Troubled Times Blog

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2009-01-18T20:32:00.009-05:00

Troubled Times Blog has moved!

2009-01-18T20:05:00.003-05:00

After four-and-a-half years of using Google's somewhat limited (but free) Blogger, I am now publishing with WordPress 2.7. I think the customization, tools and templates are exponentially better over there, and I plan to keep this as its new home for the indefinite future.

So update your bookmarks, feed readers, etc. Troubled Times Blog is now being updated at www.stevenjosselson.com/blog!

Update: For now, I'm going to leave the blogroll, post archives and other content at this web page as well.

Signs of Life

2009-01-01T16:03:00.001-05:00

No, I haven't dropped off the face of the planet.

Lots of new posts on the way... I promise.

Apologizes for taking this unprecedented hiatus without offering a word of explanation, but I've been very busy playing with my 18-month old son and launching a new business venture.

Stay tuned!

I'm starting to think . . .

2008-11-04T21:37:00.008-05:00

A few things: First, my predictions here for the result of the Presidential election - from just a few months ago - are looking like they were very incorrect. Second, it is clearly the economy, especially the long-brewing and widely predicted global economic crisis that has changed the game. Third, while it is very important to recognize the extent to which Neo-liberalism has once again been revealed to be a disastrous and dangerous ideology, it is a little scary how quickly foreign policy has dropped off the radar. We are, after all, in the midst of fighting the War on Terror across the Middle East and Central Asia; engaged in an open-ended military occupation of Iraq and still battling al-Qae'da in Afghanistan.

This leads me to believe that Obama's foreign policy will be light-years ahead of Bush's lunacy, but will still need to be closely followed - and critiqued - by rational actors (and bloggers).

And I am not planning on changing the name of this blog any time soon, either.

What hath Alan "John Galt" Greenspan wrought?

2008-11-01T00:01:00.006-04:00

Daily Kos diarist "Devilstower" has a must-read post tracing the career of former Fed Chairman Alan Greenspan, from his early days as a member of Ayn Rand's Objectivist cult to considering his legacy. Namely, that would be his successful push to change this country's long-standing moneary policy by deregulating the securities industry ,which led to the current financial crisis.

An excerpt:

When Ford replaced Nixon, Greenspan became the chair of the Council of Economic Advisors. And when Reagan took power, Greenspan was no longer the voice crying in the wilderness, he was the very center of the establishment. Objectivism and Conservatism had united in Market Fundamentalism, and that force was on a jihad against regulation of any kind.

For the next thirty years, Greenspan would cheer the deregulation of the S&Ls and join John McCain in trying to protect Charles Keating from regulators. He would praise the deregulation of energy trading, and assure everyone that companies like Enron were pointing the way to greater efficiency and lower consumer prices -- and collect the 2000 "Enron Prize" in exchange. He would urge not only the creation of credit default swaps, but applaud their lack of regulation and invisibility in the system. He would argue against oversight, against limits on CEO pay, and for the increasingly complex systems by which banks generated new instruments of credit.

No one person did more to spread Rand's message of unregulated markets, unconstrained free trade, and unlimited power for corporate officers than Alan Greenspan.

If you were to asked to assign blame for the collapse of Neo-Keynesian economics as the governing ideology of the US, and the government oversight and fine-tuning that came with it, you would be hard-pressed to find a bigger culprit than Greenspan, with the only exception, of course, being Ronald Reagan. We really shouldn't be surprised by Greenspan's latest attempt to rehabilitate his legacy by loudly disowning the radical deregulation he rammed through.

Big Oil's Last Stand?

2008-10-29T22:00:00.010-04:00

The editors of think tank Foreign Policy In Focus (which is now a project of the Washington, DC-based Institute for Policy Studies) have been gracious enough to provide a meaty excerpt from Antonia Juhasz's latest book - The Tyrrany of Oil.

Also, check out the author's description of the book on its official website here. I plan on buying, reading and reviewing the book in its entirety in the near future.

I'm not going to bother excerpting a paragraph or two from the excerpt; if you're interested in oil geopolitics (and who isn't there days?) just click on the link and check out the official web page.

Update: I forgot to include a link to the non-profit she is currently working at, International Oil Change.

The financial crisis and 9/11

2008-10-29T21:52:00.003-04:00

Boston University Professor Neta Crawford offers up five predictions about how the global economic crisis and US military spending will intersect and suggestions for how the American government could prevent them from becoming inevitable:

First, a no-brainer: the U.S. budget will need to be cut to pay for the "rescue." Unless we can mobilize a strong counterweight, the cuts will mainly come from domestic programs — education, health, alternative energy, infrastructure improvements. There may be cosmetic cuts to some military programs.

Military spending will continue to be essentially unproductive but its share of government spending may grow. The military spending that focuses on healthcare and education for veterans is "productive," but that may suffer in this climate. We must push for meaningful military budget cuts. For instance, we might argue for a commission on closing U.S. overseas military bases. We should argue for cutting military programs like missile defense, which are both destabilizing and wasteful.

Americans will remain afraid — and rightly so. Homeland security is, in a word, a mess. Current U.S. foreign policy results in too many accidental killings of Afghan, Pakistani, and Iraqi civilians, and creates more resentment abroad. Economic anxiety will feed into feelings of insecurity.

There will be pressure to approve any program that is said to create jobs, including programs to sell military equipment and nuclear technology overseas. We've seen it already. The long-term counterproductive aspects of these programs will be deemphasized. We need to resist the jobs-at-any-cost mantra and emphasize not only how military spending is less productive than other modes of spending, but also how military and technology export programs have a tendency to "blow back."

As after 9/11, American leaders will likely become even more cautious about domestic and foreign policy. Our "leaders" will hunker down, think small, and point fingers. Unless we can mobilize a dramatic rethinking of U.S. foreign policy, it will likely remain much the same no matter who is in the White House. Now is the time to push for creative solutions and stress the need for big thinking. We need to stress how the conventional wisdom has been wrong, not only on U.S. foreign policy but also on the environment, health care, education, and energy. The progressive community needs to continue to be farsighted, proactive, and bold.

Character assassination, GOP style

2008-10-29T16:54:00.006-04:00

The New Yorker's Hendrik Hertzberg takes a quick look at the McCain campaign's sustained efforts to brand Barack Obama as a Muslim sympathizer, a terrorist sympathizer, a community organizer (which he actually was) and most recently . . . a socialist.

This is such a ridiculous charge to make that it is clear most of the conservatives that are jumping in on the bandwagon must realize the intellectual bankruptcy of their collective rhetoric. At least McCain acknowledges the fact that all this loose talk has no basis in reality.

After all, one of the biggest industries contributing to Obama's campaign has been the large investment banks, along with their high-flying brethren in the world of hedge funds.

Alternatively, one could look at economic platform he has been campaigning on for the past 18 months, or his legislative record as a State Senator and Senator. And perhaps the most delicious irony is the fact that at this very moment that the Treasury is implementing a bipartisan “rescue package” aimed at redistributing taxpayer wealth . . . to prop up the securities industry. A plan supported by Candidate McCain as well as Candidate Obama.

And as Hertzberg points out:

For her part, Sarah Palin, who has lately taken to calling Obama "Barack the Wealth Spreader," seems to be something of a suspect character herself. She is, at the very least, a fellow-traveller of what might be called socialism with an Alaskan face. The state that she governs has no income or sales tax. Instead, it imposes huge levies on the oil companies that lease its oil fields. The proceeds finance the government's activities and enable it to issue a four-figure annual check to every man, woman, and child in the state. One of the reasons Palin has been a popular governor is that she added an extra twelve hundred dollars to this year's check, bringing the per-person total to $3,269.

A few weeks before she was nominated for Vice-President, she told a visiting journalist—Philip Gourevitch, of this magazine—that "we're set up, unlike other states in the union, where it's collectively Alaskans own the resources. So we share in the wealth when the development of these resources occurs." Perhaps there is some meaningful distinction between spreading the wealth and sharing it ("collectively," no less), but finding it would require the analytic skills of Karl the Marxist.

Hypocrisy, thy name is McCain-Palin.

Obama and McCain's (not so) radically different foreign policy advisors

2008-10-23T13:06:00.010-04:00

Foreign policy journalist and blogger Jim Lobe, writing in IPS News:

McCain identifies closely with the unilateralist instincts and Manichean worldview of the coalition of Israel-centred neo-conservatives and aggressive nationalists who dominated the first term of President George W. Bush's administration and place a premium on military power, as opposed to diplomacy or other forms of "soft power".

Indeed, McCain is surrounded by advisers, such as his main foreign policy spokesman, Randy Scheunemann, from both traditions. But he reportedly also consults closely with their nemeses, the foreign policy "realists", most notably former secretaries of state Henry Kissinger, Lawrence Eagleburger, James Baker, and Richard Armitage, who served as deputy secretary of state under Colin Powell. While not shy about using military power or acting unilaterally as a last resort, they place greater emphasis on diplomacy and working with other countries to further U.S. national interests.

Obama, on the other hand, is generally seen as grounded in the "liberal internationalist" school, whose founding is credited to President Woodrow Wilson and which became the basis for the U.S.- and western-led multilateral order -- presided over by the United Nations, the two Bretton Woods institutions, and an embryonic World Trade Organisation -- elaborated in large part by President Franklin Roosevelt in the waning days of World War II.

However . . .

[A] number of influential realists, most recently Bush's first-term secretary of state, Gen. Colin Powell, have come out in strong support of Obama and are also found among his top advisers.

Indeed, the candidate has himself extolled as a model the foreign policy record of former President George H.W. Bush's administration -- widely considered the most realist of the past generation -- and publicly stressed his admiration for the ranking member on Biden's committee, Republican realist Sen. Richard Lugar who, along with another Republican, Sen. Chuck Hagel, has been mentioned as a possible secretary of state under Obama.

The inclusion of prominent realists -- who, more than any other school, constitute what could be called the foreign policy "Establishment" -- as advisers in both campaigns may be designed primarily to reassure independent and centrist voters that their respective candidates will avoid radical departures of the kind that resulted in the 2003 invasion of Iraq, when the influence of the neo-conservatives and aggressive nationalists reached their zenith.

But whoever wins the Nov. 4 election is likely to come to office in January with a foreign policy team that spans a fairly broad spectrum of advisers susceptible to fundamental disagreements regarding the definition of U.S. national interests, the appropriate use of military force, and the degree to which Washington should rely on multilateral institutions, as opposed to taking unilateral action, if those interests are threatened.

I think the reality is that an Obama administration, which is looking increasingly likely to follow as opposed to a McCain administration, would most likely pursue much more of a classical or even neo-classical Realist School-type foreign policy. And to what extent he would also incorporate Wilsonian-style Liberal Interventionism, I think, is much less clear - or even likely - of a predictable outcome going forward.

Is McCain's principal foreign policy advisor actually crazy?

2008-10-11T17:14:00.007-04:00

Fact: John McCain's main foreign policy advisor Randy Scheunemann is actually a very scary person with a rather dodgy background, and he loudly advocates our country adopt some dangerous, borderline-insane, ideas about how we ought to deal with the world around us.

A reliance upon unilateralist, preventative war-making, and the parallel exclusion of bi- or multilateral diplomacy as a meaningful component of its foreign policy, rank high in the delusional prescriptions he offers his candidate. In other words, he is a hard-core Neoconservative and one of the mutants who pushed this country into war with Iraq.

Let's just pray McCain doesn't win this election.

Tom Engelhardt: "Spying on the Future"

2008-10-07T21:16:00.003-04:00

What, exactly, is the National Intelligence Community doing with billions of our tax dollars trying to predict the geopolitical future of the US? Reviewing NIEs (National Intelligence Estimates) issued in the recent past, Tom Engelhardt discovers some interesting commonalities, and some trends in offering flawed prescriptive advice.

America "in shambles," right-wing pundits' delusions notwithstanding

2008-10-07T21:10:00.007-04:00

Writing in his blog over at Salon.com, Glenn Greenwald explains, as only he can, how misguided and frustrating the application of the David Brooks Syndrome has proven to be during this election cycle. As he notes, "As polling data conclusively demonstrates, the mindset of the voting public is infinitely more rational and substance-based than the pundits and the Right fantasize when they lyrically praise the Regular American -- at least it is in this time of perceived (and actual) crisis."

And there is no question that this country is currently in the midst of a crisis, or rather, several interrelated crises, that are very much the result of eight years of right-wing Republican misrule. The economic and/or financial crisis is certainly receiving the most media coverage right now, and the greatest concern to most Americans, as it should be as it is arguably the most serious pressing threat to the country in the near-term. But the catastrophic failure of Neoliberalism," or "free market fundamentalism," if you will, to maintain a sustainable capitalist economy that is well-regulated and isn't subjected to wild speculative bubbles as well as fraud and outright manipulation by its more sophisticated players, is just a part of the problem. The Bush Doctrine and its eight years of unilateralist, "preventative war" has greatly threatened the future of the Republic as well.

Or, as Greenwald states it rather elegantly:

What's happening in this country, and in this election, is rather simple and easy to see: (1) the country is in total shambles -- possibly far worse than what people even realize; (2) we have lived for the last eight years under virtually absolute GOP rule; (3) the public knows this; (4) the Republican President and his party are therefore intensely -- historically -- unpopular; and (5) the voting public doesn't want to continue living under the rule of the same faction and same political party that has driven the country into the ground.

But his penultimate paragraph sums up the situation Americans are finding themselves in the best:

That the Right believes in the fundamental stupidity of the American voter while simultaneously pretending to revere and speak for them them is reflected in their belief that they can successfully blame the financial crisis and the country's woes generally on Democrats, who -- while hardly covering themselves with glory -- haven't had any meaningful power in this country for as long as one can remember. Ponder how stupid you must think Americans are to believe that you can blame the financial crisis on the 2004 statements of House Democrats about Fannie Mae and Freddie Mac when that was a time when the GOP controlled all branches of the Government and nothing could have been more inconsequential than what Barney Frank or Maxine Waters, languishing in the minority in Tom DeLay's tyrannical House, said or did about anything.

Emerging economies are "swimming in cash"

2008-10-07T20:31:00.006-04:00

Peter Engardio, writing in BusinessWeek a few days ago, asks an interesting question: Do the governments of some Emerging Market - particularly Middle Eastern and Asian nations - actually have too many American dollars floating around in their treasuries?

He points out that "Between the central banks, commercial banks, and investment funds such as Singapore's Temasek Holdings, Asian governments have $2.6 trillion in foreign assets available for investment, according to research firm Global Insight. The Gulf States have hundreds of billions in foreign banks and equities. Russia and Brazil boast hefty reserves and trade surpluses."

But this doesn't necessarily mean that these governments can sit back and party like it's 1999:

A lot depends on how countries are managing their economies while stockpiling dollars.The big winners appear to be in Asia, where corporations have kept debt in check and banks have largely shunned the risky mortgage-backed paper from the U.S. Despite ill-timed investments in the likes of Morgan Stanley (MS) and Merrill Lynch (MER), government investment funds such as China Investment Corp. and Singapore's Temasek can still buy stakes in U.S. companies at bargain rates once the smoke clears.

Also from the article:

Beijing's problem recently has been too much foreign cash, which has led to stock speculation and overinvestment. But if a U.S. slowdown hits China's exporters, the nearly $2 trillion in foreign assets Beijing controls leaves plenty of leeway to expand credit. Council on Foreign Relations geoeconomist Brad W. Setser estimates foreign assets in Chinese institutions swelled by $700 billion just this year. "This gives them enormous freedom to stimulate the economy," Setser says.

For more, see this post from Brad Setser's blog at CFR, as well as this recent article by AP discussing Emerging Markets' perceptions of the root causes of the global financial crisis. (Hint: They aren't blaming themselves.)

US credit market instability poses graver threat than equity markets

2008-10-07T20:29:00.005-04:00

Just a friendly reminder: The dislocations in the credit markets are even more serious than the more high-profile volatility evidenced by equity markets, and this poses "a greater threat to the long-term stability of the US economy."

Russia, Georgia and the US: "A double standard in action"

2008-10-07T20:18:00.003-04:00

Writes Edward Herman: "The way in which U.S. officials and the media handled the Russian response to the Georgian assault has been a lesson in bias, misrepresentation, decontextualization, and the applied double standard. It has also often been funny."

He is talking, of course, about the Ossatian War of the few months ago, and he delves deeper than most critics into the Western media's coverage of the military action and the systemic biases it unwittingly exposes.

He then elaborates on his thesis:

It is amazing to watch the U.S. imperialist establishment, including the media, wax indignant about "Russian aggression," Russian "brutality," and a renewal of Russian "expansionism." This establishment can never admit its own regular, serial, and massive aggressions—the word was never used by mainstream reporters or editors to describe the attack on Vietnam, 1954-75, or Iraq in 2003 and onward. And the Iraq war has never been ascribed to a planned expansionism, although this "projection of power" in the Middle East and beyond was actually announced in advance in the Project for a New American Century's Rebuilding America's Defenses (2000) and the National Security Policy program of 2002. We may kill millions in Indochina and Iraq—including in the latter the 500,000 children's deaths from the "sanctions of mass destruction" that were "worth it" (to Madeleine Albright)—but this is not "brutal," a word used freely in the case of the hundreds killed in the Russian aggression. What this shows is that the U.S. establishment can swallow anything, no matter how outlandish, to rationalize that projection of power now built-in to the U.S. political economy. While McCain relishes it, Obama also bows down to it as he seeks electoral victory here.

We and our "defense department" are protecting U.S. "national security," according to the cliché-myth. That the electoral intervention, political capture, arming, and proposed absorption of Georgia into NATO posed a security threat to Russia was barely recognized in the West. If the Russians (or Chinese) had entered into a military alliance with Mexico, supplied it with arms and military advisors, used a Russian or Chinese version of the "National Endowment for Democracy" and other agents to bring about political change in Mexico (recall that Mexico has had a series of elections won by fraud), and perhaps put some ABMs in place to protect Mexico against a possible threat from Colombia, can you imagine the frenzy of U.S. politicos and the "free press?"

For the imperialist establishment only this country and its clients have "national security" threats. Certainly the Russians don't, even as we encircle them and arrange for ABMs on their very borders.

When it is occasionally recognized that the NATO expansion and U.S.-client status and arming of Georgia does worry Russia, this wasn't accompanied by suggestions that maybe we should lay off, withdraw, and stop trying to bully Russia (or China) into subservience. No, it was used to explain that this gave Russia an excuse to resume its expansionist ways, that is, it "gave Putin an easy excuse to exercise his iron fist" (Friedman, "What Did We Expect?", August 20).

Only Russia has bad motives. Georgia's President Saakashvili merely made a "mistake" or foolishly "baited" the Russians or the United States was careless or not very observant in failing to constrain him—but neither of them was guilty of aggression, brutality, blackmail, or expansionism.

As can usually be said about Herman's all-too-infrequent commentary on US geopolitics, it's worth one's time to read his analysis in its entirety.

Republican economic theories don’t add up

2008-10-07T20:02:00.004-04:00

If the tragic consequences of the last eight years of mostly GOP-controlled fiscal policy management of the US economy, combined with following the radical, free-market-worshipping monetary policies of the Fed doesn't make this conclusion rather obvious to most people, I really don't know what could do the trick. But Arthur Blaustein, writing over at Truthdig, offers up a pretty pithy and compelling argument - just in case.

Mantega: "Reform of Global Financial System Needed"

2008-10-07T19:59:00.014-04:00

IPS News reporter Mario Osava writes from Rio de Janeiro that:

A new international financial architecture, based on different rules, is a reform that has long been demanded by different sectors and is now "inevitable" in the face of the "universal and systemic crisis" originating in the United States, says Brazilian Finance Minister Guido Mantega.

The need for "regulation, controls and supervision" to limit excessive indebtedness on the part of financial institutions has been highlighted by the crisis, which is systemic because it has "obstructed credit" around the world and created difficulties for all financial institutions, the minister said Thursday at a press conference with foreign reporters in Rio de Janeiro.

Unless there are new rules, "confidence, which is vital in the financial system, will not be restored," he said, announcing that he would raise the issue at an International Monetary Fund (IMF) meeting to be held in Washington in early October.

I'm with Mantega so far, but he goes on:

The crisis may be creating a new world scenario, in which "the role of advanced countries, that are in fact prostrated" by economic and demographic stagnation, will give way to greater leadership by "emerging countries, that represent the future" because of their population, wealth and economic growth, he said.

It is no longer possible to keep countries that today are "the engines of global growth" out in the cold, with scant representation or none at all on international bodies, he added, mentioning BRIC (Brazil, Russia, India and China), which is excluded from the Group of Seven most powerful countries (G7), in which Russia has only "partial" participation.

While Emerging Markets such as the aforementioned BRIC countries may (or may not) be the "engines of global growth" either today or tomorrow, I think it is not only possible but overwhelmingly likely that the G7 - led by the US - will continue to lead the Bretton Woods Institutions (i.e. the IMF and World Bank) that continue to control the global financial infrastructure and this bloc will continue to ignore the reasonable demands of the rest of the world.

The article goes on to note, correctly, that:

The present crisis arose from a combination of financial troubles in the United States and soaring commodity prices, which reached their height in June and July, according to Mantega, an economist belonging to the governing leftwing Workers' Party (PT), who is close to President Luiz Inácio Lula da Silva.

Commodity prices have declined or increased more slowly since August, because of the end of a wave of speculation, but 2009 will still be a difficult year for countries around the world, the minister predicted.

The worst effects will be felt in "fragile countries, that is, the advanced countries" that were directly involved in U.S. bank and investment fund collapses or losses, have a "shrinking" domestic market, and in some cases have serious fiscal deficits and negative trade balances, like the United States, he said.

