Military Families Question Iraq War as Support for Bush Slips
By Christopher Stern
December 7, 2007 | Bloomberg.com
Friday, December 7, 2007
Fair & balanced FOX report on Iran NIE
This report is fairly "fair & balanced," although... who cares what Rush Limbaugh thinks of the NIE? That's just FOX throwing a bone to its readers. But anyway... this is worth a read.
Bush Administration Credibility Suffers After Iran NIE Report
By Greg Simmons
December 07, 2007 | FOXNews.com
The new National Intelligence Estimate — which says Iran had a nuclear weapons development program, but halted it in 2003 — made President Bush's week play out like a sad country song.
Mahmoud Ahmadinejad was smiling and called the report a victory. Rush Limbaugh blasted the report as a product of administration sabotage. And Democrats were accusing the president of being a flip-flopper.
The NIE drew fire from nearly all sides, including anti-war Democrats in Congress, foreign leaders the administration needs to hold the line against Iran, and conservatives usually supportive of the administration.
The root issue for many critics comes down to credibility: Credibility of the estimate, credibility of the intelligence community that developed it and the credibility of the administration for whom those agencies work. Bridging that credibility gap might prove difficult for an administration heading into its final months.
The administration remains resolute in its position that policy toward Iran shouldn't change. This is because while the NIE said with "high confidence" that the program halted in 2003, the estimate only says with "moderate confidence" that it had not started up again earlier this year, and "moderate-to-high" confidence that it remained off-line as the report was being released.
Because the report also says Tehran maintains a civilian nuclear program, and the estimate is silent on whether Iran intends to start up its nuclear weapons program again, U.S. officials say this means the United States and other countries must be ever-vigilant against the possibility.
But convincing people here and abroad of that argument now appears to be more difficult.
U.S. hardliners on Iran are saying the intelligence document is too ridden with internal political squabbles to be credible.
"That such a flawed product could emerge after a drawn-out bureaucratic struggle is extremely troubling," John Bolton, one of the chief proponents of sanctions to stop the Iranian weapons program, wrote Thursday's Washington Post.
Republican presidential contender Fred Thompson drew his line in the sand, issuing a statement saying: "The accuracy of the latest NIE on Iran should be received with a good deal of skepticism. Our intelligence community has often underestimated the intentions of adversaries, including Saddam Hussein's Iraq and North Korea."
Saying the report is "awfully convenient for a lot of people," Thompson continued, "the administration gets to say its policies worked; the Democrats get to claim we should have eased up on Iran a long time ago: and Russia and China can claim sanctions on Iran are not necessary. Who benefits from all this? Iran."
The Wall Street Journal editorial page — one of many conservative opinion-makers to question the report authors' credibility — wrote Wednesday: "Our own 'confidence' is not heightened by the fact that the NIE's main authors include three former State Department officials with previous reputations as 'hyper-partisan anti-Bush officials.' " The Journal named former State Department officials Tom Fingar, Vann Van Diepin and Kenneth Brill.
Conservative talk radio, which is widely credited with helping destroy support for the immigration reform bill supported by the president last year, is also less than glowing toward the report. "I guarantee there's more sabotage coming out of that place regarding the Bush administration," Rush Limbaugh said of the State Department.
International troubles were just as quick to appear.
The Associated Press quotes a top Czech official saying it is now harder to do his job explaining the need for a U.S. missile defense system, which U.S. officials say is needed to ward off attack from Iran.
"Czech newspapers are full of headlines saying there is no longer a need for missile defense. ... It is hard for complex arguments to win against simple headlines," said Tomas Klvana, according to the AP.
The administration has dispatched Secretary of State Condoleezza Rice and others to try to allay European allies over the meaning of the report — chiefly Russia, which already his highly suspicious of the U.S. missile program, and other top allies France, Germany and the U.K.
Israel — constantly in the bull's eye of Iran's militaristic rhetoric — was no more heartened by the report.
"We cannot allow ourselves to rest just because of an intelligence report from the other side of the Earth, even if it is from our greatest friend," Israeli Defense Minister Ehud Barak said Wednesday, according to the AP. A statement from Israeli President Simon Peres' office said intelligence assessments from around the world have later proved faulty — but did not specifically mention the 2002 U.S. NIE on Iraq, which has since been almost entirely discredited.
Democrats who are always on the lookout for a good shot at Bush took no time in using the new NIE as their latest talking point to show the administration doesn't know which way is up.
At Tuesday's Democratic presidential debate in Iowa, Sen. Barack Obama said: "I think Iran continues to be a threat to some of its neighbors in the region. ... But it is absolutely clear that this administration and President Bush continues to not let facts get in the way of his ideology. "
Sen. Hillary Clinton said: "I'm relieved that the intelligence community has reached this conclusion, but I vehemently disagree with the president that nothing's changed and therefore nothing in American policy has to change."
