Supercapitalism run amok

It's fun to fulminate about the folly of Wall Street CEOs who ran their firms -- and the economy -- into the ground. But clearly something larger than individual stupidity was in play.

Take Robert Rubin - plainly one of the best financial minds of our time, who did nothing to help steer Citi away from the cliff's edge. Some may find his valedictory mea culpa a bit lacking in the 'mea' and 'culpa' departments:

My great regret is that I and so many of us who have been involved in this industry for so long did not recognize the serious possibility of the extreme circumstances that the financial system faces today. Clearly, there is a great deal of work that needs to go into understanding exactly what led to this situation and what changes, regulatory and otherwise, must now be implemented to reduce systemic risk and protect consumers.

In fact I think this is a balanced statement - accepting a measure of blame for lack of foresight while focusing on the responsibility now to figure out what went wrong and fix it. As Rubin suggests, there's a complex causal chain to unravel. Links on that chain include metastasized lobbyist influence, botched regulatory reform, and skewed incentives to take on undue risk.

One potentially useful tool for the postmortem is Robert Reich's Supercapitalism (2007) -- though the market meltdown demands some modification, I think, of Reich's central premise. According to Reich, it's relentless global competition among businesses, much more than right wing policy, that has driven the erosion of middle class prosperity, security and opportunity over the past thirty-odd years. Reich portrays a kind of extreme Darwinism that leads corporations to compete as relentlessly in their lobbying efforts as they do on all other fronts:

The citizen in us has a more difficult time being heard now in Washington and other world capitals not because big business has become more powerfully monolithic but for the opposite reason -- because competition among businesses has grown more cutthroat. Companies have entered politics to gain or keep a competitive advantage over their business rivals. The result has been a clamor of competing business interests -- a cacophony so loud as to almost drown out any serious deliberation over the public good (pp 142-143).

Right-wing ideology, favoring ever more deregulation and tax cuts, is more a result of this competition than a cause of it. Lobbying produces the ideology to accommodate business interests.

What Reich might want to rethink is his assumption that what's been bad for our politics has been good for business. In Reich's telling, the business interests that have helped to erode democracy and community have served us all supremely well in our capacities as consumers and investors. Reich's admiration extends from technological innovation to financial engineering:

Capital markets--including stock exchanges, banks and other financial institutions, and money market funds -- are far more efficient than they were decades ago, though still far from perfect.

While briefly acknowledging weak points, such as Wall Street's short-term focus and money managers' conflicts of interest, he writes: "Yet for all this, investors have triumphed, just as consumers have" (p. 95).

Uh huh. What we've now learned is that the hypercompetition Reich chronicles has been maladaptive for businesses -- starting of course with financial companies -- as well as for government, citizens and workers. As Barack Obama memorably put it last March: "What was bad for Main Street was bad for Wall Street. Pain trickled up." Among the skewed incentives: pay packages that provide individuals enormous reward for short-term gain, with no personal financial risk should gain turn to loss. A market that punishes those who eschew short-term gain that comes at the price of undue risk. A regulatory regime that weakened capital requirements, refused to regulate the market for securitizations that divorced lending risk from loan origination, and turned a blind eye to blatantly fraudulent underwriting practices. And on the international stage, global trade imbalances that flooded the U.S. government, businesses and consumers with cheap money, inducing debt-fueled consumption that proved unsustainable.

While the value of evolutionary analogies to market forces is dubious, an evolutionary tale told by Stephen Jay Gould seems at least metaphorically apt. The Irish elk flourished for a brief period from about 12,000 to 11,000 years ago before abruptly becoming extinct. During this time the male's antler set evolved to enormous proportions, eventually reaching approximately 90 lbs. According to Gould, this development was driven by competitive display -- a large set signaled dominance to other males and provided access to females. Extinction followed when the climate and habitat changed abruptly.

The analogy would be more satisfying if the 90-pound headset itself doomed the elk, but Gould doesn't assert this. What does seem relevant is that natural selection can operate in a kind of cul-de-sac in which the trait that leads individuals to success does not serve the species' overall survival capability. Evolution may be no more "efficient" than markets. Our own task, at any rate, is to shape our own environment -- to align incentives with the interests of society as a whole.

Mind-Bogle-ling certainty from Vanguard pere

In the Jan. 8 WSJ Vanguard founder John Bogle, chief evangelist for low-cost index investment, implicitly poses as one who could have kept our portfolios on dry ground as the tidal waves rolled in. Among his time-honored - not to say time-worn -- prescriptions was this old guideline:

How much in bonds? A good place to start is a bond percentage that equals your age. Although I don't slavishly adhere to that rule, my bond position accounted for about 65% of my personal portfolio in early 2000. Because returns on my bond funds since then have totaled 50% and returns on my stock funds were negative 25%, bonds are now about 75% of my portfolio, still close to my advancing age.

It's pretty rich that Bogle here recommends (somewhat equivocally) a conservative bond allocation. In 2006, Vanguard rejiggered its TargetRetirement funds and cut the bond allocations to less than half that benchmark: TargetRetirement 2025 (presumably fit for 44 year-olds) went from approximately 40% bonds to less than 20%. Bogle also scolds performance-chasing over the past couple of years in emerging markets. In that same reallocation, Vanguard added an infusion of emerging market funds into the TargetRetirement family.

The TargetRetirement funds, which blend funds invested in broad stock and bond indexes, are supposed to offer one-stop asset allocation, and consequent peace of mind. Hence, when Vanguard airily informed investors by letter that it was increasing the funds' stock allocations , without even bothering to specify the new allocation, I was incensed. I called and learned that in the TargetRetirement 2025 fund, in which I had a bit less than half my retirement assets, the allocation was changing from approximately 60-40 to 82-18. I said, "I didn't pick my asset allocations out of a hat. Who's going to help me preserve them?" The short answer: no one. I ended up breaking up my Retirement 2025 holdings into their component parts (total stock market, total bond market, european and Pacific indexes). And a good thing too, or I would have lost even more in the recent crash than I did in fact.

To be fair, Bogle has been openly at variance with current Vanguard management for some time. He doesn't say so here, but current management fell prey to the very errors he's fingering here.

And even if they didn't... in this piece, Bogle repeats all his mantras: keep expenses low, don't feed the Wall Street advice racket, don't chase expense exotic assets, pick a rational asset allocation and stick to it. I'm a believer; I've done all that -- with a more conservative stock allocation than Vanguard recommends. And I still lost big -- and don't expect to recover any time soon.

Bogle could do with a bit of introspection and rethinking. To wit: while investors shouldn't chase performance and generally shouldn't try time the market, they should always be prepared to question established principles, to consider that unprecedented new conditions can arise at any time, and to adjust accordingly. It would have been prudent to pull most assets out of stocks at several stages of this 16-month collapse. Signs were ample that things were going to get worse for a long time, that losses would quickly mount that could take years to recoup. The Vanguard buy-and-hold approach failed, along with so many other investing principles.

A central Vanguard premise has always been, don't play a rigged game. The rigged game in Vanguardville is money management - the notion that one's own expertise -- or more commonly, hired expertise -- could beat the market. According to Vanguard, the management fees enrich the manager only, severely cutting the investor's profits. All true. But it turned out that the rigging was more pervasive than Vanguard perceived: it was not just the valuation of advice that was corrupted, but the valuation of all assets.

To be fair, again, there's ultimately never any place to hide. You could have all your money in 4% CDs now -- and get killed by runaway inflation in a year or two. But the index-and-asset-allocation strategy has to be questioned with everything else.

Calm at the center...

All right, so Democrats in Congress want more spending on infrastructure in Obama's stimulus, and Republicans want more tax cuts and less spending overall. What else is new? Here's David Axelrod's response to the incoming fire:

“Obviously, it’s a big answer to a big problem and there are a lot of component parts to it,” Mr. Axelrod said in an interview after meeting with balky Senate Democrats. “These folks are not potted plants. They’re elected officials, and they’re doing their jobs.”

He added, “It’s a collective process, and we’re willing to listen to people’s ideas.”

Asked if they were willing to adopt people’s ideas, Mr. Axelrod said: “We’ll see. It depends on the idea.”

Ah, the no drama team. How long will the sang froid last?

The sum of economic fears

What's so scary about a really deep recession or Depression? Behind the prospects of lost jobs and reduced wealth lies the specter of political upheaval. Martin Wolf frames the danger:

Now think what will happen if, after two or more years of monstrous fiscal deficits, the US is still mired in unemployment and slow growth. People will ask why the country is exporting so much of its demand to sustain jobs abroad. They will want their demand back. The last time this sort of thing happened – in the 1930s – the outcome was a devastating round of beggar-my-neighbour devaluations, plus protectionism. Can we be confident we can avoid such dangers? On the contrary, the danger is extreme. Once the integration of the world economy starts to reverse and unemployment soars, the demons of our past – above all, nationalism – will return. Achievements of decades may collapse almost overnight.

