Smoke and Mirrors Yield Sub-optimal Public Policy

by Jefferson Pinto

Oct. 2008, VIEW Issue 7: I was watching TV the other evening and saw a show with a 700+ pound man who needed to be hospitalized; could neither ably walk or fit through the door. This begs a few questions. How did he get this way? Why did he keep eating? How did he keep eating? Who kept bringing him food? Why did he wait this long to remedy his eating habits?

I am left wanting by the poor media coverage and lack of comprehensive analysis of our national financial mess. Moreover, there are a few dimensions to a big issue that have not been addressed very well. If there are two things that keep appearing on the front pages of our news, they are “bail-out” and “$700 billion.”

The underlying stories seem to follow one or more of the following threads: 1. The cost of doing it, 2. Who is going to pay for it, 3. Whose fault it is, 4. Pork (not the other white meat) and, 5. The urgency to do “It,” “It” being the “bail-out”.

It sounds like we are sitting in a small row boat with some small leaks in the hull; nothing an old can and two small boys can’t remedy. It’s actually more like the hole in the side of the Titanic left by an iceberg. I assure you, it is a mathematical certainty.

Please allow me to pontificate about some of the other germane dimensions of this tragedy.

It Would Be Too Costly To Let These Institutions Fail

This hypothesis assumes that we know the cost of letting them fail. Has anyone ever quantified the costs – financial, human wear and tear, etc.? I sure haven’t. Let’s do the easy math. $700 Billion (700,000,000,000) divided by 250 million people (250,000,000) equals $2,800 for every man woman and child in this country. On average, that means that for a family of four that equates to $11,200 to save these overweight institutions. The underlying problem is the difficulty comparing something to nothing. The something is $11,200 and the nothing is WHAT?

Why the Hurry?

The economic situation took a few years to converge to the current state. From a public policy stand point, why the hurry? The bad loans are already bad. Those that will go bad will do so with or without the intervention. It almost appears the medicine is worse than the ailment. What competent doctor would treat a patient without first gaining an understanding of the illness and the consequences of the treatment options? The damage from the original catastrophe is done. Let’s not create another catastrophe by forming policy in a rash and impulsive manor that will eventually haunt us long after Halloween is over.

The Blame Game

I don’t know what it is about us humans, but we seem to have this insatiable need to blame a bad thing on something or someone. Think back to the last time you vomited. After you regained your composure, wiped the tears from your eyes, and rinsed your mouth out, you probably asked yourself, “What did I eat that made me sick?” The reality is sometimes we become ill from causes other than something we ate. The blame game at hand is beginning to sound more like a combination between a diet beer commercial and the Jerry Springer Show in slow motion: “Less filling – Tastes Great”. Substitute the words Republican and Democrat and you have a good grasp of it. If it is so important to act quickly, it makes sense define and address the problem first then, for giggles and grins, come back later and assign blame.

"Why was the analysis of “it costs too much” omitted by our elected officials and our free press?"

Pork: Looting During the Riot

As if the $700 billion price wasn’t enough, there were many other items inserted that are completely unrelated to the problem at hand. One notorious example is the repeal of an excise tax on children’s wooden arrows. Since this line was espoused by Oregon Senators Ron Wyden [D] and Gordon Smith [R], I can only speculate the primary beneficiaries are in Oregon. This begs two questions: Why was this slipped in at the last minute and why didn’t our elected representatives object when the bill was in committee? My question: Why weren’t these pigs exposed before the bill went to final vote and signed into law?

Who Is Going To Pay For It

Not so long ago, I walked in to my supervisor’s office and explained how another’s derelict performance created a colossal amount of work and was a major set back for our department. He shrugged his shoulders and said, “Sometimes in life, you have to deal with untreated sewage.” Much to my chagrin, his point had substantial merit. The economic realty is we are all going to pay for “It”. I suppose we could argue the “who ought to pay for it”, but I’ll save that for another article. My beefs: Why was the analysis of “it costs too much” omitted by our elected officials and our free press? Why did we replay the Jerry Springer blame game during prime time in lieu of core issues? Who’s watching the farm when the little piggies go to market during the panic? Why wasn’t it explained how much each American would have to pay?

Aside from the core economic problem, the omissions and misdirection (tricks commonly used by magicians) will invariably exacerbate the problem and lead to suboptimal public policy. Folks, it’s broken; let’s fix it!

In the next issue, I’ll address how “the man” got to be 700 pounds. That is, how flawed public policy incented behavior that caused the current state of affairs. The chain of events included substandard lending policies, destructive real estate speculation, financial institution failures, that have adversely affected small business and individuals.

– Jefferson Pinto, CPA, MBA
Jefferson Pinto is a retired CPA , holds an MBA  from one of the finer accredited universities in this country, and is the VP of corporate operations for his day job.

This Story: http://bit.ly/2iDbgAb

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SOURCE: Oct. 2008, VIEW Issue 7
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