The El Paso Miracle. By Radley Balko
How can a comparatively poor, high-immigration town that sits across the border from super-violent Ciudad Juarez be one of the safest big cities in America?
Reason, July 6, 2009
By conventional wisdom, El Paso, Texas should be one of the scariest cities in America. In 2007, the city's poverty rate was a shade over 27 percent, more than twice the national average. Median household income was $35,600, well below the national average of $48,000. El Paso is three-quarters Hispanic, and more than a quarter of its residents are foreign-born. Given that it's nearly impossible for low-skilled immigrants to work in the United States legitimately, it's safe to say that a significant percentage of El Paso's foreign-born population is living here illegally.
El Paso also has some of the laxer gun control policies of any non-Texan big city in the country, mostly due to gun-friendly state law. And famously, El Paso sits just over the Rio Grande from one of the most violent cities in the western hemisphere, Ciudad Juarez, Mexico, home to a staggering 2,500 homicides in the last 18 months alone. A city of illegal immigrants with easy access to guns, just across the river from a metropolis ripped apart by brutal drug war violence. Should be a bloodbath, right?
Here's the surprise: There were just 18 murders in El Paso last year, in a city of 736,000 people. To compare, Baltimore, with 637,000 residents, had 234 killings. In fact, since the beginning of 2008, there were nearly as many El Pasoans murdered while visiting Juarez (20) than there were murdered in their home town (23).El Paso is among the safest big cities in America. For the better part of the last decade, only Honolulu has had a lower violent crime rate (El Paso slipped to third last year, behind New York). Men's Health magazine recently ranked El Paso the second "happiest" city in America, right after Laredo, Texas—another border town, where the Hispanic population is approaching 95 percent.
So how has this city of poor immigrants become such an anomaly? Actually, it may not be an anomaly at all. Many criminologists say El Paso isn't safe despite its high proportion of immigrants, it's safe because of them."If you want to find a safe city, first determine the size of the immigrant population," says Jack Levin, a criminologist at Northeastern University in Massachusetts. "
If the immigrant community represents a large proportion of the population, you're likely in one of the country's safer cities. San Diego, Laredo, El Paso—these cities are teeming with immigrants, and they're some of the safest places in the country."
If you regularly listen to talk radio, or get your crime news from anti-immigration pundits, all of this may come as a surprise. But it's not to many of those who study crime for a living. As the national immigration debate heated up in 2007, dozens of academics who specialize in the issue sent a letter (pdf) to then President George W. Bush and congressional leaders with the following point:
Numerous studies by independent researchers and government commissions over the past 100 years repeatedly and consistently have found that, in fact, immigrants are less likely to commit crimes or to be behind bars than are the native-born. This is true for the nation as a whole, as well as for cities with large immigrant populations such as Los Angeles, New York, Chicago, and Miami, and cities along the U.S.-Mexico border such as San Diego and El Paso.
One of the signatories was Rubén G. Rumbaut, a sociologist who studies immigration at the University of California, Irvine. Rumbaut recently presented a paper on immigration and crime to a Washington, D.C. conference sponsored by the Police Foundation. Rumbaut writes via email, "The evidence points overwhelmingly to the same conclusion: Rates of crime and conviction for undocumented immigrants are far below those for the native born, and that is especially the case for violent crimes, including murder."
Opponents of illegal immigration usually do little more than cite andecdotes attempting to link illegal immigration to violent crime. When they do try to use statistics, they come up short. Rep. Steve King (R-Iowa), for example, has perpetuated the popular myth that illegal immigrants murder 12 Americans per day, and kill another 13 by driving drunk. King says his figures come from a Government Accountability Office study he requested, which found that about 27 percent of inmates in the federal prison system are non-citizens. Colorado Media Matters looked into King's claim, and found his methodology lacking. King appears to have conjured his talking point by simply multiplying the annual number of murders and DWI fatalities in America by 27 percent. Of course, the GAO report only looked at federal prisons, not the state prisons and local jails where most convicted murderers and DWI offenders are kept. The Bureau of Justice Statistics puts the number of non-citizens (including legal immigrants) in state, local, and federal prisons and jails at about 6.4 percent (pdf). Of course, even that doesn't mean that non-citizens account for 6.4 percent of murders and DWI fatalities, only 6.4 percent of the overall inmate population.
What's happening with Latinos is true of most immigrant groups throughout U.S. history. "Overall, immigrants have a stake in this country, and they recognize it," Northeastern University's Levin says. "They're really an exceptional sort of American. They come here having left their family and friends back home. They come at some cost to themselves in terms of security and social relationships. They are extremely success-oriented, and adjust very well to the competitive circumstances in the United States." Economists Kristin Butcher and Anne Morrison Piehl argue that the very process of migration tends to select for people with a low potential for criminality.
Despite the high profile of polemicists such as Lou Dobbs and Michael Savage, America has been mostly welcoming to this latest immigration wave. You don't see "Latinos Need Not Apply" or "No Mexicans" signs posted on public buildings the way you did with the Italians and the Irish, two groups who actually were disproportionately likely to turn to crime. The implication makes sense: An immigrant group's propensity for criminality may be partly determined by how they're received in their new country.
"Look at Arab-Americans in the Midwest, especially in the Detroit area," Levin says. "The U.S. and Canada have traditionally been very willing to welcome and integrate them. They're a success story, with high average incomes and very little crime. That's not the case in Europe. Countries like France and Germany are openly hostile to Arabs. They marginalize them. And they've seen waves of crime and rioting."
El Paso may be a concentrated affirmation of that theory. In 2007 the Washington Post reported on city leaders' wariness of anti-immigration policies coming out of Washington. The city went to court (and lost) in an effort to prevent construction of the border fence within its boundaries, and local officials have resisted federal efforts to enlist local police for immigration enforcement, arguing that it would make illegals less likely to cooperate with police. "Most people in Washington really don't understand life on the border," El Paso Mayor John Cook told the Post. "They don't understand our philosophy here that the border joins us together, it doesn't separate us."Other mayors could learn something from Cook. El Paso's embrace of its immigrants might be a big reason why the low-income border town has remained one of the safest places in the country.
Radley Balko is a senior editor of Reason magazine.
Thursday, July 9, 2009
Obama v. the Tort Lawyers - The president's Auto Task Force worked hard to shield the new GM from jackpot justice
Obama v. the Tort Lawyers. WSJ Editorial
The president's Auto Task Force worked hard to shield the new GM from jackpot justice.
WSJ, Jul 09, 2009
Ask a CEO or small business owner to list his biggest economic problems, and near the top is always the depredations of the tort bar. Would you believe Uncle Sam feels the same way when he's the owner?
Apparently so, if we can judge from the sensible behavior of the Obama Administration's Auto Task Force. General Motors could emerge from bankruptcy as soon as today, leaving the federal government with a majority stake in the car maker. And it turns out the task force worked hard to shield the new GM from jackpot justice.
In its original reorganization plan, the Administration even proposed to leave behind in the old GM all tort claims arising from cars manufactured before bankruptcy. That would have meant that all past, present and future claims related to cars GM produced before June would have had next to no chance of meaningful recovery, as they would have had to stand in line with every other unsecured creditor of the bankrupt firm.
This was the arrangement approved by the courts in Chrysler's bankruptcy, and the task force sought to repeat the feat with GM. But 11 state Attorneys General and a group of tort lawyers cried foul and filed an objection to the bankruptcy plan with the court. In the end the Administration agreed to leave liability for future claims with the new company, while leaving behind current suits.
That's at least something. And the task force's attempt to shed these lawsuit liabilities shows that the feds recognize how expensive it can be to get caught in the sights of the tort lawyers. If only the Administration could see the issue with the same clarity when the targets of its trial-bar supporters are privately owned companies.
The president's Auto Task Force worked hard to shield the new GM from jackpot justice.
WSJ, Jul 09, 2009
Ask a CEO or small business owner to list his biggest economic problems, and near the top is always the depredations of the tort bar. Would you believe Uncle Sam feels the same way when he's the owner?
Apparently so, if we can judge from the sensible behavior of the Obama Administration's Auto Task Force. General Motors could emerge from bankruptcy as soon as today, leaving the federal government with a majority stake in the car maker. And it turns out the task force worked hard to shield the new GM from jackpot justice.
In its original reorganization plan, the Administration even proposed to leave behind in the old GM all tort claims arising from cars manufactured before bankruptcy. That would have meant that all past, present and future claims related to cars GM produced before June would have had next to no chance of meaningful recovery, as they would have had to stand in line with every other unsecured creditor of the bankrupt firm.
This was the arrangement approved by the courts in Chrysler's bankruptcy, and the task force sought to repeat the feat with GM. But 11 state Attorneys General and a group of tort lawyers cried foul and filed an objection to the bankruptcy plan with the court. In the end the Administration agreed to leave liability for future claims with the new company, while leaving behind current suits.
That's at least something. And the task force's attempt to shed these lawsuit liabilities shows that the feds recognize how expensive it can be to get caught in the sights of the tort lawyers. If only the Administration could see the issue with the same clarity when the targets of its trial-bar supporters are privately owned companies.
The Public Option Two-Step
The Public Option Two-Step. WSJ Editorial
Why Obama won't acknowledge the 'Trojan Horse' in the room.
WSJ, Jul 09, 2009
Americans unschooled in liberal health-care politics may have trouble deciphering the White House's conflicting proclamations this week about a new government insurance program for the middle class. Allow us to translate: President Obama loves this so-called public option, but he needs to sell it in a shroud of euphemism and the appearance of "compromise."
On Monday, chief of staff Rahm Emanuel told the Journal's Laura Meckler that the Administration would accept a health bill without a public option, as long as there is "a mechanism to keep the private insurers honest . . . The goal is non-negotiable; the path is." Progressives went bonkers, so on Tuesday Mr. Obama took a break from his Moscow trip to come out strongly in favor (again) of the new trillion-dollar entitlement. Meanwhile, New York's Chuck Schumer has been loudly suggesting that compromise is unnecessary given 60 Senate Democrats -- even as the likes of Ben Nelson, Evan Bayh, Joe Lieberman and Mary Landrieu back away.
The reason left-flank Democrats are so adamant about a public option is because they know it is an opening wedge for the government to dominate U.S. health care. That's also why the health-care industry, business groups, some moderates and most Republicans are opposed. Team Obama likes the policies of the first group but wants the political support of the second. And they're trying to solve this Newtonian problem -- irresistible forces, immovable objects -- by becoming less and less candid about the changes they really favor.
Mr. Emanuel echoes his boss and says a government health plan is needed to keep the private sector "honest," but then why don't we also need a state-run oil company, or nationalized grocery store chain? (Or auto maker? Never mind.) The real goal is to create a program backstopped by taxpayers that can exert political leverage over the market.
In its strongest version, the federal plan would receive direct cash subsidies, allowing it to undercut private insurers on consumer prices. This would quickly lead to "crowd out," the tendency of supposedly "free" public programs to displace private insurance. As a general rule, Congress has to spend $2 of taxpayer money to provide $1 in new benefits. More precise academic studies of expansions in Medicaid and the children's insurance program put the crowd-out effect somewhere between 25% and 60%.
Because this is so expensive, the public version Mr. Schumer favors would supposedly receive no special advantages. But this is meaningless when Democrats are planning to mandate the benefits that private insurers must provide, the patients they must accept, and how much they can charge. Oh, and a government plan would still have an implicit taxpayer guarantee a la Fannie Mae, giving it an inherent cost-of-capital advantage.
A few swing votes such as Maine's Olympia Snowe might accept a "trigger," in which a government-run plan would only come on line if certain targets aren't met, such as reducing costs. But that only delays the day of reckoning. Another pseudocompromise is North Dakota Democrat Kent Conrad's idea to give the states seed money to set up health insurance co-ops. These plans would still be run under a federal charter and managed by a federal board, so they merely split the public option into 50 pieces.
The other goal of a new public plan is to force doctors and hospitals to accept below-cost fees. This is how Medicare tries to control costs today, but it's like squeezing a balloon: Lower reimbursements mean that providers -- especially hospitals -- must recoup their costs elsewhere, either by shifting costs onto private payers or with more billable tests and procedures. The only way costs can conceivably be managed via price controls is if government is running the whole show, which naturally leads to severe restrictions on care while medical innovation withers.
A rhetorical gong Mr. Obama has been banging a lot lately is the idea that the people pointing all this out are liars. "When you hear the naysayers claim that I'm trying to bring about government-run health care," he said in one speech, "know this: They're not telling the truth." He adds that opposition to a public option isn't "based on any evidence" and that it is "illegitimate" to argue that his program is "is somehow a Trojan horse for a single-payer system."
So much for changing the political tone. Perhaps the President should check in with his more honest liberal allies. Jacob Hacker, now a professor of political science at Berkeley, came up with the intellectual architecture for the public option when he was a graduate student in the 1990s. "Someone once said to me, 'This is a Trojan horse for single payer,' and I said, 'Well, it's not a Trojan horse, right? It's just right there,'" Mr. Hacker explained in a speech last year. "I'm telling you, we're going to get there, over time, slowly."
The real question the political class is debating now is how slowly, or quickly, it takes to get there. And how they're best able to disguise this goal -- ideally as a "compromise."
Why Obama won't acknowledge the 'Trojan Horse' in the room.
WSJ, Jul 09, 2009
Americans unschooled in liberal health-care politics may have trouble deciphering the White House's conflicting proclamations this week about a new government insurance program for the middle class. Allow us to translate: President Obama loves this so-called public option, but he needs to sell it in a shroud of euphemism and the appearance of "compromise."
On Monday, chief of staff Rahm Emanuel told the Journal's Laura Meckler that the Administration would accept a health bill without a public option, as long as there is "a mechanism to keep the private insurers honest . . . The goal is non-negotiable; the path is." Progressives went bonkers, so on Tuesday Mr. Obama took a break from his Moscow trip to come out strongly in favor (again) of the new trillion-dollar entitlement. Meanwhile, New York's Chuck Schumer has been loudly suggesting that compromise is unnecessary given 60 Senate Democrats -- even as the likes of Ben Nelson, Evan Bayh, Joe Lieberman and Mary Landrieu back away.
The reason left-flank Democrats are so adamant about a public option is because they know it is an opening wedge for the government to dominate U.S. health care. That's also why the health-care industry, business groups, some moderates and most Republicans are opposed. Team Obama likes the policies of the first group but wants the political support of the second. And they're trying to solve this Newtonian problem -- irresistible forces, immovable objects -- by becoming less and less candid about the changes they really favor.
Mr. Emanuel echoes his boss and says a government health plan is needed to keep the private sector "honest," but then why don't we also need a state-run oil company, or nationalized grocery store chain? (Or auto maker? Never mind.) The real goal is to create a program backstopped by taxpayers that can exert political leverage over the market.
In its strongest version, the federal plan would receive direct cash subsidies, allowing it to undercut private insurers on consumer prices. This would quickly lead to "crowd out," the tendency of supposedly "free" public programs to displace private insurance. As a general rule, Congress has to spend $2 of taxpayer money to provide $1 in new benefits. More precise academic studies of expansions in Medicaid and the children's insurance program put the crowd-out effect somewhere between 25% and 60%.
Because this is so expensive, the public version Mr. Schumer favors would supposedly receive no special advantages. But this is meaningless when Democrats are planning to mandate the benefits that private insurers must provide, the patients they must accept, and how much they can charge. Oh, and a government plan would still have an implicit taxpayer guarantee a la Fannie Mae, giving it an inherent cost-of-capital advantage.
A few swing votes such as Maine's Olympia Snowe might accept a "trigger," in which a government-run plan would only come on line if certain targets aren't met, such as reducing costs. But that only delays the day of reckoning. Another pseudocompromise is North Dakota Democrat Kent Conrad's idea to give the states seed money to set up health insurance co-ops. These plans would still be run under a federal charter and managed by a federal board, so they merely split the public option into 50 pieces.
The other goal of a new public plan is to force doctors and hospitals to accept below-cost fees. This is how Medicare tries to control costs today, but it's like squeezing a balloon: Lower reimbursements mean that providers -- especially hospitals -- must recoup their costs elsewhere, either by shifting costs onto private payers or with more billable tests and procedures. The only way costs can conceivably be managed via price controls is if government is running the whole show, which naturally leads to severe restrictions on care while medical innovation withers.
A rhetorical gong Mr. Obama has been banging a lot lately is the idea that the people pointing all this out are liars. "When you hear the naysayers claim that I'm trying to bring about government-run health care," he said in one speech, "know this: They're not telling the truth." He adds that opposition to a public option isn't "based on any evidence" and that it is "illegitimate" to argue that his program is "is somehow a Trojan horse for a single-payer system."
So much for changing the political tone. Perhaps the President should check in with his more honest liberal allies. Jacob Hacker, now a professor of political science at Berkeley, came up with the intellectual architecture for the public option when he was a graduate student in the 1990s. "Someone once said to me, 'This is a Trojan horse for single payer,' and I said, 'Well, it's not a Trojan horse, right? It's just right there,'" Mr. Hacker explained in a speech last year. "I'm telling you, we're going to get there, over time, slowly."
The real question the political class is debating now is how slowly, or quickly, it takes to get there. And how they're best able to disguise this goal -- ideally as a "compromise."
Wednesday, July 8, 2009
Supply, Not Speculation, Responsible For Volatile Energy Prices
Supply, Not Speculation, Responsible For Volatile Energy Prices
Latest CFTC Action a Diversion from the Real Cause, Supply and Demand
Institute for Energy Research, Jul 08, 2009
WASHINGTON – This week, the Commodities Futures Trading Commission (CFTC) unveiled a new plan for government takeover of how energy commodities are traded, valued and sold. In response to these proposed actions, Thomas J. Pyle, president of the Institute for Energy Research (IER), issued the following statement:
“For politicians who consistently oppose responsible energy development here at home, the demonization of so-called speculators remains a popular tool for absolving themselves of responsibility for the historically high prices they helped create. But for those with a genuine interest in punishing speculators who make money when oil prices are high, no single action would hurt them more than flooding the market with new supply.
“The CFTC, at least as an institution, understands this fact, and has published dozens of studies over the past several years debunking the myth that market trading activity artificially inflates the price of energy. Unfortunately, it appears that the current head of the commission has not read much of its previous work, joining a long list of policymakers either unwilling or unable to understand the difference between cause and effect.
“Washington has kept billions of barrels of oil shale in the Inter-mountain West under lock-and-key. Billions of barrels of oil remain effectively off-limit in our deep oceans, especially in Alaska. And at the same time, Washington is working to halt American energy production even further through massive tax hikes, mandates, and job-killing regulations. Interested in understanding the real causes of high energy prices? Speculate no more.”
READ MORE:
- IER: Speculators Fixing Oil Prices? Don’t Bet On It
- IER: Question: How Many Times Has the FTC Found Evidence of Price Gouging by Energy Companies?
