The Return of Big Government
by David Boaz
It's been a long time since a U.S. election generated feelings of actual joy beyond the ranks of partisan activists. If Barack Obama hasn't yet ushered in a new "era of good feelings," all Americans can take pride in the demise of yet another glass ceiling in a nation conceived in liberty and dedicated to the proposition that all of us are created equal, entitled to the inalienable rights of life, liberty, and the pursuit of happiness.
Indeed, we can take some satisfaction in observing that something normal happened: A party that had given Americans a long war and an economic crisis, led by a strikingly unpopular president, was defeated. Republican government requires that failed parties be turned out of office. The American Founders believed firmly in the principle of rotation in office. They thought that even successful officeholders should go back home to live under the laws after a short period in office. No doubt more members of the 110th Congress would have been given that privilege were it not for the vast incumbent protection complex of laws and regulations and subsidies.
George W. Bush and the Republicans promised choice, freedom, reform, and a restrained federal government. As far back as the Contract with America in 1994, congressional Republicans pledged "the end of government that is too big, too intrusive, and too easy with the public's money." But over the past eight years they delivered massive overspending, the biggest expansion of entitlements in 40 years, centralization of education, a war that has lasted longer than World War II, an imperial presidency, civil liberties abuses, the intrusion of the federal government into social issues and personal freedoms, and finally a $700 billion bailout of Wall Street that just kept on growing in the last month of the campaign. Voters who believe in limited government had every reason to reject that record.
At the Cato Institute we stand firmly on the principles of the Declaration of Independence and the Constitution, and on the bedrock American values of individual liberty, limited government, free markets, and peace. And throughout our 32 years we have been willing to criticize officials of both parties when they sought to take the country in another direction. We published papers critical of President Clinton's abuse of executive authority, his administration's misguided antitrust policies, his nation-building experiments, and his unwillingness to take on corporate welfare. Our analysts were among the first to point out the Bush administration's profligate spending, as well as the administration's policies on executive power, habeas corpus, privacy, expansion of entitlements, the federal marriage amendment, and the misbegotten war in Iraq.
But we have also been pleased to work with administrations of both parties when they seek to expand freedom or limit government— with the Clinton administration on free trade, welfare reform, and a few tentative steps toward Social Security reform; with the Bush administration on tax cuts, the initial response to the 9/11 attacks, health savings accounts, immigration reform, and Social Security accounts. We look forward to opportunities to work with the Obama administration when it moves to reverse the worst mistakes of the Bush years or otherwise to advance policies that would enhance peace, freedom, and prosperity.
The Current Crisis
In the current economic crisis, our first task is to understand it and its causes. This was a crisis caused by regulation, subsidization, and intervention, and it won't be cured by more of the same. Christopher Hitchens had a point when he wrote, "There are many causes of the subprime and derivative horror show that has destroyed our trust in the idea of credit, but one way of defining it would be to say that everybody was promised everything, and almost everybody fell for the populist bait."
The backdrop is central banking and implicit federal guarantees for risky behavior. The Federal Reserve Board creates money and adjusts interest rates, so any notion that our financial system was an example of laissez-faire fails at the start. Meanwhile, Congress and regulators pushed Fannie Mae and Freddie Mac to become a vast duopoly in the mortgage finance industry. Their debt was implicitly backed by the U.S. Treasury, and they were able to expand their debt and engage in risky transactions. As Lawrence Summers wrote, "Little wonder with gains privatized and losses socialized that the enterprises have gambled their way into financial catastrophe."
There was substantial agreement in Washington that home ownership was a good thing and that more homeownership would be even better. Thus Congress and regulators encouraged Fannie, Freddie, and mortgage lenders to extend credit to underqualified borrowers. To generate more mortgage lending to low- and moderate- income people, the federal government loosened down-payment standards, pressured lenders to increase their percentages of "affordable" loans, and implicitly guaranteed Fannie and Freddie's dramatic expansion. All that hard work paid off: The share of mortgages classified as nonprime soared, and the quality of those loans declined. And Federal Reserve credit expansion helped to make all of this lending possible, as Lawrence H. White wrote in his Cato Briefing Paper, "How Did We Get into This Financial Mess?"
"Everybody was promised everything"— cheap money, easy lending, and rising home prices. All that money and all those buyers pushed housing prices up sharply. But all good things—at least all good things based on unsustainable policies—must come to an end. When housing prices started to fall, many borrowers ran into trouble. Financial companies threatened to fall like dominos, and an ever-expanding series of bailouts began issuing from the Treasury department. And instead of the usual response to businesses that make bad decisions—let them go into bankruptcy or reorganization and let their workers and assets go to more effective companies—the federal government stepped in to keep every existing enterprise operating.
At this point it is important that the recent emergency measures be recognized as just that: emergency—if not panic— measures and not long-term policy. Congress should turn its attention to extricating the government from financial firms and basing long-term policies on a clear diagnosis of what went wrong. Congress should repeal the Community Reinvestment Act and stop pressuring lenders to make loans to underqualified borrowers. The Treasury should use its authority as conservator to liquidate Fannie Mae and Freddie Mac. The federal government should refrain from using its equity investments in companies to exercise power over their operations and should move with all deliberate speed to withdraw from corporate ownership.
One lesson of the credit crisis is that politicians prefer to "promise everybody everything"—low interest rates, affordable mortgages, higher housing prices, lower gas prices, a chicken in every pot. That's why it's important to keep politics out of such matters.
The End of Libertarianism—or a New Beginning?
Various pundits and public figures have claimed that the credit crisis means "the end of libertarianism" or even more dramatically "the end of American capitalism." As noted above, the crisis can hardly be considered a failure of laissez-faire, deregulation, libertarianism, or capitalism, since it was caused by multiple misguided government interventions into the workings of the financial system. It was and is precisely a failure of interventionism.
But could capitalism or libertarianism come to an end despite the facts? After all, the Great Depression was primarily caused by poor Federal Reserve policy and high tariffs. But a false impression that it was somehow caused by laissez-faire led to New Deal policies (pursued first by Herbert Hoover and then by Franklin D. Roosevelt) that turned a contraction into the Great Depression. What policies? Restrictive banking regulations, increases in top marginal tax rates, interventions to keep wages and prices from adjusting, and government rhetoric and activism that created (in the words of historian Robert Higgs) "pervasive uncertainty among investors about the security of their property rights in their capital and its prospective returns." That set of policies lengthened the Great Depression by eight years or more and is uncomfortably similar to recent and proposed policy responses to the 2008 credit crisis.
In Newsweek, Jacob Weisberg declared that the financial crisis is "the end of libertarianism." But it was in fact "progressive" interventionism that caused the crisis—just the economic philosophy that Weisberg supports. So if one big failure can kill an ideology, then let's hear it for "the end of interventionism."
If this crisis leads us to question the "American-style capitalism" in which a central monetary authority manipulates money and credit, the central government taxes and redistributes $3 trillion a year, huge government-sponsored enterprises create a taxpayer-backed duopoly in the mortgage business, tax laws encourage excessive use of debt financing, and government pressures banks to make bad loans—well, it might be a good thing to reconsider that "American-style capitalism." Or indeed, as a Washington Post editorial put it in October, "Government sponsored, upside-only capitalism is the kind that's in crisis today, and we say: Good riddance."
Libertarianism calls for freedom and responsibility, free markets and civil liberties, a minimal government that stays out of both boardrooms and bedrooms. Obviously libertarianism wasn't in the driver's seat in either the Clinton or the Bush administration.
Even if there are misperceptions about the causes of the crisis, both the system of capitalism and the idea of libertarianism are going to have more staying power than pundits such as Weisberg would like. There was a time when half the world rejected capitalism, and leading intellectuals in the "free world" worried that the centrally planned economies would obviously out compete the capitalist countries and that "convergence" on some sort of half-capitalist, half-socialist model was the wave of the future. But after the world got a look at the results of the two systems in East and West Germany, North and South Korea, Hong Kong and Taiwan and China, the United States and the Soviet Union, it became clear that socialism is a clumsy, backward looking prescription for stagnation at best and tyranny at worst.
Meanwhile, the half-planned economics of the West—Great Britain, New Zealand, the United States, and more—developed a milder version of economic sclerosis. Starting in the 1970smany of those countries began eliminating price controls, removing restrictions on market competition, opening up the economy, cutting tax rates, and reducing trade barriers. It came to be widely recognized—eventually on both sides of the IronCurtain—that private property and markets are indispensable in organizing a modern economy. A nearly simultaneous cultural revolution opened up society. Women, racial minorities, and gays and lesbians entered the mainstream of society throughout the Western world. Art, literature, and lifestyles became more diverse and more individualized. The Sixties and the Eighties both led us to what Brink Lindsey in The Age of Abundance called "the implicit libertarian synthesis" of the United States today.