From Depression to aggression -that's the road to ruin that lurks at the back of everyone's mind.

"A president forgtten but not gone"? That's a bit Rich...

I have no admiration, no soft spot, really no respect for George W. Bush. I think he's wrought terrible damage -- to our Constitution and civil liberties first and foremost, to U.S. interests and influence, to our economy and our environment. But I also think that this week Frank Rich guilds the lily with his bitter denunciations of the outgoing president. The piece is full of false analogies and overdrawn conclusions.

Start with Rich's take on the Administration's attempts to deal with the shoe-throwing incident:

Condi Rice blamed the press for the image that sullied Bush’s Iraq swan song: “That someone chose to throw a shoe at the president is what gets reported over and over.” We are back where we came in. This was the same line Donald Rumsfeld used to deny the significance of the looting in Baghdad during his famous “Stuff happens!” press conference of April 2003. “Images you are seeing on television you are seeing over, and over, and over,” he said then, referring to the much-recycled video of a man stealing a vase from the Baghdad museum. “Is it possible that there were that many vases in the whole country?” he asked, playing for laughs.

Not all attempts to minimize an event are equal. Rumsfeld's blithe dismissal of U.S. forces' failure to stop a looting epidemic was a disgustingly callous write-off of a catastrophic problem. Rice, in contrast, can claim with some justification that the rage expressed by one individual -- notwithstanding that it was widely embraced by many Iraqis -- is not the main story in Iraq right now. She is speaking in the wake of hard-won, not to say miraculous, improvements in levels of violence and of government control of Iraq. The changes may not hold, but they are real.

Rich is surely right that the Bush Administration's "Accomplishments" booklet presents a risibly one-sided view of its record in Afghanistan, Pakistan, on the environment, etc. (My own take on eleven Bush 'accomplishments': "Arrayed together, they look like the pillars of an impressive presidency -- if you discount the incoming missiles of multiple disaster.") But really, what Administration does not idealize its own record?

In the same vein, Rich might be taking on any president's special pleading when he complains:

The president who famously couldn’t name a single mistake of his presidency at a press conference in 2004 still can’t.He can, however, blame everyone else. Asked (by Charles Gibson) if he feels any responsibility for the economic meltdown, Bush says, “People will realize a lot of the decisions that were made on Wall Street took place over a decade or so, before I arrived.”

That's true. Bill Clinton signed the Gramm-Leach-Blilely act tearing down the walls between investment and commercial banking. Robert Rubin and Larry Summers opposed regulating derivatives. Clinton pressured Fannie Mae to loosen requirements for subprime lending (albeit in ways that look tame compared to the fraudulent and manipulative underwriting that took off in more recent years). That's not to minimize the destructive effects of the Bush Administration's much more aggressive antiregulatory zeal. But Bush is not out of line to point out that financial deregulation was in large part a bipartisan project.

Finally, while Bush deserves no pity and little honor, Rich willfully misunderstands -- or absolutely refuses to credit -- Bush's account of his internal experience:

The crowning personality tic revealed by Bush’s final propaganda push is his bottomless capacity for self-pity. “I was a wartime president, and war is very exhausting,” he told C-Span. “The president ends up carrying a lot of people’s grief in his soul,” he told Gibson. And so when he visits military hospitals, “it’s always been a healing experience,” he told The Wall Street Journal. But, incredibly enough, it’s his own healing he is concerned about, not that of the grievously wounded men and women he sent to war on false pretenses. It’s “the comforter in chief” who “gets comforted,” he explained, by “the character of the American people.” The American people are surely relieved to hear it.

Bush really did undertake a grueling number of visits to wounded soldiers and the families of those killed in action. That doesn't excuse rushing to war under false pretenses. But it also doesn't mean that he's not sincere in acknowledging the emotional toll that exposing himself to soldiers' and their families' suffering took on him, or in recounting the consolation he took from such meetings. Abraham and Mary Todd Lincoln are both reported to have taken a similar consolation, as Bush doubtless knows. It's not unflattering to the self to speak of such consolation. But I don't think it's faked, either.

Oh, balm, ah: a soothing history lesson

The economic crisis began roughly when the our late, great, endless presidential campaign began. As the crisis ripened and metastasized, Obama has adapted a bit of boilerplate into a kind of mantra, perhaps his own version of "the only thing we have to fear is fear itself."

The boilerplate is an historical argument: the U.S. can solve daunting problems because it's done so before. As David McCullough wrote, quoting someone, of Harry Truman's long comeback campaign in 1948: courage is having been there before.

Before the economic crisis hit its acute phase in mid-September, this message was chiefly a means for Obama to pull the country's political center to the left -- to argue, in effect, that new government action to reduce income inequality and help the poor and middle class was "conservative" in the sense of restoring core American values of fairness and shared prosperity. Now, it's morphed into an implicit rebuttal of a rising chorus of speculation that the United States is in decline. The implicit message: imbalance, political paralysis and economic hard times are cyclical, not linear phenomena. We let things get out of whack, and we self-correct--and with each self correction, move closer to fulfilling the ideals expressed in the Declaration and Constitution. Our historical path is three steps forward, two back, three forward -- not one long climb up, and a long glide down.

Here's that historical balm in the tail of Obama's radio address for this week:

I am optimistic that if we come together to seek solutions that advance not the interests of any party, or the agenda of any one group, but the aspirations of all Americans, then we will meet the challenges of our time just as previous generations have met the challenges of theirs.

There is no reason we can’t do this. We are a people of boundless industry and ingenuity. We are innovators and entrepreneurs and have the most dedicated and productive workers in the world. And we have always triumphed in moments of trial by drawing on that great American spirit—that perseverance, determination and unyielding commitment to opportunity on which our nation was founded. And in this new year, let us resolve to do so once again. Thank you.

No one who would be President can refrain from flattering the American people and paying fulsome tribute to the nation's history and ideals. But again, Obama's signature way of making these gestures contains an historical argument in which his "yes we can" is embedded. It's a would-be successor not only to "the only thing we have to fear" but to "ask not" and "morning in America."

Related posts:
What Will.i.am had to work with
A nation's education: Obama's conversation
We've been here before: how Obama frames our history
Audacity of Respect: What Obama Owes to Reagan II
Obama gets down to tax brass
Obama brings it back to earth in Virginia
Feb. 5: Hillary's Speech was Better than Obama's
Obama Praises Clinton, and Buries Him

Death of literature...greatly exaggerated

David Frum laments:

Literature is a declining presence in our modern society, increasingly an academic preoccupation. Intelligent young people read literature at university, and when they graduate, they stop. When they feel the need to feed the imagination, they turn to movies or television shows.

His evidence?

Here in the blogosphere, certainly, the contrast is stark. I just did a Google blogsearch. For "Franz Kafka" and "The Trial," 7900 entries. For HBO and "The Wire," 59,000. For HBO and "The Sopranos," 72,000. For "Battlestar Galactica," 399,000.

Sorry, David, that won't fly. People don't do internet searches to prove their virtue; they use them to pursue their interest and pleasure. And there was never any population in any place in any era in which a large majority would not be more viscerally interested in The Wire, The Sopranos and Battlestar Galactica than in an abstruse and allegorical text like The Trial. In fact, I think The Trial's relative blog authority is remarkably strong. Must be all those paper assignments.

Frum is also blithely certain that "movies and TV are more arresting, more accessible, and less demanding than text." Hmm. Someone should have given him Steven Berlin Johnson's Everything Bad is Good for You over the holidays. A couple of snippets, cribbed from a Wikipedia summary:

In film, Johnson highlights the recent trend of mind-bending films: Memento, Eternal Sunshine of the Spotless Mind, and Pulp Fiction. He argues these films have become popular despite their use of avant-garde techniques, which normally would restrict their accessibility and economic viability. The popularization of narrative experimentation in these films works to further Johnson's main thesis, which highlights an increase in complexity and viewer involvement throughout mass culture in the last twenty years....

Prior to "multiple threading", television episodes contained one or two main characters and one storyline. With the additional "collection of distinct strands" to the episodes, the public became willing "to tolerate more complicated narratives".^[10] This allowed the audiences to comprehend more storylines and characters as well as linking different episodes, improving their cognitive skills. In television shows like The Sopranos multiple threading is a common tactic used to provide information to the audience in an interesting way. Johnson explains, "The narrative weaves together a collection of distinct strands-sometimes as many as ten, though at least half of the threads involve only a few quick scenes scattered through the episode".^[11] He believes that due to the rising technology in pop culture the audience is conditioned to comprehend the increasingly difficult plots developed with multiple threading. Essentially, then, Johnson's theory of "multiple threading" is based on the increase of narrative complexity through time.

