The Tippling Point

Suppose you’re a dedicated aficionado of bourbon and, over the years, you’ve grown so attached to a prized Kentucky brand that you’ve become a shareholder in the company. The idea of buying a lesser bourbon never enters your mind, and scotch whiskeys offend your sensitive palate. They taste like liquefied cardboard.

Then the distiller of your beloved bourbon announces the appointment of a new Chief Executive Officer (CEO) named Ian McMillan. Over the course of the next 18 months, the Lexington and Louisville newspapers report the following:

  • The master distiller has been replaced by a pharmacist;
  • A thousand employees have been laid off, salaries of blue-collar workers have been frozen, and shareholder dividends have been increased;
  • The company has borrowed $600 million from the Bank of Scotland;
  • The company’s hundred-year-old secret recipe has been “reformulated”;
  • The new CEO and his management team are being investigated for obstructing the inspection of the company’s distilleries;
  • An undisclosed percentage of the company’s shares have been bought by an Edinburgh-based hedge fund;
  • Three executives in McMillan’s inner circle have been indicted for tax fraud;
  • The company’s online marketing operation has been outsourced to a media-relations firm located on the Isle of Skye;
  • The CEO has been accused of inappropriate sexual behavior by 17 former employees, most of whom are female;
  • McMillan used a subsidiary slush fund to pay for a $130,000 fishing expedition to Loch Ness;
  • The company has implemented a program to purge whistleblowers, immigrants, and self-supporting mothers from its employment rolls;
  • The CEO has hired a team of private investigators to find out who leaked the fake news about Scotland’s involvement in the company.

In the meantime, the directors have taken no action except to rubber stamp the CEO’s initiatives and downplay his inexplicable fondness for single malts.

We on The Other Side are left with several questions:

  1. For how long do you believe that the new boss is the same as the old boss?
  2. When do you begin to send angry emails to the Vice President of Customer Relations, a former investment banker named Jamie McGregor?
  3. At what point do you try a Tennessee brand of bourbon?
  4. When do you give up hope that the old recipe will be brought back?
  5. When do you sell your shares and begin to recommend your new bourbon to friends?

Or do you shrug your shoulders, cash your next dividend check, and buy a $75 bottle of imported scotch?

 

Fresh Faces

If the latest polls are a fair indication, Americans of voting age are less than enthused about the legislative gridlock in Washington and the direction of our country. According to a recent survey conducted by The Economist, 9% of Americans approved of Congress, 71% disapproved. In the same survey, 38% of Americans believed the country was moving in the right direction, 53% believed the country was on the wrong track. Both results correlated highly with a recent survey by Reuters.

Voters are registering their dissatisfaction at the polls:

  • In November of 2016, Donald Trump, hotelier, reality-TV star, and archetypal un-politician, was elected President of the United States. He defeated Hillary Clinton, a former First Lady, US Senator, and Secretary of State.
  • In a special election held in March of this year, 33-year-old Conor Lamb, a Democrat, defeated 60-year-old Rick Saccone, a Republican, in a Pennsylvania Congressional district that Donald Trump won by 20 points. Mister Lamb was a federal prosecutor but had no legislative experience. Mister Saccone was an eight-year veteran of the Pennsylvania House of Representatives.
  • In June, 28-year-old Alexandria Ocasio-Cortez, a publisher and educator, defeated 56-year-old Joe Crowley in the Democratic primary for New York’s 14th Congressional District. Mr. Crowley was a 19-year veteran of the US House of Representatives. (See Note 1.)

Inexperience, it seems, is in vogue, and that’s intriguing because it’s the opposite of what we value in the workplace. For a moment, imagine that you’re a businessman or businesswoman:

  • If you need a lumberjack, would you hire a florist?
  • If you need a ranch hand, would you hire a mechanic?
  • If you need a surgeon, would you hire a barber?
  • If you need a carpenter, would you hire an arsonist?

