gsatell's Blog | Talking Points Memo |

How the World Sees US

October 18, 2008, 2:03AM

Ironically, the one promise that George Bush has made good on is to make our foreign policy more humble. We really don't have a choice about that anymore.

Rebuilding our image in the world will be a major challenge for the next President. The American brand is the conerstone of our soft power, which Joseph Nye defines as the power to get others to do what we want without coercion. Therefore, improving how the world sees us will be the best way to do more with less in our foriegn policy.

I've been living overseas for the past 12 years. I speak two foreign languages, have lived in three foreign countries and travelled to over twenty more. So I have definitely have had my share (and sometimes a fill of) foreigners opinions of us shared with me and I would like to share some of them with all of you.

Here are some issues, in no special order:

Anti-abortion/Pro-Death penalty: This is seen as nonsensical to most people abroad and, to be honest, it's a little tough to explain. I've never heard it discussed in american press, but it is discussed in other countries and they see it as a clear example of our how illogical our views can be. They find it scary that the same type of logic can be applied to our $400 billion+ military might.

We have no history: This one makes me angry, but is widely shared. Europeans especially value their own history and the wisdom they feel it has brought them. They view our lack of history as a sign of immaturity and always take care to mention it when they feel like we are acting like an overgrown child. I get into a lot of arguments about this one, which I won't go into here.

Why Germany Kant Compete: Paul Krugman wrote a great essay about the differences between Anglo-American and Continental philosphy. As usual, it is extremely insightful and well worth reading. Basically, we want to go with what works and don't spend too much time thinking about why. Europeans want to know why first and pay less attention to outcomes, unless of course we screwed something up.

We're religious funadametnasts: This is actually probably talked about less in most of the world than in the US, but it is an issue. Especially, of course, in Islamic countries.

We have a master plan and don't make mistakes: The world lives in awe of American power and can never accept that we can make a mistake. It manifests itself in many different ways, some of them can even be funny. For instance, in Russia they pretty much assume that all Americans are CIA agents (you can have fun with this one over vodka:-). In any case, it does present a problem. Every time we blunder, many people around the world see it as just one element of a vast conspiracy. This is a big reason that many people around the world think that the CIA organized 9/11 as a ploy to destroy the Islamic world.

The Washington Consensus: This was mainly an issue during the Clinton administration. We, through the IMF, imposed our economic philosphy on developing countries. They still resent it and now that we have done ourselves in, it will be a long time before we win back the world's confidence in our judgement about economic issues. Especially grating is the condescending tone of low level staffers in annual "Article 4" consultations.

We're bloodthirsty: War and torture scandals will have that effect. Our crime rate and our love of guns is also often pointed out. Sometimes Hollywood doesn't help either.

We're arrogant: Why does every american sports league have a "World Championship?"

We don't know our care to know anything about the rest of the world: Foreigners almost always point out Americans' lack of knowledge about world geography (but themselves don't know the difference between Missouri and Montana). They expect the most powerful country in the world should know more about it, and their probably right. We do need to be held, and hold ourselves, to a higher standard.

These are just some examples, there are many more (which I'm sure I'll be reminded of in the comments).

With all of that said, we also need to remember that there are a lot of positive impressions about America. We are admired for our way of life, technology, creativity and freedom. The American spririt and "can-do" attitude still inspires people around the world, even among people who don't like us very much.

I also think we need to not go overboard. The last eight years were only that - eight years. We still have a lot to be proud of and there is more than enough national shame to go around (as I sometimes have to remind my foreign friends). The damage is not irreparable.

We do need a more vigorous diplomatic effort. Programs like the Peace Corps and Muskie/FSA are amazingly cost efficient and have become underfunded under Bush (I'm pretty sure that Sakashvilli was a Muskie scholar, but could be wrong). Bush has gotten such a bad name that pretty much anybody (with the possible exception of Palin) would be seen as an automatic improvement. Most of all, there is no shortage of problems in the world that America can help solve.

We can do much better and, hopefully, we will.

The Facts about Energy (and why Obama is right).

October 16, 2008, 9:14AM

The facts are very simple and can be found on the Energy Information Administration web site.

Obama is 100% right on this issue and McCain is just not clear. We can't drill out of our way out of this problem and building 45 (or 145) nuclear plants will do nothing about our oil dependency.

First some basic facts:

Almost all of our petroleum consumption goes to transportation. The only way we can get our dependency down is using less in our cars.

