Issues And Answers

Why the Old Jobs Aren't Coming Back

2011-07-02T17:49:00.000-07:00

By: Michael spence

The Wall Street Journal

June 24, 2011

Many have expressed shock at the recent U.S. employment data. But 9.1% unemployment shouldn't be a surprise. To address the jobs challenge, we must stop pretending that this is only a difficult cyclical recovery. The root of the problem is structural.

During the two decades before the crisis of 2008-09, the U.S. economy added 27 million jobs, primarily in government, health care, construction, retail and hospitality. This employment growth was almost all in the "nontradable" side of the economy—sectors generating goods and services that must be consumed where they are produced. But several factors will depress these sectors. Government budget woes, a likely leveling-out of the dramatic growth in health-care consumption, and a permanent reduction in domestic consumption as asset prices reset downward and debt-financed purchases are reduced, will all have effects in the short-to-medium term.

The "tradable" side of the economy (which includes exportable goods and services) has its own set of issues. While finance, consulting, computer design and managing complex international businesses all fueled job growth for 20 years, these gains were matched by declines in the manufacturing jobs held by the middle class. The very things that propped up our tradable sectors through the export market—high growth rates in emerging economies and a more educated consumer class in those countries—have challenged middle-class U.S. employees on the job front. Emerging markets are now increasingly moving up the value chain with improved skills, and it's likely that higher-paying jobs—including design and even product development—will move abroad in ever greater numbers.

Multinational companies have benefited from these global supply-chain opportunities and from growing emerging-economy markets, but the effects for the U.S. have been mixed. Growth may be coming back slowly, but it is not bringing jobs with it.

A stimulus package that temporarily restores elements of precrisis demand is unlikely to generate the escape velocity needed to get out of the jobs hole. Nontradable job growth can't mask the declines in the tradable sector any more. The structural problem demands a structural answer.

Rebuilding the employment engine requires shifts in policy and process. On the policy side, we must expand the scope of the tradable sector. A short list of steps would include investments in infrastructure and education reform that emphasizes teaching productive skills, for example in advanced manufacturing sectors. Tax reform should aim for simplification and the elimination of biases against domestic investment for our multinational firms. It should also aim to help raise savings rates so we can finance our own investment. A value-added tax with an exemption for exports would enhance competitiveness. An energy policy focused on efficiency and security would create opportunities for investment and growth.

In terms of process, business, government and labor must identify what each has to offer and needs to help expand the tradable sector. What will it take to keep more jobs in the U.S.? We might have to accept a period of lower income growth in order to restore competitiveness.

A useful model is Germany, which limited wage and salary growth as part of a restructuring in the period 2000-05, allowing it to compete more effectively in exports and the tradable sector than other advanced countries.

In addition, a broad public-private investment in advanced manufacturing and in energy- efficiency technologies can advance relatively high-income, capital-intensive job creation. Government co-investment can lower the private sector's cost and expand the employability of domestic citizens in the tradable sector.

These structural solutions won't work, of course, without a plan to restore fiscal balance. A sovereign-debt crisis will abort any recovery. Right now, however, the policy discussion oscillates between balancing the budget and supporting a fragile economic recovery—mixed with puzzlement that employment figures are disobeying the rules of a normal cyclical recovery. Having a credible five-year fiscal plan would help avoid an excessively rapid withdrawal of government expenditure and investment from the demand side of the economy.

Can business, government, educators and labor come together to tackle the structural employment challenge head-on? Some will say that in the present political and fiscal climate, this is highly unlikely. They may be right. But it is a choice, a collective choice. We can invest in future growth and employment of an inclusive kind, or not. If we do, it will take significant shared sacrifice.

Mr. Spence, a 2001 Nobel laureate in economics, is the author of "The Next Convergence: The Future of Economic Growth in a Multispeed World," out last month from Farrar, Straus and Giroux.

The Building Blocks of a GOP Agenda

2011-05-29T15:37:00.001-07:00

BY: Daniel Henninger

The Wall Street Journal

May 26, 2011

Leading governors and members of Congress know them: entitlement reform, fiscal restoration and lightly taxed long-term economic growth.

The "smart money" says Barack Obama is cruising to re-election because of Republican disarray. Pick up a paper, visit a blog, turn on the TV or radio, and reports of Republican misadventure will engulf you:

Mitch Daniels just said no. Newt Gingrich says too much. On Tuesday, voters in New York's normally Republican congressional district 26, near Buffalo and Rochester, "shocked" the political world by electing a Democrat. The smart money now says NY-26 means that if the Republicans run on Paul Ryan's Medicare reform proposal, they risk losing the presidency.

The smart money is often stupid.

Standing against the tornadoes of political spin isn't easy. But if the Republicans will step back from these storms, they'll see that the GOP prospect is in better shape than they think. A clear and defensible agenda for 2012 is being assembled outside the presidential campaigns.

One Republican analyst of the GOP's NY-26 defeat said the takeaway is: "2010 is over." This is the opposite of the truth. That 2010 vote was the American public screaming at their elected officials to stop the country from hurtling toward fiscal and economic calamity.

They're still screaming. A Washington Post poll out yesterday buttressed this core concern: Voters across the spectrum say their prime worry is what happens if Congress expands American indebtedness beyond $14.3 trillion. In their wisdom, the people suspect what will happen won't be good. Their vote in 2010 was the basis for a genuine Republican reform movement.

Normally when the presidential entrepreneurs take over our politics, the parties recede. This means the parties end up yoked to whatever random, variable ideas their nominee patches together. The smoke-filled room has been replaced by hot-air trial balloons.

Something new is happening this time. Since 2009, the Republican Party's best members have been constructing the building blocks of an agenda distinct from what Barack Obama represents.

The most significant figure in this process is not Paul Ryan but Chris Christie, New Jersey's charismatic governor.

Before Chris Christie, nearly every Republican would bend to the conventional wisdom of doing deals with the public unions, raising taxes, and rolling debt obligations into the future. Chris Christie blew the whistle on this nonsolution. He gave the Republicans the courage to say the most basic truth in American politics: We are going broke. Chris Christie made the sources of fighting fiscal ruin popular, even cool.

Along with Mr. Christie, Govs. Bob McDonnell of Virginia, John Kasich of Ohio and Scott Walker of Wisconsin have made fiscal restoration the cornerstone of the new Republican Party. Mitch Daniels's appeal was that he was a member of this new movement.

Fiscal rectitude, of course, can be its own form of conventional wisdom, expressed by raising taxes to "balance" the budget. Last month, another significant Republican derided the tax-and-balance solution. The man who called this "root canal economics" is the Speaker of the House. This too is new.

When it came to pass that John Boehner would assume the speakership, one would have thought the party was inheriting Millard Fillmore. Instead, Mr. Boehner has been using his office to lift another building block atop the GOP's restored fiscal foundation—the primacy of the private sector.

A speech Mr. Boehner gave last month to the Economic Club of New York was an important defining statement. Mr. Boehner ran straight at what is probably the most unshakable conventional wisdom in politics: "The big myth of the current budget debate is the notion that in order to balance the budget, we have to raise taxes. The truth is we will never balance the budget and rid our children of debt unless we cut spending and have real economic growth. And we will never have real economic growth if we raise taxes on those in America who create jobs." No speaker has so categorically repudiated using taxes to bail out Washington.

To Paul Ryan fell the job of reshaping the heaviest stone of all—entitlements. For saying the entitlement status quo is fake and false, Mr. Ryan has earned ridicule from the current president and derision from Republican pragmatists who say he's destroying the party by attempting Medicare reform.

But without entitlement reform, these other GOP building blocks—fiscal restoration and lightly taxed long-term economic growth—are unstable. Notwithstanding the results in suburban Buffalo, an electorate that understands the danger of $14.3 trillion in debt surely can be made to understand by November 2012 the risk of many trillions more in future entitlement obligations.

The campaigns of Mitt Romney, Newt Gingrich and Jon Huntsman no doubt will still try to fashion a campaign from whole cloth. Tim Pawlenty, the former Minnesota governor, looks for now to be closest to building out from the structure of economic reform that the Republican governors, the House speaker and the Wisconsin congressman have been creating for their party.

This is still presidential politics. Some people will never vote for any of this, and the person atop the ticket matters. But Republicans despondent about an election 18 months off need to see they are not fighting the incumbent with nothing. A coherent opposition exists, one that fits with an electorate justifiably anxious about the future of what was once the world's most prosperous private economy.

A Growth Agenda for the New Congress

2010-11-14T17:36:00.000-08:00

By Arthur Laffer
The Wall Street Journal
November 12, 2010

Since its cyclical zenith in December 2007, U.S. economic production has been on its worst trajectory since the Great Depression. Massive stimulus spending and unprecedented monetary easing haven't helped, and yet the Obama administration and the Federal Reserve still cling to the book of Keynes. It's an approach ill-suited to solving the growth problem that the United States has today.

The solution can be found in the price theory section of any economics textbook. It's basic supply and demand. Employment is low because the incentives for workers to work are too small, and the incentives not to work too high. Workers' net wages are down, so the supply of labor is limited. Meanwhile, demand for labor is also down since employers consider the costs of employing new workers—wages, health care and more—to be greater today than the benefits.

Firms choose whether to hire based on the total cost of employing workers, including all federal, state and local income taxes; all payroll, sales and property taxes; regulatory costs; record-keeping costs; the costs of maintaining health and safety standards; and the costs of insurance for health care, class action lawsuits, and workers compensation. In addition, gross wages are often inflated by the power of unions and legislative restrictions such as "buy American" provisions and the minimum wage. Gross wages also include all future benefits to workers in the form of retirement plans.

For a worker to be attractive, that worker must be productive enough to cover all those costs plus leave room for some profit and the costs of running an enterprise. Being in business isn't easy, and today not enough workers qualify to be hired.

But workers don't focus on how much it costs a firm to employ them. Workers care about how much they receive and can spend after taxes. For them, the question is how the wages they'd receive for working compare to what they'd receive (from the government) if they didn't work, plus the value of their leisure from not working.

The problem is that the government has driven a massive wedge between the wages paid by firms and the wages received by workers. To make work and employment attractive again, this government wedge has to shrink. This can happen over the next two years, even with a Democratic majority in the Senate and President Obama in the White House, through the following measures:

1) The full extension of the Bush tax cuts. The Republican-controlled House of Representatives can write legislation extending all the tax cuts in perpetuity. Of particular importance for employment is keeping the highest personal income tax rate at 35%, the capital gains tax rate at 15% and the dividend tax rate at 15%, while eliminating the estate tax permanently. If the Senate blocks this legislation or Mr. Obama refuses to sign it, House Republicans should hold firm and let voters decide in 2012. (My guess is that he'll sign it or have his veto overridden.)

2) The full repeal of ObamaCare, which allows individuals to pay only five cents for each dollar of health care. Who do you think pays the other 95 cents? As former Sen. Phil Gramm notes, if he had to pay only five cents for each dollar of groceries he bought, he would eat really well—and so would his dog. No single bill is more antithetical to growth than ObamaCare.

Repeal could take the form of Michele Bachmann's Legislative Repeal Act, and if it is blocked in the Senate or by a veto Republicans should continue bringing it up every six months. Come 2012 the public will have a clear view of what congressional candidates stand for. The end game for U.S. prosperity is the election in 2012.

3) The cancellation of all spending that punishes those who produce and rewards those who don't. This is really the distinction between demand-side economics and supply-side economics. Stimulus spending and quantitative easing don't make it more rewarding to work an extra hour. If the government pays people not to work and taxes people who do work, is it really so difficult to see why employment is so low?

So the government should sell its stakes in public companies acquired via TARP, sell government-run enterprises that lose money (e.g., Amtrak and the Postal Service), end farm subsidies that pay people not to farm, cancel the rest of the stimulus and return all spending programs to their pre-stimulus levels. Congress should also continually examine spending in Afghanistan and Iraq. And it should return the duration of unemployment benefits to the standard 26 weeks, from the current 99 weeks.

4) The enactment of stalled free trade agreements with South Korea, Colombia and Panama.

These changes would spur recovery, but they are just the start. Elected officials should offer longer-term measures that voters can judge in 2012, when 33 senators—including 21 Democrats, two independents who caucus with the Democrats, and 10 Republicans—as well as the entire House and President Obama are up for re-election.

Beyond 2012, the ideal growth agenda would include:

1) A true flat tax, a la Jerry Brown's proposal in 1992. Congress should replace all federal taxes (except sin taxes) with two flat-rate taxes, one on personal income and one on net business sales. The personal income tax would be on all forms of income: wage income, dividends, inheritance (as proposed by Democratic Rep. Jared Polis), and all capital gains. This tax code would remove loopholes and almost all deductions, and the static revenue rate would be around 11.5%.

2) Price stability. Congress should revise the Federal Reserve's mandate, making it serve only the goal of price stability (and not also full employment). In addition, the Fed should follow a monetary rule, targeting either the quantity of money or the price level. There can be no prosperity without price stability.

3) Passage of a balanced budget amendment, without raising taxes. This would prevent government from being able to balance its budget by unbalancing the budgets of its citizens. And it would force politicians to make difficult decisions about what spending is worthwhile, just like the rest of us.

4) Finally, saving the best for last, the mother of all supply-side reforms is incentive pay for politicians (which the comedian Jackie Mason called "putting the politicians on commission"). Politicians must be held personally responsible for their actions. In business, firms align the incentives of decision makers with the incentives of shareholders to ensure that they take the best course of action. Washington must begin doing the same by creating an incentive structure that pays elected officials according to factors such as stock market performance and economic growth.

Mr. Laffer is the chairman of Laffer Associates and co-author of "Return to Prosperity: How America Can Regain Its Economic Superpower Status" (Threshold, 2010).

Housing Woes Bring a New Cry: Let the Market Fall

2010-09-06T12:42:00.000-07:00

By David Streitfeld
New York Times
September 5, 2010

The unexpectedly deep plunge in home sales this summer is likely to force the Obama administration to choose between future homeowners and current ones, a predicament officials had been eager to avoid.

Over the last 18 months, the administration has rolled out just about every program it could think of to prop up the ailing housing market, using tax credits, mortgage modification programs, low interest rates, government-backed loans and other assistance intended to keep values up and delinquent borrowers out of foreclosure. The goal was to stabilize the market until a resurgent economy created new households that demanded places to live.

As the economy again sputters and potential buyers flee — July housing sales sank 26 percent from July 2009 — there is a growing sense of exhaustion with government intervention. Some economists and analysts are now urging a dose of shock therapy that would greatly shift the benefits to future homeowners: Let the housing market crash.

When prices are lower, these experts argue, buyers will pour in, creating the elusive stability the government has spent billions upon billions trying to achieve.

“Housing needs to go back to reasonable levels,” said Anthony B. Sanders, a professor of real estate finance at George Mason University. “If we keep trying to stimulate the market, that’s the definition of insanity.”

The further the market descends, however, the more miserable one group — important both politically and economically — will be: the tens of millions of homeowners who have already seen their home values drop an average of 30 percent.

The poorer these owners feel, the less likely they will indulge in the sort of consumer spending the economy needs to recover. If they see an identical house down the street going for half what they owe, the temptation to default might be irresistible. That could make the market’s current malaise seem minor.
Caught in the middle is an administration that gambled on a recovery that is not happening.

“The administration made a bet that a rising economy would solve the housing problem and now they are out of chips,” said Howard Glaser, a former Clinton administration housing official with close ties to policy makers in the administration. “They are deeply worried and don’t really know what to do.”
That was clear last week, when the secretary of housing and urban development, Shaun donovan, appeared to side with current homeowners, telling CNN the administration would “go everywhere we can” to make sure the slumping market recovers.

Mr. Donovan even opened the door to another housing tax credit like the one that expired last spring, which paid first-time buyers as much as $8,000 and buyers who were moving up $6,500. The cost to taxpayers was in the neighborhood of $30 billion, much of which went to people who would have bought anyway.

Administration press officers quickly backpedaled from Mr. Donovan’s comment, saying a revived credit was either highly unlikely or flat-out impossible. Mr. Donovan declined to be interviewed for this article. In a statement, a White House spokeswoman responded to questions about possible new stimulus measures by pointing to those already in the works.

“In the weeks ahead, we will focus on successfully getting off the ground programs we have recently announced,” the spokeswoman, Amy Brundage, said.
Among those initiatives are $3 billion to keep the unemployed from losing their homes and a refinancing program that will try to cut the mortgage balances of owners who owe more than their property is worth. A previous program with similar goals had limited success.

If last year’s tax credit was supposed to be a bridge over a rough patch, it ended with a glimpse of the abyss. The average home now takes more than a year to sell. Add in the homes that are foreclosed but not yet for sale and the total is greater still.

Builders are in even worse shape. Sales of new homes are lower than in the depths of the recession of the early 1980s, when mortgage rates were double what they are now, unemployment was pervasive and the gloom was at least as thick.

The deteriorating circumstances have given a new voice to the “do nothing” chorus, whose members think the era of trying to buy stability while hoping the market will catch fire — called “extend and pretend” or “delay and pray” — has run its course.

“We have had enough artificial support and need to let the free market do its thing,” said the housing analyst Ivy Zelman.

Michael L. Moskowitz, president of Equity Now, a direct mortgage lender that operates in New York and seven other states, also advocates letting the market fall. “Prices are still artificially high,” he said. “The government is discriminating against the renters who are able to buy at $200,000 but can’t at $250,000.”

A small decline in home prices might not make too much of a difference to a slack economy. But an unchecked drop of 10 percent or more might prove entirely discouraging to the millions of owners just hanging on, especially those who bought in the last few years under the impression that a turnaround had already begun.

The government is on the hook for many of these mortgages, another reason policy makers have been aggressively seeking stability. What helped support the market last year could now cause it to crumble.

Since 2006, the Federal Housing Administration has insured millions of low down payment loans. During the first two years, officials concede, the credit quality of the borrowers was too low.

With little at stake and a queasy economy, buyers bailed: nearly 12 percent were delinquent after a year. Last fall, F.H.A. cash reserves fell below the Congressionally mandated minimum, and the agency had to shore up its finances.

Government-backed loans in 2009 went to buyers with higher credit scores. Yet the percentage of first-year defaults was still 5 percent, according to data from the research firm CoreLogic.

“These are at-risk buyers,” said Sam Khater, a CoreLogic economist. “They have very little equity, and that’s the largest predictor of default.”

This is the risk policy makers face. “If home prices begin to fall again with any serious velocity, borrowers may stay away in such numbers that the market never recovers,” said Mr. Glaser, a consultant whose clients include the National Association of Realtors.

Those sorts of worries have a few people from the world of finance suggesting that the administration should do much more, not less.

Willaim H. Gross, managing director at Pimco, a giant manager of bond funds, has proposed the government refinance at lower rates millions of mortgages it owns or insures. Such a bold action, Mr. Gross said in a recent speech, would “provide a crucial stimulus of $50 to $60 billion in consumption,” as well as increase housing prices.

The idea has gained little traction. Instead, there is a sense that, even with much more modest notions, government intervention is not the answer. The National Association of Realtors, the driving force behind the credit last year, is not calling for a new round of stimulus.

Some members of the National Association of Home Builders say a new credit of $25,000 would raise demand but their chances of getting this through Congress are nonexistent.

“Our members are saying that if we can’t get a very large tax credit — one that really brings people off the bench — why use our political capital at all?” said David Crowe, the chief economist for the home builders.

That might give the Obama administration permission to take the risk of doing nothing.

Obama is a Victim of Bush's Failed Promises

2010-08-15T09:28:00.000-07:00

By Chuck Green

Aurora Sentinal

Februrary 7, 2010

Barack Obama is setting a record-setting number of records during his first year in office.

Largest budget ever. Largest deficit ever. Largest number of broken promises ever. Most self-serving speeches ever. Largest number of agenda-setting failures ever. Fastest dive in popularity ever.

Wow. Talk about change.

Just one year ago, fresh from his inauguration celebrations, President Obama was flying high. After one of the nation’s most inspiring political campaigns, the election of America ’s first black president had captured the hopes and dreams of millions. To his devout followers, it was inconceivable that a year later his administration would be gripped in self-imposed crisis.

Of course, they don’t see it as self imposed. It’s all George Bush’s fault.

George Bush, who doesn’t have a vote in Congress and who no longer occupies the White House, is to blame for it all.

He broke Obama’s promise to put all bills on the White House web site for five days before signing them.

He broke Obama’s promise to have the congressional health care negotiations broadcast live on C-SPAN.

He broke Obama’s promise to end earmarks.

He broke Obama’s promise to keep unemployment from rising above 8 percent.

He broke Obama’s promise to close the detention center at Guantanamo in the first year.

He broke Obama’s promise to make peace with direct, no pre-condition talks with America ’s most hate-filled enemies during his first year in office, ushering in a new era of global cooperation.

He broke Obama’s promise to end the hiring of former lobbyists into high White House jobs.

He broke Obama’s promise to end no-compete contracts with the government.

He broke Obama’s promise to disclose the names of all attendees at closed White House meetings.

He broke Obama’s promise for a new era of bipartisan cooperation in all matters.

He broke Obama’s promise to have chosen a home church to attend Sunday services with his family by Easter of last year.

Yes, it’s all George Bush’s fault. President Obama is nothing more than a puppet in the never-ending, failed Bush administration.

If only George Bush wasn’t still in charge, all of President Obama’s problems would be solved. His promises would have been kept, the economy would be back on track, Iran would have stopped its work on developing a nuclear bomb and would be negotiating a peace treaty with Israel , North Korea would have ended its tyrannical regime, and integrity would have been restored to the federal government.

Oh, and did I mention what it would be like if the Democrats, under the leadership of Nancy Pelosiand Harry Reid, didn’t have the heavy yoke of George Bush around their necks. There would be no earmarks, no closed-door drafting of bills, no increase in deficit spending, no special-interest influence (unions), no vote buying ( Nebraska , Louisiana ).

If only George Bush wasn’t still in charge, we’d have real change by now.

All the broken promises, all the failed legislation and delay (health care reform, immigration reform) is not President Obama’s fault or the fault of the Democrat-controlled Congress. It’s all George Bush’s fault.

Take for example the decision of Eric Holder, the president’s attorney general, to hold terrorists’ trials in New York City . Or his decision to try the Christmas Day underpants bomber as a civilian.

Two disastrous decisions.

Certainly those were bad judgments based on poor advice from George Bush.

Need more proof?

You might recall that when Scott Brown won last month’s election to the U.S. Senate from Massachusetts , capturing “the Ted Kennedy seat,” President Obama said that Brown’s victory was the result of the same voter anger that propelled Obama into office in 2008. People were still angry about George Bush and the policies of the past 10 years, and they wanted change.

Yes, according to the president, the voter rebellion in Massachusetts last month was George Bush’s fault.

Therefore, in retaliation, they elected a Republican to the Ted Kennedy seat, ending a half-century of domination by Democrats.

It is all George Bush’s fault.

Will the failed administration of George Bush ever end, and the time for hope and change ever arrive?

Will President Obama ever accept responsibility for something — anything?

Chuck Green, veteran Colorado journalist and former editor-in-chief of The Denver Post, syndicates a statewide column

Are Overdue Reports Concealing ObamaCare Impact On Medicare?

2010-07-15T16:44:00.000-07:00

Investors.com
By: Peter Ferrara
July 6, 2010

Every year, the Annual Report of the Social Security Board of Trustees comes out between mid-April and mid-May. Now it's July, and there's no sign of this year's report. What is the Obama administration hiding?

The annual report includes detailed information about Social Security and its financing over the next 75 years, produced by the Office of the Actuary of the Social Security Administration.

The Congressional Budget Office reported last week in its Long Term Budget Outlook that Social Security was already running a deficit this year. According to last year's Social Security Trustees Report, that was not supposed to happen until 2015, with the trust fund to run out completely by 2037.

With the disastrous Obama economy, the great Social Security surplus that started in the Reagan administration is gone completely.

Every year, the federal government has been raiding the Social Security trust funds to take that annual surplus and spend it on the rest of the federal government's runaway spending, leaving the trust funds only with IOUs backed by nothing but politicians' promise to pay it back when it's needed. Now even that annual surplus is gone. How soon will the trust funds run out completely now?

President Obama keeps telling us a fairy tale that he saved us from another Great Depression. But he is actually leading us into another Depression.

The National Bureau of Economic Research scores the recession as officially starting in December 2007. Thirty-one months later, with unemployment still near 10% and the work force still declining, the NBER says it still cannot determine an official end to the recession.

The longest recession since World War II previously was 16 months, with the average being 10 months. By next month, it will be twice as long as the previous postwar record since the latest recession started. The markets echoed by many pundits are now suggesting a renewed double-dip downturn may be starting, with the comprehensive Obama tax rate increases next year poised to pour napalm on this developing bonfire.

How soon will the trust funds run out with this utter failure of 1930s-style Obamanomics?

The implications for Social Security aren't what the Obama administration is hiding by delaying the annual trustees reports. Those annual reports also include information regarding Medicare over the next 75 years. What the administration is trying to hide are sweeping draconian cuts to Medicare resulting from the ObamaCare legislation, which the annual report will document.

The administration is trying to delay the report until mid-August, when it's hoping the country will be on vacation and won't notice. Or maybe the delay is because the White House is trying to bludgeon the chief actuaries for Medicare and Social Security into fudging the numbers.

Those chief actuaries are dedicated, career professionals who have worked their way up the bureaucracy over decades.

During the Reagan administration, the congressional Democrat majorities and the New York Times made clear to us that tampering with the work of the government's career professionals, let alone the career number crunchers, would be grounds for impeachment.

I'm not certain the rule of law applies to this administration, where the Justice Department cites "payback time" as its reason for not prosecuting Black Panther Voting Rights Act violations.

The CBO confessed to $500 billion in Medicare cuts in the first 10 years of Obama-Care alone. Based on those calculations, the minority staff of the Senate Budget Committee estimated the Medicare cuts as $800 billion in the first 10 years of implementation and $2.9 trillion over the first 20 years of ObamaCare. Truthful annual trustees reports would further document these cuts.

These draconian Medicare cuts are primarily how the president got his claims that ObamaCare would reduce the deficit by over $100 billion over the first 10 years, and a trillion dollars over the next 10 years. The cuts involve slashing payments to doctors and hospitals for the medical care they provide to seniors, and decimating the private option Medicare Advantage program that close to one-fourth of seniors have chosen for their coverage because it gives them a better deal.

Such Medicare cuts would create havoc and chaos in health care for seniors. Doctors, hospitals, surgeons and specialists providing critical care to the elderly will shut down and disappear in much of the country, and others would stop serving Medicare patients. If the government is not going to pay, seniors are not going to get the medical treatment they expect.

Yes, Medicare is more than bankrupt over the long run and needs a fundamental overhaul. But the answer is not to tell seniors their guaranteed benefits will not be cut while the government refuses to pay doctors and hospitals for their care.
Nor is it to decimate Medicare Advantage, which instead should be expanded to all of Medicare. Nor is it to trash Medicare and use the money for a whole new entitlement instead, which is what ObamaCare does.

Ferrara is director of entitlement and budget policy for the Institute for Policy Innovation, general counsel of the American Civil Rights Union and a senior policy adviser on health care to the Heartland Institute.

Journalism Needs Government Help

2010-07-14T16:49:00.000-07:00

Wall Street Journal
By: Lee Bollinger
July 14, 2010

Media budgets have been decimated as the Internet facilitates a communications revolution. More public funding for news-gathering is the answer.

We have entered a momentous period in the history of the American press. The invention of new communications technologies—especially the Internet—is transforming the human capacity to speak, perhaps as monumentally as the invention of the printing press in the 15th century. This is facilitating the largest and fastest expansion of global economic growth in human history. Free speech and a free press are essential to a dynamic economy.

At the same time, however, the financial viability of the U.S. press has been shaken to its core. The proliferation of communications outlets has fractured the base of advertising and readers. Newsrooms have shrunk dramatically and foreign bureaus have been decimated. My best estimate is that there are presently only a few dozen full-time foreign correspondents from the U.S. covering all of China, despite the critical importance of that nation to our future.

Both the Federal Communications Commission and the Federal Trade Commission are undertaking studies of ways to ensure the steep economic decline faced by newspapers and broadcast news does not deprive Americans of the essential information they need as citizens. One idea under consideration is enhanced public funding for journalism.

The idea of public funding for the press stirs deep unease in American culture. To many it seems inconsistent with our strong commitment, embodied in the First Amendment, to having a free press capable of speaking truth to power and to all of us. This press is a kind of public trust, a fourth branch of government. Can it be trusted when the state helps pay for it?

American journalism is not just the product of the free market, but of a hybrid system of private enterprise and public support. By the middle of the last century, daily newspapers were becoming natural monopolies in cities and communities across the country. Publishers and editors drew on the revenue to develop highly specialized expertise that enhanced coverage of economics, law, architecture, medicine, science and technology, foreign affairs and many other fields.

Meanwhile, the broadcast news industry was deliberately designed to have private owners operating within an elaborate system of public regulation, including requirements that stations cover public issues and expand the range of voices that could be heard. The Supreme Court unanimously upheld this system in the 1969 Red Lion decision as constitutional, even though it would have been entirely possible to limit government involvement simply to auctioning off the airwaves and letting the market dictate the news. In the 1960s, our network of public broadcasting was launched with direct public grants and a mission to produce high quality journalism free of government propaganda or censorship.

The institutions of the press we have inherited are the result of a mixed system of public and private cooperation. Trusting the market alone to provide all the news coverage we need would mean venturing into the unknown—a risky proposition with a vital public institution hanging in the balance.

Ironically, we already depend to some extent on publicly funded foreign news media for much of our international news—especially through broadcasts of the BBC and BBC World Service on PBS and NPR. Such news comes to us courtesy of British citizens who pay a TV license fee to support the BBC and taxes to support the World Service. The reliable public funding structure, as well as a set of professional norms that protect editorial freedom, has yielded a highly respected and globally powerful journalistic institution.

There are examples of other institutions in the U.S. where state support does not translate into official control. The most compelling are our public universities and our federal programs for dispensing billions of dollars annually for research. Those of us in public and private research universities care every bit as much about academic freedom as journalists care about a free press.

Yet—through a carefully designed system with peer review of grant-making, a strong culture of independence, and the protections afforded by the First Amendment—there have been strikingly few instances of government abuse. Indeed, the most problematic funding issues in academic research come from alliances with the corporate sector. This reinforces the point that all media systems, whether advertiser-based or governmental, come with potential editorial risks.

