Illusions shatter in 2008

Some glimpses at the world in 2008:  In the African country of Zimbabwe almost a third of the population is dying as the country implodes due to the intransigence of Robert Mugabe, a former freedom fighter against white oppression who has become a tyrant willing to sacrifice his own population to protect his ego.  Although this crisis has been building for nearly a decade, with tremendous inflation and injustice, now children are literally wasting away as food scarcity grows and the government denies anything is wrong.

In Gaza a population suffering malnutrition, post-traumatic stress disorder, and chaos now faces an assault from Israel.  The Israelis are angry about rockets being shot at their citizens by a Hamas, an extremist militia.   The situation is complex, but one thing is true on both sides: the people who suffer the most are the innocents who happen to live in the wrong place at the wrong time.

In the US people are reeling from the onset of an economic crisis so severe that 2008 may be remembered alongside 1929 in terms of heralding a deep recession.  Events in September and October led to a financial crisis that has no easy way out.   This crisis is not just about banks or credit, but 30 years of unsustainable economic policies that need to be rebalanced.

2008 was also the year when the US finally recognized that its long term plans for a democratic Iraq as an American ally and model for the region was not achievable, and decided to cut its loses and find a way out.

In Afghanistan the Taliban is resurgent, al qaeda still operative, and most NATO countries are reducing their contribution.   While the US is likely to increase its forces in the country, there is no military solution for Afghanistan, the country is too large and US military options limited.

In 2008 the American public, sensing that things have gone very wrong in recent years, embraced a change in politics, building on the shift to the Democrats and the left started in 2006.  Barack Hussein Obama, a relatively inexperienced Senator from Illinois, a black man with a funny name, was elected President.   His calm, confident and intelligent demeanor inspired trust and hope, something the American people haven’t had for their political leaders for some time.   Obama’s election also surprised much of the world, he is so different from the kind of leader Americans usually embrace.   After President Bush’s earlier “with us or against us” errors of bluster and arrogance (which he himself stepped back from), Obama’s election creates a bit of good will internationally.

Obama’s election was also part of a year of wild political news, ranging from John McCain’s improbable comeback to win the GOP nomination, the long drawn out and sometimes bitter fight between Obama and Hillary Clinton for the Democratic nomination (ending with Clinton as Obama’s choice to be Secretary of State), and the weird but entertaining choice of Sarah Palin to be McCain’s running mate.   To top off all this political drama, disgraced Illinois governor Rod Blagojevich just chose Roland Burris to replace Obama in the Senate, defying Democratic party leaders who did not want him to make a choice.  I think the Senate should seat Burris, who has done nothing wrong, but egos are involved and expect the drama to continue.

2008 saw wild swings in the price of oil.   Production is level, and demand is inelastic.  That means that slight changes in demand not caused by changes in supply can yield rapid and dramatic price fluctuations.   That certainly happened this year!   The high prices earlier put us on notice that oil production cannot rise as fast as demand at stable prices — if the economy grows, oil prices will go up dramatically.   The recession gives us a respite, but it doesn’t make the problem go away.

The year also had it’s share of natural disaster — my first WordPress blog entry was about Nargis, a storm which hit Burma back in May, causing massive death and destruction.

So the year was historic, dramatic, with its share of bad news.  It was the perfect year to start a blog about ‘an era of crisis and transformation.’   The theme of 2008 to me is the shattering of illusions.  To be sure, some of these illusions were dispelled in 2006 and 2007, but in 2008 the process reached its peak, people realize we live in a different world than we thought, and so much of the past 20 years or so has been built on unsustainable practices.  The illusions now shattered:

1) The fundamentals of the economy are strong.  No.  The fundamentals have been wildly out of balance for almost three decades, and rebalancing will be painful and force the US to start producing again, and living within our means;

2) The US is the dominant world power.  No.  The US has had to define success way down in Iraq in order to create the chance for a face saving way out, and in Afghanistan seven years after the war started the Taliban is resurgent and NATO speaks of the possibility of defeat.  Both of these would have been seen as absurdly defeatist if predicted five years ago.  The US has a strong military, but in an era of terrorism and asymmetrical warfare, our capacity to win wars against large armies is overshadowed by the inability of military power to shape political results.   This isn’t anything against our military — they are tremendously effective at what they are trained to do.    But winning wars is different than nation building, and military power is only one dimension of effective counter-terrorism.

Given that and the prominence of economic factors, the world is now multipolar rather than unipolar, and globalization is trumping sovereignty.  Americans are slowly grasping that we can’t hold ourselves aloof from the world or comfort ourselves with myths that we’re better than others and they’re just jealous.  That illusion was dangerous.

3) Americans could never vote for an urbane, intellectual black candidate for President, especially if his name contains “Hussein” and rhymes with Osama.   The American people have never been on the “talk radio right” the way it seemed to many in recent years, nor are they partisan Democrats.  Despite the red-blue map most Americans are purple — centrist and pragmatic.  (And as a Minnesota Vikings fan, I like purple).

For all the drama and turmoil of the last year, 2008 is almost certain to be remembered as the start of a major transformation of US and perhaps world politics.   We have been brought back to reality, we now recognize the limits of our power, and the foolishness of living a debt-based existence beyond our means.  We realize that while our values are strong, we haven’t really being following them, seduced into a hyper-consumerist nationalist orgy of arrogance and denial.

The transition is just beginning.  The left hasn’t quite figured out how to reconcile their ambitious social agenda with a weakened economy.  They need to put interest-group oriented politics aside and work for pragmatic compromises with the right.   The right hasn’t figured out how to let go of the conservative populism of people like Limbaugh and Hannity, and recognize the need for multi-lateralism and pragmatism.  2009 is a year both political parties will need to reconstruct themselves to face reality.

And, though we face a recession, severe foreign policy challenges, and a world still riddled with crisis and instability, there is something cathartic about realizing that we at least started to put misguiding illusions aside and are beginning to understand the challenges ahead.    To solve any problem one first has to admit there is a problem.    Our illusions allowed us to live in denial for far too long.  That time is over.

