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.

Thursday
Jan122012

What's wrong with economists?

This is a question not easily answered, but Noah Smith, a candidate for a Ph.D. in economics, makes a really good effort here in his Noahpinion blog. He discusses both clearly and at length the scientific deadend of deducing theories that don't fit real-world data and the equally sterile pursuit of mining data but inducing no explanatory theories. An economist--or other scientist--who does only one or only the other is stuck, which is what economics has been for a long time.  Smith points to some green shoots he hopes mean economists may be getting unstuck.

Thursday
Jan122012

When Mitt Romney Came to Town

Here are two versions of the video attack on Romney by Gingrich's Super Pac. It makes the case that in the much-admired "creative destruction" of capitalism, Bain Capital under Romney's leadership devoted itself to destruction and left creation to others.

The 3-minute trailer:

The full 28-minutes:

The full version is also available here.

For a brief explanation of the private equity business model, I recommend this Mike Konczal interview of Josh Kosman, author of The Buyout of America: How Private Equity Is Destroying Jobs and Killing the American Economy,

Saturday
Jan072012

At what point does a war with Iran become inevitable? 

Is that point in the very near future? Is it possibly in the past?

There is pending in the Iranian parliament, probably with the support of higher authorities, a bill to prohibit all foreign warships from entering the Persian Gulf unless they received permission from the Iranian navy, according to this WaPo report. If enacted, that would deprive the US of practical control of the situation, wouldn't it?  At present, we can send warships--or not send them--into the Gulf to send whatever bellicose or accommodating message we wish to send Iran.  But if Iran officially forbade our ships from entering the Gulf, how could the US not send ships in to vindicate our right to do so?  And how could the Iranians not try to sink them? 

Yesterday, I warned here that Iran may "overreact" to our pending new sanctions on oil exports and central bank transactions and surprise us, as Japan surprised us in 1941, by taking the go-to-war decision out of our hands.

At The Independent, Trita Parsi reminds us (h/t Christine) that we may not be able to postpone, ease, suspend, or end sanctions as quickly and as easily as most of us might assume.

The temperature between the West and Iran has increased dramatically. Escalation by both sides coupled with a reckless discourse that has normalised the idea of war have created an environment where military confrontation is a rising probability. The next escalatory step pondered by Europe - in the midst of its own economic crisis - is a total embargo on Iranian oil. An idea that a few months ago was considered a non-starter  now has an air of inevitability.

Sanctions are rarely effective. But right before their imposition - at the moment where they remain a withdrawable threat - their effectiveness is at their height. The challenge with multilateral sanctions, however, is that the diplomatic resources required to create concensus around sanctions are so great that once the sanctions threat gains momentum, the commitment of the sanctioning countries to this path tends to become irreversible. Rather than utilising the threat of sanctions to compel a change in policy, they tend to confuse the means with the goal. Backing down from the threat becomes too costly so sanctions become unstoppable - and ineffective.

This is what happened in May 2010 when the Obama administration and the EU opted for a new round of UN Security Council sanctions on Iran even though Tehran at the last moment succumbed to Western demands on a fuel swap offer.

Read the rest of the Parsi article.

Friday
Jan062012

The Iraq War was a disaster; onward to Iran.

Wednesday evening I went to Congressman Howard Berman's town hall meeting, as did about 1000 other constituents.  Berman was chairman of the House Committee on Foreign Affairs until 2009 and is now the ranking member. One early question from the audience was whether, with the Iraq War now officially over, he regretted his vote to authorize the 2003 invasion.  A short summary of his somewhat agonized and internally inconsistent answer:  Yes, but it was the right vote at the time based on the facts as I understood them.  Those facts were, he said, that Saddam had biological and chemical weapons and had restarted work to develop nuclear weapons.  He was confident that was true especially because the guy who went there after the invasion and ran the team that eventually found zero WMDs, Charles Duelfer, assured him before his vote that was all true. 

In response to another question, he said he is beginning to feel that the US cannot achieve stability in Afghanistan next year—or in 5 years or in 10 years—so long as the Taliban have safe sanctuary and support of ISI in Pakistan and that, therefore, maybe we should consider leaving sooner rather than later.  (Enthusiastic applause here.)  

In contrast to these statements, in what seemed to me his cognitive dissonance, Berman opened the meeting by taking personal credit for getting new sanctions on Iran written into the recent National Defense Authorization Act "because we cannot allow Iran to have nuclear weapons" (just as we could not allow Iraq to have WMDs). The sanctions are designed to shut off the sale and shipment of at least half of Iran's oil, and banking restrictions that will make it difficult for Iran to receive payment for any exports.  In response to questions, Berman expressed great confidence that the Iranian government will yield to these sanctions and give up their nuclear aspirations—i.e., zero probability of the Gulf being closed to oil tanker traffic or an actual shooting war with missiles flying all over the Middle East and US aircraft carriers being sunk.  I hope he's right, but his track record on such judgments does not inspire confidence.

