Motivation and the “Fiscal Cliff”

[For comment on Chuck Hagel at Defense, click here. For a common example of “fiscal cliff” journalistic malpractice, click here.]

We humans are social animals. We speak for many reasons. Reporting and sharing are only two of them. We also persuade. We influence. We “spin.” We slant. We mislead. We lie.

These common purposes of speech are facts of our human condition. They are the basis of five professions that have achieved unprecedented pre-eminence in our Yankee cultre: advertising, public relations, political consulting, “spinning” and legal advocacy. They are also the basis of diplomacy, the new war. They even have a place in close interpersonal relations, as “white lies.”

So motivation matters. You cannot accurately evaluate the truth or value of any statement without considering the speaker’s motivation for making it. You cannot possibly forecast its effect without considering the effect that the speaker wanted it to have. These points apply especially to public actors like pols and business leaders.

When our American media report what people say as “facts,” without analyzing their motivation or providing background, they are not doing their jobs. They are serving as echo chambers for and sycophants to power. They are abdicating their status as parts of The Fourth Estate. But that, unfortunately, is largely what our media do today, as gossip replaces skeptical independent reporting.

To illustrate these larger points, let’s look with fresh eyes at the so-called “fiscal cliff.”

From its outset, the phrase was a complete misnomer. A “cliff” is a vertical precipice. If you jump off it (without a parachute or hang glider) you are likely to die in mere seconds. Danger is immediate, if not instantaneous.

The so-called “fiscal cliff” is no such thing. It doesn’t cast us over a cliff. It doesn’t even cast our money over a cliff. All it does is change our laws to allow taxes to rise a few percent, and to restrict certain spending—chiefly military—in the medium term. The changes are not retroactive, although they will have some immediate effect on personal tax withholding.

These changes are already causing an unwanted (and perhaps unnecessary) flurry of planning activity within the Pentagon and other halls of government. But they’re not a “cliff;” they’re not a particularly steep decline, even if they actually come to pass.

The GOP’s failure to raise the debt ceiling, in repeated attempts at extortion by minority, is much more of a cliff. A default’s (or even a near-default’s) effects on our fiscal health, credit rating, and bond interest are almost immediate. But even that leap of extortion is not literally a “cliff.” There are always a few days, even a week or two, to come to agreement before our economy collapses.

As for “fiscal,” that word derives from “fisc,” which means the public treasury. The “fiscal cliff” doesn’t put our Treasury in danger. Failing to raise the debt limit would do that. Raising taxes and cutting spending will improve our fiscal health, not impair it: more money coming in, less going out. The “cliff” would actually be good for our fisc.

Going over the “fiscal cliff” might, in the near term, adversely affect our economy by raising taxes, thereby reducing consumers’ spending, and by reducing the military’s ability to spend. But failing to raise the debt ceiling would do that even quicker: it would cut the entire government’s ability to spend, immediately.

Anyway, our economy is not the “fisc.” The Treasury, while important, is hardly all of us. Among other things, it omits the entire private sector, which is our economy’s engine.

So if one uses words correctly, the “fiscal cliff” is neither “fiscal” nor a “cliff.”

Then why did Ben Bernanke invent the phrase? There’s a complex tale of motivation.

To answer that question, you have to know a little history. Bernanke’s predecessor, Alan Greenspan, was an oracular figure. I don’t mean that adjective as a compliment. Ancient Greek and Roman oracles were famous for making forecasts that recipients could take many ways. They allowed the listener to hear what he wanted to hear. Like them, Greenspan spoke in riddles so that no one could later say he was wrong.

Bernanke wasn’t and isn’t like that. While aware of economics’ dismal aspects, he believes it to be a science, more than an art, and worthy of respect as such. He also believes—correctly—that in order to have any real effect at all economists must make statements, including rare forecasts, in a way that others can understand.

From the outset of his term as Fed chief, Bernanke set out to expunge Greenspan’s oracular approach to public speaking. He resolved to analyze and forecast in intelligible ways, like an economic weatherman.

Of course Bernanke was (and is) acutely conscious of the risks of being wrong, and the likelihood of being wrong at least sometimes. But he thought (rightly in my view) that the credibility and influence of economists demanded a new approach. And he knew that weathermen, while often derided, have gotten more respect and influence as their forecasts have gotten clearer and better.

Like nearly all competent economists, Bernanke believes that raising taxes in a recession risks stalling economic growth. Massive reductions in government spending, whether on the Pentagon or welfare, have the same effect.

So in the midst of the nastiest and most prolonged recession since the Great Depression, Bernanke wanted to make those points clearly. Hence the mixed and inaccurate metaphor “fiscal cliff.”

While it was verbally inaccurate from the start, at the time Bernanke made it he intended it to motivate beneficial policy. There was no clear sign of recovery then. The Great Recession had lasted four years and still might not have reached bottom. So Bernanke wanted to send a clear signal: don’t make a bad situation worse; fixing the deficit can wait.

Bernanke undoubtedly had other motivations as well. He’s an economic scientist who believes passionately in the value of his trade. His work at the Fed has been next to miraculous in making a Crash that could have been another Great Depression shallower and shorter. Yet he has suffered derision, second-guessing and even hatred from people whose understanding of economics and central banking is beyond primitive.

So one of Bernanke’s key motivations has to have been preserving the Fed’s independence and influence. He no doubt thought that by highlighting the importance of reducing the deficit in a balanced and deliberate way, he could push the two parties toward cooperation and make things better.

Unfortunately, things didn’t work out that way. His effort backfired.

Bernanke’s an economist, not a politician. He’s also an analytical rationalist, not an emotional one. He had no idea how the GOP would misuse his frightening metaphor as the latest of its thousand-and-one-scare tactics, or how the Dems would use it to paint the GOP as the bunch of radical extremists it has become. Instead of inducing rational action on policy, the metaphor induced more lies, spin, discord and political posturing.

