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

25 April 2009

Rotten Business

As Calvin Coolidge famously told us, “the business of America is business.” He was one of our least effective and least loved presidents, but his words have more than a germ of truth. Throughout most of our history, the innovation and vitality of our private sector made America pre-eminent.

Yet there are times when the ripe fruit of business has become rotten to the core. We are living in one of those times.

Mortgage Lending
Credit Cards
Health Insurance
Coda: The Diogenes Test
Update (6/11/09)
Update (12/28/09): Student Loans

Mortgage Lending. By now everyone knows the cause of the mortgage crisis that triggered our economic collapse. Mortgage lenders made loans to people they knew couldn’t pay them back, and borrowers took the loans to get something for nothing. Everyone hoped to profit at someone else’s expense. The whole thing was an exercise in dishonesty and stupidity, which are often indistinguishable.

Good business takes hard work, but it’s not rocket science. You provide a useful product or service at a fair and reasonable price. You tell customers honestly about its advantages. You admit its flaws and treat customers fairly and so earn their trust. As long as you are reasonably efficient and do not overprice, word will spread, and you will succeed.

That’s how business was in our best days and how it may some day be again.

Our mortgage industry broke from this simple formula. Its services were not useful. It made loans that were unsustainable for whole classes of customers. It purposely made loan terms confusing, lied to customers about possible consequences, and presented dishonest, rosy scenarios of ever-rising home values and ever-easier credit.

What many don’t yet realize is that the mortgage-lending business was hardly alone. Unbeknownst to the public and the media, dishonesty, greed and stupidity overtook whole other industries. The credit-card, health-insurance and student loan industries are among them.

Credit Cards. Like mortgage lending, credit cards are a simple business. You borrow money at low rates from the interbank or commercial-paper markets. You lend it out to consumers at higher rates. You make prudent provision for foreseeable defaults. You use the rate difference to finance your computer systems, administration and promotion. What’s left over is profit.

It should be a simple, boring, low-margin business. The only possible challenges are predicting default ratios and possible interest-rate fluctuations in a volatile economic environment. Modern credit-rating agencies provide ample data to assess default rates, leaving macroeconomic forecasting the only significant challenge.

But bankers weren’t satisfied with this simple, honest picture. They wanted more.

So they pushed credit cards on less and less reliable borrowers at higher and higher interest rates. To avoid the need for more accurate forecasting, they gave themselves the right to change terms at will—even on outstanding credit balances. Then they made terms so complex that even people with degrees in law or business had to take an hour or more to read and understand them, if they had the time. Bankers created a wide array of consumer “gotchas,” from esoteric balance calculations through late and over-limit fees, which they hid in plain sight in fine print.

Except for recurring annual fees, cardholders incurred little or no cost as long as they didn’t use their credit. But when they started to use the credit services promised them, the prices immediately went up, often dramatically. And the more they used the credit, the higher the price became—through cleverly concealed rate increases, charges and fees. It was as if the cardholder had bought a car from an oil company that, as part of the purchase price of the car, doubled the price of gas for every 10,000 miles driven.

In our collapsing economy, more and more consumers rely on credit. As they do, the total price they pay goes up and up, banks’ profits increase, and the economic collapse spirals downward.

Congress and our federal regulators have blessed this state of affairs for thirty years. In the late seventies and early eighties, they made a Faustian bargain. They abolished all substantive limits on credit-card and other lending terms. They even wiped out state usury laws, which had put absolute, numerical limits on interest rates. (The limits had ancient roots, going back to the Bible, which capped rates at ten percent, and the Quran, which capped them at zero.)

In exchange for “anything goes” regulation, Congress and the agencies offered so-called “disclosure.” They let lenders do whatever they wanted as long as they disclosed their terms to consumers. This regime was supposed to provide more “variety” and “consumer choice.” Consumers could fend for themselves, the story went, and everyone would be better off.

But of course the premise was absurd. The average consumer cannot fend for herself, not against people with higher degrees in business and law, highly paid to confuse her and take her money. It was like taking candy from a baby, but honest business it wasn’t. Congress made it legal but couldn’t make it right.

Health Insurance. The story of health insurance was similar. It’s a tougher business than mortgage or credit-card lending. It requires insurers to forecast trends in medical conditions and expenses as the population ages and as medical technology increases in capability and expense. That’s not an easy task.

But from the consumer’s perspective, health insurance and lending are conceptually similar. The consumer pays monthly insurance premiums in exchange for reimbursement of routine but unexpected medical expenses and protection against catastrophic loss from a sudden injury or life-threatening disease. Just as the consumer expects the mortgage lender to help him keep the house he bought under mortgage, or the credit card to provide credit when needed (up to its limits), he expects his health insurance to cover necessary health-care expenses, subject to any deductible and up to the policy limits.

But business deceived these expectations, too. Not only did it leave 47 million would-be insureds totally out in the cold. According to Consumer Reports’ independent studies [subscription required], it also left 40% of people who have health insurance without reliable coverage of medical needs and emergencies. (One study’s subtitle is, “Why 4 in 10 Americans can’t depend on their health insurance.”)

The conceptual basis of this fraud was the same as that for credit cards. Unregulated, private health insurers would provide “variety” and “consumer choice.” Consumers would fend for themselves, pitting their knowledge of medicine, insurance and law against the skill of highly trained specialists seeking to hide “gotchas” in fine print.

The result was predictable. Four in ten were “gotten.” The worst afflicted were those who bought six-month “temporary” policies at low premiums. These policies had iron-clad exclusions for “pre-existing conditions,” which insurers enforced rigorously—and separately for each six-month policy. If an insured so much as reported a twinge before the relevant six-month period, and if that twinge had any plausible relationship to a claim, the insurer would deny it.

Again, the whole exercise was fundamentally fraudulent. Who could imagine that highly-trained specialists would not be able to deceive ordinary consumers with no special training and little time to read fine print? In the case of insurance, there wasn’t even the pretext of uniform regulation. Every state had and has a separate regulatory regime for insurance. Although a few were diligent, most were asleep at the switch.

Conclusion. All of these industries—mortgage lending, credit cards, and health insurance—had one thing in common. Until the collapse, all were based on sophisticated and systematic deception of consumers which, at the time, was perfectly legal. Credit cards and health insurance still are.

In that respect they were like the pervasive deception of derivatives buyers (by sellers and rating agencies) that was the immediate cause of our economic collapse. The only difference was that buyers of derivatives were supposed to be sophisticated. The fact that so many investment bankers deceived their own peers so successfully only highlights how easy it is to trick ordinary consumers. To paraphrase Calvin Coolidge, the business of America had become sophisticated swindling.

President Obama is right to use the full force of law to fight this trend. He’s right to re-regulate finance with much tougher rules of much broader scope. He’s right to impose substantive regulation on credit-card terms, because regulation by “disclosure” has failed utterly. He’s right to impose uniform federal regulation on health insurance and to set up at least one government-run competitor to keep that business honest. And he’s right to reject the absurd notion that ordinary, busy consumers can—through “disclosure,” “variety” and “consumer choice”—outwit highly educated and sophisticated business people bent on misleading them for profit.

But in a larger sense, this problem is not one of regulation, law or even politics. One political party, it is true, has pushed this regime of deliberate deception well beyond its reductio ad absurdum. If there is any justice, the political price that party has paid and is paying will continue for at least another generation.