The "strong countries" at this juncture are the "emerging" economies, which have expanding domestic markets that can offset falls in exports, and a stronger fiscal situation with plenty of foreign exchange reserves, and are not hampered by the "rotten assets" that rich countries now have to absorb, the minister said.

But this next paragraph is suspect:

The BRIC countries, with their dynamic economies, will suffer a more moderate impact from the crisis, with a mild slowdown in economic growth. In Brazil, Mantega predicted gross domestic product (GDP) growth of "over four percent" in 2009, and of between five and 5.5 percent in 2008.

(See this recent economic forecast by JPMorgan for a rather different perspective.)

Although the rest of the report consists mostly of uncritical stenography of the Brazilian government's official line, it does go on to point out some economists simply are not in touch with reality - and most likely haven't been for quite some time, noting that:

Economist Fernando Cardim de Carvalho, of the Federal University of Rio de Janeiro, told IPS that seeking to reform the international financial system at a meeting similar to the 1944 United Nations Monetary and Financial Conference at Bretton Woods is not a viable prospect right now.

"There is no consensus," at the moment, and neither is there a dominant world power to "enforce it," as the United States did at the end of World War II, he said.

Cardim, who regards it as an "exaggeration" to speak of a systemic crisis today, said that only "a monumental disaster," more serious than the present one, could produce a global agreement for a new financial world order. Previous attempts, like that of the Basel Committee on Banking Supervision (BCBS), met with failure, he said.

Once again proving that a broken clock is right twice a day, Cardim does manage to correctly predict that:

The crisis will continue, however, because the U.S. model of financial organisation, based on independent institutions, "is moribund," and the European alternative of a universal bank has not proved efficient, Cardim said. Uncertainty will reign for a long time to come.

I do wonder what exactly the good professor means by calling the IMF and World Bank (and I suppose he might be referring to the WTO here as well) as independent, though. I mean, what countries have represented the leadership of these multilaterals other than the US and the wealthiest European ones? Who developed the world's financial architecture and the rules of international trade they follow, and more to the point, which countries benefit the most from these arrangements?

World Economic Forum event draws industry calls for greater regulation

2008-10-07T19:59:00.013-04:00

Reporting for Huffington Post, J. Carl Ganter reports from the World Economic Forum's laughable "New Champions" event in Tianjin, China and notes the humble tone coming from Wall Street's Masters of the Universe.

He drops this quote from William Rhodes, vice chairman of Citigroup, who warned attendees that:

"What is happening in the markets in the US is affecting the credit markets worldwide," . . . "We are in a crisis of confidence. There is just no confidence in financial institutions in the market."

"One of the things that must come out of this crisis that did not come out of previous crises is some form of international accounting standards," . . . "We really need a set of internationally accepted regulatory norms. We are too tied together in a globalized world."

Notes Ganter: "This humility among the world's power brokers emerged as I looked over their shoulders watching Wall Street's drama unfold on the BBC and CNN, coincidentally in parallel with China's own tainted milk scandal. If there was a confluence for a confidence crisis, it was here."

So will governments worldwide, and most importantly the next President of the US, heed these calls from market participants themselves for more robust oversight from competent regulators who are not beholden to the companies they are expected to watch over? And will these regulatory bodies then pass any meaningful reform which are geared toward ending the Reagan Revolution's deregulation of Wall Street and returning the US to the New Deal policies that rescued this nation from the last Great Depression?

Update: And why we're on the subject of apportioning blame for the current crisis, let's not forget to mention John McCain's former economic advisor Phil Gramm, who is responsible for Commodity Futures Modernization Act.

SEC Inspector General: Deregulation and lack of oversight led to crisis

2008-09-28T21:09:00.012-04:00

A very important bit of insight from the New York Times published Friday - which I missed when it first came out - can be read here. Stephen Labaton writes that according to a report recently released by the SEC's Inspector General, the agency tasked with oversight of Bear Sterns and other financial services institutions completely dropped the ball in relying upon a "voluntary" supervision program for the industry wherein these companies essentially monitored themselves.

The key paragraphs from the article:

The chairman of the Securities and Exchange Commission, a longtime proponent of deregulation, acknowledged on Friday that failures in a voluntary supervision program for Wall Street’s largest investment banks had contributed to the global financial crisis, and he abruptly shut the program down.

The S.E.C.’s oversight responsibilities will largely shift to the Federal Reserve, though the commission will continue to oversee the brokerage units of investment banks.

Also Friday, the S.E.C.’s inspector general released a report strongly criticizing the agency’s performance in monitoring Bear Stearns before it collapsed in March. Christopher Cox, the commission chairman, said he agreed that the oversight program was “fundamentally flawed from the beginning.”

“The last six months have made it abundantly clear that voluntary regulation does not work,” he said in a statement. The program “was fundamentally flawed from the beginning, because investment banks could opt in or out of supervision voluntarily. The fact that investment bank holding companies could withdraw from this voluntary supervision at their discretion diminished the perceived mandate” of the program, and “weakened its effectiveness,” he added.

Mr. Cox and other regulators, including Ben S. Bernanke, the Federal Reserve chairman, and Henry M. Paulson Jr., the Treasury secretary, have acknowledged general regulatory failures over the last year. Mr. Cox’s statement on Friday, however, went beyond that by blaming a specific program for the financial crisis — and then ending it.

The complete Inspector General's report can be viewed here and here. And check out this post on Christopher Cox's pro-industry (and anti-investor) policies from last year here.

Galbraith's Alternative

2008-09-25T14:42:00.009-04:00

Besides arguing against the Treasury Department's critically flawed Wall Street bailout plan, economist James Galbraith actually puts forward some workable, common-sense solutions in this Washington Post editorial for the main problems caused by the credit crisis.

Treasury's bailout proposal considered

2008-09-20T18:56:00.017-04:00

(Updated below, 9/21)
The Paulson bailout plan is Illogical in that it doesn't address the reasons behind this spectacular market failure, or offer taxpayers protection from a similar crisis unfolding in the near future.

First in our coverage, Robert Borosage is dead on in latest editorial his latest Op-Ed for the Huffington Post. He makes several very compelling arguments here, most notably that the flawed logic of using taxpayer money to bail out quasi-public entities without simultaneously putting in place the right kind of incentives to prevent an inevitable relapse puts taxpayers at greater risk.

Referring explicitly to the Treasury Department's massive rescue of Freddie Mac and Fannie May, he makes this point:

These enterprises are operating on our tab now -- completely. Why not just nationalize them, as even that font of economic convention, Sabastian Mallaby suggested yesterday in the Washington Post. Sure, we'd have to add the $5 trillion in debt to the federal balance sheet, but we could add the assets also. And after Paulson's announcement, global investors are already toting up their debts onto the federal balance sheet.

Why pay dividends to shareholders when they are essentially playing with our money? Why pay managers of public enterprises the bloated pay packages of Wall Street speculators? Why allow them to finance lobbyists to shield them from accountability? The fiction of their separate existence has been exploded; let's save the dough and run them efficiently.

(For that ever-reliable stalwart of the free-market Sebastian Mallaby's cited editorial in the Washington Post, see here.)

To roughly paraphrase Borosage, here is essentially what has happened. The Fed, under Helicopter Ben Bernanke, has figured out how to solve the Freddie and Fanny mess. After these two agencies cooked their balance sheets and were laid low by the collapse of the subprime mortgage market last year, it had to be the taxpayers to take responsibility.

Yes, thanks to the Fed, taxpayers like you and me are currently the guarantors not only of the financial institutions that it regulates, but even those entities it doesn't. Says Borosage: "After the bailout of Bear Sterns, they basically are gambling with our money. The Federal Reserve has now traded more than $500 billion in federal bonds for the toxic paper of private banks and investment houses, some $200 billion of it in mortgage backed securities, worth dimes on the dollar. This massive subsidy -- justified as necessary to keep the banking system afloat -- is not accompanied by limits on what gambles the speculators can make, how much debt they can take on, what rewards they can pocket. They are playing with house money -- not exactly an incentive for prudence."

I do think that there is one argument Borosage attempts to make in his article that is markedly weaker than his aforementioned critique. He seems to lay the blame, at least for this situation, squarely on the GOP and what he (accurately) perceives as its culture of shifting financial risk from multibillion dollar financial institutions and heavily rigged "free markets." I think this argument requires a whole other blog post from me, but the deep, structural flaws that have resided for decades within the Neoliberal view of capitalism and global markets is very much a bipartisan one. As just one quick illustration, witness the long-lasting damage done to this country's economy by Clinton Treasury Secretary Robert Rubin.

Likewise, It should go without saying that I find merit in the inevitable response to this critique of Paulson's plan that it's better to do something than nothing - which would result in a catastrophe for the global economy. While this is most certainly correct, it evades the more important point, which is that in between doing nothing and rushing forward with the administration's demanded bailout for the powerful lobbying force of the financial services industry without reflecting on the latter's serious defects (in matters of policy policy and motivation), there are better ideas, including some of the one's offered below.

Next, the New York Times' Gretchen Morgenson reports on the latest outrageous development from Congress, which is now debating whether to create what Treasury chief Paulson is calling the "Troubled Asset Relief Program." This concept, which is clearly a no-winner for taxpayers but a huge boon for the financial services industry, is so creates such conflict of interest from the industry supposedly being regulated that it's breathtaking. She notes, for example than in bailing out insurance giant AIG, the Fed has left taxpayers on the hook to pay off the same wealthy financial players - we don't know which, naturally - that made the risky countertrades (i.e. credit default swaps) that threatened AIG with bankruptcy!

The $85 billion taxpayer loan to AIG was really, she explains, a bailout of the company’s counterparties or trading partners who had purchased mortgage-backed derivative contracts that saw their market value collapse.

And Morgenson recommends the following to economic policymakers and the Federal government that has been ignoring financial regulation for the past eight years: "Stop pretending that the $62 trillion market for credit default swaps does not need regulatory oversight."

Update: And credit where it's due, Warren Buffett accurately predicted this collapse years ago, and he also correctly fingered one of the chief culprits here: the exploding market of complex financial derivatives. I think this will require its own post as well, but basically over the past decade financiers and credit agencies bundled worthless securities together (called securitization), backed by undesirable and unmarketable assets, slapped on a meaningless credit rating and successfully sold them to pension funds and other institutional investors. The market value for these types of securities has without hyperbole exploded in the last few years, a troubling development given the increasingly interdependent and globalized world economy as well as the purposefully unregulated and unexamined nature of the asset class in question.

I know a thing or two about this field of "alternative investments" because as a financial journalist, I worked to uncover how Moody's and Standard & Poor's (the two major credit rating agencies) dropped the ball in informing their sophisticated investor clientele know how much derivative-embedded bonds launched by US airlines (back via sketchy securitization of either airplanes or airplane leases), insured by monolines like Ambac and MBIA and bought up by other investors. These deals are usually referred to as "structured bonds," or in aircraft finance, EETCs.

Then, in a situation frighteningly similar to what we are now dealing with, in the aftermath of the 2001 recession and the 9/11 terrorist attacks (which used commercial airlines as their tools of destruction) the demand for air travel dropped like a rock. Consequently, these asset-backed securities, which were valued by investors precisely based on the value of the issuing carrier's airline fleet - as opposed to the airline's (usually below investment-grade) corporate credit rating, lost a lot of their value and left the investors to fight over the crumbs in bankruptcy court.

Update #2: Upon further investigation, I see that the Brookings Institution's resident expert Douglas Elmendorf also agrees with Borosage and Mallaby; arguing that government would be much better advised to just nationalize these troubled institutions themselves, as opposed to just sliding their bad assets over to workers' personal balance sheet.

Here's the important distinction to keep in mind: The latter will definitely make future generations even more financially burdened, adding to our already existing budget and trade deficits, after the US is forced to borrow money from our typical sources of credit such as China - just to be able to repay a fraction of this additional debt of trillions of dollars!

Dodd statement on Russia-Georgia

2008-09-19T18:39:00.004-04:00

The prepared remarks can be read here. I don't know, his analysis seems to be rather one-sided, and you'll note there is nary a mention of the US's role in sparking these tensions in the Caucasus region, specifically its push to gain Georgia entry into NATO. I suppose this is going to be the official Democratic Party position on these matters, completely leaving out any mention of US foreign policy's role in it all.
Here they are, reprinted from Dodd's Senate website:

Last month’s war between Russia and Georgia began in the small region of South Ossetia, but it cast a shadow that crosses continents. In the aftermath of the conflict, the United States and our allies face serious new challenges.

As we survey the situation in Georgia today, we face three strategic questions:
First, what can we do to shore up Georgia’s democracy, economy, and institutions?
Second, how do we convince Russia’s leaders that their actions in Georgia are antithetical to their own stated goal of becoming a successful, respected member of the international community?
And third, what can and should the Euro-Atlantic community do to prevent the consequences of this war, which has already taken a heavy toll on Russia and Georgia, from undermining the ambitions of the entire region?

In many respects, the first question is the most urgent. In the course of the conflict, tens of thousands of Georgians were driven from their homes. In some areas, entire villages were burned to the ground by South Ossetian forces armed and supported by Russia, and their residents have been told that they will never be allowed back. As winter approaches, this situation could become a serious humanitarian crisis. Georgia’s problems have been compounded by Russia’s gratuitous destruction of critical economic infrastructure far outside the autonomous regions of South Ossetia and Abkhazia. Georgia’s main rail line, cement factory, and even its national forests were all targeted by Russia’s military.

There are two ways to undermine, if not topple, a democratic government: either militarily or by crushing and strangling the economy to make life so miserable that the government’s mandate comes into question. Many expert observers believe that, having failed in the first approach, Russia now seems to have shifted to the second.

Russians undoubtedly know that the reason young democracies survive is that each year, peoples’ lives get a little better. That happened in Georgia. Before the Rose Revolution in 2003, Georgia’s whole economy was barely $5 billion a year. By last year, it had grown to $10 billion. Next year, it was going to be almost $14 billion. Hundreds of thousands of Georgians have joined the country’s new middle class. If Russia can halt that progress, it will cripple Georgia’s young democracy.

Georgians don’t want a handout. They know how to grow their economy out of this conflict situation – they’ve done it before. We have pledged to them – rightly so – that the United States and the international community are not going to turn our back and walk away from the situation. The Administration’s speedy commitment of assistance and other important signals of support from the international community will go far to persuading international investors who have supported the country’s growth to come back and help them rebuild on their own.

We also need to help ensure that Georgia’s institutions remain true to the principles on which they were founded. Georgia remains a very young democracy, and is certainly not immune from the political problems that challenge other countries at its stage of development. It will be critical for Georgians to maintain unity in the face of serious adversity, but – at the same time – this crisis cannot become an excuse for any actions by the government that compromise Georgia’s standing as a proud democracy.

Second, we will need to continue reassessing our approach for dealing with Russia. We simply cannot allow Russia to act like the Soviet Union. We cannot allow them to go around intimidating or toppling democracies. In many respects, this question is bigger than Georgia and bigger than Russia. It’s a matter of what kind of world we’re going to live in. And whether small democracies will thrive in that world, or whether they’re going to get bullied by the biggest kids on the block. (emphasis added - ed)

Russia has a critically important relationship with the United States and the West – but it’s a relationship that is now badly off track. Obviously, we want to work with Russia on a wide range of issues. The United States has supported Russia’s attempts to join international organizations and tried to partner with Moscow on a wide range of issues. Russia’s increasing integration into the international community has had significant benefits for the Kremlin and the Russian people. The country’s economy has grown rapidly in recent years, and Russians are understandably proud of their progress.

With integration and success come responsibilities. Once a country becomes a part of international political and financial networks, reputations matter. And if you develop a reputation for flaunting the rules, you pay a price. It should be clear to leaders in Moscow that there are some real costs associated with failures to play by the rules of the international system.

Russia’s benchmark RTS stock market index has lost more than half its value – three quarters of a trillion dollars – since its peak in May. Yesterday, and again today, the situation has been so bad that the index halted trading. Capital flight from the country has spiraled, and risk premiums for investment in Russia are nearing stratospheric levels. Russia’s economic success has been the signature achievement of the country’s leadership, even if it has been largely predicated on high energy prices. If Russia does not reestablish a reputation as a country that abides by rules – both at home and abroad – it may sacrifice both its international standing and its economic success.

Finally, this crisis also has significant regional implications. Georgia is an east-west land bridge between the Caspian Sea and the Black Sea. When the Russian attack severed communications, Armenia was cut off from its one trade route to the West. Azerbaijan saw its economic lifeline -- its oil export route to the West – closed down. And the countries in Central Asia realized that their only alternative to exporting oil through Russia was in danger.

Georgia’s location in the Caucasus makes it a critical bridge for goods, energy, and ideas. But it also makes it an attractive target for those who would like to stop commerce and contact between East and West.

Beyond Central Asia and the Caucasus, what happened in Georgia will have echoes in Ukraine, Moldova, the Baltics, and Eastern Europe. If leaders in those countries are intimidated to the point that they begin acting in opposition to their democratic interests, it will be a major blow to the process Euro-Atlantic integration that has transformed much of the region so successfully.

Geopolitically, we are witnessing a major moment in history. Future generations will remember the war in Georgia as a turning point – the only question is what type of turning point. Will it mark the moment that Russia recognized the political and economic costs of military conflict with its neighbors was prohibitively high, and permanently abandoned the practice? Or, will it usher in a new era of insecurity in which no country in the region – Russia included – feels confident in its ability to prosper in the absence of outside pressure? How the United States and our allies respond will have a significant impact in determining which of those scenarios comes to be.

New (temporary) ban on short-selling selected corporations

2008-09-19T16:03:00.006-04:00

Wait a minute, I think I actually agree with something Larry Kudlow wrote (in reference to this new development). Then again, liberal economist Dean Baker (Center for Economic and Policy Research) also agrees that a SEC regulatory change banning short selling is nonsensical and counter-productive, too.

I guess sometimes and idea (or an actual policy!) is so terribly irrational that both ultra-Right Wing-Free-Market-Fundamentalists like Kudlow and hipply-left wing economists like Baker end up united in proclaiming their disgust!

However, technically Baker is opposed to the ban less as a matter of political ideology, and more because the utter hypocrisy and pointlessness of such an anti-free market measure. So Kudlow is, in fact, just a few months behind Baker in reaching his conclusions.

Lots of money seems to be hiding

2008-09-14T00:07:00.006-04:00

An (extremely) wonkish economic question from John Quiggin about apparently mismatched data related to US household income.

Over the past 40 years or so, real median US household income has risen by about 30 per cent. But real US GDP per person has more than doubled. How can this be?

I’ve done enough work to rule out a couple of easy answers. Average household size has fallen from around 3 to 2.6, but that’s not enough to account for more than a small part of the gap. And inequality as measured by the ratio of mean to median household income has gone up, but again, not enough to account for the gap. In fact, even top quintile income hasn’t quite kept up with GDP per person

So it seems as if the ratio of total household income to GDP must have fallen. Where has the extra income gone.

My candidate answers:
(1) A big chunk of income goes to the top 1 per cent of households and isn’t captured by the survey. The seminar gave some support to this idea, at least insofar as this group seems to have a big enough share of the total that the choice of the point where the Census Bureau stops measuring income makes a big difference

(2) A lot of income is flowing to the corporate sector and never being recorded as household income, perhaps because it is distributed in the form of capital gains, which aren’t counted. Again, a very large chunk of these would go to the top 1 per cent.

And through the wonderful magic of "crowdsourcing", Quiggin has finally found his answer here.

Jim Rogers rails on the US's corporate welfare state

2008-09-13T17:56:00.007-04:00

The Big Picture, a great behavioral finance blog by trader Barry Ritholtz, drops a jaw-dropping and brutally honest quote very recently made by super-pundit Jim Rogers. It just so happens that Rogers co-founded the insanely profitable Quantum Fund with fellow-loudmouth George Soros back in the 1970s.

Rogers' quote: "America is more communist than China is right now. You can see that this is welfare of the rich, it is socialism for the rich… it's just bailing out financial institutions."

As the included video clips of Rogers being interviewed by CNBC make clear, the quote was made in reference to the US government's "intervention" to rescue large financial institutions like Freddy Mac and Fannie May. Rogers also makes very clear that this multibillion dollar, taxpayer-funded bail out for mammoth financial institutions is a disgusting display of hypocrisy from the conservative GOP supporters of this policy: These same lawmakers are essentially admitting that governmental social and economic programs which rely upon taxpayers' money to assist working poor families is very, very bad. But taxpayer-funded largess on behalf of big banks threatening "imminent bankruptcy" is just fine, thank you!

Update: I almost forgot to note this interesting and extremely relevant little nugget about Rogers' views on the global economy, courtesy of Wikipedia:

In September 2007, Rogers sold his mansion in New York City for about 15 million USD and moved to Singapore. This is due mainly in his belief that this is a ground-breaking time for investment potential in Asian markets. Rogers' daughter is being tutored in Mandarin to prepare her for the future, he says. "

Moving to Singapore and Dubai now is like moving to New York City in 1908," he said. Also, he is quoted to say: "If you were smart in 1807 you moved to London, if you were smart in 1907 you moved to New York City, and if you are smart in 2007 you move to Asia." In an CNBC interview with Maria Bartiromo broadcast on May 5, 2008, Rogers said that people in Asia are extremely motivated and driven, and he wants to be in that type of environment to be himself motivated and driven. He said during that interview that, this is how America and Europe used to be.

