Outside the Box

American Gridlock

John Mauldin

January 31, 2012

How do we resolve the current political gridlock over healthcare, the economy, and a myriad of other problems? It is clear that there are no easy solutions, and putting off making choices will just make the ultimate cost we pay that much more expensive.

This week for our Outside the Box we deal with just this question, in a piece from a master of logic and reasoning and one of my favorite writers. I absorb everything I can get my hands on from Dr. Woody Brock. He has written a new book, called American Gridlock: Why the Left and Right are Both Wrong" (www.amazon.com/gridlock). I am doing something very unusual and giving him two back-to-back editions of Outside the Box, this week and next, to outline his own book in his own words. He generously agreed to do so, as he (and I) are passionate about the topic of getting to a solution. If we do not solve this crisis in the making, it will impair our future generations for a long time, not to mention its effects on our own lives.

I should note to my non-US readers that the principles in this book extrapolate to situations outside our borders, and I suggest you too read this OTB carefully. Gridlock is not just an American phenomenon, but a result of the changing of the way we process information in the age of Big Data. From this piece:

"Regrettably, what has happened in recent years is that 'pure' inductive logic has been replaced by that bastardized form of data analysis all too familiar from today's Dialogue of the Deaf: As time goes on, each side cherry-picks ever more data to strengthen their prejudiced positions. Thus, positions become ever more shrill. Belief modification and dialectical progress are rarely achieved. In this sense, giving young research associates Excel spreadsheets plus the wealth of information accessible from the internet is proving very dangerous to informed debate. 'Factoids' are confused with serious logic, and young people are all but clueless about Hume's imperative: You cannot data-crunch your way to the Truth. Ever."

I know some of you will disagree with Woody on certain things, but your disagreement will probably be with his basic assumptions, not his reasoning thereafter. What he is talking about is akin to some things I studied way back in the day, but that have fallen from fashion – as Woody points out.

Coincidentally, Woody will be here in Dallas tomorrow night and Wednesday, and we will break bread (and other culinary delights) at Stephan Pyles' fabulous namesake establishment with Rich Yamarone, and then attend the CFA Forecast Dinner here in Dallas on Wednesday.

You can learn more about Woody and his economic services at www.SEDinc.com, as well as see some of his previous essays. Enjoy your week; I know I am going to enjoy mine.

Your thinking about First Principles analyst,

John Mauldin, Editor
Outside the Box

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American Gridlock

Why The "Left" And The "Right" Are Both Wrong

Commonsense 101 Solutions to the Economic Crises

Dr. Woody Brock

Pessimism is ubiquitous throughout the Western World as the pressing issues of massive debt, high unemployment, and anemic economic growth divide the populace into warring political camps. Right- and Left-wing ideologues talk past each other, with neither side admitting the other has any good ideas, and with no effort expended to…

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Dan Ross

Feb. 5, 2012, 11:37 a.m.

In fairness, I guess I should read the whole book before commenting.  However, this is very puzzling to me.  I am trying to figure out, by what method of accounting, you can take out a loan to make infrastructure improvements, and not include it in the debt? Must be government accounting for sure.

The whole discussion of health care and the simplistic graph is equally puzzling.

As far as deductive vs. inductive reasoning are concerned, it strikes me that deductive reasoning gives you concepts like papal infallibility as well as E+MC2.

carmine errico

Feb. 4, 2012, 6:25 p.m.

Is this a joke? This is the same nonsense that pointy-headed pseudo-intellectuals sucking off the teat of our educational system have been proposing for much too long.
What experience does Dr. Brock have in the real world. God, with people like this proposing to help us, please God help us!

Ed Sharp

Feb. 1, 2012, 11:45 p.m.

Dr. Brock states that the number one goal for an optimal health-care system is to increase access to health care that is, â??made possible by greater insurance coverage per person and by an increased [sic] in the number of people covered.â?  This may be true but where in the United States Constitution does the government have the power to do this?  Where does the federal government have the power to FORCE (and I might add at the point of gun) an individual to buy a product, i.e., health insurance?  It is not in the Constitution, Dr. Brock.  If the federal government can force us to buy health insurance then can these masterminds also force us to buy broccoli?

The Congressional Budget Office stated during the Obama-Care debate that they could not find one instance where the federal government forces an individual to buy a product (auto insurance is a state issue and I can elect not to drive).  The Supreme Court will be issuing an opinion later this year on the Obama-Care insurance mandate.  Pray to God these Justices are wise enough to realize that the Commerce Clause in the Constitution does not give power to the Utopians to force us to purchase what these masterminds think we should purchase.

Dr. Brock, I would suggest that you read Ameritopia by Mark R. Levin.  You will find that your neat little formulas just do not compute in a Constitutional Republic.

Gordon Foreman

Feb. 1, 2012, 5:24 p.m.