Yet the real problem is one of culture—business culture. When the party of business vigorously supports and promotes business that is fundamentally deceptive and dishonest, our whole culture has turned sour. Foreigners know this. It will be a long time before the Germans and French, let alone the gentle, trusting Icelanders, rely on fast-talking Manhattanites again.

But I don’t think we ourselves yet understand how rotten we have become and how much we need to reform our business culture. However skilled they may be at their trades, politicians and lawyers cannot resurrect American business.

Read the Wall Street Journal, especially the editorial pages and their rabid public comments. There you will find every form of rationalization and excuse. Business did nothing wrong, they say. Everyone else is to blame. Some hint at a vast left-wing conspiracy to destroy business and impose a “socialist” agenda. Others blame the hapless victims, just as they might blame rape victims for wearing immodest clothes.

Precious few understand that no one destroyed American business. American business destroyed itself.

We have stopped innovating in basic industry. We have stopped making things and have turned to shuffling paper. Much of the paper we now shuffle is inherently misleading and deceptive, however legal and accurate (in technical terms) it may be. So our long national decline will continue until our business leaders come to their senses, start doing honest business again, and stop making excuses for swindlers.

Coda: The Diogenes Test

Lest readers think the foregoing post is just abstract blather, they might be interested in how I saved my own retirement fund.

For some years my wife has had a Citibank credit card. About three years ago, we began to get cold calls from Citibank’s “boiler rooms,” trying to sell my wife things like credit insurance and various forms of identity-theft protection.

The calls took advantage of the exception to the Federal Trade Commission’s “do not call” rule for existing business relationships. The callers were persistent, aggressive and dishonest. In one case my wife said “no” and the caller put her down for “yes”—necessitating several days of unpleasant telephone calls and threats of suit to cancel unwanted business.

It’s hard to believe now, but Citibank was once one of the most prestigious names in finance. Along with Chase Manhattan Bank (since merged with investment bank J.P. Morgan), it had been the gold standard in consumer banking. It had enjoyed a reputation for integrity strong enough to attract former Treasury Secretary Bob Rubin to serve as its CEO.

When an icon of integrity and honesty (which Citigroup had been) begins to act like a crooked home-improvement contractor with his foot in your door, you don’t have to be a genius to figure out that something had gone very, very wrong. I was not at all surprised later, after the collapse came, when Citigroup ended up high on the government’s intensive-care list.

So I began applying what I call the “Diogenes test.” Remember Diogenes? He was the ancient Greek who roamed Athens with a lantern, looking for an honest man. Greek myth says he never found one.

Although without lantern, I started doing the same thing. As I watched and read the news and business reports, I started applying a simple, human test. Is the person I’m watching, listening to, or reading honest and credible?

The results were astounding. Beginning around 2007—and for months at a time—I saw no public offical or business leader (besides Warren Buffet) whose words I could trust. Not one. Their words simply didn’t match their actions, their self-evident motivation, their firms’ actual condition, or surrounding circumstances that any well-informed person could see. The worst of them, like Dubya and House Minority Leader John Boehner, struck me as the most dishonest or stupid public figures I had seen in my 60-plus years. (Dishonesty and stupidity can be indistinguishable.)

There were other warnings as well. Among them was the sudden collapse of a commercial real-estate venture in a foreign country I was visiting in late 2007.

By year-end 2007 I’d had enough. I sold out and put my retirement money in money-market funds, where it’s been ever since. My wife, who’s more conservative than I, had done the same thing even earlier.

Although I’ve since dabbled in the markets with other, speculative money and lost a bit, we both decided not to risk our retirement until we see evidence of a return to the honesty, integrity and transparency that built the world’s largest economy. We’re still waiting.

Update (6/11/09):

In the interest of full disclosure, and to avoid misleading readers, I must report that we’re back in the stock market again, even with part of our retirement funds. While the recession is by no means over, it seems clear that the global economy is on the mend. Here Tim Geithner deserves some credit; it appears that I wrote too soon and misjudged him (See posts 1 and 2).

This does not mean that a word of the preceding post needs changing, except the coda’s last two sentences. The credit-card industry is smarting from a slap on the wrist by Congress, but I don’t see any fundamental change in its inherently deceptive practices. As for health care, we are about to see an all-out public-relations push to convince ordinary Americans that black is white and the sun is dark, so that the three great health-care lies can prevail again and continue to boost the health-care industries’ dishonest profit.

What has changed is my understanding, explained in another post, that the global economy in our multipolar world is inconceivably more robust and resilient than it was in 1929. As a result, our national bent for hucksterism in a few critical domestic industries like banking and health care is no longer fatal.

More important, there are still some fine industrial companies in the United States, which produce things and do so honestly and well. Many of them do most of their business abroad, where there are also similar companies. If you invest in firms like these while they are still undervalued in the recession, you will do well. But as for me, I’ll never invest in any firm (like many banks and health-care firms) that makes its money by swindling ordinary folk, however subtle and sophisticated its swindling may be. The short-term gain, if any, wouldn’t justify the long-term risk and moral pain.

Update 12/28/09: Student Loans

A particularly egregious example of sophisticated swindling is missing from my list above: student loans. The omission embarrasses me. I’m an about-to-retire teacher who, over four decades ago, got a magnificent education at our best public universities for next to nothing. If I left this festering sore off the list, students and ex-students with exploding debt must indeed be an abandoned constituency.

Of course I am and have been aware of the scourge of skyrocketing student debt. Today it’s not uncommon for graduates of college—let alone graduate or professional school—to emerge from the womb of academia owing $100,000 or more for their degrees. Debts of $50,000 and up are routine. In contrast, when I graduated from one of the world’s best public universities in the mid-60s, I had no debt whatsoever. Part of my “luck” was due to scholarships based on merit, but most was due to the low cost of public education then. My “tuition” was $200 per year, so all I had to cover was books (which were cheaper) and living expenses.

The story of how we as a nation have thus abandoned our most promising youth is a tragedy with deep roots in our selfish neglect of public infrastructure generally. Unlike Republican phantoms, this is real generational theft. But there’s worse. The student loan “industry” is among the most rotten of our rotten businesses. David Brancaccio of the news series Now told the story in a piece of investigative reporting that PBS recently repeated, no doubt because the Obama Administration is just now pushing for long-overdue reform.

The story is appalling. Not only do private businesses earn money on loans that have no risk because the government guarantees them. (Talk about corporate welfare!) They also exploit students and ex-students outrageously. Among the tactics discussed in the program are: (1) charging supranormal interests rates, (2) imposing interest and fees that collectively increase loan amounts to up to four times the principal borrowed, (3) failing to inform borrowers of their legal options and rights, and (4) conversely, allowing borrowers excessive “forbearance” while interest and fees (payment of which the government guarantees) pile up.

Everyone who wants to see how rotten our financial sector has become should watch the Brancaccio feature. This is a perversion of capitalism that Adam Smith would never recognize: a business that makes easy money off of government guarantees by exploiting our most promising and vulnerable youth. Welcome to yet another moral wasteland made by Republicans’ ideology of “private profit first, last and always!”

Not only is sophisticated swindling rampant. The system of loans that grew like a cancer makes our health-care system look rational. Needless proliferation of “choices” and paperwork, all with confusing fine print, caused one student to end up paying off seventeen different loans for a single college career. How much “choice” of loan does a student need, for God’s sake? Money is money! The only possible rationale for such a sick system is to increase the wealth of the loan sharks who filled Republican campaign coffers. In that the system has succeeded.