- Paul Krugman: “Speculative nonsense, once again … The mysticism over how speculation is supposed to drive prices drives me crazy, professionally … A futures contract is a bet about the future price. It has no, zero, nada direct effect on the spot price … As I’ve tried to point out, there just isn’t any evidence from the inventory data that this is happening.” (New York Times, 6/23/08)
- Krugman: “Hyperventilation over oil-market speculation is distracting us from the real issues.” (New York Times, 6/27/08)
- T. Boone Pickens: “A U.S. probe into whether speculators manipulated oil prices up to more than $135 a barrel is a ‘waste of time,‘ … ‘There’s nothing to it to start with,’ Pickens said.” (Bloomberg, 6/3/08)
- Pickens: “Speculation has become a ‘scapegoat’ for what is largely a supply and demand problem.” (Houston Chronicle, 7/10/08)
- Warren Buffett: “But it’s not speculation, it is supply and demand …” (CNBC’s Power Lunch, 6/25/08)
- Federal Reserve Chairman Ben Bernanke: “The most important cause [of high gas prices] is the global supply-and-demand balance.” (Congressional testimony, 7/16/08)
- Bernanke: “If financial speculation were pushing oil prices above the levels consistent with the fundamentals of supply and demand, we would expect inventories of crude oil and petroleum products to increase as supply rose and demand fell. But in fact, available data on oil inventories show notable declines over the past year.” (Congressional testimony, 7/15/09)
The economic reality of climate-change policy is sinking in at last in Europe
European Hot Air. WSJ Editorial
The economic reality of climate-change policy is sinking in at last.
WSJ, Jul 08, 2009
Climate change is set to figure prominently in this week's Group of Eight summit in Italy, but take any pronouncements about greenhouse-gas emissions targets with a grain of salt. While leaders may still think it's good politics to sing from the green hymnal, other realities are finally starting to sink in, especially in Old Europe. To wit: Restrictions on greenhouse-gas emissions involve huge costs for uncertain gains and are just what economies in recession don't need.
Concerns about high costs and lost jobs have already threatened carbon-emissions control plans in Australia and New Zealand, and to make sure cap-and-trade would pass in the U.S. House of Representatives, supporters had to push through the legislation before anyone could read it. The fraying of the anti-carbon consensus in Western Europe is especially striking. Polls consistently show that voters in most Western European countries support attempts to ameliorate climate change, at least in the abstract. The EU implemented a cap-and-trade Emissions Trading Scheme in 2005.
But that enthusiasm may be reaching its limit. Governments in industry-heavy countries are now less willing to sacrifice jobs for cooler temperatures. Germany's generally environmentalist Chancellor Angela Merkel insisted on exemptions for her country's industry from December's EU climate package, which pledged to reduce carbon emissions by 20% below 1990 levels by 2020. Germany also plans to build several dozen coal-fired power plants in the next few years.
Italy insisted on a clause in the December climate deal that requires the EU to renegotiate its climate policy after the United Nations summit in Copenhagen later this year. That amounts to a veto since China and India aren't expected to sign up for aggressive emissions targets; any renegotiated EU deal is likely to contain even more loopholes and exemptions to keep from denting European competitiveness.
Just as telling, Europe has been at best half-hearted in meeting its emissions-reduction targets under the 1997 Kyoto Protocol. To the extent Europe appears on track to meet its targets, it's largely because warmer weather and higher market prices for energy have driven consumption down.
Credit a deteriorating economy for this about-face. Businesses and unions finally are starting to speak out against intrusive and expensive emissions regulations. In December, Phillipe Varin, chief executive of Corus, Europe's second-largest steel producer, told the London Independent that the cost of carbon credits and new technologies needed to reduce emissions would destroy European steel production, forcing manufacturing overseas.
Jaroslaw Grzesik, deputy head of energy at Poland's Solidarity trade union said last month that the union estimated the EU's climate policy would cost 800,000 European jobs. Before the December negotiations, the London-based think tank Open Europe estimated the EU climate package would cost governments, businesses and householders in the EU-25 more than €73 billion ($102 billion) a year until 2020. No wonder leaders decided to water it down.
Meanwhile, the supposed economic benefits of climate-change amelioration are evaporating. In Germany, government subsidies for installing solar panels -- and, it was presumed, thereby creating domestic manufacturing jobs -- backfired when it turned out that it was cheaper to make solar panels in China. A recent paper by Gabriel Calzada Álvarez, an economics professor at Universidad Rey Juan Carlos, said that since Spain starting investing in "green jobs" policies in 2000, the country has lost 110,500 jobs in other parts of the economy. That amounts to 2.2 jobs lost for every new "green job" created.
This has politicians worried. They might have been willing to sacrifice a few jobs when they signed Kyoto in 1997. But economic times were flush then. Now a global slowdown is forcing a rethink on whether emissions control is worth the cost. With the scientific debate about the causes, effects and solutions of climate change growing more vigorous, that's a question worth asking.
Despite all the backtracking in practice, climate rhetoric is still alive and well. Sweden, which assumed the EU presidency last week, promises more action on emissions control. Gordon Brown, Nicolas Sarkozy and other leaders continue to talk a good game. Mr. Brown has even proposed a $100 billion-a-year fund to help countries like China and India clean up their emissions acts. Good luck getting that passed in the current fiscal and economic environment.
In other words, Western European leaders are the latest to discover that climate-change talk is cheap, but carbon-emissions regulation is expensive. That might be bad news for green activists, but it's very good news for Europeans worried about their jobs and their economy.
The economic reality of climate-change policy is sinking in at last.
WSJ, Jul 08, 2009
Climate change is set to figure prominently in this week's Group of Eight summit in Italy, but take any pronouncements about greenhouse-gas emissions targets with a grain of salt. While leaders may still think it's good politics to sing from the green hymnal, other realities are finally starting to sink in, especially in Old Europe. To wit: Restrictions on greenhouse-gas emissions involve huge costs for uncertain gains and are just what economies in recession don't need.
Concerns about high costs and lost jobs have already threatened carbon-emissions control plans in Australia and New Zealand, and to make sure cap-and-trade would pass in the U.S. House of Representatives, supporters had to push through the legislation before anyone could read it. The fraying of the anti-carbon consensus in Western Europe is especially striking. Polls consistently show that voters in most Western European countries support attempts to ameliorate climate change, at least in the abstract. The EU implemented a cap-and-trade Emissions Trading Scheme in 2005.
But that enthusiasm may be reaching its limit. Governments in industry-heavy countries are now less willing to sacrifice jobs for cooler temperatures. Germany's generally environmentalist Chancellor Angela Merkel insisted on exemptions for her country's industry from December's EU climate package, which pledged to reduce carbon emissions by 20% below 1990 levels by 2020. Germany also plans to build several dozen coal-fired power plants in the next few years.
Italy insisted on a clause in the December climate deal that requires the EU to renegotiate its climate policy after the United Nations summit in Copenhagen later this year. That amounts to a veto since China and India aren't expected to sign up for aggressive emissions targets; any renegotiated EU deal is likely to contain even more loopholes and exemptions to keep from denting European competitiveness.
Just as telling, Europe has been at best half-hearted in meeting its emissions-reduction targets under the 1997 Kyoto Protocol. To the extent Europe appears on track to meet its targets, it's largely because warmer weather and higher market prices for energy have driven consumption down.
Credit a deteriorating economy for this about-face. Businesses and unions finally are starting to speak out against intrusive and expensive emissions regulations. In December, Phillipe Varin, chief executive of Corus, Europe's second-largest steel producer, told the London Independent that the cost of carbon credits and new technologies needed to reduce emissions would destroy European steel production, forcing manufacturing overseas.
Jaroslaw Grzesik, deputy head of energy at Poland's Solidarity trade union said last month that the union estimated the EU's climate policy would cost 800,000 European jobs. Before the December negotiations, the London-based think tank Open Europe estimated the EU climate package would cost governments, businesses and householders in the EU-25 more than €73 billion ($102 billion) a year until 2020. No wonder leaders decided to water it down.
Meanwhile, the supposed economic benefits of climate-change amelioration are evaporating. In Germany, government subsidies for installing solar panels -- and, it was presumed, thereby creating domestic manufacturing jobs -- backfired when it turned out that it was cheaper to make solar panels in China. A recent paper by Gabriel Calzada Álvarez, an economics professor at Universidad Rey Juan Carlos, said that since Spain starting investing in "green jobs" policies in 2000, the country has lost 110,500 jobs in other parts of the economy. That amounts to 2.2 jobs lost for every new "green job" created.
This has politicians worried. They might have been willing to sacrifice a few jobs when they signed Kyoto in 1997. But economic times were flush then. Now a global slowdown is forcing a rethink on whether emissions control is worth the cost. With the scientific debate about the causes, effects and solutions of climate change growing more vigorous, that's a question worth asking.
Despite all the backtracking in practice, climate rhetoric is still alive and well. Sweden, which assumed the EU presidency last week, promises more action on emissions control. Gordon Brown, Nicolas Sarkozy and other leaders continue to talk a good game. Mr. Brown has even proposed a $100 billion-a-year fund to help countries like China and India clean up their emissions acts. Good luck getting that passed in the current fiscal and economic environment.
In other words, Western European leaders are the latest to discover that climate-change talk is cheap, but carbon-emissions regulation is expensive. That might be bad news for green activists, but it's very good news for Europeans worried about their jobs and their economy.
Tuesday, July 7, 2009
We Must Address Oil-Market Volatility
We Must Address Oil-Market Volatility. By GORDON BROWN and NICOLAS SARKOZY
Erratic price movements in such an important commodity are cause for alarm.
WSJ, Jul 08, 2009
For two years the price of oil has been dangerously volatile, seemingly defying the accepted rules of economics. First it rose by more than $80 a barrel, then fell rapidly by more than $100, before doubling to its current level of around $70. In that time, however, there has been no serious interruption of supply. Despite ongoing conflict in the Middle East, oil has continued to flow. And although the recession and price rises have had some effect on consumption, medium-term forecasts for demand are robust.
The oil market is complex, but such erratic price movement in one of the world's most crucial commodities is a growing cause for alarm. The surge in prices last year gravely damaged the global economy and contributed to the downturn. The risk now is that a new period of instability could undermine confidence just as we are pushing for recovery.
Governments can no longer stand idle. Volatility damages both consumers and producers. Those who rely on oil and have no substitutes readily available have been the victims of extreme price fluctuations beyond their control -- and apparently beyond reason. Importing countries, especially in the developing world, find themselves committed to big subsidies to shield domestic consumers from potentially devastating price shifts.
In Britain and France we also know how the price of crude dictates the price of petrol at filling stations and the effect on families and businesses. For countries heavily reliant on income from oil exports, the windfalls from brief price surges are offset by the consequent difficulties of planning national budgets and investment strategies.
Extreme fluctuations in price are encouraging energy users to reconsider their reliance on oil. The International Energy Agency, for instance, has cut its long-term forecast of oil consumption by almost a quarter. Producers are in danger of finding that their key national resource loses both its market and its long-term value.
More immediately, we as consumers must recognize that abnormally low oil prices, while giving short-term benefits, do long-term damage. They diminish incentives to invest, not only in oil production but also, in our own countries, in energy savings and carbon-free alternatives. As such, future problems are stored up in the form of shortages, greater dependence and an acceleration of global warming. Upstream investment worldwide is already down by 20% over the past year. And with some sources of supply in decline, such as Alaska and the North Sea, the resource we will all need as the economy recovers is being developed in neither an adequate nor a timely way.
There are no easy solutions and any progress must be made with the full co-operation of the world community and the oil industry. On Monday we used the U.K.-France summit in Evian to explore a way forward. We hope our ideas inform meetings both today, at the Group of Eight Summit in Italy, and in future talks between world leaders.
We are committed to intensifying the ongoing dialogue between producers and consumers through the International Energy Forum. Saudi Arabia and OPEC have expressed interest in this and we believe producers and consumers are closer now than at any time in the past 30 years to recognizing the huge common interest in giving clear and stable perspectives to long-term investment.
At the London Energy Meeting last December, all participants agreed that still closer co-ordination between the IEA, OPEC and the IEF was necessary to develop a shared analysis of future demand and supply trends. The Expert Group of the IEF should use this work to arrive at a common long-term view on what price range would be consistent with the fundamentals.
The experts should also consider any measures that could be put in place to reduce volatility. Discussions should look again into the question of whether trading activity is amplifying erratic price movements.
We therefore call upon the International Organization of Securities Regulators to consider improving transparency and supervision of the oil futures markets to reduce damaging speculation and to take forward the recommendations already made by its taskforce in March. This would serve the interests of orderly and adequate investment in future supplies. Volatility and opacity are the enemies of growth. In the absence of transparency, consumers and importing nations are losing confidence in oil. Climate change is also altering government attitudes to energy.
The world's economy is still reliant on secure supplies at prices that are not so high as to destroy the prospects of economic growth but not so low as to lead to a slump in investment, as happened in the 1990s.
It is a thorny issue, but complex markets need not be volatile or damaging to the wider global economy. We are convinced that producers and consumers alike would benefit from greater transparency, greater stability and greater consensus on the market fundamentals. After two years of destructive volatility the time has come for both sides to work together to build on this common interest.
Mr. Brown is prime minister of the United Kingdom. Mr. Sarkozy is president of France.
Erratic price movements in such an important commodity are cause for alarm.
WSJ, Jul 08, 2009
For two years the price of oil has been dangerously volatile, seemingly defying the accepted rules of economics. First it rose by more than $80 a barrel, then fell rapidly by more than $100, before doubling to its current level of around $70. In that time, however, there has been no serious interruption of supply. Despite ongoing conflict in the Middle East, oil has continued to flow. And although the recession and price rises have had some effect on consumption, medium-term forecasts for demand are robust.
The oil market is complex, but such erratic price movement in one of the world's most crucial commodities is a growing cause for alarm. The surge in prices last year gravely damaged the global economy and contributed to the downturn. The risk now is that a new period of instability could undermine confidence just as we are pushing for recovery.
Governments can no longer stand idle. Volatility damages both consumers and producers. Those who rely on oil and have no substitutes readily available have been the victims of extreme price fluctuations beyond their control -- and apparently beyond reason. Importing countries, especially in the developing world, find themselves committed to big subsidies to shield domestic consumers from potentially devastating price shifts.
In Britain and France we also know how the price of crude dictates the price of petrol at filling stations and the effect on families and businesses. For countries heavily reliant on income from oil exports, the windfalls from brief price surges are offset by the consequent difficulties of planning national budgets and investment strategies.
Extreme fluctuations in price are encouraging energy users to reconsider their reliance on oil. The International Energy Agency, for instance, has cut its long-term forecast of oil consumption by almost a quarter. Producers are in danger of finding that their key national resource loses both its market and its long-term value.
More immediately, we as consumers must recognize that abnormally low oil prices, while giving short-term benefits, do long-term damage. They diminish incentives to invest, not only in oil production but also, in our own countries, in energy savings and carbon-free alternatives. As such, future problems are stored up in the form of shortages, greater dependence and an acceleration of global warming. Upstream investment worldwide is already down by 20% over the past year. And with some sources of supply in decline, such as Alaska and the North Sea, the resource we will all need as the economy recovers is being developed in neither an adequate nor a timely way.
There are no easy solutions and any progress must be made with the full co-operation of the world community and the oil industry. On Monday we used the U.K.-France summit in Evian to explore a way forward. We hope our ideas inform meetings both today, at the Group of Eight Summit in Italy, and in future talks between world leaders.
We are committed to intensifying the ongoing dialogue between producers and consumers through the International Energy Forum. Saudi Arabia and OPEC have expressed interest in this and we believe producers and consumers are closer now than at any time in the past 30 years to recognizing the huge common interest in giving clear and stable perspectives to long-term investment.
At the London Energy Meeting last December, all participants agreed that still closer co-ordination between the IEA, OPEC and the IEF was necessary to develop a shared analysis of future demand and supply trends. The Expert Group of the IEF should use this work to arrive at a common long-term view on what price range would be consistent with the fundamentals.
The experts should also consider any measures that could be put in place to reduce volatility. Discussions should look again into the question of whether trading activity is amplifying erratic price movements.
We therefore call upon the International Organization of Securities Regulators to consider improving transparency and supervision of the oil futures markets to reduce damaging speculation and to take forward the recommendations already made by its taskforce in March. This would serve the interests of orderly and adequate investment in future supplies. Volatility and opacity are the enemies of growth. In the absence of transparency, consumers and importing nations are losing confidence in oil. Climate change is also altering government attitudes to energy.
The world's economy is still reliant on secure supplies at prices that are not so high as to destroy the prospects of economic growth but not so low as to lead to a slump in investment, as happened in the 1990s.
It is a thorny issue, but complex markets need not be volatile or damaging to the wider global economy. We are convinced that producers and consumers alike would benefit from greater transparency, greater stability and greater consensus on the market fundamentals. After two years of destructive volatility the time has come for both sides to work together to build on this common interest.
Mr. Brown is prime minister of the United Kingdom. Mr. Sarkozy is president of France.
"New START": The Chinese and Iranians must like what they see; not so Japan
A Troubling START. WSJ Editorial
The Chinese and Iranians must like what they see; not so Japan.
WSJ, Jul 08, 2009
President Obama leaves Moscow today happy to tout a breakthrough on arms control. The "joint understanding" with Russia pledges to replace the 1991 Strategic Arms Reduction Treaty with a new agreement -- the niftily named "New START" -- by year's end. This "moral" example, we are supposed to believe, will eventually lead to the nuclear-free world the President first promised this spring in Prague.
Before Nirvana renders the American nuclear umbrella obsolete, however, the Administration could clarify some details for us mere mortals. For starters, at what point do the reductions in the nuclear arsenal make the U.S. and our allies less safe? Why make such deep cuts in the number of strategic bombers and submarines that we're likely to need in any future conventional conflict? And, as long as we're talking details, shouldn't the Senate get a long look at a deal being rushed together to meet the artificial deadline of START's expiration in December?
The Administration's soaring rhetoric about denuclearization seems intended to blind everyone to these questions. In his comments in Moscow, Mr. Obama emphasized that Russia and the U.S. will set an example that the rest of world will follow.
"It's naïve for us to think . . . that we can grow our nuclear stockpiles," he said, "and that in that environment we're going to be able to pressure countries like Iran and North Korea not to pursue nuclear weapons themselves." Call us realists or even cynics, but we doubt Mr. Obama's performance in Moscow will matter at all to Iranian and North Korean nuclear ambitions. These and other rogues want the bomb to project their own power, not to defend against ours.
Some argue that this deal-making is nothing much because both sides will retain huge arsenals. Neither country actually has any desire, or in the Russian case ability, to grow its stockpile, so the new START treaty is said to be mostly for diplomatic show. But the Russians, though greatly diminished in global status, remain savvy negotiators, and Vladimir Putin has tried for most of this decade to cut the U.S. down to his size. "New START" could help him do it.
Monday's understanding gives negotiators the mandate to reduce the number of strategic warheads to between 1,500-1,675, down from the maximum allowable today of 2,200. More important are the strategic delivery vehicles, which will fall to a range of 500-1100. The current START treaty, which the Obama Administration chose to replace rather than simply extend, puts the ceiling at 1,600.
