Saturday, February 28, 2009

Obama's doctrine of pre-emption

Want to see political power wielded the right way? Watch Obama's weekly address:
I realize that passing this budget won’t be easy. Because it represents real and dramatic change, it also represents a threat to the status quo in Washington. I know that the insurance industry won’t like the idea that they’ll have to bid competitively to continue offering Medicare coverage, but that’s how we’ll help preserve and protect Medicare and lower health care costs for American families. I know that banks and big student lenders won’t like the idea that we’re ending their huge taxpayer subsidies, but that’s how we’ll save taxpayers nearly $50 billion and make college more affordable. I know that oil and gas companies won’t like us ending nearly $30 billion in tax breaks, but that’s how we’ll help fund a renewable energy economy that will create new jobs and new industries. In other words, I know these steps won’t sit well with the special interests and lobbyists who are invested in the old way of doing business, and I know they’re gearing up for a fight as we speak. My message to them is this:

So am I.

The system we have now might work for the powerful and well-connected interests that have run Washington for far too long, but I don’t. I work for the American people. I didn’t come here to do the same thing we’ve been doing or to take small steps forward, I came to provide the sweeping change that this country demanded when it went to the polls in November. That is the change this budget starts to make, and that is the change I’ll be fighting for in the weeks ahead – change that will grow our economy, expand our middle-class, and keep the American Dream alive for all those men and women who have believed in this journey from the day it began.
That's a pre-emptive strike against business interests lining up against key elements in his budget. It's an extension of his campaign message against Rovian political attacks into the policy battles now looming: not this time. We won't get blind-sided, swiftboated, outlobbied, outspent and out-spun. And he's not alone in this. The Times has a story about how the whole liberal policy establishment is primed to pre-empt and counter Harry & Louise-style attacks on the health plan to come and other major policy initiatives to reverse the great risk shift and wealth shift of the past thirty years:
Mr. Podesta’s group [The Center for American Progress]is cooperating with two separate coalitions planning to fight for Mr. Obama’s health care plan with television advertisements, interview appearances on cable news talk shows and e-mail campaigns.

“This is no longer going to be Barack Obama standing by himself getting pilloried by the special interests with no one pushing back — if I can describe what it felt like in the White House in 1993,” Mr. Podesta said Friday.

The defeat of the Clinton health care plan was a hard learning experience for Democrats. They were caught flat-footed by an insurance industry-backed campaign to kill the proposal. It is best remembered for advertisements featuring a yuppie couple, Harry and Louise, worrying about limits on quality health care.

“The battle had been lost by the time the progressive community and its allies began rallying around the Clinton bill,” Mr. Neas said. “Now, people are prepared.”

Obama likes to exhort listeners to put their hands on the arc of history and bend it towards justice. Major progressive forces are gearing up to swing the pendulum back toward can-do government.

UPDATE: Al Giordano points out that the lobbies to whom Obama threw down the gauntlet have as much influence with Democrats as with Republicans -- and of course will be concentrating more on Democrats than on Republicans in this new era. Interesting in this context that Obama, who generally shuns speaking in the first person singular in favor of the nonroyal "we," personalized this challenge. "I know they're gearing up for a fight...So am I." As Giordano puts it: "They've [Congressional Democrats as well as Republicans] all just been put on notice: oppose the reforms he's pushing and be portrayed as siding with those corporate interests against the American people."

One relatively self-contained test of Obama vs. lobbyist influence on Democrats will be over the tax rates for hedge fund private equity managers, whose (formerly....) enormous incomes are taxed as capital gains, at 15%--a lower rate, as Warren Buffet points out, than his secretary pays. When this issue came up last year, Democrats caved quickly to industry pressure. Raising taxes on these management fees is in Obama's budget. We'll see if it happens this time.

Friday, February 27, 2009

Too narrow a tax base?

After praising Obama's willingness to tackle health care reform, impose a cap-and-trade program on carbon emissions, and do away with accounting gimmicks like placing war spending off-budget, Clive Crook offers a major caveat about the Obama budget:
In this "new era of responsibility", as the budget document is called, it would have been better for Obama to signal that huge and desirable initiatives like universal health care will impose at least some costs on all Americans. It is literally impossible to make the rich pay for everything, and telling 95% of voters that they can have all these things at no cost is not good leadership. It has even less to do with shared responsibility.
True, that. My chief worry about the governing compact Obama forged during the campaign is his promise not to raise taxes on any household with less than $250k in income. Obama's core domestic policy premises were that the U.S. needs to repair its safety net, reduce income inequality and improve opportunity through education. That means higher taxes for the affluent and some tradeoff of tax and benefit for the middle class, if lower tax burdens for the poor. I fear that on this point David Brooks was right: Obama boxed himself in on taxation during the campaign.

One (possible) reason Geithner's not nationalizing...yet

Some advocates of bank nationalization make it sound quick and easy -- get in, clean up, get out. As for wiped out shareholders and damaged bondholders - tant pis, taxpayers come first.

FinanciaWeek's editor Ron Fink today offers a credible glimpse at one major complicating factor. Certain bondholders may command a strong measure of consideration:
Although it is impossible to prove their contention based on publicly available data, [some] analysts suspect that China’s holdings of the debt of banks such as Citigroup and Bank of America are one reason the Obama Administration is hesitating to take over those banks and restructure them with taxpayer assistance.

Although an increasing number of experts contend temporary nationalization followed by a spin-off of the banks’ good assets to private investors would be the most effective way to resolve their financial woes, that would wipe out the value of current shareholders’ holdings. What’s more, nationalization would force bondholders to take a substantial hit.

The U.S. government, these analysts say, is simply unwilling to subject Chinese financial institutions to such losses, particularly at a time when Uncle Sam needs these overseas lenders to finance America’s growing deficits through Treasury bond purchases. While China needs these purchases to hedge its exposure to the dollar as a result of its reliance on exports, Beijing has been shifting its capital investment priorities from exports to domestic infrastructure—not surprising given U.S. imports have fallen during the recession.

The Chinese continue to buy U.S. debt, Fink notes, in large part because it's in their interest to support the dollar and so maintain the value of their export income. At the same time, Beijing is "shifting its capital investment priorities from exports to domestic infrastructure." A loss of what could be in excess of $150 billion on U.S. bank debt, triggered by nationalization, might prompt a more sudden Chinese turn away from Treasury bond purchases.

Nouriel Roubini, one advocate of nationalization who doesn't mince the difficulties, has suggested that the time won't be ripe for another six-odd months, when it's clear which banks are insolvent and nationalization of the largest insolvent banks can be done "at one fell swoop." The China hypothesis suggests another powerful motive to make haste slowly on this front:
[Brad] Setser noted that.... he wouldn’t be surprised if China were trying to reduce its exposure to the debt of Citi and B of A. “Post Lehman, post [Fannie and Freddie], it seems like China is shifting back into Treasuries quite quickly,” he wrote.

So if the scenario that played out at Fannie and Freddie scenario is any indication, the Obama administration may be waiting for China to reduce its exposure to the debt of the latest U.S. financial institutions found lying near death’s door before it nationalizes them.

Geithner may have got off on the wrong foot but he's no fool. It's neither ideology nor timidity that's holding back a bank cleanup. It's likely a matter of timing, damage control, first doing no harm, and minimizing unintended consequences. Drugs and exercise before radical surgery.

Wednesday, February 25, 2009

B.F. Skinner haunts the banks

A year after first Raghuram Rajan and then Martin Wolf, both writing in the FT, fingered bankers' bonuses as a prime cause of the financial meltdown, Nassim Nicholas Taleb redoubles the attack. The point is not hard to grasp. The banking industry runs on a heads-I-win-tails-you lose incentive structure: take huge hidden risks, reap the rewards of resulting outsized gains, and give up nothing (except perhaps your job, multimillions later) when those gains give way to huge losses.

But Taleb does end with an arresting dictum that's worth a thousand words:
never trust with your money anyone making a potential bonus.
Take that as as a rule of life. Are you listening, education reformers? It translates: never trust with your child anyone making a bonus. There are buried risks in juicing children's apparent performance, too. Skewed incentives also pervert education from the other end. As an opponent of behavior mod programs once said, give children pizzas for reading books, and you'll end up with a lot of fat children who can't read. Incentives focus people's attention on the reward rather than on the act required to get the reward.

I'm also reminded of a wise woman's watchword: never trust what you hear from any man with an erection. Broadly, then: beware of anyone dazzled by overwhelming incentives, by the prospect of immense gratification.

David Brooks dreams up a revolution

Yesterday, David Brooks put up a characteristically compelling -- and characteristically misleading -- frame for a set of events -- in this case, Obama's first-month initiatives. Starting with a primer on conservative scepticism about the unintended consequences of rapid government-initiated change, Brooks lumped together Obama's emergency measures and broad social goals to paint the President as head of a coterie of technocrats launching a "domestic revolution."

