Obama Picks

The Obama Cabinet is shaping up fast and, similar to Clinton's experience in 1992, the left wing of the Democratic Party is screaming "betrayal."

It was largely this element of the Party that gave Obama his initial break. In 1992, they backed Clinton, only to find him moving toward the center following his election. Not wanting a repeat of 1992, they led the initial Obama surge to "Stop Hillary," on her way to her coronation as the Party standard bearer.

To some degree, our political party system guarantees this type of result for both Democrats and Republicans. McCain experienced a similar falling out of the Republican Party base, prior to his pick of Sara Palin.

Both Democratic and Republican Party activists tend toward the extremes of the political spectrum. Party work is, for the most part, built around volunteers who work for free (excluding the leadership) and it is difficult to motivate them with realistic political policies that have the support of the majority middle. A President that attempts to "govern" from the base is usually doomed to failure - i.e. George W. Bush.

The Left should not be terribly surprised; Obama emphasized during the latter part of the campaign that he intended to govern from the center and, thus far, his appointments seem to reinforce his campaign message. This, despite the likes of Fox's Hannity, Newt Gingrich, Dick Morris, et. al. who see a five percent increase in upper bracket taxes and a potential 10-15 percent increase in the capital gains tax as "socialism" or worse.

A word or two on the appointments to date.

Geithner as Secretary of Treasury. As President of the New York Federal Reserve Bank, he has been close to Wall Street, without being part of Wall Street. And, presumably, he had a voice in allowing Lehman Brothers to fail. I suspect the Obama economic policies, aside from tax specifics, will be oriented toward increased regulation and oversight and a backing away from the march to globalization, without completely abandoning that goal. The Obama job goals and stress on "rebuilding the economy from the bottom up" and the resuscitation of the middle class, indicate to me that he will be moving away from an economy based on fees to one based on actual products. Although I haven't researched Geithner, it seems a good pick.

Daschle as Health and Human Services. I was initially skeptical about this one. I never considered Daschle as strong as he might have been in the Senate, as Minority Leader. Also, he has ties to the private health industry. But, after some thought, he makes sense. Obama's health plan builds on the distribution of health services through private industry, with essentially a mandate for universal coverage and assistance for those who cannot afford the premiums. Daschle's ties to the industry may actually be helpful.

Richardson as Commerce Secretary. At first glance this looks like a "downgrade" for Richardson, who is qualified for a more important cabinet position (such as Secretary of State or Energy). I was an early Richardson for President supporter before turning to Obama. The fact that he accepted the position may indicate one of two things (or both): he desperately wants to get back to Washington and/or Obama plans to elevate the importance of the Commerce Secretary position - particularly in trade negotiations, potential tariffs and new at home energy jobs - as he rebuilds a solid U.S. economy.

Clinton as Secretary of State - I wanted Richardson for this position, but it may be a smart Obama political move. Constitutionally, this position is the number three position in the cabinet, behind the President and Vice President. Prior to the constitutional amendment regarding presidential succession, the Secretary of State was second in line for the Presidency, should something happen to both the President and Vice President (today, that line runs directly to Congress, with the Speaker of the House in 3rd place). It also keeps Hillary (and presumably Bill) out of the country for much of the time and relatively removed from a domestic political base of their own; in the Senate, without much seniority, she would have ample time to build her 2012 or 2016 presidential campaign. Although she was most known for her own efforts in health care, Secretary of HHR is better suited for Daschle and the importance of Secretary of State befitting for someone who today is Democrat #2. I also presume that Obama intends to be his own Secretary of State, in regard to policy, which is his prerogative.

Gates at Defense - This one is rumored, but not called. It would not be a bad pick. Gates is a pragmatist and not an ideologue. One of Obama's goals is to return U.S. foreign and defense policy to one with bi-partisan support, which the country enjoyed for most of the Cold War. Another two years with Gates wouldn't be a bad choice.

Napolitano as Secretary of Homeland Security - Don't know much about her, other than she has apparently had a lot of success in controlling illegal immigration in Arizona, through both a border shutdown and employer responsibility approach. Homeland Security begins with border control and goes inward in terms of tracking legal immigrants, etc.

Eric Holder as Attorney General - Holder was Clinton's #2 at Justice when Janet Reno was Attorney General. Presume that major areas of concern for the new AG will be prosecution of terrorists, both the ones at Gitmo and the ones on Wall Street. If he works well with Clinton at State, Gates at Defense, and Geithner at Treasury he should be OK. And, where better to put another African-American than in the position of the nation's Top Cop.

More later.

Summary of a Theory

The President (George Bush Jr...remember him?) spoke today on the economy prior to the opening of a global meeting on the global economic crisis, which he is hosting.

On this one, he's a reluctant host. Sort of like the 9/11 Commission; first he was against such a meeting, now he's for it. What changed his mind? French President Zarcozy and the European Union President's visit of approximately one month ago. As word got around that Bush basically didn't want to do anything and wanted to let the next Administration handle the crisis (beyond what has already been done in terms of bailouts for U.S. financial institutions), the Europeans hopped on a plane for a 3 hour dinner meeting with Bush in Washington. In arrival remarks, Zarcozy publicly pointed out that a global meeting should be called by the U.S. in November. Shortly thereafter, Bush "changed" his mind (or whatever it is he calls a mind).

Today's Bush remarks, however, were an indication that he remains unconvinced of the magnitude of the changes the global community is likely to bring with them this weekend. He is still - true to the bitter end - a reluctant economic leader, preferring to wait for the invisible hand of long dead Adam Smith, to act via free markets with minimal, if any, oversight. And, Wall Street, which has largely grown to ignore him, responded accordingly (up 400+ points on the DOW), proofing that the markets follow the fundamentals when it suits them and are equally capable of ignoring them when they do not.

They may be temporarily clinging to faint hope. I believe that the type of capitalism that has ruled since Reagan is dead, which leads to the theory.

My theory is based on Eccles view on the causes of the Great Depression, wherein he noted that democratic capitalism depends in large measure on a more or less wide dispersion of wealth. If wealth becomes overly concentrated among a few, basically no one else has the money (or credit) to purchase things and the economy tanks.

I believe this is basically what is occurring today. The sub prime mortgage mess was merely "the trip wire" that began the unraveling of the "phony economy." If Eccles' observation is correct, falling or stagnate wages among the majority, with increasing concentration of wealth, was masked by easy credit and over-valued assets. Higher than normal foreclosures (virtually guaranteed by mortgage providers) led to falling real estate, which in turn has led to real estate investors to walk away from property worth less than their investment, leading to more foreclosures, etc., etc. [Note: the head of Bank America's mortgage loan division testified before Congress this week that the great bulk of those "walking away" from properties were not residents of the properties, but investors.]

All of this was further aggravated by an unregulated market, lousy risk management models, with a touch of greed, corruption and incompetence.

Considering that we are all in one segment of the "labor market" or another...be in on a GM assembly line or as manger of a trillion dollar hedge fund, I believe rebuilding the economy has to begin at the bottom. Pouring money into the financial institutions without substantial changes in those institutions will at best simply perpetuate the house of cards and add another layer; at worst it will do nothing more than add to the national debt, further undermining the house of cards.

Continuing with the theory expressed in earlier posts, I am coming to believe that between Reagan economics (or the Milton Friedman ideas upon which it was based -meaning totally free markets, minimal government interference, trickle down theories, etc.) and Keynesian economics, meaning government intervention, pump-priming via government spending and higher taxation, the economic "truth" lies somewhere in between, depending upon the times.

If times are stable the economic situation of the middle class sound (meaning a general increase in wages consistent with productivity and GDP growth), and sufficient oversight and regulation to ensure a minimal amount of fraud and thievery, then Reaganomics may be the best path.

However, it is largely a balancing act. If wages do not rise, through open borders or the exportation of good paying jobs, and the middle class begins to disappear, then government must step in and do for its citizens what the free markets could not accomplish...create jobs. Better paying jobs reduce welfare and put more people on the tax roles, thus spreading the tax burden.

At the moment, my impression is that no one really knows what to do. A government policy that forces a return to loose credit markets does not really resolve the problem; it merely continues it. Financial institutions are largely caught in the middle (not that they do not bear the burden of responsibility for the present mess). They are condemned for loss credit on one hand, but encouraged to provide it on the other.

I am not sure there is any "fix" without substantial more pain. It will take time to create meaningful jobs that cannot be easily moved overseas at lower labor costs. A tax increase for the wealthy of a few percentage points (say five on capital gains and upper income brackets) does not seem to be too harsh a "penalty" to impose on those basically responsible for the present mess (how many investors complained about ridiculous NINJA loans, but invested in them at the same time...it was as if the left hand didn't know what the right hand was doing). If used intelligently, nominal tax increases won't drive many into bankruptcy and may help to restore neglected infrastructure and create energy independence. The Republican clamor against tax increases strikes me as largely impractical for the times and largely ideologically based, to the degree of cutting off one's nose to spite their face.

In the recent Presidential campaign, Biden was chided for saying "paying taxes is patriotic." It is unbelievable that at a time of global economic crisis, record deficits and fighting two wars abroad that Republican pundits made fun of his statement, by arguing the exact opposite...i.e. along the lines of "we believe paying less taxes is patriotic!" Are these people crazy? Do they really understand what is going on? Did they think the country could pursue wars abroad and free markets without regulation and oversight, while lowering taxes, without a serious economic crisis?

Biden was right. Paying taxes in time of war is patriotic. Bush lowered taxes and skimped on our military.

While the Democrats are certainly not without blame (Fannie May; Freddie Mac; Wall Street connections; Bob Rubin, etc.), Republicans have been largely deluding themselves since 9/11 in abandoning fiscal discipline, ensuring genuinely free markets, and standing behind a foreign policy that suggested doubling or tripling military and homeland security outlays, rather than cutting taxes. If Democrats made the "Guns and Butter" mistake with LBJ and Vietnam, Republicans have now done the same.

Bluntly, cutting taxes in time of war is unpatriotic and very, very un-American.