Rentier states and democracy promotion in the Middle East

2008-09-12T22:28:00.003-04:00

Brian Ulrich, who is currently guest blogging over at American Footprints (one of my favorites) and refers to a piece written earlier this month for the Carnegie Endowment for International Peace by Riad al-Khouri, a Senior Fellow at the William Davidson Institute at the University of Michigan, Ann Arbor. al-Khouri described in his initial article the relevance of so-called "Rentier States" in spurring democracy promotion in the Gulf Region.

In his response, Ulrich's gives what appears to be a well-informed perspective on the topic thusly:

I've never been a big fan of political science's tendency to privilege the model over the case. In this case, it seems likely that the historic lack of political liberalization isn't tied to the fact that Gulf governments don't extract tax revenue from their citizens, but that said citizens haven't historically made agitation for political reform a priority. I also think that at least Kuwait, Qatar, and the United Arab Emirates should be seen as something like politically authoritarian economic communes on which the form of the nation-state is a new, still uncertain fit. A distribution of resources people see as equitable still matters, which leads to some interest in reform. In addition, people do have other interests which, from time to time, they decide would be best met through democratization as opposed to, say, patronage ties.

And if you are so inclined, be sure to check out this Op-Ed detailing why rentier states are partially to blame for the historical and conspicuous absence of democratic institutions (or even political rhetoric) taking root in the Middle East region, as well as the effect of foreign aid policy:

What most Americans have yet to fully grasp is that the administration’s grand strategy of democratizing the rest of the Middle East is also a fantasy. However much we might want to share the blessings of liberty with everyone in the region, it is the last place we ought to anticipate seeing widespread democratization. The problem is that nearly all of the countries in the region are rentier states. Their governments depend not on taxes from the governed but on economic rents--revenues earned from sources other than productive labor, technical ingenuity, and capital investment—and as a consequence have no reason to tolerate dissent from a free press or seek the consent of the governed through democratic elections.

Oil revenues support the governments of Algeria, Libya, Saudi Arabia, Kuwait, Gulf States and Iran. Foreign aid supports the governments of Afghanistan, Egypt, Iraq and Pakistan. Money earned from soaking religious pilgrims in Saudi Arabia and Iraq and from opium growing in Afghanistan complete the picture of national economies which create little or no new wealth. This is not a region where governments are busy encouraging new investment in manufacturing or cutting edge consumer technology.

The fundamental political problem with dependence on economic rents is that it reduces all politics to a zero sum game in which tolerating dissent, negotiating compromise and choosing leaders through free and fair elections are deeply irrational behaviors for political elites. Competition for political power in a rentier state is simply too raw to be constrained by liberal institutions. That’s why some Iraqi political elites are only going through the motions of participating in the flimsy, American built democratic institutions while the rest are already openly fighting a civil war.

On economic liberation and prevention of military conflicts

2008-09-11T23:25:00.006-04:00

During an interview (a complete transcript can be found here) conducted by Marketplace Radio, economist, professor of international politics and blogger extraordinaire Dan Drezner makes a strong argument that although economic modernization is oftentimes (correctly) considered to provide a good buffer against war for most countries, the recent conflict between Russia and Georgia illustrates the limitations of relying upon such an extreme generalization.

In other words: Drezner succeeds in taking a recent, high-profile conflict between two nations (one of which just so happened to have been one of the globe's superpowers) and using this example to illustrate to naive observers that the infamous Golden Arches Theory of Conflict Prevention, originally coined by Tom Friedman in his book "The Lexus and the Olive Tree" is total bullshit and a dangerous theory in which to subscribe to.

The political economy of clean water

2008-09-11T21:07:00.006-04:00

David Zetland, a postdoctoral fellow in Natural Resource Economics and Political Economy over at University of California, Berkeley. has been busy as a guest contributor at the New York Times' quirky-yet-well trafficked Freakonomics blog, and his two post from the past week are actually quite enjoyable to read. I think what he is writing here represents the best popular economics can offer non-expert, casual readers.

His first post from September 9th is named "The Economics of Clean Water," and explains some of the Bush-supported Millennium Development Goals and the policies' inherent limitations in solving the critical global challenge of ensuring an adequate supply of clean water. The "international development community" comes in for what I would argue is its appropriate share of criticism - especially the enormously popular "Big Idea" promoters like Bono and Columbia University economist Jeffrey Sachs.

Instead, he pursues a line of reasoning that is in fact quite similar to contrarian New York University development economist Bill Easterly: The amount of money thrown at solving a global problem is much less relevant than the quality of the institutions managing the projects. The global community's failure to even make a dent in the scourge of global poverty - regardless of how much foreign aid is thrown at the problem by governments and NGOs, is unfortunately an illustrative case-in-point.

His second post which was published today is succinctly titled "Oil and Water," and it presents readers with a refreshingly comprehensible explanation as to why the the US and the global community has had far greater success in handling the scarcity of oil than it has achieved in coping with the tragic consequences of the perennial supply-demand imbalance of clean, drinkable water.

Of course, all of this is just a teaser: You actually have to read the two (fairly short) posts to get the answers to these provocative questions.

(And for even more fun, check out this 16-page working paper entitled "The Political Economy Of The Human Right To Water" in .pdf format here.)

I should also mention that Zetland's has his own blog, which specializes in the economics and public policy of water as a resource (and a commodity?), that he cleverly named Aguanomics and his writing there are not nearly as esoteric or geeky as one might initially assume.

The case for "re-nationalizing" Fannie Mae and Freddy Mac

2008-09-11T19:45:00.008-04:00

Contrarian economist extraordinaire Robert Kuttner is clearly at the top of his game right now; his writings and accomplishments in recent years as the head of non-profit think tank makes him a member in the small clique of progressive economics who helped create and manage two of the most important institutions the progressive movement has relied upon as a clearinghouse for new voices, independent news and the proffering of fresh opinions and perspective.

Continuing to stick closely to his academic fascination in how powerful political forces (and, of course, politicians) have in the past managed to be so successful in determining our nation's domestic, economic and (industrial) regulatory policy agendas.

This brings us to a blunt, unsentimental and yet timely and well-argued article Kuttner wrote for the Huffington Post two days ago entitled "Nationalize Fannie Mae? It Worked Until It Was Privatized"
When asked by journalists about the takeaway lessons imparted by his article, Kuttner discussed what he believed to be the crux of the policy issue:

In the past several days, before the U.S. Treasury Department acted to seize Fannie Mae and Freddie Mac, several people asked me if I thought it was a good idea for the government to "nationalize" the two mortgage giants. In virtually none of the coverage of the Bush administration's latest emergency action did anyone bother to tell the backstory. Fannie Mae, [previously known as] the Federal National Mortgage Association (FNMA), began life as a government invention. It was born "nationalized" -- and it worked beautifully until it was privatized.

Of historical note is that in reality, the FNMA was part of the New Deal's trinity of housing agencies -- the other two being the Home Owners Loan Corporation and the FHA agencies that Roosevelt formed in order to literally create the modern mortgage system. Before the New Deal, there were no long-term, self-amortizing mortgages. The loan was due and payable at the end of the term -- usually five years -- and if you couldn't persuade a bank or savings-and-loan to roll it over, you lost the house. After foreclosures exploded during the Depression, Roosevelt invented a whole new system. FNMA's job was to buy approved mortgages from banks, to replenish their working capital, so that they could make more mortgages. As the biggest buyer, FNMA also maintained standards.

The system worked like a fine watch. Home-ownership rates soared. Loan standards were generous but not stupid. Nobody in the home mortgage business got filthy rich, and mortgage lenders hardly ever went broke. The government's bank insurance funds regularly turned a profit. And here's a quaint, archaic concept: It operated in the public interest.

Then in 1968, as part of a general budget reform, government technocrats decided to get FNMA off the government's books. This was intended as a purely technical revision. It was tacitly understood that Fannie was to keep doing the same thing it always did -- buy mortgages from banks, turn them into securities, keep some and sell others, but maintain its standards and service to the public good.

It took about two decades for the wise guys to realize that there was big money to be made. And I am sorry to report that this was a bipartisan trough. In the Clinton era, many of the wise guys at FNMA were Democrats.

Criticism was limited to the Right and Left. Both the Wall Street Journal as well as (neo)libertarian think tanks regularly warned that Fannie was getting too big and too speculative for a self-regulating quasi-governmental financial institution with an implicit government guarantee. A few progressives like your faithful writer objected that FNMA's true purposes were being perverted and the system was being put at risk so that insiders could get very rich.

After 2000, Fannie also served to abet the subprime mess. For the most part, Fannie refused to buy the very worst subprime loans, but it was happy to buy so called "Alt-A" loans, which were a slightly milder version of the same abuse -- very risky loans with exorbitant interest costs (and profits) and almost nonexistent standards. Those loans are now going into default at almost the same rate as subprime loans.

Under private management, Fannie did a 180. It was perverted from a government-sponsored and well managed agency that served the public interest into a privatized casino whose big bets enriched a few insiders and then helped crash the entire system.

So now, the Bush administration is playing half-of-FDR. It is saving capitalism from itself as Roosevelt did -- but without getting serious about regulatory standards going forward. The taxpayers will bail out Fannie, but the rules for regulation of the mortgage system have yet to be written. That will await the next administration. And if the next administration is led by John McCain, the top financial guy is likely to be former Sen. Phil Gramm, the senate's biggest cheerleader for reckless deregulation.

The truth about the surge

2008-09-11T19:23:00.005-04:00

With even the Democratic Party's Presidential nominee Barack Obama "admitting" the falsity that somehow the Petraeus surge campaign in Iraq was responsible for turning the tide in our war over there, made the 2003 invasion justifiable, etc., it may be instructive to go back over the evidence. In fact, perhaps it's worth recounting how the media has portrayed the surge's efficacy and by extension, helped shape public perception.

It might be a good idea for me to buy, read and review Bob Woodward's latest book "The War Within."

A quick review of Bush's eight year economic policies and performance; and will McCain endorse his predecesor's track record?

2008-09-11T01:08:00.003-04:00

Dean Baker writes in his latest column "The Whiners' Recession"

Jerry Walker of Denver, Colorado, searches the job posting board at a local employment center. (Photo: Matthew Staver / Bloomberg News)
Senator McCain and his friends no doubt still believe that the economy's fundamentals are strong, but Friday's jobs numbers clearly show how bad things have gotten. The 6.1 percent unemployment rate reported for August is almost as high as the worst levels from the last recession. A broader measure of labor market weakness, that includes people who can only find part-time work or who have given up looking for jobs, is higher than at any point in the last recession.

When the labor market weakens, workers have less bargaining power with their employers. As a result, wages are trailing more than 2 percentage points behind inflation over the last year.

Wages are virtually the entire income for most workers. If the purchasing power of their wages falls by 2 percent, this is the equivalent of a 2 percentage point increase in their tax rate.

This is worth thinking about. Most workers in the country have just seen the equivalent of a 2 percentage point increase in their tax rate, and it has gotten almost no attention. By contrast, Senator McCain is claiming that the economy will collapse if we increase the tax rate by 3.6 percentage points for people who can't remember how many homes they own.

It is easy to understand how a typical family experiences real hardship when their wages don't keep up with the price of food, gas, and heating oil. It's a bit harder to understand how the folks who can't keep track of their homes will suffer by restoring tax rates to the Clinton-era levels.

This brings us to the other important point about the Friday jobs numbers. The economy is in bad shape and getting worse. This disaster is happening while we are experimenting with the tax policies advocated by Senator McCain. We have an economy that is now shedding jobs at the rate of almost 100,000 a month. There is no prospect of turnaround in sight. We could have half a million fewer jobs by the time the next president is sworn into office than we do today.

This is the Bush-McCain economy. Senator McCain may have forgotten, but President Bush already tried his economic policies and the results are not good. We have just been through a business cycle in which the wage of the typical worker and the typical working family fell. This is the first time that has ever happened.

As bad as the situation is, it will surely get worse as the recession deepens. Wages and incomes will fall further behind inflation as the unemployment rate continues to rise. By contrast, the Clinton-era tax rates were associated with the most prosperous period since the early seventies.

As I have written many times, Clinton's policies do not deserve all the credit for the prosperity of the late 90s, and President Bush's polices do not deserve all the blame for the economy's poor performance in the current decade.

However, it strains credulity to argue that the Clinton-era tax rates are a recipe for stagnation, while the Bush-McCain tax cuts for the rich are the road to prosperity. When he pushes his tax cuts as a remedy for the economy's ills, Senator McCain is effectively imitating Groucho Marx's famous line: "what are you going to believe, me or your lying eyes?"

At this point, McCain should be embarrassed to even say that tax cuts for the rich help the economy. Tax cuts for the rich help the rich, they don't help the economy. It's that simple.

This economic catastrophe was many years in the making. There is no painless way to recover from the collapse of the housing bubble and the correction from an over-valued dollar. We do know that Senator McCain's plan to keep giving the rich more money is not a road to prosperity because that is exactly what we have been doing.

We can't know exactly how Senator Obama will address the economy's problems if he takes office in January in part because we don't know exactly where the economy will be. However, a plan that focuses on supporting ordinary workers and promoting clean technologies, is likely to produce much better results than policies that are focused on redistributing even more income to the wealthy.

The tragedy of a war without end

2008-09-10T19:29:00.002-04:00

The New York Times scores a home run with this unsigned lead editorial. Its title, "Still No Exit" says it all about the never-ending Iraq war

It is short, so here is the whole thing:

President Bush is nothing if not consistent. In a speech on Tuesday, he made it clear that he has no plan at all for ending the war in Iraq and no serious plan for winning the war in Afghanistan.

Mr. Bush wants to have it both ways — claiming success in tamping down violence in Iraq and yet refusing to make the hard choices that would flow from that.

Speaking at the National Defense University, he said he would withdraw only 8,000 more troops from Iraq by the time he leaves office. That would leave 138,000 troops behind — more than were deployed in Iraq before his January 2007 “surge.”

All of this seems to be driven more by what is happening in American battleground states than any battleground in Iraq.

While Mr. Bush and his party’s nominee, John McCain, both want to stay the course until some undefined “victory” is achieved, American voters have run out of patience. Mr. Bush and his advisers are clearly hoping that this token withdrawal will be enough to keep Iraq out of the news and out of the election debate. (Ironically, Mr. McCain who doesn’t want to withdraw any troops at all, had no choice but to declare his support for the president’s plan.)

Iraq’s leaders have also run out of patience, and they are pushing to have American troops out by 2011. That means the next president — whether it is Mr. McCain or Barack Obama — will have to quickly come up with a plan for a safe and responsible exit.

Like Mr. Bush, Iraq’s leaders want to have it both ways. They want to talk about an American withdrawal, but they are still refusing to make the tough political compromises that are their only hope for keeping things under control once the Americans are gone.

All of these months later, and Iraq’s Parliament has still not adopted an oil revenue-sharing law or a law establishing the rules for provincial elections.

So long as an American president refuses to start seriously planning for a withdrawal, Iraq’s leader will continue on this way.

Mr. Bush was right on one point Tuesday when he said that “Afghanistan’s success is critical to the security of America.”

What he didn’t say is that Washington is in real danger of losing the war against the Taliban and Al Qaeda — the war Mr. Bush shortchanged again and again for his misadventure in Iraq.

American commanders in Afghanistan need a lot more help than the 4,500 additional troops Mr. Bush has now pledged to send there.

Mr. Obama has offered a sensible blueprint for quickly drawing down American troops in Iraq and bolstering the fight in Afghanistan. After a befuddling silence, Mr. McCain on Tuesday finally agreed that more troops are needed in Afghanistan. What Mr. McCain has yet to explain is where those troops will come from.

Mr. Bush’s disastrous war in Iraq has so overtaxed American forces that the math is painfully simple: Until there is a real drawdown from Iraq, there will not be enough troops to win in Afghanistan.

Details revealed about Freddy Mac and Fannie Mae’s taxpayer-funded bailouts

2008-09-10T09:24:00.008-04:00

If you should be fortunate enough to have a little free time on your hands this week - and you find yourself anxious to gain a better-informed perspective on global affairs, be sure to read this exclusive report in the New York Times. It discusses the financial future of the two quasi-governmental mortgage agencies Freddy Mac and Fannie Mae. It was written by veteran NYT financial journalist Andrew Ross Sorkin (who also compiles the NYT's online database of merger and acquisition activity DealBook.

From Sorkin's reporting:

According to Treasury Secretary Henry M. Paulson Jr., he informed a Congressional panel in July about his plans to stabilize Fannie Mae and Freddie Mac and, with them, the financial markets as well as “If you’ve got a bazooka, and people know you’ve got it, you may not have to take it out.”

The bazooka in question was his new authority to seize the two mortgage finance giants if things went horribly wrong. The thinking was, if the markets knew that Mr. Paulson was packing heat, the markets would back off and confidence would be restored. He might save Fannie and Freddie without firing a shot — sort of a Wall Street version of the theory of deterrence.

And yet the moment Mr. Paulson uttered that line, it was all over for Fannie and Freddie. Once he mentioned that bazooka — that is, the possibility that the Bush administration might take over the two companies — he virtually guaranteed that that was exactly what would happen. On Sunday, his bazooka went off, and the shot is still reverberating around the world.

The rest was just theater. For the last two months, Fannie and Freddie ran around Wall Street searching for a savior. Private equity? Sovereign wealth funds? Anyone?

But Wall Street was never really sure what Mr. Paulson would do — and that was a problem. “He never laid out a roadmap and how he would use the power. Because of the uncertainty nobody was willing to put in money” into Fannie or Freddie, said Doug A. Dachille, the chief executive of First Principles Capital Management.

The companies also never got the chance to tap people who already owned their stock for additional cash. “We will never know whether existing shareholders would have put in money,” Mr. Dachille said.

Meanwhile, the companies’ bankers — Goldman Sachs, JPMorgan Chase and others — jockeyed for positions of influence, and yes, fees. (Morgan Stanley, which had been working for Freddie — and was at one point demoted, according to company executives — jumped ship and found a more prestigious, pro bono role advising Mr. Paulson and the government.)

But the real question is, did things have to end this way? The answer, many on Wall Street believe, is yes. But maybe not when nor the way it did.

Many people in financial circles can’t quite figure out why Mr. Paulson, the former chairman of Goldman Sachs, pulled the trigger when he did. He insisted politics had nothing to do with it. Never mind that the news broke just after the Democratic and Republican conventions, but as far away as possible from the November election.

But as of last week, Fannie and Freddie, for all their troubles, seemed to be bumbling along O.K. Both were able to roll over their enormous debts in the capital markets. Sure, Wall Street was nervous about those debt auctions, but the sales were running efficiently, in part because Mr. Paulson’s promise — or threat, depending on your view — showed that the government would stand behind the companies in the end.

What’s more, Fannie had made good on its promise to raise $5.5 billion last spring, before Mr. Paulson asked Congress for his bazooka. By most analysts’ accounts, Fannie had enough wiggle room to stay in business for a while longer, if not find a way out of the mess down the road.

“We are surprised that such measures are deemed necessary at this time,” Bradley Ball, a research analyst at Citigroup, wrote in a research report on Sunday night.

Freddie — long considered the more troubled of the two — was capitalized enough to keep going through 2009, many analysts believe. “Even if neither raises another dollar of capital over the next year, we estimate that both companies will likely remain above their statutory minimum requirements,” Bruce W. Harting, an analyst at Lehman Brothers wrote.

Neither company is blameless. Freddie seemingly refused to raise new money while it still could, in part, for fear of diluting its shareholders and selling too low. Freddie was convinced it could recover first; the power of optimism is a dangerous force. Indeed, it was Freddie’s balance sheet that had Mr. Paulson most worried, at least in the immediate term.

Could Mr. Paulson have put Freddie into a conservatorship without bringing Fannie in too? Probably not. It would have just put more pressure on Fannie.

In the end, Mr. Paulson’s decision seems to have been a philosophical one, rather than one forced by imminent crisis. Of course, for stagecraft purposes, it was played as impending disaster.

His decision will either go down as a masterstroke of genius — or as a horrible lapse of judgement that future generations of American taxpayers will get stuck paying off..

[Paulson] appeared to want to take care of the problem himself — perhaps guaranteeing him a lasting legacy — during his time in the Bush administration. This way, had either Fannie or Freddie run into problems in the next administration, nobody could point the finger at him. For that reason, perhaps we should give credit to Mr. Paulson for jumping in ahead of more problems instead of looking back and playing Washington’s blame game after the fact.

There’s something very Wall Street about the decision: firms often write down their bad investments in one year, so they can start the next year fresh.

All of us will bear the cost, of course. The scariest part of Mr. Paulson’s economic acrobatics is that we won’t know for years just how much this will cost us. On CNBC on Monday morning, when asked about how big the bill might be, Mr. Paulson replied, “We didn’t sit there and figure this out with a calculator.” Apparently, he wasn’t joking.

For an example, check out this excerpt from an article by William Greider from The Nation's blog "The Notion":

The 2008 election has many unusual aspects, but none is more bizarre than the sorry spectacle of the bailout for Fannie Mae and Freddie Mac.

American voters are like the lambs being led to slaughter and at the very height of the presidential campaign. Yet not a peep of protest from John McCain and Barack Obama, not even a hint of the righteous anger injured taxpayers will rightly feel as they figure out the deal for themselves. The rescue of the two giant mortgage firms is another huge expenditure of the public's money--one or two hundred billion dollars this time--to reassure bankers and financiers the government stands by them in their troubles, whatever the costs.

Think about it. Candidates Obama and McCain are wagging their fingers at the governing system in Washington, both warning they intend to make big changes if elected. Meanwhile, business-as-usual doesn't wait for the next president. The financial system needs the capital right now, and so Treasury Secretary Henry Paulson has opened up the spigot. Obama and McCain meekly bless the deal. This sequence of events makes them look look the political goats, their grand talk of change pushed aside by what Wall Street demands.

