ends.

Maximum jobs, not maximum profits.


I share these concerns...about bloat, over spending, mismanagement. Something must be done. Most experts are saying that Obama's main error was allowing Congressional dems to write the package. But did he really have any other choice?