Monday, December 28, 2009

Regulatory structure: lessons to learn from corporate life

Is important the regulator institutional structure? Lessons to learn from corporate life. By A J R, contributing blogger
Dec 28, 2009


The Importance of the Regulatory Agency Structure


It is inevitable that those working in the FIs area, or academics studying them, think that the institutional structure of the regulatory agency is very important. Abrams and Taylor (2002) put things in perspective, we think, remarking that the structure tasks are second order issues. They come after various conditions are in their right place, and are done with the right degree of intent and effort.


If the institutional structure is important (and it is, just we should remember that it is something to work on after other things are to our satisfaction) is, mainly, because the wrong organization can ruin the best team we can gather, or the best set of conditions chosen, or the best laws written.


We are told than when structure is weak, many undesirable effects can appear: monitorization is less effective or comprehensive than possible; regulatory arbitrage is more frequent; promised economies of scale are not realized; deployment of staff is not optimal; too many disputes among regulators (or among units of a unified regulator) happen; costs for the taxpayer are too large.


To solve those effects (and others) perceived as caused by structure weakness, various models are proposed for regulators and supervisors, depending of particular conditions. Before any change is made, in one direction of the other, some considerations on the prerequisites for an effective supervisory structure must be added. Abrams and Taylor (2002) very cautiously think that this list, which doesn't aim to be exhaustive, "attempts to provide an indicative set of key features that constitute an effective supervisory structure":

  • objectives should be clear: if possible mandated by statute to prevent the supervisory process from costing too much to the financial system or the taxpayer - which is the unavoidable path to follow, since the regulator is risk-averse and is not commended by the lack of crises but is pilloried when some occurs;

  • independent and accountable regulator: again with the support of a statute that protects managers from being deposed by politicians easily and with some mechanism to make the agency accountable to both the taxpayer and to industry (this seems very difficult to execute to us);

  • regulation must be cost effective;

  • resources must be adequate: ability to "recruit, train and retain a cadre" of skilled personnel;

  • effective & flexible enforcement powers: ability to require information from regulated firms, to assess the competence and probity of senior management and owners, and to take appropriate graduated sanctions;

  • regulation must be comprehensive: regulators must also be in a position to respond quickly to market innovations;

  • the Effectiveness Criteria. we should consider also whether other solutions are more effective or less risky, and that perhaps changes may be inappropriate due to current events.


Models of regulatory structure


The WB (2005) noted: "the institutional structure of regulatory agencies is an issue of some significance. However, the importance should not be exaggerated." We cannot be too critical with any system (specific cases of jobs badly botched can and must be criticized). And we do not think that the US or the UK systems are clearly superior to other systems, or as bad as critics say. In corporations the structure is being changed constantly, according to the needs and what is learnt. This includes the partition of the company in several ones, and after a time a reorganization that again concentrates some pillars into one (in some cases leaving just one company).


According to Rustomjee (2009), the new preference among countries for unified approaches to supervision and regulation "suggest[s]" that some governments have "identified useful advantages in the unified models of regulation." We think that it is better this nuanced formulation than a previous one in the same text ("in the past decade a number of countries have shifted towards more unified regulatory arrangements, suggesting that there may be important advantages in unified models of regulation"). We don't know for sure what is best, and if corporate life is any indication, the best organization is an elusive goal. And if one reaches that blissful state of best organization, it lasts a very short time period. Maybe it was just herd behaviour? Or subtle pressures from the EU guys that have power on this area?


A great variety of regulatory structures can be observed today. We can try to adscribe this wide range of approaches to these three categories:


Multiple-agency regulators


Due to history, political structure (e.g., a federation) or sheer size (e.g. the US), the regulator can be highly fragmented, paying attention to just a specific financial sector activity (e.g., independent regulators for banks, for insurance companies and for securities firms).


The case par excellence is the US. A great critic of this model is Brown (2007). Spain is a similar case, although not that greatly fragmented. The Bank of Spain works with banks and S&L Associations; a Treasury directorate general with insurance companies; and an independent commision with the stock market and securities firms.


In the WB study (2005) this model represented 42% of all countries in the study.



Common regulators


In this case, a regulator supervises two of the three major financial activities. Examples in which a single agency works on banks and securities firms are Finland, Luxembourg or Switzerland. This comprised 6% of the countries in the WB study (2005).


Examples in which a single agency works on banks and insurance companies are Belgium and Canada (comprising 12% of countries). Examples in which a single regulator supervises securities firms and insurers are Chile, Slovakia or South Africa (11% of countries).



Unified regulators


This case includes some varieties: if all existing regulators are merged into a single institution we are talking about the fully unified one. A close case (although preserving the central bank), is the UK's FSA.


Sometimes, instead of working on the institutions being regulated, the supervisors are split on two or more: an institution for prudential supervision of all entities, a separate institution for supervision of market conduct. If split into two, this is known as the ‘twin peaks’ model. The two cases are Australia and the Netherlands.


Some small population countries (and countries that recently entered into the EU) follow this model; notable cases are Austria, Denmark, Norway, and Sweden. More notable because of their population size and large economy are Germany, Japan, and the UK. Of the countries studied, 29% had a unified regulator system.



Some advantages of unification with disadvantages added


Paraphrasing the World Bank (2005), there is merit in the arguments for a unified model, but also several good reservations may be stated. And Abrams and Taylor (2002) offer good comments about, 1 the risks and unpredictability of the very change itself (you can end up with a system weaker than the original one due to bargaining and political capture), and 2 the risks of qualified, experienced staff turnover in their Box 6.1.


Some advantages of unified systems listed by the WB (2005) and Abrams and Taylor (2002), or weaknesses of fragmented systems follow, along with comments adding disadvantages (or strengths of fragmented systems) in italics. We simplify the very appropriate caveats, buts and ifs:
  • A regulator that mirrors the conglomerates' structure should monitor more effectively the full range of activities of such complex organizations. Why is this assumed to refer to unification? First of all, corporations frequently divide themselves in fully independent national groups, comprised in turn of several companies. In several countries you can find IBM itself (which has several divisions), IBM GBS, IBM Global Finance, IBM Data and a couple others. Of course, auditing units and risk management divisions are multiplied almost accordingly. Never it was intended to have all audit sections fully unified. Maybe lawmakers and supervisors need to ask themselves why corporate life is so different. Or can we be sure that private firms are so wrong on so many areas? And second, although firms have diversified, their core business keeps being dominant in the overwhelming majority of cases. The risks nature is different enough to warrant different prudential supervisory regimes, and there would be few (if any) efficiencies in bringing their supervision together.

  • The regulator can be understood and recognized as such by regulated firms and individuals. Moral hazard can increase: many may understand that all creditors protected by a supervisor will receive equal protection.

