Time for Iraq. WaPo Editorial
President Obama's strategy aims at success. Is that a goal congressional Democrats can support?
The WaPo, Saturday, February 28, 2009; Page A12
THE IRAQ strategy that President Obama announced yesterday was broadly faithful to his campaign promises, but it contained some important and praiseworthy adjustments. The president lengthened his 16-month timetable for the withdrawal of U.S. combat troops to 19 months, thus adopting the middle of the three options the Pentagon studied. He set a ceiling of 50,000 troops for the "residual" force he has always said would remain -- a figure that quickly prompted sniping from his party's left wing. He gave up his formula of withdrawing forces at the rate of a brigade a month, which will allow U.S. commanders to maintain a large force in the country through Iraq's crucial parliamentary elections at the end of this year.
Most important, Mr. Obama spoke of Iraq not as a fiasco to be abandoned but as a "great nation" whose "future . . . is inseparable from the future of the broader Middle East." He said his administration aimed for "a new era of American leadership and engagement" in the region and "will work to promote an Iraqi government that is just, representative and accountable, and that provides neither support nor safe haven to terrorists." That is almost exactly how the Bush administration defined "victory" in Iraq. Thanks to the military and political successes of Mr. Bush's last two years, there is reason for hope that Mr. Obama's strategy can achieve that aim.
The president's speech was not without hedges and contradictions. He said there would be limits to what the United States would do to stabilize Iraq, and he put Iraqis on notice that they must "seize" the opportunity they have been offered. Perhaps with his antiwar base in mind, he pronounced "as plainly as I can: By August 31, 2010, our combat mission in Iraq will end." In the next breath, he promised to "proceed carefully" and "consult closely" with military commanders and the Iraqi government, and he said "there will surely be difficult periods and tactical adjustments." Does that mean Mr. Obama is open to altering his plan if al-Qaeda or Iranian-backed militias rebound as U.S. troop levels decline? Some of the congressional leaders he briefed, including Sen. John McCain (R-Ariz.) seemed to think so; Mr. McCain called Mr. Obama's plan "reasonable."
Unfortunately for Mr. Obama, the initial response of some congressional Democrats was anything but reasonable. A number objected to the size of the residual force: House Speaker Nancy Pelosi (Calif.) declared that 15,000 or 20,000 would be more appropriate. Neither she nor other objectors explained why fewer troops were needed or expressed any interest in nurturing what Mr. Obama described as the "renewed cause for hope in Iraq." That is a measure of Mr. Obama's statesmanship: Though he opposed the war, his strategy recognizes what has been achieved in Iraq, even at a terrible cost, and aims at preserving it. His party would do well to follow his lead.
Saturday, February 28, 2009
Friday, February 27, 2009
Energy Dept Partner Begins Injecting 50,000 Tons of Carbon Dioxide in Michigan Basin
DOE Partner Begins Injecting 50,000 Tons of Carbon Dioxide in Michigan Basin
Project Expected to Advance National Carbon Sequestration Program, Create Jobs
February 27, 2009
Washington, D.C. — Building on an initial injection project of 10,000 metric tons of carbon dioxide (CO2) into a Michigan geologic formation, a U.S. Department of Energy (DOE) team of regional partners has begun injecting 50,000 additional tons into the formation, which is believed capable of storing hundreds of years worth of CO2, a greenhouse gas that contributes to climate change.
DOE’s Midwest Regional Carbon Sequestration Partnership (MRCSP), led by Battelle of Columbus, Ohio, began injecting the CO2 this week in the Michigan Basin near Gaylord, Mich., in a deep saline formation, the Silurian-age Bass Island dolomite. The MRCSP is one of seven partnerships in DOE’s Carbon Sequestration Partnership Program, which was created to assess optimal CO2 storage approaches in each region of the country. The program is managed for DOE’s Office of Fossil Energy by the National Energy Technology Laboratory (NETL).
"This injection test, one of three performed by our Midwest partner, will significantly increase our understanding of CO2 storage technologies and practices in a real-world setting," said Victor Der, Principal Deputy Assistant Secretary for Fossil Energy. "This project will not only provide important information about promising sequestration techniques but it will also go a long way toward creating jobs in the energy sector."
When the current project is completed, the total 60,000 metric ton injection at the Michigan site will mark the largest deep saline reservoir injection in the United States to date and will allow scientists to more fully evaluate how CO2 moves through the basin’s geologic formation. Injections are expected to take place at an average rate of 250 tons per day up to a maximum rate of 600 tons. The 6-month project and related activities of the MRCSP are expected to create more than 230 jobs and 2,900 total project job years. The latter figure represents the number of full-time jobs per year times the number of years that the jobs are supported.
During the Michigan basin injection process, the Midwest team will provide additional insight to the knowledge gained from the initial test in 2008. The team will record geochemical changes to the system, as well as the distribution of the CO2 along the wellbore. A larger volume of CO2 injected over a longer period of time will also provide scientists with additional insight into temperature and pressure responses in the geologic formation, as well as any seasonal changes to the system.
Since the test is taking place within an existing oil and gas field, continuing enhanced oil recovery operations — which are being conducted by well owner, Core Energy LLC — makes this area ideal for the injection test. The area already contains much of the needed infrastructure, such as CO2 compressors, injection systems, existing wells, and pipelines, including an 8-mile-long transport pipeline.
The CO2 being injected comes from a natural gas processing plant owned by DTE Energy, located near Gaylord, where the CO2 will be transported via the 8-mile pipeline to the well. The depth of the injection (3,500 feet) is significantly below the 1,000-foot level of drinking water sources and does not pose any danger to them.
DOE launched the Carbon Sequestration Partnership Program in 2003 to develop and validate technologies to store and monitor CO2 in various geologic formations around the country as part of a national strategy to combat global climate change.
The MRCSP team includes more than 30 partners from state and federal organizations, leading universities, state geological surveys, nongovernmental organizations, and private companies in the eight-state region of Indiana, Kentucky, Maryland, Michigan, New York, Ohio, Pennsylvania, and West Virginia. In addition to Battelle, Core Energy, and DTE, other participants include the Michigan Geological Repository for Research and Education at Western Michigan University, Stanford University Geophysics Department, Schlumberger, and the Michigan Department of Environmental Quality’s Office of Geological Survey.
Project Expected to Advance National Carbon Sequestration Program, Create Jobs
February 27, 2009
Washington, D.C. — Building on an initial injection project of 10,000 metric tons of carbon dioxide (CO2) into a Michigan geologic formation, a U.S. Department of Energy (DOE) team of regional partners has begun injecting 50,000 additional tons into the formation, which is believed capable of storing hundreds of years worth of CO2, a greenhouse gas that contributes to climate change.
DOE’s Midwest Regional Carbon Sequestration Partnership (MRCSP), led by Battelle of Columbus, Ohio, began injecting the CO2 this week in the Michigan Basin near Gaylord, Mich., in a deep saline formation, the Silurian-age Bass Island dolomite. The MRCSP is one of seven partnerships in DOE’s Carbon Sequestration Partnership Program, which was created to assess optimal CO2 storage approaches in each region of the country. The program is managed for DOE’s Office of Fossil Energy by the National Energy Technology Laboratory (NETL).
"This injection test, one of three performed by our Midwest partner, will significantly increase our understanding of CO2 storage technologies and practices in a real-world setting," said Victor Der, Principal Deputy Assistant Secretary for Fossil Energy. "This project will not only provide important information about promising sequestration techniques but it will also go a long way toward creating jobs in the energy sector."
When the current project is completed, the total 60,000 metric ton injection at the Michigan site will mark the largest deep saline reservoir injection in the United States to date and will allow scientists to more fully evaluate how CO2 moves through the basin’s geologic formation. Injections are expected to take place at an average rate of 250 tons per day up to a maximum rate of 600 tons. The 6-month project and related activities of the MRCSP are expected to create more than 230 jobs and 2,900 total project job years. The latter figure represents the number of full-time jobs per year times the number of years that the jobs are supported.
During the Michigan basin injection process, the Midwest team will provide additional insight to the knowledge gained from the initial test in 2008. The team will record geochemical changes to the system, as well as the distribution of the CO2 along the wellbore. A larger volume of CO2 injected over a longer period of time will also provide scientists with additional insight into temperature and pressure responses in the geologic formation, as well as any seasonal changes to the system.
Since the test is taking place within an existing oil and gas field, continuing enhanced oil recovery operations — which are being conducted by well owner, Core Energy LLC — makes this area ideal for the injection test. The area already contains much of the needed infrastructure, such as CO2 compressors, injection systems, existing wells, and pipelines, including an 8-mile-long transport pipeline.
The CO2 being injected comes from a natural gas processing plant owned by DTE Energy, located near Gaylord, where the CO2 will be transported via the 8-mile pipeline to the well. The depth of the injection (3,500 feet) is significantly below the 1,000-foot level of drinking water sources and does not pose any danger to them.
DOE launched the Carbon Sequestration Partnership Program in 2003 to develop and validate technologies to store and monitor CO2 in various geologic formations around the country as part of a national strategy to combat global climate change.
The MRCSP team includes more than 30 partners from state and federal organizations, leading universities, state geological surveys, nongovernmental organizations, and private companies in the eight-state region of Indiana, Kentucky, Maryland, Michigan, New York, Ohio, Pennsylvania, and West Virginia. In addition to Battelle, Core Energy, and DTE, other participants include the Michigan Geological Repository for Research and Education at Western Michigan University, Stanford University Geophysics Department, Schlumberger, and the Michigan Department of Environmental Quality’s Office of Geological Survey.
Libertarian: The Two Faces of Barack Obama - A president contradicts himself all night long
The Two Faces of Barack Obama. By Matt Welch
A president contradicts himself all night long
Reason, February 25, 2009
"But I also know," President Barack Obama said last night, in his typically self-referential fashion, "that in a time of crisis, we cannot afford to govern out of anger, or yield to the politics of the moment. My job—our job—is to solve the problem. Our job is to govern with a sense of responsibility."
It was a pleasingly presidential sentiment for a subdued, not-quite-a-State-of-the-Union speech. Unfortunately for Obama—and us—it was also contradicted, and blatantly so, not four paragraphs prior, by a guy named Barack Obama. "This time," the president warned us the minute before, while giving that stern schoolmaster look of his, "CEOs won't be able to use taxpayer money to pad their paychecks or buy fancy drapes or disappear on a private jet. Those days are over!" Democrats leaped to their feet.
Obama aims to be the president of all Americans, a position that appears to be sincere. But I wonder whether in the process he might also want to consider appointing himself chief executive of his own head. All night long, with equally sonorous vigor, he served up confident assertions, only to state moments later, with equal conviction, their near opposite.
"We will rebuild, we will recover, and the United States of America will emerge stronger than before," Obama crowd-pleased near the beginning, in the slot normally reserved for lines like "the state of our union is strong." Not long after, though, Americans learned that our very "survival depends on finding new sources of energy." Also, "there will be no real recovery unless we clean up the credit crisis...our recovery will be choked off before it even begins," and if we don't do whatever Obama wants us to do about the banking system, "it could result in an economy that sputters along for not months or years, but perhaps a decade." Better! Stronger! Crippled for a decade!
After detailing some clean-energy advancements in China, Germany, Japan, and Korea, the president averred, "Well, I do not accept"—there's that self-referencing again—"a future where the jobs and industries of tomorrow take root beyond our borders." A few paragraphs later, however, zero-sum gave way to kumbaya: "The world depends on us to have a strong economy, just as our economy depends on the strength of the world's." Just don't you get strong by producing clean energy, Koreans!
It was like this all night. The president's stimulus package "will save or create 3.5 million jobs." One of those, anyway! His administration has "created a new website called recovery.gov so that every American can find out how and where their money is being spent," unless they try to use it to find out how and where their money is being spent. Importantly, Obama vowed to "act with the full force of the federal government to ensure that the major banks that Americans depend on have enough confidence and enough money to lend even in more difficult times," a pledge he took so seriously that later on he stressed, twice, that "it's not about helping banks—it's about helping people."
The contradictions came flying even in his read-my-lips moment: "If your family earns less than $250,000 a year," he said, "you will not see your taxes increased a single dime. I repeat: not one single dime." But as recently as the previous paragraph the president vowed to "restore a sense of fairness and balance to our tax code by finally ending the tax breaks for corporations that ship our jobs overseas." And a few paragraphs before that, he called for a "market-based cap on carbon pollution." So: You will not see your federal taxes increased a single dime...unless you own a company that emits carbon or hires some of those dastardly Koreans.
The two faces of Obama reveal more than just a man hard-wired to work both sides of a room. There is an essential contradiction at the heart of his populist economics. He wants to jump-start the "flow of credit"—it's "the lifeblood of our economy," after all—but somehow surgically remove the "speculators" from the process. "I will not spend a single penny," he promised, undeliverably, last night, "for the purpose of rewarding a single Wall Street executive, but I will do whatever it takes to help the small business that can't pay its workers or the family that has saved and still can't get a mortgage." His press secretary, Robert Gibbs, declared last week that, "I think we left [behind] a few months ago the adage that if it was good for a derivatives trader, that it's good for Main Street. I think the verdict is in on that."
Here is one of the many problems with that line of thinking: Wall Street isn't just some abstract pit of snakes that can be drowned in poison oil or otherwise given a wide berth—it's the heart (if tattered) of the country's financial industry. Which, among other things, does more to unleash the lifebloody "flow of credit" than any other power center in America. Not only does Obama get it wrong when he thinks you can best "help the small business" without involving the best single source of small-business funding, he also wildly misses the political and financial ethos of the abstraction he can't stop campaigning against. "I understand that on any given day, Wall Street may be more comforted by an approach that gives banks bailouts with no strings attached, and that holds nobody accountable for their reckless decisions," he said with a smirk. "But such an approach won't solve the problem." Nor will erecting a giant straw man in Lower Manhattan.
But there's more: Not only is Wall Street going to be key to any recovery, the reviled "derivatives trader" is right at the clenched heart of the financial blockage. As Washington Post economics columnist Robert J. Samuelson pointed out earlier this month, "Contrary to popular wisdom, banks—institutions that take deposits—aren't the main problem. In December, total U.S. bank credit stood at $9.95 trillion, up 8 percent from a year earlier, reports the Federal Reserve. Business, consumer and real estate loans all increased....The real collapse has occurred in securities markets."
Securitized lending instruments, and the various insurance and pricing bets placed on them, sloshed hundreds of billions of dollars into the economy, but have now locked up. The point is not that the derivatives trader needs a bailout—he most certainly does not—it's that inaccurately demonizing him is not the shortest route to economic wisdom.
There were some promising notes in Obama's speech last night, particularly his vow to "end direct payments to large agribusinesses that don't need them," and discontinue the dishonest and irresponsible way that Congress has funded wars for the past seven years. But the biggest promise was the one that his contradictions—or maybe just his ideology—did not let him fulfill. "It is only by understanding how we arrived at this moment," he said near the beginning, "that we'll be able to lift ourselves out of this predicament." Too true. Moments later, however, despite piles of evidence to the contrary, he said: "Regulations were gutted for the sake of a quick profit at the expense of a healthy market."
If understanding root causes is the key to good economic policy, we may have longer to go than even the pessimistic half of Obama thinks.
Matt Welch is the Editor in Chief of Reason magazine.
A president contradicts himself all night long
Reason, February 25, 2009
"But I also know," President Barack Obama said last night, in his typically self-referential fashion, "that in a time of crisis, we cannot afford to govern out of anger, or yield to the politics of the moment. My job—our job—is to solve the problem. Our job is to govern with a sense of responsibility."
It was a pleasingly presidential sentiment for a subdued, not-quite-a-State-of-the-Union speech. Unfortunately for Obama—and us—it was also contradicted, and blatantly so, not four paragraphs prior, by a guy named Barack Obama. "This time," the president warned us the minute before, while giving that stern schoolmaster look of his, "CEOs won't be able to use taxpayer money to pad their paychecks or buy fancy drapes or disappear on a private jet. Those days are over!" Democrats leaped to their feet.
Obama aims to be the president of all Americans, a position that appears to be sincere. But I wonder whether in the process he might also want to consider appointing himself chief executive of his own head. All night long, with equally sonorous vigor, he served up confident assertions, only to state moments later, with equal conviction, their near opposite.
"We will rebuild, we will recover, and the United States of America will emerge stronger than before," Obama crowd-pleased near the beginning, in the slot normally reserved for lines like "the state of our union is strong." Not long after, though, Americans learned that our very "survival depends on finding new sources of energy." Also, "there will be no real recovery unless we clean up the credit crisis...our recovery will be choked off before it even begins," and if we don't do whatever Obama wants us to do about the banking system, "it could result in an economy that sputters along for not months or years, but perhaps a decade." Better! Stronger! Crippled for a decade!
After detailing some clean-energy advancements in China, Germany, Japan, and Korea, the president averred, "Well, I do not accept"—there's that self-referencing again—"a future where the jobs and industries of tomorrow take root beyond our borders." A few paragraphs later, however, zero-sum gave way to kumbaya: "The world depends on us to have a strong economy, just as our economy depends on the strength of the world's." Just don't you get strong by producing clean energy, Koreans!
It was like this all night. The president's stimulus package "will save or create 3.5 million jobs." One of those, anyway! His administration has "created a new website called recovery.gov so that every American can find out how and where their money is being spent," unless they try to use it to find out how and where their money is being spent. Importantly, Obama vowed to "act with the full force of the federal government to ensure that the major banks that Americans depend on have enough confidence and enough money to lend even in more difficult times," a pledge he took so seriously that later on he stressed, twice, that "it's not about helping banks—it's about helping people."
The contradictions came flying even in his read-my-lips moment: "If your family earns less than $250,000 a year," he said, "you will not see your taxes increased a single dime. I repeat: not one single dime." But as recently as the previous paragraph the president vowed to "restore a sense of fairness and balance to our tax code by finally ending the tax breaks for corporations that ship our jobs overseas." And a few paragraphs before that, he called for a "market-based cap on carbon pollution." So: You will not see your federal taxes increased a single dime...unless you own a company that emits carbon or hires some of those dastardly Koreans.
The two faces of Obama reveal more than just a man hard-wired to work both sides of a room. There is an essential contradiction at the heart of his populist economics. He wants to jump-start the "flow of credit"—it's "the lifeblood of our economy," after all—but somehow surgically remove the "speculators" from the process. "I will not spend a single penny," he promised, undeliverably, last night, "for the purpose of rewarding a single Wall Street executive, but I will do whatever it takes to help the small business that can't pay its workers or the family that has saved and still can't get a mortgage." His press secretary, Robert Gibbs, declared last week that, "I think we left [behind] a few months ago the adage that if it was good for a derivatives trader, that it's good for Main Street. I think the verdict is in on that."
Here is one of the many problems with that line of thinking: Wall Street isn't just some abstract pit of snakes that can be drowned in poison oil or otherwise given a wide berth—it's the heart (if tattered) of the country's financial industry. Which, among other things, does more to unleash the lifebloody "flow of credit" than any other power center in America. Not only does Obama get it wrong when he thinks you can best "help the small business" without involving the best single source of small-business funding, he also wildly misses the political and financial ethos of the abstraction he can't stop campaigning against. "I understand that on any given day, Wall Street may be more comforted by an approach that gives banks bailouts with no strings attached, and that holds nobody accountable for their reckless decisions," he said with a smirk. "But such an approach won't solve the problem." Nor will erecting a giant straw man in Lower Manhattan.
But there's more: Not only is Wall Street going to be key to any recovery, the reviled "derivatives trader" is right at the clenched heart of the financial blockage. As Washington Post economics columnist Robert J. Samuelson pointed out earlier this month, "Contrary to popular wisdom, banks—institutions that take deposits—aren't the main problem. In December, total U.S. bank credit stood at $9.95 trillion, up 8 percent from a year earlier, reports the Federal Reserve. Business, consumer and real estate loans all increased....The real collapse has occurred in securities markets."
Securitized lending instruments, and the various insurance and pricing bets placed on them, sloshed hundreds of billions of dollars into the economy, but have now locked up. The point is not that the derivatives trader needs a bailout—he most certainly does not—it's that inaccurately demonizing him is not the shortest route to economic wisdom.
There were some promising notes in Obama's speech last night, particularly his vow to "end direct payments to large agribusinesses that don't need them," and discontinue the dishonest and irresponsible way that Congress has funded wars for the past seven years. But the biggest promise was the one that his contradictions—or maybe just his ideology—did not let him fulfill. "It is only by understanding how we arrived at this moment," he said near the beginning, "that we'll be able to lift ourselves out of this predicament." Too true. Moments later, however, despite piles of evidence to the contrary, he said: "Regulations were gutted for the sake of a quick profit at the expense of a healthy market."
If understanding root causes is the key to good economic policy, we may have longer to go than even the pessimistic half of Obama thinks.
Matt Welch is the Editor in Chief of Reason magazine.
