Revenge of the ‘Shoe Bomber’. By DEBRA BURLINGAME
The terrorist sues to resume his jihad from prison. The Obama administration caves in.
WSJ, Jul 30, 2009
Last May at the National Archives, President Barack Obama warned that “more mistakes would occur” if Congress continued to politicize terrorist detention policy and the closure of Guantanamo Bay. “[I]f we refuse to deal with those issues today,” he predicted, “then I guarantee you, they will be an albatross around our efforts to combat terrorism in the future.”
On June 17, at the Administrative Maximum (ADX) penitentiary in Florence, Colo., one of those albatrosses, inmate number 24079-038, began his day with a whole new range of possibilities. Eight days earlier, the U.S. Attorney’s office in Denver filed notice in federal court that the Special Administrative Measures (SAMs) which applied to that prisoner—Richard C. Reid, a.k.a. the “Shoe Bomber”—were being allowed to expire. SAMs are security directives, renewable yearly, issued by the attorney general when “there is a substantial risk that a prisoner’s communications, correspondence or contacts with persons could result in death or serious bodily injury” to others.
Reid was arrested in 2001 for attempting to blow up American Airlines Flight 63 from Paris to Miami with 197 passengers and crew on board. Why had Attorney General Eric Holder decided not to renew his security measures, kept in place since 2002?
According to court documents filed in a 2007 civil lawsuit against the government, Reid claimed that SAMs violated his First Amendment right of free speech and free exercise of religion. In a hand-written complaint, he asserted that he was being illegally prevented from performing daily “group prayers in a manner prescribed by my religion.” Yet the list of Reid’s potential fellow congregants at ADX Florence reads like a Who’s Who of al Qaeda’s most dangerous members: Ramzi Yousef and his three co-conspirators in the 1993 World Trade Center bombing; 9/11 conspirator Zacarias Moussaoui; “Millennium bomber” Ahmed Ressam; “Dirty bomber” Jose Padilla; Wadih el-Hage, Osama Bin Laden’s personal secretary, convicted in the 1998 U.S. Embassy bombing that killed 247 people.
In December 2008, the Department of Justice filed a motion to dismiss Reid’s lawsuit. It cited the example of ADX inmate Ahmed Ajaj as an illustration of “the dangers inherent in permitting a group of inmates, of like mind in their opposition to the United States, to congregate for a prayer service conducted in a language not understood by most correctional officers.”
While imprisoned for passport fraud in 1992, Ajaj assisted in the plans to destroy the World Trade Center on Feb. 26, 1993, making phone calls to Ramzi Yousef and speaking in code to elude law enforcement monitoring. Ajaj tried to get his “training kit” to Yousef, which included videotapes and notes he had taken on bomb-making while attending a terrorist camp on the Pakistan-Afghanistan border.
Reid’s own SAMs on correspondence had been tightened in 2006 after the shocking discovery that three of the 1993 World Trade Center bombers at ADX, not subject to security directives, had sent 90 letters to overseas terrorist networks, including those associated with the Madrid train bombing. The letters, exhorting jihad and praising Osama bin Laden as “my hero of this generation,” were printed in Arabic newspapers and brandished like trophies to recruit new members.
When setting restrictions on inmate religious practice, the Bureau of Prisons need only meet a reasonableness standard, a very low bar in the case of Muslim terrorists. Justice would easily have prevailed against Reid’s lawsuit; nevertheless it dropped the security measures on Reid after he missed 58 meals in a hunger strike that required medical intervention and forced feeding in April.
On July 6, Justice Department lawyers informed the court that Reid will be given a “new placement” in a “post-SAMs setting.” Whether that entails stepped down security in a different unit or transfer to a less secure facility, the Bureau of Prisons won’t say, and Justice refuses to comment.
Mr. Obama likes to observe that “no one has escaped from supermax,” but if Reid is moved from ADX Florence, he will be the first convicted terrorist to use the First Amendment to sue his way out.
What drove the Obama administration’s decision to cave in to Reid’s demands? The president after all has repeatedly pitched supermax and the federal prison system as a secure alternative to Guantanamo, citing the fact that it handles “all manner of violent and dangerous criminals.” Yet the last thing he needs, as his administration engages in its hasty effort to shut Gitmo down by a fast-approaching deadline, is for lawyers and human-rights activists to use a hunger-striking, near-death prisoner to launch a propaganda campaign fashioned right out of the Gitmo detainees’ playbook. Lawyers who shamelessly compared Gitmo to Nazi concentration camps would think nothing of casting supermax as the next “symbol of America’s shame” and a “rallying cry for our enemies.”
From the outset of his administration, Mr. Obama has been trying to thread the needle between national security policy and his ideological affinity with civil liberties lawyers and human-rights activists, meeting with and consulting them prior to making detainee-related decisions. Though his executive order shutting Guantanamo closely followed the blueprint provided by Human Rights First, leaders of key organizations were stunned when he revealed in an awkward, off-the-record meeting the day before his public announcement at the National Archives that he planned to continue President George W. Bush’s policy of preventive detention.
Michael Ratner, whose human rights organization, the Center for Constitutional Rights, filed the first successful detainee lawsuit in 2002, called Mr. Obama’s proposed U.S. detention scheme a “road to perdition” and nothing more than a plan to “repackage Guantanamo.” Leaders of the so-called Gitmo bar appear poised to launch a flurry of legal challenges the moment the last departing detainee’s feet touch U.S. soil.
In January, the American Civil Liberties Union (ACLU) of Colorado issued a statement saying that conditions at supermax are “simply another form of torture” worse than Gitmo which “make a mockery of ‘innocent until proven guilty.’” Last month, the ACLU filed a civil lawsuit mirroring Reid’s religious rights claim on behalf of two terrorism inmates held at the Communications Management Unit inside a medium security prison in Terre Haute, Ind.
One of those inmates is Enaam Arnaout, a Syrian-born U.S. citizen serving a 10-year sentence for diverting Muslim charity money to militant Islamic groups in Bosnia and Chechnya. The other, Randall Royer, is serving 20 years for his role recruiting young Muslims in the “Virginia Jihad Network,” a group that used paintball games in 2000-2001 to train for holy war.
Mr. Obama has repeatedly suggested that the security challenge of bringing more than 100 trained and dangerous terrorists onto U.S. soil can be solved by simply installing them in an impenetrable fortress. This view is either disingenuous or naïve. The militant Islamists at Guantanamo too dangerous to release believe that their resistance behind the wire is a continuation of holy war. There is every reason to believe they will continue their jihad once they have been transported to U.S. soil where certain federal judges have signaled a willingness to confer upon them even more rights.
The position of civil rights activists with regard to these prisoners is plain. “If they cannot be convicted,” says ACLU lawyer Jameel Jaffer, “then you release them.”
Meanwhile, in order to appease political constituencies both here and abroad, the Obama administration is moving full steam ahead, operating on the false premise that giving more civil liberties to religious fanatics bent on destroying Western civilization will make a difference in the Muslim world. In a letter sent to his father as he began his hunger strike, Reid provided a preview of how he will exercise his newly enlarged free speech rights, calling Mr. Obama a “hypocrite” who is “no better than George Bush.” His lawsuit remains active while the Department of Justice works out a settlement that satisfies the man who declared, “I am at war with America.”
Ms. Burlingame, a former attorney and a director of the National September 11 Memorial Foundation, is the sister of Charles F. “Chic” Burlingame III, the pilot of American Airlines Flight 77, which was crashed into the Pentagon on Sept. 11, 2001.
Thursday, July 30, 2009
Tuesday, July 28, 2009
Conservative on Israel and Iran: After years of failed diplomacy no one will be able to call an attack precipitous
It’s Crunch Time for Israel on Iran. By JOHN BOLTON
After years of failed diplomacy no one will be able to call an attack precipitous.
WSJ, Jul 29, 2009
Legions of senior American officials have descended on Jerusalem recently, but the most important of them has been Defense Secretary Robert Gates. His central objective was to dissuade Israel from carrying out military strikes against Iran’s nuclear weapons facilities. Under the guise of counseling “patience,” Mr. Gates again conveyed President Barack Obama’s emphatic thumbs down on military force.
The public outcome of Mr. Gates’s visit appeared polite but inconclusive. Yet Iran’s progress with nuclear weapons and air defenses means Israel’s military option is declining over time. It will have to make a decision soon, and it will be no surprise if Israel strikes by year’s end. Israel’s choice could determine whether Iran obtains nuclear weapons in the foreseeable future.
Mr. Obama’s approach to Tehran has been his “open hand,” yet his gesture has not only been ignored by Iran but deemed irrelevant as the country looks inward to resolve the aftermath of its fraudulent election. The hardliner “winner” of that election, President Mahmoud Ahmadinejad, was recently forced to fire a deputy who once said something vaguely soothing about Israel. Clearly, negotiations with the White House are not exactly topping the Iranian agenda.
Beyond that, Mr. Obama’s negotiation strategy faces insuperable time pressure. French President Nicolas Sarkozy proclaimed that Iran must re-start negotiations with the West by September’s G-20 summit. But this means little when, with each passing day, Iran’s nuclear and ballistic missile laboratories, production facilities and military bases are all churning. Israel is focused on these facts, not the illusion of “tough” diplomacy.
Israel rejects another feature of Mr. Obama’s diplomatic stance. The Israelis do not believe that progress with the Palestinians will facilitate a deal on Iran’s nuclear weapons program. Though Mr. Gates and others have pressed this fanciful analysis, Israel will not be moved.
Worse, Mr. Obama has no new strategic thinking on Iran. He vaguely promises to offer the country the carrot of diplomacy—followed by an empty threat of sanctions down the road if Iran does not comply with the U.S.’s requests. This is precisely the European Union’s approach, which has failed for over six years.
There’s no reason Iran would suddenly now bow to Mr. Obama’s diplomatic efforts, especially after its embarrassing election in June. So with diplomacy out the door, how will Iran be tamed?
Mr. Gates’ mission had extraordinary significance. Israel sees the political and military landscape in a very inauspicious light. It also worries that, once ensnared in negotiations, the Obama administration will find it very hard to extricate itself. The Israelis are probably right. To prove the success of his “open hand,” Mr. Obama will declare victory for “diplomacy” even if it means little to no gains on Iran’s nuclear program.
Under the worst-case scenario, Iran will continue improving its nuclear facilities and Mr. Obama will become the first U.S. president to tie the issue of Israel’s nuclear capabilities into negotiations about Iran’s.
Israel understands that Secretary of State Hillary Clinton’s recent commitment to extend the U.S. “defense umbrella” to Israel is not a guarantee of nuclear retaliation, and that it is wholly insufficient to deter Iran from obliterating Israel if it so decides. In fact, Mrs. Clinton’s comment tacitly concedes that Iran will acquire nuclear weapons, exactly the wrong message. Since Israel, like the U.S., is well aware its missile defense system is imperfect, whatever Mr. Gates said about the “defense umbrella” will be politely ignored.
Relations between the U.S. and Israel are more strained now than at any time since the 1956 Suez Canal crisis. Mr. Gates’s message for Israel not to act on Iran, and the U.S. pressure he brought to bear, highlight the weight of Israel’s lonely burden.
Striking Iran’s nuclear program will not be precipitous or poorly thought out. Israel’s attack, if it happens, will have followed enormously difficult deliberation over terrible imponderables, and years of patiently waiting on innumerable failed diplomatic efforts. Absent Israeli action, prepare for a nuclear Iran.
After years of failed diplomacy no one will be able to call an attack precipitous.
WSJ, Jul 29, 2009
Legions of senior American officials have descended on Jerusalem recently, but the most important of them has been Defense Secretary Robert Gates. His central objective was to dissuade Israel from carrying out military strikes against Iran’s nuclear weapons facilities. Under the guise of counseling “patience,” Mr. Gates again conveyed President Barack Obama’s emphatic thumbs down on military force.
The public outcome of Mr. Gates’s visit appeared polite but inconclusive. Yet Iran’s progress with nuclear weapons and air defenses means Israel’s military option is declining over time. It will have to make a decision soon, and it will be no surprise if Israel strikes by year’s end. Israel’s choice could determine whether Iran obtains nuclear weapons in the foreseeable future.
Mr. Obama’s approach to Tehran has been his “open hand,” yet his gesture has not only been ignored by Iran but deemed irrelevant as the country looks inward to resolve the aftermath of its fraudulent election. The hardliner “winner” of that election, President Mahmoud Ahmadinejad, was recently forced to fire a deputy who once said something vaguely soothing about Israel. Clearly, negotiations with the White House are not exactly topping the Iranian agenda.
Beyond that, Mr. Obama’s negotiation strategy faces insuperable time pressure. French President Nicolas Sarkozy proclaimed that Iran must re-start negotiations with the West by September’s G-20 summit. But this means little when, with each passing day, Iran’s nuclear and ballistic missile laboratories, production facilities and military bases are all churning. Israel is focused on these facts, not the illusion of “tough” diplomacy.
Israel rejects another feature of Mr. Obama’s diplomatic stance. The Israelis do not believe that progress with the Palestinians will facilitate a deal on Iran’s nuclear weapons program. Though Mr. Gates and others have pressed this fanciful analysis, Israel will not be moved.
Worse, Mr. Obama has no new strategic thinking on Iran. He vaguely promises to offer the country the carrot of diplomacy—followed by an empty threat of sanctions down the road if Iran does not comply with the U.S.’s requests. This is precisely the European Union’s approach, which has failed for over six years.
There’s no reason Iran would suddenly now bow to Mr. Obama’s diplomatic efforts, especially after its embarrassing election in June. So with diplomacy out the door, how will Iran be tamed?
Mr. Gates’ mission had extraordinary significance. Israel sees the political and military landscape in a very inauspicious light. It also worries that, once ensnared in negotiations, the Obama administration will find it very hard to extricate itself. The Israelis are probably right. To prove the success of his “open hand,” Mr. Obama will declare victory for “diplomacy” even if it means little to no gains on Iran’s nuclear program.
Under the worst-case scenario, Iran will continue improving its nuclear facilities and Mr. Obama will become the first U.S. president to tie the issue of Israel’s nuclear capabilities into negotiations about Iran’s.
Israel understands that Secretary of State Hillary Clinton’s recent commitment to extend the U.S. “defense umbrella” to Israel is not a guarantee of nuclear retaliation, and that it is wholly insufficient to deter Iran from obliterating Israel if it so decides. In fact, Mrs. Clinton’s comment tacitly concedes that Iran will acquire nuclear weapons, exactly the wrong message. Since Israel, like the U.S., is well aware its missile defense system is imperfect, whatever Mr. Gates said about the “defense umbrella” will be politely ignored.
Relations between the U.S. and Israel are more strained now than at any time since the 1956 Suez Canal crisis. Mr. Gates’s message for Israel not to act on Iran, and the U.S. pressure he brought to bear, highlight the weight of Israel’s lonely burden.
Striking Iran’s nuclear program will not be precipitous or poorly thought out. Israel’s attack, if it happens, will have followed enormously difficult deliberation over terrible imponderables, and years of patiently waiting on innumerable failed diplomatic efforts. Absent Israeli action, prepare for a nuclear Iran.
We should listen to Chinese warnings on the dollar
The Customer Is Right. WSJ Editorial
Mr. Obama should listen to Chinese warnings on the dollar.
WSJ, Jul 29, 2009
"We exercise our leadership best when we are listening," President Obama said in April, when asked how his foreign policy differs from that of George W. Bush. Let’s hope that he and Congress were listening when Chinese officials visited the U.S. this week.
The unambiguous message from these investors who hold more than $800 billion in U.S. Treasury debt: Washington needs to take better care of their investment. Yesterday, China Vice Premier Wang Qishan urged the U.S. to get a handle on its soaring debt to protect the value of the dollar. “As a major reserve currency-issuing country in the world, the U.S. should balance and properly handle the dollar’s supply,” Mr. Wang said through an interpreter. Well put.
Like investors everywhere, the Chinese are concerned that America will simply print money to pay off its ballooning debts. The visitors from Beijing were so concerned about the Federal Reserve’s money-creation binge that Fed Chairman Ben Bernanke had to reassure them that he had an exit strategy from what has been the most accommodative U.S. monetary policy since the 1970s. Our guess is that after a decade of Fed missteps, the Chinese are in a Missouri state of mind about this and will want Mr. Bernanke to show them he means it.
The Chinese also zeroed in on Uncle Sam’s finances. “We sincerely hope the U.S. fiscal deficit will be reduced, year after year,” Assistant Finance Minister Zhu Guangyao said on Monday. We have long held that deficits per se are less important than their size relative to the overall economy, and that the real burden on taxpayers is the spending that creates deficits. However, Mr. Obama and Congressional Democrats have been rapidly raising both. One has to go back to the era of World War II to see deficits consuming so large a percentage of GDP as this year’s 13%.
The Chinese might have cause to be less worried if these deficits were poised to fall quickly amid an economic expansion. But the tragedy is that this blowout of the U.S. balance sheet was used to finance spending, largely on transfer payments like Medicaid and jobless benefits, rather than pro-growth tax cuts. The recession is already bottoming out, but the danger is that the expansion to come will be too mediocre to drive job creation and raise revenues enough to reduce the deficit the way it did in the 1980s.
These deficits must eventually be paid for with cash taken from taxpayers, which limits economic growth, or with inflation, which robs investors of the value of their savings. With the U.S. deficit exceeding $1.8 trillion in 2009, and likely to stay high for years to come, investors in China and around the world have every right to be concerned. The Chinese have economic problems of their own, but when they come visiting with a message of sound money and spending restraint, Americans ignore them at our peril.
Mr. Obama should listen to Chinese warnings on the dollar.
WSJ, Jul 29, 2009
"We exercise our leadership best when we are listening," President Obama said in April, when asked how his foreign policy differs from that of George W. Bush. Let’s hope that he and Congress were listening when Chinese officials visited the U.S. this week.
