Category Archives: Government

DEI Daze

Over the last few weeks, the attack on diversity initiatives has grown increasingly absurd. In the fervor to scrub race from U.S. government web pages, Jackie Robinson, black soldiers who fought in the Civil War and the Navajo Code Breakers mistakenly disappeared. The black head of the Joint Chiefs got canned, and the white female heads of the Navy and Coast Guard suffered similar fates. The message dovetailed off the words of Darren Beattie, the recently appointed undersecretary for public diplomacy who last year wrote: “Competent white men must be in charge if you want things to work.”

Oddly, I’ve been saying the exact opposite for years, based on actual experience. The leadership of our company is a extraordinary mix of brown males and females, immigrants, and white men and women. I know the place works because of that. We promote the person best suited to the job, who has the blend of technical skills and personality to handle the challenges they’ll face, while showing promise to move up to the next level.

Take our scheduling director. She’s first generation Laotian, started as the receptionist, moved into customer service and then took over scheduling. Somehow, and I don’t know exactly how, she keeps a 200,000 square foot factory running 24/7, 362 days with minimal downtime while handling one customer crisis after another. The white men who’ve tried the job want nothing to do with it. So what ? I have a proven leader who works around the clock and gets stuff done. That she’s a Hmong woman doesn’t enter into the equation.

Or does it? Is it possible that culture shapes the person? Immigrant and first gen women seem driven in a way their co-workers aren’t, including me. My head spins with what they get done in a day, including taking on and unraveling incredibly complex issues. There’s just a get-to-it spirit that drives the best of them, in the way us second generation types rarely muster. My first gen Director of Human Resources, for example, took the almost unheard of step for an HR executive of earning her MBA (while caring for a newborn, I must add). Growing up without often proves a great motivator. I can point to my own first gen father — a white male — as a great illustration. It’s just that we don’t have many European immigrants anymore. These days most are brown. Either way, I’m lucky to have them.

Research backs up my intuition. Back in 2019 the consultancy McKinsey & Co. found that companies in the top quartile for gender diversity boasted profits 25% higher than the laggards in the bottom quarter. Ethnic diversity proved even more decisive, with the gap widening to 36%. The Harvard Business Review attributes such success to the way diverse teams challenge each other to think more broadly thanks to differing life experiences. They tend to make more factual decisions because preconceptions are more likely to get challenged, again thanks to different perspectives.

I’m not saying DEI programs didn’t get a little silly in some cases, if not worse. The problem comes when company’s build quotas and limit searches, instead of creating a culture where any gender or color can thrive. There’s no doubt we owe a debt to the ground breakers, people like the baseball great Jackie Robinson, who broke the color barrier enduring racist chants and insults from players, while building one of the most impressive resumes in the sport. His success showed what we had missed not including blacks at the highest levels. So why even consider taking down his web page?

The Administration itself undercuts its own arguments. Women dot its upper echelons, including chief of staff to the president, head of the Department of Homeland Security, and Attorney General. Why are they not DEI hires but Vice President Kamela Harris was, according to then candidate Trump? Why don’t black soldiers in the Civil War, who faced execution or slavery if captured, deserve mention for the ruthless bravery they exhibited?

I’m not sure where the anger about diversity comes from. I suspect, as Mr. Beattie suggests, it’s a backlash from white men, who feel passed over for positions they think they deserve. Whether they do or not. It ain’t easy to give up first position. I’ve seen it in my own company, where white males are more critical of brown and female department heads than they are of their counterparts. It isn’t uncommon for unpopular decisions to get pushed on them, and then their answers roundly criticized, another little fact noticed by the Financial Times. Still, we come together, put stuff behind us and make our company hum.

Ultimately I worry that the vilification of DEI will undercut the legitimacy of nontraditional leaders. I’m concerned the hostile environment will grow so strong that they’ll end up stepping down or taking demotions. That would be a mistake, as the research shows. Think of what we lose. After all, who will have the guts to steal home base?*

*Picture of Jackie Robinson famously stealing home in the 1955 World Series, a feat he accomplished 19 times in his career, which prior to his inclusion rarely happened.

Remember the National Debt? Or, What Me Worry?

Whatever happens in the presidential election next Tuesday, Americans may be in for a very rude awakening. Call it a lesson on how the world economy really works

Most people think that the Federal Reserve sets our interest rates, which form the basis for things like home mortgage rates. It’s easy to come to this conclusion given how economics gets reported. The truth? The Fed only sets the rate for what banks charge each other for overnight loans to cover reserve requirements. That can influence long-term rates as it sets the expectation for future inflation, but it only has influence. Instead, those rates are set by the people who buy bonds that cover our country’s $30 trillion Federal debt. They’re called bondholders.

It’s hard to underestimate their power. Back in July 2022 the United Kingdom’s new Conservative Prime Minister Liz Truss introduced what she called a “mini-budget”, handing wealthy Britons the largest tax cut since the 1970s, unfunded by corresponding spending cuts. Almost overnight the 5-year mortgage rate jumped to 5.25% from 3.63% and the British pound crashed from £1.25 to $1 to £1.03 to $1. That’s a staggering 31% increase in mortgage costs, calamitous in a country where short-term mortgages are the most common. The currency collapse – again, driven by traders — meant that prices for many goods imported from the United States, jumped 25%. Her government lasted 49 days.

