Credit scores are calculated through complicated and proprietary algorithms that differ among scoring agencies. However, there are generally three major pieces.
The most important: your bill-paying history. It accounts for as much as 35% of your total score. Pay all your bills on time. Even if it's just the minimum payment, make sure that bill is marked paid on the designated date, or sooner.
Next, your "utilization rate," or debt-to-available-credit ratio, counts for about 30% of your score. Mr. D'Arruda says his is usually about 10% to 15%. Creditors don't want to see the ratio over 30% and consider it an important sign of your financial acumen and any money challenges you are facing.
"You don't need a lot of credit cards to have a good utilization rate," says Barry Paperno, consumer operations manager for myFICO.com, the consumer arm of credit scorer FICO. "Obtaining 25 credit cards for your score is overkill. Utilization looks at percentages more than dollars."
If you have $300,000 in available credit and a $30,000 balance, your utilization rate is 10%; if your available credit stands at $3,000 and you owe $300, your utilization rate is the same.
Be wary of your per-card rate, too. If you have a credit card with a $5,000 limit and you charge $4,750 for a home-theater system, your utilization rate on that card may set off alarms.
"It's a good idea to try to keep the balance on each card under 30% of the limit," says Steven Katz, senior director of operations for credit-management company TransUnion.
Having access to credit but not using it won't improve your score, but that doesn't mean you have to carry a balance each month. You simply need to use the card and pay it off to maximize your credit score.
"The ideal place to be is under a 10% utilization rate but over 0%," FICO's Mr. Paperno says. "There needs to be some kind of recent activity" to activate a score.
Your credit mix and history contribute about 15% to your score. Creditors like to see how you handle revolving credit, or credit cards, and installment loans, like mortgages and car and student loans. They average the age of the account divided by the number of accounts.
Opening new accounts can affect about 10% of your score. "Taking on new credit has been shown to indicate a higher level of risk," Mr. Paperno says. "People who go into default tend to have added new credit more recently than those who haven't."
http://online.wsj.com/article/SB10001424052702304451504576394093505289846.html
Tuesday, June 28, 2011
Thursday, April 07, 2011
Declining Marginal Utility: More Workers than Unproductive Jobs
The Servant Problem
In Search of the Lost Battalion of America’s Unemployed
By Lewis H. Lapham
In Search of the Lost Battalion of America’s Unemployed
By Lewis H. Lapham
published @ tomdispatch.com on 4/11/2011
[A longer version of this essay appears in "Lines of Work," the Spring 2011 issue of Lapham's Quarterly.]
Man must be doing something, or fancy that he is doing something, for in him throbs the creative impulse; the mere basker in the sunshine is not a natural, but an abnormal man. -- Henry George
The news media these days look to outperform one another in their showings of concern for the lost battalion of America’s unemployed. Consult any newspaper, wander the Internet or the television talk-show circuit, and at the top of the column or the hour the headline is jobs. Jobs, the bedrock of America’s world-beating prosperity, the cornerstones of its future comfort and well-being -- gone to Mexico or China, deleted from payrolls in Michigan and Ohio, mothballed in the Arizona desert.
The nation’s unemployment rate, officially pegged at 9.4% but probably nearer to 17%, in any event no fewer than 25 million Americans, a number more than equal to the entire population of North Korea, out of work or on the run. The metrics, so say President Obama, the Wall Street Journal, and A Prairie Home Companion, are not good. The stock markets may have weathered the storm of the recession, as have the country’s corporate profit margins, but unless jobs can be found, we wave goodbye to America the Beautiful.
Not being an economist and never having been at ease in the company of flow charts, I don’t question the expert testimony, but I notice that it doesn’t have much to do with human beings, much less with the understanding of a man’s work as the meaning of his life or the freedom of his mind. Purse-lipped and solemn, the commentators for the Financial Times and MSNBC mention the harm done to the country’s credit rating, deplore the trade and budget deficits, discuss the cutting back of pensions and public services. From the tone of the conversation, I can imagine myself at a lawn party somewhere in Fairfield County, Connecticut, listening to the lady in the flowered hat talk about the difficulty of finding decent help.
Speaking Tools Versus Busy Bees
The framing of the country’s unemployment trouble as an unfortunate metastasis of the servant problem should come as no surprise. The country is in the hands of an affluent oligarchy content with Voltaire’s observation that “the comfort of the rich depends upon an abundant supply of the poor.” During Ronald Reagan’s terms as president, the income that individual American families received from rents, dividends, and interest surpassed the income earned in wages. Over the last 30 years, the wealth of the emergent rentier class has been sustained by an increasingly unequal sharing of the gross domestic product; the percentage of GDP accounted for by manufacturing fell from 21% to 14%, and the percentage accounted for by finance rose from 14% to 21%.
The imbalances become greater over time; as between compensations awarded to the high-end baskers in the sunshine and those provided to the low-end squatters in the shade, the differential at last count in 2009 stood at 263 to 1. With wealth comes power in Washington, so it’s also no surprise that the government, whether graspingly Republican or scavengingly Democratic, adopts the attitudes and prejudices of the monied sultanate. So do most of the nation’s news media, their showings of concern expressed in the lawn-party voices of the caterers distributing the strawberries.
The lines of work are as numberless as the hooks in the sea, but they divide broadly into employments bent to one’s own purpose and those bound to a purpose other than one’s own. It is the former that reflects the founding idea of America. The Puritan settlers of the seventeenth-century New England wilderness arrived from an old world in which the civilizations both east and west of Suez fetched their food and shelter from the work of variously denominated slaves.
The ruling classes of antiquity, like those in medieval and early Renaissance Europe, regarded the necessity of having to earn a living as a mortification of the body and a degradation of the mind. Aristotle had classified slaves as “speaking tools,” available for every purpose except their own, and for the next 2,000 years, in Asia as in Europe, it was generally understood that the terms of a man’s employment were settled at birth. The newfound land of North America afforded an escape from the burdens of the past imposed by the divine right of inherited privilege as well as those enforced by Barbary pirates and British naval officers, the architects of the New Jerusalem bringing with them the Protestant belief that it was by a man’s work that he was known, not only to himself, but also to God and to his fellow men.
[A longer version of this essay appears in "Lines of Work," the Spring 2011 issue of Lapham's Quarterly.]
Man must be doing something, or fancy that he is doing something, for in him throbs the creative impulse; the mere basker in the sunshine is not a natural, but an abnormal man. -- Henry George
The news media these days look to outperform one another in their showings of concern for the lost battalion of America’s unemployed. Consult any newspaper, wander the Internet or the television talk-show circuit, and at the top of the column or the hour the headline is jobs. Jobs, the bedrock of America’s world-beating prosperity, the cornerstones of its future comfort and well-being -- gone to Mexico or China, deleted from payrolls in Michigan and Ohio, mothballed in the Arizona desert.
The nation’s unemployment rate, officially pegged at 9.4% but probably nearer to 17%, in any event no fewer than 25 million Americans, a number more than equal to the entire population of North Korea, out of work or on the run. The metrics, so say President Obama, the Wall Street Journal, and A Prairie Home Companion, are not good. The stock markets may have weathered the storm of the recession, as have the country’s corporate profit margins, but unless jobs can be found, we wave goodbye to America the Beautiful.
Not being an economist and never having been at ease in the company of flow charts, I don’t question the expert testimony, but I notice that it doesn’t have much to do with human beings, much less with the understanding of a man’s work as the meaning of his life or the freedom of his mind. Purse-lipped and solemn, the commentators for the Financial Times and MSNBC mention the harm done to the country’s credit rating, deplore the trade and budget deficits, discuss the cutting back of pensions and public services. From the tone of the conversation, I can imagine myself at a lawn party somewhere in Fairfield County, Connecticut, listening to the lady in the flowered hat talk about the difficulty of finding decent help.
Speaking Tools Versus Busy Bees
The framing of the country’s unemployment trouble as an unfortunate metastasis of the servant problem should come as no surprise. The country is in the hands of an affluent oligarchy content with Voltaire’s observation that “the comfort of the rich depends upon an abundant supply of the poor.” During Ronald Reagan’s terms as president, the income that individual American families received from rents, dividends, and interest surpassed the income earned in wages. Over the last 30 years, the wealth of the emergent rentier class has been sustained by an increasingly unequal sharing of the gross domestic product; the percentage of GDP accounted for by manufacturing fell from 21% to 14%, and the percentage accounted for by finance rose from 14% to 21%.
The imbalances become greater over time; as between compensations awarded to the high-end baskers in the sunshine and those provided to the low-end squatters in the shade, the differential at last count in 2009 stood at 263 to 1. With wealth comes power in Washington, so it’s also no surprise that the government, whether graspingly Republican or scavengingly Democratic, adopts the attitudes and prejudices of the monied sultanate. So do most of the nation’s news media, their showings of concern expressed in the lawn-party voices of the caterers distributing the strawberries.
The lines of work are as numberless as the hooks in the sea, but they divide broadly into employments bent to one’s own purpose and those bound to a purpose other than one’s own. It is the former that reflects the founding idea of America. The Puritan settlers of the seventeenth-century New England wilderness arrived from an old world in which the civilizations both east and west of Suez fetched their food and shelter from the work of variously denominated slaves.
The ruling classes of antiquity, like those in medieval and early Renaissance Europe, regarded the necessity of having to earn a living as a mortification of the body and a degradation of the mind. Aristotle had classified slaves as “speaking tools,” available for every purpose except their own, and for the next 2,000 years, in Asia as in Europe, it was generally understood that the terms of a man’s employment were settled at birth. The newfound land of North America afforded an escape from the burdens of the past imposed by the divine right of inherited privilege as well as those enforced by Barbary pirates and British naval officers, the architects of the New Jerusalem bringing with them the Protestant belief that it was by a man’s work that he was known, not only to himself, but also to God and to his fellow men.
On no less an authority than that of John Calvin, they had been given to understand that there was “no employment so mean and sordid (provided we follow our own vocation) as not to appear truly respectable and be deemed highly important in the sight of God.” The thought embraced St. Benedict’s Catholic certainty that “Idleness is the enemy of the soul,” as well as the meditation of the Roman emperor Marcus Aurelius, who likens the work for which men are by their nature born to that of “craftsmen who love their trade,” equivalent in turn to that of the “sparrows, ants, spiders, bees, all busy at their own tasks, each doing his own part toward a coherent world order.”
Further searches for a coherent world order on the western shores of the Atlantic encouraged the authors of the Constitution to conceive the document as a tool turned to the making of things, of laws as well as of ships and cider mills and songs. As with the plow and the surveyor’s plumb line, the instruments of government were meant to support the liberties of the people, not the ambitions of the state. In answer to questions being asked in Europe about what sort of persons were likely to be well received in the new republic, Benjamin Franklin in 1782 published a pamphlet, Information to Those Who Would Remove to America, in which he observed that in America people “do not inquire concerning a stranger, What is he? but, What can he do? If he has a useful art, he is welcome… But a mere man of quality, who on that account wants to live upon the public by some office or salary will be despised and disregarded.”
The love of country followed from the love of its freedoms of thought and action, not from a pride in its armies, its monuments, its manners, or its debts. Thomas Jefferson, writing his Notes on the State of Virginia in 1781, envisioned a republic of free-standing husbandmen who till the earth, “the chosen people of God… whose breasts He has made His peculiar deposit for substantial and genuine virtue.” The newfound land and its newfound independence both were to be cultivated by employments bent to purposes of the individual, their joint venture resting on a democratic holding of one’s fellow citizens in thoughtful regard not because they were rich or beautiful or famous but because they were fellow citizens.
The Elephant on the Table of American Politics
So at least was the spirit and intent if not always the practice or the case. In return for the Constitution’s ratification by the Southern slave-holding states, the politicians in Philadelphia in 1789 had compromised the principle that all men are created free and equal. They assumed that slavery was soon to become extinct, certain to be swept away on the rising tide of freedom, and so they allowed the Southern planters to temporarily retain their prize collections of speaking tools.
The invention of the cotton gin in 1793 remanded the case for liberty to the higher court of money. Between 1800 and 1860 the demand for cotton on the part of Britain’s satanic textile mills furnished the newly minted United States with its richest flow of capital, serving the purpose that the Saudi Arabians now extract from oil. The opulence of the trade (60% of America’s export in 1860), in large part conducted, to their immense profit, by New York banks and New England ship owners, financed the country’s westward expansion and the early development of its commerce. Without cotton, there would have been no industry, and without slavery, no cotton.
The “darkies” said by Stephen Foster to be singing sweetly in the fields subsidized the music that Walt Whitman heard elsewhere in the country in the singing of “the carpenter,” “the deckhand,” “the mason,” “the shoemaker,” “the hatter,” “the woodcutter,” and “the plowboy” -- the voices of America’s leaves of grass, the fellow citizens in the 1830s and 1840s plying trades in Massachusetts and Ohio, felling trees and building roads in Illinois, piloting Missouri and Mississippi River steamboats, tinkering with farm equipment and firing pins, going west to Texas and California.
Victory in the war with Mexico added another 529,017 square miles รข€¨to the inventory of spacious skies and purple mountain majesties acquired in the Louisiana Purchase; the population went forth and multiplied (9,638,453 in 1820; 31,443,321 in 1860), its restless collective energies geared to vocations apt to prove to be their own reward. Frontier people holding fast to what Mark Twain later claimed as “a maxim of mine that whenever a man preferred being fed by any other man to starving in independence, he ought to be shot.”
During the second half of the nineteenth century, the shooting would have needed to become extensive. The Civil War had rousted slavery from the plantations of the South, but the industrial revolution in the North required an even greater supply of hired hands bound to purposes other than their own. The employments on offer in the Kentucky coal mines and the Pennsylvania steel mills matched Karl Marx’s job description of alienated labor -- a “diabolical activity,” entailing the loss of self. “What is animal becomes human and what is human becomes animal.”
How then to accommodate both man and beast under the same beach umbrella of the American dream, make the freedom-loving argument that Franklin’s craftsmen and Jefferson’s husbandmen differ only in their angles to the sun from the hostess in the bunny costume checking coats in a Playboy club? By the turn of the twentieth century, the question of what constitutes the meaning of labor as well as a fair return on its performance was the elephant on the table of American politics.
