House cleaning for the Browns… again…

So Crennel and Savage got fired for going 4-12. I’m down with canning Romeo; his decision making is terrible, especially when it comes to the end of a quarter, half, or game. I think firing Savage was a mistake. I see why Lerner did it: Savage was too much in the public eye for bad reasons, partially because Crennel has the personality of a jello mold, and I’m talking basic Jell-O, not your fancy multi-flavored Jell-Os. School cafeteria style Jell-O. On the other hand, Savage is a hell of a talent evaluator; he got us Shaun Rogers, Braylon Edwards, Kellen Winslow, Brady Quinn, Joe Thomas, and so forth. Corey Williams hasn’t panned out (yet) and Donte’ Stallworth is an injury waiting to happen, but injuries gutted our wide receivers and quarterbacks this year; I can’t help but think a healthier team would have performed better. At least we now know Ken Dorsey isn’t the answer, unless the question is “Who was the quarterback for Miami when they lost to OSU in the national championship game?” He’s still in the NFL, unlike Craig Krenzel, but Krenzel is probably in med school and Dorsey’s a failure as an NFL quarterback.

The Browns asked Cowher, Cowher said he isn’t interested in coaching. He may be a no good liar; there are rumors of him going to the Jets or Bronc-fucks. Lerner, to his credit, wants the best and will pay for the best. Scott Pioli, of New England, is the leading GM candidate; he seems like a near lock to come to Cleveland. Coaches range from Kirk Ferentz at Iowa to Marty Schottenheimer to Mike Shanahan to current Pats o-coordinator Josh McDaniels to former Jets coach Eric Mangini. I’d prefer Schottenheimer, at this point, although Shanahan wouldn’t be a bad choice either. Pioli will get to choose his coach, unlike Savage. Savage will probably take another job and win a Super Bowl; he’s that good. I just hope Pioli and co. can do the same.

A Potential Medicaid Fix? Not Really–Rather, A Marginal Improvement

Bobby Jindal, in Louisiana, unveiled a Medicaid reform effort in 2007.  Here is a short article on it.  The upshot is that they are trying to increase the competitiveness of service providers and switch from a fee-for-service schedule (which gives incentives to maximize the number of services) to a per-patient schedule (which gives incentives to maximize the number of patients).  This will cut Medicaid costs, probably in the neighborhood of 2-19% (as noted in the article).

It does not fix the structural problems inherent in Medicaid, though.  But I do say that if I trust one politician to come up with a good and workable solution, Jindal’s probably that guy.  So I’ll be looking forward to his next moves, as well as how this change affects Louisiana.

How not to run a defense industry – Russian style

I’m finishing the first book for my dissertation, Peter Gattrell’s The Last Argument of Tsarism. He covers the Russian military-industrial complex prior to World War I and finds it lacking. Essentially, the Russian situation was a weird one. There were small clusters of private companies with foreign backing and technical expertise. They tended to make better products but were politically unreliable, so they rarely got the contracts before 1905. There were large state owned enterprises, who made low quality products but without the threat of foreigners gumming up the works, so they got all the contracts. I will focus on the aspects of his book that cover the navy, as that is my dissertation topic.

After 1905 and the defeat by the Japanese in the Russo-Japanese War, most of Russia’s navy sat at the bottom of the Pacific. They needed a new, more modern fleet, and only the private shipyards could really do it. Tsar Nicholas II had a huge hard-on for the Navy, but was afraid the growing bourgeoisie would demand even more representation, as the 1905 revolution really destroyed the credibility of the Tsar, and combined with the war, dragged the Empire into a recession. So the Tsar tried to get the best of both worlds; have foreigners finance and retool the state owned shipyards for the big projects (like battleships, his favorite) and let the private companies deal with smaller ships, like subs and torpedo boats. However, the state owned shipyards were usually in such bad shape that even foreign financing couldn’t help. The private industry got most of the ship building contracts, but gorged themselves on their new fortune, taking contracts they couldn’t fulfill and crippling their capacities in the long run for short run gains. This drove many of the smaller companies out of the market and let the bigger ones, like the Nevski Company and Noblelessner, run wild.

To make matters worse, when the private companies did get the contracts, they often sandbagged on projects, worried that once the contracts were done the workers would either organize or riot. As the Tsar poured money into private shipyards, he was getting very little bang for his buck (or rumble for his ruble, if you will) because finished battleships took a very long time to finish. The smaller ships did very well and were one of the great successes; it contributed to a definitive submarine culture in Russia that persists today.

When WWI kicked off, the Germans tore through the Baltic Fleet and the Ottomans closed the straits, leaving a considerable fleet penned up in the Black Sea. The Russian fleet was almost wiped out, again, because too many resources were spent much too thinly, with top of the line ships (relatively speaking) being operated by conscript sailors with minimal training or desire to be there.

