HOW DANGEROUS ARE THE TALIBAN?
Why Afghanistan Is the Wrong War
George W. Bush led the United States into war in Iraq on the grounds that Saddam Hussein might give his country’s nonexistent weapons of mass destruction to terrorists. Now, Bush’s successor is perpetuating the war in Afghanistan with comparably dubious arguments about the danger posed by the Taliban and al Qaeda.
President Barack Obama insists that the U.S. mission in Afghanistan is about "making sure that al Qaeda cannot attack the U.S. homeland and U.S. interests and our allies" or "project violence against" American citizens. The reasoning is that if the Taliban win in Afghanistan, al Qaeda will once again be able to set up shop there to carry out its dirty work. As the president puts it, Afghanistan would "again be a base for terrorists who want to kill as many of our people as they possibly can." This argument is constantly repeated but rarely examined; given the costs and risks associated with the Obama administration’s plans for the region, it is time such statements be given the scrutiny they deserve.
Multiple sources, including Lawrence Wright's book The Looming Tower, make clear that the Taliban was a reluctant host to al Qaeda in the 1990s and felt betrayed when the terrorist group repeatedly violated agreements to refrain from issuing inflammatory statements and fomenting violence abroad. Then the al Qaeda-sponsored 9/11 attacks -- which the Taliban had nothing to do with -- led to the toppling of the Taliban’s regime. Given the Taliban’s limited interest in issues outside the "AfPak" region, if they came to power again now, they would be highly unlikely to host provocative terrorist groups whose actions could lead to another outside intervention. And even if al Qaeda were able to relocate to Afghanistan after a Taliban victory there, it would still have to operate under the same siege situation it presently enjoys in what Obama calls its "safe haven" in Pakistan.
The very notion that al Qaeda needs a secure geographic base to carry out its terrorist operations, moreover, is questionable. After all, the operational base for 9/11 was in Hamburg, Germany. Conspiracies involving small numbers of people require communication, money, and planning -- but not a major protected base camp.
At present, al Qaeda consists of a few hundred people running around in Pakistan, seeking to avoid detection and helping the Taliban when possible. It also has a disjointed network of fellow travelers around the globe who communicate over the Internet. Over the last decade, the group has almost completely discredited itself in the Muslim world due to the fallout from the 9/11 attacks and subsequent counterproductive terrorism, much of it directed against Muslims. No convincing evidence has been offered publicly to show that al Qaeda Central has put together a single full operation anywhere in the world since 9/11. And, outside of war zones, the violence perpetrated by al Qaeda affiliates, wannabes, and lookalikes combined has resulted in the deaths of some 200 to 300 people per year, and may be declining. That is 200 to 300 too many, of course, but it scarcely suggests that "the safety of people around the world is at stake," as Obama dramatically puts it.
In addition, al Qaeda has yet to establish a significant presence in the United States. In 2002, U.S. intelligence reports asserted that the number of trained al Qaeda operatives in the United States was between 2,000 and 5,000, and FBI Director Robert Mueller assured a Senate committee that al Qaeda had "developed a support infrastructure" in the country and achieved both "the ability and the intent to inflict significant casualties in the U.S. with little warning." However, after years of well funded sleuthing, the FBI and other investigative agencies have been unable to uncover a single true al Qaeda sleeper cell or operative within the country. Mueller's rallying cry has now been reduced to a comparatively bland formulation: "We believe al Qaeda is still seeking to infiltrate operatives into the U.S. from overseas."
Even that may not be true. Since 9/11, some two million foreigners have been admitted to the United States legally and many others, of course, have entered illegally. Even if border security has been so effective that 90 percent of al Qaeda’s operatives have been turned away or deterred from entering the United States, some should have made it in -- and some of those, it seems reasonable to suggest, would have been picked up by law enforcement by now. The lack of attacks inside the United States combined with the inability of the FBI to find any potential attackers suggests that the terrorists are either not trying very hard or are far less clever and capable than usually depicted.
Policymakers and the public at large should keep in mind the words of Glenn Carle, a 23 year veteran of the CIA who served as deputy national intelligence officer for transnational threats: "We must see jihadists for the small, lethal, disjointed and miserable opponents that they are." Al Qaeda "has only a handful of individuals capable of planning, organizing and leading a terrorist operation," Carle notes, and "its capabilities are far inferior to its desires."
President Obama has said that there is also a humanitarian element to the Afghanistan mission. A return of the Taliban, he points out, would condemn the Afghan people "to brutal governance, international isolation, a paralyzed economy, and the denial of basic human rights." This concern is legitimate -- the Afghan people appear to be quite strongly opposed to a return of the Taliban, and they are surely entitled to some peace after 30 years of almost continual warfare, much of it imposed on them from outside.
The problem, as Obama is doubtlessly well aware, is that Americans are far less willing to sacrifice lives for missions that are essentially humanitarian than for those that seek to deal with a threat directed at the United States itself. People who embrace the idea of a humanitarian mission will continue to support Obama's policy in Afghanistan -- at least if they think it has a chance of success -- but many Americans (and Europeans) will increasingly start to question how many lives such a mission is worth.
This questioning, in fact, is well under way. Because of its ties to 9/11, the war in Afghanistan has enjoyed considerably greater public support than the war in Iraq did (or, for that matter, the wars in Korea or Vietnam). However, there has been a considerable dropoff in that support of late. If Obama's national security justification for his war in Afghanistan comes to seem as spurious as Bush's national security justification for his war in Iraq, he, like Bush, will increasingly have only the humanitarian argument to fall back on. And that is likely to be a weak reed.
The curse of politics
Economics focus
The curse of politics
Financial crises can drag on because efficient remedies are politically unpalatable
AS THEIR banking crisis approaches Japanese proportions, Americans can take comfort from the fact that their political culture is more capable of finding a solution. Or can they? Today’s anti-banker backlash bears a striking resemblance to the voter outrage that stymied efforts to fix Japan’s banking system in the 1990s. Indeed, an enduring lesson of financial crises is how political constraints interfere with economically efficient solutions.
For example, America’s Treasury and the Federal Reserve began examining options to use public money to buy up illiquid mortgage assets and to inject capital into financial institutions shortly after rescuing Bear Stearns, a failing investment bank, in March 2008. But it was another six months before they acted on those plans. “There was no way we could go to Congress without the American people understanding we faced a crisis,” says Henry Paulson, the treasury secretary at the time.
Sure enough, not until the failure of Lehman Brothers sparked a global panic in September did Mr Paulson and Ben Bernanke, the Fed chairman, ask Congress to authorise an outlay of $700 billion to support the system. Some say Mr Paulson should have tried harder to acquire the funds before the Lehman crisis. Perhaps, but it is doubtful he would have succeeded. “Even at the height of the crisis, [that] proved almost too hard to do,” he notes.
Phillip Swagel, an economist who will join Georgetown University this autumn, writes in a review* of his experience as an aide to Mr Paulson from December 2006 to January 2009 that market participants and academic economists often proposed solutions that glossed over real-world political and legal obstacles. Some academics argued bank creditors should be forced to swap their debt for equity, for example. But Mr Swagel notes that is not legally possible without a change in the bankruptcy code, a tortuous political process. Similarly, to reduce housing foreclosures the Treasury and Congress focused on reducing interest rates for struggling homeowners, even though this would be less effective than subsidising write-downs of mortgage principal. But politicians and voters would have seen that as an unacceptable bail-out of some undeserving homeowners.
