Inside Job

The leviathan that is our federal government is too big for outsider, learn on the job types.  If you want real reform, you need willing insiders who know how to get things done.  We look at Martin Luther, Diocletian and Steve Jobs to see why.  

Transcript

Inside Job

November 2024

Anybody who plays the stock market not as an insider is like a man buying cows in the moonlight. 

Daniel Drew

Reform:  

To put or change into an improved form or condition, and to amend or improve by changing form or removing faults or abuses.

On October 31, 1517, Martin Luther posted his Ninety-five Theses on the door of the Castle Church in Wittenberg, Germany, or so the legend goes. Historians traditionally call the ensuing period the Protestant Reformation, meaning reform to the church then in power, the Catholic Church. The theses led to the birth of Lutheranism and other Protestant faiths, ranging from Calvinism to Presbyterianism. In the case of England, the Anglican church adopted the monarch, not the Pope, as the supreme leader of church affairs.  

Given the Catholic Church’s challenges in this period, the Reformation may have begun without Luther.  One example was John Wycliffe and the Lollards, who operated in the 1300s.  Another example was the Hussites, a Czech proto-Protestant Christian movement that pre-dated Luther by a hundred years.  However, it was Luther who kicked off the first successful resistance to the hegemony of the Catholic Church, and five hundred years later, we have 80 million Lutherans in the world.  But Luther was not some monarch like Henry VIII coveting church lands and resources or Henry’s minister, Thomas Cromwell, who served no role in the church before his overseeing church affairs for Henry.  

Wycliffe was a Catholic Priest. Hus was ordained in 1400 before becoming the rector of the University of Prague. On July 17, 1505, Luther abandoned the study of law and entered the monastery in Erfurt of the Order of the Hermits of St. Augustine, a mendicant order founded in 1256. However, the order of Augustinians stretched back 1,100 years prior to Luther.  

Sometimes, I like to go back to older histories.  Those written prior to the current political ideologies.  And also those devoted as much to prose as political points.  Will Durant’s The Reformation: A History of European Civilization from Wycliffe to Calvin, written in 1957, is one such work.  The author states of Luther’s posting on the church door (or in a letter to a local Bishop), “the author himself was at first dismayed by what he had aroused.”  Luther was interested in reform, not resistance and revolution, as he said at the time.  But as Durant notes, “The Theses became the talk of literate Germany.  Thousands had waited for such a protest, and the pent-up anti-clericalism of generations thrilled at having found a voice.”  Durant concludes that Luther “relished battle,” so the historical record corroborates that description.  But Luther did not begin as a reformist, nor was they outside the church as a Greek Orthodox or outside of Christianity itself.  

The outsiders, the rebels, and the transformational types are the best reformers, but in business and history, the insiders are more effective.  This is not to say they are passive or even quietly go about shivving the status quo.  There was little passivity about Luther.  Instead, they understand the problems and difficulties with reform because they have lived through the issues.  Wycliffe, Hus, and Luther saw the rot in the Catholic church not from the outside, such as a farmer ruing a church tithe who would later burn down the chapel and hang the priests or a ruler wishing for more secular power.  They all saw it as priests, monks, or deacons.  They knew the purposes of church learning and where it veered from the original mission.  They could identify the church bureaucracy and knew the Borgia and Medici popes not as distant figures but as corrupt pontiffs; they could see for themselves.  

The Catholic church grew up in, and often despite, the Roman Empire. Imperial systems that last over 200 years are rare things.  300 rarer still. Compared to the Han Dynasty in China, the unified Roman Empire lasted over 500 years.  If one believes the Byzantines were an extension of Rome, then it was more like 1,500.  Yet in the 3rd century CE, after a series of Civil Wars, Germanic invasions along the Rhine and Danube in the North, and increasing pressure from a young and vibrant Sassanid Persian Empire in the East, Rome might have fallen in the late 200s.  And not just a part of it, as happened with the Western Empire in 476, all of it.  An argument can be made that Emperor Aurelian (reigned 470-475) did the heavy lifting of unification.  But it was really Aurelian’s protégé, Diocles and later Gaius Aurelius Valerius Diocletianus (I love Roman names) known as Diocletian, who imposed a system of unity, and brought together the Roman state in such a way that he bequeathed another 200 years of existence, and enabled the beginnings of the Byzantines.  

Though his concept of tetrarchy, or rule by four, was turbulent and ultimately ineffective, his legacy of preservation is unquestioned.  One of his many reforms was separating and enlarging the Empire’s civil and military services. He reorganized the Empire’s provincial divisions, establishing the largest and most bureaucratic government in the history of the Empire. He established new administrative centers in Nicomedia, Mediolanum, Sirmium, and Trevorum, closer to the Empire’s frontiers than the traditional capital at Rome. From at least 297, imperial taxation was standardized, made more equitable, and levied at generally higher rates.

