Free Markets, Free People


Sometimes A Picture …

Is definitely worth a thousand words.

Or a chart.

Arthur Laffer is not amused:

Here we stand more than a year into a grave economic crisis with a projected budget deficit of 13% of GDP. That’s more than twice the size of the next largest deficit since World War II. And this projected deficit is the culmination of a year when the federal government, at taxpayers’ expense, acquired enormous stakes in the banking, auto, mortgage, health-care and insurance industries.

With the crisis, the ill-conceived government reactions, and the ensuing economic downturn, the unfunded liabilities of federal programs — such as Social Security, civil-service and military pensions, the Pension Benefit Guarantee Corporation, Medicare and Medicaid — are over the $100 trillion mark. With U.S. GDP and federal tax receipts at about $14 trillion and $2.4 trillion respectively, such a debt all but guarantees higher interest rates, massive tax increases, and partial default on government promises.

But as bad as the fiscal picture is, panic-driven monetary policies portend to have even more dire consequences. We can expect rapidly rising prices and much, much higher interest rates over the next four or five years, and a concomitant deleterious impact on output and employment not unlike the late 1970s.

And what have those “panic-driven monetary policies” brought us? Well, first the picture:ed-aj638a_laffe_ns_20090609175213

The chart is certainly no laffer.

Remember, we’re being told by “experts” (*cough* Krugman *cough*) that we’ll be able to handle this with no problem, really, if we just manage it properly. A tweak here, a tweak there and bingo – no inflation.

Hmmm … let’s get a little context here, shall we?

The percentage increase in the monetary base is the largest increase in the past 50 years by a factor of 10 (see chart nearby). It is so far outside the realm of our prior experiential base that historical comparisons are rendered difficult if not meaningless. The currency-in-circulation component of the monetary base — which prior to the expansion had comprised 95% of the monetary base — has risen by a little less than 10%, while bank reserves have increased almost 20-fold. Now the currency-in-circulation component of the monetary base is a smidgen less than 50% of the monetary base.

So that means that what? Well Laffer goes into a good explanation of bank reserves and how they function, etc. etc. – bottom line, banks are going to be loaning a bunch of money, thereby injecting liquidity into the marketplace.


With the present size of the monetary base, and …

With an increased trust in the overall banking system, the panic demand for money has begun to and should continue to recede. The dramatic drop in output and employment in the U.S. economy will also reduce the demand for money. Reduced demand for money combined with rapid growth in money is a surefire recipe for inflation and higher interest rates. The higher interest rates themselves will also further reduce the demand for money, thereby exacerbating inflationary pressures. It’s a catch-22.

And what does that mean could happen? Well again, we’re in uncharted territory, but the last time we had anything even similar, eh, not so good:

It’s difficult to estimate the magnitude of the inflationary and interest-rate consequences of the Fed’s actions because, frankly, we haven’t ever seen anything like this in the U.S. To date what’s happened is potentially far more inflationary than were the monetary policies of the 1970s, when the prime interest rate peaked at 21.5% and inflation peaked in the low double digits. Gold prices went from $35 per ounce to $850 per ounce, and the dollar collapsed on the foreign exchanges. It wasn’t a pretty picture.

Yeah. I remember it well. And here we are again – on steriods. So now what?

Per Laffer, the Fed must contract the money supply back to where it was plus a little increase for economic expansion. And if it can’t do that, it should increase the reserve requirement on banks to soak up the excess.

But Laffer doubts that can or will be done:

Alas, I doubt very much that the Fed will do what is necessary to guard against future inflation and higher interest rates. If the Fed were to reduce the monetary base by $1 trillion, it would need to sell a net $1 trillion in bonds. This would put the Fed in direct competition with Treasury’s planned issuance of about $2 trillion worth of bonds over the coming 12 months. Failed auctions would become the norm and bond prices would tumble, reflecting a massive oversupply of government bonds.

In addition, a rapid contraction of the monetary base as I propose would cause a contraction in bank lending, or at best limited expansion. This is exactly what happened in 2000 and 2001 when the Fed contracted the monetary base the last time. The economy quickly dipped into recession. While the short-term pain of a deepened recession is quite sharp, the long-term consequences of double-digit inflation are devastating. For Fed Chairman Ben Bernanke it’s a Hobson’s choice. For me the issue is how to protect assets for my grandchildren.


