Red Ink Red Alert. WaPo Editorial
A congressional report should give the president pause.
WaPo, Sunday, March 22, 2009; A18
THE NEW estimates by the Congressional Budget Office showing a federal deficit of 13.1 percent of gross domestic product for the current budget year, which began Oct. 1, are neither surprising nor particularly alarming, though it's larger than the 12.3 percent foreseen by the White House. Both are stunning numbers -- far and away the largest deficit ratio since World War II. But spending rises in recessions and tax revenue falls, and we're in a big recession. It would be counterproductive to balance the budget in this historic downturn. The huge deficit includes $700 billion for a necessary rescue of the financial sector. Nor is it shocking that the CBO forecasts a deficit of 9.6 percent of GDP in fiscal 2010 if Congress enacts President Obama's $3.6 trillion budget plan -- a deficit also much larger than what the president predicted. The difference largely reflects the CBO's economic forecast, which is more up-to-date and, hence, gloomier than the one Mr. Obama relied on.
What is scary, though, is the CBO's depiction of the remaining years of the president's term, and the half-decade after that -- if his budget is enacted. In none of those years would the federal deficit fall below 4.1 percent of GDP -- and it would be stuck at 5.7 percent of GDP in 2019. This is in stark contrast to the president's projection: that his plan would get the deficit down to about 3 percent or so of GDP by that time. It's true, as Peter R. Orszag, director of the Office of Management and Budget, told us, that the CBO's forecasts are subject to large margins of error, especially in the out years. And Mr. Orszag is correct to point out that, even under the CBO's scenario, the deficit as a share of GDP would decline by half under Mr. Obama.
Still, it's less significant to meet that target than to keep the deficits within sustainable bounds, and few experts believe that years of deficits above 4 percent of GDP are consistent with long-term economic vitality. If the CBO's numbers are subject to revision on account of changing circumstances, then so are the administration's; and those were based on very rosy economic assumptions to begin with. Very little of the claimed deficit reduction in the Obama plan comes from policy changes; it results more or less automatically from the assumed end of the recession, as well as by claiming savings in reducing operations in Iraq and Afghanistan from unrealistically high forecasts. Yet both the White House and House Speaker Nancy Pelosi said that the CBO report is no reason to revise the president's ambitious tax and spending blueprint.
Mr. Obama should treat the CBO report as an incentive to fulfill his repeated promises, during and after the campaign, to make hard choices on the budget. Until now he has offered a host of new spending -- on health care, middle-class tax cuts, education and alternative energy -- without calling for much sacrifice from anyone except the top 5 percent of the income scale. Though his emphasis on controlling health-care costs is welcome, it's not a substitute for reforming the entitlement programs that are the drivers of long-term fiscal crisis, Medicare and Social Security. Yet the president has offered no plan for either and no road map even for achieving a plan. Several members of his own party in the Senate have been expressing doubts about his strategy, and the CBO report will lend credibility to their concerns. He should heed them.
Sunday, March 22, 2009
How the U.S. can help revitalize economies in Pakistan and Afghanistan
Plowshares for Peace. WaPo Editorial
How the U.S. can help revitalize economies in Pakistan and Afghanistan
WaPo, Sunday, March 22, 2009; page A18
AS THE Obama administration formulates its strategy for Pakistan and Afghanistan, pretty much everyone agrees that spurring the economy in both countries -- creating jobs -- is key to defusing militancy. The usual prescription is more foreign aid, which is sure to figure in any new plan. But what doesn't always get acknowledged in these discussions is that such aid often doesn't do much good. The United States wasted billions of dollars in Iraqi reconstruction aid, and given the dangerous environment -- which discourages inspection and monitoring -- you can expect a rerun in Afghanistan and Pakistan. A more effective way to boost both economies would be to allow them to export their products tariff-free into the United States. But that idea arouses the enmity of U.S. labor unions, which means that it's not going to get far in a Democratic Congress.
Enter Rep. Chris Van Hollen, Montgomery County Democrat and member of the House leadership, with a practical alternative. Mr. Van Hollen, with co-sponsors, has introduced legislation to create "reconstruction opportunity zones" within both countries. Certain products, including some (not all) textiles, produced within the zones would enjoy duty-free access to the U.S. market for 15 years. This would encourage investment by local businessmen, who best know the terrain, and create jobs. There's no better formula for discouraging Taliban recruitment.
It's not a magic formula, of course. The investment areas have to be drawn widely enough to make the prospect of investment realistic; if you limit them to the most intense battle zones, you're not going to see many jobs created. The bigger they are, though, the likelier the bill will arouse union opposition, so the politics are tricky. Mr. Van Hollen and his co-sponsors -- including Reps. Sander M. Levin (D-Mich), Peter Hoekstra (R-Mich.) and Mark Steven Kirk (R-Ill.) -- have tried to find the sweet spot, and their bill also insists that any factories in the zones meet core international standards in their treatment of workers.
Maybe the strongest argument for the opportunity zones is that there is no down side; the worst that could possibly happen is they don't trigger much investment. But they would immediately provide a signal of U.S. commitment -- the governments of both countries strongly support the idea -- and they could have a substantial positive effect reasonably quickly, at almost no cost to the U.S. Treasury. Congress and the administration should get behind this idea.
How the U.S. can help revitalize economies in Pakistan and Afghanistan
WaPo, Sunday, March 22, 2009; page A18
AS THE Obama administration formulates its strategy for Pakistan and Afghanistan, pretty much everyone agrees that spurring the economy in both countries -- creating jobs -- is key to defusing militancy. The usual prescription is more foreign aid, which is sure to figure in any new plan. But what doesn't always get acknowledged in these discussions is that such aid often doesn't do much good. The United States wasted billions of dollars in Iraqi reconstruction aid, and given the dangerous environment -- which discourages inspection and monitoring -- you can expect a rerun in Afghanistan and Pakistan. A more effective way to boost both economies would be to allow them to export their products tariff-free into the United States. But that idea arouses the enmity of U.S. labor unions, which means that it's not going to get far in a Democratic Congress.
Enter Rep. Chris Van Hollen, Montgomery County Democrat and member of the House leadership, with a practical alternative. Mr. Van Hollen, with co-sponsors, has introduced legislation to create "reconstruction opportunity zones" within both countries. Certain products, including some (not all) textiles, produced within the zones would enjoy duty-free access to the U.S. market for 15 years. This would encourage investment by local businessmen, who best know the terrain, and create jobs. There's no better formula for discouraging Taliban recruitment.
It's not a magic formula, of course. The investment areas have to be drawn widely enough to make the prospect of investment realistic; if you limit them to the most intense battle zones, you're not going to see many jobs created. The bigger they are, though, the likelier the bill will arouse union opposition, so the politics are tricky. Mr. Van Hollen and his co-sponsors -- including Reps. Sander M. Levin (D-Mich), Peter Hoekstra (R-Mich.) and Mark Steven Kirk (R-Ill.) -- have tried to find the sweet spot, and their bill also insists that any factories in the zones meet core international standards in their treatment of workers.
Maybe the strongest argument for the opportunity zones is that there is no down side; the worst that could possibly happen is they don't trigger much investment. But they would immediately provide a signal of U.S. commitment -- the governments of both countries strongly support the idea -- and they could have a substantial positive effect reasonably quickly, at almost no cost to the U.S. Treasury. Congress and the administration should get behind this idea.
Executives Detail Card Check Legislation Compromise
Executives Detail Labor Bill Compromise. By Alec MacGillis
Washington Post, Sunday, March 22, 2009; A02
As business and labor gird for battle over legislation that would make it easier for workers to organize, the debate could be transformed by a "third way" proposed by three companies that like to project a progressive image: Costco, Starbucks and Whole Foods.
Like other businesses, the three companies are opposed to two of the Employee Free Choice Act's components -- a provision that would allow workers to form a union if a majority sign pro-union cards, without having to hold a secret-ballot election, and one that would impose binding arbitration when employers and unions fail to reach a contract after 120 days.
But the companies' chief executive officers say they also recognize that just opposing the legislation, commonly called "card check," is not enough because of the widespread perception in Democrat-dominated Washington that there is not a level playing field between labor and business. So the CEOs have come up with ideas they hope will form the basis of new legislation.
Their proposal would maintain management's right to demand a secret-ballot election and would leave out binding arbitration. The proposal would keep the third main element of card check -- toughening the penalties for companies that retaliate against workers before union elections or refuse to engage in collective bargaining. But it would also toughen penalties for union violations, and it would make it easier for businesses to call elections to try to decertify a union.
To address labor's concern that businesses intimidate workers before elections, it would set a fixed period in which an election must be held, limiting the delays that give employers time to exert pressure. The proposal does not specify what the time period should be.
The proposal would also provide unions equal access to workers before elections -- for instance, by allowing organizers to address workers on a lunch break in the company cafeteria just as management can.
"We wanted to see what we can do to come up with a compromise position that is going to address the concerns of labor and also protect the sanctity of the collective bargaining process and secret ballot," said Costco Wholesale chief executive James D. Sinegal.
Starbucks chief executive Howard Schultz cast the proposal in more defensive terms. "The way the wind is blowing, we're heading toward a bill that is not the right approach," he said. "My responsibility is to not be a bystander but to offer a voice of reason, offer a more positive alternative that levels the playing field."
The effort is being led in Washington by Lanny Davis, a former special counsel to President Bill Clinton. Davis said he had approached about 20 Senate offices and gotten an overwhelmingly encouraging response. The Employee Free Choice Act has majority support in both chambers, but there are signs it may have trouble getting a filibuster-proof 60 votes in the Senate, where several centrist Democrats who previously supported it are expressing reservations.
Sen. Mark Pryor (D-Ark.), a centrist who is ambivalent about card check, praised the companies' proposal. "I appreciate a good-faith effort that could result in a reasonable compromise on what has become a highly polarizing matter," he said.
Davis said he thought that the proposal would intrigue President Obama, who as a senator was a co-sponsor of the card-check bill in 2007 but signaled in an interview before his inauguration that he was also open to other proposals to help organized labor. "This is consistent with President Obama's overall approach of avoiding polarized positions and looking for third-way ideas," Davis said.
The business lobby has been warning against any moves to tweak card check just enough to give centrists cover to support it. And word that a compromise is circulating from three "progressive" companies prompted business groups to warn yesterday against premature compromise.
But it is possible that the proposal will generate even greater opposition among unions and their supporters in Congress. Some business groups say they are open to limited changes in organizing rules, separate from card check -- a position not so far from what the three companies propose.
Labor unions, though, are adamant that workers be able to choose to organize via card check so they can avoid employer intimidation before elections. They say binding arbitration is needed because so many companies refuse to bargain -- nearly half of new unions never even get a contract.
The three CEOs are at odds with those planks. Whole Foods Market chief executive John Mackey said that binding arbitration is "not the way we normally do things in the United States" and that allowing workers to organize without a secret ballot "violates a bedrock principle of American democracy."
And the CEOs also do not share the labor movement's underlying belief that the decline of organized labor has contributed to income inequality and the economy's current imbalance. "That so few companies are unionized is not for a lack of trying but because [unions] are losing elections -- workers aren't choosing to have labor representation," Mackey said. "I don't feel things are worse off for labor today."
Of the three companies, only Costco has a substantial minority of employees that are unionized -- about a fifth of its hourly employees belong to the Teamsters, with whom it has good relations. Starbucks and Whole Foods have resisted most unionizing efforts.
Giving organizers the ability to use card check, Schultz said, would lead to a slew of separate bargaining units at a company like his, leading to "havoc and significant cost and disruption." Mackey had an even grimmer view. "Armed with those weapons, you will see unionization sweep across the United States and set workplaces at war with each other," he said. "I do not think it would be a good thing."
Washington Post, Sunday, March 22, 2009; A02
As business and labor gird for battle over legislation that would make it easier for workers to organize, the debate could be transformed by a "third way" proposed by three companies that like to project a progressive image: Costco, Starbucks and Whole Foods.
Like other businesses, the three companies are opposed to two of the Employee Free Choice Act's components -- a provision that would allow workers to form a union if a majority sign pro-union cards, without having to hold a secret-ballot election, and one that would impose binding arbitration when employers and unions fail to reach a contract after 120 days.
But the companies' chief executive officers say they also recognize that just opposing the legislation, commonly called "card check," is not enough because of the widespread perception in Democrat-dominated Washington that there is not a level playing field between labor and business. So the CEOs have come up with ideas they hope will form the basis of new legislation.
Their proposal would maintain management's right to demand a secret-ballot election and would leave out binding arbitration. The proposal would keep the third main element of card check -- toughening the penalties for companies that retaliate against workers before union elections or refuse to engage in collective bargaining. But it would also toughen penalties for union violations, and it would make it easier for businesses to call elections to try to decertify a union.
To address labor's concern that businesses intimidate workers before elections, it would set a fixed period in which an election must be held, limiting the delays that give employers time to exert pressure. The proposal does not specify what the time period should be.
The proposal would also provide unions equal access to workers before elections -- for instance, by allowing organizers to address workers on a lunch break in the company cafeteria just as management can.
"We wanted to see what we can do to come up with a compromise position that is going to address the concerns of labor and also protect the sanctity of the collective bargaining process and secret ballot," said Costco Wholesale chief executive James D. Sinegal.
Starbucks chief executive Howard Schultz cast the proposal in more defensive terms. "The way the wind is blowing, we're heading toward a bill that is not the right approach," he said. "My responsibility is to not be a bystander but to offer a voice of reason, offer a more positive alternative that levels the playing field."
The effort is being led in Washington by Lanny Davis, a former special counsel to President Bill Clinton. Davis said he had approached about 20 Senate offices and gotten an overwhelmingly encouraging response. The Employee Free Choice Act has majority support in both chambers, but there are signs it may have trouble getting a filibuster-proof 60 votes in the Senate, where several centrist Democrats who previously supported it are expressing reservations.
Sen. Mark Pryor (D-Ark.), a centrist who is ambivalent about card check, praised the companies' proposal. "I appreciate a good-faith effort that could result in a reasonable compromise on what has become a highly polarizing matter," he said.
Davis said he thought that the proposal would intrigue President Obama, who as a senator was a co-sponsor of the card-check bill in 2007 but signaled in an interview before his inauguration that he was also open to other proposals to help organized labor. "This is consistent with President Obama's overall approach of avoiding polarized positions and looking for third-way ideas," Davis said.
The business lobby has been warning against any moves to tweak card check just enough to give centrists cover to support it. And word that a compromise is circulating from three "progressive" companies prompted business groups to warn yesterday against premature compromise.
But it is possible that the proposal will generate even greater opposition among unions and their supporters in Congress. Some business groups say they are open to limited changes in organizing rules, separate from card check -- a position not so far from what the three companies propose.
Labor unions, though, are adamant that workers be able to choose to organize via card check so they can avoid employer intimidation before elections. They say binding arbitration is needed because so many companies refuse to bargain -- nearly half of new unions never even get a contract.
The three CEOs are at odds with those planks. Whole Foods Market chief executive John Mackey said that binding arbitration is "not the way we normally do things in the United States" and that allowing workers to organize without a secret ballot "violates a bedrock principle of American democracy."
And the CEOs also do not share the labor movement's underlying belief that the decline of organized labor has contributed to income inequality and the economy's current imbalance. "That so few companies are unionized is not for a lack of trying but because [unions] are losing elections -- workers aren't choosing to have labor representation," Mackey said. "I don't feel things are worse off for labor today."
Of the three companies, only Costco has a substantial minority of employees that are unionized -- about a fifth of its hourly employees belong to the Teamsters, with whom it has good relations. Starbucks and Whole Foods have resisted most unionizing efforts.
Giving organizers the ability to use card check, Schultz said, would lead to a slew of separate bargaining units at a company like his, leading to "havoc and significant cost and disruption." Mackey had an even grimmer view. "Armed with those weapons, you will see unionization sweep across the United States and set workplaces at war with each other," he said. "I do not think it would be a good thing."
Saturday, March 21, 2009
President Obama's health benefits tax plans
Vindicating McCain. WSJ Editorial
WSJ, Mar 21, 2009
The worst-kept secret on Capitol Hill is that Democrats have always planned to tax health benefits to pay for their "universal" health-care plans. Now White House aides are whispering that they're also open to the idea. Maybe they will all now apologize to John McCain for trashing his proposal to do the same thing in the Presidential campaign.
Democrats are desperately searching for the $1.2 trillion and more they'll need to subsidize middle-class health coverage. With deficits already at epic levels, more spending is politically a harder sell. So they're now circling the tax deduction that employers receive to offer insurance to their workers for the same reason that Willie Sutton robbed banks, because that's where the money is.
Most likely, Democrats will cap the exclusion by income or cost of the health plan, so that those with the most gold-plated benefits pay more for the privilege. The Congressional Budget Office estimates that a ceiling at the 75th percentile of current levels would generate $452 billion over 10 years.
But hold on. John McCain also wanted to reform this tax break, which goes only to business. Individuals don't get the same tax break if they buy insurance themselves. Mr. McCain proposed to gradually replace the workplace deduction with a refundable tax credit available to all Americans, regardless of where they acquired their coverage. Mr. Obama attacked him ruthlessly for it.
"And this is your plan, John," he said at one debate. "For the first time in history, you will be taxing people's health-care benefits." Mr. Obama added that the McCain proposal was "radical," "the biggest middle-class tax increase in history," "out of line with our basic values" and that "the choice you'll have is having your employer no longer provide you health care." Combined with heavy advertising and Mr. McCain's inability to defend his own ideas, these distortions were highly effective.
In a deeply cynical turnabout, the White House now says a tax on employer benefits is acceptable as long as someone else proposes it. We suppose anyone would be embarrassed to endorse a fundamental insight that he once claimed was vile and destructive.