  • The regulator should "avoid problems" of duplication, gaps, inconsistencies, and competitive inequality that can arise with a regime that is based on several institutions. Maybe that "avoid" is too optimistic? Could be better to say "reduce"? And second, such regulator that could "avoid" inconsistencies, overlaps and duplication could become excessively bureaucratic and slow to confront changes in the financial world.

  • The single agency should minimize regulatory arbitrage (e.g., the placement of a financial product in that part of a conglomerate where the supervisory oversight is lowest). This arbitrage also can induce “competition in laxity,” or rush to the bottom. This last is not necessarily bad if the regulatory regime is not a corrupt one. It is not clear that contention of state growth is counter to the people's interests, and some argue otherwise.

  • Economies of scale can be gained (particularly with respect to skill requirements and recruitment of staff members). A single regulator might be more efficient because of shared resources (like shared IT systems). This might apply particularly to the “small-country” case (and small financial sector case). So maybe Australia, the Scandinavian countries and other small population countries can get the much heralded economies of scale, but these are almost ruled out by the WB in cases like the US and the UK. Besides, economies of scale, as in corporate life, may not happen, and X-inefficiencies may arise.

  • Deployment of staff members within a unified agency should be optimal, compared to the specialist and fragmented regulator. Experience in the corporate world says this same and the opposite.Rustomjee (2009, p. 34), shows this was not done well at the UK's FSA. Besides, that advantage can quickly disappear past some size limit.

  • If expertise in regulation is in short supply, expertise might be used more effectively if concentrated within a single agency, which also might offer better career prospects. Wrongly done, it could reduce prestige of the better workers, who may leave for the private sector.

  • Accountability of regulation also might be more certain with a simple structure if for no other reason than that it would be more difficult for different agencies to “pass the buck.” This can also happen among units of any organization. Besides, accountability might be more difficult if clear objectives are not defined, and definition of those in a single regulator can be more difficult to attain.

  • The costs imposed on regulated firms might be reduced if firms need to deal with just one agency; economies and greater effectiveness can be gained when all information about financial firms is within a single supervisor. Also there are opportunities for increased corruption, and more homogeneity of methods, computer models and even of vision, which runs counter to Alexander-Dhumale-Eatwell's description of increased homogeneity's dangers.

  • More complete coverage can be obtained, with less organizations slipping through the supervisory net because of confusion about which regulator is responsible. There should be less damaging disputes between agencies in a multiple-agency structure. Those happen frequently among any organization's units, regardless of size or structure.

  • A danger of a fragmented supervisor is that similar products are regulated differently because they are supplied by different types of financial firms, diminishing competitive neutrality. On the other hand, a single regulator could loss valuable information and a degree of competition and diversity in regulation – the case for not having a single regulator is alike that against any monopoly.


The WB authors recognize that the arguments for and against single prudential supervisors are "finely balanced, and the optimal structure is likely to vary between countries," depending on the country size, political considerations, past practices, and the structure of their financial system (i.e., whether it is comprised of conglomerate or specialized institutions).



The US: fragmented regulator


The US system is a cobweb of regulators created upon a confederation of states, each with its own rights of supervision in its own territory. This complex system has a good record of financial innovation are quite a big legacy of financially-driven prosperity than many other countries did not enjoy. Geithner (2008) argued that the regulatory system in the US has become


"a confusing mix of diffused accountability, regulatory competition, an enormously complex web of rules that create perverse incentives and leave huge opportunities for arbitrage and evasion, and creates the risk of large gaps in our knowledge and authority."



Among the many criticisms voiced against this system we can mention:

  • There is not enough emphasis in systemic risk management.

  • Not enough attention was given to conduct-of-business regulation. We think that the states do quite a decent job protecting the consumer.

  • FIs avoided supervision thru the establishment of SVIs and conduits to keep operations off-balance-sheet. Here we disagree a bit: everybody knew this was happening, just it was thought of as a clever way to deal with risks. But it was not done with the regulator unaware of this.

  • Little coordination resulted from the excessively fragmented structure, in which there was no lead agency. This had some effect in the crisis' genesis, but would like to add that the fact of not having such a leading supervisor is was a result sought by the lawmaker both in the federation and the states, afraid of concentration of power. This fear is an important consideration in the US.

  • The system didn't keep pace with market and technology innovation. Again, the lawmaker and the supervisors were aware of these developments, and thought them beneficial. And countries with a large, modern, sophisticated financial system with all technological means like Japan did experience a much softer banking crisis (although GDP took a great hit later).

  • The US regulator was surpassed by institutional innovation, like globalized, despecialized conglomerates, which exercised great regulatory arbitrage, avoiding capital adequacy and other limitations. But the BCBS taught that all single-family mortgages were much less risky than any commercial loan (regardless of the collateral provided, Martin S Feldstein, 1993)). And the lawmaker, supervisors and market operators thought that the CRAs computed the right ratings for those MBSs. That's why they bought them: they made money while reducing compliance costs and were keeping risks, everybody thought, manageable (Stiglitz, Orszag & Orszag, 2002).

  • The system is too costly. Brown (2007, pp.60-61) says total US regulatory costs are 16 and 117 times, respectively, than those in UK and Germany. Few defended that the FSA was innefficient, but following Brown's reasoning, US costs = 16*UK, US costs = 117*Germany, dividing we get UK costs = 7 times Germany costs. Who complains of this? Obviously there are other criteria to consider. Later she computes more realistic factors (down to 4 and 14 in p. 63). We'd like to add this thought: if in Spain there are four and in the UK there are three institutions working on banking, insurance and securities regulation and supervision, I think we can put 3 as a good average number for the 25 members in the EU. That is 76 institutions for 25 countries and EU. It is not so crazy to have 115 in the US fifty states, other territories and the federation.


Many proposals to rationalize the US system and its 115 regulators were made in the last decades (US Treasury Department 2008, Appendix B). We find merit in thinking that incremental change, as proposed in the US Treasury blueprint (Chapter IV, Short-Term Recommendations, and Chapter V, Intermediate-Term Recommendations), is likely to result in a better regulatory system than too pasionate proposals like Brown's (2007).


But at the same time we see:

  • An almost complete lack of criticism with the very perverse incentives that the lawmaker created in the US for inter alia the GSEs and the FHA (and those other quasi-governmental enterprises, the CRAs) to securitize sub-prime and non-prime loans as low-risk ones (Friedman, 2009, pp130-132, pp143-146).

  • That the US Treasury proposal (2008, figure in p.144) maybe is a very reductionist one: making approving reference to the Australian case, the great heterogeneity of FIs in the US and the enormous differences in FIs and among a 300-million population country and tens-of-million populations in Australia, Nerderlands or Scandinavia are arguably not adequately accounted for. We think that is apparent the risk that the amount of knowledge that can be transferred from those unified regulator experiences to the US is small.

