Thursday, June 27, 2013

“China and the ‘Four Winds’”

Sydney M. Williams

Thought of the Day
“China and the ‘Four Winds’”
June 27, 2013

China has been both lionized and vilified over the past three decades. It has been seen as the saviour of Western capitalism, but also as a state-run economy intent on becoming the hegemonic nation in East Asia, if not the Pacific. While we admire their economic progress, we worry about their lack of civil rights and the environmental impact of their economic growth. Last month China named a new political leader Xi Jinping, but last week he spoke using the language of the Mao era. The East has always seemed mysterious to the West. Rudyard Kipling wrote that “never the twain shall meet.” What we do know is that we cannot hope to understand the Chinese by assuming they will fit a mold formed by Western thought.

An op-ed by Mr. Xi recently appeared in the People’s Daily, a Chinese language paper known as the State’s official newspaper. In it, the term “mass line” was used, as in the “mass line is the ruling lifeline” for the Communist party. It is a phrase that harkens back to the Mao era and, according to Russell Leigh Moses writing in last Friday’s Wall Street Journal, “denotes the need for officials to get close to the masses, and to know their needs and demands intimately.” Specifically Communist party cadres were told to attack the four winds of formalism, bureaucracy, hedonism and extravagance. In a videoconference last week, Mr. Xi again urged cadres to “focus on self-purification, self-improvement, self-innovation and self-awareness.”

The concern of Mr. Xi is that the widening wealth gap and political corruption is dangerous to the long-term stability of the Communist party. As more Chinese enter the middle classes and as technology permits them to interact with the rest of the world, it is only to be expected that control will be lessened. Cadres, who had been relying on the presumption that middle-class wealth will act as a pacifier, fail to understand the universal nature of the human psyche – that the more you have, the more you want. As Eddie Cantor used to sing after the First World War, when American Doughboys were returning home, “How ya gonna keep ‘em down on the farm, once they have seen Paree?” Democratic capitalism, as we know it, and Communist totalitarianism are incompatible.

In the post 2008 environment many in the West looked upon China’s mercantilist economy with envy, as state-sponsored growth allowed their economy to sail through those disruptive days with relative ease. An infrastructure was created. Roads, bridges and airports were built. Today, as Barron’s noted in last week’s issue, “…empty apartment buildings rim hundreds of Chinese cities.” They write of the “ghost city” of Ordos in Inner Mongolia, which was built to accommodate a million people, but has been empty for six years. They picture the Jiaozhou Bay Bridge, 26 miles long, but which sees little traffic. They cite a railroad station that is “something out of a science-fiction movie,” but silent, as no trains run. The article in Barron’s, however, reported first quarter GDP growth of 7.7% and bad debts inside the Chinese banking system of 1% compared to 3.4% in the U.S. They also wrote that China “boasts a debt-to-GDP ratio reckoned conservatively at about 30%, less than half the national debt rate of the U.S.”

But statistics are funny things. On October 9, 2007 I wrote a cautionary piece on China. I quoted Lester Thurow, former Dean of MIT’s Sloan School of Management, who had argued that economic numbers from the Chinese government should be viewed with skepticism. He had written a piece in the August 19, 2007 issue of the New York Times that stated, based on electricity consumption, real GDP in China is probably growing between 4.5% and 6.0%. Lending credibility to the inaccuracy of Chinese statistics, Wikipedia puts government spending at a mere 20.1% of China’s GDP, while they have the U.S. at 38.9%. The U.S. numbers, which include state and local spending, are accurate. The Chinese numbers beg credibility. The Financial Times, in an article last week, “Echoes of Mao in China cash crunch,” estimated that the overall credit-to-GDP ratio in China was closer to 200%, versus 120% five years ago. (In the U.S., our comparable ratio is about 250 percent.) Rapid expansion in credit growth is almost always associated with rapid rises in asset prices, careless analysis and complacency on the part of investors – a combustible mixture.

But it is not just the overbuilding of infrastructure projects and the creation of overcapacity in basic industries like steel, cement, solar panels and wind turbines that worry Mr. Xi. It is the graft that so frequently accompanies such projects – what we call crony capitalism – and the lifestyle of the young, rich and politically favored, which must appear unsettling to the nation’s reputed 900 million poor.

