Kaulapi World

Next two weeks have the potential to be another battle over the 2012 budget that might result in another shutdown.  This time around it sounds like we’re headed to another continuing resolution (CR) that will stretch things out a few months.  With the new super committee set to knock out a few trillion in budget cuts come November, there is some indication that a CR is in the works, and things will keep on plugging along before the last 2 weeks of the fiscal year are up.

The uncertainty hasn’t gone away at all, despite it being relatively quiet in the news lately.  Been keeping tabs on some unofficial sources to try and anticipate whats around the corner, but anyone’s guess is probably close to reality at this point.  I’ve retrenched my positions similarly to hour the April and August budget/debt battles played out, fully ready for the possibility of a furlough or shutdown, a matter of several months now instead of a few.  Looking at some of my account positions I would normally feel a little rich if not for the prospect of having to rely on these balances to keep afloat for an expended period of time.

All of this has created a considerable amount of stress, at the same time I’ve noticed how many of the normal distractions that exist in our modern American society can either serve as healthy coping mechanisms or dangerous blinders.  I’m all for the occasional healthy distraction when things get too intense, but too often I look around and am reminded that none of us can really afford to take the eye off of the ball even for a moment, least we get blindsided.

Recently Came across a few nuggets of wisdom from wikipedia:

The Peter Principle states that “in a hierarchy every employee tends to rise to his level of incompetence”, meaning that employees tend to be promoted until they reach a position at which they cannot work competently. It was formulated by Dr. Laurence J. Peter and Raymond Hull in their 1969 book The Peter Principle, a humorous ^[1] treatise which also introduced the “salutary science of hierarchiology.”

The principle holds that in a hierarchy, members are promoted so long as they work competently. Eventually they are promoted to a position at which they are no longer competent (their “level of incompetence”), and there they remain, being unable to earn further promotions. Peter’s Corollary states that “in time, every post tends to be occupied by an employee who is incompetent to carry out their duties” and adds that “work is accomplished by those employees who have not yet reached their level of incompetence”. “Managing upward” is the concept of a subordinate finding ways to subtly “manage” superiors in order to limit the damage that they end up doing.

The employee’s incompetence is not necessarily a result of the higher-ranking position being more difficult — simply, that job may be crucially different from the job in which the employee previously excelled, and thus requires different work skills, which the employee may not possess. For example, an engineer with great technical skill might get promoted to project manager, only to discover he lacks the interpersonal skills required to lead a team.

Thus, “work is accomplished by those employees who have not yet reached their level of incompetence”.

Peter also suggested that ‘super-competence’ in an employee is more likely to result in dismissal than promotion, which again is a feature of poor organizations, which cannot handle the disruption. A super-competent employee “…violates the first commandment of hierarchical life: [namely that] the hierarchy must be preserved…”.

–Which eventually lead me to read this entry:

The Dilbert principle refers to a 1990s satirical observation by Dilbert cartoonist Scott Adams stating that companies tend to systematically promote their least-competent employees to management (generally middle management), in order to limit the amount of damage they are capable of doing. In the Dilbert strip of February 5, 1995Dogbert says that “leadership is nature’s way of removing morons from the productive flow”. Adams himself explained,^[1]

“I wrote The Dilbert Principle around the concept that in many cases the least competent, least smart people are promoted, simply because they’re the ones you don’t want doing actual work. You want them ordering the doughnuts and yelling at people for not doing their assignments—you know, the easy work. Your heart surgeons and your computer programmers—your smart people—aren’t in management. That principle was literally happening everywhere.”

The first time I heard of the Peter principle was during my first job out of college, my boss at the time used it as a humorous explanation to why middle and upper management could at times seem hopelessly deadlocked, and at times totally incompetent to make key management decisions, even in times of fiscal crisis where decisive leadership is called for.  It was an interesting concept, that over time as an unintended consequence, you end up with the level of incompetence of individual workers being directly correlated with the higher pay and fancy sounding titles.

The Dilbert principle I think actually is much more on point, but it is almost like a symptom of an institution that has gotten so deteriorated that it can’t even operate rationally, let alone efficiently.  Then instead effectively managing incompetence by moving people to positions that they are a better fit for, or by training or disciplining the problem, you just push it aside in the most perverse way, through a promotion.

