First, let me state that there are lots of numbers swirling around and it is not always possible to pull out discrete data or disaggregate specific figures from total amounts. Whenever possible I have used official figures and always gone with reputable sources for estimates. Some numbers have been repeated so often in so many different places without contradiction (such as the number uninsured) that I adopt those numbers without attribution. With that explanation, let us proceed.
First, it is accepted that 47 million in this country are uninsured. However, with the increasing numbers of unemployed, that number is probably low and will certainly increase for at least the next year when we may start to see an uptick in employment. When assessing that number, we need to also keep in mind that there are 45 million enrolled in Medicare, most of whom could not find private insurance because of pre-existing conditions. Additionally, even if they could find private insurance, the cost would probably be prohibitive for 90% of them. There are 42 + million receiving Medicaid (42 million as of 2006, the latest figure I could find), people who can't afford private insurance. Some of the people receiving Medicaid also receive Medicare. The number is probably relatively small, but to be conservative, I will estimate that 35 million are receiving Medicaid but not Medicare. The bottom line is that, in addition to the 47 million who don't have health insurance, another 77 million are receiving government insurance because they can't get private insurance. Thus, if we look at the number of uninsured against the number of people who are in the private insurance pool, it is 47 million out of about 223 million, not 47 out of 300 (the US population). This means that 21% of the people in the eligible population are uninsured, not the 16% usually cited. Medicare and Medicaid figures come from cms.hhs.gov/medicare and questionsmedicare.gov. Additionally, the Commonwealth Fund in June, 2007 estimated that 25 million are underinsured. If you add that to the 47 million uninsured, that means that the percentage of people who are uninsured or under insured, as a proportion of the private pool, is 32% (72 million out of 223 million). CONCLUSION--Almost one in three people who are in the private pool are either uninsured or underinsured. I hope these numbers do not confuse you, but they do indicate that the problem is greater than usually supposed.
Next, let's look at the effects of uninsurance and underinsurance. A 2007 Harvard study (see Business Week, 1/4/09) found that 62% of bankruptcies are due to medical expenses. There are approximately 1 million bankruptcies (certain to be higher this year), so that means over 600,000 bankruptcies a year are due to medical expenses. Further, the Harvard study found that 60% of these bankruptcies struck families who had (inadequate) medical insurance. This means that about 360,000 bankruptcies are due to medical expenses which hit people with insurance (the underinsured). Additionally, it is estimated that 1.5 million lose their home to foreclosure due to health costs (National Coalition on Health Care, web site cited below).
In a 2002 study (Institute of Medicine, Care Without Coverage, pp. 161-165), it was estimated that 18,000 people die each year because of lack of medical insurance.
Because the uninsured go to emergency rooms for much of their care and most of the time they can't pay, it has been estimated that this additional cost adds approximately $1100 per year to the average insurance premium.
Even if you are covered with an excellent plan, expect the cost of that plan to continue to rise until it is unaffordable for the average American family. Most of the following information can be found at nchc.org/facts/cost.shtml which has a lot of interesting data. Since 1999, the cost of employment based premiums has increased 120%, compared to a 44% increase in inflation and a 29% increase in average wages. By 2017, the cost of premiums will take from 40 to 50% of the average family's income if nothing is changed. Not surprisingly, the primary reason for non insurance is the high cost of health insurance. The Kaiser Commission study found that 80% of the uninsured are "working poor." Unless you are rich or in Medicare or Medicaid, you, too may join the ranks of the working poor unless something is done. Think your employer will cover the increased cost? Fewer are doing so every year or are passing along increases to their employees. The number of employees getting their insurance through their employers went from 66% in 2000 to 61% in 2004 (Kaiser Commission study). It is certain to be declining more and more rapidly with the recession.
Next, let's look at the overall national picture. Nation-wide, total health care expenses are estimated at $2.5 trillion, which is approximately 17% of Gross Domestic Product. It is projected that that total will reach 20% by 2017 (nchc.org). By way of comparison, the country which is second highest in spending as a percentage of their GDP is Switzerland which spends about 11% of their GDP on health care. If we spent the same percentage in the US as Switzerland does, we would spend about $800 billion less per year on health care. On a per capita basis, we spend approximately twice as much as other developed countries such as Canada, England, Germany, France, etc. Despite spending half as much, the citizens in those countries live longer on average and they cover everybody in their country.
Next, problems and solutions.
Tuesday, August 25, 2009
Friday, August 21, 2009
Sotomayor Silliness
With Sonia Sotomayor having taken her rightful place on the Supreme Court, we can get past, I hope, some of the ridiculous claims and statements made by her opponents. Also, it gives me an opportunity to tell a story I find interesting that is very relevant to the issue.
One of the arguments made by her opponents is her perceived liberal bias and the statement/belief that justices should be like umpires, calling balls and strikes. In this view, things are unconstitutional or not and there is a clear delineation that should be obviously apparent. Oh, if only it were so. People who make this claim are either being disingenuous or have no knowledge or experience with the courts. By the time something gets to the Supreme Court, it does so because the issues are not clear. I have personal experience with this.
Unfortunately, laws often are written either in a non-specific way, or may be specific but fail to anticipate how they will be used or abused in the future. As an example of the former, let's say that a law is written that says government shall establish regulations to do such and such and reasonable fees established to enforce the provisions of the law. Further, the law will say that fees or provisions shall be examined regularly and updated when warranted. What is a reasonable fee? How often is regular? If laws are written too specifically, then they will fail to deal with many future occurrences. If they are written broadly enough to cover future contingencies, they must be necessarily vague which means they will be open to interpretation.
I was a plaintiff in a case, which was ultimately thrown out because "it fell between the cracks." There was law and court decisions for many different classes of people, but I fell into a small class for which no precedent or specific law applied. The judge could have ruled in my favor by deciding to apply the law in one way, but chose to apply it in another. Later, in a case which I read about in the papers in a similar situation, the same judge ruled in favor of some plaintiffs and allowed the case to go to trial. There was no clear choice in this matter, and this situation occurs frequently.
In another instance, I wrote a law for the State of California. By way of background, there was a petition taken to the City of San Diego for an initiative ballot measure to revise the City's Charter. The petition was not certified because it did not have enough signatures as established by the City's Election Code. However, a judge ruled that the City had to follow the State Elections code for this particular type of initiative. So, I wrote a change to State law so that future petitions would be consistent with our past requirements, which everyone agreed were more sensible than the State requirement. The law was reviewed by the City Attorney's Office, a resolution supporting it passed the City Council. A local assemblyman, a lawyer who was later appointed to a judgeship, agreed to carry the bill for us. We worked closely with the Secretary of Stat's office and the attorneys in their Elections Division and they all reviewed and approved it. It sailed through both houses and was signed by the governor as a non-controversial item. I figured the case was closed. About six months after going into effect, I received phone calls from Oakland from two different people who had found out that I was the original author. They both asked me what my intent was for an election situation which had nothing to do with city charter initiatives. I went back and re-read the new law. Sure enough, the issue they were asking about could be applied to the law which we had so narrowly crafted to apply to another very specific issue. Had I gone to court and been asked how the law should have been applied in the case the people from Oakland were interested in, I would have had no clue as to how to answer. I wouldn't have wanted to be the judge who decided how that law applied.
The point should be obvious. You can't just be an umpire, decisions/solutions are not clear cut and judicial decisions will of necessity be influenced, if not determined, by a judge's past experiences, leanings, and biases. To say otherwise is pure sophistry.
Another attack on Sotomayor was to attack Obama's statement that he wanted a judge with empathy. I guess it is better to have a judge with no empathy? Kudos to L.A. Times columnist Michael Hiltzik (I think I'm spelling his name correctly). He brought to his readers' attention the Supreme Court case of Buck vs. Bell in which the Supreme Court ruled in favor of the State of Virginia for the forced sterilization of a woman who was judged mentally retarded by the State. No proof was ever presented to support that claim by the State. Had there been a woman on the court, might the court have ruled differently? Similarly, the forced relocation/internment of people of Japanese acestry during World War II led to Korematsu vs. U.S. which is arguably one of the worst Supreme Court decisions in history, right up there with Dred Scott and Plessy vs. Ferguson. Had there been a minority on the court, especially one with foreign born parents, might not a more enlightened viewpoint from that kind of justice led to a more just decision? One would hope so. Given the ambiguity one often finds in the law, I much prefer a judge with emnpathy. I know I wish I had had one in my case since I got royally screwed and wasn't even allowed to bring my case to trial despite a clear case of denial of due process.
One of the arguments made by her opponents is her perceived liberal bias and the statement/belief that justices should be like umpires, calling balls and strikes. In this view, things are unconstitutional or not and there is a clear delineation that should be obviously apparent. Oh, if only it were so. People who make this claim are either being disingenuous or have no knowledge or experience with the courts. By the time something gets to the Supreme Court, it does so because the issues are not clear. I have personal experience with this.
Unfortunately, laws often are written either in a non-specific way, or may be specific but fail to anticipate how they will be used or abused in the future. As an example of the former, let's say that a law is written that says government shall establish regulations to do such and such and reasonable fees established to enforce the provisions of the law. Further, the law will say that fees or provisions shall be examined regularly and updated when warranted. What is a reasonable fee? How often is regular? If laws are written too specifically, then they will fail to deal with many future occurrences. If they are written broadly enough to cover future contingencies, they must be necessarily vague which means they will be open to interpretation.
I was a plaintiff in a case, which was ultimately thrown out because "it fell between the cracks." There was law and court decisions for many different classes of people, but I fell into a small class for which no precedent or specific law applied. The judge could have ruled in my favor by deciding to apply the law in one way, but chose to apply it in another. Later, in a case which I read about in the papers in a similar situation, the same judge ruled in favor of some plaintiffs and allowed the case to go to trial. There was no clear choice in this matter, and this situation occurs frequently.
In another instance, I wrote a law for the State of California. By way of background, there was a petition taken to the City of San Diego for an initiative ballot measure to revise the City's Charter. The petition was not certified because it did not have enough signatures as established by the City's Election Code. However, a judge ruled that the City had to follow the State Elections code for this particular type of initiative. So, I wrote a change to State law so that future petitions would be consistent with our past requirements, which everyone agreed were more sensible than the State requirement. The law was reviewed by the City Attorney's Office, a resolution supporting it passed the City Council. A local assemblyman, a lawyer who was later appointed to a judgeship, agreed to carry the bill for us. We worked closely with the Secretary of Stat's office and the attorneys in their Elections Division and they all reviewed and approved it. It sailed through both houses and was signed by the governor as a non-controversial item. I figured the case was closed. About six months after going into effect, I received phone calls from Oakland from two different people who had found out that I was the original author. They both asked me what my intent was for an election situation which had nothing to do with city charter initiatives. I went back and re-read the new law. Sure enough, the issue they were asking about could be applied to the law which we had so narrowly crafted to apply to another very specific issue. Had I gone to court and been asked how the law should have been applied in the case the people from Oakland were interested in, I would have had no clue as to how to answer. I wouldn't have wanted to be the judge who decided how that law applied.
The point should be obvious. You can't just be an umpire, decisions/solutions are not clear cut and judicial decisions will of necessity be influenced, if not determined, by a judge's past experiences, leanings, and biases. To say otherwise is pure sophistry.
Another attack on Sotomayor was to attack Obama's statement that he wanted a judge with empathy. I guess it is better to have a judge with no empathy? Kudos to L.A. Times columnist Michael Hiltzik (I think I'm spelling his name correctly). He brought to his readers' attention the Supreme Court case of Buck vs. Bell in which the Supreme Court ruled in favor of the State of Virginia for the forced sterilization of a woman who was judged mentally retarded by the State. No proof was ever presented to support that claim by the State. Had there been a woman on the court, might the court have ruled differently? Similarly, the forced relocation/internment of people of Japanese acestry during World War II led to Korematsu vs. U.S. which is arguably one of the worst Supreme Court decisions in history, right up there with Dred Scott and Plessy vs. Ferguson. Had there been a minority on the court, especially one with foreign born parents, might not a more enlightened viewpoint from that kind of justice led to a more just decision? One would hope so. Given the ambiguity one often finds in the law, I much prefer a judge with emnpathy. I know I wish I had had one in my case since I got royally screwed and wasn't even allowed to bring my case to trial despite a clear case of denial of due process.
The Overriding Importance of Health Care Reform
In all the hullabaloo over health care, there is one thing which I hope progressives, especially those in the Federal government, don't overlook. There has been much talk about the impact this fight has on President Obama's presidency (Senator Jim Demint saying it could be his Waterloo) or on the elctions in 2010 and 2012. However, I think it goes beyond even these future events.
If we look at history and the development of government and party politics, especially in the 20th Century, some trends become clear. Beginning with Teddy Roosevelt, we saw the beginning of an activist government led by a strong executive to bring about change for the benefit of the people. Taft disappointed Roosevelt and the progressives, leading to the divisive 1912 campaign and the election of Wilson who continued the thrust of the Roosevelt presidency. After World War I, the country was ready for a more settled time and, in Coolidge's famous words, the business of government was business. Andrew Mellon, one of the richest and biggest establishment figures in the country was a mainstay of Republican government during this decade. The Republicans believed that government's function was to promote free enterprise and get out of the way. This fell apart with the stock market crash in October, 1929 and the subsequent Depression. Franklin Delano Roosevelt, Teddy's cousin and nephew by marriage, expanded on the first Roosevelt presidency and used government to lead the country out of depression, something that had never been done before.
FDR's presidency was a massive paradigm shift in American politics. Government was now seen as beneficial and even necessary for shepherding the economy and the country to prosperity. Many of the reforms enacted then are still with us today and some lasted until just recently. This also set the stage for the ascendancy of the Democratic Party for the next 36 years. Only the Vietnam War interrupted this ascendancy. Eisenhower, because he was a war hero, was an aberration.
The election of Ronald Reagan in 1980 marked the beginning of another paradigm shift. Reagan, through his personal popularity, changed the political dialogue so that government was no longer seen as the solution, but the problem. Even Bill Clinton famously said that the era of big government was over. As with the 20's, the overreach by the Republicans and their corporate allies has led to another economic collapse. The election of President Obama, the promises he made and the challenges he faces have set the stage for another paradigm shift back to that established by FDR. If Obama takes a successful, activist role he can show that government is the solution, not the problem. In so doing, he can control the political dialogue and set the stage for Democratic ascendancy for the next 30 or 40 years.
The two biggest domestic challenges the President and his party face are the economy and fixing the health care system. As readers of this blog know, I firmly believe that his steps in the first area are in the right direction, but do not go far enough. While there needs to be major restructuring of the economy, especially in the financial sector, Obama and his major advisers, Larry Summers and Timothy Geithner, seem content to tweak the system, not truly reform it. Nevertheless, while I agree with Paul Krugman that the stimulus program needs to be larger, it is large enough to stop the recession and begin the turnaround.
Here is where health care reform is crucial. Health care expenditures now total close to 20% of the total GDP. If we can reduce expenditures down to the level found in the next highest expenditure as a percentage of GDP (Switzerland), we could reduce health care expenditures by $800 BILLION PER YEAR, freeing up that money for economic expansion. As Medicare and Social Security did in the past, health care with a strong government option will show the efficacy of government and expose the lies of the Cassandras in the conservative movements. Under FDR's policies, this country has experienced its longest uninterrupted periods of economic growth and expansion. The greatest economic crashes in our history have occurred after periods of Republican laissez-fare policies. It is time to return to the policies that have made this country great. Obama can make this happen if he remains firm and pushes a strong health care reform with a government option.
If we look at history and the development of government and party politics, especially in the 20th Century, some trends become clear. Beginning with Teddy Roosevelt, we saw the beginning of an activist government led by a strong executive to bring about change for the benefit of the people. Taft disappointed Roosevelt and the progressives, leading to the divisive 1912 campaign and the election of Wilson who continued the thrust of the Roosevelt presidency. After World War I, the country was ready for a more settled time and, in Coolidge's famous words, the business of government was business. Andrew Mellon, one of the richest and biggest establishment figures in the country was a mainstay of Republican government during this decade. The Republicans believed that government's function was to promote free enterprise and get out of the way. This fell apart with the stock market crash in October, 1929 and the subsequent Depression. Franklin Delano Roosevelt, Teddy's cousin and nephew by marriage, expanded on the first Roosevelt presidency and used government to lead the country out of depression, something that had never been done before.
FDR's presidency was a massive paradigm shift in American politics. Government was now seen as beneficial and even necessary for shepherding the economy and the country to prosperity. Many of the reforms enacted then are still with us today and some lasted until just recently. This also set the stage for the ascendancy of the Democratic Party for the next 36 years. Only the Vietnam War interrupted this ascendancy. Eisenhower, because he was a war hero, was an aberration.
The election of Ronald Reagan in 1980 marked the beginning of another paradigm shift. Reagan, through his personal popularity, changed the political dialogue so that government was no longer seen as the solution, but the problem. Even Bill Clinton famously said that the era of big government was over. As with the 20's, the overreach by the Republicans and their corporate allies has led to another economic collapse. The election of President Obama, the promises he made and the challenges he faces have set the stage for another paradigm shift back to that established by FDR. If Obama takes a successful, activist role he can show that government is the solution, not the problem. In so doing, he can control the political dialogue and set the stage for Democratic ascendancy for the next 30 or 40 years.