Some people see a future of ever more powerful government. Others see a future of greater freedom. Reason editors Nick Gillespie and Matt Welch write: "We are in fact living at the cusp of what should be called the Libertarian Moment, the dawning of... a time of increasingly hyper-individualized, hyper-expanded choice over every aspect of our lives... This is now a world where it's more possible than ever to live your life on your own terms; it's an early rough draft version of the libertarian philosopher Robert Nozick's 'utopia of utopias... This new century of the individual, which makes the Me Decade look positively communitarian in comparison, will have far-reaching implications wherever individuals swarm together in commerce, culture, or politics."
Is it possible that Congress will choose to pursue policies—tax increases, yet higher spending, continued subsidies for risky decisions, intrusion into corporate decision making— that would slow down U.S. economic growth, perhaps make us more like France, with its supposedly kinder, gentler capitalism and its GDP per capita of about 75 percent of ours? Yes, it's possible, and clearly there are proposals for such policies. But if we want economic growth— which means better health care, scientific advance, better pharmaceuticals, more leisure opportunities, a cleaner environment, better technology; in short, more well being for more people—there is no alternative to market capitalism. And if we want more growth, for more people, with wider scope for personal choice and decision making, libertarian policy prescriptions are the roadmap.
A Libertarian Agenda
Beyond the immediate financial crisis, there are many more issues confronting us. Fiscal reform, for instance. Federal spending increased by more than a trillion dollars during the Bush years, or more than 70 percent (even before the budget busting bailout and stimulus packages). The national debt rose even more sharply, from $5.727 trillion to more than $10.6 trillion, or an increase of more than 85 percent. The 2009 budget deficit may exceed $1 trillion. Trends like this are unsustainable, yet elected officials continue to promise more spending on everything from new weaponry to college tuitions. Congress and the administration must find a way to rein in this profligacy.
The current rates of spending don't yet reflect the acceleration of entitlement spending as the baby boomers start retiring. Entitlements are already about 40 percent of the federal budget. In 20 years they may double as a share of national income. The unfunded liability of Social Security and Medicare is now over $100 trillion, an unfathomably large number. Within barely a decade, the two programs will require more than 25 percent of income tax revenues, in addition to the payroll taxes that currently fund them. Congress needs to think seriously about this problem. Are members prepared to impose the tax burden necessary to fund such levels of transfer payments? Do we want that many Americans dependent on a check from the federal government? Eventually, the projected level of entitlements will not be feasible. It would be best to start now to make changes rationally rather than in a panic a few years from now.
Private property, free markets, and fiscal restraint are important foundations for liberty, and the party that claims to uphold those values has done a poor job of it lately. But there are restrictions on liberty beyond the realm of taxes and regulations. We hope that elected officials of both parties will recognize the dangers of censorship, drug prohibition, entanglement of church and state, warrantless wiretapping, indefinite detention, government interference with lifestyle and end-of-life choices, and other such policies. Americans declared in 1776 that life, liberty, and the pursuit of happiness are inalienable rights, and in 1787 they wrote a Constitution that empowers a limited government to protect those rights.
Fidelity to those founding principles of respect for civil liberties and limited government may be easy when times are easy. The true test of our faith in those principles comes when we are beset by diabolical assaults from without and economic turmoil within, when public anxiety may temporarily make it seem expedient to put those principles aside. The importance of paying scrupulous deference to the Constitution's limits on federal power, of respecting its careful system of checks and balances, is greatest precisely when the temptation to flout them is strongest.
For those who go into government to improve the lives of their fellow citizens, the hardest lesson to accept may be that Congress should often do nothing about a problem—such as education, crime, or the cost of prescription drugs. Critics will object, ''Do you want the government to just stand there and do nothing while this problem continues?" Sometimes that is exactly what Congress should do. Remember the ancient wisdom imparted to physicians: First, do no harm. And have confidence that free people, left to their own devices, will address issues of concern to them more effectively outside a political environment.
How Economic Freedom Declined under Bush
by Robert Lawson and Joshua Hall
There is no doubt that US president George W. Bush's "war on terror" will dominate any assessment of his legacy. However, the marked decline in economic freedom during this time, despite Mr Bush's repeated acknowledgement of its importance, should not be overlooked.
The importance of economic freedom, domestically and abroad, was a consistent theme for Mr Bush, going back to his first presidential campaign. In 2002, the Bush administration unveiled a new approach to foreign aid, the Millennium Challenge Account, with the goal of a US$5 billion annual budget by 2006.
Auburn University professor Robert Lawson is a co-author of the annual Economic Freedom of the World report, published by the Fraser and Cato institutes. Joshua Hall is an assistant professor of economics at Beloit College.
Mr Bush stated that aid would be given to countries that "govern justly, invest in their people and encourage economic freedom", and the US would no longer dole out funds to corrupt, autocratic governments.
Unfortunately, while he was actively trying to promote economic freedom abroad, his domestic policies were eroding that freedom for Americans. In a recent study - the Economic Freedom of the World: 2008 Annual Report - released by a consortium of thinktanks, America was tied for eighth place, with a score of 7.86 on a scale of 0-10, with 10 being an extremely high level of economic freedom.
The results are based on 42 different factors taken from a variety of international data sources. Hong Kong came top and the US also ranked below Switzerland, Chile, and Canada, among others. That is troubling enough. Yet, this one-year snapshot misses the significant decline in economic freedom since 2000 and how that decline reversed a long-term trend of increasing economic freedom in the US.
In 1970, the US also ranked eighth, with a score of 7.61. That rose steadily over the next three decades, to 8.55 in 2000, second only to Hong Kong. Starting in 2000, economic freedom began to decline sharply, losing nearly two-thirds of a point. Only eight countries had a decrease of half a point or more during this period. And only Niger, Venezuela, Argentina and Zimbabwe fared worse than the US.
America's decline came from three areas: government spending, legal and property rights, and regulation. First, Washington was spending and regulating more at the end of Mr Bush's presidency than at the beginning. The ranking associated with government spending fell to 39th from 18th, and the regulation ranking fell to 14th from 2nd. Second, and most disturbing, is Mr Bush's legacy in the legal and property rights arena, where the ranking fell to 28th from 9th highest in the world.
Mr Bush's attempts to highlight the importance of economic freedom around the world with the Millennium Challenge Account were laudable. Emphasising economic freedom abroad is surely the best way to promote growth and poverty alleviation. Unfortunately, Mr Bush's presidency left his own citizens less free economically.
Troubled Neighbor: Mexico's Drug Violence Poses a Threat to the United States
by Ted Galen Carpenter
While U.S. leaders have focused on actual or illusory security threats in distant regions, there is a troubling security problem brewing much closer to home. Violence in Mexico, mostly related to the trade in illegal drugs, has risen sharply in recent years and shows signs of becoming even worse. That violence involves turf fights among the various drug-trafficking organizations as they seek to control access to the lucrative U.S. market. To an increasing extent, the violence also entails fighting between drug traffickers and Mexican military and police forces.
The carnage has already reached the point that the U.S. State Department has issued travel alerts for Americans traveling in Mexico. U.S. tourism to cities on Mexico’s border with the United States, where the bloodshed has been the worst, has dropped sharply. Even more troubling, the violence is spilling across the border into communities in the southwestern United States.
Ted Galen Carpenter, vice president for defense and foreign policy studies at the Cato Institute, is the author of eight books, including Bad Neighbor Policy: Washington's Futile War on Drugs in Latin America.
More by Ted Galen CarpenterU.S. officials, alarmed at the growing power of the Mexican drug cartels, have pressured the government of Felipe Calderón to wage amore vigorous anti-drug campaign. Calderón has responded by giving the army the lead role in efforts to eliminate the drug traffickers instead of relying on federal and local police forces, which have been thoroughly corrupted by drug money. Washington has rewarded Calderón’s government by implementing the initial stage of the so-called Mérida Initiative. In June 2008, Congress approved a $400 million installment modeled on Plan Colombia, the anti-drug assistance measure for Colombia and other drug-source countries in the Andean region. That program, now in its ninth year, has already cost more than $5 billion, without significantly reducing the flow of drugs coming out of South America. The Mérida Initiative will likely cost billions and be equally ineffectual.
Abandoning the prohibitionist model of dealing with the drug problem is the only effective way to stem the violence in Mexico and its spillover into the United States. Other proposed solutions, including preventing the flow of guns from the U.S. to Mexico, establishing tighter control over the border, and (somehow) winning the war on drugs are futile. As long as the prohibitionist strategy is in place, the huge black market premium in illegal drugs will continue, and the lure of that profit, together with the illegality, guarantees that the most ruthless, violence-prone elements will dominate the trade. Ending drug prohibition would de-fund the criminal trafficking organizations and reduce their power.
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The ISM Manufacturing index increased to 35.6 in January
The ISM Manufacturing index increased to 35.6 in January from 32.9 in December. The consensus had expected a slight decline to 32.6. (Levels higher than 50 signal expansion; levels below 50 signal contraction).
The output components of the overall index bounced from December lows. The index for new orders increased to 33.2 from 23.1; the production index increased to 32.1 from 26.3; and the employment index remained the same at 29.9.
The prices paid index increased to 29.0 from 18.0, its first increase since June.