  • That the prudential supervision system built in the last decade worked apparently well in a very diverse group of countries in all continents, that is, many fragmented supervision systems did well in 2007-2009. This, incidentally, again stresses the first point, that is, wrong incentives by the lawmaker that were not present in other countries.

  • Add to this that low-taxation, lighly regulated jurisdictions, like the OFCs, are doing well too.
  • In corporate life there are many subdivisions and duplicative structures, and they are purposefully so.


The UK: unified model


The Northern Rock and UK interbank lending crises, a period in which the BoE, the FSA and the Treasury didn't coordinate effectively and gave a sorry spectacle of decisions and counterdecisions (like accepting MBSs as collateral to provide LOLR support, and changing the rules of the deposit insurance system, making it wider and deeper), is an example of real operation of the fully unified regulatory model in a large, sophisticated system like the UK's when times are difficult. Where we should have seen efficiencies we got to varying degrees high staff turnover, lack of specialists, lack of training, and regulatory paralysis.


Indeed, we got not even accountability: we are not aware of many staff ousted in any of the three agencies. On the contrary, FSA's Turner directs almost no criticism to the regulators in his speeches, just to the easy targets, and FSA's Hector Sants (2009) spells the end of the light-touch regulator with no reference to Parliament – he also speaks of contracting hundreds of supervisors for his agency. In the end, the UK will get micromanagement and a large bureaucracy with a lot of personnel and new in-house complex models and supporting computer systems, ending the savings promised.


The WB (2005) report comments on the case of Ireland and Finland, where economies of scale in infrastructure, information technology, and services were achieved by locating the agencies at the same place and by sharing resources while "nevertheless, maintaining strict separation of regulatory and supervisory" policy and practice. This is not much discussed, but maybe some variation of these intermediate solutions could be considered.



Views from corporate life


Big global firms, like Siemens or IBM, with more than 350 000 employees/contractors, have organizational problems according to their size and worldwide presence. As example: in corporate life there is a maxim about how individual divisions, project portfolios, businesses lines, products, activities, and people should be shed, and shed annually. Why is this constant pruning a rule? A reason is that there are no perfect institutional arrangements, activities, goals or teams. In the central banks and other supervisory agencies they talk (thru their officials' speeches) as if it were possible to find the perfect organization, and make it last indefinetely.


In those private, global, very dynamic organizations they live a constant review processes to make things better (although there is no much hope of ever arriving at the "this is the best organization" state). There are audits in several areas: "money" fraud (external fraud, internal controls, etc.), technological security (network security, computer security, physical access to buildings, laboratories, etc.), and quality assurance/risk management ("quality inspection" of software, of physical components, and of processes). There are several "internal affairs divisions," so to speak. That's why we cannot be too critical with the US system. Supervisory system, that is, because the lawmaker's wrong incentives are arguably worse than the too complex supervision.


This discovery program in corporations is arguably better fine tuned than what the lawmaker can design. We see no discussion about large companies "detectives" or "inspectors," or about structure reform programs, in the papers or speeches by central bankers. We see in central bankers, which work with really big companies (Sumitomo, Deutsche Bank), lack of awareness of the optimizing work permanently being done in the corporate world. This is in full display in the WB/IMF (2005) report. An exception seems to be the Walker Review (2009), that published a chapter on 'Governance of risk' on November which seems more acquainted with real corporate practice than other studies.


So yes, structure is important, but: 1 other things are first (the prerequisites of Abrams & Taylor supra), 2 those supervision tasks are also done in the supervised companies and in much bigger organizations and are seldom discussed and it seems few things are to be learnt from them, and 3 why do we think that legislative action can do a better, faster job of reforming structures than the reform processes in firms if those reforms are very, very difficult and need a constant re-work? We cannot say which of three seems more important to us.


Then, after so much conflicting data, so much questions, so few support from those in the "real world," so to speak, of corporations, why is there so much fuss about unification? Here we cannot avoid to be cynical. It is true than recent developments (financial services innovation and globalization, the emergence of international financial conglomerates, the lessons from repeated episodes of financial crisis in some countries, lessons of best (and worst) practice from other countries (WB, 2005), make an influence in the lawmaker and its counsels, but to us this very much seems a pendular experiment.


We wonder whether all this emphasis on unification could be one of those efforts by the lawmaker to appear as active (as it is demanded by the people), doing something after what happened in the 1987-2000 crisis, even if we need still more time to learn more about organization and structure.


If the lawmaker ends thinking that crises were not prevented by unified regulators like FSA, as also happened with the non-unified ones, soul-searching will start in earnest and the interest in unified regulators will fall out of favor.



References


Abrams, R and M Taylor (2002) ‘Issues in the Unification of Financial Sector Supervision’, Chapter 6 in Charles Enoch, David Marston and Michael Taylor (eds) Building Strong Banks Through Surveillance and Resolution, Washington, DC: International Monetary Fund.

[A previous version is downloadable in PDF: Abrams, Richard K. & Michael Taylor 2000 'Issues in the Unification of Financial Sector Supervision'. IMF Working Paper No. 00/213. Washington, DC: International Monetary Fund. http://www.imf.org/external/pubs/cat/longres.cfm?sk=3939.0]


Alexander K, R Dhumale and J Eatwell (2006) 'Global Governance of Financial Systems: The International Regulation of Systemic Risk'. Oxford: Oxford University Press.


Brown, Elizabeth (2007) ‘E Pluribus Unum – Out of Many: Why the United States Needs a Single Financial Services Agency’, University of Miami Business Law Review, Fall/Winter. Ask for a PDF.


Feldstein, M (1993), Comment to Boyd and Gertler (1993), p 375, in John Boyd & Mark Gertler, US Commercial Banking - Trends, Cycles and Policy, in NBER Macroeconomics Annual 1993, Volume 8, Olivier Blanchard and Stanley Fischer (eds), MIT Press. http://www.nber.org/chapters/c11003


Financial Stability Institute (2007) ‘Institutional Arrangements for Financial Sector Supervision’, Occasional Paper No. 7, Basel, Switzerland: Financial Stability Institute, BIS. http://www.bis.org/fsi/fsipapers07.htm


Friedman J (2009) ''A Crisis of Politics not Economics – Complexity, Ignorance, and Policy Failure'. October. Critical Review 21(2–3): 127–183. Oct 2009. DOI: 10.1080/08913810903030980


Geithner, T (2008) ‘Reducing Systemic Risk in a Dynamic Financial System’, Remarks at The Economic Club of New York, 12 June 2008, Federal Reserve Bank of New York. http://www.newyorkfed.org/newsevents/speeches/2008/tfg080609.html


Goodhart, C (2000) ‘The Organisational Structure of Banking Supervision’, FSI Occasional Paper No. 1, November, Basel, Switzerland: Financial Stability Institute, BIS. http://www.bis.org/fsi/fsipapers01.pdf


Rustomjee, C (2009) 'Bank Regulation and the Resolution of Banking Crises, Unit 6'. London: School of Oriental and Management Studies-CeFiMS.


