Wednesday, September 29, 2010

Krugman: Lack of demand is the problem

Krugman is being a bit sly here. He won't come out and say what he's been repeating quite a lot the past few years: we need even more stimulus spending to create jobs.

Politically, another stimulus is impossible. (Since Democrats in Congress and the White House are mainly the ones saying that, that means it's a self-fulfilling prophecy).

Structure of Excuses
By Paul Krugman
September 26, 2010 | New York Times

What can be done about mass unemployment? All the wise heads agree: there are no quick or easy answers. There is work to be done, but workers aren't ready to do it — they're in the wrong places, or they have the wrong skills. Our problems are "structural," and will take many years to solve.

But don't bother asking for evidence that justifies this bleak view. There isn't any. On the contrary, all the facts suggest that high unemployment in America is the result of inadequate demand — full stop. Saying that there are no easy answers sounds wise, but it's actually foolish: our unemployment crisis could be cured very quickly if we had the intellectual clarity and political will to act.

In other words, structural unemployment is a fake problem, which mainly serves as an excuse for not pursuing real solutions.

Who are these wise heads I'm talking about? The most widely quoted figure is Narayana Kocherlakota, the president of the Federal Reserve Bank of Minneapolis, who has attracted a lot of attention by insisting that dealing with high unemployment isn't a Fed responsibility: "Firms have jobs, but can't find appropriate workers. The workers want to work, but can't find appropriate jobs," he asserts, concluding that "It is hard to see how the Fed can do much to cure this problem."

Now, the Minneapolis Fed is known for its conservative outlook, and claims that unemployment is mainly structural do tend to come from the right of the political spectrum. But some people on the other side of the aisle say similar things. For example, former President Bill Clinton recently told an interviewer that unemployment remained high because "people don't have the job skills for the jobs that are open."

Well, I'd respectfully suggest that Mr. Clinton talk to researchers at the Roosevelt Institute and the Economic Policy Institute, both of which have recently released important reports completely debunking claims of a surge in structural unemployment.

After all, what should we be seeing if statements like those of Mr. Kocherlakota or Mr. Clinton were true? The answer is, there should be significant labor shortages somewhere in America — major industries that are trying to expand but are having trouble hiring, major classes of workers who find their skills in great demand, major parts of the country with low unemployment even as the rest of the nation suffers.

None of these things exist. Job openings have plunged in every major sector, while the number of workers forced into part-time employment in almost all industries has soared. Unemployment has surged in every major occupational category. Only three states, with a combined population not much larger than that of Brooklyn, have unemployment rates below 5 percent.
Oh, and where are these firms that "can't find appropriate workers"? The National Federation of Independent Business has been surveying small businesses for many years, asking them to name their most important problem; the percentage citing problems with labor quality is now at an all-time low, reflecting the reality that these days even highly skilled workers are desperate for employment.

So all the evidence contradicts the claim that we're mainly suffering from structural unemployment. Why, then, has this claim become so popular?

Part of the answer is that this is what always happens during periods of high unemployment — in part because pundits and analysts believe that declaring the problem deeply rooted, with no easy answers, makes them sound serious.

I've been looking at what self-proclaimed experts were saying about unemployment during the Great Depression; it was almost identical to what Very Serious People are saying now.
Unemployment cannot be brought down rapidly, declared one 1935 analysis, because the work force is "unadaptable and untrained. It cannot respond to the opportunities which industry may offer." A few years later, a large defense buildup finally provided a fiscal stimulus adequate to the economy's needs — and suddenly industry was eager to employ those "unadaptable and untrained" workers.

But now, as then, powerful forces are ideologically opposed to the whole idea of government action on a sufficient scale to jump-start the economy. And that, fundamentally, is why claims that we face huge structural problems have been proliferating: they offer a reason to do nothing about the mass unemployment that is crippling our economy and our society.

So what you need to know is that there is no evidence whatsoever to back these claims. We aren't suffering from a shortage of needed skills; we're suffering from a lack of policy resolve. As I said, structural unemployment isn't a real problem, it's an excuse — a reason not to act on America's problems at a time when action is desperately needed.

Survey: Christians don't know Christianity

The truth is that most citizens of our "Christian" nation know more about the Brady Bunch than the 10 Commandments, and they crib the rest from Republicans. (And for that, at least, thank God, conservatives for once can't blame our goddamn godless public schools!)