The unambiguous message from these investors who hold more than $800 billion in U.S. Treasury debt: Washington needs to take better care of their investment. Yesterday, China Vice Premier Wang Qishan urged the U.S. to get a handle on its soaring debt to protect the value of the dollar. “As a major reserve currency-issuing country in the world, the U.S. should balance and properly handle the dollar’s supply,” Mr. Wang said through an interpreter. Well put.
Like investors everywhere, the Chinese are concerned that America will simply print money to pay off its ballooning debts. The visitors from Beijing were so concerned about the Federal Reserve’s money-creation binge that Fed Chairman Ben Bernanke had to reassure them that he had an exit strategy from what has been the most accommodative U.S. monetary policy since the 1970s. Our guess is that after a decade of Fed missteps, the Chinese are in a Missouri state of mind about this and will want Mr. Bernanke to show them he means it.
The Chinese also zeroed in on Uncle Sam’s finances. “We sincerely hope the U.S. fiscal deficit will be reduced, year after year,” Assistant Finance Minister Zhu Guangyao said on Monday. We have long held that deficits per se are less important than their size relative to the overall economy, and that the real burden on taxpayers is the spending that creates deficits. However, Mr. Obama and Congressional Democrats have been rapidly raising both. One has to go back to the era of World War II to see deficits consuming so large a percentage of GDP as this year’s 13%.
The Chinese might have cause to be less worried if these deficits were poised to fall quickly amid an economic expansion. But the tragedy is that this blowout of the U.S. balance sheet was used to finance spending, largely on transfer payments like Medicaid and jobless benefits, rather than pro-growth tax cuts. The recession is already bottoming out, but the danger is that the expansion to come will be too mediocre to drive job creation and raise revenues enough to reduce the deficit the way it did in the 1980s.
These deficits must eventually be paid for with cash taken from taxpayers, which limits economic growth, or with inflation, which robs investors of the value of their savings. With the U.S. deficit exceeding $1.8 trillion in 2009, and likely to stay high for years to come, investors in China and around the world have every right to be concerned. The Chinese have economic problems of their own, but when they come visiting with a message of sound money and spending restraint, Americans ignore them at our peril.
Some pre-emptive scapegoating over rising oil prices
The Politics of ‘Speculation’. WSJ Editorial
Some pre-emptive scapegoating over rising oil prices.
WSJ, Jul 29, 2009
The oil speculators are back—that is, back in the cross-hairs of the political class. On Tuesday, Commodity Futures Trading Commission Chairman Gary Gensler uttered the Pentagon-like phrase that “every option must be on the table” to curb “excessive speculation.” If you’re wondering what makes speculation “excessive,” in Washington the answer is this: Speculation becomes excessive when prices move in a politically inconvenient direction. Which brings us to the real meaning of the three days of theater, er, hearings that Mr. Gensler is conducting this week.
Last summer, as oil prices were peaking, the CFTC launched an investigation into whether $100-plus oil was the result of market manipulation by those “speculators.” That interim report, issued in July 2008, concluded that price movements were largely driven by—wait for it— supply and demand.
The report noted, among other findings, that so-called speculators were net short during some of the biggest run-ups in oil prices over the past several years. In other words, they were, if anything, putting downward pressure on prices during some big spikes. The CFTC also found that markets in which futures trading is outlawed altogether—such as onions (yes, onions)—price volatility tended to be even greater than in commodities like oil with deep and efficient futures markets.
Oil prices began their six-month, 80% slide about the time that report was issued. But since last December oil prices have climbed back up again, and consumer gasoline prices have climbed along with them. This is not popular with voters. Three weeks ago, British Prime Minister Gordon Brown and French President Nicolas Sarkozy warned on these pages about the dangers of “damaging speculation.” Now the U.S. is getting into the act in the form of Obama appointee Mr. Gensler—and Congress can’t be far behind.
So the Gensler CFTC is now poised to issue a follow-up repudiating the commission’s earlier findings. This week’s hearings are being held without the benefit of the CFTC’s actual findings, which are due out in August—but no matter. The CFTC’s about-face is all about the politics, not the economics, of price discovery. And the real goal is not to blame the evil speculators for last year’s price spike or this year’s oil rally, but to lay the groundwork for explaining away the commodity-price bull run that we’re likely to see as a result of the Federal Reserve’s easy money and the Obama Administration’s spending and debt party.
As the CFTC’s 2008 report noted, price signals drive discovery and exploration, albeit with a lag. Low prices today beget shortages tomorrow, while high prices today encourage the discovery and development of future supply. Those prices, in turn, are not the product of any economic model or forecast, but are the sum total of the bids and offers available on the spot and futures markets.
In all of this, what nobody has managed to explain is what, exactly, happened to the omnipotent speculators between July and December 2008. Did they all go on vacation? Perhaps they paused for a six-month drinking binge with their winnings before returning to manipulate us anew in 2009.
No, what we really have here is the age-old scapegoating that our superstitious ancestors would have recognized. The only twist in Mr. Gensler’s case is that he’s trying to scape the goats pre-emptively. On our current fiscal and monetary policy course, the dollar is not done falling and interest rates have barely begun to rise. Both of these market moves will be felt in the commodities markets, as they were after Alan Greenspan cut short-term rates to 1% in 2003-2004. So better to send the posse after the speculators now than to confront the consequences of Washington’s policy errors.
There is an alternative to the market price—it’s called price controls. And the danger is that this is where we’re headed politically. If curbing speculation by limiting trader positions or restricting the ability of “non-commercial” buyers to trade is a politically acceptable way to dampen volatility (remember the onions), the logical next step is a political diktat that oil will not be bought or sold above a certain price.
Truth is, we need more speculators, not less. They’re the people who can help prices find the right level, because there is no “right” level other than the one the market gives us. And that’s why, in turn, excessive speculation is nothing more—or less—than a convenient fiction for when prices don’t move the way politicians would like.
Some pre-emptive scapegoating over rising oil prices.
WSJ, Jul 29, 2009
The oil speculators are back—that is, back in the cross-hairs of the political class. On Tuesday, Commodity Futures Trading Commission Chairman Gary Gensler uttered the Pentagon-like phrase that “every option must be on the table” to curb “excessive speculation.” If you’re wondering what makes speculation “excessive,” in Washington the answer is this: Speculation becomes excessive when prices move in a politically inconvenient direction. Which brings us to the real meaning of the three days of theater, er, hearings that Mr. Gensler is conducting this week.
Last summer, as oil prices were peaking, the CFTC launched an investigation into whether $100-plus oil was the result of market manipulation by those “speculators.” That interim report, issued in July 2008, concluded that price movements were largely driven by—wait for it— supply and demand.
The report noted, among other findings, that so-called speculators were net short during some of the biggest run-ups in oil prices over the past several years. In other words, they were, if anything, putting downward pressure on prices during some big spikes. The CFTC also found that markets in which futures trading is outlawed altogether—such as onions (yes, onions)—price volatility tended to be even greater than in commodities like oil with deep and efficient futures markets.
Oil prices began their six-month, 80% slide about the time that report was issued. But since last December oil prices have climbed back up again, and consumer gasoline prices have climbed along with them. This is not popular with voters. Three weeks ago, British Prime Minister Gordon Brown and French President Nicolas Sarkozy warned on these pages about the dangers of “damaging speculation.” Now the U.S. is getting into the act in the form of Obama appointee Mr. Gensler—and Congress can’t be far behind.
So the Gensler CFTC is now poised to issue a follow-up repudiating the commission’s earlier findings. This week’s hearings are being held without the benefit of the CFTC’s actual findings, which are due out in August—but no matter. The CFTC’s about-face is all about the politics, not the economics, of price discovery. And the real goal is not to blame the evil speculators for last year’s price spike or this year’s oil rally, but to lay the groundwork for explaining away the commodity-price bull run that we’re likely to see as a result of the Federal Reserve’s easy money and the Obama Administration’s spending and debt party.
As the CFTC’s 2008 report noted, price signals drive discovery and exploration, albeit with a lag. Low prices today beget shortages tomorrow, while high prices today encourage the discovery and development of future supply. Those prices, in turn, are not the product of any economic model or forecast, but are the sum total of the bids and offers available on the spot and futures markets.
In all of this, what nobody has managed to explain is what, exactly, happened to the omnipotent speculators between July and December 2008. Did they all go on vacation? Perhaps they paused for a six-month drinking binge with their winnings before returning to manipulate us anew in 2009.
No, what we really have here is the age-old scapegoating that our superstitious ancestors would have recognized. The only twist in Mr. Gensler’s case is that he’s trying to scape the goats pre-emptively. On our current fiscal and monetary policy course, the dollar is not done falling and interest rates have barely begun to rise. Both of these market moves will be felt in the commodities markets, as they were after Alan Greenspan cut short-term rates to 1% in 2003-2004. So better to send the posse after the speculators now than to confront the consequences of Washington’s policy errors.
There is an alternative to the market price—it’s called price controls. And the danger is that this is where we’re headed politically. If curbing speculation by limiting trader positions or restricting the ability of “non-commercial” buyers to trade is a politically acceptable way to dampen volatility (remember the onions), the logical next step is a political diktat that oil will not be bought or sold above a certain price.
Truth is, we need more speculators, not less. They’re the people who can help prices find the right level, because there is no “right” level other than the one the market gives us. And that’s why, in turn, excessive speculation is nothing more—or less—than a convenient fiction for when prices don’t move the way politicians would like.
Is There a ‘Right’ to Health Care?
Is There a ‘Right’ to Health Care?. By Theodore Dalrymple
In Britain, its recognition has led to substandard care.
WSJ, Jul 29, 2009
If there is a right to health care, someone has the duty to provide it. Inevitably, that “someone” is the government. Concrete benefits in pursuance of abstract rights, however, can be provided by the government only by constant coercion.
People sometimes argue in favor of a universal human right to health care by saying that health care is different from all other human goods or products. It is supposedly an important precondition of life itself. This is wrong: There are several other, much more important preconditions of human existence, such as food, shelter and clothing.
Everyone agrees that hunger is a bad thing (as is overeating), but few suppose there is a right to a healthy, balanced diet, or that if there was, the federal government would be the best at providing and distributing it to each and every American.
Where does the right to health care come from? Did it exist in, say, 250 B.C., or in A.D. 1750? If it did, how was it that our ancestors, who were no less intelligent than we, failed completely to notice it?
If, on the other hand, the right to health care did not exist in those benighted days, how did it come into existence, and how did we come to recognize it once it did?
When the supposed right to health care is widely recognized, as in the United Kingdom, it tends to reduce moral imagination. Whenever I deny the existence of a right to health care to a Briton who asserts it, he replies, “So you think it is all right for people to be left to die in the street?”
When I then ask my interlocutor whether he can think of any reason why people should not be left to die in the street, other than that they have a right to health care, he is generally reduced to silence. He cannot think of one.
Moreover, the right to grant is also the right to deny. And in times of economic stringency, when the first call on public expenditure is the payment of the salaries and pensions of health-care staff, we can rely with absolute confidence on the capacity of government sophists to find good reasons for doing bad things.
The question of health care is not one of rights but of how best in practice to organize it. America is certainly not a perfect model in this regard. But neither is Britain, where a universal right to health care has been recognized longest in the Western world.
Not coincidentally, the U.K. is by far the most unpleasant country in which to be ill in the Western world. Even Greeks living in Britain return home for medical treatment if they are physically able to do so.
The government-run health-care system—which in the U.K. is believed to be the necessary institutional corollary to an inalienable right to health care—has pauperized the entire population. This is not to say that in every last case the treatment is bad: A pauper may be well or badly treated, according to the inclination, temperament and abilities of those providing the treatment. But a pauper must accept what he is given.
Universality is closely allied as an ideal, ideologically, to that of equality. But equality is not desirable in itself. To provide everyone with the same bad quality of care would satisfy the demand for equality. (Not coincidentally, British survival rates for cancer and heart disease are much below those of other European countries, where patients need to make at least some payment for their care.)
In any case, the universality of government health care in pursuance of the abstract right to it in Britain has not ensured equality. After 60 years of universal health care, free at the point of usage and funded by taxation, inequalities between the richest and poorest sections of the population have not been reduced. But Britain does have the dirtiest, most broken-down hospitals in Europe.
There is no right to health care—any more than there is a right to chicken Kiev every second Thursday of the month.
Theodore Dalrymple is the pen name of Anthony Daniels, a British physician. He is a contributing editor to the City Journal.
In Britain, its recognition has led to substandard care.
WSJ, Jul 29, 2009
If there is a right to health care, someone has the duty to provide it. Inevitably, that “someone” is the government. Concrete benefits in pursuance of abstract rights, however, can be provided by the government only by constant coercion.
People sometimes argue in favor of a universal human right to health care by saying that health care is different from all other human goods or products. It is supposedly an important precondition of life itself. This is wrong: There are several other, much more important preconditions of human existence, such as food, shelter and clothing.
Everyone agrees that hunger is a bad thing (as is overeating), but few suppose there is a right to a healthy, balanced diet, or that if there was, the federal government would be the best at providing and distributing it to each and every American.
Where does the right to health care come from? Did it exist in, say, 250 B.C., or in A.D. 1750? If it did, how was it that our ancestors, who were no less intelligent than we, failed completely to notice it?
If, on the other hand, the right to health care did not exist in those benighted days, how did it come into existence, and how did we come to recognize it once it did?
When the supposed right to health care is widely recognized, as in the United Kingdom, it tends to reduce moral imagination. Whenever I deny the existence of a right to health care to a Briton who asserts it, he replies, “So you think it is all right for people to be left to die in the street?”
When I then ask my interlocutor whether he can think of any reason why people should not be left to die in the street, other than that they have a right to health care, he is generally reduced to silence. He cannot think of one.
Moreover, the right to grant is also the right to deny. And in times of economic stringency, when the first call on public expenditure is the payment of the salaries and pensions of health-care staff, we can rely with absolute confidence on the capacity of government sophists to find good reasons for doing bad things.
The question of health care is not one of rights but of how best in practice to organize it. America is certainly not a perfect model in this regard. But neither is Britain, where a universal right to health care has been recognized longest in the Western world.
Not coincidentally, the U.K. is by far the most unpleasant country in which to be ill in the Western world. Even Greeks living in Britain return home for medical treatment if they are physically able to do so.
The government-run health-care system—which in the U.K. is believed to be the necessary institutional corollary to an inalienable right to health care—has pauperized the entire population. This is not to say that in every last case the treatment is bad: A pauper may be well or badly treated, according to the inclination, temperament and abilities of those providing the treatment. But a pauper must accept what he is given.
Universality is closely allied as an ideal, ideologically, to that of equality. But equality is not desirable in itself. To provide everyone with the same bad quality of care would satisfy the demand for equality. (Not coincidentally, British survival rates for cancer and heart disease are much below those of other European countries, where patients need to make at least some payment for their care.)
In any case, the universality of government health care in pursuance of the abstract right to it in Britain has not ensured equality. After 60 years of universal health care, free at the point of usage and funded by taxation, inequalities between the richest and poorest sections of the population have not been reduced. But Britain does have the dirtiest, most broken-down hospitals in Europe.
There is no right to health care—any more than there is a right to chicken Kiev every second Thursday of the month.
Theodore Dalrymple is the pen name of Anthony Daniels, a British physician. He is a contributing editor to the City Journal.
The CFTC’s Flip Flop on Oil Speculation
The CFTC’s Flip Flop on Oil Speculation
IER, July 28, 2009
People, personalities, policies, drapes – just a few of the things the American people have come to expect will change from year to year, and from administration to administration, depending on the philosophy, interest and artistic sensibility of the chief executive.
Here’s what’s not suppose to change: the facts of existence, and the substance of the truth. Unfortunately, in the case of President Obama’s Commodity Futures Trading Commission (CFTC), every bit of analysis the agency did previous to the current regime can be tossed out the window – not because it was wrong then, but because it’s politically inconvenient now.
Observe the latest news from the CFTC this week. On Tuesday, the Commission announced that it will release a report in mid-August blaming the 2008 swings in oil prices on speculators (spoiler alert!) The announcement raises eyebrows because in 2008, the CFTC itself decisively concluded that fundamental supply and demand, not speculation, drove oil up to record highs in the summer of 2008. Bummer if you happen to make a political living off of scaring your constituents with shadows and straw men.
Could it be that the CFTC’s flip flop has something to do with the Obama Administration’s desire to further regulate the financial markets? By placing arbitrary limits on which institutions are allowed to spend their money on certain financial products, the government will make oil prices more volatile, and it will steer even more profits into the huge, politically connected firms on Wall Street. Meanwhile, the American people are still waiting for the government to remove the roadblocks to the offshore energy they were promised last year when two separate bans were finally and formally put out to pasture.
The Social Function of Oil Speculation
The essential insight of Adam Smith was that a market economy harnesses the self-indulgence of individuals and motivates them to serve the common welfare. In a free market, one becomes affluent by creating better and cheaper products or services that consumers are willing to buy.
In the case of speculation, this process actually reduces the volatility of price swings. We have all heard the successful speculator’s motto of “buy low, sell high.” To be more specific, the phrase should really be “short-sell high, cover low.” What this means it that if some investors believe that oil prices will rise sharply in a month, they can profit from this hunch by buying oil futures contracts. If and when the price of oil does rise as they had anticipated, their futures contracts will be adjusted, booking a profit to their trading accounts. (On the flip side, if some investors think oil prices will fall, they can sell—“go short”—oil futures contracts.)
It’s true, as the critics point out, that an investor who purchases oil futures contracts will indirectly pull up the current price of oil. This happens because producers have an incentive to reduce current sales when the futures price gets pushed up. They are effectively diverting some of their scarce supplies of oil to the future, rather than selling it all in the present.
But even if futures purchases push up current oil prices, the speculators perform a service to everybody else so long as they correctly anticipated a price spike. If oil is currently selling at $50, and an investor believes it will jump up to $70 in one month, then the investor will buy futures contracts until the “futures price” gets pushed up to reflect his forecast. In the process, his actions may have pushed the current, spot price up to $55. But that’s a good thing, because now the price will approach $70 more gradually; it won’t shock the market as much when oil hits $70.
