Thursday
Jul052012

Crony Capitalism is the common enemy of the Tea Party and the Occupy Movement.

Before the Occupy Movement appeared, I suggested in Common Ground for Tea Partiers and Liberals that both "feel that their lives are getting worse, not better, and that, rather than having control over their own lives, they are being dictated to and victimized by powerful people and institutions." Professor Luigi Zingales of the University of Chicago Booth School of Business concurs in an LAT op ed today, where he specifically identifies crony capitalism as the common enemy of the Tea Party and the Occupy Movement:

[Both major parties are ignoring] what unites the two movements: their fundamentally anti-elite, anti-establishment attitude.

The tea party and the Occupy movement both arose in response to pervasive frustration. As we've grown accustomed to hearing in recent years, Americans are angry. They're angry at bankers, who helped cause the financial crisis but paid no price for it. They're angry at Washington, which blamed the bankers but deserved as much blame, if not more, for failing to rein them in. And they're angry at an economy that seems to enrich the wealthy while leaving most everyone else standing still or falling behind.

This anger manifests itself in a strong anti-elite bias and a determination to resist an oppressive leviathan — though the monster takes different forms in the two movements. For the tea party, it's the federal government in Washington; for Occupy, it's bailout-addicted big business.

The difference is more apparent than real. The problem is not big business per se but monopolistic and politically powerful business. It is not government per se but intrusive and corrupt government. Is Fannie Mae inefficient, for example, because it is a large monopolistic company or because it is a state-sponsored enterprise? The answer is both.

Does the blame lie with the government or with the private sector? Neither. Their failures are the result of an increasingly corrupt system of crony capitalism, in which businesses succeed not through competitive merit but through government connections and favoritism such as tax breaks, subsidies and other preferential treatment.

For many people, the way big banks escaped the financial crisis with their profits intact (and often enhanced) epitomized American-style crony capitalism. Neither party has had the courage to confront it, for fear of losing campaign contributions and political power.

. . . .

The battle against crony capitalism is foremost a battle against anti-competitive, monopolistic corporations. Antitrust regulation should thus be extended to the political consequences of mergers. When companies become disproportionately big, they become disproportionately powerful, and as we have seen, their influence distorts the political system.

In no sector is this truer than in finance, where consolidation has made banks "too big to fail" and too powerful to combat. A reinstitution of the separation between commercial and investment banking, along the lines of the old Glass-Steagall Act (repealed in 1999), would help contain this excessive power.

It's worth keeping in mind that the patriots who threw English tea into Boston Harbor in 1773 were not revolting against higher taxes (the Tea Act, in fact, lowered the price of tea legally imported in America) but against the privileges granted to the British East India Co.. The American Revolution was a battle for political rights, but it was also a battle for economic freedom — and against an 18th century form of crony capitalism.

Corrupt arrangements of this kind have unfortunately endured to the present day, and their abuses finally sparked protest movements from the right and the left. The two political parties ignore these movements at their peril.

I agree.

Monday
Jul022012

Most read Realitybase posts in June

The Citigroup Plutonomy Memos With key quotations from documents that are being disappeared. This post has been the #1 response to a Google search for "plutonomy memo."

The American Dream died in February 1973. With graphs showing stagnation of inflation-adjusted middle class incomes since the 1970s after strong and steady post-WWII growth

The history of US per-capita petroleum consumption will surprise you.  A graph and other data show US per-capita consumption of petroleum is down substantially from the 1970s, has been very stable since 1983 because of CAFE standards, and has fluctuated only slightly with retail price changes.

Two hypotheses for why US CEO pay is so high Charts show that US CEO pay is about double that in other advanced countries, meaning there is either a shortage of talent in the US or the US CEO pay market is broken.

The Dysfunction and Corruption of Our Healthcare System, Its Damage to the National Economy and other Basic Healthcare Matters (Guest Post) Describing a system that is destroying American business global competitiveness, that violates fundamental insurance risk principles, and that has inherent conflicts of interest preventing quality national health care delivery and cost efficiency, and proposing a solution.

Still time for another not-Romney to enter the race? Campaign video promoting Wal-Mart for President.

Executives inflate their own compensation with stock repurchase programs. How corporations drive up stock prices by buying back stock instead of investing in the business, triggering a Warren Buffett rant quoted here.

One chart refutes three myths about US foreign trade. About Smoot-Hawley, the post-WWII export "boom," and "self-balancing" trade.

Comparative Advantage—The Unicorn of Free Trade Collection of sources and analyses demonstrating that the assumptions of classic Ricardian trade theory rarely if ever align with real-world conditions.

US job creation has been declining since April 2000 and is now in freefall. Discussion around a dramatic graph showing the US employment-to-population ratio strongly increasing until 2000 followed by a devastating loss in 10 years of all the gains made in the previous 20 years.  

Thursday
May312012

Most read Realitybase posts in May

"The American Dream died in February 1973 With graphs showing stagnation of inflation-adjusted middle class incomes since the 1970s after strong and steady post-WWII growth

The Citigroup Plutonomy Memos With key quotations from documents that are being disappeared. This post has been the #1 response to a Google search for "plutonomy memo."

The Dysfunction and Corruption of Our Healthcare System, Its Damage to the National Economy and other Basic Healthcare Matters (Guest Post) Describing a system that is destroying American business global competitiveness, that violates fundamental insurance risk principles, and that has inherent conflicts of interest preventing quality national health care delivery and cost efficiency, and proposing a solution.

The history of US per-capita petroleum consumption will surprise you.  A graph and other data show US per-capita consumption of petroleum is down substantially from the 1970s, has been very stable since 1983 because of CAFE standards, and has fluctuated only slightly with retail price changes.

Comparative Advantage—The Unicorn of Free Trade Collection of sources and analyses demonstrating that the assumptions of classic Ricardian trade theory rarely if ever align with real-world conditions.

One chart refutes three myths about US foreign trade. About Smoot-Hawley, the post-WWII export "boom," and "self-balancing" trade.

US job creation has been declining since April 2000 and is now in freefall. Discussion around a dramatic graph showing the US employment-to-population ratio strongly increasing until 2000 followed by a devastating loss in 10 years of all the gains made in the previous 20 years.

Two hypotheses for why US CEO pay is so high Charts show that US CEO pay is about double that in other advanced countries, meaning there is either a shortage of talent in the US or the US CEO pay market is broken.

U.S. aircraft carrier and 15 other Navy ships sunk in the Strait of Hormuz in 5-10 minutes Results of US war games when attacked by large numbers of speed boats and missiles such as Iran has in the hands of Revolutionary Guards reputed to be "cowboys," and suggesting still other ways we might accidentally get into a war with Iran.

The US trade deficit is tribute paid to foreigners. And it's big. Nobel laureates Paul Samuelson and Paul Krugman and other prominent economists including Dani Rodrik, Alan Blinder, Martin Wolf, Larry Summers, Joseph Stiglitz, Dean Baker, and even Alan Greenspan have said that the US middle class is net worse off as a result of persistent trade deficits averaging 3% of GDP.