How’d this mess happen? Bondholders who held British debt dumped it, and currency traders started betting against the pound. They lost confidence given the government’s £49 billion unfunded tax cut. Traders no longer believed Britian would be able to pay its bills, given the size of the cut and the firm belief, underwritten by history, that tax cuts don’t pay for themselves through economic growth. It’s a stupid idea invented by an economist scribbling on a napkin over drinks, repeated endlessly by venal politicians and known by bondholders to be a fantasy.

Fair warning to America. Both our presidential candidates and most of the citizenry seem utterly oblivious to the country’s galloping debt and its implications. The Trump Administration grew the national debt to $32.54 trillion by 2020 from $25.56 trillion four years previous. President Biden’s spending took it to $35.46 trillion. By contrast, in 1979 the national debt stood at a meager $3.4 trillion. We pay for this shortfall by floating Treasury bonds, which traders buy at an interest rate that they essentially set. We’re okay if they’re willing to pay at a reasonable price. If not, interest rates would spike, prices would go up, and we’d have to slash spending. Massive and highly unpopular cuts would occur across the entire federal budget.

Neither candidate has proposals addressing our vulnerability to debtholders. Instead, non-partisan groups like the Center for a Responsible Federal Budget estimate that both candidates would hike the deficit. The myriad of tax cuts proposed by Former President Trump’s aren’t offset by spending cuts. If his entire program were enacted, it’d lead to a debt increase of at least $7.5 trillion dollars over 10 years, with analysts warning they could conceivably add $15 trillion. Vice President Harris, thanks to tax increases, holds the increase to $3 trillion over ten years, but that’s hardly fiscal rectitude.

All this spending requires the bondholders. But hesitation is already in the air.

Despite recent Fed interest rate cuts, the 10-year Treasury note climbed to 4.28% on October 31, up from 3.64% two months ago. Traders have started to price in the inflation risk. None of this reflects the impact post-election political instability and violence would have. If we see third-world scenarios play out in this country, bondholders will run. Part of our attraction as an investment is our very stability. I’m not sure why so few think of this as threats of violence, hints at coups, or cries of vote stealing fill the airwaves. Finance shows no favorites, and bondholders won’t hesitate to teach us this.

We often think we know what we’re choosing, when in fact we don’t, because unintended consequences aren’t factored in. I heard former President Trump speak to the New York Economic Club a few weeks ago, where his promise to cut the corporate tax rate from 21% to 15% received raucous applause. No one shouted the obvious: What about the deficit? Similarly, Vice President Harris’s promise to give first time home buyers $25,000 grants sounds great. But how is it paid for? Whether corporate taxes or home buying, it’ll be debt. We’re careening into a financial swamp of our own making, fueled by wishful thinking and that oldest of sins, greed.

Vaping Romaine

Last November around 2pm the Food and Drug Administration issued a recall for romaine lettuce.  The leafy green had been identified as the culprit in an e coli outbreak that eventually sickened 62 people and hospitalized 25 nationwide, including two with kidney failure.  This followed a recall from earlier in the year that left 172 sick and killed one.  Millions of romaine heads ended up in dumpsters. The second recall banned the product during the height of the Thanksgiving season savaging the bottom lines of growers.

No one can dispute the FDA took decisive action to protect public health. People got sick, they quickly traced it to romaine consumption, then they shut down the industry. That decisiveness came at a cost to us since 15% of the packaging we manufacture contains romaine. Our sales for the quarter which had been tracking up 10% ended only 5% higher.

Having felt the sting of FDA action I am puzzled if not outraged by FDA inaction.  In recent weeks a mysterious disease has struck the lungs of vapers rendering them unable to breathe. As of September 30 it has claimed the lives of 15 people and sickened at least another 800 across 46 states according to the Center for Disease Control.  The CDC jumped in immediately trying to nail down a reason for the affliction but so far can’t. Neither can the FDA. They only have theories.  Some victims combined nicotine and marijuana. Others did not. It may be the chemicals used by the companies that make e-cigarettes. On September 25 the deputy director of the CDC Dr. Anne Schuchat admitted at a U.S. House of Representatives hearing “it is indeed possible the process itself is risky.”

Given the deadly and widespread outbreak have e-cigarettes been pulled from the shelves? No, you can still buy them wherever sold. Sure the federal government talks about banning flavored e-cigarettes though no one has connected them to the mysterious lung disease.  So unlike romaine when it sickened people, e-cigarettes, which have killed, haven’t been banned. If you want to risk lung disease, the Feds seem to think that’s okay.

I wonder why. Perhaps because unlike romaine no single culprit has been found. That makes it worse in many ways. If you don’t know the reason shouldn’t you act quickly to protect people? A ban would provoke huge outcry given the number of people who vape.  Combine that with Big Tobacco and regulators face serious clout. The Altria Group, owner of leading cigarette maker Philip Morris, controls 35% of Juul Labs, the largest producer of vaping devices. When Altria made its investment last December, it valued Juul at $15 billion. Perhaps such girth outweighs that of Big Romaine, which in truth doesn’t exist. Romaine producers are mainly family farms clustered in the Salinas Valley. Not quite the same political clout.

My point is this. All industries should be treated alike. If the FDA pulls romaine out of supermarkets because it makes people sick, then it ought to do the same when e-cigarettes sickens and kills people. Why they haven’t shouldn’t even be a question by the likes of me. Or else the next time a leafy green has an e coli problem, leave the stuff on the shelves and let consumers decide whether to buy it. That’s essentially what the FDA and CDC have done with vaping.  One path or the other. Shouldn’t be one industry gets treated differently than the other. Even if it is Big Tobacco with lots of vapers.

 

 





Follow

Get every new post delivered to your Inbox

Join other followers: