Spend Trillions To Find Out How Much We Save &Up On A Cloud!

A lot of times I get comments from readers but no one had anything to say about Dave Barry's tongue in cheek year end review. I thought it hilarious and if you did not take the time to read it I urge you do so. It was the last posting in the memo entitled: "Ryan and Cantor The Republican Voices of The Future." dated 1/6.

I love clever, pungent satire.
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According to Kim Strassel, Harry Reid may have set his Party up to sustain death by saying no to a thousand cuts! Kim will be in town on Feb 21 to speak at a fund raiser dinner. What a bright, delightful young lady. (See 1 below.)
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A dear friend and fellow memo reader insisted I learn about cloud computing. In Friday's WSJ there was an entire series of articles on cloud computing. I do not understand all the ramifications but do understand that CC provides access to enormous amounts of information more quickly and at little, if any, cost increase and possibly even at a huge cost saving .

The article below sheds more light and thus may clear away some of the clouds. (See 2below.)
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Smoke and mirrors and Obama's mythical savings claim.

True to form, Nancy Pelosi now says we first must spend trillions to find out how much we save. (See 3 and 3a below.)
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Many years ago on the Fibber McGee radio program Al Pierce was a vacuum salesman and he would knock on a prospect's door and say: "I hope, I hope, I hope." The audience would explode laughing. Corny stuff by today's standards because our humor has gotten so much more sophisticated and vulgar but our ability to go into debt has also exploded leaving less and less hope. (See 4 below.)
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Having served on The President's Commission on White House Fellowships I was privileged to meet and interview many military candidates who were deemed general officership material. They were an outstanding group of truly bright and highly educated men and women.

That the military is having trouble retaining them is a national tragedy. (See 5 below.)
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I have just finished reading Michael's Lewis': "The Big Short." It is the story of the sub-prime, CBO collapse and many of the key players. I happened to have worked with three, one of whom I actually hired and who was somewhat part of the team I created.

I always thought Wall Street, which supposedly advised investors on who were the best run companies in America, were themselves run mostly by idiots with big egos.

In my fifty years on 'The Street,' I lived through some interesting times and I would be the last to defend the ethics or lack thereof of Wall Street firms. For many it was a game and winding up with the most chips was the end goal. On the other hand, some of the finest, hardest working and most creative people are employed in those cavernous buildings known as Wall Street and I had the distinct privilege to know and work with many of them.

Making money, which can lead to power, acts as a magnet and attracts all types just as in the seamy world of politics.

I never had the guts or arrogance that it took to rise to the top and I even predicted, in a letter to the president of one of my former firms, that we would not survive. It came as a result of attending a New York sales presentation made by one of the legendary giants of Wall Street - who went to jail - who said we were part of what was becoming a Dynasty. I went home and wrote a letter to the president of my firm in which I stated I was just a country boy and the only Dynasty I could relate to was Linda Evans, the beautiful woman starring in the TV show by that same name. Within less than a month our firm was on the way down down hill and five months later closed its doors. We had been a great firm but we allowed one man to bring us down because he was making us so much money and making us so powerful.

My educational background and experience on Wall Street, colors, and probably distorts, my view about those who believe they can drink their own bath water. It is why I distrusted Obama from the git go and still do. He is as out of his element as the discredited CEO's of some of the great Wall Street firms and defunct corporations (Fannie and Freddie come to mind) that are held together by The Fed's bailing wire.

I admit I am no genius but I am logical enough to understand we have allowed our nation to be destroyed by those who truly believed they could continue to in-debt our nation for perhaps well intentioned programs that consistently failed to deliver as promised and/or theorized.
Again, I believe there are those in the current Administration who intend harm to our nation and who believe America is an evil force in the world and that we should be brought down a peg or two.

Scratch beneath a cheapened currency and you will find a crumbling society. It did not take long for two brilliant professors to place over leveraged bets on a flawed thesis to bring Wall Street to its knees and cause The Fed to rush in with fire hoses filled with greenbacks. And so it is again The Fed is flooding the system with money, bailing out entities to big to be allowed to fail because we got tired of the Glass Stegall Act, allowed unethical and corrupt politicians to get in bed with companies their committees were charged to exercise oversight over and the complexities of Wall Street financial creations that went beyond the comprehension of Federal Regulatory authorities who were asleep and remain so to this very day.

And lest we forget about the golden parachuted executives who destroyed their companies and jobs of their employees who were ably assisted by thuggish and corrupt union bosses.

We are being told our economy has stabilized and is starting a recovery and I suspect that is a reasonable snap shot of where we are. My concern is that we have no clear way out of our enormous debt obligations and unemployment is likely to remain abnormally high for the rest of this decade. If I am correct in this assumption, where does sharply higher consumer demand come from and particularly if inflation rises and further erodes buying power?

Furthermore, if those in the 112th Congress do have the will and plausible ideas to right the ship of state will the American people stand still and allow themselves to be weaned off the Government's teat?

This president has made a cause out of pitting American against American, class against class and race against race. Today's tragic episode reflects the anger and frustration that walks our streets. My earlier posting of George Friedman's thoughts come to mind. Can we retain our Republic as our nation resizes, our middle class is put to the test and Capitalism is challenged?

I , for one, am willing to give the Ryan's and Cantor's et al their chance because their message is plausible and accords with my own sense of what is called for but I suspect the system will not allow them to succeed because of the philosophical schism/chasm that exists.

