It Finally Happened

“It is hard to imagine a more stupid or more dangerous way of making decisions than by putting those decisions in the hands of people who pay no price for being wrong.” — Thomas Sowell

Before I begin this blog I want to share a video that was done by Steven Crowder of PJTV in December of 2009. In the video Crowder takes you on a tour of the motor city and shows what has and is happening to the once great manufacturing center of the world.

And there is another video from the Reason Foundation address the issues causing the demise of Detroit.

In my search of YouTube videos about Detroit I found several hundred that would have be suitable for this article, but you can do that on your own by simply typing “Detroit in Ruins” in the search field.

In December 2010 I posted an article about the “Vanishing Detroit” in which I wrote about the history and potential demise of the motor city. In the concluding paragraphs of the article I state:

“This is a condition not limited to Detroit. Cities such as Oakland, St. Louis, Cleveland, and many others are approaching the same precipice of economic bankruptcy. With the massive costs for welfare and social services, shrinking tax base, poor schools, unfunded liabilities for public service workers pensions, teachers unions with the protection of underperforming teachers and increasing demands for higher wages and guaranteed pensions and a political class that panders for votes we are approaching a time in our history when cities are beginning to fail.

Until now cities have been relying on funds from state and the federal government to bails them out of their financial woes. With states experiencing the same malaise and the rising deficits of the federal budgets money for these cities are no longer going to be available. Perhaps the time has come for these cities to realize the mess they are in and declare bankruptcy rewrite their public service and teacher union contracts and tighten their belts in all areas of spending so they can survive. No more promises, no more pandering to special interest groups and no more fountains and stadiums unless they are totally financed with private money.”

Most rational economists and rational thinking people have been predicting the demise and eventual bankruptcy of Detroit for years. Now it has become official and no amount of state or, God forbid, federal funds can solve the problem.

Last week Governor Rick Snyder filed for Chapter 9 bankruptcy for the city of Detroit. The once leader of American industry has now joined the junk heap as a third world city. Chapter 9, Title 11 of the United States Code is a chapter of the United States Bankruptcy Code, available exclusively to municipalities that assists them in the restructuring of debts..

Why did this happen and will it happen to other American cities?

Michigan Gov. Rick Snyder and the bankruptcy specialist he appointed to fix Detroit’s unprecedented financial problems put the blame Sunday squarely on the city and defended their decision to file for Chapter 9.

The Republican governor said Detroit created the problems and stood steadfast behind his decision to file Thursday for bankruptcy, with the city roughly $19 billion in debt.

“This is a tragic, difficult decision, but a right one,” he told CBS' "Face the Nation." “It’s not about just more money, it’s about accountable government.”

He said corruption and city leaders ignoring warning signs for 60 years contributed to the problems. Among his biggest concerns, Snyder said, is the decline of municipal services for Detroit’s remaining 700,000 residents, including police response times of nearly one hour.

Snyder said the state cannot help and asking for a federal bailout is “not the right answer,” though Washington has that option.

The Obama administration has extended no offer to help, after Congress and the White House agreed to bail out Chrysler and General Motors during the recent recession.

“Can we help Detroit? We don’t know,” Vice President Joe Biden said last week. His remarks followed White House Press Secretary Jay Carney appearing to rule out such assistance.

“That's something that local leaders and creditors are going to have to resolve,” he said. “But we will be partners in an effort to assist the city and the state as they move forward.”

Among the emerging concerns is that the federal government would have to help repeatedly, considering Chicago reportedly has an unfunded pension liability of at least $19 billion while Los Angeles’ is estimate to be as much as $30 billion.

The bankruptcy filing for Detroit marks a final step in the chrome-plated city’s decades-long decline — which started with the country’s overall manufacturing slowdown and continued with the departure of U.S. automakers and residents, leaving behind a sprawling city trying to survive on dwindling coffers.

Detroit was in the 1950s a worldwide hub of auto manufacturing, making it the fourth-largest U.S. city with one of the country’s highest per-capita incomes.

However, the so-called Motor City’s decline started soon after with residents — following their counterparts in other U.S. cities — starting to move to the suburbs and take with them businesses, jobs and tax dollars.

Historians argue the deadly 1967 riot in Detroit, one of the many so-called “race riots” across the country in the 1960s, accelerated the trend.

And as the population dwindled from roughly 1.8 million to 700,000, city officials struggled to keep up with municipal services in the 142-square-mile city, with a tax base just half of what it was in the 1950s.

Meanwhile, auto companies began opening plants in other cities as Japan-made cars dominated the international market. By 2009, the U.S. auto industry collapsed with the entire economy, eventually pulling down Detroit with it. When the UAW demanded high wages and more benefits the auto companies began moving to right to work states in the south so they could better compete with the Japanese car companies that were manufacturing cars and trucks there. As this happened the unions got what they wanted, but the jobs began to vanish and with that the tax base declined.

The city’s efforts to provide and maintain such basic services as law enforcement and trash removal were further complicated by the costs of paying union contracts and benefits, which have contributed to nearly $15 billion in unfunded liabilities for the city.

Once again these public service unions got the raises and pensions they demanded and the Democrats gave into their demands to get their financial support and their votes but the city did not have the money to fund these liabilities.

In addition, Detroit has a roughly 18 percent unemployment rate, one of the country’s highest violent-crime rates and about 80,000 blighted or abandon buildings.

“Chronic budget problems have taken a significant toll on everyday life for citizens,” Snyder said recently. “Detroiters deserve to feel safe when they walk down the street, to have their street lights on, to have the bus show up to take them to work.”

However, the city also has a history of corruption that has led to its financial problems, including Mayor Kwame Kilpatrick resigning in a 2008 sex-and-perjury scandal that cost the city almost $9 million from a lawsuit and legal fees.

Years of Democratic Party rule, corruption, escalating social welfare programs, failing public schools, high taxes, demands of the teachers and public service unions, racial tensions, gangs, and a rising crime rate have finally taken heir toll on Detroit.

The recent bankruptcy filing in Detroit is raising red flags about other major U.S. cities also dealing with billions in under-funded retiree benefits, prompting the question — who might be next?

Just last week, Chicago’s credit rating was downgraded as a result of its $19 billion in under-funded pension liabilities.

Moody's Investors Service called the liabilities “very large and growing" and warned that Chicago, the country’s third-largest city, faces a “tremendous strain’’ in trying to meet future funding requirements and public safety demands.

A similar scenario, though decades in the making, largely doomed Detroit, whose average police response time has grown to more than 50 minutes.

And like Michigan, which appears in no position to bail out Detroit, Illinois is dealing with its own $97 billion pension shortfall.

To be sure, other smaller cities have filed for bankruptcy, most notably California’s Stockton and San Bernardino in 2012. No other city of Detroit's size appears to be on the cusp of imminent financial collapse.

However, those bankruptcy filings together have resulted in speculation about whether more are on the horizon

Other cities now on the radar include Cincinnati, Minneapolis, Portland, Ore., and Santa Fe, N.M. — following Moody’s saying in April that they and 11 other municipalities were being reviewed for a possible credit downgrade, the result of a new analysis system that further considers pension liabilities.

Though much of the national concerns have focused on pension liabilities, heath care costs for retired municipal employees pose an equally if not larger problem.

Amid the $18.5 billion in long-term debt that led Detroit to file for bankruptcy is roughly $3.5 billion in under-funded pension liabilities. However, roughly $5.7 billion of that debt is health care costs and so-called “other post-employment benefits.”

The situation is highlighted a Pew Charitable Trusts Study of 61 major U.S. cities that found they collectively had enough money to cover 74 percent of pension liabilities but only 6 percent of health care liabilities.

The total difference between what the cities owed to retired employees and what was covered equaled $217.2 billion, according the report, “A Widening Gap in Cities.” It was released in January and based on 2009 numbers, the most complete data at the time.

The nonprofit group also released a report in March that found New York City has a combined $1.15 billion in under-funded pension and health-care costs, followed by such major cities as Philadelphia, at $8.6 billion. In comparison, that figure for Detroit was $12.9 billion.

The video clip shown here is from PJTV and the three commentators summarize the reasons Detroit and other cities will continue to fail.

As our nation continues down the road of higher taxes, more regulations, and runaway spending by politicians only interested in the next election more cities will fail. Just wait until 30 million illegal immigrants are added in the equation.