Increasingly, political taste informs religion in American, and not vice-versa. (I actually have no problem with religion informing politics, as long as one religious sect doesn't seek advantages through our government). For instance, many Catholics could give a hoot that their Church supports social justice (code word: socialism) and believes in just war theory (code word: pacifism). Even the head of Dubya's Methodist church said that the Iraq war was "unjustifiable" but that didn't stop him: he said God told him directly to invade Afghanistan and Iraq.

But who cares what churches say? It's more important what Glenn Beck, your snake-handling preacher, or radio shock jocks say about Christianity. That's what counts.

I count myself among those who know more about Christianity than most Christians. If only Christians would be more Christian!....

By JJ Sutherland
September 28, 2010 | NPR

Sirota: STEM education doesn't boost US employment

Pretty interesting interview:

Writer Debunks The 'Great Education Myth'
Michel Martin
September 28, 2010 | Tell Me More on NPR

And here is the article which spurred it:

The Neoliberal Bait-and-Switch
By David Sirota
September 10, 2010 |

In simplistic, Lexus-and-Olive-Tree terms, the neoliberal economic argument goes like this: Tariff-free trade policies are great because they increase commerce, and we can mitigate those policies' negative effects on the blue-collar job market by upgrading our education system to cultivate more science, technology, engineering and math (STEM) specialists for the white-collar sector.

Known as the bipartisan Washington Consensus, this deceptive theory projects the illusion of logic. After all, if the domestic economy's future is in STEM-driven innovation, then it stands to reason that trade policies shedding "low-tech" work and education policies promoting high-tech skills could guarantee success.

Of course, 30 years into the neoliberal experiment, the Great Recession is exposing the flaws of the Washington Consensus. But rather than admit any mistakes, neoliberals now defend themselves with yet more bait-and-switch sophistry -- this time in the form of the Great Education Myth.

No doubt, you've heard this fairy tale from prominent politicians and business leaders who incessantly insist that our economic troubles do not emanate from neoliberals' corporate-coddling trade, tax and deregulatory policies, but instead from an education system that is supposedly no longer graduating enough STEM experts. Indeed, this was the message of this week's New York Times story about corporate leaders saying America isn't producing "enough workers with the cutting-edge skills coveted by tech firms."

As usual, it sounds vaguely logical. Except, the lore relies on the assumptions that 1) American schools aren't generating enough STEM supply to meet employer demand, 2) the education system -- not neoliberalism -- is driving this alleged STEM drought and 3) if America came up with more of such specialists, they would find jobs.

To know these suppositions are preposterous is to consider a recent study by Rutgers and Georgetown University that found colleges "in the United States actually graduate many more STEM students than are hired each year."
That debunks the supply-and-demand canard. But can we still blame the jobs crisis on schools failing to deliver more STEM graduates?


As researchers discovered, many students are pursuing finance instead of STEM careers because Wall Street jobs "are higher paying" and offer "employment stability" and "less susceptib(ility) to offshoring."

This is the truth that the Great Education Myth aims to obscure. It's not that schools are ill-equipped to train STEM specialists. It's that the additional students who might boost our STEM workforce are choosing to avoid STEM majors because they see an economy that is more hospitable to careers in Wall Street casinos rather than in high-tech innovation -- a financialized economy based less on creating tangible assets than on encouraging worthless speculation.

[And from personal experience, I know a lot of MBA-Finance students who were engineers and IT guys who wanted higher pay and more job security - J]

This doesn't mean that our education system is perfect. But it does mean that without reforming the trade, tax and regulatory policies that reward high-tech outsourcing and incentivize careers in finance, our schools can never be an engine of value-generating information-age jobs.

Why, then, do neoliberals nonetheless press the Great Education Myth? Because it deliberately distracts from a situation that enriches neoliberals and the powerful interests they rely on.

Tariff-free trade pacts inflate the profits of transnational businesses by helping them troll the globe for cheap exploitable labor. Loopholes exempting foreign earnings from taxes encourage companies to move jobs overseas. And both deregulation and bailouts disproportionately balloon financial industry revenues.

The neoliberal corporate class makes big money off this status quo, and neoliberal lawmakers get their cut via campaign contributions. The last thing either wants is an honest debate about neoliberalism's downsides. And so they play to our lust for silver-bullet solutions, endlessly telling us that everything is the schools' fault.

