Wednesday, April 22, 2009

According to an MIT study, cap and trade could cost the average household more than $3,900 per year

Fuzzy Math. By John McCormack
According to an MIT study, cap and trade could cost the average household more than $3,900 per year.
Apr 22, 2009 12:00:00 AM


It's just another inconvenient truth: If Americans want any of the government remedies that would supposedly save a planet allegedly imperiled by global warming, it's going to cost them.

Just how much it will cost them has been a point of contention lately. Many congressional Republicans, including members of the GOP leadership, have claimed that the plan to limit carbon emissions through cap and trade would cost the average household more than $3,100 per year. According to an MIT study, between 2015 and 2050 cap and trade would annually raise an average of $366 billion in revenues (divided by 117 million households equals $3,128 per household, the Republicans reckon).

But on March 24, after interviewing one of the MIT professors who conducted the study on which the GOP relied to produce its estimate, the St. Petersburg Times fact-check unit, Politifact, declared the GOP figure of $3,100 per household was a "Pants on Fire" falsehood. The GOP claim is "just wrong," MIT professor John Reilly told Politifact. "It's wrong in so many ways it's hard to begin."

According to Politifact, Reilly's report included an "estimate of the net cost to individuals" that "would be $215.05 per household. A far cry from $3,128."

Running with Politifact's report, bloggers at Think Progress called the GOP's claim a "deliberate lie," a "myth", and an "outright lie". On April 1, MSNBC's Keith Olbermann said that cap and trade's "average additional cost per family six years from now would be 79 bucks, minus the amount foreign gas prices would drop based on decreased demand, and minus lowered health care costs, because of the cleaner atmosphere. Thirty-one bucks, 3,100 bucks, it's all the
same to Congressman John the mathlete Boehner, today's worst person in the world." On April 8, MSNBC's Rachel Maddow said of the GOP's figure: "No. Pants on fire. The MIT guy says 'no.' That's not what the study says. Not true. You can't say that."


When the Star-Tribune's opinion page editor Eric Ringham was contacted about Bachmann's use of the figure, he apologized for letting her include it in her column. "It wasn't on my radar. I'm embarrassed to have let it go unchallenged," Ringham told Think Progress. "You can rest assured this study is never going to be represented in the paper again . . . without confirmation it's being accurately portrayed."


But, as the saying goes, a lie can make its way halfway around the world while the truth is putting its shoes on. During a lengthy email exchange last week with THE WEEKLY STANDARD, MIT professor John Reilly admitted that his original estimate of cap and trade's cost was inaccurate. The annual cost would be "$800 per household", he wrote. "I made a boneheaded mistake in an excel spread sheet. I have sent a new letter to Republicans correcting my error (and to others)."

While $800 is significantly more than Reilly's original estimate of $215 (not to mention more than Obama's middle-class tax cut), it turns out that Reilly is still low-balling the cost of cap and trade by using some fuzzy logic. In reality, cap and trade could cost the average household more than $3,900 per year.

The $800 paid annually per household is merely the "cost to the economy [that] involves all those actions people have to take to reduce their use of fossil fuels or find ways to use them without releasing [Green House Gases]," Reilly wrote. "So that might involve spending money on insulating your home, or buying a more expensive hybrid vehicle to drive, or electric utilities substituting gas (or wind, nuclear, or solar) instead of coal in power generation, or industry investing in more efficient motors or production processes, etc. with all of these things ending up reflected in the costs of good and services in the economy."

In other words, Reilly estimates that "the amount of tax collected" through companies would equal $3,128 per household--and "Those costs do get passed to consumers and income earners
in one way or another"--but those costs have "nothing to do with the real cost" to the economy. Reilly assumes that the $3,128 will be "returned" to each household. Without that assumption, Reilly wrote, "the cost would then be the Republican estimate [$3,128] plus the cost I estimate [$800]."

In Reilly's view, the $3,128 taken through taxes will be "returned" to each household whether or not the government cuts a $3,128 rebate check to each household.

He wrote in an email:

It is not really a matter of returning it or not, no matter what happens this revenue gets recycled into the economy some way. In that regard, whether the money is specifically returned to households with a check that says "your share of GHG auction revenue", used to cut someone's taxes, used to pay for some government services that provide benefit to the public, or simply used to offset the deficit (therefore meaning lower Government debt and lower taxes sometime in the future when that debt comes due) is largely irrelevant in the calculation of the "average" household. Each of those ways of using the revenue has different implications for specific households but the "average" affect is still the same. [...] The only way that money does not get recycled to the "average" household is if it is spent on something that provides no useful service for anyone--that it is true government waste.

He added later: "I am simply saying that once [the tax funds are] collected they are not worthless, they have value. If the Republicans were to focus on that revenue, and their message was to rally the public to make sure all this money was returned in a check to each household rather than spent on other public services then I would have no problem with their use of our number."

Most Americans probably care a great deal whether they would get to spend that $3,128 themselves or the government spends it on programs to put a chicken in every pot and a Prius in every garage. And the fact is, it's anybody's guess how cap-and-trade revenues would end up being spent. Obama has suggested he would like to use most of cap-and-trade revenues to fund his "making work pay" middle- and lower-class tax credit ($400 per individual and $800 per family per year). Congressional Democrats have left the door open to spending the revenues to "invest in clean energy jobs and cost-saving energy efficient technology," as Rep. Markey's staffers have written.

After corresponding with Reilly, I contacted Politifact's reporter Alexander Lane and editor Bill Adair to ask if they would correct their report that the GOP's estimate of cap and trade's cost is a "pants on fire" falsehood.

Lane wrote in an email: "The detail of my piece that you think needs correcting seems to be in flux...". The "detail" to which he referred was Reilly's admission that the real cost per household would be $800--not $215 per household as Politifact originally reported.

While the discrepancy between these figures was solely Reilly's fault, Politifact's report contained inaccuracies that it should have been able to avoid. Politifact accepted Reilly's logic that the $3,128 collected per household via taxes translates to a net-cost of $0 per household. It reported that "results of a cap-and-trade program, such as increased conservation and more competition from other fuel sources, would put downward pressure on prices," but it didn't make clear that Reilly's estimate of the "real cost"--which didn't include the $3,128 per household--already accounts for these downward pressures. "Moreover," Politifact added, "consumers would get some of the tax back from the government in some form." In fact, Reilly assumed that all--not "some"--of the tax revenue would be returned. Politifact and other news outlets reporting on Reilly's criticism of the GOP's estimate have not made it clear that taxpayers would "get" some or most of this money back through government spending.