Of course, if speculators are wrong, then they do make market prices more volatile. If a price is actually going to fall in the future, and speculators foolishly buy futures contracts because they mistakenly expect a price hike, then yes that does distort markets. But the government doesn’t need to crack down on this antisocial behavior, because the market has a built-in penalty: speculators who guess wrong lose money. And in fact, many investors lost a bundle of money when oil prices collapsed in the fall of 2008. And you didn’t hear the politicians praising speculators for the run down in the price of oil either.
The other thing producers do, and perhaps the most important thing for consumers, is that they are encouraged by the higher price to invest in finding more oil, because they will get a higher price for the oil. They buy equipment, hire people and buy services. They explore for new supplies and add new capacity. By combining their risked capital, additional human resources and intelligence, they bring new oil to the markets. New oil supplies help producers meet the increased demand and prices fall. This is supply and demand working to meet the wants and needs of consumers and there is nothing sinister about it.
Even Paul Krugman Agreed that Speculators Didn’t Cause the 2008 Spike
So we see that even when speculators move prices, so long as their forecasts are correct, they are actually helping to stabilize prices. Ironically, the point is moot regarding the 2008 price swings, because many analysts from across the political spectrum did not believe that speculation drove those movements. Instead, the underlying supply and demand conditions were the best explanation for why oil rose so high by the summer of 2008, and then collapsed in the fall.
The “smoking gun” in this conclusion was the fact that oil inventories were not rising during oil’s large ascent. Independent analyses by IER and the CFTC pointed to this fact, and Paul Krugman has recently reminded his readers that he too does not believe oil speculators were responsible for the 2008 movements.
All three analyses noted that the only way for speculators to drive up prices, is by giving an incentive for people to take oil off the current market and stockpile it for future sale. Since there was no obvious accumulation of oil inventories during the first half of 2008, oil speculation couldn’t have been the driving force. The reason the spot price of oil rose so much through the summer, was that worldwide supply still lagged behind demand for much of the year.Putting
New Curbs on Financial Markets Will Hurt Consumers
Of course, the real reason behind the CFTC’s change of heart is that it needs to justify its desire to expand its regulatory purview and slap on even more regulations of the financial markets. Specifically, the CFTC wants the power to limit “speculative” purchases of oil futures and other derivatives. The idea is that “physical hedgers”—such as airlines and oil producers—can trade in futures contracts as much as they want, because in theory they are just shielding their businesses from sensitive oil price moves. In contrast, the CFTC wants to crack down on those who buy futures contracts out of purely speculative motives.
This is a false dichotomy, and certainly we can’t trust bureaucrats to know the difference in practice. Airline companies can hold an opinion on oil prices too, and “bet” accordingly—that’s why some airlines invest more heavily than others in futures contracts. So even institutions that are directly related to the oil business can dabble in speculative transactions that will affect oil prices based on their forecasts.
On the other hand, investors who are completely isolated from the oil market might buy oil futures as a “hedge.” For example, during 2008 many portfolio managers gained more and more exposure to oil, meaning they “went long” on oil futures contracts. But they weren’t doing this in order to bet on higher prices. Rather, they could see that as oil kept rising, it was hurting the share prices on many major companies. So in order to protect their clients, the portfolio managers diversified their holdings, by selling off some of their stock and bond holdings in order to buy commodity futures. New government regulations could hinder this very useful tool to shield average investors from large price swings.
Finally, we need to realize that CFTC regulations will not stop large speculators from changing the world price of oil. Politically connected investment firms will easily be able to qualify as an “approved” purchaser of oil futures. And if nothing else, rich investors who want to bet on the price of oil can always take their business to foreign exchanges. Does anybody really think George Soros won’t be able to find someone else in the whole wide world willing to take the opposite position of an oil trade he wants to make?
Of course, we will have to suspend final judgment until we see the CFTC’s new report. It’s possible that every single analyst at the CFTC missed something last year when they concluded that speculation wasn’t driving oil prices. But one can’t help but note the timing of the CFTC’s about face – just as the Obama Administration is pushing for more regulation of energy markets.
IER, July 28, 2009
People, personalities, policies, drapes – just a few of the things the American people have come to expect will change from year to year, and from administration to administration, depending on the philosophy, interest and artistic sensibility of the chief executive.
Here’s what’s not suppose to change: the facts of existence, and the substance of the truth. Unfortunately, in the case of President Obama’s Commodity Futures Trading Commission (CFTC), every bit of analysis the agency did previous to the current regime can be tossed out the window – not because it was wrong then, but because it’s politically inconvenient now.
Observe the latest news from the CFTC this week. On Tuesday, the Commission announced that it will release a report in mid-August blaming the 2008 swings in oil prices on speculators (spoiler alert!) The announcement raises eyebrows because in 2008, the CFTC itself decisively concluded that fundamental supply and demand, not speculation, drove oil up to record highs in the summer of 2008. Bummer if you happen to make a political living off of scaring your constituents with shadows and straw men.
Could it be that the CFTC’s flip flop has something to do with the Obama Administration’s desire to further regulate the financial markets? By placing arbitrary limits on which institutions are allowed to spend their money on certain financial products, the government will make oil prices more volatile, and it will steer even more profits into the huge, politically connected firms on Wall Street. Meanwhile, the American people are still waiting for the government to remove the roadblocks to the offshore energy they were promised last year when two separate bans were finally and formally put out to pasture.
The Social Function of Oil Speculation
The essential insight of Adam Smith was that a market economy harnesses the self-indulgence of individuals and motivates them to serve the common welfare. In a free market, one becomes affluent by creating better and cheaper products or services that consumers are willing to buy.
In the case of speculation, this process actually reduces the volatility of price swings. We have all heard the successful speculator’s motto of “buy low, sell high.” To be more specific, the phrase should really be “short-sell high, cover low.” What this means it that if some investors believe that oil prices will rise sharply in a month, they can profit from this hunch by buying oil futures contracts. If and when the price of oil does rise as they had anticipated, their futures contracts will be adjusted, booking a profit to their trading accounts. (On the flip side, if some investors think oil prices will fall, they can sell—“go short”—oil futures contracts.)
It’s true, as the critics point out, that an investor who purchases oil futures contracts will indirectly pull up the current price of oil. This happens because producers have an incentive to reduce current sales when the futures price gets pushed up. They are effectively diverting some of their scarce supplies of oil to the future, rather than selling it all in the present.
But even if futures purchases push up current oil prices, the speculators perform a service to everybody else so long as they correctly anticipated a price spike. If oil is currently selling at $50, and an investor believes it will jump up to $70 in one month, then the investor will buy futures contracts until the “futures price” gets pushed up to reflect his forecast. In the process, his actions may have pushed the current, spot price up to $55. But that’s a good thing, because now the price will approach $70 more gradually; it won’t shock the market as much when oil hits $70.
Of course, if speculators are wrong, then they do make market prices more volatile. If a price is actually going to fall in the future, and speculators foolishly buy futures contracts because they mistakenly expect a price hike, then yes that does distort markets. But the government doesn’t need to crack down on this antisocial behavior, because the market has a built-in penalty: speculators who guess wrong lose money. And in fact, many investors lost a bundle of money when oil prices collapsed in the fall of 2008. And you didn’t hear the politicians praising speculators for the run down in the price of oil either.
The other thing producers do, and perhaps the most important thing for consumers, is that they are encouraged by the higher price to invest in finding more oil, because they will get a higher price for the oil. They buy equipment, hire people and buy services. They explore for new supplies and add new capacity. By combining their risked capital, additional human resources and intelligence, they bring new oil to the markets. New oil supplies help producers meet the increased demand and prices fall. This is supply and demand working to meet the wants and needs of consumers and there is nothing sinister about it.
Even Paul Krugman Agreed that Speculators Didn’t Cause the 2008 Spike
So we see that even when speculators move prices, so long as their forecasts are correct, they are actually helping to stabilize prices. Ironically, the point is moot regarding the 2008 price swings, because many analysts from across the political spectrum did not believe that speculation drove those movements. Instead, the underlying supply and demand conditions were the best explanation for why oil rose so high by the summer of 2008, and then collapsed in the fall.
The “smoking gun” in this conclusion was the fact that oil inventories were not rising during oil’s large ascent. Independent analyses by IER and the CFTC pointed to this fact, and Paul Krugman has recently reminded his readers that he too does not believe oil speculators were responsible for the 2008 movements.
All three analyses noted that the only way for speculators to drive up prices, is by giving an incentive for people to take oil off the current market and stockpile it for future sale. Since there was no obvious accumulation of oil inventories during the first half of 2008, oil speculation couldn’t have been the driving force. The reason the spot price of oil rose so much through the summer, was that worldwide supply still lagged behind demand for much of the year.Putting
New Curbs on Financial Markets Will Hurt Consumers
Of course, the real reason behind the CFTC’s change of heart is that it needs to justify its desire to expand its regulatory purview and slap on even more regulations of the financial markets. Specifically, the CFTC wants the power to limit “speculative” purchases of oil futures and other derivatives. The idea is that “physical hedgers”—such as airlines and oil producers—can trade in futures contracts as much as they want, because in theory they are just shielding their businesses from sensitive oil price moves. In contrast, the CFTC wants to crack down on those who buy futures contracts out of purely speculative motives.
This is a false dichotomy, and certainly we can’t trust bureaucrats to know the difference in practice. Airline companies can hold an opinion on oil prices too, and “bet” accordingly—that’s why some airlines invest more heavily than others in futures contracts. So even institutions that are directly related to the oil business can dabble in speculative transactions that will affect oil prices based on their forecasts.
On the other hand, investors who are completely isolated from the oil market might buy oil futures as a “hedge.” For example, during 2008 many portfolio managers gained more and more exposure to oil, meaning they “went long” on oil futures contracts. But they weren’t doing this in order to bet on higher prices. Rather, they could see that as oil kept rising, it was hurting the share prices on many major companies. So in order to protect their clients, the portfolio managers diversified their holdings, by selling off some of their stock and bond holdings in order to buy commodity futures. New government regulations could hinder this very useful tool to shield average investors from large price swings.
Finally, we need to realize that CFTC regulations will not stop large speculators from changing the world price of oil. Politically connected investment firms will easily be able to qualify as an “approved” purchaser of oil futures. And if nothing else, rich investors who want to bet on the price of oil can always take their business to foreign exchanges. Does anybody really think George Soros won’t be able to find someone else in the whole wide world willing to take the opposite position of an oil trade he wants to make?
Of course, we will have to suspend final judgment until we see the CFTC’s new report. It’s possible that every single analyst at the CFTC missed something last year when they concluded that speculation wasn’t driving oil prices. But one can’t help but note the timing of the CFTC’s about face – just as the Obama Administration is pushing for more regulation of energy markets.
Resistance to mind-altering substances is futile, according to a new "Secret History of Getting High in America"
Why we say yes to drugs. By Laura Miller
Resistance to mind-altering substances is futile, according to a new "Secret History of Getting High in America"
Salon, Jul. 20, 2009
Not long ago, I was talking with a couple of friends who are about a decade younger than I am. We got onto the subject of recreational drugs and how my friends had recently sworn off Ecstasy. "I know a guy who used to love it, and he's quitting, too," one of them explained. "He's learned a lot about it and says it's just too hard on your body." I remarked that since Ecstasy is the sort of drug most people take only very occasionally, it probably wasn't as dangerous as something like cocaine, which can be addictive, expensive and lethal. "Oh, cocaine's not that bad," said my friend, looking puzzled and leaving me surprised. Hadn't he ever worked for someone who'd gotten so tweaked on coke that he burned out his septum, emptied his bank account and triggered a heart attack? Hasn't every journalist worked with someone like that?
Ryan Grim would understand this disconnect perfectly. One of the theses of his new book, "This is Your Country on Drugs: The Secret History of Getting High in America" -- a cornucopia of unconventional wisdom about our relationship to mind-altering substances -- is that the popularity of drugs waxes and wanes according to a complex sum of factors. One of those factors is the "perceived risk" of using a particular chemical, which also fluctuates. There's a tendency to idealize new drugs, as the Boston Medical and Surgical Journal did with a recently isolated narcotic in 1900. "There's no danger of acquiring a habit," it assured its readers about the drug that had just emerged from the labs of the aspirin manufacturer, Bayer. They named it heroin.
Even when we ought to know better, we don't. "It takes about seven years," Grim writes, "for folks to realize what's wrong with any given drug. It slips away, only to return again as if it were new." I came of age professionally at a time when older journalists and editors were wrecking themselves on cocaine right and left; as a result, I still think of the drug as equal parts perilous and pathetic, as well as hopelessly uncool. My friend, no doubt, came up during a coke lull.
A political reporter who currently works at the Huffington Post, Grim wrote a 2004 article for Slate inspired by a curious observation: LSD, which had been "a fixture of my social scene since the early '90s," seemed to have vanished from that scene. No one he knew was taking it or selling it, and when he approached a drugs-policy researcher for some hard data, they discovered that according to several metrics, acid use was at "an historic low: 3.5 percent." By 2003, it was down to 1.9 percent. Why?
It wasn't just that LSD had gone out of style, although it had, somewhat. Grim found evidence of a perfect storm of causes for the decline. In 2000, the DEA had arrested a man named William Pickard, thought to be the manufacturer of as much as 95 percent of the available acid in the U.S. The Grateful Dead, whose concerts provided an opportunity for suppliers and users to connect and network, had stopped touring after the 1995 death of Jerry Garcia, and Phish, a jam band that had stepped in to fill the gap, also stopped touring by the end of 2000. The rave scene began to fade away under pressure from authorities who threatened to arrest organizers for drug offenses committed at their events.
But if Grim has learned anything from his forays into the tangled world of drug laws (he once worked for the Marijuana Policy Project, which lobbies for the repeal of pot prohibition), it's that the American passion for getting high turns enforcement-centered strategies into a vast game of Whack-a-Mole. "Policies enacted to counter other drugs -- marijuana and cocaine, for example -- have ended up encouraging the meth trade, as have laws against meth itself," he writes. Crackdowns on pot smuggled from Mexico during the 1970s caused growers, dealers and users to turn to heroin, meth and especially cocaine, the last of which was brought in from Colombia via the Caribbean and Miami. When federal authorities finally got around to draining the swamp of crime and corruption in Miami (where one-fifth of all real estate transactions were paid for in cash), coke smuggling migrated to Mexico, and when attacked there, it scattered throughout the region, "creating the cartel structure that exists today." This year, the National Drug Threat Assessment has described Mexican cartels as "the greatest organized crime threat to the United States," whose violence has spilled over the border and whose influence "over domestic drug trafficking is unrivaled."
Grim has a knack for digging up facts and crunching statistics to get unexpected results. The meth "epidemic" that has recently inspired so much media alarm is already in decline, while crack use, never as pervasive as it was depicted in the 1980s, has remained fairly steady since then. Today's kids aren't smoking much pot because pot is a "social" drug, shared among peers who gather in parking lots and other hangouts; teens have less unstructured time now and tend to socialize online. They still get high, only on prescription drugs pilfered from adults or ordered off the Internet. "There's no social ritual involved," he observes, "just a glass of water and a pill," which "fits well into a solitary afternoon."
There's more. Early American settlers drank like fish, even the Puritans (though, as Grim fails to note, this was likely a habit transferred from Europe, where the water in many communities wasn't potable). In the 19th century, the heyday of temperance campaigns, it was more socially acceptable to consume opium than alcohol, and by the end of the 1900s, America was a "pharmacopoeia utopia" in which coke, heroin and morphine were all readily available, either with a doctor's prescription or in patent medicines and products like Coca-Cola, once a cocaine-containing beverage marketed as "a substitute for alcohol." Traditionally, attempts to regulate or prohibit drugs in America have come from the left rather than the right; only with the advent of the counterculture did this change.
Some of Grim's arguments are familiar, but with a twist. By now, most informed people know that anti-drug education and P.R. campaigns directed at children don't work, but Grim has noted several studies indicating that they may actually foster experimentation. He sees the mini-boom in drug use among 10th graders in the late '90s as caused by a confluence of the "inner child" therapy boom exhorting parents to encourage children's curiosity and programs like D.A.R.E. (Drug Abuse Resistance Education), which inadvertently directed that curiosity toward exotic chemicals. Despite ample proof of its ineffectiveness, D.A.R.E. continues to be used in three-quarters of all American school districts on some 25 million children. (President Obama even proclaimed April 8 "National D.A.R.E. Day" in honor of the organization's "important work.") Grim thinks that D.A.R.E. and similarly wasteful programs persist simply because they relieve parents from the duty of having awkward (and possibly "hypocritical") conversations with their kids about drugs. Also because no one knows what else to do.
Even less excusable in Grim's eyes is the predominance of law enforcement strategies in America's disastrous war on drugs, initiated by the Reagan administration. Drug courts, in which offenders are directed to court-monitored treatment programs instead of into prison, are, according to Grim, both cheaper and more successful. Yet even politicians inclined to support a treatment-oriented approach to diminishing the American appetite for illegal drugs have opted to emphasize enforcement in order to position themselves as "tough" on crime.
For just this reason, President Clinton replaced his first, reform-minded drug czar, Lee Brown, with retired Gen. Barry McCaffrey, who squandered billions on a scandal-ridden media campaign (planting secret anti-drug messages in prime-time TV dramas) and combating the medical marijuana movement, which is supported by a majority of Americans. Worse yet, overseas enforcement campaigns lead to horrific blowback. Grim points out that aggressive attacks on growers and suppliers cause centralization of the drug trade (only big organizations can afford the losses) and this in turn leads to corruption, as cartel leaders parlay their fortunes into political influence. Not only are we pissing away our own resources on ineffectual enforcement efforts, we have "brought the Mexican government to the brink of collapse, making the prospect of a failed state on America's southern border a very real possibility."