Today we have 47 million people on food stamps. That’s 15% of the population. Even college students are receiving food stamps today.

Rather than use the meager funds available to cities and states for big union contracts, luxury projects like light rail, and promoting more welfare programs they need to pay attention to the basic municipal functions of police and fire services, garbage collection, repairing crumbling sewer lines, streets, and bridges — the things people pay property taxes for.

Since the early days of the Republic, America’s cities have been centers of innovation, wealth, and power. As they grew larger and their governments more commanding, places like Boston, Chicago, Newark, New York, Philadelphia, and St. Louis also became battlegrounds where political machines contended for influence. The early ideal of the part-time citizen-legislator gave way to the professional pol. In his 1904 “The Shame of the Cities”, Lincoln Steffens observed that big-city governments across America had been undermined by a series of problems, including police corruption, politicians using the public till for their own gain, and rampant bribery in awarding public contracts, known at the time as “boodle.”

The Democratic Party is a party of special interest groups, or “factions” as James Madison called them. There are racial groups, LGBT groups, unions (both private and public sector), teachers unions, environmentalists, and pro-abortion advocates. All of these groups want something and the Democratic Party is who they turn to for it. They want plunder and the Democrats will give it to them as long as it brings them votes. They don’t care about the future. They only care about the next election and how to retain their power.

Decades of corruption built a mountain of liabilities, while scaring off the taxpayers needed to finance those promises. It’s like a movie trailer for the blockbuster disaster film to come, when America’s declining demographics catch up with the federal government’s vastly higher mountain of unfunded commitments. Detroit is the city our debt monster destroyed to get limbered up for the greater fiscal carnage to come.

Death spirals spin even faster when it’s possible for productive workers to escape. The population implosion in Detroit was swifter and more dramatic than our national workforce collapse, because it was relatively easy for citizens to escape the degenerate loop of declining municipal services and rising taxes but in the long run, the result will be the same. There are people capable of fleeing the United States entirely, when our moment of truth arrives. Their departure will be a good sign that the Great Crash is at hand. The loss of their capital and business acumen will hasten our collapse.

We should stop the death spiral before things get bad enough for the smart money to take a powder. Of course, there were people in Detroit who said the same thing, twenty or thirty years ago. They were drowned out by a perpetual-motion political machine, which promised the good times would keep rolling forever. Even now, frantic liberals are gibbering that Republican austerity measures somehow killed Detroit, even though Democrats held absolute power for fifty years. You’ll hear the same things right before the end at the national level too. In the very near future, you’ll be told your Social Security and Medicare benefits are being cut because evil rich people don’t want to pay enough taxes to fund them. It won’t matter that there literally isn’t enough money in the entire world to cover Uncle Sam’s long-term liabilities. Anger and resentment will be milked for power until the very end. Those who do the milking will soar away from the wreckage with millions of dollars in their pockets.

Pension and benefit liabilities are really just a concentrated form of the same toxin eating away at every level of government: deficit spending. They’re just another way to spend tomorrow’s money, which is easy, because tomorrow casts very few votes in today’s elections. The people who fret over “sustainable” development at environmentalist conferences are nowhere to be found when it’s time to discuss sustainable government. Forward-thinking “progressives” are perfectly happy to be ruled by the dead hand of past entitlement promises. Those who regard the U.S. Constitution as a dead scrap of old parchment think union benefit plans are chiseled on tablets of stone.

Here’s a trick question for you: What does the government buy with its billions in deficit money? The correct answer is: commitments. Very little of that crazy deficit spending is a one-time outlay, evaporating without trace in the next fiscal year. Governments use money they don’t have to rack up long-term spending commitments, which quickly acquire human faces. Cut a million in spending, and you’ll be putting this government employee out of work, or trimming back a program that person depends on for their livelihood. Lay a finger on the pension plans of Detroit, and you’ll outrage people who are counting on those payments to finance their lengthy retirements. Promises were made. Reform is betrayal. You’ll never see a more motivated group of voters than people who believe their well-earned benefits are at risk.

Maybe the people who made all those unsustainable promises should have thought about the grim day when it would become impossible to keep them. Perhaps the outraged beneficiaries should direct their ire at the people who bought their support by making commitments that can no longer be fulfilled. But it doesn’t work that way. The people who made the unsustainable commitments are long gone. Criticizing them is living in the past. All that’s left to discuss is how today’s young people will be indentured to pay off bills they never had a chance to vote against. Fate is written one borrowed dollar at a time, and the “progressives” tell us it cannot be unwritten. We surrender control of our fate whenever we allow the government to spend money it doesn’t have. We leave our children with a hope chest full of chains.

Liberals pretend that debt is only a concern when they want to talk about tax increases. And even then, it’s not that big of a concern. They’re not interested in balancing the budget, much less paying off the mountain of debt already incurred. Skeptics are told there’s no reason to worry, we’ll always be able to borrow more money. And then the day arrives that we can’t. It happens fast. The final promises of unlimited government credit are still ringing in our ears. Contrary to the promises of charlatans, government debt is not an abstract number floating on some spreadsheet. Money cannot be printed forever. There comes a moment that the cost of financing debt abruptly explodes, and suddenly the government’s financial commitments balloon by 30 percent, 50 percent, or more. Draconian tax increases are presented as the only possible solution. The geese that lay our golden eggs are duly strangled. And then what? It’s funny how quickly political rhetoric can shift from bright futures of unlimited possibility, to grim demands for the cash needed to fulfill ironclad entitlement commitments.

Private corporations and unions make unsustainable problems too, but at some point unsupportable demands will kill off the host organism. The company and its unions collapse together, leaving others to pick up the pieces and devise a more workable business plan. That’s what happened with the Twinkie — it’s back on store shelves following a cycle of creative destruction. But that’s not what happened with Big Auto or Detroit, is it? When the operation reaches a certain size, we’re told it can’t be allowed to undergo the cleansing cycle of death and rebirth which means suddenly it’s everyone’s problem.

As goes Detroit, so goes America. The steering wheel is lashed in place, a cement block has been dropped on the gas pedal, the emergency exits are welded shut, and nervous passengers are told to swallow their complaints. The commitments that were so very easy to make yesterday will become impossible to fulfill tomorrow. The range of options available to deal with fiscal crisis will be dramatically restricted, as every strategy to increase economic growth is pronounced unthinkable. How much flexibility does Detroit have to win investors, and attract productive labor back to the city? How much flexibility will Barack Obama’s successor have to restart the American economy? Promises become curses, then wither away into epitaphs.

For more photos of crumbling Detroit please click here.

As Stephen D. Eide, a senior fellow at the Manhattan Institute’s Center for State and Local Leadership, writes in the Daily Beast:

“However long it takes, bankruptcy will cut Detroit’s debt, but that’s a necessary, not sufficient condition of any revitalization. On its own, bankruptcy can’t reform city government, reduce unemployment, bring down the crime rate, or reverse depopulation. Eventually, Kevyn Orr will exit the stage, and leave those challenges for Detroit’s citizens and public officials to resolve. In the near-term, the task for Detroit city government is usefully simple: bring down the debt. If progress is made on other fronts along the way, private sector actors will most likely be responsible. Government was not the only cause of Detroit’s decline, and will play, at most, a supporting role in the city’s revival.”

The Myth of High Speed Rail

"When plunder becomes a way of life for a group of men living together in society, they create for themselves, in the course of time, a legal system that authorizes it and a moral code that glorifies it." — Frederic Bastiat

For the past two years I have been writing about the myth of high speed passenger rail. (See my blog from May 12, 2012 — “The Train to Nowhere, Part Deux”) In my May 12^th blog I addressed the history of rail in the United States and talked about the proposed $7 billion dollar high speed rail from Victorville, California to Las Vegas, California. Since that time the name of the project has changed from DesertXpress to XpressWest and the United States Department of Transportation’s Federal Railroad Administration has nixed the requested $5.5 billion dollar loan.

On July 17^th the Washington Post reported:

“WE’VE SEEN some bad policy ideas but not many more awful than the proposal to extend a $5.5 billion low-interest, 35-year federal loan to a West Coast start-up for a high-speed rail connection between Southern California and Las Vegas. This time, though, we are happy to report, common sense has prevailed: The Obama administration has stopped the project.