To take a very current example, we trust our great newspapers to collect millions of dollars in advertising from BP while reporting without fear or favor on the company's environmental record only because of a professional culture that insulates revenue from news judgment.

Or consider another area where we have well established mechanisms of government support for even the most oppositional views: defense counsel in our courts, where government-paid lawyers (including those in uniform military courts) will do their utmost to undermine cases brought by the government itself. Playing the role of calling our government to account is an accepted ethic of the legal profession despite the political hostility it can sometimes generate.

We should think about American journalism as a mixed system, where the mission is to get the balance right.

To me a key priority is to strengthen our public broadcasting role in the global arena. In today's rapidly globalizing and interconnected world, other countries are developing a strong media presence. In addition to the BBC, there is China's CCTV and Xinhua news, as well as Qatar's Al Jazeera. The U.S. government's international broadcasters, like Voice of America and Radio Free Europe, were developed during the Cold War as tools of our anticommunist foreign policy. In a sign of how anachronistic our system is in a digital age, these broadcasters are legally forbidden from airing within the U.S.

This system needs to be revised and its resources consolidated and augmented with those of NPR and PBS to create an American World Service that can compete with the BBC and other global broadcasters. The goal would be an American broadcasting system with full journalistic independence that can provide the news we need. Let's demonstrate great journalism's essential role in a free and dynamic society.

Mr. Bollinger is president of Columbia University and author of "Uninhibited, Robust, and Wide-Open: A Free Press for a New Century" (Oxford, 2010).

Gas Taxes Give Us a Break at the Pump

2010-07-05T18:27:00.000-07:00

By Dennis Cauchon
USA TODAY
July 2, 2010

When drivers hit the road in large numbers for the Fourth of July holiday, they will have something extra to celebrate — the lowest gasoline taxes since the early days of the automobile.

Holiday drivers will pay less than ever at the pump for upkeep of the nation's roads — just $19 in gas taxes for every 1,000 miles driven, a USA TODAY analysis finds. That's a new low in inflation-adjusted dollars, half what drivers paid in 1975.

Another measure of the trend: Americans spent just 46 cents on gas taxes for every $100 of income in the first quarter of 2010. That's the lowest rate since the government began keeping track in 1929. By comparison, Americans spent $1.18 in 1970 on gas taxes out of every $100 earned.

Although the federal gas tax — 18.4 cents per gallon — hasn't changed since 1993, tax collections are down because today's vehicles go farther on a gallon of gas, cutting tax collections while increasing wear and tear on highways. Inflation since 1993 has eroded the value of the tax to maintain roads.

"The gas tax isn't going to work as the user fee to finance the highway system in the 21st century," says Robert Poole, transportation policy director at the free-market Reason Foundation.

Drivers are on track to spend $55.7 billion on federal, state and local gas taxes in 2010's first quarter, the Bureau of Economic Analysis reports. That's down from $68.5 billion in 2000 after adjusting for inflation — even though Americans drive 7% more miles annually.

The American Trucking Associations, motorist club AAA and others favor higher gas taxes to reduce congestion and a backlog of road repairs.

The chance of that happening? "Outlook not good," says Jill Ingrassia, director of government relations at AAA.

Polls show the gas tax is one of the least popular levies. Only 23% support a 10-cent-per-gallon gas tax hike, according to a June survey by the Mineta Transportation Institute at San Jose State University.

"The money you pay at the pump doesn't always find its way to potholes," says gas tax opponent Pete Sepp of the National Taxpayers Union.
State and local gas taxes average 30 cents per gallon and have changed little during the recession.

The nation's roads are increasingly financed by other taxes and borrowing. The federal stimulus plan set aside $26.7 billion for roads, most of which will be spent by year's end.

Mullen: Debt, a Security Threat

2010-07-05T14:55:00.001-07:00

The American Conservatism of Thurgood Marshall

2010-07-05T14:44:00.000-07:00

By Juan Williams
The Wall Street Journal
July3, 2010

Was Thurgood Marshall a conservative? J. Edgar Hoover, an indisputably right-wing voice, certainly thought so: The FBI chief sent Marshall a note congratulating him on his nomination to the high court. So did Malcolm X, who branded the first black Supreme Court justice a "fool" because he didn't embrace mass protest or excuse riots.

But at last week's confirmation hearings for Elena Kagan, the reality of Marshall's record was eclipsed by the myth of the late justice as a wild-eyed, left-wing activist. Several Republican senators expressed concern that Ms. Kagan, a former Marshall clerk, might replicate his approach to applying the law.

"Justice Marshall's judicial philosophy . . . is not what I would consider mainstream," said Sen. Jon Kyl (R., Ariz). The senator depicted Marshall, who sat on the court from 1967 to 1991, as a "results oriented" justice who interpreted the law to fit his political aims and had no regard for a strict reading of the Constitution.

Sen. Jeff Sessions (R., Ala.) piled on, claiming that Marshall's record as an "activist" judge constituted a violation of a responsible jurist's oath to apply the law without political favor. Such judging, added Sen. Chuck Grassley (R., Iowa), "does not comport with the proper role of a judge or judicial method."

Thankfully, Ms. Kagan appears to have escaped any damage from these attempts to paint her as the second coming of this devilish caricature of her former mentor. But the justice's own legacy took some hits, and the truth about his record needs to be set straight before this distortion becomes fixed in the public mind.

First, there are the hard numbers. As a lawyer, Marshall argued 32 cases before the Supreme Court and won 29. That's hardly the record of a man operating outside of the legal mainstream. Marshall's rulings on the Second Circuit Court of Appeals were never overturned by the Supreme Court, and in most of his appellate opinions he joined with the majority of what was then viewed as a conservative circuit. As solicitor general of the U.S. he lost only five of the 14 cases he argued before the Supreme Court.

Even on the high court, Marshall always tailored his opinions to adhere to constitutional principles—not political ideology. For example, in making the case for affirmative action, Marshall did not try to discard constitutional protections for individual rights. In his dissent in the 1978 Regent of California v. Bakke affirmative action case, Marshall wrote: "It must be remembered that during most of the past 200 years, the Constitution as interpreted by this court did not prohibit the most ingenious and pervasive forms of discrimination against the Negro. Now when a state acts to remedy the effects of that legacy of discrimination, I cannot believe that this same Constitution stands as a barrier . . . "

What's at the heart of any charge of judicial activism is Marshall's work as a lawyer. As lead counsel for the NAACP Legal Defense and Education Fund from 1938 to 1961, Marshall won Brown v. Board of Education—the case that ended school segregation by overturning the 1896 case, Plessy v. Ferguson. His argument was that the law must be applied without any distinction based on color or class.

The Supreme Court's unanimous ruling in that 1954 decision required courage, given that segregation, either by law or in fact, had become the norm in much of the nation. If one argues that Marshall encouraged judicial "activism" by seeking to have this overturned, that means Plessy was correctly decided, and racial segregation should have been protected under the Constitution. History has long ruled that is not a winning argument.

Marshall's fidelity to the Constitution was evident outside the court as well. He is a man who bravely stood before crowds of militant black people in the 1950s and '60s to rebut calls for black solidarity in boycotts and protest marches. "Let's stop drawing the line [between] colored and white," he told one group. "Let's draw the line on who wants democracy for all Americans." For this outlook, Nation of Islam leader Elijah Muhammad wrote a newspaper column condemning Marshall. "He is in love with the white race," Muhammad wrote.

Ms. Kagan clerked for Marshall at the end of his time on the Supreme Court when he gave a speech saying the Constitution was "defective from the start," because it allowed slavery while denying women the right to vote. He said the Civil War and the constitutional amendments that followed had saved the Constitution and the nation.
That is not a rant from a crazed liberal with no regard for the rule of law. It is a clear-eyed ruling from a judge who by the measure of fellow civil rights activists, as well as fellow lawyers and judges, believed in a very conservative principle: liberty and justice for all.

Mr. Williams, a political analyst for National Public Radio and Fox News, is the author of several books, including "Thurgood Marshall: American Revolutionary" (Three Rivers Press, 2000).

Paschal High School

2010-02-09T17:46:00.000-08:00

“FORT WORTH NEEDS MORE HIGH SCHOOLS LIKE PASCHAL”

by Bud Kennedy, Star Telegram Writer

PASCHAL High School, Fort Worth’s oldest, is now ranked in Newsweek as one of America’s best. Great. So how long will Fort Worth put up with having only one national-caliber high school?

Paschal's winning academic record is remarkable. This year’s seniors on Forest Park Boulevard included 11 National Merit Scholarship semifinalists. Based on advanced placement tests, Newsweek ranked PASCHAL No. 3 regionally, No. 12 in Texas and No. 200 nationally.

Among nearby schools, only Colleyville, Heritage and Grapevine ranked higher. Carroll in Southlake is the only other local school among 804 on the list. Isn’t it time other cities and neighborhoods expected better schools?

Money is no excuse. On average, Arlington Heights, Southwest, Western Hills and most suburban schools serve wealthier families than PASCHAL. Their children have more resources. The nine other Fort Worth high schools serve families with less money than PASCHAL. Yet those children also need the most attention – because their education and training will decide the future wealth or poverty of Fort Worth.

Almost 20 years after a PASCHAL math teacher set out to build the district’s best Honors program, other schools are closer to competing. Arlington Heights, on the West side, had the city’s second-best SAT scores last year, although nearly 70 points behind PASCHAL. The PASCHAL Honors students – almost half the senior class - average a 1310 score!!

Dunbar, in east Fort Worth, is second in Merit Scholar semifinalists. Western Hills in Benbrook consistently ranks high. Trimble Technical, near downtown, earned an “exemplary” state rating for a high passing rate on the state achievement test. In a more comprehensive rating last fall, Texas Monthly ranked Tech and Southwest as the district’s most effective high schools for students at all achievement levels. (PASCHAL fell to 10th of 13 and also trailed suburban schools at the same income level, including Brewer, Springtown and Haltom.)

Yet no other city school and almost no Texas public school can come close to PASCHAL’s success rate with the very smartest students. At the recent “Radio Shack Scholars Dinner” rewarding Fort Worth’s best students citywide, close to one third were students from PASCHAL. The cheers of 389 Panthers overwhelmed any for the other 12 high schools represented at the Amon G. Carter Jr. Exhibits Hall.

PASCHAL is not one of the district’s “special interest” schools marketed to draw transfer students – formerly called “magnet” schools. It is simply a school with an academic championship history that is attractive to both transfer students and selective homebuyers. About a third of Paschal's top honor students chose to transfer from their neighborhood schools.

John Hamilton, the 40-year math teacher who launched Paschal’s intensified program in 1984 to compete with magnet schools, is the academic version of Dunbar’s Hall of Fame boys’ basketball coach, Robert Hughes. He said Paschal’s success with high achievers is no secret. “It takes continuity,” he said this week, preparing to teach another summer of SAT preparation classes – sort of an academic summer camp for competitive scholars. “Most of all, it takes a pro-academics attitude in the building and in the entire community. What makes my day is the academic success of PASCHAL students…..Some schools don’t have the same person pushing hard year after year. You have to really value academic success. It’s the reason we have school.”

Ultimately, that’s the reason we need to strengthen all our public schools in Fort Worth and Texas -- to teach the next generation and to build a more successful community, city, and state.

A sociology professor at Texas A&M University has the official title of Texas’ “state demographer.” His is the loudest voice warning that Texans must improve the academic performance of all public schools now – particularly for the growing numbers of minority and low-income children. “It’s a question of what we want for the future of Texas,” Steve Murdock said by phone Friday from a conference in Austin. “It’s the difference between having a state of well-educated, productive citizens – or of less well-educated citizens. The difference statewide will be billions of dollars in socioeconomic needs, billions of dollars in total income, billions of dollars in tax revenue.”

The future of Fort Worth and Texas depends on how well we educate all our children. This city needs more than one showcase high school.

House Attacks Fed, Treasury

2009-11-21T07:04:00.000-08:00

By: Sudeep Reddy and Damian Paletta

The Wall Street Journal

November 20, 2009

Panel Votes for Tighter Political Rein on Central Bank; Some Call for Geithner to Quit

WASHINGTON -- Political frustration over the rescue of Wall Street and high unemployment erupted in the House Thursday, with one committee threatening to impose tighter scrutiny on the Federal Reserve and another trading verbal insults with Treasury Secretary Timothy Geithner.

The House Financial Services Committee voted, 43-26, to approve a measure sponsored by Texas Republican Ron Paul, vociferously opposed by the Fed, that would direct the congressional Government Accountability Office to expand its audits of the Fed to include decisions about interest rates and lending to individual banks. The Fed says the provision threatens its ability to make monetary policy without political interference.

The vote was the latest blow to the central bank, which has been become a lightning rod for politicians responding to popular anger that Wall Street was bailed out while the public wasn't. The Fed faces a stinging backlash from legislators from both parties who argue that has too much power and too little oversight. On Thursday, the Senate Banking Committee began debating legislation that would largely remove the Fed from bank supervision over the objections of the Fed and the Obama administration.

The Fed audit provision was added to pending legislation on financial regulation that the committee's chairman, Barney Frank, a Massachusetts Democrat, had planned to put to a vote Thursday. But he abruptly announced late in the afternoon that the bill wouldn't move ahead until after Thanksgiving. The reason: Ten members of the Congressional Black Caucus on the committee said they would oppose the bill to protest a lack of action to address the economic pain borne by their constituents. Although the economy appears to be growing again, lawmakers face increasing pressure in their districts to do more to boost growth and address an unemployment rate now at 10.2% and expected to rise.

Glum views on the economy sparked a retreat from stocks and some commodities, as investors moved to the safety of government debt. The Dow Jones Industrial Average fell 93.87 points to 10332.44.

At the Joint Economic Committee, a couple of House Republicans called for the resignation of Mr. Geithner, who, as president of the Federal Reserve Bank of New York, played a major role in last fall's moves to prevent the collapse of the financial system. "The public has lost all confidence in your ability to do the job," said Rep. Kevin Brady, Republican of Texas.

Mr. Geithner, in an unusual public display of pique, fired back. "What I can't take responsibility is for the legacy of crises you've bequeathed this country," he told Mr. Brady.

Although several Democrats defended Mr. Geithner at the hearing, some liberal Democrats have been complaining that the Obama administration isn't doing enough to combat unemployment. Rep. Peter DeFazio (D., Ore.) called on Mr. Geithner to resign this week, and said in an interview that Mr. Geithner is too close to Wall Street.

"Quite frankly, all the gambling on Wall Street is doing nothing to put people back to work in America and rebuild our economy," the Oregon Democrat said.
One issue that has dogged Mr. Geithner is the rescue of American International Group Inc. last fall. A government oversight report this week charged that the New York Fed caved into demands from Goldman Sachs Group Inc. and other big banks and paid them in full for deals they had made with the insurer. Mr. Geithner said Thursday that the government lacked powers it needed to handle the collapse of a financial company that wasn't legally organized as a bank. "Coming into AIG we had, basically, duct tape and string," he said. The legislation pending in Congress would give the government new powers to manage such a situation.

Mr. Geithner's job status doesn't appear to be in jeopardy and several Democrats leapt to his defense. "He was handed an awful deck of cards when he walked into the job, and he's doing the best he can," said Sen. Charles Schumer (D., N.Y.) in an interview. "I think many Democrats share my views."

Mr. Paul, author of a new best-seller "End the Fed," long has been a critic of the Fed. His economic views make him an outlier in Congress, but his attacks on the Fed have resonated in Congress and with the public.

The Paul provision, and the legislation to which it is attached, would have to clear the full House and Senate before becoming law. Though many lawmakers insist they won't do anything to compromise the Fed's independence on monetary policy, the provision's momentum is substantial. It could be diluted before any bill reaches the president.

"Everybody would like to beat up on the Fed and make them the bad guy," said Rep. Melvin Watt (D., N.C.), who opposed Mr. Paul's measure. He said audits would "substantially castrate the Fed so it cannot do what it was set up to do."

Fed Chairman Ben Bernanke has crisscrossed the Capitol in recent weeks, attempting to fend off legislation that would curtail the Fed's power or independence. Lawmakers with whom he has met said he has reminded them how close the U.S. came to economic catastrophe last year and maintained that the Fed's actions were critical to bringing the economy back to growth.

But Mr. Bernanke faced a skeptical audience. Some lawmakers told him Americans are angry and want more oversight; others said the crisis demanded a rethinking of the U.S. approach to financial regulation.

"What he says is that at that point in time, with our economy literally ready to tip over the edge, he did a series of things he thought were absolutely necessary," said Sen. Mike Johanns, a Nebraska Republican.

"He was trying to convey that this point in time was enormously serious, and the country was about ready to lock up from an economic standpoint. He just says, 'Look, I did what I thought I had to to keep the country going,'" he said.

In an interview, former Fed Chairman Alan Greenspan said it would be "a major loss to the country if the Fed were incapable of running an independent monetary policy. If you have the GAO, after the fact, offering its opinions on whether a certain monetary policy action is correct or incorrect, the active deliberations that are so critical to building a meaningful consensus at the FOMC will begin to become unhelpfully cautious."

Mr. Paul maintained that his amendment wouldn't hinder monetary policy, but instead remove a veil of secrecy at the central bank that's unique within U.S. government. At the Fed, "there's plenty of political influence going on now -- presidential politics, influence by Goldman Sachs and the banking industry," he said. "It's all done in secret."

Congressional auditors have been blocked from reviewing the Fed's monetary policy operations, its loans to foreign governments and direct lending to banks since 1978, when a law was passed to shield the central bank from politics. Auditors already have access to the Fed's operations outside of monetary policy, including bank supervision and the special loan facilities created to rescue specific institutions, such as AIG and Bear Stearns Cos.

GAO audits could publicly reveal reams of information that now remain private, sometimes indefinitely. The Fed doesn't identify banks to whom it lends directly for fear of sparking a disruptive run on the bank. It has suggested that it might be willing to release that information after a lag.

The Fed in the past has resisted calls to release information, only to relent. In the 1990s, for instance, after pressure from Congress, the Fed began releasing transcripts of its interest-rate deliberations after a five year lag. Mr. Paul's proposal would delay GAO access to Fed decisions for six months. A companion Senate measure has drawn support from about a third of that chamber.

"If there's anything worse than a secret Federal Reserve, it's Congress controlling it," said Sen. Jim DeMint, Republican of South Carolina. "But I do think that there's a wide majority of Americans who want to know what the Federal Reserve is doing and to make sure that it's achieving its primary purpose, which is to protect the value of our dollar."

Cars, Kabul and Banks

2009-01-05T18:42:00.000-08:00

By Thomas L Friedman
The New York Times
December 13, 2008

If there is anything I’ve learned as a reporter, it’s that when you get away from “the thing itself” — the core truth about a situation — you get into trouble. Barack Obama will have to make three mammoth decisions after he takes the oath of office — on cars, Kabul and banks — and we have to hope that he bases those decisions on the things themselves, the core truths about each. Because many people will be trying to throw fairy dust in his eyes.

The first issue will be whether to bail out Detroit. What is the core truth about Detroit? Auto executives will tell you that it’s the credit crisis, health care, retirement costs and unions. Sure, those are real. But the core truth is that for way too long Detroit made too many cars that too many people did not want to buy. As even General Motors conceded in its apology ad last week: “At times we violated your trust by letting our quality fall below industry standards and our designs become lackluster.” Walk through any college campus today. You don’t see a lot of Buicks.

Over the years, Detroit bosses kept repeating: “We have to make the cars people want.” That’s why they’re in trouble. Their job is to make the cars people don’t know they want but will buy like crazy when they see them. I would have been happy with my Sony Walkman had Apple not invented the iPod. Now I can’t live without my iPod. I didn’t know I wanted it, but Apple did. Same with my Toyota hybrid.

The auto consultant John Casesa once noted that Detroit’s management has gone from visionaries to operators to caretakers. I would say that they have now gone from caretakers to undertakers. If they are ready to bring in some visionaries and totally restructure — inside or outside of bankruptcy — so they can make money selling cars that people will want to buy, then I say help them. I’d hate to see the Detroit auto industry go under. But if all we are doing is prolonging auto undertakers, then we have to let nature take its course.

After Detroit, Mr. Obama will be asked to bail out Afghanistan. Watch out. The tide has turned against us there because too many Afghans don’t want to buy our politics, or, more precisely, the politics of our ally, the corrupt government of President Hamid Karzai. That is “the thing itself.”

The main reason our Iraq bailout — a k a “the surge” — has had a positive effect is because Iraqis voted with their own guns and their own lives, taking on both Al Qaeda and pro-Iranian Shiite militants. Iraq has avoided bankruptcy for the moment — a total meltdown — because enough Iraqis wanted what we were selling: freedom from extremists. That is the thing itself, and right now I’m not seeing enough of that thing in Afghanistan. Beware of a Kabul bailout.

But maybe the most flagrant area where we continue to avoid looking at “the thing itself” is with our banks. What we are dealing with there is the effect of a credit bubble that began in the late-1980s with the advent of global securitization — the chopping up and bundling into bonds of everything from home mortgages to student loans to airplane leases, and then selling them around the world.

When you take this much leverage and this much globalization and this much complexity and start it in America, and then blow it up, you have a nuclear financial explosion. The deflating of this credit bubble is so wealth-destroying that even the most prudent banks have been ravaged by it.

What to do? The smartest people I know in banking are praying that Obama’s Treasury Department will tackle “the thing itself.” That is, do a real analysis of what the major banks are worth in a worst-case scenario. Then determine, if, on that basis, they have viable, survivable equity-to-asset ratios.

Those that do should get more government investment. Those that are close should be forced to find new investors and merge. And those not viable should be shut down and have their bad assets bought by a government-owned body (which would sell them over time) and their deposits shifted to healthy banks to make those banks even healthier. Some experts believe we still need to close 1,000 banks.

This process will be painful, but probably by the end of a year the market will clear, investors will come in, and the surviving banks will be ready to lend to each other and you and me. The “thing itself” here is that banks still don’t want to lend because they still don’t know the true value of their own balance sheets, let alone anyone else’s.

The market has to clear. We can do it painfully and quickly, as we did with the dot-coms, or we can be Japan and drag it out.

So whether it's cars, Kabul or banks, we have to stop wishing for the worlds we want and start dealing with the things themselves. If Obama does, his first year will be excruciatingly painful, but he could have three years after that to be creative. If he doesn’t, I fear that cars, Kabul and banks will dog his whole presidency.

The Auto Makers Are Already Bankrupt

2008-11-22T05:54:00.000-08:00

Admitting the obvious is their best chance to restructure.
By Paul Ingrassia

WSJ.com

November 21, 2008

The moment of truth in the nation's automotive bailout debate might have come this week. As the CEOs of GM, Ford and Chrysler begged Congress for federal aid, a Detroit radio talk-show host asked whether Michigan, as well as the car companies, should get assistance. The state is being hit by an economic hurricane, he said, just as New Orleans was hit by a natural hurricane

Huh? Will the victimology myth never end? Hurricane Katrina was an act of God. The car crisis is an act of man. For the difference, consult the Bible. Any version will do.

Yesterday, congressional leaders gave the car companies until Dec. 2 to come up with viable business plans and renew their request for aid. Meanwhile, it's worth examining the myths that are shaping this debate.

One is GM's assertion that "bankruptcy is not an option." In truth, GM already has conceded that it's bankrupt -- by publicly stating it's nearly out of cash and needs emergency assistance. The company hasn't made a formal bankruptcy filing, which is no small matter. But it has declared bankruptcy everywhere else. Chrysler, at this week's Senate committee hearing, did the same.

A second myth is that management changes in Detroit would be pointless. GM CEO Rick Wagoner said he wouldn't resign to secure federal aid for his company. This was like Louis XIV saying, "L'État c'est moi." Mr. Wagoner explained that he didn't see "what purpose would be served." Well, the same one served by the presidential election in this country three weeks ago: to bring in somebody new to try some fresh ideas to fix things.

Mr. Wagoner has been GM's chief executive officer for eight years. Even before this year's calamity struck (the company lost $181,000 per minute in the second quarter), the company's U.S. market share, financial results and stock price had plunged precipitously.

At Chrysler, CEO Robert Nardelli has been on the scene just a year. Before that he was at Home Depot, where he took a $210 million departure package when the board wanted him out. There's no reason to begrudge Mr. Nardelli that money. But any plan to save Chrysler will inflict great hardship on dealers, suppliers, workers and managers -- and even if Mr. Nardelli is a great executive talent, he isn't the guy to lead the clarion call for sacrifice, despite his recent offer to work for $1 a year. Symbols are important here, which is why the spectacle of the Detroit CEOs swooping into Washington on corporate jets to ask for money was so jarring.

Ford CEO Alan Mullaly has been on the job just over two years. He seems to be making the right moves -- cutting costs, eliminating the dividend early on, revamping product plans, mortgaging assets to raise money to fund the turnaround, etc. That's why Ford, while not in great shape, is in a materially better position than the other two.

Mr. Mullaly is the Detroit chief executive I'd keep on the job. But that still doesn't mean it's right to hand federal aid to Ford or any of the other companies without requiring a bankruptcy restructuring in return.

Which raises the third myth: Bankruptcy means death. In fact, it means getting a second chance. Detroit's car companies point, correctly, to the cost cuts, labor concessions and other stringent measures that they've enacted in recent years. Ron Gettelfinger, the president of the United Auto Workers union, got his members to accept two-tier wages and big concessions on the health-care and retirement plans.

Nonetheless, far too many valid contractual claims remain on the car companies' revenue streams from dealers, employees, retirees and others for these companies to survive -- even if we get a modest economic recovery soon. The companies remain saddled with cumbersome contracts with the UAW that make work rules and plant procedures a constant challenge. A bankruptcy trustee or receiver could cut through all this quickly and give the companies a fresh start.

Myth number four is that banning executive bonuses or requiring more fuel-efficient cars will save Detroit, and are strings that should come with any federal aid. Executive pay isn't the problem in Detroit; and the companies will have to build more fuel-efficient cars to satisfy the market, not to meet mandates. These would be pseudo-strings designed to appease organized labor and the environmental lobby. Instead of saving Detroit, they'll pave the way for a bigger bailout later on.

Finally, the fifth myth is that a merger of GM and Chrysler will propel both companies to prosperity. Some of the slide-shows making the rounds on Wall Street assume that a merged company would have a 30% market share, slightly less than the two companies now have combined. It isn't true. The elimination of duplicate brands, models and dealers would push a combined market share down to 25% or less. The revenue projections behind a potential merger seem greatly inflated. GM has massive problems of its own to address without taking on those of Chrysler, which needs a profitable, and committed, foreign buyer.

The biggest beneficiaries of a GM-Chrysler merger would be Cerberus, the private-equity firm that owns Chrysler, and the big banks that hold billions of Chrysler bonds that they haven't been able to sell. The bonds were used in Cerberus's purchase of Chrysler from Daimler. The banks expected to sell the bonds to investors, but have been left holding billions in Chrysler debt that they'd dearly love to unload.

Cerberus has offered to forego any profits on a sale of Chrysler, but that's phony. There won't be any profits. Just relieving Cerberus of the need to keep funding Chrysler would provide the private-equity moguls with a bonanza. As for the banks holding Chrysler bonds, didn't we already bail them out? Why should we have to do it again?

Mr. Ingrassia is a former Dow Jones executive and Detroit bureau chief for this newspaper.

Some Positive Reactions from the Right

2008-11-20T16:51:00.000-08:00

By Dennis Prager

Townhall.com

November 11, 2008

I spent a good part of the past year speaking and writing against the election of Barack Obama. During the last week of the campaign, my Salem Radio Network colleagues, Hugh Hewitt and Michael Medved, and I spoke on behalf of the McCain-Palin ticket in the Battleground states of Colorado, Minnesota, Ohio, Pennsylvania, and Florida.

One would expect that I would be devastated at Barack Obamas election -- as devastated as liberals were at the reelection of George W. Bush in 2004. I am not -- yet. Here are some reasons why:

1. Republicans won the election of 2004, an election that was more important to the future of America and the world than was this election. Had Sen. John Kerry won in 2004, America would have left Iraq in defeat and Islamists would have won their greatest victory ever. Millions of young Muslims would likely have seen in Islamic jihadism humanitys future and signed up for terror; and Iraq would have degenerated into genocidal chaos.

2. The election of a black president is good for blacks, good for whites, and therefore very good for America.

At least at this moment -- no one can predict the future -- many more blacks feel fully American, and fewer blacks regard white America as racist than ever before. One cannot attain a higher status than the American presidency, and a black man will now occupy that position. As the Hoover Institutions Shelby Steele wrote, this is the first time in history that a majority white nation elected a black as its leader.

Conservatives are not surprised. I have argued for decades that America is the least racist country in the world. By and large, only Americans on the right have believed, or at least had the courage to say, this. Now that fact is obvious to virtually anyone with eyes to see.

3. The Obama victory poses a serious challenge to liberalism and to the doctrine of black victimhood.

If fewer and fewer blacks perceive white Americans as racist, a major reason for black support for liberalism could lose its appeal to blacks. On the other hand, if liberalism continues to portray blacks as victims of white racism, more white Americans will regard liberalism as phony -- or worse, as stirring up racial tensions for political gain.

Most whites are tired of racial tension, tired of being portrayed as racist, tired of their children being taught in college that they are either consciously or unconsciously racist, tired of lowering standards for blacks or anyone else.

So the Obama victory puts liberals in a bind. They either acknowledge the reality of an essentially non-racist America and thereby alienate black and white liberals still committed to this proposition or they continue to play the America is racist card and alienate many whites.

The challenge the Obama victory poses to many blacks is that they will have to abandon ascribing black problems -- such as disproportionate amounts of violent crime and the highest rate of out-of-wedlock births in America -- to racism. Fewer and fewer white Americans will tolerate being blamed for problems within black life.

4. The Obama victory will bring clarity to Americas place in the world.

Now that America is apparently loved again, we shall see how this plays out beyond emotional rhetoric. Will Europe contribute significantly more troops to Afghanistan? Will Germany now allow its NATO troops to shoot at Taliban fighters (thus far they have been allowed to shoot only if shot at)? Will our allies and Russia and China place the needed sanctions on Iran to prevent it from developing a nuclear device? Or is Americas being loved irrelevant to how other countries behave?

5. Conservatives will be able to show how much more decently they act when they are out of power.

The treatment of President George W. Bush by liberals has been despicable, undeserved and unprecedented. We who oppose Barack Obamas policies will, hopefully, act in accordance with conservative values of decency. Hence my simple announcement on the day after the election: I did not vote for him. I did not want him to be president. But as of January 20, 2009, Barack Obama will be my president.