These new Iraq sanctions sounded familiar to me, and I looked up the history of US-Japan relations in 1941.  Along with the UK and Netherlands East Indies, the US initiated an oil embargo against Japan in August 1941.  Since Japan was getting 80% of its oil from the US (we were an exporter then), we presumably thought this pressure would inevitably drive the Japanese government to the negotiating table and agree to leave China and curb its expansionist policies.  The Japanese did come to the negotiating table—but only to gain time for their military to complete plans to invade Indonesia to grab its oil—after neutralizing the US navy.  Those plans were fully developed by October 16 and approved by the Emperor on November 5.  The Japanese attack fleet sailed on November 26 and arrived off Hawaii on December 7.  Quelle surprise, the Japanese decision makers did not see the situation in exactly the same way as the US government thought they rationally must see it.  Instead, they took what they knew was a huge risk, starting a war with the US.

Today, we seem to know as little about the inner workings of Iran as we did in 1941 of the inner workings of Japan.  There is great potential for misunderstanding and miscalculation on both sides here. Consequently, in my opinion, there is a substantial risk that the result of our new sanction regime is going to be worse than Iran having nuclear weapons.  The Guardian reports that Gary Sick seems to agree:

Another flashpoint could come in June, when US sanctions on the trade in Iranian oil come into effect. Gary Sick, an Iran expert and former White House policy adviser now at Columbia University, said such measures were "the equivalent of a military blockade of Iran's oil ports, arguably an act of war".

"The main reason why Iran's putative threat to close the strait of Hormuz was dismissed is because Iran also relies on the strait to export its own oil," Sick wrote in his blog. "But if Iran's oil revenue – 50% of its budget – is cut off, they would have little to lose by striking out at those they hold responsible, including passage through the strait of Hormuz.

"Iran cannot defeat the US navy, but the swarms of cruise missiles they could fire, both from shore and from their fleet of speedboats, could create havoc, as could the flood of mines they could put into the fast-moving waters of the strait."

We should not be contemplating war with Iran. We are no longer powerful enough (if we ever were) to pull this off. We don't have the manpower to invade and control Iran, but it has the manpower to go into Iraq and Afghanistan and elsewhere. Successful terrorist attacks in the US, Israel, and elsewhere would skyrocket. The whole Middle East would be in violent turmoil for years or decades. Every other nation would be convinced (if they have not already been convinced) that the only way to avoid attack is to have nuclear weapons (like Pakistan and North Korea, for example). A doubling of world oil prices would finish off the US economy. The American Century would end in flames and death and devastation. Yet it looks as though our official train is building momentum in that direction, and that only the American public might be able put on the brakes.

Why are many of the same people who are so timid about starting trade wars so bold about real wars?

Saturday
Dec312011

Most read Realitybase posts in December

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 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

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 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.

US police departments have been "Israelified" to fight "crimiterror." Federal, state, and local law enforcement agencies all over America are being trained by Israeli agencies not just in counterterrorism, intelligence gathering, and transportation security but also in crowd control. Bye bye community policing; hello police at war with their communities.

Is the New York Times editorial board adapting to reality, or is this cognitive dissonance? In August 2008 the NYT editorial board acknowledged that globalization is one of the reasons "Americans are working harder and not getting ahead," but it continues to urge readers to "embrace" globalization.

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 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 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
Dec052011

US police departments have been “Israelified” to fight “crimiterror.”

Discussion in an email forum about the sometimes-violent police responses to peaceful Occupy demonstrators evoked this odd and disturbing story. The Bureau of Reclamation is proposing to relocate the road over little Vallecito dam in remote southwestern Colorado because, according to BuRec

[N]ew concerns about keeping federal facilities safer from possible terrorist attacks have resulted in the Bureau of Reclamation (Reclamation) restricting access to its dams. Relocating this road would also help achieve this need.

A local resident who is in our forum reported this:

[T]he head of BOR, at an open public meeting at the community center, told me that no, he couldn't answer the question about whether it was true or not that Homeland Security paid for the road, and that I should get used to not knowing things. "It's as if you are living in Israel from now on and you should get used to this." I swear to God, he really said those words you are living in Israel to me, in the open, at this meeting. I've had TSA people in the airport throw Israel at me as well. Someone is training them, telling them to say this.

Whether government officials are trained to refer to Israel or whether such statements are unauthorized candor is unkown, but Max Blumenthal says in this long and extensively-sourced investigative report that federal, state, and local law enforcement agencies all over America are being trained by Israeli agencies not just in counterterrorism, intelligence gathering, and transportation security but also in crowd control. Bye bye community policing; hello police at war with their communities.

Some excerpts from the Blumenthal piece:

The process of Israelification began in the immediate wake of 9/11, when national panic led federal and municipal law enforcement officials to beseech Israeli security honchos for advice and training. America's Israel lobby exploited the climate of hysteria, providing thousands of top cops with all-expenses paid trips to Israel and stateside training sessions with Israeli military and intelligence officials. By now, police chiefs of major American cities who have not been on junkets to Israel are the exception.