2011 is shaping up to be a momentous and critical one. Frankly I have no idea how it will end so I just hold my breath, keep reading and trying to inform myself so I can logically think and pick my way through the land mines.
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Dick
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1)The New Party of No Majority Leader Harry Reid will soon be blocking, obstructing or deterring nearly all the reforms the Republican House sends to the Senate.
By KIMBERLEY A. STRASSEL

Senate Majority Leader Harry Reid may yet rue the day he helped popularize the phrase "The Party of No." It never did stick to Republicans. But it may be about to become a very catchy description for the Democratic Party.

This week's news is the incoming House GOP majority and its sweeping reform plans. Next week's news (and the news for most weeks thereafter) will likely be the many ways Mr. Reid goes about killing those reforms. Day after day, week after week, the House will be sending to the Senate bipartisan bills to cut spending, to make smart fixes to ObamaCare, and to rein in the federal government. And day after day, week after week, Mr. Reid will likely be cementing his party's reputation for blocking, obstructing and deterring nearly every one of them.

If that's the road he travels, the label will stick this time. Democrats were unable to tar Republicans as the "Party of No" for a simple reason: The American public wanted the GOP to halt the Obama agenda. As Senate Minority Leader Mitch McConnell famously noted, "It depends on what you are saying 'no' to."

In this case, Mr. Reid—the public face of his party—will be saying no to exactly the reforms Americans voted for in the midterms. If Mr. Reid is wondering what happens to Senate Democrats who condemn popular reforms to the legislative graveyard, he could call Tom Daschle. The one-time majority leader lost his own seat in 2004 after his constituents tired of his obstructionism.

Mr. Reid isn't up for re-election in 2012, but 23 members of his caucus are. A chunk hail from red states; a bigger chunk won their states only narrowly in 2006. Most had the Cheez Whiz scared out of them by the recent midterms, and their priority is retaining their jobs. As Missouri's Claire McCaskill noted recently, any Senate Democrat who claims not to be worried about 2012 ought to be hooked to "a lie-detector machine."

They know what's coming. The focus right now is on the comprehensive repeal of ObamaCare that House Republicans will pass next week. Mr. Reid will kill the repeal, and most Senate Democrats will support him. What gives the vulnerable Senate 23 the willies is what follows.

Once full repeal goes nowhere, House Republicans (joined by some Democrats) will begin sending the Senate smaller repeal bills. The House will pass legislation getting rid of the highly unpopular individual mandate. It will axe unpopular, punitive health-care regulations on business. It will roll back unpopular ObamaCare taxes. Nervous Senate Democrats are already running for cover. Ms. McCaskill this week said she'd consider joining Republicans to scrap the individual mandate if it could be replaced with a "viable" alternative.

And so it will go. House Republicans will send the Senate a weekly spending cut measure. They will send micro-targeted bills to stop job-killing EPA rules, to provide tax relief, to cut back regulations, to reform the worst parts of the Dodd-Frank Wall Street law. The bills will directly relate to jobs in the home states of many vulnerable Democrats, who will be under enormous pressure to get on board.

Their support may, paradoxically, make it less likely Mr. Reid brings any of the bills up for a vote. For every vulnerable 2012 member, Mr. Reid has a safe liberal member demanding he not bend. More notably, he's got a president to keep in the White House. And Mr. Obama remains vehemently opposed to most GOP reforms.

If Mr. Reid does let GOP reforms proceed, some Democrats will join Republicans in voting for them. That puts President Obama in the embarrassing position of having to veto "bipartisan" legislation. The president is counting on Mr. Reid not to let this happen, to be his veto pen, and Mr. Reid's own philosophical inclinations qualify him for that role. And so even as the House GOP basks in the glow of its new, more transparent rules, Mr. Reid will be resorting to all manner of filibusters and procedural tricks to prevent Senate Republicans from forwarding any measure or amendment that could attract Democratic support.

That isn't to say there won't be compromises. Mr. Obama knows it is in his interest to choose areas of cooperation. The White House has already agreed changes are necessary for ObamaCare's 1099 tax reporting requirements. It will probably pick some individual spending cuts to support. This week it floated the idea of a corporate tax reduction compromise. All of these will be a green light for Mr. Reid to hold votes.

But these areas of cooperation will be swamped by the flood of House measures Mr. Reid will likely bury. He will try to blunt the headlines by driving the administration's own agenda out of the Senate. Then again, it isn't clear Mr. Reid knows what that agenda is. Come Monday, the Senate is already going on a two-week recess.

Barring a more dramatic White House shift to the middle, the ground is being laid for the president and the majority leader to hold hostage all manner of legislation that will have the support of the public and bipartisan majorities. It won't be all Democrats who are responsible, but it will be all Democrats tagged as the new "Party of No."
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2)Bye-Bye, PCs and Laptops
Smart phones and tablets will soon handle the majority of our personal computing needs.
By MIKE MALONE AND TOM HAYES


As inflection points go, the Consumer Electronics Show that kicked off yesterday couldn't be sending a clearer signal: The era of the personal computer is drawing to a close. For an industry gathering that once showcased each new generation of desktop and laptop, this year's show is buzzing with every imaginable flavor of tablet, smart phone and mobile appliance. Welcome to the age of mobile computing.

While personal computers are not going to disappear altogether, the trend lines are clear. Gartner, the market research company, predicts that by 2013 the number of smart phones will surpass PCs, 1.82 billion to 1.78 billion. And that's not counting the tablets. Gene Munster, an analyst with the global investment bank Piper Jaffray, estimates that Apple iPad sales were 14.5 million for 2010, with another million tablets sold by competitors. Sarah Rotman Epps at Forrester Research predicts that 82 million Americans will be using tablets by 2015.

