Ruminations, August 9, 2009

North Korea scores

When I was 13, we had a homeroom basketball team in junior high school. We played one game and won 22-0. I have not heard of another shutout basketball game since then. The point is, no matter how good your basketball team is, the other team is going to score.

And so it is with international diplomacy. Former President Bill Clinton undertook a mission for the United States to North Korea in order to obtain the release of two American journalists whom North Korea had interred and sentenced to 12 years of hard labor. We scored by winning the release of the journalists and North Korea scored in propaganda.

Former U.S. ambassador to the UN John Bolton, among others, has been critical of the trip, saying in The Washington Post, “the Clinton trip is a significant propaganda victory for North Korea.” Is Bolton right? He went on to say that negotiations of this sort “should not create potentially greater risks for other Americans in the future. Yet that is exactly the consequence of visits by former presidents or other dignitaries as a form of political ransom to obtain their release.”

Maybe Bolton is right. Most, if not all, diplomatic missions contain risk. And, in diplomatic negotiations, the adversary is going to score some points – that is conceded up front. The question is, are you going to be outscored and if so, do you accept that consequence?

Of this trip to North Korea, the Obama Administration took pains to emphasize that Clinton’s mission was private; that is to say, anything that Clinton said would not be binding on the United States. That’s all well and good but we don’t know what Clinton and North Korean Chairman Kim Jong Il said. Then there are other aspects of this trip that will have repercussions around the world – or at least Asia. What will be the fate of South Koreans who have been taken hostage by the North Koreans? What of the thousands of Japanese who have been kidnapped by the North Koreans? Is there hope for securing the release of these victims? Will South Korea and Japan now undertake unilateral efforts to secure the release of their citizens as has the United States? Will the quid pro quo in their cases be detrimental to the long-term interests of the United States?

We don’t know the answers to these questions. We don’t know the jist of the conversations that took place in Pyongyang. We don’t know what is in the Obama playbook for North Korea.

That said, it’s good to have the American journalists home again. It’s good that Bill Clinton can still use his talents on behalf of the United States. We hope that the Obama team has a level of sophistication in dealing with foreign adversaries and is mindful of its domestic critics.

It’s clear that North Korea as well as the United States scored diplomatic points on the exchange. What’s not clear, and won’t be for some time to come, is what the final score of the game will be.

Is the stimulus working?

In the highly charged environment of Washington, there is a debate as to what good the $787 billion stimulus has done to the economy. Is it working? Are there long term negative consequences? With the economy seemingly bottoming out and less than half of the money spent, should we save money by cancelling the rest of the stimulus?

The good news is that it’s working – kind of. It hasn’t created the jobs that had been anticipated, nor has it lifted the economy as fast as had been anticipated. But, it’s hard to dump $60 billion in additional spending and $288 billion in tax reductions into the economy and have no effect. The economy is a complex beast and to criticize the stimulus program for not being spot-on in its forecast is not realistic.

Are there long-term negative consequences? Absolutely. Once Congress gets used to spending on the scale of the stimulus, it will be hard to break them of the habit. Unless they (and their constituents) can show some fiscal discipline in the coming years, we may be headed toward hyperinflation. On the other hand, if we choose to repay the debt that the stimulus incurred, it will require new additional tax revenue (some of the increased tax revenue can come from an increased tax base due to the recovery, but the rest will have to come from drastic spending decreases or increased taxes – which can thwart economic growth.)

Is the stimulus properly targeted? Some of it is. Some of it is pork, justified by saying that all spending is good. Some of the money has gone to hide structural budget problems like the $70 billion patch in the alternative minimum tax and $87 billion for Medicaid – maybe this can be justified in times of economic distress, but the funding postpones a long-term solution.

So, should we cancel the rest of the stimulus? With the economy seemingly bottoming out and less than half of the money spent, it seems prudent to abort spending the remaining money and short circuit some of the anticipated future problems. Should we? Probably not. Some of the current economic activity is predicated on the existence and promise of the rest of the stimulus money. Canceling the rest of the stimulus funds would probably lead to a drop in the economy — and in the confidence of the American public.

Should there be a Stimulus II? No – and there will probably not be one. For all the jokes we make about Congress, they are not that stupid. They are aware of the negative long-term consequences of the stimulus program and aware of the difficulties that they will have in resolving the problems.

One could argue that we would have been better off without a stimulus program but that’s counterfactual. We have one and it has presented us with a whole bunch of pluses and minuses.

Prototypes and pilot programs

When installing new computer systems, the installers are often aware that there may be unintended consequences that would render the new system a disaster. This is particularly important when the new system is to replace an existing system, one that has an interface with customers.

There are horror stories, of course, but there would be a lot more of these horror stories were it not for the techniques of prototyping and piloting.

In prototyping, a small segment of the environment has a new system installed and monitored. There may be more than one version of the prototype and different ones would be installed in different areas at the same time. The object is to learn what works and what doesn’t and then to retool the system before committing to a nationwide rollout. This can be very effective but it is costly and time consuming.

In piloting, a new system is implemented in one section of the market and carefully monitored and tuned. As the system gets better, it is implemented in wider areas.

Correctly done, the prototypes and pilots reduce the impact of unintended consequences and can be rolled back to the original system if the new one proves to be unsuitable at meeting its objectives.

The current health care proposals going through Congress seem to be all-or-nothing propositions. Once implemented, that’s it – no provisions for rollbacks should the new system prove to be a disaster. Any unintended consequences will need to be identified by the general public and work their way through Congress in the form of new amendments to the health care bill. Any unanticipated costs or shortfalls, we’ll be stuck with.

When installing a new health care system that affects one-sixth of the economy, wouldn’t it seem reasonable to use a prototype or pilot program first?

 Robert J. Kulak

West Hartford, Connecticut