China has chosen to generate economic growth with government-sponsored programs. In its early days, it lifted millions of people from rural poverty to factory jobs along its southern coast. Its economy, according to most all assessments, grew at near double-digit rates for almost three decades. But in so doing, there was no natural governor to control the speed of growth. It has built cities and factories that nobody wants, and bridges and roads that lead nowhere. The New South China Mall, twice the size of the U.S.’s Mall of America in Bloomington, Minnesota, has been 99% empty since its 2005 opening. In order to maintain its growth, China increasingly took to the credit markets. Whereas in happier days a Yuan borrowed created a Yuan of GDP, more recently, according to Barron’s, it has been taking four borrowed Yuan to create one Yuan of GDP a trend in the U.S. that helped lead to the credit crisis of 2008.

Whether one is in the East or the West, free markets, private ownership and the rule of law have always worked best for economies over a sustained period. Those factors combine the natural supply of goods and services with demand from individuals and businesses. They reflect an understanding that profits will accrue to owners and that contracts will be honored. The freedom to do so allows for confidence, a characteristic impossible to manufacture.

When in crisis, however, states feel the need to take control of the economy. It is political suicide for a head of state to be seen doing nothing. Instead of reducing taxes to stimulate consumer spending, political leaders feel the urge to spend taxpayers’ money, whether or not it makes economic sense. The natural instinct of most politicians, in times of stress, is toward Keynesian economics. But, just as we are hindered today by obligations due to unfunded entitlements, China is constrained by the fact they have already built more roads and airports than they need. Unfortunately, supply-side economics, which definitionally mean less government, is antithetical to state-controlled economies, like China.

We all know that the growth China has been experiencing is unsustainable. The question is: how will it end? The Shanghai Index, down 67% from its peak in October 2007, has already seen a major correction. But now it is the economy that is in question. According to pilots, every plane landing is a controlled crash. Can China’s leaders do the same with their economy?

Last Thursday, a mid-size state-owned bank, China Everbright, defaulted on a six-billion Yuan loan from another bank. Interbank rates rocketed to 13% from 8% the day before and 4% last month. Some commentators explained the move as nothing more than the Central Bank’s decision to drain reserves, to slow the rate of lending. Markets rallied somewhat on Tuesday, as China’s central bank injected reserves. But the problem could reflect ebbing confidence in the quality of China’s financial system. A shadow banking system, over which government officials have less control has evolved and is estimated to have accounted for more than 45% of China’s credit creation. These are loans that include those made off-balance sheet. And, as we well know, off-balance sheet liabilities were one of the principal explanations for the melt-down in the U.S. in 2008. Regardless of where the fault lies, however, there is truth to the old saying that the bigger the party and the longer it lasts, the deeper and longer the hangover.

Mr. Xi recognizes he has a problem. China’s economy is likely to slow markedly. Whether he can control the rate of slowdown remains unknown. But his editorial about the need to address hedonism and extravagance suggest a man who is concerned about the survivorship of the Communist party. Like Nik Wallenda, Mr. Xi must navigate a narrow tightrope. Too much wealth accruing to a small group of cadres risks unrest among the populace. On the other hand, asking those cadres to cut back on their expensive cars, big houses and outlandish lifestyles may alienate Mr. Xi’s principal supporters.

It would appear he has two choices. He could tighten his control over the Communist party, or he could substitute democratic capitalism for the mercantilism that has been China’s signature for the last two or three decades. In an editorial on the subject, Tuesday’s Wall Street Journal sounded almost Panglossian in their conclusion: “…a more market oriented economy will be more prosperous and fair, and will also better provide public goods like clean air and safe food.” While true, it reminded me of the old English proverb: “If wishes were horses, beggars would ride.” More likely, in my opinion, is an earlier line from the same editorial: “The worry is that Beijing waited too long…”

Regardless, Mr. Xi’s evocation of the “Four Winds” is a reminder that China is still China.

