Wednesday, July 30, 2008

The feedback loop on healthcare

The following is an outlook paper of The Jacksonian Party.

I have written about the problem of healthcare a few times in the past.  The first time was to outline the problems in 'health insurance' which is not insurance at all but a form of trying to manage costs for health care.  This 'problem' arose due to political interference in another part of the economy, which is the retirement system.  That system was set up to remove older workers from the workforce at a given age with guaranteed payments.  This was an 'economic stimulus' system to try and get the US out of the Great Depression... which it was already doing before this was passed.  After the end of that era came another one that would soon require the very, same individuals who were retiring to stay and work: World War II.  To do that manufacturing and service sectors were allowed to subsidize something that was only offered to executives and the rich:  'health insurance'.  That subsidy remains as a non-positive economic stimulus to this day.

In regular insurance you would place a bet that you will need a service, like health care, or as a contingency for an event, say death or accidental dismemberment.  That is where the insurance company is banking on you not needing to cash in your insurance by having the event and you are betting that the event will happen and that you will then get the payment.  Or your estate will.  'Health insurance' is neither of those as those who are not healthy need medical services, and so they are guaranteed to get an immediate return on their health care 'insurance' and are betting that their cost of services and medicine will be larger than their payments.  In large pools of mixed individuals the average can be given for that chance and payout, and the insurance company has overhead to ensure they are not being defrauded.  This is a health management system in which you, the patient, claims a need for medical services and the insurance company tells you if you are allowed to get those services at its cost schedule.  The two political parties seek to increase the pool of healthy, non-payers and turn them into payers into this system, either via direct law or indirect tax incentive.

What neither party addresses is the cost of overhead in the system: the cost to run the health management system on the part of the insurance companies which is bundled into the cost of the overall system, itself.  Your payment to the health system run by an insurance company includes this overhead on the part of the company.  Thus your final cost is burdened with the entire cost of the system: every insurance payment, every 'co-pay', every procedure that is covered and allowed is all burdened with this overhead.  As the tax breaks to offer this system were only offered to employers, those individuals seeking individual insurance would pay the whole cost, while, due to the tax break, the federal government assured businesses that they could foot part of the bill at a lower cost.  Your regular cost for the insurance (not co-pays) is thus not the entire bill of the cost of insurance, and yet it comes from your income and a portion of that is taxable.  Thus the employer gets a tax break (the subsidy) on what it pays, and you get a minimal tax break for your side if you pay over a certain percent of your income into health care costs.  If you don't you get a standard deduction.  If you sought this on your own, you would pay taxes on everything.

The problem with the costs involved I examined in a piece looking at how to move away from the insurance based model.  There are many ways to do this, including ending all the tax breaks for insurance so that the full, burdened cost is taxable as a service.  That would lead to unaffordable insurance companies ending their offerings, and those that demonstrate good and prudent means of choosing doctors, procedures and finding ways to reduce overhead would prosper.  An alternative I discuss is to see that this is really an 'assured service delivery' system and to treat it as such for given procedures, tests and other medical necessities.  By creating a 'voucher system', or medical services market, individuals could purchase guaranteed services at a given, current rate.  The voucher (or e-voucher) never expires and what one has done is *invest* in the system to get a guaranteed service return regardless of future cost.  This removes the overhead and fraud part of the system of improper services and puts the patient in control of assuring that such services have been properly rendered.  Fraud can still happen, but it becomes collusion and conspiracy, with much, much tougher sanctions against it if found.

What such a system would do is create a trade market for commodities from suppliers, so that an open-heart procedure performed at a hospital would have a higher value than one at a lesser hospital.  If you hold a voucher for that service at that facility or with that medical care provider, you are not refused it by them (scheduling and emergencies excepted, of course).  This also means that one can trade a number of lesser vouchers for a higher value one, so that services that you though you might need can be re-utilized for other services.  This removes the 'management' part from companies and places it with you, the actual user of the services.

There is another way to move out of the current system, however, and that is to require a feedback system into it.  Instapundit links to an article at the NYT on the topic of quality health care which looks at the cost system based not on its delivery of services but of the quality of services.  This quality factor is something that bundles a few things together:  overhead costs (paperwork, management), quality of care provided (by individuals who utilize the health services), quality of service (examining complications and attempts to mitigate them), and just the ability to provide the given service.  Here the actual ability of the health service user, being you, is taken into deep consideration, along with the burdening the system of each provider.  A provider that renders good quality care with low overhead and few mistakes gets a higher rating.  This is important as it impacts two venues that are currently critical to the health care cost system:  quality of care and overhead.

One of the major expenses in the insurance model is actually keeping track of the paperwork and making sure that reputable and reliable reports get reimbursed.  This is no small matter as the bulk of the payments goes to those providing the services, and the problem of fraud or mis-applied treatment is a major cost overhead for everyone in the system.  Fraud generally increases overall costs as it requires illegitimate payments and the time and energy to ensure they are tracked down and stopped.  Quality providers offer not only good service but offer accountability, too.  Accountability works to reduce overhead in that fewer poor procedures are done and the doctor has put in place a system to ensure that paperwork is quickly processed and procedures are accounted for.  Additionally, input from patients then changes those ratings as does the favorite problem harped upon by politicians:  torte reform for minimalizing malpractice suits.

The latter part is also a part of the overall rating, but a highly important one: doctors who have fewer suits against them can now point to insurance companies and demand better medical malpractice rates.  This overhead, as well as the time involved in such suits, has been a cost expenditure the system has had to absorb both on the doctor time and the insurance company's time (both malpractice insurer and health insurance provider).  Anything that lowers this cost and drives poor service providers from the market is a great boon in the long run and will help to lower overall delivery cost.

With that being said, the overall insurance model eats up a huge amount of time, capital and reduces the actual effective dollar being spent for health services.  Here the two Presidential Candidates offer different views, but neither tries to tackle the problem of actually having insurance.  I step through that overhead, but come to this conclusion:

Using government 'mandates' then becomes an effort to shift accountability out of the hands of patients, no matter how 'market oriented' a mandate is, and to meeting 'standards' set by a regulatory body that is appointed, not elected. As Mr. Stossel points out the average doctor utilizes 14% of their income to deal with *paperwork*, and even with most of that being electronic it requires the hiring of non-medical staff to handle insurance 'oversight' and paperwork. What you pay *into* health insurance becomes a fraction of what is paid out: you subtract of insurance company overhead, overhead of that burden on doctors who must change pricing due to it, and the increased cost of 'controls' and 'accountability' by the insurance company against fraud and just keeping track of the records. If you consider that 14% to be a baseline, just on the medical overhead side, then what is the baseline for the insurance company just to manage paperwork? 1% seems unlikely. 5% if it was run extremely well. In fact for most industries the non-work portion of the day for employees is considered at 20% and that is without profit added in.

If the insurance part is 20% and you throw in, say, a generous 12% profit... even 8% to be low... and you add in the cost of increase to doctors to keep track of the paperwork and pass that cost along, just what part of this 'insurance' is actually going to pay for medical expenses? You know, the stuff you use like doctor's visits and purchasing medications? 70% seems relatively fair, in that realm. So, if 15% of your overall budget goes to healthcare via insurance and you get a 70% useful return on that 15% you are actually spending, yes, 10.5% for healthcare. And that of your grandparents who didn't have insurance, back in the day when that was possible? I've read figures as high as 6-8% and as low as 3%.

That cost delta is lost money due to government mandates, regulations, tax subsidies and generally interfering with your health.

Getting accountability into the system will help to lower that 14% on the part of doctors, and that 20% from insurance companies, meaning that the 70% actual return will go up... maybe even to 75 or 80%!  The rest of that cost gets harder to drive out, although the actual amount necessary to pay in (the 100% you pay) can be lowered if the cost of medical malpractice insurance starts to drive less capable providers out of the system.  What you do not get to, save for a minority of cases, is a better than 100% return on your investment.  You do get health care, however, which keeps you alive and functioning.

The other side that is effected, however, is that of the ability of service providers to actually do something quite different from production line work.  The author of that article has not kept up with manufacturing and we are in an era of 'mass customization'.  That is where a basic production line can offer a wide variety of products off of its line-up, made directly to customer specifications.  That is a perfect analogy to dealing with health care as basic problems (medical conditions) can have a variety of variations due to individuals (due to metabolism, age, living circumstances, etc.) and with different complications (infections, slow healing rates, etc.).  Here the basic production line of medical services vary within known parameters for the various characteristics and known types of complications that arise.  Mass customized health care is different from personalized health care in that you, as a customer, have a specific set of variations based on *you* that are generally more typified into categories.  As those typical variations are known, the types of complications that can arise gets restricted into fewer categories which, thereby, limits risk.