When I asked Bill Adair over the phone last week if Politifact would correct its report, he didn't answer the question and ended our conversation by saying: "You're getting me at a really bad time. I would love to talk about this any time tomorrow." Adair did not reply to further inquiries.
On Monday, Politifact won a Pulitzer prize. It has not yet corrected its report.

John McCormack is a deputy online editor at THE WEEKLY STANDARD.

Correction: An earlier version of this article incorrectly reported that Reilly's estimated "real cost" per household was $800 for a family of four. In fact, Reilly calculated this $800 cost for the average-sized American household--2.56 people, the same figure Republicans used in their calculation.

Volunteers for Prosperity Program Authorization Signed into Law

Volunteers for Prosperity Program Authorization Signed into Law
USAID, April 21, 2009

WASHINGTON D.C. - Today President Barack Obama signed into law the Edward M. Kennedy Serve America Act. Included in that legislation was a first-ever legislative authorization for the President to establish the Volunteers for Prosperity (VfP) program in the U.S. Agency for International Development (USAID). The VfP program aims to promote short- and long-term international volunteer service by skilled American professionals to addressing the needs of those living in the poorest areas of the world.

Volunteers for Prosperity was first established on September 25, 2003 by Executive Order 13317. The volunteers, working under the direction of U.S. nonprofits and companies, are deployed to developing countries on flexible, short-term assignments ranging from a few weeks to several months.

When speaking of service today, President Obama said, "All that's required on your part is a willingness to make a difference. That is, after all, the beauty of service. Anyone can do it. You don't need to be a community organizer, or a Senator -- or a Kennedy - or even a President to bring change to people's lives."

"It is an honor to witness the President sign this important piece of legislation into law," said Alonzo Fulgham, USAID Acting Administrator, who joined the President at today's bill signing. "Volunteers for Prosperity allows everyday Americans to make a difference by applying their expertise to pressing challenges overseas. USAID is thrilled to have the President's and Congress' support for continuing this important initiative."

Since 2003, the USAID Volunteers for Prosperity program has developed a network of more than 250 partner organizations of U.S.-based nonprofits and companies that utilize Americans trained in professional specialties as volunteers overseas to share their skills with local communities. Typical VfP volunteers include professionals such as doctors, nurses, engineers, teachers, business executives and IT specialists. Volunteers are generally mid-career professionals with high levels of practical skills and experience who come from and return to active work environments. Since the programs inception, nearly 120,000 American professionals have shared their skills to support USAID's agriculture, economic growth, education, environment, global health, and democracy and governance sectors.

VfP partner organizations manage their own volunteer programs. The prospective volunteer is responsible for contacting the partner organization directly and applying for a volunteer assignment The VfP website is a resource that gives prospective volunteers exposure to VfP partners' international development and volunteer activities. When contacted directly by a prospective volunteer, VfP Office staff assess the prospective volunteer's skills and interests and provides guidance on partner organizations that might be a good match.

In March 2008 the Volunteers for Prosperity Service Incentive Program or "VfPServe" was launched. This is an innovative public-private partnership to help address the financial challenges facing a number of skilled Americans interested in short-term international voluntary service by providing matching grants ranging from $500 to $1000 to offset travel and living costs of volunteering abroad. The grant award process is competitive and a prospective volunteer who applies for a matching grant must have at least three years of professional experience, have identified and contacted a sponsoring U.S. organization, and in collaboration with that organization, developed a service assignment.

To be eligible for a matching grant, the volunteer must raise at least an equal amount of funds from within his/her local community, as well as any additional funds needed to meet the assignment's budget. Fundraising is facilitated through an online platform funded and managed by USAID and implemented through its partner NGO. During the first year of the program applicants requested matching grants totaling approximately $153,000 to help offset roughly $453,000 in total assignment costs which provided services in over 30 countries. The application for the VfPServe grant can be found online at

For more information about the Volunteers for Prosperity program please go to

Conservative about Dennis Blair memo on high-value information of coercive interrogation

Who's Politicizing Intelligence Now?, by Stephen F. Hayes
Obama's intelligence chief admits the value of tough interrogations.
The Weekly Standard, Apr 22, 2009

Admiral Dennis Blair, the top intelligence official in the United States, thanks to his nomination by Barack Obama, believes that the coercive interrogation methods outlawed by his boss produced "high-value information" and gave the U.S. government a "deeper understanding of the al Qaeda organization that was attacking this country." He included those assessments in a letter distributed inside the intelligence community last Thursday, the same day Obama declassified and released portions of Justice Department memos setting out guidelines for those interrogations.

That letter from Blair served as the basis for a public statement that his office put out that same day. But the DNI's conclusions about the results of coercive interrogations--in effect, that they worked--were taken out of Blair's public statement. A spokesman for the DNI told the New York Times that the missing material was cut for reasons of space, though the statement would be posted on DNI's website, where space doesn't seem to be an issue.


There's more. Blair's public statement differed from his letter to colleagues in another way. The letter included this language: "From 2002 through 2006 when the use of these techniques ended, the leadership of the CIA repeatedly reported their activities both to Executive Branch policymakers and to members of Congress, and received permission to continue to use the techniques." Blair's public statement made no mention of the permission granted by "members of Congress"--permission that came from members of Obama's own party.


And then there are the memos themselves. Sections of the memos that describe the
techniques have been declassified and released. But other sections of those same memos--the parts that describe, in some detail, the value of the program--have been redacted and remain hidden from public view.

Marc Thiessen, a speechwriter for George W. Bush, had access to the full memos and read them to prepare a speech for Bush in 2006. When Thiessen looked at the redacted version released by the White House last week, he noticed something strange.

He writes: "But just as the memo begins to describe previously undisclosed details of what enhanced interrogations achieved, the page is almost entirely blacked out. The Obama administration released pages of unredacted classified information on the techniques used to question captured terrorist leaders but pulled out its black marker when it came to the details of what those interrogations achieved."

It's not just those memos. Former Vice President Dick Cheney says he has read other memos that describe the intelligence obtained by using coercive interrogation and that demonstrate its value. He has asked for them to be declassified and made public.

It is possible, I suppose, that a series of fortunate coincidences has resulted in the public disclosure of only that information that will be politically helpful to the Obama administration. It is also possible that Dick Cheney has taken up synchronized swimming in his retirement.

It wouldn't be the first time the Obama administration has politicized intelligence. Back in the early days of the administration, the New Yorker's Jane Mayer wrote an article about Obama's decision to ban some of these interrogation techniques. She spoke with White House counsel Greg Craig, who described the deliberations.

Across the Potomac River, at the C.I.A.'s headquarters, in Langley, Virginia, however, there was considerably less jubilation. Top C.I.A. officials have argued for years that so-called "enhanced" interrogation techniques have yielded lifesaving intelligence breakthroughs. "They disagree in some respect," Craig admitted. Among the hard questions that Obama left open, in fact, is whether the C.I.A. will have to follow the same interrogation rules as the military. While the President has clearly put an end to cruel tactics, Craig said that Obama "is somewhat sympathetic to the spies' argument that their mission and circumstances are different."