Access to the Internet—a key indicator of consumer behavior—by mobile devices also is on a strong uptick. According to a report by the Pew Research Center's Internet and American Life Project, 59% of Americans accessed the Internet on their phones last year, up from 25% the previous year. The Chinese government recently reported that nearly 300 million Chinese residents now access the Internet via mobile phones. Comcast announced on Wednesday that it would deliver cable television to the iPad and similar Android tablets later this year.

Why have smart phones and tablets succeeded when so many past challengers to the PC have failed? There are several reasons:

• Computing Power. The personal computer has hung on so long because there was no ready alternative. In the last three years, that changed. A new generation of low-power (crucial to long battery life), gigahertz-class processors, combined with high data-transmission speeds (3G, now 4G LTE), high-resolution LCD displays, and nearly a half-million new software applications have suddenly made mobile devices as good as, and in some cases even better than, their PC counterparts.

• Cannibalization. The super-integration of the chips that power smart phones has enabled these do-all devices to systematically replace a bevy of other consumer standbys, from photo and video cameras to GPS devices, music players and hand-held videogame players. There is a strong undercurrent to all this: We live in the physical world, where limitations on space and attention perpetually push us toward adopting a few essential and irreplaceable devices in our lives.

• Competition. In the PC industry, competition has largely been reduced to distribution efficiencies and price. But the explosive development of the smart-phone industry is fueled by wide-open rivalry between new product designs and even different visions of what the technology can become.

The arms race between feature-phone product lines adding functionality (Nokia, Motorola, et al.), secure communications devices for professionals (such as RIM's BlackBerry), visual interface-driven multi-purpose devices (Apple's iPhone and iPad), and open-system platforms for multiple hardware developers (Google's Android operating system for tablets and phones) has spurred each player to new heights. In the case of the iPhone, Apple has even created a powerful new business model, consumer-created applications, that has revolutionized the software industry and produced one of the greatest outpourings of private/corporate innovation ever seen.

• Creatives. The truism in tech is that if you want to know what's the hottest industry, watch where the smartest young people are gravitating. Today it's mobile. Millions of bright people, young and not so young, have brought their talents to the mobile world, introducing as many new software programs in a few months as were devised by the computer industry in its first half-century.

• Community. Social media such as Facebook, Twitter, Qik and Foursquare are making the mobile Internet increasingly more important. It's hard to share life's moments in real time if you must be tied to a desk to communicate.

• The Cloud. Data is migrating from personal computers to a global mesh of shared servers. Storing files and photos online and using Web-based email obviates the need to lug your life around with you. Access to the cloud turns a tablet or smart phone into a virtual supercomputer. Storage demands will rise dramatically, but what was once stored on PCs will be redistributed to disk drives in data servers and home and office media lockers.

• Clients. Tablets and smart phones will soon act as a sort of detachable thin client, delivering a fully operational, virtualized desktop or media center to any screen in the home, office or car. Instead of toting a laptop around, a user can simply plug one of these mobile devices into a docking station and turn any size monitor or tablet into a computer, or a TV into a media center.

• Culture. We want to be mobile, yet we still want to remain connected to the people and things we care about. Nothing currently fulfills that psychic hunger better than a fully-loaded tablet or smart phone in your pocket. There's also an inherent appeal to the culture of these devices: Compare the dry utility of a personality-free PC to the candy-colored array of app icons on the iPad user interface. Which one you would like to wake up to every day?

Mr. Malone is a journalist based in the Silicon Valley. Mr. Hayes is a vice president of Marvell Semiconductor, a manufacturer of high performance processors.
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3)ObamaCare's Reality Deficit
If you believe that a new entitlement saves money, you'll believe anything.

Of all the claims deployed in favor of ObamaCare, and there are many, the most preposterous is that a new open-ended entitlement will somehow reduce the budget deficit. Insure 32 million more people, and save money too! The even more remarkable spectacle is that Washington seems to be taking this claim seriously in advance of the House's repeal vote next week. Some things in politics you just can't make up.

Terminating trillions of dollars in future spending will "heap mountains of debt onto our children and grandchildren" and "do very serious violence to the national debt and deficit," Nancy Pelosi said at her farewell press conference as Speaker. Health and Human Services Secretary Kathleen Sebelius chimed in that "we can't afford repeal," as if ObamaCare's full 10-year cost of $2.6 trillion once all the spending kicks in is a taxpayer bargain.

The basis for such claims, to the extent a serious one exists, is the Congressional Budget Office's analysis this week of the repeal bill, which projects it will "cost" the government $230 billion through 2021. Because CBO figures ObamaCare will reduce the deficit by the same amount, repealing it will supposedly do the opposite. The White House promptly released a statement saying repeal would "explode the deficit."

Meanwhile, other Democrats have taken up arms about House procedure. The GOP adopted a budget rule that says repeal doesn't have to be "paid for," and the press corps is treating this exemption as a scandal against Washington decency.

In a memo, the inimitable Pete Stark spied a GOP plot "to shove through a massive bill"—the repeal measure is all of two pages—while Henry Waxman and other outgoing committee chairmen shook with outrage about "an offense to good government."

