Parts to Wholes: the Socionomic Systems Nexus

Well we were hoping to move on beyond economic concerns, which we're on record since this time last year as being the single most important policy domain we need wrestle with. A desire to move on is not, therefore, downplaying it's criticality; rather it's arguing that other issues are also critical, e.g. Foreign Policy ! Based on feedback from our readers and network, some casual exposure to the talking heads and punditocracy and browsing the appropriate political cartoon it's not yet time to move on. So we're going to focus on economic issues at least one more time and hopefully set you up for listening to the Prez's address this evening. (BtW - if you'd like your coverage undiluted C-Span will be live this evening). Just to put a point on all this consider the accompany political cartoon collage - clearly the grasp, acceptence and understanding of both the economic situation and the recovery packages and initiatives are minimal. Also BtW the markets are up today almost 4% but down 14% over the last two weeks ! Trust me, as we discussed(Miracles on Pennsylvannia Ave: Make it So, No. 1 !), this is different, massive, unique in post-war America and the debate is more polemical than helpful. From an economic, policy and political machinery perspective there is no single one of these cartoons that is anywhere near accurate. Yet as an indicator of the general views of the situation it's likely entirely too accurate; and therein lies the problem. The thing we have to fear is not just fear, it's mis-understandings and distortions. Which engender and reinforce fear. The President has an enomrous challenge on his plate to address this "unconscious" fears and deal with the political environments. After the break you'll some reviews of the economic situation with two of the only balanced columns on the Recovery package and Geithner's Plan; as well as the consequences if these initiatives don't work. The readings also cover a wide range of other topics that are critically important.

More on the Package Breakdown

Let's start by taking a look at yet another breakdown of the Recovery Package, this one courtesey of the Macroblog and written by a research VP at the Atlanta Fed. What the graphic depicts is the relative size by major component the Package over the next several years. When you examine the details of each year (additional graphic) several things are rather striking, at least to us. The first is the size of each component, the timing patterns and the implicit thoughtfulness of each component in terms of timing and feasibility. There are, by and large, almost no commentaries on the package that recognize the balance between policy (what works best in what timeframe as discussed in the prior post linked above), politics (what can be sold in the sausage factory and what support is available at what price) and implementation. Two "grounded" critiscisms that recur are the package is not large enough nor is it fast enough. Well the spending in'09 is, as you can see, huge but smaller than '10, and continue to ripple for some time. Nobody is seriously discussing the implementation challenges per se as critical decision components. We don't have the institutional infrastructure to absorb more spending any faster and the amounts in the authorization will strain what is in place and require massive new programmatic support. In other words this is not just a reasonably well-crafted plan given the timeframe but also likely to be at the limits of what can be managed.

Political Dysfunction

Some of my prior posts and private comments have been harshly critical of the Rips for failing to support this process. Let me reiterate and reinforce those comments. The critiscism of my comments as that they were disdainful of folks with whom I didn't agree despite their potentially being well-intentioned. That's possible, even somewhat likely, so discount what follow to whatever exent you'd like. My so-called disdain is based on a nested set of bad behaviors. First off there's the technical critique that not enough reliance was placed on tax cuts and too much on spending that was wasteful. We dissected that set of objections pretty fully last time but so did Steve Perlstein in the WaPo, which we linked in the last readings. Briefly the Administration made a great and sustained effort to reach out, got no on-going feedback and support and still included a large component (huge in the first year) of tax cuts. Martin Feldstein is often cited as evidence that the package was badly done but his most trenchent objection was for an over-reliance on tax cuts; which hardly seems like objective evidence of the flaws the Rips are asserting. As for "spending", without going into further deep detail we appeal to Perlstein's bon mot - spending is stimulus. There are three more telling and fundamental problems with the Rips political posturing.

1. We all recognize the seriousness of the problem. Even if the Rips disagreed why didn't they step forward as responsible leaders and citizens instead of posturing partisan politicians ? In other words all the evidence indicates that given every opportunity to contribute to re-crafting the packages they failed to step forward with any, collectively and en masse. Which can only reflect a political decision.

2. Given that lack of participation it would still have made, and will still make sense, for the Rips to position themselves to offer up some support for the Package in whatever forms it took rather than just vote the entire thing down. A ready-made political position we have been to express doubts but argue and admit that despite their disagreements they would vote in the best interests of the Rupublic. Instead they chose blanket denial and denigration.

3. Finally, and perhaps most telling and indicative, they then proceeded to mount concerted, massive and public attacks using the worst of the perjorative labels created in the '90s to try and appeal to the lizard-brain emotional centers of the voting public. Which assertion you can verify by yourself by listening to the Su. morning talk shows, e.g. some of the links pointed to in our last posts. And further delved into in some of the C-Span videos cited in the readings below.

On balance our judgment is that the Rips have decided that their political advantage lies in not attempting to contribute to fixing these problems but in labeling them as somebody else's problem and using their position of lack of responsibility to be malfeasantly irresponsible. We used the accompanying graphic to characterize the differences in the candidates approaches. It looks like selling to the lizard-brain will continue to be the Rips strategy.

The President indeed has some major challenges in explaining, selling and dlelivering. It would be in all our interests if more folks were in the boat and rowing with the team instead of throwing rocks from the shore. But so be it.

Tough Love From the Coach

 Our intent is to dive further into a deeper analysis of "Coach Barry's" (Welcome to Coach Carter's Gym: Renewal of Duty, Honor and Country) call to arms and self-responsibility, but having spent a bunch of time reviewing everybody from the WaPo to the NYT to the WSJ to the foreign press (Der Spiel, FT, Jerusalem Post, Xhinghua,...) we think our little summary captures the essence of. If you've gotten this far hopefully YOU'VE got a balanced understanding of the situation AND why what's happening in D.C. will define your future. Here's my informal summary:

 If you check out the new readings excerpts or listen to the talking heads on this Rose panel discussion you'll find that a) just about everybody except the diehard (dying suicidal paranoics) Rips and b) in that general consensus the conclusion is that Barry took a great step forward to selling all his massive, indeed revolutionary, agenda to the hearts. And just for the record David Brooks assessment of the Rips is MUCH harsher than mine !

Framing Policy

The Big Test When I was a freshman in college, I was assigned “Reflections on the Revolution in France” by Edmund Burke. I loathed the book. Burke argued that each individual’s private stock of reason is small and that political decisions should be guided by the accumulated wisdom of the ages. Change is necessary, Burke continued, but it should be gradual, not disruptive. For a young democratic socialist, hoping to help begin the world anew, this seemed like a reactionary retreat into passivity. Over the years, I have come to see that Burke had a point. The political history of the 20th century is the history of social-engineering projects executed by well-intentioned people that began well and ended badly. There were big errors like communism, but also lesser ones, like a Vietnam War designed by the best and the brightest, urban renewal efforts that decimated neighborhoods, welfare policies that had the unintended effect of weakening families and development programs that left a string of white elephant projects across the world. Readers of this column know that I am a great admirer of Barack Obama and those around him. And yet the gap between my epistemological modesty and their liberal worldviews has been evident over the past few weeks. The people in the administration are surrounded by a galaxy of unknowns, and yet they see this economic crisis as an opportunity to expand their reach, to take bigger risks and, as Obama said on Saturday, to tackle every major problem at once. All in all, I can see why the markets are nervous and dropping. And it’s also clear that we’re on the cusp of the biggest political experiment of our lifetimes. If Obama is mostly successful, then the epistemological skepticism natural to conservatives will have been discredited. We will know that highly trained government experts are capable of quickly designing and executing top-down transformational change. If they mostly fail, then liberalism will suffer a grievous blow, and conservatives will be called upon to restore order and sanity. It’ll be interesting to see who’s right. But I can’t even root for my own vindication. The costs are too high. I have to go to the keyboard each morning hoping Barack Obama is going to prove me wrong.

1,000 Points of Data What we need now is a Web-based system for measuring our changing society with key national indicators — in a free, public, easy-to-use form. Ideally, it would be run by the nonpartisan National Academy of Sciences, which would ensure it has the best quality of information and is kept up to date. The system would enable us to offer in one place statistical information that we spend billions of dollars collecting but that is now underused and undervalued. Imagine everyone having at their fingertips answers to questions like: How many quality jobs are we adding to the American economy? How many more students are getting into college? How many more people are gaining access to affordable health insurance? Are we increasing economic growth along with savings and investment? Are we reducing our greenhouse gas emissions? In the realm of health care, for example, it could include the 20 measures of progress on our health and health-care systems that were recently recommended by the Institute of Medicine — including self-reported health status, the prevalence of chronic diseases, health-related behaviors like physical activity and nutrition, insurance coverage and health expenditures per capita. Great steps forward in American history occur at moments when our deeply held values are reaffirmed in the face of changing realities. Such a moment is at hand. We need a shared frame of reference that will enable us to practice collective accountability. If Congress acts soon, by the time President Obama delivers his first formal State of the Union address next year, Americans will be able to continually assess the state of the Union for themselves.

Aristotle and an Aardvark Go To Washington: Understanding Political Doublespeak Through Philosophy and Jokes Thomas Cathcart and Daniel Klein analyze political doublespeak by using philosophical understandings of  logic and language analysis as well as humor to decipher what politicians and political pundits are talking about.  This event was hosted by Politics and Prose bookstore inWashington, DC.

The Political Brain: The Role of Emotion in Deciding the Fate of the Nation Psychologist Drew Westen argues in "The Political Brain" that Americans vote not based on reason, but on their emotions. Mr. Westen contends that Republicans are more skilled than Democrats when it comes to making emotional appeals to voters.

More on Economic Policy

Goldilocks and the Recovery Act The $787 billion Recovery and Reinvestment Act just signed into law by President Barack Obama is being criticized and will continue to be criticized. There was no way to please everyone. Those who think it’s too big are irreconcilable with those who believe it’s too small. Those who wanted it to be faster are irreconcilable with those who want every dime to be spent with the greatest of care. From a purely economic perspective, there are few who believe this legislation is perfect. But given the politics that are inevitable in a democracy, this is the Goldilocks Recovery Plan: not too big and not too small; not too fast and not too slow—in fact, just right. Before we examine these criticisms of the bill, let’s first review what this critical legislation will achieve. The American Recovery and Reinvestment Act is an important step in getting the U.S. economy back on track. The $787 billion package includes a mix of investments in infrastructure, science, education, and health—measures to put the United States on a greener path, help those most affected by the recession, support states that would otherwise have to lay off additional workers and cut back key public services including education, and provide tax cuts for low- and middle-income people and businesses. The final version isn’t as good as it might have been, and will create or save fewer jobs than the original bill that the House of Representatives passed on January 28. But passage was essential, and so compromise was inevitable. This package will still create or save 3 million to 3.5 million jobs over the next two years.

• Animation: How the Recovery Works
• Video: Michael Ettlinger on What Happens Next
• Background brief: Recovery and Reinvestment 101

Treasury may save the day after all Despite almost everything you've read or heard, the Geithner plan stands a good chance of working. It tackles, head on, the three big problems that anyone trying to end this financial crisis must face.Of course, because it's the best plan that anybody could come up with at the moment -- the team that came up with this plan included the Federal Reserve, White House economic advisers such as Lawrence Summers and the skeleton crew running the Obama administration's Treasury -- we're really in trouble if it doesn't work.

Krugman: Economy could dig itself into deflationary hole Barrons.com: What's the stupidest thing you've heard said about the current economic crisis and how to solve it? What's the smartest? Paul Krugman: The stupidest is a very tough competition; I tend to think of whichever mind-numbingly stupid thing I've just heard, like [U.S. House of Representatives] Minority Leader [John] Boehner's statement that we shouldn't "reward" Fannie and Freddie by increasing their resources (he apparently doesn't understand the meaning of "government owned.") But I guess the statements from many players that the Obama plan is a spending bill, not a stimulus bill -- when spending is the whole point -- top the list. The smartest thing probably comes from Richard Koo, [chief economist for Japan's Nomura Research Institute, part of Nomura Securities] who was one of the first to point out that this isn't just a housing crisis, or even a banking crisis -- it's a balance sheet crisis. Barrons.com: You've written that the gap between the economy's potential shortfall in production over the next three years -- $2.9 trillion -- and the $800 billion in economic stimulus is a big problem. Why does this gap between production and bailout matter so much? Krugman: My big concern here is that the economy digs itself into a deflationary hole, which is what can all too easily happen if you have a large, sustained output gap. Once prices start falling, and people start to expect continuing deflation, the balance sheet problems will become much worse than they already are, and much harder to resolve. Watching that happen in Japan is what led me to write the original, 1999 version of The Return of Depression Economics, and now the same thing is all too possible here. Barrons.com: What's a worst-case scenario if this stimulus fails to kick-start a recovery, as you've argued? Krugman: A lost decade or more. I don't think, even now, that we're headed for 20+ percent unemployment, Depression-style. But I can see a strong possibility of an economic and political trap: low investment and high savings thanks to deflation and a depressed economy, with effective government action blocked by a combination of concerns about debt and the widespread belief that we tried stimulus and it didn't work.

• When Consumers Cut Back - A Lesson From Japan

Politics, Policy, Perspectives

Money for Idiots Our moral and economic system is based on individual responsibility. It’s based on the idea that people have to live with the consequences of their decisions. This makes them more careful deciders. This means that society tends toward justice — people get what they deserve as much as possible Over the last few months, we’ve made a hash of all that. The Bush and Obama administrations have compensated foolishness and irresponsibility. The financial bailouts reward bankers who took insane risks. The auto bailouts subsidize companies and unions that made self-indulgent decisions a few decades ago that drove their industry into the ground. The stimulus package handed tens of billions of dollars to states that spent profligately during the prosperity years. The Obama housing plan will force people who bought sensible homes to subsidize the mortgages of people who bought houses they could not afford. It will almost certainly force people who were honest on their loan forms to subsidize people who were dishonest on theirs. Right now, the economic landscape looks like that movie of the swaying Tacoma Narrows Bridge you might have seen in a high school science class. It started swinging in small ways and then the oscillations built on one another until the whole thing was freakishly alive and the pavement looked like liquid.A few years ago, the global economic culture began swaying. The government enabled people to buy homes they couldn’t afford. The Fed provided easy money. The Chinese sloshed in oceans of capital. The giddy upward sway produced a crushing ride down. These oscillations are the real moral hazard. Individual responsibility doesn’t mean much in an economy like this one. We all know people who have been laid off through no fault of their own. The responsible have been punished along with the profligate. It makes sense for the government to intervene to try to reduce the oscillation. It makes sense for government to try to restore some communal order. And the sad reality is that in these circumstances government has to spend money on precisely those sectors that have been swinging most wildly — housing, finance, etc. It has to help stabilize people who have been idiots.