As mythology goes, it's certainly compelling. If only the facts didn't get in the way.

Friday, September 17, 2010

Lobbying firms rush to hire Republicans -- Cha-CHING!

I know Democrats benefit from it, too, but isn't it simply disgusting how our cash-driven political system works? Know-nothing Congressmen becoming senior executives at investment banks, energy firms, and gov't contractors as soon as they leave office... is this what makes the private sector superior?!?

BTW, those of you who believe in eliminating Congressmen's pensions, cutting their pay and perquisites, and establishing terms limits, should realize that those measures would only make the revolving door between business and government turn faster, with more incentives for politicians to cash in sooner. Think about it: the incentive would be to get elected, pass horrible bills to benefit your corporate benefactors, then cash out after your term with a cushy 6- or 7-figure job with said corporation. Is that what you really want?

Campaign finance reform -- specifically shorter, publicly funded elections -- is the answer. I know it smacks to you of socialism, but public financing would save us money in the larger account.

By Eric Lichtblau
September 9, 2010 | New York Times

Campaign cash surges from undisclosed donors

The Great Recession doesn't seem to be hurting firms' business investments in our elections. Since the private sector always knows what they're doing, they must be pretty sure they'll get a good ROI. Don't you love capitalism + democracy?

And it's all in secret with zero transparency. (FYI, it's called "free speech" when you make a secret cash donation to somebody to air a negative ad for you but not explicitly on your behalf. Check the Bill of Rights, it's in there somewheres....)

Thanks, Supreme Court d***wads!

By Peter Overby
September 16, 2010 | All Things Considered - NPR

Bailed-out banks lend back to Little Guy at 455% interest

First they destroyed the economy. Then Dubya bailed them out. Then they got to borrow money at zero percent interest from the gov't to pay back their gov't loans. Then they finally started lending to the Little Guy whom they had crushed, economically -- but only through payday lenders at an average interest rate of 455 percent.

And you teabaggers are mad about mosques. Suckers.

By William Alden
September 14, 2010 | Huffington Post

Big banks that received TARP bailout money are funding payday lenders -- companies Senator Dick Durbin (D - Ill.) termed "bottom feeders" -- and which charge high interest rates and fees for short-term loans, according to a report released Tuesday.

The banks, which include Wells Fargo, Bank of America and JP Morgan, currently provide roughly $1.5 billion in credit lines to publicly-held payday loan companies and between $2.5 to $3 billion to the larger payday loan industry, says the report, which was issued jointly by community group network National People's Action and non-partisan watchdog Public Accountability Initiative.

The payday lenders, including Advance America, Cash America and ACE Cash Express, which allow customers to borrow against future paychecks, and which, according to the report, charge an average interest rate of 455 percent on top of fees of $15-18 per $100 loaned, often depend on the big banks' financing for their business.

"The very same banks that helped tank the economy and then needed hundreds of billions of dollars in taxpayer-funded bailouts are now aiding the bottom-feeders of the financial industry, as they seek--the payday lenders--to strip even more wealth away from everyday Americans," NPA executive director George Goehl, who also called payday lending "legalized loan sharking," said in a telephone press conference. "If Al Capone was alive today you might even get a better loan from him." (Goehl is also a HuffPost blogger)

The report, called "The Predators' Creditors," which features a picture of three sharks on the cover, says that some banks abstain from business with payday lenders because of what Advance America itself calls "reputational risks." The report also notes, though, that some of these payday lenders have ties to Wall Street. For example, the board of Advance America includes former executives from Bank of America, Morgan Stanley and Credit Suisse.

PAI co-director Kevin Connor, who co-authored the report, said in the press conference that big banks are attracted to the payday loan industry because "Americans were losing their jobs and homes in record numbers but they still had their family treasure to borrow against"

Connor also noted that the big banks themselves pay close to zero interest when they borrow from the Fed, a stark contrast to the high interest rates paid by consumers.

NPA and PAI are calling for an end to these credit lines from banks. Goehl said a protest campaign will launch today in Ohio and continue in Iowa, Kansas, Missouri and Illinois through next week, culminating in a meeting of the organizers in Chicago. "This report is really the beginning, not the end," he said.