Republicans ran on "transparency in government and more fiscal responsibility," they wrote recently, and now here they are bringing "major legislation to the floor without any public hearings and without paying the trillion dollar cost of repeal. . . . The contrast between the approach the Republican leadership is proposing and the open process the Democrats followed last Congress is stark."

It sure is. Ten months ago, Democrats used a partisan majority to narrowly defeat bipartisan opposition and pass a national health-care program that a majority of the public opposed and continues to oppose today. Gallup reported yesterday that Americans favor repeal, 46% to 40%. Among the worst Democratic abuses was gaming the CBO's budget conventions to make it seem as if ObamaCare "saves" money.

The accounting gimmicks are legion, but we'll pick out a few: It uses 10 years of taxes to fund six years of subsidies. Social Security and Medicare revenues are double-counted to the tune of $398 billion. A new program funding long-term care frontloads taxes but backloads spending, gradually going broke by design. The law pretends that Congress will spend less on Medicare than it really will, in particular through an automatic 25% cut to physician payments that Democrats have already voted not to allow for this year.

The CBO budget gnomes are required to "score" what's on paper in front of them, no matter how unrealistic, and that's the method its Congressional masters prefer. The political class makes believe that CBO's forecasts are carved into stone tablets through divine revelation, but all they really show is that politicians have rigged the budget rules to hide the true cost of entitlements.

Anyone in search of economic or fiscal reality will have to turn to other sources. Two particular ObamaCare heroes are Richard Foster, the chief Medicare actuary with the courage to publish more honest analyses, and Paul Ryan, the Wisconsin Republican who is the most fluent scourge of ObamaCare's book-cooking, including in a debate last year in which President Obama had no response to his critique.

We also single out the economists Doug Holtz-Eakin, a former CBO director, and Eugene Steuerle, of the Urban Institute. Both have been voices in the wilderness about the incentives ObamaCare creates for businesses to drop coverage and dump their employees into "free" coverage, which really will "explode the deficit" far more than CBO projects.

But our core appeal isn't to this technical detail or that underlying assumption. It's to common sense. Amid the repeal debate, Democrats and the media are behaving as if they have no knowledge of Congress's habits or the history of government health-care programs over the last half-century. Entitlements are always sold as modest and "paid for," then years later everyone suddenly discovers that they are "unaffordable" without digging deeper into the pockets of the middle class. How do you think Medicare and Medicaid got to their current pass?

The government can't subsidize coverage for tens of millions of new people and simultaneously reduce the deficit, as most Americans seem to intuitively understand. The real offense Republicans are committing in the eyes of Washington is exposing its illusions.


3a)The CBO's Fuzzy ObamaCare Math
Of course raising taxes and slashing Medicare will make the deficit look smaller By BETSY MCCAUGHEY

Defenders of ObamaCare have seized upon a Jan. 6 letter from the Congressional Budget Office (CBO) to House Speaker John Boehner alleging that repeal would "increase the deficit." Don't be bamboozled. When big spenders call for "deficit reduction," they mean raising your taxes. That is what ObamaCare does.

The CBO letter says that the health law spends $780 billion in the next decade and pays for it by raising taxes and fees by $410 billion, and by reducing future Medicare funding by $500 billion. The CBO argues that the law raises more money ($910billion) than it spends, but that is hardly sufficient reason to keep it, or any law.

Projections from another federal agency—the Centers for Medicare & Medicaid Services (CMS)—fill in the grim picture on what ObamaCare will do. The CMS figures, released Sept. 9, show that if you buy your own health plan, you will have to pay more every year than you would have if the law hadn't passed.

Amazingly, only 3% more people will have private health insurance in 2014 than would have it if the law hadn't passed. But a staggering 85.2 million people will be on public insurance—Medicaid and the State Children's Health Insurance Program, or S-CHIP. That's 31% of non-elderly Americans. The new health law is pushing the U.S. toward a European-style welfare state, making more people dependent on government, instead of on themselves, and undermining incentives to work. The new law stipulates that Medicaid must provide the same health benefits that employers will have to provide for their workers.

To expand Medicaid, the law eviscerates Medicare. It's like robbing Peter to pay Paul, only it's robbing Grandma and Grandpa. The CMS shows that in 2019 the Obama health law reduces annual Medicare funding so much that it works out to $1,428 less for each elderly patient that year. Richard Foster, chief actuary for Medicare, has spoken with brave bluntness about the possible impact, warning that some hospitals may stop accepting Medicare. Where will seniors go?

Government projections are notoriously unreliable, but by the CBO's own numbers repeal would reduce government spending, lower taxes, and restore Medicare funding. Most important, repeal would protect your freedom and your medical care. The Obama health law lowers your standard of care, puts government in charge of your care, and shreds your constitutional rights—dangers these government projections do not address.

Ms. McCaughey is chairman of the Committee to Reduce Infection Deaths and a former lieutenant governor of New York state.
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4)Georgia Facing a Hard Choice on Free Tuition
By Kendrick Brinson for The New York Times

Students here at the University of Georgia have a name for some of the fancy cars parked in the lots around campus. They call them Hopemobiles. But there may soon be fewer of them.

The cars are gifts from parents who find themselves with extra cash because their children decided to take advantage of a cherished state perk — the Hope scholarship. The largest merit-based college scholarship program in the United States it offers any Georgia high school student with a B-average four years of free college tuition.

But the Hope scholarship program is about to be cut by a new governor and Legislature facing staggering financial troubles.

The lingering effects of the recession and the end of federal stimulus funds have sunk many states into a fiscal quagmire. The seriousness of the problem, and a growing concern over how much worse it might become, have many states struggling to find ways to trim services or raise revenues.