We import about 2/3 of our oil and about half of that comes from OPEC countries. Most of the rest comes from Canada and Mexico.

Most of our other energy consumption is directed toward heating and electricity, where we use very little oil.

About half of electricity generation comes from coal and 20% from nuclear. We have practially limitless supplies of both, so the main issue is environment not availability. We have enough energy for electricity generation, it's just dirty.

About 20% of electricity generation comes from natural gas, which can also be used for transportation (hence, the Pickens plan - he can make money on windmills and natural gas).

So with regards to energy, we have two separate issues: Oil Dependence and Environment.

Oil Dependence: Once you understand the facts above and use a little bit of arithmetic, the solution becomes clear. If we had 100% hybrid cars we would use half the oil and only have to import 30%. We could satisfy our oil demand from our own production plus Mexico and Canada (roughly, we also import from countries like Norway and UK). I'm pretty sure that's where Obama gets his timeline of ten years and why he keeps mentioning Detroit. It makes sense.

Plug-in hybrids and hydrogen cars would improve the picture even more, but they would require electricity production which at the moment is a very dirty business.

None of this means that we wouldn't import from OPEC or Venuzeula, just that we wouldn't have to. Besides, if we cut our oil consuption by half oil would be dirt cheap anyway. Even more so when you factor in that car manufacturers have big incentives to build the same cars everywhere so the rest of the world would consume less oil as well.

Environment: This is a far bigger problem, mainly because coal is so plentiful and so cheap. Nuclear has it's own environmental issues, but wouldn't polute the atmosphere. Natural gas is clean, but we have a limited supply. Renewables only make up about 4% of electricity production, so it won't be a big part of the picture any time soon. We might be able to get that up to 20% in ten years, which would be great, but expensive.

The only way out of the problem is clean coal. The best hope is Carbon Capture and Sequestration (CCS). The basic idea is that you capture the carbon and store it someplace (i.e. underground). The problem is that this technology doesn't exist yet.

So Obama's plan makes a lot of sense, and we can really ween ourself off oof foriegn oil in ten years, although it will be difficult. 100% hybrid penetration in ten years is a VERY agressive goal, they currently amount to about 5% of new car sales.

The environment is a much more difficult issue because we don't have the technology yet to solve the problem. His idea for an energy version of the NIH is a good one, but doesn't guarantee results.

I hope this is helpful:-))

Why McCain's plan to cut capital gains will be a disaster for almost everybody.

October 15, 2008, 4:55AM

John McCain says that he wants to "put government on your side and out of your way." However, his plan is only on the side of a few, gets in the way of small business and innovation and will most likely cause another asset bubble and get us in the same trouble all over again.

If McCain really understands his plan, then he wants to raise interest rates (and hence, the national debt), sell american companies and encourage speculation rather than investment.

I'm speaking specifically about his plan to cut capital gains taxes for the next 2 years. It is not pro-business, pro-investment or pro-innovation. It is basically welfare so that certain kinds of businesses (especially big ones) have an advantage against others.

First, let's look at the obvious:

Cutting the capital gains tax will benefit very few people right now because almost everybody's assets (stock portfolios and houses) are worth less.

The only people who will benefit people now rich enough to still have appreciated assets and those who make money on transactions (i.e. stock brokers and real estate brokers). By contrast the tax moratorium on retirement accounts withdrawals does help those that are truly hurting.

It will encourage tinvestment only in assets that are sold within two years, unless he really means to extend the cut indefinitely. So in this sense the policy is either completely stupid or completely dishonest. (I actually think it's both).

That's all pretty bad, but it gets worse. I'm making five claims here: Cutting the capital gains tax is anti-small business, will raise interest rates, raise the national debt, works against home owners and for asset bubbles.

Anti-small business: Let's assume you own a business and you need financing. You can either sell part of your business (i.e. equity) or take out a loan. If you borrow money, the lender pays tax on the interest recieved, but if you sell equity in your business the investor pays taxes on dividends (which Bush already cut) and capital gains if he sells his shares. Why should our govenment discriminate in favor of one form of investment over the other?

Moreover, most small business owners make money from running their business - this is no tax break for them. It does make it easier for big businesses to finance themselves so that they have an advantage over small businesses who don't have the same access to equity markets. Why should our government favor big businesses over small busnesses?

It raises interest rates: From the above example, it should be clear that a capital gains tax raises interest rates. If equity is taxed lower than debt, lenders will demand to be paid higher interest rates to make up for the tax loss.