Stiglitz: Gov't, stop interfering; Banks, write down mortgages

By Joseph E. Stiglitz
September 8, 2010 | Project Syndicate

A sure sign of a dysfunctional market economy is the persistence of unemployment. In the United States today, one out of six workers who would like a full-time job can't find one. It is an economy with huge unmet needs and yet vast idle resources.

The housing market is another US anomaly: there are hundreds of thousands of homeless people (more than 1.5 million Americans spent at least one night in a shelter in 2009), while hundreds of thousands of houses sit vacant.

Indeed, the foreclosure rate is increasing. Two million Americans lost their homes in 2008, and 2.8 million more in 2009, but the numbers are expected to be even higher in 2010. Our financial markets performed dismally – well-performing, "rational" markets do not lend to people who cannot or will not repay – and yet those running these markets were rewarded as if they were financial geniuses.

None of this is news. What is news is the Obama administration's reluctant and belated recognition that its efforts to get the housing and mortgage markets working again have largely failed. Curiously, there is a growing consensus on both the left and the right that the government will have to continue propping up the housing market for the foreseeable future. This stance is perplexing and possibly dangerous.

It is perplexing because in conventional analyses of which activities should be in the public domain, running the national mortgage market is never mentioned. Mastering the specific information related to assessing creditworthiness and monitoring the performance of loans is precisely the kind of thing at which the private sector is supposed to excel.

It is, however, an understandable position: both US political parties supported policies that encouraged excessive investment in housing and excessive leverage, while free-market ideology dissuaded regulators from intervening to stop reckless lending. If the government were to walk away now, real-estate prices would fall even further, banks would come under even greater financial stress, and the economy's short-run prospects would become bleaker.

But that is precisely why a government-managed mortgage market is dangerous. Distorted interest rates, official guarantees, and tax subsidies encourage continued investment in real estate, when what the economy needs is investment in, say, technology and clean energy.

Moreover, continuing investment in real estate makes it all the more difficult to wean the economy off its real-estate addiction, and the real-estate market off its addiction to government support. Supporting further real-estate investment would make the sector's value even more dependent on government policies, ensuring that future policymakers face greater political pressure from interests groups like real-estate developers and bonds holders.

Current US policy is befuddled, to say the least. The Federal Reserve Board is no longer the lender of last resort, but the lender of first resort. Credit risk in the mortgage market is being assumed by the government, and market risk by the Fed. No one should be surprised at what has now happened: the private market has essentially disappeared.

The government has announced that these measures, which work (if they do work) by lowering interest rates, are temporary. But that means that when intervention comes to an end, interest rates will rise – and any holder of mortgage-backed bonds would experience a capital loss – potentially a large one.

No private party would buy such an asset. By contrast, the Fed doesn't have to recognize the loss; while free-market advocates might talk about the virtues of market pricing and "price discovery," the Fed can pretend that nothing has happened.

With the government assuming credit risk, mortgages become as safe as government bonds of comparable maturity. Hence, the Fed's intervention in the housing market is really an intervention in the government bond market; the purported "switch" from buying mortgages to buying government bonds is of little significance. The Fed is engaged in the difficult task of trying to set not just the short-term interest rate, but longer-term rates as well.

Resuscitating the housing market is all the more difficult for two reasons. First, the banks that used to do conventional mortgage lending are in bad financial shape. Second, the securitization model is badly broken and not likely to be replaced anytime soon. Unfortunately, neither the Obama administration nor the Fed seems willing to face these realities.

Securitization – putting large numbers of mortgages together to be sold to pension funds and investors around the world – worked only because there were rating agencies that were trusted to ensure that mortgage loans were given to people who would repay them. Today, no one will or should trust the rating agencies, or the investment banks that purveyed flawed products (sometimes designing them to lose money).

In short, government policies to support the housing market not only have failed to fix the problem, but are prolonging the deleveraging process and creating the conditions for Japanese-style malaise. Avoiding this dismal "new normal" will be difficult, but there are alternative policies with far better prospects of returning the US and the global economy to prosperity.

Corporations have learned how to take bad news in stride, write down losses, and move on, but our governments have not. For one out of four US mortgages, the debt exceeds the home's value. Evictions merely create more homeless people and more vacant homes. What is needed is a quick write-down of the value of the mortgages. Banks will have to recognize the losses and, if necessary, find the additional capital to meet reserve requirements.

