The Great Debate

The deal to break the deadlock in the US looks awful, far worse than going over the cliff, which I suspect would have been a lot less damaging than is usually assumed.

The 1 January agreement was a compromise over the tax to be levied on high salaries, which is purely a political issue with little bearing on the critical economic issue of how to close the deficit, and otherwise simply takes the line of least resistance, avoiding the tax rise on middle incomes, extending benefits for the long-term unemployed and suspending the immediate cuts in defence spending which would have been enforced automatically in the absence of an agreement. Worst of all, it defers the really tough decisions on spending. In fact, given how easily America’s rich can avoid taxes, it is likely that the tax rise which the President has fought so hard to impose on them will generate nowhere near enough revenue to pay for the increased unemployment benefits agreed at the same time. In other words, far from being a first step towards dealing with America’s deficit, this is a step back which will only make things worse.

To see how little has been resolved by this 11th hour deal, just look at Obama’s New Year taunt: “If Republicans think I will finish the job of deficit reduction through spending cuts alone […] they have got another thing coming”. In other words, the hard bargaining is still to come.

The whole mess is typical of America today, polarised between a Republican Party in which the moderates worried about their country’s fiscal position have been overwhelmed by gay-bashing creationist crackpots, and a Democratic Party determined to turn the clock back to the tax-a-little-and-spend-a-lot policies of Lyndon Johnson circa 1966.

What is actually required for the country’s fiscal stability is a deal to hold out the hope of a long term cut in taxes paid for by new measures to control or at least reduce the growth in the really big-ticket items of Government spending, specifically defence, entitlements, and healthcare. A deal along those lines would certainly have to involve a short term rise in taxes for everyone. But it should hold out the prospect of lower taxes in the immediate future, financed from two sorts of change.

During the 15 years that I led the Air Force’s contractor responsibility and fraud missions, we debarred and suspended nearly 5,000 contractors – more than any other government agency. But what is far more important than the statistics is the greater protection we were able to provide the government by exercising these powers fairly and with balance, through the careful exercise of discretion. But that is coming to an end. We are now seeing a disturbing trend: new rules and outside pressures that would limit, and even eliminate, the ability of officials like me to exercise that discretion. Companies are being “blacklisted” – often for lengthy periods, sometimes automatically without due process, and often based solely upon the actions of a few rogue employees, with little consideration of whether such action is needed or fair.

The debarment regime is important for the government, and frankly makes sense. Most of us would not hire a plumber whom we knew did faulty work on a neighbor’s pipes. Given that, why would we put up with the serious fraud being committed today, particularly where it may affect our troops in multiple war zones? We can and should work only with responsible contractors. To do that, the government sets standards for contractor eligibility, and each agency has a suspension and debarment (S&D) official empowered to administer those standards. But in administering those standards those officials must always be mindful that the S&D system is not intended as a tool for punishment. While punishing fraud is important, it properly belongs in the criminal justice system, not with procuring agencies.

Not every act of misconduct should result in a company being blacklisted. Even the best companies have employees who cross legal and ethical lines. The important point is how a company’s leaders encourage proper conduct, identify and mitigate compliance risk, respond to the misconduct of their employees, and accept responsibility for good corporate governance. In most cases the government is not threatened by continuing to deal with a contractor whose employees engaged in isolated misconduct but whose management corrected the problem and is now acting responsibly. Regrettably, the current political atmosphere is straining this delicate balance in three notable respects. And there is a lot at stake: The U.S. Government is the world’s largest purchaser of goods and services, with approximately one out of every six dollars of federal government spending awarded to contractors.

– James Saft is a Reuters columnist. The opinions expressed are his own –

The U.S. faces a lengthening series of request from industries and interests seeking shelter under the Troubled Asset Relief Program, most of which it should dismiss out of hand.

YRC Worldwide, a large trucking company, told the Wall Street Journal it will seek $1 billion in TARP funds to help relive it of its pension obligations.

– Kenichi Kawasaki is managing director and senior analyst at Nomura Securities’ Financial and Economic Research Center. The views expressed are his own –

The G20 leaders failed to come up with any concrete policy steps to pull the global economy out of recession at the London summit. The leaders vowed to restore growth and jobs, but lacked specifics about fiscal measures by each country and there were no binding promises.

There were expectations that the summit would tackle the issue of rising protectionism, but the summit is not an appropriate place to discuss international trade and investment. We saw a measure of results in expanding assistance to emerging economies, but it made the summit look as if it were a mere international conference on aid to emerging economies.