Israel’s Dangerous Gamble

Hamas is a brutal, radical terrorist organization whose ideals are contrary to both mainstream Islam and almost all rational conceptions of human rights.  That Israel (as well as Egypt, Saudi Arabia and Jordan) wants to elminate Hamas is understandable.  A Palestine without Hamas would have a better chance at peace and the risk of a Mideast war spiraling out of control would decrease dramatically.

However, massive attacks that kill over 300 so far, including at least 51 civilians according to the UN, is a very dangerous gamble, likely to  fail.  Whether it’s more like the long term failure following the Lebanon invasion of 1982, which led to the rise of Hezbollah, or the catastrophe of the summer of 2006, when Israel was humiliated in its failure to destroy Hezbollah or get kidnapped troops back, is still unclear.

It is important to understand why Israel unleashed such an assault, with a ground invasion likely soon.  Hamas has proven unwilling to moderate its demands or retreat from its threat to try to destroy Israel.  Hamas controls the Gaza strip, and has routinely fired rockets into Israeli territory, killing and wounding some Israeli citizens (though nothing of the magnitude of Palestinians killed in these current attacks).   Israel recognizes that it’s long term security requires a Palestinian state that can be dealt with, and which recognizes Israel’s right to exist.  Israeli officials know that Fatah moderates in the West Bank are willing to try to make that happen.   Moreover, Israel’s experience in the battle against Hezbollah was sobering.  It created existential concerns about the future of the Israeli state, especially with Iran moving forward on trying to produce nuclear weapons.

It boils down to this: long term Israeli security requires building a viable Palestine alongside a secure Israel.   Palestinian leaders outside Hamas want this too, aPalestinian-Israeli peace is not as unthinkable as it might seem.   If they could reach an agreement, they could undercut Hezbollah threats (the Palestinians are not Shi’ites, nor are they religious extremists), and give Arab governments a chance to prop up and help sustain the new Palestinian state.  It can be done, and could even happen quickly.

The one thing standing in the way: Hamas.    With Hamas controlling Gaza, nothing can move forward.  The Israelis are forced to watch Hezbollah strengthen, Iran move forward, and Hamas arm itself, feeling as if the clock is ticking against them.   Moreover, Israelis now feel a certain lack of self-confidence since the 2006 war; they know they are indeed vulnerable.

This could not have been an easy decision for Prime Minister Olmert, whose days as leader of Israel are numbered (he resigned due to a scandal, but stays on because no other coalition could be formed, and elections aren’t due until February).   It’s a gamble likely to have two parts: a) attempt to crush Hamas and destroy its leadership and organizational core; and b) aggressively promote Palestinian statehood through negotiation with moderate Palestinians.

It won’t work.  First of all, the emotion caused on each side by the violence will only embolden the extremists, and Hamas is adept at adapting and surviving.   They’ll lose hundreds, maybe thousands of fighters, but the pool of willing and angry young Palestinians will grow, and anger will increase in the West Bank as well.   Palestinians can count.  They know that the Israeli military is killing far more innocents than Hamas kills, and even if Palestinians don’t like Hamas, their rage will directed at Israel.

One reason this is the case is that these kinds of wars are not traditional military confrontations, or even basic asymmetrical warfare.  It’s also a media event, with the Arab world as the primary audience.  Arab governments relatively friendly to Israel (many unofficially) have breathed a sigh of relief as the Americans gave up their effort to control Iraq.   The pressure on them from below was finally starting to let up.  This new round of violence is certain to bring about anger in the Arab worlds, forcing Arab governments like Egypt’s to become more hostile to Israel, and could increase internal instability in states across the regoin.

Israelis (and Americans) often don’t comprehend how profound and counter productive the killing of large numbers of civilians can be.  Their logic is that Hamas started the attack, Israel must defend its citizens, and the Israeli military is (unlike Hamas) trying to avoid civilian casualties.   But Gaza is densely populated, and people die in war.  Since they started the attacks, Hamas is responsible for those deaths.    That logic is, however, irrelevant.   Whether or not Israel’s response is justified in philosophical or legal terms is also irrelevant.   The emotional response of Palestinians (and many Israelis, to be sure) is one of outrage over the killing of innocents.   Images of bloody and dead children and civilians will be beamed around the world and throughout the Arab world, creating a powerful backlash.  The likely result will be that Hamas will survive, Israel’s internal divisions will increase, and the country will be in a more precarious situation than before.

Obviously, that likelihood must be painfully clear to the Israeli military and Prime Minister Olmert — they aren’t dummies.   No doubt they decided that there is no alternative.  They won’t speak with Hamas until Hamas moderates its demands, and Hamas says it will meet no preconditions before talking with Israel.  And, though Egypt is renewing efforts to try to reconcile Fatah and Hamas, there is no love lost between the two Palestinian organizations either.   The only alternative left seemed to be to use the awesome power of the Israeli military to eliminate the main obstacle to stability in the Mideast.

However, the Israeli-Palestinian conflict can only be exacerbated by continuing the cycle of violence.  Hamas will survive and strike back, peace negotiations with Fatah will be jeopardized, and as the cycle continues, Israel’s very existence could be in question.  Ultimately, Israel needs to find a political way out of this, attacking Gaza plays into the hands of the extremists who find the idea of peace with the other side abhorrent.    Direct or indirect talks with Hamas, starting with a cease fire are necessary.   Hamas can’t be wished away, nor can it simply be crushed.  The PLO and Egypt went from wanting Israel’s destruction to accepting its existence;  Hamas either has to be brought to that same place, or be gradually weakened by waning support.

Many don’t like that kind of approach.   It sounds more concrete to say “destroy Hamas and the main obstacle to peace is gone.”  But while one likes to imagine problems can simply be destroyed with violence, it rarely works that way.   And given the nature of this battle — a powerful military machine fighting an adaptable popular militia in a media age where photos are as powerful as bullets — Israel is likely to end up in a worse situation than before.   True, there is a possibility the gamble will pay off.  But there is the possibility that it will start a spiral into all out, devastating, Mideast war.