Mind you, multiple threading was popular in medieval romance too -- Mallory's Morte d'Arthur interweaves the stories of many roundtable knights, each followed in their turn. And Frum, like many cultural doomsayers, is right that the reading of books has lost market share as a leisure activity. But how do we know that that trend is not creative destructive, rather than destruction plain and simple?

Reading and writing are blending with other media and other pursuits. My 18 year-old son spends half his leisure time in front of a computer -- rummaging through Digg, reading, watching video clips, writing to friends whether via IM or Facebook walls or plain email. The degree of mental challenge or aesthetic stimulus in his choice, in everyone's choice, depends more on his own propensities than on some absolute measure of the quality of cultural artifact available to him. And that's the way it's always been and will always be.

The year of correction

As a signoff on 2008, here's Xpostfactoid's 10/10/08 anniversary post ("The Year of Obama"):
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Yesterday was xpostfactoid's first birthday (discounting a couple of false starts). It's been an attempt, as the bio at right suggests, to fathom "how democracy works, how it malfunctions and self-corrects." Self-corrects is the operative word: the capacity to "throw the bums out" is what gives governance in functioning democracies the crooked straightness of a good walking stick.

About ten years ago, while reading a Stephen Ambrose's biography of Eisenhower, it occurred to me that the electorate is smarter than I am -- in fact, smarter than any of us. A lifelong Democrat, I realized that the country would not be better off if Democrats always won. Eisenhower, notwithstanding the immoral and destructive coups he authorized in Iran and Guatemala and his abdication on civil rights, was a prudent steward, an able cold warrior, and a constant brake on the military-industrial complex he decried at the end of his tenure. Reagan too has my respect, though I loathe much of what he did to the Federal government's capacity to protect and further social welfare. He did not "win the Cold War," but he did engage Gorbachev with just the right progression from toughness to negotiation to trust. He stepped back and let the Soviet Union unravel itself, providing the right incentives for glasnost and the unwinding of empire.

I had some family evidence of the way democracy works. My paternal grandparents, lifelong Democrats, voted for Reagan in 1980. My father couldn't bring himself to do it, but he voted for John Anderson. Carter's was a failed presidency. Americans recognized it, as they've now recognized Bush's failure. A little late for my taste, but there were reasons for that, beginning with Monica Lewinsky, running through a kink in the Constitution (Nov. 2000), a national trauma (9/11) and a bonding over the year following with a wartime president that was almost but not quite undone by his folly in Iraq.

At the same time, I've wondered through the Bush years whether American democracy retains and will continue to retain the capacity for self-correction. Given the horrendous governance of the Bush team, it's been possible to imagine that a combination of curbs on civil liberties, deregulation, lobbyist empowerment, gerrymandering, media degeneration and advanced political marketing could eventually foreclose the possibility of a peaceful transfer of power -- a truly contested election. 2006 provided major reassurance. Democracy in America is not dead yet. But I still think it's on the endangered list.

The greatest danger to American democracy is the Bush Administration's assault on civil liberties. We've barely noticed, but the Bill of Rights has been gutted. The Administration has successfully asserted the right to deem anyone it wishes an "enemy combatant," hold such people indefinitely, and torture them at will. This has been done to American citizens. Just this week, meanwhile, we learned that peaceful protestors against the death penalty were classified as terrorists by the Maryland State Police. Americans have largely accepted and even embraced this disinheritance. Only a bare majority tells pollsters that torture is wrong--a smaller majority than in any developed democracy, smaller even than in China. This past primary season, the Republican candidates for President were vying do outdo each other in their fervent support of torture and suspension of habeas. McCain, the best of that lot on this crucial front, betrayed his own prior opposition to torture, first by agreeing to loopholes in the Military Commissions Act of 2006, then by voting against a provision that would have ended the CIA's exemption from the prohibition against torture in the armed services.

As of now, the executive branch of the federal government can assert absolute control over the corpus of anyone it wants. Habent corpus - they have the body. If we don't change course, the executive may widen the scope of those over whom it asserts such control at any time -- say, after the next major terrorist attack. McCain will not roll back executive power. It's not even certain that Obama will do it. On this front he's right: it's not about him, it's about us. Lovers of liberty will have to be ready on day 1 to hold his feet to the fire.

Despite these dangers, and all the viciousness of various phases of the presidential campaign, this election season has also been a time of tremendous hope. For me, the (first) year of xpostfactoid will forever be the Year of Obama. I have wrestled with "naivetephobia" -- the fear of looking foolish, and later recognizing the folly, of buying into a presidential candidate's calls for renewal embodied in...himself ("it's not about me, it's about you," is at best a paradox). But Obama is right on this point: we have had great leaders before at times of great peril. We have made great changes -- abolishing slavery, building the core citizen protections of the New Deal, enacting civil rights legislation and making it stick.

For those of us who have dared (sorry!) to hope for great things from Obama, the Lincoln parallel is the great repressed reference point. The New Yorker, in an extraordinary endorsement essay, obliquely invoked this charged analogy:

Obama has returned eloquence to its essential place in American politics. The choice between experience and eloquence is a false one––something that Lincoln, out of office after a single term in Congress, proved in his own campaign of political and national renewal. Obama’s “mere” speeches on everything from the economy and foreign affairs to race have been at the center of his campaign and its success; if he wins, his eloquence will be central to his ability to govern.

Like Lincoln, Obama rose to national prominence by sheer force of intellect as evidenced in speeches. Exactly contrary to what his critics claim, his speeches are effective not because of soaring empty rhetoric but because his calls for renewal are underpinned by a clearly articulated reading of American history and an equally explicit enumeration of the priorities that his policy proposals are designed to advance.

Those priorities are to restore "fairness" in our tax code, roll back rising income inequality, and revive effective regulation; to invest in projects essential to prosperity in the next century (alternative energy, universal healthcare, education); to reduce the power of lobbyists and change the tenor of political discourse; to recenter our antiterror efforts on Afghanistan/Pakistan; and to re-establish diplomatic engagement and nonmilitary aid as pillars of our foreign policy. He spells them out repeatedly, and he has won over what looks to be a majority of Americans with this multi-pronged pitch. That's not to say that Obama's campaign is free of hokum and pandering. But the outlines of what he aims to accomplish are clear.

If this blog has any value, it's mainly in the year-long attempt to listen to Obama, to highlight the internal logic of his metapolitics, his foreign policy, his economics, and his political strategy. If he wins and is immediately whipsawed by events, if he proves as feckless as Carter or as slippery as Clinton, the blog will serve to remind only myself (who else will read back?) of my own folly. If he does indeed prove to be a transformational president, an instrument of democratic self-correction and American renewal, I'll be proud to have tuned in early.

Team Powell and "the Gestapo"

From Vanity Fair's massive and often astonishing, if one-sided, Oral History of the Bush White House: contemplate this double-edge assessment of Colin Powell's legacy by Lawrence Wilkerson, first Powell's top aide and later his chief of staff:

I’m not sure even to this day that he’s willing to admit to himself that he was rolled to the extent that he was. And he’s got plenty of defense to marshal because, as I told [former defense secretary] Bill Perry one time when Bill asked me to defend my boss—I said, Well, let me tell you, you wouldn’t have wanted to have seen the first Bush administration without Colin Powell. I wrote Powell a memo about six months before we were leaving, and I said, This is your legacy, Mr. Secretary: damage control. He didn’t like it much. In fact, he kind of handed it back to me and told me I could put it in the burn basket.

But I knew he understood what I was saying. You saved the China relationship. You saved the transatlantic relationship and each component thereof—France, Germany. I mean, he held Joschka Fischer’s hand under the table on occasions when Joschka would say something like, You know, your president called my boss a fucking asshole. His task became essentially cleaning the dogshit off the carpet in the Oval Office. And he did that rather well. But it became all-consuming.

I think the clearest indication I got that Rich [Armitage] and he both had finally awakened to the dimensions of the problem was when Rich began—I mean, I’ll be very candid—began to use language to describe the vice president’s office with me as the Gestapo, as the Nazis, and would sometimes late in the evening, when we were having a drink—would sometimes go off rather aggressively on particular characters in the vice president’s office.

The Gestapo? This is not Daily Kos. This is Daily Colin -- or team Colin, anyway, after four years of working in this Administration. And yet he stayed on - they all stayed on. They countenanced the founding of Guantanamo, the torture memos, the interrogation techniques, the shift of resources from Afghanistan to Iraq, the cooked intelligence. Imagine the impact if Colin Powell had resigned in protest rather than make that speech before the U.N. And yet, and yet... as Wilkerson says, imagine the Cheney-Rumsfeld White House without Powell. Would it have been the Gestapo for real?