Backed by wealthy casino moguls, who in turn enjoyed the support of Senate Majority Leader Harry Reid (D-Nev.), a company called XpressWest wanted to lay tracks between Vegas and lonely Victorville, Calif., some 81 miles east of downtown Los Angeles. Several times larger than the largest amount ever loaned under the obscure federal Railroad Rehabilitation and Improvement Financing Program, the federal money would cover 80 percent of the project’s costs. The supposed public benefits were reduced carbon emissions, less auto traffic and, of course, more jobs.

What XpressWest struggled to explain was why taxpayers should bet on a proposition that private investors apparently found too risky: hordes of travelers driving to Victorville, parking their cars and then boarding the train for an 80-minute ride to Vegas — as opposed to driving the whole way, flying or taking “My Party Ride,” a limo-like bus trip for up to 30 passengers at $99 each, including food and drinks.

The whole thing had the makings of a boondoggle, for which taxpayers would eventually end up paying. Yet multiple federal and state agencies had given environmental and regulatory approvals, leaving the crucial matter of the loan up to the Transportation Department. Given the project’s political connections, DOT’s thumbs-up seemed inevitable — until June 28, when then-Secretary Ray LaHood, as one of his final acts in office, sent XpressWest Chairman Anthony Marnell II a letter saying that the department had decided to “suspend further consideration” of the loan.”

LaHood, in his June 28 letter to the company, cited "serious issues" with the application in the decision to cut the project off. He suggested the company was having difficulty ensuring that the project would be built with enough American products like U.S-made steel and iron.

Some of the letter was redacted, but LaHood also suggested concerns about the sheer size of the loan and the risk, and the company's apparent failure to submit additional documentation on other participants in the project.

"After several years of engagement with no resolution to the threshold issues addressed in this letter and the significant uncertainties still surrounding the project, we have decided to suspend further consideration of XpressWest's loan request," LaHood wrote. The request had been under consideration with both his department and the Federal Railroad Administration.

The decision is a major blow to the project, as the federal loan was expected to make up the bulk of funding for the $6.9 billion rail line.

The 185-mile line was billed as the most advanced and fastest in the U.S. According to the company, it would connect Southern California and Vegas with an 80-minute train ride.

Yet critics warned that costs could spiral and ridership projections might be too rosy, and that such a massive federal investment was not wise.

The XpressWest line is running into a wall after another project — a proposed magnetic levitation (Maglev) train with a similar route — also ran into recent problems, as state planners backed away from that project and federal funding ran dry.

Sen. Jeff Sessions, (R-Alabama), top Republican on the Senate Budget Committee, and Rep. Paul Ryan, (R-Wisconsin)., chairman of the House Budget Committee, had earlier revealed they'd been told about the department's decision on XpressWest. The two lawmakers had been among the toughest critics of the project and loan, calling it "costly, wasteful and risky."

On February 12, 2013 Laura Carroll Reported in the Las Vegas Review Journal:

“At best, it could be another 18 months before any ground is broken on the XpressWest project - the same time frame backers gave the Las Vegas Review-Journal in 2009.

The reality of a high-speed train shuttling travelers between Victorville, Calif., and Las Vegas hinges on funding of $5.5 billion from the Railroad Rehabilitation and Improvement Financing, which is administered by the Federal Railroad Administration. XpressWest's first loan application was submitted in December 2010 and is still under review.

The nearly $7 billion project will largely be financed from this loan, if approved, and the rest in private equity investment.

At Tuesday's meeting of the Las Vegas Convention and Visitors Authority board of directors, XpressWest Chief Operating Officer Andrew Mack, said it could be six months before a decision is made on the application. If approved, it would be still another year before ground is broken.

"It's really dependent on the RRIF pay," Mack said. "That's really driving the schedule.

The train would be built adjacent to Interstate 15 with service every 20 minutes and one-ways taking about 80 minutes. The average fare is less than $100, Mack said. Each train would seat between 500 and 600 passengers.

If construction eventually starts, XpressWest estimates that 80,000 direct and indirect construction jobs will be created, with a third of those going to Southern Nevadans. The estimated economic output of the rail line during its lifetime is $7.8 billion.

In Las Vegas, two potential sites have been chosen for train stations: one across from the Rio and the other across from Mandalay Bay.”

The Transportation Department later said in a statement that "XpressWest has the ability to revive its application by significantly revising its request."

The project still has a powerful supporter in Congress — Senate Majority Leader Reid, as well as Republican Nevada Sen. Dean Heller.

According to the Las Vegas Review-Journal, Reid claims the administration has not "permanently foreclosed" the possibility of an investment. He stressed Friday that he plans to keep pushing for "this vital investment." Obviously this decision is a death blow to Reid and the backers of the project — a decision I totally agree with. (See the Fox News report from March 13, 2013)

According to an August 2012 tax risk assessment by the libertarian Reason Foundation should the Victorville to Las Vegas train commercial revenues fail to pay operating costs and debt service, the project would not have enough money to repay the federal loan, resulting in a default that would make Solyndra look like small change. Taxpayers would lose up to $6.5 billion in principal and any unpaid interest, an amount that could climb to more than $7.5 billion if a full six-year deferment of repayment is granted. The Taxpayer Risk Assessment identifies a number of concerns that could result in taxpayer losses.

This Taxpayer Risk Assessment examines the financial risks to taxpayers of the proposed XpressWest high-speed rail project from Victorville to Las Vegas. There would be no need for a Taxpayer Risk Analysis without government (taxpayer) involvement. For example, if a bus company were to establish a new service between Victorville and Las Vegas, there would be no taxpayer financial exposure under normal circumstances. The company would either succeed or fail depending on its ability to cover its costs through various commercial activities. As with private loans, the ability to secure the loan depends on the bank’s assessment of its successfully pay off — a natural inhibitor of risky propositions. XpressWest is intended to be self-supporting, with the construction and financing expenses and operating expenses covered by commercial revenues, principally passenger fares. Tellingly, the project sponsors are apparently unable to arrange conventional private sector financing and seek a federal loan with a subsidized interest rate, which would pass the risks on to taxpayers if the forecasted ridership should fail to materialize. Moreover, in the event of financial difficulty, state and local taxpayers could face significant pressure to provide funding to complete the system or to subsidize its operations. Thus, a Taxpayer Risk Assessment is necessary.

This Taxpayer Risk Analysis reviews ridership, revenue and capital cost forecasts to the extent that they are available. The principal focus is on ridership, since the repayment of the proposed federal loan from taxpayers is entirely dependent upon commercial revenues, principally the fares that will be paid by riders and ancillary revenues, such as advertising.

1. A Speculative Consumer Market: The greatest risk is that the potential consumer market for the train is far smaller, in geographical terms, than is assumed in the project documentation. There is no parallel for large numbers of drivers and airline passengers to travel well outside the urban areas in which they live to connect to a train (or plane) to any destination, much less one so close to Southern California as Las Vegas. As a result, common sense finds ridership and revenue likely to be a mere fraction of forecast. This would likely make repayment of the federal loan impossible. This risk to taxpayers of an exaggerated market is “unknown, but potentially severe.”

2. Materially Changed Circumstances: Even if the consumer market were geographically as large as assumed, growth in the Las Vegas tourist market has been far below forecasts in recent years. As a result, the base ridership figures are implausibly exaggerated and need to be revised downward. The ridership and revenue risk to XpressWest from this factor is high and risks make paying the federal debt impossible, calling for a taxpayer bailout.

3. Ridership and Revenue Forecast Model Concerns: The international record indicates that rail projects tend to average approximately 39% less in ridership than forecast. Specific factors of the ridership forecast for the Victorville to Las Vegas train indicate that actual ridership is likely to be 39% to 70% less than forecasted, even after adjustment for the materially changed circumstances. These factors include an optimistic estimate of the base year market, a market growth rate greater than in pre-recession years, an optimistic assumption of attraction from cars and an optimistic bus attraction assumption. Such rosy predictions increase the likelihood that the federal loan would not be repaid.

4. Capital Cost Escalation: Capital cost escalation for rail projects has been pervasive in similar projects, suggesting that capital cost escalation is likely to occur on the Victorville to Las Vegas train, leaving the project impossible to complete and triggering a default on the federal loan. Governments (federal, state and local) would be faced with difficult decisions about whether to complete the project, at elevated costs, with public funding or to fund dismantlement of a partially completed system.