Sants, H (2009) 'Speech at Bloomberg'. UK FSA, Nov 09, 2009, http://www.fsa.gov.uk/pages/Library/Communication/Speeches/2009/1109_hs.shtml


In the past, the FSA was primarily reactive, only making interventions on readily observable facts and adhering to the view that it should leave management to make its own decisions.


Intensive supervision, in contrast, focuses on the risks inherent in a firm’s business model and enables us to be proactive and not reactive to the management of these risks.


Our outcomes-focused philosophy requires supervisors to judge firms on the likely consequences of their decisions.


This means the proportion of our time spent looking at systems and controls will diminish relative to our focus on assessing the outcomes of a firm’s actions. This will necessarily be controversial at times, as our view and the firm’s view will not always coincide.


This divergence of judgement can normally be resolved, but the FSA recognises that this new approach may create tensions and will certainly no longer be seen as light touch!


To enable us to deliver on this approach we have equipped ourselves both to forecast and test outcomes. This capacity is needed to enable us to effectively make judgements on the judgements firms are making.


The forecasting element requires in-house modelling capability, such as that we now have for capital and liquidity. This does of course require more data to be collected from firms. And it will involve us looking more closely at the risks, both prudential and conduct, inherent in the product; from development to expiry.


The testing element requires supervisory resource to be devoted to an inspection-based approach to individual transactions.


Sinclair, Peter JN (2000) ‘Central Banks and Financial Stability’, Bank of England Quarterly Bulletin, November: 377–89. http://www.bankofengland.co.uk/publications/quarterlybulletin/qb000403.pdf


Stiglitz J, Orszag J & Orszag P (2002) 'Implications of the New Fannie Mae and Freddie Mac Risk-Based Capital Standard'. Fannie Mae Papers, Volume I, Issue 2, March. Ask for a PDF.


US Treasury Department (2008) ‘The Department of the Treasury Blueprint for a Modernised Regulatory Financial Structure’ (April), Washington, DC: US Treasury Department.


The Walker Review (2009) 'A review of corporate governance in UK banks and other financial industry entities: Final recommendations'. November 26, 2009. http://www.hm-treasury.gov.uk/d/walker_review_261109.pdf (PDF 823KB)

All documents of this review: http://www.hm-treasury.gov.uk/walker_review_information.htm


WB (The International Bank for Reconstruction and Development/The World Bank/The International Monetary Fund) (2005) 'Financial Sector Assessment: A Handbook', Appendix F: ’Institutional Structure of Financial Regulation and Supervision’. Washington, DC: IBRD/WB/IMF.



Glossary


BCBS: Basel Committee on Banking Supervision

BIS: Bank of International Settlements

BoE: Bank of England

ECB: European Central Bank

CRA: credit rating agency

FHA: Federal Housing Administration

FI: financial institution

FSA: Financial Services Authority

IBRD: International Bank for Reconstruction and Development

IMF: International Monetary Fund

GBS: Global Business Services

GSE: government-sponsored enterprise, government-sponsored entity

MBS: Mortgage-backed security

OFC: offshore financial center

S&L Associations: Savings and Loans Associations

SVI: structured investment vehicle

WB: World Bank

Comentarios al post "California: Caos democrático" en Abilene blog

Comentarios al post "California: Caos democrático" en Abilene blog
Dec 28, 2009

hola, creo que hay varias cosas que no acaban de capturar realmente la esencia de las diferencias del sistema federal y el europeo continental:

Con este hecho se demuestran las dificultades de articular estados en los que gobiernan políticos cuyas ideologías y planes de acciones han resultado fracasadas.

A qué ideologías se refieren? Porque las dos cámaras son, sorpresa, de mayoría demócrata, cosa que no sé si se puede deducir del artículo (aunque sí del artículo de P Krugman). Parece, de otros trozos del mismo, que se refiere a que los fracasados son los republicanos.

Me parece ver aquí una habitual confusión: en política europea el primer ministro es elegido en la cámara popular, vamos a decir, por lo que muy difícilmente piensan distinto la mayoría de la cámara y el Ejecutivo (salvo el caso italiano), mientras que en los EE UU lo normal es que haya dos cámaras iguales (puede haber una) y el Ejecutivo sea elegido al margen de las mismas. Gobiernan todos, el Legislativo y el Ejecutivo. No hay que confundir gobernador o presidente federal con mayoría en la cámara baja, que es el caso de aquí.

Acerca de esto otro:

Los ciclos legislativos desfasados del ciclo del país provocan que mientras hay una renovación política en EEUU, aun siguen gobernando en algunos estados las anteriores corrientes de poder (recordemos que en las elecciones generales B. Obama se proclamó vencedor en California, A. Schwarzenegger es republicano).

un par de cosas:

- Lo de “siguen gobernando en algunos estados las anteriores corrientes de poder” da la impresión de que el autor cree que, ya que en las elecciones federales ha habido mayorías demócratas en las cámaras federales y el Ejecutivo federal, por ello debería haber casi 50 de los 50 estados con mayorías demócratas en Legislativo y Ejecutivo. Esto es totalmente ajeno a cómo funciona el sistema. De hecho, más o menos la mitad de los estados son republicanos y más o menos la mitad son demócratas, simplificando. Eso es al margen de quién consiga la presidencia federal.

- Como dije antes, las dos cámaras son demócratas (lo que hace que se vea especialmente flojo el análisis sociológico de “Sólo una minoría de los californianos se molesta en votar habitualmente, los votantes tienden a ser mayores, más blancos y más ricos que la mayoría predominante de la población”, según eso y las creencias del autor debería haber mayoría republicana en ambas cámaras). Que el gobernador sea republicano (y muchos republicanos dirían que es un RINO, Republican In Name Only) es irrelevante para esta discusión. Lo que falta es una mayoría suficiente de demócratas en las cámaras, pero si la gente prefiere la parálisis (y es bastante común tener el Ejecutivo de un partido y las cámaras o al menos una de ellas con mayoría de otro partido opuesto, ejemplo parálisis en la época Clinton), es lo que se necesita en ese momento, aunque visto desde Europa parezca incomprensible.