Yes friends – we’re in the best of hands. I’m just wondering how the present administration is going to attempt the blame shifting when the inevitable happens.


Health Care – “The Public Plan”

Ezra Klein discusses what has commonly become known as the “public plan” in the emerging “health care reform” legislation. Put simply it is “public insurance” which is supposed to compete with the private insurance industry and, as Paul Krugman claims, keep them “honest”.

Klein lays out the various flavors being floated out there concerning this option:

• The “Trigger” Plan: Olympia Snowe is pushing this compromise, as are some conservative Democrats. The basic idea is that the public plan would act as an invisible threat: It would be “triggered” into existence if the private insurance market was unable to offer, say, enough options in a particular region, or enough cost control. In addition, the public plan would only come into existence in this or that region, or this or that state. It would be effectively useless as an insurer. It could potentially have some competitive effect in that private insurers would still work to avoid its existence. Some have argued, however, that the conditions being mentioned in the “trigger” proposals have already been met.

• The Weak Public Plan: This is what people are talking about when they refer to a “level-playing field.” This incarnation of the public plan — first proposed by Len Nichols at the New America Foundation and later echoed by Peter Harbage and Karen Davenport at the Center for American Progress — would have no special advantages over private insurers. It couldn’t use the low rates that Medicare sets or access taxpayer subsidies. It couldn’t force its way into networks. It would simply be another insurer, albeit with different incentives than traditional insurers.

• The Strong Public Plan: This would be like Medicare for the rest of us. It could throw the federal government’s weight around. It could negotiate deep discounts with providers. It could muscle its way into networks. Outside groups like the Commonwealth Fund estimate that it would save the average consumer 20 percent to 30 percent. That would give it a massive competitive advantage over private insurers, and would probably result in tens of millions of Americans dropping their current coverage and entering the public plan to save money. A variant of this was in the draft of Ted Kennedy’s bill that was leaked last week.

While Blue Dog Democrats have come out in favor of the “trigger” option, liberals such as Klein and Krugman prefer the “Strong Public Plan” for the reasons stated (massive dropping of private insurance for “public” (i.e. government) insurance). And there’s a reason they both prefer that – they see it as a backdoor way to move health insurance to a single payer system.

And that is a distinct possibility with both the “strong public plan”. In fact it is a design feature. The “competition” touted would most likely be in name only as Greg Mankiw explains (quoting Krugman to set up his explanation):

What’s still not settled, however, is whether regulation will be supplemented by competition, in the form of a public plan that Americans can buy into as an alternative to private insurance.Now nobody is proposing that Americans be forced to get their insurance from the government. The “public option,” if it materializes, will be just that — an option Americans can choose. And the reason for providing this option was clearly laid out in Mr. Obama’s letter: It will give Americans “a better range of choices, make the health care market more competitive, and keep the insurance companies honest.”

It seems to me that this passage, like most discussion of the issue, leaves out the answer to the key question: Would the public plan have access to taxpayer funds unavailable to private plans?

If the answer is yes, then the public plan would not offer honest competition to private plans. The taxpayer subsidies would tilt the playing field in favor of the public plan. In this case, the whole idea of a public option seems to be a disingenuous route toward a single-payer system, which many on the left favor but recognize is a political nonstarter.

If the answer is no, then the public plan would need to stand on its own financially and, in essence, would be a private nonprofit plan. But then what’s the point? If advocates of a public plan want to start a nonprofit company offering health insurance on better terms than existing insurance companies, nothing is stopping them from doing so right now. There is free entry into the market for health insurance. If a public plan without taxpayer support would succeed, so would a nonprofit insurance company. The fundamental viability of the enterprise does not depend on whether the employees are called “nonprofit administrators” or “civil servants.”

The bottom line: If the goal is honest competition in the provision of health insurance, the public option cannot do much good but can potentially do much harm.

That is a critical point in this debate – there isn’t an insurer out there that has as deep pockets as the US Treasury. If there is public money backing the public option, then the talk of “competition” is a sham. It is being used to placate and fool those who oppose a government takeover of insurance, the result which would surely happen if what Mankiw’s concerns are true. And if you follow the reasoning process that Mankiw has laid out above, it should be pretty darn obvious what the intent of this “public plan” really is, all the happy talk Klein and Krugman throw out there notwithstanding.