From Fear to Hope

In the movie Bowling for Columbine film maker Michael Moore makes a very interesting, and often missed, argument.  Many see the film as an anti-gun movie, but it really isn’t.  He directly compares the US to Canada and notes that Canada has lots and lots of guns — but few murders.  In fact, here in Maine we are a ‘gun-tooting’ state.  Hunting is prevalent, back when I lived in Augusta more than once I saw hunters with guns walking past my house.  Yet Maine is the safest US state.  We have low crime rates, and murder is extremely rare.

No, Moore argued that the main problem in the US is fear: we are a society gripped in fear, and that leads us to aggression and paranoia.  Consider Y2K, the aftermath of 9-11, and the way some people still seem genuinely afraid that somehow if the US cooperates with the UN or tries to talk with countries like Iran it will cause “our enemies” to gain strength and us to “look weak.”   Often these fearful people seem most afraid about what others will think of us, that we will back down or lose face.  The mark of a fearful person lacking self-esteem is an overarching concern about what others think, rather than ones’ own real situation.  That seems to be a cultural problem here — though it could be changing.

The US spends half the world’s military budget.  No country could possibly invade or conquer the US.  Some say we have to keep trade lanes open with our navy.  Well, who is attacking our trade lanes besides rogue Somali pirates?  And doesn’t everyone in the world have a shared interest in protecting trade, not just the US?   One can point to terrorists, but even there the fear is way out of proportion to the threat.   People imagine all sorts of scenarios, but the fact is that fewer people have been killed in the US by terrorists than are killed in car accidents every few months.   9-11 killed 3000, we have about 12,000 domestic gun murders each year.

While downing the twin towers was a spectacle, our military destroys more property, buildings, and kills more civilians than terrorists ever have.  But, some protest, what about what terrorists might do — one imagines nuclear terror, biological weapons, and other nightmare scenarios.

The irony of fear is that if you act out of fear of something, you increase the chances you will experience it.  Invading Afghanistan and Iraq only made the US more hated and disrespected, and has helped worsen a fundamentally imbalanced economy.  To the rest of the world we look like people who would rather kill than negotiate, who see anything other than ‘our way or no way’ as weakness, and arrogantly mourn our own loses while mocking the loses of others, including those we cause.

Would be terrorists would not target the US because they “hate our freedoms.”  That’s an absurd and dishonest claim, even though some play on the igornace of the population to argue such things.   It’s also not because of Islamic extremism.  In fact, the reverse is true — western and American policies have helped the Muslim extremists gain popularity and support in especially the Arab world.  And when Americans engage in Islamophobia — hatred of Islam bred by fear — it creates ugly images overseas which only exacerbates the problem.  Our fear is our greatest weakness.  It may be trite, but FDR was right: we have nothing to fear but fear itself.

But it’s not just foreign policy or domestic homicides.  It’s also in our every day lives.   In the last election campaign one could see visceral hatred on each side of the spectrum, people tend to ridicule and insult the other side rather than engage.  Democrats fear the right, Republicans consider the left un-American and dangerous.  Fear permeates every aspect of American life.  Another good movie, this one from over 15 years ago, is from Albert Brooks, called Defending Your Life. That movie is set in Judgement City, where people go after their death to determine if they have to go back to earth, where people are bound by their fears, or if they have overcome their fears enough to move on in the universe.  The earth is portrayed as a rather forlorn place of suffering, inhabited by spiritually unadvanced souls.

Regardless of what one thinks of that scenario, the underlying theme is that fear is what holds us down in life — that when we are afraid we don’t take chances, we don’t appreciate the good things as they happen, and we create more problems for ourselves.    Fear makes it impossible to live a truly free and fruitful life.

Still, I sense a change lately.   People had been beaten down by the drumbeat of media inspired fear.   The biggest story before the 9-11 attack had been shark attacks in the southeast.   A sensationalistic media has been playing on fear for decades.  The American people bought it, fearing Saddam, Osama, the Russians, the Iranians, Muslims, Blacks, the MRSA virus and a host of other things out there.  Common media teases are things like “what common food may be a killer lurking in your refrigerator…watch at 11:00 to find out.”   We had to be stronger than every other country (what if every country felt that way?) because we were afraid not to.  We had to attack because we were afraid of being attacked.  We didn’t try to see other perspectives, negotiation was weakness, we were good, they were evil.

But after awhile reality breaks through.  The failure in Iraq, the on going problems in Afghanistan, the reality of what war means, and the lies from political leaders cause people to reconsider what kind of country we are, and realize that fear ultimately is self-defeating.

I believe the reason that Barack Obama was able to come on so strong and take the Presidency was not his oratory, style, policies, ideology, or even campaign tactics.  Rather, the American people are sick of fear, and want to move towards hope.  Instead of lashing out against others, we’re ready to talk, compromise, and recognize that most people are good, and want a peaceful world.  Yes, there are the cases like Israel and Hamas, or al qaeda, where people certainly want to use violence to destroy enemies.  But to many the US looked strangely similar, as we choose massive destruction, rationalized by the fact that due to our technology we could kill more innocents while saying we’re doing more than anyone else to try not to.  Blinded by fear, we didn’t see the hypocrisy or the arrogance in our behavior.

That seems to be changing.  The American spirit is not one of on going fear, but a strong belief in our ability to shape the future and make it better.   We’re at base pragmatists rather than ideologues, we believe there is no contradiction between individualism and concerns about the community and social justice.   Perhaps the current multi-leveled crisis, from foreign policy to economic policy, is an opportunity to go from fear to hope.  That would seem ironic — to have our culture lost in a media inspired fear while times were good, only to overcome that fear when things get bad.   But that’s because fear isn’t really the fundamental American value.  It was stoked by a sensationalist media, talk radio, and politicians who realized fear could get the emotional response that would yield votes.   Hope takes more work than fear.  It requires imagination, confidence, and even some risk taking.  But ultimately fear is self-defeating, and hope leads to greater rewards.