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21 April 2009

Three Big Health-Care Lies

[For a more complete discussion of what’s wrong with our health-insurance system, along with proposed solutions, click here.]

The greatest mystery of our health-care debate is how so few got so many to believe such lies for so long. For half a century we have built our nation’s health-care infrastructure on a foundation of falsehoods. Here are the worst three:

1. Government is less efficient. This perennial lie always rested on hot air. Careful studies have shown that private health insurers have administrative costs between 10% and 17% (see sources 1 and 2). Medicare, the “inefficient” government bureaucracy, keeps its administrative costs around 4% to 5%. Government is about three times more efficient.

Simple logic explains why. Health insurers do the same thing over and over again. They review claims for diagnosis and treatment (and sometimes even prevention!) of a limited number of human ailments. When you do the same thing over and over, you get better at it, and you can do it cheaper, the larger you are. You enjoy what economists call “economies of scale.”

Government health insurance is cheaper because it’s bigger. It spreads out the cost of administrators and their computer hardware and software over a larger number of patients. It has more power to negotiate with drug companies and other providers for low rates. It therefore has enormous cost advantages over our atomized private health-insurance industry, whose chief goal is to enrich private owners by maximizing the number of separate firms with separate policies.

Don’t take my word for it. Take the private insurance industry’s. Now that its lies have been exposed for what they are, there is a serious chance that government might create its own insurance policy—just one!—to compete with private industry’s myriad policies of many flavors.

So what does private industry do? Does it laugh and scoff at the prospect of competing with this inefficient weakling? Does it mimic its hero Dubya and say “Bring it on!”?

Not hardly. It lobbies against any competition by government as if its life depended on avoiding that competition, which it does. The so-called “conservatives” who for decades derided the competitiveness and efficiency of government are now deathly afraid to compete with it. Watch what they do, not what they say.

2. Government will put a bureaucrat between you and your doctor. For health care to have any cost control whatsoever, someone has to review your and your doctors’ decisions to see if they make sense. Giving you a triple bypass just because you have an occasional chest twinge and know a surgeon who will do one for you on any pretext is not the way to keep us Boomers from breaking the bank. Nor, as recent comparative studies show, is it the way to insure the best health-care outcomes.

So the need for an intermediary or gatekeeper is not a lie. Any rational health-care system will have one, whether private or public. We are not ever going to see a system in which any doctor can prescribe any test or treatment, regardless of its costs or appropriateness, and regardless of the doctor’s training, specialty, competence, or familiarity with the measure prescribed. That way lies national bankruptcy.

The lie in this second statement comes from its implication that government bureaucrats will be worse than private ones.

In fact, the reverse is true. Even today, both government and private insurers have bureaucrats reviewing health-care claims before granting them. Both government and private bureaucrats have a goal (at least in part) of avoiding waste and fraud and keeping costs down.

But the private bureaucrat’s interest in cost control is much more personal. If she denies your claim and makes the denial stick, her benefit will be personal, immediate and direct. Her company’s profits will increase, raising the value of her 401(k) and possibly her profit-sharing as well. In some private insurance companies, she will get more money and quicker promotions the more claims she successfully denies. Her denying your claim today will put more food on her table tomorrow.

While government bureaucrats also have cost-control motives, theirs are more diffuse and less personal. They get rewarded for eliminating fraud and waste, but they have fixed salaries, no stock to consider, and no profit sharing. So they have no personal incentive to deny claims of genuinely sick people. Furthermore, government bureaucrats also have non-pecuniary motives: they seek advancement in the government bureaucracy in part by serving the public good. Private insurers have one goal only—to make a profit, as much as possible.

So one way or another (unless you pay for all your health care yourself), you will have a bureaucrat looking over your doctor’s shoulder to make sure that the treatment she prescribes is appropriate. One way or another, the review will be more searching the more expensive and exotic the treatment prescribed.

But which would you prefer—a bureaucrat who gains directly and personally by denying your claim, or one whose motivation is just doing a good and honest job to help people and cuts costs, and who stands to gain nothing directly by denying your claim? I know how I feel, and it doesn’t take me very long to decide. I don’t want a private bureaucrat balancing food for her children (or her vacation in France) against the cost of my health care.

That the private insurance industry has kept the public so confused about this simple truth for so long is a tribute to the corrosive power of modern public relations (dare I say “propaganda”?).

3. Government insurance will reduce consumer choice. This lie is a bit of razzle-dazzle, playing on our over-the-top consumer culture. As anyone who’s ever had to rely on one knows, health insurance is not like a restaurant meal, automobile, or home-entertainment system. It’s not something you buy for its flavor, color, appearance, attractiveness or aura of power and status. It’s insurance.

Insurance is not something you get pleasure out of. It takes money from your pocket reliably, month after month, year after year. As long as you stay healthy, it gives you nothing back. Its sole value is what it does when, God forbid, you are injured in a serious accident or get that fateful diagnosis of cancer or another serious disease. Then there are only two “flavors”: does it pay for the treatment you need to save your life and keep you solvent, or does it put you through the ringer, deny your claim and leave you destitute and dying? Variety is not what you want; you want reliability.

There is some merit in trading off higher deductibles for lower premiums. But that’s about it. Proper state-of-the art treatment for any serious accident or illness will cost the average middle-class person far more than he or she earns in several years, and far, far more than most people imagine. That was the conclusion of a recent exhaustive, independent study in Consumer Reports. [For an older, on-line version of a similar report, click here (subscription required). The subtitle tells it all: “Why 4 in 10 Americans can’t depend on their health insurance.”]

Insurance companies that offer “variety” don’t offer the coverage that people need when a health crisis strikes. Instead, they offer the chance (for lower premiums) to gamble with your health and your financial future. But if you’re going to gamble on not getting sick or hurt, why bother with insurance anyway? Insurance isn’t supposed to be a gamble.

“Variety” and “consumer choice” are red herrings fermented by the health-insurance industry’s professional prevaricators. They’re not things that most people need, at least not in health insurance. You don’t need “variety” or “choice;” you need prompt and willing payment for medical treatment that you have to have to stay alive or healthy.

* * *

The proof of the pudding is in the eating. Every since Harry Truman proposed universal health care, private insurance companies have been telling us how well off we are under their beneficent care. Now we have 47 million uninsured people—a number growing daily in our economic downturn. Now we have millions of personal bankruptcies and cases of homelessness caused by people’s inability to afford basic health care. And now virtually everyone in America knows or loves someone who has had basic health care denied not by a doctor or government official, but by a private bureaucrat.

But the most telling fact is private insurers’ abject terror of competing with a single government-run alternative. Just one. After four decades of telling us how efficient, effective, and helpful they are, how incompetent and clueless government is, and how wonderful variety and choice are, our private insurers don’t want any government competition at all. They just want us to continue playing their shell game, which gives us many options, too many of which lose. Doesn’t that simple truth speak volumes?