I’ve actually observed and witnessed both of these up front and personal. Had some managers so insanely incompetent that I was left scratching my head as to how the hell they got promoted to management, knowing that at one point they were in my position, yet over time they seem to have forgotten even the simplest aspects of the job entailed.  I’ve also seen individuals that are rewarded for having skills at negotiating office politics to their favor as relative to possessing actual skills relevant to the work, but they get the token rewards – no real power other than a fancier sounding title, and a nominal pay raise.  When systems start acting in these ways, there is a major hit to workforce morale for the rest of the workers in the system, as it flies contrary to what most workplaces like to promote as how promotions and bonuses are handed out, based on the individual doing a good job, and being good at what they do.  The worst is when I’ve experienced a mix of both an incompetent manager that has some real power, and they resist being “managed upward” .

Together, these principles pretty much sums up one of the critical flaws of so called performance-based / merit-based compensation systems, or meritocracies.  The naive assumption is that in the best interest, institutions would want to strive for greater efficiency, producing better goods and services for their customers.  Under this theory, anything or anyone who gets in the way of this goal should be reassigned or replaced, especially policies that erode morale.  You want to motivate your workers with incentives, namely higher pay and bonuses.  However in reality the self-enforcing nature of the system or hierarchy itself, which is a form of corruption at the institutional level.  Hence, what promotions are really looking for are to a varied extent, conformity to the norms of the institution.  Or more importantly, the perception of upper management to the individual’s ability and willingness to conform to the norms of the institution.

Over time things degenerate to the point where system is spending a lot of time managing the individuals that have risen to their level of incompetence with more and more promotions, instead of trying to capitalize on their relative strengths and recasting them in the most beneficial position in the company, in other words, truly developing them.  If this continues on long enough it becomes ingrained into the culture of the institution, inefficiency, incompetence, favoritism, corruption becomes the status quo, the unspoken rule.  Outsiders, reformers, or just newer, motivated workers coming in are then handicapped from making any contributions that might have been a net benefit.  Thus, you don’t get very far in an institution or system by talking or promoting change.  It does make for a good campaign slogan though.

Maybe a solution is to approach promotions and pay incentives differently, keep the pay increases the same, but maybe demote the individuals to their level of competence.  Stop referring it to a demotion, rather make it a transfer, or repositioning.  For those that have a knack for office politics and ass kissing, but lack the core work skills and management skills, maybe capitalize on their skills into marketing and public relations.

Been a rough couple weeks so far following the aftermath of the debt ceiling crisis which proved to be more political theater once again.  Late last week S&P broke the trend of the rating agencies and actually downgraded the US, and then it seems like all hell has broken loose in the financial markets, down 4%-5% one day, and then a quick retrace the next.  Exchanges around the world having technical difficulties due to high volume, governments stepping in to halt trading, or to ban shorting particular stocks or sectors, calls for increased margin requirements, shares of large well known banks getting slaughtered in a matter of minutes.  Its feeling like 2008 all over again, but in many ways worse.

The next looming political battle that will be sure to cause even more uncertainty in the markets is the 2012 budget showdown, which evidently will impact the newly formed deficit reduction committee of 12 congresspeople, at least make their job much harder with all of the distractions that will come from #3 budget battle in 2011.    The downside risk for us as a federal employees is an even greater possibility of a shutdown coming in the end of September, or if the new debt committee is unable to come to an agreement, an across the board cut to all budgets, coupled with a very volatile stock market.  I’ve been feeling like a storm has been brewing for some time now, and it seems like its just getting started.

All in all this doesn’t make for much of a relaxing August, which has traditionally been the time of year where we can take a quick break before a busy fall season.  We decided to try and take it easy by just staying around town, taking the kid out and about. We had talked about planning a trip home, but that got scaled back to a short road trip in the area, and then eventually nixed entirely to cut down on costs.

Meanwhile on more happier news, the little guy has started walking.  I’ve noticed that he had already developed the leg strength and balance to stand on his own, but hadn’t realized it just yet.  Then he just decided one day it was time and now he can’t stop standing up and stomping around the house, hands in the air and grinning ear to ear.

I came across this linked C-SPAN clip from one of the economic blogs that I’ve been reading since the great recession came to a head in late 2008 when everything and anything was seriously FUBAR when it came to the financial and politcal state of the country.  I remember appreciating the authors candor to how seriously fucked up things were at that time, and how the policy fixes being crafted at the time ran the risk of putting us in a situation where we would be seeing the same old shit again in just a few years time.

