Bad News Is Better Than No News

We need to know what's mucking up the financial system.

By L. GORDON CROVITZ

We're now more than $1 trillion in taxpayer bailouts into the credit crisis, and the one enduring certainty is uncertainty. There is uncertainty about what caused the problem, uncertainty that either Wall Street or Washington knows what to do, and uncertainty about financial models that measured risk until they didn't. Markets thrive when information flows freely, and they seize up when uncertainty replaces understanding.

Stefan Rousseau/PA

So we should cheer a growing consensus that it's time to address the information gaps that caused the financial mess. The best-known unknown is the continuing mystery of the true value of the bad mortgage-backed and other assets held by banks whose collapse sparked the credit crisis. Addressing this basic issue was the original purpose last fall of the $700 billion government bailout program, but the Troubled Asset Relief Program didn't live up to its name, leaving the size of toxic debts unquantified.

Plan B is to go back to Plan A. Regulators urge using new bailout funds to return to the original goal of discovering the true value of these securities. "A continuing barrier to private investment in financial institutions is the large quantity of troubled, hard-to-value assets that remain on institutions' balance sheets," Federal Reserve Chairman Ben Bernanke said in a London speech earlier this month. "The presence of these assets significantly increases uncertainty about the underlying value of these institutions and may inhibit both new private investment and new lending."

Banks can't resume lending because they don't know how unsound they are. Private investors can't know how bad bank debt is, so they hesitate to invest in banks. There are echoes from the experience in Japan, where the collapse of a real-estate bubble in the 1980s became a drag on the economy for years as regulators put off the day of reckoning of the full losses.

Former Federal Reserve Chairman Paul Volcker suggests an updated version of the Resolution Trust Corp., which forced the bad savings-and-loan debts to be marked to market in the 1980s. Other ideas include creating a "bad bank" supported by the government to aggregate bad debt. Precisely how the bad debt is to be isolated is less important than the implied commitment finally to assess the value of houses, credit-card loans and other debt.

Achieving this price discovery is hard, but it is only half the battle. Before banks can get back on their feet and start lending again, financial professionals need more confidence that they know what went wrong and how to avoid more mispricing of risk.

Here, too, there is reason for optimism. Wall Street has been asking itself: Were its financial models fundamentally flawed, or did flawed financial professionals misuse the models? Take the example of the metric that banks use to manage their risk, or so they thought. Value at Risk calculations were developed in the early 1990s at J.P. Morgan to measure the different kinds of financial risk using a single measure. Banks analyzed historical data to understand the relative riskiness of a $50 million investment in three-year Treasurys versus 30-year Treasurys, or even a $50 million investment in Japanese yen versus 1,000 barrels of oil.

Bankers now recall the fine print of VaR analysis, which is that it always includes low but real risk that some new element could make the historical data a poor measure of the future. The late Dennis Weatherstone, the J.P. Morgan chairman who led this initiative, used to remind his team that the math of VaR alone could not measure risk in the outlying parts of the bell curve of probabilities. "The reason we pay as much as we do to traders is to manage the risk in the tails of the distribution," derivatives expert Mark Brickell, a former J.P. Morgan managing director, quotes Weatherstone as saying. "That's the hard part. For events inside the tails, it is not so difficult nor so remunerative."

It's now clear that the data that banks used were distorted by years of government initiatives to promote homeownership. Government-mandated loans led house prices ever higher and house-price volatility ever lower. When the VaR models looked back, they wrongly modeled a low risk of default. Wall Street shouldn't make the mistake again of ignoring the impact of politics on economics -- and politicians should find ways to achieve social goals without undermining the integrity of markets.

We've had credit crises before, but as this column has reminisced, a century ago J.P. Morgan was able to resolve the Panic of 1907 simply by gathering all the key bankers in his home library and forcing them to measure and accept their losses. Like all credit crises, the sooner ours is resolved, the sooner we can learn its lessons, take our losses, and move on. Tough as this process of discovering the full losses will be on shareholders and taxpayers, the alternative of continued uncertainty and market paralysis is even worse.

The Stimulus Time Machine

That $355 billion in spending isn't about the economy.

The stimulus bill currently steaming through Congress looks like a legislative freight train, but given last week's analysis by the Congressional Budget Office, it is more accurate to think of it as a time machine. That may be the only way to explain how spending on public works in 2011 and beyond will help the economy today.

According to Congressional Budget Office estimates, a mere $26 billion of the House stimulus bill's $355 billion in new spending would actually be spent in the current fiscal year, and just $110 billion would be spent by the end of 2010. This is highly embarrassing given that Congress's justification for passing this bill so urgently is to help the economy right now, if not sooner.

And the red Congressional faces must be very red indeed, because CBO's analysis has since vanished into thin air after having been posted early last week on the Appropriations Committee Web site. Officially, the committee says this is because the estimates have been superseded as the legislation has moved through committee. No doubt.

David Obey.

In addition to suppressing the CBO analysis, Democrats have derided it. Appropriations Chairman David Obey (D., Wis.) called it "off the wall," never mind that CBO is now run by Democrats. Mr. Obey also suggested that it would be a mistake to debate the stimulus "until the cows come home." We'd settle for a month or two, so at least the voters can inspect the various Congressional cattle they're buying with that $355 billion.

The stimulus bill is also a time machine in the sense that it's based on an old, and largely discredited, economic theory. As Harvard economist Robert Barro pointed out on these pages last Thursday, the "stimulus" claim is based on something called the Keynesian "multiplier," which is that each $1 of spending the government "injects" into the economy yields 1.5 times that in greater output. There's little evidence to support this theory, but you have to admire its beauty because it assumes the government can create wealth out of thin air. If it were true, the government should spend $10 trillion and we'd all live in paradise.

The problem is that the money for this spending boom has to come from somewhere, which means it is removed from the private sector as higher taxes or borrowing. For every $1 the government "injects," it must take $1 away from someone else -- either in taxes or by issuing a bond. In either case this leaves $1 less available for private investment or consumption. Mr. Barro wrote about this way back in 1974 in his classic article, "Are Government Bonds Net Wealth?", in the Journal of Political Economy. Larry Summers and Paul Krugman must have missed it.

The government spending will be a net stimulus only if its $1 goes to more productive purposes than those to which private investors would have put that same $1. There are some ways we may want the government to spend money -- on national defense, say -- but that doesn't mean it's a stimulus.

A similar analysis applies to the tax cuts that are part of President Obama's proposal. In contrast to the spending, at least the tax cuts will take effect immediately. But the problem is that Mr. Obama wants them to be temporary, which means taxpayers realize they will see no permanent increase in their after-tax incomes. Not being fools, Americans may either save or spend the money but they aren't likely to change their behavior in ways that will spur growth. For Exhibit A, consider the failure of last February's tax rebate stimulus, which was a bipartisan production of George W. Bush and Mr. Summers, who is now advising Mr. Obama.

To be genuinely stimulating, tax cuts need to be immediate, permanent and on the "margin," meaning that they apply to the next dollar of income that an individual or business earns. This was the principle behind the Kennedy tax cuts of 1964, as well as the Reagan tax cuts of 1981, which finally took full effect on January 1, 1983.

If the Obama Democrats can't abide this because it's a "tax cut for the rich," as an alternative they could slash the corporate tax to spur business incentives. The revenue cost of eliminating the corporate tax wouldn't be any more than their proposed $355 billion in new spending, and we guarantee its "multiplier" effects on growth would be far greater. Research by Mr. Obama's own White House chief economist, Christina Romer, has shown that every $1 in tax cuts can increase output by as much as $3.

As for all of that new spending, CBO will release an updated analysis this week. And we anticipate that the budget analysts will in the interim have discovered that much more of that $355 billion will somehow find its way to "shovel-ready" projects that the Obama Administration can start building before the crocuses bloom. But in the real world, the CBO's first estimate is likely to prove closer to the truth.

The spending portion of the stimulus, in short, isn't really about the economy. It's about promoting long-time Democratic policy goals, such as subsidizing health care for the middle class and promoting alternative energy. The "stimulus" is merely the mother of all political excuses to pack as much of this spending agenda as possible into a single bill when Mr. Obama is at his political zenith.

Apart from the inevitable waste, the Democrats are taking a big political gamble here. Congress and Mr. Obama are promoting this stimulus as the key to economic revival. Americans who know nothing about multipliers or neo-Keynesians expect it to work. The Federal Reserve is pushing trillions of dollars of monetary stimulus into the economy, and perhaps that along with a better bank rescue strategy will make the difference. But if spring and then summer arrive, and the economy is still in recession, Americans are going to start asking what they bought for that $355 billion.

Lincoln's Memo to Obama
by Ronald C. White Jr.

A distinguished Lincoln biographer imagines what advice the 16th president would offer the 44th as he takes office.

Illinois senator Everett Dirksen observed 50 years ago, “The first task of every politician is to get right with Lincoln.” As the inauguration of President Barack Obama converges with the beginning of the Abraham Lincoln Bicentennial, it is intriguing to think about what Lincoln might say across the years to the new president. In recent election campaigns many politicians, both Republicans and Democrats, have tried to associate themselves with Lincoln. President Obama has moved far beyond the invocation of Lincoln’s words to patterning his political spirit after his 19th-century model. Again and again Obama has buttressed his vision for America by beginning, “As Lincoln said. . . .”

Nearly 150 years after his assassination Lincoln continues to captivate us because he eludes our simple definitions and final judgments. Lincoln endured critics who libeled him as “the Black Republican,” “the original gorilla,” and “the dictator.” Obama is rapidly picking up his own libels—Rush Limbaugh has called him “The Messiah” and National Review labeled him “Our Memoirist in Chief.” Pundits always want to apply the conservative/liberal grid to politicians, but these political labels could not define Lincoln, nor can they confine Obama.