5. Likely Commercial Losses: Even if there is no capital cost escalation, it is unlikely that the business plan for this project is flexible enough to deal with all the variations discussed above without suffering either higher costs or commercial revenue shortfalls. This inflexibility could lead to a default on the federal loan with the loss paid by taxpayers. Further, political pressure to keep the train operating could lead to a federal Amtrak-style takeover with subsidies, or the train could be operated with state and/or local subsidies. The risk of taxpayer loss from this factor is evaluated at “high.”

6. Higher Cost for Highway Expansion: Use of the median of I-15 for the Victorville to Las Vegas train could preclude the most cost-effective options to expand highway capacity. This would increase costs to taxpayers and highway users. The risk of higher expansion costs on I-15 is evaluated as “moderate.”

In 1991 I was involved with the proposed Maglev line from Anaheim to Las Vegas. This was to be a cooperative venture between Transrapid (the German consortium pushing their Maglev technology), The California High Speed Rail Corporation, and Bechtel to design, build and operate a Maglev train from Disneyland to Las Vegas. The technology seemed sound but there were two major problems. One is that they could not get a permit from Caltrans to use any right of way along the I-15 corridor and two; they could not find any investors. Eventually the right of way issue was solved by an act of the California Legislature, but there still was no money coming forth.

The majority of high-speed rail lines require large government subsidies from both general taxpayers and drivers. Even with generous subsidies, traveling by high-speed rail is still more expensive than flying for 12 of the 23 most popular high-speed rail routes in the world. Evidence suggests it can only be competitive on routes that are 200 to 500 miles in length.

High-speed rail is also very expensive to build. Most new routes cost at least $10 million per mile to construct. The cheapest European rail line costs more than $50,000 per seat to operate annually. A U.S. high-speed rail line would need ridership of 6 million to 9 million people per year to break even. The high-speed Acela service, despite operating in the busy Northeast Corridor, averages only 3.4 million passengers per year.

Advocates cite other advantages for high-speed rail, but most fall apart under close examination:

Environment: High-speed rail creates more pollution than it prevents because building a high-speed rail line is very energy-intensive.

Economic development: High-speed rail does not create much new development; it merely redirects development from one area to another.

Mobility: High-speed rail is unlikely to improve mobility since most of its potential passengers already travel by air.

Choice: Customers can already choose between a low-cost bus, a fast plane or a personalized car trip.

Most countries have built high-speed rail to relieve passenger overcrowding on their existing lines. The U.S. lacks this overcrowding, which suggests consumer demand for high-speed rail may not be there. Furthermore, freight rail dominates track usage, and railroad companies are reluctant to relinquish capacity, as is evident in the discussions surrounding the proposed multimodal passenger terminal in downtown Atlanta.

Any U.S. rail operator will have to compete on the same terms that cause Amtrak to lose large amounts of money each year. Railways are subject to outdated labor laws that were enacted when railroads did not face competition. Operating a passenger railroad in the existing regulatory environment is not a profitable proposition.

Our core cities, where people are most likely to board high-speed trains, are much less dense than European or Asian cities, which also limits the potential market.

The U.S. has far higher rates of car ownership than most other countries. Gas taxes are lower, road tolls are less common, and many cities — especially in the South and West — have grown up around the automobile.

As a result, high-speed rail is best regarded as a luxury toy this country cannot afford. For far less money, we could create a world-class highway and aviation system with first-rate bus and airplane service and far more flexibility.

We’d like to think that cost and feasibility concerns ultimately derailed this crazy train, but that is not what Mr. LaHood emphasized in his letter. Rather, he faulted XpressWest for not guaranteeing that it would get steel and other manufactured goods from U.S. suppliers. We disagree with protectionist “Buy America” thinking; still, in this case it at least shows that the project’s job-creation potential was always limited by the fact that no U.S. manufacturer makes high-speed rail cars or the needed heavy steel rails and electrification systems. However imperfect his rationale, Mr. LaHood reached the right result, and that’s cause for celebration.

Another Example of Obama’s Administration Targeting Conservatives

“The most sacred of the duties of a government is to do equal and impartial justice to all citizens.” — Thomas Jefferson, Note in Destutt de Tracy — 1816

If you’ll recall, the Gibson Guitar Corporation made the headlines in 2011 when federal agents armed with search warrants raided their facilities in Nashville and Memphis, Tenn. The agents seized raw materials, electronic files and guitars and the company was accused of using “endangered” wood in violation of U.S. and foreign laws. Oddly enough, some of Gibson’s biggest competitors — including C.F. Martin & Co. – used similar wood in their guitars but avoided the feds.

On September 1, 2011 I posted the blog “Hide Your Stradivarius” where I detailed the raid by the Department of Justice on the Gibson Guitar Company’s facilities in Nashville and Memphis Tennessee. In that post I quoted an article in The Wall Street Journal’s August 26, 2011 article by Eric Felten:

“Federal agents swooped in on Gibson Guitar Wednesday, raiding factories and offices in Memphis and Nashville, seizing several pallets of wood, electronic files and guitars. The Feds are keeping mum, but in a statement yesterday Gibson’s chairman and CEO, Henry Juszkiewicz, defended his company’s manufacturing policies, accusing the Justice Department of bullying the company. “The wood the government seized Wednesday is from a Forest Stewardship Council certified supplier,” he said, suggesting the Feds are using the aggressive enforcement of overly broad laws to make the company cry uncle.

It isn’t the first time that agents of the Fish and Wildlife Service have come knocking at the storied maker of such iconic instruments as the Les Paul electric guitar, the J-160E acoustic-electric John Lennon played, and essential jazz-boxes such as Charlie Christian’s ES-150. In 2009 the Feds seized several guitars and pallets of wood from a Gibson factory, and both sides have been wrangling over the goods in a case with the delightful name “United States of America v. Ebony Wood in Various Forms.”

The question in the first raid seemed to be whether Gibson had been buying illegally harvested hardwoods from protected forests, such as the Madagascar ebony that makes for such lovely fretboards. And if Gibson did knowingly import illegally harvested ebony from Madagascar, that wouldn’t be a negligible offense. Peter Lowry, ebony and rosewood expert at the Missouri Botanical Garden, calls the Madagascar wood trade the “equivalent of Africa’s blood diamonds.” But with the new raid, the government seems to be questioning whether some wood sourced from India met every regulatory jot and tittle.”

Now with all of today’s questions about the Obama administration’s role in targeting conservative activist groups, one has to question if the Gibson raid wasn’t just another example of a politically motivated attack.

Interestingly, one of Gibson's leading competitors is C.F. Martin & Co. According to C.F. Martin's catalog, several of their guitars contain "East Indian Rosewood," which is the exact same wood in at least 10 of Gibson's guitars. So why were they not also raided and their inventory of foreign wood seized?

Grossly underreported at the time was the fact that Gibson's chief executive, Henry Juszkiewicz, contributed to Republican politicians. Recent donations have included $2,000 to Rep. Marsha Blackburn, R-Tenn., and $1,500 to Sen. Lamar Alexander, R-Tenn.

By contrast, Chris Martin IV, the Martin & Co. CEO, is a long-time Democratic supporter, with $35,400 in contributions to Democratic candidates and the Democratic National Committee over the past couple of election cycles.

"We feel that Gibson was inappropriately targeted," Juszkiewicz said at the time, adding the matter "could have been addressed with a simple contact (from) a caring human being representing the government. Instead, the government used violent and hostile means."

That includes what Gibson described as "two hostile raids on its factories by agents carrying weapons and attired in SWAT gear where employees were forced out of the premises, production was shut down, goods were seized as contraband and threats were made that would have forced the business to close."

Gibson, fearing a bankrupting legal battle, settled and agreed to pay a $300,000 penalty to the U.S. Government. It also agreed to make a "community service payment" of $50,000 to the National Fish and Wildlife Foundation — to be used on research projects or tree-conservation activities.

The feds in return agreed to let Gibson resume importing wood while they sought "clarification" from India. According to Juszkiewicz in an interview on Fox and Friends the raid has cost the company over $7 million in fines, forced contributions, legal fees, confiscated materials, and loss of sales in response to a civil suit filed in June 2011 by the Justice Department.

The feds say they acted to save the environment from greedy plunderers. America is a trivial importer of rosewood from Madagascar and India. Ninety-five percent of it goes to China, where it is used to make luxury items like $800,000 beds. So putting Gibson out of business wasn't going to do a whole lot to save their forests.