Brooks neglected to mention that Obama takes office in the wake of a revolution -- rightward. Obama is proposing a restoration -- in his own terms, of balance, fairness, commitment to shared prosperity. It's hardly revolutionary to seek to repair crumbling infrastructure, or to bring health care delivery to a level of efficiency approaching that of every other wealthy country on earth, or to establish a measure of oversight for a financial industry run amok -- or even to use taxes and government research funding to grapple with a clear and present danger like global warming.

To the extent that Mr. Obama is an innovator, it's in his determination to hold government action accountable to outcomes analysis -- to accept the "diet" that he once said that Ronald Reagan imposed on liberalism.

Tuesday, February 24, 2009

Six key moments in Obama's address to Congress

A few noteworthy moments in Obama's first address to joint session of Congress as President:

1) Explaining support for the unpopular bank bailouts (a reprise from the final debate with McCain) :
I know how unpopular it is to be seen as helping banks right now, especially when everyone is suffering in part from their bad decisions. I promise you – I get it.

But I also know that in a time of crisis, we cannot afford to govern out of anger, or yield to the politics of the moment. My job – our job – is to solve the problem. Our job is to govern with a sense of responsibility. I will not spend a single penny for the purpose of rewarding a single Wall Street executive, but I will do whatever it takes to help the small business that can’t pay its workers or the family that has saved and still can’t get a mortgage.

That’s what this is about. It’s not about helping banks – it’s about helping people. Because when credit is available again, that young family can finally buy a new home. And then some company will hire workers to build it. And then those workers will have money to spend, and if they can get a loan too, maybe they’ll finally buy that car, or open their own business. Investors will return to the market, and American families will see their retirement secured once more. Slowly, but surely, confidence will return, and our economy will recover.
2) Health care reform this year:
I suffer no illusions that this will be an easy process. It will be hard. But I also know that nearly a century after Teddy Roosevelt first called for reform, the cost of our health care has weighed down our economy and the conscience of our nation long enough. So let there be no doubt: health care reform cannot wait, it must not wait, and it will not wait another year.
3) A Gatesian defense cut:
My administration has also begun to go line by line through the federal budget in order to eliminate wasteful and ineffective programs. As you can imagine, this is a process that will take some time. But we’re starting with the biggest lines. We have already identified two trillion dollars in savings over the next decade.

In this budget, we will end education programs that don’t work and end direct payments to large agribusinesses that don’t need them. We’ll eliminate the no-bid contracts that have wasted billions in Iraq, and reform our defense budget so that we’re not paying for Cold War-era weapons systems we don’t use. We will root out the waste, fraud, and abuse in our Medicare program that doesn’t make our seniors any healthier, and we will restore a sense of fairness and balance to our tax code by finally ending the tax breaks for corporations that ship our jobs overseas.

4) Dropping out is unpatriotic:
...dropping out of high school is no longer an option. It’s not just quitting on yourself, it’s quitting on your country – and this country needs and values the talents of every American.
5) Entitlement reform is not only health care reform:
To preserve our long-term fiscal health, we must also address the growing costs in Medicare and Social Security. Comprehensive health care reform is the best way to strengthen Medicare for years to come. And we must also begin a conversation on how to do the same for Social Security, while creating tax-free universal savings accounts for all Americans.
6) No wiggle room on torture:
To overcome extremism, we must also be vigilant in upholding the values our troops defend – because there is no force in the world more powerful than the example of America. That is why I have ordered the closing of the detention center at Guantanamo Bay, and will seek swift and certain justice for captured terrorists – because living our values doesn’t make us weaker, it makes us safer and it makes us stronger. And that is why I can stand here tonight and say without exception or equivocation that the United States of America does not torture.
I might have added a seeming nod to Bill Clinton in this early reassurance:
But while our economy may be weakened and our confidence shaken; though we are living through difficult and uncertain times, tonight I want every American to know this:

We will rebuild, we will recover, and the United States of America will emerge stronger than before.
But in truth, Obama has offered almost identical reassurances in just about every speech since his election.

Seamus Heaney hits the sports page

Zounds, what poet is this who haunteth the New York Times sports pages?

It's been a long time since I've opened the Times sports section, but there it was at lunch. So I picked it up, and lo, was launched into the green fields of the mind by a certain Alan Schwarz:

PEORIA, Ariz. — At baseball’s heart lies one simple goal: to leave home and then return. Straying’s perils are instantly dispelled on contact with the place once left.

Ken Griffey Jr. and Jason Giambi, having squared that circle more than 2,700 times, are rounding into more terra firma this spring. Nine years after leaving for his home of Cincinnati, Griffey is rejoining th e Seattle Mariners — a franchise he breathed life into throughout the 1990s. Giambi, meanwhile, is returning to his old Oakland sandbox after seven turbulent years in New York.
Straying’s perils are instantly dispelled on contact with the place once left? Having squared that circle more than 2,700 times? Has Seamus Heaney got a day job?

Perhaps Mr. Schwarz found his muse in the men he covered. He records Griffey and Giambi each striking very personal notes of eulogy upon their returns:
“I was raised in Cincinnati, but I grew up here,” Griffey said Saturday at his welcome-back unveiling at the Mariners’ camp here. A few miles away at the Athletics’ complex in Tempe, Giambi said of his Yankees interlude: “I feel like I was away at college and am coming home. The bed feels just a little bit better.”
O Ancient Mariner! O tale-chasin' Jason! Odysseus himself couldn't have put it better.

Kill all the shareholders? Not so fast...

Advocates for bank nationalization often assert or imply that shareholders who get wiped out will just be getting what's coming to them, or at least that their interests weigh little in the scale against taxpayers'.

But a high percentage of Americans have some exposure to the stock market, mainly through retirement plans (a bit over 50% of households in 2005, according to the Investment Company Institute). And a high percentage of stock holdings in 401ks, IRAs and defined benefit pension funds are in funds that mirror the S&P 500 openly or covertly. We also collectively have an interest in the financial health of colleges, foundations, nonprofits and other mainstays of the institutional investor market.

Shareholders in S&P 500 index funds have already lost a good deal of their equity in bank stocks. On Jan. 31, 2008, financials represented 18.7% of the Index. On Jan. 31, 2009, financials comprised just 10.7%.

So what direct impact would big-bank nationalizations have on stock portfolios? Here are some very rough calculations, powered by my sixth-grade math skills, intended just to get a sense of magnitude, with the understanding that any direct losses would probably be dwarfed by the impact of nationalizations on the whole stock market.

Shares held in the top ten stocks in Vanguard's S&P 500 fund have a combined market value of about $15.5 billion, which represents about 22% of the whole fund, which mirrors the index. The top six banks' combined market value in the fund is just shy of $4 billion, or about 5.6% of the whole. Here they are listed by overall rank:

Institution market value of Vanguard shares (1/31/09)

10) JP Morgan $1,113,453,794
12) Wells Fargo $1,057,060,174
24) Bank of Am $ 667,734,679
35) US Bancorp $ 415,188,109
46) Goldman S. $ 353,070,460
48) Citi $ 345,972,633

Let's say for the sake of argument that Bank of America, US Bancorp and Citi get nationalized, wiping out shareholders. That's something over $1.5 billion in Vanguard's Index 500 fund holdings, or just about 2% of the fund's overall value -- which reflects the proportions of the actual S&P 500.

Of course, these days a 2% loss is a half-day market hiccup. And again, the ultimate impact of nationalization on stock prices, for better or worse, is likely to far outstrip the direct losses to shareholders. The impact of bailouts short of nationalization on taxpayers is beyond my math skills -- perhaps beyond anyone's, since we don't know what the effect of those bailouts would be. But the point remains that shareholders' interests are widely diffused and not to be discounted.

Monday, February 23, 2009

Orzag et al: health care reform *is* entitlement reform

A full-court press is on amongst both Obama Administration officials and progressive healthcare policy wonks to get across the point that Obama's plans to establish long-term budget discipline center on getting control of health care costs.

The core point is simple - transmitted in a few paragraphs today by Paul Krugman. The fiscal problems posed by an aging population are in themselves manageable. The burdens imposed by healthcare costs that rise 2% per year faster than GDP, in contrast, are not sustainable. Social security's long-term solvency can be secured with minor tweaks. Healthcare costs are eating us alive. As OMB Director Peter Orzag put it today at Obama's fiscal summit:
Health care is the key to our fiscal future.

So to my fellow budget hawks in this room and in the rest of the country, let me be very clear: health care reform is entitlement reform.

The path of fiscal responsibility must run directly through health care.

We also must recognize that reforms to Medicare and Medicaid will only succeed in the context of slowing the spiraling growth of overall health care costs.

Ezra Klein has a terrific column today tracing how this core claim -- "health care reform is entitlement reform" -- became a consensus among a cohort of progressive analysts and policymakers who have Obama's ear. Over at TNR, meanwhile, Jonathan Cohn is hammering home the same concept day by day (linking in the last three days to all of the above) in his new blog The Treatment. Treat yourself!