It will raise the National Debt: Right now about 20% of our federal budget goes to interest on the national debt. If interest rates rise so do our interest payments and therefore so does the national debt.

Anti-Homeowner: Most people buy homes to live in them. A capital gains tax does nothing for them. It does encourage others to speculate on real estate though, which raises the value of homes and the cost to live in them.

Pro-Asset Bubble: Because capital gains taxes only kick in when you sell an asset, it encourages specualtion in assets rather than investing. That's how we got into this trouble in the first place.

Just to be clear, I'm not saying capital gains should be discriminated against, but why should they be given preference? Cutting captial gains taxes is basically the government telling us that income earned on selling assets is better than earning money in other ways. Is that a decision that government should be making for us?

The War on Thinking: The Republican Philosophy has Failed. What Now?

October 13, 2008, 7:57AM

The Republican Philosophy has failed so miserably that is has effectively become an "anti-philosophy." As David Brooks pointed out in a recent column, it has effectively become a war on thinking. Any serious thought, qualification or education has become a disqualification in Republican circles. Obama's simple message of "Change" has been so successful because Republicans have become so incoherent.

However, if you have any faith in the American people (and I do), then you must accept that the dominating political philosophy of the last 40 years must have had some validity at some point. Moreover, if we are discarding it, what are we going to replace it with?

In the words of Robert Redford's character in "The Candidate": What do we do now?

Let's go back to the beginning. The Republicans have held the Presidency for 28 of the last 40 years. This followed a period of 36 years in which the Democrats controlled the Presidency for 28. The Republicans turned the tide with an innovative electoral strategy and then held office with two original governing strategies.

Nixon's famous "Southern Strategy" ignited the culture wars. It was driven by the brilliant insight that many white working people (let's call them "Wonder Years Dads") felt disenfranchised and wanted their way of life protected from the dangerous eggheads in academia. They wanted to be respected for their common sense and traditional values. Although the execution of the strategy was a little disgusting, the point was valid. Many policy makers had an arrogant disdain for common people and that's no way to govern.

The problem with this strategy now is that it is no longer demographically viable. As America evolves into the world's first multicultural nation the middle has become a mosaic rather than a monolith. White anglo-saxons are in decline and at this point a culture war alienates more than it reassures. Sarah Palin doesn't resonate widely because not enough people share her background or her values anymore (being a complete wack-job of questionable intelligence doesn't help either).

However, it wasn't just smart electoral politics that kept the Republicans in power. The Reagan Revolution had some serious ideas generated by serious people. The two central ideas were neoconservativism and the Chicago School of Economics. Both were revolutionary philosophies with strong merits and both have become useless under Republican stewardship. What happened?

Let's start with Neoconservatism, which has been widely reviled with ample justification. Although it has become a boilerplate Republican theme, it actually has its roots on the left. The most central theme was that we should take internal regimes into account in foreign policy and not soley our strategic interests. Essentially, it rejected the realist idea propogated by Kissinger that consorting with dictators was if it furthered our interests - a valid point on which reasonable people can disagree. How that morphed into the notion that we have some sort of mandate to promote democracy at gunpoint is not clear but it does show how intellectually bankrupt the Republican Party has become.

The second philosphy came from the so-called Chicago School of Economics lead by Milton Friedman. Again, these were serious people with strong arguments. The government can't be the solution to every problem and excessive government intervention does more harm than good. Taxes were too high, government was too big and had too many useless programs that were crowding out the private sector. Milton Firedman predicted staglation would be the result of excessive government intervention and was proved right. Somehow the idea that government can't do everything morphed into the idea that govenment shouldn't ever do anything which is a curious governing philosphy to say the least. The results, which should have been clear years ago are certainly clear now. We have the worst economic disaster in half a century. Hoover has returned.

So the Republican Party which has long been intellectually bankrupt now looks like it will soon be electorally bankrupt. Obama will most likely win the election by a landslide not seen since Reagan/Mondale and will enter office with a strong mandate and legislative majorities. Moreover, through the way he has financed his campaign he will come into office with more favors given out than taken in and with his amazing eloquence will likely be able to lead the nation in any way he sees fit.

The real question now is whether he will replace the failed Republican philosophy with one of his own or will he be, like Clinton, an assortment of policies (hopefully good ones) than can be overturned in the next election cycle or the one after that. Will he be a leader or merely an executive?

I have three suggestions: Modernity, Multicuturalism and Schumpeterism.