Juszkiewicz' claim that his company was "inappropriately targeted" is eerily similar to the claims by Tea Party, conservative, pro-life and religious groups that they were targeted by the IRS for special scrutiny because they sought to exercise their First Amendment rights to band together in vocal opposition to the administration's policies and the out-of-control growth of government and its power.

The Gibson Guitar raid, the IRS intimidation of Tea Party groups and the fraudulently obtained warrant naming Fox News reporter James Rosen as an "aider, abettor, co-conspirator" in stealing government secrets are but a few examples of the abuse of power by the Obama administration to intimidate those on its enemies list.

Gibson Guitars are among the most sought-after musical instruments in the world. Everyone from Chet Atkins to Les Paul to Jimmy Page of Led Zeppelin to Slash of Guns n’ Roses played them. A vintage 1959 Les Paul guitar can go for as much as $400,000. Almost every kid who has dreams of music stardom wants a Gibson guitar.

Gibson is also a company that is proud to put the “Made in the USA” label on its instruments. While the company has lower-end lines that are made overseas, every guitar that bears the “Gibson” label is made in the U.S. by American workers.

On August 24, 2011, armed agents from the U.S. Fish and Wildlife Service and Homeland Security raided the corporate headquarters and two factories of the Gibson Guitar company. The agencies took away 24 pallets of Indian rosewood and ebony, as well as a number of guitars and computer files.

The federal agents’ contention is that Gibson had illegally imported the exotic wood, which is used to make fretboards and bridges for their high-end instruments. Under the 1900 Lacey Act, which was amended in 2008 to include wood products, American companies must abide by the laws of source countries when importing products. The intent of the law is to protect endangered species of wildlife and plants. U.S. Fish and Wildlife claims that the Gibson wood — in the form of fingerboard ‘blanks’ — was illegal to export from India and therefore illegal to import into the United States.

Now here’s the rub. While the feds say the wood — as imported — is illegal, had it been ‘finished’ by workers in India, it would have been perfectly legal to import. The wood itself was not banned, just the manufacturing process — or lack of it.

“I think they’re taking the position that we should be shifting these jobs overseas,” says Bruce Mitchell, the chief legal counsel for Gibson. “We have — probably 40 people in our factory here just at USA who are doing the inlays into the fingerboard that are putting the fret on. If all that was to be done over in India, then those jobs would be lost.”

What’s most puzzling about this case is that India is perfectly happy to ship the fingerboard ‘blanks’ to the United States. In a letter dated July 13, 2012, the deputy director general of foreign trade for India confirmed that “fingerboards made of rosewood and ebony is (sic) freely exportable.”

U.S. Fish and Wildlife offered no comment about the discrepancy. But people involved in the import and export of musical instruments and parts believe the U.S. Department of Justice offered its own interpretation of Indian law. Even though India saw no reason for an enforcement action, the U.S. did.

“It is such an outrageous position — it has hurt Gibson tremendously — has criminalized Gibson and its workplace and its workers. It is an unsustainable position that they’re taking,” Mitchell says.

Something else to consider in all of this: Gibson uses the same wood, from many of the same suppliers and importers that nearly every other guitar company in America does. And they have not been targeted. You might ask – why?

Rewind the clock four years. Gibson was raided in 2009 and a shipment of rosewood and ebony from Madagascar was seized. Gibson argued that the wood was obtained through proper channels, but U.S. Fish and Wildlife argued that Gibson could not adequately prove that the wood came from legitimate sources. Again, the issue of ‘finishing’ the wood came into play. Had Gibson imported finished parts from Madagascar instead of ‘blanks,’ it would have been perfectly legal.

No charges have been filed as of yet, and Gibson is fighting in court to get its wood back.

It could be that the Madagascar issue put Gibson front and center on the Department of Justice's radar screen.

There was a discrepancy in the import of this latest shipment of wood. It was listed with an improper tariff code, which the importer, Luthiers Mercantile International of Windsor, Calif., claimed was a clerical error by a junior employee and tried to clear up. But rather than talk to the importer and Gibson about it, the Justice Department dispatched U.S. Fish and Wildlife and DHS agents to raid the Gibson compounds.

Gibson feels it has been unfairly targeted. “We are being singled out. Very much so,” says Mitchell. “Every music instrument company in the United States uses rosewood fingerboards. Period. And they’re in the same state — they’re buying from the same suppliers, they’re using the same shippers.”

Gibson has also been working hard to maintain proper sources of wood, working with the Forest Stewardship Council to insure its suppliers are certified. Gibson also works closely with the Rainforest Alliance on sustainable supplies of exotic woods. It’s a no-brainer for Gibson and other guitar manufacturers. If they can’t get the highly sought-after tone woods that artists crave, they just might go out of business.

Outside observers see a more sinister possibility in all of this. Henry Juszkiewicz, Gibson’s CEO, is a Republican, who has contributed to Republican candidates (as well as some Democratic candidates). Other guitar companies, which have not been targeted, are led by Democrats. Is there a political motivation to all of this? Neither Mitchell, nor Juszkiewicz will offer an opinion, but consider what Juszkiewicz told Neil Cavuto on "Your World."

“You know we've been pretty low key. We're a guitar company. We've been manufacturing guitars. We've been involved in the environmental movement. We’ve been trying to do the right thing in terms of sourcing. We really don’t know why they are picking on us.”

With the current rash of charges against the Department of Justice we might consider changing the name to The Department of targeted Injustice based on your politics.

As more and more charges mount against Eric Holder it is evident he is no doubt the worst Attorney General since Alexander Mitchell Palmer, Woodrow Wilson’s AG noted for his infamous “Palmer Raids.”

Cleta Mitchell has prepared a comprehensive guide to the IRS’ abuse of election-integrity and Tea Party Groups. It has everything you need to know to understand the legal environment that sprouted this scandal.

On May 23 we discovered that Attorney General Eric Holder personally signed the search warrants targeting Fox News reporter James Rosen. That was very bad news, because President Obama is supposed to be deeply “troubled” about the whole affair, and deeply believes that “journalists should not be at legal risk for doing their jobs.” The President loves freedom of the press very, very, very much. He’s so troubled that he assigned the Attorney General to get to the bottom of it, a grueling search that lasted until Holder wandered into the men’s room and caught a glimpse of himself in the mirror.

But this is more than just a profound embarrassment for Holder and his boss, because a compelling case can be made that Eric Holder once again lied to Congress — and, unlike the Fast and Furious mess, he’s not going to get out of it by claiming that he doesn’t read his email, doesn’t know what his subordinates are doing, and can only find the Justice Department because his driver and body guard know where it is.

Because Holder, in sworn testimony before Congress, said this: “In regard to potential prosecution of the press for the disclosure of material, this is not something I’ve ever been involved in, heard of, or would think would be wise policy.”

It’s not a misstatement or a slip of the tongue. Holder has not only been “involved in” the “potential prosecution of the press for the disclosure of material.” On May 24^th the Huffington Post reported that he not only signed the search warrants, but vetted them. This means he can’t use the “Colonel Blake” maneuver and claim he just signed a stack of paperwork without reading it.

On CNN’s State of the Union, former House speaker Newt Gingrich argued that Republicans have an important choice to make when it comes to discussing the IRS scandal: “I think this is a really important moment for Republicans in particular to make a decision: Is this a gotcha moment or is this a major educational opportunity?” Gingrich pointed to even Obama adviser David Axelrod’s recent acknowledgement that the government is too large for President Obama to have known what was happening at the IRS.

The crucial question, said Gingrich, is, “Are we going to have systemic change, and are we going to talk about the fact that big government and big bureaucracy is inherently out of control by its very definition?”

The Myth of Quality from Government Services

“Almost all quality improvement comes via simplification of design, manufacturing layout, processes, and procedures.” — Tom Peters

On May 21, 2013 Secretary of Veterans Affairs Eric Shinseki issued a press release addressing the problems with the VA and setting metrics for improvement:

“VA and Veterans Service Organizations Announce Claims Initiative to Reduce Claims Backlog - Today, the Department of Veterans Affairs (VA), Disabled American Veterans (DAV), and The American Legion announced a new partnership to help reduce the compensation claims backlog for Veterans. The effort—the Fully Developed Claims (FDC) Community of Practice—is a key part of VA’s overall transformation plan to end the backlog in 2015 and process claims within 125 days at 98% accuracy. VA can process FDCs in half the time it takes for a traditionally filed claim.”

