Norway, Nationalism and the Consequences of Terror

By now everyone who reads this blog has heard of the tragic events in Norway. A radical, right-wing populist blew up a car bomb in front of the office building containing the Prime Minister's office, killing seven, then drove to a summer camp for the youth organization of the Norwegian Labor Party where he killed another 85 or so innocent people. The murderer was eventually caught alive and has confessed to the mass murder.

He targeted members of the Labor Party because he associates them with the generally welcoming attitude towards immigrants that has typified Scandinavian politics for most of the post WWII era. I strongly suspect his goal in murdering so many of the party's youth organization was to sabotage that party's future. I strongly suspect he may only have succeeded in radicalizing the Labor Party (the largest party in Norway) and encourage them to lead the charge against right wing populism.

He was a former member of the youth organization of a rival party in Norway, the Progress Party. The Progress Party is a far right wing populist party known for its antipathy to taxes, the welfare state and multiculturalism and immigration. The Progress Party is part of a cluster of right wing populist parties that emerged in Denmark, Norway and Sweden in the 1970s and 1980s. Today, these parties include the Norwegian Progress Party, the Danish Peoples Party (formerly the Progress Party) and the Swedish Democrats. Despite their progressive sounding names, these parties are typically nationalist, socially conservative, xenophobic and fiscally populist. In short, if an American were trying to figure out who these parties are, thinking of them as the Scandinavian answer to the "Tea Party" wouldn't be a bad start. Like the Tea Party, they often oppose the welfare state in the general rhetorical stance but just as often support aspects of it that can be restricted to those members of society they deem to be deserving (a status often implicitly or explicitly dependent on ethnicity). Also like the Tea Party they are vehemently opposed to immigration. In Scandinavia the most visible immigrant population comes from Turkey and the Middle East. Slogans like "Danmark for Danskerne" (Denmark for the Danes) and "Bevara Sverige Svenskt" (Keep Sweden Swedish) are typical of the kind of rhetoric these parties like to use. As are patently absurd claims such as Norwegian Progress Party's leader, Siv Jensen's claim that Sharia law had replaced Swedish law in Sweden.

The popularity of these parties has been rising for some time. In Denmark, the mainstream conservative coalition of the Liberal Party and the Conservative People's Party depends on votes from the Danish People's Party to pass legislation. In Norway the social democratic Labor Party governs but the Progress Party is probably the fastest growing party in the country. That said, these parties usually represent between 15% and 30% of the voters and usually closer to 15% than 30%.

The fact that the worst case of political violence in Scandinavia since the liberation of Denmark and Norway from Nazi Occupation was perpetrated by a long time supporter/member of such a party may prove to be a major development not just in Norway but in Denmark as well. Denmark's government is constitutionally required to hold an election no later than November of this year. Danish voters will know the Norwegian Progress Party very well and they will understand the issues involved and the inflammatory rhetoric in play very well. The Danish People's Party will have to be careful to distance themselves from the violence without alienating their populist base of support. Many Danes will see a direct connection between the over the top xenophobia and populism of these parties and their leaders. One consequence of these tragic murders could be the decline of the electoral success of these parties and a policy backlash against their views.

This is not to say that these countries will open up to unrestricted immigration, but the increasingly aggressive escalation of policy attacks on immigrants and immigration may stop for a time.

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LOST and the Debit Ceiling

For all you LOST fans, think about the season they found the bunker. In the bunker, there was a computer system. And every so many hours, a code had to be plugged into the system. If not, they were told that the Island would explode, and take them all out. So they entered the code. But this raised a philosophical question: what would happen if they didn’t enter the code? Would the Island really explode? How risky is risk? Was this really a manipulative game? In one scene, they decide to dare the system by refusing to put in the code, and this scary countdown starts. And suddenly,the characters are fist fighting and trying to hold each other back. But someone breaks through and enters the code. Welcome to the debt ceiling debate. Mark my words, this will happen.

But for shits, what will happen if we don’t enter the code? The Tea Partiers will have us believe that nothing will happen. But what would be the benefit? Robert Rubin, the former treasury secretary, said it best. He said, “we don't know what will happen, but why would you want to find out?” Didn’t we learn anything from the brink of disaster in 2008? Why would you want to take bigger risks? Is it for the adrenaline rush?

The Debt Ceiling is an arbitrary number that limits the amount of money we can borrow to pay our bills. It was sent by our legislators in 1917 and has been changed numerous times. Between 2001 and 2008, it was increased 5 times. Any small business owner who was unable to get a short term bank loan to cover payroll back in 2008 will understand completely the situation the US Treasury now faces. I am sure you yourself have borrowed from your savings to cover your bills, and then put it back. Maybe you ask your friend to spot you $50 with the promise to pay back $55 in a week, etc. It’s no different for the Feds.

For our readers who may not fully understand the debt, please read The Debt Limit: History and Recent Increases by the Congressional Research Service. This explains nicely how the government creates both Public and Inter-government debt. The short version is that debt is issued is through the sale of government (i.e. Treasury) bonds of varying duration. The US government currently pays the lowest interest of anyone on these bonds because it is deemed so low risk. This will change if default happens. For lessons, see Argentina.

The amount of government debt and revenue is in constant flux. Money comes in, money goes out. This further complicates the Treasury’s job of balancing the government’s check book. Because of the flux, Treasury can’t know for sure when we will actually run out of money. What we do know is that we actually hit the legal debt ceiling May 16th. But the Treasury has been able to juggle money to make ends meet-largely through accounting gimmicks and borrowing from government accounts (like civil servants’ pension funds). The Treasury estimates that it will run out of wiggle room on Aug 2. This is why stalling, gaming, and procrastinating are so serious. We may go into default without meaning to.

So if the government defaults, what happens? We don’t really know, but history offers guidance. In past instances when we have approached this limit, the markets have sometimes responded by starting to charge a larger risk premium in order to lend money to the federal government. This tends to encourage speculation on US treasuries in ways similar to what just happened with the housing market. You will start to see nations take out insurance on US debt which is a way of betting against our ability to make our debt obligations. This will further deepen our troubles.