2008 was an historic year.  It might ultimately be remembered as akin to 1929, the year the economy started into a major long term crisis that would end in war.  Or, perhaps, it could be remembered as the year that the American people had enough of the fear mongers, and turned to hope.

Thoughts on Christmas

If being a Christian were, say, the same as being a Freudian, Keynesian, Hegelian or Kantian, I could call myself a Christian.   In those cases it simply means ones basic outlook on the world in inspired by and close to that of a great thinker.  It doesn’t mean absolute agreement, nor does it mean one treats the words of the great thinker as infallible and sacred.

However, I do not believe Jesus was a unique son of God, nor do I believe one has to believe that he is in order to have eternal life.  Moreover, I find the idea that a loving God would require belief in a particular story line and person in order to judge to be self-contradictory.  That would not be a loving God.  So in a religious sense, I am not a Christian.  Jesus was for me a wise spiritual teacher, comparable to Gandhi and other spiritual thinkers, not supernatural.

Yet on Christmas, I wholeheartedly agree with this as a day to celebrate the birth and life of Jesus Christ.   First, Christianity is one of the world’s great religions, that should be honored.  Just as wishing a Jew “Happy Hanukkah” is not something one must avoid, wishing a Christian “Merry Christmas” is to show that person respect.  However, for me it goes beyond that — I really believe and respect the fundamental moral principles of Christianity as enunciated in the New Testament by Jesus and Paul.

So to me Christmas is to respect Christianity, show my belief in the fundamental moral principles put forth by the person of Jesus Christ, and to enjoy the spirit of the season: love, goodwill, a desire for peace, kindness to others, joy, and a sense of magic.  It is that time of the year we celebrate the best of humanity, and suspend our disbelief enough to know that there is a power to love and a sense of mystery about the world that we cannot know, but can open our hearts to feel.   And, somehow, I think that spirit transcends both the teacher and the faith he started, and can inspire people of all faiths or secular beliefs.

And so, despite the fact that in a religious sense I am not a Christian, I want to honor these teachings from the Sermon on the Mount which ring true to me, and are the spirit of the teachings of Jesus, a spirit that one can honor and grasp even if one doesn’t believe the story that Jesus is the one true and only son of  God.

Blessed are the gentle, for they shall inherit the earth.

Blessed are those who hunger and thirst for righteousness, for they shall be satisfied.

Blessed are the merciful, for they shall receive mercy.

Blessed are the peacemakers, for they shall be called sons of God.
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You have heard that it was said, “An eye for an eye, and a tooth for a tooth.”   But I say to you, do not resist an evil person; but whoever slaps you on your right cheek, turn the other to him also.

If anyone wants to sue you and take your shirt, let him have your coat also.

Whoever forces you to go one mile, go with him two.

Give to him who asks of you, and do not turn away from him who wants to borrow from you.

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You have heard that it was said, “You shall love your neighbor and hate your enemy.”    But I say to you, love your enemies and pray for those who persecute you, so that you may be sons of your Father who is in heaven; for He causes His sun to rise on the evil and the good, and sends rain on the righteous and the unrighteous.
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Do not store up for yourselves treasures on earth, where moth and rust destroy, and where thieves break in and steal.   But store up for yourselves treasures in heaven, where neither moth nor rust destroys, and where thieves do not break in or steal; for where your treasure is, there your heart will be also.

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So do not worry about tomorrow; for tomorrow will care for itself. Each day has enough trouble of its own

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Do not judge so that you will not be judged. For in the way you judge, you will be judged; and by your standard of measure, it will be measured to you.

Why do you look at the speck that is in your brother’s eye, but do not notice the log that is in your own eye? Or how can you say to your brother, “Let me take the speck out of your eye,” and behold, the log is in your own eye? You hypocrite, first take the log out of your own eye, and then you will see clearly to take the speck out of your brother’s eye.

…

In everything, therefore, treat people the same way you want them to treat you, for this is the Law and the Prophets.

A Best Case Scenario

Lately my posts on the economy have been full of gloom and doom, so as a change, why not look at it from the other side — what is a best case scenario?  To be sure, it has to be a realistic best case scenario, simply fantasizing that suddenly all the fundamental problems will go away makes no sense.  It also has to take into account that this is no ordinary recession; not since the 1930s has there been such a global rebalancing of an out of whack economy.  But it need not be like the 1930s.   What can turn things around?

First, it did not have to get this bad.  If the economic fundamentals were dealt with earlier, either after the 1992 recession or more likely after the 2001 recession, we could have rebalanced in an easier manner.  It would have been painful, much like 1979 – 82, but it could have been done.  Instead the bubble economy, built on a stock bubble followed by a property bubble, created a false sense of prosperity alongside a belief that all was well.  Speculative bubbles create their own imbalances which, alongside the current accounts deficit and increasing public and private debt make this a very difficult economic crisis to bounce back from.  What must be done?

Few emphasize that back in the 1930s there was an answer.  If the world had embraced the kind of increased free trade and stable currency markets that were ultimately created after the war in the Bretton Woods system, we might have pulled out of the depression early and avoided World War II.  If Briand and Streseman’s ideas of a kind of European economic bloc had been tried in 1929 instead of 1958, perhaps fascism could have been avoided.  Some say the war ended the depression, but that’s baloney.   If not for the dramatic shift in economic thinking heralded by the Bretton Woods system (fixed exchange rates based on the gold standard — which lasted in some form until 1971 — and a free trade regime, which persists today), the war could have fostered either a return to depression or, more likely, socialist revolutions in the West.

So let’s assume that there is an answer.  The answer is not within our current realm of conventional wisdom, and may not be seen as feasible; a call for a Bretton Woods like system would have been laughed at by most in the 30s as a political pipe dream — we needed a war to get people to move beyond their own thinking.  But it’s a different era than the 30s, the information and technology revolution is real, and globalization is much farther along.  The kind of nationalist wars of conquest promoted by Japan and Germany are obsolete.  Only the US has remotely tried such a thing, and it has proven to be a costly failure.