That’s not to say that we on The Other Side are steadfastly opposed to inexperience. Steve Jobs had no management experience when he founded Apple, neither did Larry Page nor Mark Zuckerberg. (See Note 2.) But Jobs, Page, and Zuckerberg were products of a well-financed, highly refined system that produces nine failures for every success.

By all means, vote for honest, donor-independent candidates with a strong sense of duty, respect for the rule of law, and an understanding of history––like Conor Lamb and Alexandria Ocasio-Cortez. But remember what we got when too many of us voted for a TV celebrity named Donald Trump.

Don’t vote for fresh faces just because they’re fresh faces. Vote for fresh faces because they’re a better bet than the stale faces.

Notes

1) Alexandria Ocasio-Cortez was purged from the New York voter rolls, thus unable to vote in the 2016 Democratic primary.

2) Steve Jobs was CEO of Apple for 17 years. Larry Page founded Google (now Alphabet) with Sergey Brin in 1998 and has been CEO since 2011. Mark Zuckerberg founded and has been CEO of Facebook since 2004.

President Trump’s Report Card

There’s been a lot of speculation on TV, in the enemy-of-the-state free press, and in social media, but no one knows for sure what Vladimir Putin and Donald Trump discussed in their secret Helsinki meeting except the principals and their translators––until now! Breaking news: Our president’s translator was able to smuggle the transcript out of his cell in Guantanamo, and it landed (mysteriously) on our desk.

Forthwith, word for word:

PUTIN (translated from the Russian): Enough with the kowtowing, Don; you’re going to ruin your bouffant. As you know, we’re here to review your performance and talk about your goals for the second half of the year, okay?

TRUMP: I’m, uh, all ears, sir.

PUTIN: Overall, you’ve done well. Started a trade war: check. Rubbed noses with Kim Jong Un: check. Threatened to pull out of NAFTA and NATO: check. Oh, and you were late for tea with the queen. Extra points for that one. (Putin chuckles.)

TRUMP: It was Melania’s idea. She hates crumpets.

PUTIN: We’ll come back to her later. Added a trillion dollars to your national debt: check. Jailed children: I loved that one. Kept the doors open for our Midterm Hackathon: check. Fired more FBI and CIA agents: good job there. Kept your pet Congressmen in line: check.

TRUMP: I gave them a new nickname: Bootlickers. I like to invite them to the White House to lick my boots. If somebody won’t lick, I call them bad names on Twitter.

PUTIN: Twitter’s okay. Personally, I prefer to murder my critics with experimental nerve agents. Saves a lot of R&D expense.

(Long pause.)

TRUMP (perspiring): But I’m doing great, right? You’re not gonna call my loans or send the pictures to CNN?

PUTIN (smiling and settling back in his chair): Let’s talk about the rest of the year, Don.

(Ice tinkling in a glass. Trump takes a swig of kvass.)

TRUMP (stutters): You’re, you’re, you’re the boss, sir.

PUTIN: First, my people tell me our Racist Engagement Campaign is coming along, but it needs more of your unique brand of leadership. Less golf; more rallies with lots of smiley white people. Second, we sent you a list of three candidates for your Secretary of State weeks ago. Pick one; we’ll get him confirmed. Third, we want you to strip some of Obama’s pals of their security clearances. They know too much. We’ll send you another list.

TRUMP: Good idea. I bet that’ll shut ‘em up.

PUTIN: Probably not, but it has to be done. Fourth, pardon more criminals. I’m not sure Manafort and Cohen are getting the message.

TRUMP: No problem. I know lots of criminals.

(Pause.)

PUTIN: Last, and this is very important, Don. You need to do a better job of getting your daily summaries to Melania. She calls every other day to complain. It’s annoying…

Unfortunately, the transcript was written in red ink on damp, two-ply toilet paper. The rest of the roll was too blurred to be salvaged. If the pattern holds, though, we can expect another meeting with a similar agenda shortly after the New Year.

