Fear and clarity in Davos
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I happened to be watching the World Economic Forum in Davos this week and was struck by the number of CEOs who mentioned “clarity” as the overarching need for the American economy. Clarity in fiscal policy, clarity in environmental and financial services regulation and clarity as to how seriously serving as chief executive has eroded the president’s constitutional law background. (That last bit is my own interpretation, at least, of the subtext of their comments.)
Clarity is not the same thing as transparency, but the two are at least first cousins to the “wrong track” polling information, which has recently reached historic lows. Although it varies from day to day depending on the news reports, the most interesting aspect of the polls is a Rasmussen finding that in the same moment that a whopping 73 percent of mainstream Americans (whoever they are) feel the country is ceding ground on their personal vision of betterment, two-thirds of the political class (63 percent) opine that the country is heading in the direction it ought to be.
My notion of what would constitute the “right track” for the country would be responsible leadership working to eliminate the impact of certain negative mathematical certainties, rather than speculative problems of civilization generally. By “speculative”, I don’t mean imaginary, but difficult or impossible to quantify, and by “leadership” I am not only talking about elected officials.
Sure, there are human rights violations in many African countries, but do we have to take down Michigan’s recovery as a manufacturing center to prove a point? A resolution was discussed yesterday in the Michigan House of Representatives’ Financial Services Committee, which requests Congress repeal Section 1502 of the infamous Dodd-Frank Act, Congress’s answer to the 2008 financial crisis, when Wall Street discovered it had developed innovative ways to generate more debt than there is money in the world.
How does the Congress clarify the rules for exotic financial instruments developed by financial institutions? They enact Section 1502 of Dodd-Frank, demanding multi-billion dollar reporting requirements on small business who expect to use tin, titanium and tungsten, known as “conflict materials” from the Democratic Republic of the Congo and surrounding nations.
Since you asked, at last report, 155 of the 398 deadlines imposed under Dodd-Frank had been met, and 64 mandated regulations had not yet even been proposed. An Arkansas state senator testified at a November national meeting of state legislators that, in his bank, there are now three regulatory/compliance employees for every line loan manager. Does this indicate clarity or complexity?
It would seem that there are a number of areas that could benefit from a little more clarity, and by that, I mean less uncertainty. According to state and local elected officials within my circle, the EPA could potentially shut down nearly every municipality in the country under its newly proposed storm water regulations.
Do Americans know what is going on with their health insurance? Is there common knowledge about who is included in the publicly supported “safety net”? Should we believe our secretary of state or Iranian President Hassan Rouhani about whether or not the Iranian nuclear weapons program will be halted? All of these issues are in the news, important and not subject to much quantification.
Other trends are indeed subject to quantification, but not widely discussed. State Budget Solutions released its annual State Debt Report this week, which finds that, despite all kinds of balanced budget requirements in their constitutions and spending restrictions enacted, the states have accumulated more than $5 trillion of liabilities on their books.
In wholesome contradistinction to the federal government, the states are seeking clarity by asking actuaries how to fix this. They have actually passed reforms from Rhode Island to Utah addressing the problems that march on them inexorably, but that were shrouded in other-worldly rate-of-return assumptions, “smoothing” (averaging) public pension returns over several years and a general lack of interest by legislative bodies.
Leonard Sax reports in Girls on the Edge that, in the first ten years after the turn of the century, there was a 70 percent increase in the number of boys needing mental health services, compared to a 400 percent increase in the number of girls requiring treatment. Does this rising anxiety in the traditionally more responsible gender have anything to do with the fact that, increasingly, nobody can tell you what the rules are in so many areas of one’s life?
There has always been personal and professional insecurity, particularly work-related uncertainty. Nobody can predict the market movements with much accuracy. But what is really modern – and a huge drag on us, according to the CEOs interviewed at Davos – is government-sponsored uncertainty related to how we might be targeted by our own public servants at the IRS, the SEC, the EPA, the Justice Department, the Labor Department and so on.
Elected officials are all about “sending a message” to citizens by punishing them or rewarding them in as many ways as they can imagine. But to get people thinking we are on the right track, a good first step is to clarify the expectations and make the rules both simple and universal.