Saturday, February 21, 2009

Fireside Chat 2.0: Obama's weekly address

A few days before the election, I celebrated Obama's "ability to present a complex idea in understandable terms - to break it down, to present it as a narrative or a lay down a cause-and-effect chain." He continues to do so in his weekly addresses, posted on

Today, after defining the stimulus as "only a first step on the road to economic recovery," he lays out a four-part economic agenda to complete that journey -- stemming the tide of foreclosures, getting credit flowing again, reforming a "broken regulatory system," and getting "exploding deficits" under control once the economy begins to recover. Nothing rhetorically remarkable in that outlay. The explanation of how it all fits together, though, is vintage Obama:
No single piece of this broad economic recovery can, by itself, meet the demands that have been placed on us. We can't help people find work or pay their bills unless we unlock credit for families and businesses. We can't solve our housing crisis unless we help people find work so that they can make payments on their homes. We can't produce shared prosperity without firm rules of the road, and we can't generate sustained growth without getting our deficits under control. In short, we cannot successfully address any of our problems without addressing them all. And that is exactly what the strategy we are pursuing is designed to do.
Anaphora -- the five-times-repeated "we can't do x without y" -- binds a complex cause-and-effect chain together here. The rhetorical effect is to get the listener's buy-in to the whole package, while getting across the staggering array of crises that Obama is proposing to tackle systematically and simultaneously. By appealing to our ability to grasp the causal connections in a complex problem, Obama projects his own ability to do so.

Roubini to Obama: "Make haste slowly" on bank nationalization

Many among the chorus of voices across the political spectrum now urging bank nationalization make it sound quick, clean and simple. The watchwords are "bite the bullet," "cut the Gordian knot"; the implication is usually that Obama and Geithner are wasting precious time and money and heightening market uncertainty by by dallying, trimming, refusing the grasp the nettle.

So it's striking that one of the highest profile advocates of nationalization, Nouriel Roubini, whose words today are freighted with the current gold standard of credibility, having forecast the market meltdown, argues yes, that selected behemoth banks must be nationalized -- but also that the time is not yet ripe. From today's Wall Street Journal:

So, will the highest level of government be receptive to the bank-nationalization idea? "I think it will," Mr. Roubini says, unhesitatingly. "People like Graham and Greenspan have already given their explicit blessing. This gives Obama cover." And how long will it be before the administration goes in formally for nationalization? "I think that we're going to see the policy adopted in the next few months . . . in six months or so."

That long? I ask. "Six months from now," he replies, "even firms that today look solvent are going to look insolvent. Most of the major banks -- almost all of them -- are going to look insolvent. In which case, if you take them all over all at once, you cause less damage than if you would if you took over a couple now, and created so much confusion and panic and nervousness.

While Geithner gets pounded for vagueness and Obama for timidity, look for Obama to follow the Emperor Augustus' watchword: festina lente. Make haste slowly. Wait till the bad bank harvest is ripe.

I'm not qualified to judge the wisdom or the direction of Geithner/Obama's long-term thinking about the banks. Or Roubini's, for that matter. I'm simply transliterating Roubini's implicit reading of what they're up to.

Here is the blueprint that Roubini and his colleague Matthew Richardson laid out in last Sunday's Washington Post:

Two important parts of Geithner's plan are "stress testing" banks by poring over their books to separate viable institutions from bankrupt ones and establishing an investment fund with private and public money to purchase bad assets. These are necessary steps toward a healthy financial sector.

But unfortunately, the plan won't solve our financial woes, because it assumes that the system is solvent. If implemented fairly for current taxpayers (i.e., no more freebies in the form of underpriced equity, preferred shares, loan guarantees or insurance on assets), it will just confirm how bad things really are.

Nationalization is the only option that would permit us to solve the problem of toxic assets in an orderly fashion and finally allow lending to resume. Of course, the economy would still stink, but the death spiral we are in would end.

Nationalization -- call it "receivership" if that sounds more palatable -- won't be easy, but here is a set of principles for the government to go by:

First -- and this is by far the toughest step -- determine which banks are insolvent. Geithner's stress test would be helpful here. The government should start with the big banks that have outside debt, and it should determine which are solvent and which aren't in one fell swoop, to avoid panic. Otherwise, bringing down one big bank will start an immediate run on the equity and long-term debt of the others. It will be a rough ride, but the regulators must stay strong.

Second, immediately nationalize insolvent institutions. The equity holders will be wiped out, and long-term debt holders will have claims only after the depositors and other short-term creditors are paid off.

Third, once an institution is taken over, separate its assets into good ones and bad ones. The bad assets would be valued at current (albeit depressed) values. Again, as in Geithner's plan, private capital could purchase a fraction of those bad assets. As for the good assets, they would go private again, either through an IPO or a sale to a strategic buyer.

The proceeds from both these bad and good assets would first go to depositors and then to debt-holders, with some possible sharing with the government to cover administrative costs. If the depositors are paid off in full, then the government actually breaks even.

Fourth, merge all the remaining bad assets into one enterprise. The assets could be held to maturity or eventually sold off with the gains and risks accruing to the taxpayers.

The eventual outcome would be a healthy financial system with many new banks capitalized by good assets. Insolvent, too-big-to-fail banks would be broken up into smaller pieces less likely to threaten the whole financial system. Regulatory reforms would also be instituted to reduce the chances of costly future crises (my emphasis).

Superficially, Roubini and Richardson seem to suggest that the Geithner plan is inadequate ("the plan won't solve our financial woes") and that nationalization is straightforward (4-step program). At the same time, they mark Geithner's stress test as a necessary first step, acknowledge the enormous difficulty and risk inherent in nationalization, and -- as in today's Journal interview -- stress the importance of timing in steering through the anticipated "rough ride." The key is to do it "in one fell swoop," and that can't be done yet.

Obama has built the reputation of a master of timing. Let's see how he rides the nationalization tiger.

Friday, February 20, 2009

Shrieks on a train - -a cell phone shouter pays

This fulfills a fantasy of mine -- - making someone pay for loudly blabbing business secrets into a cell phone while riding a commuter train:
Pillsbury Winthrop Shaw Pittman has confirmed plans to lay off associates soon, and, in the process, they've reminded their law firm brethren to exercise a little discretion when discussing firm cuts in public, according to the Recorder's Legal Pad blog, an Am Law Daily sibling publication.

Above the Law broke the news after a law student e-mailed the blog about overhearing Bob Robbins, head of Pillsbury's corporate and securities practice, yapping about the layoffs on his cell phone in an Amtrak car--very loudly, apparently. Robbins even named the specific associates--between 15 and 20, the tipster told ATL--the firm plans to dismiss.

I must say, though, that I've noticed over the years that most hard-core commuters have learned to keep their voices down on a cell. It's the weekenders and late-night riders -- high school kids and grandma -- who generally haven't got a clue.

Wednesday, February 18, 2009


In a comment on Matt Steinglass's blog, a certain Nick spins out the parallels between U.S. engagement in Vietnam and in Afghanistan:

From what I’ve read, US troops [in Vietnam] generally had a 10:1 kill/loss ratio in confrontations with enemy fighters. So if we lost 58,000 men, presumably a good 580,000 Vietnamese soldiers were killed.

A 10:1 kill/loss ratio seems to be the standard number for US forces since world war II...But ...It doesn’t matter how many of the enemy you kill if they have more to replace them. Ho Chi Minh understood that Americans weren’t willing to sacrifice 100,000 men in Vietnam, but he was willing to sacrifice a million if he had to.

I believe WE lost the war because we weren’t able to defeat the north and make them stop attacking the weaker south. Now, arguably our hands were tied politically, since we couldn’t launch a full scale invasion of the north, for example. But that is irrelevant. You fight a war within certain political parameters which are there whether you like it or not. Within those parameters, the North Vietnamese were able to prevail.

Afghanistan is a similar situation. In fact, for years I’ve said we have a better shot in Iraq than we do in Afghanistan, even before the surge. This is because the problem with Iraq is mostly local, and non-ideological. Afghanistan is like Vietnam. In both, the ideology of our foes makes them willing to sacrifice tens of thousands of men for their cause. The Taliban are doing this in the name of religion; its harder to negotiate with them than the Sunnis in Iraq who were doing it for money and power.

But the most important similarity between vietnam and afghanistan is the sanctuary of insurgents...

Hilllary's '07 blueprint for interrogation policy review

Remember when Hillary got in trouble back in October '07 for for this exchange about interrogation and detention policy?

Wash Post: Can I ask you a follow up? You mentioned Blackwater, you’ve said that at the beginning of your administration you’d ask the Pentagon to report. When it comes to special interrogation methods, obviously you’ve said you’re against torture, but the types of methods that are now used that aren’t technically torture but are still permitted, would you do something in your first couple days to address that, suspend some of the special interrogation methods immediately or ask for some kind of review?

HRC: Well I think I’ve been very clear about that too, we should not conduct or condone torture and it is not clear yet exactly what this administration is or isn’t doing, we’re getting all kinds of mixed messages. I don’t think we’ll know the truth until we have a new President. I think once you can get in there and actually bore into what’s been going on, you’re not going to know. I was very touched by the story you guys had on the front page the other day about the WWII interrogators. I mean it's not the same situation but it was a very clear rejection of what we think we know about what is going on right now but I want to know everything, and so I think we have to draw a bright line and say ‘No torture – abide by the Geneva conventions, abide by the laws we have passed,' and then try to make sure we implement that.