An alienated proletariat had been imported from China to build America’s western railroads, from Ireland and Eastern Europe to service its eastern factories, and between 1870 and 1914, the bitter, often violent division between the differently purposed lines of work was made manifest in the financial markets and the streets. The great railroad strike in 1877 moved Thomas Alexander Scott, the president of the Pennsylvania Railroad, to suggest that the strikers be given “a rifle diet for a few days and see how they like that kind of bread.” State militia and federal troops complied with the suggestion, killing more than 100 strikers in Maryland and Pennsylvania. The putting down of the Haymarket Riot in Chicago in 1886, and the breaking of the Homestead Strike in Andrew Carnegie’s steel works in 1892, reinforced the rule of money; the bank panics of 1893 and 1907, preceded by heedless speculation in the stock markets, led to widespread unemployment, bankruptcy, foreclosure, and depression.
The disputes varied in their particulars (the protective tariff, the prices paid for gold and silver, the legitimacy of the labor unions), but in every instance what was at issue were the terms of service as defined on the one hand by President Teddy Roosevelt in a Labor Day speech at Syracuse, New York, in 1903: “Far and away the best prize that life offers is the chance to work hard at work worth doing”; on the other hand by Woodrow Wilson, still president of Princeton University in 1909, speaking to the New York City High School Teachers Association: “We want one class of persons to have a liberal education, and we want another class of persons, a very much larger class of necessity in every society, to forego the privilege of a liberal education and fit themselves to perform specific difficult manual tasks.”
Wilson’s way of looking at things aligns itself with what was to become America’s chrome-plated future, Roosevelt’s with its homespun past. The Rough Rider was trading in nostalgia, looking back to his days as a young man, a young man who also happened to be rich, shooting buffaloes in the Dakota Territory. The sentiment shows up in Norman Maclean’s remembrance of the way it was out among the tall trees in the summer of 1927, “As to the big thing, sawing, it is something beautiful when you are working together -- at times, you forget what you are doing and get lost in abstractions of motion and power. But when sawing isn’t rhythmical, even for a short time, it becomes a kind of mental illness -- maybe even something more deeply disturbing than that. It is as if your heart isn’t working right.”
It is here that one finds the dignity of labor and the expression of man’s humanity to man. One can illuminate the feeling on which Eugene V. Debs, president of the American Railway Union, mounted his candidacy for U.S. president in the election of 1912, attracting over 900,000 votes on the strength of his belief that “the workers are the saviors of society, the redeemers of the race.”
Wilson didn’t think so, and Wilson won the election, defeating Roosevelt as well as Debs. The establishment in 1913 of the Federal Reserve Bank overruled the prolonged objection by the instruments of labor to their uses in the hands of capital, shifting control of the nation’s currency from the public to the private sector.
The Labor of Consumption
It is man’s nature to be doing something, or at least to fancy that he’s doing something, but to what purpose, and for whom? Satisfactory answers to the questions lately have been hard to find, not only for the unemployed poor but also for the underemployed remnant of what was once a diligently aspiring middle class. It isn’t simply that the consumer markets don’t value work worth doing; it’s that the society’s ruling and possessing classes regard working for a living as the mark of inferior or damaged goods.
The attitude made its first appearance on the American scene during the Gilded Age, dancing with the newly crowned kings of finance under the ballroom chandeliers in Newport and New York. Thorstein Veblen took note of the arrival in 1899, his Theory of the Leisure Class suggesting that it is the conspicuous consumption of the product of other people’s time and effort that makes up the sum of one’s own worth and meaning. Not the doing of the work, the digesting of it. “Leisure, considered as an employment,” said Veblen, “is closely allied in kind with the life of exploit, and the achievements which characterize a life of leisure and which remain as its decorous criteria, have much in common with the trophies of exploit.”
During the years prior to the Second World War, the attitude was safely confined to a small number of people preserved in the aspic of what was then big money. The victories over Germany and Japan fostered extensions of the franchise. Rescued by force of arms from the Great Depression, America seemed blessed with the enchantments of both Croesus and Colossus, the indisputable proofs of its wealth and military power giving rise to the notion that all its children were the inheritors of a vast fortune and therefore deserving of the best of all possible worlds that money could buy. No reason not to have it all -- a new frontier, a great society, guns for a splendid little war in Asia, butter for the old folks at home, a house in the country, a boat on the lake, the face and fortune in the ad for one of Ralph Lauren’s tennis dresses.
Much of the world in 1945 was either bankrupt or in ruins, and the refurnishing of it supplied the American economy over the next 30 years with an abundance of jobs that afforded the means of independence and a measure of self-worth, while at the same time bringing forth the trophies of exploit to a consumer market more wonderful than the wonderful world of Oz, seeding ever broader acres of the nation’s human topsoil with the presumptions of entitlement favored by Veblen’s Newport heiresses. Don’t worry, be happy; go forth and shop. Leisure considered as employment.
Which was all well and good until it turned out, somewhere in the middle of the 1980s on the yellow brick road with Toto and the Gipper, that the Wizard was easy access to conspicuous credit. For how else could the American leaves of grass join their top-dressed companions on a golf course unless they borrowed money? The country’s working and middle classes discovered that it wasn’t the value of the work itself, or its manufacture of a decent living (as architect, bus driver, sales clerk, actress, lathe operator, automobile mechanic) that made up the sum of the country’s wealth and well-being.
Their great collective enterprise was the labor of consumption, and with it the derivative of debt, a byproduct, like the methane exuded by factory-farmed pigs, that funded the patriotic service owing to God, country, and the American Express card. The work was maybe mindless, a substitution of what is animal for what is human, but it fattened the gross domestic product, enriched the insurance companies and the banks, welcomed the second coming of an American Gilded Age, and now accounts for the increasingly grotesque disparity between the income earned as wages and the revenue collected as rent, interest, dividend, stock option, and year-end bonus.
Americans with jobs imagine they now work longer and harder hours than did their forebears on Mark Twain’s Missouri frontier; if so, their labor serves a purpose other than the one in hand. Finance accounted for 47% of total U.S. corporate profits in 2007; 58% of Harvard University’s male graduates in that same year (the heirs and assigns of Woodrow Wilson’s small class of persons deserving of a liberal education) took up careers as high-end traffickers in the drug of debt. It’s a lucrative trade, up to the standard of the cotton export from the dear old antebellum South. That it doesn’t add to the sum of human happiness or meaning is probably why the gentry on the lawns of Connecticut, together with their upper servants in Washington and the news media, talk about the lost battalion of America’s unemployed as a set of conveniently invisible numbers rather than as a body of fellow citizens.
Friday, March 25, 2011
How the World Really Works: Corporate Tax Burdens in a Captive Democracy
G.E.’s Strategies Let It Avoid Taxes Altogether
By David Kocieniewski. nytimes.com 3/24/2011
General Electric, the nation’s largest corporation, had a very good year in 2010.
The company reported worldwide profits of $14.2 billion, and said $5.1 billion of the total came from its operations in the United States.
Its American tax bill? None. In fact, G.E. claimed a tax benefit of $3.2 billion.
That may be hard to fathom for the millions of American business owners and households now preparing their own returns, but low taxes are nothing new for G.E. The company has been cutting the percentage of its American profits paid to the Internal Revenue Service for years, resulting in a far lower rate than at most multinational companies.
Its extraordinary success is based on an aggressive strategy that mixes fierce lobbying for tax breaks and innovative accounting that enables it to concentrate its profits offshore. G.E.’s giant tax department, led by a bow-tied former Treasury official named John Samuels, is often referred to as the world’s best tax law firm. Indeed, the company’s slogan “Imagination at Work” fits this department well. The team includes former officials not just from the Treasury, but also from the I.R.S. and virtually all the tax-writing committees in Congress.
While General Electric is one of the most skilled at reducing its tax burden, many other companies have become better at this as well. Although the top corporate tax rate in the United States is 35 percent, one of the highest in the world, companies have been increasingly using a maze of shelters, tax credits and subsidies to pay far less.
In a regulatory filing just a week before the Japanese disaster put a spotlight on the company’s nuclear reactor business, G.E. reported that its tax burden was 7.4 percent of its American profits, about a third of the average reported by other American multinationals. Even those figures are overstated, because they include taxes that will be paid only if the company brings its overseas profits back to the United States. With those profits still offshore, G.E. is effectively getting money back.
Such strategies, as well as changes in tax laws that encouraged some businesses and professionals to file as individuals, have pushed down the corporate share of the nation’s tax receipts — from 30 percent of all federal revenue in the mid-1950s to 6.6 percent in 2009.
Yet many companies say the current level is so high it hobbles them in competing with foreign rivals. Even as the government faces a mounting budget deficit, the talk in Washington is about lower rates. President Obama has said he is considering an overhaul of the corporate tax system, with an eye to lowering the top rate, ending some tax subsidies and loopholes and generating the same amount of revenue. He has designated G.E.’s chief executive, Jeffrey R. Immelt, as his liaison to the business community and as the chairman of the President’s Council on Jobs and Competitiveness, and it is expected to discuss corporate taxes.
“He understands what it takes for America to compete in the global economy,” Mr. Obama said of Mr. Immelt, on his appointment in January, after touring a G.E. factory in upstate New York that makes turbines and generators for sale around the world.
A review of company filings and Congressional records shows that one of the most striking advantages of General Electric is its ability to lobby for, win and take advantage of tax breaks.
Over the last decade, G.E. has spent tens of millions of dollars to push for changes in tax law, from more generous depreciation schedules on jet engines to “green energy” credits for its wind turbines. But the most lucrative of these measures allows G.E. to operate a vast leasing and lending business abroad with profits that face little foreign taxes and no American taxes as long as the money remains overseas.
Company officials say that these measures are necessary for G.E. to compete against global rivals and that they are acting as responsible citizens. “G.E. is committed to acting with integrity in relation to our tax obligations,” said Anne Eisele, a spokeswoman. “We are committed to complying with tax rules and paying all legally obliged taxes. At the same time, we have a responsibility to our shareholders to legally minimize our costs.”
The assortment of tax breaks G.E. has won in Washington has provided a significant short-term gain for the company’s executives and shareholders. While the financial crisis led G.E. to post a loss in the United States in 2009, regulatory filings show that in the last five years, G.E. has accumulated $26 billion in American profits, and received a net tax benefit from the I.R.S. of $4.1 billion.
But critics say the use of so many shelters amounts to corporate welfare, allowing G.E. not just to avoid taxes on profitable overseas lending but also to amass tax credits and write-offs that can be used to reduce taxes on billions of dollars of profit from domestic manufacturing. They say that the assertive tax avoidance of multinationals like G.E. not only shortchanges the Treasury, but also harms the economy by discouraging investment and hiring in the United States.
“In a rational system, a corporation’s tax department would be there to make sure a company complied with the law,” said Len Burman, a former Treasury official who now is a scholar at the nonpartisan Tax Policy Center. “But in our system, there are corporations that view their tax departments as a profit center, and the effects on public policy can be negative.”
The shelters are so crucial to G.E.’s bottom line that when Congress threatened to let the most lucrative one expire in 2008, the company came out in full force. G.E. officials worked with dozens of financial companies to send letters to Congress and hired a bevy of outside lobbyists.
The head of its tax team, Mr. Samuels, met with Representative Charles B. Rangel, then chairman of the Ways and Means Committee, which would decide the fate of the tax break. As he sat with the committee’s staff members outside Mr. Rangel’s office, Mr. Samuels dropped to his knee and pretended to beg for the provision to be extended — a flourish made in jest, he said through a spokeswoman.
That day, Mr. Rangel reversed his opposition to the tax break, according to other Democrats on the committee.
The following month, Mr. Rangel and Mr. Immelt stood together at St. Nicholas Park in Harlem as G.E. announced that its foundation had awarded $30 million to New York City schools, including $11 million to benefit various schools in Mr. Rangel’s district. Joel I. Klein, then the schools chancellor, and Mayor Michael R. Bloomberg, who presided, said it was the largest gift ever to the city’s schools.
G.E. officials say the donation was granted solely on the merit of the project. “The foundation goes to great lengths to ensure grant decisions are not influenced by company government relations or lobbying priorities,” Ms. Eisele said.
Mr. Rangel, who was censured by Congress last year for soliciting donations from corporations and executives with business before his committee, said this month that the donation was unrelated to his official actions.
Defying Reagan’s Legacy
General Electric has been a household name for generations, with light bulbs, electric fans, refrigerators and other appliances in millions of American homes. But today the consumer appliance division accounts for less than 6 percent of revenue, while lending accounts for more than 30 percent. Industrial, commercial and medical equipment like power plant turbines and jet engines account for about 50 percent. Its industrial work includes everything from wind farms to nuclear energy projects like the troubled plant in Japan, built in the 1970s.
Because its lending division, GE Capital, has provided more than half of the company’s profit in some recent years, many Wall Street analysts view G.E. not as a manufacturer but as an unregulated lender that also makes dishwashers and M.R.I. machines.
As it has evolved, the company has used, and in some cases pioneered, aggressive strategies to lower its tax bill. In the mid-1980s, President Ronald Reagan overhauled the tax system after learning that G.E. — a company for which he had once worked as a commercial pitchman — was among dozens of corporations that had used accounting gamesmanship to avoid paying any taxes.
“I didn’t realize things had gotten that far out of line,” Mr. Reagan told the Treasury secretary, Donald T. Regan, according to Mr. Regan’s 1988 memoir. The president supported a change that closed loopholes and required G.E. to pay a far higher effective rate, up to 32.5 percent.
That pendulum began to swing back in the late 1990s. G.E. and other financial services firms won a change in tax law that would allow multinationals to avoid taxes on some kinds of banking and insurance income. The change meant that if G.E. financed the sale of a jet engine or generator in Ireland, for example, the company would no longer have to pay American tax on the interest income as long as the profits remained offshore.
Known as active financing, the tax break proved to be beneficial for investment banks, brokerage firms, auto and farm equipment companies, and lenders like GE Capital. This tax break allowed G.E. to avoid taxes on lending income from abroad, and permitted the company to amass tax credits, write-offs and depreciation. Those benefits are then used to offset taxes on its American manufacturing profits.
G.E. subsequently ramped up its lending business.
