Skeptical of Obama's Stimulus Plan

The optimum government

Richard Rahn

COMMENTARY:

If you knew economic growth and new job creation begin to slow when total government spending is larger than about 25 percent of the economy, and you knew total government spending in the United States is about 36 percent of gross domestic product (GDP), would you propose policies to make government larger or smaller to create more jobs and boost economic growth?

Over the last few decades, many economists have done studies on the "optimum" size of government. A new study just completed shows the optimum size of government is less than 25 percent of GDP.

Optimum is defined as that point just before government becomes so large as to reduce the rate of economic growth and job creation. Governments are created to protect people and property. A government too small to establish the rule of law and protect people and their property from both foreign and domestic enemies is less than optimal.

The American Founding Fathers also believed government had public health functions (as contrasted with spending on private health), such as draining swamps where malaria-infected mosquitos thrived; and some public works functions (e.g. building and maintaining roads, and ensuring basic education - but not necessarily state-operated schools).

The American Founding Fathers also understood that government could easily become too large, which would diminish the liberties of the people and discourage them from engaging in productive activity. The socialist utopians were in denial of the basics of human nature, which scholars like Adam Smith and the American Founders well understood.

Nevertheless, countless socialist schemes to enlarge the size of government have been sold to naive people. After two centuries of experimentation and the unnecessary loss of hundreds of millions of human lives, most of mankind now understands that pure socialism leads to tyranny and economic stagnation.

The question remains: Between the extremes of virtually no government and a pure communist state, how much government is necessary and desirable, and when does it become a drag on both liberty and economic well-being?

Economists have tried to quantify the question by looking at the experience of countries (and economic/political entities) over time as the size of their government grew or contracted, and by making comparisons of governments of various sizes. Most studies measure the size of government as a share of GDP (realizing it is an imperfect measure because it does not measure counterproductive regulation, restrictions on liberty and other factors, but is a reasonable approximation).

Wise observers have well understood that free markets and uncontrolled prices do a far better job in allocating resources (labor and productive investment) than politicians, who tend to resort to deciding what they believe is best for other people and, of course, rewarding their friends.

Most of the studies of the optimum size of government made by reputable scholars in recent decades have indicated that total government spending (federal plus state plus local) should be no lower than 17 percent, nor larger than about 30 percent of GDP. In a just completed paper, economists at the Institute for Market Economics in Sofia, Bulgaria, have provided new estimates of the optimum size of government, using standard models, with the latest data from a broader spectrum of countries than had been previously available. Their conclusion is that there is a 95 percent probability that the optimal size of government is less than 25 percent of GDP.

Because most governments are - and have been for many years - larger than the optimal, there are insufficient data to give a point estimate as to the best size, other than it is less than 25 percent. Other studies have shown small-population homogeneous countries, such as Finland, may have slightly higher optimal government sizes than heterogeneous countries, such as Switzerland and the United States.

The ramifications of this study and previous ones are important for the current debate going on in the United States and many other countries, about having the government spend more to "stimulate" the economy - i.e. create jobs and increase growth rates.

Rather than increasing the size of government, the empirical evidence shows that sharply reducing taxes, regulations, and government spending down to at least 25 percent of GDP would do the most to spur economic growth and create more jobs over the long run.

There is virtually no empirical evidence - in the United States or anywhere else - to support the belief of economists of the Keynesian school that a big increase in government spending will make matters better, rather than worse. Economists of the Austrian school have, in general, supported smaller government as a way to achieve higher levels of both prosperity and individual freedom, and the empirical evidence shows them to be correct.

In the United States, periods of rapid economic growth, such as 1983-89 and 1992-99, have been associated with a reduction in the total size of government. During the 1970s and much of the last decade, total (federal, state and local) government spending grew to a post-World War II record (36 percent), and these periods were associated with lower economic growth. In recent decades, many European countries have greatly increased government spending as a percentage of GDP, and as a result most of them experienced lower growth rates and much higher rates of unemployment than the United States.

Those members of Congress and parliamentarians in other countries who vote for a "stimulus package" that increases the size of government will be voting for slower economic recovery and higher rates of unemployment over the long run, based on both solid empirical evidence and theory.

Richard W. Rahn is a senior fellow at the Cato Institute and chairman of the Institute for Global Economic Growth.

The Trouble With Harry

Will President Obama resist the tax-and-spend Congress?

PETE DU PONT

Article I of the Constitution gives Congress broad public policy powers, and Article II defines those of the president.

Congress fully understands that its constitutional powers are more or less equal to and fully independent of those of the president, and the president--every president--had better understand that truth. So one of the greatest challenges of our new president, with both houses of the legislature controlled by his own party, is persuading its members to follow his leadership.

All of which comes to mind as President Obama understands that the sagging American economy needs some strong government stimulus. The new Congress agrees with him but wants even greater government spending and control, and while the president said in his Inaugural Address that those "who manage the public's dollars" must also "spend wisely," Congress, wisely or not, wants to spend a great deal more money on most everything.

So the House Appropriations Committee, chaired by Rep. Dave Obey of Wisconsin, last week passed a significant portion of what will be an $825 billion stimulus bill. It contains $275 billion in tax cuts but substantially increases government spending on some 150 existing federal programs. Some increased spending programs make sense, for in our recession we do indeed need more money to fund unemployment benefits, food stamps and Medicaid.

But other spending increases are pure politics, involving a substantial expansion of the federal government's policy role. Four billion dollars to help hire, equip and pay state and local police forces won't stimulate the economy, but it will give Washington some control over police spending. Nor will $50 million for the National Endowment for the Arts, $2.1 billion for Head Start, or $16 billion more for Pell grants stimulate the economy; they are all standard congressional preferences but no help at all in economic stimulation, which is supposed to be the objective of the bill. In short, the House bill has no broad strategic vision, merely a bigger government spending goal.

Nor would much of the legislation have an immediate economic impact, for only a small portion of its funds would be immediately spent. Of the $18.5 it contains for renewable energy, only $3 billion would be spent by 2011. Similarly, of the $30 billion for highways, only $4 billion would be spent by 2011, and less than half of the $14 billion additional school construction money would be promptly spent.

Of the $80 billion in assistance to state governments for Medicaid and welfare benefits, it is estimated that only $30 billion would be spent by 2011, but we can be sure that the states would promptly maximize their use of these funds. Which leads to another thought: The bill also contains the previously mentioned $4 billion in federal funding so that states can continue to employ police, and $87 billion for Medicaid which Mr. Obey claims could also be used to avoid cutting teachers, police, and firefighters. Once in place, every state would argue that the federal funding must continue--"we need the money; we haven't recovered yet; without it teachers will be laid off"--so perhaps the federalization of state programs will become permanent as well.

One more troubling aspect of the Obey legislation is that it contains no sunset provision. If the bill's spending helps and the economy begins to recover (or if it recovers on its own), there is no limit on new government spending, which makes one think that the objective of the bill is to permanently increase the size, scope and spending of the federal government. And that, of course, would lead to higher taxes of various kinds to feed the government's appetite.

In short, the Appropriations Committee bill is not fresh thinking, but the old 1930s government thinking in the style of FDR adviser Harry Hopkins, who was said to have advised the president to "tax and tax, spend and spend, elect and elect!"

Far more sensible would be tax rate reductions. Each time past presidents have cut taxes--in the 1920s, '60s and '80s, as well as George W. Bush's 2003 tax cuts (which generated $785 billion in additional tax receipts)--the economy has expanded. As Investors Business Daily noted earlier this year, former White House economist Greg Mankiw cited data showing that every new dollar spent by the government expands the economy from $1 to $1.40, but in a study of tax cuts going back to 1947, each $1 in tax cuts generated $3 in additional GDP. Add to that making the economy stronger by pledging to extend the Bush tax cuts, create no government run health care, no climate bill with its costly and job-suppressing mandates, and no limits on free trade.

All of which raises the most important opportunity of the first month of the new administration: Now is the time for President Obama to step up, improve the Appropriations Committee's bill, and set a sound economic course for the coming years. Will our new president back up his pledge to "spend wisely" and force Congress to limit its spending increases, or will he allow it to substantially increase spending to support the core belief that government should be bigger today, tomorrow and always?

Volcker and Greenspan: Mark to Market

Paul Volcker on Mark to Market Accounting

Former Fed Chairman, Paul Volcker, Chairman of the Group of Thirty, Consultative Group on International Economic and Monetary Affairs, Inc., just released a study with recommendations on financial reform.

Recommendation #12 on Fair Value Accounting reads as follows:

"a. Fair value accounting principles and standards should be reevaluated with a view to developing more realistic guidelines for dealing with less liquid instruments and distressed markets.

b. The tension between the business purpose served by regulated financial institutions that intermediate credit and liquidity risk and the interests of investors and creditors should be resolved by development of principles-based standards that better reflect the business models of these institutions . . . ."

Alan Greenspan on Mark to Market Accounting

On November 1, 1990, Federal Reserve Chairman, Alan Greenspan, in a 4-page letter to Richard Breeden, Chairman of the Securities and Exchange Commission, said, in part:

"The Board believes that market value accounting raises a substantial number of significant issues that need to be resolved before considering the implementation of such an approach in whole or in part for banking organizations.