Can Newspapers Survive? Only if they work harder to earn and maintain respect
Can Newspapers Survive? By Cathy Young
Only if they work harder to earn and maintain respect
Reason, February 27, 2009
As media giants totter, battered by the Internet and the economic crisis, saving the newspapers has become a hot topic. It is richly ironic that the Net, which has both greatly facilitated the work of journalists and expanded their readership, has also left many unemployed. There are concerns that the death of journalism as we know it will leave our culture ill-informed—blogs are good for opinion and fact-checking, but they are no substitute for original reporting—and endanger democracy by removing a vital part of its checks and balances.
The debate revolves around two key questions. One, does society truly need the professional media? Two, how can professional journalism survive in a new media environment?
On the first question, my answer is a resounding, though possibly self-serving "yes." While I am a fan of blogs, I believe they work best when the "mainstream media" and the blogs complement each other. Otherwise, the blogosphere is all too liable to disintegrate into shrill partisan screaming and irresponsible rumor-mongering.
The responsible media do have a vital role to play in a democracy. However, the mainstream media's defenders would do well to acknowledge some of their failings. A recent editorial in The New Republic laments that "press-bashing"—whether from right-wing media critics such as former CBS correspondent Bernard Goldberg, or leftists on the Huffington Post site who accuse the media of conformism—has created a "poisonous atmosphere," undermining the authority of the press.
But what if the critiques have merit? Goldberg's anti-media broadsides may be over the top, but his basic argument—that the liberal politics of most journalists influence media coverage, not because journalists don't strive to be objective but because their cultural milieu influences their perceptions of objectivity—has a great deal of truth to it. Few people doubt that Barack Obama got breaks from the press. And there are well-documented instances of media bias leading to sloppy reporting, with journalists all but recycling the press releases of advocacy groups on such issues as domestic violence, homelessness, or the perils of gun ownership. The press has been the target of unfair criticism, but it cannot be absolved of blame for the damage to its reputation.
That said, the media's present financial woes have little to do with its real or perceived lack of balance, and everything to do with the economics of publishing. News corporations have always subsidized serious reporting and commentary with revenues from other functions of the newspapers, such as classified advertising or sports news. Today, most of those functions have been diverted to other media, including the Internet.
Promising solutions include non-profit programs to support investigative reporting and news analysis. Just because we need professional journalism does not mean that it has to come only in the traditional package of the newspaper. Independent journalists, working as individuals or as teams, may thrive if they can have access to resources outside the conventional structure of a media organization.
Far more controversial is the quest to get readers to pay for online content. In fact, there is no good reason that online content should be free, other than "people are used to it." Is it impossible to persuade people to pay for something they are used to getting for free? Not at all. Online music downloads are a good example; so is television. While TV had been free since its inception, large numbers of people proved willing to pay for cable and digital television.
A subscriber-only model for individual websites has repeatedly proven unworkable. (The Wall Street Journal—a notable exception—gets people to pay for financial information while providing most editorial content free of charge.) The main reason it cannot work is that people who read news and commentary on the Internet usually get their content from many different sites. That is the great advantage of the Internet: you can go from The Washington Post to The London Times at the click of a mouse, and follow a link within one story to read another. If every news site started hiding its content behind a pay wall, reader would face either huge bills or greatly restricted choices, and many would seek to circumvent the subscription requirements.
Walter Isaacson, former managing editor of Time, recently got into the fray with a proposal to make web media content available for micropayments similar to iTunes, "a one-click system with a really simple interface." If you see a link to an interesting article on, say, the San Jose Mercury News website, you don't have to buy a $20 subscription to the publication—you can pay a nickel or a dime to read the individual item.
While this is a promising idea, it has substantial drawbacks. Those nickels and dimes can add up, and if your monthly bill is high enough, you may think twice the next time you feel like clicking on a link.
A better approach may be to make news and analysis content available only through media portals or carriers, similar to cable television providers. A subscription to a carrier would give access to any news site (newspaper, magazine, blog) that is a part of its package. The subscription price could be set by level of consumption—$20 a month for 40 hours of media access, $40 for 100 hours, and so on. Or it could vary depending on which publications are included, while content outside the customer's standard package could be available for one-time micropayments. Different media portals could experiment with different fee scales. This would allow people to surf the Web without having to ponder each click of a link. Revenues could be distributed to individual websites depending on their readership.
This strategy would still require a drastic departure from Internet business as usual. The migration of participating sites behind media-portal walls would have to be coordinated. Some policing would be needed to ensure that premium content is not reposted on free-access sites. This could make the carriers look like bad guys, at least in the eyes of those for whom free online content has become an entitlement if not an article of faith.
Yet, if there is a will to adopt the media-portal subscription model, there will be a way. Even in the age of celebrity gossip sites and reality shows, millions of Americans still respect real journalism enough to be willing to pay to help keep it alive.
Provided, of course, that the media work harder to deserve and retain that respect.
Cathy Young is a contributing editor at Reason magazine. This article originally appeared at Real Clear Politics.
Only if they work harder to earn and maintain respect
Reason, February 27, 2009
As media giants totter, battered by the Internet and the economic crisis, saving the newspapers has become a hot topic. It is richly ironic that the Net, which has both greatly facilitated the work of journalists and expanded their readership, has also left many unemployed. There are concerns that the death of journalism as we know it will leave our culture ill-informed—blogs are good for opinion and fact-checking, but they are no substitute for original reporting—and endanger democracy by removing a vital part of its checks and balances.
The debate revolves around two key questions. One, does society truly need the professional media? Two, how can professional journalism survive in a new media environment?
On the first question, my answer is a resounding, though possibly self-serving "yes." While I am a fan of blogs, I believe they work best when the "mainstream media" and the blogs complement each other. Otherwise, the blogosphere is all too liable to disintegrate into shrill partisan screaming and irresponsible rumor-mongering.
The responsible media do have a vital role to play in a democracy. However, the mainstream media's defenders would do well to acknowledge some of their failings. A recent editorial in The New Republic laments that "press-bashing"—whether from right-wing media critics such as former CBS correspondent Bernard Goldberg, or leftists on the Huffington Post site who accuse the media of conformism—has created a "poisonous atmosphere," undermining the authority of the press.
But what if the critiques have merit? Goldberg's anti-media broadsides may be over the top, but his basic argument—that the liberal politics of most journalists influence media coverage, not because journalists don't strive to be objective but because their cultural milieu influences their perceptions of objectivity—has a great deal of truth to it. Few people doubt that Barack Obama got breaks from the press. And there are well-documented instances of media bias leading to sloppy reporting, with journalists all but recycling the press releases of advocacy groups on such issues as domestic violence, homelessness, or the perils of gun ownership. The press has been the target of unfair criticism, but it cannot be absolved of blame for the damage to its reputation.
That said, the media's present financial woes have little to do with its real or perceived lack of balance, and everything to do with the economics of publishing. News corporations have always subsidized serious reporting and commentary with revenues from other functions of the newspapers, such as classified advertising or sports news. Today, most of those functions have been diverted to other media, including the Internet.
Promising solutions include non-profit programs to support investigative reporting and news analysis. Just because we need professional journalism does not mean that it has to come only in the traditional package of the newspaper. Independent journalists, working as individuals or as teams, may thrive if they can have access to resources outside the conventional structure of a media organization.
Far more controversial is the quest to get readers to pay for online content. In fact, there is no good reason that online content should be free, other than "people are used to it." Is it impossible to persuade people to pay for something they are used to getting for free? Not at all. Online music downloads are a good example; so is television. While TV had been free since its inception, large numbers of people proved willing to pay for cable and digital television.
A subscriber-only model for individual websites has repeatedly proven unworkable. (The Wall Street Journal—a notable exception—gets people to pay for financial information while providing most editorial content free of charge.) The main reason it cannot work is that people who read news and commentary on the Internet usually get their content from many different sites. That is the great advantage of the Internet: you can go from The Washington Post to The London Times at the click of a mouse, and follow a link within one story to read another. If every news site started hiding its content behind a pay wall, reader would face either huge bills or greatly restricted choices, and many would seek to circumvent the subscription requirements.
Walter Isaacson, former managing editor of Time, recently got into the fray with a proposal to make web media content available for micropayments similar to iTunes, "a one-click system with a really simple interface." If you see a link to an interesting article on, say, the San Jose Mercury News website, you don't have to buy a $20 subscription to the publication—you can pay a nickel or a dime to read the individual item.
While this is a promising idea, it has substantial drawbacks. Those nickels and dimes can add up, and if your monthly bill is high enough, you may think twice the next time you feel like clicking on a link.
A better approach may be to make news and analysis content available only through media portals or carriers, similar to cable television providers. A subscription to a carrier would give access to any news site (newspaper, magazine, blog) that is a part of its package. The subscription price could be set by level of consumption—$20 a month for 40 hours of media access, $40 for 100 hours, and so on. Or it could vary depending on which publications are included, while content outside the customer's standard package could be available for one-time micropayments. Different media portals could experiment with different fee scales. This would allow people to surf the Web without having to ponder each click of a link. Revenues could be distributed to individual websites depending on their readership.
This strategy would still require a drastic departure from Internet business as usual. The migration of participating sites behind media-portal walls would have to be coordinated. Some policing would be needed to ensure that premium content is not reposted on free-access sites. This could make the carriers look like bad guys, at least in the eyes of those for whom free online content has become an entitlement if not an article of faith.
Yet, if there is a will to adopt the media-portal subscription model, there will be a way. Even in the age of celebrity gossip sites and reality shows, millions of Americans still respect real journalism enough to be willing to pay to help keep it alive.
Provided, of course, that the media work harder to deserve and retain that respect.
Cathy Young is a contributing editor at Reason magazine. This article originally appeared at Real Clear Politics.
Pros and Cons of Multilateral Nonproliferation: Lessons Learned from the Bush Administration
Pros and Cons of Multilateral Nonproliferation: Lessons Learned from the Bush Administration. By Ambassador Jackie WolcottHeritage, February 25, 2009Heritage Lecture #1112
http://www.heritage.org/Research/NationalSecurity/hl1112.cfm
Excerpts:
[...]
First on that list is, of course, Kim Holmes. I had the great honor and fun of working with Kim as his political deputy at State. One of my lasting impressions from that time was working with him as we re-entered the U.N. Human Rights Commission in 2003 after having been voted off it for the first time ever.
The first issue we faced was Libya's candidacy to chair the Commission. With Kim's able leadership-- and believe me, not everyone at the State Department wanted to do this--we waged a worldwide campaign against Libya, then under U.N. sanctions as a terrorist state, eventually calling for a vote to decide its fate. It was the first time in the history of the Human Rights Commission that anyone had forced such a vote. Yes, we went down in flames, but we did it for the right reasons and performed what I think was a badly needed reality check on an institution that had grown comfortable with absurdity.
When my friends here at Heritage first invited me to speak, I pondered what best I might offer that is not already well known and obvious to experts who follow U.S. nonproliferation policy. It seemed to me that perhaps my experience over the past several years might provide a somewhat unique view of the various, related multilateral efforts still underway today. Obviously, now that I am outside of government, I am no longer confined by the bureaucratic "clearance" process, so I hope we can have an informal, non-technical discussion of the challenges and opportunities we face with respect to nuclear nonproliferation.
[...]
While I will address several broad themes today, I would be remiss if I did not draw often on my experiences dealing with the case of Iran. For in a very real sense, Iran has shaken the traditional multilateral system--piece by piece--to its core, and despite the machinations of the blame-America-first crowd, its nuclear weapons program remains the greatest common challenge to each of the institutions in which I served.
At the outset, let me be clear that my remarks here today are based on what I consider to be the inconvenient truth some still try to deny. Diplomats and analysts can debate the size, scope, and pace of the program, or the role of hardliners vs. reformers in Tehran, but Iran's actions over the past several decades cannot lead but to one inexorable conclusion: Iran desires and--if left to its own devices-- will soon have a nuclear weapons capability. No sane person really thinks Iran continues to test a ballistic missile capability in order to launch satellites, but even the most wishful thinking cannot ignore the reams of internationally acquired evidence regarding Iran's covert uranium enrichment program, its weaponization research, and the involvement of its military in almost every facet of these programs.
The Shortcomings of Existing Multilateral Institutions
To better understand how we might move forward, let me take a moment to discuss as a baseline where we have been and where we are now. Broadly speaking, I think it is a fair and accurate assessment to state that existing multilateral institutions are ill equipped, unable, or in some cases unwilling to address the most urgent proliferation security-related threats we face. One could even make the case that these institutions, when they fail to act decisively, in effect legitimize illicit programs. While we should not ignore the role these institutions might play, it is naïve--dangerously so--to assume they can resolve the urgent proliferation matters we confront.
Conference on Disarmament. Some might find that a rather sweeping statement, so I hope you will allow me to illustrate through some specific cases. But before I do, I'd like to talk about time travel. No, I haven't been spending too much time with my colleagues from our national labs discussing the folding of space, although that at times sounds easier than convincing certain countries to forgo the fuel cycle. Trust me, though: Time travel is possible.
All you have to do is visit the Conference on Disarmament (CD) in Geneva. The mustaches and sideburns have disappeared, but the crusaders of disarmament are still waging the Cold War in Geneva. And worst of all, they let these people loose several times a year, most notably on the Nuclear Non-Proliferation Treaty (NPT) conference rooms, to argue--no doubt to Iran's and North Korea's great satisfaction--that proliferation threats would simply cease to exist if the U.S. dismantled its nuclear arsenal. Given this time warp, it is no wonder the organization hasn't produced one solitary piece of work since 1996.
I have spent many a meeting listening to its proponents attempt to tug and stretch the disarmament philosophy into relevancy, but when pressed it is difficult for them to argue that a Comprehensive Test Ban Treaty, for example, would address current or emerging threats. They offer no credible assurance that a new Cold War treaty could avoid the now-familiar pitfalls associated with the systematic failure to prosecute existing treaty violations.
And so these proponents of disarmament return to the political path of least resistance and focus their attention on the United States and hand the Irans and North Koreas of the world an incredibly valuable gift--time and diplomatic cover to continue their illicit work.
It is a shame so much time and effort is wasted at the CD, but most of us here will agree that on balance, in a venue so mired in the past, no work is good work. Still, the CD illustrates well how outdated, unwilling machinery can infect the workings of the system as a whole.
You really have to hand it to John Bolton. Despite the mustache, he understood the Geneva Mafia--a term that even they use--and he thought it would be useful to speak with one consistent voice wherever they appeared in the world. So when he tapped me as Ambassador to the CD in late 2003, he gave me diplomatic responsibility for the Nuclear Non-Proliferation Treaty as well. The charge was fairly simple: Defend the United States and its interests; utilize each venue as a platform for exposing the true threats to international peace and security; and when in doubt, say no to the CD.
Later, when he and Kim also gave me interim responsibility for the International Atomic Energy Agency, let me tell you, it became very complicated.
International Atomic Energy Agency. In 1957, the International Atomic Energy Agency (IAEA) was created, according to its statute, as "an independent intergovernmental, science and technology-based organization, in the United Nations family, that serves as the global focal point for nuclear cooperation." Put differently, it was largely established as a technical organization to help facilitate the peaceful development of civil nuclear programs. In this regard, it has served the international community reasonably well.
The problem, of course, is in its dealings with countries that are pursuing weapons under the guise of peaceful nuclear programs. In some cases, its technical response has been beneficial, as in the case of the IAEA developing the Additional Protocol in 1997. One can also point to its decision to refer North Korea to the U.N. Security Council in both 1993 and 2003. But a fair cost-benefit analysis also would have to include its track record as the world's so-called nuclear watchdog.
There have been several well-documented instances in which it simply did not detect or adequately judge illicit nuclear programs, but obviously, the hallmark failure of the IAEA has been the case of Iran, most notably in 2003 when it failed its mandate by refusing to formally find Iran in non-compliance with IAEA statutes and refer it to the Security Council. While the Security Council is by no means a panacea, it is quite clear that the international community in the fall of 2003 missed an important opportunity to signal to Iran that its nuclear weapons program was unacceptable. Some board members and IAEA officials alike--for assorted reasons--didn't want to lose jurisdiction over the Iran issue from Vienna. Despite our best efforts at home and abroad, the referral didn't come until early 2006.
While some IAEA officials certainly enabled this delay, responsibility ultimately falls to states and their often tried, often failed policy of negotiation. Many of you here have correctly argued that negotiation is not policy, just one of a number of available tools to achieve a policy, and when we fail to recognize the distinction, we end up with nothing or worse. Europe's negotiations with Iran achieved nothing, but what's worse is that they delayed the referral process in Vienna for over two years.
First the Europeans promised negotiations would dismantle Iran's nuclear program, and when the operative negotiating term quickly became "suspend," we were promised that it soon would be changed to "halt." Dismantlement became a wish rather than a goal. At the same time, the Europeans promised Iran that if it agreed to a temporary suspension and some form of verification, the U.S. would eventually accept its program. Though the resulting so-called Treaty of Paris was lauded as bringing the world back from the brink of another Iraq-like U.N. Security Council drama, it was a failure even before it was abrogated. The goalposts weren't just moved; they were disposed of altogether at a very early stage.
The Europeans still like to claim that their negotiations slowed Iran's nuclear progress. Iran, of course, took a different view, with their chief negotiator even boasting later that the ongoing negotiations afforded Iran the necessary time to complete a critical part of the fuel cycle. Iran, like North Korea, has recycled this tactic many times to great success: If they delay, the West will eventually negotiate with itself and back down.
The last several years have also been witness to a rather new phenomenon that has further weakened the ability of the IAEA to do its job. For years, the IAEA had been known as an apolitical technical agency. It was thought that consensus decisions, an unwritten rule known affectionately as the "Spirit of Vienna," would guard against the kind of deadlocking politicization so common in Geneva and other U.N. cities. As the U.S. Representative to the IAEA Board of Governors from 2004-2005, I had a front-row seat as Iran and its Non-Aligned Movement allies quickly turned the "Spirit of Vienna" on its ear. Board meetings now are often highly politicized events, complete with anti-Western tirades, procedural obfuscation, and other tactics used to derail action on cases like Iran.
Nuclear Non-Proliferation Treaty. The Nuclear Non-Proliferation Treaty, broadly speaking, established a bargain where countries have both entitlements and obligations with respect to their acquisition and handling of nuclear materials. Perhaps the NPT's greatest contribution has been to help strengthen the abstract norm that countries outside of the five which already possessed nuclear weapons should forgo such programs. Unfortunately, we don't just deal in abstract norms; we must deal with real-world, empirical cases of countries manipulating the so-called right to peaceful nuclear energy to further their pursuit of a weapons capability.
Rather than confront these serious issues, however, many NPT members devote all of their efforts year after year, conference after conference, to blaming the world's problems on the United States and, to some degree, the other nuclear weapons states. Interestingly, in my experience, China largely gets a pass. Given the incongruity of events inside and outside these conference rooms, I felt little guilt when irritating my colleagues--both foreign and domestic--by reminding them that we were working on the Nuclear Non-Proliferation Treaty, not the Nuclear Peaceful Uses Treaty or the Nuclear Disarmament Treaty.
Form over substance almost uniformly dominates NPT meetings, as evidenced by members' reaction to North Korea's announced withdrawal from the Treaty in 2003. At first, member states appeared to be in denial, even going so far as to argue that the DPRK was still a Treaty party because it didn't follow the proper technical procedures of withdrawal. At several meetings, organizers even put out a name placard for the DPRK, knowing there would be an empty seat. This certainly addressed threats to decorum, just as it ensured against what might have been a useful debate on how to address those who violate and then withdraw from the Treaty.
There is very little within the NPT about how to formally find or address noncompliance. Indeed, as IAEA Chief Mohamed ElBaradei likes to point out, the IAEA, as a technical agency, only verifies safeguards agreements; it is up to member states to judge compliance with the NPT itself.
One would think that the mounting evidence and multilateral action to date would indicate some general agreement regarding Iran's noncompliance with the NPT. In the world of multilateral diplomacy, however, nothing is agreed until it is negotiated and printed in a resolution. And once agreed, for better or worse, a document's content will be repeated and reused in conference rooms and texts for years and years. Iran fully understands this, so naturally it sought to exploit ElBaradei's--shall we say-- nuanced verdicts, its political base, and the West's penchant for consensus negotiations to influence the content of the various multilateral resolutions on its nuclear program. The resulting paper trail is a mixed bag, with a little something for everyone. On balance, Iran might have lost some battles, but it is still winning the multilateral paper war.
United Nations Security Council. Turning to the U.N. Security Council, I find it deeply troubling that the only body charged with addressing threats to international peace and security persists in punting the Iran file back to Vienna. I think it is fair to say that the Security Council's reaction to Iran has been not just ineffective, but tragically counterproductive. The reason is pretty straightforward: A bad resolution is worse than no resolution.
At the highest levels, the U.S. was well aware that consensus as a precondition to a vote in the Security Council would weaken the substance of the provisions aimed at countering Iranian proliferation, but a conscious decision was made to follow the Europeans and let them put form before substance. In effect, we handed Russia, China, and even Germany a line-item veto and surrendered our ability to leverage the harsh public scrutiny associated with formal Security Council vetoes.