As the company expanded abroad, the portion of its profits booked in low-tax countries such as Ireland and Singapore grew far faster. From 1996 through 1998, its profits and revenue in the United States were in sync — 73 percent of the company’s total. Over the last three years, though, 46 percent of the company’s revenue was in the United States, but just 18 percent of its profits.
Martin A. Sullivan, a tax economist for the trade publication Tax Analysts, said that booking such a large percentage of its profits in low-tax countries has “allowed G.E. to bring its U.S. effective tax rate to rock-bottom levels.”
G.E. officials say the disparity between American revenue and American profit is the result of ordinary business factors, such as investment in overseas markets and heavy lending losses in the United States recently. The company also says the nation’s workers benefit when G.E. profits overseas.
“We believe that winning in markets outside the United States increases U.S. exports and jobs,” Mr. Samuels said through a spokeswoman. “If U.S. companies aren’t competitive outside of their home market, it will mean fewer, not more, jobs in the United States, as the business will go to a non-U.S. competitor.”
The company does not specify how much of its global tax savings derive from active financing, but called it “significant” in its annual report. Stock analysts estimate the tax benefit to G.E. to be hundreds of millions of dollars a year.
“Cracking down on offshore profit-shifting by financial companies like G.E. was one of the important achievements of President Reagan’s 1986 Tax Reform Act,” said Robert S. McIntyre, director of the liberal group Citizens for Tax Justice, who played a key role in those changes. “The fact that Congress was snookered into undermining that reform at the behest of companies like G.E. is an insult not just to Reagan, but to all the ordinary American taxpayers who have to foot the bill for G.E.’s rampant tax sheltering.”
A Full-Court Press
Minimizing taxes is so important at G.E. that Mr. Samuels has placed tax strategists in decision-making positions in many major manufacturing facilities and businesses around the globe. Mr. Samuels, a graduate of Vanderbilt University and the University of Chicago Law School, declined to be interviewed for this article. Company officials acknowledged that the tax department had expanded since he joined the company in 1988, and said it now had 975 employees.
At a tax symposium in 2007, a G.E. tax official said the department’s “mission statement” consisted of 19 rules and urged employees to divide their time evenly between ensuring compliance with the law and “looking to exploit opportunities to reduce tax.”
Transforming the most creative strategies of the tax team into law is another extensive operation. G.E. spends heavily on lobbying: more than $200 million over the last decade, according to the Center for Responsive Politics. Records filed with election officials show a significant portion of that money was devoted to tax legislation. G.E. has even turned setbacks into successes with Congressional help. After the World Trade Organization forced the United States to halt $5 billion a year in export subsidies to G.E. and other manufacturers, the company’s lawyers and lobbyists became deeply involved in rewriting a portion of the corporate tax code, according to news reports after the 2002 decision and a Congressional staff member.
By the time the measure — the American Jobs Creation Act — was signed into law by President George W. Bush in 2004, it contained more than $13 billion a year in tax breaks for corporations, many very beneficial to G.E. One provision allowed companies to defer taxes on overseas profits from leasing planes to airlines. It was so generous — and so tailored to G.E. and a handful of other companies — that staff members on the House Ways and Means Committee publicly complained that G.E. would reap “an overwhelming percentage” of the estimated $100 million in annual tax savings.
According to its 2007 regulatory filing, the company saved more than $1 billion in American taxes because of that law in the three years after it was enacted.
By 2008, however, concern over the growing cost of overseas tax loopholes put G.E. and other corporations on the defensive. With Democrats in control of both houses of Congress, momentum was building to let the active financing exception expire. Mr. Rangel of the Ways and Means Committee indicated that he favored letting it end and directing the new revenue — an estimated $4 billion a year — to other priorities.
G.E. pushed back. In addition to the $18 million allocated to its in-house lobbying department, the company spent more than $3 million in 2008 on lobbying firms assigned to the task.
Mr. Rangel dropped his opposition to the tax break. Representative Joseph Crowley, Democrat of New York, said he had helped sway Mr. Rangel by arguing that the tax break would help Citigroup, a major employer in Mr. Crowley’s district.
G.E. officials say that neither Mr. Samuels nor any lobbyists working on behalf of the company discussed the possibility of a charitable donation with Mr. Rangel. The only contact was made in late 2007, a company spokesman said, when Mr. Immelt called to inform Mr. Rangel that the foundation was giving money to schools in his district.
But in 2008, when Mr. Rangel was criticized for using Congressional stationery to solicit donations for a City College of New York school being built in his honor, Mr. Rangel said he had appealed to G.E. executives to make the $30 million donation to New York City schools.
G.E. had nothing to do with the City College project, he said at a July 2008 news conference in Washington. “And I didn’t send them any letter,” Mr. Rangel said, adding that he “leaned on them to help us out in the city of New York as they have throughout the country. But my point there was that I do know that the C.E.O. there is connected with the foundation.”
In an interview this month, Mr. Rangel offered a different version of events — saying he didn’t remember ever discussing it with Mr. Immelt and was unaware of the foundation’s donation until the mayor’s office called him in June, before the announcement and after Mr. Rangel had dropped his opposition to the tax break.
Asked to explain the discrepancies between his accounts, Mr. Rangel replied, “I have no idea.”
Value to Americans?
While G.E.’s declining tax rates have bolstered profits and helped the company continue paying dividends to shareholders during the economic downturn, some tax experts question what taxpayers are getting in return. Since 2002, the company has eliminated a fifth of its work force in the United States while increasing overseas employment. In that time, G.E.’s accumulated offshore profits have risen to $92 billion from $15 billion.
“That G.E. can almost set its own tax rate shows how very much we need reform,” said Representative Lloyd Doggett, Democrat of Texas, who has proposed closing many corporate tax shelters. “Our tax system should encourage job creation and investment in America and end these tax incentives for exporting jobs and dodging responsibility for the cost of securing our country.”
As the Obama administration and leaders in Congress consider proposals to revamp the corporate tax code, G.E. is well prepared to defend its interests. The company spent $4.1 million on outside lobbyists last year, including four boutique firms that specialize in tax policy.
“We are a diverse company, so there are a lot of issues that the government considers, that Congress considers, that affect our shareholders,” said Gary Sheffer, a G.E. spokesman. “So we want to be sure our voice is heard.”
By David Kocieniewski. nytimes.com 3/24/2011
General Electric, the nation’s largest corporation, had a very good year in 2010.
The company reported worldwide profits of $14.2 billion, and said $5.1 billion of the total came from its operations in the United States.
Its American tax bill? None. In fact, G.E. claimed a tax benefit of $3.2 billion.
That may be hard to fathom for the millions of American business owners and households now preparing their own returns, but low taxes are nothing new for G.E. The company has been cutting the percentage of its American profits paid to the Internal Revenue Service for years, resulting in a far lower rate than at most multinational companies.
Its extraordinary success is based on an aggressive strategy that mixes fierce lobbying for tax breaks and innovative accounting that enables it to concentrate its profits offshore. G.E.’s giant tax department, led by a bow-tied former Treasury official named John Samuels, is often referred to as the world’s best tax law firm. Indeed, the company’s slogan “Imagination at Work” fits this department well. The team includes former officials not just from the Treasury, but also from the I.R.S. and virtually all the tax-writing committees in Congress.
While General Electric is one of the most skilled at reducing its tax burden, many other companies have become better at this as well. Although the top corporate tax rate in the United States is 35 percent, one of the highest in the world, companies have been increasingly using a maze of shelters, tax credits and subsidies to pay far less.
In a regulatory filing just a week before the Japanese disaster put a spotlight on the company’s nuclear reactor business, G.E. reported that its tax burden was 7.4 percent of its American profits, about a third of the average reported by other American multinationals. Even those figures are overstated, because they include taxes that will be paid only if the company brings its overseas profits back to the United States. With those profits still offshore, G.E. is effectively getting money back.
Such strategies, as well as changes in tax laws that encouraged some businesses and professionals to file as individuals, have pushed down the corporate share of the nation’s tax receipts — from 30 percent of all federal revenue in the mid-1950s to 6.6 percent in 2009.
Yet many companies say the current level is so high it hobbles them in competing with foreign rivals. Even as the government faces a mounting budget deficit, the talk in Washington is about lower rates. President Obama has said he is considering an overhaul of the corporate tax system, with an eye to lowering the top rate, ending some tax subsidies and loopholes and generating the same amount of revenue. He has designated G.E.’s chief executive, Jeffrey R. Immelt, as his liaison to the business community and as the chairman of the President’s Council on Jobs and Competitiveness, and it is expected to discuss corporate taxes.
“He understands what it takes for America to compete in the global economy,” Mr. Obama said of Mr. Immelt, on his appointment in January, after touring a G.E. factory in upstate New York that makes turbines and generators for sale around the world.
A review of company filings and Congressional records shows that one of the most striking advantages of General Electric is its ability to lobby for, win and take advantage of tax breaks.
Over the last decade, G.E. has spent tens of millions of dollars to push for changes in tax law, from more generous depreciation schedules on jet engines to “green energy” credits for its wind turbines. But the most lucrative of these measures allows G.E. to operate a vast leasing and lending business abroad with profits that face little foreign taxes and no American taxes as long as the money remains overseas.
Company officials say that these measures are necessary for G.E. to compete against global rivals and that they are acting as responsible citizens. “G.E. is committed to acting with integrity in relation to our tax obligations,” said Anne Eisele, a spokeswoman. “We are committed to complying with tax rules and paying all legally obliged taxes. At the same time, we have a responsibility to our shareholders to legally minimize our costs.”
The assortment of tax breaks G.E. has won in Washington has provided a significant short-term gain for the company’s executives and shareholders. While the financial crisis led G.E. to post a loss in the United States in 2009, regulatory filings show that in the last five years, G.E. has accumulated $26 billion in American profits, and received a net tax benefit from the I.R.S. of $4.1 billion.
But critics say the use of so many shelters amounts to corporate welfare, allowing G.E. not just to avoid taxes on profitable overseas lending but also to amass tax credits and write-offs that can be used to reduce taxes on billions of dollars of profit from domestic manufacturing. They say that the assertive tax avoidance of multinationals like G.E. not only shortchanges the Treasury, but also harms the economy by discouraging investment and hiring in the United States.
“In a rational system, a corporation’s tax department would be there to make sure a company complied with the law,” said Len Burman, a former Treasury official who now is a scholar at the nonpartisan Tax Policy Center. “But in our system, there are corporations that view their tax departments as a profit center, and the effects on public policy can be negative.”
The shelters are so crucial to G.E.’s bottom line that when Congress threatened to let the most lucrative one expire in 2008, the company came out in full force. G.E. officials worked with dozens of financial companies to send letters to Congress and hired a bevy of outside lobbyists.
The head of its tax team, Mr. Samuels, met with Representative Charles B. Rangel, then chairman of the Ways and Means Committee, which would decide the fate of the tax break. As he sat with the committee’s staff members outside Mr. Rangel’s office, Mr. Samuels dropped to his knee and pretended to beg for the provision to be extended — a flourish made in jest, he said through a spokeswoman.
That day, Mr. Rangel reversed his opposition to the tax break, according to other Democrats on the committee.
The following month, Mr. Rangel and Mr. Immelt stood together at St. Nicholas Park in Harlem as G.E. announced that its foundation had awarded $30 million to New York City schools, including $11 million to benefit various schools in Mr. Rangel’s district. Joel I. Klein, then the schools chancellor, and Mayor Michael R. Bloomberg, who presided, said it was the largest gift ever to the city’s schools.
G.E. officials say the donation was granted solely on the merit of the project. “The foundation goes to great lengths to ensure grant decisions are not influenced by company government relations or lobbying priorities,” Ms. Eisele said.
Mr. Rangel, who was censured by Congress last year for soliciting donations from corporations and executives with business before his committee, said this month that the donation was unrelated to his official actions.
Defying Reagan’s Legacy
General Electric has been a household name for generations, with light bulbs, electric fans, refrigerators and other appliances in millions of American homes. But today the consumer appliance division accounts for less than 6 percent of revenue, while lending accounts for more than 30 percent. Industrial, commercial and medical equipment like power plant turbines and jet engines account for about 50 percent. Its industrial work includes everything from wind farms to nuclear energy projects like the troubled plant in Japan, built in the 1970s.
Because its lending division, GE Capital, has provided more than half of the company’s profit in some recent years, many Wall Street analysts view G.E. not as a manufacturer but as an unregulated lender that also makes dishwashers and M.R.I. machines.
As it has evolved, the company has used, and in some cases pioneered, aggressive strategies to lower its tax bill. In the mid-1980s, President Ronald Reagan overhauled the tax system after learning that G.E. — a company for which he had once worked as a commercial pitchman — was among dozens of corporations that had used accounting gamesmanship to avoid paying any taxes.
“I didn’t realize things had gotten that far out of line,” Mr. Reagan told the Treasury secretary, Donald T. Regan, according to Mr. Regan’s 1988 memoir. The president supported a change that closed loopholes and required G.E. to pay a far higher effective rate, up to 32.5 percent.
That pendulum began to swing back in the late 1990s. G.E. and other financial services firms won a change in tax law that would allow multinationals to avoid taxes on some kinds of banking and insurance income. The change meant that if G.E. financed the sale of a jet engine or generator in Ireland, for example, the company would no longer have to pay American tax on the interest income as long as the profits remained offshore.
Known as active financing, the tax break proved to be beneficial for investment banks, brokerage firms, auto and farm equipment companies, and lenders like GE Capital. This tax break allowed G.E. to avoid taxes on lending income from abroad, and permitted the company to amass tax credits, write-offs and depreciation. Those benefits are then used to offset taxes on its American manufacturing profits.
G.E. subsequently ramped up its lending business.
As the company expanded abroad, the portion of its profits booked in low-tax countries such as Ireland and Singapore grew far faster. From 1996 through 1998, its profits and revenue in the United States were in sync — 73 percent of the company’s total. Over the last three years, though, 46 percent of the company’s revenue was in the United States, but just 18 percent of its profits.
Martin A. Sullivan, a tax economist for the trade publication Tax Analysts, said that booking such a large percentage of its profits in low-tax countries has “allowed G.E. to bring its U.S. effective tax rate to rock-bottom levels.”