This, of course, will be painful for banks, but their pain will be nothing in comparison to the suffering they have inflicted on people throughout the rest of the global economy.

Joseph E. Stiglitz is University Professor at Columbia University and a Nobel laureate in Economics.

Roubini: Cut the payroll tax

Conservatives are out there pushing the idea that what our economy needs is a lot more cash in companies' hands, therefore we should cut their taxes, and then firms will start hiring again. But as Roubini pointed out, many larger companies already "have built up huge cash reserves," and so "we need to subsidize the demand for labor -- achieving job creation -- rather than making it cheaper to buy capital, as investment and other tax credits would do."

By Nouriel Roubini
September 17, 2010 | Washington Post

Nearly three years since the onset of the financial crisis, the continued weakness of the labor and real estate markets, U.S. consumers' unbalanced balance sheets and fading support from policy stimulus have transformed the risk of a double-dip recession from unlikely to about a 40 percent likelihood. The government responded creatively and massively to the near collapse of the U.S. financial system: The Troubled Assets Relief Program, stimulus spending and near-zero interest rates for nearly two years prevented a second Great Depression.

But the Federal Reserve has little ammunition left to boost growth or fend off a slump. And the federal deficit has reached such levels that additional spending of the kind that helped kindle the mini-recovery of early 2010 looks unwise.

In the midst of an election with crucial implications for its ability to govern, can the Obama administration reduce the likelihood of a "double dip"?

The administration knows that it needs to fashion a revenue-neutral fiscal stimulus that increases labor demand and consumption. Its proposal to make permanent a research and development tax credit that dates to the 1980s, and then to enact a temporary investment tax credit allowing firms to write down capital investments at 100 percent of cost, are welcome -- but too modest a cure for what ails the economy.

A much better option is for the administration to reduce the payroll tax for two years. The reduced labor costs would lead employers to hire more; for employees, the increased take-home pay would boost much-needed economic consumption and advance the still-crucial process of deleveraging households (paying down credit card debt and other legacies of the easy-credit years).

Most policy approaches, including the Obama proposals, have tended to subsidize the demand for capital rather than the demand for labor. That has the problem backward. In the second quarter, capital spending reached an annual growth rate of 25 percent. The argument that increased demand for capital leads to greater demand for labor (i.e., if you buy more machines you need workers to run them) has not held up. Firms are investing in capital goods, equipment and offshore offices that allow them to produce the same amount of goods with less -- and lower labor costs. To avoid a chronic increase in the unemployment rate, we need to subsidize the demand for labor -- achieving job creation -- rather than making it cheaper to buy capital, as investment and other tax credits would do.

President Obama could fully fund the reduction in payroll tax by allowing the Bush tax cuts for people making more than $250,000 a year to expire. Meanwhile, the Bush-era cuts affecting middle- and low-income earners -- the vast majority of Americans -- would remain in place for the time being.

After two years, when U.S. growth is more robust and the pace of private-sector hiring has picked up, we can afford to phase out the payroll tax cut while maintaining the income tax rates for the rich. It's possible also that we could increase the tax burden on the middle class over time to reduce our budget deficit.

Proportion is critical in designing the payroll tax cuts. Small and medium-size enterprises have had it rough the past three years. They are scrambling for operating capital as banks hold reserves tightly, and they face higher borrowing costs than large corporations when they do find willing lenders. To maximize the incentives for private-sector hiring, there should be sharper reductions to the payroll taxes paid by employers than for those paid by employees. This will counter the argument that the higher income taxes funding these payroll tax cuts will hurt the wealthy and small businesses (many of which are run by those same high-income individuals) and their willingness to hire. Moreover, any cut in the payroll tax reduces the costs of operation and labor for all businesses. Other targeted policies that induce smaller banks to lend to small and medium-size businesses may be needed.

Low-income workers have historically shown a much higher propensity to consume when given extra money, so the payroll tax cut should be designed to provide a larger-percentage break to those on the low end of the income scale compared with the upper middle class.

Payroll tax cuts for the majority of low- and middle-income Americans could be just the beginning. The administration could propose even deeper cuts in payroll taxes if the president could get Congress to accede to a partial expiration of the other 2001 and 2003 tax cuts. At the end of this year, marginal cuts in capital gains, dividends and estate taxes are all up for renewal. A partial expiration of those special reductions -- more likely to hit higher-income individuals -- would not have to raise rates to the levels that preceded the Bush tax cuts; it could also incentivize those companies that have built up huge cash reserves (in effect, overinvesting in capital at the expense of hiring) to increase their demand for labor.

