Austerity versus rot: Government capacity

The austerity neoliberal policy introduced into the US by Ronald Reagan took a long while to show serious repercussions.  I argued that impact of reducing government workers and capacity didn't show so much because the US had overinvested in capacity previously.

The failure of FEMA in dealing with the post-Katrina aftermath in New Orleans under George W. Bush was to me, the first glaring example of the impact of austerity.  Although this was accentuated by the agency having poor leadership as well.  (Since then FEMA has performed badly under Republican administrations, specifically Trump, "A Post-Katrina Law Guards FEMA Resources. Why Hasn’t It Stopped Noem?," New York Times.)

Writing in The Atlantic, "U.S. Capabilities Are Showing Signs of Rot," military historian Phillips O'Brien makes the point that firing capable officials, and installing ideologically acceptable but less skilled people in their place creates "Rot."  And that Rot is now very apparent in the US military, as shown by the performance in the current War against Iran.

Also in DHS under Noem, ICE ("Leaked Documents Show a Border Patrol Remade in the Image of Gregory Bovino," American Prospect), and the FBI, "How Kash Patel Wrecked FBI’s Ability to Stop an Espionage Attack," New Republic, among others. Tulsi Gabbard as Director of National Intelligence during war time is another example of rot.  Richard Grenell at the Kennedy Center, most of the Secretaries in the Cabinet, etc.

The first Trump Administration's response to covid is another example of rot.  This rot has been deepened by appointing anti-medicine people in high positions at the FDA and CDC, and with RFK Jr.--who believes his voice dysphonia was caused by the flu vaccine--the Secretary of HHS!

WRT to war, sure the US and Israel can pummel Iran at will, but expending million dollar missiles to shoot down $50,000 drones is a cost-benefit ratio that is unsustainable.  Trump, who treats Ukraine like s***, has reached out to them for technical advice on dealing with drones.  In effect, Ukraine has provided more aid in dollar value to the US than Trump's Administration has provided to Ukraine as it fights Russia's invasion of the country.  (Fortunately, the US still shares intelligence with Iran.  But in general it does everything in its power to promote Russia.)

From the article:

On multiple occasions after President Trump launched a massive air campaign against Iran this past weekend, retaliatory attacks by simply constructed Iranian drones have penetrated American defenses with serious results. For example, at least six U.S. soldiers died, and others were wounded, in an Iranian strike Sunday on a command facility in Kuwait. CNN reported that the Americans received no warning of the incoming drone. According to CBS News, the fortifications around the facility protected it from car bombs but not from a direct overhead strike. “We basically had no drone defeat capability,” an unnamed military official told the network.

... When a complex system starts to decay, the first signs are usually subtle. In the third century, after the Roman empire had reached its geographic maximum, literacy began to decline across Roman society. Education levels fell not only among soldiers, but among officers, aristocrats, and even emperors. The Roman army still looked formidable for years afterward. It had good equipment and could march well. Yet it was no longer as advanced relative to Rome’s enemies as it had once been. It fought as hard as ever, but less effectively.

... The U.S. military’s supremacy over foreign rivals is built on intensive training and the manipulation of advanced technology. By contrast, Hegseth has been stressing lethality and a warrior ethos instead of learning and reflection, to the point of blocking U.S. military personnel from taking courses at the most elite American universities. Yet the events of the past week underscore how shows of force alone may not defeat even militarily inferior enemies.

In Bahrain, a lone Iranian drone penetrated the headquarters of the U.S. Fifth Fleet, which oversees 2.5 million square miles of the world’s oceans. The incoming weapon destroyed an AN/TPS-59 radar unit intended to provide 360-degree air surveillance for U.S. forces. In a moment, Iranian equipment that cost perhaps $30,000 devastated a piece of U.S. military hardware estimated to be worth tens of millions of dollars.

Another term for this is "capital shallowing" or disinvestment.  It's the opposite of "capital deepening" or investing ("Capital shallowing: the effect of disinvestment on government functioning").

