Recommended - They May Not Want the Bomb

I recommend Fareed Zakaria's new article in the June 1 issue of Newsweek, They May Not Want The Bomb. There is a long world history of demonizing opponents and thereby misreading their real motives. Zakaria argues that we are doing that with Iran - that far from the wild-eyed messianic regime that opponents claim for it, it is in fact ruled by a calculating and rational oligarchy intent on enriching itself and forcing the world to recognize it as a key power player in that region of the world.

Worth thinking about.

Civilian deaths

The bloody finish to the guerrilla war in Sri Lanka last week, and the continuing civilian deaths in Afghanistan and Iraq point out once again the dilemma facing modern governments dealing with insurgencies. As Mao taught, insurgent fighters should move among the people like fish in the sea. The Tamil guerillas in particular deliberately used civilians as shields, giving the government forces opposing them two bad choices: quit fighting (the insurgents win the battle) , or incur civilian deaths (the insurgents get great propaganda and lots of worldwide support). In fact, in an insurgency there will inevitably be civilian deaths, many of them. Indeed, it is often unclear who really is a civilian in such battles. Besides the hard core fighters there are often locals, even women and children, who have been co-opted or threatened into fighting or helping, and other locals who, though not active fighters, willingly provide shelter, supplies and intelligence to the insurgents. When do these cease to become civilians and become legitimate combatants? It’s pretty hard to sort out even after the fact, let alone in the heat of a firefight.

Of course none of this would have worked against, say, the Roman army, who would not have cared if a few civilians were killed in a battle. Kidnapping only works if people are willing to pay ransoms – if they won’t pay ransoms kidnapping isn’t a worthwhile business proposition (something the shipping companies ought to learn). Similarly, civilian shields only work if one doesn’t care about civilian deaths but one’s opponents are squeamish about killing civilians. In the cases of Sri Lanka, Afghanistan and Iraq the insurgent opponents seem not to care a bit about civilian deaths. Indeed, in Afghanistan and especially Iraq, the insurgents kill several orders of magnitude more civilians each month than our forces, and do so quite deliberately.

The key player in all of this, of course, is the world media. The leverage that insurgents get from accidental civilian deaths in combat comes entirely from the biased and one-sided publicity that these deaths reliably incur in the world media. Eliminate the publicity and the use of civilian shields loses much, though not all, of its effectiveness.

Only slowly do the modern western governments and military forces seem to be realizing that fighting insurgencies requires dominating not only the battlefield but also the public media. Fighting insurgencies is as much about cutting off the insurgent’s public support as it is about killing or capturing their leaders and fighters.

Near-term predictions

In a posting of February 16, 2009, I tried a couple of near-term predictions. Let’s see how well I did:

I predicted that after a little cosmetic huffing and puffing, Senator Burris would be quietly allowed to remain in his Senate seat, even though he admitted to lying to his fellow Senators, and to the investigators in Illinois, about how much contact he had with discredited Illinois Gov. Rod Blagojevich. He is still in the Senate. Score one for me!

I predicted that the automobile companies would come back to Congress with an unconvincing recovery plan, and Congress would pretend to be convinced and give them more bailout money anyway. I’m please to say I was wrong on that one, and the administration has (thus far, at least) really forced the auto companies to “get real”. I suspect that is because the administration, and not Congress, is driving that issue.

So I got 50%, about what one would expect from chance.

So what has the government done for them?

We are driving back across the country this week to New Mexico, and a couple of nights ago we are in a little town in southwestern Virginia. I took a walk around the town and was struck by the number of small businesses that have evidently gone out of business recently (signs are still clean and fresh, storefront windows still clean, and in several cases notices posed announcing closings, all dated within the past few months).

The national news is filled with the massive Federal bailouts to Wall Street banks and auto companies, and politicians keep mouthing platitudes about helping the “average American”, but I have to ask, just what real help has the federal government given all these small stores and entrepreneurs in small towns all across the country? Not much, apparently, judging from the results. The administration will argue that helping the big Wall Street banks eventually helps small businesses, but I notice that Democrats didn’t buy the “trickle down” economic theory when Reagan Republicans tried to sell it, so I have to wonder why they think they can sell it now.

The Democratic Party has always sold itself as the champion of the little guy against big business – but it looks to me like they are straying pretty far from their roots.

Recommended : Obama and the Carmakers

I recommend the article Obama and the Carmakers: An Offer You Can't Refuse, in today's print issue of The Economist.

It's said that hard cases make bad law, and the same might be said about legislation: difficult crises produce bad policy. I think that is what is happening in this recession.