Despite such sentiments, Obama's executive orders will undoubtedly rein in the C.I.A. Waterboarding, for instance, has gone the way of the rack, now that the C.I.A. is strictly bound by customary interpretations of the Geneva Conventions. This decision, too, was the result of intense deliberation. During the transition period, unknown to the public, Obama's legal, intelligence, and national-security advisers visited Langley for two long sessions with current and former intelligence-community members. They debated whether a ban on brutal interrogation practices would hurt their ability to gather intelligence, and the advisers asked the intelligence veterans to prepare a cost-benefit analysis. The conclusions may surprise defenders of harsh interrogation tactics. "There was unanimity among Obama's expert advisers," Craig said, "that to change the practices would not in any material way affect the collection of intelligence."

That's interesting: "top CIA officials have argued for years that so-called 'enhanced' interrogation techniques have yielded lifesaving intelligence breakthroughs," but the team of "expert advisers" from Obama's presidential campaign apparently knows better.

All of this leads to one obvious question: Who needs intelligence professionals when you have campaign advisers?

Stephen F. Hayes, a senior writer at THE WEEKLY STANDARD, is the author of Cheney: The Untold Story of America's Most Powerful and Controversial Vice President (HarperCollins).

Number of Federal Subsidy Programs Tops 1,800

Number of Federal Subsidy Programs Tops 1,800. By Chris Edwards, Director of Tax Policy Studies, Cato Institute
Cato, Apr 22, 2009

Op-Ed by Energy Sec Chu and Labor Sec Solis: Building the American Clean Energy Economy

Op-Ed by Secretary of Energy Steven Chu and Secretary of Labor Hilda Solis: Building the American Clean Energy Economy

To commemorate Earth Day, the op-ed below on green jobs and energy independence by Secretaries Steven Chu and Hilda Solis ran in the following papers yesterday and today:

Austin American-Statesman
Buffalo News
Denver Post
Montgomery Advertiser
Omaha World Herald
Pittsburgh Post-Gazette

Building the American Clean Energy Economy
By Secretary of Energy Steven Chu and Secretary of Labor Hilda Solis

On April 22nd, people across the country and around the world will celebrate Earth Day, a day dedicated to raising awareness about the plight of our natural resources and taking real action to make a difference. For decades, while Americans in towns and cities across the country have worked to make a difference in their communities, politicians in both parties in Washington have ignored the energy crisis, imperiling our economy, our security and our planet. Now, we have a unique and critical opportunity to attack the energy crisis head on and create a comprehensive energy policy that will bolster our economy, end our dependence on foreign oil and reduce the threat of deadly pollution that is devastating our planet.

During his first months in office, President Obama has already taken some important first strides toward those goals as part of the American Recovery and Reinvestment Act. The Recovery Act included billions of dollars to be invested in cities and states across the country to strengthen our clean energy industry and help restore America's place at the forefront of the 21st century global economy.

Recently, we visited the Community College of Allegheny County in Pennsylvania where workers at the facility are being trained for the types of green jobs those Recovery Act dollars are funding. At the community college, these jobs range from the construction and facility upgrades of green buildings to the installation of energy-efficient street lights to conducting energy audits. In a booming clean energy sector, those jobs will range from research and development to skilled labor jobs like weatherizing to floor shifts at wind and solar facilities. And these are jobs that cannot be shipped overseas.

This focus on jump-starting the creation of an American clean energy sector will be the foundation of the president's energy policy. With the depletion of the world's oil reserves and the growing disruption of our climate, the development of clean, renewable sources of energy is the growth industry of the 21st century. Rather than sending billions overseas to pay for these new and developing energy technologies, President Obama believes we should invest those dollars here in American jobs and innovation. By developing a clean energy economy here at home, we will end our dependence on foreign oil and begin to make America truly energy independent. That's not just an economic and environmental imperative, it's also a national security imperative.

As part of this comprehensive policy, we must crack down on the corporations that pollute the water we drink and the air we breathe. Cracking down on these polluters in a real way will mean that we can finally tackle global warming and its potentially catastrophic effects - because ultimately, our approach to energy policy and combating the effects of global warming are two sides of the same coin.

We have an enormous, urgent environmental and economic task ahead of us, and it is one that we have ignored for far too long. If we are going to create clean energy industry jobs in this country, break the stranglehold that foreign oil has on our economy and punish the polluters who are devastating our natural resources, then we've got to be honest about the difficult tasks and tough choices ahead. It's going to mean telling the special interests that their days of dictating energy policy in this country are over. It's going to mean refusing to settle for the status quo and the same ineffective policies that have held us back for over 30 years, created price shocks and fostered energy dependence. This president is committed to tackling these challenges head on to create a clean energy policy that works for all Americans, so that we can pass on to our children and grandchildren not just a stronger economy, but a cleaner planet.

Why don't environmentalists celebrate modern farming on Earth Day?

Yielding to Ideology Over Science. By Ronald Bailey
Why don't environmentalists celebrate modern farming on Earth Day?
Reason, April 21, 2009

One might think that environmentalists would celebrate the accomplishments of modern farming on Earth Day. After all, the biggest way humanity disturbs the natural world is in how we produce food. Agriculture uses up more land and water than any other human activity. To the extent that we want to preserve biodiversity and protect natural areas, boosting agricultural productivity is the most vital thing that we can do.

Since 1960 global crop yields have more than doubled, with the benefit that the area of land devoted to producing food has not increased very much. If farmers were still producing food at 1960 levels of productivity, agriculture would have had to expand from 38 percent of the earth's land to 82 percent to feed the world's current population. This enormous increase in yields is the result of applying more artificial fertilizers, breeding higher yielding crops, a wider use of pesticides and herbicides, and expanding irrigation. More recently, advances in modern biotechnology have also contributed to boosting yields. However, last week, the Union of Concerned Scientists (UCS) released a new report, Failure to Yield: Evaluating the Performance of Genetically Engineered Crops, by its senior scientist Doug Gurian-Sherman that tries to make the case that modern crop biotechnology should be largely abandoned because it has failed to increase agricultural yields.

Failure to Yield begins by noting that, in the United States, 90 percent of soybeans and 63 percent of the corn crop are biotech varieties. Genes have been inserted in these varieties (called transgenic or genetically engineered by the report) to confer pest and herbicide resistance on the crops. The UCS study distinguishes between intrinsic yield, the highest yield possible under ideal conditions, and operational yield, the yield obtainable in the field taking into account factors like pests and environmental stresses. The study then asserts, "No currently available transgenic varieties enhance the intrinsic yield of any crops."