P.S. Yet Another Industry Lie. While on the subject of lies about public policy, check this out. As the New York Times reported, the fossil-fuel industries set up something called the “Global Climate Coalition” to deny the reality of human-caused climate change. This sham spent millions of dollars trying to confuse the public by claiming that climate change was “poorly understood.” At the same time it was making this claim, it had a memo in its files from scientists it had hired secretly to evaluate climate change. Here’s what that memo said:
“The scientific basis for the Greenhouse Effect and the potential impact of human emissions of greenhouse gases such as CO2 on climate is well established and cannot be denied.”
When a individual denies reality, we call him “insane.” What should we call whole industries that, for decades, deliberately deny reality for their own short-term profit, as private health insurers, tobacco companies and the fossil-fuel industries have done? Would it be too harsh to call them liars bent on destroying society to slake their own greed? Is there any way to hold these liars accountable?


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15 April 2009

Why 2008 Was Not 1929 Redux

[For my response to Paul Krugman’s later column on the same general theme, click here. For comment on the President’s OAS diplomacy, click here.]

Maybe it’s just spring. But for the first time in over a year, an old but newly strange feeling has gripped me: optimism. It crept up on me slowly and is growing stronger day by day.

Readers of this blog will find several implied comparisons between our current predicament and 1929 (see especially 1 and 2). Now I think those comparisons were overblown. Here are seven reasons why the stock-market crash of 2008 won’t turn out to have been 1929 redux:

1. The world is different now. In 1929, the world’s dominant free-market economy, the British Empire, was in decline. Europe was still recovering from the devastation of World War I, which had ended only a decade earlier. Germany was in the grip of the Weimar Republic’s hyperinflation, which soon brought Hitler to power. Japan was just beginning to industrialize seriously. China and India were still under colonial rule, and Russia was a basket case, dismembered by its bloody Bolshevik revolution. Brazil was part of a woefully underdeveloped southern hemisphere, mostly run by inept dictators controlled or manipulated from the north.

What a difference a century makes! Europe collectively is comparable to us in economic strength. Germany has the world’s fourth largest economy, having just been surpassed by China. Japan has the second largest—an economic powerhouse known worldwide for quality and reliability in a wide range of manufactured goods. China and India are free from colonial rule, rapidly industrializing, and relatively independent. China has vast foreign currency reserves, which it is using to stimulate its own economy. And the Indian Nano—that cute, tiny car that will sell for about $2,000— is obviously intended for domestic consumption, not European, Japanese or American markets. Brazil is booming; its auto industry, which relies heavily on cane-derived ethanol for fuel, is the world’s most self-sufficient. Even Russia is not in bad shape: it has lots of fossil fuels, the need for which is not going to disappear any time in the immediate future.

2. We are different now. In 1929, a small coterie of super-rich people controlled American finance and industry. The group was so small we can’t even describe it as a social class. Its members had built up huge fortunes not subject to income tax until 1913. The Sherman (Antitrust) Act, adopted in 1890, was just beginning to break up the monstrous industrial combines they had assembled. Members of this coterie labeled FDR a “traitor to his class” for supporting labor’s most fundamental aspirations and for trying to contain the damage that their own stupidity and greed had wrought as the Great Depression deepened.

Our industry then was primitive. It comprised things like steel, railroads, shipping and agriculture. Whole industries that we take for granted today were just being invented or just gaining scope and scale: things like airplanes, cars, electric lighting, telephones, and electrical appliances. Electronics, computers, and mass-produced pharmaceuticals—let alone the Internet and biotechnology, were not even on the drawing boards. Silicon Valley was half a century away.

Today industry is infinitely more diverse. Not only that, we share wealth much more broadly. Over 50% of us own stock (or did before the 2008 crash). Managers and CEOs, though still envied and reviled, are no longer a small coterie of privileged, supremely powerful industrial or financial autocrats. They are a whole social class, with diverse political and economic views, Republicans and Democrats. They are responsible and often responsive to regulators, shareholders, employees and even communities.

Not only is our industry infinitely more diverse. Our people, collectively, are infinitely stronger. In the Great Depression, millions of people had little more than the clothes on their backs. They stood humbled in bread lines, or they worked on WPA projects, where they cut trees, broke ground, and engaged in simple, labor-intensive construction. Now tens of millions of people have homes, cars, some savings, and even some stock. Big earth-moving machines do construction, and we have plenty of them. People’s 401(k)’s may be depleted, but they still have positive net worth. Millions have enough savings or assets to go bottom fishing for homes and other things as soon as they think a bottom is near.

3. The world is smarter now. As the Great Depression deepened, the great industrial powers did exactly the wrong things. They retreated into their shells and raised tariffs to protect their domestic industrial bases. We joined that trend, passing the Smoot-Hawley tariffs, which most scholars now consider a primary economic motivator for World War II. Two of the most rapidly industrializing countries, Germany and Japan, responded with authoritarian takeovers, militarism, and headlong preparation for war.

Today, the response is infinitely smarter. Japan and China took the last century’s lessons and adopted huge stimulus packages. So did the UK. The rest of Europe was less enthusiastic about stimulus but managed to create some of it anyway. No important nation, so far, has taken any serious step down the primrose path of Smoot and Hawley. International trade is secure in its web of sensible mutual obligations wrought by infinitely greater economic understanding. It is ready to rebound at a moment’s notice as global economic conditions improve. And the G-20 powers just committed a trillion dollars to keep the most vulnerable nations from bearing too much economic pain.

Detractors of our President made much of his failure to secure huge stimulus packages from Europe at the recent G-20 meeting. But the consensus that did emerge—no new tariffs or trade barriers, massive help for the developing world, and stronger, cooperative regulation of finance—would have been unthinkable in 1929. If the world’s leaders had reacted then as they have now, World War II might never have happened.

4. We are less important now. In 1929, we were practically the only game in town. We were the world’s dominant and most rapidly rising economic power. No other country could come close. That’s why the whole world held its breath, waiting to see when we would oppose Nazi and Imperial Japanese aggression.

Today we are still dominant, but the world around us has changed immeasurably. China has surpassed Germany to become the world’s third largest economy. Germany and Japan have realized their economic potential as manufacturing and innovative powerhouses, this time to peaceful ends. India and Brazil are coming on strong, and Russia has nearly recovered from its seventy-year ideological disease. Even South America has replaced most of its pathetic dictatorships with thriving free-market economies. South Africa and several other African nations have done likewise.

Why does this matter? Because the economic collapse started here in America and still has its greatest impact here.

For a while, we Americans felt poorly concealed schadenfreude as banks abroad succumbed to global ripples from our subprime debacle and housing bubble. We scoffed at the notion of “decoupling.” But now, several months later, we can see that our own economy was not just the cause of the collapse, but its epicenter. Real-estate bubbles bursting in other nations (principally the UK, Ireland, and Spain) had nowhere near the effect of ours bursting here at home. Foreign economies whose banking systems were unscathed—such as China’s, India’s and Brazil’s—will lead the world out of this recession.

As that happens, we will be among the beneficiaries of the multipolar world that I and others saw forming months ago. Maybe I should read my own blog posts more carefully.

5. Huge sums of cash are sloshing about. In 1929, many wealthy people lost everything because it took time to sell stock. By the time they got around to selling, they had no value left. Millions of others, who worked as laborers from day to day, had nothing to sell.

Today, half of our entire population owned stock before the recession began. Every one of them could sell stock on line in a minute or two, from anywhere in the world, over the Internet. Lots of them did, both before the market crashed and on its way down. So trillions of dollars in cash now lie in millions of private hands, much of it waiting eagerly for a positive sign to invest again.

