Cash for Tanners. WSJ Editorial
A new subsidy for hitting the beach.WSJ, Apr 23, 2010
Liberté, égalité, St. Tropez. That could be the motto of the European Union's "social tourism" project, which advocates subsidized holidays for the underprivileged. According to European Commissioner Antonio Tajani, visiting foreign countries is a "right," and one that could soon be financed by EU taxpayers. This gives a whole new meaning to the concept of "paid vacation."
The EU last year launched a €1 million project to promote social tourism throughout the Continent. The program, which goes by the slight misnomer Calypso—the lonely nymph from Greek mythology was famously confined to an island—seeks, among other things, to identify and promote measures governments have already taken to help the needy to go on holiday. Calypso specifically targets the disabled, poor families, senior citizens and "youth," a group that in geriatric Europe includes people up to 30 years of age.
Cash for tanners is also being touted as good economic policy. At a "Calypso Awareness Building Meeting" in October, the main theme was "Social Tourism: An Opportunity to Overcome the Crisis?" The conference highlighted the example of the Spanish government, which already helps more than one million senior citizens go on organized trips at a cost of €75 million. Thanks to the VAT and other taxes, Madrid claims it's getting back €1.70 for every euro spent.
It probably didn't occur to the sages in Spain that without the subsidies, the seniors would have either still gone on vacation, spent the money on other goods or services or saved it, which would have made it available for other investors. The subsidies merely directed spending to a politically favored purpose without creating additional wealth.
At an EU meeting last week, Spanish Tourism Minister Miguel Sebastian said tourism "should be an asset all citizens can enjoy, in particular those with physical disabilities or financially disadvantaged." With 19% unemployment and rising, Madrid will no doubt have ample demand for its new growth industry. And given the European policy arc in Congress, look for vacation subsidies here too.
Showing posts with label political corruption. Show all posts
Showing posts with label political corruption. Show all posts
Thursday, April 22, 2010
Sunday, February 28, 2010
Why Financial Reform Is Stalled - Partisan gridlock is not the reason. The administration's plans are flawed, and they're encountering resistance from both sides of the aisle in Congress
Why Financial Reform Is Stalled. BY PETER J. WALLISON
Partisan gridlock is not the reason. The administration's plans are flawed, and they're encountering resistance from both sides of the aisle in Congress.WSJ, Mar 01, 2010
According to the media's narrative about Washington, the Obama administration's financial regulation proposals have not gotten through Congress because the town is gridlocked by partisan warfare. It's a simplistic story that does not require much thought to generate or accept.
Here's a better explanation: The proposals are not grounded in a valid explanation of what caused the financial crisis, reflect the same impulse to control a sector of the economy that underlies its health-care and cap-and-trade proposals, and more than anything else reflect Rahm Emanuel's iconic motto for all statists that a good crisis should never go to waste.
The administration appears to have begun its regulatory reform effort with the idea propagated by candidate Barack Obama that the financial crisis was caused by deregulation. There was never any evidence for this. The banks, which were in the most trouble, are the most heavily regulated sector of the economy and their regulation has only gotten tighter since the 1930s.
Since its proposals first met with congressional opposition, the administration has been impervious to contrary evidence, and to this day it continues to lunge for ideas that will further government control of the financial system without giving them serious thought. So we have the spectacle of Paul Volcker, having recently persuaded Mr. Obama to back the idea of restricting proprietary trading by banks or bank holding companies, telling a puzzled Senate Banking Committee he can't really define proprietary trading but knows it when he sees it. Didn't anyone in the White House ask him what it was before the president moved to restrict it?
So it goes with the rest of the administration's plan. More power to Washington, but neither a persuasive analysis of why that additional control was necessary nor a recognition of the fairly obvious consequences.
For example, the central element of the administration's reforms was to give more power to the Federal Reserve. That agency was to become the regulator of all large nonbank financial companies deemed likely to cause a systemic breakdown if they fail. These companies—securities firms, hedge funds, finance companies, insurers, bank holding companies and even the financing arms of operating companies—were to be regulated like banks.
It didn't take long for both Democrats and Republicans in Congress to see the flaws in this scheme. The Fed had been regulating the largest banks and bank holding companies for over 50 years—among the very companies that would be considered systemically important—yet it failed to see the risks they were taking or the impending danger.
How, then, did it make sense to give the Fed the vast additional power to regulate all the largest nonbank financial companies? Wouldn't designating particular companies as "systemically important," and subjecting them to special Fed regulation, signal to the markets that these companies were too big to fail? How was that a solution to the too-big-to-fail problem? And wouldn't these big companies—designated as too big to fail—then have the same preferred access to credit that enabled government-sponsored enterprises Fannie Mae and Freddie Mac to drive all competition from their market?
Then there is the proposal to give a government agency the authority to take over and "resolve" failing financial firms. Here, the administration has pointed to the chaos that followed the bankruptcy of Lehman Brothers in September 2008. To prevent that kind of breakdown, the administration says all large and "interconnected" financial firms in crisis should be dealt with by a government agency, rather than by a judge in bankruptcy proceedings.
The term "interconnected" is important here. It implies that when one large firm fails it will carry others down with it, causing a systemic crisis. But that is clearly not the lesson of Lehman. Although the company went suddenly and shockingly into bankruptcy, none of its large financial counterparties failed. The systemic significance of "interconnectedness" proved to be a myth.
To be sure, there was a freeze-up in lending after Lehman. But that episode demonstrated the power of moral hazard—the tendency of government action to distort private decision-making. After Bear Stearns was rescued by the Fed in March 2008, market participants assumed that all companies larger than Bear would be rescued in the future. As a result, they did not take the steps to protect themselves against counterparty failure that would have been prudent in a panicky market. When Lehman was not rescued, all market participants immediately had to review the credit standing of their counterparties. No wonder lending temporarily froze.
The same failure to understand the power of moral hazard is what makes the administration's call for a resolution authority most inapt and troubling. Although the administration has argued, and some in Congress believe, that moral hazard and too-big-to-fail would be curbed by a resolution authority, the opposite is true. Both would be enhanced.
This is because the principal danger of moral hazard—the key to its adverse effects on private decision-making—is its impact on creditors and counterparties. The fact that shareholders and managements will lose everything in a government resolution is largely irrelevant. What really matters are the lessons creditors draw about how they will be treated. And it is clear creditors will be treated far more favorably in a government resolution process than in a bankruptcy.
To understand why this is true, consider the administration's reasons for preferring a government resolution process. The claim is that large, interconnected firms will drag down others when they fail. The remedy for this is to make sure their creditors and counterparties are fully paid when the takeover occurs. That's why the Fed made Goldman Sachs and others whole when it rescued the insurance giant AIG. It's also what distinguishes a government resolution process from a bankruptcy, where a stay is imposed on most payments to creditors when the bankruptcy petition is filed.
Creditors will realize that by lending to large companies that might be taken over and resolved by the government, their chances of being fully paid are better than if they lend to others that might not. Thus a resolution authority will enhance moral hazard not reduce it—and as creditors increasingly assume that large firms will be rescued, the too-big-to-fail phenomenon will grow, not decline. In the end, a resolution authority becomes, in effect, a permanent Troubled Asset Relief Program.
The image of partisan gridlock standing in the way of sensible financial regulation is wildly misleading. Twenty-seven Democrats in the House voted against the Barney Frank bill that mostly mirrored the administration plan. Democrats and Republicans in the Senate Banking Committee revolted against the first bill offered by Chairman Chris Dodd. That bill adopted most of the administration's flawed ideas.
Now Mr. Dodd is trying to negotiate a Plan B. But the longer he channels the White House, the longer it will take to get a bill that both Democrats and Republicans can support.
Mr. Wallison is a senior fellow at the American Enterprise Institute.
Partisan gridlock is not the reason. The administration's plans are flawed, and they're encountering resistance from both sides of the aisle in Congress.WSJ, Mar 01, 2010
According to the media's narrative about Washington, the Obama administration's financial regulation proposals have not gotten through Congress because the town is gridlocked by partisan warfare. It's a simplistic story that does not require much thought to generate or accept.
Here's a better explanation: The proposals are not grounded in a valid explanation of what caused the financial crisis, reflect the same impulse to control a sector of the economy that underlies its health-care and cap-and-trade proposals, and more than anything else reflect Rahm Emanuel's iconic motto for all statists that a good crisis should never go to waste.
The administration appears to have begun its regulatory reform effort with the idea propagated by candidate Barack Obama that the financial crisis was caused by deregulation. There was never any evidence for this. The banks, which were in the most trouble, are the most heavily regulated sector of the economy and their regulation has only gotten tighter since the 1930s.
Since its proposals first met with congressional opposition, the administration has been impervious to contrary evidence, and to this day it continues to lunge for ideas that will further government control of the financial system without giving them serious thought. So we have the spectacle of Paul Volcker, having recently persuaded Mr. Obama to back the idea of restricting proprietary trading by banks or bank holding companies, telling a puzzled Senate Banking Committee he can't really define proprietary trading but knows it when he sees it. Didn't anyone in the White House ask him what it was before the president moved to restrict it?
So it goes with the rest of the administration's plan. More power to Washington, but neither a persuasive analysis of why that additional control was necessary nor a recognition of the fairly obvious consequences.
For example, the central element of the administration's reforms was to give more power to the Federal Reserve. That agency was to become the regulator of all large nonbank financial companies deemed likely to cause a systemic breakdown if they fail. These companies—securities firms, hedge funds, finance companies, insurers, bank holding companies and even the financing arms of operating companies—were to be regulated like banks.
It didn't take long for both Democrats and Republicans in Congress to see the flaws in this scheme. The Fed had been regulating the largest banks and bank holding companies for over 50 years—among the very companies that would be considered systemically important—yet it failed to see the risks they were taking or the impending danger.
How, then, did it make sense to give the Fed the vast additional power to regulate all the largest nonbank financial companies? Wouldn't designating particular companies as "systemically important," and subjecting them to special Fed regulation, signal to the markets that these companies were too big to fail? How was that a solution to the too-big-to-fail problem? And wouldn't these big companies—designated as too big to fail—then have the same preferred access to credit that enabled government-sponsored enterprises Fannie Mae and Freddie Mac to drive all competition from their market?
Then there is the proposal to give a government agency the authority to take over and "resolve" failing financial firms. Here, the administration has pointed to the chaos that followed the bankruptcy of Lehman Brothers in September 2008. To prevent that kind of breakdown, the administration says all large and "interconnected" financial firms in crisis should be dealt with by a government agency, rather than by a judge in bankruptcy proceedings.
The term "interconnected" is important here. It implies that when one large firm fails it will carry others down with it, causing a systemic crisis. But that is clearly not the lesson of Lehman. Although the company went suddenly and shockingly into bankruptcy, none of its large financial counterparties failed. The systemic significance of "interconnectedness" proved to be a myth.
To be sure, there was a freeze-up in lending after Lehman. But that episode demonstrated the power of moral hazard—the tendency of government action to distort private decision-making. After Bear Stearns was rescued by the Fed in March 2008, market participants assumed that all companies larger than Bear would be rescued in the future. As a result, they did not take the steps to protect themselves against counterparty failure that would have been prudent in a panicky market. When Lehman was not rescued, all market participants immediately had to review the credit standing of their counterparties. No wonder lending temporarily froze.
The same failure to understand the power of moral hazard is what makes the administration's call for a resolution authority most inapt and troubling. Although the administration has argued, and some in Congress believe, that moral hazard and too-big-to-fail would be curbed by a resolution authority, the opposite is true. Both would be enhanced.
This is because the principal danger of moral hazard—the key to its adverse effects on private decision-making—is its impact on creditors and counterparties. The fact that shareholders and managements will lose everything in a government resolution is largely irrelevant. What really matters are the lessons creditors draw about how they will be treated. And it is clear creditors will be treated far more favorably in a government resolution process than in a bankruptcy.
To understand why this is true, consider the administration's reasons for preferring a government resolution process. The claim is that large, interconnected firms will drag down others when they fail. The remedy for this is to make sure their creditors and counterparties are fully paid when the takeover occurs. That's why the Fed made Goldman Sachs and others whole when it rescued the insurance giant AIG. It's also what distinguishes a government resolution process from a bankruptcy, where a stay is imposed on most payments to creditors when the bankruptcy petition is filed.
Creditors will realize that by lending to large companies that might be taken over and resolved by the government, their chances of being fully paid are better than if they lend to others that might not. Thus a resolution authority will enhance moral hazard not reduce it—and as creditors increasingly assume that large firms will be rescued, the too-big-to-fail phenomenon will grow, not decline. In the end, a resolution authority becomes, in effect, a permanent Troubled Asset Relief Program.
The image of partisan gridlock standing in the way of sensible financial regulation is wildly misleading. Twenty-seven Democrats in the House voted against the Barney Frank bill that mostly mirrored the administration plan. Democrats and Republicans in the Senate Banking Committee revolted against the first bill offered by Chairman Chris Dodd. That bill adopted most of the administration's flawed ideas.
Now Mr. Dodd is trying to negotiate a Plan B. But the longer he channels the White House, the longer it will take to get a bill that both Democrats and Republicans can support.
Mr. Wallison is a senior fellow at the American Enterprise Institute.
Thursday, January 14, 2010
Don't Shoot the Pollster - Attacks on Scott Rasmussen and Fox News show a disturbing attitude toward dissent
Don't Shoot the Pollster. By PATRICK CADDELL AND DOUGLAS E. SCHOEN
Attacks on Scott Rasmussen and Fox News show a disturbing attitude toward dissent.
WSJ, Jan 15, 2010
Polling is both an art and a science, but recently it's also become a subject of political intimidation.
One shot was fired by White House Press Secretary Robert Gibbs on Dec. 8, when he dismissed Gallup's daily tracking of President Obama's job approval. It had hit a record low of 47%, and Mr. Gibbs called the results meaningless:
"If I was a heart patient and Gallup was my EKG I'd visit my doctor. If you look back I think five days ago. . . there was an 11 point spread, now there's a one point spread. . . I'm sure a six-year-old with a crayon could do something not unlike that. I don't put a lot of stake in, never have, in the EKG that is the daily Gallup trend. I don't pay a lot of attention to meaninglessness."
Polling is a science because it requires a range of sampling techniques to be used to select a sample. It is an art because constructing a sample and asking questions is something that requires skill, experience and intellectual integrity. The possibility of manipulation—or, indeed, intimidation—is great.
A recent case in point is what has happened to Scott Rasmussen, an independent pollster we both work with, who has an unchallenged record for both integrity and accuracy. Mr. Rasmussen correctly predicted the 2004 and 2008 presidential races within a percent, and accurately called the vast majority of contested Senate races in 2004 and 2006. His work has sometimes been of concern for Republicans, particularly when they were losing congressional seats in 2004 and 2006.
Most recently, Mr. Rasmussen has been the leader in chronicling the decline in the public's support for President Obama. And so he has been the target of increasingly virulent attacks from left-wing bloggers seeking to undermine his credibility, and thus muffle his findings. A Politico piece, "Low Favorables: Democrats Rip Rasmussen," reported on the attacks from blogs like the Daily Kos, Swing State Project, and Media Matters.
"Rasmussen Caught With Their Thumb on the Scale," cried the Daily Kos last summer. "Rasmussen Reports, You Decide," the blog Swing State Project headlined not long ago in a play on the Fox News motto.
"I don't think there are Republican polling firms that get as good a result as Rasmussen does," Eric Boehlert, a senior fellow with the progressive research outfit Media Matters, said in a Jan. 2 Politico article. "His data looks like it all comes out of the RNC."
Liberals have also noted that Rasmussen's daily presidential tracking polls have consistently placed Mr. Obama's approval numbers around five percentage points lower than other polling outfits throughout the year. This is because Rasmussen surveys likely voters, who are now more Republican in orientation than the overall electorate. (Gallup and other pollsters survey the entire adult population.) On other key issues like health care, Rasmussen's numbers have been echoed by everyone else.
Mr. Rasmussen, who is avowedly not part of the Beltway crowd in Washington, has been willing to take on issues like ethics and corruption in ways no other pollsters have been able to do. He was also one of the first pollsters to stress people's real fear of the growing size of government, the size of the deficit, and the concern about spending at a time when these issues were not really on Washington's radar screen.
The reaction against him has been strident and harsh. He's been called an adjunct of the Republican Party when in fact he has never worked for any political party. Nor has he consulted with any candidates seeking elective office.
The attacks on Rasmussen and Gallup follow an effort by the White House to wage war on Fox News and to brand it, as former White House Director of Communications Anita Dunn did, as "not a real news organization." The move backfired; in time, other news organizations rallied around Fox News. But the message was clear: criticize the White House at your peril.
As pollsters for two Democratic presidents who served before Barack Obama, we view this unprecedented attempt to silence the media and to attack the credibility of unpopular polling as chilling to the free exercise of democracy.
This is more than just inside baseball. As practicing political consultants, both of us have seen that the established parties try to stifle dissent among their political advisers and consultants. The parties go out of their way to try to determine in advance what questions will be asked and what answers will be obtained to reinforce existing party messages. The thing most feared is independence, which is what Mr. Rasmussen brings.
Mr. Gibbs's comments and the recent attempts by the Democratic left to muzzle Scott Rasmussen reflect a disturbing trend in our politics: a tendency to try to stifle legitimate feedback about political concerns—particularly if the feedback is negative to the incumbent administration.
Mr. Caddell served as a pollster for President Jimmy Carter. Mr. Schoen, who served as a pollster for President Bill Clinton, is the author of "The Political Fix" just out from Henry Holt.
Attacks on Scott Rasmussen and Fox News show a disturbing attitude toward dissent.
WSJ, Jan 15, 2010
Polling is both an art and a science, but recently it's also become a subject of political intimidation.
One shot was fired by White House Press Secretary Robert Gibbs on Dec. 8, when he dismissed Gallup's daily tracking of President Obama's job approval. It had hit a record low of 47%, and Mr. Gibbs called the results meaningless:
"If I was a heart patient and Gallup was my EKG I'd visit my doctor. If you look back I think five days ago. . . there was an 11 point spread, now there's a one point spread. . . I'm sure a six-year-old with a crayon could do something not unlike that. I don't put a lot of stake in, never have, in the EKG that is the daily Gallup trend. I don't pay a lot of attention to meaninglessness."
Polling is a science because it requires a range of sampling techniques to be used to select a sample. It is an art because constructing a sample and asking questions is something that requires skill, experience and intellectual integrity. The possibility of manipulation—or, indeed, intimidation—is great.
A recent case in point is what has happened to Scott Rasmussen, an independent pollster we both work with, who has an unchallenged record for both integrity and accuracy. Mr. Rasmussen correctly predicted the 2004 and 2008 presidential races within a percent, and accurately called the vast majority of contested Senate races in 2004 and 2006. His work has sometimes been of concern for Republicans, particularly when they were losing congressional seats in 2004 and 2006.
Most recently, Mr. Rasmussen has been the leader in chronicling the decline in the public's support for President Obama. And so he has been the target of increasingly virulent attacks from left-wing bloggers seeking to undermine his credibility, and thus muffle his findings. A Politico piece, "Low Favorables: Democrats Rip Rasmussen," reported on the attacks from blogs like the Daily Kos, Swing State Project, and Media Matters.
"Rasmussen Caught With Their Thumb on the Scale," cried the Daily Kos last summer. "Rasmussen Reports, You Decide," the blog Swing State Project headlined not long ago in a play on the Fox News motto.
"I don't think there are Republican polling firms that get as good a result as Rasmussen does," Eric Boehlert, a senior fellow with the progressive research outfit Media Matters, said in a Jan. 2 Politico article. "His data looks like it all comes out of the RNC."