The Russians are already phasing out some of their delivery hardware, such as missiles and bombers, and they wouldn't mind getting double credit for it in a new treaty. The wide range noted in the "understanding" was inserted after Russia demanded steeper cuts than initially envisioned by Washington. Russian officials cite worries the U.S. could more easily retrofit missiles with new warheads, if necessary. As of January, America said it had about 1,200 delivery systems and Russia reported about 800.
Mr. Obama's negotiators would be wise to be wary. The odds that America will take part in a nuclear war are low. But the long-range bombers, submarines and missiles under discussion are an important part of the far superior American conventional arsenal. No wonder the Russians are so eager to have America reduce those numbers.
China, too, must be rooting for a lower floor. As delivery vehicle and warhead numbers go down, the U.S. will at some point approach strategic parity with rising powers such as China, which have a smaller nuclear arsenal and weaker army. A reduced U.S. posture may also give our allies -- Japan and South Korea in Asia, or Turkey in NATO -- cause to doubt America's commitment to a large and credible enough nuclear arsenal able to protect them. They will then seek to develop their own atomic bombs, however quietly. The Obama Administration's flagging commitment to missile defense, which is being cut in the 2010 budget, further undermines America's ability to defend itself and its allies from nuclear attack.
It is especially strange that the Administration has taken these steps before completing the review of nuclear strategy mandated by Congress. But then, the Administration may also do a run around the Senate (and the Constitution) with the new START treaty -- naturally, for the higher cause of peace in our time. The White House Coordinator for Weapons of Mass Destruction, Security and Arms Control, Gary Samore, said on Sunday that the Administration may have to enact certain provisions of the treaty by executive order and on "a provisional basis" to meet the December deadline.
Considering all of the other unanswered questions about the Administration's nuclear posture, an agreement with Russia that would lock the U.S. into steep cuts in its defenses needs far more public and Senate scrutiny than it is receiving.
The Chinese and Iranians must like what they see; not so Japan.
WSJ, Jul 08, 2009
President Obama leaves Moscow today happy to tout a breakthrough on arms control. The "joint understanding" with Russia pledges to replace the 1991 Strategic Arms Reduction Treaty with a new agreement -- the niftily named "New START" -- by year's end. This "moral" example, we are supposed to believe, will eventually lead to the nuclear-free world the President first promised this spring in Prague.
Before Nirvana renders the American nuclear umbrella obsolete, however, the Administration could clarify some details for us mere mortals. For starters, at what point do the reductions in the nuclear arsenal make the U.S. and our allies less safe? Why make such deep cuts in the number of strategic bombers and submarines that we're likely to need in any future conventional conflict? And, as long as we're talking details, shouldn't the Senate get a long look at a deal being rushed together to meet the artificial deadline of START's expiration in December?
The Administration's soaring rhetoric about denuclearization seems intended to blind everyone to these questions. In his comments in Moscow, Mr. Obama emphasized that Russia and the U.S. will set an example that the rest of world will follow.
"It's naïve for us to think . . . that we can grow our nuclear stockpiles," he said, "and that in that environment we're going to be able to pressure countries like Iran and North Korea not to pursue nuclear weapons themselves." Call us realists or even cynics, but we doubt Mr. Obama's performance in Moscow will matter at all to Iranian and North Korean nuclear ambitions. These and other rogues want the bomb to project their own power, not to defend against ours.
Some argue that this deal-making is nothing much because both sides will retain huge arsenals. Neither country actually has any desire, or in the Russian case ability, to grow its stockpile, so the new START treaty is said to be mostly for diplomatic show. But the Russians, though greatly diminished in global status, remain savvy negotiators, and Vladimir Putin has tried for most of this decade to cut the U.S. down to his size. "New START" could help him do it.
Monday's understanding gives negotiators the mandate to reduce the number of strategic warheads to between 1,500-1,675, down from the maximum allowable today of 2,200. More important are the strategic delivery vehicles, which will fall to a range of 500-1100. The current START treaty, which the Obama Administration chose to replace rather than simply extend, puts the ceiling at 1,600.
The Russians are already phasing out some of their delivery hardware, such as missiles and bombers, and they wouldn't mind getting double credit for it in a new treaty. The wide range noted in the "understanding" was inserted after Russia demanded steeper cuts than initially envisioned by Washington. Russian officials cite worries the U.S. could more easily retrofit missiles with new warheads, if necessary. As of January, America said it had about 1,200 delivery systems and Russia reported about 800.
Mr. Obama's negotiators would be wise to be wary. The odds that America will take part in a nuclear war are low. But the long-range bombers, submarines and missiles under discussion are an important part of the far superior American conventional arsenal. No wonder the Russians are so eager to have America reduce those numbers.
China, too, must be rooting for a lower floor. As delivery vehicle and warhead numbers go down, the U.S. will at some point approach strategic parity with rising powers such as China, which have a smaller nuclear arsenal and weaker army. A reduced U.S. posture may also give our allies -- Japan and South Korea in Asia, or Turkey in NATO -- cause to doubt America's commitment to a large and credible enough nuclear arsenal able to protect them. They will then seek to develop their own atomic bombs, however quietly. The Obama Administration's flagging commitment to missile defense, which is being cut in the 2010 budget, further undermines America's ability to defend itself and its allies from nuclear attack.
It is especially strange that the Administration has taken these steps before completing the review of nuclear strategy mandated by Congress. But then, the Administration may also do a run around the Senate (and the Constitution) with the new START treaty -- naturally, for the higher cause of peace in our time. The White House Coordinator for Weapons of Mass Destruction, Security and Arms Control, Gary Samore, said on Sunday that the Administration may have to enact certain provisions of the treaty by executive order and on "a provisional basis" to meet the December deadline.
Considering all of the other unanswered questions about the Administration's nuclear posture, an agreement with Russia that would lock the U.S. into steep cuts in its defenses needs far more public and Senate scrutiny than it is receiving.
McNamara and the Liberals' War
McNamara and the Liberals' War. WSJ Editorial
He deserves better from his liberal critics, since his real misfortune was to be the architect of their failed visions.
WSJ, Jul 08, 2009
Robert McNamara died on Monday at age 93 like he lived most of the latter half of his life, scorned and derided by his former liberal allies for refusing to turn against the Vietnam War as early as they did. As the New York Times put it in a page-one obituary headline, McNamara was the "Architect of Futile War."
In historical fact, Vietnam was the liberals' war, begun by JFK, escalated by LBJ, and cheered on for years by giants of the American left before they turned against it. In his 1995 memoir, McNamara apologized for the war. But he probably sealed his reputation on the left by also quoting the New York Times and liberal antiwar reporter David Halberstam for having opposed U.S. withdrawal as late as 1965. "To be fair to Halberstam," McNamara wrote dryly, "the hawkish views he was expressing reflected the opinion of the majority of journalists at the time."
Like JFK and Averell Harriman, Halberstam also supported the 1963 coup against South Vietnamese President Ngo Dinh Diem, a misguided foray into Vietnamese politics that led to deeper U.S. involvement. Only later as the war dragged on did these liberals lose their nerve, and they never forgave McNamara for fighting on -- even years later after he finally agreed they were right.
As with Vietnam, American liberals also turned against the Iraq war after first supporting it. The crucial difference is that President Bush never lost his nerve. Despite the difficulties after the 2003 invasion and the terrible setbacks of 2006, he replaced his generals, sent more troops and embraced a new counterinsurgency strategy. The insurgency was defeated, and Mr. Bush left office with Iraq as a united, self-governing ally.
Despite the fall of Saigon in 1975, Vietnam was not a "futile" conflict. The U.S. effort bought time for Thailand and other nations in East and Southeast Asia to develop in relative peace. Their prosperity, in turn, showed the world the difference between the fruits of capitalism and the poverty of socialism. Like the Korean War, Vietnam needs to be understood as an honorable battle fought to a draw in America's longer and victorious Cold War.
McNamara was a patriot whose faith in rationalism and bureaucratic planning led him to overconfidence both in the war on poverty during his years at the World Bank and at the Pentagon during Vietnam. But he deserves better from his liberal critics, since his real misfortune was to be the architect of their failed visions.
He deserves better from his liberal critics, since his real misfortune was to be the architect of their failed visions.
WSJ, Jul 08, 2009
Robert McNamara died on Monday at age 93 like he lived most of the latter half of his life, scorned and derided by his former liberal allies for refusing to turn against the Vietnam War as early as they did. As the New York Times put it in a page-one obituary headline, McNamara was the "Architect of Futile War."
In historical fact, Vietnam was the liberals' war, begun by JFK, escalated by LBJ, and cheered on for years by giants of the American left before they turned against it. In his 1995 memoir, McNamara apologized for the war. But he probably sealed his reputation on the left by also quoting the New York Times and liberal antiwar reporter David Halberstam for having opposed U.S. withdrawal as late as 1965. "To be fair to Halberstam," McNamara wrote dryly, "the hawkish views he was expressing reflected the opinion of the majority of journalists at the time."
Like JFK and Averell Harriman, Halberstam also supported the 1963 coup against South Vietnamese President Ngo Dinh Diem, a misguided foray into Vietnamese politics that led to deeper U.S. involvement. Only later as the war dragged on did these liberals lose their nerve, and they never forgave McNamara for fighting on -- even years later after he finally agreed they were right.
As with Vietnam, American liberals also turned against the Iraq war after first supporting it. The crucial difference is that President Bush never lost his nerve. Despite the difficulties after the 2003 invasion and the terrible setbacks of 2006, he replaced his generals, sent more troops and embraced a new counterinsurgency strategy. The insurgency was defeated, and Mr. Bush left office with Iraq as a united, self-governing ally.
Despite the fall of Saigon in 1975, Vietnam was not a "futile" conflict. The U.S. effort bought time for Thailand and other nations in East and Southeast Asia to develop in relative peace. Their prosperity, in turn, showed the world the difference between the fruits of capitalism and the poverty of socialism. Like the Korean War, Vietnam needs to be understood as an honorable battle fought to a draw in America's longer and victorious Cold War.
McNamara was a patriot whose faith in rationalism and bureaucratic planning led him to overconfidence both in the war on poverty during his years at the World Bank and at the Pentagon during Vietnam. But he deserves better from his liberal critics, since his real misfortune was to be the architect of their failed visions.
Ethanol and biofuels get 190 times as much subsidies as natural gas and petroleum liquids
So Much for 'Energy Independence.' By ROBERT BRYCE
The Wall Street Journal, Jul 07, 2009, p A15
Whenever you read about ethanol, remember these numbers: 98 and 190.
They offer an essential insight into U.S. energy politics and the debate over cap-and-trade legislation that recently passed the House. Here is what the numbers mean: The U.S. gets about 98 times as much energy from natural gas and oil as it does from ethanol and biofuels. And measured on a per-unit-of-energy basis, Congress lavishes ethanol and biofuels with subsidies that are 190 times as large as those given to oil and gas.
Those numbers come from an April 2008 report by the Energy Information Administration: "Federal Financial Interventions and Subsidies in Energy Markets 2007." Table ES6 lists domestic energy sources that get subsidies. In 2007, the U.S. consumed nearly 55.8 quadrillion British Thermal Units (BTUs), or about 9.6 billion barrels of oil equivalent, in natural gas and oil. That's about 98 times as much energy as the U.S. consumed in ethanol and biofuels, which totaled 98 million barrels of oil equivalent.
Meanwhile, ethanol and biofuels are getting subsidies of $5.72 per million BTU. That's 190 times as much as natural gas and petroleum liquids, which get subsidies of $0.03 per million BTU.
The report also shows that the ethanol and biofuels industry are more heavily subsidized -- in total dollar terms -- than the oil and gas industry. In 2007, the ethanol and biofuels industries got $3.25 billion in subsidies. The oil and gas industry got $1.92 billion.
Despite these subsidies, the ethanol lobby is queuing up for more favors. And they are doing so at the very same time that the Obama administration and Congress are pushing to eliminate the relatively modest subsidies for domestic oil and gas producers. Democrats want to cut drilling subsidies while simultaneously trumpeting their desire for "energy independence."
The cap-and-trade bill passed by the House aims to "create energy jobs" and "achieve energy independence." Meanwhile, Democrats are calling to eliminate drilling subsidies that have encouraged advances in technology that have opened up vast new U.S. energy sources. These advances have made it profitable to extract natural gas from the Barnett Shale deposit in Texas and the Marcellus in Pennsylvania -- deposits once thought too expensive to tap.
President Barack Obama's 2010 budget calls for the elimination of two tax breaks: the expensing of "intangible drilling costs" (such as wages, fuel and pipe), which allows energy companies to deduct the bulk of their expenses for drilling new wells; and the allowance for percentage depletion, which allows well owners to deduct a portion of the value of the production from their wells. Those breaks provide the bulk of the $1.92 billion in oil and gas subsidies.
In May, Mr. Obama called the tax breaks for the oil and gas industry "unjustifiable loopholes" that do "little to incentivize production or reduce energy prices."
That's flat not true. The deduction for intangible drilling costs encourages energy companies to plow huge amounts of capital into more drilling. And that drilling has resulted in unprecedented increases in natural gas production and potential.
An April Department of Energy report estimated that the newly available shale resources total 649 trillion cubic feet of gas. That's the energy equivalent of 118.3 billion barrels of oil, or slightly more than the proven oil reserves of Iraq.
Eliminating the tax breaks for drilling will make natural gas more expensive. Tudor, Pickering, Holt & Co., a Houston-based investment-banking firm, estimates that eliminating the intangible drilling cost provision could increase U.S. natural gas prices by 50 cents per thousand cubic feet. Why? Because without the tax break, fewer wells will be drilled and less gas will be produced. The U.S. consumes about 23 trillion cubic feet of gas per year. Simple arithmetic shows that eliminating the drilling subsidies that cost taxpayers less than $2 billion per year could result in an increased cost to consumers of $11.5 billion per year in the form of higher natural gas prices.
Amid all this, Growth Energy, an ethanol industry front-group, is pushing the Environmental Protection Agency to adopt a proposal that would increase the amount of ethanol blended into gasoline from the current maximum of 10% to as much as 15%.
That increase would be a gift to corn ethanol producers who have never been able to make a go of it despite decades of federal subsidies and mandates. Growth Energy is also pushing the change even though only about seven million of the 250 million motor vehicles now on U.S. roads are designed to run on fuel containing more than 10% ethanol.
There is plenty of evidence to suggest that gasoline with 10% ethanol is already doing real harm. In January, Toyota announced that it was recalling 214,570 Lexus vehicles. The reason: The company found that "ethanol fuels with a low moisture content will corrode the internal surface of the fuel rails." (The rails carry fuel to the engine injectors.) Furthermore, there have been numerous media reports that ethanol-blended gasoline is fouling engines in lawn mowers, weed whackers and boats.
Lawyers in Florida have already sued a group of oil companies for damage allegedly done to boat fuel tanks and engines from ethanol fuel. They are claiming that consumers should be warned about the risk of using the fuel in their boats.
There is also corn ethanol's effect on food prices. Over the past two years at least a dozen studies have linked subsidies that have increased the production of corn ethanol with higher food prices.
Mr. Obama has been pro-ethanol and anti-oil for years. But he and his allies on Capitol Hill should understand that removing drilling incentives will mean less drilling, which will mean less domestic production and more imports of both oil and natural gas.
That's hardly a recipe for "energy independence."
Mr. Bryce is the managing editor of Energy Tribune. His latest book is "Gusher of Lies: The Dangerous Delusions of 'Energy Independence'" (PublicAffairs, 2008).
The Wall Street Journal, Jul 07, 2009, p A15
Whenever you read about ethanol, remember these numbers: 98 and 190.
They offer an essential insight into U.S. energy politics and the debate over cap-and-trade legislation that recently passed the House. Here is what the numbers mean: The U.S. gets about 98 times as much energy from natural gas and oil as it does from ethanol and biofuels. And measured on a per-unit-of-energy basis, Congress lavishes ethanol and biofuels with subsidies that are 190 times as large as those given to oil and gas.
Those numbers come from an April 2008 report by the Energy Information Administration: "Federal Financial Interventions and Subsidies in Energy Markets 2007." Table ES6 lists domestic energy sources that get subsidies. In 2007, the U.S. consumed nearly 55.8 quadrillion British Thermal Units (BTUs), or about 9.6 billion barrels of oil equivalent, in natural gas and oil. That's about 98 times as much energy as the U.S. consumed in ethanol and biofuels, which totaled 98 million barrels of oil equivalent.
Meanwhile, ethanol and biofuels are getting subsidies of $5.72 per million BTU. That's 190 times as much as natural gas and petroleum liquids, which get subsidies of $0.03 per million BTU.
The report also shows that the ethanol and biofuels industry are more heavily subsidized -- in total dollar terms -- than the oil and gas industry. In 2007, the ethanol and biofuels industries got $3.25 billion in subsidies. The oil and gas industry got $1.92 billion.
Despite these subsidies, the ethanol lobby is queuing up for more favors. And they are doing so at the very same time that the Obama administration and Congress are pushing to eliminate the relatively modest subsidies for domestic oil and gas producers. Democrats want to cut drilling subsidies while simultaneously trumpeting their desire for "energy independence."
The cap-and-trade bill passed by the House aims to "create energy jobs" and "achieve energy independence." Meanwhile, Democrats are calling to eliminate drilling subsidies that have encouraged advances in technology that have opened up vast new U.S. energy sources. These advances have made it profitable to extract natural gas from the Barnett Shale deposit in Texas and the Marcellus in Pennsylvania -- deposits once thought too expensive to tap.
President Barack Obama's 2010 budget calls for the elimination of two tax breaks: the expensing of "intangible drilling costs" (such as wages, fuel and pipe), which allows energy companies to deduct the bulk of their expenses for drilling new wells; and the allowance for percentage depletion, which allows well owners to deduct a portion of the value of the production from their wells. Those breaks provide the bulk of the $1.92 billion in oil and gas subsidies.
In May, Mr. Obama called the tax breaks for the oil and gas industry "unjustifiable loopholes" that do "little to incentivize production or reduce energy prices."
That's flat not true. The deduction for intangible drilling costs encourages energy companies to plow huge amounts of capital into more drilling. And that drilling has resulted in unprecedented increases in natural gas production and potential.
An April Department of Energy report estimated that the newly available shale resources total 649 trillion cubic feet of gas. That's the energy equivalent of 118.3 billion barrels of oil, or slightly more than the proven oil reserves of Iraq.
Eliminating the tax breaks for drilling will make natural gas more expensive. Tudor, Pickering, Holt & Co., a Houston-based investment-banking firm, estimates that eliminating the intangible drilling cost provision could increase U.S. natural gas prices by 50 cents per thousand cubic feet. Why? Because without the tax break, fewer wells will be drilled and less gas will be produced. The U.S. consumes about 23 trillion cubic feet of gas per year. Simple arithmetic shows that eliminating the drilling subsidies that cost taxpayers less than $2 billion per year could result in an increased cost to consumers of $11.5 billion per year in the form of higher natural gas prices.
Amid all this, Growth Energy, an ethanol industry front-group, is pushing the Environmental Protection Agency to adopt a proposal that would increase the amount of ethanol blended into gasoline from the current maximum of 10% to as much as 15%.