And former senator John Edwards: "What I believe is that this president, who just a few weeks ago was talking about World War III, he, the vice president, the neocons have been on a march to possible war with Iran for a long time. ... It's absolutely clear and eerily similar to what we saw with Iraq, where they were headed."
Capitol Hill Democrats were no less sympathetic, and several complained that Bush was speaking out of turn in October when he suggested Iran was still a threat. Opponents say he was first told about a possible reversal in August and should not have been ratcheting up the rhetoric between then and now.
"I am growing increasingly concerned about the White Houses inconsistent explanations of when the president was told about important new intelligence information regarding Iran's nuclear weapons ambitions," Senate Majority Leader Harry Reid said Thursday. "It appears the president and vice president were briefed in August on this information, before both the president and vice president began to ratchet up their increasingly-heated rhetoric on the threat of Iran."
And House Democratic Caucus Chair Rahm Emanuel said Tuesday the report just proves that "The last seven years in the Mideast by this administration have been the lost seven years when you see on every front a reversal."
Defending the Report
For its part, the administration is standing firmly behind the document's findings.
"I appreciate the work of our intelligence community in helping us better understand Iran's past and present nuclear activities. Their information is critical in increasing our understanding and helping us develop a sound policy," Bush said, speaking to reporters in Omaha, Neb., on Wednesday.
Bush said the NIE shows Iran "has more to explain" about its nuclear program, and called on Tehran to "come clean with the international community."
On Thursday, White House spokeswoman Dana Perino continued to take on critics, saying the president has been consistent, both with the threat posed by Iran and his responses to questions about that threat in the facing of new intelligence.
"We just found out that Iran has a covert nuclear weapons program. It proved that we were right and that international pressure is what caused them to halt it," Perino told FOX News. "The criticism (of Bush) is completely misplaced. The liar is (Iranian President Mahmoud) Ahmadinejad, the president of Iran. He's the one who has hidden the program."
A number of observers say the report's intentions are true, and it is credible enough to use in determining U.S. policy toward Iran.
FOX News military analyst Ret. Marine Lt. Col. Bill Cowan said he thinks the report is basically credible — but acknowledges credibility is a problem for the administration. The problem lies in the fact that the two reports — the one from 2007 and the one from 2005 — are so drastically different.
Leading up to Monday's report, he said, "We've got all this stuff about they're two years away from bomb, they're two weeks from a bomb. ... And suddenly, they're not even making a bomb."
"All of a sudden, you know, in one day, we have a new NIE comes out that really flip-flops one-eighty, and says they quit working on it back in '03. I would say we have a major credibility issue," Cowan said.
But he said — in contradiction to those like former U.N. Ambassador Bolton — that doesn't mean the report itself is flawed. He said he has faith in National Intelligence Director Mike McConnell to put together a good report, and he credited efforts to bring in non-consensus opinions — an effort intelligence officials say is to try and prevent another situation like the infamous 2002 Iraq NIE.
Cowan said he believes the administration, with new NIE in hand, needs to go back, vet past reports and re-evaluate its policy. He said he thinks the NIE means policy will change, but not dramatically.
"Some of the rhetoric is going to have to change, and like the president said, we're going to have to keep the international pressure on the Iranians, but maybe the U.S [will] back off a little bit," and rely more the United Nations and foreign allies, he said.
Ellen Laipson, a former member of the National Intelligence Council who now is president of the Henry L. Stimson Center, a Washington, D.C., defense policy think tank, also vouched for the authenticity of the report in a column posted on her group's Web site.
"Clearly, the methodology that produced these new judgments about Iran's nuclear weapons activity was subjected to months of scrutiny and debate," Laipson said, adding that the "intelligence community had the courage and intellectual honesty to compare its new conclusions to past judgments."
In her article, Laipson said the NIE will result in making diplomacy "the only acceptable tool" for dealing with Iran, as opposed to military intervention. "This is a net win for international peace and security," she said. Laipson was not immediately available to comment Thursday.
Joshua Muravchik, an Iran policy scholar at the American Enterprise Institute, a conservative think tank, said the report basically only shifts out the problem of Iran possibly having a nuclear weapon — it doesn't show the problem has disappeared.
"I don't think this whole thing really changed the picture in any way," Muravchik said.
He said he doesn't believe there is any more of a credibility issue with this latest NIE as there was with any others.
"NIE is the highest product of their intelligence community. ... The fact that it's our highest product does not mean at all that they're flawless," he said, pointing to another NIE in 1950 that all but ruled out the chance that North Korea would invade South Korea. Later that year the Korean War broke out.
Most of the reports' critics are missing the point, a former national security official who has served in previous administrations, told FOXNews.com, speaking on the condition of anonymity.
Critics seem "to have overlooked the importance of the fact that Iran was pursuing nuclear weapons, and Iran continues to be advancing along the path most critical to the earliest acquisition of those weapons" — that critical path being the continuation of uranium enrichment.