This is not to say that we didn't do our damnedest to push the diplomatic envelope--and we did score some, albeit temporary, victories. I have here in my hand one special memory, a note John Bolton handed me toward the end of a particularly tough meeting of the P-5, the five permanent members of the Security Council. It reads, "Headline for this meeting: British-French effort to surrender thwarted." In the end, however, we were bound by instructions and consensus, and bearing witness to the evisceration of each draft resolution was like watching a car crash that you know is about to happen. At one point, the Russian ambassador in New York quipped that he would not receive instructions to conclude negotiations in New York until Washington, Paris, and London stopped sending concessions to Moscow.
Unfortunately, a tepid symbol of consensus in New York does very little to provide countries concrete authority for dealing with real-world proliferation. When we shy away from provoking a clear choice--meaning, pressing to a vote--the Security Council can enable a dangerous status quo. In the case of Iran, this allowed it to gain significant time, space, and negotiating advantage in the process.
John Bolton has referred to a phenomenon he calls the "We Never Fail in New York Syndrome." The consequence of this "impossibility of failure" attitude is that many of the resolutions passed, such as those on Iran, are toothless while others are simply thematic in nature.
These thematic resolutions in the Security Council were a particular pet peeve of mine. No civilized person, for example, supports using children in armed conflict, but it is unclear to me what a generic statement on the subject from the Security Council serves or solves. That's why we have the U.N. General Assembly: to produce statements on every issue known to man. It always seemed suspiciously as if the Council used these debates to deflect the fact that it was incapable of actually resolving true threats to international peace and security.
To be sure, the Security Council does address important regional security threats from time to time, but this occurs only when there is convergence in views of the P-5 members. It is for this reason that the Council spends roughly 70 percent of its time discussing regional peacekeeping conflicts, largely confined to Africa.
Returning to the case of Iran, I believe it is unrealistic to expect the Security Council to play an important role in resolving Iran's illicit nuclear weapons program. Simply, if bluntly, put, Russia and China have divergent interests from ours, and we have handed them the ability to avoid the public outcry that would accompany a veto. Both Russia and China have significant commercial and military interests in Iran which underlie much of their approach on this issue. Let me add that, from my vantage point in the Security Council, there was clearly an understanding between the two that China would back Russia's positions on Iran, and Russia in return would support China on North Korea. This dynamic drove much of our closed-door debate each time we negotiated Security Council resolutions on these two biggest threats to international peace and security.
Efforts Outside of Formal Institutions
The point of my remarks is not to disparage all multilateral action--indeed, quite the contrary. But it is important to have a clear-eyed view of the limitations of formal institutions, particularly when we allow our fear of failure or illegitimacy to delay the adoption of more creative, ad hoc arrangements.
The Nuclear Suppliers Group. A first important movement away from formal multilateral mechanisms was promoted in the mid-1970s--interestingly, by the United States and the Soviet Union. Acknowledging that there remained unaddressed proliferation risks involved with the transfer of nuclear material and equipment, a set of 15 like-minded nations, known as the "London Club," began meeting to discuss the creation of a uniform set of nuclear supply standards that did not disrupt the commercial market.
Today, this group, which includes over 40 participating governments, is better known as the Nuclear Suppliers Group, or NSG. While the NSG does not take action per se, NSG members seek to strengthen nonproliferation efforts through adherence to a set of nuclear export guidelines. Recently, amid renewed concerns about the transfer of sensitive fuel-cycle technologies, the U.S. has led an effort to further strengthen these guidelines, a campaign that still unfolds today.
The Proliferation Security Initiative. One of the Bush Administration's most creative and groundbreaking efforts in this regard was the Proliferation Security Initiative. It is a stark departure from multilateral business as usual. Rather than waste time on speeches and conference agendas, PSI supporters concentrate their cooperative efforts on interdicting shipments of weapons of mass destruction at sea, in the air, and on land. Today, more than 90 countries around the world support PSI and stand ready to utilize existing authorities and resources to actively prevent the trafficking of the world's worst weapons. Libya is just one success story of PSI.
Another innovative development sought to sever the lines of support proliferators use to finance their activities. The financial measures the Bush Administration pioneered have since become multilateral with the European Union, even the U.N. Security Council, coming on board in select cases. More broadly, the Financial Action Task Force, a coalition of 34 countries, originally focused primarily on money laundering but today is helping banks and financial institutions to avoid becoming unwitting partners in proliferation activities. These types of activities should be strengthened and expanded.
Managing the Fuel Cycle. As I have mentioned earlier, the fundamental flaw in the NPT's grand bargain is that it allows would-be proliferators to develop a weapons capability under the guise of peaceful nuclear energy programs. I would like finally to discuss initiatives that aim to help seal this loophole by stemming the spread of enrichment and reprocessing technologies.
To further extend the benefits of nuclear power to more states, as well as enhance measures of nonproliferation and waste management, the United States initiated the Global Nuclear Energy Partnership, or GNEP, in 2006. GNEP offers a single, informal forum that spans the full spectrum of nuclear energy experience where states speak freely in search of mutually beneficial approaches to the development or further expansion of nuclear energy. Today, 24 other states have joined us as partners in this initiative.
GNEP aims to tackle some of nuclear power's greatest impediments and offers potential for widely acceptable solutions to these challenges, but realization of its objectives will surely take time. This fact was recognized by Presidents George W. Bush and Vladimir Putin, the founders of the GNEP vision.
As a result, a second initiative was the Joint Declaration on Nuclear Energy and Nonproliferation, issued July 3, 2007, in Washington and Moscow. It described a pragmatic course through which the United States, Russia, and other supplier states could assist the responsible development of nuclear energy and, most important, create a viable alternative to uranium enrichment and spent-fuel reprocessing.
Guided by the Joint Declaration, which I was tasked as Special Envoy to implement, the U.S. began building cooperative relationships with key states in the Middle East, Southeast Asia, and North Africa that were willing to pursue nuclear power in a responsible and transparent way and consider alternatives to the development of sensitive fuel technologies. I quickly found that our embassies around the world were quite inconsistent--perhaps not surprisingly so--on reporting what was actually happening in their host countries regarding nuclear energy development plans. Firsthand knowledge of programs and intentions is key to assessing motivations as well as transparency, and it was that that we sought in our travels around the world, meeting with key energy and foreign ministry officials.
You may ask, why promote nuclear power at all? Simply put, nuclear energy development around the world is happening now, with or without us. Other supplier countries are actively courting business, and some do not have the high standards of safety, security, and nonproliferation that we have. In my view, we would be irresponsible not to engage.
In the past year alone, the U.S. signed nuclear cooperation Memoranda of Understanding with Jordan, Bahrain, the United Arab Emirates, and Saudi Arabia. These agreements symbolize our shared political commitments to pursue cooperation consistent with the highest nuclear standards and to pursue deployment of nuclear power without the transfer of the most sensitive technologies. Significantly, in each of these agreements, there is explicit language of our partners' intent to rely on the international market and not pursue enrichment and reprocessing.
The goals of this effort will take some time to accomplish, but my experience over the past year convinced me that we were on the right track. I believe that if we create a groundswell of partners, especially in the Middle East, who are committed to transparency and forgoing these technologies, we can further isolate Iran, expose its activities for what they really are, and convince others who might consider following Iran's approach to make the right strategic choice.
Conclusion
So what lessons can we draw from these experiences? I have intentionally avoided a formal road map for the Obama Administration, partly because I will be the first to admit I do not have all the answers. With that said, though, a "new tone in foreign policy," as referred to by Vice President Joseph Biden last week in Germany, will not correct the existing impediments within today's multilateral nonproliferation architecture.
Put differently, I don't think being "nicer" or adopting a different "tone" is going to persuade the Iranians or North Koreans to abandon their nuclear weapons programs. As many Bush Administration critics conveniently forget to point out, the case of Libya reminds us that critical security decisions are based on perceived national interests--not the niceties of diplomacy.
We need to recognize and acknowledge that international institutions sometimes fail. It would better serve our interests and those of the wider nonproliferation community if we realize that it is not really our job to save these organizations from themselves. As our multilateral adventures with Iran clearly demonstrate, when we hold the prestige of an organization itself above its stated purpose, we risk sending a message that unacceptable threats can indeed become tolerable. Failure, on the other hand, could actually force these institutions to adapt to the true challenges confronting the international community or naturally lead the U.S. and other like-minded partners to seek solutions elsewhere.
This does not mean abandoning all multilateral tools. There is room for multilateral cooperation, and it can be effective, but it needs to be sensible and targeted. I often found it deeply ironic that as much as the Bush Administration was accused of being unilateralist, we were the ones who were pushing to make PSI an accepted norm within the international community; who pressed to have the IAEA and the Security Council fulfill their mandates; who organized GNEP and the Joint Declaration as multilateral ways to positively influence the nuclear energy renaissance.
In an increasingly interconnected global economy, we must identify which levers to use to give us maximum strategic advantage; I think targeting proliferation financing, for example, is a good start. The U.S. has demonstrated tremendous leadership in these areas, and when we have led, other countries have come on board.
Let me close by saying that it was a great privilege to work on these issues, and with some terrific people, including some in this room. And I thank The Heritage Foundation again for giving me this forum and opportunity to share these observations.
Ambassador Jackie Wolcott most recently served as Special Envoy for Nuclear Nonproliferation. She has also served as U.S. Representative to the U.N. Security Council, U.S. Representative to the U.N. Conference on Disarmament, and Special Representative of the President for the Non-Proliferation of Nuclear Weapons with lead responsibility for U.S. participation in the Nuclear Non-Proliferation Treaty (NPT) review process.
http://www.heritage.org/Research/NationalSecurity/hl1112.cfm
Excerpts:
[...]
First on that list is, of course, Kim Holmes. I had the great honor and fun of working with Kim as his political deputy at State. One of my lasting impressions from that time was working with him as we re-entered the U.N. Human Rights Commission in 2003 after having been voted off it for the first time ever.
The first issue we faced was Libya's candidacy to chair the Commission. With Kim's able leadership-- and believe me, not everyone at the State Department wanted to do this--we waged a worldwide campaign against Libya, then under U.N. sanctions as a terrorist state, eventually calling for a vote to decide its fate. It was the first time in the history of the Human Rights Commission that anyone had forced such a vote. Yes, we went down in flames, but we did it for the right reasons and performed what I think was a badly needed reality check on an institution that had grown comfortable with absurdity.
When my friends here at Heritage first invited me to speak, I pondered what best I might offer that is not already well known and obvious to experts who follow U.S. nonproliferation policy. It seemed to me that perhaps my experience over the past several years might provide a somewhat unique view of the various, related multilateral efforts still underway today. Obviously, now that I am outside of government, I am no longer confined by the bureaucratic "clearance" process, so I hope we can have an informal, non-technical discussion of the challenges and opportunities we face with respect to nuclear nonproliferation.
[...]
While I will address several broad themes today, I would be remiss if I did not draw often on my experiences dealing with the case of Iran. For in a very real sense, Iran has shaken the traditional multilateral system--piece by piece--to its core, and despite the machinations of the blame-America-first crowd, its nuclear weapons program remains the greatest common challenge to each of the institutions in which I served.
At the outset, let me be clear that my remarks here today are based on what I consider to be the inconvenient truth some still try to deny. Diplomats and analysts can debate the size, scope, and pace of the program, or the role of hardliners vs. reformers in Tehran, but Iran's actions over the past several decades cannot lead but to one inexorable conclusion: Iran desires and--if left to its own devices-- will soon have a nuclear weapons capability. No sane person really thinks Iran continues to test a ballistic missile capability in order to launch satellites, but even the most wishful thinking cannot ignore the reams of internationally acquired evidence regarding Iran's covert uranium enrichment program, its weaponization research, and the involvement of its military in almost every facet of these programs.
The Shortcomings of Existing Multilateral Institutions
To better understand how we might move forward, let me take a moment to discuss as a baseline where we have been and where we are now. Broadly speaking, I think it is a fair and accurate assessment to state that existing multilateral institutions are ill equipped, unable, or in some cases unwilling to address the most urgent proliferation security-related threats we face. One could even make the case that these institutions, when they fail to act decisively, in effect legitimize illicit programs. While we should not ignore the role these institutions might play, it is naïve--dangerously so--to assume they can resolve the urgent proliferation matters we confront.
Conference on Disarmament. Some might find that a rather sweeping statement, so I hope you will allow me to illustrate through some specific cases. But before I do, I'd like to talk about time travel. No, I haven't been spending too much time with my colleagues from our national labs discussing the folding of space, although that at times sounds easier than convincing certain countries to forgo the fuel cycle. Trust me, though: Time travel is possible.
All you have to do is visit the Conference on Disarmament (CD) in Geneva. The mustaches and sideburns have disappeared, but the crusaders of disarmament are still waging the Cold War in Geneva. And worst of all, they let these people loose several times a year, most notably on the Nuclear Non-Proliferation Treaty (NPT) conference rooms, to argue--no doubt to Iran's and North Korea's great satisfaction--that proliferation threats would simply cease to exist if the U.S. dismantled its nuclear arsenal. Given this time warp, it is no wonder the organization hasn't produced one solitary piece of work since 1996.
I have spent many a meeting listening to its proponents attempt to tug and stretch the disarmament philosophy into relevancy, but when pressed it is difficult for them to argue that a Comprehensive Test Ban Treaty, for example, would address current or emerging threats. They offer no credible assurance that a new Cold War treaty could avoid the now-familiar pitfalls associated with the systematic failure to prosecute existing treaty violations.
And so these proponents of disarmament return to the political path of least resistance and focus their attention on the United States and hand the Irans and North Koreas of the world an incredibly valuable gift--time and diplomatic cover to continue their illicit work.
It is a shame so much time and effort is wasted at the CD, but most of us here will agree that on balance, in a venue so mired in the past, no work is good work. Still, the CD illustrates well how outdated, unwilling machinery can infect the workings of the system as a whole.
You really have to hand it to John Bolton. Despite the mustache, he understood the Geneva Mafia--a term that even they use--and he thought it would be useful to speak with one consistent voice wherever they appeared in the world. So when he tapped me as Ambassador to the CD in late 2003, he gave me diplomatic responsibility for the Nuclear Non-Proliferation Treaty as well. The charge was fairly simple: Defend the United States and its interests; utilize each venue as a platform for exposing the true threats to international peace and security; and when in doubt, say no to the CD.
Later, when he and Kim also gave me interim responsibility for the International Atomic Energy Agency, let me tell you, it became very complicated.
International Atomic Energy Agency. In 1957, the International Atomic Energy Agency (IAEA) was created, according to its statute, as "an independent intergovernmental, science and technology-based organization, in the United Nations family, that serves as the global focal point for nuclear cooperation." Put differently, it was largely established as a technical organization to help facilitate the peaceful development of civil nuclear programs. In this regard, it has served the international community reasonably well.
The problem, of course, is in its dealings with countries that are pursuing weapons under the guise of peaceful nuclear programs. In some cases, its technical response has been beneficial, as in the case of the IAEA developing the Additional Protocol in 1997. One can also point to its decision to refer North Korea to the U.N. Security Council in both 1993 and 2003. But a fair cost-benefit analysis also would have to include its track record as the world's so-called nuclear watchdog.
There have been several well-documented instances in which it simply did not detect or adequately judge illicit nuclear programs, but obviously, the hallmark failure of the IAEA has been the case of Iran, most notably in 2003 when it failed its mandate by refusing to formally find Iran in non-compliance with IAEA statutes and refer it to the Security Council. While the Security Council is by no means a panacea, it is quite clear that the international community in the fall of 2003 missed an important opportunity to signal to Iran that its nuclear weapons program was unacceptable. Some board members and IAEA officials alike--for assorted reasons--didn't want to lose jurisdiction over the Iran issue from Vienna. Despite our best efforts at home and abroad, the referral didn't come until early 2006.
While some IAEA officials certainly enabled this delay, responsibility ultimately falls to states and their often tried, often failed policy of negotiation. Many of you here have correctly argued that negotiation is not policy, just one of a number of available tools to achieve a policy, and when we fail to recognize the distinction, we end up with nothing or worse. Europe's negotiations with Iran achieved nothing, but what's worse is that they delayed the referral process in Vienna for over two years.
First the Europeans promised negotiations would dismantle Iran's nuclear program, and when the operative negotiating term quickly became "suspend," we were promised that it soon would be changed to "halt." Dismantlement became a wish rather than a goal. At the same time, the Europeans promised Iran that if it agreed to a temporary suspension and some form of verification, the U.S. would eventually accept its program. Though the resulting so-called Treaty of Paris was lauded as bringing the world back from the brink of another Iraq-like U.N. Security Council drama, it was a failure even before it was abrogated. The goalposts weren't just moved; they were disposed of altogether at a very early stage.
The Europeans still like to claim that their negotiations slowed Iran's nuclear progress. Iran, of course, took a different view, with their chief negotiator even boasting later that the ongoing negotiations afforded Iran the necessary time to complete a critical part of the fuel cycle. Iran, like North Korea, has recycled this tactic many times to great success: If they delay, the West will eventually negotiate with itself and back down.
The last several years have also been witness to a rather new phenomenon that has further weakened the ability of the IAEA to do its job. For years, the IAEA had been known as an apolitical technical agency. It was thought that consensus decisions, an unwritten rule known affectionately as the "Spirit of Vienna," would guard against the kind of deadlocking politicization so common in Geneva and other U.N. cities. As the U.S. Representative to the IAEA Board of Governors from 2004-2005, I had a front-row seat as Iran and its Non-Aligned Movement allies quickly turned the "Spirit of Vienna" on its ear. Board meetings now are often highly politicized events, complete with anti-Western tirades, procedural obfuscation, and other tactics used to derail action on cases like Iran.
Nuclear Non-Proliferation Treaty. The Nuclear Non-Proliferation Treaty, broadly speaking, established a bargain where countries have both entitlements and obligations with respect to their acquisition and handling of nuclear materials. Perhaps the NPT's greatest contribution has been to help strengthen the abstract norm that countries outside of the five which already possessed nuclear weapons should forgo such programs. Unfortunately, we don't just deal in abstract norms; we must deal with real-world, empirical cases of countries manipulating the so-called right to peaceful nuclear energy to further their pursuit of a weapons capability.
Rather than confront these serious issues, however, many NPT members devote all of their efforts year after year, conference after conference, to blaming the world's problems on the United States and, to some degree, the other nuclear weapons states. Interestingly, in my experience, China largely gets a pass. Given the incongruity of events inside and outside these conference rooms, I felt little guilt when irritating my colleagues--both foreign and domestic--by reminding them that we were working on the Nuclear Non-Proliferation Treaty, not the Nuclear Peaceful Uses Treaty or the Nuclear Disarmament Treaty.
Form over substance almost uniformly dominates NPT meetings, as evidenced by members' reaction to North Korea's announced withdrawal from the Treaty in 2003. At first, member states appeared to be in denial, even going so far as to argue that the DPRK was still a Treaty party because it didn't follow the proper technical procedures of withdrawal. At several meetings, organizers even put out a name placard for the DPRK, knowing there would be an empty seat. This certainly addressed threats to decorum, just as it ensured against what might have been a useful debate on how to address those who violate and then withdraw from the Treaty.
There is very little within the NPT about how to formally find or address noncompliance. Indeed, as IAEA Chief Mohamed ElBaradei likes to point out, the IAEA, as a technical agency, only verifies safeguards agreements; it is up to member states to judge compliance with the NPT itself.
One would think that the mounting evidence and multilateral action to date would indicate some general agreement regarding Iran's noncompliance with the NPT. In the world of multilateral diplomacy, however, nothing is agreed until it is negotiated and printed in a resolution. And once agreed, for better or worse, a document's content will be repeated and reused in conference rooms and texts for years and years. Iran fully understands this, so naturally it sought to exploit ElBaradei's--shall we say-- nuanced verdicts, its political base, and the West's penchant for consensus negotiations to influence the content of the various multilateral resolutions on its nuclear program. The resulting paper trail is a mixed bag, with a little something for everyone. On balance, Iran might have lost some battles, but it is still winning the multilateral paper war.
United Nations Security Council. Turning to the U.N. Security Council, I find it deeply troubling that the only body charged with addressing threats to international peace and security persists in punting the Iran file back to Vienna. I think it is fair to say that the Security Council's reaction to Iran has been not just ineffective, but tragically counterproductive. The reason is pretty straightforward: A bad resolution is worse than no resolution.
At the highest levels, the U.S. was well aware that consensus as a precondition to a vote in the Security Council would weaken the substance of the provisions aimed at countering Iranian proliferation, but a conscious decision was made to follow the Europeans and let them put form before substance. In effect, we handed Russia, China, and even Germany a line-item veto and surrendered our ability to leverage the harsh public scrutiny associated with formal Security Council vetoes.