I believe Lincoln would begin by offering his own “Yes we can” to the election of America’s first African-American president. Lincoln, the homely westerner with less than one year of formal education, was surprised by his nomination and election as president in 1860. Four years later, when he had become convinced he could not be reelected, he told the men of the 168th Ohio Regiment, “I happen temporarily to occupy this big White House.” He said to the soldiers, “I am a living witness that any one of your children may look to come here as my father’s child has.” How like Lincoln to speak of himself as “my father’s child.” How like Obama to say on the eve of his victory, “If there is anyone out there who still doubts that America is a place where all things are possible . . . tonight is your answer.” In a world of “I,” both leaders pointed beyond themselves to the larger truth of the American “we.”

Lincoln would especially encourage Obama to use his public speeches as a key to his political leadership as president. Our most eloquent president would be distressed to hear the modern shibboleth, “It’s only words.” Lincoln, thinking of the role his speeches and public s desk on the third floor of his brother-in-law’s office building. In the White House, quite accessible to visitors, he often found time to write very early in the morning in his office (what is now the Lincoln Bedroom). He would write either at the large walnut table in the middle of the room where he convened cabinet meetings, or at an old mahogany writing desk with pigeonholes. Sometimes he would rise and ponder what to write as he gazed out the window at the unfinished Washington Monument.

The private Lincoln might offer some advice to the private Obama. Lincoln generated a running intellectual conversation with himself by developing the habit of writing down his ideas on little slips of paper or on the backs of envelopes. He stored these notes either in his tall silk hat or in the bottom drawer of his desk, ready to be retrieved to serve as the foundations of his finest speeches. Perhaps Obama already does something similar with his ever present Blackberry, and if, as reports suggest, he will have to give up this 21st-century technology in the White House, he could do worse than take up Lincoln’s old-fashioned pen and paper.

And what about speechwriters? Lincoln would not understand this modern phenomenon that probably began with FDR but has now become a full-time occupation, with a phalanx of writers backed up by even more researchers. Lincoln would advise Obama to write his own speeches, or at least the major ones.

Lincoln’s renown for compelling oratory has obscured the story of how much of his eloquence was the product of hard editing and rewriting. He might tell Obama the surprising story of his own first inaugural. As he worked on the speech, he showed it to a few Illinois friends who made but one significant suggestion. Arriving in Washington, he decided to give a copy to a new colleague who was not yet a friend: William Seward, the New York senator who had been his chief rival for the Republican nomination and would now be his secretary of state. Lincoln was surely surprised when Seward responded with six pages of suggestions. Seward, who fancied himself a great speaker, told Lincoln to throw out his last paragraph. He offered the president-elect two possible replacements. Lincoln demonstrated his brilliance by editing Seward’s words to make them his own. We know this memorable paragraph by the words Lincoln revised to make it read like poetry:

Lincoln might also offer his counsel to President Obama on integrity and ambition.

Lincoln’s moral integrity was the strong trunk from which all the branches of his life grew. His integrity had many roots, including his intimate knowledge of the Bible, the Declaration of Independence, and the Constitution. He may not have read Aristotle’s Treatise on Rhetoric, but he embodied the ancient Greek philosopher’s conviction that persuasive speech is rooted in ethos, or integrity. Lincoln would advise contemporary politicians that the American public knows when they are acting out a political role and when they are speaking with integrity, or what people now call authenticity.

Lincoln wrote candidly of his “peculiar ambition” in his first announcement for public office, in 1832. Barely 23, he offered a definition of ambition worth passing on: “that of being truly esteemed by my fellow men, by rendering myself worthy of their esteem.” Over the years, Lincoln learned to prune the strong branch of personal ambition so that it did not grow out of proportion to his service to others. The biting satire the young Lincoln occasionally dispensed gave way over time to the magnanimity he expressed in the closing benediction of his second inaugural address: “With malice toward none, with charity for all.”

The 16th president would counsel Obama to resist the growing demands to act quickly in response to the admittedly dire crises facing the nation in 2009. During the long interregnum between his election and his inauguration on March 4, 1861, Lincoln found himself under tremendous pressure to declare his policies on the growing Southern secession movement. The pressure only increased when he embarked on a 12-day train trip from Springfield to Washington in February 1861, which allowed him to speak to far more Americans than any previous president. And they expected to hear answers from him.

Lincoln would probably tell Obama that he too had been accused of being distant in the face of pressing political problems. As president, Lincoln emerged as a leader who kept his own counsel. Members of his own party accused him of neither convening nor consulting his cabinet enough.

I think Lincoln might offer a word of caution as President Obama puts in place several layers of economic and national security advisers in today’s admittedly more complex administrative structure. On the one hand, Lincoln would applaud Obama for emulating what he did—surround himself with strong leaders who would provide differing points of view. On the other hand, Lincoln might offer a gentle warning that Obama has appointed far more cooks than he did in the White House kitchen, which could end up spoiling his recipes for change.

With historical imagination, I can envision Lincoln putting his arm around Obama when offering this advice: Be comfortable with ambiguity. On a blue state/red state map, too often the question becomes, Are you for it or against it—gun control, abortion, immigration reform? Ambiguity is too often seen as a weakness, an inability to decide. Not so for Lincoln. Ambiguity became for him the capacity to look at all sides of a problem. Ideologues are the persons who lack the capacity to see complexity in difficult issues. Lincoln voiced this ambiguity in a private memo to himself that was found only after his death. As he pondered the meaning and action of God in the Civil War, he wrote, “I am almost ready to say this is probably true—that God wills this contest, and wills that it shall not end yet.” At the very moment that Lincoln, in private, offered the affirmation that God willed this ongoing war, he did so by admitting the partiality of his vision—“almost” and “probably.” Ambiguity is the mark of humility, not weakness. The question for the next four or eight years will be whether the American public can appreciate a president whose political autobiography, The Audacity of Hope, is filled with self-deprecating stories of his partial vision and even conflicting viewpoints.

Finally, Lincoln might have a heart-to-heart talk with Obama about the role of faith in politics. Lincoln, who never wore his faith on his sleeve, who did not formally join a church, has left us in his second inaugural address the most profound speech combining politics and religion ever delivered to the American public. In only 701 words, the second shortest inaugural address (George Washington delivered a second inaugural of only 134 words), Lincoln mentions God 14 times, quotes the Bible four times, and invokes prayer three times. Today, what the public may remember most about candidate Obama’s religion is his painful distancing of himself from his former pastor and congregation during the 2008 campaign. What the American public needs to know is in his thoughtful discussion of faith in The Audacity of Hope. If the Bill of Rights codifies the separation of church and state, Obama affirms that Americans, “as a religious people,” have never divided politics and religion. He couples the story of his own journey from skepticism to “embrace the Christian faith” with his admonition “to acknowledge the power of faith in the lives of the American people.” Obama says that part of the magnetism of the Christian faith that attracted him was the power of the African-American religious tradition to minister to the whole person and be an advocate for social justice.

Lincoln, in his second inaugural address, used inclusive language—“Both read the same Bible, and pray to the same God”—to appeal to his entire audience, North and South. He would commend Obama’s intention, in our increasingly multicultural and multireligious nation, to make his case for the religious and moral values that are the historical foundation of our society in order “to engage all persons of faith in the larger project of American renewal.”

At the end of a compelling discussion of the Constitution in The Audacity of Hope, Obama exclaims, “I am left then with Lincoln.” The remarkable tether between Lincoln and Obama, suddenly in such plain view in recent months, is not an end but a beginning. For many Americans, Lincoln, however appreciated before, has at the outset of a new presidency moved from there and then to here and now. He has become strangely contemporary. Obama, at the beginning of the Abraham Lincoln Bicentennial, reminds us that whenever contemporary Americans try to trace an idea or truth about our national identity, we will find Lincoln’s initials—AL—carved on some tree, for he was there before us.

CHE GUEVARA

CHE is Steven Soderbergh’s feature film about the Argentine-Cuban revolutionary, starring Benicio del Toro. The director and producers traveled to Cuba to work on the film with WPI Senior Fellow Silvana Paternostro, who is an Associate Producer on the films, and former WPI Director Stephen Schlesinger (see the CNN video). They both can be seen briefly on screen. Go see the film and see if you can spot them.

Rioting Eastern Europe

Major riots in Latvia, Lithuania and Bulgaria are spurred by the global financial crisis and declining standards of living, Jeremy Druker writes for ISN Security Watch.

By Jeremy Druker in Prague

Not one, but three anti-government riots took place in Eastern Europe last week. But with all eyes fixated on the conflict in Gaza and the inauguration of the new US president, the world’s attention was elsewhere - even though these violent demonstrations could very well be a worrying harbinger of things to come later this year.

Most media typically interpreted the events in Bulgaria, Latvia and Lithuania as simply responses to the global financial crisis and the unpopular policies that governments have been forced to adopt to escape economic meltdown. Case closed.

Yet, contrary to what editorial writers in the US and Western Europe might believe, large-scale demonstrations do not take place in the “wild” East very often, and certainly not those that degenerate into violence, attacks on government buildings and looting. This is a big deal, but how big? And if these are really economically motivated disturbances, why exactly now?