Government Workers Get Their Chance to Shine The stimulus package is not only a political crucible for Obama and the congressional Democrats who pushed it through; it is also the ultimate test of government's ability to deliver, from a vast array of federal agencies and departments down to state and local offices across the country. It will be up to thousands of Cabinet undersecretaries, regional agency directors and local contracting officers to get the stimulus money out fast enough to boost the economy and to meet Obama's broader policy goals. Obama has cast his election as a repudiation of an anti-government philosophy that has been in vogue for the past three decades. The stimulus spending offers the prospect of renewing confidence in the public sector just as many are losing faith in corporate America. If done poorly, though, it could undermine Obama's longer-term vision of reaffirming the positive role of government in the lives of Americans. Administrators seem to be bearing such warnings in mind. On Friday, Interior Secretary Ken Salazar laid out guidelines for the $3 billion his department will receive, including appointing a "stimulus czar." A day earlier, Energy Secretary Steven Chu announced "sweeping" new procedures to get his department's $40 billion spent fast, including adopting a rolling application process for loans and adding staff members. "The old process required too much paperwork, required prohibitive upfront costs and simply took too long," Chu said. Department staffers, he added, "have a completely new attitude -- they feel charged and excited and ready to go." To help oversee stimulus spending, Chu reached into the private sector, hiring Matt Rogers, a former senior partner at the consulting firm McKinsey & Co. Rogers said in an interview that the moment is a chance for the public sector to prove itself -- though all in the service of getting the private sector back on its feet.

Obama's FDR Moment When President Obama addresses the nation tomorrow, he should not be distracted by Washington's obsessions over partisanship and ideology. He needs, above all, to speak to the country's raw fear. In our battered industrial heartland, there is also a strong sentiment that the president should disentangle himself from Washington as much as possible, hard as that may be for a man who lives at 1600 Pennsylvania Ave. His obligation is to be the nation's leader, not the capital's ringmaster. It's a message he's already received, judging from his schedule in recent days. And when it comes to bipartisanship, the point is not the numerical count of Republicans who vote for this or that. It's whether frightened citizens sense that government is working. "People want the basic stuff fixed," said state Rep. Vernon Sykes, a Democrat who chairs the Finance and Appropriations Committee in the Ohio House. "They don't have a romantic notion of bipartisanship. They just want people to come together to solve problems." Obama's speech, according to his lieutenants, will be another effort to make clear that he understands how bad the situation is while also conveying hope and assurance that prosperity lies at the other end of his policies. This complicated two-step has become the greatest rhetorical challenge of his presidency. Empty optimism would look out of touch, but unalloyed pessimism would only deepen the loss of confidence that is, itself, a cause of the downturn.

• Economic View - Can Talk of a Depression Lead to One?

Cases and Consequences

Where Wall Street, Detroit Intersect The Detroit autoworker and the Wall Street investment banker live in totally different economic realities -- or so it seems to just about everyone. One is unionized, the other not. One is semi-skilled, most likely with a high school diploma, the other an MBA from some fancy school. One is middle class, dependent on generous hourly wages and benefits, the other reliant on lavish performance bonuses that have put him squarely in the economic elite. Yet in some important ways, the autoworker and the investment banker are really variations on the same story -- a story that in both instances has reached a crucial turning point. From the 1950s until -- well, until just now -- the unionized workers at General Motors, Ford and Chrysler were the aristocrats of the blue-collar workforce, earning well above what others made with similar skills and education. In the 1950s and '60s, before the advent of foreign competition, their companies competed in almost every way except price, earning above-average profit margins. And thanks to a strong union, favorable labor laws and a generally paternalistic attitude on the part of corporate America, autoworkers captured a significant portion of those above-market returns. Over the past 30 years, the returns have gradually disappeared under the pressure of foreign and domestic competition. Yet despite the gradual decline in the power of the union movement, autoworkers have nonetheless been able to negotiate pay and benefits, job security and work rules that have remained significantly more favorable than those at nonunionized factories run by foreign firms in the United States. Now, as General Motors and Chrysler enter the final phase of what amounts to a bankruptcy-like reorganization under the auspices of the U.S. Treasury, that unsustainable old model is at long last being put to rest. Instead, a new model is emerging that follows the outline of earlier restructurings in the steel and other heavily unionized industries. For years, Wall Street has earned above-average returns by taking advantage of customers, hiding behind regulations and competing with rivals on the basis of anything other than price. And for years, Wall Street firms have passed along the lion's share of these outsized profits to executives and employees in the form of astronomical bonuses that bear no relationship to the pay of workers in other industries with similar skills and work ethics. Indeed, just as the unionized autoworkers were the aristocrats of the blue-collar world, Wall Street traders and investment bankers were the aristocrats of the white-collar world. Both came to look on their above-market pay not just as the result of hard work and good fortune, but as an entitlement. In time, this sense of entitlement led firms to pursue strategies that drained the companies of financial strength and led them to the brink of a collapse that now requires a massive government rescue. At the most fundamental level, what did in Citigroup was the same thing that did in General Motors -- an arrogant and insular business culture that failed to put the customer first, failed to rein in employee pay and failed to make the difficult decisions necessary for the survival of the enterprise.

Turning their backs on the world  THE economic meltdown has popularised a new term: deglobalisation. Some critics of capitalism seem happy about it—like Walden Bello, a Philippine economist, who can perhaps claim to have coined the word with his book, “Deglobalisation, Ideas for a New World Economy”. Britain’s prime minister, Gordon Brown, is among those who fear the results will be bad. But is globalisation really ending? The world’s economies are certainly slowing fast. And the speed and scale of this recession are raising doubts about the assumptions that had underpinned the drive to integrate world markets. At the end of 2008 the IMF said the world economy would grow 2.2% in 2009, less than half the rate in 2007. Now it thinks growth will be just 0.5% this year, the lowest for 60 years. Even that may be optimistic; in the last quarter of 2008, some economies shrank at annualised rates of over 10%. Nobody ever said globalisation had ended economic ups and downs, but this feels different: prima facie evidence of big problems at least, and possibly of the failure of globalisation to deliver many of its advertised benefits, especially to the poor. True, economic slowdown is not the same as deglobalisation. And the slowdown has yet to affect one thing. For years, poor countries have been growing faster than rich ones; so far, they still are. The gap between real GDP growth in emerging markets and in rich countries widened from nothing in 1991 to about five points in 2007—and, says the IMF, it will stay at 5.3 points in 2008 and 2009. Helping poorer countries catch up has long been among the benefits touted for globalisation. And yet the process is going into reverse. Globalisation means the global integration of the movement of goods, capital and jobs. Each of these processes is now in trouble. World trade has plunged. As recently as the first half of 2008, boosted by rising commodity prices and a falling dollar, trade was growing at an annualised 20% in dollar terms. In the second half of 2008, as commodities sagged and the dollar rose, growth slowed fast; by September, says the IMF, it was in reverse. In December, says the International Air Transport Association, air-cargo traffic (responsible for over a third of the value of the world’s traded goods) was down 23% on December 2007—almost double the fall in the year up to the end of September 2001, a result affected by the 9/11 terror attacks. The downturn has been sharpest in countries that opened up most to world trade, especially East Asia’s tigers.

Cognitive Disturbances

The spiral of ignorance  The tide has gone out and, with a very few exceptions, Britain is swimming naked: almost nobody appears to know what he is talking about. The havoc of the financial crisis has stretched and outstripped even most economists. The British political class is befogged. Ordinary people are overwhelmed. And just as the interaction between banking and economic woes is proving poisonous, so the interplay of public and political ignorance is damaging the country’s prospects. The truth is that hardly any MPs in any party have more than a rudimentary grasp of the crisis; indeed, their inability to track the City’s baroque excesses helped to foment it. (The intellectual background of MPs, few of whom have much training in economics or commerce, may contribute to this deficiency.) Vince Cable, the Liberal Democrats’ treasury spokesman, has the best record in Parliament of predicting and analysing the debacle—and precisely because he is so lucid, he seems increasingly to be regarded as an impartial pundit rather than a politician. Meanwhile, the bodies and advisers appointed by the politicians to do the understanding for them have been largely discredited. It is not only banking about which general knowledge seems poor: the same is true of the concept of money. The nasty little secret of the slump is that by overborrowing and making myopic investments, lots of ordinary Britons helped to bring their difficulties on themselves. Low levels of financial literacy (knowing the difference between an ISA and an iPod, and so on) are part of this problem. But so is the cowardly reluctance of politicians to say unpalatable things. The philosopher Bertrand Russell once remarked that he knew of only six people in the world who had followed his daunting book “Principia Mathematica” to the end. There sometimes seem to be almost as few people in Britain who truly understand the credit crunch and its recessionary consequences. The public is scared and uncertain; the politicians are panicky and confused. They are leading each other around and down a worrying spiral of ignorance.

Michael Steinhardt Conversation I had a conversation recently with an economist friend of mine. He said you should not believe that there is any relationship between the economics profession and predictions. I always thought that's what they were there to do. At least in part. If you look back to 2008, [Fed chairman Ben] Bernanke was so far off it's just plain embarrassing. Maybe if you're head of the Fed you're supposed to say things that don't make sense. The whole economics profession was so far off it was pathetic. What we are living with at the moment is a certain undercurrent of arrogance that does not sit well with the American people. The arrogance is the politicians, including the president, who in some sense is a tabula rasa. Here is a guy who has no experience in anything except maybe balancing a family budget. Maybe. Who is now threatening the country . . . maybe threatening is not the right word, but it sounds like threatening, with catastrophe if this stimulus package is not passed yesterday. There is a certain arrogance in the people around him who have just come into office who have abracadabra come up with a stimulus package in 2 ½ seconds. You're talking about an amount of money that is heretofore unheard of, thrown around in ways that don't make sense. These guys are saying that if we don't do anything in three weeks we're going to fall off a cliff. We've already fallen off a cliff.

"State of the Union" Reactions

Survey Reveals Broad Support for President President Obama is benefiting from remarkably high levels of optimism and confidence among Americans about his leadership, providing him with substantial political clout as he confronts the nation’s economic challenges and opposition from nearly all Republicans in Congress, according to the latest New York Times/CBS News poll. A majority of people surveyed in both parties said Mr. Obama was striving to work in a bipartisan way, but most faulted Republicans for their response to the president, saying the party had objected to the $787 billion economic stimulus plan for political reasons. Most said Mr. Obama should pursue the priorities he campaigned on, the poll found, rather than seek middle ground with Republicans. Mr. Obama will deliver his first address to Congress on Tuesday evening against a backdrop of deep economic anxiety among the public, with worries spanning party, class and regional divides. A majority of Americans, 55 percent, say they are just making ends meet, with more than 6 in 10 concerned that someone in their household might lose his job in the next year. Americans are under no illusions that the country’s problems will be resolved quickly, but the poll suggested that they will be patient when it comes to the economy, with most saying it would be years before significant improvement.  A month into Mr. Obama’s term, with his first big accomplishments, setbacks and political battles behind him, more than three-quarters of the people polled said they were optimistic about the next four years with him as president. Similar percentages said that they thought he was bringing real change to the way things were done in Washington and that they had confidence in his ability to make the right decisions about the economy. The aura of good will surrounding Mr. Obama at this stage of his presidency is similar to the one that benefited Ronald Reagan as he led the nation out of economic gloom. With a job approval rating of 63 percent, Mr. Obama is in a strong position to sell his economic policies. Yet the poll also captured skepticism about how effective his plans will prove to be in addressing the deep recession, as well as a strain of populism that could test his ability to retain public support for efforts to prop up key sectors of the economy.

President Reaches Out to Average Americans

 

 

Analysis: Obama address renews audacity to hope President Barack Obama gave America the audacity to hope again. After describing the U.S. economy in nearly apocalyptic terms for weeks, pushing his $787 billion stimulus plan through Congress, the president used his address to Congress on Tuesday night to tap the deep well of American optimism — the never-say-die spirit that every president tries to capture in words. And great presidents embody. "We will rebuild. We will recover, and the United States of America will emerge stronger than before," Obama said, echoing Franklin Delano Roosevelt and Ronald Reagan. "The answers to our problems don't lie beyond our reach," Obama said. "What is required now is for this country is to pull together, confront boldly the challenges we face, and take responsibility for our future once more." The themes of responsibility, accountability and, above all, national community rang throughout an address carefully balanced by the gravity of its times. Job losses. Home foreclosures. Credit crisis. Rising health care costs. Declining trust in government. Obama touched all those bases. Like Roosevelt, Obama asked Americans to unite against pessimism. "We are a nation that has seen promise amid peril, and claimed opportunity from ordeal," Obama said. "Now we must be that nation again." Like Roosevelt, Obama said his government had already provided the machinery to create jobs, improve access to health care, free up credit and help struggling homeowners. And, like Roosevelt, he challenged Americans to help fix the nation's woes. Obama even challenged his fellow citizens to recognize their role in creating the problem. "People bought homes they knew they couldn't afford," Obama said, "from banks and lenders who pushed those bad loans anyway." He was blunt but bullish on America. "None of this will come without cost, nor will it be easy," he said after spelling out his agenda. "But this is America. We don't do what's easy. We do what is necessary to move this country forward."