Historically there have been many defaults and banking crises. Since 1800 France has had 12 years of banking crises, Norway 16. We had our own in 1936. Germany has spent 16 years in default or restructuring since 1800. Most victims suffered after wars. In this way, we are no exception. Usually, when there is a default, 6 things can effectively address a crisis.
1) Get a higher GDP.
2) Lower interest rates on public debt.
3) Get a bail out- go to the IMF or hope a friend will help you.
4) Tax increases and cuts to public spending (i.e. entitlements).
5) Print more money
6) Default totally. This will mean one of several things. We will a)reschedule our interest payments, b)put moratorium on paying c) restructure the debt, etc.

Items 1-2 have already been exhausted. We are practically at 0% interest now. And in a recent interview with one of Fed Chairs, he said it was time to start raising rates to encourage savings. When loan rates are low, so are interest rates on savings accounts. Item 3 was tried, but not announced. China purchased $7.6 bil. in bonds from the US Treasury back in June. That was China’s first increase in bond purchases since October. It now has $1.15 tril. in US holdings. This came after it sold US bonds for 5 straight months.

That leaves us with 4-6. Number 4 is the crux of the current debate. We will have to do both. But Congress is now looking for which groups they can slaughter with the least political consequence to themselves. We have already done 5 to some extent. For the Treasury to do Quantitative Easing, it basically bought back debt using newly printed money. And now we are on the brink of number 6.

So what has happened to other nations who defaulted? Well look no further than Europe today and the EURO.
1) Military spending is usually the first on the chopping block. Notice that we are arguing now with Europe over its lack of military funding. And we are looking to cut ours. Fine with me.
2) If there is a default or restructuring, there are usually increased conflicts with creditors. This leads to political & economic instability. Notice that there has been talk of the end of the Eurozone because the Germans are quite angry at the Greeks and Irish. See Cartoon for other possibilities.

3) Investors are dumping the Euro and running to the Swiss Franc. And they are dropping the dollar as well. The value of the Swiss Franc has been on the rise for over a year. One year ago, I was in Switzerland getting a SFr1 to $1. We were there for 3 weeks and by the end, we were getting SFr.96 to $1. Today, it is SFr. 817 to $1. And China has been pushing for a second reserve currency.

This will devalue the dollar and increase inflation across the board. Basic economics tells us that inflation leads to less job creation, higher prices, increased poverty, and capital flight. It would have a much worse effect that any tax hike because it would be broad-based and not necessarily controllable. Time for the House to get their collective heads out of their asses. Pass a Ceiling, then work on the 2012 budget with austerity measures and tax hikes.

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Rupert Murdoch, Corruption and Fox News

Rupert Murdoch is one of the most powerful men in the world. The Australian media mogul has used his massive presence in the world media market to push a right-wing/populist agenda, often with a cheap dedication to sensationalism and slight regard for facts. He owns News Corp which itself owns several newspapers in the UK as well as the Wall Street Journal and Fox News here in the US. Murdoch also is the plurality stock holder of Sky TV and only backed off a recent attempt to take complete control of Sky just this past week.

There is a growing scandal brewing in the UK about newspapers (tabloids), owned by Rupert Murdoch's NewsCorp company, have been systematically hacking into peoples' private telephones to gather information. It has also come out that they've hacked the phones of the families of British war veterans killed in action, murder victims (obstructing an investigation in the process), the Royal Family, and members of the British Government including former Labor PM, Gordon Brown. There are also reports that News of the World hacked the phones of 9/11/2001 survivors. This is highly illegal and to prevent their being prosecuted about it, they bribed very high level officials in the British police forces to prevent them conducting investigations. This has begun to spread. The manager of the News of the World (the Murdoch owned tabloid where the scandal first emerged) has resigned and has since been arrested. The chief of the London Metropolitan Police has resigned. The Sunday Times has also recently been implicated in the spreading scandal. On this side of the Atlantic, Murdoch's man running Dow Jones and the Wall Street Journal (two other divisions of Murdoch's empire) has also resigned. Make no mistake these resignations are both members of Murdoch's inner circle.

The FBI is now investigating whether US based divisions of Murdoch's media empire participated in any illegal practices overseas (which is a violation of US law). It would not surprise me at all to find out that Fox News has been engaging in the same kind of phone hacking and bribery of officials for information here in the US. For dedicated Fox News viewers, it won't matter. But anything that weakens Rubert Murdoch and his media empire is good for democracy and good for Democrats.

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The Republican Crisis

There is an article in The Economist (see link here), in which they lay the blame for the failure to resolve the deficit reduction dispute (and the related debate about the debt ceiling) squarely at the feet of the Republican Party and their refusal to consider tax increases as part of the response to the current accounts problem. This is surprising because The Economist is normally squarely on the right side of the political spectrum with regard to fiscal and economic policy. I would go further than The Economist though. I would say that not only is the Republican Party responsible for failing to solve the problem, they are responsible for creating it in the first place. Furthermore, the lack of sophistication among the national press corps has allowed the Republicans to frame the situation as an existential crisis by making baseless comparisons between the US debt and Greece's debt. At the same time, there is very little coverage of how low our tax rates are relative to other industrialized countries and relative to our own past.

According to The Economist article above, US tax receipts as a share of GDP is around 15%. To put this in perspective, I looked at the tax receipts data from the OECD (see data sheet here). The numbers from the OECD are a little different than those quoted in The Economist. OECD says that tax revenues as a share of GDP are at about 24%. According to the OECD, 24% is the lowest share of the national economy taken in taxes in the USA since 1965 (the first year for which data is reported in the table). What's more, 24% is among the lowest share of GDP taken in taxes for any OECD country since 1965! Only relatively poor OECD members such as Chile, Korea, Portugal and Turkey have lower tax/GDP ratios in their history. What's more, these countries' lowest tax/GDP ratios occurred when they were better considered as developing countries than wealthy industrialized countries (and in the cases of Chile, Korea and Turkey largely before they were democracies). Many of the countries that have similar or superior growth rates to the US tax their economies more heavily. So contrary to Republican rhetoric, we are not over taxed by any meaningful measure. At the same time, Republicans are also on thin ice when they argue that increasing our tax rates will undermine the overall economic health of the country.