"Israel is the Harvard of antiterrorism," said former US Capitol Police Chief Terrance W. Gainer, who now serves as the US Senate Sergeant-at-Arms. Cathy Lanier, the Chief of the Washington DC Metropolitan Police, remarked, "No experience in my life has had more of an impact on doing my job than going to Israel." "One would say it is the front line," Barnett Jones, the police chief of Ann Arbor, Michigan, said of Israel. "We're in a global war."

. . . .

The Jewish Institute for National Security Affairs (JINSA) is at the heart of American-Israeli law enforcement collaboration. JINSA is a Jerusalem and Washington DC-based think tank known for stridently neoconservative policy positions on Israel's policy towards the Palestinians and its brinkmanship with Iran. The group's board of directors boasts a Who's Who of neocon ideologues. Two former JINSA advisors who have also consulted for Israeli Prime Minister Benjamin Netanyahu, Douglas Feith and Richard Perle, went on to serve in the Department of Defense under President George W. Bush, playing influential roles in the push to invade and occupy Iraq.

Through its Law Enforcement Education Program (LEEP), JINSA claims to have arranged Israeli-led training sessions for over 9000 American law enforcement officials at the federal, state and municipal level. "The Israelis changed the way we do business regarding homeland security in New Jersey," Richard Fuentes, the NJ State Police Superintendent, said after attending a 2004 JINSA-sponsored Israel trip and a subsequent JINSA conference alongside 435 other law enforcement officers.

During a 2004 LEEP trip, JINSA brought 14 senior American law enforcement officials to Israel to receive instruction from their counterparts. The Americans were trained in "how to secure large venues, such as shopping malls, sporting events and concerts," JINSA's website reported. . . .

Cathy Lanier, now the Chief of Washington DC's Metropolitan Police Department, was among the law enforcement officials junketed to Israel by JINSA. "I was with the bomb units and the SWAT team and all of those high profile specialized [Israeli] units and I learned a tremendous amount," Lanier reflected. "I took 82 pages of notes while I was there which I later brought back and used to formulate a lot of what I later used to create and formulate the Homeland Security terrorism bureau in the DC Metropolitan Police department."

Some of the police chiefs who have taken part in JINSA's LEEP program have done so under the auspices of the Police Executive Research Forum (PERF), a private non-governmental group with close ties to the Department of Homeland Security. Chuck Wexler, the executive director of PERF, was so enthusiastic about the program that by 2005 he had begun organizing trips to Israel sponsored by PERF, bringing numerous high-level American police officials to receive instruction from their Israeli counterparts.

PERF gained notoriety when Wexler confirmed that his group coordinated police raids in 16 cities across America against "Occupy" protest encampments. As many as 40 cities have sought PERF advice on suppressing the "Occupy" movement and other mass protest activities. Wexler did not respond to my requests for an interview.

. . . .

Besides JINSA, the Anti-Defamation League (ADL) has positioned itself as an important liaison between American police forces and the Israeli security-intelligence apparatus. . . . Through the ADL's Advanced Training School course on Extremist and Terrorist Threats, over 700 law enforcement personnel from 220 federal and local agencies including the FBI and CIA have been trained by Israeli police and intelligence commanders. This year, the ADL brought 15 high-level American police officials to Israel for instruction from the country's security apparatus. According to the ADL, over 115 federal, state and local law enforcement executives have undergone ADL-organized training sessions in Israel since the program began in 2003. "I can honestly say that the training offered by ADL is by far the most useful and current training course I have ever attended," Deputy Commissioner Thomas Wright of the Philadelphia Police Department commented after completing an ADL program this year. . . .

The ADL claims to have trained over 45,000 American law enforcement officials through its Law Enforcement and Society program, which "draws on the history of the Holocaust to provide law enforcement professionals with an increased understanding of…their role as protectors of the Constitution," the group's website stated. All new FBI agents and intelligence analysts are required to attend the ADL program, which is incorporated into three FBI training programs. According to official FBI recruitment material, "all new special agents must visit the US Holocaust Memorial Museum to see firsthand what can happen when law enforcement fails to protect individuals."

Fighting "crimiterror"

Among the most prominent Israeli government figure to have influenced the practices of American law enforcement officials is Avi Dichter, a former head of Israel's Shin Bet internal security service and current member of Knesset who recently introduced legislation widely criticized as anti-democratic. During the Second Intifada, Dichter ordered several bombings on densely populated Palestinian civilian areas, including one on the al-Daraj neighborhood of Gaza that resulted in the death of 15 innocent people, including 8 children, and 150 injuries. "After each success, the only thought is, 'Okay, who's next?'" Dichter said of the "targeted" assassinations he has ordered.

Despite his dubious human rights record and apparently dim view of democratic values, or perhaps because of them, Dichter has been a key figure in fostering cooperation between Israeli security forces and American law enforcement. In 2006, while Dichter was serving at the time as Israel's Minister of Public Security, he spoke in Boston, Massachusetts before the annual convention of the International Association of Chiefs of Police. Seated beside FBI Director Robert Mueller and then-Attorney General Alberto Gonzalez, Dichter told the 10,000 police officers in the crowd that there was an "intimate connection between fighting criminals and fighting terrorists." Dichter declared that American cops were actually "fighting crimiterrorists." The Jerusalem Post reported that Dichter was "greeted by a hail of applause, as he was hugged by Mueller, who described Dichter as his mentor in anti-terror tactics."