Tuesday, June 25, 2013

“In Regulation We Trust”

Sydney M. Williams
Thought of the Day
“In Regulation We Trust”

June 25, 2013

A fundamental premise of the coming together of the American colonies in 1776 was that a diverse people from myriad heritages with differing religious beliefs could flourish, as long as freedom prevailed. That demanded a government with limited powers, and, with authorities not expressly enumerated to the federal government, reserved for the states and the people. Congress was granted the power to regulate interstate commerce, not for the purpose of restricting trade, but to promote commerce. Financial well-being, the Founders recognized, was dependent on robust economic growth. Restrictions on limited government began to be reversed with the Progressives early in the 20th Century, and more definitively with Franklin Roosevelt’s New Deal. Wickard v. Filburn, decided by the Supreme Court in 1942, upheld Congress’ regulatory authority even to items that do not cross state lines…and even for items produced for personal consumption. More recently, the enforcement of regulation has increasingly become the purview of unelected officials.

The Competitive Enterprise Institute (CEI), a small “think tank” in Washington estimates, in their 2012 report, that regulation cost the economy about $1.75 trillion, almost half the U.S. Federal budget and about 12% of U.S. annual GDP. To put that number in perspective, in 2011, individual taxpayers paid $1.1 trillion in personal federal income taxes. To be fair, some regulation is necessary and some makes our lives better. Nevertheless and as would be expected, the Office of Management and Budget (OMB) argues that a cost-benefit analysis shows that the benefits of regulation exceed their costs.

In the first three years of Mr. Obama’s first term, the Code of Federal Regulations (COFR) increased by 11,327 pages – a 7.4% increase. The pace was maintained in 2012, with 3800 final rules issued last year. Today, the corpus of the COFR is approaching 200,000 pages – far more than the average person would read in lifetime. According to the White House, 2012 was the costliest ever in terms of federal regulation – at $19.5 billion, costs were 57% higher than 2010, the second costliest year. Nevertheless, the White House appears to have understated the real costs. Research from American Action Forum indicates that the White House estimates real costs were $23.1 billion. And neither estimate includes six “economically significant” regulations – those whose costs exceed $100 million. It is hard not to believe that the CEI’s estimates are closer to the mark.

The Atlantic Monthly is not a publication noted for hyperbole. Nevertheless, Derek Khanna in the January 27, 2013 issue wrote an article entitled, “The Most Ridiculous Law of 2013 (So Far): It Is Now a Crime to Unlock Your Smartphone.” In it, he noted that by decree from the Librarian of Congress, Americans who unlock their smartphones in order to make them available on other carriers will be subject to penalties. “Anyone,” he wrote, “who accepts payments to help others unlock their phones would clearly be subject to the fine of up to $500,000 and five years in jail.” The origin of this travesty is the Digital Millennium Copyright Act (DMCA) of 1998, which outlawed technologies that bypass copyright protections. Mr. Khanna points out that while this sounds like a good idea, “in practice it has terrible and widely acknowledged, negative consequences that affect consumers and new innovation.” The DMCA leaves it to the Librarian of Congress to issue exemptions from the law.

As an indication of the absurdity of certain regulations and the exemptions that must be sought regularly, Mr. Khanna notes that the American Foundation for the Blind must lobby Congress to protect an exception for the blind that allows books to be read aloud. Every three years their group must come to Capital Hill to explain that the blind still can’t read books on their own and therefore need this exception. It would be funny were it not true.

Red tape is suffocating small business. Millions of rules and regulations encumber businesses in the “land of the free.” In last Wednesday’s Wall Street Journal, Niall Ferguson wrote that the cost of regulation for small business is “36% higher per employee than they are for bigger firms.” The paperwork nightmare acts as a retardant to those who would start businesses. States can be as bad as the federal government. There is little question that while some regulation is helpful and saves lives, a large number of rules are simply manifestations of growing cronyism – designed to protect certain businesses by inhibiting competition. Some examples of the silliest follow:

      • The State of Texas requires every computer repair technician to obtain a private investigator’s license. The license requires a degree in criminal justice, or a three-year apprenticeship. Violator’s can be fined $4000 and/or put in jail for a year.

      • A Tour Guide’s license is necessary to give tours in Washington D.C. Doing so without could put you behind bars for 90 Days.

      • A Massachusetts fisherman was fined $500 for untangling and setting free a whale that had become caught in his nets. Regulations required that he call state officials and let them do the job. (The whale must have been absent when this law passed.)

