The Sotomayor Rules. By Kimberley Strassel
Some were made to be broken.
WSJ, May 29, 2009
President Barack Obama has laid down his ground rules for the debate over Supreme Court nominee Sonia Sotomayor. The big question now is whether Republicans agree to play by rules that neither Mr. Obama nor his party have themselves followed.
Ground Rule No. 1, as decreed by the president, is that this is to be a discussion primarily about Judge Sotomayor's biography, not her qualifications. The media gurus complied, with inspiring stories of how she was born to Puerto Rican immigrants, how she was raised by a single mom in a Bronx housing project, how she went on to Princeton and then Yale. In the years that followed she presumably issued a judicial opinion here or there, but whatever.
The president, after all, had taken great pains to explain that this is more than an American success story. Rather, it is Judge Sotomayor's biography that uniquely qualifies her to sit on the nation's highest bench -- that gives her the "empathy" to rule wisely. Judge Sotomayor agrees: "I would hope that a wise Latina woman with the richness of her experiences would more often than not reach a better conclusion [as a judge] than a white male who hasn't lived that life," she said in 2001.
If so, perhaps we can expect her to join in opinions with the wise and richly experienced Clarence Thomas. That would be the same Justice Thomas who lost his father, and was raised by his mother in a rural Georgia town, in a shack without running water, until he was sent to his grandfather. The same Justice Thomas who had to work every day after school, though he was not allowed to study at the Savannah Public Library because he was black. The same Justice Thomas who became the first in his family to go to college and receive a law degree from Yale.
By the president's measure, the nation couldn't find a more empathetic referee than Justice Thomas. And yet here's what Mr. Obama had to say last year when Pastor Rick Warren asked him about the Supreme Court: "I would not have nominated Clarence Thomas. I don't think that he was a strong enough jurist or legal thinker at the time for that elevation."
In other words, nine months ago Mr. Obama thought that the primary qualification for the High Court was the soundness of a nominee's legal thinking, or at least that's what Democrats have always stressed when working against a conservative judge. Throughout the Bush years, it was standard Democratic senatorial practice to comb through every last opinion, memo, job application and college term paper, all with an aim of creating a nominee "too extreme" or "unqualified" to sit on the federal bench.
Mr. Obama knows this, as he took part in it, joining a Senate minority who voted against both Chief Justice John Roberts and Justice Sam Alito. Mr. Obama also understands a discussion of Judge Sotomayor's legal thinking means a discussion about "judicial activism" -- a political loser. In a day when voters routinely rise up to rebuke their activist courts on issues ranging from gay marriage to property rights, few red-state Democrats want to go there. Moreover, a number of Judge Sotomayor's specific legal opinions -- whether on racial preferences, or gun restrictions -- put her to the left of most Americans.
Which brings us to Ground Rule No. 2, which is that Republicans are not allowed to criticize Judge Sotomayor, for the reason that she is the first Hispanic nominee to the High Court. The Beltway media also dutifully latched on to this White House talking point, reporting threats from leading Democrats, including New York Sen. Chuck Schumer, who intoned that Republicans "oppose her at their peril."
This would be the same Mr. Schumer who had this to say about Miguel Estrada, President Bush's Hispanic nominee (who, by the way, came to this country as an immigrant from Honduras) to the D.C. Circuit Court of Appeals in 2002: Mr. Estrada "is like a Stealth missile -- with a nose cone -- coming out of the right wing's deepest silo." That would be the same Mr. Schumer who ambushed Mr. Estrada in a Senate hearing, smearing him with allegations made by unnamed former associates. That would be the same Mr. Schumer who sat on the Judiciary Committee, where leaked memos later showed that Democrats feared Mr. Estrada would use a position on the D.C. Circuit as a launching pad to become the nation's . . . first Hispanic Supreme Court judge. Two tortured years later, Mr. Estrada withdrew, after the Democrats waged seven filibusters against a confirmation vote.
Republicans will be tempted by this history to go ugly. They might instead lay down their own rules, the first being that they will not partake in the tactics of personal destruction that were waged by the left on nominees such as Mr. Thomas or Mr. Alito or Mr. Estrada. But the party could also make a rule to not be scared away from using Judge Sotomayor's nomination, or future Obama picks, as platforms for big, civil, thorough debates about the role of the courts and the risk of activist judges to American freedoms and beliefs.
Friday, May 29, 2009
USAID Partner with Iraqis to Launch Social Safety Net Program
USAID Partner with Iraqis to Launch Social Safety Net Program
May 28, 2009
BAGHDAD -The United States Agency for International Development (USAID) and Iraq's Ministry of Labor and Social Affairs (MoLSA) today launched the Social Safety Net program nationwide aimed at providing benefits to the most vulnerable citizens of Iraq and facilitating their integration into the country's economic development.
In 2005, the Government of Iraq passed legislation to establish a Social Safety Net to complement the state-subsidized food rationing system, the largest social security spending in the country. The new system is intended to help low-income families, displaced workers, and unemployed people adjust to the ongoing restructuring and reform efforts. The initiative is an essential step in ensuring food availability, supplementing buying power, encouraging students to stay in school, and preserving access to other social services.
The USAID-funded Economic Governance Program in partnership with MoLSA provided technical support in the design of the Social Safety Net program, including upgrading the information technology system, and leveraging grants from the World Bank Trust Fund to expand coverage to 21 sites. A team of USAID advisors and their Iraqi counterparts addressed key capacity building concerns by enhancing the skills of civil service personnel in technical, operational and management techniques essential to the implementation of the program. The World Bank and USAID have invested more than $13 million for the nearly four-year project.
The Social Safety Net system has robust processes to detect and prevent operational irregularities that allow for the delivery of benefits in a standardized manner to all needy recipients. The system uses internal controls that ensure accurate identification, registration, and verification of recipients, and appropriate tracking of beneficiary records and payments. Such mechanisms are aimed at running an effective, transparent and accountable program.
The success of the 2008 pilot in Baghdad paved the way for a Memorandum of Understanding between MoLSA and USAID to expand the program nationwide. Today, nearly 673,000 people, or 2.4 percent of the population of Iraq, are receiving benefits through the Social Safety Net program. The program is expected to cover an estimated one million beneficiaries.
Since 2003, USAID has invested more than $6 billion on programs designed to stabilize communities; foster economic and agricultural growth; and build the capacity of the national, local, and provincial governments to respond to the needs of the Iraqi people
May 28, 2009
BAGHDAD -The United States Agency for International Development (USAID) and Iraq's Ministry of Labor and Social Affairs (MoLSA) today launched the Social Safety Net program nationwide aimed at providing benefits to the most vulnerable citizens of Iraq and facilitating their integration into the country's economic development.
In 2005, the Government of Iraq passed legislation to establish a Social Safety Net to complement the state-subsidized food rationing system, the largest social security spending in the country. The new system is intended to help low-income families, displaced workers, and unemployed people adjust to the ongoing restructuring and reform efforts. The initiative is an essential step in ensuring food availability, supplementing buying power, encouraging students to stay in school, and preserving access to other social services.
The USAID-funded Economic Governance Program in partnership with MoLSA provided technical support in the design of the Social Safety Net program, including upgrading the information technology system, and leveraging grants from the World Bank Trust Fund to expand coverage to 21 sites. A team of USAID advisors and their Iraqi counterparts addressed key capacity building concerns by enhancing the skills of civil service personnel in technical, operational and management techniques essential to the implementation of the program. The World Bank and USAID have invested more than $13 million for the nearly four-year project.
The Social Safety Net system has robust processes to detect and prevent operational irregularities that allow for the delivery of benefits in a standardized manner to all needy recipients. The system uses internal controls that ensure accurate identification, registration, and verification of recipients, and appropriate tracking of beneficiary records and payments. Such mechanisms are aimed at running an effective, transparent and accountable program.
The success of the 2008 pilot in Baghdad paved the way for a Memorandum of Understanding between MoLSA and USAID to expand the program nationwide. Today, nearly 673,000 people, or 2.4 percent of the population of Iraq, are receiving benefits through the Social Safety Net program. The program is expected to cover an estimated one million beneficiaries.
Since 2003, USAID has invested more than $6 billion on programs designed to stabilize communities; foster economic and agricultural growth; and build the capacity of the national, local, and provincial governments to respond to the needs of the Iraqi people
Thursday, May 28, 2009
Libertarian on Sotomayor and Merit
Sotomayor Pick Not Based on Merit, by Ilya Shapiro
This article appeared on CNN.com on May 27, 2009
In picking Sonia Sotomayor, President Obama has confirmed that identity politics matter to him more than merit. While Judge Sotomayor exemplifies the American Dream, she would not have even been on the short list if she were not Hispanic.
She is not one of the leading lights of the federal judiciary, and far less qualified for a seat on the Supreme Court than Judges Diane Wood and Merrick Garland or Solicitor General Elena Kagan.
To be sure, Sotomayor has a compelling story: a daughter of working-class Puerto Ricans raised in Bronx public housing projects, diagnosed with diabetes at 8, losing her father at 9, accolades at Princeton and Yale Law, ending up on the federal bench.
Still, in over 10 years on the Second Circuit, she has not issued any important decisions or made a name for herself as a legal scholar or particularly respected jurist. In picking a case to highlight during his introduction of the nominee, President Obama had to go back to her days as a trial judge and a technical ruling that ended the 1994-95 baseball strike.
Moreover, Sotomayor has a mixed reputation among lawyers who have practiced before her, some questioning her abilities as a judicial craftsman, others her erratic temperament, according to a piece by Jeffrey Rosen in The New Republic, which itself has come in for criticism.
Such anecdotal criticism is to be taken with a grain of salt — while Justice Antonin Scalia's bench-side manner is more vinegar than honey, even his detractors recognize his brilliance — but it does need to be investigated. So, too, do certain statements she made in presentations at Berkeley and Duke, respectively, the former arguing that a Latina necessarily sees the law differently than a white man, the latter suggesting that, at least to some degree, judges make rather than interpret law.
Again, this does not mean that Sotomayor is unqualified to be a judge — or less qualified to be a Supreme Court justice than, say, Harriet Miers. It also does not detract from the history she would make as the first Hispanic Supreme Court nominee — if you don't count Benjamin Cardozo, a descendant of Portuguese Jews. But a Supreme Court nomination is not a lifetime achievement award, and should not be treated as an opportunity to practice affirmative action.
Ironically, it is race-based employment practices of another kind that will likely get this nomination in hottest water. Sotomayor was on a panel that summarily affirmed the dismissal of claims brought by firefighters, including one Hispanic, whose promotions were denied because they would be based on a (race-neutral) exam whose results didn't yield the "right" racial mix. Curiously, the Ricci v. DeStefano appellate panel issued a cursory "unpublished" opinion that failed to grapple with the complex legal issues presented in the case.
Sotomayor's colleague José Cabranes, a liberal Democrat, excoriated the panel, without expressing a view on the merits of the case. Cabranes' dissent from the Second Circuit's decision not to rehear the case caught the Supreme Court's attention and, based on the oral argument, the court will probably reverse Sotomayor's panel when it rules on the case next month. iReport.com: Sotomayor 'the new face of America'
We are thus likely to have the unusual scenario of a Supreme Court decision having a direct personal effect on a nominee's confirmation process, which will not only force Sotomayor onto the defensive but cost the president significant political capital. It will also show that Obama's calls for "empathy," echoed by Sotomayor's citing her personal experiences as a Latina, ring hollow.
If Frank Ricci, a dyslexic fireman who sacrificed significant time and money and was denied promotion solely for his skin color, is not an empathetic figure, I'm not sure who is. And that is the larger point: A jurisprudence of empathy is the antithesis of the rule of law.
As then-Judge John Roberts said at his confirmation hearing: "If the Constitution says that the little guy should win, then the little guy's going to win in the court before me. But if the Constitution says that the big guy should win, well then the big guy's going to win, because my obligation is to the Constitution."
In any event, Senate Republicans will now have to decide what posture to take: combative or deferential, political or analytical. With the president still at the height of his popularity and solid Democratic control of the Senate (even without Arlen Specter and Al Franken), the GOP is unlikely to sustain a filibuster or even, unless outrage over the Ricci case grows, vote Sotomayor down.
What they should do instead is force a full public debate about constitutional interpretation, probing Sotomayor's judicial philosophy and refusing to accept nonresponsive answers that mouth platitudes or avoid taking firm legal positions.
Now is the time to show the American people the stark differences between the two parties on one of the few issues on which the stated Republican view continues to command strong and steady support. If the party is serious about constitutionalism and the rule of law, it should use this opportunity for education, not grandstanding.
And if Democrats insist on playing identity politics, I suggest a two-word response: Miguel Estrada, the Honduran immigrant with his own rags-to-riches story whose nomination to the D.C. Circuit Democrats successfully filibustered, effectively preventing George W. Bush from naming the first Hispanic Supreme Court justice.
This article appeared on CNN.com on May 27, 2009
In picking Sonia Sotomayor, President Obama has confirmed that identity politics matter to him more than merit. While Judge Sotomayor exemplifies the American Dream, she would not have even been on the short list if she were not Hispanic.
She is not one of the leading lights of the federal judiciary, and far less qualified for a seat on the Supreme Court than Judges Diane Wood and Merrick Garland or Solicitor General Elena Kagan.
To be sure, Sotomayor has a compelling story: a daughter of working-class Puerto Ricans raised in Bronx public housing projects, diagnosed with diabetes at 8, losing her father at 9, accolades at Princeton and Yale Law, ending up on the federal bench.
Still, in over 10 years on the Second Circuit, she has not issued any important decisions or made a name for herself as a legal scholar or particularly respected jurist. In picking a case to highlight during his introduction of the nominee, President Obama had to go back to her days as a trial judge and a technical ruling that ended the 1994-95 baseball strike.
Moreover, Sotomayor has a mixed reputation among lawyers who have practiced before her, some questioning her abilities as a judicial craftsman, others her erratic temperament, according to a piece by Jeffrey Rosen in The New Republic, which itself has come in for criticism.
Such anecdotal criticism is to be taken with a grain of salt — while Justice Antonin Scalia's bench-side manner is more vinegar than honey, even his detractors recognize his brilliance — but it does need to be investigated. So, too, do certain statements she made in presentations at Berkeley and Duke, respectively, the former arguing that a Latina necessarily sees the law differently than a white man, the latter suggesting that, at least to some degree, judges make rather than interpret law.
Again, this does not mean that Sotomayor is unqualified to be a judge — or less qualified to be a Supreme Court justice than, say, Harriet Miers. It also does not detract from the history she would make as the first Hispanic Supreme Court nominee — if you don't count Benjamin Cardozo, a descendant of Portuguese Jews. But a Supreme Court nomination is not a lifetime achievement award, and should not be treated as an opportunity to practice affirmative action.
Ironically, it is race-based employment practices of another kind that will likely get this nomination in hottest water. Sotomayor was on a panel that summarily affirmed the dismissal of claims brought by firefighters, including one Hispanic, whose promotions were denied because they would be based on a (race-neutral) exam whose results didn't yield the "right" racial mix. Curiously, the Ricci v. DeStefano appellate panel issued a cursory "unpublished" opinion that failed to grapple with the complex legal issues presented in the case.
Sotomayor's colleague José Cabranes, a liberal Democrat, excoriated the panel, without expressing a view on the merits of the case. Cabranes' dissent from the Second Circuit's decision not to rehear the case caught the Supreme Court's attention and, based on the oral argument, the court will probably reverse Sotomayor's panel when it rules on the case next month. iReport.com: Sotomayor 'the new face of America'
We are thus likely to have the unusual scenario of a Supreme Court decision having a direct personal effect on a nominee's confirmation process, which will not only force Sotomayor onto the defensive but cost the president significant political capital. It will also show that Obama's calls for "empathy," echoed by Sotomayor's citing her personal experiences as a Latina, ring hollow.
If Frank Ricci, a dyslexic fireman who sacrificed significant time and money and was denied promotion solely for his skin color, is not an empathetic figure, I'm not sure who is. And that is the larger point: A jurisprudence of empathy is the antithesis of the rule of law.
As then-Judge John Roberts said at his confirmation hearing: "If the Constitution says that the little guy should win, then the little guy's going to win in the court before me. But if the Constitution says that the big guy should win, well then the big guy's going to win, because my obligation is to the Constitution."
In any event, Senate Republicans will now have to decide what posture to take: combative or deferential, political or analytical. With the president still at the height of his popularity and solid Democratic control of the Senate (even without Arlen Specter and Al Franken), the GOP is unlikely to sustain a filibuster or even, unless outrage over the Ricci case grows, vote Sotomayor down.
What they should do instead is force a full public debate about constitutional interpretation, probing Sotomayor's judicial philosophy and refusing to accept nonresponsive answers that mouth platitudes or avoid taking firm legal positions.
Now is the time to show the American people the stark differences between the two parties on one of the few issues on which the stated Republican view continues to command strong and steady support. If the party is serious about constitutionalism and the rule of law, it should use this opportunity for education, not grandstanding.
And if Democrats insist on playing identity politics, I suggest a two-word response: Miguel Estrada, the Honduran immigrant with his own rags-to-riches story whose nomination to the D.C. Circuit Democrats successfully filibustered, effectively preventing George W. Bush from naming the first Hispanic Supreme Court justice.
The Transportation-Housing Trade-Offs of Suburban, Urban and Rural Living
The Tipping Point: The Transportation-Housing Trade-Offs of Suburban, Urban and Rural Living. By Alan Pisarski
Heritage White Paper, May 22, 2009
In March 2009, the Secretaries of the Departments of Transportation and Housing and Urban Development issued a joint press release announcing a new interagency partnership and task force to create "affordable, sustainable communities." Among the several projects this partnership and its task forces will take on is the development of a new cost index that combines housing and transportation costs by "redefining affordability and making it transparent."
Efforts to "redefine" and "make transparent" housing and transportation costs have been the subject of a growing debate over the past decade as opposing sides of the cities versus suburbs debate and the cars versus trolleys debate have offered up conflicting data on the relative costs of these choices. How the new DOT/HUD partnership will address these issues and competing contentions is unknown, but many recent state and local trends on these issues suggest a narrowing of opportunity for the average household is the chief risk.