Accounting methodology should be developed to measure the results of a particular business purpose or strategy; it is not an end in itself. For an institution whose business purpose is to trade marketable financial assets on an intra-day basis, for example, closing daily market values would measure the success or failure of that particular business purpose. An end of the day balance sheet, marked to market, is clearly the appropriate accounting procedure in the example.

Generally, the business strategy of commercial banks, on the other hand, is to employ their credit insights on specific borrowers to acquire a diversified portfolio of essentially illiquid assets held to term. The success or failure of such a strategy is not measured by evaluation such loans on the basis of a price that indicates value in the context of immediate delivery. Clearly, one aspect of value in an exchange is the period of delivery. Bu the appropriate price for most bank loans and off-balance sheet commitments-is the original acquisition price adjusted for the expectation of performance at maturity. It is only when that price differs from the book value of the asset that an adjustment is appropriate.

A reserve for loan losses is such an adjustment. To mark such an asset to a market price intended to reflect the value of a loan were it liquidated immediately is interesting, but not a relevant measure of the success of commercial banking."

Skeptical of Obama's Stimulus Plan

Skeptical of Obama's Stimulus Plan

By Jonah Goldberg

Barack Obama has a curious definition of “non-ideological.” He’s insisting on bipartisan support for a stimulus package that will cost more than anything Uncle Sam has ever bought, save perhaps for victory over the Axis powers. He says he wants “to put good ideas ahead of the old ideological battles” and doesn’t care whether they come from Republicans or Democrats. But he also says that “only government” can pull us out of this crisis.

It’s like Henry Ford’s line that you could buy any color car you wanted, as long as you wanted black. Obama is interested in any idea, as long as its peddler starts from the same “non-ideological” assumption that government experts know best.

In fairness to Obama, there is a huge consensus around the notion that government must do, well, something — something big. Conservative economists such as Harvard’s Martin Feldstein support a stimulus package. Heck, Senate Minority Leader Mitch McConnell passes for a fiscal conservative these days because he opposes any bill of more than $1 trillion.

It’s the consensus that scares me. Chin-stroking moderates and passionate centrists often glorify consensus to the point where they sound like it’s better to be wrong in a group than to be right alone — an example of ideological dogmatism as bad as any.

Obviously, consensus can be good. But it also can lead to dangerous groupthink. Everyone knew that Iraq had weapons of mass destruction. Everyone at 60 Minutes knew those memos about George W. Bush and the Texas Air National Guard had to be right. Everyone knows everything is right, until everything goes wrong. If that’s not one of the great lessons of the financial collapse of 2008, I don’t know what is.

Last fall, the smartocracy said the Treasury Department had to be given $700 billion for the Troubled Asset Relief Program because the government had to buy all that bad paper right away. Since then, Treasury has bought no toxic assets, done nothing to help with foreclosures and, a congressional report released Friday revealed, can’t adequately explain what it did with the first $350 billion.

The current climate reminds former Freddie Mac economist Arnold Kling of the battle of the Somme in World War I (a war everyone knew would be over in six months). “Having experienced nothing but failure using offensive tactics up to that point, the Allies decided that what they needed to try was ... a really big offensive,” Kling writes. “My guess is that in 1916, anyone who doubted his own ability to direct an enormous offensive involving hundreds of thousands of soldiers would never have made it to general. Similarly, today, anyone who doubts the ability of a handful of technocrats to sensibly allocate $800 billion would never make it into government or the mainstream media.”

That might overstate it a bit, because some naysayers can be heard. Economist Kevin Hassett of the American Enterprise Institute notes that whatever the benefits of the proposed stimulus, they probably don’t outweigh the enormous costs of the debt we would incur. As a result of the stimulus, the deficit this year would equal the total cost of the federal government in 2000. That’s on top of $7.76 trillion in bailouts pledged by the government, according to Bloomberg.com.

The real reason the stimulus package will be gigantic is not that the smartest people with the best ideas say it needs to be. It’s that Obama’s real priority is to get the bill out as quickly as possible, which means every constituency gets something, including Republicans. Indeed, Republicans are a priority because if he can bribe them into supporting the bill, that might prevent them from campaigning against it in 2010 if it proves ineffective or counterproductive. Hence Obama’s proposed billions in tax breaks for corporate welfare addicts and the lobbyists who love them. Democrats are justly skeptical about a tax break for a company that decides not to lay off its workers.

The GOP is right to question this “shovel-ready” infrastructure “investment.” From World War II to the early 1990s, according to economist Bruce Bartlett, not a single stimulus bill succeeded at moderating the recession it was aimed at, while many bills helped invite the next recession. Bartlett supports a stimulus in theory (as do I); he merely notes that the political process tends to be just that — a political process — and it produces political results.

The best stimulus might be to trim — or temporarily eliminate — the payroll tax. That would put money in the hands of the people who need it — and know best how to spend it. But that would be “too ideological” because it rejects the assumption that government knows best, and it would reward taxpayers, not politicians.

Peter Schiff on the Stock Shotz pt 2/3

Shouting Fire: First Amendment Attorney Martin Garbus on free speech under Obama

Audio, Video of Ryan Frederick Police Interviews Taken Shortly After Deadly Raid

Audio, Video of Ryan Frederick Police Interviews Taken Shortly After Deadly Raid

Radley Balko

Ryan Frederick is the 28-year-old Chesapeake, Virginia man facing murder charges for killing a police officer during a drug raid (see this wiki for more on Frederick's case). My prior coverage of his trial here.

I'll put up a series of posts today and tomorrow wrapping up the testimony portion of his trial. Closing arguments are on Monday.

For now, check out these two interviews with Frederick that were played in court last week. One is only audio of an interview taken a half hour after the raid. The other is video of an interview done a few hours later.

The prosecution fought like hell to keep these interviews from being admitted into evidence. And with good reason. They're damning to the state's case. The prosecution, remember, said in its opening statement that Frederick was "stoned out of his mind" and "in a blind rage" the night of the raid. The prosecution then elicited testimony from police informant Steven Wright and jailhouse informants Jamal Skeeter (who has since been thoroughly discredited) and Lamont Malone that portrayed Frederick as a cold, calculating killer, who was boasting to fellow inmates about bringing down a cop, and even disparaging Det. Jarrod Shivers' widow.

In the videos below, a frightened, repentant Frederick weeps and shakes. At one point, he vomits after contemplating that he'd just taken a life. According to the Virginian-Pilot, in one portion of the video not depicted here, Frederick "curled himself up into a ball and cried" when the detectives left him in the room alone. The audio interview in particular is incredibly wrenching.

It's worth panning back a bit here, and restating what caused all of this. Det. Jarrod Shivers his dead, his wife is widowed, and his kids are without a father. Ryan Frederick, a man who had no prior record, and had a good job and a fiancee, has had to spend 23 of 24 hours every day for the last year locked up in a jail cell, and may spend the rest of his life in prison, because he mistakenly thought the people invading his home were criminal intruders who had come to kill him. This all happened because the police got word from a shady informant with felony charges pending against him that Frederick was growing a harmless plant in his garage. What an incredible waste.

Obama vs Odierno

Obama vs Odierno

The institutional pushback against Obama's attempt to change Iraq policy is unfolding as predicted. After a steady stream of Washington Post and Wall Street Journal editorials warning against withdrawing troops from Iraq, the New York Times today reports on the jockeying between the military and the Obama administration. According to the Times, Gen. Ray Odierno said Wednesday that "it might take the rest of the year to determine exactly when United States forces could be drawn down significantly" while J.D. Crouch warned ominously that "they don’t want to alienate the military." The Obama administration should resist this inertia -- and the public challenge to his authority -- and stick to its stated goals of drawing down U.S. forces in Iraq.

Some of this is simply the press manufacturing conflict. Odierno's public comments are consistent with those of departing Amb. Ryan Crocker -- and less novel than the reporting might suggest. This was Odierno's position before the transition, and since Obama is still in listening mode he has not yet issued new orders. Gen. Petraeus's CENTCOM hasn't yet released its JSAT strategic review. The only statement from the administration quoted in the article is by Robert Gibbs, who says "We’re no longer involved in a debate about whether, but how and when." The only thing new in Odierno's endorsement of the Council on Foreign Relations/Brookings "go slow" strategy is that he's once again going public. But it's still extremely important -- Odierno has to know that such a public statement will be received as an open military challenge to presidential authority.

The politics of this aside, I think that Odierno's intention of keeping troops in Iraq through the national elections is dangerously wrong. The CFR/Brookings/Odierno "go slow" approach ignores the reality of the new Status of Forces Agreement and the impending referendum this summer -- which may well fail if there is no sign of departing American troops. It sends the wrong messages to Iraqi politicians and the Iraqi population. It would badly hurt Obama's credibility in the region and with Iraqis, who will see his most important public commitment fall by the wayside. And it would lose the unique window of opportunity offered by the transition to signal real change.