That increase would be a gift to corn ethanol producers who have never been able to make a go of it despite decades of federal subsidies and mandates. Growth Energy is also pushing the change even though only about seven million of the 250 million motor vehicles now on U.S. roads are designed to run on fuel containing more than 10% ethanol.
There is plenty of evidence to suggest that gasoline with 10% ethanol is already doing real harm. In January, Toyota announced that it was recalling 214,570 Lexus vehicles. The reason: The company found that "ethanol fuels with a low moisture content will corrode the internal surface of the fuel rails." (The rails carry fuel to the engine injectors.) Furthermore, there have been numerous media reports that ethanol-blended gasoline is fouling engines in lawn mowers, weed whackers and boats.
Lawyers in Florida have already sued a group of oil companies for damage allegedly done to boat fuel tanks and engines from ethanol fuel. They are claiming that consumers should be warned about the risk of using the fuel in their boats.
There is also corn ethanol's effect on food prices. Over the past two years at least a dozen studies have linked subsidies that have increased the production of corn ethanol with higher food prices.
Mr. Obama has been pro-ethanol and anti-oil for years. But he and his allies on Capitol Hill should understand that removing drilling incentives will mean less drilling, which will mean less domestic production and more imports of both oil and natural gas.
That's hardly a recipe for "energy independence."
Mr. Bryce is the managing editor of Energy Tribune. His latest book is "Gusher of Lies: The Dangerous Delusions of 'Energy Independence'" (PublicAffairs, 2008).
The new talks with Moscow could put the U.S. nuclear deterrent in jeopardy
Arms Control Amnesia. By KEITH B. PAYNE
The new talks with Moscow could put the U.S. nuclear deterrent in jeopardy. Here are the facts.
The Wall Street Journal, p A15
Three hours after arriving at the Kremlin yesterday, President Barack Obama signed a preliminary agreement on a new nuclear arms-control treaty with Russian President Dmitry Medvedev. The agreement -- a clear road map for a new Strategic Arms Reduction Treaty (START) -- commits the U.S. and Russia to cut their nuclear weapons to the lowest levels since the early years of the Cold War.
Mr. Obama praised the agreement as a step forward, away from the "suspicion and rivalry of the past," while Mr. Medvedev hailed it as a "reasonable compromise." In fact, given the range of force levels it permits, this agreement has the potential to compromise U.S. security -- depending on what happens next.
In the first place, locking in specific reductions for U.S. forces prior to the conclusion of the ongoing Nuclear Posture Review is putting the cart before the horse. The Obama administration's team at the Pentagon is currently examining U.S. strategic force requirements. Before specific limits are set on U.S. forces, it should complete the review. Strategic requirements should drive force numbers; arms-control numbers should not dictate strategy.
Second, the new agreement not only calls for reductions in the number of nuclear warheads (to between 1,500 and 1,675), but for cuts in the number of strategic force launchers. Under the 1991 START I Treaty, each side was limited to 1,600 launchers. Yesterday's agreement calls for each side to be limited to between 500 and 1,100 launchers each.
According to open Russian sources, it was Russia that pushed for the lower limit of 500 launchers in negotiations. In the weeks leading up to this summit, it also has been openly stated that Moscow would like the number of deployed intercontinental ballistic missiles (ICBMs), submarine-launched missiles (SLBMS), and strategic bombers to be reduced "several times" below the current limit of 1,600. Moving toward very low numbers of launchers is a smart position for Russia, but not for the U.S.
Why? Because the number of deployed Russian strategic ICBMs, SLBMs, and bombers will drop dramatically simply as a result of their aging. In other words, a large number of Russian launchers will be removed from service with or without a new arms-control agreement.
The Obama administration will undoubtedly come under heavy pressure to move to the low end of the 500-1,100 limit on launchers in order to match Russian reductions. But it need not and should not do so. Based solely on open Russian sources, by 2017-2018 Russia will likely have fewer than half of the approximately 680 operational launchers it has today. With a gross domestic product less than that of California, Russia is confronting the dilemma of how to maintain parity with the U.S. while retiring its many aged strategic forces.
Mr. Medvedev's solution is to negotiate, inviting the U.S. to make real cuts, while Russia eliminates nothing that it wouldn't retire in any event.
This isn't just my conclusion -- it's the conclusion of many Russian officials and commentators. Russian Gen. Nikolay Solovtsov, commander of the Strategic Missile Troops, was recently quoted by Moscow Interfax-AVN Online as saying that "not a single Russian launcher" with "remaining service life" will be withdrawn under a new agreement. Noted Russian journalist Pavel Felgengauer observed in Novaya Gazeta that Russian leaders "have demanded of the Americans unilateral concessions on all points, offering practically nothing in exchange." Precisely.
Beyond the bad negotiating principle of giving up something for nothing, there will be serious downsides if the U.S. actually reduces its strategic launchers as much as Moscow wishes. The bipartisan Congressional Strategic Posture Commission -- headed by former secretaries of defense William J. Perry and James R. Schlesinger -- concluded that the U.S. could make reductions "if this were done while also preserving the resilience and survivability of U.S. forces." Having very low numbers of launchers would make the U.S. more vulnerable to destabilizing first-strike dangers, and would reduce or eliminate the U.S. ability to adapt its nuclear deterrent to an increasingly diverse set of post-Cold War nuclear and biological weapons threats.
Accepting low launcher numbers would also encourage placing more warheads on the remaining ICBMs -- i.e., "MIRVing," or adding multiple independently targeted warheads on a single missile. This is what the Russians openly say they are planning to do. Yet the U.S. has long sought to move away from MIRVed ICBMs as part of START, because heavy MIRVing can make each ICBM a more tempting target. One measure of U.S. success will be in resisting the Russian claim that severely reducing launcher numbers is somehow necessary and "stabilizing." It would be neither.
Third, the new agreement appears to defer the matter of so-called tactical nuclear weapons. Russia has some 4,000 tactical nuclear weapons and many thousands more in reserve; U.S. officials have said that Russia has an astounding 10 to 1 numerical advantage. These weapons are of greatest concern with regard to the potential for nuclear war, and they should be our focus for arms reduction. The Perry-Schlesinger commission report identified Russian tactical nuclear weapons as an "urgent" problem. Yet at this point, they appear to be off the table.
The administration may hope to negotiate reductions in tactical nuclear weapons later. But Russia has rejected this in the past, and nothing seems to have changed. As Gen. Vladimir Dvorkin of the Russian Academy of Sciences said recently in Moscow Interfax-AVN Online, "A treaty on the limitation and reduction of tactical nuclear weapons looks absolutely unrealistic." If the U.S. hopes to address this real problem, it must maintain negotiating leverage in the form of strategic launchers and weapons.
Fourth, Mr. Medvedev was quoted recently in RIA Novosti as saying that strategic reductions are possible only if the U.S. alleviates Russian concerns about "U.S. plans to create a global missile defense." There will surely be domestic and international pressure on the U.S. to limit missile defense to facilitate Russian reductions under the new treaty. But the U.S. need for missile defense has little to do with Russia. And the value of missile defense could not be clearer given recent North Korean belligerence. The Russians are demanding this linkage, at least in part to kill our missile defense site in Europe intended to defend against Iranian missiles. Another measure of U.S. success will be to avoid such linkages.
In short, Russian leaders hope to control or eliminate many elements of U.S. military power in exchange for strategic force reductions they will have to make anyway. U.S. leaders should not agree to pay Russia many times over for essentially an empty box.
Finally, Russian violations of its existing arms-control commitments must be addressed along with any new commitments. According to an August 2005 State Department report, Russia has violated START verification and other arms-control commitments in multiple ways. One significant violation has even been discussed openly in Russian publications -- the testing of the SS-27 ICBM with MIRVs in direct violation of START I.
President Obama should recall Winston Churchill's warning: "Be careful above all things not to let go of the atomic weapon until you are sure and more than sure that other means of preserving peace are in your hands." There is no need for the U.S. to accept Russian demands for missile-defense linkage, or deep reductions in the number of our ICBMs, SLBMs and bombers, to realize much lower numbers of Russian strategic systems. There is also no basis for expecting Russian goodwill if we do so.
Mr. Payne, a professor of defense and strategic studies at Missouri State University, is a member of the Perry-Schlesinger Commission, which was established by Congress to assess U.S. nuclear weapons capabilities. This op-ed is adapted from testimony given before the House Committee on Foreign Affairs on June 24.
The new talks with Moscow could put the U.S. nuclear deterrent in jeopardy. Here are the facts.
The Wall Street Journal, p A15
Three hours after arriving at the Kremlin yesterday, President Barack Obama signed a preliminary agreement on a new nuclear arms-control treaty with Russian President Dmitry Medvedev. The agreement -- a clear road map for a new Strategic Arms Reduction Treaty (START) -- commits the U.S. and Russia to cut their nuclear weapons to the lowest levels since the early years of the Cold War.
Mr. Obama praised the agreement as a step forward, away from the "suspicion and rivalry of the past," while Mr. Medvedev hailed it as a "reasonable compromise." In fact, given the range of force levels it permits, this agreement has the potential to compromise U.S. security -- depending on what happens next.
In the first place, locking in specific reductions for U.S. forces prior to the conclusion of the ongoing Nuclear Posture Review is putting the cart before the horse. The Obama administration's team at the Pentagon is currently examining U.S. strategic force requirements. Before specific limits are set on U.S. forces, it should complete the review. Strategic requirements should drive force numbers; arms-control numbers should not dictate strategy.
Second, the new agreement not only calls for reductions in the number of nuclear warheads (to between 1,500 and 1,675), but for cuts in the number of strategic force launchers. Under the 1991 START I Treaty, each side was limited to 1,600 launchers. Yesterday's agreement calls for each side to be limited to between 500 and 1,100 launchers each.
According to open Russian sources, it was Russia that pushed for the lower limit of 500 launchers in negotiations. In the weeks leading up to this summit, it also has been openly stated that Moscow would like the number of deployed intercontinental ballistic missiles (ICBMs), submarine-launched missiles (SLBMS), and strategic bombers to be reduced "several times" below the current limit of 1,600. Moving toward very low numbers of launchers is a smart position for Russia, but not for the U.S.
Why? Because the number of deployed Russian strategic ICBMs, SLBMs, and bombers will drop dramatically simply as a result of their aging. In other words, a large number of Russian launchers will be removed from service with or without a new arms-control agreement.
The Obama administration will undoubtedly come under heavy pressure to move to the low end of the 500-1,100 limit on launchers in order to match Russian reductions. But it need not and should not do so. Based solely on open Russian sources, by 2017-2018 Russia will likely have fewer than half of the approximately 680 operational launchers it has today. With a gross domestic product less than that of California, Russia is confronting the dilemma of how to maintain parity with the U.S. while retiring its many aged strategic forces.
Mr. Medvedev's solution is to negotiate, inviting the U.S. to make real cuts, while Russia eliminates nothing that it wouldn't retire in any event.
This isn't just my conclusion -- it's the conclusion of many Russian officials and commentators. Russian Gen. Nikolay Solovtsov, commander of the Strategic Missile Troops, was recently quoted by Moscow Interfax-AVN Online as saying that "not a single Russian launcher" with "remaining service life" will be withdrawn under a new agreement. Noted Russian journalist Pavel Felgengauer observed in Novaya Gazeta that Russian leaders "have demanded of the Americans unilateral concessions on all points, offering practically nothing in exchange." Precisely.
Beyond the bad negotiating principle of giving up something for nothing, there will be serious downsides if the U.S. actually reduces its strategic launchers as much as Moscow wishes. The bipartisan Congressional Strategic Posture Commission -- headed by former secretaries of defense William J. Perry and James R. Schlesinger -- concluded that the U.S. could make reductions "if this were done while also preserving the resilience and survivability of U.S. forces." Having very low numbers of launchers would make the U.S. more vulnerable to destabilizing first-strike dangers, and would reduce or eliminate the U.S. ability to adapt its nuclear deterrent to an increasingly diverse set of post-Cold War nuclear and biological weapons threats.
Accepting low launcher numbers would also encourage placing more warheads on the remaining ICBMs -- i.e., "MIRVing," or adding multiple independently targeted warheads on a single missile. This is what the Russians openly say they are planning to do. Yet the U.S. has long sought to move away from MIRVed ICBMs as part of START, because heavy MIRVing can make each ICBM a more tempting target. One measure of U.S. success will be in resisting the Russian claim that severely reducing launcher numbers is somehow necessary and "stabilizing." It would be neither.
Third, the new agreement appears to defer the matter of so-called tactical nuclear weapons. Russia has some 4,000 tactical nuclear weapons and many thousands more in reserve; U.S. officials have said that Russia has an astounding 10 to 1 numerical advantage. These weapons are of greatest concern with regard to the potential for nuclear war, and they should be our focus for arms reduction. The Perry-Schlesinger commission report identified Russian tactical nuclear weapons as an "urgent" problem. Yet at this point, they appear to be off the table.
The administration may hope to negotiate reductions in tactical nuclear weapons later. But Russia has rejected this in the past, and nothing seems to have changed. As Gen. Vladimir Dvorkin of the Russian Academy of Sciences said recently in Moscow Interfax-AVN Online, "A treaty on the limitation and reduction of tactical nuclear weapons looks absolutely unrealistic." If the U.S. hopes to address this real problem, it must maintain negotiating leverage in the form of strategic launchers and weapons.
Fourth, Mr. Medvedev was quoted recently in RIA Novosti as saying that strategic reductions are possible only if the U.S. alleviates Russian concerns about "U.S. plans to create a global missile defense." There will surely be domestic and international pressure on the U.S. to limit missile defense to facilitate Russian reductions under the new treaty. But the U.S. need for missile defense has little to do with Russia. And the value of missile defense could not be clearer given recent North Korean belligerence. The Russians are demanding this linkage, at least in part to kill our missile defense site in Europe intended to defend against Iranian missiles. Another measure of U.S. success will be to avoid such linkages.
In short, Russian leaders hope to control or eliminate many elements of U.S. military power in exchange for strategic force reductions they will have to make anyway. U.S. leaders should not agree to pay Russia many times over for essentially an empty box.
Finally, Russian violations of its existing arms-control commitments must be addressed along with any new commitments. According to an August 2005 State Department report, Russia has violated START verification and other arms-control commitments in multiple ways. One significant violation has even been discussed openly in Russian publications -- the testing of the SS-27 ICBM with MIRVs in direct violation of START I.
President Obama should recall Winston Churchill's warning: "Be careful above all things not to let go of the atomic weapon until you are sure and more than sure that other means of preserving peace are in your hands." There is no need for the U.S. to accept Russian demands for missile-defense linkage, or deep reductions in the number of our ICBMs, SLBMs and bombers, to realize much lower numbers of Russian strategic systems. There is also no basis for expecting Russian goodwill if we do so.
Mr. Payne, a professor of defense and strategic studies at Missouri State University, is a member of the Perry-Schlesinger Commission, which was established by Congress to assess U.S. nuclear weapons capabilities. This op-ed is adapted from testimony given before the House Committee on Foreign Affairs on June 24.
From McNamara to Obama
From McNamara to Obama. WSJ Editorial
This too is an era of soaring rhetoric, big plans and boundless self-regard.
The Wall Street Journal, Jul 07, 2009, p A13
Dwight D. Eisenhower famously said that "in preparing for battle I have always found that plans are useless but planning is indispensable." Robert S. McNamara, who spent many years thinking about the Vietnam War, first as an architect and then as a critic (and getting it wrong on both ends), was a man who believed mainly in plans.
McNamara, who died yesterday at 93, will go down as a cautionary tale for the ages, and perhaps none more than for the Age of Obama. Whatever else distinguishes JFK's New Frontier or LBJ's Great Society from Barack Obama's "New Foundation," this too is an era of soaring rhetoric, big plans and boundless self-regard, issued by an administration convinced it can apply technocratic, top-down solutions to huge and unpredictable systems -- the banking, auto and health-care industries, for instance, or the climate. These are people deeply impressed by their own smarts, the ones for whom the phrase "the best and the brightest" has been scrubbed of its intended irony.
When McNamara -- the "Whiz Kid" from Ford -- was first named defense secretary, in December 1960, Time magazine gushed that he "reads widely and well (current choices: The Phenomenon of Man, W.W. Rostow's The Stages of Growth). . . . His mind, says a friend who has seen him in Ann Arbor discussions, 'is a beautiful instrument, free from leanings and adhesions, calm and analytical.'" Nearly 50 years later, the Associated Press would lead its obituary by describing McNamara as "the cerebral secretary of defense." In between, David Halberstam -- who was for the Vietnam War before he was against it, but that's another story -- wrote that McNamara "symbolized the idea that [the Kennedy administration] could manage and control events, in an intelligent, rational way. Taking on a guerrilla war was like buying a sick foreign company; you brought your systems to it."
Of course it did not end well. Nor did it end well for McNamara with his next assignment as president of the World Bank, where he hugely increased lending on the theory that more inputs (money, "expertise") meant better outputs ("development"). Instead, McNamara's stewardship of the bank helped create the Third World debt crisis, fueled Africa's descent into chaos, swelled Mobutu's Swiss bank accounts, and backed the cruel and misbegotten campaign for population control.
A recurring pattern played itself out over the 20 years McNamara spent at the Pentagon and the Bank. Giant troves of quantitative data were collected, analyzed, disaggregated and reassembled. Plans -- typically on a five-year timetable -- were conceived and then, presumably, executed. He once called the Bank "an innovative, problem-solving mechanism . . . to help fashion a better life for mankind."
Nobel Prizes in economics would later be awarded for disproving this mechanistic notion of institutions. But no Nobel was required to understand that rationalism isn't a synonym for reason, much less common sense, or that a planned solution was a workable or desirable solution, or that war or poverty were "problems" in the same sense as, say, a deficit. There was also a human element, which -- depending on whom you believe -- McNamara either didn't get or didn't have.
None of this is to say that Vietnam was "unwinnable," the liberal nostrum in which the late McNamara took comfort, or that poverty is unbeatable. On the contrary, hundreds of millions of people have worked their way out of poverty -- no thanks to the World Bank -- while a war that only three years ago was deemed unwinnable now looks very nearly won.
But all that happened only after the Planners gave way to what development economist William Easterly has called the "Searchers." As Mr. Easterly writes in his book "The White Man's Burden," "a Planner thinks he already knows the answers; he thinks of poverty as a technical engineering problem that his answers will solve. A Searcher admits he doesn't know the answers in advance; he believes that poverty is a complicated tangle of political, social, historical, institutional, and technological factors. A Searcher hopes to find answers to individual problems only by trial and error experimentation. A Planner believes outsiders know enough to impose solutions."
So, from Chile to Taiwan, economic progress only came about when national governments junked the whole idea of the planned economy. So, too, in Iraq, America's fortunes only changed when the Bush administration went from sticking to a concept ("light footprint"), to searching, and finding, an answer in the surge, which combined new counterinsurgency tactics with sensitivity to local conditions. The U.S. might have won in Vietnam, too, if it had sooner discarded McNamara's concept of gradualism and gone after North Vietnam's center of gravity -- its dependence, via Haiphong harbor, on the resupply of Soviet arms.