Implications: The US manufacturing sector continued to contract in January, but at a slower rate than in December. The sub-indexes for both production and new orders bounced from December levels, when they hit the lowest points ever recorded (dating back to 1948). The level of the index should continue to move upward, but will likely remain below 50 for at least the next few months as companies work off excess inventories. In other news this morning, construction fell 1.4% in December, a slightly larger decline than the consensus expected. As usual, weakness was most acute in the building of new homes. The building of business-related buildings fell overall but with lots of variation by sector. Building increased in the manufacturing and communication sectors but declined for power plants, offices, and retail. Government construction fell due to less paving of highways and roads. Construction was also revised down for October/November, suggesting real GDP growth in the fourth quarter is more likely to be revised down rather than up from the original estimate of -3.8% (released on Friday).
Stimulating Our Way to Rock Bottom
by Ron PaulListen to Ron Paul. Click the play button below.
With attention turning to the next big economic stimulus package, questions are still swirling about our economic troubles. How did we get here? How do we get out? As usual, Washington has all the wrong answers. According to many politicians, we got here by not spending enough, not consuming enough, and not regulating enough. Now government, like some mythical white knight, is going to ride in to save the day by blanketing the economy with dollars, hiring an army of new bureaucrats, creating make-work jobs, and sending everyone some form of a bailout check. The debate seems to focus on whether this will cost enough to save the economy, or if this is just a “down payment” with much more government spending to come. Talk like that would be comical, if the results weren’t going to be so tragic.
The results will be worsening economic woes until we learn our lesson. But instead Congress is behaving like drug addicts who must hit rock bottom before they are ready to face reality. They are playing foolish games with the economy now because they are thinking only of political expedience. This talk of job creation is a perfect example.
Contrary to the belief of many, the goal of the economy is not job creation. Jobs can be a sign of a healthy economy, as a high energy level can be a sign of a healthy body. But just as unhealthy substances can artificially give the addict that burst of energy that has nothing to do with health, artificially created jobs just exacerbate our problems. The goal of a healthy economy is productivity. Jobs are a positive outcome of that. A “job” could be to dig a hole one day, and fill it back up the next, or perhaps the equivalent at a desk. This does no one any good. But the value in that paycheck ultimately has to come from taxing someone productive. Some think this round-robin type of economic model is supposed to get us somewhere.
Politicians and bureaucrats have already done their fair share to ensure that jobs in the private sector are prohibitively complicated and expensive to create. They are now shocked that the economy is shedding jobs, and want to simply create hundreds of thousands of jobs to make up for the job losses, through another so-called economic stimulus package. The private sector must be permitted to do that, but instead they are massively burdened with taxes and webs of red tape and regulation. Washington’s band-aids will only prolong this agony. The Austrian school of economics teaches that only a free market economy, unencumbered by onerous government controls, creates long-term prosperity. Politicians, however, tend to be notoriously short-sighted.
I am left with these questions – who is going to be left standing to tax in the private sector to pay for all these public sector make-work jobs? Is Washington really to be considered some sort of savior for creating unproductive jobs in place of the productive jobs they eliminated?
We are at an economic dead-end and those in power are in denial. The truth is, our economic problems are due to loose monetary policy, central economic planning, and the parasitic expenses of government. Unless we assess these problems honestly, we unfortunately have a long way to go until, like the junkie, we hit rock bottom.
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by Michael S. RozeffForced Lending To Undermine the Economy
The Obama administration promises us a program of forced lending by banks. By this means, they intend to promote economic recovery. Amazing as it seems, our major officials do not understand that forced lending by banks severely undermines an economy. Subsidizing loans will destroy the market for bank credit. Bank credit will no longer be allocated by rational means of comparing real costs to real benefits. The results will be to harm many people and worsen the structure of the U.S. economy.
In his testimony of Jan. 21, 2009, before the U.S. Senate Committee on Finance, Timothy F. Geithner told us that the Obama administration intends to induce banks to make loans. Such an assault on how credit is granted by banks will hobble the U.S. economy. To understand how this will happen, we need first to see how the granting of credit works in a free market.
The usual practice in a free market is that bankers assess the making of loans using their internal methods of evaluations. They collect information about the borrowers and what the borrowers intend to do with the credit that the bankers provide. If a businessman wants to borrow, the banker assesses the business prospects. The banker does not generally grant credit to just anyone. Bankers do not want to make bad loans, as this jeopardizes their jobs and positions, their stock ownership in banks, and the survival of the bank. Bankers ordinarily exercise prudence.
These statements may seem counter-factual given the lately departed boom. But deterioration in credit standards is something induced by a central banking–fostered and government-encouraged boom. It is not the norm. When the banks have ready access to ample bank reserves provided by the central bank at low cost, and when the government evaluates bankers on the basis of the volume of their community loans, banks are induced to make substandard loans and loans at interest rates that do not reflect the true values of assets. Rising prices in a central bank–induced boom induce banks to make loans based on speculation that these prices are permanent and/or will continue to rise. None of this is what normally happens in a free market in which banks issue their own credits (their own bank notes) and must evaluate carefully those to whom they grant such credits. In a real free-banking market, there is no generalized inflation. Bank notes of individual banks may depreciate, but those banks are then driven out of business if they do not stop over-issuing credit.
Banking systems around the world are mixtures of free market elements with central bank and government-controlled elements. An important free market element has historically been that each banker evaluates the granting of credit by his own means, in competition with other bankers doing the same. Organizationally, the banks have been privately financed by stocks and bonds. The bank managers historically have substantial ownership interests in the bank so as to align their interests with those of outside suppliers of equity capital. The entire system is arranged so that the bankers allocate their credits in a rational way; that is, they make a business loan only when they expect to earn a risk-adjusted return based on a careful and realistic assessment of the prospects of the business.
One must not be misled into thinking that the bank lending behavior displayed in the recent boom is the kind of behavior exhibited in a market that operates without a central bank and without government inducements to lend. Excessive central bank credit leads directly to bankers making loans that ultimately turn out to be bad loans when the market prices established in the boom start to decline. Bad loans mean that the economy is beset with bad investments by businesses that are receiving too liberal credits. This amounts to subsidizing production in unproductive areas of the economy, which means capital is being diverted into projects whose costs exceed their benefits. These mal-investments are not noticed until the boom fails.
When a business that should not be receiving credit receives credit, the business attracts labor and resources (goods and services) away from sound businesses. The weak business temporarily employs people in work that ultimately does not produce what people want to buy. The business cannot cover its costs. It loses money. It may fail. It lays off employees. Its buildings and machinery and inventory stand unused. They may need to be altered to suit better purposes. Much human effort and time go to waste when the bad business gets loans that it should not get. Employees learn skills in this business that may not be useful elsewhere. They may spend several years attempting to get ahead only to find that there is no future in that business. Their lives are interrupted. They have to seek work elsewhere. In the meantime, they use up their savings. They may have to go back to school or move in with relatives. The costs of bad lending are very high.
Another cost is that bad loans made to unsound business ventures harm the sound businesses. They face greater costs and competition from businesses that are subsidized. This undermines their viability. There are many, many negative effects of the mis-allocation of credit; and I have not even mentioned the very bad effects that arise when people who are poor credit risks are granted credits to buy homes, autos, furnishings, and other goods. Nor have I mentioned that taxpayers are often called upon to pick up the tab, or that business failures of subsidized businesses cause the government to interfere even more into the economy.
The fact that individual banks evaluate credits carefully in normal markets is one of the few things that stands in the way of the excessive central bank credit entirely disrupting the economy. Imagine that the central bank were itself to create credit and grant loans to businesses and persons, or imagine that the government does this (which it actually does in great volume). Imagine that the banks were not in the middle, as they are today, allocating credit by rational criteria of cost and benefit. When the government hands out money, it does not use rational criteria. It plays favorites and showers money on its favorites, even if what they do with that money ends up causing a loss by incurring greater costs than its benefits. The taxpayers foot the bills. If the central bank grants credits directly to businesses or other parties and cuts out individual bankers or other lenders, we are very unlikely to see the same degree of care and prudence as are exercised by individual bankers. The central bank, after all, can create far more credit unilaterally.
Now, in fact, the Bernanke central bank is already extending credits at a scale that is unprecedented. Some of it is direct to businesses, in the form of commercial paper. This is a most dangerous game. The central bank is subsidizing business enterprises directly and probably without the care that individual banks would use. The central bank is intent on reviving business. Its political objectives and its ability to create credit are not the stuff of a free market. Neither is its independence from stockholders and lenders; Bernanke does not own stock in his bank. These factors do not make for careful evaluation of credits and credit granted at full market rates of interest. The Fed is thus busy building an unsound and subsidized economy that misallocates resources. It is busy laying the groundwork for the kinds of personal heartaches described earlier that occur when subsidized businesses are created and kept alive.