First in Latvia, then in Bulgaria and finally in Lithuania, riots began as peaceful demonstrations before getting out of hand. In Riga on 13 January, an estimated 10,000 people gathered in the country’s largest demonstration since independence in 1991 to demand that the government, blamed for being corrupt and incompetent, step down. As the protest began to peter out, around 100 demonstrators tried to storm the parliament, leading to clashes with riot police who fought back with tear gas and truncheons. Rioters smashed the windows of some local businesses, as well as the Finance Ministry, and looted a liquor store.

In Sofia, on 14 January, around 2,000 demonstrators, including university students, ecological activists and farmers, called on the government to resign over its failure to implement economic reforms and rid the country of endemic corruption. A group of young men started throwing snowballs, bottles and stones at police, and then vandalized cars and shops: the worst riot since 1997, when mass demonstrations finished off a notoriously incompetent socialist government.

Two days later, on 16 January, in copycat style, very similar events took place in Lithuania. Up to 7,000 protested against tax hikes and cuts in spending, with a violent subgroup attacking the parliament building, causing an estimated half million euros in damage.

Latvia is perhaps the most disturbing example of the three, because, until recently, the country was the fastest-growing in the EU, a place where the average wage doubled over the past three years. Governments did rise and fall rather often, but economic stability in this small Baltic nation seemed virtually guaranteed and the country well on its way to prosperous times and the living standards of nearby Scandinavia.

Now the economy is expected to contract 5 percent this year, and unemployment rose a full percentage point in December, to 7 percent. The government was forced to seek a €7.5 billion (US$ 9.7 billion) bailout from the International Monetary Fund and the EU.

“There was a sense of elation about the rapid GDP growth that was not just a number but real money in people's pockets. People got used to that,” said Iveta Kazoka, a policy analyst at the Centre for Public Policy Providus in Riga. “Then the future seemed even brighter. People were taking mortgages with very clear expectations that their wages would continue to increase just as fast.”

Kazoka told ISN Security Watch that Latvians were still willing to tolerate the foibles of the political elite - the arrogance of their leaders and clear cases of corruption - as long as most people continued to prosper. The approval ratings of politicians remained relatively high and, if there were demonstrations, it was more the intellectual elite taking part than ordinary Latvians.

The warning signs started to appear in the winter of 2007-2008, as inflation soared to 20 percent. Yet wage increases still compensated for rising prices.

The situation shifted last fall, as the economic situation spiraled downward. “From then on one could sense lots of people getting really angry - due to wage cuts, unemployment and so on,” said Kazoka, explaining the reasons so many people turned out for the 13 January demonstration.

“Where it not for these hardships, I'm quite sure that the majority of those people would still be willing to tolerate the government - even being very aware of its corruption or arrogance. Now, when the money is not as easy, more people are bothered about the fairness of its distribution and political patronage.”

While economic hardship may have been the determining factor for many of the demonstrators in Latvia and Lithuania (in Bulgaria less so, as students, a main protest group, were disgruntled over safety issues in the student quarter), the protests have provided a window of opportunity for troublemakers.

“Most of the people arrested n Latvia for throwing stones and fighting with the police are young toughs with previous citations for disorderly conduct,” says Pauls Raudseps, editorial page editor of the Latvian daily newspaper Diena. “It's doubtful that they got involved for any other reasons than a generalized sense of anomie and a concrete opportunity to have fun by causing some havoc.

“Right now in Eastern Europe popular dissatisfaction with government policies seems to have emboldened them, loosening the unspoken restrictions on attacks on authority,” added Raudseps.

In other words, the economic situation in itself might be unlikely to lead to the overthrow of governments in Central and Eastern Europe, but declining standards of living will tend to refocus attention on the deficiencies of the region’s political leadership. And, in the majority of countries now facing financial distress, deficiencies are not hard to come by.

Jeremy Druker is executive director, editor-in-chief and one of the founders of Transitions Online.

Peacemakers at War?

by Daniel W. Drezner

So far, one of the Barack Obama’s most impressive qualities has been his ability to get talented advisors to accept positions lower than their prior government position. On the economic front, former–Treasury Secretary Larry Summers is now the chair of the National Economic Council (NEC). Former NEC Chair Gene Sperling will be a counselor to incoming Treasury Secretary Tim Geithner. Former Fed Chairman Paul Volcker will now head the new Economic Recovery Advisory Board.

In foreign policy, the situation is slightly different—Obama has convinced policymakers to accept positions lower than their prior expectations. This starts at the top. Hillary Clinton is now secretary of state, but I vaguely recall that around this time last year, she was seeking an even higher office. Susan Rice, Greg Craig and James Steinberg were all rumored to be the next National Security Advisor. Instead, Rice will be UN ambassador, Craig will be White House counsel, and Steinberg will be one of two deputy secretaries of state.

Last year, both Richard Holbrooke and George Mitchell were tagged as potential secretaries of state in a Democratic administration. Instead, yesterday it was announced that both men would be special envoys—Holbrooke for Afghanistan and Pakistan, and Mitchell for the Middle East. Thwarted ambition can drive high-powered individuals to even greater heights. These appointments clearly signal a commitment by the new administration of more aggressive investments in diplomacy. It also raises an awkward question—will it work?

There are reasons to be hopeful. Holbrooke and Mitchell have distinguished résumés, particularly in conflict-ridden societies. Holbrooke was a prime mover behind the Dayton Accords that ended the bloodshed in former Yugoslavia. Mitchell was a chief architect of the Good Friday Agreement that helped ease the Troubles in Northern Ireland and has prior experience on the Israel/Palestine question. Both regions are chock-full of intractable conflicts—they would seem perfect for obsessive-compulsive special envoys.

With luck, it might work. But it is worth recognizing the pitfalls of this strategy. As Politico’s Ben Smith puts it, “Who’s in Charge?” Special envoys tend to add further frictions to longstanding bureaucratic battles. They tend to bigfoot undersecretaries and assistant secretaries of state who would normally have the lead in their policy bailiwicks. There are rumors aplenty of fierce battles within Foggy Bottom between the special envoys and undersecretaries for coveted offices on the seventh floor (where Clinton will be). As Daniel Markey points out, foreign policy for south Asia has been a “toxic mix of turf battles.” Holbrooke is simply another bureaucratic entrepreneur (one opposed by the Indians, by the way). The Obama administration is already having difficulties finding someone who would agree to serve as assistant secretary of state for south Asia. This is because, to put it gently, the transaction costs of dealing with Holbrooke can be high. Similarly, the relationship between Mitchell and Dennis Ross, who has been touted to be a “super-envoy” for the Middle East, remains unclear.

There is one, final, sobering thought. The person who will be directing this great game of diplomatic egos will be Hillary Clinton. Although she has many strengths, administration was never thought to be one of them. Her two biggest organizational responsibilities to date were her 1994 health care initiative and her 2008 presidential campaign. Backbiting, dysfunction and eventual failure marked both initiatives. One can only hope that these tropes do not migrate to Foggy Bottom.

Daniel W. Drezner, a senior editor at The National Interest, is a professor of international politics at the Fletcher School of Law and Diplomacy at Tufts University.

Crazy like a fox

By Eurasia Group analysts Geoff Porter and Willis Sparks

When one of the world's most colorful autocrats says or does something that seems irrational, it's tempting to dismiss him as "erratic"-even as a madman. Libyan leader Col. Muammar al-Qaddafi loves to spring surprises, but he's not irrational, and he's certainly not crazy. Take, for example, his recent threat to "nationalize" foreign oil companies now operating in Libya.

Two Qaddafi-controlled state-run newspapers recently began floating the idea, a plan that would be catastrophic for foreign companies facing state expropriation of assets. In a speech delivered live via satellite to students in Washington last Wednesday (Jan. 21), Qaddafi brought the issue to a full boil by broaching the subject directly.

Some analysts dismiss the idea (and Qaddafi) as silly and irrational. It's true that nationalization of oil assets would undermine the Libyan government's oil revenue, especially over the longer term. Plans to expand oil production to 3 million barrels per day by 2012 would have to be postponed, because Libya has neither the technology nor the technical expertise to make it happen.

When oil prices reached $147 per barrel last July, it made sense for those with crude in the ground to squeeze foreign companies bidding for access to it. Now that prices have fallen to about $45 per barrel, even Venezuelan President Hugo Chavez, one of the very few world leaders who can match Qaddafi's bombast and his hostility toward foreign oil companies, is trying to attract them rather than to force them out.

Yet, Qaddafi's actions are entirely rational when put in a political (rather than an economic) context. There are three possible explanations for his latest threats.

First, Qaddafi may well be looking for an attention-grabbing way to cast himself yet again as ultimate champion of the Libyan people and guardian of the national interest-particularly given the approach of the 40th anniversary of his rule in September. Qaddafi hasn't outlasted every other autocrat in the world (save Gabon's Omar Bongo) by keeping a low profile.

Just last year, Qaddafi advanced a plan to completely dismantle the government and distribute hydrocarbon revenue directly to the population. This idea met with unprecedented public opposition and has since stalled in the committee charged with figuring out how to implement it. It's unlikely to happen-since governments rarely put themselves out of business-and Qaddafi is determined to put forward another plan that burnishes his nationalist credentials.

Second, though Qaddafi is a dictator, he must continually reinforce his position by mollifying powerful vested interests and keeping threats to his rule at bay. Nationalizing the assets of foreign oil companies will appeal to the Revolutionary Committees Movement, a powerful organization dedicated to safeguarding the ideals of Libya's revolution -- and Qaddafi's ability to protect the privileges and position of its members. The Movement feels threatened by the emergence of reformists and technocrats into positions of power within the government. The nationalization proposal sends a signal that the leader hasn't abandoned his most loyal supporters, encouraging them to continue the work of bolstering his rule.