Barack Obama may have a successful presidency or a failed one. If he allows the left wing of the Democratic Party to set his agenda, it will be the latter. In the meantime, however, we can celebrate the aforementioned good of Barack
Obamas election and pray for him and for our beloved country.

What Independent Voters Want

2008-10-30T17:25:00.000-07:00

By: John P Avlon

The Wall Street Journal

October 20, 2008

“They tend to be fiscally conservative and strong on security.”

Independent voters, once a political afterthought, are now the largest and fastest-growing segment of the American electorate.

This shift led to the nomination of two candidates who ran against the polarizing establishments of their own parties, while preaching the need to reach across the red-state/blue-state divide. Now independent voters may determine who is elected president.

Forty-three percent of undecided swing voters are independents and 47% are centrists, according to a recent Wall Street Journal/NBC poll. Independent voters have been on the rise while the parties have been playing to a shrinking base. This is a generational change. There are now six states where independents outnumber both Republicans and Democrats -- the swing states of Colorado, Iowa and New Hampshire as well as New Jersey, Connecticut and Massachusetts.

Key battleground states this year such as Pennsylvania, Ohio, Virginia and North Carolina each have more than one million independent voters. In California, Florida and Nevada, the number of independent voters has increased more than 300% in the past 20 years, while Democratic and Republican registration has flatlined.

Back in 1954, only 22% of voters identified themselves as independents, according to the American National Election Survey. Fifty years later the number was nearly double. Now, two out of five Americans can't name anything they like about the Democrats, and 50% say the same about Republicans. What happened?

As the two parties grew more ideologically polarized amid the culture conflicts of the 1960s, centrist voters felt politically homeless. First, there was realignment in the form of Reagan Democrats, and then de-alignment as centrist voters declared their independence from the far-right and the far-left. The modern independent movement kicked into high gear with Ross Perot's 1992 presidential campaign. Promising to balance the budget and reform the corrupt partisan system in Washington, Mr. Perot briefly led in the polls and managed to win 19% of the vote.

Throughout the 1990s, the independent movement kept growing while Democrats and Republicans warred in Washington. Three independent governors were elected: Angus King of Maine, Lowell Weicker of Connecticut and Jesse Ventura of Minnesota. All spread the same essential reform message: independence from special interests guided by a common-sense balance of fiscal conservatism and social liberalism.

The momentum continued this decade with the election of Sen. Joe Lieberman, New York City Mayor Mike Bloomberg, and the independent-in-all-but-name California Gov. Arnold Schwarzenegger.

This is the new mainstream in American politics, and it's growing among younger voters. More than 40% of college undergraduates identify themselves as independents, according to a summer 2008 survey by Harvard University's Institute of Politics (IOP). "Half of young Americans do not identify with traditional party or ideological labels -- they are the new center in American politics," says John Della Volpe of IOP.

This trend extends to 30- to 45-year-old Generation X voters as well, says the author of "X Saves the World," Jeff Gordinier: "Gen Xers tend to be pretty post-ideological and pragmatic, there is less allegiance to any one party or any one way of thinking."

For Americans who've grown accustomed to hundreds of cable channels and unlimited choices on the Internet, politics is the last place people are expected to be satisfied with a choice between Brand A and Brand B.

Professional partisans in Washington try to ignore this shift, perpetuating the myth that the independent movement is a chaotic grab bag. In fact, the movement has a coherent set of underlying beliefs: Independents tend to be fiscally conservative, socially progressive and strong on national security. They believe in putting patriotism over partisanship and the national interest over special interests.

One year ago, while Republicans named terrorism as their No. 1 issue and Democrats pointed to health care, independents were already feeling the squeeze of the economy. They want a return to fiscal responsibility.

A 2007 study of independents by the Washington Post/Kaiser Family Foundation showed they are not swayed by social-conservative issues. Independents were more likely than either Republicans or Democrats to agree that abortion should be legal in most (but not all) cases, and that same-sex couples should be allowed to legally form civil unions, but not to marry.

The top targets of independents' anger are illustrative -- hypocritical politicians, pork-barrel projects and a lack of bipartisan solutions in Washington, according to a 2008 national survey of independents by TargetPoint Consulting. Then there's the Bush administration. Independents believe the current president is the worst in recent history, but there is one area of policy overlap: 66% of independent voters believe that the U.S. has an obligation to establish security in Iraq before withdrawing.

Looking at this profile, it's easy to see why John McCain is outperforming the Republican brand. Mr. McCain's credibility with independents comes from his principled independence and record of forging bipartisan coalitions. Barack Obama's appeal to independents is rooted in his promise to transcend the left/right, black/white debates. He beat Hillary Clinton 2-1 among independents.

Throughout the summer, independents split their support evenly between Messrs. McCain and Obama, with high approval ratings for both candidates. After the Republican convention in September, independents broke for Mr. McCain by a 15-point margin and he surged in swing state polls. But the recent financial crisis increased economic anxiety among moderates and the middle class, making the election a referendum on the Bush administration. Independents swung to Mr. Obama. Colin Powell's endorsement will validate the decision for many independents.

The next president will inherit the oval office at a time of economic turmoil, with a combustible combination of high expectations and an angry electorate. But the next president can unite the country even in difficult times if he understands this truth: Americans are not deeply divided -- our political parties are -- and the explosive growth of independent voters is a direct reaction to this disconnect.

Plummeting Oil Prices – Iran's Options

2008-10-30T17:07:00.000-07:00

By: Dr. Nimrod Raphaeli

Middle East Media Research Institute

October 30, 2008

Introduction

At its two-hour emergency meeting in Vienna on October 24, the Organization of Oil Petroleum Exporting Countries (OPEC) decided to lower crude production by 1.5 million barrels/day (b/d), effective next month.

The reduction in production was OPEC's response to plummeting crude prices, which peaked at $147 a barrel last July but are now hovering in the mid-$60s a barrel, and appear to be trending downward. The lowering of production was a compromise between the price hawks of OPEC, primarily Iran and Venezuela that demanded a reduction of 2.5 million b/d, and the largest oil producer, Saudi Arabia, which has refused to be drawn into a situation that runs contrary to its national and strategic interests.

The Saudi Stand

For weeks, the hawks had been calling for lowering oil production to stabilize prices and perhaps even to establish a floor of $70-$100 a barrel. While the hawks' voice had reached a crescendo prior to OPEC meeting, the Saudis had deliberately kept mum on the subject of production cut.
There are two reasons for their deliberate silence. The minor reason has to do with the Saudis' apparent refusal to be seen as in cahoots with the likes of Iranian President Mahmoud Ahmadinejad and Venezuelan President Hugo Chavez, two revolutionary anti-Americans whose policies are viewed as anathema by the conservative Saudis. The major reason has to do with the Saudis' perception of potential conflict with Iran, its Gulf rival. The Saudis have been concerned for several years now about Iran's growing strategic influence and designs for regional hegemony in the Gulf and in a number of Arab countries, primarily Iraq, Syria and Lebanon.

The sharp decline in oil prices has provided the Saudis with an opportunity to inflict pain on Iran and constrain its political ambitions for regional hegemony by keeping oil production high and oil prices down. In practical terms, the Saudi's subtle weapon against Iran is at least as potent as the U.N. and U.S. sanctions combined. An economically weaker Iran translates into an Iran that is weaker both politically and strategically, and hence less of a threat to the Gulf region.

There is one other reason which has recently emerged as a source of conflict between Shi'ite Iran and a number of Sunni countries in the Middle East, particularly Saudi Arabia but also Egypt, Jordan and the Arab Gulf countries. These countries have been concerned about Iranian efforts to engage in large-scale proselytizing of Sunnis into Shi'ism, which is perceived by the majority of the Sunnis, particularly the Wahhabis in Saudi Arabia, as a false religion whose practitioners are apostates.

Implications of Lower Oil Prices

A recent study by the International Monetary Fund (IMF) has suggested that in order for Iran to balance its budget, the price of crude oil must not fall below $95 a barrel. The equivalent figure for Saudi Arabia is $50 per barrel and for the United Arab Emirates and Qatar even lower. One should keep in mind that Iranian oil sells at a discount compared with the higher quality benchmark West Texas Intermediate.

Countries whose economies rely on the production of natural resources, such as oil, generally establish a stabilization fund for retaining windfall profits, such as when oil went over $140 a barrel, to be used in time of economic shocks, such as a sharp decline in the price of the commodity.

Iran has established such a fund to be managed by its central bank. It would appear, however, that President Ahmadinejad has dipped into the till too often, causing the departure/resignation of two consecutive governors of Iran's central bank in a little over one year. The assets of the Iranian stabilization fund are kept secret; however, a member of the Majlis (parliament) recently revealed that it has a balance of $7 billion, which would just about cover the cost of imported gasoline for one year.

The sharp decline in oil prices will limit Ahamadinejad's ability to keep his election promise to bring money to the dinner tables of Iranians. During the Iranian calendar year of March 2007-2008, Iranian oil revenues were estimated at $80 billion. If prices remain at the present level of $60 per barrel, Iran's revenues in the next calendar year will decline to $64 billion, meaning a budgetary deficit of $7-$30 billion. The U.S. and U.N. sanctions will continue to force Iran to resort to circuitous routes to buy much of its consumer and, even more, dual-use goods at a premium. The Iranian press came out recently with such headlines as "the end of the oil festival," and "the bankruptcy of OPEC."

Iran's Options

Oil revenues comprise 80% of Iran's foreign exchange. If oil prices continue to plummet in the face of the world's worsening economic crisis - a crisis which may be just in its early stages - Iran, unlike the Arab oil-producers with hefty sovereign wealth funds to cushion their national economies, could face politically destabilizing events that could threaten the survival of the regime.

On the economic front, Iran could resort to terminating oil subsidies and restricting the import of non-essential consumer goods to conserve foreign currency. In fact, news from Iran last week suggests that both steps are under consideration.

Iran may also seek to reintroduce a 3% value-added tax (VAT) which it was forced to suspend after shopkeepers in the politically influential bazaars closed shops in protest, arguing that the VAT would further aggravate inflation which reached 29.6% in October.

The price of oil is determined by the twin factors of economics and psychology. Economic factors are shaped by supply and demand and when demand plummets the prices quickly follow suit. But oil prices are also sensitive to psychological factors, such as perceived threats to the sources or routes of oil supply. In the latter case, Iran may seek to generate a crisis that would bring oil speculators back in droves and cause oil prices to spike. In this regard, Iran could put into action one of the following options in an attempt to both divert national discontent outward and make an economic gain at the same time:

First, Iran could escalate the conflict in Iraq to a degree that would deny the market a supply of 1.5-2.0 million b/d of much needed Basra light crude. The Shi'ite cleric Muqtada Al-Sadr, with his Iran-paid Mahdi Army, is a potent troublemaker to carry out such a mission in the service of Iran. Iran could use its many agents in southern Iraq to sabotage the oil pipeline that carries Iraqi oil to Um-Qasr port. In a desperate move, Iran might cause an incident with one of the U.S. naval ships patrolling Iraq's oil platforms.

Second, Iran's Revolutionary Guards could sabotage an oil tanker in the Gulf of Hormuz on some flimsy argument that the tanker has violated Iran's territorial waters. Such act would raise the political tensions to high levels and greatly increase insurance premium to suffocating levels or discourage oil tankers from transporting Gulf oil.

Third, Iran could instigate a conflict between Hizbullah and Israel that could plunge the Middle East into a new round of a military conflict that might also involve Syria (Iran's strategic ally in the area). Armed conflicts in the Middle East quickly translate into higher oil prices, with or without global recession.

Dr. Nimrod Raphaeli is the Editor of The MEMRI Economic Blog, www.memrieconomicblog.org

Ceding the Center

2008-10-26T10:43:00.000-07:00

By David Brooks

The New York Times

October 26, 2008

There are two major political parties in America, but there are at least three major political tendencies. The first is orthodox liberalism, a belief in using government to maximize equality. The second is free-market conservatism, the belief in limiting government to maximize freedom.

But there is a third tendency, which floats between. It is for using limited but energetic government to enhance social mobility. This tendency began with Alexander Hamilton, who created a vibrant national economy so more people could rise and succeed. It matured with Abraham Lincoln and the Civil War Republicans, who created the Land Grant College Act and the Homestead Act to give people the tools to pursue their ambitions. It continued with Theodore Roosevelt, who busted the trusts to give more Americans a square deal.

Members of this tradition have one foot in the conservatism of Edmund Burke. They understand how little we know or can know and how much we should rely on tradition, prudence and habit. They have an awareness of sin, of the importance of traditional virtues and stable institutions. They understand that we are not free-floating individuals but are embedded in thick social organisms.

But members of this tradition also have a foot in the landscape of America, and share its optimism and its Lincolnian faith in personal transformation. Hamilton didn’t seek wealth for its own sake, but as a way to enhance the country’s greatness and serve the unique cause America represents in the world.

Members of this tradition are Americanized Burkeans, or to put it another way, progressive conservatives.

This tendency thrived in American life for a century and a half, but it went into hibernation during the 20th century because it sat crossways to that era’s great debate — the one between socialism and its enemies. But many of us hoped this Hamilton-to-Bull Moose tradition would be reborn in John McCain’s campaign.

McCain shares the progressive conservative instinct. He has shown his sympathy with the striving immigrant and his disgust with the colluding corporatist. He has an untiring reform impulse and a devotion to national service and American exceptionalism.

His campaign seemed the perfect vehicle to explain how this old approach applied to a new century with new problems — a century with widening inequality, declining human capital, a fraying social contract, rising entitlement debt, corporate authoritarian regimes abroad and soft corporatist collusion at home.

In modernizing this old tradition, some of us hoped McCain would take sides in the debate now dividing the G.O.P. Some Republicans believe the G.O.P. went astray by abandoning its tax-cutting, anti-government principles. They want a return to Reagan (or at least the Reagan of their imaginations). But others want to modernize and widen the party and adapt it to new challenges. Some of us hoped that by reforming his party, which has grown so unpopular, McCain could prove that he could reform the country.

But McCain never took sides in this debate and never articulated a governing philosophy, Hamiltonian or any other. In Sunday’s issue of The Times Magazine, Robert Draper describes the shifts in tactics that consumed the McCain campaign. The tactics varied promiscuously, but they were all about how to present McCain, not about how to describe the state of country or the needs of the voter. It was all biography, which was necessary, but it did not clearly point to a new direction for the party or the country.

The Hamiltonian-Bull Moose tendency is the great, moderate strain in American politics. In some sense this whole campaign was a contest to see which party could reach out from its base and occupy that centrist ground. The Democratic Party did that. Senior Democrats like Robert Rubin, Larry Summers and Jason Furman actually created something called The Hamilton Project to lay out a Hamiltonian approach for our day.

McCain and Republicans stayed within their lines. There was a lot of talk about earmarks. There was a good health care plan that was never fully explained. And there was Sarah Palin, who represents the old resentments and the narrow appeal of conventional Republicanism.

As a result, Democrats now control the middle. Self-declared moderates now favor Obama by 59 to 30, according to the New York Times/CBS News poll. Suburban voters favor Obama 50 to 39. Voters over all give him a 21 point lead when it comes to better handling the economy and a 14 point lead on tax policy, according to the Wall Street Journal/NBC News poll.

McCain would be an outstanding president. In government, he has almost always had an instinct for the right cause. He has become an experienced legislative craftsman. He is stalwart against the country’s foes and cooperative with its friends. But he never escaped the straightjacket of a party that is ailing and a conservatism that is behind the times. And that’s what makes the final weeks of this campaign so unspeakably sad.

The 1% Panic

2008-10-15T16:20:00.000-07:00

By L. Gordon Crovitz

The Wall Street Journal

October 13, 2007

Our financial models were only meant to work 99% of the time.

The Panic of 2008 is a crisis of trust. Investors don't trust the value of bad debts enough to offer market-clearing prices. Banks don't trust one another to stay in business long enough to do business together. And there's definitely no trust that Washington can avoid creating costly new moral hazards as it attempts to bail out the system.

But the most paralyzing loss of trust may be in Wall Street's system itself: How did the smartest people at the best banks running the most sophisticated financial models fail to forecast the collapse of mortgage-related securities? How did this unpredicted collapse devastate the system? And most of all, can we ever again trust the financial models on which value is supposed to be determined?

These questions matter because despite the current crisis, modern finance has delivered enormous benefits, from explaining to investors why they should diversify their investments to the creation of mutual and index funds. Related innovations helped financial institutions speed capital to its best use, fund new businesses and accelerate global prosperity. In other words, financial engineering worked beautifully -- until suddenly it didn't.

So what happened? Financial models take logic and historical data into account, but it's now clear that these elegant models have a serious weakness: They can't cope with illogical and uneconomic factors. Washington's insistence for years on artificial subsidies for mortgages through Freddie Mac, Fannie Mae and other programs led to a loud "Does not compute!" that is still rocking the financial system.

Here's how ill-conceived regulation poisoned the system. Until recently, bank CEOs and regulators slept well at night thanks to a financial model developed in the 1990s called "value at risk" or VaR. It assesses historical variances and covariances among different securities, informing financial institutions of the risks they're taking. By assessing risk factors across all securities, VaR can compare historical levels of risk for given portfolios, usually up to a 99% probability that banks would not lose more than a certain amount of money. In normal times, banks compare the VaR worst case with their capital to make sure their reserves can cover losses.

But VaR can't account for extreme unprecedented events -- the collapse of Barings in 1995 due to a rogue trader in Singapore, or today's government-mandated bad mortgages bundled into securities that are hard to value and unwind. The "1% likely" happened. And because the 1% literally didn't compute, there was no estimate of the stunning losses that have occurred.

Yale mathematician Benoit Mandelbrot pointed out the shortcomings of the VaR model in his "The (Mis)behavior of Markets," published in 2004. He noted that bell curves work for, say, disparities in the height of people. In markets, instead of flat tails of rare events at either end of the bell curve, there are "fat tails" of huge upsides and huge downsides. Markets are more complex than the neat shape of bell curves.

Last year's bestselling nonfiction book had a similar theme. In "The Black Swan," former trader Nassim Nicholas Taleb pointed out that extreme outcomes are actually common, warning that financial engineers -- "scientists," as he calls them -- ignore these unlikely outcomes at their peril. But today's credit panic was not entirely unpredictable. Mr. Taleb was prescient in writing, "The government-sponsored institution Fannie Mae, when I look at their risks, seems to be sitting on a barrel of dynamite, vulnerable to the slightest hiccup. But not to worry: Their large staffs of scientists deemed these events 'unlikely.'"

Likewise, the financial engineers at once high-flying hedge fund Long-Term Capital Management thought they had taken all risks into account, but the Russian financial crisis of 1998 blew their model. Last week the former general counsel of LTCM, James Rickards, reflected on how an incomplete VaR model undermined his firm. "Since we have scaled the system to unprecedented size, we should expect catastrophes of unprecedented size as well," he wrote in the Washington Post. "We're in the middle of one such catastrophe, and complexity theory says it will get much worse."

Global markets and new financial instruments are indeed complex. This complexity led to a fragility that made government meddling in markets more dangerous than ever before -- creating the 1% likely disaster. The good news for VaR and similar models is that the free market alone would not have allowed the bubble of subsidized mortgages, but the bad news is that it's far from clear that Congress has learned from the current crisis to pursue policy goals in ways that don't distort the fundamentals of markets.

Now the regulators trying to fix the damage in the financial system must also try to avoid more 1% likely crises. Transparent steps that restore market efficiency are better than complex, ad hoc policies that postpone market solutions. These programs should be judged on whether they make the financial models function better or function not at all. As we've learned, there's not much room in between.

In Praise of Bernanke

2008-10-08T16:34:00.000-07:00

By David Leonhardt

The New York Times

Economix Blog

October 8, 2008

The Federal Reserve’s rate cut — part of a coordinated international effort— has put Ben Bernanke front and center for yet another day. Over the past couple of years, Mr. Bernanke, the Fed chairman, has come in for a fair bit of criticism. Some of it has been justified, I think.

But it’s also worth taking a moment to consider how well prepared he is for his current task. He spent his career studying the lessons of the Great Depression and, to a lesser extent, Japan’s 1990’s slump. (And his fellow economists have enormous regard for him and his work.) He now finds himself having to put those lessons into practice. His qualifications by no means guarantee that he’ll succeed. But it’s hard to imagine anyone who is more qualified to try to minimize the damage from the current crisis. I thought of this after getting the following e-mail from the economist Bruce Bartlett:

Perhaps I am the only one who thinks so, but I think the Fed has been absolutely heroic throughout this whole crisis. It’s done a lot of things that it didn’t want to do, maybe gone over the line a bit, and set some precedents it would rather not have established. But Ben Bernanke understands the risks involved because he is a student of the Great Depression and knows how close to the precipice we are.

Sometimes you just have to throw out the rule book and do what you have to do to keep the whole system from collapsing and I think that is what he is doing. I think when this is all over people will recognize that Bernanke was Horatio at the bridge.

The reason I say this is because I have been studying the origins of the Great Depression and know how fundamental monetary policy was to that event, how horribly the Fed screwed-up, and how momentum affected the course of events. The whole calamity could have been prevented very easily in 1929, but it was a lot harder to fix in 1930, harder still in 1931, and very hard in 1932. It’s like a car rolling down hill. At the very beginning it takes little effort to stop. But once it gets going, look out below.

Bernanke is trying desperately to make sure that momentum doesn’t get going. He also understands that if the consequences of his actions are an inflation spike down the road that is far preferable to a deflationary spiral that could spin out of control and lead us into the abyss.

Maybe Someone Does Have a Clue

2008-09-28T06:37:00.000-07:00

By HEIDI N. MOORE

The Wall Street Journal

September 25, 2008

Internet billionaire Mark Cuban recently suggested that some enterprising author write a book about the market turbulence called "No One Has a Clue What Is Going On and the Whole World Is Guessing."

Maybe the author should just keep the tape recorder on Stephen Schwarzman. The chairman of Blackstone Group was part of a roundtable of roughly 30 finance luminaries at the Waldorf-Astoria on Tuesday afternoon, hosted by the Yale School of Management and co-sponsored by The Wall Street Journal, and he kicked off the audience-participation segment with a nearly all-in-one-breath summary of the causes and effects of the credit crisis:

"It's a perfect storm. It started with Congress encouraging lending to lower-income people. You went from subprime loans being 2% of total loans in 2002 to 30% of total loans in 2006. That kind of enormous increase swept into the net people who shouldn't have been borrowing.

Those loans were packaged into CDOs rated AAA, which led the investment-banking firms [buying them] to do little to no due diligence, and the securities were distributed throughout the world, where they started defaulting.

When they started defaulting, out of bad luck or bad judgment, we implemented fair-value accounting....You had wildly different marks for this kind of security, which led to massive write-offs by the commercial-banking and investment-banking system.

In the face of those losses...you needed to raise new equity...which came from sovereign-wealth funds, in part, which then caused political resistance to sovereign-wealth funds, who predictably have withdrawn from putting money into the system....It seemed pretty obvious that would happen. We now find ourselves with a liquidity crisis where fundamentally the cost of money for financial intermediaries [such as investment banks] is significantly in excess of their cost of lending it. So several institutions found themselves in a structurally impossible position. ...Goldman reverted to a banking charter for a lower cost of funds, which today is still not low enough for the business.

"So that's the story of how we got there."

Give Me That Old-Time Religion

2008-09-28T06:22:00.000-07:00

By Daniel Henninger

The Wall Street Journal

September 25, 2008

Responsibility! Accountability! Discipline! Oversight! Rules!

The canyons of Wall Street are ringing with Democratic politicians and liberal pundits crying out for the renewal of ancient values and a return to basics. The political right wants market failures to be punished with Old Testament ruin.
So we're all agreed: Standards of behavior matter.

All that remains is to see if this week's left-right consensus on standards can be extended to any corner of American life beyond "CEO pay" and other sitting ducks.

Once we're done imposing Spartan discipline on the dining rooms of Wall Street, how about some of the same for the halls and classrooms of the average inner-city high school? A nation in panic at the sight of banks imploding has yawned for years while the public-school system melted down.

A handful of Supreme Court decisions going back 40 years relaxed standards of oversight for dress codes, comportment, speech and expulsion, and the average school principal or teacher threw in the towel on daily discipline. Not my job.
Many school administrators can relate to the frontline mortgage-lending officers, some of them old-school bankers who used to help young borrowers understand the difference between the real world and probable ruin. That's what high-school principals used to do. No more.

Suddenly, local lenders were toiling (if they survived) in the easier liar-loan world fostered by Congress, Fannie and Freddie and guys with great tans in Los Angeles. The old public-school system, once a tight ship in countless towns, knew that game. The schools learned to shove another class of semi-educated bodies into the street every June and call them "graduates" the same way lenders called zero-down-payment borrowers "homeowners."
This column isn't a rant about the ruined schools. It's about spotting a ray of hope amid the past week's rubble in the financial markets. Something positive has been in the air this election, and all the calls now for a return to financial rectitude is part of it.

On Monday, Barack Obama gave a tough speech on cleaning up Washington. The details may be blather, but the cleanse-the-temple tone was out of a Jerry Falwell sermon circa 1980. He appealed to "our core values" and denounced an "ethic of irresponsibility." Both John McCain and Sen. Obama are selling repentance in politics.

Two months ago, one of the campaign's most important events took place at Saddleback Evangelical Christian Church, the Rev. Rick Warren presiding.Before that in April, Hillary Clinton and Mr. Obama did a "Compassion Forum" at Messiah College in Grantham, Pa. Sen. Clinton talked about feeling the Holy Spirit "on many occasions." Mr. Obama was still wearing sackcloth for "cling to religion."
This election may be won by whichever man looks better riding an economic surfboard the next month, but the campaign's undercurrents are pushing the basics back to the surface.

Yes, politicians will bend to any new wind that blows through, but this past week of financial turmoil has shown there's a strong whiff in the air for the values of the greatest generation. This was the 20% generation. In the post-war years, young couples knew they'd somehow have to save 20% of the down payment on a home mortgage. That's thrift, an archaic word I think is still in most dictionaries.

Push this idea far enough, and you're talking the world of "Ozzie and Harriet" (ABC-TV 1952-1966) versus "Sex and the City" (HBO, 1998-2004). Push further and you arrive at happy Sarah Palin and that family of hers. What Sarah represents produces pushback from the smart-set women on "The View" and big-city comedians and newspaper columnists, all trying to knock Little Miss Muffet off her too-perfect tuffet.

This, in short, is the culture wars -- endless and unwinnable. Until this week. This week revealed that when real money is on the line, even the left starts screaming for old-fashioned standards. Thus rose a shout for regulatory "oversight" of markets, and they don't mean some vague, Googlie "don't be evil." They want tough, punishing rules.

This won't wash. You can't claim, as holier-than-thou politics is now, that sending an army of regulatory storm-troopers into Wall Street will ensure integrity in mere bankers who themselves come from a broader, anything-goes culture.

There's a reason Barack Obama is delivering secular sermons in places like Green Bay, Wis. Green Bay's beef with a culture of corner-cutting predated Bear Stearns. Wall Street hasn't been the only font of wretched excess. More than opportunism has landed this presidential campaign in places that represent standards, like Saddleback in California and Messiah in Pennsylvania. People want standards again because they work -- in business, in schools, in daily life.

In my ear, I can hear one of the four candidates giving a speech connecting Wall Street to the nation's Main Streets. Standards, responsibility, accountability, rules? You bet. Bring 'em all back.I wonder which one of them would give it.

Old-School Banks Emerge Atop New World of Finance

2008-09-16T10:53:00.000-07:00

By: Carrick Mollenkamp and Mark Whitehouse

The Wall Street Journal

September 16, 2008

More than 200 years after it was born at the base of a buttonwood tree, Wall Street as we have known it is ceasing to exist.

The rapid demise of 158-year-old investment bank Lehman Brothers Hodlings Inc., together with the takeover of 94-year-old Merrill Lynch & Co., represent a watershed in the banking industry's biggest restructuring since the Great Depression.

For decades, the world of banking was divided largely into two kinds of businesses. Commercial banks took deposits and made loans, eking out a decent return under the burden of heavy regulations designed to protect depositors. Standalone securities firms such as Lehman, Merrill and the now-defunct Bear Stearns Cos. took no deposits and were lightly regulated, freeing them to take big risks and make fat profits at the cost of occasional losses. More recently, some of the biggest institutions, such as UBS AG and Citigroup Inc., combined the two.

Now, as many securities firms are consumed in the wake of a disastrous foray into financial wizardry, the balance of power is shifting. On the wane are the heavy borrowing and complex securities that financiers embraced in recent years. On the rise is a more old-fashioned business of chasing customer deposits and building branch networks, conducted with the backing of federal insurance programs to keep depositors from pulling out en masse.

Of the five major independent investment banks that existed a year ago, only two -- Goldman Sachs Group Inc. and Morgan Stanley -- remain standing. Two others, Merrill and Bear Stearns, have been acquired by big deposit-taking institutions, Bank of America Corp. and J.P. Morgan Chase & Co. Other giant commercial-banking players, such as Wells Fargo & Co. in the U.S., as well as Germany's Deutsche Bank AG and Spain's Banco Santander SA, have emerged as some of the most powerful players in an industry that is likely to be safer but less lucrative for shareholders.

Banks are heading "back to basics -- to, if you like, the core purpose of the system with less bells and whistles," says Douglas Flint, finance chief at HSBC Holdings PLC and co-chair of the Counterparty Risk Management Policy Group, a task force of finance executives working on a framework to prevent systemic financial shocks. "There is a recognition that when the dust settles...the construct of the industry will be different."

Evidence of the new importance of bread-and-butter banking is appearing around the globe. Deutsche Bank, which had been focused on building its global investment-banking business, last week agreed to pay nearly €3 billion ($4.3 billion) in a two-stage deal to acquire the 850 domestic branches of Deutsche Postbank AG, the retail banking arm of the German postal system. Santander, which also wooed Postbank, paid £1.26 billion ($2.26 billion) in July for troubled U.K. mortgage lender Alliance & Leicester.

The shift reflects a broader reassessment of how best to do the essential business of banking, which plays a crucial role in the economy by turning their short-term liabilities -- savers' cash and deposits -- into longer-term investments such as mortgages and corporate loans. In recent years, commercial banks moved a lot of that business off their heavily regulated balance sheets and into the realm of securities firms.

The investment banks packaged the loans into an array of ever more complex securities, which they kept on their books or sold to a broad range of investors -- including hedge funds and bank-affiliated funds known as conduits and structured-investment vehicles, or SIVs. To fund their activities, the securities firms and investors borrowed heavily in the commercial-paper market and the so-called repo market, where borrowers put up securities as collateral for short-term loans.