Last, but not least, while the “strong public plan” is an obvious short-cut to single-payer government run health care, the other two plans simply delay that same eventual outcome for a while. While there are certainly reforms that could be made in the insurance industry and health care generally, anyone who believes that government can do it a) better and b) more efficiently has simply not been paying attention to the shape government finances are in right now or how large the deficit has grown as it has mismanaged its entitlement empire to this point.


Socialism? Why Not Call A Spade A Spade?

One of the things we talked about on the podcast this week is how, in the broadest sense, socialism is a growing phenomenon in our country. As I mentioned, while government may not actually own the means of production, if its regulations are such that they dictate how a company must operate, then government exercises de facto ownership.

What is happening in the financial sector right now serves as a perfect example.

The Obama administration plans to require banks and corporations that have received two rounds of federal bailouts to submit any major executive pay changes for approval by a new federal official who will monitor pay, according to two government officials.


Others, which are being described as broad principles, would set standards that the government would like the entire financial industry to observe as they compensate their highest-paid executives, though it is not clear how regulators will enforce them.

So regulators will have the final say on compensation. That, of course, is an ownership function. The de facto owner then is who?

Moving on:

In a sign of how eager corporations are to escape government diktats on pay, nine of the nation’s biggest banks are likely to repay bailout money as quickly as by the end of this month. The administration is expected to grant its approval this week.

Goldman Sachs, JPMorgan Chase and a handful of others have worked to rid themselves of their ties to government in order to shed restrictions on pay that they say put them at a competitive disadvantage.

But under the administration’s new plans, even companies that repay the taxpayer money will not escape some form of oversight on their compensation structure.

The set of broad pay principles being drafted by the Treasury Department would authorize regulators to tell a bank to alter its compensation arrangements if they are found to encourage too much risk-taking. It is not clear how the government will define too much risk.

Part two – no matter whether you pay the money back in full with whatever interest is owed, the government retains the right to dictate your compensation structure based in some arbitrary metric of “too much risk”, to be determined only by them.

They will apply to a broad swath of financial companies, even the United States operations of foreign banks, as well as private companies like hedge funds and private equity firms.

“This is the government trying to tell the TARP banks not to worry, because everyone else’s compensation will be monitored too,” said Gustavo Dolfino, president of the WhiteRock Group, a financial recruiter, of the industrywide principles. “We’re in a world of TARP and non-TARP.”

Clear enough? For those that like to quibble about the meaning of socialism and parse words, I’m eager to hear your spin on this. But, in light of the plan above you’d better be damned good at deploying the rhetorical smoke and mirrors if you plan to call this anything but a manifestation of the “s” word.


Wow, That Stimulus – Just What Was Needed! More, Please!

Another indicator that those in charge haven’t a clue about what they’re doing and anything they say or claim should be taken with a large grain of salt.



So let’s see, given the “logic” which has driven the “solution” thus far, what this calls for is more stimulus money, right?


Short-sighted Partisan Politics Makes For Bad Decisions

And nothing could make that point better than this:

Defense Secretary Robert Gates isn’t ruling out spending more on missile defense than what he’s asked for in next year’s budget if North Korea or other nations increase threats against the United States.

Gates said the missile tests by North Korea over the past week appear to have attracted more support on Capitol Hill for missile interceptors.

Candidate Obama was pretty darn sure that these interceptors just weren’t needed because, you know, they just weren’t! Russia isn’t our enemy anymore and we get along fine with China – where’s the threat?!

Well during the entire lead up to the 2008 presidential campaign, North Korea and Iran were flinging missiles around right and left each, seemingly, with longer ranges and larger carrying capacity.

Ignored. In fact, as I recall, Obama dismissed Iran as not much of a threat at all. Something about Iran being a ‘tiny’ country that ‘doesn’t pose a serious threat.’ Certainly not one that required a missile defense.

Politics. All politics. Nothing based in reality, but instead dismissive rhetorical hand-waves designed to please the base. And those who controlled Congress picked up on the tune and danced to it.

Now, suddenly, by doing almost exactly the same thing they’ve done for some years, North Korea has managed to resurrect the need for a missile defense?

Why now?

Well that’s easy. Now they’re governing, suddenly not having an armed missile land on friendly territory during their watch is a priority.