That’s why the stock market is so volatile. With every bit of good news, some of that huge store of cash sloshes back into equities. There hasn’t been all that much good news lately, and yet our Dow has risen over 20%. There is plenty of ready money out there to finance business expansion and new business ventures, once investors figure out when and where reliable growth will come.

6. The catastrophic collapse has limited scope. Investors are more cautious now, as they should be. But there are only two industries in fundamental distress: finance and automobiles. Finance collapsed because of the greed and stupidity of its (mostly American) managers and their foreign counterparts’ lack of independence. The car industry is in collapse because of enormous global overcapacity and a growing realization that the internal combustion engine is nearing the end of its useful life. The air travel and aircraft industries are in suspension between the downdraft of plummeting business travel and the updraft of sharply lower fuel prices.

But there is nothing wrong with the rest of industry that restoration of credit and confidence can’t cure. People worldwide still need food, drugs, clothing, and consumer products, and most of the world’s population still covets the electronics, appliances, advanced drugs and medical devices that developed countries enjoy. These industries may have some excess capacity in developed countries, but there are plenty of customers elsewhere who need their products and will buy them as soon as they have money to do so.

As for basic industries—mining, steel, other metals, and cement—that’s where the stimulus packages come in. China’s and our own huge stimulus packages will keep these industries humming as we replace our aging infrastructure and China brings its enormous and still-primitive hinterlands into the twenty-first century.

7. The world’s largest economy now has rational leadership, and the world knows it. Imagine that your nation is partially or wholly dependent on a powerful foreign country’s economy. Then imagine that that country has been run for eight years by a clique of dogmatic fools. Imagine that these “leaders” governed from their guts, knew nothing about economics, valued ideology over evidence, and gave every indication of being intransigent bullies to boot.

That’s how the world viewed us during Dubya’s and Cheney’s misrule. If you can think of any circumstance more destructive of global confidence, please let me know.

Our President is no Messiah. But the world’s leaders are no fools, either. The admiring—even adoring—looks they bestowed on him at the G-20 summit were genuine. They reflected enormous and well-justified relief.

Now the world’s leaders know that the leading military superpower and sole economic superpower has thoughtful leadership with strategic vision, respects facts and expertise, and exercises self-restraint. Instead of a know-nothing imperium, they see a responsive government that reacts intelligently to evidence, understands economics, and is willing to listen.

Although largely atmospheric so far, these facts make an enormous difference in a global economy. Responding to reason rather than bullying is just human nature. Even Ahmadinejad is beginning to come around.

It has taken me over two months to begin to feel the change in mood and tone, and I’ve supported Barack Obama enthusiastically since early 2007. How much longer will it take for political and business leaders worldwide to fully internalize the change? When they do, their steps will be lighter and their outlook improved. Their willingness to cooperate with us and to assume their fair shares of prudent risks will grow exponentially.

All these positive effects won’t happen overnight. There are still high hurdles to leap. Foreclosures are resurging after a brief moratorium, and housing prices will continue to fall as a result. Toxic asset valuations will fall with them, and financial institutions that hold them will need further help. GM will probably go through expedited bankruptcy, and Chrysler might fail (although Fiat appears willing). Employment is a lagging indicator in any event, and it probably won’t level off—let alone begin to climb—for another year or so. As the President says, there’s a lot of pain still left to endure.

But two undeniable facts remain. First, the world is a far, far different, smarter and better place than it was in 1929. The global economy is infinitely more diverse, decentralized, and resilient. Second, our present calamity is more a collapse of American finance and global confidence than a total collapse of the global economy.

Study the multimedia review of profits of Dow Jones Industrial companies recently published in the Wall Street Journal. It lets you see each company’s profits, quarter by quarter, since late 2007, just before the recession began. If you delete the financial firms and GM, virtually all the Dow firms are still profitable, and their profits and relative positions are not much different today than they were before the recession began. Part of the reason is that these firms are multinational; they make a substantial part of their money—if not a majority—abroad, in the global economy.

The real problems are in our own financial and housing sectors, where the crisis started, and in the auto industry, parts of which are becoming obsolete. But the Obama Administration is addressing all three sectors effectively. After weeks of taking the usual “daddy knows best” approach to transparency (don’t let the rubes know anything, or they’ll cause a run on the bank), it has resolved to let some light in. When it does, investors will regain confidence in the stronger banks, and private capital will flow to them. The government may have to invest more taxpayer money in the weaker ones, but the sector as a whole will begin to revive.

The Administration has loosed enormous sums for mortgages and refinancings, and lenders are tying to stem foreclosures wherever possible simply because workouts are cheaper and less disruptive. And some of those huge sums sloshing about out there are looking for bargains in housing and will rush in whenever a bottom begins to seem evident.

As for autos, the Obama Administration is doing the hard work that makes sense. It is pruning unfruitful trees realistically and relentlessly. It may force GM into expedited bankruptcy and allow Chrysler to disappear. If it does, it will be making room for electric cars from major global manufacturers, startups like Tesla Motors and Fisker Automotive, and whatever is left of GM. At the same time, our government will invest heavily in an advanced electric grid and other infrastructure to power these future cars and a much-needed transition to clean electric energy.

There’s not much more that government (or anyone) can do, and these useful steps are likely to become more effective over time. The global economy’s unprecedented resilience, plus that huge store of sloshing cash, create conditions for a rapid rebound when confidence returns. Once these facts sink in, business, consumers and investors here and abroad may come to share my growing optimism, and this recession may turn out to be shorter than anyone now expects.

Update: If you want to see some of the spirit that will whip this recession, both here and around the world, watch this.

P.S. Paul Krugman’s Take.

People who compare Paul Krugman’s column this Friday and my (foregoing) post of Wednesday might think we disagree. Krugman emphasized reasons for caution and was skeptical of a quick rebound. I emphasized reasons for optimism.

But if you read both pieces carefully, you’ll see there’s far less disagreement than first meets the eye. Both of us cite reasons for caution, including the precariousness of toxic-asset valuations and the likely short-term effect of the foreclosure spike just now beginning. Both of us think that employment will be the last thing to recover, with any real rebound unlikely this year. Both of us advocate continuing the course of economic medication prescribed by our Doctor in Chief. Just as you shouldn’t stop your course of antibiotics just because your strep throat feels a bit better, so we shouldn’t stop our stimulus, regulatory reform, or real economic transformation before their effects have become unmistakable and entrenched (past tense).

There are only two differences worth discussing. Krugman worries that politicians will seize on signs for optimism—any signs—as excuses to return to the business as usual that caused this mess. His warning is dead on. I once accused him of poor political insight, so this time I’ll salute him. I would hate to have any politician exploit optimistic views, including my own, as excuses for making and selling more gas guzzlers, more complex derivatives, more McMansions, and more useless, empty shopping malls. My optimism arose from my belief that our unmatched powers of creative destruction would transform our economy, not snap it back to our old, profligate ways like an overstretched rubber band. We’ve got to finish what we start.

A second apparent difference was focus. Krugman’s piece focused almost exclusively on our own domestic economy and its peculiar troubles. Mine focused on the global economy and our part in it. Implicit in my analysis was the view that growth and investment abroad will lead the world out of this recession.