Analyzing Obama’s Speech to Congress

 

 

Posted by dblwyo at 03:46 PM | Permalink | Comments (0)

The big news from the last couple of weeks, at least domestically, is that we've succeeded in crafting and passing the largest peacetime suite of economics legislation in our history (the Stimulus Package plus the next round of TARP) with more to come as the other two legs of a 4-legged stool. Those being a Housing rescue package and a re-formulation of Financial Industry regulation. We also learned that the ME is not the only place where intransigent adherence to provably wrong shibboleths of policy, position and belief are rampant. Nonetheless the package is un-surpassed for size, scope, force and timeliness and as such gets a B+ on economics, an A- on politics and an A for pragmatic and realistic policy-making craftsmanship, admittedly grading on a curve. What do we mean by all that ?

Economic Policy to Date

First, make absolutely no mistake about it. This package is absolutely essential to saving the economy. We're in a very serious situation where the liklihood of a more pronounced downturn followed by a decade or better of Japanese Malaise is entirely possible. Further, the economy is unlikely to recover on it's own because the normal, organic self-correction mechanisms are broken. People and companies are, were and will be continuing to pull in their horns as the situation deteriorates; government is the ONLY possible source of the spending necessary to salvage things. Second, in a short-term view the notion that OMG it's spending is just utter and absolute nonsense, that in fact is the whole point. It doesn't matter if gov't employees steal everything and go to Vegas - it's still stimulative. Third, there are real tradeoffs between tax cuts (which are fast but don't give you much bang, direct spending which gives you a much better multiplier but is slower and investment, e.g. infrastructure, where you get the most bang but is much slower and complex. For example investment in new energy sources doesn't do much good if you haven't the power grid to move the new power. Fourth, given the spending if you can use some of it to both get high multipliers AND lay the foundations of downpayments in future improvements in the economy that's smart policy-making. Finally, this is a large, very complex under-taking for which the implementation mechanisms are lacking; as a result there's only so much spending you can do in certain timeframes and you need to build up your capabilities. You also need to get support and buyin. Taken all together the package is a very well-crafted balance among all these competing requirements, let alone in the time and with the ideological oppositions it faced. We've gone into some of this before (First Things: Financial Crisis, Economy and Barry) but if you'd like some more details try these more "technical" discussions (State of the World: Crisis Metastasis, Strains and Fault Line,Economy vs Earnings Cage Match: Outlook, Business Performance & Realities ???,Time, and Past to Play Bizzball: Economy to Business Performance).

 Let No. 1 Speak for Himself

If you don't entirely grasp the size and complexity of the package check out the accompanying graphic from the WaPo which shows how it's balanced across the major components and how those components break down across the various Departments and areas as well as across time. And if you think pulling that off in the timeframe with that good a design was an accident, or that all the talking heads echo-chamber discussions of how badly things were done is accurate here are some excerpts from the recent AFOne Chicago flight of an on-record interview with the President, again from the WaPo.

Obama Interview Transcript

1. Almost to a economist, there was a consensus that we needed a large stimulus package not as the silver bullet to solve our economic problems, but as a necessary component to solving our economic problems, and in terms of scope, that we were going to need something between $600 billion and $1.3 trillion. That was the range that was presented to us. There also was consensus among economists that the best approach to spending that much money and getting the stimulus out of it was to diversify a little bit, so have a tax cut component -- there was a generally strong feeling that tax cuts targeted at people who were most likely to spend would have the biggest impact; a state fiscal relief component, or a countercyclical spending component, so everything from -- food stamps to unemployment insurance -- again, stuff that would be spent out quickly and, in some cases, help prevent a worsening of layoffs and a spiral downward. And then a third component of infrastructure. Now, each of these components had pluses and minuses. For example, tax cuts, you can get them out quick, but the general view is that you don’t necessarily see a dollar of spending by consumers for every tax cut they receive. Infrastructure, you get probably the biggest multiplier effect -- for every dollar you spend you might get $1.5 worth of demand out there, but necessarily you can’t get all those infrastructure projects done within a two-year time frame and the start-ups may be longer. So our whole goal was to provide a framework for Congress that presented the best mix based on the best available information that we’d gotten. I raise this because I think that some of the critics ended up fastening on this pet project or this program that they suggested was not stimulative; in fact, it would be hard to find economists who would argue that the guts of the program, the core of what just passed the House and hopefully will pass the Senate while we’re in the air or shortly after we land is not pretty well designed to get the economy moving again. And one last point -- one last goal that we set out, and that was if we were going to spend this much money, our number one priority being to get jobs in place and to get the economy moving again, wouldn’t it also be helpful for us to make sure that we laid some made -- that we made an investment in longterm economic growth -- that we put a down payment on things that have been deferred for too long?

2. Now, in terms of what I’ve learned on the politics of it, I think what I’ve learned is that I’ve got a great team because we moved a very big piece of legislation through Congress in record time. And that was not easy to do. And I think the end product is not a hundred percent of what we would want, but it is a very good start on moving things forward. I made every effort to reach out to Republicans early to get their input and to get they buy-in. I think that there were some senators and House members who have a sincere philosophical difference with the idea of any government role in boosting demand in the economy. They don’t believe in Keynes and they’re still fighting FDR. And no matter what we did, said, whatever the process was, they just don’t agree that this is the best prescription. And I think we can disagree without being disagreeable on that front. I also think that there was a decision made that was political and tactical on their part where they said, you know what, if we can enforce conformity among our ranks then it will invigorate our base and will potentially give us some political advantage, either short term or long term. And whether that’s a smart strategy, I think you should ask them. The last point I would make, though, is that given the urgency of the situation right now, my consistent goal throughout this process is: Are we getting the most immediate, most effective relief possible to American families who are losing their jobs, losing their homes, losing their health care? I welcome Republican participation in that process, but ultimately I’m answerable to the American people. And my determination was to get it done, and I think that we’re going to get it done.

3. Look, I mean, the fact of the matter is, is that once a decision was made by the Republican leadership to have a party-line vote -- a decision that I think occurred before I met with them -- then I’m not sure that there was a whole host of things that we were going to do that was going to make a difference. But again, my bottom line was not how pretty the process was; my bottom line was am I getting help to people who need it. Going forward, each and every time we’ve got an initiative I’m going to go to both Democrats and Republicans and I’m going to say, here’s my best argument for why we need to do this. I want to listen to your counter-arguments; if you’ve got better ideas, present them. We will incorporate them into any plans that we make, and we are willing to compromise on certain issues that are important to one side or the other in order to get stuff done. There are 535 members of Congress; they’re not potted plants. Their job is to represent their constituents and they’ve got ideas, too. So I’m not interested in bulldozing them. On the other hand, I’m answerable to the American people in an emergency economy. And what I won’t do is to engage in Washington tit-for-tat politics and spend a lot of time worrying about those games to the detriment of getting programs in place that are going to help people. : Well, look, as I said, I don’t want to question the sincerity of some of the Republicans who opposed this plan. They just may have a different theory about how the economy works. Now, I have to say that given that they were running the show for a pretty long time prior to me getting there and that their theory was tested pretty thoroughly and it’s landed us in the situation where we’ve got over a trillion dollars’ worth of debt and the biggest economic crisis since the Great Depression, I think I have a better argument in terms of economic thinking. But, again, I don’t question their sincerity. I do think that over time, as we keep on reaching out, and as I think the American people express their view that we need to start actually doing something about jobs, housing, health care, education, and so forth, that there will be some counterveiling pressures to work in a more constructive way.

4.I don’t have a crystal ball, and I don’t think anybody does, but I think that you can imagine very easily a scenario in which we duplicate what happened in Japan in the ‘90s, where we paper over core problems in the banking system. Despite some efforts at stimulus, we never fully get private credit flowing again, and the economy contracts severely and then sort of limps along for a very long period of time. Keep in mind, though, that even in that scenario, Japan had an awful lot of foreign currency reserves, they had a surplus from a positive trade balance. And the United States was pulling a world economy along. In this situation you’ve got all the economies around the world, even including China, decelerating at a fairly rapid rate. So if what happened in Japan is duplicated here in the United States, there’s nobody else to help drive the engine of growth, you could end up seeing an even more protracted and prolonged worldwide contraction. And I think that would have a severe impact on our quality of life. Let me, first of all, emphasize that the recovery package was critical to help families right now. Unemployment insurance extensions, health care through a COBRA that’s affordable, some immediate job creation -- those are very important. That’s only one leg of the stool. As I said in my press conference, the second leg of the stool is getting credit flowing again. And what the first round of TARP accomplished was to avert potential -- I hate to use the word again, but potential catastrophe in the banking system. I mean, things could have melted down much worse. Because of a lack of clarity, consistency, transparency, what you didn’t see was a market rebound and credit moving the way it needs to. So the credit markets still are not functioning the way they should. Now, this is a hard problem, and that’s why I said, I think on Nightline the day that Tim Geithner spoke, there are certain market participants who think that there’s some painless, quick fix here. There isn’t. Because what happened was that you had banks making bets, leveraging $30 off of one dollar of subprime assets; that was duplicated throughout the system, and deleveraging, sort of working through all those bad debts is going to be really tough. Now, we started talking about this, by the way, in transition as well, and so along parallel tracks, even as we were working on getting the recovery package done, we were also talking about how do we get credit flowing to home owners; how do we make sure that we’re getting small businesses the resources they need; how do we make sure the banks trust each other in terms of lending, and even blue-chip companies are able to shed corporate debt, so they can make payroll and keep people working. 

 Bottomline Assessments

 Think of this as the New Coke marketing paradigm - even if you screw up you gain because you've ranged and bracketed the opportunity.
 
1. Barry reached out to everybody and included major chunks in the plan strictly for compromise, that is the tax cuts, which we know are NOT that efficacious in this regime.
 
2. He and his team guided things in the background but rested the primary responsibility for Congress and let them do their thing.
 
In both cases we learned they aren't up to the task, still thinking in old patterns and (especially the Rips) reverting to old posturings and shibboleths; the talk show appearances sounded just like Newt the Grinch's playbook from the mid-'90s on perjorative labeling to trigger the lizard brain. McCain did too. And btw it was the same rhetoric that lost the election for him.
 
So what did Barry do so far...he
 
3. Kept his cool, didn't get trapped into we said/you said, and pointed out it takes time to change people's habits thought, especially when they're burned into the deepest levels of their lizard brains.
 
4. At the same time in the press conference and at Elkhart he fired several major warning shots that said he can't afford to tolerate to much childish behavior before being forced to get out the leather strap.
 
Chess master indeed. And playing not just for the Opening or to set up the Middle Game but begin to set up the positional game for the long-run. And AT THE SAME TIME taking a very long, patient and balanced view of how you work in the short-term but play to change the tone without getting trapped in the emotionalisms and posturings. Unlike almost everybody else in the game.

We'll see in that short-run how the messaging and positioning works out - that one he may have lost by losing some of the skirmishes but this battle isn't over. Let along the campaign. In fact if you'd like a baseball analogy much of the critiscisms have been about the base-running and sliding while ignoring the hits, runs and errors, let alone the season or the balance of forces. As it happens less than 1% of the bill is characterizable as "Pork" but the Rips played the old pejoration labeling games invented by Newt the Grinch to go after Clinton that have since dominated political discord, oops, I mean discourse, in this country. For a prior dissection of Lizardbrain vs Substantive communications see this (Rope-a-Dope at Hofstra: Handicapping the Debate and Results) and then compare it to the Meet the Press vidclip. Better yet compare that vidclip to this book talk by psychologist Drew Westen and look for the labeling vs non-labeling appeals to the lizard-brain.

IOHO they've made major strategic and tactical blunders for narrow partisan advantages that may in fact be cynically self-serving, with an admixture of sincere disagreements (despite all evidence to the contrary over almost thiry years of Supply Side debates). In any case listen to the posturings on some of the vidclips in the readings (of which there is a whole......le bunch covering the spectrums of political, policy and posturings concerns). Or check out this series that provides a window on how well they sold the PorkFest Messages.

Video Clips

The Punditry Opines: Rose Interviews

• A conversation with David Brooks
• President Obama’s week in review

The Politicians Pontificate and Posture

• Netcast As the economic crisis worsens, can Democrats and Republicans in Washington find common ground on the stimulus package and a bank rescue plan? Our panel of key lawmakers weighs in: Sen. John Ensign (R-NV), Rep. Barney Frank (D-MA), Sen. Claire McCaskill (D-MO), and Rep. Mike Pence (R-IN).
• FTN: McCain: Stimulus Bill "Generational Theft" Senator John McCain said he could not support the stimulus package heading towards a Senate vote this week because of the debt it would create for America

The President On the High Ground

• Pres. Obama Holds First Press Conference Out of the 13 questions reporters asked Pres. Obama tonight during his first Presidential Press Conference, 7 of them dealt with the economy and his stimulus package. Earlier in the day, the President spoke about his plan at a Town Hall meeting in Elkhart, IN.
• Town Hall in Elkhart, IN (2/9) 
• Live coverage of President Obama's address Live coverage of President Obama's address with Jackie Calmes, Floyd Norris, David Leonhardt, Andrew Ross Sorkin, Joe Nocera and Peter Baker

Politics

Obama on Defense as Daschle Withdraws Former Sen. Tom Daschle withdrew his nomination as secretary of Health and Human Services after a mounting debate over his back taxes and a lucrative stint in the private sector -- dealing a political setback to the fledgling Obama administration. One of President Barack Obama's closest political confidants and early mentors, Mr. Daschle had been tapped to spearhead the effort to overhaul the nation's health-care system. But concerns arising from Mr. Daschle's failure to pay more than $100,000 in taxes on time, coupled with tax problems involving two other cabinet nominees, threatened both the administration's health-care agenda and the credibility of Mr. Obama's pledge to raise the ethical standards of Washington. Mr. Daschle's sudden withdrawal came two weeks to the day after Mr. Obama took office, and 24 hours after the president told reporters that he "absolutely" stood by his nominee. The abrupt move stands to potentially dent the reputation for steadiness and managerial prowess that the 47-year-old president had cultivated over a smoothly run campaign and a transition to power that boasted of a swift vetting and nomination of top aides. In a broadcast interview Tuesday night, Mr. Obama admitted to mistakes in handling the Daschle matter. "I'm here on television saying I screwed up and that's part of the era of responsibility," he told NBC News. "Ultimately it's important for this administration to send a message that there aren't two sets of rules. You know, one for prominent people and one for ordinary folks who have to pay their taxes." The president added that he is "frustrated with myself, with our team," but said, "ultimately my job is to get this thing back on track." Mr. Daschle said he made his decision after concluding that he couldn't be effective in the post. "This work will require a leader who can operate with the full faith of Congress and the American people, and without distraction. Right now, I am not that leader," he said in a statement. The impact of his decision could be felt for some time, as the White House presses for an ambitious health-care overhaul without Mr. Daschle, who was widely seen as ideally suited to lead the effort.