[There is a book to be written on this subject and one might compare what we have tried to do in the middle east to the imperial wars of Great Britain, counting on a relatively small professional army, with superior weapons to "control" foreign colonies. One could argue that they, in fact, tried this on us, leading to our own revolution. Ironically, Mad King George was the British monarch at the time.]

Were it not for the McCain campaign, we could blame this on the abberation of George Bush. Yet McCain offered no substantial changes in either the Bush foreign or domestic policies. I do not recall him ever mentioning bringing war or foreign policy goals in line with financial resources. He seemed to think that if he could ban earmarks all would be well ($18B in annual earmarks versus some $150B in annual Iraqi and Afghan war costs).

Perhaps the major problem with the Republican hierarchy is that they drank the Kool Aid - i.e. began believing the sales pitch. And, as no less a conservative than David Frum has recently pointed out, until the party turns its attention to the middle class of America, they are doomed to failure. [Frum also noted that Joe the Plumber is probably not the answer...Republicans lost substantial vote among white, well educated males.]

The problems facing us today are often compared to the challenges Roosevelt faced in 1933. Obama's challenges may actually be greater. Roosevelt had an economic advantage in bringing the United States out of an economic crisis by mobilizing for war. Obama has to do the same economically, while extracting us from war. To accomplish both will not be easy for either a Democrat or Republican.

More next time on where I think Obama will take us and the need for a new Republican economic philosophy.

The Election

Prior to continuing with specific steps that may be taken to rebuild the American economy, a post on Tuesday's election and why I have decided to vote for Obama.

Throwing out the charges of both the extreme left and right and after following the campaigns of both Obama and McCain for almost two years, I am reasonably confident that both men, from different philosophies and perspectives, have the best interests of the country at heart. I do not question the patriotism or dedication of either. The question in my mind is one of policies and qualifications, the latter in terms of both experience and intelligence.

The pace of change in American society is today so swift, that it is doubtful that either man knows what crises lie ahead. In this sense, intelligence in the ability to adjust to new situations and demands outweighs, in my mind, experience, although the latter is not an insignificant factor. Equally important is the ability to understand the world as it is and project a strategic vision for the future, which should coincide, of course, with my personal perspective regarding the best interests of the country.

Regarding these matters, I find Obama the better choice. I also find the charge that McCain is simply "more of Bush" to possess a great deal of truth, excluding small differences in tactics. To me, Obama appears to be the strategic thinker, while McCain is the tactician.

Obama has laid out both a strategic vision and plan for the achievement of goals compatible with my own perspective, while McCain continues, in my opinion, to wrestle with the tactical changes needed to implement Bush's basic strategic goals.

McCain had the opportunity to address both foreign policy and domestic policy goals and provide redirection. He did neither, and instead allowed his campaign to degenerate into a negative approach that spent more time attacking his opponent, than in laying out his own vision and strategy for the future. This may have been a dilberate campaign tactic anticipating a bad year for Republicans, but I believe it was a disservice to the voter. Foremost, I look to the candidates to explain what they are for more than what they are against.

In the realm of foreign policy, McCain has never questioned the President's decision to invade Iraq, which I view as an unnecessary war of choice. Obama, on the other hand, took tremendous political risk in condemning the invasion as "the wrong war, in the wrong place, at the wrong time," before public opinion turned against the invasion. [A political risk at least as great as McCain's risk on his surge position.] It is not enough for McCain to hide behind the Bush excuses of "we were all fooled" or to adopt the post invasion multiple causation reasons. The Bush Administration has never renounced its own Doctrine regarding the right to pre-emptive war and McCain has never questioned it. McCain has merely stated that he will correct Bush's errors. This sounds as if he views the "errors" as solely military tactics. There is no broader view. While Obama may also be charged with failing to lay out a comprehensive picture of changes to the Bush Doctrine, he still edges out McCain on this point.

Obama's statements on his willingness to talk to perceived enemies without pre-conditions is strategic and intelligent diplomacy, regardless of what he may actually do as President. McCain's insistence on pre-conditions, similar to Bush's, strikes me as a school boy attempt to gain a tactical negotiating advantage. If we must always leave military force as an opition on the table, it is also wise never to shut the door on diplomacy.

Domestically, although neither candidate appears to have much of an economic background, McCain appeared ready to leap before looking (suspending his campaign, threatening to cancel the first debate and rushing to Washington to "take charge" of the economic crisis). Nor does he seem to have any appreciation for the failure of Reagonomics that I've discussed in previous posts. As argued earlier, I believe that we are now in a position wherein a dose of Keynesian economics is essential for economic recovery. I have seen nothing that indicates McCain understands this, or the depth of the economic problems the country now faces and its implications for our future global position.

In fact, in both foreign and domestic policies, the McCain proposals do not, to me, seem to signify an awareness of just how bad the problems are that the country faces. In foreign policy it seems McCain is all about "winning" and knowing how to be militarily tough, without defining what winning means and what is actually necessary to rebuild our armed forces. Again, he seems stuck in past, with tactical changes to problems requiring strategic changes. He seems not only to admire Ronald Reagan, but also fails to understand the real changes in the world, since Reagan, that have led to our present situation: two unresolved wars abroad and a domestic economy on the verge of collapse.

On the other hand, Obama's position on rebuilding the military lacks force. Barney Frank's comment about cutting defense spending by 25% worries me, although he may be referring simply to eliminating the costs of the wars in Iraq and Afghanistan. I would agree with those cuts, provided that overall defense spending increase, excluding the savings from Iraq and Afghanistan. This point is also tied to my forthcoming "how to fix it" post and using increased defense spending to improve the U.S. economy. But, overall, I give Obama the edge on foreign policy, while considering defense spending a part of that policy.

I do not see pursuit of some undefined victory abroad and the extension of the Bush tax cuts at home as "keys" to improving our foreign policy or our economy. In a phrase, McCain appears concentrated on the past, equating the War on Terror and the threat of Islamic Fundementalism to the Cold War and communism. Obama's position looks more to the future and decouples that future from the Cold War, communism and the Vietnam experience.

As of last month, and the $700 billion + bailout package, it would appear that through mismanagement, corruption, the lack of oversight and an antiquated economic philosophy, we have blown the $700 billion Bush tax cuts and are repeating the mistake. Someone once wrote that insanity is doing the same thing over and over again and expecting different results. Or, as they say in Texas, you don't pour money down a dry well. The present economic crises is probably due to one of three things and most likely a combination of all three: incompetence, corruption, and the pursuit of the wrong economic philosophy. Bush blamed it on incompetence ("Wall Street got drunk."; McCain seems to think it was all due to corruption "I'll clean-up Wall Street" and Republicans, in general, seem to refuse to acknowledge that it might just be, at least in part, the economic philosophy itself.

Obama seems to acknowledge all three possibilities with a tax plan to "spread the money around" (OK...not ideal, until one realizes that the alternative is more loose credit) and redirecting capital, via tax increases toward jobs, new infrastructure and new technology. While McCain agrees with similar "goals," his approach is apparently almost entirely through reliance on the "free market" with additional tax cuts. Having just experienced a failure of the free market, it's a "sale" he can't make with me. My own view is that the best way to cure the free market's excesses is to temporarily take away some of their Monoply Money and scare the hell out of them. Tax increases may cause them to beg for a return to regulation. Let's face it; in good times, no one asks: How will this investment help the country? They look solely at their rate of return. Tougher investor questions may have prevented the current mess, which is a different way of supporting additional regulation. I don't exclude myself from investor blindness. As long as things were going great, I had minimal interest in economic theory.

On health care, there were three practical choices: Clinton's, Obama's and McCain's (which came late). Obama's plan is the least disruptive of the three, basically filling in the gaps of the present system and extending coverage by mandating coverage. McCain's plan would seem to me to lead to an increasing number of companies doing away with employee health plans and employees turning to McCain's $5000 tax credit to "fund" all of their health care needs; a plan virtually assuring that the result will be less universal coverage. Although I would prefer a genuine universal health care plan (which I assume would relieve American companies of the burden), I favor Obama's plan over McCain's.

McCain's ideas on freezing government spending and balancing the budget in four years have been discussed in earlier posts...in the vein of "if you believe that, I have a bridge to sell you." Banning earmarks sounds noble and good, but is only approximately $18 billion out of a $2.7 trillion budget. Worse, one could argue that doing away with earmarks encroaches on Congressional prerogatives and almost ensures a Democratic Congress and Republican Executive Branch confrontation. While it is certainly true that earmarks are most often not in the country's best interests as a whole, appropriation bills originate in the House (the people's branch of direct representation, and short-two year terms). If the people of Alaska really want to build a bridge to nowhere and their representatives are able to finagle an earmark to do it, well, that's part of the price of democracy...making sure that one person does not have entire control over how money is spent. Rather than "banning" earmarks, my preferred approach is through transparency, requiring more public exposure. Given the magnitude of the budget and deficit, in addition to massive bailouts, earmarks fall in the category of "chump change."

It also bothers me that McCain has not supported veteran programs and hasn't really bothered to answer the charge, saying only, "that's nonsense; veteran's know me." But, then, there are a lot of answers of that sort from McCain. There is a lot of "trust me," in his campaign. A curious message for a Republican in this election year. It is not that I believe McCain's "trust me" approach hides deceit, but rather than it covers inadequate preparation. Sort of: "I know what's right and will do the right think when we get around to it." Conversely, I believe, in general Obama has been more detailed and informed.

Finally, good, old trustworthy John has flip-flopped on enough issues to make John Kerry look remarkably consistent. I understand that this was the only way a moderate, "maverick" Republican could obtain the nomination in a radical right dominated Party, but one occasionally wishes he'd been more consistent on issues other than the Iraqi surge.

Obama has also made "running changes," but they seem to be less significant than McCain's 180 degree shifts (e.g. the Bush tax cuts).