Economists have long studied how institutional constraints interfere with efficient economic choices, such as when special interests erect barriers to entry in product markets. Such constraints have received relatively little attention in the burgeoning literature on financial crises. Yet a closer examination shows that many of the same political obstacles crop up from one crisis to the next. Japan’s Ministry of Finance first sought private-sector solutions to its banking crisis so as not to arouse voter anger by using taxpayers’ money. When those solutions failed, the government proposed in 1995 spending a mere ¥685 billion ($7 billion) to take over the problem loans of seven jusen, or mortgage-finance companies. The backlash was intense. Opposition parties called for the finance minister’s resignation and staged a sit-in at parliament. In one poll, 87% of voters disapproved. The measure eventually passed, but the experience was so searing that it discouraged the government from tackling the banks’ much bigger bad loans until 1997.
In spite of these difficulties, some governments do negotiate the political shoals. South Korea is often praised for the speed and forcefulness with which it took over failing banks and bought up bad loans following its financial crisis in 1997-98. But the South Korean government was able to deflect public anger by arguing that it was being forced to take these steps by the IMF, which to this day most Koreans blame for the crisis.
Sweden took over two banks and issued a blanket guarantee of bank liabilities in the early 1990s even though the governing coalition did not have a majority in parliament. Bo Lundgren, the finance minister at the time, says Swedish voters would have rejected the bail-out had it been put to a referendum. But the government first ensured it had the support of the opposition party (from whom it had inherited the crisis) and then obtained authority from parliament for unlimited funds, so it did not have to return for more money later.
This time it’s not different
A blank cheque would greatly suit Barack Obama, who gave warning on April 14th that American banks may “require substantial additional resources”. Mr Obama has pencilled in another $750 billion of potential stabilisation funds in his 2010 budget but unlocking extra money will be extremely tricky. Despite commanding majorities in Congress and high personal-approval ratings, he must overcome solid opposition from voters jaded by revelations of bankers’ excess.
That may well mean violating certain economic principles. Economists generally prefer transparent to hidden subsidies. But Mr Swagel says that the Treasury came to realise that underpricing insurance for bank assets roused less political opposition than overpaying for assets precisely because the insurance is less transparent. The Treasury is also relying on the Fed to finance illiquid assets by printing money because that requires no congressional approval (even if it compromises the Fed’s independence).
The other temptation is to couple assistance for bankers with a hefty dose of punishment to sate the public’s hunger for justice. Sweden sued the boards of the two banks it nationalised. Several executives agreed to repay their “golden-handshake” severances to avoid prosecution. Mr Obama promised that if banks need more aid, “we will hold accountable those responsible.” The risk, of course, is that pandering to voters’ anger only inflames them further, and makes it even harder to put money into the banking system as need arises.
A new world
Dubai
A new world
The crisis has hit the emirate hard, but it is wrong to write it off
THE first glamorous residents have already made a home for themselves at “The World”, an archipelago of 300 artificial islands (pictured above) created off the coast of Dubai by Nakheel, one of the emirate’s big three developers. Pilot fish and parrot fish have colonised the man-made reef surrounding the islands. The reef, built from 34m tonnes of rock, forms a protective ring around the islands—a breakwater that stops the Gulf’s currents from slowly washing The World away.
To its many critics, Dubai’s economy is as artificial as Nakheel’s islands. The emirate borrowed capital and labour to make speculative bets on real estate, of which The World is only one outlandish example. Now policymakers are scrambling to build an economic breakwater that might protect the emirate’s prosperity from adverse tides: plunging property prices, ebbing trade and tourism, and the unaccustomed difficulty of refinancing its ambitions.
The debt of Dubai’s government and government-controlled companies is about $80 billion. Almost $11 billion comes due this year (including interest) and $12.4 billion next. Nakheel alone must refinance a $3.52 billion bond in December and another worth 3.6 billion dirhams ($980m) five months later, according to EFG-Hermes, an Egyptian investment bank.
The rocks for Dubai’s breakwater have been provided by its neighbour Abu Dhabi. The wealthiest of the seven members of the United Arab Emirates (UAE), Abu Dhabi sits on 94% of the federation’s oil reserves. Through the central bank, it bought $10 billion of Dubai’s bonds, half of a proposed $20 billion issue. This bail-out, announced in February, has restored calm, as shown by the falling cost of insurance against default (see chart). The economy has shifted “from the crisis mood to the solution mood,” wrote Dubai’s ruler, Sheikh Muhammad bin Rashid al-Maktoum, in an online discussion with reporters on April 18th, his first in eight years.
The solution includes reshaping the archipelago of quasi-government companies known loosely as “Dubai Inc”. These enterprises mostly fall into one of three holding companies: Dubai World, Investment Corporation of Dubai, and Dubai Holding, which belongs to Sheikh Muhammad himself. Each holding company boasts its own master-developer: Nakheel, Emaar and Dubai Properties.
The ruler was happy to devolve power to these companies, which were run like personal fiefs. The competition between them kept them on their toes, unlike sluggish ministries of urban development elsewhere. But the developers also fell prey to one-upmanship. Emaar is building the world’s tallest building, so Nakheel announced a 1km tower that would surpass it. The government stood behind these companies, giving them the confidence to overreach. But the authorities did not stand over them, ensuring their plans cohered with each other and with reality.
During the boom, supply seemed to create its own demand. Developers sold properties before ground was even broken, asking for first instalments of 10% or even lower. This allowed speculators to buy ten apartments for the price of one, with the aim of selling them at a profit before the second instalment fell due.
The market peaked in September 2008, about 30 months after Dubai allowed foreigners from outside the Gulf to buy freehold properties in designated areas. Prices fell by about 25% in the last quarter of 2008, according to several of the private indices compiled in the absence of sound official data. They may have fallen by the same amount in the first quarter of 2009.
The market is sending a signal that even Dubai’s bullish developers cannot mistake. In March, Middle East Economic Digest (MEED), a business journal, calculated that UAE developers had postponed $335 billion-worth of construction projects. One two-year project was proceeding so slowly that it would take 20 years to complete. Three months after announcing its 1km tower, Nakheel postponed it.
The restructuring of Dubai Inc has begun. Nakheel shed 15% of its staff in December and has continued to pare its numbers since. Sheikh Muhammad’s own Dubai Holding has also cut staff. “Last year, people would talk about how many houses they owned,” says one Dubai veteran. “Now, they talk about how many friends have lost their jobs.” Other economies benefit from automatic fiscal stabilisers as the unemployed stop paying taxes and start spending welfare benefits. The UAE suffers from an automatic destabiliser: 30 days after a foreigner loses his job, he loses his right to stay. Once they leave, Dubai’s ex-expats will spend nothing in the economy they leave behind.
Companies often keep people on their books (unpaid) while they look for alternative employment. But EFG-Hermes forecasts that Dubai’s population will fall by 17% this year. Its workforce will shrink to fit a contracting economy, just as it grew to fit an expanding one. One architect in Dubai has proposed turning vacant labour camps, where migrant builders once lived eight to a room, into affordable housing for people who can no longer rent the apartments the labourers were hired to build.
Dubai lives in a good neighbourhood, however. Abu Dhabi, the next-door emirate, has 92 billion barrels of oil reserves and a sovereign-wealth fund with probably over $300 billion of assets. The consolidated balance-sheet of the UAE is not overly stretched. It is just that one emirate has most of the assets; its neighbour has most of the liabilities.
Good-neighbour policy
As Dubai’s crisis deepened, everyone waited for its oil-rich neighbour to bail it out. The wait lasted an agonising few months, from the onset of the crisis in September until the central bank’s decision to buy Dubai’s bonds was revealed in February. What accounted for the delay? Many commentators argue that Dubai was reluctant to ask for help, and that Abu Dhabi asked for something more than 4% interest in return. Abu Dhabi was perhaps not unhappy to see Dubai’s wings clipped and the federation tightened.