This feedback system is possibly the most important part of medicine shifting to the modern world using modern feed-back systems for patient tracking.  By accumulating the non-personal categories and problems, the types of risks and complications can then be analyzed to see how diagnoses (services) are changing the system.  Diagnoses that lead to no improvement, or even minimal negative feedback, can then be examined against other diagnoses and treatments prescribed.  Those treatments (customized service) then allows for the diagnoses system to see what is happening with the treatments and offers feedback on effectiveness of them.  This, cumulatively, changes the response of the system as a whole: it ensures that better diagnoses and treatments are reinforced while lesser effective ones are marginalized.  That said for an individual with a suite of prior conditions and known variables, a personalized set of customized health provisioning can be made due to those things (and such things as patients actually doing their part in the system so those with lax attitudes may get a different set of treatments).

Here the goal is to provide better and more effective services and *reduce* end user cost as a percentage of their budget.  So, lets say it cuts a full 1/3 off the final cost to you, the person paying for it: that gets you to 10% of your budget (5% being 1/3 of 15%).  And that is the burdened cost and lets cut that burdening down to a mere 20%, thus your effective money towards health care is 8% of your budget!  Just like your ancestors!  And the 2% extra?  Service fees burdened into the cost.

Yes you get to pay for the privilege of getting the health care that your grandparents did... or great grandparents for many at this point.  And for better and more services?

Such a wonderful system.

The only major positive point is that it allows really nasty medical services to have less of an impact on the budget.  But then that is what traditional insurance is all about, isn't it?  Catastrophic care?  Accidental Death and Dismemberment?  You know, *regular* insurance.  That you pre-plan for and have it take a miniscule part of your budget as they are rarities in life... unless one happens to get you.

And for the rest... well that concept of pre-buying sounds pretty good, really.  And inflation-proof as it is for services expected in the future at some indefinite time.  An investment, in other words, where the cash-out is something critical to keeping you functioning.

Both of those would be helped by this movement, also, maybe even to the point of having you paying less for your health than those of 70 years ago as a percentage of your overall budget.

Friday, July 25, 2008

Founded on problems that good intentions harm

The following is a white paper of The Jacksonian Party.

The ways are numerous, but the salient ones for today have been clearly stated. The clearest overview is given in the Yates and Lansing letter to the New York Governor, 21 DEC 1787, in this paragraph:

Exclusive of our objections originating from the want of power, we entertained an opinion that a general government, however guarded by declarations of rights, or cautionary provisions, must unavoidably, in a short time, be productive of the destruction of the civil liberty of such citizens who could be effectually coerced by it, by reason of the extensive territory of the United States, the dispersed situation of its inhabitants, and the insuperable difficulty of controlling or counteracting the views of a set of men (however unconstitutional and oppressive their acts might be) possessed of all the powers of government, and who, from their remoteness from their constituents, and necessary permanency of office, could not be supposed to be uniformly actuated by an attention to their welfare and happiness; that, however wise and energetic the principles of the general government might be, the extremities of the United States could not be kept in due submission and obedience to its laws, at the distance of many hundred miles from the seat of government; that, if the general legislature was composed of so numerous a body of men as to represent the interests of all the inhabitants of the United States, in the usual and true ideas of representation, the expense of supporting it would become intolerably burdensome; and that, if a few only were vested with a power of legislation, the interests of a great majority of the inhabitants of the United States must necessarily be unknown; or, if known, even in the first stages of the operations of the new government, unattended to.

In large territories the ability to govern becomes a difficulty as the lengthy of distance between individuals and their representative leads not only to problems of government, itself, extending across such areas with the burden of government overhead, but also via the perceived distance between such representatives and the people they are representing. The extreme portions of the Nation would no longer be governable. Further, the problem is two-fold as those doing the governing, no matter how poorly, can seek to sinecure their offices by the means of government. And as the number of people to be represented increases and the number of representatives remains static, the power vested in each representative grows even as their ability to *be* representative of that population declines.

Federalist formulations of government put local government in control of local concerns: they generally do not create law. Laws from higher levels that get passed down to lower levels in a federal schema, increases the burden and overhead of those lower forms of government, slowly marginalizing their ability to be responsive to local concerns. This then winds up with few people making burdensome laws that clog up the entire set of governments starting at the national end. The more 'pass-through' there is to local levels for enforcement and accountability, the worse the overall system becomes.

Others had, of course, seen that problem as Centinel I did on 05 OCT 1787, in this passage amidst a much larger set of problems with the Constitution:

If one general government could be instituted and maintained on principles of freedom, it would not be so competent to attend to the various local concerns and wants, of every particular district, as well as the peculiar governments, who are nearer the scene, and possessed of superior means of information, besides, if the business of the whole union is to be managed by one government, there would not be time. Do we not already see, that the inhabitants in a number of larger states, who are remote from the seat of government, are loudly complaining of the inconveniencies and disadvantages they are subjected to on this account, and that, to enjoy the comforts of local government, they are separating into smaller divisions.

From the highest end, then, government needs to be limited in scope and size as it is the least able to understand local concerns. The closer government is to the action, the better it is able to adjust to the day-to-day affairs of people. While Centinel would go far afield from this outlook, that single statement of general rule of government size and distance is one that exists to this day for all governments in large geographic areas. Even the 'shortening of distance' via modern telecom systems have not mitigated the personal contact necessary for personally understanding the needs of limited populations in large geographic areas.

John DeWitt III by John DeWitt on 05 NOV 1787 would see a long series of problems with the House of Representatives, but a telling couple are these, after leading in with a transition passage from the Senate and the Executive, but it is also pertinent to the House:

Very possible also in a country where they are total strangers.—But, my fellow—citizens, the important question here arises, who are this House of Representatives? "A representative Assembly, says the celebrated Mr. Adams, is the sense of the people, and the perfection of the portrait, consists in the likeness."Can this Assembly be said to contain the sense of the people?—Do they resemble the people in any one single feature?—Do you represent your wants, your grievances, your wishes, in person? If that is impracticable, have you a right to send one of your townsmen for that purpose?—Have you a right to send one from your county? Have you a right to send more than one for every thirty thousand of you? Can he be presumed knowing to your different, peculiar situations —your abilities to pay public taxes, when they ought to be abated, and when increased? Or is there any possibility of giving him information? All these questions must be answered in the negative. But how are these men to be chosen? Is there any other way than by dividing the Senate into districts? May not you as well at once invest your annual Assemblies with the power of choosing them—where is the essential difference? The nature of the thing will admit of none. Nay, you give them the power to prescribe the mode. They may invest it in themselves.—If you choose them yourselves, you must take them upon credit, and elect those persons you know only by common fame. Even this privilege is denied you annually, through fear that you might withhold the shadow of control over them. In this view of the System, let me sincerely ask you, where is the people in this House of Representatives?

That tradition of choosing an annual set of representatives dates back far into Norse tradition with the Thing, and the annual selection of the lawgiver who then represents up at the next level of government from which is chosen one to go to an Althing or more national assembly. Two years was chosen for the size of the young Nation and the impossibility of having elections that often and still having time to get anything done... which is a very salient feature *for* annual elections, really. Be that as it may, the ability of the House to actually represent the common man or those that have 'common fame'. That is a wonderful position to describe, those who have common fame locally and are trusted as representatives. Something we lack in the modern position of wide-ranging fame is that of common fame.

Several States did have 'at-large' districts for Representatives, but that did not obviate the problem of the House being able to set its own rules for election proportions then passed into public law.

George Mason's Objections to the Proposed Federal Constitution, on 18-19 JUN 1788, examines numerous faults with it and gives a short passage in that laundry list of problems to this issue and then the specific powers granted to Congress:

In the House of Representatives, there is not the Substance, but the Shadow only of Representation; which can never produce proper Information in the Legislature, or inspire Confidence in the People; the Laws will therefore be generally made by men little concern’d in, and unacquainted with their Effects and Consequences.

[..]

By requiring a Majority to make all commercial & Navigation Laws, the five Southern States (whose Produce & Circumstances are totally different from that of the eight Northern & Eastern States) may be ruined; for such rigid & premature Regulations may be made, as will enable the Merchants of the Northern & Eastern States not only to demand an exorbitant Freight, but to monopolize the Purchase of the Commodities at their own Price, for many Years; to the great Injury of the landed Interest, & Impoverishment of the People; and the Danger is the greater, as the Gain on one Side will be in Proportion to the Loss on the other. Whereas requiring two thirds of the Members present in both Houses wou’d have produced mutual moderation, promoted the general Interest, and removed an insuperable Objection to the adoption of this Government.

Under their own Construction of the general Clause, at the End of the enumerated Powers, the Congress may grant Monopolies in Trade & Commerce, constitute new Crimes, inflict unusual and severe Punishments, & extend their Powers as far as they shall think proper; so that the state Legislatures have no Security for their Powers now presumed to remain to them, or the People for their Rights.

