Russell's Blog

A friend of mine has asked if I can explain why Bill Clinton enjoyed, and continues to enjoy, relatively high popularity despite the troubles he faced in office. Obviously, one can only speculate about workings of another's mind, but in this case I think it may be possible to speculate with some measure of confidence.

The first possible explanation is that there are simply more Democrats than Republicans.

However, this doesn't really explain very much by itself. The glib talk-show explanation of Bill Clinton's popularity is that the economy was good during the Clinton years, ergo Clinton was popular. End of story.

Of course, the president does not have much direct influence on the health of the broader economy, and it is not unreasonable to suppose that most Americans who fondly remember Mr. Clinton's tenure are aware of this. A more nuanced explanation is required.

It will probably come as no surprise that I have my own theory. We are, after all, speculating on the thoughts and feelings of millions of total strangers, so my theory is probably as good as any, or perhaps at best slightly more plausible. At least it does not suffer from the obvious bogosity of the it-was-a-good-economy theory. Since theories are supposed to have names, I will name my theory Popularity Due to Reduced Rate of Disaster.

The theory goes like this. While the president does not have very much influence over the immediate overall health of the economy, they can exercise a large amount of influence over specific aspects of it. Particularly, the White House can be enormously effective at wrecking things. You don't need thermodynamics to tell you that it is easier to make a mess than to clean one up.

So, why is Bill Clinton relatively popular, and George W. Bush so unpopular? If you look for explanations in ideas and politics, you might be able to formulate some sort of explanation based on how much Americans tend to agree with the thinking of the current and former occupant of the White House. This sort of analysis is the bread and butter of TV pundits. Happily, most Americans don't think like the gasbags on TV, and so the ideological analysis offered there is very likely wrong.

I think it is more reasonable to suppose that Americans draw conclusions from the evidence that they encounter in their own lives, and have a mostly casual or academic interest in aggregate effects like GNP growth or the nominal inflation rate. This is probably why so many Americans think we are in a recession even though the GNP is growing: If you're working hard but struggling financially, then the economy sucks, and you're not likely to feel otherwise upon hearing that GNP is growing and the nominal rate of inflation is low.

So, when a president wrecks part of the economy, it may not register significantly in macroeconomic diagnostics, but it may have a big impact on how large numbers of individual people feel. I think that this is probably the most plausible model for popular opinion, at least as a first-order-approximation. A person may be ideologically inclined to agree with a president, but if that president does something that directly harms that person, I don't think the ideological agreement matters very much.

Looking back on the Clinton presidency, it is difficult to point to anything remarkably wonderful that he did, especially when set alongside other multi-term 20th century Democratic presidents (e.g., FDR). But perhaps more importantly, it is also difficult to point to anything remarkably bad, either. The worst thing Mr. Clinton did, most people agree, was have "sexual relations" with a consenting adult, and then lied about it. Sure, it was sort of embarrassing, but it had no impact whatsoever on any American, save for the dozen or so people with a personal stake in the matter. Americans came to the sensible conclusion that it wasn't really any of their business and wasn't really very important, and so the dual impeachment efforts in Congress and in the media were spectacularly unpopular.

When Mr. Clinton was still in office, the friend who posed this question remarked that the aspect of the Lewinsky incident that bothered him most was that Mr. Clinton's brief affair happened "on the public dime" and on public property. These are legitimate points, but one should keep in mind that the man was working sixty to eighty hours a week. Even if we deduct the time wasted on the affair, the public still got a fantastic bargain in terms of dollars paid per hour of presidential work, especially when contrasted with Mr. Bush's short work week and frequent, lengthy vacations. Of course the celebrated liaison happened in the Oval Office; Bill Clinton worked longer hours than a galley slave.

As far as practical impacts on individual lives, Mr. Clinton was clearly not a very bad president. In some moderately important ways, he managed to do some real good, but that probably isn't why he's popular. The real reason, I think, is the sharp contrast with the presidents before and after. George W. Bush has managed to wreck an extraordinary number of things. For example cities New Orleans and Biloxi, habeas corpus, the first, second, fourth, firth, sixth, seventh, eighth, ninth and tenth amendments to the Constitution, America's international reputation, the nation of Iraq, the World Bank, the Department of Justice, an so on. While Mr. Bush has not actually destroyed any of these things, and I think they each will eventually be rebuilt, the damage done nevertheless is real. It has had real, widespread impacts on the lives of ordinary Americans.