Politics. The only real reason they opposed it previously is because the other side wanted it.

Of course, if questioned about why this is different than when NoKo and Iran did this sort of thing the last few times, I’m sure they’d find a way to spin it that they think wouldn’t make them seem so short-sighted, petty and partisan (read the article, there’s plenty of spin included).

That won’t change the fact one bit that they were indeed short-sighted, petty and partisan.


Japanese “Lost Decade” Redux

It certainly seems like it. Reason magazine finds the current way the US is addressing the economic crises to be pretty familiar:

The scenario was eerily familiar. A long real estate bubble that had expanded extra rapidly for the previous five years suddenly burst, and asset prices came crashing back down to earth. Banks and financial institutions were left holding piles of worthless paper, and the economy soon headed south. The national government responded to the crisis by encouraging more lending and spending previously unfathomable amounts of money on public works projects in an effort to stimulate consumer spending and restart growth.

Of course that’s where we are now and what that led too in Japan has come to be known as the “lost decade” (now three decades old).

One of the things we’ve pointed out is there is an element within this model that both Japan and now the US has used that is focused on “pain avoidance” (GM and Chrysler are prefect examples of that). Part of that is driven by the belief by those in power that the government can address problems within markets and lessen the impact. The second part of that, of course, is by convincing the public that’s the case, they then have to try to do what they claim they can do. But the law of unintended consequences has a bad habit of pushing its way into such situations and turning them sour:

The Japanese experience shows that when the government is an active participant in the market, many firms would rather accept state support than initiate the inevitable financial reckoning. Such a status quo does not provide a sustainable foundation for the economy. Instead, it restricts economic growth and creates a cycle of stagnation.

A friend, talking about the recession and eventual recovery, said that we’ll come out of it “okay” because “Americans are neurotically productive”. True. But so are the Japanese. While we have a fantastic workforce which is among the most productive in the world, even they won’t be able to overcome restricted economic growth caused by the government’s deep intrusion into various markets.

Comparing Japan’s reaction to the US reaction in similar circumstances is instructive:

When a recession began to set in after the 1990 stock market crash, Japan responded by reversing its tight money policy, cutting rates to 4.5 percent in 1991, 3.25 percent in 1992, 1.75 percent from 1993 to 1994, 0.5 percent from 1995 to 2000, and as low as 0.1 percent in September 2001.

A similar pattern took place in the United States. From 2000 to 2002, the Federal Reserve slashed the target discount rate from 6 percent to 0.75 percent. Fearing irrational exuberance, to borrow Alan Greenspan’s famous phrase, the Fed then raised the rate as high as 6.25 percent in June 2006. But now that the bubble has burst and the economy contracted, the Fed has cut the discount rate 12 times, lowering it to the current 0.5 percent. Federal Reserve Chairman Ben Bernanke has repeatedly stated that he sees interest rate cuts as a way to “support growth and to provide adequate insurance against downside risks.”

In both the Japanese and the American cases, post-bubble policy makers believed that lowering interest rates would make credit easier to obtain, thus recreating the environment that had spurred economic growth to begin with. But this meant that the supposed cure for a bubble created by easy credit was to extend even more easy credit.

These rate cuts only perpetuated the distortion of economic decisions and prevented savings, investment, and consumption from realigning with true preferences, as opposed to the illusory ones created by easy credit and artificially low interest rates. The lesson is that when monetary policy is used to “smooth” or “tweak” the market, it inevitably causes unintended consequences that in some cases can be very damaging to long-term economic growth.

Of course it is hard to say what future growth might be had the US government not done what it has done. But again, using Japan of that era vs. the US of that era, the difference is between 1.3% growth on average vs. 3.5% growth here. In economic terms that is a huge difference.

Reason also does a nice job of dismantling the “failure of regulation” argument. As they point out, what must be examined is how the regulatory environment then in place spawned the crisis vs. the claim that not enough regulation was in place.

For instance, government housing policy of the era:

The push to expand homeownership had two big effects. First, it greatly increased the number of buyers, driving up housing prices. Second, it provided mortgages to a large number of people who had a high risk of default.

That policy was further enabled by the capital reserve requirements which, in effect, encouraged heavy lending and an insensitivity to risk. Instead of admitting that and understanding that such policies are dangerous, the reaction has mostly been to ignore that and shift the blame to the private sector with calls for “more regulation”.