But Georges Makhoul of Morgan Stanley thinks it is wrong to describe the federation’s deliberations as if they were a “family soap opera”. He adds: “It’s not as if people in Abu Dhabi are scheming about how to make Dubai suffer, and the people in Dubai are scheming about how to wring money out of Abu Dhabi.” The offer of help was extended in November, he says.
In his online interview, Sheikh Muhammad denounced “vicious attempts” by the media to “fabricate differences between Abu Dhabi and Dubai.” He complained about a “media bombardment” of the UAE since the crisis broke. “I know that some people from outside the region have wished that [the] Dubai model will go down the river,” he says.
The critics of Dubai have indeed been as prone to overstatement as the Dubai developers they disdain. The Dubai model has deep roots. The emirate has, after all, been borrowing to invest in infrastructure since the 1950s, when it sold a bond to Kuwait to finance the dredging of its creek. The results of this investment are sometimes hubristic, but often impressive. The Jebel Ali Port, for example, is one of the biggest container docks in the world.
Dubai has also put similar efforts into its “soft infrastructure”. For example, the Dubai International Financial Centre has imported English law and international arbitration from London—even if it lacks the institutional history to back it up.
The skills Dubai needs to prosper are most abundant in the West. To attract these skills, it has turned itself into a country Westerners can enjoy, notes one Saudi onlooker. Saudi Arabia is a bigger economy offering more interesting work. But it struggles to attract the lawyers, financiers and other professionals it needs.
Not everyone is fresh off the plane, or booking their flights home. Dubai’s older family businesses, which trace their origins to Iran, India and Zanzibar, will not abandon the emirate during its downturn, any more than they were carried away by the boom. Dubai attracts people from 202 nationalities, according to the Ministry of Labour. Some of these people are footloose and flighty. But for others, the emirate is the only place in the region they would want to live. Dubai was a microcosm of the world even before Nakheel decided to build its island replica.
The charming neighbour
The United States and Latin America
The charming neighbour
Barack Obama offers a new partnership
A hard man for Chávez to hateAFTER Europe earlier this month, it was Latin America’s turn to enjoy Barack Obama’s charm offensive. In a brief visit to Mexico City, he assured President Felipe Calderón of his support against Mexico’s drug gangs. He went on to Trinidad for the Summit of the Americas, where he dispensed smiles, handshakes and backslaps, and called for a “new beginning” in the relationship between the two halves of the region. It seemed to work. The prime minister of St Lucia asked Mr Obama for an autograph. Even Hugo Chávez, Venezuela’s anti-American president, was disarmed. He repeatedly shook hands with the leader of the country he calls the “empire”, saying “I want to be your friend”. Seven months ago, he kicked out the American ambassador, a step he now wants to reverse.
How much substance lurks behind the smiles? Latin America wants Cuba to return to the diplomatic concert of the Americas. Mr Obama has allowed Cuban-Americans to travel freely and send money to the island. But reversing his position in his senatorial campaign of 2004, he said he did not favour an immediate lifting of the broader American economic embargo against the island.
In practice, the issues of drugs and security are likely to overshadow all others in the Obama administration’s relations with Latin America. In Mexico City Mr Obama repeated the soothing message already delivered by several of his cabinet members, that America has a “shared responsibility” for Mexico’s security problem because of its demand for drugs and the southbound traffic in guns and cash.
Mr Obama has begun to back up this rhetoric. He has added border agents, ordered inspections of Mexico-bound trains and stepped up efforts to seize the assets north of the border of three Mexican trafficking gangs. Mexican officials are also pleased that the administration is making more of an effort to trace guns.
But some big issues remain unresolved. Under the Mérida Initiative of 2007, the Bush administration promised Mexico $1.4 billion in aid over three years, most of it for helicopters and surveillance and inspection equipment. Congress took nine months to approve the aid; in February it sliced $150m from it. None of the money has yet been paid out. Mr Obama promised to expedite its disbursement, but gave no timetable.
Trade and immigration have also become issues which divide the two countries. Mexico’s government is pleased that Mr Obama has backed away from his campaign promise to renegotiate the North American Free Trade Agreement. But Congress recently cancelled a pilot programme allowing Mexican trucks to operate north of the border, prompting Mr Calderón to impose retaliatory tariffs on American goods. “We need to fix the trucking provision,” Mr Obama said in Mexico City, but gave no indication of when or how. While he has declared his commitment to immigration reform, his administration has not agreed to a request from Mexico not to separate families by deporting those of their members who lack documents.
Overall Mr Obama’s trip was a success. Several Latin American governments complained that the summit communiqué did not condemn the American embargo against Cuba. But Brazil’s Luiz Inácio Lula da Silva hailed “a new way of viewing each other and of overcoming our differences by debating them”. Whether the new mood will survive the worsening recession in Latin America is unclear. On April 22nd the World Bank, the Inter-American Development Bank and other donors said that they are ready to lend $90 billion to the region over the next two years. It is unlikely to be enough.
Before You Know It, Your Speech Could Be Offensive
Before You Know It, Your Speech Could Be Offensive
By Cathy YoungThose who charge that modern-day liberalism has become fundamentally illiberal toward speech and ideas that challenge its own dogma could ask for no better illustration than the recent events at the University of Massachusetts-Amherst, a bastion of the academic left.
On March 11, the Republican Club at UMass hosted Don Feder, a conservative journalist and former columnist for The Boston Herald, addressing the controversial subject of hate speech and hate crimes. Feder believes that legislation which singles out hate crimes with special penalties, rather than treating all violent crime equally, amounts to unconstitutional punishment of bad speech or bad thoughts. He also disputes the notion of a hate crime epidemic in America. The event was, in part, the Republicans' response to the controversy over the case of Jason Varnell, a black UMass student who faces charges for stabbing two white men and has received strong support on campus for his claim of self-defense against a racist attack. (About two weeks after Feder's appearance, one of the men Varnell stabbed was acquitted of violating his civil rights.)
A group of left-wing students announced their intent to protest Feder's appearance. The campus police then demanded the organizers pay an added $444 for security, nearly tripling the costs to the club.
It's bad enough to place a burden on unpopular views by requiring student organizations to shoulder extra costs for hosting controversial speakers. It's doubly outrageous when, even with the extra costs, the controversial speech is still silenced.
While Feder was not shouted down or physically threatened as some other speakers have been, a video posted on YouTube shows that the protesters were blatantly disruptive from the start. They laughed raucously when Feder was introduced as an "author and intellectual." The announcement that no protests or disruptions would be tolerated during the speech was greeted with open jeers.
As Feder began to speak, the protesters hissed and hooted. At one point, a group of them noisily turned around their chairs to face away from the podium. Finally, a woman in the audience interrupted Feder, rising to shout out a statement about the murder of a transgendered African-American woman. Feder asked the police to escort her out; from the video, it appears that she walked out on her own, to the cheers her fellow protesters, and even paused to wave to her friends and yell a derogatory comment to Feder.
Finally, as the disruptions continued, Feder cut his speech short and left the podium.
The Foundation for Individual Rights in Education (FIRE), a group that champions civil liberties in academia, took up the case on behalf of the Republican Club, asking UMass-Amherst to refund the extra security fee. On April 9, the day The Boston Globe featured an op-ed about the dispute by FIRE vice-president Robert Shibley, UMass associate council Brian Burke wrote to FIRE that the refund would be made, though denying any impropriety on the part of the college.