Compare Greg Craig in yesterday's Times, speaking about rendition specifically Bush antiterror policy generally:

Mr. Craig noted that while Mr. Obama decided “not to change the status quo immediately,” he created a task force to study “rendition policy and what makes sense consistent with our obligation to protect the country.”

He urged patience as the administration reviewed the programs it inherited from Mr. Bush. That process began after the election, Mr. Craig said, when military and C.I.A. leaders flew to Chicago for a lengthy briefing of Mr. Obama and his national security advisers. Mr. Obama then sent his advisers to C.I.A. headquarters to “find out the best case for continuing the practices that had been employed during the Bush administration.
From the Administration's point of view, a comprehensive review of Bush era practices is simple prudence. Charged with protecting the nation against terrorist attack, they cannot simply tear up every element of the prior Administration's interrogation, detention and disclosure policies in one fell swoop. Which is not to say that civil liberties groups should let down their guard or ease up on their pressure. Countervailing pressures keep presidents on course -- and no one alive, placed in the President's chair, would not be tempted to err on the side of security over liberty when the two seem to conflict.

Monday, February 16, 2009

Obama's modest and ambitious agenda, part II

The prior post Obama's modest and ambitious agenda, based on a transition-period interview, noted that Obama, asked what he hopes to have accomplished two years into his term, set expectations for substantive progress on a broad front of issues while also emphasizing that on each front he was aiming to change course rather than complete a journey. That is, he was asking to be judged in two years on whether he has laid foundations for economic recovery, healthcare reform, new energy sources, educational reform, etc. rather than implemented complete reform programs.

In a Friday afternoon interview, reported by Marc Ambinder, Obama repeated this pattern. First, he laid out an ambitious set of immediate priorities - getting TARP right, beginning to contain healthcare costs while expanding access, starting on an energy policy "that puts us on a path to sustainability," and "bending the curve down" on long-term government spending, mainly by getting a grip on healthcare inflation. Then, the qualifier:
I think that all these goals are complementary. I also think that the American people understand we won't get everything done overnight. The government and the economy are enormous ocean liners, they're not speedboats. So what we will do this year is to try to get them on the right trajectory and hopefully that means at the end of my term you'll look back and you'll say we're at a different place than we would have been had we not made these changes.
"Changing the trajectory" of American politics was a keynote of Obama's campaign and a measure of his ambition -- he was bidding frankly to do what Reagan did. It's interesting that he now uses the same metaphor to contain expectations. Changing a trajectory is an enormous task in itself. But it doesn't cover the miles.

Sunday, February 15, 2009

Mike Mullen "re-arms" America, Covers Obama

A remarkable credo published today in the Washington Post by Mike Mullen, Chairman of the Joint Chiefs of Staff, in an essay titled "Building our Best Weapon":

We have learned, after seven years of war, that trust is the coin of the realm -- that building it takes time, losing it takes mere seconds, and maintaining it may be our most important and most difficult objective.

That's why images of prisoner maltreatment at Abu Ghraib still serve as recruiting tools for al-Qaeda. And it's why each civilian casualty for which we are even remotely responsible sets back our efforts to gain the confidence of the Afghan people months, if not years.

It doesn't matter how hard we try to avoid hurting the innocent, and we do try very hard. It doesn't matter how proportional the force we deploy, how precisely we strike. It doesn't even matter if the enemy hides behind civilians. What matters are the death and destruction that result and the expectation that we could have avoided it. In the end, all that matters is that, despite our best efforts, sometimes we take the very lives we are trying to protect.

You cannot defeat an insurgency this way.

Mullen is writing specifically about U.S. efforts to stabilize Afghanistan. But the unequivocal moral code he lays down has sweeping implications -- for the interrogation of prisoners (that is, for the policies initiated by Cheney, Rumsfeld, Bush et al, implemented at Bagram and Guantanamo and then transferred to Abu Ghraib); for Israel in Gaza; for pilotless drone attacks in Pakistan, for all counterinsurgency efforts, and ultimately all warfare.

Mullen does not directly address the impact on 'trust' of the U.S.'s pilotless drone attacks on the tribal regions of Pakistan. But he does lay responsibility for a poor working relationship with Pakistan largely on U.S.'s doorstep:

Looking through that regional lens is difficult given our trust deficit with Pakistan. A whole generation of Pakistani military officers either doesn't know the United States, doesn't trust us or both. What they do know is that military aid restrictions went into effect under the Pressler Amendment in 1990. We basically cut them off for 12 years, and in the process cut ourselves off.

As one Pakistani official put it recently, "The U.S. abandoned Pakistan, and that mutual distrust didn't allow and still in many ways does not allow both parties to find a common strategy to defeat terrorism."

We are working to turn that around. Already, a small contingent of U.S. military experts is assisting in the professional development of Pakistani counterinsurgency trainers. Pakistani officers will increasingly be invited to attend our war colleges. And I am hopeful that more U.S. aid and technical assistance may flow to the border regions.

For my part, I have made it a priority to develop closer ties with the head of the Pakistani military, Gen. Ashfaq Kiyani, and other military and civilian leaders. If I'm in the area, I go to Pakistan. Trust cannot be won over the phone. You build it one person -- and one issue -- at a time.

I have never read anything like Mullen's back story for the failures of antiterror efforts in Pakistan over the past seven-plus years (though complaints are common that the U.S. disengaged from Afghanistan once the Soviets pulled out). The near-universal media take was that the Bush Administration shelled out billions without conditions or oversight, and that Pakistan's antiterror efforts were essentially bogus or at best ambivalent. Mullen is reaching back to an earlier era to explain why the "alliance" has failed to be effective. Add this to the roster of official and quasi-official U.S. apologies for past missteps.

Like the 16 generals who flanked Obama when he signed his executive orders banning torture and closing Guantanamo within a year, Mullen is providing cover for Obama to implement a more restrained, nuanced, "sensitive" and multi-faceted approach to foreign policy, national security and war.

Emanuel's box score: lots of runs, hits and errors

Counterbalancing the hand-wringers who were convinced throughout the stimulus bill drama that Obama had lost control of the process are those convinced that Obama brilliantly maneuvered the Republicans into exposing themselves as intellectually bankrupt ideologues and poseurs.

One of Andrew Sullivan's readers, for example, cheered an Obama
cool as a cucumber, playing his game, five steps ahead, setting up moves that won't come to fruition for months or years, while his opposition flails at the thin air where he used to be.
Kos blogger JCWilmore made a case that Obama sprang a trap on the Republicans:
Did Obama see that the Republican Party has shrunk to its most hard core activist roots? That the Republican Party has lost the ability to maneuver and make deals? Did Barack Obama know that the Republican Party was in a position where it had no choice but to pander to the very worst of its out of touch base? Did Barack Obama simply want to catch the Republican Party and its leadership on camera while it behaved badly and ignored the American peoples' desire for some kind of economic relief?... Barack Obama brought the cameras and the Republican Party and its leadership performed precisely as expected.
I don't see either of these portrayals as exactly wrong. Obama does plan 'five moves ahead,' in the sense that he develops long-range plans and sticks to them as long as they're working (see: campaign for President). He may have 'laid a trap' for Republicans to the extent of concluding that if they did reject his overtures, the rejection would probably damage them more than it did him.

But there's a tendency too for Obama's supporters, like any charismatic leader's supporters, to credit their hero with superhuman foresight and strategic acumen. Against that tendency, a postmortem from the Obama camp (mainly Rahm Emanuel) reported by Politico's Mike Allen and Jonathan Martin offers a corrective:
White House aides say they have concluded that Obama too frequently lost control of the debate and his own image during the stimulus battle. By this reckoning, the story became too much about failed efforts at bipartisanship and Washington deal-making, and not enough about the president’s public salesmanship....

Meeting with reporters Thursday night, White House chief of staff Rahm Emanuel said that there were times during the stimulus debate when “I don’t think we were sharp about the benefits” of the legislation, letting Washington process dominate the message.

Reflecting as “somebody who has been in this town,” he observed that “there’s an insatiable appetite for the notion of bipartisanship here and we allowed that to get ahead of ourselves.”...

During his Thursday roundtable with print reporters, Emanuel pointed proudly to the “set of accomplishments” from Obama’s first three weeks, but acknowledged: “There are things both on the inside and the outside I would have changed.”

“Inside, being how we would have handled certain negotiations,” he explained, noting that given the size and speed of a bill with “these many moving parts, there are differences [of] interpretation.”
The process of trial, error and postmortem implicit in Emanuel's review tracks with Obama's own outline of the policymaking process as he envisions it, reported by Ronald Brownstein in National Journal:
Obama displayed the same instinct -- clarity about his goals, flexibility about his tactics -- in discussing the plan Treasury Secretary Timothy Geithner unveiled this week to stabilize the banking and credit system. In the conversation, Obama reprised some of the arguments he's raised to defend the plan from the widespread reaction on Wall Street and Capitol Hill that it lacked specifics. But most interesting was the way he described the proposal as a work in progress that inexorably will evolve as conditions do. "Here's the bottom line," he said. "We will do what works. It is going to take time to lay out every aspect of this plan, and there are going to be certain aspects of any plan... which will require reevaluation and... some experimentation -- [a sense that] if that doesn't work, then you do something else."