So maybe we can be forward thinking now.  One thing a solution would have to be is global, and inclusive.  In other words, we would need the kind of shift away from parochial nationalist economic thinking that we had with Bretton Woods.  This means an even more intense embrace of multilaterialist ideas, and a recognition that success has to be more than just success of the West — only an economic system that truly gives hope and prosperity to those in the third world who currently suffer poverty and malnutrition can work.

That means two shifts: go into negotiations without national interests (and interest groups) in mind, and see third world development as necessary for renewed first world growth.    Moreover, the US would have to recognize the unviability of the old “leaving beyond our means.”  Increasing debt and trade deficits made us seem much better off than we were.  We have to accept that the public and government will have to make major concessions in terms of expectations.

Luckily, we have the capacity to do that.  The fake economy of the last 26 years has created pockets of fat that can be trimmed in order to transition to a sustainable system.  That fat is in corporate and financial sectors, and the wealthy need to be taxed far more than they have been, with loop holes cut.  In the past, tax increases on the wealthy have been rejected because that will decrease investment, and we need investment to grow.  But that investment turned out in recent years to be mostly illusary paper gains based on financial speculation, and NOT efforts to build economic capacity and production.  Government will have to take a more active role in making sure investment is directed into productive sectors.  Those sectors should not be government run, but the market left to its own devices ends up serving those few who are able to manipulate information and regulation.

The latter means that Washington will have to do business differently.  Transparency rather than inside deals with lobbyists needs to become the stanard operating procedure.    The budget must be cut even as we try to increase production.  That means redoing the budget from the ground up, completely restructuring the United States governmental bureaucracy to be more efficient and less encompassing.   Most importantly military spending, mislabeled defense spending (we don’t need much to defend ourselves from invasion), needs to be slashed.  This will be politically difficult, but in times of economic crisis things can be done that otherwise would not have been politically possible.  Someone like Obama could pull it off.

So Internationally: a major international agreement designed to increase supranational regulation of credit markets, hold global financial and corporate actors accountable, create rules that transcend borders (to end a race to the bottom and companies shopping for governments who will deregulate and reduce taxes), and emphasize pathways for third world development.  That will require a political aspect to induce effective governance in corrupt third world states.  It won’t be easy, but third world development is a long term project, it only has to begin for the economy to start forward.   This absolutely necessitates the US being willing to compromise on previously unacceptable matters, embracing a level of internationalism that had been anathema to most Americans in the past.

Domestically, a reorganization of government, with a focus of government resources on developing productive capacity, taxing wealtheir folk and ending a regulatory set up based on powerful and wealthy lobbyists is necessary.   At the same time the American people will need to accept a decreased standard of living (since the old standard was built on debt and foreign labor/trade deficits), but one that can be made acceptable by undoing the massive increase in the maldistribution of wealth over the last quarter century.  The recession need not be as painful overall if the cost is paid fairly.  Technology to deal with global climate change and long term energy concerns could be key to helping reshape the American economy.

All that together sounds politically impossible.  Our thinking would have to change dramatically, the break from the past would have to be profound.  But who would have thought that a black man who had a Kenyan father and grew up in Hawaii and Indonesia, with the name Barack Hussein Obama, could be President?   Unlike past politicians, Obama has the capacity to make a major break with the past, and do so in a way that doesn’t lead the old elite to torpedo his changes.  Hence its important to have the Clintons, Jimmy Buffet and other current elites on board.   And the recession and war in Iraq have caused Americans already to question the conventional wisdom of the last 25 years.  I’ve heard many times in conversation and the media that “this is a different world than the one we’re used to.”  That recognition that this is a new world is the first step to embracing a new kind of thinking.

And, if done well, we could find that by the end of Obama’s first administration the global economy could be showing signs of promise few could have imagined in the dark days of late 2008.   And you know, it is possible.  Not just because of Barack Obama, but because of what his election represents: an American public ready for real change.  Remember, things are always darkest before the dawn.

Worn Out

What a week!  I am chapter President of the faculty union here, and we had five faculty lay offs this week.   It made for a rough week, full of meetings, deliberations on how to respond, and, of course, intense meetings with some of the people affected.  Hard to be in the holiday spirit.  In all, over a dozen people on campus lost their jobs.

50,000 lost their jobs at Citibank, 30,000 at Bank of America, and comparatively the loses here were minor.  Moreover, I was never in any danger, so the tension people felt upon hearing that cuts were coming wasn’t as intense.  My job was more to be there for people, to learn the contract, and try to make sure everyone is treated fairly.

The university is also going to go through “transformational change.”  Although some people are very angry about this, most seem to realize that the world we’re in now is not the same world as a few years ago.  The University of Maine system is unsustainable as it’s currently structured.   In this there is an opportunity to shape the change into something positive; that opportunity doesn’t exist, though, for those who are leaving.

Unemployment is rising, and the cost of this crisis is starting to be felt at every level.   The events of this week give me a taste of what this means in human terms.  Not only those affected, but the entire campus was impacted by the shock of the cuts, plus far more feared they were on “the list” when word came out that cuts were coming.

I know have a stack of papers to grade, a winter course to prepare for, and am worn out by the week.  So I apologize for not posting more.

I’ve been an economic Cassandra for so long that for awhile I got a sense of satisfaction that I was being proven right.  That sense is gone.  This economy hits people in real ways.  One can only feel good about having been right if one can detach oneself from the reality of the conditions around us.  That misplaced detachment is gone.

From Bad to Worse

This week the federal reserve lowered interest rates to “near zero,” (a range of 0 to .25%) in an effort to stimulate the economy and borrowing.  I think this is a dangerous action since one of the problems of recent years has been unsustainable debt and low levels of savings.   Given the deflationary numbers on consumer prices out (the largest drop in consumer prices ever, I believe), it’s understandable.  But we could be on the verge of this crisis getting yet another level deeper.

In a post last month, “What’s Up with the Dollar” I warned that the dollar was at unsustainable levels.   A dollar collapse isn’t inevitable, but the combination of increased spending and cheap credit in an already debt ridden economy could ultimately cause a loss of confidence in the dollar.   Then the dollar was at about $1.25 per Euro.  It hoovered around there, but after the Fed’s rate reduction  it has plummeted to $1.44 per Euro.  That’s still better than it’s lows earlier this year, and it’s still not a crash, but we may be inching towards the next stage of the crisis.