Now comes the warning signs of what happens when you give such power to a body that is ill-representative, sets its own size and begins to become an Aristocracy in and of itself.

While the objections raised were somewhat addressed in the Bill of Rights, the overall general view still stands as one in which a distant legislature makes laws that it cannot know the effects of when implemented. By regulating to ensure one way of trade or to implement a system that is not adaptable to circumstances, those laws will distort the marketplace and impoverish many to the benefit of the few. Beyond that the ability of the government to set its own borders on those things it is given to do then allows for those seeking to invent new problems to expand government into the leeway to do so once in the majority.

Amendments IX and X would ameliorate some of that very last by establishing that everything not given to the federal government is retained by the States and the People. Under that restricted view any expansion requires justification, and that has always been the outlook of those seeking fewer limitations on government, not more.

The corrosive powers in government and even the basis for representation are seen by Brutus III on 15 NOV 1787 and would also house a strong logical denunciation of something then going on:

The words are "representatives and direct taxes, shall be apportioned among the several states, which may be included in this union, according to their respective numbers, which shall be determined by adding to the whole number of free persons, including those bound to service for a term of years, and excluding Indians not taxed, three fifths of all other persons." — What a strange and unnecessary accumulation of words are here used to conceal from the public eye. what might have been expressed in the following concise manner. Representatives are to be proportioned among the states respectively, according to the number of freemen and slaves inhabiting them, counting five slaves for three free men.

"In a free state." says the celebrated Montesquieu, "every man. who is supposed to be a free agent, ought to be concerned in his own government. therefore the legislature should reside in the whole body of the people, or their representatives." But it has never been alledged that those who are not free agents, can, upon any rational principle, have any thing to do in government, either by themselves or others. If they have no share in government. why is the number of members in the assembly, to be increased on their account? Is it because in some of the states, a considerable part of the property of the inhabitants consists in a number of their fellow men, who are held in bondage, in defiance of every idea of benevolence, justice, and religion, and contrary to all the principles of liberty, which have been publickly avowed in the late glorious revolution? If this be a just ground for representation, the horses in some of the states, and the oxen in others, ought to be represented — for a great share of property in some of them. consists in these animals; and they have as much controul over their own actions, as these poor unhappy creatures, who are intended to be described in the above recited clause, by the words, "all other persons." By this mode of apportionment, the representatives of the different pans of the union, will be extremely unequal: in some of the southern states, the slaves are nearly equal in number to the free men; and for all these slaves, they will be entitled to a proportionate share in the legislature — this will give them an unreasonable weight in the government, which can derive no additional strength, protection, nor defence from the slaves, but the contrary. Why then should they be represented? What adds to the evil is, that these states are to be permitted to continue the inhuman traffic of importing slaves, until the year 1808 — and for every cargo of these unhappy people, which unfeeling. unprincipled, barbarous, and avaricious wretches, may tear from their country, friends and tender connections, and bring into those states, they are to be rewarded by having an increase of members in the general assembly.

That is a thoroughly consistent view of the slave trade and the rationale behind it and putting forth that to admit to some sort of proportional representation to slaves is to admit their commonality of being human. Once done what separates free men from slaves is diluted and, even worse, some States are allowed continue bringing in non-voting individuals to gain disproportionate representation. The drafters of the Constitution faced the dilemma of the principles of liberty, freedom and equality for men, and the absolutely inhuman conditions of the slave trade. When there is any proportional representation given, the power wielded by those States having slaves dilutes the power of free men to actually do anything about their condition via legislation.

This is why, as free agents, people are to keep tabs on their government: it is for their own interest. When those who have no ability to vote are given representation, then those who *do* vote wield disproportionate power at the ballot box. When done by *choice* the decision to not vote is one that is based on what that individual sees as their own best interest and that of their fellow man. The concentration of voting weight of those left does increase, but not by law, but by choice to make the conscious decision to not vote weigh upon the greater society at large.

Balancing off the North and South, in general, was a hard thing to accomplish in 1787. By adding in the idea that there should be *some* representation for slaves the idea was to compromise between NO representation and FULL representation by ending the institution of slavery. If the former was unthinkable to abolitionists the latter was a deadly blow aimed at the most prosperous part of the US economy: the agricultural south. Within a few decades that basis of formulation would change, and starkly, until the shifting point of industrial output of the north became the predominant part of the US economy. At that point in time the idea of a 'Gentleman Farmer' of the Jeffersonian mode was one that saw industry and self-support via farming as an ideal and was amenable to slave holding and pure freeman work.

If this most noxious compromise sits in one of the most revered documents of the US and, indeed, becomes the basis for government of the Nation, then we must recognize that the system of amendments put into the document would allow later generations to undo things that would not work out. Amendments XIII and XIV would end personal holding slavery and recognize that those freed from its bondage are, indeed, men and due the rights and full protection of the Constitution. Even that would be only a partial ending of slavery, however, as Amendment XIII gives a singular condition for its actual use:

AMENDMENT XIII

Passed by Congress January 31, 1865. Ratified December 6, 1865.

Note: A portion of Article IV, section 2, of the Constitution was superseded by the 13th amendment.

Section 1.
Neither slavery nor involuntary servitude, except as a punishment for crime whereof the party shall have been duly convicted, shall exist within the United States, or any place subject to their jurisdiction.

Section 2.
Congress shall have power to enforce this article by appropriate legislation.

That underlined section is important as it moves the racial basis of slavery out of the acceptable, and yet retains slavery as the most extreme punishment allowable in the US. If a crime is so heinous that even death is not a just punishment, then the removal of ALL rights and liberties of an individual and placing them in perpetual servitude is still allowed. It is a 'poison pill' to the States that were once slave States as any punishment would need to be meted out equally, regardless of skin color.

It is in those sections regarding slavery that would then lead to the question of: how is the general citizenry being treated? In Brutus III the transition is made between that compromise and the nature of government amongst free agents, and that there is a direct correlation between having unequal weight for slave holding States and those composed of free agents:

It has been observed, that the happiness of society is the end of government — that every free government is founded in compact: and that, because it is impracticable for the whole community to assemble, or when assembled, to deliberate with wisdom, and decide with dispatch, the mode of legislating by representation was devised.

The very term, representative, implies, that the person or body chosen for this purpose, should resemble those who appoint them — a representation of the people of America, if it be a true one, must be like the people. It ought to be so constituted, that a person, who is a stranger to the country, might be able to form a just idea of their character, by knowing that of their representatives. They are the sign — the people are the thing signified. It is absurd to speak of one thing being the representative of another, upon any other principle. The ground and reason of representation, in a free government, implies the same thing. Society instituted government to promote the happiness of the whole, and this is the great end always in view in the delegation of powers. It must then have been intended, that those who are placed instead of the people, should possess their sentiments and feelings, and be governed by their interests, or, in other words, should bear the strongest resemblance of those in whose room they are substituted. It is obvious, that for an assembly to be a true likeness of the people of any country, they must be considerably numerous. — One man. or a few men, cannot possibly represent the feelings, opinions, and characters of a great multitude. In this respect, the new constitution is radically defective. — The house of assembly, which is intended as a representation of the people of America, will not, nor cannot, in the nature of things, be a proper one — sixty-five men cannot be found in the United States, who hold the sentiments, possess the feelings, or are acqainted with the wants and interests of this vast country. This extensive continent is made up of a number of different classes of people; and to have a proper representation of them. each class ought to have an opportunity of choosing their best informed men for the purpose; but this cannot possibly be the case in so small a number.

Even at the early date of the founding, the concept of 'class consciousness' was present, but here presented in a formulation different from later political thinkers. Brutus is not calling for a class based representation concept, but for having representatives so numerous that all classes gain a say across the entire population. Adding in representational allotment to those who have no vested interest in society, being slaves, then creates an absolute problem of 'who represents them?' When applied to the larger society as a whole, the question of 'who represents the people?' becomes one that cannot be lightly shrugged off. If the Constitution creates an unrepresented class of people while addressing them as a class, which it does, then exactly what is going on with the rest of the outline of government?