The problem with privatizing defense, especially ship building, is that entry costs are obscenely high and every one is competing for one buyer — the government. Unlike arms or aircraft, it is difficult to find commercial applications for, say, aircraft carriers as opposed to bullets or planes. It forces the government and producer into an unhealthy incestuous relationship. Even if the firm diversifies to cover other areas, its bread and butter will be the government contracts and therefore most of their best personnel will go to those projects. By the same token, the government has little choice to go with other producers if the current firm doesn’t measure up; there usually aren’t any. Even if the government subsidizes a private company, which happens very frequently in the arms industry, there’s still a very long start up time and a long build time to finish the product.

If the firm is a really good one, like Northrup Grumman in the US, this isn’t such a bad problem to have. Northrup Grumman builds aircraft carriers, aircraft, nuclear subs, and more for the US Government and does quite well. But if the firm does a bad job, like NG did when they allegedly cut corners in aircraft manufacture in 1999, there’s no real alternative and no one to pick up the slack. NG has the biggest crane in the Western Hemisphere; it is doubtful any new company could easily build facilities to match.

How can a government break its dependence on one or two firms to build up fleets? A fully state owned enterprise may be the only real alternative here. The parts of an aircraft carrier are too big for even smaller producers to collaborate; it wouldn’t work as well as computers do, for example. If Western Digital wants to start manufacturing mice as well as hard drives, that’s easy. If Boeing wants to start manufacturing nuclear engines for aircraft carriers as well as jet engines, that’s a little trickier. It would involve a massive amount of capital and retooling to even start, and they’d have to rely heavily on outside expertise.

A fully state owned enterprise may be the best way to go. If you have to put all of your eggs in one basket, it is better to have complete control of the basket. It’s an imperfect solution — there is still the potential for shoddy workmanship. There are inherent problems with any state owned enterprise, but there is truly no free market for naval armaments. There aren’t enough competitors to justify a large scale private industry. You could have an international cartel building aircraft carriers and selling to the highest bidder, I suppose. But that cartel would have a complete monopoly and no government would fully trust them.

I’m not saying the US should nationalize Northrup Grumman. NG does a pretty good job with our navy, all things considered. There’s no need to rock the boat (pun non intended) when US naval superiority is still leaps and bounds ahead of Britain, who is the closest #2. But if the gap starts closing between the US and any other country, we will either need more shipbuilding firms to keep NG honest or state control of NG. And I don’t think the first is a realistic possibility.

Avoid Disorderly Bankruptcy–Destroy The Welfare State Now Before It’s Too Late

Mario Rizzo has a rather curmudgeonly post arguing that the welfare state is unsustainable and so, to take a cue from our political elites, we should avoid a “disorderly” bankruptcy.  But because there won’t be anyone around to bail out the federal government, we have to reform it now, before it’s too late.  The end of the world is not nigh, but the end of the welfare state as we know it appears to be coming.  The only good thing is that, because of demographic and productivity reasons, it’ll hit Europe and Japan before it hits us.  The bad thing, though, is that I doubt the incentives will be in place to correct course, to the extent that we will be able to do so.

Bailout Notes

- For just $3700 a day, you can preserve the livelihood of a troubled CEO.

- Tyler Cowen criticizes Paul Krugman’s weak attack on bailout opponents.  Read the comments to that as well.

- Ohio’s governor is looking for a handout.  I would say the same thing to state governments that I would say to companies:  hard cheese.  Ohio’s in fairly dire economic straits for two reasons.  First, it is one of the worst states in the union to invest in due to backwards tax rates and regulations.  Second, as the article points out, Medicaid is a huge (and still growing) part of the Ohio budget.  Ohio was one of the states that used its tobacco money to extend Medicaid services and now that we’re in a downturn, Medicaid payments will actually go _up_ because more individuals will become eligible for Medicaid services.  This is unsustainable and a bailout won’t fix the underlying structural problems.  Medicaid as it currently exists is not viable, as the incentives are structured for more and more use.  For the states, they get 60% back from the federal government, so they have an incentive to over-allocate Medicaid dollars and push their Medicaid clients to use more services.  But once the states have trouble covering their 40%, to scale back Medicaid expenditures means a greater than 1:1 drop in allocation for Medicaid-eligible services because that 60% from the feds gets re-allocated and used again for Medicaid services.

- John Hood also has a post up about state bailouts (among other things), linking to a Cato @ Liberty by Michael Cannon.  Cannon says part of what I just said up above.

- Speaking of bad policy decisions involving Ohio, the John Locke Foundation gives the Buckeye State an F grade when it comes to taxpayers’ return on investment.  10 states grade out with an A and three more get a B+.  Ohio is one of 10 F grades.  The one place where Ohio grades out as an average state (as opposed to in the bottom quintile) is road conditions, which made me laugh.  Or pity other states’ roads.

- The UAW has already thrown out their small concession that they agreed to in order to get a bailout.  Let them fail.  We don’t need to subsidize the UAW or incompetent managements.