In addition, Gurian-Sherman claims that biotech crops have only marginally increased operational yields for corn (largely through insect resistance traits) and not at all for soybeans in the United States.

First, keep in mind that farmers are not stupid, and especially not poor farmers in developing countries. The UCS report acknowledges that American farmers have widely adopted biotech crops in the past 13 years. Why? "The fact that the herbicide-tolerant soybeans have been so widely adopted suggests that factors such as lower energy costs and convenience of GE soybeans also influence farmer choices." Indeed. Surely saving fossil fuels that emit greenhouse gases should be viewed by a UCS advocacy scientist as an environmental good. And what does Gurian-Sherman mean by "convenience"? Later, he admits that biotech herbicide resistant crops save costs and time for farmers. Herbicide resistance is also a key technology for expanding soil-saving no-till agriculture which, according to a report in 2003, saved 1 billion tons of topsoil from eroding annually. In addition, no-till farming significantly reduces the run-off of fertilizers into streams and rivers.

The UCS report correctly observes, "It is also important to keep in mind where increased food production is most needed—in developing countries, especially in Africa, rather than in the developed world." Which is exactly what is happening with biotech crops in poor countries. Currently, 13.3 million farmers around the world are planting biotech crops. Notably, 90 percent of the world's biotech farmers, that is, 12.3 million, are small and resource-poor farmers in developing countries like China, India, and South Africa. Gurian-Sherman is right that biotech contributions to yields in developed countries are relatively modest. Farmers here already have access and can afford modern agricultural technologies so improvements are going to be at the margins. Nevertheless, it is instructive to compare the rate of increase in corn yields between the biotech-friendly U.S. and biotech-hostile France and Italy over the past ten years. University of Georgia crop scientist Wayne Parrott notes, "In marked contrast to yield increases in the U.S., yields in France and Italy have leveled off."

The yield story is very different in poor countries. For example, a 2006 study found that biotech insect resistant cotton varieties boosted the yields for India's cotton farmers by 45 to 63 percent. Amusingly, some anti-biotech activists counter that these are not really yield increases, merely the prevention of crop losses. Of course, another way to look at it is that these are increases in operational yields. Whether due to yield increase or crop loss prevention, in 2008 this success led to nearly 70 percent of India's cotton fields being planted with biotech varieties. Similarly, biotech insect resistant corn varieties increased yields (or prevented losses) by 24 percent in the Philippines.

The UCS report also declares, "We must not simply produce more food at the expense of clean air, water, soil, and a stable climate, which future generations will also require." Biotech varieties are already helping farmers to achieve those environmental benefits.

Gurian-Sherman notes that crops typically use only 30 to 50 percent of nitrogen fertilizers they receive. Nitrogen fertilizer contributes to water pollution and is the primary source of anthropogenic nitrous oxide, a greenhouse gas that is 300 times more potent than carbon dioxide. Agriculture contributes up to 12 percent of man-made global warming emissions. So one would think that a new biotech variety of rice created by Arcadia Biosciences, which needs 50 to 60 percent less nitrogen fertilizer than conventional varieties, would be welcomed by the UCS. But it isn't. The really good news is that research into transferring this same set of fertilizer-thrifty genes into other crops is moving rapidly forward.

Another promising area of research involves using genetic engineering to transfer the C4 photosynthetic pathway into rice, which currently uses the less efficient C3 pathway. This could boost rice yields tremendously, perhaps as much 50 percent, while reducing water use. In addition, researchers are pursuing all manner of other ways to boost crop production including salt, heat, and drought tolerance, along with viral, fungal, and bacterial disease resistance. All of these biotech techniques could improve crop productivity and thus reduce agriculture's toll on land, water, and air resources.

"To the extent to which groups like UCS have advocated prohibitive and disproportional regulations, they are responsible for the lack of even greater achievements in operational yield and perhaps even in intrinsic yield," notes Parrott. "In fact UCS is on the record as opposing engineered stress tolerance in crops. Such a stance by UCS is untenable and contradictory—yield losses caused by adverse growing conditions defeats the purpose of having a higher intrinsic yield—that is why it is so important to increase operational yield, and increasing operational yield is done with resistance to biotic and abiotic stresses—i.e., adverse growing conditions."
Increasing crop yields to meet humanity's growing demand for healthful food while protecting the natural world will require deploying the full scientific armamentarium. This includes advances in crop breeding, improvements in cultivation practices, the safer deployment of fertilizers, pesticides, and herbicides—and, yes, genetic engineering. It is odd that while the UCS accepts the scientific consensus on man-made global warming, it refuses to accept the scientific consensus on the safety, usefulness, and environmental benefits of biotech crops.

"In the end, after helping prevent scientific advances with genetically modified crops," notes Parrott, "the UCS is not in a good position to be calling genetically modified crops a failure because their scientific advances have not been greater."

Ronald Bailey is Reason magazine's science correspondent. His book Liberation Biology: The Scientific and Moral Case for the Biotech Revolution is now available from Prometheus Books.

A Backdoor Nationalization - The latest Treasury brainstorm will retard a banking recovery

A Backdoor Nationalization. WSJ Editorial
The latest Treasury brainstorm will retard a banking recovery.
WSJ, Apr 21, 2009

Just when you think the political class may have learned something in months of trying to fix the banking system, the ghost of Hank Paulson returns to haunt the Treasury. The latest Beltway blunder -- and it would be a big one -- is the Obama Administration's weekend news leak that it may insist on converting its preferred shares in some of the nation's largest banks into common equity. The stock market promptly tumbled by more than 3.5% yesterday, with J.P. Morgan falling 10% and financial stocks as a group off 9%, as measured by the NYSE Financials index. Note to White House: Sneaky nationalizations aren't any more popular with investors than the straightforward kind.

The occasion for this latest nationalization trial balloon is the looming result of the Treasury's bank strip-tease -- a.k.a. "stress tests." Treasury is worried, with cause, that some of the largest banks lack the capital to ride out future credit losses. Yet Secretary Timothy Geithner and the White House have concluded that they can't risk asking Congress for more bailout cash.

Voila, they propose a preferred-for-common swap, which can conjure up an extra $100 billion in bank tangible common equity, a core measure of bank capital. Not that this really adds any new capital; it merely shifts the deck chairs on bank balance sheets. Why Treasury thinks anyone would find this reassuring is a mystery. The opposite is the more likely result, since it signals that Treasury no longer believes it can tap more public capital to support the financial system if the losses keep building.