In a related report by Aaron Glantz of the Riverside Press-Enterprise:

“The Department of Veterans Affairs has systematically missed nearly all of its internal benchmarks for reducing a hulking backlog of benefits claims and has quietly backed away from repeated promises to give all veterans and family members speedier decisions by 2015.

Internal VA documents, obtained by the Center for Investigative Reporting, show the agency processed 260,000 fewer claims than it thought it would during the past year and a half – falling 130,000 short in fiscal 2012 and another 130,000 short of its goal between October and March.

The result: At a time when the number of veterans facing long waits was supposed to be going down, it instead went up.

On April 29, the VA began to qualify its promise, made repeatedly since 2009, that “all claims” would be processed within four months by 2015.

In a weekly performance report posted on its website, the agency excludes a host of benefits from the promise – including veterans’ burial subsidies, pensions sought by survivors and compensation claims from children of Vietnam veterans, who have birth defects caused by the defoliant Agent Orange.

In an emailed statement, the VA said its promise to eliminate the claims backlog was never meant to cover those types of benefits.

The agency also said it is “using all the tools in the toolbox” to expedite claims. It again repeated its mantra that the delays are “unacceptable.” It added that it fell nearly 17,000 claims short of its production goal for April.

But the VA did not address questions about the fundamental issue: Are the goals unrealistic, the execution flawed or both?

Instead, the agency cited yet another set of ambitious goals – an April vow to clear all 2-year-old claims by mid-June and an order, issued May 15 by VA Secretary Eric Shinseki, instructing all claims staff to work 20 hours of overtime a month through September, which the agency said would have “a measurable impact by the end of the fiscal year.”

The long delays and seemingly intractable nature of the claims backlog has led some lawmakers to look into radically overhauling the process.

…

Earlier this month, Rep. Bill Enyart, an Illinois Democrat and former adjutant general of the Illinois National Guard, introduced legislation to require the VA to begin providing partial compensation to all veterans with claims pending more than 125 days – even if their disabilities had not yet been verified. If a claim denial ultimately followed, veterans would have to pay back the money only if they were found to have consciously misled the agency.

Minnesota Democrat Al Franken has introduced a similar measure in the Senate.

“I’m tired of meeting veterans who come back from Iraq and Afghanistan, who can’t work because they are disabled and are worried about losing their home,” Enyart said. “They deserve better than that.”

According to USA Today the VA has seen its budget increase 41% since 2009 to $140 billion this year. Meanwhile, the pace of incoming disability claims has stayed ahead of VA's ability to process them:

“Concerned about nearly 600,000 veterans waiting months or years for disability checks, Obama administration officials Friday lifted the veil on a corner of the president's upcoming 2014 budget, promising a hike in VA discretionary spending.

The proposal would boost non-entitlement spending to $63.5 billion for 2014, a 4% increase over this year, said Department of Veterans Affairs Secretary Eric Shinseki and White House chief of staff Denis McDonough in a meeting with reporters at the Executive Office Building.

"We're bringing all the power of the government to bear ... to try to address the backlog," says McDonough, who added that Obama tracks the weekly numbers of pending cases. "We're involved in this ... on a daily basis, very aggressively to try to bring this (disability claims backlog) number down."

Shinseki in recent weeks has come under intense criticism for the backlog from a chorus ranging from comedian Jon Stewart to the House VA Committee chair, who called upon the department's Veterans Benefits Administration chief to resign because of it.

"I hear the criticism out there," Shinseki said Friday. "You make the tough decisions, and you deal with it."

McDonough seemed to reaffirm the White House's confidence in Shinseki, saying he is someone "the president relies on and leans on daily."

The VA has seen its budget increase 41% since 2009 to $140 billion this year. Meanwhile, the pace of incoming disability claims has stayed ahead of VA's ability to process them, and there are now nearly 900,000 pending claims from veterans, including about 600,000 waiting longer than four months.

McDonough stressed the administration's high priority on VA spending even as major reductions are considered elsewhere, citing news reports Friday that Obama would propose cutbacks in Social Security and Medicare.”

I also heard an audio clip from an interview with Shinseki today where he restated his goals for the VA and added that they were targeting a rating of 90% for customer service. When I heard this I almost drove the car off the road. I was flabbergasted by such a statement! This was just more big government BS. What about the 10%? I guess they are irrelevant. How about the 98% accuracy goal? Does this mean that 18,000 (2%) vets will have inaccurate medical and benefit records? They deserve much better than that.

In the late 1980s the civil engineering, land surveying, and environmental services I was a principle, part owner and vice-president of made an application to the committee overseeing the prestigious Malcolm Baldrige National Quality Award. This is a very difficult award to receive and the firm was fortunate to make the top 100 national list.

The Baldrige Criteria for Performance Excellence serve two main purposes: (1) to identify Baldrige Award recipients that will serve as role models for other organizations and (2) to help organizations assess their improvement efforts, diagnose their overall performance management system, and identify their strengths and opportunities for improvement. In addition, the Criteria help strengthen U.S. competitiveness by:

• Improving organizational performance practices, capabilities, and results
• Facilitating communication and sharing of information on best practices among U.S. organizations of all types
• Serving as a tool for understanding and managing performance and for guiding planning and opportunities for learning

The Baldrige Criteria for Performance Excellence provide organizations with an integrated approach to performance management that results in:

• Delivery of ever-improving value to customers and stakeholders, contributing to organizational sustainability
• Improved organizational effectiveness and capabilities
• Organizational and personal learning

During our award submittal process I had read an article about a Cadillac Dealership in Dallas, Texas that had received the award for excellence. During the award ceremony with the assembled dealership employees and their families when the Baldrige Committee representative he stated that he dealership had one of the highest customer service ratings in the nation at 98.5%. This brought a round of cheers and applause from the audience. The owner of the dealership stepped up to the podium to thank the committee and the employees Then he became very serious and stated he was not satisfied with 98.5%. He said there were 1.5% of his customers who were not satisfied with the performance of the dealership and he was very concerned with them and admonished his employees that he expected them to do better in the coming years. This was a serious and dedicated man to his customers.

One of my responsibilities during my 22 years as a manager and owner I was very involved in quality control and quality assurance. The three books that I kept above my desk were: In Search of Excellence by Tom Peters and Robert H. Waterman; The Peter Principle by Laurence J. Peter and Raymond Hull; and Out of Crisis by W. Edwards Deming. These three books could be considered my quality assurance and customer service bibles.

In Search of Excellence is considered the "Greatest Business Book of All Time" (Bloomsbury UK), and has long been a must-have for the boardroom, business school, and bedside table.

Based on a study of forty-three of America's best-run companies from a diverse array of business sectors, In Search of Excellence describes eight basic principles of management — action-stimulating, people-oriented, profit-maximizing practices — that made these organizations successful.

In Search of Excellence', co-authored with Bob Waterman, is Tom Peters first book and sold over 6 million copies. Its success surprised their colleagues at McKinsey, who had laughed at the idea that Peters and Waterman would keep the royalties, "should the book sell 50 000 copies".

Two decades later, In Search of Excellence is still one of the most readable management books. The eight characteristics of excellent companies, a bias for action, close to the customer, autonomy and entrepreneurship, productivity through people, hands-on values driven, stick to the knitting, simple form and lean staff, simultaneous loose-tight properties are all still relevant and still ignored today. It is written clearly, painting vivid pictures with anecdotes and examples from real companies.

Peters and Waterman found eight common themes which they argued were responsible for the success of the chosen corporations. The book devotes one chapter to each theme.

1. A bias for action, active decision making — getting on with it. Facilitate quick decision making & problem solving tends to avoid bureaucratic control
2. Close to the customer — learning from the people served by the business.
3. Autonomy and entrepreneurship — fostering innovation and nurturing champions.
4. Productivity through people — treating rank and file employees as a source of quality.
5. Hands-on, value-driven — management philosophy that guides everyday practice - management showing its commitment.
6. Stick to the knitting — stay with the business that you know.
7. Simple form, lean staff — some of the best companies have minimal HQ staff.
8. Simultaneous loose-tight properties — autonomy in shop-floor activities plus centralized values.