The recent jump in gasoline prices has heightened interest in these issues as Americans have cut back on their driving, while transit has captured at most about 3 percent of this decline. Some wonder if these Hummer-loving, McMansion-living families are finally getting what's coming to them. And will they all come crawling back to the city to live in apartments and bicycle to work?
Many issues have been raised as the call increases for policy intercession, which basically take offense at the public's choices:
This presentation works its way through the morass of conflicting claims and provides some factual outlines for a sensible policy structure. The presentation focuses in particular on two issues in this debate: 1) The transportation–housing trade-offs of suburban, urban, and rural living, and 2) the massive importance of access to skilled workers in our future economy.
CLICK HERE TO VIEW THE FULL REPORT (PDF)
Heritage White Paper, May 22, 2009
In March 2009, the Secretaries of the Departments of Transportation and Housing and Urban Development issued a joint press release announcing a new interagency partnership and task force to create "affordable, sustainable communities." Among the several projects this partnership and its task forces will take on is the development of a new cost index that combines housing and transportation costs by "redefining affordability and making it transparent."
Efforts to "redefine" and "make transparent" housing and transportation costs have been the subject of a growing debate over the past decade as opposing sides of the cities versus suburbs debate and the cars versus trolleys debate have offered up conflicting data on the relative costs of these choices. How the new DOT/HUD partnership will address these issues and competing contentions is unknown, but many recent state and local trends on these issues suggest a narrowing of opportunity for the average household is the chief risk.
The recent jump in gasoline prices has heightened interest in these issues as Americans have cut back on their driving, while transit has captured at most about 3 percent of this decline. Some wonder if these Hummer-loving, McMansion-living families are finally getting what's coming to them. And will they all come crawling back to the city to live in apartments and bicycle to work?
Many issues have been raised as the call increases for policy intercession, which basically take offense at the public's choices:
- The public spends too much on transportation.
- The low-income population is "transportation poor."
- The transportation trade-off with housing costs has created losses for households.
- The sprawling of jobs to the suburbs is a problem that needs to be solved.
This presentation works its way through the morass of conflicting claims and provides some factual outlines for a sensible policy structure. The presentation focuses in particular on two issues in this debate: 1) The transportation–housing trade-offs of suburban, urban, and rural living, and 2) the massive importance of access to skilled workers in our future economy.
CLICK HERE TO VIEW THE FULL REPORT (PDF)
WaPo: Why Chinese consumers need to be an integral part of the global recovery
In Search of Buyers. WaPo Editorial
Why Chinese consumers need to be an integral part of the global recovery
WaPo, Thursday, May 28, 2009
CHINA LENT it, the United States spent it, is a boiled-down description of the economic relationship between the two countries over the past decade. U.S. consumers gobbled up inexpensive Chinese goods (as well as those from other countries), fueling high levels of global growth. The Chinese amassed huge savings, which were in large part used to fund U.S. borrowing. That's not exactly a virtuous cycle, but it's one that became hard to break -- and for the most part, no one really wanted to.
However, it is highly unlikely that U.S. consumers will spend us out of this downturn. Research from the Federal Reserve Bank of San Francisco suggests that U.S. household leverage, which increased from 65 percent in the mid-1980s to 130 percent today, will come down significantly from such stratospheric levels, dampening U.S. consumption growth for quite some time. This deleveraging is in order -- such high debt rates are clearly unsustainable -- but it could also jeopardize what is likely to be a shaky recovery if there is no clear alternative purchaser of the world's goods. Though the United States and other governments are doing their parts through massive coordinated stimulus policies, that will not serve as a permanent solution. As last week's warning from Standard & Poor's about a possible downgrade of Great Britain's AAA bond rating made clear, countries with deficits will have to turn their attention from borrowing to closing their budget gaps once the recovery takes hold.
With its high saving rates and massive population, China has naturally attracted attention as a potential driver of consumption growth. Chinese families haven't been big spenders in the past (the country's spending has been more focused on government investment), due to cultural norms and low incomes. One of the largest factors is a lack of safety net and insurance programs, which forces families to set aside much of their incomes as precautionary savings. Measures to broaden the Chinese middle class and provide some basic economic security could free up immense amounts of cash that could be used to help get the global economy back on its feet. Indeed, the Chinese government has recently introduced new health-care and pension benefits, which should contribute a good deal to Chinese families' spending.
Pressures to speed up the process or to move it in a certain direction are unlikely to be greeted warmly by China. For years, the International Monetary Fund has been urging it to take measures to increase household incomes and the flexibility of its currency. The Chinese respond that they would like to take a bigger role in governing the IMF, not just take guidance from it. Treasury Secretary Timothy F. Geithner will have to approach the topic delicately during his trip to China next week.
Why Chinese consumers need to be an integral part of the global recovery
WaPo, Thursday, May 28, 2009
CHINA LENT it, the United States spent it, is a boiled-down description of the economic relationship between the two countries over the past decade. U.S. consumers gobbled up inexpensive Chinese goods (as well as those from other countries), fueling high levels of global growth. The Chinese amassed huge savings, which were in large part used to fund U.S. borrowing. That's not exactly a virtuous cycle, but it's one that became hard to break -- and for the most part, no one really wanted to.
However, it is highly unlikely that U.S. consumers will spend us out of this downturn. Research from the Federal Reserve Bank of San Francisco suggests that U.S. household leverage, which increased from 65 percent in the mid-1980s to 130 percent today, will come down significantly from such stratospheric levels, dampening U.S. consumption growth for quite some time. This deleveraging is in order -- such high debt rates are clearly unsustainable -- but it could also jeopardize what is likely to be a shaky recovery if there is no clear alternative purchaser of the world's goods. Though the United States and other governments are doing their parts through massive coordinated stimulus policies, that will not serve as a permanent solution. As last week's warning from Standard & Poor's about a possible downgrade of Great Britain's AAA bond rating made clear, countries with deficits will have to turn their attention from borrowing to closing their budget gaps once the recovery takes hold.
With its high saving rates and massive population, China has naturally attracted attention as a potential driver of consumption growth. Chinese families haven't been big spenders in the past (the country's spending has been more focused on government investment), due to cultural norms and low incomes. One of the largest factors is a lack of safety net and insurance programs, which forces families to set aside much of their incomes as precautionary savings. Measures to broaden the Chinese middle class and provide some basic economic security could free up immense amounts of cash that could be used to help get the global economy back on its feet. Indeed, the Chinese government has recently introduced new health-care and pension benefits, which should contribute a good deal to Chinese families' spending.
Pressures to speed up the process or to move it in a certain direction are unlikely to be greeted warmly by China. For years, the International Monetary Fund has been urging it to take measures to increase household incomes and the flexibility of its currency. The Chinese respond that they would like to take a bigger role in governing the IMF, not just take guidance from it. Treasury Secretary Timothy F. Geithner will have to approach the topic delicately during his trip to China next week.
The match that lit Germany's radicals was a Stasi spy - Karl-Heinz Kurras
Ghosts of the '60s in Germany. WSJ Editorial
The match that lit Germany's radicals was a Stasi spy.
WSJ, May 28, 2009
The past can never be predicted, and perhaps never more so than when it comes to the German left. Two years ago, we learned that Nobel Laureate Günter Grass -- the literary scourge of all things fascist, especially America -- had himself been a member of the Waffen SS. Now comes another zinger that casts the radical political and social upheavals of the late 1960s in new and revealing light.
The historical surprise concerns a turning point whose ripple effects were felt in Europe and beyond. On June 2, 1967, a West German policeman fatally shot an unarmed, 26-year-old literature student in the back of his head during a demonstration in West Berlin against the visiting Shah of Iran. Benno Ohnesorg became "the left wing's first martyr" (per the weekly Der Spiegel). His dying moments captured in a famous news photograph, Ohnesorg galvanized a generation of left-wing students and activists who rose up in the iconic year of 1968. What was a fringe soon turned to terrorism.
To them his killer, Karl-Heinz Kurras, was the "fascist cop" at the service of a capitalist, pro-American "latent fascist state." "The post-fascist system has become a pre-fascist one," the German Socialist Student Union declared in their indictment hours after the killing. The ensuing movement drew its legitimacy and fervor from the Ohnesorg killing. Further enraging righteous passions, Mr. Kurras was acquitted by a court and returned to the police force.
Now all that's being turned on its head. Last week, a pair of German historians unearthed the truth about Mr. Kurras. Since 1955, he had worked for the Stasi, East Germany's dreaded secret police. According to voluminous Stasi archives, his code name was Otto Bohl. The files don't say whether the Stasi ordered him to do what he did in 1967. But that only fuels speculation about a Stasi hand behind one of postwar Germany's transformative events.
Mr. Kurras, who is 81 and lives in Berlin, told the Bild am Sonntag newspaper that he belonged to the East German Communist Party. "Should I be ashamed of that or something?" He denied he was paid to spy for the Stasi, but asked, "What if I did work for them? What does it matter? It doesn't change anything." Mr. Kurras may be the monster of the leftist imagination -- albeit now it turns out he is one of their own.
To answer his last question, this revelation matters. It belies yet again the claims of the '68 hard left, passed on to our times as anti-globalization riots, that a free market and liberal democracy are somehow "fascistic." This brand of intolerance is at core prone to violence. The true, ruthless heirs to National Socialism and the Gestapo were the East German regime and the Stasi, the Soviets and the KGB. And in turn, some of the terrorist groups that emerged from the radicalization of the 1960s.
Present in Berlin that June day in 1967 were Ulrike Meinhof and Gudrun Ensslin, who went on to found the "Baader-Meinhof Gang," aka the Red Army Faction. From 1968 until 1991, the RAF carried out dozens of kidnappings, bombing and murders -- all to fight the "roots of capitalism" and a "resurgent Nazi state." As 1968 historian Paul Berman notes, the most famous terrorist organization born in this era was the Palestinian Liberation Organization. The analogue in the U.S. became the Weather Underground.
Some '68ers grew up and peeled away. Others took time to see its dark side. An early reveille came at the 1972 Munich Olympics, when PLO gunmen aided by a leftist German group, the Revolutionary Cells, took hostage and killed 11 Israeli athletes and coaches. The 1974 publication of Alexander Solzhenitsyn's "Gulag Archipelago" was another. So was Pol Pot, the Vietnamese boat people; the list goes on.
Historical amnesia makes us vulnerable to repeating mistakes. Particularly in an America, where many quickly forgot the lessons of the Cold War and of 9/11. More than most nations, Germans are condemned to a living history. That turns up the kinds of surprises that force a hard re-examination of the past and the present.
The match that lit Germany's radicals was a Stasi spy.
WSJ, May 28, 2009
The past can never be predicted, and perhaps never more so than when it comes to the German left. Two years ago, we learned that Nobel Laureate Günter Grass -- the literary scourge of all things fascist, especially America -- had himself been a member of the Waffen SS. Now comes another zinger that casts the radical political and social upheavals of the late 1960s in new and revealing light.
The historical surprise concerns a turning point whose ripple effects were felt in Europe and beyond. On June 2, 1967, a West German policeman fatally shot an unarmed, 26-year-old literature student in the back of his head during a demonstration in West Berlin against the visiting Shah of Iran. Benno Ohnesorg became "the left wing's first martyr" (per the weekly Der Spiegel). His dying moments captured in a famous news photograph, Ohnesorg galvanized a generation of left-wing students and activists who rose up in the iconic year of 1968. What was a fringe soon turned to terrorism.
To them his killer, Karl-Heinz Kurras, was the "fascist cop" at the service of a capitalist, pro-American "latent fascist state." "The post-fascist system has become a pre-fascist one," the German Socialist Student Union declared in their indictment hours after the killing. The ensuing movement drew its legitimacy and fervor from the Ohnesorg killing. Further enraging righteous passions, Mr. Kurras was acquitted by a court and returned to the police force.
Now all that's being turned on its head. Last week, a pair of German historians unearthed the truth about Mr. Kurras. Since 1955, he had worked for the Stasi, East Germany's dreaded secret police. According to voluminous Stasi archives, his code name was Otto Bohl. The files don't say whether the Stasi ordered him to do what he did in 1967. But that only fuels speculation about a Stasi hand behind one of postwar Germany's transformative events.
Mr. Kurras, who is 81 and lives in Berlin, told the Bild am Sonntag newspaper that he belonged to the East German Communist Party. "Should I be ashamed of that or something?" He denied he was paid to spy for the Stasi, but asked, "What if I did work for them? What does it matter? It doesn't change anything." Mr. Kurras may be the monster of the leftist imagination -- albeit now it turns out he is one of their own.
To answer his last question, this revelation matters. It belies yet again the claims of the '68 hard left, passed on to our times as anti-globalization riots, that a free market and liberal democracy are somehow "fascistic." This brand of intolerance is at core prone to violence. The true, ruthless heirs to National Socialism and the Gestapo were the East German regime and the Stasi, the Soviets and the KGB. And in turn, some of the terrorist groups that emerged from the radicalization of the 1960s.
Present in Berlin that June day in 1967 were Ulrike Meinhof and Gudrun Ensslin, who went on to found the "Baader-Meinhof Gang," aka the Red Army Faction. From 1968 until 1991, the RAF carried out dozens of kidnappings, bombing and murders -- all to fight the "roots of capitalism" and a "resurgent Nazi state." As 1968 historian Paul Berman notes, the most famous terrorist organization born in this era was the Palestinian Liberation Organization. The analogue in the U.S. became the Weather Underground.
Some '68ers grew up and peeled away. Others took time to see its dark side. An early reveille came at the 1972 Munich Olympics, when PLO gunmen aided by a leftist German group, the Revolutionary Cells, took hostage and killed 11 Israeli athletes and coaches. The 1974 publication of Alexander Solzhenitsyn's "Gulag Archipelago" was another. So was Pol Pot, the Vietnamese boat people; the list goes on.
Historical amnesia makes us vulnerable to repeating mistakes. Particularly in an America, where many quickly forgot the lessons of the Cold War and of 9/11. More than most nations, Germans are condemned to a living history. That turns up the kinds of surprises that force a hard re-examination of the past and the present.
The disciplanarians of U.S. policy makers return
The Bond Vigilantes. WSJ Editorial
The disciplanarians of U.S. policy makers return.
WSJ, May 28, 2009
They're back. We refer to the global investors once known as the bond vigilantes, who demanded higher Treasury bond yields from the late 1970s through the 1990s whenever inflation fears popped up, and as a result disciplined U.S. policy makers. The vigilantes vanished earlier this decade amid the credit mania, but they appear to be returning with a vengeance now that Congress and the Federal Reserve have flooded the world with dollars to beat the recession.
Treasury yields leapt again yesterday at the long end, with the 10-year note climbing above 3.7%, its highest close since November. Treasury yields had stayed low, and the dollar had remained strong, as long as investors were looking for the safest financial port amid the post-September panic. But as risk aversion subsides, and investors return to corporate bonds and other assets, investors are now calculating the risks of renewed dollar inflation.
They have cause to be worried, given Washington's astonishing bet on fiscal and monetary reflation. The Obama Administration's epic spending spree means the Treasury will have to float trillions of dollars in new debt in the next two or three years alone. Meanwhile, the Fed has gone beyond cutting rates to directly purchasing such financial assets as mortgage-backed securities, as well as directly monetizing federal debt by buying Treasurys for the first time in half a century. No wonder the Chinese and other dollar asset holders are nervous. They wonder -- as do we -- whether the unspoken Beltway strategy is to pay off this debt by inflating away its value.
The surge in the 10-year note is especially notable because its rate helps to determine mortgage lending rates. The Fed is desperate to keep mortgage rates low to reflate the housing market, and last week it promised to inject hundreds of billions of dollars more in this effort. This week the bond vigilantes are showing what they think of that offer, bidding up yields even higher. It's not going too far to say we are watching a showdown between Fed Chairman Ben Bernanke and bond investors, otherwise known as the financial markets. When in doubt, bet on the markets.
The disciplanarians of U.S. policy makers return.
WSJ, May 28, 2009
They're back. We refer to the global investors once known as the bond vigilantes, who demanded higher Treasury bond yields from the late 1970s through the 1990s whenever inflation fears popped up, and as a result disciplined U.S. policy makers. The vigilantes vanished earlier this decade amid the credit mania, but they appear to be returning with a vengeance now that Congress and the Federal Reserve have flooded the world with dollars to beat the recession.
Treasury yields leapt again yesterday at the long end, with the 10-year note climbing above 3.7%, its highest close since November. Treasury yields had stayed low, and the dollar had remained strong, as long as investors were looking for the safest financial port amid the post-September panic. But as risk aversion subsides, and investors return to corporate bonds and other assets, investors are now calculating the risks of renewed dollar inflation.
They have cause to be worried, given Washington's astonishing bet on fiscal and monetary reflation. The Obama Administration's epic spending spree means the Treasury will have to float trillions of dollars in new debt in the next two or three years alone. Meanwhile, the Fed has gone beyond cutting rates to directly purchasing such financial assets as mortgage-backed securities, as well as directly monetizing federal debt by buying Treasurys for the first time in half a century. No wonder the Chinese and other dollar asset holders are nervous. They wonder -- as do we -- whether the unspoken Beltway strategy is to pay off this debt by inflating away its value.
The surge in the 10-year note is especially notable because its rate helps to determine mortgage lending rates. The Fed is desperate to keep mortgage rates low to reflate the housing market, and last week it promised to inject hundreds of billions of dollars more in this effort. This week the bond vigilantes are showing what they think of that offer, bidding up yields even higher. It's not going too far to say we are watching a showdown between Fed Chairman Ben Bernanke and bond investors, otherwise known as the financial markets. When in doubt, bet on the markets.
Autism Exploitation
Autism Exploitation. By Marvin Schissel
ACSH, May 27, 2009
The rate of diagnosed autism in the country today has increased from 1 in 10,000 in 1995 to 1 in 150 today. However, this likely reflects increased information and awareness about autism, the expansion of diagnostic criteria, more thorough and accurate diagnoses, and the classification of many cases as autism that would previously have been recorded as mental retardation. Autism is a lifelong condition that has a devastating effect on individuals and on their families. It is understandable that those involved with the autism spectrum can be desperate for help, for any hope of help. And this desperation makes them ready prey for charlatans.