• Exits Let Obama Cut His Losses Before Storm Worsens
• Obama Interview Excerpts, Chuck Todd on Daschle’s Distraction,

The Note, 2/3/09: Soft Middle -- Obama seeks to reset debate, but centrists control stimulus’ fate

Maybe this is post-partisanship at work -- but somehow we feel like we’ve seen this play out before: Sixty is the new 80.The stimulus package -- combined with Cabinet woes, and a few flexible pledges -- have brought a presidency that seeks to soar down to solid ground. As Obama fans out to the networks -- including a sit-down with ABC’s Charles Gibson, to air on “World News” Tuesday -- he needs to re-set the terms of the stimulus debate. Team Obama lost the early battle to define the bill -- which has become a pork-stuffed monstrosity, instead of economic salvation wrapped in legislation. That’s where Senate centrists come in. The loose coalition of lawmakers that are scrubbing the measure with an eye on offering joint amendments -- being led by Sen. Ben Nelson, D-Neb., and Sen. Susan Collins, R-Maine -- are quickly becoming the group to watch. They have the votes to exert their will, and that means sorting out spin from reality (or at least their take on it) on a measure that’s easy to hate for its scope, and maybe easier to mock for its specifics. ABC’s George Stephanopoulos: “President Obama isn't going to get the 80 votes in the Senate that he originally wanted on the stimulus bill. The president is starting to agree to changes in the bill, taking out some of the more unpopular spending and increasing some tax credits.”  “There's a group of centrist Democrats and Republicans in the Senate who are working now on amendments that might increase infrastructure spending, do more for housing, and, perhaps, bring down the overall cost to the bill,” he adds.  “The fix is in,” write Roll Call’s Emily Pierce and Keith Koffler. “Stung by GOP -- and even some Democratic -- criticism of their so-called economic recovery behemoth, Senate Democrats and the White House are scrambling to repair the package so that it might appeal to Republicans and actually stimulate the economy before October 2010. But before it gets better, it’s likely to look a whole lot worse, as the Senate appears set to add tens of billions of dollars more to the already $888 billion measure this week.” Out of necessity, taking on his own party: “Two Democratic sources with knowledge of the meeting [at the White House] said the president took a blunt tone with the lawmakers, urging them to drop whatever needs to be cut from the bill to gain bipartisan support and to pass Congress soon,” Michael D. Shear and Shailagh Murray report in The Washington Post. “One source said Obama appeared to be frustrated by the public perception that the recovery bill was becoming laden with partisan pet projects.”

The Gang System Barack Obama is a potentially transformational figure. In political style and intellectual outlook, he is unlike anything that has come before. On matters of policy substance, however, he’s been pretty conventional. The policies he offered during the campaign matched those of just about every other Democrat. So an important question for the Obama presidency is this: Will his transformational style eventually lead to transformational policies, or will his conventional policies eventually force him to shelve his transformational style? In the first major episode of his administration, the stimulus package, the conventional policies so far have won. The Obama administration sent a series of stimulus principles to Capitol Hill and allowed the Old Bulls in the House and Senate to write legislation. They produced sprawling bills that gathered dozens of traditional liberal ideas. The resulting bills would have been no different if Nancy Pelosi had been elected president, or Harry Reid, or any other conventional Democrat. The substance of the legislation set up the polarized debate that followed. On Thursday, moderate unease translated into political action. Forty-nine moderate Democrats in the House belatedly signed a letter calling for cuts in the package, and protested the way they had been trampled by the Democratic leadership. Over in the Senate, a gang of roughly 20 moderates, led by Republican Susan Collins and Democrat Ben Nelson, huddled in the Dirksen Building to cut and focus the stimulus bill. They talked of trimming $90 billion or more. The big news here is that there are many Democrats who don’t want to move in a conventional liberal direction and there some Republicans willing to work with them to create a functioning center. These moderates — who are not a party, but a gang — seemed willing to seize control of legislation from the party leaders. They separated themselves from both the left and right. What we’re seeing may be the formation of a regular gang system. In the past, moderate gangs — like the judicial Gang of 14 — have appeared or disappeared depending on the issue. But exploding federal deficits are a galvanizing issue for those in the center. Concern over these deficits will influence every piece of domestic legislation. In the coming weeks and months, there will be housing legislation, another round of TARP bailouts, the budget debate, the health care and entitlement debates. In each case, the Moderate Gangs will occupy the crucial ground, even if the Democrats do wind up with 60 Senate votes.

• The Note, 2/6/09: Buying Partisanship -- Will Obama continue partisan push -- or embrace the center?

Finding His Inner Eastwood The Marine Corps’ 1st Division has a macho motto: “No Better Friend. No Worse Enemy.” President Barack Obama could use a little of that Clint Eastwood-style bravura now as he bargains with Republicans over the stimulus package and tries to establish momentum and credibility for his new administration. Obama needs to make Washington politicians fear that if they cross him, they’ll pay a penalty. That’s the essence of political power -- the ability to help your friends and punish your enemies (or, to put it politely, those who obstruct your efforts to do the public’s business). All successful presidents have had this ability to inspire respect; most unsuccessful presidents have lacked it. I have been a fan of Obama’s efforts to create a post-partisan politics that ends Washington’s business-as-usual. But I noted in a column last month: “It's an admirable strategy but also a high-risk one, since the ‘center,’ however attractive it may be in principle, is often a nebulous political never-never land…. it remains an open question whether the Republicans will do more than applaud politely when Obama asks for help.” As it turns out, the GOP isn’t even bothering to clap. You’d have to say that these first weeks of Obama Nation haven’t gone too well. The stimulus package provided an early test of Obama’s ability to work across partisan lines and do the people’s business. But Republicans challenged the president’s economic policies and seized the initiative from him. Then there was the series of messy tax problems for Obama nominees -- Tim Geithner, Tom Daschle, Nancy Killefer and Hilda Solis. It looked like business as usual. And it undermined the core of the message that got Obama elected. As the president thinks about how to regain momentum, he should study the example of Bob Gates. Gates established himself as a forceful secretary of defense by, to put it simply, scaring people. He fired the secretaries of the Army and Air Force for ignoring the seriousness of problems in their domains. And from that moment on he had the power to make changes that were needed.

The Action Americans Need By now, it's clear to everyone that we have inherited an economic crisis as deep and dire as any since the days of the Great Depression. Millions of jobs that Americans relied on just a year ago are gone; millions more of the nest eggs families worked so hard to build have vanished. People everywhere are worried about what tomorrow will bring. What Americans expect from Washington is action that matches the urgency they feel in their daily lives -- action that's swift, bold and wise enough for us to climb out of this crisis. Because each day we wait to begin the work of turning our economy around, more people lose their jobs, their savings and their homes. And if nothing is done, this recession might linger for years. Our economy will lose 5 million more jobs. Unemployment will approach double digits. Our nation will sink deeper into a crisis that, at some point, we may not be able to reverse.That's why I feel such a sense of urgency about the recovery plan before Congress. In recent days, there have been misguided criticisms of this plan that echo the failed theories that helped lead us into this crisis -- the notion that tax cuts alone will solve all our problems; that we can meet our enormous tests with half-steps and piecemeal measures; that we can ignore fundamental challenges such as energy independence and the high cost of health care and still expect our economy and our country to thrive. I reject these theories, and so did the American people when they went to the polls in November and voted resoundingly for change. They know that we have tried it those ways for too long. And because we have, our health-care costs still rise faster than inflation. Our dependence on foreign oil still threatens our economy and our security. Our children still study in schools that put them at a disadvantage. We've seen the tragic consequences when our bridges crumble and our levees fail. Every day, our economy gets sicker -- and the time for a remedy that puts Americans back to work, jump-starts our economy and invests in lasting growth is now. Now is the time to protect health insurance for the more than 8 million Americans at risk of losing their coverage and to computerize the health-care records of every American within five years, saving billions of dollars and countless lives in the process.

• The Republicans' Opportunity

The Chess Master It was just a week ago that the bad-mouthing of Barack Obama seemed to be reaching a fever pitch. The president was taking heat for the tax problems of Tom Daschle, Timothy Geithner and other appointees and nominees. Liberal supporters of the president were upset that he was making such a high-profile effort to get Republicans to climb aboard his stimulus package bandwagon. Self-styled middle-of-the-roaders were snarling that Mr. Obama was not doing enough bipartisan outreach, even as Republicans on Capitol Hill were attacking his economic package with the kind of venom usually reserved for the handiwork of Satan. Mr. Obama was called a hypocrite, dismissed as both craven and politically naïve and taken to task for being too much in the public eye. After making every effort — and failing — to generate significant G.O.P. support for the stimulus package, the president ratcheted up his rhetoric, pointing to the stunning job losses in January and sharply criticizing the Republicans’ obstructionist tactics. There is always a tendency to underestimate Barack Obama. We are inclined in the news media to hyperventilate over every political or policy setback, no matter how silly or insignificant, while Mr. Obama has shown again and again that he takes a longer view. There was no way, for example, that the Daschle flap was going to derail the forward march of a man who had survived the Rev. Jeremiah Wright fiasco. It’s early, but there are signs that Mr. Obama may be the kind of president who is incomprehensible to the cynics among us — one who is responsible and mature, who is concerned not just with the short-term political realities but also the long-term policy implications. The simple truth is that most Republican politicians would like Mr. Obama to fail because that is their ticket to a quick return to power. I think the president is a more formidable opponent than they realize. Mr. Obama is like a championship chess player, always several moves ahead of friend and foe alike. He’s smart, deft, elegant and subtle. While Lindsey Graham was behaving like a 6-year-old on the Senate floor and Pete Sessions was studying passages in his Taliban handbook, Mr. Obama and his aides were assessing what’s achievable in terms of stimulus legislation and how best to get there.

Emanuel: Team Lost Message on Stimulus  White House Chief of Staff Rahm Emanuel conceded President Barack Obama and his team lost control of the message for selling their massive stimulus bill last week, fixating on bipartisanship while Republicans were savaging the legislation. But in a wide ranging interview with reporters, Mr. Emanuel said the president's travels across the country this week have shored up support for the $789 billion measure. He strongly defended the young Obama administration against charges that its opening weeks have been amateurish and mistake-prone. In three weeks, the president has secured what Mr. Emanuel called the most sweeping single piece of economic legislation ever, extended health insurance to 11 million children, righted a clear wrong by making it easier for women to sue for wage discrimination, and reoriented U.S. foreign and environmental policy with his orders to close the prison at Guantanamo Bay, Cuba, end torture, and allow states to pursue higher fuel economy standards to combat climate change.There will be days that will have setbacks. There will be days that will have disappointments, he said. But as long as were moving forward, the White House is moving in the right direction. Speaking volubly about the stimulus package, Mr. Emanuel offered new details about the White House's involvement in bringing the legislation to the brink of passage. The framework for the bill was set at a Dec. 12 meeting during the transition, he said, but White House aides decided against drafting a detailed proposal. That decision has elicited criticism from Republicans and some Democrats who said it allowed members of Congress to bulk up the measure with extraneous provisions of questionable economic value.

Jeb Bush: Republicans Must Be a National Party So are Republicans, Mr. Bush believes. But with a few adjustments, the GOP can become a modern reform party. "I don't think there's anything that holds us back," he says. "I think we're actually well positioned to do exactly that." Mr. Bush would stand the party on its head by de-emphasizing Washington and mounting "a real effort to play offense outside of Washington in advancing a reform agenda. I think a respectful, policy-oriented opposition in Washington will be quite effective." But the states are where "being able to change things is easier to do." This approach "worked in the early 90s," Mr. Bush says. "We had some fantastic governors who were my role models." He mentions his brother when he led Texas, John Engler of Michigan and Tommy Thompson of Wisconsin. "We had an all-star team." He likes the current crop of Republican governors, including Mark Sanford of South Carolina and Haley Barbour of Mississippi. "Beyond the ideas and all of that," Mr. Bush says the GOP must be a national party. That means "we need to be competitive in California," where the "burden of big-government policies" has produced a $42 billion deficit. "I don't care how big the state is, that's mind-boggling. It's not a tax problem. Don't they have the 'excuse me for living' tax out there? The growth of government spending has been enormous. And a creative, reform-minded candidate on the Republican side" could be elected governor.