Does that MO suggest that Obama will try something other than bipartisanship? No. Brownstein characterizes Obama as firm in his goals, flexible as to process. I was going to write here that Obama sees bipartisanship as a goal, not a tactic. But that's not exactly right; it's neither precisely. It's just hard-wired into the way he operates:
Obama said the near-unanimous Republican opposition, after all his meetings with GOP legislators, would not discourage him from reaching out again on other issues. "Going forward, each and every time we've got an initiative, I am going to go to both Democrats and Republicans and I'm going to say, 'Here is my best argument for why we need to do this. I want to listen to your counterarguments, if you've got better ideas, present them, we will incorporate them into any plans that we make and we are willing to compromise on certain issues that are important to one side or the other in order to get stuff done,'" he said.

Cooperation on the economic agenda, he suggested, may have been unusually difficult because it "touched on... one of the core differences between Democrats and Republicans" -- whether tax cuts or public spending can best stimulate growth. He predicted there may be greater opportunity for cooperation on issues such as the budget, entitlements and foreign policy. And if he keeps reaching out, he speculated, Republicans may face "some countervailing pressures" from the public "to work in a more constructive way." White House aides suggest that regardless of how congressional Republicans react on upcoming issues, Obama will pursue alliances with Republican governors and Republican-leaning business groups and leaders.

Yet while promising to continue to seek peace with congressional Republicans, Obama also made clear he's prepared for the alternative. "I am an eternal optimist [but] that doesn't mean I'm a sap," he said pointedly. "So my goal is to assume the best but prepare for a whole range of different possibilities in terms of how Congress reacts."
That sounds like a blueprint for foreign interaction as well.

Saturday, February 14, 2009

Can this economic destruction be creative?

In a different key, Richard Florida's magisterial blueprint for new patterns of sustainable development, How the Crash will Reshape America, chimes with Obama's brand of American optimism, his endlessly reasserted faith that American have always and will once again convert crisis into opportunity. Florida anticipates a kind of creative destruction in the wake of the housing bubble, a chance to remake the landscape, the economy and the community:
The Stanford economist Paul Romer famously said, “A crisis is a terrible thing to waste.” The United States, whatever its flaws, has seldom wasted its crises in the past. On the contrary, it has used them, time and again, to reinvent itself, clearing away the old and making way for the new. Throughout U.S. history, adaptability has been perhaps the best and most quintessential of American attributes. Over the course of the 19th century’s Long Depression, the country remade itself from an agricultural power into an industrial one. After the Great Depression, it discovered a new way of living, working, and producing, which contributed to an unprecedented period of mass prosperity. At critical moments, Americans have always looked forward, not back, and surprised the world with our resilience. Can we do it again?
Obama's yes we can, like Florida's implied affirmative, is grounded in faith in democracy. Democracies are not immune from horrendous mistakes and periods of dysfunction. But their saving grace is self-correction. In Obama's terms, "When the American people are determined that something is going to happen, then it happens." As long as the capacity for self-correction -- that is, for real electoral choice -- is not itself destroyed outright or undermined, the ship of state will right itself.

The reformed demographic grid that Florida envisions entails a concentration of people in mega-metropolitan areas with a critical mass of diverse human talent; a reversal of suburban sprawl that will not only be ecologically more sustainable, but raise the "metabolism" -- that is, the creative interaction of people living in close proximity -- of these urban centers; a reduction in homeownership that will foster a more mobile workforce; and shrinking of urban areas that fail to achieve a critical mass of creativity.

One of Florida's more startling claims is that over-promotion of homeownership has contributed to economic sclerosis and needs to be rolled back:

If anything, our government policies should encourage renting, not buying. Homeownership occupies a central place in the American Dream primarily because decades of policy have put it there. A recent study by Grace Wong, an economist at the Wharton School of Business, shows that, controlling for income and demographics, homeowners are no happier than renters, nor do they report lower levels of stress or higher levels of self-esteem.

And while homeownership has some social benefits—a higher level of civic engagement is one—it is costly to the economy. The economist Andrew Oswald has demonstrated that in both the United States and Europe, those places with higher homeownership rates also suffer from higher unemployment. Homeownership, Oswald found, is a more important predictor of unemployment than rates of unionization or the generosity of welfare benefits. Too often, it ties people to declining or blighted locations, and forces them into work—if they can find it—that is a poor match for their interests and abilities.

As homeownership rates have risen, our society has become less nimble: in the 1950s and 1960s, Americans were nearly twice as likely to move in a given year as they are today. Last year fewer Americans moved, as a percentage of the population, than in any year since the Census Bureau started tracking address changes, in the late 1940s. This sort of creeping rigidity in the labor market is a bad sign for the economy, particularly in a time when businesses, industries, and regions are rising and falling quickly.

The foreclosure crisis creates a real opportunity here. Instead of resisting foreclosures, the government should seek to facilitate them in ways that can minimize pain and disruption. Banks that take back homes, for instance, could be required to offer to rent each home to the previous homeowner, at market rates—which are typically lower than mortgage payments—for some number of years. (At the end of that period, the former homeowner could be given the option to repurchase the home at the prevailing market price.) A bigger, healthier rental market, with more choices, would make renting a more attractive option for many people; it would also make the economy as a whole more flexible and responsive.

A core rationale for homeownership is that the home is keystone for accruing a measure of wealth. That's always been questionable, at best a partial truth that's based on large part on the mortgage deduction. Absent insane housing bubbles, a home is at best a forced savings program with a modest rate of return -- one that would be outpaced, in many regions, by investing a percentage of income equal to the paydown of principal in the stock or bond markets or even in a savings account. And now we all know that at certain times and places, homeownership can destroy wealth as surely as the stock market can.

Of course, homes are also means of self-expression and of social investment in a community. Ownership also builds competence and responsibility--having grown up in New York City in the pre-co-op era, I can attest that renting can foster a kind of passivity and naivete about the way things work. On balance, owning a home is a good thing. But like marriage or raising children, it's not an unmixed blessing, and it's not for everyone. In many cases it's a fetter, tying people to deteriorating environments, opportunity-free regions, or simply a living space that no longer suits their needs.

As the Obama Administration and Congress prepare anti-foreclosure initiatives, realism and flexibility are essential. Some people - those who can pay a reasonable fixed rate on a principal that reflects the current value of their homes - should be helped to maintain their hold. Others, as Florida suggest, might be helped to rent the homes they used to own, in some cases with a path to repurchase when the economy and their fortunes recover. Others should be helped to walk away, and perhaps to relocate after retraining.

Obama's re-education project

A major part of Obama's sweeping ambition is to restore trust in government, which amounts to a kind of re-education of the American people after thirty years of being told that government is the problem not the solution. So in his weekly address, a promise of accountability in use of stimulus dollars:
Now, some fear we won’t be able to effectively implement a plan of this size and scope, and I understand their skepticism. Washington hasn’t set a very good example in recent years. And with so much on the line, it’s time to begin doing things differently.

That’s why our goal must be to spend these precious dollars with unprecedented accountability, responsibility, and transparency. I’ve tasked my cabinet and staff to set up the kind of management, oversight, and disclosure that will help ensure that, and I will challenge state and local governments to do the same.

Once the plan is put into action, a new website – Recovery DOT gov – will allow any American to watch where the money goes and weigh in with comments and questions – and I encourage every American to do so. Ultimately, this is your money, and you deserve to know where it’s going and how it’s spent.
We will see how the execution plays out. But that's a pretty remarkable promise and project. Accountability, responsbility, tranparency. You say you want a revolution...

Friday, February 13, 2009

Noonan's avatar of national anomie

There is no columnist alive more full of impressionistic bullshit than Peggy Noonan.

A nice round 30 years after Christopher Lasch's The Culture of Narcissism exacerbated a culture of generalizing about generational morals, Peggy's decided that that an uber-egoist is emblematic of America Today:

And there's something else, not only in Manhattan but throughout the country. A major reason people are blue about the future is not the stores, not the Treasury secretary, not everyone digging in. It is those things, but it's more than that, and deeper.

It's Sully and Suleman, the pilot and "Octomom," the two great stories that are twinned with the era. Sully, the airline captain who saved 155 lives by landing that plane just right—level wings, nose up, tail down, plant that baby, get everyone out, get them counted, and then, at night, wonder what you could have done better. You know the reaction of the people of our country to Chesley B. Sullenberger III: They shake their heads, and tears come to their eyes. He is cool, modest, competent, tough in the good way. He's the only one who doesn't applaud Sully. He was just doing his job.

This is why people are so moved: We're still making Sullys. We're still making those mythic Americans, those steely-eyed rocket men. Like Alan Shepard in the Mercury rocket: "Come on and light this candle."