"They're reacting to one element of the report rather than analyzing the whole thing, and figuring out what the implications are," the official added.
The official said that, contrary to what some are saying, the report "argues for maintaining a very focused, concentrated, determined effort" to stop Iran's march toward nuclear weapons, adding: "There is no basis in my view for relaxing or for believing that the Iranian nuclear program is less worrisome, or less requiring of urgent attention than before."
Bush Administration Credibility Suffers After Iran NIE Report
By Greg Simmons
December 07, 2007 | FOXNews.com
The new National Intelligence Estimate — which says Iran had a nuclear weapons development program, but halted it in 2003 — made President Bush's week play out like a sad country song.
Mahmoud Ahmadinejad was smiling and called the report a victory. Rush Limbaugh blasted the report as a product of administration sabotage. And Democrats were accusing the president of being a flip-flopper.
The NIE drew fire from nearly all sides, including anti-war Democrats in Congress, foreign leaders the administration needs to hold the line against Iran, and conservatives usually supportive of the administration.
The root issue for many critics comes down to credibility: Credibility of the estimate, credibility of the intelligence community that developed it and the credibility of the administration for whom those agencies work. Bridging that credibility gap might prove difficult for an administration heading into its final months.
The administration remains resolute in its position that policy toward Iran shouldn't change. This is because while the NIE said with "high confidence" that the program halted in 2003, the estimate only says with "moderate confidence" that it had not started up again earlier this year, and "moderate-to-high" confidence that it remained off-line as the report was being released.
Because the report also says Tehran maintains a civilian nuclear program, and the estimate is silent on whether Iran intends to start up its nuclear weapons program again, U.S. officials say this means the United States and other countries must be ever-vigilant against the possibility.
But convincing people here and abroad of that argument now appears to be more difficult.
U.S. hardliners on Iran are saying the intelligence document is too ridden with internal political squabbles to be credible.
"That such a flawed product could emerge after a drawn-out bureaucratic struggle is extremely troubling," John Bolton, one of the chief proponents of sanctions to stop the Iranian weapons program, wrote Thursday's Washington Post.
Republican presidential contender Fred Thompson drew his line in the sand, issuing a statement saying: "The accuracy of the latest NIE on Iran should be received with a good deal of skepticism. Our intelligence community has often underestimated the intentions of adversaries, including Saddam Hussein's Iraq and North Korea."
Saying the report is "awfully convenient for a lot of people," Thompson continued, "the administration gets to say its policies worked; the Democrats get to claim we should have eased up on Iran a long time ago: and Russia and China can claim sanctions on Iran are not necessary. Who benefits from all this? Iran."
The Wall Street Journal editorial page — one of many conservative opinion-makers to question the report authors' credibility — wrote Wednesday: "Our own 'confidence' is not heightened by the fact that the NIE's main authors include three former State Department officials with previous reputations as 'hyper-partisan anti-Bush officials.' " The Journal named former State Department officials Tom Fingar, Vann Van Diepin and Kenneth Brill.
Conservative talk radio, which is widely credited with helping destroy support for the immigration reform bill supported by the president last year, is also less than glowing toward the report. "I guarantee there's more sabotage coming out of that place regarding the Bush administration," Rush Limbaugh said of the State Department.
International troubles were just as quick to appear.
The Associated Press quotes a top Czech official saying it is now harder to do his job explaining the need for a U.S. missile defense system, which U.S. officials say is needed to ward off attack from Iran.
"Czech newspapers are full of headlines saying there is no longer a need for missile defense. ... It is hard for complex arguments to win against simple headlines," said Tomas Klvana, according to the AP.
The administration has dispatched Secretary of State Condoleezza Rice and others to try to allay European allies over the meaning of the report — chiefly Russia, which already his highly suspicious of the U.S. missile program, and other top allies France, Germany and the U.K.
Israel — constantly in the bull's eye of Iran's militaristic rhetoric — was no more heartened by the report.
"We cannot allow ourselves to rest just because of an intelligence report from the other side of the Earth, even if it is from our greatest friend," Israeli Defense Minister Ehud Barak said Wednesday, according to the AP. A statement from Israeli President Simon Peres' office said intelligence assessments from around the world have later proved faulty — but did not specifically mention the 2002 U.S. NIE on Iraq, which has since been almost entirely discredited.
Democrats who are always on the lookout for a good shot at Bush took no time in using the new NIE as their latest talking point to show the administration doesn't know which way is up.
At Tuesday's Democratic presidential debate in Iowa, Sen. Barack Obama said: "I think Iran continues to be a threat to some of its neighbors in the region. ... But it is absolutely clear that this administration and President Bush continues to not let facts get in the way of his ideology. "
Sen. Hillary Clinton said: "I'm relieved that the intelligence community has reached this conclusion, but I vehemently disagree with the president that nothing's changed and therefore nothing in American policy has to change."