The reality is that the employer-based tax deduction is the original sin of our health-care system. Particularly indefensible is the coverage gap it creates between those who receive it from their employers and those who pay (or can't afford to pay) for their own policies with after-tax dollars. A universal deduction or credit would restore tax parity -- and gradually stimulate the demand for new, less expensive insurance where consumers, not their bosses, are in charge.
This relic of the World War II era has also left us with a health-care financing "system" that only a central planner could love, with neither a functional price mechanism nor the capacity to recognize value. The employer-exclusive deduction has created what is essentially a giant money laundering operation, an endless cycle of third parties lacking any direct stake in controlling costs elsewhere -- when they're not profiting from the waste.
Capping the open-ended tax exclusion is a perfectly sensible idea, which would discipline the excess health insurance that contributes to rising health spending. The problem is that reducing the exclusion means withdrawing a benefit, which is easy to demagogue, as Mr. Obama showed in 2008. It is also unpopular among unions, which have often secured Cadillac health plans in labor contracts. But we suspect the unions will come around if they get the taxpayers to pay for health care instead.
The deeper problem is that Democrats don't want to create a new private market for individual health insurance. Their goal in reducing the employer tax deduction is to apply the revenue to finance a new "public option," a subsidized program modeled after Medicare and open to the middle class that would crowd out private insurers. Another idea is to provide the tax subsidy only to businesses that comply with a new federally mandated benefits package.
The almost certain long-run outcome of these efforts is the total nationalization of health care. Anyone who believed Mr. Obama when he said that under his plan "you can keep your health insurance, keep your choice of doctor, keep your plan" should think twice. Everything else he said during his campaign is obviously subject to change, as John McCain can attest.
WSJ, Mar 21, 2009
The worst-kept secret on Capitol Hill is that Democrats have always planned to tax health benefits to pay for their "universal" health-care plans. Now White House aides are whispering that they're also open to the idea. Maybe they will all now apologize to John McCain for trashing his proposal to do the same thing in the Presidential campaign.
Democrats are desperately searching for the $1.2 trillion and more they'll need to subsidize middle-class health coverage. With deficits already at epic levels, more spending is politically a harder sell. So they're now circling the tax deduction that employers receive to offer insurance to their workers for the same reason that Willie Sutton robbed banks, because that's where the money is.
Most likely, Democrats will cap the exclusion by income or cost of the health plan, so that those with the most gold-plated benefits pay more for the privilege. The Congressional Budget Office estimates that a ceiling at the 75th percentile of current levels would generate $452 billion over 10 years.
But hold on. John McCain also wanted to reform this tax break, which goes only to business. Individuals don't get the same tax break if they buy insurance themselves. Mr. McCain proposed to gradually replace the workplace deduction with a refundable tax credit available to all Americans, regardless of where they acquired their coverage. Mr. Obama attacked him ruthlessly for it.
"And this is your plan, John," he said at one debate. "For the first time in history, you will be taxing people's health-care benefits." Mr. Obama added that the McCain proposal was "radical," "the biggest middle-class tax increase in history," "out of line with our basic values" and that "the choice you'll have is having your employer no longer provide you health care." Combined with heavy advertising and Mr. McCain's inability to defend his own ideas, these distortions were highly effective.
In a deeply cynical turnabout, the White House now says a tax on employer benefits is acceptable as long as someone else proposes it. We suppose anyone would be embarrassed to endorse a fundamental insight that he once claimed was vile and destructive.
The reality is that the employer-based tax deduction is the original sin of our health-care system. Particularly indefensible is the coverage gap it creates between those who receive it from their employers and those who pay (or can't afford to pay) for their own policies with after-tax dollars. A universal deduction or credit would restore tax parity -- and gradually stimulate the demand for new, less expensive insurance where consumers, not their bosses, are in charge.
This relic of the World War II era has also left us with a health-care financing "system" that only a central planner could love, with neither a functional price mechanism nor the capacity to recognize value. The employer-exclusive deduction has created what is essentially a giant money laundering operation, an endless cycle of third parties lacking any direct stake in controlling costs elsewhere -- when they're not profiting from the waste.
Capping the open-ended tax exclusion is a perfectly sensible idea, which would discipline the excess health insurance that contributes to rising health spending. The problem is that reducing the exclusion means withdrawing a benefit, which is easy to demagogue, as Mr. Obama showed in 2008. It is also unpopular among unions, which have often secured Cadillac health plans in labor contracts. But we suspect the unions will come around if they get the taxpayers to pay for health care instead.
The deeper problem is that Democrats don't want to create a new private market for individual health insurance. Their goal in reducing the employer tax deduction is to apply the revenue to finance a new "public option," a subsidized program modeled after Medicare and open to the middle class that would crowd out private insurers. Another idea is to provide the tax subsidy only to businesses that comply with a new federally mandated benefits package.
The almost certain long-run outcome of these efforts is the total nationalization of health care. Anyone who believed Mr. Obama when he said that under his plan "you can keep your health insurance, keep your choice of doctor, keep your plan" should think twice. Everything else he said during his campaign is obviously subject to change, as John McCain can attest.
Governor: Why South Carolina doesn't want 'stimulus'
Why South Carolina doesn't want 'stimulus'. By Mark Sanford
WSJ, Mar 21, 2009
Columbia, S.C.
America's states are laboratories of democracy. They are both affected by, and relevant to, the larger national debate. What we've found in our own corner of the country is that carrying a substantial debt load limits our options when it comes to running government.
A recent report by the American Legislative Exchange Council ranked us 47th worst in the nation for annual debt service as a percentage of tax revenue. Our state dedicates nearly 11% of its annual tax revenue to paying debt. On top of that, South Carolina has another $20 billion in unfunded, long-term political promises for pensions and other liabilities. The state budget has already been cut four times in recent months as the national economic downturn has impacted South Carolina and driven down tax revenue.
President Barack Obama recently signed a "stimulus" bill that will spend about $2 billion through "programmatic means" in South Carolina. In other words, the federal government will put this money directly into existing funding formulas and programs such as Medicaid. But there is an additional $700 million that I as governor have influence over, and it is the disposition of this money that has drawn the national spotlight to South Carolina.
Here's the background: Before the stimulus bill passed, I asked for states not to be bailed out. After it was signed into law, I said that a state bailout would create more problems than it solved, and that we shouldn't spend money we don't have. That debate was lost, so I looked for a reasonable middle ground. I asked the president for his support in using the $700 million to pay down state debt.
If we're going to spend money we don't have at the federal level, it becomes all the more important that our state balance sheet is in good order -- particularly if this is a protracted downturn. But many people do not realize that the stimulus money runs out in 24 months -- at which point South Carolina will be forced to find a new source of funding to sustain the new level of spending, or to make sharp cuts. Sure, I could kick the can down the road; in two years, I'll be safely out of office. But it would be irresponsible.
If South Carolina could use stimulus money to pay down debt, in two years we will be able to spend, cut taxes or invest even if the federal government can no longer provide more money -- not a remote possibility. In fact, paying debt related to education would free up over $162 million in debt service in the first two years and save roughly $125 million in interest payments over the next 13 years -- just as paying off a family's mortgage early frees up money for other uses.
When you're in a hole, the first order of business is stop digging. South Carolina is in a hole, and it's not a shallow one. Spending stimulus money on ongoing programs would mean 10% of our entire state budget would be paid for with one-time federal funds -- the largest recorded level in state history.
Also, spending stimulus money will delay needed state restructuring. General Motors recently found itself in a similar spot. It needs to be restructured if it is to prosper, but a federal bailout enabled it to put off hard decisions. Likewise, taking federal stimulus money will only postpone changes essential to South Carolina's prosperity. Though well-intended, it forestalls hard choices we must make.
One of Mr. Obama's central campaign themes was his pledge to do away with politics of the past. In his inaugural address, he proclaimed "an end to the petty grievances and false promises, the recriminations and worn-out dogmas, that for far too long have strangled our politics."
This idea connected with millions of voters, myself included. I've always believed ideas should rise and fall on their merits. In fact, I saw such historical significance in his candidacy and the change he spoke of that I published an op-ed on it before South Carolina's presidential primary last year. It was not an endorsement, but it did note the historic nature of his candidacy and the potential positive change in tone it represented. That potential may now be disappearing.
Last week I reached out to the president, asking for a federal waiver from restrictions on stimulus money. I got a most unusual response. Before I even received an acknowledgment of the request from the White House, I got word that the Democratic National Committee was launching campaign-style TV attack-ads against me for making it.
Is this the new brand of politics we were promised? Instead of engaging with me and other governors on the merits of our dissent, I am to be attacked in television ads? In the end, I just don't believe a problem created by too much debt will be solved by piling on more debt. This doesn't strike me as an unreasonable or extremist position.
Nevertheless, the White House declined my request for a waiver yesterday afternoon. That's unfortunate. But in coming months we'll continue advancing the debate at the state level about the merits of debt repayment. The fact remains that while we'd all like to spend unlimited dollars on the very real needs that exist in our state, we must spend in the context of what is sustainable.
Mr. Sanford, a Republican, is the governor of South Carolina.
WSJ, Mar 21, 2009
Columbia, S.C.
America's states are laboratories of democracy. They are both affected by, and relevant to, the larger national debate. What we've found in our own corner of the country is that carrying a substantial debt load limits our options when it comes to running government.
A recent report by the American Legislative Exchange Council ranked us 47th worst in the nation for annual debt service as a percentage of tax revenue. Our state dedicates nearly 11% of its annual tax revenue to paying debt. On top of that, South Carolina has another $20 billion in unfunded, long-term political promises for pensions and other liabilities. The state budget has already been cut four times in recent months as the national economic downturn has impacted South Carolina and driven down tax revenue.
President Barack Obama recently signed a "stimulus" bill that will spend about $2 billion through "programmatic means" in South Carolina. In other words, the federal government will put this money directly into existing funding formulas and programs such as Medicaid. But there is an additional $700 million that I as governor have influence over, and it is the disposition of this money that has drawn the national spotlight to South Carolina.
Here's the background: Before the stimulus bill passed, I asked for states not to be bailed out. After it was signed into law, I said that a state bailout would create more problems than it solved, and that we shouldn't spend money we don't have. That debate was lost, so I looked for a reasonable middle ground. I asked the president for his support in using the $700 million to pay down state debt.
If we're going to spend money we don't have at the federal level, it becomes all the more important that our state balance sheet is in good order -- particularly if this is a protracted downturn. But many people do not realize that the stimulus money runs out in 24 months -- at which point South Carolina will be forced to find a new source of funding to sustain the new level of spending, or to make sharp cuts. Sure, I could kick the can down the road; in two years, I'll be safely out of office. But it would be irresponsible.
If South Carolina could use stimulus money to pay down debt, in two years we will be able to spend, cut taxes or invest even if the federal government can no longer provide more money -- not a remote possibility. In fact, paying debt related to education would free up over $162 million in debt service in the first two years and save roughly $125 million in interest payments over the next 13 years -- just as paying off a family's mortgage early frees up money for other uses.
When you're in a hole, the first order of business is stop digging. South Carolina is in a hole, and it's not a shallow one. Spending stimulus money on ongoing programs would mean 10% of our entire state budget would be paid for with one-time federal funds -- the largest recorded level in state history.
Also, spending stimulus money will delay needed state restructuring. General Motors recently found itself in a similar spot. It needs to be restructured if it is to prosper, but a federal bailout enabled it to put off hard decisions. Likewise, taking federal stimulus money will only postpone changes essential to South Carolina's prosperity. Though well-intended, it forestalls hard choices we must make.
One of Mr. Obama's central campaign themes was his pledge to do away with politics of the past. In his inaugural address, he proclaimed "an end to the petty grievances and false promises, the recriminations and worn-out dogmas, that for far too long have strangled our politics."
This idea connected with millions of voters, myself included. I've always believed ideas should rise and fall on their merits. In fact, I saw such historical significance in his candidacy and the change he spoke of that I published an op-ed on it before South Carolina's presidential primary last year. It was not an endorsement, but it did note the historic nature of his candidacy and the potential positive change in tone it represented. That potential may now be disappearing.
Last week I reached out to the president, asking for a federal waiver from restrictions on stimulus money. I got a most unusual response. Before I even received an acknowledgment of the request from the White House, I got word that the Democratic National Committee was launching campaign-style TV attack-ads against me for making it.
Is this the new brand of politics we were promised? Instead of engaging with me and other governors on the merits of our dissent, I am to be attacked in television ads? In the end, I just don't believe a problem created by too much debt will be solved by piling on more debt. This doesn't strike me as an unreasonable or extremist position.
Nevertheless, the White House declined my request for a waiver yesterday afternoon. That's unfortunate. But in coming months we'll continue advancing the debate at the state level about the merits of debt repayment. The fact remains that while we'd all like to spend unlimited dollars on the very real needs that exist in our state, we must spend in the context of what is sustainable.
Mr. Sanford, a Republican, is the governor of South Carolina.
Nobel Prize Becker: Now Is No Time to Give Up on Markets
Now Is No Time to Give Up on Markets. Gary Becker, the winner of the 1992 Nobel Prize in Economic Sciences
WSJ, Mar 21, 2009
"What can we do that would be beneficial? [One thing] is lower corporate taxes and businesses taxes and maybe taxes in general. Particularly, you want to lower the tax on capital so you raise the after-tax return to investing and get more investing going on."
Gary Becker, the winner of the 1992 Nobel Prize in Economic Sciences, is in New York to speak to a special meeting of the Mont Pelerin Society on the global meltdown. He has agreed to sit down to chat with me on the subject of his lecture.
Slumped in a soft chair in a noisy hotel coffee lounge, the 78-year-old University of Chicago professor is relaxed and remarkably humble for a guy who has achieved so much. As I pepper him with the economic and financial riddles of our time, I am impressed by how many times his answers, delivered in a pronounced Brooklyn accent, include an "I think" and sometimes even an "I don't know the answer to that." It is a reminder of why he is so highly valued. In contrast to a number of other big-name practitioners of the dismal science, he is a solid empiricist genuinely in search of answers -- not the job as the next chairman of the Federal Reserve. What he sees is what you get.
What Mr. Becker has seen over a career spanning more than five decades is that free markets are good for human progress. And at a time when increasing government intervention in the economy is all the rage, he insists that economic liberals must not withdraw from the debate simply because their cause, for now, appears quixotic.
As a young academic in 1956, Mr. Becker wrote an important paper against conscription. He was discouraged from publishing it because, at the time, the popular view was that the military draft could never be abolished. Of course it was, and looking back, he says, "that taught me a lesson." Today as Washington appears unstoppable in its quest for more power and lovers of liberty are accused of tilting at windmills, he says it is no time to concede.
Mr. Becker sees the finger prints of big government all over today's economic woes. When I ask him about the sources of the mania in housing prices, the first culprit he names is the Fed. Low interest rates, he says, were "partly, maybe mainly, due to the Fed's policy of keeping [its] interest rates very low during 2002-2004." A second reason rates were low was the "high savings rates primarily from Asia and also from the rest of the world."
"People debate the relative importance of the two and I don't think we know exactly," Mr. Becker admits. But what is clear is that "when you have low interest rates, any long-lived assets tend to go up in price because they are based upon returns accruing over many years. When interest rates are low you don't discount these returns very much and you get high asset prices."
On top of that, Mr. Becker says, there were government policies aimed at "extending the scope of homeownership in the United States to low-credit, low-income families." This was done through "the Community Reinvestment Act in the '70s and then Fannie Mae and Freddie Mac later on" and it put many unqualified borrowers into the mix.
The third effect, Mr. Becker says, was the "bubble mentality." By this "I mean that much of the additional lending and borrowing was based on expectations that prices would continue to rise at rates we now recognize, and should have recognized then, were unsustainable."
Could this behavior be considered rational? "There is a lot of debate in economics about whether we can understand bubbles within a rational framework. There are models where you can do it, but it's not easy," he says. What he does seem sure about is that "the lending would not have continued unless there was this expectation that prices would continue to rise and therefore one could refinance these assets through the higher prices." That mentality was at least partly related to Fed action, he says, because the low interest rates "generated an increase in prices and I think that helped generate some of this excess of optimism."
Mr. Becker says that the market-clearing process, so important to recovery, is well underway. "Construction in new residential housing is way down and prices are way down. Maybe 25% down. Lower prices stimulate demand, reduced construction reduces supply."
That's the good news. But he complains about "counterproductive" government policies "designed to lower mortgage rates to stimulate demand." He says he was against the Bush Treasury's idea of capping mortgage rates (which was only floated) and he has "opposed the mortgage plan of President Obama." "It goes against both these adjustments . . . it would hold up prices and increase construction. I think that's a bad idea at this time."
Yet the professor is no laissez-faire ideologue. He says we have to think about what the government can do to "moderate the hit to the real economy," and he says it should start with "the first law of medicine: Do no harm." Instead it has done harmful things, and chief among them has been the "inconsistent policies with the large institutions . . . We let some big banks fail, like Lehman Brothers. We let less-good banks, big [ones] like Bear Stearns, sort of get bailed out and now we bailed out AIG, an insurance company."
Mr. Becker says that he opposed the "implicit protection" that the government gave to Bear Stearns bondholders to the tune of "$30 billion or so." So I wonder if letting Lehman Brothers go belly up was a good idea. "I'm not sure it was a bad idea, aside from the inconsistency." He points out that "the good assets were bought by Nomura and a number of other banks," and he refers to a paper by Stanford economics professor John Taylor showing that the market initially digested the Lehman failure with calm. It was only days later, Mr. Taylor maintains, that the market panicked when it saw more uncertainty from the Treasury. Mr. Becker says Mr. Taylor's work is "not 100% persuasive but it sort of suggest[s] that maybe the Lehman collapse wasn't the cause of the eventual collapse" of the credit markets.
He returns to the perniciousness of Treasury's inconsistency. "I do believe that in a risky environment which is what we are in now, with the market pricing risk very high, to add additional risk is a big problem, and I think this is what we are doing when we don't have consistent policies. We add to the risk."