What about our spending levels? According to Visualeconomics.com, the US government budget takes up about 21% of GDP. The Economist says that number is about 25%. Regardless of which figure you use, that's much lower than most industrialized democracies. So it is not the case that our spending per se is especially high or "out of control" relative to our peers. Again, the Republicans are distorting the real situation to make their case for protecting low tax rates the wealthy and corporations at the expense of public services that benefit society as a whole (like education, health care and infrastructure).

What about our debt levels? To hear Republicans talk about it, the United States is a global laughing stock because of our debt levels. Even if we accept the Republican premise that we couldn't solve our debt problem overnight by returning our tax rates back to the 1990s levels (27% to 29% of GDP), are we really in the midst of a crushing debt crisis? According to the OECD (see link here), our debt as a share of our GDP is at 74% for 2011. To put this in perspective, that's about the same debt level as found in Ireland, Portugal which are in fiscal crises but lower than Belgium (80%) and Japan (127%) which, because they are larger more advanced economies, not in fiscal crisis. Greek debt is at 125% of their GDP.

It's worth pointing out here that a number of countries that Republicans love to vilify for their supposedly budget busting welfare states have much better debt situations than we do with little to show for our borrowing other than a bloated military. Denmark's debt is only 2.7% of their GDP. Canada's is 33.7%. Germany's is 50.2%.

For all these reasons, I think we should think about the current situation with regard to taxes, spending and debt as a "Republican Crisis," rather than a genuine "Debt Crisis."

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Where Greece Should Go From Here

First, let me get to the big point first. Kicking Greece out of the Euro won't fix anything. German and French banks are still heavily exposed to bad Greek debt (both public and private). If Greece were kicked out of the Euro (or left on their own), all they would do is start printing their currency in enough quantity to pay off their debts (and make that currency increasingly worthless). The effect would be a de facto restructuring of the debt. The northern European Euro states may as well bail Greece out and let them restructure the debt while staying within the Euro. Letting Greece stay in the Euro would be about as costly as kicking them out but would prevent the nasty political crisis that such a move would probably impose on the EU as a whole.

So what should Greece do? In the short run they should do what they've just done today, namely pass a harsh austerity package that dramatically cuts government spending. They have no choice. They've been spending money they didn't have and, worse, couldn't raise for decades and it's time to pay the piper. In the long run, Greece should get serious about administrative reform. The real cause of this crisis is the Greek government's inability to collect the taxes it is owed. The reason the Greeks can't fix their debt problems without enormous outside help is because they do not have an internal revenue service worthy of the name. That needs to change as quickly as possible. The problem is that it cannot change in time to fix the current crisis. But it could change in time to prevent the next crisis.

And this administrative incapacity is the key reason why the US IS NOT LIKE GREECE. The US can fix its deficit problems by returning its tax rates to where they were in the 1990s. That would be a relatively minor adjustment all things considered. Because our government is competent (yes, I said the government is competent), when we raise the tax rate, more tax money comes in. That's not the case in Greece.

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How Did Greece Get Here

Greece is again (still) embroiled in crisis, riots and talk of default. How did it come to this? Greece is a long time in brewing this stew and the EU has let them do it.

Step 1: Greece had a ridiculously generous welfare state for a relatively poor country. For example, Greeks were allowed to retire with generous benefits as early as 55 years old. That’s great for middle aged Greeks. But where is the money going to come from? The country was poor in comparison to the rest of Europe. The Greek per capita GDP is well below the EU average. Greece also has a particularly under staffed and poorly organized tax authority. Even when taxes are – on paper – sufficient to pay for government expenditures, the Greek government has extreme difficulty collecting those taxes. So the answer to the money question was BORROW IT!

Step 2: The Greek government was initially prevented from adopting the Euro currency because their debt and deficit rates did not conform to the convergence criteria for adopting the Euro. Unfortunately, a conservative Greek government simply cooked their books to get in. In doing this they had the active help of Goldman Sachs which helped them by arranging a variety default swaps and other financial gimmicks to conceal the enormous debts that Greece was piling up. The European Central Bank authorities employ enough finance experts to see through these gimmicks or at least see that something fishy was going on. But for political reasons, there emerged a kind of norm of tolerance to failure to meet convergence criteria. Most of the current members of the Euro Zone failed to meet the strict standards for entry. But most of those failures were minor. Only Italy was really in flagrant violence of the criteria but allowed to join anyway. So, Greece hired some Wall Street city slickers to cook their books, the European Central Bank held their nose and let Greece join the Euro.

Step 3: In 2009, the Greek socialist party defeated the conservatives and reveals the true fiscal situation in Greece. With the 2008 recession in full swing, all Hell broke loose in Greece. By 2010, Greece was begging for the EU and the IMF to bail them out by restructuring their debt. A condition for that help was a substantial austerity package that included dramatically reducing the aforementioned generous welfare benefits.

Step 4: Greeks have been rioting periodically in reaction against the austerity measures – often violently.

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Same Sex Marriage Wins in New York

There were two fascinating things about the same sex marriage victory in New York on Friday night. First, the Democrats were united and crowing in victory, with Governor Cuomo seeking the limelight and the party. Contrast that with Governor Baldacci in Maine two years ago who signed the bill after publicly fretting. Second, the Republicans who had the power to block the vote in the NY Senate let the vote take place, knowing they would lose. Both point to the same thing: the view that same sex marriage is now popular enough that Democrats want to use it to get votes and money from their base. Big change. The more interesting thing was the Republican decision. I think the GOP wants to use gay marriage the way it has used abortion for years: as a rallying cry for the rubes, but without actually DOing anything that would upset their suburban, educated voters who really don't want to see abortion be illegal. "Choose life" is better than "Outlaw abortion." Even Sarah Palin seemed unable to grasp that being pro-life means wanting to outlaw abortion rather than just being sanctimonious about it. So that's where the Republicans are heading. By not actually making policy against gays, they open a space for some gays and moderates, and educated voters to cast their ballots for them despite their anti-gay rhetoric designed to attract the rural and uneducated voters. I know family members, for example, who are firmly pro-choice but vote Republican because the GOP allows them to practice this sort of cognitive dissonance.

