Local in Ann Arbor

Ann Arbor and Washtenaw County local government will have to embrace a new paradigm in which Federal funding for long-accepted programs is no longer assured.  We hope they start now to think about this.

The Black Swan phenomenon

The book,  “The Black Swan: The Impact of the Highly Improbable”, by Nassim Nicholas Taleb, was released in April 2007.  Taleb used the metaphor of the Black Swan (you never expect to see one, and have trouble believing it when you do), to describe an event with three attributes:

First, it is an outlier, as it lays outside the realm of regular expectations, because nothing in the past can convincingly point to its possibility.

Second, it carries an extreme impact.

Third, in spite of its outlier status, human nature makes us concoct explanations for its occurrence after the fact, making it explainable and predictable.

The book ranges through a variety of literary references, mathematical formulations (including chaos theory), parables, historical references, psychoanalytic tropes, and expanded metaphors to make its point.  It is quirky and sometimes difficult to read. (Sample heading: “Zoogles are not all Boogles.”)  But it makes a strong case that just when we believe that the course of the universe is a smooth sail, it will turn around and bite us in the (tail).  Perhaps the best metaphor is the story of the turkey, who lives happily in a grassy field with plenty of corn – until Thanksgiving comes.

Since Taleb often has made his living in finance (as a hedge fund manager, for example), his lessons are evidently meant to apply to the world of finance.  “A storm is coming.” (Not his quote.)  The book appeared in April 2007. In August 2007 there was a small panic as a hedge fund refused withdrawals.  In October 2007, the DOW was at a high of 14,000+ points.  By March 2009, it was at 6,600.  Meanwhile, the US and the world had endured an economic collapse.  Now the causes are well known, or at least well explained.  But at the time, everything was looking fine.   Black swans were hiding, but they were there.

We Shall Persevere

After the economic collapse, many normalization mechanisms were called into effect.  Even now, eight years later, things aren’t great for a lot of people.  There was a lot of damage.  But one thing that did work is that most governmental functions continued on along a fairly predictable course.  President Obama’s stimulus program was short-lived, but even through years of budget crises and sequestration alarms, cuts have been mostly at an incremental level.  This has meant that state and local governments and their planners and bureaucrats could continue to issue budgets expecting that various Federal subsidies and programs would be there, long enough in most cases to forecast several years into the future.  You need that to make plans.  Contracts have to be signed, projects initiated.  Costs of operation need to be anticipated.  And many lives depend on the continued smooth operation of these mechanisms.

Our expectations of our political system have been pinned on this smoothness of operation.  Yes, some programs get cancelled or cut, but on the whole things continue on and most things work out.  How could it be otherwise?  With the likely ascension of Hillary Clinton to the Presidency, this seemed even more obvious.  She ran as the maintainer of the status quo, with improvements.  All the polls said she would win, and President Obama was talking about his legacy.

The Trump Effect

Now we have our new Black Swan.  Who could have predicted that the American public would elect this man to the greatest station in the land?  (Clinton based her whole campaign on the bet that we wouldn’t.)  But here he is.

And then – there were the hopes that wise heads would counsel our new leader and changes would be at least well rationalized.   But he is showing some signs that he will be a wild card indeed.  He doesn’t accept known fact and makes his own up when it suits him.  He is prone to personal offense at criticism.  And he has been appointing mostly people who seem most interested in bringing down the established order.  Clearly he will not hesitate to take an egg-beater to government as we know it.   So he is likely to have an “extreme impact”.

Andy LaBarre, Chair of the BOC, 2017

In a recent interview on MLive, Washtenaw County Board of Commissioners Chair Andy LaBarre put it succinctly: “Who the hell knows what Trump’s going to do on any number of things.”

You said it, Andy.  We are now facing an unprecedented level of uncertainty.  But we know that change is coming. Ann Arbor, Washtenaw County, and indeed the entire State of Michigan will have many adjustments to make in both programs and expectations as the full array of changes in Federal policy take place over the coming months.  I expect that the final resolution will be that we will have to rely more on local resources for essentials, and this in turn will mean a new evaluation of our own programs and priorities.

Timelines

Change will probably come very rapidly in some cases.  But for many programs, it will probably fall along budget schedules. One point to know is that different governments have different budget schedules.  The Fiscal Year that each level uses is a crucial piece of information in understanding when all the pieces will fall into place.  The next Fiscal Year will be FY 2018.

Assuming that the Federal Government really does pass a budget on time this year, both the State of Michigan and Washtenaw County will have at least some ability to anticipate needed changes to their budget.  It may be trickier for the City of Ann Arbor.  The City Council actually approves that budget in May.

We do have a few tealeaves to read.  There are already some proposals for deep budget cuts being floated.  In the next post, I hope to highlight a few of those and their likely effects on local programs.

This entry was posted on February 2, 2017 at 6:58 pm and is filed under civic finance. You can subscribe via RSS 2.0 feed to this post's comments. You can comment below, or link to this permanent URL from your own site.