Diocletian began his career in the Roman army, but much of his early life was obscure.  We know he served in many different military posts before becoming a cavalry commander for the Emperor Carus in 282.  After the death of Numerian in 284, Diocletian assumed the purple and began defeating various rivals, eventually becoming sole Emperor.  Roman Emperors often had colleagues, and Diocletian quickly named Maximian as Caesar, unlike traditional kingship.  His knowledge of watching Emperors killed, and the following chaos compelled this decision, eventually establishing the tetrarchy.  His experience taught him that the Empire was too big for one person to rule.  The need for the Emperor to lead the army in person may keep potential rivals at bay, but it also meant that if he were fighting Germans along the Rhine, there would be no powerful force to face the Persians in Syria.  

The religious aspects of Diocletian’s rule also showed how steeped he was in traditional Roman practices.  But his reforms concerning the army show the true inside man. In Michael Grant’s The Roman Emperors, the author notes, “Diocletian presided over a complete reconstruction of the Empire’s military system. The army was divided into two distinct branches. One was a mobile force, the other meant for garrison and guard duty.” 

In a piece entitled Emperor Diocletian: The Genius Who Saved the Roman Empire, by Alice Bennett for The Collector, the author says of Diocletian, “Rome would never have an internal conflict on the scale of the 3rd century again. Diocletian’s military reforms served their purpose and kept Rome stable. Furthermore, he established peace with Sassanid Persia, which lasted 40 years. Constantine the Great would keep and reintroduce many of his tactics and reforms, creating a strong empire with a highly organized rulership.” Bennett also notes Diocletian was the only Roman Emperor among a scarce breed of abdicated rulers. “Diocletian resuscitated Rome, and because of his efforts, the Empire would carry on until the 5th century. So great was his rule that when trouble started brewing, people begged him to come out of retirement. He responded that he would rather live in peace tending his cabbages.”  

I am now pivoting from my usual political history to that of business.  After founding Apple Computer in 1985, Steve Jobs was ousted from his own company after the failed launch of the Macintosh computer.  The CEO at the time was John Sculley, who was recruited to the role by Jobs himself after a stint as Pepsi CEO.  It was felt then, and often today, that an outsider be brought in to shake things up.  What got shook was Apple’s success.  Apple continued to struggle after failures by Sculley and two more CEOs, including another outsider.  Then, in 1997, after 12 years, Jobs triumphantly returned to Apple.  Through his decade-long absence, Jobs kept tabs on his old company, so in some ways, as the co-founder, he was the ultimate insider.  Jobs then began an unmatched list of achievements as he rapidly reformed entire industries, including computing, music, animated movies, books, and telephony.  

Most business books are garbage.  Either they are self-serving, ego-driven descriptors of CEO or Founder brilliance, or they are variations on the “yeah, duh” theme.  Did you know that teams are better than individuals?  Finding lucrative, profitable opportunities is essential.  They are scintillating insights.  I have always liked Jim Collin’s Good to Great book. It describes how companies transition from being good businesses to great companies and how most companies fail to make the transition. Published in 2001, the book was a bestseller, selling four million copies and going far beyond the traditional audience of business books.  Part of the intrigue is that many of its tenets go against conventional thinking.  For one, hire the best people, then build a plan. Most companies do the opposite.  But it was in the idea that for a company looking for reform, breaking from the status quo often meant looking inside, not outside. 

According to Collins’ “Good to Great” research, companies that transitioned from “good” to “great” were significantly more likely to have CEOs promoted from within the company rather than bringing in outside leaders; the data shows a negative correlation between hiring an “outside” CEO and achieving sustained greatness, suggesting that internal CEOs are more likely to lead a company to long-term success.  “The good-to-great leaders were not necessarily charismatic or larger-than-life figures; they were more like quiet, determined individuals with a strong sense of humility and professional will.”  Internal CEOs are believed to have a deeper understanding of the company’s culture, strengths, and weaknesses, allowing them to make more informed decisions that align with the existing foundation.  Outsiders often lack this intimate knowledge and could disrupt established systems in an attempt to make rapid changes.

People like Luther, Diocletian, and Jobs understood the cultures, strengths, and weaknesses of the organizations they were trying to reform in a way no outsider could fully grasp.  

Along with the outsider fallacy is another mistake. One thing I hope is clear is that I am not suggesting including Jobs here. A business is not the government and vice versa.  Let’s take Apple.  One big fight that led to Jobs’s dismissal was whether to double down on the Mac or invest more in the Apple II.  Finite resources meant the company could not do both, but all sides wanted the same thing: a profitable computer.  The government is vastly different.  You have not 2 or 10 but hundreds of competing constituencies ranging from farmers wanting subsidized corn, oil drillers desiring carte blanche access to public lands, and activists wanting to allow boys in girls’ sports. Tax breaks for the farmers mean more significant deficits. Drilling could cause environmental harm, and a cadre of well-funded organizations are looking for victims to champion.  In most cases, you can follow the money to find what these groups want, but not always as in business. 

Many use the term special interest to denote some negative goal that provides an unfair advantage to those applying pressure to the government.  All constituencies with relations to the government are special interests and, thus, not special.  US GDP is around $27 trillion.  A massive portion of this is either affected directly by government spending, such as healthcare, or is subject to regulation, including food, vehicle, and oil production.  The thought that a government as vast and intrusive as ours is not subject to those who wish to influence how that government operates is ludicrous.  