On the subject of recovery, Mr. Becker repeats his call for lower taxes, applauds the Fed's action to "raise reserves," (meaning money creation, though he said this before the Fed's action a few days ago), and he says "I do believe one has to try to do something more directly to help with the toxic assets of the banks."
How about getting rid of the mark-to-market pricing of bank assets [that is, pricing assets at the current market price] that some say has destroyed bank capital? Mr. Becker says he prefers mark-to-market over "pricing by cost because costs are often completely out of whack with what the real prices are." Then he adds this qualifier: "But when you have a very thin market, you have to be very careful about what it means to mark-to-market. . . . It's a big problem if you literally take mark-to-market in terms of prices continuously based on transactions when there are very few transactions in that market. I am a mark-to-market person but I think you have to do it in a sensible way."
However that issue is resolved in the short run, there will remain the problem of institutions growing so big that a collapse risks taking down the whole system. To deal with the "too big to fail" problem in the long run, Mr. Becker suggests increasing capital requirements for financial institutions, as the size of the institution increases, "so they can't have [so] much leverage." This, he says, "will discourage banks from getting so big" and "that's fine. That's what we want to do."
Mr. Becker is underwhelmed by the stimulus package: "Much of it doesn't have any short-term stimulus. If you raise research and development, I don't see how it's going to short-run stimulate the economy. You don't have excess unemployed labor in the scientific community, in the research community, or in the wind power creation community, or in the health sector. So I don't see that this will stimulate the economy, but it will raise the debt and lead to inefficient spending and a lot of problems."
There is also the more fundamental question of whether one dollar of government spending can produce one and a half dollars of economic output, as the administration claims. Mr. Becker is more than skeptical. "Keynesianism was out of fashion for so long that we stopped investigating variables the Keynesians would look at such as the multiplier, and there is almost no evidence on what the multiplier would be." He thinks that the paper by Christina Romer, chairman of the Council of Economic Advisors, "saying that the multiplier is about one and a half [is] based on very weak, even nonexistent evidence." His guess? "I think it is a lot less than one. It gets higher in recessions and depressions so it's above zero now but significantly below one. I don't have a number, I haven't estimated it, but I think it would be well below one, let me put it that way."
As the interview winds down, I'm thinking more about how people can make pretty crazy decisions with the right incentives from government. Does this explain what seems to be a decreasing amount of personal responsibility in our culture? "When you get a larger government, when you have the government taking over Social Security, government taking over health care and with further proposals now for the government to take over more activities, more entitlements, the rational response is to have less responsibility. You don't have to worry about things and plan on your own as much."
That suggests that there is a risk to the U.S. system with more people relying on entitlements. "Well, they become an interest group," Mr. Becker says. "The more you have dependence on the government, the stronger the interest group of people who want to maintain it. That's one reason why it is so hard to get any major reform in reducing government spending in Scandinavia and it is increasingly so in the United States. The government is spending -- at the federal, state and local level -- a third of GDP, and that share will go up now. The higher it is the more people who are directly or indirectly dependent on the government. I am worried about that. The basic theory of interest-group politics says that they will have more influence and their influence will be to try to maintain this, and it will be hard to go back."
Still, there remain many good reasons to continue the struggle against the current trend, Mr. Becker says. "When the market economy is compared to alternatives, nothing is better at raising productivity, reducing poverty, improving health and integrating the people of the world."
Ms. O'Grady writes the Journal's Americas column.
WSJ, Mar 21, 2009
"What can we do that would be beneficial? [One thing] is lower corporate taxes and businesses taxes and maybe taxes in general. Particularly, you want to lower the tax on capital so you raise the after-tax return to investing and get more investing going on."
Gary Becker, the winner of the 1992 Nobel Prize in Economic Sciences, is in New York to speak to a special meeting of the Mont Pelerin Society on the global meltdown. He has agreed to sit down to chat with me on the subject of his lecture.
Slumped in a soft chair in a noisy hotel coffee lounge, the 78-year-old University of Chicago professor is relaxed and remarkably humble for a guy who has achieved so much. As I pepper him with the economic and financial riddles of our time, I am impressed by how many times his answers, delivered in a pronounced Brooklyn accent, include an "I think" and sometimes even an "I don't know the answer to that." It is a reminder of why he is so highly valued. In contrast to a number of other big-name practitioners of the dismal science, he is a solid empiricist genuinely in search of answers -- not the job as the next chairman of the Federal Reserve. What he sees is what you get.
What Mr. Becker has seen over a career spanning more than five decades is that free markets are good for human progress. And at a time when increasing government intervention in the economy is all the rage, he insists that economic liberals must not withdraw from the debate simply because their cause, for now, appears quixotic.
As a young academic in 1956, Mr. Becker wrote an important paper against conscription. He was discouraged from publishing it because, at the time, the popular view was that the military draft could never be abolished. Of course it was, and looking back, he says, "that taught me a lesson." Today as Washington appears unstoppable in its quest for more power and lovers of liberty are accused of tilting at windmills, he says it is no time to concede.
Mr. Becker sees the finger prints of big government all over today's economic woes. When I ask him about the sources of the mania in housing prices, the first culprit he names is the Fed. Low interest rates, he says, were "partly, maybe mainly, due to the Fed's policy of keeping [its] interest rates very low during 2002-2004." A second reason rates were low was the "high savings rates primarily from Asia and also from the rest of the world."
"People debate the relative importance of the two and I don't think we know exactly," Mr. Becker admits. But what is clear is that "when you have low interest rates, any long-lived assets tend to go up in price because they are based upon returns accruing over many years. When interest rates are low you don't discount these returns very much and you get high asset prices."
On top of that, Mr. Becker says, there were government policies aimed at "extending the scope of homeownership in the United States to low-credit, low-income families." This was done through "the Community Reinvestment Act in the '70s and then Fannie Mae and Freddie Mac later on" and it put many unqualified borrowers into the mix.
The third effect, Mr. Becker says, was the "bubble mentality." By this "I mean that much of the additional lending and borrowing was based on expectations that prices would continue to rise at rates we now recognize, and should have recognized then, were unsustainable."
Could this behavior be considered rational? "There is a lot of debate in economics about whether we can understand bubbles within a rational framework. There are models where you can do it, but it's not easy," he says. What he does seem sure about is that "the lending would not have continued unless there was this expectation that prices would continue to rise and therefore one could refinance these assets through the higher prices." That mentality was at least partly related to Fed action, he says, because the low interest rates "generated an increase in prices and I think that helped generate some of this excess of optimism."
Mr. Becker says that the market-clearing process, so important to recovery, is well underway. "Construction in new residential housing is way down and prices are way down. Maybe 25% down. Lower prices stimulate demand, reduced construction reduces supply."
That's the good news. But he complains about "counterproductive" government policies "designed to lower mortgage rates to stimulate demand." He says he was against the Bush Treasury's idea of capping mortgage rates (which was only floated) and he has "opposed the mortgage plan of President Obama." "It goes against both these adjustments . . . it would hold up prices and increase construction. I think that's a bad idea at this time."
Yet the professor is no laissez-faire ideologue. He says we have to think about what the government can do to "moderate the hit to the real economy," and he says it should start with "the first law of medicine: Do no harm." Instead it has done harmful things, and chief among them has been the "inconsistent policies with the large institutions . . . We let some big banks fail, like Lehman Brothers. We let less-good banks, big [ones] like Bear Stearns, sort of get bailed out and now we bailed out AIG, an insurance company."
Mr. Becker says that he opposed the "implicit protection" that the government gave to Bear Stearns bondholders to the tune of "$30 billion or so." So I wonder if letting Lehman Brothers go belly up was a good idea. "I'm not sure it was a bad idea, aside from the inconsistency." He points out that "the good assets were bought by Nomura and a number of other banks," and he refers to a paper by Stanford economics professor John Taylor showing that the market initially digested the Lehman failure with calm. It was only days later, Mr. Taylor maintains, that the market panicked when it saw more uncertainty from the Treasury. Mr. Becker says Mr. Taylor's work is "not 100% persuasive but it sort of suggest[s] that maybe the Lehman collapse wasn't the cause of the eventual collapse" of the credit markets.
He returns to the perniciousness of Treasury's inconsistency. "I do believe that in a risky environment which is what we are in now, with the market pricing risk very high, to add additional risk is a big problem, and I think this is what we are doing when we don't have consistent policies. We add to the risk."
On the subject of recovery, Mr. Becker repeats his call for lower taxes, applauds the Fed's action to "raise reserves," (meaning money creation, though he said this before the Fed's action a few days ago), and he says "I do believe one has to try to do something more directly to help with the toxic assets of the banks."
How about getting rid of the mark-to-market pricing of bank assets [that is, pricing assets at the current market price] that some say has destroyed bank capital? Mr. Becker says he prefers mark-to-market over "pricing by cost because costs are often completely out of whack with what the real prices are." Then he adds this qualifier: "But when you have a very thin market, you have to be very careful about what it means to mark-to-market. . . . It's a big problem if you literally take mark-to-market in terms of prices continuously based on transactions when there are very few transactions in that market. I am a mark-to-market person but I think you have to do it in a sensible way."
However that issue is resolved in the short run, there will remain the problem of institutions growing so big that a collapse risks taking down the whole system. To deal with the "too big to fail" problem in the long run, Mr. Becker suggests increasing capital requirements for financial institutions, as the size of the institution increases, "so they can't have [so] much leverage." This, he says, "will discourage banks from getting so big" and "that's fine. That's what we want to do."
Mr. Becker is underwhelmed by the stimulus package: "Much of it doesn't have any short-term stimulus. If you raise research and development, I don't see how it's going to short-run stimulate the economy. You don't have excess unemployed labor in the scientific community, in the research community, or in the wind power creation community, or in the health sector. So I don't see that this will stimulate the economy, but it will raise the debt and lead to inefficient spending and a lot of problems."
There is also the more fundamental question of whether one dollar of government spending can produce one and a half dollars of economic output, as the administration claims. Mr. Becker is more than skeptical. "Keynesianism was out of fashion for so long that we stopped investigating variables the Keynesians would look at such as the multiplier, and there is almost no evidence on what the multiplier would be." He thinks that the paper by Christina Romer, chairman of the Council of Economic Advisors, "saying that the multiplier is about one and a half [is] based on very weak, even nonexistent evidence." His guess? "I think it is a lot less than one. It gets higher in recessions and depressions so it's above zero now but significantly below one. I don't have a number, I haven't estimated it, but I think it would be well below one, let me put it that way."
As the interview winds down, I'm thinking more about how people can make pretty crazy decisions with the right incentives from government. Does this explain what seems to be a decreasing amount of personal responsibility in our culture? "When you get a larger government, when you have the government taking over Social Security, government taking over health care and with further proposals now for the government to take over more activities, more entitlements, the rational response is to have less responsibility. You don't have to worry about things and plan on your own as much."
That suggests that there is a risk to the U.S. system with more people relying on entitlements. "Well, they become an interest group," Mr. Becker says. "The more you have dependence on the government, the stronger the interest group of people who want to maintain it. That's one reason why it is so hard to get any major reform in reducing government spending in Scandinavia and it is increasingly so in the United States. The government is spending -- at the federal, state and local level -- a third of GDP, and that share will go up now. The higher it is the more people who are directly or indirectly dependent on the government. I am worried about that. The basic theory of interest-group politics says that they will have more influence and their influence will be to try to maintain this, and it will be hard to go back."
Still, there remain many good reasons to continue the struggle against the current trend, Mr. Becker says. "When the market economy is compared to alternatives, nothing is better at raising productivity, reducing poverty, improving health and integrating the people of the world."
Ms. O'Grady writes the Journal's Americas column.
Japan, China differ over how to deal with North Korea
Japan, China differ over how to deal with North Korea
Saturday March 21, 2009, 06:50 AM JST
BEIJING —
Japanese and Chinese defense ministers agreed Friday it would be best if North Korea refrains from a planned rocket launch, but made demands to each other over ways to deal with the issue. While Japan asked China, North Korea’s traditional ally, to urge Pyongyang’s restraint, Beijing asked Tokyo to handle the issue ‘‘in a calm manner,’’ Japanese Defense Minister Yasukazu Hamada and a Japanese government official said.
North Korea’s planned rocket launch was a topic in Hamada’s meetings with his Chinese counterpart Liang Guanglie as well as Wu Bangguo, chairman of China’s legislature. Liang said ‘‘it would be best if North Korea did not fire’’ the rocket, Hamada said. But he added that countries such as Japan ‘‘should take a cool-headed attitude’’ on the issue, he said.
The Chinese official was believed to be reacting to recent discussions in Japan about intercepting the rocket, which North Korea has said will be launched in early April to put a satellite into orbit.
Countries such as Japan suspect the plan to be a cover for testing a long-range ballistic missile, given the similarities between the technology involved.
Japan has said that even if it is a satellite launch, North Korea would be violating existing U.N. Security Council resolutions that prohibit it from engaging in ballistic missile activities.
China has taken a more nuanced approach. Although it has indicated its desire for North Korea to refrain from the launch, it has not said whether it would view the act as a violation of the resolutions.
Hamada said that Chinese officials did not clarify what Beijing plans to do if the launch takes place.
A Japanese government official said that while Hamada urged China to urge North Korea’s restraint in his meeting with Wu, there was no direct response from the Chinese official.
In their talks, the two defense ministers agreed that the two countries will seek ways to cooperate in antipiracy operations off the coast of Somalia, according to the Japanese government official. Both countries have committed naval vessels to the operations.
Hamada also conveyed Japan’s concern over China’s growing military spending, which will mark the 21st year of double-digit growth in 2009, the official said.
Liang replied that there is no need for concern because Beijing’s policy is defensive, according to the official.
Liang also touched on China’s intention to build an aircraft carrier, telling Hamada that China is the only major nation in the world not to have one, the official said.
‘‘China has a vast sea area and the Chinese Navy needs to develop,’’ the official quoted Liang as saying.
Saturday March 21, 2009, 06:50 AM JST
BEIJING —
Japanese and Chinese defense ministers agreed Friday it would be best if North Korea refrains from a planned rocket launch, but made demands to each other over ways to deal with the issue. While Japan asked China, North Korea’s traditional ally, to urge Pyongyang’s restraint, Beijing asked Tokyo to handle the issue ‘‘in a calm manner,’’ Japanese Defense Minister Yasukazu Hamada and a Japanese government official said.
North Korea’s planned rocket launch was a topic in Hamada’s meetings with his Chinese counterpart Liang Guanglie as well as Wu Bangguo, chairman of China’s legislature. Liang said ‘‘it would be best if North Korea did not fire’’ the rocket, Hamada said. But he added that countries such as Japan ‘‘should take a cool-headed attitude’’ on the issue, he said.
The Chinese official was believed to be reacting to recent discussions in Japan about intercepting the rocket, which North Korea has said will be launched in early April to put a satellite into orbit.
Countries such as Japan suspect the plan to be a cover for testing a long-range ballistic missile, given the similarities between the technology involved.
Japan has said that even if it is a satellite launch, North Korea would be violating existing U.N. Security Council resolutions that prohibit it from engaging in ballistic missile activities.
China has taken a more nuanced approach. Although it has indicated its desire for North Korea to refrain from the launch, it has not said whether it would view the act as a violation of the resolutions.
Hamada said that Chinese officials did not clarify what Beijing plans to do if the launch takes place.
A Japanese government official said that while Hamada urged China to urge North Korea’s restraint in his meeting with Wu, there was no direct response from the Chinese official.
In their talks, the two defense ministers agreed that the two countries will seek ways to cooperate in antipiracy operations off the coast of Somalia, according to the Japanese government official. Both countries have committed naval vessels to the operations.
Hamada also conveyed Japan’s concern over China’s growing military spending, which will mark the 21st year of double-digit growth in 2009, the official said.
Liang replied that there is no need for concern because Beijing’s policy is defensive, according to the official.
Liang also touched on China’s intention to build an aircraft carrier, telling Hamada that China is the only major nation in the world not to have one, the official said.
‘‘China has a vast sea area and the Chinese Navy needs to develop,’’ the official quoted Liang as saying.
WaPo on El Salvador's election: A presidential election produces a win for the left -- and for liberal democracy
Victory in El Salvador. WaPo Editorial
A presidential election produces a win for the left -- and for liberal democracy.
WaPo, Saturday, March 21, 2009; Page A12
IT'S POSSIBLE to view the outcome of El Salvador's presidential election on Sunday as another lamentable victory for the Latin American leftist populism represented by Hugo Chávez. Mr. Chávez himself was quick to do so, and with some reason: His Venezuelan government has been a financial backer of the Farabundo Marti National Liberation Front, the former guerrilla movement whose candidate, Mauricio Funes, won a narrow victory. But El Salvador's election was also a triumph for a system that Mr. Chávez has disregarded: liberal democracy. Seventeen years after the United Nations brokered a peace accord between the country's left and right -- and after four consecutive election victories by the rightist Nationalist Republican Alliance (ARENA) -- democracy produced an inevitable and necessary alternation of power.
If Mr. Funes as well as the election's losers now respect the rule of law, the result could be the consolidation of the political system the United States was aiming for when it intervened in El Salvador's civil war during the 1980s. At the time, the goal of a successful Salvadoran democracy was dismissed as a mission impossible, just as some now say democracy is unattainable in Iraq and Afghanistan. But the right-wing ARENA party, whose leaders were linked to death squads in the 1980s, proved during the last few years that it could embrace democratic practices. Its presidential candidate, Rodrigo Ávila, acknowledged his defeat on election night.
Now Mr. Funes, a former television anchor who did not fight in the war, is sending the message that the FMLN will also govern responsibly. Among other things, he has said that he will respect private property, preserve El Salvador's free-trade agreements and its use of the dollar as its currency, and seek to preserve close relations with the United States. As his political model, he has cited not Mr. Chávez, but Brazilian President Luiz Inácio Lula da Silva, who has led his country leftward while honoring democracy and the rule of law.
