Diatribes of Jay

This is a blog of essays on public policy. It shuns ideology and applies facts, logic and math to economic, social and political problems. It has a subject-matter index, a list of recent posts, and permalinks at the ends of posts. Comments are moderated and may take time to appear. Note: Profile updated 4/7/12

24 October 2009

Getting Smart


Our late, fleeting Indian summer came and went. Fall is setting in. Chipmunks scrounge frenetically for the last rotten nuts, and the weather is miserable. If you can stay optimistic at this time of year, your reasons must be real. And I can.

As I predicted, China is leading the world out of the Great Recession. Its domestic demand is rising fast enough for it to begin curbing its massive stimulus. Its leaders, ever cautious and thoughtful, are confident of continued growth. Whether China will take over our role as the world’s chief economic engine remains to be seen. But at least it’s a strong and capable auxiliary.

Paul Krugman frets about China’s pegging its currency to the dollar. But if China sold its $ 2.1 trillion in Treasury securities quickly, the dollar would plummet. Inflation here would rise, forcing the Fed to increase interest rates. In time, the dollar’s fall would increase our exports and job growth would return. But in the interim we would suffer the “stagflation” of the seventies and its high “misery index.” So maybe China’s obsession with stability and lazy change is not all that bad.

On the domestic economic front, things are better than they have been in years. We appear to have avoided a second Great Depression, although the return to full employment will be slow and painful.

Even more important, there are signs we are beginning to take serious problems seriously. Congress looks as if it might pass some sort of public option to give our monopolistic and oligopolistic health insurers a little competition. Congress might even take away the industry’s antitrust exemption and subject it to the same rules that govern every other U.S. industry (except professional baseball)!

No doubt we owe these salubrious changes to polls showing, among other things, a public 57% to 40% in favor of a public option. But let’s give Congress the benefit of the doubt. Maybe its members finally get it. Maybe they see that a century is far too long for Americans to solve a problem that all our trading partners solved long ago. Maybe they understand that multiply balkanized markets do not competition make.

Cap and trade is next on the list. Six years ago a United States Senator with zero scientific knowledge or training stood up on the Senate floor and declared global warming a “hoax.” Today we are actually trying to do something about it. And three major private utilities have quit the U.S. Chamber of Commerce for dragging its feet. Rationality and receptivity to evidence appear to be breaking out all over.

Executive pay is small potatoes compared with health insurance and climate change. But thinking is running rampant even there. Just days after Kenneth Feinberg announced his careful “balancing act,” cutting pay to the top-25 executives in seven bailed-out firms by an average of fifty percent, private firms began to announce their own similar voluntary plans.

Why? Because everyone suddenly sees that arranging compensation to reward people for taking the money and running produces exactly that behavior. As recently as two decades ago, executives had to wait three to five years for stock options to vest, even in Silicon Valley. And those companies were start-ups, with understandably low basic salaries, not staid banks and insurance companies. Still grumbling and huffing about “government meddling,” even the private sector now begins to see the merits of leaders with longer views than their next bonus.

Thinking is infecting foreign policy, too. Many scoffed when the President reached out to engage Iran. But would Ahmadinejad have had to steal the election if someone like Dubya were still in office? Obama’s reaching out gave his internal rivals enormous moral support and political legitimacy.

When the time for engagement came, we were smart. We said to Iran, “You want fuel for nuclear reactors? Fine. Let Russia refine your fuel.” That put Iran in a box. If it said “no,” everyone would know it was hell bent on making nuclear weapons. If it said “yes,” Russia’s handling of the fuel would make it much harder to develop them quickly.

I don’t know who thought that ploy up, whether the President or one of his advisers. But it was brilliant. It was so smart that it split Iran’s government right down the middle. Iran’s nuclear negotiators made a public break with their own government. The ultimate effects are still unknown, but this incident can’t help but promote democratic forces in Iran and cooperation by our allies around the world.

As in Iran, so in Afghanistan. Dick Cheney accused the President of “dithering.” But thinking—a process with which Dick Cheney seems unacquainted—is not dithering.

Patience is another virtue that few in Dubya’s administration possessed and that has recently paid off handsomely. While we were thinking, Pakistan made its most serious moves ever against the Taliban, first in the Swat Valley, and now in South Waziristan. The Taliban blundered by undertaking the same sort of suicide attacks that led to the Sunni Awakening in Iraq. Hamid Karzai, under enormous pressure from John Kerry and everyone else, finally relented to a runoff that might just give his administration a patina of legitimacy. And NATO, embarrassed by its foot-dragging support, is falling all over itself to help. Waiting and thinking were the right things to do, if only because they strengthened our international political and moral position enormously and allowed the situation to “gel” before our strategic decision.

Even the Wall Street Journal has caught the spirit. Just today it published one of the most nuanced and thoughtful pieces on wartime strategy that I have read in its pages in a quarter century. The piece had no name-calling, no accusations of “cut and run,” no “Defeatocrats.” It was just good, analytical reporting on the Administration’s thinking process and its strategy.

And at least two weeks must have passed since I last read a piece in the Journal lamenting government’s audacity in trying to keep rotten business from swindling consumers. What a difference a year makes!

If this pandemic of thinking an accident? Does it mark a mere recovery from addiction to Dubya’s platitudes after nine months of cold turkey?

I don’t think so. There was one—and only one—self-evidently smart and capable person in Dubya’s administration, SecDef Gates. He’s still there. But now he has lots of company, including the President, virtually every cabinet member, and all the important theater commanders of our military. Education Secretary Arne Duncan and the President earned praise from conservative commentator David Brooks for perseverance in holding teachers accountable and improving their performance. And without fanfare Attorney General Eric Holder just announced the arrest of 300 members of “La Familia,” the Michoacan drug cartel—as if he weren’t doing enough just closing Guantánamo.

Holder’s professional approach to these nacroterrorists will no doubt encourage Mexico’s new police leaders to cooperate with us. That sort of cooperation—not Dubya’s unilaterialism—is exactly what our times call for, whether in reducing the risk of a narcostate on our southern border or in fighting the Taliban on the Afghanistan/Pakistan border.

And lest you think it’s all about government, think again. Our financial sector may be ravaged by greed and stupidity, but our industrial sector is not. Stodgy old GM is on track to produce the world’s first serial hybrid car—essentially an electric vehicle—in about a year. Boeing Aircraft is preparing to test fly its 787 “Dreamliner,” the world’s most energy-efficient aircraft. China may have recently passed us in wind power generated, but we are number two. And the most popular and best-designed computer operating systems—both American products—recently underwent radical redesigns to make them smaller, sleeker and faster.

So don’t sell America short just yet. We are an unruly bunch, prone to bouts of pride, stubbornness and stupidity. But when the wind is southerly, we know a hawk from a handsaw.

Now we know that brains and thinking matter. We have a President and a Cabinet whose low-key, thoughtful approach to solving problems provides a model for the nation and the world. And miraculously their skills seem to be rubbing off not only on Congress, but on industry and our media as well. If these trends continue, we’ll do just fine.

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