Score one for Thomas Friedman

I usually don't have much use for Thomas Friedman's column: I often find him credulous, obvious, and tendentious. But "obvious" has its good side, and he's been hammering home the need to tax energy for a long time. His prescription for Obama today is dead-on:

Today’s financial crisis is Obama’s 9/11. The public is ready to be mobilized. Obama is coming in with enormous popularity. This is his best window of opportunity to impose a gas tax. And he could make it painless: offset the gas tax by lowering payroll taxes, or phase it in over two years at 10 cents a month. But if Obama, like Bush, wills the ends and not the means — wills a green economy without the price signals needed to change consumer behavior and drive innovation — he will fail.

The two most important rules about energy innovation are: 1) Price matters — when prices go up people change their habits. 2) You need a systemic approach. It makes no sense for Congress to pump $13.4 billion into bailing out Detroit — and demand that the auto companies use this cash to make more fuel-efficient cars — and then do nothing to shape consumer behavior with a gas tax so more Americans will want to buy those cars. As long as gas is cheap, people will go out and buy used S.U.V.’s and Hummers.

During the transition I've wondered: beyond the terrifying deficits that Obama clearly needs to run up in the next two years, how can he secure the long-term fiscal health of the Federal government? I see three broad focal points: 1) reform healthcare in a manner that, whatever the initial Federal outlay, slows the growth of medical costs by a) reducing the role of private insurance, b) changing doctors' incentives (payment per procedure) and disincentives (through a measure of tort reform), and c) rewards preventive care; 2) cut spending on big-ticket military hardware (but not on the kind of counterinsurgency capabilities that Gates wants to bolster); and 3) tax the hell out of energy consumption -- with the offsetting tax cuts (at first) that Friedman suggests.

Obama: bipartisan historian, liberal leader

Commemorating the Financial Times' choice of Obama as Person of the Year, Edward Luce works overtime to avoid the adulation to which many publications have succumbed. But his extended "who is Barack Obama?" meditation manufactures mystery where none exists.

Asserting that Obama is "claimed by liberals as a liberal, centrists as a centrist and moderate Republicans as a genuinely bipartisan figure," Luce provides disproportionate space to political rivals and ideological foes who wilfully misunderstand the terms in which Obama has called for bipartisanship and wilfully ignore the detailed policy program he has outlined over the course of two years.

Obama is bipartisan only insofar as he acknowledges that "the other side may sometimes have a point," a gesture he fleshes out chiefly by acknowledging (e.g., in The Audacity of Hope) that Reagan tapped some sources of genuine discontent in the electorate -- mainly a sense that government had grown bloated and unaccountable. He is centrist only insofar as he positions a strong swing to the left -- after thirty years of Reaganism -- as a restoration of balance, of fairness, of commitment to "shared prosperity." He is postpartisan in the sense that he has called for new levels of accountability and outcomes assessment as he readies a government more activist than any since the Great Society.

But his policy proposals -- even as they existed before the world financial crisis entered its most acute phase this fall -- advance an unambigously and unapologetically liberal agenda: major new investment in healthcare, alternative energy, various wage supplements and tax breaks for the working poor, and higher taxes (now perhaps postponed during acute recession) for the wealthy. He's been no less specific on the foreign policy front about withdrawing combat troops from Iraq and beefing up efforts on multiple fronts in Afghanistan and Pakistan.

Obama's bipartisanship is not pure blather, but neither does it suggest any hesitancy about the kind of redistribution that McCain attacked late in the campaign. Among Obama's core ambitions are to roll back income inequality and The Great Risk Shift that has steadily eroded middle class security over the past thirty years. The trick of his bipartisanship lies in his use of history. His conservatism, such as it is, reaches mainly into the past, in that he acknowledges that conservative insights have had their day -- excessive taxes can choke off growth, government antipoverty spending can be ineffective, some prominent Democrats have seemed to be "against all wars" instead of merely against "dumb wars." But his liberalism is for today. In the fierce urgency of now, he has convinced the nation that it's swung too far right -- and he has already moved the center left.

Hacker urges Obama to shift risk back

Jacob S. Hacker, the economist who best described the erosion of economic security for the middle class over the past thirty years in The Great Risk Shift, makes a tightly argued case that an all-out push toward universal health insurance is at once the best short-term stimulus and the best long-term investment Obama can make right now.

First, the short-term argument: Hacker lays out the extent to which out-of-pocket healthcare costs are eating into the income of the middle class as well as the poor, the underinsured as well as the uninsured:

Today, however, the health care deduction is big and getting bigger. Despite widespread complaints about "overinsurance," the amount people pay for health care out of their own pocket has risen substantially as a share of personal income over the last generation, and especially in the last decade. The Commonwealth Fund recently completed two massive surveys showing that the proportion of adults younger than 65 with health insurance who spent more than 10 percent of their income on health care out of pocket (5 percent for low-income adults) skyrocketed from 13.8 million in 2003 to 21.8 million in 2007, as health plans hiked deductibles and co-payments, denied claims more aggressively, jacked up costs for out-of-network care, and so on. What's more, almost all of the increase occurred among families with higher incomes--meaning that high health care costs have become a standard deduction for the middle class.

The problem is, of course, far worse for those who lack health insurance. Indeed, if you add the ranks of the uninsured to those without adequate coverage, you have more than 40 percent of the working-age population in an immediate economic bind because of medical costs. About half these people--slightly more of the uninsured than the underinsured, but not much more--report severe problems paying their medical bills. These are the families accounting for the 40 percent to 50 percent of people in bankruptcy or foreclosure who say health care is the number one reason for their plight.

So fixing health care isn't just a recipe for better access to medical care. It's an immediate economic lifeline for working families, giving them back part of their income to use on other things. It's also a rescue package for state and local governments burdened by Medicaid and S-CHIP, for doctors and hospitals who treat the uninsured and inadequately insured, for community institutions that help people in distress--in short, for all the rapidly fraying threads of our health care safety net. Put simply, most of the money we spend upgrading coverage and spreading it to the uninsured is going to go directly into the pockets of people who need help now.

And then, the long-term: controlling healthcare costs is the most important known variable in the nation's long-term fiscal prospects:

The faster everyone is in the system, the faster money flows into people's pockets, and the sooner reformers start reaping the political rewards.

And the faster all that happens, the better situated we are to start the difficult but essential task of controlling long-term health spending. Without runaway health spending, as Henry Aaron of the Brookings Institution has shown, the future fiscal picture of the federal government looks surprisingly rosy, even if taxes stay right where they are as a share of the economy. With runaway health spending, it looks catastrophic. Plus, as bad as the federal picture looks, it's prettier than what businesses and workers are facing. According to Sarah Axeen and Elizabeth Carpenter of the New America Foundation, if employer-sponsored insurance premiums and family income rise at the same rate they have for the past decade, an average family health plan will cost more than 45 percent of a typical family's income by 2016.

Will Obama risk his huge store of political capital -- and the nation's long-term fiscal health -- on trying to effect an immediate major investment in healthcare? No question. As he put it in his Dec. 11 press conference introducing his healthcare team: “Some may ask how at this moment of economic challenge we can afford to invest in reforming our health care system. And I ask a different question. I ask, how can we afford not to?”

Indeed, Obama's long campaign was in large part an extended argument for a sustained national investment in rolling back the shift of risk from institutions to individuals that Hacker so thoroughly documented -- through higher taxes on the wealthy that would enable new investments in healthcare, alternative energy and education. To shift risk to the public sector is not to eliminate it. Obama's writings show that he is aware of the dangers -- of large deficits, of taxes raised to the point of crimping economic growth, of bloated and unaccountable government offering ineffective services.

In The Audacity of Hope, he acknowledges those underpinnnings of the Reagan revolution. His argument in the campaign was not that there is no legitimacy to conservative concerns about big government, but that the pendulum has swung too far the other way -- that tax cuts for wealthy have hollowed out programs that sustain opportunity and social insurance. As he put it in Janeville, Wisconsin last February:

when opportunity is uneven or unequal - it is our responsibility to restore balance, and fairness, and keep that promise alive for the next generation. That is the responsibility we face right now, and that is the responsibility I intend to meet as President of the United States.

The genius of his campaign was a bid to move the center back to the left - to cast new social investment as a restoration of balance, fairness, commitment to commonwealth. Now, he cannot afford not to.

Bypassing the bomb throwers

Bush tinkered a bit on the brink, but did the right thing:

"In the midst of a financial crisis...allowing the U.S. auto industry to collapse is not a responsible course of action," Mr. Bush said.