These temporary changes could not realistically be promoted as deficit-reduction measures. But they would hold the line against additional government debt while the nation awaits the recommendations of the president's bipartisan panel on deficit reduction. Absent a new stimulus package -- which appears highly unlikely at this point -- these cuts direct billions in cash back into precisely those American households most likely to spend it and those businesses most likely to apply it to hiring. A tiny percentage of the highest-income Americans will pay more for the service the government rendered to their brokerage firms and investment banks in 2008. In exchange, a large tax break can be fashioned for employers and employees that jump-starts consumption, encourages hiring and thereby reduces the risk of a double dip without busting the budget.

Nouriel Roubini, chairman of Roubini Global Economics and a professor at New York University's Stern School of Business, is the author of "Crisis Economics: A Crash Course in the Future of Finance."

Wednesday, September 15, 2010

Reagan's OMB Director: We can't afford tax cuts

He's going to lose his membership card if he keeps this up.

By Nicole Lapin
September 13, 2010 | CNBC

Don't extend the George W. Bush tax cuts, David Stockman, the director of Office of Management and Budget under President Reagan, told CNBC.

"We couldn't afford those tax cuts back when they were implemented by Bush. We can't afford them now," said Stockman.

"This is $300 billion a year. I think both parties are dreaming. Our fiscal situation is far worse than they're really telling the public, and since they're unwilling to cut taxes, and since we can't keep borrowing a trillion and a half dollars year in and year out, it's time to face the music."
Meanwhile, the White House continues to cite a report from the Congressional Budget Office that maintains that extending tax cuts for the wealthy could add $700 billion to the US deficit over the next decade.

"I realize people will say this [increasing taxes for the wealthy] will slow down the recovery, but, frankly, the recovery is over. We had a small inventory bounce. That's done. The economy is now bouncing along the bottom. It's not going to get a lot better, and we don't have the luxury of time," Stockman said.

"We're borrowing money or creating deficit at a $100 billion a month. We're creating deficit, or new debt, at twice the rate of our economic growth. I don't think that's sustainable and one of these days we're going to get a huge wake-up call as the global markets finally figure this out. We can't wait for that to happen, because if we do, it will be too late."

Stockman scoffed at the idea that tax cuts creates jobs, a point made by Obama's former OMB director Peter Orzag, in a recent New York Times column.

"That's a Republican National Committee talking point. We have millions of excess small businesses in the United States that were created during the boom—construction companies, restaurants, retailers and so forth—that have no business, and they're not hiring because their taxes are too high, they're not hiring because they don't have any customers," said Stockman. He also said that there are more homebuilders than housing starts.

"We have to recognize that we're in a major debt deflation, debt liquidation. Our economy has to go through vast restructuring, and the typical historical expedience, like tax cuts for a short period stimulus, simply is irrelevant. They [tax cuts] will only make the problem larger in terms of the fiscal side and will not create jobs. We've had tax cuts for the last three years, and how many jobs have been created? Net, very few."

Income growth: Dems vs. GOP, 1947-2008

Go ahead, you teabaggers, this is your chance to tell me how this graph is so dishonest.

This should prove once and for all that Democrats are better stewards of the economy. Indeed, historically they do their best when they have total control of the House, Senate, and Presidency.

Monday, September 13, 2010

Zakaria: U.S. overreacted to 9/11

It's always nice when Fareed Zakaria decides to agree with me, albeit late. However I'm very late in posting this, so it kind of evens out.

By Fareed Zakaria
September 4, 2010 | Newsweek

Nine years after 9/11, can anyone doubt that Al Qaeda is simply not that deadly a threat? Since that gruesome day in 2001, once governments everywhere began serious countermeasures, Osama bin Laden's terror network has been unable to launch a single major attack on high-value targets in the United States and Europe. While it has inspired a few much smaller attacks by local jihadis, it has been unable to execute a single one itself. Today, Al Qaeda's best hope is to find a troubled young man who has been radicalized over the Internet, and teach him to stuff his underwear with explosives.