The 2008 election may be close, but it looks like the status quo has already won.

There is a lot more pain and embarrassment to come. The nation is in the midst of an historic financial crisis--more bank failures are ahead and probably another bailout of even larger scale. Yet the two major parties act as though this subject is too complicated for ordinary Americans to understand. Neither candidate has found the nerve (or decency) to explain the full dimensions of what the country is facing. Both men are no doubt told to say as little as possible, for fear of touching off more panic among investors. Voters can safely be left in the dark.

Facing the crisis honestly would not fit very well with the flag-waving campaign themes. The United States is financially busted and utterly dependent on lending from foreign powers--both friends and rivals around the world. The government rescue of Fannie Mae and Freddie Mac could not be put off until after the election, as insiders had hoped, because foreign creditors were beginning to back away from lending any more capital to the two failing US firms. The major creditors are led by China, Japan and other Asian nations, plus oil-rich Arab states and even Russia. The Bank of China has reduced its $376 billion in lending to Fannie and Freddie by 25 percent since July and other nations threaten to do the same.

So the Treasury arranged a deal that throws Fannie and Freddie shareholders over the side, but promises to protect the creditors, foreign and domestic. Bill Gross, chief investment officer of PIMCO, the mammoth bond house in California, issued an ominous warning in advance. If Washington didn't "open up the balance sheet of the US Treasury" and pump lots of public money into the ailing financial firms, the major lenders would sit by and let the great deflation of Wall Street proceed to its ruinous climax. Without the big lenders, credit would dry up through the US economy and the destruction could prove bloody historic for all. The Treasury Secretary heard the message.

How much more capital does Wall Street need to get well? Maybe as much as $500 billion, some experts estimate. What's frightening is that even that great amount might not provide a cure for anytime soon for the real economy, where unemployment rises along with mortgage foreclosures. Thus, Washington puts up unlimited billions for financial repair, but has been rather penny-pinching about paying for economic stimulus aimed at work and production. Obama now proposes a new stimulus package, but the pitiful sum of $50 billion. McCain talks up more corporate tax cuts.

If Americans had a functioning democracy, both of these guys would be competing furiously to get real.

A postmortem of the US's "Global War on Terror"

2008-09-10T00:38:00.005-04:00

Here's what professor Andrew Bacevich has to say about the last seven years of the US's Global War on Terror.

The events of the past seven years have yielded a definitive judgment on the strategy that the Bush administration conceived in the wake of 9/11 to wage its so-called Global War on Terror. That strategy has failed, massively and irrevocably. To acknowledge that failure is to confront an urgent national priority: to scrap the Bush approach in favor of a new national security strategy that is realistic and sustainable - a task that, alas, neither of the presidential candidates seems able to recognize or willing to take up.

Bacevich notes that it was just weeks after the terror attacks on September 11th, 2001 that Bush received from his Secretary of Defense Rumsfeld a memo that boldly and succinctly defined the administration's chief objectives in the War on Terror. Drafted by Rumsfeld's chief strategist, neocon Douglas Feith, the memo declared stated quite matter of factly: "If the war does not significantly change the world's political map, the US will not achieve its aim." As we all know now, Feith and his fellow travelers in the administration saw the inevitable aim of America foreign policy as completing a "transformation" of the Middle East region, and the Islamic world as well.

You would be hard-pressed to find a phrase that better expresses the nonsensical doctrines of "War on Terror" and "Pre-Emptive war," or the strategy of "running the tables" in the Middle East than "dangerously idealistic." And it was directly out of this unrealistic, hubristic notion that the US not only could, but actually needed to change the most anti-American region of the world - and billions of Muslims right along with it - that the unprovoked illegal invasion of Iraq was hatched.

Examining the relationship between economic inequality and voting preferences

2008-09-09T23:07:00.012-04:00

Matthew Yglesias has just recently written what I consider to be a refreshingly provocative post for his blog - currently hosted by the progressive think tank The Center for American Progress, based in DC.

In his blog post, Yglesias links to former Bush political advisor and proud Neoconservative David Frum's most recent article which appeared in the September 7th, 2008 issue of the New York Times. Frum's article is entitled "The Vanishing Republican," and it really merits a good deal of very close attention being provided by the child's father, mother and legal guardian.

Check out this great excerpt from Frum's NYT piece:

Republican economic management since 2001 has not yielded many benefits for middle-income America. Adjusting for inflation, the incomes of college graduates actually dropped by 5 percent between 2000 and 2004 — and 44 percent of the people of Prince William are college graduates. Prince William is also ground zero for the middle-class revolt against the Bush administration’s easy immigration policies. An estimated 10 million migrants have entered the United States since 2000, at least half of them illegally, and few places in the United States have reacted more angrily than Prince William County. Last year, the Prince William Board of Supervisors voted unanimously to require the local police to check the immigration status of all arrested persons.

It’s widely understood that abundant low-skilled immigration hurts lower America by reducing wages. As the National Research Council noted in its comprehensive 1997 report: “If the wage of domestic unskilled workers did not fall, no domestic worker (unskilled or skilled) would gain or lose, and there would be no net domestic gain from immigration.” In other words, immigration is good for America as a whole only because — and only to the extent that — it is bad for the poorest Americans. Conversely, low-skilled immigration enriches upper America, lowering the price of personal services like landscaping and restaurant meals. And by holding down wages, immigration makes the business investments of upper America more profitable.

Middle-class Americans surely share in the cost-lowering benefits of immigration. But the middle class also pays the higher local tax bills that can result from immigration. Immigrants do not qualify for many federal benefits, but they do use the roads, schools, hospitals and prisons supported by state and local property taxes — the taxes that fall most disproportionately on the middle class.

It is also clear that immigration thickens the ranks of the American poor. The poverty rate for post-1970 immigrants and their native-born children is almost 50 percent higher than for the native born. (In 1970, established immigrants were much less likely to be poor than the native born.) No mystery why this should be so: one-third of adult new immigrants have not finished high school. And there is reason to fear that this poverty will become entrenched: barely half of Latino students complete high school on time; 48 percent of births to Latino women occur outside marriage.

Going back to Yglesias' original blog post, his analysis provides some very important new insights, such as:

Quantitatively, “the Democrats’ vote share by state is slightly correlated with income inequality, but much less than the correlation with income itself.” High levels of in-state inequality seem to be correlated with high levels of immigration (I assume that part of the story is immigration causing inequality and part of the story is that the immigrants are going to places where there are very rich people and, therefore, jobs to be had servicing them) which, in turn, is only pretty loosely associated with Democrats doing well.

Several commenters over at Yglesias' original blog post have added some additional valuable comments (and criticisms) of his analysis. For example. one commenter wrote that:

Frum’s thesis applies to cities and counties. It makes no sense on a statewide basis. Remember the county-by-county voting maps from the past two presidential elections — each a sea of red with blue urban enclaves? It’s those blue cities and counties where there is the greatest inequality, like the specific examples he discusses.

At first glance it would seem that high income equality in Democratic states would reflect badly on the Democrats. But yes, high levels of immigration and urbanisation seem to be the deciding factors here, urbanisation being the one Matt doesn’t mention. Big cities tend toward having more unequal populations, and the urban poor by a massive margin vote democratic, outweighing the votes of the rich, republican leaning urban elite. It has nothing to do with Democratic policy at a state level.

And finally, for those readers who want to gain an advanced understanding of the myriad statistical relationships that exist between voting patterns and economic insecurity, Columbia professor of Statistics and Political Science Andrew Gelman's has conducted a great deal of quantitative, eye-opening research on how the increased widening of systemic economic inequality in the US both informs and impacts on the complex decision-making models developed by the voting public to inform their decisions of which politician(s) to cast their vote for. You can read the entire blog here.

Update: Ezra Klein has a few thoughts of his own regarding another, smaller editorial written by Frum that is entitled "Palin's Working Class Appeal"; it was published in The Week Magazine six days ago. Writing in his eponomous blog, which is published by the liberal magazine The American Prospect, Klein's post "Class, Racism and Voting" takes issue with some of Frum's more provocative conclusions:

[W]hat Frum is offering as a class divide is, at times, a racial divide, or at least the enduring legacy of a racial divide. The societal insecurities that Frum thinks Democrats play into may have something to do with education, but they have a lot more to do with a lingering resentment that pointy-headed Democrats think they know what's best for the South, which is the direct descendant of a period when Democrats did think they knew what was best for the South, and that was integration, and the South didn't agree. Over time, it became untenable to express that conflict in racial terms, and it got folded into a more sterile and broad-based attack on Democrats for being elitist, or cosmopolitan, or another word that suggests contempt for traditional American ways, which has the virtue of occasionally being true. But not always.

Why are Republican hawks unable to move beyond the surge?

2008-09-09T20:08:00.007-04:00

So asks Chris Hayes of The Nation:

"[I] just read Steve Coll's edifying and nuanced profile of David Petraeus and it occurred to me that there's been kind of a strange flip between the two parties on Iraq. There was a time when Republicans all wanted to talk about "the way forward" in Iraq and a lot of Democrats basically said "we shouldn't be there in the first place!" I was one of them, and I think it was a legitimate sentiment. The answer to "what next?" was and is: leave.

But now, the Democrats, and the party's nominee have a vision for the way forward: begin withdrawal. They talk about it all the time.

And the GOP has....what? That the surge was awesome. That we're now winning. That we can't withdraw because that would be an admission of defeat or an insult to our honor or something. But what next? I sat through four days of the RNC and didn't hear anyone even pretend to answer this question.

Old EIA report on "drill here, drill now"

2008-09-09T18:10:00.001-04:00

I generally tend not to blog about environmental issues: Not because I don't recognize just how important they are in the scheme of challenges facing all of humanity, but because I inevitably fall back on reading about the economy and war in Iraq. But this post is just too good to not share and document for posterity's sake.

Basically, according to the US Energy Information Administration's latest report last October, McCain's energy plan, which consists of little more that empty chants of "Drill Baby Drill," won't make a dent in getting America off of its addiction to fossil fuels, and will instead just put off to future generations the difficult work of conserving and retooling our domestic economy.

Evaluating Bush's (inevitable) decision to bail out Freddie Mac & Fannie Mae

2008-09-08T20:59:00.008-04:00

I applaud liberal political journalist and blogger Ezra Klein for putting together an important road map for the systemic collapses on Freddy Mac and Fammy Mae over the last few years. His coverage is marked both by erudition as well as an almost uncanny ability to imagine how changes in legislation, bureaucracy and better regulation in general could have helped prevent (or at least mitigate) this mess. He put a number of economic policy gurus on the record to try and explain the origins of this whole filthy mess the US taxpayer will be underwriting for decades.

And as for Dean Baker, the collapse of Fannie and Freddy was also utterly predictable as well: see this post "Fannie and Freddie Go Under: Yes, This Was Predictable."

Okay, this is a bit of gloating. After having debated the economists at Fannie and Freddie more than a dozen times over the past six years, I am going to take the opportunity to say that I was right and they are bankrupt.

Their economists consistently dismissed the possibility that there was a housing bubble and were enraged at the suggestion that these two corporate giants could face financial problems. Of course there was a housing bubble and it was inevitable that it would collapse and impose serious strains on Fannie and Freddie.

As I said back in September of 2002:

"If housing prices fall back in line with the overall rate price level, as they have always done in the past, it will eliminate more than $2 trillion in paper wealth and considerably worsen the recession. The collapse of the housing bubble will also jeopardize the survival of Fannie Mae and Freddie Mac and numerous other financial institutions."

Pentagon air strikes on Afghani village kills nearly 100 civilians

2008-09-08T19:47:00.007-04:00

As this tragic report from the Associated Press filed this afternoon reveals: The bodies of at least ten children and many more adults appear in grainy videos taped by bystanders with their camera phones were obtained by the AP, "lending weight to Afghan and UN allegations that a US-led raid last month killed more civilians" than the Pentagon reported to the media. The air strikes - which were conducted by US Special Forces - took place in the western Afghanistan village of Azizabad; according to an Afghani government commission and UN report, an estimated 90 civilians - including 60 children and 15 women - were killed.

According to the AP: "The videos do not provide proof that 60 children died in the operation, but the images do appear to contradict a US military investigation that found only seven civilians were killed in Azizabad, along with up to 35 militants. [. . .] It was impossible to verify conclusively that the videos showed the aftermath of the Azizabad attack, but the contents appeared to back claims by Afghan and UN officials that the US operation killed far more civilians than the military has acknowledged."
For more coverage of this attack, be sure to check out this post from the Afghanistan Conflict Monitor; a website that contains a treasure trove of resources for those covering the US's continued military operations in Afghanistan against the newly resurgent Taliban as well as the remnants of al Qaeda.

The Daily Show on Sarah Palin

2008-09-04T23:22:00.005-04:00

Watch as Jon Stewart evicerates the GOP and right-wing campaign strategists like Karl Rove for their defense of Sarah Palin as being qualified to be this nation's next Vice President - using their own words. It is impossible not to notice the radically inconsistent standards that are applied to Obama and Palin in the GOP talking points.

Additionally, more and more evidence is starting to trickle out, indicating that it was not John McCain who chose Palin to be his running mate, but rather a secretive far-right organization tied in to the Christian Zionist movement.

Pentagon launches botched attack on Pakistani village, 20+ civilian casualties estimated

2008-09-04T17:49:00.006-04:00

The Financial Times reports on a botched US military raid in the village of Angor Adda in Pakistan - apparently based on faulty intelligence. While the Pentagon stated that it was meant to be a strike against al Qaeda (who else?), the strike by Special Forces ended up killing up to 20 civilians, including women and children.

The strike is being interpreted as an obvious effort by the Bush administration to intensify its counter-terrorism efforts against al Qaeda in Pakistan, the country where most analysts believe bin Laden and al-Zawahiri are still hiding if they are in fact still alive. But the fact that this raid ended up targeting and killing civilians ended up having the predictable effect of angering Pakistani civilians as well as the country's new government:

“This was a complete botch up. The Americans went wild upon receiving what has turned out to be very faulty intelligence” said one Pakistani diplomat. “The Americans put boots on the ground and got egg on their face”.

Opposition leaders used the occasion to condemn the government for its failure to defend Pakistan’s interests.

“The US attack on Pakistani soil is totally condemnable. The government must defend our frontiers. America has disregarded all norms of law” said Javaid Hashmi, a senior leader of the opposition Pakistan Muslim League-Nawaz (PML-N) led by former prime minister Nawaz Sharif.

And further complicating matters, Pakistan is holding its presidential elections on Sunday, adding even more tension to the mix. According to the FT: "[W]estern diplomats said that Wednesday’s cross-border raid was likely to make the popular mood increasingly hostile to the government as well as Washington."

More on the disastrous raid from Time, including this wonderful quote from Pakistan's Foreign Ministry: "The Foreign Ministry called the strike 'a gross violation of Pakistan's territory,' saying it could 'undermine the very basis of cooperation and may fuel the fire of hatred and violence that we are trying to extinguish.'"

Update: I didn't realize this, but according to the report from Time, this was actually "[T]he first incursion onto Pakistani soil by troops from the foreign forces that ousted Afghanistan's hard-line Taliban regime after the Sept. 11 attacks."

Last month's geopolitical chess match between Bush and Putin

2008-09-04T17:45:00.005-04:00

Global energy policy expert Michael Klare has penned what is probably the most comprehensive and strongly supported analysis of the historical context and geopolitical implications of last month's military flare-up between Russia, Georgia and the independent states in the Caucasus region.

Klare begins his article by getting straight to his main point - most of the analysis (from the West) of the complex situation and the root causes thereof is based upon an misunderstanding of the geopolitical context, mistaken assumptions and deeply misguided logic:

Many Western analysts have chosen to interpret the recent fighting in the Caucasus as the onset of a new Cold War, with a small pro-Western democracy bravely resisting a brutal reincarnation of Stalin's jack-booted Soviet Union. Others have viewed it a throwback to the age-old ethnic politics of southeastern Europe, with assorted minorities using contemporary border disputes to settle ancient scores.

Neither of these explanations is accurate. To fully grasp the recent upheavals in the Caucasus, it is necessary to view the conflict as but a minor skirmish in a far more significant geopolitical struggle between Moscow and Washington over the energy riches of the Caspian Sea basin -- with former Russian President (now Prime Minister) Vladimir Putin emerging as the reigning Grand Master of geostrategic chess and the Bush team turning out to be middling amateurs, at best.

In other words, it is simply not as straightforward as Russia representing the aggressor while Georgia played the role of innocent victim here, despite the protestations of Dick Cheney and the usual Neoconservative suspects. Klare explains that what this conflict is actually about is "control over the flow of oil and natural gas from the energy-rich Caspian basin to eager markets in Europe and Asia." He notes that according to the most recent estimates mde by BP, the Caspian's leading energy producers, all former "socialist republics" of the Soviet Union -- notably Azerbaijan, Kazakhstan, Turkmenistan, and Uzbekistan -- together possess approximately 48 billion barrels in proven oil reserves (ror approximately the amount still remaining in the US and Canada) and 268 trillion cubic feet of natural gas (essentially equivalent to what Saudi Arabia possesses).

While Moscow controlled access to these massive energy resources before the collapse of the Soviet Union in 1991, in the aftermath Western oil companies such as Chevron, BP, Shell, and Exxon Mobil began to participate in the "hydrocarbon equivalent of a gold rush to exploit Caspian energy reservoirs, while plans were being made to channel the region's oil and gas to markets across the world."

It turned out that convincing the political leaderships of the newly-established independent Caspian states to sign exploraton and access agreements ended up being relatively straightforward since the governments were all-too-happy to attract investment capital from these multinational energy corporations. The bribes that these firms offered up to the local political elite made the proposition even more attractive, as did the prospect of these independent states being able to further free themselves from Moscow's iron economic grip.

Enter President Bill Clinton in 1992, who made the calculated decision to create an "energy corridor" through the newly-independent Republic of Georgia to make possible the export of Caspian basin oil and gas to the West, completely bypassing Russia in the process. Klare details how an initial, "early-oil" pipeline was subsequently constructed in order to carry petroleum from the newly-developed fields in Azerbaijan's section of the Caspian Sea all the way to the port city of Supsa on the Black Sea coast of Georgia. From there, it was loaded onto tankers for delivery to international markets. He goes on to note that this development would be followed by a far more "audacious" scheme: the construction of the 1,000-mile BTC pipeline from Baku in Azerbaijan to Tbilisi in Georgia and then on to Ceyhan on Turkey's Mediterranean coast:

[Even at the time] Clinton understood that this strategy entailed significant risks, particularly because Washington's favored "energy corridor" passed through or near several major conflict zones -- including the Russian-backed breakaway enclaves of Abkhazia and South Ossetia. With this in mind, Clinton made a secondary decision -- to convert the new Georgian army into a military proxy of the United States, equipped and trained by the Department of Defense. From 1998 to 2000 alone, Georgia was awarded $302 million in U.S. military and economic aid -- more than any other Caspian country -- and top U.S. military officials started making regular trips to its capital, Tbilisi, to demonstrate support for then-president Eduard Shevardnadze.

According to high-level officials at the US's National Security Council, these efforts to promote the construction of new pipelines through Azerbaijan and Georgia were clearly intended "to break Russia's monopoly of control over the transportation of oil from the region."

But when Vladimir Putin took the political stage in Russia in 1999, there was a strong priority given to pushing back against Washington's attempts to monopolize the vast oil and gas supplies of Central Asia right in their backyard. Even before assuming the presidency in 2000, Putin indicated that he believed state control over energy resources should be the basis for Russia's return to great-power status.

On this basis, Putin presided over the re-nationalization of many of the energy companies that had been privatized by Yeltsin and the virtual confiscation of Yukos -- once Russia's richest private energy firm -- by Russian state authorities. He also brought Gazprom, the world's largest natural gas supplier, back under state control and placed a protégé, Dmitri Medvedev -- now president of Russia -- at its helm.

According to Klare:

Once he had restored state control over the lion's share of Russia's oil and gas resources, Putin turned his attention to the next obvious place -- the Caspian Sea basin. Here, his intent was not so much to gain ownership of its energy resources -- although Russian firms have in recent years acquired an equity share in some Caspian oil and gas fields -- but rather to dominate the export conduits used to transport its energy to Europe and Asia.

This is the historical background that simply must be thoroughly understood and taken into account to even begin to understand the military actions in Georgia and the independent states on Russia's south border - Abhkazia and South Ossetia. The Bush administration ultimately decided to use Georgia's recently elected President, Mikheil Saakashvili, as a "useful pawn in [Washington's] pursuit of a long smoldering anti-Russian agenda" and [both Bush and Saakashvili] ended up walking into a trap that had been cleverly designed by Putin.

As the article goes on to explain:

It is hard not to conclude that Russian prime minister goaded the rash Saakashvili into invading South Ossetia by encouraging Abkhazian and South Ossetian irregulars to attack Georgian outposts and villages on the peripheries of the two enclaves. Secretary of State Condoleezza Rice reportedly told Saakashvili not to respond to such provocations when she met with him in July. Apparently her advice fell on deaf ears. Far more enticing, it seems, was her promise of strong U.S. backing for Georgia's rapid entry into NATO. Other American leaders, including Senator John McCain, assured Saakashvili of unwavering U.S. support. Whatever was said in these private conversations, the Georgian president seems to have interpreted them as a green light for his adventuristic impulses. On August 7th, by all accounts, his forces invaded South Ossetia and attacked its capital city of Tskhinvali, giving Putin what he long craved -- a seemingly legitimate excuse to invade Georgia and demonstrate the complete vulnerability of Clinton's (and now Bush's) vaunted energy corridor.