. . . .

"Occupy" meets the Occupation

When a riot squad from the New York Police Department destroyed and evicted the "Occupy Wall Street" protest encampment at Zuccotti Park in downtown Manhattan, department leadership drew on the anti-terror tactics they had refined since the 9/11 attacks. According to the New York Times, the NYPD deployed "counterterrorism measures" to mobilize large numbers of cops for the lightning raid on Zuccotti. The use of anti-terror techniques to suppress a civilian protest complemented harsh police measures demonstrated across the country against the nationwide "Occupy" movement, from firing tear gas canisters and rubber bullets into unarmed crowds to blasting demonstrators with the LRAD sound cannon.

Given the amount of training the NYPD and so many other police forces have received from Israel's military-intelligence apparatus, and the profuse levels of gratitude American police chiefs have expressed to their Israeli mentors, it is worth asking how much Israeli instruction has influenced the way the police have attempted to suppress the Occupy movement, and how much it will inform police repression of future upsurges of street protest. But already, the Israelification of American law enforcement appears to have intensified police hostility towards the civilian population, blurring the lines between protesters, common criminals, and terrorists. As Dichter said, they are all just "crimiterrorists."

The deliberate blurring of crime and terrorism shows up clearly in the use of the Patriot Act. New York magazine reported that the "sneak and peak" warrants have been used only 15 times in terrorism investigations but have been used 122 times for fraud and 1,618 times for drug crimes.

One final point: The employment of tactics learned from Israel, which has been charged several times with denying human rights with its "security" measures, may be putting the US in violation of international law, including the specific "responsibility to protect" duty that the US invoked to justify NATO's recent attack on Libya. From Huffpo:

The United Nations envoy for freedom of expression is drafting an official communication to the U.S. government demanding to know why federal officials are not protecting the rights of Occupy demonstrators whose protests are being disbanded -- sometimes violently -- by local authorities.

Frank La Rue, who serves as the U.N. "special rapporteur" for the protection of free expression, told HuffPost in an interview that the crackdowns against Occupy protesters appear to be violating their human and constitutional rights.

"I believe in city ordinances and I believe in maintaining urban order," he said Thursday. "But on the other hand I also believe that the state -- in this case the federal state -- has an obligation to protect and promote human rights."

Thursday
Dec012011

Most read Realitybase posts in November

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."

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 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

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.

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.

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.

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.

Is the New York Times editorial board adapting to reality, or is this cognitive dissonance? In August 2008 the NYT editorial board acknowledged that globalization is one of the reasons "Americans are working harder and not getting ahead," but it continues to urge readers to "embrace" globalization.

"We demand free and fair elections untainted by Big Money." Explaining why the Occupy Movement should make this its central unifying demand.

What I saw at Occupy Los Angeles On Saturday afternoon November 7, it was small, earnest, harmonious, well organized, clean, law abiding and not likely, in my estimation, to change the world until it becomes much bigger and feistier.

Monday
Nov072011

What I saw at Occupy Los Angeles

Occupy Los Angeles has a website where I learned about a teach-in last Saturday (more about that below) and decided to visit. The website is quite extensive, with streaming video, etc., and I haven't browsed it all, but I was struck by the effectiveness of the Declaration of Occupation. It mirrors our Declaration of Independence in that it is not a statement of demands but a statement of grievances. If that approach was appropriate in 1776, it's appropriate now, I think.

So, I arrived at the City Hall occupation site about 2 o'clock Saturday afternoon and walked around to get a feel. It seemed small, but there was little or no empty space for additional tents, of which there were enough to accommodate probably 500-1000 people overnight. There were trash recycling and disposal areas and no litter on the grounds. There were porta-potties, but maybe not enough of them unless they are pumped several times a day. No offensive sights, sounds, odors, or behaviors. Basically, it was like an overcrowded national park campground.

There were few if any children or teens, but if you adjust for that and the fact that there didn't seem to be any European or Asian tourists, the population also looked like what I expect at a national park campground—mostly men and women in their 20s and 30s but also a pretty fair representation of middle-aged and geezers like me. It was multiracial and partly bi-lingual. Most were dressed for camping, but there were one or two people in dirty clothes I suspect were homeless. There were also quite a few well-dressed people who might have come from their jobs in banks or government offices.

It was thoroughly peaceful, with evident comity among a diversity of traditional progressive interests including but certainly not limited to signature gatherers for various legislative initiatives, anti-war people, labor unions, legalization of marijuana (prograssives?), proselytizers for new age religions, Ron Paul activists, etc., etc. And, of course, there were a fair number of people with signs returning from the morning march to local Big Bank branches to encourage people to move their accounts to community banks and credit unions.

In the library tent, there was a group of 10-12 students and a teacher sitting cross-legged on the floor; a nearby schedule announced different hour-long courses to be taught all day long. The subjects all seemed generally related to the movement's grievances. In other areas there were meetings going on, but I couldn't get close enough to pick up on the subjects. Lots of people with laptops and smaller devices pounding and clicking. Most people seemed busy at something.