But Sully, 58, Air Force Academy '73, was shaped and formed by the old America, and educated in an ethos in which a certain style of manhood—of personhood—was held high.

What we fear we're making more of these days is Nadya Suleman. The dizzy, selfish, self-dramatizing 33-year-old mother who had six small children and then a week ago eight more because, well, she always wanted a big family. "Suley" doubletalks with the best of them, she doubletalks with profound ease. She is like Blago without the charm. She had needs and took proactive steps to meet them, and those who don't approve are limited, which must be sad for them. She leaves anchorwomen slack-jawed: How do you rough up a woman who's still lactating? She seems aware of their predicament.

Any great nation would worry at closed-up shops and a professional governing class that doesn't have a clue what to do. But a great nation that fears, deep down, that it may be becoming more Suley than Sully—that nation will enter a true depression.

That's Ms. Noonan, forever weak-kneed over imagined John Waynes, forever on the lookout for new avatars of national anomie. It's all pure fantasy, of course. Generations don't have characters -- and if they did, how did Peggy slip off-message enough to praise a 58-year old boomer? Will the original alleged narcissists age into a Greatest Generation? Boomers now trump Xers?

For aging eulogists of mythical golden ages, those inheriting the earth are always "D-Generation."

Thursday, February 12, 2009

Obama's liberal Lincoln

On Lincoln's 200th birthday, in the latest of a long series of tributes to Lincoln, Obama cast Lincoln as the avatar of union - that is, of commitment to the collective effort that removes the fetters from individual effort. He drew his usual long historical framework: that we can meet the challenges of the moment because "we have been here before" -- Americans have, historically, mustered the collective will required to meet enormous challenges. Within that larger story, he set his usual shorter historical narrative -- the story of the last thirty years -- with unusual clarity and compression.

The short frame is: Reagan was a legitimate corrective to a state that had grown bloated; the Republicans who followed him were an overcorrection; it is time to restore collective effort, commitment to the common good, faith in government as a instrument in collective problem solving. Obama implicitly casts himself as an instrument of democratic self-correction:

And yet, while our challenges may be new, they did not come about overnight. Ultimately, they result from a failure to meet the test that Lincoln set. To be sure, there have been times in our history when our government has misjudged what we can do by individual effort alone, and what we can only do together; when it has done things that people can – or should – do for themselves. Our welfare system, for example, too often dampened individual initiative, discouraging people from taking responsibility for their own upward mobility. With respect to education, we have all too frequently lost sight of the role of parents, rather than government, in cultivating a thirst for knowledge and instilling those qualities of a good character – hard work, discipline, and integrity – that are so important to educational achievement and professional success.

But in recent years, we’ve seen the pendulum swing too far in the opposite direction. It’s a philosophy that says every problem can be solved if only government would step out of the way; that if government were just dismantled, divvied up into tax breaks, and handed out to the wealthiest among us, it would somehow benefit us all. Such knee-jerk disdain for government – this constant rejection of any common endeavor – cannot rebuild our levees or our roads or our bridges. It cannot refurbish our schools or modernize our health care system; lead to the next medical discovery or yield the research and technology that will spark a clean energy economy.

Once again, Obama casts moving the center left as a restoration of core American values. (Elsewhere, he's drafted not only Lincoln but Hamilton into this historical narrative -- two of our leaders, ironically, who arguably did most to empower industrial and financial elites, as well as strong central government and collective effort.) He presents Lincoln's railroads, and his land grants, and his land-grant colleges, as precursors of his own intended alternative energy investments, and job creation, and school reform. He embraces Lincoln's injunction to “lift artificial weights from all shoulders [and give] all an unfettered start, and a fair chance, in the race of life" as the essence of what he has often defined as the always-unfinished American drive toward a "more perfect union."

"It is whatever Obama wants" -- a counternarrative peeks out

Most of what I read about the House-Senate negotiations on the stimulus bill emphasized what was cut out of House appropriations: aid to states, some subsidies for Cobra healthcare benefits, $16 billion for school buildings. Also, dilution of the total by including the $70 billion patch to the alternative minimum tax, rather than handling that separately, later. Rolled, rolled, rolled by Republican 'moderates,' went the narrative.

Politico's David Rogers tells a different story:
“Basically, it is whatever Obama wants,” said one House staffer up all night sorting through Appropriations accounts. From investments in new energy initiatives, broadband, high speed rail, and health information technology, Obama gained a foothold. Yet with continued market turmoil and a troubled economy, action was a first priority for the administration.

According to Rogers, Obama got much of what he wanted by agreeing to shave his middle class tax cut, "to $400 for individuals and $800 for couples — down from $500 and $1000, respectively. This was estimated to save at least $20 billion and was seen as a good faith effort to move the negotiations along."
Moreover, Rogers claims that Obama may end up with his 80 Senate votes after all. That sounds pretty rich now that Gregg Judd's withdrawn, the Republicans have circled the wagons, and people wonder whether a fillibuster in the Senate may yet be possible. But who knows which way the wind will blow by next Monday?

Today's Times story also showed some of the cuts in proposed spending to be more of a compromise than original reports suggested. It seems that $25 billion, not $40 billion, was cut from the House's proposed $79 billion in direct aid to states. The shave on Cobra health insurance subsidies to the unemployed was relatively moderate, from 65% of the cost over 12 months to 60% of the the cost over nine months - though temporary Medicaid coverage for the jobless who have no Cobra to fall back on was cut entirely.

Obama may have given up least on alternative energy investment. An advocate I know was thrilled with this synopsis from
The bill will be a boon for the renewable energy industry. All of the provisions that were contained in the Senate version of the bill were retained. In addition, the grants in lieu of tax credits clause that the House version of the bill contained made the final package.

The renewable energy, transmission and energy efficiency measures of the bill are outlined below.

The new bill contains $20 billion for tax incentives for renewable energy and energy efficiency over the next 10 years including:

  • A three-year extension of the production tax credit (PTC) for electricity derived from wind (through 2012) and for electricity derived from biomass, geothermal, hydropower, landfill gas, waste-to-energy and marine facilities (through 2013).
  • Grants of up to 30 percent of the cost of building a new renewable energy facility to address current renewable energy credit market concerns. The grant money was originally slated to go through DOE, but is now hearing that the money will be distributed through the Treasury Department.
  • Establishment of a new manufacturing investment tax credit (ITC) for investment in advanced energy facilities, such as facilities that manufacture components for the production of renewable energy, advanced battery technology and other innovative next-generation green technologies.
  • Clean renewable energy bonds for state and local governments.
  • Extensions for tax credits through 2010 for purchases such as new furnaces, energy-efficient windows and doors or insulation.
  • A tax credit for families that purchase plug-in hybrid vehicles of up to $7,500 to spur the next generation of American cars.

In addition, $30 billion will go to smart power grid, advanced battery technology and energy efficiency measures including the Smart Grid Investment Program to modernize the electricity grid to make it more efficient and reliable, U.S. development of advanced vehicle batteries and battery systems through loans and grants.

If there's another turn of the screw and Obama does indeed get a fat handful of Republican Senators on board, ththe country may get used to him getting his way, as it did to Reagan early on. The money carved out of the stimulus may prove to be money well unspent.

Monday, February 09, 2009

Obama's message to the middle east

In a press conference focused mainly on the stimulus bill and the economy, Obama seized on a terse (and slighly bizarre) question from Helen Thomas to send a strong signal to Iran, the middle east, Russia and the world at large that the U.S. will take a fundamentally different approach to its relations with other nations.

Thomas asked, "do you know of any country in the Middle East that has nuclear weapons?" Obama's response:

With respect to nuclear weapons, you know, I don't want to speculate. What I know is this: that if we see a nuclear arms race in a region as volatile as the Middle East, everybody will be in danger.

And one of my goals is to prevent nuclear proliferation generally. I think that it's important for the United States, in concert with Russia, to lead the way on this.

And, you know, I've mentioned this in conversations with the Russian president, Mr. Medvedev, to let him know that it is important for us to restart the -- the conversations about how we can start reducing our nuclear arsenals in an effective way so that...... so that we then have the standing to go to other countries and start stitching back together the nonproliferation treaties that, frankly, have been weakened over the last several years.

Obama seems to be signaling a few moves on the chessboard here. First, that he might expect to get more cooperation from the Russians in pressuring Iran to halt nuclear weapons development if we first work with the Russians toward reducing our own arsenals. That's a good-faith move that points in two directions: toward Russia, by foregrounding work on a matter of bilateral interest that's less fraught than issues of NATO expansion or missile defense (though it comes near the latter and might encompass it) -- and toward Iran, for which a nuclear reduction move by the U.S. and Russia might might provide face-saving cover for a curb on nuclear enrichment.

This unprompted proposal picked up on the conciliatory undercurrent in Obama's response to a prior question, whether there were any signs that Iran was interested in dialogue. Obama responded pretty much as he had in the campaign -- with an obligatory litany of Iran's "unhelpful" actions, a vow to "take an approach with Iran that employs all of the resources at the United States' disposal, and that includes diplomacy," and an affirmation of "the possibility at least of a relationship of mutual respect and progress."