Brand America 2025

During the first Trump Administration, I wrote to Simon Anholt, the author of Brand America: Mother of All Brands, stating that Trump's brand for America was:

Can't Do.  Won't Do. You Do.  Fuck You.

It will get worse this go around.

An interesting story in the Financial Times, "What makes the US truly exceptional: Are American pathologies the necessary price of economic dynamism?."  From the article:

It is the best of countries, it is the worst of countries, or at least of the high-income ones. The US stands out for its prosperity and its brutality. 

This is how I have felt about it since I visited in 1966 and lived there throughout the 1970s. The sustained prosperity of the US is astounding. A few western countries have even higher real incomes per head: Switzerland is one. But real GDP per head in the larger high-income countries is below the US average. 

... Not surprisingly, the US economy also remains far more innovative than other large high-income economies. Just look at its leading companies. These are not only far more valuable than those in Europe, but far more concentrated in the digital economy... 

... The US then is an economic powerhouse, so much so that it has persistently run a large deficit in its capital account. Donald Trump protests. Yet this is a powerful vote of confidence. 

... So, how can such an economic marvel also be “the worst of countries”? Well, its homicide rate of 6.8 per 100,000 inhabitants in 2021 was almost six times as high as that of the UK and 30 times that of Japan. 

... More broadly, what does US prosperity mean when combined with such potent indicators of low welfare? These outcomes are the result of high inequality, poor personal choices and crazy social ones. Some 400mn guns are apparently in circulation. This surely is insane. 

... Then there is a related question, which is whether the relatively high inequality of the US and the insecurity of those in the bottom and middle of the income distribution inevitably lead to what I called “pluto-populism” in 2006: the political marriage of the ultra-rich, seeking deregulation and low taxes, with the insecure and angry middle and lower middle, seeking people to blame for what is going wrong for them. If so, what made the US dynamic, at least in this age of deindustrialisation and unbridled finance, led to the rise of Trump and so to a shift to a dangerous new demagogic autocracy. A big question for non-Americans, notably Europeans, is whether these pathologies are the necessary price of economic dynamism? Logically, it is not clear why an innovative economy cannot be combined with a more harmonious and healthier society. Denmark would suggest so. One might hope that the scale of the US market, its relatively light regulation, the quality of its science and its attractions to high-quality immigrants are the explanations. But there is this lingering fear that the technologically dynamic society Draghi and other Europeans now seek might require the rugged, nay dog-eats-dog, individualism of the US. It is a sobering possibility.

FWIW, I don't think pathology is necessary to economic dynamism.  We have a super conflicting element in American society, rank individualism ("Toward the Land of Self-Defeat," New York Times) versus a more communitarian approach.

But individualism is the side for people who want it all, don't want to share, don't believe in mutually beneficial outcomes.  And too much has changed in the economy, from neoliberalism to financialization, a winner take all economy, oligopoly, and the belief by Republicans that taxes are bad.

This extends to the social sphere by denying the value of the safety net, government action of any kind, building the wealth of of the nation by investing in people, etc.

It was pointed out that Reagan's plan was a form of austerity comparable to that of UK's Tories.  For a couple decades, because the US had previously overinvested in government and public goods, that could be withstanded.

It ended with the multiple failures of the Bush Administration.

It's amazing that the Trump posse is so focused on the destruction of America, not building its public investment ("Capital shallowing: the effect of disinvestment on government functioning").

We're in for it.

Capital shallowing: the effect of disinvestment on government functioning

Is a term that I am sad to say that I haven't come across.  (Although I have seen the term "capital deepening" applied to the increased income of neighborhoods as demographics change and the neighborhood becomes more attractive at the scale of the metropolitan residential landscape.)

It has so much explanatory power.

It's used in a Financial Times article about the National Health Service in Britain, how with decreased funding and investment, the amount of capital to support each worker, and each facility, declines in systematic ways that often reduce the ability to provide proper care ("NHS capital investment cuts leave England’s hospitals crumbling").