There are reasons for concern about these pledges: Mr. Funes's vice president and other senior FMLN members are more militant and anti-American. The danger is not that they will press for more socialism -- that is their right -- but that they will, like Mr. Chávez or Daniel Ortega in Nicaragua, seek to manipulate or dismantle the democratic system that placed them in office. The Obama administration should make clear to the new government that steps in that direction will endanger relations with the United States. But it should also seek to cooperate with a government that has the potential to complete a victory for Latin American democracy -- and U.S. foreign policy.
A presidential election produces a win for the left -- and for liberal democracy.
WaPo, Saturday, March 21, 2009; Page A12
IT'S POSSIBLE to view the outcome of El Salvador's presidential election on Sunday as another lamentable victory for the Latin American leftist populism represented by Hugo Chávez. Mr. Chávez himself was quick to do so, and with some reason: His Venezuelan government has been a financial backer of the Farabundo Marti National Liberation Front, the former guerrilla movement whose candidate, Mauricio Funes, won a narrow victory. But El Salvador's election was also a triumph for a system that Mr. Chávez has disregarded: liberal democracy. Seventeen years after the United Nations brokered a peace accord between the country's left and right -- and after four consecutive election victories by the rightist Nationalist Republican Alliance (ARENA) -- democracy produced an inevitable and necessary alternation of power.
If Mr. Funes as well as the election's losers now respect the rule of law, the result could be the consolidation of the political system the United States was aiming for when it intervened in El Salvador's civil war during the 1980s. At the time, the goal of a successful Salvadoran democracy was dismissed as a mission impossible, just as some now say democracy is unattainable in Iraq and Afghanistan. But the right-wing ARENA party, whose leaders were linked to death squads in the 1980s, proved during the last few years that it could embrace democratic practices. Its presidential candidate, Rodrigo Ávila, acknowledged his defeat on election night.
Now Mr. Funes, a former television anchor who did not fight in the war, is sending the message that the FMLN will also govern responsibly. Among other things, he has said that he will respect private property, preserve El Salvador's free-trade agreements and its use of the dollar as its currency, and seek to preserve close relations with the United States. As his political model, he has cited not Mr. Chávez, but Brazilian President Luiz Inácio Lula da Silva, who has led his country leftward while honoring democracy and the rule of law.
There are reasons for concern about these pledges: Mr. Funes's vice president and other senior FMLN members are more militant and anti-American. The danger is not that they will press for more socialism -- that is their right -- but that they will, like Mr. Chávez or Daniel Ortega in Nicaragua, seek to manipulate or dismantle the democratic system that placed them in office. The Obama administration should make clear to the new government that steps in that direction will endanger relations with the United States. But it should also seek to cooperate with a government that has the potential to complete a victory for Latin American democracy -- and U.S. foreign policy.
Friday, March 20, 2009
Strategic partnership signed to advance water utilities in the Middle East and Africa
Strategic partnership signed to advance water utilities in the Middle East and Africa
USAID, March 20, 2009
ISTANBUL, TURKEY - The U.S. Agency for International Development (USAID) and the International Water Association (IWA) signed an agreement today at the Fifth World Water Forum to work together to increase access to clean drinking water and sanitation throughout the Middle East and Africa by strengthening water utilities and their regional associations. This partnership focuses specifically on access to clean drinking water and sanitation for the urban poor, water safety and quality management, leadership gaps and climate change.
Countries in the Middle East and North Africa are facing a water crisis. In this arid region, supplies of renewable water are limited while demand is rapidly rising due to population growth, agricultural use, and increasing industrialization and urbanization. Daily per capita water consumption is low throughout the region, and the cost of supplying water continues to increase. In response, pressures on water operators to improve their efficiencies and capacities are growing.
By synchronizing program planning and leveraging financial and non-financial resources, USAID and IWA will work to strengthen water utilities and their regional associations, such as the Arab Countries Water Utility Association (ACWUA) and African Water Association (AfWA).
USAID and IWA will address this common objective by:
USAID and IWA will promote leadership strengthening for mid-level water and wastewater management professionals to build up the water and sanitation sector. USAID is promoting Middle East leadership in the sector by bringing twenty-five future leaders from nine Middle Eastern countries together to discuss issues that they will face as leaders in ten years time. IWA has a Young Professionals group and mentorship program that offers support and guidance. Both parties will collaborate on curriculum design and creating linkages among young professionals across countries and regions, as well as connections to senior mentors in order to build leadership capacity and networks in support of Future Water Leader career development.
USAID, March 20, 2009
ISTANBUL, TURKEY - The U.S. Agency for International Development (USAID) and the International Water Association (IWA) signed an agreement today at the Fifth World Water Forum to work together to increase access to clean drinking water and sanitation throughout the Middle East and Africa by strengthening water utilities and their regional associations. This partnership focuses specifically on access to clean drinking water and sanitation for the urban poor, water safety and quality management, leadership gaps and climate change.
Countries in the Middle East and North Africa are facing a water crisis. In this arid region, supplies of renewable water are limited while demand is rapidly rising due to population growth, agricultural use, and increasing industrialization and urbanization. Daily per capita water consumption is low throughout the region, and the cost of supplying water continues to increase. In response, pressures on water operators to improve their efficiencies and capacities are growing.
By synchronizing program planning and leveraging financial and non-financial resources, USAID and IWA will work to strengthen water utilities and their regional associations, such as the Arab Countries Water Utility Association (ACWUA) and African Water Association (AfWA).
USAID and IWA will address this common objective by:
- Supporting and strengthening regional water utility associations by providing information and expertise on business planning and programs and services;
- Brokering and facilitating global or regional Water Operator Partnerships, e.g. partnerships between mentor and recipient water operators;
- Working together to create a regional Future Water Leaders program; and
- Collaborating on and disseminating pertinent information such as reports, analyses, and resources.
USAID and IWA will promote leadership strengthening for mid-level water and wastewater management professionals to build up the water and sanitation sector. USAID is promoting Middle East leadership in the sector by bringing twenty-five future leaders from nine Middle Eastern countries together to discuss issues that they will face as leaders in ten years time. IWA has a Young Professionals group and mentorship program that offers support and guidance. Both parties will collaborate on curriculum design and creating linkages among young professionals across countries and regions, as well as connections to senior mentors in order to build leadership capacity and networks in support of Future Water Leader career development.
U.S. Contributes More Than $150 Million to Help Displaced Iraqis
U.S. Contributes More Than $150 Million to Help Displaced Iraqis
US State Dept, Bureau of Public Affairs, Office of the Spokesman
Washington, DC, March 20, 2009
The United States is pleased to announce new FY 2009 contributions of more than $141 million to help Iraqis who remain displaced as a result of the war. These contributions come in addition to the $9 million that the United States committed earlier this fiscal year, to total $150 million thus far in FY 2009. These contributions show an ongoing U.S. focus on the needs of this vulnerable population, a focus that continues even as the security conditions inside Iraq improve, making returns of the displaced persons a more viable option in some areas. Between October 1, 2006 and September 30, 2008 (FY 2007 and FY 2008), the United States provided approximately $570 million to support humanitarian assistance for Iraqis.
This year’s funding has supported the 2009 United Nations Consolidated Appeal for Iraq and the region, and key international non-governmental organizations. The Appeal for $547 million will support relief efforts by the United Nations High Commissioner for Refugees (UNHCR), the United Nations Children’s Fund (UNICEF), the World Health Organization (WHO), the World Food Program (WFP) and others. The United States calls on other donors to respond to the United Nations Appeal with substantial contributions of their own.
Through these organizations, U.S. funding will support a range of services for displaced Iraqis and conflict victims, including:
US State Dept, Bureau of Public Affairs, Office of the Spokesman
Washington, DC, March 20, 2009
The United States is pleased to announce new FY 2009 contributions of more than $141 million to help Iraqis who remain displaced as a result of the war. These contributions come in addition to the $9 million that the United States committed earlier this fiscal year, to total $150 million thus far in FY 2009. These contributions show an ongoing U.S. focus on the needs of this vulnerable population, a focus that continues even as the security conditions inside Iraq improve, making returns of the displaced persons a more viable option in some areas. Between October 1, 2006 and September 30, 2008 (FY 2007 and FY 2008), the United States provided approximately $570 million to support humanitarian assistance for Iraqis.
This year’s funding has supported the 2009 United Nations Consolidated Appeal for Iraq and the region, and key international non-governmental organizations. The Appeal for $547 million will support relief efforts by the United Nations High Commissioner for Refugees (UNHCR), the United Nations Children’s Fund (UNICEF), the World Health Organization (WHO), the World Food Program (WFP) and others. The United States calls on other donors to respond to the United Nations Appeal with substantial contributions of their own.
Through these organizations, U.S. funding will support a range of services for displaced Iraqis and conflict victims, including:
- continued provision of emergency relief supplies to the most vulnerable Iraqis;
- rehabilitation of water systems for internally displaced persons and local communities in Iraq;
- informal education activities for Iraqi students unable to attend public schools in Jordan and Syria;
- school reconstruction to support the influx of Iraqi students into Syrian public schools;
- mental health services for displaced Iraqis;repairs to clinics in Iraq, including donation of medical equipment; and
- mobile health units for Iraqi refugees in Jordan and Syria.
WaPo: Congress's destructive reaction to the AIG bonuses
Washington Gone Wild
Congress's destructive reaction to the AIG bonuses
WaPo, Friday, March 20, 2009; page A18
"SHORTSIGHTED," "opportunistic" and "irresponsible" aptly describe the actions of those who fueled the debacle on Wall Street. They are also apt descriptors for lawmakers more focused on currying favor with a public outraged at the bonuses handed out by bailed-out companies than on fixing the fundamental and still potentially disastrous cracks in the financial system. By changing the terms of a deal months after it was entered into, Congress will show the government to be an unreliable partner, further draining confidence from the financial system and endangering long-term recovery.
Yesterday, the House had the feel of a mob scene, with lawmaker after furious lawmaker vying for floor time to rail against the $165 million in taxpayer-funded bonuses lavished on employees of American International Group's disgraced Financial Products division. House members rushed through a bill to impose an effective tax rate of 90 percent on bonuses paid to AIG employees and employees of other firms that accepted at least $5 billion from the Troubled Assets Relief Program -- though when then-Treasury Secretary Henry M. Paulson Jr. pressed many of those firms to take the funds last fall, government interference in their compensation systems was not part of the deal. The legislation, approved by a vote of 328 to 93, would affect employees who received bonuses on or after Jan. 1 and whose household incomes exceed $250,000. Late yesterday afternoon, lawmakers on the Senate Finance Committee introduced their own, broader version of the bonus clawback that would affect firms that accepted as little as $100 million of government funds.
We understand that legislators are hearing from furious constituents, and we understand why those voters are angry. It is unquestionably galling that some of the employees who crafted and pushed risky derivatives that wreaked financial havoc worldwide should line their pockets with some of the $173 billion in public funds meant to prop up the too-big-to-fail insurance behemoth and its global business partners. The bonus anger resonates, too, because of a larger sense many voters have that the people who helped trigger this whole economic mess are not the people paying the greatest price.
But elected officials have a responsibility to lead, not just to pander; to weigh what makes sense for the country, not just what feels good. The effective confiscation of legally earned and contractually promised payments may well be unconstitutional. It is almost certain to be unhelpful. The bonuses paid at AIG represent less than one-tenth of 1 percent of the bailout provided so far; recouping those funds will have no discernible fiscal effect. But it will help drive away the best talent at the firm, and despite all the glib messages of "good riddance," that is a strange action for an owner -- and the American public now owns AIG -- to take. But the real damage goes well beyond any effect on AIG. The economy continues to suffer from a shortage of credit. The government needs financial institutions -- including relatively healthy ones -- to take public funds that will then be lent to responsible businesses and consumers. The Obama administration reportedly intends in the next week or two to announce the details of a "private-public partnership" to buy troubled assets from ailing banks. The participation of private hedge funds, investment banks and other firms will be key to the plan's success. But what executive in his right mind will enter into a deal if he or she believes the rules can be changed six months or one year down the road purely on the basis of polls and politicians' fears?
Rather than bringing reason to the debate, President Obama has stoked the anger, and last night, the White House commented favorably on the House action. Perhaps Mr. Obama believes that only by lining up with an angry public now can he persuade it, and Congress, to approve the hundreds of billions more he will need to right the credit system. But he might have expressed his sympathy with public anger over irresponsible behavior in the financial sector while also steering the government in a more constructive direction. The absence of backbone on either end of Pennsylvania Avenue this week could carry a steep price.
Congress's destructive reaction to the AIG bonuses
WaPo, Friday, March 20, 2009; page A18
"SHORTSIGHTED," "opportunistic" and "irresponsible" aptly describe the actions of those who fueled the debacle on Wall Street. They are also apt descriptors for lawmakers more focused on currying favor with a public outraged at the bonuses handed out by bailed-out companies than on fixing the fundamental and still potentially disastrous cracks in the financial system. By changing the terms of a deal months after it was entered into, Congress will show the government to be an unreliable partner, further draining confidence from the financial system and endangering long-term recovery.
Yesterday, the House had the feel of a mob scene, with lawmaker after furious lawmaker vying for floor time to rail against the $165 million in taxpayer-funded bonuses lavished on employees of American International Group's disgraced Financial Products division. House members rushed through a bill to impose an effective tax rate of 90 percent on bonuses paid to AIG employees and employees of other firms that accepted at least $5 billion from the Troubled Assets Relief Program -- though when then-Treasury Secretary Henry M. Paulson Jr. pressed many of those firms to take the funds last fall, government interference in their compensation systems was not part of the deal. The legislation, approved by a vote of 328 to 93, would affect employees who received bonuses on or after Jan. 1 and whose household incomes exceed $250,000. Late yesterday afternoon, lawmakers on the Senate Finance Committee introduced their own, broader version of the bonus clawback that would affect firms that accepted as little as $100 million of government funds.
We understand that legislators are hearing from furious constituents, and we understand why those voters are angry. It is unquestionably galling that some of the employees who crafted and pushed risky derivatives that wreaked financial havoc worldwide should line their pockets with some of the $173 billion in public funds meant to prop up the too-big-to-fail insurance behemoth and its global business partners. The bonus anger resonates, too, because of a larger sense many voters have that the people who helped trigger this whole economic mess are not the people paying the greatest price.
But elected officials have a responsibility to lead, not just to pander; to weigh what makes sense for the country, not just what feels good. The effective confiscation of legally earned and contractually promised payments may well be unconstitutional. It is almost certain to be unhelpful. The bonuses paid at AIG represent less than one-tenth of 1 percent of the bailout provided so far; recouping those funds will have no discernible fiscal effect. But it will help drive away the best talent at the firm, and despite all the glib messages of "good riddance," that is a strange action for an owner -- and the American public now owns AIG -- to take. But the real damage goes well beyond any effect on AIG. The economy continues to suffer from a shortage of credit. The government needs financial institutions -- including relatively healthy ones -- to take public funds that will then be lent to responsible businesses and consumers. The Obama administration reportedly intends in the next week or two to announce the details of a "private-public partnership" to buy troubled assets from ailing banks. The participation of private hedge funds, investment banks and other firms will be key to the plan's success. But what executive in his right mind will enter into a deal if he or she believes the rules can be changed six months or one year down the road purely on the basis of polls and politicians' fears?
Rather than bringing reason to the debate, President Obama has stoked the anger, and last night, the White House commented favorably on the House action. Perhaps Mr. Obama believes that only by lining up with an angry public now can he persuade it, and Congress, to approve the hundreds of billions more he will need to right the credit system. But he might have expressed his sympathy with public anger over irresponsible behavior in the financial sector while also steering the government in a more constructive direction. The absence of backbone on either end of Pennsylvania Avenue this week could carry a steep price.
Does Geithner Get It? The Era of Excess is over
Does Geithner Get It? By Eugene Robinson
WaPo, Friday, March 20, 2009; page A19
President Obama's claim that Timothy Geithner faces a more daunting set of challenges than any Treasury secretary since Alexander Hamilton may be an exaggeration, but not by much. Geithner may indeed be the hardest-working man in Washington. But to survive, let alone succeed, he's going to have to make a more convincing case that he's part of the solution and not part of the problem.
The case of the appalling AIG bonuses -- I was going to call them outrageous, but politicians and pundits have exhausted the nation's supply of outrage since the payments were revealed -- is the latest situation to raise the inconvenient problem-vs.-solution question about Geithner. Why didn't he know about the bonuses earlier? And when he did get clued in, why didn't he do anything to head off what was obviously going to be a distracting and perhaps damaging controversy?
A simpler way of asking the Geithner question is: Does he get it?
Does he understand the profound sense of betrayal that so many Americans feel as we learn that the supposed wizards of finance, the Masters of the Universe who shower themselves with unimaginable wealth, were safeguarding our economic well-being with the diligence and sobriety of a drunken high roller at a craps table in Vegas at 4 a.m.? Does he understand that the crisis is not just an economic watershed but a cultural one as well, and that what once was deemed perfectly acceptable behavior on Wall Street is now seen as reprehensible? Does he understand that outside of Lower Manhattan, the definition of a "retention bonus" is being spared from the latest round of layoffs?
Geithner's troubles began shortly after he was nominated, when it was disclosed that he had failed to pay $34,000 in federal taxes between 2001 and 2004. It's reasonable to expect the secretary of the Treasury to have a record of faithfully paying his own taxes, and Geithner's excuse -- that he had used the computer software TurboTax to prepare his returns -- didn't sound likely to erase the scowl from an IRS auditor's face. But Obama pushed hard for the nomination and the Senate went along, largely because Geithner was president of the Federal Reserve Bank of New York and had been deeply involved from the beginning in the effort to contain the financial meltdown. He was one of the few people who truly understood how and why things were falling apart.