I'll take it.

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Is the Party Over For China?

In the 1980s it was common for people to say that America's time in the sun was over, that we were about to be surpassed by the Japanese. Japanese investors were buying American real estate left and right. Japanese manufactured goods were everywhere. Workers raged about "unfair competition" from Japanese imports. But even before the tragic earthquake and tsunami, Japan's supposed economic threat to the US was fading. But by the late 1990s, the same fears were arising again, this time with China playing the role of Eastern Threat. In both these cases the fear mongers assumed that trends at the time would continue unabated. That did not prove to be the case in Japan (Japan has spent much of the last 15 to 20 years in severe economic distress) and it may be proving to be not the case in China. Here are some signs of trouble for the Chinese political-economy:

First, inflation. Chinese food prices and fuel prices are soaring. There have been numerous stories in the press lately about Chinese people finding it increasingly difficult to buy the basics of fuel, cooking oil and food staples. This is a big problem for a single party, authoritarian regime who's legitimacy is based largely, if not entirely, on continuously rising prosperity.

Second, rising transportation costs (see stories here and here for slightly different perspectives). A major driving force for China's economic boom in the last 20 years has been exports. China's vast and cheap labor force can only impact the world economy if it's products can make it to markets. That means shipping to North America and Europe. Improvements in port facility standardization and relatively cheap shipping costs in general made that easier. But as the oil that the large container ships run on gets more expensive, the advantage that manufacturers in China realize from the cheap labor will be off set by high transportation costs. That could encourage some manufactures to relocate back to older manufacturing centers closer to their markets. China's government has responded by investing heavily in alternative fuels and by trying to build their own domestic markets as quickly as they can. They may be running out of time.

Third, rising unemployment especially among young, college educated Chinese. China's economic advantages lay in a huge, cheap, relatively low skilled workforce. China has invested a lot of its recently gained wealth in university education. But now it's economy is incapable of finding rewarding jobs for all those new college graduates. Again, for a regime who's legitimacy depends on maintaining prosperity, a large population of unemployed or underemployed college graduates is a dangerous thing. It was underemployed college graduates who were much of the driving force behind the revolution in Egypt. Chinese officials are concerned about similar unrest breaking out in China.

Fourth, China is developing a nasty real estate bubble (see stories here and here). I've heard annecdotal stories from friends with relatives in China that real estate is a popular investment for middle class, urban Chinese. If this real estate bubble pops (and signs suggest it is about to), much of China's emerging middle class could see their savings wiped out in the blink of an eye just as rising prices in other areas, reduced exports and rising unemployment are becoming problems as well.

Fifth, increasing political unrest (see stories here, here, and here). Riots over local corruption, food prices and abuses of eminent domain have been popping up around China for some time now and appear to be getting more common.

Finally, all of this is a contributing factor to a final worrying development: an authoritarian retrenchment in the Communist Party of China leading to oppressive crackdowns (see stories here, here and here).

If all this comes to a head at once, I'm not sure how it would impact the world economy. I suspect that it might not be the worst thing in the world for US manufactures and jobs. If China's political economy starts to look less attractive to investors, the US will look like a safe haven in comparison. But a more repressive and insecurity Communist Party of China is probably not a good thing for the world. This could be a bumpy ride.

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Hallelujah!

Hallelujah! The Senate has done something I never in a million years expected them to do. They voted overwhelmingly to eliminate several billion in tax breaks for ethanol! (story here). This is a great development! Most of the punditry are looking at this as a symbolic blow to energy subsidies. But this is just as much a subsidy to entrenched agricultural interests. If this leads to further decreases in corporate welfare for either Big Energy or Big Ag, I would be thrilled!

The reason I never expected this is because Republicans are so committed to rural voters and big business that the combination had me thinking they would never touch ethanol or ag subsidies. I'm thrilled to be wrong about that. Well done to the 73 Senators who voted to end this waste of money!

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California Redistricting Commission

The California Citizens Redistricting Commission (CCRC) released its first draft of 2011 maps based on the 2010 census at www.wedrawthelines.ca.gov. The result has been described as a political earthquake at politico. Some analysis suggests the maps favor a Democratic pickup of 4 seats statewide. This suggests that the result is not all that different from what the legislature would do... except that specific powerful incumbents got dealt some powerful blows. That would not be likely in a legislative arena. It is interesting that the fears expressed on this blog that the CCRC maps would favor Republicans are, at this point, unlikely to be the case. Given the large Democratic registration advantage statewide and the surging Latino population, a map not explicitly gerrymandered could well lead to a larger number of mildly Democratic districts rather than a smaller number of very safe districts as we have today. I have not seen analysis of the new State Assembly and Senate District maps. Given that Dems are presently 2 assembly and 2 senate seats away from a 2/3 majority of both houses, Democratic pickups are a fascinating prospect.

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More on Republican Candidates in 2012

As the field is shaping up, I am increasingly coming to RBR's view that the nomination is open for Romney. It's a field of midgets, and he alone has some modest stature. Given that the Presidency will be an "open" seat in 2016 should Obama win in 2012 (neither Biden nor Clinton will run as an obvious successor to Obama), that is a much more enticing race to serious candidates.

Romney has three big problems, though. The first is his religious/evangelical problem. In 2008, the GOP nominated one of its few candidates who is not an evangelical, John McCain. The result, an electoral disaster of Dukakis-like proportions, is instructive in itself to some GOP operatives. Worse, Romney is a Mormon who was pro-choice until recently and presided over gay marriage in his state with hardly a peep. So he loses on religious and "values" grounds. The second is health care reform. He is not a credible critic of the program. The third is his personality. He could overcome the other problems with charisma, but he is so dull and uninspiring.

Will someone like Tim Pawlenty be able to capitalize on his noted charsima and evangelical beliefs to overcome Romney? Tough to say. It can happen. If there was ever a year the GOP was bound to nominate an insurgent candidacy, 2012 is it: most of the establishment figures have bowed out and the party is in the grip of TeaPartyMania.