I still believe that. In short, I think much of the rest of the world is in better shape than we are. We have some catching up to do, not only in rationalizing our finance sector, but also in repairing and modernizing our infrastructure. If you want to see how far behind we are in high-speed, efficient rail transit, for example, watch this. Nothing I could find in Krugman’s column refutes these points; his piece doesn’t address the global economy.

My optimism stems from my belief that there are still enough smart people here—and enough money—to do the right thing and do it well and quickly. For example, almost any investment in clean electricity or the equipment to use it to move people and goods efficiently should pay off. Those who invest in the past, whether in fossil fuels, the machines that burn them, McMansions, or shopping malls selling useless gewgaws, in the long run will fail. And they should. There are still many opportunities to make money honorably here, but being stupid is not among them.

I don’t think Krugman and I disagree on that. Where we may disagree is my view that the rest of the world will get on just fine without us.

To me, what’s at stake in following our President’s wise prescription is not global progress. It’s arresting our own relative decline. Empires (economic and otherwise) come and go, but the global economy is in better shape than at any time in world history.

What we should be concerned about is our part in it and our future capacity to lead. Reinforcing those will require radical political and industrial change here at home, from decentralizing and downsizing our finance sector, through breaking the corrosive power of the fossil-fuel industries, to selling the convenience and efficiency of modern mass transit. As our President has hinted, anyone who prefers our modern air transport, with all its delays, frustration and indignities, has never ridden a city center-to-city center bullet train in Japan, France, Spain or China.

P.S. The President’s OAS Diplomacy

Republican bloviators continue to amaze us with their total lack of common sense. As our President returned from his enormously successful initial contact with Latin America, they put up a barrage of flack. Why wasn’t he tougher and nastier, they asked, with folks like Venezuela’s Hugo Chavez and Bolivia’s Evo Morales?

What planet do these bloviators come from? When they meet people for the first time, do they usually insult and threaten them to “break the ice”? Is that how people like John Ensign—a Republican Senator from the great industrial state of Nevada—got their start in politics? If not, where do they get off suggesting that our President adopt such stupid, counterproductive tactics? Do they, like Rush Limbaugh, want him to fail?

Have these nay-sayers experience in anything besides demagoguery? Surely they have none in business. If they had, they wouldn’t imply that good negotiation begins with insults and threats. For thirty years, the best book ever written on negotiating has advised “separat[ing] the people from the problem,” i.e., being nice to negotiating partners in the hope that everyone will see the problems to be solved, not each other, as the enemy. Maybe these so-called politicians should read it.

But besides the obvious point that you don’t improve relations by being nasty, the bloviators missed three essential points.

First, North and South America have an enormous range of common interests. They go way beyond drugs, vestigial revolutionary movements in the outback, and oil. Should Obama ignore these interests just to play the tough guy?

Second, all Latin American countries are not created equal. Chavez’ controls oil, a fungible commodity in the world economy that is on its way out. Morales’ controls lithium, which represents the world’s energy future. We Americans should be generous in offering Morales and his people the best possible deal, which we can do because we still have the world’s most innovative economy and the longest experience in dealing with Latin America. Obama’s friendly overture was a good start.

Finally, in pointing out the goodwill that Cuba’s ambassadorial doctors have engendered throughout the region, our President implicitly fingered a failure of imagination on our part. For decades we have viewed Latin America mostly as a source of natural resources and a battleground for our consistently failing “war on drugs.” How much more good will could we have engendered if, for example, we had invited 100 students from Latin America, every year, to attend our best medical schools free of charge?

For two decades our policy toward Latin America, including Cuba, could best be described as malign neglect. No only did we fail to propose anything outside our most immediate short-term self-interest and Cuban-Americans’ stiff-necked resentment. Our self-interest wasn’t even enlightened.

Our new President means to change all that, starting with a smile and a pat on the back. We all should be relieved and pleased as punch that someone with his common sense and flair for diplomacy is finally going to try to clean up the mess we’ve helped make (or in Cuba’s case perpetuate) in our own back yard.


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[For my most recent post on public policy, click here.]

Less than 24 hours ago, my Google’s Blogger control board displayed a message warning me that a Google algorithm had identified my blog as spam and had blocked it temporarily. The message said my entire blog would be deleted in twenty days unless I clicked a link requesting a review. I did so and got a message that review would occur within 48 hours and that Google would notify me at my on-file e-mail address (which the message showed) when my blog had been unblocked. A similar message appeared in my e-mail inbox.

Like a dummy, I never checked whether posting on my blog actually had been blocked. I trusted the notices because they used or displayed my correct on-file e-mail address. That fact suggested that the notices, if faked, had to come from someone who had hacked into Google’ database of e-mail addresses. Believing that to be impossible or extremely unlikely, I trusted.

So I clicked the link requesting a review. I later looked at the e-mail in my inbox, which contained a similar link. Fearful of having my whole blog (five years of work, not completely backed up by me) deleted, I clicked the link and got a message that my blog already had been scheduled for review. All comfortingly professional.

On waking this morning, I began to think that any algorithm that would identify this blog as spam would have to be terminally sloppy. So, intending to be helpful, I wrote Google the message appended below, expecting it to be blocked from publication but available internally to Google and its ’bots. Yet it published as usual, and I got no message from Google (as promised) that my blog had been reviewed and unblocked.

This sequence of events leads to two possible conclusions. First, some diabolically clever spammer hacked into Google’s Blogger database and mined its e-mail addresses, using bogus “blocking review” requests to have bloggers verify their addresses’ active status. Second, Google uncharacteristically let loose an algorithm that should have remained in alpha test for a much longer time and then failed to follow up with the promised, automated e-mail notice when it unblocked huge numbers of erroneously blocked blogs.

As between these two alternatives, I think the former more likely, simply because the latter implies a sloppiness and lack of professionalism that I have never observed in any of my many uses of Google’s services.

I am disappointed in myself for failing even to suspect a phishing scam. It will be interesting to see how quickly Google informs its users as to what really happened, and how quickly bloggers and mainstream media pick up on what is either the phishing scam of the decade or a rare lapse in professionalism on Google’s part.

Here’s my original message to Google, which now is just part of my thinking:

You have blocked my blog for almost 24 hours because your spam identification algorithm flagged it. As Mark Twain might say, that identification is “greatly exaggerated.”

My blog contains no links to commercial sites in which I have an interest because there are no such sites. My comment policy states, “I also don’t publish comments that appear to be sent for commercial purposes or just to drive traffic to another blog or website.” I have observed that policy religiously with one exception, which I explain in a counter-comment (see comments to this post). All links on my site are to my own blog, other bloggers, mainstream media, or reputable sources of information on the Internet (including Wikipedia). I don’t even use Adsense because I want to maintain my anonymity and I don’t believe Adsense can do that. So accusing my blog of spamming is a bit like accusing Mother Teresa of theft.

I can conceive of only two reasons why your spam algorithm my have flagged my blog First, shortly before you flagged it, an unmoderated comment that was obviously spam landed in my comment inbox. I intend to reject it, but I have left it there so your ‘bots or programmers can study whether it caused the flag. (I also intend to reject the other unmoderated comment for extreme length and irrelevancy, but not because I noticed any spam links in it.) An algorithm that flags blogs as spam because of unmoderated comments placed by others is neither fair nor appropriate.