      • In Milwaukee, you must purchase a license to dissolve a business. Further, you must detail the inventory you are attempting to sell and pay a $2 dollar charge for every $1000 worth of inventory.

Much, if not most regulation is imposed by unelected bureaucrats working in agencies such as the EPA. In 2009, Representative Geoff Davis (R-KY) was asked by a constituent: why doesn’t Congress vote on new regulations? It was an obvious concept, but has proven difficult to enact. The REINS Act (Regulations from the Executive in Need of Scrutiny Act of 2013) would require Congress to approve all new major regulations. A version of the bill passed the House in December 2011, but the Senate has yet to hold a hearing. Regulations are imposed, creating costs for consumers, with no oversight by elected officials. Such regulatory charges are, in fact, examples of taxation without representation.

Besides being designed to help particular corporate constituents (and hamper competition), many regulations are imposed by politicians responding to high-profile events. Ross Douthat, in Sunday’s New York Times, noted that the President’s decision to make gun control a second-term priority is coming at a time when “firearm homicides are at a 30-year low.” Congress is pursuing an increase in low-skilled immigration “when the foreign-born share of the American population is already headed for historical highs.” Mr. Douthat adds: “The administration is drawing up major new carbon regulations…when actual global warming has been well below projections for 15 years and counting.”

In his Journal column, Professor Ferguson concluded with a quote from Alexis de Tocqueville regarding the suffocating affects of the regulatory state on free enterprise: “It [regulation] rarely forces one to act, but it constantly opposes itself to one’s acting; it does not destroy it, it hinders, compromises, enervates, extinguishes, dazes and finally reduces [the] nation to being nothing more than a herd of timid, industrious animals of which the government is the shepherd” – We are becoming what H.G. Wells called the Eloi.

“Keep rollin’ down the track, you can’t go back,” goes the song. The same, unfortunately, seems true of our over-regulated state.

Monday, June 24, 2013

“The Man Without a Country”

Sydney M. Williams

Thought of the Day
“The Man Without a Country”
June 24, 2013

Philip Nolan deserved his fate. In Edward Everett Hale’s allegory The Man Without a Country, Philip Nolan, a Lieutenant in the United States army, damned his Country when he was found guilty of treason. “D--n the United States. I wish I may never hear of the United States again.” Upon hearing his outburst, the judge granted his wish, sentencing him to spend the rest of his life at sea, never to touch foot on its soil and never to hear a word as to its news.

No, this is not a piece about Edward Snowden. This regards a growing number of people who are feeling dispossessed by a government grown bigger and more intrusive. In so doing, government has assumed responsibilities once held by non-governmental organizations, from the PTA to Rotary to Churches. Quoting from Robert Putnam’s 2000 book Bowling Alone, Niall Ferguson enumerates some statistics in his recent book, The Great Degeneration: The average membership rate for thirty-two national, chapter-based associations is down 50% over the past thirty years. Membership of parent-teacher associations is down 61% over the same time. Volunteerism is increasingly being replaced by government bureaucrats. Charles Murray made similar observations about religious and secular organizations in his 2012 book, Coming Apart. What individuals once did by banding together has been assumed by government only too eager to take on more responsibilities.

In Balance, Glen Hubbard and Tim Kane make the point that throughout history great powers have risen and then fallen. The authors cite the examples of Rome, China, the Ottoman Empire, Spain and Great Britain. Empires rose because of available education and an abundance of people with ideas, but success was sustained because of the rule of law, property rights and open markets. They fell for internal reasons – usurpation of power by government that becomes less and less trustworthy, inertia on the part of citizens and erosion of economic vigor. Forgotten in each country’s success were the root cause of their rise. Complacency supplanted inquisitiveness, risk-taking and hard work.

Government now accounts for almost 40% of GDP, when states and local governments are included. It has an octopus-like grip on social services, making an ever-increasing percentage of the people dependent on government. “[A democracy] can only exist as a permanent form of government until the majority discovers it can vote itself largesse out of the public treasury.” The quote has many fathers, but it was the sentiment expressed by Alexis de Tocqueville in his 1835 opus, Democracy in America. Approximately 50% of all working Americans pay no federal income taxes. About one third of Americans live in a household that receives some form of public assistance. It suggests a people that have grown increasingly dependent on the generosity of government, embedded in a symbiotic relationship – they keep in office those who keep them in money, food and shelter. Welfare is not limited to individuals, however. Crony capitalism has morphed into a form of corporate welfare, with businesses from banks to homebuilders whose profitability is reliant on government assistance, in the form of tax credits or rebates. Again, the relationship is symbiotic. Absent massive tax simplification and reform, we are doomed to follow the paths of those great powers that preceded us.