The terms are more lenient than in the deal the Senate Republicans scotched:

The deal generally tracks key provisions of the bailout legislation that nearly passed Congress earlier this month. But it is relatively lenient in allowing the companies to show their viability. It defines viability as having a positive net present value -- a way of gauging the companies' worth, taking into account all their future obligations.

Notably, it provides significant flexibility to the companies in showing their viability. It sets out targets for the companies to hit in determining their financial health, such as reducing debt and current cash payments for future health care obligations.

But according to a White House fact sheet, the targets "would be non-binding in the sense that negotiations can deviate from the quantitative targets...providing that the [company] reports the reasons for these deviations and makes the business case to achieve long-term viability in spite of the deviations."

One potential move that could help the companies achieve some savings: the companies will be required to reach new agreements with major stakeholders, including dealers and suppliers, by March 31.

Determining viability apparently will be up to the Obama administration. The agreement designates a person to oversee the government's effort, although officials stopped short of referring to that as a "car czar." For the outgoing Bush administration, that person will be Treasury Secretary Henry Paulson. President-elect Barack Obama will choose his own point person later.

Sometimes, kicking the can down the road is the only responsible course of action. Obama has said that he wants to bring all the auto industry stakeholders together to hammer out a deal. Bush has given him space to do it.

Where do you see yourself in two years?

update 4/29/09: Nudging towards Bethlehem

Barack Obama has a little to do list for the next two years (courtesy of Time):

When voters look at your Administration two years from now, in the off-year election, how will they know whether you're succeeding?

I think there are a couple of benchmarks we've set for ourselves during the course of this campaign. On [domestic] policy, have we helped this economy recover from what is the worst financial crisis since the Great Depression? Have we instituted financial regulations and rules of the road that assure this kind of crisis doesn't occur again? Have we created jobs that pay well and allow families to support themselves? Have we made significant progress on reducing the cost of health care and expanding coverage? Have we begun what will probably be a decade-long project to shift America to a new energy economy? Have we begun what may be an even longer project of revitalizing our public-school systems so we can compete in the 21st century? That's on the domestic front.

On foreign policy, have we closed down Guantánamo in a responsible way, put a clear end to torture and restored a balance between the demands of our security and our Constitution? Have we rebuilt alliances around the world effectively? Have I drawn down U.S. troops out of Iraq, and have we strengthened our approach in Afghanistan — not just militarily but also diplomatically and in terms of development? And have we been able to reinvigorate international institutions to deal with transnational threats, like climate change, that we can't solve on our own?

And outside of specific policy measures, two years from now, I want the American people to be able to say, "Government's not perfect; there are some things Obama does that get on my nerves. But you know what? I feel like the government's working for me. I feel like it's accountable. I feel like it's transparent. I feel that I am well informed about what government actions are being taken. I feel that this is a President and an Administration that admits when it makes mistakes and adapts itself to new information, that believes in making decisions based on facts and on science as opposed to what is politically expedient." Those are some of the intangibles that I hope people two years from now can claim.

I find this agenda both staggeringly ambitious and refreshingly modest. Modest, because many of the benchmarks bespeak new beginnings, tangible and positive changes of approach, rather than completely transformed institutions. "Have we made significant progress....Have we begun a decade-long project...have we begun an even longer project...have we strengthened our approach?" The broad goal, too, is in this vein: "I want the American people to be able to say...I feel like government's working for me." That's, again, both modest and transformative. It puts the country on the path to solve problems that (as Obama's been pointing out for two years) we've failed to deal with for decades -- healthcare, climate change, growing income inequality.It's a bid to roll back "government is not the solution, government is the problem," the battle-cry of The Great Risk Shift. The goals are huge, but the approach is incremental.
UPDATE, Feb. 16: Obama once again emphasizes making a beginning on a broad front of interlocking issues.

A public defender's measure of success

Amateur hour: thinking from scratch about a question that I'm sure has received professional attention:

On my morning commute yesterday, I was quizzing a New York public defender about her daily routine and work flow. Not surprisingly, most of the clients she handles are never indicted and perhaps 5% of cases come to trial; the rest are dealt with either through plea bargain or administratively. Other tidbits: often she does not know herself whether her client is guilty or not, and often it's prudent for someone who is innocent (or may be innocent) to plea bargain, because a jury trial is always a roll of the dice - particularly when you have inner city defendants likely to be judged by a more affluent and educated jury.

What I found myself wondering: how competitive or adversarial is the process, and how do you measure success? If, as a defender, you believe that the system is stacked against your poor clients, that most of them are not guilty of much and that the state is likely to punish them disproportionately, you would measure success pretty much as your clients would -- by how well you minimize their punishments. Do your clients, on average, receive lesser penalties than those of your peers? If on the other hand you consider judges and prosecutors more your colleagues than your adversaries, you would judge yourself by some not-really-measurable sense of whether justice, roughly, was done in the vast majority of cases that are resolved without trial. Ditto of course for prosecutors, who are by reputation competitive, aggressive, driven to ring up as many convictions as they can.

I'll have to ride with this 'train friend' again soon, and ask her...

Clive Crook hazards a false moral on healthcare

Scouting the Obama healthcare plan for leaving employer based health insurance intact, Clive Crook succumbs to a Republican "ownership society" shibboleth. He'd have us believe that the runup in healthcare costs is driven mainly by consumers:

The real problem is slowing the remorseless trend of future growth. Until healthcare consumers are made to think about costs, that may be impossible. Consumers resist constraint because they think employers are paying for their health insurance; in fact, of course, workers are paying through lower wages.

In fact, the runup in healthcare costs is mainly driven by the incentive structure for doctors, who are paid by the procedure and have financial incentives to order costly tests and treatments (and the negative incentive of defensive medicine, thanks to our litigiousness); by drug companies, which deploy multiple means of bribing doctors to prescribe expensive (and often unproven) new medications, and who have lobbied their way to nearly unchecked pricing power; by insurers, who waste half of doctors' time with insanely arcane claims procedures and cherry-pick the healthiest patients; by the legions of uninsured, whose uncompensated care adds nearly a thousand dollars to the average family healthcare premium; and by the massive failure of our swiss cheese system to deliver preventive care.

It is counterproductive and immoral to induce people to access less healthcare by creating strong financial incentives to eschew treatment. In fact that's just what we do: there are tens of millions of people in this country halving their medication doses, going years without dental care, and avoiding visits to specialists they can ill-afford. You can't have adequate preventive care when every visit demands a consequential financial outlay.

Far from overconsuming healthcare, even Americans with insurance are increasingly underinsured. As reported by Jacob S. Hacker in The Great Risk Shift (2006):

Among insured Americans, 51 million spend more than 10 percent of their income on medical care. One out of six working-age adults are carrying medical debt,and 70 percent had insurance when they incurred it...nearly six in ten of the underinsured postponed needed medical care because of the cost, nearly four in ten had to put off home or car maintenance or repairs due to medical expenses, a third had to dig deep into their savings to pay for medical care, and more than one in five made job-related decisions based mainly on their health care needs. Strikingly, the median family income of the underinsured was $58,000--almost exactly the same as the median income of those with adequate coverage.

Crook has fallen victim to the Republican fallacy that adequate, affordable care creates "moral hazard" -- that patients will gorge themselves on on an open medical buffet if every item is not a la carte. In our healthcare system, the players morally at hazard are doctors who earn more if they prescribe more services, insurers who earn more by cherry-picking customers, and drug companies that earn more by turning doctors into shills. In the U.S., patients' hazard is physical and financial, not moral.

Belief among healthcare economists and policymakers that freedom from paying substantial fee-for-service sums leads patients to inefficiently overuse healthcare services rests largely on the famous RAND Health Insurance Experiment (HIE), a study of consumers provided with varying forms of health insurance over an extended period of time. The RAND HIE, begun in 1974 with results published in 1987 and 1993, purported to find that those in plans where they paid no fees for individual services used more healthcare than those in fee-for-service plans but did not enjoy any measurable health benefits as a result. In other words, the additional care accessed by those for whom services were "free" was effectively wasted.

This conclusion was effectively debunked in an analysis by John A. Nyman, published in October 2007 in the Journal of Health Policy, Politics and Law. Noting that all participants in HIE had the option of dropping out at will and returning to the health plan they held prior to the experiment, Nyman reported that sixteen times as many participants dropped out of the fee-for-service plans as out of the free plans. Since participants were given a financial incentive to remain in the experiment, the inescapable conclusion is that those who dropped out of the fee-for-service plans did so because they became seriously ill or were injured badly enough to need expensive care. In Nyman's analysis, "moral hazard" is exposed as essentially another word for "risk sharing." Those who need expensive healthcare access it if it is not financially prohibitive; those who don't need expensive procedures subsidize those who do. That's what insurance is for.