Let’s take the DoD.  Its total budget is $820 Billion. According to the FY2023 Integrated Collection System ICS report, the number of DOD contracted workers is about 972,000.  The DOD must spend more on federal contracts ($415 billion in current dollars) than all other government agencies combined.   

What do all of the 972,000 do?  Do they provide a crucial component like a gear in the engine room of the USS Abraham Lincoln, or do they supply toil seats on the same ship?  Trump’s choice of Secretary of Defense, Pete Hegseth, won’t have a clue. He will not even know to ask, and should he stumble over that person, he will not know whether he is getting the real story or CYA.  And this is in addition to pure policy.  What is the role of the US in the Middle East, South America, or the Pacific? What is the role of the Marines, for that matter? The thought that a Fox and Friends weekend host could answer that is head-scratching.  And yes, Hegseth served in Iraq and Afghanistan and was made Captain.  But in our modern DoD, this is like taking the guy at Apple who supervises keyboard manufacturing for the latest iMac and making the CEO of the entire $2 trillion enterprise.  

And then there is RFK Jr.  Each year, federal agencies receive funding from Congress, known as budgetary resources. In FY 2024, the Department of Health and Human Services (HHS) had $2.86 Trillion distributed among its 14 sub-components.  HHS oversees Medicare and Medicaid.  The Food and Drug Administration is in that bucket, so it regulates the $772 billion Americans spend on drugs and the $2.6 trillion spent on food.  Remember the CDC from COVID-19 days?  That is under the HHS as well.  So is the National Institutes of Health, the organization that spawned Anthony Fauci and helped fund the gain of research that may or may not have led to the pandemic’s creation.    

RFK, a lifelong Democrat until a few hot moments ago, was an environmental lawyer for much of his career, engaging in work that would make Al Gore and Greta Thunberg proud.  Speaking at the 2016 South by Southwest environment conference, he said, “Polluters always choose the soft target of poverty.” He also chairs (but does not run) the Children’s Defense Fund, an anti-vaxxing organization.  And I am not just talking about COVID but all of them: measles, rubella, and polio.  

So Kennedy has never really run anything of significance.  No governmental agency or large company.  And he will then be in charge of 83,000 employees.  I would suspect that if asked, Kennedy would be hard-pressed to name all 13 of its divisions.  Sure, he can rely on the CDC, FDA, and Center for Medicare and Medicaid.  But what about the Administration for Children and Families or the Indian Health Service, which, just by itself, employs 15,000? And while he is attempting his reforms, significant disruptions such as another COVID outbreak or delays in the distribution of Medicare checks could spell doom for the reforms.  It is tricky to make changes while maintaining the level of service, especially in governmental entities.  

I am not addressing here Kennedy’s horrific personal life nor repeated statements that lead me to believe Kennedy should be treated by our healthcare system, not regulating it.  I am not addressing his policy chops, though his environmentalism, champion of abortion, favor of government intrusiveness, and desire for single-payer makes me wonder why Elizabeth Warren is not a yes vote.  But my point here is not about personal or moral qualifications, but professional ones.  

Our government needs serious reform.  From the time of Washington and the five departments, the government has sprawled to over 15, and as noted, each has agencies that are little governments of their own.  The Securities and Exchange Commission can levy fines (read taxes) like Congress and pass its rules again like Congress. It can enforce those rules and judge perpetrators within their kangaroo courts.  It is not even a part of a federal agency but operates independently.  The thought that outsiders like Pete Hegseth at DoD, RFK Jr. at HHS, or some crypto bro can navigate treasury is illusory.  Here is a Trump pick that makes sense.  Whether you like Tom Homan’s draconian policies or not, an ex-director of the US Immigration and Customs Enforcement is the right choice if the goal is reform.  From that position, he will bring an intimate knowledge of immigration and how to manage it.  

Being an outsider, the rebel, the rabble-rouser, to never give into “the man.” Part of the American DNA is that the context of insider is a dirty word. It brings up connotations of double-dealing or one who did not work hard to succeed.  It smacks of nobility. And I laugh at the description of Trump as an outsider. Trump grew up the scion of a New York Real Estate magnate who pulled strings to get deals.  He went to an Ivy League school.  He did cameos for movies and TV shows and later hosted his own show on Comcast, the largest cable company of its day.  He was president. And that is why I had hoped that he understood the need for insiders similar to himself who had been around the game.  But Trump is like the old French ruler Bourbons; he forgets nothing and has learned nothing.  

Interestingly, Luther’s reforms led to the creation of the Jesuits, a virulently pro-Catholic order that became one of the key proselytizing organizations for the church. Colleges ranging from Notre Dame to DePaul to Loyola Marymount are all Jesuit institutions. Luther did the interesting trick of founding a new branch of Christianity while inadvertently reforming the old. We need that type of insider for another old, corrupt institution called the US Federal Government.