This is not all. The Fed has liberally supplied reserves to member banks in the attempt to induce them to make more loans. They are doing so to some extent. The growth of the money supply has picked up to a very high annual rate. The authorities do not think it is high enough. They want to see the official numbers show a rebound in gross national product (GNP). This rebound, when it arrives, whether weak or strong, will be misleading if it is being induced by bad loans. Some Americans will be temporarily employed at work in business operations that eventually will falter or fail. The GNP figures will hide the fact that the costs exceed the benefits of many operations.
The banks have a great amount of excess reserves at present that have been created by the central bank, the Fed. The government wants the banks to make more loans based upon these excess reserves. The government wants to set in motion yet another credit-induced boom. It wants bankers to abandon prudent lending policies and make questionable loans, just as it encouraged them to do in the past. The consequences are before us in the form of a severe recession or depression. Yet the government wants to repeat this process on an even larger scale. The end result of this folly can only be the devastation of the U.S. economy on an even larger scale.
Enter the U.S. government and Treasury department once again leading the foray into this folly. Enter Obama and Geithner. Geithner was asked "Should the U.S. include more stringent requirements that TARP funds be used to lend?" He responded as follows:
"The actions of the Senate last week to authorize additional resources under the Emergency Economic Stabilization Act will enable us to take additional steps to reinforce recovery.
If confirmed, I will carry out the reforms that President Obama and I believe are needed in this program. This program must promote the stability of the financial system and increase lending."
Geithner thinks that the new TARP (Troubled Asset Relief Program) money will "reinforce recovery." This is totally false. As argued above, loan subsidies in any form undermine the economy. This is well known to all economists, and it has been well known for centuries. However, Geithner and company are disregarding and ignoring those all-too-human costs that I outlined. They have a theory that the benefits of what they are doing exceed certain costs, nonetheless. That theory is stated in part here when Geithner says:
"The funds provided to AIG by the government were provided on the basis of a complicated set of judgments about the risks to broader financial stability posed by the rapid and disorderly failure of a firm of that size in a very fragile market environment."
The benefit that he seeks is to preserve or save the existing constellation of financial firms. He will save (bail out) a failing company (AIG) if, in his judgment and not the judgment of market participants, that failure will lead to costs being borne by other unnamed companies and financial market players as well as by the general public. Those costs are in large respects losses. This is what he means by "risks to broader financial stability." He asserts that he is helping us by saving AIG and other financial players from taking the losses that arise from their bad investments.
I think he believes this, for he adds:
"The actions taken with respect to Citigroup to date have been to stabilize and strengthen the firm in order to allow it to perform its vital role in providing credit to households and businesses.... I can assure you that as Treasury Secretary, I would require that any future actions with respect to AIG, Citigroup or any other institution be subject to careful scrutiny regarding the amount of taxpayer money being put at risk by acting relative to the costs of not acting."
Geithner does not believe that Americans can create a sound financial system without these subsidies. He does not believe that Americans can themselves right the financial system. He does not believe in free markets. He believes in Timothy F. Geithner. He will assess the costs and benefits. He will scrutinize. He will spend our money for us. He will decide how to create a stable arrangement.
How will he do this? He intends to save us by taxing us and transferring the money to some of these financial players that he selects by his complex judgments. He will keep alive institutions that have failed or are on the threshold of failure. He will help us by subsidizing bad loans and undermining the economy. He will also, by the way, protect and help his friends.
In the nineteenth century, the U.S. economy recovered quickly from a number of major financial episodes like the current one. Timothy F. Geithner, Ben Bernanke and Henry Paulson, all of whom represent that cadre of persons who believe only in their own powers, were nowhere to be seen. Major banks, brokers, and investment bankers failed. The rot was cleaned out. In some instances, financial figures started over again. The profit motive quickly led to a restoration of credit and business.
Geithner’s words and rationales are hokum, puffery, claptrap, and nonsense. He appears to be deluding himself even as he deludes all within hearing who do not understand the actual content and meaning of his policies, that have Obama’s blessing and continue unchanged from the Bush administration. He is overstuffed with his own arrogance and drive for power, as all such officials are, and that is why he propounds this nonsense to us. His words are the weapons of choice to commit grave misdeeds against the people he is sworn to serve. Is it not to his advantage if he can get his victims to approve of their own victimization? I do not mean to pick on Geithner; his attitude is a handy example of the general mindset of important government officials.
Geithner added the following:
"As a condition of federal assistance, healthy banks without major capital shortfalls will increase lending above baseline levels.
Banks receiving government capital will be required to provide detailed and timely information on their lending patterns broken down by category. Public companies will report this information quarterly, including a description of the factors that influenced their decisions, in conjunction with the release of their 10Q reports.
The Treasury will report quarterly on overall lending activity and on the terms and availability of credit in the economy."
The U.S. government wants to force banks to make loans. The method is to dangle federal assistance or, in some cases, to impose such assistance on banks under the threat of other unnamed political harms to be done them. The assistance, which is the subsidy, carries a stipulation. The banks must make loans above levels laid down by the government. Welcome to fascism, U.S. style. The government is nationalizing the banks. It is dictating loan policies. That is why banks will be forced to report their loans in detail and justify them. The banks are to report to their pseudo–Board of Directors, which has Timothy F. Geithner at its apex, if not Barack Obama.
All of this continues to move the U.S. economy away from free markets and toward fascism, which involves government economic control while leaving the organizational forms of the free market in place. At one time, the government role in providing credits and subsidies was nil or relatively small. The New Deal brought in government-sponsored institutions that directed credit to mortgages, farm loans, and various other enterprises. The Small Business Administration began in 1953. There are now countless other programs and subsidies provided directly by government. The central bank creation in 1913 brought a heavy influence on overall credit creation, but the allocation was largely left to individual banks. In the last 30 years, that independence was compromised by various government acts and regulations that encouraged mortgage loans, community loans, and substandard loans. Recounting all these would fill several books. Now the allocation of credit by individual banks is being directly attacked and eroded by TARP. Further measures and regulation are likely.
These subsidies and controls are a one-way street. There is no case that can be made on economic grounds in support of what the government is doing, none whatever. Those many elements of the American public that are supporting what the government has and is doing to our credit system, our capital markets, and our economy, are undermining their own welfare and bringing about their own economic calamity. We are in the midst of such a downfall now. The same poisonous policies that produced this downfall cannot now remedy it. They can only continue the fall of the American economy and bring about a lower standard of living.
Investing In Liberty for Fun and Profit
by Michael GaddyAt this point in history, I believe the opportunity presently exists for investing in the tools of liberty in combination with the ability to profit from the exchange. To any discerning, educated mind, the ability to purchase firearms and ammo could be rapidly coming to an end.
FBI records indicate the National Instant Criminal Background Check System (NICS) experienced over 900,000 more requests (Form 4473) to purchase firearms in the last quarter of 2008 than the same period for 2007. This figure does not reveal the number of private purchases that occurred over the same period.
This significant increase has created industry-wide shortages in several different firearm model offerings, predominantly in the so-called "assault weapon" categories. A friend who is employed by a sporting goods chain in a large Southwestern US city, told me a couple of days ago that his store received a shipment of 10 Rock River Arms AR-15, M4 firearms and they all sold in less than an hour. The flashing "Notice" sign at RRA’s website is indicative of the present demand for this product.
I have found the Rock River offering to be the finest AR-15 platform available in this genre of weapons. While I am not a fan of the .223 round for self-defense, the weapons platform is an exceptional choice. Bushmaster, Stag Arms and DPMS are also very well constructed firearms in this category.
The great advantage to the AR-15, M4 platform is the ability to switch calibers by simply switching upper receivers. My preference is the offering in .458 SOCOM, although several others are available.
AK-47s in all models and styles have become increasingly popular and have seen an increase in price based on availability. My research shows that several American companies now producing AK’s have actually stopped taking orders for their products, simply being unable to keep up with the demand. I believe the 7.62x39 round to be much better suited for defense against man-sized targets than the .223 round. I know I will receive a large number of emails from folks who disagree with me on the above, but my past experience led me to this choice. I do not seek to change anyone’s mind that prefers the .223 round; I’ll use my choice, you use yours.
A Springfield M1-A in .308 caliber is my weapon of choice in the so-called "assault weapons" category. It combines the dependability of operation inherent with the M1 Garand coupled with the convenience of a carbine version in the M1-A SOCOM. The .308 or 7.62X51 is a proven stopper on man-sized targets. I paid $500.00 for my very first M1-A; the same rifle now is almost $2000.00. I can assure you, considering the present political environment and demand by consumers; the price of these fine firearms will certainly see a substantial increase.
When it comes to handguns, I am a 1911 guy, pure and simple. There is a reason this weapons platform has been around for almost 100 years; it works. The .45ACP round is a very effective round for putting a severe cramp on any criminal desires one might encounter.
While I routinely joke with my friends about their "plastic pistols," in reality there are several excellent brands out there that are great choices, the Springfield XD being my first choice. While we could argue on and on about which caliber is best for personal defense, individual preference will vary. Choose the caliber you can handle best; 3 hits on target with a .22 LR are better than 6 misses with a .44 Mag.