There are therapies, ABA (Applied Behavioral Analysis) and CBT (Cognitive,Behavior Therapy), that are considered helpful. But they are not widely available, can be expensive and time consuming, and may offer only limited progress. This sets the stage for sham artists who eagerly hurl themselves into the breach with information and treatment that is false, ineffective and harmful.
The false assertion that connects autism with vaccines and mercury has led to lower vaccination rates and a marked increase in those major diseases that vaccination protected against; should the trend continue we may be faced with an epidemic. But promoters of this deceit are cashing in with books, lectures, and, worst of all, scientifically unsupported treatments that are not only ineffective but can be dangerous. Such treatments include chelation, hyperbaric oxygen, lupron, and a wide variety of other questionable therapies, diets, and ineffective behavioral regimens.
The vaccine quackery started in 1998 with a published paper by Andrew Wakefield and twelve others that suggested a link with MMR vaccine and autism. This study was criticized as flawed and ten of its twelve authors have since disassociated themselves from its assertions.
Subsequently it was revealed that previous to the study Wakefield had received well over a half million dollars from lawyers hoping to sue vaccine companies. Recently it was claimed that Wakefield falsified his data. Worse yet, it has been discovered that Wakefield, prior to his publication, had applied for a patent for a new measles vaccine: if he could prove the old vaccine was dangerous a new vaccine would be very profitable. But the bottom line is that with all the studies that have been done worldwide involving over half a million children, no association between autism and vaccines has ever been demonstrated, and this counterfeit controversy has been scientifically laid to rest. Unfortunately, this phony issue still rages among the scientifically ignorant public.
In the news recently have been the activities of Dr. Mark Geier and his son David, longtime campaigners in the arena of dubious autism activity. Mark Geier has appeared as an "expert" witness in over a hundred cases, although he has been criticized by courts for being intellectually dishonest and not having appropriate training, expertise and experience. Reputable scientists have repeatedly dismissed the Geiers' autism research as seriously flawed. A front-page article in the NY Times actually made fun of the pretentions of the Geiers and their naive lab facilities. But they are not deterred by criticism, and their latest venture is opening clinics around the country offering autism treatment with the dangerous drug Lupron. Lupron alters levels of testosterone and is sometimes used to chemically castrate sex offenders; no scientific support exists for it to treat autism. To use it for autism has been called irresponsible.
Wakefield and the Geiers are by no means the only offenders in the autism world. They are just two examples of the probably thousands of impostors exploiting the desperation of the autism community. The only solution will be a better understanding on the part of the public of the principles of science, and a much clear-cut and louder noise made by the legitimate scientific community.
Dr. Marvin J. Schissel is a dentist and an advisor to the American Council on Science and Health, the National Council Against Health Fraud, and the Committee for Scientific Investigation of Claims of the Paranormal and has a son with autism.
ACSH, May 27, 2009
The rate of diagnosed autism in the country today has increased from 1 in 10,000 in 1995 to 1 in 150 today. However, this likely reflects increased information and awareness about autism, the expansion of diagnostic criteria, more thorough and accurate diagnoses, and the classification of many cases as autism that would previously have been recorded as mental retardation. Autism is a lifelong condition that has a devastating effect on individuals and on their families. It is understandable that those involved with the autism spectrum can be desperate for help, for any hope of help. And this desperation makes them ready prey for charlatans.
There are therapies, ABA (Applied Behavioral Analysis) and CBT (Cognitive,Behavior Therapy), that are considered helpful. But they are not widely available, can be expensive and time consuming, and may offer only limited progress. This sets the stage for sham artists who eagerly hurl themselves into the breach with information and treatment that is false, ineffective and harmful.
The false assertion that connects autism with vaccines and mercury has led to lower vaccination rates and a marked increase in those major diseases that vaccination protected against; should the trend continue we may be faced with an epidemic. But promoters of this deceit are cashing in with books, lectures, and, worst of all, scientifically unsupported treatments that are not only ineffective but can be dangerous. Such treatments include chelation, hyperbaric oxygen, lupron, and a wide variety of other questionable therapies, diets, and ineffective behavioral regimens.
The vaccine quackery started in 1998 with a published paper by Andrew Wakefield and twelve others that suggested a link with MMR vaccine and autism. This study was criticized as flawed and ten of its twelve authors have since disassociated themselves from its assertions.
Subsequently it was revealed that previous to the study Wakefield had received well over a half million dollars from lawyers hoping to sue vaccine companies. Recently it was claimed that Wakefield falsified his data. Worse yet, it has been discovered that Wakefield, prior to his publication, had applied for a patent for a new measles vaccine: if he could prove the old vaccine was dangerous a new vaccine would be very profitable. But the bottom line is that with all the studies that have been done worldwide involving over half a million children, no association between autism and vaccines has ever been demonstrated, and this counterfeit controversy has been scientifically laid to rest. Unfortunately, this phony issue still rages among the scientifically ignorant public.
In the news recently have been the activities of Dr. Mark Geier and his son David, longtime campaigners in the arena of dubious autism activity. Mark Geier has appeared as an "expert" witness in over a hundred cases, although he has been criticized by courts for being intellectually dishonest and not having appropriate training, expertise and experience. Reputable scientists have repeatedly dismissed the Geiers' autism research as seriously flawed. A front-page article in the NY Times actually made fun of the pretentions of the Geiers and their naive lab facilities. But they are not deterred by criticism, and their latest venture is opening clinics around the country offering autism treatment with the dangerous drug Lupron. Lupron alters levels of testosterone and is sometimes used to chemically castrate sex offenders; no scientific support exists for it to treat autism. To use it for autism has been called irresponsible.
Wakefield and the Geiers are by no means the only offenders in the autism world. They are just two examples of the probably thousands of impostors exploiting the desperation of the autism community. The only solution will be a better understanding on the part of the public of the principles of science, and a much clear-cut and louder noise made by the legitimate scientific community.
Dr. Marvin J. Schissel is a dentist and an advisor to the American Council on Science and Health, the National Council Against Health Fraud, and the Committee for Scientific Investigation of Claims of the Paranormal and has a son with autism.
Pres. Clinton Concedes Spain’s Green Jobs Program “Has Cost Many Jobs”
In España, Veritas: Pres. Clinton Concedes Spain’s Green Jobs Program “Has Cost Many Jobs”
Former president channels Prof. Gabriel Calzada in delivering veiled rebuke of Obama’s Spanish-inspired green jobs plan
The Institute for Energy Research , May 27, 2009
Washington, DC – Spain’s decade-long program to subsidize the creation and continued existence of so-called green jobs through a massive infusion of taxpayer resources “has cost many jobs,” former President Bill Clinton admitted to a Spanish audience at the European University of Madrid this week, according to the Spanish daily newspaper El Mundo (a translated version of the piece can be found below).
The statement mirrors closely the findings of a recent study authored by Professor Gabriel Calzada of Spain, a report that has attracted attention in the United States as the current president continues to cite Spain as a model to be followed in promoting a similar green jobs plan here at home.
In response to former President Clinton’s comments, Institute for Energy Research (IER) president Thomas J. Pyle issued the following statement:
“Though efforts continue to be made in the United States to discredit the Spanish green jobs study, and even personally attack its author, President Clinton’s affirmation of its core findings serves as just the latest reminder that the facts are what they are – and they aren’t pretty. More than 10 years and nearly $40 billion in public investment later, Spain still only acquires less than one percent of its power from solar, and the vast majority of the so-called green jobs created by the government to support that industry are no longer in existence today. If this is the model for near-term economic growth and long-term energy security that President Obama envisions for our country, we may be in for a longer, more severe recession than we know.”
Please find below the translated version of the El Mundo article:
–Clinton: Green Energy “Has Cost Many Jobs”
J. G. Gallego/C. CaballeroEl Mundo, p. 46May 23, 2009
Madrid — Former US President turned ecologist Bill Clinton is aware of the impact on employment by the development on renewable energy. Even though he is, as a former dweller of the White House, one of the most visible supporters in that industry, the US Democrat recognized yesterday that clean energies “have cost many jobs” in Spain.
Though without citing it directly, Clinton was acknowledging yesterday during his conference in Madrid that the study about the impact of public support on renewable energies, released by Universidad Rey Juan Carlos, has very valid conclusions.
That report, which has received enormous coverage in US media and been used against Barack Obama’s energy policy, argues that every job in renewable energies created in Spain in the year 2000 has cost 571138 Euros and has been the cause of the loss of 2.2 jobs elsewhere in the economy.
Bill Clinton recognized yesterday that “this commitment to clean energy has cost many jobs” while at the same time calling for Spain to intensify investment in this industry to be able to turn high costs into new jobs.–
NOTE: Former President Clinton’s comments in Madrid making the link between “green” government intervention and the hemorrhaging of jobs and opportunity follows a statement he made last year in which he suggested that “we just have to slow down our economy … because we’ve got to save the planet for our grandchildren.”
More from IER on the fallacy and unintended consequences of “green jobs”:
Spanish Report: Study of the Effects on Employment of Public Aid to Renewable Energy Sources
Study: Green Jobs: Fact or Fiction?
Study: Seven Myths about Green Jobs
Blog: Green Jobs That Nobody Wants
Blog: It Takes a Lot of Government Green to Create a Green Job
Former president channels Prof. Gabriel Calzada in delivering veiled rebuke of Obama’s Spanish-inspired green jobs plan
The Institute for Energy Research , May 27, 2009
Washington, DC – Spain’s decade-long program to subsidize the creation and continued existence of so-called green jobs through a massive infusion of taxpayer resources “has cost many jobs,” former President Bill Clinton admitted to a Spanish audience at the European University of Madrid this week, according to the Spanish daily newspaper El Mundo (a translated version of the piece can be found below).
The statement mirrors closely the findings of a recent study authored by Professor Gabriel Calzada of Spain, a report that has attracted attention in the United States as the current president continues to cite Spain as a model to be followed in promoting a similar green jobs plan here at home.
In response to former President Clinton’s comments, Institute for Energy Research (IER) president Thomas J. Pyle issued the following statement:
“Though efforts continue to be made in the United States to discredit the Spanish green jobs study, and even personally attack its author, President Clinton’s affirmation of its core findings serves as just the latest reminder that the facts are what they are – and they aren’t pretty. More than 10 years and nearly $40 billion in public investment later, Spain still only acquires less than one percent of its power from solar, and the vast majority of the so-called green jobs created by the government to support that industry are no longer in existence today. If this is the model for near-term economic growth and long-term energy security that President Obama envisions for our country, we may be in for a longer, more severe recession than we know.”
Please find below the translated version of the El Mundo article:
–Clinton: Green Energy “Has Cost Many Jobs”
J. G. Gallego/C. CaballeroEl Mundo, p. 46May 23, 2009
Madrid — Former US President turned ecologist Bill Clinton is aware of the impact on employment by the development on renewable energy. Even though he is, as a former dweller of the White House, one of the most visible supporters in that industry, the US Democrat recognized yesterday that clean energies “have cost many jobs” in Spain.
Though without citing it directly, Clinton was acknowledging yesterday during his conference in Madrid that the study about the impact of public support on renewable energies, released by Universidad Rey Juan Carlos, has very valid conclusions.
That report, which has received enormous coverage in US media and been used against Barack Obama’s energy policy, argues that every job in renewable energies created in Spain in the year 2000 has cost 571138 Euros and has been the cause of the loss of 2.2 jobs elsewhere in the economy.
Bill Clinton recognized yesterday that “this commitment to clean energy has cost many jobs” while at the same time calling for Spain to intensify investment in this industry to be able to turn high costs into new jobs.–
NOTE: Former President Clinton’s comments in Madrid making the link between “green” government intervention and the hemorrhaging of jobs and opportunity follows a statement he made last year in which he suggested that “we just have to slow down our economy … because we’ve got to save the planet for our grandchildren.”
More from IER on the fallacy and unintended consequences of “green jobs”:
Spanish Report: Study of the Effects on Employment of Public Aid to Renewable Energy Sources
Study: Green Jobs: Fact or Fiction?
Study: Seven Myths about Green Jobs
Blog: Green Jobs That Nobody Wants
Blog: It Takes a Lot of Government Green to Create a Green Job
Wednesday, May 27, 2009
Obama And Counter-Insurgency In Chinese Colours
Obama And Counter-Insurgency In Chinese Colours. By B. Raman, C3S Paper No.277
Chennai Centre for China Studies, May 27, 2009
Nothing illustrates more starkingly the helplessness and confusion that prevails in the corridors of the Obama Administration over its Af-Pak policy than a report carried by the “Los Angeles Times” on May 25,2009, regarding a recent visit which Richard C.Holbrooke, the Administration’s special representative for Afghanistan and Pakistan, is reported to have made to China and Saudi Arabia in pursuance of his mandate.
2. To quote a news agency message based on the report carried by the “LA Times” : “The Obama Administration has appealed to China to provide training and even military equipment to help Pakistan counter a growing militant threat, US officials said. …..Richard C Holbrooke, the administration’s special representative for Pakistan and Afghanistan, has visited China and Saudi Arabia, another key ally, in recent weeks as part of the effort, says Paul Richter of LAT. The American appeal to China underscores the country’s importance in security issues. The United States considers China to be the most influential country for dealing with militaristic North Korea. China also plays a crucial role in the international effort to pressure Iran over its nuclear ambitions……A senior US official, while acknowledging China’s hesitation to become more deeply involved, said, “You can see that they’re thinking about it.” He spoke on condition of anonymity because of the diplomatic sensitivity of the subject. US officials believe China is skilled at counterinsurgency, a holdover of the knowledge gained during the country’s lengthy civil war that ended with a Communist victory in 1949. And with China’s strong military ties with Pakistan, US officials hope Beijing could help craft a more sophisticated strategy than Pakistan’s current heavy-handed approach.”
3. I did not know whether to laugh or cry when I read that the Obama Administration believed that “China is skilled in counter-insurgency”, that it acquired its skills during its “war of liberation” against the KMT troops and that it can teach Pakistan “a more sophisticated strategy than Pakistan’s current heavy-handed approach.”
4.What do the Chinese regard as terrorism or insurgency? Which are the terrorist/insurgent organisations in their perception? Anyone, who has been following Chinese methods of internal security management would know that in the Chinese assessment there are two “terrorist/insurgent” organisations posing a threat to China’s internal security—– the Tibetan Youth Congress (TYC), which they project as no different from Al Qaeda in its modus operandi and the Islamic Movement of East Turkestan (IMET) of the Uighurs. Since the pro-Dalai Lama uprising in the Tibetan-inhabited areas of China in March, 2008, the Chinese have been repeatedly and consistently condemning the TYC as a terrorist organisation. They have arrested a large number of Tibetan monks and youth and mass trials have been going on. If Obama and his advisers want to have details of what the Chinese have been doing in Tibet since March,2008, under the pretext of counter-terrorism and counter-insurgency, all they have to do is to read the transcripts of the broadcasts of Radio Free Asia funded by the US State Department and to read the various statements issued by His Holiness the Dalai Lama and his followers. Does the Obama Administration consider this as skilful and sophisticated counter-insurgency techniques?
5. What the Chinese have been doing against the Uighurs in the Xinjiang Province? Indiscriminate arrests, trials and executions. To get details, Obama and his advisers should read the periodic reports of the Human Rights Watch, which is a reputed non-Governmental organisation of the US, and the annual reports of the US State Department on human rights in China. The Chinese counter-insurgency strategy against the Uighurs is based on the principle “catch and kill”. That was why the George Bush Administration refused to hand over to China the Uighur jihadis arrested in Afghanistan. The entire community of the human rights organisations of the West was against their being handed over to China since they apprehended that the Chinese would execute them. That was why Albania was persuaded to give sanctuary to these Uighurs.
6.There are two components to the Chinese counter-insurgency and counter-terrorism strategy in Xinjiang—- “catch and kill” and impose restrictions on the practice of Islam. Under this policy of restrictions, construction of new mosques is not allowed, many old mosques have been forced to close down under the pretext that they were constructed illegally and the people are forced to observe their holy fast inside their houses and not to congregate in public places. This is China’s “skilful and sophisticated” counter-insurgency.
7.IF Pakistan follows even some of these methods, the day will not be far off when Pakistan will become a State ruled by a combine of Al Qaeda and the Taliban. As it is, there is considerable anti-US and anti-Army anger in Pakistan. Instead of finding ways of containing and reducing this anger, the Obama Administration is coming out with shocking ideas such as “Counter-insurgency in Chinese colours”, which could make an already difficult situation even more difficult to handle.
(The writer, Mr B.Raman, is Additional Secretary (retd), Cabinet Secretariat, Govt. of India, New Delhi, and, presently, Director, Institute For Topical Studies, Chennai. He is alaso associated with the Chennai Centre For China Studies.)
Chennai Centre for China Studies, May 27, 2009
Nothing illustrates more starkingly the helplessness and confusion that prevails in the corridors of the Obama Administration over its Af-Pak policy than a report carried by the “Los Angeles Times” on May 25,2009, regarding a recent visit which Richard C.Holbrooke, the Administration’s special representative for Afghanistan and Pakistan, is reported to have made to China and Saudi Arabia in pursuance of his mandate.
2. To quote a news agency message based on the report carried by the “LA Times” : “The Obama Administration has appealed to China to provide training and even military equipment to help Pakistan counter a growing militant threat, US officials said. …..Richard C Holbrooke, the administration’s special representative for Pakistan and Afghanistan, has visited China and Saudi Arabia, another key ally, in recent weeks as part of the effort, says Paul Richter of LAT. The American appeal to China underscores the country’s importance in security issues. The United States considers China to be the most influential country for dealing with militaristic North Korea. China also plays a crucial role in the international effort to pressure Iran over its nuclear ambitions……A senior US official, while acknowledging China’s hesitation to become more deeply involved, said, “You can see that they’re thinking about it.” He spoke on condition of anonymity because of the diplomatic sensitivity of the subject. US officials believe China is skilled at counterinsurgency, a holdover of the knowledge gained during the country’s lengthy civil war that ended with a Communist victory in 1949. And with China’s strong military ties with Pakistan, US officials hope Beijing could help craft a more sophisticated strategy than Pakistan’s current heavy-handed approach.”