And former senator John Edwards: "What I believe is that this president, who just a few weeks ago was talking about World War III, he, the vice president, the neocons have been on a march to possible war with Iran for a long time. ... It's absolutely clear and eerily similar to what we saw with Iraq, where they were headed."
Capitol Hill Democrats were no less sympathetic, and several complained that Bush was speaking out of turn in October when he suggested Iran was still a threat. Opponents say he was first told about a possible reversal in August and should not have been ratcheting up the rhetoric between then and now.
"I am growing increasingly concerned about the White Houses inconsistent explanations of when the president was told about important new intelligence information regarding Iran's nuclear weapons ambitions," Senate Majority Leader Harry Reid said Thursday. "It appears the president and vice president were briefed in August on this information, before both the president and vice president began to ratchet up their increasingly-heated rhetoric on the threat of Iran."
And House Democratic Caucus Chair Rahm Emanuel said Tuesday the report just proves that "The last seven years in the Mideast by this administration have been the lost seven years when you see on every front a reversal."
Defending the Report
For its part, the administration is standing firmly behind the document's findings.
"I appreciate the work of our intelligence community in helping us better understand Iran's past and present nuclear activities. Their information is critical in increasing our understanding and helping us develop a sound policy," Bush said, speaking to reporters in Omaha, Neb., on Wednesday.
Bush said the NIE shows Iran "has more to explain" about its nuclear program, and called on Tehran to "come clean with the international community."
On Thursday, White House spokeswoman Dana Perino continued to take on critics, saying the president has been consistent, both with the threat posed by Iran and his responses to questions about that threat in the facing of new intelligence.
"We just found out that Iran has a covert nuclear weapons program. It proved that we were right and that international pressure is what caused them to halt it," Perino told FOX News. "The criticism (of Bush) is completely misplaced. The liar is (Iranian President Mahmoud) Ahmadinejad, the president of Iran. He's the one who has hidden the program."
A number of observers say the report's intentions are true, and it is credible enough to use in determining U.S. policy toward Iran.
FOX News military analyst Ret. Marine Lt. Col. Bill Cowan said he thinks the report is basically credible — but acknowledges credibility is a problem for the administration. The problem lies in the fact that the two reports — the one from 2007 and the one from 2005 — are so drastically different.
Leading up to Monday's report, he said, "We've got all this stuff about they're two years away from bomb, they're two weeks from a bomb. ... And suddenly, they're not even making a bomb."
"All of a sudden, you know, in one day, we have a new NIE comes out that really flip-flops one-eighty, and says they quit working on it back in '03. I would say we have a major credibility issue," Cowan said.
But he said — in contradiction to those like former U.N. Ambassador Bolton — that doesn't mean the report itself is flawed. He said he has faith in National Intelligence Director Mike McConnell to put together a good report, and he credited efforts to bring in non-consensus opinions — an effort intelligence officials say is to try and prevent another situation like the infamous 2002 Iraq NIE.
Cowan said he believes the administration, with new NIE in hand, needs to go back, vet past reports and re-evaluate its policy. He said he thinks the NIE means policy will change, but not dramatically.
"Some of the rhetoric is going to have to change, and like the president said, we're going to have to keep the international pressure on the Iranians, but maybe the U.S [will] back off a little bit," and rely more the United Nations and foreign allies, he said.
Ellen Laipson, a former member of the National Intelligence Council who now is president of the Henry L. Stimson Center, a Washington, D.C., defense policy think tank, also vouched for the authenticity of the report in a column posted on her group's Web site.
"Clearly, the methodology that produced these new judgments about Iran's nuclear weapons activity was subjected to months of scrutiny and debate," Laipson said, adding that the "intelligence community had the courage and intellectual honesty to compare its new conclusions to past judgments."
In her article, Laipson said the NIE will result in making diplomacy "the only acceptable tool" for dealing with Iran, as opposed to military intervention. "This is a net win for international peace and security," she said. Laipson was not immediately available to comment Thursday.
Joshua Muravchik, an Iran policy scholar at the American Enterprise Institute, a conservative think tank, said the report basically only shifts out the problem of Iran possibly having a nuclear weapon — it doesn't show the problem has disappeared.
"I don't think this whole thing really changed the picture in any way," Muravchik said.
He said he doesn't believe there is any more of a credibility issue with this latest NIE as there was with any others.
"NIE is the highest product of their intelligence community. ... The fact that it's our highest product does not mean at all that they're flawless," he said, pointing to another NIE in 1950 that all but ruled out the chance that North Korea would invade South Korea. Later that year the Korean War broke out.
Most of the reports' critics are missing the point, a former national security official who has served in previous administrations, told FOXNews.com, speaking on the condition of anonymity.