Bernanke’s attempt to reverse Greenspan’s oracular approach to policy advice was well intentioned. But he went too far. Now, like any good general, he should beat a hasty retreat and save what remains of his and the Fed’s credibility. He should publicly acknowledge that we still have time to both fix the deficit and correct the hit to public and private spending, if necessary. Bargaining—and spending by increasingly optimistic consumers and businesses—then can proceed without the fear of an instant high-speed collision with rocks below.

We are coming out of the Great Recession, slowly but surely. All the signs point in that direction. Therefore the danger of raising taxes in a recession is passing. The greater danger now is a self-fulfilling bad prophecy. Fearing the nonexistent “fiscal cliff,” our Yankee consumers and businesses might stop spending out of unjustified fear and cause a double dip.

At least Bernanke should acknowledge that any rise in taxes and cuts in spending will help cure the deficit, put the government on a sounder financial footing, secure our good national credit rating, and make easier his job of keeping interest rates low. He might also note that the global economy appears on the mend, and that, once it heals, tax increases and spending cuts are necessities for reducing our bulging deficits.

There are also institutional reasons for recanting. In creating what amounted to a free-floating political bumper sticker, Bernanke stepped way over the fuzzy line that separates economics from politics. The effects were exactly the opposite of what he intended. Deficit reduction became a political football, and intelligent cooperation between the parties stalled. So Bernanke ought to step back into the role of economist and central banker and relinquish the role of politician, for which he is untrained and unsuited.

Besides Bernanke, there are many other players in the “fiscal cliff” drama whose motivations deserve analysis. Chief among them are our media. But their motivations are depressingly obvious. Scares and sensationalism sell news and fill an otherwise empty and boring 24-hour news cycle. (As I write this, I can picture various so-called “newscasters” repeating the phrase “fiscal cliff” over and over, with the same self-evident schadenfreude that local reporters reveal in reporting on a 150-car pileup in the fog.)

Laziness was also a big factor in the news media’s performance. It’s much easier to report—and repeat endlessly—a catchy phrase like “fiscal cliff,” especially when uttered by someone as smart and influential as Bernanke. It’s much harder to analyze the phrase’s motivation or accuracy, or its currency as the global economy recovers.

There are yet other actors whose motivations contributed to this decade’s Y2K scare. But why and how the two parties and their leaders misused the misleading phrase is pretty obvious. So I won’t prolong this essay with a recitation.

In a nation in which manufactured “credibility” has replaced truth as a cultural norm, the media and our pols converted an unfortunate phrase that may have been useful when made into a mass cultural delusion. Changed circumstances now require its correction. Without correction, the delusion is likely to have exactly the opposite effect of what everyone intended: it might stall private spending and cause the double dip that its creator sought to avoid. It’s time to retire the easy, scary phrase and talk about messy but promising reality.

Coda: Journalistic Malpractice

For an example of near-universal journalistic malpractice associated with the so-called “fiscal cliff,” you need look no further than your own recent newspaper. Most likely, it will have reported the Tax Policy Center’s estimate that the “fiscal cliff” will hit taxpayers, on the average, with a $3,446 bill.

That “fact” might be technically accurate as a matter of math. But’s its so misleading that, in the context of the current political debate, it’s a lie.

As the Tax Policy Institute uses it, the word “average” connotes a per-capita numerical average of all effects of all legal changes on all taxpayers together, including corporate taxpayers. So that average lumps Mitt Romney, Warren Buffet and GE together with gardeners, maids and janitors.

The formers’ astronomical incomes raise it far beyond what any ordinary person will experience. But the average Joe or Mary interprets “average” as meaning them.

In fact, an average person making $40,000 to 50,000 a year will lose 2001 and 2003 tax benefits of only $836. The repeal of the payroll-tax cut will add another $574 at that income level, for a total of $1410, less than half the generally reported figure.

Even that “hit” won’t come all at once. It will be spread out monthly over the entire year of tax withholding. On a monthly basis it will amount to $1410/12, or about $117. That income cut is no benefit to a middle-income taxpayer, but it’s hardly a disaster.

These numbers illustrate how inapt is the “cliff” metaphor. If Congress can get its act together and provide middle-class relief by June, these tax increases will last only six months, and our $40,000 to $50,000 earner will lose only $705.

Not only does the larger number represent a misleading amalgamation of average taxpayers with corporations and the super-rich. It also includes estimates of health-care cost increases, estate-tax changes, changes in the alternative minimum tax, changes in capital-gains taxes, and other tax policy minutiae which don’t affect the vast majority of middle-income earners. The overall “average” number thus misleadingly attributes effects on only a few percent of taxpayers to the vast majority.

Even under this meaningless all-changes-aggregated approach, the Tax Policy Center’s average hit for all $40,000 to $50,000 earners is $1,721, or $143 per month. For most middle class people, that would be meaningful but hardly life changing, even if it applied to them.

Unfortunately, our sensationalist media either won’t take the trouble to see, or won’t hire reporters who can see, behind the easy and scary number. Or they won’t report numbers in a meaningful way because doing so might lose readers or viewers to more sensationalist rivals. Thus do misleading think tanks and journalistic malpractice exaggerate the individual impact of the so-called “fiscal cliff.”

Erratum: An earlier version of this coda neglected the payroll tax, whose cut was not passed in 2001 or 2003, and which even middle-income people pay. I regret the error.

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Consequences

Republicans are big on ideology, pledges, and show. They’re not so good at predicting consequences or understanding cause and effect.

Remember Newt’s “contract with America”? Most of us, who weren’t his fans, called it a “contract on America.” But the name and the details don’t matter now. They’re all history.

More properly, they’re in the dustbin of history, where they belong. They’re precisely where Grover Norquist’s extorted pledge of “no tax increases, ever” will be after January 1.

If you haven’t yet seen the writing on the wall, let me read it to you. In ten days, we’re going over the so-called “fiscal cliff.”