In Georgia, that means taking a slice out of the Hope scholarship.

When it was begun in 1993, the program was covered easily by Georgia’s state lottery. Politicians enjoyed how happy it made middle-class constituents. Educators praised the way it improved SAT scores and lifted Georgia from the backwaters of higher education.

It was considered so innovative that 15 states copied it. And while the lottery-based scholarship programs in states like Tennessee are dipping into reserves to cover the costs, none have fiscal woes as big as Georgia’s.

Part of it is the program’s popularity. A majority of freshmen in Georgia have grades good enough to qualify for Hope, which covers tuition, some books and fees — but not housing costs — at any Georgia university or technical school.

And even though as many as two-thirds of Hope students let their college grades slip so much that they no longer qualify — “I’ve lost Hope,” they joke when it happens — Georgia still gives away more financial aid per student than any other state. Since the program started, 1.3 million Georgia students have received a total of $5.6 billion in educational support. The program offers as much as $6,000 a year for some students.

But the program has become so popular it cannot sustain itself. Lottery sales, which by law can pay for only the Hope scholarship and a free prekindergarten program, will be short $243 million this fiscal year and as much as $317 million the next, according to state budget estimates.

Last year, lawmakers had to pull millions of dollars from the state’s reserve fund just to cover the cost. But this year, there is nowhere to turn.

Like the other states that are facing the worst fiscal crisis in recent memory, Georgia heads into its legislative session next week staring at a budget deficit of as much as $2 billion. And that is after billions of dollars in cuts over the past two years that have reduced the state’s spending power to $17.9 billion for fiscal year 2011.

But trim the program that for years has paid to educate the children of the most reliable voters in the state?

“Undoubtedly, this is, in every sense of the word, a very strongly ingrained entitlement for a certain segment of voters, and politicians are indeed reluctant to touch it,” said Christopher Cornwell, a professor of economics at the University of Georgia, who has studied the effect of the Hope scholarship on the state, including an analysis of the positive impact the scholarship has had on car sales.

Politicians are hoping for mercy as they begin this month to make decisions that will surely have the parents of college-bound students scrambling to find new ways to pay for tuition.

“We trust and we hope the people in the state of Georgia understand the position we’re in,” said State Representative Len Walker, a Republican who leads the House Higher Education Committee.

They do and they don’t.
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5)Why Our Best Officers Are Leaving
Why are so many of the most talented officers now abandoning military life for the private sector? An exclusive survey of West Point graduates shows that it’s not just money. Increasingly, the military is creating a command structure that rewards conformism and ignores merit. As a result, it’s losing its vaunted ability to cultivate entrepreneurs in uniform.
By Tim Kane


John Nagl still hesitates when he talks about his decision to leave the Army. A former Rhodes Scholar and tank-battalion operations officer in Iraq, Nagl helped General David Petraeus write the Army’s new counterinsurgency field manual, which is credited with bringing Iraq’s insurgency under control. But despite the considerable influence Nagl had in the Army, and despite his reputation as a skilled leader, he retired in 2008 having not yet reached the rank of full colonel. Today, Nagl still has the same short haircut he had 24 years ago when we met as cadets—me an Air Force Academy doolie (or freshman), him a visiting West Pointer—but now he presides over a Washington think tank. The funny thing is, even as a civilian, he can’t stop talking about the Army—“our Army”—as if he never left. He won’t say it outright, but it’s clear to me, and to many of his former colleagues, that the Army fumbled badly in letting him go. His sudden resignation has been haunting me, and it punctuates an exodus that has been publicly ignored for too long.

Why does the American military produce the most innovative and entrepreneurial leaders in the country, then waste that talent in a risk-averse bureaucracy? Military leaders know they face a paradox. A widely circulated 2010 report from the Strategic Studies Institute of the Army War College said: “Since the late 1980s … prospects for the Officer Corps’ future have been darkened by … plummeting company-grade officer retention rates. Significantly, this leakage includes a large share of high-performing officers.” Similar alarms have been sounded for decades, starting long before the wars in Iraq and Afghanistan made the exit rate of good officers an acute crisis. When General Peter Schoomaker served as Army chief of staff from 2003 to 2007, he emphasized a “culture of innovation” up and down the ranks to shift the Army away from its Cold War focus on big, conventional battles and toward new threats. In many respects (weapons, tactics, logistics, training), the Army did transform. But the talent crisis persisted for a simple reason: the problem isn’t cultural. The military’s problem is a deeply anti-entrepreneurial personnel structure. From officer evaluations to promotions to job assignments, all branches of the military operate more like a government bureaucracy with a unionized workforce than like a cutting-edge meritocracy.

After interviewing veterans who work at some of the most dynamic and innovative companies in the country, I’m convinced that the military has failed to learn the most fundamental lessons of the knowledge economy. And that to hold on to its best officers, to retain future leaders like John Nagl, it will need to undergo some truly radical reforms—not just in its policies and culture, but in the way it thinks about its officers.

All They Can Be?

It would be easy to dismiss Nagl’s story, except you hear it almost every time you talk to a vet. In a recent survey I conducted of 250 West Point graduates (sent to the classes of 1989, 1991, 1995, 2000, 2001, and 2004), an astonishing 93 percent believed that half or more of “the best officers leave the military early rather than serving a full career.” By design, I left the definitions of best and early up to the respondents. I conducted the survey from late August to mid-September, reaching graduates through their class scribes (who manage e-mail lists for periodic newsletters). This ensured that the sample included veterans as well as active-duty officers. Among active- duty respondents, 82 percent believed that half or more of the best are leaving. Only 30 percent of the full panel agreed that the military personnel system “does a good job promoting the right officers to General,” and a mere 7 percent agreed that it “does a good job retaining the best leaders.”