Critics seem "to have overlooked the importance of the fact that Iran was pursuing nuclear weapons, and Iran continues to be advancing along the path most critical to the earliest acquisition of those weapons" — that critical path being the continuation of uranium enrichment.
"They're reacting to one element of the report rather than analyzing the whole thing, and figuring out what the implications are," the official added.
The official said that, contrary to what some are saying, the report "argues for maintaining a very focused, concentrated, determined effort" to stop Iran's march toward nuclear weapons, adding: "There is no basis in my view for relaxing or for believing that the Iranian nuclear program is less worrisome, or less requiring of urgent attention than before."
Thursday, December 6, 2007
New Iran NIE 'a piece of crap'
This flabbergasts me. But I know it shouldn't. The neocon right's response to the new NIE estimate on Iran has been swift and fierce.
Here is just one example of neocon spin control by Human Events' Jed Babbin.
Babbin says we can't believe the CIA or the State Dept's Bureau of Intel and Research because they're so hopelessly incompetent. And now they're "anti-Bush." So that leaves us... where? Neocons respond: Iran is an enemy, a danger, a threat, and America should treat them as such, despite what our intelligence community tells us.
Here's one particularly shocking excerpt:
"Let's face facts: six years after 9-11, four years after the invasion of Iraq, US intelligence community is still unable to tell the president most of the things he needs to know about Iran, North Korea and the other nations that pose a danger to American security. That lack of knowledge heightens the danger created by reports such as the new NIE."
Did you catch the logical fallacy? If U.S. intelligence is so awful, how can we "know" that Iran and North Korea pose such a danger in the first place? Are we supposed to take it on faith, like we did with Saddam? Neocons respond: In the absence of reliable information, you gotta go with your gut -- or their gut, rather. And their gastric rumblings tell them to gear up for WWIII, with or without a reason.
Here is just one example of neocon spin control by Human Events' Jed Babbin.
Babbin says we can't believe the CIA or the State Dept's Bureau of Intel and Research because they're so hopelessly incompetent. And now they're "anti-Bush." So that leaves us... where? Neocons respond: Iran is an enemy, a danger, a threat, and America should treat them as such, despite what our intelligence community tells us.
Here's one particularly shocking excerpt:
"Let's face facts: six years after 9-11, four years after the invasion of Iraq, US intelligence community is still unable to tell the president most of the things he needs to know about Iran, North Korea and the other nations that pose a danger to American security. That lack of knowledge heightens the danger created by reports such as the new NIE."
Did you catch the logical fallacy? If U.S. intelligence is so awful, how can we "know" that Iran and North Korea pose such a danger in the first place? Are we supposed to take it on faith, like we did with Saddam? Neocons respond: In the absence of reliable information, you gotta go with your gut -- or their gut, rather. And their gastric rumblings tell them to gear up for WWIII, with or without a reason.
Bush adviser: 'New Deal for Globalization' needed
This is from one of Bush's former economic advisers, not some mushy-liberal Nobel economist like Joseph Stiglitz. But Matthew Slaughter's proposals for "big gubument" to ease the pain of globalization may surprise you! I add my 2 cents at the end.
And as Stiglitz writes: "It is no accident that these countries [India, China] that had not fully liberalized their capital markets have done so well. Subsequent research by the IMF has confirmed what every serious study had shown: capital market liberalization brings instability, but not necessarily growth. Of course, Wall Street (whose interests the US Treasury represents) profits from capital market liberalization: they make money as capital flows in, as it flows out, and in the restructuring that occurs in the resulting havoc."
In March, I returned to Tuck from Washington, D.C., where since the fall of 2005 I had been serving as a member on the Council of Economic Advisers (CEA) in the Executive Office of the President. In this Senate-confirmed position, I held the international portfolio, advising policy makers—the president, Treasury Secretary Henry Paulson [D'68], Federal Reserve Chairman Ben Bernanke, and others—on issues including international trade and investment, currencies, and the competitiveness of the U.S. economy.
Since my return, the most common question I have gotten is, "So, how was it?" I am of two minds about it. On the one hand, it was great. Created in 1946, CEA has a long history among academic economists as a forum for applying academic scholarship and teaching to provide nonpartisan, nonpolitical input to the important policy challenges facing the country. I deeply appreciated Tuck's granting me the ability to take a leave of absence for this service, and I am now enjoying bringing that service back to Tuck—through enriched teaching, new research ideas, and a broadened outreach to the business-policy community. But on the other hand, measured in terms of policy outcomes, my CEA tenure was not so great. In case you haven't noticed, U.S. economic policy is becoming more protectionist by the day.
Trade Promotion Authority for the president expired on June 30, with no prospect for renewal. The 109th Congress introduced 27 pieces of anti-China trade legislation; the 110th introduced over a dozen in just its first three months; and more than one is likely to be law by year's end. The Doha Development Round of WTO trade negotiations—the centerpiece of global trade liberalization—is years behind schedule and now on the brink of collapse. Scrutiny of inward foreign direct investment has risen. And efforts at comprehensive immigration reform, which would have expanded inflows in many ways, collapsed in July.