But coming from a sitting U.S. president, the tone and context in which Obama placed the nuclear threat was a real departure. In two references to Iran's nuclear proliferation, Obama emphasized not any affront to the U.S. but the destabilizing effect on the region. He also implicitly suggested mutual responsibility for the "mistrust" between the U.S. and Iran. My emphasis below :
I said during the campaign that Iran is a country that has extraordinary people, extraordinary history and traditions, but that its actions over many years now have been unhelpful when it comes to promoting peace and prosperity both in the region and around the world; that their attacks or -- or their -- their financing of terrorist organizations like Hezbollah and Hamas, the bellicose language that they've used towards Israel, their development of a nuclear weapon or their pursuit of a nuclear weapon -- that all of those things create the possibility of destabilizing the region and are not only contrary to our interests, but I think are contrary to the interests of international peace.....

There's been a lot of mistrust built up over the years, so it's [a change of policy] not going to happen overnight.

And it's important that even as we engage in this direct diplomacy, we are very clear about certain deep concerns that we have as a country, that Iran understands that we find the funding of terrorist organizations unacceptable, that we're clear about the fact that a nuclear Iran could set off a nuclear arms race in the region that would be profoundly destabilizing. So there are going to be a set of objectives that we have in these conversations, but I think that there's the possibility, at least, of a relationship of mutual respect and progress
There's nothing remarkable in asserting that a nuclear Iran would destabilize the region. What's notable is the absence of posturing, the removal of the dispute from the realm of one-on-one confrontation. The big stick is not invisible, but Obama speaks soft.

And to step back and rub one's eyes for a moment: a U.S. President, asked about nuclear proliferation in the middle east, responds that the U.S. has to lead by example on the nonproliferation front. Can we have the audacity to hope that the Obama Administration will also strive to lead by example in other efforts where international cooperation is essential, such as climate change and coordinated response to the economic crisis?

Obama's meta mea culpa, cont.

Taking questions at a town-hall meeting in Indiana today, Obama reiterated his oddly elusive confession of error in connection with the Daschle appointment:

The woman asked how Americans could trust him if “those you have appointed to your cabinet are not trustworthy,” referring to his nomination of several officials who did not pay all of their taxes until the prospect of working in his administration. ...

“I think these were honest mistakes,” Mr. Obama responded. “If you’re not going to appoint anybody who’s not made a mistake in their life, then you’re not going to have anybody take a job.” But he agreed that he erred by not seeing that it would look like a double standard. “I made a mistake because I don’t want to send the signal that there are two sets of rules,” he said.

As it did when Obama delivered his initial, riveting "I screwed up," the mea culpa seems peculiarly meta, admitting to a failure to recognize how his defense of Daschle would be perceived rather than to an error in judging Daschle himself. Obama didn't want to look like he was setting a double standard by defending Daschle after Daschle admitted to a failure to report use of a car and driver as income. But was he setting one? If Obama were the only person who knew of Daschle's tax error, would he have been wrong to stick with him?

Assuming not, was Obama wrong to bow to the perception of a double standard? Would it have been impossible to credibly elaborate the defense of Daschle above - these were honest mistakes...If you’re not going to appoint anybody who’s not made a mistake in their life, then you’re not going to have anybody take a job? Is it fair for Obama to confess that the whole gestalt of three nominees' tax reporting failures plus Daschle's lucrative quasi-lobbying interregnum trumped his personal conviction that Daschle was the best person for the job? And does the confession suggest that Obama should have pushed Daschle before he jumped?

Sunday, February 08, 2009

Depends what your definition of "screwed up" is

The country has been ga-ga over Obama declaring "I screwed up" in connection with the Daschle nomination. So refreshing, such a break with the prior administration. But what exactly did Obama mean?

Did he mean that Daschle was the wrong pick to head HHS and the effort to reform healthcare? No....

Tom, I think, is an outstanding individual. I am absolutely convinced that he would've been the best person to help shepherd through what's going to be a very difficult process to get health care for American families.
Did he mean that his vetting process was somehow wanting? No...

Well, I, you know, don't think there's something wrong with the vetting process.
Did he mean that Daschle's tax error, once revealed, should have disqualified him? Or that, once the error (and Daschle's quasi-lobbying activities) came to light, Obama should have asked him to resign immediately? Maybe, kinda:

I think that what happened, certainly, let's just take Tom as an example. I made a judgment that he was the best person possible for the job. I was very eager to make sure that we can deliver on a commitment that I have to deliver healthcare for the American people. I think I messed up. I screwed up in not recognizing the perception that even though this is an honest mistake, I believe, on Tom's part, that, you know, ordinary people are out there paying taxes every day and whether it's an intentional mistake or not, it was sending the wrong signal. So again, this was something that was my fault. I continue to consider Tom Daschle an outstanding public servant, uh, and what we're going to do now is make sure we get somebody confirmed and start moving forward.
I screwed up in not recognizing the perception. Was the perception wrong or right? Did Daschle violate an ethical standard to an extent that made him unfit for the office? If not, was the perception wrong? If wrong, should Obama have tried to change it?

I think Obama "screwed up" in setting the ethical bar too high. He's absolutely right that lobbyists' grip on U.S. politics needs to be weakened. But the focus should be on rules in effect going forward, not on selecting only people who are simon-pure by a new standard. And while it's true that "ordinary people are out there paying taxes," it's not true that "ordinary people" with any discretionary items routinely pay all taxes they could be construed to owe. How many of those condemning Daschle, or Killefer, or Geithner for their tax misdemeanors hold themselves to a higher standard? Ask their accountants, if they're reasonably affluent, or the people who paint their houses, if they're middle class, or the people whom they serve privately, in unsalaried positions, if they're poor.

Yes, public officials should be held to a higher standard. But perhaps we've arrived at the point, to paraphrase AIG's Hank Greenberg, where footfaults are treated as a murder charge.

Frank Rich is probably right that populist rage at the excesses of Wall Street and Washington are going to be a formidable political force in the years ahead, and that Obama needs to "get in front of the mounting public anger." But Obama also demonstrated a rare ability through the endless campaign to explain nuance, and to articulate two sides of a matter in dispute. Sometimes he may need to stand between his subordinates and the public rage.

Friday, February 06, 2009

Poison pill in the stimulus bill

Suppose the Democratic Congress passes and President Obama signs a stimulus bill that triggers a worldwide Depression rather than forestalling one? We may be on the brink.

Like many Obama supporters, I've spent a lot of time lately fretting about what Republican opposition might do to the stimulus. Will they cut out $200 billion? Will they raise the ratio of tax cuts to spending?

But those concerns pale beside the "buy American" provisions in the bill. In the House version, these stipulate that any iron and steel used for projects funded by the bill be produced in the U.S. The current Senate version extends the requirement to all manufacturing products.

Leaders in Europe and Asia are warning that these provisions could trigger a global trade war -- a cascade of "beggar-thy-neighbor" protectionist measures. Economists and financiers across the political spectrum echo that warning (two are noted in the prior post). As the world looks to the Obama Administration for leadership, a protectionist stimulus would cause swift and widespread disillusion -- and equally widespread retaliation.

Most galling, as a new Peterson Institute study makes clear, the provision would trade U.S. global credibility for a pittance -- approximately 1,000 steel industry jobs in a labor force of 140 million people.

The negative effects of the provision may be moderated in various ways. It may be jiggered to remain in nominal compliance with WTO and NAFTA commitments. Specifically, additional cover could be built into its current public interest waiver, stating that the "buy American" provision will be waived where it proves "inconsistent with the public interest." The Peterson brief suggests that negative effects could be mitigated "by stating explicitly...that the public interest waiver is intended to be used to avoid violations of US trade obligations." Another option, according to the Peterson brief, is a presidential statement (signing statement?) that the U.S. will respect its international obligations.

Even with such a caveat, however, as the Peterson brief and Jagdish Bhagwati point out, the provision would cut out major steel suppliers hat have not signed the WTO's Agreement on Government Procurement -- namely China, India and Brazil. Yes, the measure with the appropriately positioned waiver could be used to "encourage" those countries to sign on. But it will more likely prompt them to impose their own import restrictions.

It's distressing that the Peterson brief appears to assume that the political imperative to include this poison bill is too strong to resist. What an opportunity this is for Obama to walk the bipartisan walk and outflank even most Republicans from the "right" -- though part of his broader political message should be that getting a free trade/fair trade balance right does not fall into "the tired categories of left and right." The real issue, framed trenchantly by the Peterson brief, is leadership:
Buy American provisions would particularly damage US reputation abroad since they would come just a few months after the United States pledged to reject protectionism at the G-20 summit on November 15, 2008. The world is carefully watching the first moves of President Obama to gauge the tone of the new administration's trade policy...

Based on our economic and legal analysis, the Buy American provisions would violate US trade obligations and damage the United States' reputation, with very little impact on US jobs. In a country of 140 million workers, with millions of new jobs to be created by the stimulus package, the number of employees affected by the Buy American provision is a rounding error.