The two biggest domestic challenges the President and his party face are the economy and fixing the health care system. As readers of this blog know, I firmly believe that his steps in the first area are in the right direction, but do not go far enough. While there needs to be major restructuring of the economy, especially in the financial sector, Obama and his major advisers, Larry Summers and Timothy Geithner, seem content to tweak the system, not truly reform it. Nevertheless, while I agree with Paul Krugman that the stimulus program needs to be larger, it is large enough to stop the recession and begin the turnaround.
Here is where health care reform is crucial. Health care expenditures now total close to 20% of the total GDP. If we can reduce expenditures down to the level found in the next highest expenditure as a percentage of GDP (Switzerland), we could reduce health care expenditures by $800 BILLION PER YEAR, freeing up that money for economic expansion. As Medicare and Social Security did in the past, health care with a strong government option will show the efficacy of government and expose the lies of the Cassandras in the conservative movements. Under FDR's policies, this country has experienced its longest uninterrupted periods of economic growth and expansion. The greatest economic crashes in our history have occurred after periods of Republican laissez-fare policies. It is time to return to the policies that have made this country great. Obama can make this happen if he remains firm and pushes a strong health care reform with a government option.
Friday, April 24, 2009
A New Mideast Policy--Part III
The U.S. needs a more even-handed policy regarding the Palestinian problem, needs to distance itself from unpopular, undemocratic regimes, and work towards energy independence so that we can disengage ourselves militarily from the Middle East. We need to engage in a more realistic foreign policy, acting on what is, not what we would like things to be.
The key to better relations with all the Arab states and the Arab "man in the street" is an even-handed approach that recognizes legitimate Palestinian grievances and promises a two state solution. The Saudi proposal (which has been accepted by all the major Arab states) to recognize Israel and normalize relations on the basis of a two state solution, with Israel abandoning its settlements and returning to its pre-1967 boundaries, should be the policy pushed by the U.S. We should guarantee those boundaries and promise to aid Israel should her territorial integrety be threatened. We should also say that any non-retaliatory WMD attack on Israel will be considered the same as an attack on the United States. In return for the Palestinians giving up their "right of return", they should be gifted all the domiciles built by the Israelis on the West Bank and money currently being suppliied to Israel for military aid should be shifted to the Palestinians, with one-half going in the form of direct payments to Palestinians and one-half going to development projects in the new state of Palestine. In addition, we should greatly reduce military aid to our allies Egypt, Jordan, and Saudi Arabia and close almost all of our military bases in the area except for a few military training missions and maybe a couple of listening posts.
The fact is, if there were no oil in the Middle East, it would be of no strategic importance to the United States. We should strive for energy independence through the development of alternative energy so that Middle Eastern oil is not of great importance to us. This will also allow us to disentangle ourselves from the corrupt Saudi royal family. I am convinced that some day they will be overthrown and it is best that we not be identified with them when that happens. Likewise, the increasingly repressive Mubarak regime in Egypt is another government we should disassociate ourselves from. We should seek to promote democracy in both states but, if as likely will happen, those states make no moves to broaden their bases of popular support, we should move away from them before they become albatrosses around our neck.
We should push Israel to negotiate with Syria over the return of the Golan Heights. The outlines of a deal are clear: in return for the Golan Heights, to remain demilitarized while under Syrian control, Syria would agree to stop funding and supporting Hezbollah in Lebanon. Syria should also agree to reduce its involvement in internal Lebanese affairs. In return, not only would it get the Golan Heights and normalized relations with Israel, the U.S. should pledge giving monetary aid to Syria for a limited time period (such as three years) with the promise that the period could be extended if Assad opened up the society and allowed more freedom and participation by his people in the political system.
In short, we should associate ourselves with the promotion of democratic principles but not insist on or require them. We should not become closely associated with regines that do not promote democratic principles. We should not intervene in the internal affairs of the area's nation states and not support any state in the area which intervenes in the internal affairs of another of the area's states. We should promote regional organizations. We should disentangle ourselves from the region and engage in a neo-isolationist policy.
The biggest obstacle to this policy will probably be Israel and the Israel lobby. With the election of the latest government, it seems very unlikely that Israel will be ready any time soon to accept such a solution. Even worse from our point of view, our internal pro-Israel lobby will make it extremely difficult for the U.S. government to put any pressure on the Israeli government. However, this is what we must do because the solving of the Palestinian problem is not only the key to Mid East peace, that and our subsequent withdrawal from the area is key to diffusing Muslim terrorism against the United States. I believe that if we were to follow and implement these policies much of the terrorist threat will dissipate.
During World War II, Britons used to grouse that there were three things wrong with American soldiers: they were overpaid, oversexed, and over here. And these were our closest allies! Our presence in the Middle East is several orders of magnitude worse than what the English complained about. This is definitely one case where absence will make the heart grow fonder. If we remove ourselves from the Middle East, our popularity there will probably soar.
Next, what we should do about Iraq, Iran, and Afghanistan.
The key to better relations with all the Arab states and the Arab "man in the street" is an even-handed approach that recognizes legitimate Palestinian grievances and promises a two state solution. The Saudi proposal (which has been accepted by all the major Arab states) to recognize Israel and normalize relations on the basis of a two state solution, with Israel abandoning its settlements and returning to its pre-1967 boundaries, should be the policy pushed by the U.S. We should guarantee those boundaries and promise to aid Israel should her territorial integrety be threatened. We should also say that any non-retaliatory WMD attack on Israel will be considered the same as an attack on the United States. In return for the Palestinians giving up their "right of return", they should be gifted all the domiciles built by the Israelis on the West Bank and money currently being suppliied to Israel for military aid should be shifted to the Palestinians, with one-half going in the form of direct payments to Palestinians and one-half going to development projects in the new state of Palestine. In addition, we should greatly reduce military aid to our allies Egypt, Jordan, and Saudi Arabia and close almost all of our military bases in the area except for a few military training missions and maybe a couple of listening posts.
The fact is, if there were no oil in the Middle East, it would be of no strategic importance to the United States. We should strive for energy independence through the development of alternative energy so that Middle Eastern oil is not of great importance to us. This will also allow us to disentangle ourselves from the corrupt Saudi royal family. I am convinced that some day they will be overthrown and it is best that we not be identified with them when that happens. Likewise, the increasingly repressive Mubarak regime in Egypt is another government we should disassociate ourselves from. We should seek to promote democracy in both states but, if as likely will happen, those states make no moves to broaden their bases of popular support, we should move away from them before they become albatrosses around our neck.
We should push Israel to negotiate with Syria over the return of the Golan Heights. The outlines of a deal are clear: in return for the Golan Heights, to remain demilitarized while under Syrian control, Syria would agree to stop funding and supporting Hezbollah in Lebanon. Syria should also agree to reduce its involvement in internal Lebanese affairs. In return, not only would it get the Golan Heights and normalized relations with Israel, the U.S. should pledge giving monetary aid to Syria for a limited time period (such as three years) with the promise that the period could be extended if Assad opened up the society and allowed more freedom and participation by his people in the political system.
In short, we should associate ourselves with the promotion of democratic principles but not insist on or require them. We should not become closely associated with regines that do not promote democratic principles. We should not intervene in the internal affairs of the area's nation states and not support any state in the area which intervenes in the internal affairs of another of the area's states. We should promote regional organizations. We should disentangle ourselves from the region and engage in a neo-isolationist policy.
The biggest obstacle to this policy will probably be Israel and the Israel lobby. With the election of the latest government, it seems very unlikely that Israel will be ready any time soon to accept such a solution. Even worse from our point of view, our internal pro-Israel lobby will make it extremely difficult for the U.S. government to put any pressure on the Israeli government. However, this is what we must do because the solving of the Palestinian problem is not only the key to Mid East peace, that and our subsequent withdrawal from the area is key to diffusing Muslim terrorism against the United States. I believe that if we were to follow and implement these policies much of the terrorist threat will dissipate.
During World War II, Britons used to grouse that there were three things wrong with American soldiers: they were overpaid, oversexed, and over here. And these were our closest allies! Our presence in the Middle East is several orders of magnitude worse than what the English complained about. This is definitely one case where absence will make the heart grow fonder. If we remove ourselves from the Middle East, our popularity there will probably soar.
Next, what we should do about Iraq, Iran, and Afghanistan.
Wednesday, April 15, 2009
U.S. Mideast Policy--Part II
The biggest problem/mistake facing U.S. mideast policy is the Israel--Palestine problem. The Bush Administration approach bordered on the criminal and, combined with the invasion of Iraq, it may take ten to twenty years to repair the damage done to U.S. relations in the area.
Since Lyndon Johnson U.S. policy has been totally out of whack. Our policy vis-a-vis Israel is a classic case of the tail wagging the dog. U.S. support of Israel has been way out of proportion compared to any possible gains that c ould be realized. As of 2005 the U.S. has given Israel $150 billion in aid; it is likely now over $160 billion. At the UN, since 1970 the U.S. has employed more vetoes against resolutions involving Israel than all vetoes cast in Security Council during this time period. And it is not like we have a lot of support. We often cast votes in support of Israel that are opposed by almost all of our Western allies. Especially since 20001, polls done in the Middle East show an overwhelming negative view of the U.S. and huge majorities believe that we are heavily weighted towards Israel. We used to be seen as an honest broker. For anyone interested in how out of balance U.S. policy is regarding Israel, read The Israel Lobby and U.S. Foreign Policy by Mearsheimer and Walt, especially Chapter 2. In return for our largesse, we have an ally that causes us no end of problems. From the U.S.S. Liberty to the Pollard spy case and violation of the Oslo accords, Israel has taken advantage of the U.S. and put us in a doifficult position time and again. The above cited book carefully and completely documents this history.
Since Lyndon Johnson U.S. policy has been totally out of whack. Our policy vis-a-vis Israel is a classic case of the tail wagging the dog. U.S. support of Israel has been way out of proportion compared to any possible gains that c ould be realized. As of 2005 the U.S. has given Israel $150 billion in aid; it is likely now over $160 billion. At the UN, since 1970 the U.S. has employed more vetoes against resolutions involving Israel than all vetoes cast in Security Council during this time period. And it is not like we have a lot of support. We often cast votes in support of Israel that are opposed by almost all of our Western allies. Especially since 20001, polls done in the Middle East show an overwhelming negative view of the U.S. and huge majorities believe that we are heavily weighted towards Israel. We used to be seen as an honest broker. For anyone interested in how out of balance U.S. policy is regarding Israel, read The Israel Lobby and U.S. Foreign Policy by Mearsheimer and Walt, especially Chapter 2. In return for our largesse, we have an ally that causes us no end of problems. From the U.S.S. Liberty to the Pollard spy case and violation of the Oslo accords, Israel has taken advantage of the U.S. and put us in a doifficult position time and again. The above cited book carefully and completely documents this history.
Sunday, April 5, 2009
A New Middle East Foreign Policy--Part I
A quick and easy prescription is to do the opposite of the Bush Administration.
First, some basic tenets. One of the things that I noticed during the run-up to the Iraq War was the lack of any reference to the concept of the national interest. Neoconservative foreign policy is not a foreign policy of realism. As stated by such realists as Hans Morgenthau, a realist foreign policy should pursue only goals that are in a nation's national interest. We should be unconcerned with things like the nature of a regime or the promotion of ideals and more concerned with things like geography, natural resources, real (and not imagined) threats to our security, and building alliances and/or coalitions to advance our interests or inhibit the efforts of our adversaries. It requires a hard-headed analysis of the international system and the real, relative power of the states in the system. Realistic cost/benefit analyses should be part of foreign policy decisions (even if Iraq turns out successfully, it is not worth the cost of the war, for example). Maybe one existed, but prior to the Iraq War I never saw a realistic appraisal of the threat that Iraq posed to the United States. Even had Iraq possessed WMD's, they had no method of delivery and no history of working with Al-Qaeda. Also, as we know now (see the book Cobra II), Saddam Hussein was mostly concerned with internal revolt and Iran and did not really pay much attention to the U.S. until two weeks before our invasion. Another striking thing about the Bush Administration is that ignorance was prized. The more you knew about Iraq or the Middle East, the less likely you were to be involved in the post-war running/reconstruction of Iraq (see Losing Iraq, Imperial Life in the Emerald City, Fiasco, and any number of other accounts). We need to restore realism (with some modifications) to our foreign policy. Fortunately, Obama seems to be much more of a realist than the neocons or than John McCain.
We also need to remember basic tenets of a successful foreign policy. As British Lord Palmerston famously said, a nation doesn't have friends, it has interests. Foreign policy should not be personalized, as when Bush said he could see into Putin's soul. A major power should not allow itself to be put into a position where its policy is determined by the actions of a minor power. McCain's statement that "we are all Georgians now" was a horrible foreign policy blunder. There is more than one type of power, commonly called hard power (military) and soft power (cultural economic, etc.) and a successful foreign policy does not rely only on one or the other. As Churchill famously said, it is always better to jaw, jaw, jaw, than to war, war, war. In other words, diplomacy should always be pursued whenever possible and military force should be a last resort, used only when a vital national interest is at stake. Robert Asprey in his book War in the Shadows differentiates between "wars of necessity" and "wars of convenience." We should only engage in wars of necessity. It should be recognized that diplomacy does not bring success overnight and that successful negotiations are not a zero sum game. That is, like a trade in baseball, both sides should get something they want. We should recognize and allow for the fact that other nations have legitimate national interests. Diplomacy is best done when it is non-public and oblique so that involved parties can maintain flexibility. When they are public and direct, this results in domestic interests intervening and positions that may be hard to change. For example, President Bush's Axis of Evil speech was a bad mistake because it named specific countries and then made it harder to negotiate with them in the future. Contrast that with FDR's Quarantine the Aggressor speech where he didn't even use that term and never called any specific country an aggressor. Foreign policy goals must be reasonably achievable. Again the Bush Administration provides wonderful examples of what not to do. When President Bush called for a war against terror he did not limit it in any way (something I noticed immediately, but that was largely uncommented on by pundits at the time). Thus, we were at war with terror everywhere in the world, whether it affected us or not. Do we really care about the ETA (Basque separatists) in Spain or the Tamil Tigers in Sri Lanka? We shouldn't but under the Bush Doctrine we will be fighting all terror anywhere for who knows how long. Finally, foreign policy should take the long view. The neocons were concerned about preserving American dominance for the next decade or two. What we should be doing is using our preeminent position to set up an international system that will be to our benefit when we are no longer dominant. We should recognize the brilliance of George Kennan who foresaw that communism would eventually collapse because of its weaknesses and internal contradictions. Had we taken this longer view that he had, we could have avoided numerous foreign policy blunders during the Cold War. Similarly, Al-Qaeda is basically a nihilistic movement and its terrorism, while dangerous, is a transitory threat.
Specifics about the Middle East to follow.
First, some basic tenets. One of the things that I noticed during the run-up to the Iraq War was the lack of any reference to the concept of the national interest. Neoconservative foreign policy is not a foreign policy of realism. As stated by such realists as Hans Morgenthau, a realist foreign policy should pursue only goals that are in a nation's national interest. We should be unconcerned with things like the nature of a regime or the promotion of ideals and more concerned with things like geography, natural resources, real (and not imagined) threats to our security, and building alliances and/or coalitions to advance our interests or inhibit the efforts of our adversaries. It requires a hard-headed analysis of the international system and the real, relative power of the states in the system. Realistic cost/benefit analyses should be part of foreign policy decisions (even if Iraq turns out successfully, it is not worth the cost of the war, for example). Maybe one existed, but prior to the Iraq War I never saw a realistic appraisal of the threat that Iraq posed to the United States. Even had Iraq possessed WMD's, they had no method of delivery and no history of working with Al-Qaeda. Also, as we know now (see the book Cobra II), Saddam Hussein was mostly concerned with internal revolt and Iran and did not really pay much attention to the U.S. until two weeks before our invasion. Another striking thing about the Bush Administration is that ignorance was prized. The more you knew about Iraq or the Middle East, the less likely you were to be involved in the post-war running/reconstruction of Iraq (see Losing Iraq, Imperial Life in the Emerald City, Fiasco, and any number of other accounts). We need to restore realism (with some modifications) to our foreign policy. Fortunately, Obama seems to be much more of a realist than the neocons or than John McCain.
We also need to remember basic tenets of a successful foreign policy. As British Lord Palmerston famously said, a nation doesn't have friends, it has interests. Foreign policy should not be personalized, as when Bush said he could see into Putin's soul. A major power should not allow itself to be put into a position where its policy is determined by the actions of a minor power. McCain's statement that "we are all Georgians now" was a horrible foreign policy blunder. There is more than one type of power, commonly called hard power (military) and soft power (cultural economic, etc.) and a successful foreign policy does not rely only on one or the other. As Churchill famously said, it is always better to jaw, jaw, jaw, than to war, war, war. In other words, diplomacy should always be pursued whenever possible and military force should be a last resort, used only when a vital national interest is at stake. Robert Asprey in his book War in the Shadows differentiates between "wars of necessity" and "wars of convenience." We should only engage in wars of necessity. It should be recognized that diplomacy does not bring success overnight and that successful negotiations are not a zero sum game. That is, like a trade in baseball, both sides should get something they want. We should recognize and allow for the fact that other nations have legitimate national interests. Diplomacy is best done when it is non-public and oblique so that involved parties can maintain flexibility. When they are public and direct, this results in domestic interests intervening and positions that may be hard to change. For example, President Bush's Axis of Evil speech was a bad mistake because it named specific countries and then made it harder to negotiate with them in the future. Contrast that with FDR's Quarantine the Aggressor speech where he didn't even use that term and never called any specific country an aggressor. Foreign policy goals must be reasonably achievable. Again the Bush Administration provides wonderful examples of what not to do. When President Bush called for a war against terror he did not limit it in any way (something I noticed immediately, but that was largely uncommented on by pundits at the time). Thus, we were at war with terror everywhere in the world, whether it affected us or not. Do we really care about the ETA (Basque separatists) in Spain or the Tamil Tigers in Sri Lanka? We shouldn't but under the Bush Doctrine we will be fighting all terror anywhere for who knows how long. Finally, foreign policy should take the long view. The neocons were concerned about preserving American dominance for the next decade or two. What we should be doing is using our preeminent position to set up an international system that will be to our benefit when we are no longer dominant. We should recognize the brilliance of George Kennan who foresaw that communism would eventually collapse because of its weaknesses and internal contradictions. Had we taken this longer view that he had, we could have avoided numerous foreign policy blunders during the Cold War. Similarly, Al-Qaeda is basically a nihilistic movement and its terrorism, while dangerous, is a transitory threat.