Worse, wholesale equity conversion would mean the government owns a larger share of more banks and is more entangled than ever in their operations. Giving Barney Frank more voting power is more likely to induce panic than restore confidence. Simply look at the reluctance of some banks -- notably J.P. Morgan Chase -- to participate in Mr. Geithner's private-public toxic asset sale plan. The plan is rigged so taxpayers assume nearly all the downside risk, but the banks still don't want to play lest Congress they become even more subject to political whim.

A backdoor nationalization also creates more uncertainty, not less, by offering the specter of an even lengthier period of federal control over the banking system. And it creates the fear of even more intrusive government influence over bank lending and the allocation of capital. These fears have only been enhanced by the refusal of Treasury to let more banks repay their Troubled Asset Relief Program (TARP) money.

As it stands, banks and their owners at least know how much they owe Uncle Sam, and those preferred shares represent a distinct and separate tier of bank capital. Once the government is mixed in with the rest of the equity holders, the value of its investments -- and the cost to the banks of buying out the Treasury -- will fluctuate by the day.

Congress is also still trying to advance a mortgage-cramdown bill that would hammer the value of already distressed mortgage-backed securities, and now the Administration is talking up legislation to curb credit-card fees and interest. Both of these bills would damage bank profits, but large government ownership stakes would leave the banks helpless to oppose them. (See Citigroup, 36% owned by the feds and now a pro-cramdown lobbyist.)

We've come to this pass in part because the Obama Administration is afraid to ask Congress for the money for a meaningful bank recapitalization. And it may need that money now in part because Mr. Paulson's Treasury insisted on buying preferred stock in all the big banks instead of looking at each case on its merits. That decision last fall squandered TARP money on banks that probably didn't need it and left the Administration short of funds for banks that really do.

The sounder strategy -- and the one we've recommended for two years -- is to address systemic financial problems the old-fashioned way: bank by bank, through the Federal Deposit Insurance Corp. and a resolution agency with the capacity to hold troubled assets and work them off over time. If the stress tests reveal that some of our largest institutions are insolvent or nearly so, it's then time to seize the bank, sell off assets and recapitalize the remainder. (Meanwhile, the healthier institutions would get a vote of confidence and could attract new private capital.)

Bondholders would take a haircut and shareholders may well be wiped out. But converting preferred shares to equity does nothing to help bondholders in the long run anyway. And putting the taxpayer first in line for any losses alongside equity holders offers shareholders little other than an immediate dilution of their ownership stake. Treasury's equity conversion proposal increases the political risks for banks while imposing no discipline on shareholders, bondholders or management at failed or failing institutions.

The proposal would also be one more example of how Treasury isn't keeping its word. When he forced banks to accept public capital whether they needed it or not, Mr. Paulson said the deal was temporary and the terms wouldn't be onerous. To renege on those promises now will only make a bank recovery longer and more difficult.

WaPo: Will the administration talk to Iran while it persecutes Americans and libels Israel?

Invitation to Appease. WaPo Editorial
Will the Obama administration talk to Iran while it persecutes Americans and libels Israel?Wapo, Wednesday, Apr 22, 2009

LAST WEEK, the Iranian regime brought American journalist Roxana Saberi before a closed court and in a one-hour trial convicted her of espionage -- a blatantly bogus charge. She was sentenced to eight years in prison. On Monday, Iranian President Mahmoud Ahmadinejad, who was last seen inaugurating a new facility for Iran's nuclear program, appeared at the U.N. conference on racism in Geneva to deliver a speech seemingly calculated to cause maximum outrage in the United States and other Western countries. They had, he said, "resorted to military aggression" in order to create Israel "on the pretext of Jewish sufferings and the ambiguous and dubious question of the Holocaust."

Thus has Iran answered President Obama's offer of dialogue and the decision by his administration to join talks on Tehran's nuclear program. To the consternation of some European officials, Washington has insisted on dropping a long-standing demand that Iran obey U.N. resolutions ordering it to suspend uranium enrichment before negotiations begin. Iran could have responded to this concession by releasing Ms. Saberi, who holds U.S. and Iranian citizenship, and ex-FBI agent Robert Levinson, as the administration asked it to do in a State Department letter last month. Instead the charges against Ms. Saberi were ramped up, from practicing journalism without a credential and buying wine, to espionage; the regime does not even admit that it is holding Mr. Levinson.

Then came Mr. Ahmadinejad's speech, which repeated the numerous anti-Israel and anti-Semitic libels that have made the Iranian president a pariah in the West. Western delegates walked out on the address, which the State Department rightly called "vile and hateful." Yet Mr. Ahmadinejad had accomplished his aim: advancing Iran's claim to represent radical Arab and Islamic opinion, along with his own campaign for reelection in June.

Iran watchers point out that Mr. Ahmadinejad has sent other messages recently. He said he would welcome direct talks with Washington, and over the weekend he dispatched a letter to Ms. Saberi's prosecutor urging that she be allowed to defend herself. These are not necessarily contradictions. What Iran is doing is inviting Mr. Obama to humiliate his new administration by launching talks with the regime even while it is conspicuously expanding its nuclear program, campaigning to delegitimize and destroy Israel and imprisoning innocent Americans. Mr. Ahmadinejad's unlikely concern for Ms. Saberi's defense, along with other regime statements suggesting her sentence could be reduced, sound like an offer to make her a bargaining chip -- to be exchanged, perhaps, for members of the Revolutionary Guard Corps who are in U.S. custody in Iraq.

Mr. Obama has always said that talks with Iran must be conducted under the right circumstances and in a way that advances U.S. interests. The administration won't meet that test if it allows negotiations to become a means of vindicating Mr. Ahmadinejad's radical agenda. It should postpone any contact until after the Iranian election in June -- and it should look for clear signs that Iran is acting in good faith before talks begin. The unconditional release of Ms. Saberi and Mr. Levinson would be one.

Firefighters, civil rights law and the politics of race collide at the Supreme Court - New Haven, Conn.

Trouble in the Firehouse. WaPo Editorial
Firefighters, civil rights law and the politics of race collide at the Supreme Court.
WaPo, Wednesday, April 22, 2009

THE CITY of New Haven, Conn., found itself in an untenable position in 2003. The city hired an outside firm to develop written and oral tests for some 130 firefighters vying for promotions to lieutenant and captain. The views of incumbent fire officials in the city and those of a high-ranking official from an out-of-state fire department were solicited to ensure that the test was fair. But when test scores were calculated, none of the 27 African American firefighters who took the test did well enough to be eligible for elevation.

The city called a timeout, saying it needed to determine why the test had produced such a racially lopsided result. Were the scores legitimate, a reflection that white firefighters studied harder or were better prepared for supervisory positions than their black counterparts? Or were the results a product of inadvertent yet unlawful discrimination against minority candidates? Black firefighters threatened to sue the city if it certified the results; white firefighters threatened to sue the city if it did not.