Modernity: Traditional values have their charms but don't adapt very well. It should be clear to everyone that America's competitive advantage has eroded and we have serious problems to solve. New developments in network theory, biology, communications and computer technology give us powerful tools to solve our problems. But we can't solve today's problems with yesterday's ideas and we can't be competitive without a well educated workforce. Rather than an assualt on traditional values we need an embrace of new ideas with clear applications to real world problems. We can't cure cancer and deny Darwin at the same time.

Multicuturalism: While the 21st century doesn't have to be the decline of America, it will be marked by what Fareed Zakaria calls "the rise of the rest." The successful countries in centuries past were almost exclusively European. That's over now. The varied backgrounds of americans are an asset and promoting our own multicultural society will help us lead a multicutural world.

Schumpeterism: Long before the fall of the Berlin Wall, Joseph Schumpeter successfully discredited Marx's central theme. Marx had made the astute observation that under the Capitalist model, profits fall to zero at equilibrium so if capitalists wanted to preserve their profits, they had to do bad things. Schumpeter pointed out that although this was accurate, it wasn't true. He coined the term "creative destruction" and pointed out that as long as there is innovation profits never have to fall to zero. Republican pro-business policies have really been catering to the special interests of exisitng business rather than promoting entrepreneurship or innovation. Fixing health care, infrastucture and green technologies actually promote risk taking and innovation. In effect, they are pro-business policies.

All three of these themes fit well with Obamas policies and are viable electorally. If Obama is going to be as successful in governing he needs to go beyond "Change" and explain what the change will mean for how we view America and how we want the world to view us.

Let's Explode the Myth that Bush Cut Taxes

October 10, 2008, 7:39AM

Bush did not cut taxes. He raised them. The fact that he didn't present the bill to the american people during his tenure is completely irrelevant (and dishonest). The federal budget will be roughly $90 billion due to interest expense when he leaves than when he came in (and that is actually an artificially low number). Whether we borrow money against future tax revenues or tax today to pay them doesn't change the inescapable fact that these are liabilities that will have to be paid by our taxes at some point.

It's as if a child says to his father "I don't need an allowance" and then blows out the credit card.

The facts here are clear and published by the Treasury on it's web site. In 2008, the interest expense for the federal government will be $451 billion dollars up from $361 in 2000. That's about the size of the defense budget, so we pay about as much in interest every year as we do to defend our country. It's pretty bad, but it gets much, much worse...

First, the obvious. Deficits are expected to continue indefinitely and will probably get worse due to the way the Bush administration has mismanaged the country. So we'll be paying even more in the future. That's really bad, but it gets worse...

There is another, more subtle problem that will further increase our interest expense and our tax bill. Our interest bill is not only due to the size of the debt, but also to the interest rate. Due to the credit crisis and generally poor economic conditions, the Fed is keeping interest rates abnormally low. When economic times get better, the Fed will have to raise interest rates again and our interest bill will explode.

Let's contrast this to the Clinton years. The interest bill also grew during his tenure from $292 billion to $361 billion. That's an increase or $69 billion. However, our economy was booming during the '90s so the interest rates were higher (not exactly a bad situation). Moreover, most of that growth was between 1994 and 1995 (due to higher interest rates, not higher debt). There was virtually no growth in the interest bill between 1997 and 2000. As another point of comparison, the interest bill grew $78 during Bush one's one term presidency.

Alas, it gets worse still. The increase in the debt can be atrributed to spending, not investment. That's important, as Robert Reich pointed out in a NY Times oped. Borrowing to invest in something useful creates future revenues that will offset the future interest and principal. Spending money to explode missles in foreign lands or just simply sending out tax rebate checks doesn't have the same positive effect.

Obama has a very responsible approach to this. We need to increase the defict because the economy is in the tank, so let's target infrastructure projects and education. Lets also spend some money to reform health care so that we can get costs down (I wrote about this yesterday, we pay more but get less) Obama's plan makes sense, even if it won't immediately decrease the overall tax bill.

So let's do away with the fiction that Bush cut taxes. He didn't present a bill, he just kept the tab running. We still have to pay.

And boy will we...

How can we pay for Health Care?

October 9, 2008, 9:37AM

The constant question surrounding the health care debate is "Can we afford health care reform?" That's the wrong question. Health care statistics are widely available and they consistently show that although we spend roughly twice as much on health care as other developed countries we actually manage to get worse reults.