In sum, I believe it is going to require a lot more than shoot-from-the-hip, knee jerk reactions to get us out of our present problems; it is going to require a lot of thought and reflection to decide where we want to be in that future and to strategize on how best to get there. In this, I believe Obama to be the better choice as evidenced by his own past history and the organization of his campaign. Obama impresses me as the strategic thinker, who could listen to the ideas of the Reverand Wright and William Ayers and take the good and leave the bad; who could and would sit down and talk reasonably to unreasonable people without feeling he was giving them some sort of recognition or endangering his own position; a person that is not afraid of alternative ideas, whether or not he accepts them. My own opinion is that this attitude must be our approach in coping with our future in everything from Islamic Fundamentalism (less actual terrorists) to social security and the regulation of Wall Street. What I do not want is a President who will exclude potential solutions because of an ideological filter.

Vote Obama!

The Perfect Storm

The movie, by the same name, concerned an actual once in a hundred years weather event in the North Atlantic, wherein three different storms, from three different directions suddenly and unexpectedly converged. The movie is the story of the fishing boat that failed to make port and went down with all hands in the "Perfect Storm."

Economically, I see three converging forces occurring in the last year or so to produce the present economic crisis: unregulated financial instruments; rapidly rising energy costs; and the sub-prime mortgage failures.

Greed and incompetence plays a large part, but it should be remembered that "demand" was genuine with all three elements. If there were any factors that set the environment that allowed the three storms to develop it was a failed Bush foreign policy (creating enormous distrust in the United States; particularly in Russia and the Middle East) and the rapid transfer of wealth back into the U.S. from abroad.

It is difficult to determine which of the storms was the first to arrive. I suspect the first to arrive was the rising price of oil, which may have been partially in retaliation for U.S. foreign policies and partially due to growing awareness of declining Saudi reserves. Rising oil prices, in turn, may have accelerated the growth in foreign demand for new U.S. financial instruments, based largely on sub-prime mortgages, which in theory would have been more liquid than the actual purchase of real estate. This, in turn, accelerated the demand for additional sub-prime mortgages, which eventually began scrapping the bottom of the barrel with no-doc loans, packaged and repackaged according to risk management software that was little understood and tended to neglect down-side data (i.e. models that did not properly weight the possibility of above average foreclosures and falling real estate values).

As this first storm began gathering strength, the second arrived - this was the beginning of the foreclosures, further fueled through over-valuing real estate leading to overbuilding and the situation of more supply than demand, i.e. there were far more buyers of "packaged" instruments than actual buyers of real estate. Once real estate market tipped, investment shifted rapidly out of that sector and fled to commodities, further aggravating speculation in rising oil prices.

All three then converged. Unregulated financial instruments composed of unregulated (or ignored) sub-prime mortgages, with an unregulated commodity market. Since it is today still difficult to obtain reliable information concerning any of these markets, it is almost impossible to determine how each fed on the other and influenced the other. What is known is that it was apparently a toxic mix...a Perfect Storm, which has exposed the house-of-cards U.S. financial system, the pitfalls of deregulation, the incompetent or corrupt use of untested risk management models, our foreign oil dependency, etc.

It will be a long time before global confidence in the U.S. economy is restored. One means of that restoration is to move toward a more European/socialistic financial system (notwithstanding McCain's fear of redistributing the wealth and equating a progressive tax system with socialism).

In other words, restoration of global confidence in our economic system may demand abandoning Reaganomics, which anyhow has not improved the lot of the American middle class.

The extent of foreign investment in basically sub-prime mortgage packages shows that whereas much of the world is accustomed to working within their own more regulated and conservative banking systems, they weren't above making an extra Pound, Mark, Franc or Euro or two by investing in the high-risk, Cowboy Capitalism of George Bush's United States. But once burned, shame on you; twice burned shame on me. I suspect the U.S. has taken a very serious hit on its ability to guide future global financial rules and that global GDP growth will slow significantly until we return to square one, with new rules, going forward.

Notwithstanding Chris Dodd's Countrywide VIP mortgage, or Barney Frank's pre-crisis support of Fannie Mae and Freddie Mac, the Obama economic team, composed of people such as Paul Volker and Warren Buffet will probably appear abroad as considerably stronger than the McCain team of Jack Kemp and a handful of lobbyists and conservative think tank people (assuming that Phil Gram and Carly Fiorina are actually gone and not just hiding in the wings).

Two hundred and thirty two years ago, on July 4th, 1776 our founding fathers gathered in Philadelphia and declared our independence from Great Britain. While "taxation without representation" was a prime cause in that declaration, I believe the broader cause was an understanding that as long as they remained under colonial rule, the country could not reach its full potential. Failure to achieve independence would constrict growth both in population, geography and industry and subject the American colonies to the intra-European concerns and squabbles of Great Britain. Today, the phenomena, not of colonialism, but of globalization, may be having the same effect.

As long as we pursue economic policies that place a globalized economy ahead of the interests of our own people, we risk returning to basically colonial status. It is time Republicans abandoned the destructive economics of an outmoded theory and recalled the closing words of the men in Philadelphia: ""And for the support of this Declaration, with a firm reliance on the Protection of Divine Providence, we mutually pledge to each other our lives, our Fortunes and our sacred Honor."

Unless we are ready to accept a continued decline toward the status of a Third World Country, we must begin rebuilding an economy based on meaningful and well paying employment for all; an economy not only strong for the 10% at the top, now paying their disproportional share of taxes, but for all. In my next post, a few ideas on beginning this process.

The Economy - Part VI

Given a progressive tax system and an economy losing its middle class, with stagnant or falling wages, it is not surprising that the upper two brackets pay more taxes than the rest. The "rest" don't make enough money to pay taxes. The means for rectifying this situation is not to cut the taxes of the wealthy, but to increase their taxes and use the money to do what the wealthy have largely failed to do over the past 20-30 years: invest in better paying U.S. jobs and thereby spread the tax burden more equitably over time (hopefully returning to a situation wherein all taxes may safely be reduced, on the basis of a sound economy).

The reason this isn't understood, is that Republicans (and, to a lessor degree, Democrats) fail to acknowledge that whereas Reganomics may now work globally, it has failed to work nationally. The reason for this failure is simple and has been stated time and time again herein: investors don't invest to create jobs; they invest to make money. If a company is able to produce a better return on investment than its competitors, by shifting production off-shore to take advantage of low labor costs, then that's where investment capital will flow. Forget free trade theory and trickle down economics. Labor (including costs associated with labor) is THE reason we've lost most of our manufacturing base over the last 30 years.

Again, I'll repeat my earlier comments about George Eccles' observations regarding the Great Depression. Eccles pointed out that a democratic-capitalist country, based on exports and mass consumption, functions best for everybody with a reasonably equal distribution of wealth, because then more people have sufficient money to buy more product.

Easy credit and cheap imports today obscure Eccles observation. But high-end products are (or have been until recently) surging. More expensive cars; more expensive yachts; more expensive homes; all meeting a demand that reflects the greatest concentration of wealth since 1929. What ultimately seems to have brought an end to this is the failure of credit at the bottom of the economic system, rapidly transmitted up the economy to include our major banks.

A housing foreclosure is essentially a failure of credit. Obama is correct. Additional tax cuts (or continuing with the temporary Bush cuts) for the wealthy will do nothing to improve an economy without a solid basis. The only way to do that is to rebuild the economy from the bottom up, by creating new infrastructure-related jobs (that can't be moved overseas) and restructuring the tax code to provide for incentive for investment capital to be kept inside the country.

This will be an enormous task that requires the suspension, if not completely scrapping, Reagonomics, which today seems to work primarily for the developing world. Clinton essentially continued Reaganomics via NAFTA, coupled to overvalued dot.coms and 401K accounts. Bush hid economic realities with phony growth based on the financial services, real estate and construction industries, stimulated through easy credit and cheap money.

I believe, the magnitude of the current economic crisis requires a strategic movement, via government, back to Keynesian economics and that the policies of Obama better reflect this movement. On the other hand, the McCain economic plan appears to me to be little more than a series of tactical moves designed to prop-up failed Reaganomics.

Before determining where we go from here, it is important to look at how we came to this point with more specificity, which I'll try and do in the next post, entitled "The Perfect Storm."

THe Economy - Part V

Prior to getting into who pays what in taxes, it may be interesting to look at just where the money goes. In discussions on the economy, I still run into people who believe most of our tax dollars go to welfare and foreign aid. The following looks at federal tax dollars. Many welfare programs were either eliminated or pushed down to state responsibility during the welfare reform programs of the Clinton years. The information is taken from a no-partisan group: the Center on Budget and Policy Priorities, which may be found at http://www.cbpp.org/. Figures are for the 2007 budget.

Defense and Homeland Security related expenditures compose 22% of the $2.7 trillion dollar budget; that's $590 billion, with $125 billion of that total going toward the wars in Iraq and Afghanistan. Recently, Barney Frank suggested the defense budget could be cut by 25%. While I disagree with this, he probably is referring to ending the Iraq/Afghanistan expenses. I believe both wars have seriously deteriorated our armed forces and that we have probably not spent sufficiently on homeland defense (port, nuclear and chemical plant protection, etc.). Without a detailed study, I would guess defense spending could be held to roughly 20-25% of the total budget or about 5% of GDP.

Social Security takes 21% of the budget or $590 billion. This provides 34 million retirees with an average payment of roughly $1000/month. I don't foresee any immediate change in this, although due to shifting demographics, it is not a sustainable program over the long run. We may be forced to "means testing" down the road.

Medicare, Medicaid and SCHIP (State Children's Health Insurance Program - partially funded by the federal government, but administered through the states) claims another 21% of the federal budget, or $572 billion. With the political tide for some sort of universal health care program, I would not foresee any substantial reduction in this category, although increased efficiencies, elimination of corruption, etc. might improve costs by 10-20% (say $150 billion).

Safety Net Programs, such as the earned income and child tax rebates, school lunch programs, low-income housing assistance, food stamps and the various programs one would think of as "welfare," compose 9% of the budget or $254 billion. In a serious economic crisis, it will be difficult to hold spending to this level, without eliminating programs. Obama's tax plan increases the earned income credit, but for the sake of argument, let's assume this category could be cut in half, for a fifty percent savings (say $127 billion).

Interest on the national debt takes roughly the same amount of the budget, 9% or $237 billion. No much can be done here and as borrowing increases at a rate aster than income growth, this percentage will only rise.