This is not to say that we didn't do our damnedest to push the diplomatic envelope--and we did score some, albeit temporary, victories. I have here in my hand one special memory, a note John Bolton handed me toward the end of a particularly tough meeting of the P-5, the five permanent members of the Security Council. It reads, "Headline for this meeting: British-French effort to surrender thwarted." In the end, however, we were bound by instructions and consensus, and bearing witness to the evisceration of each draft resolution was like watching a car crash that you know is about to happen. At one point, the Russian ambassador in New York quipped that he would not receive instructions to conclude negotiations in New York until Washington, Paris, and London stopped sending concessions to Moscow.
Unfortunately, a tepid symbol of consensus in New York does very little to provide countries concrete authority for dealing with real-world proliferation. When we shy away from provoking a clear choice--meaning, pressing to a vote--the Security Council can enable a dangerous status quo. In the case of Iran, this allowed it to gain significant time, space, and negotiating advantage in the process.
John Bolton has referred to a phenomenon he calls the "We Never Fail in New York Syndrome." The consequence of this "impossibility of failure" attitude is that many of the resolutions passed, such as those on Iran, are toothless while others are simply thematic in nature.
These thematic resolutions in the Security Council were a particular pet peeve of mine. No civilized person, for example, supports using children in armed conflict, but it is unclear to me what a generic statement on the subject from the Security Council serves or solves. That's why we have the U.N. General Assembly: to produce statements on every issue known to man. It always seemed suspiciously as if the Council used these debates to deflect the fact that it was incapable of actually resolving true threats to international peace and security.
To be sure, the Security Council does address important regional security threats from time to time, but this occurs only when there is convergence in views of the P-5 members. It is for this reason that the Council spends roughly 70 percent of its time discussing regional peacekeeping conflicts, largely confined to Africa.
Returning to the case of Iran, I believe it is unrealistic to expect the Security Council to play an important role in resolving Iran's illicit nuclear weapons program. Simply, if bluntly, put, Russia and China have divergent interests from ours, and we have handed them the ability to avoid the public outcry that would accompany a veto. Both Russia and China have significant commercial and military interests in Iran which underlie much of their approach on this issue. Let me add that, from my vantage point in the Security Council, there was clearly an understanding between the two that China would back Russia's positions on Iran, and Russia in return would support China on North Korea. This dynamic drove much of our closed-door debate each time we negotiated Security Council resolutions on these two biggest threats to international peace and security.
Efforts Outside of Formal Institutions
The point of my remarks is not to disparage all multilateral action--indeed, quite the contrary. But it is important to have a clear-eyed view of the limitations of formal institutions, particularly when we allow our fear of failure or illegitimacy to delay the adoption of more creative, ad hoc arrangements.
The Nuclear Suppliers Group. A first important movement away from formal multilateral mechanisms was promoted in the mid-1970s--interestingly, by the United States and the Soviet Union. Acknowledging that there remained unaddressed proliferation risks involved with the transfer of nuclear material and equipment, a set of 15 like-minded nations, known as the "London Club," began meeting to discuss the creation of a uniform set of nuclear supply standards that did not disrupt the commercial market.
Today, this group, which includes over 40 participating governments, is better known as the Nuclear Suppliers Group, or NSG. While the NSG does not take action per se, NSG members seek to strengthen nonproliferation efforts through adherence to a set of nuclear export guidelines. Recently, amid renewed concerns about the transfer of sensitive fuel-cycle technologies, the U.S. has led an effort to further strengthen these guidelines, a campaign that still unfolds today.
The Proliferation Security Initiative. One of the Bush Administration's most creative and groundbreaking efforts in this regard was the Proliferation Security Initiative. It is a stark departure from multilateral business as usual. Rather than waste time on speeches and conference agendas, PSI supporters concentrate their cooperative efforts on interdicting shipments of weapons of mass destruction at sea, in the air, and on land. Today, more than 90 countries around the world support PSI and stand ready to utilize existing authorities and resources to actively prevent the trafficking of the world's worst weapons. Libya is just one success story of PSI.
Another innovative development sought to sever the lines of support proliferators use to finance their activities. The financial measures the Bush Administration pioneered have since become multilateral with the European Union, even the U.N. Security Council, coming on board in select cases. More broadly, the Financial Action Task Force, a coalition of 34 countries, originally focused primarily on money laundering but today is helping banks and financial institutions to avoid becoming unwitting partners in proliferation activities. These types of activities should be strengthened and expanded.
Managing the Fuel Cycle. As I have mentioned earlier, the fundamental flaw in the NPT's grand bargain is that it allows would-be proliferators to develop a weapons capability under the guise of peaceful nuclear energy programs. I would like finally to discuss initiatives that aim to help seal this loophole by stemming the spread of enrichment and reprocessing technologies.
To further extend the benefits of nuclear power to more states, as well as enhance measures of nonproliferation and waste management, the United States initiated the Global Nuclear Energy Partnership, or GNEP, in 2006. GNEP offers a single, informal forum that spans the full spectrum of nuclear energy experience where states speak freely in search of mutually beneficial approaches to the development or further expansion of nuclear energy. Today, 24 other states have joined us as partners in this initiative.
GNEP aims to tackle some of nuclear power's greatest impediments and offers potential for widely acceptable solutions to these challenges, but realization of its objectives will surely take time. This fact was recognized by Presidents George W. Bush and Vladimir Putin, the founders of the GNEP vision.
As a result, a second initiative was the Joint Declaration on Nuclear Energy and Nonproliferation, issued July 3, 2007, in Washington and Moscow. It described a pragmatic course through which the United States, Russia, and other supplier states could assist the responsible development of nuclear energy and, most important, create a viable alternative to uranium enrichment and spent-fuel reprocessing.
Guided by the Joint Declaration, which I was tasked as Special Envoy to implement, the U.S. began building cooperative relationships with key states in the Middle East, Southeast Asia, and North Africa that were willing to pursue nuclear power in a responsible and transparent way and consider alternatives to the development of sensitive fuel technologies. I quickly found that our embassies around the world were quite inconsistent--perhaps not surprisingly so--on reporting what was actually happening in their host countries regarding nuclear energy development plans. Firsthand knowledge of programs and intentions is key to assessing motivations as well as transparency, and it was that that we sought in our travels around the world, meeting with key energy and foreign ministry officials.
You may ask, why promote nuclear power at all? Simply put, nuclear energy development around the world is happening now, with or without us. Other supplier countries are actively courting business, and some do not have the high standards of safety, security, and nonproliferation that we have. In my view, we would be irresponsible not to engage.
In the past year alone, the U.S. signed nuclear cooperation Memoranda of Understanding with Jordan, Bahrain, the United Arab Emirates, and Saudi Arabia. These agreements symbolize our shared political commitments to pursue cooperation consistent with the highest nuclear standards and to pursue deployment of nuclear power without the transfer of the most sensitive technologies. Significantly, in each of these agreements, there is explicit language of our partners' intent to rely on the international market and not pursue enrichment and reprocessing.
The goals of this effort will take some time to accomplish, but my experience over the past year convinced me that we were on the right track. I believe that if we create a groundswell of partners, especially in the Middle East, who are committed to transparency and forgoing these technologies, we can further isolate Iran, expose its activities for what they really are, and convince others who might consider following Iran's approach to make the right strategic choice.
Conclusion
So what lessons can we draw from these experiences? I have intentionally avoided a formal road map for the Obama Administration, partly because I will be the first to admit I do not have all the answers. With that said, though, a "new tone in foreign policy," as referred to by Vice President Joseph Biden last week in Germany, will not correct the existing impediments within today's multilateral nonproliferation architecture.
Put differently, I don't think being "nicer" or adopting a different "tone" is going to persuade the Iranians or North Koreans to abandon their nuclear weapons programs. As many Bush Administration critics conveniently forget to point out, the case of Libya reminds us that critical security decisions are based on perceived national interests--not the niceties of diplomacy.
We need to recognize and acknowledge that international institutions sometimes fail. It would better serve our interests and those of the wider nonproliferation community if we realize that it is not really our job to save these organizations from themselves. As our multilateral adventures with Iran clearly demonstrate, when we hold the prestige of an organization itself above its stated purpose, we risk sending a message that unacceptable threats can indeed become tolerable. Failure, on the other hand, could actually force these institutions to adapt to the true challenges confronting the international community or naturally lead the U.S. and other like-minded partners to seek solutions elsewhere.
This does not mean abandoning all multilateral tools. There is room for multilateral cooperation, and it can be effective, but it needs to be sensible and targeted. I often found it deeply ironic that as much as the Bush Administration was accused of being unilateralist, we were the ones who were pushing to make PSI an accepted norm within the international community; who pressed to have the IAEA and the Security Council fulfill their mandates; who organized GNEP and the Joint Declaration as multilateral ways to positively influence the nuclear energy renaissance.
In an increasingly interconnected global economy, we must identify which levers to use to give us maximum strategic advantage; I think targeting proliferation financing, for example, is a good start. The U.S. has demonstrated tremendous leadership in these areas, and when we have led, other countries have come on board.
Let me close by saying that it was a great privilege to work on these issues, and with some terrific people, including some in this room. And I thank The Heritage Foundation again for giving me this forum and opportunity to share these observations.
Ambassador Jackie Wolcott most recently served as Special Envoy for Nuclear Nonproliferation. She has also served as U.S. Representative to the U.N. Security Council, U.S. Representative to the U.N. Conference on Disarmament, and Special Representative of the President for the Non-Proliferation of Nuclear Weapons with lead responsibility for U.S. participation in the Nuclear Non-Proliferation Treaty (NPT) review process.
WaPo on BHO criticisms of TARP: "The case against TARP-bashing"
Necessary, Not Evil. WaPo Editorial
The case against TARP-bashing
The Washington Post, Friday, February 27, 2009; Page A16
Is President Obama a TARP-basher? He sounded like one on Tuesday, telling Congress that he had been "infuriated" by the Troubled Assets Relief Program's "mismanagement and the results that followed" under the Bush administration. He promised that, on his watch, banks "will have to clearly demonstrate how taxpayer dollars result in more lending for the American taxpayer" and won't be allowed to pad bonuses or redecorate their corner offices.
In some well-publicized cases, TARP recipients have behaved in the style to which the boom had accustomed them. The latest example was Northern Trust, a recipient of $1.6 billion in TARP funds, which flew hundreds of employees and clients to a Southern California golf tournament. More substantively, TARP's congressional oversight panel accuses the program of overpaying for its stakes in the banks by $78 billion. And then there are those who want to know why government capital did not trigger an immediate burst of lending. "Start loaning the money that we gave you. Get it on the street!" Rep. Michael E. Capuano (D-Mass.) ordered bankers at a recent House committee hearing.
The total TARP pot is $700 billion. So far, $281 billion has gone to prop up banks and insurance giant AIG. General Motors and Chrysler got $24.8 billion; $50 billion has been allocated for Mr. Obama's homeowner support plan and $100 billion to help the Federal Reserve provide liquidity to credit markets. Every nickel spent on undeserved perks is galling, but, as a percentage of the bailout, blatant corporate excess probably accounts for very little.
Undoubtedly the government paid more for shares in banks than private investors would have, thus conferring a huge subsidy. But that was the point. Last fall, when the Bush administration announced TARP, the financial sector was melting down. Private investors were spooked; there was no time for the government to haggle. The resulting subsidy should be seen not as a rip-off but as the cost of a valuable public good: economic stability.
There are two sides to the lending story as well. Yes, some banks are using the funds to shore up their balance sheets. But they are being pressed by regulators to avoid excessive credit risk -- which is what brought on this crisis. There is much debate as to precisely how lending changed after TARP. Analyst Richard Bove of Rochdale Securities LLC found that lending by the 13 largest TARP recipients went up 4.7 percent between the third and fourth quarters of 2008.
A fair assessment of TARP and its results is important because Mr. Obama himself will soon be seeking additional funds for bank capitalization. What's interesting is that his plan does not require banks to increase lending per se, as he implied in his speech, but to show that they are lending more than they would have without government aid. That is, the details of his policy are more nuanced than his rhetoric. Indeed, once his populist riff was over, the president reminded Congress that fixing the banks, though unpopular, is a precondition of economic recovery. "In a time of crisis, we cannot afford to govern out of anger or yield to the politics of the moment," he said. Sound advice.
The case against TARP-bashing
The Washington Post, Friday, February 27, 2009; Page A16
Is President Obama a TARP-basher? He sounded like one on Tuesday, telling Congress that he had been "infuriated" by the Troubled Assets Relief Program's "mismanagement and the results that followed" under the Bush administration. He promised that, on his watch, banks "will have to clearly demonstrate how taxpayer dollars result in more lending for the American taxpayer" and won't be allowed to pad bonuses or redecorate their corner offices.
In some well-publicized cases, TARP recipients have behaved in the style to which the boom had accustomed them. The latest example was Northern Trust, a recipient of $1.6 billion in TARP funds, which flew hundreds of employees and clients to a Southern California golf tournament. More substantively, TARP's congressional oversight panel accuses the program of overpaying for its stakes in the banks by $78 billion. And then there are those who want to know why government capital did not trigger an immediate burst of lending. "Start loaning the money that we gave you. Get it on the street!" Rep. Michael E. Capuano (D-Mass.) ordered bankers at a recent House committee hearing.
The total TARP pot is $700 billion. So far, $281 billion has gone to prop up banks and insurance giant AIG. General Motors and Chrysler got $24.8 billion; $50 billion has been allocated for Mr. Obama's homeowner support plan and $100 billion to help the Federal Reserve provide liquidity to credit markets. Every nickel spent on undeserved perks is galling, but, as a percentage of the bailout, blatant corporate excess probably accounts for very little.
Undoubtedly the government paid more for shares in banks than private investors would have, thus conferring a huge subsidy. But that was the point. Last fall, when the Bush administration announced TARP, the financial sector was melting down. Private investors were spooked; there was no time for the government to haggle. The resulting subsidy should be seen not as a rip-off but as the cost of a valuable public good: economic stability.
There are two sides to the lending story as well. Yes, some banks are using the funds to shore up their balance sheets. But they are being pressed by regulators to avoid excessive credit risk -- which is what brought on this crisis. There is much debate as to precisely how lending changed after TARP. Analyst Richard Bove of Rochdale Securities LLC found that lending by the 13 largest TARP recipients went up 4.7 percent between the third and fourth quarters of 2008.
A fair assessment of TARP and its results is important because Mr. Obama himself will soon be seeking additional funds for bank capitalization. What's interesting is that his plan does not require banks to increase lending per se, as he implied in his speech, but to show that they are lending more than they would have without government aid. That is, the details of his policy are more nuanced than his rhetoric. Indeed, once his populist riff was over, the president reminded Congress that fixing the banks, though unpopular, is a precondition of economic recovery. "In a time of crisis, we cannot afford to govern out of anger or yield to the politics of the moment," he said. Sound advice.
Spratly Islands: The Challenge to U.S. Leadership in the South China Sea
Spratly Islands: The Challenge to U.S. Leadership in the South China Sea. By Walter Lohman
Heritage, Feb 26, 2009
WebMemo #2313
On the eve of the annual Association of South East Asian Nations (ASEAN) summit this week, an old issue has resurfaced: conflicting claims over the Spratly Islands. The issue is back in the news for good reason; it never really went away.
According to press reports, last week the Chinese vice foreign minister summoned the charge d' affaires from the Philippines embassy to register a "stern protest" over a new Philippines' law formally staking claim to what it calls the "Kalayaan Islands." The Chinese, of course, contend that they hold, in the words of the foreign ministry, "indisputable sovereignty over these islands and their adjacent waters."
China's Unreasonable Claim
There is nothing simple about this dispute. Taiwan and Vietnam claim all of the Spratly Islands. And the specific Bruneian and Malaysian claims overlap those of the Philippines. But it is the Chinese claim--because of its aggressive scope, the history behind it, and China's growing military capacity to back it up--that pose the real problem to regional stability.
The Chinese claim is expansive, to say the least. The Kalayaan Islands are 1,000 nautical miles away from China. By contrast, the Philippines' province of Palawan is roughly 230 miles away. (Incidentally, the Kalayaans are a municipality of Palawan.) Yet China also claims territory even closer to Palawan Island: Mischief Reef, the source of so much diplomatic scuffling 10 years ago, is only 135 miles away.
The distance between China and the territory it is claiming is apparently of no concern to Beijing. Indeed, the Chinese claim not only the Spratlys but 80 percent of the South China Sea. In support of such a massive claim, the Chinese reference 2,000-year-old maps and an imaginative reading of the Law of the Sea Treaty. Critically, the claim is passively supported by China's growing military prowess (double-digit annual growth in military spending and an expanding fleet of sophisticated warships and submarines) and what increasingly appears to be deliberate ambiguity about the intentions behind this buildup.
Highlighting Chinese Ambitions
The Philippines has done the world a great favor by reminding it of Chinese ambitions. The dispute over the South China Sea flared in the mid-to-late 1990s as a result of Chinese efforts to physically fortify their claim to Mischief Reef. Although initially alarmed by China's moves, by 2002 ASEAN was heralding a new era that would essentially set sovereign disputes aside and focus instead on mutual development. This is ASEAN's comfort zone; they were pleased to paper over the problem. But the excessive Chinese claim on the territory of their member states was never withdrawn. And neither were the structures on Mischief Reef that precipitated the crisis.
The Congress and President of the Philippines are staking their claim to the Spratly Islands without apology. They appear prepared to weather Chinese protests. Indeed, there is no cause for them to capitulate. As is, choosing among several draft bills asserting their claim and political pressure to be aggressive, the Philippines settled on a course that was the least objectionable to their neighbors.
This is a diplomatic problem. The possibility that this dispute could escalate to a point where the U.S. could be called to invoke its treaty obligations to the Philippines is remote. It did not reach that point in the mid-1990s--a much more contentious environment than today. But the risk of serious conflict only increases with time.
American Support Needed
One of the greatest values of American security treaties in peacetime, in this case the U.S.-Philippines 1951 Mutual Defense Treaty, is that they clearly show where American loyalties lie.
The United States should unequivocally support the right of the Philippines to stake its claims in the South China Sea. It should also bring attention to the responsible, deliberative, legal nature of its claims. And although it cannot support any party's particular claim, the U.S. can certainly point out the aggressive, unreasonable nature of the Chinese claim. All legalities aside, at some level, any claim to territory should have to pass a common sense test. Claiming sovereignty over 648,000 square miles of sea bordering on eight countries is absolutely untenable. And the U.S. ought to say so.
Ultimately, the U.S. cannot remain neutral in a dispute between an ally and its competition for regional influence--China. If an alliance does not at least mean dispensing with neutrality in choosing your friends, then what does it mean? Playing on the ambiguities in the American position and on weaknesses plaguing perceptions of its commitment to the region, the Chinese are content to slowly turn up the heat on the South China Sea. Silence abets their aspirations.
The Spratly Islands dispute is not just the Philippines' problem. It is an even bigger problem for the United States and all who rely on American leadership in the Asia Pacific. Left unchallenged, the Chinese claim to the South China Sea could one day leave the American Pacific Fleet asking Chinese permission to conduct routine operations. If the Chinese claims calcify at a pace similar to the development of their navy, in another 10 years, the U.S. will have a real crisis on its hands.
Walter Lohman is Director of The Heritage Foundation's Asian Studies Center.
Heritage, Feb 26, 2009
WebMemo #2313
On the eve of the annual Association of South East Asian Nations (ASEAN) summit this week, an old issue has resurfaced: conflicting claims over the Spratly Islands. The issue is back in the news for good reason; it never really went away.
According to press reports, last week the Chinese vice foreign minister summoned the charge d' affaires from the Philippines embassy to register a "stern protest" over a new Philippines' law formally staking claim to what it calls the "Kalayaan Islands." The Chinese, of course, contend that they hold, in the words of the foreign ministry, "indisputable sovereignty over these islands and their adjacent waters."
China's Unreasonable Claim
There is nothing simple about this dispute. Taiwan and Vietnam claim all of the Spratly Islands. And the specific Bruneian and Malaysian claims overlap those of the Philippines. But it is the Chinese claim--because of its aggressive scope, the history behind it, and China's growing military capacity to back it up--that pose the real problem to regional stability.
The Chinese claim is expansive, to say the least. The Kalayaan Islands are 1,000 nautical miles away from China. By contrast, the Philippines' province of Palawan is roughly 230 miles away. (Incidentally, the Kalayaans are a municipality of Palawan.) Yet China also claims territory even closer to Palawan Island: Mischief Reef, the source of so much diplomatic scuffling 10 years ago, is only 135 miles away.
The distance between China and the territory it is claiming is apparently of no concern to Beijing. Indeed, the Chinese claim not only the Spratlys but 80 percent of the South China Sea. In support of such a massive claim, the Chinese reference 2,000-year-old maps and an imaginative reading of the Law of the Sea Treaty. Critically, the claim is passively supported by China's growing military prowess (double-digit annual growth in military spending and an expanding fleet of sophisticated warships and submarines) and what increasingly appears to be deliberate ambiguity about the intentions behind this buildup.