And then, going back to the “pain avoidance” point (justified as “too big to fail” by the government), what has happened is, as in the case of GM and Chrysler before the bankruptcies, government propping up failed businesses:

The Bank of Japan tried to ease economic pain by loaning large amounts to businesses. But the attempts to recapitalize the market ignored underlying management problems in the dying firms. It was a costly mistake. Intense lobbying from special-interest groups representing various sectors of the Japanese economy perpetuated the ill-fated loans and funneled government money to zombie businesses.

The United States has already begun to copy this policy, lending billions of dollars to financial institutions and auto companies and buying up billions more in bank equity in an effort to recapitalize the marketplace. The effect has been to keep poorly managed firms alive with taxpayer money.

Had they been allowed to fail and go through the reorganization process, those problems would have at least been addressed. They haven’t, at this point, in most of the financial sector and in the auto sector, it remains to be seen.

Of course the government’s deep involvement in these sectors and businesses sets up a natural conflict of interests. While a business is market oriented, and takes signals from consumers, governments are agenda driven and politically oriented. And it then comes down to a matter of incentives. In the first case the incentive of a business is to serve its consumer base. But that’s not the case with politicians necessarily, is it?

Lawmakers’ incentives are to serve their constituencies or their own political careers. This can put them at odds with the businesses they are suddenly attempting to manage. The more the government is involved in directing business activity, the less likely those firms will succeed in maintaining long-term growth, and the more likely they will turn into Japanese-style zombies.

While we’d like to believe that lawmaker’s constituencies consist of the people in their state or district, in reality they consist of special interests who help keep them in office. The ability to deliver to those special interests and keep their support and dollars flowing is just to much to resist for most.


Studies from Okimoto’s center and the Bank of Japan concluded that data revealing the scope of the economic malaise were suppressed and that regulations were developed with governmental interests in mind.

Given how the discussion has been driven here by the likes of Barney Frank and Chris Dodd, there’s little doubt that regulations will be “developed with governmental interests in mind”.

In reality it all comes down to power, or the illusion of power, and politics. Short-term politics with no real eye on the future impact of actions taken today. And these actions are based in a false premise that the market is not self-correcting and that it must be both controlled and tweaked by government.

Japan bought into that premise, and so has the US:

The principle of creative destruction—the economic mutation that continuously breaks down old forms and creates newer, more productive and efficient ones—was ignored in the hope that legacy corporations could somehow save Japan. From Wall Street to Detroit, under both George W. Bush and Barack Obama, the American government has been equally unwilling to let once-formidable companies fail.

And that, in my opinion, will see us repeat the Japanese experience, despite the small glimmers of hope we’ve been seeing in the reports in recent days. This isn’t about short term increases in home sales and construction spending. This is about the long term economic health of our economy.

Unsurprisingly, I’m not seeing moves by the government that work toward the most positive outcome in that regard.


Feldstein: Cap-and-Trade A “Bad Idea”

Martin Feldstein, a professor of economics at Harvard University, president emeritus of the nonprofit National Bureau of Economic Research, and former chairman of the Council of Economic Advisers from 1982 to 1984 has concluded that the Waxman/Markey cap-and-trade legislation is a bad idea. He comes to that conclusion for a number of reasons.

First, his understanding of the legislation and its economic impact:

The leading legislative proposal, the Waxman-Markey bill that was recently passed out of the House Energy and Commerce Committee, would reduce allowable CO2 emissions to 83 percent of the 2005 level by 2020, then gradually decrease the amount further. Under the cap-and-trade system, the federal government would limit the total volume of CO2 that U.S. companies can emit each year and would issue permits that companies would be required to have for each ton of CO2 emitted. Once issued, these permits would be tradable and could be bought and sold, establishing a market price reflecting the targeted CO2 reduction, with a tougher CO2 standard and fewer available permits leading to higher prices.

Companies would buy permits from each other as long as it is cheaper to do that than to make the technological changes needed to eliminate an equivalent amount of CO2 emissions. Companies would also pass along the cost of the permits in their prices, pushing up the relative price of CO2-intensive goods and services such as gasoline, electricity and a range of industrial products. Consumers would respond by cutting back on consumption of CO2-intensive products in favor of other goods and services. This pass-through of the permit cost in higher consumer prices is the primary way the cap-and-trade system would reduce the production of CO2 in the United States.