Wheelguns, or revolvers as they are better known, have seen a decline in popularity since the introduction of the high capacity semiautomatic pistol. I still consider the revolver to be the best choice for the new shooter owing to the simplicity of operation. I have a passion for the old Smith and Wesson blue steel revolvers in all calibers. Not as popular now due to most all models being produced in stainless steel, the older S&W revolver was manufactured when American craftsmen took pride in their work. My collection of these revolvers increase in value has far exceeded any 401K.
Let us not forget what many consider the best self-defense firearm available today: the shotgun. It is really hard to argue with this logic, the primary disadvantage being the size of the weapon and the ability to bring it into play in tight quarters. The old scattergun brings a lot of firepower to the point of attack. Buckshot, depending on the gauge of the shotgun, throws out a significant number of projectiles, .24 to .36 caliber for each pull of the trigger. Many folks prefer the pump-action shotgun for its dependability, but my personal choice is the semi-auto. I prefer to present as small a target as possible to an adversary, and a pump action shotgun is extremely difficult to operate in the prone position.
Whatever your choice might be, the purchase of a firearm(s) and/or a significant amount of ammunition in today’s political climate is a wise investment. I do not believe we will see a decline in demand or an increase in availability of either in the near or distant future. There will be a time, in the not so distant future, when a firearm with ammo will be worth much more than an ounce of gold. The upside to having a firearm and ammo is the firearm can be used to defend your gold against confiscation or theft. It has happened before you know.
It is much better to have one and not need it, than to need one and not have it. As an investment, this product is worth much more than the fiat money required for purchase and it could possibly save your life, or the lives of your loved ones.
Conversations With Chávez and Castro
By Sean Penn
This article is an adapted excerpt of the essay/interview "A Mountain of Snakes," which will appear in full December 1 at HuffingtonPost.com.
Soon to be Vice President-elect Joe Biden was rallying the troops: "We can no longer be energy dependent on Saudi Arabia or a Venezuelan dictator." Well, I know what Saudi Arabia is. But having been to Venezuela in 2006, touring slums, mixing with the wealthy opposition and spending days and hours at its president's side, I wondered, without wondering, to whom Senator Biden was referring. Hugo Chávez Frías is the democratically elected president of Venezuela (and by democratically elected I mean that he has repeatedly stood before the voters in internationally sanctioned elections and won large majorities, in a system that, despite flaws and irregularities, has allowed his opponents to defeat him and win office, both in a countrywide referendum last year and in regional elections in November). And Biden's words were the kind of rhetoric that had recently led us into a life-losing and monetarily costly war, which, while toppling a shmuck in Iraq, had also toppled the most dynamic principles upon which the United States was founded, enhanced recruitment for Al Qaeda and deconstructed the US military.
Sean Penn and Hugo Chávez in October.
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Conversations With Chávez and Castro
Sean Penn: The Cuban President talks about Obama, Guantánamo and the Pentagon; the Venezuelan President considers human rights and the next US administration.
Among those to whom I said this were historian Douglas Brinkley and Vanity Fair columnist Christopher Hitchens. These two were perfect complements. Brinkley is a notably steady thinker whose historian's code of ethics assures adherence to supremely reasoned evidence. Hitchens, a wily wordsmith, ever too unpredictable for predisposition, is a wild card by any measure who in a talk-show throwaway once referred to Chávez as an "oil-rich clown." Though I believe Hitchens to be as principled as he is brilliant, he can be combative to the point of bullying, as he once was in severe comments made about saintly antiwar activist Cindy Sheehan. Brinkley and Hitchens would balance any perceived bias in my writing. Also, these are a couple of guys I have a lot of fun with and affection for.
So I called Fernando Sulichin, an old friend and well-connected independent film producer from Argentina, and asked that he get them vetted and approved to interview Chávez. In addition, we wanted to fly from Venezuela to Havana, and I asked that Fernando request on our behalf interviews with the Castro brothers, most urgently Raúl, who had taken over the reins of power from an ailing Fidel in February--and who had never given a foreign interview. I had traveled to Cuba in 2005, when I had the good fortune of meeting Fidel, and was eager for an interview with the new president. The phone rang at 2 o'clock the following afternoon. "Mi hermano," Fernando said. "It is done."
Our flight from Houston to Caracas was delayed due to mechanical problems. It was 1 o'clock in the morning, and as we waited, Hitchens paced. "Very rarely does only one thing go wrong," he said. He must have liked the way it sounded, because he said it again. He was God's pessimist. I said, "Hitch, it's gonna be fine. They'll get us another plane, and we'll be there on time." But God's pessimist is actually God's atheistic pessimist. And I would later be reminded of the clarity in his atheism. Something else would indeed go wrong. Well, right and wrong, as you'll find out. Within two hours, we were taking off.
When we landed at Caracas airport, Fernando was there to greet us. He guided us to a private terminal, where we waited for the arrival of President Chávez, who would take us on a stumping tour for gubernatorial candidates on the beautiful Isla Margarita.
We spent the next two days in Chávez's constant company, with many hours of private meetings among the four of us. In the private quarters of the president's plane, I find that on the subject of baseball Chávez's command of English soars. When Douglas asks if the Monroe Doctrine should be abolished, Chávez, wanting to choose his words carefully, reverts to Spanish to detail the nuances of his position against this doctrine, which has justified US intervention in Latin America for almost two centuries. "The Monroe Doctrine has to be broken," he says. "We've been stuck with it for over 200 years. It always gets back to the old confrontation of Monroe versus Bolívar. Jefferson used to say that America should swallow, one by one, the republics of the south. The country where you were born was based on an imperialistic attitude."
Venezuelan intelligence tells him that the Pentagon has plans for invading his country. "I know they are thinking about invading Venezuela," Chávez says. It seems he sees killing the Monroe Doctrine as a yardstick for his destiny. "Nobody again can come here and export our natural resources." Is he concerned about the US reaction to his bold statements about the Monroe Doctrine? He quotes Uruguayan freedom fighter José Gervasio Artigas: "With the truth, I don't offend or fear."
Hitchens sits quietly, taking notes throughout the conversation. Chávez recognizes a flicker of skepticism in his eye. "CREES-to-fer, ask me a question. Ask me the hardest question." They share a smile. Hitchens asks, "What's the difference between you and Fidel?" Chávez says, "Fidel is a communist. I am not. I am a social democrat. Fidel is a Marxist-Leninist. I am not. Fidel is an atheist. I am not. One day we discussed God and Christ. I told Castro, I am a Christian. I believe in the Social Gospels of Christ. He doesn't. Just doesn't. More than once, Castro told me that Venezuela is not Cuba, and we are not in the 1960s.
"You see," Chávez says, "Venezuela must have democratic socialism. Castro has been a teacher for me. A master. Not on ideology but on strategy." Perhaps ironically, John F. Kennedy is Chávez's favorite US president. "I was a boy," he says. "Kennedy was the driving force of reform in America." Surprised by Chávez's affinity for Kennedy, Hitch chimes in, referring to Kennedy's counter-Cuba economic plan for Latin America: "The Alliance for Progress was a good thing?" "Yes," says Chávez. "The Alliance for Progress was a political proposal to improve conditions. It was aimed at lowering the social difference between cultures."
Conversation among the four of us continues on buses, at rallies and at dedications throughout Isla Margarita. Chávez is tireless. He addresses every new group for hours on end under a blistering sun. At most he'll sleep four hours at night, spending the first hour of his morning reading news of the world. And once he's on his feet, he's unstoppable despite heat, humidity and the two layers of revolutionary red shirts he wears.
I had three primary motivations for this trip: to include the voices of Brinkley and Hitchens, to deepen my understanding of Chávez and Venezuela and excite my writing hand, and to enlist Chávez's support in encouraging the Castro brothers to meet with the three of us in Havana. While my understanding through Fernando was that this third piece of the puzzle had been approved and confirmed, somewhere in the cultural, language and telephonic exchanges there had been a misunderstanding. Meanwhile, CBS News was expecting a report from Brinkley, Vanity Fair was expecting one from Hitchens and I was writing on behalf of The Nation.
On our third day in Venezuela, we thanked President Chávez for his time, the four of us standing among security personnel and press at the Santiago Marino Airport on Isla Margarita. Brinkley had a final question, and so did I. "Mr. President," he said, "if Barack Obama is elected president of the United States, would you accept an invitation to fly to Washington and meet with him?" Chávez immediately answered, "Yes."
When it was my turn, I said, "Mr. President, it is very important for us to meet with the Castros. It is impossible to tell the story of Venezuela without including Cuba--and impossible to tell the story of Cuba without the Castros." Chávez promised us that he would call President Castro the moment he got on his plane and ask on our behalf but warned us that it was unlikely big brother Fidel would be able to respond so quickly, as he was doing a lot of writing and reflecting these days, not seeing a lot of people. He could make no promises about Raúl either. Chávez boarded his plane, and we watched him fly away.