Specifics about the Middle East to follow.
New Revelations About the Economic Crisis
For those who didn't see it, Bill Moyers Journal on PBS on Friday, April 3, 2009 contained an interview with Professor William Black of the University of Missouri-Kansas City that was jaw-dropping. In addition to seeing it on PBS.org, you can also find an article he has written on the Huntington Post of February 25, 2009 with a title like The Two Things Everyone Should Read About the Economic Crisis. Black was formerly a government regulator who investigated the Savings and Loan Scandal in the late 80's and wrote regulations to deal with it thereafter.
In short, Black said that the crisis is the result of massive, intentional fraud by a relatively small number of top financial executives. According to Black, the FBI warned back in September of 2004 that there was an epidemic of mortgage fraud. According to Black, had the Bush Administration taken action then the financial crisis could have been avoided. One problem was that the FBI had shifted 500 agents from white collar crime to terrorism and did not have enough resources to investigate when the problem became known. Black says that Geithner and Obama Administration officials are not taking the required steps because they are afraid that the banking system will collapse because most of the huge banks (Citigroup, Bank of America, etc.) are basically insolvent. In his Huffington Post article he states that 80% of the frauds were initiated by lenders. According to Black, when a person controls a business and uses it to perpetrate fraud, that is known as control fraud and he states that control frauds cause greater financial losses than all other property crimes combined. Finally, he implied that Geithner and other top officials are aware of these facts but choose not to remove the officials responsible or take other necessary corrective actions because of the previously stated fear and because they still believe in a deregulated free market.
These are just some of the high (or low) points. Implicit is that the Obama Administration is knowingly shielding criminals and past criminal activities.
As I have stated in previous posts on this blog, Obama seems unwilling to take the major reform that is required. Similarly, (see my Get Tough on Crime) Obama also wants to look the other way when it comes to war crimes and other crimes of the previous administration. It appears that his desire to bring the country together and to rise above partisanship has led to a continuation of the moral crisis that is just as serious for this country as any economic crisis. If people are not held accountable, then it will happen again and again. It is time we start speaking out and demanding full investigations and prosecutions.
In short, Black said that the crisis is the result of massive, intentional fraud by a relatively small number of top financial executives. According to Black, the FBI warned back in September of 2004 that there was an epidemic of mortgage fraud. According to Black, had the Bush Administration taken action then the financial crisis could have been avoided. One problem was that the FBI had shifted 500 agents from white collar crime to terrorism and did not have enough resources to investigate when the problem became known. Black says that Geithner and Obama Administration officials are not taking the required steps because they are afraid that the banking system will collapse because most of the huge banks (Citigroup, Bank of America, etc.) are basically insolvent. In his Huffington Post article he states that 80% of the frauds were initiated by lenders. According to Black, when a person controls a business and uses it to perpetrate fraud, that is known as control fraud and he states that control frauds cause greater financial losses than all other property crimes combined. Finally, he implied that Geithner and other top officials are aware of these facts but choose not to remove the officials responsible or take other necessary corrective actions because of the previously stated fear and because they still believe in a deregulated free market.
These are just some of the high (or low) points. Implicit is that the Obama Administration is knowingly shielding criminals and past criminal activities.
As I have stated in previous posts on this blog, Obama seems unwilling to take the major reform that is required. Similarly, (see my Get Tough on Crime) Obama also wants to look the other way when it comes to war crimes and other crimes of the previous administration. It appears that his desire to bring the country together and to rise above partisanship has led to a continuation of the moral crisis that is just as serious for this country as any economic crisis. If people are not held accountable, then it will happen again and again. It is time we start speaking out and demanding full investigations and prosecutions.
Tuesday, March 31, 2009
Why Limiting Executive Pay Is Not A Good Idea
One thing you have to give credit to Obama for is that at least his administration is trying things. However, I still have this strong feeling that his measures are half-hearted and that he and his advisers are still too tightly wed to the old system and the Wall Street "good old boys." It is still too early to make any evaluation of the moves taken in regard to GM and Chrysler since we don't know many of the details. However, one can't help but notice how differently Detroit is treated when compared to the financial firms.
What seems like a decisive and populist/liberal move, limiting executive pay is, I believe, the wrong approach. As I have pointed out earlier, the disparity between the average CEO and the average worker has increased about nine times over the last 25-30 years and the wide gap in wealth in this country is one of the most important problems we need to fix. However, I believe there are two problems with the proposal to limit executive pay. First, it is certain to raise a firestorm and I suspect that there are serious legal problems with it. Off hand, I can't see any constitutional support for such legislation since it would be a real stretch to claim authority under the power to regulate interstate commerce. It is sure to invite legal challenges and Bush has left us with a largely conservative Federal court system. I suspect that, even if such legislation did survive legal challenges, it will have to go all the way to the Supreme Court and could be tied up in litigaion for many years. Secondly, it is much too narrow. Again, as I have suggested earlier, we need to do something about all high incomes, not just CEO pay. Also, to pay for the programs that are needed and to try to keep the deficit from exploding, revenue has to be raised from somewhere. Since the rich have gotten the vast majority of the benefits from government actions over the last 25-30 years, we should increase tax rates on the rich and greatly increase the rates for the super rich. Using tax policy is a much better solution than limiting pay/lincome.
Finally, I would like to highly recommend the Bill Moyer's interview of William Greider on Bill Moyers Journal March 27, 2009, which should be available at pbs.org. Also highly recommended is The Quiet Coup By Simon Johnson found in the May, 2009 issue of The Atlantic (also available on line). In both of these you will find brilliant insights, because they happen to echo what I have been saying (plus they have some additional things to say that I agree with). Instead of listening to Summers and Geithner, I think Obama should be listening to people like Johnson, Greider, Paul Krugman and Joseph Stiglitz, all distinguished economics thinkers (Krugman and Stiglitz have Nobel Prizes in economics).
What seems like a decisive and populist/liberal move, limiting executive pay is, I believe, the wrong approach. As I have pointed out earlier, the disparity between the average CEO and the average worker has increased about nine times over the last 25-30 years and the wide gap in wealth in this country is one of the most important problems we need to fix. However, I believe there are two problems with the proposal to limit executive pay. First, it is certain to raise a firestorm and I suspect that there are serious legal problems with it. Off hand, I can't see any constitutional support for such legislation since it would be a real stretch to claim authority under the power to regulate interstate commerce. It is sure to invite legal challenges and Bush has left us with a largely conservative Federal court system. I suspect that, even if such legislation did survive legal challenges, it will have to go all the way to the Supreme Court and could be tied up in litigaion for many years. Secondly, it is much too narrow. Again, as I have suggested earlier, we need to do something about all high incomes, not just CEO pay. Also, to pay for the programs that are needed and to try to keep the deficit from exploding, revenue has to be raised from somewhere. Since the rich have gotten the vast majority of the benefits from government actions over the last 25-30 years, we should increase tax rates on the rich and greatly increase the rates for the super rich. Using tax policy is a much better solution than limiting pay/lincome.
Finally, I would like to highly recommend the Bill Moyer's interview of William Greider on Bill Moyers Journal March 27, 2009, which should be available at pbs.org. Also highly recommended is The Quiet Coup By Simon Johnson found in the May, 2009 issue of The Atlantic (also available on line). In both of these you will find brilliant insights, because they happen to echo what I have been saying (plus they have some additional things to say that I agree with). Instead of listening to Summers and Geithner, I think Obama should be listening to people like Johnson, Greider, Paul Krugman and Joseph Stiglitz, all distinguished economics thinkers (Krugman and Stiglitz have Nobel Prizes in economics).
Thursday, March 26, 2009
Israel As An Agressive Power
Although I am finally starting to see a little more realism regarding Israeli policy in the Middle East, there is still too much reflexive pro-Israeli sentiment both among the U.S. populace and in the popular press. For example, when Jimmy Carter wrote Peace, Not Apartheid he was viciously and falsely accused of anti-semitism and his views were misrepresented. Many people defended Israel's attack on and invasion of Lebanon and overlooked or disregarded its overreaction and depredations against civilians. The same is true of their recent attack in Gaza. Here are some facts/events that are often left out when discussing Israel's policies in the region.
First, often ignored is the background to the establishment of Israel as a Jewish state. (I have used There Could Have Been Peace by Jon Kimche and The Arab-Israeli Dilemma by Fred Khouri for background) Prior to 1919 only a small percentage of those living in the area that is now Israel were Jewish. Most were Arabs whose families had lived there for hundreds of years. The Zionist movement diddn't begin until the late 1890's under Theodor Herzl. At the time what was then known as Palestine was part of the Ottoman Empire. Only in 1917 did the Zionist movement gain any traction with the proclamation of the Balfour Declaration, named after the British Foreign Minister. The Balfour Declaration promised the Jews a home in the area of Palestine. The Balfour Declaration was made because Britain was economically on her last legs and hoped to get financial support(loans) from rich Jews, especially in the United States, so that they could carry on with World War I. At the time Britain made this promise, it had already made a secret treaty with France (Sykes-Picot) to divide up the Ottoman Empire and was making promises of independence to the indiginous Arabs to get their support in fighting the Turks. When Britain made the Balfour Declaration it was about land and people under the legal jurisdiction of another country and without consultation or prior notification of those people actually living there. Had the Allied Powers not won World War I, the Balfour Declaration would have been meaningless. As it was, it was undercut by the Sykes- Picot Treaty and was in violation of Wilson's 14 Points. To say that Jews had a valid legal claim to the land, therefore, is very debatable. Following World War I, Palestine was a British mandate which meant it was a colony for all intents and purposes but, in theory, Britain was controlling it in order to prepare it for independence at some future date. Although Jewish in-migration picked up considerably after World War I, at no time did Jews comprise a majority of the population before the establishment of Israel. I think that Palestinians and Arabs make a good point when they say, "yes the Jews were persecuted and suffered horribly before and during World War II, but why reward them by taking our land without our permisssion? We had nothing to do with their mistreatment and nothing to do with the Holocaust." Too often people in this country, with their sympathy for Israel, ignore or are unaware of the suffering and injustice meted out on the Palestinians.
I will not go into the whole history, but I do recommend that you read a balanced account. Because of how this issue has been politicized in this country, I prefer reading material from British or European writers. I especially recommend anything by Robert Fisk, a British correspondent who has spent almost 30 years based in Lebanon and has covered the Middle East for a couple of different English papers and written two excellent books. I highly recommend Pity the Nation by Fisk.
Here are some common misconceptions. One I often see is that Israel has always been attacked first and has been the victim of aggression at least four times: 1947, 1956, 1967, and 1973. In fact, in 1956 Israel invaded Egypt in concert with the British and French attack on Egypt who were mad at Nasser for nationalizing the Suez Canal. In 1967, while Egypt had blockaded Eilat and the Red Sea, at no time did Egypt initiate military action against Israel. Israel undertook a pre-emptive strike and we know now that Egypt had never intended to attack or invade Israel. Although it is often claimed that the Egyptian attack in 1973 was aimed at destroying Israel, in fact, Nasser's aim was to retake the Sinai that had been conquered by Israel in 1967. A good military history is Elusive Victory by Trevor Dupuy.
During its recent attacks on Lebanon and in Gaza, Israel has been accused of using white phosphorus and anti-personnel bombs in civilian areas, both violations of international law. In fact, not only did Israel use those illegal munitions, it also did so in Lebanon in the early 1980's. Israel also employed at least one car bomb in Beirut. Robert Fisk personally observed all these things. During its occupation of Lebanon in the early 1980's, Israeli forces transported Lebanese militia and then watched as they slaughtered at least 1,000 mostly women, children and old men in two Palestinian refugee camps, Sabra and Chitala. Because they carted off the bodies and buried them in mass graves, the actual number will never be known. The Israeli Defense Minister was censured by an Israeli investigatory board for allowing this to happen. That official was Ariel Sharon (see Pity the Nation, passim, for these and other atrocities). Former Israeli Prime Minister Begin was the leader of Irgun, a terrorist group which blew up the King David Hotel in Jerusalem, killing 91 civilians in 1946. The Jews, in fact, were the first to employ terror tactics in Palestine (see Fisk's The War for Civilization, p. 373 for Begin's role with Irgun).
During it's most recent invasion of Lebanon, Israel used the kidnapping of one of its soldiers as the justification for its invasion and air attacks. According to Time magazine, the day after the kidnapping, the Israeli Air Force made over 1,000 sorties over Lebanon (a sortie is one flight by one plane. One plane can make several sorties per day). Knowing what I know about military history and military bureaucracy, it would be impossible to have 1,000 sorties in the first day unless it had been pre-planned. Thus, it seems almost certain that the kidnapping was used as a pretext for something that had already been planned. A recent column by Thomas Friedman of the New York Times claimed that the Israel attack/invasion of Lebanon was in response to Hezbollah rocket attacks, even though that was not the rationale at the time and over 99% of Hezbollah rockets were fired after Israel began its attacks. Much has been made of the rocket attacks from Hezbollah on Israel during this most recent Israeli attack on Lebanon. However, if each sortie on the first day dropped only one 500 pound bomb, the tonnage dropped in the first day of air raids equalled all the tonnage of Hezbollah rockets shot into Israel during the entire operation. Those rockets were terribly unreliable and as likely to land in the middle of nowhere as to strike anything of value. John Roberts of CNN gave a number of reports during this time from near an Israeli artillery battery. According to my calculations, one 155mm howitzer firing one shell every minute for 12 hours a day, would drop as much tonnage on Lebanon in 10 days as all the Hezbollah rockets combined. The fighting went on for more than 50 days. It does not seem unreasonable, therefore, to guess that Israel probably dropped/shot from 50 to 100 times the weight in munitions on Lebanon as Hezbollah fired into Israel.
Reports are now coming out about the recent Israel attack on Gaza. Israeli soldiers are now reporting that charges by Palestinians in Gaza about Israeli atrocities were accurate. These included the deliberate targeting and murder of civilians walking along the street and rules of engagement that allowed soldiers entering buildings to fire indiscriminately on occupants, i.e., civilians. A recent report also said that Army rabbis were telling troops things like Arabs were less than human, all people in Gaza were terrorists and that their invasion was sanctioned by God (see the L.A. Times March 20-25, 2009 for these various stories).
I go into all this because it is too often ignored in this country and too many people give Israel a free pass. I agree with what Robert Fisk wrote in, I think, Pity the Nation: "In the Middle East there is no right and wrong, there is only wrong." There is plenty of blame for everyone. Personally, I believe that Israel should be given a guarantee but its boundaries should be the same as the pre-1967 ones. Palestinians will have to give up the right of return but Israel will have to give up West Bank settlements, turn over the houses there to Palestinians and Palestinians should get a monetary compensation for giving up the right of return. What most people don't recognize is that, in military terms in the Middle East, Israel is a great power and the Arab states are secondary powers. To put my variation on Lord Acton's famous dictum, unchecked power almost inevitably leads to the abuse of power. Israel's military power has been largely unchecked for the last 30 years and its behavior reflects that.
I will be out of town for several days and not be able to post until next week. Depending on events, I plan to write on A New Middle East Policy for the U.S.
First, often ignored is the background to the establishment of Israel as a Jewish state. (I have used There Could Have Been Peace by Jon Kimche and The Arab-Israeli Dilemma by Fred Khouri for background) Prior to 1919 only a small percentage of those living in the area that is now Israel were Jewish. Most were Arabs whose families had lived there for hundreds of years. The Zionist movement diddn't begin until the late 1890's under Theodor Herzl. At the time what was then known as Palestine was part of the Ottoman Empire. Only in 1917 did the Zionist movement gain any traction with the proclamation of the Balfour Declaration, named after the British Foreign Minister. The Balfour Declaration promised the Jews a home in the area of Palestine. The Balfour Declaration was made because Britain was economically on her last legs and hoped to get financial support(loans) from rich Jews, especially in the United States, so that they could carry on with World War I. At the time Britain made this promise, it had already made a secret treaty with France (Sykes-Picot) to divide up the Ottoman Empire and was making promises of independence to the indiginous Arabs to get their support in fighting the Turks. When Britain made the Balfour Declaration it was about land and people under the legal jurisdiction of another country and without consultation or prior notification of those people actually living there. Had the Allied Powers not won World War I, the Balfour Declaration would have been meaningless. As it was, it was undercut by the Sykes- Picot Treaty and was in violation of Wilson's 14 Points. To say that Jews had a valid legal claim to the land, therefore, is very debatable. Following World War I, Palestine was a British mandate which meant it was a colony for all intents and purposes but, in theory, Britain was controlling it in order to prepare it for independence at some future date. Although Jewish in-migration picked up considerably after World War I, at no time did Jews comprise a majority of the population before the establishment of Israel. I think that Palestinians and Arabs make a good point when they say, "yes the Jews were persecuted and suffered horribly before and during World War II, but why reward them by taking our land without our permisssion? We had nothing to do with their mistreatment and nothing to do with the Holocaust." Too often people in this country, with their sympathy for Israel, ignore or are unaware of the suffering and injustice meted out on the Palestinians.