Is this so terrible? One can argue that every system has flaws and that the military should be judged on its ultimate mission: maintaining national security and winning wars. But that’s exactly the point: 65 percent of the graduates agreed that the exit rate of the best officers leads to a less competent general-officer corps. Seventy-eight percent agreed that it harms national security.

The shame of this loss of talent is that the U.S. military does such a good job attracting and training great leaders. The men and women who volunteer as military officers learn to remain calm and think quickly under intense pressure. They are comfortable making command decisions, working in teams, and motivating people. Such skills translate powerfully to the private sector, particularly business: male military officers are almost three times as likely as other American men to become CEOs, according to a 2006 Korn/Ferry International study. Examples abound of senior executives who attribute their leadership skills to their time in uniform: Ross Perot, Bill Coleman, Fred Smith, and Bob McDonald, the new CEO of Procter & Gamble, to name a few. The business guru Warren Bennis reflected in his recent memoirs, “I never heard anything at MIT or Harvard that topped the best lectures I heard at [Fort] Benning.”

Why is the military so bad at retaining these people? It’s convenient to believe that top officers simply have more- lucrative opportunities in the private sector, and that their departures are inevitable. But the reason overwhelmingly cited by veterans and active-duty officers alike is that the military personnel system—every aspect of it—is nearly blind to merit. Performance evaluations emphasize a zero-defect mentality, meaning that risk-avoidance trickles down the chain of command. Promotions can be anticipated almost to the day— regardless of an officer’s competence—so that there is essentially no difference in rank among officers the same age, even after 15 years of service. Job assignments are managed by a faceless, centralized bureaucracy that keeps everyone guessing where they might be shipped next.

The Pentagon’s response to such complaints has traditionally been to throw money at the problem, in the form of millions of dollars in talent-blind retention bonuses. More often than not, such bonuses go to any officer in the “critical” career fields of the moment, regardless of performance evaluations. This only ensures that the services retain the most risk-averse, and leads to long-term mediocrity.

When I asked veterans for the reasons they left the military, the top response was “frustration with military bureaucracy”—cited by 82 percent of respondents (with 50 percent agreeing strongly). In contrast, the conventional explanation for talent bleed—the high frequency of deployments—was cited by only 63 percent of respondents, and was the fifth-most-common reason. According to 9 out of 10 respondents, many of the best officers would stay if the military was more of a meritocracy.

Entrepreneurs in Uniform

During World War II, German generals often complained that U.S. forces were unpredictable: they didn’t follow their own doctrine. Colonel Jeff Peterson, a member of the faculty at West Point, likes to illustrate this point using a parable about hedgerows. After the Normandy invasion in 1944, American troops found that their movements were constrained by the thick hedgerows that lined the countryside of northern France. The hedges frequently channeled American units into German ambushes, and they were too thick to cut or drive through. In response, “Army soldiers invented a mechanism on the fly that they welded onto the front of a tank to cut through hedgerows,” Peterson told me.

American troops are famous for this kind of individual initiative. It’s a point of pride among officers that the American way of war emphasizes independent judgment in the fog and friction of battle, rather than obedience and rules. Lieutenants, even corporals and privates, are trained to be entrepreneurial in combat. This emphasis doesn’t just attract inspirational leaders and efficient managers—it produces revolutionary innovators. From the naval officer Alfred Thayer Mahan, whose insights on sea power transformed warfare at the beginning of the 20th century, to General Billy Mitchell, the godfather of the Air Force, to General Petraeus, who’s now implementing his counterinsurgency strategy in Afghanistan, the U.S. military has a long and proud tradition of innovative thought.

Creativity of this sort is increasingly celebrated by economists who study growth, many of whom now believe that innovation is essentially the only factor that drives long-term increases in per capita income. Since innovation relies entirely on people—what economists call human capital— academics are showing more appreciation than ever for Joseph Schumpeter and his pioneering focus on entrepreneurship. Entrepreneurs, Schumpeter noted, take risks, experiment with new technologies and ideas, and bring about the “creative destruction” that enables capitalism to flourish. Likewise, martial progress relies on innovative officers, especially those who question doctrine and strategy.

But the Pentagon doesn’t always reward its innovators. Usually, rebels in uniform suffer at the expense of their ideas. General Mitchell was court-martialed for insubordination in 1925; and who can forget the hostile treatment afforded General Eric Shinseki in 2003 after he testified that “something on the order of several hundred thousand soldiers” would probably be required to stabilize post-invasion Iraq?

In a 2007 essay in the Armed Forces Journal, Lieutenant Colonel Paul Yingling offered a compelling explanation for this risk-averse tendency. A veteran of three tours in Iraq, Yingling articulated a common frustration among the troops: that a failure of generalship was losing the war. His critique focused not on failures of strategy but on the failures of the general-officer corps making the strategy, and of the anti-entrepreneurial career ladder that produced them: “It is unreasonable to expect that an officer who spends 25 years conforming to institutional expectations will emerge as an innovator in his late forties.”