The second reason might be numerous links to Amazon.com throughout my blog. When I refer readers to a book, I often include a link to that book on Amazon.com for two reasons. First, readers may want to buy the book, and Amazon.com has one of the quickest ways to get it in their hands. Second, Amazon.com provides readers with a table of contents, front matter, and a look at some interior pages, some of which may contain the text for which I’m citing the book. So linking Amazon.com is the quickest and easiest way for me to give readers a seamless citations experience.

I hope your clever programmers will see this message and be able to figure out a way to (1) avoid tarring blogs as spam because of independent commenters’ actions and (2) allow multiple links (especially if in different posts) to mainstream media and websites like Amazon’s. If not, your spam ID engine should go back to alpha test. It’s not ready for prime time.

Update: Contrary to your spam ID engine’s promise, I have received no e-mail message that my blog was unblocked. Yet this message posted nevertheless. That sequence makes me fear that someone other than Google may have caused the blocking (or the warning message without blocking), as does your warning of an (extremely rare) outage of unspecified duration at 2:00 A.M. PDT tomorrow.

I have gone to great lengths to keep this blog anonymous. Yet because your (maybe not your?) blocking message contained my non-anonymous e-mail address, I fear my anonymity may have been compromised. If that fear is unwarranted, I would appreciate your assuaging it with a general notice posted on your Blogger home page or an e-mail message directed to the address that you have (anonymously, I hope) for me on file.

I also hope this incident is not some ghastly spammer’s revenge, in which some diabolical spammer mined your database for e-mail addresses and had fearful bloggers like me foolishly verify them by clicking the link to have their sites reviewed. I only clicked that link because you are the Gold Standard in online protection. I hope I wasn’t misled.


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13 April 2009

America is Back!

Was any civilized person not thrilled by the dramatic rescue of Captain Richard Phillips, the hostage of Somali pirates who gave himself up to save his crew and ship?

Is any American surprised? The idea that four pirates with small arms could hold off the U.S. Navy was ridiculous from the start. Once the Navy approached, the pirates must have thought that any harm to Captain Phillips would be their ticket to instant death. Surrender was their only chance for live escape, but greed, pride or simple stubbornness held sway.

One Somali, with hand gashed in his gang’s attempt to take the Maersk Alabama, surrendered for medical treatment and arrest. Navy snipers killed the other three, no doubt at the same instant, and freed Captain Phillips from his bonds.

What lessons does this operation teach? First, it was carefully planned and flawlessly executed. That’s what we might expect of the Navy Seals, an elite unit of the world’s most disciplined and well-trained military forces.

Second, we used force, as we should, only as a last resort. The successful military rescue followed days of negotiation with the pirates and their tribal elders on the Somali mainland. It came only after repeated attempts to resolve the crisis by talking failed.

Third, the episode showcased both the caution and the steel in our President. He reportedly approved the use of force only after two requests, and only on condition that the Captain’s life be in imminent danger.

As a realist of uncommon intelligence, the President must have known he was trusting the operation to the judgment and professionalism of Navy commanders and Seals on the spot. Captain Phillips’ life was in danger from the moment he bravely offered himself as a hostage. Whether that danger was “imminent” was a matter for military judgment, not to be second guessed. The only real limitation in the President’s order was that saving Captain Phillips’ life be the goal of any military operation—a goal that every sailor no doubt shared.

So the President gave the order to act, with the only limitation that made sense, after exhausting every peaceful alternative. His delay not only gave negotiation a chance. It also gave time for careful planning, during which expert Seal snipers were air-dropped into the theater. Every step of the operation was thoughtful, carefully planned, and carefully sequenced. And in the end, the President left the judgment and the execution to our military professionals. Isn’t that how it should be?

It is sad that pirates doubted America’s strength and determination. It is sadder still that so many here and abroad doubted the President’s toughness when pushed. And it is sad that the world’s feckless private sector allowed so many ships to be taken and so much ransom to be paid without ever taking the simpler (and much cheaper!) expedient of providing arms or armed guards for ships passing by the Somali pirates’ den.

But no matter. America is back. Caution, self-restraint, good planning, and precision in military operations are back. After years of costly and embarrassing private-sector blundering, the whole world can see how only government—American and French—can beat back armed thugs and make the world safe for peaceful commerce again. Maybe folks here at home will begin to understand that government can do other things well, too.


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09 April 2009

Race for the Future

An idiosyncrasy of the English language gives the word “race” two wildly different meanings. It connotes both an ethnic group with biological or evolutionary roots and a speed contest.

Both meanings are vital to the near future of our human race. As we threaten to outgrow our habitat—the Earth on which we evolved—we must achieve cooperation and mutual respect among our distinct races. Doing so is crucial to our survival as a species.

Yet our various races and nations are also racing to replace self-destructive technologies like nuclear weapons and fossil fuels with less dangerous and more advanced substitutes. The survival of our biosphere in its present form depends how many run that race well.

We Americans are winning the race to marginalize race in human governance. No other people or nation has a leader anything like Barack Obama. It’s not just his race. It’s his competence: a unique blend of diplomacy, intelligence, judgment, vision and character, plus his remarkable freedom from blindsiding ideology. Every other great nation on Earth would have passed him by because he didn’t have the right ancestry or skin color. We didn’t, and we are better for it.

But before we congratulate ourselves on our choice of leader and our social advancement, we should recognize a sad fact. We may be losing another great race.

Our leading futurist Tom Friedman continually beats the drum for a gasoline tax or carbon tax. Economics tells us that a tax is the gentlest and least intrusive way to move free markets away from dangerous and increasingly scarce fossil fuels. But Europe already has a gasoline tax. Europe’s tax on gasoline more than doubles its price at the pump. In response to these taxes, Europeans drive cars that, on the average, get nearly twice the mileage of ours. The result? They pay about the same price per mile of travel, but they amass huge sums in taxes for national health care, generous retirement, and physical and social infrastructure.

The future of individual transportation lies in electric cars. They have enormous social, environmental, engineering and personal advantages that no other transportation technology can match. After a century of advances in chemistry, physics and materials science, from lead-acid batteries to lithium-titanium and lithium-iron-phosphate combinations, the best battery technology is now struggling to be born. The future is almost here, and the race to bring it here is on.

In the short term, we Americans appear to be winning that race. GM’s Chevy Volt—an electric car with an auxiliary internal combustion engine—is closer to showrooms than any direct competition. It’s still on track for a commercial debut in November of next year.

But in the medium and longer term we appear to be behind. Japan first developed hybrid technology, whose solid-state controllers of high-power electricity (which incidentally have no moving parts) are very close to those needed for electric cars. A Korean company, LG Chem Ltd., makes the cells for the batteries that the Volt will use, although its American subsidiary will supply them in Michigan, and GM will assemble them into battery packs there.

In the race to showrooms, the rest of the world is close on our heels. Among the foreign car makers joining the race are Toyota, Daimler-Benz, and BYD, a Chinese company 10% owned by Warren Buffet’s Berkshire Hathaway. American contestants include GM (with its Volt), Ford, and startups Tesla Motors and Fisker Automotive. In the medium to long term, we cannot win this race unless we leapfrog others in the most important technology, batteries. At the moment, we are ahead on the platforms and behind in batteries.

The story is similar in generating the electricity to power these cars. We Americans invented nuclear power. Yet we use it to generate only 19% of our electricity. France’s nuclear share of electric power is 77%. A host of other nations, including several former Soviet satellites, are north of 30%. China appears to have decided to forsake its climate-destroying rush for coal power and push for nuclear power and renewables.