I will not go into the whole history, but I do recommend that you read a balanced account. Because of how this issue has been politicized in this country, I prefer reading material from British or European writers. I especially recommend anything by Robert Fisk, a British correspondent who has spent almost 30 years based in Lebanon and has covered the Middle East for a couple of different English papers and written two excellent books. I highly recommend Pity the Nation by Fisk.
Here are some common misconceptions. One I often see is that Israel has always been attacked first and has been the victim of aggression at least four times: 1947, 1956, 1967, and 1973. In fact, in 1956 Israel invaded Egypt in concert with the British and French attack on Egypt who were mad at Nasser for nationalizing the Suez Canal. In 1967, while Egypt had blockaded Eilat and the Red Sea, at no time did Egypt initiate military action against Israel. Israel undertook a pre-emptive strike and we know now that Egypt had never intended to attack or invade Israel. Although it is often claimed that the Egyptian attack in 1973 was aimed at destroying Israel, in fact, Nasser's aim was to retake the Sinai that had been conquered by Israel in 1967. A good military history is Elusive Victory by Trevor Dupuy.
During its recent attacks on Lebanon and in Gaza, Israel has been accused of using white phosphorus and anti-personnel bombs in civilian areas, both violations of international law. In fact, not only did Israel use those illegal munitions, it also did so in Lebanon in the early 1980's. Israel also employed at least one car bomb in Beirut. Robert Fisk personally observed all these things. During its occupation of Lebanon in the early 1980's, Israeli forces transported Lebanese militia and then watched as they slaughtered at least 1,000 mostly women, children and old men in two Palestinian refugee camps, Sabra and Chitala. Because they carted off the bodies and buried them in mass graves, the actual number will never be known. The Israeli Defense Minister was censured by an Israeli investigatory board for allowing this to happen. That official was Ariel Sharon (see Pity the Nation, passim, for these and other atrocities). Former Israeli Prime Minister Begin was the leader of Irgun, a terrorist group which blew up the King David Hotel in Jerusalem, killing 91 civilians in 1946. The Jews, in fact, were the first to employ terror tactics in Palestine (see Fisk's The War for Civilization, p. 373 for Begin's role with Irgun).
During it's most recent invasion of Lebanon, Israel used the kidnapping of one of its soldiers as the justification for its invasion and air attacks. According to Time magazine, the day after the kidnapping, the Israeli Air Force made over 1,000 sorties over Lebanon (a sortie is one flight by one plane. One plane can make several sorties per day). Knowing what I know about military history and military bureaucracy, it would be impossible to have 1,000 sorties in the first day unless it had been pre-planned. Thus, it seems almost certain that the kidnapping was used as a pretext for something that had already been planned. A recent column by Thomas Friedman of the New York Times claimed that the Israel attack/invasion of Lebanon was in response to Hezbollah rocket attacks, even though that was not the rationale at the time and over 99% of Hezbollah rockets were fired after Israel began its attacks. Much has been made of the rocket attacks from Hezbollah on Israel during this most recent Israeli attack on Lebanon. However, if each sortie on the first day dropped only one 500 pound bomb, the tonnage dropped in the first day of air raids equalled all the tonnage of Hezbollah rockets shot into Israel during the entire operation. Those rockets were terribly unreliable and as likely to land in the middle of nowhere as to strike anything of value. John Roberts of CNN gave a number of reports during this time from near an Israeli artillery battery. According to my calculations, one 155mm howitzer firing one shell every minute for 12 hours a day, would drop as much tonnage on Lebanon in 10 days as all the Hezbollah rockets combined. The fighting went on for more than 50 days. It does not seem unreasonable, therefore, to guess that Israel probably dropped/shot from 50 to 100 times the weight in munitions on Lebanon as Hezbollah fired into Israel.
Reports are now coming out about the recent Israel attack on Gaza. Israeli soldiers are now reporting that charges by Palestinians in Gaza about Israeli atrocities were accurate. These included the deliberate targeting and murder of civilians walking along the street and rules of engagement that allowed soldiers entering buildings to fire indiscriminately on occupants, i.e., civilians. A recent report also said that Army rabbis were telling troops things like Arabs were less than human, all people in Gaza were terrorists and that their invasion was sanctioned by God (see the L.A. Times March 20-25, 2009 for these various stories).
I go into all this because it is too often ignored in this country and too many people give Israel a free pass. I agree with what Robert Fisk wrote in, I think, Pity the Nation: "In the Middle East there is no right and wrong, there is only wrong." There is plenty of blame for everyone. Personally, I believe that Israel should be given a guarantee but its boundaries should be the same as the pre-1967 ones. Palestinians will have to give up the right of return but Israel will have to give up West Bank settlements, turn over the houses there to Palestinians and Palestinians should get a monetary compensation for giving up the right of return. What most people don't recognize is that, in military terms in the Middle East, Israel is a great power and the Arab states are secondary powers. To put my variation on Lord Acton's famous dictum, unchecked power almost inevitably leads to the abuse of power. Israel's military power has been largely unchecked for the last 30 years and its behavior reflects that.
I will be out of town for several days and not be able to post until next week. Depending on events, I plan to write on A New Middle East Policy for the U.S.
Class Warfare or Self Defense?
This post is partly in response to a request(I actually have at least one reader) and partly because in reviewing my previous posts on the economy I felt they were too dispassionate, not forceful enough and did not reflect my views strongly enough. One of the things I have noted in the past15 years or so is how much conservatives have captured and manipulated the debate about the economy. Here is one good example. Conservatives will enact policies that benefit the wealthy at the expense of the rest of us and if someone complains about those policies, then the complainer is guilty of "class warfare." While viewing CNN's coverage of the election results I enjoyed a comment made by David Gergen. For those who don't know, Gergen was originally a reporter (I believe with U.S. News and World Report) and then worked in the Reagan, senior Bush, and Clinton administrations. I have never heard him described as a liberal. When someone during a discussion election night (I think it was a Republican consultant) raised the issue of class warfare and linked it to Obama, Gergen said the following (and this is almost an exact quote) "Class War? That war is over and the rich won."
Here are some basic facts which I have cited before. From the start of the Reagan administration until 2009, the richest 1% in the U.S. had its share of the wealth of the economy increase from 8% to 20%. The United States now has the greatest inequality of wealth of any industrialized country. Our wealth inequality is the greatest in U.S. history since 1929 before the Depression. The tax rate for the richest Americans is the lowest it has been since Roosevelt raised the rates in the 30's. Twenty-five years ago the average CEO made 40 times the wages of the average worker. The average CEO now makes between 360 to 380 times that of the average worker (I have seen both figures). When adjusted for inflation, the average worker makes around 11% less than he or she did in 1973. Since Reagan took office we have seen a massive shift in wealth from the middle class to the super rich and it accelerated under Bush 43. When Reagan took office the U.S. was the world's largest creditor nation. We are now the world's largest debtor nation. These facts are widely available--see works by Phillips and Johnson cited before. It should be obvious that conservative economic policies are impoverishing our country. Add to the above so-called free trade, which is anything but. When we engage in so-called free trade with countries like China we are promoting worker exploitation and environmental degradation so that large multi-nationals can replace U.S. workers with cheap labor in order to maximize profits. In the future I'll go into "free trade" in greater depth.
It is time to fight back and reverse these destructive and disastrous policies and return to the policies of the past that worked so well for us before (returning to the past, does this make me a conservative?). This is not class warfare, this is self-defense. In addition to regulating derivatives and credit default swaps, we need to regulate commodity futures. Do we really need a futures market in gasoline? The market worked well without it and its rise has led to much more extreme and rapid fluctuations in the price of gasoline than in the past. In addition to removing tax benefits for moving jobs off shore, our tax system should be reformulated to benefit medium and small business, not large corporations. Emphasis should be on companies that produce products or create new products instead of financial manipulation. There should be steep tax rates on money made through non-productive means (financial manipulation) and lesser rates on money made by productive means. We should selectively use tariffs and tax policies to promote manufacturing in the U.S. Universal healthcare should be enacted and funded by tax surcharges heavily tilted toward the rich, removing the burden from employer financing that we have now (health care costs add up to more per each auto produced by GM than the cost of the steel to make the car). Alternative energy should be pushed so that we significantly reduce the transfer of wealth from the U.S. to foreign countries and we can use new developments in modern energy to become a profit point for this country. As Kevin Phillips has pointed out in several of his books, the shift in energy production from wind to coal and steam meant a shift in power from the Netherlands to Britain. Similarly, a shift in energy from coal/steam to oil led to a shift in world power from Britain to the U.S. We need to shift to new forms of energy and become a world leader in these forms if we want to maintain our economic power and standing in the world. The U.S. government needs to take the lead in promoting these policies and providing seed money for R&D through government grants because the free market focuses on short term gains and not long term strategic development. Also, the free market does not reflect social costs, especially long term social costs. We need a whole new paradigm and a radical shift from the conservative policies that guided us from 1981 to 2008. We need to restore political power from the rich to the rest of us. This can only be done with public financing of political campaigns. Also, as a price of using the airwaves, broadcasters should be required to provide a certain amount of free time for candidates running for office. Unless we remove the pernicious effects of campaign money, mostly from large contributors, the rich will continue to control a lot of elections and legislators. Finally, unless and until we can shift our economy from a financial economy favoring a narrow group of the rich and super rich to a productive economy favoring the mass of the people, we will continue to struggle economically. I think that at least in the short term we will probably have to face a reduction in living standards because so much of our recent wealth was based on a bubble financed by debt and speculation.
Here are some basic facts which I have cited before. From the start of the Reagan administration until 2009, the richest 1% in the U.S. had its share of the wealth of the economy increase from 8% to 20%. The United States now has the greatest inequality of wealth of any industrialized country. Our wealth inequality is the greatest in U.S. history since 1929 before the Depression. The tax rate for the richest Americans is the lowest it has been since Roosevelt raised the rates in the 30's. Twenty-five years ago the average CEO made 40 times the wages of the average worker. The average CEO now makes between 360 to 380 times that of the average worker (I have seen both figures). When adjusted for inflation, the average worker makes around 11% less than he or she did in 1973. Since Reagan took office we have seen a massive shift in wealth from the middle class to the super rich and it accelerated under Bush 43. When Reagan took office the U.S. was the world's largest creditor nation. We are now the world's largest debtor nation. These facts are widely available--see works by Phillips and Johnson cited before. It should be obvious that conservative economic policies are impoverishing our country. Add to the above so-called free trade, which is anything but. When we engage in so-called free trade with countries like China we are promoting worker exploitation and environmental degradation so that large multi-nationals can replace U.S. workers with cheap labor in order to maximize profits. In the future I'll go into "free trade" in greater depth.
It is time to fight back and reverse these destructive and disastrous policies and return to the policies of the past that worked so well for us before (returning to the past, does this make me a conservative?). This is not class warfare, this is self-defense. In addition to regulating derivatives and credit default swaps, we need to regulate commodity futures. Do we really need a futures market in gasoline? The market worked well without it and its rise has led to much more extreme and rapid fluctuations in the price of gasoline than in the past. In addition to removing tax benefits for moving jobs off shore, our tax system should be reformulated to benefit medium and small business, not large corporations. Emphasis should be on companies that produce products or create new products instead of financial manipulation. There should be steep tax rates on money made through non-productive means (financial manipulation) and lesser rates on money made by productive means. We should selectively use tariffs and tax policies to promote manufacturing in the U.S. Universal healthcare should be enacted and funded by tax surcharges heavily tilted toward the rich, removing the burden from employer financing that we have now (health care costs add up to more per each auto produced by GM than the cost of the steel to make the car). Alternative energy should be pushed so that we significantly reduce the transfer of wealth from the U.S. to foreign countries and we can use new developments in modern energy to become a profit point for this country. As Kevin Phillips has pointed out in several of his books, the shift in energy production from wind to coal and steam meant a shift in power from the Netherlands to Britain. Similarly, a shift in energy from coal/steam to oil led to a shift in world power from Britain to the U.S. We need to shift to new forms of energy and become a world leader in these forms if we want to maintain our economic power and standing in the world. The U.S. government needs to take the lead in promoting these policies and providing seed money for R&D through government grants because the free market focuses on short term gains and not long term strategic development. Also, the free market does not reflect social costs, especially long term social costs. We need a whole new paradigm and a radical shift from the conservative policies that guided us from 1981 to 2008. We need to restore political power from the rich to the rest of us. This can only be done with public financing of political campaigns. Also, as a price of using the airwaves, broadcasters should be required to provide a certain amount of free time for candidates running for office. Unless we remove the pernicious effects of campaign money, mostly from large contributors, the rich will continue to control a lot of elections and legislators. Finally, unless and until we can shift our economy from a financial economy favoring a narrow group of the rich and super rich to a productive economy favoring the mass of the people, we will continue to struggle economically. I think that at least in the short term we will probably have to face a reduction in living standards because so much of our recent wealth was based on a bubble financed by debt and speculation.
Obama and Education Myths
President Obama recently said (LA Times, 3/11/09) "It's time to start rewarding good teachers, stop making excuses for bad ones. From the moment students enter a school, the most important factor in their success is not the color of their skin or the income of their parents, it's the person standing at the front of the classroom." Obama then went on to call for merit pay for teachers. This seems to be an all too common perception--that the problem with schools today is bad teachers and teacher unions.
Obama and similar critics are, how shall I say it, just plain wrong. Numerous studies have shown that the most important predictor of student success is the socio-economic status of the student's parents. Chapter 5 of the book Freakonomics by Levitt and Dubner has an interesting discussion of the different important components and why and how they matter. Over a 6 year period I was a substitute teacher in approximately 105 (almost all elementary) different schools in San Diego County. I know from personal experience that this is true. One of the first things I discovered is that it is not good schools that make for good students, it is good students make for a good school. In a so-called "good school" I was a much better teacher even though I was the same teacher that I had been the day before in a "bad school." In a good school teaching is easy and fun; in a bad school it's like having teeth pulled without an anesthetic. In a good school you can concentrate on teaching; in a bad school you have to spend an inordinate amount of time establishing and keeping order in the classroom.
Having been to so many schools and probably 300-400 different classrooms and seeing and talking with other teachers at these schools, I can tell you that the problem is NOT that there is this large percentage of incompetent, or even substandard teachers. While I did see some less than stellar teachers, I would estimate that they made up less than 5% of the teachers. Almost all teachers are dedicated, hard-working, and competent. However, that is not true of principals. I saw a lot of poor or worse principals and one really bad administration (San Diego Unified). This is a much bigger problem than poor teaching.
There is a big problem with merit pay. How do you measure merit in teachers when there are so many variables in student success? In addition to the socio-economic status of the families and attendance areas, there are other things which non-teachers just aren't aware of. For example, even within the same school you can have substantial variation between different grade levels. At the school where I was a student teacher, I taught a second grade class and then a fourth grade class. Both these classes were exceptional and so were the other classes at those grade levels. I charted the test scores for this school for the next several years. The next year the scores for the third grade and fifth grades were higher than the year before and the second and fourth grade scores were lower. The year after, the fourth grade scores were back higher again (the original second grade), the fifth grade scores went back down again, and the second and third grade scores were about the same. The original fourth grade class was now in middle schoo. The third year the fifth grade scores (original second grade) went up significantly again. During this time there was little change in staff nor had the school's attendance area changed. And yet, going by the scores, teachers did really well one year, not very good the next year and, in the case of the fourth grade, really good the year after. Why does this happen? I don't know, but it does because I have seen it in other schools where some grades are better than others. How do you account for something like this in assigning merit pay?
Additionally, sometimes there is wide variation in the same school and the same grade levels. I had the misfortune on several occasions to end up in classes that had an inordinate number of unruly students, when compared to the rest of the school or even the rest of the grade level. You know you are in for trouble when other teachers, upon hearing that you are subbing for Mrs. so and so express sympathy, give you somber warnings, and/or offer to help. Sometimes this is just the luck of the draw; once I think it was because the teacher I was subbing for had previously taught special education and the school must have thought she was best equipped to deal with problem students. Again, how to you measure merit when you have this kind of disparity?
I won't take the time and space to go into what changes need to be made (that's for a book I have started), but I can tell you that merit pay, charter schools, getting rid of teacher unions and some of the other proposed bromides are not the answer. It is not an easy fix, it is a systemic problem that will probably take one or two decades before significant progress can be made.
Obama and similar critics are, how shall I say it, just plain wrong. Numerous studies have shown that the most important predictor of student success is the socio-economic status of the student's parents. Chapter 5 of the book Freakonomics by Levitt and Dubner has an interesting discussion of the different important components and why and how they matter. Over a 6 year period I was a substitute teacher in approximately 105 (almost all elementary) different schools in San Diego County. I know from personal experience that this is true. One of the first things I discovered is that it is not good schools that make for good students, it is good students make for a good school. In a so-called "good school" I was a much better teacher even though I was the same teacher that I had been the day before in a "bad school." In a good school teaching is easy and fun; in a bad school it's like having teeth pulled without an anesthetic. In a good school you can concentrate on teaching; in a bad school you have to spend an inordinate amount of time establishing and keeping order in the classroom.