Por último, cree de verdad el autor que P Krugman es parte desinteresada en los análisis? Cree que se le puede recomendar como lectura única, sin equilibrar con otra visión después de frases como éstas?:

. “los miembros restantes del partido [republicano] se han vuelto cada vez más radicales, cada vez menos interesados en la labor de gobernar.”

. “el creciente extremismo del partido [republicano]”

. “Dicho sin rodeos: los últimos acontecimientos indican que el Partido Republicano se ha vuelto loco al perder el poder”

. “Los pocos moderados que quedaban [entre otras cosas] han huido”

Los que votan republicano son, como los que votan demócrata, cerca de la mitad del electorado y más o menos del país. Acusar a cualquiera de las mitades de creciente extremismo, haberse vuelto locos, haber hecho huir a los moderados, o estar boicoteando la labor de gobierno revela los odios y amores del profesor, que no parece una fuente que los historiadores puedan citar en el futuro sin añadir inputs de otras fuentes.

Sunday, December 27, 2009

No Place to Write Detention Policy

No Place to Write Detention Policy. By Benjamin Wittes, and Jack Goldsmith
Brookings, December 22, 2009

Since U.S. forces started taking alleged terrorists to Guantanamo Bay, Cuba, the task of crafting American detention policy has migrated decisively from the executive branch to federal judges. These judges, not experts in terrorism or national security and not politically accountable to the electorate, inherited this responsibility because of the Supreme Court's intervention in detention policy. Over time they maintained it because legislative and executive officials of both political parties refused to craft a comprehensive legislative approach to this novel set of problems that cries out for decisive lawmaking.

Many commentators have complained about this state of affairs and the contradictory and incoherent body of law it is producing and have urged the political branches to enact legislation to create a uniform and democratically legitimate detention policy.

Now a more important voice has joined the call for legislative reform.

Judge Thomas F. Hogan of the U.S. District Court in Washington is one of the most respected federal district judges on the bench. And he has a particularly informed view of the disarray of modern detention policy. Not only is he one of the judges hearing detainee habeas appeals, but he was asked by most of his judicial colleagues to consolidate and manage common issues in their cases. He is, in short, one of the people to whom Congress has effectively delegated the task of writing these rules -- a person with as holistic and in-the-weeds an understanding of the issues as is possible.

Last week, in ruling on the merits of a detainee's case, he issued a scathing indictment of the current litigation and an urgent plea for congressional participation in cases that "go to the heart of our judicial system."

"It is unfortunate," he said in an oral opinion from the bench, "that the Legislative Branch of our government and the Executive Branch have not moved more strongly to provide uniform, clear rules and laws for handling these cases." While allowing that the various judges were "working very hard and in good faith," he lamented that "we have different rules and procedures being used by the judges," as well as "different rules of evidence" and "a difference in substantive law." For Judge Hogan, it all "highlights the need for a national legislative solution with the assistance of the Executive so that these matters are handled promptly and uniformly and fairly for all concerned."

Congress has avoided these issues for a number of reasons. Initially, it was a combination of the Bush administration's failure to seek congressional help and lawmakers' natural inclination to avoid taking responsibility for hard decisions for which they might later be held accountable. More recently, the Obama administration has been loath to spend any more political capital than necessary in cleaning up what it views as its predecessor's messes. Instead of dealing with detention policy proactively, it has largely adopted the Bush approach of grinding out detention policy in the courts. Ironically, the president's political base seems to prefer his adoption of the Bush approach -- an approach liberals previously decried -- to any effort to write detention rules and limitations into statutory law.

As Judge Hogan made clear, this is a bad way to craft policy. It generates uncertainty about the lawful parameters of detentions, ensures longer adjudication times and lessens accountability for difficult decisions.

The Guantanamo closure process and the appropriations process for the new terrorist detention facility in Illinois offer a perfect opportunity to correct this long-festering problem. The administration will have to work with Congress, if only to permit Obama to move detainees to the new site. Yet if legislation stops there, the political branches can congratulate themselves only on moving the location of terrorist detention and not on strengthening and clarifying detention policy.

By contrast, if Congress and the administration were inclined to perform their constitutional duties, they could draw on eight years of judicial decisions, legal briefs and scholarship to craft clear, stable rules. There are myriad issues for a responsible Congress to address, but at a minimum it should offer a clear definition of who can be detained, a coherent set of evidentiary and procedural rules to determine who fits the definition of an enemy, and guidance concerning the scope of the government's obligation to disclose evidence to detainees' lawyers.

The goal, simply put, should be to replace what Judge Hogan called "procedures drawn up by the court, and principally [by] myself . . . in a new venue that has been untested" with one that carries the legislature's stamp and the president's signature, and that answers some of the hard policy questions our political institutions have punted to the courts. The courts' job, in such a world, would be to adjudicate detainee cases, rather than to write conflicting rules that they then have to apply.

'He Just Does What He Thinks Is Right'

'He Just Does What He Thinks Is Right'. By Peggy Noonan
WSJ, Dec 26, 2009

Cannon to the left of him, cannon to the right of him, cannon in front of him volley and thunder. That's our president's position on the political battlefield now, taking it from all sides. And the odd thing, the unique thing in terms of modern political history, is that no one really defends him, no one holds high his flag. When was the last time you put on the radio or TV and heard someone say "Open line Friday—we're talking about what it is we like best about Barack Obama!" When did you last see a cable talking head say, "The greatness of this man is as obvious as it is unnoticed"?

Is the left out there on the Internet and the airwaves talking about him? Oh, yes. They're calling him a disappointment, a sellout, a DINO—Democratic in name only. He sold out on single-payer health insurance, and then the public option. He'll sell you out on your issue too.

The pundits and columnists, dreadful people that they are, call him cold, weak, aloof, arrogant, entitled.

So let's denounce him again.

Wait—it's Christmas. Let's not. There are people who deeply admire the president, who work with him and believe he's doing right. This week, this column is their forum. They speak not for attribution to avoid the charge of suckupism.
***

We start with a note from an accomplished young man who worked with Mr. Obama on the campaign and in the White House. He reminded me this week of a conversation we'd had shortly before the president's inauguration. "I remember you asked me back in January if I loved my guy. And in light of all that's happened in this first year, I still do. Even more so. And I also have a strong sense—based not just on polls but on a lot of folks I've talked to who don't always pay attention to politics—that he DOES have that base of people who still love him too.

"It's hard to detect, because the part of the 'base' that's represented on cable and on blogs is so vocal (and by vocal I mean shrill), but it's there. I also read it in the letters he gets. Some of them are amazingly poignant and appreciative of what he's done and what he's doing. Some of them are tough—very tough—but still respectful and hopeful that he's doing the right thing. Even if they're unsure right now, they want him to succeed. . ."

