Let A Thousand Nations Bloom

Separatism and secession are popular during declining social mood. I remember finding humor in reading "Manitoba, USA?" in the New York Post one morning long ago (unfortunately not online, but from what I found it was an April 14, 1990 article), but the Quebecois have not stirred for independence of late and the attraction of lower taxes in the U.S. is probably fading for the oil rich western provinces.

There's still ideas of political devolution afoot in North America though. Arnold Kling often writes of the need for competitive government, and here's his post at his blog in light of "Secession Week"at Let A Thousand Nations Bloom:
Unbundling Government

I can appreciate that technocratic management of the water system in my area is a good thing. Overall, though, the government implementation of this technocratic solution comes bundled with teachers' union featherbedding and pensions, land use regulations that impose heavy costs and foster a lucrative market in political favor-trading, and exorbitantly expensive construction projects for buildings and roads.

What I would like to see is unbundling of government services. Those that could easily be provided privately would be separated from those that are most difficult to provide privately. If private water provision would be difficult to implement, fine. Private provision of schooling would not be so difficult to implement. By unbundling, we could move incrementally toward more competitive government.

Many people resent the way that cable TV companies bundle their packages of services. I have that same resentment over government bundling.

I generally favor this approach because it is pragmatic and can be done step-by-step, but the U.S. does not have an autocratic one-party system such as China or Singapore. Therefore, someplace will try a lot of reforms and the rest of the country will pick and choose based on the outcome.

What I'm amazed of is how many regular people are talking about the need to cut school budgets, cut government pensions, etc., people who would never have even considered it 5 years ago, people who hardly ever discuss politics. Everything will be up for grabs in the coming years. There's going to be some place that has a critical mass of voter discontent and reform minded politicians who will implement a radical change.

Finally, while secession and the more "radical" plans for scaling back government are on the drawing board or in the minds of prospective reformers, there are some other mentions of it in the news.

Sudan discusses secession of South

A 2005 peace deal between southern-based SPLM rebels and Khartoum ended a 21-year conflict in which as many as 2 million people were killed. The agreement granted Southern Sudan semi- autonomy leading up to a 2011 referendum on full independence.

Under the peace accord, the two sides split the revenue from oil produced in the south, which produces most of Sudan’s oil. The export route available for southern oil is a pipeline running north and ending in Port Sudan on the Red Sea.

The revenue sharing will be one of the issues negotiated, Amum said.

“Is this going to continue? Is it going to change? It may likely change,” he said. “Is Southern Sudan going to pay fees for the use of the pipeline that is going through the north? These are issues that we will be discussing.”

According to the June 23 agreement seen by Bloomberg, the two sides will also discuss issues of currency, national debt, water, international treaties, security, and citizenship.

Secession need not be violent, although it remains to be seen what happens in Sudan.

Here's some power devolution talk from the U.S.:
GOP's Emmer: 'The State Certainly Does Have The Right' To Overturn Federal Laws (No, They Don't)

Minnesota state Rep. Tom Emmer, the presumptive Republican nominee for governor, has further expounded on his theories of nullification, declaring that states have the power under the Constitution to undo federal legislation.

There's one problem that Emmer and other nullifiers -- or to use a modern term from the blogosphere, "Tenthers," after the Tenth Amendment -- would face: State nullification of federal laws has consistently been found to be unconstitutional throughout this country's history.

I'm not sure if "Tenthers" is a self-appellation by right-wingers or a derogatory term by left-wingers, but "localism" is popular with the left. Localism has typically been more of a cultural phenomenon during the 2000s (farmers markets, buy local, etc.), but it becomes political when a big box retailer such as Wal-Mart wants to open a store.

In general, there's a trend towards local control. The right wants political control, the left is talking about economic control.

And finally, here's one that is socionomic without even knowing it:
Leach: As American citizens, civility is our responsibility

Citizens have lost confidence in many institutions of society, particularly government, and are becoming more disrespectful of their leaders, other faith systems, and each other.

Public figures have been spat upon and subjected to homophobic slurs. Others have been labeled "fascist" or "communist," sometimes at the same time. And more bizarrely, hints of history-blind radicalism - notions of "secession" and "nullification" - are creeping into the public dialogue.

One might ask what problem is there with a bit of hyperbole. Plenty.

Unfortunately for former Congressman Leach, civility is still a few years off and the incivility will ratchet up a few notches before all is said and done.


Back to Kling, he has a lot of interesting articles and books for those interested. His book "Crisis of Abundance: Rethinking How We Pay for Health Care" is a great overview of the problems in healthcare, along with possible solutions. I haven't read his other books, but I plan to.

If you're interested in the financial crisis and the GSEs, Kling worked at Freddie Mac in the late 1980s and has a great description of the firm in Freddie Mac: My Chapter

Multifamily loans were high risk. However, Freddie Mac, as a government-sponsored enterprise (at that time, it was an agency under the Federal Home Loan Bank Board), was expected to provide funds to support low-income housing. The multifamily division guaranteed mortgages on apartment buildings, which were occupied by many low-income renters.

The capital charges that we came up with for multifamily drove the division crazy, because they were so high. The capital charges made it very difficult for the division to compete for business, and their management howled about it. In an important meeting between Chief Financial Officer David Glenn and the entire Financial Research department, Glenn challenged us to justify whether we had the authority to dictate the pricing of multifamily loans, given the adverse impact it was having on our purchases.

In theory, the battle between Financial Research and Multifamily could have gone either way. In practice, Multifamily blew itself up. It turned out that their risk controls were terrible. They were lending money to slumlords who were quite happy to take the cash, let the properties rot, and hand the keys to Freddie Mac to clean up the mess. The default rates on the loans were much worse than our models predicted, and the losses nearly cost Brendsel and Glenn their jobs.

The multifamily fiasco had several long-term consequences. It raised the prestige of the Foster-Van Order model within the company. Over the next decade, many other economists were hired, and the Foster-Van Order approach to default and capital costs became deeply embedded in the corporate culture, with Brendsel, Glenn, Cassidy and others in senior management well attuned to it.

The multifamily fiasco also affected how senior management handled the trade-off between making loans to support low-income housing vs. doing what was best for the financial health of Freddie Mac. After the multifamily debacle, Freddie Mac's policy was to focus on financial health and minimize the support for low-income housing.

This was the risk management culture that Richard Syron inherited when he became Freddie Mac's CEO in 2003. Syron wanted to do more for low-income housing, and he did not trust the people that he found at Freddie Mac. As we now know, there was a blow-up between Syron and Freddie Mac's Chief Risk Officer over loans with low down payments. The Chief Risk Officer argued that such loans were bad for borrowers, bad for Freddie Mac, and bad for the country. Syron fired him.

More of his blog posts can be found here.