Third, Qaddafi may believe that threats of nationalization will strengthen the Libyan government's leverage ahead of the renegotiation of oil contracts with some foreign oil companies. Over the past year, Libya earned an extra $5.4 billion dollars in additional oil revenue by renegotiating four production contracts. But the sharp drop in oil prices has weakened the government's hand. Qaddafi may be calculating that credible threats of nationalization may restore his government's negotiating clout.

In any country as opaque as Libya (there aren't many) and in which so much power rests in the hands of a single individual, it's always dangerous to forecast policy choices.

That said, a decision by Qaddafi to seize the assets of foreign oil companies would certainly be shortsighted. But the threat to nationalize is probably shrewd. That's why, despite Qaddafi's apparent passion for the idea, nationalization is unlikely to happen.

When Secretary of State Hillary Clinton -- flanked by President Obama -- introduced Richard Holbrooke as the formidable new U.S. envoy to South Asia at a State Department ceremony on Thursday, India was noticeably absent from his title.

Holbrooke, the veteran negotiator of the Dayton accords and sharp-elbowed foreign policy hand who has long advised Clinton, was officially named "special representative for Afghanistan and Pakistan" in what was meant to be one of the signature foreign policy acts of Obama's first week in office.

But the omission of India from his title, and from Clinton's official remarks introducing the new diplomatic push in the region was no accident -- not to mention a sharp departure from Obama's own previously stated approach of engaging India, as well as Pakistan and Afghanistan, in a regional dialogue. Multiple sources told The Cable that India vigorously -- and successfully -- lobbied the Obama transition team to make sure that neither India nor Kashmir was included in Holbrooke's official brief.

"When the Indian government learned Holbrooke was going to do [Pakistan]-India, they swung into action and lobbied to have India excluded from his purview," relayed one source. "And they succeeded. Holbrooke's account officially does not include India."

To many Washington South Asia experts, the decision to not include India or Kashmir in the official Terms of Reference of Holbrooke's mandate was not just appropriate, but absolutely necessary. Given India's fierce, decades-long resistance to any internationalization of the Kashmir dispute, to have done so would have been a non-starter for India, and guaranteed failure before the envoy mission had begun, several suggested.

"Leaving India out of the title actually opens up [Holbrooke's] freedom to talk to them," argued Philip Zelikow, a former counselor to Secretary of State Condoleezza Rice who served until December as a consultant for a lobbying firm, BGR, retained by the Indian Government.

But to others -- including Obama himself, who proposed a special envoy to deal with Kashmir during the campaign -- the region's security challenges cannot be solved without including India. Obama told Time's Joe Klein, that working with Pakistan and India to try to resolve their Kashmir conflict would be a critical task for his administration's efforts to try to counter growing instability in Afghanistan and Pakistan. "Kashmir in particular is an interesting situation where that is obviously a potential tar pit diplomatically," Obama told Klein. "But, for us to devote serious diplomatic resources to get a special envoy in there, to figure out a plausible approach, and essentially make the argument to the Indians, you guys are on the brink of being an economic superpower, why do you want to keep on messing with this? ... I think there is a moment where potentially we could get their attention. It won't be easy, but it's important." Obama also suggested in the interview that he had discussed the special envoy idea with former President Bill Clinton.

Whatever the case, the evidence that India was able to successfully lobby the Obama transition in the weeks before it took office to ensure Holbrooke's mission left them and Kashmir out is testament to both the sensitivity of the issue to India as well as the prowess and sophistication of its Washington political and lobbying operation.

"The Indians freaked out at talk of Bill Clinton being an envoy to Kashmir," said Daniel Markey, a South Asia expert at the Council on Foreign Relations. "The reason they were so worried is they don't want their activities in Kashmir to be equated with what Pakistan is doing in Afghanistan."

"They [India] are the big fish [in the region]," Markey added. "They don't want to be grouped with the 'problem children' in the region, on Kashmir, on nuclear issues. They have a fairly effective lobbying machine. They have taken a lot of notes on the Israel model, and they have gotten better. But you don't want to overstate it. Some of the lobbying effort is obvious, done through companies, but a lot of it is direct government to government contact, people talking to each other. The Indian government and those around the Indian government made clear through a variety of channels because of the Clinton rumors and they came out to quickly shoot that down."

Once Holbrooke's name was floated, the Indian lobbying campaign became even more intense. "The Indians do not like Holbrooke because he has been very good on Pakistan... and has a very good feel for the place" said one former U.S. official on condition of anonymity. "The Indians have this town down."

Initially, when Obama's plans for a corps of special envoys became public after the election, The Cable was told, the idea was for a senior diplomat to tackle the Kashmir dispute as part of the South Asia envoy portfolio and whose mandate would include India. But soon after the election and Holbrooke's name began to appear, the Indians approached key transition officials to make clear that while they could not affect what the new administration did with respect to envoys, that they would expect no mediation on the Kashmir issue.

"I have suggested to others, though not directly to Dick [Holbrooke], that his title should not/not include India, precisely so that he would be freer to work with them," Zelikow said. "If you understand Indian politics, this paradox makes sense."

"I did nothing for the [Government of India] on this," Zelikow added. The Indian government "talked directly to folks on the [Obama] transition team and I heard about it from my Indian friends. I think Holbrooke needs to talk to the Indians. But they are trying, understandably, to break out of being in a hyphenated relationship with America (i.e., comprehended on a mental map called India-Pakistan)."

Other sources said India's hired lobbyists were deployed to shape the contours of the U.S. diplomatic mission. According to lobbying records filed with the Department of Justice, since 2005, the government of India has paid BGR about $2.5 million. BGR officials who currently work on the Indian account, who according to lobbying records include former Sen. Chuck Hagel aide Andrew Parasiliti, former U.S. State Department counterproliferation official Stephen Rademaker, former Bush I and Reagan era White House aide and BGR partner Ed Rogers, and former House Foreign Affairs committee staffer Walker Roberts, did not respond to messages left Friday by Foreign Policy. Former U.S. ambassador to India Robert Blackwill, who previously served as a lobbyist for India, left BGR in 2008 for the Rand Corporation. In addition, the Indian embassy in Washington has paid lobbying firm Patton Boggs $291,665 under a six-month contract that took effect Aug. 18, according to lobbying records.

"BGR has been a registered lobbyist for the Indian government since 2005," noted one Senate staffer on condition of anonymity. "The Indian government retained BGR for the primary purpose of pushing through the Congress the civil nuclear cooperation agreement between the United States and India - hence the strategic hires of Bob Blackwill, the former U.S. Ambassador to India, and Walker Roberts, a senior staffer on the House Foreign Affairs Committee responsible for vetting past such agreements. BGR continues to actively lobby on behalf of the Indian government - their lobbyists sought to influence a recent Senate resolution on the Mumbai attacks. So I would be very surprised if BGR were NOT involved here."

(For its part, Pakistan has spent about $1,175,000, on lobbying during the past year, including on trade issues. That includes Dewey and LeBoeuf's work for the Ministry of Commerce, and Locke Lord's work for the Embassy of Pakistan and the Pakistan International Airlines Corp, according to lobbying records.)

It's not clear to experts and officials interviewed exactly who in the Obama transition team was contacted as part of the Indian lobbying effort. The White House did not respond to queries.

Asked about the decision to exclude India from the special envoy's official mandate, former NSC and CIA official Bruce Riedel, who served as the senior lead of the team advising the Obama campaign on South Asian issues, said by e-mail, "When Senator Clinton originally proposed the envoy idea in her campaign it was only for Afghanistan and Pakistan." He didn't respond to a further query questioning why Clinton's campaign comments on the issue mattered as much as Obama's, since, obviously, it was Obama who won the presidency and ultimately appointed her to carry out his foreign policy as the Obama administration's top diplomat.

UPDATE: An administration official responded that the transition met with no foreign governments and no representatives of foreign governments, pursuant to a policy laid out by the then President-Elect. He further said that it was never the intent for the South Asian envoy portfolio to include an Indian role.

Neoconservatism in a New Era By Nick Rogers

Low on political prowess and out of ideological fashion, neoconservatives would appear to have little to be merry about as 2008 ends.

Soon after 9/11, neoconservative foreign policy—geared toward retaining America’s global preeminence and pushing Mideast policies in line with the Israeli right wing—morphed from written words to administrative actions under President George W. Bush. Today, the neocon agenda heavily bears blame for an Iraq War that many, including some neoconservatives, consider a failure.