G.E. officials say the disparity between American revenue and American profit is the result of ordinary business factors, such as investment in overseas markets and heavy lending losses in the United States recently. The company also says the nation’s workers benefit when G.E. profits overseas.
“We believe that winning in markets outside the United States increases U.S. exports and jobs,” Mr. Samuels said through a spokeswoman. “If U.S. companies aren’t competitive outside of their home market, it will mean fewer, not more, jobs in the United States, as the business will go to a non-U.S. competitor.”
The company does not specify how much of its global tax savings derive from active financing, but called it “significant” in its annual report. Stock analysts estimate the tax benefit to G.E. to be hundreds of millions of dollars a year.
“Cracking down on offshore profit-shifting by financial companies like G.E. was one of the important achievements of President Reagan’s 1986 Tax Reform Act,” said Robert S. McIntyre, director of the liberal group Citizens for Tax Justice, who played a key role in those changes. “The fact that Congress was snookered into undermining that reform at the behest of companies like G.E. is an insult not just to Reagan, but to all the ordinary American taxpayers who have to foot the bill for G.E.’s rampant tax sheltering.”
A Full-Court Press
Minimizing taxes is so important at G.E. that Mr. Samuels has placed tax strategists in decision-making positions in many major manufacturing facilities and businesses around the globe. Mr. Samuels, a graduate of Vanderbilt University and the University of Chicago Law School, declined to be interviewed for this article. Company officials acknowledged that the tax department had expanded since he joined the company in 1988, and said it now had 975 employees.
At a tax symposium in 2007, a G.E. tax official said the department’s “mission statement” consisted of 19 rules and urged employees to divide their time evenly between ensuring compliance with the law and “looking to exploit opportunities to reduce tax.”
Transforming the most creative strategies of the tax team into law is another extensive operation. G.E. spends heavily on lobbying: more than $200 million over the last decade, according to the Center for Responsive Politics. Records filed with election officials show a significant portion of that money was devoted to tax legislation. G.E. has even turned setbacks into successes with Congressional help. After the World Trade Organization forced the United States to halt $5 billion a year in export subsidies to G.E. and other manufacturers, the company’s lawyers and lobbyists became deeply involved in rewriting a portion of the corporate tax code, according to news reports after the 2002 decision and a Congressional staff member.
By the time the measure — the American Jobs Creation Act — was signed into law by President George W. Bush in 2004, it contained more than $13 billion a year in tax breaks for corporations, many very beneficial to G.E. One provision allowed companies to defer taxes on overseas profits from leasing planes to airlines. It was so generous — and so tailored to G.E. and a handful of other companies — that staff members on the House Ways and Means Committee publicly complained that G.E. would reap “an overwhelming percentage” of the estimated $100 million in annual tax savings.
According to its 2007 regulatory filing, the company saved more than $1 billion in American taxes because of that law in the three years after it was enacted.
By 2008, however, concern over the growing cost of overseas tax loopholes put G.E. and other corporations on the defensive. With Democrats in control of both houses of Congress, momentum was building to let the active financing exception expire. Mr. Rangel of the Ways and Means Committee indicated that he favored letting it end and directing the new revenue — an estimated $4 billion a year — to other priorities.
G.E. pushed back. In addition to the $18 million allocated to its in-house lobbying department, the company spent more than $3 million in 2008 on lobbying firms assigned to the task.
Mr. Rangel dropped his opposition to the tax break. Representative Joseph Crowley, Democrat of New York, said he had helped sway Mr. Rangel by arguing that the tax break would help Citigroup, a major employer in Mr. Crowley’s district.
G.E. officials say that neither Mr. Samuels nor any lobbyists working on behalf of the company discussed the possibility of a charitable donation with Mr. Rangel. The only contact was made in late 2007, a company spokesman said, when Mr. Immelt called to inform Mr. Rangel that the foundation was giving money to schools in his district.
But in 2008, when Mr. Rangel was criticized for using Congressional stationery to solicit donations for a City College of New York school being built in his honor, Mr. Rangel said he had appealed to G.E. executives to make the $30 million donation to New York City schools.
G.E. had nothing to do with the City College project, he said at a July 2008 news conference in Washington. “And I didn’t send them any letter,” Mr. Rangel said, adding that he “leaned on them to help us out in the city of New York as they have throughout the country. But my point there was that I do know that the C.E.O. there is connected with the foundation.”
In an interview this month, Mr. Rangel offered a different version of events — saying he didn’t remember ever discussing it with Mr. Immelt and was unaware of the foundation’s donation until the mayor’s office called him in June, before the announcement and after Mr. Rangel had dropped his opposition to the tax break.
Asked to explain the discrepancies between his accounts, Mr. Rangel replied, “I have no idea.”
Value to Americans?
While G.E.’s declining tax rates have bolstered profits and helped the company continue paying dividends to shareholders during the economic downturn, some tax experts question what taxpayers are getting in return. Since 2002, the company has eliminated a fifth of its work force in the United States while increasing overseas employment. In that time, G.E.’s accumulated offshore profits have risen to $92 billion from $15 billion.
“That G.E. can almost set its own tax rate shows how very much we need reform,” said Representative Lloyd Doggett, Democrat of Texas, who has proposed closing many corporate tax shelters. “Our tax system should encourage job creation and investment in America and end these tax incentives for exporting jobs and dodging responsibility for the cost of securing our country.”
As the Obama administration and leaders in Congress consider proposals to revamp the corporate tax code, G.E. is well prepared to defend its interests. The company spent $4.1 million on outside lobbyists last year, including four boutique firms that specialize in tax policy.
“We are a diverse company, so there are a lot of issues that the government considers, that Congress considers, that affect our shareholders,” said Gary Sheffer, a G.E. spokesman. “So we want to be sure our voice is heard.”
Monday, March 21, 2011
UPDATE: Obama's Justification for Unauthorized Military Action in Libya
WASHINGTON-President Barack Obama Monday formally notified Congress the U.S. had begun military attacks on Libya, prompting complaints from lawmakers that the president waged war without congressional consent, appearing to contradict his own previous position.
In a letter to congressional leaders, the president said the U.S. had "commenced operations to assist an international effort authorized by the United Nations (U.N.) Security Council" and "to prevent a humanitarian catastrophe and address the threat posed to international peace and security by the crisis in Libya."
Presidents over the decades have conducted military operations without prior congressional approval, including Harry Truman in Korea, George H.W. Bush in Iraq and and President Bill Clinton in Serbia. Congress in 1991 approved the Iraq military action, five months after Mr. Bush deployed forces to the region in response to Iraq's invasion of Kuwait. The military action in Libya, which Congress wasn't asked to approve, irked lawmakers.
Sen. Jim Webb, (D., Va.,) said in an interview Monday with MSNBC, "We have not had a debate and I know that there was some justification put into place because of concern for civilian casualties, but this isn't the way that our system is supposed to work."
House Democrats held a conference call over the weekend to discuss Libya, and support among lawmakers was mixed, a congressional aide said. Frustration appears to be coming from rank-and-file lawmakers left out of Mr. Obama's Libya briefing to committee chairmen Friday.
In 2007, Mr. Obama, then a presidential candidate, said, "The President does not have power under the Constitution to unilaterally authorize a military attack in a situation that does not involve stopping an actual or imminent threat to the nation."
The White House said the president's actions don't contradict his earlier views, noting that the president met with a bipartisan group of lawmakers regarding Libya before any action took place.
A senior administration official said that the 2007 comment envisioned "an invasion like we saw in Iraq. A mission of this kind, which is time-limited, well-defined, and discrete, clearly falls within the President's constitutional authority."
Justice Department legal opinions support the president's power to order limited military action, according to administration lawyers, and the White House appears to be using the legal guidelines in stating the nature, duration and scope of the Libyan operation.
"As the President told the country, the US military operation in Libya will be limited in duration and scope, and conducted in partnership with an international coalition. It is aimed at preventing an imminent humanitarian catastrophe that directly implicates the national security and foreign policy interests of the United States," said Tommy Vietor, a White House spokesman.
Mr. Obama's notification letter does not satisfy the constitutional requirement that Congress approve military action, says Lou Fisher, former researcher with the Congressional Research Service and an expert on war powers. Mr. Fisher also raised objections to Mr. Obama citing United Nations authorization in his letter.
"It's impossible for Congress to take its war powers and give it to the U.N.," Mr. Fisher said. "Other than defensive actions—and there's no defensive actions here—this has to be done by Congress."
The president, with his letter, appeared to meet the requirements of the 1973 War Powers Resolution, which says only that in cases where the president doesn't seek prior approval from lawmakers, the president must notify Congress within 48 hours of committing armed forces to military action and puts a 60 day deadline on such actions.
House Speaker John Boehner doesn't believe the president always needs congressional approval to go take military action, a spokesman for the Ohio Republican said. However, "members of Congress from both parties, as well as the American people, are demanding the administration do a better job answering some basic questions about the scope and purpose of our mission in Libya, America's role, and how it will be achieved," said the spokesman, Brendan Buck.
Originally published 3/21/2011 in the Wall Street Journal online @ http://online.wsj.com/article/SB10001424052748704355304576215073989153598.html?mod=googlenews_wsj
Author Evan Perez
In a letter to congressional leaders, the president said the U.S. had "commenced operations to assist an international effort authorized by the United Nations (U.N.) Security Council" and "to prevent a humanitarian catastrophe and address the threat posed to international peace and security by the crisis in Libya."
Presidents over the decades have conducted military operations without prior congressional approval, including Harry Truman in Korea, George H.W. Bush in Iraq and and President Bill Clinton in Serbia. Congress in 1991 approved the Iraq military action, five months after Mr. Bush deployed forces to the region in response to Iraq's invasion of Kuwait. The military action in Libya, which Congress wasn't asked to approve, irked lawmakers.
Sen. Jim Webb, (D., Va.,) said in an interview Monday with MSNBC, "We have not had a debate and I know that there was some justification put into place because of concern for civilian casualties, but this isn't the way that our system is supposed to work."
House Democrats held a conference call over the weekend to discuss Libya, and support among lawmakers was mixed, a congressional aide said. Frustration appears to be coming from rank-and-file lawmakers left out of Mr. Obama's Libya briefing to committee chairmen Friday.
In 2007, Mr. Obama, then a presidential candidate, said, "The President does not have power under the Constitution to unilaterally authorize a military attack in a situation that does not involve stopping an actual or imminent threat to the nation."
The White House said the president's actions don't contradict his earlier views, noting that the president met with a bipartisan group of lawmakers regarding Libya before any action took place.
A senior administration official said that the 2007 comment envisioned "an invasion like we saw in Iraq. A mission of this kind, which is time-limited, well-defined, and discrete, clearly falls within the President's constitutional authority."
Justice Department legal opinions support the president's power to order limited military action, according to administration lawyers, and the White House appears to be using the legal guidelines in stating the nature, duration and scope of the Libyan operation.
"As the President told the country, the US military operation in Libya will be limited in duration and scope, and conducted in partnership with an international coalition. It is aimed at preventing an imminent humanitarian catastrophe that directly implicates the national security and foreign policy interests of the United States," said Tommy Vietor, a White House spokesman.
Mr. Obama's notification letter does not satisfy the constitutional requirement that Congress approve military action, says Lou Fisher, former researcher with the Congressional Research Service and an expert on war powers. Mr. Fisher also raised objections to Mr. Obama citing United Nations authorization in his letter.
"It's impossible for Congress to take its war powers and give it to the U.N.," Mr. Fisher said. "Other than defensive actions—and there's no defensive actions here—this has to be done by Congress."
The president, with his letter, appeared to meet the requirements of the 1973 War Powers Resolution, which says only that in cases where the president doesn't seek prior approval from lawmakers, the president must notify Congress within 48 hours of committing armed forces to military action and puts a 60 day deadline on such actions.
House Speaker John Boehner doesn't believe the president always needs congressional approval to go take military action, a spokesman for the Ohio Republican said. However, "members of Congress from both parties, as well as the American people, are demanding the administration do a better job answering some basic questions about the scope and purpose of our mission in Libya, America's role, and how it will be achieved," said the spokesman, Brendan Buck.
Originally published 3/21/2011 in the Wall Street Journal online @ http://online.wsj.com/article/SB10001424052748704355304576215073989153598.html?mod=googlenews_wsj
Author Evan Perez
Sunday, March 20, 2011
Remembering the Constitution: The War Power
In response to President Obama’s warlike declaration of intent against Libya, Representative Dennis Kucinich issued the following statement today. Here is the statement:
Washington D.C. (March 18, 2011)—Congressman Dennis Kucinich (D-OH) today released the following statement and letter to Congressional leaders after the President announced that the United States will support a United Nations-approved attack on Libya:
While the action is billed as protecting the civilians of Libya, a no-fly-zone begins with an attack on the air defenses of Libya and Qaddafi forces. It is an act of war. The president made statements which attempt to minimize U.S. action, but U.S. planes may drop U.S. bombs and U.S. missiles may be involved in striking another sovereign nation. War from the air is still war.
It is also worth noting that the President did not comment upon nor recognize that the Libyan government had declared a ceasefire in response to UNSC Resolution 1973. It was appropriate for the UN to speak about the situation. It was appropriate to establish an arms embargo and freeze Qaddafi’s considerable financial assets. But whether the U.S. takes military action is not for the UN alone to decide. There is a constitutional imperative in the United States with respect to deciding to commit our U.S. armed forces to war.
Congress should be called back into session immediately to decide whether or not to authorize the United States’ participation in a military strike. If it does not, the action of the President is contrary to U.S. Constitution. Article 1, Section 8 of the Constitution clearly states that the United States Congress has the power to declare war. The President does not. That was the Founders’ intent.
I have sent a letter to Congressional leadership indicating that the national interest requires that Congress be called back quickly to Washington to exercise its Constitutional authority to determine whether our armed forces should participate in the UN mission. Both houses of Congress must weigh in. This is not for the President alone, or for a few high ranking Members of Congress to decide.
It is hard to imagine that Congress, during the current contentious debate over deficits and budget cutting, would agree to plunge America into still another war, especially since America will spend trillions in total for the wars in Afghanistan, Iraq and incursions into Pakistan.