Let's take two key statistics: Life expectancy and infant mortality. According to the CIA World Factbook the US ranks 46th among entities surveyed (29th among UN member countries). We're four places behind Bosnia. Our infant mortality rate isn't much better. We rank just behind Cuba. That's not the world's best health care system.

Meanwhile we spend 15% of our GDP on health care, more than any other developed nation. According to the Council on Foreign Relations we spend 83% more per capita does than Canada does.

Elsewhere in the world, healthcare systems are much less reliant on private sector support—and much less expensive. For example, the U.S. system costs 83 percent more per capita than the Canadian system, where public funds collected through taxes pay for up to 70 percent of healthcare coverage. A number of East Asian systems also enjoy high quality of care for a much lower cost. An article in Cambridge University’s Journal of Social Policy looks at what it calls the "remarkable" performance of healthcare systems in Hong Kong, Malaysia, and Singapore, where the authors argue the legacy of British colonialism has encouraged a strong state role in the healthcare system.

So we are not only spending more, we're getting less. Some people point out that we have lots of immigrants which hurts our statitstics, but that doesn't account for the disparity between the cost and the benefits. Others make the point that we are world leaders in health care research, technology and innovation. This is true but it doesn't really matter unless you are very, very sick or have a rare condition and even then you need to be insured.

Another problem is that our broken health care system amounts to a triple tax on businesses. Again I quote from the Council on Foreign Realtions:

By and large, companies do not argue against the employer-based insurance model. Rather, they contend that a wasteful public-private system is pushing costs much higher than they should be. Jeffrey Rideout, a medical doctor and the head of the Internet Business Solutions Group at Cisco Systems’ Healthcare Practice, says the amount businesses pay for employee insurance is just one element of their total healthcare costs. Rideout says businesses incur a "triple tax." First, they pay for insurance programs through health benefits. Second, he says, businesses indirectly subsidize Medicare and Medicaid, the federally supported programs for primarily poor and elderly Americans. Businesses pay higher insurance premiums to make up for the fact that Medicare and Medicaid reimbursements often do not match the total costs hospitals incur treating these patients, a "hidden tax" confronted in a health care proposal (PDF) recently laid out by California’s Governor Arnold Schwarzenegger. Third, Rideout says, businesses also subsidize the strain on the system wrought by the cost of treating America’s uninsured, again through higher insurance premiums.

So we not only pay more to die earlier, but the costs get tacked on to every american car that we don't buy. The result is that we lose our jobs and our health insurance along with it.

I'm not a health care economist, but I have done some research. It seems to me that the basic problem is that our system's greatest failing is in the cheapest kind of care - primary care. The uninsured in our system don't go to regular check-ups and so by the time they see a doctor they are really sick and need expensive care, many times from emergency rooms. By that time, the condition is less treatable, costs more and we pay for it through higher premiums.

A universal health care system with a strong emphasis on primary care would not only make us healthier, but would be cheaper in the long run and make our business more competitive

The Strength of Ayers Ties

October 8, 2008, 7:21AM

To understand the Obama Ayers relationship, one only needs to look at basic network theory. In actuality, the fact that Obama and Ayers have a relationship is no information at all. It would have been virtually impossible for two policially active people in Chicago to NOT have some relationship.

In 1973, Mark Granovetter published his famous paper "The Strength of Weak Ties," which went on to become one of the most cited papers in history. The basic insight of the paper was that through friends of friends and their friends we know an enormous amount of people. Through our "weak ties" we build a vast web of relationships that quickly grows into millions of people.

This effect has been documented extensively and in many different contexts. If you are on a corporate board, you are just a few links away from every other corporate board member in America. If you have acted in a movie, you have probably played with someone who played with Kevin Bacon (or anyone else who has played in a movie). If you have co-published a paper on mathematics, you are every likely to have written it with somebody who has ties to Paul Erdos, etc.

The real issue isn't that Obama knew Ayers, because it would be virtually impossible for two people active in Chicago politics and interested in educational issues not to have had some contact. We're only talking about a few thousand people and the business of politicians is to make contacts with people who in turn have contacts with others. The fact that they knew each other has absolutely no informational value at all.

Did they ever meet alone or socially? Did Obama ever act on his behalf? Were there financial ties?

As far as I know, the answer would be no to all of these questions. Unless, of course, we were talking about the McCain/Keating relationship..

McCain's Russian Ties

October 6, 2008, 1:16AM

The Nation has an in-depth article about the work Davis-Manafort has done for some of the worst people in the former Soviet block.