Despite the turnaround in Iraq since engineered by General Petraeus and his allies, it is hard to escape the impression that the military has indeed become less hospitable to entrepreneurs at the strategic level in the past few decades. Schumpeter predicted that as capitalist economies evolved, innovation would become routinized in large organizations, obviating the need for individual entrepreneurs. Until the 1980s, this idea was widely accepted in corporate America, and certainly in the defense industry. But Schumpeter’s prediction was upended definitively when the knowledge economy evolved out of the industrial economy, and symbolically when Steve Jobs and Steve Wozniak started Apple Computer in a California garage. In America today, capitalism is entrepreneurial: our economy is defined by individuals failing or succeeding on the strength of their ideas. Crucially, the military has not recognized this shift. And the Army, in particular, has not changed from its “inefficient industrial era practices,” as a report by the Strategic Studies Institute put it last year. It still treats each employee as an interchangeable commodity rather than as a unique individual with skills that can be optimized.

It’s Not Business, It’s Personnel

The most blatantly anti-entrepreneurial aspect of the Army is the strict time-in-service requirement for various ranks. Consider the mandatory delay for becoming a general. Active-duty officers can retire after 20 years of service. But to be considered for promotion to general requires at least 22 years of service, and that applies to even the most talented and inspiring military officer in the nation.

John Nagl might have been that officer. His 2002 book, Learningto Eat Soup With a Knife, anticipated the kind of insurgency warfare America was likely to face in the new century, and it proved a prescient warning as the wars in Iraq and Afghanistan dragged on. After serving in Iraq, Nagl helped General Petraeus write the Army’s counterinsurgency doctrine in 2005 and 2006. Conventional wisdom holds that the “surge” broke Iraq’s insurgency the following year. But the surge was more than just the 30,000 or so additional soldiers and marines who were deployed. The key was instead a new emphasis on stability and development, inspired in large part by ideas laid out in Nagl’s book.

In 2008, Nagl hit the 20-year mark, and what happened? He retired. Since he was not yet a full colonel, let alone a general, it was clear that he could be more influential as a civilian. He is now the head of the Center for a New American Security, known in Washington as President Obama’s favorite think tank. Had he stayed in the Army, odds are he would have been a career colonel, or a professor at the Army War College. Now his work at CNAS regularly reaches the White House and the National Security Council. While I assumed the loss of Nagl would be seen as an outrage within the military, most officers I spoke to shrugged it off as typical.

The more experts I talked with, the more I realized that targeting one inefficient policy, like the time-in-service requirement, wasn’t going to work. I asked the survey respondents to grade different aspects of the military in terms of fostering entrepreneurial leadership, using a standard Athrough-F scale. The “recruitment of raw talent” received 12 percent A’s and 43 percent B’s. Formal training programs and military doctrine also got good marks. What emerged as the weakest area was personnel. The evaluation system received 51 percent D’s and F’s. Job assignments got 55 percent failing grades. The promotion system got 61 percent. And lastly, the compensation system received 79 percent D’s and F’s.

Simply put, if the Army hopes to stanch the talent bleed, it needs to embrace an entrepreneurial structure, not just culture. That doesn’t mean more officers who invent new weapons, but rather a new web of incentives rewarding creative leadership. The military has reinvented itself in this manner before. West Point’s Jeff Peterson recounted the standard story line of the Army’s soul-searching after Vietnam. After eight years of committing hundreds of thousands of soldiers to a war that was lost on many levels, the Army returned to a strategic comfort zone, with its leadership thinking about conventional wars instead of the messy counterinsurgency it had just muddled through. While this story isn’t wrong on the whole, Peterson argues that it ignores the radical transformations that took place in the 1970s. He pulled James Kitfield’s book Prodigal Soldiers from his bookshelf and encouraged me to read it.

Kitfield chronicles a revolution in that era in how the Army treated, organized, and trained its soldiers. No change was bigger than the adoption of an all-volunteer force in 1973. It was a radical idea at the time, so controversial that many in the Army expected it to fail, or even to destroy the military. Instead, the all-volunteer force served as the beginning of a renaissance in the ranks, across all the services, and paved the way for a newly professional military. Instead of staying in for just two years, enlistees now commonly stayed for five years, or 10, or a career. The Army started paying better and, more important, making investments in its human capital. But make no mistake, moving to a volunteer force was not an incremental reform. It was radical. This connection may explain why almost 60 percent of the West Point respondents favored “radical reform” of the personnel system.

Radical reform may not sound like much of a blueprint, but the all-volunteer force must be understood in terms of a philosophical shift: the military rejected centrally planned accessions in exchange for a market mechanism. Faced with having to attract and retain volunteers, the military filled its requirements for labor with the right price: better pay, better housing, better treatment, and ultimately a better career opportunity than it had ever offered.

A Market Alternative

Today’s Army requires a similar philosophical shift if it is to generate more-entrepreneurial leadership and start retaining its most talented officers. When presented with 10 proposed policy changes, the panel of West Point grads was strongly in favor of five, marginally in favor of three, split on one, and strongly against the last. Dead last was reauthorizing the draft instead of the all-volunteer force, a proposal that drew support from only 14 percent of respondents. So what did they think would help?

The Army should start by breaking down its rigid promotion ladder. The most strongly recommended policy, which 90 percent agreed with, is to allow greater specialization. Under the current system, company and platoon commanders are often “promoted” to staff jobs—that is, transferred from commanding troops in battle to working behind a desk on a general’s staff—even if they’d prefer to specialize in a lower-ranking position they enjoy. Rather than take an advancement they don’t want, many quit the Army altogether. Expanding early-promotion opportunities for top performers and eliminating year-group promotions also have strong support (87 and 78 percent, respectively). All of this might be hard to do while maintaining centralized management of rank and job assignments, but three-quarters of the panel favored ditching that system entirely in favor of an internal job market.