Wednesday
May022012

Most read Realitybase posts in April

The Citigroup Plutonomy Memos With key quotations from documents that are being disappeared. This post has been the #1 response to a Google search for "plutonomy memo."

The history of US per-capita petroleum consumption will surprise you.  A graph and other data show US per-capita consumption of petroleum is down substantially from the 1970s, has been very stable since 1983 because of CAFE standards, and has fluctuated only slightly with retail price changes.

"The American Dream died in February 1973 With graphs showing stagnation of inflation-adjusted middle class incomes since the 1970s after strong and steady post-WWII growth

The Dysfunction and Corruption of Our Healthcare System, Its Damage to the National Economy and other Basic Healthcare Matters (Guest Post) Describing a system that is destroying American business global competitiveness, that violates fundamental insurance risk principles, and that has inherent conflicts of interest preventing quality national health care delivery and cost efficiency, and proposing a solution.

Comparative Advantage—The Unicorn of Free Trade Collection of sources and analyses demonstrating that the assumptions of classic Ricardian trade theory rarely if ever align with real-world conditions.

Two hypotheses for why US CEO pay is so high Charts show that US CEO pay is about double that in other advanced countries, meaning there is either a shortage of talent in the US or the US CEO pay market is broken.

One chart refutes three myths about US foreign trade. About Smoot-Hawley, the post-WWII export "boom," and "self-balancing" trade.

US job creation has been declining since April 2000 and is now in freefall. Discussion around a dramatic graph showing the US employment-to-population ratio strongly increasing until 2000 followed by a devastating loss in 10 years of all the gains made in the previous 20 years.

What's the market alternative to this big government program? On a per-vehicle-mile-traveled basis, conventional command-and-control regulations have reduced deaths by 85%, tailpipe pollutants by 89%, and fuel consumption by 40%.

The Prius fallacy fallacy Data refute the claim that when people have more fuel efficient vehicles they tend to drive substantially more miles.

Tuesday
Apr032012

The Prius fallacy fallacy

In the never-ending attack on vehicle fuel efficiency regulations, "the Prius fallacy" has become shorthand for the argument that when one replaces his gas guzzler with a fuel efficient vehicle his gasoline consumption does not go down, or goes down only a little bit, because he will decide to use the lower cost per mile to drive many more miles. (Some economists refer to this more generally as the "rebound effect.") Although it's plausible to think this could happen, it turns out it doesn't. Afsah and Salcito at CO2 Scorecard, using data compiled by Yale professor Ken Gillingham for his doctoral research at Stanford, show that the distribution of vehicle miles traveled ("VMT") by Prius drivers is essentially the same as the average of all other vehicle owners in California.

After driving a series of Audi A4s for 11 years, last year I bought a Prius. Now, instead of 23 MPG, I get 46 MPG actual road mileage. So, do I drive more miles now? No. In fact, I drive fewer long distance miles because the Prius is a less comfortable road car. In our first trip of about 250 miles with three people in the car, we learned that the back seat has inadequate head room. On a 1,100 mile trip with two people, we learned that the seats are way less comfortable than the Audi seats. Also, the Prius has fewer features and a generally lower level of luxury and comfort, and is not, compared to the Audi, at all peppy, responsive, or "fun to drive." Since we still have an Audi in the family, we use it for long trips and trips with three or more adults. Bottom line: The differences that make the Prius more fuel efficient also make me drive it less—the Prius fallacy is a fallacy.

There's another factor countering the Prius fallacy—economy cars do not raise ones social status. The most conspicuous form of discretionary driving is "cruising," and it's really hard to imagine hundreds of Prius owners driving Woodward Avenue in Detroit or Whittier Boulevard in East LA to show off their rides. I don't think that could even happen on Wilshire Boulevard in the Peoples Republic of Santa Monica. Auto industry journalist, Jamie Lincoln Kitman, responds to the Prius fallacy proponents this way:

Although their math is often specious, these critics lose sight of the fact that for more than a century, the automobile industry has been based on selling people dreams to go with their mobility. We're used to drivers who want an S.U.V. or a sports car so they'll look virile, sporty or capable.

The Kitman link is to a forum where others espouse the Prius fallacy. The argument seems to arise out of an unexamined conviction that the only proper—and effective—way to influence social outcomes is by manipulating prices. The truth is sometimes that works, and sometimes it doesn't. As a result of government command-and-control regulations, tailpipe emissions of HC, NOx, and CO from new cars are down 89% since the early 1950s, fuel consumption per VMT is down 40% from 1975, and each VMT is 85% less likely to result in a fatality than it was in 1949. Take the challenge: What's the market alternative to this big government program?

Saturday
Mar312012

Most read Realitybase posts in March

"The American Dream died in February 1973 With graphs showing stagnation of inflation-adjusted middle class incomes since the 1970s after strong and steady post-WWII growth

The Citigroup Plutonomy Memos With key quotations from documents that are being disappeared. This post has been the #1 response to a Google search for "plutonomy memo."

The history of US per-capita petroleum consumption will surprise you.  A graph and other data show US per-capita consumption of petroleum is down substantially from the 1970s, has been very stable since 1983 because of CAFE standards, and has fluctuated only slightly with retail price changes.

The Dysfunction and Corruption of Our Healthcare System, Its Damage to the National Economy and other Basic Healthcare Matters (Guest Post) Describing a system that is destroying American business global competitiveness, that violates fundamental insurance risk principles, and that has inherent conflicts of interest preventing quality national health care delivery and cost efficiency, and proposing a solution.

Two hypotheses for why US CEO pay is so high Charts show that US CEO pay is about double that in other advanced countries, meaning there is either a shortage of talent in the US, or that the US CEO pay market is broken.

Comparative Advantage—The Unicorn of Free Trade Collection of sources and analyses demonstrating that the assumptions of classic Ricardian theory rarely if ever align with real-world conditions.

US job creation has been declining since April 2000 and is now in freefall. Discussion around a dramatic graph showing the US employment-to-population ratio strongly increasing until 2000 followed by a devastating loss in 10 years of all the gains made in the previous 20 years.

All the way to Tampa? "Enhanced" pictures of the GOP Presidential candidates.

U.S. aircraft carrier and 15 other Navy ships sunk in the Strait of Hormuz in 5-10 minutes Results of US war games when attacked by large numbers of speed boats and missiles such as Iran has in the hands of Revolutionary Guards reputed to be "cowboys," and suggesting still other ways we might accidentally get into a war with Iran.

The Recession is Coming! The Recession is Coming! December 2007 post with charts showing America's middle class had been in recession for 7 years and asking if we really care.