I think we shouldn't count out Ron Paul. He has the enthusiasm, a clear anti-big-government message, and appeal in the battleground western states like Oregon, Nevada, New Mexico, and Colorado that the Democrats need to win in 2012. Sure, he's not an evangelical, but he has the gifts to overcome that, and he's not a mormon. Let' face it, Ron Paul really is the darling of many in the Tea Party movement. If he notches a surprise win in Iowa, NV, or NH - and he is the only one of the top four delegate finishers from 2008 other than Romney to be back - he would be such a media darling he might race to an early nomination.

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Pragramatic Flexibility vs Doctrinaire Foreign Policy

So the latest in Libya is that 8 high ranking officers in the Libyan army are defecting to the rebels. This comes after a series of cabinet officials, including the Oil Minister and Foreign Minister, have defected. Qaddafi is rapidly losing friends. The time is coming soon when Qaddafi will be hold up in some bunker somewhere with a thousand or so "dead enders."

Meanwhile, in Syria, the military has "surrounded" several towns (see BBC story here). Over a thousand people have been killed. However, because of Syria's military strength, alliance with Iran and sensitive quasi-peace with Israel, the world has largely taken a hands off approach.

Perhaps, more worrying, China has declared martial law in a number of cities in Inner Mongolia where demonstrations have taken place (see story here). To expect the world to react to China the same way they react to Libya (or even Syria) is just absurd. We cannot hope to move China with military force. Nor can we expect that economic sanctions against China would be a realistic option.

The critics of President Obama's reaction to Libya have focussed on the lack of a "doctrine" that would be consistently applied around the world. But what I like about the President's approach is its pragmatism and its flexibilty. Syria and Libya are doing exactly the same things. If Obama were to adopt the doctrinaire approach favored by the right, we should be bombing Damascus right now. But I doubt even McLieberman and the other neo-cons would advocate doing that to China. Obama's policy recognizes that different countries require different approaches.

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Saudi Spills Beans

CNN.com is reporting (here) that a Saudi prince let slip that his family wants oil prices to stay lower to prevent Americans and Europeans from investing too much in alternative fuels.

"We don't want the West to go and find alternatives, because, clearly, the higher the price of oil goes, the more they have incentives to go and find alternatives," said Talal, who is listed by Forbes as the 26th richest man in the world.

This just underscores the central role that research in renewable energy sources and electric cars should play in our national security thinking. But the Republicans want us to back off from renewables, reinforce our relationship with oil sheiks and spend lots and lots on new wars and weapons in the Middle East.

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The CA LAO Needs to Remember It's place

California's Legislative Analyst's office is putting itself smack in the middle of a political battle . . . on purpose!

The CA LAO is suggesting that the state legislature refuse to appropriate matching funds for California's new High Speed Rail unless the ground breaking is in either SF or LA. To get Federal funds for this project, the state must provide matching funds. The LAO insists that the California High Speed Rail Authority has overstated ridership, thus profit, and understated the construction costs. If the LAO persists, and if the CA Legislature follows this advice, CA will loose all it's Federal money and in effect, the rail project will be dead, despite the strong support of CA voters and the Obama Administration.

The LAO suggests that the authority renegotiate start plans with the Feds, but the Feds have made it clear that starting the project anywhere but Central Valley will result in no Federal monies, period. The project deadlines must be met or the funding dissolves.

Now, I don't think the LAO is trying be partisan. But the media I've heard and read today makes it seem like the LAO is overstepping, or at least being too pushy. Assembly woman (D), Cathleen Galgiani is quoted in the Fresno Bee article as saying, "The LAO wants the Legislature to set criteria for choosing where to start building, but legislators already did that when they put Prop. 1A on the ballot. What this looks like is that perhaps the LAO doesn't like the outcome, so they want another legislature to change the rules to affect a different outcome." If the LAO is overstepping, it needs to be put in its place.

For some background you can read more at the Fresno Bee or the LA Times.

So the plans for ground breaking are all set. CA rail authority planners have worked closely with the Federal Government to get started. The Feds have insisted that the first branch to be built be the Central Valley portion from south of Merced to Bakersfield. See map below.



Actually,I would prefer to see the track laid between Sacramento and Fresno. It would be more expensive, but it would serve more people immediately. So in some sense the LAO's objection is valid. That said, it isn't worth it if it means killing the whole project. Talk about snatching defeat from the jaws of victory! There are a couple of good reasons why the Merced-Bakersfield plan makes sense. 1)The Valley is under-served in terms of public transportation. Many commuters to the Bay Area and LA live in the Central Valley where property is more affordable. 2) The Bay Area has BART, and it is heavily used. It reaches inland to Pleasanton. LA has public trans as well. The main highway down the Vally (HW 99) is overused and in pretty bad shape. I-5 carries a lot of traffic as well, but is also in varying degrees of disrepair. 3)The Valley needs the jobs & development. This part of the Valley is the poorest of the poor. 4)There is strong political support for it in the Valley and less environmental resistance. The Valley has space and the land is much cheaper than in the LA or SF areas.

The LAO's report makes some fair arguments about overall costs of the project. But we are talking about a public good. And public goods, like the post office, shouldn't be expected to turn a profit. We need to get used to this idea. Some things are purely about services and the economic growth that those services make possible. Truth be told, LA and the Bay Area are nearly built out. And if CA wants to draw big companies, the only place left is the Central Valley.

CA should not go the route that Florida went and turn away federal matching funds. This project is too important.

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More On Romney and the GOP

In an earlier post, I argued that the biggest beneficiary of Huckabee dropping out was Mitt Romney. This argument was based not on my assessment of the popularity of Romney's increasingly contradictory policy positions with Republican voters. Rather, my argument is that in most of their competitive nomination races since WWII, the Republicans have nominated the guy who's turn it is. That is, they have a strong tendency to nominate someone who has run before and usually someone who was the first runner up in the previous nomination round.

There is new poll from CNN/University of New Hampshire of voters in New Hampshire (see link here) that has some interesting results in light of my expectation that Romney is "the guy" that the GOP will ultimately line up behind (however unenthusiastically). You can see CNN's analysis of that poll here.