This strategy is also a recipe for endless delay. Given the very catalog of Iraqi political fissures and emerging conflicts that Odierno cites as reason to stay, there is little reason to think that conditions will be so much more stable at the end of this proposed year of caution. At that point the exact same conversation will ensue about why drawdowns are imprudent at this time -- and does anybody believe that the people currently calling for prudence and high troop levels will suddenly reverse themselves a year from now when conditions look much the same as they do now?

And it isn't just a year: senior Iraqi officials have suggested that the national elections, which Odierno suggests as the point when drawdowns might begin, may well not be held until March 2010. I don't think that 16 months is a sacred number. But what Odierno is proposing is no significant drawdowns for 14 months, followed by another period of wrangling. This could ironically make the "rush for the exits" that everyone wants to avoid more rather than less likely -- whether or not it leads to the failure of the SOFA referendum.

The strategy that I've recommended bridges these gaps, and avoids the need for a battle between Obama and the military. A "down payment" of a public, significant drawdown in the early spring would send the correct signals to all relevant actors, while allowing plenty of time for commanders in the field to assess the impact and adjust accordingly. I hope that Obama is able to head off a battle with the military -- and the military, a battle with Obama -- by working together on such a strategy. Remember: Obama won the election.

It doesn't surprise me that a commander in the field would ask for more troops, or want to postpone drawing down troops. Why would a commander in the field want less to work with? But the job of a president, as Obama well knows, is to balance competing commitments and to make these choices.

The stimulus fight reminds me of Iraq

The stimulus fight reminds me of Iraq

By Peter Feaver

President Obama has been earnestly talking the talk of bipartisanship and walked the walk all the way to an extended closed-door session with Congressional Republicans. He even invited the Republicans to a White House cocktail party, and it is not the traditional DC party season (change we can all drink to?). Of course, Republicans needed a drink or two to drown their sorrows since the ultra-partisan Democratic leadership on the Hill rammed the stimulus package through without due consideration of Republican concerns and so got zero (that's right, zero) Republican votes as a result. (Can you think of the last time one political party by itself spent $900 billion?)

The apparent disconnect between cross-party outreach and one-party outcome is an all-too-familiar story in Washington and it reminded me of our abortive efforts to rebuild bipartisan support for seeing the Iraq war through to a successful conclusion.

Throughout 2005, we saw political support for the Iraq war erode, and with the erosion of support in DC came a drop in general public support (the causal arrow went in both directions, I know, but for the purposes of this post I think it is useful to look at how political leaders can drive down public support for a venture). This was happening even though we were largely pursuing the Iraq strategy that most Democrats and other critics wanted us to pursue. They masked this fact by falsely claiming that we had no strategy, but when you looked at the substance of what they recommended, it bore an eerie similarity to our actual Iraq policy.

The Bush White House response was to release the National Strategy for Victory in Iraq which explained the strategy, and to accompany it with a series of major speeches explaining the logic to the American people. We also did extensive outreach to Democrats on the Hill, along with private meetings with Democratic national security experts. We even invited back to the White House every living Secretary of State and Secretary of Defense.

We moved public opinion slightly, but the results did not last. Over 2006, we pursued our bipartisan "strategy for vicoty," but without the benefit of any bipartisanship or bipartisan support. On the contrary, the Democrats relentlessly campaigned against our Iraq effort in vivid partisan terms and won back control of Congress partly as a result. And over the course of course of 2006, it became increasingly clear that this Iraq strategy was failing.

The Bush response was to change the strategy dramatically -- what became known as the surge strategy. This time, the strategy was not what most Democrats wanted us to pursue, so perhaps it is not surprising that we received no bipartisan support. On the contrary, we spent 2007 defending the strategy against a vigorous effort by Congressional Democrats to hobble the surge with their "slow bleed" strategy. This time, however, the Iraq strategy turned out to be the right one, and it was dramatically vindicated by events on the ground.

So, to recap: from 2005-06, we pursued a bipartisan Iraq strategy and tried to build bipartisan support for it, and both the strategy and our bipartisan outreach failed. From 2007-08, we pursued a one-party Iraq strategy and, despite strenuous efforts, built no bipartisan support -- and yet that strategy worked in the end.

I shrink from embracing the obvious parallelism: that because the Democrats played Iraq for partisan advantage, that must be what Republicans are doing now on the stimulus package. I find Republican concerns about the stimulus plan reasonable and I see no evidence that the House bill took those concerns seriously (certainly not as seriously as we took critiques of our Iraq strategy).

And I also shrink from embracing the obvious conclusion: that results always trump bipartisanship. My colleagues used to tease me that my fruitless pursuit of bipartisan support for the Iraq project reminded them of Captain Ahab's pursuit of Moby Dick. I still in my heart believe that it was the right thing to do to try to build cross-party support.

I guess the only bottom line I will draw is this: if Obama-Reid-Pelosi continue on the path they are going, they will find themselves out on a limb. They better hope that the stimulus package has the success of the surge, and not the desultory results of the "strategy for victory." Otherwise, they may find that partisan outcomes in DC lead to fragile public support for fraught policies.

Senate Begins Its Horse-Trading Over Stimulus Bill

Senate Begins Its Horse-Trading Over Stimulus Bill

GREG HITT

WASHINGTON -- The Senate began jockeying Thursday over details of its nearly $900 billion economic-stimulus plan, amid bipartisan calls to ensure that jobs created by the measure go to American workers, not foreign companies or illegal immigrants.

WSJ's Greg Hitt explains why there's a great divide between House Democrats and Republicans over the government's economic stimulus package.

Sens. Ben Nelson (D., Neb.) and Jeff Sessions (R., Ala.) want to mandate that businesses benefiting from the stimulus verify the citizenship of workers, under a government program that is currently voluntary. Already in the legislation are "Buy America" provisions intended to ensure U.S.-made goods are used in projects spurred by the package. These proposals have stirred concerns in the business community that other nations could retaliate against U.S.-made goods with new trade restrictions.

There is also pressure in the Senate to sharpen the focus of the stimulus package to address more directly the nation's housing woes.

Senate Budget Chairman Kent Conrad (D., N.D.) is pushing a proposal to broaden the existing home-buyer tax credit, which now benefits only first-time buyers, to cover purchases of all primary residences. Senate Banking Chairman Chris Dodd (D., Conn.) is suggesting a moratorium on foreclosures be added to the package. "Housing is a tremendous accelerator" for the economy, he said. "If you can generate activity in housing, the benefits of that are phenomenal in terms of the credit markets."

View Full Image

Associated Press

A group of Republican senators noted their opposition to the stimulus package at the Capitol on Thursday. Still, the legislation is expected to have the support of some GOP senators. From left, John Ensign (R., Nev.), Jim Bunning (R., Ky.), Roger Wicker (R., Miss.) and Robert Bennett (R., Utah

Amid the maneuvering, top Senate Republicans are raising doubts about the package, especially the spending. But Senate Republicans aren't marching in lock step against the measure.

Maine Sen. Olympia Snowe, who holds a Republican seat on the tax-writing Finance Committee, is emerging as a strong supporter. "We must simply begin to restore confidence among the American people in the future of our economy," she said in a statement issued after she voted this week for the tax-relief package during Finance Committee action.

After Sen. Snowe, congressional aides suggest four to six other Republican senators could be potential supporters.

Maine's other Republican senator, Susan Collins, said she wants to work "with my colleagues on both sides of the aisle to come up with a final stimulus package that will indeed jump-start our economy." But she worries that not all of the proposed spending -- an aide points to a proposal for research on pandemic flu -- is appropriate for the stimulus package. "We need to try and achieve the right balance, the right size, and the right mix of tax relief and spending proposals," Sen. Collins said. "I am not at all certain that we have achieved these goals in this bill."

Supporters of the initiative backed by President Barack Obama will need some Republican votes to ensure the measure gets the 60 votes needed to overcome any filibuster and clear the Senate. Democrats currently control the chamber with a 58-41 majority, but not all Democrats may support the proposal. Sen. Nelson, a conservative Democrat from Nebraska, said he isn't yet committed to vote for the package. He wants more spending for job-creating infrastructure, but also voiced concern about several spending line-items, including research for the National Institutes of Health.

Who Gets What

See how some of the major stimulus spending will be shared by the states.

In the House, eleven Democrats voted against a different version of the package on Wednesday. Not a single Republican voted for the House's $819 billion legislation, which provides an array of tax cuts and a heavy dose of new spending for new roads and bridges, expanded jobless benefits, food assistance for the poor, wider broadband service and renovations for schools and public housing.

In the Senate, Democrats have sought to ease partisan tensions by setting the stage for an open amendment process, which would allow Republicans to offer a number of alternatives.

Senate leaders have agreed to a proposal by Sen. Charles Grassley (R., Iowa) that would keep millions of middle-income taxpayers from having to pay the alternative minimum tax, a levy originally designed to hit the wealthy.

Senate Majority Leader Harry Reid (D., Nev.) predicted a number of Republicans will eventually climb on board by the time the bill makes it through the Senate, and negotiations conclude on a final compromise package.