Highlighting Chinese Ambitions
The Philippines has done the world a great favor by reminding it of Chinese ambitions. The dispute over the South China Sea flared in the mid-to-late 1990s as a result of Chinese efforts to physically fortify their claim to Mischief Reef. Although initially alarmed by China's moves, by 2002 ASEAN was heralding a new era that would essentially set sovereign disputes aside and focus instead on mutual development. This is ASEAN's comfort zone; they were pleased to paper over the problem. But the excessive Chinese claim on the territory of their member states was never withdrawn. And neither were the structures on Mischief Reef that precipitated the crisis.
The Congress and President of the Philippines are staking their claim to the Spratly Islands without apology. They appear prepared to weather Chinese protests. Indeed, there is no cause for them to capitulate. As is, choosing among several draft bills asserting their claim and political pressure to be aggressive, the Philippines settled on a course that was the least objectionable to their neighbors.
This is a diplomatic problem. The possibility that this dispute could escalate to a point where the U.S. could be called to invoke its treaty obligations to the Philippines is remote. It did not reach that point in the mid-1990s--a much more contentious environment than today. But the risk of serious conflict only increases with time.
American Support Needed
One of the greatest values of American security treaties in peacetime, in this case the U.S.-Philippines 1951 Mutual Defense Treaty, is that they clearly show where American loyalties lie.
The United States should unequivocally support the right of the Philippines to stake its claims in the South China Sea. It should also bring attention to the responsible, deliberative, legal nature of its claims. And although it cannot support any party's particular claim, the U.S. can certainly point out the aggressive, unreasonable nature of the Chinese claim. All legalities aside, at some level, any claim to territory should have to pass a common sense test. Claiming sovereignty over 648,000 square miles of sea bordering on eight countries is absolutely untenable. And the U.S. ought to say so.
Ultimately, the U.S. cannot remain neutral in a dispute between an ally and its competition for regional influence--China. If an alliance does not at least mean dispensing with neutrality in choosing your friends, then what does it mean? Playing on the ambiguities in the American position and on weaknesses plaguing perceptions of its commitment to the region, the Chinese are content to slowly turn up the heat on the South China Sea. Silence abets their aspirations.
The Spratly Islands dispute is not just the Philippines' problem. It is an even bigger problem for the United States and all who rely on American leadership in the Asia Pacific. Left unchallenged, the Chinese claim to the South China Sea could one day leave the American Pacific Fleet asking Chinese permission to conduct routine operations. If the Chinese claims calcify at a pace similar to the development of their navy, in another 10 years, the U.S. will have a real crisis on its hands.
Walter Lohman is Director of The Heritage Foundation's Asian Studies Center.
The Coming War on Sovereignty
The Coming War on Sovereignty. By John R. Bolton
AEI, Thursday, February 26, 2009
Barack Obama's nascent presidency has brought forth the customary flood of policy proposals from the great and good, all hoping to influence his administration. One noteworthy offering is a short report with a distinguished provenance entitled A Plan for Action, which features a revealingly immodest subtitle: A New Era of International Cooperation for a Changed World: 2009, 2010, and Beyond.
In presentation and tone, A Plan for Action is determinedly uncontroversial; indeed, it looks and reads more like a corporate brochure than a foreign-policy paper. The text is the work of three academics--Bruce Jones of NYU, Carlos Pascual of the Brookings Institution, and Stephen John Stedman of Stanford. Its findings and recommendations, they claim, rose from a series of meetings with foreign-policy eminences here and abroad, including former Secretaries of State of both parties as well as defense officials from the Clinton and first Bush administrations. The participation of these notables is what gives A Plan for Action its bona fides, though one should doubt how much the document actually reflects their ideas. There is no question, however, that the ideas advanced in A Plan for Action have become mainstays in the liberal vision of the future of American foreign policy.
That is what makes A Plan for Action especially interesting, and especially worrisome. If it is what it appears to be--a blueprint for the Obama administration's effort to construct a foreign policy different from George W. Bush's--then the nation's governing elite is in the process of taking a sharp, indeed radical, turn away from the principles and practices of representative self-government that have been at the core of the American experiment since the nation's founding. The pivot point is a shifting understanding of American sovereignty.
_____________
While the term "sovereignty" has acquired many, often inconsistent, definitions, Americans have historically understood it to mean our collective right to govern ourselves within our Constitutional framework. Today's liberal elite, by contrast, sees sovereignty as something much more abstract and less tangible, and thus a prize of less value to individual citizens than it once might have been. They argue that the model accepted by European countries in the Peace of Westphalia in 1648, which assigned to individual nation-states the right and responsibility to manage their own affairs within their own borders, is in the process of being superseded by new structures more appropriate to the 21st century.
In this regard, they usually cite the European Union (EU) as the new model, with its 27 member nations falling under the aegis of a centralized financial system administered in Brussels. On issue after issue, from climate change to trade, American liberals increasingly look to Europe's example of transnational consensus as the proper model for the United States. That is particularly true when it comes to national security, as John Kerry revealed when, during his presidential bid in 2004, he said that American policy had to pass a "global test" in order to secure its legitimacy.
This is not a view with which the broader American population has shown much comfort. Traditionally, Americans have resisted the notion that their government's actions had to pass muster with other governments, often with widely differing values and interests. It is the foreign-policy establishment's unease with this long-held American conviction that is the motivating factor behind A Plan for Action , which represents a bold attempt to argue that any such set of beliefs has simply been overtaken by events.
To this end, the authors provide a brief for what they call "responsible sovereignty." They define it as "the notion that sovereignty entails obligations and duties toward other states as well as to one's own citizens," and they believe that its application can form the basis for a "cooperative international order." At first glance, the phrase "responsible sovereignty" may seem unremarkable, given the paucity of advocates for "irresponsible sovereignty." But despite the Plan 's mainstream provenance, the conception is a dramatic overhaul of sovereignty itself.
"Global leaders," the Plan insists, "increasingly recognize that alone they are unable to protect their interests and their citizens--national security has become interdependent with global security." The United States must therefore commit to "a rule-based international system that rejects unilateralism and looks beyond military might," or else "resign [our]selves to an ad-hoc international system." Mere "traditional sovereignty" is insufficient in the new era we have entered, an era in which we must contend with "the realities of a now transnational world." This "rule-based international system" will create the conditions for "global governance."
The Plan suggests that the transition to this new system must begin immediately because of the terrible damage done by the Bush administration. In the Plan 's narrative, Bush disdained diplomacy, uniformly preferring the use of force, regime change, preemptive attacks, and general swagger in its conduct of foreign affairs. The Plan , by contrast, "rejects unilateralism and looks beyond military might." Its implementation will lead to the successful resolution of dispute after dispute and usher in a new and unprecedented period of worldwide comity.
_____________
As the Obama years begin, we certainly do need a lively debate on the utility of diplomacy, but it would be better if that debate were not conducted on the false premise offered by A Plan for Action . In reality, in the overwhelming majority of cases, foreign-policy thinkers on both sides of the ideological divide believe diplomacy is the solution to the difficulties that arise in the international system. That is how the Bush administration conducted itself as well.
The difference arises in the consideration of a tiny number of cases--cases that prove entirely resistant to diplomatic efforts, in which divergent national interests prove implacably resistant to reconciliation. If diplomacy does not and cannot work, the continued application of it to a problematic situation is akin to subjecting a cancer patient to a regimen of chemotherapy that shows no results whatever. The result may look like treatment, but it is, in fact, only making the patient sicker and offering no possibility of improvement.
Diplomacy is like all other human activity. It has costs and it has benefits. Whether to engage in diplomacy on a given matter requires a judicious assessment of both costs and benefits. This is an exercise about which reasonable people can disagree. If diplomacy is to work, it must be preceded by an effort to determine its parameters--when it might be best to begin, how to achieve one's aims, and what the purpose of the process might be. At the cold war's outset, for example, Harry Truman's Secretary of State, Dean Acheson, frequently observed that he was prepared to negotiate with the Soviets only when America could do so from a position of strength.
Time is one of the most important variables in a diplomatic dance, because it often imposes a cost on one side and a benefit to its adversary. Nations can use the time granted by a diplomatic process to obscure their objectives, build alliances, prepare operationally for war, and, especially today, accelerate their efforts to build weapons of mass destruction and the ballistic missiles that might carry them. There are concrete economic factors that must be considered as well in the act of seeking to engage an adversary in the diplomatic realm--the act of providing humanitarian assistance as an act of good will, for example, the suspension of economic sanctions, or even resuming normal trade relations during negotiations.
Obviously, the United States and, indeed, all rational nations are entirely comfortable paying substantial costs when they appear to be wise investments that will lead to the achievement of a larger objective. Alas, such happy conclusions are far from inevitable, and failing to understand the truth of this uncomfortable and inarguable reality has led nations to prolong negotiations long after the last glimmer of progress has been snuffed out. For too many diplomats, there is no off switch for diplomacy, no moment at which the only sensible thing to do is rise from the table and go home.
Has one ever heard of a diplomat working to fashion an "exit strategy" from a failed negotiation? One hasn't. One should.
___________
Diplomacy is a tool, not a policy. It is a technique, not an end in itself. Urging, however earnestly, that we "engage" with our enemies tells us nothing about what happens after concluding the initial pleasantries at the negotiating table. Just opening the conversation is often significant, especially for those who are legitimized merely by being present. But without more, the meaning and potency of the photo op will quickly fade.
That is why effective diplomacy must be one aspect of a larger strategic spectrum that includes ugly and public confrontations. Without the threat of painful sanctions, harsh condemnations, and even the use of force, diplomacy risks becoming a sucker's game, in which one side will sit forever in naïve hope of reaching a settlement while the other side acts at will.
Diplomacy is an end in itself in A Plan for Action . So, too, is multilateralism. The multilateralism the Plan celebrates and advocates is, of course, set in sharp contrast to the portrait it draws of a Bush administration flush with unilateralist cowboys intent on overturning existing international treaties and institutions just for the sport of it. Defining unilateralism is straightforward: the word refers to a state acting on its own in international affairs. It is a critical conceptual mistake, however, to pose "multilateralism" simply as its opposite.
Consider, for example, the various roles of the United Nations, the North American Treaty Organization, and the Proliferation Security Initiative. The UN, the Holy Grail of multilateralism, is an organization of 192 members with responsibility for the maintenance of international peace and security lodged in its Security Council. NATO is a defense alliance of 26 states, all of which are Western democracies. The Proliferation Security Initiative (PSI), created in 2003 by the Bush administration, now includes 90-plus diverse countries dedicated to stopping international trafficking in weapons of mass destruction.
Each organization is clearly "multilateral," but their roles are so wildly different that the word ceases to have any meaning. For example, if the United States confronted a serious threat, it would be acting multilaterally if it took the matter either to NATO or the UN. Both options would be "multilateral," but widely divergent in diplomatic and political content, and quite likely in military significance as well. They would be comparable related in the same way a steak knife is comparable to a plastic butter knife.
The PSI offers an even starker contrast, for unlike either the UN or NATO, it has no secretary general, no Secretariat, no headquarters, and no regularly scheduled meetings. One British diplomat described the initiative as "an activity, not an organization." In fact, the model of the Proliferation Security Initiative is the ideal one for multilateral activity in the future, precisely because it transcends the traditional structures of international organizations, which have, time and again, proved inefficient and ineffective.
"Multilateralism" is, in other words, merely a word that describes international action taken by a group of nations acting in concert. For the authors of A Plan for Action , however, multilateralism has an almost spiritual aspect, representing a harmony that transcends barriers and oceans.
Harmony is designed to stifle any discordant notes, and so is the multilateralism envisioned by an American foreign policy guided by "responsible sovereignty." It is one in which the group of nations, of which the United States is but a single player among many, initiates policies and activities that would likely be designed to constrain the freedom of action of the United States in pursuit of that harmony--not only in its activities abroad, but also in its activities within the 50 states.
There is a precedent for this in the conduct of the European Union, whose 27 nations now possess a common currency in the form of the euro and an immensely complex series of trade and labor policies intended to cut across sovereign lines. The EU is the model A Plan for Action proffers for the "responsible sovereignty" regime its authors wish to import to the United States. EU bureaucrats based in Brussels have been reshaping the priorities and needs of EU member states for a decade now, and proposing a system based on the design of the EU suggests a desire to subject the United States to a kind of international oversight not only when it comes to foreign policy but also on matters properly understood as U.S. domestic policy.
That very approach has been on display at the United Nations for years in an effort to standardize international conduct that has come to be known as "norming." In theory, there is good reason to create international standards--for measurement, for example, or for conduct on the high seas. But "norming" goes far beyond such prosaic concerns. The UN has, for example, repeatedly voted in different committees to condemn the death penalty, in a clear effort to put pressure on the United States to follow suit. Similar votes have been taken on abortion rights and restricting the private ownership of firearms.
_____________
Such issues have been, and likely will again be, the subjects of intense democratic debate within the United States, and properly so. There is no need to internationalize them to make the debate more fruitful. What is common to these and many other issues is that the losers in our domestic debate are often the proponents of internationalizing the controversies. They think that if they can change the political actors, they can change the political outcome. Unsuccessful in our domestic political arena, they seek to redefine the arena in which these matters will be adjudicated--moving, in effect, from unilateral, democratic U.S. decision-making to a multilateral, bureaucratic, and elitist environment. For almost any domestic issue one can imagine, there are likely to be nongovernmental organizations roaming the international arena desperately trying to turn their priorities into "norming" issues.
This is what "responsible sovereignty" would look like. For the authors and signatories of A Plan for Action, sovereignty is simply an abstraction, a historical concept about as important today as the "sovereigns" from whose absolute rights the term originally derived. That is not the understanding of the U.S. Constitution, which locates the basis of its legitimacy in "we the people," who constitute the sovereign authority of the nation.
"Sharing" sovereignty with someone or something else is thus not abstract for Americans. Doing so by definition will diminish the sovereign power of the American people over their government and their own lives, the very purpose for which the Constitution was written. This is something Americans have been reluctant to do. Now their reluctance may have to take the form of more concerted action against "responsible sovereignty" if its onward march is to be halted or reversed. Our Founders would clearly understand the need.
John R. Bolton is a senior fellow at AEI.
AEI, Thursday, February 26, 2009
Barack Obama's nascent presidency has brought forth the customary flood of policy proposals from the great and good, all hoping to influence his administration. One noteworthy offering is a short report with a distinguished provenance entitled A Plan for Action, which features a revealingly immodest subtitle: A New Era of International Cooperation for a Changed World: 2009, 2010, and Beyond.
In presentation and tone, A Plan for Action is determinedly uncontroversial; indeed, it looks and reads more like a corporate brochure than a foreign-policy paper. The text is the work of three academics--Bruce Jones of NYU, Carlos Pascual of the Brookings Institution, and Stephen John Stedman of Stanford. Its findings and recommendations, they claim, rose from a series of meetings with foreign-policy eminences here and abroad, including former Secretaries of State of both parties as well as defense officials from the Clinton and first Bush administrations. The participation of these notables is what gives A Plan for Action its bona fides, though one should doubt how much the document actually reflects their ideas. There is no question, however, that the ideas advanced in A Plan for Action have become mainstays in the liberal vision of the future of American foreign policy.
That is what makes A Plan for Action especially interesting, and especially worrisome. If it is what it appears to be--a blueprint for the Obama administration's effort to construct a foreign policy different from George W. Bush's--then the nation's governing elite is in the process of taking a sharp, indeed radical, turn away from the principles and practices of representative self-government that have been at the core of the American experiment since the nation's founding. The pivot point is a shifting understanding of American sovereignty.
_____________
While the term "sovereignty" has acquired many, often inconsistent, definitions, Americans have historically understood it to mean our collective right to govern ourselves within our Constitutional framework. Today's liberal elite, by contrast, sees sovereignty as something much more abstract and less tangible, and thus a prize of less value to individual citizens than it once might have been. They argue that the model accepted by European countries in the Peace of Westphalia in 1648, which assigned to individual nation-states the right and responsibility to manage their own affairs within their own borders, is in the process of being superseded by new structures more appropriate to the 21st century.
In this regard, they usually cite the European Union (EU) as the new model, with its 27 member nations falling under the aegis of a centralized financial system administered in Brussels. On issue after issue, from climate change to trade, American liberals increasingly look to Europe's example of transnational consensus as the proper model for the United States. That is particularly true when it comes to national security, as John Kerry revealed when, during his presidential bid in 2004, he said that American policy had to pass a "global test" in order to secure its legitimacy.
This is not a view with which the broader American population has shown much comfort. Traditionally, Americans have resisted the notion that their government's actions had to pass muster with other governments, often with widely differing values and interests. It is the foreign-policy establishment's unease with this long-held American conviction that is the motivating factor behind A Plan for Action , which represents a bold attempt to argue that any such set of beliefs has simply been overtaken by events.
To this end, the authors provide a brief for what they call "responsible sovereignty." They define it as "the notion that sovereignty entails obligations and duties toward other states as well as to one's own citizens," and they believe that its application can form the basis for a "cooperative international order." At first glance, the phrase "responsible sovereignty" may seem unremarkable, given the paucity of advocates for "irresponsible sovereignty." But despite the Plan 's mainstream provenance, the conception is a dramatic overhaul of sovereignty itself.
"Global leaders," the Plan insists, "increasingly recognize that alone they are unable to protect their interests and their citizens--national security has become interdependent with global security." The United States must therefore commit to "a rule-based international system that rejects unilateralism and looks beyond military might," or else "resign [our]selves to an ad-hoc international system." Mere "traditional sovereignty" is insufficient in the new era we have entered, an era in which we must contend with "the realities of a now transnational world." This "rule-based international system" will create the conditions for "global governance."
The Plan suggests that the transition to this new system must begin immediately because of the terrible damage done by the Bush administration. In the Plan 's narrative, Bush disdained diplomacy, uniformly preferring the use of force, regime change, preemptive attacks, and general swagger in its conduct of foreign affairs. The Plan , by contrast, "rejects unilateralism and looks beyond military might." Its implementation will lead to the successful resolution of dispute after dispute and usher in a new and unprecedented period of worldwide comity.
_____________
As the Obama years begin, we certainly do need a lively debate on the utility of diplomacy, but it would be better if that debate were not conducted on the false premise offered by A Plan for Action . In reality, in the overwhelming majority of cases, foreign-policy thinkers on both sides of the ideological divide believe diplomacy is the solution to the difficulties that arise in the international system. That is how the Bush administration conducted itself as well.
The difference arises in the consideration of a tiny number of cases--cases that prove entirely resistant to diplomatic efforts, in which divergent national interests prove implacably resistant to reconciliation. If diplomacy does not and cannot work, the continued application of it to a problematic situation is akin to subjecting a cancer patient to a regimen of chemotherapy that shows no results whatever. The result may look like treatment, but it is, in fact, only making the patient sicker and offering no possibility of improvement.
Diplomacy is like all other human activity. It has costs and it has benefits. Whether to engage in diplomacy on a given matter requires a judicious assessment of both costs and benefits. This is an exercise about which reasonable people can disagree. If diplomacy is to work, it must be preceded by an effort to determine its parameters--when it might be best to begin, how to achieve one's aims, and what the purpose of the process might be. At the cold war's outset, for example, Harry Truman's Secretary of State, Dean Acheson, frequently observed that he was prepared to negotiate with the Soviets only when America could do so from a position of strength.
Time is one of the most important variables in a diplomatic dance, because it often imposes a cost on one side and a benefit to its adversary. Nations can use the time granted by a diplomatic process to obscure their objectives, build alliances, prepare operationally for war, and, especially today, accelerate their efforts to build weapons of mass destruction and the ballistic missiles that might carry them. There are concrete economic factors that must be considered as well in the act of seeking to engage an adversary in the diplomatic realm--the act of providing humanitarian assistance as an act of good will, for example, the suspension of economic sanctions, or even resuming normal trade relations during negotiations.
Obviously, the United States and, indeed, all rational nations are entirely comfortable paying substantial costs when they appear to be wise investments that will lead to the achievement of a larger objective. Alas, such happy conclusions are far from inevitable, and failing to understand the truth of this uncomfortable and inarguable reality has led nations to prolong negotiations long after the last glimmer of progress has been snuffed out. For too many diplomats, there is no off switch for diplomacy, no moment at which the only sensible thing to do is rise from the table and go home.
Has one ever heard of a diplomat working to fashion an "exit strategy" from a failed negotiation? One hasn't. One should.
___________
Diplomacy is a tool, not a policy. It is a technique, not an end in itself. Urging, however earnestly, that we "engage" with our enemies tells us nothing about what happens after concluding the initial pleasantries at the negotiating table. Just opening the conversation is often significant, especially for those who are legitimized merely by being present. But without more, the meaning and potency of the photo op will quickly fade.
That is why effective diplomacy must be one aspect of a larger strategic spectrum that includes ugly and public confrontations. Without the threat of painful sanctions, harsh condemnations, and even the use of force, diplomacy risks becoming a sucker's game, in which one side will sit forever in naïve hope of reaching a settlement while the other side acts at will.