This is a remarkably subtle examination of representative government and the ends to which it will be put by those inside of it. Later Brutus looks at what he expects to have happen with such government:

I cannot conceive that any six men in this state can be found properly qualified in these respects to discharge such important duties: but supposing it possible to find them, is there the least degree of probability that the choice of the people will fall upon such men? According to the common course of human affairs, the natural aristocracy of the country will be elected. Wealth always creates influence, and this is generally much increased by large family connections: this class in society will for ever have a great number of dependents; besides, they will always favour each other — it is their interest to combine — they will therefore constantly unite their efforts to procure men of their own rank to be elected — they will concenter all their force in every part of the state into one point, and by acting together, will most generally carry their election. It is probable, that but few of the merchants, and those the most opulent and ambitious, will have a representation from their body — few of them are characters sufficiently conspicuous to attract the notice of the electors of the state in so limited a representation. The great body of the yeomen of the country cannot expect any of their order in this assembly — the station will be too elevated for them to aspire to — the distance between the people and their representatives, will be so very great, that there is no probability that a farmer, however respectable, will be chosen — the mechanicks of every branch, must expect to be excluded from a seat in this Body — It will and must be esteemed a station too high and exalted to be filled by any but the first men in the state, in point of fortune; so that in reality there will be no part of the people represented, but the rich, even in that branch of the legislature, which is called the democratic. — The well born, and highest orders in life, as they term themselves, will be ignorant of the sentiments of the midling class of citizens, strangers to their ability, wants, and difficulties, and void of sympathy, and fellow feeling.

And will still need the votes to get into office from those not well born, not connected, and generally middle class and poor. The inherent wealth necessary to run for office, hold office, retain office, is one not readily available to the common man. While a man of 'common fame' can get to such offices, that is because of that fame allowing them to be more widely known and to seek the modest donations of their fellow man to run for office. The influence of wealth and power in US politics is not a modern artifact, but one dating back before the Constitution, and how to address it is given as a major problem for the idea of representative democracy.

Getting to the center of this nexus, Brutus adds this, and it becomes a major sign-post for representative democracy going wrong:

It will consist at first, of sixty-five, and can never exceed one for every thirty thousand inhabitants; a majority of these, that is, thirty—three, are a quorum, and a majority of which, or seventeen, may pass any law — so that twenty—five men, will have the power to give away all the property of the citizens of these stateswhat security therefore can there be for the people, where their liberties and property are at the disposal of so few men? It will literally be a government in the hands of the few to oppress and plunder the many.

And others have already started to point out the tools of that source exploitation by government for those in power: taxation, regulation, duties. Another is the military power granted Congress, but before stepping to that, it is important to realize that these three powers over a nation, as a whole and in part, are sufficient in and of themselves to set up a system of unequal government to assure the prestige of those in office and to gain a perpetuity of representation.

That looks something like this, in modern terms:


Courtesy: thirty-thousand.org

With the fixing of the size of the House of Representatives comes the era of the incumbent: the utilization of government power and the restriction of democracy so as to ensure that only a set number of individuals rule in near perpetuity over time. Gaining a seat in the House of Representatives is a near guarantee of lifetime employment in that body. That is, by definition, not representational democracy, due to changing demographics *alone*.

The actual point of this, and a sideswipe at other writers, was done by Roger Sherman in A Countryman II on 22 NOV 1787, and the point of it is stark and even while being dismissive, it brings it into clear focus:

The only real security that you can have for all your important rights must be in the nature of your government. IF you suffer any man to govern you who is not strongly interested in supporting your privileges, you will certainly lose them. If you are about to trust your liberties with people whom it is necessary to bind by stipulation that they shall not keep a standing army, your stipulation is not worth even the trouble of writing. No bill of rights ever yet bound the supreme power longer than the honeymoon of a new married couple, unless the rulers were interested in preserving the rights; and in that case they have always been ready enough to declare the rights and to preserve them when they were declared. The famous English Magna Charta is but an act of Parliament, which every subsequent Parliament has had just as much constitutional power to repeal and annul as the Parliament which made it had to pass it at first. But the security of the nation has always been that their government was so formed that at least one branch of their legislature must be strongly interested to preserve the rights of the nation.

[..]

If you cannot prove by the best of all evidence, viz., by the interest of the rulers, that this authority will not be abused or, at least, that those powers are not more likely to be abused by the Congress than by those who now have the same powers, you must by no means adopt the Constitution. No, not with all the bills of rights and all the stipulations in favor of the people that can be made.

But if the members of Congress are to be interested just as you and I are, and just as the members of our present legislatures are interested, we shall be just as safe with even supreme power (if that were granted) in Congress, as in the General Assembly. If the members of Congress can take no improper step which will not affect them as much as it does us, we need not apprehend that they will usurp authorities not given them to injure that society of which they are a part.

The sole question (so far as any apprehension of tyranny and oppression is concerned) ought to be, how are Congress formed? How far are them members interested to preserve your rights? How far have you a control over them? Decide this, and then all the questions about their power may be dismissed for the amusement of those politicians whose business it is to catch flies, or may occasionally furnish subjects for George Bryan’s POMPOSITY, or the declamations of cato, An Old Whig, Son of Liberty, Brutus, Brutus Junior, An Officer of the Continental Army, the more contemptible Timoleon, and the residue of that rabble of writers.

That, while being a bit condescending and provocative towards other writers, does make the point of deciding how the Congress is chosen as an absolute safeguard to liberty and freedom. We have, since that era, seen politicians and 'activists' seek to expand the definitions of the Constitution as enacted and put in place, so as to greatly expand and abuse the power available to the federal government. Amendment XIV was put in to address those who had been slaves in the Nation and to ensure that equality was provided to them, not as a super-set of rights to be applied across all time to 'empower' those who are not even citizens. By establishing that the freed slaves *are* citizens, the Constitution is amended to provide equal protection of the law to them *as* fellow citizens.

Today we find that Congress is seeking to protect a 'right of communication' outside of the borders of the Nation and that is not covered by their powers, save on the domestic side of things. As part of the Executive power, communications outside the Nation are not sacrosanct, save between citizens, which Congress can duly cover under its laws of the high seas power. While ship passage is protected by the Constitution, communication out of the Nation via other means is not: that traditional intercept capability of any Nation to spy upon other Nations utilizing whatever comes their way in the sea far from National borders and protection, is then an Executive power as part of defending the Nation by the army and the navy, and for intercourse with foreign governments. That is why the Executive is separate from the Legislative, as the dealings with foreign Nations, proper execution of the Admiralty power and gathering information about foreign Nations is handed to one individual chose by the people via the Electoral College. That route is a completely separate set of safeguards to choose an Executive for those powers.

When Roger Sherman addresses this question and tries to negate the other questions that arise from the Constitution, he is attempting to not only concentrate the discussion, but also to put aside the repercussions if Congress can NOT be chosen well and securely. His basic answer is the common one of many writers: choose by means of the most populous representational system of the States and put that in place for the House of Representatives. it is the methodology that other writers address, however, as they examine the formulation of government and seek to find what may be mitigated at the start, so as to properly address those concerns for future generations. Far too many take the dismissive tone, to this day, and believe that it was all properly hashed out, while the opposite is true: the safeguards that Roger Sherman called for were not properly addressed by those who proposed the Constitution as seen in the examples and arguments brought up by many on the Anti-Federalist side. Many, such as Mr. Sherman, were not out to thwart the Constitution, but to refine it and ensure that the safeguards against particular and well known forms of failure were put in place.

Looking at one of those examinations in A Federal Republican: A Review of the Constitution on 28 NOV 1787, there is a hard examination of the problems that are seen with the structure of the Congress and its powers, and part of that lengthy review looks at where a National government moves with such powers:

What does all this amount to, but an oblique confession, that Congress may, if they please, load us with many needless expences?

The taxation of the particular states for their own support will be over-ruled by Congress, or else it will be obliged to embrace a measure perhaps the most odious in the world, viz. excessive taxation. This would be widely different from the opinion of the ablest politicians. I am persuaded that if this constitution were to be adopted, Congress would be reduced to this alternative, either to oppress the people in the manner just hinted, or commit upon them a violent injury by depriving them of their rights.

Congress will be the judges of what is necessary for the general welfare of the United States, and this will open the door to any extravagant expence which they shall be pleased to incur. For this reason their power should have been accurately defined. Baron Montesquieu (B. 13, C. I) observes that "the real wants of the people ought never to give way to the imaginary wants of the state. Imaginary wants are those which flow from passion, and from the weakness of the governors, from the charms of an extraordinary project, from a distempered desire of vain glory, and from a certain impotency of mind that renders it incapable of with-standing the attacks of fancy. Often times has it happened, that ministers of restless dispositions have imagined that the wants of the state were those of their own little and ignoble souls." That this may happen here, we have a right, and indeed ought to suppose. Any man who carefully attends to the constitution(n) quoted above, must judge that the powers granted by it, are too indifinite. Indeed as it stands there expressed, it includes every other power afterwards mentioned.