— end —

Full Disclosure: We admit it; we made this up. In our defense, we got tired of hearing the usual legion of TV pundits claim that they had no idea what Putin and Trump talked about in their under-the-covers two-hour meeting. The accumulation of evidence, including The Donald’s tragic display of fealty at the post-meeting press conference, suggests that the president of the United States is Vladimir Putin’s sock puppet.

 

A Bulletproof Solution

We on The Other Side are wont to stray beyond the orbit of conventional thought from time to time, and it occurred to us in rarified air that there’s a better way to protect our schoolchildren from mass murderers than arming teachers: bulletproof vests for every pre-k, kindergarten, grade-school, and high-school student in America.

Bulletproof vests cost as little as $200 and as much as $2,000 each, but more than half of the 50 million bulletproof vests required to save our schoolchildren would be smaller than those made for adults, and they could be bought in bulk. So let’s assume for the moment that the average cost per copy would be in the neighborhood of $400.

Bleeding-heart liberals would doubtless argue that our children would be more afraid of being gunned down by an armed maniac than less because, well, they’d be wearing body armor to school. There’s a solution for that: Make bulletproof vests fashion accessories. Young boys and girls could pick “SpongeBob Square Pants” or “Dora the Explorer” vests for example; older students could choose likenesses of rock stars, sports legends, or indicted government officials.

Colorful, age-appropriate vests would be more expensive than the usual black, black, or black, but the protection of our children would be a relative bargain nonetheless. If the 50 million vests we need could be procured for an average of $400 each, the total cost to taxpayers would be a mere $20 billion. But wait; there’s more. Bulletproof vests have a useful life of five years, so the amortized cost would be circa $4 billion per annum, or 5.9% of the US Education Department’s $68 billion budget.

To summarize: The bulletproof safety of America’s schoolchildren could be bought for less than 6% of the Education Department’s annual budget. What are we waiting for?

Logic Abuse

To the surprise of no one, some number of our right-of-center Congressmen continue to insist that the approval of a 90-day extension of the FISA warrant to surveil Carter Page was “politically motivated”, thus the process is irretrievably broken.

The Foreign Intelligence Surveillance Court has approved more than 33,000 FISA warrants since its founding in 1978. It doesn’t matter whether the Carter Page warrant was “warranted” or not; the claim that the process is broken because a single error was made is, from a rhetorical standpoint, exactly like saying:

  • Charles Dickens was a hack because he got one bad review; or
  • Tom Brady is a second-rate quarterback because a wide receiver dropped one of his 8,805 passes; or
  • Honda makes unreliable vehicles because one of the 1.6 million they sold in the US in 2017 had a broken dome light.

We could go on, but you get the picture. All of the above are examples of a rhetorical fallacy called “generalization from the particular.” Simply put: “If one of many is x, then all are x.”

Generalization from the particular is a tool frequently used by politicians of all stripes because it’s invisible to the ears of millions of gullible Americans. If we on The Other Side had our druthers (as if), at least one of the 3,000 pundits appearing daily on national TV would have used the trumped-up FISA controversy as a teaching moment so that fewer voters would be hoodwinked by this egregiously fallacious device.

To our knowledge none of them did, and the midterms are just around the corner. Since we’re worried, everyone should be worried.

Notes:

1) Some of our esteemed Congressmen have complained that all three warrants to surveil Carter Page shouldn’t have been granted because he hadn’t been proven guilty. Forgetting for the moment that a warrant is issued when a person of interest is suspected of committing a crime, the same logic applies to the plural, e.g.: “My pumpkins are ripe, so all pumpkins must be ripe.”

2) As of this writing, Carter Page has not been indicted for any crime, either foreign or domestic. Four of his cohorts have been charged, three have pled guilty, and the Mueller “Which Hunt” continues.

3) The discerning reader will have noticed that we mixed a metaphor. That does not mean that we mix all metaphors.

The Other Side of Privatization

Between April and June of this year, more than 2,000 immigrant children were sent to internment camps without due process because their parent or parents purportedly entered the country illegally, which, by the way, is a misdemeanor. Some of the camps were hastily constructed by private-sector firms, which has again raised the question of whether some government services—no matter how reprehensible—should be outsourced to for-profit corporations.

