Banker Baiting 101. WSJ Editorial
Obama's latest populist turn won't help the recovery.
The Wall Street Journal, Dec 15, 2009, page A20
The Obama Administration desperately wants a strong economic recovery, or so it says, but does it have any idea how to encourage one?
It says it wants job growth, but its policies keep raising the cost of creating new jobs. It says it wants small business to take risks, but it keeps reducing the rewards if those risks succeed. And it says it wants banks to lend more money, even as it keeps threatening to punish bankers if they make too many bad loans or make too much money.
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The last contradiction is again on display as President Obama rolls out his latest populist blame-the-bankers campaign. This is becoming a White House financial staple. Recall how the President joined the Congressional posse amid this year's earlier AIG bonus uproar, until it threatened to run out of control. Later Mr. Obama targeted Chrysler's bond holders who weren't eager to accept the government's meager dictated terms. The bond holders rolled over, but everyone in financial markets got a message about what this Administration thinks about the sanctity of contracts.
Now, amid Democratic panic over 10% unemployment heading into an election year, the President is attempting a double populist play: Blame the bankers for causing the financial crisis and recession by lending too much, and blame them again for causing high joblessness now by lending too little.
"I did not run for office to be helping out a bunch of fat cat bankers on Wall Street," Mr. Obama said in an interview on CBS's "60 Minutes" on Sunday. "They're still puzzled why it is that people are mad at the banks. Well, let's see," he said. "You guys are drawing down $10, $20 million bonuses after America went through the worst economic year that it's gone through in—in decades, and you guys caused the problem. And we've got 10% unemployment."
He followed up that warm encouragement yesterday by hauling the bankers in to the White House to receive the command that "we expect an extraordinary commitment from them to help rebuild the economy."
This blame-the-bankers rhetoric is worse than a distraction as the recovery tries to gain solid footing and become a durable expansion. It risks obscuring two critical and related problems: Federal policy is discouraging both lending and borrowing.
If there is a lack of lending by banks to small businesses, the President might consider cutting out the CEO middlemen and speaking directly to the regulators who work for him, as well as to the Federal Reserve Chairman he recently nominated for a second term.
Forcing banks to write down the value of small-business loans that are still performing has become the specialty of bank regulators who are now trying to make up for the bubble years. Whenever a commercial building serves as collateral, no matter the quality of the borrower, the loan becomes suspect.
The result is a reduction in bank capital, a disincentive to make the next loan and perhaps even a calling of the loan, forcing a sale of the property. Operating with perfect pro-cyclical precision, regulators who were asleep during the housing boom and its epidemic of liar loans now target current loans to companies with steady cash-flow. This does not encourage new lending.
Meanwhile, Fed Chairman Ben Bernanke's near-zero-rate interest policy encourages banks to borrow cheaply and then invest in safe long-end Treasurys instead of riskier commercial loans. The Obama Treasury has explicitly supported this Fed policy as a way for banks to play the yield curve to rebuild their balance sheets.
But if Mr. Obama wants the banks to lend more, he should tell the Fed to start to rein in its excessively easy credit now that the financial crisis is over and the economic recovery gains steam. The longer the Fed keeps rates artificially low, the longer banks will get used to this implicit subsidy and the rougher their adjustment when it inevitably ends. Meanwhile, weren't higher bank profits to raise capital a major goal of the bailout?
Regarding small business, not everyone agrees that lack of credit is the main economic problem. William Dennis of the National Federation of Independent Business says that for most small companies the problem is a lack of customers, not credit. "There aren't a lot of folks who want to borrow. Our challenge is getting people in the front door," he says.
A recent NFIB survey of small-business owners found only 10% reporting problems obtaining financing. The government's own data tell a similar story. The Federal Reserve reports that business loan demand remains at depressed levels, while data from the Federal Deposit Insurance Corporation show $6 trillion of unused lending commitments at FDIC-insured institutions.
Mr. Dennis reports that small-business owners are much more concerned about other Washington issues, namely the uncertainty created by the Obama policy agenda: When will the taxes arrive to pay for Washington's spending binge? How much will health-care reform cost? What will be the impact of cap-and-trade legislation to address climate change?
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Mr. Obama summed up his White House meeting with the bank CEOs by once again blaming them for the financial crisis and suggesting that they have an obligation to support new regulation being written by Barney Frank (D., Mass.) and Senator Chris Dodd (D., Conn.).
You have to smile at that irony. No two Members of Congress did more to encourage the financial crisis, by preventing reform of the government-sponsored housing behemoths Fannie Mae and Freddie Mac. By ignoring Washington's role in creating the credit mania, Mr. Obama is hardly offering confidence that his financial reform efforts will prevent a repeat.
Yet none of this seems to count for much at a White House that is reading the polls and sees a political opening because bankers aren't popular. Someone in that power palace ought to consider that you don't encourage capitalism by beating up capitalists, and you aren't likely to encourage more lending by whipsawing lenders.
Monday, December 14, 2009
China Secures Oil and Gas Resources; U.S. Prefers to Wait for Green Energy
China Secures Oil and Gas Resources; U.S. Prefers to Wait for Green Energy
IER, December 14, 2009
[i] Centre for Global Energy Studies, China’s Search for Energy Security, December 3, 2009, www.cges.co.uk
IER, December 14, 2009
Around the world, China is investing in oil and gas resources to fuel its booming manufacturing industries and transportation sector to continue its sky-rocketing economic growth. China is not endowed with very much oil and gas resources of its own. Thus, it needs to partner with countries around the world to ensure availability of future supplies of oil and natural gas that it will need to keep up its current pace of economic growth. The U.S., which does have oil and gas resources, is not following China’s lead in investing in these resources. Instead, the U.S. is looking toward wind and solar technologies to fuel its economy. However, wind and solar power are generating technologies and will not help where oil is needed in the transportation and industrial sectors. Further, wind and solar power have capacity factors that cannot compete with those of fossil fuel generating technologies, and they can create instability issues with the electrical grid. They are also more expensive technologies and must have government support through tax credits to compete at all with fossil-fuel generating technologies.
China’s Investment in Oil and Gas
China has seized on the global recession to gain access to oil and gas resources and supplies. The atmosphere is ripe for Chinese firms to invest in these resources because:[i]
- Acquisitions are now more favorable than they were in early 2008, due to lower oil prices and, hence, lower asset prices.
- China is less constrained than many of its international counterparts in terms of where they can invest (e.g. Iran).
- Financing is not a problem, because Chinese banks are willing and able to provide needed funds.
- Competition for these assets in some areas has lessened.
Not only is China investing in places like Iran, Iraq, Kazakhstan, Nigeria, Venezuela, and Argentina, but it is in the U.S.’s backyard, looking towards usurping the U.S. supply of Canadian oil sands. China is a good customer for Canada, as Canada fears that the U.S. may introduce a low carbon fuel standard[ii] or other legislation that would restrict our purchases of oil sands from Canada[iii]. China is also looking at a possible purchase of leases in the Gulf of Mexico where Devon Energy is looking to sell its U.S. leases.[iv] The sale of these offshore leases requires the approval of the Mineral Management Service in the U.S. Department of Interior. China is willing and able to be at the forefront of any misstep other countries make to gain a foothold and secure oil and gas supplies, and the U.S. seems to be giving it elbow room.
China is also investing in oil and natural gas pipelines to ensure access to its investments and to divert some of its oil imports from the Middle East away from the Straits of Malacca. Oil pipelines are being built from Russia, Kazakhstan, and the coast of Myanmar. [v] A natural gas pipeline from Turkmenistan should be operating in the near future, and several liquefied natural gas terminals are either operating or are expected to be operating shortly.[vi]
While the total amount of “investment” loans made by China to oil and gas producing countries for guaranteed future supplies of oil and gas are unknown, China has clearly invested billions of dollars in their ‘loans for energy’ program. [vii] The main provider of the loans is the China Development Bank, and thus they are essentially Government loans. Just on Tuesday, December 8th, for example, Nigeria’s presidential advisor for energy announced that Chinese companies have proposed investing $50 billion to buy 6 billion barrels of oil reserves in Nigeria.[viii]
China’s Oil and Gas Reserves
China is not endowed with many reserves of oil and natural gas.[ix] According to the Oil and Gas Journal, as of January 1, 2009, China had 16 billion barrels of oil reserves, 1.2 percent of the world total,[x] and its natural gas reserves totaled 80 trillion cubic feet, 1.3 percent of the world total.[xi] China gets 70 percent of its energy from coal, the hydrocarbon with the highest level of greenhouse gas emissions, and 20 percent from oil, the hydrocarbon with the second highest level of greenhouse gas emissions.[xii] China is third in rank to the U.S. and Russia in recoverable reserves of coal, with 13.6 percent of the world total.[xiii] Because of its massive use of hydrocarbons and its growing economy, China surpassed the U.S. in carbon dioxide emissions, the largest component of greenhouse gas emissions, in 2006.[xiv]
The U.S. Oil and Gas Strategy
While the Bush Administration initiated steps to bring on new leases of oil and gas, both offshore in the Gulf of Mexico and on public lands that are endowed with billions of barrels of shale oil, the Obama Administration has slowed the progress by extending the comment periods and providing other obstacles. Examples include:
- On February 4th, shortly after his Senate confirmation, Interior Secretary Salazar rescinded 77 oil and gas leases in Utah that could cost American taxpayers millions in lost lease bids, production royalties, new jobs, and the energy needed to offset rising imports of oil and gas.[xv]
- On February 10th, Secretary Salazar delayed for 6 months the development of the new 5-year leasing program for offshore drilling that would have set the framework for accessing newly available areas.[xvi]
- On February 25th, Secretary Salazar canceled a new round of commercial-scale oil shale research, demonstration, and development leases in Colorado, Wyoming and Utah.[xvii]
- On February 26th, President Obama introduced a budget that contains page after page of taxes on oil and gas totaling more than $31 billion that will reduce our domestic energy production.[xviii]
- On March 30th, President Obama signed the Omnibus Public Lands Management Act into law, prohibiting energy production on over 3 million acres of federal land.[xix]
- On October 8th, after rescinding 77 Utah oil and gas leases in February, Salazar announces he will lease 17 of them.[xx]
- On October 20th, after canceling a new round of commercial-scale oil shale research, demonstration, and development leases last February, Salazar issued a new oil shale leasing program that decreases lease acreage by 87 percent, demands unrealistic timelines for investment into cutting edge research, and leaves royalty rates at the whim of the Secretary or in new regulations. [xxi]
Issues with the U.S. Renewable Strategy
The Obama Administration prefers that priority be given to offshore wind farms and wind and solar installations onshore.[xxii] They tout that these sources of “green energy” will provide needed jobs in the U.S. However, studies[xxiii] have shown that highly-subsidized renewable energy cost consumers and taxpayers more than the alternative fossil technologies[xxiv], that their component parts are largely made in foreign countries, that the jobs are mainly for the actual site construction and thus are temporary, and that the economy would be spurred more by investments made elsewhere.
Further, most green technologies are dependent on the wind blowing or the sun shining, and thus provide a lower amount of usable energy than their fossil or nuclear counterparts. Hence, many more wind farms or solar installations will be needed to provide the same amount of energy as their fossil and nuclear counterparts. And, they will also require more land area.[xxv]
What China Knows and the U.S. Doesn’t Know
All sources are needed to ensure energy will be available for future economic growth and to reduce dependence on foreign imports. Trading foreign imports of oil for component parts of wind and solar technologies does not reach any goals to which the U.S. is aspiring. To reach reductions of greenhouse gas emissions required by H.R. 2454, or other similar legislation, either nuclear power or biomass generating technologies will be needed[xxvi], which provide greater amounts of energy than wind or solar power. That’s precisely the reason that China is investing in oil and gas resources abroad and in building power plants from hydrocarbon, nuclear, and renewable sources of energy without legal and government delays.[xxvii]
[i] Centre for Global Energy Studies, China’s Search for Energy Security, December 3, 2009, www.cges.co.uk
[ii] A Low Carbon Fuel Standard reduces the carbon intensity of transportation fuels by requiring that the mix of fuels sold reaches pre-specified targets of carbon reduction. Since oil sands yield heavier crude, more energy is required for producing and refining it, thus giving that crude a higher carbon intensity than conventional crude.