Rebranding Government: It's Time Politicians Stopped Running For or Against Government and Started Running it Well For thirty years, Americans have absorbed the well-branded mantra of Ronald Reagan: Government is the problem, not the solution. They have absorbed it so well that it has literally become part of the fabric of their--and our--brains. "Government" is unconsciously associated with bureaucracy, failed programs, inefficiency, waste, socialism, and all kinds of words, concepts, and images that are in turn associated with negative emotions for the average American. Neuroscientists have demonstrated that repeatedly pairing one word or idea with another leads to changes in both the connections among neurons in the brain that represent those ideas and the readiness of those neurons to fire together, so that even those of us on the left do not realize that concepts like "bureaucracy" and "waste" are triggered unconsciously in our brains when someone mentions government. The effectiveness of the conservative branding campaign on "government" is in fact a central reason we are in the economic mess we are in today. The notion that government is an evil--among some voters a necessary one, but among most voters an evil nonetheless--is what led Democrats to remain silent for much of the last eight years as George W. Bush turned record surpluses into record deficits in the name of scaling back government intrusion; weakened or eliminated regulations that had been in place for decades to protect American consumers, homeowners, retirees, and people saving for their retirement or their kids' college education; and failed to regulate new threats that were as preventable as they were foreseeable, such as unregulated commerce in "commodities" most people don't understand (e.g., derivatives) or putting too much money into risky investments without enough capital to back it up if good-times loans were to go bad. And the effective branding of government as the problem is part of what has led, over three decades, to Democrats remaining relatively silent as our infrastructure crumbled because of their (well founded) fear that their conservative opponents in the next election would attack them for their "tax-and-spend" profligacy. The result has been that we cut taxes to the wealthy and failed to invest in our future in times of relative prosperity, while creating the conditions that will require nothing short of massive government deficit spending, extraordinary governance, and a lot of luck to get us out of an economy that is still in free-fall.

• Change vs. Bipartisanship: What Happens When You Throw a Bipartisan Party and Half the Guest List Stays Home?
• Why Judd Gregg's Change of Heart Was a Birthday Present to Lincoln's Protégé

Economy and Economic Policy

US Economic & Interest Rate Outlook (NT) As we mentioned, the current economic environment is bleak. As shown in the attached Table 1, we are forecasting that real GDP will contract at an annual rate of nearly 5% in both last year’s fourth quarter and this year’s first quarter. Private domestic demand has collapsed – spending for personal consumption, residential investment and business equipment. With the U.S. recession having spread to the rest of the world, even demand for U.S. exports is now contracting. Businesses are desperate to reduce their inventories. With Detroit, for all intents and purposes, shut down for the month of January, business inventories will crater even more in the first quarter. With office, retail mall and hotel vacancies rising and with credit to finance commercial building all but dried up, the last domino to fall will be nonresidential construction expenditures. Chart 1 shows the history of annual average percent changes in real GDP and real personal consumption expenditures (PCE) from 1947 through 2007 along with our forecasts for 2008 and 2009. As you can see, we are forecasting for 2009 the largest percentage contractions in these two measures, minus 2.5% for real GDP and minus 2.0% for real PCE, during this time span. So, no sugar coating – this recession is likely to be the most severe in the post-WWII era. slowdown/downturn? Massive federal spending funded by the Federal Reserve and the banking system. The Obama administration and Congress are in the process of developing a two-year fiscal stimulus package that at last, but likely not the final, count totals $825 billion. This fiscal stimulus program will include all things to all people – traditional and non-traditional infrastructure spending, aid to state and local governments, expansion of food stamp and unemployment insurance programs, and tax cuts for households and businesses. This massive federal spending and tax cut program will be financed by issuing additional federal debt. Who is likely to purchase this debt? The Federal Reserve and the banking system.

• Is The Bailout Working?

A Stimulus Plan With Dual Goals: Reform and Recovery As President Obama and Congress barrel toward the latest emergency program to resuscitate the American economy, one question is looming over their search for a cure: Can the government fashion a fast and efficient economic stimulus while also seizing the moment to remake America? For now, Mr. Obama and his aides are insisting they can accomplish both goals, following their mantra of using the urgency of the economic crisis to accomplish larger — and long-delayed — reforms that never garnered sufficient votes in ordinary times. In fact, at various times in American history, moments like this one have been used for big programs, from integrating the armed forces to creating Social Security and, later, Medicare. So it is little wonder that everyone with a big, stalled, transformative project — green energy programs, broadband networks that reach into rural America, health insurance for the newly unemployed or uninsured — is citing the precedent of Franklin D. Roosevelt, and declaring that a new New Deal is overdue. But the question that the Senate will begin debating Monday is whether grand ambitions are getting in the way of pulling the country out of a nose dive. And so for every comparison of this moment to F.D.R.’s first hundred days, there are warnings that much of his social experimentation did not have a big impact on America’s economic recovery, which took years.

• Time to Steer 'Forceful Course' for Stimulus
• Do Tax Rebates Work? - Economix Blog
• The Big Fix - Can Barack Obama Really Transform the U.S. Economy ...

On the Edge A not-so-funny thing happened on the way to economic recovery. Over the last two weeks, what should have been a deadly serious debate about how to save an economy in desperate straits turned, instead, into hackneyed political theater, with Republicans spouting all the old clichés about wasteful government spending and the wonders of tax cuts. It’s as if the dismal economic failure of the last eight years never happened — yet Democrats have, incredibly, been on the defensive. Even if a major stimulus bill does pass the Senate, there’s a real risk that important parts of the original plan, especially aid to state and local governments, will have been emasculated. Somehow, Washington has lost any sense of what’s at stake — of the reality that we may well be falling into an economic abyss, and that if we do, it will be very hard to get out again.It’s hard to exaggerate how much economic trouble we’re in. The crisis began with housing, but the implosion of the Bush-era housing bubble has set economic dominoes falling not just in the United States, but around the world.

• Getting Tough in Washington

Recession Can Change a Way of Life AS job losses mount and bailout costs run into the trillions, the social costs of the economic downturn become clearer. The primary question, to be sure, is what can be done to shorten or alleviate these bad times. But there is also a broader set of questions about how this downturn is changing our lives, in ways beyond strict economics. All recessions have cultural and social effects, but in major downturns the changes can be profound. The Great Depression, for example, may be regarded as a social and cultural era as well as an economic one. And the current crisis is also likely to enact changes in various areas, from our entertainment habits to our health. First, consider entertainment. Many studies have shown that when a job is harder to find or less lucrative, people spend more time on self-improvement and relatively inexpensive amusements. During the Depression of the 1930s, that meant listening to the radio and playing parlor and board games, sometimes in lieu of a glamorous night on the town. These stay-at-home tendencies persisted through at least the 1950s. In today’s recession, we can also expect to turn to less expensive activities — and maybe to keep those habits for years. They may take the form of greater interest in free content on the Internet and the simple pleasures of a daily walk, instead of expensive vacations and N.B.A. box seats. In any recession, the poor suffer the most pain. But in cultural influence, it may well be the rich who lose the most in the current crisis. This downturn is bringing a larger-than-usual decline in consumption by the wealthy. Popular culture’s catering to the wealthy may also decline in this downturn. We can expect a shift away from the lionizing of fancy restaurants, for example, and toward more use of public libraries. Such changes tend to occur in downturns, but this time they may be especially pronounced. Recessions and depressions, of course, are not good for mental health. But it is less widely known that in the United States and other affluent countries, physical health seems to improve, on average, during a downturn. When all is said and done, something terrible has happened in the United States economy, and no one should wish for such an event. But a deeper look at the downturn, and the social changes it is bringing, shows a more complex picture. In addition to trying to get out of the recession — our first priority — many of us will be making do with less and relying more on ourselves and our families. The social changes may well be the next big story of this recession.

• The Recession. Isn’t It Romantic?

Futures and Adaptations

Is 'Octomom' America's Future? A moment last Monday, just after noon, in Manhattan. It's slightly overcast, not cold, a good day for walking. I'm in the 90s on Fifth heading south, enjoying the broad avenue, the trees, the wide cobblestone walkway that rings Central Park. Suddenly I realize: Something's odd here. Something's strange. It's quiet. I can hear each car go by. The traffic's not an indistinct roar. The sidewalks aren't full, as they normally are. It's like a holiday, but it's not, it's the middle of a business day in February. I thought back to two weeks before when a friend and I zoomed down Park Avenue at evening rush hour in what should have been bumper-to-bumper traffic. This is New York five months into hard times. One senses it, for the first time: a shift in energy. Something new has taken hold, a new air of peace, perhaps, or tentativeness. The old hustle and bustle, the wild and daily assertion of dynamism, is calmed. A major reason people are blue about the future is not the stores, not the Treasury secretary, not everyone digging in. It is those things, but it's more than that, and deeper. It's Sully and Suleman, the pilot and "Octomom," the two great stories that are twinned with the era. Sully, the airline captain who saved 155 lives by landing that plane just right—level wings, nose up, tail down, plant that baby, get everyone out, get them counted, and then, at night, wonder what you could have done better. You know the reaction of the people of our country to Chesley B. Sullenberger III: They shake their heads, and tears come to their eyes. He is cool, modest, competent, tough in the good way. He's the only one who doesn't applaud Sully. He was just doing his job. This is why people are so moved: We're still making Sullys. We're still making those mythic Americans, those steely-eyed rocket men. Like Alan Shepard in the Mercury rocket: "Come on and light this candle." But Sully, 58, Air Force Academy '73, was shaped and formed by the old America, and educated in an ethos in which a certain style of manhood—of personhood—was held high. What we fear we're making more of these days is Nadya Suleman. The dizzy, selfish, self-dramatizing 33-year-old mother who had six small children and then a week ago eight more because, well, she always wanted a big family. "Suley" doubletalks with the best of them, she doubletalks with profound ease. She is like Blago without the charm. She had needs and took proactive steps to meet them, and those who don't approve are limited, which must be sad for them. She leaves anchorwomen slack-jawed: How do you rough up a woman who's still lactating? She seems aware of their predicament.

• After Curbing Enthusiasm, Obama Now Must Ease Anxiety

Obamanomics The fact that the economy grows — that it produces more goods and services one year than it did in the previous one — no longer ensures that most families will benefit from its growth. For the first time on record, an economic expansion seems to have ended without family income having risen substantially. Most families are still making less, after accounting for inflation, than they were in 2000. For these workers, roughly the bottom 60 percent of the income ladder, economic growth has become a theoretical concept rather than the wellspring of better medical care, a new car, a nicer house — a better life than their parents had. Americans have still been buying such things, but they have been doing so with debt. A big chunk of that debt will never be repaid, which is the most basic explanation for the financial crisis. Even after the crisis has passed, the larger problem of income stagnation will remain. It’s hardly the economy’s only serious problem either. There is also the slow unraveling of the employer-based health-insurance system and the fact that, come 2011, the baby boomers will start to turn 65, setting off an enormous rise in the government’s Medicare and Social Security obligations. Most of these problems aren’t immediate, which helps explain why they have gone unaddressed for so long. And the United States remains a fabulously prosperous country, relative to almost any other country, at any point in history. Yet Americans seem to realize that something has gone wrong. In recent polls, about 80 percent of respondents say the economy is in bad shape, and almost 70 percent say it’s going to get worse. Together, these answers make for the most downbeat assessment since at least the early 1980s, and underscore that the next president will be inheriting a set of domestic problems as serious as any the country has faced in a long time. To understand where Obama stands, you first have to know that, for 15 years, Democratic Party economics have been defined by a struggle that took place during the start of the Clinton administration. It was the battle of the Bobs. On one side was Clinton’s labor secretary and longtime friend, Bob Reich, who argued that the government should invest in roads, bridges, worker training and the like to stimulate the economy and help the middle class. On the other side was Bob Rubin, a former Goldman Sachs executive turned White House aide, who favored reducing the deficit to soothe the bond market, bring down interest rates and get the economy moving again. Clinton cast his lot with Rubin, and to this day the first question about any Democrat’s economic outlook is often where his heart lies, with Reich or Rubin, the left or the center, the government or the market. There is plenty of evidence that this synthesis isn’t merely a part of a candidate’s inevitable tack to the center for a general election. In Obama’s memoir, “Dreams From My Father,” he sympathetically recounts a conversation he had with a Kenyan farmer, in which the man complains both about rich people who won’t pay their fair share of taxes and about burdensome government regulations on coffee growing. In Obama’s second book, “The Audacity of Hope,” he goes further: “Reagan’s central insight — that the liberal welfare state had grown complacent and overly bureaucratic, with Democratic policy makers more obsessed with slicing the economic pie than with growing that pie — contained a good deal of truth.”

The Destructive Center Even if the original Obama plan — around $800 billion in stimulus, with a substantial fraction of that total given over to ineffective tax cuts — had been enacted, it wouldn’t have been enough to fill the looming hole in the U.S. economy, which the Congressional Budget Office estimates will amount to $2.9 trillion over the next three years. Yet the centrists did their best to make the plan weaker and worse. One of the best features of the original plan was aid to cash-strapped state governments, which would have provided a quick boost to the economy while preserving essential services. But the centrists insisted on a $40 billion cut in that spending. The original plan also included badly needed spending on school construction; $16 billion of that spending was cut. It included aid to the unemployed, especially help in maintaining health care — cut. Food stamps — cut. All in all, more than $80 billion was cut from the plan, with the great bulk of those cuts falling on precisely the measures that would do the most to reduce the depth and pain of this slump. On the other hand, the centrists were apparently just fine with one of the worst provisions in the Senate bill, a tax credit for home buyers. Dean Baker of the Center for Economic Policy Research calls this the “flip your house to your brother” provision: it will cost a lot of money while doing nothing to help the economy. All in all, the centrists’ insistence on comforting the comfortable while afflicting the afflicted will, if reflected in the final bill, lead to substantially lower employment and substantially more suffering. But how did this happen? I blame President Obama’s belief that he can transcend the partisan divide — a belief that warped his economic strategy. After all, many people expected Mr. Obama to come out with a really strong stimulus plan, reflecting both the economy’s dire straits and his own electoral mandate. Instead, however, he offered a plan that was clearly both too small and too heavily reliant on tax cuts. Why? Because he wanted the plan to have broad bipartisan support, and believed that it would. Not long ago administration strategists were talking about getting 80 or more votes in the Senate.