Liberals have also noted that Rasmussen's daily presidential tracking polls have consistently placed Mr. Obama's approval numbers around five percentage points lower than other polling outfits throughout the year. This is because Rasmussen surveys likely voters, who are now more Republican in orientation than the overall electorate. (Gallup and other pollsters survey the entire adult population.) On other key issues like health care, Rasmussen's numbers have been echoed by everyone else.
Mr. Rasmussen, who is avowedly not part of the Beltway crowd in Washington, has been willing to take on issues like ethics and corruption in ways no other pollsters have been able to do. He was also one of the first pollsters to stress people's real fear of the growing size of government, the size of the deficit, and the concern about spending at a time when these issues were not really on Washington's radar screen.
The reaction against him has been strident and harsh. He's been called an adjunct of the Republican Party when in fact he has never worked for any political party. Nor has he consulted with any candidates seeking elective office.
The attacks on Rasmussen and Gallup follow an effort by the White House to wage war on Fox News and to brand it, as former White House Director of Communications Anita Dunn did, as "not a real news organization." The move backfired; in time, other news organizations rallied around Fox News. But the message was clear: criticize the White House at your peril.
As pollsters for two Democratic presidents who served before Barack Obama, we view this unprecedented attempt to silence the media and to attack the credibility of unpopular polling as chilling to the free exercise of democracy.
This is more than just inside baseball. As practicing political consultants, both of us have seen that the established parties try to stifle dissent among their political advisers and consultants. The parties go out of their way to try to determine in advance what questions will be asked and what answers will be obtained to reinforce existing party messages. The thing most feared is independence, which is what Mr. Rasmussen brings.
Mr. Gibbs's comments and the recent attempts by the Democratic left to muzzle Scott Rasmussen reflect a disturbing trend in our politics: a tendency to try to stifle legitimate feedback about political concerns—particularly if the feedback is negative to the incumbent administration.
Mr. Caddell served as a pollster for President Jimmy Carter. Mr. Schoen, who served as a pollster for President Bill Clinton, is the author of "The Political Fix" just out from Henry Holt.
Don't Like the Numbers? Change 'Em
Don't Like the Numbers? Change 'Em. By MICHAEL J. BOSKIN
If a CEO issued the kind of distorted figures put out by politicians and scientists, he'd wind up in prison.
WSJ, Jan 14, 2010
Politicians and scientists who don't like what their data show lately have simply taken to changing the numbers. They believe that their end—socialism, global climate regulation, health-care legislation, repudiating debt commitments, la gloire française—justifies throwing out even minimum standards of accuracy. It appears that no numbers are immune: not GDP, not inflation, not budget, not job or cost estimates, and certainly not temperature. A CEO or CFO issuing such massaged numbers would land in jail.
The late economist Paul Samuelson called the national income accounts that measure real GDP and inflation "one of the greatest achievements of the twentieth century." Yet politicians from Europe to South America are now clamoring for alternatives that make them look better.
A commission appointed by French President Nicolas Sarkozy suggests heavily weighting "stability" indicators such as "security" and "equality" when calculating GDP. And voilà!—France outperforms the U.S., despite the fact that its per capita income is 30% lower. Nobel laureate Ed Prescott called this disparity the difference between "prosperity and depression" in a 2002 paper—and attributed it entirely to France's higher taxes.
With Venezuela in recession by conventional GDP measures, President Hugo Chávez declared the GDP to be a capitalist plot. He wants a new, socialist-friendly way to measure the economy. Maybe East Germans were better off than their cousins in the West when the Berlin Wall fell; starving North Koreans are really better off than their relatives in South Korea; the 300 million Chinese lifted out of abject poverty in the last three decades were better off under Mao; and all those Cubans risking their lives fleeing to Florida on dinky boats are loco.
There is historical precedent for a "socialist GDP." When President George H.W. Bush sent me to help Mikhail Gorbachev with economic reform, I found out that the Soviet statistics office kept two sets of books: those they published, and those they actually believed (plus another for Stalin when he was alive).
In Argentina, President Néstor Kirchner didn't like the political and budget hits from high inflation. After a politicized personnel purge in 2002, he changed the inflation measures. Conveniently, the new numbers showed lower inflation and therefore lower interest payments on the government's inflation-linked bonds. Investor and public confidence in the objectivity of the inflation statistics evaporated. His wife and successor Cristina Kirchner is now trying to grab the central bank's reserves to pay for the country's debt.
America has not been immune from this dangerous numbers game. Every president is guilty of spinning unpleasant statistics. President Richard Nixon even thought there was a conspiracy against him at the Bureau of Labor Statistics. But President Barack Obama has taken it to a new level. His laudable attempt at transparency in counting the number of jobs "created or saved" by the stimulus bill has degenerated into farce and was just junked this week.
The administration has introduced the new notion of "jobs saved" to take credit where none was ever taken before. It seems continually to confuse gross and net numbers. For example, it misses the jobs lost or diverted by the fiscal stimulus. And along with the congressional leadership it hypes the number of "green jobs" likely to be created from the explosion of spending, subsidies, loans and mandates, while ignoring the job losses caused by its taxes, debt, regulations and diktats.
The president and his advisers—their credibility already reeling from exaggeration (the stimulus bill will limit unemployment to 8%) and reneged campaign promises (we'll go through the budget "line-by-line")—consistently imply that their new proposed regulation is a free lunch. When the radical attempt to regulate energy and the environment with the deeply flawed cap-and-trade bill is confronted with economic reality, instead of honestly debating the trade-offs they confidently pronounce that it boosts the economy. They refuse to admit that it simply boosts favored sectors and firms at the expense of everyone else.
Rabid environmentalists have descended into a separate reality where only green counts. It's gotten so bad that the head of the California Air Resources Board, Mary Nichols, announced this past fall that costly new carbon regulations would boost the economy shortly after she was told by eight of the state's most respected economists that they were certain these new rules would damage the economy. The next day, her own economic consultant, Harvard's Robert Stavis, denounced her statement as a blatant distortion.
Scientists are expected to make sure their findings are replicable, to make the data available, and to encourage the search for new theories and data that may overturn the current consensus. This is what Galileo, Darwin and Einstein—among the most celebrated scientists of all time—did. But some climate researchers, most notably at the University of East Anglia, attempted to hide or delete temperature data when that data didn't show recent rapid warming. They quietly suppressed and replaced the numbers, and then attempted to squelch publication of studies coming to different conclusions.
The Obama administration claims a dubious "Keynesian" multiplier of 1.5 to feed the Democrats' thirst for big spending. The administration's idea is that virtually all their spending creates jobs for unemployed people and that additional rounds of spending create still more—raising income by $1.50 for each dollar of government spending. Economists differ on such multipliers, with many leading figures pegging them at well under 1.0 as the government spending in part replaces private spending and jobs. But all agree that every dollar of spending requires a present value of a dollar of future taxes, which distorts decisions to work, save, and invest and raises the cost of the dollar of spending to well over a dollar. Thus, only spending with large societal benefits is justified, a criterion unlikely to be met by much current spending (perusing the projects on recovery.gov doesn't inspire confidence).
Even more blatant is the numbers game being used to justify health-insurance reform legislation, which claims to greatly expand coverage, decrease health-insurance costs, and reduce the deficit. That magic flows easily from counting 10 years of dubious Medicare "savings" and tax hikes, but only six years of spending; assuming large cuts in doctor reimbursements that later will be cancelled; and making the states (other than Sen. Ben Nelson's Nebraska) pay a big share of the cost by expanding Medicaid eligibility. The Medicare "savings" and payroll tax hikes are counted twice—first to help pay for expanded coverage, and then to claim to extend the life of Medicare.
One piece of good news: The public isn't believing much of this out-of-control spin. Large majorities believe the health-care legislation will raise their insurance costs and increase the budget deficit. Most Americans are highly skeptical of the claims of climate extremists. And they have a more realistic reaction to the extraordinary deterioration in our public finances than do the president and Congress.
As a society and as individuals, we need to make difficult, even wrenching choices, often with grave consequences. To base those decisions on highly misleading, biased, and even manufactured numbers is not just wrong, but dangerous.
Squandering their credibility with these numbers games will only make it more difficult for our elected leaders to enlist support for difficult decisions from a public increasingly inclined to disbelieve them.
Mr. Boskin is a professor of economics at Stanford University and a senior fellow at the Hoover Institution. He chaired the Council of Economic Advisers under President George H.W. Bush.
If a CEO issued the kind of distorted figures put out by politicians and scientists, he'd wind up in prison.
WSJ, Jan 14, 2010
Politicians and scientists who don't like what their data show lately have simply taken to changing the numbers. They believe that their end—socialism, global climate regulation, health-care legislation, repudiating debt commitments, la gloire française—justifies throwing out even minimum standards of accuracy. It appears that no numbers are immune: not GDP, not inflation, not budget, not job or cost estimates, and certainly not temperature. A CEO or CFO issuing such massaged numbers would land in jail.
The late economist Paul Samuelson called the national income accounts that measure real GDP and inflation "one of the greatest achievements of the twentieth century." Yet politicians from Europe to South America are now clamoring for alternatives that make them look better.
A commission appointed by French President Nicolas Sarkozy suggests heavily weighting "stability" indicators such as "security" and "equality" when calculating GDP. And voilà!—France outperforms the U.S., despite the fact that its per capita income is 30% lower. Nobel laureate Ed Prescott called this disparity the difference between "prosperity and depression" in a 2002 paper—and attributed it entirely to France's higher taxes.
With Venezuela in recession by conventional GDP measures, President Hugo Chávez declared the GDP to be a capitalist plot. He wants a new, socialist-friendly way to measure the economy. Maybe East Germans were better off than their cousins in the West when the Berlin Wall fell; starving North Koreans are really better off than their relatives in South Korea; the 300 million Chinese lifted out of abject poverty in the last three decades were better off under Mao; and all those Cubans risking their lives fleeing to Florida on dinky boats are loco.
There is historical precedent for a "socialist GDP." When President George H.W. Bush sent me to help Mikhail Gorbachev with economic reform, I found out that the Soviet statistics office kept two sets of books: those they published, and those they actually believed (plus another for Stalin when he was alive).
In Argentina, President Néstor Kirchner didn't like the political and budget hits from high inflation. After a politicized personnel purge in 2002, he changed the inflation measures. Conveniently, the new numbers showed lower inflation and therefore lower interest payments on the government's inflation-linked bonds. Investor and public confidence in the objectivity of the inflation statistics evaporated. His wife and successor Cristina Kirchner is now trying to grab the central bank's reserves to pay for the country's debt.
America has not been immune from this dangerous numbers game. Every president is guilty of spinning unpleasant statistics. President Richard Nixon even thought there was a conspiracy against him at the Bureau of Labor Statistics. But President Barack Obama has taken it to a new level. His laudable attempt at transparency in counting the number of jobs "created or saved" by the stimulus bill has degenerated into farce and was just junked this week.
The administration has introduced the new notion of "jobs saved" to take credit where none was ever taken before. It seems continually to confuse gross and net numbers. For example, it misses the jobs lost or diverted by the fiscal stimulus. And along with the congressional leadership it hypes the number of "green jobs" likely to be created from the explosion of spending, subsidies, loans and mandates, while ignoring the job losses caused by its taxes, debt, regulations and diktats.
The president and his advisers—their credibility already reeling from exaggeration (the stimulus bill will limit unemployment to 8%) and reneged campaign promises (we'll go through the budget "line-by-line")—consistently imply that their new proposed regulation is a free lunch. When the radical attempt to regulate energy and the environment with the deeply flawed cap-and-trade bill is confronted with economic reality, instead of honestly debating the trade-offs they confidently pronounce that it boosts the economy. They refuse to admit that it simply boosts favored sectors and firms at the expense of everyone else.
Rabid environmentalists have descended into a separate reality where only green counts. It's gotten so bad that the head of the California Air Resources Board, Mary Nichols, announced this past fall that costly new carbon regulations would boost the economy shortly after she was told by eight of the state's most respected economists that they were certain these new rules would damage the economy. The next day, her own economic consultant, Harvard's Robert Stavis, denounced her statement as a blatant distortion.
Scientists are expected to make sure their findings are replicable, to make the data available, and to encourage the search for new theories and data that may overturn the current consensus. This is what Galileo, Darwin and Einstein—among the most celebrated scientists of all time—did. But some climate researchers, most notably at the University of East Anglia, attempted to hide or delete temperature data when that data didn't show recent rapid warming. They quietly suppressed and replaced the numbers, and then attempted to squelch publication of studies coming to different conclusions.
The Obama administration claims a dubious "Keynesian" multiplier of 1.5 to feed the Democrats' thirst for big spending. The administration's idea is that virtually all their spending creates jobs for unemployed people and that additional rounds of spending create still more—raising income by $1.50 for each dollar of government spending. Economists differ on such multipliers, with many leading figures pegging them at well under 1.0 as the government spending in part replaces private spending and jobs. But all agree that every dollar of spending requires a present value of a dollar of future taxes, which distorts decisions to work, save, and invest and raises the cost of the dollar of spending to well over a dollar. Thus, only spending with large societal benefits is justified, a criterion unlikely to be met by much current spending (perusing the projects on recovery.gov doesn't inspire confidence).
Even more blatant is the numbers game being used to justify health-insurance reform legislation, which claims to greatly expand coverage, decrease health-insurance costs, and reduce the deficit. That magic flows easily from counting 10 years of dubious Medicare "savings" and tax hikes, but only six years of spending; assuming large cuts in doctor reimbursements that later will be cancelled; and making the states (other than Sen. Ben Nelson's Nebraska) pay a big share of the cost by expanding Medicaid eligibility. The Medicare "savings" and payroll tax hikes are counted twice—first to help pay for expanded coverage, and then to claim to extend the life of Medicare.
One piece of good news: The public isn't believing much of this out-of-control spin. Large majorities believe the health-care legislation will raise their insurance costs and increase the budget deficit. Most Americans are highly skeptical of the claims of climate extremists. And they have a more realistic reaction to the extraordinary deterioration in our public finances than do the president and Congress.
As a society and as individuals, we need to make difficult, even wrenching choices, often with grave consequences. To base those decisions on highly misleading, biased, and even manufactured numbers is not just wrong, but dangerous.
Squandering their credibility with these numbers games will only make it more difficult for our elected leaders to enlist support for difficult decisions from a public increasingly inclined to disbelieve them.
Mr. Boskin is a professor of economics at Stanford University and a senior fellow at the Hoover Institution. He chaired the Council of Economic Advisers under President George H.W. Bush.
Health Experts and Double Standards - Jonathan Gruber, Peter Orszag and the press corps
Health Experts and Double Standards. WSJ Editorial
Jonathan Gruber, Peter Orszag and the press corps.
The Wall Street Journal, page A18, Jan 14, 2010
The press corps is agonizing, or claims to be agonizing, over the news of Jonathan Gruber's conflict of interest: The MIT economist has been among the foremost promoters of ObamaCare—even as he had nearly $400,000 in consulting contracts with the Administration that weren't disclosed in the many stories in which he was cited as an independent authority.
Mr. Gruber is a health economist and former Clinton Treasury hand, as well an architect of Mitt Romney's 2006 health plan in Massachusetts that so closely resembles ObamaCare. His econometric health-care modelling is well-regarded. So his $297,600 plum from the Department of Health and Human Services in March for "technical assistance" estimating changes in insurance costs and coverage under ObamaCare, plus another $95,000 job, is at least defensible.
However, this financial relationship only came to wide notice when Mr. Gruber wrote a commentary for the New England Journal of Medicine, which has a more stringent disclosure policy than most media outlets. Last week the New York Times said it would have disclosed Mr. Gruber's financial ties had it known when it published one of his op-eds last year. Mr. Gruber told Politico's Ben Smith that "at no time have I publicly advocated a position that I did not firmly believe—indeed, I have been completely consistent with my academic track record."
We don't doubt Mr. Gruber's sincerity about his research, though the same benefit of the political doubt wasn't extended to, say, Armstrong Williams when it was revealed that the conservative pundit had a contract with the Department of Education during the No Child Left Behind debate. Any number of former Generals-turned-TV-analysts were skewered in the New York Times in 2008 merely because of continuing contact—and no financial ties—with the Pentagon.
The political exploitation of Mr. Gruber's commentary is another matter. His work figured heavily into a recent piece by Ron Brownstein in the Atlantic Monthly that the Administration promoted as an antidote to skepticism about ObamaCare's cost control (or lack thereof). White House budget director Peter Orszag has also relied on a letter from Mr. Gruber and other economists endorsing the Senate bill.
In a December conference call with reporters, Mr. Orszag said that "I agree with Jon Gruber that basically everything that has been put forward in health policy discussions for a decade is in this bill." He also praised "the folks who have actually done the reporting and read the bill and gone through and done the hard work to actually examine, rather than just going on buzz and sort of loose talk, but actually gone through and looked at the specific details in the bill," citing Mr. Brownstein in particular. Which is to say, the journalists who had "done the reporting" were those who agreed with the Gruber-White House spin.
Mr. Orszag never mentioned Mr. Gruber's contract. Nor did HHS disclose the contract when Mike Enzi, the ranking Republican on the Senate health committee, asked specifically for a list of all consultants as part of routine oversight in July. His request noted that "Transparency regarding these positions will help ensure that the public has confidence in the qualifications, character and abilities of individuals serving in these positions."
We're not Marxists who think everyone's opinion depends entirely on financial circumstances. But if Mr. Gruber qualifies as a health expert despite his self-interest, then the studies of self-interested businesses deserve at least as much media attention. The insurer WellPoint has built a very detailed and rigorous model on the likely impact of ObamaCare, using its own actuarial data in regional markets, and found that insurance costs will spike across the board. The White House trashed it, and the press corps ignored it.
This is a double standard that has corroded much of the coverage of ObamaCare, with journalists treating government claims as oracular but business arguments as self-serving. We'll bet Messrs. Orszag and Brownstein that WellPoint's analysis will more closely reflect the coming insurance reality than the fruits of Mr. Gruber's government paycheck.
Jonathan Gruber, Peter Orszag and the press corps.
The Wall Street Journal, page A18, Jan 14, 2010
The press corps is agonizing, or claims to be agonizing, over the news of Jonathan Gruber's conflict of interest: The MIT economist has been among the foremost promoters of ObamaCare—even as he had nearly $400,000 in consulting contracts with the Administration that weren't disclosed in the many stories in which he was cited as an independent authority.
Mr. Gruber is a health economist and former Clinton Treasury hand, as well an architect of Mitt Romney's 2006 health plan in Massachusetts that so closely resembles ObamaCare. His econometric health-care modelling is well-regarded. So his $297,600 plum from the Department of Health and Human Services in March for "technical assistance" estimating changes in insurance costs and coverage under ObamaCare, plus another $95,000 job, is at least defensible.
However, this financial relationship only came to wide notice when Mr. Gruber wrote a commentary for the New England Journal of Medicine, which has a more stringent disclosure policy than most media outlets. Last week the New York Times said it would have disclosed Mr. Gruber's financial ties had it known when it published one of his op-eds last year. Mr. Gruber told Politico's Ben Smith that "at no time have I publicly advocated a position that I did not firmly believe—indeed, I have been completely consistent with my academic track record."
We don't doubt Mr. Gruber's sincerity about his research, though the same benefit of the political doubt wasn't extended to, say, Armstrong Williams when it was revealed that the conservative pundit had a contract with the Department of Education during the No Child Left Behind debate. Any number of former Generals-turned-TV-analysts were skewered in the New York Times in 2008 merely because of continuing contact—and no financial ties—with the Pentagon.
The political exploitation of Mr. Gruber's commentary is another matter. His work figured heavily into a recent piece by Ron Brownstein in the Atlantic Monthly that the Administration promoted as an antidote to skepticism about ObamaCare's cost control (or lack thereof). White House budget director Peter Orszag has also relied on a letter from Mr. Gruber and other economists endorsing the Senate bill.