[iii] China National Petroleum Corp. received a $30 billion low-interest loan from a state-run bank to finance overseas acquisitions, Beijing’s latest bid to secure mineral resources to fuel the country’s burgeoning economy. http://www.eenews.net/Greenwire/2009/09/09/
[iv] David Pierson, “China’s push for oil in the Gulf of Mexico puts U.S. in awkward spot,” Los Angeles Times, http://www.latimes.com/business/la-fi-china-oil22-2009oct22,0,2776603.story?track=rss.
[v] Centre for Global Energy Studies, China’s Search for Energy Security, December 3, 2009, www.cges.co.uk
[vi] Energy Information Administration, International Energy Outlook 2009, www.eia.doe/oiaf/ieo/index.html
[vii] China National Petroleum Corp. received a $30 billion low-interest loan from a state-run bank to finance overseas acquisitions, Beijing’s latest bid to secure mineral resources to fuel the country’s burgeoning economy. http://www.eenews.net/Greenwire/2009/09/09/
[viii] The Wall Street Journal, Chinese Firms Propose $50 Billion Oil Buy in Nigeria, http://online.wsj.com/article/SB10001424052748703558004574583901047538032.html
[ix] Proved reserves of crude oil are the estimated quantities that geological and engineering data indicate can be recovered from known reservoirs with existing technology and current economic and operating conditions.
[x] “Worldwide Look at Reserves and Production,” Oil and Gas Journal, Vol. 106, No. 48 (December 22, 2008), pp. 23-24.
[xi] “Worldwide Look at Reserves and Production,” Oil and Gas Journal, Vol. 106, No. 48 (December 22, 2008), pp. 22-23.
[xii]Energy Information Administration, Country Analysis Brief on China, www.eia.doe.gov/emeu/cabs/China/Background.html
[xiii] Energy Information Administration, International Energy Outlook 2009, Table 9, page 59, www.eia.doe/oiaf/ieo/index.html
[xiv] Energy Information Administration, Annual Energy Review 2008, Table 11.19, http://www.eia.doe.gov/emeu/aer/pdf/pages/sec11_39.pdf
[xv] E&E News, Oil and Gas: Salazar scraps contested Utah leases, February 4, 2009, http://www.eenews.net/eenewspm/2009/02/04/archive/1?terms=Salazar
[xvi] The Washington Times, Obama Blocks Offshore Drilling, February 11, 2009, http://www.washingtontimes.com/news/2009/feb/11/drilling-ban-revisited/
[xvii] Climate Wire, Interior: Research needed before “headlong” oil shale rush, February 26, 2009, http://www.eenews.net/climatewire/2009/02/26/archive/6?terms=Salazar
[xviii] The Hill, Oil, Gas Industry Aims to Nip Tax Hikes In the Bud, March 23, 2009, http://thehill.com/business-a-lobbying/3976-oil-gas-industry-aims-to-nip-tax-hikes-in-the-bud and Obama’s Budget: Almost $1 Trillion in New Taxes Over Next 10 yrs, Starting 2011, http://blogs.abcnews.com/politicalpunch/2009/02/obamas-budget-a.html
[xix] E&E News, Public Lands: Obama signs natural resources omnibus into law, March 30, 2009, http://www.eenews.net/eenewspm/2009/03/30/archive/2?terms=Salazar
[xx] The Wall Street Journal, 2nd UPDATE: US Govt Proposes Delay On Controversial Utah Leases, October 8, 2009, http://online.wsj.com/article/BT-CO-20091008-715463.html
[xxi] U.S. Department of Interior News Release, Salazar Reforms U.S. Oil Shale Program, October 20, 2009, http://www.doi.gov/news/09_News_Releases/102009.html
[xxii] http://www.instituteforenergyresearch.org/2009/08/06/interior-secretary-limits-domestic-energy-production-but-fast-tracks-solar-development/
[xxiii] Wind Energy: The Case of Denmark, http://www.cepos.dk/fileadmin/user_upload/Arkiv/PDF/Wind_energy_-_the_case_of_Denmark.pdf ,and Study of the effects on employment of public aid to renewable energy sources, Universidad Rey Juan Carlos, March 2009, http://www.juandemariana.org/pdf/090327-employment-public-aid-renewable.pdf, and Economic impacts from the promotion of renewable energies: The German experience, www.instituteforenergyresearch.org/germany/Germany_Study_-_FINAL.pdf
[xxiv] Germans miss out on cheaper electricity, www.reuters.com/article/idUSTRE5B02YS20091201/
[xxv] www.instituteforenergyresearch.org/2009/06/11/facts-on-energy-solar/ and www.instituteforenergyresearch.org/2008/09/26/facts-on-energy-wind/
[xxvi] Energy information Administration, Energy Market and Economic Impacts of H.R. 2454, the American Clean Energy and Security Act of 2009, www.eia.doe.gov/oiaf/servicerpt/hr2454/index.html
[xxvii] www.instituteforenergyresearch.org/2009/11/20/what-president-obama-should-have-learned-about-energy-policy-during-his-visit-to-china/
Remarks on the Human Rights Agenda for the 21st Century
Remarks on the Human Rights Agenda for the 21st Century. ByHillary Clinton,
Secretary of State
Georgetown University's Gaston Hall, Washington, DC, December 14, 2009
SECRETARY CLINTON: Thank you. It is wonderful being back here at Georgetown in this magnificent Gaston Hall, and to give you something to do during exam week. (Laughter.) It’s one of those quasi-legitimate reasons for taking a break – (laughter) – which I’m very happy to have provided.I want to thank Jas for his introductory remarks, and clearly, those of you who are in the Foreign Service School heard reflections of the extraordinary opportunity you’ve been given to study here as he spoke about the culture of human rights. It is also a real honor for me to be delivering this speech at Georgetown, because there is no better place than this university to talk about human rights. And President DeGioia, the administration, and the faculty embody the university’s long tradition of supporting free expression and free inquiry and the cause of human rights around the world.
I know that President DeGioia himself has taught a course on human rights, as well as on the ethics of international development with one of my longtime colleagues, Carol Lancaster, the acting dean of the School of Foreign Service. And I want to commend the faculty here who are helping to shape our thinking on human rights, on conflict resolution, on development and related subjects. It is important to be at this university because the students here, the faculty, every single year add to the interreligious dialogue. You give voice to many advocates and activists who are working on the front lines of the global human rights movement, through the Human Rights Institute here at the law school and other programs. And the opportunities that you provide your students to work in an international women’s rights clinic are especially close to my heart.
All of these efforts reflect the deep commitment of the Georgetown administration, faculty, and students to this cause. So first and foremost, I am here to say thank you. Thank you for keeping human rights front and center. Thank you for training the next generation of human rights advocates, and more generally, introducing students who may never be an activist, may never work for Amnesty International or any other organization specifically devoted to human rights, but who will leave this university with it imbued in their hearts and minds. So thank you, President DeGioia, for all that you do and all that Georgetown has done. (Applause.)
Today, I want to speak to you about the Obama Administration’s human rights agenda for the 21st century. It is a subject on the minds of many people who are eager to hear our approach, and understandably so, because it is a critical issue that warrants our energy and our attention. My comments today will provide an overview of our thinking on human rights and democracy and how they fit into our broader foreign policy, as well as the principles and policies that guide our approach.
But let me also say that what this is not. It could not be a comprehensive accounting of abuses or nations with whom we have raised human rights concerns. It could not be and is not a checklist or a scorecard. We issue a Human Rights Report every year and that goes into great detail on the concerns we have for many countries. But I hope that we can use this opportunity to look at this important issue in a broader light and appreciate its full complexity, moral weight, and urgency. And with that, let me turn to the business at hand.
In his acceptance speech for the Nobel Peace Prize last week, President Obama said that while war is never welcome or good, it will sometimes be right and necessary, because, in his words, “Only a just peace based upon the inherent rights and dignity of every individual can be truly lasting.” Throughout history and in our own time, there have been those who violently deny that truth. Our mission is to embrace it, to work for lasting peace through a principled human rights agenda, and a practical strategy to implement it.
President Obama’s speech also reminded us that our basic values, the ones enshrined in our Declaration of Independence – the rights to life, liberty, and the pursuit of happiness – are not only the source of our strength and endurance; they are the birthright of every woman, man, and child on earth. That is also the promise of the Universal Declaration of Human Rights, the prerequisite for building a world in which every person has the opportunity to live up to his or her God-given potential, and the power behind every movement for freedom, every campaign for democracy, every effort to foster development, and every struggle against oppression.
The potential within every person to learn, discover and embrace the world around them, the potential to join freely with others to shape their communities and their societies so that every person can find fulfillment and self-sufficiency, the potential to share life’s beauties and tragedies, laughter and tears with the people we love – that potential is sacred. That, however, is a dangerous belief to many who hold power and who construct their position against an “other” – another tribe or religion or race or gender or political party. Standing up against that false sense of identity and expanding the circle of rights and opportunities to all people – advancing their freedoms and possibilities – is why we do what we do.
This week we observe Human Rights Week. At the State Department, though, every week is Human Rights Week. Sixty-one years ago this month, the world’s leaders proclaimed a new framework of rights, laws, and institutions that could fulfill the vow of “never again.” They affirmed the universality of human rights through the Universal Declaration and legal agreements including those aimed at combating genocide, war crimes and torture, and challenging discrimination against women and racial and religious minorities. Burgeoning civil society movements and nongovernmental organizations became essential partners in advancing the principle that every person counts, and in exposing those who violate that standard.
As we celebrate that progress, though, our focus must be on the work that remains to be done. The preamble of the Universal Declaration of Human Rights encourages us to use it as a, quote, “standard of achievement.” And so we should. But we cannot deny the gap that remains between its eloquent promises and the life experiences of so many of our fellow human beings. Now, we must finish the job.
Our human rights agenda for the 21st century is to make human rights a human reality, and the first step is to see human rights in a broad context. Of course, people must be free from the oppression of tyranny, from torture, from discrimination, from the fear of leaders who will imprison or “disappear” them. But they also must be free from the oppression of want – want of food, want of health, want of education, and want of equality in law and in fact.
To fulfill their potential, people must be free to choose laws and leaders; to share and access information, to speak, criticize, and debate. They must be free to worship, associate, and to love in the way that they choose. And they must be free to pursue the dignity that comes with self-improvement and self-reliance, to build their minds and their skills, to bring their goods to the marketplace, and participate in the process of innovation. Human rights have both negative and positive requirements. People should be free from tyranny in whatever form, and they should also be free to seize the opportunities of a full life. That is why supporting democracy and fostering development are cornerstones of our 21st century human rights agenda.
This Administration, like others before us, will promote, support, and defend democracy. We will relinquish neither the word nor the idea to those who have used it too narrowly, or to justify unwise policies. We stand for democracy not because we want other countries to be like us, but because we want all people to enjoy the consistent protection of the rights that are naturally theirs, whether they were born in Tallahassee or Tehran. Democracy has proven the best political system for making human rights a human reality over the long term.
But it is crucial that we clarify what we mean when we talk about democracy, because democracy means not only elections to choose leaders, but also active citizens and a free press and an independent judiciary and transparent and responsive institutions that are accountable to all citizens and protect their rights equally and fairly. In democracies, respecting rights isn’t a choice leaders make day by day; it is the reason they govern. Democracies protect and respect citizens every day, not just on Election Day. And democracies demonstrate their greatness not by insisting they are perfect, but by using their institutions and their principles to make themselves and their union more perfect, just as our country continues to do after 233 years.