John,
I am usually very impressed by the guests you host on your OTB column, but Dr. Woody Brock was a series of great disappointments.

The first disappointment came when he finally expressed his “Four Basic Assumptions or Goals”. There is a huge difference between assumptions and goals, and treating goals as assumptions is a very poor way to start. Assumptions, used in a logical exercise, must never be in conflict with one another, or if they are, then the conflicts must be resolved before you continue. Goals often conflict with each other, and usually result in tradeoffs, which are not resolved by a process of logic, but by negotiation, either with yourself or with others.

The second disappointment was in the nature of the goals. As I read through them, I heard my mother’s voice saying, as she did many times in my youth, “If wishes were horses, beggars would ride.” Sure, it would be wonderful to have rapid economic growth, everybody has a good job, lots of folks are eager to loan us unlimited funds at a low interest rate, and everything that is worn out gets made new again. At this point I began to have a sinking feeling in my stomach, but I kept reading.

The fantasy discussion between the Economist and the President was interesting, but neglected to point out a huge flaw. We are already spending $4T per year, while taking in $3T, and cutting even one per cent of current expenditures appears to be impossible, at least in the current climate. Therefore, the Marshall Plan he envisions would result in total federal spending of $5T per year, with tax receipts of $3T, and the payoff from this extra spending will probably not really take hold for a decade or more. Somehow, I doubt that lenders will continue to line up to loan us $2T per year for the next 20 years until the boom gets going again. And if interest rates start to climb, the hole we are already in gets deeper in a hurry, independent of our taxation or spending.

Now let’s assume that we have passed the legislation and are going to fund a $1T infrastructure Marshall Plan. Who is going to run it? At the top will certainly be political appointees. And below them will be ambitious and capable people, many of whom will be looking to feather their own nests. Some of the money will go to worthwhile infrastructure projects, but a lot will go into bridges to nowhere, “Solyndras”, and other projects that benefit the well-connected, but do not add to, and may detract from, the overall objective. Furthermore, when the government embarks on such spending, it nearly always serves to benefit entrenched interests, while impeding or totally blocking new technologies and advances, especially if such advances threaten the entrenched buggy-whip makers.

The proposal for reducing medical costs while increasing access to medical care is even more fraught with wishful thinking. I understand the argument about extending the supply of medical care faster than demand, and thus reducing unit costs, but using Dr. Brock’s own simplistic diagram, this would imply that we can somehow induce 50% more people to enter the field of medicine, while reducing their salaries by half. I realize that advances in technology may slightly mitigate these percentages, but not by a lot, at least not in the next decade.

My father-in-law is in a nursing home, where he is unable to even sit up by himself. Caring for patients there requires a LOT of physical labor and employees who have to do dirty and unpleasant jobs. For those who do not have medical degrees, which is a majority, the pay is $10-15/hour, and virtually all of them are looking for something, anything, that is better.

Thus, it appears to me that Dr. Brock’s plan lacks one ingredient - The New Soviet Man. If we just had an unlimited supply of people who were hard-working, honest, uncomplaining, unwilling to take more than their share, and totally dedicated to the success of Dr. Brock’s plans, then yes, I would concede that it might have a chance of working. Starting from where we are, however, rather than this mythical location, I have to say that I find it all to be pie-in-the-sky. There are moments when he almost approaches lucidity, but then he quickly veers off into logical deductions based on assumptions that are fantasies.

And his mathematical rigor is none to great either. For example, he mentions, as an apparent cause for alarm, that 25% of our doctors are probably going to retire within the next 20 years. This implies that we either have an exceptionally young medical corps, or that we expect doctors, on average, to work until 100 years of age. Personally, I would expect a little more than 50% to retire in every 20-year span, given an average working career of 35 years or so.

Perhaps I just don’t get the picture, but what I did get from the latest OTB was not an inducement to follow any policies that Dr. Brock may promote. I may be wrong, but he sounds to me like someone who has spent his whole life in academia, and who needs to get some real-world experience to temper his theories.

Ron Kirby

Feb. 1, 2012, 2:32 p.m.

I applaud efforts to get a synthesis of opinion to go forward. I support “all forms of energy production” because we’ll need all of them (renewables and American oil/gas development) to get free of foreign control of energy—which is a security concern also, as he mentions. This would be a better “Marshall Plan” if we need one to create jobs, also, without much government spending at all!

I also support compromise that includes BOTH cutting spending and raising taxes. I’d prefer a smaller government, but compromise is needed here. We are not even at the level of taxes in 90s, let alone that of the 60s, as a load on the individual citizen. We are, however, at a spending level that is unprecedented.