Ed Blaguszewski, UMass executive director of news and media relations, took the same position in his letter to the Globe published a few days later. He claimed that UMass is committed to "open exchange of ideas," that "the police handled the situation in the room without difficulty, which included removing one person," and that it was Feder's choice to stop speaking. However, in the video, which was put up by a supporter of the protesters' - and which includes the incident with the heckler in its entirety - the police are seen standing by idly.
Of course, freedom of speech does not protect speakers from criticism. But disruption and harassment are another matter. The students who objected to Feder's ideas could have engaged him in forceful debate him during the question period. (Who knows, they might have found that his ideas were not quite as worthless or demeaning as they assumed from the get-go.) They were also within their rights to hold up signs and posters expressing their objections. It is worth noting, however, that some of the signs captured in the video - "Abolish hate" and "Hate speech leads to hate crimes" - supports concerns that hate crime legislation ultimately targets thoughts and speech. This is particularly worrisome since some definitions of "hate" are broad enough to include opposition to affirmative action, abortion or same-sex marriage.
A genuine liberal would be embarrassed by these actions. But in some quarters, intolerance of dissent is now a cause for self-congratulation. When Feder remarked that he had spoken on numerous college campuses and had never experienced anything of the sort, one student could be heard shouting, "Go UMass!"
This is not to say that the right does not have its own hypocrisies and double standard when it comes to free speech. In 2003, when New York Times reporter Chris Hedges criticized the war in Iraq in a commencement speech at Rockford College in Illinois and was forced off the podium by protesters who booed loudly and disconnected the microphone twice, some conservatives such as Washington Times editor-in-chief Wesley Pruden were fairly supportive of the hecklers. More recently, concerns about protests and other security issues have led to the cancellation of controversial left-wing speakers like former Weatherman William Ayers and radical professor Ward Churchill. Much to FIRE's credit, despite having the reputation of a right-of-center group, it has consistently supported free speech in all these cases.
Most of us probably regard some speech and some speakers as so far beyond the pale of civilized discourse that there is no point in debating them, only in branding them unacceptable. But, however satisfying such a stance may be, it could be only a matter of time before the speech beyond the pale is your own.
Is 'Liberal Interventionism' Dead?
Is 'Liberal Interventionism' Dead?
Tony Blair still backs it--but the answer is up to President Obama.
JAMES TARANTO
Yesterday Tony Blair, the former British prime minister, delivered an important speech in Chicago. As Oliver Kamm of London's Times notes, it was a follow-up to a speech 10 years ago, also in Chicago, in which Blair, as Kamm puts it, "rightly perceived that rogue states posed a threat to civilised values and regional stability" and, in Blair's own words, "set out what I described as a doctrine of international community that sought to justify intervention."
When Blair spoke in 1999, Saddam Hussein still held power in Iraq and Slobodan Milosevic ruled what was left of Yugoslavia. The end of Saddam's dictatorship was four years away, but NATO was already acting to liberate Kosovo from Milosevic's domination. The Kosovo operation proceeded fairly smoothly, but the liberation of Iraq turned out to be more complicated. That, combined with distaste or hatred for George W. Bush, caused many liberals to lose their nerve and abandon the idea of intervention on behalf of human rights.
Not Blair. He acknowledges a mistake, in that in 1999 "I thought that removal of a despotic regime was almost sufficient in itself to create the conditions for progress." Nonetheless, he says, "I still believe that those who oppress and brutalise their citizens are better put out of power than kept in."
This is a far less popular view on the American center-left than it was in 1999--or in 2002, when 162 congressional Democrats voted in favor of Iraq's liberation. Today many American liberals scoff at a concern for human rights and espouse instead a coldhearted "realism" that might once have passed for conservative.
Blair argues that such realism is not realistic at all:
We should not revert to the foreign policy of years gone by, of the world-weary, the supposedly sensible practitioners of caution and expediency, who think they see the world for what it is, without the illusions of the idealist who sees what it could be.
We should remember what such expediency led us to, what such caution produced. Here is where I remain adamantly in the same spot, metaphorically as well as actually, of 10 years ago, that evening in this city. The statesmanship that went before regarded politics as a Bismarck or Machiavelli regarded it. It's all a power play; a matter not of right or wrong, but of who's on our side, and our side defined by our interests, not our values. The notion of humanitarian intervention was the meddling of the unwise, untutored and inexperienced.
But was it practical to let Pakistan develop as it did in the last 30 years, without asking what effect the madrassas would have on a generation educated in them? Or wise to employ the Taliban to drive the Russians out of Afghanistan? Or to ask Saddam to halt Iran? Was it really experienced statesmanship that let thousands upon thousands die in Bosnia before we intervened or turned our face from the genocide of Rwanda?
Or to form alliances with any regime, however bad, because they solve "today" without asking whether they will imperil "tomorrow"? This isn't statesmanship. It is just politics practiced for the most comfort and the least disturbance in the present moment.
One need not agree with Blair on every point; for instance, we would argue that support for the anticommunist resistance in Afghanistan, which helped bring about the disintegration of the Soviet empire, was justified both morally and practically. (The failure lay in neglecting Afghanistan after the Soviet withdrawal.) His overall point, however, is true and important. Often so-called realists like Charles Freeman, John Mearsheimer, Stephen Walt and Roger Cohen display a perverse pride in their moral insensitivity, as if amorality itself were the same as clear thinking.
Does liberal interventionism have a future? That, it seems to us, is up to President Obama. Here are Blair's thoughts on the matter:
President Obama's reaching out to the Muslim world at the start of a new American administration is welcome, smart, and can play a big part in defeating the threat we face. It disarms those who want to say we made these enemies, that if we had been less confrontational they would have been different. It pulls potential moderates away from extremism.
But it will expose, too, the delusion of believing that there is any alternative to waging this struggle to its conclusion. The ideology we are fighting is not based on justice. That is a cause we can understand. And world-wide these groups are adept, certainly, at using causes that indeed are about justice, like Palestine. Their cause, at its core, however, is not about the pursuit of values that we can relate to; but in pursuit of values that directly contradict our way of life. They don't believe in democracy, equality or freedom. They will espouse, tactically, any of these values if necessary. But at heart what they want is a society and state run on their view of Islam. They are not pluralists. They are the antithesis of pluralism. And they don't think that only their own community or state should be like that. They think the world should be governed like that.
In other words, there may well be groups, or even Governments, that can be treated with, and with whom we can reach an accommodation. Negotiation and persuasion can work and should be our first resort. If they do, that's great, which is why if Hamas were to accept the principle of a peaceful two state solution, they could be part of the process agreeing it. But the ideology, as a movement within Islam, has to be defeated. It is incompatible not with "the West" but with any society of open and tolerant people and that in particular means the many open and tolerant Muslims.
Obama's bitterest opponents see him as actively hostile to American ideals and interests, à la former president Jimmy Carter. A more plausible worry is that the president is naive and egotistical enough to believe that his own luminous personality is sufficient to solve the world's problems.
But if Obama's glad-handing is a mere tactic--if it is, or comes to be, part of a strategy that incorporates Blair's insights about the importance of Western ideals and the evil of the enemy's ideology--he could prove to be a successful foreign-policy president.
Torture and Public Opinion
In yesterday's item on talk of prosecuting former government officials for supposedly authorizing "torture," we quoted a blogger expressing despair about the existence of "a substantial minority of crazy people" who, according to said blogger, stand in the way of "an anti-torture consensus." A new survey from the Pew Research Center for the People and the Press sheds some interesting light on public opinion about this matter.