At the same time, human development must also be part of our human rights agenda. Because basic levels of well-being – food, shelter, health, and education – and of public common goods like environmental sustainability, protection against pandemic disease, provisions for refugees – are necessary for people to exercise their rights, and because human development and democracy are mutually reinforcing. Democratic governments are not likely to survive long if their citizens do not have the basic necessities of life. The desperation caused by poverty and disease often leads to violence that further imperils the rights of people and threatens the stability of governments. Democracies that deliver on rights, opportunities, and development for their people are stable, strong, and most likely to enable people to live up to their potential.
So human rights, democracy, and development are not three separate goals with three separate agendas. That view doesn’t reflect the reality we face. To make a real and long-term difference in people’s lives, we have to tackle all three simultaneously with a commitment that is smart, strategic, determined, and long-term. We should measure our success by asking this question: Are more people in more places better able to exercise their universal rights and live up to their potential because of our actions?
Our principles are our North Star, but our tools and tactics must be flexible and reflect the reality on the ground wherever we are trying to have a positive impact. Now, in some cases, governments are willing but unable without support to establish strong institutions and protections for citizens – for example, the nascent democracies in Africa. And we can extend our hand as a partner to help them try to achieve authority and build the progress they desire. In other cases, like Cuba or Nigeria, governments are able but unwilling to make the changes their citizens deserve. There, we must vigorously press leaders to end repression, while supporting those within societies who are working for change. And in cases where governments are both unwilling and unable – places like the eastern Congo – we have to support those courageous individuals and organizations who try to protect people and who battle against the odds to plant seeds for a more hopeful future.
Now, I don’t need to tell you that challenges we face are diverse and complicated. And there is not one approach or formula, doctrine or theory that can be easily applied to every situation. But I want to outline four elements of the Obama Administration’s approach to putting our principles into action, and share with you some of the challenges we face in doing so.
First, a commitment to human rights starts with universal standards and with holding everyone accountable to those standards, including ourselves. On his second full day in office, President Obama issued an executive order prohibiting the use of torture or official cruelty by any U.S. official and ordered the closure of Guantanamo Bay. Next year, we will report on human trafficking, as we do every year, but this time, not only just on other countries, but also on our own. And we will participate through the United Nations in the Universal Periodic Review of our own human rights record, just as we encourage other nations to do.
By holding ourselves accountable, we reinforce our moral authority to demand that all governments adhere to obligations under international law; among them, not to torture, arbitrarily detain and persecute dissenters, or engage in political killings. Our government and the international community must counter the pretensions of those who deny or abdicate their responsibilities and hold violators to account.
Sometimes, we will have the most impact by publicly denouncing a government action, like the coup in Honduras or violence in Guinea. Other times, we will be more likely to help the oppressed by engaging in tough negotiations behind closed doors, like pressing China and Russia as part of our broader agenda. In every instance, our aim will be to make a difference, not to prove a point.
Calling for accountability doesn’t start or stop, however, at naming offenders. Our goal is to encourage – even demand – that governments must also take responsibility by putting human rights into law and embedding them in government institutions; by building strong, independent courts, competent and disciplined police and law enforcement. And once rights are established, governments should be expected to resist the temptation to restrict freedom of expression when criticism arises, and to be vigilant in preventing law from becoming an instrument of oppression, as bills like the one under consideration in Uganda would do to criminalize homosexuality.
We know that all governments and all leaders sometimes fall short. So there have to be internal mechanisms of accountability when rights are violated. Often the toughest test for governments, which is essential to the protection of human rights, is absorbing and accepting criticism. And here too, we should lead by example. In the last six decades we have done this – imperfectly at times but with significant outcomes – from making amends for the internment of our own Japanese American citizens in World War II, to establishing legal recourse for victims of discrimination in the Jim Crow South, to passing hate crimes legislation to include attacks against gays and lesbians. When injustice anywhere is ignored, justice everywhere is denied. Acknowledging and remedying mistakes does not make us weaker, it reaffirms the strength of our principles and institutions.
Second, we must be pragmatic and agile in pursuit of our human rights agenda – not compromising on our principles, but doing what is most likely to make them real. And we will use all the tools at our disposal, and when we run up against a wall, we will not retreat with resignation or recriminations, or repeatedly run up against the same well, but respond with strategic resolve to find another way to effect change and improve people’s lives.
We acknowledge that one size does not fit all. And when old approaches aren’t working, we won’t be afraid to attempt new ones, as we have this year by ending the stalemate of isolation and instead pursuing measured engagement with Burma. In Iran, we have offered to negotiate directly with the government on nuclear issues, but have at the same time expressed solidarity with those inside Iran struggling for democratic change. As President Obama said in his Nobel speech, “They have us on their side.”
And we will hold governments accountable for their actions, as we have just recently by terminating Millennium Challenge Corporation grants this year for Madagascar and Niger in the wake of government behavior. As the President said last week, “we must try as best we can to balance isolation and engagement; pressure and incentives, so that human rights and dignity are advanced over time.”
We are also working for positive change within multilateral institutions. They are valuable tools that, when in their best, leverage the efforts of many countries around a common purpose. So we have rejoined the UN Human Rights Council not because we don’t see its flaws, but because we think that participating gives us the best chance to be a constructive influence.
In our first session, we cosponsored the successful resolution on Freedom of Expression, a forceful declaration of principle at a time when that freedom is jeopardized by new efforts to constrain religious practice, including recently in Switzerland, and by efforts to criminalize the defamation of religion – a false solution which exchanges one wrong for another. And in the United Nations Security Council, I was privileged to chair the September session where we passed a resolution mandating protections against sexual violence in armed conflict.
Principled pragmatism informs our approach on human rights with all countries, but particularly with key countries like China and Russia. Cooperation with each of those is critical to the health of the global economy and the nonproliferation agenda we seek, also to managing security issues like North Korea and Iran, and addressing global problems like climate change.
The United States seeks positive relationships with China and Russia, and that means candid discussions of divergent views. In China, we call for protection of rights of minorities in Tibet and Xinxiang; for the rights to express oneself and worship freely; and for civil society and religious organizations to advocate their positions within a framework of the rule of law. And we believe strongly that those who advocate peacefully for reform within the constitution, such as Charter 2008 signatories, should not be prosecuted.
With Russia, we deplore the murders of journalists and activists and support the courageous individuals who advocate at great peril for democracy. With China, Russia, and others, we are engaging on issues of mutual interest while also engaging societal actors in these same countries who are working to advance human rights and democracy. The assumption that we must either pursue human rights or our “national interests” is wrong. The assumption that only coercion and isolation are effective tools for advancing democratic change is also wrong.
Across our diplomacy and development efforts, we keep striving for innovative ways to achieve results. That’s why I commissioned the first-ever Quadrennial Diplomacy and Development Review to develop a forward-looking strategy built on analysis of our objectives, our challenges, our tools, and our capacities to achieve America’s foreign policy and national security objectives. And make no mistake, issues of Democracy and Governance – D&G as they are called at USAID – are central to this review.
The third element of our approach is that we support change driven by citizens and their communities. The project of making human rights a human reality cannot be just one for governments. It requires cooperation among individuals and organizations within communities and across borders. It means that we work with others who share our commitment to securing lives of dignity for all who share the bonds of humanity.
Six weeks ago, in Morocco, I met with civil society activists from across the Middle East and North Africa. They exemplify how lasting change comes from within and how it depends on activists who create the space in which engaged citizens and civil society can build the foundations for rights-respecting development and democracy. Outside governments and global civil society cannot impose change, but we can promote and bolster it and defend it. We can encourage and provide support for local grassroots leaders, providing a lifeline of protection to human rights and democracy activists when they get in trouble, as they often do, for raising sensitive issues and voicing dissent. This means using tools like our Global Human Rights Defenders Fund, which in the last year has provided targeted legal and relocation assistance to 170 human rights defenders around the world.
And we can stand with these defenders publicly, as we have by sending a high-level diplomatic mission to meet with Aung San Suu Kyi, and as I have done around the world, from Guatemala to Kenya to Egypt, speaking out for civil society and political leaders who are working to try to change their societies from within, and also working through the backchannels for the safety of dissidents and protecting them from persecution.
We can amplify the voices of activists and advocates working on these issues by shining a spotlight on their progress. They often pursue their mission in isolation, often so marginalized within their own societies. And we can endorse the legitimacy of their efforts. We recognize these with honors like the Women of Courage awards that First Lady Michelle Obama and I presented earlier this year and the Human Rights Defenders award I will present next month, and we can applaud others like Vital Voices, the RFK Center for Justice and Human Rights, and the Lantos Foundation, that do the same.
We can give them access to public forums that lend visibility to their ideas, and continue to press for a role for nongovernmental organizations in multilateral institutions like the United Nations and the OSCE. And we can enlist other allies like international labor unions who were instrumental in the Solidarity movement in Poland or religious organizations who are championing the rights of people living with HIV/AIDS in Africa.
We can help change agents, gain access to and share information through the internet and mobile phones so that they can communicate and organize. With camera phones and Facebook pages, thousands of protestors in Iran have broadcast their demands for rights denied, creating a record for all the world, including Iran’s leaders, to see. I’ve established a special unit inside the State Department to use technology for 21st century statecraft.
In virtually every country I visit – from Indonesia to Iraq, from South Korea to the Dominican Republic – I conduct a town hall or roundtable discussion with groups outside of government to learn from them, and to provide a platform for their voices, ideas, and opinions. When I was recently in Russia, I visited an independent radio station to give an interview, and express through word and deed our support for independent media at a time when free expression is under threat.
On my visits to China, I have made a point of meeting with women activists. The UN Conference on Women in Beijing in 1995 inspired a generation of women civil society leaders who have become rights defenders for today’s China. In 1998, I met with a small group of lawyers in a crowded apartment on the fifth floor of a walk-up building. They described for me their efforts to win rights for women to own property, have a say in marriage and divorce, and be treated as equal citizens.
When I visited China again earlier this year, I met with some of the same women, but this group had grown and expanded its scope. Now there were women working not just for legal rights, but for environmental, health, and economic rights as well.
Yet one of them, Dr. Gao Yaojie, has been harassed for speaking out about AIDS in China. She should instead be applauded by her government for helping to confront the crisis. NGOs and civil society leaders need the financial, technical and political support we provide. Many repressive regimes have tried to limit the independence and effectiveness of activists and NGOs by restricting their activities, including more than 25 governments that have recently adopted new restrictions. But our funding and support can give a foothold to local organizations, training programs, and independent media. And of course, one of the most important ways that we and others in the international community can lay the foundation for change from the bottom up is through targeted assistance to those in need, and through partnerships that foster broad-based economic development.
To build success for the long run, our development assistance needs to be as effective as possible at delivering results and paving the way for broad-based growth and long-term self-reliance. Beyond giving people the capacity to meet their material needs for today, economic empowerment should give them a stake in securing their own futures, in seeing their societies become the kind of democracies that protect rights and govern fairly. So we will pursue a rights-respecting approach to development – consulting with local communities, ensuring transparency, midwife-ing accountable institutions – so our development activities act in concert with our efforts to support democratic governance. That is the pressing challenge we face in Afghanistan and Pakistan today.
The fourth element of our approach is that we will widen our focus. We will not forget that positive change must be reinforced and strengthened where hope is on the rise, and we will not ignore or overlook places of seemingly intractable tragedy and despair. Where human lives hang in the balance, we must do what we can to tilt that balance toward a better future.
Our efforts to support those working for human rights, economic empowerment, and democratic governance are driven by commitment, not convenience. But they have to be sustained. They cannot be subject to the whims or the wins of political change in our own country. Democratic progress is urgent but it is not quick, and we should never take for granted its permanence. Backsliding is always a threat, as we’ve learned in places like Kenya where the perpetrators of post-election violence have thus far escaped justice; and in the Americas where we are worried about leaders who have seized property, trampled rights, and abused justice to enhance personal rule.