Now that the Tea Wing Nuts have rejected even Boehner’s lame offer to raise taxes only on people making over a million a year, that’s inevitable. There’s not enough time left to negotiate a “grand bargain.” Even if there were, the House Wing Nuts wouldn’t pass it. And the President, who holds all the cards now, is not going to negotiate with himself. His veto threats make that crystal clear.

Boehner is now Speaker Eunuch. He can’t deliver his own partisans even for a half-hearted bargain. All he can do is mouth the party line as his ship goes down.

But the ship going down won’t be ours. January 1 won’t be like going over Niagara Falls in a barrel. It will be like Y2K, or the Mayan “end of the world,” which just passed without incident. It will be a complete non-event.

Yet there will be consequences. Remember that little thing called cause and effect? Republicans don’t worry too much about it, because, as Dubya insisted, they make their “own reality.” In their dreams.

Here are the consequences:

1. Taxes on everyone will go up.

2. Military spending will go down.

3. The budget deficit will take a big hit.

4. The sole and single issue (the deficit) for which the GOP has recently proposed any serious solution—let alone a workable one—will be fixed, without any help from the GOP. Guess who will get the credit.

5. Our Yankee sovereign debt will continue to be the strongest in the world. Our credit rating will go up, not down.

6. Interest rates will stay the lowest in decades, and the Fed will find it easier to keep them there.

7. Having let the Dems solve its single issue by themselves, the GOP will no longer have any reasonable ideas or proposals about anything, unless you think it’s reasonable to have more guns in schools and more bashing of gays, peaceful Muslims, immigrants, progressives, and people who don’t worship Fox. The GOP will remain what it has become, a bizarre collection of extremists without a plan, program or unifying theme. More independents and moderates will leave it. Youth will never consider going there.

8. The GOP lost the recent presidential election despite a still-ailing economy, massive residual racism, and relentless bashing of a president who’s half black. None of those circumstances is likely to repeat itself soon, let alone all three. Therefore the GOP will be unlikely to win the presidency in the foreseeable future, unless it undertakes serious substantive reform.

9. Because the GOP was unwilling to increase taxes even on million-dollar earners (most of whom are far beyond millionaires in wealth), it will not likely garner majority middle-class support in the foreseeable future. While it can still make trouble through its engineered, gerrymandered House districts, and with the help of its marketing department Fox, its days as a serious opposition party are numbered, at least outside the South and the big, empty states.

10. The “fiscal cliff’s” hit to the economy will be small or nonexistent, a speed bump on the road to prosperity. On January 2, the vast majority of thinking Americans will wake up to a few percent higher taxes, no more than prevailed under Bill Clinton. Tax deductions from paychecks will be a few percent higher. In the meantime, the US housing market will resurge, as will China, much of the developing world, and American manufacturing.

11. Our military-industrial complex will have to trim itself. For the first time since the Cold War’s end, it will have to make real choices. If it does so intelligently, it will take money mostly from the small, backward states that voted for Mitt, which receive more in federal dollars than they pay in taxes. It will alot more money to the productive states with leading-edge high-technology industries. In other words, the GOP will have shot its own constituency in the foot.

12. It is possible that financial markets will go down for a time. After all, most traders, like Rick Santelli, are extreme short-term thinkers who love Fox. But after a while, when nothing happens and the economy continues to recover, the influx of smart money will overwhelm the bears, many of whom will have lost their shirts shorting.

13. By April or May, with the economy in full resurgent mode, the bears, the GOP and Boehner will have lost completely. (Israel attacking Iran in the interim may delay this schedule, but is unlikely to change the result.) The Pentagon, with Chuck Hagel presiding, will be hard at work getting lean and mean for a twenty-first century far different from the twentieth.

14. GOP “thinkers”—if any member of that party can be so characterized—will slowly realize that they were snookered by their own propaganda. They will understand that what they called the “fiscal cliff” and tried to get Americans to fear is just the Democratic platform by another name. It imposes higher taxes to cut the debt and pay for better infrastructure, and a leaner, soberer, more effective military. Those things will be will be good for the middle class, good for America’s long-term growth, good for the global economy, and good for global peace, stability and security.

15. It may takes a few years, but Boehner and his Wing Nuts will look like fools, and history will record them as such. They will be ranked with the folks who fought Alexander Hamilton over a national bank, the Southern Aristocrats who resisted westward expansion and the pro-slavery Democrats. History won’t laugh at them only because they did us too much damage for levity; but it won’t treat them kindly.

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Method in His Madness

Introduction
John Kerry at State
Chuck Hagel at Defense
Who at Treasury?
Conclusion

Introduction. The Universe is big, and the human brain is small. Sometimes we Homo sapiens need simple little rules to cope. One of mine—now—is never to second-guess the President without a lot of thought.

When I’ve (rarely) tried to second-guess him on something important, I mostly have come out wrong. I was wrong when I thought he was too gentle in dealing with Hillary during the 2008 primary campaign. And now I figure I was wrong when, like most progressives, I squealed at his letting tax rates on the rich go down.

But now I can see the hand of a political grand master behind the President’s moves. In retrospect, his brilliant maneuvering has been delightful to watch.

He’s close to check mate on taxes now. Boehner has agreed to raise taxes on the rich. He had to do so because the alternative is raising taxes for everyone as the Bush Tax Cuts expire. If that happened, the GOP “establishment” and Boehner would get the blame, the GOP’s demented base would scatter to the four winds, and the once-“Grand” Old Party would go the way of the Whigs faster than anyone predicted.

The only question now is whether “the rich” make more than $ 1 million a year or only $400,000, the President’s most recent counter-offer. If the GOP gets wiser and cuts a reasonable deficit deal, the President will get most of the credit. It’s hard to see how he can lose.

The President is in the catbird seat now, but it took him two years to get there. I’m still not entirely sure how he did it.

As near as I can tell, he banked on so-called “conservatives’” chief blind spot—an utter inability to think long term. They were all so focused on cutting taxes now and dis-electing him that they not only neglected every sensible long-term approach to policy generally. They also ignored the immense strategic advantages that the so-called “fiscal cliff” would give the President in domestic politics. Their own ideological intransigence defeated them.