To raise pressure on senators, a coalition backing the recovery package, which includes labor and environmental groups, announced Thursday it will air ads around the country to encourage Republicans "to support the Obama plan for jobs, not the failed policies of the past." The ads will run in Maine, New Hampshire, Iowa and Alaska.

Gregg Emerges as Top Commerce Choice

SIOBHAN GORMAN

Republican Sen. Judd Gregg of New Hampshire has emerged as President Barack Obama's top choice for commerce secretary, with an announcement coming as soon as Monday, an Obama administration official said Sunday.

Sen. Gregg's appointment would fill the final positions open in President Obama's cabinet. The president' original choice for the post, New Mexico Gov. Bill Richardson, withdrew due to concerns over a grand jury investigation into how state contracts were issued to political donors in New Mexico.

Associated Press

Sen. Judd Gregg, R-N.H.

Leading Republican senators voiced support for Sen. Gregg's possible appointment. "It shows a great deal of perspicacity on the part of President Obama to select a guy like Judd Gregg, who is just a phenomenal senator, very bright," Sen. Jon Kyl of Arizona said on "Fox News Sunday."

"He's our ranking member on the Budget Committee, gives sage advice to us…he could make a significant contribution to the Obama administration."

Democrats and Democrat-friendly independents control 58 seats in the Senate, two short of a filibuster-proof majority. One seat, Minnesota, remains unresolved, but the Democratic candidate appears to be ahead. Sen. Gregg's potential departure could give Democrats a shot at 60 seats, as New Hampshire's governor, who would appoint Sen. Gregg's replacement if he were to become commerce secretary, is a Democrat.

But several Republican lawmakers voiced confidence Sunday that a Gregg appointment wouldn't alter the balance of power in the Senate.

"Sen. Gregg has assured me that if it were to happen, it would not change the makeup of the Senate," said Senate Minority Leader Mitch McConnell of Kentucky on CBS's "Face the Nation." "It would have no effect on the balance of power in the Senate."

Sen. Kyl said the balance-of-power issue has "been thought through," but he declined to say whether a deal had been struck to ensure that New Hampshire Gov. John Lynch would appoint a Republican to finish out the balance of Gregg's term, which is up next year, if Gregg were to become commerce secretary.

Obama's original choice for commerce secretary, New Mexico Gov. Bill Richardson, withdrew due to concerns over a grand jury investigation into how state contracts were issued to political donors in New Mexico.

Meanwhile, Democrats on Sunday reiterated their support for former Sen. Tom Daschle as Obama's nominee for secretary of health and human services. Daschle recently disclosed that he failed to pay $128,203 in back taxes and only repaid them with interest in January.

Sen. Richard Durbin of Illinois called Daschle's failure to pay some of his taxes "a mistake," but said he took the proper steps to repay them. "Tom Daschle's one of the most honest people I've ever known or worked with in public life," Durbin said on "Fox News Sunday."

Republican criticism was tempered, suggesting that the tax issue was unlikely to derail Mr. Daschle's nomination. Sen. Kyl, however, expressed concern over Obama's vetting process for nominees; Daschle is the second nominee to admit to a failure to pay some of his taxes, after Treasury Secretary Timothy Geithner, who was confirmed after admitting he had failed to pay $34,000 in taxes.

After Jabs at Cheney, Biden Pursues an Activist Role

Vice President Follows Initial Gaffes by Diving Into Wide Range of Issues; Drawing Contrasts With Predecessor

MONICA LANGLEY

WASHINGTON -- Vice President Joe Biden, in a bid to become an influential second-in-command, is striving to carve out meaty roles for himself quickly.

In an East Room ceremony on Friday with President Barack Obama, Mr. Biden is launching a task force to work on social and economic policies aimed at helping the struggling middle class. He's selling the giant stimulus package on Capitol Hill, and schmoozing his former colleagues during workouts in the congressional gym. Next week, Mr. Biden heads to Munich for an international security conference, in a bid to repair relations with European countries.

Bloomberg News /Landov

Joe Biden and Hillary Clinton attend a signing ceremony in the East Room of the White House on Thursday.

The flurry of activity follows a first week marked by gaffes. At a swearing-in ceremony of White House staff, Mr. Biden joked about Chief Justice John Roberts's faulty memory, provoking President Obama to give him a stern nudge to stop. During the taping of "The Oprah Winfrey Show" the day before the inauguration, his wife, Jill Biden, said her husband was given the choice of being vice president or secretary of state, which was quickly refuted by the White House.

Before taking office, Mr. Biden pointedly disavowed the enlarged role of Dick Cheney, whom he called "one of the most dangerous vice presidents" in American history. Some Democratic operatives speculated that his remarks diminished the vice presidency.

Obama officials play down Mr. Biden's missteps. Obama senior adviser David Axelrod says Mr. Biden's input in recent weeks shows his value "peer-to-peer" with President Obama. "All of the vice president's insight and experience dwarf any minor gaffe or misstep," Mr. Axelrod says.

Moreover, some of Mr. Biden's former colleagues and aides say he's simply making the inevitable adjustment to a very different role. Mr. Biden is having to learn "the difference between being a senator and vice president," says Sen. Lindsey Graham (R., S.C.), "even though he says he's never had a boss before."

Still, Mr. Biden's determination to be involved in a range of issues, instead of a couple specific projects, is a gamble, some administration officials say. "In his desire to be part of everything, Biden risks looking like he wants to be co-president, and then could end up with nothing on which to make his own mark," says one Democratic adviser.

Mr. Biden's spokesman says, "The vice president sees his job as counselor-in-chief. He doesn't want to be limited to a portfolio, but will take specific tasks with specific goals like the middle-class task force."

Mr. Biden's ambition to play an influential role could be constrained by a White House and cabinet filled with high-octane personalities, including Chief of Staff Rahm Emanuel, chief economic adviser Lawrence Summers and Secretary of State Hillary Clinton, as well as other advisers with longstanding close personal ties to the president.

Already, Mr. Biden is moderating his gregarious style, Mr. Axelrod says. "The room is filled with highflying big thinkers," Mr. Axelrod says. The vice president "picks his spots. He hasn't tried to dominate discussions. Joe Biden brings what there's no substitute for -- wisdom based on worlds of experience."

Mr. Biden's team is positioning the vice president to play up his differences with Mr. Cheney. For example, Mr. Biden's new task force on middle-class families will have a Web site complete with details of all meetings, attendees and policies, in contrast to Mr. Cheney's energy task force, which he fought to keep secret in court. Mr. Biden's office is releasing daily the vice president's schedule, unlike Mr. Cheney, who often didn't disclose his schedule.

Even the vice president's residence at the Observatory Circle here can now be viewed on Google maps. When Mr. Cheney resided there, the materials had been pixilated in order to blur the home's location.

"Vice President Biden will be more transparent, accessible, bipartisan and focused on middle-class values than Dick Cheney," says a senior administration official. "That doesn't mean he'll be less powerful."

When President Obama asked Mr. Biden to be his running mate last summer, the longtime Delaware senator asked for -- and received -- a commitment that he would be "the last person in the room" when big decisions were made, advisers to both men say. During the campaign, Messrs. Obama and Biden traveled separately, preventing the kind of early camaraderie that developed between Bill Clinton and Al Gore, who went on days-long bus trips together, a campaign operative says.

But their rapport is increasing as they spend more time together, some aides say. During the transition, Mr. Biden prepared a slate of candidates for cabinet posts for Mr. Obama's consideration. "Joe's list was very similar to Obama's own list," says Mark Gitenstein, who headed the vice-presidential transition. Aides say Mr. Biden's list suggested Mrs. Clinton for chief diplomat. "Joe loves Hillary like a sister and backed her completely [with President Obama] for secretary of state," a Biden adviser says.

Mr. Biden attends the daily national-security and economic briefings with the president. He receives the same reports that go to President Obama, and his staff is included in White House senior staff meetings, aides say. Last Friday, the two men had a private lunch at the White House, which is set to become a weekly chat, without any advisers.

The vice president is also helping Mr. Obama's advisers, several of whom are new to congressional politics. At a meeting on Wednesday to hammer out the new budget proposal, Mr. Biden gave a "visceral sense" of what can get passed in Congress, when presented with a "whole array of hard decisions," one participant said.

Mr. Biden is putting his 36 years of experience as a senator to use with former colleagues. Before the economic-stimulus package was finished, he sought out key lawmakers, particularly Republicans, to solicit what they would need to support the bill. After Maine Sen. Olympia Snowe gave Mr. Biden several ideas, particularly on small-business benefits, they exchanged materials over the last week. The vice president gave Sen. Snowe his home phone numbers to continue the dialogue.

California's 'Green Jobs' Experiment Isn't Going Well

STEPHEN MOORE

Los Angeles

Gov. Arnold Schwarzenegger was all smiles in 2006 when he signed into law the toughest anti-global-warming regulations of any state. Mr. Schwarzenegger and his green supporters boasted that the regulations would steer California into a prosperous era of green jobs, renewable energy, and technological leadership. Instead, since 2007 -- in anticipation of the new mandates -- California has led the nation in job losses.