Note that he doesn’t play any games when talking about where the cost of such permits will end up – passed through to consumers. He prefers the CBO’s lower estimate of the impact per family of about $1,600 per “typical” family to some of the higher estimates in the $3,000 t0 $4,000. But they’re all estimates and they all say, even at the low end, that the impact is going to be significant.

Feldstein then looks at the possible payoff and challenges Americans to ask a very pertinent question. He also calls the plan exactly what it is – a tax:

Americans should ask themselves whether this annual tax of $1,600-plus per family is justified by the very small resulting decline in global CO2. Since the U.S. share of global CO2 production is now less than 25 percent (and is projected to decline as China and other developing nations grow), a 15 percent fall in U.S. CO2 output would lower global CO2 output by less than 4 percent. Its impact on global warming would be virtually unnoticeable.

But its impact on the American economy? Well, you don’t have to be a Harvard economist to figure that out. And a quick glance at Europe and how quickly most of the countries there figured out a way to ignore Kyoto should tell you the rest of the story.

Feldstein may or may not believe the theory that says CO2 is a pollutant and the cause of “global climate change”. But what is clear is he certainly doesn’t believe our seeming desire to strap ourselves economically without the big emitters (China and India) doing the same is a) worth it economically and b) make a bit of difference in real terms.  Doing it without those two and all others included is about as smart as committing to unilateral nuclear disarmarment.

Feldstein goes on to attack the pending cap-and-trade legislation for other reasons as well – mostly on a revenue and impact basis (and how revenue can soften the impact – yeah, subsidy – at the “payee” end – i.e. consumers.  Of course, only a certain class of consumers would most likely be eligable and it will be up to the more well-to-do to pay their “fair share”).  But the two big points of his criticism are the most important in my thinking.

1. It will, regardless of how it is structured, have a negative economic impact on every American household and thus our economy.

2. It won’t make a bit of real difference unless everyone is involved in such reductions.  Exclusion of the big emitters makes our “economic sacrifice” literally worthless in terms of the supposed overall goal of cutting CO2 worldwide.

Because of those two points alone, we should demand that such legislation be voted down.  I think the focus on CO2 is a load of unscientific nonsense, but politically that has no legs at this time.  But what does have legs is the argument summed up in those two points and opponents of cap-and-trade should use them (and Feldstein’s name) to make the argument against the pending legislation.


North Korea: Tough Talk But Little Else

While at a conference in Singapore with Asian defense leaders, Sec. Gates did a little podium thumping about North Korea’s recent nuclear test:

“We will not stand idly by as North Korea builds the capability to wreak destruction on any target in Asia — or on us,” Mr. Gates told a major defense conference here that has been dominated by North Korea’s test this week of a nuclear device and the firing of at least six short-range missiles, all in defiance of international sanctions.

It took a foreign journalist to point out to Sec. Gates that while the US may not recognize North Korea as a nuclear weapons state, it was, in fact, already a “defacto nuclear weapons state.”

And, of course, it was important that Gates do a little apologizing to the assembled group as well, since this seems to now be an integral part of any foreign visit:

Mr. Gates concluded that the United States, “in our efforts to protect our own freedom, and that of others” had “from time to time made mistakes, including at times being arrogant in dealing with others.” Mr. Gates did not name names, but then said, “We always correct course.”

Other nations in the region weighed in on the North Korea nuclear test as well:

In Moscow, the Kremlin issued a statement saying President Dmitri A. Medvedev and Prime Minister Taro Aso of Japan had agreed on the need for a serious response to the nuclear test, Reuters reported.

As is usually the case in these sorts of situations, no one has any idea of what might constitute a “serious response” . In essence, the most “serious response” discussed thus far at the conference has been tightening sanctions.  And we know how well sanctions have worked in NoKo and Iran.

Unofficially, about all that’s gone on is this:

“There’s no prescription yet on what to do,” said a senior American defense official who asked for anonymity because he was not authorized to speak publicly. The official said that one “prudent option” was “what should we be thinking about in the event that we need to start enhancing our posture, our defenses?” But the official said that it was premature to talk of building up American forces in the region — an echo of comments from Mr. Gates on Friday that the United States had no plans to reinforce some 28,000 American troops based in South Korea.