I do not minimize Al Qaeda's intentions, which are barbaric. I question its capabilities. In every recent conflict, the United States has been right about the evil intentions of its adversaries but massively exaggerated their strength. In the 1980s, we thought the Soviet Union was expanding its power and influence when it was on the verge of economic and political bankruptcy. In the 1990s, we were certain that Saddam Hussein had a nuclear arsenal. In fact, his factories could barely make soap.

The error this time is more damaging. September 11 was a shock to the American psyche and the American system. As a result, we overreacted. In a crucially important Washington Post reporting project, "Top Secret America," Dana Priest and William Arkin spent two years gathering information on how 9/11 has really changed America.

Here are some of the highlights. Since September 11, 2001, the U.S. government has created or reconfigured at least 263 organizations to tackle some aspect of the war on terror. The amount of money spent on intelligence has risen by 250 percent, to $75 billion (and that's the public number, which is a gross underestimate). That's more than the rest of the world spends put together. Thirty-three new building complexes have been built for intelligence bureaucracies alone, occupying 17 million square feet—the equivalent of 22 U.S. Capitols or three Pentagons. Five miles southeast of the White House, the largest government site in 50 years is being built—at a cost of $3.4 billion—to house the largest bureaucracy after the Pentagon and the Department of Veterans Affairs: the Department of Homeland Security, which has a workforce of 230,000 people.

This new system produces 50,000 reports a year—136 a day!—which of course means few ever get read. Those senior officials who have read them describe most as banal; one tells me, "Many could be produced in an hour using Google." Fifty-one separate bureaucracies operating in 15 states track the flow of money to and from terrorist organizations, with little information-sharing.

Some 30,000 people are now employed exclusively to listen in on phone conversations and other communications in the United States. And yet no one in Army intelligence noticed that Maj. Nidal Malik Hasan had been making a series of strange threats at the Walter Reed Army Medical Center, where he trained. The father of the Nigerian "Christmas bomber" reported his son's radicalism to the U.S. Embassy. But that message never made its way to the right people in this vast security apparatus. The plot was foiled only by the bomber's own incompetence and some alert passengers.

Such mistakes might be excusable. But the rise of this national-security state has entailed a vast expansion in the government's powers that now touches every aspect of American life, even when seemingly unrelated to terrorism. The most chilling aspect of Dave Eggers's heartbreaking book, Zeitoun, is that the federal government's fastest and most efficient response to Hurricane Katrina was the creation of a Guantánamo-like prison facility (in days!) in which 1,200 American citizens were summarily detained and denied any of their constitutional rights for months, a suspension of habeas corpus that reads like something out of a Kafka novel.

In the past, the U.S. government has built up for wars, assumed emergency authority, and sometimes abused that power, yet always demobilized after the war. But this is a war without end. When do we declare victory? When do the emergency powers cease?

Conservatives are worried about the growing power of the state. Surely this usurpation is more worrisome than a few federal stimulus programs. When James Madison pondered this issue, he came to a simple conclusion: "Of all the enemies to public liberty war is, perhaps, the most to be dreaded, because it comprises and develops the germs of every other … In war, too, the discretionary power of the executive is extended?.?.?.?and all the means of seducing the minds, are added to those of subduing the force, of the people.

"No nation could preserve its freedom in the midst of continual war," Madison concluded.

Wednesday, September 1, 2010

OK Go on net neutrality

OK Go makes really cool videos. Check 'em out.

OK Go on net neutrality: A lesson from the music industry
By Damian Kulash
August 29, 2010 | New York Times

On the Internet, when I send my ones and zeros somewhere, they shouldn't have to wait in line behind the ones and zeros of wealthier people or corporations. That's the way the Net was designed, and it's central to a concept called "net neutrality," which ensures that Internet service providers can't pick favorites.

Recently, though, big telecommunications companies have argued that their investment in the Net's infrastructure should allow them more control over how it's used. The concerned nerds of the world are up in arms, and there's been a long, loud public debate, during which the Federal Communications Commission appeared to develop a plan to preserve net neutrality.

The FCC's latest action on the question came partly in response to a federal appeals court ruling in April that appeared to limit the agency's authority over Internet service providers. In May, FCC Chairman Julius Genachowski issued a plan to classify the Internet under Title II of the 1934 Communications Act. In English, that means the agency would be legally recognizing a fact so obvious that I feel silly even typing it: We use the Internet to communicate. With that radical notion established, the FCC would have jurisdiction to protect the public interest on the Net, including enforcing neutrality. Since announcing its intent, though, the FCC hasn't followed through, and the corporations involved are trying to take the reins before the public servants do.