And when democratic change occurs, we cannot afford to become complacent. Instead, we have to continue reinforcing NGOs and the fledgling institutions of democracy. Young democracies like Liberia, East Timor, Moldova and Kosovo need our help to secure improvements in health, education and welfare. We must stay engaged to nurture democratic development in places like Ukraine and Georgia, which experienced democratic breakthroughs earlier this decade but have struggled to consolidate their democratic gains because of both internal and external factors.
So we stand ready – both in our bilateral relationships and through international institutions – to help governments that have committed to improving themselves by assisting them in fighting corruption and helping train police forces and public servants. And we will support regional organizations and institutions like the Organization of American States, the African Union, and the Association of Southeast Asian Nations, where they take their own steps to defend democratic principles and institutions.
Success stories deserve our attention so they continue to make progress and also serve as a model for others. And even as we reinforce the successes, conscience demands that we are not cowed by the overwhelming difficulty of making inroads against misery in the hard places like Sudan, Congo, North Korea, Zimbabwe, or on the hard issues like ending gender inequality and discrimination against gays and lesbians, from the Middle East to Latin America, Africa to Asia.
Now, we have to continue to press for solutions in Sudan where ongoing tensions threaten to add to the devastation wrought by genocide in Darfur and an overwhelming refugee crisis. We will work to identify ways that we and our partners can enhance human security, while at the same time focusing greater attention on efforts to prevent genocide elsewhere.
And of course, we have to remain focused on women – women’s rights, women’s roles, and women’s responsibilities. As I said in Beijing in 1995, “human rights are women’s rights, and women’s rights are human rights,” but oh, I wish it could be so easily translated into action and changes. That ideal is far from being realized in so many places around our world, but there is no place that so epitomizes the very difficult, tragic circumstances confronting women than in eastern Congo.
I was in Goma last August, the epicenter of one of the most violent and chaotic regions on earth. And when I was there, I met with victims of horrific gender and sexual violence, and I met with refugees driven from their homes by the many military forces operating there. I heard from those working to end the conflicts and to protect the victims in such dire circumstances. I saw the best and the worst of humanity in a single day, the unspeakable acts of violence that have left women physically and emotionally brutalized, and the heroism of the women and men themselves, of the doctors, nurses and volunteers working to repair bodies and spirits.
They are on the front lines of the struggle for human rights. Seeing firsthand their courage and tenacity of they and the Congolese people and the internal fortitude that keeps them going is not only humbling, but inspires me every day to keep working.
So those four aspects of our approach – accountability, principled pragmatism, partnering from the bottom up, keeping a wide focus where rights are at stake – will help build a foundation that enables people to stand and rise above poverty, hunger, and disease and that secures their rights under democratic governance. We must lift the ceiling of oppression, corruption, and violence.
And we must light a fire of human potential through access to education and economic opportunity. Build the foundation, lift the ceiling, and light the fire all together, all at once. Because when a person has food and education but not the freedom to discuss and debate with fellow citizens, he is denied the life he deserves. And when a person is too hungry or sick to work or vote or worship, she is denied a life she deserves. Freedom doesn’t come in half measures, and partial remedies cannot redress the whole problem.
But we know that the champions of human potential have never had it easy. We may call rights inalienable, but making them so has always been hard work. And no matter how clearly we see our ideals, taking action to make them real requires tough choices. Even if everyone agrees that we should do whatever is most likely to improve the lives of people on the ground, we will not always agree on what course of action fits that description in every case. That is the nature of governing. We all know examples of good intentions that did not produce results, some that even produced unintended consequences that led to greater violations of human rights. And we can learn from the instances in which we have fallen short in the past, because those past difficulties are proof of how difficult progress is, but we do not accept the argument by some that progress in certain places is impossible, because we know progress happens.
Ghana emerged from an era of coups to one of stable democratic governance. Indonesia moved from repressive rule to a dynamic democracy that is Islamic and secular. Chile exchanged dictatorship for democracy and an open economy. Mongolia’s constitutional reforms successfully ushered in multiparty democracy without violence. And there is no better example than the progress made in Central and Eastern Europe since the fall of the Berlin Wall 20 years ago, an event I was privileged to help celebrate last month at the Brandenburg Gate.
While the work in front of us is daunting and vast, we face the future together with partners on every continent, partners in faith-based organizations, NGOs, and socially responsible corporations, and partners in governments. From India, the world’s largest democracy, and one that continues to use democratic processes and principles to perfect its union of 1.1 billion people, to Botswana where the new president in Africa’s oldest democracy has promised to govern according to what he calls the “5 Ds” – democracy, dignity, development, discipline, and delivery – providing a recipe for responsible governance that contrasts starkly with the unnecessary and manmade tragedy in neighboring Zimbabwe.
In the end, this isn’t just about what we do; it is about who we are. And we cannot be the people we are – people who believe in human rights – if we opt out of this fight. Believing in human rights means committing ourselves to action, and when we sign up for the promise of rights that apply everywhere, to everyone, that rights will be able to protect and enable human dignity, we also sign up for the hard work of making that promise a reality.
Those of you here at this great university spend time studying the cases of what we’ve tried to do in human rights, or as Jas said, the culture of human rights. You see the shortcomings and the shortfalls. You see the fact that, as Mario Cuomo famously said about politics here in the United States, we campaign in poetry and we govern in prose. Well, that’s true internationally as well. But we need your ideas, we need your criticism, we need your support, we need your intelligent analysis of how together we can slowly, steadily expand that circle of opportunity and rights to every single person.
It is work that we take so seriously. It is work that we know we don’t have all the answers for. But it is the work that America signed up to do. And we will continue, day by day, inch by inch, to try to make whatever progress is humanly possible. Thank you all very much. (Applause.)
MODERATOR: Thank you, Secretary Clinton, for an inspiring, comprehensive, and wonderful speech. It made me proud to be an American.
SECRETARY CLINTON: Thank you so much.
MODERATOR: And proud to be at Georgetown, too. (Laughter.)
The Secretary has time for three questions, and we thought because so many of you have abandoned your final papers to be here – the students, that is – that we would take those questions from our students. So let me ask you – we have several people along the sides with microphones. Let – okay, here’s somebody with a microphone. Have we got one more? Okay.
So let’s have a first question from a student. That doesn't look like a student. (Laughter.) Let’s get – here, let’s get a young person here. We’re not discriminating. We just want a calm approach to things.
QUESTION: Hello, Secretary Clinton. Thank you so much for speaking to us today. You spoke about the situation in Uganda. Could you please talk to us a little bit more about how the United States can protect the rights of LGBT people in areas where those rights are not respected?
SECRETARY CLINTON: Yes. And first let me say that over this past year, we have elevated into our human rights dialogues and our public statements a very clear message about protecting the rights of the LGBT community worldwide. And we are particularly concerned about some of the specific cases that have come to our attention around the world. There have been organized efforts to kill and maim gays and lesbians in some countries that we have spoken out about, and also conveyed our very strong concerns about to their governments – not that they were governmentally implemented or even that the government was aware of them, but that the governments need to pay much greater attention to the kinds of abuses that we’ve seen in Iraq, for example.
We are deeply concerned about some of the stories coming out of Iran. In large measure, in reaction, we think, to the response to the elections back in June, there have been abuses committed within the detention facilities and elsewhere that we are deeply concerned about. And then the example that I used of a piece of legislation in Uganda which would not only criminalize homosexuality but attach the death penalty to it. We have expressed our concerns directly, indirectly, and we will continue to do so. The bill has not gone through the Ugandan legislature, but it has a lot of public support by various groups, including religious leaders in Uganda. And we view it as a very serious potential violation of human rights.
So it is clear that across the world this is a new frontier in the minds of many people about how we protect the LGBT community, but it is at the top of our list because we see many instances where there is a very serious assault on the physical safety and an increasing effort to marginalize people. And we think it’s important for the United States to stand against that and to enlist others to join us in doing so.
MODERATOR: Right here.
QUESTION: Good morning, Secretary Clinton. Thank you so much for being here at Georgetown. You brought up Iran today, and I really appreciate that as an Iranian American. I’m a graduate student here and had the pleasure of being in Iran this summer for my first trip, and to witness really what happened after the election was an incredible moment in history.
Now that six months has passed after the election, what can the United States do to balance our support of the human rights activists and demonstrators in the streets of Iran with our agenda regarding the broader international security issues with Iran’s proposed nuclear program? So how do we balance those two issues?
SECRETARY CLINTON: Right. Well, it is a balancing act. But the more important balancing act is to make sure that our very strong opposition to what is going on inside Iran doesn't in any way undermine the legitimacy of the protest movement that has taken hold. Now, this is one of those very good examples of a hard call. After the election and the reaction that began almost immediately by people who felt that the election was invalid, put us in a position of seriously considering what is the best way we can support those who are putting their lives on the line by going into the streets. We wanted to convey clear support, but we didn’t want the attention shifted from the legitimate concerns to the United States, because we had nothing to do with the spontaneous reaction that grew up in response to the behavior of the Iranian Government.
So it’s been a delicate walk, but I think that the activists inside Iran know that we support them. We have certainly encouraged their continuing communication of what’s going on inside Iran. One of the calls that we made shortly after the election in the midst of the demonstrations is this unit of these very tech-savvy young people that we’ve created inside the State Department knew that there was a lot of communication going on about demonstrations and sharing information on Twitter, and that totally unconnected to what was going on in Iran, Twitter had planned some kind of lapse in service to do something on their system – you can tell I have no idea what they were doing. (Laughter.) I mean, you know, I don’t know Twitter from Tweeter, so – (laughter) – to be honest with you.
So these young tech people in the State Department called Twitter and said don’t take Twitter down right now. Whatever you’re going to do to reboot or whatever it is – (laughter) – don’t take Twitter down because people in Iran are dependent upon Twitter. So we have done that careful balancing.
Now, clearly, we think that pursuing an agenda of nonproliferation is a human rights issue. I mean, what would be worse than nuclear material or even a nuclear weapon being in the hands of either a state or a non-state actor that would be used to intimidate and threaten and even, in the worst-case scenario, destroy?
So we see a continuum. So pursuing what we think is in the national security interest not only of the United States but countries in Europe and in the Middle East is also a human rights issue. So we do not want to be in an either/or position: Are we going to pursue nonproliferation with Iran or are we going to support the demonstrators inside Iran? We’re going to do both to the best of our ability to get a result that will further the cause we are seeking to support.
MODERATOR: One final question in the back. Right there, with the red. Right. Christmas red.
QUESTION: Thank you. I am wondering what you see the role of artists doing in helping to promote human rights. I had the privilege earlier this summer to hear the playwright Lynn Nottage speak in one of the Senate buildings after she advocated for women’s rights in the Congo, and I wonder how you see creative practice accompanying and amplifying policy.
SECRETARY CLINTON: That is a wonderful question because I think the arts and artists are one of our most effective tools in reaching beyond and through repressive regimes, in giving hope to people. It was a very effective tool during the Cold War. I’ve had so many Eastern Europeans tell me that it was American music, it was American literature, it was American poetry that kept them going. I remember when Vaclav Havel came to the White House during my husband’s administration, and we were having a state dinner for him. And I said, “Well, who would you like to entertain at the state dinner?” And I didn’t know what he was going to say. And he said, “Lou Reed.” (Laughter.) “It was his music that was just so important for us – in prison, out of prison.”
Well, you could name many other American artists who have traveled. We’re going to try to increase the number of artistic exchanges we do so that we can get people into settings where they will be able to directly communicate. Now, with communication being what it is today, you can download them and all the rest, but there’s something about the American Government sending somebody to make that case which I think is very important to our commitment.