From this November’s elections, the Republican Party (with which most neoconservatives are affiliated) emerged with: a shrinking congressional minority; a presidential-race loss to Barack Obama, a Democrat who campaigned against eight years of neoconservative ideas; and spats between presidential candidate Sen. John McCain (R-AZ) and vice-presidential candidate Gov. Sarah Palin that divided many right-wing pundits, including neoconservatives. 1

One might think that the last thing to make neoconservatives grin would be Obama’s Cabinet appointments. But some of the president-elect’s choices have been “enough to keep some of us [Republicans] smiling at a time when we were expecting to be in deep anguish,” as one columnist giddily declared in a National Review column entitled “Pinch Me, Am I Dreaming?” 2

The National Review is a traditional right-wing weekly that largely supported neoconservative foreign policy ideas during the Bush presidency (particularly in the publications of its few core neocon writers like erstwhile National Review blogger David Frum). Its editors backhandedly endorsed Obama’s appointment of Sen. Hillary Rodham Clinton (D-NY), Obama’s presidential-primary rival, to secretary of state—dubbing the choice “as good a pick as could have been expected.” 3

Although not a neoconservative Democrat, Clinton is a longtime member of the Democratic Leadership Council, a so-called centrist group. Co-founder Will Marshall and former co-chair Sen. Joseph Lieberman, the Independent Democrat from Connecticut, have both been at the forefront of efforts to promote neoconservative foreign policies among Democrats. Clinton has taken a number of hawkish foreign policy stances, particularly on Iran. 4

Also praised by the National Review was the choice of four-star Marine Gen. James Jones as national security advisor and the retention of sitting Defense Secretary Robert Gates. Gates, who succeeded Donald Rumsfeld as defense secretary in 2006, stated at his confirmation hearings that America was neither winning nor losing the Iraq War. 5

In 1999, Jones received the “Keeper of the Flame” award from the Center for Security Policy, 6 a think-tank run by the neoconservative Frank Gaffney that promotes U.S. global preeminence and a Likud Party line on Mideast peace. Pundit/writer Michael Ledeen, of the nominally nonpartisan but neoconservative-leaning Foundation for Defense of Democracies, called Jones “almost unbearably delightful” after meeting him. 7

While Obama’s campaign touted a timetable to remove troops from Iraq in 16 months, the National Review has said, “It’s hard to believe that this team will oversee a precipitous withdrawal from Iraq.” 8

If neoconservatives don’t have a seat at Obama’s table, they’re still seated at a booth within earshot.

“[Neoconservatives] have access to much of the Democratic foreign policy establishment because the neocons have not been sufficiently discredited,” says Daniel Levy, a senior fellow at the New America Foundation and the Century Foundation, two nonprofit, nonpartisan public-policy institutions. 9

“I think that in the Democratic foreign policy establishment, you’d find more aversion to being identified as, or collaborating with, the antiwar left than with neocons,” Levy says. “That’s an argument that’s going to have to go on inside Obama’s foreign policy world.… If they do not sufficiently expunge the neoconservative worldview, then it’s not going to be an easy journey.

“A lot of the arguments neoconservatives make are still deep in the DNA and discourse of how a lot of people look at these issues.”

Among moderates who have aligned with neoconservatives—and one who has a voice with Obama—is Dennis Ross.

Ross has been an advisor to the president-elect on Middle East policy. Previously, he served as director for policy planning in the State Department under George W. Bush and as the special Middle East coordinator under President Bill Clinton. He has been a key figure in shaping U.S. involvement in the Middle East peace process and attempting to settle the Israel-Palestine conflict.

Ross also has twice aligned himself with the Project for the New American Century (PNAC)—a mostly defunct neoconservative group founded in 1997 by Weekly Standard cofounder William Kristol and dedicated to promoting U.S. global leadership and an expansive, long-term “war on terror.”

Ross signed a 2003 PNAC statement about post-war Iraq that argued America’s involvement there should be the model for a larger reshaping of the Middle East’s political landscape. 10 During congressional testimony in 2007, Ross criticized the Bush administration’s implementation of, but not ideology behind, Iraq strategy. 11

It’s unclear what role, if any, Ross might play in Obama’s administration, as his name has not yet been included on any public short list for any remaining Cabinet posts. 12 Recent press reports, however, have claimed that he is a top candidate to serve as special envoy to the Middle East. 13

Levy says it’s also too early to know how forcefully an Obama White House might shut out neoconservatives. What’s clearer is that a new neoconservative agenda is taking a broad shape—both similar to, and drastically different from, previous plans.

Joshua Muravchik is a leading neoconservative writer and a resident scholar at the American Enterprise Institute (AEI), a conservative think-tank that counts several prominent neoconservatives among its ranks. He also served on the State Department’s Advisory Committee on Democracy Promotion under Condoleezza Rice.

Muravchik’s primary suggestion to move forward: a postmortem on Iraq.

“Neoconservatives are very strongly identified with the war in Iraq, and justifiably so,” Muravchik says. 14

On September 20, 2001, numerous neoconservatives signed a PNAC letter issued to Bush that recommended a number of actions in the “war on terror,” including: ousting Saddam Hussein in Iraq “even if evidence does not link Iraq directly to the (9/11) attack”; and a “large increase” in defense spending. (Muravchik was a signatory to other PNAC statements, but not this particular letter.)

“It is true that the success or failure of the policy reflects on [neoconservatives],” Muravchik says. “And since the policy was, to a considerable extent, a failure … we need to take that onboard unvarnished and try to see what we’ll all figure out—what mistakes we may have made or how we need to refine our views to account for the lessons of Iraq.”

Levy believes the rightist school of interventionist, preemptive foreign policy was “cowered and dejected” by the U.S. experience in Iraq, so many members are gravitating toward Obama’s views.

“That’s good news in terms of that those voices are listened to in an Obama administration,” Levy says. “On the other hand, those voices are likely to play an even less-prominent role in the Republican debate over what went wrong and what comes next.”

Levy says GOP reconstruction should be of paramount importance to neoconservatives, regardless of whether the party courts anti-intellectual, right-wing populists—to whom vice-presidential candidate Palin strongly appealed.

“I think [neoconservatives are] deeply cynical,” Levy says. “There were very important dissenting voices. It will really be a question of looking at where power lies and finding that way back into power.”

However interventionist approaches or predominant-party politics are redefined, changing the regime in Iran remains a critical mission of the neoconservative faction.

In 2006, Muravchik wrote, “Make no mistake, President Bush will need to bomb Iran’s nuclear facilities before leaving office.” 15 Today, he says there are some in Obama’s camp “who appreciate the seriousness of the [Iran] problem and the unlikelihood that it will be solved by talk.” 16

“A cardinal neocon idea embraced by Bush was to promote democracy in the Middle East. I believe that this is still an entirely valid idea … and it’s also not an idea that belongs only to neocons,” Muravchik says. “Liberals and others embraced it. We … all need to do some intellectual work on how to do it better, and more effectively, than has been done.”

Successful democratic revolution in Iran also is Ledeen’s preferred outcome. Considered one of the most influential people consulted by Karl Rove, Bush’s former deputy chief of staff, Ledeen often saw his ideas become policy or rhetoric.

“There is no escape from the war with Iran, which has been waged against us for nearly 30 years,” Ledeen says. 17 “Whatever the catalyst, whether it’s a nuclear test or some Iranian action against us and/or our allies, we will eventually have to fight back.

“I have long argued against the use of military power, preferring to support democratic revolution in Iran. But that has not happened, and I fear that we will—sooner rather than later—have to face the [French President Nicolas] Sarkozy dilemma: Iran with the bomb or ‘bomb Iran.’”

Levy says Iran, Israel, reshaping the Middle East, and the “war on terror” all are “given” topics of neoconservative concern.

One contingency for future neoconservative involvement in those areas is the respective success of the Likud and Bharatiya Janata (BJP) political parties in Israel and India. The BJP believes India should remain vigilant against conflicts with Pakistan, China, Bangladesh, and Sri Lanka, while the Likud charter emphasizes the Jewish right of settlement in Gaza and the West Bank. 18

Another component to pursuing deeply embedded issues, Levy says, is how neoconservatives might travel new routes to circuitously revisit them.

“They aren’t stupid,” Levy says. “They know how to cynically deploy themselves across several issues.”

James Woolsey is a neoconservative Democrat and signatory of a 1998 PNAC letter to President Bill Clinton advocating an interventionist ousting of Hussein. In 2007, Woolsey called U.S. dependence on foreign oil a “very high” national security concern, 19 which could be seen as dovetailing with neoconservative interventionism. 20 Ledeen also cites “energy independence” as a key component. 21

Another new frontier of neoconservative territory, Muravchik and Ledeen suggest, is the U.S. economy—now officially designated by the National Bureau of Economic Research as being in recession.

Muravchik says the domestic aspects of neoconservatism largely concern social issues. On economic policy, Muravchik says AEI often is aligned with thoughts of traditional conservatives or libertarians.

“Now, it seems as if the libertarian idea that the best regulation is the least regulation has really been challenged by events,” Muravchik says. “I think it does require everyone who’s to the right of center to come up with something more nuanced than that libertarian view.”

While Obama has made quick work to assemble his Cabinet, his inauguration still is weeks away. Quite simply, it’s too soon to speculate specifics for neoconservatives. Plus, one never can predict how things will turn out; in early 2001, the faction didn’t feel it would get far. As William Kristol has said, “[W]e didn’t have great hopes for Bush as a foreign policy president.” 22

“It’s driven by events,” Muravchik says of influencing political policy. “Once 9/11 came, the Bush administration was really open to new thinking because the whole scene changed in terms of the challenges it faced. Events will surely unfold under the Obama administration that we’re not foreseeing.”

Nick Rogers is a freelance reporter based in Lafayette, Indiana, and a contributor to PRA’s Right Web (http://rightweb.irc-online.org/).

Losing Pakistan’s Hearts and Minds—and the “War on Terror”

By Najum Mushtaq and Qurat-ul-Ain Sadozai

As far as foreign policy failures go, the Bush administration’s tack on Pakistan is shaping up to be a doozy of a flop. The very objectives of the “war on terror” are being undermined by the situation on the ground and by Pakistan’s increasingly violent internal conflict—responsibility for which can be laid squarely at the doorstep of the Bush administration.

Washington has adopted a dual policy of strengthening Pakistan’s military capabilities through a flow of aid money, hardware and equipment, and personnel training. But at the same time it is lending this support, it has been at cross-purposes with the Pakistani Army, exchanging fire with its troops in September and conducting a Special Operations raid inside Pakistani tribal areas. Pakistani citizens, pushed toward despair by the clashes between their army and the resurgent Taliban forces, are increasingly turning against the already tenuous U.S.-Pakistani alliance. The plight of the average Pakistani may seem a distant worry to strategists in Washington, but it is far from inconsequential, because without the hearts and minds of the population, Washington stands no chance of winning its war on terror on any front.