The last thing we need is to be embroiled in yet another intervention in another Muslim country. The American people have had enough. First it was Afghanistan, then Iraq. Then bombs began to fall in Pakistan, then Yemen, and soon it seems bombs could be falling in Libya. Our nation simply cannot afford another war, economically, diplomatically or spiritually.
Washington D.C. (March 18, 2011)—Congressman Dennis Kucinich (D-OH) today released the following statement and letter to Congressional leaders after the President announced that the United States will support a United Nations-approved attack on Libya:
While the action is billed as protecting the civilians of Libya, a no-fly-zone begins with an attack on the air defenses of Libya and Qaddafi forces. It is an act of war. The president made statements which attempt to minimize U.S. action, but U.S. planes may drop U.S. bombs and U.S. missiles may be involved in striking another sovereign nation. War from the air is still war.
It is also worth noting that the President did not comment upon nor recognize that the Libyan government had declared a ceasefire in response to UNSC Resolution 1973. It was appropriate for the UN to speak about the situation. It was appropriate to establish an arms embargo and freeze Qaddafi’s considerable financial assets. But whether the U.S. takes military action is not for the UN alone to decide. There is a constitutional imperative in the United States with respect to deciding to commit our U.S. armed forces to war.
Congress should be called back into session immediately to decide whether or not to authorize the United States’ participation in a military strike. If it does not, the action of the President is contrary to U.S. Constitution. Article 1, Section 8 of the Constitution clearly states that the United States Congress has the power to declare war. The President does not. That was the Founders’ intent.
I have sent a letter to Congressional leadership indicating that the national interest requires that Congress be called back quickly to Washington to exercise its Constitutional authority to determine whether our armed forces should participate in the UN mission. Both houses of Congress must weigh in. This is not for the President alone, or for a few high ranking Members of Congress to decide.
It is hard to imagine that Congress, during the current contentious debate over deficits and budget cutting, would agree to plunge America into still another war, especially since America will spend trillions in total for the wars in Afghanistan, Iraq and incursions into Pakistan.
The last thing we need is to be embroiled in yet another intervention in another Muslim country. The American people have had enough. First it was Afghanistan, then Iraq. Then bombs began to fall in Pakistan, then Yemen, and soon it seems bombs could be falling in Libya. Our nation simply cannot afford another war, economically, diplomatically or spiritually.
Thursday, January 27, 2011
The Military-Industrial Complex: 50 years later
The Tyranny of Defense Inc.
By Andrew J. Bacevich
Originally published in The Atlantic, January/February 2011 issue
In 1961, Dwight Eisenhower famously identified the military-industrial complex, warning that the growing fusion between corporations and the armed forces posed a threat to democracy. Judged 50 years later, Ike’s frightening prophecy actually understates the scope of our modern system—and the dangers of the perpetual march to war it has put us on.
American politics is typically a grimy business of horses traded and pork delivered. Political speech, for its part, tends to be formulaic and eminently forgettable. Yet on occasion, a politician will transcend circumstance and bear witness to some lasting truth: George Washington in his Farewell Address, for example, or Abraham Lincoln in his Second Inaugural.
Fifty years ago, President Dwight D. Eisenhower joined such august company when, in his own farewell address, he warned of the rise in America of the “military-industrial complex.” An accomplished soldier and a better-than-average president, Eisenhower had devoted the preponderance of his adult life to studying, waging, and then seeking to avert war. Not surprisingly, therefore, his prophetic voice rang clearest when as president he reflected on matters related to military power and policy.
Ike’s farewell address, nationally televised on the evening of January 17, 1961, offered one such occasion, although not the only one. Equally significant, if now nearly forgotten, was his presentation to the American Society of Newspaper Editors on April 16, 1953. In this speech, the president contemplated a world permanently perched on the brink of war—“humanity hanging from a cross of iron”— and he appealed to Americans to assess the consequences likely to ensue.
Separated in time by eight years, the two speeches are complementary: to consider them in combination is to discover their full importance. As bookends to Eisenhower’s presidency, they form a solemn meditation on the implications—economic, social, political, and moral—of militarizing America.
During Eisenhower’s presidency, few credited him with being a great orator. Yet, as befit a Kansan and a military professional, Ike could speak plainly when he chose to do so. The April 16 speech early in his presidency was such a moment. Delivered in the wake of Joseph Stalin’s death, the speech offered the new Soviet leadership a five-point plan for ending the Cold War. Endorsing the speech as “one of the most notable policy statements of U.S. history,” Time reported with satisfaction that Eisenhower had articulated a broad vision for peace and “left it at the door of the Kremlin for all the world to see.” The likelihood that Stalin’s successors would embrace this vision was nil. An editorial in The New Republic made the essential point: as seen from Russia’s perspective, Eisenhower was “demanding unconditional surrender.” The president’s peace plan quickly vanished without a trace.
Largely overlooked by most commentators was a second theme that Eisenhower had woven into his text. The essence of this theme was simplicity itself: spending on arms and armies is inherently undesirable. Even when seemingly necessary, it constitutes a misappropriation of scarce resources. By diverting social capital from productive to destructive purposes, war and the preparation for war deplete, rather than enhance, a nation’s strength. And while assertions of military necessity might camouflage the costs entailed, they can never negate them altogether.
“Every gun that is made,” Eisenhower told his listeners, “every warship launched, every rocket fired signifies, in the final sense, a theft from those who hunger and are not fed, those who are cold and are not clothed.” Any nation that pours its treasure into the purchase of armaments is spending more than mere money. “It is spending the sweat of its laborers, the genius of its scientists, the hopes of its children.” To emphasize the point, Eisenhower offered specifics:
The cost of one modern heavy bomber is this: a modern brick school in more than 30 cities … We pay for a single fighter with a half million bushels of wheat. We pay for a single destroyer with new homes that could have housed more than 8,000 people.
Yet in Cold War Washington, Eisenhower’s was a voice crying in the wilderness. As much as they liked Ike, Americans had no intention of choosing between guns and butter: they wanted both. Military Keynesianism—the belief that the production of guns could underwrite an endless supply of butter—was enjoying its heyday.
At the time, the idea that militarizing U.S. policy might yield economic benefits outweighing the costs seemed eminently plausible. The authors of the National Security Council report “NSC-68,” the 1950 blueprint for U.S. rearmament, had made this point explicitly: boosting Pentagon spending would “increase the gross national product by more than the amount being absorbed for additional military and foreign assistance purposes.” Building up the nation’s defenses could serve as a sort of permanent economic stimulus program, putting people to work and money in their pockets. The experience of World War II had apparently validated this theory. Why shouldn’t the same logic apply to the Cold War?
So Americans disregarded Ike’s brooding about a “cross of iron” and a trade-off between guns and butter. The 1950s brought new bombers and new schools, fleets of warships and tracts of freshly built homes spilling into the suburbs.
Eisenhower and his fellow Republicans were more than happy to pocket the credit for this win-win outcome. Yet the president, if not his party, also sensed that beneath the appearance of Ozzie-and-Harriet prosperity, momentous and not altogether welcome changes were taking place. The postwar boom in which the American middle class took such satisfaction was reconfiguring, redistributing, and redefining American power. Washington itself ranked as a principal beneficiary of this process—and, within Washington, the several institutions comprising what some were calling the “national-security state.”
This national-security state derived its raison d’รชtre from—and vigorously promoted a belief in—the existence of looming national peril. On one point, most politicians, uniformed military leaders, and so-called defense intellectuals agreed: the dangers facing the United States were omnipresent and unprecedented. Keeping those dangers at bay demanded vigilance, preparedness, and a willingness to act quickly and even ruthlessly. Urgency had become the order of the day.
In his 1956 book, The Power Elite, C. Wright Mills, a professor of sociology at Columbia, dubbed this perspective “military metaphysics,” which he characterized as “the cast of mind that defines international reality as basically military.” Those embracing this mind-set no longer considered genuine, lasting peace to be plausible. Rather, peace was at best a transitory condition, “a prelude to war or an interlude between wars.”
Perhaps nothing illustrates military metaphysics more vividly than the exponential growth of the U.S. nuclear stockpile that occurred during Eisenhower’s presidency. In 1952, when Ike was elected, that stockpile numbered some 1,000 warheads. By the time he passed the reins to John F. Kennedy in 1961, it consisted of more than 24,000 warheads, and it rapidly ascended later that decade to a peak of 31,000.
As commander in chief, Ike exercised only nominal control over this development, which was driven by an unstated alliance of interested parties: generals, defense officials, military contractors, and members of Congress. True, Eisenhower had established “massive retaliation”—the threat of a large-scale nuclear response to deter Soviet aggression—as the centerpiece of U.S. national-security doctrine. Yet even as this posture was intended to intimidate the Kremlin, the president expected it to offer Americans a sense of security, thereby enabling him to rein in military expenditures. In that regard, he miscalculated badly.
During the Eisenhower years, military outlays served as a seemingly inexhaustible engine of economic well-being. Keeping the Soviets at bay required the design and acquisition of a vast array of guns and missiles, bombers and warships, tanks and fighter planes. Ensuring that U.S. forces stayed in fighting trim entailed the construction of bases, barracks, depots, and training facilities. Research labs received funding. Businesses large and small won contracts. Organized labor got jobs. And politicians who delivered all these goodies to their constituents hauled in endorsements, campaign contributions, and votes. Throughout the 1950s, unemployment stayed tolerably low and inflation minimal, while budget deficits ranged from trivial to non-existent. What was not to like? As a result, Pentagon budgets remained high throughout the Eisenhower era, averaging more than 50 percent of all federal spending and 10 percent of GDP, figures without precedent in the nation’s peacetime history.
For its beneficiaries, girding for war was a gift, and one they expected would never stop giving. The presumption that military capabilities qualifying as adequate today would surely not suffice tomorrow—the Reds, after all, weren’t standing still—generated a ceaseless quest for bigger, better, and more. Every ominous advance in Russian capabilities offered a renewed rationale for opening the military-spending spigot. Whether the edge attributed to the Soviets was real or invented mattered little. The discovery during the 1950s of a “bomber gap” and later a “missile gap,” for example, provided political ammunition to air-power advocates quick to charge that the nation’s very survival was at risk. Alarm bells rang. Congressional committees summoned expert witnesses. Newspapers and magazines nervously assessed the implications of these new vulnerabilities. Ultimately, appropriations poured forth. That both “gaps” were fictitious was beside the point.
None of these developments—the excessive military outlays, the privileging of institutional goals over the national interest, the calculated manipulation of public opinion—met with Eisenhower’s approval. Knowing at the time that the United States enjoyed an edge in bomber and missile capabilities, he understood precisely who benefited from threat inflation. Yet to sustain the illusion he was fully in command, Ike remained publicly silent about what went on behind the scenes. Only on the eve of his departure from office did he inform the nation as to what Washington’s new obsession with national security had wrought.
In 1961, as in 1953, his central theme was theft. This time, however, rather than homes or schools, Ike suggested the thieves might walk off with democracy itself.
The Cold War, he emphasized, had transformed the country’s approach to defending itself. In the past, “American makers of plowshares could, with time and as required, make swords as well.” But this reliance on improvisation no longer sufficed. The rivalry with the Soviet Union had “compelled” the United States “to create a permanent armaments industry of vast proportions.” As a consequence, “we annually spend on military security alone more than the net income of all United States corporations.”
The “economic, political, even spiritual” reach of this conglomeration was immense, Eisenhower explained, extending to “every city, every statehouse, every office of the federal government.” Although the president could not bring himself to question explicitly the need for this shift in policy, he warned of its implications. “Our toil, resources, and livelihood are all involved,” he said. “So is the very structure of our society.” With corporate officials routinely claiming the Pentagon’s top posts, and former military officers hiring themselves out to defense contractors, fundamental values were at risk. “In the councils of government,” Eisenhower continued,
we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military-industrial complex. The potential for the disastrous rise of misplaced power exists and will persist. We must never let the weight of this combination endanger our liberties or democratic processes. We should take nothing for granted.
Having defined the problem, Eisenhower then advanced a striking solution: ultimate responsibility for democracy’s defense, he insisted, necessarily rested with the people themselves. Rather than according Washington deference, American citizens needed to exercise strict oversight. Counting on the national-security state to police itself—on members of Congress to set aside parochial concerns, corporate chieftains to put patriotism above profit, and military leaders to hew to the ethic of their profession—wouldn’t do the trick. “Only an alert and knowledgeable citizenry can compel the proper meshing of the huge industrial and military machinery of defense with our peaceful methods and goals, so that security and liberty may prosper together.”
Reaction to the president’s speech was tepid at best. The headline in TheBoston Globe reported “Ike Says Farewell After Half Century in U.S. Service” and left it at that. With the country agog over Jack and Jackie, the mood of the moment did not invite introspection. Eisenhower’s insistence that citizens awaken to looming danger attracted little attention. His valedictory qualified, at the time, as a one-day story.
So Ike departed, but military metaphysics survived intact and found particular favor in the upper echelons of the next administration. On the campaign trail, Kennedy had promised higher defense spending, enhanced nuclear capabilities, and a reinvigorated confrontation with Communism. Once in office, he proved as good as his word.
In the five decades since Eisenhower left the White House for his retirement home in Gettysburg, much has changed. The Soviet Union has disappeared. So too, for all practical purposes, has Communism itself. Yet in Washington, an aura of never-ending crisis still prevails—and with it, military metaphysics.
The national-security state continues to grow in size, scope, and influence. In Ike’s day, for example, the CIA dominated the field of intelligence. Today, experts refer casually to an “intelligence community,” consisting of some 17 agencies. The cumulative size and payroll of this apparatus grew by leaps and bounds in the wake of the September 11 attacks. Last July, TheWashington Post reported that it had “become so large, so unwieldy and so secretive that no one knows how much money it costs, how many people it employs, how many programs exist within it or exactly how many agencies do the same work.” Since that report appeared, U.S. officials have parted the veil of secrecy enough to reveal that intelligence spending exceeds $80 billion per year, substantially more than the budget of either the Department of State ($49 billion) or the Department of Homeland Security ($43 billion).
The spending spree extends well beyond intelligence. The Pentagon’s budget has more than doubled in the past decade, to some $700 billion per year. All told, the ostensible imperatives of national security thereby consume roughly half of all federal discretionary dollars. Even more astonishing, annual U.S. military outlays now approximate those of all other nations, friends as well as foes, combined.