First, since Huckabee's dropping out, Romney's support has jumped from around 20% (see older results here) to 32%. The next best polling Republican is Ron Paul with only 9% support. So if the primary were held today not only would most voters in New Hampshire be really surprised but Romney would win the primary walking away. He'd get about a third of the vote in a field of about ten candidates.

Second, 87% of the Republicans say that they were really unsure about who they will vote for, so the preferences voiced above could be very unstable. So it would be good to see where Romney stacks up in the 2nd choice and 3rd choice results as well. Romney is also by far the most popular 2nd choice with 20% of Republicans naming him as their second choice (Sarah Palin is the next most popular 2nd choice with 10%). Romney is also the most popular third choice (9%). This suggests to me that as candidates continue to drop out (will Gingrich be next?), Romney will gain more of their supporters than the other candidates who stay in. Romney might have reason to worry if someone else, Pawlenty for example, were closer on the first choice numbers and ahead of him on the 2nd choice numbers. But Romney leads the pack across the board.

Another feature in the poll suggests that the media story about the weakness of the field of Republican candidates isn't telling the whole story (at least as far as Republicans are concerned). While it is true that many New Hampshire Republicans are dissatisfied with their choices (about 43%), most are satisfied (51%) even if they aren't fully decided about which choice they'll make.

Of course, all of this good news for Romney may just be because Romney is from Massachusetts and New Hampshire Republicans like their neighbor. But New Hampshire's early timing makes its results especially important. At the same time, the other early state, Iowa, has older polling that while a bit stale (taken prior to Huckabee dropping out) may tell a similar story, albeit at an earlier stage of development. See the press release here of the Hawkeye Poll from the University of Iowa and top results here. That poll doesn't have a "2nd choice" question. But it does show that Romney's support among people who identify themselves as "not strong Republicans" is only 5% but among self identified "strong republicans" Romney's support is 23% suggesting that more deeply a person identifies with the GOP the more likely they are to support Romney. In contrast, Palin gets about the same amount of support from both weak Republicans and strong Republicans. It's also worth noting that in this poll from Iowa, Romney was first and Huckabee was second and no other candidate was in double digits. Huckabee is out. If I had to guess, I'd guess that the next poll about the situation for Republicans in Iowa will show Romney way out in front.

Governor Pawlenty's announcement that ethanol subsidies should be abolished won't hurt Romney's chances in Iowa either. The national press is full of praise for Pawlenty's courageous reversal of his long time support for ethanol. However, Iowa conservatives I've talked to tend to be both rural and thoroughly convinced that agricultural subsidies like ethanol are a kind of divinely ordained right. The looks on their faces when I've made passing references to the negative consequences of ag subsidies in class rooms or living rooms where the stakes don't matter suggest to me that when these people are confronted by someone actually in a position to do something about ag subsidies, they'll react negatively. Maybe not all of them, but enough of them to reinforce Romney's already existing advantage.

Romney is also far ahead in Nevada (see realclearpolitics here) and his closest rival is Gingrich who had a bad week to put it mildly. That Gingrich's problems are related to his graceless flip flop regarding the individual insurance mandate feature of the so called "Obama care," it will make it hard for Gingrich to attack Romney's Massachusetts health care reform for having the same feature. It's hard for the second place guy to catch up if he makes himself look just like the guy he's trying to catch.

I think this all adds up to Romney winning both Iowa and New Hampshire then going into the Southern Primaries as the best funded Republican with a solid organization and local activists who remember his campaign from 2008. He will also likely have the lion's share of the delegates.

Of course, a lot can happen between now and February. Romney could have a flip flop public relations disaster like Gingrich. Pawlenty could prove me wrong and look like a "leader" with this latest ethanol flip flop. But Pawlenty is about as exciting you'd expect from a moderate from Minnesota. So for now, I'll stay with my expectation that Romney will be the eventual nominee.

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It’s about time!

"The dream of a Jewish and democratic state cannot be fulfilled with permanent occupation."- Barak Obama

Its’ about time that somebody got a bit more aggressive with Israel. You can see how the map of Israel/Palestine has evolved over the years by going to this link. I don't know much about the book and I don't necessarily endorse it. However the map on the cover is a good one and I don't want to risk violating copyright laws by posting the illustration here.


It’s a hackneyed discussion, I know. But I don’t think we should let it pass without comment. The President’s speech was important because it was agile. He had to speak to many people- leaders of the Arab world, activists in the Arab World, and leaders outside the Arab world wondering how Obama would define a new US policy toward the region. I think he succeeded. Obama was smart to place the long standing conflict in the larger regional context of the Arab Spring. This is particularly interesting since Israel was NOT a central issue to demonstrators across the region. It was an issue, but not the most important issue. Changing their governments was the issue. If the demonstrators succeed in getting more democratic, stable governments, this will increase pressure on Israel and provide the US with other options for alliances in the region. Remember, US support of Israel started because Nasser’s overtures to the USSR. Prior to that, the US was very cool toward Israel.

The best I can add is that for any negotiations to take place, Netanyahu must stop the settlements. That’s not a new idea. And he will have to abandon some of these settlements because they were built illegally. Telling Palestinians that Israel should be allowed to annex territory where Israeli settlements have been built is the equivalent to telling them that they will have no state. There just isn’t that much room in this tight corner of the world.

What Israel and Egypt have succeeded in doing is isolating Hamas through tough blockades. This has forced Hamas to work with the Palestinian National Authority. Hamas has not been able to get a foothold in the West Bank. Hamas should go the way of Shin Fein. It should cut its ties with Iran, give up its calls for the destruction of Israel and function as a political party. That said, I recently read the most of Hamas’ funding comes from Saudi via Syria. So there are multiple money sources at play. Hamas will continue to harass Israel with an occasional rocket, seeing if it can draw Israel into another military action. But that should also stop if Hamas’ intents to see some form of peace.