The justification for outsourcing, typically made from the right side of the aisle, is that capitalism is inherently more efficient than bureaucracy, therefore less costly. That’s exactly the sort of general, overarching claim that we on The Other Side are compelled to question.

Fair warning: We believe that capitalism is more than just a good thing; it’s essential to the well-being of the planet and its inhabitants. Before those of you on the left collapse into foaming-at-the-mouth fits of apoplexy, here’s the but: We doubt that capitalism is good for everything, just as we doubt that everything tastes better with ketchup.

To the extent that we can, let’s apply our collective intellect to examining (in five easy steps) the claim that outsourcing government services to privately-owned companies is more cost efficient than continuing down the old-school, “deep state” bureaucratic path.

Step 1: The classic motive for creating profitable companies is maximization of shareholder wealth. Profits vary from industry to industry, but, in our (lengthy) experience, a pretax profit of 15% per annum is generally considered healthy, therefore a workable assumption.

For those of you who forgot to take accounting in college, that means that fifteen cents out of every dollar a private company makes are set aside for profit and taxes.  Government agencies don’t make profits and don’t pay taxes.

Step 2: By definition, efficient markets are competitive, which in turn requires privately-owned companies to promote and sell their services. The cost varies from as little 10% of revenue to as much as 30%, again depending on the industry. Since we’re a conservative bunch, let’s assume that the average cost of promoting and selling services in competitive markets is circa 15% of revenues on an ongoing basis.

In other words, fifteen cents of every dollar a private company earns are used to pay for a sales force, advertising, media relations, and similar functions. Some government offices, the US Army for instance, also advertise, and they have sales forces (called recruiting offices), but the cost in minuscule in comparison. As far as we know, no one in Washington is considering the privatization of the US Army, although mercenaries were used in Iraq—at a cost of as much as $1,500 per day.  In comparison, an Army captain makes about $180 per day.

Step 3: Outsourcing isn’t free. In order to ensure delivery of quality, low-cost services to the public, government agencies are required to manage their for-profit service providers. Since government management is inefficient, let’s assume for our purposes that the cost of oversight is about 5% of the overall cost to the taxpayer.

To summarize: We’ve estimated so far that private service providers have to be about 35% more efficient (15% + 15% + 5% = 35%) than government agencies, just to break even on a cost basis. We can argue about the numbers all day. We argued about the numbers among ourselves, but the logic is indisputable.

Step 4: Since private companies exist to maximize shareholder returns, the provision of services can be no more than a means to an end. In other words, the act of privatization subordinates the provision of service to the production of wealth. Government agencies are intended to make service provision their top priority, and the conscientious, well-managed ones do.

Step 5: Over the course of our career, we worked with or directly for twelve high-tech CEOs. Half were corrupt, meaning they manipulated the books for personal gain. Despite our experience, we have no data from credible sources which suggests that private-sector companies are more corrupt than public-sector agencies. So let’s call it a tie.

By definition, the act of outsourcing means that two entities are involved in service provision, which doubles the odds that at least one of them is corrupt. Case in point: The reconstruction of Puerto Rico’s electrical grid after Hurricane Maria was originally outsourced to a one-horse company from Montana.

We on The Other Side are left with four questions:

1) Who wins when provision of services is subordinated to profit? Hint: It’s a three-syllable synonym for owners that starts and ends with the letter “s.”

2) If some private-sector service providers are indeed 35% (or so) more efficient than their public-sector counterparts, is it a structural problem or a management problem? Hint: It can’t be a structural problem. See the above.

3) Does the probability of corruption increase or decrease with outsourcing? Hint: One plus one cannot equal one. See the Principia Mathematica.

4) Where do we draw the line? Should education, diplomacy, law enforcement, and tax collection be privatized, too? Hint: The answer isn’t “yes.”