In business, debts often have seniority - more senior debts, by contract, are supposed to be repaid before more junior debt. Those who hold senior debt get paid first, a privilege they bought by offering better terms on their loans. It's a straight contractual quid-pro-quo. In the Chrysler bankruptcy the government has stepped in to invalidate that principle, effectively giving the unions (where there are more votes) senior rights that they didn't have, and thereby overriding the contractual senior rights of others. This is very bad policy. if the government can step in and change the loan terms after the fact, why should anyone in the future offer corporations better terms in return for senior debt rights? Indeed, why should anyone trust any contract, if the politicians can invalidate it for political gain?

Politicians are not known for their business sense, and this is an example of why one really doesn't want politicians messing about in the economy. They are too focused on the short term (for perfectly understandable reasons, given the way our political system runs), and not focused enough on the unintended long term consequences of their policies.

Equality of What?

There is an old saying that the road to hell is paved with good intentions. I think of that when I think of the subprime loan problems that set off the current financial crisis. Subprime loans were created in the first place and encouraged through the years by liberals who wanted to help more minorities own their own homes, a laudable enough goal on the face of it. Liberals often talk about the need for more equality in America, but equality of what?

Certainly people aren’t inherently equal. Some earn graduate degrees and some never finish high school. Some have IQs in the 130 range and some in the 90 range. Some are healthy and some suffer from chronic disease. Some work hard and some are lazy. Some think clearly and some are delusional. The list of differences is endless.

I think we could agree that we would like a nation in which we were all equal before the law, even though we clearly don’t have that now. The rich, who can afford good lawyers, can get away with murder (even, sometimes, literally), while the poor too often suffer at the hands of ambitious prosecutors and overworked public defenders.

But do we really want economic equality? Do we really want a nation in which everyone owns their own home, whether they are willing to work hard enough for it or not? Do we really want a nation in which hard work and dedication earns one no more than laziness and apathy? Do we really want a nation in which being willing to work and study through years of graduate school or medical school provides no economic gain at all? Do we really want a nation in which innovation is not rewarded? I am reminded of Winston Churchill’s comment: "The inherent vice of capitalism is the unequal sharing of blessings; the inherent vice of socialism is the equal sharing of miseries"

At root the question is whether we seek equality of opportunity, or equity of outcomes. It seems to me too often the liberal political position is to support equality of outcome rather than equality of opportunity. Tax the rich and give it to the poor. Lower the college entrance standards and grading standards for minorities so that everyone can earn a college degree (would you want to trust your life to an airline pilot or surgeon who got through school on a reduced grading standard because he/she was a minority?). Create subprime loans for people who really don’t have enough income to justify buying a house.

I don’t think this really makes sense. Despite their words, I doubt if the well-off liberals and well-paid politicians who support such ideas would really like to have their own income and net worth reduced to the national average. They would lose a great deal.

But if what one wanted was equality of opportunity, rather than equality of outcomes, the programs would be much different than those proposed by liberals. We would be pushing and funding Head Start programs, better nutrition for children, better schools, charter schools and school vouchers, merit pay for teachers, better libraries, more adult education, more parenting classes, etc., etc. But of course equality of opportunity takes many years to implement, so it doesn’t produce votes for the politicians who would need to implement it, while programs directed at equality of outcome can garner votes today. And as George Bernard Shaw once remarked, "A government with the policy to rob Peter to pay Paul can be assured of the support of Paul".

We all believe in equality. But it seems to me we all need to think through more carefully exactly what we mean by that.

Recommended - We Can't Subsidize Banks Forever

I recommend Richardson & Roubini's article in today's Wall Street Journal, We Can't Subsidize Banks Forever. Roubini, remember, is the economist who so accurately predicted this fiscal crisis in the first place, years ago.

This is another public worry, by prominent economists, that the administration, because of too-close ties to Wall Street, is refusing to do the hard things that are necessary to repair the financial system.

Recommended: Why Are Bankers Still Being Treated As Beltway Royalty?

Yet another recommendation relevant to the topic covered by the last two: Arianna Huffington's Why Are Bankers Still Being Treated As Beltway Royalty?, over at the Huffington Post.

Recommended: Obama's 100 Days

I also recommend a related article, Obama's 100 Days: Wall Street Crowd Makes His Administration Like Grant's, by James Pinkerton in U.S. News and World Report. He makes much the same case as my preceding recommendation from The Atlantic Monthly.

Recommended - The Quiet Coup

I recommend Simon Johnson's article The Quiet Coup in the May, 2009 issue of The Atlantic Monthly. Simon looks at America's current fiscal crisis the way the International Monetary Fund has looked at other similar (largely third world) crises. In third world countries, the Fund has learned that it can't really help until the ruling elites finally face up to the fact that some of them are going to have to lose money and power in any recovery scenario, and settle among themselves who will be the winners and who will be the losers.

American bankers, he argues, haven't yet come to this stage, and still hope that influence in Washington, and money from Washington, will keep all of them in power. Until we pass that stage, he argues, America's economy will not recover. An argument worth considering.