Most observers believe the dollar will remain reasonably strong because there is no alternative.  The Euro doesn’t have the track record of the dollar, and European economies are also week.  Moreover, the US still dominates the financial markets and most investors have no choice but to put significant amounts of money in US markets.  And while one can imagine an alternative to the dollar being developed, it would take time and for now the dollar will keep value despite and in part because of the slide to global recession.

I believe there may be two flaws to this argument.  First, markets may be unpredictable but they react to demand.  There is a demand for securities and investments that are not dollar based, and more quickly than one can imagine alternate investment possibilities may spread globally, especially in Asia where economies are not in as severe straights at this point.  Second, the fundamentals are against the dollar.  I tend to go with the fundamentals over speculation on what investors are going to do.

If credit is dirt cheap — the Fed is even talking about direct lending to make access to credit easier — the money supply expands.  That should make the dollar less valuable.   Although the trade deficit is finally starting to contract, and we’re off our highs in our current accounts deficit, we still are out of balance, with a dollar artificially high in value.  The collapse of the bubble economy makes it harder to defy those fundamentals.  High debt, cheap credit, high trade deficits are a triple whammy against a currency.

The result could be a contracting economy suffering inflation.  The inflation would come from foreign goods — the kind we’ve been over-consuming — going up in price due to the increasingly less dear dollar.  It also would lead to a tightening of the money supply as the feds would have to battle inflation as well as  a recession.   The practical effect on our society would be a markedly decreased standard of living and rising unemployment.

Believe it or not, if that happens, it may be the start of a recovery.  At a point where foreign goods become expensive, American goods will be able to compete.  The trick will be to find a way to capitalize new production of actual goods that people want.  Here, inflation would be our friend.  There would be lucrative foreign markets that could suddenly use cheap American goods.   As the US starts exporting more the current account would come into balance, and soon the growth in the export sectors would start spreading and the US could begin a real recovery.

It will not be a return to the heady 1990s.  As the global economy rebalances, the US will no longer have the capacity to party at the expense of others.   Rather than consuming far more than we produce, we’ll have to have balance.

Such a rebalancing doesn’t happen overnight.  We could see unemployment hit 15%, be vulnerable to terror attacks by those seduced by the thought of bringing down a wobbling economy, and we’d have to treat China carefully, given its ability to dump American currency and assetts in a manner that would devastate the US.  It would hurt China too, so it’s likely we can convince them not to, but we’d be the weaker party in the relationship.  We could see a recession last long enough that the “D” word becomes more common than the “R” word.

But absent a political crisis that severely destabilizes the planet, this rebalancing is simply necessary — and does give us some respite from potential oil shortfalls and global warming.   US demand for oil was down 12% last year, a record drop.   That also means fewer CO2 emissions, and just as sudden jumps in demand can trigger quick oil price spikes, sudden drops in demand have an opposite effect.  Demand for oil is inelastic, so changes in demand not based on changes of supply  can have a quick and dramatic effect on the price.

However, this is going to very hard on the lives of real people, many of whom never dreamed they’d be facing the kinds of conditions and choices they face.  One question: can we as a society do things, either through policy, volunteering, or in communities to avoid families and lives being destroyed by economic crisis?   This kind of suffering may not be as dramatic as that in a war, but it can a severe psychological shock that scars people and their families even long after the crisis has past.  That will be the subject of future blog entries.

Ducking Shoes

President Bush is a man everyone loves to, if not hate, at least mock.   The snickers surrounding the latest incident when an Iraqi journalist, overjoyed at being liberated, hurled shoes at President Bush and called him a dog (by the way, both are really insulting in the Muslim world) was just part of a long drawn out episode of Schadenfreude over the failure of this President.  Everyone is joining in.  Senator McCain’s campaign openly lambasted President Bush, and the Republicans tried to steer clear of him as if he were as toxic as those subprime mortgage backed financial securities.

Faced with such reactions, Bill Clinton would have  steamed, and tried frantically to improve his reputation.  Richard Nixon was in such a position, and became melancholy and prone to drunkenness and depression.   But somehow, President Bush, the guy known as a clueless idiot, has the ability to understand his situation and not let it consume him.   I view the President with more sympathy now than any time during his term; I don’t think he’s a bad man, but he did make some bad choices.

His first poor choice was to pick Dick Cheney to be his running mate.  Back in 2000 I was somewhat intrigued by the ‘compassionate conservatism’ and ‘ownership society’ rhetoric of George W. Bush.   Was he going to finally lead the Republicans out of the hateful Tom Delay and Newt Gingrich style of hardball politics?

But when I heard that Cheney would be the Vice Presidential nominee, I was horrified.   I had studied Cheney’s role in the first Gulf War, when he wanted to ignore Congress, coalesce power in his Department of Defense, and engage in a far more militarist policy.  He opposed the efforts of Gen. Schwarzkopf and Powell to build a massive force, believing they were over-estimating the opposition.  When that 1991 war went easily, he felt vindicated.  I knew Cheney was an avid advocate of intensified Presidential power and limiting the role of Congress.   That is completely contrary to my philosophy of transparent and decentralized power.  Once Bush chose Cheney, I opposed that ticket completely.

I believe that choice led to many other poor choices early in the Administration.  Many of the neo-conservatives brought into the Department of Defense and the White House were through Cheney’s influence.  They dominated the advice given the President, playing on his duty to “protect America” and desire to “spread democracy” to launch a very aggressive effort to reshape the Middle East and expand American power.  Bush certainly wasn’t a naive idealist in all this, but a President is only as good as the advice he gets.  A President is insulated and dependent on his team.  He had a team that wanted war, distrusted Congress, and looked disspassionately at the suffering of civilians — it was worth it, they would rationalize, if we gave them democracy.