There were perhaps a half dozen police cars parked on side streets, but I saw no officers in or near the crowd. There was a pair of men on bicycles wearing shirts that said "District Safety" on the back, and they carried night sticks and a variety of other paraphernalia (no guns) on their belts; I have no clue as to their jurisdiction or function. In any event, there was nothing for law enforcement to do, as I observed nothing that was even close to disorderly, unsafe, or criminal—unless you take the position their mere assembly and exercise of speech in this location is intolerable.

At 2:30 the event I came for started on time and with a good sound system. There were even folding chairs for 100-200 up front, but I was too late for one of those and stood back near the "IT department" tent. The first speaker was Robert Reich. Toward the end of his talk, he took some abuse from one person in the crowd with a cheerleader's megaphone who accused him of being a part of the Clinton/Rubin Administration and its large part in the turn-over of government to Wall Street. His introducer and later speakers defended him as the one prominent official who objected to Rubinomics and was gone before the worst of it was implemented. Reich's biggest applause lines were his advocacy for campaign finance reform to get money out of politics and for cutting our military budget in half. In response to a question he said, "We should support the Democratic Party when it becomes us."

After a musical interlude, there came an "economics panel" moderated by Bob Scheer, who of course spoke at length and forgot to moderate. The next speaker was William Black, an associate professor of economics and law at the University of Missouri-Kansas City, a white-collar criminologist, a former senior financial regulator, and the author of The Best Way to Rob a Bank is to Own One. He excoriated the Obama Administration and State AGs for not pursuing criminal actions against Big Bank executives. He contrasted that to the Reagan and Bush I years when federal regulatory agencies made 1,000 criminal referrals arising out of the S&L debacle (including the infamous Charles Keating—for whom Alan Greenspan was a lobbyist), resulting in a 90% conviction rate.

Professor Joel Rogers came from Wisconsin to describe what had happened and was happening there in response to Governor Scott Walker's initiatives and to give a little advice—mainly, stay focused together on the big issues and don't let yourselves fragment over parochial causes.

I would love to have stayed to hear and see the rest of the program, especially George Lakoff, but my knee and back had had enough standing by 4:30 and I went home. The lineup for the rest of Saturday, ending with a movie premier in the evening, is here. Other events, including Occupy the Rose Parade, are being planned and will be posted on the website calendar.

My overall impression: This looks nothing like my memory of protests in the 1960s—the Civil Rights Movement, the anti-Vietnam War movement, or even the Berkeley free speech movement and the women's liberation movement. Whether the Occupy Movement may grow into something on that scale I don't know, but it's hard for me to envision it being effective if it does not.

Tuesday
Nov012011

Most Read Realitybase Posts in October

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

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 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

Americans have more than enough education to fill 21st Century jobs. A chart shows that only the 3% of workers with Ph.D.s and professional degrees had increasing earnings, while earnings of those with masters and bachelors degrees or some college declined even more than the earnings of those with high school only. The fact of falling earnings is inconsistent with the claim that there is a shortage of college-educated workers.

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.

American Youth: Digitally Skilled and Unemployable. A graph shows that Americans under 25, who presumably are the most familiar with digital technology, are losing employment share to those over 55, who presumably are least at home in the digital age. This counterintuitive trend started long before the Great Recession.

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.

Is the New York Times editorial board adapting to reality, or is this cognitive dissonance? Three years ago the NYT editorial board acknowledged that globalization is one of the reasons "Americans are working harder and not getting ahead," but it continues to urge readers to "embrace" globalization.

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. Views of this 2009 post tend to spike every exam season.

Wednesday
Oct262011

“We demand free and fair elections untainted by Big Money.”

What does the Occupy Movement want? Well, they could do worse than adopt this as their core unifying demand. It articulates what seems to be a strong universal complaint in the movement—that both major parties and government are completely controlled by financial and business elites, primarily though the campaign finance process.

The demand wrong-foots adversaries because "free and fair elections" is a universal demand of politically powerless peoples everywhere and is a central tenet of US foreign policy. Entrenched interests will find it hard to argue against this demand without clashing with America's cherished democratic mythology.

The Occupy Movement is being emulated throughout the world, and the demand for free and fair elections will tend to unify the movement internationally and reinforce its legitimacy.

Some of those (many in the Tea Party, for example,) who blame government for America's fiscal, unemployment, and declining wealth problems may be recruited to the Occupy Movement by the insight that government is bad because it is being manipulated by Big Money puppet masters.

This demand is actionable—it could be met by a Constitutional Amendment undoing Citizens United, for example.

Without this fundamental political reform coming first it is unlikely that other specific economic goals (such as tax policy, banking regulation, job creation, debtor assistance) can be achieved.

It would make the Occupy Movement more difficult to co-opt by a political party, labor unions, or other existing interest groups because they are invested in the present system.

The demand is a short declarative ideological statement of the sort that every movement needs. It avoids a laundry list of disparate special interest demands that would inevitably sound like a party platform and would rarely be read or remembered.

The demand lends itself to derivative formulations more suitable for signs and bumper stickers:

"Money out of politics."

