I was pleasantly surprised and gratified to see the U.S. Securities and Exchange Commission sue the State of New Jersey for fraudulently misrepresenting its financial health because of its failure to report on the status of its pension funding.  According to the SEC, New Jersey had 79 separate bond offerings between 2001 and 2007, representing over $20 billion in tax-exempt bonds, on which it made false and misleading disclosures to investors and prospective investors.

I would hope this is a first step to getting government finances in order.  Like many people with discretionary assets, my wife and I own tax- exempt bonds.  We are deeply concerned about whether we are getting accurate and complete information about the state of finances in Connecticut, and in the few other states in which we have government bonds.

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Daniel Henninger wrote a significant an Op-Ed piece in The Wall Street Journal on July 22 entitled “The Liberal’s Dilemma.” The “dilemma” of which Henninger speaks is the conflict between the broad agenda many liberals, virtually all Democrats, have in place to improve the well-being of broad swaths of the U.S. population and the narrow, but disproportionate demands of public sector employees’ unions, active and powerful private sector unions like SEIU and the narrow, but powerful and well-organized political classes that contribute a sizable chunk of campaign financing for the Democratic party.

The problem those who want to produce broad societal change face is that, to the extent they honor and defend the retirement benefit obligations and other huge financial benefits demanded by the unions and the political classes, the funds available for the much broader agenda drop well below critical mass.  In fact, it is fair to say that, absent a major pullback from these long-term retirement benefit obligations, almost no money will be available for the or below broader agenda.

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I was going to post another blog today until I saw the Van Jones Op-Ed piece in the Sunday, July 25, New York Times entitled “Shirley Sherrod and Me.” Not only do I agree with his conclusion that the Obama Administration decision to fire Ms. Sherrod was wrong and destructive, but it might have been one of the most harmful actions the Obama Administration has taken on any issue.

Government officials have become more risk-averse over time, and less effective as a result, precisely because, in varying degrees, they are judged by different standards from private sector employees.  Over a decade ago, I had dinner with an executive who had been fired by the U.S. Postal Service, after he had worked in the private sector for a good part of his career.

His observation about being a government executive was that the highest risk situations for a government employee were either unwanted media scrutiny, the threat of a government investigation, or the threat of a Congressional hearing.  There was another long-term Postal Service executive who was fired a few years later because of a relocation package he received, which received excessive media scrutiny, even though it had been approved by the Postal Service’s Office of the General Counsel, its chief ethics officer, and the Inspector General.  One thing I learned about the Postal Service is that, after a 1992 scandal involving vendor-related events at the Barcelona Olympics, it operated at the highest ethical standards.  The firing was unfortunate, but the Postal Service apparently felt that it had to eliminate even the appearance of ethical problems.

The trouble with the Sherrod firing, as well as other incidents like it, is that as Mr. Jones put it most eloquently:

“Life inside the Beltway has become a combination of speed chess and Mortal Kombat: one wrong move can mean political death. In the era of YouTube, Twitter and 24-hour cable news, nobody is safe. Even the lowliest staff member knows that an errant comment could wind up online, making her name synonymous with scandal.

The result is that people at all levels of government are becoming overly cautious, unwilling to venture new opinions or even live regular lives for fear of seeing even the most innocuous comment or photograph used against them, all while trying to protect and improve the country.”

Not only is he right, but, unfortunately, the Sherrod incident will be remembered for a long time, and will affect behaviors all over all levels of government.  Government officials and employees will attempt to figure out not only whether what they said or did could get them into trouble, but whether someone could misinterpret and distort words or actions to hurt them.  They will refrain from doing or saying something, rather than doing something that needed to be done.

I had that experience a few times while I served as CEO.  It was unnerving.  People literally heard something different from what I said, and, on two occasions, an otherwise competent and well-meaning attorney told me that the company could get into trouble not only for what I said, but for what people incorrectly thought I said.

Having people live in perpetual fear is a bad way to run government, business, a non-profit organization, or any other grouping of people.  It is a bad way to force people to live their lives.  The notion that people should be held accountable for distortions that other people might create or project on to a situation is dangerous.

The Obama Administration has to realize that it did severe and probably irreparable damage to the effectiveness of government at all levels, and needs to pull back from knee-jerk behaviors based on appearing to defend the highest standards of ethics and race relations.  It actually achieved the opposite effect: individuals will be scared to talk constructively about race issues in situations in which a dialogue could help race relations.  Moreover, the impact will be felt in a wide range of other situations and on a wide range of other issues.

The President should take the step of framing how he thinks about the level of initiative he wants from government employees, and have a concrete set of actions, which he should announce in a prime time nationally televised address.  He should then follow through on his commitments, and make it clear to government employees that a misinterpretation and distortion by someone else will never again subject an employee to disciplinary action.

I may come across as an alarmist, but I really think this situation has far more serious consequences than might first meet the eye.