President Bush shifted policy in 2005.  Most of the neo-conservatives were gone.  Secretary of State Rice and Secretary of Defense Gates brought a new realism to US foreign policy.  The tone of US diplomacy went from “you’re with us or against us,” to “OK, let’s rebuild our relationships.”   He gave up just about every policy goal of the first four years — reshaping the Mideast, spreading democracy, a long term presence in Iraq, and even dedication to win in Afghanistan.  He dropped most of his domestic agenda.  First the wars, and then the political winds shifted against him.  By 2008 he was a different President, surrounded by better advisors, and arguably making better decisions.  Moreover, he was able to change course dramatically without appearing unstable.

The fundamental error made by President Bush and members of both parties is to have overestimated US power both in terms of military reach and economic stability.  The booms of the 90s created a kind of cocky “we’re the unipolar power, baby, get used to it” attitude early in the new millenium.   Idealist dreams of spreading human rights and freedom seemed to mesh with raw self-interest in securing oil supplies and protecting us from terrorism.  The American public had an inflated view of American strength and the universal appeal of our ideals.

President Bush thus strikes me as a kind of tragic symbol, but in some ways a hopeful one.  He first  represents the errors made due to our arrogance at the end of the Cold War.  I don’t mean that as a partisan attack.   He represents the average American who believed that we were number one, and that our ideals and power were strong and well intentioned.  We Americans were willing to be told “this will  defend our values and liberate others.”   We wanted to believe, and thus most Americans supported the war in Iraq early on.

Americans are pragmatic and in general good at adjusting when things go wrong.  The hopeful side of President Bush as a symbol is he also reflected the ability to change policy direction even as it turns out assumptions were wrong, and a foreign policy crisis is joined by an economic one.   Bush sat back and watched events unfold, intervening when he deemed necessary, but not in a way designed to hog the spotlight or undercut the candidates for his job.  In that sense, Bush is a transition figure to the new kind of thinking President-elect Obama represents.  Rather than the stark break seen by some, there is a continuity.  The cowboy world of President Bush isn’t really as far removed as the urbane world of Barack Obama.

And the dislike people have for President Bush?  Besides the usual partisan stuff you’ll see against any politician, much of it is a way for people to avoid admitting their own errors in assessing US power and policy.  Better to blame Bush for screwing it up, than really thinking about why his choices didn’t work.   For some this allows them to hold on to their illusions — the unregulated economy really can work, we really can militarily win in the Mideast, we just need better leaders — but for others they can shift their views without too much cognitive dissonance.

Don’t get me wrong.  My opposition to the policies of this administration is intense on many levels.  But I’m not going to join in the personal attacks on President Bush or the joy many have in seeing him leave in virtual disgrace.  The lessons we as a society have learned — and are still in the process of learning — are difficult, our country is not what we thought it was ten years ago.  Without President Bush, we’d not be ready for a President Obama.    Without learning painful lessons about our society and its vulnerabilities, we’d not be ready to try a new approach.

And the shoes?  To me that symbolized the disdain most Iraqis have for what has been done to their country and its people in the name of “liberation” by the US.   We all need to duck, even those of us who opposed the war from the beginning.  President Bush symbolized a way of thinking about America that felt good and was embraced by most, but turned out to be wrong.  Now we need to figure out how to move forward and transform the US without losing sight of our core values.

Something for Nothing

You don’t get something for nothing
You can’t have freedom for free
You won’t get wise
With the sleep still in your eyes
No matter what your dreams might be

– Neil Peart, (Rush), from the album 2112, 1976

In all the gnashing of teeth and moaning about the economy and the deep recession we find ourselves falling head first into, the clear solution is easy to ignore.   We have to make stuff.

A society is prosperous if it produces.  In the last twenty or so years, the emphasis has shifted from producing stuff we could trade and sell to, bluntly, trying to get something for nothing.   In part this is reflected in the tremendous growth of the service sector.  While the service part of the economy is important, the shift away from production to service became, in recent years, unsustainable.  It was in essence a fake economy.   Much of the service sector was in trying to make a quick buck — mortgage brokers, financial operators, and in general people working in the fields of credit and investment.

Don’t get me wrong.  Credit and investment are essential to economic growth; we need those sectors of the economy or we won’t have a functioning economy.  In recent years those sectors themselves bubbled as the “wealth effect” fooled people into thinking all you needed to do to make money is be clever and take advantage of short term circumstances.

A case in point: Pistol.  I don’t know who Pistol was.  I “talked” with him (or her?) back in the late 90s in internet debates.  Pistol was a statistician who had quit his/her job to make money in the stock market.  Pistol bragged about the amount of money made and said only stupid people aren’t getting rich.  Anybody with a basic income base (or credit) could get into the stock market and then simply grow assetts and life off a portion of that growth.  It literally was something for nothing — you need not produce, you need not even serve, just speculate.

That bubble burst, but the same thing happened with property.  People earning $30,000 a year might reasonably have said that they couldn’t afford a $100,000 house.  But when told by mortgage brokers that if they could manage to get that loan and buy that house, its value would increase to $150,000 or so in just a couple of years.  Free money!  But only if you can find a way to get a loan.  So it was made easy — high interest rates because of low income, but the first couple years could be planned to be interest only or some low starter rate.  Then, before the rates would rise, one could refinance using equity in the home to get a lower rate.  That scheme, which made banks, mortgage brokers and others a lot of money, led to the subprime mortgage collapse, which was the first part of the ‘fake economy’ of recent years to fail.   And, of course, we know that many others in the financial sector bundled these mortgages into securities and made money on them — again, something for nothing — sending toxicity into the global financial system.

We in America, enjoying trade deficits (others making stuff for us cheap, while we didn’t have to reciprocate thanks to our dominance of global finance) and budget deficits (borrowing from our childrent o party today), also were in the pursuit of something for nothing.   Our savings rates plummeted as consumption increased.  More! Now!  If we can’t drive the car off the lot today, well that’s unacceptable.  Personal debt skyrocketed, credit card debt went from just over $200 billion in 2002 to over $900 billion now.  People borrowed against the increasing value of their homes to live a lifestyle beyond their means.