Rather than speaking generally about these things, I think it would be more illustrative to delve into three anecdotes that I think are representative of the sort of damage that happened before and after Mr. Clinton's presidency. Each of these events has caused substantial material harm to individual Americans.

Skid Row

Since I live in Los Angeles, I am practically compelled to mention the death-blow Ronald Reagan dealt to America's the mental health care system. As governor of California, he called for the firing of 3700 mental health employees from the Department of Mental Hygiene in 1969. The California legislature reduced the layoffs to 2600 employees and began construction of new treatment centers to replace the old-fashioned residential hospitals that were to be closed. In the resulting departmental turmoil, tens of thousands of very sick people were literally dumped onto the streets of California's cities. Most of them stayed on the streets. As the Vietnam War chewed through the draft-eligible population in the following years, a disproportionate number of these new mentally ill homeless were veterans suffering from what we would now call PTSD.

To give you an idea of why this screw-up has had such permanent consequences, you have to remember the time period in which all of this was happening. This was the early 1970s, a period of weak economic growth extremely high inflation. It was very hard on middle class families. If you were a discharged mental patient or a veteran with brain trauma, it was simply impossible to get by. The network of treatment centers has turned out to be almost completely impotent.

When Reagan became president, he duplicated these policies on a national scale. Mentally ill people flooded into city centers across the country. Many of these cities are lethally cold in the winter months, so many mental hospitals and cities evidently used the last dribbles of federal money to buy one-way train tickets for their patients. They sent them to the one city that everyone knew was nice and warm in the wintertime, and already had a big enough homeless population that no one would notice a few more: Los Angeles. If you look at the distribution of LA's homeless population, it is still clustered near the rail terminus.

Before Reagan, Los Angeles didn't have a very significant homeless population. Today, it has a permanently homeless population of 82,000 people, and at some point during the year, and additional 254,000 Los Angeles residents are homeless for some period of time.

The event is even more offensive upon revisiting the reason it was carried out. The mental hospitals were shut down because Reagan believed that they were inefficient, and that it would be simpler to scrap the system and build a new one than to attempt reforms. All of this human misery was for the sake of speeding up the realization of a relatively insignificant cost savings.

Stranded at the Airport

My second example, again from Reagan, is the Air Traffic Control system. The Professional Air Traffic Controllers Organization went on strike to protest long hours, low pay and unsafe working conditions. Let me repeat that last one. The air traffic controllers went on strike to protest unsafe working conditions. Not unsafe for themselves, but unsafe for the traveling public. It is the only example that I know of where a trade union has gone on strike for the sake of public safety. Reagan ordered them back to work, and when they refused, he fired them en mass, and banned them from government service forever.

The fallout of Reagan's decision has left an indelible mark on America's transpiration system. The positions left open by the fired air traffic controllers were filled by managers, non-union controllers, and temps. To decrease the likelihood of accidents, the FAA was forced to enlarge the minimum safety envelopes around aircraft. With low wages, long hours, ancient equipment (which hasn't been upgraded since the 1960s), poor benefits and terrible morale, it's been virtually impossible to hire new air traffic controllers. So, the conditions that triggered the strike in the first place have actually gotten worse. Reagan's purge of air traffic controllers drastically reduced the safety and the throughput capacity of the entire civil aviation system.

In some very busy airports, this throughput capacity reduction is substantial. Nearly all airport delays can be ultimately attributed to congestion at a handful of very busy airports. This congestion is a consequence of the larger safety envelopes required by the FAA to allow them to do without the 11,000 highly-trained professionals that it can neither replace nor re-hire. So, next time you're stuck sitting on the tarmac or at the gate, you can thank Ronald Reagan for putting union-busting ahead of public safety and the operational effectiveness of the FAA.

It's worth noting that both the Teamsters and PATCO endorsed Reagan in 1980.

Backdating

The last example I will give is somewhat personal and esoteric, but it is perhaps the most important. Over the last three years, many companies have been caught doing something called option backdating. The scheme works like this. An option is an agreement with the issuer of a security -- in this case, stock certificates issued by the board of directors of a company -- to either buy or sell the security at a particular price. Executive compensation packages often contain a basket of options at various prices. Usually, these options are held in escrow until a specified date, at which point they are released from escrow. The recipient may the "exercise" the option, which in this case means either buying or selling the security at the agreed upon price.