Robert Gates, multilateralist in chief

It's often been noted that in its second term the Bush Administration has quietly walked back the arrogant unilateralism that was its first-term signature.

Much of the multilateral restoration has doubtless occurred under the radar. Much is the result of the balance-tipping gene-splice from the administration of Bush Sr. that occurred with the advent of Robert Gates as defense secretary (Cheney and Rice, not to say Wolfowitz, were also part of Bush Sr.'s team, but with Cheney and Rumsfeld dominant, the offspring was aberrant).

A speech Gates delivered yesterday (Dec. 13) in Bahrain highlights the strategic emphasis he places on a worldwide web of formal and informal multinational cooperative ventures. The heart of the speech was an appeal to the enlightened interest of Gulf states to re-engage with Iraq diplomatically and economically and to work together to seal its borders and curb Iran's influence. In a sense, though, Gates more fully communicated his brand of multilateralism while recommending more low profile and quotidian joint efforts:

The final topic I want to discuss is related to what I've already mentioned: regional security through venues like the Gulf Cooperation Council and the Gulf Security Dialogue. While the GCC and the GSD cover a wide range of issues - from trade and energy infrastructure security to counter-terrorism and regional stability - I want to focus on two in particular: air and maritime security.

Along with the traditional challenges facing our nations, there is a range of diverse, unconventional threats that transcend national borders. Some are ancient - such as piracy, ethnic strife, and poverty. Others are of more recent vintage: terrorist networks harnessing new technologies; weapons proliferation; environmental degradation; and the emergence of deadly and contagious diseases that can spread more rapidly than ever before in human history.

What these challenges have in common is that they simply cannot be overcome by one, or even two countries, no matter how powerful or wealthy. They require multiple nations acting with uncommon unity.

That is particularly true of air defenses and maritime security - areas where multi-national cooperation is not just a preference, but a necessity.

The momentum from last year's Gulf Security Dialogue meetings led to significant progress in air and missile defense throughout the Middle East. Several Gulf Cooperation Council nations are in the process of acquiring, or have expressed interest in, Shared Early Warning - near real-time information on air and missile attacks that would allow maximum time for a nation to defend itself.

Additionally, all GCC countries have expressed a desire to obtain, or are already obtaining, active defense systems. These procurements demonstrate the GCC's commitment to regional security and interoperability with each other and the United States.

The need for increased maritime security - and potentially new and better means of cooperation - has been highlighted by the recent, high-profile acts of piracy off the coast of Somalia and the Gulf of Aden. As with terrorism, piracy is a problem that has serious international implications - and should be of particular concern to any nation that depends on the seas for commerce.

Earlier this year, the United States Fifth Fleet, based here in Bahrain, established a Maritime Security Patrol Area in the Gulf of Aden and is leading an international coalition to keep shipping lanes safe. I thank Saudi Arabia for agreeing to support the effort and encourage other nations to do so.

Given the vast coastal areas of Somalia and Kenya - more than one million square miles - there are limits to patrolling alone. More must be done.

• Under the United Nations Security Council resolution passed last week, members of the international community must work together to aggressively pursue and deter piracy.
• Companies and ships must be more vigilant about staying in recommended traffic corridors - and should consider increasing their security personnel and non-lethal defensive capabilities.
• New efforts for countries represented here might include developing a maritime surface picture and standard operating procedures against seaborne threats beyond just piracy - such as terrorism, narcotics trafficking, and smuggling.

All told, multinational efforts like these are encouraging. They bolster the defensive capabilities of everyone involved, while not diminishing pre-existing bilateral or multilateral relationships.

They are, I believe, a model for how all of us can better address the challenges of the 21st century by fostering cooperation between and among the nations of the Gulf.

Let me close with a personal observation. In preparing to - at some point - retire from government service, I have been pondering all I have seen since joining the United States government in 1966. There have been good times and bad times - great successes, and haunting failures. Yet, despite the challenges, no matter how tough the problems, I have always been amazed by the ability of many nations of the world to come together and get the big things right.

Gates presents multinational cooperation as both a long tradition -- something "I have always been amazed by" -- and as a newly urgent imperative, in that the theats of the day "require multiple nations acting with uncommon unity."

In this speech as in Gates' speaking and writing generally, there is a complex interplay -- a striving for "balance" -- between innovation and continuity. Constant twin themes are the need to break through bureaucratic inertia--particularly at the Pentagon--to prepare for tomorrow's threats, and the need to remain true to a multi-decade foreign policy consensus to which his memoir of service to six presidents, From the Shadows, is a kind of extended paean. That consensus, as he presents it, on the whole struck a balance (notwithstanding some dreadful mistakes) between U.S. strength and leadership on the one hand and multilateral cooperation on the other -- between hard and soft power.

At times, Gates' calls for balance seem to include muted repudiations of the one Administration since World War II that I believe he sees as rejecting that consensus -- that of W.'s first term. One such implicit repudiation is quoted above: What these challenges have in common is that they simply cannot be overcome by one, or even two countries, no matter how powerful or wealthy. They require multiple nations acting with uncommon unity.

The interplay between innovation and continuity is present in the part of this speech that received the most attention, Gates' counterpoint to Biden's notorious warning that some nation or other would seek to test Obama shortly after he takes office:

I bring from President-elect Obama a message of continuity and commitment to our friends and partners in the region. Though the American political process is at times tumultuous - and our open and vigorous debates might seem to indicate deep divisions - I can assure you that a change in administration does not alter our fundamental interests, especially in the Middle East. Throughout my career in government - which began over 42 years ago - the security of the Gulf has been a central concern of every administration for which I have worked. That will not change, especially considering the great challenges we all face - from the need to defeat violent extremism to the necessity of forging a two-state solution between Israel and the Palestinians that will allow everyone in that region to live in peace and prosperity.

I had thought that my remarks would be a valedictory and farewell, but that was not to be. The President-elect asked me to stay on as Secretary of Defense and, as you know, I accepted. I am honored to continue leading the Department of Defense, and am doing everything in my power to ensure a smooth transition. On that note, I should mention that more extensive planning has been done across the government in preparation for this transition than at any time I can remember - and I have worked for seven presidents, soon to be eight. So anyone who thought that the upcoming months might present opportunities to "test" the new administration would be sorely mistaken. President Obama and his national security team, myself included, will be ready to defend the interests of the United States and our friends and allies from the moment he takes office on January 20th.

Unprecedented continuity is the oxymoron here. A transition more thorough than any other. That oddly captures Obama's brand of "change," which Obama always casts as back to the future -- a restoration of balance, a new drive to fulfill old ideals.

Related posts:
Son of Bush Sr.? Obama prepares for state-Croft
Gates repudiates Rumsfeld's "army you have" doctrine
Gates at West Point: 3 principles we've violated?

Bush's Treasury turns its lonely eyes to emerging Democratic majority

Ever since September, we've been treated periodically to the odd spectacle of Bush and Paulson, Obama and Democratic Congressional leaders allied against revanchist Republicans in Congress in their efforts to prevent economic cardiac arrest.

Accustomed though we may be, this statement from Treasury today takes these extraordinary alignments to a mind-bending new level:

The Treasury Department promptly indicated that it would provide short-term relief to the automakers. “Because Congress failed to act, we will stand ready to prevent an imminent failure until Congress reconvenes and acts to address the long-term viability of the industry,” a Treasury spokeswoman, Brookly McLaughlin, said.

So: Bush's Treasury is looking forward to the advent of a 58-42 Democratic Senate majority to save the economy.

It seems clear that no one with ultimate responsibility -- e.g., presidents and treasury secretaries at opposite ends of the ideological spectrum -- would allow the automakers to fail at this moment when recession totters on the edge of Depression.

Lost in paraphrase: a touch of Indian tact?

Below, compare WSJ reporter Jackie Range's paraphrasing preface to a statement by Indian Prime Minister Singh to what Singh actually said. A significant nuance in Singh's warning about Pakistan may have been flattened:

India's Prime Minister Manmohan Singh on Thursday termed Pakistan as the epicenter of terrorism and said Islamabad needs to do much more to crack down on militant activities on its soil.

"We have to galvanize the international community to deal with the epicenter of terrorism, which is located in Pakistan," Mr. Singh said, while replying to the debate in the lower house of Parliament on the security scenario in the country.

Singh's phrasing seems to differentiate malign forces "located in" Pakistan from Pakistan itself.