The clip itself features two distinguished senators from both sides of the the aisle actually debating  some of the more underlying, but arguably more meaningful aspects of the ongoing debt ceiling debate.  One of them has come up in past conversation with friendly D-bags over the years, mostly with scorn to his cost-cutting ways.  The other, was once a candidate for the presidency, who many voted for out of default, not out of any meaningful admiration or inspiration.

This clip which I’m sure won’t see the light of day on any major cable news network does raise the question to what is really going on in Washington DC these past few weeks.  Are we really talking about meaningful reductions in government spending or are we just hearing another episode of partisan political theater to prevent our elected officials from making the decisions that are too politically difficult to make?

Flashbacks to 2008, how many hill staffers were put in a hard place answering overwhelming public outcry something like 1000:1 against the bailout of wall street while knowing their respective member had already made up their mind to go along with the leadership?  How many of them have wised up to the reality of the power structures in this country today and how many are still living in fantasy land?  I’m pretty sure that in the next 48 hours there will be some deal to raise the debt ceiling, this current battle is more smoke and mirrors, I’m more concerned with what reality might be waiting for us around the corner, one that won’t give a shit if we  consider ourselves democrat or republican or independent.

Came across an interesting CNBC interview this morning, covered by some of the financial blogs that I read.  The guest commentator was a representative from more lesser known credit rating company that had already downgraded the US credit rating from a AAA to AA.  In contrast to the big rating agencies who have been talking about the possibility of a downgrade, this company went ahead and did it.

Mentioned in the interview is position that debt ceiling debate is nothing but a red herring, the real issue towards the creditworthiness of the US, as with any other country is the debt-to-GDP ratio, which is growing at an alarming rate, similar to Portugal, one of the famous PIIGS nations.  It goes back to what I have been thinking myself, that no matter what form of new revenue we are able to pull in, the debt/GDP ratio will likely stay at a very dangerous level.  The commentator also addressed the dollar as being the world reserve currency in addition to having a printing press may help paper things over for a while, but over time reliance on it will not help the overall situation.

The commentator also briefly got into the differences between delinquency and default, alluding to the fact that a lot of the rhetoric about financial Armageddon should the Aug. 2 deadline come without a deal may not come if the markets only see the US as delinquent on paying the interest on its debts.  From what I’ve been gathering, that is a valid critique, since the US will still be generating some amount of revenue even after the deadline, the question of default really comes down what priority does the administration apply to which obligations to pay, and which ones to not pay.  There really is discretion to the sitting administration to either continue servicing the debt, or pay entitlements, military contractors, federal salaries, etc. first.  it seems like if there is a default, the timing is the thing to watch out for.  If we do default in early august, it might be a self-inflicted wound for political gain to the current administration.  If it is later down the road, then I’d say both parties are to blame.

Meanwhile congress is announcing their plans to keep in session until the debt ceiling is raised, stating that the US will not default on its obligations, or something to that matter.  I guess it really depends on what one’s definition of default is. Given the way things are looking, we’ve already suffered a default on the political process.

Obviously I’ve been closely following the ongoing battle over the debt ceiling, being that both me and Hana are gainfully employed by Uncle Sam, the prospect of a loss of a paycheck due to a government shutdown is something that we both pay great attention to.  I have to admit it has become a little tiring though, both while working at the office and when teleworking, I have C-SPAN going on in the background listening to the floor debates in both houses.

My overall take on the whole mess is that we need to have a serious conversation about the future of the federal budget in terms of the big ticket spending items the biggest which are entitlements and military engagements, right now the discussion has gotten so polarized on partisan lines that it is impossible to even have a meaningful conversation as to what we policies and programs we want as a nation, what is the realistic cost of those things.  I’ve spoken with folks from both party affiliations, and it seems like all they can do is blindly spout the party line, often in rapid succession.  I wanted to ask them point blank if they even understood the position that they were advocating.

As fiercely independent minded as I am, I have to say that I am leaning slightly towards the position of spending cuts making the larger proportion of the deficit solution as opposed to revenue building.  This is despite the fact being that particular party spent the last 10 years piling on to the deficit like money was going out of style.  I still think in this situation spending cuts is the way to go over revenue building.  I liken it to how an average family might deal with the prospect of hitting their limit of their credit card or general line of credit.  The most logical thing to do is to decrease spending relative to the proximity to the credit limit, if it is a few months expenses away, then maybe you spread the cuts over several months, but if you’re right up on it, then immediate cuts in spending are in order.