In short, we were caught up in an orgy of consumption, believing that we can have what we want with no sacrifice.  Getting something for nothing became a kind of national delusion.

That’s shattering all around us.   Like after a wild party where one drinks and eats far too much, the hangover from this consumption binge is causing real pain.  And, just as those who overconsume food and drink for decades end up with diseases that threaten ones’ life and physical capacity, this over consumption has created a weaker, debilitated economic system.  Trying to get something for nothing may seem to work for awhile, but ultimately we pay the price.  Unfortunately in a social system like ours the price isn’t always paid by the same people who indulged — I’ll address that issue of social justice another time.

Just as an alcoholic or morbidly obese person can recover and change their lives, so can we as a society recover from our binge.  The first lesson to learn is that we don’t get something for nothing.  We need to produce.  Yes, we need banks, credit markets, mortgage brokers and the like.  But to work to help those who produce build their lives, not as a route to cheap quick wealth.  Investing in infrastructure the way President elect Obama plans can be a useful first step, but only if it’s part of an effort to get America producing stuff people want, not just enjoying cheap goods from abroad.

Ultimately, we can’t prosper by valuing consumption over production.  Our status as a superpower and our dominance of the financial sector made it seem we could for the last quarter century.  I’m not sure how we recast our economy, especially given how we are starting in immense governmental and private debt.  But as complex as the problem is, the answer is crystal clear: produce.  Reject the idea that we can get something for nothing.

Shoveling Water

Today is the last day of classes, and a one half snow day.  Last night the first big winter storm of the season hit, and it was the kind of storm I hate.

Now, don’t get me wrong.  I love snow.  Winter is a beautiful season, skiing is an almost religious experience, and living in the Maine woods is exhilirating.  But we live on a dirt road, and our driveway is wide.  Moreover, the road heads down a hill, so in winter if I don’t have my winter tires on, I’m often stuck.   Yesterday I had those tires put on, and I was excited that snow was finally on the way.  We’d be back in our winter wonderland (nothing against the woods in summer!), with Mt. Titcomb, the local ski spot, which relies mostly on natural snow, getting close to opening.  Snow is coming!

I went to bed happy, as I saw the snow come down.  Like a kid, I was planning how much fun I’d have at home with the boys if it were a snow day.  So I made sure the generator had gas in case of a power outage, and was in a great mood at bed time.   There’s something about snow that can push aside the otherwise dreary daily routine.

When I woke up at 5:50 I headed to the phone to call the cancellation line.  There I got the bad news: we would have classes today, starting at noon.   Then I looked outside.  Slush.  Yuck.  Rain falling on slush.  Double yuck.  Huge puddles standing beside our house.  Triple yuck.  Our basement hasn’t flooded yet, but how much can it take?

Alas, no day home with the boys.  Ryan’s school was canceled but he and Dana headed to day care.  I had to go shovel.  For an hour and a half I shoveled water.  Some snow was mixed in, but it was heavy and wet.  The snowblower helped a little, but we have a wide driveway.  I became totally drenched.  Shoes, socks, jeans…it was raining on me as I often waded in water, trying to clear the slush.

If I lived down south aways, I’d just figure that the slush would melt.  But temperatures are predicted to fall tonight to near zero.  That means the slush will freeze.  We are going to get ice.  I couldn’t get all the puddles of water away.  But if the snow and slush weren’t cleared, it would be horrible.   And, of course, the deck.  We don’t use it much in winter, but I don’t want a foot of ice at the bottom.  At least I got a good work out in today!

I think this is a record; two blog posts in a row about my personal life, rather than focused on politics, economics, philosophy or something else.   But shoveling is a time when my mind works in a different ways.  It’s monotonous and difficult (especially wet snow…or really, chunky water), and yet despite the rain and grey, it’s usually beautiful in its own way.  (There’s an old Ray Stevens song in my head now…’everything is beautiful, in it’s own way…)

When it rains, it’s no work.  You just let the water run its course and trust the drainage systems.  And, of course, if one relies on well water as we do, it assures a steady water supply.  When it snows, the work is real, but doesn’t take long.  For bad storms there’s the snow blower, but usually shoveling is a good work out, and I love the crisp feel of tossing clean white snow aside.   But mix the two, and things are bad.  Ice forms, power gets knocked out, the snow is super heavy, and being out shoveling is to get drenched in water as cold as that of the north Atlantic.

Life is sort of that way too.  When things are going normally, there’s no work.  You just get into a routine and let things run their course.  When there is a clear and obvious problem, there’s work.  It can be personal, professional, relational, but if a problem emerges, one can identify it and work on it.  And that’s satisfying.  Problem solving gives a sense of accomplishment, just like looking at a newly cleared driveway and thinking, “ah, my work paid off.”

But sometimes we have to shovel water.  Life seems a bit off.  The routine may be too dull, there’s no excitement or pizzazz.   There’s no problem really to solve, but the routine is unsatisfying.   The snow is saturated, it needs to be removed.

We can avoid it.  We can find distractions.  There’s consumerism, alcohol, drugs, television, and the internet.  One can lose oneself in a cause or ideology.   Some distractions are even quite virtuous: work out, read a good novel, or do work around the house.   And, to be sure, distractions — especially the virtuous ones — have a place in life.  But when life is really in a point of boredom, the ‘quiet desperation’ of the modern world, where it feels like existence rather than life, the work is the hardest.

We have to examine ourselves and our habits, and change what is blocking us from doing what we need to.  We have to reach out to friends, develop creative new approaches, and shatter old patterns of thought.  I’ve always thought that a good way to know what’s going on inside me is to look at what is around me, that my external circumstances give me hints about what I need internally.   As I was shoveling today I realized that during this hyper busy semester I’ve felt a bit disconnected.   Not unhappy.  No big problems.  Just too caught up in routine and daily trivia.  So busy that life has been one task after another, with my blog my creative release.    That’s not enough.  Life is beautiful, life has meaning.  It’s not meant to be whittled away in routine and little tasks.  It’s Christmas time, time for joy.   I need to look inside, appreciate the people and circumstances around me, and shovel water.