One of them, Rinat Akhmetov, Ukraine's biggest tycoon has 8 years missing from his biography. Nobody knows where he was or what he was doing and then...he's a billionaire. Another, Victor Yanukovitch served two prison terms for violent crime before becoming a strongman politician. Another, Oleg Deripaska has been banned from travel in the United States.

In each case, Davis Manafort has been working directly against both official US policy and McCain's stated aims. This underlines the a key McCain problem: he is so self-righteous in his cause that he fails to see what's going on around him. As McCain and Palin take photo ops with Victor Yushchenko, the pro-western President of Ukraine, his top strategists are working with those who were responsible for his poisoning.

A president can't know everything, which is why anyone in top office depends on advisors. St. John's apostles leave much to be desired.

McCain's Mantras

October 3, 2008, 9:49AM

"Lower taxes"
"I'm a maverick"
"Senator Obama doesn't understand."

According to Wikipedia, mantras are "primarily used as spiritual conduits, words or vibrations that instill one-pointed conctration in the devotee."

In other words, it's something you say to make yourself feel better with no benefit for anybody else.

Country first?

Palin Succeeds in the debate but kills "Maverick"

October 3, 2008, 6:55AM

I think by any measure, Palin exceeded expectaions in the debate. She might have stopped the bleeding or she might have just highlighted how low those expectations were. She was poised and coherent, but not particularly knowledgeable nor inspirational. It was also self-contradicting that she took pains to make the point that americans are "exceptional" while she is just aw shucks, everyday hockey mom.

But I think the long lasting effect of the debate is that she finally killed "Maverick" as a campaign theme. Here's why:

Dial polls seem to hate it: It seemed to me that every time she mentioned the word "maverick" the dial polls got worse (at least on CNN). At one point, the term must have poled well or she wouldn't have been pushed to use it so much. Now that's over.

No risk management:: The downside of the maverick image is that it opens McCain up to the impression that he is erratic and undisciplined. McCain has not managed the downside at all. He actually seems to want to make a point of how angry he is, which makes him look more like a frustrated old timer than a maverick.

Contrast this to Obama's "change," which opens him up to the obvious question of whether the it will be responsible change or reckless change. The change is obvious, but he has taken pains to show discipline and poise. Obama now seems to be the "responsible agent of change."

Feature not a benefit: One of the first rules of sales is that it's the benefit that counts. When Obama speaks about change, it is usually after he makes his point. (i.e.. I'll give a middle class tax cut - and that's the change we need). In the debate, Palin puts "maverick" first and usually doesn't even bother to explain why that's a good thing that people should want. The whole maverick thing now seems more like a meaningless verbal crutch rather than something anybody should vote for.

Strategy vs. Tactic: Change is a strategy - it implies that something is broken and we need to find ways to fix it. It works as a theme because it puts in context various tactical policy points. Conversely, the stunts and the droning on about insider vs. outsider make the maverick theme smell more like a meaningless campaign tactic.

So, most probably, McCain will have to come up with a new tactic, against a more foreboding map, with less money amid wary media coverage.

Looks good:-)

Is Palin a Federalist???

October 2, 2008, 9:40AM

In her interview with Katie Couric, Palin described herself as a "Federalist" because she favored state's rights. But I was under the impression that Federalists were bascially Hamiltonians in opposition to Jefferson's Republican party emphasis on states rights.

Did I get this wrong. Is there some other meaning of "Federalist" that I've never heard of?

Another Rick Davis Scandal

October 2, 2008, 4:58AM

Much has been made about McCain's troublesome lobbyist ties, but one important one has been overlooked. As the New York Times reported in September last year and the Wall Street Journal reported in July 2007, Rick Davis's firm also worked for the thuggish Kremlin backed Ukrainian politician, Victor Yanukovitch.

Even by Ukrainian standards, Yanukovitch stands out as a particularly distasteful character. He served two prison sentences for violent crime (one for assault, one for rape) and it was mainly opposition to his extreme form of corruption and dicatatorial tendencies that launched the Orange Revolution.

To put this is context, the outgoing President, Leonid Kuchma, was a brutal dictator by any standard. However, it was Yanukovitch proved so incredibly horrible that millions flooded the streets in protest.

So while McCain is preaching reform his campaign is getting paid to prop up would-be dicatators.

Nice.