Having been to so many schools and probably 300-400 different classrooms and seeing and talking with other teachers at these schools, I can tell you that the problem is NOT that there is this large percentage of incompetent, or even substandard teachers. While I did see some less than stellar teachers, I would estimate that they made up less than 5% of the teachers. Almost all teachers are dedicated, hard-working, and competent. However, that is not true of principals. I saw a lot of poor or worse principals and one really bad administration (San Diego Unified). This is a much bigger problem than poor teaching.
There is a big problem with merit pay. How do you measure merit in teachers when there are so many variables in student success? In addition to the socio-economic status of the families and attendance areas, there are other things which non-teachers just aren't aware of. For example, even within the same school you can have substantial variation between different grade levels. At the school where I was a student teacher, I taught a second grade class and then a fourth grade class. Both these classes were exceptional and so were the other classes at those grade levels. I charted the test scores for this school for the next several years. The next year the scores for the third grade and fifth grades were higher than the year before and the second and fourth grade scores were lower. The year after, the fourth grade scores were back higher again (the original second grade), the fifth grade scores went back down again, and the second and third grade scores were about the same. The original fourth grade class was now in middle schoo. The third year the fifth grade scores (original second grade) went up significantly again. During this time there was little change in staff nor had the school's attendance area changed. And yet, going by the scores, teachers did really well one year, not very good the next year and, in the case of the fourth grade, really good the year after. Why does this happen? I don't know, but it does because I have seen it in other schools where some grades are better than others. How do you account for something like this in assigning merit pay?
Additionally, sometimes there is wide variation in the same school and the same grade levels. I had the misfortune on several occasions to end up in classes that had an inordinate number of unruly students, when compared to the rest of the school or even the rest of the grade level. You know you are in for trouble when other teachers, upon hearing that you are subbing for Mrs. so and so express sympathy, give you somber warnings, and/or offer to help. Sometimes this is just the luck of the draw; once I think it was because the teacher I was subbing for had previously taught special education and the school must have thought she was best equipped to deal with problem students. Again, how to you measure merit when you have this kind of disparity?
I won't take the time and space to go into what changes need to be made (that's for a book I have started), but I can tell you that merit pay, charter schools, getting rid of teacher unions and some of the other proposed bromides are not the answer. It is not an easy fix, it is a systemic problem that will probably take one or two decades before significant progress can be made.
Thursday, March 19, 2009
The Economy--Last Part For Now
Events continue to unfold since my last post. The latest AIG revelations and the response by some show just how out of touch some people are. The LA Times had an article about five days ago about wall streeters whining about government meddling, how they are being unfairly maligned, etc., etc. And the latest AIG bonus revelations are like the bully who takes advantage of you and then has to rub it in your face and taunt you. My biggest criticism of Obama is that his main economic advisors, Treasury Secretary Geithner and chief advisor Larry Summers are part of the old boy network who got us into this mess in the first place. Summers, in particular, was one of those in the Clinton Administration pushing for deregulation, which is one reason Clinton signed the deregulation bills sponsored by Phil Gramm. Geithner and Summers seem more concerned about not upsetting Wall Street than undertaking the real, structural reform that is necesary.
One of the things which may save the country is that the greed, corruption and excesses of these captains of finance and their defenders are just so blatant and outrageous that it is forcing the politicians to take more progressive positions so as to not fall too far behind the growing populist anger that is, rightly, rising in this country. Comedian Rush Limbaugh, I heard, actually defended the AIG bonuses the other day. If you haven't even seen the movie A Face in the Crowd, starring Andy Griffith, I recommend it highly, especially as it is so relevant for our times. It shows how a demagogue ends up destroying himself by overreaching. I think you are seeing that very same thing again. The right wing is destroying any shred of creditibility which it retained, doing it much better and more completely than anything the left could do.
Hopefully, events will force the administration to take up where the two Roosevelts left off. Teddy railed against the "malefactors of great wealth" (one of my favorite terms) while FDR attacked the "economic royalists"who destroyed the economy in the 30's. This is just one example why those who attack Obama for being a socialist are so off the mark. He's not even as progressive as FDR; he is basically a status quo supporter of the economy who is being pushed farther to the left than he really wants to go.
I had originally intended to use this part of this post to just say that my previous posts are merely a basic introduction to help those who don't understand what happened or why. Nor did I get into a whole lot of areas that could and should be covered in depth, such as remedies. Nor do I pretend to have all or even most of the answers. I am sure that in the future there will be hundreds of books written about this economic crisis and some academnic will probably someday write a multi-volume history/analysis of this time. However, I do hope that this previous explanation and what is to follow is helpful to someone.
(Mostly Conservative) Myths About the Economic Crisis
I have seen and/or heard a number of false statements about our present situation and want to address them as follows.
1. This was all started because the Community Reinvestment Act forced banks to make risky loans. The Community Reinvestment Act(CRA) was first passed in 1977 to combat redlining, which is discrimination in the awarding of loans for purchasing homes. The Act was amended in 1995. Here are some things you should know. The act appllies only to federally chartered banks or S&L's, not state chartered institutions or mortgage brokers. Thus, only 25% of the subprime loans were even made by banks that were subject to the CRA (Wikipedia). Also, 50% of subprime loans were refinances, not new mortgages (PBS Frontline). If the CRA were the culprit, why did it take 12 years after the amendment of the act in 1995 before problems started showing up? A Republican Florida congressman raised this above charge in an oversight committee meeting and asked the committee's witnesses if this was true. The witnesses, Alan Greenspan, Ben Bernancke (former Fed Charman and current Fed chairman) and Christopher Cox, chair of the SEC all said no, the CRA was not responsible. The act itself says that loans should be made in a safe and sound manner. Next, what is the punishment for banks that violate the CRA? If they want to merge, acquire another bank, or wish to expand such that Federal approval is required, then regulators may take into consideration their CRA related activities. It doesn't say that violation of the CRA will stop banks from undertaking these activies (merging, etc.), only that it will be taken into account when regulators review the bank's request. And if you have a right wing, no regulation administration, then the act is toothless. Finally, here is some instructive and revealing information about Washington Mutual, the largest bank to fail in U.S. history. A New York Times syndicated article, printed in the Riverside Press-Enterprise on December 28, 2008, reports on accounts from former employees who are witnesses in a class action suit being brought against Washington Mutual. In one egregious example, a mariachi singer claimed a six figure income with no documentation, so the loan processor had a picture of the guy taken in his mariachi outfit and that was enough for the guy to get his loan approved. To quote from the article, "WaMu pressed sales agents to pump out loans while disregarding borrowers' incomes and assets". . . to " set up what insiders described as a system of dubious legality that enabled real estate agtents to collect fees of more than $10,000 for bringing in borrowers. . . WaMu gave mortgage brokers handsome commissions for selling the riskiest loans, which carried higher fees, bolstering profits and ultimately the compensation of the bank's executifves." (emphasis added)This is the real reason for the problem of bad loans, not CRA.
2. People who got these loans they couldn't afford are the problem and are responsible for their predicament so we shouldn't do anything to help the people who are facing foreclosure. While this may be true in part and can give one a good feeling, it is a bit of cutting off one's nose to spite your face. First, a lot of people who got these loans, it should be obvious now, were encouraged and probably even misled by those providing the loans. Second, a lot of people who got subprime loans (which would reset to higher loan rates than regular loans) qualified for regular loans but were steered into subprime loans because that meant higher profits for the loan processors. I can't find the article with the figure for what percent of subprime loans fell into that category, but Thom Hartman on his radio show March 18, 2009 said that 60% of subprime loans could have qualified as non-subprime loans. Next, I heard a good analogy about why it is a good idea to help those in foreclosure. Imagine you have a neighbor who starts a fire in his house next door because of his own negligence--wouldn't it be justice to not call the fire department and let the house burn down? However, what if you don't call the fire department and the fire jumps over to your house and causes it to burn? Widespread foreclosures lead to a decline in the value of everyone's property, increased unemployment and a rise in crime. If nothing is done we can get into a downward deflationary spiral, which has come close to happening now. Finally, because of the foreclosures and economic crisis more and more people are facing foreclosure not because they got an unaffordable loan but because they lost their jobs through no fault of their own.
3. What we need to do is reduce taxes, especially on business, balance the budget, get rid of regulations and let the business cycle take care of itself. A corollary to this is FDR's New Deal didn't solve the Great Depression and even lengthened it. I wish people would read more history. President Hoover from October, 1929, pretty much followed the above prescription(except he raised individual taxes in order to balance the budget) for the remainder of his term and the nation's gross domestic product(GDP) precipitously declined as a result. After FDR took over in 1933, the GDP rose steadily and after about two years was above pre-Depression levels. It levelled out only in 1937 when FDR thought we were doing well enough and he had a balanced budget for that year. Once he returned to deficit spending in 1938 the GDP started climbing again (courtesy of a graph on the Rachel Maddow Show). Because the government didn't collect stastics then like we do now, we have only estimates. Best estimates are that at its worst in 1932-1933 the unemployment rate was between 25% and 30%. Under FDR the rate retreated down to between 12 to 15% at the start of World War II. Most economists now agree that the problem with the New Deal was that it wasn't big enough.
4. The government doesn't create jobs, it only takes money from one place to another, stifling jobs in the private sector and shifting the money to jobs in the public sector. This is a favorite of conservatives and is one of the erronious claims made by Michael Medved in his book 10 Lies About America. The Federal government can do something no other entity can do (legally anyway): and that is print money. By creating money and spending it (deficit spending) without first collecting it, the government can stimulate the economy and create wealth. Thus, a public sector job can be created without affecting the private sector, excpet positively. When you have a deflationary spiral and/or credit freeze only the Federal government has the means to restore markets; this has been shown time and time again. Of course, this is inflationary and can cause problems if pursued during periods of high economic activity. When we are facing deflation, however, inflationary practices are the sine qua non of an economic recovery. Finally, this assertion overlooks that fact that diverting money from one sector of the economy to another may be beneficial. The government does this all the time with its tax policies in order to encourage certain economic activities over others. This is not to say that all tax policies are good ones, but rather that not all economic activity is beneficial and the free market does not insure that money accumulated and then spent is always done in either the most efficient or beneficial way. Is a billionaire using his money to put solid gold faucets in his mansion a better use of money than if the government taxed it and used to to put more teachers in schools or cops on the beat? I don't think so. Also, there is the whole issue of the multiplier effect which I won't get into now.
One of the things which may save the country is that the greed, corruption and excesses of these captains of finance and their defenders are just so blatant and outrageous that it is forcing the politicians to take more progressive positions so as to not fall too far behind the growing populist anger that is, rightly, rising in this country. Comedian Rush Limbaugh, I heard, actually defended the AIG bonuses the other day. If you haven't even seen the movie A Face in the Crowd, starring Andy Griffith, I recommend it highly, especially as it is so relevant for our times. It shows how a demagogue ends up destroying himself by overreaching. I think you are seeing that very same thing again. The right wing is destroying any shred of creditibility which it retained, doing it much better and more completely than anything the left could do.
Hopefully, events will force the administration to take up where the two Roosevelts left off. Teddy railed against the "malefactors of great wealth" (one of my favorite terms) while FDR attacked the "economic royalists"who destroyed the economy in the 30's. This is just one example why those who attack Obama for being a socialist are so off the mark. He's not even as progressive as FDR; he is basically a status quo supporter of the economy who is being pushed farther to the left than he really wants to go.
I had originally intended to use this part of this post to just say that my previous posts are merely a basic introduction to help those who don't understand what happened or why. Nor did I get into a whole lot of areas that could and should be covered in depth, such as remedies. Nor do I pretend to have all or even most of the answers. I am sure that in the future there will be hundreds of books written about this economic crisis and some academnic will probably someday write a multi-volume history/analysis of this time. However, I do hope that this previous explanation and what is to follow is helpful to someone.
(Mostly Conservative) Myths About the Economic Crisis
I have seen and/or heard a number of false statements about our present situation and want to address them as follows.
1. This was all started because the Community Reinvestment Act forced banks to make risky loans. The Community Reinvestment Act(CRA) was first passed in 1977 to combat redlining, which is discrimination in the awarding of loans for purchasing homes. The Act was amended in 1995. Here are some things you should know. The act appllies only to federally chartered banks or S&L's, not state chartered institutions or mortgage brokers. Thus, only 25% of the subprime loans were even made by banks that were subject to the CRA (Wikipedia). Also, 50% of subprime loans were refinances, not new mortgages (PBS Frontline). If the CRA were the culprit, why did it take 12 years after the amendment of the act in 1995 before problems started showing up? A Republican Florida congressman raised this above charge in an oversight committee meeting and asked the committee's witnesses if this was true. The witnesses, Alan Greenspan, Ben Bernancke (former Fed Charman and current Fed chairman) and Christopher Cox, chair of the SEC all said no, the CRA was not responsible. The act itself says that loans should be made in a safe and sound manner. Next, what is the punishment for banks that violate the CRA? If they want to merge, acquire another bank, or wish to expand such that Federal approval is required, then regulators may take into consideration their CRA related activities. It doesn't say that violation of the CRA will stop banks from undertaking these activies (merging, etc.), only that it will be taken into account when regulators review the bank's request. And if you have a right wing, no regulation administration, then the act is toothless. Finally, here is some instructive and revealing information about Washington Mutual, the largest bank to fail in U.S. history. A New York Times syndicated article, printed in the Riverside Press-Enterprise on December 28, 2008, reports on accounts from former employees who are witnesses in a class action suit being brought against Washington Mutual. In one egregious example, a mariachi singer claimed a six figure income with no documentation, so the loan processor had a picture of the guy taken in his mariachi outfit and that was enough for the guy to get his loan approved. To quote from the article, "WaMu pressed sales agents to pump out loans while disregarding borrowers' incomes and assets". . . to " set up what insiders described as a system of dubious legality that enabled real estate agtents to collect fees of more than $10,000 for bringing in borrowers. . . WaMu gave mortgage brokers handsome commissions for selling the riskiest loans, which carried higher fees, bolstering profits and ultimately the compensation of the bank's executifves." (emphasis added)This is the real reason for the problem of bad loans, not CRA.
2. People who got these loans they couldn't afford are the problem and are responsible for their predicament so we shouldn't do anything to help the people who are facing foreclosure. While this may be true in part and can give one a good feeling, it is a bit of cutting off one's nose to spite your face. First, a lot of people who got these loans, it should be obvious now, were encouraged and probably even misled by those providing the loans. Second, a lot of people who got subprime loans (which would reset to higher loan rates than regular loans) qualified for regular loans but were steered into subprime loans because that meant higher profits for the loan processors. I can't find the article with the figure for what percent of subprime loans fell into that category, but Thom Hartman on his radio show March 18, 2009 said that 60% of subprime loans could have qualified as non-subprime loans. Next, I heard a good analogy about why it is a good idea to help those in foreclosure. Imagine you have a neighbor who starts a fire in his house next door because of his own negligence--wouldn't it be justice to not call the fire department and let the house burn down? However, what if you don't call the fire department and the fire jumps over to your house and causes it to burn? Widespread foreclosures lead to a decline in the value of everyone's property, increased unemployment and a rise in crime. If nothing is done we can get into a downward deflationary spiral, which has come close to happening now. Finally, because of the foreclosures and economic crisis more and more people are facing foreclosure not because they got an unaffordable loan but because they lost their jobs through no fault of their own.
3. What we need to do is reduce taxes, especially on business, balance the budget, get rid of regulations and let the business cycle take care of itself. A corollary to this is FDR's New Deal didn't solve the Great Depression and even lengthened it. I wish people would read more history. President Hoover from October, 1929, pretty much followed the above prescription(except he raised individual taxes in order to balance the budget) for the remainder of his term and the nation's gross domestic product(GDP) precipitously declined as a result. After FDR took over in 1933, the GDP rose steadily and after about two years was above pre-Depression levels. It levelled out only in 1937 when FDR thought we were doing well enough and he had a balanced budget for that year. Once he returned to deficit spending in 1938 the GDP started climbing again (courtesy of a graph on the Rachel Maddow Show). Because the government didn't collect stastics then like we do now, we have only estimates. Best estimates are that at its worst in 1932-1933 the unemployment rate was between 25% and 30%. Under FDR the rate retreated down to between 12 to 15% at the start of World War II. Most economists now agree that the problem with the New Deal was that it wasn't big enough.
4. The government doesn't create jobs, it only takes money from one place to another, stifling jobs in the private sector and shifting the money to jobs in the public sector. This is a favorite of conservatives and is one of the erronious claims made by Michael Medved in his book 10 Lies About America. The Federal government can do something no other entity can do (legally anyway): and that is print money. By creating money and spending it (deficit spending) without first collecting it, the government can stimulate the economy and create wealth. Thus, a public sector job can be created without affecting the private sector, excpet positively. When you have a deflationary spiral and/or credit freeze only the Federal government has the means to restore markets; this has been shown time and time again. Of course, this is inflationary and can cause problems if pursued during periods of high economic activity. When we are facing deflation, however, inflationary practices are the sine qua non of an economic recovery. Finally, this assertion overlooks that fact that diverting money from one sector of the economy to another may be beneficial. The government does this all the time with its tax policies in order to encourage certain economic activities over others. This is not to say that all tax policies are good ones, but rather that not all economic activity is beneficial and the free market does not insure that money accumulated and then spent is always done in either the most efficient or beneficial way. Is a billionaire using his money to put solid gold faucets in his mansion a better use of money than if the government taxed it and used to to put more teachers in schools or cops on the beat? I don't think so. Also, there is the whole issue of the multiplier effect which I won't get into now.