In the case of stock options, boards usually issue options based not on a price, but rather the at a price on a particular date. The scandal that has been swirling around a number of companies, including high-fliers like Apple, is that they issued stock options to their executives that had price-point dates before their issue dates. An option is supposed to be a security whose value is based on the price difference between now some point in the future. This is why options are sometimes called "futures." However, if you issue an option whose value is based on the difference in price between the price now and some point in the past, then you you know exactly how much the option is worth. In other words, it's not an option at all; it's cash.

What Apple did, and what hundreds of other companies did between 2002 and 2006, was issue these "backdated" options to their executives. Each instance of options backdating constitutes three separate acts of fraud :

1. It allows the company to directly pay their executives billions of dollars in cash, but expense the associated costs as operating overhead instead of payroll, thus hiding the actual impact of executive compensation from investors.
2. It allows the companies to avoid paying payroll taxes on this money, depriving Social Security and Medicare/Medicaid of billions of dollars.
3. It allows the executives themselves to declare the money thus received as capital gains instead of income, on which they pay 22% instead of 46%.

The companies who were caught doing this were finally asked to stop sometime last year. Insofar as I can tell, there has been no substantial punishment for options backdating yet.

I did not really appreciate the magnitude of this scandal until I talked about it with my father, who has extensive experience as an entrepreneur and has served on the boards of several companies. My father started a company called Teradata (NYSE: TDC). Teradata makes database computers.

My father once explained to me that there were only two entities that posed a serious threat to his company: IBM, and the Securities and Exchange Commission. Teradata went after IBM's main business, courting some of IBM's most lucrative customers. When the company was still operating out of a grubby little building near the LA airport, they went toe-to-toe with IBM in the marketplace, and they prospered. My father was very worried that IBM would do something illegal to destroy his company, but fortunately, IBM played fair.

As scary as it was duking it out with the largest technology company on Earth, what really scared my father was the Securities and Exchange Commission. He was absolutely terrified that a there would be some sort of mistake in their accounting, or in their public filings, or in their communications with investors, that would bring down the wrath of the SEC. As soon as Teradata was incorporated, he made sure that he had the best accountants and the best lawyers he could possibly find, and he demanded absolute perfection from them. My father loathes accounting, but he spent more time checking the ledgers than on the engineering of the computer that he himself had invented. That is how scared he was of the SEC.

That is how scared everyone was of the SEC in those days. It was assumed that even a small error in the corporate accounting would lead immediately to the destruction of the company and the end of the careers of everyone involved.

When I was much younger, I once complained that it was unfair for the SEC to impose such stiff penalties. My father responded angrily, "No, it's not unfair. Teradata is made out of other people's money." Even while the ax was hanging over his own neck, my father strongly supported this strict regulation.

When Teradata was founded, no one would have dared something as shady as options backdating. They would have been ripped to shreds. So, why did it happen? Simple. George W. Bush nerfed the SEC. Companies know that America's financial cops don't have any bullets.

When you look at the credit crunch, the looming subprime disaster, and the wave of mortgage foreclosures crashing down on America's middle class, it shouldn't be any surprise how it happened.

Gamesmanship or statecraft?

Returning to the question at hand, why is it that people like Bill Clinton? That's easy. He didn't wreck anything. He appointed mostly competent bureaucrats to lead federal agencies. The ones that weren't competent got fired. He understood that the president's job is to make the government work, and he logged eight years of eighty hour weeks to make sure that it did.

His ideology was not neither inspired nor inspiring, but people like him anyway. This was the great puzzle that the conservatives who opposed him have never figured out. Newt Gingrich and Tom DeLay believed that politics is all about ideas, and as far as campaigns are concerned, they were right. However, good government is not about ideas. It is about duty, service and implementation. Government doesn't run on ideas, it runs on deeds. In that respect, government and politics are very different activities.

Bill Clinton is popular because he was pretty good at government. Newt Gingrich, Tom DeLay, George Bush and now the whole Republican Party are deeply unpopular because, while they are exceptionally good at politics, they are miserable failures in government. As long as Republicans continue to confuse politics and government, they will remain puzzled by Bill Clinton's enduring popularity.