This is the exact, same problem that modern Conservative writers have with the utilization of powers by Congress to this very day. We hear of the imaginary wants of the Nation invented by politicians: Social Security, Health Care, backing governmental mortgage companies, and even ideas that government at the federal level has anything to do with local education. These and a raft of other 'programs' are the imaginary wants of the federal government at the National level: they have no basis beyond the 'general welfare' part of the Constitution. That is the Art. I, Sec. 8 power at the very top of that Section:

The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States;

Federal Republican is examining these clauses and having dealt with the first part of this clause then moves on to the second part, and correctly deduces that unrestricted language given to Congress is not a boon but a bane: in giving it such wide discretionary powers for taxation, Congress may declare anything it wants as for the 'general Welfare of the United States'. If the large scale re-ordering of society to the outlook of Congress were not bad enough, the citation of Montesquieu also examines those things that flow from passion, weakness, attempts for personal glory or just seeing a 'neat idea' that should, in theory, help the Nation while, instead, only serves the personal outlook of those in Congress. When this is added to the regulatory power further down in Sec. 8, Congress is then granted a full suite of tools for dealing with things beyond just the 'general Welfare' but delves directly into the personal and particular outlooks of those humans sitting in Congress. We call that 'pork barrel spending' and it goes far beyond anything envisioned for the 'general Welfare of the United States' and yet by the power of Congress it may indulge itself in anything it can get passed... or slips through due to the size of the budget.

Indefinite powers, granted over long periods, are problematical: by trying to ensure that they are not abused via the electorate, the very means of abusing them via a system of factionalization within the electorate allows for majorities to press home views which are not shared by a substantive minority. And when that majority gives verbiage that it is for the betterment of all, the attempt is made to mask the problem of expanding federal power in, and of, itself. Congress, as Federal Republican examines, has great power to enact petty legislation to meet whims of that body of governors. Even when the 'general Welfare' part is cited, it is used to cover purely local affairs instituted from Congress or, even worse, intrude upon the areas of Amendment IX and X which are all other rights retained by the States and the people. Thus removing a right via the 'general Welfare' outlook becomes condoned by law.

Federal Farmer VIII on 03 JAN 1788 looks at this further problem of indefinite power:

We may amuse ourselves with names; but the fact is, men will be governed by the motives and temptations that surround their situation. Political evils to be guarded against are in the human character, and not in the name of patrician or plebian. Had the people of Italy, in the early period of the republic, selected yearly, or biennially, four or five hundred of their best informed men, emphatically from among themselves, these representatives would have formed an honest respectable assembly, capable of combining in them the views and exertions of the people, and their respectability would have procured them honest and able leaders, and we should have seen equal liberty established. True liberty stands in need of a fostering hand; from the days of Adam she has found but one temple to dwell in securely; she has laid the foundation of one, perhaps her last, in America; whether this is to be compleated and have duration, is yet a question. Equal liberty never yet found many advocates among the great: it is a disagreeable truth, that power perverts mens views in a greater degree, than public employments inform their understandings — they become hardened in certain maxims, and more lost to fellow feelings. Men may always be too cautious to commit alarming and glaring iniquities: but they, as well as systems, are liable to be corrupted by slow degrees. Junius well observes, we are not only to guard against what men will do, but even against what they may do. Men in high public offices are in stations where they gradually lose sight of the people, and do not often think of attending to them, except when necessary to answer private purposes.

Those that govern will lose attachment with the people if allowed to do so - they will do that because of their station in government, not from outright malice. When you have a hammer, everything begins to look like a nail, thusly those in government start to see government as the solution to anything and everything. Even if it is to just meet their own highly biased needs that are personal and private. Congress has seen fit to exempt itself from many workplace regulation laws on hours, payment, and even workplace safety. That does not serve the Union but does serve *them*. That is a vice of office that creates laws: those making such laws can exempt themselves from the law and thus shield themselves from that which is placed upon the common man. Whenever we hear of 'Congressional Staffers' having problems, it is Congress that sets its own size, gives itself its own staff, exempts itself from the general laws regulating such staff and, more generally, utilizes such staff in whatever way personal members see fit. Is it any wonder that they grow distant having their own personal servants on the public's payroll? If the work is too onerous, then make Congress bigger to divide up the duties and eliminate the staff. Of course that brings more eyes to legislation and makes getting things done for individual members harder by diluting their power...

This then brings us to the central point of Congressional power, as seen in Cato No. 6 by Cato on 13 DEC 1787:

In what manner then will you be eased, if the expences of government are to be raised solely out of the commerce of this country; do you not readily apprehend the fallacy of this argument. But government will find, that to press so heavily on commerce will not do, and therefore must have recourse to other objects; these will be a capitation or poll-tax, window lights, &c. &c. And a long train of impositions which their ingenuity will suggest; but will you submit to be numbered like the slaves of an arbitrary despot; and what will be your reflections when the tax-master thunders at your door for the duty on that light which is the bounty of heaven. It will be the policy of the great landholders who will chiefly compose this senate, and perhaps a majority of this house of representatives, to keep their lands free from taxes; and this is confirmed by the failure of every attempt to lay a land-tax in this state; hence recourse must and will be had to the sources I mentioned before. The burdens on you will be insupportable—your complaints will be inefficacious—this will beget public disturbances, and I will venture to predict, without the spirit of prophecy, that you and the government, if it is adopted, will one day be at issue on this point. The force of government will be exerted, this will call for an increase of revenue, and will add fuel to the fire. The result will be, that either you will revolve to some other form, or that government will give peace to the country, by destroying the opposition. If government therefore can, notwithstanding every opposition, raise a revenue on such things as are odious and burdensome to you, they can do any thing.

By having such an ability to tax for anything it wants, Congress may justify what it wants under 'general Welfare' and get it. We already have the lovely ideas that were put in place during the 1930's heading the Nation to bankruptcy because of the cost of social security, and now others wish to dispense other goodies from government... which is already going bankrupt. The upshot of that is seen by Centinal No. 8 by Centinel on 29 DEC 1787:

But as it is by comparison only that men estimate the value of any good, they are not sensible of the worth of those blessings they enjoy, until they are deprived of them; hence from ignorance of the horrors of slavery, nations, that have been in possession of that rarest of blessings, liberty, have so easily parted with it: when groaning under the yoke of tyranny what perils would they not encounter, what consideration would they not give to regain the inestimable jewel they had lost; but the jealousy of despotism guards every avenue to freedom, and confirms its empire at the expence of the devoted people, whose property is made instrumental to their misery, for the rapacious hand of power seizes upon every thing; dispair presently succeeds, and every noble faculty of the mind being depressed, and all motive to industry and exertion being removed, the people are adapted to the nature of government, and drag out a listless existence.

If ever America should be enslaved it will be from this cause, that they are not sensible of their peculiar felicity, that they are not aware of the value of the heavenly boon, committed to their care and protection, and if the present conspiracy fails, as I have no doubt will be the case, it will be the triumph of reason and philosophy, as these United States have never felt the iron hand of power, or experienced the wretchedness of slavery.

Again, while inflammatory, the point of Centinal and the others who have looked at this is that Congress, given this over-arching and unlimited power being unchecked can and does start to change the course of society to its own ends, instead of the other way around. Granted that many of the laws are good, such as ones encouraging trade and limiting monopolies and removing onerous child labor, but others that attempt to reward a portion of the people or offer things to some and not others falls more harshly into the divisive powers use to oppress some and uplift others. If the rich have no need of social security or medical insurance, then why force them to pay for something they will not use? And if it is something that only the rich can get, then spreading it out to the general population is costly and done via the inefficient means of government. If home ownership is so good, then why back up those Americans that cannot even figure out their budget to get such things? These are rewards we are, as a whole, asked to pay for while it is only the few or even a majority that benefits from it, while a substantial minority not only do not benefit but have to pay for these luxuries.

By creating that rift and exploiting it, and by not having sufficient representation to allow for a thorough discussion and review of these things, government then represses the minority by removing those views from the public dialogue in the seat of power. Dividing up the population into factions and then subdividing those factions to smaller groups, allows for factional politics to be created in which a 'majority' is a bare interest of self-enrichment that is then leveraged upon the minority as a 'common good'. If we can stand up for the rights of one person to speak out against things done to protect the Nation from abuse, then why are these voices attacked as seeking to hurt those sub-groups? By changing that focus from the entirety of the people to those sub-groups, the dialogue is stifled and ended. Speak up and you are *against* this or that group instead of seeking for common law and application across all of the people for equal protection and letting each benefit from their liberty to prosper or not as the case may be.