In a December conference call with reporters, Mr. Orszag said that "I agree with Jon Gruber that basically everything that has been put forward in health policy discussions for a decade is in this bill." He also praised "the folks who have actually done the reporting and read the bill and gone through and done the hard work to actually examine, rather than just going on buzz and sort of loose talk, but actually gone through and looked at the specific details in the bill," citing Mr. Brownstein in particular. Which is to say, the journalists who had "done the reporting" were those who agreed with the Gruber-White House spin.
Mr. Orszag never mentioned Mr. Gruber's contract. Nor did HHS disclose the contract when Mike Enzi, the ranking Republican on the Senate health committee, asked specifically for a list of all consultants as part of routine oversight in July. His request noted that "Transparency regarding these positions will help ensure that the public has confidence in the qualifications, character and abilities of individuals serving in these positions."
We're not Marxists who think everyone's opinion depends entirely on financial circumstances. But if Mr. Gruber qualifies as a health expert despite his self-interest, then the studies of self-interested businesses deserve at least as much media attention. The insurer WellPoint has built a very detailed and rigorous model on the likely impact of ObamaCare, using its own actuarial data in regional markets, and found that insurance costs will spike across the board. The White House trashed it, and the press corps ignored it.
This is a double standard that has corroded much of the coverage of ObamaCare, with journalists treating government claims as oracular but business arguments as self-serving. We'll bet Messrs. Orszag and Brownstein that WellPoint's analysis will more closely reflect the coming insurance reality than the fruits of Mr. Gruber's government paycheck.
Friday, October 23, 2009
The Chamber of Commerce is only the latest target of the Chicago Gang in the White House
The Chicago Way. By KIMBERLEY A. STRASSEL
The Chamber of Commerce is only the latest target of the Chicago Gang in the White House.
WSJ, Oct 23, 2009
They pull a knife, you pull a gun. He sends one of yours to the hospital, you send one of his to the morgue. That's the Chicago way.
–Jim Malone,
"The Untouchables"
When Barack Obama promised to deliver "a new kind of politics" to Washington, most folk didn't picture Rahm Emanuel with a baseball bat. These days, the capital would make David Mamet, who wrote Malone's memorable movie dialogue, proud.
A White House set on kneecapping its opponents isn't, of course, entirely new. (See: Nixon) What is a little novel is the public and bare-knuckle way in which the Obama team is waging these campaigns against the other side.
In recent weeks the Windy City gang added a new name to their list of societal offenders: the Chamber of Commerce. For the cheek of disagreeing with Democrats on climate and financial regulation, it was reported the Oval Office will neuter the business lobby. Obama adviser Valerie Jarrett slammed the outfit as "old school," and warned CEOs they'd be wise to seek better protection.
That was after the president accused the business lobby of false advertising. And that recent black eye for the Chamber (when several companies, all with Democratic ties, quit in a huff)—think that happened on its own? ("Somebody messes with me, I'm gonna mess with him! Somebody steals from me, I'm gonna say you stole. Not talk to him for spitting on the sidewalk. Understand!?")
The Chamber can at least take comfort in crowds. Who isn't on the business end of the White House's sawed-off shotgun? First up were Chrysler bondholders who—upon balking at a White House deal that rewarded only unions—were privately threatened and then publicly excoriated by the president.
Next, every pharmaceutical, hospital and insurance executive in the nation was held out as a prime obstacle to health-care nirvana. And that was their reward for cooperating. When Humana warned customers about cuts to Medicare under "reform," the White House didn't bother to complain. They went straight for the gag order. When the insurance industry criticized the Baucus health bill, the response was this week's bill to strip them of their federal antitrust immunity. ("I want you to find this nancy-boy . . . I want him dead! I want his family dead! I want his house burned to the ground!")
This summer Arizona Sen. Jon Kyl criticized stimulus dollars. Obama cabinet secretaries sent letters to Arizona Gov. Jan Brewer. One read: "if you prefer to forfeit the money we are making available to the state, as Senator Kyl suggests," let us know. The Arizona Republic wrote: "Let's not mince words here: The White House is intent on shutting Kyl up . . . using whatever means necessary." When Sens. Robert Bennett and Lamar Alexander took issue with the administration's czars, the White House singled them out, by name, on its blog. Sen. Alexander was annoyed enough to take to the floor this week to warn the White House off an "enemies list."
House Minority Whip Eric Cantor? Targeted for the sin of being a up-and-coming conservative voice. Though even Mr. Cantor was shoved aside in August so the Chicago gang could target at least seven Democratic senators, via the president's campaign arm, Organizing for America, for not doing more on health care. ("What I'm saying is: What are you prepared to do??!!")
And don't forget Fox News Channel ("nothing but a lot of talk and a badge!"). Fox, like MSNBC, has its share of commentators. But according to Obama Communications Director Anita Dunn, the entire network is "opinion journalism masquerading as news." Many previous White House press officers, when faced with criticism, try this thing called outreach. The Chicago crowd has boycotted Fox altogether.
What makes these efforts notable is that they are not the lashing out of a frustrated political operation. They are calculated campaigns, designed to create bogeymen, to divide the opposition, to frighten players into compliance. The White House sees a once-in-a-generation opportunity on health care and climate. It is obsessed with winning these near-term battles, and will take no prisoners. It knows that CEOs are easily intimidated and (Fox News ratings aside) it is getting some of its way. Besides, roughing up conservatives gives the liberal blogosphere something to write about besides Guantanamo.
The Oval Office might be more concerned with the long term. It is 10 months in; more than three long years to go. The strategy to play dirty now and triangulate later is risky. One day, say when immigration reform comes due, the Chamber might come in handy. That is if the Chamber isn't too far gone.
White House targets also aren't dopes. The corporate community is realizing that playing nice doesn't guarantee safety. The health executives signed up for reform, only to remain the president's political piñatas. It surely grates that the unions—now running their own ads against ObamaCare—haven't been targeted. If the choice is cooperate and get nailed, or oppose and possibly win, some might take that bet.
There's also the little fact that many Americans voted for this president in thrall to his vow to bring the country together. It's hard to do that amid gunfire, and voters might just notice.
("I do not approve of your methods! Yeah, well . . . You're not from Chicago.")
The Chamber of Commerce is only the latest target of the Chicago Gang in the White House.
WSJ, Oct 23, 2009
They pull a knife, you pull a gun. He sends one of yours to the hospital, you send one of his to the morgue. That's the Chicago way.
–Jim Malone,
"The Untouchables"
When Barack Obama promised to deliver "a new kind of politics" to Washington, most folk didn't picture Rahm Emanuel with a baseball bat. These days, the capital would make David Mamet, who wrote Malone's memorable movie dialogue, proud.
A White House set on kneecapping its opponents isn't, of course, entirely new. (See: Nixon) What is a little novel is the public and bare-knuckle way in which the Obama team is waging these campaigns against the other side.
In recent weeks the Windy City gang added a new name to their list of societal offenders: the Chamber of Commerce. For the cheek of disagreeing with Democrats on climate and financial regulation, it was reported the Oval Office will neuter the business lobby. Obama adviser Valerie Jarrett slammed the outfit as "old school," and warned CEOs they'd be wise to seek better protection.
That was after the president accused the business lobby of false advertising. And that recent black eye for the Chamber (when several companies, all with Democratic ties, quit in a huff)—think that happened on its own? ("Somebody messes with me, I'm gonna mess with him! Somebody steals from me, I'm gonna say you stole. Not talk to him for spitting on the sidewalk. Understand!?")
The Chamber can at least take comfort in crowds. Who isn't on the business end of the White House's sawed-off shotgun? First up were Chrysler bondholders who—upon balking at a White House deal that rewarded only unions—were privately threatened and then publicly excoriated by the president.
Next, every pharmaceutical, hospital and insurance executive in the nation was held out as a prime obstacle to health-care nirvana. And that was their reward for cooperating. When Humana warned customers about cuts to Medicare under "reform," the White House didn't bother to complain. They went straight for the gag order. When the insurance industry criticized the Baucus health bill, the response was this week's bill to strip them of their federal antitrust immunity. ("I want you to find this nancy-boy . . . I want him dead! I want his family dead! I want his house burned to the ground!")
This summer Arizona Sen. Jon Kyl criticized stimulus dollars. Obama cabinet secretaries sent letters to Arizona Gov. Jan Brewer. One read: "if you prefer to forfeit the money we are making available to the state, as Senator Kyl suggests," let us know. The Arizona Republic wrote: "Let's not mince words here: The White House is intent on shutting Kyl up . . . using whatever means necessary." When Sens. Robert Bennett and Lamar Alexander took issue with the administration's czars, the White House singled them out, by name, on its blog. Sen. Alexander was annoyed enough to take to the floor this week to warn the White House off an "enemies list."
House Minority Whip Eric Cantor? Targeted for the sin of being a up-and-coming conservative voice. Though even Mr. Cantor was shoved aside in August so the Chicago gang could target at least seven Democratic senators, via the president's campaign arm, Organizing for America, for not doing more on health care. ("What I'm saying is: What are you prepared to do??!!")
And don't forget Fox News Channel ("nothing but a lot of talk and a badge!"). Fox, like MSNBC, has its share of commentators. But according to Obama Communications Director Anita Dunn, the entire network is "opinion journalism masquerading as news." Many previous White House press officers, when faced with criticism, try this thing called outreach. The Chicago crowd has boycotted Fox altogether.
What makes these efforts notable is that they are not the lashing out of a frustrated political operation. They are calculated campaigns, designed to create bogeymen, to divide the opposition, to frighten players into compliance. The White House sees a once-in-a-generation opportunity on health care and climate. It is obsessed with winning these near-term battles, and will take no prisoners. It knows that CEOs are easily intimidated and (Fox News ratings aside) it is getting some of its way. Besides, roughing up conservatives gives the liberal blogosphere something to write about besides Guantanamo.
The Oval Office might be more concerned with the long term. It is 10 months in; more than three long years to go. The strategy to play dirty now and triangulate later is risky. One day, say when immigration reform comes due, the Chamber might come in handy. That is if the Chamber isn't too far gone.
White House targets also aren't dopes. The corporate community is realizing that playing nice doesn't guarantee safety. The health executives signed up for reform, only to remain the president's political piñatas. It surely grates that the unions—now running their own ads against ObamaCare—haven't been targeted. If the choice is cooperate and get nailed, or oppose and possibly win, some might take that bet.
There's also the little fact that many Americans voted for this president in thrall to his vow to bring the country together. It's hard to do that amid gunfire, and voters might just notice.
("I do not approve of your methods! Yeah, well . . . You're not from Chicago.")
Monday, September 28, 2009
Subprime Uncle Sam - The FHA makes Countrywide Financial look prudent
Subprime Uncle Sam. WSJ Editorial
The FHA makes Countrywide Financial look prudent.
WSJ, Sep 29, 2009
The Treasury has announced new "capital cushion" requirements for financial institutions to reduce excessive risk and prevent taxpayer bailouts. Seems sensible enough. Perhaps the Administration will even impose those safety and soundness standards on federal agencies.
One place to start is the Federal Housing Administration, the nation's insurer of nearly $750 billion in outstanding mortgages. The agency acknowledged this month that a new but still undisclosed HUD audit has found that FHA's cash reserve fund is rapidly depleting and may drop below its Congressionally mandated 2% of insurance liabilities by the end of the year.
[table The Federal Housing Administration leverage ratio http://s.wsj.net/public/resources/images/ED-AK249_1fha_D_20090928180420.gif]
At a 50 to 1 leverage ratio, the FHA will soon have a smaller capital cushion than did investment bank Bear Stearns on the eve of its crash. (See nearby table.) Its loan delinquency rate (more than 30 days late in payments) is now above 14%, or from two to three times higher than on conventional mortgages. Its cash reserve ratio has fallen by more than two-thirds in three years.
The reason for this financial deterioration is that FHA is underwriting record numbers of high-risk mortgages. Between 2006 and the end of next year, FHA's insurance portfolio will have expanded to $1 trillion from $410 billion. Today nearly one in four new mortgages carries an FHA guarantee, up from one in 50 in 2006. Through FHA, the Veterans Administration, Fannie Mae and Freddie Mac, taxpayers now guarantee repayment on more than 80% of all U.S. mortgages. Sources familiar with a new draft HUD report on FHA's worsening balance sheet tell us that the default rates have risen most rapidly on the most recent loans, i.e., those initiated or refinanced in 2008 and 2009.
All of this means the FHA is making a trillion-dollar housing gamble with taxpayer money as the table stakes. If housing values recover (fingers crossed), default rates will fall and the agency could even make money on its aggressive underwriting. But if housing prices continue their slide in states like Arizona, California, Florida and Nevada—where many FHA borrowers already have negative equity in their homes—taxpayers could face losses of $100 billion or more.
So far Congress has pretended that these liabilities don't exist because they are technically "off budget." They stay invisible until they move on-budget when a Fannie Mae-type cash bailout is needed. The Obama Administration is at least finally catching on to these perils and last week proposed some modest reforms. These include appointing a "chief risk officer" at FHA, tightening home appraisals, requiring that FHA lenders have audited financial statements, and increasing the capital requirement of FHA lenders to $1 million up from $250,000. The scandal is that these basic standards weren't in place years ago.
Unfortunately, Washington won't touch more significant reforms for fear of angering the powerful nexus of Realtors, mortgage bankers and home builders. As we've written for years, the FHA's main lending problem is that it requires neither lenders nor borrowers to have a sufficient financial stake in mortgage repayment. The FHA's absurdly low 3.5% down payment policy, in combination with other policies to reduce up-front costs for new homebuyers, means that homebuyers can move into their government-insured home with an equity stake as low as 2.5%. The government's own housing data prove that low down payments are the single largest predictor of defaults.
Private banks know this. Burned on subprime mortgages, they are back to requiring 10% or even 20% down payments. Congress should at least require a 5% down payment on loans that carry a taxpayer guarantee. If borrowers can't put at least 5% down, they can't afford the house.
As for rooting out fraud that contributes to high loss rates, the obvious solution is to drop the 100% guarantee on FHA mortgages. Why not hold banks liable for the first 10% of losses on the housing loans they originate, a reform that has been recommended since as far back as the early Reagan years? No other mortgage insurer insures 100% loan repayment. Alas, while offering its minireforms, the Obama Administration reassured its real-estate pals that FHA insurance will continue to carry "no risk to homeowners or bondholders."
Which means all the risk is on taxpayers. David Stevens, the FHA commissioner, nonetheless declared this month: "There will be no taxpayer bailout." That's also what Barney Frank said about Fannie and Freddie.
The FHA makes Countrywide Financial look prudent.
WSJ, Sep 29, 2009
The Treasury has announced new "capital cushion" requirements for financial institutions to reduce excessive risk and prevent taxpayer bailouts. Seems sensible enough. Perhaps the Administration will even impose those safety and soundness standards on federal agencies.
One place to start is the Federal Housing Administration, the nation's insurer of nearly $750 billion in outstanding mortgages. The agency acknowledged this month that a new but still undisclosed HUD audit has found that FHA's cash reserve fund is rapidly depleting and may drop below its Congressionally mandated 2% of insurance liabilities by the end of the year.
[table The Federal Housing Administration leverage ratio http://s.wsj.net/public/resources/images/ED-AK249_1fha_D_20090928180420.gif]
At a 50 to 1 leverage ratio, the FHA will soon have a smaller capital cushion than did investment bank Bear Stearns on the eve of its crash. (See nearby table.) Its loan delinquency rate (more than 30 days late in payments) is now above 14%, or from two to three times higher than on conventional mortgages. Its cash reserve ratio has fallen by more than two-thirds in three years.
The reason for this financial deterioration is that FHA is underwriting record numbers of high-risk mortgages. Between 2006 and the end of next year, FHA's insurance portfolio will have expanded to $1 trillion from $410 billion. Today nearly one in four new mortgages carries an FHA guarantee, up from one in 50 in 2006. Through FHA, the Veterans Administration, Fannie Mae and Freddie Mac, taxpayers now guarantee repayment on more than 80% of all U.S. mortgages. Sources familiar with a new draft HUD report on FHA's worsening balance sheet tell us that the default rates have risen most rapidly on the most recent loans, i.e., those initiated or refinanced in 2008 and 2009.
All of this means the FHA is making a trillion-dollar housing gamble with taxpayer money as the table stakes. If housing values recover (fingers crossed), default rates will fall and the agency could even make money on its aggressive underwriting. But if housing prices continue their slide in states like Arizona, California, Florida and Nevada—where many FHA borrowers already have negative equity in their homes—taxpayers could face losses of $100 billion or more.
So far Congress has pretended that these liabilities don't exist because they are technically "off budget." They stay invisible until they move on-budget when a Fannie Mae-type cash bailout is needed. The Obama Administration is at least finally catching on to these perils and last week proposed some modest reforms. These include appointing a "chief risk officer" at FHA, tightening home appraisals, requiring that FHA lenders have audited financial statements, and increasing the capital requirement of FHA lenders to $1 million up from $250,000. The scandal is that these basic standards weren't in place years ago.
Unfortunately, Washington won't touch more significant reforms for fear of angering the powerful nexus of Realtors, mortgage bankers and home builders. As we've written for years, the FHA's main lending problem is that it requires neither lenders nor borrowers to have a sufficient financial stake in mortgage repayment. The FHA's absurdly low 3.5% down payment policy, in combination with other policies to reduce up-front costs for new homebuyers, means that homebuyers can move into their government-insured home with an equity stake as low as 2.5%. The government's own housing data prove that low down payments are the single largest predictor of defaults.
Private banks know this. Burned on subprime mortgages, they are back to requiring 10% or even 20% down payments. Congress should at least require a 5% down payment on loans that carry a taxpayer guarantee. If borrowers can't put at least 5% down, they can't afford the house.
As for rooting out fraud that contributes to high loss rates, the obvious solution is to drop the 100% guarantee on FHA mortgages. Why not hold banks liable for the first 10% of losses on the housing loans they originate, a reform that has been recommended since as far back as the early Reagan years? No other mortgage insurer insures 100% loan repayment. Alas, while offering its minireforms, the Obama Administration reassured its real-estate pals that FHA insurance will continue to carry "no risk to homeowners or bondholders."
Which means all the risk is on taxpayers. David Stevens, the FHA commissioner, nonetheless declared this month: "There will be no taxpayer bailout." That's also what Barney Frank said about Fannie and Freddie.
Thursday, August 6, 2009
Autocracy and the Decline of the Arabs
Autocracy and the Decline of the Arabs. By FOUAD AJAMI
The Arab world is plagued by despots. But don’t expect the U.N. to give President Bush any credit for challenging this order.
WSJ, Aug 06, 2009
‘It made me feel so jealous,” said Abdulmonem Ibrahim, a young Egyptian political activist, of the recent upheaval in Iran. “We are amazed at the organization and speed with which the Iranian movement has been functioning. In Egypt you can count the number of activists on your hand.” This degree of “Iran envy” is a telling statement on the stagnation of Arab politics. It is not pretty, Iran’s upheaval, but grant the Iranians their due: They have gone out into the streets to contest the writ of the theocrats.
In contrast, little has stirred in Arab politics of late. The Arabs, by their own testimony, have become spectators to their history. A struggle rages between the Iranian theocracy and the Pax Americana for primacy in the Persian Gulf and the Levant. The Arabs have the demography—360 million people by latest count—and the wealth to balance Iran’s power. But they have taken a pass in the hope that America—or Israel, for that matter—would shatter the Iranian bid for hegemony.
We are now in the midst of one of those periodic autopsies of the Arab condition. The trigger is the publication last month of the Arab Human Development Report 2009, the fifth of a series of reports by the by the United Nations Development Program (UNDP) on the state of the contemporary Arab world.