Next Steps: Make it So, No. 1

Spending More Than $800 Billion Is the Easy Part The easy part is coming to an end. Ask just about anyone in Washington involved in the $800-billion-plus economic stimulus legislation churning its way through Congress and they will tell you it is a milestone — but without question the less expensive, and politically and technically less chancy, part of the Great National Bailout of 2009. This week, President Obama and his Treasury secretary, Timothy F. Geithner, will prepare the country for the next, and far more difficult, step: another attempt to fill the huge hole blown in the center of the nation’s financial system. No one has yet put a price tag on that effort. But the administration’s diagnosis of what went wrong with the first attempt to right the financial system — that it was too small, and that the problem has ballooned in recent months — suggests that the next effort will almost certainly entail a far bigger commitment of taxpayer dollars than the $350 billion left from last year’s $700 billion effort to right the system, and probably far more than the stimulus package.At his first news conference, scheduled Monday evening, Mr. Obama is expected to argue that the nation’s recovery depends on simultaneously firing on three cylinders. The stimulus that the House and Senate are now hashing out is one, intended to help create or protect jobs by funneling money to individuals, companies and state and local governments. Unplugging the stoppage in the credit system that has kept consumers and businesses from borrowing the money they need, by shoring up shaky or failing banks, is the second part, and a vital one: offering a $15,000 tax credit to home buyers, administration officials argue, will not do much good if the buyers simply cannot get a mortgage. And the final part, which Mr. Obama is not expected to announce for days, involves spending billions of dollars more to prevent home foreclosures, for fear that the displacement and anger created by throwing people out of their homes, and putting more properties onto a glutted market, will create a psychological and financial death spiral. But while the president and his economic team had a playbook of sorts to follow when it came to the stimulus plan — since the Great Depression the federal government has been using big increases in spending and reductions in taxes to jolt the economy with varying degrees of effectiveness — the problems facing the financial system have no real parallels in scale or complexity.

Wanted: Personal Economic Trainers. Apply at Capitol. Let's review some of the more silly arguments about the stimulus bill, starting with the notion that "only" 75 percent of the money can be spent in the next two years, and the rest is therefore "wasted." As any economist will tell you, the economy tends to be forward-looking and emotional. So if businesses and households can see immediate benefits from a program while knowing that a bit more stimulus is on the way, they are likely to feel more confident that the recovery will be sustained. That confidence, in turn, will make them more likely to take the risk of buying big-ticket items now and investing in stocks or future ventures. Moreover, much of the money that can't be spent right away is for capital improvements such as building and maintaining schools, roads, bridges and sewer systems, or replacing equipment -- stuff we'd have to do eventually. So another way to think of this kind of spending is that we've simply moved it up to a time, to a point when doing it has important economic benefits and when the price will be less. Equally specious is the oft-heard complaint that even some of the immediate spending is not stimulative. What really irks so many Republicans, of course, is that all the stimulus money isn't being used to cut individual and business taxes, their cure-all for economic ailments, even though all the credible evidence is that tax cuts are only about half as stimulative as direct government spending. Many, including John McCain, lined up this week to support a proposal to make the sales tax and interest payments on any new car purchased over the next two years tax-deductible, along with a $15,000 tax credit on a home purchase. These tax credits make for great sound-bites and are music to the ears of politically active car salesmen and real estate brokers. Most economists, however, have warned that such credits will have limited impact at a time when house prices are still falling sharply and consumers are worried about their jobs and their shrinking retirement accounts. Even worse, they wind up wasting a lot of money because they give windfalls to millions of people who would have bought cars and houses anyway. What adds insults to injury, however, is that many of the senators who supported these tax breaks then turned around and opposed as "boondoggles" much more cost-effective proposals to stimulate auto and housing sales, such as having the government replace its current fleet of cars with hybrids or giving money to local housing authorities to buy up foreclosed properties for use as low-income rental housing.

Showing Some Discipline Geithner’s plan is huge but also disciplined. It’s designed by someone aware of government’s limitations. Geithner has been working the financial meltdown for a while. The basic lesson he has drawn is that the federal government has been too constrained. Occasionally, policy makers would step on the accelerator and bail out a bank, but then they’d step on the brake, worrying about moral hazard or inflation. It’s time to be heavier on the accelerator, he says: “It goes against the basic instincts of anybody who is understandably worried about using taxpayer money carefully, about moral hazard, about long-term credibility issues. But if you don’t do it now, the market will know you’re going to have to do it later.” Some economists leave the impression that the banking sector is a rotting corpse, hopelessly polluted by valueless toxic assets. Geithner takes a different view. He agrees that many bankers did things that are “reprehensible and deeply troubling.” But the big uncertainty is not inside the banks; it’s in the broader economic climate.“People are enormously uncertain about the depth of the recession,” Geithner says. “They’re enormously uncertain” about how their assets will perform in this environment. But this is not like the savings-and-loan crisis of the ’80s and ’90s, or like Sweden, where banks themselves were dead, he said, adding that we’re trying to repair “a system that is largely alive and will largely survive but is still burdened by systemic market failure, systemic uncertainty.” Therefore, Geithner argues, the government doesn’t need to go in and nationalize the banks. “It’s very important that we don’t look like there’s any intent of taking over or managing banks. Governments are terrible managers of bad assets. There’s no good history of governments doing that well.”

• Citing ‘Lost Faith’ in Banks Geithner to Push Bailout Geithner Outlines Overhaul of Bailout
• Big Lessons in Finance From a Little Bank You've Never Heard Of

The News Hour Economists panel - Krugman, Rogoff, Marron, Rivlin Part 1

The News Hour Economists panel - Krugman, Rogoff, Marron, Rivlin Part 2

Next Challenge on Stimulus: Spending All That Money Minnesota's Sage Electrochromics Inc. has been ready for months to move on just the sort of project the Obama administration hopes will bolster the U.S. economy: a $65 million factory that would make energy-saving windows and generate 250 new jobs. So what's holding it up? The Energy Department, whose fledgling loan-guarantee office has yet to approve a single project, including the proposed Sage glass factory, since the loan program launched in early 2007. President Barack Obama plans to rely heavily on agencies like the Energy Department to approve contracts and issue loan guarantees and grants at a record clip in the $789 billion stimulus plan. But there are signs that parts of the federal bureaucracy will need an overhaul to handle the huge workload heading their way. Such worries are apparent at the Energy Department, which will play a key role in Mr. Obama's bid to revive the economy and wean the country off oil. The stimulus bill nearing a final vote in Congress could pump as much as $170 billion into projects such as highways, Internet broadband and public-housing repairs. Of that, about a quarter -- or some $40 billion -- could go to the Energy Department. The agency would be under the gun to swiftly hand out money to projects that would modernize the electric grid, build electric cars and make homes and buildings more energy efficient. The new energy secretary, Steven Chu, has barely moved into his office overlooking the Smithsonian Castle. He says he'll have to transform how parts of his agency work if the president's stimulus plan is to succeed. "We've got to do it," Mr. Chu said in an interview. "Otherwise it's just going to be a bust." Other agencies face steep challenges, too. An obscure Commerce Department office with a $19 million budget and fewer than 20 grant officers could end up in charge of $7 billion in grants to expand Internet access in rural areas. A Congressional Budget Office report said it could take eight years for those grants to be issued because the amount of money would "far exceed" the agency's traditional budget and require the deployment of technology that is "not widely available today." The spending demands could prove particularly taxing at the DOE. The Energy Department has had limited experience pulling off big, transformative energy projects. Most of the department's $25 billion budget goes toward maintaining the nation's nuclear stockpile, cleaning up former weapons plants, and doing basic scientific research. Where the Money Goes

• Whatever You Think of It, the Package is Historic
• Amid Complaints, Stimulus May Benefit From Speed

Go Ahead and Save. Let the Government Spend. Government is in a far better position to provide immediate economic stimulus. It is in fact the only player that can significantly alter the economy’s short-run trajectory. In a recession, as in ordinary times, a family’s first economic priority should be to spend its income prudently. But even by mortgaging itself to the hilt (as many families have indeed already done during the recent national spending spree), no family could spend enough to affect the current downturn.  Nor is it reasonable to demand that individual businesses pick up the slack, since most of them already have more capacity than they currently need. At moments like these, government is the only actor with both the motivation and the ability to jump-start the economy. Passage of a robust stimulus bill has rightly been the Obama administration’s highest priority since taking office last month. As Keynes explained during the Great Depression, increased public spending would help end the downturn even if it were for useless activities like digging holes and filling them back up. It would obviously be better if the extra spending went for something useful. And as it happens, decades of infrastructure neglect, combined with huge state and local government budget shortfalls, provide more than enough valuable projects to put everyone back to work.  Bizarrely, however, some Congressional critics have denounced the administration’s stimulus proposals as “mere spending programs.” Of course they’re spending programs! More spending is exactly what we need. The imperative is to get this legislation passed and get the spending started right away.

Decade at Bernie’s Last week the Federal Reserve released the results of the latest Survey of Consumer Finances, a triennial report on the assets and liabilities of American households. The bottom line is that there has been basically no wealth creation at all since the turn of the millennium: the net worth of the average American household, adjusted for inflation, is lower now than it was in 2001. At one level this should come as no surprise. For most of the last decade America was a nation of borrowers and spenders, not savers. The personal savings rate dropped from 9 percent in the 1980s to 5 percent in the 1990s, to just 0.6 percent from 2005 to 2007, and household debt grew much faster than personal income. Why should we have expected our net worth to go up? Yet until very recently Americans believed they were getting richer, because they received statements saying that their houses and stock portfolios were appreciating in value faster than their debts were increasing. And if the belief of many Americans that they could count on capital gains forever sounds naïve, it’s worth remembering just how many influential voices — notably in right-leaning publications like The Wall Street Journal, Forbes and National Review — promoted that belief, and ridiculed those who worried about low savings and high levels of debt. If you want to see what it really takes to boot the economy out of a debt trap, look at the large public works program, otherwise known as World War II, that ended the Great Depression. The war didn’t just lead to full employment. It also led to rapidly rising incomes and substantial inflation, all with virtually no borrowing by the private sector. By 1945 the government’s debt had soared, but the ratio of private-sector debt to G.D.P. was only half what it had been in 1940. And this low level of private debt helped set the stage for the great postwar boom. Since nothing like that is on the table, or seems likely to get on the table any time soon, it will take years for families and firms to work off the debt they ran up so blithely. The odds are that the legacy of our time of illusion — our decade at Bernie’s — will be a long, painful slump.

Posted by dblwyo at 05:24 PM | Permalink | Comments (0)

Well we've been focused on the elections, the transition and policy issues for quite a while now - and we'll come back to them since those crisii will be with us for the foreseeable future. But while we've been wrapped up with our own problems (stocking up on food, ammo and water are we ?) the rest of the world hasn't gone away. In fact having listened to many of the Davos sessions anything but. The economies of the rest of the world are headed South farther and faster than the US's, their institutions are more fragile and the risks of backlash and increased dissent leading to socio-political disruption are some of the more serious risks we all face. And the consequences in this more closely-coupled world are immense (State of the World: Crisis Metastasis, Strains and Fault Line). All we need is one more good crisis that breaks the camel's backs. Oh, wait, we have a bunch. Not least of which is Gaze and the whole ME. A friend of mine used to talk about foreign problems and compare them to driving a large (old-style anyway) American car when you hit a deer: it happened far away and you never noticed. This time we'll notice. The cartoons capture the variety of responses which are beefed up in the readings. From Hamas intransigent dedication to violence at any price to the MAD aspects to the fundamental geo-political dilemma that faces Israel to the complexities. NO where of course has anybody expressed any sympathy for Israel. Just for the record 1) the IDF performed very well and took risks to minimize civilian casualties, 2) btw Hezbollah didn't act up because even at a C-level the IDF put a serious hurt on them in '06, 3) of the guestimated 1300 Palestinian casulaties ~ 600-800 were Hamas and 4) Israel was entirely compliant with the Laws of War. In fact according to the Geneva conventions they were free to level Gaza, which they didn't do, in pursuit of Hamas.

Complexities and Consequences

Unfortunately while their incursion was a tactical and operational success it may not have been a strategic, policy or political one given the impacts on world opinion (though btw the Arab street and governments were an enormous amount less harsh this time and put a lot of the onus on Hamas). Nonetheless Israel, which does public diplomacy as badly as anyone, did create a problem for itself. Here's one terrible strategic tradeoff that wasn't on the table because of their own anger, righteous and justified as it was: the attacks appeared disproportionate. What about accepting the truly ugly tradeoffs between domestic casualties (which are serious, especially if it's personal) and the very bad impact on their stature in the world ? We could discuss that for a long time but even more unfortunately that would require a clear path toward some sort of sustainable resolution, which isn't making an appearance. Why ?

Well consider the complexities, "simply" illustrated in the accompany graphic. We've all seen the headlines, if we're at all interested, but it wasn't until (at least for us) we realized what a convoluted rat maze this was, how inter-related everything is and how difficult because there is no single magic thread to unravel. Nor any Gordian knot to sever. What we've tried to do is show some of the links, each of which breaks down into several sub-components, and something of the relative influence of the various players. Each of them deserves to be addressed separately and in a sustained, serious and committed (=resources) way. We'll come back to that. At the same time it's not just the pieces - it's all the pieces taken all together as a moving system. Which means there needs to be a framework that ties each of the pieces into a coherent and cohesive whole. One small piece of good news is that one of the fallouts from Iraq is that we're now deeply involved in the ME. If you think back to prior US efforts they've never risen to the level of sustained national policy, which they need to this time and for a long time. One of the other things that jumped out at us was the influence of Iran. Back in the old days of the Cold War we've now discovered that Russian meddling was a major source of support that kept the "old" troubles boiling over. Now Iran has taken over that role. Something we need to figure out to degrade if not stop altogether.