Indeed, an internal job market might be the key to revolutionizing military personnel. In today’s military, individuals are given “orders” to report to a new assignment every two to four years. When an Army unit in Korea rotates out its executive officer, the commander of that unit is assigned a new executive officer. Even if the commander wants to hire Captain Smart, and Captain Smart wants to work in Korea, the decision is out of their hands—and another captain, who would have preferred a job in Europe, might be assigned there instead. The Air Force conducts three assignment episodes each year, coordinated entirely by the Air Force Personnel Center at Randolph Air Force Base, in Texas. Across the globe, officers send in their job requests. Units with open slots send their requirements for officers. The hundreds of officers assigned full-time to the personnel center strive to match open requirements with available officers (each within strictly defined career fields, like infantry, intelligence, or personnel itself), balancing individual requests with the needs of the service, while also trying to develop careers and project future trends, all with constantly changing technological tools. It’s an impossible job, but the alternative is chaos.

In fact, a better alternative is chaos. Chaos, to economists, is known as the free market, where the invisible hand matches supply with demand. The Strategic Studies Institute report makes this very point. “Giving officers greater voice in their assignments increases both employment longevity and productivity,” it concludes. “The Army’s failure to do so, however, in large part accounts for declining retention among officers commissioned since 1983.”

Here is how a market alternative would work. Each commander would have sole hiring authority over the people in his unit. Officers would be free to apply for any job opening. If a major applied for an opening above his pay grade, the commander at that unit could hire him (and bear the consequences). Coordination could be done through existing online tools such as monster.com or careerbuilder.com (presumably those companies would be interested in offering rebranded versions for the military). If an officer chose to stay in a job longer than “normal” (“I just want to fly fighter jets, sir”), that would be solely between him and his commander.

Each of the four military branches is free to design its own personnel system, with minimal Pentagon interference. Yet each uses a similar centralized-planning department. It would take only one branch to lead the way by adopting the best practices of corporate America—where firms manage vast workforces by emphasizing flexibility, respect for individual talent, and executive responsibility. During my study, I surveyed ex-military officers at Citi, Dell, Amazon, Procter & Gamble, TMobile, Amgen, Intuit, and countless venture-capital firms. At every company, the veterans were shocked to look back at how “archaic and arbitrary” talent management was in the armed forces. Unlike industrial-era firms, and unlike the military, successful companies in the knowledge economy understand that nearly all value is embedded in their human capital.

I traveled to Silicon Valley to learn about the organizational design of firms there, and also to learn about the talent ecosystem. Nowhere is there a military-style 20-year retirement framework that distorts career decisions, and no one offers the security of lifetime employment. Instead, Silicon Valley attracts talent because it knows the importance of flexibility. Companies, unlike military units, are born and die out constantly, and the massive flow of labor across and within companies is highly turbulent. Not only can ambitious visionaries become top executives in half a decade, but employees can do the one thing they love for decades without worrying about getting “promoted” to management positions they don’t want. In the glassy buildings of Menlo Park, “being all you can be”—whether it’s coding C++, designing Web campaigns, or excelling in some other niche—isn’t just a slogan.

One Silicon Valley executive I spoke with, whom I’ll call Captain Smith, contrasted his time as a Marine company commander with his current job leading hundreds of employees, from software engineers to sales managers. Like other veterans in corporate America, he credits his military training with sharpening his leadership skills. But the analytical mind he uses to devise business models is just as sharp in assessing the military’s inept talent management. What’s the impact of merit on promotions in the Marines? “Virtually none,” says Smith. “On average, the best officers got out; the worst officers got out.” There are notable exceptions, he said. “But the larger trend I observed drives any organization toward mediocrity.”

When I asked him about Silicon Valley’s lessons for the military, he mentioned his firm’s internal market for matching engineers and projects, where the bottom line is that engineers rule. Team leaders have to advertise their projects and try to attract engineers, and it’s uncommon for an engineer to be told what he or she will do. Happier workers mean higher productivity. “I don’t want to oversimplify,” he says. “But this is about incentives and control.”

In contrast, only one in five of the West Point graduates thinks the Army today does a good job matching talents with jobs. And nearly two-thirds agree that using an evaluation system that singled out the best and worst members of a given unit—for advancement or release—would yield a more entrepreneurial leadership. Such a system, popularized by Jack Welch of General Electric, would give commanders better information, and also make personnel ratings a lot more useful than the politically correct write-ups in abundance now. It would also recast the personnel officers as headhunters, focused on giving advice, rather than orders, to job-seekers and to hiring commanders.

I asked Smith—a supremely tech-savvy, gung-ho leader—whether he would consider rejoining if the Marines recruited him to serve as a general officer, perhaps to command their cyber-security efforts. I anticipated that his resolute willingness to serve would offer a vivid contrast to the military’s closed-mindedness. But he surprised me. He thought quietly for a minute. Then, shaking his head, he said something much more damning: “I can’t see it,” the Silicon Valley marine said. “Even if they made that offer … I have no confidence that I could pierce the bureaucracy.”

Tim Kane is a senior fellow in research and policy at the Ewing Marion Kauffman Foundation and a former Air Force intelligence officer.
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