The next morning we took off for Havana. Full disclosure: we were loaned an airplane through the Venezuelan Ministry of Energy and Petroleum. If someone wants to refer to that as a payoff, be my guest. But when you read the next report from a journalist flying on Air Force One, or hopping on board a US military transport plane, be so kind as to dismiss that article as well. We appreciated the ride in all its luxury, but our reporting remains uninfluenced.
Very Rarely Does Only One Thing Go Wrong'
We landed in Havana around noon and were met on the tarmac by Omar Gonzalez Jimenez, president of the Cuban Film Institute, and Luis Alberto Notario, head of the institute's international co-production wing. I'd spent time with both of them on my earlier trip to Cuba. We started catching up on personal matters on the walk to the customs office, until Hitch stepped forward and unabashedly demanded of Omar, "Sir, we must see the president!" "Yes," Omar said. "We are aware of the request, and word has been passed to the president. We are still awaiting his response."
For the rest of that day and into the following afternoon, we tortured our hosts with the incessant drumbeat: Raúl, Raúl, Raúl. I assumed if Fidel was up to it and could make the time, he would call. And if not, I remained appreciative of our prior meeting and said as much in a note I passed to him through Omar. Raúl I only knew about through what I'd read, and I hadn't a clue as to whether or not he'd see us.
Cubans are a particularly warm and hospitable people. As our hosts took us around the city, I noticed that the number of American 1950s cars had diminished even in the few years since my last trip, giving way to smaller Russian designs. On a sweep by the invasive-looking US Interests Section on the Malecón, where waves breaking against the sea wall shower passing cars, I noticed something almost indescribable about the atmosphere in Cuba. It is the palpable presence of architectural and living human history on a small plot of land surrounded by water. Even the visitor feels the spirit of a culture that proclaims, in various ways, "This is our special place."
We snaked through Old Havana, and in a glass-encased display outside the Museum of the Revolution we saw the Granma, the boat used to transport Cuban revolutionaries from Mexico in 1956. We moved on to the Palace of Fine Arts, with its collection of passionate and political pieces from a cross section of Cuba's deep talent pool. We then toured the Higher Institute of Arts and later went to dinner with National Assembly President Ricardo Alarcón and Roberto Fabelo, a painter they had invited after I'd expressed appreciation of his work at the art museum that afternoon. By midnight there had still been no word from Raúl Castro. After that we were taken to the protocol house, where we would lay our heads till dawn.
By noon of the following day, the clock was ticking loudly in our ears. We had sixteen hours left in Havana before we would have to head to the airport to catch our flights back home. We were sitting around a table at La Castellana, an upscale Old Havana eatery, with a large group of artists and musicians who, led by the famed Cuban painter Kcho, had established Brigada Martha Machado, an organization of volunteers aiding victims of Hurricanes Ike and Gustav on the Isle of Youth. The brigade has the full support of government dollars, airplanes and staff that would be the envy of our Gulf Coast volunteers after Hurricane Katrina. Also joining us for lunch was Antonio Castro Soto del Valle, a handsome young man of humble character who is the 39-year-old son of Fidel Castro. Antonio is a doctor and chief medic for the Cuban national baseball team. I had a brief but pleasant chat with him and re-emphasized our Raúl agenda.
The clock was no longer ticking. It was pounding. Omar told me we would be hearing the decision of the president quite soon. Fingers crossed, Douglas, Hitch, Fernando and I went back to the protocol house to get our bags packed in advance. By 6 pm, we were on a ten-hour countdown. I was sitting downstairs in the living room, reading in the hazy late-afternoon light. Hitch and Douglas were in their upstairs quarters, I assumed napping to offset anxiety. And on the couch beside me was Fernando, snoring away.
Then Luis appeared at our open front door. I glanced over the top of my glasses as he gave me a very direct nod. Without words, I pointed questioningly up the stairs to where my companions lay. But Luis shook his head apologetically. "Only you," he said. The president had made his decision.
I could hear Hitch's words of doubt echo in my head, "Very rarely does only one thing go wrong." Was he talking about me? Et mi, Brute? Nonetheless, I grabbed at my back pocket to make sure I had my pad of Venezuela notes, checked for my pen, pocketed my specs and headed out with Luis. Just before I shut the door of the waiting car, I heard Fernando's voice calling after me. "Sean!" We drove away.
I'm Off to See the Wizard
Soon enough I'm sitting at a small polished table in a government office with President Castro and a translator. "Fidel called me moments ago," he tells me. "He wants me to call him after we have spoken." There is a humor in Raúl's voice that recalls a lifetime of affectionate tolerance for his big brother's watchful eye. "He wants to know everything we speak about," he says with the chuckle of the wise. "I never liked the idea of giving interviews," he says. "One says many things, but when they are published, they become shortened, condensed. The ideas lose their meaning. I was told you make long movies. Maybe you will make long journalism as well." I promise him I'll write as fast as I can, and print as much as I write. He tells me he's informally promised his first interview as president elsewhere, and not wanting to multiply what could be construed as an insult, he singled me out from my companions.
Castro and I share a cup of tea. "Forty-six years ago today, at exactly this time of day, we mobilized troops, Alameda in the West, Fidel in Havana, me in Areda. It had been announced at noon in Washington that President Kennedy would give a speech. This was during the missile crisis. We anticipated that the speech would be a declaration of war. After his humiliation at the Bay of Pigs, the pressure of the missiles [which Castro claims were strictly defensive] would represent a great defeat to Kennedy. Kennedy would not stand with that defeat. Today we study US candidates very carefully, focusing on McCain and Obama. We look at all the old speeches. Particularly those made in Florida, where opposing Cuba has become a for-profit business for many. In Cuba we have one party, but in the US there is very little difference. Both parties are an expression of the ruling class." He says today's Miami Cuban lobby members are descendants of Batista-era wealth, or international landowners "who'd only paid pennies for their land" while Cuba had been under absolute US rule for sixty years.
"The 1959 land reform was the Rubicon of our revolution. A death sentence for our US relations." Castro seems to be sizing me up as he takes another sip of his tea. "At that moment, there was no discussion about socialism, or Cuba dealing with Russia. But the die was cast."
After the Eisenhower administration bombed two vessel-loads of guns headed for Cuba, Fidel reached out to old allies. Raúl says, "We asked Italy. No! We asked Czechoslovakia. No! Nobody would give us weapons to defend ourselves because Eisenhower had put pressure on them. So by the time we got weapons from Russia, we had no time to learn how to use them before the US attacked at the Bay of Pigs!" He laughs and excuses himself to an adjacent restroom, briefly disappearing behind a wall, only to immediately pop back into the room, joking, "At 77, this is the fault of the tea."
Joking aside, Castro moves with the agility of a young man. He exercises every day, his eyes are bright and his voice is strong. He picks up where he left off. "You know, Sean, there was a famous picture of Fidel from the Bay of Pigs invasion. He is standing in front of a Russian tank. We did not yet know even how to put those tanks in reverse. So," he jokes, "retreat was no option!" So much for the "cold militarist." Raúl Castro was warm, open, energetic and sharp of wit.
I return to the subject of US elections by repeating the question Brinkley had asked Chávez: Would Castro accept an invitation to Washington to meet with a President Obama, assuming he won in the polling, only a few weeks away? Castro becomes reflective. "This is an interesting question," he says, followed by a rather long, awkward silence. Until: "The US has the most complicated election process in the world. There are practiced election stealers in the Cuban-American lobby in Florida..." I chime in, "I think that lobby is fracturing." And then, with the certainty of a die-hard optimist, I say, "Obama will be our next president." Castro smiles, seemingly at my naïveté, but the smile disappears as he says, "If he is not murdered before November 4, he'll be your next president." I note that he had still not answered my question about meeting in Washington. "You know," he says, "I have read the statements Obama has made, that he would preserve the blockade." I interject, "His term was embargo." "Yes," Castro says, "blockade is an act of war, so Americans prefer the term embargo, a word that is used in legal proceedings...but in either case, we know that this is pre-election talk, and that he has also said he is open to discussion with anyone."
Raúl interrupts himself: "You are probably thinking, Oh, the brother talks as much as Fidel!" We laugh. "It is not usually so, but you know, Fidel--once he had a delegation here, in this room, from China. Several diplomats and a young translator. I think it was the translator's first time with a head of state. They'd all had a very long flight and were jet-lagged. Fidel, of course, knew this, but still he talked for hours. Soon, one near the end of the table, just there [pointing to a nearby chair], his eyes begin to get heavy. Then another, then another. But Fidel, he continued to talk. Soon all, including the highest-ranking of them, to whom Fidel had been directly addressing his words, fell sound asleep in their chairs. So Fidel, he turns his eyes to the only one awake, the young translator, and kept him in conversation till dawn." By this time in the story, both Raúl and I were in stitches. I'd only had the one meeting with Fidel, whose astonishing mind and passion bleed words. But it was enough to get the picture. Only our translator was not laughing, as Castro returned to the point.