Everything else comprises the remaining 18% of the federal budget. The 18% is divided roughly as follows: 6% for federal retirees and veterans benefits; 3% for for scientific and medical research; 2% for transportation and infrastructure; 2% for education; 1% for non-security related foreign aid; other miscellaneous 3%.

In terms of restoring the nation's basic infrastructure and encouraging new industries with new jobs, scientific and medical research, transportation and infrastructure and education probably all need increases in funding and a larger percentage of the total budget.

The point in reviewing these figures is, however, to show that if we hold defense spending and continue to fund entitlement programs, there is not a whole lot of discretionary spending available to reduce. If the above is even approximately correct, the best we could hope for is roughly $300 billion out of a $2.7 trillion dollar budget (approx. 10%). It is more likely that that savings would be shifted toward research, infrastructure and education.

According to the Center on Budget and Policy Priorities, in 2001, budget experts were projecting a $710 billion surplus in 2009; today we are instead expecting a $546 billion dollar deficit (and I believe these figures were prior to the recent bail-out of financial institutions). This means that during the Bush Administration the federal budget picture worsened by $1.3 trillion, not including the recent additional increases. The Center also studied where this money went: 42% in the Bush tax cuts; 40% in defense and security increases; 12% in entitlement increases; and 6% in discretionary spending increases.

My argument is that we do not resolve the overall budget problem with "tactical changes" such as getting rid of earmarks ($18 billion/year) or freezing discretionary spending to present levels and extending the Bush tax cuts and providing additional tax incentives to American corporations to enable them to better compete globally. In fact, policies designed to help us better compete globally have largely led to the destruction of the middle class and failed financial system.

Next: Who Pays the Taxes and How to Create Meaningful Employment

The Economy - Part IV

Following 9/11 and the identification of Al Qaeda as the perpetrators, I assumed that George Bush had to do two things to have a chance at re-election in 2004. He had to destroy Al Qaeda and bring Bin Laden to justice and he had to scrap his tax cuts, which were, by all objective measures, aimed toward business and the wealthy. He did neither and managed to squeak by a second time to win in 2004. So much for my political astuteness.

Bush's legacy, however, is another matter. During his first term, he effectively destroyed American foreign policy and the post WWII western coalition that had essentially brought down communism. During his second term, he effectively destroyed the United States' leading role in the global economy and, although the jury is still out, much of that economy itself. Whatever international participation there was in the fiasco called the American economy and however deluded western intelligence may have been regarding the threat posed by Iraq, we began the Bush Presidency as the global military and economic leader and leave the Bush Presidency with our leadership in both in shambles. From the present perspective, Bush may go down in history as the worst President we have endured.

Bush managed to win the Presidency based on two factors; in 2000, a conservative, pro-Bush Supreme Court overruled the Florida Supreme Court and handed him the election. While I remain one of the few Democrats who believes that Bush "probably" actually won Florida, had events taken their usual political course and the Supreme Court decided against interference in the Florida State electoral system, Gore would have probably become President.

In 2008, Bush pulled out another "squeaker," with the deciding state switching from the electoral votes of Florida to the electoral votes of Ohio, although he did escape from becoming a "minority President," by carrying the overall popular vote by 500,000. Kerry's defeat was based on both the "fear" campaign waged by Republicans, coupled with intra-Party friction among Democrats. [I would contend that the Clintons preferred a Bush victory in order to clear the way for a Hillary nomination in 2008.]

Both of these elections will, hopefully, someday be seen as "aberrations" within our democratic system. But in 2008, the choices are incredibly clear. Whatever one thinks of the Obama policies (foreign policy, the use of military force, taxation, universal health care, etc.), McCain has offered no substantive change from Bush foreign and domestic policy.

"Winning" in Iraq and bringing home the troops with "honor" might be termed the "feel good strategy." McCain had the opportunity to reformulate the Bush Doctrine of pre-emptive war and offer a substantial new approach to foreign policy and the use of military force. He did neither. Outside of his claim of being correct on the tactics of the "surge" in Iraq and the need for a similar surge in Afghanistan, McCain's foreign and military policy is based virtually entirely on: "I have more experience; trust me." In the absence of offering alternatives to the Bush policies, one must assume that he concurs - i.e.silence is affirmation. The McCain goals of "victory" and "honor," lack definition and do not constitute in themselves a "strategy." Lacking such a strategy, McCain fails as Commander-in-Chief.

As the campaign shifted away from Iraq and Afghanistan toward the economy and what voters apparently believe is of a more urgent priority, McCain's arguments have been similar and offer little more than the standard Republican matra of supply side and trickle down economics. If Bush, in 2004, managed to get re-elected with the message of: "I've made mistakes, but Kerry will make more," based on foreign and military policies, McCain seems to be trying the same tactics in 2008 regarding the economy.

As with the wars in Iraq and Afghanistan, McCain's arguments with Bush on the economy are not strategic differences, but tactical. On the former, McCain never questions the policies of Bush or the decision for pre-emptive war (he doesn't discuss it); on the latter, the economy, it's simply more of the same. Indeed, McCain apparently believes he can right the economy by vetoing Congressional earmarks, freezing government expenditures (except for defense and entitlements...which compose 75% of the total budget) and providing additional tax breaks for corporations and the wealthy.

In other words, by pursuing strategies basically identical to Bush, he will somehow achieve better results, through small tactical changes. This fails to address the magnitude of our current economic problems.

Reaganomics, which has steered the Republican Party since Reagan, died with the recent Greenspan testimony before Congress, in which he noted that he did not foresee the errors of the banks and had assumed they would have been more protective of their stockholder interests - in other words, the free, unregulated market failed.

Ironically, the recent $700B+ bail-out of what-to-date has been a bailout of failed banks and financial institutions, approximates in dollars the Bush 2001 tax cuts. Looked at another way, the 2001 tax-cuts designed to stimulate real economic growth, instead were "blown" via the bubble of an over-valued real estate market, kept alive by ignoring basic lending rules, easy credit, and shady - if any - accounting practices.

Worse, the objective position of the United States-in-the-world has not changed and has probably gotten worse. Two of the three "axis of evil" are still in place. Al Qaeda is growing. Bin Laden is still at large. Domestically, incomes haven't risen, credit is virtually gone, home foreclosures increasing, unemployment growing, energy prices rising over the long term, infrastructure ignored, etc., etc. So what's the answer? More of the same?

We have, I believe, reaching "the tipping point." Four more years of essentially Bush policies will put this country into economic Depression.

This is not an indictment of the theories of free enterprise; supply side economics may work (and, in the past, has worked). But, in a global economy, it will not work for the middle class or the poor, unless accompanied by real growth in GDP and wages, instead of the phony growth in overvalued assets and easy credit.

At this juncture, it is important to shift economic policy back to a national focus. The fastest way to recovery is to temporarily step back from free markets, until they can be reformed, and to utilize taxation as a means for redirecting capital back to neglected national infrastructure and the creation of meaningful employment. The reason is simple. We cannot afford to continue to pursue national goals which demand expeditures far in excess of income. The best means of increasing that income, over the long run, is through the economic restoration of the middle class, so that they once again assume an important role in the overall tax burden.

Next: Why 40% of Americans pay no taxes.

The Economy - Part III

In the late eighties and early nineties several enormous changes in the global economic picture began occuring which would have tremondous impact on American society. Among those were: the recovery of much of the world from the damaging effects of WWII, as evidenced in the growing economic and political strength of the European Union and the developing countries of southeast Asia, including the growth of market capitalism in South America; the mass utilization personal computing and its impact on global capital flows, transportation and logistics, as well as manufacturing; the end of communism and the sudden approximate doubling of the global labor force, which driven by free trade, essentially "devalued" much of the American work force.

The combined influence of these differing factors equated to "a perfect storm" for the American worker. To illustrate this, I would turn to the "piece of the pie" analogy frequently used. At any given moment, the global economy may be seen as a large pie, with each country possessing a slice of the pie, determined by the size and strength of its national economy [Note: This is an "old economy" analogy. Today, it might be difficult to determine exactly where one slice differs from the next.] Following WWII, the U.S. had more than fifty percent of the entire pie. We wisely understood, that such dominance was not to our long term benefit and would undoubtedly lead to additional wars and global instability if we did not help in dividing the pie more equally.

The trick in doing this while simultaneously allowing your share of the pie to either remain the same or grow slightly larger is to increase the size of the total pie - or the global economy - over time, and this is largely what has occured. Developing countries such as China, India, Russia have tended to grow at a faster rate than the Developed countries of Western Europe and the United States. While good Chinese growth in Gross Domestic Product is roughly 10%, reasonable U.S. growth is around 5%.

This does mean that all else being equal, the global economy will become roughly the same over time. This doesn't mean everyone will be equal, but that the extremes of wealth and poverty will be reduced and tend toward a more or less stable "middle."

With all of our dissatisfaction about our own system, the corruption that has crept in, etc., it is extremely important to understand that "sharing the wealth" of the planet has been a deliberate and intentional bi-partisan goal from Harry Truman to George Bush. And, that this "sharing" and promotion of global economic growth is seen as an alternative to World Wars.

In my opinion, this policy is unique in human history and represents a major step forward in human development and away from the laws of the jungle and the survival of the fittest. It is, in essence, an extension of the idea of social contract. And, although I do not agree with many aspects of the Bush Doctrine, its basis...i.e. stable and peaceful democratic societies adhereing to a democratic-capitalistic economic system, in which everyone gains. [George just uses the laws of the jungle to get there.]

Our present dilemma - i.e. the threat of global economic collapse - lies in trying to take "short-cuts" to the end goal. Short-cuts in the form of everything from pre-emptive war to economic policies that negatively impact the American economy.

In the great scheme of global economics, historically, economies are initially built on exports. In other words, initially, workers do not have the money to purchase the very goods they produce. They achieve this through exports, accumulating savings, financing their own development, creating economic strength and a middle class, eventually evolving into a mature economy.