Wall Street's Communist Plan

September 26, 2008, 8:32AM

It's bad enough that our highest paid professionals need to be bailed out after overleveraging themselves into oblivion (and being paid millions to do it). Now they even want to implement it in such a way that comes right of of the communist playbook!

The issue is how we should price the securities that the governement buys. Most experts and members of congress want to "mark-to-market," meaning that value will be calculated on the basis of supply and demand. Obviously the current market situation makes that more difficult, but not impossible, to price by mark-to-market. In any case, I don't know that anybody is seriously making the case that it can't be done.

Wall Street, however, is pushing to "mark-to-model" pricing. This means that price for the securities will be determined mathematically, according to the same models that got us into this mess in the first place. Since no model is perfect, these models require assumptions and of course Wall Street wants to assume higher values than for mark-to-market.

Think about it, rather than allowing the "invisible hand" to determine pricing, what's being argued for here is that a cabal of elites will decide on how to value market traded securities. That is not mere government intervention but central planning in it's purest form.

This comes from an industry that justifies multimillion dollar bonuses because they are "performance based." We're moving out of the realm of incomptence and into the realm of incoherence.

It boggles the mind...

Foriegn Policy Debate Primer: NATO Enlargement and Ukraine

September 23, 2008, 3:34PM

From an American foreign policy point of view, these two issues are very much intertwined so I am combining them in one post. Even Palin mentioned "Ukraine" and "NATO" in the same sentence in the ABC interview so it's a fair bet that the issue plays a big part in the candidate's briefing books and will be a subject in the debate.

The situation here is interesting, because although Ukraine is the key to any future NATO expansion, there is actually relatively little (although vocal) popular support for NATO in Ukraine (especially when compared to previous applicants). To further complicate the situation, Ukrainian politics are especially murky, even for the region. So even if NATO membership is offered, there is good reason to doubt that they will join. I'll explain as best as I can, but it's a mess!

Some key points:

NATO is a Cold War stucture. Why does it still exist and why in the world would we want to enlarge it?: Although obviously not as crucial as it was during the Cold War, NATO is still very important. Although there are no "NATO forces" it is important that we keep our forces compatable with allies and have a platform for common diplomacy and common action. Enlargement is also very psositive process because NATO is a very difficult club to join. Once a country's candidacy is accepted, they get a "Membership Action Plan" (MAP), which specifies stringent requirements for joining. It takes candidate countries nearly a decade to comply. Some of the requirements have to do with military readiness, but there are also many requirements with regard to civil society. The goal of NATO membership gives the candidate countries strong incentives to implement much needed reforms. (I'm speaking first-hand here, I lived in Poland during the ascension process). Most of all, these countries have had a tough time for the most of the last century, if they want to join, they should be given the opportunity.

Why is Ukraine important? With a population of nearly 50 million people, Ukraine is one of the largest countries in Europe. It is strategically located on the Black Sea, between Poland and Russia. Zbigniew Brzezinski has described it as the key to the future of Russia's relationship with Europe in his book "The Grand Chessboard." (I'm paraphrasing here)

What is the political situation now in Ukraine? Complicated. After the Orange Revolution, Ukraine was transformed from a dictatorship to a kleptocracy (which was an improvement). Now there needs to be some agreement between polical factions in order to steal the country's valuable assets. For our purposes, it is enough to understand that there are basically three parts of Ukraine. The heavily industrialized eastern part is strongly pro-Russian, Russian speaking and mostly ethnicly Russian.. The agricultural western part is strongly pro-western and Ukrainian speaking (it is advisable there to speak Polish rather than Russian). The center, which includes the capital city of Kiev, is also pro-western, but more moderate than the West. So although there is some support for NATO, a sizeable minority is bitterly opposed to NATO ascension.

To make matters more complicated, the most strategically vital part, Crimea, is a matter of some dispute and tension. It was a part of Russia since 1774 but for some inexplicable reason Krushchev "gave" it to Ukraine on a whim. After the break-up of the USSR they voted to remain a semi-autonomous part of Ukraine rather than join Russia. It remains one of the more Russian oriented regions of Ukraine and Russia has begun the practice of handing out passports in Crimea as they did in the semi-autonomous regions of Georgia (with apparently the same goal). The lease on Russia's naval base in Sevastopol, a Crimean city, expires in 2017. Sevastopol is the Russian Navy's only warm water base.