Now that's old history. But the mentality of the planner remains alive and well in Washington today, along with the aura of cool intellectual certainty. Barack Obama might take a close look at McNamara's obituaries and note that he, too, is the whiz kid of his day.
This too is an era of soaring rhetoric, big plans and boundless self-regard.
The Wall Street Journal, Jul 07, 2009, p A13
Dwight D. Eisenhower famously said that "in preparing for battle I have always found that plans are useless but planning is indispensable." Robert S. McNamara, who spent many years thinking about the Vietnam War, first as an architect and then as a critic (and getting it wrong on both ends), was a man who believed mainly in plans.
McNamara, who died yesterday at 93, will go down as a cautionary tale for the ages, and perhaps none more than for the Age of Obama. Whatever else distinguishes JFK's New Frontier or LBJ's Great Society from Barack Obama's "New Foundation," this too is an era of soaring rhetoric, big plans and boundless self-regard, issued by an administration convinced it can apply technocratic, top-down solutions to huge and unpredictable systems -- the banking, auto and health-care industries, for instance, or the climate. These are people deeply impressed by their own smarts, the ones for whom the phrase "the best and the brightest" has been scrubbed of its intended irony.
When McNamara -- the "Whiz Kid" from Ford -- was first named defense secretary, in December 1960, Time magazine gushed that he "reads widely and well (current choices: The Phenomenon of Man, W.W. Rostow's The Stages of Growth). . . . His mind, says a friend who has seen him in Ann Arbor discussions, 'is a beautiful instrument, free from leanings and adhesions, calm and analytical.'" Nearly 50 years later, the Associated Press would lead its obituary by describing McNamara as "the cerebral secretary of defense." In between, David Halberstam -- who was for the Vietnam War before he was against it, but that's another story -- wrote that McNamara "symbolized the idea that [the Kennedy administration] could manage and control events, in an intelligent, rational way. Taking on a guerrilla war was like buying a sick foreign company; you brought your systems to it."
Of course it did not end well. Nor did it end well for McNamara with his next assignment as president of the World Bank, where he hugely increased lending on the theory that more inputs (money, "expertise") meant better outputs ("development"). Instead, McNamara's stewardship of the bank helped create the Third World debt crisis, fueled Africa's descent into chaos, swelled Mobutu's Swiss bank accounts, and backed the cruel and misbegotten campaign for population control.
A recurring pattern played itself out over the 20 years McNamara spent at the Pentagon and the Bank. Giant troves of quantitative data were collected, analyzed, disaggregated and reassembled. Plans -- typically on a five-year timetable -- were conceived and then, presumably, executed. He once called the Bank "an innovative, problem-solving mechanism . . . to help fashion a better life for mankind."
Nobel Prizes in economics would later be awarded for disproving this mechanistic notion of institutions. But no Nobel was required to understand that rationalism isn't a synonym for reason, much less common sense, or that a planned solution was a workable or desirable solution, or that war or poverty were "problems" in the same sense as, say, a deficit. There was also a human element, which -- depending on whom you believe -- McNamara either didn't get or didn't have.
None of this is to say that Vietnam was "unwinnable," the liberal nostrum in which the late McNamara took comfort, or that poverty is unbeatable. On the contrary, hundreds of millions of people have worked their way out of poverty -- no thanks to the World Bank -- while a war that only three years ago was deemed unwinnable now looks very nearly won.
But all that happened only after the Planners gave way to what development economist William Easterly has called the "Searchers." As Mr. Easterly writes in his book "The White Man's Burden," "a Planner thinks he already knows the answers; he thinks of poverty as a technical engineering problem that his answers will solve. A Searcher admits he doesn't know the answers in advance; he believes that poverty is a complicated tangle of political, social, historical, institutional, and technological factors. A Searcher hopes to find answers to individual problems only by trial and error experimentation. A Planner believes outsiders know enough to impose solutions."
So, from Chile to Taiwan, economic progress only came about when national governments junked the whole idea of the planned economy. So, too, in Iraq, America's fortunes only changed when the Bush administration went from sticking to a concept ("light footprint"), to searching, and finding, an answer in the surge, which combined new counterinsurgency tactics with sensitivity to local conditions. The U.S. might have won in Vietnam, too, if it had sooner discarded McNamara's concept of gradualism and gone after North Vietnam's center of gravity -- its dependence, via Haiphong harbor, on the resupply of Soviet arms.
Now that's old history. But the mentality of the planner remains alive and well in Washington today, along with the aura of cool intellectual certainty. Barack Obama might take a close look at McNamara's obituaries and note that he, too, is the whiz kid of his day.
"Exclusivity deals" between wireless carriers and handset makers to bring new devices to markets
Cellphone Politics. WSJ Editorial
The Wall Street Journal, Jul 07, 2009, p A14
One of the few bright spots in the current economic gloom has been the telecommunications industry, where competition is robust, innovation forges ahead and consumer prices continue to fall. Leave it to Congress and Beltway planners to mess with this success.
Yesterday, the Journal reported that the Justice Department has begun an informal investigation "to determine whether large U.S. telecom companies such as AT&T Inc. and Verizon Communications Inc. have abused the market power they've amassed in recent years." And last month the Senate Commerce Committee held a hearing on so-called "exclusivity deals" between wireless carriers and handset makers to bring new devices to market.
What's going on? Well, AT&T is the exclusive U.S. distributor of the Apple iPhone, and other big carriers like Sprint (Palm Pre) and Verizon (BlackBerry Storm) have cut similar distribution deals. Device makers like such arrangements because they can share the financial risks of developing and marketing new products. The partnerships lead to more choices and lower prices.
Nevertheless, some smaller carriers that lack the scale and resources to cut similar deals want Congress to ban them for everyone. To advance their argument, these carriers claim today's wireless markets are increasingly uncompetitive and underserving rural areas. Hu Meena of Cellular South, a Mississippi-based carrier with about 750,000 subscribers, told Congress that "the industry is trending back towards consolidation and the days of Ma Bell." Regional and rural carriers, he said, can't gain access to the latest gadgets because larger carriers have cut these exclusive deals. Mr. Meena is hoping to get some sympathy from Senators who represent rural states, like Mississippi Republican Roger Wicker and Minnesota Democrat Amy Klobuchar.
In fact, the wireless marketplace has never been more competitive. Eight years ago there were 100 million U.S. wireless customers. Today there are more than 270 million. It's true that AT&T (82 million) and Verizon (72 million) have the lion's share. But the next two largest carriers, Sprint and T-Mobile, have a combined 82 million, and the five carriers that round out the top 10 have another 18 million among them. Merely because Cellular South doesn't threaten Verizon's share doesn't mean other companies don't. As for rural areas, 96% of Americans have a choice of at least three carriers.
What these smaller carriers really want Congress to do is prevent bigger rivals from reaping the benefits of scale. But the government's role is to ensure competition, not protect competitors. AT&T, Verizon and other large carriers have invested billions to build the networks that device makers find so attractive.
There's also no denying that these distribution deals have benefited consumers. More than 30 devices have been introduced to compete with the iPhone since its debut in 2007. The fact that one carrier has an exclusive has forced other companies to find partners and innovate. In response, the price of the iPhone has steadily fallen. The earliest iPhones cost more than $500; last month, Apple introduced a $99 model.
If this is a market malfunction, let's have more of them. Isn't Washington busy enough re-ordering the rest of the economy?
The Wall Street Journal, Jul 07, 2009, p A14
One of the few bright spots in the current economic gloom has been the telecommunications industry, where competition is robust, innovation forges ahead and consumer prices continue to fall. Leave it to Congress and Beltway planners to mess with this success.
Yesterday, the Journal reported that the Justice Department has begun an informal investigation "to determine whether large U.S. telecom companies such as AT&T Inc. and Verizon Communications Inc. have abused the market power they've amassed in recent years." And last month the Senate Commerce Committee held a hearing on so-called "exclusivity deals" between wireless carriers and handset makers to bring new devices to market.
What's going on? Well, AT&T is the exclusive U.S. distributor of the Apple iPhone, and other big carriers like Sprint (Palm Pre) and Verizon (BlackBerry Storm) have cut similar distribution deals. Device makers like such arrangements because they can share the financial risks of developing and marketing new products. The partnerships lead to more choices and lower prices.
Nevertheless, some smaller carriers that lack the scale and resources to cut similar deals want Congress to ban them for everyone. To advance their argument, these carriers claim today's wireless markets are increasingly uncompetitive and underserving rural areas. Hu Meena of Cellular South, a Mississippi-based carrier with about 750,000 subscribers, told Congress that "the industry is trending back towards consolidation and the days of Ma Bell." Regional and rural carriers, he said, can't gain access to the latest gadgets because larger carriers have cut these exclusive deals. Mr. Meena is hoping to get some sympathy from Senators who represent rural states, like Mississippi Republican Roger Wicker and Minnesota Democrat Amy Klobuchar.
In fact, the wireless marketplace has never been more competitive. Eight years ago there were 100 million U.S. wireless customers. Today there are more than 270 million. It's true that AT&T (82 million) and Verizon (72 million) have the lion's share. But the next two largest carriers, Sprint and T-Mobile, have a combined 82 million, and the five carriers that round out the top 10 have another 18 million among them. Merely because Cellular South doesn't threaten Verizon's share doesn't mean other companies don't. As for rural areas, 96% of Americans have a choice of at least three carriers.
What these smaller carriers really want Congress to do is prevent bigger rivals from reaping the benefits of scale. But the government's role is to ensure competition, not protect competitors. AT&T, Verizon and other large carriers have invested billions to build the networks that device makers find so attractive.
There's also no denying that these distribution deals have benefited consumers. More than 30 devices have been introduced to compete with the iPhone since its debut in 2007. The fact that one carrier has an exclusive has forced other companies to find partners and innovate. In response, the price of the iPhone has steadily fallen. The earliest iPhones cost more than $500; last month, Apple introduced a $99 model.
If this is a market malfunction, let's have more of them. Isn't Washington busy enough re-ordering the rest of the economy?
Of NICE and Men
Of NICE and Men. WSJ Editorial
The Wall Street Journal, Jul 07, 2009, p A14
Speaking to the American Medical Association last month, President Obama waxed enthusiastic about countries that "spend less" than the U.S. on health care. He's right that many countries do, but what he doesn't want to explain is how they ration care to do it.
Take the United Kingdom, which is often praised for spending as little as half as much per capita on health care as the U.S. Credit for this cost containment goes in large part to the National Institute for Health and Clinical Excellence, or NICE. Americans should understand how NICE works because under ObamaCare it will eventually be coming to a hospital near you.
* * *
Associated Press President Barack Obama speaks about health care during a town hall meeting at Northern Virginia Community College last Wednesday.The British officials who established NICE in the late 1990s pitched it as a body that would ensure that the government-run National Health System used "best practices" in medicine. As the Guardian reported in 1998: "Health ministers are setting up [NICE], designed to ensure that every treatment, operation, or medicine used is the proven best. It will root out under-performing doctors and useless treatments, spreading best practices everywhere."
What NICE has become in practice is a rationing board. As health costs have exploded in Britain as in most developed countries, NICE has become the heavy that reduces spending by limiting the treatments that 61 million citizens are allowed to receive through the NHS. For example:
In March, NICE ruled against the use of two drugs, Lapatinib and Sutent, that prolong the life of those with certain forms of breast and stomach cancer. This followed on a 2008 ruling against drugs -- including Sutent, which costs about $50,000 -- that would help terminally ill kidney-cancer patients. After last year's ruling, Peter Littlejohns, NICE's clinical and public health director, noted that "there is a limited pot of money," that the drugs were of "marginal benefit at quite often an extreme cost," and the money might be better spent elsewhere.
In 2007, the board restricted access to two drugs for macular degeneration, a cause of blindness. The drug Macugen was blocked outright. The other, Lucentis, was limited to a particular category of individuals with the disease, restricting it to about one in five sufferers. Even then, the drug was only approved for use in one eye, meaning those lucky enough to get it would still go blind in the other. As Andrew Dillon, the chief executive of NICE, explained at the time: "When treatments are very expensive, we have to use them where they give the most benefit to patients."
NICE has limited the use of Alzheimer's drugs, including Aricept, for patients in the early stages of the disease. Doctors in the U.K. argued vociferously that the most effective way to slow the progress of the disease is to give drugs at the first sign of dementia. NICE ruled the drugs were not "cost effective" in early stages.
Other NICE rulings include the rejection of Kineret, a drug for rheumatoid arthritis; Avonex, which reduces the relapse rate in patients with multiple sclerosis; and lenalidomide, which fights multiple myeloma. Private U.S. insurers often cover all, or at least portions, of the cost of many of these NICE-denied drugs.
NICE has also produced guidance that restrains certain surgical operations and treatments. NICE has restrictions on fertility treatments, as well as on procedures for back pain, including surgeries and steroid injections. The U.K. has recently been absorbed by the cases of several young women who developed cervical cancer after being denied pap smears by a related health authority, the Cervical Screening Programme, which in order to reduce government health-care spending has refused the screens to women under age 25.
We could go on. NICE is the target of frequent protests and lawsuits, and at times under political pressure has reversed or watered-down its rulings. But it has by now established the principle that the only way to control health-care costs is for this panel of medical high priests to dictate limits on certain kinds of care to certain classes of patients.
The NICE board even has a mathematical formula for doing so, based on a "quality adjusted life year." While the guidelines are complex, NICE currently holds that, except in unusual cases, Britain cannot afford to spend more than about $22,000 to extend a life by six months. Why $22,000? It seems to be arbitrary, calculated mainly based on how much the government wants to spend on health care. That figure has remained fairly constant since NICE was established and doesn't adjust for either overall or medical inflation.
Proponents argue that such cost-benefit analysis has to figure into health-care decisions, and that any medical system rations care in some way. And it is true that U.S. private insurers also deny reimbursement for some kinds of care. The core issue is whether those decisions are going to be dictated by the brute force of politics (NICE) or by prices (a private insurance system).
The last six months of life are a particularly difficult moral issue because that is when most health-care spending occurs. But who would you rather have making decisions about whether a treatment is worth the price -- the combination of you, your doctor and a private insurer, or a government board that cuts everyone off at $22,000?
One virtue of a private system is that competition allows choice and experimentation. To take an example from one of our recent editorials, Medicare today refuses to reimburse for the new, less invasive preventive treatment known as a virtual colonoscopy, but such private insurers as Cigna and United Healthcare do. As clinical evidence accumulates on the virtual colonoscopy, doctors and insurers will be able to adjust their practices accordingly. NICE merely issues orders, and patients have little recourse.
This has medical consequences. The Concord study published in 2008 showed that cancer survival rates in Britain are among the worst in Europe. Five-year survival rates among U.S. cancer patients are also significantly higher than in Europe: 84% vs. 73% for breast cancer, 92% vs. 57% for prostate cancer. While there is more than one reason for this difference, surely one is medical innovation and the greater U.S. willingness to reimburse for it.
* * *
The NICE precedent also undercuts the Obama Administration's argument that vast health savings can be gleaned simply by automating health records or squeezing out "waste." Britain has tried all of that but ultimately has concluded that it can only rein in costs by limiting care. The logic of a health-care system dominated by government is that it always ends up with some version of a NICE board that makes these life-or-death treatment decisions. The Administration's new Council for Comparative Effectiveness Research currently lacks the authority of NICE. But over time, if the Obama plan passes and taxpayer costs inevitably soar, it could quickly gain it.
Mr. Obama and Democrats claim they can expand subsidies for tens of millions of Americans, while saving money and improving the quality of care. It can't possibly be done. The inevitable result of their plan will be some version of a NICE board that will tell millions of Americans that they are too young, or too old, or too sick to be worth paying to care for.
The Wall Street Journal, Jul 07, 2009, p A14
Speaking to the American Medical Association last month, President Obama waxed enthusiastic about countries that "spend less" than the U.S. on health care. He's right that many countries do, but what he doesn't want to explain is how they ration care to do it.
Take the United Kingdom, which is often praised for spending as little as half as much per capita on health care as the U.S. Credit for this cost containment goes in large part to the National Institute for Health and Clinical Excellence, or NICE. Americans should understand how NICE works because under ObamaCare it will eventually be coming to a hospital near you.
* * *
Associated Press President Barack Obama speaks about health care during a town hall meeting at Northern Virginia Community College last Wednesday.The British officials who established NICE in the late 1990s pitched it as a body that would ensure that the government-run National Health System used "best practices" in medicine. As the Guardian reported in 1998: "Health ministers are setting up [NICE], designed to ensure that every treatment, operation, or medicine used is the proven best. It will root out under-performing doctors and useless treatments, spreading best practices everywhere."
What NICE has become in practice is a rationing board. As health costs have exploded in Britain as in most developed countries, NICE has become the heavy that reduces spending by limiting the treatments that 61 million citizens are allowed to receive through the NHS. For example:
In March, NICE ruled against the use of two drugs, Lapatinib and Sutent, that prolong the life of those with certain forms of breast and stomach cancer. This followed on a 2008 ruling against drugs -- including Sutent, which costs about $50,000 -- that would help terminally ill kidney-cancer patients. After last year's ruling, Peter Littlejohns, NICE's clinical and public health director, noted that "there is a limited pot of money," that the drugs were of "marginal benefit at quite often an extreme cost," and the money might be better spent elsewhere.
In 2007, the board restricted access to two drugs for macular degeneration, a cause of blindness. The drug Macugen was blocked outright. The other, Lucentis, was limited to a particular category of individuals with the disease, restricting it to about one in five sufferers. Even then, the drug was only approved for use in one eye, meaning those lucky enough to get it would still go blind in the other. As Andrew Dillon, the chief executive of NICE, explained at the time: "When treatments are very expensive, we have to use them where they give the most benefit to patients."
NICE has limited the use of Alzheimer's drugs, including Aricept, for patients in the early stages of the disease. Doctors in the U.K. argued vociferously that the most effective way to slow the progress of the disease is to give drugs at the first sign of dementia. NICE ruled the drugs were not "cost effective" in early stages.
Other NICE rulings include the rejection of Kineret, a drug for rheumatoid arthritis; Avonex, which reduces the relapse rate in patients with multiple sclerosis; and lenalidomide, which fights multiple myeloma. Private U.S. insurers often cover all, or at least portions, of the cost of many of these NICE-denied drugs.
NICE has also produced guidance that restrains certain surgical operations and treatments. NICE has restrictions on fertility treatments, as well as on procedures for back pain, including surgeries and steroid injections. The U.K. has recently been absorbed by the cases of several young women who developed cervical cancer after being denied pap smears by a related health authority, the Cervical Screening Programme, which in order to reduce government health-care spending has refused the screens to women under age 25.
We could go on. NICE is the target of frequent protests and lawsuits, and at times under political pressure has reversed or watered-down its rulings. But it has by now established the principle that the only way to control health-care costs is for this panel of medical high priests to dictate limits on certain kinds of care to certain classes of patients.
The NICE board even has a mathematical formula for doing so, based on a "quality adjusted life year." While the guidelines are complex, NICE currently holds that, except in unusual cases, Britain cannot afford to spend more than about $22,000 to extend a life by six months. Why $22,000? It seems to be arbitrary, calculated mainly based on how much the government wants to spend on health care. That figure has remained fairly constant since NICE was established and doesn't adjust for either overall or medical inflation.