In closing, there is a Federalist perspective on what to do if this sort of thing arises, but I am pretty sure that it is just as unpalatable as the vices of Congress foisted upon the people and then supported by a vocal minority to give more power to government... that minority allied here and there to get a majority when it can, that is. Alexander Hamilton wrote this in Federalist No. 26 on 22 DEC 1787:

"The legislature of the United States will be obliged by this provision, once at least in every two years, to deliberate upon the propriety of keeping a military force on foot; to come to a new resolution on the point; and to declare their sense of the matter by a formal vote in the face of their constituents. They are not at liberty to vest in the executive department permanent funds for the support of an army, if they were even incautious enough to be willing to repose in it so improper a confidence. As the spirit of party in different degrees must be expected to infect all political bodies there will be, no doubt, persons in the national legislature willing enough to arraign the measures and criminate the views of the majority. The provision for the support of a military force will always be a favorable topic for declamation. As often as the question comes forward, the public attention will be roused and attracted to the subject by the party in opposition; and if the majority should be really disposed to exceed the proper limits, the community will be warned of the danger, and will have an opportunity of taking measures to guard against it. Independent of parties in the national legislature itself, as often as the period of discussion arrived, the State legislatures, who will always be not only vigilant but suspicious and jealous guardians of the rights of the citizens against encroachments from the federal government, will constantly have their attention awake to the conduct of the national rulers, and will be ready enough, if any thing improper appears, to sound the alarm to the people, and not only to be the VOICE, but, if necessary, the ARM of their discontent.

Schemes to subvert the liberties of a great community require time to mature them for execution. An army, so large as seriously to menace those liberties, could only be formed by progressive augmentations; which would suppose not merely a temporary combination between the legislature and executive, but a continued conspiracy for a series of time. Is it probable that such a combination would exist at all? Is it probable that it would be persevered in, and transmitted along through all the successive variations in a representative body, which biennial elections would naturally produce in both houses? Is it presumable that every man the instant he took his seat in the national Senate or House of Representatives would commence a traitor to his constituents and to his country? Can it be supposed that there would not be found one man discerning enough to detect so atrocious a conspiracy, or bold or honest enough to apprise his constituents of their danger? If such presumptions can fairly be made, there ought at once to be an end of all delegated authority. The people should resolve to recall all the powers they have heretofore parted with out of their own hands, and to divide themselves into as many States as there are counties in order that they may be able to manage their own concerns in person."

The man was a revolutionary, after all, and his prescription goes beyond just the armed forces and Congress seeking to undermine the country by rough take-over. In fact when it is Congress that is the *source* of the problems, then his solution *must* devolve down to its basics.

One man speaking up to decry the problems and cite that the removal of rights is tyrannical, no matter how *good* the things provided are. And as the people are the source of legitimate government, when government acts to expand its powers at the expense of the people, then the final check and balance rests not in government, but with the people.

If you like social security and decry narcotics laws, realize they are *both* part and parcel of this. We pay for both directly and indirectly, not only in money but in the imprisonment of many who have sought to do no harm to others. The narcotics are addictive, but they, at least, are amenable to an individual mending his ways... the handouts by government are far more addictive to the body politic. Both of these, and many other things done for the 'general Welfare' have their supporters, and yet neither of them is given to government to look after as we are supposed to look after ourselves. Charity from government is servitude to bureaucrats and the wardens, and neither is a good place for a free people to be under in a subservient condition. The cost of having poor is the necessity of charity and good will towards our fellow citizens, the price of handing those to government is eroded liberty and freedom.

Saturday, July 12, 2008

The failings of the bailings

With the headlines of two home mortgage insurance companies operating under federal guidelines and by those operating from appointment by the President, one does get to wonder just when the federal government will realize that it has very little part to play in housing.  Or in bailing out companies.  This is getting to be a habit of companies that face extinction due to poor business practices: claim you are 'too big to fail' and the federal government is supposed to come out with billions in support.  This talk is not new, as we have all come to see, and the first of the big companies to seek a bailout was Chrysler.  Making bad business decisions and having poor accounting procedures in the 1970's led the company on a path to insolvency.  While the federal government had helped other companies, this would be the first that would seek substantial backing to survive.  This was unusual for the US and many worried that the precedent set, then, would be repeated after that and more frequently and with larger price tags.  Looking at Saving Chrysler article of 01 NOV 2005 by Mark W. Dirsmith (Source: All Business):

Legislators were perhaps more concerned with Chrysler as a precedent for the future than they were with consistency with the past. The spectre of a governmental inability to refuse any company in distress in the wake of a Chrysler bailout was proffered, albeit in an intentionally overstated manner (Panetta, 1979). The absence of decisional criteria made conversations of subsequent bailout candidates and susceptible industries range wildly. The epitome of this perspective characterised the Chrysler proposal as a push toward the replication of British subsidisation of industry of this era. Many worried that the problems of private industry would become an inexorable drain upon the public coffers. Again, accounting was not seen as a source of reliable criteria by which governmental assistance could be responsibly provided.

[..]

The core of the principled arguments against a bailout rested within the notion that failure was a confirming experience for the exposure of private ventures to the test of the marketplace. Since the well being of all was enhanced by the failure of the inefficient and ineffective (Paul, 1979). A governmental bailout was tantamount to a direct rejection of private enterprise (Friedman, 1979). Moreover, special assistance demonstrates a preference for a few private interests over the more diffuse public interests (Stevens, 1979).

[..]

Proponents of the bailout refuted the ideological conclusions of the free market thinkers and offered their own. The business version of the survival of the fittest was characterised as an outmoded depiction of the US economy now that the interconnections between elements of the system have increased (Nelson, 1979). Nothing sacred or novel was said to be involved when competition was already less than pure. Every large company already had an on-going array of relations with the government that were not at arm's length. A more assertive stance proposed that temporary intervention was consistent with the finest spirit of capitalism (Wylie, 1979). Along these lines, government's role in preventing market failure was called essential for the smooth functioning of the modern high-risk market (Eagleton, 1979).

Unlike bailout opponents, advocates indicated the desirability of an ad hoc analysis. Philosophic approaches about the proper function of government without sensitivity to the costs and benefits of particular circumstances were seen as self defeating. To the extent that ideological debate could be displaced, new types of information would take on increased importance. For example, accounting information could fill the breach once an inquiry into particular costs and benefits had been legitimated. However, there did not seem to be an appetite for the exploration of more technically rational questions about the efficiency of the allocation process. Arguments about philosophic predispositions could not set the tone for the introduction of accounting information.

Capitalism is, at heart, a philosophy of markets and trade supplying the best solutions to the greatest number of people at the lowest cost for highest profit margin.  While the marketplace is, assuredly, not 'pure' due to such things as Anti-Trust regulation, Securities and Exchange Commission and various federal banking and business regulations, the idea that an 'impure' system improves with more interference is also a philosophical one.  If the basics of the marketplace are to work, the foundering of a company, no matter how large, is not going to permanently harm the Nation.  For such things as DoD equipment that is vital to the defense of the Nation, there already existed contracts and necessary law to allow for such parts of companies to be taken over if the companies failed: there was no national security part that can be worth mentioning as the government holds the ultimate card for national defense.  That is part of the 'impurity' of the marketplace, and yet is highly limited to those things necessary to defend the entire Nation.

What the argument of those for the bailout was is very simple: political expediency.  Any 'ad hoc' process that has no set definitions to it can come up with whatever end result those involved want.  By not setting up a system of objectives, goals, and measurements for them, there is no ability to say if *any* action is warranted... or that any action *can* be warranted by this lack of structure.  What you get is highly expected:

The multifaceted aspects of the process of attaining governmental support for Chrysler create a context that crowds out the use of real accounting information. In political processes, information is not neutral but instead exists within a system of resource mobilisation and interest alignment that itself is bounded by temporal constraints. In this instance, the accounting information could only be a small part of a much larger package that was manipulated and moderated in a short time frame by a host of parties with much to win or lose.

Raw numbers, market share, profit margin, efficiency of production, capability of sustaining a workforce... all of those have emotional impact to them inside the political process.  In point of fact the entire political process *is* emotional and depends more on perception than the actual, real basis for decision making.  By moving the question of a bailout from one of pure accounting and into the political arena, the emotional context can be brought into play and decisions slowly move from good economic sense to a biased weighting of emotional values.  Thus producing 'gas guzzlers' became a point against Chrysler, no matter how well or poorly such cars sold in the market place - the emotional value of the words trumped actual economic activity.

President Carter, the man who came to Washington as an 'outsider' and with a populist and anti-corporate agenda would be the one to actually push this thing into the political arena.  Such things as what compensation packages, or 'golden parachutes', executives would get were balanced against the United Auto Workers demands for representation and continuation of contracts.  Even worse was the impact of regulations that caused the problems at Chrysler in the first place: by neglecting the market and being unable to flex their production capability effectively, regulations from CAFE standards and the EPA would negatively impact the cost of the vehicles sold.  Not only were Chrysler's vehicles expensive, they were not selling despite their extremely high marketing overhead.  In the era before 'Just In Time' production, this caused back-ups of cars in inventory and the loss due to depreciation as multiple model years were in storage meant that the company would be losing value each and every day a car was not sold.  What came into play, however, was the fact that Chrysler was 'too big to fail':

Total GNP loss attributable to a Chrysler bankruptcy was estimated at $32 billion as a worse case scenario and $18-20 billion under the assumption that a healthy redeployment of resources would occur (Riegal, 1979). A large portion of this would be lost tax revenue, estimated at $10 billion (Brill, 1980) or less pessimistically, $6 billion (Riegal, 1979). The loss of tax revenue, plus the extra cost of unemployment benefits were estimated at $16 billion (Bohr, 1979). Less precisely denominated estimates of overall economic loss of between $10 billion and $2.7 billion (USNWR, 1979b) were offered. Any loss would add to a federal deficit, which at this time was just beginning to garner concern. Estimates of this incremental worsening included $2.75 billion for 1980 and 1981 (Whitten, 1979) and $11 billion over a longer time frame (Riegal, 1979). Revenue losses for state and local governments were estimated at $266 million (Whitten, 1979). The various estimates cannot be harmonised or compared due to the reckless, unsupported and casual manner they were presented, invariably providing no clue as to what assumptions were utilised. Nonetheless, the rhetorical power of these numbers was not dependent upon their ability to clarify and inform the decision.