He sees them as a kind of quiet majority, or at least quiet-but-large-group-within-the-electorate.

"[T]hey're not going to run out and defend him on the blogs or start screaming back at his detractors, because they know its fruitless and they're sick of all that Washington nonsense anyway." They want him to cut through the mess and "get things done for them. And they're willing to give him that chance. Still."

The president, he suggested, tends toward the long view and the broad view. "Here's what I know about him. He still has this amazing ability to tune out the noise from Washington, read the letters from the people, listen to their concerns, listen to his advisors, hear both sides, absorb all the information, and make the decision that he honestly feels is right for the country."

He does this "without worrying too much about the polls, without worrying too much about being a one-term president. He just does what he thinks is right. And that consumes a lot of his time. Most of it, in fact."

He is aware that Obama is "perceived as alternately too weak and too Chicago, too left and too right, too willing to compromise and too beholden to his majority, too detached and too much meddling in too many things." The administration needs "to do better in resetting the story and telling it the way we want it told." But "the fractured, petty, biased-towards-the-sensational media today makes that more difficult than ever before."

He knows now, he said, "how the Bushes and the Clintons must have felt," and wonders "if that just happens to all White Houses. I don't know. But I do know that we have some very big, very unique problems right now. And we live in a very cynical . . . time where it's difficult to maintain the benefit of the doubt as you're navigating through the storm." They're giving it their best. "Lots of good people are trying. We won't fix it all, but I think we'll succeed (and think that in some cases, we already have!) at fixing a good deal."
***

Another staffer spoke warmly of President Obama's warmth. "He's interested in who you are, and it's not manufactured." He sometimes finds himself briefing the president before events. "I know he's just come out of a meeting on Afghanistan" and maybe the next meeting isn't as important, but he wants to know who they are and where they're from and has a gift for "making them feel important."

"He's a young president, young in terms of youthful." Sometimes people come in to meet him and find "they came for a photo and he gives them a game" of pick-up basketball on the White House court. "Those are the things from a human perspective that make him so accessible. Accessible is the right word. He's emotionally available."

He is appreciative of his staff's efforts. "When you're working hard for your country and you know [he cares] it is huge." How does he show his thanks? "It's a little like a basketball game—'Thanks for that, I know what you did.' It's not a note or a pat or a call, it's a guy-to-guy thank you, 'That's cool, that's good.' You think, 'My coach got that I worked my ass off.'"

"As a person he is just an incredible human being who you can't help but love."

A third Obama staffer spoke of last week's senior staff dinner, at which the president went around the table and told each one individually "what they meant to him, and thanked the spouses for putting up with what they have to put up with." He marks birthdays by marching in with cakes. He'll walk around the White House, pop into offices and tease people for putting their feet on the desk. "Sometimes he puts his feet on the desk." He's concerned about much, but largely unruffled. "He's not taken aback by the challenges he has. He seems more focused than he's ever been. He's like Michael Jordan in that at the big moments everything slows down for him." He's good in the crunch.
***

I end with a story told to me by an old Reagan hand who, with another former Reagan administration official, was being given a private tour of the White House by Michelle Obama. This was last summer. Mrs. Obama led the two through the halls, and then they stopped by the Lincoln bedroom. They stood in the doorway, and then took a step inside, but went no deeper. Everything looked the same, but something was different. "We don't allow guests to stay in this room anymore," Mrs. Obama explained. She spoke of it as a place of reverence. They keep it apart, it's not for overnights.

Unspoken, but clearly understood by the Reagan hands, was: This is where he signed the Emancipation Proclamation. A true copy of it is here, on the desk. He signed it: "Abraham Lincoln." The Reagan hands were impressed and moved. It is fitting and right that the Lincoln bedroom be held apart. It always should have been. Good, they thought. Good.

Tuesday, December 22, 2009

The credit raters lose their oligopoly

One Cheer for Barney Frank. WSJ Editorial
The credit raters lose their oligopoly.
WSJ, Dec 23, 2009

The House-passed rewrite of financial regulation is a disappointment for investors and taxpayers. But one portion of the bill represents significant reform—and a vast improvement from an early draft we described in October.

Congressmen Barney Frank and Paul Kanjorski (D., Pa.) have produced legislation that would likely end the credit-ratings racket enjoyed by Standard & Poor's, Moody's and Fitch. During the housing bubble, these government-anointed judges of credit risk slapped their triple-A ratings on billions of dollars of mortgage-backed securities. The consequences for investors were catastrophic.

The Frank-Kanjorski provision that recently passed the House not only eliminates all laws that require the use of these "Nationally Recognized Statistical Ratings Organizations." The bill also instructs all the major financial regulators to remove such requirements from their rules. This is a subtle but enormously important change from the October draft, because most of the federal edicts that guaranteed profits for S&P and the gang were contained in agency rules, not laws.

The House-passed bill also repeals an exemption that credit-raters have enjoyed from the Securities and Exchange Commission's Regulation Fair Disclosure. No longer will they have access to corporate information that is denied to average investors.

Also removed from the bill was a bizarre "joint liability" scheme in which all the credit raters would be responsible for each other's work, so that a bad report by Fitch could be grounds for a lawsuit against Moody's. Unable to restrain themselves entirely from bestowing gifts upon trial lawyers, House Democrats have instead increased liability for the raters on their own work.

The Senate should avoid such public display of affection toward the plaintiffs bar but embrace the House language that strikes at the heart of the ratings cartel. Obliterating investor requirements to use credit-ratings agencies would amount to major reform all by itself. Perhaps the House and Senate should simply agree on that, pass a bill now, and then start over with a new mission for regulatory reform: break up the too big to fail racket.

Jackson Toby's "The Lowering of Higher Education in America"

On Campus, Unprepared. By BEN WILDAVSKY
Colleges are filled with unserious students learning too little. What should be done?
WSJ, Dec 23, 2009

When President Barack Obama announced earlier this year that the U.S. should aim to have the world's highest proportion of college graduates by 2020, he was staking out an ambitious but hardly a maverick goal. It is widely recognized, by Republicans and Democrats alike, that the gap between the earnings of high-school graduates and college graduates has become a chasm in recent decades. More college graduates would mean more prosperity for individuals—and for the nation, too. Bowing to this logic, governments around the world—from China and India to the Middle East—are trying to boost college attendance for their knowledge-hungry populations.

As Mr. Obama's goal suggests, there is plenty of room for improvement in the U.S. While nearly seven in 10 high-school graduates go on directly to two- or four-year colleges (up from 49% in 1972), many students are poorly prepared for college and end up taking remedial courses. And huge numbers fail to graduate. Reformers believe, not without reason, that such problems can be solved in part by improved high-school preparation and better college instruction. But is it possible that aiming to increase the number of American college graduates is actually a fool's errand?