And We Care Because

This is all just the exact opposite of altruism though. It is in our vital and fundamental national interest for a lot of reasons. Many of which are encapsulated in the accompanying chart. Take a look at this chart very carefully because in one "simple" picture it tells us many of the converging geo-political issues. The circles are sized by how much oil everyone's got (proven reserves) and the graph shows consumption vs production. Notice that the US has been conserving but reserves aren't increasing. On the other hand Russia's been pumping but reserves aren't increasing - largely because they've emasculated themselves with regard to investment in energy development and are mining their existing fields to exhaustion. The big kahunas are Saudia Arabia and some of the other Gulf States, along with Kazahkstan. BtW if you wonder why Central Asia is the center point of the world and Russia's trying to cause troubles their you go. Let's put this real pointedly - without ME oil the world economy collapses. (Oil Industry II(Analysis): LT Supply-Demand, Outlook and Disruptions, New (Old ?) Frontiers in the Oil Markets: the Return of Geo-Politics)

 The Other Shoe: the Coming Demographic Implosion

The other set of problems is that the populations of the Arab countries and Iran [ Rhetoric and Reality: The View from Iran] are skewed badly toward the young, populations are increasing extremely rapidly, the economies are in terrible shape (it's not unlikely that Iran's is on the verge of collapse, never mind demographics) and the level of unrest is either rising or likely to. [ ME Faultlines(Readings): Values, Culture & Conflict] This is all compounded by the fact that many of the governments are NOT effective and ARE unjust - which indicts their legitimacies and threatens their stabilities. [ Peace, Stability and Prosperity: the Nature of Good Government] Put that another way - this problem isn't going away, it's getting worse rapidly and in the foreseeable future (say 10-15 years ?) the risks of a major breakdown without economic progress and better governance are very high. And as the earlier graphic shows the major world players from the US to Europe to China, India and Russia are linked to all this. We either solve this or it will solve us...and alternative energy sources, which'll take two to three decades to develop, won't come online fast enough to offset these huge fault lines.  Much of this is represented in the graphic which shows various key players (population is the circle size) graphed by income/per person vs life expectancy. There's been serious progress on the latter, which worsens the demographics, and some but no where near enough on economic development.

What the Future May Hold: Negotiation vs Worst Alternatives

 There were several sessions at Davos on the ME and Gaza which were interesting, informative and perhaps productive...if a little pollyannish. The one you heard about in the headlines was the session where the President of Turkey stormed out. What the headlines didn't tell you is that it was at the very end of the sessions, after he'd had his say and after Peres had had his and he asked for extra time to make more comments. In which he was a) repeating himself, b) insulting and c) very emotional. As he and the other speakers were. In fact this whole thing is well worth listening to to understand how much the lizard-brains are dominating this whole discussion, to the exclusion of almost everything else. The first three "statements" (= speeches) were nothing but attacks on Israel with no searching for alternatives. Benjanmin Zander (Crisis, Leadership, Leaders and Values) in his great presentation on "The Possible" had, in passing, asked what would happen if Jews and Arabs focused more on what was possible instead of hating each other. Just think about it - with Israeli technical and economic skills, that excess and growing population and oil money that whole region could be turned into one of the most prosperous in the world. Quickly and straight-forwardly judging by Israel's historical experiences.

Even Shimon Peres spent more time attacking the other speakers, though with more hard information and "righteously" than their attacks. What would have been truly statesmanlike on his part was to accept as best as possible the assaults and insults and ask then what ? How do you proposed to move forward ? What are you going to do to cut off weapons supplies to Hamas and others ? Who's going to maintain security ? Who's going to help do the necessary nation-building ? Certainly Europe for all it's piousities has chosen to give lip instead of service to the goals it claims to support, despite the fact that it's even more dependent on ME oil than anybody. It's time for people to get serious.

Over the years the Harvard Negotiation Project has worked out certain "Principles of Negotiation" (PON) based on decades of hard....hard experience and helped manage some of the most perilous and difficult negotiations in the world, from the Russian withdrawal from Afghanistan to food relief in Somalia. If you listen to the video clip and compare the actions and positions of the speakers to the PONs for establishing an effective negotiation you'll likely agree that they were all violated, and by most of the participants. In fact comparing the vidclip the checklist what you hear/see is what should be described as infantile and puerile behavior driven by emotion and not INTERESTS ! Now it's entirely possible that this was posturing for the home street audience and behind the scenes more adult conversations were occurring, but is it likely ? What appears to be needed is ADULT SUPERVISION and PARTICIPATION...something that's lacking, is in our vital interests and we haven't attempted to provide on a sustained basis. A state of affairs we can no longer afford !!!

Accordingly here's my strawman proposal...a stab at the "Possible":

COIN + Nation Building + Marshall Plan = Strawman (or Scarecrow ?)

1. Put the Lid Back On - put a real international security force into Gaza to provide border security, prevent weapons but allow the importation of food and supplies. Extend it to allow Palestinians to go back to the jobs they've lost in the last decade in Israel.
2. Tamp Down the Violence - insist that Hamas stop all attacks and enforce that decisions, using international resources AND accepting responsibility instead of substituting pious mouthings. Ask Israel to accept the tradeoffs for holding off attacks, even when their "objective" position justifies retaliations. Make sure that the Public Diplomacy of all parties tells the truth and publicize it.
3. Defuse the Immediate Touch Points - beyond those start restoring services and governance, encourage economic development, make sure security gets implemented (any time this sounds like an adaptation of Kilcullen's framework from Iraq stop me [ Iraq Resartus (Readings): Stability, Progress and Will]).
4. Hold, Stabilize and Sustain - keep on doing this for years, because it'll be necessary. Ask for funding from more than the US...it's in the interests of Europe and the oil-rich countries to kick in as well.
5. Maintain and Sustain - encourage foreign investment, start joint ventures, invest in roads, power lines and other infrastructure, put in at least minimal healthcare and education.
6. Keep On - doing the above and be prepared to sustain it for at least a decade.
7. Cut Off Iran - however you can. 

No magic answers but a damn lot of hard work. But cheap at the prices we're otherwise facing. And now or never is getting sooner than not. All we've done in the past is #1 - put the lid back on and #2 - tamp down the violence. When it falls off to acceptable levels everybody walks away. Time to pony up, OR be served at the French restaurant that offers horsemeat...if it's still open and has power.

Readings

Despite Gaza Attacks, Hamas Thinks It Has the Upper Hand  Israel says its military offensive in Gaza has dealt Hamas a heavy blow, but that's not how the leaders of the radical Palestinian group see it. And their view is based more on a kind of jujitsu that uses Israel's military momentum against its own political objectives, rather than on any serious belief in rhetoric about the organization's "steadfast" fighters being able to "crush" the invaders. Israel has long assumed that Hamas wanted a ground invasion, in order to be able to land some blows on the Israeli military in order to claim a propaganda victory once the Israelis inevitably withdraw. Still, by going in on Saturday, the Israelis calculated that they could draw Hamas into clashes that would substantially weaken the organization, even if Israel suffered some casualties. But despite the ferocity of the fighting that rages in some parts of Gaza, there are indications that Hamas is keeping many of its best fighters out of the direct path of the advancing Israelis. Israeli military officials have noted that resistance had not been as fierce as expected, and that most Israeli soldiers wounded in the operation had been struck by mortar rounds fired from considerable distance. And Hamas continues to fire rockets into Israel in a symbolic taunt to the Israeli public. So, what's Hamas' game? The militant group is operating on a belief that Israel's assault cannot be sustained in the face of growing international pressure for a cease-fire. In fact, Hamas believes it is winning the political battle, as images of the horrors being suffered by the Palestinian civilian population flash around the world. And it wants to ensure the survival of as much of its military and organizational capability so as to best profit from the eventual truce.

• Queen Rania: what's happening in Gaza is a crisis of human dignity
• Attack on Israel from Lebanon threatens 2nd front

Israel's war in Gaza: Gaza: the rights and wrongs In general, a war must pass three tests to be justified. A country must first have exhausted all other means of defending itself. The attack should be proportionate to the objective. And it must stand a reasonable chance of achieving its goal. On all three of these tests Israel is on shakier ground than it cares to admit. It is true that Israel has put up with the rockets from Gaza for a long time. But it may have been able to stop the rockets another way. For it is not quite true that Israel’s only demand in respect of Gaza has been for quiet along the border. Israel has also been trying to undermine Hamas by clamping an economic blockade on Gaza, while boosting the economy of the West Bank, where the Palestinians’ more pliant secular movement, Fatah, holds sway. Even during the now-lapsed truce, Israel prevented all but a trickle of humanitarian aid from entering the strip. So although Israel was provoked, Hamas can claim that it was provoked too. If Israel had ended the blockade, Hamas may have renewed the truce. Indeed, on one reading of its motives, Hamas resumed fire to force Israel into a new truce on terms that would include opening the border.  On proportionality, the numbers speak for themselves—up to a point. After the first three days, some 350 Palestinians had been killed and only four Israelis. Neither common sense nor the laws of war require Israel to deviate from the usual rule, which is to kill as many enemies as you can and avoid casualties on your own side. Hamas was foolish to pick this uneven fight. But of the Palestinian dead, several score were civilians, and many others were policemen rather than combatants. Although both Western armies and their foes have killed far more civilians in Afghanistan and Iraq, Israel’s interest should be to minimise the killing. The Palestinians it is bombing today will be its neighbours for ever. This last point speaks to the test of effectiveness. Israel said at first that, much as it would like to topple Hamas, its present operation has the more limited aim of “changing reality” so that Hamas stops firing across the border. But as Israel learnt in Lebanon in 2006, this is far from easy. As with Hizbullah, Hamas’s “resistance” to Israel has made it popular and delivered it to power. It is most unlikely to bend the knee. Like Hizbullah, it will probably prefer to keep on firing no matter how hard it is hit, daring Israel to send its ground forces into a messy street fight in Gaza’s congested cities and refugee camps. INFORMATION WARFARE: Atrocities On Demand, An update on Israel and Gaza

The Mideast’s Ground Zero The fighting, death and destruction in Gaza is painful to watch. But it’s all too familiar. It’s the latest version of the longest-running play in the modern Middle East, which, if I were to give it a title, would be called: “Who owns this hotel? Can the Jews have a room? And shouldn’t we blow up the bar and replace it with a mosque?” That is, Gaza is a mini-version of three great struggles that have been playing out since 1948: 1) Who is going to be the regional superpower — Egypt? Saudi Arabia? Iran? 2) Should there be a Jewish state in the Middle East and, if so, on what Palestinian terms? And 3) Who is going to dominate Arab society — Islamists who are intolerant of other faiths and want to choke off modernity or modernists who want to embrace the future, with an Arab-Muslim face? Gaza today is basically ground zero for all three of these struggles, said Martin Indyk, the former Clinton administration’s Middle East adviser whose incisive new book, “Innocent Abroad: An Intimate Account of American Diplomacy in the Middle East,” was just published. “This tiny little piece of land, Gaza, has the potential to blow all of these issues wide open and present a huge problem for Barack Obama on Day 1.” Obama’s great potential for America, noted Indyk, is also a great threat to Islamist radicals — because his narrative holds tremendous appeal for Arabs. For eight years Hamas, Hezbollah and Al Qaeda have been surfing on a wave of anti-U.S. anger generated by George W. Bush. And that wave has greatly expanded their base. No doubt, Hamas, Hezbollah and Iran are hoping that they can use the Gaza conflict to turn Obama into Bush. They know Barack Hussein Obama must be (am)Bushed — to keep America and its Arab allies on the defensive. Obama has to keep his eye on the prize. His goal — America’s goal — has to be a settlement in Gaza that eliminates the threat of Hamas rockets and opens Gaza economically to the world, under credible international supervision. That’s what will serve U.S. interests, moderate the three great struggles and earn him respect.

The Confidence War For several years, Israelis and Palestinians played the land-for-peace game. Each side engaged in a series of elaborate maneuvers designed to get the best possible deal when it came time to negotiate a final status agreement. But when Hamas, Hezbollah and Iran became leading players in the Middle East struggle, that land-for-peace game was suspended. A different game with different rules was begun. This new game is not oriented toward a final agreement. The extremist groups believe in the eventual extermination of Israel. They’re not interested in a handshake on the White House lawn. In this new game, both sides seek the destruction of the other, but neither has the power to achieve it. They are engaged in a struggle that has no near-term practical end. The extremists’ goal is to kill as many Jews as possible and wait for God (or Iran) to kill the rest. Israel’s goal is to restrain the brazenness of the extremists until their movement somehow burns itself out or is destroyed from within Arab society. Israel’s realistic immediate goal is not to achieve some permanent resolution, but to merely suppress terrorism week by week and month by month. The writer Michael Oakeshott captured Israel’s quandary in this game in a famous passage: “In political activity, then, men sail a boundless and bottomless sea; there is neither harbor for shelter nor floor for anchorage, neither starting place nor appointed destination. The enterprise is to keep afloat on an even keel.” By trial and error, Israel is learning to keep an even keel. For while Hamas and the extremists are dogmatic about ends, they are pragmatic about timing and means.