One thing Geithner doesn't seem to understand, though, is how and why appearances matter. There has been a steady flow of news indicating that Wall Street doesn't realize that the Era of Excess is over, the latest coming yesterday with a Bloomberg News report that the CEO of troubled Citigroup, Vikram Pandit, plans to spend about $10 million redecorating the firm's executive offices. I know that the company has made economies and that Pandit is working for $1 a year. I just think that after accepting $45 billion in bailout money, I'd cancel any improvement project that couldn't be accomplished with a trip to Home Depot.
Obama's job would be much easier if Geithner were more effective at communicating with the public about what happened to the economy and what the administration is doing to fix it. As things stand, Obama has to do all the explaining himself. Perhaps it's unrealistic to expect Geithner to be both a financial whiz and a silver-tongued orator. He does speak the language of Wall Street, though, and one of the nonnegotiable requirements in his job description should be to make the men and women who run our financial institutions understand that their behavior has to change.
The basic strategy for handling the crisis, begun under the Bush administration and continued by Obama, is to hook up a fire hose to the Treasury and shower irresponsible and greedy financial institutions with money until the fire is put out. In political terms, to put it mildly, this is a hard sell. It becomes an impossible sell when Wall Street displays not gratitude but arrogance, reminding us how emotionally satisfying it would be -- if ultimately counterproductive and even disastrous -- to stand back and let the fire burn.
The vast amount of money poured into Wall Street has bought American taxpayers the right to say that business-as-usual practices such as the AIG bonuses are over. Geithner needs to deliver this message. If he can't or won't, Obama should find somebody who can and will.
WaPo, Friday, March 20, 2009; page A19
President Obama's claim that Timothy Geithner faces a more daunting set of challenges than any Treasury secretary since Alexander Hamilton may be an exaggeration, but not by much. Geithner may indeed be the hardest-working man in Washington. But to survive, let alone succeed, he's going to have to make a more convincing case that he's part of the solution and not part of the problem.
The case of the appalling AIG bonuses -- I was going to call them outrageous, but politicians and pundits have exhausted the nation's supply of outrage since the payments were revealed -- is the latest situation to raise the inconvenient problem-vs.-solution question about Geithner. Why didn't he know about the bonuses earlier? And when he did get clued in, why didn't he do anything to head off what was obviously going to be a distracting and perhaps damaging controversy?
A simpler way of asking the Geithner question is: Does he get it?
Does he understand the profound sense of betrayal that so many Americans feel as we learn that the supposed wizards of finance, the Masters of the Universe who shower themselves with unimaginable wealth, were safeguarding our economic well-being with the diligence and sobriety of a drunken high roller at a craps table in Vegas at 4 a.m.? Does he understand that the crisis is not just an economic watershed but a cultural one as well, and that what once was deemed perfectly acceptable behavior on Wall Street is now seen as reprehensible? Does he understand that outside of Lower Manhattan, the definition of a "retention bonus" is being spared from the latest round of layoffs?
Geithner's troubles began shortly after he was nominated, when it was disclosed that he had failed to pay $34,000 in federal taxes between 2001 and 2004. It's reasonable to expect the secretary of the Treasury to have a record of faithfully paying his own taxes, and Geithner's excuse -- that he had used the computer software TurboTax to prepare his returns -- didn't sound likely to erase the scowl from an IRS auditor's face. But Obama pushed hard for the nomination and the Senate went along, largely because Geithner was president of the Federal Reserve Bank of New York and had been deeply involved from the beginning in the effort to contain the financial meltdown. He was one of the few people who truly understood how and why things were falling apart.
One thing Geithner doesn't seem to understand, though, is how and why appearances matter. There has been a steady flow of news indicating that Wall Street doesn't realize that the Era of Excess is over, the latest coming yesterday with a Bloomberg News report that the CEO of troubled Citigroup, Vikram Pandit, plans to spend about $10 million redecorating the firm's executive offices. I know that the company has made economies and that Pandit is working for $1 a year. I just think that after accepting $45 billion in bailout money, I'd cancel any improvement project that couldn't be accomplished with a trip to Home Depot.
Obama's job would be much easier if Geithner were more effective at communicating with the public about what happened to the economy and what the administration is doing to fix it. As things stand, Obama has to do all the explaining himself. Perhaps it's unrealistic to expect Geithner to be both a financial whiz and a silver-tongued orator. He does speak the language of Wall Street, though, and one of the nonnegotiable requirements in his job description should be to make the men and women who run our financial institutions understand that their behavior has to change.
The basic strategy for handling the crisis, begun under the Bush administration and continued by Obama, is to hook up a fire hose to the Treasury and shower irresponsible and greedy financial institutions with money until the fire is put out. In political terms, to put it mildly, this is a hard sell. It becomes an impossible sell when Wall Street displays not gratitude but arrogance, reminding us how emotionally satisfying it would be -- if ultimately counterproductive and even disastrous -- to stand back and let the fire burn.
The vast amount of money poured into Wall Street has bought American taxpayers the right to say that business-as-usual practices such as the AIG bonuses are over. Geithner needs to deliver this message. If he can't or won't, Obama should find somebody who can and will.
White House Official Boosts Cap and Trade Revenue Estimate
White House Official Boosts Cap and Trade Revenue Estimate. By Corey Boles and Martin Vaughan
Mar 18, 2009
WASHINGTON -- A top White House economic adviser told Senate staff a proposed cap and trade system could raise "two-to-three times" the administration's existing $646 billion revenue estimate, according to five people at the meeting.
This could mean the cap and trade system could actually generate between roughly $1.3 trillion and $1.9 trillion between fiscal years 2012 and 2019.
Jason Furman, deputy director of the National Economic Council, offered the estimate at a Feb. 26 meeting on Capitol Hill with a bipartisan group of staffers, most of whom are attached to the Senate Finance Committee, according to five Senate aides who attended the meeting. They spoke on condition they wouldn't be identified by name.
The meeting was held in the Finance Committee's hearing room in the Dirksen Office Building, the day the administration released its budget framework. According to those who were present, there were between 50 and 60 staff of both parties, including some staff of House lawmakers.
A White House official wouldn't confirm Mr. Furman's comments, but said excess revenues from any cap and trade bill that passes Congress will be used to compensate vulnerable families, communities and businesses.
The administration has said the proposal could raise more revenue than its current estimate, but hasn't specified how much more.
In its budget, the administration said it expects a cap and trade system would raise $645.7 billion in the eight years to fiscal year 2019.
The cap and trade proposal is aimed at lowering carbon emissions into the atmosphere by companies by requiring them to purchase credits for the level of pollution they contribute.
Mr. Furman told the Senate meeting the administration expected to generate considerably more than that estimate. According to those present, he was initially reluctant to quantify how much more in revenues the cap and trade system could generate.
Only after being pushed to do so, did Mr. Furman provide a revised range, these people said.
The public forecast was based on the carbon-dioxide credits that would be issued through the new system being priced at $20 each. Each credit allows for one ton of carbon dioxide to be emitted.
According to the budget, the administration would use $120 billion of the scheme's revenues to fund clean energy technology. The balance of $525.7 billion would pay for a tax cut targeted to middle class Americans, a centerpiece of the Obama budget.
The Obama administration has said its Making Work Pay tax credit will compensate most working Americans for the likely rise in utility costs they could expect to face after a cap and trade system goes into place. That tax credit is worth $800 per year to a household of two earners with combined annual income below $250,000.
A 2007 study from the Massachusetts Institute of Technology found various cap-and-trade scenarios would raise between $130 billion and $370 billion per year by 2015.
One of the largest targets of cap and trade will be utility companies - especially those that burn coal and are among the worst polluters. It is widely seen that these companies would pass increased costs they incur on to their customers.
A footnote in the budget framework released by the administration in February stated that "all additional net proceeds will be used to further compensate the public."
This would imply the administration intends to increase support for people facing higher costs as a result of the cap and trade scheme.
Last week, Sen. Ron Wyden (D., Ore.), a member of the finance committee, said he had been informed by a White House official that the administration planned to do more to provide financial assistance to low-income households that would be most adversely impacted by higher utility costs.
Sen. Wyden said details of how this assistance would be structured were still being worked out.
Mar 18, 2009
WASHINGTON -- A top White House economic adviser told Senate staff a proposed cap and trade system could raise "two-to-three times" the administration's existing $646 billion revenue estimate, according to five people at the meeting.
This could mean the cap and trade system could actually generate between roughly $1.3 trillion and $1.9 trillion between fiscal years 2012 and 2019.
Jason Furman, deputy director of the National Economic Council, offered the estimate at a Feb. 26 meeting on Capitol Hill with a bipartisan group of staffers, most of whom are attached to the Senate Finance Committee, according to five Senate aides who attended the meeting. They spoke on condition they wouldn't be identified by name.
The meeting was held in the Finance Committee's hearing room in the Dirksen Office Building, the day the administration released its budget framework. According to those who were present, there were between 50 and 60 staff of both parties, including some staff of House lawmakers.
A White House official wouldn't confirm Mr. Furman's comments, but said excess revenues from any cap and trade bill that passes Congress will be used to compensate vulnerable families, communities and businesses.
The administration has said the proposal could raise more revenue than its current estimate, but hasn't specified how much more.
In its budget, the administration said it expects a cap and trade system would raise $645.7 billion in the eight years to fiscal year 2019.
The cap and trade proposal is aimed at lowering carbon emissions into the atmosphere by companies by requiring them to purchase credits for the level of pollution they contribute.
Mr. Furman told the Senate meeting the administration expected to generate considerably more than that estimate. According to those present, he was initially reluctant to quantify how much more in revenues the cap and trade system could generate.
Only after being pushed to do so, did Mr. Furman provide a revised range, these people said.
The public forecast was based on the carbon-dioxide credits that would be issued through the new system being priced at $20 each. Each credit allows for one ton of carbon dioxide to be emitted.
According to the budget, the administration would use $120 billion of the scheme's revenues to fund clean energy technology. The balance of $525.7 billion would pay for a tax cut targeted to middle class Americans, a centerpiece of the Obama budget.
The Obama administration has said its Making Work Pay tax credit will compensate most working Americans for the likely rise in utility costs they could expect to face after a cap and trade system goes into place. That tax credit is worth $800 per year to a household of two earners with combined annual income below $250,000.
A 2007 study from the Massachusetts Institute of Technology found various cap-and-trade scenarios would raise between $130 billion and $370 billion per year by 2015.
One of the largest targets of cap and trade will be utility companies - especially those that burn coal and are among the worst polluters. It is widely seen that these companies would pass increased costs they incur on to their customers.
A footnote in the budget framework released by the administration in February stated that "all additional net proceeds will be used to further compensate the public."
This would imply the administration intends to increase support for people facing higher costs as a result of the cap and trade scheme.
Last week, Sen. Ron Wyden (D., Ore.), a member of the finance committee, said he had been informed by a White House official that the administration planned to do more to provide financial assistance to low-income households that would be most adversely impacted by higher utility costs.
Sen. Wyden said details of how this assistance would be structured were still being worked out.
Thursday, March 19, 2009
New Alliances Emerge in Advance of Iraq Elections
New Alliances Emerge in Advance of Iraq Elections. By Anthony Shadid
Negotiations Raise Possibility That Politicians Could Bridge Ethnic, Sectarian Divides
Washington Post, Thursday, March 19, 2009; 6:01 PM
BAGHDAD, March 19 -- Six weeks after provincial elections, Prime Minister Nouri al-Maliki has allied himself with an outspoken Sunni leader in several provinces and broached a coalition with a militant, anti-American cleric, suggesting the emergence of a new axis of power in Iraq centered on a strong central government and nationalism.
Negotiations are still under way in most provinces, distrust remains entrenched among nearly all the players and agreements could crumble. But the jockeying after the Jan. 31 elections indicates that politicians are assembling coalitions that cross the sectarian divide ahead of parliamentary elections later this year, a vote that will shape the country as the U.S. military withdraws.
"There is a new political map," said Anwar al-Luheibi, a Sunni adviser to Maliki, who is a Shiite. "And I anticipate this map will be far better than the one we had before."
The negotiations and deal-making mark a departure from politics that have hewed almost exclusively to ethnic and sectarian lines, fomenting the discord that brought Iraq to the precipice of civil war in 2006 and 2007. They represent the first round of a great game that may resolve a question unanswered since Saddam Hussein's fall in 2003: What coalition of interests will find the formula to wield power in Iraq from Baghdad?
With his strong performance in the provincial elections, Maliki is the front-runner in forging such an alliance, a remarkable ascent for a lawmaker considered weak and pliable when he was put forward as a consensus candidate for prime minister three years ago.
Forgoing the slogans of his Islamist past for a platform of law and order, his party won a majority of seats on the council in Basra, Iraq's second-largest city, and emerged as the single biggest bloc in Baghdad and four other provinces in the south, which has a Shiite Muslim majority. In most provinces, though, his party must make coalitions if it hopes to help determine who will fill the governorship and other key provincial positions.
Saleh al-Mutlaq, a leading secular Sunni Arab politician known for his nationalism and strident opposition to the U.S. occupation, said his supporters would ally with Maliki in four provinces: Diyala, Salahuddin, Baghdad and Babil. Mutlaq heads the Iraqi National Dialogue Party, but his supporters ran under different labels in provincial contests. Mutlaq said Ayad Allawi, a former prime minister who led a secular list in the campaign, would also join the alliances.
The convergence of their interests is a stark contrast to the alliances that followed elections in 2005, which Sunni Arabs largely boycotted. Their refusal to vote gave religious Shiites and Kurds disproportionate power in provinces such as Baghdad, Diyala and Nineveh, all with substantial Sunni populations. In predominantly Shiite southern Iraq and Sunni western Iraq, power coalesced around ostensibly religious parties, whose members built their appeal on clandestine organizations in exile, underground networks under Hussein, support from Iran and other neighbors and, occasionally, the end of a militiaman's gun.
This time, some coalitions seem to be based on ideology: a strong central government that Maliki, along with secular candidates such as Allawi and Mutlaq, have endorsed, as well as opposition to the kind of federalism espoused by Maliki's Shiite rivals, who favor a Shiite-ruled zone in the south, and Kurdish parties that control an autonomous region in northern Iraq. Both Maliki and Mutlaq have rallied support among Arab and nationalist constituents by opposing Kurdish territorial claims, particularly around the contested northern city of Kirkuk.
Mutlaq draws backing from among the still numerous supporters of Hussein's Baath Party in Sunni regions, and he has long pushed for reconciliation with its members. Despite his reputation as a Shiite hard-liner when he came to power in 2006, Maliki echoed the call this month. In a speech, he urged Iraqis to reconcile with rank-and-file Baathists, those he described as "forced and obliged at one time to be on the side of the former regime."
He declared that it was time "to let go of what happened" in the past.
Mutlaq said he told Maliki in a meeting two months ago that "there was a time when you stood against me on those issues. 'You should be happy I changed,' he told me." Smiling in the interview, Mutlaq joked that first the prime minister "stole the government from us, and now he's trying to steal our political speech from us."
Mutlaq said that Maliki had proposed an alliance for parliamentary elections, too. But, he said, "we're still studying the message."
Since the fall of Hussein, religious Shites and Kurds had effectively served as the coalition at the heart of power in Iraq. Maliki's emergence has upset that formula, and virtually each component of the Shiite alliance has now gone its own way. The bloc that claimed to speak on behalf of long reticent Sunnis has splintered, too, unable even to agree on a replacement for the speaker of parliament, who resigned in December.
Fayed al-Shammari, a leader of Maliki's Dawa Party in Najaf, who will serve on the provincial council there, said he foresaw a grand coalition for the December parliamentary elections that would join Maliki with influential Sunni leaders, elements of the U.S.-backed Sunni movement that turned against the insurgency and perhaps even Moqtada al-Sadr, a militant Shiite cleric whose followers witnessed a political resurgence in the January vote. Strikingly, it would not include Maliki's other Shiite rivals or Kurds.
A hint of that alignment emerged in Wasit province, where Maliki's supporters were reported to have joined with Allawi's list and Sadr's followers.
"There's a great possibility for this," Shammari said, although even he questioned whether it could withstand the still-seismic conflicts over the very nature of the Iraqi state, namely its power in relation to the provinces. "With any coalition, you have an ambition for it to be permanent," he said. "But ambition doesn't always match reality."
Mutlaq envisioned three main groups competing in the December vote: A list that he led, Maliki's group and an alliance of Kurds and religious parties -- both the Shiite Islamic Supreme Council of Iraq and the Sunni-led Iraqi Islamic Party. One example of the third grouping has emerged in Diyala province, where the Supreme Council agreed to an alliance with the Islamic Party, said Ridha Jawad Taqi, a lawmaker from the Supreme Council.
Mutlaq, an agricultural engineer who grew wealthy under Hussein's government and is sometimes spoken of as a candidate for Iraq's presidency, said any future national alliance with Maliki would depend on cooperation in the provincial councils.
"We want to see what he's going to give," he said in the interview. "Is he going to behave as a real partner or is he going to try to isolate the others?"
He said he was still skeptical. "We don't think Maliki is going to act in a democratic way. We're worried that he's collecting power in a dictatorial way."
Mutlaq said he understood that Maliki had already reached provincial alliances with an electoral list supported by Sadr's followers, a deal that Shammari, of Maliki's Dawa Party, called likely. But spokesmen for Sadr and the list of candidates he supported said negotiations were still under way.
"We think they only want alliances in the provinces where they're facing difficulties. They reject us in the provinces where they feel comfortable," said Ameer al-Kinani, the head of the Trend of Free Independents, the list Sadr's followers supported.
Sadr's supporters did especially well in Dhi Qar and Maysan provinces in southern Iraq, where negotiations are still under way to choose the top officials.