None of these themes are present in the government civil service. I know because I worked as a supervisor for the California Division of Highways (now Caltrans) for ten years prior to going into business for myself. The civil service is managed by bureaucrats who are far more concerned with advancement in their civil service rating (GS rating for the federal government) and maintaining their longevity until their lucrative retirement benefits. It is a punitive system of management where “don’t rock the boat” far outweighs “thinking out of the box” and taking responsibility. Employees are managed and governed by policy manuals and memorandums and are far removed from their upper management. Customer (taxpayer) service ranks last on the list of concerns — personal advancement tops the list.

The main theme of The Peter Principle is rising to the level of incompetency. Back in 1969, Lawrence J. Peter created a cultural phenomenon with his brilliant, outrageous, hilarious, and all-too-true treatise on business and life, The Peter Principle — and his words and theories are as true today as they were then. By posing — and answering — the eternal question, “Why do things always go wrong?” Peter explores the incompetence that runs so rampant through our society, our workplace, and our world in an outrageously funny yet honest and eye-opening manner

The Peter Principle is a proposition that states that the members of an organization where promotion is based on achievement, success, and merit, will eventually be promoted beyond their level of ability. The principle is commonly phrased, "Employees tend to rise to their level of incompetence." In more formal parlance, the effect could be stated as: employees tend to be given more authority until they cannot continue to work competently.

The principle holds that in a hierarchy, members are promoted so long as they work competently. Eventually they are promoted to a position at which they are no longer competent (their "level of incompetence"), and there they remain, being unable to earn further promotions. Peter's Corollary states that:

In time, every post tends to be occupied by an employee who is incompetent to carry out its duties"

Ads that "work is accomplished by those employees who have not yet reached their level of incompetence." "Managing upward" is the concept of a subordinate finding ways to subtly manipulate his or her superiors in order to prevent them from interfering with the subordinate's productive activity or to generally limit the damage done by the superiors' incompetence.

Another method is to refrain from promoting a worker until he or she shows the skills and work habits needed to succeed at the next higher job. Thus, a worker is not promoted to managing others if they do not already display management abilities.

The first corollary is that employees who are dedicated to their current jobs should not be promoted for their competence, but should instead be rewarded with, say, a pay rise, and remain in their current position; they should also not be promoted in response to their lack of competence at their current job.

The second corollary is that employees might be promoted only after being sufficiently trained to the new position. This places the burden of discovering individuals with poor managerial capabilities before (as opposed to after) they are promoted.

As a manger I saw this numerous times within the organization. We would have project engineers who were crackerjacks at their job. They were technical competent, if not superior, they loved their work, and were constantly striving for excellence in engineering. But when they were promoted to the level of project manager where they had to deal with subordinates and more importantly clients and contract issues many would fail and would ether resign or asked to leave. Their client service skills were weak, if not nil, due to the introverted nature of an engineer. They were more comfortable with the computer than the telephone of a face-to-face client meeting. This was unfair to a technically sound and dedicated employee. It would have been far better to reward his or her performance with monetary and educational perks.

This also applies to the civil service. Promotions come via civil service exams and longevity. If a GS 9 studies and keeps his or her nose clean they will eventually be promoted to GS 10 and so on and on until they reach their level of incompetence and sit there until retirement. If you doubt this just look at the current spate of hearings regarding the maleficence and criminal behavior of the IRS and Justice Department.

In the late 1980s I was introduced to the work of W. Edwards Deming through his book Out of Crisis. was an American statistician, professor, author, lecturer and consultant. He is perhaps best known for the "Plan-Do-Check-Act" cycle popularly named after him. In Japan, from 1950 onwards, he taught top management how to improve design (and thus service), product quality, testing, and sales (the last through global markets) through various methods, including the application of statistical methods.

Deming made a significant contribution to Japan's later reputation for innovative high-quality products and its economic power. He is regarded as having had more impact upon Japanese manufacturing and business than any other individual not of Japanese heritage. Despite being considered something of a hero in Japan, he was only just beginning to win widespread recognition in the U.S. at the time of his death. President Reagan awarded the National Medal of Technology to Deming in 1987. He received in 1988 the Distinguished Career in Science award from the National Academy of Sciences.

Deming's teachings and philosophy are best illustrated by examining the results they produced after they were adopted by Japanese industry, as the following example shows: Ford Motor Company was simultaneously manufacturing a car model with transmissions made in Japan and the United States. Soon after the car model was on the market, Ford customers were requesting the model with Japanese transmission over the US-made transmission, and they were willing to wait for the Japanese model. As both transmissions were made to the same specifications, Ford engineers could not understand the customer preference for the model with Japanese transmission. Finally, Ford engineers decided to take apart the two different transmissions. The American-made car parts were all within specified tolerance levels. On the other hand, the Japanese car parts were virtually identical to each other, and much closer to the nominal values for the parts – e.g., if a part was supposed to be one foot long, plus or minus 1/8 of an inch – then the Japanese parts were all within 1/16 of an inch. This made the Japanese cars run more smoothly and customers experienced fewer problems.

My cousin worked for Ford Motors at the Cleveland Engine plant for 25 years as a general foreman. In the late 1980s he told me, while on a visit to Cleveland, that his plant had a very high rejection rate of cast engine blocks. He claimed this was due to union work rules and the company’s lack of willingness to challenge the union for fear of work slow-downs or strikes. He told me that Japanese auto manufactures, even the non-union shops in the United States, were delivering cars of higher quality and dependability. The Japanese, adhering to principles espoused by Deming were even surpassing the Germans in quality.

Deming offered fourteen key principles to managers for transforming business effectiveness. The points were first presented in his book Out of the Crisis. Although Deming does not use the term in his book, it is credited with launching the Total Quality Management (TQM) movement.

1. Create constancy of purpose toward improvement of product and service, with the aim to become competitive, stay in business and to provide jobs.
2. Adopt the new philosophy. We are in a new economic age. Western management must awaken to the challenge, must learn their responsibilities, and take on leadership for change.
3. Cease dependence on inspection to achieve quality. Eliminate the need for massive inspection by building quality into the product in the first place.
4. End the practice of awarding business on the basis of a price tag. Instead, minimize total cost. Move towards a single supplier for any one item, on a long-term relationship of loyalty and trust.
5. Improve constantly and forever the system of production and service, to improve quality and productivity, and thus constantly decrease costs.
6. Institute training on the job.
7. Institute leadership. The aim of supervision should be to help people and machines and gadgets do a better job. Supervision of management is in need of overhaul, as well as supervision of production workers.
8. Drive out fear, so that everyone may work effectively for the company.
9. Break down barriers between departments. People in research, design, sales, and production must work as a team, in order to foresee problems of production and usage that may be encountered with the product or service.
10. Eliminate slogans, exhortations, and targets for the work force asking for zero defects and new levels of productivity. Such exhortations only create adversarial relationships, as the bulk of the causes of low quality and low productivity belong to the system and thus lie beyond the power of the work force.
11. a. Eliminate work standards (quotas) on the factory floor. Substitute with leadership. b. Eliminate management by objective. Eliminate management by numbers and numerical goals. Instead substitute with leadership.
12. a. Remove barriers that rob the hourly worker of his right to pride of workmanship. The responsibility of supervisors must be changed from sheer numbers to quality. b Remove barriers that rob people in management and in engineering of their right to pride of workmanship. This means, inter alia, abolishment of the annual or merit rating and of management by objectives.
13. Institute a vigorous program of education and self-improvement.
14. Put everybody in the company to work to accomplish the transformation. The transformation is everybody's job.

"Massive training is required to instill the courage to break with tradition. Every activity and every job is a part of the process."

Seven Deadly Diseases

The "Seven Deadly Diseases" include:

1. Lack of constancy of purpose
2. Emphasis on short-term profits
3. Evaluation by performance, merit rating, or annual review of performance
4. Mobility of management
5. Running a company on visible figures alone
6. Excessive medical costs
7. Excessive costs of warranty, fueled by lawyers who work for contingency fees

A Lesser Category of Obstacles" includes:

1. Neglecting long-range planning
2. Relying on technology to solve problems
3. Seeking examples to follow rather than developing solutions
4. Excuses, such as "our problems are different"
5. Obsolescence in school that management skill can be taught in classes
6. Reliance on quality control departments rather than management, supervisors, managers of purchasing, and production workers
7. Placing blame on workforces who are only responsible for 15% of mistakes where the system designed by management is responsible for 85% of the unintended consequences
8. Relying on quality inspection rather than improving product quality

Deming's advocacy of the Plan-Do-Check-Act cycle, his 14 Points and Seven Deadly Diseases have had tremendous influence outside manufacturing and have been applied in other arenas, such as in the relatively new field of sales process engineering.