Proponents argue that such cost-benefit analysis has to figure into health-care decisions, and that any medical system rations care in some way. And it is true that U.S. private insurers also deny reimbursement for some kinds of care. The core issue is whether those decisions are going to be dictated by the brute force of politics (NICE) or by prices (a private insurance system).
The last six months of life are a particularly difficult moral issue because that is when most health-care spending occurs. But who would you rather have making decisions about whether a treatment is worth the price -- the combination of you, your doctor and a private insurer, or a government board that cuts everyone off at $22,000?
One virtue of a private system is that competition allows choice and experimentation. To take an example from one of our recent editorials, Medicare today refuses to reimburse for the new, less invasive preventive treatment known as a virtual colonoscopy, but such private insurers as Cigna and United Healthcare do. As clinical evidence accumulates on the virtual colonoscopy, doctors and insurers will be able to adjust their practices accordingly. NICE merely issues orders, and patients have little recourse.
This has medical consequences. The Concord study published in 2008 showed that cancer survival rates in Britain are among the worst in Europe. Five-year survival rates among U.S. cancer patients are also significantly higher than in Europe: 84% vs. 73% for breast cancer, 92% vs. 57% for prostate cancer. While there is more than one reason for this difference, surely one is medical innovation and the greater U.S. willingness to reimburse for it.
* * *
The NICE precedent also undercuts the Obama Administration's argument that vast health savings can be gleaned simply by automating health records or squeezing out "waste." Britain has tried all of that but ultimately has concluded that it can only rein in costs by limiting care. The logic of a health-care system dominated by government is that it always ends up with some version of a NICE board that makes these life-or-death treatment decisions. The Administration's new Council for Comparative Effectiveness Research currently lacks the authority of NICE. But over time, if the Obama plan passes and taxpayer costs inevitably soar, it could quickly gain it.
Mr. Obama and Democrats claim they can expand subsidies for tens of millions of Americans, while saving money and improving the quality of care. It can't possibly be done. The inevitable result of their plan will be some version of a NICE board that will tell millions of Americans that they are too young, or too old, or too sick to be worth paying to care for.
Monday, July 6, 2009
Retro agenda: Arms control and arm-chair Kremlinology
Obama and Putin's Russia. WSJ Editorial
Retro agenda: Arms control and arm-chair Kremlinology.
The Wall Street Journal, Jul 06, 2009, p A12
An American President lands in Moscow today to negotiate an arms control treaty. Befitting that retro theme, thousands of Russian troops are in the midst of the biggest war games in the south Caucasus since the end of the Cold War, menacing the small, independent nation of Georgia.
President Obama's two days in Moscow are supposed to foster, in an adviser's words, "a more substantive relationship with Russia" -- the substance being Iran's atomic ambitions, the war in Afghanistan and a replacement for the soon-to-expire Strategic Arms Reduction Treaty. You know, the stuff of a quasi-superpower partnership. But Russia hardly looks super, or inclined to forge a partnership, except on its own terms.
Instead, Supreme Leader Vladimir Putin wants to settle old scores and establish what he calls "a zone of privileged interest." He must appreciate Mr. Obama's eagerness to change the subject from Russian belligerence to nuclear weapons, which plays up Russia's remaining claim to superpower status. How that serves America's interests isn't clear.
As in the weeks before Russia invaded Georgia in August, tensions are again on the rise. At least 8,500 Russian troops are involved in exercises around Abkhazia and South Ossetia, breakaway Georgian regions recognized as independent solely by Russia and Nicaragua. Last month, Moscow vetoed the renewal of U.N. and European observer missions in Abkhazia and South Ossetia. Both had been there since the early 1990s. President Mikheil Saakashvili, a young Columbia-trained lawyer who turned Georgia westward, remains an irritant for Russia. A pro-Kremlin regime in Georgia would give Moscow control over the energy routes through the Caucasus and influence independent-minded Azerbaijan and Armenia.
While Russia has failed even to comply with the terms of the truce, the U.S. and its allies are acting as if that war never happened. At this summit, Mr. Obama is to announce the restoration of bilateral military relations with Russia suspended by the Bush Administration. The NATO-Russian Council is also back in business. Meanwhile, Mr. Obama has put on hold plans by Poland and the Czech Republic to allow the U.S. to deploy American missile defenses on their soil. In a letter to Kremlin frontman Dmitry Medvedev earlier this year, Mr. Obama floated the idea of trashing those deals if Russia can prod Iran to give up its nuclear ambitions.
U.S. officials say they've ruled out quid pro quos on missile defense or Ukraine and Georgia's future. Nonetheless, Russian officials are all too happy to consider grand bargains. All start with America abandoning any future NATO expansion. In pre-summit interviews, Mr. Obama also skipped over such touchy Kremlin subjects as human rights and its designs on neighboring states. "The main thing that I want to communicate to the Russian leadership and the Russian people is America's respect for Russia," he told Russian media, noting that "it remains one of the most powerful countries in the world." Someone keeps telling American Presidents to stroke the bear's fragile ego above all else. Bill Clinton and George W. Bush also pursued this strategy, to little good effect.
Here's an idea. Set aside the dime-store national psychoanalysis and return to first American principles and interests. This summit rests on a fiction: That Russia is an equal power to the U.S. that can offer something concrete in return for American indulgence. Some Russians see through the pretense. "Let's be frank: There's not a single serious global issue where the United States is dependent on Russia today," the pro-Kremlin political analyst, Gleb Pavlovsky, wrote in Nezavisimaya Gazeta last week. Russia's decision to let the U.S. resupply its Afghan troops over Russian airspace is a goodwill gesture, but it was only offered after Russia failed to stop resupply via Kyrgyzstan.
From the moment Communism collapsed, America's overriding national interest in Europe and Eurasia has been to extend prosperity and freedom. In short, to offer formerly captive nations a choice to join the West. This can be done in part through membership in NATO, the EU or the World Trade Organization. The "West" is an idea as well as a place, a voluntary and open association. Successive U.S. Presidents, when push came to shove, have defended the right to make this choice freely and ignored Russian caterwauls.
The choice to join the free world is open to Russia, too. Mr. Putin is the one who has taken that option off the table -- most recently by pulling Russia's application to join the WTO. In the Putin decade, nationalism, corruption and cronyism have flourished while Russia has missed another chance to modernize. That's not America's fault.
Any U.S. administration will have plenty of business to carry out with Russia. But an American President in Moscow needs to keep his eyes on the bigger prize in Russia and the region. And that prize is an expansion of freedom, not a new START treaty.
Retro agenda: Arms control and arm-chair Kremlinology.
The Wall Street Journal, Jul 06, 2009, p A12
An American President lands in Moscow today to negotiate an arms control treaty. Befitting that retro theme, thousands of Russian troops are in the midst of the biggest war games in the south Caucasus since the end of the Cold War, menacing the small, independent nation of Georgia.
President Obama's two days in Moscow are supposed to foster, in an adviser's words, "a more substantive relationship with Russia" -- the substance being Iran's atomic ambitions, the war in Afghanistan and a replacement for the soon-to-expire Strategic Arms Reduction Treaty. You know, the stuff of a quasi-superpower partnership. But Russia hardly looks super, or inclined to forge a partnership, except on its own terms.
Instead, Supreme Leader Vladimir Putin wants to settle old scores and establish what he calls "a zone of privileged interest." He must appreciate Mr. Obama's eagerness to change the subject from Russian belligerence to nuclear weapons, which plays up Russia's remaining claim to superpower status. How that serves America's interests isn't clear.
As in the weeks before Russia invaded Georgia in August, tensions are again on the rise. At least 8,500 Russian troops are involved in exercises around Abkhazia and South Ossetia, breakaway Georgian regions recognized as independent solely by Russia and Nicaragua. Last month, Moscow vetoed the renewal of U.N. and European observer missions in Abkhazia and South Ossetia. Both had been there since the early 1990s. President Mikheil Saakashvili, a young Columbia-trained lawyer who turned Georgia westward, remains an irritant for Russia. A pro-Kremlin regime in Georgia would give Moscow control over the energy routes through the Caucasus and influence independent-minded Azerbaijan and Armenia.
While Russia has failed even to comply with the terms of the truce, the U.S. and its allies are acting as if that war never happened. At this summit, Mr. Obama is to announce the restoration of bilateral military relations with Russia suspended by the Bush Administration. The NATO-Russian Council is also back in business. Meanwhile, Mr. Obama has put on hold plans by Poland and the Czech Republic to allow the U.S. to deploy American missile defenses on their soil. In a letter to Kremlin frontman Dmitry Medvedev earlier this year, Mr. Obama floated the idea of trashing those deals if Russia can prod Iran to give up its nuclear ambitions.
U.S. officials say they've ruled out quid pro quos on missile defense or Ukraine and Georgia's future. Nonetheless, Russian officials are all too happy to consider grand bargains. All start with America abandoning any future NATO expansion. In pre-summit interviews, Mr. Obama also skipped over such touchy Kremlin subjects as human rights and its designs on neighboring states. "The main thing that I want to communicate to the Russian leadership and the Russian people is America's respect for Russia," he told Russian media, noting that "it remains one of the most powerful countries in the world." Someone keeps telling American Presidents to stroke the bear's fragile ego above all else. Bill Clinton and George W. Bush also pursued this strategy, to little good effect.
Here's an idea. Set aside the dime-store national psychoanalysis and return to first American principles and interests. This summit rests on a fiction: That Russia is an equal power to the U.S. that can offer something concrete in return for American indulgence. Some Russians see through the pretense. "Let's be frank: There's not a single serious global issue where the United States is dependent on Russia today," the pro-Kremlin political analyst, Gleb Pavlovsky, wrote in Nezavisimaya Gazeta last week. Russia's decision to let the U.S. resupply its Afghan troops over Russian airspace is a goodwill gesture, but it was only offered after Russia failed to stop resupply via Kyrgyzstan.
From the moment Communism collapsed, America's overriding national interest in Europe and Eurasia has been to extend prosperity and freedom. In short, to offer formerly captive nations a choice to join the West. This can be done in part through membership in NATO, the EU or the World Trade Organization. The "West" is an idea as well as a place, a voluntary and open association. Successive U.S. Presidents, when push came to shove, have defended the right to make this choice freely and ignored Russian caterwauls.
The choice to join the free world is open to Russia, too. Mr. Putin is the one who has taken that option off the table -- most recently by pulling Russia's application to join the WTO. In the Putin decade, nationalism, corruption and cronyism have flourished while Russia has missed another chance to modernize. That's not America's fault.
Any U.S. administration will have plenty of business to carry out with Russia. But an American President in Moscow needs to keep his eyes on the bigger prize in Russia and the region. And that prize is an expansion of freedom, not a new START treaty.
Pay More, Drive Less, Save the Planet
Pay More, Drive Less, Save the Planet. By GABRIEL ROTH
To fight climate change, Washington wants you to take a bus.
The Wall Street Journal, Jul 06, 2009, p A11
What is the appropriate response to Secretary of Transportation Ray LaHood, who as General Motors prepared to file for Chapter 11 bankruptcy protection declared that he wants to "coerce people out of their cars"? One might be inclined to dismiss these words as overkill -- except for recently introduced legislation by some congressional heavy-hitters that would take us down this road.
First there was the "Federal Surface Transportation Policy and Planning Act of 2009," introduced in May by Jay Rockefeller (D., W.Va.), chairman of the Senate Committee on Commerce, Science and Transportation, and Frank Lautenberg (D., N.J.), chairman of the Subcommittee on Surface Transportation. Next, in June, came the "Surface Transportation Authorization Act of 2009," introduced by James Oberstar (D., Minn.), chairman of the House Committee on Transportation and Infrastructure.
Messrs. Rockefeller and Lautenberg aim to "reduce per capita motor vehicle miles traveled on an annual basis." Mr. Oberstar wants to establish a federal "Office of Livability" to ensure that "States and metropolitan areas achieve progress towards national transportation-related greenhouse gas emissions reduction goals."
What does this mean? Most travel is not for its own sake. So reducing the total miles traveled -- whether the length or number of trips -- means people would have to reduce the activities they want and need to do. People would be "coerced," in effect, to live in less desirable places or work in less desirable jobs; shop in fewer and closer stores; see their doctor less frequently; visit fewer family members and friends.
There are three likely ways this could work. The cost of travel could be increased by raising the prices of vehicles or fuel; travel time could be increased by not expanding the highway system; or superior alternatives to the private car could be developed. The most likely way to increase the cost of travel would be by increasing fuel taxes perhaps to as much as $4 per gallon, as some have suggested.
Allowing congestion to increase travel times would be politically easier. In the name of "multimodal planning," for example, road-use taxes could be diverted, as Messrs. Rockefeller and Lautenberg suggest, to "increase the total usage of public transportation." But public transportation (where it's available) typically takes twice as long as automobile travel, so it's not practical for many Americans.
Moreover, public transportation (passenger rail services, subways, buses, light rail) requires heavy subsidies, while roads mostly pay for themselves through fuel taxes. Our roads would be even more self-sustaining if 20% of the federal fuel tax were not already diverted to public transit from the federal Highway Trust Fund. Messrs. Rockefeller, Lautenberg and Oberstar want to grab even more money from the trust fund.
Americans have always valued their independence and mobility. One way to reassert their rights would be to abolish the misnamed Highway Trust Fund, which finances highway construction and maintenance. Let the states decide what roads they need and how to finance them. The present system expires on Sept. 30 unless Congress reauthorizes it. Let it die.
Sen. Kay Bailey Hutchison (R., Texas) has in this regard introduced the "Highway Fairness and Reform Act of 2009," which would explicitly allow states to opt out of the federal financing system. A companion bill has been introduced in the House.
If a significant number of states opted out of the federal system, it would collapse and responsibility for roads would revert to the states. The vast majority of road users would benefit from such a change. And, if "livability" standards were deemed desirable, local preferences would determine them, rather than federal "greenhouse gas emissions reduction goals."
Mr. Roth is a research fellow at The Independent Institute and editor of "Street Smart: Competition, Entrepreneurship and the Future of Roads" (Transaction, 2006).
To fight climate change, Washington wants you to take a bus.
The Wall Street Journal, Jul 06, 2009, p A11
What is the appropriate response to Secretary of Transportation Ray LaHood, who as General Motors prepared to file for Chapter 11 bankruptcy protection declared that he wants to "coerce people out of their cars"? One might be inclined to dismiss these words as overkill -- except for recently introduced legislation by some congressional heavy-hitters that would take us down this road.
First there was the "Federal Surface Transportation Policy and Planning Act of 2009," introduced in May by Jay Rockefeller (D., W.Va.), chairman of the Senate Committee on Commerce, Science and Transportation, and Frank Lautenberg (D., N.J.), chairman of the Subcommittee on Surface Transportation. Next, in June, came the "Surface Transportation Authorization Act of 2009," introduced by James Oberstar (D., Minn.), chairman of the House Committee on Transportation and Infrastructure.
Messrs. Rockefeller and Lautenberg aim to "reduce per capita motor vehicle miles traveled on an annual basis." Mr. Oberstar wants to establish a federal "Office of Livability" to ensure that "States and metropolitan areas achieve progress towards national transportation-related greenhouse gas emissions reduction goals."
What does this mean? Most travel is not for its own sake. So reducing the total miles traveled -- whether the length or number of trips -- means people would have to reduce the activities they want and need to do. People would be "coerced," in effect, to live in less desirable places or work in less desirable jobs; shop in fewer and closer stores; see their doctor less frequently; visit fewer family members and friends.
There are three likely ways this could work. The cost of travel could be increased by raising the prices of vehicles or fuel; travel time could be increased by not expanding the highway system; or superior alternatives to the private car could be developed. The most likely way to increase the cost of travel would be by increasing fuel taxes perhaps to as much as $4 per gallon, as some have suggested.
Allowing congestion to increase travel times would be politically easier. In the name of "multimodal planning," for example, road-use taxes could be diverted, as Messrs. Rockefeller and Lautenberg suggest, to "increase the total usage of public transportation." But public transportation (where it's available) typically takes twice as long as automobile travel, so it's not practical for many Americans.
Moreover, public transportation (passenger rail services, subways, buses, light rail) requires heavy subsidies, while roads mostly pay for themselves through fuel taxes. Our roads would be even more self-sustaining if 20% of the federal fuel tax were not already diverted to public transit from the federal Highway Trust Fund. Messrs. Rockefeller, Lautenberg and Oberstar want to grab even more money from the trust fund.
Americans have always valued their independence and mobility. One way to reassert their rights would be to abolish the misnamed Highway Trust Fund, which finances highway construction and maintenance. Let the states decide what roads they need and how to finance them. The present system expires on Sept. 30 unless Congress reauthorizes it. Let it die.
Sen. Kay Bailey Hutchison (R., Texas) has in this regard introduced the "Highway Fairness and Reform Act of 2009," which would explicitly allow states to opt out of the federal financing system. A companion bill has been introduced in the House.
If a significant number of states opted out of the federal system, it would collapse and responsibility for roads would revert to the states. The vast majority of road users would benefit from such a change. And, if "livability" standards were deemed desirable, local preferences would determine them, rather than federal "greenhouse gas emissions reduction goals."
Mr. Roth is a research fellow at The Independent Institute and editor of "Street Smart: Competition, Entrepreneurship and the Future of Roads" (Transaction, 2006).
Developing Countries Need Trade
Developing Countries Need Trade. By Pascal Lamy
WSJ, Jul 06, 2009
"History tells us that no poor country has ever become wealthy without trade. Moreover, many developing country success stories -- Singapore, South Korea, Chile, China and Malaysia, to name only a few -- have, in recent decades, seen their national incomes grow by a percentage point or more per year as a result of open trade policies than would have been the case had they remained closed. The extra funds generated during this period have enabled them to respond to the crisis with stimulus packages that have prevented the crisis from turning into a protracted recession with its inevitable human costs."
WSJ, Jul 06, 2009
"History tells us that no poor country has ever become wealthy without trade. Moreover, many developing country success stories -- Singapore, South Korea, Chile, China and Malaysia, to name only a few -- have, in recent decades, seen their national incomes grow by a percentage point or more per year as a result of open trade policies than would have been the case had they remained closed. The extra funds generated during this period have enabled them to respond to the crisis with stimulus packages that have prevented the crisis from turning into a protracted recession with its inevitable human costs."
The President's Mission to Moscow
The President's Mission to Moscow. By DAVID SATTER
Obama doesn't need to engage Russia's leaders. He needs to deter them.
The Wall Street Journal, Jul 06, 2009, p A13
Moscow
President Barack Obama arrives here today facing a dilemma of his own making. Having called for a "reset" in U.S.-Russian relations, the U.S. side is virtually obliged to make some new overtures. But Russia does not need to be engaged. It needs to be deterred.
The expectations that Mr. Obama has inspired are substantial. Both officials and ordinary citizens in Russia interpret the call for a reset as an admission of U.S. guilt for ignoring Russia's interests. Sergei Rybakov, the Russian deputy foreign minister, said that mutual trust was "lacking over the last several years." It was the task of the U.S. to show its good intentions with "concrete actions" because in Russia, the U.S. is "deeply distrusted."