At first glance, this protectionist drift is puzzling. We economists are justly chided for disagreeing on many questions, but nearly to a person, all economists agree on the merits of open borders. Global engagement has generated, and has the potential to continue generating, very large gains for the United States overall and for the rest of the world as well. Living standards in the United States today are upward of $1 trillion higher per year in total than they would have been absent decades of trade, investment, and immigration liberalization. Looking ahead, annual U.S. income could be upward of $500 billion higher with a move to global free trade and investment in both merchandise and services.
These gains arise through many important channels. Globalization matches savings pools and investment opportunities around the world, it transfers ideas and technology to firms and people everywhere, and it frees countries from needing to produce what they consume. The net result is higher productivity and higher average living standards. A good snapshot of this appears in the words on the back of any iPod: "Designed by Apple in California, Assembled in China."
So what explains the protectionist drift? It is commonly blamed on narrow industry concerns, or a failure to explain globalization's benefits, or the war on terrorism. These explanations miss a more basic point: U.S. policy is becoming more protectionist because the American public is becoming more protectionist, and this shift in attitudes is a result of stagnant or falling incomes. Public support for engagement with the world economy is strongly linked to labor-market performance, and for most workers labor-market performance has recently been poor.
The key issue here is not the number of jobs. The dynamic and flexible American economy continues to create jobs with a very low unemployment rate. Rather, it is incomes. In the last several years, a striking new feature of the U.S. economy has emerged: real (i.e., inflation-adjusted) income growth has been extremely skewed, with relatively few high earners doing well while incomes for most workers have stagnated or, in many cases, fallen. Only 3.4 percent of workers were in educational groups that enjoyed increases in mean real money earnings from 2000 to 2005 (the most recent year of data): mean real money earnings rose for workers with doctorates and for workers with professional graduate degrees (such as MBAs, JDs, and MDs) and fell for all others. In contrast to earlier decades, today it is not just those at the bottom of the skill ladder who are hurting: even college graduates and workers with nonprofessional master's degrees saw their mean real money earnings decline. By many measures, inequality in the United States is greater today than at any time since the 1920s.
The American public is increasingly skeptical about whether globalization benefits them. Today many American workers feel anxious—about change and about weak or nonexistent income growth. These concerns are real, widespread, and legitimate. What role the forces of global engagement have played in this recent poor labor-market performance of most Americans remains an open question. But whatever the answer, in the current political discourse on this question globalization is front and center.
So, what to do? The two most commonly proposed responses—more investment in education and more trade-adjustment assistance for dislocated workers—are very important to pursue. But given the scope of the problem at hand, they alone are nowhere near adequate. Significant payoffs from educational investment will take decades to be realized, and adjustment assistance is too small and too narrowly targeted on specific industries to have much effect.
Truly expanding the political support for open borders will require a significant increase in redistribution that guarantees that globalization's gains are widely shared—a New Deal for globalization. The most promising first piece of this new deal would be to link trade and investment liberalization with building greater progressivity into the Federal Insurance Contributions Act (FICA) payroll tax for social insurance. By virtue of being both a flat rate on a largely capped base (in 2005, a flat 15.3 percent tax on the first $94,200 of gross income for every worker, with then just a 2.9 percent flat tax for the Medicare portion on any gross income beyond), FICA [aka 'payroll tax' -- J] is a regressive tax that tends to reinforce rather than offset the pretax inequality associated with globalization and other forces. And this regressive tax is nearly as big as the progressive income tax is: in fiscal 2005, $760 billion versus $1.1 trillion. FICA taxes should be cut for lower-earning Americans. Cuts could then be paid for by raising the FICA cap, raising FICA tax rates on higher earners, or some combination of the two.
What else might this new deal entail? Combine Unemployment Insurance and the current Trade Adjustment Assistance program into a broadened, integrated adjustment assistance program that offers a menu of features to all displaced workers. Create a federal insurance facility that permits communities to insure their tax base against sudden economic dislocation. Allow individuals to deduct the full cost of education and training expenses from their gross income for tax purposes, even when those expenses are directed at preparation for an entirely new career.
Determining the right scale and structure of all these policies (in particular, tax reform linked to liberalization) would require a thoughtful national discussion among all stakeholders. But this should not obscure the essential idea: to be politically viable, efforts for further trade and investment liberalization will need to be explicitly linked to fundamental reforms of tax and other policies aimed at distributing globalization's aggregate gains more broadly.