3. I did not know whether to laugh or cry when I read that the Obama Administration believed that “China is skilled in counter-insurgency”, that it acquired its skills during its “war of liberation” against the KMT troops and that it can teach Pakistan “a more sophisticated strategy than Pakistan’s current heavy-handed approach.”
4.What do the Chinese regard as terrorism or insurgency? Which are the terrorist/insurgent organisations in their perception? Anyone, who has been following Chinese methods of internal security management would know that in the Chinese assessment there are two “terrorist/insurgent” organisations posing a threat to China’s internal security—– the Tibetan Youth Congress (TYC), which they project as no different from Al Qaeda in its modus operandi and the Islamic Movement of East Turkestan (IMET) of the Uighurs. Since the pro-Dalai Lama uprising in the Tibetan-inhabited areas of China in March, 2008, the Chinese have been repeatedly and consistently condemning the TYC as a terrorist organisation. They have arrested a large number of Tibetan monks and youth and mass trials have been going on. If Obama and his advisers want to have details of what the Chinese have been doing in Tibet since March,2008, under the pretext of counter-terrorism and counter-insurgency, all they have to do is to read the transcripts of the broadcasts of Radio Free Asia funded by the US State Department and to read the various statements issued by His Holiness the Dalai Lama and his followers. Does the Obama Administration consider this as skilful and sophisticated counter-insurgency techniques?
5. What the Chinese have been doing against the Uighurs in the Xinjiang Province? Indiscriminate arrests, trials and executions. To get details, Obama and his advisers should read the periodic reports of the Human Rights Watch, which is a reputed non-Governmental organisation of the US, and the annual reports of the US State Department on human rights in China. The Chinese counter-insurgency strategy against the Uighurs is based on the principle “catch and kill”. That was why the George Bush Administration refused to hand over to China the Uighur jihadis arrested in Afghanistan. The entire community of the human rights organisations of the West was against their being handed over to China since they apprehended that the Chinese would execute them. That was why Albania was persuaded to give sanctuary to these Uighurs.
6.There are two components to the Chinese counter-insurgency and counter-terrorism strategy in Xinjiang—- “catch and kill” and impose restrictions on the practice of Islam. Under this policy of restrictions, construction of new mosques is not allowed, many old mosques have been forced to close down under the pretext that they were constructed illegally and the people are forced to observe their holy fast inside their houses and not to congregate in public places. This is China’s “skilful and sophisticated” counter-insurgency.
7.IF Pakistan follows even some of these methods, the day will not be far off when Pakistan will become a State ruled by a combine of Al Qaeda and the Taliban. As it is, there is considerable anti-US and anti-Army anger in Pakistan. Instead of finding ways of containing and reducing this anger, the Obama Administration is coming out with shocking ideas such as “Counter-insurgency in Chinese colours”, which could make an already difficult situation even more difficult to handle.
(The writer, Mr B.Raman, is Additional Secretary (retd), Cabinet Secretariat, Govt. of India, New Delhi, and, presently, Director, Institute For Topical Studies, Chennai. He is alaso associated with the Chennai Centre For China Studies.)
Nostalgianomics: income inequality, accuracy and passion
Nostalgianomics, by Brink Lindsey
Cato Institute: Commentary
May 26, 2009
"The America I grew up in was a relatively equal middle-class society. Over the past generation, however, the country has returned to Gilded Age levels of inequality." So sighs Paul Krugman, the Nobel Prize-winning Princeton economist and New York Times columnist, in his recent book The Conscience of a Liberal.
The sentiment is nothing new. Political progressives such as Krugman have been decrying increases in income inequality for many years now. But Krugman has added a novel twist, one that has important implications for public policy and economic discourse in the age of Obama. In seeking explanations for the widening spread of incomes during the last four decades, researchers have focused overwhelmingly on broad structural changes in the economy, such as technological progress and demographic shifts. Krugman argues that these explanations are insufficient. "Since the 1970s," he writes, "norms and institutions in the United States have changed in ways that either encouraged or permitted sharply higher inequality. Where, however, did the change in norms and institutions come from? The answer appears to be politics."
To understand Krugman's argument, we can't start in the 1970s. We have to back up to the 1930s and '40s—when, he contends, the "norms and institutions" that shaped a more egalitarian society were created. "The middle-class America of my youth," Krugman writes, "is best thought of not as the normal state of our society, but as an interregnum between Gilded Ages. America before 1930 was a society in which a small number of very rich people controlled a large share of the nation's wealth." But then came the twin convulsions of the Great Depression and World War II, and the country that arose out of those trials was a very different place. "Middle-class America didn't emerge by accident. It was created by what has been called the Great Compression of incomes that took place during World War II, and sustained for a generation by social norms that favored equality, strong labor unions and progressive taxation."
The Great Compression is a term coined by the economists Claudia Goldin of Harvard and Robert Margo of Boston University to describe the dramatic narrowing of the nation's wage structure during the 1940s. The real wages of manufacturing workers jumped 67 percent between 1929 and 1947, while the top 1 percent of earners saw a 17 percent drop in real income. These egalitarian trends can be attributed to the exceptional circumstances of the period: precipitous declines at the top end of the income spectrum due to economic cataclysm; wartime wage controls that tended to compress wage rates; rapid growth in the demand for low-skilled labor, combined with the labor shortages of the war years; and rapid growth in the relative supply of skilled workers due to a near doubling of high school graduation rates.
Yet the return to peacetime and prosperity did not result in a shift back toward the status quo ante. The more egalitarian income structure persisted for decades. For an explanation, Krugman leans heavily on a 2007 paper by the Massachusetts Institute of Technology economists Frank Levy and Peter Temin, who argue that postwar American history has been a tale of two widely divergent systems of political economy. First came the "Treaty of Detroit," characterized by heavy unionization of industry, steeply progressive taxation, and a high minimum wage. Under that system, median wages kept pace with the economy's overall productivity growth, and incomes at the lower end of the scale grew faster than those at the top. Beginning around 1980, though, the Treaty of Detroit gave way to the free market "Washington Consensus." Tax rates on high earners fell sharply, the real value of the minimum wage declined, and private-sector unionism collapsed. As a result, most workers' incomes failed to share in overall productivity gains while the highest earners had a field day.
This revisionist account of the fall and rise of income inequality is being echoed daily in today's public policy debates. Under the conventional view, rising inequality is a side effect of economic progress—namely, continuing technological breakthroughs, especially in communications and information technology. Consequently, when economists have supported measures to remedy inequality, they have typically shied away from structural changes in market institutions. Rather, they have endorsed more income redistribution to reduce post-tax income differences, along with remedial education, job retraining, and other programs designed to raise the skill levels of lower-paid workers.
By contrast, Krugman sees the rise of inequality as a consequence of economic regress—in particular, the abandonment of well-designed economic institutions and healthy social norms that promoted widely shared prosperity. Such an assessment leads to the conclusion that we ought to revive the institutions and norms of Paul Krugman's boyhood, in broad spirit if not in every detail.
There is good evidence that changes in economic policies and social norms have indeed contributed to a widening of the income distribution since the 1970s. But Krugman and other practitioners of nostalgianomics are presenting a highly selective account of what the relevant policies and norms were and how they changed.
The Treaty of Detroit was built on extensive cartelization of markets, limiting competition to favor producers over consumers. The restrictions on competition were buttressed by racial prejudice, sexual discrimination, and postwar conformism, which combined to limit the choices available to workers and potential workers alike. Those illiberal social norms were finally swept aside in the cultural tumults of the 1960s and '70s. And then, in the 1970s and '80s, restraints on competition were substantially reduced as well, to the applause of economists across the ideological spectrum. At least until now.
Stifled Competition
The economic system that emerged from the New Deal and World War II was markedly different from the one that exists today. The contrast between past and present is sharpest when we focus on one critical dimension: the degree to which public policy either encourages or thwarts competition.
The transportation, energy, and communications sectors were subject to pervasive price and entry regulation in the postwar era. Railroad rates and service had been under federal control since the Interstate Commerce Act of 1887, but the Motor Carrier Act of 1935 extended the Interstate Commerce Commission's regulatory authority to cover trucking and bus lines as well. In 1938 airline routes and fares fell under the control of the Civil Aeronautics Authority, later known as the Civil Aeronautics Board. After the discovery of the East Texas oil field in 1930, the Texas Railroad Commission acquired the effective authority to regulate the nation's oil production. Starting in 1938, the Federal Power Commission regulated rates for the interstate transmission of natural gas. The Federal Communications Commission, created in 1934, allocated licenses to broadcasters and regulated phone rates.
Beginning with the Agricultural Adjustment Act of 1933, prices and production levels on a wide variety of farm products were regulated by a byzantine complex of controls and subsidies. High import tariffs shielded manufacturers from international competition. And in the retail sector, aggressive discounting was countered by state-level "fair trade laws," which allowed manufacturers to impose minimum resale prices on nonconsenting distributors.
Comprehensive regulation of the financial sector restricted competition in capital markets too. The McFadden Act of 1927 added a federal ban on interstate branch banking to widespread state-level restrictions on intrastate branching. The Glass-Steagall Act of 1933 erected a wall between commercial and investment banking, effectively brokering a market-sharing agreement protecting commercial and investment banks from each other. Regulation Q, instituted in 1933, prohibited interest payments on demand deposits and set interest rate ceilings for time deposits. Provisions of the Securities Act of 1933 limited competition in underwriting by outlawing pre-offering solicitations and undisclosed discounts. These and other restrictions artificially stunted the depth and development of capital markets, muting the intensity of competition throughout the larger "real" economy. New entrants are much more dependent on a well-developed financial system than are established firms, since incumbents can self-finance through retained earnings or use existing assets as collateral. A hobbled financial sector acts as a barrier to entry and thereby reduces established firms' vulnerability to competition from entrepreneurial upstarts.
The highly progressive tax structure of the early postwar decades further dampened competition. The top marginal income tax rate shot up from 25 percent to 63 percent under Herbert Hoover in 1932, climbed as high as 94 percent during World War II, and stayed at 91 percent during most of the 1950s and early '60s. Research by the economists William Gentry of Williams College and Glenn Hubbard of Columbia University has found that such rates act as a "success tax," discouraging employees from striking out as entrepreneurs.
Finally, competition in labor markets was subject to important restraints during the early postwar decades. The triumph of collective bargaining meant the active suppression of wage competition in a variety of industries. In the interest of boosting wages, unions sometimes worked to restrict competition in their industries' product markets as well. Garment unions connived with trade associations to set prices and allocate production among clothing makers. Coal miner unions attempted to regulate production by dictating how many days a week mines could be open.
MIT economists Levy and Temin don't mention it, but highly restrictive immigration policies were another significant brake on labor market competition. With the establishment of countryspecific immigration quotas under the Immigration Act of 1924, foreign-born residents of the United States plummeted from 13 percent of the total population in 1920 to 5 percent by 1970. As a result, competition at the less-skilled end of the U.S. labor market was substantially reduced.
Solidarity and Chauvinism
The anti-competitive effects of the Treaty of Detroit were reinforced by the prevailing social norms of the early postwar decades. Here Krugman and company focus on executive pay. Krugman quotes wistfully from John Kenneth Galbraith's characterization of the corporate elite in his 1967 book The New Industrial State: "Management does not go out ruthlessly to reward itself—a sound management is expected to exercise restraint." According to Krugman, "For a generation after World War II, fear of outrage kept executive salaries in check. Now the outrage is gone. That is, the explosion in executive pay represents a social change…like the sexual revolution of the 1960's—a relaxation of old strictures, a new permissiveness, but in this case the permissiveness is financial rather than sexual."
Krugman is on to something. But changing attitudes about lavish compensation packages are just one small part of a much bigger cultural transformation. During the early postwar decades, the combination of in-group solidarity and out-group hostility was much more pronounced than what we're comfortable with today.
Consider, first of all, the dramatic shift in attitudes about race. Open and unapologetic discrimination by white Anglo-Saxon Protestants against other ethnic groups was widespread and socially acceptable in the America of Paul Krugman's boyhood. How does racial progress affect income inequality? Not the way we might expect. The most relevant impact might have been that more enlightened attitudes about race encouraged a reversal in the nation's restrictive immigration policies. The effect was to increase the number of less-skilled workers and thereby intensify competition among them for employment.
Under the system that existed between 1924 and 1965, immigration quotas were set for each country based on the percentage of people with that national origin already living in the U.S. (with immigration from East and South Asia banned outright until 1952). The explicit purpose of the national-origin quotas was to freeze the ethnic composition of the United States—that is, to preserve white Protestant supremacy and protect the country from "undesirable" races. "Unquestionably, there are fine human beings in all parts of the world," Sen. Robert Byrd (D-W.V.) said in defense of the quota system in 1965, "but people do differ widely in their social habits, their levels of ambition, their mechanical aptitudes, their inherited ability and intelligence, their moral traditions, and their capacity for maintaining stable governments."
But the times had passed the former Klansman by. With the triumph of the civil rights movement, official discrimination based on national origin was no longer sustainable. Just two months after signing the Voting Rights Act, President Lyndon Johnson signed the Immigration and Nationality Act of 1965, ending the "un-American" system of national-origin quotas and its "twin barriers of prejudice and privilege." The act inaugurated a new era of mass immigration: Foreign-born residents of the United States have surged from 5 percent of the population in 1970 to 12.5 percent as of 2006.
This wave of immigration exerted a mild downward pressure on the wages of native-born low-skilled workers, with most estimates showing a small effect. Immigration's more dramatic impact on measurements of inequality has come by increasing the number of less-skilled workers, thereby increasing apparent inequality by depressing average wages at the low end of the income distribution. According to the American University economist Robert Lerman, excluding recent immigrants from the analysis would eliminate roughly 30 percent of the increase in adult male annual earnings inequality between 1979 and 1996.
Although the large influx of unskilled immigrants has made American inequality statistics look worse, it has actually reduced inequality for the people involved. After all, immigrants experience large wage gains as a result of relocating to the United States, thereby reducing the cumulative wage gap between them and top earners in this country. When Lerman recalculated trends in inequality to include, at the beginning of the period, recent immigrants and their native-country wages, he found equality had increased rather than decreased. Immigration has increased inequality at home but decreased it on a global scale.
Just as racism helped to keep foreign-born workers out of the U.S. labor market, another form of in-group solidarity, sexism, kept women out of the paid work force. As of 1950, the labor force participation rate for women 16 and older stood at only 34 percent. By 1970 it had climbed to 43 percent, and as of 2005 it had jumped to 59 percent. Meanwhile, the range of jobs open to women expanded enormously.
Paradoxically, these gains for gender equality widened rather than narrowed income inequality overall. Because of the prevalence of "assortative mating"—the tendency of people to choose spouses with similar educational and socioeconomic backgrounds—the rise in dual-income couples has exacerbated household income inequality: Now richer men are married to richer wives. Between 1979 and 1996, the proportion of working-age men with working wives rose by approximately 25 percent among those in the top fifth of the male earnings distribution, and their wives' total earnings rose by over 100 percent. According to a 1999 estimate by Gary Burtless of the Brookings Institution, this unanticipated consequence of feminism explains about 13 percent of the total rise in income inequality since 1979.
Racism and sexism are ancient forms of group identity. Another form, more in line with what Krugman has in mind, was a distinctive expression of U.S. economic and social development in the middle decades of the 20th century. The journalist William Whyte described this "social ethic" in his 1956 book The Organization Man, outlining a sensibility that defined itself in studied contrast to old-style "rugged individualism." When contemporary critics scorned the era for its conformism, they weren't just talking about the ranch houses and gray flannel suits. The era's mores placed an extraordinary emphasis on fitting into the group.
"In the Social Ethic I am describing," wrote Whyte, "man's obligation is…not so much to the community in a broad sense but to the actual, physical one about him, and the idea that in isolation from it—or active rebellion against it—he might eventually discharge the greater service is little considered." One corporate trainee told Whyte that he "would sacrifice brilliance for human understanding every time." A personnel director declared that "any progressive employer would look askance at the individualist and would be reluctant to instill such thinking in the minds of trainees." Whyte summed up the prevailing attitude: "All the great ideas, [trainees] explain, have already been discovered and not only in physics and chemistry but in practical fields like engineering. The basic creative work is done, so the man you need—for every kind of job—is a practical, team-player fellow who will do a good shirt-sleeves job."
It seems entirely reasonable to conclude that this social ethic helped to limit competition among business enterprises for top talent. When secure membership in a stable organization is more important than maximizing your individual potential, the most talented employees are less vulnerable to the temptation of a better offer elsewhere. Even if they are tempted, a strong sense of organizational loyalty makes them more likely to resist and stay put.
Increased Competition, Increased Inequality
Krugman blames the conservative movement for income inequality, arguing that right-wingers exploited white backlash in the wake of the civil rights movement to hijack first the Republican Party and then the country as a whole. Once in power, they duped the public with "weapons of mass distraction" (i.e., social issues and foreign policy) while "cut[ting] taxes on the rich," "try[ing] to shrink government benefits and undermine the welfare state," and "empower[ing] businesses to confront and, to a large extent,crush the union movement."
Obviously, conservatism has contributed in important ways to the political shifts of recent decades. But the real story of those changes is more complicated, and more interesting, than Krugman lets on. Influences across the political spectrum have helped shape the more competitive more individualistic, and less equal society we now live in.
Indeed, the relevant changes in social norms were led by movements associated with the left. The women's movement led the assault on sex discrimination. The civil rights campaigns of the 1950s and '60s inspired more enlightened attitudes about race and ethnicity, with results such as the Immigration and Nationality Act of 1965, a law spearheaded by a young Sen. Edward Kennedy (D-Mass.). And then there was the counterculture of the 1960s, whose influence spread throughout American society in the Me Decade that followed. It upended the social ethic of group-minded solidarity and conformity with a stampede of unbridled individualism and self-assertion. With the general relaxation of inhibitions, talented and ambitious people felt less restrained from seeking top dollar in the marketplace. Yippies and yuppies were two sides of the same coin.