This alternative banking system proved profitable, in part because participants weren't required to meet commercial banks' more rigid reserve requirements against potential losses. But these banks' strategies backfired with the onset of the credit crunch last summer, as heavy losses on mortgage and other investments in some cases proved too much for their thin capital bases, and the markets on which they relied for funding dried up.

A federal bankruptcy-court filing by Lehman on Monday in New York highlights the quick spiral. As of May 31, Lehman depended on repo loans for $188 billion in borrowings. But as the value of the securities Lehman had put up as collateral for the loans fell amid the broader market turmoil, its lenders started demanding extra collateral.

Because the amount it could borrow against its securities kept falling, Lehman was forced to dip ever deeper into its cash reserves, prompting ratings firms to consider cutting its credit ratings, according to the filing. Lehman's efforts this month to raise money by selling an investment-management firm proved too late.

As repo loans and other market-based funding on which investment banks rely becomes more expensive, the question becomes whether independent broker-dealers, unattached to big banks with ample deposits, will survive. "In the coming months, we expect a significant overhaul of all the brokers' business models," wrote Matt King, a credit strategist at Citigroup in London, in a recent report.

The new financial order also highlights the lasting impact of the elimination of the Glass-Steagall Act, a Depression-era law that prevented U.S. commercial banks from doing investment-banking business. The repeal of Glass-Steagall, in 1999, allowed commercial banks to break into the securities business and ultimately gain the heft to compete with the likes of Bear Stearns and Merrill.

This universal banking model has proved hard to manage, with the likes of Citigroup and UBS knitting together a vast empire of operating units. Even so, these and other big deposit-taking banks that are required by regulators to maintain bigger cushions against losses, such as Bank of America, have so far survived the credit crunch better than some of the stand-alone securities firms.

Thanks in large part to government programs that insure them, deposits have been a rare bright spot during the credit crunch. In the U.S., savings and small time deposits -- two important classes of customer money -- stood at $6.9 trillion at the end of August, up 7.6 % from a year earlier, according to the Federal Reserve. In the euro area, total deposits stood at €6.3 trillion as of the end of July, up 12.8% from a year earlier, according to the European Central Bank.
Meanwhile, the U.S. market for the IOUs known as asset-backed commercial paper, a key source of short-term funding for the bank and brokerage industry, has shrunk by more than a third since the crisis began last year, to $780 billion as of Sept. 10.

Sticking to the basic banking model hasn't worked for everyone. Smaller banks in the U.S. and Europe have suffered, in part because they lack the scale and diversification to absorb heavy losses generated by growing defaults on mortgage and corporate loans.
To be sure, some stand-alone investment banks, such as Goldman Sachs Inc., are well funded. And some innovations and markets will rebound when the credit crunch fades. Consumer debts such as mortgages, credit-card balances and student loans will still be packaged into securities.

But such securitization, analysts say, will likely happen in smaller volumes and in more conservative forms, such as so-called covered bonds. Many of the instruments central to the current crisis were created and sold by banks with no stake in their performance. In contrast, covered bonds have payments that are bank-guaranteed regardless of how poorly the packaged loans perform. Covered bonds are the main source of mortgage-loan funding for banks in Europe, where a $2.75 trillion market has long thrived. Some analysts predict a U.S. market could grow to $1 trillion over the next few years.

"Securitization will play a lesser role for the well-capitalized, highly rated banks," says Ganesh Rajendra, a researcher at Deutsche Bank in London. "But it will still help them manage their capital and risks in many cases."

Internationally, banks that haven't been disabled by write-downs are moving aggressively to buy deposit-rich lenders. Deutsche Bank, which declined the opportunity to bid for Postbank a few years ago, chose to outbid Santander last week in part because it didn't want to see the large retail operation fall into the hands of a foreign rival.

Russia Stock Market Fall Is Said to Imperil Oil Boom

2008-09-15T13:52:00.000-07:00

By: ANDREW E. KRAMER

The New York Times

September 12, 2008

Rattled by falling oil prices and the war in Georgia, Russia's stock market has slumped so severely that it now threatens the country’s oil-fueled boom of recent years, economists say.

The benchmark RTS index has lost 46 percent of its value since its peak in May, representing a paper loss of about $700 billion for Russian companies. Much of that decline has come since the war in Georgia and the subsequent war of words with the United States and Europe that unsettled foreign investors, who began withdrawing capital.

On Friday the RTS, which peaked in May at 2,487, rebounded slightly, rising 3.36 percent to close at 1,342. The country’s other main stock exchange, the MICEX, was rose 6 percent on Friday, after weeks of heavy losses.

While initially seen as a problem confined to the Russian stock market, which is volatile in the best of times, the drop in share prices is now spilling over to the real economy. Companies that had pledged shares as collateral for loans, for example, are now facing margin calls, bankers in Moscow say.

“It’s a classic squeeze,” said Roland Nash, chief strategist for Renaissance Capital in Moscow.

The underlying problem for the Russian stock market is that about 80 percent of the shares are in companies exporting commodities with a history of boom-bust cycles. Additionally, the risk premium for investing in Russia has risen with the war.

It is unclear which problem caused more damage. In one indication that Russian politics lubricated the market slide here, however, investors have pulled nearly $5 billion this year from emerging market funds with a heavy Russia weighting, according to EPFR Global, a company that tracks fund flows. By comparison, investments in Middle East and African funds, which are also seen as dependent on commodity prices, have risen this year.

The decline has elicited a response from officials here that economists described as panicky, including a number of plans that would have seemed inconceivable a few months ago.

For next year, Russian officials are projecting federal revenue growth of 1.8 percent, compared with an estimated 13.8 percent this year. Just in the last week, the value of Russia’s hard currency reserves has dropped $8.9 billion. The ruble is down 6 percent since the war in Georgia.

“The government and central bank need to do all they can to ensure inflow of additional financial resources into the financial market,” President Dmitri A. Medvedev said Thursday. “This is absolutely obvious, and this must be done for sure.”

The finance minister, Aleksei L. Kudrin, who had opposed investing any of Russia’s $573 billion in hard currency reserves in the domestic market during a milder correction a year ago, this week approved of the idea. Mr. Kudrin added Thursday that the government might also tap money in the state pension fund to invest in equities.

In a stop-gap measure, the Central Bank has injected more than $11 billion into the Russian banking system and is intervening to halt the daily decline in the ruble’s exchange rate with the dollar. Investors, however, remained skeptical.

“Going forward, one of the big issues that people have with the Russian market is too much state ownership, too much manipulation,” Rory MacFarquhar, an economist for Goldman Sachs in Moscow, said in a telephone interview. “Nobody is going to believe that is not politicized.”

Stage Set for Pivotal Realignment in '08

2008-09-07T07:35:00.000-07:00

By Susan Page

USA TODAY

September 5, 2008

Sweeping demographic changes in the American electorate are undercutting old assumptions about swing voters and battleground states and making the 60-day general-election campaign that starts this morning even less predictable than usual.

The nation is becoming more racially and ethnically diverse, a diversity that has spread across the country. Aging Baby Boomers remain the biggest generational group in the electorate, but second in size are the Millennials — 18- to 31-year-olds who have distinctive attitudes toward race and politics. In the space of a generation, Americans have seen dramatic changes in the roles of women, the structure of families and the nature of the workplace. There has been a revolution in the technology that delivers information and knits communities.

Presidential nominees John McCain and Barack Obama personify that changing nation in striking ways. In age, race and life experience — even in use of innovative technology in the campaign — they mirror a nation in transition.

Some analysts are predicting that the 2008 election — like the one in 1980 that brought the election of Ronald Reagan as president and set the nation on a more conservative course — looms as a landmark contest in which the country is receptive to change.

"This is a pivotal moment in the sense that the politics is catching up to the demographic changes," says William Frey, a Brookings Institution scholar who analyzes population trends.

Democratic pollster Geoffrey Garin calls Democrat Obama — who's 47, biracial and multiethnic — "the face of the new generation" who has mobilized millions of younger voters this year.

But Garin notes that some, especially older white voters, find Obama's message and background — he is a first-term Illinois senator who spent nearly as long as a community organizer as he has in Congress — unpersuasive and even discomfiting.

In contrast, Republican McCain, a 72-year-old white man and decorated Navy veteran, has represented Arizona in the Senate for a quarter-century.

Their messages contrast, too: McCain attacks Obama for inexperience ("Is he ready to lead?" GOP ads ask) while Obama promises change from what he says are eight years of failed leadership by Republicans.
In some ways, cultural trends have helped both candidates. Obama's hope of becoming the first African-American president has been boosted by younger voters who seem less polarized about race than their elders; his candidacy probably wouldn't have been realistic a quarter-century ago. Changing attitudes about age have helped McCain, who would be the oldest president elected to a first term.
"We no longer say someone is too old or too young" for a job, says Bernadette Budde, a political analyst with the Business Industry Political Action Committee. "We have a culture that believes Tony Bennett and Miley Cyrus have equal amounts to contribute to the world of song."

Both candidates have balanced the demographic makeup of their tickets with their choices of running mates.

McCain picked Alaska Gov. Sarah Palin, a working mother 28 years his junior whose husband is part Alaska Native. Obama picked Delaware Sen. Joe Biden, a white man and six-term senator who is 18 years older than him.

Even so, national campaigns are usually all about the top of the ticket. Will the McCain-Obama election be a turning point in American politics?

Some analysts say yes.

The 2008 race will "prove in part to be a decisive political contest between the old America and the new America. Between the thing we were, and the thing we have been becoming for 40 years or so," Peggy Noonan, a former speechwriter for Reagan, wrote in The Wall Street Journal in June. "I suspect the political playing out of a long-ongoing cultural and societal shift is part of the dynamic this year."
Democratic pollster Celinda Lake sees Obama and Palin as examples of the sorts of candidates who increasingly will emerge in American politics. "This is really the first campaign of the 21st century," she says.

Demographic destiny

Major demographic changes have shaped and reshaped American politics throughout the nation's history.

Andrew Jackson's election in 1828, which forged the modern Democratic Party, reflected the rise of a broader and more raucous democracy as the frontier pushed west and states began to drop restrictions that meant only property owners could vote.
A century later, in 1932, Franklin Roosevelt tapped support from the growing ranks of Irish-American, Italian-American and other ethnic voters as part of a liberal political alliance that would hold the White House for 28 of the next 36 years.

That FDR coalition, which began to crack in 1968, collapsed with Reagan's election in 1980.

The California governor was helped in the campaign by population shifts into the South and West, and to the suburbs from big cities. The South, which had been part of Roosevelt's territory, became a GOP stronghold as white voters abandoned the Democratic Party.
Reagan's conservative alliance has held the White House for 20 of the past 28 years.

There are parallels between this year's election and the one that launched Reagan's presidency a quarter-century ago. In 1980, as now, voters were anxious about the economy and gas prices.

A foreign-policy quandary — then, the Iranian hostage crisis; now, the Iraq war — contributed to their unease. Support for the incumbent party, then the Democrats, was undercut by voters' desire for change.
This time, McCain represents an incumbent Republican Party, but he emphasizes his own desire for change and distances himself from President Bush. Like President Carter did in 1980, McCain attacks his opponent as a risky choice who offers what he calls "the wrong kind of change."

In another similarity to 1980, key groups in the electorate are up for grabs. Reagan attracted white working-class voters in the Midwest, many of them union members, who traditionally had voted Democratic. Since then, those "Reagan Democrats" have become part of the Republican base.

This time, Hispanics, the nation's fastest-growing ethnic group — as a percentage of the population their presence has more than doubled since 1980 — are fiercely contested.

Bush did better than previous Republicans among Latinos in 2004 but Obama now holds a 43-percentage-point advantage among them, according to a survey taken in June and July by the non-partisan Pew Hispanic Center.

Younger voters make up another key group. Obama's appeal among them has created one of the widest generation gaps since political polling became routine a half-century ago.

Voters under 30 are Obama's strongest age group, the USA TODAY/Gallup Poll shows. Voters 65 and older are McCain's strongest age group.

'Pretty good for Democrats'

"Every growing demographic is trending Democratic and every shrinking demographic is trending Republican, from young people to Hispanics to you-name-it," says James Carville, an architect of President Clinton's 1992 victory. "The underlying shifts in demographics portend pretty good for Democrats in the future."
Minnesota Gov. Tim Pawlenty agrees that Republicans need to do more to reach out to new groups of voters.

"The country is changing demographically; it's changing technologically; it's changing economically; it's changing culturally," Pawlenty says. "Republicans need to, not change their values or their principles, but we do need to do a better job of applying them to the emerging issues and challenges and circumstances of our time," he says.

In 1980, 14% of the nation's population was non-white. Now, one in four Americans are in minority groups.

By the middle of the century, racial and ethnic minorities are projected to make up a majority of the U.S. population.
What's not clear is whether those demographic and other shifts have gone far enough to determine November's election.

Indeed, they have created a backlash among some voters.
In a national survey of women sponsored by the advocacy group EMILY's List, one-fifth of those 63 and older called the nation's increasing racial diversity a negative trend.

A similar number felt the same way about the Internet.
In a campaign memo for Hillary Rodham Clinton's presidential bid, posted online last month by The Atlantic and not disputed by Clinton officials, strategist Mark Penn scoffed at the idea that the nation was ready for someone with Obama's background to be president.
"Save it for 2050," he wrote.

'Destabilizing these states'

The changes in who we are, where we live, what we do and how we view the world have altered the political leanings of states once considered solidly in one camp or the other.

The calculations by each candidate of what states he can count on and which ones he can contest are more complicated than they were even four years ago.

"The level of demographic change does have an impact," says Ruy Teixeira, editor of The Future of Red, Blue and Purple America, being published this month.

"These changes are destabilizing these states," Teixeira says. "Just because states voted one way a couple of elections ago doesn't mean they're going to stay that way."

The last several elections have been marked by constancy: From the 2000 election to the 2004 election, 47 of the 50 states were consistently Republican or Democratic. Only Iowa, New Hampshire and New Mexico switched their electorate votes from one party to the other.

This time, however, the Obama campaign is trying to make significant changes in the Democrats' map.

Some states that Democratic candidates traditionally target, including West Virginia and Arkansas, are getting relatively short shrift, but the campaign has run TV ads in 14 states that backed Bush in 2004.

"One of our goals is to wake up on Nov. 4 with as many paths to 270 electoral votes as possible," Obama campaign manager David Plouffe says, referring to the number needed to win the election.

The Obama campaign has tried to build a "bigger battleground," in part by analyzing demographic changes in states that have a large number of African-American voters or have seen an influx of young people or college graduates.

"Virginia, North Carolina, Montana, Alaska — only Sen. Obama could be competitive" in those states as a Democrat, Plouffe said. (He spoke before McCain picked Palin, presumably bolstering the GOP's hold on her home state.)

McCain campaign manager Rick Davis outlines a much more traditional electoral map and scoffs at the idea that Obama can contest states such as North Dakota, Montana and Georgia, where the Democrat is now airing TV ads.

The McCain camp predicts the contest will come down to familiar cliffhanger states such as Florida and Ohio.

Still, McCain's appeal to Hispanics could be crucial, Pawlenty says.
"That could tip the election nationally in a close election," he says. "And that could be the difference as to whether he's president of the United States or not."

Both campaigns are focusing on the emerging Mountain West battlegrounds of Colorado, Nevada and New Mexico.

An influx of young people and other newcomers to Colorado has made the Centennial State a particular bellwether this time, even though it's gone Republican in nine of the past 10 elections.
Meanwhile, economic troubles in Michigan and Pennsylvania, particularly in manufacturing, have roiled their economies and their politics. Both are prime targets for the GOP even though they have voted for the Democrat in every presidential election since 1992.
"The white working class is a declining demographic, but they're still a lot of people, a lot of voters," Teixeira says.

Those voters, particularly older ones, weren't a receptive group for Obama in the primaries.

The GOP also hopes to win Wisconsin and New Hampshire, states that went for Democrat John Kerry in 2004 but where McCain's reformist message could resonate.

"Other elections were more predictable, where you could narrow down the number of states in which you campaign, and you could decide groups to write off — but you can't do that anymore," Budde says.

"I don't think this election fits in a mold."

The Maverick Ticket

2008-09-07T06:20:00.000-07:00

By William Safire

The New York Times

September 7, 2008

Samuel Augustus Maverick, Texas rancher of the 1840s, is proudly sitting up in his grave. His name, which has become an eponymous American word, was cited repeatedly at last week’s unexpectedly enthusiastic Republican convention.

“I’ve been called a maverick,” John McCain told his rounded-up party. “Sometimes it’s meant as a compliment; sometimes it’s not.” True enough: old Sam Maverick’s friends said he refused to brand his cattle because it was cruel to animals; competing ranchers said it let him round up and claim all the unbranded cattle in the neighborhood. In an era that has sophisticates displaying designers’ initials, the Americanism maverick now means “one who bears no man’s brand,” or in McCain’s evocation of Thoreau’s metaphor, “marches to the beat of his own drum.”

The Op-Ed page editors yanked this former speechwriter back into harness to assess convention speeches, so here goes:

At the Democrats’ gathering in Denver, the best burst of unremarked writing was the loving introduction of Senator Joe Biden by his son: powerful testimony to the lifelong fidelity of a father after family tragedy. The TV camera’s reaction shot of Michelle Obama wiping authentic tears from her eyes and cheeks was to me the convention’s most moving image.

As opined in this space last week, Barack Obama’s speech the final night brought hosannas from the faithful, but — encumbered by its pretentious stadium setting — did not meet his high rhetorical standard. About the only member of the punditariat who agreed that this season’s emperor of oratory was short on clothes that night was David Broder of The Washington Post, who had the unfair advantage of being objective.

Then came the maverick ticket with its takeover of the change game. Senator Joe Lieberman, avoiding Obama’s error of playing to the multitude of partisans present, looked straight at the camera and spoke effectively to fellow Democrats and independents at home about McCain’s coalition-building work in the Senate. Joe faces heavy punishment for his courage from a vindictive Democratic leader, Senator Harry Reid. Best delivery by a Republican male was by Senator Lindsey Graham, who focused on the wisdom of the “surge” McCain advocated. (Obama was later forced by Fox’s persistent Bill O’Reilly to admit, at long last, that the surge “succeeded.”)

Then the St. Paul convention was hit by Hurricane Sarah and her admirable family. The cliché is that — faced by part of a party long troubled by McCain’s different drumming — the governor of Alaska was able to “energize the base” of social conservatives. The more salient fact is that her skillful speech and joyful demeanor was even more impressive than Obama’s introduction to the Democratic Party four years ago. The establishment-shaking candidate was a happy warrior in the glare of major-league scrutiny. Most of the huge, uncommitted audience at home enjoyed this strong woman’s national audition; the first test of McCain’s gamble paid off.

Though her “lipstick” ad lib got the laugh (and may have offended pit-bull fanciers), she forcefully delivered a Sorensenesque line that crystallized the choice this year’s voters face: “There are those who use change to promote their careers. And then, there are those, like John McCain, who use their careers to promote change.”

The McCain acceptance speech reads better than it was read. The straight talker never has been a smooth orator, but his homely, unprofessional speaking style has a way of underscoring his depth of character. The key word in this campaign is “trust,” and with McCain, what you see is what you get.

One purpose of a speech accepting nomination is to press a candidate’s key strength. That called for McCain to set aside his longtime reluctance to recount publicly his wartime suffering. He was careful not to claim to be owed anything by his country; on the contrary, many viewers learned for the first time of how he was “blessed because I served in the company of heroes,” and was affected for the better by his searing wartime experience, which made him readier to command in the future.
The other purpose was to turn the tables on the early campaign “narrative.” Experience is a useful opening political argument — but it looks backward. “Experience Counts” was Richard Nixon’s static slogan in 1960, but “let’s get the country moving again” — John Kennedy’s winning phrase — looked ahead. That’s the outlook McCain chose to adopt in his speech, which was strong on tomorrow’s education needs.

In willingly taking up the two-edged sword of maverickism; in spelling out his frequent fights against the sclerotic, cozy two-party establishment; in zinging that “big-spending, do-nothing, me-first-country-second Washington crowd”; in choosing an exciting new running mate even as Obama was splashing about in the news media adulation of his smoothly delivered acceptance extravaganza, McCain stiffly stole the clothes of change.

That last paragraph befits a speechwriter’s peroration, not the soberly sage, almost bipartisan analysis I originally intended. Note the incidental pop at “media adulation,” a red flag to the arugula-munching “panjandrums of the opinion media,” in Arthur Schlesinger Jr.’s phrase, gleefully waved by Sarah Palin and most other Republican convention speakers. McCain, who reveled in media-darlingism eight years ago, did not participate in such shooting at literate fish in a barrel.

As one whose only claim to coinage fame is in Spiro Agnew’s 1970 nattering nabobs of negativism, I have an attack dog in that fight (though not a maligned pit bull).

But here’s a question: In light of public opinion of most opinion journalists being down around that of Congress, is it smart politics to bash the news media?

Because Agnew, and later Nixon, ultimately were forced to resign, conventional wisdom now holds that their blast at “elitism” backfired; but it probably played a part in Nixon’s 49-state re-election landslide in 1972. By curtailing the “instant analysis” and having elected opposition leaders on TV to answer presidential addresses, the press back then took much of the punch out of the administration attack.

However, by slamming back furiously today, some of those mainstreaming or blogging in the news media just might be helping to make their critics’ point. We can hope that the winners in tomorrow’s alliteration wars will be the pleasant Pollyannas of positivism.

A Servant’s Heart

2008-09-07T06:10:00.000-07:00

By Peggy Noonan

The Wall Street Journal

September 6, 2008

Sarah Palin killed. And more than killed.

Much has been said about her speech, but a few points. "The difference between a hockey mom and a pitbull? Lipstick" is pure American and goes straight into Bartlett's. This is the authentic sound of the American mama, of every mother you know at school who joins the board, reads the books, heads the committee, and gets the show on the road. These women make large portions of America work.

She has the power of the normal. Hillary Clinton is grim, stentorian, was born to politics and its connivances. Nancy Pelosi, another mother of five, often seems dazed and ad hoc. But this state governor and mother of a big family is a woman in a good mood. There is something so normal about her, so "You've met this person before and you like her," that she broke through in a new way, as a character vividly herself, and vividly genuine.

Her flaws accentuated her virtues. Now and then this happens in politics, but it's rare. An example: The very averageness of her voice, the not-wonderfulness of it, highlighted her normality: most people don't have great voices. That normality in turn highlighted the courage she showed in being there, on that stage for the first time in her life and under trying circumstances. Her averageness accentuated her specialness. Her commonality highlighted her uniqueness.

She seemed wholly different from, and in fact seemed a refutation to, all the men of Washington at their great desks who make rules others have to live by but they don't have to live by themselves, who mandate work rules from which they exempt Congress, for instance. They don't live by the rules they espouse. She has lived her expressed values. She said yes to a Down Syndrome child. This too is powerful

What she did in terms of the campaign itself was important. No one has ever really laid a glove on Obama before, not in this campaign and maybe not in his life. But Palin really damaged him. She took him square on, fearlessly, by which I mean in part that she showed no awkwardness connected to race, or racial history. A small town mayor is kind of like a community organizer only you have actual responsibilities. He wrote two memoirs but never authored a major bill. They've hauled the Styrofoam pillars back to the Hollywood lot.

This was powerful coming from Baberaham Lincoln, as she's been called.

By the end, Democrats knew they had been dinged, and badly. After the speech they descended on cable news en masse with the dart-eyed, moist-browed look of the operative who doesn't believe his talking points. They seemed like they were thinking, "I've seen this movie before and it doesn't end well." Actually they haven't seen it before in that Palin is something new, but they have seen it before in terms of what she said.

Which gets me to the most important element of the speech, and that is the startlingness of the content. It was not modern conservatism, or split the difference Conservative-ish-ism. It was not a conservatism that assumes the America of 2008 is very different from the America of 1980.

It was the old-time conservatism. Government is too big, Obama will "grow it", Congress spends too much and he'll spend "more." It was for low taxes, for small business, for the private sector, for less regulation, for governing with "a servant's heart"; it was pro-small town values, and implicitly but strongly pro-life.

This was so old it seemed new, and startling. The speech was, in its way, a call so tender it made grown-ups weep on the floor. The things she spoke of were the beating heart of the old America. But as I watched I thought, I know where the people in that room are, I know their heart, for it is my heart. But this election is a wild card, because America is a wild card. It is not as it was in '80. I know where the Republican base is, but we do not know where this country that never stops changing is.

It all left me wondering if this campaign is about to take on a new shape, with the old time conservatism on one side, and a smoother, evolved form of the old style liberalism on the other.

It doesn't get more dramatic, or dramatically drawn, than that.

I don't like the new media war. I don't like what it has the potential to do to the election, and the country.

The media overstepped. The Republican party resented it. GOP strategists saw a unifying force rising: anger in the base. They too had seen this movie before. They slammed the media. The media shot back: "You're attacking us for doing our job!"

How did the media overstep? By offending people by going so immediately and so personally into issues surrounding Mrs. Palin's family. They did not overstep by digging, by deep reporting, by investigating Palin's professional record.

Campbell Brown of CNN did nothing wrong for instance in pressing a campaign spokesman on Palin's foreign policy credentials. She was unjustly criticized for following an appropriate and necessary line of inquiry. But endless front page stories connected to Mrs. Palin's 17-year-old daughter? Cable news shows that had people insinuating Palin, whom America had not yet even met, was a bad mother, and that used her daughter's circumstances to examine Republican views on abstinence education? That was ugly.

In the end it made Palin the underdog, and gave her the perfect platform for the perfect dive she made Wednesday night.

We have had these old press fights in the past – they were a source of constant tension when I was a child, when Barry Goldwater came forward as a conservative and the press scorned him as a flake, and later when Ronald Reagan came up and the press dismissed him as Bonzo.

But this latest fight commences on a new and wilder battlefield. The old combatants were old school gentlemen, Eric Sevareid and Walter Cronkite; the new combatants are half-crazy cable anchors, the lower lurkers of the Internet, and the anonymous posters on the comment thread on the radical website.

This new war on new turf is not good, and carries the potential of great harm. Everyone really ought to stop, breathe deep, and think.
I am worried they won't. A friend IM'd the day after Palin's speech, and I told him of an inexplicable sense of foreboding. He surprised me by saying he shared it. "Calling all underworlds reporting for duty!," he wrote. "The bed is about to fly around the room, the puke is about to come out." He meant: this campaign is going to engage unseen powers and forces. He meant: this campaign, this beautiful golden thing with two admirable men at the top and two admirable vice presidential candidates, is going to turn dark.

It is starting to look to me like a nation-defining election. And in this it seems almost old-fashioned. 1992 for instance didn't seem or feel nation-defining, not as I remember it, nor did 2000. 1964 did, and '80 did, but they both ended in landslides. Landslide is not what I'm seeing here.

Where are the Democrats going to go? I suspect to foreign policy. In politics it used to be called Tolstoy: war and peace. McCain-Palin will mean more war, Obama-Biden will mean peace.

This campaign is about to become: epic.

John McCain also made a speech. It was flat.

Palin Pitches Sam's Club Tent

2008-09-07T05:57:00.000-07:00

By Gerald F. Seib

The Wall Street Journal

September 3, 2008

Republican reformers have been crying out for the party to do more for the ranks of "Sam's Club Republicans" -- that is, working-class GOP voters more comfortable in a big-box store than a country club.

With Gov. Sarah Palin of Alaska as John McCain's running mate, the party now has a new national leader whose personal story resonates precisely with those Sam's Club Republicans.

The question for the reform movement now is whether Gov. Palin and the party can develop an economic message with equal appeal to the party's blue-collar contingent, which has been responsible for much of the party's growth in the last two decades. And on that front, reformers think the party has some work to do.

"On paper, and I'm sure this is partly why the McCain people picked her, she is the prototypical figure for working-class Republicans," says Ross Douthat, author of a new book entitled, "Grand New Party: How Republicans Can Win the Working Class and Save the American Dream."

But, he says, she is "unformed" on economic policy, adding: "I don't think they've really hit on a middle-class-friendly economic agenda."

Regardless of how it plays out, the Palin pick was designed in part to reinforce the image of Republican presidential nominee John McCain as a maverick agent of change who is willing to shake up the party. And it was designed in part to put forth a vice presidential nominee whose profile -- mother, hunting enthusiast with a blue-collar husband -- would appeal to blue-collar Republicans, moderate Democrats and independents the party badly needs to woo this year.

Those happen to be the same goals of reformers within the party who have been clamoring for an updated message. They argue that the party has benefited enormously in the last generation by luring in millions of middle-class and blue-collar Americans who embraced the party's culturally conservative message.

But, the reformers argue, the party's economic message hasn't been adjusted to appeal to these nontraditional Republicans. Now, they say, the party has to speak more directly to them, particularly as Democratic nominee Barack Obama hones a campaign message -- built around a middle-class tax cut -- that is designed to address deep-seated middle-class economic anxieties.

"You can win them over, most of them, on social issues," says Minnesota Gov. Tim Pawlenty, who coined the term "Sam's Club Republicans" several years ago. "But there's a perception that Republicans are rich, stereotypical people who don't care about modest-income folks. It's not true, but I don't think we've done a very good job of translating our ideals and principles into proposals they can understand."

To some extent, Republicans may be the victims of their own policy successes in the last generation -- successes that reformers fear have made the party complacent and entrenched in old policy appeals.

Starting with Ronald Reagan's election as president in 1980, Republicans began campaigning successfully on a formula emphasizing tough military and national-security views, cutting marginal tax rates, reforming the welfare bureaucracy, fighting crime and resisting affirmative action.

But many of the goals embodied in that formula have been achieved in the last generation, even as Republicans keep stressing them, Mr. Douthat argues. Meanwhile, he worries that Republicans may be losing their advantage with the very set of new voters they drew in along the way. "This year," he argues, "Obama owns the middle-class tax-cut issue.

To combat that, Mr. Douthat and other reformers argue for Republicans to adopt a broad and aggressive "family-friendly tax reform." Such a change would be designed to appeal to working-class families by offering a significantly enlarged child tax credit, giving a direct tax break specifically to parents in the middle and lower income brackets.

Taxes on investments also would be kept low, and the top marginal tax rate would be reduced a bit as well. To make up lost revenue -- and keep deficits under control -- the change would eliminate or reduce the deduction now given for state and local taxes, and apply that lower top rate to a larger universe of taxpayers.