The regulations created a cap-and-trade system, similar to proposed federal global-warming measures, by limiting the CO2 that utilities, trucking companies and other businesses can emit, and imposed steep new taxes on companies that exceed the caps. Since energy is an input in everything that's produced, this will raise the cost of production inside California's borders.

Now, as the Golden State prepares to implement this regulatory scheme, employers are howling. It's become clear to nearly everyone that the plan's backers have underestimated its negative impact and exaggerated the benefits. "We've been sold a false bill of goods," is how Republican Assemblyman Roger Niello, who has been the GOP's point man on environmental issues in the legislature, put it to me.

The environmental plan was built on the notion that imposing some $23 billion of new taxes and fees on households (through higher electricity bills) and employers will cost the economy nothing, while also reducing greenhouse gases. Almost no one believes that anymore except for the five members of the California Air Resources Board (CARB). This is the state's air-quality regulator, which voted unanimously in December to stick with the cap-and-trade system despite the recession. CARB justified its go-ahead by issuing what almost all experts agree is a rigged study on the economic impact of the cap-and-trade system. The study concludes that the plan "will not only significantly reduce California's greenhouse gas emissions, but will also have a net positive effect on California's economic growth through 2020."

This finding elicited a chorus of hallelujahs from environmental groups. The state finally discovered a do-good policy that pays for itself. Californians can still scurry around in their cars, heat up their Jacuzzis, and help save the planet. But there was a problem. The CARB had commissioned five economists from around the country to critique this study. They panned it.

Harvard's Robert Stavins, chairman of the federal Environmental Protection Agency's economic advisory committee under Bill Clinton, told me that "None of us knew who the other reviewers were, but we all came up with almost the same conclusion. The report was severely flawed and systematically underestimated costs." Another reviewer, UCLA Prof. Matthew E. Kahn, a supporter of the new regulations, criticized the "free lunch" aspect of the report. "The net dollar costs of each of these regulations is likely to be much larger than is reported," he concluded. Mr. Stavins points out that if these regulations are a net boon for businesses and the economy, "why would you need to impose regulations like cap and trade?"

The Sacramento Bee, which has editorialized in support of the new regulations, was aghast at CARB's twisted science. We have to "be candid about the real costs of the transition," a cautionary editorial advised. "Energy prices will rise, and major capital investment will be needed in public transit and new transmission lines. Industries that are energy intensive will move elsewhere."

The green lobby has lectured us for years that global warming is all about the sanctity of science. Those who question the "scientific consensus" on catastrophic atmospheric changes are belittled as "deniers." Now, in assessing the costs, the greens readily cook the books and throw good science out the window. "To most of the most strident supporters of this legislation," says Mr. Niello, "the economic costs don't really matter anyway, because we are supposedly facing an environmental apocalypse."

Mr. Schwarzenegger fits into that camp. He recently declared: "I recommend very strongly that we move forward . . . . You will always have people saying this will lose jobs."

Meanwhile, the state is losing jobs, a lot of them. California's unemployment rate hit 9.3% in December, up from 4.9% in December 2006. There are now 1.5 million Californians out of work. The state has the fourth-highest housing foreclosure rate in the nation, has lost more businesses than any state in recent years, and is facing a $40 billion deficit. With cap and trade firmly in place, the economic situation is only likely to get worse.

Other states are plundering the Golden State's industries by convincing businesses to pick up stakes and move out before the cap-and-trade earthquake hits. Governors and Washington politicians who want to reduce their "carbon footprint," but are worried about the more immediate crises of cascading unemployment, unbalanced budgets, and the housing-market collapse, would be wise not to follow California's lead. Green policies have a tendency to push states into the red.

Look at the Time

In Congress and the boardroom, failure to recognize a new era.

• By PEGGY NOONAN

It looks like a win but feels like a loss.

The party-line vote in favor of the stimulus package could have been more, could have produced not only a more promising bill but marked the beginning of something new, not a postpartisan era (there will never be such a thing and never should be; the parties exist to fight through great political questions) but a more bipartisan one forced by crisis and marked by—well, let's call it seriousness.

President Obama could have made big history here. Instead he just got a win. It's a missed opportunity.

It's a win because of the obvious headline: Nine days after inauguration, the new president achieves a major Congressional victory, House passage of an economic stimulus bill by a vote of 244-188. It wasn't even close. This is major.

But do you know anyone, Democrat or Republican, dancing in the street over this? You don't. Because most everyone knows it isn't a good bill, and knows that its failure to receive a single Republican vote, not one, suggests the old battle lines are hardening. Back to the Crips versus the Bloods. Not very inspiring.

The president will enjoy short-term gain. In the great circle of power, to win you have to look like a winner, and to look like a winner you have to win. He did and does. But for the long term, the president made a mistake by not forcing the creation of a bill Republicans could or should have supported.

Consider the moment. House Republicans had conceded that dramatic action was needed and had grown utterly supportive of the idea of federal jobs creation on a large scale. All that was needed was a sober, seriously focused piece of legislation that honestly tried to meet the need, one that everyone could tinker with a little and claim as their own. Instead, as Rep. Mike Pence is reported to have said to the president, "Know that we're praying for you. . . . But know that there has been no negotiation [with Republicans] on the bill—we had absolutely no say." The final bill was privately agreed by most and publicly conceded by many to be a big, messy, largely off-point and philosophically chaotic piece of legislation. The Congressional Budget Office says only 25% of the money will even go out in the first year. This newspaper, in its analysis, argues that only 12 cents of every dollar is for something that could plausibly be called stimulus.

What was needed? Not pork, not payoffs, not eccentric base-pleasing, group-greasing forays into birth control as stimulus, as the speaker of the House dizzily put it before being told to remove it.

"Business as usual." "That's Washington." But in 2008 the public rejected business as usual. That rejection is part of what got Obama elected.

Instead the air of D.C. dithering continues, and this while the Labor Department reported Thursday what everyone knew was coming, increased unemployment. The number of continuing claims for unemployment insurance as of Jan. 17 was 4.78 million, the highest in the 42 years they've been keeping records. Starbucks, Time Warner, Home Depot, Pfizer: The AP's count is 125,000 layoffs since January began.

People are getting the mood of the age in their inboxes. How many emails have you received the past few months from acquaintances telling you in brisk words meant to communicate optimism and forestall pity that "it's been a great ride," but they're "moving on" to "explore new opportunities"? And there's a broad feeling one detects, a kind of psychic sense, some sort of knowledge in the collective unconscious, that we lived through magic times the past half-century, and now the nonmagic time has begun, and it won't be over next summer. That's not the way it will work. It will last a while.

There's a sense among many, certainly here in New York, that we somehow had it too good too long, a feeling part Puritan, part mystic and obscurely guilty, that some bill is coming due. Hard to get a stimulus package that addresses that. (The guilt was part of the power of Blago. He's the last American who doesn't feel guilt. He thinks something is moral because he did it. He's like a good-natured Idi Amin, up there yammering about how he's a poor boy who only wanted to protect the people of Chicago from the flu. You wish you could believe it! You wish he really were what he is in his imagination, a hero battling dark forces against the odds.)

I think there is an illness called Goldmansachs Head. I think it's in the DSM. When you have Goldmansachs Head, the party's never over. You take private planes to ask for bailout money, you entertain customers at high-end spas while your writers prep your testimony, you take and give huge bonuses as the company tanks. When you take the kids camping, you bring a private chef. Goldmansachs Head is Bernie Madoff complaining he's feeling cooped up in the penthouse. It is the delusion that the old days continue and the old ways prevail and you, Prince of the Abundance, can just keep rolling along. Here is how you know if someone has GSH: He has everything but a watch. He doesn't know what time it is.

I remember the father in the movie script of "Dr. Zhivago," inviting what's left of his family, huddled in rooms in what had been their mansion, picking up the stump of a stogie and inviting them to watch the lighting of "the last cigar in Moscow."

When you have GSH, you never think it's the last cigar.

But you don't have to be on Wall Street to have GSH. Congress has it too. That's what the stimulus bill was about—not knowing what time it is, not knowing the old pork-barrel, group-greasing ways are over, done, embarrassing. When you create a bill like that, it doesn't mean you're a pro, it doesn't mean you're a tough, no-nonsense pol. It means you're a slob.

That's how the Democratic establishment in the House looks, not like people who are responding to a crisis, or even like people who are ignoring a crisis, but people who are using a crisis. Our hopeful, compelling new president shouldn't have gone with this bill. He made news this week by going to the House to meet with Republicans. He could have made history by listening to them.

A final point: In the time since his inauguration, Mr. Obama has been on every screen in the country, TV and computer, every day. He is never not on the screen. I know what his people are thinking: Put his image on the age. Imprint the era with his face. But it's already reaching saturation point. When the office is omnipresent, it is demystified. Constant exposure deflates the presidency, subtly robbing it of power and making it more common. I keep the television on a lot, and somewhere in the 1990s I realized that Bill Clinton was never not in my living room. He was always strolling onto the stage, pointing at things, laughing, talking. This is what the Obama people are doing, having the boss hog the screen. They should relax. The race is long.

As a matter of fact, they should focus on that: The race is long. Run seriously.