Contrary to Krugman's narrative, liberals joined conservatives in pushing for dramatic changes in economic policy. In addition to his role in liberalizing immigration, Kennedy was a leader in pushing through both the Airline Deregulation Act of 1978 and the Motor Carrier Act of 1980, which deregulated the trucking industry—and he was warmly supported in both efforts by the left-wing activist Ralph Nader. President Jimmy Carter signed these two pieces of legislation, as well as the Natural Gas Policy Act of 1978, which began the elimination of price controls on natural gas, and the Staggers Rail Act of 1980, which deregulated the railroad industry.
The three most recent rounds of multilateral trade talks were all concluded by Democratic presidents: the Kennedy Round in 1967 by Lyndon Johnson, the Tokyo Round in 1979 by Jimmy Carter, and the Uruguay Round in 1994 by Bill Clinton. And though it was Ronald Reagan who slashed the top income tax rate from 70 percent to 50 percent in 1981, it was two Democrats, Sen. Bill Bradley of New Jersey and Rep. Richard Gephardt of Missouri, who sponsored the Tax Reform Act of 1986, which pushed the top rate all the way down to 28 percent.
What about the unions? According to the Berkeley economist David Card, the shrinking of the unionized labor force accounted for 15 percent to 20 percent of the rise in overall male wage inequality between the early 1970s and the early 1990s. Krugman is right that labor's decline stems in part from policy changes, but his ideological blinkers lead him to identify the wrong ones.
The only significant change to the pro-union Wagner Act of 1935 came through the Taft-Hartley Act, which outlawed closed shops (contracts requiring employers to hire only union members) and authorized state right-to-work laws (which ban contracts requiring employees to join unions). But that piece of legislation was enacted in 1947—three years before the original Treaty of Detroit between General Motors and the United Auto Workers. It would be a stretch to argue that the Golden Age ended before it even began.
Scrounging for a policy explanation, economists Levy and Temin point to the failure of a 1978 labor law reform bill to survive a Senate filibuster. But maintaining the status quo is not a policy change. They also describe President Reagan's 1981 decision to fire striking air traffic controllers as a signal to employers that the government no longer supported labor unions.
While it is true that Reagan's handling of that strike, along with his appointments to the National Labor Relations Board, made the policy environment for unions less favorable, the effect of those moves on unionization was marginal.
The major reason for the fall in unionized employment, according to a 2007 paper by Georgia State University economist Barry Hirsch, "is that union strength developed through the 1950s was gradually eroded by increasingly competitive and dynamic markets." He elaborates: "When much of an industry is unionized, firms may prosper with higher union costs as long as their competitors face similar costs. When union companies face low-cost competitors, labor cost increases cannot be passed through to consumers. Factors that increase the competitiveness of product markets increased international trade, product market deregulation, and the entry of low-cost competitors—make it more difficult for union companies to prosper."
So the decline of private-sector unionism was abetted by policy changes, but the changes were not in labor policy specifically. They were the general, bipartisan reduction of trade barriers and price and entry controls. Unionized firms found themselves at a critical disadvantage. They shrank accordingly, and union rolls shrank with them.
Postmodern Progress
The move toward a more individualistic culture is not unique to the United States. As the political scientist Ronald Inglehart has documented in dozens of countries around the world, the shift toward what he calls "postmodern" attitudes and values is a predictable cultural response to rising affluence and expanding choices. "In a major part of the world," he writes in his 1997 book Modernization and Postmodernization, "the disciplined, self-denying, and achievement-oriented norms of industrial society are giving way to an increasingly broad latitude for individual choice of lifestyles and individual self-expression."
The increasing focus on individual fulfillment means, inevitably, less deference to tradition and organizations. "A major component of the Postmodern shift," Inglehart argues, "is a shift away from both religious and bureaucratic authority, bringing declining emphasis on all kinds of authority. For deference to authority has high costs: the individual's personal goals must be subordinated to those of a broader entity."
Paul Krugman may long for the return of selfdenying corporate workers who declined to seek better opportunities out of organizational loyalty, and thus kept wages artificially suppressed, but these are creatures of a bygone ethos—an ethos that also included uncritical acceptance of racist and sexist traditions and often brutish intolerance of deviations from mainstream lifestyles and sensibilities.
The rise in income inequality does raise issues of legitimate public concern. And reasonable people disagree hotly about what ought to be done to ensure that our prosperity is widely shared. But the caricature of postwar history put forward by Krugman and other purveyors of nostalgianomics won't lead us anywhere. Reactionary fantasies never do.
Cato Institute: Commentary
May 26, 2009
"The America I grew up in was a relatively equal middle-class society. Over the past generation, however, the country has returned to Gilded Age levels of inequality." So sighs Paul Krugman, the Nobel Prize-winning Princeton economist and New York Times columnist, in his recent book The Conscience of a Liberal.
The sentiment is nothing new. Political progressives such as Krugman have been decrying increases in income inequality for many years now. But Krugman has added a novel twist, one that has important implications for public policy and economic discourse in the age of Obama. In seeking explanations for the widening spread of incomes during the last four decades, researchers have focused overwhelmingly on broad structural changes in the economy, such as technological progress and demographic shifts. Krugman argues that these explanations are insufficient. "Since the 1970s," he writes, "norms and institutions in the United States have changed in ways that either encouraged or permitted sharply higher inequality. Where, however, did the change in norms and institutions come from? The answer appears to be politics."
To understand Krugman's argument, we can't start in the 1970s. We have to back up to the 1930s and '40s—when, he contends, the "norms and institutions" that shaped a more egalitarian society were created. "The middle-class America of my youth," Krugman writes, "is best thought of not as the normal state of our society, but as an interregnum between Gilded Ages. America before 1930 was a society in which a small number of very rich people controlled a large share of the nation's wealth." But then came the twin convulsions of the Great Depression and World War II, and the country that arose out of those trials was a very different place. "Middle-class America didn't emerge by accident. It was created by what has been called the Great Compression of incomes that took place during World War II, and sustained for a generation by social norms that favored equality, strong labor unions and progressive taxation."
The Great Compression is a term coined by the economists Claudia Goldin of Harvard and Robert Margo of Boston University to describe the dramatic narrowing of the nation's wage structure during the 1940s. The real wages of manufacturing workers jumped 67 percent between 1929 and 1947, while the top 1 percent of earners saw a 17 percent drop in real income. These egalitarian trends can be attributed to the exceptional circumstances of the period: precipitous declines at the top end of the income spectrum due to economic cataclysm; wartime wage controls that tended to compress wage rates; rapid growth in the demand for low-skilled labor, combined with the labor shortages of the war years; and rapid growth in the relative supply of skilled workers due to a near doubling of high school graduation rates.
Yet the return to peacetime and prosperity did not result in a shift back toward the status quo ante. The more egalitarian income structure persisted for decades. For an explanation, Krugman leans heavily on a 2007 paper by the Massachusetts Institute of Technology economists Frank Levy and Peter Temin, who argue that postwar American history has been a tale of two widely divergent systems of political economy. First came the "Treaty of Detroit," characterized by heavy unionization of industry, steeply progressive taxation, and a high minimum wage. Under that system, median wages kept pace with the economy's overall productivity growth, and incomes at the lower end of the scale grew faster than those at the top. Beginning around 1980, though, the Treaty of Detroit gave way to the free market "Washington Consensus." Tax rates on high earners fell sharply, the real value of the minimum wage declined, and private-sector unionism collapsed. As a result, most workers' incomes failed to share in overall productivity gains while the highest earners had a field day.
This revisionist account of the fall and rise of income inequality is being echoed daily in today's public policy debates. Under the conventional view, rising inequality is a side effect of economic progress—namely, continuing technological breakthroughs, especially in communications and information technology. Consequently, when economists have supported measures to remedy inequality, they have typically shied away from structural changes in market institutions. Rather, they have endorsed more income redistribution to reduce post-tax income differences, along with remedial education, job retraining, and other programs designed to raise the skill levels of lower-paid workers.
By contrast, Krugman sees the rise of inequality as a consequence of economic regress—in particular, the abandonment of well-designed economic institutions and healthy social norms that promoted widely shared prosperity. Such an assessment leads to the conclusion that we ought to revive the institutions and norms of Paul Krugman's boyhood, in broad spirit if not in every detail.
There is good evidence that changes in economic policies and social norms have indeed contributed to a widening of the income distribution since the 1970s. But Krugman and other practitioners of nostalgianomics are presenting a highly selective account of what the relevant policies and norms were and how they changed.
The Treaty of Detroit was built on extensive cartelization of markets, limiting competition to favor producers over consumers. The restrictions on competition were buttressed by racial prejudice, sexual discrimination, and postwar conformism, which combined to limit the choices available to workers and potential workers alike. Those illiberal social norms were finally swept aside in the cultural tumults of the 1960s and '70s. And then, in the 1970s and '80s, restraints on competition were substantially reduced as well, to the applause of economists across the ideological spectrum. At least until now.
Stifled Competition
The economic system that emerged from the New Deal and World War II was markedly different from the one that exists today. The contrast between past and present is sharpest when we focus on one critical dimension: the degree to which public policy either encourages or thwarts competition.
The transportation, energy, and communications sectors were subject to pervasive price and entry regulation in the postwar era. Railroad rates and service had been under federal control since the Interstate Commerce Act of 1887, but the Motor Carrier Act of 1935 extended the Interstate Commerce Commission's regulatory authority to cover trucking and bus lines as well. In 1938 airline routes and fares fell under the control of the Civil Aeronautics Authority, later known as the Civil Aeronautics Board. After the discovery of the East Texas oil field in 1930, the Texas Railroad Commission acquired the effective authority to regulate the nation's oil production. Starting in 1938, the Federal Power Commission regulated rates for the interstate transmission of natural gas. The Federal Communications Commission, created in 1934, allocated licenses to broadcasters and regulated phone rates.
Beginning with the Agricultural Adjustment Act of 1933, prices and production levels on a wide variety of farm products were regulated by a byzantine complex of controls and subsidies. High import tariffs shielded manufacturers from international competition. And in the retail sector, aggressive discounting was countered by state-level "fair trade laws," which allowed manufacturers to impose minimum resale prices on nonconsenting distributors.
Comprehensive regulation of the financial sector restricted competition in capital markets too. The McFadden Act of 1927 added a federal ban on interstate branch banking to widespread state-level restrictions on intrastate branching. The Glass-Steagall Act of 1933 erected a wall between commercial and investment banking, effectively brokering a market-sharing agreement protecting commercial and investment banks from each other. Regulation Q, instituted in 1933, prohibited interest payments on demand deposits and set interest rate ceilings for time deposits. Provisions of the Securities Act of 1933 limited competition in underwriting by outlawing pre-offering solicitations and undisclosed discounts. These and other restrictions artificially stunted the depth and development of capital markets, muting the intensity of competition throughout the larger "real" economy. New entrants are much more dependent on a well-developed financial system than are established firms, since incumbents can self-finance through retained earnings or use existing assets as collateral. A hobbled financial sector acts as a barrier to entry and thereby reduces established firms' vulnerability to competition from entrepreneurial upstarts.
The highly progressive tax structure of the early postwar decades further dampened competition. The top marginal income tax rate shot up from 25 percent to 63 percent under Herbert Hoover in 1932, climbed as high as 94 percent during World War II, and stayed at 91 percent during most of the 1950s and early '60s. Research by the economists William Gentry of Williams College and Glenn Hubbard of Columbia University has found that such rates act as a "success tax," discouraging employees from striking out as entrepreneurs.
Finally, competition in labor markets was subject to important restraints during the early postwar decades. The triumph of collective bargaining meant the active suppression of wage competition in a variety of industries. In the interest of boosting wages, unions sometimes worked to restrict competition in their industries' product markets as well. Garment unions connived with trade associations to set prices and allocate production among clothing makers. Coal miner unions attempted to regulate production by dictating how many days a week mines could be open.
MIT economists Levy and Temin don't mention it, but highly restrictive immigration policies were another significant brake on labor market competition. With the establishment of countryspecific immigration quotas under the Immigration Act of 1924, foreign-born residents of the United States plummeted from 13 percent of the total population in 1920 to 5 percent by 1970. As a result, competition at the less-skilled end of the U.S. labor market was substantially reduced.
Solidarity and Chauvinism
The anti-competitive effects of the Treaty of Detroit were reinforced by the prevailing social norms of the early postwar decades. Here Krugman and company focus on executive pay. Krugman quotes wistfully from John Kenneth Galbraith's characterization of the corporate elite in his 1967 book The New Industrial State: "Management does not go out ruthlessly to reward itself—a sound management is expected to exercise restraint." According to Krugman, "For a generation after World War II, fear of outrage kept executive salaries in check. Now the outrage is gone. That is, the explosion in executive pay represents a social change…like the sexual revolution of the 1960's—a relaxation of old strictures, a new permissiveness, but in this case the permissiveness is financial rather than sexual."
Krugman is on to something. But changing attitudes about lavish compensation packages are just one small part of a much bigger cultural transformation. During the early postwar decades, the combination of in-group solidarity and out-group hostility was much more pronounced than what we're comfortable with today.
Consider, first of all, the dramatic shift in attitudes about race. Open and unapologetic discrimination by white Anglo-Saxon Protestants against other ethnic groups was widespread and socially acceptable in the America of Paul Krugman's boyhood. How does racial progress affect income inequality? Not the way we might expect. The most relevant impact might have been that more enlightened attitudes about race encouraged a reversal in the nation's restrictive immigration policies. The effect was to increase the number of less-skilled workers and thereby intensify competition among them for employment.
Under the system that existed between 1924 and 1965, immigration quotas were set for each country based on the percentage of people with that national origin already living in the U.S. (with immigration from East and South Asia banned outright until 1952). The explicit purpose of the national-origin quotas was to freeze the ethnic composition of the United States—that is, to preserve white Protestant supremacy and protect the country from "undesirable" races. "Unquestionably, there are fine human beings in all parts of the world," Sen. Robert Byrd (D-W.V.) said in defense of the quota system in 1965, "but people do differ widely in their social habits, their levels of ambition, their mechanical aptitudes, their inherited ability and intelligence, their moral traditions, and their capacity for maintaining stable governments."
But the times had passed the former Klansman by. With the triumph of the civil rights movement, official discrimination based on national origin was no longer sustainable. Just two months after signing the Voting Rights Act, President Lyndon Johnson signed the Immigration and Nationality Act of 1965, ending the "un-American" system of national-origin quotas and its "twin barriers of prejudice and privilege." The act inaugurated a new era of mass immigration: Foreign-born residents of the United States have surged from 5 percent of the population in 1970 to 12.5 percent as of 2006.
This wave of immigration exerted a mild downward pressure on the wages of native-born low-skilled workers, with most estimates showing a small effect. Immigration's more dramatic impact on measurements of inequality has come by increasing the number of less-skilled workers, thereby increasing apparent inequality by depressing average wages at the low end of the income distribution. According to the American University economist Robert Lerman, excluding recent immigrants from the analysis would eliminate roughly 30 percent of the increase in adult male annual earnings inequality between 1979 and 1996.
Although the large influx of unskilled immigrants has made American inequality statistics look worse, it has actually reduced inequality for the people involved. After all, immigrants experience large wage gains as a result of relocating to the United States, thereby reducing the cumulative wage gap between them and top earners in this country. When Lerman recalculated trends in inequality to include, at the beginning of the period, recent immigrants and their native-country wages, he found equality had increased rather than decreased. Immigration has increased inequality at home but decreased it on a global scale.
Just as racism helped to keep foreign-born workers out of the U.S. labor market, another form of in-group solidarity, sexism, kept women out of the paid work force. As of 1950, the labor force participation rate for women 16 and older stood at only 34 percent. By 1970 it had climbed to 43 percent, and as of 2005 it had jumped to 59 percent. Meanwhile, the range of jobs open to women expanded enormously.
Paradoxically, these gains for gender equality widened rather than narrowed income inequality overall. Because of the prevalence of "assortative mating"—the tendency of people to choose spouses with similar educational and socioeconomic backgrounds—the rise in dual-income couples has exacerbated household income inequality: Now richer men are married to richer wives. Between 1979 and 1996, the proportion of working-age men with working wives rose by approximately 25 percent among those in the top fifth of the male earnings distribution, and their wives' total earnings rose by over 100 percent. According to a 1999 estimate by Gary Burtless of the Brookings Institution, this unanticipated consequence of feminism explains about 13 percent of the total rise in income inequality since 1979.
Racism and sexism are ancient forms of group identity. Another form, more in line with what Krugman has in mind, was a distinctive expression of U.S. economic and social development in the middle decades of the 20th century. The journalist William Whyte described this "social ethic" in his 1956 book The Organization Man, outlining a sensibility that defined itself in studied contrast to old-style "rugged individualism." When contemporary critics scorned the era for its conformism, they weren't just talking about the ranch houses and gray flannel suits. The era's mores placed an extraordinary emphasis on fitting into the group.
"In the Social Ethic I am describing," wrote Whyte, "man's obligation is…not so much to the community in a broad sense but to the actual, physical one about him, and the idea that in isolation from it—or active rebellion against it—he might eventually discharge the greater service is little considered." One corporate trainee told Whyte that he "would sacrifice brilliance for human understanding every time." A personnel director declared that "any progressive employer would look askance at the individualist and would be reluctant to instill such thinking in the minds of trainees." Whyte summed up the prevailing attitude: "All the great ideas, [trainees] explain, have already been discovered and not only in physics and chemistry but in practical fields like engineering. The basic creative work is done, so the man you need—for every kind of job—is a practical, team-player fellow who will do a good shirt-sleeves job."
It seems entirely reasonable to conclude that this social ethic helped to limit competition among business enterprises for top talent. When secure membership in a stable organization is more important than maximizing your individual potential, the most talented employees are less vulnerable to the temptation of a better offer elsewhere. Even if they are tempted, a strong sense of organizational loyalty makes them more likely to resist and stay put.