Thursday, March 12, 2009
It's the Economy, Stupid, Part IV
WHAT DO WE DO NOW?
I was recently reading an on-line forum following the latest news from AIG wherein they demanded more TARP (bail-out) funds because of dire consequences which they predicted would occur should they not get the money. A comm0n, even overwhelming reaction was "let them fail," and most people saying we should let them all go down the tubes. While this would lead to some emotional satisfaction, it would be devastating for the economy. This is like blowing up your house to get rid of a cockroach infestation (which, by the way doesn't work, the roaches usually manage to survive). I agree the TARP has been a bad deal in many ways, especially poorly administered by Paulsen; we'll see how Obama and Geithner do, the jury is still out. The unpleasant fact is that we can't allow these big corporations to go under because if they do they will drag the rest of us with them (this includes General Motors). Even with TARP, massive infusions by the Federal Reserve, and the stimulus bill, we see the unemployment rate steadily rising, the number of bank failures increasing and almost every other economic indicator going downward. Even if the stimulus plan works as hoped, I think it's likely that it will take until 2010 before we see the beginning of a turn around. I don't think most people recognize just how serious the problem is. When you study the Great Depression which began in October, 1929 and compare it to the problems we are having now, it looks to me like the originating causes of the economic crash in 2008 are more serious in scope than those in 1929. Remember, in 1929 there was no unemployment insurance, no FDIC, and the Hoover administration did practically nothing until FDR took over in March, 1933. Hoover believed in cutting business taxes and balancing the budget. If we had those same conditions now, I think that this crisis would be as bad or maybe even worse than the Great Depression.
I agree with Nobel Prize winning economist Paul Krugman that the stimulus bill is too small. We need to do more. When you consider how much money has been sucked out of the economy (see my previous post) and how much more may be lost, even $1 trillion is grossly inadequate. As Obama seems to be trying to do with his new budget, we need to redress the balance between rich and poor so that the lower and middle classes have more to spend because 70% of our economy depends on consumer spending. Giving tax breaks to businesses is meaningless if they aren't making a profit. Likewise, no one will invest in new equipment or inventory unless there is demand.
We need to consider new ideas, too. Since TARP hasn't yet done much toward improving credit, one economist has suggested using the remaining $350 billion in TARP funds and chartering a government bank. With $350 billion, the new bank could lend up to $3.5 trillion. A conservative columnist I read suggested using the stimulus money in the form of vouchers to be given to every taxpayer which could be redeemed for major purchases such as cars or appliances. I would suggest modifying this so that those at the lower end of the scale got more and those earning above $100,000 a year got little. If, for example, money were to be given out to 100 million families, you could give an average of $10,000 per family for $1 trillion and it would have to be spent on major products for the voucher to be any good. Those earning less than $50,000 per year (the median among taxpayers) would get more than $10,000 and those earning more than $50,000 would get less than $10,000. And, there needs to be even more spent on infrastructure. The national organization for civil engineers has estimated that the US has a blacklog of approximately $2 trillion in repairs/replacement needed for roads, bridges, sewers, water plants, and other public facilities. Because of the size of this need, perhaps the US should use some of the methods employed by local governments. Sell construction bonds, with the money doled out to the states with strict requirements so that it would go for only needed repairs. Like local redevelopment agencies, create a dedicated funding source for paying off these bonds so that it doesn't adversely impact the budget deficit. An income tax surcharge on the super-rich and a raise in the capital gains tax rate are two possible sources for this dedicated fund. Another possible source, put a transaction fee/tax on sold shares of stock. Anytime a share of stock is sold, 1 or 2% of the proceeds would go to the Federal government. This could have the additional benefit of reducing both short selling and panic selling.
Finally, regulation should be reimposed on the financial markets and the Sherman and Clayton Anti-Trust Acts should be vigorously enforced, even strengthened. George Santayana famously said that those who fail to learn from history are bound to repeat it. I have seen this statement: one thing we learn from history is that people don't learn from history. There seems to have been this common belief that government regulation was the product of left wingers who imposed it as a matter of ideology. Government regulations, if you bother to learn any history, were a response to past abuses. Remove those regulations and the abuses will reappear. This is clearly borne out by the history of this current economic crisis. For anyone over 40, remember when a bank and its branches could only exist in one state? Remember when only savings and loans made home loans and banks made commercial loans? And banking was all that banks did and bankers were conservative and careful with our money? Then, if a bank did fail, the damage was limited. We need to return to those times.
I was recently reading an on-line forum following the latest news from AIG wherein they demanded more TARP (bail-out) funds because of dire consequences which they predicted would occur should they not get the money. A comm0n, even overwhelming reaction was "let them fail," and most people saying we should let them all go down the tubes. While this would lead to some emotional satisfaction, it would be devastating for the economy. This is like blowing up your house to get rid of a cockroach infestation (which, by the way doesn't work, the roaches usually manage to survive). I agree the TARP has been a bad deal in many ways, especially poorly administered by Paulsen; we'll see how Obama and Geithner do, the jury is still out. The unpleasant fact is that we can't allow these big corporations to go under because if they do they will drag the rest of us with them (this includes General Motors). Even with TARP, massive infusions by the Federal Reserve, and the stimulus bill, we see the unemployment rate steadily rising, the number of bank failures increasing and almost every other economic indicator going downward. Even if the stimulus plan works as hoped, I think it's likely that it will take until 2010 before we see the beginning of a turn around. I don't think most people recognize just how serious the problem is. When you study the Great Depression which began in October, 1929 and compare it to the problems we are having now, it looks to me like the originating causes of the economic crash in 2008 are more serious in scope than those in 1929. Remember, in 1929 there was no unemployment insurance, no FDIC, and the Hoover administration did practically nothing until FDR took over in March, 1933. Hoover believed in cutting business taxes and balancing the budget. If we had those same conditions now, I think that this crisis would be as bad or maybe even worse than the Great Depression.
I agree with Nobel Prize winning economist Paul Krugman that the stimulus bill is too small. We need to do more. When you consider how much money has been sucked out of the economy (see my previous post) and how much more may be lost, even $1 trillion is grossly inadequate. As Obama seems to be trying to do with his new budget, we need to redress the balance between rich and poor so that the lower and middle classes have more to spend because 70% of our economy depends on consumer spending. Giving tax breaks to businesses is meaningless if they aren't making a profit. Likewise, no one will invest in new equipment or inventory unless there is demand.
We need to consider new ideas, too. Since TARP hasn't yet done much toward improving credit, one economist has suggested using the remaining $350 billion in TARP funds and chartering a government bank. With $350 billion, the new bank could lend up to $3.5 trillion. A conservative columnist I read suggested using the stimulus money in the form of vouchers to be given to every taxpayer which could be redeemed for major purchases such as cars or appliances. I would suggest modifying this so that those at the lower end of the scale got more and those earning above $100,000 a year got little. If, for example, money were to be given out to 100 million families, you could give an average of $10,000 per family for $1 trillion and it would have to be spent on major products for the voucher to be any good. Those earning less than $50,000 per year (the median among taxpayers) would get more than $10,000 and those earning more than $50,000 would get less than $10,000. And, there needs to be even more spent on infrastructure. The national organization for civil engineers has estimated that the US has a blacklog of approximately $2 trillion in repairs/replacement needed for roads, bridges, sewers, water plants, and other public facilities. Because of the size of this need, perhaps the US should use some of the methods employed by local governments. Sell construction bonds, with the money doled out to the states with strict requirements so that it would go for only needed repairs. Like local redevelopment agencies, create a dedicated funding source for paying off these bonds so that it doesn't adversely impact the budget deficit. An income tax surcharge on the super-rich and a raise in the capital gains tax rate are two possible sources for this dedicated fund. Another possible source, put a transaction fee/tax on sold shares of stock. Anytime a share of stock is sold, 1 or 2% of the proceeds would go to the Federal government. This could have the additional benefit of reducing both short selling and panic selling.
Finally, regulation should be reimposed on the financial markets and the Sherman and Clayton Anti-Trust Acts should be vigorously enforced, even strengthened. George Santayana famously said that those who fail to learn from history are bound to repeat it. I have seen this statement: one thing we learn from history is that people don't learn from history. There seems to have been this common belief that government regulation was the product of left wingers who imposed it as a matter of ideology. Government regulations, if you bother to learn any history, were a response to past abuses. Remove those regulations and the abuses will reappear. This is clearly borne out by the history of this current economic crisis. For anyone over 40, remember when a bank and its branches could only exist in one state? Remember when only savings and loans made home loans and banks made commercial loans? And banking was all that banks did and bankers were conservative and careful with our money? Then, if a bank did fail, the damage was limited. We need to return to those times.
It's the Economy, Stupid, Part III
First, if anyone is wondering why one section in Part II is in different type, the answer is I don't know. When I prepared it and when I recall it into edit mode, it doesn't appear any differently than other entries. So, it was not done on purpose to highlight that section, just some kind of glitch. This is not the first glitch I have run into on this website.
BASIC PROBLEMS WITH THE US ECONOMY
If anyone had asked me in the last 3 years I would have told them that I believed that there are basic structural problems with the US economy. A year and a half ago I took all my 401(k) money out of mutual funds and into a low yield, secured fund that is guaranteed not to go down. I then got a first mortgage on my house which I had owned free and clear in order to have cash on hand. Am I a financial genius or what? The answer is NOT! I just happened to read the right book which crystallized some inchoate ideas which I had had for some time. I strongly recommend the book Wealth and Democracy by Kevin Phillips for anyone concerned with the direction which our country has been going in for the last several decades. Hopefully, Obama will change that direction.
As I mentioned previously, Phillips contends that our economy has gone from production to financialization (manipulation of money) and he uses several historical examples to show how this leads to a serious decline in national power. He gives further treatment to this theme in his books American Theocracy and Bad Money. The latter, although it seems to have been thrown together quickly, has some interesting recent economic data which show the nature and the depth of the problem. Latest figures are that the US has lost over 1 million manufacturing jobs in the last year and over 4 million since 2000. Even when the economy was doing okay and the manufacturing jobs were replaced with other jobs in the economy, these other jobs were largely service jobs that paid anywhere from 20 to 40% less than the jobs they replaced and had fewer benefits. This is why the number of people without health insurance steadily climbed during athe Bush administration. In addition, there has been a greater concentration of wealth in the top 1% and even more in the top one-tenth of 1%. This, imbalance, I believe has contributed to our economic meltdown. For example, this is why so many people refinanced during the real estate boom (using their equity like an ATM machine) and why so many people resorted to subprime loans with risky provisions--it was the only way they could qualify. Another problem is the concentration of business wealth in fewer and fewer mega-corporations. When was the last time that the government used anti-trust law to stifle or even modify a proposed merger or acquisition? The last one I am aware of involved the merger of two natural food chains, hardly a major impact on the economic system. In the meantime we have seen major financial institutions grow too big to fail. Citi Bank, for example, has millions of depositors in something like 140 countries. The LA Times 3/9/09, page B1 has an interesting article on AIG. In addition to having 74 million insurance customers world-wide, it has a subsidiary that leases commercial planes to nearly every major airline. Thus, should it go belly-up it would have serious repercussions on the airline industry. The failure of Lehman Brothers led to the credit freeze. One can cite still other examples, but this will suffice for now.
Additionally, as we have seen, while economic concentration has greatly increased, government regulation has greatly decreased. The SEC ignored Bernie Madoff despite getting a number of warnings for almost 10 years. The Federal Reserve could have reined in all those crazy loans but chose to look the other way, a serious mistake that Alan Greenspan now admits to. The Glass Steagall Act was repealed, a 1994 law lifted restrictions on interstate banking and in the late 1990's derivatives and futures trading in oil and financial instruments (bucket shops previously alluded to) were deregulated. The financial sector took advantage of the situation and maximized their short term profits by increasing their risks. Next, what to do?
BASIC PROBLEMS WITH THE US ECONOMY
If anyone had asked me in the last 3 years I would have told them that I believed that there are basic structural problems with the US economy. A year and a half ago I took all my 401(k) money out of mutual funds and into a low yield, secured fund that is guaranteed not to go down. I then got a first mortgage on my house which I had owned free and clear in order to have cash on hand. Am I a financial genius or what? The answer is NOT! I just happened to read the right book which crystallized some inchoate ideas which I had had for some time. I strongly recommend the book Wealth and Democracy by Kevin Phillips for anyone concerned with the direction which our country has been going in for the last several decades. Hopefully, Obama will change that direction.
As I mentioned previously, Phillips contends that our economy has gone from production to financialization (manipulation of money) and he uses several historical examples to show how this leads to a serious decline in national power. He gives further treatment to this theme in his books American Theocracy and Bad Money. The latter, although it seems to have been thrown together quickly, has some interesting recent economic data which show the nature and the depth of the problem. Latest figures are that the US has lost over 1 million manufacturing jobs in the last year and over 4 million since 2000. Even when the economy was doing okay and the manufacturing jobs were replaced with other jobs in the economy, these other jobs were largely service jobs that paid anywhere from 20 to 40% less than the jobs they replaced and had fewer benefits. This is why the number of people without health insurance steadily climbed during athe Bush administration. In addition, there has been a greater concentration of wealth in the top 1% and even more in the top one-tenth of 1%. This, imbalance, I believe has contributed to our economic meltdown. For example, this is why so many people refinanced during the real estate boom (using their equity like an ATM machine) and why so many people resorted to subprime loans with risky provisions--it was the only way they could qualify. Another problem is the concentration of business wealth in fewer and fewer mega-corporations. When was the last time that the government used anti-trust law to stifle or even modify a proposed merger or acquisition? The last one I am aware of involved the merger of two natural food chains, hardly a major impact on the economic system. In the meantime we have seen major financial institutions grow too big to fail. Citi Bank, for example, has millions of depositors in something like 140 countries. The LA Times 3/9/09, page B1 has an interesting article on AIG. In addition to having 74 million insurance customers world-wide, it has a subsidiary that leases commercial planes to nearly every major airline. Thus, should it go belly-up it would have serious repercussions on the airline industry. The failure of Lehman Brothers led to the credit freeze. One can cite still other examples, but this will suffice for now.
Additionally, as we have seen, while economic concentration has greatly increased, government regulation has greatly decreased. The SEC ignored Bernie Madoff despite getting a number of warnings for almost 10 years. The Federal Reserve could have reined in all those crazy loans but chose to look the other way, a serious mistake that Alan Greenspan now admits to. The Glass Steagall Act was repealed, a 1994 law lifted restrictions on interstate banking and in the late 1990's derivatives and futures trading in oil and financial instruments (bucket shops previously alluded to) were deregulated. The financial sector took advantage of the situation and maximized their short term profits by increasing their risks. Next, what to do?
Tuesday, March 10, 2009
It's the Economy, Stupid, Part II
WHY WERE THERE SO MANY BAD LOANS?
As we have seen, the crisis was set off by an increase in the foreclosure rate. What caused this? One of the reasons was the speculation in real estate and creative financing promoted by lending institutions. It used to be that you only got loans with 20% down and a good credit score, except for VA and FHA and some other minor government programs which required little down payment. However, in order to increase business, lenders, supported by builders and r.e. brokers, began offering exotic instruments , such as 10% down, then 5% down, then no down loans until I actually heard loans advertised for more than the value of the house. This was mixed with short term ARM's (adjustable rate mortgages), option ARM's (you chose how much to pay each month) and negative payments wherein you paid less than the interest and principle and the principle increased. Also, lenders began doing "stated income" loans. This meant you told the loan originator how much your income was and you didn't have to document it. Also, lenders began to loosen their credit requirements so that those with marginal credit were given loans. And finally, a lot of ARM's had low "teaser" rates. Again, I saw some as low as 1 or 2% to start. This meant that someone who might not qualify for the rate on a 30 year fixed loan would qualify under the "teaser" rate which could last anywhere from about 3 to 24 months or longer. Some builders would buy down loans so that teaser rates woud be lower and last longer so that more buyers could then qualify for the builder's new homes. It's not hard to predict that this could lead to trouble, especially for those who qualified only under the teaser rate. Reset means when the teaser rate expired and the loan adjusted to a new (usually higher) rate that was based on the prime rate or other standard rate, such as T-bills or LIBOR. Then the question is why would lenders make what should have been seen as very risky loans? The answer is because of derivatives and greater profit. The real risky loans are what are called subprime loans. Because there is greater risk associated with the loans, they carried higher interest rates and larger fees (called points). Because of derivatives, the lenders did not have to worry about the risk because the loans would be sold to an investor, some in foreign countries. The mortgage brokers and banks made their money off the fees, they didn't keep the loan and often didn't even service the loan. Thus, they actually had an incentive to make subprime loans because they made more in fees and did not have any of the risk. Why would someone take out such a loan? The assumption that both lenders and borrowers made was that real estate prices would continue to climb so that if the borrower was having trouble making payments, then he/she would just sell it for more than it cost originally (flipping). For the first couple of years of the boom there was no problem. However, there becomes a point at which the market becomes saturated--after most people have bought a new house they aren't going to run out and buy another one right away. Then inventory builds up and there are more sellers than buyers, prices start to fall and then people find that they owe more than the house is worth. And, as foreclosures increase they drag the market down even further.