[Update, Dec. 14: more phrasing from Singh that stops short of accusing the Pakistani government of colluding with terrorists:

Indian Prime Minister Manmohan Singh said he hopes relations can be "normalized" — but not until "our neighbor stops allowing its territory to be used for acts of terrorism against India" (AP).

In a similar vein: the Indian government's recognition of its poor security apparatus recalls but makes an instructive contrast with Putin's bitter criticism of Russian security capabilities in the wake of the terrorist attack on the Beslan School in 2004. Putin used the occasion to gut democratic institutions, granting himself the power to appoint governors who to that point had been elected and otherwise consolidating the power of the Kremlin. Contrast the democratic accountability of India's new home minister, Palaniappan Chidambaram:

Mr. Chidambaram said several bills would be introduced to strengthen legal provisions relating to the "prevention, investigation, prosecution and punishment of terrorist acts," including setting up a national investigation agency.

Mr. Chidambaram also said India would create a coastal command to supervise and coordinate maritime and coastal security. The nation has 7,500 kilometers (4,660 miles) of coastline; the Mumbai attackers came by sea.

India's intelligence gathering and sharing needs to become more effective and results oriented, the home minister said, and its intelligence organizations need advanced technical equipment. Commando units from India's armed forces are being stationed around the country. Some 20 counter insurgency and anti-terrorism schools will be set up across India for training commando units of the state police forces, he said.

The home minister asked the Parliament to pass the necessary new laws before the current session ends Dec. 23.

Much now depends on the government's ability to follow through on its plans: "This needs to be quantified and needs to be implemented, only then are we going to see anything worthwhile," said Ajay Sahni of the South Asia Terrorism Portal, a New Delhi-based research outfit.

Here's praying that India's leaders and institutions can withstand the pressures of this fury- and terror-inducing attack -- and of the wrenching economic slowdown now gripping the country.

On Goldman's summer forecast

How long ago seems a sunny forecast on rising global wealth delivered this summer by Goldman Sachs chief economist Jim O'Neill:

It is also evident that poverty is dropping dramatically around the world. According to our calculations, the number of people living on incomes of less than $1,000 dollars a year ($2.75 a day) has already dropped significantly from about 50 per cent of the world's population in the 1970s to 17 per cent by 2000. According to our numbers, it could be as low as 6 per cent by 2015. On the more familiar World Bank definition of one dollar a day, the same dramatic shift is evident. Probably no more than 5 per cent of the world's population now suffers this indignity. Of course, this is too much, but as long as the forces of globalisation continue we expect it to drop further.

O'Neill also claimed that 70 million people year are joining the "world middle class" and forecast acceleration to 90 million per year by 2030, "even allowing for a global slowdown."

How does the much more severe-looking worldwide recession affect these projections? On the one hand, on the long view, even a prolonged downturn should not compromise the broad upward trend of human wealth spreading planet-wide -- any more than the rise of radical Islam or of petrodollar-fueled autocracies erases the broad movement toward democracy among the world's nation-states.

On the other hand, the last Depression triggered world war. Prolonged stagnation or contraction could swell the ranks of those receptive to radical ideologies, or destabilize China or India, or help turn any number of countries' frustrations toward outward aggression.

Back in 2001, when India and Pakistan last faced off, Thomas Friedman suggested that India had too much of a stake in its emerging economic strength to throw it away on a potentially nuclear conflict. I thought the logic was dicey then - reminiscent of pre-World War I claims that the economies of Europe were so interdependent that the bankers would always put the brakes on major conflict. But to the extent that growth and hope were restraining factors, those restraints may give way as economic woes mount.

Conversely...a pause in breakneck development in emerging markets may also provide an opportunity for more sustainable growth -- particularly with stimulus packages in the U.S. and perhaps elsewhere pointed toward developing alternative energy sources. And if the slowdown proves to be a "correction" in a non-euphemistic sense, it will lead to increased saving in the U.S. and increased consumption in countries that have been developing rapidly. Can we rebalance without cataclysm?

Son of Bush Sr., cont.

Philip Stephens nicely captures a paradox in Obama's choice of well-established figures for his foreign policy team:

Mr Obama’s choice of foreign policy heavyweights is significant for its ambition rather than its caution. If he really does want to recast America’s relationship with the world, surrounding himself with seasoned players will make the task easier rather than harder. Why would a president who wanted to change things put the task in the hands of inexperienced acolytes?

To get there, however, I argued in today's FT that Stephens sets up a false dichotomy between change and continuity in U.S. foreign policy:

With regard to policy, Mr Obama has long signalled his admiration for the coalition-building skills and multilateralism of George Bush Sr. He has always framed his call for revitalised diplomacy and reinvestment in the tools of soft power as a restoration of the pre-George W. Bush foreign policy consensus, retooled to tackle urgent challenges such as global warming, nuclear weapons containment, and the murderous fury bred by widespread poverty.

A surge for the big 3?

This provision in the reported Big 3 bailout deal-in-progress gave me deja vu:

Under the White House plan, the adviser would determine if the auto makers were sticking to their recovery plans before approving additional assistance. If the adviser determined the plan wasn't being executed, it would submit an alternative plan for the company to restructure through a Chapter 11 bankruptcy and require the firm to repay the government any bailout funds.

Remember those benchmarks upon which continuing the surge in Iraq were supposed to be contingent? And how, in September 2007, very few of those benchmarks had objectively been met, but Petraeus reported that significant progress had been made? And how events did bear him out over the next year?

It's very hard to imagine any "adviser" pulling the plug and triggering a bankruptcy plan. Still, such oversight provisions are essential politically, and perhaps generate useful pressure.

* * *
A prior post brought together a chorus of credible voices arguing that a Big 3 bankruptcy would bring on economic catastrophe -- one of them, Wolfgang Munchau, spotlighting banks' exposure to credit default swaps purchased against a GM failure. More on that risk today--and related dominoes--from Thomas Palley, author of Post-Keynesian Economics, writing in FinancialWeek:

The Big Three and their auto finance associates (such as GMAC) are huge debtors whose liabilities are held throughout the financial system. If they go bankrupt, the insurance industry, which is likely a large holder of these debts, would quickly enter a spiral of collapse. Pension funds would also be hit, imposing further costs on the PBGC.

But the greatest damage may come from the credit default swaps market that brought down AIG. Huge bets have undoubtedly been placed on the bonds of GM, Ford, Chrysler and GMAC, and bankruptcy will be a CDS triggering event requiring repayment. Moreover, a Big Three bankruptcy will bankrupt other companies, risking a cascade of financial damage as their bonds and equities fall in value and further CDS events are triggered. This is the nightmare outcome that risks replicating the crash of 1929

Gates: Have the army you'll go to war with

Defense Secretary Robert Gates' precis of the Pentagon's new National Defense Strategy in Foreign Affairs, A Balanced Strategy, can be read as an extended inversion of Donald Rumsfeld's fatalistic "you go to war with the army you have." Gates' mantra: have the army you'll go to war with. Here as in many speeches, he spotlights the imperative to reform the Pentagon bureaucracy so that it responds more swiftly to the immediate needs of soldiers in the field -- and can think past ingrained assumptions about what kinds of conflict the U.S. needs to prepare for in the future. Hence his subtitle: "Reprogramming the Pentagon for a New Age."

Like Obama, Gates presents his case for strong action against the status quo as a quest to create "balance," which he identifies as a need on three closely related fronts:

The strategy strives for balance in three areas: between trying to prevail in current conflicts and preparing for other contingencies, between institutionalizing capabilities such as counterinsurgency and foreign military assistance and maintaining the United States' existing conventional and strategic technological edge against other military forces, and between retaining those cultural traits that have made the U.S. armed forces successful and shedding those that hamper their ability to do what needs to be done.

For Gates, creating this "balance" requires pushing hard in one direction against decades-old institutional biases. He wants the Pentagon to place more emphasis on current than on future conflict, more on counterinsurgency than on conventional weaponry, and more on shedding harmful cultural traits than on retaining useful ones.

Gates' three rebalancings mesh, of course. Working harder to get soldiers in Aghanistan what they need today also tips the balance of future planning toward counterinsurgency. Doing so means breaking through the Pentagon's institutional bias toward preparing for major-power conflict.

"Balance" is a multi-valanced term for Gates. It entails triage -- distinguishing the essential from the important; risk management -- accepting less likely risks (e.g. the need to fight a major land war tomorrow) so as to cope effectively with likely dangers, such as newly failed states turning into terrorist breeding grounds; leverage -- i.e., learning to effectively train forces of order and governance in weak or developing states, and re-learning how to gain effective support from allies -- and ultimately, transformation (gradually and mainly be indirect means) of societies in which autocracy, anarchy, extremism and poverty prevail.