Increased Competition, Increased Inequality
Krugman blames the conservative movement for income inequality, arguing that right-wingers exploited white backlash in the wake of the civil rights movement to hijack first the Republican Party and then the country as a whole. Once in power, they duped the public with "weapons of mass distraction" (i.e., social issues and foreign policy) while "cut[ting] taxes on the rich," "try[ing] to shrink government benefits and undermine the welfare state," and "empower[ing] businesses to confront and, to a large extent,crush the union movement."
Obviously, conservatism has contributed in important ways to the political shifts of recent decades. But the real story of those changes is more complicated, and more interesting, than Krugman lets on. Influences across the political spectrum have helped shape the more competitive more individualistic, and less equal society we now live in.
Indeed, the relevant changes in social norms were led by movements associated with the left. The women's movement led the assault on sex discrimination. The civil rights campaigns of the 1950s and '60s inspired more enlightened attitudes about race and ethnicity, with results such as the Immigration and Nationality Act of 1965, a law spearheaded by a young Sen. Edward Kennedy (D-Mass.). And then there was the counterculture of the 1960s, whose influence spread throughout American society in the Me Decade that followed. It upended the social ethic of group-minded solidarity and conformity with a stampede of unbridled individualism and self-assertion. With the general relaxation of inhibitions, talented and ambitious people felt less restrained from seeking top dollar in the marketplace. Yippies and yuppies were two sides of the same coin.
Contrary to Krugman's narrative, liberals joined conservatives in pushing for dramatic changes in economic policy. In addition to his role in liberalizing immigration, Kennedy was a leader in pushing through both the Airline Deregulation Act of 1978 and the Motor Carrier Act of 1980, which deregulated the trucking industry—and he was warmly supported in both efforts by the left-wing activist Ralph Nader. President Jimmy Carter signed these two pieces of legislation, as well as the Natural Gas Policy Act of 1978, which began the elimination of price controls on natural gas, and the Staggers Rail Act of 1980, which deregulated the railroad industry.
The three most recent rounds of multilateral trade talks were all concluded by Democratic presidents: the Kennedy Round in 1967 by Lyndon Johnson, the Tokyo Round in 1979 by Jimmy Carter, and the Uruguay Round in 1994 by Bill Clinton. And though it was Ronald Reagan who slashed the top income tax rate from 70 percent to 50 percent in 1981, it was two Democrats, Sen. Bill Bradley of New Jersey and Rep. Richard Gephardt of Missouri, who sponsored the Tax Reform Act of 1986, which pushed the top rate all the way down to 28 percent.
What about the unions? According to the Berkeley economist David Card, the shrinking of the unionized labor force accounted for 15 percent to 20 percent of the rise in overall male wage inequality between the early 1970s and the early 1990s. Krugman is right that labor's decline stems in part from policy changes, but his ideological blinkers lead him to identify the wrong ones.
The only significant change to the pro-union Wagner Act of 1935 came through the Taft-Hartley Act, which outlawed closed shops (contracts requiring employers to hire only union members) and authorized state right-to-work laws (which ban contracts requiring employees to join unions). But that piece of legislation was enacted in 1947—three years before the original Treaty of Detroit between General Motors and the United Auto Workers. It would be a stretch to argue that the Golden Age ended before it even began.
Scrounging for a policy explanation, economists Levy and Temin point to the failure of a 1978 labor law reform bill to survive a Senate filibuster. But maintaining the status quo is not a policy change. They also describe President Reagan's 1981 decision to fire striking air traffic controllers as a signal to employers that the government no longer supported labor unions.
While it is true that Reagan's handling of that strike, along with his appointments to the National Labor Relations Board, made the policy environment for unions less favorable, the effect of those moves on unionization was marginal.
The major reason for the fall in unionized employment, according to a 2007 paper by Georgia State University economist Barry Hirsch, "is that union strength developed through the 1950s was gradually eroded by increasingly competitive and dynamic markets." He elaborates: "When much of an industry is unionized, firms may prosper with higher union costs as long as their competitors face similar costs. When union companies face low-cost competitors, labor cost increases cannot be passed through to consumers. Factors that increase the competitiveness of product markets increased international trade, product market deregulation, and the entry of low-cost competitors—make it more difficult for union companies to prosper."
So the decline of private-sector unionism was abetted by policy changes, but the changes were not in labor policy specifically. They were the general, bipartisan reduction of trade barriers and price and entry controls. Unionized firms found themselves at a critical disadvantage. They shrank accordingly, and union rolls shrank with them.
Postmodern Progress
The move toward a more individualistic culture is not unique to the United States. As the political scientist Ronald Inglehart has documented in dozens of countries around the world, the shift toward what he calls "postmodern" attitudes and values is a predictable cultural response to rising affluence and expanding choices. "In a major part of the world," he writes in his 1997 book Modernization and Postmodernization, "the disciplined, self-denying, and achievement-oriented norms of industrial society are giving way to an increasingly broad latitude for individual choice of lifestyles and individual self-expression."
The increasing focus on individual fulfillment means, inevitably, less deference to tradition and organizations. "A major component of the Postmodern shift," Inglehart argues, "is a shift away from both religious and bureaucratic authority, bringing declining emphasis on all kinds of authority. For deference to authority has high costs: the individual's personal goals must be subordinated to those of a broader entity."
Paul Krugman may long for the return of selfdenying corporate workers who declined to seek better opportunities out of organizational loyalty, and thus kept wages artificially suppressed, but these are creatures of a bygone ethos—an ethos that also included uncritical acceptance of racist and sexist traditions and often brutish intolerance of deviations from mainstream lifestyles and sensibilities.
The rise in income inequality does raise issues of legitimate public concern. And reasonable people disagree hotly about what ought to be done to ensure that our prosperity is widely shared. But the caricature of postwar history put forward by Krugman and other purveyors of nostalgianomics won't lead us anywhere. Reactionary fantasies never do.
China Global Investment Tracker
China Global Investment Tracker, by Derek Scissors, Ph.D.
Heritage White Paper, May 26, 2009
China's role in the global financial arena is becoming increasingly important to the United States and the worldwide community. The China Global Investment Tracker created by The Heritage Foundation is the only available comprehensive dataset relating to large Chinese foreign investments and construction contracts in all areas of the world. Details are available on all attempted transactions over $100 million--both failed and successful -- in a variety of industries, including energy, transportation and banking.
[China's Global Reach]
Chinese investment and business contracts now span the globe. More business of these types is being done with Africa and the Arab world than with China's traditional partners in East Asia.
[Graph 2]
China's investment total could be higher. Tens of billions of dollars in proposed spending have been rejected by Chinese or foreign regulators or simply fallen through.
Download the dataset on large Chinese foreign investments: Chinese Outward Investment
---
For more information on the growing Chinese investments in the rest of the world:
Chinese Foreign Investment: Insist on Transparency. By Derek Scissors, Ph.D.
Backgrounder #2237
China holds more than $1 trillion in American bonds. According to the new Heritage Foundation database on recent Chinese foreign non-bond investment, China has invested more than $15 billion in the U.S. in addition to bonds. China's SAFE is the largest foreign investor in the U.S., but has refused to make its activities more transparent. An American priority should be to enhance transparency in SAFE's spending.
Heritage White Paper, May 26, 2009
China's role in the global financial arena is becoming increasingly important to the United States and the worldwide community. The China Global Investment Tracker created by The Heritage Foundation is the only available comprehensive dataset relating to large Chinese foreign investments and construction contracts in all areas of the world. Details are available on all attempted transactions over $100 million--both failed and successful -- in a variety of industries, including energy, transportation and banking.
[China's Global Reach]
Chinese investment and business contracts now span the globe. More business of these types is being done with Africa and the Arab world than with China's traditional partners in East Asia.
[Graph 2]
China's investment total could be higher. Tens of billions of dollars in proposed spending have been rejected by Chinese or foreign regulators or simply fallen through.
Download the dataset on large Chinese foreign investments: Chinese Outward Investment
---
For more information on the growing Chinese investments in the rest of the world:
Chinese Foreign Investment: Insist on Transparency. By Derek Scissors, Ph.D.
Backgrounder #2237
China holds more than $1 trillion in American bonds. According to the new Heritage Foundation database on recent Chinese foreign non-bond investment, China has invested more than $15 billion in the U.S. in addition to bonds. China's SAFE is the largest foreign investor in the U.S., but has refused to make its activities more transparent. An American priority should be to enhance transparency in SAFE's spending.
Conservative views: A Bad Day for Impartiality - empathy as a code word for judicial liberalism
A Bad Day for Impartiality. By Rich Lowry
Obama uses empathy as a code word for judicial liberalism.
National Review Online, May 26, 2009 6:15 PM
It was a historic day when Pres. Barack Obama announced his nomination of Judge Sonia Sotomayor to the Supreme Court. No president had ever nominated a Hispanic woman. Nor had a recent president — or his nominee — expressed less genuine interest in the traditional craft of judging.
Impartiality has been supplanted by empathy. The old-fashioned virtue of objectivity — redolent of dusty law books and the unromantic task of parsing the law and facts — is giving way to an inherently politicized notion of judging based on feelings. Lady Justice is to slip her blindfold and let her decisions be influenced by her life experiences and personal predilections.
Obama and Sotomayor embrace this method of judging with gusto, even though it is deeply antithetical to justice properly understood. This is why Sotomayor is such a radical choice. Not only will she define the court’s left flank, she represents a judicial philosophy that is neither truly judicial nor a philosophy. The political outcome — and the personal biases that drive it — is paramount.
In introducing Sotomayor, Obama said he valued “a rigorous intellect” and “a recognition of the limits of the judicial role,” before pronouncing them both “insufficient.” A justice must have been tested “by hardship and misfortune,” Obama stipulated, so that he has “a common touch and a sense of compassion.”
It’s as if he wants a justice who can break the tension in an oral argument about the intricacies of antitrust law with engaging sports banter. The “Would you want to have a beer with him?” test reasonably applies to a politician, but to a black-robed justice charged with interpreting the Constitution? Justice Clarence Thomas is delightful company. Does that make his opinions any better or worse?
To complement his essentially political conception of the court, Obama has an essentially political conception of a justice. He voted against John Roberts despite Roberts’s qualifications and love of the law. Roberts failed the political test, defined by Obama as “one’s deepest values,” “the depth and breadth of one’s empathy.”
Obama uses empathy as a code word for judicial liberalism, and few nominees could be as starkly empathetic as Sotomayor. She has the requisite inspiring background. She has been a reliable liberal vote (never mind that the Supreme Court has been singularly unimpressed by her reasoning in cases that have reached it). And she believes that her background is one of her most important qualifications.
In a rambling 2001 speech, she disagreed with a colleague who thought judges should transcend their “personal sympathies and prejudices.” Sotomayor said, “I wonder whether achieving that goal is possible in all or even in most cases.” She argued that “the aspiration to impartiality is just that — it’s an aspiration because it denies the fact that we are by our experiences making different choices than others.” In sum, she said, “I would hope that a wise Latina woman with the richness of her experiences would more often than not reach a better conclusion than a white male who hasn’t lived that life.”
This stunning statement of race and gender determinism perhaps explains Sotomayor’s decision in the New Haven firefighter case now before the Supreme Court. A white firefighter studied for an exam to get a promotion. He bought $1,000 worth of books and had someone read them onto audiotapes because he’s dyslexic. He passed, but the city declined to promote him because no blacks had qualified for promotion.
Sotomayor thought this blatantly race-conscious action passed constitutional muster. Does her 2001 speech mean that she would have ruled differently if she were white, dyslexic, or a working-class firefighter struggling to get ahead? If so, she is manifestly unfit for the highest court in a country that puts the law above tribal loyalties.
Sotomayor’s nomination represents an extraordinary personal accomplishment and an important symbolic affirmation for Latinos. Her confirmation, though, would be another step toward eviscerating the constitutional function of the Supreme Court, as empathy trumps impartiality.
— Rich Lowry is the editor of National Review
Obama uses empathy as a code word for judicial liberalism.
National Review Online, May 26, 2009 6:15 PM
It was a historic day when Pres. Barack Obama announced his nomination of Judge Sonia Sotomayor to the Supreme Court. No president had ever nominated a Hispanic woman. Nor had a recent president — or his nominee — expressed less genuine interest in the traditional craft of judging.
Impartiality has been supplanted by empathy. The old-fashioned virtue of objectivity — redolent of dusty law books and the unromantic task of parsing the law and facts — is giving way to an inherently politicized notion of judging based on feelings. Lady Justice is to slip her blindfold and let her decisions be influenced by her life experiences and personal predilections.
Obama and Sotomayor embrace this method of judging with gusto, even though it is deeply antithetical to justice properly understood. This is why Sotomayor is such a radical choice. Not only will she define the court’s left flank, she represents a judicial philosophy that is neither truly judicial nor a philosophy. The political outcome — and the personal biases that drive it — is paramount.
In introducing Sotomayor, Obama said he valued “a rigorous intellect” and “a recognition of the limits of the judicial role,” before pronouncing them both “insufficient.” A justice must have been tested “by hardship and misfortune,” Obama stipulated, so that he has “a common touch and a sense of compassion.”
It’s as if he wants a justice who can break the tension in an oral argument about the intricacies of antitrust law with engaging sports banter. The “Would you want to have a beer with him?” test reasonably applies to a politician, but to a black-robed justice charged with interpreting the Constitution? Justice Clarence Thomas is delightful company. Does that make his opinions any better or worse?
To complement his essentially political conception of the court, Obama has an essentially political conception of a justice. He voted against John Roberts despite Roberts’s qualifications and love of the law. Roberts failed the political test, defined by Obama as “one’s deepest values,” “the depth and breadth of one’s empathy.”
Obama uses empathy as a code word for judicial liberalism, and few nominees could be as starkly empathetic as Sotomayor. She has the requisite inspiring background. She has been a reliable liberal vote (never mind that the Supreme Court has been singularly unimpressed by her reasoning in cases that have reached it). And she believes that her background is one of her most important qualifications.
In a rambling 2001 speech, she disagreed with a colleague who thought judges should transcend their “personal sympathies and prejudices.” Sotomayor said, “I wonder whether achieving that goal is possible in all or even in most cases.” She argued that “the aspiration to impartiality is just that — it’s an aspiration because it denies the fact that we are by our experiences making different choices than others.” In sum, she said, “I would hope that a wise Latina woman with the richness of her experiences would more often than not reach a better conclusion than a white male who hasn’t lived that life.”
This stunning statement of race and gender determinism perhaps explains Sotomayor’s decision in the New Haven firefighter case now before the Supreme Court. A white firefighter studied for an exam to get a promotion. He bought $1,000 worth of books and had someone read them onto audiotapes because he’s dyslexic. He passed, but the city declined to promote him because no blacks had qualified for promotion.
Sotomayor thought this blatantly race-conscious action passed constitutional muster. Does her 2001 speech mean that she would have ruled differently if she were white, dyslexic, or a working-class firefighter struggling to get ahead? If so, she is manifestly unfit for the highest court in a country that puts the law above tribal loyalties.
Sotomayor’s nomination represents an extraordinary personal accomplishment and an important symbolic affirmation for Latinos. Her confirmation, though, would be another step toward eviscerating the constitutional function of the Supreme Court, as empathy trumps impartiality.
— Rich Lowry is the editor of National Review
WaPo: Kudos, and some questions, for Judge Sonia Sotomayor
The President's Pick. WaPo Editorial
Kudos, and some questions, for Judge Sonia Sotomayor
WaPo, Wednesday, May 27, 2009
THERE IS MUCH to admire in the achievements of Sonia Sotomayor, the New York judge tapped by President Obama to fill a Supreme Court vacancy created by the impending retirement of Justice David H. Souter.
Born to immigrant Puerto Rican parents and raised in a housing project in the Bronx, Judge Sotomayor went on to excel at Princeton and earn a law degree from Yale. She worked as a prosecutor and represented corporate interests in private practice before being named to the federal trial court in New York by President George H.W. Bush; she was later elevated to a slot on the New York-based U.S. Court of Appeals for the 2nd Circuit by President Bill Clinton. As a Hispanic woman with such a diversity of legal experience, she would bring a welcome fresh perspective to the bench.
Judge Sotomayor has spoken about how gender, ethnicity and race influence a judge's views, and that should be one subject for her confirmation hearings. In a 2001 speech, she said: "The aspiration to impartiality is just that -- it's an aspiration because it denies the fact that we are by our experiences making different choices than others. . . . Justice [Sandra Day] O'Connor has often been cited as saying that a wise old man and wise old woman will reach the same conclusion in deciding cases . . . . I am not so sure that I agree with the statement. First, . . . there can never be a universal definition of wise. Second, I would hope that a wise Latina woman with the richness of her experiences would more often than not reach a better conclusion than a white male who hasn't lived that life."
Senators could ask her, then, how, when deciding a case, she balances the quest for objectivity with her personal experiences. They might also ask her views on judicial activism. In a panel discussion in 2005, she said that a "court of appeals is where policy is made." Conservative critics have seized on this statement to argue that she is a judicial activist who believes judges should make, rather than interpret, the law. Yet her statement could just as easily be understood to be explaining correctly that the courts of appeals -- and not the Supreme Court -- are the venues where the vast majority of cases and policies are ultimately decided.
We hope Judge Sotomayor also will discuss her thinking in the case of Ricci v. DeStefano, in which a group of white firefighters sued the city of New Haven for failing to certify promotion tests because no African Americans had scored high enough to qualify for advancement. A trial court ruled against the white firefighters, and on appeal, Judge Sotomayor and two colleagues essentially rubber-stamped the lower court decision without elaboration, even though the case presented important and undecided questions of law. That case is now awaiting a decision by the Supreme Court justices whom Judge Sotomayor soon hopes to join as a colleague.
Senators are right to closely scrutinize Judge Sotomayor's philosophy and qualifications. She has produced a rich record of opinions as an appeals court judge for the Judiciary Committee to discuss. Senators also should remember that Mr. Obama, like any president, is entitled to deference in choosing a justice.