Participating in this global system, the United States shipped so-called "obsolete jobs" overseas, anticipating that those jobs would be replaced by new jobs in the New Economy. The new economy jobs were to be found in three major areas: services and high tech products. Services had two basic components: low wage retail service workers, ranging from store clerks, to restaurant workers, to yard mowers and higher paid financial services workers. Segments of the financial services and high tech categories (as well as the entertainment industry) were to provide the "export" segment of the American economy. We called it the New Economy or the Post Industrial Economy.

In this, however, three critical mistakes were made: a failure to comprehend the extent of failure in the American education system; a failure to control borders and virtually unlimited illegal immigration; and a failure to understand how easily the "new technology" transferred across borders. Failure to adjust free trade policies and the flight of American manufacturing jobs abroad to these realities coupled with a failure to obtain intellectual property rights to protect our high tech innovations suddenly left a situation wherein instead of remaining the same or slighly increasing, the average American's "slice of the pie" began getting smaller.

Much of this began during the Clinton Administration. Falling real exports, due to these factors, led to the alternative of attracting foreign investment. If we couldn't compete in the global import-export market effectively, we'd make it up by "selling a piece of America itself." This, in turn, meant that the U.S. consumer market had to remain strong, in the face of falling or stagnate wages. The means for achieving this was through cheap money and easy credit.

In this manner, the total U.S. economy continued to look good to voters and foreign investors, while in reality we began to build the house of cards. Rather than being based on the production of actual goods and services, GDP growth now became dependent on "over-valued assets." It hit first with the dot.com bubble under Clinton and the housing bubble under Bush.

Next comes: If cutting taxes in time of economic decline is stupid, cutting taxes in time of war is self-destructive.

The Economy - Part II

Supply side economics presumably originated in the University of Chicago School of Economics and largely with Milton Friedman. [Note: Interestingly, the University of Chicago was founded by John D. Rockfeller].

Until this event, American economics (and, more generally, western democracy economics) had been largely dominated by followers of John Maynard Keynes since the Administrations of FDR.

Without going into details (about which I admittedily have little in depth knowledge), and to contrast Keynes with Friedman; Keynes argued for more intervention in the economy by government, particularly in times of crisis. One of the reasons behind this was that government, theoritically, is able to act faster and more precisely direct expeditures than a free market. Keynes was certainly in favor of free markets and capitalist of high order; it was said that he became personally wealthy by playing the London Stock Market while having breakfast in bed.

To finance government expeditures, Keynes called for high taxes and the government re-direction of the economy...while this was not "socialism" per se, it was much closer to socialism than the philosophies advocated by Friedman. Friedman argued the opposite; that the strongest economies are built on as free markets as possible, because such markets were based - in democratic societies - on the free choices of its citizens. This called for low taxation, small government, and as little government regulation as possible. In a phrase: the market is King and all wise.

Practically, Friedman's theories evolved into Reaganeconmics; the theory that by keeping taxation low, people would have more disposable income to reinvest in the economy, whether in their own bsinesses or through the financial makets. These investments would create new capital for new industries and general economic growth. As the economy grew, so would the demand for additional labor. The competition for the additional labor would, in turn, drive up the cost of labor, increasing wages and enriching the total economy.

John Kennedy expressed the theory with: "In a rising tide, all boats are lifted." And, Kennedy cut taxes resulting in economic growth. Reagan did the same - although it should also be noted that the overall federal deficit increased under each of them; modestly under JFK and historically, under Reagan.

Despite fundamental changes in the national economy and the evolution of that economy into a global economy, Republicans (and a few Democrats) have held onto the Friedman theories.

Neither Keynes or Friedman are "right" or "wrong" and each has to be judged within the context of times in which their theories have been in vogue. Each represents a particular philosophical view; each may be "true" for specific conditions. I would contend that various historic changes in global economics has, in recent years, created national conditions within the global context that obsolete much of Friedman's thinking and, as a result, are now driving us back to Keynesian economics. The best recent example of this is the recent $700B+ government bailout of the financial services industry. In other words, there are times when it is advantageous to follow Friedman's theories and times in which we must follow Keynesian theories, in order to return to the stability needed for Friedman.

Underlying the various factors which are undermining supply side economics is what I would define as three fundamental economic truths: The first is that no one invests capital in a project/product of any sort wherein the value of that project/product is less than its cost. This would be "irrational" and all of our economic edifices rest on the proposition of rationality.

The second "truth" is a collary of the first: Capital investment - whether by government or individuals - is made in order to obtain a gain of somesort. In the case of an indivdual, this may be simply money. In the case of a small businessman it may mean additional means of production (people or machines) in order to increase the size of the business to, ultimately make more money. At the government level, it may social programs such as social security or medicare, which fullfill a recognized societal need. It may be unemployment insurance, which promotes stability. It may be better education, better health care, subsidies for new industries, better roads, national defense, etc., etc.

The point is that, in my opinion, no reasonable, "rational," person would disagree with the proposition that some type of division of wealth must be made between the realms of the individual and government for the future prosperity of both the individual and the society as a whole.

The third "truth" is the real kicker and one largely ignored in recent years, particularily under the Bush Administration (and in certain areas, under the Clinton Administration as well), namely: commitments must equal resources and resources must equal commitments.

In the next post, I will try and show how the violation of these three "rules" has led us both individually and collectively to the verge of economic collapse.

The Economy

I have just finished watching four hours of Congressional testimony on the subprime motgage mess by Greenspan, Cox and Snow. The following is my take on their testimony and my own understanding (or lack thereof) of the overall mess.

Greenspan - Greenspan, based on his testimony, is now re-evaluating his basic economic philosophy. He half-heartedly admited to errors during his term as Federal Reserve Chairman and offered, in some cases, what I believe to be a legitimate defense - such as his attitude in regard to derivatives and hedge funds. He correctly pointed our that both continue to do well in their original areas of origin - essentially a hedge on equity prices and foreign exchange. He admitted that the area he failed to see was in mortgage securitization and its rapid growth due to demand.

When questioned about neglecting the Federal Reserve's oversight responsibilities (given by Congress in a 1994 law, which he generally ignored), his answer was that he believed that area needed more study internally by the Federal Reserve and they had basically "tabled" implementation of the law to explore its intent and means of implementation. A weak answer.

Greenspan is a self-described "libertarian." Basically, within economics,that means a believer in minimum government interference and deregulation to allow the free markets to operate on their own. The philosophy has always impressed me as one of failing to consider the imprefections of human nature...in this particular case, greed and corruption of the political/financial institutions. That subject is worthy of a separate and lengthy essay, but in a phrase: Greenspan was too involved in econometrics, with an overall niave economic philosophy.

But, and this is a very important "but," Greenspan's lack of action was in large measure due to his political masters, both Democratic (Clinton) and Republican (Bush). They both used him. Perhaps the best lesson to take away from his reign is that he stayed too long. We should consider a law that limits the amount of time a Fed Chairman may serve. Greenspan was around long enough for both parties to learn how to play him (18 years).

If Greenspan was the niave idealist in the trio, Chris Cox was the political realist. Cox is a man who all of a sudden has found religion, namely that of additional oversight and regulation. This new religion is appropriate for the moment and I don't doubt his sincerity. Yet, during his tenure as head of the SEC he pretty much followed the Administration's economic policies of deregulation, unrestricted markets, etc. Cox impresses me as one smart enough to have had serious doubts about the Administration's direction, but just went along. Cox is to the Administration's economic policies as Powell was to its foreign and defense policies. Although he will undoubtedly be gone shortly as SEC Chairman, he may have a promising future in helping to rebuild the Republican Party.

Former Secretary of the Treasury Snow was the "organization man" of the trio. The answer to past failures and future successes lies in "reorganization," eliminating duplicative and "stove pipe" regulatory organization, etc. Snow, who came out of corporate America, has much of its current philosophy - anything can be accomplished with the right organization. Much of what he testified to, I believe to be true, but much was neglected and he, like Greenspan and Cox, "bought in" to the Administration's misguided philosophies and policies.

What they all agreed upon, to one degree or another, was a need for both reorganization and expansion of government oversight and regulatory authority.

Another major observation of the testimony and questions was the intensity of the some Republicans to escape blame for the economic disaster. The exceptiopn to this was Republican Tom Davis of Virginia, who seemed to steer away from party politics and asked serious questions (another candidate for rebuilding the Republican Party). Aside from Davis, the very clear Republican position on the financial melt down is that it's all the fault of Democratics and their treatment of Freddie Max and Fanny May.

There is certainly SOME truth to this argument. However, none of the witnesses (Greenspan, Cox or Snow) felt it was the primary cause and Henry Waxman, the Democratic Chairman pointed out that at it's peak, both organizations held less than 15% of the total subprime market.
Nevertheless, Democrats such as Barney Frank, Chuck Schmur, Chris Dodd and a collection of others, primarily from the New York region have serious questions to answer in regard for their support of an untenable financial system. Obama, has the 2nd largest receipant in the Senate of Banking interest contributions probably falls into this category as well, although because of his relative newness, was probably being "cultivated" for the future. However, all of these contributions pall in comparison to the amounts raised in his Presidential campaign and it is a question mark as to the influence of these past industry contributions on his future behavior as President.

Basically, I see the issue as not one of Party per se, but rather one of "Pro-Wall Street vs. Anti-Wall Street," with the former primarily responsible for deregulation. Within that category, and very broadly, Republicans seem to have acted in regard to economic philosophy, while Democrats acted in regard to campaign contributions. Yet, regardless of motivation, the extent to which deregulation and lack of oversight occured has, in my opinion, seriously endangered the global financial system.

Next Post will be a reasonably lengthy overview of how we got into trouble and why Reganeconomics has failed.

Character(s) and Economics

First of all, I note that this is a first post after a two month absence. Facing what is perhaps the most significant Presidential Election of our times and an economics debacle not matched since the Great Depression, I decided some months ago to move from my former Rocky Mountain National Redoubt to the Cascade National Redoubt and have spent the last two months doing just that.

Now to the topics. The Presidential campaign is now entering its last pre-election phase. Has we get into the "down and dirty" segment, one issue seems to be: Whose past associations are worse? Is it the Obama-Ayers connection, or the McCain-Keating connection?

