Michael Lewis’ Frightening Account of Government in the Age of Trump

Before reading the book, I saw the government’s highest calling as that of a neutral referee in the great game of business, played by what James Madison called “competing private interests.” Without government there would be no rules, and cheaters would prosper.

I also embrace the Hobbesian concept of government as holder of the legal monopoly on violence: someone has to catch the criminals, and deter crime and fraud through the threat of punishment. And we have to help those unable to help themselves.

But The Fifth Risk provides new appreciation for what Lewis regards as government’s central function, which is to ensure public safety. This is a complex task involving a great deal of technical expertise in many different fields.

The terrorist attack that wasn’t

An example of the risks against which government protects us was the attack on the electrical grid that took place near San Jose, California in 2013. Almost nobody knew about it (we shall soon see why). Lewis writes:

At Pacific Gas & Electric’s Metcalf substation, a well-informed sniper, using a .30-caliber rifle, had taken out seventeen transformers. Someone had also cut the cables that enabled communication to and from the substation. “They knew exactly what lines to cut,” said Tarak Shah, who studied the incident for the DOE [Department of Energy]. “They knew exactly where to shoot. They knew exactly which manhole covers were relevant…These were feeder stations to Apple and Google.”

We didn’t hear about it because there was enough backup power in the area, the “federal government [having created] a coordinated, intelligent response to threats to the system,” according to Lewis. Even with Apple’s and Google’s sophisticated backup systems, a massive power outage in the tech capital of the United States would have cost millions of work-hours in restoration time, to say nothing of the nuisance caused to residential customers and other, less wealthy businesses.

Yesterday’s risks are the ones for which we’re well prepared. The likelihood of a repeat of the September 11, 2001 attack is minuscule. But, Lewis writes, “People are less good at imagining a crisis before it happens… For just this reason the DOE…set out to imagine disasters that had never happened before.” That is much harder, requires thinkers with imagination and extensive knowledge, and is what many of the people who work in government agencies are charged with doing.

The first four risks

By now, you’re probably wondering: What are the four risks that governments try to protect us against, and what is the fifth risk about which Lewis is so concerned that he named his book after it? The answers are not specific risks, such as a nuclear attack, a pandemic, a large earthquake, or an unexpectedly rapid increase in sea levels. As DOE Chief Risk Officer John MacWilliams explains, they are categories of risks, sorted by probability of occurrence and severity of consequences:

Exhibit 1
The Department of Energy’s approach to categorizing risks

Source: Constructed by the author. The northwest- and southeast-quadrant risks are from Lewis’ book. I made up the other two.

This is pretty standard stuff; it’s nice to know that government agencies have adopted a framework that has existed for decades in other fields. Maybe it was originally thought up in a government agency – we’ll never know. But the matrix provides some insight into what employees of the much-ridiculed Department of Energy actually do.² It’s a regulatory body, not an actual producer of energy, so it’s been on the chopping block in a number of presidential campaigns. Lewis shows why we shouldn’t get rid of it.

The fifth risk

OK, seriously, folks: “Project management.”

I know you were expecting something better, like an attack by space aliens, or a conspiracy by artificially intelligent robots to destroy the people who created them. But, writes Lewis, “When I asked [MacWilliams] for the fifth risk, he had thought about it and then seemed to relax a bit. The fifth risk did not put him at risk of revealing classified information. ‘Project management,’ was all he said.”

At this point, Lewis tells the complex tale, which I briefly mentioned earlier, of the country’s first nuclear weapon site, located at Hanford, Washington and open from 1943 to 1987. “In that time,” Lewis writes, “it supplied the material for seventy thousand nuclear weapons.”

Never mind that there aren’t 70,000 Russian cities or military targets; if the bombs had all been deployed, we would have been targeting individual Russians. The importance of the Hanford story is that, three decades after the facility’s closure, it is a “monument to mismanagement,” riddled with dangerous nuclear waste and costing the DOE $3 billion a year in maintenance and disaster-aversion costs.