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Vive La Difference

This post was inspired by an interesting interview published in Le Monde with Arthur Dethomas, a French lawyer who also practices in New York discussing the difference between the criminal justice system in the US and France. What I like about the interview is that he doesn’t pass judgment on which system is better. He simply presents the differences. It thought it would be interesting to share what he said here.

The first difference between the US and France is how charges are brought against the accused. In the US, we accumulate charges. So in DSK’s case, there are 7 charges against him, each which comes with a set punishment. So the accused must counter each charge. And for those changes for which he is found guilty, the punishments accumulate. Therefore, prison sentences are longer. In France, they try the accused for the single most serious charge, the one that will result in the harshest punishment. What Dethomas doesn’t address is if after the trial for the severe charge, the accused can be tried on a different, lesser charge. So if anyone knows, share!

He also points out that sex crimes are addressed more aggressively in the US than the France because we have a culture that requires that. This has less to do with the law than with culture values and traditions.

The next question he addresses is about the heavy-handedness used by American authorities (the violence of the system) and if this is something of a culture shock or clash between the US and France. Mr. Dethomas says that there is cultural difference that rests on notion of the “perp walk”. In America, we tend to display the accused when he/she is brought before the judge. In France, the accused is not shown when brought before the judge. It is not really correct to say that the American system is more or less harsh than the French system, but that the American system is more visible, and therefore, appears more harsh. Mr. Dethomas says that the French system is equally harsh in its own way. It incarcerates, denies people liberty, places people on probation or under guard, etc.

Next, Mr. Dethomas says that the idea of “innocent until proven guilty” is the underlying principle of both systems. However, because there is less regulation of privacy in the US (he emphasize use of photos and film here), the system exposes the accused. And to assume that you treat celebrities with more discretion would be viewed by the American system as “special treatment”.

In France, the judge determines the charges against an accused. The judge uses the powers vested in him/her by the state to lead an investigation and to determine which charges to bring based on that investigation. One benefit of the French system is that is levels the playing field for the accused. You don’t need a lot of money to hire private investigators and high-end lawyers.

In the US, he says, state prosecutors determine the charges and the defense team must argue before a judge why certain charges should be dropped. The prosecutor, or the state, has a great deal of power. So in effect, the accused appears to be very “alone” in facing a system that is geared toward accusation. However, Dethomas doesn't mention the role of the Grand Jury (or that part got edited out). In the DSK case the prosecution laid out a set of charges before a grand jury, not a judge. And it was up to the grand jury to determine which charges were viable and which were not based on testimony from the accuser. The defense didn't even get to argue.

Because prosecutors in many jurisdictions, New York being one of them, are elected, they reap political benefits from successful prosecution, especially if those are high profile cases. This isn’t the case in France.

Lawyers in the US have the right/duty to run independent investigations. The prosecutor must share with the defense all evidence (called “discovery”) that their investigation of the CRIME turns up. That does not extend to investigations of witnesses. So to get an edge, they investigate witnesses and try to discredit them. That said, the defense team has to “protect” the accused from media attention, and from the possibility of civil suits that can be brought against the accused after trial. The French don’t have this type of system, where you can be found innocent of the crime in criminal courts and then be tried in civil courts. (Frankly, I don’t think we should allow this either. It’s a mere technicality to say that you aren’t being tried twice for the same crime just because the charges and type of law change.)

When asked if there is a two-tiered system in the US, one for the rich and one for the poor, Dethomas agrees that those with more means get a better quality defense. However, France also has a two tiered system, he says－one for celebrities and one for everyone else. In American, DSK is being treated as a common prisoner. In France, he’d get special treatment.

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DSK is Guilty, But Not of Rape

When I was growing up, my parents consistently drove home the point that to avoid trouble, you don’t put yourself in risky situations. Vigilance and discipline will keep you clear of trouble. That has worked well for me thus far. This scandal of Dominique Strauss Kahn(DSK) is a prime example of what happens when you ignore such wise advice.

At this point, I believe DSK was set up. I believe this for a couple of reasons- all of them speculative on my part:
1) Sarkosy is scuzzy enough to sully a strong contender for his job.
2) Perhaps I am cynical, but I doubt the NYC police would take the accusations of a hotel maid so seriously as to rush over to JFK and pull DSK off an airplane unless they wanted him for some other reason. And I find it hard to believe that they are actually holding him at Rikers.I think the maid was a pretext really. There is something else going on.
3) The guy is wealthy enough, that if he wanted sex, he could hire a very high class prostitute.
4) I don’t know how a man can force an unwilling woman to do a blow job. Women have teeth, we can and will bite.
5) French news is reporting that DSK left the hotel well before the claimed time of the “attack” and that the reason the maid entered the room to begin with is because she believed it to be empty and ready for cleaning.
6) You don’t spend a life in politics without making enemies. He is part of what the French call the “caviar left”. His politics is left (i.e. French Socialist, former communist), but his lifestyle is much the opposite. He is part of a wealthy, intellectual elite in France. I’m gonna guess that there are plenty of people who would love to take the guy down a notch or two.

All of that said, if DSK was set up, it was because he was an easy target for just such a honey trap. He consistently put himself in situations where trouble was possible. He has a reputation worthy of Bill Clinton.

He was accused of rape in 2002 by a French journalist who did not press charges. Reports are that she is now reconsidering. Big surprise. Not sure what the statute of limitations for such crimes is in France.

In 2008 he was investigated for having an affair with a subordinate, married, IMF employee. She accused DSK of harassment, coercion, and abuse of power. She was fired but DSK found her a new job.

The man has been married 3 times and four daughters.

DSK’s sexual activity and love of the ladies has long been the stuff of tabloid in France.

DSK is guilty of something, but I don’t think it’s rape. I will be interested to follow this tale to see if there is a deeper truth here. It's yet another classic case where a successful person's weaknesses lead to a spectacular crash.

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Obama vs Romney in 2012

Hi Everyone,

I thought I would indulge in a little excessively early prognostication. With Governor Huckabee declaring his non-candidacy, that leaves the field open. The conventional wisdom among many is that Mitt Romney is incapable of winning the Republican nomination because he's Mormon and is "soft" on Obama-care. I think Romney is the guy to bet on getting the nomination and here is why...