The first of these reports, published in 2002, was treated with deference. A group of Arab truth-tellers, it was believed, had broken with the evasions and the apologetics to tell of the sordid condition of Arab society—the autocratic political culture, the economic stagnation, the cultural decay. So all Arabs combined had a smaller manufacturing capacity than Finland with its five million people, and a vast Arabic-speaking world translated into Arabic a fifth of the foreign books that Greece with its 11 million people translates. With all the oil in the region, tens of millions of Arabs were living below the poverty line.
Little has altered in the years separating the first of these reports from the most recent. A huge oil windfall came into the region, and it was better handled, it has to be conceded, than earlier oil windfalls. But on balance the grief of the Arabs has deepened, and the autocracies are yet to be brought to account. They remain unloved, but they remain in the saddle.
In a clever turn of phrase, The Economist recently wrote of an Arab Rip Abu Winkle awakening from a slumber into which he had fallen in the early 1980s to marvel at how little has changed. He would find Hosni Mubarak still at the helm in Cairo, the policeman Zine el-Abidine Ben Ali in Tunisia, and Moammar Gadhafi in Libya. He would miss Hafez Assad in Damascus, but he would be reassured that his son Bashar had inherited his father’s dominion. He would of course find the same dynasties in Jordan and in the Arab states of the Peninsula and the Gulf.
Wily rulers, the men at the helm may have failed their peoples. They may have denied them decent educational systems. They may not have figured out a way into the modern world economy. But they have mastered the art of political survival. “He who eats the sultan’s bread, fights with the sultan’s sword,” goes an Arabic maxim. The economic dominance of the rulers, the absence of the countervailing power of property and the private sector, has increased the awesome power of the governments and their security establishments.
It is no mystery, this sorrowful decline of the Arabs. They have invested their hopes in states, and the states have failed. According to the UNDP’s report, government revenues as percentage of GDP are 13% in Third World Countries, but they are 25% in the Middle East and North Africa. The oil states are a world apart in that regard: the comparable figures are 68% in Libya, 45% in Saudi Arabia, and 40% in Algeria, Kuwait and Qatar. Oil is no panacea for these lands. The unemployment rates for the Arab world as a whole are the highest in the world, and no prophecy could foresee these societies providing the 51 million jobs the UNDP report says are needed by 2020 to “absorb young entrants to the labor force who would otherwise face an empty future.”
The simple truth is that the Arab world has terrible rulers and worse oppositionists. There are autocrats on one side and theocrats on the other. A timid and fragile middle class is caught in the middle between regimes it abhors and Islamists it fears.
Indeed, the technocrats and intellectuals associated with these development reports are themselves no angels. On the whole, they are unreconstructed Arab nationalists. The patrons of these reports are the likes of the Algerian diplomat Lakhdar Brahimi and the Palestinian leader Hanan Ashrawi, intellectuals and public figures whose stock-in-trade is presumed Western (read American) guilt for the ills that afflict the Arabs. Anti-Americanism suffuses this report, as it did the earlier ones.
There is cruelty and plunder aplenty in the Arab world, but these writers are particularly exercised about Iraq. “This intervention polarized the country,” they say of Iraq. This is a myth of the Arabs who are yet to grant the Iraqis the right to their own history: There had been a secular culture under the Baath, they insist, but the American war begot the sectarianism. To go by this report, Iraq is a place of mayhem and plunder, a land where militias rule uncontested.
For decades, it was the standard argument of the Arabs that America had cast its power in the region on the side of the autocrats. In Iraq in 2003, and then in Lebanon, an American president bet on the freedom of the Arabs. George W. Bush’s freedom agenda broke with a long history and insisted that the Arabs did not have tyranny in their DNA. A despotism in Baghdad was toppled, a Syrian regime that had all but erased its border with Lebanon was pushed out of its smaller neighbor, bringing an end to three decades of brutal occupation. The “Cedar Revolution” that erupted in the streets of Beirut was but a child of Bush’s diplomacy of freedom.
Arabs know this history even as they say otherwise, even as they tell the pollsters the obligatory things about America the pollsters expect them to say. True, Mr. Bush’s wager on elections in the Palestinian territories rebounded to the benefit of Hamas. But the ballot is not infallible, and the verdict of that election was a statement on the malignancies of Palestinian politics. It was no fault of American diplomacy that the Palestinians, who needed to break with a history of maximalist demands, gave in yet again to radical temptations.
Now the Arabs are face to face with their own history. Instead of George W. Bush there is Barack Hussein Obama, an American leader pledged to a foreign policy of “realism.” The Arabs express fondness for the new American president. In his fashion (and in the fashion of their world and their leaders, it has to be said) President Obama gave the Arabs a speech in Cairo two months ago. It was a moment of theater and therapy. The speech delivered, the foreign visitor was gone. He had put another marker on the globe, another place to which he had taken his astounding belief in his biography and his conviction that another foreign population had been wooed by his oratory and weaned away from anti-Americanism.
The crowd could tell itself that the new standard-bearer of the Pax Americana was a man who understood its concerns, but the embattled modernists and the critics of autocracy knew better. There is no mistaking the animating drive of the new American policy in that Greater Middle East: realism and benign neglect, the safety of the status quo rather than the risks of liberty. (If in doubt, the Arabs could check with their Iranian neighbors. The Persians would tell them of the new mood in Washington.)
One day an Arab chronicle could yet be written, and like all Arab chronicles, it would tell of woes and missed opportunities. It would acknowledge that brief interlude when American power gave Arab autocracies a scare, and when a despotism in Baghdad and a brutal “brotherly” occupation in Beirut were laid to waste. The chroniclers would have to be an honest lot. They would speak the language of daily life, and the truths that Arabs have seen and endured in recent years. On that day, the “human development reports” would be discarded, their writers seen for the purveyors of double-speak and half-truths they were.
Mr. Ajami, a professor at the School of Advanced International Studies at Johns Hopkins University and an adjunct fellow at Stanford University’s Hoover Institution, is the author, among other books, of “The Arab Predicament: Arab Political Thought and Practice since 1967 (Cambridge University Press, 1981).
The Arab world is plagued by despots. But don’t expect the U.N. to give President Bush any credit for challenging this order.
WSJ, Aug 06, 2009
‘It made me feel so jealous,” said Abdulmonem Ibrahim, a young Egyptian political activist, of the recent upheaval in Iran. “We are amazed at the organization and speed with which the Iranian movement has been functioning. In Egypt you can count the number of activists on your hand.” This degree of “Iran envy” is a telling statement on the stagnation of Arab politics. It is not pretty, Iran’s upheaval, but grant the Iranians their due: They have gone out into the streets to contest the writ of the theocrats.
In contrast, little has stirred in Arab politics of late. The Arabs, by their own testimony, have become spectators to their history. A struggle rages between the Iranian theocracy and the Pax Americana for primacy in the Persian Gulf and the Levant. The Arabs have the demography—360 million people by latest count—and the wealth to balance Iran’s power. But they have taken a pass in the hope that America—or Israel, for that matter—would shatter the Iranian bid for hegemony.
We are now in the midst of one of those periodic autopsies of the Arab condition. The trigger is the publication last month of the Arab Human Development Report 2009, the fifth of a series of reports by the by the United Nations Development Program (UNDP) on the state of the contemporary Arab world.
The first of these reports, published in 2002, was treated with deference. A group of Arab truth-tellers, it was believed, had broken with the evasions and the apologetics to tell of the sordid condition of Arab society—the autocratic political culture, the economic stagnation, the cultural decay. So all Arabs combined had a smaller manufacturing capacity than Finland with its five million people, and a vast Arabic-speaking world translated into Arabic a fifth of the foreign books that Greece with its 11 million people translates. With all the oil in the region, tens of millions of Arabs were living below the poverty line.
Little has altered in the years separating the first of these reports from the most recent. A huge oil windfall came into the region, and it was better handled, it has to be conceded, than earlier oil windfalls. But on balance the grief of the Arabs has deepened, and the autocracies are yet to be brought to account. They remain unloved, but they remain in the saddle.
In a clever turn of phrase, The Economist recently wrote of an Arab Rip Abu Winkle awakening from a slumber into which he had fallen in the early 1980s to marvel at how little has changed. He would find Hosni Mubarak still at the helm in Cairo, the policeman Zine el-Abidine Ben Ali in Tunisia, and Moammar Gadhafi in Libya. He would miss Hafez Assad in Damascus, but he would be reassured that his son Bashar had inherited his father’s dominion. He would of course find the same dynasties in Jordan and in the Arab states of the Peninsula and the Gulf.
Wily rulers, the men at the helm may have failed their peoples. They may have denied them decent educational systems. They may not have figured out a way into the modern world economy. But they have mastered the art of political survival. “He who eats the sultan’s bread, fights with the sultan’s sword,” goes an Arabic maxim. The economic dominance of the rulers, the absence of the countervailing power of property and the private sector, has increased the awesome power of the governments and their security establishments.
It is no mystery, this sorrowful decline of the Arabs. They have invested their hopes in states, and the states have failed. According to the UNDP’s report, government revenues as percentage of GDP are 13% in Third World Countries, but they are 25% in the Middle East and North Africa. The oil states are a world apart in that regard: the comparable figures are 68% in Libya, 45% in Saudi Arabia, and 40% in Algeria, Kuwait and Qatar. Oil is no panacea for these lands. The unemployment rates for the Arab world as a whole are the highest in the world, and no prophecy could foresee these societies providing the 51 million jobs the UNDP report says are needed by 2020 to “absorb young entrants to the labor force who would otherwise face an empty future.”
The simple truth is that the Arab world has terrible rulers and worse oppositionists. There are autocrats on one side and theocrats on the other. A timid and fragile middle class is caught in the middle between regimes it abhors and Islamists it fears.
Indeed, the technocrats and intellectuals associated with these development reports are themselves no angels. On the whole, they are unreconstructed Arab nationalists. The patrons of these reports are the likes of the Algerian diplomat Lakhdar Brahimi and the Palestinian leader Hanan Ashrawi, intellectuals and public figures whose stock-in-trade is presumed Western (read American) guilt for the ills that afflict the Arabs. Anti-Americanism suffuses this report, as it did the earlier ones.
There is cruelty and plunder aplenty in the Arab world, but these writers are particularly exercised about Iraq. “This intervention polarized the country,” they say of Iraq. This is a myth of the Arabs who are yet to grant the Iraqis the right to their own history: There had been a secular culture under the Baath, they insist, but the American war begot the sectarianism. To go by this report, Iraq is a place of mayhem and plunder, a land where militias rule uncontested.
For decades, it was the standard argument of the Arabs that America had cast its power in the region on the side of the autocrats. In Iraq in 2003, and then in Lebanon, an American president bet on the freedom of the Arabs. George W. Bush’s freedom agenda broke with a long history and insisted that the Arabs did not have tyranny in their DNA. A despotism in Baghdad was toppled, a Syrian regime that had all but erased its border with Lebanon was pushed out of its smaller neighbor, bringing an end to three decades of brutal occupation. The “Cedar Revolution” that erupted in the streets of Beirut was but a child of Bush’s diplomacy of freedom.
Arabs know this history even as they say otherwise, even as they tell the pollsters the obligatory things about America the pollsters expect them to say. True, Mr. Bush’s wager on elections in the Palestinian territories rebounded to the benefit of Hamas. But the ballot is not infallible, and the verdict of that election was a statement on the malignancies of Palestinian politics. It was no fault of American diplomacy that the Palestinians, who needed to break with a history of maximalist demands, gave in yet again to radical temptations.
Now the Arabs are face to face with their own history. Instead of George W. Bush there is Barack Hussein Obama, an American leader pledged to a foreign policy of “realism.” The Arabs express fondness for the new American president. In his fashion (and in the fashion of their world and their leaders, it has to be said) President Obama gave the Arabs a speech in Cairo two months ago. It was a moment of theater and therapy. The speech delivered, the foreign visitor was gone. He had put another marker on the globe, another place to which he had taken his astounding belief in his biography and his conviction that another foreign population had been wooed by his oratory and weaned away from anti-Americanism.
The crowd could tell itself that the new standard-bearer of the Pax Americana was a man who understood its concerns, but the embattled modernists and the critics of autocracy knew better. There is no mistaking the animating drive of the new American policy in that Greater Middle East: realism and benign neglect, the safety of the status quo rather than the risks of liberty. (If in doubt, the Arabs could check with their Iranian neighbors. The Persians would tell them of the new mood in Washington.)
One day an Arab chronicle could yet be written, and like all Arab chronicles, it would tell of woes and missed opportunities. It would acknowledge that brief interlude when American power gave Arab autocracies a scare, and when a despotism in Baghdad and a brutal “brotherly” occupation in Beirut were laid to waste. The chroniclers would have to be an honest lot. They would speak the language of daily life, and the truths that Arabs have seen and endured in recent years. On that day, the “human development reports” would be discarded, their writers seen for the purveyors of double-speak and half-truths they were.
Mr. Ajami, a professor at the School of Advanced International Studies at Johns Hopkins University and an adjunct fellow at Stanford University’s Hoover Institution, is the author, among other books, of “The Arab Predicament: Arab Political Thought and Practice since 1967 (Cambridge University Press, 1981).
Sunday, July 26, 2009
Morality and Charlie Rangel’s Taxes
Morality and Charlie Rangel’s Taxes. WSJ Editorial
It’s much easier to raise taxes if you don’t pay them.
WSJ, Jul 27, 2009
Ever notice that those who endorse high taxes and those who actually pay them aren’t the same people? Consider the curious case of Ways and Means Chairman Charlie Rangel, who is leading the charge for a new 5.4-percentage point income tax surcharge and recently called it “the moral thing to do.” About his own tax liability he seems less, well, fervent.
Exhibit A concerns a rental property Mr. Rangel purchased in 1987 at the Punta Cana Yacht Club in the Dominican Republic. The rental income from that property ought to be substantial since it is a luxury beach-front villa and is more often than not rented out. But when the National Legal and Policy Center looked at Mr. Rangel’s House financial disclosure forms in August, it noted that his reported income looked suspiciously low. In 2004 and 2005, he reported no more than $5,000, and in 2006 and 2007 no income at all from the property.
The Congressman initially denied there was any unreported income. But reporters quickly showed that the villa is among the most desirable at Punta Cana and that it rents for $500 a night in the low season, and as much as $1,100 a night in peak season. Last year it was fully booked between December 15 and April 15.
Mr. Rangel soon admitted having failed to report rental income of $75,000 over the years. First he blamed his wife for the oversight because he said she was supposed to be managing the property. Then he blamed the language barrier. “Every time I thought I was getting somewhere, they’d start speaking Spanish,” Mr. Rangel explained.
Mr. Rangel promised last fall to amend his tax returns, pay what is due and correct the information on his annual financial disclosure form. But the deadline for the 2008 filing was May 15 and as of last week he still had not filed. His press spokesman declined to answer questions about anything related to his ethics problems.
Besides not paying those pesky taxes, Mr. Rangel had other reasons for wanting to hide income. As the tenant of four rent-stabilized apartments in Harlem, the Congressman needed to keep his annual reported income below $175,000, lest he be ineligible as a hardship case for rent control. (He also used one of the apartments as an office in violation of rent-control rules, but that’s another story.)
Mr. Rangel said last fall that “I never had any idea that I got any income’’ from the villa. Try using that one the next time the IRS comes after you. Equally interesting is his claim that he didn’t know that the developer of the Dominican Republic villa had converted his $52,000 mortgage to an interest-free loan in 1990. That would seem to violate House rules on gifts, which say Members may only accept loans on “terms that are generally available to the public.” Try getting an interest-free loan from your banker.
The National Legal and Policy Center also says it has confirmed that Mr. Rangel owned a home in Washington from 1971-2000 and during that time claimed a “homestead” exemption that allowed him to save on his District of Columbia property taxes. However, the homestead exemption only applies to a principal residence, and the Washington home could not have qualified as such since Mr. Rangel’s rent-stabilized apartments in New York have the same requirement.
The House Ethics Committee is investigating Mr. Rangel on no fewer than six separate issues, including his failure to report the no-interest loan on his Punta Cana villa and his use of rent-stabilized apartments. It is also investigating his fund raising for the Charles B. Rangel Center for Public Service at City College of New York. New York labor attorney Theodore Kheel, one of the principal owners of the Punta Cana resort, is an important donor to the Rangel Center.
All of this has previously appeared in print in one place or another, and we salute the reporters who did the leg work. We thought we’d summarize it now for readers who are confronted with the prospect of much higher tax bills, and who might like to know how a leading Democrat defines “moral” behavior when the taxes hit close to his homes.
It’s much easier to raise taxes if you don’t pay them.
WSJ, Jul 27, 2009
Ever notice that those who endorse high taxes and those who actually pay them aren’t the same people? Consider the curious case of Ways and Means Chairman Charlie Rangel, who is leading the charge for a new 5.4-percentage point income tax surcharge and recently called it “the moral thing to do.” About his own tax liability he seems less, well, fervent.
Exhibit A concerns a rental property Mr. Rangel purchased in 1987 at the Punta Cana Yacht Club in the Dominican Republic. The rental income from that property ought to be substantial since it is a luxury beach-front villa and is more often than not rented out. But when the National Legal and Policy Center looked at Mr. Rangel’s House financial disclosure forms in August, it noted that his reported income looked suspiciously low. In 2004 and 2005, he reported no more than $5,000, and in 2006 and 2007 no income at all from the property.
The Congressman initially denied there was any unreported income. But reporters quickly showed that the villa is among the most desirable at Punta Cana and that it rents for $500 a night in the low season, and as much as $1,100 a night in peak season. Last year it was fully booked between December 15 and April 15.
Mr. Rangel soon admitted having failed to report rental income of $75,000 over the years. First he blamed his wife for the oversight because he said she was supposed to be managing the property. Then he blamed the language barrier. “Every time I thought I was getting somewhere, they’d start speaking Spanish,” Mr. Rangel explained.
Mr. Rangel promised last fall to amend his tax returns, pay what is due and correct the information on his annual financial disclosure form. But the deadline for the 2008 filing was May 15 and as of last week he still had not filed. His press spokesman declined to answer questions about anything related to his ethics problems.
Besides not paying those pesky taxes, Mr. Rangel had other reasons for wanting to hide income. As the tenant of four rent-stabilized apartments in Harlem, the Congressman needed to keep his annual reported income below $175,000, lest he be ineligible as a hardship case for rent control. (He also used one of the apartments as an office in violation of rent-control rules, but that’s another story.)
Mr. Rangel said last fall that “I never had any idea that I got any income’’ from the villa. Try using that one the next time the IRS comes after you. Equally interesting is his claim that he didn’t know that the developer of the Dominican Republic villa had converted his $52,000 mortgage to an interest-free loan in 1990. That would seem to violate House rules on gifts, which say Members may only accept loans on “terms that are generally available to the public.” Try getting an interest-free loan from your banker.
The National Legal and Policy Center also says it has confirmed that Mr. Rangel owned a home in Washington from 1971-2000 and during that time claimed a “homestead” exemption that allowed him to save on his District of Columbia property taxes. However, the homestead exemption only applies to a principal residence, and the Washington home could not have qualified as such since Mr. Rangel’s rent-stabilized apartments in New York have the same requirement.
The House Ethics Committee is investigating Mr. Rangel on no fewer than six separate issues, including his failure to report the no-interest loan on his Punta Cana villa and his use of rent-stabilized apartments. It is also investigating his fund raising for the Charles B. Rangel Center for Public Service at City College of New York. New York labor attorney Theodore Kheel, one of the principal owners of the Punta Cana resort, is an important donor to the Rangel Center.
All of this has previously appeared in print in one place or another, and we salute the reporters who did the leg work. We thought we’d summarize it now for readers who are confronted with the prospect of much higher tax bills, and who might like to know how a leading Democrat defines “moral” behavior when the taxes hit close to his homes.