John Kerry at State. And so it is that I examine the President’s second-term appointments anew. After publishing my preference for Susan Rice and (perhaps hasty) distaste for Kerry at State, I now rethink. What, I ask myself, good qualities might Kerry have that I missed?

As many disappointed progressives have pointed out, Kerry was once a Vietnam-war protestor but now is an old white man. Yet somehow I don’t think that’s why the President appointed him.

Kerry is also a Senator with 28 years of experience. His supporters suggest that he has general respect among his Senate colleagues, so he will sail through confirmation.

Why is that important? Because in our nuclear age, diplomacy is the new war. Hillary is tired and leaving, and we need a replacement quick.

We also need to beef up State and put the Pentagon on a diet. In particular, we need to massively beef up State’s intelligence capabilities, if only as a counterweight to the Pentagon’s increasingly lopsided control. And we need to let State separately command security forces needed to protect its diplomats, under its own rules of engagement.

These changes require legislation and money. Only someone with wide credibility in the Senate can even begin to make them. (The House is another story, but midterms are coming up, and the President thinks long term.)

Kerry’s personal history also gives him another advantage. As a young patriot, he fought and was wounded in Vietnam. So no one but the “Swift-Boating” wing nuts questions his patriotism. Certainly no one in the Senate will; his colleagues know him.

Yet although a hero, Kerry came back from Vietnam a skeptic of that misguided war. He turned to protest before turning toward politics.

So Kerry knows in his bones how misguided and disastrous wars to achieve political ends can be. He watched helplessly as our misadventure in Iraq unfolded. Thus he has more recent confirmation how mistaken our pols can be about foreign cultures and the ease of changing them by military means.

Therefore Kerry knows in his soul how important diplomacy and State will be in keeping us secure and our complex, crowded, warming world stable.

There is also something else. Kerry seems to have been the President’s chief personal adviser during the recent presidential campaign. He helped the President win, and they appear to have bonded.

We don’t know who misjudged Mitt Romney as likely to continue his primary extremism in the first debate. Maybe it wasn’t Kerry. Or maybe the President was just utterly exhausted and altitude-sick during that debate, as I have speculated.

But for whatever reason, Kerry seems to have the President’s confidence after helping him win a grueling political campaign. The two work well together.

After working uneasily for four years with his chief political rival, Hillary, the President may get some relief working with Kerry. He may have to spend less time on close supervision and have more time to plan grand strategy. That is no small thing.

Chuck Hagel at Defense. To maintain (let alone improve) our national security in a rapidly changing world, we have to put our Pentagon on a diet-and-exercise plan. The military-industrial complex that now largely controls it has become a flabby, inefficient, corrupt and short-sighted mess.

We are spending far more than we should on obsolete “new” weapons systems and obsolete ideas. Job One is getting rid of Cold-War weaponry and plans to build more. Like Dracula, these plans are hard to kill. And they are not just money-wasters: by distracting us from what really needs doing, they are hazardous to our collective health.

We are never going to be fighting massive tank battles on the plains of central Europe. After Iraq and Afghanistan, we are unlikely to invade and occupy another country for a long, long time. We are never going to fight a massive ground war on the land mass of Asia, unless we want to commit national suicide. We learned that lesson in Vietnam.

It was impressive that, for a time, we could fly tanks halfway around the world to win ground battles in Gulf I and the Iraq war. But rivals and potential enemies are developing increasingly accurate missile capability. That capability threatens both surface ships and the massive slow, non-stealthy cargo planes needed to move tanks around the world. In ten years or so, we probably won’t be able to move tanks that way at all, even if backward-looking military strategists thought that was a good idea.

I can foresee only two possible uses of ground forces in the near term, other than for the unlikely exigency of defending our own territory from invasion. First, we might need to intervene in Pakistan to keep its nukes in safe hands if Pakistan became unstable or fell to extremists. Second, but with much less likelihood, we might have to intervene similarly in Iran, either to keep it from developing nukes or to keep its surreptitiously developed nukes from falling into terrorists’ hands. (While Iran supports terrorists, it is not itself a terrorist state; it has a rational but belligerent government, and we know where its leaders live.)

In these two possible conflicts, tanks and conventional ground armies would be useless. By the time we got them in the theater, the danger would be over or would have matured into disaster. In either case, we would have to act quickly, within days or at most in a couple of weeks. Only air and naval power (with ships already in or near the theater) would suffice. So we need to cut our ground forces and shape them for brief and sudden expeditions.

Our strategic goals are equally clear. As we learned in Vietnam, we can never fight China on or near its own territory and win. China’s advantages of population, propinquity, culture and history are simply too great. What we can and must do is maintain enough of an edge in technology to make foolish adventurism by China too costly to contemplate seriously, whether in Taiwan or the South China Sea. Our mission with China, as with the old Soviet Union, is deterrence above all else.

For that, we need better air and naval forces. But with surface ships visible to satellites and increasingly vulnerable to missiles, our Navy will have to rely more on submarines and stealth. Remotely operated assets will become increasingly important, in the air, under the sea, or even on the surface.

Remote operation fits our strategic objectives well: raising a potential enemy’s costs while cutting our own. It also fits well our chief likely mission, taking out loose nukes. So we have to continue converting to smaller, more advanced, more stealthy, and more remotely-operated weapons systems.

Finally, we will have to put far more money, energy and talent into cyber warfare, for both defense and offense. Cyber warfare is the ultimate way to impose high costs on an enemy at low cost to yourself. China understands this essential point. We don’t yet.

Much of our defense and industrial infrastructure is private or recently privatized and vulnerable to cyber attack. We will have to consider giving it federal cyber protection, perhaps even forcing that protection down private owners’ throats. As Fukushima proved, private owners are not very good at assessing and handling low-level risks with potentially catastrophic consequences.

All these things will take time and money. But most of all, they will take persuasion. “Conservative” can mean preserving important traditional values under stress. Or it can mean refusing to do things differently despite overwhelming evidence of the necessity and effectiveness of a new approach.