Accepting the Russian view of reality on the issues that divide the U.S. and Russia, however, would be a grave mistake. Russia aspires to resurrect a version of the Soviet Union in which it projects power and dominates its neighbors. To encourage its ambitions in any way would be to undermine not only U.S. security but, in the long run, the security of Russia as well.
There are three important areas of conflict between the U.S. and Russia: NATO expansion, the U.S. missile shield in Eastern Europe and the Russian human rights situation. In each case, any reset should be on the Russian side.
The most urgent issue may be NATO expansion. There are serious indications that Russia is preparing for a second invasion of Georgia. The first Georgian war was accompanied by a burst of patriotism in Russia but didn't achieve its strategic objectives. Georgian president Mikheil Saakashvili remains in power and Georgia remains a supply corridor to the West for energy from Central Asia and the Caspian Sea. Many Russian leaders want to finish the job. At a televised forum in December, Prime Minister Vladimir Putin was asked about press reports that he had told French president Nicolas Sarkozy that Mr. Saakashvili should be "hung by his ba**s." He replied, "Why only by one part?"
Under these circumstances, the best protection for Georgia is NATO membership. According to Pavel Felgenhauer, a defense analyst with Novaya Gazeta, the decision to invade Georgia last August came in April after NATO failed to offer outright a Membership Action Plan to Georgia and Ukraine at its annual summit in Bucharest.
Russia will argue strenuously that Georgia, Ukraine and the other former Soviet republics are part of its sphere of "privileged interests." This is an issue on which Mr. Obama cannot give way. If the former Soviet republics are denied NATO membership at Russia's behest, they either will be turned into Russian satellites with manipulated elections and a controlled foreign policy or form a zone of instability along Russia's borders with unpredictable consequences for both Russia and the West.
Beside the issue of NATO expansion, Russia and the U.S. have a critical conflict over U.S. plans to install a missile shield in the Czech Republic and Poland. Not only have U.S. experts argued that the anti-missile system is not aimed at Russia but Russia's military experts agree. Nonetheless, the system is described by Russian leaders as a threat and denunciations of the missile shield are a staple of the anti-Western programming on Russian state television.
According to Mikhail Delyagin, who served as an adviser to former Russian Prime Minister Mikhail Kasyanov, the placement of rockets in Poland is unacceptable to Russia for emotional and symbolic reasons. "It shows that the U.S. is now the master in Eastern Europe," he said. Any decision to yield to Russian objections, however, would effectively divide NATO into countries that need Russian approval for deployments and those that do not. Even dubious Russian promises to help with Iran would not compensate for the damage done to the alliance by such a concession to Russian pretensions.
Finally, there is the conflict between Russia and the U.S. over human rights. The status of human rights is a universal concern but it also has strategic implications. A population that lacks democratic rights and is subject to constant anti-Western propaganda can easily be mobilized against the U.S.
By any measure, the state of human rights in Russia is unacceptable. Russia today lacks honest elections or a separation of powers. The regime allows a degree of freedom but the features of daily life include police torture, prisoner abuse, political control of the courts and, for democratic activists, the danger of being beaten or killed. The result is that fear has returned to Russia less than two decades after the fall of the Soviet Union.
The regime is also taking steps to curtail freedom of speech. Freedom of the press has long been restricted under Mr. Putin with censorship on state run television and pressure on newspapers through their owners, to exercise self censorship. Peaceful demonstrations have also been forcibly dispersed. In recent weeks, however, a bill has been introduced in the State Duma that would make it illegal to deny the role of the Soviet Union in the victory in World War II or the crimes of Hitler's cronies (but not the crimes of Stalin and his entourage). The punishment both for Russian citizens and for foreigners will be three to five years in prison.
In the run up to Mr. Obama's visit, Russian academics and self described realists in the U.S. have called for a "grand deal" in which the U.S. accedes to Russian demands in the former Soviet Union in return for Russian help on Iran, North Korea and Afghanistan. In the case of Iran, Russia, which has repeatedly thwarted tough United Nations resolutions on that country's nuclear energy program, is offering to assist in dealing with a problem that it helped to create.
Unfortunately such a deal, the only "reset" in which the Russians have shown any interest, would eliminate moral criteria from the U.S.-Russian relationship and deprive the U.S. of any basis for limiting Russia's demands in the future. Under those circumstances, Russia's appetite is likely to grow.
Mr. Obama may wish to improve the U.S.-Russia relationship but the problems in that relationship come not from our actions but from assumptions on the Russian side about the prerogatives of power that we cannot possibly accept. Instead of resetting relations, we may just have to content ourselves with resisting Russian pretensions until such time as the mentality that gives rise to them can be changed.
Mr. Satter is a senior fellow at the Hudson Institute and a visiting scholar at the Johns Hopkins University School of Advanced International Studies (SAIS). He is writing a book on the Russian attitude to the Soviet past.
Obama doesn't need to engage Russia's leaders. He needs to deter them.
The Wall Street Journal, Jul 06, 2009, p A13
Moscow
President Barack Obama arrives here today facing a dilemma of his own making. Having called for a "reset" in U.S.-Russian relations, the U.S. side is virtually obliged to make some new overtures. But Russia does not need to be engaged. It needs to be deterred.
The expectations that Mr. Obama has inspired are substantial. Both officials and ordinary citizens in Russia interpret the call for a reset as an admission of U.S. guilt for ignoring Russia's interests. Sergei Rybakov, the Russian deputy foreign minister, said that mutual trust was "lacking over the last several years." It was the task of the U.S. to show its good intentions with "concrete actions" because in Russia, the U.S. is "deeply distrusted."
Accepting the Russian view of reality on the issues that divide the U.S. and Russia, however, would be a grave mistake. Russia aspires to resurrect a version of the Soviet Union in which it projects power and dominates its neighbors. To encourage its ambitions in any way would be to undermine not only U.S. security but, in the long run, the security of Russia as well.
There are three important areas of conflict between the U.S. and Russia: NATO expansion, the U.S. missile shield in Eastern Europe and the Russian human rights situation. In each case, any reset should be on the Russian side.
The most urgent issue may be NATO expansion. There are serious indications that Russia is preparing for a second invasion of Georgia. The first Georgian war was accompanied by a burst of patriotism in Russia but didn't achieve its strategic objectives. Georgian president Mikheil Saakashvili remains in power and Georgia remains a supply corridor to the West for energy from Central Asia and the Caspian Sea. Many Russian leaders want to finish the job. At a televised forum in December, Prime Minister Vladimir Putin was asked about press reports that he had told French president Nicolas Sarkozy that Mr. Saakashvili should be "hung by his ba**s." He replied, "Why only by one part?"
Under these circumstances, the best protection for Georgia is NATO membership. According to Pavel Felgenhauer, a defense analyst with Novaya Gazeta, the decision to invade Georgia last August came in April after NATO failed to offer outright a Membership Action Plan to Georgia and Ukraine at its annual summit in Bucharest.
Russia will argue strenuously that Georgia, Ukraine and the other former Soviet republics are part of its sphere of "privileged interests." This is an issue on which Mr. Obama cannot give way. If the former Soviet republics are denied NATO membership at Russia's behest, they either will be turned into Russian satellites with manipulated elections and a controlled foreign policy or form a zone of instability along Russia's borders with unpredictable consequences for both Russia and the West.
Beside the issue of NATO expansion, Russia and the U.S. have a critical conflict over U.S. plans to install a missile shield in the Czech Republic and Poland. Not only have U.S. experts argued that the anti-missile system is not aimed at Russia but Russia's military experts agree. Nonetheless, the system is described by Russian leaders as a threat and denunciations of the missile shield are a staple of the anti-Western programming on Russian state television.
According to Mikhail Delyagin, who served as an adviser to former Russian Prime Minister Mikhail Kasyanov, the placement of rockets in Poland is unacceptable to Russia for emotional and symbolic reasons. "It shows that the U.S. is now the master in Eastern Europe," he said. Any decision to yield to Russian objections, however, would effectively divide NATO into countries that need Russian approval for deployments and those that do not. Even dubious Russian promises to help with Iran would not compensate for the damage done to the alliance by such a concession to Russian pretensions.
Finally, there is the conflict between Russia and the U.S. over human rights. The status of human rights is a universal concern but it also has strategic implications. A population that lacks democratic rights and is subject to constant anti-Western propaganda can easily be mobilized against the U.S.
By any measure, the state of human rights in Russia is unacceptable. Russia today lacks honest elections or a separation of powers. The regime allows a degree of freedom but the features of daily life include police torture, prisoner abuse, political control of the courts and, for democratic activists, the danger of being beaten or killed. The result is that fear has returned to Russia less than two decades after the fall of the Soviet Union.
The regime is also taking steps to curtail freedom of speech. Freedom of the press has long been restricted under Mr. Putin with censorship on state run television and pressure on newspapers through their owners, to exercise self censorship. Peaceful demonstrations have also been forcibly dispersed. In recent weeks, however, a bill has been introduced in the State Duma that would make it illegal to deny the role of the Soviet Union in the victory in World War II or the crimes of Hitler's cronies (but not the crimes of Stalin and his entourage). The punishment both for Russian citizens and for foreigners will be three to five years in prison.
In the run up to Mr. Obama's visit, Russian academics and self described realists in the U.S. have called for a "grand deal" in which the U.S. accedes to Russian demands in the former Soviet Union in return for Russian help on Iran, North Korea and Afghanistan. In the case of Iran, Russia, which has repeatedly thwarted tough United Nations resolutions on that country's nuclear energy program, is offering to assist in dealing with a problem that it helped to create.
Unfortunately such a deal, the only "reset" in which the Russians have shown any interest, would eliminate moral criteria from the U.S.-Russian relationship and deprive the U.S. of any basis for limiting Russia's demands in the future. Under those circumstances, Russia's appetite is likely to grow.
Mr. Obama may wish to improve the U.S.-Russia relationship but the problems in that relationship come not from our actions but from assumptions on the Russian side about the prerogatives of power that we cannot possibly accept. Instead of resetting relations, we may just have to content ourselves with resisting Russian pretensions until such time as the mentality that gives rise to them can be changed.
Mr. Satter is a senior fellow at the Hudson Institute and a visiting scholar at the Johns Hopkins University School of Advanced International Studies (SAIS). He is writing a book on the Russian attitude to the Soviet past.
Sunday, July 5, 2009
Public Pensions Cook the Books
Public Pensions Cook the Books. By Andrew G Biggs
Some plans want to hide the truth from taxpayers.
The Wall Street Journal, Jul 06, 2009, p A13
Here's a dilemma: You manage a public employee pension plan and your actuary tells you it is significantly underfunded. You don't want to raise contributions. Cutting benefits is out of the question. To be honest, you'd really rather not even admit there's a problem, lest taxpayers get upset.
What to do? For the administrators of two Montana pension plans, the answer is obvious: Get a new actuary. Or at least that's the essence of the managers' recent solicitations for actuarial services, which warn that actuaries who favor reporting the full market value of pension liabilities probably shouldn't bother applying.
Public employee pension plans are plagued by overgenerous benefits, chronic underfunding, and now trillion dollar stock-market losses. Based on their preferred accounting methods -- which discount future liabilities based on high but uncertain returns projected for investments -- these plans are underfunded nationally by around $310 billion.
The numbers are worse using market valuation methods (the methods private-sector plans must use), which discount benefit liabilities at lower interest rates to reflect the chance that the expected returns won't be realized. Using that method, University of Chicago economists Robert Novy-Marx and Joshua Rauh calculate that, even prior to the market collapse, public pensions were actually short by nearly $2 trillion. That's nearly $87,000 per plan participant. With employee benefits guaranteed by law and sometimes even by state constitutions, it's likely these gargantuan shortfalls will have to be borne by unsuspecting taxpayers.
Some public pension administrators have a strategy, though: Keep taxpayers unsuspecting. The Montana Public Employees' Retirement Board and the Montana Teachers' Retirement System declare in a recent solicitation for actuarial services that "If the Primary Actuary or the Actuarial Firm supports [market valuation] for public pension plans, their proposal may be disqualified from further consideration."
Scott Miller, legal counsel of the Montana Public Employees Board, was more straightforward: "The point is we aren't interested in bringing in an actuary to pressure the board to adopt market value of liabilities theory."
While corporate pension funds are required by law to use low, risk-adjusted discount rates to calculate the market value of their liabilities, public employee pensions are not. However, financial economists are united in believing that market-based techniques for valuing private sector investments should also be applied to public pensions.
Because the power of compound interest is so strong, discounting future benefit costs using a pension plan's high expected return rather than a low riskless return can significantly reduce the plan's measured funding shortfall. But it does so only by ignoring risk. The expected return implies only the "expectation" -- meaning, at least a 50% chance, not a guarantee -- that the plan's assets will be sufficient to meet its liabilities. But when future benefits are considered to be riskless by plan participants and have been ruled to be so by state courts, a 51% chance that the returns will actually be there when they are needed hardly constitutes full funding.
Public pension administrators argue that government plans fundamentally differ from private sector pensions, since the government cannot go out of business. Even so, the only true advantage public pensions have over private plans is the ability to raise taxes. But as the Congressional Budget Office has pointed out in 2004, "The government does not have a capacity to bear risk on its own" -- rather, government merely redistributes risk between taxpayers and beneficiaries, present and future.
Market valuation makes the costs of these potential tax increases explicit, while the public pension administrators' approach, which obscures the possibility that the investment returns won't achieve their goals, leaves taxpayers in the dark.
For these reasons, the Public Interest Committee of the American Academy of Actuaries recently stated, "it is in the public interest for retirement plans to disclose consistent measures of the economic value of plan assets and liabilities in order to provide the benefits promised by plan sponsors."
Nevertheless, the National Association of State Retirement Administrators, an umbrella group representing government employee pension funds, effectively wants other public plans to take the same low road that the two Montana plans want to take. It argues against reporting the market valuation of pension shortfalls. But the association's objections seem less against market valuation itself than against the fact that higher reported underfunding "could encourage public sector plan sponsors to abandon their traditional pension plans in lieu of defined contribution plans."
The Government Accounting Standards Board, which sets guidelines for public pension reporting, does not currently call for reporting the market value of public pension liabilities. The board announced last year a review of its position regarding market valuation but says the review may not be completed until 2013.
This is too long for state taxpayers to wait to find out how many trillions they owe.
Mr. Biggs is a resident scholar at the American Enterprise Institute.
Some plans want to hide the truth from taxpayers.
The Wall Street Journal, Jul 06, 2009, p A13
Here's a dilemma: You manage a public employee pension plan and your actuary tells you it is significantly underfunded. You don't want to raise contributions. Cutting benefits is out of the question. To be honest, you'd really rather not even admit there's a problem, lest taxpayers get upset.
What to do? For the administrators of two Montana pension plans, the answer is obvious: Get a new actuary. Or at least that's the essence of the managers' recent solicitations for actuarial services, which warn that actuaries who favor reporting the full market value of pension liabilities probably shouldn't bother applying.
Public employee pension plans are plagued by overgenerous benefits, chronic underfunding, and now trillion dollar stock-market losses. Based on their preferred accounting methods -- which discount future liabilities based on high but uncertain returns projected for investments -- these plans are underfunded nationally by around $310 billion.
The numbers are worse using market valuation methods (the methods private-sector plans must use), which discount benefit liabilities at lower interest rates to reflect the chance that the expected returns won't be realized. Using that method, University of Chicago economists Robert Novy-Marx and Joshua Rauh calculate that, even prior to the market collapse, public pensions were actually short by nearly $2 trillion. That's nearly $87,000 per plan participant. With employee benefits guaranteed by law and sometimes even by state constitutions, it's likely these gargantuan shortfalls will have to be borne by unsuspecting taxpayers.
Some public pension administrators have a strategy, though: Keep taxpayers unsuspecting. The Montana Public Employees' Retirement Board and the Montana Teachers' Retirement System declare in a recent solicitation for actuarial services that "If the Primary Actuary or the Actuarial Firm supports [market valuation] for public pension plans, their proposal may be disqualified from further consideration."
Scott Miller, legal counsel of the Montana Public Employees Board, was more straightforward: "The point is we aren't interested in bringing in an actuary to pressure the board to adopt market value of liabilities theory."
While corporate pension funds are required by law to use low, risk-adjusted discount rates to calculate the market value of their liabilities, public employee pensions are not. However, financial economists are united in believing that market-based techniques for valuing private sector investments should also be applied to public pensions.
Because the power of compound interest is so strong, discounting future benefit costs using a pension plan's high expected return rather than a low riskless return can significantly reduce the plan's measured funding shortfall. But it does so only by ignoring risk. The expected return implies only the "expectation" -- meaning, at least a 50% chance, not a guarantee -- that the plan's assets will be sufficient to meet its liabilities. But when future benefits are considered to be riskless by plan participants and have been ruled to be so by state courts, a 51% chance that the returns will actually be there when they are needed hardly constitutes full funding.
Public pension administrators argue that government plans fundamentally differ from private sector pensions, since the government cannot go out of business. Even so, the only true advantage public pensions have over private plans is the ability to raise taxes. But as the Congressional Budget Office has pointed out in 2004, "The government does not have a capacity to bear risk on its own" -- rather, government merely redistributes risk between taxpayers and beneficiaries, present and future.
Market valuation makes the costs of these potential tax increases explicit, while the public pension administrators' approach, which obscures the possibility that the investment returns won't achieve their goals, leaves taxpayers in the dark.
For these reasons, the Public Interest Committee of the American Academy of Actuaries recently stated, "it is in the public interest for retirement plans to disclose consistent measures of the economic value of plan assets and liabilities in order to provide the benefits promised by plan sponsors."
Nevertheless, the National Association of State Retirement Administrators, an umbrella group representing government employee pension funds, effectively wants other public plans to take the same low road that the two Montana plans want to take. It argues against reporting the market valuation of pension shortfalls. But the association's objections seem less against market valuation itself than against the fact that higher reported underfunding "could encourage public sector plan sponsors to abandon their traditional pension plans in lieu of defined contribution plans."
The Government Accounting Standards Board, which sets guidelines for public pension reporting, does not currently call for reporting the market value of public pension liabilities. The board announced last year a review of its position regarding market valuation but says the review may not be completed until 2013.
This is too long for state taxpayers to wait to find out how many trillions they owe.
Mr. Biggs is a resident scholar at the American Enterprise Institute.
Russia Presents Test for Obama
Russia Presents Test for Obama. By Michael A. Fletcher and Philip P. Pan
Washington Post, Sunday, July 5, 2009
President Obama is scheduled to leave Washington tonight on a week-long trip that will help determine whether his personal popularity and fresh policy approaches can yield concrete results on difficult issues including arms control, missile defense and nuclear nonproliferation.
After seeking support for U.S. policies from allies in Europe and appealing for a new relationship with the Muslim world in Cairo on previous trips, Obama arrives in Moscow tomorrow for his first foray into high-profile, nuts-and-bolts negotiations with the leader of a nation that might be deemed an unfriendly rival.