Kudos, and some questions, for Judge Sonia Sotomayor
WaPo, Wednesday, May 27, 2009
THERE IS MUCH to admire in the achievements of Sonia Sotomayor, the New York judge tapped by President Obama to fill a Supreme Court vacancy created by the impending retirement of Justice David H. Souter.
Born to immigrant Puerto Rican parents and raised in a housing project in the Bronx, Judge Sotomayor went on to excel at Princeton and earn a law degree from Yale. She worked as a prosecutor and represented corporate interests in private practice before being named to the federal trial court in New York by President George H.W. Bush; she was later elevated to a slot on the New York-based U.S. Court of Appeals for the 2nd Circuit by President Bill Clinton. As a Hispanic woman with such a diversity of legal experience, she would bring a welcome fresh perspective to the bench.
Judge Sotomayor has spoken about how gender, ethnicity and race influence a judge's views, and that should be one subject for her confirmation hearings. In a 2001 speech, she said: "The aspiration to impartiality is just that -- it's an aspiration because it denies the fact that we are by our experiences making different choices than others. . . . Justice [Sandra Day] O'Connor has often been cited as saying that a wise old man and wise old woman will reach the same conclusion in deciding cases . . . . I am not so sure that I agree with the statement. First, . . . there can never be a universal definition of wise. Second, I would hope that a wise Latina woman with the richness of her experiences would more often than not reach a better conclusion than a white male who hasn't lived that life."
Senators could ask her, then, how, when deciding a case, she balances the quest for objectivity with her personal experiences. They might also ask her views on judicial activism. In a panel discussion in 2005, she said that a "court of appeals is where policy is made." Conservative critics have seized on this statement to argue that she is a judicial activist who believes judges should make, rather than interpret, the law. Yet her statement could just as easily be understood to be explaining correctly that the courts of appeals -- and not the Supreme Court -- are the venues where the vast majority of cases and policies are ultimately decided.
We hope Judge Sotomayor also will discuss her thinking in the case of Ricci v. DeStefano, in which a group of white firefighters sued the city of New Haven for failing to certify promotion tests because no African Americans had scored high enough to qualify for advancement. A trial court ruled against the white firefighters, and on appeal, Judge Sotomayor and two colleagues essentially rubber-stamped the lower court decision without elaboration, even though the case presented important and undecided questions of law. That case is now awaiting a decision by the Supreme Court justices whom Judge Sotomayor soon hopes to join as a colleague.
Senators are right to closely scrutinize Judge Sotomayor's philosophy and qualifications. She has produced a rich record of opinions as an appeals court judge for the Judiciary Committee to discuss. Senators also should remember that Mr. Obama, like any president, is entitled to deference in choosing a justice.
WaPo on California's highest court ruling on Proposition 8
Proposition 8 Stands
California's highest court rules that the voters have the right to be wrong.
WaPo, Wednesday, May 27, 2009
THE JUDGES of the California Supreme Court ruled yesterday that they can be overruled by the people of their state. That's the import of their 6 to 1 decision upholding Proposition 8, which bars same-sex marriage. They're probably right on the law, but the outcome is wrong as a matter of fairness, and our guess is that the people of California will reconsider before too long.
This same court ruled in May 2008 that the state's constitution required recognition of same-sex marriage. In November, voters narrowly repudiated that decision by approving Proposition 8, which amended the constitution to provide that "only marriage between a man and a woman is valid or recognized in California."
Yesterday, three of the four justices who had originally ruled in favor of same-sex marriage nonetheless agreed with the three dissenters in the original case that Proposition 8 should stand. This outcome suggests that those challenging the legality of Proposition 8 had the weaker legal case, however wrongheaded the amendment's content. As the court found, those challenging the proposition, including private plaintiffs and state Attorney General Jerry Brown, essentially complained "that it is just too easy to amend the California Constitution through the initiative process." That's probably true, but, as the court noted, the people of California are free to adopt a flawed system.
In the course of voting to uphold Proposition 8, the court made important -- and just -- findings. First, it found that the marriages of the 18,000 same-sex couples who acted before the proposition was approved remain valid. Second, it emphasized that other same-sex couples still enjoy the right to civil unions, allowing gays and lesbians to "choose one's life partner and enter with that person into a committed, officially recognized, and protected family relationship that enjoys all of the constitutionally based incidents of marriage." Rather, said Chief Justice Ronald M. George, the measure "carves out a narrow and limited exception to these state constitutional rights, reserving the official designation of the term 'marriage' for the union of opposite-sex couples as a matter of state constitutional law, but leaving undisturbed all of the other extremely significant substantive aspects of a same-sex couple's" rights. In other words, the terminology is different for same-sex couples, but the rights remain the same as those of other married couples.
This is disappointing; words do matter. Yet we remain confident that the inexorable trend of history is to recognize equality for gay men and lesbians, allowing them to marry rather than relegating them to a separate-but-equal legal status. The recent moves in Vermont, Maine and Iowa in support of same-sex marriage, and efforts in that direction in New Hampshire, should offer some comfort to the disappointed citizens of California, gay and straight alike, that their state will before long undo this unfortunate proposition.
California's highest court rules that the voters have the right to be wrong.
WaPo, Wednesday, May 27, 2009
THE JUDGES of the California Supreme Court ruled yesterday that they can be overruled by the people of their state. That's the import of their 6 to 1 decision upholding Proposition 8, which bars same-sex marriage. They're probably right on the law, but the outcome is wrong as a matter of fairness, and our guess is that the people of California will reconsider before too long.
This same court ruled in May 2008 that the state's constitution required recognition of same-sex marriage. In November, voters narrowly repudiated that decision by approving Proposition 8, which amended the constitution to provide that "only marriage between a man and a woman is valid or recognized in California."
Yesterday, three of the four justices who had originally ruled in favor of same-sex marriage nonetheless agreed with the three dissenters in the original case that Proposition 8 should stand. This outcome suggests that those challenging the legality of Proposition 8 had the weaker legal case, however wrongheaded the amendment's content. As the court found, those challenging the proposition, including private plaintiffs and state Attorney General Jerry Brown, essentially complained "that it is just too easy to amend the California Constitution through the initiative process." That's probably true, but, as the court noted, the people of California are free to adopt a flawed system.
In the course of voting to uphold Proposition 8, the court made important -- and just -- findings. First, it found that the marriages of the 18,000 same-sex couples who acted before the proposition was approved remain valid. Second, it emphasized that other same-sex couples still enjoy the right to civil unions, allowing gays and lesbians to "choose one's life partner and enter with that person into a committed, officially recognized, and protected family relationship that enjoys all of the constitutionally based incidents of marriage." Rather, said Chief Justice Ronald M. George, the measure "carves out a narrow and limited exception to these state constitutional rights, reserving the official designation of the term 'marriage' for the union of opposite-sex couples as a matter of state constitutional law, but leaving undisturbed all of the other extremely significant substantive aspects of a same-sex couple's" rights. In other words, the terminology is different for same-sex couples, but the rights remain the same as those of other married couples.
This is disappointing; words do matter. Yet we remain confident that the inexorable trend of history is to recognize equality for gay men and lesbians, allowing them to marry rather than relegating them to a separate-but-equal legal status. The recent moves in Vermont, Maine and Iowa in support of same-sex marriage, and efforts in that direction in New Hampshire, should offer some comfort to the disappointed citizens of California, gay and straight alike, that their state will before long undo this unfortunate proposition.
Tuesday, May 26, 2009
Exploding debt threatens America
Exploding debt threatens America. By John Taylor
FT, May 26 2009 20:48
Standard and Poor’s decision to downgrade its outlook for British sovereign debt from “stable” to “negative” should be a wake-up call for the US Congress and administration. Let us hope they wake up.
Under President Barack Obama’s budget plan, the federal debt is exploding. To be precise, it is rising – and will continue to rise – much faster than gross domestic product, a measure of America’s ability to service it. The federal debt was equivalent to 41 per cent of GDP at the end of 2008; the Congressional Budget Office projects it will increase to 82 per cent of GDP in 10 years. With no change in policy, it could hit 100 per cent of GDP in just another five years.
“A government debt burden of that [100 per cent] level, if sustained, would in Standard & Poor’s view be incompatible with a triple A rating,” as the risk rating agency stated last week.
I believe the risk posed by this debt is systemic and could do more damage to the economy than the recent financial crisis. To understand the size of the risk, take a look at the numbers that Standard and Poor’s considers. The deficit in 2019 is expected by the CBO to be $1,200bn (€859bn, £754bn). Income tax revenues are expected to be about $2,000bn that year, so a permanent 60 per cent across-the-board tax increase would be required to balance the budget. Clearly this will not and should not happen. So how else can debt service payments be brought down as a share of GDP?
Inflation will do it. But how much? To bring the debt-to-GDP ratio down to the same level as at the end of 2008 would take a doubling of prices. That 100 per cent increase would make nominal GDP twice as high and thus cut the debt-to-GDP ratio in half, back to 41 from 82 per cent. A 100 per cent increase in the price level means about 10 per cent inflation for 10 years. But it would not be that smooth – probably more like the great inflation of the late 1960s and 1970s with boom followed by bust and recession every three or four years, and a successively higher inflation rate after each recession.
The fact that the Federal Reserve is now buying longer-term Treasuries in an effort to keep Treasury yields low adds credibility to this scary story, because it suggests that the debt will be monetised. That the Fed may have a difficult task reducing its own ballooning balance sheet to prevent inflation increases the risks considerably. And 100 per cent inflation would, of course, mean a 100 per cent depreciation of the dollar. Americans would have to pay $2.80 for a euro; the Japanese could buy a dollar for Y50; and gold would be $2,000 per ounce. This is not a forecast, because policy can change; rather it is an indication of how much systemic risk the government is now creating.
Why might Washington sleep through this wake-up call? You can already hear the excuses.
“We have an unprecedented financial crisis and we must run unprecedented deficits.” While there is debate about whether a large deficit today provides economic stimulus, there is no economic theory or evidence that shows that deficits in five or 10 years will help to get us out of this recession. Such thinking is irresponsible. If you believe deficits are good in bad times, then the responsible policy is to try to balance the budget in good times. The CBO projects that the economy will be back to delivering on its potential growth by 2014. A responsible budget would lay out proposals for balancing the budget by then rather than aim for trillion-dollar deficits.
“But we will cut the deficit in half.” CBO analysts project that the deficit will be the same in 2019 as the administration estimates for 2010, a zero per cent cut.
“We inherited this mess.” The debt was 41 per cent of GDP at the end of 1988, President Ronald Reagan’s last year in office, the same as at the end of 2008, President George W. Bush’s last year in office. If one thinks policies from Reagan to Bush were mistakes does it make any sense to double down on those mistakes, as with the 80 per cent debt-to-GDP level projected when Mr Obama leaves office?
The time for such excuses is over. They paint a picture of a government that is not working, one that creates risks rather than reduces them. Good government should be a nonpartisan issue. I have written that government actions and interventions in the past several years caused, prolonged and worsened the financial crisis. The problem is that policy is getting worse not better. Top government officials, including the heads of the US Treasury, the Fed, the Federal Deposit Insurance Corporation and the Securities and Exchange Commission are calling for the creation of a powerful systemic risk regulator to reign in systemic risk in the private sector. But their government is now the most serious source of systemic risk.
The good news is that it is not too late. There is time to wake up, to make a mid-course correction, to get back on track. Many blame the rating agencies for not telling us about systemic risks in the private sector that lead to this crisis. Let us not ignore them when they try to tell us about the risks in the government sector that will lead to the next one.
The writer, a professor of economics at Stanford and a senior fellow at the Hoover Institution, is the author of ‘Getting Off Track: How Government Actions and Interventions Caused, Prolonged, and Worsened the Financial Crisis’
FT, May 26 2009 20:48
Standard and Poor’s decision to downgrade its outlook for British sovereign debt from “stable” to “negative” should be a wake-up call for the US Congress and administration. Let us hope they wake up.
Under President Barack Obama’s budget plan, the federal debt is exploding. To be precise, it is rising – and will continue to rise – much faster than gross domestic product, a measure of America’s ability to service it. The federal debt was equivalent to 41 per cent of GDP at the end of 2008; the Congressional Budget Office projects it will increase to 82 per cent of GDP in 10 years. With no change in policy, it could hit 100 per cent of GDP in just another five years.
“A government debt burden of that [100 per cent] level, if sustained, would in Standard & Poor’s view be incompatible with a triple A rating,” as the risk rating agency stated last week.
I believe the risk posed by this debt is systemic and could do more damage to the economy than the recent financial crisis. To understand the size of the risk, take a look at the numbers that Standard and Poor’s considers. The deficit in 2019 is expected by the CBO to be $1,200bn (€859bn, £754bn). Income tax revenues are expected to be about $2,000bn that year, so a permanent 60 per cent across-the-board tax increase would be required to balance the budget. Clearly this will not and should not happen. So how else can debt service payments be brought down as a share of GDP?
Inflation will do it. But how much? To bring the debt-to-GDP ratio down to the same level as at the end of 2008 would take a doubling of prices. That 100 per cent increase would make nominal GDP twice as high and thus cut the debt-to-GDP ratio in half, back to 41 from 82 per cent. A 100 per cent increase in the price level means about 10 per cent inflation for 10 years. But it would not be that smooth – probably more like the great inflation of the late 1960s and 1970s with boom followed by bust and recession every three or four years, and a successively higher inflation rate after each recession.
The fact that the Federal Reserve is now buying longer-term Treasuries in an effort to keep Treasury yields low adds credibility to this scary story, because it suggests that the debt will be monetised. That the Fed may have a difficult task reducing its own ballooning balance sheet to prevent inflation increases the risks considerably. And 100 per cent inflation would, of course, mean a 100 per cent depreciation of the dollar. Americans would have to pay $2.80 for a euro; the Japanese could buy a dollar for Y50; and gold would be $2,000 per ounce. This is not a forecast, because policy can change; rather it is an indication of how much systemic risk the government is now creating.
Why might Washington sleep through this wake-up call? You can already hear the excuses.
“We have an unprecedented financial crisis and we must run unprecedented deficits.” While there is debate about whether a large deficit today provides economic stimulus, there is no economic theory or evidence that shows that deficits in five or 10 years will help to get us out of this recession. Such thinking is irresponsible. If you believe deficits are good in bad times, then the responsible policy is to try to balance the budget in good times. The CBO projects that the economy will be back to delivering on its potential growth by 2014. A responsible budget would lay out proposals for balancing the budget by then rather than aim for trillion-dollar deficits.
“But we will cut the deficit in half.” CBO analysts project that the deficit will be the same in 2019 as the administration estimates for 2010, a zero per cent cut.
“We inherited this mess.” The debt was 41 per cent of GDP at the end of 1988, President Ronald Reagan’s last year in office, the same as at the end of 2008, President George W. Bush’s last year in office. If one thinks policies from Reagan to Bush were mistakes does it make any sense to double down on those mistakes, as with the 80 per cent debt-to-GDP level projected when Mr Obama leaves office?
The time for such excuses is over. They paint a picture of a government that is not working, one that creates risks rather than reduces them. Good government should be a nonpartisan issue. I have written that government actions and interventions in the past several years caused, prolonged and worsened the financial crisis. The problem is that policy is getting worse not better. Top government officials, including the heads of the US Treasury, the Fed, the Federal Deposit Insurance Corporation and the Securities and Exchange Commission are calling for the creation of a powerful systemic risk regulator to reign in systemic risk in the private sector. But their government is now the most serious source of systemic risk.
The good news is that it is not too late. There is time to wake up, to make a mid-course correction, to get back on track. Many blame the rating agencies for not telling us about systemic risks in the private sector that lead to this crisis. Let us not ignore them when they try to tell us about the risks in the government sector that will lead to the next one.
The writer, a professor of economics at Stanford and a senior fellow at the Hoover Institution, is the author of ‘Getting Off Track: How Government Actions and Interventions Caused, Prolonged, and Worsened the Financial Crisis’
GM's new owner (the Obama administration) should stop bullying the company's bondholders
Government Motors. WaPo Editorial
GM's new owner (the Obama administration) should stop bullying the company's bondholders.
WaPo, Tuesday, May 26, 2009
IN THEORY, a government bailout should provide a short-term infusion of cash to give a struggling company the chance to right itself. But in its aggressive dealings with U.S. automakers, most recently General Motors, the Obama administration is coming dangerously close to engaging in financial engineering that ignores basic principles of fairness and economic realities to further political goals.
It is now clear that there is no real difference between the government and the entity that identifies itself as GM. For all intents and purposes, the government, which is set to assume a 50 percent equity stake in the company, is GM, and it has been calling the shots in negotiations with creditors. While the Obama administration has been playing hardball with bondholders, it has been more than happy to play nice with the United Auto Workers. How else to explain why a retiree health-care fund controlled by the UAW is slated to get a 39 percent equity stake in GM for its remaining $10 billion in claims while bondholders are being pressured to take a 10 percent stake for their $27 billion? It's highly unlikely that the auto industry professionals at GM would have cut such a deal had the government not been standing over them -- or providing the steady stream of taxpayer dollars needed to keep the factory doors open.
GM is widely expected to file for bankruptcy before the end of this month. If this were a typical bankruptcy, the company would be allowed by law to tear up its UAW collective bargaining agreement and negotiate for drastically reduced wages and benefits. That's not going happen. Phrased another way: The government won't let that happen. Still, the threat of a contract abrogation probably played a role in the union's agreement to cost-cutting measures last week. (The details of the deal have not been made public; union members are scheduled to vote on the proposal early this week.) It's never easy for unions to make concessions, but the sting of handing back money is being softened by the government's desire to give the union a huge ownership stake in GM. Might bondholders be more willing to agree to the kind of quick restructuring the government hopes for if they had been treated more fairly from the outset?
The administration argues that it could not risk alienating the union for fear of triggering a walkout that could permanently cripple GM. It also posits that it had to agree to protect suppliers and fund warranties in order to preserve jobs and reassure prospective buyers that their cars would be serviced. These are legitimate concerns. But it's too bad that the Obama administration has not thought more deeply about how its bullying of bondholders could convince future investors that the last thing they want to do is put money into any company that the government has -- or could -- become involved in.