For his part, Gov. Pawlenty argues for an updated Republican message to appeal to Sam's Club Republicans on four fronts:

Health care: Gov. Pawlenty contends that, in a new economy, Republicans should do a better job of convincing working-class voters that their approach of having government help workers carry their own private health insurance from job to job is preferable to relying on either employers or a government program.

Energy: Sen. McCain hit on a winning theme with working-class voters on energy this summer by arguing for a suspension of the federal gas tax and pushing for more oil drilling off America's coasts, Gov. Pawlenty argues. That message hit the right note on a "pound-the-table issue" for middle-class voters.

Education: Republicans need to convince blue-collar families that they can build a better education system, because they are coming to realize that in the new global economy "you'd better have an education that leads you to a skill." That means, he argues, that Republicans should stress such policies as performance pay for teachers, school choice, education boot camps to pull up disadvantaged children and development of online courses.

Fiscal discipline: Above all, he argues, people go to Sam's Club because they don't have a lot of money to spend and want "accountability for value." The want the same from government. So, he argues, Republicans have to do more to show financially strapped voters in the middle class they are the party of fiscal discipline, rather than budget deficits.

Douglas Holtz-Eakin, the policy director for Sen. McCain's presidential campaign, agrees. The Republican image right now "suffers from spending money hand over fist, and the perception a lot of that was just lining the pockets of folks who had close political connections," he says.

The looming question is how much Gov. Palin can help articulate a message on these fronts. Her record on economic policy is sparse. She cut property taxes as a mayor and appealed to populist sensitivities by selling a private jet used by the previous governor. And as governor she has claimed to have resisted "earmarks," those congressional appropriations that fund specific projects with federal tax dollars, though news reports from the time indicate she pushed for earmarked funds for her city while a mayor.

That's a mixed picture -- and one she's likely to try to clear up Wednesday night in her own closely watched speech at the convention here.

Pickens: "I'm for Drilling Every Place"

2008-08-17T14:37:00.000-07:00

By JEFFREY A. TRACHTENBERG

The Wall Street Journal

August 15, 2008

In his upcoming book, "The First Billion is the Hardest," oilman T. Boone Pickens provides a series of chatty vignettes that he believes reflects key turning points in his business career -- defeats as well as triumphs.

Mr. Pickens, who today is the chief executive of BP Capital, a Dallas-based hedge fund, also has a serious message about energy and the U.S.'s increasing reliance on foreign oil. He wants the U.S. to cut back on imports and to aggressively invest in renewable energy resources, particularly wind power. In May, his Mesa Power LLP placed a $2 billion order for wind turbines.

But Mr. Pickens also likes a good story. While explaining to an audience why he once made a bid for a much larger company, Mr. Pickens told the following joke to illustrate his point that money changes everything: A man walks into a bar with a talking dog. The barman is amazed, and eventually gives the pooch a dollar to buy him a newspaper down the block. When he doesn't return, the owner finds his dog canoodling with a poodle. After the owner expresses dismay, the dog replies: "This is the first time I've had money."

It's easy to forget that Mr. Pickens started out as a geologist at Phillips Petroleum. Before he quit in 1954, he was supporting his wife and two kids on $500 a month, which he describes "as a pretty good salary" at the time. At the age of 26, he bought a station wagon and went into business as a consultant. Two years later, he and several investors formed an oil company that evolved into Mesa Petroleum, which eventually became one of the largest independent oil companies in the U.S. Mr. Pickens, 80 years old, was interviewed by the Wall Street Journal's Jeffrey A. Trachtenberg.

The Wall Street Journal: What prompted this book?

T. Boone Pickens: I felt like a lot had happened to me. I left Mesa [Petroleum] in 1996 and the 12 years that followed were the most productive years of my life. Also, I came from a small town in eastern Oklahoma, and I think that I can still reach a young audience who want to know that average intelligence and a good work ethic is all you need.

WSJ: You were in effect fired as CEO of Mesa Petroleum by Richard Rainwater and his wife Darla Moore in 1996. In this book, you settle scores with them, adding the occasional shot to the ribs. What about forgetting and forgiving?

Mr. Pickens: If somebody I don't like gets in the crosshairs, I pull the trigger. But I don't hunt for them. The reason for paying them back is that they couldn't make a professional transition. You want your departure after 40 years to be pleasant, not unpleasant. They did things that were totally unnecessary, so that's why I said what I said.

WSJ: BP Capital has done well in the commodity markets. Do speculators play a constructive role?

Mr. Pickens: When you look at a commodities market you need hedgers and speculators. If you don't have one, you don't have a market. That's how it works. I don't think speculators are destructive. They are an infinitesimal part of the market. Fundamentals make the market. I'm amused when Congress tries to place the blame on somebody but never themselves. I've never heard any of them ever say, "I've made a mistake." I do. I say I called it wrong. But they just try to find somebody to blame. Now they are blaming speculators. Surely they have more to do than that. We don't focus on the problem in Washington.

WSJ: You often stop in your book to remind readers that you came from a modest background, with a grandmother who cut a smart deal with you to mow lawns for only a dime. Was she really that tough?

Mr. Pickens: Oh yes. She said at one point, "I'm going to help you out on a bad deal," and I thought she was going to raise the price. Instead she offered to have the mower sharpened. She taught me lessons I've never forgotten. She said that the next time I made a contract, I would spend more time figuring out the costs. And it was absolutely true.

WSJ: You've become a representative for renewable energy, which seems odd for an oilman. Did you have a conversion?

Mr. Pickens: It's not a conversion. It's a necessity to save the country. The hydrocarbon era is shutting down in the U.S. We peaked at 10 million barrels produced in 1970; today it's 5 million barrels. We are fading. If you are going out of business you don't go down with the ship, you get another ship. For us it's natural gas. We never felt our back was against the wall. We didn't know it because our leadership didn't tell us. And we didn't feel it because we had cheap oil. It was: Send it to us, never mind the price. Then one day it went vertical and people began screaming. Now we're placing blame. But what we should have done is closed the door and said, how do we get out of this trap? Oil is in decline, coal is dirty, and down the list you go. Circle the ones that will reduce what we're paying for foreign oil. Natural gas, do we have enough? Yes. Why not use it? No leadership.

WSJ: What are your views on lifting the federal moratorium on offshore drilling for oil and gas?
Mr. Pickens: I'm for drilling every place. And I'm for nuclear, and I'm for ethanol, because it means another one million barrels we don't have to import. I'm for anything American. I'm opposed to only one thing: foreign oil. Heck yes, drill. There is nothing wrong with drilling. We haven't had an oil spill in 20 years. If you don't like the appearance of rigs don't look.

WSJ: How can the U.S. lower the amount of gasoline, and therefore imported oil, it uses?

Mr. Pickens: Only one way quickly. You have to change the fuel. If you don't have the oil, what can you use to reduce imports? The answer is natural gas. We are so fortunate to have an abundance of natural gas. It's cleaner, cheaper, and it's ours. How could we ever have imported so much oil when we have so much natural gas? The answer is we didn't have leadership. We have 142,000 natural-gas-powered vehicles, mostly trucks. We sit here like dumb-dumbs. We have plenty of natural gas.

WSJ: You argue that coal is the immediate answer to our energy needs. Won't more coal-fired power mean more global-warming gases?

Mr. Pickens: No question about it. But you can clean it up. The coal is ours. That's a resource we have available. We can't keep importing oil. I'd rather use our finite resources than somebody else's. And natural gas will be a bridge to the next generation of transportation fuel. Right now we have nothing.

WSJ: You're promoting the Pickens Plan, a blueprint for a dramatic change in the U.S. energy landscape. Do you see any politicians or companies embracing new energy policies that make sense?

Mr. Pickens: There's no policy. We have 250 million vehicles in America. We have got to make some changes. The government must come out and say all government vehicles in the future will use natural gas. You can revitalize our economy, our transportation system, and create an energy system in 10 years that would be the best in the world. Instead, we're importing oil that will be $300 a barrel in 10 years.

We Are All Georgians

2008-08-14T18:41:00.000-07:00

By John McCain

The Wall Street Journal

August 14, 2008

For anyone who thought that stark international aggression was a thing of the past, the last week must have come as a startling wake-up call. After clashes in the Georgian region of South Ossetia, Russia invaded its neighbor, launching attacks that threaten its very existence. Some Americans may wonder why events in this part of the world are any concern of ours. After all, Georgia is a small, remote and obscure place. But history is often made in remote, obscure places.

As Russian tanks and troops moved through the Roki Tunnel and across the internationally recognized border into Georgia, the Russian government stated that it was acting only to protect Ossetians. Yet regime change in Georgia appears to be the true Russian objective.

Two years ago, I traveled to South Ossetia. As soon as we arrived at its self-proclaimed capital -- now occupied by Russian troops -- I saw an enormous billboard that read, "Vladimir Putin, Our President." This was on sovereign Georgian territory.

Russian claims of humanitarian motives were further belied by a bombing campaign that encompassed the whole of Georgia, destroying military bases, apartment buildings and other infrastructure, and leaving innocent civilians wounded and killed. As the Russian Black Sea Fleet began concentrating off of the Georgian coast and Russian troops advanced on one city after another, there could be no doubt about the nature of their aggression.

Despite a French-brokered cease-fire -- which worryingly does not refer to Georgia's territorial integrity -- Russian attacks have continued. There are credible reports of civilian killings and even ethnic cleansing as Russian troops move deeper into Georgian territory.
Moscow's foreign minister revealed at least part of his government's aim when he stated that "Mr. Saakashvili" -- the democratically elected president of Georgia -- "can no longer be our partner. It would be better if he went." Russia thereby demonstrated why its neighbors so ardently seek NATO membership.

In the wake of this crisis, there are the stirrings of a new trans-Atlantic consensus about the way we should approach Russia and its neighbors. The leaders of Poland, Estonia, Lithuania, Ukraine and Latvia flew to Tbilisi to demonstrate their support for Georgia, and to condemn Russian aggression. The French president traveled to Moscow in an attempt to end the fighting. The British foreign minister hinted of a G-8 without Russia, and the British opposition leader explicitly called for Russia to be suspended from the grouping.

The world has learned at great cost the price of allowing aggression against free nations to go unchecked. A cease-fire that holds is a vital first step, but only one. With our allies, we now must stand in united purpose to persuade the Russian government to end violence permanently and withdraw its troops from Georgia. International monitors must gain immediate access to war-torn areas in order to avert an even greater humanitarian disaster, and we should ensure that emergency aid lifted by air and sea is delivered.

We should work toward the establishment of an independent, international peacekeeping force in the separatist regions, and stand ready to help our Georgian partners put their country back together. This will entail reviewing anew our relations with both Georgia and Russia. As the NATO secretary general has said, Georgia remains in line for alliance membership, and I hope NATO will move ahead with a membership track for both Georgia and Ukraine.

At the same time, we must make clear to Russia's leaders that the benefits they enjoy from being part of the civilized world require their respect for the values, stability and peace of that world. The U.S. has cancelled a planned joint military exercise with Russia, an important step in this direction.

The Georgian people have suffered before, and they suffer today. We must help them through this tragedy, and they should know that the thoughts, prayers and support of the American people are with them. This small democracy, far away from our shores, is an inspiration to all those who cherish our deepest ideals. As I told President Saakashvili on the day the cease-fire was declared, today we are all Georgians. We mustn't forget it.

I See Four Key Battleground States

2008-08-14T18:37:00.000-07:00

By Karl Rove

The Wall Street Journal

August 14, 2008

Presidential campaigns ultimately come down to who can win 270 Electoral College votes. With most states favoring one candidate or the other, this year's contest could come down to a few battleground states.

Based on visits this past week with party leaders and old pros, it's clear that Barack Obama will focus on Colorado and Virginia. Both have large concentrations of white, college-educated voters with whom Mr. Obama is popular. And both have seen Democrats surge recently.

Of the two, Mr. Obama is best positioned to pick up Colorado's nine electoral votes. Denver hosts the Democratic convention at the end of this month. And a quartet of local millionaires (mini-George Soroses) have spent lavishly to boost Democrats. They have succeeded at shrinking the Republican advantage among registered voters. The GOP now has just 68,507 more voters on the rolls in Colorado than Democrats, down from a 176,572 edge four years ago.

Democrats win the state when they hold down GOP margins in rural districts, and appeal to swing women voters in Larimer County and the Denver suburbs. Mr. Obama lacks rural credentials, but he might make inroads in the suburbs.

Sen. McCain's independence will help him in Colorado. Also, there will be two anti-union initiatives on the ballot this fall that could energize conservatives. But he needs to run up votes in the GOP strongholds of El Paso (Colorado Springs), Douglas (south of Denver), Weld (Eastern Plains) and Mesa (Western Slope) counties, while appealing to Democratic and independent Hispanics and Catholics.

The last time Virginia (13 electoral votes) went for a Democratic presidential candidate was 1964. In 2004, the GOP's margin was eight points. That makes Virginia an uphill climb for Mr. Obama, but not out of reach. He's focused on increasing African-American voters in Hampton Roads (in the southeastern corner of the state), Richmond and Petersburg, and on deepening his strength in Northern Virginia, where Fairfax was one of only 60 counties in America to flip from Republican in '00 to Democrat in '04.

But Mr. McCain's maverick image allows him to compete in Northern Virginia, where he's buying expensive D.C. TV ads. He also needs to do well in rural Virginia and the Richmond suburbs. Hampton Roads is home to nearly twice as many veterans as the national average, so Mr. McCain should be able to do well there.

If Mr. McCain lost Colorado and Virginia, he would likely have 264 electoral votes (assuming he carried the other states President Bush won in 2004). To win, he would have to pick up a state Democrats are counting on winning, such as Michigan.

With 17 electoral votes, Michigan is an attractive target. But it is also a complicated state. The Democratic machine is in near meltdown in Detroit, where the city's mayor is fighting felony charges stemming from an alleged cover-up of a sex scandal (he recently spent a night in jail). The party is also hurt by adverse reactions to Democratic Gov. Jennifer Granholm's $1.5 billion tax increase last year, which dampened economic growth.

Mr. McCain needs Reagan Democrats and independents in eastern Michigan. These working class, culturally conservative, mostly Catholic voters are how the GOP elected an attorney general, a secretary of state and a state Senate majority. These voters care about jobs and know manufacturing runs on affordable energy. They will respond to Mr. McCain's call for domestic drilling and expanded nuclear power.

Mr. McCain also needs to focus on "soft" Republicans, particularly in the Detroit suburbs. His renegade reputation will help him with socially liberal independents and Republicans. But Mr. Obama's change message will help him in western Michigan where the socially conscious, historically Republican Dutch voters have antiwar tendencies.

Then there is Ohio. Ground zero in '04, its 20 electoral votes will be hotly contested again this year. No Republican has won the White House without winning the Buckeye State.
How can Mr. McCain take Ohio? He can appeal to swing voters in the northeastern part of the state. Cuyahoga, Summit and Lucas counties and the Mahoning Valley are full of culturally conservative, working-class voters. In addition, Mr. Obama was wiped out in the primary among the blue-collar Reagan Democrats of southeastern Ohio. Outside of the university town of Athens, he won less than 30% of the vote in southeastern Ohio. This Appalachian region remains bad turf for him.

Mr. McCain will need to do well with suburban independents in the counties surrounding Columbus to balance heavy African-American turnout. He will also need to run strong in the Cincinnati suburbs in the southwest, and in rural and small-town counties.

Other states will see serious competition, including Florida, Pennsylvania, Nevada, New Hampshire, Missouri and Wisconsin. But Colorado, Virginia, Michigan and Ohio are likely to be the center of the action. To win, Mr. Obama needs to pick up 18 electoral votes more than John Kerry received, meaning Mr. Obama must carry Colorado or Virginia and add another small state to his column. If Mr. McCain carries Michigan as well as Ohio, it would make Mr. Obama's Electoral College math very difficult. And if Mr. McCain can limit GOP losses to one or two small states from those won by the GOP in 2004, he'll be America's 44th president.

Mr. Rove is a former senior adviser and deputy chief of staff to President George W. Bush.

The Biggest Issue

2008-07-29T08:52:00.000-07:00

By David Brooks

The New York Times

July 29, 2008

Why did the United States become the leading economic power of the 20th century? The best short answer is that a ferocious belief that people have the power to transform their own lives gave Americans an unparalleled commitment to education, hard work and economic freedom.

Between 1870 and 1950, the average American’s level of education rose by 0.8 years per decade. In 1890, the average adult had completed about 8 years of schooling. By 1900, the average American had 8.8 years. By 1910, it was 9.6 years, and by 1960, it was nearly 14 years.

As Claudia Goldin and Lawrence Katz describe in their book, “The Race Between Education and Technology,” America’s educational progress was amazingly steady over those decades, and the U.S. opened up a gigantic global lead. Educational levels were rising across the industrialized world, but the U.S. had at least a 35-year advantage on most of Europe. In 1950, no European country enrolled 30 percent of its older teens in full-time secondary school. In the U.S., 70 percent of older teens were in school.

America’s edge boosted productivity and growth. But the happy era ended around 1970 when America’s educational progress slowed to a crawl. Between 1975 and 1990, educational attainments stagnated completely. Since then, progress has been modest. America’s lead over its economic rivals has been entirely forfeited, with many nations surging ahead in school attainment.

This threatens the country’s long-term prospects. It also widens the gap between rich and poor. Goldin and Katz describe a race between technology and education. The pace of technological change has been surprisingly steady. In periods when educational progress outpaces this change, inequality narrows. The market is flooded with skilled workers, so their wages rise modestly. In periods, like the current one, when educational progress lags behind technological change, inequality widens. The relatively few skilled workers command higher prices, while the many unskilled ones have little bargaining power.

The meticulous research of Goldin and Katz is complemented by a report from James Heckman of the University of Chicago. Using his own research, Heckman also concludes that high school graduation rates peaked in the U.S. in the late 1960s, at about 80 percent. Since then they have declined.

In “Schools, Skills and Synapses,” Heckman probes the sources of that decline. It’s not falling school quality, he argues. Nor is it primarily a shortage of funding or rising college tuition costs. Instead, Heckman directs attention at family environments, which have deteriorated over the past 40 years.

Heckman points out that big gaps in educational attainment are present at age 5. Some children are bathed in an atmosphere that promotes human capital development and, increasingly, more are not. By 5, it is possible to predict, with depressing accuracy, who will complete high school and college and who won’t.

I.Q. matters, but Heckman points to equally important traits that start and then build from those early years: motivation levels, emotional stability, self-control and sociability. He uses common sense to intuit what these traits are, but on this subject economists have a lot to learn from developmental psychologists.

I point to these two research projects because the skills slowdown is the biggest issue facing the country. Rising gas prices are bound to dominate the election because voters are slapped in the face with them every time they visit the pump. But this slow-moving problem, more than any other, will shape the destiny of the nation.

Second, there is a big debate under way over the sources of middle-class economic anxiety. Some populists emphasize the destructive forces of globalization, outsourcing and predatory capitalism. These people say we need radical labor market reforms to give the working class a chance. But the populists are going to have to grapple with the Goldin, Katz and Heckman research, which powerfully buttresses the arguments of those who emphasize human capital policies. It’s not globalization or immigration or computers per se that widen inequality. It’s the skills gap. Boosting educational attainment at the bottom is more promising than trying to reorganize the global economy.

Third, it’s worth noting that both sides of this debate exist within the Democratic Party. The G.O.P. is largely irrelevant. If you look at Barack Obama’s education proposals — especially his emphasis on early childhood — you see that they flow naturally and persuasively from this research. (It probably helps that Obama and Heckman are nearly neighbors in Chicago). McCain’s policies seem largely oblivious to these findings. There’s some vague talk about school choice, but Republicans are inept when talking about human capital policies.

America rose because it got more out of its own people than other nations. That stopped in 1970. Now, other issues grab headlines and campaign attention. But this tectonic plate is still relentlessly and menacingly shifting beneath our feet.

Generation Gab

2008-07-20T05:21:00.000-07:00

By Mike Bierne

Brandweek

July 2, 2008

For those who think media fragmentation and niche marketing have redefined marketing permanently, here's something to chew on.

What if the microscopically splintered youth demo out there right now—recent college grads on down to kids riding the bus to preschool—ends up gelling, melting and solidifying into a uniform power bloc of consumers? And what if, contrary to popular wisdom, they're not self-important, undisciplined individualists riding on digital highs, but a team-playing, risk-averse group that fosters familial bonding? All this would mean that Gen Y actually looks a lot more like, well, AARP. It would mean that the billions of dollars' worth of microtargeted marketing being created right now just could be a . . . waste of time? Then what?

This future vision is, granted, a bit dramatized. But it's the kind that's currently being prophesied—along with many other visions and, notably, corrections to current marketing dogma—by economist, historian, demographer and author Neil Howe.

These days, anybody who was born after 1981 or so gets the benefit, among other things, of a well-worn marketing tag: Gen Y, the Net Generation, the iGeneration, the 9/11 Generation, etc. Howe prefers to call them "millennials." No generation, he argues, is a continuation of the previous one, so Gen Y is an inherent misnomer. The names connote that youth today are Gen X on steroids. They're not. And if you listen to Howe for more than a few minutes, he'll tell you many other things that young consumers are not, often things that brands have been led to believe that they are.

Now is a prophetic time to spend a few minutes with Howe. He has long argued that history is cyclical and, further, that society goes through "turnings," or tectonic shifts in the prevailing cultural mood.If Howe's correct about the cyclical pattern, the fourth turning was due to hit around 2005, and its trigger would be a global terrorism event or an implosion in financial markets that exposes the thinness of private savings and the devaluation of assets. Sound familiar?

What's important for this discussion, however, isn't so much Howe's theories about social crisis—it's not hard to find doomsday prophets these days, nor has it ever been—but how those theories address economic behavior. Howe argues that the generation that comes of age during a crisis—in other words, youthful consumers who are maturing as you read this—is the one that corrects the excesses of those in power and reorders the societal framework.

While it's too early to say whether the War on Terror will be for millennials what World War II was for the G.I. Generation, Howe points out that there's already plenty of evidence that, when it comes to how they consume, millennials resemble seniors far more than Gen Xers.

Howe and longtime co-author William Strauss (who died last December) have published four books about millennials, including Millennials in the Workplace, set for release this fall. From his office in Great Falls, Va., Howe recently spoke at length with Brandweek about what marketers should know about this coveted, and misunderstood, generation of consumers.

Brandweek: Define "millennials" for the marketers who'll be reading this.
Howe: We define millennials as Americans born since the early 1980s. Since we may now be in another generation, we'll say 1982 until sometime recently. We have to wait for some more history to pass before we can define their youngest birth-year boundary. We define a generation as a group of people with certain attitudes and behaviors in common that are different from the generation before it.

BW: Much of what's been said and written about millennials—including, at times, in the pages of our magazine—is negative. They're conceited; they have no loyalty, etc. Why do you think this generation gets such a bad rap?
NH: Every generation has a tendency to focus on what is disappointing about young kids. It's a little bit of the self-congratulatory nature of older generations and an unwillingness to change and adapt to a new set of kids who are behaving differently. It's amazing to me to see Xers in the workplace look disparagingly at entry-level millennials. It goes to show it's tough for any new generation.There also are other things going on. First with the media: If it bleeds, it leads; so people don't focus on the good news. Second, our tolerance for bad behavior is declining faster than the bad behavior itself.

BW: In her book Generation Me, psychologist Jean Twenge contended that college students today were more narcissistic than both boomers and Gen Xers were when they were in school. How does that square with your argument that millennials have more in common with their grandparents' affinity for team building and community?
NH: When you look at a generation, you look at a broad range of indicators: behavior, culture, opinion surveys, how they interact with other generations, what they think of institutions, how they behave within those institutions. So you can't just look at one survey instrument.Also, when you're talking about selfishness or self-oriented behavior, what usually comes to mind from the word "narcissism" is this dysfunctional, self-oriented behavior. But look at this generation. They're making longer-term plans than Xers. This does not indicate the impulsive nature that we associate with self-oriented behavior. You find their risk-taking is down, which is consistent with long-range planning and a desire to not disappoint their parents or their friends. We find a huge increase in team teaching, team grading, community service, service learning—a whole range of activities in which they are acting in team-like ways.And look at how millennials are changing information technology. Boomers individuated by creating the personal computer. Then Gen X was creative on the Internet by going wherever they wanted under any avatar they wanted without being tracked. Where are millennials taking information technology? Instant messaging, chat rooms, texting and, above all, social networking. It's a return to community, but in virtual space. It's surprising how they are recreating community within the context of a new technology.

BW: When marketers try to figure out how to monetize social networks, it's a case of an older generation attempting to understand the mores of a younger one. It's like Hollywood creating movies and TV shows for young kids, though what they're really making is entertainment for what they think kids should be like. Does this have any resonance with your findings?
NH: We came out with a book called Millennials in the Pop Culture and we've consulted with the largest media companies: Viacom, Time Warner and so forth. One problem we identified is the typical culture creator. He contributes to the mismatch [between product and consumer] and is one reason why the pop-culture business often goes through cycles where young people don't buy stuff. People creating pop culture are in their early 30s. That's Gen X. In phase-of-life terms, these people are least likely to have daily contact with teenagers. They're too old to have them as siblings. They're too young to have them as children. Boomers in their 50s have more daily contact with 20-year-olds than Xers do.

BW: Marketers are grappling with media fragmentation and the demand for customizable products, both of which suggest that, right now, individualism is king. Yet you and Strauss have written that, when the next societal crisis arises, it'll most likely be the millennials who respond with personal sacrifice and by building public consensus. What do marketers need to understand better when it comes to the socializing traits and grouping habits of the millennial generation?
NH: It's easy for millennials to express themselves today, but it's done within the context of a generation that enjoys being with each other and enjoys customization as a novel way of forming friendships and forming groups. The social-networking phenomenon is taking place within the context of this incredibly vast and intense and unremitting social immersion experience. This is the most connected generation in world history.The overwhelming, dominant purpose of social network sites is to further intensify the close social networks millennials have with their own lives in school, work or wherever they are. It's important to keep that in mind, because when Xers think about the amount of time millennials spend online, they think of it in Xer ways—how they're doing strange new things and going outside the box. That clearly is not what millennials are doing. Even what they're doing with music is in a social context; they're customizing music to share with others.

BW: Negative stereotypes notwithstanding, we've all heard much about how environmental responsibility, ethics and social consciousness are resonating with young consumers. But are these messages going to strike a chord with millennials as they incur huge college debts and inherit a greater tax burden from previous generations?
NH: Those messages already have struck a chord. Community service has almost become a norm at colleges and high schools. When Gen Xers were that age, it was a form of punishment.We also see an enormous increase in voter participation. The all-time low in the 18-29-year-old vote rate in a presidential election was 1996. Only 35% voted, and that was the last year that that age bracket was entirely filled by Generation X. In 2000, it went up to 42%. In 2004, it went up to 52%. We think in 2008 it could be over 60%. We even think that you will see people in their mid 20s voting as much or more than people in their mid 30s.One other indicator is millennials want to work for companies that do something for the community. The idea of teamwork is not just [to be] with your friends; it's the whole community. That's why you engage in community service; that is why you vote and that's why you want the company you work for to serve the larger community.

BW: If millennials have a propensity to be more community-minded and involved in social causes, does that also mean they'll defer starting careers and families? If so, their peak earning years would start much later in life.
NH: I don't see that. Millennials don't want to keep life on hold while they pursue community work. They want to take part in community-spirited communities while they are pursuing other activities in their lives. They want balanced lives.

BW: Would it behoove a brand to somehow get this sense of community building into their marketing message, then?
NH: Absolutely, along with a positive, upbeat message. Look at the Obama phenomenon on college campuses. He's an interesting millennial indicator. He makes a big deal about being positive, bridging gaps and transcending baby boomer politics. Baby boomers are the parents of many of those college students, and I'm sure Hillary [Clinton] reminds them about what they don't like about politics.The other thing to remember is that millennials think they're special, which is why they accept being sheltered by laws that make Xers uncomfortable [for example, government wiretapping without a court-issued warrant]. An Xer might say: The government thinks I'm vulnerable and can't take care of myself. A millennial would say: I'm special, and government wants to protect me. These themes ought to be part of what marketers are doing.

BW: If we take all these themes in the aggregate, do they suggest anything about millennials'behavior as consumers?
NH: I think that millennials are capable of regenerating the whole notion of the big brand. The idea of the big brand went into decline with the Gen Xers and certainly during the late boomer period. Gen X was a generation that didn't even want to be thought of as a generation, and it had a lot of little niches. There was never a Top 40 group of songs everyone listened to, and the generation is spread out in terms of wealth. They were cynical toward anything that was big, and this gave rise to niche and viral marketing. The whole concept of the Long Tail is perfectly designed for Gen X.With millennials you're returning to the fatter portion of the bell curve. This is a generation that wants to feel that they do have a center of gravity. So you'll see the emergence of huge brands with this generation. Look at [what happened with] Harry Potter. Think of the idea of the big brand as being a dimension of the return to community. On these points of always being positive and believing in big brands, what generation does that remind us of?

BW: The GIs?
NH: Absolutely. They had strong brand loyalty and an almost pathological positivism. "Somewhere Over the Rainbow;" John Kennedy's "let's get this country moving again" and Ronald Reagan's [now-famous 1984 reelection-campaign TV ad] "Morning in America." Those ideas drove boomers crazy. The one thing they remember about GIs is they were always positive, and it's interesting how we see certain elements of this same temperament in the junior sentiment coming today.

BW: Which brands do you see as poised to take advantage of this return to community?
NH: I don't like to talk about specific brands. I can talk about the attributes they should have. They should have a dimension that everyone identifies as a product or service that helps us as a national community in ways beyond what it provides the private buyer. Look at the wiki economy: people are getting together to provide value without payment. They are providing information to assist each other.The kind of brand that will be associated with a positive outlook and role that youth can play in the community will be popular. When you ask millennials what their favorite activity should be, it's helping other kids. That's logical. If kids are so special, then helping the community [becomes a matter of] helping other kids.Millennial brands also will portray kids who are smart and achieving. The whole idea of smartness is coming back. With Xers, that was not true, [especially] when you recall movies like Wayne's World and Bill and Ted's Excellent Adventure. Now, that image has shifted up through people in their 30s with advertisements. Gen X playfully toyed with being dumb. Look at the "for Dummies" books and the Idiot's Guide titles. Millennials won't play with being dumb; they like calling each other smart.Disney is hugely successful with its TV shows and movies in attracting millennials. "High School Musical" was the top selling music CD during 2006. It's a musical where teens are talking about team work and positiveness and being special. A lot of Xers see that movie, and they just can't believe it. You see the same themes in the world of Harry Potter.