Both have been thoroughly gone over in the past. Based on memory, here is my own take.

The Obama-Ayers association apparently began a number of years ago, when Obama decided to try his hand in Illinois State politics. He ran for the seat of a retiring Democratic, with her endorsement and support. One of his early fund raising events, which was set-up by the retiring Democrat, was held at the home of Ayers. At that time Ayers, while not renouncing his radical past, had become a more-or-less mainstream Democrat liberal in the Chicago political milieu. In all probability, Obama was grateful for his early political support and sort of "inherited" the connection from his predecessor.

Ayers' radicalism stemmed from is participation (and leadership) within the anti-war, anti-capitalism organization termed the "Weathermen," after Bob Dylan's famous song line: "You don't need to be a weatherman to know which way the wind is blowing."

The group was a coalition of various "anti" individualists falling somewhere between socialism and nihilism and everything in between. Ayers and his wife were early group founders. The Weathermen advocated "direct action," namely in violent protests, including bombings of symbolic military-industrial targets. Initially, these bombings were aimed solely at property destruction and a great deal of planning went into making sure that no one was actually hurt.

Subsequently, however, the group split into two factions: those who continued to insist on non-violent violence and those who became more historically traditional terrorists.

Naturally, and correctly, the government (primarily the FBI) did not see a great deal of distinction between the two factions and pursued both. Most were either caught or disappeared into obscurity with the end of the Vietnam War, but not before destroying a few targets and killing a number of people, including armored car guards in a hold-up to finance Weathermen operations. Their single most violent event, however, was the destruction of a Greenwich Village townhouse, in which six of their own were killed during the course of their bomb-building activities.

I believe Ayers was in the violent, non-violence faction and both he and his wife went to "ground" and disappeared. Years later, seeking to return to society and tired of running, they turned themselves in. They were arrested, but the government eventually decided not to prosecute, apparently for lack of evidence connecting them with killings.

Ayers eventually joined the Chicago campus of the University of Illinois faculty and both became active in ultra liberal Democratic circles. Ayers joined the board of a trust philanthropy set up by the conservative Republican Walter Annenberg. Obama also served on this board.

Subsequently, Ayers gave an interview, prior to 9/11, in which he stated that roughly: "we should have done more bombing," thus confirming his "non-repentant," attitude. Coincidentally, the interview was publish around the time of 9/11, but the statement was not his response to 9/11.

The Obama campaign pretty much went over the above when the Ayers issue arose during the primaries. To the best of my knowledge no additional sinister information has been added since, even by the McCain campaign, although they insinuate there is more to be learned.

The McCain-Keating association is tied to the Lincoln Savings and Loan failure during the broader Saving and Loan crisis. As head of Lincoln Savings and Loan, Keating violated a rule (amid other illegalities) regarding limitations on Saving and Loan Banks direct ownership investment into real estate projects, as opposed to simply loaning developers the money for such projects. Keating was prosecuted, convicted as a felon and spent time in a Federal prison.

Keating had been one of McCain's early supporters, campaign contributor and personal friend. The two families apparently vacationed together in the Bahamas, with Lincoln Savings and Loan picking up most of the tab. As the Savings and Loan crisis deepened and federal regulators moved in on Lincoln Savings and Loan, Keating turned to five of his friends in the U.S. Senate to attempt to pressure the regulators to delay prosecution until he could "fix things." The regulators declined and proceeded. McCain was one of the five Senators attending the meeting wherein pressure was exercised against the regulators. Subsequently, the five Senators were brought before an Ethics Committee investigation. McCain escaped with a mild reprimand. He has called this event a turning point in his life and has since been Mr. Ethics in Congress.

In retrospect, both Obama and McCain probably regret their associations. But, Ayers was never convicted of a crime, while Keating was. And, at worse, Ayers was deluded into believing that symbolic non human harmful bombings furthered some misguided idealism of benefit to the total society, while Keating robbed thousands of people of their life savings with a purely self-enrichment motivation. Hmmm? On balance, I believe I'd call that one at best "a draw."

I'll turn to economics in my next post.

This and That

Ron Suskind

Ron Suskind (author of "The One Percent Solution," which won a Pulitzer Prize) began publicizing a new book today and managed to garner the headlines. In his new book (can't remember its title), Suskind claims that he has inside testimony that the Bush Administration instructed the CIA to forge a letter, drafted by someone in the White House, purporting to be from the head of Iraqi Intelligence to Saddam Hussein. The subject of the letter was the completion of terrorist training by Mohammad Ali (chief 9/11 terrorist who died in the crash into the World Trade Center) in Iraqi. Such a letter would "prove" the Al Qaeda - Iraq 9/11 link.

Suskind's accusation is quite a claim and should be investigated by the FBI, if for no other reason than to expose Suskind himself. At the moment, George Tenant (head of CIA at the time), the White House and the two CIA insiders, whom Suskind claims told him the story, have all denied it.

I am skeptical of Suskind's story and find it difficult (but not impossible) to believe senior White House people (i.e. Bush or Cheney) would have been involved. It may be that the story "grew with the telling." Tenant, while denying the main story, admits the head of Iraqi Intelligence was talking to the British on WMD and telling them Iraq had none. However, the CIA finally concluded he was an untrustworthy source and discounted the intelligence the British passed on to us from him.

According to Suskind's book, when told of the "no WMD in Iraq," Bush apparently became frustrated and said something to the effect, "let's get him to put it in writing." While that apparently never came about, it may have motivated someone else to come up with the forgery idea on the Iraq-Al Qaeda 9/11 connection - i.e. if the President wants written proof on all of this, we'll provide it.

But, having voiced my skepticism on Bush's personal involvement, forgeries seem to have a way of coming up in the Bush Administration. The story of Iraqis trying to purchase Niger yellow cake uranium apparently began with forgeries, which some have tentatively traced back, through Italian Intelligence, to a former Republican operative in the USA. The International Atomic Energy Agency identified the Niger-Iraqi official letter exchanges as forgeries. Joe Wilson (The Valarie Pflame Affair) was sent to investigate and confirmed the forgeries.

Also, I've long been suspicious of the Dan Rather forgeries concerning Bush's military service. Based on totally different and more credible sources, the substance of the forgeries were apparently based on accurate information. [The Air Force officer who supposedly wrote them is dead, but his secretary has been quoted as saying that while what is in the forged letters is pretty much what her boss thought of Bush, she didn't think he would have been dumb enough to put it in writing.] Yet once the letters were shown to be forgeries, the issue turned from Bush's military service to Dan Rather's credibility. No one paid attention to the substance of the forged letter's charges, which in all likelihood were very close to the truth. [Basically stating that Bush was less than the ideal soldier.]

If an investigation shows Suskind's charges to be false, he should be appropriately censured by his colleagues and the American public by assigning his "journalism" to the realm of fiction, assuming he broke no laws. If his charges turn out to be true, someone at the White House needs to go to jail, although there is a good chance that particular person has already been pardoned once - i.e. Scooter Libby, apparent hitman for the VP. Hmmm? Sort of a common fault among ideologically driven personalities wherein the "end" is the only thing that really matters and the "means" are...well, whatever it takes.

More on Oil

O'Bama has shifted a bit on off-shore drilling, in face of public opinion polls, which are strongly in favor of such. But rather than pay attention to the details of his new plan, the media emphasis is on "flip-flopping," once known in democratic politics as "compromise."

I'm convinced that the current push for off-shore drilling and ANWR drilling has much more to do with politics than energy. No one (either Republican or Democrat) has adequately explained the sudden surge in oil prices. During the last year that price doubled. While some of the surge is due to increased demand, demand has NOT doubled over the same period. Or, if it has, we can throw out the economic forecasters, as well as the economists. I suspect this is a complex issue, with many causes. Current prices seem driven by futures. Futures may be driven by: more forecast demand than previously thought; less global reserves than previously thought; higher than forecast recovery costs; hedge fund money flowing into oil futures seeking to recover from sub-prime mortgage losses; OPEC dissatisfaction with U.S. foreign policy; oil companies "last hurrah," etc., etc.

Whether this is through a coincidental confluence of motivations, or by design, the timing for repealing the ban on off-shore and ANWR drilling is running out. The Bush Presidency has but 5 months to run. Odds are that both a Democratic Congress and President will follow. If successful, it is a situation that could last easily for four years or as long as a generation; time during which it would be unlikely to obtain a repeal of the drilling ban. And, as alternative fuels are brought on stream motivated by an acknowledged decline in limited oil reserves, oil prices will rise and alternative energy will become more price competitive (although the "natural" market price should rise somewhat more slowly than it has during the last year).

"Politically," now is the time to push for the ban on drilling. All else being equal (price, convenience, etc.) Americans, in light of global warming and CO2 pollution, will choose non-fossil fuels (solar, wind, natural gas) over oil. [Nuclear energy and clean-coal may be included if associated safety and environmental problems are overcome.]

The arguments for and against the drilling ban require more fact and transparency. Part of this transparency involves in determining who is driving the surge in oil prices? Is it OPEC itself? Is it the global oil companies? Is it speculation? Is it demand? Probably a bit of each, but it is important to understand how much each contributes to the surge in prices in order to formulate a new energy policy.

In understanding this, it is important to look at a history of oil purchases (both spot and futures) over the past year. What factor began the price surge? It would certainly NOT be in the interests of end-users (national purchases such as China and India or in corporate purchases, such as airlines, trucking companies, etc.) to drive up oil prices, although they would have to follow and add to rising prices. OPEC might want higher prices, but unless they were trying to manipulate pricing by purchasing each other's oil, they would have a negligible impact. OPEC countries may control production within their countries, but they can't determine prices in a free market, which is how the price is presumably set. Further, I know of no significant reduction in global production of a magnitude that would double prices in a year.