GM's new owner (the Obama administration) should stop bullying the company's bondholders.
WaPo, Tuesday, May 26, 2009
IN THEORY, a government bailout should provide a short-term infusion of cash to give a struggling company the chance to right itself. But in its aggressive dealings with U.S. automakers, most recently General Motors, the Obama administration is coming dangerously close to engaging in financial engineering that ignores basic principles of fairness and economic realities to further political goals.
It is now clear that there is no real difference between the government and the entity that identifies itself as GM. For all intents and purposes, the government, which is set to assume a 50 percent equity stake in the company, is GM, and it has been calling the shots in negotiations with creditors. While the Obama administration has been playing hardball with bondholders, it has been more than happy to play nice with the United Auto Workers. How else to explain why a retiree health-care fund controlled by the UAW is slated to get a 39 percent equity stake in GM for its remaining $10 billion in claims while bondholders are being pressured to take a 10 percent stake for their $27 billion? It's highly unlikely that the auto industry professionals at GM would have cut such a deal had the government not been standing over them -- or providing the steady stream of taxpayer dollars needed to keep the factory doors open.
GM is widely expected to file for bankruptcy before the end of this month. If this were a typical bankruptcy, the company would be allowed by law to tear up its UAW collective bargaining agreement and negotiate for drastically reduced wages and benefits. That's not going happen. Phrased another way: The government won't let that happen. Still, the threat of a contract abrogation probably played a role in the union's agreement to cost-cutting measures last week. (The details of the deal have not been made public; union members are scheduled to vote on the proposal early this week.) It's never easy for unions to make concessions, but the sting of handing back money is being softened by the government's desire to give the union a huge ownership stake in GM. Might bondholders be more willing to agree to the kind of quick restructuring the government hopes for if they had been treated more fairly from the outset?
The administration argues that it could not risk alienating the union for fear of triggering a walkout that could permanently cripple GM. It also posits that it had to agree to protect suppliers and fund warranties in order to preserve jobs and reassure prospective buyers that their cars would be serviced. These are legitimate concerns. But it's too bad that the Obama administration has not thought more deeply about how its bullying of bondholders could convince future investors that the last thing they want to do is put money into any company that the government has -- or could -- become involved in.
Unilateral or Worldwide, Waxman-Markey Fails Standard Cost/Benefit Tests (CO2 “leakage” makes bad even worse)
Unilateral or Worldwide, Waxman-Markey Fails Standard Cost/Benefit Tests (CO2 “leakage” makes bad even worse). By Robert Murphy
Master Resource, May 26, 2009
Jim Manzi has a very good post introducing the analysis of costs and benefits of Waxman-Markey. Here I want to follow up on Manzi’s great start, by showing that Chip Knappenberger’s estimate of the climate benefits of Waxman-Markey (W-M) actually erred on the side of optimism in its assumptions.
Specifically, Knappenberger very conservatively ignored the problem of “leakage”–he didn’t model the fact that unilateral U.S. carbon caps would actually increase the rate at which other countries’ own emissions grow. What’s worse, even if the entire world signed on to the aggressive emission schedule in W-M, the resulting environmental benefits would be achieved at a staggering cost in terms of lost economic output.
No matter how you slice it–whether the U.S. goes it alone, or the rest of the world signs on too–the environmental benefits of W-M are swamped by its economic costs.
“Leakage”–An Important Variable. In a MasterResource post that has become a touchstone of the great climate debate, Chip Knappenberger used a standard model to assess the expected reductions in global mean temperatures if the U.S. faithfully adhered to the emission targets in W-M. Knappenberger found that by 2100, the projected global warming under two different “baseline” emission scenarios would be postponed by a handful of years.
The pro-interventionist scientists at RealClimate have conceded the basic validity of Chip’s analysis; they simply accuse him of rigging the game by considering unilateral U.S. action.
What is interesting is that Chip did not assume that the emissions of the rest of the world would grow more quickly because of (the stipulated) unilateral U.S. committment to W-M. Yet this would surely happen, because of a phenomenon referred to in the climate economics literature as leakage. The intuition is quite simple: If the U.S. imposes a steep price on operations that emit carbon, then U.S. industries will produce fewer carbon-intensive goods and services. (That’s the whole point, after all.)
Yet because of the reduction in output of these sectors, the world price of these items will tend to rise, which in turn will call forth greater output from (carbon-intensive) sectors in the unregulated countries.
I caution readers that some cynics of government action to limit climate change draw an unwarranted conclusion from this type of analysis. I have heard such critics say things like, “This is ridiculous! If the U.S. goes it alone, all we’ll do is ship all of our jobs to China, and we won’t affect global emissions one iota.”
Strictly speaking, that is taking it too far. For various reasons, it is not true that every cutback in carbon-intensive production in the U.S. would be perfectly offset by expanded production in an unregulated jurisdiction. However, even though there won’t be a one-for-one offset in terms of final goods produced, the relative carbon emissions is a different matter. This is because Chinese manufacturing operations emit more tons of carbon than American factories do, in order to produce the same physical amount of goods.
Hence, the amount of “leakage” resulting from a unilateral U.S. emissions cap is ultimately an empirical matter, but it would probably be very significant. To repeat, Chip’s analysis (described above) did not take this effect into account. Chip merely took two standard IPCC baseline emission scenarios, and then altered them by reducing the baseline growth in U.S. emissions in order to comply with the targets in W-M. He is consequently overestimating the environmental benefits of unilateral American adherence to the emission targets in W-M. In other words, the dotted lines in the chart above would be even closer to the solid lines, once the model took into account the superior profitability of Chinese carbon-intensive operations after the U.S. government hobbled American operations.
Leakage in the Context of the “Social Cost of Carbon.” Some of the more sophisticated critics of Chip’s analysis asked a reasonable question: Since plenty of economic models show a “social cost of carbon” emissions, it doesn’t really matter what the rest of the world does, right? After all, if emitting an extra ton of carbon today, translates into a (present discounted value of) an expected increase in future climate change damages of (say) $35, then it surely moves us in the direction of efficiency if the U.S. government slaps a penalty on domestic emitters, right?
There are two problems here. First, nobody is defending Waxman-Markey on the basis of cost/benefit analysis, because it can’t be done. There is a bit of a problem in comparing apples with apples (since the integrated assessment models gauging the impact of mitigation policies all assume concerted worldwide action), but it is safe to say that the emissions targets in W-M are far too aggressive, if we are going to be guided by the “social cost of carbon.”
For example, Table 3.10 (page 229) of Working Group III’s contribution to the IPCC Fourth Assessment Report (.pdf) shows that of 177 scenarios surveyed from the peer-reviewed literature, only 6 scenarios assumed worldwide emissions reductions in the steepest category of 50% - 85% by the year 2050. (Recall that W-M imposes a reduction of 83% by 2050. But note that the IPCC reductions are relative to 2000 emissions, while W-M’s 83% target is relative to 2005 emissions.)
If we turn to the specific DICE model by William Nordhaus–who is a pioneer and leader in this field, and who is a definite proponent of a carbon tax–we see that the aggressive emission cutbacks in W-M fail his cost/benefit test by a wide mark. The IPCC’s Table 3.10 and Nordhaus’s own results agree that capping emissions in 2050 at 83% below current levels, would correspond to Nordhaus’s estimates of a policy of capping atmospheric concentrations at no more than 1.5x preindustrial levels. (See Nordhaus’s Table 5-5, p. 96 here [.pdf]. Note that we are being conservative with our choice, because the steep emission cuts in W-M are arguably closer to the “Gore proposal,” which the DICE model finds even more destructive than the policy that we have instead chosen as a surrogate for W-M.)
Yet according to Nordhaus’s DICE model, such an aggressive policy would do far more harm to the economy, than it would yield in benefits of averted climate damage. Specifically, Nordhaus estimates that the policy corresponding to W-M targets would make the world some $15 trillion poorer relative to the business-as-usual baseline of no controls (see Table 5-1, page 82, here [.pdf]). Yes, worldwide commitment to the aggressive emission schedule in W-M would avert climate damages that would otherwise occur, which DICE values as a benefit of $12.6 trillion. But the draconian emission caps would require $27.24 trillion in abatement (compliance) costs. Thus the environmental benefits are swamped by the economic costs.
So we see that using the standard “social costs of carbon” approach, reveals that W-M imposes far too high a price on carbon emissions than is warranted by this Pigovian framework. That is why proponents of steep emission cuts must abandon standard cost/benefit analysis, and instead recommend particular environmental targets (such as stabilizing atmospheric concentrations at a presumed “safe” level) and then try to find the least-cost method of attaining them.
As a final point, we should note how the problem of leakage also influences the “social cost of carbon” as computed in various models. When Nordhaus or other economists calculate the social cost of carbon (SCC), they are asking what happens to the present discounted value of future environmental damages, if someone emits an additional ton of carbon today, while holding the assumed trajectory of all future emissions constant.
Now we see the weakness in this metric, when trying to assess the net benefits of unilateral climate policy. Once we take leakage into account, we see that the standard measure of SCC overstates (possibly grossly so) the true costs to society from an additional unit of emissions. In reality, there are two things going on: When a U.S. manufacturer produces more units of a carbon-intensive good, it is true that he emits more carbon dioxide into the atmosphere. This is what the SCC looks at, and judges him accordingly.
However, the U.S. manufacturer also pushes down the world price of the good in question, and that tends to cause other producers to emit less CO2. Thus, there is a positive externality laid on top of the negative externality. The greater the scope for leakage, the greater the positive externality. In the extreme, where U.S. operations would be completely outsourced to China (in terms of carbon emissions, if not output of final goods), then the correctly measured “social cost of carbon” for U.S. operations would be zero, in the context of a unilateral U.S. cap.
Conclusion. Here are the takeaway messages:
Yet W-M proponents have done none of these things. Surely they could at least try–even in an informal blog post–to formalize their case, before expecting the American people to sign on to a plan that could cost trillions of dollars in forfeited economic growth, and which on its face will do very little to alter the course of global warming.
Master Resource, May 26, 2009
Jim Manzi has a very good post introducing the analysis of costs and benefits of Waxman-Markey. Here I want to follow up on Manzi’s great start, by showing that Chip Knappenberger’s estimate of the climate benefits of Waxman-Markey (W-M) actually erred on the side of optimism in its assumptions.
Specifically, Knappenberger very conservatively ignored the problem of “leakage”–he didn’t model the fact that unilateral U.S. carbon caps would actually increase the rate at which other countries’ own emissions grow. What’s worse, even if the entire world signed on to the aggressive emission schedule in W-M, the resulting environmental benefits would be achieved at a staggering cost in terms of lost economic output.
No matter how you slice it–whether the U.S. goes it alone, or the rest of the world signs on too–the environmental benefits of W-M are swamped by its economic costs.
“Leakage”–An Important Variable. In a MasterResource post that has become a touchstone of the great climate debate, Chip Knappenberger used a standard model to assess the expected reductions in global mean temperatures if the U.S. faithfully adhered to the emission targets in W-M. Knappenberger found that by 2100, the projected global warming under two different “baseline” emission scenarios would be postponed by a handful of years.
The pro-interventionist scientists at RealClimate have conceded the basic validity of Chip’s analysis; they simply accuse him of rigging the game by considering unilateral U.S. action.What is interesting is that Chip did not assume that the emissions of the rest of the world would grow more quickly because of (the stipulated) unilateral U.S. committment to W-M. Yet this would surely happen, because of a phenomenon referred to in the climate economics literature as leakage. The intuition is quite simple: If the U.S. imposes a steep price on operations that emit carbon, then U.S. industries will produce fewer carbon-intensive goods and services. (That’s the whole point, after all.)
Yet because of the reduction in output of these sectors, the world price of these items will tend to rise, which in turn will call forth greater output from (carbon-intensive) sectors in the unregulated countries.
I caution readers that some cynics of government action to limit climate change draw an unwarranted conclusion from this type of analysis. I have heard such critics say things like, “This is ridiculous! If the U.S. goes it alone, all we’ll do is ship all of our jobs to China, and we won’t affect global emissions one iota.”
Strictly speaking, that is taking it too far. For various reasons, it is not true that every cutback in carbon-intensive production in the U.S. would be perfectly offset by expanded production in an unregulated jurisdiction. However, even though there won’t be a one-for-one offset in terms of final goods produced, the relative carbon emissions is a different matter. This is because Chinese manufacturing operations emit more tons of carbon than American factories do, in order to produce the same physical amount of goods.
Hence, the amount of “leakage” resulting from a unilateral U.S. emissions cap is ultimately an empirical matter, but it would probably be very significant. To repeat, Chip’s analysis (described above) did not take this effect into account. Chip merely took two standard IPCC baseline emission scenarios, and then altered them by reducing the baseline growth in U.S. emissions in order to comply with the targets in W-M. He is consequently overestimating the environmental benefits of unilateral American adherence to the emission targets in W-M. In other words, the dotted lines in the chart above would be even closer to the solid lines, once the model took into account the superior profitability of Chinese carbon-intensive operations after the U.S. government hobbled American operations.
Leakage in the Context of the “Social Cost of Carbon.” Some of the more sophisticated critics of Chip’s analysis asked a reasonable question: Since plenty of economic models show a “social cost of carbon” emissions, it doesn’t really matter what the rest of the world does, right? After all, if emitting an extra ton of carbon today, translates into a (present discounted value of) an expected increase in future climate change damages of (say) $35, then it surely moves us in the direction of efficiency if the U.S. government slaps a penalty on domestic emitters, right?
There are two problems here. First, nobody is defending Waxman-Markey on the basis of cost/benefit analysis, because it can’t be done. There is a bit of a problem in comparing apples with apples (since the integrated assessment models gauging the impact of mitigation policies all assume concerted worldwide action), but it is safe to say that the emissions targets in W-M are far too aggressive, if we are going to be guided by the “social cost of carbon.”
For example, Table 3.10 (page 229) of Working Group III’s contribution to the IPCC Fourth Assessment Report (.pdf) shows that of 177 scenarios surveyed from the peer-reviewed literature, only 6 scenarios assumed worldwide emissions reductions in the steepest category of 50% - 85% by the year 2050. (Recall that W-M imposes a reduction of 83% by 2050. But note that the IPCC reductions are relative to 2000 emissions, while W-M’s 83% target is relative to 2005 emissions.)
If we turn to the specific DICE model by William Nordhaus–who is a pioneer and leader in this field, and who is a definite proponent of a carbon tax–we see that the aggressive emission cutbacks in W-M fail his cost/benefit test by a wide mark. The IPCC’s Table 3.10 and Nordhaus’s own results agree that capping emissions in 2050 at 83% below current levels, would correspond to Nordhaus’s estimates of a policy of capping atmospheric concentrations at no more than 1.5x preindustrial levels. (See Nordhaus’s Table 5-5, p. 96 here [.pdf]. Note that we are being conservative with our choice, because the steep emission cuts in W-M are arguably closer to the “Gore proposal,” which the DICE model finds even more destructive than the policy that we have instead chosen as a surrogate for W-M.)
Yet according to Nordhaus’s DICE model, such an aggressive policy would do far more harm to the economy, than it would yield in benefits of averted climate damage. Specifically, Nordhaus estimates that the policy corresponding to W-M targets would make the world some $15 trillion poorer relative to the business-as-usual baseline of no controls (see Table 5-1, page 82, here [.pdf]). Yes, worldwide commitment to the aggressive emission schedule in W-M would avert climate damages that would otherwise occur, which DICE values as a benefit of $12.6 trillion. But the draconian emission caps would require $27.24 trillion in abatement (compliance) costs. Thus the environmental benefits are swamped by the economic costs.
So we see that using the standard “social costs of carbon” approach, reveals that W-M imposes far too high a price on carbon emissions than is warranted by this Pigovian framework. That is why proponents of steep emission cuts must abandon standard cost/benefit analysis, and instead recommend particular environmental targets (such as stabilizing atmospheric concentrations at a presumed “safe” level) and then try to find the least-cost method of attaining them.
As a final point, we should note how the problem of leakage also influences the “social cost of carbon” as computed in various models. When Nordhaus or other economists calculate the social cost of carbon (SCC), they are asking what happens to the present discounted value of future environmental damages, if someone emits an additional ton of carbon today, while holding the assumed trajectory of all future emissions constant.
Now we see the weakness in this metric, when trying to assess the net benefits of unilateral climate policy. Once we take leakage into account, we see that the standard measure of SCC overstates (possibly grossly so) the true costs to society from an additional unit of emissions. In reality, there are two things going on: When a U.S. manufacturer produces more units of a carbon-intensive good, it is true that he emits more carbon dioxide into the atmosphere. This is what the SCC looks at, and judges him accordingly.
However, the U.S. manufacturer also pushes down the world price of the good in question, and that tends to cause other producers to emit less CO2. Thus, there is a positive externality laid on top of the negative externality. The greater the scope for leakage, the greater the positive externality. In the extreme, where U.S. operations would be completely outsourced to China (in terms of carbon emissions, if not output of final goods), then the correctly measured “social cost of carbon” for U.S. operations would be zero, in the context of a unilateral U.S. cap.
Conclusion. Here are the takeaway messages:
(A) If the U.S. implements Waxman-Markey unilaterally, the environmental benefits will be even less than indicated by Chip Knappenberger’s pessimistic analysis.No matter how you slice it, Waxman-Markey fails standard cost/benefit tests. W-M advocates are certainly free to criticize standard cost/benefit tests, but they can’t stop there. They still need to justify quantitatively the steep emission targets in W-M. And to the extent that they invoke U.S. leadership in prodding the rest of the world to follow suit, proponents also need to come up with a plausible story showing the likelihood of worldwide action, with and without Waxman-Markey, versus some other possible U.S. approach.
(B) If the whole world implements Waxman-Markey, then the loss to economic output will far exceed the reduction in expected environmental damages.
Yet W-M proponents have done none of these things. Surely they could at least try–even in an informal blog post–to formalize their case, before expecting the American people to sign on to a plan that could cost trillions of dollars in forfeited economic growth, and which on its face will do very little to alter the course of global warming.
Subscribe to:
Posts (Atom)
Posts