Wednesday, July 22, 2009
Intimidator in Chief: Bullying CBO
Bullying CBO. WSJ Editorial
Intimidator in Chief
WSJ, Jul 23, 2009
The Washington Post recently ran a story quoting Democrats as bragging that President Obama has deliberately patterned his legislative strategy after LBJ’s, circa 1965.This may explain the treatment of Douglas Elmendorf, the director of the supposedly nonpartisan Congressional Budget Office who last week told Congress that you can’t “save” money on health care by having government insure everyone.
For that bit of truth-telling, he was first excoriated by Senate Majority Leader Harry Reid. Then he was summoned, er, invited to the White House for an extraordinary and inappropriate meeting Monday with President Obama and a phalanx of economic and health-care advisers.
Writing on his blog after news of the meeting became public, Mr. Elmendorf diplomatically noted that “The President asked me and outside experts for our views about achieving cost savings in health reform.” No doubt he did. But Mr. Elmendorf, a Democrat, will also have received the message that continuing apostasy will not be good for his future political career.
As Douglas Holtz-Eakin, the Republican who ran CBO from 2003 to 2005, put it, “The only appearance could be that they’re leaning on him. CBO was created for Congress, for independent analysis. The White House did him [Elmendorf] a terrible disservice.” On second thought, perhaps we’re being unfair to LBJ, whose method was a combination of muscle and flattery. Mr. Obama learned his methods in Chicago.
Intimidator in Chief
WSJ, Jul 23, 2009
The Washington Post recently ran a story quoting Democrats as bragging that President Obama has deliberately patterned his legislative strategy after LBJ’s, circa 1965.This may explain the treatment of Douglas Elmendorf, the director of the supposedly nonpartisan Congressional Budget Office who last week told Congress that you can’t “save” money on health care by having government insure everyone.
For that bit of truth-telling, he was first excoriated by Senate Majority Leader Harry Reid. Then he was summoned, er, invited to the White House for an extraordinary and inappropriate meeting Monday with President Obama and a phalanx of economic and health-care advisers.
Writing on his blog after news of the meeting became public, Mr. Elmendorf diplomatically noted that “The President asked me and outside experts for our views about achieving cost savings in health reform.” No doubt he did. But Mr. Elmendorf, a Democrat, will also have received the message that continuing apostasy will not be good for his future political career.
As Douglas Holtz-Eakin, the Republican who ran CBO from 2003 to 2005, put it, “The only appearance could be that they’re leaning on him. CBO was created for Congress, for independent analysis. The White House did him [Elmendorf] a terrible disservice.” On second thought, perhaps we’re being unfair to LBJ, whose method was a combination of muscle and flattery. Mr. Obama learned his methods in Chicago.
Friday, July 17, 2009
Is Food Aid for Africa Working?
Is Food Aid for Africa Working?: A Wall Street Journal reporter asks if western food aid policies are truly providing aid. By Brian Doherty
Reason Magazine, Jul 17, 2009
Although billions have been spent on foreign development and food aid to Africa in the decades since World War II, over half a billion people remain undernourished in Africa today according to the U.S. Department of Agriculture—a number that's 53 percent higher than it was in 1992 when the government first began accumulating such figures.
While the reasons for continuing poverty are manifold, Western government programs such as food aid and agriculture and ethanol subsidies deserve their share of the blame. So argues the new book Enough: Why the World's Poorest Starve in an Age of Plenty (PublicAffairs), written by Wall Street Journal reporters Roger Thurow and Scott Kilman, each of whom have years of experience writing page-one stories for the Journal on African matters, particularly African famine.
Unlike anti-aid anaylsts such as William Easterly and Dambisa Moyo, Thurow and Kilman see plenty of room for more (intelligent) action on the part of Western governments. In fact, Kilman argues that genuine agricultural development aid has yet to be sufficiently and intelligently attempted.
But their reporting in the Journal and in Enough provides vivid examples of the ways both aid policy and U.S. farm policy hurts, not helps, the long-term well-being of Africans as they struggle for self-sufficiency.
Senior Editor Brian Doherty spoke with Scott Kilman in July.
See interview in the link above.
Reason Magazine, Jul 17, 2009
Although billions have been spent on foreign development and food aid to Africa in the decades since World War II, over half a billion people remain undernourished in Africa today according to the U.S. Department of Agriculture—a number that's 53 percent higher than it was in 1992 when the government first began accumulating such figures.
While the reasons for continuing poverty are manifold, Western government programs such as food aid and agriculture and ethanol subsidies deserve their share of the blame. So argues the new book Enough: Why the World's Poorest Starve in an Age of Plenty (PublicAffairs), written by Wall Street Journal reporters Roger Thurow and Scott Kilman, each of whom have years of experience writing page-one stories for the Journal on African matters, particularly African famine.
Unlike anti-aid anaylsts such as William Easterly and Dambisa Moyo, Thurow and Kilman see plenty of room for more (intelligent) action on the part of Western governments. In fact, Kilman argues that genuine agricultural development aid has yet to be sufficiently and intelligently attempted.
But their reporting in the Journal and in Enough provides vivid examples of the ways both aid policy and U.S. farm policy hurts, not helps, the long-term well-being of Africans as they struggle for self-sufficiency.
Senior Editor Brian Doherty spoke with Scott Kilman in July.
See interview in the link above.
Tuesday, July 14, 2009
Obama Gets It Right on Africa - We'd be glad if the government only skimmed 20%
Obama Gets It Right on Africa. By BRET STEPHENS
We'd be glad if the government only skimmed 20%.
WSJ, Jul 14, 2009
http://online.wsj.com/article/SB124753013433935785.html
There's a striking passage in "Dreams From My Father," in which a young Barack Obama, on safari in Kenya, gets an unembellished picture of everyday African life from his driver, a man named Francis.
"[Francis] said he enjoyed his work with the travel agency but disliked being away from his family. 'If I could, I might prefer farming full-time,' he said, 'but the KCU makes it impossible.'
"'What's the KCU?' I asked.
"'The Kenyan Coffee Union. They are thieves. They regulate what we can plant and when we can plant it. I can only sell my coffee to them, and they sell it overseas. They say to us that prices are dropping, but I know they still get one hundred times what they pay to me. The rest goes where?' Francis shook his head with disgust. 'It's a terrible thing when the government steals from its own people.'"
Terrible indeed. And perhaps it was an echo of Francis's voice that shaped Mr. Obama's speech last Saturday in Ghana, by far the best of his presidency.
Here's some of what Mr. Obama said: "No business wants to invest in a place where the government skims 20% off the top." "The purpose of foreign assistance must be creating the conditions where it's no longer needed." "The West is not responsible for the destruction of the Zimbabwean economy over the last decade, or wars in which children are enlisted as combatants." "We must support strong and sustainable democratic governments." "America can also do more to promote trade and investment." "We have a responsibility to support those who act responsibly and to isolate those who don't, and that is exactly what America will do." "History shows that countries thrive when they . . . create space for small and medium-sized businesses that create jobs."
All this is not only true, it's groundbreaking. Since British Prime Minister Harold Macmillan gave his "Wind of Change" speech (also in Ghana) nearly 50 years ago, Western policy toward Africa has been a matter of throwing money at a guilty conscience (or a client of convenience), no questions asked. The result, as Mr. Obama pointed out, was that countries such as Kenya, which had a larger GDP than South Korea in 1961, "have been badly outpaced."
Maybe it took a president unburdened by that kind of guilt to junk the policy. Or maybe it simply took a conversation with some of the Francises of Africa -- the politically invisible middle classes held down by their own kleptocratic rulers. Whatever the case, Africa will be well served if Mr. Obama can make good on his rhetoric.
Now if only Mr. Obama would apply those same principles to the rest of his agenda, foreign and domestic.
For instance, if trade and investment are good ideas for the U.S.-Africa relationship, why has the Obama administration dragged its feet on free-trade agreements with Colombia and South Korea? Or, if the U.S. owes Africa no apologies for its recent disasters, why has Mr. Obama gone to such lengths to apologize to Iran for the 1953 Mossadegh coup, and, in his Cairo speech, to the entire Muslim world for the politics of the Cold War? Or if Mr. Obama wants to "isolate" irresponsible actors, why does he continue to promise engagement with Iran, Syria, Russia and perhaps North Korea no matter how they behave?
Similarly, while U.S. government officials don't usually demand bribes (at least outside of Illinois), the U.S. corporate tax rate, at 39%, is the second highest in the industrialized world. That's about 10 percentage points higher than the OECD average, or nearly twice the 20% "bribe tax" that scandalizes Mr. Obama.
As for creating "space for small and medium-sized businesses," it's ironic that Mr. Obama would make this point on the same weekend that House Ways and Means Chairman Charlie Rangel is calling for a 3% surtax on the wealthy -- many of whom, as Scott Hodge of the Tax Foundation notes, happen to be business owners. These are the same people now facing the prospect of next year's expiration of the Bush tax cuts and the return to the 55% top rate on estate taxes, another scourge of small-business owners.
Finally, if the $2.3 trillion the West has given in foreign aid over the past five decades -- a "stimulus" package if ever there was one -- has done nothing to raise Africa out of poverty, why does Mr. Obama think that any amount of stimulus spending is going to revive America's economic fortunes? At least in Africa's case, the West could periodically forgive its debts. Who will forgive ours?
In his conversation with Francis, Mr. Obama records his lament that Kenya's "big men" fail to take responsibility for their country:
"'Attitudes aren't so different in America,' I told Francis."
"'You are probably right,' he said. 'But you see, a rich country like America can perhaps afford to be stupid.'"
Somebody make this guy treasury secretary.
We'd be glad if the government only skimmed 20%.
WSJ, Jul 14, 2009
http://online.wsj.com/article/SB124753013433935785.html
There's a striking passage in "Dreams From My Father," in which a young Barack Obama, on safari in Kenya, gets an unembellished picture of everyday African life from his driver, a man named Francis.
"[Francis] said he enjoyed his work with the travel agency but disliked being away from his family. 'If I could, I might prefer farming full-time,' he said, 'but the KCU makes it impossible.'
"'What's the KCU?' I asked.
"'The Kenyan Coffee Union. They are thieves. They regulate what we can plant and when we can plant it. I can only sell my coffee to them, and they sell it overseas. They say to us that prices are dropping, but I know they still get one hundred times what they pay to me. The rest goes where?' Francis shook his head with disgust. 'It's a terrible thing when the government steals from its own people.'"
Terrible indeed. And perhaps it was an echo of Francis's voice that shaped Mr. Obama's speech last Saturday in Ghana, by far the best of his presidency.
Here's some of what Mr. Obama said: "No business wants to invest in a place where the government skims 20% off the top." "The purpose of foreign assistance must be creating the conditions where it's no longer needed." "The West is not responsible for the destruction of the Zimbabwean economy over the last decade, or wars in which children are enlisted as combatants." "We must support strong and sustainable democratic governments." "America can also do more to promote trade and investment." "We have a responsibility to support those who act responsibly and to isolate those who don't, and that is exactly what America will do." "History shows that countries thrive when they . . . create space for small and medium-sized businesses that create jobs."
All this is not only true, it's groundbreaking. Since British Prime Minister Harold Macmillan gave his "Wind of Change" speech (also in Ghana) nearly 50 years ago, Western policy toward Africa has been a matter of throwing money at a guilty conscience (or a client of convenience), no questions asked. The result, as Mr. Obama pointed out, was that countries such as Kenya, which had a larger GDP than South Korea in 1961, "have been badly outpaced."
Maybe it took a president unburdened by that kind of guilt to junk the policy. Or maybe it simply took a conversation with some of the Francises of Africa -- the politically invisible middle classes held down by their own kleptocratic rulers. Whatever the case, Africa will be well served if Mr. Obama can make good on his rhetoric.
Now if only Mr. Obama would apply those same principles to the rest of his agenda, foreign and domestic.
For instance, if trade and investment are good ideas for the U.S.-Africa relationship, why has the Obama administration dragged its feet on free-trade agreements with Colombia and South Korea? Or, if the U.S. owes Africa no apologies for its recent disasters, why has Mr. Obama gone to such lengths to apologize to Iran for the 1953 Mossadegh coup, and, in his Cairo speech, to the entire Muslim world for the politics of the Cold War? Or if Mr. Obama wants to "isolate" irresponsible actors, why does he continue to promise engagement with Iran, Syria, Russia and perhaps North Korea no matter how they behave?
Similarly, while U.S. government officials don't usually demand bribes (at least outside of Illinois), the U.S. corporate tax rate, at 39%, is the second highest in the industrialized world. That's about 10 percentage points higher than the OECD average, or nearly twice the 20% "bribe tax" that scandalizes Mr. Obama.
As for creating "space for small and medium-sized businesses," it's ironic that Mr. Obama would make this point on the same weekend that House Ways and Means Chairman Charlie Rangel is calling for a 3% surtax on the wealthy -- many of whom, as Scott Hodge of the Tax Foundation notes, happen to be business owners. These are the same people now facing the prospect of next year's expiration of the Bush tax cuts and the return to the 55% top rate on estate taxes, another scourge of small-business owners.
Finally, if the $2.3 trillion the West has given in foreign aid over the past five decades -- a "stimulus" package if ever there was one -- has done nothing to raise Africa out of poverty, why does Mr. Obama think that any amount of stimulus spending is going to revive America's economic fortunes? At least in Africa's case, the West could periodically forgive its debts. Who will forgive ours?
In his conversation with Francis, Mr. Obama records his lament that Kenya's "big men" fail to take responsibility for their country:
"'Attitudes aren't so different in America,' I told Francis."
"'You are probably right,' he said. 'But you see, a rich country like America can perhaps afford to be stupid.'"
Somebody make this guy treasury secretary.
Monday, July 13, 2009
The Media and the First Amendment - The Washington Post scandal is really about double standards
The Media and the First Amendment. By BERT GALL and STEVE SIMPSON
The Washington Post scandal is really about double standards.
WSJ, Jul 13, 2009
Our nation's capital is abuzz over the Washington Post's recent indiscretion. The newspaper planned to host a now-canceled salon at the home of Katharine Weymouth, the Post's publisher. For $25,000, lobbyists and corporate executives would be granted exclusive access to members of the Obama administration, Congress, and Post journalists.
Pundits have condemned the Post for acting as an influence peddler. But other news publications routinely host similar events. This shouldn't come as a shock. Media corporations have always had the privilege of influencing politics without the restrictions -- like campaign finance laws -- that other corporations face.
So while this episode has been treated as a scandal of journalistic ethics, it is really about double standards. When other business corporations attempt to influence politics -- by running political ads during elections -- editorial boards rush to condemn the corporations for "buying" elections or "unduly" influencing candidates. We should be concerned, the boards say, because those corporations have too much influence over the political debate. The public needs strict campaign finance laws to protect it from that influence.
The New York Times recently featured an editorial about the Supreme Court's current major campaign finance case, Citizens United v. Federal Election Commission (2009). The editorial counseled the high court against overturning precedent, referring to Austin v. Michigan Chamber of Commerce (1990). That case allows the government to prevent corporations from spending money on electoral advocacy. According to the Times, eliminating the government's power to ban corporate political speech "would be a disaster for democracy."
But if excessive influence is a reason to censor the speech of every other kind of corporation, then it is also a reason to censor the speech of media corporations. After all, the media spend millions of dollars each year on news stories about candidates and editorials endorsing them. This press is worth a lot. For example, the Washington Post's endorsement of Creigh Deeds is widely credited as the biggest factor in his rise from obscurity to victory in Virginia's Democratic gubernatorial primary this year.
So where are the editorials calling for limits on the amounts of "money" -- in the form of coverage and editorials -- media companies devote to candidates?
Of course, you'll hear no such thing from the nation's newspapers and media outlets. Media companies are exempt from campaign finance laws. Many in the press think that the First Amendment entitles them to special protections that don't apply to anyone else.
This is wrong. The Supreme Court has repeatedly made clear that the media's right to free speech is no greater than anyone else's. And in Austin and other campaign finance cases, the Supreme Court noted that the media's exemption from campaign finance laws was discretionary, not mandatory.
In short, the press's favored status is only as strong as Congress says it is, at least under current First Amendment jurisprudence. If, in the wake of the Post scandal, the public begins to believe that media companies are as corrupt as the press claims other corporations are, Congress's view on the matter could change. Alternatively, Congress may come up with some other reason to start limiting the freedom of the press. Congress is currently considering a bill that would throw struggling newspapers an economic lifeline by allowing them to operate as nonprofits -- thereby making their advertising and subscription revenue tax-exempt. The catch? Newspapers that take the deal would no longer be able to endorse political candidates.
This precarious position -- free speech at Congress's discretion -- is not exactly a recipe for a strong and independent press. It's tempting to think that media companies that have called for limits on everyone else's speech will ultimately get what they deserve when Congress gets around to censoring theirs. But that would be a mistake.
The press remains one of the most important bulwarks against tyranny. The solution is to protect free speech on principle, regardless of the identity of the speaker. Banning a corporation from spending its own money for political advocacy is censorship, plain and simple. The sooner the press understands this, the safer its rights -- and ours -- will be.
Messrs. Gall and Simpson are senior attorneys at the Institute for Justice.
The Washington Post scandal is really about double standards.
WSJ, Jul 13, 2009
Our nation's capital is abuzz over the Washington Post's recent indiscretion. The newspaper planned to host a now-canceled salon at the home of Katharine Weymouth, the Post's publisher. For $25,000, lobbyists and corporate executives would be granted exclusive access to members of the Obama administration, Congress, and Post journalists.
Pundits have condemned the Post for acting as an influence peddler. But other news publications routinely host similar events. This shouldn't come as a shock. Media corporations have always had the privilege of influencing politics without the restrictions -- like campaign finance laws -- that other corporations face.
So while this episode has been treated as a scandal of journalistic ethics, it is really about double standards. When other business corporations attempt to influence politics -- by running political ads during elections -- editorial boards rush to condemn the corporations for "buying" elections or "unduly" influencing candidates. We should be concerned, the boards say, because those corporations have too much influence over the political debate. The public needs strict campaign finance laws to protect it from that influence.
The New York Times recently featured an editorial about the Supreme Court's current major campaign finance case, Citizens United v. Federal Election Commission (2009). The editorial counseled the high court against overturning precedent, referring to Austin v. Michigan Chamber of Commerce (1990). That case allows the government to prevent corporations from spending money on electoral advocacy. According to the Times, eliminating the government's power to ban corporate political speech "would be a disaster for democracy."
But if excessive influence is a reason to censor the speech of every other kind of corporation, then it is also a reason to censor the speech of media corporations. After all, the media spend millions of dollars each year on news stories about candidates and editorials endorsing them. This press is worth a lot. For example, the Washington Post's endorsement of Creigh Deeds is widely credited as the biggest factor in his rise from obscurity to victory in Virginia's Democratic gubernatorial primary this year.
So where are the editorials calling for limits on the amounts of "money" -- in the form of coverage and editorials -- media companies devote to candidates?
Of course, you'll hear no such thing from the nation's newspapers and media outlets. Media companies are exempt from campaign finance laws. Many in the press think that the First Amendment entitles them to special protections that don't apply to anyone else.
This is wrong. The Supreme Court has repeatedly made clear that the media's right to free speech is no greater than anyone else's. And in Austin and other campaign finance cases, the Supreme Court noted that the media's exemption from campaign finance laws was discretionary, not mandatory.
In short, the press's favored status is only as strong as Congress says it is, at least under current First Amendment jurisprudence. If, in the wake of the Post scandal, the public begins to believe that media companies are as corrupt as the press claims other corporations are, Congress's view on the matter could change. Alternatively, Congress may come up with some other reason to start limiting the freedom of the press. Congress is currently considering a bill that would throw struggling newspapers an economic lifeline by allowing them to operate as nonprofits -- thereby making their advertising and subscription revenue tax-exempt. The catch? Newspapers that take the deal would no longer be able to endorse political candidates.