Project management is a real risk.

Feeding the people

In addition to the Department of Energy, Lewis also takes a close look at the sometimes maligned Department of Agriculture (USDA) and the more highly respected National Oceanic and Atmospheric Administration (NOAA, once known as the Weather Bureau – 17 syllables in place of four).

The standard joke about the USDA is that an employee of the agency is seen crying at his desk. Another employee asks him what the matter is and the crying fellow says, “My farmer died.” The joke is not quite fair – the USDA has 100,000 employees in a country of three million farmers – but the ratio is alarming.

What does the agency actually do? A great deal, as Lewis explains in detail. The USDA’s largest budget item, 70% of the total, is for what used to be called food stamps; in another syllabic explosion, it’s now SNAP, the Supplemental Nutrition Assistance Program, 12 syllables in place of two (and for many people it’s not supplemental). That explains a lot: people have to eat.

The USDA also subsumes the Forest Service, which manages 193 million acres of forests and other rural lands – an area 87 times as large as Yellowstone National Park, mostly privately owned but managed under the Forest Service’s “wise use” ethic, which contrasts with the competing National Park Service’s goal of “preservation forever.”³ Other programs include education (agricultural “extension services” that supply information to farmers) and research.

None of these activities sound particularly labor-intensive to me, and it’s not clear that all 100,000 employees are efficiently deployed. Lewis balances his praise for government’s heroes with concern about waste and incompetence – he quotes Lillian Salerno, head of rural development for the USDA, as saying that “fewer than 50” of the agency’s 100,000 have been trained to create an Excel spreadsheet. How do the other 99,950 do their jobs? These days, you can’t be a lumberyard worker or a delivery truck driver without knowing how to use a spreadsheet, but you can be responsible for spending your share of the USDA’s $151 billion budget. Hmm.

Selling the weather

The amount of rent-seeking that Lewis documents as taking place between the private sector and the government is enough to make me shudder. (Rent-seeking is an economist’s term for a private party using government power to extract unearned profits.)

The example detailed by Lewis involves NOAA. The Trump administration nominated Barry Myers, head of AccuWeather and brother of its founder, to head the agency.

The rub is that AccuWeather’s business – its only business – is to repackage publicly available weather data, including that from NOAA, for commercial purposes. AccuWeather does add value, but it gets the data feed from the government for free. In 2005, Pennsylvania Senator Rick Santorum, who had received campaign contributions from Myers, introduced a bill that would have “forbidden…the National Weather Service …from delivering any weather-related knowledge to any American who might otherwise wind up a paying customer of AccuWeather…[except] when human life and property was at stake,” Lewis writes.

Fortunately the bill never made it out of committee. But “pause for a second,” continues Lewis, “to consider the audacity of that maneuver.” It’s bad enough that Myers tried to get Americans to pay again for weather forecasts they had already paid for through their taxes. But Trump nominating him – a lawyer and entrepreneur, not even a weather scientist – to run NOAA is just too much to bear, implies Lewis.

The whole second half of The Fifth Risk is about weather, NOAA, and attempts to corrupt or undermine the agency’s mission. Weather forecasting is a fascinating and complex affair. It requires intergovernmental cooperation (because weather knows no national boundaries), a network of geosynchronous and polar satellites, and intricate mathematical models that run on some of the world’s fastest supercomputers. Chaos theory was invented to help with weather forecasting.

The public safety benefits of making good forecasts and disseminating them effectively are dramatic. Lewis recalls: “‘We ran the no-satellite experiment in Galveston in 1900,’ says Tim Schmit, a career NOAA researcher who has spent the last twenty-two years creating new and better satellite images of Earth. ‘Ten thousand people died.’” Galveston’s destruction, still the deadliest natural disaster in American history is vividly described in Erik Larson’s fine book, Isaac’s Storm.⁴

With satellites and supercomputer-based models of the atmosphere, no one needs to die because a monster storm is next door but we can’t see it heading toward us. Hurricanes, unlike tornadoes, can now be seen to be approaching so far in advance that everyone in its path can theoretically be evacuated. Saving everyone then depends on the efficiency of the evacuation effort and the cooperation of the potential victims. To encourage the latter, NOAA employs behavioral scientists who try to figure out the best ways of convincing people not to ride the storm out, going against the innate human perception that one is safest at home.