Also, artists can bright to light in a gripping, dramatic way some of the challenges we face. You mentioned the play about women in the Congo. I remember some years ago seeing a play about women in Bosnia during the conflict there. It was so gripping. I still see the faces of those women who were pulled from their homes, separated from their husbands, often raped and left just as garbage on the side of the road. So I think that artists both individually and through their works can illustrate better than any speech I can give or any government policy we can promulgate that the spirit that lives within each of us, the right to think and dream and expand our boundaries, is not confined, no matter how hard they try, by any regime anywhere in the world. There is no way that you can deprive people from feeling those stirrings inside their soul. And artists can give voice to that. They can give shape and movement to it. And it is so important in places where people feel forgotten and marginalized and depressed and hopeless to have that glimmer that there is a better future, that there is a better way that they just have to hold onto.
So I’m going to do what I can to continue to increase and enhance our artistic outreach, but this is also a great area for private foundations, for NGOs, for artists themselves, for universities like Georgetown to be engaged in. It’s interesting, in today’s world we are deluged with so much information. I mean, we are living in information overload time. And so we need ways of cutting through all of that. We’re also living in an on-the-one-hand-this and on-another-hand-that sort of media environment. I always joke that if a television station or a newspaper interviews somebody who is claiming that the earth is round, they have to put on somebody from the Flat Earth Society because that’s balance, fair and balanced coverage. (Laughter and applause.)
And so part of what we have to do is look for those ways of breaking through all of that. And I think that the power of the arts to do that is so enormous, and we can’t ever forget about the role that it must play in giving life to the aspirations of people around the world.
Thank you all very much. (Applause.)
Sunday, December 13, 2009
The 'Cost Control' Bill of Goods - How Peter Orszag and the White House sold a health-care illusion
The 'Cost Control' Bill of Goods. WSJ Editorial
How Peter Orszag and the White House sold a health-care illusion.
ObamaCare's core promise—better quality care for everyone at lower costs—is being exposed as an illusion as it degenerates into the raw exercise of political power. Naturally, the White House and its media booster club are working furiously to prop up this fiasco, especially on cost control.
As Obama budget director Peter Orszag put it at a revealing media breakfast earlier this month, the Senate bill does everything the experts recommend to "get at the underlying drivers of health-care costs." While he admitted that "we don't know enough" to produce results right away, the key is to encourage "continuous improvement" through pilot programs and demonstration projects. Cost containment will actually take "years to decades," Mr. Orszag conceded.
The torch was then passed to Ron Brownstein of the Atlantic Monthly, David Leonhardt of the New York Times and editorial writers for the New England Journal of Medicine, among others. Last week the New Yorker ran a 5,000-word apologia from Atul Gawande, who likewise owned up to the fact that there is "no master plan for dealing with the problem of soaring medical costs," only "a battery of small scale experiments." Keep in mind, this is an argument in favor of ObamaCare.
They might have piped up earlier: What they're finally admitting is that all the grandiose talk about "bending the curve" used for months to sell ObamaCare really comes down to their hope that bureaucratic improvisation will make a difference over the long term. Yet the liabilities of the greatest social spending program in American history will be added to the budget almost immediately, and what happens if Mr. Orszag's technocratic revolution doesn't work as promised? Or rather, when it doesn't?
Forgotten in ObamaCare's march-to-the-sea campaign is that during the transition and early on, the White House was divided on whether to pursue health reform at all. Opponents included Larry Summers, worried about the economy and deficits, and David Axelrod, worried about the politics. Another faction led by Tom Daschle preached from the conventional social-equity church of liberalism.
Mr. Orszag proposed another option, citing academic research observing that as much as 30% of health spending is "waste" that doesn't affect outcomes. He argued the country could save $700 billion a year without harming quality—more than enough to pay for universal coverage.
Thus cost control migrated from Orszag theory to free political lunch. Mr. Gawande wrote an influential New Yorker essay on the topic in June, and the theme shaped both the case for a new entitlement and especially the appeal to potential opponents in business.
But then Congressional Budget Office director Douglas Elmendorf testified in July that "the curve is being raised," given that ObamaCare lacks "the sort of fundamental changes" necessary to tamp down costs. Meanwhile, it became clear that Mr. Orszag's favored research was always more nuanced and qualified than his pose of papal infallibility. One of his main gurus, Jonathan Skinner, mused recently that "the key lesson" from a new study challenging some of his findings "is how little we know about the science of health-care delivery."
Well, sure. A field as dynamic and innovative as U.S. medicine, in which costs are largely driven by new technologies and better ways of caring for patients, is rife with complexities and uncertainties. But no one bothered to strike that note of caution when Washington was hopped up on a cost-control gambit that was too painless to be true.
The new cost-control apologists concede that there isn't any actual plan for controlling costs: Throw enough speculative policies against the wall, they say, and some breakthrough will stick. Yet Mr. Orszag's no-less-confident predecessors spent decades trying to pull down Medicare spending with little to no success. Technocracy rarely if ever works as intended. Mr. Gawande points to the case study of U.S. farm policy, and if politically sacrosanct agriculture subsidies and rural price-supports are the best to hope for, then what's the worst?
More relevant examples include Medicare's "relative value" payment scale, which was designed in 1985 by the Harvard economist William Hsiao to encourage more primary care. That's this year's rallying cry too. "Diagnosis-related groups" were introduced into Medicare in 1983 to alleviate hospital cost growth, and what a monumental success that turned out to be. With only brief periods of relatively slower growth, nominal Medicare spending has risen on average at an annual rate of 9.6% since 1980. Over the same period total Medicare spending has grown 13-fold, climbing from 1.2% of the economy to 3.2% today.
Congress lacks the stomach for serious cost control in any case. One policy Mr. Orszag favors—Medicare penalties for hospitals that re-admit certain patients—is limited to only three conditions in the Senate bill, and the penalties are trivial.
Another—a putatively independent commission that is supposed to enforce cost cutting—is barred from going after costs incurred by doctors and hospitals, which leaves out more than half of Medicare spending. Earlier this year Mr. Orszag got into a heated debate with Henry Waxman over such a commission at a dinner party hosted by Connecticut Rep. Rosa DeLauro, precisely because the House baron enjoys the political power that flows from controlling health spending.
Even if Mr. Orszag's Princeton and Yale Ph.D.s really do cook up some hope-and-a-prayer savings plan, it will invariably offend one constituency or another and Congress will block it. Thereupon the political class will do what it always does when costs run over: Tighten price controls across the board, before moving on to denying patient access to costly treatments that will be defined as "wasteful." That is, ration care.
"Basically everything that has been put forward in health policy discussions for a decade is in this bill," Mr. Orszag said on a conference call shortly before Thanksgiving. He then asked critics pointedly: "What specifically else would you do?"
Hmmm. One liberal sage noted in a 2007 paper that "four decades of empirical research" have shown that insulating people through third-party insurance coverage "from the full cost of health care has been responsible for anywhere from 10% to 50% of the large increase in health expenditures." Ultimately, he concluded, increasing cost-sharing would give individuals a direct stake in more prudent purchasing, as opposed to today's invisible health dollars that vanish as more expensive premiums, foregone wages and higher taxes.
Those are the words of Jason Furman, now the White House deputy economic director who seems to have been put into witness protection. Every serious health economist in the country recommends reforming the tax exclusion for employer-sponsored insurance, perhaps by converting it to a deduction or credit. Cost control will never stick unless it is extricated from politics and transferred to individuals to make their own trade-offs.
Such reforms were ruled out by union opposition, so the Senate gestures at them with a 40% excise tax on high-cost insurance plans, on the theory that two wrongs will make a right. But this untargeted tax will simply raise the cost of coverage for all workers in a given pool—it's too clever by 40%—while doing nothing to stem the distortions from first-dollar, third-party insurance.
No doubt there are efficiencies to be had in health care, and maybe Mr. Orszag has even identified some of them. But all of his bright ideas could be taken for a whirl without adding trillions of new liabilities to the federal balance sheet. And the bad faith of the White House and its acolytes is breathtaking.
The White House hawked a permanent entitlement expansion on flimsy and speculative theories that its own partisans now admit—albeit when it is nearly too late—aren't more substantive than the triumph of hope over experience, while simultaneously writing off the one policy that has been effective in the real world. The cost control mantra of ObamaCare was always a political bill of goods, and its result will be the opposit
How Peter Orszag and the White House sold a health-care illusion.
ObamaCare's core promise—better quality care for everyone at lower costs—is being exposed as an illusion as it degenerates into the raw exercise of political power. Naturally, the White House and its media booster club are working furiously to prop up this fiasco, especially on cost control.
As Obama budget director Peter Orszag put it at a revealing media breakfast earlier this month, the Senate bill does everything the experts recommend to "get at the underlying drivers of health-care costs." While he admitted that "we don't know enough" to produce results right away, the key is to encourage "continuous improvement" through pilot programs and demonstration projects. Cost containment will actually take "years to decades," Mr. Orszag conceded.
The torch was then passed to Ron Brownstein of the Atlantic Monthly, David Leonhardt of the New York Times and editorial writers for the New England Journal of Medicine, among others. Last week the New Yorker ran a 5,000-word apologia from Atul Gawande, who likewise owned up to the fact that there is "no master plan for dealing with the problem of soaring medical costs," only "a battery of small scale experiments." Keep in mind, this is an argument in favor of ObamaCare.
They might have piped up earlier: What they're finally admitting is that all the grandiose talk about "bending the curve" used for months to sell ObamaCare really comes down to their hope that bureaucratic improvisation will make a difference over the long term. Yet the liabilities of the greatest social spending program in American history will be added to the budget almost immediately, and what happens if Mr. Orszag's technocratic revolution doesn't work as promised? Or rather, when it doesn't?
Forgotten in ObamaCare's march-to-the-sea campaign is that during the transition and early on, the White House was divided on whether to pursue health reform at all. Opponents included Larry Summers, worried about the economy and deficits, and David Axelrod, worried about the politics. Another faction led by Tom Daschle preached from the conventional social-equity church of liberalism.
Mr. Orszag proposed another option, citing academic research observing that as much as 30% of health spending is "waste" that doesn't affect outcomes. He argued the country could save $700 billion a year without harming quality—more than enough to pay for universal coverage.
Thus cost control migrated from Orszag theory to free political lunch. Mr. Gawande wrote an influential New Yorker essay on the topic in June, and the theme shaped both the case for a new entitlement and especially the appeal to potential opponents in business.
But then Congressional Budget Office director Douglas Elmendorf testified in July that "the curve is being raised," given that ObamaCare lacks "the sort of fundamental changes" necessary to tamp down costs. Meanwhile, it became clear that Mr. Orszag's favored research was always more nuanced and qualified than his pose of papal infallibility. One of his main gurus, Jonathan Skinner, mused recently that "the key lesson" from a new study challenging some of his findings "is how little we know about the science of health-care delivery."
Well, sure. A field as dynamic and innovative as U.S. medicine, in which costs are largely driven by new technologies and better ways of caring for patients, is rife with complexities and uncertainties. But no one bothered to strike that note of caution when Washington was hopped up on a cost-control gambit that was too painless to be true.
The new cost-control apologists concede that there isn't any actual plan for controlling costs: Throw enough speculative policies against the wall, they say, and some breakthrough will stick. Yet Mr. Orszag's no-less-confident predecessors spent decades trying to pull down Medicare spending with little to no success. Technocracy rarely if ever works as intended. Mr. Gawande points to the case study of U.S. farm policy, and if politically sacrosanct agriculture subsidies and rural price-supports are the best to hope for, then what's the worst?
More relevant examples include Medicare's "relative value" payment scale, which was designed in 1985 by the Harvard economist William Hsiao to encourage more primary care. That's this year's rallying cry too. "Diagnosis-related groups" were introduced into Medicare in 1983 to alleviate hospital cost growth, and what a monumental success that turned out to be. With only brief periods of relatively slower growth, nominal Medicare spending has risen on average at an annual rate of 9.6% since 1980. Over the same period total Medicare spending has grown 13-fold, climbing from 1.2% of the economy to 3.2% today.