Sunday
Mar252012

Still a big shortage of jobs for college grads

The Great Recession officially ended as the college class of 2009 was graduating. Exactly two years later, real GDP was back to its pre-recession high, and the stock market indexes were above their pre-September 2008 crash levels. In stark contrast The New York Times Magazine interviewed 73% of those who graduated from Drexel University (a mid-tier liberal arts school) in June 2011 and reports that nearly half are not appropriately employed or in graduate school. The breakdown:

In graduate school           22%

Working full time             39% (includes jobs not requiring college)

Working part time            22% (includes jobs not requiring college)

Unemployed                    17%

The article also reports that only 5 of the 20 jobs projected by BLS to grow the fastest in the next decade require bachelor's degrees. Policy makers, you are failing. The necessary jobs aren't creating themselves. Fix it or get out of the way.

Wednesday
Mar212012

Still time for another not-Romney to enter the race?

[If you don't see the embedded video in the RSS or email feed, click here.]

Ironically, Romney couldn't object to this. H/t Christine and Kenneth Quinnell at Crooks and Liars.

Monday
Mar192012

All the way to Tampa?

Friday
Mar092012

The Trees and the Forest of Unemployment

The BLS February employment report is out today, and the headline unemployment rate (U-3) is steady at 8.3%. By September, it could be 7.9% or less, which might be low enough to get Obama reelected.

However, we are a long, long, LONG way from full employment. The employment population ratio remains below where it was two years ago—and below where it was 34 years ago when women were just starting to enter the work force in large numbers:

Where are the 13 million jobs we need to get back to 64%, and how long will it take? US employment back to normal in 2016, 2027, or never?

Thursday
Mar012012

Most read Realitybase posts in February

The Citigroup Plutonomy Memos With key quotations from documents that are being disappeared. This post has been the #1 response to a Google search for "plutonomy memo."

"The American Dream died in February 1973 With graphs from multiple sources showing stagnation of inflation-adjusted middle class incomes since the 1970s after strong and steady post-WWII growth

The history of US per-capita petroleum consumption will surprise you.  A graph and other data show US per-capita consumption of petroleum is down substantially from the 1970s, has been very stable since 1983 because of CAFE standards, and has fluctuated only slightly with retail price changes.

Comparative Advantage—The Unicorn of Free Trade A collection of sources and analyses demonstrating that the assumptions of classic Ricardian theory rarely if ever align with real-world conditions.

Why We Can't Bring Manufacturing and Innovation Back to America A comprehensive piece on how changes since the 20th Century have been so profound that innovation is rapidly following manufacturing from the US to China, and on why that trend will continue without US government intervention—even in the unlikely event that China were to comply with international law on trade and currency.

U.S. aircraft carrier and 15 other Navy ships sunk in the Strait of Hormuz in 5-10 minutes Reporting on the results of US war games when attacked by large numbers of speed boats and missiles such as Iran has in the hands of Revolutionary Guards reputed to be "cowboys," and suggesting still other ways we might get into an all out war with Iran by accident.

The Dysfunction and Corruption of Our Healthcare System, Its Damage to the National Economy and other Basic Healthcare Matters (Guest Post) Describing a system that is destroying American business global competitiveness, that violates fundamental insurance risk principles, and that has inherent conflicts of interest preventing quality national health care delivery and cost efficiency, and proposing a solution.

US job creation has been declining since April 2000 and is now in freefall. Discussion around a dramatic graph showing the US employment-to-population ratio strongly increasing until 2000 followed by a devastating loss in 10 years of all the gains made in the previous 20 years.

US healthcare efficiency did not go off the rails until about 30 years ago. US life expectancy increased in lockstep with 19 other rich countries as healthcare expenses increased, but in 1982 the US life expectancy increases shifted onto a dramatically slower rate of increase than the other 19 countries even though US healthcare spending started rising even faster. The adverse change was most striking for females. It all seems very counterintuitive, but several data sets are compelling.

What happens when you get all your information about employment and job creation from employers?  Cluelessness. In a live video chat with citizens Obama seemed stunned that it may not be true that employers have to bring in foreign high-tech workers at low wages under H-1b and L-1 visas because "there is a shortage of qualified Americans."

Tuesday
Feb282012

Adam Smith on self love and greed

Adam Smith is regarded by many as the patron saint of capitalism and the chief proponent of the prevalent notion that thoughtless greed is economically beneficial to society at large.  Gavin Kennedy, who runs the Adam Smith’s Lost Legacy blog, posted these two paragraphs from Smith’s Theory of Moral Sentiments as revised by Smith in 1789 a few months before his death.

When the happiness or misery of others depends in any respect upon our conduct, we dare not, as self–love might suggest to us, prefer the interest of one to that of many. The man within immediately calls to us, that we value ourselves too much and other people too little, and that, by doing so, we render ourselves the proper object of the contempt and indignation of our brethren.l  Neither is this sentiment confined to men of extraordinary magnanimity and virtue. It is deeply impressed upon every tolerably good soldier, who feels that he would become the scorn of his companions, if he could be supposed capable of shrinking from danger, or of hesitating, either to expose or to throw away his life, when the good of the service required it.

One individual must never prefer himself so much even to any other individual, as to hurt or injure that other, in order to benefit himself, though the benefit to the one should be much greater than the hurt or injury to the other. The poor man must neither defraud nor steal from the rich, though the acquisition might be much more beneficial to the one than the loss could be hurtful to the other. The man within immediately calls to him, in this case too, that he is no better than his neighbour, and that by this unjust preference he renders himself the proper object of the contempt and indignation of mankind; as well as of the punishment which that contempt and indignation must naturally dispose them to inflict, for having thus violated one of those sacred rules, upon the tolerable observation of which depend the whole security and peace of human society. There is no commonly honest man who does not more dread the inward disgrace of such an action, the indelible stain which it would for ever stamp upon his own mind, than the greatest external calamity which, without any fault of his own, could possibly befal him; and who does not inwardly feel the truth of that great stoical maxim, that for one man to deprive another unjustly of any thing, or unjustly to promote his own advantage by the loss or disadvantage of another, is more contrary to nature, than death, than poverty, than pain, than all the misfortunes which can affect him, either in his body, or in his external circumstances
” (TMS, Part 3, Chapter 3, paragraphs 5 and 6: 137-8).

Are you paying attention, John Galt and Gordon Gekko?

Sunday
Feb262012

Cal Trillin on super PACs

There might be a serious message somewhere in Cal Trillin's piece in today's NYT, but the only reason I'm linking to it is that it made me laugh. Really.

INTERVIEWER Your “super PAC,” America the Super, has now spent just over $3 million on negative television ads attacking Art Schwartz, the most serious opponent of Jeff Gold in the race for the Senate, and — with all due respect, ma’am — that has raised questions about how closely America the Super is connected to the Gold campaign.

SUPER PAC CHIEF EXECUTIVE By law, a candidate’s campaign cannot coordinate or communicate with a super PAC. America the Super is for America being super. If that leads to an investigation into whether Mr. Schwartz did any inappropriate touching when he was a scoutmaster in 1978 — because a lot of those scoutmasters did, you know — so be it.

INTERVIEWER Well, you do understand the assumption some have that there might be more contact than the spirit of the law intends there to be, given your closeness with Mr. Gold.

SUPER PAC C.E.O. My closeness? What do you mean by my closeness?

INTERVIEWER Because you’re, well, his ...