But he has various problems with his “first principles” right off the bat. While “Relative Contribution” can be quantified—and companies do this constantly in trying to assess workers and raises—it is impossible to quantify “Relative Need”. There are people on welfare—some of them my relatives—who nonetheless pay over $100/month for cable TV. Somehow they assess this as a “need”—and this is only one example. This is the same problem in Marx’s “From each according to his ability, to each according to his need”: neither ability nor need can be quantified or assessed properly. And to whom would you give such power? And even if we identify a need (e.g. food and water) that is no justification for government getting involved in providing it! So you have very basic “first assumptions” problems here.

Beyond that, his analysis the of the health care problem is fundamentally flawed also. Supply only rises to meet demand in a normal capitalist system. Neither health care nor education is even close to that, and government can’t make it so. The big problem in health care is the manipulation of perceptions of necessary preventive care, usually by care providers who stand to gain. For example, did you know that of 1000 colonoscopies, only one person might be saved from colon cancer, but also one person will be sent to the hospital with a life-threatening bowel perforation? And this net-zero operation costs about a million dollars to the system. Now multiply this by millions of people, and you will see how our health care dollars are going down the drain for little benefit except to the providers. And this is just one example. Who will address this? The providers control the media regarding health care, which controls public perceptions and thereby politics. There seems to be no political will, nor even an idea, to try to stand up this this quackery. But this is what it would take to bring down healthcare costs.

Ryan Moran 34762

Feb. 1, 2012, 10:01 a.m.

Great article.  My views fall in line with Dr. Brock for I have ventured outside of the political spectrum and idiocy, redundant rhetoric of both sides.  However,  Dr. Brock needs to clean up his message and make it even more simple. Drill down and simplify. It’s a very technical read which would confuse 99% of the population(not 99% of taxpayers).

Induction/Deduction and building facts on stats is unfortunately here to stay but I feel as if people are starting to become hungry for someone/something to paint a big picture without these decision tools.

people might not have the book smarts but common sense isnt as uncommon as you think.

Keep up the good work mauldin and brock!

James Chaillet

Feb. 1, 2012, 12:42 a.m.

Enjoyed the part about inductive and deductive reasoning. Also, I liked the bit about Socrates and the First Principles. I believe it was Socrates who taught Aristotle, who’s the godfather of logical thinking or, if you will of logic itself. He’s also the creator of the earth as the center of the universe theory - logical if all you could see were the stars and the sun apparently going around the earth - but, also, wrong as Copernicus showed some 1900 -2000 years later.

The point is that it will take more than logical thinking to identify problems and come up with solutions. You need data, facts, knowledge, information, etc. Also, you may want to look at your First Principles. I could think of a few more such as:1 ) politicians are by nature dishonest; 2) politicians are by nature power hungry wanting to order other people around, telling them how to run their lives and, thus, 3) politicians will never truly or honestly work with other politicians for the greater good. Where is Ludwig von Mises when you need him?

Monroe Robertson

Feb. 1, 2012, 12:23 a.m.

The problem he glosses over is getting from country A to country B.  The liberals and entrenched recipients of of the 1 trillion of wasteful spending in country A will never willingly allow its elimination.  They might agree to a country C that had 5 trillion of total spending of which 1 trillion was good and productive, but you would still have 1 trillion of bad deficit, and therefore, would be no further away from bankruptcy than we are now.

Jack Gardner

Jan. 31, 2012, 7:51 p.m.

It is amazing so many economists, political scientists, and media types fail to grasp that everyone does not have the same primary goal.  Though several people posting comments here grasp this elementary observation well.  Sure, everyone wants a prosperous society, but that is secondary—a supposed effect of their primary goals of either the morality of egalitarianism or of individualism.  There is not going to be any great cooperative wisdom and effort by the two sides to make the perfect society.  One morality or the other will dominate.  The amoral, as has been pointed out, will work to frustrate both sides in efforts to loot rather than produce. 

History demonstrates that one morality actually leads to oppression and impoverishment, while the other leads to liberty and prosperity.  Yet few recognize this lesson.  Brock might try reading some von Mises to start to see why his vision is flawed even if he were in charge of everything.

William McCarthy

Jan. 31, 2012, 6:54 p.m.

Tough subject. Let’s give him an “A” for effort. Our society collectively is engaged in bending our collective expense curve from current consumption (entitlements) to capital investment (human and infrastructure). Many of us are grappling with this personally and institutionally.

Like any simplified model of highly complex human interactions, there will always be the “what if’s” and the “who decides”. And, what ideology or belief system filter is shaping the logic.

All in all, I like the capital investment approach for deficit spending while sloping downward the deficit and the share of GDP monopolized by government in all its forms. The end state should be significant reduction in public share of GDP. 

As for health care. How do you morally allocate resources when demand can be driven by so many idiosyncratic personal factors such as genes, behavior, diet. Etc. Once again, beyond the need to care for the young who cannot be expected to care for themselves and possibly the aged and infirm, a more darwinistic approach is needed. Not withstanding all the government intervention, that is what will happen. Those that can will get better healthcare. I am sure the apparatchiks of the Soviet Union always got the best care.

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