Diplomacy is an end in itself in A Plan for Action . So, too, is multilateralism. The multilateralism the Plan celebrates and advocates is, of course, set in sharp contrast to the portrait it draws of a Bush administration flush with unilateralist cowboys intent on overturning existing international treaties and institutions just for the sport of it. Defining unilateralism is straightforward: the word refers to a state acting on its own in international affairs. It is a critical conceptual mistake, however, to pose "multilateralism" simply as its opposite.
Consider, for example, the various roles of the United Nations, the North American Treaty Organization, and the Proliferation Security Initiative. The UN, the Holy Grail of multilateralism, is an organization of 192 members with responsibility for the maintenance of international peace and security lodged in its Security Council. NATO is a defense alliance of 26 states, all of which are Western democracies. The Proliferation Security Initiative (PSI), created in 2003 by the Bush administration, now includes 90-plus diverse countries dedicated to stopping international trafficking in weapons of mass destruction.
Each organization is clearly "multilateral," but their roles are so wildly different that the word ceases to have any meaning. For example, if the United States confronted a serious threat, it would be acting multilaterally if it took the matter either to NATO or the UN. Both options would be "multilateral," but widely divergent in diplomatic and political content, and quite likely in military significance as well. They would be comparable related in the same way a steak knife is comparable to a plastic butter knife.
The PSI offers an even starker contrast, for unlike either the UN or NATO, it has no secretary general, no Secretariat, no headquarters, and no regularly scheduled meetings. One British diplomat described the initiative as "an activity, not an organization." In fact, the model of the Proliferation Security Initiative is the ideal one for multilateral activity in the future, precisely because it transcends the traditional structures of international organizations, which have, time and again, proved inefficient and ineffective.
"Multilateralism" is, in other words, merely a word that describes international action taken by a group of nations acting in concert. For the authors of A Plan for Action , however, multilateralism has an almost spiritual aspect, representing a harmony that transcends barriers and oceans.
Harmony is designed to stifle any discordant notes, and so is the multilateralism envisioned by an American foreign policy guided by "responsible sovereignty." It is one in which the group of nations, of which the United States is but a single player among many, initiates policies and activities that would likely be designed to constrain the freedom of action of the United States in pursuit of that harmony--not only in its activities abroad, but also in its activities within the 50 states.
There is a precedent for this in the conduct of the European Union, whose 27 nations now possess a common currency in the form of the euro and an immensely complex series of trade and labor policies intended to cut across sovereign lines. The EU is the model A Plan for Action proffers for the "responsible sovereignty" regime its authors wish to import to the United States. EU bureaucrats based in Brussels have been reshaping the priorities and needs of EU member states for a decade now, and proposing a system based on the design of the EU suggests a desire to subject the United States to a kind of international oversight not only when it comes to foreign policy but also on matters properly understood as U.S. domestic policy.
That very approach has been on display at the United Nations for years in an effort to standardize international conduct that has come to be known as "norming." In theory, there is good reason to create international standards--for measurement, for example, or for conduct on the high seas. But "norming" goes far beyond such prosaic concerns. The UN has, for example, repeatedly voted in different committees to condemn the death penalty, in a clear effort to put pressure on the United States to follow suit. Similar votes have been taken on abortion rights and restricting the private ownership of firearms.
_____________
Such issues have been, and likely will again be, the subjects of intense democratic debate within the United States, and properly so. There is no need to internationalize them to make the debate more fruitful. What is common to these and many other issues is that the losers in our domestic debate are often the proponents of internationalizing the controversies. They think that if they can change the political actors, they can change the political outcome. Unsuccessful in our domestic political arena, they seek to redefine the arena in which these matters will be adjudicated--moving, in effect, from unilateral, democratic U.S. decision-making to a multilateral, bureaucratic, and elitist environment. For almost any domestic issue one can imagine, there are likely to be nongovernmental organizations roaming the international arena desperately trying to turn their priorities into "norming" issues.
This is what "responsible sovereignty" would look like. For the authors and signatories of A Plan for Action, sovereignty is simply an abstraction, a historical concept about as important today as the "sovereigns" from whose absolute rights the term originally derived. That is not the understanding of the U.S. Constitution, which locates the basis of its legitimacy in "we the people," who constitute the sovereign authority of the nation.
"Sharing" sovereignty with someone or something else is thus not abstract for Americans. Doing so by definition will diminish the sovereign power of the American people over their government and their own lives, the very purpose for which the Constitution was written. This is something Americans have been reluctant to do. Now their reluctance may have to take the form of more concerted action against "responsible sovereignty" if its onward march is to be halted or reversed. Our Founders would clearly understand the need.
John R. Bolton is a senior fellow at AEI.
12 Problems with the Obama Mortgage Stability Initiative Plan
12 Problems with the Obama Mortgage Stability Initiative Plan. By by Ronald D. Utt, Ph.D. and David C. John
Heritage, February 25, 2009
WebMemo #2311
On February 21, President Obama released his Homeowner Affordability and Stability Plan to help stabilize the deeply troubled housing finance market by providing several forms of assistance to as many as 7-9 million borrowers who may be at risk of defaulting on their mortgages.
Two of the bill's three key components are designed to provide subsidies and benefits primarily to homeowners who, while still current in their payments, may not be able to take advantage of attractive refinancing opportunities at lower interest rates because the value of their home has declined beyond the loan-to-value ratio permitted by rules governing mortgage investments made by Fannie Mae and Freddie Mac. The second such provision of the plan would provide taxpayer and investor subsidies to mortgage borrowers who have taken on more debt than they could safely manage, including, in some cases, credit card and automobile debt. The third component of the plan encourages the enactment of legislation allowing bankruptcy judges to alter the terms of certain mortgage loans, a practice that to date has been prohibited by federal law.
The Obama plan suffers from 12 specific weaknesses and risks:
1 The plan's Stability Initiative bestows new and costly benefits on those who took on more debt than they could handle, including credit cards, automobile loans, and mortgages (including refinancings and seconds). Worse, the value of the benefits will vary in direct proportion to the degree of borrower financial irresponsibility and the intensity of community land regulations. Homeowners with a first mortgage as large as $729,750 are eligible for the initiative, meaning that the well-to-do will receive more financial benefits than those of modest means. And as analysts at one nationwide financial firm noted, "The modifications would go disproportionately to borrowers who overstretched and who lied about their income." This moral hazard sends a clear message to the American people: The worse the behavior, the greater the reward.
2 Under this Stability Initiative, borrowers with a ratio of mortgage debt service to income greater than 31 percent can have their mortgage interest rate reduced to as little as 2 percent if that is what it takes to achieve the 31 percent ratio—with government paying half the subsidy and the investor/lender surrendering the other half. If this concession is insufficient to reach 31 percent, then the servicer (as opposed to the lender/investor holding the mortgage) can lengthen the term of the loan and/or reduce the principal amount owed to achieve the 31 percent. Eligible borrowers may also have loans that are as much as 50 percent greater than the value of the house.
3 It is also likely that, under the Stability Initiative, borrowers with a ratio of debt service payment to income as high as 55 percent—because of combined mortgage, credit card, and automobile debt—will be eligible to receive temporary payment reductions if they merely agree to HUD-approved counseling. Such borrowers may then be eligible for permanent payment reductions. This reduction scheme will be disclosed in rules that the Administration has announced it will release on March 4.
4 Because the investor/lenders will be responsible for a portion of the mortgage rate reduction, this program will deter private sector investment in all but the best mortgages. Combined with the proposed "cramdown" bankruptcy proposals, the net effect will be to require a substantial and permanent federal presence in the housing finance market to accommodate those many potential borrowers who are not highly qualified.
5 The plan also includes a formal endorsement by the President of a bankruptcy provision that allows judges to alter the terms of certain mortgages. This provision will increase the risk to lenders of all mortgages. The industry is already treating this as a permanent measure. Increased risk requires higher costs to compensate lenders, and either down payments or interest rates would have to rise, while potential borrowers with checkered credit histories would be denied access to credit. However, these costs would not rise evenly for all borrowers: Higher-risk borrowers (first-time buyers and moderate-income workers) would see costs rise more and have fewer opportunities to buy a house.
6 Anticipating such criticisms, the proposal contends that it will "seek careful changes to personal bankruptcy provisions." However, because any changes in bankruptcy law must be passed in legislation, this outcome may merely be wishful thinking. As the President wants to make sure that "millionaire homes don't clog bankruptcy courts," mortgages eligible for judicial "cramdown" cannot exceed $729,750 in value. Moreover, the most recent version of the legislation weakens language adopted earlier by the House Judiciary Committee to prevent borrowers who committed fraud in their mortgage application from taking advantage of cramdown.
7 The plan's Refinancing Initiative creates a new right for American borrowers now current in their mortgage payments: the right to refinance their home at a lower interest rate even if the quality of the loan—as measured by the loan-to-value ratio—would otherwise pose a risk to the lender. As such, this proposal establishes the act of being highly leveraged or slightly "underwater" (the amount that a borrower owes on his or her mortgage is more than the value of the house) as a legitimate reason to default, and as a policy problem worthy of taxpayer support and federal intervention. The creators of this new right fail to recognize that many other consumer credit markets operate comfortably, successfully, and safely despite the fact that many borrowers are underwater the minute they sign the contract—notably home improvements, mobile homes, automobiles, RVs, and HDTVs. Though those borrowers do expect to be "underwater" for these kinds of purchases, it raises the question of whether future legislation will extend this concession to car loans and credit card debt, which are also experiencing significant levels of default.
8 Only borrowers with loans held or repackaged by the federally controlled and subsidized Fannie Mae and Freddie Mac will be eligible to exercise this new right to refinance. Borrowers whose loans are held by private investors are denied this right, further distorting the housing markets with government-selected winners and losers.
9 To date, the several, federal loan modification programs that have been put in place have had very limited success, and the rate of failures exceeds that of successes, especially for loans where one or more payments have been missed. For loans that were four months past due at time of modification, the recidivism rate is 80 percent after 12 months. For loans one month past due, the recidivism rate after 12 months is 60 percent. With the nationwide decline in house prices accelerating in recent months, the risk of recidivism under the new program could remain at high levels.
10 The program will cost $275 billion ($75 billion for problem mortgages and $200 billion for Fannie Mae and Freddie Mac).
11 Obama's plan will take a great deal of time to implement. A recent MarketWatch.com article notes that loan refinancing applications are up 47 percent at a time when a substantial portion of the loan originating infrastructure has disappeared due to bankruptcy and bank consolidation. The prospect that a shrunken mortgage lending system could expeditiously accommodate the 7-9 million borrowers expected by the Obama plan is wishful thinking. The result will be long waits for refinancing that will come too late for some borrowers and may also crowd out efforts by unsubsidized borrowers to refinance due to the generous financial incentives offered to servicers participating in the new federal program.
12 Perhaps the most troubling part of the plan is the increased reliance being placed on the now federally controlled Fannie Mae and Freddie Mac, whose lax and corrupt behavior over the past decade was an important contributing factor to the present economic crisis. Although nominally privately owned, both are now run by the U.S. Treasury, whose massive holdings of preferred shares in both give it a huge implicit ownership stake. As is clear from the refinancing plan—which will reduce Fannie's and Freddie's earnings and thus weaken them further—the two have become little more than the federal government's captive mortgage financing banks to be used at will for any housing policy initiatives that the President and/or Congress wish to pursue. And with the plan's many provisions discouraging the private sector from getting involved in mortgage finance, this plan substantially advances the de facto nationalization of America's housing finance system for all but the "jumbo" mortgages that exceed conforming limits.
Given the 12 weaknesses discussed above, there is little indication that President Obama's Homeowner Affordability and Stability Plan will provide any relief—short-term or long-term—to the beleaguered housing market.
Ronald D. Utt, Ph.D., is the Herbert and Joyce Morgan Senior Research Fellow and David C. John is Senior Research Fellow in Retirement Security and Financial Institutions in the Thomas A. Roe Institute for Economic Policy Studies, at The Heritage Foundation.
Heritage, February 25, 2009
WebMemo #2311
On February 21, President Obama released his Homeowner Affordability and Stability Plan to help stabilize the deeply troubled housing finance market by providing several forms of assistance to as many as 7-9 million borrowers who may be at risk of defaulting on their mortgages.
Two of the bill's three key components are designed to provide subsidies and benefits primarily to homeowners who, while still current in their payments, may not be able to take advantage of attractive refinancing opportunities at lower interest rates because the value of their home has declined beyond the loan-to-value ratio permitted by rules governing mortgage investments made by Fannie Mae and Freddie Mac. The second such provision of the plan would provide taxpayer and investor subsidies to mortgage borrowers who have taken on more debt than they could safely manage, including, in some cases, credit card and automobile debt. The third component of the plan encourages the enactment of legislation allowing bankruptcy judges to alter the terms of certain mortgage loans, a practice that to date has been prohibited by federal law.
The Obama plan suffers from 12 specific weaknesses and risks:
1 The plan's Stability Initiative bestows new and costly benefits on those who took on more debt than they could handle, including credit cards, automobile loans, and mortgages (including refinancings and seconds). Worse, the value of the benefits will vary in direct proportion to the degree of borrower financial irresponsibility and the intensity of community land regulations. Homeowners with a first mortgage as large as $729,750 are eligible for the initiative, meaning that the well-to-do will receive more financial benefits than those of modest means. And as analysts at one nationwide financial firm noted, "The modifications would go disproportionately to borrowers who overstretched and who lied about their income." This moral hazard sends a clear message to the American people: The worse the behavior, the greater the reward.
2 Under this Stability Initiative, borrowers with a ratio of mortgage debt service to income greater than 31 percent can have their mortgage interest rate reduced to as little as 2 percent if that is what it takes to achieve the 31 percent ratio—with government paying half the subsidy and the investor/lender surrendering the other half. If this concession is insufficient to reach 31 percent, then the servicer (as opposed to the lender/investor holding the mortgage) can lengthen the term of the loan and/or reduce the principal amount owed to achieve the 31 percent. Eligible borrowers may also have loans that are as much as 50 percent greater than the value of the house.
3 It is also likely that, under the Stability Initiative, borrowers with a ratio of debt service payment to income as high as 55 percent—because of combined mortgage, credit card, and automobile debt—will be eligible to receive temporary payment reductions if they merely agree to HUD-approved counseling. Such borrowers may then be eligible for permanent payment reductions. This reduction scheme will be disclosed in rules that the Administration has announced it will release on March 4.
4 Because the investor/lenders will be responsible for a portion of the mortgage rate reduction, this program will deter private sector investment in all but the best mortgages. Combined with the proposed "cramdown" bankruptcy proposals, the net effect will be to require a substantial and permanent federal presence in the housing finance market to accommodate those many potential borrowers who are not highly qualified.
5 The plan also includes a formal endorsement by the President of a bankruptcy provision that allows judges to alter the terms of certain mortgages. This provision will increase the risk to lenders of all mortgages. The industry is already treating this as a permanent measure. Increased risk requires higher costs to compensate lenders, and either down payments or interest rates would have to rise, while potential borrowers with checkered credit histories would be denied access to credit. However, these costs would not rise evenly for all borrowers: Higher-risk borrowers (first-time buyers and moderate-income workers) would see costs rise more and have fewer opportunities to buy a house.
6 Anticipating such criticisms, the proposal contends that it will "seek careful changes to personal bankruptcy provisions." However, because any changes in bankruptcy law must be passed in legislation, this outcome may merely be wishful thinking. As the President wants to make sure that "millionaire homes don't clog bankruptcy courts," mortgages eligible for judicial "cramdown" cannot exceed $729,750 in value. Moreover, the most recent version of the legislation weakens language adopted earlier by the House Judiciary Committee to prevent borrowers who committed fraud in their mortgage application from taking advantage of cramdown.
7 The plan's Refinancing Initiative creates a new right for American borrowers now current in their mortgage payments: the right to refinance their home at a lower interest rate even if the quality of the loan—as measured by the loan-to-value ratio—would otherwise pose a risk to the lender. As such, this proposal establishes the act of being highly leveraged or slightly "underwater" (the amount that a borrower owes on his or her mortgage is more than the value of the house) as a legitimate reason to default, and as a policy problem worthy of taxpayer support and federal intervention. The creators of this new right fail to recognize that many other consumer credit markets operate comfortably, successfully, and safely despite the fact that many borrowers are underwater the minute they sign the contract—notably home improvements, mobile homes, automobiles, RVs, and HDTVs. Though those borrowers do expect to be "underwater" for these kinds of purchases, it raises the question of whether future legislation will extend this concession to car loans and credit card debt, which are also experiencing significant levels of default.
8 Only borrowers with loans held or repackaged by the federally controlled and subsidized Fannie Mae and Freddie Mac will be eligible to exercise this new right to refinance. Borrowers whose loans are held by private investors are denied this right, further distorting the housing markets with government-selected winners and losers.
9 To date, the several, federal loan modification programs that have been put in place have had very limited success, and the rate of failures exceeds that of successes, especially for loans where one or more payments have been missed. For loans that were four months past due at time of modification, the recidivism rate is 80 percent after 12 months. For loans one month past due, the recidivism rate after 12 months is 60 percent. With the nationwide decline in house prices accelerating in recent months, the risk of recidivism under the new program could remain at high levels.
10 The program will cost $275 billion ($75 billion for problem mortgages and $200 billion for Fannie Mae and Freddie Mac).
11 Obama's plan will take a great deal of time to implement. A recent MarketWatch.com article notes that loan refinancing applications are up 47 percent at a time when a substantial portion of the loan originating infrastructure has disappeared due to bankruptcy and bank consolidation. The prospect that a shrunken mortgage lending system could expeditiously accommodate the 7-9 million borrowers expected by the Obama plan is wishful thinking. The result will be long waits for refinancing that will come too late for some borrowers and may also crowd out efforts by unsubsidized borrowers to refinance due to the generous financial incentives offered to servicers participating in the new federal program.
12 Perhaps the most troubling part of the plan is the increased reliance being placed on the now federally controlled Fannie Mae and Freddie Mac, whose lax and corrupt behavior over the past decade was an important contributing factor to the present economic crisis. Although nominally privately owned, both are now run by the U.S. Treasury, whose massive holdings of preferred shares in both give it a huge implicit ownership stake. As is clear from the refinancing plan—which will reduce Fannie's and Freddie's earnings and thus weaken them further—the two have become little more than the federal government's captive mortgage financing banks to be used at will for any housing policy initiatives that the President and/or Congress wish to pursue. And with the plan's many provisions discouraging the private sector from getting involved in mortgage finance, this plan substantially advances the de facto nationalization of America's housing finance system for all but the "jumbo" mortgages that exceed conforming limits.
Given the 12 weaknesses discussed above, there is little indication that President Obama's Homeowner Affordability and Stability Plan will provide any relief—short-term or long-term—to the beleaguered housing market.
Ronald D. Utt, Ph.D., is the Herbert and Joyce Morgan Senior Research Fellow and David C. John is Senior Research Fellow in Retirement Security and Financial Institutions in the Thomas A. Roe Institute for Economic Policy Studies, at The Heritage Foundation.
Thursday, February 26, 2009
Argentina, Ecuador - Deadbeat nations should be kept out of U.S. capital markets
Argentina Has a Bond It Wants to Sell You. By Robert Shapiro and Nancy Soderberg
Deadbeat nations should be kept out of U.S. capital markets.
WSJ, Feb 27, 2009
Argentina reportedly intends to file for Securities and Exchange Commission approval to re-enter U.S. capital markets. The SEC should instead insist that Argentine securities bear a warning like cigarette packages: "This issuer has a record of misrepresentation, debt defaults and debt repudiation, and therefore may be dangerous to your financial health. Do not consume this issuer's bonds unless you have a platoon of lawyers and a Navy to back them up, and you're prepared to use both."
In this global economic crisis, Argentina's financial behavior is especially worrisome. Its status as history's largest sovereign debt defaulter; its unprecedented repudiation in 2005 of bonds held by those who balked at substandard terms for restructuring; and the lack of transparency and fulsome disclosure surrounding its current capital raising efforts set a dangerous example.
If the SEC fails to keep Argentina out of our capital markets -- or set clear terms for its re-entry -- it could encourage other nations to follow that country's irresponsible path.
In 2001, Argentina defaulted on $81 billion in sovereign bonds. Four years later it presented a unilateral, nonnegotiable restructuring plan worth about 25 cents on the dollar. When half of its foreign lenders said "no thanks," Buenos Aires repudiated their claims.
Since Argentina had earlier agreed to waive sovereign immunity and accept the jurisdiction and judgments of New York courts, more than 160 lawsuits were filed. But the governments of Nestor Kirchner and of his wife and successor, Christina Fernandez, have ignored numerous court judgments. Judge Thomas Griesa has repeatedly condemned their conduct, noting in 2005 that "I have not heard one single word from the [Argentine] Republic except ways to avoid paying those judgments." Nothing has changed since then.