I have long been the first person in the room to extol the benefits of globalization. But there are many, many American workers, firms, and communities that are hurt, not helped, by globalization's forces. Left unchecked, today's emerging protectionist drift may end up eliminating the gains from globalization for everybody. Earlier this year, the 20 CEOs of the commercial banks, investment banks, insurers, and investment firms of the Financial Services Forum were polled about threats to global economic growth and their businesses. What threat topped the list of responses? Not Sarbanes-Oxley, or inflation, or the yen carry trade. Protectionism.
We in America face a stark choice: shore up support for an open global system by ensuring that a majority of workers benefit from it, or accept the protectionist drift wherever it may take us. Given the aggregate benefits of open borders, the preferable option is clear. Whether this option is chosen remains perilously unclear.
_______________________________________________Financial services CEOs are love globalization because it means higher profits for them and their companies earned abroad, brought back to the U.S. and kept and concentrated as wealth among a small percentage of the U.S. population. U.S. workers rightly fear globalization because it's exporting higher-paying jobs to Asia.
Slaughter's analysis overlooks that "trade liberalization" can't continue to be a one-way street, whereby the U.S. opens up its markets while China, Japan, India, and the EU maintain significant restrictions on theirs in response. In a world where most countries or economic blocs are relatively protectionist, it is national suicide to pursue unilateral trade liberalization. In that context, the U.S. should not further liberalize trade until formal agreements of reciprocity, like Doha, are made with other major players. So, big government programs to ease workers' pain may help to "sell" globalization in the U.S., but it won't affect the fundamental unfairness of a relatively open, liberal, and developed economy like America's trading with relatively closed, underdeveloped, and opaque economies.
And as Stiglitz writes: "It is no accident that these countries [India, China] that had not fully liberalized their capital markets have done so well. Subsequent research by the IMF has confirmed what every serious study had shown: capital market liberalization brings instability, but not necessarily growth. Of course, Wall Street (whose interests the US Treasury represents) profits from capital market liberalization: they make money as capital flows in, as it flows out, and in the restructuring that occurs in the resulting havoc."
Wednesday, December 5, 2007
Krugman: Making the sub-prime mess
The making of a mess
By Paul Krugman
December 3, 2007 | New York Times
The financial crisis that began late last summer, then took a brief vacation in September and October, is back with a vengeance.
How bad is it? Well, I've never seen financial insiders this spooked - not even during the Asian crisis of 1997-98, when economic dominoes seemed to be falling all around the world.
This time, market players seem truly horrified - because they've suddenly realized that they don't understand the complex financial system they created.
Before I get to that, however, let's talk about what's happening right now.
Credit - lending between market players - is to the financial markets what motor oil is to car engines. The ability to raise cash on short notice, which is what people mean when they talk about "liquidity," is an essential lubricant for the markets, and for the economy as a whole.
But liquidity has been drying up. Some credit markets have effectively closed up shop. Interest rates in other markets - like the London market, in which banks lend to each other - have risen even as interest rates on U.S. government debt, which is still considered safe, have plunged.
"What we are witnessing," says Bill Gross of the bond manager Pimco, "is essentially the breakdown of our modern-day banking system, a complex of leveraged lending so hard to understand that Federal Reserve Chairman Ben Bernanke required a face-to-face refresher course from hedge fund managers in mid-August."
The freezing up of the financial markets will, if it goes on much longer, lead to a severe reduction in overall lending, causing business investment to go the way of home construction - and that will mean a recession, possibly a nasty one.
Behind the disappearance of liquidity lies a collapse of trust: Market players don't want to lend to each other because they're not sure they will be repaid.
In a direct sense, this collapse of trust has been caused by the bursting of the housing bubble. The run-up of home prices made even less sense than the dot-com bubble - I mean, there wasn't even a glamorous new technology to justify claims that old rules no longer applied - but somehow financial markets accepted crazy home prices as the new normal. And when the bubble burst, a lot of investments that were labeled AAA turned out to be junk.
Thus, "super-senior" claims against subprime mortgages - that is, investments that have first dibs on whatever mortgage payments borrowers make, and were therefore supposed to pay off in full even if a sizable fraction of these borrowers defaulted on their debts - have lost a third of their market value since July.
But what has really undermined trust is the fact that nobody knows where the financial toxic waste is buried. Citigroup wasn't supposed to have tens of billions of dollars in subprime exposure; it did. Florida's Local Government Investment Pool, which acts as a bank for the state's school districts, was supposed to be risk-free; it wasn't (and now schools don't have the money to pay teachers).
How did things get so opaque? The answer is "financial innovation" - two words that should, from now on, strike fear into investors' hearts.
O.K., to be fair, some kinds of financial innovation are good. I don't want to go back to the days when checking accounts didn't pay interest and you couldn't withdraw cash on weekends.
But the innovations of recent years - the alphabet soup of CDOs and SIVs, RMBS and ABCP - were sold on false pretenses. They were promoted as ways to spread risk, making investment safer. What they did instead - aside from making their creators a lot of money, which they didn't have to repay when it all went bust - was to spread confusion, luring investors into taking on more risk than they realized.