As this article so convincingly illustrates, as with most geopolitical conflicts to which the US is a party to (and which major conflicts is the US completely disengaged from, really?), the Ossetia War and the broader conflict between Russia and its former client states of Georgia and the Ukraine has as much to do with the Great Game and control of resources as it does the more obvious, long-term military ambitions of these Central Asian states.

Therefore, this latest report from today's Financial Times (UK) on VP Dick Cheney's promise of a $1 billion (US taxpayer funded!) humanitarian aid package for Georgia to help rebuild must be read with all of the aforementioned facts in the front of one's mind. Context is simply everything here, and by ignoring it, or worse getting it wrong- we will end up being led to what can only be described as a radically confused understanding of the ins and outs of these rapidly developing world events and their dynamics.

Lakoff on the strategy behind the Palin pick

2008-09-04T16:35:00.005-04:00

Some great insight from UC Berkeley linguist and political theorist George Lakoff on the background behind McCain's decision to choose Sarah Palin as his running mate here.

[T]he Palin nomination changes the game. The initial response has been to try to keep the focus on external realities, the "issues," and differences on the issues. But the Palin nomination is not basically about external realities and what Democrats call "issues," but about the symbolic mechanisms of the political mind-the worldviews, frames, metaphors, cultural narratives, and stereotypes. The Republicans can't win on realities. Her job is to speak the language of conservatism, activate the conservative view of the world, and use the advantages that conservatives have in dominating political discourse.

Our national political dialogue is fundamentally metaphorical, with family values at the center of our discourse. There is a reason why Obama and Biden spoke so much about the family, the nurturant family, with caring fathers and the family values that Obama put front and center in his Father's day speech: empathy, responsibility and aspiration. Obama's reference in the nomination speech to "The American Family" was hardly accidental, nor were the references to the Obama and Biden families as living and fulfilling the American Dream. Real nurturance requires strength and toughness, which Obama displayed in body language and voice in his responses to McCain. The strength of the Obama campaign has been the seamless marriage of reality and symbolic thought.

The Republican strength has been mostly symbolic. The McCain campaign is well aware of how Reagan and W won-running on character: values, communication, (apparent) authenticity, trust, and identity - not issues and policies. That is how campaigns work, and symbolism is central.

Lakoff's main point is that Democrats should take the Palin pick very seriously, remembering the lessons learned the hard way from the Reagan and George H.W. Bush campaigns. To treat her as a joke and a source of derision could end up blowing up in our collective faces.

The again, the fact that Palin was ultimately tapped as the Republican ticket's Vice Presidential nominee really is a joke is just as likely to end up blowing up in John McCain and his advisors' faces.

Bush compares his critics to torturers

2008-09-03T17:04:00.003-04:00

Yes, his scumbaggery never ceases to amaze.

Speaking via a live video feed from the White House, Bush enthusiastically endorsed the man his campaign smeared in the 2000 Republican presidential primary campaign. Then, after recalling presumptive presidential nominee John McCain's status as a POW during the Vietnam War, Bush tossed off what may well have been the crudest applause line ever uttered by a sitting president with regard to the campaign to succeed him.

Referring to the prison in which McCain was held, Bush revealed the depth of his own bitterness by declaring: "If the Hanoi Hilton could not break John McCain's resolve to do what is best for his country, you can be sure the angry left never will."

Obama campaign finally calls out Lieberman

2008-09-03T17:01:00.001-04:00

And it's been long overdue.

Edward S. Herman: "The Law of the Conservation of Violence"

2008-09-03T10:16:00.003-04:00

Leftist US economist/journalist Edward Herman writes on "The Law of the Conservation of Violence":

It is interesting and depressing to see that as Obama calls for some kind of withdrawal or at least substantial cutbacks of the U.S. occupation of Iraq, at the same time he calls for escalation in Afghanistan. By doing this he hopes to ease the threat of vulnerability to accusations of weakness on "national security" and an un- or anti-American "cut and run" perspective. This has long been a problem for the Democrats, who have a mass populist constituency that would like some transfer of government resources to their pressing civilian needs.

The establishment, including the mainstream media, therefore, keeps the pressure on to assure that the Democrats stay in line and the Democrats often compensate, even overcompensate, to demonstrate their integration into an imperialist worldview and weapons culture. Both Gore and Bush wanted a bigger military budget in 2000 (Nader, who wanted cuts, was marginalized). Both Hillary Clinton and Barack Obama on the campaign trail called for a larger army to meet U.S. "defense" needs. Now Obama wants us to take on a bigger commitment to violence. This will keep the arms cargo ships and planes busy and the bomb factories and plane and missile factories working at full capacity. Of course, those wanting infrastructure improvements and resources will have to wait and "hope" for a better future after our enemies are defeated and full hegemony and stability are established. They need a good dollop of "vision."

The law of conservation of the level of violence thus rests on the structure of power and its reflection in politics. If you want to compete in politics in the militarized America of today you can't scrimp on money for "national security" and you need to display a readiness to exercise a "muscular" foreign policy. If you call for reduced forces in one country, you must urge their increase in another. Keep those muscles in shape and bombs dropping.

Retired Generals lay the smack down on Bush's torture

2008-08-29T17:14:00.001-04:00

I think it's important to remember as the November presidential election nears, that when George W. Bush vetoed a bill banning the CIA from waterboarding back in March, Candidate McCain the "Maverick" - an outspoken critic of the US military's use of torture - actually supported this action.

Unlike most of the mainstream media, I think that this is actually a much more important concern over the fitness of McCain to serve as America's next Commander in Chief than the fact that his running mate's unmarried teenage daughter is pregnant. I suppose getting serious media attention on a topic as unsexy and boring as torture is too much to ask for the 24-hour news-cycle obsessed cable news stations and newspapers.

Central bankers meet in Jackson Hole, WY

2008-08-29T17:05:00.005-04:00

Two must-read dispatches from the central bankers' meeting in Jackson Hole, Wyoming last weekend. First, Dean Baker notes:

The world is now facing the most serious financial crisis since the Great Depression. At least, that is the assessment of Alan Greenspan. With house prices plunging, unemployment and inflation rates rising and banks failures mounting, Greenspan has a pretty good argument.

How did we get here? The centerpiece in this story is the United States allowed an $8 trillion housing bubble to grow unchecked. Between 1996 and 2006, house prices rose by more than 70 percent, after adjusting for inflation. In the previous century, from 1896 to 1996, house prices had just kept even with the overall rate of inflation.

When there is suddenly a sharp divergence from a long-term trend like this, it is reasonable to look for an explanation. Was there some fundamental factor on either the supply or demand side that was suddenly causing house prices to skyrocket?

A quick investigation revealed no obvious suspects. On the supply side, there were no major new constraints that were impeding construction. In fact, housing starts were at near record levels over the years 2002 to 2006, so there was no reason to believe any developments on the supply side could explain skyrocketing house prices.

The demand side also didn't feature any obvious culprits. The rate of population growth and household formation had slowed sharply. If demographics could explain a sharp rise in house prices, then we should have seen the surge in the 70s and 80s. That was when the huge baby boom cohort was first forming their own households. In the current decade, the baby boomers are preparing for retirement.

There also was no plausible income story. Income grew at a healthy but not extraordinary rate in the years from 1996 to 2000, but income growth has been very weak throughout the current decade.

Finally, if the run-up in house prices could be explained by the fundamentals of the housing market, then we should expect to see a comparable increase in rents. But there was no unusual run-up in rents. They did slightly outpace inflation in the late 90s, but they actually were falling behind inflation by the early years of this decade.

If the run-up in house prices could not be explained by the fundamentals, then it was a bubble, which would burst. This was easy to see for anyone who cared to look, but Greenspan and his sycophants could not be bothered. Greenspan insisted everything was fine - there was no housing bubble - and virtually the whole economics profession, including his fellow central bankers, acted an enablers touting Mr. Greenspan's wisdom.

While the exact timing and path of the housing market's collapse and the resulting turmoil in financial markets could not be predicted, the basic course of this tsunami was entirely foreseeable. The collapse of the bubble will destroy in the neighborhood of $8 trillion of housing wealth. Most of these losses will be absorbed by homeowners ($8 trillion comes to $110,000 per homeowner), but if just ten percent of the loss ends up on bank financial sheets, the losses will be $800 billion.

Next, Yves Smith, writing at her indispensable finance and macroeconomics blog Naked Capitalism, discusses how the lack of willingness among central bankers - nd the Federal Reserve in particular - to increase market regulations is a disturbing indication of what the future holds.

A bad credit loan is worse than payday loans in the moneysupermarket. Before you apply for more loans, it is better to check advance loans.

Putin’s war and the Middle East: Ramifications for Israel?

2008-08-29T01:32:00.003-04:00

Political science professor Robert O. Freedman, in the context of the recent Russian invasion of Georgia, writes:

Russian-Israeli relations have had their ups and downs under Putin, but in recent years it is clear that relations have deteriorated. Russian support for Hamas, its turning a blind eye when Syria transferred anti-tank missiles to Hezbollah, and its military and diplomatic support for Iran at a time when the Iranian leadership has been calling for the destruction of Israel, have all soured relations. Yet, as a high-ranking Israeli diplomat who specializes in Russian-Israeli relations told me in 2007, “relations are not as bad as they could be.”

Indeed, Moscow has a bifurcated if not schizophrenic relationship with Israel. While on the one hand Russian regional policies vis-à-vis Hamas, Hezbollah, Iran and Syria, have clearly hurt Israel, on the level of bilateral Russian-Israeli relations, the ties between the two countries are developing surprisingly well.

Thus, on the eve of the Asad visit to Moscow, Russian President Dmitry Medvedev and Israeli Prime Minister Ehud Olmert had a telephone conversation about Israeli-Syrian relations and about the situation in Georgia. Trade between Russia and Israel has exceeded $2.5 billion a year, much of it in the high tech sector which Putin needs to develop the Russian economy so that it is not dependent on dwindling energy exports. Cultural ties are thriving, and Moscow just established a cultural center in Tel Aviv. The two countries have signed a visa-waiver agreement to facilitate tourism.

Negotiations are underway for the return to Russia of Czarist property in Jerusalem. Russia and Israel cooperate in the sale of weaponry to third countries, such as an AWACS aircraft to India (Russia supplies the airframe and Israel the avionics). And Israel’s ruling Kadima Party has just signed an agreement with Putin’s United Russia Party to establish party-to-party relations. While some in the Russian military such as Russia’s Deputy Chief of Staff Anatoly Nogovitsyn publicly complained about Israeli aid to the Georgian military, Foreign Minister Lavrov went out of his way to praise Israel for stopping arms sales to Georgia.

What then explains Russia’s bifurcated policy toward Israel, and how will the Russian invasion of Georgia affect it? It appears clear that Russia has three goals vis-à-vis Israel. First, it is the homeland of more than a million Russian-speaking citizens of the former Soviet Union, and Russia sees Russian-speakers abroad as a source of its world influence. Hence the emphasis on cultural ties between Russia and Israel, in which Israelis of Russian origin play the dominant role. Second, Putin badly wants to develop the Russian economy, and high-tech trade with Israel is a part of his plan. Third, the Arab-israeli conflict is a major issue in world politics, and Putin would very much like to play a role in its diplomacy, if not in finding a solution to the conflict.

For this reason he has called for an international peace conference in Moscow in November and he would like Israel to attend, so as to build up the role of Russia as a world mediator. In this context, one should not discount the possibility that Putin has told the Israelis (and the message may be reinforced if Olmert makes a rumored trip to Moscow in September) that Russia will overlook Israeli arms sales to Georgia, and will not sell the feared Iskander-E or SAM-300 missiles to Syria, if Israel agrees to attend the November peace conference in Moscow.

He concludes that: "[T]he Russian invasion of Georgia was the culmination of an increasingly aggressive foreign policy on the part of Putin in the Middle East and elsewhere. While Syria quickly supported Moscow, most of the rest of the Middle East, including Russia’s ally Iran, withheld support, calling only for a quick cease-fire.

While there has been a good bit of speculation that the invasion will lead to an improvement of American-European relations in the face of the new Russian threat, the American position in the Middle East could also improve as a result of the heavy-handed Russian policy in Georgia, although that improvement may have to wait until a new American administration takes office in January 2009."

Naomi Klein is right

2008-08-27T18:05:00.003-04:00

Be sure to check out this great video interview of Naomi Klein:

Obama's speech tomorrow must demonstrate his strong commitment toward advancing a progressive ideology

2008-08-27T00:42:00.007-04:00

Your daily reading assignment, if you choose to accept, is to check out this inspirational editorial written by Paul Waldman in the liberal political monthly The American Prospect. I happen to agree with Waldman on his main points: That is, Obama absolutely needs to run a general election campaign against his Republican rival Senator John McCain as an economic populist and a strong supporter of the burgeoning progressive movement.

Waldman puts forward his theory that:

There's something . . . worth hoping for in Obama's speech, something that has been glimpsed only occasionally in his presidential campaign: a full-throated defense not just of his candidacy or of the vague ideas of change and progress but of progressivism as an ideology. And while he's at it, he could offer an attack not just on the actual failures of George W. Bush or the potential failures of John McCain but on the failure that is conservatism.

If Obama wins in November, he will have the opportunity to do for progressives what Ronald Reagan did for conservatives: not just advance their goals in government but provide an ideological touchstone that nourishes their movement for decades. The power Reagan gave to conservatives came in no small part because he was a proud advocate for his ideology. Obama could do the same thing, with as much lasting impact - if he seizes the opportunity.

August was a bad month for Pax Americana

2008-08-26T15:41:00.002-04:00

Jim Lobe has a great article surveying the unmitigated disaster that is US foreign policy after nearly eight years of Bush and Cheney:

Whatever hopes the George W Bush administration may have had for using its post-September 11, 2001, "war on terror" to impose a new Pax Americana on Eurasia, and particularly in the unruly areas between the Caucasus and the Khyber Pass, they appear to have gone up in flames - in some cases, literally - over the past two weeks.

Not only has Russia reasserted its influence in the most emphatic way possible by invading and occupying substantial parts of Georgia after Washington's favorite Caucasian, President Mikheil Saakashvili, launched an ill-fated offensive against secessionist South Ossetians.

Bloody attacks in Afghanistan and Pakistan also underlined the seriousness of the Pashtun-dominated Taliban insurgencies in both countries and the threats they pose to their increasingly beleaguered and befuddled US-backed governments.

And while US negotiators appear to have made progress in hammering out details of a bilateral military agreement that will permit US combat forces to remain in Iraq at least for another year and a half, signs that the Shi'ite-dominated government of President Nuri al-Maliki may be preparing to move forcefully against the US-backed, predominantly Sunni "Awakening" movement has raised the specter of renewed sectarian civil war.

Meanwhile, any hope of concluding a framework for a peace agreement between Israel and the Palestinian Authority by the time Bush leaves office less than five months from now appears to have vanished, while efforts at mobilizing greater international diplomatic and economic pressure on Iran to freeze its uranium enrichment program - the administration's top priority before the Georgia crisis - have stalled indefinitely, overwhelmed by the tidal wave of bad news from its neighborhood.

More on the Russia-Georgia conflict

2008-08-26T11:50:00.003-04:00

First, Gareth Porter makes a provocative case that it was the Bush administration's strong push to make Georgia and the Ukraine members of NATO - seen by Russia as a strategy for containing Russia right up to its "ethnically sensitive" border with Georgia. border.

He notes that:

There were plenty of signals that Russia would not acquiesce in the alignment of a militarily aggressive Georgia with a U.S.-dominated military alliance. Then-Russian President Vladimir Putin made no secret of his view that this represented a move by the United States to infringe on Russia's security in the South Caucasus region. In February 2007, he asked rhetorically, "Against whom is this expansion intended?"

Contrary to the portrayal of Russian policy as aimed at absorbing South Ossetia and Abkhazia into Russia and regime change in Georgia, Moscow had signaled right up to the eve of the NATO summit its readiness to reach a compromise along the lines of Taiwan's status in U.S.-China relations: formal recognition of the sovereignty over the secessionist territories of South Ossetia and Abkhazia in return for freedom to develop extensive economic and political relations. But it was conditioned on Georgia staying out of NATO.

And second, check out this post from Wired's "danger blog". David Axe links to a new article in the Columbia Journalism Review that criticizes the blogging world's handling of the initial Russia-Georgia conflict. I would largely have to agree: in the last few days I have been scouring the web doing background research on the topic and haven't seen a lot of informed or outside-the-box analysis from my favorite blogs.

The Biden choice

2008-08-25T19:21:00.006-04:00

Writing in The Nation, Robert Dreyfuss argues that DNC Presidential Nominee Barack Obama has managed to do "the one thing that might have seemed impossible: he's picking a running mate whose ideas about Iraq are even worse than, and stupider than, John McCain's." The article critiques six-term Delaware Senator Joe Biden's proposed partition plans for Iraq, which he first floated in an editorial for the New York Times in 2006.

And for some brief commentary on Biden's mixed record on labor, see this post by Jonathan Tasini over at his blog Working Life.

Update: More on Biden as a "liberal hawk", (or as a "savage mule"?) from Jonathan Schwarz at the blog A Tiny Revolution.

Forecasting medals at the Beijing Olympics

2008-08-25T18:30:00.003-04:00

Daniel Gross analyzes the results of two forecasts of which countries would win the most medals at the Beijing Olympic games. The first study was conducted by John Hawksworth of the Big Four accounting firm PriceWaterhouseCoopers and Andrew Bernard of Dartmouth's Tuck School of Business; the second model was constructed by economists Andrew B. Bernard and Meghan Busse of Dartmouth and the University of California at Berkeley. In his article for Slate, he notes that:

Both studies projected that while traditional powers like the United States, Russia, China, and Germany would impress in Athens, top nations would take home fewer medals than they did in 2000. "Olympic riches will be more widely distributed than before as the number of medals going to the top countries declines," Bernard and Busse wrote. PwC projected that the United States' medal haul might fall some 30 percent. Both foresaw that host nation Greece would more than double its 2000 medal count. PwC, in its boldest forecast, said India was in line to boost its medal count from one to 10.

He rates both of the models as having "a respectable performance [of predicting], but out of medal contention."

Read the article to find out what the forecasts got right and wrong.

The Russia-Georgia conflict in the balance

2008-08-19T20:43:00.002-04:00

The Christian Science Monitor helpfully charts out the positions of the various actors involved in the 2008 Russia-Georgia conflict, but rather than picking a side, the paper argues that in reality the situation is far too complex to accommodate an argument that one side is right or wrong. Instead, each side has some valid points to make in its defense.

Why I'm not watching the Olympics this year

2008-08-18T19:15:00.004-04:00

I haven't been following the Olympics this summer due to the Chinese autocratic government's atrocious human rights record: Something I think is important to do because the Chinese people aren't allowed to criticize their own government without risking their lives.

For more background on China's terrible record on civil and human rights , see this website - with the latest updates - compiled by UK advocacy group Amnesty International, as well as this report from US-based Human Rights Watch.

It's truly a sad development that a country with such poor regard for the rights and freedoms of its citizens was chosen by the IOC to be honored as host of this year's summer Olympic games.

Will South Ossetia War end up preventing Nato membership for the Republic of Georgia?

2008-08-16T21:08:00.014-04:00

Writing in The American Prospect yesterday, political science professor Robert Farley attempts to handicap the likely impact the South Ossetia War (a battle waged earlier this month between the Russian and Georgian armies) will have on the Bush administration's plan to secure Nato admission for Georgia and the other independent satellite states of the former Soviet Union.
According to Farley's analysis:

The war between Russia and Georgia, on the heels of a NATO refusal to “fast track” Georgia’s application for membership, has reignited the debate over the wisdom of extending NATO to Russia’s borders. Realists on both the right and the left suggest that the war is a predictable reaction to NATO’s intrusion into Russia’s sphere of influence. Neoconservatives and their allies respond that the war could have been avoided if NATO had agreed to include Georgia this year, as the Bush administration desired. (This debate has reopened a discussion strategic theorists have been having about the continued relevance of NATO for more than a decade.) The war has clarified this hypothetical debate by bringing the costs and benefits of the alliance and its expansion into relief.

The case that NATO expansion was to blame goes something like this: If NATO had not extended to Russia's borders (the inclusion of the Baltic countries -- Latvia, Lithuania, and Estonia -- is the push most often cited, although some people also feel that Poland should not have been included), then Russia would be more agreeable and less likely to abusively coerce its neighbors. I doubt that for several reasons

.
Farley also makes a critical observation: that Russian abuse is the single largest motivating factor behind most states' efforts to seek and acquire NATO membership. For illustration, The Poles, Baltic countries, Ukrainians, and Georgians all strongly desire membership due to "threatening" Russian behavior.

How commercialization is ruining the Olympics

2008-08-15T19:36:00.002-04:00

At least ruining it even more than it already is. Read this blog post by Robert Weissman in Multinational Monitor.

Excerpt: "Sports, of course, remain at the center of the Olympics, but commercialism has overwhelmed whatever other values the Olympics hope to embody. The overwhelming cultural influence at the Olympics is now commercial culture; and the overwhelming informational message is: buy, buy, buy.

Commercial relations interfere with proper functioning of the Olympics. In at least one notable case, commercial entanglements have called into question the integrity of a national sports governing body. A lawsuit and accusations around the activities of USA Swimming and the national team coach -- both sponsored by swimwear maker Speedo -- charge Speedo, the national team and the coach with antitrust violations. The lawsuit, filed by Tyr, a Speedo competitor, alleges the coach has trumpeted the benefits of LZR Racer, a new, high-profile Speedo suit, because of his financial ties to the company. Tyr says its Tracer Rise swimsuit, introduced weeks before the LZR Racer, is comparable to the Speedo product.