After holding several public hearings, New Haven decided to throw out the results, meaning that no one would be promoted on the basis of the test scores. The white firefighters sued, arguing in federal court that the city's actions violated Title VII of the Civil Rights Act of 1964 as well as the equal protection clause of the U.S. Constitution. The case is scheduled to be heard by the Supreme Court this morning.

Under Title VII, the city was obligated to investigate test results that appeared to have had a disparate impact on a particular group; what it is not permitted to do, however, is to rely solely on race to favor one group over another without a compelling government interest. New Haven did the right thing by putting the promotions on hold while it investigated. What is not clear is whether the city acted properly in ultimately refusing to certify the test results.

A federal district judge threw out the case, and an appeals court panel affirmed that decision in a one-paragraph, unsigned opinion, but these decisions were made without a trial and the kind of extensive fact-finding that often accompanies such a complex matter. The white firefighters assert that the city used civil rights laws as a pretext for a political decision. The city says that politics had nothing to do with its decision. There is not enough evidence in the record to judge.

Before the Supreme Court uses this case to set legal standards for the country and perhaps change how one of the most important civil rights laws is implemented, it should have a fully developed record available. The solicitor general's office offers sound advice: Vacate the appeals court decision and send the matter back to the trial court for it to gather information about what motivated the city's decision.

Libertarian views: Obama and the CIA

Obama and the CIA. WSJ Editorial
WSJ, Apr 22, 2009


President Obama on Monday paid his first formal visit to CIA headquarters, in order, as he put it, to "underscore the importance" of the agency and let its staff "know that you've got my full support." Assuming he means it, the President should immediately declassify all memos concerning what intelligence was gleaned, and what plots foiled, by the interrogations of high-level al Qaeda detainees in the wake of September 11.

This suggestion was first made by former Vice President Dick Cheney, who said he found it "a little bit disturbing" that the Obama Administration had decided to release four Justice Department memos detailing the CIA's interrogation practices while not giving the full picture of what the interrogations yielded in actionable intelligence. Yes, it really is disturbing, especially given the bogus media narrative that has now developed around those memos.

Thus, contrary to the claim that the memos detail "brutal" techniques used by the CIA in its interrogation of detainees (including 9/11 mastermind Khalid Sheikh Mohammed), what they mainly show is the lengths to which the Justice Department went not to cross the line into torture. "Torture is abhorrent both to American law and values and to international norms," wrote then Principal Deputy Assistant Attorney General Steven Bradbury on the very first page of his May 10, 2005 memo. Regarding waterboarding, an August 2002 memo from then Assistant Attorney General (now federal Judge) Jay Bybee stresses that the CIA had informed him that "the procedures will be stopped if deemed medically necessary to prevent severe mental or physical harm."

The memos also give the lie to a leaked 2007 report from the International Committee of the Red Cross (ICRC), based exclusively on the say-so of KSM and other "high-value" detainees, that "an improvised thick collar . . . was placed around their necks and used by their interrogators to slam them against the walls."

As the Bybee memo notes, the "wall" was a "flexible false wall . . . constructed to create a loud sound"; that "it is the individual's shoulder blades that hit the wall"; and that the purpose of the collar was "to help prevent whiplash." If this is torture, the word has lost all meaning.

Meanwhile, this is the third time an ICRC report about U.S. treatment of the detainees has been leaked, in violation of its own longstanding policies and of the agreement by which its representatives are allowed to visit prisoners. The Red Cross appears to have made little or no attempt to investigate whether KSM's claims were exaggerated. The episode shows again that the ICRC has become as much a political, as humanitarian, operation.

Also instructive is the context in which the interrogations took place -- less than a year after the 9/11 attacks. Writing about Abu Zubaydeh, whom the CIA believed "is one of the highest ranking members" of al Qaeda, Mr. Bybee wrote that "the interrogation team is certain that he has additional information that he refuses to divulge. Specifically, he is withholding information regarding terrorist networks in the United States or in Saudi Arabia and information regarding plans to conduct attacks within the United States or against our interests overseas. Zubaydeh has become accustomed to a certain level of treatment and displays no signs of willingness to disclose further information."

In other words, CIA interrogators wanted to use these techniques in 2002 to break a terrorist they believed had information that could potentially save American lives. Rest assured that if the CIA hadn't taken these steps and the U.S. had been hit again, the same people denouncing these memos now would have been demanding another 9/11 Commission to deplore their inaction.

The memos give considerable indication both of the sheer quantity, as well as some of the specifics, of the intelligence gathered through the interrogations. "You have informed us," wrote Mr. Bradbury in the May 30, 2005 memo, "that the interrogation of KSM -- once enhanced techniques were employed -- led to the discovery of a KSM plot, the 'Second Wave,' 'to use East Asian operatives to crash a hijacked airliner into' a building in Los Angeles. You have informed us that information obtained from KSM also led to the capture of . . . Hambali, and the discovery of the Guraba Cell . . . tasked with the execution of the 'Second Wave.'"

All in all, Mr. Bybee added, "the intelligence derived from CIA detainees has resulted in more than 6,000 intelligence reports and, in 2004, accounted for approximately half of CTC's [the CIA's Counterterrorist Center] reporting on al Qaeda."

In a saner world (or at least one that accurately reported on original documents), all of this would be a point of pride for the CIA. It would serve as evidence of the Bush Administration's scrupulousness regarding the life and health of the detainees, and demonstrate how wrong are the claims that harsh interrogations yielded no useful intelligence.

Instead, the release of the memos has unleashed the liberal mob, with renewed calls in Congress for a "truth commission" and even, perhaps, Judge Bybee's impeachment and prosecutions of the other authors. Mr. Obama has hinted that while his Administration won't prosecute CIA officials, it may try to sate the mob by going after Bush officials who wrote the memos.

One major concern here is what Mr. Obama's decision to release these memos says about his own political leadership. He claims that one of his goals as President is to restore more comity to our politics, especially concerning national security. He also knows he needs a CIA willing to take risks to keep the country safe. [...]. And while he is willing to release classified documents about interrogation techniques, Mr. Obama refuses to release documents that more fully discuss their results.

[...]. The risk-averse CIA that so grievously failed in the run-up to 9/11 was a product of a spy culture that still remembered the Church Committee of the 1970s and the Iran-Contra recriminations of the 1980s. Mr. Obama needs to stop this score-settling now, and he can start by promptly releasing the documents that reveal what the CIA learned from its interrogations.