This precarious position -- free speech at Congress's discretion -- is not exactly a recipe for a strong and independent press. It's tempting to think that media companies that have called for limits on everyone else's speech will ultimately get what they deserve when Congress gets around to censoring theirs. But that would be a mistake.
The press remains one of the most important bulwarks against tyranny. The solution is to protect free speech on principle, regardless of the identity of the speaker. Banning a corporation from spending its own money for political advocacy is censorship, plain and simple. The sooner the press understands this, the safer its rights -- and ours -- will be.
Messrs. Gall and Simpson are senior attorneys at the Institute for Justice.
Tuesday, June 9, 2009
Putinism's Piranha Stage: Russia's prime minister turns on his loyal friends
Putinism's Piranha Stage. By BRET STEPHENS
Russia's prime minister turns on his loyal friends.
WSJ, Jun 09, 2009
Time was when Oleg Deripaska was Vladimir Putin's best pet. The Russian metals magnate, a skiing buddy of Mr. Putin, was supposed to be the money behind Russia's 2014 Olympic dream. He was big on "patriotic" activities like supporting the Bolshoi. And he had taken the lesson of the ghosts of oligarchs past, which was never to question Mr. Putin's methods, much less his grip on power.
So what was Mr. Deripaska doing last week in the crummy little town of Pikalyovo, 130 miles from St. Petersburg, being led around one of his cement factories by a fire-breathing Mr. Putin, who likened the tycoon to a "cockroach" on Russian national TV?
"You have made thousands of people hostage to your ambitions, your lack of professionalism -- or maybe simply your trivial greed," Mr. Putin berated Mr. Deripaska, before forcing him to pay all outstanding wages and sign a contract for the factory. "Where is the social responsibility of business?" Following which the Russian prime minister was greeted by cheers from the grateful workers.
Welcome to the third stage of Putinism. In Stage One, Mr. Putin played the role of the determined technocratic modernizer who wanted to do nothing more than impose the rule of law on a young democracy spinning into anarchy. This stage ended in October 2003, with the arrest and subsequent conviction and imprisonment of oligarch Mikhail Khodorkovsky on dubious charges of tax evasion and fraud.
In Stage Two, Mr. Putin dispensed with the technocratic mien and, Bonaparte-like, effectively crowned himself czar, surrounded by a new breed of loyal oligarchs and ex-KGB cronies. They generously help themselves to other people's investments, foreign energy companies especially. This stage lasted as long as the rise in energy prices, culminating with last year's invasion of Georgia.
Now we're at Stage Three, in which Mr. Putin morphs into Hugo Chávez, as high-handed as before but with a populist twist. This is the stage in which guys like Mr. Deripaska allow themselves to be publicly humiliated by Mr. Putin, thinking they're taking one for the team when, in fact, they're taking it in the neck.
Here you must be thinking: It couldn't have happened to a nicer guy. Mr. Deripaska rose out of the so-called Aluminum Wars of the 1990s, in which battles for corporate control were waged at a price of dozens of lives. He was once denied a U.S. entry visa "amid concerns about the accuracy of statements he made" to the FBI, according to a 2007 story in this newspaper. (Bob Dole's law firm later resolved the problem for him.) Last year, Mr. Deripaska dismissed issues of press freedoms and democracy as so much humbug, while insisting that "it is a wrong representation of Russia that everything is conducted through the Kremlin. We have a very liberal economy. You can do what you want."
Whoops. Since offering that sage comment, the Russian economy has tanked, unemployment has jumped, the flow of credit has seized up, and Mr. Deripaska has lost about 90% of his previously estimated worth. Small factory towns like Pikalyovo have become the locus of potential civil unrest. In December, riot police had to be flown from Moscow to Vladivostok to deal with protests there. Last week's protest caused a traffic jam stretching a couple hundred miles.
Barring an improbable surge in commodity prices, it's only going to get worse. And while Mr. Putin can play the hero in Pikalyovo, he won't be able to do it for hundreds of other similarly situated towns, even if he winds up hounding Mr. Deripaska and friends into bankruptcy.
So what comes next? Conceivably, Mr. Putin could allow Mr. Deripaska and other oligarchs to rationalize their businesses through a combination of sales and closures. That's about as likely as the Obama administration choosing not to run GM.
More likely, Mr. Putin will try to harness anti-oligarch sentiments by expropriating their assets, keeping the factories running, and getting the state to purchase their output with increasingly worthless rubles. Inflation in Russia is already at 14%; he might gamble that Russians will put up with a spell of hyperinflation until the global economy recovers or a Middle East crisis sends oil prices soaring. (Look for Russia to play an especially unhelpful role vis-à-vis Iran.)
That's the system by which the Soviet Union carried on decade after dreary decade, the only difference being that the old Soviet leadership was sustained by sealed borders, a huge army, foreign adventurism, ideological confidence, and a massive apparatus of fear. Russia probably won't go that way, but don't discount the possibility.
In college I knew a guy who stocked his fish tank with goldfish and piranhas. First the piranhas ate the goldfish. It was horrible to watch. Then he stopped feeding the piranhas, so they ate each other. This was more interesting since there was no fish to feel sorry for. Finally one piranha was left. I don't remember my classmate restocking the tank. The champion piranha starved. This is the theory and logic of third-stage Putinism.
Russia's prime minister turns on his loyal friends.
WSJ, Jun 09, 2009
Time was when Oleg Deripaska was Vladimir Putin's best pet. The Russian metals magnate, a skiing buddy of Mr. Putin, was supposed to be the money behind Russia's 2014 Olympic dream. He was big on "patriotic" activities like supporting the Bolshoi. And he had taken the lesson of the ghosts of oligarchs past, which was never to question Mr. Putin's methods, much less his grip on power.
So what was Mr. Deripaska doing last week in the crummy little town of Pikalyovo, 130 miles from St. Petersburg, being led around one of his cement factories by a fire-breathing Mr. Putin, who likened the tycoon to a "cockroach" on Russian national TV?
"You have made thousands of people hostage to your ambitions, your lack of professionalism -- or maybe simply your trivial greed," Mr. Putin berated Mr. Deripaska, before forcing him to pay all outstanding wages and sign a contract for the factory. "Where is the social responsibility of business?" Following which the Russian prime minister was greeted by cheers from the grateful workers.
Welcome to the third stage of Putinism. In Stage One, Mr. Putin played the role of the determined technocratic modernizer who wanted to do nothing more than impose the rule of law on a young democracy spinning into anarchy. This stage ended in October 2003, with the arrest and subsequent conviction and imprisonment of oligarch Mikhail Khodorkovsky on dubious charges of tax evasion and fraud.
In Stage Two, Mr. Putin dispensed with the technocratic mien and, Bonaparte-like, effectively crowned himself czar, surrounded by a new breed of loyal oligarchs and ex-KGB cronies. They generously help themselves to other people's investments, foreign energy companies especially. This stage lasted as long as the rise in energy prices, culminating with last year's invasion of Georgia.
Now we're at Stage Three, in which Mr. Putin morphs into Hugo Chávez, as high-handed as before but with a populist twist. This is the stage in which guys like Mr. Deripaska allow themselves to be publicly humiliated by Mr. Putin, thinking they're taking one for the team when, in fact, they're taking it in the neck.
Here you must be thinking: It couldn't have happened to a nicer guy. Mr. Deripaska rose out of the so-called Aluminum Wars of the 1990s, in which battles for corporate control were waged at a price of dozens of lives. He was once denied a U.S. entry visa "amid concerns about the accuracy of statements he made" to the FBI, according to a 2007 story in this newspaper. (Bob Dole's law firm later resolved the problem for him.) Last year, Mr. Deripaska dismissed issues of press freedoms and democracy as so much humbug, while insisting that "it is a wrong representation of Russia that everything is conducted through the Kremlin. We have a very liberal economy. You can do what you want."
Whoops. Since offering that sage comment, the Russian economy has tanked, unemployment has jumped, the flow of credit has seized up, and Mr. Deripaska has lost about 90% of his previously estimated worth. Small factory towns like Pikalyovo have become the locus of potential civil unrest. In December, riot police had to be flown from Moscow to Vladivostok to deal with protests there. Last week's protest caused a traffic jam stretching a couple hundred miles.
Barring an improbable surge in commodity prices, it's only going to get worse. And while Mr. Putin can play the hero in Pikalyovo, he won't be able to do it for hundreds of other similarly situated towns, even if he winds up hounding Mr. Deripaska and friends into bankruptcy.
So what comes next? Conceivably, Mr. Putin could allow Mr. Deripaska and other oligarchs to rationalize their businesses through a combination of sales and closures. That's about as likely as the Obama administration choosing not to run GM.
More likely, Mr. Putin will try to harness anti-oligarch sentiments by expropriating their assets, keeping the factories running, and getting the state to purchase their output with increasingly worthless rubles. Inflation in Russia is already at 14%; he might gamble that Russians will put up with a spell of hyperinflation until the global economy recovers or a Middle East crisis sends oil prices soaring. (Look for Russia to play an especially unhelpful role vis-à-vis Iran.)
That's the system by which the Soviet Union carried on decade after dreary decade, the only difference being that the old Soviet leadership was sustained by sealed borders, a huge army, foreign adventurism, ideological confidence, and a massive apparatus of fear. Russia probably won't go that way, but don't discount the possibility.
In college I knew a guy who stocked his fish tank with goldfish and piranhas. First the piranhas ate the goldfish. It was horrible to watch. Then he stopped feeding the piranhas, so they ate each other. This was more interesting since there was no fish to feel sorry for. Finally one piranha was left. I don't remember my classmate restocking the tank. The champion piranha starved. This is the theory and logic of third-stage Putinism.
Holder Winks at Voter Intimidation
Holder Winks at Voter Intimidation. By HANS A. VON SPAKOVSKY
On ballot integrity, the Justice Department is taking us backward.
WSJ, Jun 09, 2009
When Eric Holder became U.S. attorney general, he promised to administer the law in an objective, nonpolitical manner. So it's disappointing that the Justice Department had spent the last several months misinterpreting key voting rights laws for nakedly political reasons.
Exhibit A: Justice's inexplicable dismissal of a civil lawsuit for voter intimidation against the New Black Panther Party. The Black Panthers weren't content to endorse Barack Obama. They sent their members to the polls last November to "patrol election sites." Fox News aired a video of two Black Panthers in military-style uniforms in a Philadelphia precinct. One of them was carrying a nightstick.
The complaint the Justice Department filed in January (before Messrs. Obama and Holder took over) says the Panthers made "racial threats and racial insults" to voters and "menacing and intimidating, gestures, statements and movements directed at individuals who were present to aid voters." One witness, Bartle Bull, a civil-rights lawyer who worked with Charles Evers in Mississippi in the 1960s, called it the worst voter intimidation he had ever seen.
Justice won the suit by default when the Black Panthers and three individual defendants didn't show up in court to deny the allegations. But instead of following through and getting an injunction to prevent this behavior in future elections, the department, now under Mr. Holder, dismissed the lawsuit against all but one of the defendants (the nightstick holder). Even then, Justice requested only a watered-down penalty: an injunction to prevent him from carrying a weapon in a polling place. But only in Philadelphia and only until 2012!
Exhibit B: Justice recently stopped Georgia from implementing a key provision of the Help America Vote Act. Passed in 2002, the act requires states to verify the accuracy of information voters provide on their registration forms by comparing it with state driver's license and Social Security records -- a sensible requirement. With input from Justice Department lawyers in 2008, Georgia implemented this verification process, including checking the citizenship status of applicants. It is a violation of federal and state law for a noncitizen to register and vote in federal and state elections.
Under Georgia's program, anyone flagged as a potential noncitizen would still be registered if he could confirm to local election officials that he was indeed a citizen. Georgia sent letters to over 4,000 potential noncitizens. More than 2,000 failed to confirm their citizenship, strong evidence that noncitizens were prevented from illegally registering and voting.
Has this verification process depressed minority voter turnout, as some claim? Hardly. There has been a 140% increase in Hispanic turnout and a 42% increase in black turnout since the 2004 election.
But Georgia is still covered under the outdated Section 5 of the Voting Rights Act, which requires the state to submit any "change" in voting to the Justice Department for preclearance to assure it is not "discriminatory." On May 29, the department vetoed the state's verification program based on the spurious claim that it would have a "disparate" impact on minority voters -- particularly Asians and Hispanics, who are supposedly "twice as likely to appear on the list" of potential noncitizens than whites. Never mind that only 35% of Hispanics and 58% of Asians in Georgia are citizens. Or that not one eligible individual has come forward to claim this program prevented him from voting in the November election. Georgia was doing exactly what the federal government requires private employers to do in checking the citizenship of all employees.
Justice's objection defies common sense, manipulates federal law, and shows a complete disregard for the integrity of our election process. It is this kind of abuse of the applicable legal standard that is yet one more reason for the Supreme Court to hold, in a Texas case now pending (Northwest Austin Municipal Utility District v. Holder), that the renewal of Section 5 in 2005 was unconstitutional and unjustified. If the Justice Department believes a state voting law is discriminatory it should be required by law to file a lawsuit in federal court to prove it, thus allowing the state to defend itself against the charge. That would certainly be an improvement over the current administrative system, where Justice gets to choose the evidence to consider and be the one to decide its legal effect.
But that's apparently too much for the current administration, which is trying to stop verification of voter registration information. The National Voter Registration Act of 1993 requires states to maintain their voter lists by removing ineligible voters, such as those who have moved or died. In 2005, the Justice Department filed a lawsuit in Missouri against the secretary of state for not cleaning up voter registration lists. (A similar suit was settled with the Indiana secretary of state, who agreed to clean up the state's list.) Justice successfully litigated the Missouri lawsuit all the way up to the Eighth Circuit Court of Appeals, which remanded it to the district court for further proceedings.
Registration numbers from the November 2008 election show that more than a dozen counties in Missouri have more registered voters than the Census shows they have voting-age residents. Clearly, the state isn't keeping its lists current. However, in March, one month after Secretary of State Robin Carnahan (a Democrat and the defendant in the lawsuit) announced she was running for the Senate seat being vacated by Republican Kit Bond, the Justice Department dismissed the lawsuit without explanation.
All of these decisions seriously undermine confidence in the rule of law and our election process. Under the Voting Rights Act, the Department of Justice is charged with protecting voters, no matter what their racial or ethnic background. Under the Help America Vote Act and the National Voter Registration Act, the department is also charged with securing the integrity of the voter registration process. In just the first five months of this administration Justice seems to be moving as fast as it can to defeat that charge.
Mr. Spakovsky is a legal scholar at the Heritage Foundation and a former counsel at the Department of Justice.
On ballot integrity, the Justice Department is taking us backward.
WSJ, Jun 09, 2009
When Eric Holder became U.S. attorney general, he promised to administer the law in an objective, nonpolitical manner. So it's disappointing that the Justice Department had spent the last several months misinterpreting key voting rights laws for nakedly political reasons.
Exhibit A: Justice's inexplicable dismissal of a civil lawsuit for voter intimidation against the New Black Panther Party. The Black Panthers weren't content to endorse Barack Obama. They sent their members to the polls last November to "patrol election sites." Fox News aired a video of two Black Panthers in military-style uniforms in a Philadelphia precinct. One of them was carrying a nightstick.
The complaint the Justice Department filed in January (before Messrs. Obama and Holder took over) says the Panthers made "racial threats and racial insults" to voters and "menacing and intimidating, gestures, statements and movements directed at individuals who were present to aid voters." One witness, Bartle Bull, a civil-rights lawyer who worked with Charles Evers in Mississippi in the 1960s, called it the worst voter intimidation he had ever seen.
Justice won the suit by default when the Black Panthers and three individual defendants didn't show up in court to deny the allegations. But instead of following through and getting an injunction to prevent this behavior in future elections, the department, now under Mr. Holder, dismissed the lawsuit against all but one of the defendants (the nightstick holder). Even then, Justice requested only a watered-down penalty: an injunction to prevent him from carrying a weapon in a polling place. But only in Philadelphia and only until 2012!
Exhibit B: Justice recently stopped Georgia from implementing a key provision of the Help America Vote Act. Passed in 2002, the act requires states to verify the accuracy of information voters provide on their registration forms by comparing it with state driver's license and Social Security records -- a sensible requirement. With input from Justice Department lawyers in 2008, Georgia implemented this verification process, including checking the citizenship status of applicants. It is a violation of federal and state law for a noncitizen to register and vote in federal and state elections.
Under Georgia's program, anyone flagged as a potential noncitizen would still be registered if he could confirm to local election officials that he was indeed a citizen. Georgia sent letters to over 4,000 potential noncitizens. More than 2,000 failed to confirm their citizenship, strong evidence that noncitizens were prevented from illegally registering and voting.
Has this verification process depressed minority voter turnout, as some claim? Hardly. There has been a 140% increase in Hispanic turnout and a 42% increase in black turnout since the 2004 election.
But Georgia is still covered under the outdated Section 5 of the Voting Rights Act, which requires the state to submit any "change" in voting to the Justice Department for preclearance to assure it is not "discriminatory." On May 29, the department vetoed the state's verification program based on the spurious claim that it would have a "disparate" impact on minority voters -- particularly Asians and Hispanics, who are supposedly "twice as likely to appear on the list" of potential noncitizens than whites. Never mind that only 35% of Hispanics and 58% of Asians in Georgia are citizens. Or that not one eligible individual has come forward to claim this program prevented him from voting in the November election. Georgia was doing exactly what the federal government requires private employers to do in checking the citizenship of all employees.
Justice's objection defies common sense, manipulates federal law, and shows a complete disregard for the integrity of our election process. It is this kind of abuse of the applicable legal standard that is yet one more reason for the Supreme Court to hold, in a Texas case now pending (Northwest Austin Municipal Utility District v. Holder), that the renewal of Section 5 in 2005 was unconstitutional and unjustified. If the Justice Department believes a state voting law is discriminatory it should be required by law to file a lawsuit in federal court to prove it, thus allowing the state to defend itself against the charge. That would certainly be an improvement over the current administrative system, where Justice gets to choose the evidence to consider and be the one to decide its legal effect.
But that's apparently too much for the current administration, which is trying to stop verification of voter registration information. The National Voter Registration Act of 1993 requires states to maintain their voter lists by removing ineligible voters, such as those who have moved or died. In 2005, the Justice Department filed a lawsuit in Missouri against the secretary of state for not cleaning up voter registration lists. (A similar suit was settled with the Indiana secretary of state, who agreed to clean up the state's list.) Justice successfully litigated the Missouri lawsuit all the way up to the Eighth Circuit Court of Appeals, which remanded it to the district court for further proceedings.
Registration numbers from the November 2008 election show that more than a dozen counties in Missouri have more registered voters than the Census shows they have voting-age residents. Clearly, the state isn't keeping its lists current. However, in March, one month after Secretary of State Robin Carnahan (a Democrat and the defendant in the lawsuit) announced she was running for the Senate seat being vacated by Republican Kit Bond, the Justice Department dismissed the lawsuit without explanation.
All of these decisions seriously undermine confidence in the rule of law and our election process. Under the Voting Rights Act, the Department of Justice is charged with protecting voters, no matter what their racial or ethnic background. Under the Help America Vote Act and the National Voter Registration Act, the department is also charged with securing the integrity of the voter registration process. In just the first five months of this administration Justice seems to be moving as fast as it can to defeat that charge.
Mr. Spakovsky is a legal scholar at the Heritage Foundation and a former counsel at the Department of Justice.
Tuesday, May 19, 2009
The irresponsible Office of Professional Responsibility
Obama's Injustice Department, by Michael Stokes Paulsen
The irresponsible Office of Professional Responsibility.