Pew asked, and has asked several times over the past year-and-a-half, which word best completes the sentence: "Torture to gain important information from terrorist suspects is justified ___." The most recent results, which are essentially in line with earlier surveys: "often," 15%; "sometimes," 34%; "rarely," 22%; "never," 25%; "don't know," 4%.
One way of looking at this is that it is the so-called antitorture consensus that is "crazy," at least in the sense of being far out of step with public opinion. Only 1 in 4 Americans thinks that torture is never justified; fully 71% think that there are cases in which it is.
But it's just as accurate to say that at least 81% of those polled think that torture is wrong. True, the majority of those see it as justified in certain cases, but this is what is meant by "the exception that proves the rule." Were it not wrong, it would not need to be justified.
As to the 15% who think torture is "often" justified, we do not deny that this is a crazy view. On the other hand, we wonder if it may be at least in part the result of misunderstandings promoted by the other side. Critics falsely claim that the Bush administration authorized torture, when in fact all it did was legally define torture in a narrower way than the critics would prefer.
It would be interesting to survey the 15% in more detail to find the extent to which they approve of methods that indisputably constitute torture, as opposed to the methods that are actually the subject of controversy.
Back to the Future
We're a bit embarrassed to have missed this yesterday, but lots of readers called it to our attention. We quoted an anecdote from Dan Simpson of the Pittsburgh Post-Gazette, according to which he, as a State Department official, lobbied Specter in 1974 to support the repeal of an amendment authorizing trade with white-ruled Rhodesia. According to Simpson, Specter "heard out the State Department argument, made no commitment and eventually avoided a vote."
As our astute readers noted, it would have been very easy for Specter to avoid a vote, since he didn't serve in Congress until 1981! The senator's official bio tells us that in 1974 he completed his service as district attorney of Philadelphia and returned to the private practice of law.
So what in the world was Simpson doing lobbying him? Was Specter impersonating a senator? Has he discovered the secret of time travel? Or is this like John Kerry's tale of spending Christmas in Cambodia, fighting "Nixon's war" before Nixon had been inaugurated? Is the experience seared, seared in Simpson's mind?
Et Tu, Nation?
Here's a paragraph we never thought we'd read in The Nation, a left-wing magazine:
The absurdity of the current moment is best exemplified by the recent threat by the New York Times Company to shut down the Boston Globe within thirty days if the paper doesn't find $20 million in immediate savings, including $10 million from its Newspaper Guild unit. While the guild did not reject the notion of concessions, neither did it give much indication that it appreciates the precariousness of its position. Its representatives insisted on a set of conditions that show little awareness on their part that their industry is in the process of evaporating before our eyes. Demands, for instance, that the paper institute a "revenue sharing" plan presuppose the existence of "revenue" in the future. But the Globe lost $50 million last year and is expected to lose $85 million this year. Between 2004 and 2010 revenue is projected to fall more than 40 percent, its pension plan is significantly underfunded and some of its members enjoy lifetime job guarantees. And yet the Times Company is demanding only $20 million in cuts? It strikes me that the guild is awfully lucky that the Times is willing to continue to subsidize so expensive an enterprise so generously. In fact, were I a Times Company shareholder, I'd be tempted to march into its annual meeting and ask, "Just what the hell kind of business is this, anyway?"
The author of this antiunion screed is named Eric Alterman. Hmm, perhaps The Nation is a right-wing gag after all.
Speaking of unions, reader Brian Crook argues that we were too hard on General Motors and the United Auto Workers in an item yesterday:, in which we faulted them for a contract provision that has GM paying laid-off workers the difference between their unemployment benefits and wages:
This practice, commonly called "sub pay," was initiated by the meat packers Hormel and Armour in the late 1940s, to assure the availability of a capable workforce when their cyclical business picked up. Similarly, the automakers and UAW recognized the benefits of keeping people on tap to follow cyclical demand, and also of encouraging workers to buy "on the never-never" the cars they build. Of course, it rests on the assumption that the business is cyclical, and doesn't contemplate disasters like the current credit meltdown.
And please note that Ford operates under essentially the same UAW contract, and isn't in quite the same hole as are GM and Chrysler. Might that have something to do with Ford's ownership being less susceptible to Wall Street pressures?
Tea Time
We've received more information bearing on the origins of the term "tea-bagging." BoingBoing.net did an email interview with filmmaker John Waters, whose 1998 film, "Pecker," includes the earliest known pop-cultural reference:
I didn't invent the term or the act but DID introduce it to film. . . . "Teabagging" was a popular dance step that male go-go boys did to their customers for tips at The Atlantis, a now defunct bar in Baltimore.
That would support our initial description of the term as "gay slang," as would this Sydney Morning Herald article that describes the HBO series "Sex and the City" as depicting heterosexual women behaving like gay men.
On the other hand, we heard from more than half a dozen readers--most of whom insisted we not identify them--who reported hearing the term used in a heterosexual context (most often from frat boys on campus) prior to 1998, in some cases as early as the mid-1980s.
There is also this YouTube video depicting Arizona Cardinals defensive tackle Darnell Dockett performing a vulgar celebration, described as "tea-bagging," after sacking Philadelphia Eagles quarterback Donovan McNabb in this year's NFL championship game. So it would appear that, from origins that may or may not have been gay, this term has come into somewhat wider usage.
Now, we're tired of this subject and could use a cup of coffee.
Six-Week Winning Streak Runs Out of Steam
Six-Week Winning Streak Runs Out of Steam
Banks Rally but Indexes Fall Short of Seventh Week of Gains
PETER A. MCKAY ROB CURRAN
Banks shares rose as the government pulled back the curtain on its stress-test methodology, lifting the broader market Friday, though blue chips were unable to stretch their recent winning streak to seven weeks.
The Dow Jones Industrial Average rose 119.23 points, or 1.5%, to 8076.29. Microsoft and American Express jumped by 11% and 21%, respectively, after posting better-than-expected results on Thursday. DuPont and Bank of America eached gained more than 3%.
On the week, the Dow declined 0.7%, halting a six-week string of gains. But the benchmark closed at its highest level in a week, is up 6.1% this month and more than 23% above the 12-year closing low it hit on March 9.
![[Markets Data]](http://s.wsj.net/public/resources/images/MDGpromo_D01222009151210.jpg)
Friday afternoon, the Fed laid out its framework for evaluating the nation's 19 largest banks, saying regulators have aggressively sought detailed information from individual firms.
Traders lamented that the framework failed to provide specific loss estimates being used in the stress tests. Banks received an estimate from the government on how much capital they will need to raise but executives and U.S. officials are expected to negotiate on a final figure over the next week.
Peter Kenny, managing director in institutional sales at Knight Equity Markets, said, "It's very anticlimactic … but that's by design. The design is to take the drama and fear out of the market and to the extent that's one of the objectives, it's succeeded."
Bank stocks climbed. The KBW Banks Index rose 2.6%. J.P. Morgan Chase climbed 0.5%, U.S. Bancorp rose 3% and Wells Fargo advanced 6.5%. Some of the sector's gains faded in the final 15 minutes of the trading day.
Traders said the initial bounce may fade as investors digest the implications of the test for weaker banks. The test requires banks to project their credit losses and revenue for 2009 and 2010 and reserves needed to cover expected losses in 2011. Banks exposed to real-estate and commercial markets in the Midwest and the Southeast may not be adequately capitalized to cover those losses, some analysts fear.