BW: Does what you're saying suggest that cause-based marketing should also be a bigger part of the picture for brands?
NH: Yes, but here's the difference. For boomers, cause marketing means being symbolically aligned with an issue. Boomers have always been focused on raising awareness and getting people to reprioritize their objectives in life. We see so many of these boomer commercials. Even oil companies want to save the world and make us think philosophically. That's not the kind of cause marketing that resonates with millennials. They want actual programs that make real changes in people's daily lives. Boomers do stuff that reorients the way people think and deal with the symbolism of issues. They'll talk about being one world and think more about poor people. Millennials are much more motivated by a plan to mobilize people on the Web to buy mosquito nets and get them into the hands where they can actually save lives.

BW: Lots of marketers are trying to figure out how to monetize the Web. Won't that idea repulse your average millennial?
NH: The Xers respect that, but they also expect an ad to be on the seatback tray in a plane. The Xer is always in the marketplace. Millennials don't think of themselves that way. We've seen that in their attitude toward work. They want longer-term jobs with larger institutions or institutions that can take care of them for the long term

BW: Speaking of work, where do you come down on the issue of millennials' supposed lack of loyalty to companies?
NH: One misnomer people have about millennials is they like to change jobs all the time. What they really want is a perfect job where they can do a lot of different things but can stay with an employer who can give them everything they need and provide continuity and security for the long term. They change jobs because they find the employer is not offering that, so they leave. So, even more employers offer short-term benefits. It's a vicious cycle.

BW: If teamwork and community are the millennials' strengths, what are their weaknesses? Anything that brand managers should be wary of?
NH: Weaknesses in the millennial generation will become more apparent as they become older and take over the institutions of this country. One of the traits that faculty at college campuses is talking about is risk-aversion. If you're a journalist and you're interviewing millennials, one of the things they'll do is go to their friends or IM their friends to find out what they think. It's almost as if millennials want to answer as a group, and not as individuals.It's also very hard for them to enter into an adversarial relationship as peers. For instance, it's very hard to get freshman in a college class to debate each other. It was easy for boomers to do that. We could debate each other at the drop of a hat. But millennials' team ethic, which has huge positives, could be a problem for them down the road.

Israel’s Swap Deal With Hizballah – Reflections

2008-07-18T18:03:00.000-07:00

By Yoram Ettinger

Straight From The Jerusalem Cloakroom

July 18, 2008

1. Released terrorists, Hate-Education and the Real Middle East. The released terrorists are the product of Hate-Education, which has been the manufacturing-line of homicide bombers. Israeli and Western tolerance of Hate-Education perpetuates terrorism and war. Leaders who promote Hate-Education should be boycotted by western democracies. The positive/enthusiastic reaction – to the released terrorists - by Abu Mazen, Hamas, Lebanon, Syria, Iran and most of the Arab Middle East, constitutes Hate-Education. It represents their most authentic values and strategy in general, and their attitude toward the Jewish State in particular. It represents the unbridgeable gap of values between western democracies and Middle Eastern tyrannies, including the gap in the definition of “peace” and “compliance with agreements.”

2. Leadership. Prime Minister Golda Meir did not put herself in the shoes of a mother. Prime Minister Golda Meir sustained herself in the shoes of a leader. Prime Minister Golda Meir explained her rejection of a PLO-proposed swap (70 Palestinian terrorists for the 11 Israeli athletes during the Munich 1972 Olympic Games): “I shall never accept a proposition, which would transform Jews all over the world into prospective hostages in the hands of Palestinian terrorists!” Being a leader, Golda subordinated her own peace-of-mind to national security interests. Golda was aware that a leader – just like a judge - should disqualify himself if he were involved emotionally/personally in a court case…

3. Leadership VS Followership. Failed leaders follow – rather than shape – public opinion polls. Failed leaders succumb to domestic and external pressure, temptation, emotions.

4. Long-Term VS Short-Term. Leaders do not sacrifice long-term values and strategy on the altar of short-term emotional-diplomatic-political convenience and false-sense of security. Leaders ponder the potential impact of presently-released terrorists upon the escalation of future terrorism.

5. Learn from – don’t repeat – past mistakes. Precedents document rise in terrorism and bloodshed following each Israeli swap of terrorists (for live or dead Israelis), as highlighted by the 1985 swap of 1,500 Palestinian terrorists for 3 Israeli soldiers, which supplied many of the “generals” and “foot soldiers” to the 1987-1992 wave of Palestinian terrorism (1st Intifadah).

6. Terrorists Swap – No Virtue. The willingness to swap terrorists in exchange for civilians/soldiers may be construed as virtue by some Israelis and westerners, but it is construed as vacillation by Arab regimes. Deterrence and determination are the prerequisites for survival and peace in the Middle East. However, the willingness to swap terrorists is defined by Middle Eastern dictionaries as self-destruct appeasement, undermining deterrence, thus causing a setback to stability, security and peace. It constitutes fuel – and not water – to Middle East turbulence and terrorism. Concessions to terrorists, and submission to pressure, breed more terrorism and pressure.

7. Terrorist Swap – A Derivative of World View. Terrorist swaps reflect a world view, which goes through suspension of disbelief, distancing itself from the Real Middle East, while adhering to “The New Middle East” and/or contending that “There’s no military solution to terrorism,” “We’re tired of fighting and winning,” “The price of winning would be too high to both sides,” “Restraint is strength.” It is a reflection of ideological weakness and detachment from the values of Classic Israel, which enhanced the notion of “Can-Do Mentality” “Willingness to pay any price for liberty” and “The sky is not the limit.”

8. If the 2008 terrorist swap is right, could the Entebbe Operation be wrong?

The Coming Activist Age

2008-07-18T16:59:00.000-07:00

By David Brooks

The New York Times

July 18, 2008

We’re entering an era of epic legislation. There are at least five large problems that will compel the federal government to act in gigantic ways over the next few years.

First, there is the erosion of the social contract. Private sector firms are less likely to provide health benefits, producing a desperate need for health care reform. Second, there is the energy shortage. Rising Asian demand strains worldwide supply, threatening industry and consumers, and producing calls for a bold energy initiative. Third, there is the stagnation in human capital. During the 20th century, Americans were better educated than the citizens of any other power. Since 1970, that lead has been forfeited, producing inequality and wage stagnation. To compete, the U.S. will require a series of human capital initiatives.

Fourth, there’s financial market reform. In an intricately connected world, even Republican administrations cannot allow big institutions to fail. If government is going to guarantee against failure, then it is inevitably going to get more involved in regulating how businesses are run. Fifth, there’s infrastructure reform. The U.S. transportation system is in shambles and will require major new projects.

All of this means that the next few years will be an age of government activism. You may think, therefore, that this situation is ripe for Democratic dominance. The Democrats are the natural party of federal vigor. Voters prefer Democratic approaches to issues like health care and education by as much as 25 percentage points.

Yet, historically, periods of great governmental change have often been periods of conservative rule. It’s as if voters understand that they need big changes, but they want those changes planned and enacted by leaders who will restrain the pace of change and prevent radical excess.

Two of the most prominent conservative reformers were Benjamin Disraeli and Theodore Roosevelt. Both reframed the political debate so that it was not change versus the status quo, it was unfamiliar change versus cautious, patriotic change designed to preserve the traditional virtues of the nation.

Disraeli inherited a British Conservative Party that was a political club for the landowning class. He created One Nation Conservatism, a reminder that Britain was one community, with a sense of mutual responsibility across classes. Then, at the pinnacle of his career, he embraced reform, expanding the franchise to the socially conservative working class.

Disraeli saw this change as a way to restore ancient glories. Or, as he put it: “In a progressive country, change is constant; and the great question is not whether you should resist change, which is inevitable, but whether that change should be carried out in deference to the manners, the customs, the laws and traditions of a people, or whether it should be carried out in deference to abstract principles, and arbitrary and general doctrines.”

Like Disraeli, Roosevelt was a romantic nationalist. While the more progressive reformers spoke the international language of modernization, Roosevelt spoke the language of highly charged Americanism.

He believed private property was the basis of American greatness. He built his persona around the classic American icons: the cowboy, fighter and pioneer.

He defended his initiatives as the way to maintain the economic and social order. People had enough change in their lives; they were looking for government that could preserve the way things already were. If the trusts threatened the traditional small businessman, he would take on the trusts. If industrialism threatened the natural landscape, he would become a preservationist.

His formula was like Disraeli’s: political innovation to restore traditional national morality. He had an image of an American hero — thrifty, hard-working, vigorous and righteous — and sought to create a Square Deal for that sort of person. “The true function of the state as it interferes in social life,” Roosevelt wrote, “should be to make the chances of competition more even, not to abolish them.”

John McCain’s challenge is to recreate this model. He will never get as many cheers in Germany as Barack Obama, but for a century his family has embodied American heroism. He will never seem as young and forward-leaning as his opponent, but he did have his values formed in an age that people now look back to with respect.

The high point of his campaign, so far, has been his energy policy, which is comprehensive and bold, but does not try to turn us into a nation of bicyclists. It does not view America’s energy-intense economy as a sign of sinfulness.

If McCain is going to win this election, it will because he can communicate an essential truth — that people in a great and successful nation do not want change for its own sake. But they do realize that it’s only through careful reform that they can preserve what they and their ancestors have so laboriously built.

My Plan to Escape the Grip of Foreign Oil

2008-07-11T19:01:00.000-07:00

By T Boone Pickens

The Wall Street Journal

July 9, 2008

One of the benefits of being around a long time is that you get to know a lot about certain things. I'm 80 years old and I've been an oilman for almost 60 years. I've drilled more dry holes and also found more oil than just about anyone in the industry. With all my experience, I've never been as worried about our energy security as I am now. Like many of us, I ignored what was happening. Now our country faces what I believe is the most serious situation since World War II.

The problem, of course, is our growing dependence on foreign oil – it's extreme, it's dangerous, and it threatens the future of our nation.

Let me share a few facts: Each year we import more and more oil. In 1973, the year of the infamous oil embargo, the United States imported about 24% of our oil. In 1990, at the start of the first Gulf War, this had climbed to 42%. Today, we import almost 70% of our oil.

This is a staggering number, particularly for a country that consumes oil the way we do. The U.S. uses nearly a quarter of the world's oil, with just 4% of the population and 3% of the world's reserves. This year, we will spend almost $700 billion on imported oil, which is more than four times the annual cost of our current war in Iraq.

In fact, if we don't do anything about this problem, over the next 10 years we will spend around $10 trillion importing foreign oil. That is $10 trillion leaving the U.S. and going to foreign nations, making it what I certainly believe will be the single largest transfer of wealth in human history.

Why do I believe that our dependence on foreign oil is such a danger to our country? Put simply, our economic engine is now 70% dependent on the energy resources of other countries, their good judgment, and most importantly, their good will toward us. Foreign oil is at the intersection of America's three most important issues: the economy, the environment and our national security. We need an energy plan that maps out how we're going to work our way out of this mess. I think I have such a plan.

Consider this: The world produces about 85 million barrels of oil a day, but global demand now tops 86 million barrels a day. And despite three years of record price increases, world oil production has declined every year since 2005. Meanwhile, the demand for oil will only increase as growing economies in countries like India and China gear up for enhanced oil consumption.

Add to this the fact that in many countries, including China, the government has a great deal of influence over its energy industry, allowing these countries to set strategic direction easily and pay whatever price is needed to secure oil. The U.S. has no similar policy, because we thankfully don't have state-controlled energy companies. But that doesn't mean we can't set goals and develop an energy policy that will overcome our addiction to foreign oil. I have a clear goal in mind with my plan. I want to reduce America's foreign oil imports by more than one-third in the next five to 10 years.

How will we do it? We'll start with wind power. Wind is 100% domestic, it is 100% renewable and it is 100% clean. Did you know that the midsection of this country, that stretch of land that starts in West Texas and reaches all the way up to the border with Canada, is called the "Saudi Arabia of the Wind"? It gets that name because we have the greatest wind reserves in the world. In 2008, the Department of Energy issued a study that stated that the U.S. has the capacity to generate 20% of its electricity supply from wind by 2030. I think we can do this or even more, but we must do it quicker

My plan calls for taking the energy generated by wind and using it to replace a significant percentage of the natural gas that is now being used to fuel our power plants. Today, natural gas accounts for about 22% of our electricity generation in the U.S. We can use new wind capacity to free up the natural gas for use as a transportation fuel. That would displace more than one-third of our foreign oil imports. Natural gas is the only domestic energy of size that can be used to replace oil used for transportation, and it is abundant in the U.S. It is cheap and it is clean. With eight million natural-gas-powered vehicles on the road world-wide, the technology already exists to rapidly build out fleets of trucks, buses and even cars using natural gas as a fuel. Of these eight million vehicles, the U.S. has a paltry 150,000 right now. We can and should do so much more to build our fleet of natural-gas-powered vehicles.

I believe this plan will be the perfect bridge to the future, affording us the time to develop new technologies and a new perspective on our energy use. In addition to the plan I have proposed, I also want to see us explore all avenues and every energy alternative, from more R&D into batteries and fuel cells to development of solar, ethanol and biomass to more conservation. Drilling in the outer continental shelf should be considered as well, as we need to look at all options, recognizing that there is no silver bullet.

I believe my plan can be accomplished within 10 years if this country takes decisive and bold steps immediately. This plan dramatically reduces our dependence on foreign oil and lowers the cost of transportation. It invests in the heartland, creating thousands of new jobs. It substantially reduces America's carbon footprint and uses existing, proven technology. It will be accomplished solely through private investment with no new consumer or corporate taxes or government regulation. It will build a bridge to the future, giving us the time to develop new technologies.

The future begins as soon as Congress and the president act. The government must mandate the formation of wind and solar transmission corridors, and renew the subsidies for economic and alternative energy development in areas where the wind and sun are abundant. I am also calling for a monthly progress report on the reduction in foreign oil imports, as well as a monthly progress report on the state of development of natural gas vehicles in this country.

We have a golden opportunity in this election year to form bipartisan support for this plan. We have the grit and fortitude to shoulder the responsibility of change when our country's future is at stake, as Americans have proven repeatedly throughout this nation's history.

We need action. Now.

Mr. Pickens is CEO of BP Capital.

2008: A Watershed Election?

2008-07-10T17:55:00.000-07:00

By John Steele Gordon

The Wall Street Journal

July 10, 2008

Exciting as presidential elections can be, they don't often change things fundamentally. Now and then, however, they can remake the American political landscape for years to come, and the country enters into a new era. Will 2008 be one of those watershed elections? Perhaps, but not in the way that many people think.

Let's look at a little history.

By 1932, the Republicans had been the dominant party in American politics for more than a generation. Only in 1912, when Theodore Roosevelt split the Republicans, did Democrat Woodrow Wilson capture the White House (with only 41.8% of the popular vote). Four years later, despite a successful first term, the advantages of incumbency, and a world war raging in Europe, Wilson barely won re-election. In 1920, the Republicans won a huge victory and were back in the saddle.

Twelve years later, however, the country was sliding ever deeper into the Great Depression and the Republican president, Herbert Hoover, was perceived as having failed. Dour and beaten down by unprecedented events, he was no match for the ebullient Franklin Roosevelt. Roosevelt had run on a fairly conservative platform (he hammered Hoover for failing to balance the budget, for instance). But once in office, he embarked on what was at the time a radically new program, the New Deal. It didn't end the Depression, but it transformed the country's politics, thanks to Roosevelt's personality and formidable political talents.

For the first time, the federal government came to be regarded as having stewardship of the economy and being responsible for maintaining a social safety net. The Republicans, deeply resentful of finding themselves out of power, were also out of alternative ideas. They offered little but a return to the political past – of a less-regulated economy and the ethic of personal self-responsibility – that the American people wanted no part of. The Democrats became the majority party, a position they would hold for nearly 50 years.

Only when Dwight Eisenhower, a war hero who was not perceived as a threat to the liberal agenda, ran on the Republican ticket in 1952 – and when the Democrats self-destructed in 1968 – was it possible for the Republicans to recapture the White House.

But by the late 1970s, it was the liberals who were out of ideas. The American economy was in a shambles, with high inflation, high unemployment and gas lines. The Democratic president, Jimmy Carter, like Hoover before him, was perceived as being unable to handle the situation. Ronald Reagan, running on an explicit platform of tax cuts and smaller government, beat him handily in the 1980 election.

Like Roosevelt, the optimistic, politically and media-adept Reagan remade the political landscape. The Democrats, now just as resentful as the Republicans in the New Deal era, offered only warmed-over liberalism as an alternative. Walter Mondale, Reagan's opponent in 1984, famously said, "Mr. Reagan will raise taxes, and so will I. He won't tell you. I just did." Mondale lost 49 states. Reagan went on to cut marginal tax rates yet again.

Only when Ross Perot split the Republican vote in 1992 could a Democrat win the White House (with just 43% of the popular vote). Reaganesque lower taxes and deregulation sparked an enormous economic boom that has now lasted, with two brief and shallow recessions, for more than 25 years.

Is the 2008 election likely to be a repeat of 1932 and 1980, remaking the political landscape in the process? That's unlikely. For one thing, while the incumbent is unpopular, he is not running. And the economy, while certainly dicey right now, is a long way from the desperate problems of 1932 or the very serious ones of 1980.

Instead, the election this year is between two very different political personalities. John McCain is a moderate conservative and war hero with a solid political record but limited media skills (he still has trouble using a teleprompter) and no excess of charisma. Barack Obama is a young, very charismatic newcomer with virtually no political record but great oratorical talent who promises profound change.

This is very reminiscent of the election of 1896, when William McKinley ran against William Jennings Bryan. McKinley too was a genuine war hero (distinguished service in the Civil War) who then entered politics. He served several terms in the House and became chairman of the Ways and Means Committee. In 1891 he was elected governor of Ohio.

His opponent's political résumé was a lot thinner, with only two back-bencher terms in the House. But at the Democratic convention of 1896, Bryan electrified the crowd with his "Cross of Gold" speech. It instantly became an American classic and propelled him to the nomination at just 36 years old, by far the youngest man ever nominated by a major party. Like Mr. Obama, Bryan promised a new politics aimed to benefit the common man, not the capitalists.

He launched the country's first whistle-stop campaign, giving more than 500 speeches around the country. And at first it worked. The Dow Jones Industrial Average, which had made its debut on May 26 of that year at 40.94, had lost 30% by August, when it stood at 28.48. But the Republicans fought back, utilizing new advertising techniques, and painted Bryan as someone whose populist ideas would wreck the American economy. The Dow began to recover as McKinley picked up support in northern industrial cities, and among ethnic workers who had been previously Democratic. In the end he won with 51% of the popular vote against 47%.

So 1896 turned out to be a watershed election, alright. By rejecting the candidate who advocated change for the candidate who promised moderate conservatism, it made the Republicans the dominant party until 1932.

Mr. Gordon is the author of "An Empire of Wealth: The Epic History of American Economic Power" (HarperCollins, 2004).

We Can Lower Oil Prices Now

2008-07-01T16:34:00.000-07:00

By Martin Feldstein

The Wall Street Journal

July 1, 2008

Although most experts agree that financial speculation was not responsible for the surge in the global prices of food and energy, many people remain puzzled about the source of these remarkable price rises. Economics offers a simple supply-and-demand explanation and reason for optimism about the future of commodity prices. In the case of oil, economics also suggests how policy changes today that affect the future could quickly lower the current price of oil.

We all know that rising incomes in China, India and the Gulf states have increased the demand for oil and many other commodities. But how could the modest, one-year rise of these demands lead to 100% increases in the prices of oil and other commodities? Let's take a look first at perishable agricultural commodities.

In the short run, there is little scope for increasing the supply of corn in response to a global increase in demand. For demand and supply to balance – for the market to clear – the price of corn must rise.

If the demand for corn were very price-sensitive, a relatively small increase in price would reduce global demand by enough to offset the initial rise in demand. However, since demand is actually quite insensitive to price in the short run, it takes a very large price rise to bring global demand into line with supply.

Here is a simplified picture of what happened in the past year. The quantity of corn demanded by high-growth countries rose gradually, increasing eventually by an amount equal to, say, 10% of the previous total global level of corn consumption. Since the supply of corn did not increase, the price had to increase enough to reduce corn consumption in other countries by 10%. If it takes a 10% increase in the price to reduce the quantity of corn demanded in the first year by just 1%, it would take a 100% increase in the price of corn to offset the initial 10% rise in the quantity of corn demanded.

In reality, the picture is complicated by the substitution in both supply and demand among different agricultural commodities, and by the role of the corn ethanol program. But the basic explanation holds: With a very low short-run price sensitivity of demand and little scope to raise supply in the short run, even a relatively small increase in corn demand by the high-growth economies can lead to a very large short-run rise in the price of corn.

Fortunately, the price sensitivity of both demand and supply will increase with time. This implies that the rising demand from China and other countries may eventually be accommodated with a price lower than today's level.

The situation for oil is more complex, but the outcome for prices is potentially more favorable.

Unlike perishable agricultural products, oil can be stored in the ground. So when will an owner of oil reduce production or increase inventories instead of selling his oil and converting the proceeds into investible cash? A simplified answer is that he will keep the oil in the ground if its price is expected to rise faster than the interest rate that could be earned on the money obtained from selling the oil. The actual price of oil may rise faster or slower than is expected, but the decision to sell (or hold) the oil depends on the expected price rise.

There are of course considerations of risk, and of the impact of price changes on long-term consumer behavior, that complicate the oil owner's decision – and therefore the behavior of prices. The Organization of Petroleum Exporting Countries (the OPEC cartel), with its strong pricing power, still plays a role. But the fundamental insight is that owners of oil will adjust their production and inventories until the price of oil is expected to rise at the rate of interest, appropriately adjusted for risk. If the price of oil is expected to rise faster, they'll keep the oil in the ground. In contrast, if the price of oil is not expected to rise as fast as the rate of interest, the owners will extract more and invest the proceeds.

The relationship between future and current oil prices implies that an expected change in the future price of oil will have an immediate impact on the current price of oil.

Thus, when oil producers concluded that the demand for oil in China and some other countries will grow more rapidly in future years than they had previously expected, they inferred that the future price of oil would be higher than they had previously believed. They responded by reducing supply and raising the spot price enough to bring the expected price rise back to its initial rate.

Hence, with no change in the current demand for oil, the expectation of a greater future demand and a higher future price caused the current price to rise. Similarly, credible reports about the future decline of oil production in Russia and in Mexico implied a higher future global price of oil – and that also required an increase in the current oil price to maintain the initial expected rate of increase in the price of oil.

Once this relation is understood, it is easy to see how news stories, rumors and industry reports can cause substantial fluctuations in current prices – all without anything happening to current demand or supply.

Of course, a rise in the spot price of oil triggered by a change in expectations about future prices will cause a decline in the current quantity of oil that consumers demand. If current supply and demand were initially in balance, the OPEC countries and other oil producers would respond by reducing sales to bring supply into line with the temporary reduction in demand. A rise in the expected future demand for oil thus causes a current decline in the amount of oil being supplied. This is what happened as the Saudis and others cut supply in 2007.

Now here is the good news. Any policy that causes the expected future oil price to fall can cause the current price to fall, or to rise less than it would otherwise do. In other words, it is possible to bring down today's price of oil with policies that will have their physical impact on oil demand or supply only in the future.

For example, increases in government subsidies to develop technology that will make future cars more efficient, or tighter standards that gradually improve the gas mileage of the stock of cars, would lower the future demand for oil and therefore the price of oil today.

Similarly, increasing the expected future supply of oil would also reduce today's price. That fall in the current price would induce an immediate rise in oil consumption that would be matched by an increase in supply from the OPEC producers and others with some current excess capacity or available inventories.

Any steps that can be taken now to increase the future supply of oil, or reduce the future demand for oil in the U.S. or elsewhere, can therefore lead both to lower prices and increased consumption today.

Mr. Feldstein, chairman of the Council of Economic Advisers under President Reagan, is a professor at Harvard and a member of The Wall Street Journal's board of contributors.

Cries in the Dark

2008-07-01T16:23:00.000-07:00

By: Niel King Jr.

The Wall Street Journal

June 30, 2008

The oil shock of 1973 came and went. So did the panic after the Iranian revolution six years later, when oil prices shot to record highs. Gone, too, is the brief flurry of fear that followed Iraq's invasion of Kuwait in 1990
.
After each, voices in Washington that cried out for big changes in U.S. energy policy were slowly drowned out. James Schlesinger, the first U.S. energy secretary, has said for decades that when it comes to energy policy, the U.S. toggles between complacency and panic.

Will it be different this time around?

With oil soaring above $130 a barrel and fears spreading of a long-term supply crunch, a new cadre of energy Cassandras in Washington argues that America faces deep and potentially wrenching challenges that no amount of gas-tax holidays or rhetorical attacks on speculators and big oil producers will help fix.

From the Pentagon to Capitol Hill, some often lonely voices are warning of big shocks to come if the U.S. doesn't wake up. Not all of them point to the same core problem, however. Nor do the proposed solutions dovetail neatly. But they all agree that the main challenge is to overcome the complacency without triggering the panic.

Here is a look at four of these voices:

Mr. Peak Oil

Back in the halcyon days of March 2005, when oil was at $54 a barrel, Rep. Roscoe Bartlett stood on the House floor to give the first of many lonely speeches.

The Maryland Republican -- son of a tenant farmer, holder of 30 patents, trained physiologist, former dairy farmer -- knew the speech would win neither votes nor applause from the commuters and farmers who populate his district. But he had a message to impart: The world has less and less oil to offer, he told the near-empty House chamber. The age of cheap energy is ending. And if the U.S. didn't start adapting, it was in for a shock.

Not much has changed since then, except that the U.S. is now using more oil every day -- about 20 million barrels a day, according to the Energy Department -- and it costs well over double what it did then.

"The tumor has now grown to where it will require even more radical surgery," says the rumpled 82-year-old father of 10, who carpools 100 miles a day in his Prius. He was the first member of Congress to own one, he says.

Rep. Bartlett is Mr. Peak Oil in the U.S. Congress, which also makes him perhaps the loudest energy-shock spokesman on Capitol Hill. Every few weeks, Rep. Bartlett hauls his thick stack of huge charts -- around 30 in all -- over to the House floor for his after-hours lecture for the viewers of C-Span. In the past three years, he has lectured the nation 42 times on how ebbing oil supplies will bring a big jolt to the U.S. economy.

One of his favorite placards shows "The World According to Oil," with every country's size based on its oil holdings. Saudi Arabia is a goliath, while Europe is barely a speck. Another shows how major oil discoveries petered out in the early 1980s, just as consumption resumed its upward tear.

The lectures have earned him a clutch of followers. He now heads a Peak Oil Caucus of like-minded lawmakers -- six Republicans and eight Democrats. They have sponsored a resolution, still stalled in committee, calling for a "Man on the Moon" project to develop new fuels and wean the nation off oil.

Two years ago, Rep. Bartlett got to meet with President Bush in the Oval Office, where he gave a condensed one-on-one version of his peak-oil talk. "He was polite, attentive," Mr. Bartlett says of Mr. Bush. "He said 'Thank you.' "

Mr. Bartlett often stands apart from his fellow Republicans on the energy front. He voted for last year's energy bill, one of just 26 House Republicans to do so, but only after voting against an amendment to open Alaska's Arctic National Wildlife Refuge to oil development -- a top Bush administration objective.

Declarer of Independence

James Woolsey, a Beltway Democrat-turned-Republican, is plotting to go "off-grid" and tools around town in a plug-in hybrid with a bumper sticker that says "Osama Bin Laden Hates This Car."

CIA director under President Clinton and President Jimmy Carter's secretary of the navy, Mr. Woolsey is himself a hybrid: part switchgrass-loving hipster and part national-security hawk who backed the Iraq invasion and considers Saudi Arabia to be a promoter of Islamic extremism.

Mr. Woolsey's mantra, though, is that the U.S. needs to break its dependence on Middle Eastern oil. It's a forlorn quest that goes back decades.

But Mr. Woolsey is convinced that the U.S. can and must break that reliance. And as Sen. John McCain's top energy adviser, he's taking the quest for "energy independence" straight into the presidential campaign.

Mr. Woolsey says he first got "ticked off" over energy when he got stuck in a gas line in 1973 -- "and I'm still ticked off." What also peeves him are critics who snipe at the call for independence without understanding it.

No, the U.S. can't cut itself off from all oil imports or turn itself into an "economic hermit," he says. "But we can destroy oil's monopoly over transportation."

Cars, trucks and planes gobble up nearly seven out of every 10 barrels of oil consumed in the U.S., the Energy Department says. Mr. Woolsey wants to chop that way down.

A frenetic talker with a shiny pate, Mr. Woolsey insists that America's salvation lies mainly in battery-powered cars and alternative fuels. A McCain administration, he says, would assure that all new cars could use any mix of fuels and would push for large tax credits for plug-in hybrids.

At least he practices what he preaches. Beyond his Prius, Mr. Woolsey has photo-voltaic panels on the roof of his Maryland house -- and even on his laptop case. At times, he boasts, he can go down into his basement and see that he is giving power back to the Maryland grid. Next up: a small wind turbine on his roof and a plot of biofuel-worthy camelina in his yard.

Perhaps because of his own mixed political lineage, Mr. Woolsey is known for bringing odd birds together. His Set America Free Coalition, a group dedicated to weaning the U.S. off foreign oil, runs the gamut from conservative evangelical Gary Bauer to prairie liberals like Tom Daschle, the former senator from South Dakota. Like Rep. Bartlett, he also takes some un-Republican positions, such as opposing oil drilling in the Alaskan wildlife refuge.

He has a name for the odd coterie he sees congealing around the energy issue: "tree-huggers, do-gooders, sodbusters and cheap hawks." And he considers himself a part of each.

Wolf in the Hen House

Alexander "Andy" Karsner, the Bush administration's assistant secretary for energy efficiency and renewable energy, is having another typical day.

He has just ducked out of a meeting with a clutch of federal utility
officials. He's off soon to a high-level session on the growing controversy over food vs. fuel. There are meetings later in the day on efforts to boost the nation's wind-power supply. And outside his office at the Energy Department, all along Independence Avenue, truckers miffed over soaring diesel prices are blaring their horns.

"Yeah, burning gas as they honk around town," Mr. Karsner says of the truckers.