If Argentina gets away with its misdeeds -- offering terrible terms for restructuring its debt and then repudiating its obligations to those who object -- the likelihood of additional defaults could increase substantially. If that occurs, it would inflict another serious blow to a global financial system in crisis.
Already, Buenos Aires's scofflaw behavior is being imitated. Citing Argentina's example, Ecuador recently defaulted on sovereign debts issued in the U.S., though it has the means to meet its obligations. The default drove down the market price of the bonds. The Correa government then entered the American secondary market with a massive repurchase program, scooping up much of its own debt at a very steep discount.
If the offering documents Argentina has submitted to the SEC in the past are any indication, its forthcoming filings will be replete with misleading or meaningless representations. They will inevitably include another pledge to submit to U.S. court jurisdiction and to be bound by any resulting court judgments in the event of default. And they will almost certainly lack candid disclosure about that country's true financial condition -- its $35 billion in outstanding but repudiated debt to foreign creditors, its cozy financial dealings with the Chávez regime in Venezuela, its grossly understated inflation rate, or its recent binge of expropriating assets within its reach to meet its mounting financial obligations.
This issue has already caught the attention of Congress. Rep. Ed Towns (D., N.Y.) supported legislation last year to bar deadbeat foreign governments from our financial markets. He is now chairman of the House Government Reform Committee. Standing up to the world's largest debt defaulter and repudiator would seem to be a minimal step that the SEC should take to protect the integrity of the markets it oversees.
Mr. Shapiro was under secretary of commerce during the Clinton administration. Ms. Soderberg served on the National Security Council during the Clinton administration. They are the co-chairs of the American Task Force Argentina, a coalition of investors and citizen groups seeking a just resolution to Argentina's debt default.
Deadbeat nations should be kept out of U.S. capital markets.
WSJ, Feb 27, 2009
Argentina reportedly intends to file for Securities and Exchange Commission approval to re-enter U.S. capital markets. The SEC should instead insist that Argentine securities bear a warning like cigarette packages: "This issuer has a record of misrepresentation, debt defaults and debt repudiation, and therefore may be dangerous to your financial health. Do not consume this issuer's bonds unless you have a platoon of lawyers and a Navy to back them up, and you're prepared to use both."
In this global economic crisis, Argentina's financial behavior is especially worrisome. Its status as history's largest sovereign debt defaulter; its unprecedented repudiation in 2005 of bonds held by those who balked at substandard terms for restructuring; and the lack of transparency and fulsome disclosure surrounding its current capital raising efforts set a dangerous example.
If the SEC fails to keep Argentina out of our capital markets -- or set clear terms for its re-entry -- it could encourage other nations to follow that country's irresponsible path.
In 2001, Argentina defaulted on $81 billion in sovereign bonds. Four years later it presented a unilateral, nonnegotiable restructuring plan worth about 25 cents on the dollar. When half of its foreign lenders said "no thanks," Buenos Aires repudiated their claims.
Since Argentina had earlier agreed to waive sovereign immunity and accept the jurisdiction and judgments of New York courts, more than 160 lawsuits were filed. But the governments of Nestor Kirchner and of his wife and successor, Christina Fernandez, have ignored numerous court judgments. Judge Thomas Griesa has repeatedly condemned their conduct, noting in 2005 that "I have not heard one single word from the [Argentine] Republic except ways to avoid paying those judgments." Nothing has changed since then.
If Argentina gets away with its misdeeds -- offering terrible terms for restructuring its debt and then repudiating its obligations to those who object -- the likelihood of additional defaults could increase substantially. If that occurs, it would inflict another serious blow to a global financial system in crisis.
Already, Buenos Aires's scofflaw behavior is being imitated. Citing Argentina's example, Ecuador recently defaulted on sovereign debts issued in the U.S., though it has the means to meet its obligations. The default drove down the market price of the bonds. The Correa government then entered the American secondary market with a massive repurchase program, scooping up much of its own debt at a very steep discount.
If the offering documents Argentina has submitted to the SEC in the past are any indication, its forthcoming filings will be replete with misleading or meaningless representations. They will inevitably include another pledge to submit to U.S. court jurisdiction and to be bound by any resulting court judgments in the event of default. And they will almost certainly lack candid disclosure about that country's true financial condition -- its $35 billion in outstanding but repudiated debt to foreign creditors, its cozy financial dealings with the Chávez regime in Venezuela, its grossly understated inflation rate, or its recent binge of expropriating assets within its reach to meet its mounting financial obligations.
This issue has already caught the attention of Congress. Rep. Ed Towns (D., N.Y.) supported legislation last year to bar deadbeat foreign governments from our financial markets. He is now chairman of the House Government Reform Committee. Standing up to the world's largest debt defaulter and repudiator would seem to be a minimal step that the SEC should take to protect the integrity of the markets it oversees.
Mr. Shapiro was under secretary of commerce during the Clinton administration. Ms. Soderberg served on the National Security Council during the Clinton administration. They are the co-chairs of the American Task Force Argentina, a coalition of investors and citizen groups seeking a just resolution to Argentina's debt default.
Eastern Europe Needs Our Help - We can't risk losing 20 years worth of gains in the region
Eastern Europe Needs Our Help. By John Kerry
We can't risk losing 20 years worth of gains in the region.
Wall Street Journal Europe, Feb 27, 2009
Twenty years ago, the Berlin Wall and the repressive Communist regimes of Eastern Europe came crashing down to usher in a new era of political and economic freedom. Today, it is Eastern Europe's banks and economies that are threatening to crash. The Polish zloty is down 38% against the dollar in the last six months alone. Hungary's forint is down 32%. Ukraine posted a staggering 34% drop in January industrial output from a year earlier. While the entire world is reeling, right now the eye of the global financial storm has moved to Central and Eastern Europe.
If Western nations do not act quickly to address the snowballing financial crisis that is brewing from Latvia to Hungary, we risk replacing an era of promise and progress in Eastern Europe with one of soaring unemployment, instability and a weakening of the influence and ideals we have spent decades building.
While many Americans are rightly focused on our domestic troubles, we must also recognize the global dimensions of the current crisis. Last week, Latvia became the second government, after Iceland, to collapse as a result of a financial crisis that has already sparked riots in the Baltics and Greece and is likely to be a driving geopolitical force for a long time.
Eastern Europe's currencies are plummeting as investors instead seek the safety of the dollar and the euro. This means that Eastern European countries, companies and individuals face increasing challenges to pay back their large foreign-currency loans -- which only deepens the currency problems to create a vicious circle.
At first glance this may seem like a traditional emerging-markets crisis like those we saw in the late 1990s. But in fact it's far worse. This is a truly global financial crisis in a highly connected financial world, and Eastern Europe is feeling the brunt. Many of the region's banks are foreign-owned -- in the case of Hungary, more than 80% -- and many of those banks are now contemplating unprecedented protectionist steps, pulling back lending operations to their home countries. Meanwhile, as larger countries consume more of the world's capital in refinancing their own debt, emerging markets like those of Eastern Europe are likely to find the bank windows closed to them.
The result is that the economies of Eastern Europe are already falling faster and further than anyone expected. There is a real danger that, if every country affected by this crisis defines its interests narrowly, several strategically vital countries could fall through the cracks. For example, Ukraine's dire situation could trigger a domino effect, not only destabilizing Western Europe banks with large exposure to East European markets, but actually changing the geopolitical map as well.
America should support World Bank President Robert Zoellick's call for the EU to lead a coordinated global effort, alongside the IMF, World Bank and other development banks, to support the economies of Central and Eastern Europe. Austria, too, deserves credit for trying to focus Europe's attention on the plight not just of eastern member states such as the Baltics, but also of non-EU neighbors like Ukraine.
But Eastern Europe will not be the last financial fire the world will have to help put out in this crisis. Nor will our problems be confined to traditionally unstable corners of the globe. Our oldest European allies are also in deepening financial trouble, and three of our most important partners in the Muslim world, Turkey, Indonesia and Pakistan, today all face acute balance-of-payments crises.
We also need to ensure that the U.S. Treasury and State departments have the capacity to deal with these fast-moving crises in real time even as they turn our domestic economy around. That means the Senate must make clear its willingness to quickly confirm the Obama administration's nominees for posts vital to international economics and finance, such as the international staff at Treasury and the economic staff at the State Department, once the administration nominates them.
Our needs at home are urgent and great. We must put our own economic house in order and we will. But as we balance the domestic and global demands of this crisis, we should be warned that, in cutting corners today we risk incurring far greater costs down the road. A retreat into our domestic problems will not only leave us diminished on the world stage -- because our world is so economically and financially interconnected, it may well also worsen our own economic crisis.
Instead, as we restore confidence in our own markets, we will also need to find a strategy to project leadership, share burdens, build the capacity of institutions like the IMF and spread stability as this crisis continues to reverberate world-wide.
We have already lost a great deal in the last few months. But two decades of prosperity, democracy and institution-building in Eastern Europe is one investment that America must not allow to go up in smoke.
Mr. Kerry, a Democratic senator from Massachusetts, is chairman of the Senate Foreign Relations Committee.
We can't risk losing 20 years worth of gains in the region.
Wall Street Journal Europe, Feb 27, 2009
Twenty years ago, the Berlin Wall and the repressive Communist regimes of Eastern Europe came crashing down to usher in a new era of political and economic freedom. Today, it is Eastern Europe's banks and economies that are threatening to crash. The Polish zloty is down 38% against the dollar in the last six months alone. Hungary's forint is down 32%. Ukraine posted a staggering 34% drop in January industrial output from a year earlier. While the entire world is reeling, right now the eye of the global financial storm has moved to Central and Eastern Europe.
If Western nations do not act quickly to address the snowballing financial crisis that is brewing from Latvia to Hungary, we risk replacing an era of promise and progress in Eastern Europe with one of soaring unemployment, instability and a weakening of the influence and ideals we have spent decades building.
While many Americans are rightly focused on our domestic troubles, we must also recognize the global dimensions of the current crisis. Last week, Latvia became the second government, after Iceland, to collapse as a result of a financial crisis that has already sparked riots in the Baltics and Greece and is likely to be a driving geopolitical force for a long time.
Eastern Europe's currencies are plummeting as investors instead seek the safety of the dollar and the euro. This means that Eastern European countries, companies and individuals face increasing challenges to pay back their large foreign-currency loans -- which only deepens the currency problems to create a vicious circle.
At first glance this may seem like a traditional emerging-markets crisis like those we saw in the late 1990s. But in fact it's far worse. This is a truly global financial crisis in a highly connected financial world, and Eastern Europe is feeling the brunt. Many of the region's banks are foreign-owned -- in the case of Hungary, more than 80% -- and many of those banks are now contemplating unprecedented protectionist steps, pulling back lending operations to their home countries. Meanwhile, as larger countries consume more of the world's capital in refinancing their own debt, emerging markets like those of Eastern Europe are likely to find the bank windows closed to them.
The result is that the economies of Eastern Europe are already falling faster and further than anyone expected. There is a real danger that, if every country affected by this crisis defines its interests narrowly, several strategically vital countries could fall through the cracks. For example, Ukraine's dire situation could trigger a domino effect, not only destabilizing Western Europe banks with large exposure to East European markets, but actually changing the geopolitical map as well.
America should support World Bank President Robert Zoellick's call for the EU to lead a coordinated global effort, alongside the IMF, World Bank and other development banks, to support the economies of Central and Eastern Europe. Austria, too, deserves credit for trying to focus Europe's attention on the plight not just of eastern member states such as the Baltics, but also of non-EU neighbors like Ukraine.
But Eastern Europe will not be the last financial fire the world will have to help put out in this crisis. Nor will our problems be confined to traditionally unstable corners of the globe. Our oldest European allies are also in deepening financial trouble, and three of our most important partners in the Muslim world, Turkey, Indonesia and Pakistan, today all face acute balance-of-payments crises.
We also need to ensure that the U.S. Treasury and State departments have the capacity to deal with these fast-moving crises in real time even as they turn our domestic economy around. That means the Senate must make clear its willingness to quickly confirm the Obama administration's nominees for posts vital to international economics and finance, such as the international staff at Treasury and the economic staff at the State Department, once the administration nominates them.
Our needs at home are urgent and great. We must put our own economic house in order and we will. But as we balance the domestic and global demands of this crisis, we should be warned that, in cutting corners today we risk incurring far greater costs down the road. A retreat into our domestic problems will not only leave us diminished on the world stage -- because our world is so economically and financially interconnected, it may well also worsen our own economic crisis.
Instead, as we restore confidence in our own markets, we will also need to find a strategy to project leadership, share burdens, build the capacity of institutions like the IMF and spread stability as this crisis continues to reverberate world-wide.
We have already lost a great deal in the last few months. But two decades of prosperity, democracy and institution-building in Eastern Europe is one investment that America must not allow to go up in smoke.
Mr. Kerry, a Democratic senator from Massachusetts, is chairman of the Senate Foreign Relations Committee.
US Agency and Coca-Cola Partner to Bring Clean Water to Mozambique
USAID and Coca-Cola Partner to Bring Clean Water to Mozambique
USAID, February 25, 2009
CHIMOIO, MOZAMBIQUE - The United States Agency for International Development (USAID) and Coca-Cola have formed a global alliance - the Water and Development Alliance (WADA) - to provide clean, potable water to Mozambique's sixth largest urban region, Chimoio. This alliance brings together funding commitments from all partners totaling about $1.79 million, of which $500,000 comes from USAID.
Currently, 10-15 percent of Chimoio's 250,000 residents are served by an inconsistent and inadequately treated water supply that poses serious public health risks and hampers industrial and commercial growth. WADA and its partners will supply running water to about 25,000 people, 12 schools, one provincial hospital, one secondary health facility, and local industrial and commercial users. This project will also improve the health of Chimoio residents, and increase economic activity and employment.
Coca-Cola is a long standing global USAID partner, but this is Mozambique's first partnership with the global beverage company. "We are looking forward to a long and productive relationship with the possibility of taking this partnership to other provinces where USAID and Coca Cola operate and have common goals," said Todd Amani, USAID Mission Director in Mozambique.
Funds provided by the alliance will be used to rehabilitate the TextAfrica Water Treatment Plant, part of a dilapidated former textile factory located on the outskirts of Chimoio. The project will rehabilitate several parts of the system - including pipes and pumping stations - to improve water delivery management and develop cost-recovery polices to ensure that the plant is sustainable once the work has been completed.
Other projects will focus on 14 boreholes throughout the city. In addition, workers will extend a secondary water distribution network to Bairro 4 - a neighborhood indentified by the municipal and community leaders as most in need of an improved water supply system. In addition, six new small water systems will be installed in neighborhoods throughout Chimoio City to provide enough water for present and future needs.
For more information about USAID and its programs in Mozambique, visit: http://www.usaid.gov/.
USAID, February 25, 2009
CHIMOIO, MOZAMBIQUE - The United States Agency for International Development (USAID) and Coca-Cola have formed a global alliance - the Water and Development Alliance (WADA) - to provide clean, potable water to Mozambique's sixth largest urban region, Chimoio. This alliance brings together funding commitments from all partners totaling about $1.79 million, of which $500,000 comes from USAID.
Currently, 10-15 percent of Chimoio's 250,000 residents are served by an inconsistent and inadequately treated water supply that poses serious public health risks and hampers industrial and commercial growth. WADA and its partners will supply running water to about 25,000 people, 12 schools, one provincial hospital, one secondary health facility, and local industrial and commercial users. This project will also improve the health of Chimoio residents, and increase economic activity and employment.
Coca-Cola is a long standing global USAID partner, but this is Mozambique's first partnership with the global beverage company. "We are looking forward to a long and productive relationship with the possibility of taking this partnership to other provinces where USAID and Coca Cola operate and have common goals," said Todd Amani, USAID Mission Director in Mozambique.
Funds provided by the alliance will be used to rehabilitate the TextAfrica Water Treatment Plant, part of a dilapidated former textile factory located on the outskirts of Chimoio. The project will rehabilitate several parts of the system - including pipes and pumping stations - to improve water delivery management and develop cost-recovery polices to ensure that the plant is sustainable once the work has been completed.
Other projects will focus on 14 boreholes throughout the city. In addition, workers will extend a secondary water distribution network to Bairro 4 - a neighborhood indentified by the municipal and community leaders as most in need of an improved water supply system. In addition, six new small water systems will be installed in neighborhoods throughout Chimoio City to provide enough water for present and future needs.
For more information about USAID and its programs in Mozambique, visit: http://www.usaid.gov/.
The Green Movement and the Challenge of Climate Change
The Green Movement and the Challenge of Climate Change. By Lee Lane
AEI, Thursday, February 26, 2009
To produce net benefits, climate policy will have to make careful trade-offs between the costs and benefits of greenhouse gas (GHG) emission controls. Many environmentalists regard cost-benefit trade-offs as taboo--a strongly negative reaction that can block rational decision-making. Some green groups, however, have now embraced so-called cap-and-trade emission controls.[1] At least one recent analysis regards the green groups' move toward cap-and-trade as a sign that they are rising above the taboo response to embrace economic reasoning. A closer look shows that there may be less to this story than advertised.
Full article w/notes here.
What explains the traditional resistance of many green groups to economic reasoning? A theory developed several years ago by political psychologist Philip Tetlock offers a possible answer. Tetlock calls his theory the Sacred Value Protection Model (SVPM). According to this view, economic principles express "secular" values. Tetlock believes, however, that many people would regard protecting the environment as a "sacred" value. Proposing a trade-off between secular and sacred values triggers a "taboo" response.[2]
More recently, in an article written with green activist and scientist Michael Oppenheimer, Tetlock argues that green advocacy groups have displayed relatively high degrees of realism, tolerance, truth-seeking, and an ability to learn from experience. (Oppenheimer, it should be noted, is a vocal advocate of proposals to use cap-and-trade as a means of controlling GHG emissions that contribute to global climate change.) Oppenheimer and Tetlock concede that the record of green policymaking is more nuanced than the SVPM allows. "On one hand," they write, "we discover what seem to be strong pockets of taboo cognition--policy domains in which even speculative forms of cost-benefit analysis (would you change your mind if . . . ?) are likely to provoke sharp resistance. On the other, we discover numerous exceptions and qualifications."[3]
According to Oppenheimer and Tetlock, cap-and-trade is one such exception. In the early 1990s, one green advocacy group, Environmental Defense, took a stance in favor of cap-and-trade in the case of one air pollutant: sulfur dioxide (SO2). The SO2 cap-and-trade plan was eventually incorporated into the Clean Air Act Amendments of 1990.
As Oppenheimer and Tetlock describe the course of events, "despite considerable opprobrium (low to moderate moral outrage), it would go too far to assert that Environmental Defense was ostracized."[4] At that time, most green groups opposed the position. Years later, when the effectiveness of the trading system seemed to be confirmed, many green groups (although not all of them) embraced the concept. "Thus, the taboo has become the accepted practice."[5]
Superficially, the embrace of the SO2 program looks like an important step toward reconciling green thinking with the dictates of economics. If this impression is correct, it would mark an important turning point: the green groups would have been able to learn a major lesson from economic theory. It would suggest a defeat for the power of the SVPM among the green groups. But is this the right interpretation?
Hard Caps versus Prices
With GHG controls, the devil is in the details--and Oppenheimer and Tetlock skip the details. The result is that they misinterpret the environmentalists' stance.
Most green groups strongly prefer controls that set quantitative limits on GHG releases. This form of cap-and-trade does not allow a trade-off between control costs and environmental damage. Price-based GHG control mechanisms--for example, a carbon tax or a cap-and-trade system featuring an allowance price safety valve--would allow trade-offs of this kind. With a price-based system, if the costs of abatement prove to be excessive, the option exists to merely pay the price of continuing to emit. Almost all of the green groups, however, fiercely reject those approaches.
The choice between the green groups' preferred systems and the price-based GHG limits is not a mere technical matter. It can dramatically change the balance between the costs and benefits of future climate policy. The green groups' preferred approach of quantity-based ("hard") caps suffers from severe defects.
A control policy based on hard caps virtually ensures very high volatility of GHG emission allowance prices. Many previous cap-and-trade programs have also exhibited this volatility.[6] Even rather modest fluctuations in business cycles or weather will cause GHG allowance prices to fluctuate. And the price swings can be very large. As two prominent economists have observed:
For example, consider an effort to reduce domestic carbon dioxide emissions by 5% below future forecast levels over the next ten years--to about 1.8 billion tons of carbon. . . . Based on central estimates, the required reductions would amount to about 90 million tons of carbon emissions, and might cost the economy as a whole around $1.5 billion per year. However, reaching the target could instead require 180 million tons of reductions because of otherwise higher emissions related to a warm summer, a cold winter, or unexpected economic growth. Based on alternative model estimates, it could also cost twice as much to reduce each ton of carbon. The result could be costs that are eight times higher than the best guess.[7]
Because GHG allowances will be an important part of the cost of doing business and because their prices will fluctuate, many firms will have to incur substantial costs to hedge against these price swings. Note, though, that while the prices of emission rights may vary widely, the harm done by releasing an additional ton of GHG into the atmosphere does not.[8] The future harm from GHG output depends on cumulative global emissions over many decades. A given country's overshooting or undershooting its annual caps is merely noise in the system. It follows that all costs incurred by firms hedging against allowance price swings are pure deadweight loss to society.