In contrast, the building revenue side for the typical family would be amounting to the family to just make more money.  It is important to note that longer term revenue sources would be most helpful, not merely selling some household items, or by simply working longer hours, both of which are either one-time, or temporary increases in income.  A more basic definition of revenue increases to what governments think of in terms of raising taxes when it comes to the average family is to go across the street and rob the house of the richer, more affluent neighbors.   Even if this was a widely accepted solution, it would be temporary, because eventually the rich neighbor might move out of the neighborhood.

Someone I recently spoke with seemed totally uninterested in the prospect of an actual default, or credible threat of default.  Their perspective was that congress would pass something at the last minute possibly, and it would be back to business as usual.  I find it hard to tell if people who hold that opinion are either wiser than me to the nature of DC politics, or just have their head in the sand.  It seems like a lot of crazy shit is going on right now not only at home, but around the world to be that oblivious.  To me, at the very least it would be helpful to take a moment to look around and get somewhat ready in case the shit really does hit the fan.

Greek austerity vote early tomorrow morning, bailout or default, it is looking like a difficult times ahead for the average Greek citizen. Parallels have been drawn to the spring and fall of 2008, with some commentators calling the Greek situation the potential for the EU’s version of the collapse of Lehman Bros, one of the largest investment banks on wall street, and the largest bankruptcy filing in history to date.

Interesting personal point for me as I’ve been spending the last few days at work pouring over legal filings in bankruptcy court on the very same large bank, some opinions still being issued as late as a few months ago. The sheer value of the unwinding, it goes with the saying, a million, billion, eventually we’re talking about real money.

One added value of the new nettop in the living room is that I benefit from the enormous desktop which allows me to stream an ever expanding array of documentaries and other streaming media while I’m teleworking. Lately I’ve been going through several frontline pieces about the credit crisis. Add a smaller window to stream C-SPAN, another for a CNBC ticker, and my TV becomes a policy wonk’s dream workstation.

There is a lingering question in my mind as to whether we have fully recovered from the carnage of a few years ago. In the totality of what I’ve seen and read, we have not progressed much, if anything, we just moved the problem around a bit, bailed out some companies and let others fail, akin to papering over a lot of problems with more debt.

Watching the live feed broadcast from the streets of Athens was something else, looking at hundreds and thousands of people in the streets, battling with the riot police. Hopefully nothing like this will ever come to be on this side of the pond, but given the interconnectedness of financial markets, nothing is out of a possibility.

More congressional drama this past week, including a last minute deal right before midnight to fund the government at least through September. After that we move from the battle over 2011 spending to 2012. Technically the agreement last friday at midnight was to extend the discussion by a week and then pass the longer term budget in the next few days. Technically there was still a chance of a shutdown yesterday when some of the conservatives in the republican party started voicing their disapproval of the deal that was made. Apparently the $37B in cuts were mostly illusory, programs that had already been cut, with the real savings something in the hundreds of millions.

Immediately following the budget deal the administration announced their own budget plan to cut $4T, mostly in response to the house proposal to cut $5T. Both proposals have been taking their shots along party lines, which has made me even more skeptical that any real progress is going to be made. From what I have gathered so far, it is going to come down to a combination of raising taxes, making significant cuts in government spending, and what neither party wants to talk about, entitlement reform. Going along with this debate there needs to be a fundamental discussion on what is the appropriate role of government, the reality is that we can no longer afford everything we have committed to. It will be better to make the tough choices now and gradually phase programs out instead of having them cut abruptly.

I’ve been taking this as a shot across the bow to cut down on personal expenditures, pay off even more debt, and get ready for the worst case scenario, as well as the several intermediate steps in between. In many ways its a matter of trying to stake out some degree of self reliance in face of forces that I have little or no control over. It is always good to have an exit plan, even if you never actually use it. Needless to say having a family now raises the stakes tremendously, it has opened my eyes how much more prepared I have to be.

The next battle looming is that over raising the national debt ceiling, which is closely approaching mid May or mid July, depending on how you interpret the Treasury department’s comments. Recent discussion in the news has been interesting but frustrating, from the big government folks there is talk of doomsday scenarios that could result from the US defaulting on its debt obligations. From the fiscal conservatives there is talk about drawing the line in the sand that the road back to solvency has to start somewhere. For me hopefully by the time this debate comes up I’ll have accumulated a few more months of savings.