WHY DID THE CRISIS SPREAD BEYOND HOUSING?
We have already seen how, because of derivatives and credit default swaps, the problem extended beyond the lenders. There is another important element in the problem. In 1999 Congress passed the Gramm-Leach-Bliley Act which rescinded the Galss Steagall Act that was enacted during the depression. This new bill allowed one entity to be involved in investments, commercial banking, and insurance. This is why the big Wall Street investment companies got entangled in derivatives and credit default swaps. They saw this as another profit center. Among the people who pushed for this, by the way, was the head of Goldman, Sachs, a man named Henry Paulsen, Bush's last Secretary of the Treasure. About a year ago the collapsing real estate market claimed its first victim on Wall Street: Bear Stearns, which started to have cash flow problems and auditors discovered that it was becoming a shell company. This led to a massive sell-off of its stock so that it went from $69/share to $2/share when it was bought by, I believe, J.P. Morgan/Chase. Then, six months later Lehman Brothers was in real hot water. Paulsen decided to let Lehman Bros. fail, as this is what conservative orthodoxy says you must do, let bad companies fail. This happened September 15, 2008 and this is what led to the serious problem becoming a major crisis as banks, having seen Lehman Bros. fail, decided it was too risky to loan money to anyone. And, of course, because a lot of these firms have interest in each other, when one and then another fails, it weakens other institutions and the whole economic system. This whole sequence of events was clearly presented on a Frontline program on PBS on Feb. 18, 2009. According to noted economist Jeffrey Sachs, he estimates that in bad loans, unemployment, and the drop in the stock market, the U.S. economy has lost approximately $13 trillion as of Feb. 20, 2009 (MSNBC show 1600 Pennsylvania Avenue, 2/20/09). To paraphrase and update the late Senator Everett Dirksen (R-Ill.), a trillion here, a trillion there and soon you're talking real money.
As we have seen, the crisis was set off by an increase in the foreclosure rate. What caused this? One of the reasons was the speculation in real estate and creative financing promoted by lending institutions. It used to be that you only got loans with 20% down and a good credit score, except for VA and FHA and some other minor government programs which required little down payment. However, in order to increase business, lenders, supported by builders and r.e. brokers, began offering exotic instruments , such as 10% down, then 5% down, then no down loans until I actually heard loans advertised for more than the value of the house. This was mixed with short term ARM's (adjustable rate mortgages), option ARM's (you chose how much to pay each month) and negative payments wherein you paid less than the interest and principle and the principle increased. Also, lenders began doing "stated income" loans. This meant you told the loan originator how much your income was and you didn't have to document it. Also, lenders began to loosen their credit requirements so that those with marginal credit were given loans. And finally, a lot of ARM's had low "teaser" rates. Again, I saw some as low as 1 or 2% to start. This meant that someone who might not qualify for the rate on a 30 year fixed loan would qualify under the "teaser" rate which could last anywhere from about 3 to 24 months or longer. Some builders would buy down loans so that teaser rates woud be lower and last longer so that more buyers could then qualify for the builder's new homes. It's not hard to predict that this could lead to trouble, especially for those who qualified only under the teaser rate. Reset means when the teaser rate expired and the loan adjusted to a new (usually higher) rate that was based on the prime rate or other standard rate, such as T-bills or LIBOR. Then the question is why would lenders make what should have been seen as very risky loans? The answer is because of derivatives and greater profit. The real risky loans are what are called subprime loans. Because there is greater risk associated with the loans, they carried higher interest rates and larger fees (called points). Because of derivatives, the lenders did not have to worry about the risk because the loans would be sold to an investor, some in foreign countries. The mortgage brokers and banks made their money off the fees, they didn't keep the loan and often didn't even service the loan. Thus, they actually had an incentive to make subprime loans because they made more in fees and did not have any of the risk. Why would someone take out such a loan? The assumption that both lenders and borrowers made was that real estate prices would continue to climb so that if the borrower was having trouble making payments, then he/she would just sell it for more than it cost originally (flipping). For the first couple of years of the boom there was no problem. However, there becomes a point at which the market becomes saturated--after most people have bought a new house they aren't going to run out and buy another one right away. Then inventory builds up and there are more sellers than buyers, prices start to fall and then people find that they owe more than the house is worth. And, as foreclosures increase they drag the market down even further.
WHY DID THE CRISIS SPREAD BEYOND HOUSING?
We have already seen how, because of derivatives and credit default swaps, the problem extended beyond the lenders. There is another important element in the problem. In 1999 Congress passed the Gramm-Leach-Bliley Act which rescinded the Galss Steagall Act that was enacted during the depression. This new bill allowed one entity to be involved in investments, commercial banking, and insurance. This is why the big Wall Street investment companies got entangled in derivatives and credit default swaps. They saw this as another profit center. Among the people who pushed for this, by the way, was the head of Goldman, Sachs, a man named Henry Paulsen, Bush's last Secretary of the Treasure. About a year ago the collapsing real estate market claimed its first victim on Wall Street: Bear Stearns, which started to have cash flow problems and auditors discovered that it was becoming a shell company. This led to a massive sell-off of its stock so that it went from $69/share to $2/share when it was bought by, I believe, J.P. Morgan/Chase. Then, six months later Lehman Brothers was in real hot water. Paulsen decided to let Lehman Bros. fail, as this is what conservative orthodoxy says you must do, let bad companies fail. This happened September 15, 2008 and this is what led to the serious problem becoming a major crisis as banks, having seen Lehman Bros. fail, decided it was too risky to loan money to anyone. And, of course, because a lot of these firms have interest in each other, when one and then another fails, it weakens other institutions and the whole economic system. This whole sequence of events was clearly presented on a Frontline program on PBS on Feb. 18, 2009. According to noted economist Jeffrey Sachs, he estimates that in bad loans, unemployment, and the drop in the stock market, the U.S. economy has lost approximately $13 trillion as of Feb. 20, 2009 (MSNBC show 1600 Pennsylvania Avenue, 2/20/09). To paraphrase and update the late Senator Everett Dirksen (R-Ill.), a trillion here, a trillion there and soon you're talking real money.
Monday, March 9, 2009
It's The Economy, Stupid!
I have been hesitant to write on this subject because everyone else is doing so. However, after reading a news forum this morning and various letters to the editor, etc. I see that there are a long of very angry people and a lack of understanding. Because this a long and complicated subject, I will break it up into parts, so that if there are some things you are already well-versed on, you can skip those parts.
Although I have taken only basic introductory classes in Econ., I have been attempting to come up to speed the past few years and have been trying to absorb all I can about the current crisis. I hope this proves helpful for someone.
BASIS OF THE PROBLEM
Although it is generally believed that the problem stems from bad loans made to people who couldn't afford them, I think that is a very big contributory factor, but is not the reason why the economic situation is so dire. The bad loans were the spark that got the bonfire going, but they did not determine the magnitude of the problem. There have been housing bubbles in the past and bank failures (remember the savings and loan problem 20 years ago and the Resolution Trust Corporation?) , but they did not result in anywhere near the kind of problem that we have now. What is different is derivatives, credit default swaps, and bucket shops. A derivative is a bundle of loans put together and then sold, similar to a bond, from one institution to another. Say for example, you have loans that average $200,000 each and you put 500 of them together. Maybe the loans pay, on average, 7%. The buyers know that historically maybe 2% of the loans will default and then figure in a worst case scenario of a higher rate of default to cover themselves. So you have a derivative with loans totaling $100 million dollars paying 7% which you pay a discount for to take into account expected defaults. The problem arises when it turns out that the default rate is much higher than was expected because of poor underwriting and lax enforcement of the rules. Say the default rate is 10% instead of an expected 2% and you bought the derivative with borrowed money. Now you can't pay the loan you got to buy the derivative. Now you have a derivative of $100 million that is toxic. If the loans had not been bundled, you would have had 10% of 500 loans go bad or 50 times $200,000 or $10 million in bad assets compared to $100 million in bad assets because of the bundling. It works as a negative multiplier effect. But wait, it gets worse. Some buyers said, wait, how do we know these derivatives will always be good? This is where credit default swaps came in. This is basically insurance to the buyers of the derivatives, but they didn't call it insurance. Why? Perhaps because insurance is a carefully regulated industry but credit default swaps are not regulated. So, sometimes the seller would insure the derivatives, sometimes a third party would do it, for an appropriate fee, of course. This is why AIG is in such trouble: they are being dragged under by bad derivatives which they insured with credit default swaps. The amount of the credit default swaps being called for is overwhelming the cash reserve set aside. It is like a run on a bank only worse as the failed derivatives are ending up having a greater value than the companies that insured them. This ends up destroying the company that issued the credit default swap and also the buyer of the derivative since their "insurance" isn't there any more. Thus, you have a cascading effect which greatly magnifies the original problem of a higher rate of bad loans. What are bucket shops? The show 60 Minutes had a good show explaining this. A bucket shop is like a gambling parlor in that people are allowed to put money on the futures of derivatives. Thus, if you bet that the values of derivatives will fall you can end up making money. This is an emblematic problem with our economy--so much of it is a speculative crap shoot, a zero sum game where money is manipulated but value is not added. Keven Phillips calls it the financialization of the economy. Bucket shops, by the way, were outlawed about 1907 but were made legal in the late 1990's as part of the deregulation frenzy that included repeal of the Glass-Steagal Act from the 1930's.
Although I have taken only basic introductory classes in Econ., I have been attempting to come up to speed the past few years and have been trying to absorb all I can about the current crisis. I hope this proves helpful for someone.
BASIS OF THE PROBLEM
Although it is generally believed that the problem stems from bad loans made to people who couldn't afford them, I think that is a very big contributory factor, but is not the reason why the economic situation is so dire. The bad loans were the spark that got the bonfire going, but they did not determine the magnitude of the problem. There have been housing bubbles in the past and bank failures (remember the savings and loan problem 20 years ago and the Resolution Trust Corporation?) , but they did not result in anywhere near the kind of problem that we have now. What is different is derivatives, credit default swaps, and bucket shops. A derivative is a bundle of loans put together and then sold, similar to a bond, from one institution to another. Say for example, you have loans that average $200,000 each and you put 500 of them together. Maybe the loans pay, on average, 7%. The buyers know that historically maybe 2% of the loans will default and then figure in a worst case scenario of a higher rate of default to cover themselves. So you have a derivative with loans totaling $100 million dollars paying 7% which you pay a discount for to take into account expected defaults. The problem arises when it turns out that the default rate is much higher than was expected because of poor underwriting and lax enforcement of the rules. Say the default rate is 10% instead of an expected 2% and you bought the derivative with borrowed money. Now you can't pay the loan you got to buy the derivative. Now you have a derivative of $100 million that is toxic. If the loans had not been bundled, you would have had 10% of 500 loans go bad or 50 times $200,000 or $10 million in bad assets compared to $100 million in bad assets because of the bundling. It works as a negative multiplier effect. But wait, it gets worse. Some buyers said, wait, how do we know these derivatives will always be good? This is where credit default swaps came in. This is basically insurance to the buyers of the derivatives, but they didn't call it insurance. Why? Perhaps because insurance is a carefully regulated industry but credit default swaps are not regulated. So, sometimes the seller would insure the derivatives, sometimes a third party would do it, for an appropriate fee, of course. This is why AIG is in such trouble: they are being dragged under by bad derivatives which they insured with credit default swaps. The amount of the credit default swaps being called for is overwhelming the cash reserve set aside. It is like a run on a bank only worse as the failed derivatives are ending up having a greater value than the companies that insured them. This ends up destroying the company that issued the credit default swap and also the buyer of the derivative since their "insurance" isn't there any more. Thus, you have a cascading effect which greatly magnifies the original problem of a higher rate of bad loans. What are bucket shops? The show 60 Minutes had a good show explaining this. A bucket shop is like a gambling parlor in that people are allowed to put money on the futures of derivatives. Thus, if you bet that the values of derivatives will fall you can end up making money. This is an emblematic problem with our economy--so much of it is a speculative crap shoot, a zero sum game where money is manipulated but value is not added. Keven Phillips calls it the financialization of the economy. Bucket shops, by the way, were outlawed about 1907 but were made legal in the late 1990's as part of the deregulation frenzy that included repeal of the Glass-Steagal Act from the 1930's.
Sunday, March 8, 2009
The Myth of "The Surge"
Although the surge in Iraq may seem like old news, it has a lot of ramifications for the war in Afghanistan, especially since General Patraeus is now in charge of the whole Middle East/Asia theater. Also, it is a wonderful case study of the failings of modern day journalism and commentary. Because there is much to discuss, this will be a long post, so bear with me. I haven't seen any analysis akin in depth to what I am presenting here, and I doubt if you have either.
First, let me begin with the ancient parable of the clan elder and the sun (which I have just made up). Many millenia ago while people were still hunter-gatherers and lived in small clans, a young boy was born who was small and sickly but very smart and observant. Because of his physical limitations he didn't go out hunting with the others, but, being smart and observant, he learned to make himself very useful in the clan. Because of these qualities, when he grew up he became the clan wise man. As such, he was not exposed to the dangers of hunting and after some years he was the oldest one in the clan. As he grew aged and his infirmities increased he became concerned that he soon would not be able to take care of himself, so he called the clan together and told them his story.
"You know, I am the oldest member of the clan and I am concerned that I may not live for much longer. I have always told you the truth before, haven't I?" And the people admitted this was so, not realizing that he had lied to them before, but had done so cleverly when he knew he could not be caught. "I have a secret which you must know."
"After I was born," he continued, "my mother told me that before I was born it was a time of darkness. The wild ravenous beasts who do their killing at night were hunting all the time instead of half the time as they do now. The edible plants scarcely grew and people were just barely surviving unlike now. However, after I was born, my mother told me, when I woke up that thing we call the sun mysteriously appeared in the sky giving us light and warmth." The elder was one who always went to sleep early and woke up shortly before sunrise. "As you know, I always turn in shortly after dark and after I wake up then, and only then, does the sun appear." And no one could remember differently so they believed it must be true.
"So," the elder concluded, "I fear that after my death the time of all darkness will return, bringing much suffering and hardship. The clan should do everything to keep me alive and store food and improve our shelters to prepare for this." And all of the clan agreed that this was indeed a wise plan. So the village elder was well cared for, never having to do a thing for himself for the rest of his life, having every whim catered to. Some years later the elder finally died and there was much fear with wailing and renting of garments. When the first night fell, the clan huddled, arguing about what to do next. The next morning the sun magically appeared and someone suggested that perhaps it would take a while for the sun god (for it must be a god) to realize that his son had left this earth so the clan probably had some time before the time of darkness returned. Well, the sun kept rising every morning and after a few weeks the clan finally realized that they had been conned.
The moral of this story is that even though two things may happen in conjunction (person waking, sun appearing), this does not mean that one causes the other, nor that they are even related, no matter how many times someone swears that they are.
One of the basic failings in popular commentary is the lack of recognition that variables may be dependent or independent and even in dependent variables there may be other factors involved in cause and effect relationships. Nowhere is this more evident than in the popular perception that "the surge" in Iraq was successful. Conservatives have pushed this idea so much that it has become accepted wisdom. Before the election I saw one news anchor (I believe it was Brian Williams) ask Obama something like "Since the surge has been so successful, weren't you wrong to oppose it?"
I have not seen any hard headed analysis of the surge either before or after its implementation. In fact, in the popular press seems to be an almost total ignorance of the major factors of guerilla war and successful counter-insurgency strategy. It is as if there has been a collective national amnesia about the lessons learned in Vietnam. There is a whole lot of experience and evidence about what works and what doesn't work. There is at least one journal devoted to counter-insurgency warfare and a number of academics who have spent their careers studying the subject but I never saw any of them consulted by the popular press. Patraeus, in addition to his own background, had an Australian expert as an advisor, but I never saw an independent expert evaluating the surge. For anyone interested, I recommend War in the Shadows by Asprey, a two volume history of guerilla war, dating back to pre-Roman times, as a good place to start. I have read other books that I can recommend if you are interested.
Everything we know about guerilla war and the war in Iraq tell us that the surge, by itself, could not have been successful. First, you need a soldier to guerilla ratio of about 10 to 1 to be assured of success. If you don't have that ratio you need the overwhelming support of the local populace so they will not give aid and comfort to the guerillas and will, instead, provide the anti-guerilla forces with valuable intelligence. The main problem of counter-insurgency warfare is not lack of firepower, it is finding the enemy and depriving him of sanctuary. Also, to be successful, the anti-guerilla forces (i.e., the government) need to be legitimate and at least moderately just in the eyes of the populace. There are other tactical military approaches, too, that may apply, but they need not be considered here for the issue at hand.
A good example of the opposite is the guerilla war in Yugoslavia in World War II. Originally there were two anti-German groups, the Chetniks and Tito's pro-communist partisans. The two groups feuded and the Chetniks sided with the Nazis against Tito's group. So Tito's guerillas had to fight both the Nazis and other Yugoslavs. Tito started out with just a few thousand followers and rifles, no heavy weapons. The Nazis had tanks, planes, and about 100,000 troops. The Nazis were utterly ruthless. If a German soldier were killed while patrolling a village, for example, the Germans would retaliate by killing 100 men from that village. An yet by the end of the war, Tito's guerilla group had swelled to over 200,000 soldiers and literally had the German army on the run. This shows the total failure of the military only option. There are many other similar examples throughout history.