Mr. Karsner, a former CEO of energy consulting firm Enercorp., takes a far gloomier view than most within the Energy Department on the challenges the country faces. When he looks over the horizon, he sees slumping oil supplies and soaring demand. "This isn't fusion," he says of the world's reliance on crude. "This is a finite resource."

What drives him, he says, is "the very real future" that his three young daughters face -- a future that he says puts into question "the quality of life and the inheritance of the American dream."

Since he arrived at the DOE in early 2006, Mr. Karsner's main fight has been to push for the quick commercialization of alternative technologies, from solar to biomass and batteries. Despite early opposition within the department, in the past two years he has been the main force behind ramping up the level of grants and loans available to companies bringing new technologies to market.

"Andy is totally focused on action," says Reid Detchon, who runs the energy program at the United Nations Foundation and who otherwise gives the administration an overall "F" for its environmental legacy. "He could have been a place holder," Mr. Detchon says, "but he has just been relentless in pressing a very active agenda for commercialization of renewable technologies."

After just over two years on the job, Mr. Karsner worries that the federal government remains too stodgy to confront what he calls "the asymmetric security threats" posed by the huge amounts of oil the U.S. imports -- and the billions in dollars it ships to the Middle East as payment.

"Every bit of money that goes away is a lost opportunity for money we could have invested here," he says.

Mr. Karsner, who says he will leave government by January, also is realistic about how much more the Bush team can hope to do. "Most of what we are doing right now," he says, "is assuring that our successors will be more successful than we are."

Canary in the Mine

For a man with a disturbing message, Robert Hirsch couldn't be milder. Crisp, perfectly combed, monotone in delivery, the former nuclear engineer reminds one of a retired MIT professor kicking back on his Cape Cod porch.

But Mr. Hirsch has become a prophet of sorts for the country's growing legions of peak-oil converts who know him mainly as the lead author of the 2005 Hirsch Report. The actual title of the 91-page tome, ordered up but then shunted aside by the Energy Department, he says, was "Peaking of World Oil Production: Impacts, Mitigation, & Risk Management."

Jim Slutz, acting deputy assistant secretary for fossil energy, says the study was never meant to represent the views of the DOE and was taken out of context by peak-oil adherents.

The report, the first of its kind commissioned by the federal government, didn't mince words: The U.S. had to move quickly to prepare for an inevitable long-term supply crimp as world oil output begins to slump. "Without timely mitigation, the economic, social, and political costs will be unprecedented," the report concluded. "Viable mitigation options exist on both the supply and demand sides, but to have substantial impact, they must be initiated more than a decade in advance of peaking."

Mr. Hirsch says he has learned a few things since the report came out.

For one, he has revamped his view that the world would hit a sharp peak in production, followed by rapid output declines. Instead, like many in the industry itself, he says world-wide oil production will stick to a sustained plateau -- driving up prices as demand continues to rise. "We have already been on a plateau for sometime," he says.

He also learned that the Bush administration wasn't very keen to hear his gloomy message on long-term oil supplies. "The message came from DOE headquarters that we could work on ramification issues but not on peak oil itself," he said. There are now signs -- among them the bracing views of Mr. Karsner at the DOE -- that the administration is leaning toward a less rosy view of the world's energy outlook.

Mr. Hirsch's career has covered the spectrum from head of fusion research at what was then known as the Atomic Energy Commission to a senior post in the exploration and production department at oil company ARCO, which is now a part of BP PLC.

But he considers his current work as a private consultant equally important. As he pounds on doors around Washington and across the country, he finds that more and more of them are swinging open. He lectured a large group of intelligence officers from around the world this spring. He has traveled several times to New York to sit down with investment-fund managers. He briefed the energy teams of Sens. Hillary Clinton, Barack Obama and John McCain.

"There is no question that serious concern is germinating," he says. "It just hasn't taken root yet and begun to grow."

It's All About Obama

2008-06-26T17:06:00.000-07:00

By Karl Rove

The Wall Street Journal

June 26, 2008

Many candidates have measured the Oval Office drapes prematurely. But Barack Obama is the first to redesign the presidential seal before the election.

His seal featured an eagle emblazoned with his logo, and included a Latin version of his campaign slogan. This was an attempt by Sen. Obama to make himself appear more presidential. But most people saw in the seal something else – chutzpah – and he's stopped using it. Such arrogance – even self-centeredness – have featured often in the Obama campaign.

Consider his treatment of Jeremiah Wright. After Rev. Wright repeated his anti-American slurs at the National Press Club, Mr. Obama said their relationship was forever changed – but not because of what he'd said about America. Instead, Mr. Obama complained, "I don't think he showed much concern for me."

Translation: Rev. Wright is an impediment to my ambitions. So, as it turns out, are some of Mr. Obama's previous pledges.

For example, Mr. Obama has said he "strongly supported public financing" and pledged to take federal funds for the fall, thereby limiting his spending to roughly $84 million. Now convinced he can raise more than $84 million, he reversed course last week, ditching the federal money and its limits. But by discarding his earlier pledge so easily, he raises doubts about whether his word can be trusted.

Last month he replied "anywhere, anytime" to John McCain's invitation to have joint town hall appearances. Last week he changed his mind. Fearing 10 impromptu town halls, Mr. Obama parried the invitation by offering two such events – one the night of July 4, when every ambulatory American is watching fireworks or munching hotdogs, and another in August. His spokesman then said, "Take it or leave it." So much for "anywhere, anytime."

My former White House colleague Yuval Levin pointed out that Mr. Obama, in his first national TV ad rolled out Friday, claims credit for having "extended health care for wounded troops," citing the 2008 defense authorization. That bill passed 91-3 – but Mr. Obama was one of only six senators who didn't show up to vote. This brazen claim underscores the candidate's thin résumé and, again, his chutzpah.

Mr. Obama has now also played the race card, twice suggesting in recent weeks that Republicans will draw attention to the fact that he's black. Who is unaware of that? Americans overwhelmingly find it a hopeful, optimistic sign that the country could elect an African-American president. But they rightly want to know what kind of leader he might be. They may well reject as cynical any maneuver to discourage close examination of him by suggesting any criticism is racially motivated.

The candidate's self-centeredness has been on display before. Having effectively sewed up the Democratic nomination, he could have agreed to seat the Florida and Michigan delegations (states Hillary Clinton had carried). While reducing his lead by 50 to 55 delegates, it would not have altered the outcome. But Mr. Obama supported cutting these battleground-state delegations in half. At a time when magnanimity was called for, the candidate decided he'd strut.

Mr. Obama's alpha-male attitude was evident even as he stumbled towards and over the primary finish line. First, his campaign announced in May it was talking to Patti Solis Doyle after Sen. Clinton fired her as campaign manager. This served only to pour salt in the Clintons' wounds.

Then, after the primaries ended June 3, Mr. Obama's campaign leaked word that Leon Panetta (a Clinton supporter who'd apparently angered the Clintons by persistent criticism of their performance) and Ms. Doyle would conduct its outreach to the Clinton camp. Ms. Doyle was named chief of staff to the as-yet-to-be-chosen vice presidential running mate. All this was pointless, but reveals a disposition certain to manifest itself in other ways.

Mr. McCain will be helped if he uses Mr. Obama's actions to paint his opponent as someone driven by an all-powerful instinct to look out only for himself. In a contest over who is willing to put principle above personal ambition and self-interest, John McCain, a war hero and a former POW, wins hands down. That may not be the most important issue to voters in electing a president, but it's something they will rightly take into account.

Big Issues for the Next President

2008-06-26T16:58:00.000-07:00

By David Wessel

The Wall Street Journal

June 26, 2008

Presidents get more credit and more blame for short-term swings in the economy than they deserve. And they get less scrutiny for decisions that have long-lasting economic consequences, say the bipartisan agreement to expand Medicare to cover prescription drugs without any visible means of financial support or the price tag on the Iraq war.

Similarly, presidential campaigns -- when they move beyond coverage of the candidates' wives dresses -- can bog down in details of proposals that will never be implemented as proposed. Neither President McCain nor President Obama, no matter what he says, can do much that will make an immediate difference to higher energy prices, falling house prices, rising unemployment, sagging wages. And no matter how many briefings by learned advisers or position papers posted on Web sites, no candidate can honestly tell us exactly what he'd do in office

So ask not for details and spreadsheets, ask for broad brush strokes. Here are four of the biggest economic issues about which the next president, and those who elect him, ought to be thinking.

The budget deficit. It isn't a problem now. It's getting bigger, as it should in a recession or near-recession. And foreigners are still willing to lend the U.S. money. The problem is tomorrow: The U.S. government has made promises to pay health and retirement benefits that will cost far more than projected taxes will yield. Neither candidate talks much about how -- or even if -- he'd try to fix this; most voters don't want to hear about it. All one can glean is that Sen. Obama leans toward bigger government (more taxes, more spending) and Sen. McCain leans toward smaller government (less taxes, less spending.)

Health care. Until the housing bust and credit crunch, the political system was inching toward tackling this one after the election. That seems less likely now, despite the consensus that the U.S. doesn't get its money's worth from its health-care spending. The system is so complex it's hard to describe; same applies for proposed solutions.

"What we want to know from each candidate is his broad approach toward creating a health system that is affordable and accessible to all...and spends less than we would otherwise spend," says Robert Reischauer, the head of the Urban Institute think tank who, despite the cynicism that accumulates from a lifetime inside the Beltway, is one of the loudest, clearest advocates for common sense in Washington.

Sen. Obama offers a mix of changes, many but not all involving government money, and argues the best solution will emerge from some experimentation. Sen. McCain would, instead, make the market for health insurance more like the market for computers or cars, relying more on individuals shopping for insurance to create competition now largely absent in health care.

Inequality. The gap between economic winners and losers in the U.S. is growing; the trend didn't begin with President Bush's election, but he didn't do much to arrest it. Economists Emmanuel Saez of the University of California, Berkeley, and Thomas Piketty of the Ecole d'Economie de Paris calculate that even excluding capital gains, 75% of the pretax-income growth in what they call the Bush expansion (2002-2006) went to the best-off 1% of American families versus 46% in the Clinton expansion (1993-2000). There is significant disagreement among politicians and voters about how hard the government should restrain market forces that are widening the income gap, particularly how much the tax code should redistribute income.

The differences between the candidates are sharp: Sen. Obama would wield the tax code more aggressively than Sen. McCain.

Globalization. It isn't going away. But for all the benefits it brings American consumers (and Chinese workers), the toughening competition is frightening to Americans, both as workers and as parents. Sens. Obama and McCain both assert the virtues of globalization (at least some of the time). The next president needs to respond to calm public anxiety about it. The backlash is intensifying, both in the U.S. and elsewhere. A new Council of Foriegn Relations report by lawyer David Marchick of Carlyle Group and Matthew Slaughter of Dartmouth's Tuck School of Business warns of a "protectionist drift" in government policy toward foreign-direct investment. And that ought to be the easy-to-sell form of globalization, the Mercedes-Benz factory in Alabama or the desperately needed Middle East capital shoring up the foundations of big U.S. banks.

The solution doesn't lie in tweaking trade laws (though they could use tweaking) or in applying band aids to an archaic, inefficient system of assisting laid-off workers (though that system needs replacing). It probably lies in assuring Americans that they aren't fending for themselves in an increasingly competitive economy -- that their health insurance won't evaporate if they lose a job and that the U.S.'s schools are preparing their children to succeed.

On this issue, the candidates risk becoming caricatures -- Sen. McCain harping on the benefits of free trade, Sen. Obama on its costs. But the debate is likely to evolve now that Sen. Obama no longer has to worry about Hillary Clinton.

Democracies Can't Compromise on Core Values

2008-06-16T18:39:00.000-07:00

By Natan Sharansky

The Wall Street Journal

June 16, 2008

As the American president embarked on his farewell tour of Europe last week, Der Spiegel, echoing the sentiments of a number of leading newspapers on the Continent, pronounced "Europe happy to see the back of Bush." Virtually everyone seems to believe that George W. Bush's tenure has undermined trans-Atlantic ties.

There is also a palpable sense in Europe that America will move closer to Europe in the years ahead, especially if Barack Obama wins the presidential election.

But while Mr. Bush is widely seen by Europeans as a religious cowboy with a Manichean view on the world, Europe's growing rift with America predates the current occupant of the White House. When a French foreign minister, Hubert Védrine, declared that his country "cannot accept a politically unipolar world, nor a culturally uniform world, nor the unilateralism of a single hyper power," President Clinton was in the seventh year of his presidency and Mr. Bush was still governor of Texas.
The trans-Atlantic rift is not the function of one president, but the product of deep ideological forces that for generations have worked to shape the divergent views of Americans and Europeans. Foremost among these are different attitudes toward identity in general, and the relationship between identity and democracy in particular.

To Europeans, identity and democracy are locked in a zero-sum struggle. Strong identities, especially religious or national identities, are seen as a threat to democratic life. This is what Dominique Moisi, a special adviser at the French Institute of International Relations, meant when he said in 2006 that "the combination of religion and nationalism in America is frightening. We feel betrayed by God and by nationalism, which is why we are building the European Union as a barrier to religious warfare."

This attitude can be traced back to the French Revolution, when the forces fighting under a universal banner of "liberty, equality and fraternity" were pitted against the Church.

In contrast, the America to which pilgrims flocked in search of religious freedom, and whose revolution amounted to an assertion of national identity, has been able to reconcile identity and freedom in a way no country has been able to match. That acute observer, Alexis de Tocqueville, long ago noted the "intimate union of the spirit of religion and the spirit of liberty" that was pervasive in America and made it so different than his native France.

The idea that strong identities are an inherent threat to democracy and peace became further entrenched in Europe in the wake of World War II. Exponents of what I call postidentity theories – postnationalism, postmodernism and multiculturalism – argued that only by shedding the particular identities that divide us could we build a peaceful world. Supranational institutions such as the EU, the International Court of Justice and the United Nations were supposed to help overcome the prejudices of the past and forge a harmonious world based on universal values and human rights.
While these ideas have penetrated academia and elite thinking in the U.S., they remain at odds with the views of most Americans, who see no inherent contradiction between maintaining strong identities and the demands of democratic life. On the contrary, the right to express one's identity is seen as fundamental. Exercising such a right is regarded as acting in the best American tradition.

The controversy over whether Muslims should be able to wear a veil in public schools underscores the profound difference in attitudes between America and Europe. In Europe, large majorities support a law banning the veil in public schools. In the U.S., students wear the veil in public schools or state colleges largely without controversy.

At the same time severe limits are placed on the harmless expression of identity in the public square, some European governments refuse to insist that Muslim minorities abide by basic democratic norms. They turn a blind eye toward underage marriage, genital mutilation and honor killings.

The reality is that Muslim identity has grown stronger, has become more fundamentalist, and is increasingly contemptuous of a vapid "European" identity that has little vitality. All this may help explain why studies consistently show that efforts to integrate Muslims into society are much less effective in Europe than in America, where identity is much stronger.

Regardless of who wins in November, the attitudes of Americans toward the role of identity in democratic life are unlikely to change much. Relative to Europe, Americans will surely remain deeply patriotic and much more committed to their faiths.

Europeans, meanwhile, may move closer to the Americans in their views. The recent shift to the right in Europe – from the victory of conservative leaders like Angela Merkel, Nicolas Sarkozy and Silvio Berlusconi to the surprise defeat of the leftist mayor of London, Ken Livingston – might partially reflect a belated awareness there that a unique heritage is under assault by a growing Muslim fundamentalism.

The logic of the struggle against this fundamentalist threat will inevitably demand the reassertion of the European national and religious identities that are now threatened.

Europeans are now saying goodbye to Mr. Bush, and hoping for the election of an American president who they believe shares their sophisticated postnational, postmodern and multicultural attitudes. But don't be surprised if, in the years ahead,
European leaders, in order to protect freedom and democracy at home, start sounding more and more like the straight-shooting cowboy from abroad they now love to hate.

Mr. Sharansky, a former Soviet dissident, is chairman of the Adelson Institute for Strategic Studies at the Shalem Center in Jerusalem. He is the author, most recently, of "Defending Identity: Its Indispensable Role in Protecting Democracy" (PublicAffairs).

It's Time for Another Obama Race Speech

2008-06-06T18:45:00.000-07:00

By Juan Williams

The Wall Street Journal

June 6, 2007

Now what? How does Barack Obama, fresh from claiming the Democratic nomination, put Rev. Jeremiah Wright and Father Michael Pfleger behind him, before they ignite yet again and blow up his general election campaign?

How does he pre-empt advertising images, sure to be circulated by his opponents, that link him to outrageous racial rhetoric and fears that he is open to the most radical left-wing ideas – including using the power of the White House to exact racial vengeance?

There is no doubt that Rev. Wright's inflammatory racial rants hurt Sen. Obama badly during the primaries. His once-ascendant popularity with white men faded in a flash after Rev. Wright emerged as a walking contradiction to the candidate's claim to be above the old racial divides. Even this week, at Mr. Obama's moment of historic triumph, a quarter of voters in Montana and a third of voters in South Dakota said the senator's 20 years of membership at Trinity United Church – the scene of racial rants by Rev. Wright and Father Pfleger – was an important issue for them. In both states, more than half of these voters voted against him.

Since Rev. Wright became an issue in March, the senator's favorability rating, according to a Pew poll last week, has dropped eight percentage points. The sharpest slippage was among white women who explained that their problem with Mr. Obama has to do with "personal attributes," more so than his race. The major personal attribute unveiled during that time was the senator's close relationship to Rev. Wright and the likes of Father Pfleger. Now, with the general election contest beginning, there will be more white voters, including the all-important swing voters. They'll have to decide whether they are willing to see beyond race and invest their trust in the young, biracial senator who seeks to be their president.

Mr. Obama's strategies for dealing with the racial demagogues in his past have failed. The first strategy for dealing with Rev. Wright's proclamations – including damning America and offering baseless charges that the government was spreading AIDS among black people – was to say he was absent from church. Then Mr. Obama equated Rev. Wright with a crazy uncle to be found in every family. Then he asked for a pass, saying that everyone has heard their pastor, priest or rabbi make statements they don't agree with.

When this didn't work, the senator made a major political speech on race relations – a subject he'd avoided, to prevent being boxed in as the "black" candidate. The Philadelphia speech in March was most notable for what it did not do. Mr. Obama did not condemn Rev. Wright as a racial provocateur. Instead, he made it a point of virtue to stand by his minister of 20 years. He said Rev. Wright was a member of an older generation of black people still stung by their years of humiliation under segregation.

Incredibly, the speech was celebrated by supporters and most of the press. Julian Bond, chairman of the NAACP, said it would "go down as one of the great, magnificent and moving speeches in the American political tradition." The New York Times editorialized that "Mr. Obama's eloquent speech should end the debate over his ties to Mr. Wright since there is nothing to suggest that he would carry religion into government."

Well, that speech didn't end the controversy, either – because Mr. Obama never spoke honestly about Rev. Wright's sermons as destructive and racist. Instead he offered soaring talk about the nation, as a matter of faith in God and one another, needing to "move beyond old racial wounds." His only criticism of Rev. Wright was to chide him for a "profound mistake," of speaking "as if no progress had been made" on race.

And his poor judgment in remaining a member of Rev. Wright's church? Mr. Obama skated by with appeals for other people to have serious conversations about race. Instead of turning his fire on racial pandering in his own church, he criticized those who would "make the only question in this campaign whether or not the American people think that I somehow believe or sympathize with [Rev. Wright's] most offensive words."

Allies rallied to the senator's side, arguing that the controversy was really all the fault of TV news programs that played the reverend's bellicose "sound bites" too often and out of context. But in a matter of weeks, Rev. Wright went on another rant, this time at the National Press Club in Washington. Only then did Mr. Obama condemn him for racially offensive jeremiads. And last week, Father Pfleger – with his mocking of Sen. Clinton and claims that whites all over America are crying because they feel a black man has stolen the nomination – has renewed the bitterness. His rant has also called a new round of attention to Mr. Obama's long ties to unsavory racial characters both inside and outside the church. In response, the senator has resigned from the church.

He has to do more.

The heart of Mr. Obama's problem is that he risks being defined by Rev. Wright and Father Pfleger. Most American voters know him only as a fresh face with an Ivy League education, an outstanding credential – editor of the Harvard Law Review – an exciting speaker, and a man who stands for much-desired change. Beyond that he is a political mystery with a thin legislative record. But when voters look at his past for clues to the core of his character, they find religious leaders calling for God to damn America and concluding that America is the greatest sin against God.

To deal with this controversy effectively, Mr. Obama needs to give another speech. This time he has to admit to sins of using race for political expediency – by knowingly buying into divisive, mean messages being delivered from the pulpit. He has to say that, as a biracial young man with no community roots, attaching himself to Rev. Wright and the Trinity congregation was a shortcut to move up the ladder in the Chicago political scene. He has to call race-baiting what it is, whether it comes from a pulpit or calls itself progressive politics. And he has to challenge his supporters, especially his black base, to be honest about real problems at the heart of today's racial divide – including out-of-wedlock births, crime, drugs and a culture that devalues education while glorifying the gangster life.

Mr. Obama also has to raise the bar for how political criticism is handled in his camp. Step one is to acknowledge that not every critic is a racist. His very liberal record and his limited experience, like his association with Rev. Wright, is a fact, not the work of white racists. Just as he calls for the GOP not to engage in the politics of fear over terrorism, Mr. Obama needs to declare that he will refrain from playing the racial victim, because he understands such tactics will paralyze political debate and damage race relations.

Only by admitting to his own sins can Mr. Obama credibly claim that he has seen the promise of our country, in which Americans of all colors work together. Only then can he convince dubious white voters that he is ready to move beyond racial antagonism and be their president.

Mr. Williams is a political analyst for National Public Radio and Fox News.

The Argument for Nominating Hillary

2008-06-02T15:56:00.000-07:00

By Lanny J. Davis

The Wall Street Journal

May 31, 2008

After the votes are in from Puerto Rico tomorrow and South Dakota and Montana on Tuesday, neither Barack Obama nor Hillary Clinton will be able to make a facts-based case that they represent a significant majority of grass-roots Democrats.

Chances are Sens. Obama and Clinton will virtually split the more than 4,400 delegates – including Florida and Michigan – elected by more than 34 million people over the past five months.

Sen. Clinton has already won the most votes, but there is controversy over including the over 300,000 votes from Michigan, since Sen. Obama was not on the ballot (by his own choice). But if Sen. Clinton wins a substantial victory in Puerto Rico tomorrow – with an expected record turnout exceeding two million voters – she could well end up with more popular votes than Sen. Obama, even if Michigan's primary votes are excluded.

Worst case, she could come out with a 2% deficit in elected pledged delegates. But that gap can be made up, if most of the remaining 200 or so unpledged superdelegates decide to support Sen. Clinton as the strongest candidate against John McCain – or if others committed to Sen. Obama decide to change their minds for the same reason. A number of superdelegates previously committed to Sen. Clinton later announced support for Sen. Obama, so it's certainly possible that, when confronted with growing evidence that Sen. Clinton is stronger than Sen. McCain, they might switch back.

The final argument for Hillary comes down to three points – with points one and two leading to the third.

First, Sen. Clinton is more experienced and qualified to be president than is Sen. Obama. This is not to say Sen. Obama cannot be a good, even great, president. I believe he can. But Sen. Clinton spent eight years in the White House. She was not a traditional first lady. She was involved in policy and debate on virtually every major domestic and foreign policy decision of the Clinton presidency, both "in" and "outside" the room with her husband. She has been a U.S. senator for eight years and has a record of legislative accomplishments, including as a member of the Senate Armed Services Committee.

With no disrespect or criticism intended, Sen. Obama has been an Illinois state senator for eight years and a U.S. senator for just four years. He has, understandably, fewer legislative accomplishments than Sen. Clinton. That's just a fact. Therefore, it is reasonable to argue that Sen. Clinton would be less vulnerable to criticism from Sen. McCain on the "experience" issue.

Second, Sen. Clinton's position on health care gives her an advantage over Sen. McCain. Her proposal for universally mandated health care based primarily on private insurance and individual choices is a stark contrast to Sen. McCain's total reliance on private market insurance, HMOs or emergency rooms for the 45 million or more uninsured. Sen. Obama's position, while laudable in its objective, does not mandate universal care and, arguably, won't challenge Sen. McCain as effectively as will Sen. Clinton's plan.

Despite the fact that Sen. Obama's campaign made the Iraq war a crucial issue in the Iowa caucuses and early primaries, there has never been a significant difference between his position and Sen. Clinton's. Sen. Obama deserves credit for opposing military intervention in Iraq while he was running for the state senate in early 2002.

But in 2004, Sen. Obama said he "did not know" how he would have voted on the war resolution had he been a senator at the time. That summer he told the Chicago Tribune: "There's not much of a difference between my position and George Bush's position at this stage" of the Iraq War. (This is a statement that Sen. Clinton would not have made.) While he served in the Senate, he voted 84 out of 85 times the same as Sen. Clinton on Iraq-war related votes. The only exception is when he supported President Bush's position on the promotion of a general that Sen. Clinton opposed.

Third and finally, there is recent hard data showing that, at least at the present time, Sen. Clinton is a significantly stronger candidate against Sen. McCain among the general electorate (as distinguished from the more liberal Democratic primary and caucus electorate).

According to Gallup's May 12-25 tracking polling of 11,000 registered voters in all 50 states plus Washington, D.C., Sen. Clinton is running stronger against Sen. McCain in the 20 states where she can claim popular-vote victory in the primaries and caucuses. In contrast, Sen. Obama runs no better against Sen. McCain than does Sen. Clinton in the 28 states plus D.C. where he has prevailed. "On this basis," Gallup concludes: "Clinton appears to have the stronger chance of capitalizing on her primary strengths in the general election."

The 20 states, Gallup points out, not only encompass more than 60% of the nation's voters, but "represent more than 300 Electoral College votes while Obama's 28 states and the District of Columbia represent only 224 Electoral College votes." Sen. Clinton leads Sen. McCain in these 20 states by seven points (50%-43%), while Sens. Obama and McCain are pretty much tied. But in the 26 states plus D.C. that Sen. Obama carried in the primaries/caucuses, he and Sen. Clinton are both statistically tied with Sen. McCain (Clinton 45%-McCain 47%; Obama 45%-McCain 46%).

Gallup's state-by-state polling in seven key battleground "purple" states also shows Sen. Clinton winning cumulatively in these states by a six-point margin (49%-43%) over Sen. McCain, while Sen. Obama loses to Sen. McCain by three points – a net advantage of 9% for Sen. Clinton. These key seven states – constituting 105 electoral votes – are Nevada, Pennsylvania, Ohio, New Mexico, Arkansas, Florida and Michigan.

Meanwhile, Sen. Obama holds about an equal advantage over Sen. McCain in six important swing states that he carried in the primaries and caucuses – Colorado, Oregon, Minnesota, Iowa, Wisconsin and Missouri. But these constitute less than half – 54 – of the electoral votes of the larger states in which Sen. Clinton is leading.

The latest state-by-state battleground polls (published May 21-23) by other respected polling organizations verify Gallup's findings that Sen. Clinton is significantly stronger against Sen. McCain in the key states that a Democrat must win to gain the presidency. According to various poll data within the last 10 days:

- Pennsylvania: Sen. Clinton leads McCain 50%-39%; Sen. Obama and Sen. McCain are effectively tied.
- Ohio: Sen. Clinton leads Sen. McCain 48%-41%, Sen. Obama is down 44%-40%.
- Florida: Sen. Clinton leads Sen. McCain 47%-41%; Sen. McCain leads Sen. Obama 50%-40%. (Sen. Clinton has a net advantage of 16 points!)
- North Carolina: Despite a substantial primary victory, Sen. Obama is down 8% vs. Sen. McCain, (51%-43%), while Sen. Clinton leads by 6% (49%-43%).
- Nevada: Sen. Clinton up 5%, Sen. Obama down 6%.

Even the theory that Sen. Obama can open up significant numbers of "red" states has not been borne out by recent polling. For example: in Virginia, which Sen. Obama won substantially in the Feb. 12 Democratic primary, he is currently down in at least one recent, respected poll by a significant 9% margin – one point greater than the 8% margin Sen. Clinton is behind Sen. McCain.

Finally, one unfortunate argument is making the rounds lately to convince superdelegates to go for Sen. Obama. That is the prediction that if Sen. Obama is not the nominee, African-American and other passionate Obama supporters will conclude that the nomination had been "stolen" and will walk out of the convention or stay at home. On the other side are the many women and others strongly committed to Sen. Clinton promising that if she is denied the nomination, they will refuse to vote for Sen. Obama.

Barack Obama and Hillary Clinton are progressive, pro-civil rights, pro-affirmative action, pro-choice Democrats. Neither Obama supporters nor Clinton supporters who care about the issues, the Supreme Court, and the need to begin withdrawing from Iraq can truly mean they will actively or passively help Sen. McCain get elected. Threats of walkouts or stay-at-homes by good Democrats are not the answer, nor should they be a factor in superdelegate decisions.

But there is one possible scenario that avoids disappointment and frustration by passionate supporters of both candidates, that combines the strengths of one with the strengths of the other, and that virtually guarantees the election of a Democratic president in 2008:

A Clinton-Obama or an Obama-Clinton ticket.

Stay tuned.

Mr. Davis, former special counsel to President Clinton in 1996-98, is a longtime friend and supporter of Hillary Clinton's presidential campaign.

Lessons From the Housing Bubble

2008-05-29T11:32:00.000-07:00

By Donald Wessel

The Wall Street Journal

May 29, 2008

Before we replace angst about housing, mortgages and credit markets with anxiety about rising oil prices, consider what we've learned in the past several months. We had a housing bubble; that's now obvious. But how did it happen? Why was its bursting so painful? Without answers, we can't hope to reduce chances of a repeat.

Boil it down to the three R's: rocket scientists, regulators, and ratings agencies.
The rocket scientists are the wizards of Wall Street who invented securities that supposedly dispersed risk widely but actually created much more leverage than proved wise.

There is a good case that the savings-and-loan mess of the 1980s was made in Washington, the inevitable result of government deposit insurance that led to tails-you-lose, heads-I-win banking. The current mess was made on Wall Street.

A bubble so large also required aggressive mortgage originators, imprudent home buyers and myopic investors. But it wouldn't have been as bad if not for the paper factories that sliced up individual subprime mortgages and assembled the pieces into securities, each with its own acronym, that were deemed safer than the underlying loans. They behaved as if they were taking a little poison and diluting it in a big reservoir; instead, they poisoned the entire water supply.
A lot of risk wasn't dispersed, as we now know. It ended up in banks like Citigroup and UBS. To the extent it was dispersed, that posed a different problem.