[..]

The primitive economic analysis of isolated facts was another context for the Chrysler decision. The political process was unable to deal with a general equilibrium analysis which required a much more sophisticated set of tools than most that had voice in this debate could appreciate. For these purposes, the science of economics built a general structure that was not accountable. Therefore, more precise accounting data could not be brought to bear on the question of economic impact and the fairness of distributional consequences.

Yes, no one knew how much of a shock a loss of this large company would be to the US!  Somehow the non-factoring in of foreign auto sales to replace domestic sales didn't seem to come into play, and the changes in trade balances that would cause.  By being unable to evaluate economic activity, examine how the market could flex to the changes and safeguard against the very worst ones, the emotional analysis of Chrysler trumped anything that would be used in the monetary realm.  The major worries of reduced federal income and increased unemployment coming just after the era of 'stagflation' would almost certainly guarantee more years of the same.  Thus the company, as a system of employment and tax revenue generation had to continue, and the idea that a foreign purchaser could help out had already taken hold, in the company itself:

The most visible acts undertaken by Chrysler before the bailout was the sale of foreign operations. Under its previous leadership, Chrysler had become a multinational automobile producer. Although much money and managerial effort were invested, non-US operations never lived up to expectations. Sale of productive capacity abroad produced some liquidity. However, these transactions' largest contribution was to eliminate debt from the balance sheet (Business Week, 1979c). Other sales were made domestically that reduced Chrysler to an undiversified automotive maker and therefore presented the image of a "pure play" for Congress that would otherwise have been tainted by a diversified conglomerate structure.

Chrysler shed parts that had been a drag on it and sold off its foreign groups as they were a source of the debt that had been piling up.  The question is: why did this require Congress to step in?  What was provided was a series of loan guarantees to Chrysler which bolstered its backing even while it re-organized.  This meant that a bailout was available only if confidence in the restructuring foundered, and if there was renewed confidence that the smaller and streamlined Chrysler would increase, then the guarantees would not be used.  This forced a 'middle of the road' between bankruptcy and bailout, as neither were palatable economically.  And yet the question still would arise: why is a company too big to fail?

An economic loss of one entity means that the market is now opened up in the areas that it once occupied.  Other companies may take advantage of that or the entire market restructure along a new path that is not foreseen at the start of the problem.  Saving a company is a form of emotional insurance and an attempt to continue on economic activity as it is as an enforced status quo.

Chrysler did set a precedent, however, and the next 'crisis' would be in the Savings & Loan companies that had moved into areas of competition they were not familiar with and would suffer from that inexperience.  As various S&L organizations went insolvent, the threat of a run on them was starting to appear along with long lines of depositors wanting their money.  Again, the actual balance sheet and budgetary numbers would be utilized in the political arena with emotion weighing more heavily than actual cost.  A special report from Time Magazine on 20 FEB 1989 by Barbara Rudolph would look at this bailout:

One widespread early complaint was that Administration officials, notably Budget Director Richard Darman, were using sleight of hand to downplay the bailout's true cost. Darman originally seemed to say that the cost to taxpayers would total about $40 billion in the first decade, but that number in fact described only how much the plan would aggravate budget deficits. The actual spending from general revenues would be closer to $60 billion. But purely from an accounting standpoint, its impact will be offset by $20 billion in increased insurance-premium fees to be collected from the banking industry -- even though the funds will be earmarked for future banking bailouts rather than for cleaning up the thrifts.

Moreover, financial consultants pointed out that the Administration was projecting the cost of the rescue based on the rosy scenario of a robust economy, declining interest rates and fast-growing thrift deposits. Over the next decade, taxpayers may have to shoulder rescue costs that are tens of billions more dollars than now expected. Yet even those who recognized the Bush plan's shortcomings praised it as the best and boldest solution so far.

A primary objective of such a sweeping rescue was to restore the confidence of thrift depositors, some of whom have withdrawn their savings in fear of the system's insolvency. In fact, the Administration secretly feared a long-shot possibility that the drama of its bailout might spark a run on S & L deposits. To prepare for that dire prospect, senior White House officials and Federal Reserve Board Chairman Alan Greenspan met in the Roosevelt Room of the White House the night before Bush's plan was made public. Greenspan agreed that the Fed would stand ready to pump billions of dollars in emergency loans into threatened thrifts.

In the end, depositors stayed calm, even though some chafed at the idea of the cost of the bailout. "Honestly, it's the stupidest thing I've heard," said Leroy Scrues, a Detroit retiree. "Why should the public be paying for these rich peoples' mistakes?" Yet legislators and savers were relieved that Bush repudiated a proposal that his Administration had floated two weeks earlier: to levy a fee -- 25 cents for each $100 of deposits -- on all insured accounts. That ploy was widely seen as a tax in everything but name. The short-lived proposal was so distasteful that it made Bush's new plan seem all the more palatable. Said Fred Dorey, a Los Angeles medical statistician: "We were going to pay for it one way or another. At least the banks have to pay some too. It's a fair deal."

The healthy portion of the thrift industry will pay its share through an increase in its insurance premiums. The rate would rise from the current $2.08 per $1,000 of deposits to $2.30 from 1991 until 1994, after which it would decline to $1.80. The rate for banks would increase too, from 83 cents per $1,000 to $1.20 in 1990 and $1.50 thereafter. Even though both industries' insurance funds would be administered by the FDIC, their proceeds will be kept separate.

[..]

How did the S & Ls arrive at such a sorry state? Traditionally, running a thrift was a relatively tranquil business. S & L managers used to follow what was known as the 3-6-3 rule: pay depositors 3%, lend money at 6% and tee up at the golf course by 3 p.m. When interest rates remained stable, the strategy worked well. But by the late 1970s, thrifts began steadily losing depositors to the new money-market funds, which were not covered by deposit insurance and paid higher interest rates.

Thrift executives pressured Congress to let them fight back. In 1980 Congress lifted restrictions on interest rates that S & Ls could pay. But regulators waited a year before freeing the other side of the balance sheet by allowing S & Ls to grant adjustable-rate mortgages. The delay left the thrifts in a bind, because interest rates had rocketed from 13% at the end of 1979 to more than 20% a year later. Thrifts were collecting interest rates of around 8% or less on their 30-year mortgages, while paying double-digit interest to new depositors. During 1981 some 85% of all S & Ls were losing money.

Again the politically expedient route was taken, instead of letting the insolvent S&L institutions fail and having the solvent ones bought out by regular banks.  Stability in the domestic economy was the goal and that was achieved by walking a line between full government intervention and take-over or letting the market do what it normally does.  By 01 OCT 1990 Time Magazine would present an article by John Greenwald on what was going on:

At the height of his power in the Roaring Eighties, Charles Keating commanded an estimated $100 million personal fortune, controlled $1 billion in financial assets and counted a handful of U.S. Senators among his powerful buddies. Last week he stood as a wretched symbol of the past decade's financial follies. After the former owner of California's bankrupt Lincoln Savings and Loan was indicted on 42 counts of criminal fraud and was unable to raise the $5 million bail, police handcuffed and jailed him. California alleges that Keating bilked investors who bought $250 million of now virtually worthless junk bonds. The state's charges were the latest in a flood of legal actions against the disgraced businessman. Overall, taxpayers will have to pay more than $2 billion to clean up the mess left by Lincoln's collapse, one of the costliest in the nation.

Keating was the most visible villain last week in an S&L debacle that could cost Americans as much as $1 trillion, or some $30 a month for every household over the next four decades. In inflation-adjusted dollars, that is nearly twice the cost of the Vietnam War and almost four times the cost of the Korean conflict. So far, the government has seized more than 490 insolvent thrifts, or nearly one-fifth the entire industry. An additional 600 are troubled and may fail.