For Grim, most of these mistakes have roots in an elementary error, the inability to accept that "altering one's consciousness is a fundamental human desire." The craving to be more relaxed or more alert, more outgoing or more reflective, happier or deeper or even just sillier and less bored -- in one form other another, this drive has always been and always will be with us, though many of us refuse to admit it. As a result, our political response to drug problems tends to be blinkered. "In reality, there's no such thing as drug policy," Grim writes. "As currently understood and implemented, drug policy attempts to isolate a phenomenon that can't be taken in isolation. Economic policy is drug policy. Healthcare policy is drug policy. Foreign policy, too, is drug policy. When approached in isolation, drug policy almost always backfires, because it doesn't take into account the powerful economic, social and cultural forces that also determine how and why Americans get high."
Yet a simplistic call for legalization fails to take into account the fact that almost all drugs can be very dangerous, and that the impulse to control them may run as deep as the desire to enjoy them. People who trust themselves to use drugs wisely don't necessarily want their kids, or their irresponsible neighbors, or their troubled relatives to enjoy unfettered access to previously controlled substances. For that reason, Grim -- who exhibits a distinct preference for hallucinogens and is prone to idealizing the "psychonauts" who use them to "expand consciousness" -- stops short of calling for the repeal of all drug prohibitions, for the most part, apparently, because he thinks it just won't last. "What would happen if drugs were legalized?" he asks, referring to the "pharmacopoeia utopia" of the late 1800s. "Well, it happened. And history suggests that if we ever legalize them again, it won't be long before we ban them all over again."
"Realism" seems to be the most Grim can bring himself to hope for, which is why he applauds cable TV series like "Weeds," "Breaking Bad" and "The Wire" for their nuanced depictions of the drug trade and the people who ply it. The library-like Web site Erowid.com emerges as one of the few real heroes in "This Is Your Country on Drugs," due to its curators' fierce commitment to objectively and thoroughly substantiating the vast amounts of information -- positive and negative -- they present about virtually every drug under the sun. A little realism would certainly help with regard to cocaine, whose "perceived risk" is rapidly shrinking in my own (admittedly highly anecdotal) experience. In the final pages of the book, Grim remarks that his own observations suggest that "coke's next honeymoon could be right around the corner." Sounds prescient, but not more so than his world-weary conclusion that "America has shown just about zero capacity to learn from its long and complicated history with drugs."
Resistance to mind-altering substances is futile, according to a new "Secret History of Getting High in America"
Salon, Jul. 20, 2009
Not long ago, I was talking with a couple of friends who are about a decade younger than I am. We got onto the subject of recreational drugs and how my friends had recently sworn off Ecstasy. "I know a guy who used to love it, and he's quitting, too," one of them explained. "He's learned a lot about it and says it's just too hard on your body." I remarked that since Ecstasy is the sort of drug most people take only very occasionally, it probably wasn't as dangerous as something like cocaine, which can be addictive, expensive and lethal. "Oh, cocaine's not that bad," said my friend, looking puzzled and leaving me surprised. Hadn't he ever worked for someone who'd gotten so tweaked on coke that he burned out his septum, emptied his bank account and triggered a heart attack? Hasn't every journalist worked with someone like that?
Ryan Grim would understand this disconnect perfectly. One of the theses of his new book, "This is Your Country on Drugs: The Secret History of Getting High in America" -- a cornucopia of unconventional wisdom about our relationship to mind-altering substances -- is that the popularity of drugs waxes and wanes according to a complex sum of factors. One of those factors is the "perceived risk" of using a particular chemical, which also fluctuates. There's a tendency to idealize new drugs, as the Boston Medical and Surgical Journal did with a recently isolated narcotic in 1900. "There's no danger of acquiring a habit," it assured its readers about the drug that had just emerged from the labs of the aspirin manufacturer, Bayer. They named it heroin.
Even when we ought to know better, we don't. "It takes about seven years," Grim writes, "for folks to realize what's wrong with any given drug. It slips away, only to return again as if it were new." I came of age professionally at a time when older journalists and editors were wrecking themselves on cocaine right and left; as a result, I still think of the drug as equal parts perilous and pathetic, as well as hopelessly uncool. My friend, no doubt, came up during a coke lull.
A political reporter who currently works at the Huffington Post, Grim wrote a 2004 article for Slate inspired by a curious observation: LSD, which had been "a fixture of my social scene since the early '90s," seemed to have vanished from that scene. No one he knew was taking it or selling it, and when he approached a drugs-policy researcher for some hard data, they discovered that according to several metrics, acid use was at "an historic low: 3.5 percent." By 2003, it was down to 1.9 percent. Why?
It wasn't just that LSD had gone out of style, although it had, somewhat. Grim found evidence of a perfect storm of causes for the decline. In 2000, the DEA had arrested a man named William Pickard, thought to be the manufacturer of as much as 95 percent of the available acid in the U.S. The Grateful Dead, whose concerts provided an opportunity for suppliers and users to connect and network, had stopped touring after the 1995 death of Jerry Garcia, and Phish, a jam band that had stepped in to fill the gap, also stopped touring by the end of 2000. The rave scene began to fade away under pressure from authorities who threatened to arrest organizers for drug offenses committed at their events.
But if Grim has learned anything from his forays into the tangled world of drug laws (he once worked for the Marijuana Policy Project, which lobbies for the repeal of pot prohibition), it's that the American passion for getting high turns enforcement-centered strategies into a vast game of Whack-a-Mole. "Policies enacted to counter other drugs -- marijuana and cocaine, for example -- have ended up encouraging the meth trade, as have laws against meth itself," he writes. Crackdowns on pot smuggled from Mexico during the 1970s caused growers, dealers and users to turn to heroin, meth and especially cocaine, the last of which was brought in from Colombia via the Caribbean and Miami. When federal authorities finally got around to draining the swamp of crime and corruption in Miami (where one-fifth of all real estate transactions were paid for in cash), coke smuggling migrated to Mexico, and when attacked there, it scattered throughout the region, "creating the cartel structure that exists today." This year, the National Drug Threat Assessment has described Mexican cartels as "the greatest organized crime threat to the United States," whose violence has spilled over the border and whose influence "over domestic drug trafficking is unrivaled."
Grim has a knack for digging up facts and crunching statistics to get unexpected results. The meth "epidemic" that has recently inspired so much media alarm is already in decline, while crack use, never as pervasive as it was depicted in the 1980s, has remained fairly steady since then. Today's kids aren't smoking much pot because pot is a "social" drug, shared among peers who gather in parking lots and other hangouts; teens have less unstructured time now and tend to socialize online. They still get high, only on prescription drugs pilfered from adults or ordered off the Internet. "There's no social ritual involved," he observes, "just a glass of water and a pill," which "fits well into a solitary afternoon."
There's more. Early American settlers drank like fish, even the Puritans (though, as Grim fails to note, this was likely a habit transferred from Europe, where the water in many communities wasn't potable). In the 19th century, the heyday of temperance campaigns, it was more socially acceptable to consume opium than alcohol, and by the end of the 1900s, America was a "pharmacopoeia utopia" in which coke, heroin and morphine were all readily available, either with a doctor's prescription or in patent medicines and products like Coca-Cola, once a cocaine-containing beverage marketed as "a substitute for alcohol." Traditionally, attempts to regulate or prohibit drugs in America have come from the left rather than the right; only with the advent of the counterculture did this change.
Some of Grim's arguments are familiar, but with a twist. By now, most informed people know that anti-drug education and P.R. campaigns directed at children don't work, but Grim has noted several studies indicating that they may actually foster experimentation. He sees the mini-boom in drug use among 10th graders in the late '90s as caused by a confluence of the "inner child" therapy boom exhorting parents to encourage children's curiosity and programs like D.A.R.E. (Drug Abuse Resistance Education), which inadvertently directed that curiosity toward exotic chemicals. Despite ample proof of its ineffectiveness, D.A.R.E. continues to be used in three-quarters of all American school districts on some 25 million children. (President Obama even proclaimed April 8 "National D.A.R.E. Day" in honor of the organization's "important work.") Grim thinks that D.A.R.E. and similarly wasteful programs persist simply because they relieve parents from the duty of having awkward (and possibly "hypocritical") conversations with their kids about drugs. Also because no one knows what else to do.
Even less excusable in Grim's eyes is the predominance of law enforcement strategies in America's disastrous war on drugs, initiated by the Reagan administration. Drug courts, in which offenders are directed to court-monitored treatment programs instead of into prison, are, according to Grim, both cheaper and more successful. Yet even politicians inclined to support a treatment-oriented approach to diminishing the American appetite for illegal drugs have opted to emphasize enforcement in order to position themselves as "tough" on crime.
For just this reason, President Clinton replaced his first, reform-minded drug czar, Lee Brown, with retired Gen. Barry McCaffrey, who squandered billions on a scandal-ridden media campaign (planting secret anti-drug messages in prime-time TV dramas) and combating the medical marijuana movement, which is supported by a majority of Americans. Worse yet, overseas enforcement campaigns lead to horrific blowback. Grim points out that aggressive attacks on growers and suppliers cause centralization of the drug trade (only big organizations can afford the losses) and this in turn leads to corruption, as cartel leaders parlay their fortunes into political influence. Not only are we pissing away our own resources on ineffectual enforcement efforts, we have "brought the Mexican government to the brink of collapse, making the prospect of a failed state on America's southern border a very real possibility."
For Grim, most of these mistakes have roots in an elementary error, the inability to accept that "altering one's consciousness is a fundamental human desire." The craving to be more relaxed or more alert, more outgoing or more reflective, happier or deeper or even just sillier and less bored -- in one form other another, this drive has always been and always will be with us, though many of us refuse to admit it. As a result, our political response to drug problems tends to be blinkered. "In reality, there's no such thing as drug policy," Grim writes. "As currently understood and implemented, drug policy attempts to isolate a phenomenon that can't be taken in isolation. Economic policy is drug policy. Healthcare policy is drug policy. Foreign policy, too, is drug policy. When approached in isolation, drug policy almost always backfires, because it doesn't take into account the powerful economic, social and cultural forces that also determine how and why Americans get high."
Yet a simplistic call for legalization fails to take into account the fact that almost all drugs can be very dangerous, and that the impulse to control them may run as deep as the desire to enjoy them. People who trust themselves to use drugs wisely don't necessarily want their kids, or their irresponsible neighbors, or their troubled relatives to enjoy unfettered access to previously controlled substances. For that reason, Grim -- who exhibits a distinct preference for hallucinogens and is prone to idealizing the "psychonauts" who use them to "expand consciousness" -- stops short of calling for the repeal of all drug prohibitions, for the most part, apparently, because he thinks it just won't last. "What would happen if drugs were legalized?" he asks, referring to the "pharmacopoeia utopia" of the late 1800s. "Well, it happened. And history suggests that if we ever legalize them again, it won't be long before we ban them all over again."
"Realism" seems to be the most Grim can bring himself to hope for, which is why he applauds cable TV series like "Weeds," "Breaking Bad" and "The Wire" for their nuanced depictions of the drug trade and the people who ply it. The library-like Web site Erowid.com emerges as one of the few real heroes in "This Is Your Country on Drugs," due to its curators' fierce commitment to objectively and thoroughly substantiating the vast amounts of information -- positive and negative -- they present about virtually every drug under the sun. A little realism would certainly help with regard to cocaine, whose "perceived risk" is rapidly shrinking in my own (admittedly highly anecdotal) experience. In the final pages of the book, Grim remarks that his own observations suggest that "coke's next honeymoon could be right around the corner." Sounds prescient, but not more so than his world-weary conclusion that "America has shown just about zero capacity to learn from its long and complicated history with drugs."
Germany and the U.K. resist France and the U.S. on green tariffs
Resisting Green Tariffs. WSJ Editorial
Germany and the U.K. resist France and the U.S. on green tariffs.
WSJ, Jul 28, 2009
One of the most dangerous but least reported undercurrents of the global-warming movement is trade protectionism. Now some politicians in Europe are beginning to push back, and we’re delighted to see it.
A carbon tariff has been popular on the intellectual left for some time, as a way to sell heavy new energy taxes to Western voters worried that their jobs will get shipped to countries that don’t also punish carbon use. The U.S. House of Representatives wrote a tariff provision into its recent cap-and-tax bill, rolling over the muted objections of President Obama. Coming from the world’s largest economy and ostensible free-trade leader, the bill is an invitation to the world’s protectionists to camouflage their self-interest in claims of green virtue.
French President Nicolas Sarkozy—a mercantalist in the best of times—escalated the threat last month by suggesting import duties to “level the playing field” with countries that oppose binding greenhouse-gas targets at December’s United Nations climate talks in Copenhagen. Just what a world trying to rebound from recession needs: beggar-thy-neighbor environmentalism.
Now other leaders are beginning to recognize and speak up about the peril. With typical British understatement, U.K. Secretary of State for Energy and Climate Change Ed Miliband said Saturday his government was “skeptical” about the French proposal for carbon tariffs. Germany’s Deputy Environment Minister Matthias Machnig was even more forthright on Friday, branding the exercise as “eco-imperialism” for attempting to punish countries that don’t follow these green dictates. “We are closing our markets for their products, and I don’t think this is a very helpful signal for the international negotiations,” he added. Both statements are notable coming as they do from parties on the political left.
Berlin’s criticism is especially important. Germany has been at the forefront of Europe’s eco-movement from the start, enriching the French language with such words as “le Waldsterben,” a German compound meaning “forest death.” The idea of the man-made destruction of Europe’s trees was the great green scare of the 1970s and 1980s. The forests are still with us, and scientists now believe that the tree decline was as much due to natural phenomena as to “acid rain.” That episode is a lesson in the need for skepticism about proposals that would do tangible economic harm in the heat of environmental manias.
A climate tariff would be damaging even on its own green terms. To the extent it reduced global trade, carbon protectionism would slow the rise in income that we know from the last half century has been crucial to antipollution progress. The richer people are, the more of their income they are willing to devote to cleaner air and water. Several hundred million people have risen from poverty in the last generation thanks to expanding trade, and the world doesn’t need a reversal thanks to old-fashioned protectionism dressed in green drag.
Germany and the U.K. resist France and the U.S. on green tariffs.
WSJ, Jul 28, 2009
One of the most dangerous but least reported undercurrents of the global-warming movement is trade protectionism. Now some politicians in Europe are beginning to push back, and we’re delighted to see it.
A carbon tariff has been popular on the intellectual left for some time, as a way to sell heavy new energy taxes to Western voters worried that their jobs will get shipped to countries that don’t also punish carbon use. The U.S. House of Representatives wrote a tariff provision into its recent cap-and-tax bill, rolling over the muted objections of President Obama. Coming from the world’s largest economy and ostensible free-trade leader, the bill is an invitation to the world’s protectionists to camouflage their self-interest in claims of green virtue.
French President Nicolas Sarkozy—a mercantalist in the best of times—escalated the threat last month by suggesting import duties to “level the playing field” with countries that oppose binding greenhouse-gas targets at December’s United Nations climate talks in Copenhagen. Just what a world trying to rebound from recession needs: beggar-thy-neighbor environmentalism.
Now other leaders are beginning to recognize and speak up about the peril. With typical British understatement, U.K. Secretary of State for Energy and Climate Change Ed Miliband said Saturday his government was “skeptical” about the French proposal for carbon tariffs. Germany’s Deputy Environment Minister Matthias Machnig was even more forthright on Friday, branding the exercise as “eco-imperialism” for attempting to punish countries that don’t follow these green dictates. “We are closing our markets for their products, and I don’t think this is a very helpful signal for the international negotiations,” he added. Both statements are notable coming as they do from parties on the political left.
Berlin’s criticism is especially important. Germany has been at the forefront of Europe’s eco-movement from the start, enriching the French language with such words as “le Waldsterben,” a German compound meaning “forest death.” The idea of the man-made destruction of Europe’s trees was the great green scare of the 1970s and 1980s. The forests are still with us, and scientists now believe that the tree decline was as much due to natural phenomena as to “acid rain.” That episode is a lesson in the need for skepticism about proposals that would do tangible economic harm in the heat of environmental manias.
A climate tariff would be damaging even on its own green terms. To the extent it reduced global trade, carbon protectionism would slow the rise in income that we know from the last half century has been crucial to antipollution progress. The richer people are, the more of their income they are willing to devote to cleaner air and water. Several hundred million people have risen from poverty in the last generation thanks to expanding trade, and the world doesn’t need a reversal thanks to old-fashioned protectionism dressed in green drag.
India Picks Economic Growth Over Carbon Dioxide Caps
India Picks Economic Growth Over Carbon Dioxide Caps
IER, July 27, 2009
The Obama Administration and European governments continue to lobby developing countries, such as India and China, to reduce their carbon dioxide emissions. But India and China reject these calls because they understand that artificial restrictions on carbon dioxide emissions will harm their economies.
During her recent visit, India’s Environment Minister reminded Secretary of State Hillary Clinton that India would not accept caps on their carbon dioxide emissions. According to the Washington Post:
But the clash between developed and developing countries over climate change intruded on the high-profile photo opportunity midway through Clinton’s three-day tour of India. Indian Environment Minister Jairam Ramesh complained about U.S. pressure to cut a worldwide deal, and Clinton countered that the Obama administration’s push for a binding agreement would not sacrifice India’s economic growth.
As dozens of cameras recorded the scene, Ramesh declared that India would not commit to a deal that would require it to meet targets to reduce emissions. “It is not true that India is running away from mitigation,” he said. But “India’s position, let me be clear, is that we are simply not in the position to take legally binding emissions targets.” [emphasis added]
It is refreshing to see that at least some government officials—though not from this country – understand that when you take options away from businesses, you reduce economic activity. If it were really true, as Secretary of State Clinton alleges, that reducing emissions will actually spur job creation and economic growth, then why would the government need to force its plan on the private sector? (See video.)