There’s more to weather forecasting than meets the eye.

The nonexistent next generation of government workers

As an employer, the federal government is in trouble. Lewis writes, “there are five times more people working for the government over the age of 60 than under the age of 30.” Other than symphony conductors, what other profession can you say that about? Even activities directors at nursing homes are probably younger.

Young, ambitious people don’t want to work for the government, and it’s not just the money, which, with pensions and health benefits, isn’t that bad. It’s because the folklore, not entirely incorrect, is that, unless they rise to great heights, their career will consist of writing reports that will go in a file cabinet and never be read.

They want to make a difference, and fear that they won’t.

Walking around Washington you see lots of energetic young people, and if you overhear their conversations they sound highly intelligent. But chances are they’re working for a lobbying firm, trade association, nonprofit organization, or corporation that sells products or services to the government, rather than for a government agency. Lewis has identified a problem for future administrations to solve. He doesn't have much hope for the current one solving any problem.

Why immigrants favor large government

I was born American; I did not join this experiment in self-government voluntarily. It just happened to me. So, Lewis argues, I take reasonably competent government for granted, while those who uprooted their lives to come here from poorly governed countries do not. They appreciate a government that is responsible, responsive, and not wholly corrupt. That, and not the accessibility of benefits, is why Lewis says immigrants look upon government with a sympathetic eye, as long as it’s a competent and non-corrupt government that protects them and their property, and provides basic services without endless graft. If that is true it bodes well for our future. According to Lewis, immigrants want to be makers, contributors to the public enterprise, not takers. I agree.

Balancing private and public interests

If I have a gripe about The Fifth Risk it’s that Lewis, like many reporters, has fallen in love with his subject – government. Just because Donald Trump, by Lewis’ account an incurious and disengaged administrator, wants to eviscerate parts of the government does not mean that the size and cost of government should go unquestioned.

Actually, Trump’s chaotic efforts to shrink government are making rational advocates of smaller government look bad. Some of the activities pursued by “competing private interests” are also inspiring and worthy of a Michael Lewis book: take a look inside Boeing, or Adobe Systems, or a family farm in this age of rapidly changing agricultural technology. Their shareholders and workers need the infrastructure and protection that government provides, but they also need to be able to keep a large fraction of their own money so that they have the incentive to do what they do and reinvest in innovation. With marginal (federal, state, and local) tax rates approaching 50% on people of ordinary means, we need to monitor the balance between public and private interests very carefully.

My other complaint about The Fifth Risk, and it’s a very mild one, is that the book doesn’t have chapters. If you’re only interested in, say, Lewis’ discussion of nuclear waste at Hanford, you’ll have trouble finding it. The Fifth Risk reads like a compilation of magazine articles, because that’s what it is – but without the usual breaks that make magazines easy to read. Much of it previously appeared in Vanity Fair, so its content may seem familiar to voracious news readers.

Missed opportunities

Instead of 91 pages on the weather and the Agency Formerly Known as the Weather Bureau, I wish Lewis had turned his eye to some other agencies and other problems. It would have been fascinating to hear Lewis’ take on the Food and Drug Administration, which shares responsibility for food safety with the USDA. When you eat a cheese pizza, Lewis writes, the FDA tries to make sure it won’t kill you. But if it’s a pepperoni pizza the USDA has the responsibility. Tell me more!

And I wonder how he would have reacted to Dr. Margaret Hamburg, who regulated one-fifth to one-quarter of the nation’s economy as President Obama’s FDA chief, being married to Peter Brown, co-CEO of Renaissance Technologies, a massive hedge fund that was and still is in a position to profit from early knowledge of decisions affecting food and drug companies.⁵ Rent-seeking is not unique to the current administration.