"The worry comes out of today's report is the midlevel banks that you don't see in the news every day," said Joe Kinahan, chief derivatives strategist at thinkorswim. He attributed the bounce after the test hit the tape to "short squeeze" as bears betting against the banks were forced to buy back the shares they had borrowed.
The S&P 500 rose 14.31 points, or 1.7%, to 866.23 as investors rotated out of defensive sectors like utilities and health care. The benchmark was down 0.4% for the week, also ending a six-week run of gains. Ford Motor climbed 11% after it said it burned through less cash in the first quarter as it continued to restructure without government aid.
Online retailer Amazon.com rose 4.8% after it posted a better-than-expected 24% rise in first-quarter profit.
The Nasdaq Composite Index rose 42.08 points, or 2.6%, to 1694.29. The relative strength of the generally smaller technology and consumer stocks on the Nasdaq represents a growing bet on an economic recovery, traders said. The benchmark was up 1.7% on the week and has risen for seven weeks in a row. It is up 34% from the six-and-a-half year closing low it hit on March 9.
"This is a breakout and it looks like it has more legs to it," said Ryan Detrick, senior technical strategist at Schaeffer's Investment Research. For the broader market, "you want technology leadership," Mr. Detrick said. "When you have a true -- I don't want to say bull market yet -- but a strong trending market, technology is one thing you want to perform."
Oil futures rose $1.93, or 3.9%, to $51.55, pushing them back above the $50 a barrel level. Though new inventory data this week showed U.S. stockpiles of crude at historic highs, traders and analysts say the market is beginning to reflect early bets on summer driving season.
Fadel Gheit, energy analyst at Oppenheimer & Co. in New York, said gasoline demand has held up fairly well this year despite a deep global recession, though other refined fuels, like diesel, have lagged due to weakness in the industrial sector.
"You have to remember that gasoline prices are about half what they were a year ago," said Mr. Gheit. "For the consumer, that helps to offset the effects of job losses," which tend to weigh on fuel demand.
In another development closely watched by oil traders on Thursday, OPEC Secretary General Abdalla Salem El-Badri said he doesn't expect the oil cartel to cut production when the group meets next month.
U.S. Pushes Some Banks to Boost Capital Reserves
U.S. Pushes Some Banks to Boost Capital Reserves
DAMIAN PALETTA DAVID ENRICH ROBIN SIDEL
WASHINGTON -- Federal officials are pushing several of the country's largest banks to bolster capital reserves, people familiar with the matter said, as regulators try to repair bank balance sheets and the public image of the U.S. banking sector.
The identities of the banks, among the 19 institutions that were subjected to federal "stress tests," couldn't be learned. Analysts believe they likely include regional banks with large exposures to commercial real estate in the Midwest and Southeast. Three people familiar with the matter said at least three banks are in this position.
Government officials believe most banks in need can improve their capital footing without taking money from the government bailout fund. This would be done by raising funds from private investors or converting the government's existing investments in banks into a new type of equity that would better cover banks in case of future losses.
In the latter scenario, the U.S. could end up owning large chunks of banks, raising the specter of something akin to nationalization. Federal officials have said any such move would be temporary. Some banks could end up requiring a cash infusion from the Treasury.
In February, the Obama administration said 19 bank holding companies with more than $100 billion of assets would have to undergo a stress test. The move was designed to calm fears about the solvency of the banking system. The exams, conducted by more than 150 federal regulators, analyzed potential losses from residential mortgages to complex securities products.
Regulators want banks in the future to be able to maintain an additional "buffer" of capital above the minimum standards, a Federal Reserve official told reporters Friday. The official wouldn't identify the specific buffer.
The Fed released the methodology for the tests Friday, although didn't provide many of the specifics that bank investors and analysts had been seeking.
In embarking on the tests, government officials are walking a tightrope. The move could have the opposite its intended effect and raise public fears that banks ordered to raise more capital are on the verge of collapse. The Fed specifically said Friday that needing to boost capital should not be viewed as "a measure of the current solvency or viability of the firm."
"There's a fine line between trying to do something that's credible and has enough transparency to be credible, and also trying not to undermine the supervisory process, which historically has been confidential," said Richard Spillenkothen, the former head of the Fed's division of supervision.
Banks will have several days to challenge the findings before the government makes results public the week of May 4. In a briefing, White House spokesman Robert Gibbs said it was his "understanding" that the banks themselves would release specific results.
Under the tests, all 19 banks are all believed to be "well capitalized" by current standards. The tests, however, pushed banks to determine what their conditions would look like if the economy worsened precipitously.
Fed officials met Friday with top management at the country's biggest banks, from Citigroup Inc. in New York to Wells Fargo & Co. in San Francisco, to go over the results.
Fed officials and some of the banks wrapped up in less than 60 minutes; others dragged on for several hours, according to people familiar with the matter. Participants were told to keep mum on what was discussed.
Write to Damian Paletta at damian.paletta@wsj.com, David Enrich at david.enrich@wsj.com and Robin Sidel at robin.sidel@wsj.com
U.S. Stocks Gain on Earnings, Banks Fluctuate on Stress Tests
April 24 (Bloomberg) -- U.S. stocks rose for a second day as companies from Ford Motor Co. to Microsoft Corp. posted better-than-estimated results, while bank shares fluctuated as investors evaluated a Federal Reserve report on stress tests. Ford rallied 16 percent after slowing its consumption of cash. American Express Co. climbed 19 percent as the credit-card company said it plans to repay the government’s investment. Microsoft added 8.4 percent following its smaller-than-forecast profit decline and prediction of bigger cost savings. Schlumberger Ltd., the largest oilfield-services provider, jumped 5.7 percent after income fell less than estimated.
“We’ve driven down expectations so low that earnings across the board have been ahead of estimates,” said James Dunigan, managing executive of investments at PNC Wealth Management in Philadelphia, which oversees $96 billion. “That’s providing some catalyst for people to put together a story of where the economy is going to be in couple of months. We have seen the worst.”
The Standard & Poor’s 500 Index added 1.2 percent to 861.99 at 2:26 p.m. in New York, trimming losses at the end of its first weekly drop in almost two months. The Dow Jones Industrial Average rallied 95.81 points, 1.2 percent, to 8,052.87. The Russell 2000 Index increased 1.7 percent. About three stocks climbed for each that fell on the New York Stock Exchange.
The S&P 500 is still down 0.2 percent this week on renewed concern that banks may post more credit losses and as prices jumped during six weeks of gains. The U.S. benchmark index has rebounded 27 percent from a 12-year low on March 9 on speculation government efforts to fix the banking system and revive the economy will pull the nation out of a recession.
The Federal Reserve said the recession and market turbulence have “substantially reduced” reserves at some of the 19 largest U.S. banks, while most of the firms hold capital “well in excess” of regulatory standards.
“Losses associated with the deepening recession and financial market turmoil have substantially reduced the capital of some banks,” the Fed said today in a description of stress tests of the companies. “Most U.S. banking organizations currently have capital levels well in excess of the amounts required to be well capitalized.”
Brother, Can You Spare a Decade?
Brother, Can You Spare a Decade?
Few things other than a New Deal can be more painful than an economic depression. But few eras were more vital and enjoyable than the private side of the last one.
One of the rare books in my financial library is “I Like the Depression,” by Henry Ansley, the “Jackass of the Plains.” This amusing little volume was published by Bobbs-Merrill in 1932, and the price was a buck fifty.