In other words, there is little bang for the buck, and on balance the Buy American provisions could well cost jobs if other countries emulate US policies. Most importantly, the Buy American provisions contradict the G-20 commitment not to implement new protectionist measures--a commitment that was designed to forestall a rush of "beggar-thy-neighbor" policies.
Very early in his presidency, George W. Bush's free trade credibility was gutted when he kowtowed to the steel industry and imposed tariffs on steel imports. What a bitter irony if Obama makes the same mistake in his first month in office - selling the U.S.'s global leadership birthright for a mass of protectionist pottage.

UPDATE: Buy American provision has been softened but not dissolved - FT:

The Senate narrowed the Buy American provisions, which require that federal money be spent on goods from US companies, to ensure they would be compatible with US commitments under existing trade treaties. But it rejected an amendment from John McCain, the defeated Republican presidential candidate, to strike Buy American from the bill altogether.

The head of the European steel industry trade group said the Senate had not done enough to head off a potential trade war. “Unfortunately the Senate’s vote does not go further and overturn the Buy American clause,” said Gordon Moffat, director of Eurofer. Countries such as China, India, Russia, the Ukraineand Turkey, which have not signed the World Trade Organisation’s government procurement agreement, would still be excluded, he said.

The "softening" was prompted by Obama, who had this exchange with Charlie Gibson on Feb. 3:

CHARLES GIBSON: A couple of quick questions. There are "Buy America" provisions in this bill. A lot of people think that could set up a trade war, cost American jobs. You want them out?

PRESIDENT OBAMA: I want provisions that are going to be a violation of World Trade Organization agreements or in other ways signal protectionism. I think that would be a mistake right now. That is a potential source of trade wars that we can't afford at a time when trade is sinking all across the globe.

CHARLES GIBSON: What's in there now? Do you think that does that? Do you want it out?

PRESIDENT OBAMA: I think we need to make sure that any provisions that are in there are not going to trigger a trade war.
But Obama stopped short of calling for the provision to be removed entirely. Clive Crook explains why the "softening" is not enough:
President Obama and his spokesmen said this week that the bill's language will be changed as necessary to prevent a trade war. The revised Senate language is helpful, but does not go far enough. Protectionism that is technically consistent with treaty obligations is still an attack on trading partners. The spirit of co-operation is as important as the letter. In the current climate, legal protectionism could quickly degenerate into a cycle of illegal retaliation and counter-retaliation.

Thursday, February 05, 2009

What Republicans should be good for

Andrew Sullivan has recently written something to the effect that we need Republicans to referee spending and hack fat off the stimulus bill. I seriously doubt the party's ability for constructive input on that front (so does Andrew; today he writes that they should understand that they have no crediblity on fiscal discipline). But Republicans could do the country a real service right now by standing up for one of the party's historic core principles: free trade. Today, Jagdish Bhagwati in the FT and Burton Malkiel in the WSJ sound the alarm about starting a Depression-triggering cascade of protectionist actions worldwide with the "buy American" provisions in the stimulus bill. Those warnings are timely and should be a matter of bipartisan consensus.

Update: the FT reports this afternoon that the buy American provisions have been softened but may still do harm:

The Senate narrowed the Buy American provisions, which require that federal money be spent on goods from US companies, to ensure they would be compatible with US commitments under existing trade treaties. But it rejected an amendment from John McCain, the defeated Republican presidential candidate, to strike Buy American from the bill altogether.

The head of the European steel industry trade group said the Senate had not done enough to head off a potential trade war. “Unfortunately the Senate’s vote does not go further and overturn the Buy American clause,” said Gordon Moffat, director of Eurofer. Countries such as China, India, Russia, the Ukraine and Turkey, which have not signed the World Trade Organisation’s government procurement agreement, would still be excluded, he said.

Moffat's criticism tracks with Bhagwati's:
Yet some do worry about thus undermining the WTO, which has inherited from the General Agreement on Tariffs and Trade the many roadblocks to re-enacting that history of mutually harmful outbreaks of trade barriers. They have argued, therefore, that the US can enact WTO-consistent procurement rules by excluding from US procurement China and India, among other developing countries, which have not signed the optional procurement code. But remember that these nations can also retaliate in WTO-consistent ways. They often have “bound tariffs” – ceilings, which are significantly above the “applied”, that is, actual, tariffs; and it is possible to raise the applied tariffs towards the bound levels without any restraint at all.

Nothing would prevent India and China from choosing to raise tariffs thus on items of export interest to the US. Besides, they could shift their own purchases of aircraft away from Boeing to Airbus, and of nuclear reactors from American to French companies. The response would, of course, be for the enraged US congressmen to start enacting their own retaliation. The game would become lively.

While I have found Bhagwati's free trade championing a bit imperious at times (and been imperiously slapped back), his warning now is timely and well-informed. Not passing a strong stimulus bill could be disastrous. But so could passing one with this poison pill.

Was losing Daschle a 'catastrophic' cost?

Assenting to the sacrifice of Tom Daschle on the altar of political reform, Joe Klein, it seems to me, views that sacrifice from the wrong end of the telescope:
The excesses of wealth, throughout the country, have become an American problem. The extremely rich have detached themselves from the rest of society, which was the point of Obama's story about private jets. In Washington, it is a bipartisan phenomenon. Democrats have their special interests too, and their lobbyists are terrific at what they do. A guy like Daschle, who knows the system cold, who could talk to both the insurance companies and the liberal advocates, would have been invaluable to Obama in bringing health insurance to everyone who needs it. But, as the man said, we're all going to have to sacrifice, and it now seems clear that Obama's sacrifice, if he wants to reattach Washington to a nation sick with cynicism about its government, will be to detach himself from the lobbyist élites who might have helped grease the skids for his policy goals.
The key phrase here is would have been invaluable to Obama in bringing health insurance to everyone who needs it. This country cannot restructure its economy and get a grip on future spending without reforming healthcare effectively. We can't roll back the great risk shift without shielding Americans from catastrophic medical costs and ending the risk of exposure every time a person loses or changes jobs. Daschle's understanding of healthcare policy is of the highest order, and his political skills and knowledge of the legislative process are matchless. Losing him could prove catastrophic to the most important policy initiative of Obama's first term.

It's true that Obama based his campaign on the premise that we can't reform our policies effectively until we reform our politics. It's also true that he has a unique opportunity now to break the lobbyist culture that Klein outlines. But Obama may have miscalibrated his ethics message and policies to a degree. In limiting lobbying and lobby-like entanglements, it's impractical to start from scratch. To rule out anyone who didn't now meet the kind of standards that make sense going forward is as constraining as trying to pick a cabinet that "looks like America."

The tax issues are tougher. You'd think that by this point anyone with ambition for high office would regard a "when in doubt, report and pay" principle as indispensable career protection if
nothing else. These "screw it, I'll keep it" tax reflexes are hard to excuse, particularly in the current climate, as the country reacts to decades of ever-increasing self-licensing excess from elites of all stripes. But they're also near-universal. What percentage of Americans with non-salaried income really chose to pay taxes on all income that would not readily show up if they didn't declare it?

As Ezra Klein points out, "The endlessly long vetting forms forcing deep tax and income transparency... in turn uncovered embarrassments that would never have emerged under past regimes." He also provides important perspective on the mode of Daschle's cashing in:
In recent days, there's been an effort to paint Daschle as one of Washington's most corrupt creatures. Jack Abramoff with an electoral history. But so far as sell-outs go, Daschle's sins were almost modest. His path frequently diverged from money. He never registered as a lobbyist or did any lobbying, even though you get paid more to ensure access than offer advice. He spent huge chunks of time working with the Center for American Progress and writing a technical book on health reform. None of that proved lucrative (his book advance was $22,000; poor for a political pundit, much less a former Senate majority leader). He endorsed Obama in February of 2007, when Clinton was far ahead in the polls. If she'd won -- and most thought she would -- his access to the White House would be close to nonexistent, and his value to clients would be greatly diminished.
Ultimately, though, Klein (Ezra) too embraces the Daschle withdrawal as the price of reform:
But it turns out that Obama's words, well, mattered. They made it harder to ignore scandal, as the Bush administration had done. The endlessly long vetting forms forcing deep tax and income transparency, which in turn uncovered embarrassments that would never have emerged under past regimes. This has made for a more troubled transition, but will probably also result in a cleaner administration. For all the embarrassments, this, in a concrete sense, is what change looks like. It's not an administration that decides to be clean so much as one that has little choice in the matter.
Cleanliness is never absolute, however, and it never lasts. The cycle of reform and corruption and new reform is eternal -- or rather, it's only broken when corruption becomes so endemic that reform is impossible, at which point democratic choice becomes an illusion. Our politicians will never be monks, and we shouldn't want them to be (in fact, monkish orders endure their own cycles of corruption and reform). Perhaps those vetting forms shouldn't have cut so deep; perhaps the lobbying guidelines should have been more forward-looking, more forgiving of past conduct. Obama should not have lost the people he's lost.