Well there you go. China also had a few words to say as well:

“We are resolutely opposed to nuclear proliferation,” General Ma said, adding that “we hope that all parties concerned will remain cool-headed and take measured measures to address the problem.”

China is resolutely opposed to nuclear proliferation only after NoKo. That means it wants no nukes in Japan. And its admonishment to all to remain “cool-headed” and take “measured measures” means it is in no hurry to do much of anything about the present problem. Of course, China holds the key(s) to dealing with NoKo and everyone knows it.

So? So as usual, North Korea does what it chooses to do and nothing of significance is being done to “punish” it for doing so. I’m sure, as is the MO of the Obama administration, that the blame for all of this will be laid at the previous administration’s feet, but a quick perusal of history going back later than 8 years will show than no US administration has actually dealt effectively with North Korea and the present one isn’t going to be any different – despite its apology.


“Transparancy” Apparently Trumps The 1st Amendment

From the White House Blog in an entry written by Norm Eisen, special counsel to the president for ethics and government reform in “the spirit of transparancy”:

… [T]he President’s March 20, 2009 Memorandum on Ensuring Responsible Spending of Recovery Act Funds. Section 3 of the Memorandum required all oral communications between federally registered lobbyists and government officials concerning Recovery Act policy to be disclosed on the Internet; barred registered lobbyists from having oral communications with government officials about specific Recovery Act projects or applications and instead required those communications to be in writing; and also required those written communications to be posted on the Internet.

However, a couple of changes have been made, among them:

First, we will expand the restriction on oral communications to cover all persons, not just federally registered lobbyists. For the first time, we will reach contacts not only by registered lobbyists but also by unregistered ones, as well as anyone else exerting influence on the process. We concluded this was necessary under the unique circumstances of the stimulus program.

So thinking this through, could “anyone” include a TV or print reporter asking an oral question to a government official concerning Recovery Ac Policy? Or a particular Recovery Act project that might impact their viewership or readership? Is it possible the information provided, if government officials are subjected to such oral scrutiny, might end up “exerting influence on the process”?

How about a concerned citizen who happens to be a blogger?

Doesn’t this give government officials the cover to duck such oral inquiries?  How does that enhance transparency?

And ultimately, doesn’t this smack of a wee bit of a conflict with the 1st Amendment (free speech, free press, the right to petition government)?

And if “the unique circumstances of the stimulus program” are enough to limit 1st Amendment rights, per this paragon of “ethics and government reform, what other “unique circumstances” might be cited in the future to do the same sort of thing, given the precedent this sets?

As Mark Tapscott says:

This is the Camel’s nose under the tent, being poked because of special circumstances.

Carter Wood notes:

“Lobbyists and organizations that lobby complained that the White House’s restrictions on lobbying on stimulus fund projects were discriminatory and unfair because the same restrictions didn’t apply to people like corporate executives or officials. So these memorandumly noted changes address that fairness issue by expanding the ban on orally petitioning the government or expressing one’s views through speech. In the interests of transparency the First Amendment must be sacrificed.

“The restrictions are also ambiguous enough that a lobbyist or other petitioner won’t be sure how to fully comply. So if someone runs afoul of White House officials, a phone call to a news outlet or a friendly prosecutor can punish the offender. Ambiguous rules plus capricious application equals negative rule of law.”

The only transparency in this process is the fact that the White House is telling you the rule. But the rule then precludes oral questioning which might make the process even more transparent. If even the remote possibility exists that such communication might “exert influence on the process” then it is prohibited.

The White House’s apparent intent is to run a transparent process. The result is overreaching by the executive branch with poorly thought through restrictions on speech that are seemingly unconstitutional. The problem is they obviously don’t feel that to be the case. Or if they do, they think they should have the right to restrict certain forms of communication between government and anyone they decide if “unique circumstances” are existent (guess who get’s to determine whether they are or not?).

Frankly that should bother you.

However, fear not – I’m sure those that continually cited the Bush administration for alleged expansion of executive power will be among the first to address this obvious abuse of Constitutional power and call for an immediate revocation of the rule.


The Upcoming Swing Through The Middle East

So what’s on the Middle Eastern agenda for the Obama administration?