Life in Tribal Terror Theater

The source of the two missiles that on a Sunday morning in August during morning prayers struck Zaman Khan’s house in Bajaur, in the hilly Federally Administered Tribal Areas (FATA) of Pakistan near the Afghan border, remains unknown. It could have been one of the American drones flying in from nearby Afghan airspace. Or perhaps the missiles were shot from one of the Pakistan Air Force F-16s that, according to U.S. Principal Deputy Secretary for South Asia Donald Camp, flew 93 sorties in August in operations against the Taliban.1

Zaman Khan is neither a Taliban adherent nor a member of al Qaeda, but rather an innocent civilian caught in the crosshairs of conflict. A government driver in Islamabad, Khan was not home when his family house was reduced to rubble; unfortunately, most of his family was home. Three members died in the missile strike while the survivors—including Khan’s aging parents and his young sisters and brothers—were forced to walk for two days through the barren, craggy terrain before reaching Miramshah, a town in the adjoining tribal area of Waziristan. A local elder paid for their journey to Islamabad, where they joined Zaman in his two-room government housing.

To Khan, it matters little who is responsible for the aerial strikes. “I see no difference between an American air strike and a Pakistani F-16 attack,” he said in August. “What I know is that my family members have died and the survivors went through a traumatic, degrading experience. And there is no justice for this crime against us.”2

A little-reported fact in the United States is the profound and devastating effect the war on terror is having on a growing number of Pakistani citizens. The Human Rights Commission of Pakistan (HCRP) estimates a total of 800,000 have had to flee from various battlegrounds in the war on terror.3 But unlike Zaman Khan’s family, many of them have nowhere to go and live in squalid camps with no water, susceptible to cholera and other diseases; the U.N. resident coordinator is seeking $55 million to cover the needs of 423,000 of them living in camps; government officials call it the worst displacement crisis in Pakistan’s history.4 In early October, the New York Times reported, “An estimated 250,000 people have now fled the helicopters, jets, artillery and mortar fire of the Pakistani Army, and the assaults, intimidation and rough justice of the Taliban who have dug into Pakistan’s tribal areas. About 20,000 people are so desperate that they have flooded over the border from the Bajaur tribal area to seek safety in Afghanistan.”5

Understandably, many Pakistanis are angry. And part of this anger is directed at the United States, Pakistan’s supposed partner in the war on terror. The objective of the war on terror is to eliminate terrorists and prevent new recruits to the causes of al Qaeda and the Taliban. But the civilian casualties and large-scale displacement are likely to spur the opposite. As Asma Jahangir, HCRP chair, said recently, “There is no gainsaying the fact that hardship caused to non-combatant population and perception of use of disproportionate force, which targets militants and civilians alike, will create more problems than it solves.”6

In one of the camps for internally displaced people at a school near Dera Ismail Khan, Mohammed Naeem despairs that the tribal people are being targeted from three sides: Pakistani Air Force and Army troops conducting operations against the Taliban and foreign fighters; U.S. and NATO forces in Afghanistan fighting, sometimes haphazardly, Taliban and other insurgents; and, if they don’t support the Taliban, by local warlords.

“But for the tribal people, the source of all evil is President [George W.] Bush, under whose pressure the Pakistani Army has had to fight against its own people,” says Naeem, who was a schoolteacher before he was displaced by the fighting.7

Alienating Allies

On the one hand, the Bush administration wants Congress to approve more resources to further strengthen Pakistan’s air and ground offensive capability to kill terrorists and control the situation. On the other, U.S. ground and air forces have been authorized by Bush since May to take unilateral action inside Pakistani territory.8

In response, a top Pakistani general said that Pakistan troops—who are financed in part by the United States—were to “open fire” on their U.S. counterparts, should U.S. troops carry out cross-border actions, though this comment was taken as mere posturing to appease an increasingly restive public.9 Few in Pakistan believe that the army—an institution that has received billions in U.S. military aid since 2001—either means to or has the will to strike back at its main benefactor.

The Human Rights Commission of Pakistan summed up the public mood: “Attacks in the tribal areas, the killing of civilians and violation of Pakistan's territorial sovereignty by the US-led coalition forces … [are] followed by stereotyped official protests by Islamabad, threats of 'befitting replies', and the occasional summoning of the US envoy to the Foreign Office. Such gestures achieve little, nor do they convince the people of the government's keenness to protect innocent lives or to assert its sovereignty.”10 Jahangir reiterated the plight of the whole nation, saying, “The Council is deeply worried that an increase in the incidents of terrorism and the devastation caused by them and the spread of militancy have blocked the country's way to progress and the entire population seems to have been taken hostage.”11

Against this backdrop of widespread human suffering, which alienates the general public and fuels the already simmering anti-American sentiments, the war on terror provides a pretext and conditions conducive for religious extremists to spread their message and step up their attacks. Suicide bombings, unheard of in Pakistan before the U.S. invasion of Afghanistan in 2001, are now a regular occurrence. Official and public insensitivity—or, perhaps, lack of awareness—in the United States to the deaths of unknown numbers and displacement of hundreds of thousands of Pakistani people reinforces the image of a purblind America.

Conflicting Perceptions

Also at play is a dangerous, and rarely discussed, difference in military goals of the two shaky partners. Washington wants Pakistan to focus its energies on targeting terrorist hideouts in the tribal belt, but historically, that objective is at vast odds with the Pakistani people and soldiery’s view of the purpose of their country’s military. Pakistan’s military defenses are built mainly to counter the perceived threat from India. That rationale is behind heavy defense spending and the building of a nuclear weapons program. The enemy in Pakistan’s military wargames is the historically hostile neighbor to the east—not its own people in the tribal areas.

It is this inherent gap in the two sides’ rationale for military cooperation that has engendered the current atmosphere of mistrust. It also means that despite a policy change by the Musharraf-led military top brass in 2001, abandoning the Taliban and rekindling the alliance with the United States, the Pakistani forces did not have the required motivation and military expertise to fight a civil war-like conflict in the FATA.

As a result, U.S. forces are now engaged directly in regular operations in the conflict zone inside Pakistan, in addition to their engagements in Afghanistan and Iraq. The disastrous consequences of rushing into a country Washington has officially designated as a military ally for decades are already clear. Confusion has already sparked U.S.-Pakistan shoot-outs,12 and in the heat of things, it could lead to worse clashes. And the suffering of the Pakistani populace cannot continue to be ignored by U.S. officials.

This debacle will surely put the newly elected government in Pakistan to a severe test. Domestic political compulsions will dictate a tough, rhetorical, anti-American stance, even if the military is in no position to stop U.S. air strikes and ground operations. Opposition parties led by former prime minister Nawaz Sharif are already urging a reevaluation of Pakistan’s alliance with United States and adopting other means of fighting terrorism. And without Musharraf, the Pakistani military, now free of the constraints of a direct role in politics, might start to rethink the rules of alignment with the United States.

Najum Mushtaq is a writer based in Nairobi, Kenya, and a contributor to PRA’s Right Web (http://rightweb.irc-online.org/); Qurat-ul-Ain Sadozai is a Pakistani-Canadian aid worker.

The Economic Crisis: Will Money Trump Ideology?

By Eli Clifton

Less than a half-year ago, casino magnate Sheldon Adelson, the deep pockets of groups like Birthright Israel and the neoconservative-led Freedom’s Watch, was seen as one of the most formidable funders of the hawkish Right. But the global financial crisis, legal entanglements, apparent political disagreements, and tension between Adelson’s business model and some of his erstwhile political allies have all combined to blunt the magnate’s political impact. The result could be that some of the groups that are dear to neoconservatives and other rightist factions in the United States could soon find themselves looking for a new benefactor.

“Organizations, such as Freedom's Watch, maintain their ability to influence public opinion through expensive purchases of commercials on television networks and in print media,” says Jim Lobe, a reporter for the Inter Press Service who has closely tracked Adelson’s influence in U.S. politics. “If the funding for these campaigns dries up, the relevance and influence of Freedom's Watch will be severely diminished.”