"In my first statement after Fidel fell ill, I said we are willing to discuss our relationship with the US on equal footing. Later, in 2006, I said it again in an address at the Revolutionary Square. I was laughed at by the US media--that I was applying cosmetics over dictatorship." I offer him another opportunity to speak to the American people. He answers, "The American people are among our closest neighbors. We should respect each other. We have never held anything against the American people. Good relations would be mutually advantageous. Perhaps we cannot solve all of our problems, but we can solve a good many of them."
He paused now, slowly considering a thought. "I'll tell you something, and I've never said it publicly before. It had been leaked, at some point, by someone in the US State Department, but was quickly hushed up because of concern about the Florida electorate, though now, as I tell you this, the Pentagon will think me indiscreet."
I wait with bated breath. "We've had permanent contact with the US military, by secret agreement, since 1994," Castro tells me. "It is based on the premise that we would discuss issues only related to Guantánamo. On February 17, 1993, following a request by the United States to discuss issues related to buoy locators for ship navigations into the bay, was the first contact in the history of the revolution. Between March 4 and July 1, the Rafters Crisis took place. A military-to-military hot line was established, and on May 9, 1995, we agreed to monthly meetings with primaries from both governments. To this day, there have been 157 meetings, and there is a taped record of every meeting. The meetings are conducted on the third Friday of every month. We alternate locations between the American base at Guantánamo and in Cuban-held territory. We conduct joint emergency-response exercises. For example, we set a fire, and American helicopters bring water from the bay, in concert with Cuban helicopters. [Before this] the American base at Guantánamo had created chaos. We had lost border guards, and have graphic evidence of it. The US had encouraged illegal and dangerous emigration, with US Coast Guard ships intercepting Cubans who tried to leave the island. They would bring them to Guantánamo, and a minimal cooperation began. But we would no longer play guard to our coast. If someone wanted to leave, we said, Go ahead. And so, with the navigation issues came the beginning of this collaboration. Now at the Friday meetings there is always a representative of the US State Department." No name given. He continues, "The State Department tends to be less reasonable than the Pentagon. But no one raises their voice because...I don't take part. Because I talk loud. It is the only place in the world where these two militaries meet in peace."
"What about Guantánamo?" I ask. "I'll tell you the truth," Castro says. "The base is our hostage. As a president, I say the US should go. As a military man, I say let them stay." Inside, I'm wondering, Have I got a big story to break here? Or is this of little relevance? It should be no surprise that enemies speak behind the scenes. What is a surprise is that he's talking to me about it. And with that, I circle back to the question of a meeting with Obama. "Should a meeting take place between you and our next president, what would be Cuba's first priority?" Without a beat, Castro answers, "Normalize trade." The indecency of the US embargo on Cuba has never been more evident than now, in the wake of three devastating hurricanes. The Cuban people's needs have never been more desperate. The embargo is simply inhumane and entirely unproductive. Raúl continues, "The only reason for the blockade is to hurt us. Nothing can deter the revolution. Let Cubans come to visit with their families. Let Americans come to Cuba." It seems he's saying, Let them come see this terrible Communist dictatorship they keep hearing about in the press, where even representatives of the State Department and prominent dissidents acknowledge that in a free and open election in Cuba today, the ruling Communist Party would win 80 percent of the electorate. I list several US conservatives who have been critical of the embargo, from the late economist Milton Friedman, to Colin Powell, to even Texas Republican Senator Kay Bailey Hutchison, who said, "I have believed for a while that we should be looking for a new strategy for Cuba. And that is, opening more trade, especially food trade, especially if we can give the people more contact with the outside world. If we can build up the economy, that might make the people more able to fight the dictatorship." Castro, ignoring the slight, responds boldly, "We welcome the challenge."
By now, we have moved on from the tea to red wine and dinner. "Let me tell you something," he says. "We have newly advanced research that strongly suggests deepwater offshore oil reserves, which US companies can come and drill. We can negotiate. The US is protected by the same Cuban trade laws as anyone else. Perhaps there can be some reciprocity. There are 110,000 square kilometers of sea in the divided area. God would be unfair not to give some oil to us. I don't believe he would deprive us this way." Indeed, the US Geological Survey speculates something in the area of 9 billion barrels of oil and 21 trillion cubic feet of natural gas reserves in the North Cuba Basin. Now that he's improved recently rocky relations with Mexico, Castro is looking at also improving prospects with the European Union. "EU relations should improve with Bush's exit," he states confidently. "And the US?" I ask. "Listen," he says, "we are as patient as the Chinese. Seventy percent of our population was born under the blockade. I am the longest-standing minister of Armed Forces in history. Forty-eight and a half years until last October. That's why I'm in this uniform and continue to work from my old office. In Fidel's office, nothing has been touched. At the Warsaw Pact military exercises, I was the youngest, and the one who had been there the longest. Then, I was the oldest, and still the one who had been there the longest. Iraq is a child's game compared with what would happen if the US invaded Cuba." After another sip of wine, Castro says, "Preventing a war is tantamount to winning a war. This is in our doctrine."
With our dinner finished, I walk with the president through the sliding glass doors onto a greenhouse-like terrace with tropical plants and birds. As we sip more wine, he says, "There is an American movie--the elite are sitting around a table, trying to decide who will be their next president. They look outside the window, where they see the gardener. Do you know the movie I'm talking about?" "Being There," I say. "Yes!" Castro responds excitedly, "Being There. I like this movie very much. With the United States, every objective possibility exists. The Chinese say: 'On the longest path, you start with the first step.' The US president should take this step on his own, but with no threat to our sovereignty. That is not negotiable. We can make demands without telling each other what to do within our borders."
He considers the question with caution, speaking in a slow and metered tone. "Right now," he says, "we have good relations with Colombia. But I will say that if there is a country in South America where an environment exists that is vulnerable to that...it is Colombia." Thinking of Chávez's suspicion of US intentions to intervene in Venezuela, I take a deep breath.
The hour was getting late, but I didn't want to leave without asking Castro about allegations of human rights violations and alleged narco-trafficking facilitated by the Cuban government. A 2007 report by Human Rights Watch states that Cuba "remains the one country in Latin America that represses nearly all forms of political dissent." Furthermore, there are about 200 political prisoners in Cuba today, approximately 4 percent of whom are convicted of crimes of nonviolent dissent. As I await Castro's comments, I can't help but think of the nearby US prison at Guantánamo and the horrendous US offenses against human rights there.
"No country is 100 percent free of human rights abuses," Castro tells me. But, he insists, "reports in the US media are highly exaggerated and hypocritical." Indeed, even high-profile Cuban dissidents, such as Eloy Gutiérrez Menoyo, acknowledge the manipulations, accusing the US Interests Section of gaining dissident testimony through cash payoffs. Ironically, in 1992 and '94, Human Rights Watch also described lawlessness and intimidation by anti-Castro groups in Miami as what author/journalist Reese Erlich termed "violations normally associated with Latin American dictatorships."
Having said that, I'm a proud American and infinitely aware that if I were a Cuban citizen and were to write an article such as this about the Cuban leadership, I could be jailed. Furthermore, I'm proud that the system set up by our founding fathers, while not exactly intact today, was never dependent on just one great leader per epoch. These things remain in question for the romantic heroes of Cuba and Venezuela. I consider mentioning this, and perhaps should have, but I've got something else on my mind.
"Can we talk about drugs?" I ask Castro. He responds, "The United States is the largest consumer of narcotics in the world. Cuba sits directly between the United States and its suppliers. It is a big problem for us.... With the expansion of tourism, a new market has developed, and we struggle with it. It is also said that we allow narco-traffickers to travel through Cuban airspace. We allow no such thing. I'm sure some of these planes get by us. It is simply due to economic restrictions that we no longer have functioning low-altitude radar."
While this may sound like tall-tale telling, not so, according to Col. Lawrence Wilkerson, a former adviser to Colin Powell. Wilkerson told Reese Erlich in a January interview, "The Cubans are our best partners in the counter-drug and counter-terror war in the Caribbean. Even better than Mexico. The military looked at Cuba as a very cooperative partner."
I want to ask Castro my unanswered question a final time, as our mutual body language suggests we've hit the witching hour. It is after 1 am, but he initiates. "Now," he says, "you asked if I would accept to meet with [Obama] in Washington. I would have to think about it. I would discuss it with all my comrades in the leadership. Personally, I think it would not be fair that I be the first to visit, because it is always the Latin American presidents who go to the United States first. But it would also be unfair to expect the president of the United States to come to Cuba. We should meet in a neutral place."
He pauses, putting down his empty wine glass. "Perhaps we could meet at Guantánamo. We must meet and begin to solve our problems, and at the end of the meeting, we could give the president a gift...we could send him home with the American flag that waves over Guantánamo Bay."
As we exit his office, we are followed by staff as President Castro takes me down the elevator to the lobby and walks me to my waiting car. I thank him for the generosity of his time. As my driver puts the car in gear, the president taps on the window beside me. I roll it down as the president checks his watch, realizing that seven hours have passed since we began the interview. Smiling, he says, "I will call Fidel now. I can promise you this. When Fidel finds I have spoken to you for seven hours, he will be sure to give you seven and a half when you return to Cuba." We share a laugh and a last handshake.