Frankly that’s the question being asked by a lot of foreign policy watchers right now, especially since President Obama has added Saudi Arabia to his trip itinerary for an upcoming trip to the area. Originally scheduled to first make a stop in Cairo for a speech, he is now stopping in SA first. This, of course, has the Egyptians a bit miffed. Egypt was touting his trip and speech to Cairo as a sort of vindication of their foreign policy as well as their resurgent leadership role among Arabs in the area. Now that’s not quite as easy to claim.

So why is he adding Riyadh?

One group sees it as tied closely to the Israeli-Palestinian track, focusing on the Arab Peace Initiative and the coming unveiling of the Obama approach to Israeli-Arab relations. Another sees it as tied more closely to Iran, preparing the Saudis for the coming engagement (or confrontation) with Tehran.

I happen to think it is a little bit of both, but mostly tied to Iran. NoKo has popped a nuke (and we’re aware of the ties between Pyongyang and Tehran). Iran has fired a long range missile. Intelligence says Venezuela and Bolivia are providing Iran with uranium (which both deny). That requires a bit of a change in focus of the mission from one exclusively focused on Israel/Palestine. Iran has heated up and the Arabs are not friends of Iran, certainly feel threatened by them and darn sure don’t want to see Iran establish itself as a regional (and nuclear) power. SA would be a logical stop for discussions on that issue.

As to the Israel/Palestine question, Marc Lynch of Foreign Policy magazine wonders:

… will he reinforce or challenge the “moderates vs resistance” frame which he inherited from the Bush administration? The Arab leaders he has been meeting, like the Israelis, are perfectly comfortable with that approach, dividing the region between Israel and Arab “moderates” vs Iran and Arab “resistance” groups like Hamas and Hezbollah. That’s the easy path. If followed it is likely to fail badly, destroy the hopes for change which his engagement policy has raised, and leave the region right back where Bush left it.

I think there is no question he plans to shake up the status quo. But how he chooses to broker “change” in the engagement policy, his change may face the same risk of abysmal failure other policies have produced. The Hill is reporting that Obama plans on challenging Israel’s plan to continue to allow West bank settlements to grow.

“Each party has obligations under the road map,” Obama said after referencing his meeting last week with Israeli Prime Minister Benjamin Netanyahu. Obama said he has been “very clear” on the need to stop settlement and outpost activity, and he also said Israel has obligations to ensure a viable Palestinian state emerges from the peace process.

Israel has rejected that portion concerning the settlements on the West Bank. That rejection came after the Netanyahu/Obama meeting in Washington DC.

Netanyahu has set out the Israeli negotiating position:

“The government of Israel under my leadership is committed to the political and international agreements signed by the governments of Israel, and we expect others to honor their commitments as well,” Netanyahu told the Knesset. “We want an end to the conflict, and we want reciprocity in the claims on both sides and their implementation. Unfortunately, in this we are also being innovative. We should not have to innovate; it should have been obvious. However, when we are asked to recognize our international commitments, I say yes, and I want others to respect their commitments as well.

“We are prepared to act, and we will take concrete steps towards peace with the Palestinians,” Netanyahu continued. “We also expect the Palestinians to take such concrete steps on their side, and it would be good if the Arab countries joined in the effort towards peace, and take both concrete and symbolic steps towards normalization, and not later, but right now. They are asking us to act now, and so the Palestinians and the Arab countries should also be asked to act now.”

Or shorter Israeli stance – if we’re required to live up to international commitments, the same demand must be made of (and accepted by, and acted upon) by others included in these negotiations.

Right now, one of the major obstacles to any such negotiations is not with the Israelis, but among Palestinians:

The Palestinian Authority faces its own challenges in brokering a peace deal, namely the split between Hamas and Fatah — and, therefore, between Gaza and the West Bank — that essentially renders a two-state solution a three-state solution. Since the violent splinter between Hamas and Fatah in 2007, the U.S. has dealt only with Abbas.

So does the US change its policy and actively enter into negotiations with a terrorist group in hope of brokering a reconciliation? The chances of such a reconciliation seem remote. And of course, the splintering within the Palestinians makes the talk of a “two-state solution” an exercise in unachievable rhetoric for the time being. Why should Israel enter into serious negotiations about such a solution when they are unachievable as it stands today?

This will be an interesting trip to monitor.

More to come.


Edit: Changed Ecuador to Bolivia – thanks for the catch, looker.