Even as jail doors slammed behind Keating, who remained in prison pending his arraignment next month, shock waves from the thrift crisis rippled across the U.S. The impact contributed to the budget deadlock in Washington and aggravated the slump in real estate prices in cities glutted with condominiums and office towers. In Denver federal regulators filed a $200 million lawsuit against the President's son Neil Bush and 10 other officials of the failed Silverado S&L, charging them with "gross negligence." Meanwhile, Neil Bush prepared to respond this week to previous federal charges that he abused his role as a Silverado director. In Congress, L. William Seidman, chairman of the Resolution Trust Corporation, asked for at least $100 billion for fiscal 1991 to keep the S&L bailout moving. Only a year ago, regulators had expected that $50 billion would do the job.

While Charles Keating would go behind bars, the actual solution would not provide much more than a temporary stability that would allow the various institutions to actually start to merge and shift into the rest of the normal banking structure.  At the International Monetary Fund's  Kenneth S. Rogoff would look at what the actual cost of the S&L bailout and looking at a similar one for the IMF in the 2002 SEP edition of Finance & Development:

So what could be the scale of the costs of moral hazard associated with the IMF's operations? First, consider an analogy. In the mid-1930s, the United States became the first country to establish a broad-based system of official insurance for bank deposits. This invention appears to have been a significant factor in the subsequent stability of the U.S. banking system and an important factor in banks' role as an engine of growth. Deposit insurance, like IMF lending, induces some moral hazard. But it was not until the savings and loan crisis of the 1980s that moral hazard engendered any significant fiscal cost. The ultimate cost of the savings and loan bailout amounted to some 3 percent of GDP. Was this such a stiff price for 50 years of stability? Of course, some other countries have fared worse, with bailouts amounting to 10 percent of GDP and more.

The cost of the scandals went beyond the institutions and by the federal government stepping in, that cost was passed on to the US taxpayer.  While many would point to this as a 'soft landing' or 'middle of the road' or 'least of all bad results', the question is: why is the US taxpayer funding the poor economic behavior of investors that put money into them without due diligence?  If Chrysler was a government backing to get the company to do something it should have already been doing, namely changing its management, outlook and corporate structure, then the S&L bailout was rewarding the negative behavior of investors who only cared about a bottom line return and not about the safety of their investments.

Now, for those with relatively short attention spans, there have been other large companies that faced very hard times and yet were not supported by the federal government.  One of those was IBM, who had been a world leader in computing via some very nasty tactics and a powerful global presence, that allowed them to marginalize competitors.  What they also did was to start up a small group looking to examine the realm of personal computing, seen mainly as a way to input data more efficiently into mainframes.  What that would do, however, is put a start-up group in Boca Raton, FL that would scrabble for a way to get this done.  They settled on commodity parts, an open architecture so that other could make pieces to fit into their computer, and an operating system.  In each of these realms this group found the ability to execute these ideas and created something that would be the foundation of the IBM PC era.  That era would also see a substantial shift in markets away from the monolith that was IBM and serious erode profitability, market-share and put the company at risk.

If IBM executed based on their old views of how to control markets, which was to put out proprietary architectures, such as the PS/2 Microchannel, then the smaller companies executed an extended ISA bus, then VESA, then PCI.  By the last IBM was no longer a factor in the industry for components, software or hardware.  IBM was forced to finally reconcile their business structure around the profitable areas, which were large scale integration and services, and jettison most of its hardware work to other companies.  While it retained the laptop line for some time, the rest of the PC market was essentially ceded to upstarts, and the company actually invented new ways of organizing its sub-structures that were and are revolutionary by creating a continuous adjustment management system that relies on low level knowledge from all parts of the system to adapt the system itself.

What most people fail to realize is that the actual architecture of the PC is based around a microprocessor that, itself, was invented because of the failure of another giant: Fairchild Electronics.  With the creation of the integrated circuit behind it, Fairchild could have become a dominant player in control circuit design, if it were not for its management.  That management saw a great benefit in not disrupting its market and continuing in its profitable cycle as a market force for ICs.  A group of engineers who wanted to do more left Fairchild and founded Intel which itself started to move towards a commodity memory market.  What happened, however, is that the engineering basis of the company sought control circuitry for embedded devices as a way of marginally increasing profit.  In one design they were asked to price out a central logic circuit for a hand calculator, and they put forward a price for it that was acceptable.  What they did, however, was to design a non-dedicated logic chip which could be reprogrammed.  That would become the central processing unit of the PC era after a couple of more design cycles and it was that chip that the Project Chess group chose over the more expensive chip from Motorola that Apple was using.  Fairchild became footnote in the IC world, while Intel would found a new industry.

Intel, itself, once established, would farm out its older CPU manufacturing overseas to a Taiwanese company called AMD.  What AMD would do was utilize more modern fabrication techniques to boost speed and throughput, and compete at the low-end margin of the component business.  That remained true until the first rev of 64-bit chips, where AMD used their gained knowledge from designing competition for Intel in the 32-bit market, where its Athlons had taken a small market share, to put out a new 64-bit architecture that was not only different than the Intel design but better.  It would be Microsoft, the company that was able to get the original contracts from IBM for the PC, that would be the market dominant force and it would choose which chip to design for.  It chose AMD, which was a shock of sorts in the processing world.  Although Intel would not suffer significantly from this, its role as market leader and innovator was challenged for the first time in decades.  AMD would start to suffer management problems and, while still a market factor, has actually declined somewhat in how the market views it.

Microsoft was the 'Giant Killer' in this arrangement, with a start-up vision stated by Bill Gates in the late 1970's that he wanted a computer on everyone's desk running a Microsoft operating system.  The fact that 90% of the world's PCs actually *run* a version of a Microsoft operating system *today* points out where an upstart vision can muscle aside a Giant of the industry and, itself, utilize very similar tactics bordering on the illegal to accomplish those goals.  Microsoft would marginalize competitors, actually steal technology (like the Stac disk compression technology), and generally become the New Giant in PCs.  One of the things lifted was from Apple computer, which was the graphical user interface.  The GUI, however, had its roots starting in a demonstration of graphical computing in the late 1960's and then first instantiated at a market leader in another area.

When Steve Jobs toured the Xerox Palo Alto Research Center (PARC), he saw a vision of computing that actually worked:  desktop computers with GUIs, all networked together with Ethernet, and attached to laser printers.  Xerox PARC made possible the technology of Local Area Networks, GUI based computing for office work and the devices that would make it all possible.

And then couldn't market them or create them at a reasonable price.

In creating a vision of the future, Xerox had no intention of actually selling that vision, just a few parts of it.  Bob Metcalf would take Ethernet with him and revolutionize the PC business, and the GUI would span hundreds of different implementations of which the Apple Macintosh is the best known.  Microsoft would lift from that, from other GUIs and from the original ideas at Xerox PARC to create Windows.  While starting out as a 'kludge' and still one in many respects, it represents a design legacy that traces its routes to academia and then a large company unable to realize that its vision of a networked office could make it money.  Xerox PARC remained a place where visions of the possible future are tried out and some actually investigated a bit more...

The federal government would not step in to save IBM.  Nor should it have done so as it served as a nucleus for a new industry that would change its role in the economy and actually increase overall economic production.  Even Microsoft has no assured place for all the fact they have helped to make computing easier, and spread the headaches of its platforms to a global scale.  Companies do fail, even when still existing, their management may so limit the view of what the company can do that it no longer remains competitive.  When Fannie Mae and Freddie Mac were set up, the government intruded into the mortgage market to offer underwriting of loans to families.  It is questionable as to if that was *ever* needed as it was a response to the Great Depression and changed the basis for what is and is not an acceptable risk to private mortgage lenders.  The fact that the American people have realized this and have actively exploited the problems of poor management and political appointees to its own advantage is not putting just these two institutions at risk, but the credibility of the ideas that founded them: that government is the best place to actually *insure* mortgage risks and underwrite them.

If these two organizations are 'too large to fail' then just why have they been let alone to grow so large in their market share for mortgage underwriting?  Do we not have Anti-Trust regulations to prevent this and disperse the risk across a broader market both public and private?  Or is it the control of that portion of the market for private individuals that government seeks to control, so that those utilizing such mortgages come to rely upon the views of the federal government as to their credit worthiness and not private financial institutions?  Just why *is* the federal government better to look at these things which were never given to it in the US Constitution to do?

That 'slippery slope' started by underwriting Chrysler, then bailing out the S&Ls now comes back very hard with the politically corrupting influence of appointees elected by NO ONE and accountable to NO SHAREHOLDER distorting how the public at large views the mortgage market.  It is your money that the federal government wants to use to reward bad economic behavior on the part of its appointees and those encouraged to make unwise decisions by those appointees.  Perhaps, as the federal government started this mess, it is time for it to get out of the direct market underwriting and manipulation area all together.  Because, in the doing of those things, it is now the source of the problem.