Furthermore, why stop with caps on carbon dioxide emissions? Why not impose a cap-and-trade plan on the use of steel? All those businesses currently using steel as an input would then have to scramble to find higher-priced substitutes, and this would create jobs in the plastics industries.
Of course the above “logic” is nonsense. Steadily shrinking the cap on permissible emissions will hamper U.S. economic growth and because businesses will be forced to switch to lower-carbon-intensive techniques than they otherwise would have chosen, their output will be lower and the productivity of labor will fall. That is, of course, the intent of the proponents of cap and trade plans including the Waxman-Markey bill that recently passed in the House of Representatives. The so-called “green jobs” created in some sectors, such as wind turbines and solar panels, will be counterbalanced by job destruction in other sectors that rely on fossil fuels and inexpensive energy.
Indian officials have it exactly right: They are being asked to sacrifice the welfare of their own citizens by Western leaders whose countries were built on a foundation of abundant energy.
India’s declaration also undermines the entire rationale for the Waxman-Markey bill. Taken in isolation, some experts contend that the Waxman-Markey caps on U.S. emissions will have virtually no impact on the trajectory of global warming, even taking the standard climate models at face value. Even the most outspoken scientists on global warming agree that unilateral American efforts are pointless, without similar targets being adopted by the developing world.
Proponents of cap and trade have justified its economically crippling, yet environmentally irrelevant, constraints on the U.S. by saying it will provide American negotiators with moral authority when seeking worldwide restrictions on industry. The idea is that we need to impose limits on the U.S. economy before other governments will agree to shackle their own economies in turn.
India, rightly so, has just declared that it will do no such thing. Let us hope that our leaders see the flaws in their logic and reverse course on this job-killing cap and trade plan before it is too late.
IER, July 27, 2009
The Obama Administration and European governments continue to lobby developing countries, such as India and China, to reduce their carbon dioxide emissions. But India and China reject these calls because they understand that artificial restrictions on carbon dioxide emissions will harm their economies.
During her recent visit, India’s Environment Minister reminded Secretary of State Hillary Clinton that India would not accept caps on their carbon dioxide emissions. According to the Washington Post:
But the clash between developed and developing countries over climate change intruded on the high-profile photo opportunity midway through Clinton’s three-day tour of India. Indian Environment Minister Jairam Ramesh complained about U.S. pressure to cut a worldwide deal, and Clinton countered that the Obama administration’s push for a binding agreement would not sacrifice India’s economic growth.
As dozens of cameras recorded the scene, Ramesh declared that India would not commit to a deal that would require it to meet targets to reduce emissions. “It is not true that India is running away from mitigation,” he said. But “India’s position, let me be clear, is that we are simply not in the position to take legally binding emissions targets.” [emphasis added]
It is refreshing to see that at least some government officials—though not from this country – understand that when you take options away from businesses, you reduce economic activity. If it were really true, as Secretary of State Clinton alleges, that reducing emissions will actually spur job creation and economic growth, then why would the government need to force its plan on the private sector? (See video.)
Furthermore, why stop with caps on carbon dioxide emissions? Why not impose a cap-and-trade plan on the use of steel? All those businesses currently using steel as an input would then have to scramble to find higher-priced substitutes, and this would create jobs in the plastics industries.
Of course the above “logic” is nonsense. Steadily shrinking the cap on permissible emissions will hamper U.S. economic growth and because businesses will be forced to switch to lower-carbon-intensive techniques than they otherwise would have chosen, their output will be lower and the productivity of labor will fall. That is, of course, the intent of the proponents of cap and trade plans including the Waxman-Markey bill that recently passed in the House of Representatives. The so-called “green jobs” created in some sectors, such as wind turbines and solar panels, will be counterbalanced by job destruction in other sectors that rely on fossil fuels and inexpensive energy.
Indian officials have it exactly right: They are being asked to sacrifice the welfare of their own citizens by Western leaders whose countries were built on a foundation of abundant energy.
India’s declaration also undermines the entire rationale for the Waxman-Markey bill. Taken in isolation, some experts contend that the Waxman-Markey caps on U.S. emissions will have virtually no impact on the trajectory of global warming, even taking the standard climate models at face value. Even the most outspoken scientists on global warming agree that unilateral American efforts are pointless, without similar targets being adopted by the developing world.
Proponents of cap and trade have justified its economically crippling, yet environmentally irrelevant, constraints on the U.S. by saying it will provide American negotiators with moral authority when seeking worldwide restrictions on industry. The idea is that we need to impose limits on the U.S. economy before other governments will agree to shackle their own economies in turn.
India, rightly so, has just declared that it will do no such thing. Let us hope that our leaders see the flaws in their logic and reverse course on this job-killing cap and trade plan before it is too late.
Monday, July 27, 2009
Fukuyama: Iran, Islam and the Rule of Law
Iran, Islam and the Rule of Law. By FRANCIS FUKUYAMA
Islamic political movements have been one form of revolt against arbitrary government.
WSJ, Jul 28, 2009
When Columbia University President Lee Bollinger introduced Iranian President Mahmoud Ahmadinejad at his school in September 2007, he denounced him as a “petty tyrant.”
Ahmadinejad is many bad things, including a Holocaust denier and a strong proponent of a nuclear Iran. But as recent events have underlined, Iran is not quite a tyranny, petty or grand, and the office Ahmadinejad occupies does not give him final say in Iranian affairs. That role is more truly occupied by Ayatollah Ali Khamenei, head of the Council of Guardians and Iran’s supreme leader.
A real tyranny would never permit elections in the first place—North Korea never does—nor would it allow demonstrations contesting the election results to spiral out of control. Yet Iran is no liberal democracy. So what kind of beast is it? And in what ways should we want its regime to evolve?
Political scientists categorize the Islamic Republic of Iran as an “electoral authoritarian” regime of a new sort. They put it in the same basket as Hugo Chávez’s Venezuela or Vladimir Putin’s Russia. By this view, Iran is fundamentally an authoritarian regime run by a small circle of clerics and military officials who use elections to legitimate themselves.
Others think of Iran as a medieval theocracy. Its 1979 constitution vests sovereignty not in the people, but in God, and establishes Islam and the Quran as the supreme sources of law.
The Iranian Constitution is a curious hybrid of authoritarian, theocratic and democratic elements. Articles One and Two do vest sovereignty in God, but Article Six mandates popular elections for the presidency and the Majlis, or parliament. Articles 19-42 are a bill of rights, guaranteeing, among other things, freedom of expression, public gatherings and marches, women’s equality, protection of ethnic minorities, due process and private property, as well as some “second generation” social rights like social security and health care.
The truly problematic part of the constitution is Section Eight (Articles 107-112) on the Guardian Council and the “Leader.” All the democratic procedures and rights in the earlier sections of the constitution are qualified by certain powers reserved to a council of senior clerics.
These powers, specified in Article 110, include control over the armed forces, the ability to declare war, and appointment powers over the judiciary, heads of media, army and the Islamic Revolutionary Guard Corps. Another article lays out conditions under which the Supreme Leader can be removed by the Guardian Council. But that procedure is hardly democratic or transparent.
One does not have to go back to the Middle Ages to find historical precedents for this type of constitution. The clearest parallel would be the German Constitution adopted after the country was unified in the 1870s. Pre-World War I Germany had an elected parliament, or Reichstag, but reserved important powers for an unelected Kaiser, particularly in foreign policy and defense. This constitution got Germany into big trouble. The unelected part of the leadership controlled the armed forces. Eventually, though, it came to be controlled by the armed forces. This seems to be what’s unfolding in Iran today.
Compared to Section Eight, the references in the Iranian Constitution to God and religion as the sources of law are much less problematic. They could, under the right circumstances, be the basis for Iran’s eventual evolution into a moderate, law-governed country.
The rule of law was originally rooted in religion in all societies where it came to prevail, including the West. The great economist Friedrich Hayek noted that law should be prior to legislation. That is, the law should reflect a broad social consensus on the rules of justice. In Europe, it was the church that originally defined the law and acted as its custodian. European monarchs respected the rule of law because it was written by an authority higher and more legitimate than themselves.
Something similar happened in the pre-modern Middle East. There was a functional separation of church and state. The ulama were legal scholars and custodians of Shariah law while the sultans exercised political authority. The sultans conceded they were not the ultimate source of law but had to live within rules established by Muslim case law. There was no democracy, but there was something resembling a rule of law.
This traditional, religiously based rule of law was destroyed in the Middle East’s transition to modernity. Replacing it, particularly in the Arab world, was untrammeled executive authority: Presidents and other dictators accepted no constraints, either legislative or judicial, on their power.
The legal scholar Noah Feldman has argued that the widespread demand for a return to Shariah in many Muslim countries does not necessarily reflect a desire to impose harsh, Taliban-style punishments and oppress women. Rather, it reflects a nostalgia for a dimly remembered historical time when Muslim rulers were not all-powerful autocrats, but respected Islamic rules of justice—Islamic rule of law.
So what kind of future should we wish for Iran, in light of the massive demonstrations? My own preference would be for Iran to some day adopt a new, Western-style constitution guaranteeing religious freedom, a secular state, and sovereignty vested firmly in the people, rather than God.
But a considerable amount of anecdotal evidence (we don’t have anything better) suggests this is not necessarily the agenda of the protesters. Many of them, including opposition candidate Mir Hossein Mousavi, say they want Iran to remain an Islamic Republic. They look at the radical regime change that occurred in next door Iraq and don’t want that for themselves. What they seem to wish for is that the democratic features of the constitution be better respected, and that the executive authorities, including the Guardian Council, and the military and paramilitary organizations, stop manipulating elections and respect the law.
Iran could evolve towards a genuine rule-of-law democracy within the broad parameters of the 1979 constitution. It would be necessary to abolish Article 110, which gives the Guardian Council control over the armed forces and the media, and to shift its function to something more like a supreme court that could pass judgment on the consistency of legislation with Shariah. In time, the Council might be subject to some form of democratic control, like the U.S. Supreme Court, even if its members needed religious credentials.
Eliminating religion altogether from the Iranian Constitution is more problematic. The rule of law prevails not because of its formal and procedural qualities, but because it reflects broadly held social norms. If future Iranian rulers are ever to respect the rule of law as traditional Muslim rulers once did, it will have to be a law that comes from the hearts of the Iranian people. Perhaps that will one day be a completely secular law. That is unlikely to be the case today.
Unfortunately, Iranians may never get to make the choice for themselves. The clerical-military clique currently exercising power is likely to drag Iran into conflict with other countries in the region. This could easily consolidate its legitimacy and power. Let us hope that the country’s internal forces push for an evolution of the political system towards genuine rule of law and democracy first.
Mr. Fukuyama, professor of international political economy at the Johns Hopkins School of Advanced International Studies, is author of “America at the Crossroads: Democracy, Power, and the Neoconservative Legacy” (Yale, 2006).
Islamic political movements have been one form of revolt against arbitrary government.
WSJ, Jul 28, 2009
When Columbia University President Lee Bollinger introduced Iranian President Mahmoud Ahmadinejad at his school in September 2007, he denounced him as a “petty tyrant.”
Ahmadinejad is many bad things, including a Holocaust denier and a strong proponent of a nuclear Iran. But as recent events have underlined, Iran is not quite a tyranny, petty or grand, and the office Ahmadinejad occupies does not give him final say in Iranian affairs. That role is more truly occupied by Ayatollah Ali Khamenei, head of the Council of Guardians and Iran’s supreme leader.
A real tyranny would never permit elections in the first place—North Korea never does—nor would it allow demonstrations contesting the election results to spiral out of control. Yet Iran is no liberal democracy. So what kind of beast is it? And in what ways should we want its regime to evolve?
Political scientists categorize the Islamic Republic of Iran as an “electoral authoritarian” regime of a new sort. They put it in the same basket as Hugo Chávez’s Venezuela or Vladimir Putin’s Russia. By this view, Iran is fundamentally an authoritarian regime run by a small circle of clerics and military officials who use elections to legitimate themselves.
Others think of Iran as a medieval theocracy. Its 1979 constitution vests sovereignty not in the people, but in God, and establishes Islam and the Quran as the supreme sources of law.
The Iranian Constitution is a curious hybrid of authoritarian, theocratic and democratic elements. Articles One and Two do vest sovereignty in God, but Article Six mandates popular elections for the presidency and the Majlis, or parliament. Articles 19-42 are a bill of rights, guaranteeing, among other things, freedom of expression, public gatherings and marches, women’s equality, protection of ethnic minorities, due process and private property, as well as some “second generation” social rights like social security and health care.
The truly problematic part of the constitution is Section Eight (Articles 107-112) on the Guardian Council and the “Leader.” All the democratic procedures and rights in the earlier sections of the constitution are qualified by certain powers reserved to a council of senior clerics.
These powers, specified in Article 110, include control over the armed forces, the ability to declare war, and appointment powers over the judiciary, heads of media, army and the Islamic Revolutionary Guard Corps. Another article lays out conditions under which the Supreme Leader can be removed by the Guardian Council. But that procedure is hardly democratic or transparent.
One does not have to go back to the Middle Ages to find historical precedents for this type of constitution. The clearest parallel would be the German Constitution adopted after the country was unified in the 1870s. Pre-World War I Germany had an elected parliament, or Reichstag, but reserved important powers for an unelected Kaiser, particularly in foreign policy and defense. This constitution got Germany into big trouble. The unelected part of the leadership controlled the armed forces. Eventually, though, it came to be controlled by the armed forces. This seems to be what’s unfolding in Iran today.
Compared to Section Eight, the references in the Iranian Constitution to God and religion as the sources of law are much less problematic. They could, under the right circumstances, be the basis for Iran’s eventual evolution into a moderate, law-governed country.
The rule of law was originally rooted in religion in all societies where it came to prevail, including the West. The great economist Friedrich Hayek noted that law should be prior to legislation. That is, the law should reflect a broad social consensus on the rules of justice. In Europe, it was the church that originally defined the law and acted as its custodian. European monarchs respected the rule of law because it was written by an authority higher and more legitimate than themselves.
Something similar happened in the pre-modern Middle East. There was a functional separation of church and state. The ulama were legal scholars and custodians of Shariah law while the sultans exercised political authority. The sultans conceded they were not the ultimate source of law but had to live within rules established by Muslim case law. There was no democracy, but there was something resembling a rule of law.
This traditional, religiously based rule of law was destroyed in the Middle East’s transition to modernity. Replacing it, particularly in the Arab world, was untrammeled executive authority: Presidents and other dictators accepted no constraints, either legislative or judicial, on their power.
The legal scholar Noah Feldman has argued that the widespread demand for a return to Shariah in many Muslim countries does not necessarily reflect a desire to impose harsh, Taliban-style punishments and oppress women. Rather, it reflects a nostalgia for a dimly remembered historical time when Muslim rulers were not all-powerful autocrats, but respected Islamic rules of justice—Islamic rule of law.
So what kind of future should we wish for Iran, in light of the massive demonstrations? My own preference would be for Iran to some day adopt a new, Western-style constitution guaranteeing religious freedom, a secular state, and sovereignty vested firmly in the people, rather than God.
But a considerable amount of anecdotal evidence (we don’t have anything better) suggests this is not necessarily the agenda of the protesters. Many of them, including opposition candidate Mir Hossein Mousavi, say they want Iran to remain an Islamic Republic. They look at the radical regime change that occurred in next door Iraq and don’t want that for themselves. What they seem to wish for is that the democratic features of the constitution be better respected, and that the executive authorities, including the Guardian Council, and the military and paramilitary organizations, stop manipulating elections and respect the law.
Iran could evolve towards a genuine rule-of-law democracy within the broad parameters of the 1979 constitution. It would be necessary to abolish Article 110, which gives the Guardian Council control over the armed forces and the media, and to shift its function to something more like a supreme court that could pass judgment on the consistency of legislation with Shariah. In time, the Council might be subject to some form of democratic control, like the U.S. Supreme Court, even if its members needed religious credentials.
Eliminating religion altogether from the Iranian Constitution is more problematic. The rule of law prevails not because of its formal and procedural qualities, but because it reflects broadly held social norms. If future Iranian rulers are ever to respect the rule of law as traditional Muslim rulers once did, it will have to be a law that comes from the hearts of the Iranian people. Perhaps that will one day be a completely secular law. That is unlikely to be the case today.
Unfortunately, Iranians may never get to make the choice for themselves. The clerical-military clique currently exercising power is likely to drag Iran into conflict with other countries in the region. This could easily consolidate its legitimacy and power. Let us hope that the country’s internal forces push for an evolution of the political system towards genuine rule of law and democracy first.
Mr. Fukuyama, professor of international political economy at the Johns Hopkins School of Advanced International Studies, is author of “America at the Crossroads: Democracy, Power, and the Neoconservative Legacy” (Yale, 2006).
Sunday, July 26, 2009
Morality and Charlie Rangel’s Taxes
Morality and Charlie Rangel’s Taxes. WSJ Editorial
It’s much easier to raise taxes if you don’t pay them.
WSJ, Jul 27, 2009
Ever notice that those who endorse high taxes and those who actually pay them aren’t the same people? Consider the curious case of Ways and Means Chairman Charlie Rangel, who is leading the charge for a new 5.4-percentage point income tax surcharge and recently called it “the moral thing to do.” About his own tax liability he seems less, well, fervent.
Exhibit A concerns a rental property Mr. Rangel purchased in 1987 at the Punta Cana Yacht Club in the Dominican Republic. The rental income from that property ought to be substantial since it is a luxury beach-front villa and is more often than not rented out. But when the National Legal and Policy Center looked at Mr. Rangel’s House financial disclosure forms in August, it noted that his reported income looked suspiciously low. In 2004 and 2005, he reported no more than $5,000, and in 2006 and 2007 no income at all from the property.
The Congressman initially denied there was any unreported income. But reporters quickly showed that the villa is among the most desirable at Punta Cana and that it rents for $500 a night in the low season, and as much as $1,100 a night in peak season. Last year it was fully booked between December 15 and April 15.