Unfortunately, our military—indeed, all militaries worldwide—are often “conservative” in the latter, bad sense. Hence the Maginot Line and our own near-blunder of a Maginot Line for Missiles.

It will take immense vision, persuasive power and credibility to get our privatized military and bloated military-industrial complex onto the right track for the twenty-first century. They’re not even near that track now, and they’re wasting money massively on stuff that doesn’t make us safer and doesn’t even produce durable jobs.

Can Chuck Hagel change this bleak picture? He has two apparent advantages.

First, he’s a Republican. For whatever reason, Democrats have little credibility with the Pentagon. You can argue that the reason is mostly propaganda, mostly coming from Fox. But the lack of credibility is an unfortunate fact. So we need a Republican at Defense if we are to do what needs doing, much like Nixon going to China. (And we shouldn’t forget that Bob Gates, a Republican, was the best Secdef in recent memory.)

Second, Chuck Hagel is no ordinary Republican. He was one of the first to see the error of our ways in Iraq and one of the first to call for early withdrawal. He favored engagement, not confrontation, with Iran, and he supported President Obama in his first run for the White House. Most important of all, Hagel has accurately described the Pentagon as “bloated” and does not fear the so-called “fiscal cliff.”

It’s hard to think of anyone better able to manage our civilian military leadership at a time of massive global change, to which we have been dangerously slow to adapt.

Who at Treasury? If the model of a grizzled senator is good for State and the Pentagon, is it good for Treasury? Probably not.

Finance is an even more obscure and esoteric field than than war-fighting. It’s also a much smaller group. While there are literally thousands of general officers, there are probably no more than 100 people who control global finance, let alone finance inside our borders.

These folks comprise an insular, isolated gentlemen’s club. They believe in numbers, worship money, and have psychopathic delusions that what they do largely for their own enrichment is, in Lloyd Blankfein’s words, “God’s work.” Their business is built on increasingly obscure and “sophisticated” instruments that no one but they really understands.

Politicians are people people. Financiers are numbers and money people. The two don’t really mix, and the two don’t really understand each other. That’s why, among many other things, we have never had a president from finance, although J.P. Morgan once ran the country as a sort of shadow president for finance.

Once bankers got hold of computers, mathematicians, and ex-physicists to crunch their numbers, the gap got unbridgeably broad. So we shouldn’t expect another senator at Treasury, no matter how many finance-related Senate committees he has sat on.

And it will have to be a “he.” It’s horribly unfortunate, but the world of finance has completely marginalized our more practical sex. It seems bent on continuing to do so for the foreseeable future. Apparently you have to have a Y chromosome to gamble with large sums of money in order to enrich yourself and, at the same time, convince yourself that you are doing so for the benefit of God, country and posterity. Maybe males are more prone to psychopathy.

So, as this brief and not entirely facetious description suggests, the next Secretary of the Treasury will have to be one of the boys. The question is, what kind of boy?

An apostate would be best. A still-believer who has had an epiphany would be second-best.

Even five years after global economic destruction, I’m not aware of any apostates. At least no leader of finance has offered to give up his ill-gotten wealth. Like vows of celibacy, vows of poverty are not as popular in the Third Millennium as they were in the First. So epiphany sufferers will have to do.

To my knowledge, Jamie Dimon has suffered no epiphany. He’s still the same guy who went around the country declaiming that bankers did nothing wrong, are sadly misunderstood, and need less regulation. So I hope and trust that those who bruit about his name as a possible at Treasury are misinformed. Even the President would have a hard time finding something redeemable in Dimon’s character, unless Dimon has had a secret epiphany.

But there are others. Sandy Weill is a big banker who made himself rich by building a huge banking empire, which was instrumental in causing the Crash of 2008. Now he repents, saying the too-big-to-fail banks should be broken up. That’s about as good an epiphany as you could expect from any Wall-Street alum. If he retains credibility with his psychopathic colleagues, he would be a good choice.

But a commercial banker might not know enough. A Treasury Secretary has to understand macoeconomics and be able to work well with people like Ben Bernanke. That probably means another governor of the Federal Reserve, like Geithner himself.

Not being a member of the little boys’ club, I have no idea who the best person might be. But if it’s not Weill, I hope and pray that, whoever the President chooses has had at least a small epiphany. If we continue with true-believing members of the boys club, another crash is not just foreseeable, but inevitable.

Conclusion. When the President’s second-term “dream team” is fully assembled, it may have some surprises. But progressives like me should be neither startled nor dismayed.

The President knows what is good policy, and his instincts are mostly progressive. But he’s smart enough to know that policy is not the issue. People are.

We have a whole bunch of people in this country—and a whole political party—who no longer believe in facts and evidence. They don’t understand evolution, and they don’t credit climate science. They rag on small, innocuous misstatements and innuendoes rather than considering consequences.

Facts that contravene their simplistic ideology not only don’t sink in. Contrary facts actually cause these folks to dig in deeper. Scientific research increasingly suggests that much of this behavior is genetic. These people may be the modern equivalent of Neanderthal Men.

When reinforced by a gigantic, history-beating propaganda machine like Fox, they become a formidably regressive political force. Left unchecked, they will make our nation decline. They might even extinguish our species, whether with runaway global warming or nuclear war.

So the President’s job is not to see what is good policy. He can and does. The President’s job is to fight these reactionary forces and beat them at his game of chess. It will be a long, costly struggle, which will far outlast the President’s tenure in office.

The GOP has lost the White House, again. With Dubya still in memory and likely no race card to play (until Cory Booker runs), the GOP is unlikely to capture the presidency again anytime soon. It will have a hard time recapturing the Senate, whose large districts are hard to gerrymander or demagogue. But it will continue to bedevil the States’ legislatures and exploit the dysfunctions of our obsolete Constitution.