The Olympic race for corporate sponsors has also put the Olympics in unhealthy -- and sometimes quite unpleasant -- company."

New China report

2008-08-14T18:34:00.002-04:00

From the liberal think tank Center for American Progress:

China’s human rights record remains poor. China’s economic liberalization has lifted millions out of poverty, but progress toward political openness and pluralistic reform is incomplete, and in some ways regressing. Electoral reform at the local level seems stalled, and organized political dissent not tolerated. In other pockets, though, there is progress—the Chinese government is imposing more accountability on officials and providing more societal input into policy decisions.

Political and social change in China will largely need to come from within, but the United States can infl uence those developments. China’s desire to be treated as a respected member of the international community is a principal point of leverage for political change, as are China’s own governance needs and the aspirations of the Chinese people. What is required is a persistent but respectful witnessing to the universality of human rights, and encouraging other nations and groups of nations to reinforce concerns about China’s human rights, including labor rights practices.

The new administration should work with mechanisms that bring together international opinion to pressure China on human rights. The United States should enhance bilateral U.S.-China and EU-China human rights dialogue, and encourage China to ratify the International Covenant on Civil and Political Rights. The new president should pledge that the United States will join, and thus strengthen, the UN Human Rights Council at which China’s record can be reviewed consistently, and support Chinese civil society and rule of law programs and China’s engagement with the International Labor Organization.

America must work to increase its leverage in the human rights arena by reclaiming our moral authority and leadership in the world. Chastising U.S. businesses or the Chinese government will achieve nothing if the United States doesn’t live up to its own principles. The next administration must work to re-establish U.S. moral authority and leadership, which has always been one of the strongest and most efficacious tools in the American foreign policy toolbox. Leading by example is a powerful avenue America can take. Without American leadership and authority, convincing China to change will be all the more difficult.

I don't have time to read the entire report right now, but plan to finish it at some point.

Analysis of Russia's energy policy and its impact on geopolitics

2008-08-12T15:55:00.007-04:00

I highly recommend that you read - or at least quickly skim through - two very well written (but apparently not given much of a proofreading) and relevant articles (the complete text of which is available here, and in .pdf format here) that were put out last month by the National Bureau of Asian Research. The first paper concerns Russia's "strategic vision" and what type of role her energy consumption, production, exploration and overall policy will play in determining the former superpower's future. The second paper, which I think is more interesting and engaging but less relevant for students and observers of Europe's future energy policies is rather appropriately titled "Energy Policymaking in Russia: From Putin to Medvedev."

Here is a fairly short excerpt pulled from the introductory text preceding the articles:

Russia’s reemergence as a major power in the international system has prompted renewed attention to developments in the country as well as to Moscow’s foreign policy actions and goals. Because oil and natural gas resources drive much of Russia’s growing power, the Kremlin’s domestic and foreign energy policies have been of particular interest to U.S. policymakers and observers of the country.

Growing global energy demand and rising energy prices provide essential context for Russia’s reemergence, simultaneously raising anxiety levels among the major consumer countries and raising confidence levels among the major producer countries. These tendencies have been especially apparent in Asia, a region that has seen sharp increases in energy consumption and is highly dependent on imported fuels. Yet, as has been the case in many other periods of rapid change, neither the anxieties nor the confidence will likely prove fully justified.

And this longer, and I would argue far more important excerpt is from Legvold's review of Russia’s strategic vision and the role of energy policies:

Herein lies the problem: Russia does not have a strategic vision—not if, by strategic vision, one means a sense of where Russian leaders want the world to go and with what role for Russia, coupled with a reasonably clear notion of how to bring it about . Russia is not special in this respect. Countries—maybe most countries—rarely have something as grand as a strategic vision . They do have foreign policy objectives, which are integrated to a greater or lesser degree and in some order of priority . Most countries also have a strategy or strategies by which to apply means to these ends. In Russia’s case, the integration is weak, and the order of priority is blurred.

Hence, to look for a conscious and coherent design in Russia’s use of energy in its Asia policy is to chase a chimera. At a deep, elemental level, the reason for the void in russia’s case stems from three paradoxes . First, and most fundamentally, russia’s restored self-confidence and accompanying assertiveness mask very real insecurities . second, Russia’s basic posture suffers from a curious antonymous pairing: no one is Russia’s enemy, and no one is an ally, while everyone is a potential partner, and everyone is a potential competitor.

Third, for all the wind and dust stirred by the seemingly bold and far-reaching foreign policy pronouncements of Putin, Lavrov, and others, for much of the last year little serious thought has been given to foreign policy, as leaders and pundits have buried themselves in the politics of Putin’s succession .

Without question, over Putin’s last four years as president, russia recovered what earlier had been most lacking: a genuine sense of self-confidence. This stemmed partially from the liberation from vulnerability to debt provided by soaring commodity
prices, partially from the swagger engendered by russia’s position as a major energy provider, and partially from the sense that the regime’s firm political hand had checked and then reversed the chaos of the yeltsin years . Putin and his supporters—a large number, indeed, including the bulk of the political elite—take considerable satisfaction from knowing that russia is again seen as a player that counts, is in a position to assert its influence throughout the post-soviet region and no longer needs give deference to US policy preferences.

Granted some of the puffery and threat-mongering is instrumental, designed to secure domestic political support by emphasizing that the world is a dangerous place, populated by others, particularly the United States, who would diminish, maybe even, destroy Russia were it not for the strong, knowing leadership of Putin, his team, and the man he has blessed as his successor.

But the renewed self-confidence rests on a deeper insecurity that apparently derives from two sources . On the one hand, Russian leaders are on edge over just how much control they have over events within the country . They know that formal political institutions, much of the media, and the electoral process are safely subordinate to their desires . However, they, beginning with Putin, seem to fear pressures just below the surface that could explode as a consequence of escalating violence in the north Caucasus, ethnic tensions elsewhere in the country, economic regionalism, and social upheaval, such as the street demonstrations that followed the decision to monetize social benefits in 2004.

On the other hand Russian leaders also worry, not without justification, about how unstable territories on their borders could become, beginning with the Islamic south but including unreconstructed, nomenklatura-dominated regimes nearby and neighbors whose so-called “frozen conflicts” remain in danger of reigniting . as a result Russian foreign policy has an edginess that belies the new purposefulness that the russians want to convey. Even both the attitude the leaders strike of no longer caring about Western criticism and their putative “American fatigue” has a distinct hollowness.

The second paradox underscores a core ambiguity in contemporary Russian foreign policy and constitutes a source of its longer-term fragility . russian leaders continue to insist that no nation or alliance of nations is an enemy—but neither is any a trusted ally, not at least among the major powers . On the other hand, russia seems to regard almost any state—from italy to iran, Germany to north Korea, and the United states to China—as a potential partner on particular issues, while at the same time clearly viewing each country, depending on the context, as a potential competitor.

As a result on many of the most difficult questions Moscow ends up much of the time wanting to eat its cake and have it too . russia does not want iran to have nuclear weapons but strives mightily to preserve a working relationship with Tehran; it sought to head off Kosovo independence over serbian objection by warning of the precedent this would set for the separatist de facto states in the post-soviet region, a precedent it almost certainly does not wish to exercise if it then be saddled with the consequences. It is happy to exploit the leverage the country’s energy resources are assumed to provide, sometimes in distinctly heavy-handed fashion, but it also wants to be seen by its major customers as a reliable supplier.

Thus, the checkered condition of Russian foreign policy prevents its leaders from developing a long-term strategic vision or making basic strategic choices. Russia’s relations with China are better than at any time in the last century and half, and recently Medvedev, Putin, lavrov, and others have not merely touted but actively pursued a still broader three-way cooperation among russia, China, and india . Yet, even as they lash out at the excesses in U .S. foreign policy and rebuff EU efforts either to put the energy relationship on a different footing or to raise questions about Russia’s internal choices, Russian leaders at the same time speak of a constructive trilateralism with Europe and the United States .

Hence, in many ways Russia hangs suspended, like a spider tangled its own web—a web of basic choices that russia refuses or is unable to make and this bears directly on how coherent, refined, and purposeful any strategy that uses energy as a crucial policy tool in Asia can be.

Neoconservatives have new war to sell to the American people

2008-08-11T19:47:00.003-04:00

Think Progress reports on how Neoconservatives such as Bill Kristol and Robert Kagan are now writing editorials (that are being published by major media outlets such as the New York Times and the Washington Post) explicitly calling for the US to launch a war with Russia in response to that country's invasion of neighboring Georgia.

Georgia's on my mind

2008-08-11T18:35:00.004-04:00

Apologies for the terrible pun, but it looks like Russia and Georgia are about to go to war, with Russia retaliating against its Caucasus neighbor in response to the latter's invasion of South Ossetia. Crucially, South Ossetia has been "de facto independent [from Georgia] and protected by Russian peacekeeping forces since 1992."

Many have seen in Georgia's rash decision the first consequence of Kosovo's unilateral independence from Serbia last February.

The move has encouraged the separatist claims of the South Ossetian and Abkhaz leaderships, and Georgia's renewed determination to fully regain its territorial sovereignty.

The leaders of the separatist regions trust that after Kosovo's independence, the consent of the sovereign state is no longer necessary if a greater power can guarantee its security.

Moreover they have deployed similar arguments to those applied in Kosovo: a past of ethnic-driven war which left thousands of civilians dead and countless displaced on both sides.

Unhappy with the U.S.-promoted Kosovo independence, Moscow had promised an adequate response to the latest violation in international law, and its first step came with the institutionalisation of ties with Georgia's two breakaway regions in March.

Unlike the West in Kosovo, Russia can claim the conflict in its southern regions directly affects its own security, and above all, that of a population of which 80 percent hold Russian passports.

Russian claims of arbitrary killings of up to 1,600 civilians by Georgian forces have not been independently verified, although a few Western journalists have started to take interest in testimonies by Ossetian refugees allegedly witness to human rights abuses by Georgian troops.

If the claims were to be at least partially verified and Russia was to show self-restraint and restore order, its ambition of a role as a legitimate world power and a regional pacifier could gain credibility.

A little more context can be found here.

Update: And more background on how the geopolitics of oil is implicated in the conflict here.

"The Great Disruption"

2008-08-09T20:00:00.003-04:00

Is food replacing oil as the biggest factor effecting the global balance of geopolitical power? The Atlantic considers how biofuel mandates in "the world's biggest farming nations" are significantly disrupting supplies in the global food market, and could end up pushing 100 million people into poverty.

The growth of the global food market has meant more food for billions of people, yet it has also led to a greater concentration of supply. In 2006, the top five oil producers supplied 43 percent of the world’s oil. By comparison, the top five corn producers grew 77 percent of the world’s supply; rice producers, 73 percent; beef and wheat producers, 66 percent each. Because of this concentration, a supply disruption in even one place can ripple through the food market worldwide.

Some disruptions are unavoidable. Last year, for instance, drought in Australia, a major wheat exporter, helped drive up wheat prices by nearly 100 percent. But some disruptions are the result of political decisions. For example, in response to the high wheat prices, India, then the world’s second-largest rice exporter, decided to rely on rice, not wheat, for its public food program—and instituted a ban on most rice exports. Vietnam and Egypt, fearing local rice shortages, quickly followed suit. The result was a seize-up in the global market for rice: prices rose from $333 a ton in 2006 to $963 a ton in May of 2008.

The creation of politically popular biofuel mandates by many of the world’s biggest farming nations has been particularly disruptive. U.S. law, for instance, requires that ethanol make up at least 5 percent of vehicle fuel (rising to 22 percent by 2022), and 30 percent of U.S. corn went toward ethanol production last year. The U.S. government has claimed that biofuel demand is responsible for only 3 percent of the increase in global food prices over the past year. But a recent World Bank report estimated that figure to be 75 percent once the resulting economic changes, such as shifts in land use, are considered.

High prices hurt poor, import-dependent nations the most. The price hikes of the past three years threaten to push 100 million people back into poverty, according to the World Bank, erasing seven years of progress.

And read this editorial from The Guardian (UK) on the topic of biofuel and rising food prices.

Public letter is an important reminder to Obama

2008-08-02T21:39:00.003-04:00

Over at his blog The Washington Note, Steve Clemons helps publicize and promote a public letter being given to Obama at the DNC Convention in Denver later this month. I agree with him that the thrust of its message is reasonable and sound - and that it ought to represent at a minimum what liberals expect from an Obama administration next year.

Hersh reports Cheney considered "false flag" attack to justify war with Iran?

2008-07-31T10:47:00.002-04:00

If true (and you never know for sure when it comes to reportage from Sy Hersh), Dick Cheney is even more evil and crazy than I first thought.

Taliban on the march

2008-07-26T16:41:00.002-04:00

Meanwhile, over in Afghanistan, the forgotten war isn't going so well:

Dozens of civilians were killed over the weekend in Afghanistan, the latest in the trend of spiralling violence that has engulfed the embattled nation. The civilian casualties, Taliban attacks and troop casualty numbers are putting increasing strain on the Western-led coalition, leading some to speculate that the war is unwinnable.

On Sunday, international forces killed four Afghan police officers and five civilians during a fire-fight in the western province of Farah. In a separate incident that same night, coalition-fired mortar rounds killed at least four civilians in the eastern Paktika province. On Monday, in Laghman province, also in the east, Taliban fighters fired a missile into a fuel truck, killing six civilians.

The incidents come as the U.S. is fending off criticism from the Afghan government that coalition forces use excessive and inappropriate force. Last week, a group of Afghan parliamentarians revealed that a U.S. air-strike hit a wedding party in the Nangarhar province, killing 47 civilians. Two days earlier, local officials allege, another U.S. air-strike killed 15 civilians in the Nuristan province.

The militarization of US aid to Africa

2008-07-25T17:13:00.002-04:00

Two reports from the blogosphere on the increasing militarization of the US's foreign aid policy toward the continent of Africa. First, from the Africa policy blog Regrets Only:

Refugees International has released a new report titled U.S. Civil-Military Imbalance for Global Engagement: Lessons from the Operational Level in Africa. According to RI, it describes how what it terms “the increased militarization of U.S. foreign aid” is complicating the achievement of American foreign policy goals in Africa.

The report recommends that the US Africa Command, or AFRICOM, remain focused on security sector and peacekeeping capacity building, rather than hunting terror suspects under what it calls “a thin mantle of humanitarianism” when it becomes fully operational in October 2008.

Next, from MojoBlog:

[E]ven AFRICOM's (the US's) Africa Military Command) good intentions cannot disguise the geopolitical realities that compelled its creation. It's not about doing good works in impoverished countries for their own sake; It's about national interest. Countering China's growing military and economic influence in Africa and assuring access to some of the world's last remaining oil reserves top the list. (The United States now imports just as much oil from Africa as it does from the Middle East.) Terrorism also figures into the equation—primarily the elimination of ungoverned spaces terrorists might call home.

Not that these are unreasonable goals. On one level, the U.S. military's ability to adapt is impressive. But problems could arise if AFRICOM begins to lead policy rather than follow it. A report released yesterday by Refugees International shows that, in the years since 9/11, the Pentagon's slice of the nation's foreign aid budget has ballooned at the expense of more traditional providers, like USAID.

Is Fox News push-polling against Obama?

2008-07-24T16:47:00.002-04:00

Nice catch by TPM Election Central's Eric Kleefeld. Check out this question from a recent FOX News poll:

Some people believe Barack Obama, despite his professed Christianity, is secretly a Muslim. Others say that is just a rumor and Obama really is a Christian as he says, and point out he's attended a Christian church for years. What do you believe -- is Obama a Muslim or a Christian?

I don't know if the fact that 10% of those polled still believe that Obama is Muslim is more pathetic or frightening. . .

WTO Watch: Why won't US negotiate on TRIPS agreement?

2008-07-23T17:54:00.003-04:00

A typically excellent blog post from IATP's Think Forward blog reporting on the WTO's perennially unsuccessful Doha Round. A fair question is asked: Why is US Trade Representative Susan Schwab apparently wholly unwilling to negotiate on the TRIPS (i.e. "Trade Related Aspects of Intellectual Property Rights") Agreement?

Afghanistan is still not the "good war"

2008-07-21T16:59:00.002-04:00

The New York Times reports that the security situation in Afghanistan is continuing to deteriorate, with an alarming increase in civilian casualties. In light of this, Ron Jacob's latest editorial "Afghanistan is not the good war" seems strikingly apposite.

He asks (rhetorically):
[W]hy Washington thinks it can achieve what the British and the Soviets could not? The Afghanistan region has always been the piece of the puzzle known as the Great Game that refuses to fit into the proscribed plans of any colonial power. It is as if this particular puzzle piece was cut from another die. No matter how much firepower is brought upon the Afghani people, they have been able to resist any type of lasting fit into any of the pictures hoped for by the colonial power of the day. They have done so by manipulation of the invader’s desires and by playing the various invaders off each other; and they have done so through sheer determination and the unforgiving nature of the land. Most recently, they used the US secret services to fend off the domination of their capital by the Soviets, and now they are using their own devices to fend off the domination of their country desired by Washington.

WTO prescribes "more globalization"

2008-07-18T17:25:00.002-04:00

IPS critiques the WTO's just-released 2008 World Trade Report (which can be read in its entirely here).

The multilateral's apparent recommendation: "The shortcomings of globalisation must be amended by more globalisation."

The GOP's current policy agenda, or "Shock Doctrine" redux

2008-07-17T07:55:00.012-04:00

Amy Goodman from Democracy Now! interviews Naomi Klein, author of The Shock Doctrine: The Rise of Disaster Capitalism, and the transcript makes for some pretty fascinating reading in my humble opinion.

One discussion I found particularly eye-opening was on the fact that oil prices are currently sitting at or near their record high prices at the very same time that the multibillion dollar energy companies such as Chevron and Texaco are recording the largest annual profits in their history. Nice, that.

What's wrong with "Short Selling" anyway?

2008-07-16T22:37:00.003-04:00

Over at his blog Beat the Press, economist Dean Baker critiques the Bush administration's move to crack down on short selling. The question is: Whysingle out naked shorts as being incompatible the ideology of free-market fundamentalism practiced by conservatives? Instead, why not trust in the great wisdom of the free market?

[T]he economy would have benefited enormously if large numbers of traders had shorted Fannie and Freddie 4 years ago when they were buying up hundreds of billions of mortgages issued to buyers who bought homes at bubble-inflated prices. This would have stopped the bubble years ago. Similarly, we could have prevented the financial chaos at Merrill Lynch, Citigroup, Bear Stearns and the rest, if traders had recognized their financial shenanigans and aggressively shorted their stock. In the same vein, heavy shorting by informed investors could have prevented the boom and bust of the tech bubble.

The decision to intervene against short-selling is completely inconsistent with the belief in the wisdom of the markets. Of course short-sellers can be wrong and depress stock prices more than is justified by fundamentals, but so what? The government doesn't intervene when it thinks investors have exaggerated the true value of a stock. The public has no more reason to fear under-valued stock prices than over-valued stock prices. This one-sided intervention by SEC is hard to justify on any grounds. Reporters should be asking about it.

Conservatives still trying to smear Obama as an anti-Zionist

2008-07-16T20:23:00.008-04:00

Rick Richman's latest Op-Ed - Obama's Redivided Jerusalem - provides us with yet another not-so-subtle example of conservatives fevered campaign to paint presumptive Democratic presidential nominee as an enemy of Israel (and as the argument usually goes, therefore an enemy of the Jewish people).

In this iteration of the Right's propaganda offensive, Obama's offense has to do with the precise (or, rather inprecise) language being used by the Obama campaign's discussion of the Jewish state's undivided capital "Jerusalem." At least Richman isn't trying to trick his readers into believing Obama is a Muslim who received training at a terrorist school.

The geopolitics of water

2008-07-15T22:02:00.001-04:00

An article in the Canadian newspaper Niagara This Week discusses how the satirical premise of the cult-classic, 1984 sci-fi B-movie The Ice Pirates (which I thought was hilarious as an nine-year-old viewer) - that in the future, water would become a critical yet increasingly scarce resource (or commodity) over which mankind would do battle for control over - is increasingly becoming reality.

Oil may presently be considered to be a non-renewable resource needed to continue to grease the economies of the industrialized world, but water is a whole lot more important.

New study finds global income disparities caused by "Place Premium"

2008-07-11T21:25:00.005-04:00

The Washington-based economics think tank Center for Global Development (for some background on the non-profit, see here) published a working paper last week entitled "The Place Premium: Wage Differences for Identical Workers across the US Border." It weighs in at around 40+ pages and was written by staff economists Michael Clemens, Claudio Montenegro and Lant Pritchett.

The paper explores several theoretical questions revolving around income inequality, population and migration and development. For example, from the online description of the publication, the authors ask whether employee wages are determined by what knowledge or information he or she possesses, or rather where he or she resides. Specifically, "[t]his paper compares the wages of workers inside the United States to the wages of workers outside the United States. Comparing wages alone isn’t enough, because workers in (say) Bolivia could differ from workers in the US in many ways—some of them easily observed, such as their level of education, and others less easily observed."

The authors go on:

"A rich new dataset on over two million workers around the world allows the analysis to control for several observable factors besides location that might affect wages, notably including country of birth and country of education. But just because a Bolivian in the U.S. is identical to a Bolivian in Bolivia by these observable measures, these two workers may not be identical in all ways: one of them was willing to move and incur the various costs of doing so, and one of them might differ from the other in unseen ways, such as risk-tolerance or entrepreneurial spirit. The paper uses five independent methods to estimate how such differences might bias its estimates.