Mr. Rangel soon admitted having failed to report rental income of $75,000 over the years. First he blamed his wife for the oversight because he said she was supposed to be managing the property. Then he blamed the language barrier. “Every time I thought I was getting somewhere, they’d start speaking Spanish,” Mr. Rangel explained.
Mr. Rangel promised last fall to amend his tax returns, pay what is due and correct the information on his annual financial disclosure form. But the deadline for the 2008 filing was May 15 and as of last week he still had not filed. His press spokesman declined to answer questions about anything related to his ethics problems.
Besides not paying those pesky taxes, Mr. Rangel had other reasons for wanting to hide income. As the tenant of four rent-stabilized apartments in Harlem, the Congressman needed to keep his annual reported income below $175,000, lest he be ineligible as a hardship case for rent control. (He also used one of the apartments as an office in violation of rent-control rules, but that’s another story.)
Mr. Rangel said last fall that “I never had any idea that I got any income’’ from the villa. Try using that one the next time the IRS comes after you. Equally interesting is his claim that he didn’t know that the developer of the Dominican Republic villa had converted his $52,000 mortgage to an interest-free loan in 1990. That would seem to violate House rules on gifts, which say Members may only accept loans on “terms that are generally available to the public.” Try getting an interest-free loan from your banker.
The National Legal and Policy Center also says it has confirmed that Mr. Rangel owned a home in Washington from 1971-2000 and during that time claimed a “homestead” exemption that allowed him to save on his District of Columbia property taxes. However, the homestead exemption only applies to a principal residence, and the Washington home could not have qualified as such since Mr. Rangel’s rent-stabilized apartments in New York have the same requirement.
The House Ethics Committee is investigating Mr. Rangel on no fewer than six separate issues, including his failure to report the no-interest loan on his Punta Cana villa and his use of rent-stabilized apartments. It is also investigating his fund raising for the Charles B. Rangel Center for Public Service at City College of New York. New York labor attorney Theodore Kheel, one of the principal owners of the Punta Cana resort, is an important donor to the Rangel Center.
All of this has previously appeared in print in one place or another, and we salute the reporters who did the leg work. We thought we’d summarize it now for readers who are confronted with the prospect of much higher tax bills, and who might like to know how a leading Democrat defines “moral” behavior when the taxes hit close to his homes.
It’s much easier to raise taxes if you don’t pay them.
WSJ, Jul 27, 2009
Ever notice that those who endorse high taxes and those who actually pay them aren’t the same people? Consider the curious case of Ways and Means Chairman Charlie Rangel, who is leading the charge for a new 5.4-percentage point income tax surcharge and recently called it “the moral thing to do.” About his own tax liability he seems less, well, fervent.
Exhibit A concerns a rental property Mr. Rangel purchased in 1987 at the Punta Cana Yacht Club in the Dominican Republic. The rental income from that property ought to be substantial since it is a luxury beach-front villa and is more often than not rented out. But when the National Legal and Policy Center looked at Mr. Rangel’s House financial disclosure forms in August, it noted that his reported income looked suspiciously low. In 2004 and 2005, he reported no more than $5,000, and in 2006 and 2007 no income at all from the property.
The Congressman initially denied there was any unreported income. But reporters quickly showed that the villa is among the most desirable at Punta Cana and that it rents for $500 a night in the low season, and as much as $1,100 a night in peak season. Last year it was fully booked between December 15 and April 15.
Mr. Rangel soon admitted having failed to report rental income of $75,000 over the years. First he blamed his wife for the oversight because he said she was supposed to be managing the property. Then he blamed the language barrier. “Every time I thought I was getting somewhere, they’d start speaking Spanish,” Mr. Rangel explained.
Mr. Rangel promised last fall to amend his tax returns, pay what is due and correct the information on his annual financial disclosure form. But the deadline for the 2008 filing was May 15 and as of last week he still had not filed. His press spokesman declined to answer questions about anything related to his ethics problems.
Besides not paying those pesky taxes, Mr. Rangel had other reasons for wanting to hide income. As the tenant of four rent-stabilized apartments in Harlem, the Congressman needed to keep his annual reported income below $175,000, lest he be ineligible as a hardship case for rent control. (He also used one of the apartments as an office in violation of rent-control rules, but that’s another story.)
Mr. Rangel said last fall that “I never had any idea that I got any income’’ from the villa. Try using that one the next time the IRS comes after you. Equally interesting is his claim that he didn’t know that the developer of the Dominican Republic villa had converted his $52,000 mortgage to an interest-free loan in 1990. That would seem to violate House rules on gifts, which say Members may only accept loans on “terms that are generally available to the public.” Try getting an interest-free loan from your banker.
The National Legal and Policy Center also says it has confirmed that Mr. Rangel owned a home in Washington from 1971-2000 and during that time claimed a “homestead” exemption that allowed him to save on his District of Columbia property taxes. However, the homestead exemption only applies to a principal residence, and the Washington home could not have qualified as such since Mr. Rangel’s rent-stabilized apartments in New York have the same requirement.
The House Ethics Committee is investigating Mr. Rangel on no fewer than six separate issues, including his failure to report the no-interest loan on his Punta Cana villa and his use of rent-stabilized apartments. It is also investigating his fund raising for the Charles B. Rangel Center for Public Service at City College of New York. New York labor attorney Theodore Kheel, one of the principal owners of the Punta Cana resort, is an important donor to the Rangel Center.
All of this has previously appeared in print in one place or another, and we salute the reporters who did the leg work. We thought we’d summarize it now for readers who are confronted with the prospect of much higher tax bills, and who might like to know how a leading Democrat defines “moral” behavior when the taxes hit close to his homes.
Libertarian: Did Deregulation Cause the Financial Crisis?
Did Deregulation Cause the Financial Crisis?, by Mark A. Calabria
Cato Policy Report, July/August 2009
The growing narrative in Washington is that a decades-long unraveling of the regulatory system allowed and encouraged Wall Street to excess, resulting in the current financial crisis. Left unchallenged, this narrative will likely form the basis of any financial reform measures. Having such measures built on a flawed foundation will only ensure that future financial crises are more frequent and severe.
Rolling Back the Regulatory State?
Although it is the quality and substance of regulation that has to be the center of any debate regarding regulation's role in the financial crisis, a direct measure of regulation is the budgetary dollars and staffing levels of the financial regulatory agencies. In a Mercatus Center study, Veronique de Rugy and Melinda Warren found that outlays for banking and financial regulation increased from only $190 million in 1960 to $1.9 billion in 2000 and to more than $2.3 billion in 2008 (in constant 2000 dollars).
Focusing specifically on the Securities and Exchange Commission—the agency at the center of Wall Street regulation—budget outlays under President George W. Bush increased in real terms by more than 76 percent, from $357 million to $629 million (2000 dollars).
However, budget dollars alone do not always translate into more cops on the beat —all those extra dollars could have been spent on the SEC's extravagant new headquarters building. In fact most of the SEC's expanded budget went into additional staff, from 2,841 full-time equivalent employees in 2000 to 3,568 in 2008, an increase of 26 percent. The SEC's 2008 staffing levels are more than eight times that of the Consumer Product Safety Commission, for example, which reviews thousands of consumer products annually.
Comparable figures for bank regulatory agencies show a slight decline from 13,310 in 2000 to 12,190 in 2008, although this is driven completely by reductions in staff at the regional Federal Reserve Banks, resulting from changes in their check-clearing activities (mostly now done electronically) and at the FDIC, as its resolution staff dealing with the bank failures of the 1990s was wound down. Other banking regulatory agencies, such as the Comptroller of the Currency —which oversees national banks like Citibank—saw significant increases in staffing levels between 2000 and 2008.
Another measure of regulation is the absolute number of rules issued by a department or agency. The primary financial regulator, the Department of the Treasury, which includes both the Office of the Comptroller of the Currency and the Office of Thrift Supervision, saw its annual average of new rules proposed increase from around 400 in the 1990s to more than 500 in the 2000s. During the 1990s and 2000s, the SEC issued about 74 rules per year.
Setting aside whether bank and securities regulators were doing their jobs aggressively or not, one thing is clear—recent years have witnessed an increasing number of regulators on the beat and an increasing number of regulations.
Gramm-Leach-Bliley
Central to any claim that deregulation caused the crisis is the Gramm-Leach-Bliley Act. The core of Gramm-Leach-Bliley is a repeal of the New Deal-era Glass-Steagall Act's prohibition on the mixing of investment and commercial banking. Investment banks assist corporations and governments by underwriting, marketing, and advising on debt and equity issued. They often also have large trading operations where they buy and sell financial securities both on behalf of their clients and on their own account. Commercial banks accept insured deposits and make loans to households and businesses. The deregulation critique posits that once Congress cleared the way for investment and commercial banks to merge, the investment banks were given the incentive to take greater risks, while reducing the amount of equity they are required to hold against any given dollar of assets.
But there are questions about how much impact the law had on the financial markets and whether it had any influence on the current financial crisis. Even before its passage, investment banks were already allowed to trade and hold the very financial assets at the center of the financial crisis: mortgage-backed securities, derivatives, credit-default swaps, collateralized debt obligations. The shift of investment banks into holding substantial trading portfolios resulted from their increased capital base as a result of most investment banks becoming publicly held companies, a structure allowed under Glass-Steagall.
Second, very few financial holding companies decided to combine investment and commercial banking activities. The two investment banks whose failures have come to symbolize the financial crisis, Bear Stearns and Lehman Brothers, were not affiliated with any depository institutions. Rather, had either Bear or Lehman possessed a large source of insured deposits, they would likely have survived their short-term liquidity problems. As former president Bill Clinton told BusinessWeek in 2008, "I don't see that signing that bill had anything to do with the current crisis. Indeed, one of the things that has helped stabilize the current situation as much as it has is the purchase of Merrill Lynch by Bank of America, which was much smoother than it would have been if I hadn't signed that bill."
Gramm-Leach-Bliley has been presented by both its supporters and detractors as a revolution in financial services. However, the act itself had little impact on the trading activities of investment banks. The off-balancesheet activities of Bear and Lehman were allowable prior to the act's passage. Nor did these trading activities undermine any affiliated commercial banks, as Bear and Lehman did not have affiliated commercial banks. Additionally, those large banks that did combine investment and commercial banking have survived the crisis in better shape than those that did not.
Did the SEC Deregulate Investment Banks?
One of the claimed "deregulations" resulting from the mixing of investment and commercial banking was the increase in leverage by investment banks allowed by the SEC. After many investment banks became financial holding companies, European regulators moved to subject European branches of these companies to the capital regulations dictated by Basel II, a set of recommendations for bank capital regulation developed by the Basel Committee on Banking Supervision, an organization of international bank regulators. In order to protect its turf from European regulators, the SEC implemented a similar plan in 2004.
However the SEC's reduction in investment bank capital ratios was not simply a shift in existing rules. The SEC saw the rule as a movement beyond its traditional investor protection mandates to one overseeing the entire operations of an investment bank. The voluntary alternative use of Basel capital rules was viewed as only a small part of a greatly increased system of regulation, as expressed by SEC spokesman John Heine: "The Commission's 2004 rule strengthened oversight of the securities markets, because prior to their adoption there was no formal regulatory oversight, no liquidity requirements, and no capital requirements for investment bank holding companies."
The enhanced requirements gave the SEC broader responsibilities in terms of the prudential supervision of investment banks and their holding companies.
Derivatives as Financial Mischief
After Gramm-Leach-Bliley, the most common claim made in support of blaming deregulation is that both Congress and regulators ignored various warnings about the risks of derivatives, particularly credit default swaps, and chose not to impose needed regulation. In 2003, Warren Buffett called derivatives "weapons of mass financial destruction," and warned that the concentration of derivatives risk in a few dealers posed "serious systemic problems." Buffett was not alone in calling for increased derivatives regulation.
But would additional derivatives regulation have prevented the financial crisis?
During her chairmanship of the Commodity Futures Trading Commission Brooksley Born published a concept paper outlining how the CFTC should approach the regulation of derivatives. Her suggestions were roundly attacked both by members of the Clinton administration, including Robert Rubin and Larry Summers, and by the leading members of the CFTC oversight committees on Capitol Hill.
Foremost among Born's suggestion was the requirement that derivatives be traded over a regulated exchange by a central counterparty, a proposal currently being pushed by Treasury secretary Timothy Geithner. Currently most derivatives are traded as individual contracts between two parties, each being a counterparty to the other, with each party bearing the risk that the other might be unable to fulfill its obligations under the contract. A central counterparty would stand between the two sides of the derivatives contract, guaranteeing the performance of each side to the other. Proponents of this approach claim a central counterparty would have prevented the concentration of derivatives risk into a few entities, such as AIG, and would have prevented the systemic risk arising from AIG linkages with its various counterparties.
The most basic flaw in having a centralized counterparty is that it does not reduce risk at all, it simply aggregates it. It also increases the odds of a taxpayer bailout, as the government is more likely to step in and back a centralized clearinghouse than to rescue private firms. In the case of AIG, Federal Reserve vice chairman Donald Kohn told the Senate Banking Committee that the risk to AIG's derivatives counterparties had nothing to do with the Fed's decision to bail out AIG and that all its counterparties could have withstood a default by AIG. The purpose of a centralized clearinghouse is to allow users of derivatives to separate the risk of the derivative contract from the default risk of the issuer of that contract in instances where the issuer is unable to meet its obligations. Such an arrangement would actually increase the demand and usage of derivatives.
Proponents of increased regulation of derivatives also overlook the fact that much of the use of derivatives by banks is the direct result of regulation, rather than the lack of it. To the extent that derivatives such as credit default swaps reduce the risk of loans or securities held by banks, Basel capital rules allow banks to reduce the capital held against such loans.
One of Born's proposals was to impose capital requirements on the users of derivatives. That ignores the reality that counterparties already require the posting of collateral when using derivatives. In fact, it was not the failure of its derivatives position that led to AIG's collapse but an increase in calls for greater collateral by its counterparties.
Derivatives do not create losses, they simply transfer them; for every loss on a derivative position there is a corresponding gain on the other side; losses and gains always sum to zero. The value of derivatives is that they allow the separation of various risks and the transfer of those risks to the parties best able to bear them. Transferring that risk to a centralized counterparty with capital requirements would have likely been no more effective than was aggregating the bulk of risk in our mortgages markets onto the balance sheets of Fannie Mae and Freddie Mac. Regulation will never be a substitute for one of the basic tenets of finance: diversification.
Credit Rating Agencies
When supposed examples of deregulation cannot be found, advocates for increased regulation often fall back on arguing that a regulator's failure to impose new regulations is proof of the harm of deregulation. The status of credit rating agencies in our financial markets is often presented as an example of such.
Credit rating agencies can potentially serve as an independent monitor of corporate behavior. That they have often failed in that role is generally agreed upon; why they've failed is the real debate. Advocates of increased regulation claim that since the rating agencies are paid by the issuers of securities, their real interest is in making their clients happy by providing the highest ratings possible. In addition they claim that the rating agencies have used their "free speech" protections to avoid any legal liability or regulatory scrutiny for the content of their ratings.
The modern regulation of credit rating agencies began with the SEC's revision of its capital rules for broker-dealers in 1973. Under the SEC's capital rules, a broker-dealer must write down the value of risky or speculative securities on its balance sheet to reflect the level of risk. In defining the risk of held securities, the SEC tied the measure of risk to the credit rating of the held security, with unrated securities considered the highest risk. Bank regulators later extended this practice of outsourcing their supervision of commercial bank risk to credit rating agencies under the implementation of the Basel capital standards.
The SEC, in designing its capital rules, was concerned that, in allowing outside credit rating agencies to define risk, some rating agencies would be tempted to simply sell favorable ratings, regardless of the true risk. To solve this perceived risk, the SEC decided that only Nationally Recognized Statistical Rating Organizations would have their ratings recognized by the SEC and used for complying with regulatory capital requirements. In defining the qualifications of an NRSRO, the SEC deliberately excluded new entrants and grandfathered existing firms, such as Moody's and Standard and Poor's.
In trying to address one imagined problem, a supposed race to the bottom, the SEC succeeded in creating a real problem, an entrenched oligopoly in the credit ratings industry. One result of this oligopoly is that beginning in the 1970s, rating agencies moved away from their historical practice of marketing and selling ratings largely to investors, toward selling the ratings to issuers of debt. Now that they had a captive clientele, debt issuers, the rating agencies quickly adapted their business model to this new reality.
The damage would have been large enough had the SEC stopped there. During the 1980s and 1990s, the SEC further entrenched the market control of the recognized rating agencies. For instance, in the 1980s the SEC limited money market funds to holding securities that were investment grade, as defined by the NRSROs. That requirement was later extended to money market fund holdings of commercial paper. Bank regulators and state insurance commissioners followed suit in basing their safety and soundness regulations on the use of NRSRO-approved securities.
The conflict of interest between raters and issuers is not the result of the absence of regulation, it is the direct and predictable result of regulation. The solution to this problem is to remove the NRSROs' monopoly privileges and make them compete in the marketplace.
Predatory Lending or Predatory Borrowing?
As much of the losses in the financial crisis have been concentrated in the mortgage market, and in particularly subprime mortgagebacked securities, proponents of increased regulation have argued that the financial crisis could have been avoided had federal regulators eliminated predatory mortgage practices. Such a claim ignores that the vast majority of defaulted mortgages were either held by speculators or driven by the same reasons that always drive mortgage default: job loss, health care expenses, and divorce.
The mortgage characteristic most closely associated with default is the amount of borrower equity. Rather than helping to strengthen underwriting standards, the federal government has led the charge in reducing them. Over the years, the Federal Housing Administration reduced its down-payment requirements, from requiring 20 percent in the 1930s to the point today that one can get an FHA loan with only 3.5 percent down.