[Caveat: Saudi reserves have declined somewhat and there is mounting evidence that the Saudis have exaggerated their reserves since the nineteen eighties. Political instability, in Nigeria, Venezuela, Iraq and Iran, due in no small measure to a failed Bush foreign policy, would also be a factor driving future oil pricing. Bush is not alone in having done little to address a comprehensive energy policy; neither Congress or prior Presidents have done much over the last 30 years. However, it IS, politically advantageous for Bush to seek to blame the current situation on Democrats and environmentalists today and "suggest" that drilling "now and here" is the solution. And, now that the legacy thing has been basically trashed, it wouldn't hurt to give a little something to all those guys contributing to the Bush Presidential Library.]

I have no personal preference for or against expanding drilling, other than that noted above - i.e. all else being equal, it's probably best for all of us to shift, as rapidly as possible, away from fossil fuels toward non-fossil fuels and/or non-polluting fossil fuels, such as clean-coal. However, due to future global energy demands and increasing production costs associated with future energy sources, both fossil and non-fossil, I have serious doubts that "drilling" solves anything in regard to "price." I suspect that increased energy efficiencies at both the manufacturing and consumer level will ultimately reduce consumption and prices will gradually fall. This is a game of technologies and lead-times and I suggest looking long and hard at the "promises" of those who argue for drilling. If we can transition in ten-twenty years to inexpensive energy sources (as measured by a percentage of household income), which gives us roughly equivalent performance and have the added value of reducing carbon emissions, I see no reason why we shouldn't leave a little oil in the ground - including that which is off-shore or in ANWR. Remember...whatever happens, whereever we drill...those last jillion barrels are going to be real expensive, unless we tell the people currently driving the price up, "keep your oil, we don' t really need it."

Note to the two people who regularly read this (well...I hope two...maybe one): Due to relocation, I'll be busy for the next month or so...but stay tuned.

Is There a Democratic Mole In the McCain Campaign?

The contrast between Obama and McCain campaigns hasn't been so strikingly evident until today's coverage.

McCain is interviewed outside of a German restaurant in Ohio and spends most of the interview complaining (dare I use the word "whinning") about Obama on essentially inane points.

Switch to Obama coverage: Obama is addressing over 200,000 Germans in the heart of Berlin and calling for a new era of western politics.

Even worse (or better depending upon your candidate), all through the McCain interview there is this omnimous bell ringing in the background, bringing to mind the John Donne quote, made famous by Hemingway's "For Whom the Bell Tolls": "...any man's death diminishes me, because I am involved in mankind; and therefore never send to know for whom the bell tolls; it tolls for thee."

Being one who is periodically "involved in mankind," the only thought that occured was that the bell was tolling for John McCain.

Remember, that the McCain campaign asked for this...the thus far triumphant Obama overseas tour. In fact, had it not been for the McCain campaign's attacks regarding Obama's lack of experience and absence from the world stage, it is likely the Obama campaign would have never left American shores.

Now McCain is faced with the photo-ops of Obama sitting with U.S. Generals in Afghanistan and agreeing with them on the need for additional U.S. and NATO forces; conferring with Prime Minister Maliki, in Iraq, and emerging with an Iraqi plan for the withdrawal of U.S. forces very similar to his own; laying a wreath at the Holacaust Memorial in Israel; and speaking to the largest audiance thus far in the presidential campaign.

The McCain campaign is one of the most inept I have ever witnessed in American politics. Faced with an American electorate angry over a war in Iraq, housing foreclosures at home and $4.00/gallon gasoline driving inflation, McCain - 0n the key issues of the election - has been unable to provide any alternatives to the still titular leader of the Republican Party...the guy still in the White House, President Bush. At this point, he'd be lucky to carry Arizona, Utah and Idaho.

McCain's policies on the War on Terror are somewhat tactically different from the President, but offer zero change in strategic direction. His economic policies were aptly summed up by his ex-campaign co-chairman, ex-Senator Phil Graham, when Graham called us "a nation of whinners."
If this is what 30 years of experience in Congress yields, the American voter must be thinking: "Experience be damned; that is precisely what we are trying to get rid of."

Indeed, McCain's campaign is so bad I feel there must be Democratic plants inside his staff to ensure his defeat. Or, maybe it's just McCain himself...and all of that experience.

A Few More Words on Oil

Perhaps, it's not too surprising that while the Bush Administration has had seven-plus years to come up with a "comprehensive energy plan," it has not done so. Bush and Cheney are "oil people." In 2009, Cheney may go back to Halliburton and Bush will retire to Crawford (and probably purchase a home in Dallas where his presidential library will be built).

What this suggests to me is that basically any "comprehensive solution" to the energy problem, coming from this administration has to have "oil" at its center. In turn, this means open drilling in places such as ANWAR and off-shore along our coasts, as well as a major reduction in environmental regulation concerning refineries. In other words, the plan had to first and foremost take care of the oil industry and then, secondarily include some window dressing for alternative fuel advocates, global warming and environmentalists.

When this approach ran up against the latter and failed to get even a Republican Congress' approval, the "comprehensive solution" became dead in the water. Bush has "talked" about ridding ourselves of foreign dependency on oil and the promotion of alternative fuels (ethanol). But, as with so many other issues within this administration, the idea of "policy formulation," seems to be to call in industry lobbyists, listen to what they want and then find a "political way" of achieving it.

I suppose buggy whip manufacturers also "died hard," with the advent of the automobile and, in their day, lobbied to prevent the horseless carriage. And, today, I see the oil industry and the Bush Administration in a similar light. Here's the deal: Peak Oil (or, at least Peak Easy Oil) has or is about to occur. There may still be ways to fore go completely running out of oil for another 100-200 years via shale oil, drilling off-shore, etc., but the cost of the remaining oil (once the present known reserves are gone) will be high, maybe high enough to sustain $100-200 a barrel. At those prices, the cost of a gallon of gasoline isn't going to decline much and will probably rise higher over the long run. Speculation regarding a non-renewable resource will continue.

Plus, even if the search/drilling for additional oil is successful, we still end up with a comparatively "dirty energy." Let's forget, for the moment, global waming and disturbing Alaska, Floridia and California eco-systems and wildlife. Putting large amounts of carbon emissions into the air we breath for the sake of economic growth is just not a very smart idea if there are alternative energy solutions. Government subsidies, tax incentives, etc., should be shifting from fossil fuel conversion toward these alternative forms (bio-mass, solar, nuclear, hydro, wind - and the least emphasized, simple conservation).

A couple of more points. All of the oil in ANWAR doesn't substantially change our reliance on foreign oil at current rates of usage. Shale oil technology has a way to go before the result can be refined into vehicle useable gasoline. Similarly, coal conversion to useable oil is still a long way off. And, of course, even at higher prices we are left with essentially a "dirty fuel." Off-shore drilling? While oil covered Florida or California beaches doesn't particularly bother me personally, I doubt the tourist industry or environmentalists in those states will want to run the risk. [Prediction: Charlie Crist, Republican Governor of Florida, recently flip-flopped on his stand against off-shore drilling along Florida coasts, apparently to bring his position in-line with John McCain, in anticipation of becoming a VP candidate. I would predict that a) Crist will NOT get the VP slot and b) he'll be voted out of office in the next election. The Arnold, in California, also a Republican Governor, has announced he'll continue to fight against off-shore drilling in California.]

As for refineries: would you want one next door to you? Plus, why invest money in a refinery that may be useless in twenty years?

In sum, the Bush Administration is using the "scare pressure" of high oil prices to force Congress to return to an essentially outmoded form of energy.

In my opinion, given the long term and short term demand for energy (not just here, but around the world), oil prices will continue to rise whether we drill off-shore or in ANWAR and Americans would be kidding themselves if they think American oil companies are going to sell that oil at lower than the global market price, based on some patriotic motivation.

It's time to hold firm against drilling in ANWAR and off-shore, end fossil fuel subsidies and create a "comprehensive" energy program based on alternative energy forms. This will be a battle against one of the most powerful lobbying groups in our history and will probably require a global effort, led by the "post-industrial" West, which has achieved much of its material wealth and success based on fossil fuels.

The American people need to understand the "scare tactics" and stand-up to them. At an absolute minimum, environmentally sound ANWAR and off-shore drilling should be "traded" for a genuine long-term alternative fuel program, with a rough, overall phase out for fossil fuels and a phase-in for substitutions.

Stumbling to the Finish and a Clarification

Clarification

First, the clarification. Going over my last post on oil, I noticed that I concluded with a statement that in retrospect seems a bit harsh toward "average Americans." The statement branded them as having become "lazy and complacent" and "coddled" by easy credit.

It was an "unqualified" conclusion, which obviously requires qualification and probably refers far more to our political system and the majority of the politicians that system produces, than to our general population.

Apoligies to all of those falsely blamed. And, more explanation in a subsequent post.

Stumbling to the Finish

Bad week for Bush. Supreme Court upholds habeas corpus, in a close 5-4 decision (deserves separate post on its own). Prime Minister of Iraq Maliki announces that joint Iraqi-U.S. negotiations over a new occupation agreement for U.S. forces have broken down (the existing agreement ends at the end of the year). Seems the major sticking point is over Iraqi sovereignity; they want U.S. forces to be subject to Iraqi law and Iraqi coordination on U.S. operations in-country. Our presence in Iraq may end with a whimper rather than a bang, by simply being asked, by the Iraqi government, to leave.

Fair enough. The principal reason justifying pre-emptive war (i.e. the invasion) was weapons of mass destruction - get them before they get us. The 9/11 ties between Al Qaeda and Iraq were ALWAYS weak and implied, not stated. The reason of Iraqi failure to adhere to prior U.N. resolutions broke down when we failed to go back to the U.N., due to lack of votes, for a final resolution authorizing implementation of the prior resolutions by force. Invading Iraq to eliminate weapons of mass destruction, which we believed would be used against us, was a very tenuous, but more or less "legitimate" reason for war. Of course, once we failed to find these weapons, that reason evaporated. Point is that until we determined there were no weapons of mass destruction, Iraq was OUR problem. Once that reason disappeared, Iraq became primarily an Iraqi problem and we became part of the Iraqi problem.