SUPER PAC C.E.O. Because I’m his mother?

. . . .

Read the rest here.

Saturday
Feb042012

What happens when you get all your information about employment and job creation from employers?  Cluelessness.

US employers consistently complain that they can't fill job openings in the US because there are not enough qualified American applicants. Therefore, they say, government policy needs to focus on increasing government spending on education, especially in science, technology, engineering and math ("STEM"), and on reducing or eliminating barriers to bringing in foreign guest workers on H-1b and L-1 visas. In H-1b, the "Outsourcing Visa" I reported on two different studies that showed there is no relevant labor market test for the issuance of these visas and that employers can and do bypass American workers for cheaper guest workers. There are about 1 million workers in H-1b and L-1 visa jobs at any one time and about 1 million more have been here for training on those visas and then gone home taking the jobs with them. President Obama seems to know nothing about this, according to a McClatchy-Tribune News Service report on his live video chat with citizens last Monday.

Jennifer Wedel was one of five people selected to take part in a live video chat Monday with the president through the "hangout" feature on Google Plus, the search engine's social-networking site.

Wedel asked why U.S. companies were allowed to use a controversial program to hire high-skilled foreign workers when her husband, Darin, has similar skills and can't find full-time work. Darin Wedel lost his job at Texas Instruments about three years ago.

. . . .

"My question to you is to why does the government continue to issue and extend H-1B visas when there are tons of Americans just like my husband with no job?" she asked.

Obama offered that industry leaders have told him that there aren't enough of certain kinds of high-tech engineers in America to meet their needs. Jennifer Wedel interrupted him to explain that that answer didn't match what her husband is seeing out in the real world.

"Jennifer, can I ask what kind of engineer your husband is?"

"He's a semiconductor engineer," she told the president, who seemed genuinely surprised.

"If you send me your husband's resume, I'd be interested in finding out exactly what's happening right there," he told her. "The word we're getting is somebody in that high-tech field, that kind of engineer, should be able to find something right away. And the H-1B should be reserved only for those companies who say they cannot find somebody in that particular field."

Near the end of the online event, Obama reminded Wedel about his request.

"I mean what I said. If you send me your husband's resume, I'd be interested in finding out what's happening," Obama told her and thousands of others watching.

Hat tip BuzzFlash.  I have written about this problem on other occasions too, in Down with Globalization and in Skilled labor shortages in declining industries accelerate the decline. Shouldn't President Obama already have heard about this well-documented and important non-employer view, say from the Secretary of Labor?  He's certainly not hearing it from his Council on Jobs and Competitiveness headed by GE's CEO and other prominent outsourcers. Obama names fox to head advisory panel on hen house security.

Saturday
Feb042012

Tea Party and Occupy acting in concert!

In Common Ground for Tea Partiers and Liberals, before the Occupy Movement emerged, I pointed out that liberal ideology and goals have much in common with Tea Party ideology and goals and speculated that there could be a political realignment based on that overlap. The first overt sign I have seen of Tea Party and Occupy working together is in this report from the OccupyLA blog: Protesters Find Common Ground: Tea Party & Occupy Movement Come Together in Worcester MA. Both groups were protesting against the NDAA threat to civil liberties. No indication that there was any commonality on economic issues. From Occupy LA:

More than 100 people who don't agree on much agreed yesterday that a Congress that passes a law permitting the indefinite detention of Americans without charge diminishes the country.

Among them were Sheila, a 68-year-old tea party member from Worcester who brought her sign "What-cha gonna do when They come for you," and Occupy Worcester's Sam Capogrossi. They and a dozen others banged on a 5-gallon plastic container, trying to persuade the drivers in rush-hour traffic on Main Street that the National Defense Authorization Act that passed in December is a threat to their civil liberties. The law permits indefinite detention for terrorism suspects, American or not.

They read in unison the Bill of Rights in the plaza in front of the federal courthouse, under the watchful eyes on three Worcester police officers and two members of Homeland Security's Federal Protective Service. There were no incidents, save for a citation written for defacing public property when an Occupy Worcester member wrote in chalk "Occupy Everywhere" on a column in Federal Plaza.

Members of each group said they admired the other group for its stand on NDAA, but except for a brief speaking portion of event, Occupy Worcester members mostly occupied the north end of the small Federal Plaza Park and tea partiers mostly the south. There was some "good discussion" among the members, but "we're not changing any minds," said Ken Mandile, head of the Worcester Tea Party.

Nevertheless, he said, it is impressive that the groups can put aside their differences to stand for such an important principle as the Bill of Rights.

Occupy Worcester's Jonathan Noble said, "Anarchists, communists, and tea partiers are standing together. Even though I feel a little uncomfortable about what they (tea party members) stand for, I think it's kind of a beautiful thing that we can stand together on this."

Carrying a sign saying "Give Me Liberty," Paxton tea partier Margaret Pennace said. "I think it's a wonderful demonstration of Americanism."

Thursday
Feb022012

Trickle down economics

If image is not visible, click here.

Wednesday
Feb012012

Most read Realitybase posts in January

The Citigroup Plutonomy Memos With key quotations from documents that are being disappeared. This post has been the #1 response to a Google search for "plutonomy memo."

The Dysfunction and Corruption of Our Healthcare System, Its Damage to the National Economy and other Basic Healthcare Matters (Guest Post) Describing a system that is destroying American business global competitiveness, that violates fundamental insurance risk principles, and that has inherent conflicts of interest preventing quality national health care delivery and cost efficiency, and proposing a solution.

U.S. aircraft carrier and 15 other Navy ships sunk in the Strait of Hormuz in 5-10 minutes Reporting on the results of US war games when attacked by large numbers of speed boats and missiles such as Iran has in the hands of Revolutionary Guards reputed to be "cowboys," and suggesting still other ways we might get into an all out war with Iran by accident.

Why We Can't Bring Manufacturing and Innovation Back to America A comprehensive piece on how changes since the 20th Century have been so profound that innovation is moving fast behind manufacturing from the US to China, and why that trend will continue without US government intervention—even in the unlikely event that China were to comply with international law on trade and currency.

The American Dream died in February 1973 This post, which makes the top 10 almost every month, has graphs from multiple sources showing stagnation of inflation-adjusted middle class incomes since the 1970s after strong and steady post-WWII growth

US job creation has been declining since April 2000 and is now in freefall. Discussion around a dramatic graph showing our employment-to-population ratio strongly increasing until 2000 followed by a devastating loss in 10 years of all the gains made in the previous 20 years.

The history of US per-capita petroleum consumption will surprise you.  A graph and other data show US per-capita consumption of petroleum is down substantially from the 1970s, has been very stable since 1983 because of CAFE standards, and has fluctuated only slightly with retail price changes.

Comparative Advantage—The Unicorn of Free Trade A collection of sources and analyses demonstrating that the assumptions of classic Ricardian theory rarely if ever align with real-world conditions.

Two hypotheses for why US CEO pay is so high Charts show that in the US CEO pay is about double that in other advanced countries, implying either that there is a shortage of talent in the US, or that the US CEO pay market is broken.