This past week, I was on vacation, first at Martha’s Vineyard and then in Mashpee on Cape Cod.  I have an I-Phone, which means that I have ATT cellular phone service, as was the case with my wife, my sister-in-law and brother-in-law, whom we visited on Martha’s Vineyard, and many of their other visitors.  Additionally, I rented a home that had all cordless phones.  The owners, whom we met Saturday morning, July 10, before leaving had Sprint cellular phones.

The telephone and Internet service were so bad for the eight days we were away that we were effectively cut off from communicating with others except for very brief periods when we could find a signal at a handful of locations.  Moreover, when there were power outages because of weather and horrific heat, we also were unable to use the landline phones in the rented house or the wired Internet service the owners had provided us.

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I am continually amazed by how experts who make excuses for why certain problems have remain unsolved overlook simpler and less expensive solutions to these problems.  For example, a whole population of advocates have pointed out that low-income people living in inner cities, particularly those lacking access to an automobile, are trapped in what are now called “food deserts,” that is, areas in which people lack access to affordable healthy food. Very often, the food deserts have abundant access to less-healthy junk foods, cigarettes, alcohol, and, of course, illegal drugs.

The usual solutions are to put supermarkets in the inner city, or to have farmers markets in the inner city or urban gardens in abandoned lots.  While all of these solutions are excellent long-term answers, all have problems or limitations.

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As stories appear day after day about the dire financial positions of state and local governments, the question that pops up is: where did all our tax money go?  I would suggest three answers:

• Excessive benefits for government employees and their families;
• Excessively high payments to vendors; and
• Excessively high welfare payments.

I would also suggest that states, over time, because of well-intended, but poorly conceived, laws, substituted unproductive clerical and bureaucratic rules-oriented employees for those who did productive work.  For example, governments today very likely have more clerical and administrative employees, but lack skilled professionals of all kinds to manage projects and programs.  In schools, there are many more administrators and service employees relative to teachers than there were a generation ago.

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In the Friday, May 21, 2010, issue of The New York Times, there was a front-page story by reporters Mary Williams Walsh and Amy Schoenfeld entitled “Padded Pensions Add to New York Fiscal Woes.” The reporters highlighted the fact that many financially strapped New York State cities are saddled with pension costs far in excess of what their financial experts estimated when the pension plan provisions were put into place.

Unfortunately, this is an all-too-familiar story: a governmental entity that irresponsibly agreed to rich pension benefits to allow government workers to retire very young, receive an exceptionally high percentage of their pay, and have taxpayers feel the financial burden decades later.  However, the example provided relative to Yonkers, New York, is especially outrageous.

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The title of this blog is meant to provoke thinking about a fundamental dilemma that elected officials in any democracy face: when serving the public broadly means that jobs of a small number of people could disappear, what happens?

We have known for a long time that government is more responsive to a well-organized single-issue constituency, even if the vast majority of voters would oppose the position the single-issue group is taking.  For example, that is why government officials have consistently been reluctant to take on the National Rifle Association, even though the vast majority of Americans favor a more aggressive regulation of guns than is the case today.  I am not making a value judgment about this issue, other than to say that elected officials think of the electorate as a collection of well-organized, passionate special interest groups than they do a mass of voters to which they have to respond.

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Recently, I published a lengthy blog responding to Congressman Chris Murphy, a blog in which I took the position that the national health insurance reform legislation was flawed because it simultaneously increased the guaranteed access to health insurance nationally, but left critical cost management components to future actions by the Secretary of Health and Human Services and to states and localities.  To me, that was exceptionally risky for two reasons:

• It’s no different from any other situation in which you commit to spend money before you have it, and when you have confidence that you can get it, which, by the way, is why Bear Stearns and Lehman Brothers went bankrupt: they had fixed debt and contractual commitments, but found the short-term markets for getting cash temporarily closed to them.
• The obstacles to the cost reductions that could take health care spending down are formidable and, perhaps, unconquerable.

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The narrow purpose of this blog is to respond to Congressman Murphy’s comments, but the broader purpose is to give my perspective on the recently enacted health insurance reform legislation, so this blog will be very long.

Preliminary Comments

There were many good things in the legislation, including an enhanced focus on prevention, on health care quality, on expanding the reach and supply of community health centers, on tackling the challenges of long-term care, on correcting issues associated with senior citizen prescription drug coverage, and on experimenting with innovative and potentially transformational payment methods.  There was much to like about it, and I will devote my life to working with what has been enacted to make it achieve the goals of transformational and improved health care.

I empathize with lawmakers like Congressman Murphy who do not get presented with perfect, simple choices, especially on an issue like this, which is so contentious.  They have to make choices based on imperfect options.  He, like many of his colleagues, is trying to do the right thing, and has an exceptionally difficult job, and does it extremely well.

I took a few extra days to read this legislation, which was not easy to do, and his comments made me think much more carefully about my views, so I thank him on behalf of all of us.

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