Congress lacks the stomach for serious cost control in any case. One policy Mr. Orszag favors—Medicare penalties for hospitals that re-admit certain patients—is limited to only three conditions in the Senate bill, and the penalties are trivial.
Another—a putatively independent commission that is supposed to enforce cost cutting—is barred from going after costs incurred by doctors and hospitals, which leaves out more than half of Medicare spending. Earlier this year Mr. Orszag got into a heated debate with Henry Waxman over such a commission at a dinner party hosted by Connecticut Rep. Rosa DeLauro, precisely because the House baron enjoys the political power that flows from controlling health spending.
Even if Mr. Orszag's Princeton and Yale Ph.D.s really do cook up some hope-and-a-prayer savings plan, it will invariably offend one constituency or another and Congress will block it. Thereupon the political class will do what it always does when costs run over: Tighten price controls across the board, before moving on to denying patient access to costly treatments that will be defined as "wasteful." That is, ration care.
"Basically everything that has been put forward in health policy discussions for a decade is in this bill," Mr. Orszag said on a conference call shortly before Thanksgiving. He then asked critics pointedly: "What specifically else would you do?"
Hmmm. One liberal sage noted in a 2007 paper that "four decades of empirical research" have shown that insulating people through third-party insurance coverage "from the full cost of health care has been responsible for anywhere from 10% to 50% of the large increase in health expenditures." Ultimately, he concluded, increasing cost-sharing would give individuals a direct stake in more prudent purchasing, as opposed to today's invisible health dollars that vanish as more expensive premiums, foregone wages and higher taxes.
Those are the words of Jason Furman, now the White House deputy economic director who seems to have been put into witness protection. Every serious health economist in the country recommends reforming the tax exclusion for employer-sponsored insurance, perhaps by converting it to a deduction or credit. Cost control will never stick unless it is extricated from politics and transferred to individuals to make their own trade-offs.
Such reforms were ruled out by union opposition, so the Senate gestures at them with a 40% excise tax on high-cost insurance plans, on the theory that two wrongs will make a right. But this untargeted tax will simply raise the cost of coverage for all workers in a given pool—it's too clever by 40%—while doing nothing to stem the distortions from first-dollar, third-party insurance.
No doubt there are efficiencies to be had in health care, and maybe Mr. Orszag has even identified some of them. But all of his bright ideas could be taken for a whirl without adding trillions of new liabilities to the federal balance sheet. And the bad faith of the White House and its acolytes is breathtaking.
The White House hawked a permanent entitlement expansion on flimsy and speculative theories that its own partisans now admit—albeit when it is nearly too late—aren't more substantive than the triumph of hope over experience, while simultaneously writing off the one policy that has been effective in the real world. The cost control mantra of ObamaCare was always a political bill of goods, and its result will be the opposit
Saturday, December 12, 2009
Watch what they spend, not what they say
More, More, More. WSJ Editorial
Watch what they spend, not what they say.
The Wall Street Journal, Dec 12, 2009, page A18
When it comes to spending, the Democrats who run Washington can't decide on their message. On the one hand, as President Obama said this week, they claim we have to "spend our way out of this recession." On the other, they keep telling us the deficit is too large and isn't "sustainable." In this tug of political spin, watch what they spend, not what they say.
And that means watching this weekend's expected Senate vote on a 1,088-page $445 billion "omnibus" package of spending bills to fund the government for fiscal 2010. The House passed a similar elephant earlier this week, allowing federal agency budgets to increase spending by some $48 billion, or about 12% from 2009. That increase—when inflation is negligible—is in addition to the $311 billion in stimulus already authorized or out the door for these programs. Adding this new stash means that federal agencies will have received a nearly 70% increase in the last two years.
Oh, and that's not all. The President and Congress also want to spend as much as $200 billion more from the Troubled Asset Relief Program on still another stimulus, though this time we are supposed to call it a "jobs" program, because stimulus now has a dirty political name.
This $445 billion bill for 2010 covers most of the domestic agencies of government, but not defense. In the first two months of this fiscal year, which began October 1, Uncle Sam is already $292 billion in the red. That's more than in the first two months of last year and at a time when the economy is growing again, so perhaps the President means we need to keep spending our way out of recovery. After the spending bill, Congress will then turn to passing a $1.8 trillion increase in the national debt ceiling, which should get them past the November elections.
Not that the press corps cares anymore, but the omnibus also continues the earmark explosion that Speaker Nancy Pelosi vowed to end when she was trying to oust Republicans in 2006. The Heritage Foundation counts 5,224 earmarks, bringing the total for the year to about 10,000, or about 23 for every Congressional district. There is money for bike paths, skate board parks, museums, water-taxis to resort towns, and other absolute necessities.
Senator Kent Conrad, the ranking Democrat on the Budget Committee, is a walking example of the split Democratic spending personality. He frets that U.S. debt will soon be 114% of GDP, a level he says is "absolutely unsustainable" and a "threat to the economic security of America." Yet he keeps voting for every spending bill and will vote for the multitrillion health bill too.
Even harder to figure is Mr. Obama, who is likely to sign this budget behemoth even as he keeps telling us it's time to "make the hard choices necessary to get our country on a more stable fiscal footing in the long run." Word is that his 2011 budget proposal will propose a spending freeze of some kind, which is another election-year pivot.
After so much double talk, we've concluded this is all part of a conscious political strategy. Spend so much and run up the deficit to unprecedented levels, then turn around and claim that there's a fiscal crisis that can only be solved with higher taxes. They spend, you pay.
Watch what they spend, not what they say.
The Wall Street Journal, Dec 12, 2009, page A18
When it comes to spending, the Democrats who run Washington can't decide on their message. On the one hand, as President Obama said this week, they claim we have to "spend our way out of this recession." On the other, they keep telling us the deficit is too large and isn't "sustainable." In this tug of political spin, watch what they spend, not what they say.
And that means watching this weekend's expected Senate vote on a 1,088-page $445 billion "omnibus" package of spending bills to fund the government for fiscal 2010. The House passed a similar elephant earlier this week, allowing federal agency budgets to increase spending by some $48 billion, or about 12% from 2009. That increase—when inflation is negligible—is in addition to the $311 billion in stimulus already authorized or out the door for these programs. Adding this new stash means that federal agencies will have received a nearly 70% increase in the last two years.
Oh, and that's not all. The President and Congress also want to spend as much as $200 billion more from the Troubled Asset Relief Program on still another stimulus, though this time we are supposed to call it a "jobs" program, because stimulus now has a dirty political name.
This $445 billion bill for 2010 covers most of the domestic agencies of government, but not defense. In the first two months of this fiscal year, which began October 1, Uncle Sam is already $292 billion in the red. That's more than in the first two months of last year and at a time when the economy is growing again, so perhaps the President means we need to keep spending our way out of recovery. After the spending bill, Congress will then turn to passing a $1.8 trillion increase in the national debt ceiling, which should get them past the November elections.
Not that the press corps cares anymore, but the omnibus also continues the earmark explosion that Speaker Nancy Pelosi vowed to end when she was trying to oust Republicans in 2006. The Heritage Foundation counts 5,224 earmarks, bringing the total for the year to about 10,000, or about 23 for every Congressional district. There is money for bike paths, skate board parks, museums, water-taxis to resort towns, and other absolute necessities.
Senator Kent Conrad, the ranking Democrat on the Budget Committee, is a walking example of the split Democratic spending personality. He frets that U.S. debt will soon be 114% of GDP, a level he says is "absolutely unsustainable" and a "threat to the economic security of America." Yet he keeps voting for every spending bill and will vote for the multitrillion health bill too.
Even harder to figure is Mr. Obama, who is likely to sign this budget behemoth even as he keeps telling us it's time to "make the hard choices necessary to get our country on a more stable fiscal footing in the long run." Word is that his 2011 budget proposal will propose a spending freeze of some kind, which is another election-year pivot.
After so much double talk, we've concluded this is all part of a conscious political strategy. Spend so much and run up the deficit to unprecedented levels, then turn around and claim that there's a fiscal crisis that can only be solved with higher taxes. They spend, you pay.
Sarbox Routed in House - A rare victory for small business
Sarbox Routed in House. WSJ Editorial
A rare victory for small business.
The Wall Street Journal, Dec 12, 2009, page A18
On Wednesday we told you about two guys from Jersey, Republican Scott Garrett and Democrat John Adler, and their looming showdown with House Financial Services Chairman Barney Frank (D., Mass.). Yesterday, the Jersey boys prevailed, as the House voted 271-153 to exempt the smallest public companies from the heaviest Sarbanes-Oxley auditing regulations.
More than 100 Democrats joined with Republicans in voting down an attempt by Mr. Frank and Paul Kanjorski (D., Pa.) to kill the Garrett-Adler amendment, which saves thousands of companies from the infamous Section 404(b) audits of "internal controls."
Companies with publicly traded shares amounting to less than $75 million already undergo audits and already comply with most of Sarbanes-Oxley. Yet the Securities and Exchange Commission, despite its own study showing that smaller companies suffer a disproportionate compliance burden under Sarbox, has announced that next year these small-cap companies will have to comply with the full regulatory burden applied to giant multinationals.
In the midst of a political panic after accounting scandals at Enron and WorldCom, Congress passed Sarbanes-Oxley in 2002. Sold as a way to ensure the quality of corporate financial reporting, the law wasn't of much use to investors in Citigroup, Merrill Lynch, Bear Stearns, Lehman Brothers, AIG . . . but it did succeed in generating unexpectedly large compliance costs, particularly at smaller technology companies.
With yesterday's vote, Sarbox appears to have lost its last significant constituency, if one does not count the regulators, auditors and consultants who directly profit from it. And even in this last category there are second thoughts. One reader who installs Sarbox-compliant IT systems for retailers tells us that these expensive overhauls reduce productivity and raise the cost per transaction with no discernible benefit.
The only cloud to yesterday's silver lining is that Sarbox relief is still trapped inside Mr. Frank's larger bill to create a permanent bailout fund for financial regulators. Thank goodness the Frank bill has no chance of passing the Senate, but now a bipartisan effort is needed to free the legislative hostage inside. The 271 House Members who voted against senseless bureaucracy yesterday can help do so by signing a discharge petition to bring the Garrett-Adler amendment to the floor as a stand-alone bill.
At a minimum, now that the House has clearly expressed its will, SEC Chairman Mary Schapiro should extend the small-company exemption beyond next summer, and consider relief for larger firms. If President Obama is looking for a way to create jobs without spending a taxpayer dime, Sarbox relief is made to order.
A rare victory for small business.
The Wall Street Journal, Dec 12, 2009, page A18
On Wednesday we told you about two guys from Jersey, Republican Scott Garrett and Democrat John Adler, and their looming showdown with House Financial Services Chairman Barney Frank (D., Mass.). Yesterday, the Jersey boys prevailed, as the House voted 271-153 to exempt the smallest public companies from the heaviest Sarbanes-Oxley auditing regulations.
More than 100 Democrats joined with Republicans in voting down an attempt by Mr. Frank and Paul Kanjorski (D., Pa.) to kill the Garrett-Adler amendment, which saves thousands of companies from the infamous Section 404(b) audits of "internal controls."
Companies with publicly traded shares amounting to less than $75 million already undergo audits and already comply with most of Sarbanes-Oxley. Yet the Securities and Exchange Commission, despite its own study showing that smaller companies suffer a disproportionate compliance burden under Sarbox, has announced that next year these small-cap companies will have to comply with the full regulatory burden applied to giant multinationals.
In the midst of a political panic after accounting scandals at Enron and WorldCom, Congress passed Sarbanes-Oxley in 2002. Sold as a way to ensure the quality of corporate financial reporting, the law wasn't of much use to investors in Citigroup, Merrill Lynch, Bear Stearns, Lehman Brothers, AIG . . . but it did succeed in generating unexpectedly large compliance costs, particularly at smaller technology companies.