In Ike’s day, competition with the Soviet Union provided the rationale for such outsized expenditures. Today, with no remotely comparable competitor at hand, devotees of military metaphysics conjure a variety of arguments to justify the Pentagon’s budgetary demands. One such, usually made with an eye toward China, is that relentlessly outspending any and all would-be challengers to U.S. preeminence will dissuade them from even mounting an attempt. A second transforms modest threats into existential ones, with the mere existence of a Mahmoud Ahmadinejad or Osama bin Laden mandating extraordinary exertions until the United States eliminates every last such miscreant—a day that will never come.
The threat inflation that led to the bomber and missile “gaps” of the 1950s remains a cherished Washington tradition. In memos written after September 11, then–Defense Secretary Donald Rumsfeld urged his staff to “keep elevating the threat” and demanded “bumper sticker statements” to gin up public enthusiasm for the global war on terror. The key, he wrote, was to “make the American people realize they are surrounded in the world by violent extremists.” What worked during the Cold War still works today: to get Americans on board with your military policy, scare the hell out of them.
In the meantime, the revolving door connecting the world of soldiering to the world of arms purveyors continues to turn. For those at the top, the American military profession is that rare calling where retirement need not imply a reduced income. On the contrary: senior serving officers shed their uniforms not merely to take up golf or go fishing but with the reasonable expectation of raking in big money. In a recent e-mail, a serving officer who is a former student of mine reported that on a visit to the annual meeting of the Association of the United States Army—in his words, “the Sodom and Gomorrah of the Military Industrial Complex”—he was “accosted by two dozen former bosses, now in suits with fancy ties and business cards, hawking the latest defense technologies.”
If anything, Eisenhower’s characterization of the cozy relations between the military and corporate worlds understates the contemporary reality. C. Wright Mills came closer to the mark when he wrote of “a coalition of generals in the roles of corporation executives, of politicians masquerading as admirals, of corporation executives acting like politicians.” Add to that list the retired senior officers passing as pundits (often while simultaneously cashing the checks of weapons manufacturers), policy wonks pretending to be field marshals, and journalists eagerly competing to carry water for heroic field commanders. Throw in the former members of Congress who lobby their successors on behalf of defense contractors, and the serving members who vote in favor of any defense appropriations that send money to their districts, and one begins to get a sense of the true topography.
With what result? Not peace, and not prosperity. Instead, American soldiers traipse wearily from one conflict to the next while the nation as a whole suffers from acute economic distress. What has gone amiss?
In the wake of 9/11, when the George W. Bush administration committed the United States to a global war on terror, it was blithely confident that the U.S. military could win such a conflict handily. Events in Iraq and Afghanistan have since demolished such expectations. The irrefutable lesson of the past decade is this: we know how to start wars, but don’t know how to end them. During the well-armed Eisenhower era, American weapons were largely silent. Today, engagement in actual hostilities has become the new normal, exacting a steep price. The wars in Iraq and Afghanistan have cost at least $1 trillion—with the meter still running. Some observers estimate that total costs will eventually reach $2 trillion or even $3 trillion.
Furthermore, military Keynesianism has proved to be a bust. In contrast to the 1950s, military extravagance is depleting rather than adding to the nation’s wealth. In the Eisenhower era, the United States, a creditor nation, produced at home the essentials defining the American way of life—everything from oil to cars to televisions. Today, we import far more than we export, with ever-increasing debt as one result. Furthermore, in the 1950s, we were mostly at peace; today we are mostly at war—and, as a result, more of the resources provided to the military go abroad and stay there.
Certain enterprises flourish, notably private security firms such as DynCorp, MPRI, and, of course, the notorious Blackwater (now known as Xe). At MPRI, they like to say “We’ve got more generals per square foot here than in the Pentagon.” But even if those generals are doing fine, the grandchildren of Ozzie and Harriet, coping with 9.8 percent unemployment and contemplating the implications of trillion-dollar deficits, see little benefit from our exorbitant Pentagon outlays. If paying Pashtun drivers to truck fuel from Pakistan into Afghanistan is producing any positive economic side effects, the American worker is not among the beneficiaries.
In short, the guns-and-butter trade-off that Eisenhower foresaw in 1953 has become reality. To train, equip, and maintain one American soldier in Iraq or Afghanistan for just one year costs a cool million dollars. Meanwhile, according to 2010 census figures, the number of Americans falling below the poverty line has swollen to one in every seven.
Thanks to its allies and abettors, the military-industrial-legislative war complex remains stubbornly resistant to change—a fact President Barack Obama himself learned during his first year in office. While reviewing his administration’s policy in Afghanistan, the president repeatedly asked for a range of policy alternatives. He wanted choices. According to Bob Woodward of TheWashington Post, however, the Pentagon offered Obama a single path—the so-called McChrystal “surge” of additional troops. As recounted in Woodward’s book Obama’s Wars, the president complained: “So what’s my option? You’ve given me only one option.” The military’s own preferred option was all he was going to get. (Just months before, Woodward himself had helpfully promoted that very option, courtesy of a well-timed leak.)
No doubt Dwight Eisenhower would sympathize with President Obama, having himself struggled to exercise the prerogatives ostensibly reserved to the chief executive. Yet Ike would hardly be surprised. He would reserve his surprise—and his disappointment—for the American people. A half century after he summoned us to shoulder the responsibilities of citizenship, we still refuse to do so. In Washington, military metaphysics remains sacrosanct. No wonder we continue to get our pockets picked.
By Andrew J. Bacevich
Originally published in The Atlantic, January/February 2011 issue
In 1961, Dwight Eisenhower famously identified the military-industrial complex, warning that the growing fusion between corporations and the armed forces posed a threat to democracy. Judged 50 years later, Ike’s frightening prophecy actually understates the scope of our modern system—and the dangers of the perpetual march to war it has put us on.
American politics is typically a grimy business of horses traded and pork delivered. Political speech, for its part, tends to be formulaic and eminently forgettable. Yet on occasion, a politician will transcend circumstance and bear witness to some lasting truth: George Washington in his Farewell Address, for example, or Abraham Lincoln in his Second Inaugural.
Fifty years ago, President Dwight D. Eisenhower joined such august company when, in his own farewell address, he warned of the rise in America of the “military-industrial complex.” An accomplished soldier and a better-than-average president, Eisenhower had devoted the preponderance of his adult life to studying, waging, and then seeking to avert war. Not surprisingly, therefore, his prophetic voice rang clearest when as president he reflected on matters related to military power and policy.
Ike’s farewell address, nationally televised on the evening of January 17, 1961, offered one such occasion, although not the only one. Equally significant, if now nearly forgotten, was his presentation to the American Society of Newspaper Editors on April 16, 1953. In this speech, the president contemplated a world permanently perched on the brink of war—“humanity hanging from a cross of iron”— and he appealed to Americans to assess the consequences likely to ensue.
Separated in time by eight years, the two speeches are complementary: to consider them in combination is to discover their full importance. As bookends to Eisenhower’s presidency, they form a solemn meditation on the implications—economic, social, political, and moral—of militarizing America.
During Eisenhower’s presidency, few credited him with being a great orator. Yet, as befit a Kansan and a military professional, Ike could speak plainly when he chose to do so. The April 16 speech early in his presidency was such a moment. Delivered in the wake of Joseph Stalin’s death, the speech offered the new Soviet leadership a five-point plan for ending the Cold War. Endorsing the speech as “one of the most notable policy statements of U.S. history,” Time reported with satisfaction that Eisenhower had articulated a broad vision for peace and “left it at the door of the Kremlin for all the world to see.” The likelihood that Stalin’s successors would embrace this vision was nil. An editorial in The New Republic made the essential point: as seen from Russia’s perspective, Eisenhower was “demanding unconditional surrender.” The president’s peace plan quickly vanished without a trace.
Largely overlooked by most commentators was a second theme that Eisenhower had woven into his text. The essence of this theme was simplicity itself: spending on arms and armies is inherently undesirable. Even when seemingly necessary, it constitutes a misappropriation of scarce resources. By diverting social capital from productive to destructive purposes, war and the preparation for war deplete, rather than enhance, a nation’s strength. And while assertions of military necessity might camouflage the costs entailed, they can never negate them altogether.
“Every gun that is made,” Eisenhower told his listeners, “every warship launched, every rocket fired signifies, in the final sense, a theft from those who hunger and are not fed, those who are cold and are not clothed.” Any nation that pours its treasure into the purchase of armaments is spending more than mere money. “It is spending the sweat of its laborers, the genius of its scientists, the hopes of its children.” To emphasize the point, Eisenhower offered specifics:
The cost of one modern heavy bomber is this: a modern brick school in more than 30 cities … We pay for a single fighter with a half million bushels of wheat. We pay for a single destroyer with new homes that could have housed more than 8,000 people.
Yet in Cold War Washington, Eisenhower’s was a voice crying in the wilderness. As much as they liked Ike, Americans had no intention of choosing between guns and butter: they wanted both. Military Keynesianism—the belief that the production of guns could underwrite an endless supply of butter—was enjoying its heyday.
At the time, the idea that militarizing U.S. policy might yield economic benefits outweighing the costs seemed eminently plausible. The authors of the National Security Council report “NSC-68,” the 1950 blueprint for U.S. rearmament, had made this point explicitly: boosting Pentagon spending would “increase the gross national product by more than the amount being absorbed for additional military and foreign assistance purposes.” Building up the nation’s defenses could serve as a sort of permanent economic stimulus program, putting people to work and money in their pockets. The experience of World War II had apparently validated this theory. Why shouldn’t the same logic apply to the Cold War?
So Americans disregarded Ike’s brooding about a “cross of iron” and a trade-off between guns and butter. The 1950s brought new bombers and new schools, fleets of warships and tracts of freshly built homes spilling into the suburbs.
Eisenhower and his fellow Republicans were more than happy to pocket the credit for this win-win outcome. Yet the president, if not his party, also sensed that beneath the appearance of Ozzie-and-Harriet prosperity, momentous and not altogether welcome changes were taking place. The postwar boom in which the American middle class took such satisfaction was reconfiguring, redistributing, and redefining American power. Washington itself ranked as a principal beneficiary of this process—and, within Washington, the several institutions comprising what some were calling the “national-security state.”
This national-security state derived its raison d’รชtre from—and vigorously promoted a belief in—the existence of looming national peril. On one point, most politicians, uniformed military leaders, and so-called defense intellectuals agreed: the dangers facing the United States were omnipresent and unprecedented. Keeping those dangers at bay demanded vigilance, preparedness, and a willingness to act quickly and even ruthlessly. Urgency had become the order of the day.
In his 1956 book, The Power Elite, C. Wright Mills, a professor of sociology at Columbia, dubbed this perspective “military metaphysics,” which he characterized as “the cast of mind that defines international reality as basically military.” Those embracing this mind-set no longer considered genuine, lasting peace to be plausible. Rather, peace was at best a transitory condition, “a prelude to war or an interlude between wars.”
Perhaps nothing illustrates military metaphysics more vividly than the exponential growth of the U.S. nuclear stockpile that occurred during Eisenhower’s presidency. In 1952, when Ike was elected, that stockpile numbered some 1,000 warheads. By the time he passed the reins to John F. Kennedy in 1961, it consisted of more than 24,000 warheads, and it rapidly ascended later that decade to a peak of 31,000.
As commander in chief, Ike exercised only nominal control over this development, which was driven by an unstated alliance of interested parties: generals, defense officials, military contractors, and members of Congress. True, Eisenhower had established “massive retaliation”—the threat of a large-scale nuclear response to deter Soviet aggression—as the centerpiece of U.S. national-security doctrine. Yet even as this posture was intended to intimidate the Kremlin, the president expected it to offer Americans a sense of security, thereby enabling him to rein in military expenditures. In that regard, he miscalculated badly.
During the Eisenhower years, military outlays served as a seemingly inexhaustible engine of economic well-being. Keeping the Soviets at bay required the design and acquisition of a vast array of guns and missiles, bombers and warships, tanks and fighter planes. Ensuring that U.S. forces stayed in fighting trim entailed the construction of bases, barracks, depots, and training facilities. Research labs received funding. Businesses large and small won contracts. Organized labor got jobs. And politicians who delivered all these goodies to their constituents hauled in endorsements, campaign contributions, and votes. Throughout the 1950s, unemployment stayed tolerably low and inflation minimal, while budget deficits ranged from trivial to non-existent. What was not to like? As a result, Pentagon budgets remained high throughout the Eisenhower era, averaging more than 50 percent of all federal spending and 10 percent of GDP, figures without precedent in the nation’s peacetime history.
For its beneficiaries, girding for war was a gift, and one they expected would never stop giving. The presumption that military capabilities qualifying as adequate today would surely not suffice tomorrow—the Reds, after all, weren’t standing still—generated a ceaseless quest for bigger, better, and more. Every ominous advance in Russian capabilities offered a renewed rationale for opening the military-spending spigot. Whether the edge attributed to the Soviets was real or invented mattered little. The discovery during the 1950s of a “bomber gap” and later a “missile gap,” for example, provided political ammunition to air-power advocates quick to charge that the nation’s very survival was at risk. Alarm bells rang. Congressional committees summoned expert witnesses. Newspapers and magazines nervously assessed the implications of these new vulnerabilities. Ultimately, appropriations poured forth. That both “gaps” were fictitious was beside the point.
None of these developments—the excessive military outlays, the privileging of institutional goals over the national interest, the calculated manipulation of public opinion—met with Eisenhower’s approval. Knowing at the time that the United States enjoyed an edge in bomber and missile capabilities, he understood precisely who benefited from threat inflation. Yet to sustain the illusion he was fully in command, Ike remained publicly silent about what went on behind the scenes. Only on the eve of his departure from office did he inform the nation as to what Washington’s new obsession with national security had wrought.
In 1961, as in 1953, his central theme was theft. This time, however, rather than homes or schools, Ike suggested the thieves might walk off with democracy itself.