I also wish Lewis had noticed the little agency that offers the biggest bang for the buck: It used to be called the National Bureau of Standards, but it’s now the National Institute for Standards and Technology (14 syllables versus eight). Standards sound boring but they’re a good thing. They are the reason why a half-inch pipe bought at a store in Cleveland matches precisely a half-inch pipe from a store in Portland, and why 110-volt electrical appliances manufactured in Taiwan run on the 110-volt electricity supplied to your home in Alabama.

The Internet is also a set of standards, specifying what you can host on a server or build into a browser. The most basic and familiar of these standards is the Internet Protocol (IP), which specifies how your IP address will be generated.

These standards were promulgated not by governments, but predominantly by private organizations such as the Institute of Electrical and Electronic Engineers (IEEE), with some government involvement. Basically, the entire Internet economy was created by setting standards, and relies on them being adhered to precisely. The standards were established by a mix of private and public institutions. As a result, a packet is a packet that is recognized by any router anywhere in the world.⁶ Mobile phones work on the same principle – it’s the network standards that allow your phone to work on networks from Chicago to London to Beijing.

The fact that systems such as the packet protocol “work” demonstrates that there are private-sector alternatives to government standards and regulations. In many such cases, however, it is simply more efficient to have the government do it. The reason is simple: negotiations among a myriad of private companies and organizations are hard, and having a central authority is easy. There’s a tradeoff between the flexibility of the former and the directness of the latter, and for many decisions the tradeoff works in favor of government. If we all drive 55 miles per hour, there will be fewer accidents.

Conclusion

The Fifth Risk offers the kind of nerdy fun that all Michael Lewis books provide: you learn more about some tiny aspect of life than you thought it was possible. (The U.S. government is not tiny, but Lewis breaks it into suitably small pieces for study.)

All citizens who are concerned that we are not well governed should read it. It will assuage some of their fears: the executive branch of the U.S. government is largely staffed by dedicated experts in their fields. However, it will inflame other fears: the tone at the top is discouraging. We’re better than that. In the end, the book will help us better understand what “government” is and does as we engage in the ongoing debate about how big government should be, what it should and should not do, who pays for it, and how much they pay.

Laurence B. Siegel is the Gary P. Brinson director of research at the CFA Institute Research Foundation and an independent consultant and writer. His book, Fewer, Richer, Greener, will be published by Wiley in 2019. His web site is http://www.larrysiegel.org and he may be reached at [email protected] The author thanks Steve Sexauer for his generous contribution of editorial time.

¹ “Obama’s Way” was a long-form magazine article that Lewis wrote for Vanity Fair (September 2012) after having had six months of access to Obama, who was president at the time.

² For example, George Melloan, reviewing The Fifth Risk in The Wall Street Journal (October 5, 2018), points out that “the U.S. managed to get along without an Energy Department for 188 years until 1977, when Jimmy Carter created it in response to an ‘energy crisis’ brought on by federal price controls.” He’s right, but we did have an Atomic Energy Commission (not Cabinet-level). He’s also right to be concerned that agencies tend to grow in size and cost over time. This is because the political constituency for growth of the agency is concentrated and motivated while the constituency for restraint in growth is diffuse and has other concerns. https://www.wsj.com/articles/the-fifth-risk-review-managing-the-unmanageable-1538433119

³ This divide goes back to President Theodore Roosevelt, who wanted both approaches implemented. John Muir persuaded Roosevelt to greatly expand the National Park Service and Gifford Pinchot was made head of the newly created Forest Service.

⁴ Larson, Erik. 1999. Isaac’s Storm: A Man, a Time, and the Deadliest Hurricane in History. New York: Vintage Books.

⁵ Renaissance Technologies has been, but is no longer, a client of my consulting firm.

⁶ It is the TCP-IP 7-layer protocol stack that makes a packet a packet.

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