To help win their support, Sadr's officials have insisted Maliki play a role in freeing their supporters in prison. Hazem al-Araji, a Sadr spokesman, estimated as many as 1,500 remained in U.S. custody and 2,500 in Iraqi custody. Like other Sadr officials, he complained that security forces were still arresting their followers in southern provinces.
"There has been a step toward each other," said Salah al-Obeidi, another Sadr spokesman in Kufa, near the sacred city of Najaf. "But until now, Maliki's coalition refuses to give any kind of guarantees and any kind of details of the map they will follow in representing the provinces. This arouses many fears with out friends."
Earlier in his tenure, when his position was far weaker, Maliki courted the Sadrists as a source of support. Last year, though, he turned on them, dispatching the military against their militiamen in Baghdad and Basra. This time around, Sadr's supporters say, Maliki seems to be trying to negotiate from a position of strength.
"He's not in need of the Sadrists anymore?" Obeidi asked. "Maybe, maybe."
But like Mutlaq, he said they would watch the behavior of Maliki's officials in the provincial councils to determine whether they could enter a broader alliance in the next election. "Until now we haven't decided," he said. "Yes, there are big obstacles between us. They can all be bridged. But until now, Maliki has not acted on any promises he made us."
Asked if he trusted Maliki, he shrugged his shoulders. "I don't trust any political figure," Obeidi said.
Special correspondents Zaid Sabah and Qais Mizher contributed to this report.
Negotiations Raise Possibility That Politicians Could Bridge Ethnic, Sectarian Divides
Washington Post, Thursday, March 19, 2009; 6:01 PM
BAGHDAD, March 19 -- Six weeks after provincial elections, Prime Minister Nouri al-Maliki has allied himself with an outspoken Sunni leader in several provinces and broached a coalition with a militant, anti-American cleric, suggesting the emergence of a new axis of power in Iraq centered on a strong central government and nationalism.
Negotiations are still under way in most provinces, distrust remains entrenched among nearly all the players and agreements could crumble. But the jockeying after the Jan. 31 elections indicates that politicians are assembling coalitions that cross the sectarian divide ahead of parliamentary elections later this year, a vote that will shape the country as the U.S. military withdraws.
"There is a new political map," said Anwar al-Luheibi, a Sunni adviser to Maliki, who is a Shiite. "And I anticipate this map will be far better than the one we had before."
The negotiations and deal-making mark a departure from politics that have hewed almost exclusively to ethnic and sectarian lines, fomenting the discord that brought Iraq to the precipice of civil war in 2006 and 2007. They represent the first round of a great game that may resolve a question unanswered since Saddam Hussein's fall in 2003: What coalition of interests will find the formula to wield power in Iraq from Baghdad?
With his strong performance in the provincial elections, Maliki is the front-runner in forging such an alliance, a remarkable ascent for a lawmaker considered weak and pliable when he was put forward as a consensus candidate for prime minister three years ago.
Forgoing the slogans of his Islamist past for a platform of law and order, his party won a majority of seats on the council in Basra, Iraq's second-largest city, and emerged as the single biggest bloc in Baghdad and four other provinces in the south, which has a Shiite Muslim majority. In most provinces, though, his party must make coalitions if it hopes to help determine who will fill the governorship and other key provincial positions.
Saleh al-Mutlaq, a leading secular Sunni Arab politician known for his nationalism and strident opposition to the U.S. occupation, said his supporters would ally with Maliki in four provinces: Diyala, Salahuddin, Baghdad and Babil. Mutlaq heads the Iraqi National Dialogue Party, but his supporters ran under different labels in provincial contests. Mutlaq said Ayad Allawi, a former prime minister who led a secular list in the campaign, would also join the alliances.
The convergence of their interests is a stark contrast to the alliances that followed elections in 2005, which Sunni Arabs largely boycotted. Their refusal to vote gave religious Shiites and Kurds disproportionate power in provinces such as Baghdad, Diyala and Nineveh, all with substantial Sunni populations. In predominantly Shiite southern Iraq and Sunni western Iraq, power coalesced around ostensibly religious parties, whose members built their appeal on clandestine organizations in exile, underground networks under Hussein, support from Iran and other neighbors and, occasionally, the end of a militiaman's gun.
This time, some coalitions seem to be based on ideology: a strong central government that Maliki, along with secular candidates such as Allawi and Mutlaq, have endorsed, as well as opposition to the kind of federalism espoused by Maliki's Shiite rivals, who favor a Shiite-ruled zone in the south, and Kurdish parties that control an autonomous region in northern Iraq. Both Maliki and Mutlaq have rallied support among Arab and nationalist constituents by opposing Kurdish territorial claims, particularly around the contested northern city of Kirkuk.
Mutlaq draws backing from among the still numerous supporters of Hussein's Baath Party in Sunni regions, and he has long pushed for reconciliation with its members. Despite his reputation as a Shiite hard-liner when he came to power in 2006, Maliki echoed the call this month. In a speech, he urged Iraqis to reconcile with rank-and-file Baathists, those he described as "forced and obliged at one time to be on the side of the former regime."
He declared that it was time "to let go of what happened" in the past.
Mutlaq said he told Maliki in a meeting two months ago that "there was a time when you stood against me on those issues. 'You should be happy I changed,' he told me." Smiling in the interview, Mutlaq joked that first the prime minister "stole the government from us, and now he's trying to steal our political speech from us."
Mutlaq said that Maliki had proposed an alliance for parliamentary elections, too. But, he said, "we're still studying the message."
Since the fall of Hussein, religious Shites and Kurds had effectively served as the coalition at the heart of power in Iraq. Maliki's emergence has upset that formula, and virtually each component of the Shiite alliance has now gone its own way. The bloc that claimed to speak on behalf of long reticent Sunnis has splintered, too, unable even to agree on a replacement for the speaker of parliament, who resigned in December.
Fayed al-Shammari, a leader of Maliki's Dawa Party in Najaf, who will serve on the provincial council there, said he foresaw a grand coalition for the December parliamentary elections that would join Maliki with influential Sunni leaders, elements of the U.S.-backed Sunni movement that turned against the insurgency and perhaps even Moqtada al-Sadr, a militant Shiite cleric whose followers witnessed a political resurgence in the January vote. Strikingly, it would not include Maliki's other Shiite rivals or Kurds.
A hint of that alignment emerged in Wasit province, where Maliki's supporters were reported to have joined with Allawi's list and Sadr's followers.
"There's a great possibility for this," Shammari said, although even he questioned whether it could withstand the still-seismic conflicts over the very nature of the Iraqi state, namely its power in relation to the provinces. "With any coalition, you have an ambition for it to be permanent," he said. "But ambition doesn't always match reality."
Mutlaq envisioned three main groups competing in the December vote: A list that he led, Maliki's group and an alliance of Kurds and religious parties -- both the Shiite Islamic Supreme Council of Iraq and the Sunni-led Iraqi Islamic Party. One example of the third grouping has emerged in Diyala province, where the Supreme Council agreed to an alliance with the Islamic Party, said Ridha Jawad Taqi, a lawmaker from the Supreme Council.
Mutlaq, an agricultural engineer who grew wealthy under Hussein's government and is sometimes spoken of as a candidate for Iraq's presidency, said any future national alliance with Maliki would depend on cooperation in the provincial councils.
"We want to see what he's going to give," he said in the interview. "Is he going to behave as a real partner or is he going to try to isolate the others?"
He said he was still skeptical. "We don't think Maliki is going to act in a democratic way. We're worried that he's collecting power in a dictatorial way."
Mutlaq said he understood that Maliki had already reached provincial alliances with an electoral list supported by Sadr's followers, a deal that Shammari, of Maliki's Dawa Party, called likely. But spokesmen for Sadr and the list of candidates he supported said negotiations were still under way.
"We think they only want alliances in the provinces where they're facing difficulties. They reject us in the provinces where they feel comfortable," said Ameer al-Kinani, the head of the Trend of Free Independents, the list Sadr's followers supported.
Sadr's supporters did especially well in Dhi Qar and Maysan provinces in southern Iraq, where negotiations are still under way to choose the top officials.
To help win their support, Sadr's officials have insisted Maliki play a role in freeing their supporters in prison. Hazem al-Araji, a Sadr spokesman, estimated as many as 1,500 remained in U.S. custody and 2,500 in Iraqi custody. Like other Sadr officials, he complained that security forces were still arresting their followers in southern provinces.
"There has been a step toward each other," said Salah al-Obeidi, another Sadr spokesman in Kufa, near the sacred city of Najaf. "But until now, Maliki's coalition refuses to give any kind of guarantees and any kind of details of the map they will follow in representing the provinces. This arouses many fears with out friends."
Earlier in his tenure, when his position was far weaker, Maliki courted the Sadrists as a source of support. Last year, though, he turned on them, dispatching the military against their militiamen in Baghdad and Basra. This time around, Sadr's supporters say, Maliki seems to be trying to negotiate from a position of strength.
"He's not in need of the Sadrists anymore?" Obeidi asked. "Maybe, maybe."
But like Mutlaq, he said they would watch the behavior of Maliki's officials in the provincial councils to determine whether they could enter a broader alliance in the next election. "Until now we haven't decided," he said. "Yes, there are big obstacles between us. They can all be bridged. But until now, Maliki has not acted on any promises he made us."
Asked if he trusted Maliki, he shrugged his shoulders. "I don't trust any political figure," Obeidi said.
Special correspondents Zaid Sabah and Qais Mizher contributed to this report.
Obama picks the right man for drug czar - Seattle Police Chief Gil Kerlikowske
Obama picks the right man for drug czar. By Paul Butler
The Progressive, March 18, 2009
President Obama made a courageous, farsighted choice for the nation’s drug czar.
In his appointment of Seattle Police Chief Gil Kerlikowske, Obama has nominated the most progressive person to hold that position in the nation’s history. Kerlikowske is in a position to change the nation’s “lock ’em up” attitude and refocus the issue of illegal drugs where it belongs: public health.
At first glance, the selection of a police officer as drug czar might suggest the old government response: arrest, prosecute and punish as many “offenders” as possible. But Kerlikowske comes from a state that has been at the forefront of drug policy reform.
Seattle, where Kerlikowske headed the police force from 2000 until his appointment, has taken a more practical approach. Its citizens voted, in 2003, to make marijuana prosecution the lowest law enforcement priority. The city has been a champion of using the public health system rather than criminal justice to address problems caused by illegal drugs. It has promoted anti-addiction treatments, which reduce the demand for drugs, thus getting dealers off the street. And to reduce HIV transmission among IV drug users, the city of Seattle has listed on its Web site the locations where addicts can get clean needles.
Not only is this approach more sensible and humane. It is also more cost-effective.
A Rand Corporation study found that law enforcement costs fifteen times more than treatment for drug users to achieve the same benefit.
Kerlikowske’s appointment comes at a time when states are under tremendous fiscal pressure to cut back. Their corrections budgets are burdensome. This reality may make the necessary job of reform easier.
The war on drugs spurred a massive increase in the size and budgets of American criminal justice agencies. During the Clinton administration, police departments actually got more federal funds based on the number of drug arrests they made.
Currently, the War on Drugs costs the federal government approximately $20 billion a year. In 2004, there were more than 40,000 Americans locked up for nonviolent marijuana offenses. Incarcerating these people costs us more than $1 billion a year. And while most of the 800,000 people who are arrested every year for marijuana offenses don’t end up doing time, taxpayers still have to pay the substantial police and court costs — money most governments can no longer afford.
Previous drug czars promoted this irrational and expensive approach, maintaining a bizarre, “Reefer-Madness”-like obsession with marijuana. Between 1998 and 2006, the White House drug office spent $1.4 billion on advertising aimed at preventing teenagers from smoking pot.
The result of this approach? Nothing other than classic wasteful government spending. According to Justice Department statistics, almost one in three high school seniors smoked marijuana in the past twelve months. A study commissioned by the Office of National Drug Control Policy said the advertising actually makes teens more aware of how many of their peers use marijuana.
During the presidential campaign, Barack Obama had the wisdom to say, “The war on drugs has been a failure” and to describe the policy of locking up nonviolent drug users as “blind and counterproductive.”
His nomination of Kerlikowske shows that he meant what he said.
Paul Butler, a former federal prosecutor, is a professor of law at the George Washington University Law School and author of the forthcoming book “Let’s Get Free: A Hip Hop Theory of Justice” (The New Press). He can be reached at pmproj@progressive.org.
The Progressive, March 18, 2009
President Obama made a courageous, farsighted choice for the nation’s drug czar.
In his appointment of Seattle Police Chief Gil Kerlikowske, Obama has nominated the most progressive person to hold that position in the nation’s history. Kerlikowske is in a position to change the nation’s “lock ’em up” attitude and refocus the issue of illegal drugs where it belongs: public health.
At first glance, the selection of a police officer as drug czar might suggest the old government response: arrest, prosecute and punish as many “offenders” as possible. But Kerlikowske comes from a state that has been at the forefront of drug policy reform.
Seattle, where Kerlikowske headed the police force from 2000 until his appointment, has taken a more practical approach. Its citizens voted, in 2003, to make marijuana prosecution the lowest law enforcement priority. The city has been a champion of using the public health system rather than criminal justice to address problems caused by illegal drugs. It has promoted anti-addiction treatments, which reduce the demand for drugs, thus getting dealers off the street. And to reduce HIV transmission among IV drug users, the city of Seattle has listed on its Web site the locations where addicts can get clean needles.
Not only is this approach more sensible and humane. It is also more cost-effective.
A Rand Corporation study found that law enforcement costs fifteen times more than treatment for drug users to achieve the same benefit.
Kerlikowske’s appointment comes at a time when states are under tremendous fiscal pressure to cut back. Their corrections budgets are burdensome. This reality may make the necessary job of reform easier.
The war on drugs spurred a massive increase in the size and budgets of American criminal justice agencies. During the Clinton administration, police departments actually got more federal funds based on the number of drug arrests they made.
Currently, the War on Drugs costs the federal government approximately $20 billion a year. In 2004, there were more than 40,000 Americans locked up for nonviolent marijuana offenses. Incarcerating these people costs us more than $1 billion a year. And while most of the 800,000 people who are arrested every year for marijuana offenses don’t end up doing time, taxpayers still have to pay the substantial police and court costs — money most governments can no longer afford.
Previous drug czars promoted this irrational and expensive approach, maintaining a bizarre, “Reefer-Madness”-like obsession with marijuana. Between 1998 and 2006, the White House drug office spent $1.4 billion on advertising aimed at preventing teenagers from smoking pot.
The result of this approach? Nothing other than classic wasteful government spending. According to Justice Department statistics, almost one in three high school seniors smoked marijuana in the past twelve months. A study commissioned by the Office of National Drug Control Policy said the advertising actually makes teens more aware of how many of their peers use marijuana.
During the presidential campaign, Barack Obama had the wisdom to say, “The war on drugs has been a failure” and to describe the policy of locking up nonviolent drug users as “blind and counterproductive.”
His nomination of Kerlikowske shows that he meant what he said.
Paul Butler, a former federal prosecutor, is a professor of law at the George Washington University Law School and author of the forthcoming book “Let’s Get Free: A Hip Hop Theory of Justice” (The New Press). He can be reached at pmproj@progressive.org.
Grist board member Michelle DePass appointed to EPA
Grist board member appointed to Obama administration, by Kate Sheppard
Mar 18, 2009
On Wednesday, the Obama administration officially announced that Grist board member and Ford Foundation program officer Michelle DePass has been nominated to serve as the assistant administrator for international affairs at the Environmental Protection Agency.
Michelle currently manages the Ford Foundation's initiative on Environmental Justice and Healthy Communities, concentrating on the intersections of environmental and social justice both in the United States and internationally. She has taught federal environmental law and policy at the City University of New York, and developed a workforce development training program for disadvantaged youth on Superfund waste sites. She also served as executive director of the New York City Environmental Justice Alliance and co-organized the Northeast Environmental Justice Network.
She previously served as the assistant to the city manager of San Jose, Calif., on environmental policy matters and was an Environmental Compliance Manager for the City of San Jose. She was a William Kunstler Racial Justice Fellow at the Center for Constitutional Rights in New York, and later worked as a senior policy adviser to the commissioner of the New Jersey Department of Environmental Protection.
This is big news for Michelle. Congratulations!
Mar 18, 2009
On Wednesday, the Obama administration officially announced that Grist board member and Ford Foundation program officer Michelle DePass has been nominated to serve as the assistant administrator for international affairs at the Environmental Protection Agency.
Michelle currently manages the Ford Foundation's initiative on Environmental Justice and Healthy Communities, concentrating on the intersections of environmental and social justice both in the United States and internationally. She has taught federal environmental law and policy at the City University of New York, and developed a workforce development training program for disadvantaged youth on Superfund waste sites. She also served as executive director of the New York City Environmental Justice Alliance and co-organized the Northeast Environmental Justice Network.
She previously served as the assistant to the city manager of San Jose, Calif., on environmental policy matters and was an Environmental Compliance Manager for the City of San Jose. She was a William Kunstler Racial Justice Fellow at the Center for Constitutional Rights in New York, and later worked as a senior policy adviser to the commissioner of the New Jersey Department of Environmental Protection.
This is big news for Michelle. Congratulations!
Russia Test Fires Cruise Missiles From Planes - Reports
Russia Test Fires Cruise Missiles From Planes - Reports
Mar 19, 2009 14:12
MOSCOW (AFP)--Russian Tupolev bombers Thursday successfully test-fired cruise missiles in the country's far-northern Vorkuta region, Interfax and Ria Novosti news agencies reported.
"The last two bombers returned a few minutes ago to their permanent base after launching the missiles. In all six long-range bombers took part," in the exercise, said air force spokesman Vladimir Drik.