The predatory lending argument claims that borrowers were lured into unsustainable loans, often due to low teaser rates, which then defaulted en masse, causing declines in home values, which led to an overall decline in the housing market. For this argument to hold, the increase in the rate of foreclosure would have to precede the decline in home prices. In fact, the opposite occurred, with the national rate of home price appreciation peaking in the second quarter of 2005 and the absolute price level peaking in the second quarter of 2007; the dramatic increase in new foreclosures was not reached until the second quarter of 2007. While some feedback between prices and foreclosures is to be expected, the evidence supports the view that initial declines in price appreciation and later absolute declines in price led to increases in foreclosures rather than unsustainable loans leading to price declines.
Normally one would expect the ultimate investors in mortgage-related securities to impose market discipline on lenders, ensuring that losses stayed within expectations. Market discipline began to breakdown in 2005 as Fannie Mae and Freddie Mac became the largest single purchasers of subprime mortgage-backed securities. At the height of the market, Fannie and Freddie purchased over 40 percent of subprime mortgage-backed securities. These were also the same vintages that performed the worst; subprime loans originated before 2005 have performed largely within expectations. Fannie and Freddie entering this market in strength greatly increased the demand for subprime securities, and as they would ultimately be able to pass their losses onto the taxpayer, they had little incentive to effectively monitor the quality of underwriting.
Conclusion
The past few decades have witnessed a significant expansion in the number of financial regulators and regulations, contrary to the widely held belief that our financial market regulations were "rolled back." While many regulators may have been shortsighted and over-confident in their own ability to spare our financial markets from collapse, this failing is one of regulation, not deregulation. When one scratches below the surface of the "deregulation" argument, it becomes apparent that the usual suspects, like the Gramm-Leach-Bliley Act, did not cause the current crisis and that the supposed refusal of regulators to deal with derivatives and "predatory" mortgages would have had little impact on the actual course of events, as these issues were not central to the crisis. To explain the financial crisis, and avoid the next one, we should look at the failure of regulation, not at a mythical deregulation.
Mark A. Calabria is Director of Financial Regulation Studies at the Cato Institute.
Cato Policy Report, July/August 2009
The growing narrative in Washington is that a decades-long unraveling of the regulatory system allowed and encouraged Wall Street to excess, resulting in the current financial crisis. Left unchallenged, this narrative will likely form the basis of any financial reform measures. Having such measures built on a flawed foundation will only ensure that future financial crises are more frequent and severe.
Rolling Back the Regulatory State?
Although it is the quality and substance of regulation that has to be the center of any debate regarding regulation's role in the financial crisis, a direct measure of regulation is the budgetary dollars and staffing levels of the financial regulatory agencies. In a Mercatus Center study, Veronique de Rugy and Melinda Warren found that outlays for banking and financial regulation increased from only $190 million in 1960 to $1.9 billion in 2000 and to more than $2.3 billion in 2008 (in constant 2000 dollars).
Focusing specifically on the Securities and Exchange Commission—the agency at the center of Wall Street regulation—budget outlays under President George W. Bush increased in real terms by more than 76 percent, from $357 million to $629 million (2000 dollars).
However, budget dollars alone do not always translate into more cops on the beat —all those extra dollars could have been spent on the SEC's extravagant new headquarters building. In fact most of the SEC's expanded budget went into additional staff, from 2,841 full-time equivalent employees in 2000 to 3,568 in 2008, an increase of 26 percent. The SEC's 2008 staffing levels are more than eight times that of the Consumer Product Safety Commission, for example, which reviews thousands of consumer products annually.
Comparable figures for bank regulatory agencies show a slight decline from 13,310 in 2000 to 12,190 in 2008, although this is driven completely by reductions in staff at the regional Federal Reserve Banks, resulting from changes in their check-clearing activities (mostly now done electronically) and at the FDIC, as its resolution staff dealing with the bank failures of the 1990s was wound down. Other banking regulatory agencies, such as the Comptroller of the Currency —which oversees national banks like Citibank—saw significant increases in staffing levels between 2000 and 2008.
Another measure of regulation is the absolute number of rules issued by a department or agency. The primary financial regulator, the Department of the Treasury, which includes both the Office of the Comptroller of the Currency and the Office of Thrift Supervision, saw its annual average of new rules proposed increase from around 400 in the 1990s to more than 500 in the 2000s. During the 1990s and 2000s, the SEC issued about 74 rules per year.
Setting aside whether bank and securities regulators were doing their jobs aggressively or not, one thing is clear—recent years have witnessed an increasing number of regulators on the beat and an increasing number of regulations.
Gramm-Leach-Bliley
Central to any claim that deregulation caused the crisis is the Gramm-Leach-Bliley Act. The core of Gramm-Leach-Bliley is a repeal of the New Deal-era Glass-Steagall Act's prohibition on the mixing of investment and commercial banking. Investment banks assist corporations and governments by underwriting, marketing, and advising on debt and equity issued. They often also have large trading operations where they buy and sell financial securities both on behalf of their clients and on their own account. Commercial banks accept insured deposits and make loans to households and businesses. The deregulation critique posits that once Congress cleared the way for investment and commercial banks to merge, the investment banks were given the incentive to take greater risks, while reducing the amount of equity they are required to hold against any given dollar of assets.
But there are questions about how much impact the law had on the financial markets and whether it had any influence on the current financial crisis. Even before its passage, investment banks were already allowed to trade and hold the very financial assets at the center of the financial crisis: mortgage-backed securities, derivatives, credit-default swaps, collateralized debt obligations. The shift of investment banks into holding substantial trading portfolios resulted from their increased capital base as a result of most investment banks becoming publicly held companies, a structure allowed under Glass-Steagall.
Second, very few financial holding companies decided to combine investment and commercial banking activities. The two investment banks whose failures have come to symbolize the financial crisis, Bear Stearns and Lehman Brothers, were not affiliated with any depository institutions. Rather, had either Bear or Lehman possessed a large source of insured deposits, they would likely have survived their short-term liquidity problems. As former president Bill Clinton told BusinessWeek in 2008, "I don't see that signing that bill had anything to do with the current crisis. Indeed, one of the things that has helped stabilize the current situation as much as it has is the purchase of Merrill Lynch by Bank of America, which was much smoother than it would have been if I hadn't signed that bill."
Gramm-Leach-Bliley has been presented by both its supporters and detractors as a revolution in financial services. However, the act itself had little impact on the trading activities of investment banks. The off-balancesheet activities of Bear and Lehman were allowable prior to the act's passage. Nor did these trading activities undermine any affiliated commercial banks, as Bear and Lehman did not have affiliated commercial banks. Additionally, those large banks that did combine investment and commercial banking have survived the crisis in better shape than those that did not.
Did the SEC Deregulate Investment Banks?
One of the claimed "deregulations" resulting from the mixing of investment and commercial banking was the increase in leverage by investment banks allowed by the SEC. After many investment banks became financial holding companies, European regulators moved to subject European branches of these companies to the capital regulations dictated by Basel II, a set of recommendations for bank capital regulation developed by the Basel Committee on Banking Supervision, an organization of international bank regulators. In order to protect its turf from European regulators, the SEC implemented a similar plan in 2004.
However the SEC's reduction in investment bank capital ratios was not simply a shift in existing rules. The SEC saw the rule as a movement beyond its traditional investor protection mandates to one overseeing the entire operations of an investment bank. The voluntary alternative use of Basel capital rules was viewed as only a small part of a greatly increased system of regulation, as expressed by SEC spokesman John Heine: "The Commission's 2004 rule strengthened oversight of the securities markets, because prior to their adoption there was no formal regulatory oversight, no liquidity requirements, and no capital requirements for investment bank holding companies."
The enhanced requirements gave the SEC broader responsibilities in terms of the prudential supervision of investment banks and their holding companies.
Derivatives as Financial Mischief
After Gramm-Leach-Bliley, the most common claim made in support of blaming deregulation is that both Congress and regulators ignored various warnings about the risks of derivatives, particularly credit default swaps, and chose not to impose needed regulation. In 2003, Warren Buffett called derivatives "weapons of mass financial destruction," and warned that the concentration of derivatives risk in a few dealers posed "serious systemic problems." Buffett was not alone in calling for increased derivatives regulation.
But would additional derivatives regulation have prevented the financial crisis?
During her chairmanship of the Commodity Futures Trading Commission Brooksley Born published a concept paper outlining how the CFTC should approach the regulation of derivatives. Her suggestions were roundly attacked both by members of the Clinton administration, including Robert Rubin and Larry Summers, and by the leading members of the CFTC oversight committees on Capitol Hill.
Foremost among Born's suggestion was the requirement that derivatives be traded over a regulated exchange by a central counterparty, a proposal currently being pushed by Treasury secretary Timothy Geithner. Currently most derivatives are traded as individual contracts between two parties, each being a counterparty to the other, with each party bearing the risk that the other might be unable to fulfill its obligations under the contract. A central counterparty would stand between the two sides of the derivatives contract, guaranteeing the performance of each side to the other. Proponents of this approach claim a central counterparty would have prevented the concentration of derivatives risk into a few entities, such as AIG, and would have prevented the systemic risk arising from AIG linkages with its various counterparties.
The most basic flaw in having a centralized counterparty is that it does not reduce risk at all, it simply aggregates it. It also increases the odds of a taxpayer bailout, as the government is more likely to step in and back a centralized clearinghouse than to rescue private firms. In the case of AIG, Federal Reserve vice chairman Donald Kohn told the Senate Banking Committee that the risk to AIG's derivatives counterparties had nothing to do with the Fed's decision to bail out AIG and that all its counterparties could have withstood a default by AIG. The purpose of a centralized clearinghouse is to allow users of derivatives to separate the risk of the derivative contract from the default risk of the issuer of that contract in instances where the issuer is unable to meet its obligations. Such an arrangement would actually increase the demand and usage of derivatives.
Proponents of increased regulation of derivatives also overlook the fact that much of the use of derivatives by banks is the direct result of regulation, rather than the lack of it. To the extent that derivatives such as credit default swaps reduce the risk of loans or securities held by banks, Basel capital rules allow banks to reduce the capital held against such loans.
One of Born's proposals was to impose capital requirements on the users of derivatives. That ignores the reality that counterparties already require the posting of collateral when using derivatives. In fact, it was not the failure of its derivatives position that led to AIG's collapse but an increase in calls for greater collateral by its counterparties.
Derivatives do not create losses, they simply transfer them; for every loss on a derivative position there is a corresponding gain on the other side; losses and gains always sum to zero. The value of derivatives is that they allow the separation of various risks and the transfer of those risks to the parties best able to bear them. Transferring that risk to a centralized counterparty with capital requirements would have likely been no more effective than was aggregating the bulk of risk in our mortgages markets onto the balance sheets of Fannie Mae and Freddie Mac. Regulation will never be a substitute for one of the basic tenets of finance: diversification.
Credit Rating Agencies
When supposed examples of deregulation cannot be found, advocates for increased regulation often fall back on arguing that a regulator's failure to impose new regulations is proof of the harm of deregulation. The status of credit rating agencies in our financial markets is often presented as an example of such.
Credit rating agencies can potentially serve as an independent monitor of corporate behavior. That they have often failed in that role is generally agreed upon; why they've failed is the real debate. Advocates of increased regulation claim that since the rating agencies are paid by the issuers of securities, their real interest is in making their clients happy by providing the highest ratings possible. In addition they claim that the rating agencies have used their "free speech" protections to avoid any legal liability or regulatory scrutiny for the content of their ratings.
The modern regulation of credit rating agencies began with the SEC's revision of its capital rules for broker-dealers in 1973. Under the SEC's capital rules, a broker-dealer must write down the value of risky or speculative securities on its balance sheet to reflect the level of risk. In defining the risk of held securities, the SEC tied the measure of risk to the credit rating of the held security, with unrated securities considered the highest risk. Bank regulators later extended this practice of outsourcing their supervision of commercial bank risk to credit rating agencies under the implementation of the Basel capital standards.
The SEC, in designing its capital rules, was concerned that, in allowing outside credit rating agencies to define risk, some rating agencies would be tempted to simply sell favorable ratings, regardless of the true risk. To solve this perceived risk, the SEC decided that only Nationally Recognized Statistical Rating Organizations would have their ratings recognized by the SEC and used for complying with regulatory capital requirements. In defining the qualifications of an NRSRO, the SEC deliberately excluded new entrants and grandfathered existing firms, such as Moody's and Standard and Poor's.
In trying to address one imagined problem, a supposed race to the bottom, the SEC succeeded in creating a real problem, an entrenched oligopoly in the credit ratings industry. One result of this oligopoly is that beginning in the 1970s, rating agencies moved away from their historical practice of marketing and selling ratings largely to investors, toward selling the ratings to issuers of debt. Now that they had a captive clientele, debt issuers, the rating agencies quickly adapted their business model to this new reality.
The damage would have been large enough had the SEC stopped there. During the 1980s and 1990s, the SEC further entrenched the market control of the recognized rating agencies. For instance, in the 1980s the SEC limited money market funds to holding securities that were investment grade, as defined by the NRSROs. That requirement was later extended to money market fund holdings of commercial paper. Bank regulators and state insurance commissioners followed suit in basing their safety and soundness regulations on the use of NRSRO-approved securities.
The conflict of interest between raters and issuers is not the result of the absence of regulation, it is the direct and predictable result of regulation. The solution to this problem is to remove the NRSROs' monopoly privileges and make them compete in the marketplace.
Predatory Lending or Predatory Borrowing?
As much of the losses in the financial crisis have been concentrated in the mortgage market, and in particularly subprime mortgagebacked securities, proponents of increased regulation have argued that the financial crisis could have been avoided had federal regulators eliminated predatory mortgage practices. Such a claim ignores that the vast majority of defaulted mortgages were either held by speculators or driven by the same reasons that always drive mortgage default: job loss, health care expenses, and divorce.
The mortgage characteristic most closely associated with default is the amount of borrower equity. Rather than helping to strengthen underwriting standards, the federal government has led the charge in reducing them. Over the years, the Federal Housing Administration reduced its down-payment requirements, from requiring 20 percent in the 1930s to the point today that one can get an FHA loan with only 3.5 percent down.
The predatory lending argument claims that borrowers were lured into unsustainable loans, often due to low teaser rates, which then defaulted en masse, causing declines in home values, which led to an overall decline in the housing market. For this argument to hold, the increase in the rate of foreclosure would have to precede the decline in home prices. In fact, the opposite occurred, with the national rate of home price appreciation peaking in the second quarter of 2005 and the absolute price level peaking in the second quarter of 2007; the dramatic increase in new foreclosures was not reached until the second quarter of 2007. While some feedback between prices and foreclosures is to be expected, the evidence supports the view that initial declines in price appreciation and later absolute declines in price led to increases in foreclosures rather than unsustainable loans leading to price declines.
Normally one would expect the ultimate investors in mortgage-related securities to impose market discipline on lenders, ensuring that losses stayed within expectations. Market discipline began to breakdown in 2005 as Fannie Mae and Freddie Mac became the largest single purchasers of subprime mortgage-backed securities. At the height of the market, Fannie and Freddie purchased over 40 percent of subprime mortgage-backed securities. These were also the same vintages that performed the worst; subprime loans originated before 2005 have performed largely within expectations. Fannie and Freddie entering this market in strength greatly increased the demand for subprime securities, and as they would ultimately be able to pass their losses onto the taxpayer, they had little incentive to effectively monitor the quality of underwriting.
Conclusion
The past few decades have witnessed a significant expansion in the number of financial regulators and regulations, contrary to the widely held belief that our financial market regulations were "rolled back." While many regulators may have been shortsighted and over-confident in their own ability to spare our financial markets from collapse, this failing is one of regulation, not deregulation. When one scratches below the surface of the "deregulation" argument, it becomes apparent that the usual suspects, like the Gramm-Leach-Bliley Act, did not cause the current crisis and that the supposed refusal of regulators to deal with derivatives and "predatory" mortgages would have had little impact on the actual course of events, as these issues were not central to the crisis. To explain the financial crisis, and avoid the next one, we should look at the failure of regulation, not at a mythical deregulation.
Mark A. Calabria is Director of Financial Regulation Studies at the Cato Institute.
Clinton and Geithner: A New Strategic and Economic Dialogue with China
A New Strategic and Economic Dialogue with China. By HILLARY CLINTON AND TIMOTHY GEITHNER
Few global problems can be solved by either country alone.
WSJ, Jul 27, 2009
When the United States and China established diplomatic relations 30 years ago, it was far from clear what the future would hold. In 1979, China was still emerging from the ruins of the Cultural Revolution and its gross domestic product stood at a mere $176 billion, a fraction of the U.S. total of $2.5 trillion. Even travel and communication between our two great nations presented a challenge: a few unreliable telephone lines and no direct flights connected us. Today China’s GDP tops four trillion dollars, thousands of emails and cellphone calls cross the Pacific Ocean daily, and by next year there will be 249 direct flights per week between the U.S. and China.
To keep up with these changes that affect our citizens and our planet, we need to update our official ties with Beijing. During their first meeting in April, President Barack Obama and President Hu Jintao announced a new dialogue as part of the administration’s efforts to build a positive, cooperative and comprehensive relationship with Beijing. So this week we will meet together in Washington with two of the highest-ranking officials in the Chinese government, Vice Premier Wang Qishan and State Councilor Dai Bingguo, to develop a new framework for U.S.-China relations. Many of our cabinet colleagues will join us in this “Strategic and Economic Dialogue,” along with an equally large number of the most senior leaders of the Chinese government. Why are we doing this with China, and what does it mean for Americans?
Simply put, few global problems can be solved by the U.S. or China alone. And few can be solved without the U.S. and China together. The strength of the global economy, the health of the global environment, the stability of fragile states and the solution to nonproliferation challenges turn in large measure on cooperation between the U.S. and China. While our two-day dialogue will break new ground in combining discussions of both economic and foreign policies, we will be building on the efforts of the past seven U.S. administrations and on the existing tapestry of government-to-government exchanges and cooperation in several dozen different areas.