On Wednesday, Obama will travel to L'Aquila, Italy, where he will meet with leaders of the world's major industrial powers. Climate change and the continued shaky global economy are expected to dominate the agenda. He is also to meet with Pope Benedict XVI.
On Friday, Obama will go to Ghana, where he is expected to highlight that nation's burgeoning democratic tradition and to deliver a speech on his administration's goals for the developing world.
Shortly after taking office, the Obama administration made clear that it wants to "reset" relations between the United States and Russia, which had deteriorated under President George W. Bush. During Obama's first meeting with Russian President Dmitry Medvedev, in London in April, the two agreed to a broad statement of cooperation on numerous issues.
Both the White House and the Kremlin hope to build on that with a summit in Moscow, and agreements on subjects including Afghanistan and nuclear proliferation are expected to be unveiled. But fundamental differences remain on key issues that have strained U.S.-Russian relations.
Medvedev wants U.S. pledges to scrap a missile defense system in Eastern Europe and to rule out military alliances with the former Soviet republics of Georgia and Ukraine. Obama wants Russia to back tough sanctions against Iran if diplomatic efforts to curb its nuclear program fail. Neither president has indicated any willingness to yield.
"We're not going to reassure or give or trade anything with the Russians regarding NATO expansion or missile defense," said Michael McFaul, special assistant to the president and senior director for Russian and Eurasian affairs. "We're going to define our national interests, and by that I also mean the interests of our allies in Europe with reference to these two particular questions."
Sergei Prikhodko, Medvedev's chief foreign policy adviser, struck a similar tone. "Saying that it will be easy to move forward would mean deluding ourselves," he told reporters. "The domestic agendas of both leaders and their agendas in dealings with allies do not always coincide. Sometimes, they contradict each other directly or indirectly. But the question is . . . whether we want to expand mutual understanding or focus on defending our own positions on sensitive issues."
Obama is scheduled to meet on Tuesday with Prime Minister Vladimir Putin, whom analysts called the preeminent power in Russian politics. Obama told the Associated Press last week that the former Russian president must move beyond a Cold War approach to relations with the United States.
The willingness of Obama and Medvedev to compromise will be tested when they discuss a treaty to replace the landmark START I nuclear arms control pact, which expires in December.
The United States and Russia control more than 90 percent of the world's nuclear weapons. After three months of talks, negotiators have agreed to modest reductions below the limits of 1,700 to 2,200 warheads established by the 2002 Treaty of Moscow. But they remain deadlocked on how to count and limit the number of "delivery systems," or missiles and heavy bombers, that each nation can keep.
Medvedev publicly declared two weeks ago that no treaty is possible unless "the United States lifts Russia's concerns" about its plans to build a missile defense system in Poland and the Czech Republic.
Obama has not decided what to do about the system, said a senior administration official, speaking on the condition of anonymity because he did not want to discuss internal deliberations publicly.
The United States is reviewing other options for missile defense and has tried unsuccessfully to engage the Kremlin on the issue, he said. "We're serious about cooperation on missile defense with the Russians," he said. "But the sense is the Russians are still nervous and don't trust us."
Russian officials have publicly endorsed the idea of cooperation on missile defense, but have called on Obama to abandon the Polish-Czech plan first and emphasized they want to be included from the ground up, beginning with joint assessment of threats. The two sides have discussed opening a Moscow-based joint data exchange center.
Obama hopes to gain Russian cooperation on other topics, including energy efficiency and climate change. Russia is one of the world's largest energy producers, but it is also a leading emitter of greenhouse gases, behind the United States and China, according to the Center for American Progress.
The summit is expected to produce a deal allowing the United States to ship weapons to Afghanistan through Russia. The two sides may also agree to share intelligence and fight Afghanistan drug trafficking. Officials said the sides are also working to revive a pact on civilian nuclear energy cooperation that the Bush administration suspended after Russia's war last year with Georgia, and to strengthen military ties, also downgraded after the war.
Some business deals, including one involving Boeing, are also expected, analysts said, but they could be overshadowed by disappointment over Putin's decision to withdraw Russia's application for World Trade Organization membership last month.
Obama also is scheduled to deliver a speech in Moscow in which aides say he will try to dispel the feeling in Russia that America's self-interest lies in a weak Russia.
"This is not 1974. This is not just where we go do an arms control agreement with the Soviets, but that we have a multidimensional relationship with the Russian government and with the Russian people," McFaul said.
Pan reported from Moscow. Staff writer Mary Beth Sheridan contributed to this report.
Washington Post, Sunday, July 5, 2009
President Obama is scheduled to leave Washington tonight on a week-long trip that will help determine whether his personal popularity and fresh policy approaches can yield concrete results on difficult issues including arms control, missile defense and nuclear nonproliferation.
After seeking support for U.S. policies from allies in Europe and appealing for a new relationship with the Muslim world in Cairo on previous trips, Obama arrives in Moscow tomorrow for his first foray into high-profile, nuts-and-bolts negotiations with the leader of a nation that might be deemed an unfriendly rival.
On Wednesday, Obama will travel to L'Aquila, Italy, where he will meet with leaders of the world's major industrial powers. Climate change and the continued shaky global economy are expected to dominate the agenda. He is also to meet with Pope Benedict XVI.
On Friday, Obama will go to Ghana, where he is expected to highlight that nation's burgeoning democratic tradition and to deliver a speech on his administration's goals for the developing world.
Shortly after taking office, the Obama administration made clear that it wants to "reset" relations between the United States and Russia, which had deteriorated under President George W. Bush. During Obama's first meeting with Russian President Dmitry Medvedev, in London in April, the two agreed to a broad statement of cooperation on numerous issues.
Both the White House and the Kremlin hope to build on that with a summit in Moscow, and agreements on subjects including Afghanistan and nuclear proliferation are expected to be unveiled. But fundamental differences remain on key issues that have strained U.S.-Russian relations.
Medvedev wants U.S. pledges to scrap a missile defense system in Eastern Europe and to rule out military alliances with the former Soviet republics of Georgia and Ukraine. Obama wants Russia to back tough sanctions against Iran if diplomatic efforts to curb its nuclear program fail. Neither president has indicated any willingness to yield.
"We're not going to reassure or give or trade anything with the Russians regarding NATO expansion or missile defense," said Michael McFaul, special assistant to the president and senior director for Russian and Eurasian affairs. "We're going to define our national interests, and by that I also mean the interests of our allies in Europe with reference to these two particular questions."
Sergei Prikhodko, Medvedev's chief foreign policy adviser, struck a similar tone. "Saying that it will be easy to move forward would mean deluding ourselves," he told reporters. "The domestic agendas of both leaders and their agendas in dealings with allies do not always coincide. Sometimes, they contradict each other directly or indirectly. But the question is . . . whether we want to expand mutual understanding or focus on defending our own positions on sensitive issues."
Obama is scheduled to meet on Tuesday with Prime Minister Vladimir Putin, whom analysts called the preeminent power in Russian politics. Obama told the Associated Press last week that the former Russian president must move beyond a Cold War approach to relations with the United States.
The willingness of Obama and Medvedev to compromise will be tested when they discuss a treaty to replace the landmark START I nuclear arms control pact, which expires in December.
The United States and Russia control more than 90 percent of the world's nuclear weapons. After three months of talks, negotiators have agreed to modest reductions below the limits of 1,700 to 2,200 warheads established by the 2002 Treaty of Moscow. But they remain deadlocked on how to count and limit the number of "delivery systems," or missiles and heavy bombers, that each nation can keep.
Medvedev publicly declared two weeks ago that no treaty is possible unless "the United States lifts Russia's concerns" about its plans to build a missile defense system in Poland and the Czech Republic.
Obama has not decided what to do about the system, said a senior administration official, speaking on the condition of anonymity because he did not want to discuss internal deliberations publicly.
The United States is reviewing other options for missile defense and has tried unsuccessfully to engage the Kremlin on the issue, he said. "We're serious about cooperation on missile defense with the Russians," he said. "But the sense is the Russians are still nervous and don't trust us."
Russian officials have publicly endorsed the idea of cooperation on missile defense, but have called on Obama to abandon the Polish-Czech plan first and emphasized they want to be included from the ground up, beginning with joint assessment of threats. The two sides have discussed opening a Moscow-based joint data exchange center.
Obama hopes to gain Russian cooperation on other topics, including energy efficiency and climate change. Russia is one of the world's largest energy producers, but it is also a leading emitter of greenhouse gases, behind the United States and China, according to the Center for American Progress.
The summit is expected to produce a deal allowing the United States to ship weapons to Afghanistan through Russia. The two sides may also agree to share intelligence and fight Afghanistan drug trafficking. Officials said the sides are also working to revive a pact on civilian nuclear energy cooperation that the Bush administration suspended after Russia's war last year with Georgia, and to strengthen military ties, also downgraded after the war.
Some business deals, including one involving Boeing, are also expected, analysts said, but they could be overshadowed by disappointment over Putin's decision to withdraw Russia's application for World Trade Organization membership last month.
Obama also is scheduled to deliver a speech in Moscow in which aides say he will try to dispel the feeling in Russia that America's self-interest lies in a weak Russia.
"This is not 1974. This is not just where we go do an arms control agreement with the Soviets, but that we have a multidimensional relationship with the Russian government and with the Russian people," McFaul said.
Pan reported from Moscow. Staff writer Mary Beth Sheridan contributed to this report.
Link Between Iraq Violence, Troop Withdrawals Considered
Link Between Iraq Violence, Troop Withdrawals Considered. By Greg Jaffe
Washington Post, Sunday, July 5, 2009
A recent spike in violence in Iraq is prompting senior defense officials to ask whether the gradual withdrawal of U.S. troops from Iraqi cities over the past several months has provided an opening to extremist groups eager to spark sectarian attacks between Sunnis and Shiites.
The latest bombings have highlighted the still-fragile state of the Iraqi government and security forces as the war enters a new phase and U.S. influence in the country continues to wane. Some senior defense officials speculated that the recent increase was part of a last push by Sunni extremist groups, who appeared to be marshaling their resources in May, to make their presence felt before the formal deadline for the U.S. withdrawal from Iraq's cities.
"We knew that if al-Qaeda in Iraq had only five bombs left, they were going to use them all as the last of our forces left the cities," said a senior defense official who follows Iraq. "They wanted to create the narrative that they had driven us from Iraq. Next, they'll want to build the narrative that the Iraqi security forces can't protect the people."
Iraqi civilian deaths, which had dropped in May to among the lowest levels of the war, almost doubled in June, to 447, according to a count by the Associated Press. Gen. Ray Odierno, the top commander in Iraq, played down the impact of the recent attacks. "I still believe that al-Qaeda has been significantly degraded here in Iraq," he told reporters on Tuesday.
Military officials said that in the coming weeks they will be watching closely to see whether al-Qaeda in Iraq and other extremist groups can sustain the recent spate of suicide bombs, which would be a sign that networks of fighters have reinvigorated themselves, and whether the attacks provoke retaliatory violence.
Over the long term, the concern is whether the relative peace between Shiites, who represent the majority in Iraq, and Sunnis can be sustained without a large presence of U.S. troops in Baghdad.
"If Sunnis and Shiites continue to work through their differences politically, Iraq will survive. If not, there is no way it will hold together," said retired Col. Pete Mansoor, who served as a senior aide to the top commander in Iraq in 2007 and 2008.
When U.S. troops moved into Baghdad in large numbers in 2007, they took up positions on the fault lines between Sunni and Shiite neighborhoods in an effort to stop the sectarian killing. "We put ourselves between the sects and functioned as honest brokers," Mansoor said. "That was our primary leverage."
A small number of U.S. advisers and several companies of American combat troops will remain in Baghdad over the coming year. But it will be largely up to Iraqi army and police forces to calm sectarian tensions, which are almost certain to flare as the next national elections, scheduled for January, draw closer.
Senior U.S. officials said they will watch closely for any signs that civilian casualties and sectarian murders in Iraq are increasing in the coming months. So far, the recent bombings have not spurred a cycle of retribution, and even with the recent spike in killings violence still remains at summer 2003 levels.
Another danger is that Iraqi army and police forces will revert to the overtly sectarian behavior of 2006 and 2007 without the stabilizing presence of U.S. forces operating alongside them. It will be difficult for the small number of U.S. advisers embedded with Iraqi units to accompany them on all missions. The conduct of Iraq's senior political leaders, including Prime Minister Nouri al-Maliki, and its top generals will play the biggest role in determining whether the country's security forces hold together or fracture on sectarian lines, military analysts said.
"In 1973 and 1974, there were a lot of good South Vietnamese battalion commanders, but that wasn't enough to compensate for the lack of leadership at senior levels," said Steven Metz, a counterinsurgency expert at the Army War College in Carlisle, Pa.
A major test will be how Maliki and other Iraqi leaders handle the armed groups known as the Awakening or Sons of Iraq. These largely Sunni forces include many former insurgents who agreed to drop their resistance in exchange for positions paying about $300 a month.
Despite its promise to integrate 20 percent of the former Sunni fighters into the Iraqi army and police forces, Maliki's government has found positions for about 5 percent of the 91,000 Iraqis in the program, according to the upcoming quarterly report to Congress on Iraq, which will be released this month. Maliki's government has also targeted a few of the Awakening leaders for arrest in recent months and, at times, has been slow to pay other militia members.
U.S. officials remain optimistic that the Iraqi government will not alienate the former insurgents. "The prime minister and his advisers understand they can't abandon these guys en masse," said the senior defense official.
Even if the government does not meet its promises to the former insurgents, it is unlikely that disaffected Sunnis will turn to groups such as al-Qaeda in Iraq for revenge, military analysts said.
"My worry is that you could see a huge uptick in criminality if the Sons of Iraq aren't integrated into the security forces," Mansoor said. "People have to feed their families, and will resort to oil smuggling, illegal checkpoints and shaking down business owners for protection money."
But if violence rises in Iraq, there is little political appetite in Washington or Baghdad for an increased U.S. role. Some military analysts worried that President Obama had not done enough of late to make it clear to his military commanders and the American people that U.S. troops will push back into Baghdad if necessary.
"Right now, you have a public that is starting to say the war is finished," said Peter D. Feaver, who focused on Iraq as a special adviser to the Bush White House and is a professor at Duke University. "The problem is that we're not done in Iraq. The president is the only one who can mobilize American public support for the war."
Washington Post, Sunday, July 5, 2009
A recent spike in violence in Iraq is prompting senior defense officials to ask whether the gradual withdrawal of U.S. troops from Iraqi cities over the past several months has provided an opening to extremist groups eager to spark sectarian attacks between Sunnis and Shiites.
The latest bombings have highlighted the still-fragile state of the Iraqi government and security forces as the war enters a new phase and U.S. influence in the country continues to wane. Some senior defense officials speculated that the recent increase was part of a last push by Sunni extremist groups, who appeared to be marshaling their resources in May, to make their presence felt before the formal deadline for the U.S. withdrawal from Iraq's cities.
"We knew that if al-Qaeda in Iraq had only five bombs left, they were going to use them all as the last of our forces left the cities," said a senior defense official who follows Iraq. "They wanted to create the narrative that they had driven us from Iraq. Next, they'll want to build the narrative that the Iraqi security forces can't protect the people."
Iraqi civilian deaths, which had dropped in May to among the lowest levels of the war, almost doubled in June, to 447, according to a count by the Associated Press. Gen. Ray Odierno, the top commander in Iraq, played down the impact of the recent attacks. "I still believe that al-Qaeda has been significantly degraded here in Iraq," he told reporters on Tuesday.
Military officials said that in the coming weeks they will be watching closely to see whether al-Qaeda in Iraq and other extremist groups can sustain the recent spate of suicide bombs, which would be a sign that networks of fighters have reinvigorated themselves, and whether the attacks provoke retaliatory violence.
Over the long term, the concern is whether the relative peace between Shiites, who represent the majority in Iraq, and Sunnis can be sustained without a large presence of U.S. troops in Baghdad.
"If Sunnis and Shiites continue to work through their differences politically, Iraq will survive. If not, there is no way it will hold together," said retired Col. Pete Mansoor, who served as a senior aide to the top commander in Iraq in 2007 and 2008.
When U.S. troops moved into Baghdad in large numbers in 2007, they took up positions on the fault lines between Sunni and Shiite neighborhoods in an effort to stop the sectarian killing. "We put ourselves between the sects and functioned as honest brokers," Mansoor said. "That was our primary leverage."
A small number of U.S. advisers and several companies of American combat troops will remain in Baghdad over the coming year. But it will be largely up to Iraqi army and police forces to calm sectarian tensions, which are almost certain to flare as the next national elections, scheduled for January, draw closer.
Senior U.S. officials said they will watch closely for any signs that civilian casualties and sectarian murders in Iraq are increasing in the coming months. So far, the recent bombings have not spurred a cycle of retribution, and even with the recent spike in killings violence still remains at summer 2003 levels.
Another danger is that Iraqi army and police forces will revert to the overtly sectarian behavior of 2006 and 2007 without the stabilizing presence of U.S. forces operating alongside them. It will be difficult for the small number of U.S. advisers embedded with Iraqi units to accompany them on all missions. The conduct of Iraq's senior political leaders, including Prime Minister Nouri al-Maliki, and its top generals will play the biggest role in determining whether the country's security forces hold together or fracture on sectarian lines, military analysts said.
"In 1973 and 1974, there were a lot of good South Vietnamese battalion commanders, but that wasn't enough to compensate for the lack of leadership at senior levels," said Steven Metz, a counterinsurgency expert at the Army War College in Carlisle, Pa.
A major test will be how Maliki and other Iraqi leaders handle the armed groups known as the Awakening or Sons of Iraq. These largely Sunni forces include many former insurgents who agreed to drop their resistance in exchange for positions paying about $300 a month.
Despite its promise to integrate 20 percent of the former Sunni fighters into the Iraqi army and police forces, Maliki's government has found positions for about 5 percent of the 91,000 Iraqis in the program, according to the upcoming quarterly report to Congress on Iraq, which will be released this month. Maliki's government has also targeted a few of the Awakening leaders for arrest in recent months and, at times, has been slow to pay other militia members.
U.S. officials remain optimistic that the Iraqi government will not alienate the former insurgents. "The prime minister and his advisers understand they can't abandon these guys en masse," said the senior defense official.
Even if the government does not meet its promises to the former insurgents, it is unlikely that disaffected Sunnis will turn to groups such as al-Qaeda in Iraq for revenge, military analysts said.
"My worry is that you could see a huge uptick in criminality if the Sons of Iraq aren't integrated into the security forces," Mansoor said. "People have to feed their families, and will resort to oil smuggling, illegal checkpoints and shaking down business owners for protection money."
But if violence rises in Iraq, there is little political appetite in Washington or Baghdad for an increased U.S. role. Some military analysts worried that President Obama had not done enough of late to make it clear to his military commanders and the American people that U.S. troops will push back into Baghdad if necessary.
"Right now, you have a public that is starting to say the war is finished," said Peter D. Feaver, who focused on Iraq as a special adviser to the Bush White House and is a professor at Duke University. "The problem is that we're not done in Iraq. The president is the only one who can mobilize American public support for the war."
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