The Cold War, he emphasized, had transformed the country’s approach to defending itself. In the past, “American makers of plowshares could, with time and as required, make swords as well.” But this reliance on improvisation no longer sufficed. The rivalry with the Soviet Union had “compelled” the United States “to create a permanent armaments industry of vast proportions.” As a consequence, “we annually spend on military security alone more than the net income of all United States corporations.”
The “economic, political, even spiritual” reach of this conglomeration was immense, Eisenhower explained, extending to “every city, every statehouse, every office of the federal government.” Although the president could not bring himself to question explicitly the need for this shift in policy, he warned of its implications. “Our toil, resources, and livelihood are all involved,” he said. “So is the very structure of our society.” With corporate officials routinely claiming the Pentagon’s top posts, and former military officers hiring themselves out to defense contractors, fundamental values were at risk. “In the councils of government,” Eisenhower continued,
we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military-industrial complex. The potential for the disastrous rise of misplaced power exists and will persist. We must never let the weight of this combination endanger our liberties or democratic processes. We should take nothing for granted.
Having defined the problem, Eisenhower then advanced a striking solution: ultimate responsibility for democracy’s defense, he insisted, necessarily rested with the people themselves. Rather than according Washington deference, American citizens needed to exercise strict oversight. Counting on the national-security state to police itself—on members of Congress to set aside parochial concerns, corporate chieftains to put patriotism above profit, and military leaders to hew to the ethic of their profession—wouldn’t do the trick. “Only an alert and knowledgeable citizenry can compel the proper meshing of the huge industrial and military machinery of defense with our peaceful methods and goals, so that security and liberty may prosper together.”
Reaction to the president’s speech was tepid at best. The headline in TheBoston Globe reported “Ike Says Farewell After Half Century in U.S. Service” and left it at that. With the country agog over Jack and Jackie, the mood of the moment did not invite introspection. Eisenhower’s insistence that citizens awaken to looming danger attracted little attention. His valedictory qualified, at the time, as a one-day story.
So Ike departed, but military metaphysics survived intact and found particular favor in the upper echelons of the next administration. On the campaign trail, Kennedy had promised higher defense spending, enhanced nuclear capabilities, and a reinvigorated confrontation with Communism. Once in office, he proved as good as his word.
In the five decades since Eisenhower left the White House for his retirement home in Gettysburg, much has changed. The Soviet Union has disappeared. So too, for all practical purposes, has Communism itself. Yet in Washington, an aura of never-ending crisis still prevails—and with it, military metaphysics.
The national-security state continues to grow in size, scope, and influence. In Ike’s day, for example, the CIA dominated the field of intelligence. Today, experts refer casually to an “intelligence community,” consisting of some 17 agencies. The cumulative size and payroll of this apparatus grew by leaps and bounds in the wake of the September 11 attacks. Last July, TheWashington Post reported that it had “become so large, so unwieldy and so secretive that no one knows how much money it costs, how many people it employs, how many programs exist within it or exactly how many agencies do the same work.” Since that report appeared, U.S. officials have parted the veil of secrecy enough to reveal that intelligence spending exceeds $80 billion per year, substantially more than the budget of either the Department of State ($49 billion) or the Department of Homeland Security ($43 billion).
The spending spree extends well beyond intelligence. The Pentagon’s budget has more than doubled in the past decade, to some $700 billion per year. All told, the ostensible imperatives of national security thereby consume roughly half of all federal discretionary dollars. Even more astonishing, annual U.S. military outlays now approximate those of all other nations, friends as well as foes, combined.
In Ike’s day, competition with the Soviet Union provided the rationale for such outsized expenditures. Today, with no remotely comparable competitor at hand, devotees of military metaphysics conjure a variety of arguments to justify the Pentagon’s budgetary demands. One such, usually made with an eye toward China, is that relentlessly outspending any and all would-be challengers to U.S. preeminence will dissuade them from even mounting an attempt. A second transforms modest threats into existential ones, with the mere existence of a Mahmoud Ahmadinejad or Osama bin Laden mandating extraordinary exertions until the United States eliminates every last such miscreant—a day that will never come.
The threat inflation that led to the bomber and missile “gaps” of the 1950s remains a cherished Washington tradition. In memos written after September 11, then–Defense Secretary Donald Rumsfeld urged his staff to “keep elevating the threat” and demanded “bumper sticker statements” to gin up public enthusiasm for the global war on terror. The key, he wrote, was to “make the American people realize they are surrounded in the world by violent extremists.” What worked during the Cold War still works today: to get Americans on board with your military policy, scare the hell out of them.
In the meantime, the revolving door connecting the world of soldiering to the world of arms purveyors continues to turn. For those at the top, the American military profession is that rare calling where retirement need not imply a reduced income. On the contrary: senior serving officers shed their uniforms not merely to take up golf or go fishing but with the reasonable expectation of raking in big money. In a recent e-mail, a serving officer who is a former student of mine reported that on a visit to the annual meeting of the Association of the United States Army—in his words, “the Sodom and Gomorrah of the Military Industrial Complex”—he was “accosted by two dozen former bosses, now in suits with fancy ties and business cards, hawking the latest defense technologies.”
If anything, Eisenhower’s characterization of the cozy relations between the military and corporate worlds understates the contemporary reality. C. Wright Mills came closer to the mark when he wrote of “a coalition of generals in the roles of corporation executives, of politicians masquerading as admirals, of corporation executives acting like politicians.” Add to that list the retired senior officers passing as pundits (often while simultaneously cashing the checks of weapons manufacturers), policy wonks pretending to be field marshals, and journalists eagerly competing to carry water for heroic field commanders. Throw in the former members of Congress who lobby their successors on behalf of defense contractors, and the serving members who vote in favor of any defense appropriations that send money to their districts, and one begins to get a sense of the true topography.
With what result? Not peace, and not prosperity. Instead, American soldiers traipse wearily from one conflict to the next while the nation as a whole suffers from acute economic distress. What has gone amiss?
In the wake of 9/11, when the George W. Bush administration committed the United States to a global war on terror, it was blithely confident that the U.S. military could win such a conflict handily. Events in Iraq and Afghanistan have since demolished such expectations. The irrefutable lesson of the past decade is this: we know how to start wars, but don’t know how to end them. During the well-armed Eisenhower era, American weapons were largely silent. Today, engagement in actual hostilities has become the new normal, exacting a steep price. The wars in Iraq and Afghanistan have cost at least $1 trillion—with the meter still running. Some observers estimate that total costs will eventually reach $2 trillion or even $3 trillion.
Furthermore, military Keynesianism has proved to be a bust. In contrast to the 1950s, military extravagance is depleting rather than adding to the nation’s wealth. In the Eisenhower era, the United States, a creditor nation, produced at home the essentials defining the American way of life—everything from oil to cars to televisions. Today, we import far more than we export, with ever-increasing debt as one result. Furthermore, in the 1950s, we were mostly at peace; today we are mostly at war—and, as a result, more of the resources provided to the military go abroad and stay there.
Certain enterprises flourish, notably private security firms such as DynCorp, MPRI, and, of course, the notorious Blackwater (now known as Xe). At MPRI, they like to say “We’ve got more generals per square foot here than in the Pentagon.” But even if those generals are doing fine, the grandchildren of Ozzie and Harriet, coping with 9.8 percent unemployment and contemplating the implications of trillion-dollar deficits, see little benefit from our exorbitant Pentagon outlays. If paying Pashtun drivers to truck fuel from Pakistan into Afghanistan is producing any positive economic side effects, the American worker is not among the beneficiaries.
In short, the guns-and-butter trade-off that Eisenhower foresaw in 1953 has become reality. To train, equip, and maintain one American soldier in Iraq or Afghanistan for just one year costs a cool million dollars. Meanwhile, according to 2010 census figures, the number of Americans falling below the poverty line has swollen to one in every seven.
Thanks to its allies and abettors, the military-industrial-legislative war complex remains stubbornly resistant to change—a fact President Barack Obama himself learned during his first year in office. While reviewing his administration’s policy in Afghanistan, the president repeatedly asked for a range of policy alternatives. He wanted choices. According to Bob Woodward of TheWashington Post, however, the Pentagon offered Obama a single path—the so-called McChrystal “surge” of additional troops. As recounted in Woodward’s book Obama’s Wars, the president complained: “So what’s my option? You’ve given me only one option.” The military’s own preferred option was all he was going to get. (Just months before, Woodward himself had helpfully promoted that very option, courtesy of a well-timed leak.)
No doubt Dwight Eisenhower would sympathize with President Obama, having himself struggled to exercise the prerogatives ostensibly reserved to the chief executive. Yet Ike would hardly be surprised. He would reserve his surprise—and his disappointment—for the American people. A half century after he summoned us to shoulder the responsibilities of citizenship, we still refuse to do so. In Washington, military metaphysics remains sacrosanct. No wonder we continue to get our pockets picked.
Sunday, January 16, 2011
Foreign Affairs: Sad View of Arab Potentates Controlled by the West
The brutal truth about Tunisia
Bloodshed, tears, but no democracy. Bloody turmoil won’t necessarily presage the dawn of democracy
By Robert Fisk, Middle East Correspondent
Published @ http://www.independent.co.uk/news/world/africa/the-brutal-truth-about-tunisia-2186287.html
The end of the age of dictators in the Arab world? Certainly they are shaking in their boots across the Middle East, the well-heeled sheiks and emirs, and the kings, including one very old one in Saudi Arabia and a young one in Jordan, and presidents – another very old one in Egypt and a young one in Syria – because Tunisia wasn't meant to happen. Food price riots in Algeria, too, and demonstrations against price increases in Amman. Not to mention scores more dead in Tunisia, whose own despot sought refuge in Riyadh – exactly the same city to which a man called Idi Amin once fled.
If it can happen in the holiday destination Tunisia, it can happen anywhere, can't it? It was feted by the West for its "stability" when Zine el-Abidine Ben Ali was in charge. The French and the Germans and the Brits, dare we mention this, always praised the dictator for being a "friend" of civilised Europe, keeping a firm hand on all those Islamists.
Tunisians won't forget this little history, even if we would like them to. The Arabs used to say that two-thirds of the entire Tunisian population – seven million out of 10 million, virtually the whole adult population – worked in one way or another for Mr Ben Ali's secret police. They must have been on the streets too, then, protesting at the man we loved until last week. But don't get too excited. Yes, Tunisian youths have used the internet to rally each other – in Algeria, too – and the demographic explosion of youth (born in the Eighties and Nineties with no jobs to go to after university) is on the streets. But the "unity" government is to be formed by Mohamed Ghannouchi, a satrap of Mr Ben Ali's for almost 20 years, a safe pair of hands who will have our interests – rather than his people's interests – at heart.
For I fear this is going to be the same old story. Yes, we would like a democracy in Tunisia – but not too much democracy. Remember how we wanted Algeria to have a democracy back in the early Nineties?
Then when it looked like the Islamists might win the second round of voting, we supported its military-backed government in suspending elections and crushing the Islamists and initiating a civil war in which 150,000 died.
No, in the Arab world, we want law and order and stability. Even in Hosni Mubarak's corrupt and corrupted Egypt, that's what we want. And we will get it.
The truth, of course, is that the Arab world is so dysfunctional, sclerotic, corrupt, humiliated and ruthless – and remember that Mr Ben Ali was calling Tunisian protesters "terrorists" only last week – and so totally incapable of any social or political progress, that the chances of a series of working democracies emerging from the chaos of the Middle East stand at around zero per cent.
The job of the Arab potentates will be what it has always been – to "manage" their people, to control them, to keep the lid on, to love the West and to hate Iran.
Indeed, what was Hillary Clinton doing last week as Tunisia burned? She was telling the corrupted princes of the Gulf that their job was to support sanctions against Iran, to confront the Islamic republic, to prepare for another strike against a Muslim state after the two catastrophes the United States and the UK have already inflicted in the region.
The Muslim world – at least, that bit of it between India and the Mediterranean – is a more than sorry mess. Iraq has a sort-of-government that is now a satrap of Iran, Hamid Karzai is no more than the mayor of Kabul, Pakistan stands on the edge of endless disaster, Egypt has just emerged from another fake election.
And Lebanon... Well, poor old Lebanon hasn't even got a government. Southern Sudan – if the elections are fair – might be a tiny candle, but don't bet on it.
It's the same old problem for us in the West. We mouth the word "democracy" and we are all for fair elections – providing the Arabs vote for whom we want them to vote for.
In Algeria 20 years ago, they didn't. In "Palestine" they didn't. And in Lebanon, because of the so-called Doha accord, they didn't. So we sanction them, threaten them and warn them about Iran and expect them to keep their mouths shut when Israel steals more Palestinian land for its colonies on the West Bank.
There was a fearful irony that the police theft of an ex-student's fruit produce – and his suicide in Tunis – should have started all this off, not least because Mr Ben Ali made a failed attempt to gather public support by visiting the dying youth in hospital.
For years, this wretched man had been talking about a "slow liberalising" of his country. But all dictators know they are in greatest danger when they start freeing their entrapped countrymen from their chains.
And the Arabs behaved accordingly. No sooner had Ben Ali flown off into exile than Arab newspapers which have been stroking his fur and polishing his shoes and receiving his money for so many years were vilifying the man. "Misrule", "corruption", "authoritarian reign", "a total lack of human rights", their journalists are saying now. Rarely have the words of the Lebanese poet Khalil Gibran sounded so painfully accurate: "Pity the nation that welcomes its new ruler with trumpetings, and farewells him with hootings, only to welcome another with trumpetings again." Mohamed Ghannouchi, perhaps?
Of course, everyone is lowering their prices now – or promising to. Cooking oil and bread are the staple of the masses. So prices will come down in Tunisia and Algeria and Egypt. But why should they be so high in the first place?
Algeria should be as rich as Saudi Arabia – it has the oil and gas – but it has one of the worst unemployment rates in the Middle East, no social security, no pensions, nothing for its people because its generals have salted their country's wealth away in Switzerland.
And police brutality. The torture chambers will keep going. We will maintain our good relations with the dictators. We will continue to arm their armies and tell them to seek peace with Israel.
And they will do what we want. Ben Ali has fled. The search is now on for a more pliable dictator in Tunisia – a "benevolent strongman" as the news agencies like to call these ghastly men.
And the shooting will go on – as it did yesterday in Tunisia – until "stability" has been restored.