"Government not for sale."

"Democracy, not plutocracy."

Friday
Oct142011

Ethanol Madness

Melissa Lott at Scientific American (via Climate Progress):

For every 10 ears of corn that are grown in the United States today, only 2 are consumed directly by humans as food. The remaining 8 are used in almost equal shares for animal feed and for ethanol. And, for the 12 months from August 2011 to 2012, the U.S. biofuels industry used more corn for fuel than domestic farmers did for livestock feed – a first for the industry. This significant milestone in the shifting balance between crops for food versus fuel shows the impact of government subsidies for the biofuels industry. And, it could represent a tipping point in the conflict between food and fuel demand in the future.

Over the past year, U.S. farmers used 5 billion bushels of corn for animal feed and residual demand.  During the time timeframe, the nation used more than 5.05 billion bushels of corn to fill its gas tanks. And, while some of the corn used to produce these biofuels will be returned to the food supply (as animal feed and corn oil), a large proportion of this corn will be solely dedicated to our gas tanks.

According to Rabobank's head of agricultural research, Luke Chandler, this shift in the balance between food and fuel could be the tipping point in world grain markets. China, once able to supply its internal corn demand, currently expects to import (from the U.S.) a few million tons of corn next year. This will likely place additional stress on the United States corn industry, as it will introduce another source of demand (and corresponding market pressures) for the nation's corn harvests.

The energy efficiency and global warming impacts of corn-based ethanol are both terrible. When we grow corn for ethanol fuels, we start with a lot of fossil fuel inputs, add some sunshine, and yield a product that in Iowa and other corn belt areas has a little more energy content than the fossil fuel inputs, but in marginal corn-growing regions the fossil fuel inputs exceed the net energy outputs. From this earlier Realitybase post:

To the extent our goal is to reduce CO2 emissions, corn to ethanol is a terrible idea because the proportion of "renewable" content in the ethanol is very small or negative. If we don't care about global climate change or increasing the cost of transportation fuels but do care about minimizing energy imports, corn to ethanol is a way to convert domestic coal to a transportation fuel—not a good way, but a way.

In recent years, the conversion of corn to ethanol has contributed to rising food prices worldwide. As if we didn't have enough humanitarian and political crises. We need to end the corn-to-fuel madness.

Friday
Oct142011

Belief is more a social process than a rational one.

Miguel at Simoleon Sense has been looking at the extensive Less Wrong Blog "a community blog devoted to refining the art of human rationality." Here is Miguel's summary of a key theme there.

How To Actually Change Your Mind: A collection of blog posts - via Less Wrong -People go funny in the head when talking about politics. The evolutionary reasons for this are so obvious as to be worth belaboring: In the ancestral environment, politics was a matter of life and death. And sex, and wealth, and allies, and reputation… When, today, you get into an argument about whether "we" ought to raise the minimum wage, you're executing adaptations for an ancestral environment where being on the wrong side of the argument could get you killed… Politics is an extension of war by other means. Arguments are soldiers. Once you know which side you're on, you must support all arguments of that side, and attack all arguments that appear to favor the enemy side; otherwise it's like stabbing your soldiers in the back – providing aid and comfort to the enemy.

Just to be clear, I'm pretty sure Miguel's summary is meant to describe a widespread phenomenon, not to recommend it.

Wednesday
Oct052011

"If something cannot go on forever, it will stop."

This original expression of Herbert Stein's Law, is sometimes paraphrased as "Trends that can't continue, won't." While Stein used his Law as a reason for government not to try to stop economic trends that are unsustainable anyway, this simple truism is also useful for thinking about how far unsustainable trends can go. For example, let's look at the trend of increasing concentration of income in the top 1% of US households, which exploded from 8% in 1981 to >18% (not including capital gains) in 2007. (h/t David Ruccio at Real-World Economics Review blog)

Clearly, as a matter of simple math, the share of the top 1% can never exceed 100%. Just as clearly, at 100% the other 99% of Americans would have zero income and the "economy" would consist exclusively of the top 1% of households. Donald Trump and Charles Koch mowing each other's lawns, butchering their own steers, and having no security guards while everybody else becomes a hunter-gatherer or dies from dehydration, starvation, exposure to the elements, and lack of medical care? Clearly, then concentration of income at the very top is a trend that at some point will become unsustainable and must stop. We have reached that point, according to Bill Gross, co-founder of one of the world's largest mutual fund debt managers. The incomes of the top 1% come primarily from dividends, interest, and capital gains rather than as salaries and bonuses, and Gross writes this week (emphasis his) that the trend in corporate profits, which have risen from 8% of Gross National Income to 13%, has reached the point of unsustainability.