Adelson, CEO of the Las Vegas Sands Corp., has seen his net worth plummet over the last year. As Forbes reported in September, “The biggest loser this year was casino mogul Sheldon Adelson, whose fortune has fallen $13 billion in the past 12 months—$1.5 million per hour—as shares of his Las Vegas Sands have dropped 75% from their all-time highs last October.”1 And from August 29 to October 1, Adelson’s worth dropped $4 billion—“the steepest drop among Americans who lost $1 billion or more during the credit crisis.”2 Those numbers, of course, came before the stock market crashed earlier this month. As Forbes.com quipped, “Rough year for Sin City’s richest man.”3

With shares in his casino empire plunging 65 percent, Adelson could cut back on his charitable giving. In fact, he announced in September he would do just that. “On September 9, billionaire casino mogul Sheldon Adelson announced that he was reducing his donations to Birthright Israel in 2009 and 2010, respectively, to $20 million and $10 million, after giving $70 million over the previous two years,” reported the Forward.4 Perhaps most noteworthy about the funding reduction is that it represents a turnabout in Adelson’s stated commitments; he had pledged in 2007 that “he and his wife would give at least $30M a year [to Birthright Israel] for as long as is needed,” according to an article posted on the website of the Adelson Family Foundation.5 Birthright Israel pays for young Jewish people from around the world to visit Israel for 10 days. As the Forward noted, “Adelson’s reduction in his gift will have a direct impact on the 18-to-26-year-old Jews who are Birthright’s target audience. Trips cost roughly $3,000 per participant, meaning that unless the organization raises other funds, it will lose the ability to fund more than 3,300 trips in 2009, and nearly 6,700 trips in 2010.”6

The diminished circumstances of the gambling mogul could well impact the fortunes of neoconservatives and other hawks reliant on his funding. Adelson is deeply connected to Israel’s Likud Party, a hawkish faction that generally opposes a two-state solution to the Israel-Palestinian conflict and has found much support in the neoconservative community. He has given considerable funding to the Zionist Organization of America and to the American Israel Public Affairs Committee (though he cut off his funding for the group after it endorsed the Annapolis peace talks). Another of Adelson’s pet projects has been funding the Adelson Institute of Strategic Studies at Jerusalem’s Shalem Center. The institute, chaired by former Likud Party member Natan Sharansky, was founded in 2006 with Adelson’s financial backing. In January 2008, it co-organized the Herzliya Conference on Israel’s national security; influential and well-connected speakers and panelists included Dick Cheney’s former Middle East advisor David Wurmser; Ben Wattenberg of the American Enterprise Institute; Steve Emerson; former U.S. ambassador to the United Nations John Bolton; and neoconservative figurehead Norman Podhoretz, among many others.7 And in 2007, the institute co-sponsored the Democracy and Security Conference in Prague, which the Adelsons attended. Participants included George W. Bush, Sen. Joe Lieberman, Richard Perle, Bruce Jackson, Michael Novak, and others with neoconservative links.8 With Adelson’s own funds now seriously diminished, it would not be surprising if he were unable to fund the institute to the degree he had in the past. This could put a dent, however small, in the ability of like-minded neoconservatives and foreign policy hawks to gather and conduct their business.

Through their charitable foundation, Sheldon Adelson and his wife, Miriam, enabled the establishment in 2007 of Freedom’s Watch, a lobbying group on whose board Sheldon Adelson also sits. While the Adelson Institute of Strategic Studies has played a key role in projecting the magnate’s Zionist- and Likud-oriented policies in Israel and Europe, Freedom’s Watch is in some way’s a platform for Adelson’s right-wing political beliefs within the United States. Freedom’s Watch was conceived in March 2007 as an offshoot of the Florida Republican Jewish Coalition, of which Adelson is a longtime member. The stated mission of Freedom’s Watch is to “support mainstream conservative public policies,”9 and the group’s lobbying and campaign contributions have reflected the staunchly pro-Iraq War and pro-Likud leanings of its most generous patron, Adelson.

But since early 2008, there has been friction at the group, much of it reportedly due to differences in goals between Adelson, the primary funder, and the group. As the New York Times reported in April, “Mr. Adelson has insisted on parceling out his money project by project, as opposed to setting an overall budget, limiting the group’s ability to plan and be nimble, the Republican operatives said. Mr. Adelson, who has a reputation for being combative, has rejected almost all of the staff’s proposals that have been brought to him, leaving the organization moribund for long stretches, the operatives said.”10 Speculation over the internal discord at Freedom’s Watch includes conjecture that Adelson might be hesitant to contribute to projects that would advocate or endorse the presidential campaign of Sen. John McCain (R-AZ), whose foreign policy toward China is notably hostile.11 Macau, where Adelson is pursuing a costly new casino development, is a tiny region of China—the only region in the Communist nation where gambling is legalized—that represents the potential for huge profits for Adelson.

Adelson’s business doings in China have earned him the ire of some on the religious Right, with whom Adelson has frequently joined forces to lobby for Likud-aligned policies on Israeli-Palestinian negotiations.12 After Freedom’s Watch released an ad in September 2008 criticizing Bobby Bright, conservative Democratic mayor of Montgomery, Alabama, the head of Alabama’s Christian Coalition, Randy Brinson, said in a statement, "Where Adelson has placed his treasure makes it quite clear where his heart is: in gambling and in backing the regime in China that persecutes Christians.” Referring in part to convicted lobbyist Jack Abramoff, Brinson added, "We're tired of the Abramoffs and Adelsons of this world using their ill-gotten gains to try to buy elections and influence."13

Adelson isn’t the only donor who is faced with tough choices as the current economic crisis worsens. Another key donor of Freedom’s Watch, investor Paul Singer, whose company “had minor exposure to the collapse of Lehman Brothers,” according to the Washington Post, has begun pulling back. “One Freedom's Watch adviser familiar with appeals to Singer said efforts to enlist his eleventh-hour support have gone unanswered. ‘Understandably,’ said the adviser, who spoke on the condition of anonymity because discussions with donors are confidential. ‘The guy's got a business to worry about.’”14

In the final analysis, with megadonors like Adelson returning their attention to worrying about their businesses, the influence of the groups they once supported could well decline. And the tiny fissures that have appeared in the Right, like that between Freedom’s Watch and the Christian Coalition, might eventually become large chasms.

Credit Is Too Tight, Except When It's Too Loose

Don Boudreaux

Below (and here) is a letter that I sent this morning to the Washington Post. Can anyone tell me why more people don't pick up on this obvious inconsistency?

Treasury Secretary nominee Timothy Geithner sides with those who worry, as you put it, that "Beijing has kept its currency artificially low to keep the prices of its goods cheap and generate trade surpluses. That has led to a global capital imbalance, as American consumers borrowed and spent and China became the United States' largest foreign creditor" ("Geithner Says China Manipulates Its Currency," January 23). And he threatens to act "aggressively" to stop this alleged wrongdoing.

Overlook the reality that the only way Beijing can push the price of the yuan lower is through inflation or other policies that weaken the Chinese economy. Instead ask: why should the Obama administration be so upset by Beijing pumping easy credit into markets at a time when this same administration is deeply worried that credit has become too tight?

Sincerely,
Donald J. Boudreaux

The Sunday Morning Talk Shows: The Review

Posted by Mark Kilmer

On FNS, John McCain actually criticized Obama’s”close Gitmo in a year “policy” by suggesting John Boehner’s you got to know the logistics first” angle.

On TW. Nancy whispered sweet nothings in George Stephanopoulos’s Gregory’s ears. For his part, Steph was taken aback by how important she is.

On MTP, Larry Summers was almost clueless.

On FTN, Bob Schieffer reacted to Larry Summer’s argument that all government spending is a form if stimulus with silence.

JOHN MCCAIN ON FOX NEWS SUNDAY. Host Chris Wallace’s first guest on FOX News Sunday was John McCain, who postured that his failed Senate run would give him more posture to be proactive in the U.D. Senate. For the upcoming Obama stimulus spending package, McCain well we should eliminate excess spending.

McCain criticized Obama’s stance on Gitmo, pointing out that you ought not to announce freedom for the inmates before you’ve decided what do with them.

And he announced that he had “no regret over Sarah Palin. As if she damaged the campaign in actually view or any but the lefties and the self-appointed GOP attention seekers.

NANCY ON ABC’s THIS WEEK. Steph introduced Speaker Nancy Pelosi as the “most popular woman in Washington.” She angered, “We need more women [in politics].” (Sorry, Nancy, but Ned failed miserably against Lieberman in Connecticut a few years back.)

LARRY SUMMERS ON MTP. David Gregory’s first guest on NBC’s Meet the Press was a man seen by Obama as decidedly less fit to handle the office o Treasury Secretary as the tax cheat Tim Geithner, Larry Summers. Summers said that his job was to brief the President every morning on how bad the economy he has inherited is.

Obama will address the problem of earmarks without doling out earmarks to his Congressional cronies.

Gregory confronted Summers with the observation that there was very little genuine stimulus in Obama’s package. Summers responded, basically, that any type of government spending stimulus.

JOHN BOEHNER ON MTP. For the Republicans, John Boehner spoke. Boehner said that there was a lot of slow-moving governor spending which will not work. The American people, he said, want a rescue package that works. He spoke of the Republican stimulus plan, which was pretty solid, market-wise.

Earlier, he spoke to Clinton.

JOE BIDEN ON FACE THE NATION. From Wilmington, Vice President Joe Biden was host Bob Schieffer’s guest, his 53rd on such show. Schieffer estimated that Biden was following the most powerful vice President in history. Biden said that he only wanted to be the “last guy in the room when a president makes an important decision.

Joe Biden stated confidently that more American soldiers will die in Iraq than lately under President Bush. He promised that he will remain talkative and outspoken, but he will have to remember that he is not president.

JOHN MCCAIN ON FOX NEWS SUNDAY. Host Chris Wallace’s first guest on FOX News Sunday was John McCain, who postured that his failed Senate run would give him more posture to be proactive in the U.D. Senate. For the upcoming Obama stimulus spending package, McCain well we should eliminate excess spending.

McCain criticized Obama’s stance on Gitmo, pointing out that you ought not to announce freedom for the inmates before you’ve decided what do with them.

And he announced that he had “no regret over Sarah Palin. As if she damaged the campaign in actually view or any but the lefties and the self-appointed GOP attention seekers.

Obama will address the problem of earmarks without doling out earmarks to his Congressional cronies

Gregory confronted Summers with the observation that there was very little genuine stimulus in Obama’s package. Summers responded, basically, that any type of government spending stimulus.

Earlier, he spoke to Clinton

Someone get these Obama jokers off the Sunday shows until they’ve made up their minds about something.