April is here, and the most recent CR is about a week away from expiring. The current one being about 2 weeks old, which was passed in the last 24 hours before the deadline. I’ve been tracking the developments both from official and unofficial sources which has convinced me to prepare the family for a number of scenarios. Looking at various account balances and lining them up in case we have to draw down to take care of expenses without income, be it days, weeks, months, or years.

The latest budget battle is over a very small fraction of the total budget, but it contains a lot of political capital for the players. Federal employees have gotten a lot of flack, much of which is misdirected given the ridiculous amounts of money being spent elsewhere. We’ve already been affected by a freeze on COLA increases, and all hiring and promotional opportunities have been halted due to the budget uncertainty. Every other day I see a new article about proposed legislation to further limit federal retirement benefits, or some other plan to shrink the size of government. Some of these things I can’t disagree with on principle, given that Ive seen my share of waste, fraud and abuse in the federal government, but I can’t take anybody seriously who conveniently ignores the cost of our entitlement, defense, and bailout spending.

I read an op-ed recently that asserted a running a government by CR with the constant treat of a shutdown really is a failure to legislate. It symbolizes that those who were in power before are not willing to recognize the results of elections, and to the most part, the collective voice of the people through their representatives. This failure should be noted to all sitting members, regardless of party affiliation. I remember late in 2010 when the new vocal freshman class was voted in, there was a last minute push to get a massive omnibus budget passed, a strategy that I seriously questioned at the time. Of course it failed, the then minority clearly empowered by the election results, looking forward to the new majority status after the lame duck session. One thing I have learned is that you never underestimate ones adversary, especially when they just achieved the ability to strike back.

There are at least three more battles that are looming: on April 8th, the current CR expires, and without another CR, or a full budget for the remaining 6 months of the 2011 fiscal year, the government shuts down. Then around April 15, there will need to be a vote to increase the federal debt limit. Then later on in the summer, the 2012 budget. If the past 6 months have been any indication of how the congress is going to work on funding matters, then we’re in for another year of uncertainty.

Earlier this week the president announced a 2-year freeze in pay for federal employees, a move that has stirred up quite a bit of discussion, from the rapid approval of recently elected tea party candidates and other republicans who are suddenly fiscal conservatives, to the ire of federal employee unions and big government democrats.

However after the dust settled, and people started digging into the details of the plan, it became apparent that this is not much more than a symbolic gesture at trying to address the budget deficit, and actually may be a very bad policy move for Obama, as well as anyone who is expecting the economic recovery to continue along.

First not what the pay freeze is, but what it isn’t, in other words, what positions/agencies are exempt from the freeze: Lets start with the military, judiciary and the entire legislative branch, including congressional members and their staffs, partly due to the separation of powers, as the president has power over the executive branch only. The freeze also does not count for what is known as step increases and grade increases, which is when an employee is given a raise due to completing years of federal service, or applying for a position with more responsibility, which is for all respective purposes is meets the conventional definition of a “raise” in itself.

Then there are the overall budget implications that the pay freeze has in the aggregate, I’ve read anywhere between $28B to $30B over the next 5 years, meaning about $4B tops for 2010. All it takes is to google the amount of total expenses and outlays for the federal government to see that this is peanuts to the total. The big pieces of the pie are in entitlement spending, social security, medicare, public assistance programs.

I suppose a more meaningful cut might be to cut federal salaries or the workforce. This is worth discussing, but like everything else, where to cut, and more importantly, what is the most politically acceptable area to cut? FBI agents? Agriculture and food safety inspectors? The diplomatic corps? USAID? enlisted military members? How about at the banking and financial regulators? Judgment calls all around, but without taking a partisan angle on where I personally think we should cut, I’ll say that over the past few years I’ve seen my own share of waste, fraud and abuse.

The economic argument that this will result in an anti-stimulus is the one that I’m most interested in considering. Because the cuts are coming from reducing salaries for as much as 15% of active participants in the real economy, this will have a counter effect of the recent stimulus efforts made by the current administration. And its not just the $28B-$30 of lost consumer spending, but since we’re talking about anticipated salaries going forward, there will be a collateral effect among some federal employees to delay large purchases, decrease consumption, and build cash reserves. In such a consumption based economy, this is by definition an anti-stimulus.

Brief disclosure: I currently work for Uncle Sam, although my salary, even including liberal interpretation of non-salaried benefits puts me several tens of thousands below the numbers I’ve seen thrown around recently as an “average” federal salary. I also started working in the public sector way back when it was considered foolish to take a pay cut over more lucrative positions in the private sector.