So don’t expect an instant solution to our national divide or the (hopefully temporary) insanity of our opposition party. Susan Rice is not the first able public servant to fail to rise (or to fall) for reasons that have nothing to do with her competence or merit. Like the grand master that he is, our master chess player may have to sacrifice more pieces to reach larger goals.

For now, he needs reinforcements. And he has to get them through the Senate, which is a large part of the problem itself. So expect more appointments based on people, not policy. Expect more across-the-aisle appointments. And hope and pray that the President continues to be as able a grand master of politics as he has proved himself to be so far.

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Susan Rice at State

This blog has made no secret of my first choice for Secretary of State in Obama’s second term. It’s Jon Huntsman, Jr., for his long experience, his fluency in Mandarin, his high intelligence, and the chance to spark much-needed GOP reform by appointing a key GOP moderate and giving him a national platform.

I prefer Huntsman because our relationship with China is our and the world’s most important bilateral relationship. Unlike Huntsman, neither Susan Rice nor John Kerry has special experience with China.

But I’m not the President. For whatever reason, the President Obama has never even suggested appointing Huntsman. Perhaps Huntsman and he didn’t work well together. Perhaps he doesn’t want to make an across-the-aisle appointment that would raise the GOP’s profile because he sees today’s GOP as irredeemable, requiring a decade or more in the political wilderness to reform itself. If so, I salute his political savvy, which has wrought “miracles” far more than once.

Whatever the reasons, the realistic choices at State are now John Kerry and Susan Rice. Between the two, Rice is the better choice.

Kerry is a good and honorable man. He was the first candidate for president for whom I ever campaigned. But what sparked my effort in 2004 was no particular enthusiasm for him personally. It was fear—subsequently well-justified—of what a second term of Dubya would do.

I hate to say it of a good man, but Kerry is a wimp. Apparently he helped the President win the last election. But a man who could (or would) not stand up for himself in a crucial election, with the fate of our nation at stake, is not the sort of diplomat we want at State.

As our right wing has trouble understanding, nuclear weapons have made war almost obsolete, at least between major powers. Our species has grown up a bit from our biblical “smiting” days. We are coming to realize that politics doesn’t stop at national borders. It’s global, continuous and vitally important.

Von Clausewitz was right when he called war politics by other means. But on a crowded and infinitely more civilized planet, “hot” war is far too blunt an instrument for modern international politics. As we have painfully discovered in Iraq and Afghanistan, hot war has too many unintended consequences and too much “collateral damage.”

So diplomacy is the new war. It is safer, surer and far less bloody than “hot ”war. In my lifetime alone it has accomplished miracles.

Diplomacy ended the Cold War bloodlessly. It rebuilt Germany and Japan from the ashes of a war they started into the world’s third and fourth most productive economies. It gave birth to the State of Israel, ended the terrible and senseless conflict in Northern Ireland, and kept Pakistan and India from perpetrating the world’s first bilateral nuclear war. With a bit of help from brief military intervention, diplomacy stopped a genocide in Kosovo and a slaughter in Libya. It may yet stop an attempted genocide, now in progress, in Syria.

What happened recently in Benghazi, in my view, only confirms the modern primacy of diplomacy. In our new, multipolar world, diplomacy in dangerous areas can involve physical risk.

Ambassador Stevens and his three fellow victims were the first casualties of that new reality. They won’t be the last. But putting a few brave diplomats at risk, as in Benghazi, is far better than trying to transform a whole society by military conquest.

Fox and its idiot so-called pundits don’t understand these points and never will. But they are the new reality in our multipolar world, whose existence our own intelligence agencies just confirmed in their quadrennial joint report.

Diplomacy was once a niche in which to reward effete and ineffective politicians for loyal service. It is no more. It’s the new front line of international conflict. Its personnel are as important to our security and our future as appointments to our Joint Chiefs.

As between John Kerry and Susan Rice, there is no question who is smarter, tougher, and more flexible. There is no question who has better and clearer vision. Kerry was a lackluster candidate for president; he lost because he has none of that “vision thing.” (1 and 2) In contrast, Susan Rice could see justice clearly in Darfur, Libya and Syria. She spoke eloquently and fought tirelessly for it.

In the past, diplomats used airy circumlocutions and barely decipherable code. They were a bit like Alan Greenspan.

But that era is gone with the wind. Just as Bernanke’s bluntness and occasional misplaced metaphor (“fiscal cliff,” anyone?) is the new norm in economics, so Susan Rice’s style is the new norm in diplomacy.

I have no love or nostalgia for Ronald Reagan, whose Irish charm, utter ignorance of economics and right-wing lurch pushed us down our declining glide path. But his international policies, which I supported at the time, were effective.

When Reagan told Mikhail Gorbachev to “tear down that wall!” he was being blunt by diplomatic standards of the time. But his bluntness was neither rude nor offensive. It stuck a chord with listeners worldwide, and undoubtedly also with Gorbachev himself, who was and is a smart and good man.

That sort of inoffensive bluntness is the new diplomacy. You can’t expect to convince anyone, let alone move the heavy needle of global public opinion, if you speak in riddles.

Susan Rice has the gift. John Bolton didn’t and doesn’t. The rap against him was not that he was too blunt, but that he was (and is) too brash, impulsive, stupid and clumsy to be an effective diplomat.

Susan Rice doesn’t suffer from those disabilities. She has been instrumental in turning the boycott screws on Iran, which have roiled Iran’s internal politics and recently had Tehran merchants marching in the streets. Along with two other women—Secretary Clinton and Samantha power—she worked tirelessly to secure the UN “cover” for our intervention in Libya, which saved the Libyan people from slaughter and the world from another decade or so of madman rule.

Unlike his predecessor, our current President is not a unilateralist. Unless we are directly threatened, he is unlikely to intervene militarily, let alone start a war, without some sort of international consensus and support.

Our own intelligence agencies’ recent joint report confirmed the value of that approach. Alliances and partnerships are vital in the modern world. They help shape global public opinion, provide logistical and financial support, share the casualties of any military action, and provide a “reality check” against misguided adventurism.