Wind power is a mixed story. Last year we surpassed Germany as the nation that generates the most wind power. (Germany still has the most installed capacity; we just have a much larger country with more wind.) But our only native wind-generator producer, GE, is merely one of the top five companies in this global business. Despite its tragic foray into finance, GE is still an excellent company, and no one should count it out. Yet supremacy in this vital future business is by no means assured.

Solar power tells a similar story. We have lots of great research in universities and industrial companies, but Germany’s more intelligent industrial policy has let it lead the world in using photovoltaic cells. We’ve had viable solar thermal plans on the drawing boards for a decade, and our Southwest has far more reliable sun than any place in China, Europe or Japan. But we have yet to site, build and connect any serious solar thermal plant.

These technologies—nuclear, wind and solar thermal—all work right now. They need no further development, only intelligent siting, construction, connection and use. Photovoltaic solar has a slight cost disadvantage, which researchers are working to overcome. But it, too, works now and is even cost effective for some applications. Unlike so-called “clean coal,” none of these technologies is a mere future possibility or possibly vaporware. All are generating useful electric power, even as you read this. All they require is the vision, investment and foresight to put them in place.

In 1960, Jack Kennedy got himself elected president in part by promising to close the “missile gap” with the Soviet Union—a perceived lag in our fielding intercontinental nuclear weapons. Now we have a real and growing “energy gap”: a lag in our relative ability to field clean and workable but underused technologies to power our transportation and industry.

Kennedy proposed closing our missile gap by putting a man on the Moon within a decade. We met that goal in a mere eight years, and the technological advancement derived from doing so closed the missile gap.

Without setting a deadline, the man who is helping us win the race against race has challenged us to a similarly massive, national effort in energy. Winning that race is going to cost money, a lot of it. But the prize is not just supremacy in a military technology that we hope will never be used. This time, the prize is global leadership that will be used, in industry, commerce—and especially manufacturing—for the foreseeable future.

The nation that first makes attractive electric cars and fully exploits existing nonpolluting energy technologies will own the future and lead us to the stars. Whether we Americans win that race will depend on how enthusiastically we follow the man we wisely chose to lead us at this critical time in our national history.


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04 April 2009

A Super Special Prosecutor

I’ve waited over two months to make this suggestion. That’s a decent interval. I didn’t want dark thoughts of retribution to sully our collective joy at the new dawn.

But now the new Administration is settling in—although hardly to a routine in this time of perpetual crisis. Contrary to my fears, Dubya didn’t spend his last few days as president pardoning everyone in sight, as Hilly Billy did. He didn’t even pardon Scooter Libby, causing Cheney to pout.

Perhaps Dubya’s dim intellect saved us from pardons. He couldn’t imagine that he and his cronies might some day be called to account. Now they are mounting a rear-guard public-relations campaign to justify their near-destruction of our Republic and to tarnish the new administration. Cheney—our very own Molotov or Savonarola—has hit the talk-show circuit justifying torture.

With the time for pardons past and decent respect paid to the sanctity of the transition, we can act.

While Billy was president, Ken Starr spent over $80 million of the people’s money trying to impeach him. The primary charge was dallying with a White House internal and lying about it. The underlying acts were more worthy of trailer trash than a great leader, but they hardly threatened our Republic.

Now we have much bigger fish to fry.

There are people who started an unnecessary war on false premises and profited from it. There are people who condoned and tolerated torture (if not ordered it) in our names. There are people who ordered unauthorized, warrantless spying on American citizens and rendition of innocent aliens to inimical foreign governments for torture. There are people directly responsible for the collapse of our entire economy. Some of them deliberately relaxed regulation and government oversight and then profited from private-sector positions by exploiting the laxity. There are people who wasted literally tens or hundreds of billions in taxpayers’ money, giving it to their friends and cronies with little or no oversight, accountability or consequences for its misuse.

Some of these miscreants can claim they acted in good faith. By virtue of their official positions, some may enjoy absolute or qualified immunity from accountability for the disasters they have visited upon their country and the rest of us. But the least they should expect is to spend the rest of their lives fighting determined, well-educated and well-financed litigators out for their hides.

Patrick Fitzgerald comes to mind. But he is not alone. There are many people like him, who enjoy this sort of legal blood sport. They are indefatigable, incorruptible, irrepressible, and immovable. They are the bulldogs of the law. We should find the best and the brightest of them, give them a $ 1 billion war chest, and put them to work.

This is not work for the new Attorney General Eric Holder, far less for President Obama. They have a nation to run and oceans of error to drain from our government. They will have their hands full correcting wrongdoing. They have no time to punish it.

But even this mild-mannered and relatively unscathed intellectual yearns for accountability. If so, you can imagine the kind of vengeance that recent additions to the ranks of the homeless, unemployed, and deportees from the middle class must crave.

Vengeance may be too strong a word. We don’t want to mimic Iraq. But retribution can be healthy. It is the first step toward the kind of accountability that used to be routine in American government and business, but which has been totally lacking at our highest levels for the last eight years.

Accountability is the first sign of a society healing itself. Even Ronald Reagan took responsibility for the lawless disaster of Iran-Contra. Yet, except for the Honorable Three who threatened to resign to preserve the rule of law, no one responsible for the last eight disastrous years has so much as hinted at it. We cannot restore competence and honesty, let alone basic morality, to our government unless the people responsible for our multiple disasters are brought to account and their misdeeds publicly explained.

South Africa understood that. That’s why it appointed Bishop Desmond Tutu to head a reconciliation commission after the end of Apartheid.

We have just come through a period of misfeasance, malfeasance, corruption and bald evil at high levels every bit as damaging to our Republic, relative to our state of advancement, as was Apartheid for South Africa. We cannot have reconciliation without accountability. And we cannot have accountability without some measure of retribution.

Whoever takes this job should have a broad mandate, not limited to criminal prosecution. For good reasons (going back to the Magna Carta), criminal charges make gathering evidence difficult and require proof beyond a reasonable doubt. The authority should include the power to bring civil suit to claw back some of the billions stolen and wasted.

Just as O.J. won acquittal for murder in criminal court but had his first comeuppance in a civil suit, so our maldoers in high places should not be allowed to exploit a system designed to bend over backwards to protect the innocent.

The last eight years have seen disasters in every field of our national life: financial, economic, industrial, social, and military. We continue to see the abomination of former high officials of a nation founded on human rights justifying torture. So far the people responsible have managed to duck all accountability. Some even received the Medal of Freedom.

So let’s appoint a super special prosecutor. Let’s spend a billion dollars—less than a three-thousandth of the money we will have to spend to clean up the mess they created. Let’s hire the toughest legal bulldogs in the nation and give them free reign.

Then let the retribution begin. If nothing else, the exercise will make us all feel better, make miscreants think twice about bad deeds in the future, and forestall us from seeking sterner measures like the guillotine.

P.S. For a more restrained but equally sweeping recommendation along the same lines, read Bill Moyers’ December 12 interview with Glenn Greenwald. For a more recent Moyers foray into how desperately we need accountability in finance and banking, read or see last night’s interview with William Black, a legal authority on the savings-and-loan crisis of the eighties and how much more outrageous our current crisis has been.


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