"The idea of risk dispersion is nice in theory, but in practice it depends on who it gets dispersed to," says Peter Fisher, a former Federal Reserve Bank of New York official now at money manager BlackRock Inc. "It turned out we weren't dispersing it to strong hands who could hold it through the volatility. Rather, we were dispersing it to weak hands who couldn't hold it, and ended up adding to the volatility."

The cost of delinquency, default and falling house prices often was passed to entities (some linked to brand-name banks) that lacked the financial strength to weather a storm. As the entities couldn't bear the burden for long, they had to sell mortgage-linked securities into a hostile, illiquid market, pushing down already depressed prices.

In a modern capitalist system, regulators provide guardrails to keep markets from driving the economy off a cliff. The regulators failed. Whether regulators should or could have restrained innovation on Wall Street or prohibited business deals between consenting, sophisticated adults is a tough question.
But regulators failed to protect unsophisticated consumers from mortgage loans that they simply couldn't afford or didn't understand; they're now fixing that. And regulators misunderstood the risks that banks were taking and failed to stop lenders from lowering standards too far in their frenzy to attract business; fixing that will be tougher.

Among their many failings, the regulators allowed lenders to make a fundamental mistake: To lend not against the borrower's cash flow and income, but instead to lend against the seemingly inexorable increase in the value of the collateral. Mortgages were made to people who couldn't afford the payments because the lender (or investor) figured that if the borrower defaulted, the house would always be worth more than the loan.

"It is the hallmark of a credit bubble when lenders think that because collateral is going up in price they can ignore the borrower's ability to pay," says BlackRock's Mr. Fisher. "Collateral should only be a backstop." When lenders forget that, regulators must step in. "Lenders need someone to prevent them from competing their way to the bottom," he says. Let's put those words on a laminated card and hand it to every banking supervisor.

Then there are the rating agencies, mainly Moody's and Standard & Poor's. "Credit-rating agencies assigned high ratings to complex structured subprime debt based on inadequate historical data and, in some cases, flawed models," the Financial Stability Forum, a collection of regulators and central bankers, said in an April report. "As investors realized this, they lost confidence in ratings of securitized products more generally."

The flaws of rating agencies are a mélange of conflicts of interest, misleading grading systems that classified complex securities as if they were much like simple corporate bonds and a backward-looking approach that proved particularly useless. They were the enablers. They are atoning and changing their ways, as they should. Their business model will change; government oversight will be strengthened.

But investors who relied on the rating agencies -- particularly supposedly sophisticated pension funds and other institutions -- are at fault, too. Rating firms became a crutch for investors who simply didn't want to spend the time and money required to be prudent investors at a time when low interest rates had everyone reaching for higher returns without contemplating the higher risks.

A little "back to basics" in banking and investing would go a substantial way toward avoiding a repeat of the Panic of '08.

Commodity Prices Soar, But Are They A Bubble?

2008-05-26T13:14:00.000-07:00

By Justin Lahart

The Wall Street Journal

May 26, 2008

After being buffeted by the dot-com, housing and credit bubbles -- not to mention the Chinese stock-market bubble -- there is a readiness by people on Wall Street and elsewhere to ascribe the term "bubble" to all sorts of things. But when it comes to commodities like crude oil and corn, that may be off the mark.

A bubble, says "The New Palgrave Dictionary of Economics," "refers to asset prices that exceed an asset's fundamental value because current owners believe they can resell the asset at an even higher price."

But figuring out whether a commodity exceeds its fundamental value is difficult: Because there is no income stream, there is no equivalent to the price-to-earnings ratios that people use to value stocks.

Prices, to be sure, are soaring -- crude oil fetched $132.19 a barrel in New York on Friday, up 103% from $64.97 a year earlier. Yet crude has posted similarly massive increases a number of times in the past three decades. Most notably, in the spring of 1980, as gasoline lines lengthened, the price of crude oil was 150% above the year-before level.

That price spike was caused mainly by a production cutback by the Organization of Petroleum Exporting Countries -- coupled with the fact that consumers had few alternatives. But over time, the high prices spurred conservation by consumers and increased exploration and production in non-OPEC countries. Oil prices collapsed.

The episode is a textbook example of the huge price swings that can occur when supply and demand are relatively inelastic in the short run, but not in the long run, says Harvard economist Greg Mankiw, who cited it in an economics textbook he wrote.

Mr. Mankiw, like many others, thinks that increasing demand from China and other developing countries is behind much of the rise in oil prices.

High prices are sparking some conservation efforts -- on his blog, he has noted that some people are switching to mass transit, buying bicycles and, in the case of one Tennessee farmer, switching from tractor to mule.

"But it takes years for people to fully adapt," Mr. Mankiw says.

In the meantime, the response of oil producers to rising oil prices seems more sluggish than ever, leading worries that crude production has peaked.

The Paris-based International Energy Agency, which is conducting a comprehensive study of the world's top oil fields, is preparing to revise its oil-supply forecast downward.

For other commodities, supply and demand change more quickly in response to higher prices.

Some of the biggest recent price drops have occurred in commodities like wheat and cotton, which are renewable and have potential substitutes, says Howard Simons, a strategist at Chicago-based Bianco Research.

By contrast, oil and natural gas aren't renewable, aren't recyclable and don't have easy substitutes. Corn is renewable, but because much of the corn crop is getting diverted toward making ethanol, its prices are rising as well.

So it is far from clear that the first part of the bubble definition -- prices in excess of their fundamental value -- is in place. But the second part -- that people are buying in anticipation of selling at a higher price -- certainly is.

Speculation has long played a role in the commodities markets, but in recent years it has become much larger.

The traditional role of the commodity-futures markets was to allow players such as farmers and oil refiners to hedge against unexpected price swings. Now, more institutional investors are wading into commodity markets to invest, rather than hedge.

In February, the board of the California Public Employees' Retirement System, or Calpers, the largest pension fund in the U.S., authorized putting as much as 3% of its $240 billion portfolio in commodities. Hedge-fund manager Michael Masters told a U.S. Senate committee last week that institutional investors "are one of, if not the primary, factors affecting commodities prices today."

But Bianco Research's Mr. Simons say that because the final buyers of commodities are consumers rather than investors, the role of speculation is limited. "Commodities, unlike financial assets, cannot take on hope values very much," he says. "At some point, the price gets to the point where the buyer walks away."

In commodity markets, what is traded aren't physical commodities but contracts that are essentially bets on where prices will go, Harvard's Mr. Mankiw says. The final effect of the bets is limited unless they encourage speculation in the commodity itself -- encouraging, say, a coffee broker to warehouse coffee in hopes of getting a higher price later.

And that is what is happening, according to Mr. Mankiw's Harvard colleague Jeffrey Frankel, who says such speculative behavior is due to the sharp reduction in interest rates by the U.S. Federal Reserve. Low rates encourage commodity stockpiling, he says, by making it less attractive to sell commodities and put the proceeds into bonds and other debt instruments.

Critics of Mr. Frankel's theory say the expected rise in commodity inventories hasn't shown up. Mr. Frankel has acknowledged that, but also notes that perhaps oil producers are leaving those inventories in the ground. That could be one reason why the Saudi king rebuffed U.S. President George W. Bush's request for increased oil production earlier this month.

That would be a reckless game to play, because it could lead to the types of shifts that caused energy prices to drop precipitously in the 1980s, inflicting heavy damage on the Saudi and other OPEC economies. Indeed, the combination of a change in consumer behavior and an economic slowdown that is showing signs of spreading beyond the U.S. may already augur just the kind of sharp drop in prices that occurred back then. But if that happens, it won't be because oil prices were in a bubble; it will just be because that is the way commodity markets work.

Today's Food Crisis Isn't a Blip

2008-05-22T17:50:00.000-07:00

By Paul E. Roberts

U S A Today

May 22, 2008

For anyone wondering where food prices are really headed, the news that Beijing has begun buying up farmland in Africa and South America offers a troubling hint. When China began acquiring oil fields in the 1990s, it signaled both the end of China's self-sufficiency in oil and the start of a competition between China and other big oil importers that helped push crude prices to their current record levels. That the world's most populous nation now seeks to lock up pieces of foreign food production not only confirms that China has reached the end of food self-sufficiency as well, but suggests that Western hopes for a quick end to today's food-price crisis could be overly optimistic.

According to conventional wisdom, our food crunch is a temporary glitch. Because grain shortages are being caused by many factors — new demand by biofuel refineries, drought in Australia, among others — the pain can't last. Eventually, drought will abate. Biofuels programs will be reined in. Most important, farmers will plant more acres and boost global supplies, just as they always have during shortages. Food may never again be dirt cheap, but by next year, prices for key crops will swing back to a more moderate line. Right?

It's a comforting picture, to be sure. But as Beijing's real-estate spree suggests, food prices are being driven by deeper, more fundamental factors that won't be so easily resolved.

Food demand soaring

Consider how quickly food demand is accelerating. We've all heard how the developing world is rich enough to eat more meat. But the real story here isn't that global meat consumption will more than double by 2050; it's that each pound of extra meat will require, on average, at least 6 more pounds of livestock feed, meaning we'll need to substantially boost our grain output. And that's a problem, because even as demand soars, traditional methods for increasing supply are losing their punch.

No longer can farmers boost grain output simply by plowing up more land: Most of the world's readily farmable acres are already in crops, and what remains is performing other useful functions. In fact, the world is actively losing farmland — to erosion, overgrazing and development. Even in the USA, the inexorable spread of suburbs, malls and golf courses costs us nearly 2 acres of farmland for each birth or new immigrant.
Granted, the world has coped with land scarcity before. When India ran short in the 1960s and famine loomed, so-called Green Revolution technologies — higher-yield crops, synthetic fertilizers and massive irrigation — let farmers grow more bushels from the same acres. This time around, even as farmers gain powerful new technologies, they'll also be facing new constraints that will make a second Green Revolution harder to pull off.

For example, a farm built on cheap oil suffers when crude prices quadruple. But the larger problem might be the soaring price for natural gas, the main ingredient for synthetic fertilizer. The University of Manitoba's Vaclav Smil calculates that 40% of the world's calories are now produced with synthetic nitrogenous fertilizers. The idea that we must get through the next 50 years, and feed 4 billion more people, with fertilizers two to three times above today's prices, is more than a little breathtaking.

Expensive fertilizer is just the start. To grow a ton of grain, you need up to a thousand tons of water, which means our grain farmers must somehow find as much as a trillion extra tons of water — and this from a planet already seriously overdrawn on its water accounts.

A drain on water, too

Nearly one-sixth of the population of China and India are fed using amounts of water that can't be sustained. Some nations have even resorted to importing grain and soybeans rather than grow it themselves to save water. But this stopgap approach can't help hold off inevitable shortages: According to the International Water Management Institute, future farmers will need 17% more water than the world now has available. Just as nations compete for oil, China's move into foreign farms suggests competition for water isn't far off, either.
Lastly, there's climate. Even conservative scenarios suggest that in places such as Africa, where food output is already suffering, climatic shifts could make key crops, say wheat, impossible to grow. But the real story might be the damage done to grain powerhouses such as the USA and Europe, where an anticipated jump in "extreme weather events" could hurt crop yields and erode our power to export just as basket cases are most in need of our grain.

These are, of course, only scenarios based on current trends. Science could yet provide the tools to restore some of our superabundance. But given the new limits farmers face, those breakthroughs will need to be more miraculous than anything we've seen.

If we're serious about avoiding a repeat of today's food crisis, we'll need to significantly boost research in areas such as crop science, water conservation and natural fertilizers. Just as important, we'll need to recognize today's food crisis for what it is — not some once-in-a-lifetime perfect storm, but an early, and fairly tame, warning of the challenges ahead.

Paul E. Roberts is the author of the new book The End of Food.

Democrats and Our Enemies

2008-05-22T13:49:00.000-07:00

By Joseph Lieberman

The Wall Street Journal

May 21, 2008

How did the Democratic Party get here? How did the party of Franklin Roosevelt, Harry Truman and John F. Kennedy drift so far from the foreign policy and national security principles and policies that were at the core of its identity and its purpose?

Beginning in the 1940s, the Democratic Party was forced to confront two of the most dangerous enemies our nation has ever faced: Nazi Germany and the Soviet Union. In response, Democrats under Roosevelt, Truman and Kennedy forged and conducted a foreign policy that was principled, internationalist, strong and successful.

This was the Democratic Party that I grew up in – a party that was unhesitatingly and proudly pro-American, a party that was unafraid to make moral judgments about the world beyond our borders. It was a party that understood that either the American people stood united with free nations and freedom fighters against the forces of totalitarianism, or that we would fall divided.

This was the Democratic Party of Harry Truman, who pledged that "it must be the policy of the United States to support free peoples who are resisting attempted subjugation by armed minorities or by outside pressures."

And this was the Democratic Party of John F. Kennedy, who promised in his inaugural address that the United States would "pay any price, bear any burden, meet any hardship, support any friend, oppose any foe, to assure the survival and the success of freedom."

This worldview began to come apart in the late 1960s, around the war in Vietnam. In its place, a very different view of the world took root in the Democratic Party. Rather than seeing the Cold War as an ideological contest between the free nations of the West and the repressive regimes of the communist world, this rival political philosophy saw America as the aggressor – a morally bankrupt, imperialist power whose militarism and "inordinate fear of communism" represented the real threat to world peace.

It argued that the Soviets and their allies were our enemies not because they were inspired by a totalitarian ideology fundamentally hostile to our way of life, or because they nursed ambitions of global conquest. Rather, the Soviets were our enemy because we had provoked them, because we threatened them, and because we failed to sit down and accord them the respect they deserved. In other words, the Cold War was mostly America's fault.

Of course that leftward lurch by the Democrats did not go unchallenged. Democratic Cold Warriors like Scoop Jackson fought against the tide. But despite their principled efforts, the Democratic Party through the 1970s and 1980s became prisoner to a foreign policy philosophy that was, in most respects, the antithesis of what Democrats had stood for under Roosevelt, Truman and Kennedy.

Then, beginning in the 1980s, a new effort began on the part of some of us in the Democratic Party to reverse these developments, and reclaim our party's lost tradition of principle and strength in the world. Our band of so-called New Democrats was successful sooner than we imagined possible when, in 1992, Bill Clinton and Al Gore were elected. In the Balkans, for example, as President Clinton and his advisers slowly but surely came to recognize that American intervention, and only American intervention, could stop Slobodan Milosevic and his campaign of ethnic slaughter, Democratic attitudes about the use of military force in pursuit of our values and our security began to change.

This happy development continued into the 2000 campaign, when the Democratic candidate – Vice President Gore – championed a freedom-focused foreign policy, confident of America's moral responsibilities in the world, and unafraid to use our military power. He pledged to increase the defense budget by $50 billion more than his Republican opponent – and, to the dismay of the Democratic left, made sure that the party's platform endorsed a national missile defense.

By contrast, in 2000, Gov. George W. Bush promised a "humble foreign policy" and criticized our peacekeeping operations in the Balkans.

Today, less than a decade later, the parties have completely switched positions. The reversal began, like so much else in our time, on September 11, 2001. The attack on America by Islamist terrorists shook President Bush from the foreign policy course he was on. He saw September 11 for what it was: a direct ideological and military attack on us and our way of life. If the Democratic Party had stayed where it was in 2000, America could have confronted the terrorists with unity and strength in the years after 9/11.

Instead a debate soon began within the Democratic Party about how to respond to Mr. Bush. I felt strongly that Democrats should embrace the basic framework the president had advanced for the war on terror as our own, because it was our own. But that was not the choice most Democratic leaders made. When total victory did not come quickly in Iraq, the old voices of partisanship and peace at any price saw an opportunity to reassert themselves. By considering centrism to be collaboration with the enemy – not bin Laden, but Mr. Bush – activists have successfully pulled the Democratic Party further to the left than it has been at any point in the last 20 years.

Far too many Democratic leaders have kowtowed to these opinions rather than challenging them. That unfortunately includes Barack Obama, who, contrary to his rhetorical invocations of bipartisan change, has not been willing to stand up to his party's left wing on a single significant national security or international economic issue in this campaign.

In this, Sen. Obama stands in stark contrast to John McCain, who has shown the political courage throughout his career to do what he thinks is right – regardless of its popularity in his party or outside it.
John also understands something else that too many Democrats seem to have become confused about lately – the difference between America's friends and America's enemies.

There are of course times when it makes sense to engage in tough diplomacy with hostile governments. Yet what Mr. Obama has proposed is not selective engagement, but a blanket policy of meeting personally as president, without preconditions, in his first year in office, with the leaders of the most vicious, anti-American regimes on the planet.

Mr. Obama has said that in proposing this, he is following in the footsteps of Reagan and JFK. But Kennedy never met with Castro, and Reagan never met with Khomeini. And can anyone imagine Presidents Kennedy or Reagan sitting down unconditionally with Ahmadinejad or Chavez? I certainly cannot.
If a president ever embraced our worst enemies in this way, he would strengthen them and undermine our most steadfast allies.

A great Democratic secretary of state, Dean Acheson, once warned "no people in history have ever survived, who thought they could protect their freedom by making themselves inoffensive to their enemies." This is a lesson that today's Democratic Party leaders need to relearn.

Mr. Lieberman is an Independent Democratic senator from Connecticut. This article is adapted from a speech he gave May 18 at a dinner hosted by Commentary magazine.

Energy and the Executive

2008-05-21T17:04:00.000-07:00

By Pete Du Pont

The Wall Street Journal

May 19, 2008

This election is notable in many ways. For the first time since 1952, neither the president nor the vice president will be his party's presidential nominee. For the first time since 1960, a sitting U.S. senator will be elected president. And for the first time ever, if the Democrats win, the next president will be female or black.

We are also at a fork in the policy road, for any of the three major candidates would lead us in very different directions on major public policy issues, from spending and taxation on the one hand, to international relations and the war on terror on the other.

Equally critical will be their direction on how we generate the energy America needs. Over the past 20 years, have our presidents and Congresses allowed us to drill for the additional offshore oil available to fuel our economy and reduce imports? No. Have they encouraged the building of nuclear power plants that would generate pollution-free energy? No. Are they now supporting the building of coal-fired power plants to generate the electricity our economy needs? No.

We have an abysmal national energy policy, and as our population grows and our economy expands, energy needs will increase. From 1980 to 2006 America's annual energy usage increased from 78 to 100 quadrillion British thermal units, and the figure is estimated to grow to 118 quadrillion BTUs by 2030. If our regressive energy production policies continue when the next administration takes office, our economy and the personal lives of Americans will be severely affected.

We have failed to increase our country's crude oil production. Domestic oil production has declined, to 1.9 billion in 2007 from 3.1 billion barrels in 1980, while imports increased to 3.7 billion barrels from 1.9 billion. We now importing about 60% of the oil we use.

One reason for the imports is that our public policy has forbidden offshore oil drilling for much of the estimated 85 billion barrels of recoverable oil and 420 trillion cubic feet of natural gas (an 18-year supply) that are on the Outer Continental Shelf, and another 10 billion barrels of oil in Alaska. Together they could replace America's imported oil for about 25 years, but the first President Bush issued a directive forbidding access to a significant portion of the Outer Continental Shelf. President Clinton extended the restriction through 2012 and vetoed legislation that would have allowed drilling in Alaska.

So America has large amounts of oil and gas, but our efforts to extract it have been significantly reduced by the federal moratorium on drilling. America remains the only nation in the world that has curtailed access to its own energy supplies/ Meanwhile China will soon begin drilling for oil off Cuba and in Venezuela.

Among the worst antienergy policies we have experienced was President Carter's 1980 "windfall profits tax" on oil companies, which reduced domestic oil production by between 3% and 6% and increased imports by 8% to 16%. Yet last week Majority Leader Harry Reid and 20 other Senate Democrats introduced a similar 25% tax.

We have failed to allow the construction of new nuclear power plants to add to the 104 that we have in operation. Nuclear power is clean and efficient, but no new nuclear plant construction has been granted permits in the past 30 years. By contrast, China plans to build 40 nuclear power reactors in the next 15 years -- two or three each year.

Nor are we fully using the huge coal resources America has. We have in the past, but an effort to prohibit them has become the environmentalists' goal. NASA climatologist James E. Hansen said last month that "building new coal-fired plants is ill conceived," and that it is time "for a moratorium on coal now with phase-out of existing plants over the next two decades." The phase-out is under way: Of the 151 coal-fired plant construction proposals in 2007, more than 60 have been abandoned as the result of environmentalist pressure. And last month Gov. Kathleen Sebelius of Kansas vetoed a bill that would have allowed the construction of two new electricity generators at an existing coal fired power plant -- because they would emit greenhouse gasses.

We have also pursued new energy policies that turn out to be mistaken. Ethanol is perhaps the best example, with congressional enactment of ethanol subsidies -- 51 cents a gallon for production of it, and a 54-cent-a-gallon import fee to keep competitive, less expensive and more environmentally friendly ethanol out of America. Congress in 2005 required 7.5 billion gallons of ethanol to be produced by 2012; and then in 2007 upped that to 36 billion gallons by 2022. President Bush enthusiastically supports subsidized ethanol, and Barack Obama believes there should be a 65-billion-gallon ethanol mandate. Only John McCain wants to end ethanol subsidies and import fees.

Ethanol was a bad idea from the start, for as The Wall Street Journal recently reported, producing one gallon of ethanol requires 1,700 gallons of water (primarily to grow corn). The journal Science recently found that "corn-based ethanol, instead of producing a 20% savings, nearly doubles greenhouse emissions over 30 years."

The good news is that an effort to reverse all these antienergy, antigrowth policies is beginning. Earlier this month Sen. Pete Domenici (R., N.M.) introduced the American Energy Production Act to expand offshore oil production, establish a leasing program to get to Alaska's untapped 10 billion barrels of oil, and support the construction of new oil refineries. The last is a particularly good idea, for it has been 30 years since we have built one in the United States.

The May 11 New York Times contained a surprisingly sensible lead editorial: "The time has come to rethink ethanol. . . . Specifically, it is time to end an outdated tax break for corn ethanol and to call a time out in the fivefold increase in ethanol mandated in the 2007 energy bill."

So perhaps America is beginning to rethink its flawed energy policies. And so it must, for our challenge is to remain competitive in a growing global economy, and that requires feeding the engines of growth with more energy. Our next president must advance drilling for offshore oil, building nuclear power and clean coal fired plants, and developing other energies such as solar and wind power. Otherwise America's people will miss future opportunities and slip backwards economically, and our country will become far worse off than it is today.

The GOP Must Stand for Something

2008-05-20T19:02:00.000-07:00

By Karl Rove

The Wall Street Journal

May 15, 2006

Tuesday's election results highlighted challenges for both Democrats and Republicans.

Republicans received a hard shot in Mississippi. Greg Davis (for whom I campaigned and who was a well-qualified candidate) narrowly lost a special congressional election in a district President George W. Bush carried four years ago with 62% of the vote. Democrats pulled off the win by smartly nominating a conservative, Travis Childers, from a rural swing part of the district who disavowed Barack Obama and House Speaker Nancy Pelosi and hit Mr. Davis from the right.

This blow to the GOP came after two other special congressional election losses in recent months. Republicans lost former House Speaker Denny Hastert's Illinois seat and Rep. Richard Baker's Louisiana seat.

Both of those losses can be attributed to bad candidates. But that only shows the GOP can't take "safe" seats for granted when Democrats run conservatives who distance themselves from their national party leaders. The string of defeats should cure Republicans of the habit of simply shouting "liberal! liberal! liberal!" in hopes of winning an election. They need to press a reform agenda full of sharp contrasts with the Democrats.
Why is it tough sledding for Republicans? Public revulsion at GOP scandals was a large factor in the party's 2006 congressional defeat. Some brand damage remains, as does the downward pull of the president's approval ratings. But the principal elements are the Iraq war and a struggling economy.

Gallup's 2007 report found that fewer voters identify themselves as Republicans now than at any point in the past 20 years – despite the fact that less than a fifth of Americans agree with Mr. Obama's call to rapidly withdraw from Iraq. And while many Americans are concerned about the economy, most are satisfied with their own finances.

As Republican ranks declined, the number of independents and Democrats grew. Has the bottom been reached? It's too early to know. But Americans are acknowledging progress in Iraq, economists are suggesting the economy will be in better shape this fall, and a recent ABC/Washington Post poll found GOP identification rising.

What is clear is that John McCain and Republicans will prevail only if they convince voters that there are profound consequences at stake in Iraq, and that more and better jobs will follow from the GOP's approach of lowering taxes, opening trade, and ending earmarks and other pro-growth policies.

Republicans also face challenges with the young (whose opposition to the war and attraction to Mr. Obama have made them Democrats) and Hispanics (the fastest-growing part of the electorate). A recent survey offers some encouraging news. Mr. McCain is polling as high as 41% with Hispanics – close to President Bush's 44% in 2004.

Democrats shouldn't be complacent after Tuesday. Their problems start with Mr. Obama's 41-point loss to Hillary Clinton in West Virginia. Mr. Obama lost the primary because the rejection of him by blue-collar voters is hardening. The last Democrat to win the presidency without carrying the Mountain State was Woodrow Wilson in 1916.

Barely half of Mrs. Clinton's supporters in Indiana, North Carolina and West Virginia say they're ready to support Mr. Obama against Mr. McCain today. Without solid support from these voters, Mr. Obama will be in trouble in Ohio, Pennsylvania, Michigan, West Virginia, Wisconsin and other battlegrounds.

So far, Mr. Obama owes his success to elites captivated by his personality. But in the general election, most folks will care more about a candidate's philosophy and stand on the issues. And what's considered mainstream values in a general election is different than in a primary.
Mr. Obama knows this, which is why he peppered his North Carolina primary night speech with culturally conservative language. And it is also why he is reaching out to Jewish voters.

Mr. Obama leads Mr. McCain 61%-32% among Jews. John Kerry won the Jewish vote 74%-25% in 2004. A weak performance for Mr. Obama could make it harder to win Michigan, Pennsylvania, Ohio or Florida. It could even put New Jersey in play.

Then there are the record low congressional approval ratings. No Congress has fallen as far and as fast as the Nancy Pelosi/Harry Reid-led House and Senate. Unlike President Bush, congressional Democrats will be on the ballot this fall, and can do little to improve their lackluster record before then. It must also be disconcerting for Ms. Pelosi that the Democrats' winning formula has meant conceding ground on guns, prayer, partial-birth abortion and other issues that matter to social conservatives.

Both parties face major challenges and have little time to alter the dynamics of the election to their advantage. Recognizing underlying problems and correcting them within a matter of a couple of months is one of the supreme challenges in politics. Whichever party does that fast and well will benefit come November.

Talking Versus Doing

2008-05-20T17:12:00.000-07:00

By David Brooks

The New York Times

May 20, 2008

In 1965, Mancur Olson wrote a classic book called “The Logic of Collective Action,” which pointed out that large, amorphous groups are often less powerful politically than small, organized ones. He followed it up with “The Rise and Decline of Nations.” In that book, Olson observed that as the number of small, organized factions in a society grows, the political culture becomes more divisive, the economy becomes more rigid and the nation loses vitality.

If you look around America today, you see the Olson logic playing out. Interest groups turn every judicial fight into an ideological war. They lobby for more spending on the elderly, even though the country is trillions of dollars short of being able to live up to its promises. They’ve turned environmental concern into subsidies for corn growers and energy concerns into subsidies for oil companies.

The $307 billion farm bill that rolled through Congress is a perfect example of the pattern. Farm net income is up 56 percent over the past two years, yet the farm bill plows subsidies into agribusinesses, thoroughbred breeders and the rest.

The growers of nearly every crop will get more money. Farmers in the top 1 percent of earners qualify for federal payments. Under the legislation, the government will buy sugar for roughly twice the world price and then resell it at an 80 percent loss. Parts of the bill that would have protected wetlands and wildlife habitat were deleted or shrunk.

My colleagues on The Times’s editorial page called the bill “disgraceful.” My former colleagues at The Wall Street Journal’s editorial page ripped it as a “scam.” Yet such is the logic of collective action; the bill is certain to become law. It passed with 81 votes in the Senate and 318 in the House — enough to override President Bush’s coming veto. Nearly everyone in Congress got something.

The question amid this supposed change election is: Who is going to end this sort of thing?

Barack Obama talks about taking on the special interests. This farm bill would have been a perfect opportunity to do so. But Obama supported the bill, just as he supported the 2005 energy bill that was a Christmas tree for the oil and gas industries.

Obama’s support may help him win Iowa, but it will lead to higher global food prices and more hunger in Africa. Moreover, it raises questions about how exactly he expects to bring about the change that he promises.
If elected, Obama’s main opposition will not come from Republicans. It will come from Democratic leaders on Capitol Hill. Already, the Democratic machine is reborn. Lobbyists are now giving 60 percent of their dollars to Democrats, according to the Center for Responsive Politics. The pharmaceutical industry, the defense industry and the financial sector all give more money to Democrats than Republicans. If Obama is actually going to bring about change, he’s going to have to ruffle these sorts of alliances. If he can’t do it in an easy case like the farm bill, will he ever?

John McCain opposed the farm bill. In an impassioned speech on Monday, he declared: “It would be hard to find any single bill that better sums up why so many Americans in both parties are so disappointed in the conduct of their government, and at times so disgusted by it.”

McCain has been in Congress for decades, but he has remained a national rather than a parochial politician. The main axis in his mind is not between Republican and Democrat. It’s between narrow interest and patriotic service. And so it is characteristic that he would oppose a bill that benefits the particular at the expense of the general.

In fact, in this issue, McCain may have found a theme to unify his so far scattershot campaign. He has always been an awkward ideological warrior. In any case, this year may not be the best year for Republicans to launch a right versus left crusade. But McCain has infinitely better grounds than Obama to run as a do-what-it-takes reformer.

He has a long record of taking on not only the other party, but his own. In the current Weekly Standard, the brilliant young writer Yuval Levin suggests that McCain put reforming America’s decrepit governing institutions at the center of his presidential race.

Levin points out that the health care system, the immigration system, the regulatory system and the entitlement system all need reforms. Instead of talking about personal honor or perpetual tax cuts, McCain should focus relentlessly on modernization.

In fact, Monday in Detroit, McCain declared: “In all my reforms, the goal is not to denigrate government but to make it better, not to deride government but to restore its good name.”

Obama, sad to say, failed the farm bill test. McCain may have found a theme for a nation that has lost faith in its own institutions.