The article argues that while the facilities are declining and the waitlists lengthening, care is still okay.

In the basement pharmacy at St Mary’s Hospital in London, part of the world-renowned Imperial College Healthcare NHS Trust, senior pharmacist Michele Garwood has placed plastic trays beneath the ceiling in an attempt to protect her stock of medicines from regular flooding. 

Elsewhere, on Albert ward, one of five lavatories has been out of use for three months after a hole opened up in the floor, exposing it to the car park below, and rotted floor joists in patient bays, temporarily taped over, represent a constant trip hazard. 

We “still provide the best care we can” but some patients are so horrified by their surroundings that they discharge themselves, said matron Marta Calvo Hernandez. St Mary’s is one example of how a longstanding lack of capital spending is being felt across the NHS. The service is struggling with an accumulated maintenance backlog estimated to be worth more than £10bn, the highest since records began. 

Stephen Rocks, an economist with the Health Foundation, a research organisation, said there had been “a very sustained under-investment in capital” over the austerity years of the 2010s, which had “left the NHS with insufficient capital investment to deliver the care patients need”.  

Rocks suggested this was part of the reason that a growth in staffing levels in the health service did not seem to have translated into a corresponding increase in activity. “We’ve seen a ‘capital shallowing’, with less capital per worker, and that does have a very direct read across to productivity,” he said. 

As a term, apparently it was coined in development economics, making the point that as countries grow in population, there is less money invested in per capita ("Population Pressures, Saving, and Investment in the Third World: Some Puzzles," Economic Development and Cultural Change, 1988).

I wish I had known this concept earlier, because it explains points I've made in various areas.

First, the impact of neoliberal induced disinvestment in government--the US could "slide" for a long time with denigration and disinvestment in government because in the decades before it overinvested. 

But the failures with FEMA and disaster response after Hurricane Katrina and under Trump with Puerto Rico and Houston are a good example.  But I don't know if the failure of the Army Corps of Engineers and levees was about capital shallowing or just politics, failure to adequately address risk, budget shortfalls, etc.

And the failure of the Trump Administration to properly respond to covid.  And the serious problems of the US public health infrastructure to respond to covid after decades of declining budgets ("COVID-19 and Underinvestment in the Public Health Infrastructure of the United States," Milbank Quarterly, 2020).

Of course, the Conservative Party austerity agenda in the UK for the last ten years has had the same kind of debilitating effect ("Austerity urbanism in England: the 'regressive redistribution' of local government services and the impact on the poor and marginalised," Environment and Planning A, 2017).  With covid, policing, transit, health care as mentioned above, care for the aging, defunding of local government, parks, libraries, etc.

Second, with the tax cutting fervor in growing places like Utah--"let's share the benefits of growth"--when growth imposes more costs, not fewer, and by cutting taxes you have less revenue to invest, or a capital shallowing ("A Robust Economy, State of Utah press release).

A third example would be the impact on local governments of declining budgets.  This has been particularly pronounced in Toronto, where the previous mayor refused to raise taxes beyond the inflation rate, even though costs increased at a greater percentage than inflation, with serious negative impact on the quality of municipal services ("Brutal performance art criticism of Toronto's Mayor, John Tory, and his "austerity" agenda").

It can be difficult to separate the effects of neoliberalism, say with the water quality failures in the UK ("Water companies are playing dirty over sewage. That’s why 20 million of us are taking them to court" Guardian) from capital shallowing--the budget of the UK Department of Environment is only £11.47 million FOR THE ENTIRE COUNTRY--and capital shallowing.  

I think they are mutually reinforcing, especially when it comes to "advanced economies" as opposed to developing economies for which the concept was coined.

McKinsey "principles of organizational health" seem to be relevant to creating "value" more generally

From the McKinsey Insights article "The secret ingredient of successful big deals: Organizational health":