What should we do? I'm not really sure (and I live here!). We have both an enormous amount of support in Ukraine and a large, vocal opposition (about 30% of the country). Moreover, Ukraine, in it's present form, is unfit for NATO. Most probably, if the price of oil goes down, Russia will lose influence and the pro-western forces will become dominant. Also, Foreign Direct Investment has picked up so that creates positive incentives for a more civil society.

In the final analysis, I think Ukraine is one of those situations where we'll just have to wait and see.

Foreign Policy Debate Primer: Russia

September 23, 2008, 6:31AM

Russia has reemerged as a serious problem for us and will be an issue that the next President will have to deal with effectively. Russia today is similar to Wiemar Germany after WWI, except they have the world's second largest nuclear arsenal and therefore are much more dangerous.

The problem has been going for some time and in recent years it's been very common to hear Russian businessmen lament that Stalin made a mistake by trying to dominate Europe through military means and that they mean to improve by dominating Europe economically. There has been a very clear intention on Russia's part to reassert themselves and to paraphrase George Kennan, they consider all countries either vassals or enemies. They have never shown much interest in peaceful coexistence.

Anybody who is interested in the background should read "The New Cold War" by Ed Lucas. He's been the main Economist correspondent in the region for years and really knows his stuff.

But regardless of how we arrived at the present situation, what really matters is what we do moving forward. Some points:

The G8: McCain has been pushing to kick Russia out of the G8, which most people (including me) regard as incredbly misguided. First of all, the Europeans would never go for it, so even voicing the idea does more to harm our relations with our allies than it does anything to influence Russia. Rather, this kind of bluster without effect just makes us look impotent and ineffective. Moreover, even if we were successful, it still wouldn't be a good idea. The G8 is a talking shop, nothing more. It would only serve to humilate Russia and not provide any real advantages.

The WTO: Blocking WTO membership would be effective. Russia has a bad case of "Dutch Disease" and joining the WTO is important for them. We wouldn't need to kick them out (they are not currently a member), just quietly block their membership, which we are easily capable of doing.

Renew the Atlantic Alliance: Russia has been quite open about trying to split us from our allies and have been quite successful in recent years. Rumsfeld's comments about "Old Europe" and "New Europe" was a complete misreading of the situation. The new EU countries are wildly pro-american and grateful to us for standing up to Russia during the Cold War, but that doesn't mean that they either approved of the Iraq war or want to be in opposition to the rest of the EU. It was through a strong Atlantic Alliance that we won the old Cold War and strong relations with our European allies remains our best strategy.

Strike at the Russian Elite: Putin's greatest strength and therefore his achilles heel is support from Russias elite. Here we have ample tools to influence them. We should work with our European allies to dratically restrict visas. A muscular foriegn policy will be much less attractive to Russia's elite when they lose their expensive shopping trips, high class boarding scholls for their children and the ability to do business easily abroad. Moreover, we should work with our European allies to apply special scrutiny to Russian businesses abroad. Obnoxious Russians have worn out their welcome over the last decade so it wouldn't be to hard to convince the EU to impose tougher standards on Russian travel and investment.

Olympic Games in Sochi: A mass boycott is one thing that Putin probably does fear. As an added bonus the Chinese would probably be tempted to suppport the boycott after Russia ruined it's party this summer.

Energy Policy: The reason that Russia feels confident enough to cause trouble is that they have been booming economically. However, this has been entirely tied to the price of oil and other commodities. By working to reduce our oil dependency, we would solve most of our Russian problem. This is not impossible. If we had 100% hybrid car penetration we wouldn't need to import oil from ouside our Mexico and Canada (we actually use very little oil for heat and electricity). That's an ambitious target, but certainly not impossible.

Arm Georgia: Anybody who has read my previous posts knows my position on this. We need to give Georgia the ability to defend itself. A reversal in Georgia would be a disaster for the rest of the region, especially Ukraine.

Patience: Russia's ambitions far exceed it's abilities. It's a relatively poor country of 150 million people. The idea that they can dominate Europe, with more than twice the population and 10 times the GDP is absurd on its face. When you take into account that Russia has no allies to speak of (China is suspicious, Iran a fairweather friend, etc.) the notion of Russian dominance become even less likely. So any succesful strategy toward Russia would be more similar to containment than actual outward agression.

As John Lewis Gaddis wrote in "Surprise, Security and the American Experience," the world will accept American dominance as long as they view it as better than the alternative. Over the past eight years Bush's policies have made a lot of people doubt whether we can wield our power responsibly. So probably the best way to deal with Russia would be to deal with others in a more responsible way.

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