At the top of the list will be assuring recovery from the most serious global economic crisis in generations and assuring balanced and sustained global growth once recovery has taken hold. When the current crisis struck, the U.S. and China acted quickly and aggressively to support economic activity and to create and save jobs. The success of the world’s major economies in blunting the force of the global recession and setting the stage for recovery is due in substantial measure to the bold steps our two nations have taken.
As we move toward recovery, we must take additional steps to lay the foundation for balanced and sustainable growth in the years to come. That will involve Americans rebuilding our savings, strengthening our financial system and investing in energy, education and health care to make our nation more productive and prosperous. For China it involves continuing financial sector reform and development. It also involves spurring domestic demand growth and making the Chinese economy less reliant on exports. Raising personal incomes and strengthening the social safety net to address the reasons why Chinese feel compelled to save so much would provide a powerful boost to Chinese domestic demand and global growth.
Both nations must avoid the temptation to close off our respective markets to trade and investment. Both must work hard to create new opportunities for our workers and our firms to compete equally, so that the people of each country see the benefit from the rapidly expanding U.S.-China economic relationship.
A second priority is to make progress on the interconnected issues of climate change, energy and the environment. Our two nations need to establish a true partnership to put both countries on a low-carbon pathway, simultaneously reducing greenhouse gas emissions while promoting economic recovery and sustainable development. The cross-cutting nature of our meetings offers a unique opportunity for key American officials to meet with their Chinese counterparts to work on the global issue of climate change. In the run-up to the international climate change conference in Copenhagen in December, it is clear that any agreement must include meaningful participation by large economies like China.
The third broad area for discussion is finding complementary approaches to security and development challenges in the region and across the globe. From the provocative actions of North Korea, to stability in Afghanistan and Pakistan, to the economic possibilities in Africa, the U.S. and China must work together to reach solutions to these urgent challenges confronting not only our two nations, but many others across the globe.
While this first round of the U.S.-China Strategic and Economic Dialogue offers a unique opportunity to work with Chinese officials, we will not always agree on solutions and we must be frank about our differences, including establishing the right venues to have those discussions. And while we are working to make China an important partner, we will continue to work closely with our long-standing allies and friends in Asia and around the world and rely on the appropriate international groups and organizations.
But having these strategic-level discussions with our Chinese counterparts will help build the trust and relationships to tackle the most vexing global challenges of today—and of the coming generation. The Chinese have a wise aphorism: “When you are in a common boat, you need to cross the river peacefully together.” Today, we will join our Chinese counterparts in grabbing an oar and starting to row.
Mrs. Clinton is the U.S. Secretary of State. Mr. Geithner is Secretary of the Treasury.
Few global problems can be solved by either country alone.
WSJ, Jul 27, 2009
When the United States and China established diplomatic relations 30 years ago, it was far from clear what the future would hold. In 1979, China was still emerging from the ruins of the Cultural Revolution and its gross domestic product stood at a mere $176 billion, a fraction of the U.S. total of $2.5 trillion. Even travel and communication between our two great nations presented a challenge: a few unreliable telephone lines and no direct flights connected us. Today China’s GDP tops four trillion dollars, thousands of emails and cellphone calls cross the Pacific Ocean daily, and by next year there will be 249 direct flights per week between the U.S. and China.
To keep up with these changes that affect our citizens and our planet, we need to update our official ties with Beijing. During their first meeting in April, President Barack Obama and President Hu Jintao announced a new dialogue as part of the administration’s efforts to build a positive, cooperative and comprehensive relationship with Beijing. So this week we will meet together in Washington with two of the highest-ranking officials in the Chinese government, Vice Premier Wang Qishan and State Councilor Dai Bingguo, to develop a new framework for U.S.-China relations. Many of our cabinet colleagues will join us in this “Strategic and Economic Dialogue,” along with an equally large number of the most senior leaders of the Chinese government. Why are we doing this with China, and what does it mean for Americans?
Simply put, few global problems can be solved by the U.S. or China alone. And few can be solved without the U.S. and China together. The strength of the global economy, the health of the global environment, the stability of fragile states and the solution to nonproliferation challenges turn in large measure on cooperation between the U.S. and China. While our two-day dialogue will break new ground in combining discussions of both economic and foreign policies, we will be building on the efforts of the past seven U.S. administrations and on the existing tapestry of government-to-government exchanges and cooperation in several dozen different areas.
At the top of the list will be assuring recovery from the most serious global economic crisis in generations and assuring balanced and sustained global growth once recovery has taken hold. When the current crisis struck, the U.S. and China acted quickly and aggressively to support economic activity and to create and save jobs. The success of the world’s major economies in blunting the force of the global recession and setting the stage for recovery is due in substantial measure to the bold steps our two nations have taken.
As we move toward recovery, we must take additional steps to lay the foundation for balanced and sustainable growth in the years to come. That will involve Americans rebuilding our savings, strengthening our financial system and investing in energy, education and health care to make our nation more productive and prosperous. For China it involves continuing financial sector reform and development. It also involves spurring domestic demand growth and making the Chinese economy less reliant on exports. Raising personal incomes and strengthening the social safety net to address the reasons why Chinese feel compelled to save so much would provide a powerful boost to Chinese domestic demand and global growth.
Both nations must avoid the temptation to close off our respective markets to trade and investment. Both must work hard to create new opportunities for our workers and our firms to compete equally, so that the people of each country see the benefit from the rapidly expanding U.S.-China economic relationship.
A second priority is to make progress on the interconnected issues of climate change, energy and the environment. Our two nations need to establish a true partnership to put both countries on a low-carbon pathway, simultaneously reducing greenhouse gas emissions while promoting economic recovery and sustainable development. The cross-cutting nature of our meetings offers a unique opportunity for key American officials to meet with their Chinese counterparts to work on the global issue of climate change. In the run-up to the international climate change conference in Copenhagen in December, it is clear that any agreement must include meaningful participation by large economies like China.
The third broad area for discussion is finding complementary approaches to security and development challenges in the region and across the globe. From the provocative actions of North Korea, to stability in Afghanistan and Pakistan, to the economic possibilities in Africa, the U.S. and China must work together to reach solutions to these urgent challenges confronting not only our two nations, but many others across the globe.
While this first round of the U.S.-China Strategic and Economic Dialogue offers a unique opportunity to work with Chinese officials, we will not always agree on solutions and we must be frank about our differences, including establishing the right venues to have those discussions. And while we are working to make China an important partner, we will continue to work closely with our long-standing allies and friends in Asia and around the world and rely on the appropriate international groups and organizations.
But having these strategic-level discussions with our Chinese counterparts will help build the trust and relationships to tackle the most vexing global challenges of today—and of the coming generation. The Chinese have a wise aphorism: “When you are in a common boat, you need to cross the river peacefully together.” Today, we will join our Chinese counterparts in grabbing an oar and starting to row.
Mrs. Clinton is the U.S. Secretary of State. Mr. Geithner is Secretary of the Treasury.
Micheletti: The Path Forward for Honduras
The Path Forward for Honduras. By ROBERTO MICHELETTI
Zelaya’s removal from office was a triumph for the rule of law.
WSJ, Jul 27, 2009
One of America’s most loyal Latin American allies—Honduras—has been in the midst of a constitutional crisis that threatens its democracy. Sadly, key undisputed facts regarding the crisis have often been ignored by America’s leaders, at least during the earliest days of the crisis.
In recent days, the rhetoric from allies of former President Manuel Zelaya has also dominated media reporting in the U.S. The worst distortion is the repetition of the false statement that Mr. Zelaya was removed from office by the military and for being a “reformer.” The truth is that he was removed by a democratically elected civilian government because the independent judicial and legislative branches of our government found that he had violated our laws and constitution.
Let’s review some fundamental facts that cannot be disputed:
• The Supreme Court, by a 15-0 vote, found that Mr. Zelaya had acted illegally by proceeding with an unconstitutional “referendum,” and it ordered the Armed Forces to arrest him. The military executed the arrest order of the Supreme Court because it was the appropriate agency to do so under Honduran law.
• Eight of the 15 votes on the Supreme Court were cast by members of Mr. Zelaya’s own Liberal Party. Strange that the pro-Zelaya propagandists who talk about the rule of law forget to mention the unanimous Supreme Court decision with a majority from Mr. Zelaya’s own party. Thus, Mr. Zelaya’s arrest was at the instigation of Honduran’s constitutional and civilian authorities—not the military.
• The Honduran Congress voted overwhelmingly in support of removing Mr. Zelaya. The vote included a majority of members of Mr. Zelaya’s Liberal Party.
• Independent government and religious leaders and institutions—including the Supreme Electoral Tribunal, the Administrative Law Tribunal, the independent Human Rights Ombudsman, four-out-of-five political parties, the two major presidential candidates of the Liberal and National Parties, and Honduras’s Catholic Cardinal—all agreed that Mr. Zelaya had acted illegally.
• The constitution expressly states in Article 239 that any president who seeks to amend the constitution and extend his term is automatically disqualified and is no longer president. There is no express provision for an impeachment process in the Honduran constitution. But the Supreme Court’s unanimous decision affirmed that Mr. Zelaya was attempting to extend his term with his illegal referendum. Thus, at the time of his arrest he was no longer—as a matter of law, as far as the Supreme Court was concerned—president of Honduras.
• Days before his arrest, Mr. Zelaya had his chief of staff illegally withdraw millions of dollars in cash from the Central Bank of Honduras.
• A day or so before his arrest, Mr. Zelaya led a violent mob to overrun an Air Force base to seize referendum ballots that had been shipped into Honduras by Hugo Chávez’s Venezuelan government.
• I succeeded Mr. Zelaya under the Honduran constitution’s order of succession (our vice president had resigned before all of this began so that he could run for president). This is and has always been an entirely civilian government. The military was ordered by an entirely civilian Supreme Court to arrest Mr. Zelaya. His removal was ordered by an entirely civilian and elected Congress. To suggest that Mr. Zelaya was ousted by means of a military coup is demonstrably false.
Regarding the decision to expel Mr. Zelaya from the country the evening of June 28 without a trial, reasonable people can believe the situation could have been handled differently. But it is also necessary to understand the decision in the context of genuine fear of Mr. Zelaya’s proven willingness to violate the law and to engage in mob-led violence.
The way forward is to work with Costa Rican President Oscar Arias. He is proposing ways to ensure that Mr. Zelaya complies with Honduras’s laws and its constitution and allows the people of Honduras to elect a new president in the regularly scheduled Nov. 29 elections (or perhaps earlier, if the date is moved up as President Arias has suggested and as Honduran law allows).
If all parties reach agreement to allow Mr. Zelaya to return to Honduras—a big “if”—we believe that he cannot be trusted to comply with the law and therefore it is our position that he must be prosecuted with full due process.
President Arias’s proposal for a moratorium on prosecution of all parties may be considered, but our Supreme Court has indicated that such a proposal presents serious legal problems under our constitution.
Like America, our constitutional democracy has three co-equal and independent branches of government—a fact that Mr. Zelaya ignored when he openly defied the positions of both the Supreme Court and Congress. But we are ready to continue discussions once the Supreme Court, the attorney general and Congress analyze President Arias’s proposal. That proposal has been turned over to them so that they can review provisions that impact their legal authority. Once we know their legal positions we will proceed accordingly.
The Honduran people must have confidence that their Congress is a co-equal branch of government. They must be assured that the rule of law in Honduras applies to everyone, even their president, and that their Supreme Court’s orders will not be dismissed and swept aside by other nations as inconvenient obstacles.
Meanwhile, the other elements of the Arias proposal, especially the establishment of a Truth Commission to make findings of fact and international enforcement mechanisms to ensure Mr. Zelaya complies with the agreement, are worthy of serious consideration.
Mr. Zelaya’s irresponsible attempt on Friday afternoon to cross the border into Honduras before President Arias has obtained agreement from all parties—an attempt that U.S. Secretary of State Hillary Clinton appropriately described as “reckless”—was just another example of why Mr. Zelaya cannot be trusted to keep his word.
Regardless of what happens, the worst thing the U.S. can do is to impose economic sanctions that would primarily hurt the poorest people in Honduras. Rather than impose sanctions, the U.S. should continue the wise policies of Mrs. Clinton. She is supporting President Arias’s efforts to mediate the issues. The goal is a peaceful solution that is consistent with Honduran law in a civil society where even the president is not above the law.
Mr. Micheletti, previously the president of the Honduran Congress, became president of Honduras upon the departure of Manuel Zelaya. He is a member of the Liberal Party, the same party as Mr. Zelaya.
Zelaya’s removal from office was a triumph for the rule of law.
WSJ, Jul 27, 2009
One of America’s most loyal Latin American allies—Honduras—has been in the midst of a constitutional crisis that threatens its democracy. Sadly, key undisputed facts regarding the crisis have often been ignored by America’s leaders, at least during the earliest days of the crisis.
In recent days, the rhetoric from allies of former President Manuel Zelaya has also dominated media reporting in the U.S. The worst distortion is the repetition of the false statement that Mr. Zelaya was removed from office by the military and for being a “reformer.” The truth is that he was removed by a democratically elected civilian government because the independent judicial and legislative branches of our government found that he had violated our laws and constitution.
Let’s review some fundamental facts that cannot be disputed:
• The Supreme Court, by a 15-0 vote, found that Mr. Zelaya had acted illegally by proceeding with an unconstitutional “referendum,” and it ordered the Armed Forces to arrest him. The military executed the arrest order of the Supreme Court because it was the appropriate agency to do so under Honduran law.
• Eight of the 15 votes on the Supreme Court were cast by members of Mr. Zelaya’s own Liberal Party. Strange that the pro-Zelaya propagandists who talk about the rule of law forget to mention the unanimous Supreme Court decision with a majority from Mr. Zelaya’s own party. Thus, Mr. Zelaya’s arrest was at the instigation of Honduran’s constitutional and civilian authorities—not the military.
• The Honduran Congress voted overwhelmingly in support of removing Mr. Zelaya. The vote included a majority of members of Mr. Zelaya’s Liberal Party.
• Independent government and religious leaders and institutions—including the Supreme Electoral Tribunal, the Administrative Law Tribunal, the independent Human Rights Ombudsman, four-out-of-five political parties, the two major presidential candidates of the Liberal and National Parties, and Honduras’s Catholic Cardinal—all agreed that Mr. Zelaya had acted illegally.
• The constitution expressly states in Article 239 that any president who seeks to amend the constitution and extend his term is automatically disqualified and is no longer president. There is no express provision for an impeachment process in the Honduran constitution. But the Supreme Court’s unanimous decision affirmed that Mr. Zelaya was attempting to extend his term with his illegal referendum. Thus, at the time of his arrest he was no longer—as a matter of law, as far as the Supreme Court was concerned—president of Honduras.
• Days before his arrest, Mr. Zelaya had his chief of staff illegally withdraw millions of dollars in cash from the Central Bank of Honduras.
• A day or so before his arrest, Mr. Zelaya led a violent mob to overrun an Air Force base to seize referendum ballots that had been shipped into Honduras by Hugo Chávez’s Venezuelan government.
• I succeeded Mr. Zelaya under the Honduran constitution’s order of succession (our vice president had resigned before all of this began so that he could run for president). This is and has always been an entirely civilian government. The military was ordered by an entirely civilian Supreme Court to arrest Mr. Zelaya. His removal was ordered by an entirely civilian and elected Congress. To suggest that Mr. Zelaya was ousted by means of a military coup is demonstrably false.
Regarding the decision to expel Mr. Zelaya from the country the evening of June 28 without a trial, reasonable people can believe the situation could have been handled differently. But it is also necessary to understand the decision in the context of genuine fear of Mr. Zelaya’s proven willingness to violate the law and to engage in mob-led violence.
The way forward is to work with Costa Rican President Oscar Arias. He is proposing ways to ensure that Mr. Zelaya complies with Honduras’s laws and its constitution and allows the people of Honduras to elect a new president in the regularly scheduled Nov. 29 elections (or perhaps earlier, if the date is moved up as President Arias has suggested and as Honduran law allows).
If all parties reach agreement to allow Mr. Zelaya to return to Honduras—a big “if”—we believe that he cannot be trusted to comply with the law and therefore it is our position that he must be prosecuted with full due process.
President Arias’s proposal for a moratorium on prosecution of all parties may be considered, but our Supreme Court has indicated that such a proposal presents serious legal problems under our constitution.
Like America, our constitutional democracy has three co-equal and independent branches of government—a fact that Mr. Zelaya ignored when he openly defied the positions of both the Supreme Court and Congress. But we are ready to continue discussions once the Supreme Court, the attorney general and Congress analyze President Arias’s proposal. That proposal has been turned over to them so that they can review provisions that impact their legal authority. Once we know their legal positions we will proceed accordingly.
The Honduran people must have confidence that their Congress is a co-equal branch of government. They must be assured that the rule of law in Honduras applies to everyone, even their president, and that their Supreme Court’s orders will not be dismissed and swept aside by other nations as inconvenient obstacles.
Meanwhile, the other elements of the Arias proposal, especially the establishment of a Truth Commission to make findings of fact and international enforcement mechanisms to ensure Mr. Zelaya complies with the agreement, are worthy of serious consideration.
Mr. Zelaya’s irresponsible attempt on Friday afternoon to cross the border into Honduras before President Arias has obtained agreement from all parties—an attempt that U.S. Secretary of State Hillary Clinton appropriately described as “reckless”—was just another example of why Mr. Zelaya cannot be trusted to keep his word.
Regardless of what happens, the worst thing the U.S. can do is to impose economic sanctions that would primarily hurt the poorest people in Honduras. Rather than impose sanctions, the U.S. should continue the wise policies of Mrs. Clinton. She is supporting President Arias’s efforts to mediate the issues. The goal is a peaceful solution that is consistent with Honduran law in a civil society where even the president is not above the law.
Mr. Micheletti, previously the president of the Honduran Congress, became president of Honduras upon the departure of Manuel Zelaya. He is a member of the Liberal Party, the same party as Mr. Zelaya.
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