'Idiots' Indeed

After President Obama denounced Wall Street bonuses as "shameful" on Thursday, the way was clear for the rest of the political class to pour gasoline on the bonfire being prepared for the offending bankers. Senator Chris Dodd, former "friend" of mortgage banker Angelo Mozilo, ranted that the Treasury should somehow confiscate the bonuses.

Senator Claire McCaskill rolled out legislation to put a compensation cap of $400,000 on executives whose firms receive bailout money. She also proposes creating a court to restrain their "massive self-indulgences." The Senator from Missouri then spoke of "a bunch of idiots on Wall Street." Insofar as the Congress is blithely waving more than $800 billion of cats-and-dogs "stimulus" spending into the air, the American people can be forgiven for asking who are the greater fools.

New York Attorney General Andrew Cuomo has begun a formal investigation into the bonuses and the negotiating details of Bank of America's takeover of Merrill Lynch. In short, Mr. Cuomo is putting BofA head Ken Lewis and Merrill's John Thain in the legal crosshairs. Watching this spectacle, Mr. Obama should consider that there may be a price for letting the populist flames burn out of control during a deep recession.

In our experience, political nuance has never been the strong suit of Wall Street executives. John Thain's year-end bonuses to Merrill Lynch executives, whatever their rationale, reflected an acute case of political tin ear. If the excesses of his office-decorating take this Wall Street practice the way of the dodo, we won't weep.

Yet the hard truth remains that whether on Wall Street or across the American business landscape, compensation levels are a business judgment made under the pressure of competition. The "idiots" notwithstanding, Wall Street has lots of highly talented financial minds and mobility among firms based on compensation is routine.

If Congress is going to start setting legal limits on salaries and bonuses in the U.S., it is going to drive talent out of Bank of America and these other banks and into institutions without such limits, perhaps abroad. The same goes for Attorney General Cuomo's implied threat of prosecutions.

A few quick facts about Wall Street bonuses. The pretext for the political outrage was the New York comptroller's report this week on the aggregate data for bonuses in 2008. That "irresponsible" bonus pool of $18 billion was for every worker in the New York financial industry, from top dogs to secretaries. This bonus pool fell 44% in 2008, the largest percentage decline in 30 years. The average bonus was $112,000; bonuses typically make up most of an employee's salary on Wall Street. The comptroller estimates that this decline will cost New York State $1 billion in lost tax revenue and New York City $275 million. Both city and state may have to announce layoffs.

What is more, the "Wall Street" of popular and fevered imagination isn't coming back anytime soon, if ever. Lehman Brothers, Bear Stearns and Merrill Lynch are gone, kaput. Enough bankers have been ruined or fired to sate class resentments for a lifetime. The remaining big two, Goldman Sachs and Morgan Stanley, are no longer formally investment banks but are now under the supervisory control of the Federal Reserve. The Wall Street business model is broken, and not at a particularly opportune moment for the economy.

Mr. Obama wanted to hit a populist nerve this week because he knows he may have to ask Congress for another $1 trillion or more to revive the banking system. He also knows that the core of the economic crisis is a lending system that remains frozen in a vast lake of toxic, mispriced securities. In short, the credit system is on strike (see above).

The U.S. is a long way from getting out from under this burden. The danger of targeting what capitalists we have left for abuse or prosecution is that they will stay on strike, as they did in the 1930s. It won't be pretty this time either.

Bush Plan Eliminated Obstacle to Gaza Assault

Analysis by Gareth Porter |

Until mid-2007, there was a serious political obstacle to a massive conventional war by Israel against Hamas in Gaza: the fact that Hamas had won free and fair elections for the Palestinian parliament and was still the leading faction in a fully legitimate government.

But the George W. Bush administration helped Israel eliminate that obstacle by deliberately provoking Hamas to seize power in Gaza. That plan was aimed at getting Palestinian President Mahmoud Abbas to dissolve the democratically elected Hamas government—something Bush had tried unsuccessfully to do for many months.

Hamas won 56 percent of the seats in the Palestinian parliament in the January 2006 elections, and the following month, the Palestinian Legislative Council voted for a new government under Hamas Prime Minister Ismail Haniyeh. The Bush administration immediately began to use its control over the "Quartet" (the United States, European Union, United Nations, and Russia) to try to reverse the results of the election.

The Quartet responded to the Hamas victory by demanding that Hamas renounce all armed resistance to Israel and even "disarm" before a political solution was reached. That was in effect a demand that Israel be allowed to use its military and economic controls over the West Bank and Gaza to impose its own unilateral solution on the Palestinians.

Meanwhile, the Bush administration and the Europeans cut off all financing for the Palestinian government, while Israel refused to hand over to the Palestinian authorities the valued-added tax and customs duties it collected on behalf of the Palestinians under the Paris Protocol signed with the Palestinian Liberation Organization as part of the Oslo Accords.

When Abbas continued to resist U.S. demands for an end to the elected government, both Secretary of State Condoleezza Rice and Israeli Foreign Minister Tzipi Livni told him at the United Nations in September 2006 that they would not accept a Palestinian government with Hamas participation.

Then Rice was dispatched to Ramallah in early October 2006 to tighten the screws on the Palestinian president. She demanded a commitment from Abbas to dissolve the Haniyeh government within two weeks, and then accepted his promise to do so within four weeks, according to a later U.S. State Department memorandum published in Vanity Fair magazine.

There was one problem, however, with the U.S. demand: under Article 45 of the Palestinian Authority's "Basic Law," Abbas could fire the prime minister, but he could not appoint a new one who did not represent the majority party in the Palestinian Legislative Council.

Abbas failed to act on the dissolution promise, so the Bush administration gave him a memo demanding that Hamas be given a "clear choice, with a clear deadline" to accept or reject "a new government that meets the Quartet principles." The memo, published in part last January in Vanity Fair, said that if Hamas refused that demand, "you should make clear your intention to declare a state of emergency and form an emergency government explicitly committed to that platform."

It further demanded that Abbas "strengthen his team" by bringing in "credible figures of strong standing in the international community." That was a reference to the longtime director of Fatah's paramilitary forces, Muhammad Dahlan, who had long been regarded as the candidate of the Bush administration and its allies. In April 2003, Yasser Arafat had been under pressure from British Prime Minister Tony Blair and Egyptian President Hosni Mubarak to name Dahlan as head of Palestinian security.

In late 2006, Rice got Egypt, Saudi Arabia, and the United Arab Emirates to agree to provide covert military training and money to equip a major increase in Dahlan's militia.

But there was another element of the Bush administration plan. It encouraged Dahlan to carry out attacks against the Hamas security and political infrastructure in Gaza, which were well known to be far stronger than that of Abbas's Fatah faction. In a later interview with Vanity Fair, Dahlan admitted that he had carried out "very clever warfare" against Hamas in Gaza for many months.

Other sources said that Dahlan's militia was carrying out torture and kidnappings of Hamas security personnel.

Alvaro de Soto, then U.N. special coordinator for the Middle East peace process, wrote in his confidential “End of Mission Report” that the U.S. "clearly pushed for a confrontation between Fatah and Hamas." He recalled that the "U.S. envoy" to a February 2, 2007 meeting of the Quartet in Washington had twice declared, "how much I like this violence," because "it means that other Palestinians are resisting Hamas."

That U.S. envoy was Secretary of State Rice.

The Bush administration seemed to want Hamas to know about its plan to help Fatah use force against the Hamas organization in Gaza. A January 5, 2007 Reuters story filed from Jerusalem revealed an internal U.S. document showing that the United States had pledged $86 million to "strengthen and reform elements of the Palestinian security sector controlled by the PA presidency" and "dismantle the infrastructure of terrorism and establish law and order in the West Bank and Gaza."

When Abbas negotiated a new agreement with Hamas in Mecca in February 2007 on a Palestinian unity government, the Bush administration responded by drafting a secret "action plan for the Palestinian presidency," which threatened that the "international community" would "no longer deal exclusively with the Presidency" if it did not go along with U.S. demands, and that "[m]any countries in the EU and the G8" would "start looking for more credible interlocutors on the Palestinian side who can deliver on key issues of security and governance."

The plan, dated March 2, 2007, called for Abbas to "start taking necessary action against groups undermining the ceasefire with the goal of ensuring all armed groups within Palestine security institutions in stages (between 2007 and 2008)." It promised to help Abbas to "impose necessary order on the Palestinian street" through "superiority" of Fatah forces over Hamas, after which there would be new elections in autumn 2007.

That U.S. plan was leaked in April 2007 by the Jordanian newspaper Al-Majd. That could only have happened if Jordanian intelligence services, which cooperate very closely with the United States, made the decision to leak it to the press.

Then, on June 7, 2007 the Israeli daily newspaper Haaretz revealed that Israel had been asked to authorize the shipment of dozens of Egyptian armored cars and hundreds of rockets and thousands of hand grenades for the Fatah security forces.

The leaked plans for a military buildup were an open invitation to Hamas to take preemptive action. The day after the Haaretz story, Hamas launched a campaign that eliminated the Fatah security presence in Gaza in five days.