With yesterday's vote, Sarbox appears to have lost its last significant constituency, if one does not count the regulators, auditors and consultants who directly profit from it. And even in this last category there are second thoughts. One reader who installs Sarbox-compliant IT systems for retailers tells us that these expensive overhauls reduce productivity and raise the cost per transaction with no discernible benefit.
The only cloud to yesterday's silver lining is that Sarbox relief is still trapped inside Mr. Frank's larger bill to create a permanent bailout fund for financial regulators. Thank goodness the Frank bill has no chance of passing the Senate, but now a bipartisan effort is needed to free the legislative hostage inside. The 271 House Members who voted against senseless bureaucracy yesterday can help do so by signing a discharge petition to bring the Garrett-Adler amendment to the floor as a stand-alone bill.
At a minimum, now that the House has clearly expressed its will, SEC Chairman Mary Schapiro should extend the small-company exemption beyond next summer, and consider relief for larger firms. If President Obama is looking for a way to create jobs without spending a taxpayer dime, Sarbox relief is made to order.
Fruits of Engagement in Sudan - Khartoum's hard men and Obama's diplomacy
Fruits of Engagement in Sudan. WSJ Editorial
Khartoum's hard men and Obama's diplomacy.
The Wall Street Journal, Dec 12, 2009, page A18
In his Oslo address Thursday, President Obama mulled the trade-offs in dealing with repressive regimes. "There's no simple formula here," he said. "But we must try as best we can to balance isolation and engagement, pressure and incentives, so that human rights and dignity are advanced over time."
From Nobel theory, we move to practice in Sudan. As a candidate, Mr. Obama stood with the human rights champions of Darfur and pledged tougher sanctions and a possible no-fly zone if a Sudanese regime infamous for genocide didn't shape up. His tone has changed in office.
Unveiled in October, the Administration's Sudan policy emphasized carrots for the regime to ease up in Darfur and implement a peace deal in southern Sudan; any sticks were relegated to a secret annex. The President's special envoy to Sudan, retired Major General Scott Gration, was reluctant even to allude to tougher sanctions. He said that "cookies" and "gold stars" are preferable to threats and that Darfur was experiencing only "remnants of genocide."
President Omar al-Bashir, whose Islamist National Congress Party took power in a 1989 coup, got the message and decided to test the limits of this new indulgence. Almost immediately the regime hardened its stance on implementing the peace accord. Brokered by the Bush Administration in 2005, the deal calls for political reforms, including free parliamentary elections now scheduled for April, and a referendum on independence for the south in two years. Long before the ethnic cleansing in Darfur turned into a Hollywood cause célèbre, a two-decade war between the Muslim north and the Christian and oil-rich south took two million lives.
On Monday, police in the capital Khartoum beat and arrested opposition leaders who were pressing parliament to adopt the necessary laws to hold the April elections. Time is running out to pass them. The Bashir regime now refuses to overhaul the national security and criminal laws as also stipulated in the 2005 deal. Its recalcitrance means the election and referendum, assuming both come off, would be tainted. This could in turn end up restarting the civil war.
At the same time, the preference for diplomacy over pressure has encouraged the hard men in Khartoum to stoke the flames in Darfur, ignoring an arms embargo and challenging the U.N.-African Union peacekeeping force there.
In the man-bites-dog story of the year, the U.N. last week took the Obama Administration to task over its lax efforts to enforce the arms embargo, while praising the Bush Administration. "In contrast to that leadership of 2004 and 2005, the United States appears to have now joined the group of influential states who sit by quietly and do nothing to ensure that sanctions protect Darfurians," Enrico Carisch, who was the top U.N. investigator of violations of the arms embargo until October, said in written testimony before a House Foreign Affairs subcommittee on Africa.
The Sudanese aren't even the hardest of cases. Concerted American pressure forced this regime to cut ties with al Qaeda in the 1990s, end aerial bombing and support for slave-hunting militias in the south and accept the 2005 peace deal.
Mr. Obama can summon up tough rhetoric. "Yes, there will be engagement; yes, there will be diplomacy—but there must be consequences when those things fail," he said in Oslo. But the world's rogues might be forgiven for missing the nuances. So far, they've seen only the engaging side of this American President.
Khartoum's hard men and Obama's diplomacy.
The Wall Street Journal, Dec 12, 2009, page A18
In his Oslo address Thursday, President Obama mulled the trade-offs in dealing with repressive regimes. "There's no simple formula here," he said. "But we must try as best we can to balance isolation and engagement, pressure and incentives, so that human rights and dignity are advanced over time."
From Nobel theory, we move to practice in Sudan. As a candidate, Mr. Obama stood with the human rights champions of Darfur and pledged tougher sanctions and a possible no-fly zone if a Sudanese regime infamous for genocide didn't shape up. His tone has changed in office.
Unveiled in October, the Administration's Sudan policy emphasized carrots for the regime to ease up in Darfur and implement a peace deal in southern Sudan; any sticks were relegated to a secret annex. The President's special envoy to Sudan, retired Major General Scott Gration, was reluctant even to allude to tougher sanctions. He said that "cookies" and "gold stars" are preferable to threats and that Darfur was experiencing only "remnants of genocide."
President Omar al-Bashir, whose Islamist National Congress Party took power in a 1989 coup, got the message and decided to test the limits of this new indulgence. Almost immediately the regime hardened its stance on implementing the peace accord. Brokered by the Bush Administration in 2005, the deal calls for political reforms, including free parliamentary elections now scheduled for April, and a referendum on independence for the south in two years. Long before the ethnic cleansing in Darfur turned into a Hollywood cause célèbre, a two-decade war between the Muslim north and the Christian and oil-rich south took two million lives.
On Monday, police in the capital Khartoum beat and arrested opposition leaders who were pressing parliament to adopt the necessary laws to hold the April elections. Time is running out to pass them. The Bashir regime now refuses to overhaul the national security and criminal laws as also stipulated in the 2005 deal. Its recalcitrance means the election and referendum, assuming both come off, would be tainted. This could in turn end up restarting the civil war.
At the same time, the preference for diplomacy over pressure has encouraged the hard men in Khartoum to stoke the flames in Darfur, ignoring an arms embargo and challenging the U.N.-African Union peacekeeping force there.
In the man-bites-dog story of the year, the U.N. last week took the Obama Administration to task over its lax efforts to enforce the arms embargo, while praising the Bush Administration. "In contrast to that leadership of 2004 and 2005, the United States appears to have now joined the group of influential states who sit by quietly and do nothing to ensure that sanctions protect Darfurians," Enrico Carisch, who was the top U.N. investigator of violations of the arms embargo until October, said in written testimony before a House Foreign Affairs subcommittee on Africa.
The Sudanese aren't even the hardest of cases. Concerted American pressure forced this regime to cut ties with al Qaeda in the 1990s, end aerial bombing and support for slave-hunting militias in the south and accept the 2005 peace deal.
Mr. Obama can summon up tough rhetoric. "Yes, there will be engagement; yes, there will be diplomacy—but there must be consequences when those things fail," he said in Oslo. But the world's rogues might be forgiven for missing the nuances. So far, they've seen only the engaging side of this American President.
Friday, December 11, 2009
Do We Really Need a Systemic Regulator? Based on what we now know about AIG, it's unclear 'too big to fail' institutions are in fact too big to fail
Do We Really Need a Systemic Regulator? By Hal S Scott
Based on what we now know about AIG, it's unclear 'too big to fail' institutions are in fact too big to fail.
WSJ, Dec 11, 2009
The principal assumption underlying the financial regulatory reform legislation working its way through Congress is that certain financial institutions are "too big to fail" because of the severe consequences of "interconnectedness"—a word that entered our lexicon during the financial crisis.
The problem is presented as follows: There are major financial institutions that are systemically important because their failure can, due to interconnectedness, bring down other large financial institutions. A chain reaction of such failures is unacceptable since it would disrupt our economic system. The chain reaction must be stopped after the fact by the use of taxpayer-funded bailouts that avoid the kinds of losses for investors or counterparties that would normally occur in bankruptcy. Finally, taxpayers need to be protected by new regulations designed to protect against the failure of these major institutions.
But how severe is the threat from interconnectedness? Last month's report by the Special Inspector General for the Troubled Asset Relief Program (Sigtarp) on AIG is illuminating. While the report's focus is on whether Goldman Sachs unduly profited from the Fed's rescue of AIG, more significant is its discussion of why AIG even received an $85 billion rescue. It does not appear to be because counterparties would have failed as a result. According to the report, Goldman had adequate collateral to protect itself against an AIG default. Indeed, the collateral was cash whose value would not have been decreased by a "rush to the exits." There is no reason to assume other counterparties did not follow similar collateral practices.
Viewed in this light, FDIC Chair Sheila Bair's proposal to increase the losses secured counterparties must bear in case of a financial institution's failure seems misguided. Counterparties whose exposure to credit losses is fully backed by collateral are after all "secured." Treating them as if they were unsecured—forcing them to take a "haircut"—in the case of a financial institution's failure would only increase the risks of chain reactions.
An amendment to the House bill ("The Wall Street Reform and Consumer Protection Act") very likely to be adopted today fortunately exempts most derivative contracts from haircuts. But it fails to exempt all short-term repurchase agreements ("repos"). Short-term repos are normally fully secured; if lenders know they will have to take a haircut they will be less likely to extend credit to financial institutions most in need.
Sigtarp further reports that the Fed and the U.S. Treasury were actually more concerned with $88 billion of AIG investor and debt-holder losses: $10 billion on loans by state and local governments; $40 billion for workers in 401(k) plans; and $38 billion for retirement plans. Certainly, these losses would be "connected" to an AIG default. But they did not involve the threat of a chain reaction of financial institution failures. The auto company bailouts also had little to do with the fear of devastation to the financial system.
If large losses by institutional investors and other stakeholders are the real reason why we are concerned with interconnectedness and "systemic risk," then we would have to regulate all large global corporations, not just financial ones, whose failures could trigger similar losses—an impossible task.
The Sigtarp report does mention concern with losses to money market funds, principal holders of $20 billion in AIG commercial paper. It is certainly possible that an AIG default right on top of the Lehman bankruptcy could have led to more money-market funds falling below $1 per share and have intensified the irrational run on funds generally. The answer to the run problem was not to rescue AIG but rather for the government to use, as it did, its lender of last resort powers to stem the runs.
Clearly we need to know far more about the facts of interconnectedness. As a starting point, Congress should require Fed Chairman Ben Bernanke and Treasury Secretary Tim Geithner to give the American people a complete account, with supporting documentation, of why the Fed and Treasury thought it was important to rescue AIG. This account should include a detailed analysis of counterparty exposure to the extent this is claimed to have played a significant role in their decision.
If it turns out that there are no severe consequences to the financial system from interconnectedness, then do we really need to control the risk of large financial institutions by imposing heightened capital or new liquidity requirements? Indeed, why would we need a systemic-risk regulator at all? Congress, as part of its reform legislation, should mandate the creation of a new expert commission designed to fully investigate the extent and consequences of interconnectedness before any new regulation of systemically important institutions is actually adopted.
Without real adverse consequences from interconnectedness, the too-big-to-fail problem becomes much more manageable. Public money might still have to be injected into a failed institution to avoid a sudden economic disruption, but this would only be after losses were fully imposed on the private sector without fear of a chain reaction. Thus, we could avoid the untenable situation of private gains and public losses that we have persuaded ourselves we are faced with today.
Mr. Scott is professor of international financial systems at Harvard Law School and the director of the Committee on Capital Markets Regulation.
Based on what we now know about AIG, it's unclear 'too big to fail' institutions are in fact too big to fail.