The Recession is Coming! The Recession is Coming! December 2007 post with charts showing America's middle class had already been in recession for 7 years and asking if we really care about them.

Monday
Jan232012

Why We Can't Bring Manufacturing and Innovation Back to America

Do you understand the causes and consequences of globalization, including the long-term importance to America of its manufacturing base, the same way you understood them ten years ago?  If so, you need to recalibrate, and a good place to start is by reading How the U.S. Lost Out on i-Phone Work in Sunday's NYT. This long and excellent article reports that when President Obama met with Silicon Valley luminaries a year ago, this exchange took place:

But as Steven P. Jobs of Apple spoke, President Obama interrupted with an inquiry of his own: what would it take to make iPhones in the United States?

Not long ago, Apple boasted that its products were made in America. Today, few are. Almost all of the 70 million iPhones, 30 million iPads and 59 million other products Apple sold last year were manufactured overseas.

Why can’t that work come home? Mr. Obama asked.

Mr. Jobs’s reply was unambiguous. “Those jobs aren’t coming back,” he said, according to another dinner guest.

The article goes on to explain why the jobs aren't coming back and, more ominously, why our strategically important "innovation" and high tech jobs are following fast on the heals of the low-paid assembly operations. And the innovation jobs aren't coming back either.

There are some bad policies in China, e.g., cheap and abused labor, currency manipulation, buy-local requirements, lavish subsidies of local industries (especially "strategic" industries), illegal barriers to foreign company operations and imports, insistence on technology transfers ("offsets") from non-Chinese companies, and outright theft of information and technology. Some have imagined that with effective diplomacy and pressure, China might, over time, correct its behavior, and then globalization would bring great benefits to the US too. However, the truth is that manufacturing and innovation will continue consolidating in China and other parts of Asia even if all their predatory policies are suddenly reversed. (They won't be.)

That's what many key insiders and experts realize now that they did not appreciate ten years ago. The experiences and views of some of these others are reported in a post I wrote two years ago and the 20 updates to it, and I'm reposting the whole thing below. But first I would be remiss if I did not mention that Paul Krugman won a Nobel Prize for his ideas of "economic geography" and "new trade theory" based on his 20th Century studies of real world data that revealed these dominating patterns of industry concentration and trade that are contrary to the predictions of classical trade theory Ricardian comparative advantage. [Revised 1/26/12.]

[ADDED 1/26/12: Sorry that wasn't very clear. Krugman et al. observed that in the past similar industries tended to be clustered together geographically, and they try to understand why that happens despite increasing transportation costs for raw materials and final products caused by regional concentration. They conclude that successful clusters have real and substantial economic advantages that don't exist for one setting up a competing firm elsewhere. Among these advantages are localized supplier networks, relative abundance of easy-to-find-and-recruit skilled labor, informal "information spillover," supportive local governments, educational institutions, and infrastructure, etc. Once a cluster gets started, it tends to grow like a snowball and become dominant and self-perpetuating. In this 2010 paper, Krugman notes that, with exceptions like Silicon Valley and Wall Street, the clustering effect in the US seems to have become more subtle than it was 50 years ago, but he points out that China is very visibly forming very distinct clusters now in the way that the US and UK did a century ago. So, in the context of this post, New Economic Geography provides a theoretical explanation for the formation and growth of clusters and the great difficulty of competing with them or dispersing them.]   

Saturday, January 2, 2010 at 02:48PM

Innovation must be located near manufacturing because so much of innovation is learning from and improving manufacturing, according to GE CEO Jeffrey Immelt on this CNBC forum, The Future of "Made in the USA." Others who understand the innovation process have made the same point. I think I first heard it about 30 years ago from Donald Firth after he left the UK's National Engineering Laboratory in Glasgow. This directly contradicts the naïve view that the US can be the global center of high-skill, high-pay "innovation" jobs and that it makes economic sense for low-skill routine manufacturing jobs to go to Asia. In reality, China can do everything the US can do to assemble the best and brightest in innovation centers, but increasingly only the Chinese can locate them near manufacturing centers.

During and after WWII, the US government provided numerous substantial financial incentives for innovation (favorable tax treatment, government contracts, grants to higher education, etc.), and the many resulting innovations created whole new industries and millions of jobs in the US. However, Government subsidies for innovation make much less sense now—and perhaps make no economic sense at all—because now the odds are that most of the jobs resulting from future US innovations will be created in Asia instead of here. This means that nations like China can get much more bang for their innovation subsidy bucks than can the US because a much higher proportion of the benefits will be in China.

Bad as that is, we're helping our competitor nations by educating more of their students and fewer of our own in America's best universities, and not many of them plan to stay here. Those who still believe the world sees the US as the land of opportunity should recalibrate. A survey of 1,224 foreign nationals from India, China, and Western Europe studying at U.S. universities and colleges - or who had graduated by the end of the 2008 academic year - primarily in engineering, business and economics, computer science and biological sciences, funded by the Ewing Marion Kaufman Foundation and reported here, found:

Just 7 percent of Chinese students and 25 percent of Indian students surveyed said the best days for the United States economy lie ahead.

Approximately 74 percent of Chinese students and 86 percent of Indian students said their home countries' economies will grow faster in the future than they have in the past decade.

Most foreign students said innovation will occur faster over the next 25 years in India and China than in the United States.

Some 76 percent of Chinese students and almost 84 percent of Indian students said it would be difficult to find a job in their field in the United States.

While 58 percent of Indian, 54 percent of Chinese and 40 percent of European students want to stay in the United States for a few years after graduation, only 6 percent of Indian students, 10 percent of Chinese students and 15 percent of European students said they wanted to remain permanently.

Circling back to Jeffrey Immelt, under his leadership GE has located its clean coal technology global innovation center in China. My advice to American teenagers who want to achieve big things in science or engineering: Become fluent in Mandarin and accept the idea of being part of privileged technocratic class in a politically oppressively and highly-polluted nation.

At many top schools, including my own, international students constitute from 30% to 70% of the doctoral candidates in math, physics and chemistry.

The situation might be tolerable, if embarrassing, were it not for recent changes in world economies and attitudes toward science and education. As a result of dramatically increased investment by other countries in science, the brain drain is not just slowing, it appears to be changing direction.

International students and post-docs are returning to their home countries in much greater numbers after reaping the benefits of an American education, and many who have worked for years at U.S. companies and universities are being lured home by offers of new labs, easy access to research funding and the comforts of their native culture.

UPDATE 1/5/10: As relative incomes, wealth, tax bases, and preparatory education systems in the US decline versus China, India, etc., financial pressures on US universities, especially state-supported universities, will lead to admission of an even higher proportion of foreign students. Current events at Berkeley:

The chancellor also decided to gradually increase Berkeley's out-of-state inrollment from 9.5 to twenty percent.  Out-of-state students pay more than triple the in-state fees, and the admissions measure would eventually generate an extra sixty million dollars for the campus--while, of course, reducing access for Californians.