The Weekly Standard, May 25, 2009, Volume 014, Issue 34
Government lawyers in the Department of Justice's Office of Professional Responsibility (OPR) appear to have leaked to the press parts of a confidential--and classified--draft report concerning the actions of Bush administration lawyers. The report calls for state bar associations to investigate, and perhaps discipline, attorneys who provided sensitive legal advice to President Bush's administration concerning the legal limits of coercive interrogation methods against high-level al Qaeda terrorists. That advice was, of course, controversial. It is now, in the current political climate, highly unpopular in certain circles. OPR has determined, apparently, that it was "unethical" to give it and that the lawyers involved should be punished.
How many things are wrong with this picture? From the perspective of legal ethics, constitutional law, and good government, I count at least five big problems.
1. The leak itself: Trial by innuendo and media exploitation is a McCarthyite tactic and is forbidden by the canons of legal ethics. So too is a breach of a lawyer's duty of confidentiality. Here, the original leak dates back to December, and it is not hard to discern a reason behind it: OPR's draft report was emphatically rejected by then-Attorney General Michael Mukasey. What's a bureaucrat to do, when his views are repudiated by his boss? In Washington, the answer is to leak the views to the press. But for a lawyer, such conduct is among the most fundamental of ethical violations: The ABA's Rules of Professional Conduct state: "A lawyer shall not reveal information relating to the representation of a client unless the client gives informed consent."
Violating client confidentiality is a grave ethical breach. It is the type of conduct for which shoddy lawyers are routinely disbarred or suspended from the practice of law. In this case, to the extent the disclosure involves classified information, such conduct may well be a federal crime.
If the leak came from, or involved the knowing assistance of, lawyers in the OPR or elsewhere, they should be investigated and disciplined. It is outrageous to think that government "ethics" lawyers would engage in such blatantly unethical conduct. Who watches these watchdogs? OPR's reported actions suggest that the real need is for an ethics investigation of the Justice Department's ethics office.
2. Unconstitutionally outsourcing federal ethics responsibility: Then there is OPR's cowardly attempt to farm out ethics investigations to state bar authorities. This is a transparently political maneuver. It is also contrary to longstanding federal policy--and arguably to the Constitution. The Department of Justice has maintained that regulation of the ethics and conduct of federal government attorneys is a matter for the federal government, acting through the attorney general--not for state bar panels. Were it -otherwise, state officials could interfere with the conduct of federal officials. (Constitutional lawyers will recognize this as a problem under the Supreme Court's famous 1819 decision in McCulloch v. Maryland, which held that state laws may not interfere with federal officers' actions.)
Why would OPR recommend this? To impose political punishment (of a sort) on Bush attorneys, but without bearing accountability. The Obama Justice Department is, rightly, reluctant to take "disciplinary" action itself with respect to the attorneys who advised the prior administration. In the first place, it is not clear what it meaningfully could do since those involved no longer work for the executive branch. Second, it would smack of partisan payback (which it is). What better solution than to outsource the task to "neutral" bar authorities? But this is a transparent façade that should fool no one. And it is a ruse that would come back to harm Democratic as well as Republican administrations: Whenever you disagree strongly with lawyers' advice from a previous administration, don't just change the legal advice, ask state bar associations to investigate. This is an excellent formula only if your goal is to chill candid legal advice and government service by licensing retaliation against lawyers in prior administrations with whose views you disagree.
3. Incompetently assessing lawyers' professional roles: OPR seemingly has no comprehension of the basic principle of legal ethics that a lawyer does not endorse everything his client may wish to do, within the bounds of the law. A lawyer acts properly when he seeks to help his client figure out exactly where the lines are. ABA Rule 1.2(d) provides that lawyers may not counsel clients to engage in conduct they know is illegal, but that a lawyer "may discuss the legal consequences of any proposed course of conduct with a client and may counsel or assist a client to make a good faith effort to determine the validity, scope, meaning or application of the law." It is plain from reading the memos involved that this is exactly what the Bush Justice Department lawyers were doing--discussing with their clients the legal consequences of what they proposed to do and endeavoring to assist them to ascertain the meaning and scope of the laws and constitutional provisions involved.
The leaks suggest that OPR has reviewed internal emails and found what it thinks are indications that the client agencies (the CIA or the White House) wanted the Department of Justice attorneys to come out a certain way or consider specific issues or arguments--that they had a desired or preferred outcome, which would permit harsh interrogations to go forward. Surprise! Clients always have a desired result in mind and would prefer that their lawyers say yes rather than no. Government agencies are, in my experience, no different from any other client in this regard.
But so what? In the absence of smoking-gun evidence that the lawyers had concluded that a proposed course of conduct was illegal, but that they then agreed to provide a "cover" memo whose advice was contrary to that conclusion, there is no ethical problem here at all. There is nothing wrong with a lawyer exhaustively studying all plausible legal avenues that might sustain a client's desired course of conduct. There is nothing wrong with exploring additional arguments that may support a client's proposed course of action, even if those might not have been part of a lawyer's initial thinking. There is nothing wrong even with a lawyer reconsidering or modifying his initial views in the course of such a process.
For OPR to suggest anything else--to suggest that this is a violation of legal ethics principles--would be, in my opinion, an incompetent analysis of the law of legal ethics.
4. Incompetence about competence: Which brings me to a fourth huge flaw in what OPR is said to be reporting: the suggestion that the Bush administration lawyers' legal work failed to satisfy professional standards of "competence." The notion is that failure to cite some specific case, or to discuss some historical precedent, renders the Bush team's legal analysis incompetent.
As a matter of legal ethics law, as applied to the memos in question, this is simply ludicrous. One may well disagree with the conclusions reached in one or more of the memos, or with some of the arguments contained therein. One may well think that the memos should have been written differently--discussed certain points not included, omitted certain arguments that were included; said less, said more. But there is a world of difference between Monday-morning quarterbacking and incompetent lawyering. Anyone who does not recognize that is not thinking straight--is either not himself a good lawyer or is blinded by a partisan agenda. One can make many fair criticisms of the legal memos, but incompetence is not a charge that can fairly be made.
5. Incompetence about the underlying law: Constitutional law, in addition to legal ethics, is one of my areas of teaching and scholarship. In my opinion, the most basic problem with any suggestion of incompetence is that the memos' essential legal conclusions are correct. There is a fundamental distinction in the law between what constitutes actual, legal "torture" under applicable standards and what may be harsh, aggressive, unpleasant interrogation tactics but not, legally, "torture." Reasonable people will come to different conclusions as to where that line is, but the Bush administration's lawyers' conclusions are certainly defensible and, I think, ultimately correct. As a matter of constitutional law, moreover, the Bush administration memos' most sweeping and categorical conclusion--that at all events no statute or treaty may limit the president's sole constitutional powers as military commander in chief to direct and conduct the use of U.S. force--is in my opinion unquestionably correct.
This view is informed by my experience both as a law professor and, nearly two decades ago, as an attorney in the Office of Legal Counsel (OLC) of the Department of Justice--the same office that provided the advice in question during President George W. Bush's administration. The types of constitutional and statutory arguments made in the disputed memos are consistent with longstanding OLC positions with respect to presidential power under Article II of the Constitution. They involve subtle niceties of constitutional law and history. OPR attorneys are, as a rule, not as conversant in such matters. To put the point in terms of legal ethics: Were the Office of Professional Responsibility to purport to pass judgment on the competence of the constitutional and statutory analysis of the OLC memos, it would be straying far beyond its areas of purported competence.
When I teach legal ethics, I tell my students that one aspect of competence is to know what you know and to know what you don't know, and to stay away from the latter. It is fair to wonder whether staff attorneys in OPR--whose actions with respect even to the law of legal -ethics appear so dubious--possess the requisite professional skill, expertise, and knowledge to competently evaluate (let alone second-guess) OLC lawyers' analysis of constitutional law, treaties, international law, and complicated criminal statutes. We will see: If OPR's leaked report becomes public and indeed takes the Bush team to task on grounds of professional legal competence, it will be fair to ask whether OPR attorneys really understand the substantive law they are talking about--or whether the charge of incompetence falls more heavily on their own heads.
Unethical leaks and confidentiality violations; outsourcing federal responsibilities; basic misunderstandings of legal ethics principles; incompetent analysis of constitutional, international, treaty, and statutory law. What more could be wrong with an ethics office's actions? It is hard to know for sure--without seeing OPR's report--the full extent to which it contains all of these problems. But leaked accounts of the OPR's draft report so far call that office's ethics and professionalism into question more than they do those of anyone else.
Michael Stokes Paulsen is university chair and professor of law at the University of St. Thomas, in Minneapolis. He was an attorney-adviser in the Office of Legal Counsel from 1989-91.
The irresponsible Office of Professional Responsibility.
The Weekly Standard, May 25, 2009, Volume 014, Issue 34
Government lawyers in the Department of Justice's Office of Professional Responsibility (OPR) appear to have leaked to the press parts of a confidential--and classified--draft report concerning the actions of Bush administration lawyers. The report calls for state bar associations to investigate, and perhaps discipline, attorneys who provided sensitive legal advice to President Bush's administration concerning the legal limits of coercive interrogation methods against high-level al Qaeda terrorists. That advice was, of course, controversial. It is now, in the current political climate, highly unpopular in certain circles. OPR has determined, apparently, that it was "unethical" to give it and that the lawyers involved should be punished.
How many things are wrong with this picture? From the perspective of legal ethics, constitutional law, and good government, I count at least five big problems.
1. The leak itself: Trial by innuendo and media exploitation is a McCarthyite tactic and is forbidden by the canons of legal ethics. So too is a breach of a lawyer's duty of confidentiality. Here, the original leak dates back to December, and it is not hard to discern a reason behind it: OPR's draft report was emphatically rejected by then-Attorney General Michael Mukasey. What's a bureaucrat to do, when his views are repudiated by his boss? In Washington, the answer is to leak the views to the press. But for a lawyer, such conduct is among the most fundamental of ethical violations: The ABA's Rules of Professional Conduct state: "A lawyer shall not reveal information relating to the representation of a client unless the client gives informed consent."
Violating client confidentiality is a grave ethical breach. It is the type of conduct for which shoddy lawyers are routinely disbarred or suspended from the practice of law. In this case, to the extent the disclosure involves classified information, such conduct may well be a federal crime.
If the leak came from, or involved the knowing assistance of, lawyers in the OPR or elsewhere, they should be investigated and disciplined. It is outrageous to think that government "ethics" lawyers would engage in such blatantly unethical conduct. Who watches these watchdogs? OPR's reported actions suggest that the real need is for an ethics investigation of the Justice Department's ethics office.
2. Unconstitutionally outsourcing federal ethics responsibility: Then there is OPR's cowardly attempt to farm out ethics investigations to state bar authorities. This is a transparently political maneuver. It is also contrary to longstanding federal policy--and arguably to the Constitution. The Department of Justice has maintained that regulation of the ethics and conduct of federal government attorneys is a matter for the federal government, acting through the attorney general--not for state bar panels. Were it -otherwise, state officials could interfere with the conduct of federal officials. (Constitutional lawyers will recognize this as a problem under the Supreme Court's famous 1819 decision in McCulloch v. Maryland, which held that state laws may not interfere with federal officers' actions.)
Why would OPR recommend this? To impose political punishment (of a sort) on Bush attorneys, but without bearing accountability. The Obama Justice Department is, rightly, reluctant to take "disciplinary" action itself with respect to the attorneys who advised the prior administration. In the first place, it is not clear what it meaningfully could do since those involved no longer work for the executive branch. Second, it would smack of partisan payback (which it is). What better solution than to outsource the task to "neutral" bar authorities? But this is a transparent façade that should fool no one. And it is a ruse that would come back to harm Democratic as well as Republican administrations: Whenever you disagree strongly with lawyers' advice from a previous administration, don't just change the legal advice, ask state bar associations to investigate. This is an excellent formula only if your goal is to chill candid legal advice and government service by licensing retaliation against lawyers in prior administrations with whose views you disagree.
3. Incompetently assessing lawyers' professional roles: OPR seemingly has no comprehension of the basic principle of legal ethics that a lawyer does not endorse everything his client may wish to do, within the bounds of the law. A lawyer acts properly when he seeks to help his client figure out exactly where the lines are. ABA Rule 1.2(d) provides that lawyers may not counsel clients to engage in conduct they know is illegal, but that a lawyer "may discuss the legal consequences of any proposed course of conduct with a client and may counsel or assist a client to make a good faith effort to determine the validity, scope, meaning or application of the law." It is plain from reading the memos involved that this is exactly what the Bush Justice Department lawyers were doing--discussing with their clients the legal consequences of what they proposed to do and endeavoring to assist them to ascertain the meaning and scope of the laws and constitutional provisions involved.
The leaks suggest that OPR has reviewed internal emails and found what it thinks are indications that the client agencies (the CIA or the White House) wanted the Department of Justice attorneys to come out a certain way or consider specific issues or arguments--that they had a desired or preferred outcome, which would permit harsh interrogations to go forward. Surprise! Clients always have a desired result in mind and would prefer that their lawyers say yes rather than no. Government agencies are, in my experience, no different from any other client in this regard.
But so what? In the absence of smoking-gun evidence that the lawyers had concluded that a proposed course of conduct was illegal, but that they then agreed to provide a "cover" memo whose advice was contrary to that conclusion, there is no ethical problem here at all. There is nothing wrong with a lawyer exhaustively studying all plausible legal avenues that might sustain a client's desired course of conduct. There is nothing wrong with exploring additional arguments that may support a client's proposed course of action, even if those might not have been part of a lawyer's initial thinking. There is nothing wrong even with a lawyer reconsidering or modifying his initial views in the course of such a process.
For OPR to suggest anything else--to suggest that this is a violation of legal ethics principles--would be, in my opinion, an incompetent analysis of the law of legal ethics.
4. Incompetence about competence: Which brings me to a fourth huge flaw in what OPR is said to be reporting: the suggestion that the Bush administration lawyers' legal work failed to satisfy professional standards of "competence." The notion is that failure to cite some specific case, or to discuss some historical precedent, renders the Bush team's legal analysis incompetent.
As a matter of legal ethics law, as applied to the memos in question, this is simply ludicrous. One may well disagree with the conclusions reached in one or more of the memos, or with some of the arguments contained therein. One may well think that the memos should have been written differently--discussed certain points not included, omitted certain arguments that were included; said less, said more. But there is a world of difference between Monday-morning quarterbacking and incompetent lawyering. Anyone who does not recognize that is not thinking straight--is either not himself a good lawyer or is blinded by a partisan agenda. One can make many fair criticisms of the legal memos, but incompetence is not a charge that can fairly be made.
5. Incompetence about the underlying law: Constitutional law, in addition to legal ethics, is one of my areas of teaching and scholarship. In my opinion, the most basic problem with any suggestion of incompetence is that the memos' essential legal conclusions are correct. There is a fundamental distinction in the law between what constitutes actual, legal "torture" under applicable standards and what may be harsh, aggressive, unpleasant interrogation tactics but not, legally, "torture." Reasonable people will come to different conclusions as to where that line is, but the Bush administration's lawyers' conclusions are certainly defensible and, I think, ultimately correct. As a matter of constitutional law, moreover, the Bush administration memos' most sweeping and categorical conclusion--that at all events no statute or treaty may limit the president's sole constitutional powers as military commander in chief to direct and conduct the use of U.S. force--is in my opinion unquestionably correct.
This view is informed by my experience both as a law professor and, nearly two decades ago, as an attorney in the Office of Legal Counsel (OLC) of the Department of Justice--the same office that provided the advice in question during President George W. Bush's administration. The types of constitutional and statutory arguments made in the disputed memos are consistent with longstanding OLC positions with respect to presidential power under Article II of the Constitution. They involve subtle niceties of constitutional law and history. OPR attorneys are, as a rule, not as conversant in such matters. To put the point in terms of legal ethics: Were the Office of Professional Responsibility to purport to pass judgment on the competence of the constitutional and statutory analysis of the OLC memos, it would be straying far beyond its areas of purported competence.
When I teach legal ethics, I tell my students that one aspect of competence is to know what you know and to know what you don't know, and to stay away from the latter. It is fair to wonder whether staff attorneys in OPR--whose actions with respect even to the law of legal -ethics appear so dubious--possess the requisite professional skill, expertise, and knowledge to competently evaluate (let alone second-guess) OLC lawyers' analysis of constitutional law, treaties, international law, and complicated criminal statutes. We will see: If OPR's leaked report becomes public and indeed takes the Bush team to task on grounds of professional legal competence, it will be fair to ask whether OPR attorneys really understand the substantive law they are talking about--or whether the charge of incompetence falls more heavily on their own heads.
Unethical leaks and confidentiality violations; outsourcing federal responsibilities; basic misunderstandings of legal ethics principles; incompetent analysis of constitutional, international, treaty, and statutory law. What more could be wrong with an ethics office's actions? It is hard to know for sure--without seeing OPR's report--the full extent to which it contains all of these problems. But leaked accounts of the OPR's draft report so far call that office's ethics and professionalism into question more than they do those of anyone else.
Michael Stokes Paulsen is university chair and professor of law at the University of St. Thomas, in Minneapolis. He was an attorney-adviser in the Office of Legal Counsel from 1989-91.
Monday, May 18, 2009
WSJ Editorial Page: Your latest donation to the IMF
What's Another $108 Billion? WSJ Editorial
Your latest donation to the IMF.
WSJ, May 18, 2009
Ah, transparency. Perhaps you've read that the new era of candor in government spending has arrived. Except, apparently, when it comes to the $750 billion that the Obama Administration and other nations have agreed to provide the International Monetary Fund. In this case, it's all opacity all the time.
At the G-20 meeting in April, the world's big shots promised to provide $500 billion under credit lines to the IMF known as "new arrangements to borrow." The U.S. share was said to be $100 billion, which last week we learned is actually $108 billion. The Obama Administration is now asking Congress to appropriate the cash, except that the Congressional Budget Office is only scoring the cost at $5 billion. How so? Because the transaction is being called an "exchange of assets," which means the U.S. gives the IMF the $108 billion and the IMF gives the U.S. a promissory note. Which raises a question: If it costs so little, why not make it $200 billion. Or a trillion? It's free!
Of course it is not. The loan carries risk and that risk may be higher than in the past. IMF rules have long been clear that the IMF's "new arrangement" funds can only be used in an emergency that threatens the stability of the "international monetary system." There has also been an understanding that the money will be repaid in short order.
But in April the G-20 announced that the credit line is to be "expanded and more flexible." An IMF spokesman says the idea of increasing flexibility is that the "money becomes part of the general resources of the fund and if the managing director decides that the fund needs to step in somewhere, it can." This makes it less like an emergency credit line and more like a general contribution to the IMF's overall money pot.
But look on the bright side: At least there's a chance this money will be repaid. Not so with the other big commitment President Obama made in London. We refer to the U.S. portion of the eight-fold increase in the IMF's special drawing rights, or SDRs. SDRs are IMF credit allocations redeemable for subsidized loans from hard-currency fund countries. These loans are almost never repaid.
Prior to last week, there were about $32 billion in SDRs, the U.S. portion of which costs American taxpayers more than $300 million a year. For 12 years Congress has refused to go along with an IMF request to double the SDR account, but Mr. Obama swept all that debate under the carpet in London and agreed to take the total to $250 billion. The U.S. exposure? A cool $40 billion. And since all IMF members are eligible, Iran, Zimbabwe, Sudan, Venezuela and Burma are all candidates for Mr. Obama's generosity.
Speaking of inmates running the asylum, certain "emerging-market" members -- such as China, Brazil, Russia and India -- announced they would not join the U.S. in providing more IMF resources via credit lines for countries in crisis. Instead, they want the fund to issue short-term notes to finance their "contribution," which they could later oh-so-conveniently off-load in the secondary market. These notes will have the implicit guarantee of the U.S., adding one more liability to Washington's balance sheet.