Let's take a look at the situation in Iraq pre and post surge. Before the surge US troop levels were approximately 130,000; after the surge they were approximately 155,000. We don't know how many Sunni guerillas there were, but considering how many signed up for the US backed militia, Sons of Iraq, (up to 70,000) I think it is safe to assume that there were at least 20,000 part-time guerillas. Estimates of the Shiite Mahdi Army were that it contained about 60,000. Even assuming the Iraqi Army was effective (and only a couple of battalions were by all accounts), that addds another 70,000 to 100,000 troops to the anti-guerilla side (the lower number at the start of the surge, the higher number at the end).Thus, as we can see, adding 25,000 more US soldiers shouldn't have made much of a difference. The guerilla side would have had about 80,000 and the anti-guerilla side would have gone from abour 230,000 to 255,000, nowhere near the ratio needed. Although a lot of these numbers are estimates, it doesn't change the basic conclusion because the ratio is nowhere near large enough so that even if we overstate the guerilla strength the problem still remains. Additionally, these figures overstate the Iraqi Army and don't take into account that many of the 155,000 US soldiers were support, not infantry.
Next, let's take a look at it from the perspective of a guerilla. According to the US Army, 80% of its casualties were due to IED's, or roadside bombs. What did it take to produce those casualties? You need someone to fashion a bomb out of an old artillery shell (of which there are hundreds of thousands in Iraq since US forces failed to secure them after the invasion). Then you would probably need a team of 3 or 4 guys to go out late at night, dig a hole in the road or plant the bomb along the side of the road in some trash or debris. Then you would need one guy to stay within range of the remote control and wait until a US patrol comes by and then he pushes the button to detonate the bomb. As you can see, this is a very low risk operation requiring little time, effort or manpower. A dozen teams a night, especially before Hummers were given better armor, could easily result in 100 dead US soldiers a month. So, I ask you, how could a 20% increase in US troops, spread over the whole country, stop that?
Now let's look at it from the non-military perspective. Was the Iraqi government seen as legitimate and was the populace on our side? We know the answer to that was clearly no and no. While Maliki's negotiation of the status of forces agreement at the end of 2008 and the recent elections have greatly increased the government's legitimacy, at the start of the surge and throughout almost all of the surge, Maliki was seen as a US puppet, the Sunnis boycotted the government, and Sadr's followers were violently opposed. At a rough estimate, I think it would be fair to say that 40% of the population were strongly opposed to the Maliki government, another 40% or so were indifferent or considered him an ineffective stooge, and he had the active support of about 20%. If anyone has better numbers on this I would like to see them. One of the problems with Iraq is the paucity of meaningful information. How about US forces popularity and the likelihood that they would get aid and support from the local population? There have been a lot of polls done on this and the results are very consistent. From 75-80% of Iraqis want the US to leave and approximately 50% of Iraqis think it is okay to help the guerillas. Considering that we are very popular with the Kurds, among the non-Kurdish population these numbers are probably even much higher. Thus, as you can see, the major components of a successful anti-guerilla campaign are not present. Could it just be that it wasn't the surge at all that was the reason for the decrease in violence? Remember that waking up in the morning doesn't cause the sun to rise, or if you work all night the sun rise doesn't cause you to wake up.
What, then, are other variables that may have led to the lessening of violence? Approximately two years ago, at the beginning of the surge, Sadr's militia had a horrific gun battle with another Shiite group in a major mosque in, as I recall, Najaf (although the location is not that important). A number of innocents were killed and Sadr declared a cease fire because it was a terrible public relations disaster for him and his supporters. Although some small rogue groups defied him, this removed about 60,000 militia from participating in conflict.
Most of the civilian casualties in Iraq were due to death squads, both Sunni and Shia, which ethnically cleansed mixed neighborhoods. Those who weren't murdered were forced to flee their homes. Christians were expecially persecuted until most all of them fled the country. The result was that approximately 2 million Iraqis fled to other countries and approximately 2.5 million fled to other areas of Iraq, abandoning mixed neighborhoods. Where there used to be Sunnis and Shias living together you now had Sunni only and Shia only neighborhoods, patrolled by their own militias. This meant that 1 out of every 6 Iraqis was displaced from their homes in the space of about two years. In the US, that would be the equivalent of 50 million people forced to leave their homes and move somewhere else. Iraqi on Iraqi violence dropped precipitiously because ethnic cleansing was completed, not because of anything the surge did.
Another factor was the previously mentioned Sunni militas armed by the US. Previous US policies practically invited the insurgency. By disbanding the 400,000 man army and then outlawing the Baathists from employment, we created a vast army of unemployed, angry and armed young Sunnis who had no reason to support us and a lot of reasons to dislike us. The militias gave them a good, steady paycheck.When local tribal chiefs approached US forces in the summer of 2007 with the idea for the militias, it was maybe the best thing we could have done, much more important than the surge. And it wasn't supported by the Sunnis because of the surge but because of the excesses of the local Al-Aqaeda forces. The nihilism and excesses of Al-Qaeda may be the best thing we have going for us in our battle against them.
Thus, as you can see, the Sunni militias, Sadr's decision for a cease fire, and the completion of ethnic cleansing were most likely the major causes for the decrease in violence in Iraq. There is probably another causal factor, but it is only logical conjecture. People in Iraq can read newspapers and watch satellite TV. By the end of 2007 it should have been clear to any interested Iraqi that Bush was unpopular, the American people disapproved of the war by big margins, and the Democrats, who were anti-war, were likely to win the 2008 election. Also, they knew that the UN mandate for US occupation expired at the end of 2008 and that the US would have to negotiate a new agreement by then. If you were an Iraqi insurgent, wouldn't it make sense to lie low for a while and see what happens, figuring the US might leave soon even if you did nothing?
Finally, I keep asking, if the surge worked, where are the metrics? If it was the surge that reduced the insurgency, then we must have been killing and capturing insurgents at a much higher rate than before the surge. Having been in military intelligence, I know that the military keeps more statistics than a baseball junkie. They know how many patrols were done and by which units. They will have statistics on how many people were arrested, killed, etc., etc. During the Vietnam War the military announced enemy body counts after every battle and totals for evey month. And yet, from Iraq we have seen nothing. How many insurgents were killed and/or captured for 2003, 2004, 2005, 2006, 2007, and 2008? I haven't seen any figures, have you? We have seen absolutely no solid evidence that the surge worked. Next time you hear somebody say the surge worked, just ask them, how many more insurgents were killed and captured, on average, per month, after the surge compared to before the surge. I'll be waiting for that answer.
First, let me begin with the ancient parable of the clan elder and the sun (which I have just made up). Many millenia ago while people were still hunter-gatherers and lived in small clans, a young boy was born who was small and sickly but very smart and observant. Because of his physical limitations he didn't go out hunting with the others, but, being smart and observant, he learned to make himself very useful in the clan. Because of these qualities, when he grew up he became the clan wise man. As such, he was not exposed to the dangers of hunting and after some years he was the oldest one in the clan. As he grew aged and his infirmities increased he became concerned that he soon would not be able to take care of himself, so he called the clan together and told them his story.
"You know, I am the oldest member of the clan and I am concerned that I may not live for much longer. I have always told you the truth before, haven't I?" And the people admitted this was so, not realizing that he had lied to them before, but had done so cleverly when he knew he could not be caught. "I have a secret which you must know."
"After I was born," he continued, "my mother told me that before I was born it was a time of darkness. The wild ravenous beasts who do their killing at night were hunting all the time instead of half the time as they do now. The edible plants scarcely grew and people were just barely surviving unlike now. However, after I was born, my mother told me, when I woke up that thing we call the sun mysteriously appeared in the sky giving us light and warmth." The elder was one who always went to sleep early and woke up shortly before sunrise. "As you know, I always turn in shortly after dark and after I wake up then, and only then, does the sun appear." And no one could remember differently so they believed it must be true.
"So," the elder concluded, "I fear that after my death the time of all darkness will return, bringing much suffering and hardship. The clan should do everything to keep me alive and store food and improve our shelters to prepare for this." And all of the clan agreed that this was indeed a wise plan. So the village elder was well cared for, never having to do a thing for himself for the rest of his life, having every whim catered to. Some years later the elder finally died and there was much fear with wailing and renting of garments. When the first night fell, the clan huddled, arguing about what to do next. The next morning the sun magically appeared and someone suggested that perhaps it would take a while for the sun god (for it must be a god) to realize that his son had left this earth so the clan probably had some time before the time of darkness returned. Well, the sun kept rising every morning and after a few weeks the clan finally realized that they had been conned.
The moral of this story is that even though two things may happen in conjunction (person waking, sun appearing), this does not mean that one causes the other, nor that they are even related, no matter how many times someone swears that they are.
One of the basic failings in popular commentary is the lack of recognition that variables may be dependent or independent and even in dependent variables there may be other factors involved in cause and effect relationships. Nowhere is this more evident than in the popular perception that "the surge" in Iraq was successful. Conservatives have pushed this idea so much that it has become accepted wisdom. Before the election I saw one news anchor (I believe it was Brian Williams) ask Obama something like "Since the surge has been so successful, weren't you wrong to oppose it?"
I have not seen any hard headed analysis of the surge either before or after its implementation. In fact, in the popular press seems to be an almost total ignorance of the major factors of guerilla war and successful counter-insurgency strategy. It is as if there has been a collective national amnesia about the lessons learned in Vietnam. There is a whole lot of experience and evidence about what works and what doesn't work. There is at least one journal devoted to counter-insurgency warfare and a number of academics who have spent their careers studying the subject but I never saw any of them consulted by the popular press. Patraeus, in addition to his own background, had an Australian expert as an advisor, but I never saw an independent expert evaluating the surge. For anyone interested, I recommend War in the Shadows by Asprey, a two volume history of guerilla war, dating back to pre-Roman times, as a good place to start. I have read other books that I can recommend if you are interested.
Everything we know about guerilla war and the war in Iraq tell us that the surge, by itself, could not have been successful. First, you need a soldier to guerilla ratio of about 10 to 1 to be assured of success. If you don't have that ratio you need the overwhelming support of the local populace so they will not give aid and comfort to the guerillas and will, instead, provide the anti-guerilla forces with valuable intelligence. The main problem of counter-insurgency warfare is not lack of firepower, it is finding the enemy and depriving him of sanctuary. Also, to be successful, the anti-guerilla forces (i.e., the government) need to be legitimate and at least moderately just in the eyes of the populace. There are other tactical military approaches, too, that may apply, but they need not be considered here for the issue at hand.
A good example of the opposite is the guerilla war in Yugoslavia in World War II. Originally there were two anti-German groups, the Chetniks and Tito's pro-communist partisans. The two groups feuded and the Chetniks sided with the Nazis against Tito's group. So Tito's guerillas had to fight both the Nazis and other Yugoslavs. Tito started out with just a few thousand followers and rifles, no heavy weapons. The Nazis had tanks, planes, and about 100,000 troops. The Nazis were utterly ruthless. If a German soldier were killed while patrolling a village, for example, the Germans would retaliate by killing 100 men from that village. An yet by the end of the war, Tito's guerilla group had swelled to over 200,000 soldiers and literally had the German army on the run. This shows the total failure of the military only option. There are many other similar examples throughout history.
Let's take a look at the situation in Iraq pre and post surge. Before the surge US troop levels were approximately 130,000; after the surge they were approximately 155,000. We don't know how many Sunni guerillas there were, but considering how many signed up for the US backed militia, Sons of Iraq, (up to 70,000) I think it is safe to assume that there were at least 20,000 part-time guerillas. Estimates of the Shiite Mahdi Army were that it contained about 60,000. Even assuming the Iraqi Army was effective (and only a couple of battalions were by all accounts), that addds another 70,000 to 100,000 troops to the anti-guerilla side (the lower number at the start of the surge, the higher number at the end).Thus, as we can see, adding 25,000 more US soldiers shouldn't have made much of a difference. The guerilla side would have had about 80,000 and the anti-guerilla side would have gone from abour 230,000 to 255,000, nowhere near the ratio needed. Although a lot of these numbers are estimates, it doesn't change the basic conclusion because the ratio is nowhere near large enough so that even if we overstate the guerilla strength the problem still remains. Additionally, these figures overstate the Iraqi Army and don't take into account that many of the 155,000 US soldiers were support, not infantry.
Next, let's take a look at it from the perspective of a guerilla. According to the US Army, 80% of its casualties were due to IED's, or roadside bombs. What did it take to produce those casualties? You need someone to fashion a bomb out of an old artillery shell (of which there are hundreds of thousands in Iraq since US forces failed to secure them after the invasion). Then you would probably need a team of 3 or 4 guys to go out late at night, dig a hole in the road or plant the bomb along the side of the road in some trash or debris. Then you would need one guy to stay within range of the remote control and wait until a US patrol comes by and then he pushes the button to detonate the bomb. As you can see, this is a very low risk operation requiring little time, effort or manpower. A dozen teams a night, especially before Hummers were given better armor, could easily result in 100 dead US soldiers a month. So, I ask you, how could a 20% increase in US troops, spread over the whole country, stop that?
Now let's look at it from the non-military perspective. Was the Iraqi government seen as legitimate and was the populace on our side? We know the answer to that was clearly no and no. While Maliki's negotiation of the status of forces agreement at the end of 2008 and the recent elections have greatly increased the government's legitimacy, at the start of the surge and throughout almost all of the surge, Maliki was seen as a US puppet, the Sunnis boycotted the government, and Sadr's followers were violently opposed. At a rough estimate, I think it would be fair to say that 40% of the population were strongly opposed to the Maliki government, another 40% or so were indifferent or considered him an ineffective stooge, and he had the active support of about 20%. If anyone has better numbers on this I would like to see them. One of the problems with Iraq is the paucity of meaningful information. How about US forces popularity and the likelihood that they would get aid and support from the local population? There have been a lot of polls done on this and the results are very consistent. From 75-80% of Iraqis want the US to leave and approximately 50% of Iraqis think it is okay to help the guerillas. Considering that we are very popular with the Kurds, among the non-Kurdish population these numbers are probably even much higher. Thus, as you can see, the major components of a successful anti-guerilla campaign are not present. Could it just be that it wasn't the surge at all that was the reason for the decrease in violence? Remember that waking up in the morning doesn't cause the sun to rise, or if you work all night the sun rise doesn't cause you to wake up.
What, then, are other variables that may have led to the lessening of violence? Approximately two years ago, at the beginning of the surge, Sadr's militia had a horrific gun battle with another Shiite group in a major mosque in, as I recall, Najaf (although the location is not that important). A number of innocents were killed and Sadr declared a cease fire because it was a terrible public relations disaster for him and his supporters. Although some small rogue groups defied him, this removed about 60,000 militia from participating in conflict.
Most of the civilian casualties in Iraq were due to death squads, both Sunni and Shia, which ethnically cleansed mixed neighborhoods. Those who weren't murdered were forced to flee their homes. Christians were expecially persecuted until most all of them fled the country. The result was that approximately 2 million Iraqis fled to other countries and approximately 2.5 million fled to other areas of Iraq, abandoning mixed neighborhoods. Where there used to be Sunnis and Shias living together you now had Sunni only and Shia only neighborhoods, patrolled by their own militias. This meant that 1 out of every 6 Iraqis was displaced from their homes in the space of about two years. In the US, that would be the equivalent of 50 million people forced to leave their homes and move somewhere else. Iraqi on Iraqi violence dropped precipitiously because ethnic cleansing was completed, not because of anything the surge did.
Another factor was the previously mentioned Sunni militas armed by the US. Previous US policies practically invited the insurgency. By disbanding the 400,000 man army and then outlawing the Baathists from employment, we created a vast army of unemployed, angry and armed young Sunnis who had no reason to support us and a lot of reasons to dislike us. The militias gave them a good, steady paycheck.When local tribal chiefs approached US forces in the summer of 2007 with the idea for the militias, it was maybe the best thing we could have done, much more important than the surge. And it wasn't supported by the Sunnis because of the surge but because of the excesses of the local Al-Aqaeda forces. The nihilism and excesses of Al-Qaeda may be the best thing we have going for us in our battle against them.
Thus, as you can see, the Sunni militias, Sadr's decision for a cease fire, and the completion of ethnic cleansing were most likely the major causes for the decrease in violence in Iraq. There is probably another causal factor, but it is only logical conjecture. People in Iraq can read newspapers and watch satellite TV. By the end of 2007 it should have been clear to any interested Iraqi that Bush was unpopular, the American people disapproved of the war by big margins, and the Democrats, who were anti-war, were likely to win the 2008 election. Also, they knew that the UN mandate for US occupation expired at the end of 2008 and that the US would have to negotiate a new agreement by then. If you were an Iraqi insurgent, wouldn't it make sense to lie low for a while and see what happens, figuring the US might leave soon even if you did nothing?
Finally, I keep asking, if the surge worked, where are the metrics? If it was the surge that reduced the insurgency, then we must have been killing and capturing insurgents at a much higher rate than before the surge. Having been in military intelligence, I know that the military keeps more statistics than a baseball junkie. They know how many patrols were done and by which units. They will have statistics on how many people were arrested, killed, etc., etc. During the Vietnam War the military announced enemy body counts after every battle and totals for evey month. And yet, from Iraq we have seen nothing. How many insurgents were killed and/or captured for 2003, 2004, 2005, 2006, 2007, and 2008? I haven't seen any figures, have you? We have seen absolutely no solid evidence that the surge worked. Next time you hear somebody say the surge worked, just ask them, how many more insurgents were killed and captured, on average, per month, after the surge compared to before the surge. I'll be waiting for that answer.
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