That there is a current imbalance is obvious from Chart 1 [omitted here], which shows before-tax corporate profits as a percentage of Gross National Income (GNI). It is obvious that "capital" as opposed to "labor" – moving from 8 to 13% of GNI over the past three or even 30 years – has been the cyclical and secular champion. Why one or the other should be policy and politically advantaged is not commonsensically clear. Granted, the return on capital as opposed to the return to labor should logically be higher if only to encourage savings. But once an historical midpoint or range has been established, a relative equilibrium should be observed. Even conservatives must acknowledge that return on capital investment, and the liquid stocks and bonds that mimic it, are ultimately dependent on returns to labor in the form of jobs and real wage gains. If Main Street is unemployed and undercompensated, capital can only travel so far down Prosperity Road. Until recently, economic recovery has been relatively robust if one were a deployer of capital as opposed to the laborer who made that deployment possible. Near zero percent interest rates have allowed profit margins to widen even in the face of anemic end demand. As well, "productivity" has remained high, but only because of layoffs and the production of goods and services with fewer people. While that is a benefit to capital, it obviously comes at a great cost to labor.

Ultimately, however, both labor and capital suffer as a deleveraging household sector in the throes of a jobless recovery refuses – if only through fear and consumptive exhaustion – to play their historic role in the capitalistic system. This "labor trap" phenomenon – in which consumers stop spending out of fear of unemployment or perhaps negative real wages, shrinking home prices or an overall loss of faith in the American Dream – is what markets or "capital" should now begin to recognize. Long-term profits cannot ultimately grow unless they are partnered with near equal benefits for labor. Washington, London, Berlin and yes, even Beijing must accept this commonsensical reality alongside several other structural initiatives that seek to rebalance the global economy. The United States in particular requires an enhanced safety net of benefits for the unemployed unless and until it can produce enough jobs to return to our prior economic model which suggested opportunity for all who were willing to grab for the brass ring – a ring that is now tarnished if not unavailable for the grasping. Policies promoting "Buy American" goods and services – which in turn would employ more Americans – should also be reintroduced. China and Brazil do it. Why not us?

The last time the top 1% got this big a share of income, in 1929, the economy collapsed into the Great Depression, and it took WWII to get us back to full employment and prosperity. Rebuilding US employment is even harder now because outsourcing and globalization seem to give us a "choice" only between even lower US middle-class wage rates or higher unemployment rates. That explains Gross's call for "structural initiatives" such as re-imposing Buy American requirements.

Saturday
Oct012011

Americans have more than enough education to fill 21st Century jobs.

It is frequently asserted that Americans are unemployed and have declining wages because they are undereducated, but that's very hard to square with these data from US Census Bureau (via Mathew Slaughter, via David Wessel at WSJ, via John Schmitt). In the first decade of the 21st Century, real wages of the 31% of the work force that have high school diplomas declined less than the 54% that have some college, bachelor's degrees, or even master's degrees. Only the 3% with Ph.D.s or professional degrees had real wage gains.

Schmitt's excellent point is that a decline in wages is strong evidence against the argument that there has been a shortage of workers with BAs and MAs. When there have been such shortages in the past, wage levels have risen, but not so in the 21st Century. As I've written before, we can't fix this by increasing the number of people that have higher education—in fact, adding to that existing oversupply will depress their wages further, which is the actual objective of some. Nor can we fix the problem by doubling or tripling the number of people who get Ph.D.s and professional degrees—there is no plausible prospect that all of them could find appropriate employment, and those wages would also be driven into decline by an oversupply.

We hear anecdotes about shortages of recent graduates from American colleges, to fill e.g. software development jobs, but we don't hear that employers are increasing the salary offerings for those positions in order to meet their hiring goals. Instead, US employers are using our lax immigration laws to fill the slots with Indians at wages that are high for India but depress US wage rates. That trend may be accelerated by young Americans avoiding vocations that appear highly exposed to foreign price competition and outsourcing. As I have pointed out, labor shortages in declining industries are to be expected.

There are many good reasons to be concerned about the state of American education and to strive to improve its quality and availability, but we should reject the unsupportable claim that unemployment and/or middle-class wage rates can be significantly improved in the short- or medium-term, or even in the long-term, by putting more people with better educations into the US work force. Our 21st Century problem is a shortage of jobs in America, not a shortage of qualified American workers, and we must find our solutions outside the educational system.

Saturday
Oct012011

Most Read Realitybase Posts in September

I posted only twice in September—lazy and uninspired. So, eight of the top ten most read posts in September were oldies but goodies.

The Citigroup Plutonomy Memos With key quotations from documents that are being disappeared. This post is now 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 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

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 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.

After 1975 did incomes grow faster for American families or French families? The top 1% of American families did better than the top 1% of French families, but for the bottom 99% the opposite was true.

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 American Middle Class Got Frog-Boiled. Since the 1970s, the middle class gradually lost economic power to the super-rich and also so much political power that it is doubtful it can recapture its share of the American Dream.

We don't have a Social Security problem; we have an unemployment problem. But for chronic unemployment, there would be no Social Security problem.  We should not raise the SS retirement age because that would increase youth unemployment. The current COLA formula is already unfair to seniors and the proposed change would make it more so.

Is the New York Times editorial board adapting to reality, or is this cognitive dissonance? Three years ago the NYT editorial board acknowledged that globalization is one of the reasons "Americans are working harder and not getting ahead," but it continues to urge readers to "embrace" globalization.

Sunday
Sep042011

The American Middle Class Got Frog-Boiled.