The wheels are greased in Congress to pass this before the public notices, but South Carolina Republican Jim DeMint is trying to force a Senate floor vote on the $108 billion. He'll lose, but at least he's honoring Mr. Obama's pledge of transparency.
Your latest donation to the IMF.
WSJ, May 18, 2009
Ah, transparency. Perhaps you've read that the new era of candor in government spending has arrived. Except, apparently, when it comes to the $750 billion that the Obama Administration and other nations have agreed to provide the International Monetary Fund. In this case, it's all opacity all the time.
At the G-20 meeting in April, the world's big shots promised to provide $500 billion under credit lines to the IMF known as "new arrangements to borrow." The U.S. share was said to be $100 billion, which last week we learned is actually $108 billion. The Obama Administration is now asking Congress to appropriate the cash, except that the Congressional Budget Office is only scoring the cost at $5 billion. How so? Because the transaction is being called an "exchange of assets," which means the U.S. gives the IMF the $108 billion and the IMF gives the U.S. a promissory note. Which raises a question: If it costs so little, why not make it $200 billion. Or a trillion? It's free!
Of course it is not. The loan carries risk and that risk may be higher than in the past. IMF rules have long been clear that the IMF's "new arrangement" funds can only be used in an emergency that threatens the stability of the "international monetary system." There has also been an understanding that the money will be repaid in short order.
But in April the G-20 announced that the credit line is to be "expanded and more flexible." An IMF spokesman says the idea of increasing flexibility is that the "money becomes part of the general resources of the fund and if the managing director decides that the fund needs to step in somewhere, it can." This makes it less like an emergency credit line and more like a general contribution to the IMF's overall money pot.
But look on the bright side: At least there's a chance this money will be repaid. Not so with the other big commitment President Obama made in London. We refer to the U.S. portion of the eight-fold increase in the IMF's special drawing rights, or SDRs. SDRs are IMF credit allocations redeemable for subsidized loans from hard-currency fund countries. These loans are almost never repaid.
Prior to last week, there were about $32 billion in SDRs, the U.S. portion of which costs American taxpayers more than $300 million a year. For 12 years Congress has refused to go along with an IMF request to double the SDR account, but Mr. Obama swept all that debate under the carpet in London and agreed to take the total to $250 billion. The U.S. exposure? A cool $40 billion. And since all IMF members are eligible, Iran, Zimbabwe, Sudan, Venezuela and Burma are all candidates for Mr. Obama's generosity.
Speaking of inmates running the asylum, certain "emerging-market" members -- such as China, Brazil, Russia and India -- announced they would not join the U.S. in providing more IMF resources via credit lines for countries in crisis. Instead, they want the fund to issue short-term notes to finance their "contribution," which they could later oh-so-conveniently off-load in the secondary market. These notes will have the implicit guarantee of the U.S., adding one more liability to Washington's balance sheet.
The wheels are greased in Congress to pass this before the public notices, but South Carolina Republican Jim DeMint is trying to force a Senate floor vote on the $108 billion. He'll lose, but at least he's honoring Mr. Obama's pledge of transparency.
Saturday, April 25, 2009
World Bank Report Card: 'Material weakness' on corruption
World Bank Report Card. WSJ Editorial
'Material weakness' on corruption.
WSJ, Apr 25, 2009
[The IEG report referred to can be requested from us]
The world's finance ministers are gathered in Washington this weekend for the spring meeting of the World Bank, which recently announced that it would spend up to $45 billion over three years for public-works projects alone. But as they shovel the money out the door, they might want to consider how carefully it will be spent -- or misspent.
Last week, the bank quietly released a review of the internal controls of its International Development Association, or IDA, which dispenses about $10 billion a year in long-term, interest-free loans to the world's poorest countries. While broadly congratulating the bank, the review discovered "significant deficiencies" in six areas, from "management oversight of project processes" to "operational risk management." The review also noted that the bank suffered "material weakness" in "the complex of controls to manage the risk of fraud and corruption" in IDA-financed projects. Material weakness is bank-speak for an "F."
The review was commissioned in 2006 during Paul Wolfowitz's tenure and is a first of its kind for the bank. It is the work of the Independent Evaluation Group (IEG), a misnamed unit since its staff are on secondment from the bank and have careers to consider in assessing the work of their colleagues. So consider the review to have been graded on a curve. And at 690 acronym-laced pages, it is almost purposely written to be read by as few people as possible.
Still, give the IEG credit for producing a remarkable rebuke of an institution that likes to boast of its "action plans" and "governance strategies" to reduce corruption. As the review gets around to noting on page 38 of Annex D, while the bank has initiated various initiatives to combat fraud and corruption, "the internal controls to make these effective are not yet in place."
Thus, the IEG reports that the bank's "treatment of F&C [fraud and corruption] considerations has often been sparse." That goes for the bank's design of country strategies and its project supervision. The bank's procurement guidelines, for instance, "were designed to ensure equity and economy, and there is no explicit F&C prevention in these guidelines."
The IEG also faults the bank for what it calls "tone at the top": "There is still fear among some staff that seeking out F&C issues in projects and reporting on observed improprieties may lead to reprisals from their managers, and managerial signals and behavior are not always consistent with these messages. Overall, mixed messages and ambivalence are still considered prevalent."
This ambivalence is reflected in the bank management's response to the IEG findings. While management acknowledged "significant deficiencies" in its handling of fraud and corruption, it rejected the finding of a material weakness. Instead it praised itself for the "assertive and concrete" actions it has taken since Robert Zoellick became president nearly two years ago.
This response reflects the bank management's belief that corruption, while regrettable, is a tolerable cost of the bank's good works. Meanwhile, the only real sanction that would matter -- cutting off corrupt projects -- almost never happens. To wit, the bank has just doled out another quarter-billion dollars to a Kenyan project the corruption of which we reported over a year ago. Bank staff will get the message.
'Material weakness' on corruption.
WSJ, Apr 25, 2009
[The IEG report referred to can be requested from us]
The world's finance ministers are gathered in Washington this weekend for the spring meeting of the World Bank, which recently announced that it would spend up to $45 billion over three years for public-works projects alone. But as they shovel the money out the door, they might want to consider how carefully it will be spent -- or misspent.
Last week, the bank quietly released a review of the internal controls of its International Development Association, or IDA, which dispenses about $10 billion a year in long-term, interest-free loans to the world's poorest countries. While broadly congratulating the bank, the review discovered "significant deficiencies" in six areas, from "management oversight of project processes" to "operational risk management." The review also noted that the bank suffered "material weakness" in "the complex of controls to manage the risk of fraud and corruption" in IDA-financed projects. Material weakness is bank-speak for an "F."
The review was commissioned in 2006 during Paul Wolfowitz's tenure and is a first of its kind for the bank. It is the work of the Independent Evaluation Group (IEG), a misnamed unit since its staff are on secondment from the bank and have careers to consider in assessing the work of their colleagues. So consider the review to have been graded on a curve. And at 690 acronym-laced pages, it is almost purposely written to be read by as few people as possible.
Still, give the IEG credit for producing a remarkable rebuke of an institution that likes to boast of its "action plans" and "governance strategies" to reduce corruption. As the review gets around to noting on page 38 of Annex D, while the bank has initiated various initiatives to combat fraud and corruption, "the internal controls to make these effective are not yet in place."
Thus, the IEG reports that the bank's "treatment of F&C [fraud and corruption] considerations has often been sparse." That goes for the bank's design of country strategies and its project supervision. The bank's procurement guidelines, for instance, "were designed to ensure equity and economy, and there is no explicit F&C prevention in these guidelines."
The IEG also faults the bank for what it calls "tone at the top": "There is still fear among some staff that seeking out F&C issues in projects and reporting on observed improprieties may lead to reprisals from their managers, and managerial signals and behavior are not always consistent with these messages. Overall, mixed messages and ambivalence are still considered prevalent."
This ambivalence is reflected in the bank management's response to the IEG findings. While management acknowledged "significant deficiencies" in its handling of fraud and corruption, it rejected the finding of a material weakness. Instead it praised itself for the "assertive and concrete" actions it has taken since Robert Zoellick became president nearly two years ago.
This response reflects the bank management's belief that corruption, while regrettable, is a tolerable cost of the bank's good works. Meanwhile, the only real sanction that would matter -- cutting off corrupt projects -- almost never happens. To wit, the bank has just doled out another quarter-billion dollars to a Kenyan project the corruption of which we reported over a year ago. Bank staff will get the message.
Monday, April 20, 2009
Zuma: South Africa's likely next president is no Mandela-like godhead
Judging Zuma. By Mark Gevisser
South Africa's likely next president is no Mandela-like godhead.
WSJ, Apr 20. 2009
Campaigning in his kwaZulu-Natal heartland this past week, Jacob Zuma took aim at one of his sharpest critics, the Nobel laureate Archbishop Desmond Tutu. The cleric had "strayed" from his pastoral responsibilities by criticizing him, said Mr. Zuma, who has been fighting charges of fraud and racketeering for much of the past decade: "As far as I know, the role of priests is to pray for the souls of sinners, not condemn them."
The comment, coming from the man destined to be South Africa's next president, marks a watershed in the country's politics. For it is an admission by Mr. Zuma himself that South Africa's leaders are no longer the liberating godheads in the mold of Nelson Mandela. No: They are flawed and even errant human beings, "sinners" making do in an imperfect and often hostile world.
Mr. Zuma, the ruling African National Congress's candidate for president in Wednesday's general elections, was responding to comments by Mr. Tutu that he was unsuitable for the presidency. Like many other South Africans, Mr. Tutu believes the ANC leader is irrevocably compromised by the charges against him, even though they were dropped earlier this month amid findings that the chief investigator had abused the prosecutorial process.
Mr. Zuma insists that he was the victim of a political conspiracy masterminded by his predecessor and rival, former South African president Thabo Mbeki. But at the very least, Mr. Zuma was shown to have lived for a decade off the largesse of a benefactor who actually served time in jail for having solicited a bribe on his behalf.
The National Prosecuting Authority (NPA) insists that despite the "collusion" of the chief investigator with Mr. Zuma's political enemies, the "substantive merits" of the case remain. It would have been far preferable for the matter to have been tested in court rather than prejudged by the NPA, which now stands accused of having been manipulated politically by Mr. Zuma, just as it once was by Mr. Mbeki. What makes this accusation even stronger is that the evidence of prosecutorial abuse -- a series of covert recordings -- was submitted to the authorities by Mr. Zuma himself, who could have only acquired them from the intelligence services.
Many also believe that even though Mr. Zuma was acquitted of rape charges in 2006, he showed appalling judgment by admitting to having had unprotected sex with an HIV-positive woman who regarded him as a "father"; by claiming that he inoculated himself against infection with a postcoital shower; and by allowing a mob of misogynist supporters to wreak havoc outside the court.
With all of the above, not to mention the fact that his finances and personal life are in perpetual shambles (he is a polygamist with several wives and around 20 children) and that he has no formal education, Mr. Zuma would seem ill-suited to the presidency of Africa's most sophisticated state and its flagship democracy.
And yet the ANC leader is likely to win Wednesday's elections with a significant majority (probably more than 60%), and has become a figure of cult popularity, particularly among the poor.
His popularity rests on several foundations. First, the century-old ANC remains "home" to most black South Africans; moving away from it would be tantamount to abandoning one's family. Second, Mr. Zuma's flawed humanity appeals greatly to ordinary people. A man of humble rural origin, he has struggled through life, and many of his supporters identify with his appetites and indiscretions. He styles himself as the purveyor of common home truths rather than the high-minded intellectualisms of his aloof predecessor. Such homeboy populism offers the impression that he is accessible and responsive, in sharp contrast to Mr. Mbeki.
Despite a significant increase in service delivery in the 15 years since the ANC came to power, most South Africans remain desperately poor and feel excluded from the banquet of victory at which a small but ostentatious new black elite now sups. Mr. Zuma himself is perceived to have been ejected from this elite by Mr. Mbeki and his cronies, because he was not sophisticated, educated or slick enough. He is the first ANC leader who does not hail from the small black professional elite. Ordinary people identify with his seeming alienation from this elite and sense, in his extraordinary ascendancy, the possibilities for their own redemption. They relate most of all to his victimhood, and they admire his ability to overcome it.
Mr. Zuma has certainly proven himself a remarkably resilient politician, even if he has earned the reputation of being all things to all people, telling shopfloor audiences one thing and their bosses another, with little indication of a coherent vision. His candidacy was dependent on the active sponsorship of the left, particularly South Africa's powerful labor movement. It remains to be seen whether he will be able to steer the middle ground between his supporters' socialist agendas and the imperatives of the market.
But there are indications that while he will not tamper much with the economic orthodoxies established by his predecessor, he might provoke a return to conservative patriarchy at odds with the liberal democratic values of the Mandela-era ANC. He has often articulated a social conservatism about matters such as teen pregnancy and homosexuality and urged faith communities to challenge those interpretations of the constitution -- such as the right to abortion -- with which they are uncomfortable.
In crime-ridden South Africa he talks tough, but in a way that suggests the easy solutions of vigilantism: He once suggested that murder and rape suspects should forfeit their rights. Recently, he indicated that he would overlook the highly regarded deputy chief justice, Dikgang Moseneke, for a promotion, because Mr. Moseneke once made a statement that he owed his allegiance to the people rather than to the ANC.
Even if he is the victim of a conspiracy, there are troubling signs in the way Mr. Zuma has handled his legal travails and appears to have manipulated the organs of state to have the charges against him dropped. Under Mr. Mbeki and now Mr. Zuma, the ANC has confused party and state to such an extent that South Africa has become a de facto one-party state. The ruling party has become seduced by its own liberation mythologies and has developed an unduly proprietary sense of ownership over South Africa's destiny (Mr. Zuma likes to talk about how it will rule until the messiah's coming). Flowing out of this is a system of patronage and kickback politics that undermines the very "developmental state" it promises to establish. For this reason, many lifelong ANC supporters, myself included, will be voting for the opposition for the first time when we go to the polls on Wednesday.
Mr. Gevisser is Writer in Residence at the University of Pretoria and the author of "A Legacy of Liberation: Thabo Mbeki and the Future of the South African Dream," just out from Palgrave Macmillan.
South Africa's likely next president is no Mandela-like godhead.
WSJ, Apr 20. 2009
Campaigning in his kwaZulu-Natal heartland this past week, Jacob Zuma took aim at one of his sharpest critics, the Nobel laureate Archbishop Desmond Tutu. The cleric had "strayed" from his pastoral responsibilities by criticizing him, said Mr. Zuma, who has been fighting charges of fraud and racketeering for much of the past decade: "As far as I know, the role of priests is to pray for the souls of sinners, not condemn them."
The comment, coming from the man destined to be South Africa's next president, marks a watershed in the country's politics. For it is an admission by Mr. Zuma himself that South Africa's leaders are no longer the liberating godheads in the mold of Nelson Mandela. No: They are flawed and even errant human beings, "sinners" making do in an imperfect and often hostile world.
Mr. Zuma, the ruling African National Congress's candidate for president in Wednesday's general elections, was responding to comments by Mr. Tutu that he was unsuitable for the presidency. Like many other South Africans, Mr. Tutu believes the ANC leader is irrevocably compromised by the charges against him, even though they were dropped earlier this month amid findings that the chief investigator had abused the prosecutorial process.
Mr. Zuma insists that he was the victim of a political conspiracy masterminded by his predecessor and rival, former South African president Thabo Mbeki. But at the very least, Mr. Zuma was shown to have lived for a decade off the largesse of a benefactor who actually served time in jail for having solicited a bribe on his behalf.
The National Prosecuting Authority (NPA) insists that despite the "collusion" of the chief investigator with Mr. Zuma's political enemies, the "substantive merits" of the case remain. It would have been far preferable for the matter to have been tested in court rather than prejudged by the NPA, which now stands accused of having been manipulated politically by Mr. Zuma, just as it once was by Mr. Mbeki. What makes this accusation even stronger is that the evidence of prosecutorial abuse -- a series of covert recordings -- was submitted to the authorities by Mr. Zuma himself, who could have only acquired them from the intelligence services.
Many also believe that even though Mr. Zuma was acquitted of rape charges in 2006, he showed appalling judgment by admitting to having had unprotected sex with an HIV-positive woman who regarded him as a "father"; by claiming that he inoculated himself against infection with a postcoital shower; and by allowing a mob of misogynist supporters to wreak havoc outside the court.
With all of the above, not to mention the fact that his finances and personal life are in perpetual shambles (he is a polygamist with several wives and around 20 children) and that he has no formal education, Mr. Zuma would seem ill-suited to the presidency of Africa's most sophisticated state and its flagship democracy.
And yet the ANC leader is likely to win Wednesday's elections with a significant majority (probably more than 60%), and has become a figure of cult popularity, particularly among the poor.
His popularity rests on several foundations. First, the century-old ANC remains "home" to most black South Africans; moving away from it would be tantamount to abandoning one's family. Second, Mr. Zuma's flawed humanity appeals greatly to ordinary people. A man of humble rural origin, he has struggled through life, and many of his supporters identify with his appetites and indiscretions. He styles himself as the purveyor of common home truths rather than the high-minded intellectualisms of his aloof predecessor. Such homeboy populism offers the impression that he is accessible and responsive, in sharp contrast to Mr. Mbeki.
Despite a significant increase in service delivery in the 15 years since the ANC came to power, most South Africans remain desperately poor and feel excluded from the banquet of victory at which a small but ostentatious new black elite now sups. Mr. Zuma himself is perceived to have been ejected from this elite by Mr. Mbeki and his cronies, because he was not sophisticated, educated or slick enough. He is the first ANC leader who does not hail from the small black professional elite. Ordinary people identify with his seeming alienation from this elite and sense, in his extraordinary ascendancy, the possibilities for their own redemption. They relate most of all to his victimhood, and they admire his ability to overcome it.
Mr. Zuma has certainly proven himself a remarkably resilient politician, even if he has earned the reputation of being all things to all people, telling shopfloor audiences one thing and their bosses another, with little indication of a coherent vision. His candidacy was dependent on the active sponsorship of the left, particularly South Africa's powerful labor movement. It remains to be seen whether he will be able to steer the middle ground between his supporters' socialist agendas and the imperatives of the market.
But there are indications that while he will not tamper much with the economic orthodoxies established by his predecessor, he might provoke a return to conservative patriarchy at odds with the liberal democratic values of the Mandela-era ANC. He has often articulated a social conservatism about matters such as teen pregnancy and homosexuality and urged faith communities to challenge those interpretations of the constitution -- such as the right to abortion -- with which they are uncomfortable.
In crime-ridden South Africa he talks tough, but in a way that suggests the easy solutions of vigilantism: He once suggested that murder and rape suspects should forfeit their rights. Recently, he indicated that he would overlook the highly regarded deputy chief justice, Dikgang Moseneke, for a promotion, because Mr. Moseneke once made a statement that he owed his allegiance to the people rather than to the ANC.
Even if he is the victim of a conspiracy, there are troubling signs in the way Mr. Zuma has handled his legal travails and appears to have manipulated the organs of state to have the charges against him dropped. Under Mr. Mbeki and now Mr. Zuma, the ANC has confused party and state to such an extent that South Africa has become a de facto one-party state. The ruling party has become seduced by its own liberation mythologies and has developed an unduly proprietary sense of ownership over South Africa's destiny (Mr. Zuma likes to talk about how it will rule until the messiah's coming). Flowing out of this is a system of patronage and kickback politics that undermines the very "developmental state" it promises to establish. For this reason, many lifelong ANC supporters, myself included, will be voting for the opposition for the first time when we go to the polls on Wednesday.
Mr. Gevisser is Writer in Residence at the University of Pretoria and the author of "A Legacy of Liberation: Thabo Mbeki and the Future of the South African Dream," just out from Palgrave Macmillan.
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