It had rained earlier in the night. In this early-hour darkness, our tires streaming over the wet pavement on a quiet Havana morning, it strikes me that the most basic questions of sovereignty offer substantial insight into the complexities of US antagonism toward Cuba and Venezuela, as well as those countries' policies. They've only ever had two choices: to be imperfectly ours, or imperfectly their own.
Viva Cuba. Viva Venezuela. Viva USA.
When I got back to the protocol house, it was nearly 2 am. My old friend Fernando, looking much the worse for wear, had waited up. My companions had had quite a night. Poor Fernando had taken the brunt of their frustration. They hadn't known where I'd gone, nor why I had left them behind. And the remaining Cuban officials they'd been able to contact had insisted they stay put, should either of the Castro brothers spontaneously offer an audience. So they had also missed out on a last Cuban night on the town. After filling me in, Fernando went to get a couple hours' sleep. I stayed up reviewing my notes and was first at the breakfast table, at 4:45 am. When Douglas and Hitch ambled down the stairs, I put the edge of the tablecloth over my head in mock shame. I guess, under the circumstances, it was a bit early (in more than just the hour) to be testing their humor. The joke didn't play. While Fernando took a separate flight to Buenos Aires, we had a quiet breakfast and a quiet flight back to home sweet home.
When we arrived in Houston, I realized I'd underestimated the thick skin of these two road-worn professionals. Whatever ice I'd perceived earlier had melted. We said our goodbyes, celebrating what had been a thrilling several days. Neither had been so catty as to inquire into the content of my interview, but Christopher headed to his eastbound connection with a parting word, "Well...I guess we'll read about it."
¡Sí, Se Puede!
I sat on the edge of my bed with my wife, son and daughter, tears streaming down my face, as Barack Obama spoke for the first time as the president-elect of the United States of America. I closed my eyes and started to see a film in my head. I could hear the music too, appropriately the Dixie Chicks covering a Fleetwood Mac song over slow-motion images in montage. There they were: Bush, Hannity, Cheney, McCain, Limbaugh and Robertson. I saw them all. And the song was rising as the image of Sarah Palin took over the screen. Natalie Maines sweetly sang,
And I saw my reflection in the snow-covered hills
till the landslide brought me down.
Landslide brought me down...
Your Money or Your Democracy
It's the most privileged industries that demand protection
Matt Welch“We’re more worthy of a bailout than the jokers on Wall Street,” Jason Whitlock wrote in The Kansas City Star just before the annus bailoutus of 2008 wound to a close.
The “we” in this case wasn’t Detroit’s Big 2.5 automakers, or the country’s 39 or so governors running budget deficits, or even plucky nonprofits that fund school crossing guards, though certainly all these and many more have made the same argument during the last several months of envious Wall Street bashing. No, Jason Whitlock is a sports columnist who covers collegiate athletics for a big-city newspaper. Like many members of the privileged minority that has workplace access to a large printing press, Whitlock used it this winter to fret that unless Washington or some other higher power intervenes quickly in professional journalism’s oldest medium, tyranny will be right around the corner. “You can’t have a democracy without us,” he warned. “If newspapers are dying, so is our system of government.”
Legacy-media journalists may be the most irritating special pleaders when times get rough (which, for them, has been at least every day since I got into the business), but they’re hardly alone. Our noble farmers, the breadbasket of America, need tens of billions annually to help provide “food security” against foreign hordes of dastardly sugar producers. Ever-shrinking steel plants provide the iron core of our threatened industrial base (which actually was growing like gangbusters until late 2008, but never mind) and so require tariffs from “dumping” countries such as comparatively impoverished Poland. Airlines are our first defense against murderous hijackers, so here’s $18.6 billion for your troubles and a hideously consumer-punishing regulation preventing foreign-owned airlines from offering domestic flights. And all these examples predate the financial crisis of 2008, though they foreshadowed how a feckless Republican president would respond.
And our allegedly feckful new president? Don’t get him started. “The auto industry is the backbone of American manufacturing,” Barack Obama said just days after winning the presidency. “I have made it a high priority for my transition team to work on additional policy options to help the auto industry adjust, weather the financial crisis, and succeed in producing fuel-efficient cars here in the United States of America.” When the lame-duck Congress later narrowly voted down a bailout package for Detroit automakers, and lame-duck President Bush responded that he would bail them out anyway using a different pile of cash, Obama called the move a “necessary step,” thus sending an ominous signal about how the new president views the constitutional separation of powers after eight years of an executive branch run amok.
It’s not hard to make the case that any industry, sector, or even individual company requires either the urgent expenditure of taxpayer money or the less direct money waster of federal protection to help keep the country prosperous and safe. Construction? Only U.S.-owned companies should ever be allowed to win a contract to build an interstate highway, because of, you know, terrorism. The billionaire New York Yankees organization, which has spent more than $400 million this off-season alone on just three ballplayers? Here’s nearly $1 billion in city subsidies and tax-free bonds to build a fancy new stadium that will allow the Steinbrenner family to pocket even more revenue. Even Hollywood, with all its famous excess? California and Los Angeles both need to shell out various goodies to keep crucial “below-the-line” jobs (wellpaying, unionized positions in set building and the like) in Southern California, first because of the cheap Canadian dollar, then (after the looney started gaining on the greenback) because of race-to-the-bottom competition from subsidy-spewing Louisiana, Georgia, and New Mexico.
The preceding examples also predate the current frenzy of bailouts/shakedowns in Washington, but they provide a window into the mentality that justifies them. When I debated Mark Schmitt, executive editor of the pro-labor (but strangely nonunionized) American Prospect, about the bailout in December, I pointed out that car manufacturing in the U.S. was actually a pretty healthy industry outside of Detroit. He responded that, well, the state of Alabama (where Mercedes-Benz, Honda, and Hyundai make cars) had provided a bunch of subsidies and tax breaks too.
The problem with this logic will be obvious to playground supervisors, but it is apparently obscure to most Americans with easy access to a megaphone. As dead lemmings could tell you, “He did it too!” is no substitute for a cost-benefit analysis. Furthermore, as outgoing Securities and Exchange Commissioner Paul Atkins observes in our interview this issue (“‘I Think the SEC Was Distracted,’” page 30), private capital has a tendency to make better bets than central planners. “To compare a few people in government making decisions based on limited information to millions and millions of people making decisions every second with their own hard-earned money,” Atkins says, “there’s just no comparison there.” And though the Treasury Department and Federal Reserve seem to think otherwise, there is a limit to how many tax dollars can be thrown around to prop up every noncompetitive actor with a heart-tugging story.
And by “noncompetitive” I do mean “noncompetitive,” not “unfairly crippled by unforeseeable acts of God.” When September 11 gave the airline industry a quadruple whammy of customer fear, economic recession, rising fuel costs, and security hassles, it wasn’t the super-competitive (and until recently super-profitable) lowcost airlines Southwest and JetBlue that held their hands out for Washington billions. It was the poorly run, customer-unfriendly, money-bleeding legacy carriers. Just 10 days after California Gov. Arnold Schwarzenegger signed a state budget a full 45 percent bigger than the one he had inherited five years before, he warned Treasury Secretary Henry Paulson that the Golden State might go bankrupt if it did not receive an emergency loan of at least $7 billion. And it sure isn’t the online classified advertising giant Craigslist whining about its crucial role in our democracy. It’s the companies that for more than a century held something very close to a local monopoly on classifieds: big-city newspapers.
As bailout season bled into the holiday publishing schedule, with its requisite year-in-review thumb sucking, many legacy media romantics used the opportunity to propose radical fixes for what was until recently one of the most profitable sectors in the U.S. economy. (According to industry analyst John Morton, newspaper companies to this day enjoy average profit margins of between 10 percent and 20 percent, higher than Wal-Mart has ever dreamed.)
Writing in the December 21 San Francisco Chronicle—ironically, one of the papers that has embraced Web-based competition most effectively through the mere act of putting all its stories online, for free, at static URLs—former New York Times foreign correspondent and current Stanford journalism professor Joel Brinkley made the curious argument that giving customers what they want (free content) was the biggest threat to print publications. “The newspaper industry,” Brinkley suggested, “should ask the Justice Department for an antitrust exemption that would allow publishers to collaborate on a decision to begin charging for their Web site.”
A previous antitrust exemption aimed at “saving” newspapers—the Newspaper Preservation Act of 1970—shows how such approaches tend to have the opposite of the intended effect: A majority of the newspapers being “saved” ended up closing down, while the cities they served were able for decades to scare off any new entrants to the market.
More likely in this never-ending bailout season will be proposals like the state of Connecticut’s new plan to offer tax breaks, training money, negotiating help, and other incentives to print publishers, in part to stave off the shuttering of such papers as The Bristol Press. “The media,” the legislative sponsor of this newspaper bailout told Reuters in December, “is a vitally important part of America.” The question we should all ask going forward: What isn’t?
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