Tu-95Mc and Tu-160 bombers were involved in the mission, "the first time missiles of this type were fired this year by long-range bombers," he said.
03-19-09 1412ET
Mar 19, 2009 14:12
MOSCOW (AFP)--Russian Tupolev bombers Thursday successfully test-fired cruise missiles in the country's far-northern Vorkuta region, Interfax and Ria Novosti news agencies reported.
"The last two bombers returned a few minutes ago to their permanent base after launching the missiles. In all six long-range bombers took part," in the exercise, said air force spokesman Vladimir Drik.
Tu-95Mc and Tu-160 bombers were involved in the mission, "the first time missiles of this type were fired this year by long-range bombers," he said.
03-19-09 1412ET
Edward Liddy's testimony on AIG bonuses
Minority View. By John Hinderaker
PowerLine Blog, March 19, 2009 at 10:19 AM
As I explained on Bill Bennett's radio show this morning, I don't think there is anything wrong with the AIG bonuses, and the people who got them should keep them. This is based on the testimony of Edward Liddy, who said yesterday:
* All of these payments, as to AIG's troubled financial products division, are retention bonuses, not performance bonuses.
* The money is not going to anyone responsible for the implosion of AIG--those people, who were in the credit default swap area, are gone.
* These retention bonuses were promised to AIG employees who are responsible for winding down the company's financial products division. At the beginning, this division had a potential exposure of $2.7 trillion. Winding down AIG's book of business in this area was a dead-end job, and there was a great likelihood that the people responsible for the work, who knew the most about the products involved, would take jobs elsewhere.
* In late 2007 or early 2008, AIG made a deal with these employees: if they would stay at AIG until specified conditions were met, i.e., either certain business was wound down or a given period of time had elapsed, they would receive a specified retention bonus.
* As to all of the employees involved, they satisfied the terms of the bonus by wrapping up a portfolio for which they were responsible and/or staying on the job until now. As a result of the efforts of this group, AIG's financial products exposure is down from $2.7 trillion to $1.6 trillion.
There is no legal principle that would justify not paying these bonuses. If you make an offer to someone along the lines of, if you do X I will pay you Y dollars, and he does X, it's too late to change your mind. You're on the hook for Y dollars, and you should be.
The legislation introduced by the Democrats today to tax these bonuses (and possibly a few others, although it isn't clear that any others have been or will be paid that are covered by the statute) at a 90 percent rate is an outrage. It is, in my legal opinion, obviously unconstitutional. It is evidently intended to calm the current political firestorm and not to achieve any real objective.
The Republicans' alternative, which basically just demands that AIG give the money back, somehow, is better but still silly. No doubt one could deduct $165 million from past and future bailout payments to AIG and thereby make the taxpayers "whole." But that just illustrates the foolishness of concentrating on these bonuses rather than the larger picture.
The Obama administration has done a great many things about which taxpayers should be livid--one bailout after another, mammoth tax increases, the bogus "stimulus" bill, the $410 billion leftover appropriations bill, the multi-trillion dollar budget with a $1.7 trillion deficit. Paying employees of AIG money which they have earned and are owed is at the very bottom of the list of actions for which we should be enraged at the Obama administration.
The other lesson of this story is the futility of having the federal government running the world's largest insurance company. When the salaries earned by derivative traders at an insurance company can become a major political issue, you know the government has gotten way too deeply involved in the private sector.
AIG, like GM, should have been allowed to go into bankruptcy. In bankruptcy, it could have wound down its financial products division just as it is doing now. Bankruptcy would not have affected the company's international insurance businesses, distinct corporate entities which are both solvent and profitable. Those businesses could have been sold, which is what AIG now plans to do.
Why did the federal government prefer to bail AIG out rather than let the bankruptcy court unwind its business? Because of "systemic" risk; that is, the feds wanted AIG in business and funded with $80 billion in taxpayer money so that it could make good on its commitments to third parties, especially third parties to whom it had guaranteed the value of residential mortgage-backed securities. But if AIG had gone into bankruptcy, and there were third parties in danger of failing because AIG couldn't pay what it owed, and it really was in the taxpayers' interest to save those third parties, then the government could have paid the bailout money not to AIG, but selectively to the third parties it deemed important to the economy.
Why wasn't that approach followed? Because of politics. Much of the money that AIG owed was due to European banks. For the American government to bail out European banks would have been a tough sell, to put it mildly. Other third parties were entities like Goldman Sachs, which said it didn't need to be bailed out but received, I believe, $13 billion in taxpayer dollars that was funneled through AIG.
What is happening in Washington is a scandal and an outrage. Barack Obama, Harry Reid and Nancy Pelosi should not be allowed to divert attention from the disastrous policies they are pursuing by focusing on the sideshow of AIG bonuses.
PowerLine Blog, March 19, 2009 at 10:19 AM
As I explained on Bill Bennett's radio show this morning, I don't think there is anything wrong with the AIG bonuses, and the people who got them should keep them. This is based on the testimony of Edward Liddy, who said yesterday:
* All of these payments, as to AIG's troubled financial products division, are retention bonuses, not performance bonuses.
* The money is not going to anyone responsible for the implosion of AIG--those people, who were in the credit default swap area, are gone.
* These retention bonuses were promised to AIG employees who are responsible for winding down the company's financial products division. At the beginning, this division had a potential exposure of $2.7 trillion. Winding down AIG's book of business in this area was a dead-end job, and there was a great likelihood that the people responsible for the work, who knew the most about the products involved, would take jobs elsewhere.
* In late 2007 or early 2008, AIG made a deal with these employees: if they would stay at AIG until specified conditions were met, i.e., either certain business was wound down or a given period of time had elapsed, they would receive a specified retention bonus.
* As to all of the employees involved, they satisfied the terms of the bonus by wrapping up a portfolio for which they were responsible and/or staying on the job until now. As a result of the efforts of this group, AIG's financial products exposure is down from $2.7 trillion to $1.6 trillion.
There is no legal principle that would justify not paying these bonuses. If you make an offer to someone along the lines of, if you do X I will pay you Y dollars, and he does X, it's too late to change your mind. You're on the hook for Y dollars, and you should be.
The legislation introduced by the Democrats today to tax these bonuses (and possibly a few others, although it isn't clear that any others have been or will be paid that are covered by the statute) at a 90 percent rate is an outrage. It is, in my legal opinion, obviously unconstitutional. It is evidently intended to calm the current political firestorm and not to achieve any real objective.
The Republicans' alternative, which basically just demands that AIG give the money back, somehow, is better but still silly. No doubt one could deduct $165 million from past and future bailout payments to AIG and thereby make the taxpayers "whole." But that just illustrates the foolishness of concentrating on these bonuses rather than the larger picture.
The Obama administration has done a great many things about which taxpayers should be livid--one bailout after another, mammoth tax increases, the bogus "stimulus" bill, the $410 billion leftover appropriations bill, the multi-trillion dollar budget with a $1.7 trillion deficit. Paying employees of AIG money which they have earned and are owed is at the very bottom of the list of actions for which we should be enraged at the Obama administration.
The other lesson of this story is the futility of having the federal government running the world's largest insurance company. When the salaries earned by derivative traders at an insurance company can become a major political issue, you know the government has gotten way too deeply involved in the private sector.
AIG, like GM, should have been allowed to go into bankruptcy. In bankruptcy, it could have wound down its financial products division just as it is doing now. Bankruptcy would not have affected the company's international insurance businesses, distinct corporate entities which are both solvent and profitable. Those businesses could have been sold, which is what AIG now plans to do.
Why did the federal government prefer to bail AIG out rather than let the bankruptcy court unwind its business? Because of "systemic" risk; that is, the feds wanted AIG in business and funded with $80 billion in taxpayer money so that it could make good on its commitments to third parties, especially third parties to whom it had guaranteed the value of residential mortgage-backed securities. But if AIG had gone into bankruptcy, and there were third parties in danger of failing because AIG couldn't pay what it owed, and it really was in the taxpayers' interest to save those third parties, then the government could have paid the bailout money not to AIG, but selectively to the third parties it deemed important to the economy.
Why wasn't that approach followed? Because of politics. Much of the money that AIG owed was due to European banks. For the American government to bail out European banks would have been a tough sell, to put it mildly. Other third parties were entities like Goldman Sachs, which said it didn't need to be bailed out but received, I believe, $13 billion in taxpayer dollars that was funneled through AIG.
What is happening in Washington is a scandal and an outrage. Barack Obama, Harry Reid and Nancy Pelosi should not be allowed to divert attention from the disastrous policies they are pursuing by focusing on the sideshow of AIG bonuses.
Instituting national standards will not solve the problems facing our schools
Let's Not Play Standards Roulette, by Neal McCluskey
Cleveland Plain Dealer, March 18, 2009
Whether it's blind hope that Washington can fix anything, a lack of ideas for reforming our crummy schools, or some other reason entirely, calls for national academic standards are increasingly loud and frequent. And while President Barack Obama stopped short of explicitly advocating for them in his first major education address, there have been several high—profile calls recently by American Federation of Teachers president Randi Weingarten, the National Governor's Association and Obama's education secretary, Arne Duncan.
But instituting national standards will not solve the problems facing our schools. Indeed, it would be like playing Russian roulette with our kids — with only one empty chamber.
What's driving this bandwagon?
The No Child Left Behind Act is a big part of it. NCLB requires schools to bring all students to math and reading "proficiency" by 2014, but leaves it to states to define what that means. This practically begs states to set weak standards in order to stay out of trouble, and has led to standards that vary markedly from state to state but are almost always very low.
Of course, NCLB isn't designed like this because it yields the best educational results. It's optimal politically. The law is structured to make federal politicians appear both tough on failing schools and dedicated to cherished local control.
But NCLB isn't the only problem. Many people simply don't trust the states, and reasonably so. As the Thomas B. Fordham Institute, a longtime national standards supporter, has repeatedly documented, even before NCLB, state standards were all too often light and fluffy, not meaty and rigorous. In 2000, the Institute gave state standards an average grade of C minus, and concluded that only five states combined solid standards with strong accountability.
Like NCLB, politics explains this pitiful performance. As Fordham wrote, "Some people seem quite content to let it [establishing strong standards] take forever. ... That will allow all the standards setters, enforcers, testers, monitors and analysts to maintain full employment, and will enable elected officials to continue to claim that they and their states are fully engaged in standards—based reform."
In light of dismal state and federal track records, why should anyone expect national standards to miraculously avoid crippling politics and end up with anything better than what we've seen so far? No one should. Knowing that only a few states have occasionally gotten standards right, trying to nationalize them would be at best a high—risk game of Russian roulette.
Just think about how education politics works. Because their very livelihoods come from the public schools, the teachers, principals and bureaucrats who are to be held to performance standards exert outsized influence over them, and strongly resist being subjected to tough accountability. Meanwhile, politicians do whatever is easiest for them, trying to be all things to all people while keeping on the good sides of powerful interests such as teacher unions and administrator associations.
Political reality simply offers no support for national standards. Likewise, national standards supporters offer no convincing arguments for their proposal.
Randi Weingarten claims that "the countries that consistently outperform the United States on international assessments all have national standards." But most of the countries that do worse than we do also have national standards, making the correlation between national standards and academic success at best pretty weak.
How about the unreasonableness of states having "50 different goal posts," as was cited by Secretary Duncan?
Certainly no child should be legally condemned to a bad school, but the fundamental problem isn't that standards differ. Indeed, since all children are unique, differentiation at the individual level is critical to success. No, the fundamental problem is the "legally condemned" part. Unless their parents can afford private schools on top of taxes, children are forced to attend government schools that, by their very one—size—fits—all nature, stifle specialization and are powerfully inclined to low standards.
The last thing we need are government—driven national standards. We must not play Russian roulette with our kids. Indeed, we need to take the political revolver out of education completely. We need to let parents control education dollars, let autonomous schools freely set their own standards, and allow competition to continuously drive standards higher. We need universal school choice.
Neal McCluskey is associate director of the Cato Institute's Center for Educational Freedom and author of Feds in the Classroom: How Big Government Corrupts, Cripples, and Compromises American Education.
Cleveland Plain Dealer, March 18, 2009
Whether it's blind hope that Washington can fix anything, a lack of ideas for reforming our crummy schools, or some other reason entirely, calls for national academic standards are increasingly loud and frequent. And while President Barack Obama stopped short of explicitly advocating for them in his first major education address, there have been several high—profile calls recently by American Federation of Teachers president Randi Weingarten, the National Governor's Association and Obama's education secretary, Arne Duncan.
But instituting national standards will not solve the problems facing our schools. Indeed, it would be like playing Russian roulette with our kids — with only one empty chamber.
What's driving this bandwagon?
The No Child Left Behind Act is a big part of it. NCLB requires schools to bring all students to math and reading "proficiency" by 2014, but leaves it to states to define what that means. This practically begs states to set weak standards in order to stay out of trouble, and has led to standards that vary markedly from state to state but are almost always very low.
Of course, NCLB isn't designed like this because it yields the best educational results. It's optimal politically. The law is structured to make federal politicians appear both tough on failing schools and dedicated to cherished local control.
But NCLB isn't the only problem. Many people simply don't trust the states, and reasonably so. As the Thomas B. Fordham Institute, a longtime national standards supporter, has repeatedly documented, even before NCLB, state standards were all too often light and fluffy, not meaty and rigorous. In 2000, the Institute gave state standards an average grade of C minus, and concluded that only five states combined solid standards with strong accountability.
Like NCLB, politics explains this pitiful performance. As Fordham wrote, "Some people seem quite content to let it [establishing strong standards] take forever. ... That will allow all the standards setters, enforcers, testers, monitors and analysts to maintain full employment, and will enable elected officials to continue to claim that they and their states are fully engaged in standards—based reform."
In light of dismal state and federal track records, why should anyone expect national standards to miraculously avoid crippling politics and end up with anything better than what we've seen so far? No one should. Knowing that only a few states have occasionally gotten standards right, trying to nationalize them would be at best a high—risk game of Russian roulette.
Just think about how education politics works. Because their very livelihoods come from the public schools, the teachers, principals and bureaucrats who are to be held to performance standards exert outsized influence over them, and strongly resist being subjected to tough accountability. Meanwhile, politicians do whatever is easiest for them, trying to be all things to all people while keeping on the good sides of powerful interests such as teacher unions and administrator associations.
Political reality simply offers no support for national standards. Likewise, national standards supporters offer no convincing arguments for their proposal.
Randi Weingarten claims that "the countries that consistently outperform the United States on international assessments all have national standards." But most of the countries that do worse than we do also have national standards, making the correlation between national standards and academic success at best pretty weak.
How about the unreasonableness of states having "50 different goal posts," as was cited by Secretary Duncan?
Certainly no child should be legally condemned to a bad school, but the fundamental problem isn't that standards differ. Indeed, since all children are unique, differentiation at the individual level is critical to success. No, the fundamental problem is the "legally condemned" part. Unless their parents can afford private schools on top of taxes, children are forced to attend government schools that, by their very one—size—fits—all nature, stifle specialization and are powerfully inclined to low standards.
The last thing we need are government—driven national standards. We must not play Russian roulette with our kids. Indeed, we need to take the political revolver out of education completely. We need to let parents control education dollars, let autonomous schools freely set their own standards, and allow competition to continuously drive standards higher. We need universal school choice.
Neal McCluskey is associate director of the Cato Institute's Center for Educational Freedom and author of Feds in the Classroom: How Big Government Corrupts, Cripples, and Compromises American Education.
Libertarian on Wyeth v. Levine: The Supreme Court botches a drug preemption case
Needle and the Damage Done. By Gregory Conko
The Supreme Court botches a drug preemption case
Reason, March 18, 2009
The Supreme Court handed down its decision this month in the case of Wyeth v. Levine, ruling that federal law did not bar plaintiff Diana Levine from suing pharmaceutical maker Wyeth over allegedly insufficient drug safety warnings, even though the warnings had been approved by the Food and Drug Administration (FDA). This decision establishes the troubling precedent that a sympathetic jury can now supersede the expert opinions of the FDA on what qualifies as adequate safety labeling. Ultimately, that means drug firms face higher costs and greater uncertainty. Both are bad for patients.
Levine lost an arm to gangrene after a physician's assistant injected the Wyeth drug Phenergan in such a way that it came into contact with oxygen-rich arterial blood. Although the drug's label explicitly warned that doing so poses a high risk of tissue damage, Levine claimed that the label should have instructed physicians not to use this intravenous "IV-push" method at all. A Vermont jury agreed, and awarded Levine $7.4 million, which the court reduced to $6.7 million.
On appeal, Wyeth could not challenge the jury's fact finding, but argued that the FDA's extensive regulation of drug labeling should preclude claims of negligent failure to warn. The Supreme Court held, by a 6-3 majority, that federal law does not preempt Levine's claim.
According to Justice John Paul Stevens' majority opinion, "The history of the [Food, Drug, and Cosmetics Act] shows that Congress did not intend to preempt state-law failure-to-warn actions." Although true in a general sense, the Court failed to recognize that this is not a typical failure-to-warn case. As Justice Samuel Alito's dissenting opinion notes, Levine conceded that, in 1988, Wyeth proposed a label change that "if followed, would have prevented the inadvertent administration of Phenergan into an artery," but the FDA rejected that language.
Nevertheless, Levine alleged not only that the warning on Phenergan's label wasn't strong enough, but that Phenergan was "not reasonably safe for intravenous administration"—and that the label should have said so. That, however, poses a question regarding FDA's approval of the product for that use, not Wyeth's alleged negligence in drafting the label.
The FDA first approved Phenergan in 1955. And, as the risk of arterial injection became apparent over the years, the agency approved several changes to the drug's label, which now contains six statements (two in all capital letters and bold face type) warning doctors about the exact nature of that risk.