Rush Limbaugh - How Talk Radio Works

"Shipping Jobs Overseas" or Reaching New Customers? Why Congress Should Not Tax Reinvested Earnings Abroad

by Daniel T. Griswold

Daniel T. Griswold is the director of the Center for Trade Policy Studies at the Cato Institute.

Trade and globalization have become more inviting targets during the current economic downturn. As output falls and unemployment rises, politicians in Washington are questioning not only imports but U.S. companies that invest in production abroad.

The incoming president, Barack Obama, pledged during his campaign that, "Unlike John McCain, I will stop giving tax breaks to corporations that ship jobs overseas and I will start giving them to companies that create good jobs right here in America."¹ That campaign refrain, echoed by a number of other successful candidates, raises three basic questions:

Why do U.S. multinational companies establish affiliates abroad and hire foreign workers? What kind of tax breaks are they receiving? And should the new Congress and new president change U.S. law to make it more difficult for U.S. multinational corporations to produce goods and services in foreign countries?

Reaching millions of new customers

To demonize U.S. multinationals operating production facilities abroad is to indict virtually every major American company. At latest count more than 2,500 U.S. corporations own and operate a total of 23,853 affiliates in other countries. In 2006, according to the U.S. Department of Commerce, majority-owned foreign affiliates of U.S. companies posted $4.1 trillion in sales, created just under $1 trillion in value added, employed 9.5 million foreign workers, and earned $644 billion in net income for their U.S.-based parent companies.²

The primary reason why U.S. companies invest in affiliates abroad is to sell more products to foreign customers. Certain services can only be delivered on the spot, where the provider must have a physical presence in the same location as its customers. Operating affiliates abroad allows U.S. companies to maintain control over their brand name and intellectual property such as trademarks, patents, and engineering expertise. U.S. companies also establish foreign affiliates because of certain advantages in the host country— lower-cost labor, ready access to raw materials and other inputs, reduced transportation costs and proximity to their ultimate customers. Yes, the motivations can include access to "cheap labor," but labor costs are not the principal motivation for most U.S. direct investment abroad.

Politicians focus most of their attention on comparing exports and imports, but the most common way American companies sell their goods and services in the global market today is through overseas affiliates. In 2006, U.S. multinational companies sold $3,301 billion in goods through their majority-owned affiliates abroad and $677 billion in services. For every $1 billion in goods that U.S. multinational companies exported from the United States in 2006, those same companies sold $6.2 billion through their overseas operations. For every $1 billion in service exports, U.S.- owned affiliates abroad sold $1.6 billion.³

Contrary to popular myth, U.S. multinational companies do not use their foreign operations as an "export platform" back to the United States. Close to 90 percent of the goods and services produced by U.S.-owned affiliates abroad are sold to customers either in the host country or exported to consumers in third countries outside the United States. Even in Mexico and China, where low-wage workers are supposedly too poor to buy American products, more than half of the products of new and existing U.S. affiliates are sold in their domestic markets, whereas customers in the United States account for only 17 percent of sales.⁴

More Jobs Abroad, More Jobs at Home

Investing abroad is not about "shipping jobs overseas." There is no evidence that expanding employment at U.S.- owned affiliates comes at the expense of overall employment by parent companies back home in the United States. In fact, the evidence and experience of U.S. multinational companies points in the opposite direction: foreign and domestic operations tend to compliment each other and expand together. A successful company operating in a favorable business climate will tend to expand employment at both its domestic and overseas operations. More activity and sales abroad often require the hiring of more managers, accountants, lawyers, engineers, and production workers at the parent company.

Consider Caterpillar Inc., the Peoria, Illinois-based company known for making giant earth-moving equipment. From 2005 through 2007, the company enjoyed booming global sales because of strong growth in overseas markets, especially those with resources extracted from the ground. According to the company's 2007 annual report, Caterpillar earned 63 percent of its sales revenue abroad, including $1 billion in sales in China alone. As a result, Caterpillar ramped up employment at its overseas affiliates during that time from 41,238 to 50,788, an increase of almost 10,000 workers. During that same three-year period, the company expanded its domestic employment from 43,878 to 50,545, a healthy increase of 6,667.⁵

Caterpillar's experience is not unusual for U.S. multinational companies. A 2005 study from the National Bureau of Economic Research found that, during the 1980s and 1990s, there was "a strong positive correlation between domestic and foreign growth rates of multinational firms." After analyzing the operations of U.S. multinational companies at home and abroad, economists Mihir A. Desai, C. Fritz Foley, and James R. Hines Jr. found that a 10 percent increase in capital investment in existing foreign affiliates was associated with a 2.2 percent increase in domestic investment by the same company and a 4 percent increase in compensation for its domestic workforce. They also found a positive connection between foreign and domestic sales, assets, and numbers of employees.⁶ "Foreign production requires inputs of tangible or intellectual property produced in the home country," the authors explained. "Greater foreign activity spurs higher exports from American parent companies to foreign affiliates and greater domestic R&D spending."⁷

The positive connection between foreign and domestic employment of U.S. multinational companies has continued into the current decade. As Figure 1 shows, parent and affiliate employment have tracked each other since the early 1980s. More recently, employment rose briskly for parents and affiliates alike in the boom of the late 1990s, fell for both during the downturn and slow recovery of 2001 through 2003, and then rose again from 2003 through 2006.⁸ Although the numbers have not been reported yet for 2007 and 2008, it's likely that the loss of net jobs in the domestic U.S. economy will be mirrored by much slower growth or outright decline in foreign affiliate employment.

Modest Investment in China and Mexico

Investment in China and Mexico drew the most fire on the campaign trail. In a primary debate in Texas in February 2008, then-senator Obama said, "In Youngstown, Ohio, I've talked to workers who have seen their plants shipped overseas as a consequence of bad trade deals like NAFTA, literally seeing equipment unbolted from the floors of factories and shipped to China."⁹ That makes for a good sound-bite in the heat of a campaign, but it does not accurately reflect the broader reality of outward foreign investment by U.S. manufacturers.

Outflows of U.S. manufacturing investment to Mexico and China have been modest by any measure. Between 2003 and 2007, U.S. manufacturing companies sent an average of $2 billion a year in direct investment to China and $1.9 billion to Mexico. That pales in comparison to the average $22 billion a year in direct manufacturing investment "shipped" to Europe during that same period, but talking about equipment being unbolted from the floors of U.S. factories and shipped to England just doesn't have the same bite.¹⁰ The modest annual outflow in investment to China and Mexico is positively dwarfed by the annual $59 billion inflow of manufacturing investment to the United States from abroad during those same years¹¹ and the average of $165 billion per year that U.S. manufacturers invested domestically in plant and equipment.¹²

The fear of manufacturing jobs being shipped to China and Mexico is not supported by the evidence. While U.S. factories were famously shedding those 3 million net jobs between 2000 and 2006, U.S.-owned manufacturing affiliates abroad increased their employment by a modest 128,000 jobs. An increase in 172,000 jobs at U.S.-owned affiliates in China was partially offset by an actual decline of almost 100,000 jobs at affiliates in Mexico.¹³ The large majority of factory jobs lost in the United States since 2000 were not "shipped to China" or anywhere else, but were lost to automation and other sources of increased efficiency in U.S. manufacturing.

U.S. manufacturing investment in China remains modest compared to the huge political investment that candidates and pundits have made in making it an issue. U.S. direct investment in China remains a relatively small part of China's overall economy, and a small part of America's total investments abroad. Of the nearly 10 million workers that U.S. affiliates employ abroad, fewer than 5 percent are Chinese; Americanowned affiliates employed just as many manufacturing workers in high-wage Germany in 2006 as they did in low-wage China.¹⁴

"Tax breaks" Keep U.S. Companies Competitive

Politicians are not usually specific about exactly what "tax breaks" they want to repeal. The biggest tax exemption for U.S. companies that invest abroad is the deferral of tax payments for "active" income. U.S. corporations are generally liable for tax on their worldwide income, whether it is earned in the United States or abroad. But the relatively high U.S. corporate tax rate is not applied to income earned abroad that is reinvested abroad in productive operations. U.S. multinationals are taxed on foreign income only when they repatriate the earnings to the United States. Not surprisingly, the deferral of active income gives U.S. companies a powerful incentive to reinvest abroad what they earn abroad, but this is hardly an incentive to "ship jobs overseas."

Such deferral may sound like an unjustified tax break to some, but every major industrial country offers at least as favorable treatment of foreign income to their multinational corporations. Indeed, numerous major countries exempt their companies from paying any tax on their foreign business operations. Foreign governments seem to more readily grasp the fact that when corporations have healthy and expanding foreign operations it is good for the parent company and its workers back home.¹⁵

If President Obama and other leaders in Washington want to encourage more investment in the United States, they should lower the U.S. corporate tax rate, not seek to extend the high U.S. rate to the overseas activities of U.S. companies. Extending high U.S. tax rates to U.S.-owned affiliates abroad would put U.S. companies at a competitive disadvantage as they try to compete to sell their goods and services abroad. Their French and German competitors in third-country markets would continue to pay the lower corporate tax rates applied by the host country, while U.S. companies would be burdened with paying the higher U.S. rate. The result of repealing tax breaks on foreign earnings would be less investment in foreign markets, lost sales, lower profits, and fewer employment and export opportunities for parent companies back on American soil.

Politicians who disparage investment in foreign operations are wedded to an outdated and misguided economic model that glorifies domestic production for export above all other ways for Americans to engage in the global economy. They would deny Americans access to hundreds of millions of foreign customers and access to lower-cost inputs through global supply chains. In short, they would cripple American companies and their American workers as they try to compete in global markets.

THE LIBERTARIAN

Sunday, January 25, 2009