I am in the camp that believes the invasion was one of the worst U.S. foreign policy blunders in our history, but for a moment let's give the Administration the benefit of the doubt. Assuming some sanity, the present "goal" of the United States in Iraq must be to simply ensure sufficient stability to allow the Iraqi people to carry on with their lives without the secretarian violence the invasion brought on and, hopefully, better than they had lived under Saddam Hussein and the Baathist Party. Any goal beyond that (e.g. a democratic state in the mid-east, access to Iraqi oil, an anti-Iranian regime, etc.) is basically U.S. interference in the internal affairs of a sovereign state, through armed intervention and occupation.

In other words, if we want to leave Iraq now that is certainly our decision, with a parting gesture ranging from "sorry bout that," to x number of dollars in aid for reconstruction, or whatever. But, contrary to the Bush/McCain position, the conditions for staying in Iraq are the prerogative of the duly elected Iraqi government and Parliament, not ours.

Technically, we are in Iraq today under a U.N. mandate recognizing us as an "occupying power," with specific duties and responsibilities. That "authority," which does NOT take a stand on whether or not we had the right to invade in the first place, runs out at the end of the year and is to be replaced with one of three courses of action: 1) a U.S.-Iraqi agreement on status of forces (preferred by all and the subject of Maliki's comments), 2) an extension of the U.N. mandate on the U.S. as an "occupying force," or 3) nothing (least preferable). In other words, although it is hard to understand given the Presidential campaign and the "stay" Republican position versus the "go" Democratic position, "staying" in terms of legality within the context of international law, isn't OUR decision to make. As a sovereign state, the Iraqis make that decision, not the United States.

This is an important point in distinquishing between the McCain position and the Obama positions on Iraq. If McCain defines "winning" as the establishment of a pro-U.S., anti-radical fundamentalist Islamic state, then this is merely an extension of the Bush Doctrine, that led us in in the first place and pretty much a continuance of the neo-conservative arguments. This definition of "winning" may indeed be a legitimate "goal" of U.S. foreign policy, but it is not a legitimate reason to continue as an occupying force.

In sum, "going" is our decision. "Staying" is an Iraqi decision. Staying to win, for duty, honor, country is misleading, deceiving and simply "disengaged" from the reality of our situation.

Hmmm? That point might be worth making in another Guest Commentary piece in the local paper.

Meanwhile, Congressional oversight hearings, re-started by a Democratic Congress that has enough votes for exposure, but lacks the votes for change, continue. I've listened to literally days of Administration testimony, from the Federal Aviation Administration, to the Food and Drug Administration, to the Consumer Product Safety Commission, to the Department of Energy, to the Department of Veterans Affairs, to the Department of Housing and Urban Development, to the Department of Homeland Security, etc., etc. There is a theme running through the testimony, namely "no money." Yes, we'd like to make air traffic safer. Yes, we'd like to be able to make our food and drugs safe. Yes, we'd like to ensure safe toys from China. Yes, we'd like to have a comprehensive energy policy. Yes, we wish we could do more for our Veterans. And, on and on. No one seems to tie Bush tax cuts and the expense of the Iraq war to agency failures at home.

And, of course, this was the week the Senate Intelligence Committee, six years late and roughly a trillion dollars or so short, issued its findings into the Bush ad campaign for the war in Iraq. This was promptly followed by Dennis Kisinich's introduction of a resolution for impeachment in the House of Representatives. The closest we'll come to that was the reading (once by Kisinich and once by the House clerks) of the 35 page resolution on the floor of the House. The resolution now goes to the Judiciary Committee, where it will stay until Bush is out of office.

Oil: The Next Bubble Has Arrived

I suspect that virtually ALL of the reasons given for the oil pricing crisis are to some degree true.
The question is: How are they related? This post, while far, far from being comprehensive, suggests a broad outline of the relationships and problem.

1) Oil speculation. This refers primarily to the investments of financial institutions (i.e. banks) and financial instruments (i.e. investment vehicles such as hedge funds). The sub prime mortgage collapse created huge losses for both, via essentially overvalued real estate, whether based upon actual housing value or the value of the mortgage packages put together for investors. These losses are being written off and banks are now, across the board, raising new capital to replace the losses. However, the new capital must promise a healthy return and consequently must be invested in something, somewhere - e.g. commodities, of which oil is the leading example. Of course, there must also be some "rationale" for such investment - e.g. like the high tech stock bubble in which investors were "sold" based on arguments of the "New Economy," globalization, an almost certain future DJ average of 20,000, etc. A sort of "the market will always go up" mentality that sucked in investors who had missed the initial rise and were hesitant to enter the market too late. The same thing happened in the sub prime mortgage market with the argument that real estate will never fall. Any substantial "bubble" has to have some rationale that the investment of choice will ALWAYS get better and the risk of a turn around is minimal, if not impossible. This is where the other factors enter.

2) Supply and Demand and Peak Oil. The simple argument for speculation is that the world is running out of oil. In other words, if supply and demand is not an immediate problem, it most certainly will be within the next 5-10 years, as demand rises and with the failure of the world's single largest consumer to produce any meaningful long-term energy plan (i.e. the United States). The anticipation of a supply and demand problem drives up the price of oil futures, which in turn drives up current market prices. This aspect of the problem has recently worsened due to the growing acceptance of Peak Oil, which is the point wherein regardless of demand (which is anticipated only to increase) oil production will begin to decline due to a lack of sufficient reserves. Recently, increasing evidence that Saudi reserves are far less than the Saudis claim has hit the market and oil industry. This also fuels speculation.

3) Global warming, ANWAR, Off-Shore drilling, etc. Here, I would contend that one factor driving oil futures up is the gradual acceptance in the west that global warming is for real and that it is not a good thing to continue to put a lot of CO2 emissions into our atmosphere. Investors are basically betting that western environmentalists have won or will win, particularly with a Democratic President and Congress in 2009. This means that additional oil (or any fossil fuel) is NOT the answer, because it only delays the inevitable and continues to poison the planet while doing so. [Note: Global Warming, as a phenomena, is close to being considered "a fact," as is the conclusion that adding CO2 to the atmosphere hastens the process. What is debatable is the degree to which man-made CO2 emissions contribute to global warming.] Oil companies, who make their living on carbon-based, fossil fuel energy, naturally want to frame the argument in terms of more oil to meet certain rising energy demands. In sum, it is an argument between those who believe additional oil will solve the short-term economic problem versus those who believe that additional oil will only serve to worsen the long-term environmental problem of CO2 emissions. Shale oil and coal-conversion to liquid energy forms are other arguments, but to date lack the technology to "cleanse" the fuels of CO2 emissions and in some cases require more energy to process than they yield. This logic, however, does not apply to the rising economies in China, India, Russia, et al. Investors are "betting" that while oil demand will decrease in the west, it will continue to rise in the east; that market-oriented economies in the west will be able to adjust faster to alternative energy forms than state oriented economies in the east, whose on-going demand will hold the high oil prices.

4) Miscellaneous Causes. These range from failed foreign and domestic economic policies to a lack of refining capacity. Trying to bring democratic-capitalism to the middle east is perhaps the largest of the foreign policy failures. The Saudis and the Persian Gulf states are basically tribal-based dictatorships. Iran is a religious dictatorship. Indeed, one is hard pressed to find a democratic-capitalist system in any of the OPEC countries or among their future big customers (India may be a somewhat confusing exception to the latter). In other words the New World Economy, dominated by the USA, as the single surviving super-power has failed, largely through inattention to our own problems at home and failures abroad. We have precious little of value left to sell and what there is, is over-valued. Foreign investors can help drive up the price of overvalued stock or real estate, but they have little control over falling prices, other than to stand by and watch their investments drop in value. The impact of all of this is that the world has lost a great deal of confidence in the United States, both in terms of our military incursion in Iraq and our failure to look after their U.S. investments at home. The outcome of this may well be a global shift in the status of the dollar as the world's reserve currency. Ironically, the present shift of investment from speculation in real estate to speculation in oil may forestall this event temporarily, as long as oil is priced in dollars, but substantial improvement in our position will come only through restoring our economy at home and an improvement of our image abroad.

Refining capacity would seem to be a relatively minor blip in contributing to rising oil prices and may be little more than an excuse to avoid environmental regulation and/or an excuse not to invest in long-term and massive capital expenditures in face of a society that has become convinced that it needs less reliance on oil than more. If ways can be found to "clean oil," there may still be a future for Big Oil, but at the moment Big Oil is spending more of its profits in buying back their stock, than in R&D. Long term, there seems to be the attitude within Big Oil itself that they will either make the transition to non-fossil fuel based energy companies or liquidate over the next fifty years.

In sum, the future of the United States as the dominating power in a post-Cold War world does not look bright, over the short-term. However, because of our size, innovation, and one would like to think, democratic system, we may yet return to our former status based on a rebuilding of our own society upon more solid economic ground than we have had over the last twenty years.

Note: The rising price of oil may actually be seen as a "tax" eventually beneficial to the American economy (if it doesn't destroy that economy). Rival world economies, such as India and China, must also pay the higher prices, usually with U.S. dollar reserves. If the shift of western investment into oil pays off, those dollars recirculate largely to our own economy, bringing more tax revenue to the government, with which to rebuild our own society (assuming a future Democratic Presidency and Congress, which will raise taxes on the wealthy). In a sense, the present spike in oil prices may be the last chance of western capitalism as we know it today. If prices break and fall, the investment community will take another round of huge losses and the "oil bubble" may become the last great bubble of our times. Sort of "double or nothing" as the last Big Casino bet.

Either way, short-term, things do not bode well for the "average American." Having been lulled into complacency and laziness over twenty years of both government and financial institution coddling through cheap money and easy credit, the country is going to need more jobs, producing more income, and perhaps most of all, more savings. With inflation to be certainly around the corner, it will be difficult to achieve this, with rising prices. While the wealthy are undoubtedly going to get hurt by increases in taxation and more regulation of our financial markets, this in itself will not eliminate the disparities in wealth and may, in fact, accentuate them - e.g. the wealthy will be paying more taxes, while the rest are losing their homes, paying $5.00/gallon for gas, etc. This will certainly test social stability. Being or appearing to be poor may become "politically correct."