So gathering allies and partners for any military intervention is job one in the new diplomacy. Rice has done a superb job at that.

Rice also has something else, which few so far have noted. She has rich, clear and fully articulate English. All our great secretaries of state did also, but Madeleine Albright did not.

Words are a diplomat’s weapons. So they have to be precise and well-calibrated. A diplomat has to be able to speak, off the cuff, in fully-formed sentences and coherent paragraphs.

Zbigniew Brzezinski and Henry Kissinger could do that superbly. Albright could not. Condoleezza Rice and Hilary Clinton are somewhere in between. Susan Rice may not be as smart as Brzezinski or Kissinger, but she certainly comes close, and she has room to grow.

Susan Rice is the President’s choice. She’s good. She’s smart. She’s tough. She’s personally impressive. She’s relentless. Like any good diplomat, she doesn’t hog the spotlight and ham for credit on the international stage. She works tirelessly, mostly out of the news, fighting for international justice so that our troops won’t have to.

Rice has no bad marks against her. Her relentless and somewhat quixotic effort to stop the genocide in Darfur was partially successful, and only because Rice above others kept at it.

Rice’s so-called “gaffe” about Benghazi had absolutely no consequences and was quickly corrected. It’s another of Fox’ useless distractions from what really matters. Senators McCain, Graham and other Republicans ought to be ashamed for jumping on the bandwagon of this base demagoguery.

The bottom line is that Rice is superbly qualified by experience, brains and temperament. She has done nothing wrong and much right, often under high pressure and impossible deadlines. She is the President’s choice and should be confirmed.

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No-Bluff Obama

Introduction
Bashar al-Assad
Iran and its Leaders
John Boehner

Introduction. It’s amazing how many strong people have underestimated Barack Hussein Obama and lost. Slowly but steadily, the list grows longer. Hillary Clinton. John McCain. Osama bin Laden. Muammar Qaddafi. Hosni Mubarak. And recently Mitt Romney.

The problem is one of perception. We live in a world of flamboyance, arrogance, bluster, incessant and shameless self-promotion and, yes, rampant stupidity. In that world a firm, steady rationalist like our President can seem weak.

He will reason and bargain with you as long as he sees the faintest spark of intelligence or cooperation in your eyes. Sometimes he will bend over backwards toward compromise, either in the vain hope of achieving consensus, or in a bid to show just how dumb you might be.

But once he sees that you are hell bent on unreason or mischief, he will crush you. (1 and 2)

The President doesn't bluff. For him, politics is not a game. It’s a serious life-or-death business.

If you analogize politics to a game, the proper analogy is chess, not poker. It’s a game of pure skill, not luck mixed with skill. It requires extraordinary emotional and analytical intelligence, in equal measure. And the US is a major long-term player. In that status, you can bluff only once.

The President doesn’t bluff because he doesn’t have to. He can see more moves ahead than anyone since Garry Kasparov.

He won’t bluster, and he won’t trash talk. You may get a chance to come to reason if you come to your senses after the first or second check. But if not, you won’t even see the checkmate coming. Ask Hillary, John, Mitt or Osama’s ghost.

Up next are Bashar al-Assad, Ahmadinejad and Supreme Ayatollah Ali Khamenei (together or separately), then John Boehner. None, apparently, is smart enough to take the President’s true measure. All will fail.

Bashar al-Assad. Assad will be the easiest. The writing is already on the wall, just not the date. If he steps across the “red line” of chemical weapons, American air power will help the increasingly capable rebels to take him out.

If not, America's post-election focus, perhaps largely unseen, will put a strong and heavy hand on the most reliable rebels’ side of the scale. The right weapons will find their ways into the hands of the right people. The bloodshed and suffering will stop shortly thereafter.

Most likely, Assad will end up dead, probably by next Thanksgiving. If he wants to die sooner, he can try chemical weapons. No one but his immediate family will weep for him. The President doesn’t bluff.

Iran and its Leaders. Ahmadinejad and Khamenei will take longer. Their battle is not a simple military struggle like the one that Assad started against his own people. It’s the closest thing in the world today to three-dimensional chess.

That’s why the President is going slowly and carefully, husbanding and honing his strategy like a grand master. The dimensions are military, political, and economic.

Militarily, Iran is two or three decades behind the United States in technology, let alone force training and preparation. With its desert skies, clear weather and sparsity of vegetation, Iran is an open book to our drones and spy satellites. Day by day, we are carefully and methodically studying its force posture and military assets.

That’s why the occasional (and inevitable) downing of a drone is a good thing. It shows that our superb military is on the job, preparing for an attack, if necessary, while at the same time earning good will helping Iranian ships in distress. Both steps are exactly those we should be doing at this time.

If it comes to that, it won’t be hard for us to set Iran's nuclear program back a few years. We have overwhelming technological superiority, plus the element of surprise. Nor will it be hard to keep the Straits of Hormuz largely open to oil shipment, although some losses will undoubtedly raise oil prices and shipping insurance rates.

So why don’t we strike now, since the election is over and Israel is increasingly restive? The answer resides in other two dimensions, politics and economics.

A single strike will delay Iran’s nuclear ambitions. It won’t stop them. Then what comes next? If we want Iran to stop—and if it decides to pursue nuclear weapons at all costs—we will have to strike again and again. We will have to contemplate a semi-permanent state of war with Iran, in which we will have lost the element of surprise.

Not only would the ongoing state of war make the military problem much harder. It would also make Iran’s irrevocable pursuit of nuclear weapons more likely, not less. Iran’s leaders, and even its people, might conclude that nuclear weapons were the only way to fight us to a draw and preserve their society.

Even a rat you don’t want to back into a corner. And Iran is far from a rat. It’s the third strongest country in the Middle East, after Israel and Turkey. So while the short-term military scenario looks favorable, the long-term one does not. And the long term is just where the President’s skills excel.

War, von Clausewitz said, is just an extension of politics. The two are intertwined.