Following all of these adjustments the paper estimates that the wages of a Bolivian worker willing to work in the United States are about 2.7 times as much as the same person would make in Bolivia. This figure for Bolivia is typical among the 42 developing countries analyzed, but for some it is much higher. For a Nigerian worker the same ratio is 8.4. In other words, a Nigerian moderately-educated adult male urban formal-sector wage worker who moves to the U.S. increases his wages by several hundred percent."

Accordingly:

"The implications of these enormous differences are profound. For many countries, the wage gaps caused by barriers to movement across international borders are among the largest known forms of wage discrimination, typically much larger than wage discrimination based on ethnic group or gender within spatially integrated labor markets. These gaps represent one of the largest remaining price distortions in any global market and these gaps imply that simply allowing labor mobility can reduce a given household’s poverty to a much greater degree than most known antipoverty interventions inside developing countries."

Or, liberalizing the labor part of "free" trade will reduce poverty more successfully than "antipoverty interventions." Being that I am quite skeptical of the track record of so-called "free trade" arrangements in achieving their stated economic objectives, I was quite interested in seeing how the application of this theory played out at the macro-level in terms of employment and wages.

For more, here is the introduction to the paper:

Three questions have each launched a thousand papers. First, how large are the gaps in compensation caused by various types of labor market discrimination? Second, how large are the relative price differentials in global markets caused by international borders? Third, how can public policies raise the incomes of poor households?

We bring these literatures together with an estimation of the differences between the wages of workers in 42 low- and middle-income countries and the wages those same people would earn in the United States. This calculation at once documents an enormous form of wage discrimination, measures a massive cross-border price wedge, and suggests a policy that could dramatically raise the earnings of many low-income families.

The first section of the paper creates baseline estimates of wage gaps controlling for individual observable traits. It does so with a unique harmonized database on the purchasing power price-adjusted wages and other traits of over two million workers in 43 countries, including the United States. This allows us to predict wages of observably identical workers on either side of the US border for each of these countries. Crucially, the US data identify the individuals’ country of birth and, for the foreign-born, year of arrival in the US. This allows our definition of “observably identical” to go beyond standard covariates such as years of schooling, age, sex, and rural/urban residence. We can also compare workers of the same country of birth—implicitly controlling for culture, language, and social networks—and same country of schooling—which adjusts for the quality and relevance of schooling.

The wage gaps that emerge from these initial estimates are large. For instance, in our preferred econometric specification,1 a Bolivian-born, Bolivian-educated, 35 year-old urban male formal sector wage worker with 9-12 years of schooling earns an average of US$1,831 per month working in the United States but US$460 (at purchasing power parity) working in Bolivia. Hence the earnings ratio between these observably identical people is 3.98. We produce estimates of the wage ratios of observably identical workers for each of 42 countries—we call these ratios Ro, where the subscript signifies “observably identical”.2 Bolivia’s ratio Ro of 3.98 is near the median, while the lowest such ratios we observe are from the Dominican Republic, at 1.37–1.43 (depending on the regression functional form) and the highest are for Nigeria, at 11.3–13.6.

But wage gaps for observably equivalent workers do not necessarily reflect wage discrimination. The second part of the paper grapples with the fact that, no matter how many individual traits are controlled for, wage differentials for observably equivalent workers do not necessarily constitute evidence of wage differentials across workers of equal intrinsic productivity, as foreign-born workers in the US can obviously differ in unobservable ways from their observably identical counterparts back home. This issue is common to all attempts to measure discrimination. In other words, wage ratios for observably-equivalent workers—Ro—are not the same as wage ratios for workers of equal intrinsic productivity who would be willing to move from one country to another; we call this latter ratio Re.

One factor that leads to wage gaps between foreign-born workers in the US and observably identical workers abroad is selection on unobservable determinants of productivity—selection both by the migrants themselves and by migration policy. The effect of selection on the wage gaps we measure is complex and we explore it below with a new theoretical model. The true wage gain to a typical migrant depends on two separate but related aspects of selection: where migrants come from within the source-country distribution of unobservable productivity determinants (selection), and where they end up
within the destination-country distribution of unobservable productivity determinants (sorting). The higher is migrants’ typical position in the origin-country distribution of unobserved productivity determinants—all else equal—the lower is the wage gain. But the higher is migrants’ typical position in the destination-country distribution of unobserved productivity determinants—all else equal—the higher is the gain.

The model shows that positive selection on unobservable traits from the origin country is neither necessary nor sufficient for overestimation of the wage gain to migration. If migrants come from the upper part of the distribution of unobserved productivity determinants in the origin and were randomly sorted into the wage distribution in the destination country, then comparing “average” workers would indeed overstate the wage gain. But if selected migrants sort into the upper end of the distribution in the destination country, the comparison of wages for average workers with given observed traits can accurately reflect or even understate the gain. That is, if the people who are uncommonly intelligent, energetic or ambitious in the source country selectively migrate and are people who are uncommonly intelligent, energetic and ambitious in the destination country, their wage gain could be the same as—or even larger than—the wage gain to less intelligent and energetic people.

Furthermore, among those positively selected on unobservables from the origin, those bound for upper end of the distribution in the destination are more likely to be seen in the data than those bound for the middle or the bottom—the former have more to gain from migration than the latter and are thus more likely to move. We match a theory of selection (from the source country) and sorting (in the destination country) with data to estimate the bias attributable to selection on
unobservables.

Another, separate factor that can cause the wages of observably identical workers to differ across countries in the absence of discrimination is what we call “natural” barriers. Workers might require a compensating differential to bear the costs—broadly
considered—of moving to a new land. These include the difficulty of learning a new language, being away from one’s family, and entering new social networks, as well as the direct cost of travel. Workers might also be credit-constrained and have difficulty financing the move.

Only a completely exogenous movement of workers across borders would allow estimation of wage gains without selection and without “natural” forces determining who is willing and able to move. We do not present (or desire!) such an experiment. Instead, we triangulate using five distinct methods to place estimated bounds on selection and natural barriers—drawing on theory and various empirical literatures. These independent calculations yield the remarkably consistent result that selection of migrants on unobservable wage determinants results in an observed US-to-foreign wage ratio for observably equivalent workers (Ro) of around 1.25 times the true ratio for equal-productivity workers on average across countries, and that the combined effect of selection and natural barriers produces observed ratios about 1.5 times the true ratio for equal-productivity workers willing and able to move (Re).

Even after this correction, wage gaps across borders remain extremely large. Given our median observed ratio Ro of about 3.9, the median ratio purged of selection on unobservable wage determinants and the effects of “natural” barriers—wage ratios of
equally productive workers willing to move (Re)—is roughly 2.6 (=3.9/1.5). Even this conservative estimate of Re is above 3 for many countries—including India, Vietnam, Indonesia, Ghana, Yemen, Egypt, Haiti, and Nigeria. In other words, a worker from one of these countries can expect at the margin his or her wages to triple or more, solely due to stepping across the US border.

This wage gap is a “marginal” effect in two distinct senses: It is the effect on the wage of the next person who would arrive after a small relaxation of the migration barrier—not the effect on the typical person in the sending country—and it is the marginal effect given a small change in current levels of migration—not the general equilibrium wage under fully open borders.

The final section relates our results to the three separate literatures on wage discrimination, border-induced price wedges, and the marginal impacts of antipoverty policies. Researchers measuring each of these would do well to pay much more attention
to restrictions on migration; the wage gaps we measure constitute one of the largest known forms of all three. Empirical estimates in these other literatures are comparable to ours because they, too, are measured at the margin.

The global economy's missing safety net

2008-07-11T20:41:00.006-04:00

From last week's Washington Post, "Globalization Requires Safety Net, UN Says," reports on the publication of the United Nation's 2008 World Economic and Social Survey (WESS) (full report here, overview here.)

The WaPo's assessment of the WESS's findings seems to be pretty much on point:

Greater government intervention is needed to moderate the severe economic swings and inequalities that seem to be an unavoidable byproduct of globalization, according to a United Nations report released yesterday.

Pointing to food riots in dozens of poor countries whipsawed by soaring prices for wheat and other staples, and to the rising income inequality that has become a too-common feature of economies in the developed world, the report says that no one is immune from the sometimes cruel consequences of global economic forces. But governments should do more, both individually and collectively, to protect people from their harshest impacts, it says.

The U.N.'s 2008 World Economic and Social Survey calls for greater regulation of international capital flows, more generous foreign aid and perhaps the guarantee of a minimum income to the world's poorest residents. Domestically, countries should do more to cushion their citizens against economic changes that have left them less secure. In poor countries, the insecurity can take the form of hunger and food shortages; in developed nations it often means stagnating wages and growing income inequality.

"Markets cannot be left to their own devices in respect of delivering appropriate and desired levels of economic security," the report says.

Global competition, which erodes the security of businesses, unstable capital flows, which crimp investment and growth, and food shortages are sometimes viewed as beyond the ability of governments to control. But the report says that is the wrong response. What is needed, it says, is "more active policy responses to help communities better manage these new risks."

The U.N.'s assessment was echoed in a separate report published yesterday by the International Monetary Fund.

The IMF study warned that the recent sharp increases in food and fuel prices have had serious global impacts, and that import-dependent poor and middle-income countries were the most adversely affected. The report also said that food and fuel prices were likely to remain high and ease only gradually, raising inflation, and worsening poverty in these countries.

"Some countries are at a tipping point," IMF Managing Director Dominique Strauss-Kahn said at a news conference announcing the release of the study. "If food prices rise further and oil prices stay the same, some governments will no longer be able to feed their people and at the same time maintain stability in their economies."

A number of factors have contributed to the price spikes. In recent years, sustained global growth, especially in emerging and developing economies, has brought about greater demand for many commodities, including oil, metals and food. "At the same time, supply has been slow to respond to the demand impetus, notwithstanding rising prices," the IMF report said. "The food price surge is expected to take longer than usual to unwind."

"We expect continued upward pressure from demand," said Thomas Helbling, an IMF adviser. "We see no reason to not see these trends continue."

The IMF called for a multilateral approach to address the situation, involving broad cooperation among the countries affected, donors and international organizations.

C. Fred Bergsten, director of the Peterson Institute for International Economics, agreed with recommendations for a more activist role by governments in easing the pain caused by globalization. He said more attention should be paid to regulating capital flows and bolstering international aid. Domestically, he said, the focus should be on helping individuals hurt by the process.

While global trade has been a plus to the U.S. economy, Bergsten said, "the dislocating effects on American workers, impact on job insecurity, wage stagnation, worsening income distribution, require a substantial showing up of domestic safety net programs."

Without attention to that, support for globalization, which tends to grow shaky as economies cool, would be further undermined. "Where the country as a whole benefits substantially from globalization, there are certainly individuals who are losers from the process and then they therefore oppose it," he added.

The U.N. report calls for a range of interventions to provide support, including greater public investment in agriculture for poor countries and "a better balance of economic and social policies." It also said that even during economic booms governments should remain mindful of the downturns that can strike quickly, and set aside money to deal with them.

Analysis: Legitimizing Permanent Occupation of Iraq

2008-07-10T20:45:00.002-04:00

Blogger Stephen Lendman puts forward a pretty solid argument that the Bush administration is currently negotiating with the al-Maliki administration of Iraq, and laying the groundwork for not only ensuring that Washington's military occupation of Iraq is permanent, but that the US can justify it by claiming it is a "security" arrangement made at the behest of Iraq's new government.

Here are just a few high-profile examples of how Bush is disregarding the Constitution in his efforts to occupy Iraq on an open-ended timeframe:

• Exempting civilian contractors from prosecution under Iraqi laws; it assures their immunity elsewhere as well; current federal law "only subjects contractors working in support of the Defense Department to prosecution in American courts for felonies in Iraq;" civilian security forces (like Blackwater Worldwide), the State Department, CIA and others will be in a "no-law" status, subject only to the will of the president; civilians may thus commit murders, rapes, robberies, other lawless acts and get away with them; "no (known) existing status of forces agreement....contains anything like this wide-ranging exemption;"

• Exempting military personnel as well who can be court-martialed but rarely are;

• Allowing the president to exceed his constitutional authority as commander-in-chief; he’s only in charge of the military, "not all Americans working overseas;"

• Even worse, most administration plans are secret and what’s learned comes out in leaks; more on that below; and

• Congress held hearings on January 23 and February 8 - "on the legitimate scope of the Iraqi agreement;" the administration refused to testify.

Lendman also provides a fairly comprehensive description of the US-Iraqi "Status of Forces Agreements" relying on both official documents and media reports:

"[A]n agreement that defines the legal position of a ’visiting’ military force deployed in the territory of a friendly state." It delineates "the status of visiting military forces (and) may be bilateral or multilateral. Provisions pertaining to the status of visiting forces may be set forth in a separate agreement, or they may form a part of a more comprehensive agreement. These provisions describe how the authorities of a visiting force may control members of that force and the amenability of the force or its member to the local law or to the authority of local officials. To the extent that agreements delineate matters affecting the relations between a military force and civilian authorities and population, they may be considered as civil affairs agreements."

In his 2004 book, The Sorrows of Empire, Chalmers Johnson said this about SOFAs:

"America’s foreign military enclaves, though structurally, legally, and conceptually different from colonies, are themselves something like microcolonies in that they are completely beyond the jurisdiction of the occupied nation. The US virtually always negotiates a ’status of forces agreement’ (SOFA) with the ostensibly independent ’host’ nation" - a modern day version of 19th century China’s "extraterritoriality" granting foreigners charged with crimes the "right" to be tried by his (or her) own government under his (or her) own national law.

SOFA experts Rachel Cornwell and Andrew Wells added:

"Most SOFAs are written so that national courts cannot exercise legal jurisdiction over US military personnel who commit crimes against local people, except in special cases where US military authorities agree to transfer jurisdiction." As a result, when crimes occur, the military can simply whisk offenders out of the country before local authorities can react or at least before they’re arrested."

Be sure to read the whole article: Lendman has included a lot of disturbing evidence pointing to Bush's planning to justify the unjustifyable and illegal - the permanent occupation of a foreign nation.

Exploding the free trade myth

2008-07-10T20:41:00.007-04:00

David Sirota's article for the July issue of In These Times isn't one of his trademark rants on the latest outrageous behavior committed by the Washington DC and Wall Street Establishments; instead it is a casual yet illuminating interview with the controversial, heterodox English development economist Ha-Joon Chang, discussing his latest book "Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism." The book, and the interview discussing it, does a yeoman's job of dissecting the mythology behind so-called international "free" trade as compared with the more restrictive, protectivist trade regimes that have succeeded in helping transform developing countries into wealthy, developed economies (take, for example, the US) via the implementation of tariffs.

The received wisdom imparted by the "Wise Men" of economics, that is, those pundits, academics, policy-makers and journalists who seek to remind average, everyday folks like you and me every time they open up their mouths that they are the type of "Serious People" who deserve our fealty and unquestioned trust and support, is that free trade somehow benefits all parties in the global marketplace for goods and services. In other words, forget the idea that the very rules established by the global elites for the global elites by design create 'winners' and 'losers'. The winners are those who the rules of capitalism already favor: indeed, it is the existence of a not so subtle institutional bias that creates the dangerous downward spiral of capitalism is the first place.

Sirota's interview with Chang is truly illuminating and I highly recommend reading both the entire article in In These Times - as well as the meticulously researched and brilliantly argued book by Chang (which I recently completed). One of the most important quotes from Chang I think is:

In the present atmosphere, once you say anything positive about protectionism, people dismiss you as a supporter of North Korea or Cuba.

The reality is that few countries practice pure free trade or pure protectionism. Most countries practice free trade in some areas and protectionism in others, with varying mixes across countries. This is basically because policy-makers instinctively understand that different sectors have different needs — sectors that are just emerging or in decline need more protection and subsidies in the same way that children and the elderly need more support than able-bodied adults do.

And one of Sirota's keenest, most important observations is:

Chang shows how the entire debate over trade has divorced itself from history and economic reality. Phrases like “free trade,” in fact, are misnomers unto themselves, leading the world into a globalization debate whose basic premises are inaccurate.

But that’s not all that is inaccurate. Chang says that while the media and political elite lead us to believe industrialized countries achieved their wealth by eliminating tariffs, history suggests it’s exactly the opposite: The strategic use of tariffs is precisely what built the industrialized world into an economic powerhouse. Bad Samaritans shows that wealthy countries’ demands on poor countries to reduce tariffs is a way to keep the developing world in a subservient role — or a means to “kick away the ladder,” as he puts it.

Also, be sure to check out this independent review of "Bad Samaritans" by Jim Miles here, as well as this article, The Globalization of Poverty, by Antonio Juhasz appearing in Tikkun.

Why economic inequality in America matters

2008-07-10T20:31:00.006-04:00

Long-time readers of this blog know that few issues are more important to me that economic justice, specifically the widening chasm of economic inequality in both the developed and developing worlds. In the US, the problem is really quite pronounced, despite the fact that the major media has failed to give it the in-depth and frequent coverage the phenomenon really deserves. But every six months or so, an article appears in the mainstream media which addresses the severity of the rapidly growing gulf between the super-rich and everyone else, while supplying the background information required for lay readers to understand both the scope and significance involved. The most recent example of this is this month's cover story of Harvard Magazine (h/t to Cursor).

As the article—entitled "Unequal America" and written by the publication's associate editor Elizabeth Gudrais explains: "The recent increase in inequality reflects a migration of money upward as salaries have ballooned at the top. In 1965, the average salary for a CEO of a major U.S. company was 25 times the salary of the average worker. Today, the average CEO’s pay is more than 250 times the average worker’s. At the same time, the government is doing less to redistribute income than it has at times in the past. The current top marginal tax rate—35 percent—is not the lowest it’s been—there was no federal income tax at all until 1913—but it is far lower than the 91-percent tax levied on top earners from 1951 to 1963. Meanwhile, forces such as immigration and trade policy have put pressure on wages at the bottom."

She goes on:

Tax policies and employer-pay practices affect income distribution directly. But what governs these pay practices, and why have American voters and politicians chosen the tax policies they have? One answer lies in Americans’ unique attitudes toward inequality. Asked by the International Social Survey Programme whether they agreed or disagreed with the statement that income differences in their home country are “too large,” 62 percent of Americans agreed; the median response for all 43 countries surveyed—some with a much lower degree of inequality—was 85 percent.

Americans and Europeans also tend to disagree about the causes of poverty. In a different survey—the World Values Survey, including 40 countries—American respondents were much more likely than European respondents (71 percent versus 40 percent) to agree with the statement that the poor could escape poverty if they worked hard enough. Conversely, 54 percent of European respondents, but only 30 percent of American respondents, agreed with the statement that luck determines income.

It makes intuitive sense that those who view poverty as a personal failing don’t feel compelled to redistribute money from the rich to the poor. Indeed, Ropes professor of political economy Alberto Alesina and Glimp professor of economics Edward L. Glaeser find a strong link between beliefs and tax policy: they find that a 10-percent increase in the share of the population that believes luck determines income is associated with a 3.5-percent increase in the share of GDP a given nation’s government spends on redistribution (see “Down and Out in Paris and Boston,” January-February 2005, page 14).

These attitudes, in turn, are rooted in US history, says Christopher Jencks, whose 1973 book Inequality examined social mobility in the United States. Jencks has been studying inequality and social class since the 1960s, and has written dozens of journal articles, essays, and book chapters, as well as four more books, on the subject. He looks back to the Constitution’s framers, who enshrined property rights as sacred and checked the government’s ability to control the national economy. “The founding fathers didn’t want the government to do that much,” he says.

The Constitution is structured in such a way that it is harder to change than the constitutions of Europe’s welfare states, where left-leaning groups have succeeded at writing in change. By and large, Alesina and Glaeser write, the U.S. Constitution “is still the same document approved by a minority of wealthy white men in 1776.” And the “vestiges of feudalism” in European society make leftist arguments appealing there, whereas American politicians’ rhetoric has emphasized individual agency since the time of George Washington (who wrote in 1783 that if citizens “should not be completely free and happy, the fault will be entirely their own”). The authors cite a 1980s history curriculum for public schools in California (“hardly the most right-wing of states,” they note) that instructed, “A course should assess the role of optimism and opportunity in a land of work: the belief that energy, initiative, and inventiveness will continue to provide a promising future.”

An alternative, and possibly complementary, explanation points to the United States’s particular place in geography and history. Jencks also finds this persuasive. “The highest levels of inequality are found in the New World and not the Old, for reasons we don’t understand,” he says. Societies with higher inequality also tend to have higher crime rates, although it’s not clear which way the causal arrow runs, or if it exists. “These are societies built on conquest, many of them on slavery,” Jencks adds. “A lot of the inequality may just be the legacy of those things.”

The prospect of upward mobility forms the very bedrock of the American dream, but analyses indicate that intergenerational mobility is no higher in the United States than in other developed democracies. In fact, a recent Brookings Institution report (a .pdf of the complete report can be read here) cites findings that intergenerational mobility is actually significantly higher in Norway, Finland, and Denmark—low-inequality countries where birth should be destiny if inequality, as some argue, fuels mobility.

In the United States, the correlation between parents’ income and children’s income is higher than chance: 42 percent of children born to parents in the bottom income quintile were still in the bottom quintile as adults, and 39 percent of children born to parents in the top quintile remained in the top quintile as adults, according to the Brookings analysis. But it is difficult to see whether mobility is increasing or decreasing, because it would require comparing specific individuals’ incomes to their parents’ incomes, against the wider backdrop of income distribution across society at that time. Because data with that level of detail do not exist for earlier periods, scholars can’t say with certainty whether the results represent an increase or a decrease in mobility from other periods in American history.