First, there is a long history of the GOP nominating the guy who has the "resume." If the Democrats picked nominees like the GOP did, the 2008 contest would have been between Clinton and Edwards with Obama having to wait for a VP offer - assuming he could hang around longer than Richardson. But Republicans LOVE to pick the resume. The often nominate the runner up from the previous election cycle. Examples: Reagan lost to Ford in 1976 and was nominated in 1980. GHW Bush lost to Reagan in 1980 and was nominated in 1988. Bob Dole was Ford's running mate in 1976 and lost the nomination to GHW Bush in 1988 but was nominated in 1996. John McCain lost the nomination to GW Bush in 2000 but had a come back win to get the nomination in 2008. So who came in "second" in 2008? It depends how you figure it. Romney was probably the second most serious candidate but Huckabee hung on like grim death to come in second in the delegate count even though he was mathematically eliminated. So the "who's turn is it" question would be open to interpretation with both Romney and Huckabee in the race. With Huckabee out, Romney is in sole command of the "best resume" title for 2012.

In addition to the "tradition," the GOP nomination process is more dependent on "winner take all" results. So if a candidate comes in first in a crowded field but with only 25% of the vote, that candidate could walk away with 100% of the delegates for that state. So being out in front is huge. The early polls show that only Romney and Huckabee were consistently getting close to 20% of support from Republican respondents (see polls here). Romney and Huckabee were also the most popular "second choice." So with Huckabee gone, that sets up Romney.

Then there are the delegates who get to vote at the convention independently from the primary and caucus results. Democrats call these "super delegates." Republican use them too. This crowd is the "Party establishment" that the tea party dislikes so much. These are also the people who occasionally leaked out "Palin is an idiot" stories in the aftermath of the 2008 election catastrophe. I hardly think these people are going to line up behind either Palin or Trump. They'd be torn between a couple of former governors with decent records in office but not when the choice is between one of them and cluster of whackos, anti-establishment demagogues and unknowns. Gingrich MIGHT attract some of this support but his tenure as Speaker was controversial among the Republican establishment. Also, Gingrich's infamous relationship with his family(ies) makes the Mormon Romney look good to evangelicals, at least the elite ones, by comparison.

This sets up Obama vs Romney in 2012. It also takes the health care reform issue off the table for things Republicans can challenge Obama on. That could be huge as this was the main issue Republicans used to win seats in 2010. Romney's close ties to the auto industry might make it hard for him to go after Obama on the stimulus because a big part of the post 2010 bail out/stimulus was directed at keeping the US auto industry afloat. On foreign policy, Romney can hardly make a serious claim that he's got more or more hawkish foreign policy credentials than the incumbent president who "got Bin Laden." His best bet would be run against the idea of foreign policy and portray himself as something of an isolationist (which is what Ron Paul is doing).

All of this makes me think that the biggest beneficiary of Huckabee's non-candidacy is going to be Obama.

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What's the Deal with Pakistan

OK, so the big post Bin Laden story is about how messed up our relationship with Pakistan is. Our alliance with Pakistan, much like the mess in Afghanistan, is a hangover from the Cold War. When the British Raj ended in the South Asia, Pakistan and India emerged as bitter rivals. India tried to steer a path of "non-alignment" in the Cold War. But India early on moved closer to the Soviet Union.

Pakistan decided an alliance with the US was the way to go. Pakistan was a charter member of CENTO (a less well known part of the series of treaties, including NATO, designed to contain the spread of communism inside a ring of regional alliances, the third organization was SEATO). Pakistan had already established a separate relationship with China in 1950, being one of the first countries to recognize the Communist government following their defeat of the Chinese nationalists in 1949.

The 1960s, 70s and 80s saw the complex alliances get entrenched. As the US enlisted China as an ally against the USSR, a kind of three way alliance between the United States, Nationalist Pakistan and Communist China formed. All of it was based on convenience. The US wanted allies against the USSR. China wanted support against the USSR and India and Pakistan wanted support against India. This three way alliance was useful when the USSR invaded Afghanistan with Pakistan playing a crucial role in US efforts to support the anti-soviet resistance in Afghanistan. Part of Pakistan's foreign policy had always been enlisting Islamic fundamentalists as proxies both in their conflict against the Soviets in Afghanistan and against India (especially in Kashmir). All of this led to the emergence of the Taliban and Al Qaeda.

But in the post cold war era, the goals of the US have shifted. Russia is no longer the greatest concern. Rather, US foreign policy is focussed on containing Islamic fundamentalism and China. Pakistan is a particularly unreliable ally for both goals. At the same time, democratic India is looking increasingly like a better ally in that region on both dimensions. India is a large, fast growing developing country that is already a relatively stable democracy. They have an inherent incentive to see containing China as a benefit and they are a frequent target of Islamic fundamentalism.

So why do we still need an alliance with Pakistan at all? So long as we have troops in Afghanistan, we need Pakistan's cooperation to keep them supplied. Afghanistan is land locked and any connection to the Indian Ocean must go through or over either Iran or Pakistan. Iran is out of the question so... Pakistan's military elite has us by the short hairs. And since they know we need them and they're helping us is politically costly for them domestically, these elites demand exorbitant payoffs in the form of massive military aid and indulgence when they do things like sell nukes to North Korea or support terrorism against India or hide Bin Laden from us.

Also, our support for secular elites in Pakistan is the only thing keeping that country away from sliding into becoming a nuclear armed version of Afghanistan. Granted those elites are way too cozy with people who mean to do us serious harm. But we have little choice at this point but to try to influence the Pakistanis as best we can. The faster we pull out of Afghanistan the easier it will be Pakistan to be friends with us and the less they'll have us by the short hairs. In other words, us pulling out of Afghanistan will strengthen our bargaining position with Pakistan just as it makes it easier for Pakistan to be cooperative with us.

In the long run, our best outcome would be to build friendly relationship with both Pakistan and India and use their mutual friendship with us to establish something like the peace that now reigns between Greece and Turkey. Getting out of Afghanistan helps that. Frankly, even if things deteriorate in Afghanistan after our departure, it's better for us to be out.

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