Triage: Three decades' experience should have taught us that asymmetrical conflict is the military's primary order of business for the foreseeable future:

Think of where U.S. forces have been sent and have been engaged over the last 40-plus years: Vietnam, Lebanon, Grenada, Panama, Somalia, Haiti, Bosnia, Kosovo, Afghanistan, Iraq, the Horn of Africa, and more. In fact, the first Gulf War stands alone in over two generations of constant military engagement as a more or less traditional conventional conflict from beginning to end. As General Charles Krulak, then the Marine Corps commandant, predicted a decade ago, instead of the beloved "Son of Desert Storm," Western militaries are confronted with the unwanted "Stepchild of Chechnya."

Risk Management:

The most likely catastrophic threats to the U.S. homeland -- for example, that of a U.S. city being poisoned or reduced to rubble by a terrorist attack -- are more likely to emanate from failing states than from aggressor states...It is true that the United States would be hard-pressed to fight a major conventional ground war elsewhere on short notice, but as I have asked before, where on earth would we do that? U.S. air and sea forces have ample untapped striking power should the need arise to deter or punish aggression -- whether on the Korean Peninsula, in the Persian Gulf, or across the Taiwan Strait. So although current strategy knowingly assumes some additional risk in this area, that risk is a prudent and manageable one.

Leverage:

Where possible, U.S. strategy is to employ indirect approaches -- primarily through building the capacity of partner governments and their security forces -- to prevent festering problems from turning into crises that require costly and controversial direct military intervention. In this kind of effort, the capabilities of the United States' allies and partners may be as important as its own, and building their capacity is arguably as important as, if not more so than, the fighting the United States does itself.

Transformation: On this front, Gates sounds very like Obama, portraying the multi-dimensional struggle to reduce the conditions that breed terrorism:

What is dubbed the war on terror is, in grim reality, a prolonged, worldwide irregular campaign -- a struggle between the forces of violent extremism and those of moderation. Direct military force will continue to play a role in the long-term effort against terrorists and other extremists. But over the long term, the United States cannot kill or capture its way to victory. Where possible, what the military calls kinetic operations should be subordinated to measures aimed at promoting better governance, economic programs that spur development, and efforts to address the grievances among the discontented, from whom the terrorists recruit. It will take the patient accumulation of quiet successes over a long time to discredit and defeat extremist movements and their ideologies.

Compare that stalwart prose with a rather remarkable flight of Obama's rhetoric, deployed as preamble to outlining the tools of soft power:

What lies in the heart of a child in Pakistan matters as much as the airplanes we sell her government. What's in the head of a scientist from Russia can be as lethal as a plutonium reactor in Yongbyon. What's whispered in refugee camps in Chad can be as dangerous as a dictator's bluster. These are the neglected landscapes of the 21st century, where technology and extremism empower individuals just as they give governments the ability to repress them; where the ancient divides of region and religion wash into the swift currents of globalization.

For Gates as for Obama, the imperative to combat chaos, poverty and oppressive ideology springs not from grandiose ambition but from humility. In a world where the technology of mass destruction is ever more accessible, there can be no true security anywhere until the poverty and oppression that breed terror are drastically reduced. His focus is largely on soft power because hard power is never enough:

I have learned many things in my 42 years of service in the national security arena. Two of the most important are an appreciation of limits and a sense of humility. The United States is the strongest and greatest nation on earth, but there are still limits on what it can do.

That sense of limitation leads Gates to emphasize diplomacy, to lament the shrinking of the organs of U.S. soft power through the Clinton years, and to seek to build the foreign service, foreign aid, and U.S. information agencies. His sense of how to build and wield hard and soft power in concert is very much in sync with that of his new boss.

Attention, class: merit pay doesn't work

As the emperors of Wall Street and corporate boardrooms stand naked before the world, it's only a matter of time before various hallowed business practices are similarly laid bare. One of them is merit pay. Fay Hansen, a journalist specializing in corporate benefits and finance, reports in FinancialWeek:

Survey reports show years of flat merit increase budgets that barely meet inflation rates and bear no relationship to productivity growth or profitability trends. The major salary budget surveys point to 2009 merit increases averaging 3.6% to 3.8%, with the highest performers receiving 5.6% to 6%. In effect, for the vast majority of employees, merit increases are unevenly distributed cost-of-living and market-adjustment increases couched in the language of performance rewards.

Even when companies create seemingly significant pay differentiation between low and high performers, the actual cash increase is insufficient to sustain performance—or it drives the wrong behaviors, Mr. Pfeffer said. And as many studies show, high levels of differentiation destroy engagement, breed distrust and undermine teamwork.

A series of experiments conducted by Hewlett-Packard in the 1990s verified long-standing academic studies demonstrating that high incentives for top performers adversely affect organizational performance. Despite the deluge of consultants calling for companies to boost pay differentiation, Mr. Pfeffer cites dozens of studies showing that more dispersed pay distributions generate higher turnover, lower quality and a vast array of unintended results, including serious ethical breaches and business-killing behaviors.

Hansen's primary source is Jeffrey Pfeffer, a professor of organizational behavior at Stanford University’s Graduate School of Business, who cites three decades of empirical studies and asserts, “The evidence is overwhelming that individual pay for performance does not improve organizational performance except in very limited cases."

Someone should ping those fire-breathing education reformers who want to base teachers' pay on "performance." I've long thought that tying individual teacher's pay to measurable student performance would lead to manic teaching to the test -- not to say rampant cheating. It would also doubtless "breed distrust and undermine teamwork" in what is by nature a collective, service-oriented enterprise.

Just as free market fundamentalists who are "always for less regulation" have been discredited, it's time to take a hard look at various nostrums of corporate management.

Paging Tina Fey

Those feeling a little wistful about not having George W. Bush around to rough up the English language, take heart: looks like we'll always have Sarah Palin. Here's Sarah, campaigning for Saxby Chambliss today in Perry, Georgia:

We want to make sure we have at least 41 Republicans in the United States Senate to make sure that we shape bad legislation, or kill bad legislation.

Where would we be without enough Republicans to shape bad legislation?

Or kill...Sarah for Senate! She can shoot legislation from a helicopter.

The 'trop' trope: "almost too much love," etc.

Via Andrew Sullivan, a sad testimony in Der Spiegel to the dark side of total recall:

People say to me: Oh, how fascinating, it must be a treat to have a perfect memory," she says. Her lips twist into a thin smile. "But it's also agonizing."

n addition to good memories, every angry word, every mistake, every disappointment, every shock and every moment of pain goes unforgotten. Time heals no wounds for Price. "I don't look back at the past with any distance. It's more like experiencing everything over and over again, and those memories trigger exactly the same emotions in me. It's like an endless, chaotic film that can completely overpower me. And there's no stop button."

As with memory, so with dreams: cf. C. S. Lewis' Voyage of the Dawn Treader:

"Nevertheless you will fly from here," he gasped. "This is the island where dreams come true."
"That's the island I've been looking for this long time," said one of the sailors."I reckoned I'd find I was married to Nancy if we landed here."
"And I'd find Tom alive again," said another.
"Fools!" said the man, stamping his foot with rage. "That is the sort of talk that brought me here, and I'd better have been drowned or never born. Do you hear what I say? This is where dreams--dreams, do you understand--come to life, come real. Not daydreams: dreams."
There was about half a minute's silence and then, with a great clatter of armour the whole crew were tumbling down the main hatch as quick as they could and flinging themselves on the oars to row as they had never rowed before...For it had taken everyone just the half-minute to remember certain dreams they had had--dreams that make you afraid of going to sleep again--and to realise what it would mean to land on a country where dreams come true.

Not to mention the curse of truth unvarnished, courtesy of Emily Dickinson:

Tell all the Truth but tell it slant---
Success in Circuit lies
Too bright for our infirm Delight
The Truth's superb surprise
As Lightning to the Children eased
With explanation kind
The Truth must dazzle gradually
Or every man be blind---

And Robert Frost on pleasure itself:

Love at the lips was touch
As sweet as I could bear;
And once that seemed too much;
I lived on air
That crossed me from sweet things,
The scent of -- was it musk
From hidden grapevine springs
Down hill at dusk?...

Now no joy but lacks salt
That is not dashed with pain
And weariness and fault;
I crave the stain
Of tears, the aftermark
Of almost too much love,
The sweet of bitter bark
And burning clove.

Awaiting its poet: intake tolerance limits for blogging.

No petting, we're vetting

This week's New Yorker cover is one for the ages:



If this ain't O to a T -- leaning in close, making eye contact, simultaneously eliciting the pup's most heartfelt input and weighing, assessing, judging. And what upright, alert little meritocrats await his judgment...

For the record, this is "Vetting," by Barry Blitt, creator of the disturbing fist-bump cover.