UPDATE 7/15/10: The Los Angeles Times reports that Berkeley actually increased out-of-state enrollment to 22.6% and UCLA to 14.9% in this fall's entering classes, all very deliberately to offset decining State government subsidies. The less prestigious UC campuses have lower percentages of out-of-state and foreign students. 

Update on Sunday, January 3, 2010 at 11:58AM

Tyler Cowen exults that China, India, Indonesia, and Brazil have enjoyed a decade of very robust growth “while it’s questionable whether the decade as a whole has been good for Americans, economically speaking. Median wages have not risen much, if at all, and the costs of the financial crisis and irresponsible fiscal policies have become increasingly obvious.”  But that’s OK, he says, because the wealth and innovation of other nations will be good for America too, "if only for the longer run,” which he does not define. 

It might be pleasant to boast that America is — or should be — a world leader in every area, but the practical reality is that if some other country solves the problem of green energy, so much the better for us.

The subtler point is that a wealthier China, India, Brazil and Indonesia will lead to more customers for new innovations, thereby producing greater rewards for successful entrepreneurs, no matter where they live. There are so many improvements in cellphones these days because there are so many cellphone customers in so many countries.

To put it bluntly, if the United States takes one step back and the rest of the world takes two steps forward, even in purely selfish terms we should consider accepting the trade-off, if only for the longer run. Most of us gain from the wealth and creativity of other countries, even if we can’t always feel like the top dog.

Cowen implies that the benefits of innovation get distributed equally among trading partners and that, therefore, it doesn’t matter where innovations occur and that we can be a free rider on the investments of other nations. I’m pretty sure that’s not how those other nations intend to divide up the benefits. If America does not write for its future a script that does not depend for success on mere slogans like “education” and “innovation,” our future will be written for us by the Chinese.  Here’s a preview of what that could be like

The new Google smart phone may have been innovated in Silicon Valley, but it will be entirely manufactured in and shipped from Taiwan, completely eliminating the American distribution/retail system, according to this LAT report:

In an ambitious bid to expand its reach even to consumers on the go, Google Inc. on Tuesday unveiled the widely anticipated Nexus One smart phone as it launched a bold new business model that could shake up the mobile phone industry.

The Internet giant began selling the phone -- manufactured to its specifications by a Taiwanese firm -- directly to consumers through its website rather than through retail outlets and service providers.

This NYT story illustrates another way in which manufacturing is connected to innovation—venture capital.  Asian manufacturers are desperate to get in on the ground floor of innovations because stagnation would endanger their core manufacturing business.  (Once everybody in the world owns one of your gizmos, your business is finished unless you can replace all the gizmos with the next new thing.)  Therefore, they will outbid US venture capitalists for control of Silicon Valley innovators—i.e., they will take bigger risks and accept the potential of lower returns than the VCs. 

The investment arms of large Taiwanese and Chinese manufacturers have created an investment network in Silicon Valley operating under the radar that pumps money into a variety of chip, software and services companies to gain the latest technology. As a result, some Asian manufacturers have proved more willing than entrenched Silicon Valley venture capitalists to back some risky endeavors.

“In the past, the manufacturers would sneak around and get inside information on technology by investing in these companies,” said K. Bobby Chao, the managing partner at DFJ DragonFund China, a business that invests in technology companies in China and the United States. “Now, they’re more involved, more visible and charging after more complex maneuvers.”

. . . .

Asian investments in Silicon Valley present some risks for America’s top technology companies, which could lose their connection to top innovations.

Asian manufacturers like Foxconn or Quanta, as a result, could wrestle away the edge in research and design.

“The manufacturers have gotten more competitive as it relates to innovation, and in some instances they’re already competing directly with their customers,” said Patrick Moorhead, a vice president at Advance Micro Devices, a major PC chip maker.

. . . .

Some former manufacturers have already made the transition and are gaining global brand recognition. Acer and Asustek are Taiwan’s most prominent computer brands, but both companies were contract fabricators for major American companies. Some of their executives steeped in this manufacturing tradition now run the investment arms of the companies.

. . . .

The Asian companies often back projects that Silicon Valley’s financial heavyweights pass on because pay offs are too low and take too long. The Asian companies are “thinking that they didn’t get their fair share of the technology pie in the past,” Mr. Chao said. “Now they have money and will take the risks needed to build up new levels of expertise.”

And this statement from the same article presages Asian companies bringing the innovation effort to Asia, either altogether or at an earlier stage in the development process than Americans would hope. 

With $115 million at its disposal, Innovation Works, based in Beijing, has pledged to “build dream teams to collect, analyze, prioritize and execute on the most promising ideas” in the Internet and mobile computing markets.

Update on Thursday, January 7, 2010 at 08:28AM 

More anecdotes about top Chinese scientists going home and China's determination to outspend the US on innovation, in this NYTimes piece today:

China’s leaders . . . . are [d]etermined to reverse the drain of top talent that accompanied its opening to the outside world over the past three decades, they are using their now ample financial resources — and a dollop of national pride — to entice scientists and scholars home.

The West, and the United States in particular, remain more attractive places for many Chinese scholars to study and do research. But the return of Dr. Shi and some other high-profile scientists is a sign that China is succeeding more quickly than many experts expected at narrowing the gap that separates it from technologically advanced nations.

China’s spending on research and development has steadily increased for a decade and now amounts to 1.5 percent of gross domestic product. The United States devotes 2.7 percent of its G.D.P. to research and development, but China’s share is far higher than that of most other developing countries.

Chinese scientists are also under more pressure to compete with those abroad, and in the past decade they quadrupled the number of scientific papers they published a year. Their 2007 total was second only to that of the United States. About 5,000 Chinese scientists are engaged in the emerging field of nanotechnology alone, according to a recent book, “China’s Emerging Technological Edge,” by Denis Fred Simon and Cong Cao, two United States-based experts on China.

A 2008 study by the Georgia Institute of Technology concluded that within the next decade or two, China would pass the United States in its ability to transform its research and development into products and services that can be marketed to the world.

“As China becomes more proficient at innovation processes linking its burgeoning R.&D. to commercial enterprises, watch out,” the study concluded.

Here's another example of almost all of the job-creation benefits of US innovation being realized in China. ESolar, a part of well-known technology incubator IdeaLab, is transferring its solar thermal power generation technology to China where all of the manufacturing will be done.

ESolar already manufactures its heliostat arrays in China, and under the terms of the agreement with Penglai it will also build its power plant receivers there. Gross said that ESolar would retain control of the intellectual property behind the technology's design and operation.

Nathaniel Bullard, a solar energy analyst with consulting firm Bloomberg New Energy Finance, said the ESolar deal indicated China was moving aggressively to pinpoint technologies around the world that could help it meet its ambitious renewable energy goals.

"If you're identified by China as a leading technology developer, the technology will be imported with the implication that your technology will over time become local," he said. "You effectively have one stakeholder, the government, which makes development much easier."