The day after the complete defeat of Dahlan's forces in Gaza, Abbas dissolved the Haniyeh unity government and named his own prime minister, in violation of the Palestinian charter.

The rout of Dahlan's forces was a predictable consequence of the Bush administration's policy. As the commander of Fatah's al-Aqsa Martyrs Brigades, Khalid Jaberi, told Vanity Fair's David Rose, "We can only conclude that having Hamas in control serves [the Bush administration's] overall strategy, because their policy was so crazy otherwise."

But the Bush administration had not only accomplished its goal of eliminating a Hamas-dominated government; it had also set up a new argument that could later be used to justify an all-out Israeli offensive in Gaza: that Hamas had mounted an "illegal coup" in Gaza. That was the term that Rice used on January 2 in justifying the Israeli operations against Gaza.

Gareth Porter is an investigative historian and journalist specializing in U.S. national security policy. The paperback edition of his latest book, Perils of Dominance: Imbalance of Power and the Road to War in Vietnam, was published in 2006.

The Conspiracy’s Kernel of Truth

The Conspiracy’s Kernel of Truth

By Laura Carlsen

The North American Union conspiracy theory grew out of a kernel of truth, called the “Security and Prosperity Partnership” (SPP). But cultivated by xenophobic fears and political opportunism, the NAU outstripped its reality-based progenitor so fast that it has become hard to separate the wheat from the chaff. A little history helps.

After the North American Free Trade Agreement went into force in 1994, the three governments began to talk about expanding the scope of the agreement. Mexico, in particular, hoped to negotiate a solution to the border/immigration problem. However, the process was brought to a grinding halt by the attacks of Sept. 11th. In a 2005 summit of then-Presidents George W. Bush, Vicente Fox, and Prime Minister Paul Martin in Waco, Texas plans for “deep integration” between the three countries finally progressed with the official launch of the SPP. In the post-September 11th political context, immigration was definitively off the table and U.S. security interests, along with corporate interests in obtaining even more favorable terms for regional trade and investment, dominated the agenda.

The SPP established working groups, rules, recommendations, and agreements without Congressional oversight or public participation in—or even knowledge of—its proceedings. It created a “North American Competitiveness Council” that reads like a “Who’s Who” of the largest transnationals based on the continent. While the lack of transparency and the U.S. corporate and security- dominated agenda are cause for great concern, they are not evidence of a plot to move toward a North American Union. Even a perfunctory analysis of politics in the three NAFTA countries shows that a North American Union was, is, and always will be a non-starter. It began as an academic proposal and never got off the ground politically.

Among the most bizarre assumptions of NAU scare-mongers is the contention that the SPP will threaten U.S. sovereignty and erase borders. The idea of a regional union that effaces U.S. sovereignty is light-years away from George W. Bush’s foreign policy of unilateral action and disdain for international law and institutions. On the contrary, the precepts of the Bush administration’s foreign policy point to a return to the neoconservative belief that the world would be a better place if the U.S. government just ran everything.

Officially described as “... a White House-led initiative among the United States and the two nations it borders—Canada and<>As for moving toward a borderless North America, the years since the SPP began have witnessed a hardening of the U.S.-Mexico border never seen before in modern history. Fifteen thousand Border Patrol agents, 6,000 members of the National Guard and a border fence powerfully belie any suggestion that the U.S. government aims to eliminate borders.

The NAU myth obscures the very real globalization issues raised by NAFTA—job loss, labor insecurity, the surge in illegal immigration, and racial tensions caused by the portrayal of immigrants as invaders. This is convenient for both right-wing politicians and the government and business elites they attack because real solutions to these problems would include actions anathema to them all, including unionization, enforcement of labor rights, comprehensive immigration reform, and regulation of the international market. Instead, these options are shunted aside with the redefinition of the problem as a conspiracy of anti-American elites.

In this context, outrage over a nonexistent NAU should not be confused with growing criticism of the Security and Prosperity Partnership. The SPP has proceeded to change national regulations, and create closed business committees without the participation of labor, environmental, or citizen voices. SPP negotiations provide a vehicle for more of the corporate integration that has eliminated jobs, impoverished workers, and threatened the environment across borders.

It has also served to extend the dangerous Bush security doctrine to Canada and Mexico, despite its lack of popularity in those countries and among the US public. It’s latest outgrowth, the $1.4 billion-dollar Merida Initiative or Plan Mexico, would provide money, U.S. training, and equipment to the Mexican military, police, and intelligence services. This militarized model of fighting real problems of drug-trafficking and human smuggling would lead to greater violence and heightened binational tensions. It’s time to separate out false threats from real threats. A good place to start is to demand transparency in trinational talks and informed public debate on regional integration.

Laura Carlsen is Director of Americas Policy Program in Mexico City.

When Maynard Met Nancy

When Maynard Met Nancy

By Rich Lowry

Nancy Pelosi doesn't, in Obama chief of staff Rahm Emanuel's words, want to "waste a crisis." She has concocted a hideous stimulus brew brimming with eye of newt, toe of frog, and every other exotic ingredient favored by her Democratic colleagues.

On This Week with George Stephanopoulos, Pelosi defended the inclusion of millions in funding for contraception. She suggested that the funding would reduce costs to the states by discouraging the bearing of children--if we can't create more jobs, at least we can forestall the creation of more people. Maybe the House speaker doesn't realize that John Maynard Keynes, not Thomas Malthus, is the economist of the hour.

The bright shining original Keynesian conception of the stimulus bill was that it would rebuild the nation's famously "crumbling" infrastructure--roads, schools, the energy sector--while immediately creating jobs. A glorious win-win! If only it were possible to build things quickly enough.

According to the Congressional Budget Office, only $4 billion out of $30 billion in highway spending, $3 billion of $18.5 billion in renewable-energy spending, and less than $7 billion of $14 billion of school-construction spending would be spent in the first two years. If spending will take place in 2011 or later, there's no reason for it to be jammed into a hastily passed stimulus bill.

Unless, of course, Democrats want to use the crisis atmosphere to bypass the normal budgetary process for long-term spending. Almost $16 billion for Pell Grants for college students and $1.9 billion for basic scientific research won't stimulate the economy in the near term. Neither will funding for the National Endowment for the Arts ($50 million) or for the National Mall ($200 million).

Pelosi's old criteria were that stimulus be "timely, targeted and temporary." That was before her caucus weighed in with the tardy, ramshackle, and permanent. Countering the CBO, Democrats note that non-construction elements of the bill reach people faster--both the boosts for food stamps and unemployment insurance and the $275 billion in tax relief. This concedes that putting money directly in people's hands is the timeliest stimulus.

Building on that insight, a cut in the payroll-tax rate--paid by both individuals and businesses--should be the bill's centerpiece. By rights, such a cut should have bipartisan appeal. For Democrats, a payroll-tax cut helps those lower-income workers who don't make enough to pay income taxes. (President Obama already supports a tax credit to offset the payroll tax.) For Republicans, it's a genuine tax cut that benefits employers, too.

But Democrats prefer spending on their pet causes. Many congressional Republicans, meanwhile, foolishly act as if only the income tax matters, when roughly 60 percent of wage earners pay more payroll taxes than income taxes.

A cut in the payroll rate would appear in small increments in workers' paychecks, making it more likely to be spent than a lump-sum payment (like last year's rebate checks). It would increase the take-home pay of strapped workers who would have no choice but to spend it. Finally, it would reduce the cost of labor for employers and make it easier at the margin to make new hires or avoid layoffs.

Nearly immediate, a payroll tax cut would be felt now, at what is likely the nadir of the recession. A halving of the payroll rate would funnel $400 billion to individuals and businesses, for a total of $800 billion. The cut could be indefinite, to be rolled back when the economy picks up again, or made permanent and replaced by something else (say, an increased gas tax). The payroll tax funds Social Security and Medicare, but those programs can subsist on borrowing for now--like the rest of the federal government.

No one can be sure if fiscal stimulus will work. We do know that relief for individuals and businesses right away must help more than subsidizing a wind farm in 2012.

RNC Chairman Michael Steele's Acceptance Speech

More Obama Cabinet "Tax Problems"

Gregg's Appointment to Commerce on Track

Gregg's Appointment to Commerce on Track

By Anne E. Kornblut
Republican Sen. Judd Gregg is the leading candidate to become the next Commerce Secretary, a move that could happen in the next day or two, White House officials said on Saturday.

Gregg's selection and exit from the Senate would clear the way for the New Hampshire governor, John Lynch (D), to appoint a Democrat as his replacement - giving Pres. Barack Obama the 60-vote majority he needs for a filibuster-proof majority. But Lynch, a moderate, could appoint a Republican instead, filling the seat with a caretaker senator until the next election, in 2010.

Gregg acknowledged on Friday that he was under consideration for the post. Administration officials took it a step further, saying he is atop the list to fill a job that has sat empty since New Mexico Gov. Bill Richardson (D) withdrew his nomination because of an investigation involving government contracts.