Why was this allowed to happen? At a deep level, I believe that the problem was ideological: Policy makers, committed to the view that the market is always right, simply ignored the warning signs. We know, in particular, that Alan Greenspan brushed aside warnings from Edward Gramlich, a member of the Federal Reserve Board, about a potential subprime crisis.
And free-market orthodoxy dies hard. Just a few weeks ago Henry Paulson, the Treasury secretary, admitted to Fortune magazine that financial innovation got ahead of regulation - but added, "I don't think we'd want it the other way around." Is that your final answer, Mr. Secretary?
Now, Paulson's new proposal to help borrowers renegotiate their mortgage payments and avoid foreclosure sounds in principle like a good idea (although we have yet to hear any details). Realistically, however, it won't make more than a small dent in the subprime problem.
The bottom line is that policy makers left the financial industry free to innovate - and what it did was to innovate itself, and the rest of us, into a big, nasty mess.
By Paul Krugman
December 3, 2007 | New York Times
The financial crisis that began late last summer, then took a brief vacation in September and October, is back with a vengeance.
How bad is it? Well, I've never seen financial insiders this spooked - not even during the Asian crisis of 1997-98, when economic dominoes seemed to be falling all around the world.
This time, market players seem truly horrified - because they've suddenly realized that they don't understand the complex financial system they created.
Before I get to that, however, let's talk about what's happening right now.
Credit - lending between market players - is to the financial markets what motor oil is to car engines. The ability to raise cash on short notice, which is what people mean when they talk about "liquidity," is an essential lubricant for the markets, and for the economy as a whole.
But liquidity has been drying up. Some credit markets have effectively closed up shop. Interest rates in other markets - like the London market, in which banks lend to each other - have risen even as interest rates on U.S. government debt, which is still considered safe, have plunged.
"What we are witnessing," says Bill Gross of the bond manager Pimco, "is essentially the breakdown of our modern-day banking system, a complex of leveraged lending so hard to understand that Federal Reserve Chairman Ben Bernanke required a face-to-face refresher course from hedge fund managers in mid-August."
The freezing up of the financial markets will, if it goes on much longer, lead to a severe reduction in overall lending, causing business investment to go the way of home construction - and that will mean a recession, possibly a nasty one.
Behind the disappearance of liquidity lies a collapse of trust: Market players don't want to lend to each other because they're not sure they will be repaid.
In a direct sense, this collapse of trust has been caused by the bursting of the housing bubble. The run-up of home prices made even less sense than the dot-com bubble - I mean, there wasn't even a glamorous new technology to justify claims that old rules no longer applied - but somehow financial markets accepted crazy home prices as the new normal. And when the bubble burst, a lot of investments that were labeled AAA turned out to be junk.
Thus, "super-senior" claims against subprime mortgages - that is, investments that have first dibs on whatever mortgage payments borrowers make, and were therefore supposed to pay off in full even if a sizable fraction of these borrowers defaulted on their debts - have lost a third of their market value since July.
But what has really undermined trust is the fact that nobody knows where the financial toxic waste is buried. Citigroup wasn't supposed to have tens of billions of dollars in subprime exposure; it did. Florida's Local Government Investment Pool, which acts as a bank for the state's school districts, was supposed to be risk-free; it wasn't (and now schools don't have the money to pay teachers).
How did things get so opaque? The answer is "financial innovation" - two words that should, from now on, strike fear into investors' hearts.
O.K., to be fair, some kinds of financial innovation are good. I don't want to go back to the days when checking accounts didn't pay interest and you couldn't withdraw cash on weekends.
But the innovations of recent years - the alphabet soup of CDOs and SIVs, RMBS and ABCP - were sold on false pretenses. They were promoted as ways to spread risk, making investment safer. What they did instead - aside from making their creators a lot of money, which they didn't have to repay when it all went bust - was to spread confusion, luring investors into taking on more risk than they realized.
Why was this allowed to happen? At a deep level, I believe that the problem was ideological: Policy makers, committed to the view that the market is always right, simply ignored the warning signs. We know, in particular, that Alan Greenspan brushed aside warnings from Edward Gramlich, a member of the Federal Reserve Board, about a potential subprime crisis.
And free-market orthodoxy dies hard. Just a few weeks ago Henry Paulson, the Treasury secretary, admitted to Fortune magazine that financial innovation got ahead of regulation - but added, "I don't think we'd want it the other way around." Is that your final answer, Mr. Secretary?
Now, Paulson's new proposal to help borrowers renegotiate their mortgage payments and avoid foreclosure sounds in principle like a good idea (although we have yet to hear any details). Realistically, however, it won't make more than a small dent in the subprime problem.
The bottom line is that policy makers left the financial industry free to innovate - and what it did was to innovate itself, and the rest of us, into a big, nasty mess.
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