Emphasis added. No doubt ESolar will receive a royalty for the use of its technology, probably in the neighborhood of 5%. That means for every $100 of economic activity generated in the manufacture, $95 will enter the Chinese economy through payments to its suppliers, workers, taxes, and payouts to capital, and $5 will enter the US economy through payments to ESolar. As far as I know, other than investment tax credits, there was no US public money invested in ESolar, nor should there be public money invested in similar technology development ventures (or even tax benefits) when the benefits fall so disproportionately abroad.

Here’s an example of how many jobs can be created by successful innovation compared to the small number of jobs involved in the actual innovation:  

The Obama administration will announce on Monday funding for nine projects designed to significantly increase fuel efficiency in heavy trucks and passenger vehicles, with more than half the money coming from the $787 billion stimulus package.

. . . .

According to the administration, the nine recipients are expected to create more than 500 research, engineering and management jobs, with 6,000 more positions anticipated when the technologies go into production and assembly.

This investment by USG could be a good deal for America if those 6,000 production jobs were going to be long-term jobs for Americans, but if those 92% of the total jobs created are going to be in China, “American” companies should apply to the Chinese government for the R&D funding.

Here's another example, reported by Tom Friedman, of how innovation centers get collocated with manufacturing. Applied Materials in Silicon Valley makes the machines that make computer chips and photovoltaic solar panels. It has equipped 14 PV plants around the world, generating $1.3 billion in the last year. How many of those PV plants are in the US?  None.  Five are in Germany (a high wage nation), four are in China, one is in Spain, one is in India, one is in Italy, one is in Taiwan, and one in Abu Dhabi.

Joe Romm, whose post today brought this to my attention, and Friedman also make another good point, that a big reason why PV plants are being built where they are is that national governments have arranged in various ways to make sure there are big and growing domestic markets for PV power generation. (I wonder to what extent those "arrangements" favor domestic manufacture.) China has recently made a big and credible commitment to green power.  The US has not. Friedman:

In October [2009], Applied will be opening the world’s largest solar research center — in Xian, China. Gotta go where the customers are.

If America wants to keep the high-paying innovation jobs, it also needs to keep the manufacturing jobs to which they are related, and there also need to be big domestic markets for the manufactured goods.  The industrial force can't function with all the generals and colonels here and all of the privates and sergeants an ocean away.

A recent report by Silicon Valley researchers, reported here in NYT, looks beyond the deep recession and high unemployment rates there and sees this (emphasis added): 

Even when the trauma of the financial crisis subsides, Silicon Valley will still be at risk because of deeper, long-term challenges, the report said.

Sixty percent of the region’s scientists and engineers are foreign-born, but foreign immigration to the region dropped 34 percent over the last year. The home countries of foreigners are increasingly luring them back, while the United States government’s policies have made it harder for them to stay, the report said.

To combat the brain drain, California must do a better job educating local students, said Stephen Levy, director and senior economist of the Center for Continuing Study of the California Economy, who also serves as an adviser to the annual study. “We’re not going to be able to live on global talent forever,” Mr. Levy said.

However, 5 percent fewer high school graduates are meeting requirements for entrance to state universities, the number of science and engineering degrees has leveled off and state general fund spending on higher education dropped 17 percent last year, according to the report.

Harvard Business School Professor Willy Shih has a pending paper titled The US Can't Manufacture the Kindle, and That's a Problem. Although key parts of the device, including the "ink" were innovated by US companies they outsourced the bulk of the manufacturing value added to Asia.  According to Shih, further innovation in these components is now likely to occur where the manufacturing is done.  It gets worse. The Cambridge, MA "ink" innovator, E Ink, is trying to sell itself to its Asian manufacturer, which seems to be making more profit on the screen than E Ink is.  Mark Muro reported this here in The New Republic. Thanks to Christine for the link.

Boeing's most advanced wing technology--composite constructions--developed in part with US government financing is being offshored to reduce manufacturing costs, according to Charles A. Hamilton in the Seattle Times:

The global alignment of economic power and technology leadership is changing. Boeing has given composite wing technology to its Japanese business partners and outsourced much of its manufacturing to others in the interest of "shareholder value" and the harvesting of its product line. One wonders, in the end, whether Boeing may have set the stage for the destruction of its strategic value to the United States.

Bye, bye, Mark Pinto. The chief technology officer of Applied Materials and the firm's technology center have both moved from Silicon Valley to China.

In addition to moving Mr. Pinto and his family to Beijing in January, Applied Materials, whose headquarters are in Santa Clara, Calif., has just built its newest and largest research labs here. Last week, it even held its annual shareholders’ meeting in Xi’an.

Chinese wind turbine companies are squeezing out Western companies like GE and Vestas, who have superior technology, with buy local policies. Although Western companies are getting royalities on the older technology they have licensed to Chinese companies, a royalty is smaller than a manufacturing profit, and it creates no US jobs. From this Bloomberg report:

Chinese companies have kept costs down by licensing older technology from overseas rivals, including Vestas, Japan’s Mitsubishi and others that sell their own turbines in China.

While the Chinese pay royalties to the foreign firms, those payments don’t come close to making up for the business the foreign companies are losing in China, according to Emerging Energy Research’s Hays.

China’s so-called “buy local” policy steers most state- financed energy contracts to domestic players, said Magued Eldaief, a GE Energy executive who formerly oversaw the Fairfield, Connecticut, company’s Asia Pacific unit.

“There’s no question preference is given to Chinese companies,” Eldaief said. “It’s a reality you have to live with.”

The US is continuing to shift to Asia better and better high tech jobs, according to this NYT report

[C]omputer scientists, systems analysts and computer programmers all had unemployment rates of around 6 percent in the second quarter of this year, [which is] significantly higher than the unemployment rates in other white-collar professions.

If and when there is a cyclical uptick in US high tech employment, it will probably continue to be overwhelmed by the structural downward trend for this work to be done offshore. 

The disappointing hiring trend raises questions about whether the tech industry can help power a recovery and sustain American job growth in the next decade and beyond. Its tentativeness has prompted economists to ask “If high tech isn’t hiring, who will?”

“We are talking about people with very particular, advanced skills out there who are at this point just not needed anymore,” says Bart van Ark, chief economist at the Conference Board, a business and economic research organization. “Even in this sector, there is tremendous insecurity.”

When Immelt said innovation and manufacturing must be co-located it was no slip of the tongue or off-hand remark. He hammers this theme every chance he gets, in this December 2010 CNBC clip, for example.

The domestic printed circuit board industry has departed for Asia, leaving only enough at home to supply the US military. But that can last only as long as the US military doesn't need the latest technology because PCB innovation has moved where the manufacturing is.  An interview with Doug Bartlett on his decision to liquidate the oldest PCB manufacturing operation in America is here.

Chinese venture capitalists are becoming big players in high tech and clean tech, and their funding is easier to get than in the US.  Climate Progress has the story here. This is a further indication that the notion that America can let go of manufacturing but keep innovation isn't working and can't work.