Rebuttal re Erroneous Analysis on Transgenic Insecticidal Crops - Loevei, Lovei

Rebuttal re Erroneous Analysis on Transgenic Insecticidal Crops.
Crop Biotech Update/ISAAA, Apr 17, 2009

An article by Lövei et al. (Transgenic insecticidal crops and natural enemies: a detailed review of laboratory studies, Environmental Entomology 38(2): 293-306 (2009)) purports that insect-protected crops based on the Cry proteins of Bacillus thuringiensis may have substantial negative impacts on non-target organisms.

A group of experts in this area strongly disagreed with this April, 2009 publication and felt that a rapid response was required but, because of production schedules of this bi-monthly journal, it could not accommodate a rapid rebuttal. Thus, A. M. Shelton and 14 colleagues published their Letter to the Editor in Transgenic Research (Setting the Record Straight: A Rebuttal to an Erroneous Analysis on Transgenic Insecticidal Crops and Natural Enemies).

Among the many concerns Shelton and colleagues describe in their rebuttal are the inappropriate and unsound methods for risk assessment that led Lövei et al. to reach conclusions that are in conflict with those of several comprehensive reviews and meta-analyses. Shelton summarized the concerns of the 15 authors by stating, "The Lövei et al. article advocates inappropriate summarization and statistical methods, a negatively biased and incorrect interpretation of the published data on non-target effects, and fails to place any putative effect into a meaningful ecological context." What was also troubling to this international group of 15 experts is the potential for the Lövei et al. article to be accepted at face value and impact some regulatory agencies.

Their rebuttal can be accessed using the following link: The article is open access and freely available to all and is published as DOI: 10.1007/s11248-009-9260-5. It will be published in print form in the June issue of Transgenic Research.

GM Is Becoming a Royal Debacle

GM Is Becoming a Royal Debacle. By Holman W Jenkins, Jr
WSJ, Apr 22, 2009

It's good to be the king -- until you start tripping over your own robe.

So King Barack the Mild is finding as he tries to dictate the terms of what amounts to an out-of-court bankruptcy for Chrysler and GM. He wants Chrysler's secured lenders to give up their right to nearly full recovery in a bankruptcy in return for 15 cents on the dollar. They'd be crazy to do so, of course, except that these banks also happen to be beholden to the administration for TARP money.

Wasn't TARP supposed to be about restoring a healthy banking system? Isn't that a tad inconsistent with banks just voluntarily relinquishing valuable claims on borrowers? Don't ask.

Kingly prerogative also conflicts with kingly prerogative in the case of GM's unsecured creditors, who are the sticking point in agreeing to a turnaround plan by the drop-dead date of June 1. His retainer, Steven Rattner, has delivered word that the king's pleasure is that these unsecured creditors give up 100% of their claims in return for GM stock.

It may also be the king's pleasure, he advised, to convert at some point the government's own $13 billion in bailout loans into GM stock.

There's just one problem: Why on earth would GM's creditors -- who include not just bondholders but the UAW's health-care trust -- want any part of this deal?

They've already seen that the rights and privileges of shareholders are not worth diddly when the king is throwing his prerogatives around. He dispensed with the services of GM chief Rick Wagoner, though the king owned not a single share of GM stock at the time. His minions communicated the king's pleasure that GM consider discontinuing its GMC brand, maker of pickups and SUVs that offendeth the royal eye -- though these vehicles earn GM's fattest profit margins.

His minions haven't asked GM to give up the Chevy Volt, even after determining it will be a profitless black hole, because of the king's fondness for green.

No wonder the king's mediation of 40 years of stalemated labor and business issues in the auto sector isn't going so well. There's a reason royal discretion has long been outmoded as a way to run an economy: Things just work better if a realm's subjects are left to resolve their own disputes and interests through the impersonal mechanism of the markets and the law.

His current bailout strategy amounts to asking thousands of bondholders and GM retirees to buy stock in a GM that the king's own policies mean they'd be loony to buy. Add the fact that passenger cars and trucks in the U.S. are a trivial source of greenhouse gases in any case -- they could all become carbonless and it would be irrelevant in the face of China's and India's coal use. King Barack has only been on his throne for three months. His policies already have devolved into savage incoherence.

But let's face it, the king is also somewhat lacking in the lion-heartedness department.
He's on record saying that the only sensible way to reduce fossil-fuel dependence is to put a price on it, as with cap and trade. Then why not have the courage of his convictions and do away with the proven ineffectualness and perversity of trying to regulate automotive fuel mileage directly?
He could release GM, Chrysler and Ford to make those cars, and only those cars, consumers would reward with profits (including fuel-efficient cars they might suddenly find desirable if Mr. Obama moves ahead with plans to tax carbon emissions).

He wouldn't be foolishly trying to rewrite GM's labor contracts and splitting negotiating hairs with its lenders. GM -- along with Chrysler and Ford -- might not avoid a trip through the bankruptcy courts. But either way, they'd be better able to meet their obligations to creditors, including UAW retirees, if allowed to focus on making cars the public actually wants to buy.
King Barack could take a leaf from St. Jimmy the Simple, who faced a collapse of the railroad industry. He signed the Staggers deregulation law, returning power to the industry itself to decide what services to provide and which customers to chase. What had previously been an industrial basket case, halfway nationalized already, fixed itself almost overnight.

He might consult with the Sage of Omaha, who has become a fan of the rail business. What would make Sir Warren similarly enthused about investing in GM? The answer, we're guessing, is not more cars like the Chevy Volt. The banks get all the attention, but they have the power to earn their way out of trouble. Not GM, the way things are going. St. Warren could do the king a real service by warning him off a path with Detroit that could end up blighting all the years of his reign.

DLC Sows Sustenance for a Rejuvenated Party

Council Sows Sustenance for a Rejuvenated Party.
CQPolitics, April 11, 2009 – 1:07 p.m.

A year after their party got wiped out in the 1984 presidential election, an insurgent group of Southern and Western Democrats mounted a campaign for a centrist agenda to help the party win again. The goal of the Democratic Leadership Council, according to Sam Nunn, the Georgia senator who was one of the founding members, was to “lay a foundation” for a moderate Democrat to run for the White House in 1988 — and to “make it safe for candidates at the state and local level to run as Democrats.”

That’s far from the main order of business for today’s Democrats. After two “wave” elections in a row, the party controls the White House and Congress, and the GOP opposition finds itself in the political wilderness. As a result, the influential DLC is going through the first change in leadership in a quarter century, and with it will come a change in mission. The new goal — according to incoming Chief Executive Officer Bruce Reed, once the chief domestic policy adviser to President Bill Clinton — is to generate policy ideas to help the Democrats stay in power.