Americans’ steadfast belief in mobility probably stems from increases in absolute, rather than relative, mobility.

Reading the complete seven-page article will require an investment of a little bit of time, but this is one of the best pieces examining both the causes and the consequences of the wide and growing gap between the rich and poor in the US I have read in quite some time. There is quite a bit of useful data contained here from numerous studies and surveys, but I actually think the most useful aspect of this article is the broader context it provides. It does a great job of framing the problem in such a way that even people who are generally unconcerned with matters of economic injustice or progressive politics can understand why this issue is relevant to them—and society at large. The argument underlying this article is very well supported, and I think quite difficult to discount regardless of one's ideological perspective.

Also, be sure to check out the article "Our Unequal Democracy" penned back in May 2004 by Christopher Jencks from Harvard's Kennedy School, who was interviewed for this article. It deals with the slightly different issue of political inequality, which is closely wrapped up with economic inequality.

The geopolitics of oil and Iraq, back in the NYT

2008-07-09T21:59:00.001-04:00

Nick Turse draws our attention to a new article in the New York Times on oil politics. He notes that the Grey Lady's latest reporting on Iraq's energy laws shows how the mainstream media are behind the curve in revealing the role of oil in the Iraq war and provides more background on the role the precious commodity that Iraq "floats on" (to quote Paul Wolfowitz) played in leading to the 2003 invasion of Iraq.

US ban on gay military personnel further discredited by new study

2008-07-07T22:19:00.006-04:00

AP reports that according to a new study sponsored by the UC-Santa Barbara based Michael C. Palm Center, "Evidence shows that allowing gays and lesbians to serve openly [in the US armed forces"] is unlikely to pose any significant risk to morale, good order, discipline or cohesion." In other words, the idiotic Clinton administration-era policy of "Don't ask, don't tell" is pointless and should be repealed by Congress.

The study was run by a panel of four retired military officers, including the Air Force lieutenant general who was behind former President Clinton's 1993 decision that the military be required to stop questioning recruits on their sexual orientation, while simultaneously discharging anyone who was "outed" as being either gay or bisexual -- for example, by telling others about their sexual orientation, getting caught engaging in homosexual activity or marrying someone of the same sex.

From a purely logical standpoint (forgetting any moral judgements a conservative might make about people living a so-called "gay lifestyle" and engaging in gay sexual behavior), the Don't Ask, Don't Tell law never made any sense. It assumes (without any supporting evidence) that the existence of gays serving alongside heterosexuals in the military is disruptive to units and bad for morale, as well as weakening trust between those working in close quarters. Obviously, anything that would negatively affect morale and break down trust in this context would present an unacceptable risk, but it doesn't follow either theoretically or from any evidence that the presence of outed gay soldiers would lead to this at all.

For example, according to the article supporters of the 1993 ban, including one retired Army Lieutenant Colonel interviewed, support their stance with the argument that there is no empirical evidence that allowing gays to serve openly won't hurt combat effectiveness. According to this vet:

"The issue is trust and confidence among members of a unit. When some people with a different sexual orientation are in a close combat environment, it results in a lack of trust."

But why should such a policy be put in place on the grounds that there is no existing empirical evidence supporting the counter-factual claim? If anything, a policy that requires gay US army personnel to lie and deceive their colleagues on a daily basis about who they are should require the existence of strong evidence supporting the policy, as opposed to simply arguing that there is no evidence that contradicts its effectiveness. In a way, this is analogous to the legal presumption of a defendant's innocence in a US criminal trial - a standard that makes sense from both a ideological and practical matter. (I know that in other Western democracies such as the UK, a defendant is legally presumed to be guilty, a principle that has always seemed wrong-headed to me).)

The inanity of this policy is something that has bothered me ever since it was instituted 15 years ago, but is now especially ridiculous as the Pentagon is busy carrying out its so-called "Global War on Terror." For example, a bright guy I was friendly with as an undergrad at Emory named Alastair Gamble was booted out of the Army's Defense Language Institute back in 2002 after he was caught in a surprise inspection in the middle of the night with his boyfriend (See this Op-Ed he wrote for the New York Times back in 2002 and this article from the Washington Post back in 2004 for more background.)

This happened, despite the fact that Alastair and many other gay male and female service members have rare, incredibly valuable skills the armed forces rely upon to prevent terrorist attacks on our soil.

It's high time for the ban to be lifted and the policy to be consigned to the dustbin of history. If anyone reading this supports this policy, I'd be happy to publish your thoughts (as long as they are not bigoted or otherwise offensive) and/or debate the issues involved with you.

US employment rate dropped last month

2008-07-06T21:56:00.001-04:00

Did you know that the US economy shed 62,000 jobs last month?

Yet somehow, McCain has spent the last nine months arguing that the economy is doing fine and nothing for the American people to get too concerned over.

We'll just have to see what voters decide in November.

Torture is good . . . at getting false confessions

2008-07-04T11:13:00.010-04:00

Hat tip to blogger Eric Martin at Obsidian Wings for pointing us to a front page article in the New York Times this week which reported that the interrogation techniques used by military trainers at Guantanamo Bay were derived from research from the Communist Chinese circa 1957 . . . "Used during the Korean War to obtain confessions, many of them false, from American prisoners."

So many things wrong with this picture, it's actually hard to know where to start.

Plus: Hitchens finally gets the fact that yes, the US has indeed been torturing Gitmo prisoners . . . but only after he experiences a rough simulation of waterboarding himself.

How to run an empire?

2008-07-02T17:44:00.002-04:00

Via Matthew Yglesias, the New York Times reported a few days ago that:

A group of American advisers led by a small State Department team played an integral part in drawing up contracts between the Iraqi government and five major Western oil companies to develop some of the largest fields in Iraq, American officials say.

The disclosure, coming on the eve of the contracts’ announcement, is the first confirmation of direct involvement by the Bush administration in deals to open Iraq’s oil to commercial development and is likely to stoke criticism. In their role as advisers to the Iraqi Oil Ministry, American government lawyers and private-sector consultants provided template contracts and detailed suggestions on drafting the contracts, advisers and a senior State Department official said. It is unclear how much influence their work had on the ministry’s decisions.

Curb your optimism for the next four years

2008-07-02T16:17:00.002-04:00

Note to self: Even if Barack Obama wins in November, the disturbing and unconstitutional core assumptions that have informed George W. Bush's foreign policy for the last eight years will not experience a radical change.

Very depressing, indeed.

All you need to know about Neocons . . .

2008-07-01T20:23:00.003-04:00

Courtesy of Interpress Service (IPS) reporter and blogger Jim Lobe:

A very good summary of how hard-line neo-conservatives see the world — and especially Israel’s place in it — can be found in an interview at the National Review Online’s (NRO’s) website by Kathryn Jean Lopez of Caroline Glick, the deputy managing editor of The Jerusalem Post who also serves as the Senior Fellow for Middle Eastern Affairs at Frank Gaffney’s Center for Security Policy (CSP).

What comes through the interview is how hard-liners like Glick see the relationship between the US and Israel (”the war against Israel and the war against the U.S. are one and the same”); the Manichean nature of the world (”freedom” versus “the forces of slavery and jihad,” “good” versus “evil”); how they conflate different threats (”al Qaeda and Iran” as a single “enemy” whose “ultimate aim …is global domination and the destruction of the US”); their contempt for Europe (its “refusal to accept the true lessons of the Holocaust”); their Islamophobia (”genocidal anti-Semitism …has taken over the Islamic world”); and their need for an “enemy” to give order to their world (Obama “refuses to acknowledge that there is such a thing as an ‘enemy’ in international affairs. And as a consequence, he is unable to understand what an ally is.”) Glick is also furious with Condoleezza Rice and the State Department for their presumed influence over Bush and efforts to force Israel to make concessions to the Palestinians.

It's actually a little bit surprising that the Neoconservative loudmouths haven't made more of a concerted effort to dismantle the State Department: Colin Powell and Condoleeza Rice have apparently been a perpetual thorn in their side with all of their calls for something referred to by previous administrations as "diplomacy."

Preparing the Battlefield: The Bush Administration steps up its secret moves against Iran

2008-06-30T13:27:00.004-04:00

Bombshell reporting from Seymour Hersh from the New Yorker, making it seem as if a war with Iran is, once again, imminent. Hersh has obviously been wrong in his reporting about the timing of a US attack on Iran in the last few years, which unfortunately for the venerable journalist who broke the story of the My Lai massacre during the Vietnam war, has given him the image of the boy who cried wolf.

More coverage on this story from the Washington Post and in these two blog posts at War and Piece.

The Return of Gunboat Diplomacy in Latin America?

2008-06-28T21:43:00.004-04:00

Larry Birks, director of the Council on Hemispheric Affairs (Coha) discusses the Pentagon's recent move to revive the Navy's Fourth Fleet and its patrolling of Latin American and Caribbean waters. According to a brief written by Birks for Coha at the beginning of the month: "The return of the Fourth Fleet, largely unnoticed by the US press, appears to represent a policy shift that projects an image of Washington once again asserting its military authority on the [Latin American] region."

Discussing Washington's decision to relaunch the Fourth Fleet after years of dormancy - along with almost a decade of Washington ignoring the region both diplomatically and militarily - from a geopolitical point of view, Coha notes that the revival of the Fourth Fleet may "do little more than attempt to introduce a quick fix to Bush’s failed US policy towards Latin America." In his report, Birks argues that the Fleet’s rebirth implies that the Bush administration's "gun boat diplomacy" represents a "new call to arms."

The U.S. may again be prepared to use the prospect of military force if it is found necessary to protect US national interests in Latin America. In particular, the possibility of using the Fourth Fleet already seems to be involved in a calculated and provocative move against Washington’s current bete noir, Hugo Chávez. As Admiral Gary Roughead, chief of naval operations, stated, “this change increases our emphasis in the region on employing naval forces to build confidence and trust […] through collective maritime security efforts that focus on common threats and mutual interests.”

The most ominous observation in this brief report, however, is the fact that given the Pentagon’s recent track record of setting and achieving its strategic objectives (in particular, during the tenure of Defense Secretary Rumsfeld) in particular attempting to improve ties with militaries throughout the Americas by regularly organizing joint “ministerials,” could inadvertently encourage Latin American militaries to "initiate similar scenarios of expansion, modernization, and the revival of their dangerous central roles plagued by past military juntas in their respective societies."

The Spence Commission on Growth, and the unveiling of a new "Washington Consensus"

2008-06-27T17:36:00.006-04:00

Harvard development economist and blogger Dani Rodrik seems quite pleased with the emerging consensus on what practices and theories policy-makers should follow in attempting to bring economic growth to developing countries, especially with the idea the answers to lasting, sustainable and meaningful local economic development ought to be looked for . . . locally.

Evaluating the report from the Spence Commission on Growth (see here for more information), Rodrik concludes in his latest Op-Ed for Project Syndicate that the result is nothing less than a new (and better) Washington Consensus.

Quote of the Day: "Shrunken Sovereign"

2008-06-27T00:05:00.002-04:00

From political theorist Benjamin Barber, author of the excellent Jihad Vs. McWorld, writing in World Affairs Journal:

[I]n the name of abstract personal liberty, libertarians and privatizers actually pervert and undermine real autonomy, given that as Hannah Arendt argued, “political freedom, generally speaking, means the right ‘to be a participant in government,’ or it means nothing.” The tension between private choice and public participation is clearly embodied in the tension between the consumer as private chooser and the citizen as public chooser. Citizens cannot be understood as mere consumers because individual desire is not the same thing as common ground; public goods are something more than a collection of private wants. A republic is by definition public, and what is public cannot be determined by aggregating private desires. Asking what “I want” and asking what “we need” are two different things: the first question is ideally answered by the market, the second by the community. When the market is encouraged to do the work of democracy, our culture is deformed and the character of our commonwealth undermined.

How Bloomberg failed the homeless

2008-06-27T00:00:00.004-04:00

I have a lot of good things to say about New York City's billionaire mayor Michael Bloomberg, but his five-year plan to reduce homelessness in the five boroughs has been and abject failure.

Maybe he needs to spend less money on lavish corporate retention deals (AKA lavishing taxpayer-funded cash at investment banks like JP Morgan and Goldman Sachs to keep them in the city) and more time focusing on the very serious work that needs to be done on social policy for the poor and middle class.

(h/t the Village Voice blog Runnin' Scared)

The homeowners insurance gurantee is that it comes with free insurance quotes just like car insurance, life and health insurance and smaller deals like pet insurance.

IFC's "Doing Business" Index is a misleading measurement

2008-06-25T19:14:00.012-04:00

The World Bank Group's International Finance Corporation (or IFC - for additional background, see here and here) publishes an annual report it refers to as the Doing Business index (DB). This index purports to evaluate and rank business conditions in Developing countries - looking at a jurisdiction's regulatory environment and how it affects the relative "ease of doing business" there for multinational corporations. Importantly, the DB index is meant to measure regulations directly affecting businesses and does not directly measure more general conditions such as a nation's proximity to large markets, quality of infrastructure, inflation, or crime.

As you might expect from a World Bank study, the underlying philosophy steering the index's methodology here is straight up neoliberalism. For instance, the countries that by design will score highest on the index have strong legal protections for international investors, make sure it is easy for an entrepreneur to raise funds to start up and run a new business . . and will have very weak or even non-existent legal protections for workers. According to the IFC, labor regulations and the codification of workers rights are in practice antithetical to a country being considered by the institution as a good place to do business.

But interestingly enough, as reported earlier this month by IPS News, none other than the World Bank Group's own Internal Evaluation Group has concluded that the index is counterproductive and seriously flawed both conceptually and methodologically.

From the article by IPS News (published on June 16):

The World Bank's flagship effort to promote business-led economic growth is ideologically stilted and of little practical use, says the bank's Internal Evaluation Group (IEG). . . the IEG said the Doing Business (DB) survey is prejudiced in favour of deregulation, overstates its conclusions, and shows "no statistically significant relationship" between its indicators and broader economic growth, much less improvements in national well-being.

At issue is the Doing Business Index, in which the bank's private unit, the International Finance Corporation (IFC), ranks 178 countries on how conducive they are to private enterprise. Those that make it easiest to start and run a private enterprise, as measured by 10 indicators, earn the highest marks.

( . . . )

Even so, developing and former Soviet economies in particular perform legal and political contortions to improve their ranking in hopes of boosting foreign investment and with the expectation - stoked by the bank - that increased business activity will translate into faster economic growth.

The bank's Internal Evaluation Group (IEG), in a report released late Thursday, said the Doing Business (DB) survey is prejudiced in favour of deregulation, overstates its conclusions, and shows "no statistically significant relationship" between its indicators and broader economic growth, much less improvements in national well-being.

In addition, see this critique of the DB index from the largest trade union federation in the world - the ITUC - here (.pdf). It provides a detailed analysis of how the World Bank is actually encouraging developing countries to make it easier for the private sector to fire people en mass, as long as capital has free reign for cross-border investment. This is yet another sad reminder of the moral and intellectual bankruptcy of neoliberalism and the legacy of the Washington Consensus - a lesson that the World Bank and other multilaterals seem intent on not learning.

Is al Qaeda beating Pentagon for "hearts and minds" of Iraqis?

2008-06-25T14:10:00.005-04:00

The answer to this tantalizing question appears to be: Yes.

This correspondence from Washington Post reporter Craig Whitlock wins the inagural prize for this blog's troubling but unsurprising news item of the day. Check out the transcript and both articles by Whitlock on how the US is managing to lose the pitched Middle East public relations battle against al Qaeda, despite this country's huge expenditure of resources in the process.

For an example of this expenditure, an interesting discussion of the US-broadcast television station al Hurra, which is a tool of "US diplomacy" (i.e.: propaganda campaign) for the Middle East region where it is broadcast, can be found in the transcript here.

Additionally, for a radically different perspective on how the US is doing in the "war" against al Qaeda, see this article by James Fallow's published by The Atlantic back in September 2006 here. Fallows' argument boils down to: "America has won the media war against al Qaeda already . . . therefore, we should simply declare victory and get out."

Democratic and Republican lawmakers vote for a permanent National Surveillance State

2008-06-25T13:44:00.009-04:00

Scott Horton, writing in Harper's Online, makes an eloquent and well-reasoned case as to why not only is the administration's continued illegal use of the Foreign Intelligence Surveillance Act - or FISA - (which may have been going on even before 9/11, possibly as far back as 2000) an abomination, but so too is the House Democratic leadership's proposed "compromise" legislation.

On top of the House and Senate Democrats' utter collapse on attaching a timeline for withdrawal from Iraq, it appears as if the party that won the 2006 midterm elections on the mantle of change will soon be selling out the American public on their constitutionally-protected civil liberties.

For more on the FISA "compromise" and how the Democratic party has completely sold out, be sure to check out "Democrats Have Legalized Bush's Crimes" by journalist Robert Parry here, as well as this article in The American Prospect fittingly enough entitled "Democrats Capitulate on FISA."

Update (6/27): For more depressing news on the Democratic party's utter sellout on the Uraq war, see this dispatch from Reuters: "Congress passes new Iraq war funds."

The U.S. Senate on Thursday approved $161.8 billion in new funds to continue fighting the wars in Iraq and Afghanistan for the next year, without timetables for withdrawing combat troops.

The House of Representatives passed an identical bill last week. President George W. Bush is expected to promptly sign the measure into law once he receives it from Congress.

The Senate's 92-6 vote to pass the war-funding bill marked a victory for Bush, who has vigorously opposed any move by Congress to impose timetables for ending the Iraq war, now in its sixth year.

Democrats, who are the majority party in Congress, repeatedly had tried to set such dates, most recently with a House vote in May calling for troop withdrawals to be completed by December 31, 2009.

The new war money could last through mid-2009, well past Bush's departure from office on January 20.

Obama disappoints, backpedals on opposition to NAFTA

2008-06-25T09:21:00.002-04:00

During the primary season, Barack Obama made a lot of noise aimed at the Democratic party's powerful liberal base that he was for reforming NAFTA and other US neoliberal "free" trade deals. It also helped him score points off of his chief rival, Hillary Clinton, whose husband ushered in the US-Mexico-Canada trade agreement in the early 1990s which has since been responsible for hundreds of thousands or possibly millions of manufacturing jobs disappearing from midwest batleground states like Ohio.

But now that he has secured the party's nomination, he's suddenly pro-"free trade" and pro-NAFTA, which is not only a depressing flip-flop but also a really stupid move politically, as John Nichols explains.

New housing bill regulating industry, written by lenders

2008-06-25T00:14:00.001-04:00

The usually execrable columnist Jeff Birenbaum actually has a revealing, and important expose in the Washington Post today.

He reports that:

A key provision of the housing bill now awaiting action in the Senate -- and widely touted as offering a lifeline to distressed homeowners -- was initially suggested to Congress by lobbyists for major banks facing their own huge losses from the subprime mortgage crisis, according to congressional staff members and bank officials.

Credit Suisse, a large investment bank heavily invested in mortgage-backed securities, proposed allowing hundreds of thousands of homeowners to refinance their mortgages with lower-cost government-insured loans, relieving financial institutions of the troubled debt.

After the bank proposed this to Congress in January, it became known as the "Credit Suisse plan" among congressional staffers and lobbyists. It later formed the basis of housing provisions in both the House and Senate.

Bank of America, which is acquiring Countrywide Financial, the country's largest mortgage lender, followed with a similar and more detailed proposal, principal negotiators on the legislation said.

While Birenbaum doesn't present much cynicism or skepticism about the outsized role investment banks like Credit Suisse have been given in the drafting of key federal legislation regulating their industry. I suppose the fact that he is at least providing column inches to this scandal is something to be somewhat happy about.

For some actual critical analysis of this massive conflict of interest scandal, you have to get to page two of the article and read the quote from economist Dean Baker from the Center for Economic and Policy Research in Washington: "It is ironic that Congress, responding to a crisis that was created in large part by irresponsible lending, would produce a bill, the main beneficiaries of which are likely to be those lenders. There are aspects that work hugely to the banks' advantage."

It looks like Barney Frank is being let completely off the hook for his part in this whole affair, though.

How Bush's energy policy led to soaring gas prices

2008-06-21T08:44:00.002-04:00

Two stories from Alternet (this by energy expert Michael T. Klare and this by Harvey Wasserman) discussing the huge role the Bush administration's pathetic excuse for an coherent energy policy has played in the rising cost of gas.

Hint: The big energy companies are still raking in record profits, thanks to the impressive largess of the Executive Branch.

The political fallout from declining purchasing power

2008-06-20T11:27:00.005-04:00

In one of his typically brilliant editorials, Le Monde diplo editor Serge Halimi notes the continuously widening gulf between what policymakers none other than former US Treasury Secretary Summers referred to as "a growing recognition by workers that what was good for the global economy and its business champions was not necessarily good for them.” As Halimi points out, this is a wholesale admission by political elites of a "decoupling" of the interests of business and citizens as a result of corporate globalization, fiscal policy and other causes. In other words, while it is important to note that trends such as the current global food crisis - marked by runaway price inflation - and declining purchasing power due to wages failing to keep up with inflation is destroying the credibility of governments worldwide in the eyes of its people; it is necessary to take the next step logically.

As Halimi points out (and what bears repeating): "Stagnation or a decline in purchasing power was the natural result of political choices taken after a war on workers, in the good cause of increasing competitiveness and reducing the cost of labour." He refers in the quote above specifically to EU-member nations such as Italy and Spain, although in context it is clear other industrialized nations such as the UK and the US are equally implicated.