Dave Johnson's lede today in National Science Board Report: US Losing R&D Jobs To Asia:

The United States is losing ever more jobs and becoming ever less competitive as our universities are cut back and companies move R&D jobs to Asia. We lost 687,000 high-tech manufacturing jobs lost since 2000. Universities cut back 20% on public research. 85% of growth in R&D employment by American companies occurred abroad.

Friday
Jan202012

Republic lost and how we might get it back—Lawrence Lessig lecture 

I want to give my very strong recommendation for this YouTube video presentation by Lawrence Lessig AtGoogleTalks. (H/t Christine) It's 57 minutes with introduction and Q/A, but I recommend you budget a few extra minutes because you'll want to think about it afterward. The video is embedded below, and Lessig's book on this subject is here. But first here's the summary posted at YouTube.

In an era when special interests funnel huge amounts of money into our government-driven by shifts in campaign-finance rules and brought to new levels by the Supreme Court in Citizens United v. Federal Election Commission-trust in our government has reached an all-time low. More than ever before, Americans believe that money buys results in Congress, and that business interests wield control over our legislature.

With heartfelt urgency and a keen desire for righting wrongs, Harvard law professor Lawrence Lessig takes a clear-eyed look at how we arrived at this crisis: how fundamentally good people, with good intentions, have allowed our democracy to be co-opted by outside interests, and how this exploitation has become entrenched in the system. Rejecting simple labels and reductive logic-and instead using examples that resonate as powerfully on the Right as on the Left-Lessig seeks out the root causes of our situation. He plumbs the issues of campaign financing and corporate lobbying, revealing the human faces and follies that have allowed corruption to take such a foothold in our system. He puts the issues in terms that nonwonks can understand, using real-world analogies and real human stories. And ultimately he calls for widespread mobilization and a new Constitutional Convention, presenting achievable solutions for regaining control of our corrupted-but redeemable-representational system. In this way, Lessig plots a roadmap for returning our republic to its intended greatness.

While America may be divided, Lessig vividly champions the idea that we can succeed if we accept that corruption is our common enemy and that we must find a way to fight against it. In Republic, Lost, he not only makes this need palpable and clear-he gives us the practical and intellectual tools to do something about it.

The video is on YouTube here.

I am completely on board with this because the core problem is obvious, and there is no way to solve it except by Constitutional amendment. I called for that nearly two years ago. A Constitutional amendment to undo Citizens United  Last October, I suggested that the Occupy Movement adopt as their core unifying demand, "We demand free and fair elections untainted by Big Money," and Lessig seems to makes the same recommendation.

There are several grass roots movements underway (e.g., here, here, here, here, and here) to get a Constitutional amendment, and more than a handful of bills have been drafted. Some bills want to undo corporate "personhood" and/or "citizenship." Others would limit corporate contributions in very specific ways. With the help of other lawyers, I developed and posted a draft, and later added proposals by others (including Lessig), here. At first, when I was invited to sign petitions urging adoption of a Constitutional amendment along these lines, I thought about whether I could really agree with the overall approach and every detail such as how it deals (or doesn't deal) with freedom of the press, whether non-corporate entities (such as unions and trade associations) and wealthy individuals would also be covered, and if corporations would also be deprived of other civil liberties such as right to trial by jury, right to counsel, freedom from unlawful searches and seizures, etc. In particular, I think that the focus on "corporate personhood" is wrong, but that is the one thing that sparks the most popular anger.

However, I now think the right approach is to ignore all those details for now because we are a long, long way from drafting anything that will actually come to a vote. Instead, let's give our maximum support to creating an emotional tidal wave for the overall concept of amending the Constitution to fix the one-dollar-one-vote problem. If we are successful in that, there will be a process (in Congress or, as Lessig suggests, a Constitutional convention) to draft the specific language, and those of us who helped get that process established will have to trust the process.

Friday
Jan132012

U.S. aircraft carrier and 15 other Navy ships sunk in the Strait of Hormuz in 5-10 minutes

That was the result of a war game conducted by our Defense Department in 2002 and reassessed in 2008, according to this NYT article. The key advantage of the unnamed attack force was asymmetric warfare using large numbers of cheap speedboats (like Iran's) and cruise missiles overwhelmed the Navy's ability to deal with all of them fast enough. From the article:

The United States and Iran have a history of conflicts in the strait — most recently in January 2008, when the Bush administration chastised Iran for a "provocative act" after five armed Iranian speedboats approached three American warships in international waters, then maneuvered aggressively as radio threats were issued that the American ships would be blown up. The confrontation ended without shots fired or injuries.

In 2002, a classified, $250 million Defense Department war game concluded that small, agile speedboats swarming a naval convoy could inflict devastating damage on more powerful warships. In that game, the Blue Team navy, representing the United States, lost 16 major warships — an aircraft carrier, cruisers and amphibious vessels — when they were sunk to the bottom of the Persian Gulf in an attack that included swarming tactics by enemy speedboats.

"The sheer numbers involved overloaded their ability, both mentally and electronically, to handle the attack," Lt. Gen. Paul K. Van Riper, a retired Marine Corps officer who served in the war game as commander of a Red Team force representing an unnamed Persian Gulf military, said in 2008, when the results of the war game were assessed again in light of Iranian naval actions at the time. "The whole thing was over in 5, maybe 10 minutes."

There seems to be a consensus that the US military could reopen the Straits of Hormuz to oil tankers, although it might take months to do so, but we would be at war with Iran with all that implies: Eliminating Iran's navy, air defenses, aircraft, and missiles; deciding whether to blockade Iranian oil exports and refined product imports and whether to interdict the shipping of neutral nations to/from Iran; how to deal with Iran's plentiful ground forces in Iraq, Afghanistan, and elsewhere; how to deal with assassinations and increased terrorism around the world; controlling Iran from the air for decades as we did the vastly smaller Iraq; deciding what degree of revenge is required by US domestic politics for the embarrassment of an initial naval defeat; etc. The US might be able in some sense to "win" such a war, but we could not control it.

Many say, and I agree with them, that the Iranians must surely understand that it would be a disaster for them. However, it is not rare for isolated dictators to miscalculate and/or do irrational things. Recall Japan's attack on Pearl Harbor and Saddam's invasion of Kuwait, for examples. The NYT article also highlights the risk that the Revolutionary Guards navy, which operates the speed boats and other forces, are "cowboys" and capable of "buffoonery." We could get into a war with Iran that its top leadership did not intend.

In any confrontation or negotiation, it is useful to make your adversary think you are crazy and therefore capable of grossly irrational and self-destructive acts. So for Iran to be engaging in brinksmanship and acting crazy is not a surprise, but I fear they may actually be crazy. And if they aren't yet, continued assassinations of Iran's political, military, and technological figures by Israel's Mossad may push them over the edge into popular or leadership irrationality and martyrdom.

I believe the US is better able to tolerate a nuclear-armed Iran than another war in the Middle East tinder box. We should be taking these risks of unintended war more seriously than I think we are, and not get too close to the edge. Iran is not China or Russia, but it's a much bigger adversary than Iraq, Afghanistan, or Vietnam, and we should not want to find out if we can handle Iran or at what cost.