In general, economists have favored carbon taxes as GHG control tools--or cap-and-trade plans that are designed to mimic carbon taxes. These approaches, many believe, are the most cost-effective means of reaching any given GHG reduction target.[9] The advantages of price-based GHG tools are the mirror image of the drawbacks of hard caps. Price-based tools are well suited to stimulating open debate about the public's willingness to pay for GHG reductions. These tools can also entirely avoid the gyrations in abatement costs that plague hard caps. And they distribute emission reductions through time based on the actual state of technology, not on ex ante expectations.
Sharp GHG Cuts and Uncertain Technology
Green groups assume a great deal of progress in GHG control technology. They wish not only to impose hard caps, but also to set those caps to require rapid GHG cuts. Policies of this kind could be very costly. For example, proposals by former vice president Al Gore and British government economist Nicholas Stern have been calculated to entail global net costs of $17 trillion and $22 trillion, respectively.[10] That is, these proposals are far more expensive than would be a policy of simply ignoring climate change.
Such proposals are based on the hope that new technology will emerge and that this technology will make the GHG reductions much cheaper. But the future course and rate of technology change is highly unpredictable, and Congress is not famous for the accuracy of its predictions on this score. If the new technologies fail to appear on schedule, abatement costs are likely to rise far above optimal levels, and they may stay that way for an extended period of time.
A worrisome aspect of this approach is that by adopting very stringent emission caps, green groups are departing sharply from the model of the SO2 program. In large measure, that program achieved relatively low abatement costs because its targets were selected to fall well within the range of capabilities of existing technology. A subsequent assessment of the SO2 program made clear that more was involved than just the concept of trading:
[T]he cost reductions observed in the SO2 trading experience will not necessarily be repeatable in other markets. One key feature of the SO2 market would need to be present again. The SO2 cap was set at a level that left a wide range of options for many individual sources, and more importantly, for all affected sources in the aggregate. An approximate 50% overall emissions reduction was required in a situation where there was a technologically-proven option that could achieve reductions of 95%. Combined with that was the presence of a wide continuum of lower percentage reductions possible via fuels with many different sulfur content levels. Thus, there was room for applying the best available control measures on only a small fraction of the regulated units, where they would be truly cost-effective and, more generally, for meaningful competition among a diverse set of options.[11]
The particulars of the SO2 case suggest caution about efforts to extrapolate its results to the quite different problem of GHG controls. In fact, even the SO2 program would have yielded much different results had it been based on emission reductions steep enough to require universal application of the most expensive available control technology. As later economic analysis pointed out, "A more stringent cap would have reduced this flexibility, and price competition among suppliers of control options. For example, the ability to take advantage of cheaper low-sulfur coals from the West would have been greatly diminished if aggregate required SO2 reductions had been substantially greater than 50%."[12]
A central factor in the SO2 program's success, therefore, was that its caps fell well within the reach of then-available technology. Setting a cap of this kind does seem to imply the acceptance of a secular-sacred trade-off. But in accepting cap-and-trade, the green groups are not accepting modest caps. Still less are they accepting the legitimacy of secular-sacred trade-offs. So far, at least in the case of GHG controls, green groups continue to resist such trade-offs to the limits of their political power.
In contrast to the green groups' stance on GHG controls, most economists have argued that the best policy would be to make modest, but gradually increasing, reductions in GHG releases.[13] In effect, economists tend to prefer the more modest goals that characterized the actual SO2 program to the steep reductions favored by the green groups. Economists also point out that it appears to be possible to learn to live with a fair amount of the predicted rise in GHG levels.[14] Climate policy, in their view, requires patience. Some environmental harm must be accepted. Otherwise, GHG control costs can easily be more expensive than the environmental damages that the controls prevent.
Hard Caps and Policy Stability
Environmentalists' intransigence about cost-benefit trade-offs in an emissions trading scheme is likely to carry a high price tag. It may do so even from the green groups' own point of view. The use of hard caps is likely to increase the chance of expensive changes in the course of policy.
Hard caps preclude certainty about future abatement costs. As a result, they largely foreclose reasoned discussion about the public's willingness to pay for GHG reductions. Green groups' rhetoric compounds the problem. For example, as the discussion in California illustrates, extravagant claims about emissions-reducing free lunches are common. An analysis by the California Air Resources Board (CARB) makes this claim about its new climate action plan: "The results consistently show that implementing the Scoping Plan will not only significantly reduce California's greenhouse gas emissions, but will also have a net positive effect on California's economic growth through 2020."[15]
Independent economists have greeted these claims with great skepticism. As one noted in reviewing the report, "I have come to the inescapable conclusion that the economic analysis [of CARB] is terribly deficient in critical ways and should not be used by the State government or the public for the purpose of assessing the likely costs of CARB's plans." He went on to observe that "the analysis is severely flawed, and hence not useful for the purpose for which it was intended."[16] Another reviewer wrote, "The net dollar cost of each of these regulations is likely to be much larger than what is reported. . . . There is a national consensus that carbon pricing is not a 'free lunch.'"[17]
The green advocacy groups, however, have enthusiastically embraced this report and the claims that GHG controls do, indeed, offer a free lunch. The Natural Resources Defense Council stated, "We concur with the overall finding that the Proposed Scoping Plan will provide economic benefits in 2020 for the overall state economy as well as to individual households and businesses."[18] Other groups have made similar claims with reference to the AB 32 Scoping Plan. Environmental Defense has said, "California's leadership on global warming will usher in a new wave of entrepreneurial innovation and be the economic engine that will drive greater prosperity in the state."[19]
At stake is much more than a dispute between the green groups and mainstream economists. If the promised free lunch turns out to carry a hefty price tag, the policy may change. Congress has a long record of policy reversals on environmental targets.[20] If that happens, many investments in GHG control may become stranded assets.
Fearing this risk, firms may defer investments until the level of government resolve becomes clearer. The resulting delay of investment decisions can itself impose serious costs.[21] Further, industry's motive for investing in R&D designed to develop less expensive future control technologies will be weaker than it would have been with a more certain future policy.[22] This result is the very opposite of the one for which the supporters of hard caps wish.
A Taboo Preserved
On closer inspection, the green groups' gradual acceptance of emission rights trading appears to be more an example of a taboo preserved than one of pragmatism vanquishing taboo. One can hardly help noticing that price-based controls make the secular-sacred trade-off that is inherent in climate policy visible for all to see. Key to the superiority of a price-based system is that it allows the market to determine the cumulative GHG reductions on a year-by-year basis. Thereby, it calibrates GHG cuts to the sacrifices that achieving them will require.
Tetlock's original SVPM theory predicts that making this secular-sacred trade-off transparent should render price-based controls anathema to green groups. It hardly seems coincidental that, while many environmental groups have embraced quantity-based cap-and-trade, every major environmental organization has rejected the bills that would have relied on price-based controls.[23] Yet Oppenheimer and Tetlock cite the groups' partial embrace of cap-and-trade as proof of ideological flexibility. At the same time, they neglect the green groups' near unanimous rejection of price-based GHG controls and do so even though this aspect of the groups' position goes to the heart of Tetlock's SVPM theory.
Tetlock's initial article spoke to the need to make trade-offs. It also discussed how people get around their own taboos. These trade-offs are a central reality of all policymaking. They clearly dominate climate policy, an area in which the stakes are high but good GHG control options are few and far between. Thus, tacitly, Tetlock's original article poses an important challenge to the green advocacy groups.
Conclusion
Oppenheimer and Tetlock, in telling the story of the green groups and cap-and-trade, never grasp the importance of the choice between hard caps and price-based tools. They do not distinguish between the SO2 program's form and its relatively gradual targets. They ignore the baleful potential of suppressing needed public debate on willingness to pay.
As a result, Oppenheimer and Tetlock miss a deeper reality about green NGOs: that they
continue to evade the needed trade-off between the goal of protecting the environment and that of preserving prosperity. This trade-off lies at the heart of making good policy on climate change. By ignoring it, the green groups are pursuing an approach that is deeply flawed.
Lee Lane is a resident fellow at AEI and codirector of the AEI Geoengineering Project.
AEI, Thursday, February 26, 2009
To produce net benefits, climate policy will have to make careful trade-offs between the costs and benefits of greenhouse gas (GHG) emission controls. Many environmentalists regard cost-benefit trade-offs as taboo--a strongly negative reaction that can block rational decision-making. Some green groups, however, have now embraced so-called cap-and-trade emission controls.[1] At least one recent analysis regards the green groups' move toward cap-and-trade as a sign that they are rising above the taboo response to embrace economic reasoning. A closer look shows that there may be less to this story than advertised.
Full article w/notes here.
What explains the traditional resistance of many green groups to economic reasoning? A theory developed several years ago by political psychologist Philip Tetlock offers a possible answer. Tetlock calls his theory the Sacred Value Protection Model (SVPM). According to this view, economic principles express "secular" values. Tetlock believes, however, that many people would regard protecting the environment as a "sacred" value. Proposing a trade-off between secular and sacred values triggers a "taboo" response.[2]
More recently, in an article written with green activist and scientist Michael Oppenheimer, Tetlock argues that green advocacy groups have displayed relatively high degrees of realism, tolerance, truth-seeking, and an ability to learn from experience. (Oppenheimer, it should be noted, is a vocal advocate of proposals to use cap-and-trade as a means of controlling GHG emissions that contribute to global climate change.) Oppenheimer and Tetlock concede that the record of green policymaking is more nuanced than the SVPM allows. "On one hand," they write, "we discover what seem to be strong pockets of taboo cognition--policy domains in which even speculative forms of cost-benefit analysis (would you change your mind if . . . ?) are likely to provoke sharp resistance. On the other, we discover numerous exceptions and qualifications."[3]
According to Oppenheimer and Tetlock, cap-and-trade is one such exception. In the early 1990s, one green advocacy group, Environmental Defense, took a stance in favor of cap-and-trade in the case of one air pollutant: sulfur dioxide (SO2). The SO2 cap-and-trade plan was eventually incorporated into the Clean Air Act Amendments of 1990.
As Oppenheimer and Tetlock describe the course of events, "despite considerable opprobrium (low to moderate moral outrage), it would go too far to assert that Environmental Defense was ostracized."[4] At that time, most green groups opposed the position. Years later, when the effectiveness of the trading system seemed to be confirmed, many green groups (although not all of them) embraced the concept. "Thus, the taboo has become the accepted practice."[5]
Superficially, the embrace of the SO2 program looks like an important step toward reconciling green thinking with the dictates of economics. If this impression is correct, it would mark an important turning point: the green groups would have been able to learn a major lesson from economic theory. It would suggest a defeat for the power of the SVPM among the green groups. But is this the right interpretation?
Hard Caps versus Prices
With GHG controls, the devil is in the details--and Oppenheimer and Tetlock skip the details. The result is that they misinterpret the environmentalists' stance.
Most green groups strongly prefer controls that set quantitative limits on GHG releases. This form of cap-and-trade does not allow a trade-off between control costs and environmental damage. Price-based GHG control mechanisms--for example, a carbon tax or a cap-and-trade system featuring an allowance price safety valve--would allow trade-offs of this kind. With a price-based system, if the costs of abatement prove to be excessive, the option exists to merely pay the price of continuing to emit. Almost all of the green groups, however, fiercely reject those approaches.
The choice between the green groups' preferred systems and the price-based GHG limits is not a mere technical matter. It can dramatically change the balance between the costs and benefits of future climate policy. The green groups' preferred approach of quantity-based ("hard") caps suffers from severe defects.
A control policy based on hard caps virtually ensures very high volatility of GHG emission allowance prices. Many previous cap-and-trade programs have also exhibited this volatility.[6] Even rather modest fluctuations in business cycles or weather will cause GHG allowance prices to fluctuate. And the price swings can be very large. As two prominent economists have observed:
For example, consider an effort to reduce domestic carbon dioxide emissions by 5% below future forecast levels over the next ten years--to about 1.8 billion tons of carbon. . . . Based on central estimates, the required reductions would amount to about 90 million tons of carbon emissions, and might cost the economy as a whole around $1.5 billion per year. However, reaching the target could instead require 180 million tons of reductions because of otherwise higher emissions related to a warm summer, a cold winter, or unexpected economic growth. Based on alternative model estimates, it could also cost twice as much to reduce each ton of carbon. The result could be costs that are eight times higher than the best guess.[7]
Because GHG allowances will be an important part of the cost of doing business and because their prices will fluctuate, many firms will have to incur substantial costs to hedge against these price swings. Note, though, that while the prices of emission rights may vary widely, the harm done by releasing an additional ton of GHG into the atmosphere does not.[8] The future harm from GHG output depends on cumulative global emissions over many decades. A given country's overshooting or undershooting its annual caps is merely noise in the system. It follows that all costs incurred by firms hedging against allowance price swings are pure deadweight loss to society.
In general, economists have favored carbon taxes as GHG control tools--or cap-and-trade plans that are designed to mimic carbon taxes. These approaches, many believe, are the most cost-effective means of reaching any given GHG reduction target.[9] The advantages of price-based GHG tools are the mirror image of the drawbacks of hard caps. Price-based tools are well suited to stimulating open debate about the public's willingness to pay for GHG reductions. These tools can also entirely avoid the gyrations in abatement costs that plague hard caps. And they distribute emission reductions through time based on the actual state of technology, not on ex ante expectations.
Sharp GHG Cuts and Uncertain Technology
Green groups assume a great deal of progress in GHG control technology. They wish not only to impose hard caps, but also to set those caps to require rapid GHG cuts. Policies of this kind could be very costly. For example, proposals by former vice president Al Gore and British government economist Nicholas Stern have been calculated to entail global net costs of $17 trillion and $22 trillion, respectively.[10] That is, these proposals are far more expensive than would be a policy of simply ignoring climate change.
Such proposals are based on the hope that new technology will emerge and that this technology will make the GHG reductions much cheaper. But the future course and rate of technology change is highly unpredictable, and Congress is not famous for the accuracy of its predictions on this score. If the new technologies fail to appear on schedule, abatement costs are likely to rise far above optimal levels, and they may stay that way for an extended period of time.
A worrisome aspect of this approach is that by adopting very stringent emission caps, green groups are departing sharply from the model of the SO2 program. In large measure, that program achieved relatively low abatement costs because its targets were selected to fall well within the range of capabilities of existing technology. A subsequent assessment of the SO2 program made clear that more was involved than just the concept of trading:
[T]he cost reductions observed in the SO2 trading experience will not necessarily be repeatable in other markets. One key feature of the SO2 market would need to be present again. The SO2 cap was set at a level that left a wide range of options for many individual sources, and more importantly, for all affected sources in the aggregate. An approximate 50% overall emissions reduction was required in a situation where there was a technologically-proven option that could achieve reductions of 95%. Combined with that was the presence of a wide continuum of lower percentage reductions possible via fuels with many different sulfur content levels. Thus, there was room for applying the best available control measures on only a small fraction of the regulated units, where they would be truly cost-effective and, more generally, for meaningful competition among a diverse set of options.[11]
The particulars of the SO2 case suggest caution about efforts to extrapolate its results to the quite different problem of GHG controls. In fact, even the SO2 program would have yielded much different results had it been based on emission reductions steep enough to require universal application of the most expensive available control technology. As later economic analysis pointed out, "A more stringent cap would have reduced this flexibility, and price competition among suppliers of control options. For example, the ability to take advantage of cheaper low-sulfur coals from the West would have been greatly diminished if aggregate required SO2 reductions had been substantially greater than 50%."[12]
A central factor in the SO2 program's success, therefore, was that its caps fell well within the reach of then-available technology. Setting a cap of this kind does seem to imply the acceptance of a secular-sacred trade-off. But in accepting cap-and-trade, the green groups are not accepting modest caps. Still less are they accepting the legitimacy of secular-sacred trade-offs. So far, at least in the case of GHG controls, green groups continue to resist such trade-offs to the limits of their political power.
In contrast to the green groups' stance on GHG controls, most economists have argued that the best policy would be to make modest, but gradually increasing, reductions in GHG releases.[13] In effect, economists tend to prefer the more modest goals that characterized the actual SO2 program to the steep reductions favored by the green groups. Economists also point out that it appears to be possible to learn to live with a fair amount of the predicted rise in GHG levels.[14] Climate policy, in their view, requires patience. Some environmental harm must be accepted. Otherwise, GHG control costs can easily be more expensive than the environmental damages that the controls prevent.
Hard Caps and Policy Stability
Environmentalists' intransigence about cost-benefit trade-offs in an emissions trading scheme is likely to carry a high price tag. It may do so even from the green groups' own point of view. The use of hard caps is likely to increase the chance of expensive changes in the course of policy.
Hard caps preclude certainty about future abatement costs. As a result, they largely foreclose reasoned discussion about the public's willingness to pay for GHG reductions. Green groups' rhetoric compounds the problem. For example, as the discussion in California illustrates, extravagant claims about emissions-reducing free lunches are common. An analysis by the California Air Resources Board (CARB) makes this claim about its new climate action plan: "The results consistently show that implementing the Scoping Plan will not only significantly reduce California's greenhouse gas emissions, but will also have a net positive effect on California's economic growth through 2020."[15]
Independent economists have greeted these claims with great skepticism. As one noted in reviewing the report, "I have come to the inescapable conclusion that the economic analysis [of CARB] is terribly deficient in critical ways and should not be used by the State government or the public for the purpose of assessing the likely costs of CARB's plans." He went on to observe that "the analysis is severely flawed, and hence not useful for the purpose for which it was intended."[16] Another reviewer wrote, "The net dollar cost of each of these regulations is likely to be much larger than what is reported. . . . There is a national consensus that carbon pricing is not a 'free lunch.'"[17]
The green advocacy groups, however, have enthusiastically embraced this report and the claims that GHG controls do, indeed, offer a free lunch. The Natural Resources Defense Council stated, "We concur with the overall finding that the Proposed Scoping Plan will provide economic benefits in 2020 for the overall state economy as well as to individual households and businesses."[18] Other groups have made similar claims with reference to the AB 32 Scoping Plan. Environmental Defense has said, "California's leadership on global warming will usher in a new wave of entrepreneurial innovation and be the economic engine that will drive greater prosperity in the state."[19]
At stake is much more than a dispute between the green groups and mainstream economists. If the promised free lunch turns out to carry a hefty price tag, the policy may change. Congress has a long record of policy reversals on environmental targets.[20] If that happens, many investments in GHG control may become stranded assets.
Fearing this risk, firms may defer investments until the level of government resolve becomes clearer. The resulting delay of investment decisions can itself impose serious costs.[21] Further, industry's motive for investing in R&D designed to develop less expensive future control technologies will be weaker than it would have been with a more certain future policy.[22] This result is the very opposite of the one for which the supporters of hard caps wish.
A Taboo Preserved
On closer inspection, the green groups' gradual acceptance of emission rights trading appears to be more an example of a taboo preserved than one of pragmatism vanquishing taboo. One can hardly help noticing that price-based controls make the secular-sacred trade-off that is inherent in climate policy visible for all to see. Key to the superiority of a price-based system is that it allows the market to determine the cumulative GHG reductions on a year-by-year basis. Thereby, it calibrates GHG cuts to the sacrifices that achieving them will require.
Tetlock's original SVPM theory predicts that making this secular-sacred trade-off transparent should render price-based controls anathema to green groups. It hardly seems coincidental that, while many environmental groups have embraced quantity-based cap-and-trade, every major environmental organization has rejected the bills that would have relied on price-based controls.[23] Yet Oppenheimer and Tetlock cite the groups' partial embrace of cap-and-trade as proof of ideological flexibility. At the same time, they neglect the green groups' near unanimous rejection of price-based GHG controls and do so even though this aspect of the groups' position goes to the heart of Tetlock's SVPM theory.
Tetlock's initial article spoke to the need to make trade-offs. It also discussed how people get around their own taboos. These trade-offs are a central reality of all policymaking. They clearly dominate climate policy, an area in which the stakes are high but good GHG control options are few and far between. Thus, tacitly, Tetlock's original article poses an important challenge to the green advocacy groups.
Conclusion
Oppenheimer and Tetlock, in telling the story of the green groups and cap-and-trade, never grasp the importance of the choice between hard caps and price-based tools. They do not distinguish between the SO2 program's form and its relatively gradual targets. They ignore the baleful potential of suppressing needed public debate on willingness to pay.
As a result, Oppenheimer and Tetlock miss a deeper reality about green NGOs: that they
continue to evade the needed trade-off between the goal of protecting the environment and that of preserving prosperity. This trade-off lies at the heart of making good policy on climate change. By ignoring it, the green groups are pursuing an approach that is deeply flawed.
Lee Lane is a resident fellow at AEI and codirector of the AEI Geoengineering Project.
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