A few skeptics think so. Most prominent among them is Charles Murray, who in "Real Education" (2008) argued that most young people are just not smart enough to go to college and should be encouraged to take other paths instead, especially vocational training. Now comes Jackson Toby with "The Lowering of Higher Education in America," a provocative variation on Mr. Murray's theme.

Mr. Toby draws on social-science data as well as personal experience—he taught sociology at Rutgers University for 50 years before retiring a few years ago—to decry the intellectual conditions that prevail on the American campus. Sidestepping the matter of students' innate abilities, he blames low academic standards mostly on the easy availability of financial aid to undergraduates who are unqualified for college-level coursework.

Early on, Mr. Toby concedes that education has become the country's "main economic escalator." But he is alarmed at how few students are prepared to meet even the minimal demands of a real college education. He faults lax college-admission standards that give high schools little incentive to push their students harder. Too many undergrads can't write with minimal competence or understand basic cultural references. Students often take silly, politicized courses. And they feel entitled to inflated grades: Mr. Toby reports that one of his students spewed obscenities at him for ending the young man's straight-A record.

Perhaps this kind of experience accounts for Mr. Toby's seeming bitterness toward unserious students, whom he calls "unprepared, half-asleep catatonics who drift in late and leave early." Most undergrads, Mr. Toby suggests, enjoy a steady diet of extracurricular hedonism while skating through their coursework (though it's unclear how this claim jibes with his complaints about low graduation rates).

Worst of all, he says, students have been misled about the value of their degrees. Yes, a bachelor of arts degree commands a wage premium, but less because of a graduate's acquired knowledge than because of the signal that his degree sends to employers about the abilities that got him into college and about a variety of soft skills, such as reliability and problem-solving capacity. Graduates in undemanding majors—in the humanities, for example, or most of the social sciences—are unlikely to earn what their more studious counterparts in, say, engineering can. They are thus disproportionately likely to be saddled with debt and prone to default, Mr. Toby argues. He claims that this pattern amounts to the kind of unsound lending that led to our recent credit crisis—one that he darkly suggests may soon be repeated in higher education. He believes that today's "promiscuous" system of college grants and loans—which, at the federal level, is based largely on financial need—ought to be retooled to focus on academic merit.

But his platform is less radical than his book's subtitle promises ("Why Financial Aid Should Be Based on Student Performance"). He acknowledges that quite a few states already have merit-based aid. And in a concession to political reality he would continue the federal Pell Grant program, which focuses on need alone. Mr. Toby's main proposal, then, is to require good grades and test scores from those seeking federal student loans. This requirement, he believes, would improve incentives for academic performance and mitigate the inevitable trade-off between widening access to college and maintaining educational standards.

Strangely, Mr. Toby does not address the biggest objection to merit aid, which is that it usually subsidizes middle- and upper-income students who would go to college anyway. By contrast, need-based aid often provides make-or-break help to low-income applicants: Without grants and student loans, they would probably not go to college at all.

Mr. Toby sees reduced college opportunities as the price of keeping under-prepared students off campus. But that is one trade-off we should not make, especially when a college degree carries so much value in the marketplace. Our vast and varied college system, to its credit, enrolls all sorts of students. Mr. Toby delineates the system's manifold shortcomings, which badly need to be remedied. And to be sure, academic merit deserves a place in our financial aid system. But the indisputable benefits of college ought to be spread more widely, not less.

Mr. Wildavsky, a senior fellow at the Kauffman Foundation and a guest scholar at the Brookings Institution, is the author of "The Great Brain Race: How Global Universities Are Reshaping the World," to be published next spring.

Sometimes the good guys do commit 'war crimes'

The Real Rules of War. By WARREN KOZAK
Sometimes the good guys do commit 'war crimes.'
WSJ, Dec 23, 2009

Five years ago, a particularly gruesome image made its way to our television screens from the war in Iraq. Four U.S. civilian contractors working in Fallujah were ambushed and killed by al Qaeda. Their bodies were burned, then dragged through the streets. Two of the charred bodies were hung from the Euphrates Bridge and left dangling.

This barbaric act left an impression that our military did not forget: In a special operation earlier this year, Navy SEALs captured the mastermind of that attack, Ahmed Hashim Abed. But after he was taken into custody in September, Abed claimed he was punched by his captors. He showed a fat lip to prove it. Three of the SEALS are now awaiting a courts-martial on charges ranging from assault to dereliction of duty and making false statements.

This incident and its twisted irony takes me back to an oddly serene setting many years ago. When I was in college, I joined my parents on a trip to retrace my father's wartime experience in Europe. We drove from France, through Holland and Belgium and on to Germany—the same route he had taken with the U.S. Army in 1944-45. At a field outside the Belgian town of Malmedy, we got out of our rented car where my father described something I had never heard before.

During the Battle of the Bulge, in the bleak December of 1944, the Germans had quickly overrun the American lines. They took thousands of prisoners as they pushed through in a last chance gamble to turn the war around. One unit, part of the First SS Panzer Division, had captured over a hundred GIs. They were moving fast, and they didn't care to be burdened by prisoners. So the SS troops put the American soldiers in that field and mowed them down with machine guns.

Around 90 Americans were killed in that barrage. The Germans then walked through the tangle of bodies, shooting those who were still alive in the back of the head. The few that survived were brought to where my father was located in the nearby town of Liege where word of the massacre quickly spread.

My father was never a talker. And in spite of the fact that we were on a trip to look at his past, he didn't open up much, or couldn't. When I asked him what the reaction was among the U.S. troops, he answered without emotion: "We didn't take prisoners for two weeks." I immediately understood what he meant, and had the sense not to press the issue any further. I just looked out at the field, now green and peaceful on a beautiful summer day, and realized he was looking at the same field and seeing something quite different.

In the weeks following the Malmedy massacre, U.S. troops clearly broke the rules of the Geneva Conventions. Justified or not, they were technically guilty of war crimes.

My guess is that the American correspondents imbedded with those troops knew all about this and chose not to report it. So did their officers. They understood the gravity of the war, as well as the absolute importance of its outcome. And they understood that disclosing this information might ultimately help the enemy. In other words, they used common sense. Was the U.S. a lesser country because these GIs weren't arrested? Was the Constitution jeopardized? Somehow it survived.

You don't have to dig too deep to understand that war brings out behavior in people that they would never demonstrate in normal life. In Paul Fussell's moving memoir, "The Boys' Crusade," the former infantryman relates a story about the liberation of Dachau. There were about 120 SS guards who had been captured by the Americans. Even though the Germans were being held at gunpoint, they still had the arrogance—or epic stupidity—to continue to heap verbal abuse and threats on the inmates. Their American guards, thoroughly disgusted by what they had already witnessed in the camp, had seen enough and opened fire on the SS. Some of the remaining SS guards were handed over to the inmates who tore them limb from limb. Another war crime? No doubt. Justified? It depends on your point of view. But before you weigh in, realize that you didn't walk through the camp. You didn't smell it. You didn't witness the obscene horror of the Nazis.