WSJ, Dec 11, 2009
The principal assumption underlying the financial regulatory reform legislation working its way through Congress is that certain financial institutions are "too big to fail" because of the severe consequences of "interconnectedness"—a word that entered our lexicon during the financial crisis.
The problem is presented as follows: There are major financial institutions that are systemically important because their failure can, due to interconnectedness, bring down other large financial institutions. A chain reaction of such failures is unacceptable since it would disrupt our economic system. The chain reaction must be stopped after the fact by the use of taxpayer-funded bailouts that avoid the kinds of losses for investors or counterparties that would normally occur in bankruptcy. Finally, taxpayers need to be protected by new regulations designed to protect against the failure of these major institutions.
But how severe is the threat from interconnectedness? Last month's report by the Special Inspector General for the Troubled Asset Relief Program (Sigtarp) on AIG is illuminating. While the report's focus is on whether Goldman Sachs unduly profited from the Fed's rescue of AIG, more significant is its discussion of why AIG even received an $85 billion rescue. It does not appear to be because counterparties would have failed as a result. According to the report, Goldman had adequate collateral to protect itself against an AIG default. Indeed, the collateral was cash whose value would not have been decreased by a "rush to the exits." There is no reason to assume other counterparties did not follow similar collateral practices.
Viewed in this light, FDIC Chair Sheila Bair's proposal to increase the losses secured counterparties must bear in case of a financial institution's failure seems misguided. Counterparties whose exposure to credit losses is fully backed by collateral are after all "secured." Treating them as if they were unsecured—forcing them to take a "haircut"—in the case of a financial institution's failure would only increase the risks of chain reactions.
An amendment to the House bill ("The Wall Street Reform and Consumer Protection Act") very likely to be adopted today fortunately exempts most derivative contracts from haircuts. But it fails to exempt all short-term repurchase agreements ("repos"). Short-term repos are normally fully secured; if lenders know they will have to take a haircut they will be less likely to extend credit to financial institutions most in need.
Sigtarp further reports that the Fed and the U.S. Treasury were actually more concerned with $88 billion of AIG investor and debt-holder losses: $10 billion on loans by state and local governments; $40 billion for workers in 401(k) plans; and $38 billion for retirement plans. Certainly, these losses would be "connected" to an AIG default. But they did not involve the threat of a chain reaction of financial institution failures. The auto company bailouts also had little to do with the fear of devastation to the financial system.
If large losses by institutional investors and other stakeholders are the real reason why we are concerned with interconnectedness and "systemic risk," then we would have to regulate all large global corporations, not just financial ones, whose failures could trigger similar losses—an impossible task.
The Sigtarp report does mention concern with losses to money market funds, principal holders of $20 billion in AIG commercial paper. It is certainly possible that an AIG default right on top of the Lehman bankruptcy could have led to more money-market funds falling below $1 per share and have intensified the irrational run on funds generally. The answer to the run problem was not to rescue AIG but rather for the government to use, as it did, its lender of last resort powers to stem the runs.
Clearly we need to know far more about the facts of interconnectedness. As a starting point, Congress should require Fed Chairman Ben Bernanke and Treasury Secretary Tim Geithner to give the American people a complete account, with supporting documentation, of why the Fed and Treasury thought it was important to rescue AIG. This account should include a detailed analysis of counterparty exposure to the extent this is claimed to have played a significant role in their decision.
If it turns out that there are no severe consequences to the financial system from interconnectedness, then do we really need to control the risk of large financial institutions by imposing heightened capital or new liquidity requirements? Indeed, why would we need a systemic-risk regulator at all? Congress, as part of its reform legislation, should mandate the creation of a new expert commission designed to fully investigate the extent and consequences of interconnectedness before any new regulation of systemically important institutions is actually adopted.
Without real adverse consequences from interconnectedness, the too-big-to-fail problem becomes much more manageable. Public money might still have to be injected into a failed institution to avoid a sudden economic disruption, but this would only be after losses were fully imposed on the private sector without fear of a chain reaction. Thus, we could avoid the untenable situation of private gains and public losses that we have persuaded ourselves we are faced with today.
Mr. Scott is professor of international financial systems at Harvard Law School and the director of the Committee on Capital Markets Regulation.
The Disarmament President - Obama's Oslo speech versus the real nuclear world
The Disarmament President. WSJ Editorial
Obama's boffo Oslo speech versus the real nuclear world.
The Wall Street Journal, Dec 11, 2009, page 12
President Obama gave a gracious speech yesterday accepting his Nobel Peace Prize, starting with the humble note that he has yet to earn it. If his Oslo hosts expected a woolly-headed address about peace in our time, they also didn't get it. He stated clearly that sometimes war is necessary to defend the peaceable and to serve justice and liberty. He even hit the George W. Bush note that "evil does exist in the world."
Congratulations, Mr. President.
On the other hand, Mr. Obama also didn't disappoint the Norwegians, who in giving the award had cited his "work for a world without nuclear weapons." He repeated his commitment to that cause, starting with his effort to rework the Strategic Arms Reduction Treaty of 1991 that expired December 5. So it's worth checking in to see how his disarmament vision is faring in the rougher world of rogues and national interest. The answer is not so well.
The Administration decided that rather than negotiate an extension of the existing Start treaty, a whole new arrangement to limit warheads and delivery systems should be crafted. In July, the U.S. and Russia signed a "framework agreement" to reduce stockpiles by as much as a third. Alas, the Administration was so focused on the numbers that it neglected the stickier details—such as verification, and whether the current Start regime would stay in place if negotiations dragged on.
Though the far weaker party, the Russians have figured out their leverage over an Administration eager to show any progress. Pushing that advantage, Russia has already secured lower ceilings on nuclear weapons and delivery vehicles, scaled back verification, and pocketed other strategic concessions.
Let's take those in order. The U.S. looks likely to agree to cut the number of permitted delivery vehicles, such as missiles, long-range bombers and submarines, by half, to 800 or less. This is to Russia's advantage, which as of last spring had 814—and not all of them in working condition. Many of America's 1,198 nuclear delivery vehicles—from B-2 bombers to ICBMs—are being fitted with conventional weapons. The ceilings in a new Start would likely make no distinction between bomb types. If the goal is to move away from nukes, why limit the military's capacity to deploy conventional weapons?
As for verification, with fewer allowable warheads, Ronald Reagan's "trust but verify" maxim applies more than ever. Yet Russia wants to reduce oversight, and it specifically told the U.S. that continuous monitoring at the Votkinsk Machine Building Plant would end once Start expired. The Russians are building new RS-24 mobile nuclear missiles at Votkinsk. According to one Russian general, the RS-24 will by 2016 constitute four-fifths of its ICBM forces. Without monitoring, the U.S. won't know for sure how many of these missiles the Russians make and where they are deployed.
While Russia invests in new warheads and missiles, the Obama Administration has yet to lay out its own plans for updating the U.S. nuclear arsenal. Even staunch proponents of arms control concede that to be able to reduce the quantity of U.S. arms, we have to improve the quality. The Senate should ask why the White House isn't.
The Russians also refused to discuss their huge advantage in tactical weapons, and the Administration said OK. After the July "framework agreement," Russia signalled that U.S. plans to deploy missile defenses in Poland and the Czech Republic stood in the way of a final deal. Mr. Obama obliged, informing the Poles and Czechs of his reduced defenses late on the day before the sixth round of Start talks in Geneva. The announcement pleased the Russians, though it still hasn't got Washington a deal. Stay tuned for more concessions as U.S. negotiators try to get it before the year's end.
Meanwhile, the world's rogues continue to pursue nuclear weapons, and Mr. Obama said yesterday that "it is incumbent upon all of us to insist that nations like Iran and North Korea do not game the system." He added that "we must develop alternatives to violence that are tough enough to change behavior." But all the President has to show for a year of courting these regimes is their refusal even to consider giving up either their weapons (North Korea) or their growing capacity to make them (Iran).
The French, for one, see this danger plainly and want the U.S. to press harder on Tehran. But on these hard cases, the Administration can't muster the same sense of urgency it is bringing to the cause of an unnecessary arms control pact with Russia. Mr. Obama is right that he still has to earn that Nobel.
Obama's boffo Oslo speech versus the real nuclear world.
The Wall Street Journal, Dec 11, 2009, page 12
President Obama gave a gracious speech yesterday accepting his Nobel Peace Prize, starting with the humble note that he has yet to earn it. If his Oslo hosts expected a woolly-headed address about peace in our time, they also didn't get it. He stated clearly that sometimes war is necessary to defend the peaceable and to serve justice and liberty. He even hit the George W. Bush note that "evil does exist in the world."
Congratulations, Mr. President.
On the other hand, Mr. Obama also didn't disappoint the Norwegians, who in giving the award had cited his "work for a world without nuclear weapons." He repeated his commitment to that cause, starting with his effort to rework the Strategic Arms Reduction Treaty of 1991 that expired December 5. So it's worth checking in to see how his disarmament vision is faring in the rougher world of rogues and national interest. The answer is not so well.
The Administration decided that rather than negotiate an extension of the existing Start treaty, a whole new arrangement to limit warheads and delivery systems should be crafted. In July, the U.S. and Russia signed a "framework agreement" to reduce stockpiles by as much as a third. Alas, the Administration was so focused on the numbers that it neglected the stickier details—such as verification, and whether the current Start regime would stay in place if negotiations dragged on.
Though the far weaker party, the Russians have figured out their leverage over an Administration eager to show any progress. Pushing that advantage, Russia has already secured lower ceilings on nuclear weapons and delivery vehicles, scaled back verification, and pocketed other strategic concessions.
Let's take those in order. The U.S. looks likely to agree to cut the number of permitted delivery vehicles, such as missiles, long-range bombers and submarines, by half, to 800 or less. This is to Russia's advantage, which as of last spring had 814—and not all of them in working condition. Many of America's 1,198 nuclear delivery vehicles—from B-2 bombers to ICBMs—are being fitted with conventional weapons. The ceilings in a new Start would likely make no distinction between bomb types. If the goal is to move away from nukes, why limit the military's capacity to deploy conventional weapons?
As for verification, with fewer allowable warheads, Ronald Reagan's "trust but verify" maxim applies more than ever. Yet Russia wants to reduce oversight, and it specifically told the U.S. that continuous monitoring at the Votkinsk Machine Building Plant would end once Start expired. The Russians are building new RS-24 mobile nuclear missiles at Votkinsk. According to one Russian general, the RS-24 will by 2016 constitute four-fifths of its ICBM forces. Without monitoring, the U.S. won't know for sure how many of these missiles the Russians make and where they are deployed.
While Russia invests in new warheads and missiles, the Obama Administration has yet to lay out its own plans for updating the U.S. nuclear arsenal. Even staunch proponents of arms control concede that to be able to reduce the quantity of U.S. arms, we have to improve the quality. The Senate should ask why the White House isn't.
The Russians also refused to discuss their huge advantage in tactical weapons, and the Administration said OK. After the July "framework agreement," Russia signalled that U.S. plans to deploy missile defenses in Poland and the Czech Republic stood in the way of a final deal. Mr. Obama obliged, informing the Poles and Czechs of his reduced defenses late on the day before the sixth round of Start talks in Geneva. The announcement pleased the Russians, though it still hasn't got Washington a deal. Stay tuned for more concessions as U.S. negotiators try to get it before the year's end.
Meanwhile, the world's rogues continue to pursue nuclear weapons, and Mr. Obama said yesterday that "it is incumbent upon all of us to insist that nations like Iran and North Korea do not game the system." He added that "we must develop alternatives to violence that are tough enough to change behavior." But all the President has to show for a year of courting these regimes is their refusal even to consider giving up either their weapons (North Korea) or their growing capacity to make them (Iran).
The French, for one, see this danger plainly and want the U.S. to press harder on Tehran. But on these hard cases, the Administration can't muster the same sense of urgency it is bringing to the cause of an unnecessary arms control pact with Russia. Mr. Obama is right that he still has to earn that Nobel.
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