For Obama, picking Gregg would bolster his argument that he is truly building a bi-partisan Cabinet. Gregg is a fiscal conservative, a longtime supporter of Sen. John McCain and a Republican Party stalwart, though his state has grown increasingly moderate in recent years. Two other Republicans - former Rep. Ray LaHood, the Transportation Secretary, and Robert Gates, the holdover Defense Secretary from the Bush administration - are already in place.

But Gregg would also bring more than bragging rights: he could help Obama sell entitlement and budget reform to a wary Congress and to the business community, of which Gregg has been a strong advocate. Gregg, a three-term senator, is former chairman of the Senate Banking Committee, and helped devise the $700 billion bank bailout package that passed last year.

Among the potential Republican candidates Lynch might consider to replace Gregg: Bonnie Newman, the former president of the University of New Hampshire; Doug Scamman, the former New Hampshire House Speaker; former Gov. Walter R. Petersen, Jr.; and former Attorney General Tom Rath. On the Democratic side, it is likely that the two members of Congress, Paul Hodes and Carol Shea Porter, would at least be considered. New Hampshire's other senator is Jeanne Shaheen, a Democrat who was elected in November.

Obama: U.S. not your enemy

Obama: U.S. not your enemy

BEN SMITH

President Barack Obama presented a humble and conciliatory face of America to the Islamic world Monday in the first formal interview since he assumed office, stressing his own Muslim ties and hopes for a Palestinian state, and avoiding a belligerent tone — even when asked if America could "live with" an Iranian nuclear weapon.

The interview with the Dubai-based Al-Arabiya Network was a dramatic piece of public diplomacy aimed at capitalizing on the new American president's international popularity, though it balanced America's traditional commitment to Israel, whose security Obama called "paramount.'

"I have Muslim members of my family. I have lived in Muslim countries," Obama said, according to a White House transcript. "My job to the Muslim world is to communicate that the Americans are not your enemy."

The Al Arabiya interview, directed squarely at Muslims around the world, revived a vision of personal, symbolic international change that was in the air when Obama - with his far-flung family members, and complicated story - launched his campaign. It was a vision, and an aspect of his story, that the candidate buried when, in 2007, was forced to combat whispering campaigns about his own faith.

But by giving his first interview to the Arabic network, Obama signaled his continuing belief in his personal power as a symbol of America against the temptations of Islamic militancy. He even dismissed "bankrupt" ideas and policies that don't improve children's health care, jabbing at "nervous" Al Qaeda leaders in language that echoed his campaign against George W. Bush.

The occasion for this interview was the departure of Obama's special envoy, George Mitchell, to the Middle East, and a more aggressive and optimistic approach to that conflict than some argued that the circumstances dictated. The president offered no timeline for peace, but a firm view that a Palestinian state remains within reach.

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"What I told him is start by listening, because all too often the United States starts by dictating — in the past on some of these issues — and we don't always know all the factors that are involved," Obama said. "What we want to do is to listen, set aside some of the preconceptions that have existed and have built up over the last several years. And I think if we do that, then there's a possibility at least of achieving some breakthroughs."

Obama's interview was marked by attempts to sympathize with the concerns of ordinary Muslims, particularly on the question of living conditions in the West Bank. But he sought a conciliatory tone throughout the interview, at one point avoiding even restating American policy, and his own platform, than an Iranian nuclear weapon is plainly unacceptable.

"Will the United States ever live with a nuclear Iran? And if not, how far are you going in the direction of preventing it?" asked the interviewer, Al Arabiya Washington Bureau Chief Hisham Melhem.

Obama responded only generally, expressing disapproval of an Iranian bomb but not the flat condemnation that is standard from American officials.

"You know, I said during the campaign that it is very important for us to make sure that we are using all the tools of U.S. power, including diplomacy, in our relationship with Iran," he said. "Now, the Iranian people are a great people, and Persian civilization is a great civilization. Iran has acted in ways that's not conducive to peace and prosperity in the region: their threats against Israel; their pursuit of a nuclear weapon which could potentially set off an arms race in the region that would make everybody less safe; their support of terrorist organizations in the past -- none of these things have been helpful."

During the campaign and transition periods, Obama's condemnations of an Iranian nuclear weapon were more direct: "[T]heir development of nuclear weapons would be unacceptable," Obama said on Meet the Press on December 7.

A senior Obama aide said Monday night that Obama had not changed his views on Iran.

Obama also signaled a move away from President Bush's confrontational, generalizing language. Melhem noted to Obama that "President Bush framed the war on terror conceptually in a way that was very broad, 'war on terror,' and used sometimes certain terminology that the many people -- Islamic fascism. You've always framed it in a different way, specifically against one group called al Qaeda and their collaborators."

"I think that you're making a very important point. And that is that the language we use matters," Obama replied. "[W]hat we need to understand is, is that there are extremist organizations -- whether Muslim or any other faith in the past -- that will use faith as a justification for violence. We cannot paint with a broad brush a faith as a consequence of the violence that is done in that faith's name.

"And so you will I think see our administration be very clear in distinguishing between organizations like al Qaeda -- that espouse violence, espouse terror and act on it -- and people who may disagree with my administration and certain actions, or may have a particular viewpoint in terms of how their countries should develop," he said. "We can have legitimate disagreements but still be respectful. I cannot respect terrorist organizations that would kill innocent civilians and we will hunt them down."

Obama's shift Monday was one of tone, not of policy, and he also affirmed America's support for Israel.

"Israel is a strong ally of the United States. They will not stop being a strong ally of the United States. And I will continue to believe that Israel's security is paramount," he said. "But I also believe that there are Israelis who recognize that it is important to achieve peace. They will be willing to make sacrifices if the time is appropriate and if there is serious partnership on the other side."

Obama's interview plan was made public only Monday afternoon, and the interview, which concluded just after 6:00 p.m., was distributed to reporters in the evening and embargoed for release at 11:00 p.m.

Asked why Al Arabiya had been granted the president's first interview, and aide said: "We want to communicate directly to the entire world America's new foreign policy."

A Free Pass for Geithner

By Jonah Goldberg

During the hothouse days of the presidential campaign, Joe Wurzelbacher became famous because he got Barack Obama to confess that he likes to spread the wealth around. Better known as Joe the Plumber, the Toledo, Ohio, laborer became the target of bottomless venom and scorn because he seemed like an obstacle to Obama's coronation.

One of the main talking points, particularly among left-wing bloggers, was that Wurzelbacher was a tax cheat because, it was revealed by ABC News, he had a tax lien of $1,182 for back Ohio state taxes. This fueled the argument that he was a fraud, his opinion didn't matter. Nothing to see here, folks. Move along.

Fast-forward to today. Timothy Geithner, President Obama's choice to be the next treasury secretary, quite clearly tried to defraud the government of tens of thousands in payroll taxes while working at the International Monetary Fund. The IMF does not withhold such taxes but does compensate American employees who must pay them out of pocket. Geithner took the compensation -- which involves considerable paperwork -- but then simply pocketed the money.

His explanations for his alleged oversight don't pass the smell test. When the IRS busted him for his mistakes in 2003 and 2004, he decided to take advantage of the statute of limitations and not pay the thousands of dollars he also failed to pay in 2001 and 2002. That is, until he was nominated to become treasury secretary.

Obama defends Geithner, saying that his was a "common mistake," that it is embarrassing but happens all the time. My National Review colleague Byron York reports that, at least according to the World Bank, Geithner's "mistakes" are actually quite rare. Indeed, it's almost impossible to believe that the man didn't know exactly what he was doing given that he would have had to sign documents, disregard warnings and all in all turn his brain off to make the same "mistake" year after year. And keep in mind, Geithner is supposed to run the IRS. So maybe sloppiness isn't that great a defense anyway.

The bulk of Senate Republicans seem willing to green-light his appointment because, in the words of many, "he's too big to fail." Wall Street likes this guy and so does Obama. So, who cares if he breaks and bends the rules? Who cares that he took a child-care tax credit to send his kids to summer camp? He's the right man for the job, no one else can do it, he's the financial industry's man of the moment.

This strikes me as both offensively hypocritical and absurd. Obama has made much of Wall Street greed. He and his vice president talk about paying taxes like it is a holy sacrament. They both belittled Wurzelbacher for daring to suggest that the Democratic Party isn't much concerned with how the little guy can get ahead.

Heck, Obama and pretty much the entire Democratic party insist that they speak for the little guy. But it appears they fight for the big guys.

You would think this is a perfect moment for Republicans to stand on principle, particularly since their votes aren't needed to confirm Geithner. What they will tell you is that Geithner is the indispensable man and, in the words of South Carolina Rep. Lindsey Graham, "These are not the times to think in small political terms."

Never mind that there's nothing small about the belief that paying taxes in an honest fashion is a minimal requirement for the job of treasury secretary. What's absurd is that Geithner, who helped regulate Wall Street as head of the New York Fed, is the indispensable man now. He may indeed be qualified to be treasury secretary, but is he really the only man who can do the job? Really? Everyone said the same thing about Hank Paulson not long ago. How'd that work out?

I thought the Democrats believed the financial implosion was caused by arrogant and greedy men who thought the rules didn't apply to them because they were so important. I guess they didn't mean it.