No, on balance, I don't think the age of the Arab dictators is over. We will see to that.
Bloodshed, tears, but no democracy. Bloody turmoil won’t necessarily presage the dawn of democracy
By Robert Fisk, Middle East Correspondent
Published @ http://www.independent.co.uk/news/world/africa/the-brutal-truth-about-tunisia-2186287.html
The end of the age of dictators in the Arab world? Certainly they are shaking in their boots across the Middle East, the well-heeled sheiks and emirs, and the kings, including one very old one in Saudi Arabia and a young one in Jordan, and presidents – another very old one in Egypt and a young one in Syria – because Tunisia wasn't meant to happen. Food price riots in Algeria, too, and demonstrations against price increases in Amman. Not to mention scores more dead in Tunisia, whose own despot sought refuge in Riyadh – exactly the same city to which a man called Idi Amin once fled.
If it can happen in the holiday destination Tunisia, it can happen anywhere, can't it? It was feted by the West for its "stability" when Zine el-Abidine Ben Ali was in charge. The French and the Germans and the Brits, dare we mention this, always praised the dictator for being a "friend" of civilised Europe, keeping a firm hand on all those Islamists.
Tunisians won't forget this little history, even if we would like them to. The Arabs used to say that two-thirds of the entire Tunisian population – seven million out of 10 million, virtually the whole adult population – worked in one way or another for Mr Ben Ali's secret police. They must have been on the streets too, then, protesting at the man we loved until last week. But don't get too excited. Yes, Tunisian youths have used the internet to rally each other – in Algeria, too – and the demographic explosion of youth (born in the Eighties and Nineties with no jobs to go to after university) is on the streets. But the "unity" government is to be formed by Mohamed Ghannouchi, a satrap of Mr Ben Ali's for almost 20 years, a safe pair of hands who will have our interests – rather than his people's interests – at heart.
For I fear this is going to be the same old story. Yes, we would like a democracy in Tunisia – but not too much democracy. Remember how we wanted Algeria to have a democracy back in the early Nineties?
Then when it looked like the Islamists might win the second round of voting, we supported its military-backed government in suspending elections and crushing the Islamists and initiating a civil war in which 150,000 died.
No, in the Arab world, we want law and order and stability. Even in Hosni Mubarak's corrupt and corrupted Egypt, that's what we want. And we will get it.
The truth, of course, is that the Arab world is so dysfunctional, sclerotic, corrupt, humiliated and ruthless – and remember that Mr Ben Ali was calling Tunisian protesters "terrorists" only last week – and so totally incapable of any social or political progress, that the chances of a series of working democracies emerging from the chaos of the Middle East stand at around zero per cent.
The job of the Arab potentates will be what it has always been – to "manage" their people, to control them, to keep the lid on, to love the West and to hate Iran.
Indeed, what was Hillary Clinton doing last week as Tunisia burned? She was telling the corrupted princes of the Gulf that their job was to support sanctions against Iran, to confront the Islamic republic, to prepare for another strike against a Muslim state after the two catastrophes the United States and the UK have already inflicted in the region.
The Muslim world – at least, that bit of it between India and the Mediterranean – is a more than sorry mess. Iraq has a sort-of-government that is now a satrap of Iran, Hamid Karzai is no more than the mayor of Kabul, Pakistan stands on the edge of endless disaster, Egypt has just emerged from another fake election.
And Lebanon... Well, poor old Lebanon hasn't even got a government. Southern Sudan – if the elections are fair – might be a tiny candle, but don't bet on it.
It's the same old problem for us in the West. We mouth the word "democracy" and we are all for fair elections – providing the Arabs vote for whom we want them to vote for.
In Algeria 20 years ago, they didn't. In "Palestine" they didn't. And in Lebanon, because of the so-called Doha accord, they didn't. So we sanction them, threaten them and warn them about Iran and expect them to keep their mouths shut when Israel steals more Palestinian land for its colonies on the West Bank.
There was a fearful irony that the police theft of an ex-student's fruit produce – and his suicide in Tunis – should have started all this off, not least because Mr Ben Ali made a failed attempt to gather public support by visiting the dying youth in hospital.
For years, this wretched man had been talking about a "slow liberalising" of his country. But all dictators know they are in greatest danger when they start freeing their entrapped countrymen from their chains.
And the Arabs behaved accordingly. No sooner had Ben Ali flown off into exile than Arab newspapers which have been stroking his fur and polishing his shoes and receiving his money for so many years were vilifying the man. "Misrule", "corruption", "authoritarian reign", "a total lack of human rights", their journalists are saying now. Rarely have the words of the Lebanese poet Khalil Gibran sounded so painfully accurate: "Pity the nation that welcomes its new ruler with trumpetings, and farewells him with hootings, only to welcome another with trumpetings again." Mohamed Ghannouchi, perhaps?
Of course, everyone is lowering their prices now – or promising to. Cooking oil and bread are the staple of the masses. So prices will come down in Tunisia and Algeria and Egypt. But why should they be so high in the first place?
Algeria should be as rich as Saudi Arabia – it has the oil and gas – but it has one of the worst unemployment rates in the Middle East, no social security, no pensions, nothing for its people because its generals have salted their country's wealth away in Switzerland.
And police brutality. The torture chambers will keep going. We will maintain our good relations with the dictators. We will continue to arm their armies and tell them to seek peace with Israel.
And they will do what we want. Ben Ali has fled. The search is now on for a more pliable dictator in Tunisia – a "benevolent strongman" as the news agencies like to call these ghastly men.
And the shooting will go on – as it did yesterday in Tunisia – until "stability" has been restored.
No, on balance, I don't think the age of the Arab dictators is over. We will see to that.
Sunday, January 09, 2011
More Wisdom from Peter Schiff
Home Prices Are Still Too High: They would have to decline another 20% just to get back to the historical trend line.
By Peter D. Schiff
Wall Street Journal
online.wsj.com/article/SB10001424052702304173704575578190261574342.html
Most economists concede that a lasting general recovery is unlikely without a recovery in the housing market. A marked increase in defaults and foreclosures from today's already elevated levels could produce losses that overwhelm banks and trigger another, deeper financial crisis. Study after study has shown that defaults go up when falling prices put mortgage holders "underwater." As a result, the trajectory of home prices has tremendous economic significance.
Earlier this year market observers breathed easier when national prices stabilized. But the "robo-signing"-induced slowdown in the foreclosure market, the recent upward spike in home mortgage rates, and third quarter 2010 declines in the Standard & Poor's Case–Shiller home-price index—including very bad October numbers reported this week—have sparked concerns that a "double dip" in home prices is probable. A longer-term view of home price trends should sharply magnify this fear.
Even those economists worried about renewed price dips would be unlikely to believe that the vicious contractions of 2007 and 2008 (where prices fell about 30% nationally in just two years) could return. But they underestimate how distorted the market had become and how little it has since normalized.
By all accounts, the home price boom that began in January 1998, when the previous 1989 peak was finally surpassed, and topped out in June 2006 was extraordinary. The 173% gain in the Case-Shiller 10-City Index (the only monthly data metric that predates the year 2000) in those nine years averaged an eye-popping 19.2% per year. As we know now, those gains had very little to do with market fundamentals, and everything to do with distortionary government policies that set off a national mania for real-estate wealth and a torrent of temporarily easy credit.
If we assume the bubble was artificial, we can instead imagine that home prices should have followed a more traditional path during that time. In stock-market terms, prices should have followed a trend line. When you do these extrapolations (see lower line in the nearby chart), a sobering picture emerges. In his book "Irrational Exuberance," Yale economist Robert Shiller (co-creator of the Case-Shiller indices along with economists Karl Case and Allan Weiss), determined that in the 100 years between 1900 and 2000, home prices in the U.S. increased an average 3.35% per year, just a tad above the average rate of inflation. This period includes the Great Depression when home prices sank significantly, but it also includes the frothy postwar years of the 1950s and '60s, as well as the strong market of the early-to-mid 1980s, and the surge in the late '90s.
In January 1998 the 10-City Index was at 82.7. If home prices had followed the 3.35% annual 100 year trend line, then the index would have arrived at 126.7 in October 2010. This week, Case-Shiller announced that figure to be 159.0. This would suggest that the index would need to decline an additional 20.3% from current levels just to get back to the trend line.
How has the market found the strength to stop its descent? No one is making the case that fundamentals have improved. Instead, there is widespread agreement that government intervention stopped the free fall. The home buyer's tax credit, record low interest rates, government mortgage-assistance programs, and the increased presence of Fannie Mae, Freddie Mac and the Federal Housing Administration in the mortgage-buying business have, for now, put something of a floor under house prices. Without these artificial props, prices would have likely continued to fall.
Where would prices go if these props were removed? Given the current conditions in the real-estate market, with bloated inventories, 9.8% unemployment, a dysfunctional mortgage industry and shattered illusions of real-estate riches, does it makes sense that prices should simply fall back to the trend line? I would argue that they should overshoot on the downside.
With a bleak economic prospect stretching far out into the future, I feel that a 10% dip below the 100-year trend line is a reasonable expectation within the next five years, particularly if mortgage rates rise to more typical levels of 6%. That would put the index at 114.02, or prices 28.3% below where we are now. Even a 5% dip would put us at 120.36, or 24.32% below current prices. If rates stay low, price dips may be less severe, but inflation will be higher.
From my perspective, homes are still overvalued not just because of these long-term price trends, but from a sober analysis of the current economy. The country is overly indebted, savings-depleted and underemployed. Without government guarantees no private lenders would be active in the mortgage market, and without ridiculously low interest rates from the Federal Reserve any available credit would cost home buyers much more. These are not conditions that inspire confidence for a recovery in prices.
In trying to maintain artificial prices, government policies are keeping new buyers from entering the market, exposing taxpayers to untold trillions in liabilities and delaying a real recovery. We should recognize this reality and not pin our hopes on a return to price normalcy that never was that normal to begin with.
Mr. Schiff is president of Euro Pacific Capital and author of "How an Economy Grows and Why it Crashes" (Wiley, 2010).
By Peter D. Schiff
Wall Street Journal
online.wsj.com/article/SB10001424052702304173704575578190261574342.html
Most economists concede that a lasting general recovery is unlikely without a recovery in the housing market. A marked increase in defaults and foreclosures from today's already elevated levels could produce losses that overwhelm banks and trigger another, deeper financial crisis. Study after study has shown that defaults go up when falling prices put mortgage holders "underwater." As a result, the trajectory of home prices has tremendous economic significance.
Earlier this year market observers breathed easier when national prices stabilized. But the "robo-signing"-induced slowdown in the foreclosure market, the recent upward spike in home mortgage rates, and third quarter 2010 declines in the Standard & Poor's Case–Shiller home-price index—including very bad October numbers reported this week—have sparked concerns that a "double dip" in home prices is probable. A longer-term view of home price trends should sharply magnify this fear.
Even those economists worried about renewed price dips would be unlikely to believe that the vicious contractions of 2007 and 2008 (where prices fell about 30% nationally in just two years) could return. But they underestimate how distorted the market had become and how little it has since normalized.
By all accounts, the home price boom that began in January 1998, when the previous 1989 peak was finally surpassed, and topped out in June 2006 was extraordinary. The 173% gain in the Case-Shiller 10-City Index (the only monthly data metric that predates the year 2000) in those nine years averaged an eye-popping 19.2% per year. As we know now, those gains had very little to do with market fundamentals, and everything to do with distortionary government policies that set off a national mania for real-estate wealth and a torrent of temporarily easy credit.
If we assume the bubble was artificial, we can instead imagine that home prices should have followed a more traditional path during that time. In stock-market terms, prices should have followed a trend line. When you do these extrapolations (see lower line in the nearby chart), a sobering picture emerges. In his book "Irrational Exuberance," Yale economist Robert Shiller (co-creator of the Case-Shiller indices along with economists Karl Case and Allan Weiss), determined that in the 100 years between 1900 and 2000, home prices in the U.S. increased an average 3.35% per year, just a tad above the average rate of inflation. This period includes the Great Depression when home prices sank significantly, but it also includes the frothy postwar years of the 1950s and '60s, as well as the strong market of the early-to-mid 1980s, and the surge in the late '90s.
In January 1998 the 10-City Index was at 82.7. If home prices had followed the 3.35% annual 100 year trend line, then the index would have arrived at 126.7 in October 2010. This week, Case-Shiller announced that figure to be 159.0. This would suggest that the index would need to decline an additional 20.3% from current levels just to get back to the trend line.
How has the market found the strength to stop its descent? No one is making the case that fundamentals have improved. Instead, there is widespread agreement that government intervention stopped the free fall. The home buyer's tax credit, record low interest rates, government mortgage-assistance programs, and the increased presence of Fannie Mae, Freddie Mac and the Federal Housing Administration in the mortgage-buying business have, for now, put something of a floor under house prices. Without these artificial props, prices would have likely continued to fall.
Where would prices go if these props were removed? Given the current conditions in the real-estate market, with bloated inventories, 9.8% unemployment, a dysfunctional mortgage industry and shattered illusions of real-estate riches, does it makes sense that prices should simply fall back to the trend line? I would argue that they should overshoot on the downside.
With a bleak economic prospect stretching far out into the future, I feel that a 10% dip below the 100-year trend line is a reasonable expectation within the next five years, particularly if mortgage rates rise to more typical levels of 6%. That would put the index at 114.02, or prices 28.3% below where we are now. Even a 5% dip would put us at 120.36, or 24.32% below current prices. If rates stay low, price dips may be less severe, but inflation will be higher.
From my perspective, homes are still overvalued not just because of these long-term price trends, but from a sober analysis of the current economy. The country is overly indebted, savings-depleted and underemployed. Without government guarantees no private lenders would be active in the mortgage market, and without ridiculously low interest rates from the Federal Reserve any available credit would cost home buyers much more. These are not conditions that inspire confidence for a recovery in prices.
In trying to maintain artificial prices, government policies are keeping new buyers from entering the market, exposing taxpayers to untold trillions in liabilities and delaying a real recovery. We should recognize this reality and not pin our hopes on a return to price normalcy that never was that normal to begin with.
Mr. Schiff is president of Euro Pacific Capital and author of "How an Economy Grows and Why it Crashes" (Wiley, 2010).
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