Rules of war are important. They are something to strive for as they separate us from our distant ancestors. But when only one side follows these rules, they no longer elevate us. They create a very unlevel field and more than a little frustration. It is equally bizarre for any of us to judge someone's behavior in war by the rules we follow in our very peaceful universe. We sit in homes that are air-conditioned in the summer and warmed in the winter. We have more than enough food in our bellies and we get enough sleep. The stress in our lives won't ever match the stress of battle. Can we honestly begin to decide if a soldier acted in compliance with rules that work perfectly well on Main Street but not, say, in Malmedy or Fallujah?

In his book, Mr. Fussell probably sums up the feelings of many soldiers when he quotes a British captain, John Tonkin, who experienced a great deal of the war. "I have always felt," Capt. Tonkin said, "that the Geneva Convention is a dangerous piece of stupidity, because it leads people to believe that war can be civilized. It can't."

Mr. Kozak is the author of "LeMay: The Life and Wars of General Curtis LeMay" (Regnery, 2009).

Time for a Climate Change Plan B

Time for a Climate Change Plan B. By NIGEL LAWSON

The world's political leaders, not least President Barack Obama and Prime Minister Gordon Brown, are in a state of severe, almost clinical, denial. While acknowledging that the outcome of the United Nations climate-change conference in Copenhagen fell short of their demand for a legally binding, enforceable and verifiable global agreement on emissions reductions by developed and developing countries alike, they insist that what has been achieved is a breakthrough and a decisive step forward.

Just one more heave, just one more venue for the great climate-change traveling circus—Mexico City next year—and the job will be done.

Or so we are told. It is, of course, the purest nonsense. The only breakthrough was the political coup for China and India in concluding the anodyne communiqué with the United States behind closed doors, with Brazil and South Africa allowed in the room and Europe left to languish in the cold outside.

Far from achieving a major step forward, Copenhagen—predictably—achieved precisely nothing. The nearest thing to a commitment was the promise by the developed world to pay the developing world $30 billion of "climate aid" over the next three years, rising to $100 billion a year from 2020. Not only is that (perhaps fortunately) not legally binding, but there is no agreement whatsoever about which countries it will go to, in which amounts, and on what conditions.

The reasons for the complete and utter failure of Copenhagen are both fundamental and irresolvable. The first is that the economic cost of decarbonizing the world's economies is massive, and of at least the same order of magnitude as any benefits it may conceivably bring in terms of a cooler world in the next century.

The reason we use carbon-based energy is not the political power of the oil lobby or the coal industry. It is because it is far and away the cheapest source of energy at the present time and is likely to remain so, not forever, but for the foreseeable future.

Switching to much more expensive energy may be acceptable to us in the developed world (although I see no present evidence of this). But in the developing world, including the rapidly developing nations such as China and India, there are still tens if not hundreds of millions of people suffering from acute poverty, and from the consequences of such poverty, in the shape of malnutrition, preventable disease and premature death.

The overriding priority for the developing world has to be the fastest feasible rate of economic development, which means, inter alia, using the cheapest available source of energy: carbon energy.

Moreover, the argument that they should make this economic and human sacrifice to benefit future generations 100 years and more hence is all the less compelling, given that these future generations will, despite any problems caused by warming, be many times better off than the people of the developing world are today.

Or, at least, that is the assumption on which the climate scientists' warming projections are based. It is projected economic growth that determines projected carbon emissions, and projected carbon emissions that (according to the somewhat conjectural computer models on which they rely) determine projected warming (according to the same models).

All this overlaps with the second of the two fundamental reasons why Copenhagen failed, and why Mexico City (if our leaders insist on continuing this futile charade) will fail, too. That is the problem of burden-sharing, and in particular how much of the economic cost of decarbonization should be borne by the developed world, which accounts for the bulk of past emissions, and how much by the faster-growing developing world, which will account for the bulk of future emissions.

The 2006 Stern Review, quite the shoddiest pseudo-scientific and pseudo-economic document any British Government has ever produced, claims the overall burden is very small. If that were so, the problem of how to share the burden would be readily overcome—as indeed occurred with the phasing out of chorofluorocarbons (CFCs) under the 1987 Montreal Protocol. But the true cost of decarbonization is massive, and the distribution of the burden an insoluble problem.

Moreover, any assessment of the impact of any future warming that may occur is inevitably highly conjectural, depending as it does not only on the uncertainties of climate science but also on the uncertainties of future technological development. So what we are talking about is risk.

Not that the risk is all one way. The risk of a 1930s-style outbreak of protectionism—if the developed world were to abjure cheap energy and faced enhanced competition from China and other rapidly industrializing countries that declined to do so—is probably greater than any risk from warming.

But even without that, there is not even a theoretical (let alone a practical) basis for a global agreement on burden-sharing, since, so far as the risk of global warming is concerned (and probably in other areas too) risk aversion is not uniform throughout the world. Not only do different cultures embody very different degrees of risk aversion, but in general the richer countries will tend to be more risk-averse than the poorer countries, if only because we have more to lose.

The time has come to abandon the Kyoto-style folly that reached its apotheosis in Copenhagen last week, and move to plan B.

And the outlines of a credible plan B are clear. First and foremost, we must do what mankind has always done, and adapt to whatever changes in temperature may in the future arise.

This enables us to pocket the benefits of any warming (and there are many) while reducing the costs. None of the projected costs are new phenomena, but the possible exacerbation of problems our climate already throws at us. Addressing these problems directly is many times more cost-effective than anything discussed at Copenhagen. And adaptation does not require a global agreement, although we may well need to help the very poorest countries (not China) to adapt.

Beyond adaptation, plan B should involve a relatively modest, increased government investment in technological research and development—in energy, in adaptation and in geoengineering.

Despite the overwhelming evidence of the Copenhagen debacle, it is not going to be easy to get our leaders to move to plan B. There is no doubt that calling a halt to the high-profile climate-change traveling circus risks causing a severe conference-deprivation trauma among the participants. If there has to be a small public investment in counseling, it would be money well spent.

Lord Lawson was U.K. chancellor of the exchequer in the Thatcher government from 1983 to 1989. He is the author of "An Appeal to Reason: A Cool Look at Global Warming" (Overlook Duckworth, paperback 2009), and is chairman of the recently formed Global Warming Policy Foundation (www.thegwpf.org).