The first volley, earlier this month, was a proposal from Google and Verizon. The part they'd like us to notice, and the part I was thrilled by, is where they say there shouldn't be paid priority for the transmission of Internet content, meaning all legal data should be treated equally. Hear, hear, Googrizon! We, the stuff-making, freedom-loving, innovation-crazed citizens of the Internet, could not agree more.

Unfortunately, a couple of parts of the proposal radically contradict the noble principle outlined above.

First, Google and Verizon would like to exempt wireless Internet, which leads one to wonder just how dumb they think we are. Everyone's heard that the future of the Web is all wireless, but in truth, the present of the Web is all wireless. We are already deep in the iPad/BlackBerry/Android era, and there's no going back. So limiting equality and fair play to wired territory would be kind of like civil rights legislation that dealt with bus seating but exempted schools, the workplace and the voting booth.

Second, the companies slipped in a doozy of an idea for what seems like a hypothetical "fast lane" apart from the "public" Internet. Big bucks could gain access to this separate, specialized service, guaranteeing faster delivery of corporate ones and zeros. Essentially they are saying: Don't worry, there would be no "paid priority," except in the instances where you could pay for priority. Words fail to convey my incredulousness.

Let me tell you why I take this so seriously, and so personally. I've spent a decade working in the music industry, a business in which the big guys block out the rest of us. Creativity and innovation take a distant back seat to money, and everyone loses, even the big guys themselves. They have insulated themselves from change for so long, they've dug their own grave.

Both as a musician and as a music fan, I've always wanted to see the best and most exciting musical ideas rise to the top. But we all know the story of the music business: Success is bought more often than earned. Smart money looks for low risks, so the safest, blandest music attracts the most investment, and only the safest, blandest music makes it to the airwaves and the shelves at Wal-Mart. Creative, innovative artists toil in obscurity, the public is fed rubbish, and, for decades, the industry contentedly made its way to the bank.

Music is subjective, of course, so you don't have to agree with my assessment of what's innovative and what's trash. But business is less so, and the past decade of the music industry is as clear an example as you can find of what happens when the depth of pockets, not the quality of ideas, is the arbiter of success. It's been like a corporate version of the Three Stooges: absurd flailing, spectacular myopia and willful ignorance of reality. Now that the big record companies have made themselves obsolete, bands such as mine can make a better living without their help than we can with it.

The lesson is that insider's clubs don't nurture the best ideas, which is the whole point of markets: Competition is supposed to keep everyone on their toes. Sure, it's a drag that the radio plays such bad music, but it won't sink our economy. Can you imagine, though, what would happen if we let the same thing happen to ideas themselves?

The Internet is the purest marketplace for ideas that the world has ever seen, and the amazing power of such a level playing field has revolutionized everything. Google knows this better than anyone. It started in a garage and became an industry leader by having great ideas, not mountains of cash. And it's wonderful: The Internet works! It rewards innovators such as Google, and it relegates protectionist, defensive, idea-squashing fogies such as record companies to the dustbin of history.

Now that the Internet has been around long enough to have developed its own giants, though, we need to make sure they don't ruin what's great about the technology that made them. We need to make sure they don't crush the idea industry the way the music giants crushed the music industry. I hope Google keeps succeeding (seriously, I'm a stockholder), but it must be because of the power of its ideas, not its power to tilt the playing field.

The Google and Verizon statement, which was roundly criticized when it was released, is unlikely to be the only proposal we'll see from the big boys. A week and a half ago, AT&T, Verizon, Microsoft, Cisco Systems and a trade group called the National Cable & Telecommunications Association met for closed-door negotiations on managing online traffic that didn't include the FCC or the public.

The good news is that the Obama administration has repeatedly promised that it supports net neutrality. Right now the FCC can lastingly protect freedom and equality on the Net. To establish that authority, the agency needs the support of three of its five commissioners. Two commissioners, Michael Copps and Mignon Clyburn, Democratic appointees, have loudly backed the effort.

What we need is for the chairman to join them and follow through on the plans he laid out months ago. Mr. Genachowski, we, the citizens of the Internet, are with you.

Damian Kulash is the singer for the band OK Go.