Ansley, a newspaperman from Amarillo, Texas, described a prosperity in the 1920s that wasn’t that great. He burned candles at both ends, became a financial hotshot, and ultimately overextended himself. Then the depression hit: “Good-by twin beds, frozen salads, indigestion, credit and swelled head. Hail to the old-fashioned nightgown, buttermilk, sow bosom [a kind of food], comfort and cash.” He lost his job but found happiness by rediscovering leisure, friends, and neighborliness. Hard times taught him the value of a dollar and not to take things for granted: “My dog is my pal again; my wife my lover and my Dad my advisor.”
Ansley’s book was never a bestseller, but it started me thinking. Can the worst of times also be the best of times? The history books are replete with the evils of the 1930s — soup lines, bank closings, Hoovervilles, dustbowls, bear markets, demoralizing despair. It’s all been retold countless times, in such books as Milton Meltzer’s “Brother, Can You Spare a Dime?,” John Steinbeck’s “The Grapes of Wrath,” and most recently Amity Shlaes’s “The Forgotten Man.” The Great Depression brought us Nazi Germany, the New Deal, Keynesianism, and, some say, World War II.
Not surprisingly, everyone from Wall Street to the halls of Congress is worried that the current recession will turn into the dreaded D, and has seized on desperate rescue measures. But was the Great Depression all bad? Did anything good come out of the 1930s? I started doing some research and was amazed to find a bright side to the gloomy ’30s — a lower cost of living, great new inventions and other technological advances, new forms of entertainment, more sports and reading, and a return to sober social behavior.
Start with leisure. Henry Ansley describes the free time he had during the depression. Indeed, millions of Americans had a lot more leisure time. Before the depression, almost everyone worked a six-day week. In the 1930s, the five-day work week became commonplace. “Spread the work!” was the rally cry. By 1937, wage earners in 57% of all manufacturing companies enjoyed a five-day week. Saturday was now a free day, and the Saturday rush hour was replaced by the Friday rush hour.
As a result, there was a tremendous increase in sports and leisure-oriented jobs. People began getting out into the sun and open air and taking a greater interest in golf, tennis, skiing, roller skating, and bicycling. Softball became a national pastime; by 1939, there were nearly half a million teams and 5 million players of all ages throughout the country. Expensive private club golf courses withered, but inexpensive public courses grew. Miniature golf was all the rage in the early ’30s. Bobby Jones became the first and only person to win the Grand Slam of golf in 1930. And black athletes became national idols for the first time, Joe Louis in boxing and Jesse Owens in track and field.
Americans traveled more. House trailers became a very big business. Camping, canoeing, and other inexpensive outdoor activities increased in popularity. People took their cameras with them, and photography became a craze of remarkable dimensions. Americans took tons of pictures with their small German cameras. Life and Look — big, glossy picture magazines — became popular.
Dancing, all the rage in the ’20s, continued to rage in the ’30s. Americans would dance their way out of the depression! Young people everywhere danced the swing, the jitterbug, and the boogie woogie to the music of Benny Goodman, Tommy Dorsey, and Louie Armstrong.
Indoors, parlor games such as bridge and the ingenious “Monopoly” were popular. People read more, and circulation at local public libraries increased. Kids loved comic books, especially “Superman,” the world’s first comic book superhero. Books “condensed” by Reader’s Digest saved time and money. There was an intense interest in epic novels — Pearl Buck’s “The Good Earth,” A.J. Cronin’s “The Citadel,” Margaret Mitchell’s “Gone with the Wind” — as well as such how-to books as Dale Carnegie’s “How to Win Friends and Influence People.” (1937, with 17 printings right away).
In the same year, Lin Yutang, the Chinese-American Taoist, published “The Importance of Living,” which was to become especially popular among libertarians. It encouraged Americans to stop worrying and start “letting go.” One chapter was entitled “The Art of Loafing.” “I am quite sure,” Lin wrote, “that amidst the hustle and bustle of American life, there is a great deal of wistfulness, of the divine desire to lie on a plot of grass under tall beautiful trees of an idle afternoon and just do nothing.” Whether fortunately or unfortunately, in their own opinion, millions of Americans got to live Lin’s upbeat message of idleness.
Idleness — and its companion, entertainment. People wanted to forget their troubles, and radio and motion pictures provided an escape. Radio really came of age during this period, with up to 80 million listeners on some evenings. There was a lot more to radio than FDR’s fireside chats. It was the way to hear worldwide news bulletins, good music, and such half-hour comedies as “Amos ’n’ Andy,” the first syndicated program, and “The Jack Benny Show.” In the late 1930s, NBC was carrying broadcasts of symphony orchestras, especially its own orchestra, conducted by the immortal Arturo Toscanini, to 10 million listeners every week. And who can forget the night of Sunday, October 30, 1938, when Orson Welles broadcast his version of H.G. Wells’ “The War of the Worlds”?
Hollywood blossomed during the ’30s. In one decade, the motion picture industry went from silent films to talkies in Technicolor. Films brought the American public together as never before. Gary Cooper, Fred Astaire, Ginger Rogers, Katharine Hepburn, John Wayne, Mickey Rooney, and Clark Gable were welcome alternatives to Adolf Hitler, Benito Mussolini, Josef Stalin, and other demagogues of the era. Many considered Shirley Temple a gift from God during the gloomy de-pression. The motion picture event of 1938 was the first full-length animated cartoon, Walt Disney’s “Snow White.” The same year saw one of the first films in Technicolor, the blockbuster “The Adventures of Robin Hood,” starring Errol Flynn. A burst of classic award-winning films came out the next year, including “The Wizard of Oz,” “Mr. Smith Goes to Washington,” and the greatest of all epic films, “Gone With the Wind.”
The ’30s was the era of the first great horror films, “Frankenstein,” “Dracula,” “Dr. Jekyll and Mr. Hyde,” and “King Kong.” For a dime, Americans could go to the Saturday matinee and see double features of cowboys, adventurers, and gangsters. The silver screen brought us science fiction, serial thrillers and the Singing Cowboy (Gene Autry). The theater was filled with humor — Laurel and Hardy, W.C. Fields, the Three Stooges. Americans would laugh their way out of the depres-sion! There were reasons why Chicago economist Robert Lucas, Jr., called the 1930s “one long vacation.”
Alvin Hansen and other Keynesian economists developed their “stagnation thesis” in the late 1930s, arguing that the United States was indefinitely stuck in an economic rut. They claimed that there was no new technology, no new frontier to drive the American economy. They ignored the tremendous economic progress that took place throughout the depression — the invention of plastics, artificial fibers, plywood, the 2-cycle diesel engine, and lighter, tougher steels.
Ernst Ruska and Max Knoll invented the electron microscope in 1932. Howard Armstrong created FM radio in 1933. Wallace Carothers manufactured nylon, and Robert A. Watson-Watt discovered radar in 1935. Hans Pabst von Ohain developed the jet engine in 1937 and the first jet airplane in 1939. Chester Carlson originated xerography in 1938. Igor Sikorsky made the first practical helicopter in 1939. Several people, including Philo T. Farnsworth and Isaac Shoenberg, developed television in the 1930s. CBS and NBC began broadcasting TV during this decade.
Manufacturers weren’t idle in getting new technology to market. New household products included electric mixers, pop-up toasters, vacuum cleaners, refrigerators, and irons. For the first time, consumers enjoyed sliced bread and packaged frozen foods. Union Pacific came out with fancy new streamlined, air-conditioned trains. Mass-market automobiles could now accelerate to 60 mph, carrying passengers along new highways with underpasses and cloverleafs. The dirigible, a new form of air transportation, appeared in 1936 (but disappeared with the fiery destruction of the Hindenberg a year later). The Douglas DC3 came out in 1936, traveling at 200 mph, compared to the 1932 passenger airplane speed of 110 mph. Coast-to-coast travel in overnight air sleepers was now possible. New ocean liners, such as the Queen Mary, appeared in a crowded New York harbor. Everyone came to witness the building of the 102-story Empire State Building and the Rockefeller Center (the only skyscraper group to rise in the 1930s). And who could not marvel at the Golden Gate Bridge, opened to traffic on May 28, 1937?