Robert Reich presents irrefutable evidence of the immiseration of the American Middle Class since the 1970s, explains how it happened, shows that it was not inevitable and can be fixed, and issues a call to action in The Limping Middle Class on today's NYT op ed page. An excerpt:

THE real reason for America's Great Regression was political. As income and wealth became more concentrated in fewer hands, American politics reverted to what Marriner S. Eccles, a former chairman of the Federal Reserve, described in the 1920s, when people "with great economic power had an undue influence in making the rules of the economic game." With hefty campaign contributions and platoons of lobbyists and public relations spinners, America's executive class has gained lower tax rates while resisting reforms that would spread the gains from growth.

Yet the rich are now being bitten by their own success. Those at the top would be better off with a smaller share of a rapidly growing economy than a large share of one that's almost dead in the water.

The economy cannot possibly get out of its current doldrums without a strategy to revive the purchasing power of America's vast middle class. The spending of the richest 5 percent alone will not lead to a virtuous cycle of more jobs and higher living standards. Nor can we rely on exports to fill the gap. It is impossible for every large economy, including the United States, to become a net exporter.

Reviving the middle class requires that we reverse the nation's decades-long trend toward widening inequality. This is possible notwithstanding the political power of the executive class. So many people are now being hit by job losses, sagging incomes and declining home values that Americans could be mobilized.

I agree whole-heartedly with all this (and the rest of his essay) except for the last sentence, and I have grave doubts about that. In one of my earliest Realitybase posts in December 2007, The Recession Is Coming! The Recession is Coming!, I put up some of the evidence about stagnation of middle-class incomes and ended by expressing my concern that America doesn't really care:

Well, is there a problem? Is this good enough for America? Or should it be a national goal to get the middle class moving again?

That was written just as the current recession was beginning (December 2007 according to the BEA dating committee) and before the financial crisis of September 2008 made it the Great Recession with its extraordinarily deep and prolonged unemployment and decimation of tax revenues. Clearly, middle class problems are much bigger now than "just" wage stagnation, but I still don't see any evidence that a large number of Americans care enough to mobilize themselves politically to get the middle class moving again. Ominously, if they do try to mobilize, I think they will find that 30 years of sitting in the pot while the financial and political elites slowly increased the heat has left them enervated as well as immiserated.

Friday
Sep022011

After 1975 did incomes grow faster for American families or French families?

It's a trick question. The top 1% of families did better in America than in France, but the bottom 99% of French families had faster income gains than the bottom 99% of American families, according to a recent paper by Atkinson, Piketty and Saez. (In the US, top 1% families had annual incomes above $398,900 in 2007.) Here, via Uwe Reinhardt in Economix blog, are the numbers:

Average real income per family in the United States grew by 32.2 percent from 1975 to 2006, while they grew only by 27.1 percent in France during the same period, showing that the macroeconomic performance in the United States was better than the French one during this period. Excluding the top percentile, average United States real incomes grew by only 17.9 percent during the period while average French real incomes — excluding the top percentile — still grew at much the same rate (26.4 percent) as for the whole French population. Therefore, the better macroeconomic performance of the United States and France is reversed when excluding the top 1 percent.

Reinhardt points out that this reversal of rank is due to the extreme skewing of US income gains to the top 1% in recent decades (a pattern also observed in other English-speaking nations, China, and India but not in Continental Europe).

Consider now the longest period featured in their Table 1, from 1976 to 2007. The authors estimate that over that period the average annual income of all families in the United States grew at an average annual compound growth rate of 1.2 percent. But the data reveal that for the top 1 percent of income recipients, average real income grew by 4.4 percent a year. They captured 58 percent of the growth in total income over the period.

By contrast, for the bottom 99 percent of Americans, average family income over the same period grew by only by only 0.6 percent a year. Within that broad 99 percent, however, some lower-income groups probably saw their real income fall. 

The next time somebody says US economic policies are superior to French economic policies, what do you say?

Thursday
Sep012011

Most Read Realitybase Posts in August

The Citigroup Plutonomy Memos With key quotations from documents that are being disappeared. This post is now 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.

Pitchforks before Parties A third party candidate to challenge Obama is doomed unless it is supported by a broad and powerful ideological movement.  Using such a movement to influence the Democratic Party would be more effective and more enduring than a third party.

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.

Our Plutocrats Versus Their Plutocrats Jeffrey Sachs writes that Republicans are for Big Oil and, since Bill Clinton and Robert Rubin, Democrats are for Big Banks. Neither party looks after the interests of middle class and poor Americans.

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

We don’t have a Social Security problem; we have an unemployment problem. But for chronic unemployment, there would be no Social Security problem.  We should not raise the SS retirement age because that would increase youth unemployment. The current COLA formula is already unfair to seniors and the proposed change would make it more so.

How would your family cope with 20% pay cuts? What if your customers got 20% pay cuts? Booz is showing its clients how to reduce the wages of their US employees by 15-20%. This is a general 21st Century trend and is causing a broad downward macroeconomic spiral that only major federal government policy changes could reverse.

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 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.

Sunday
Aug282011

Understanding Obama--Two Views

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