Our goals in Iran are not primarily military; they are political. We don’t want to invade, conquer, or occupy Iran, far less to annihilate it or convert it to Christianity. What we want is to get it to stop working toward nuclear weapons, stop supporting terrorism, stop threatening its neighbors, and become a responsible member of the international community, as Islamic as it likes. Those are all political goals.

But politics is where things get much more complicated. Iran’s internal politics is one three-dimensional chess set inside another.

Ahmadinejad is increasingly unpopular within his own country. He’s apparently feuding with Supreme Leader Khamenei—a battle he is likely to lose. In any event, his two terms are almost up. In the background are Ali Rafsanjani, Mir-Hossein Mousavi and other moderates and pragmatists, carefully husbanding their resources and building their strength. We have little idea of their status, strength or likelihood of gaining power, let alone of when. And Khamenei is an old man who could die or become incompetent at any time.

Meanwhile, our sanctions are biting hard, bringing the Iranian rial down to 30% of its pre-boycott level. Just before our election, Tehran’s merchants were rioting in the streets to protest economic conditions. Merchants! Not students, lawyers, intellectuals or rich people! When merchants riot, political change cannot be far behind.

So politically, Iran right now is an unstable, unpredictable mess. Iranians blame our boycott, but they also blame their own leaders. They will blame us a lot more if we or Israel attacks their territory, even if the attacker is smart and lucky enough to avoid many civilian casualties. Nothing unites a fractious people so much or so quickly as an attack from abroad.

To say that the military and political problems are in delicate balance would be an understatement of Obamanian proportions. If Israel were not so restless and not so sure that Iran is close to a bomb, the best thing we could do—by far—would be to wait for Iran to solve its own problems and things there to clarify themselves.

Just as in the Cold War, the ultimate internal outcome is predictable in general terms. The Iranian people are far better educated and far more in touch with the external world than Russians were during their Soviet period. They are aching for reform. The only questions are how long it will take them to get there and whether the Israelis will pull the trigger first.

The final dimension, of course, is economic. It also has two dimensions, internal and external.

Internally, we need to keep economic pressure on Iran to abandon its nuclear program. How deep will our boycott cut, and how much and how quickly can we strengthen it? Can we do so without alienating or weakening the forces inside Iran that will make the internal changes we seek? In other words, can we discourage Iran’s nuclear program without upsetting the unstable apple cart that is Iran’s reform-leaning internal politics?

Outside Iran, the economic questions are equally hard. Iran has lots of oil. We want it, for now, to sit in the ground or in storage tanks, without making Iran’s current leaders richer.

But as long as Iran’s oil stays unsold, global oil prices will stay high and go higher. How long can we ask our oil-dependent allies like Japan, not to mention trading partners and potential rivals like China, to accept that state of affairs? What happens to oil prices and the global economy if we or Israel strikes Iran and oil traffic through the Straits of Hormuz slows? And what happens to our best-case goal of peaceful self-reform in Iran if the international community has to “gang up” against Iran to keep its nuclear program down and the Straits open?

This three-dimensional chess game has dimensions within dimensions. It’s the most intricate and complex political puzzle in the world today. We amateurs—including this blogger—can’t even hope to solve it without the day-to-day accurate intelligence that only our Executive commands.

We can only be doubly thankful on two grounds. First, our leader is a superb chess player. Second, his reputation for not bluffing is growing, so people worldwide are starting to take him more seriously. They include Iran’s leaders (both seen and unseen), whatever they may say publicly.

John Boehner. Compared to Iran, the problem of John Boehner and his House wing nuts is child's play. The President has a nearly impregnable position. There is a growing awareness that the so-called “fiscal cliff” is a PR-propaganda ploy of Fox and the wing nuts. It’s of the same order as “clean coal.”

Just as there is no such thing as “clean coal,” there is no real “fiscal cliff.” There are only different ways of achieving deficit reduction. One of them will come to pass, one way or another. When that happens, the GOP’s chief and only pail of issues will be empty, and its well of ideas will run dry.

The President, of course, has backed Boehner & Nuts into a corner. There are several sticking points in bargaining, but the most important is the tax-the-rich-question. Bohner & Nuts are insisting on retaining tax cuts for the 1% as a condition of any deal. Obama is resisting, and he doesn’t bluff.

Why should he bluff? He’s got Boehner & Nuts exactly where he wants them politically. They are holding our middle class and our economy hostage to secure benefits that the 1% doesn’t even want. And they are doing so at the behest of an unelected, bearded, since-issue demagogue, demented guru Grover Norquist.

Let Fox and the Nuts bluster and bray. Both economically and politically, theirs is the dumbest position I have seen any politician take in my lifetime, let alone a whole political party.

Even Boehner is probably smart enough to see how dumb this position is. But he can count his Nuts in their shells. So he and his party are going down for the count, and we are drifting over the fiscal cliff.

But contrary to all the Sturm und Drang, our drop won’t be nearly as steep or as hard as expected. It will be a speed bump on the way to inevitably resurging prosperity. (Already, the recent adjustment in expectations for fourth-quarter GDP growth, or plus 0.7%, drawfs the earlier and now-outdated CBO estimate of an 0.5% contraction from the “fiscal cliff.”)

The choice that faces us is not hard to understand. Either make the rich pay more and cut a bipartisan deficit deal. Or make everybody pay more to spare the rich from any additional sacrifice, and do the deal on Democrats’ terms.

The simplicity of the latter choice is so breathtaking it’ll be hard to demagogue. Occam’s Razor will cut the GOP in half.

The consequences for Boehner & Nuts are now becoming apparent. There will be lots of screaming and premature blame after we “fall” off the “fiscal cliff.” But the deficit will be lower and full recovery will come, perhaps a few months late but well within Obama’s second term, and likely before the midterms.

Smart people will have lots of buying opportunities in stocks, bonds and commodities when the brief scare bottoms out. And the GOP, leaderless and utterly discredited, will become a permanent minority party, having followed Norquist into a political Hell of its own making.

With prospects like this, why should the President even think of bluffing?

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