The bottom line: Privatization of public-sector services is a structurally inefficient and counterproductive way to put tax dollars in the pockets of private-sector shareholders. There may be exceptions, but they’re few and far between.

Full disclosure: As of this writing, we own shares or equivalents in seven for-profit companies and partnerships. We think privatization is a dumb idea anyway.

Notes:

1) We’re fully aware of the contention that for-profit companies provide higher-quality services than their public-sector counterparts. In the absence of relevant surveys of customer satisfaction, however, service quality is wholly subjective.

2) We’re also aware that service quality is correlated with funding. If, in their collective wisdom, Congress and the president elect to underfund government services, then that act alone may be responsible for perceived quality deficits.

It’s possible, therefore, that irresponsible governments could create service-quality deficits by underfunding agency providers—for the sole purpose of (eventually) outsourcing those services to “more efficient” for-profit corporations. But our government would never contemplate such a thing, right?

 

The GOP v. Democrats: Jobs, the Rematch

Years ago, we emailed a good friend a set of data comparing Republican and Democratic economic performance since the Carter years. Our friend was a Republican. As far as we know he still is, but he wasn’t fond of the results. He sent a reply that read, “I think I can tell when someone’s cherry-picked the data.”

For the record, we on The Other Side let the numbers speak for themselves, but we’ve been on the lookout ever since for simple, straightforward metrics that shed a brighter light on the GOP’s economy-management expertise. As luck would have it, we stumbled across a Wikipedia piece titled, “Jobs Created during US Presidential Terms.” The article covers a lot of ground, but one part in particular caught our eye: a chart showing average annual nonfarm job growth per presidential term.

We couldn’t resist the temptation. We had to know whether the results would correlate with the conclusions we published in “GOP v. Democrats, Part III: Jobs.” In our several minds, we thought there was a chance that the Republicans would win this time, even though they were drubbed when the yardstick was unemployment.

According to Wikipedia, the annual Rate of nonfarm job growth per presidential term since 1977 was as follows:

President Party Term Annual Growth
Carter Dem 1977-81 3.21%
Reagan I GOP 1981-85 1.47%
Reagan II GOP 1985-89 2.80%
GHW Bush GOP 1989-93 0.45%
Clinton I Dem 1993-97 2.85%
Clinton II Dem 1997–01 2.33%
GW Bush I GOP 2001-05 0.02%
GW Bush II GOP 2005-09 0.24%
Obama I Dem 2009-13 0.23%
Obama II Dem 2013-17 1.85%

On average, the annual rate of nonfarm job growth during the last five Republican terms was a shade less than 1%. Over the same period, the average annual rate of nonfarm job growth was a shade more than 2% during Democratic administrations.

The usual quibbles apply. Our favorite: The newly elected president’s policies take a year or so to have an impact on the market. Our opinion: That’s true to an extent, but the latency varies and is largely subjective, which makes it impossible to measure. Our second favorite: The president is a tool of Congress. They make the rules; he (or she eventually) breaks them. Our opinion: The policies that affect job growth are generally determined by the president and then watered down by a detached, misinformed Congress.

The (empirical) job-growth bottom line: Republicans 1%, Democrats 2%.

To date, we’ve used four nonpartisan, easy-to-understand metrics to compare the health and welfare of the US economy under Republican and Democratic presidents. The score: Democrats 4, Republicans 0.

But we’re not giving up.  Sooner or later, we’re bound to encounter a barometer of economic performance that favors GOP presidents and doesn’t antedate the invention of the pocket calculator. In the meantime, we’ll look forward to another nasty-gram from the American Association for the Advancement of Innumeracy. You can support their cause by sending donations to the cable-news network of your choice.

Full disclosure: According to data published by the Bureau of Labor Statistics, 2.19 million jobs were created in 2017, Trump’s first year in office and a splendid result by any measure. From The Other Side: 2.34 million jobs were created during President Obama’s last year in office, or about 7% more than Trump’s first year, but a year is a fourth of a full term. Maybe things will change.