It was Deming’s principles and theories that put the issues of quality assurance, quality control, and client service in to total context for me. In 2006 I wrote a series of three articles for American Surveyor magazine where I stated:

“In 2003 the Mercedes Benz motorcar company had dropped from No.1 to 26th place on the J.D. Powers and Associates, Inc.* rating of auto manufacturers in the category of quality. This was eight slots below the industry average, trailing Chrysler and Ford. In 1991 Mercedes ranked No. 1 in quality and customer satisfaction; by 2000 they had dropped to No. 6 and by 2003 to 26th. Some of the problems cited in the J.D. Powers reports were handling, braking, shocks and struts, electronic window controls, and inaccurate fuel gauges. How did this one-time industry nameplate fall on such hard times?

The problems cited in the survey arose from three models from the year 2000, including the midsize E-Class sedan, Mercedes' big money maker. In the 1990s Toyota and Nissan stormed the U.S. market with lower-priced luxury cars such as the Lexus and Infiniti. To compete, Mercedes' engineers had to overhaul their process of building cars. Instead of letting design determine the cost, engineers had to design cars to meet a target price. These German engineers, accustomed to designing for quality, weren't very good at this practice. Quality took a back seat. Fortunately for Mercedes this situation did not last long and the company regrouped and went back to its roots, designing for quality and value.

Several years ago the firm I work for received a call from a Mercedes engineer in Stuttgart, Germany requesting that we take elevations on a section of the Harbor Freeway in Los Angeles. They wanted elevations taken to 3 millimeters on a ten-foot-by-ten-foot grid along a very rough section of this heavily traveled roadway. The Mercedes engineers wanted to use this data to create a digital terrain model of the roadway so they could design their front-end suspension for California drivers, many of which had been complaining about the stability and durability of the suspension systems. We carried out this assignment using the Vangarde 505 remote sensing pavement survey system. Due to the density of the grid, heavy traffic conditions requiring working off hours and nights, and coordinating with Caltrans, this was a very costly survey. It was also quite a change in philosophy from designing for cost rather than quality and customer satisfaction.”

…

“Both TQM and ISO 9000 (and its deviants) are very complex programs requiring a great deal of management's time and training throughout the enterprise. I will refrain from referring to these programs as in my opinion they do not address the focus of my articles. They are valuable programs and for many large private and public sector contracts the qualifying firms must demonstrate either ISO 9000 or a TQM certification. Keep in mind that both of these programs require external and internal audits of a company's business and client service practices, and run the gamut from accounting systems to answering the phone. ISO 9000 covers the basics of what quality management systems are and also contains the core language of the ISO 9000 series of standards. ISO 9001 is intended for use in any organization that designs, develops, manufactures, installs and/or services any product or provides any form of service. It provides a number of requirements which an organization needs to fulfill if it is to achieve customer satisfaction through consistent products and services that meet customer expectations.

All of these quality assurance programs are rooted in the teachings of W. Edwards Deming. Deming is to quality as Peter Drucker is to management (Management by Objectives) and Tom Peters (In Search of Excellence) is to client service.

William Edwards Deming (1900-1993) was an American statistician, widely credited with improving production in the United States during World War II. He is perhaps best known for his work in Japan, where from 1950 onward he taught top management the principles of Statistical process control (SPC), a forerunner of TQM. During the post-war reconstruction of Japan General Douglas MacArthur invited Deming to assist in the rebuilding of Japanese industry. At that time products made in Japan were considered to be of very low quality. Some Japanese cottage industries had located in the village of Usa so they could claim the their products were made in the USA! This did not help very much. When Japanese cars began arriving in the United States in 1960, Detroit automakers sneered. But we all know the end of the story. It is the Japanese and Korean automakers that are now building their cars in the "real" USA, and they are known for quality.

Under Deming's stewardship Japan became renowned for producing innovative high quality products. Deming is regarded as having had more impact upon Japanese manufacturing and business than any other non-Japanese individual.

Deming taught that by adopting appropriate principles of management, organizations can increase quality and simultaneously reduce costs (by reducing waste, rework, staff attrition and litigation while increasing loyalty) The key is to practice continual improvement and think of manufacturing as a system, not as bits and pieces. In 1960, Deming became the first American to receive the Second Order of the Sacred Treasures from Prime Minister Nobusuke Kishi. An accompanying citation stated that the people of Japan attributed the rebirth and success of their industry to his work. Today the highest prize awarded by the Japanese Union of Scientists and Engineers (JUSE) for industrial achievement is the Deming prize. This is comparable to the Malcolm Baldrige National Quality Award, established by the U.S. Congress in 1987 to recognize quality and business achievements of U.S. organizations.”

(These articles are available in a PDF format by click on the appropriate part of the series; Part 1, Part 2, and Part 3.)

I have given lectures at seminars for both the private and public sector of quality assurance, quality control, and client service. After my retirement I was contracted to write the quality assurance, quality control, and client service manual for my previous firm. It was the first interactive, hyperlinked manual of its kind the firm had ever had.

Of course I had to tailor my presentations to address the needs and concerns of the private and public sectors. This was difficult as the public sector, as stated above, is quite different from the private. To the private sector profit and sustainability are paramount and to achieve these firms are dependent on the highest quality, superb client service and retaining he best employees while keeping costs as low as possible. This is a very delicate balancing act, but Deming’s principles are most applicable.

In the public sector we have a different culture and management style. There is no realization of profit in the public sector. Why should there be? They have a unlimited source of capitalization — it’s called taxpayer money. Cost control is not an issue as most agencies are not aware of their real costs of doing business as they do not take into account the costs of employee productivity. They staff by available budget and each year they request budget increases. If they do not use their entire budget in any fiscal reporting period they lose the funds. This encourages them to spend until all the money is gone. There is no reward for saving money.

They have a punitive management style based on policies and memorandums that issue from some unknown mastermind in another department, building or state. Cross communication is something to be avoided as it only creates potential conflict.

I present all of this as an argument to show how the VA with its 41% increase in budget is still doing a lousy job and not meeting its goals and metrics.

This condition is not exclusive to the VA, but to almost every federal and state agency in the nation, including the military. They obfuscate with government doublespeak to a pint where the Congress and taxpayer is bamboozled over and over again. A recent example is the collapse of a bridge on I-5 over the Skagit River in the state of Washington. It did not take lone for the governor of Washington, Jay Inslee (D), to call for more money from the people of Washington and the federal government to repair and replace the ailing and failing transportation infrastructure. The New York Times reports:

“Mr. Inslee said in an interview that a broader message of the collapse is that state financing for state transportation projects — now under consideration in a special session of the Legislature — can no longer wait, especially for the long-delayed Columbia River project.

“It shouldn’t take an oversize load to let us know we have an oversized problem,” he said.

Washington State faces a deadline this year to find money for the $3.2 billion project over the Columbia River, or risk losing up to $1.2 billion in federal financing. Oregon’s Legislature has approved $450 million, but Washington State’s $450 million share has been stalled. About $1 billion would come from tolls.

Building America’s Future, an advocacy group founded by Mayor Michael R. Bloomberg of New York and two former governors, Edward G. Rendell of Pennsylvania and Arnold Schwarzenegger of California, also issued a statement characterizing the bridge collapse as a “call to action.”

“Regardless of how this happened, the collapse of the Skagit River Bridge in Washington State is a timely reminder of our nation’s need to invest in critical infrastructure upgrades,” Mr. Rendell said. “Our nation’s bridges, roads and highways are deteriorating before our eyes.”

Over the years the federal and state governments have collected excise taxes from the sale of gasoline, diesel fuel, tires, auto and truck registrations, and tolls to pay for the nation’s roads. Where does the money go? In states like Washington and California a large percentage of those excise go to bloated state employee staffs within the departments of transportation along with pensions and health care benefits for retiring state employees. Washington, as California, is restricted from outsourcing much of its design and maintenance programs to the private sector. Until these government union controlled agencies take a different course our infrastructure will continue to age and fail. Of course we can always take the train.