The Arabs and Israel: The hundred years' war The slaughter this week in Gaza, in which on one day alone some 40 civilians, many children, were killed in a single salvo of Israeli shells, will pour fresh poison into the brimming well of hate (see article). But a conflict that has lasted 100 years is not susceptible to easy solutions or glib judgments. Those who choose to reduce it to the “terrorism” of one side or the “colonialism” of the other are just stroking their own prejudices. At heart, this is a struggle of two peoples for the same patch of land. It is not the sort of dispute in which enemies push back and forth over a line until they grow tired. It is much less tractable than that, because it is also about the periodic claim of each side that the other is not a people at all—at least not a people deserving sovereign statehood in the Middle East. That is one reason why this conflict grinds on remorselessly from decade to decade. The point is that there have been precious few moments over the past century during which both sides have embraced the idea of two states at the same time. The most promising moment of all came at the beginning of this decade, with Mr Clinton’s near-miss at Camp David. But now, with the rise of Hamas and the war in Gaza, the brief period of relative hope is in danger of flickering out. If rejection of the other side’s national claims is one of the things that make this conflict so hard to end, the other is religion. The two are tied together. Hamas is a religious movement, and its formal creed is to reject the possibility of Jewish statehood not only because of Israel’s alleged sins but also because there is no place for a Jewish state in a Muslim land. It may be no coincidence that some of the most promising peacemaking between Israel and the Palestinians took place soon after the cold war ended. But now a new sort of geopolitical confrontation stalks the region, one that sets America against Iran, and the Islamist movements Iran supports against the Arab regimes in America’s camp. With Hamas inside Iran’s tent and Fatah in America’s, the Palestinians are now facing a paralysing schism. But even in the event of Israel “winning” in Gaza, a hundred years of war suggest that the Palestinians cannot be silenced by brute force. Hamas will survive, and with it that strain in Arab thinking which says that a Jewish state does not belong in the Middle East. To counter that view, Israel must show not only that it is too strong to be swept away but also that it is willing to give up the land—the West Bank, not just Gaza—where the promised Palestinian state must stand. Unless it starts doing that convincingly, at a minimum by freezing new settlement, it is Palestine’s zealots who will flourish and

• Inside Hamas: The Untold Story of the Militant Islamic Movement

Palestinians reel at war's toll Palestinians took stock Monday of the devastation from a three-week war in the Gaza Strip as a ceasefire took hold and Israeli forces pressed on with their gradual withdrawal from the Hamas-ruled territory. A spokesman for Hamas's armed wing, his face masked by a checkered Arab scarf, vowed it would replenish its arsenal of rockets and other weapons, in defiance of any Israeli or international efforts to cut off smuggling routes. Bulldozers cleared rubble from streets and the Palestinian Central Bureau of Statistics said the total repair bill would be at least $1.9 billion. A source in the Hamas administration in the Gaza Strip said 5,000 homes, 16 government buildings and 20 mosques were destroyed and 20,000 houses damaged. Israel has said militants used mosques as weapons depots. Saudi Arabia's King Abdullah announced the kingdom would donate $1 billion for reconstruction in the Gaza Strip. Israel reopened three border crossings to enable more basic goods to be transferred to the territory of 1.5 million Palestinians. Military officials said troops and tanks that had poured into the enclave on January 3 as part of an offensive to counter Palestinian rocket attacks were gradually leaving, though they remained ready to tackle any flare-ups in fighting. Israel and Hamas separately declared ceasefires Sunday, the Islamist group demanding an Israeli pullout within a week. Palestinians emerged from hiding, shocked at the killing of more than 1,300 fellow residents of Gaza and at the widespread destruction of homes and government infrastructure. "We want a solution that would guarantee Israeli tanks do not return to kill us," said Yehya Aziz, a 22-year-old Gaza resident. Gaza medical officials said the Palestinian death toll included at least 700 civilians. Israel, which accused Hamas of endangering non-combatants by operating in densely populated areas, said hundreds of gunmen were among the dead. Hamas's armed wing challenged the figure, saying it lost 48 fighters. Ten Israeli soldiers were killed as well as three Israeli civilians hit by rockets, Israel says. Western powers had pushed for a ceasefire. While publicly sympathetic to Israel's security concerns, they had voiced alarm at mounting civilian casualties and hardship in the Gaza Strip. The crisis clouded the last days of the Bush administration. It spelled Middle East challenges that U.S. President-elect Barack Obama, who is to be sworn in Tuesday, may find no less insurmountable than those faced by his predecessors. Ismail Haniyeh, the head of the Gaza-based Hamas administration claimed a "popular victory" against Israel. In a speech, he called Hamas's ceasefire decision "wise and responsible."

• Saudi Arabia pledges $1 billion to rebuild Gaza
• Israel and Palestinians agree to Gaza cease-fire. Will it last?

Davos Video Clips on Gaza and the ME

• Gaza: the Case for ME Peace

• The ME: Owning It's Challenges

• The Great Game Re-visited

• Pakistan and Its Neighbours

 

Posted by dblwyo at 05:10 PM | Permalink | Comments (3)

If it's not entirely clear to everyone we're trapped in a concentric and converging set of Perfect Storms on the economic, financial, socio-political and geo-political fronts that we will have to deal with. One way or another, that is consciously and deliberately or inadvertently or accidentally. We got into this mess thru combinations of systemic failure, moral failures (on our part as well as by the powers that be) and systematic leadership failures. Our last post (Welcome to Coach Carter's Gym: Renewal of Duty, Honor and Country)addressed the need for us to suck it up and pull together - to return to fundamental values. Yet what are followers without leaders, just as what our leaders without followers ? We need both ( Following the Spirit: Leaders, Leadership and the "Wise" Course) and both have to perform more then adequately. You might both enjoy William James on the symbiosis between leaders and led:Great Men, Great Thoughts, and the Environment., and profit (greatly) from the explicit analysis of mutual inter-dependence.

So if we do our part what will the folks with their hands on the levers do ? As it happens the Davos conference is underway and the sessions are available online for your viewing pleasure and we recommend them, for lots of reasons, very...very much. Having been watching over the last several days we've culled several that are well worth your time IOHO. And you can find them below along with some short comments (forgive the graphics - it's proven technically impossiel for me to get a good picture but we've left apparently blank spaces to provide "space" to encourage you to pause and watch).

Crisis and Leadership

 This first session we'll point you to is on leadership in a crisis with Bibi Netanyahu, David Cameron, Jaime Dimon and Anna Botin. Their observations and astute insights are both wise and experienced as well as informed by a great deal of practical experience in getting results from the "sausage factories" that make policy, politics and decisions. We were particularly impressed with Bibi and Jaime but feel that the entire session is well worth your time. If the session won't come up by either clicking on the placeholder or the marked hyperlink you can find it on the Davos web site directly for yourselves. If you haven't the time to watch all the sessions or even a complete one go back - we think these are worth listening to repeatedly !

Views From the Next Generation

One other interesting session is this one that has six teenagers selected from several hundred from around the world to come and briefly present their activities and observations and then respond to the moderator's questions. While it'll be our actions and the decisions of the greyheads in power which determine our future course these are, ultimately, the folks who will have to live with the long-term consequences. And their reactions are fascinating, interesting and encouraging. For anyone who thinks that there's no civic spirit in the younger generation this will disabuse you...or should. At the same time they also displayed a natural and justified anger at the moral failures of the people they've trusted, willy-nilly, to build them a better world.

Sad Lessons of Past Generations

Speaking of which the opening graphic is a YouTube vidclip of Dylan's "Times They Are a Changn'" composited by various artists over the years. This song was an anthem it it's day and ever-afterward. Watching it again and the various artists interpretations reminds us of that and, hopefully, causes us to be willing to pick up our burdens. Yet watching this reminded us of a great PBS Special on the "Folk Years" (of which there is a wonderful CD/DVD collection out) that collects many of the great songs of change and youthful effort. When it was broadcast it was fascinating to watch many of the middle-aged and well-off audience singing along from memory. Yet how did they live their lives ? Rather traditionally at the end of the day. They surrendered their Revolution for comfort and complacency and squandered the inheritances received from the Greatest Generation bought at so much cost in blood, sweat and tears.

Time will tell whether they will be a new Great Generation or not but the earlier signs are encouraging. They're acting not just talking, rioting, partying or dancing to the music. They appear to know that good intentions are no substitute for good actions. But listen to the lyrics, at least the opening lines. The times are indeed changing - whether it's for the better or not is to be determined. Which in turn depends on whether these Crisis or just Risks....or Opportunities as well !

Bad Lessons of the Current Generation

 

Speaking further of which after the break you'll find the counter-examples in point. These are recent news stories on the awarding of $Bs in bonuses last year by the Finance Industry. Talk about a total lack of leadership, morals or values ! We knew that the Industry was self-serving and not to be trusted without adult supervision and would sell our collective interests down the river for another bottle of wine. Now we're learning they have no sense of the broader interest at all. Our guess would be that at the end the adults supervisors will be armed and authorized to use deadly force, so-to-speak. And will be roundly applauded when they do. There's a fundamental lesson of Civitas here - no one is an island and we all prosper in conjunction with the ecologies we live in. When you damage that ecology by poisoning it in pursuit of your narrow self-interest you're citizenship rights are likely to be justifiably amended.

Values, Attitudes and Coping

Our favorite Davos session is this one with Benjamin Zander. If you watch no other watch this one. Zander is an orchestra conductor who lectures on how to conduct your life well by rising to challenge thru seeing them as opportunities. A 1-sentence summary that does nearly complete injustice to the power, depth and force of his "lecture". Which is not really a lecture. He starts though by telling the story of his Jewish father who lost everything fleeing the Nazis yet found the strength of will, moral purpose and principles to build a new life.

At the end of the day whether or not we and our leaders pull ourselves thru these messes boils down to that. Can we find it within ourselves to rise above this and re-discover fundamental values ?

Appalling Leadership Failures

What Red Ink? Wall Street Paid Hefty Bonuses Despite crippling losses, multibillion-dollar bailouts and the passing of some of the most prominent names in the business, employees at financial companies in New York, the now-diminished world capital of capital, collected an estimated $18.4 billion in bonuses for the year. That was the sixth-largest haul on record, according to a report released Wednesday by the New York State comptroller. While the payouts paled next to the riches of recent years, Wall Street workers still took home about as much as they did in 2004, when the Dow Jones industrial average was flying above 10,000, on its way to a record high. Some bankers took home millions last year even as their employers lost billions. The comptroller’s estimate, a closely watched guidepost of the annual December-January bonus season, is based largely on personal income tax collections. It excludes stock option awards that could push the figures even higher. The state comptroller, Thomas P. DiNapoli, said it was unclear if banks had used taxpayer money for the bonuses, a possibility that strikes corporate governance experts, and indeed many ordinary Americans, as outrageous. He urged the Obama administration to examine the issue closely. Bonus Payout Graphic 

Obama Calls Wall Street Bonuses ‘Shameful’ President Obama branded Wall Street bankers “shameful” on Thursday for giving themselves nearly $20 billion in bonuses as the economy was deteriorating and the government was spending billions to bail out some of the nation’s most prominent financial institutions. “There will be time for them to make profits, and there will be time for them to get bonuses,” Mr. Obama said during an appearance in the Oval Office with Treasury Secretary Timothy F. Geithner. “Now’s not that time. And that’s a message that I intend to send directly to them, I expect Secretary Geithner to send to them.” It was a pointed — if calculated — flash of anger from the president, who frequently railed against excesses in executive compensation on the campaign trail. He struck his populist tone as he confronted the possibility of having to ask Congress for additional large sums of money, beyond the $700 billion already authorized, to prop up the financial system, even as he pushes Congress to move quickly on a separate economic stimulus package that could cost taxpayers as much as $900 billion. This week alone, American companies reported as many as 65,000 job cuts, and public anger is rising over reports of profligate spending by banks and investment firms that are receiving help from the $700 billion bailout fund. About half of that money is still available, but the new administration has yet to announce how it will use it, and many analysts think it will take far more to stabilize the banking system. Should Mr. Obama have to go to Congress to seek more money for the bailout fund to avert the failure of more banks, he would most likely encounter opposition within both parties and demands for tighter restrictions on pay for executives of institutions that receive government assistance. Mr. Geithner has already signaled a willingness to impose stricter compensation limits as part of a revamped approach to dealing with the banking crisis, but with his strong words on Thursday, Mr. Obama seemed intent on reassuring Congress and the public that he would step up the pressure on bankers before granting them additional assistance. Mr. Obama was reacting to a report by the New York State comptroller that found financial executives had received an estimated $18.4 billion in bonuses for 2008, less than for the previous several years but the same level of bonuses as they received in 2004, when times were flush. “That is the height of irresponsibility,” Mr. Obama said. “It is shameful. And part of what we’re going to need is for the folks on Wall Street who are asking for help to show some restraint and show some discipline and show some sense of responsibility.”

• Getting Theirs Cuts Both Ways on Wall Street
• It’s Theirs and They’re Not Apologizing

Talking Business: It’s Not the Bonus Money. It’s the Principle. When you get right down to it, the purchase of a new plane or an office renovation is pretty meaningless for companies as large as Citigroup or Bank of America. It’s not unheard of for executives to spend $1 million or more on remodeling when they get the corner office. It’s pocket change. And companies can usually make a halfway decent business case to justify a new airplane. (It goes longer distances than older planes, can take more executives to meetings, allows the top brass to be more efficient and productive, etc., etc.) The question of whether bailout money was used to pay for these perks — as alleged by The New York Post, which broke the Citi airplane story — is, at best, ambiguous. Indeed, breaking the airplane contract and sending the jet back to the manufacturer will probably cost the bank more than keeping the plane. None of that matters. You could make the same argument about the auto executives who flew on corporate jets when they came to Washington to ask Congress for help: surely, it was a better use of their time to fly rather than drive from Detroit, as they did the second time around, after being spanked for taking the jets. That didn’t matter either. What matters is the symbolism. At a time when the country is in such trouble — and executives are asking for bailouts — anything that smacks of plutocracy is going to arouse justifiable populist anger. “This has been building for 20 years,” said Richard C. Ferlauto, director of corporate governance for the American Federation of State, County and Municipal Employees. “Regular working people haven’t gotten ahead in the economy. They understand that tremendous wealth has been created, and they say, ‘Where’s mine?’ ” He continued: “These guys seem to be living in another universe. So the symbolism of the umbrella stand and the private jet is powerful.” The umbrella stand, of course, was a reference to the $15,000 umbrella stand that the former Tyco chief executive Dennis Kozlowski bought with company funds — and that is part of the reason he is now behind bars. But there is something else as well. Most people still don’t fully understand what, exactly, Wall Street did that caused so much trouble for the country and the financial system. I spoke this week to David M. Smick, author of a scathing book about Wall Street, “The World Is Curved: Hidden Dangers to the Global Economy.” In indignant tones, he talked to me about the sophisticated off-balance-sheet vehicles the banks used to hide risk and game the system, and the “mortgage-backed securities they were shoving out the door.” He concluded, “I find their behavior just appalling.”

Posted by dblwyo at 10:59 AM | Permalink | Comments (0)