“The political mission of the DLC has been largely accomplished,” said Reed, who’s had the group’s No. 2 post since 2001. “Twenty-five years ago, the forgotten middle class had serious doubts about Democrats, and now Democrats are winning the middle class, suburban voters, moderates by handsome margins. Our next challenge is to deliver on that promise and earn those votes for years to come.”

It’s a familiar dilemma in Washington: How can an insurgent group that helped navigate a long-term path to power re-invent itself in a drastically different political landscape? To preserve its market viability, the DLC must now create the same sense of urgency for helping the governing party stay in power as it did for shaking up an ailing party that was losing its grip on power.

An Ideas Factory

When founder Al From announced his retirement last month, news reports almost doubled as obituary notices for the organization, with only the vaguest hints of what it might do in the future. Since then, it’s developed a two-page prospectus describing a “new Democratic Leadership Council” that plans to promote its ideas by publishing reports, proposing new policies and organizing forums.

“For the first time,” the new mission statement says, “our entire efforts in Washington will be devoted not to politics but to making ideas and reforms happen.” It promises to work on a wide range of domestic policies, from traditional Democratic interests such as education, health care, energy and retirement security to more centrist priorities such as free trade, national service, fiscal discipline and a “post-partisan” plan to rewrite the tax code.

Or, as Reed put it: “I think it’s fair to say that our goal is to push the envelope, get things done, and be both practical and, if necessary, wonky.”

Yet there are other think tanks that offer ideas to the Democrats these days — including the DLC’s own partner organization, the centrist Progressive Policy Institute, which was also launched by From. There’s the Center for American Progress (CAP), a more traditionally liberal think tank run by former Clinton Chief of Staff John D. Podesta that has been supplying ideas and aides to President Obama. Compared with Podesta’s outfit, the DLC is a bare-bones operation, with a budget of $6 million last year and fewer than two dozen staff members, including part-time employees and visiting fellows. CAP, by contrast, has a budget of more than $20 million and employs roughly 200 staff members and fellows.

If that wasn’t competition enough, there’s Third Way, created four years ago to provide policy and messaging advice to centrist Democrats. It started as a small shop as well, but it is expanding this year, aiming for a staff of 25 and a budget of $5 million. Third Way has seized on the DLC’s leadership turnover as a chance to dominate the market for Democratic centrist ideas.
Jonathan Cowan, the group’s president, calls From and Reed “brilliant innovators” who created a marketplace in Democratic politics that didn’t exist before. But “as in all movements, you see generational changes,” Cowan said. “Third Way is now emerging as the next generation of leadership for the progressive movement.”

The Emanuel Factor

The DLC’s trump card over the next few years, however, will be the close relationship Reed has with Rahm Emanuel , the White House chief of staff and a committed centrist with a policy wonk’s appetite for new ideas. The two worked together in the Clinton White House and in 2006 co-wrote “The Plan,” a book-length roster of policy suggestions for Democrats.

Their ideas — which included three months of national service for all young adults, expanded access to college and broader health coverage for children — are generally in line with the agenda Obama is pursuing now, such as the AmeriCorps expansion he is about to sign into law.
Emanuel and Reed still talk frequently, so it’s safe to assume that whatever ideas the DLC generates under Reed will have the White House’s ear. “Rahm and I wrote a whole book of ideas that we’re deeply committed to, and he still keeps asking for more,” Reed said.

Reed shows no interest in fighting with Third Way and other think tanks for dominance of the Democratic ideas field. “We’re not trying to be the biggest think tank in town,” he said. “We’re not interested in telling Democrats how to win elections. We’ll leave the debate about message to others. We want to roll up our sleeves and focus on ideas and how to help the new administration succeed in its top priorities.”

But occupying that role is a tricky balancing act: The DLC will have to rebrand itself as an ideas shop without simultaneously letting itself get overshadowed by the newer organizations staking out the same territory. Some policy insiders already are sounding skeptical about the prospects for the new approach. “I have a hard time envisioning what their comparative advantage might be,” said Thomas Mann of the Brookings Institution — though he said he respects Reed and hasn’t seen his plans for the group. Others, though, say there’s no such thing as too many ideas factories for the Democrats. “My feeling on this is sort of, ‘Let a thousand flowers bloom,’ “ said Democratic strategist Peter Fenn.

Reed’s own career and policy interests offer some clues to how he’ll navigate the group through the challenges ahead. As director of the Domestic Policy Council, he oversaw a small shop of policy experts who helped design Clinton’s approach to welfare, crime, education and other domestic issues. The new DLC also aspires to be a small policy shop generating ideas to help the White House govern — but, this time, from the outside.

A Bluer Shade of Purple

Although the DLC, as a nonprofit, can’t endorse candidates, Obama was never the Democratic presidential candidate who seemed closest to the organization. That honor belonged to Hillary Rodham Clinton — Obama’s former rival and now secretary of State — who chaired the DLC’s “American Dream Initiative,” which developed a 2006 agenda to improve the middle-class safety net and cut wasteful spending. The role was hardly surprising, given both Clintons’ longtime relationship with the DLC: Bill Clinton chaired the organization before his 1992 election as president, and the group supplied him with many of the centrist ideas he brought into the White House.

Reed said he’s pinning some of his hopes for the group’s future on Obama’s promise to break through the constraints of partisan politics. The notion that Obama might be receptive to the DLC’s ideas gained strength recently after the president told members of the House’s New Democrat Coalition that he considered himself one of them. “He said, ‘Listen, I feel comfortable with you guys because I consider myself a New Democrat,’” said Ron Kind of Wisconsin, one of the lawmakers at the meeting.

The new DLC has already struck a distinctly bipartisan note with a report Reed co-authored with John Bridgeland, who headed President George W. Bush ’s Domestic Policy Council, on the economic downturn’s impact on nonprofits and how to help them weather the crisis. The organization is already planning to reach into state and local politics by expanding a DLC fellows program that identifies promising state legislators, mayors and county officials and brings them to Washington for policy retreats.

On a broader level, though, the group will face the same tension affecting the entire party: the sense among liberals that “their ship has come in,” as Kind puts it — and that, as a result, the need for moderation and compromise in Democratic politics has passed. But Democrats only have that majority because they’re holding on to seats that could easily return to Republican hands. In the House, for example, 49 districts that elected Democrats were carried by Republican John McCain at the top of the presidential ticket in 2008.

So if Democrats want to stay in power, Reed said, there is a vital need for think tanks that can help the party generate ideas and make sure they work. “Nobody who comes from a purple state or a purple district thinks we’ve locked those up for time immemorial,” Reed said. “And most Democrats understand that we won in part because the other side’s ideas didn’t work. So it’s that much more important for Democrats to learn that lesson and make sure our ideas do.” Now, the DLC just has to convince Democrats that the new mission is as urgent as the old one.