Social historian Frederick Lewis Allen, author of “Only Yesterday” (1931), a bestselling history of the 1920s, summed it up best when he wrote in a sequel, “Since Yesterday” (1940), “the American imagination was beginning to break loose again.” At the end of the decade, the New York World’s Fair had as its theme “The World of Tomorrow.”
The depression brought about a change in American social trends. People attended church more. Many retreated from the sexual revolution of the roaring ’20s. The mood was more somber and prudent, even after Prohibition was repealed in December 1933. (By the end of the decade, Alcoholics Anonymous was founded.) There was greater approval of marriage and family life. The divorce rate dropped sharply, by 23% from 1929 to 1932, though so did the marriage rate and the birth rate — possibly because marriage and children cost money.
Not all economic news was bad. The most favorable statistic was the decline in the cost of living. During the period 1929–32, retail prices dropped by an average 24%, wholesale prices by 31%, farm prices by 51%, and raw commodity prices by 42%. Of course, wages, salaries, dividends, and other forms of income declined as well, but for those who kept their jobs and held onto their assets, the loss of nominal income was offset by sharply lower prices for all consumer products. “Everything was all right in those years,” said a woman quoted in Amity Shlaes’ book, “but only if you had a job.”
Unemployment reached 25% and higher in some regions at the depths of the depression, causing enormous hardship for millions of Americans. But see it in another light: three out of every four people were employed in the worst parts of the depression. Total employment rose after 1932, reaching 90% by the end of the decade. In a sense, the Democrats were right: happy days were here again!
Businesses adjusted to the new deflation by downsizing, cutting costs, and implementing labor-saving devices. Even the farming industry mechanized. By 1936, despite persistent unemployment, real national output had nearly recovered to pre-depression levels. Auto sales exceeded all previous years except 1928–29. The steel industry was operating at close to capacity. Even the building industry was climbing briskly. Miami was having its best season since the collapse of the Florida land boom. The race tracks were crowded, lavish debutante parties flourished in the big cities, and the night clubs were full.
For bulls and bears alike, the 1930s was the most fantastic period in stock market history. Stock prices collapsed between 1929 and 1932, losing an average 88%, but industrial, rail, and utility stocks all shot up from their lows in the summer of 1932, anticipating the end of hard times. Few bull markets have ever equaled the rocket performance of the summer of 1932, when the rails tripled within eight weeks and the utility averages doubled. Wall Street went on a rampage for the next four years. The Dow rose 67% in 1933, 4% in 1934, 38% in 1935, and 25% in 1936. After a sharp 32% correction in 1937, the market re-sumed its upward trend until war broke out in Europe in September, 1939. There were also plenty of speculative opportunities on the long side of gold and other natural resource stocks during the ’30s. In sum, the bulls, not just the bears, had plenty of chances to make money in the 1930s.
There’s an old saying, “It is the irritation in the oyster that forms the pearl.” The Great Depression was an irritation that most people didn’t expect. A few people couldn’t take the hard times and jumped out of windows, but most responded to the challenge. Adversity often demonstrates the virtue and creativity of humankind. Bad news often creates good news and opportunities to learn and advance. The 1930s were no exception.
A Strange, New, Upside-Down Year That Presages Crazier Times Ahead
A Strange, New, Upside-Down Year That Presages Crazier Times Ahead
We are in a weird age.
Do the smart thing, we were told, and invest in a 401(k) retirement account. Buy into the American dream and own your own home. But lately it seems that those who put their money in low-earning passbook savings accounts or rented rather than buying may have been better off.
Indeed, almost all the old familiar benchmarks of modern American life seem to be going by the wayside.
The blue-chip corporations that were long the brand names of world manufacturing and finance — American International Group, Bank of America, Bear Stearns, Chrysler, Citigroup, General Motors and Lehman Bros. — are either gone or teetering on insolvency.
The old-guard newspaper industry is fading — the Tribune Co. is in bankruptcy court, Hearst at one point threatened to shut down the San Francisco Chronicle, the Rocky Mountain News is already gone. The stock price of the New York Times is worth about the same as its Sunday paper.
Washington is more confusing. Bill Clinton balanced his last budgets but raised taxes. George Bush increased deficits but cut taxes. But now taxes, spending and deficits soar all at once. We are lectured that prior reckless federal spending and borrowing got us into this mess — but now are told that even more federal spending and borrowing will get us out of it.
We've seen housing sales slump when home prices were high but interest rates low. Or when prices were low but interest high. Or when prices and interest were alike high. But we never have seen a bad housing market in which both home prices and mortgage interest rates were low.
Nonsense is passed off as wisdom. Those who caused the financial meltdown walked away with millions in bonuses while taxpayers covered the debts they ran up. The big-spending government claims it may cut our annual $1.7 trillion deficit in half by 2012 — but only after piling up trillions more in national debt.
In our Orwellian world, borrowing to spend what we don't have has been renamed "stimulus." Those who pay no federal income taxes — almost half of Americans — can somehow be promised an income tax "cut." In the new borrowing of trillions of dollars here and trillions there, billions of dollars now sounds like pocket change.
When Americans turn to their political parties for answers, they are even more confused. Populist Democrats such as Sen. Chris Dodd and President Barack Obama took more AIG campaign cash than did pro-business Republicans.
And the list of big-tax liberals who cheated or avoided taxes they want to raise on others is astounding — Treasury Secretary Timothy Geithner, who oversees the Internal Revenue Service; failed Obama Cabinet nominee Tom Daschle; and Rep. Charles Rangel, chairman of the House Ways and Means Committee.
Yet conservative Republicans during the Bush administration ran up the debt and increased federal spending far more than did liberals under Bill Clinton. A Republican president has not balanced a budget since Dwight Eisenhower did it over a half-century ago.
Abroad, we thought piracy ended with the age of sail — only to learn that the world's 21st century navies either will not or cannot sink a few brigands in speedboats. Meanwhile, a U.N. conference against racism showcased Iranian president — and Holocaust-denier — Mahmoud Ahmadinejad spouting anti-Semitic hatred.
The old "bad" unilateral war in Iraq is now quiet; the once "good" multilateral effort in Afghanistan is not.
We are warned that we must be careful not to explicitly associate the radical Islam that fueled the Sept. 11 attacks with terrorism; yet, we are advised that we should worry about returning American veterans as potential terrorists.
When our president references the 19th and 20th centuries, he apologizes for American sins but stays silent about the United States defeating Nazis, fascists, Japanese militarists and Soviet communists. The world hears contrition about Americans dropping the bomb to end World War II but never remorse from those responsible for Darfur, Grozny or Tibet.
There have been a few crazy years like 2009 in American history — 1860, 1929, 1941 and 1968. And given what followed all of them, it might be wise to prepare for even crazier times for us ahead.
1 comment:
Here is a link to an article thay you may find interesting. i found it online today at pressdisplay.com:
http://www.pressdisplay.com/pressdisplay/showlink.aspx?bookmarkid=0BR6T49E3ZM5&preview=article&linkid=24a868f5-66b0-454f-816b-734bf1d31bb0&pdaffid=ZVFwBG5jk4Kvl9OaBJc5%2bg%3d%3d
Sincerely,
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