The doctor and physician's assistant who treated Levine nevertheless administered a dose twice as high as indicated, injected it into the inner crook of her arm where the risk of accidental arterial injection is very high, and continued to push in the syringe's plunger despite Levine's protestations of pain, each in direct contravention of explicit label warnings. It was this negligent administration that caused the massive tissue damage that led to the amputation of her arm.
Levine settled a claim against the physician's assistant and the prescribing doctor, then turned her sights on Wyeth. At trial, Levine's attorney argued that, despite the FDA's approval of Phenergan's label, the drug firm acted negligently by failing to add even sterner warnings or changing the label to rule out intravenous injection altogether. But doing the latter would have overruled a FDA decision that permits IV-push injections when that method could provide more benefits than the alternative.
Justice Stevens's majority opinion asserts that the FDA can't keep track of all safety issues that arise after a drug is approved and that the agency never specifically made a determination regarding the safety of IV-push administration. Consequently, Wyeth could have changed its label without the FDA's pre-approval upon receiving information regarding the risk of arterial injection of Phenergan. But that assertion is plainly wrong. The case record shows that the FDA repeatedly and intensively investigated this exact question and determined that IV-push injection provided important medical benefits.
Furthermore, there are no allegations that Wyeth hid any information about the risks of IV injection, nor has any new information regarding the risks arisen that would call the FDA's decision into question. So, the decision in Levine is tantamount to letting a group of laymen overrule the FDA's expert opinion regarding safety. In his closing arguments at trial, Levine's attorney told the jury, "Thank God we don't rely on the FDA to...make the safe[ty] decision...The FDA doesn't make the decision, you do."
A majority of the Supreme Court agreed, concluding that FDA regulation should be seen as a floor, but should not preempt stricter state tort laws. That, however, conflicts with longstanding Court precedent regarding implied pre-emption of state laws that conflict with federal regulatory decisions. As Justice Alito's dissent notes, "the ordinary principles of conflict pre-emption turn solely on whether a State has upset the regulatory balance struck by the federal agency." That is exactly what has happened here.
The Supreme Court could have and should have held in Wyeth's favor with a narrowly tailored opinion confined to the facts of this case. Doing so would not have insulated wrongdoers from punishment, but would have recognized that Congress gave FDA statutory authority over questions of safety and efficacy because it believed a federal expert body could most effectively balance the benefits and risks of new medicines. Empowering lay juries to override those decisions means that fewer patients will benefit from important medicines in the future. Not only is the majority's decision bad law, it's very bad for patients.
Gregory Conko is a senior fellow with the Competitive Enterprise Institute in Washington, DC.
The Supreme Court botches a drug preemption case
Reason, March 18, 2009
The Supreme Court handed down its decision this month in the case of Wyeth v. Levine, ruling that federal law did not bar plaintiff Diana Levine from suing pharmaceutical maker Wyeth over allegedly insufficient drug safety warnings, even though the warnings had been approved by the Food and Drug Administration (FDA). This decision establishes the troubling precedent that a sympathetic jury can now supersede the expert opinions of the FDA on what qualifies as adequate safety labeling. Ultimately, that means drug firms face higher costs and greater uncertainty. Both are bad for patients.
Levine lost an arm to gangrene after a physician's assistant injected the Wyeth drug Phenergan in such a way that it came into contact with oxygen-rich arterial blood. Although the drug's label explicitly warned that doing so poses a high risk of tissue damage, Levine claimed that the label should have instructed physicians not to use this intravenous "IV-push" method at all. A Vermont jury agreed, and awarded Levine $7.4 million, which the court reduced to $6.7 million.
On appeal, Wyeth could not challenge the jury's fact finding, but argued that the FDA's extensive regulation of drug labeling should preclude claims of negligent failure to warn. The Supreme Court held, by a 6-3 majority, that federal law does not preempt Levine's claim.
According to Justice John Paul Stevens' majority opinion, "The history of the [Food, Drug, and Cosmetics Act] shows that Congress did not intend to preempt state-law failure-to-warn actions." Although true in a general sense, the Court failed to recognize that this is not a typical failure-to-warn case. As Justice Samuel Alito's dissenting opinion notes, Levine conceded that, in 1988, Wyeth proposed a label change that "if followed, would have prevented the inadvertent administration of Phenergan into an artery," but the FDA rejected that language.
Nevertheless, Levine alleged not only that the warning on Phenergan's label wasn't strong enough, but that Phenergan was "not reasonably safe for intravenous administration"—and that the label should have said so. That, however, poses a question regarding FDA's approval of the product for that use, not Wyeth's alleged negligence in drafting the label.
The FDA first approved Phenergan in 1955. And, as the risk of arterial injection became apparent over the years, the agency approved several changes to the drug's label, which now contains six statements (two in all capital letters and bold face type) warning doctors about the exact nature of that risk.
The doctor and physician's assistant who treated Levine nevertheless administered a dose twice as high as indicated, injected it into the inner crook of her arm where the risk of accidental arterial injection is very high, and continued to push in the syringe's plunger despite Levine's protestations of pain, each in direct contravention of explicit label warnings. It was this negligent administration that caused the massive tissue damage that led to the amputation of her arm.
Levine settled a claim against the physician's assistant and the prescribing doctor, then turned her sights on Wyeth. At trial, Levine's attorney argued that, despite the FDA's approval of Phenergan's label, the drug firm acted negligently by failing to add even sterner warnings or changing the label to rule out intravenous injection altogether. But doing the latter would have overruled a FDA decision that permits IV-push injections when that method could provide more benefits than the alternative.
Justice Stevens's majority opinion asserts that the FDA can't keep track of all safety issues that arise after a drug is approved and that the agency never specifically made a determination regarding the safety of IV-push administration. Consequently, Wyeth could have changed its label without the FDA's pre-approval upon receiving information regarding the risk of arterial injection of Phenergan. But that assertion is plainly wrong. The case record shows that the FDA repeatedly and intensively investigated this exact question and determined that IV-push injection provided important medical benefits.
Furthermore, there are no allegations that Wyeth hid any information about the risks of IV injection, nor has any new information regarding the risks arisen that would call the FDA's decision into question. So, the decision in Levine is tantamount to letting a group of laymen overrule the FDA's expert opinion regarding safety. In his closing arguments at trial, Levine's attorney told the jury, "Thank God we don't rely on the FDA to...make the safe[ty] decision...The FDA doesn't make the decision, you do."
A majority of the Supreme Court agreed, concluding that FDA regulation should be seen as a floor, but should not preempt stricter state tort laws. That, however, conflicts with longstanding Court precedent regarding implied pre-emption of state laws that conflict with federal regulatory decisions. As Justice Alito's dissent notes, "the ordinary principles of conflict pre-emption turn solely on whether a State has upset the regulatory balance struck by the federal agency." That is exactly what has happened here.
The Supreme Court could have and should have held in Wyeth's favor with a narrowly tailored opinion confined to the facts of this case. Doing so would not have insulated wrongdoers from punishment, but would have recognized that Congress gave FDA statutory authority over questions of safety and efficacy because it believed a federal expert body could most effectively balance the benefits and risks of new medicines. Empowering lay juries to override those decisions means that fewer patients will benefit from important medicines in the future. Not only is the majority's decision bad law, it's very bad for patients.
Gregory Conko is a senior fellow with the Competitive Enterprise Institute in Washington, DC.
Libertarian on high-speed rail
Trains Are For Tourists, by Randal O'Toole
NPR.org, March 19, 2009
When I went to Europe, I loved to ride the trains, especially the French TGV and other high-speed trains. So President Obama's goal of building high-speed rail in the United States sounded good at first.
But when I looked at the details, I discovered that — while high-speed rail may be good for tourists — it isn't working very well in either Europe or Japan.
Japan and France have each spent as much per capita on high-speed rail as we spent on our Interstate Highway System. The average American travels 4,000 miles, and ships 2,000 ton-miles, per year on the interstates. Yet the average resident of Japan travels only 400 miles per year on their bullet trains, while the average resident of France goes less than 300 miles per year on the TGV — and these rail lines carry virtually no freight.
Throughout the world and throughout history, passenger trains have been used mainly by a wealthy elite and have never given the average people of any nation as much mobility as our interstate highways.
Moreover, the interstates paid for themselves out of gas taxes and other user fees, while high-speed rail requires huge subsidies from general taxpayers.
Personally, I would much rather ride a train than drive anywhere. But I have to admit that automobiles are the most egalitarian form of travel ever invented. Throughout the developed world, people of all income levels regularly travel by car, while only a small number of people regularly ride trains. For example, the average American drives for 85 percent of their travel; the average European 79 percent — not much difference.
The environmental benefits of high-speed rail are also questionable.
President Obama's plan actually calls for moderate-speed rail:
110-mile-per-hour passenger trains sharing tracks with freight trains. These moderate-speed trains will mostly be Diesel-powered, and for safety purposes they will be heavy. By the time these trains start operating, both cars and airplanes will use less energy and emit far less greenhouse gases per passenger mile than the moderate-speed trains.
True high-speed rail — trains going 200 miles per hour or more — requires costly dedicated tracks: a national network would easily cost more than half a trillion dollars. Considering that both airplanes and cars are getting more fuel-efficient all the time, the environmental costs of constructing these lines will never be recovered in any operational savings.
True high-speed trains are electrically powered, but if that electricity comes from fossil fuels it will produce as much greenhouse gases, per passenger mile, as autos or planes. As we develop more renewable electricity, we would do better to dedicate that power to plug-in hybrids than to build expensive but little-used train lines.
We have a choice between a transportation system that everyone uses and that pays for itself, or one that requires everyone to pay for through their taxes but that is used by only a small elite. Which is the better symbol for the America President Obama wants to rebuild?
Randal O'Toole is a Cato Institute Senior Fellow working on urban growth, public land, and transportation issues.
NPR.org, March 19, 2009
When I went to Europe, I loved to ride the trains, especially the French TGV and other high-speed trains. So President Obama's goal of building high-speed rail in the United States sounded good at first.
But when I looked at the details, I discovered that — while high-speed rail may be good for tourists — it isn't working very well in either Europe or Japan.
Japan and France have each spent as much per capita on high-speed rail as we spent on our Interstate Highway System. The average American travels 4,000 miles, and ships 2,000 ton-miles, per year on the interstates. Yet the average resident of Japan travels only 400 miles per year on their bullet trains, while the average resident of France goes less than 300 miles per year on the TGV — and these rail lines carry virtually no freight.
Throughout the world and throughout history, passenger trains have been used mainly by a wealthy elite and have never given the average people of any nation as much mobility as our interstate highways.
Moreover, the interstates paid for themselves out of gas taxes and other user fees, while high-speed rail requires huge subsidies from general taxpayers.
Personally, I would much rather ride a train than drive anywhere. But I have to admit that automobiles are the most egalitarian form of travel ever invented. Throughout the developed world, people of all income levels regularly travel by car, while only a small number of people regularly ride trains. For example, the average American drives for 85 percent of their travel; the average European 79 percent — not much difference.
The environmental benefits of high-speed rail are also questionable.
President Obama's plan actually calls for moderate-speed rail:
110-mile-per-hour passenger trains sharing tracks with freight trains. These moderate-speed trains will mostly be Diesel-powered, and for safety purposes they will be heavy. By the time these trains start operating, both cars and airplanes will use less energy and emit far less greenhouse gases per passenger mile than the moderate-speed trains.
True high-speed rail — trains going 200 miles per hour or more — requires costly dedicated tracks: a national network would easily cost more than half a trillion dollars. Considering that both airplanes and cars are getting more fuel-efficient all the time, the environmental costs of constructing these lines will never be recovered in any operational savings.
True high-speed trains are electrically powered, but if that electricity comes from fossil fuels it will produce as much greenhouse gases, per passenger mile, as autos or planes. As we develop more renewable electricity, we would do better to dedicate that power to plug-in hybrids than to build expensive but little-used train lines.
We have a choice between a transportation system that everyone uses and that pays for itself, or one that requires everyone to pay for through their taxes but that is used by only a small elite. Which is the better symbol for the America President Obama wants to rebuild?
Randal O'Toole is a Cato Institute Senior Fellow working on urban growth, public land, and transportation issues.
Saving Pakistan: The U.S. will need to foster political stability if it wants success against al-Qaeda and the Taliban
Saving Pakistan. WaPo Editorial
The U.S. will need to foster political stability if it wants success against al-Qaeda and the Taliban.
WaPo, Thursday, March 19, 2009; A14
PAKISTAN'S LATEST crisis has eased, after President Asif Ali Zardari capitulated to protesters who threatened to march on the capital, Islamabad. But for the Obama administration, the challenge of political dysfunction in this nuclear-armed state has hardly diminished. As they showed during the past week, Pakistan's civilian and secular political leaders are more concerned with destroying each other than with fighting the Islamic extremists who are rapidly gaining strength in the country. The Pakistani army, for its part, remains more focused on the perceived threat from India than on the Taliban and al-Qaeda. These problems are deeply rooted -- but the new U.S. administration will have to take them on if it is to successfully combat the terrorist threat to the United States.
Pakistan's return to democratic government a year ago ended an increasingly authoritarian regime that lacked both the will and the political authority to take on the Taliban. But the transition also reopened the feuding between civilian political parties that dominated national politics in the 1990s. While saying they recognize the jihadist threat, Mr. Zardari -- the widower of former prime minister Benazir Bhutto -- and former prime minister Nawaz Sharif have resumed their ruthless competition. Both have employed undemocratic tactics: Mr. Sharif has chosen to fight the government mostly in the streets rather than in Parliament, while Mr. Zardari tried to block last weekend's protests with mass arrests and media censorship.
A third secular force, a movement of judges and lawyers that rallied behind former Supreme Court chief justice Iftikhar Mohammed Chaudhry, is seen by many middle-class Pakistanis as representing the rule of law. Mr. Zardari's agreement to restore Mr. Chaudhry to the court Monday ended the protest march and was celebrated as a victory for democracy. But Mr. Chaudhry, who takes pride in his maverick decisions, could easily destroy the fragile system if he chooses to reopen old cases involving Mr. Zardari, Mr. Sharif or former president Pervez Musharraf. He could set an example for the political leaders by embracing restraint and compromise -- qualities sorely missing from Pakistani politics.
In the past, Pakistan's political feuding has inexorably led to military coups, which have been tolerated if not welcomed by the United States. But in the era of the Taliban and al-Qaeda, which grow stronger with each new crisis in Islamabad, that pattern must be broken. Pakistan's military leadership and the Obama administration need to play a stabilizing role for the civilian leaders by arbitrating and limiting their conflicts. They should insist on faithfulness to the rule of law and to the democratic process, rather than picking a winner -- in the case of the United States -- or directly intervening, in the case of the military. And they should press for agreement on the country's main enemy -- jihadism -- and a comprehensive strategy for confronting it.
As it formulates its broader strategy for the region, the Obama administration should recognize that it cannot combat the threat of terrorism in Afghanistan and western Pakistan without tackling the larger issues of governance in both countries. The events of the past week showed that the United States must help to foster a stable and representative government in Islamabad. The same principle applies in Kabul.
The U.S. will need to foster political stability if it wants success against al-Qaeda and the Taliban.
WaPo, Thursday, March 19, 2009; A14
PAKISTAN'S LATEST crisis has eased, after President Asif Ali Zardari capitulated to protesters who threatened to march on the capital, Islamabad. But for the Obama administration, the challenge of political dysfunction in this nuclear-armed state has hardly diminished. As they showed during the past week, Pakistan's civilian and secular political leaders are more concerned with destroying each other than with fighting the Islamic extremists who are rapidly gaining strength in the country. The Pakistani army, for its part, remains more focused on the perceived threat from India than on the Taliban and al-Qaeda. These problems are deeply rooted -- but the new U.S. administration will have to take them on if it is to successfully combat the terrorist threat to the United States.
Pakistan's return to democratic government a year ago ended an increasingly authoritarian regime that lacked both the will and the political authority to take on the Taliban. But the transition also reopened the feuding between civilian political parties that dominated national politics in the 1990s. While saying they recognize the jihadist threat, Mr. Zardari -- the widower of former prime minister Benazir Bhutto -- and former prime minister Nawaz Sharif have resumed their ruthless competition. Both have employed undemocratic tactics: Mr. Sharif has chosen to fight the government mostly in the streets rather than in Parliament, while Mr. Zardari tried to block last weekend's protests with mass arrests and media censorship.
A third secular force, a movement of judges and lawyers that rallied behind former Supreme Court chief justice Iftikhar Mohammed Chaudhry, is seen by many middle-class Pakistanis as representing the rule of law. Mr. Zardari's agreement to restore Mr. Chaudhry to the court Monday ended the protest march and was celebrated as a victory for democracy. But Mr. Chaudhry, who takes pride in his maverick decisions, could easily destroy the fragile system if he chooses to reopen old cases involving Mr. Zardari, Mr. Sharif or former president Pervez Musharraf. He could set an example for the political leaders by embracing restraint and compromise -- qualities sorely missing from Pakistani politics.
In the past, Pakistan's political feuding has inexorably led to military coups, which have been tolerated if not welcomed by the United States. But in the era of the Taliban and al-Qaeda, which grow stronger with each new crisis in Islamabad, that pattern must be broken. Pakistan's military leadership and the Obama administration need to play a stabilizing role for the civilian leaders by arbitrating and limiting their conflicts. They should insist on faithfulness to the rule of law and to the democratic process, rather than picking a winner -- in the case of the United States -- or directly intervening, in the case of the military. And they should press for agreement on the country's main enemy -- jihadism -- and a comprehensive strategy for confronting it.
As it formulates its broader strategy for the region, the Obama administration should recognize that it cannot combat the threat of terrorism in Afghanistan and western Pakistan without tackling the larger issues of governance in both countries. The events of the past week showed that the United States must help to foster a stable and representative government in Islamabad. The same principle applies in Kabul.
Subscribe to:
Posts (Atom)
Posts