The immigration bill that is making its way through Congress has set shameless Democrats, who will do anything for another bloc of votes, against xenophobic Republicans. Without a photo ID, immigrants here illegally might be able to vote, one of the most hallowed rights and duty of American citizens. Nobody knows how many non-citizens (or dead people) vote in each election, but the number is not insignificant. Citizenship used to be something sought and cherished, but to the extent one can come here illegally, vote and receive entitlements demeans its sanctity. At the same time there are Republicans whose demand for fences, guards and Drones is reminiscent of the Soviet’s Iron Curtain; it is offensive to U.S. values of freedom and human dignity and risks the nation becoming insular at a time when international relations are critical.

Friday’s Wall Street Journal suggested that the most successful policy in limiting illegal immigration was the Bracero guest-worker program. The program, which began during World War II when most young male Americans were in the military, was designed to bring Mexican farm workers to the U.S. It worked well enough that it was extended after the War but finally expired in 1964. Visa expansion programs and more guest-worker programs would likely lower the number of illegals entering the United States. Fear of competition, whether it is goods, services or labor is no justification for exclusionary tactics.

The Congressional Budget Office has estimated that the immigration bill will add substantially to the tax roles and help reduce the deficit. Whether that is true or not, we should not forget that the vast majority of us are immigrants or descendants of immigrants. According to most estimates, less than one percent of our population can trace their ancestry to Native Americans. In contrast, the number of Americans who could trace their lineage to the 102 people who came over on the Mayflower in 1620 was estimated to be 12% ten years ago by the History News Network – that would equate to almost 50 million Americans today. America is indeed the melting pot it has always been seen to be. “E Pluribus Unum,” (out of many, one) is properly embedded in the Great Seal of the United States.

Added to this litany of troubling events have been the recent scandals – in all cases, a consequence of an over-reaching, mean-spirited and less responsive government. Benghazi demonstrated an Administration that put politics ahead of doing what was right, and then lied about what they did. The IRS has highlighted a political party enlisting the services of Washington’s most intrusive agency to penalize their opposition and reward their friends. And the tapping of phones of reporters at the Associated Press and Fox News are manifestations of a government attempting to intimidate the press.

Taken together, these events and actions have soured people on government. Neither political party is highly considered. Congress’s favorability polls are barely in double digits. Even Mr. Obama has lost the luster he once had. Very few, if any, feel as angry about the Country as did Philip Nolan, but a growing number of people are concerned that the Country is not the one they once knew. The very fact that ignorance of our own history is becoming ubiquitous means that more and more people have little if any understanding of the principles on which this nation was founded, or of the risks that the founders took, so that their descendants might live in a country where freedom was valued more highly than personal possessions. Thirty-eight percent of Americans failed a test on civics, according to a test conducted two years ago by “Newsweek.” Only 58% of Americans could identify the Taliban, while 76% of Finns, 75% of Brits and 68% of Danes could. On this year’s National Assessment of Educational Progress, only 22% of students tested proficient in civics and only 18% in U.S. History. Ignorance may help some politicians stay in office, but is harmful to a successful democracy.

In a review of Balance in Friday’s Journal, Matthew Rees quotes the authors: “American democracy has proven itself more powerful than all of the skeptics’ and cynics’ concerns.” But, as Mr. Rees adds, the book is a “…reminder that societies that seem invincible are often anything but.” I would add that change is continuous and never-ending; the question is, in what direction will change flow? Will we stay the current path of increased dependency and reduced freedoms, or will we reverse course? If we choose the latter, which I believe is necessary for our salvation, will we be willing to accept the near-term consequences that such adjustments will bring?

Do we, like Philip Nolan, deserve our fate? The answer has to be, yes. We have elected those that govern us. We have been persuaded by the promise of perpetual care. We have abdicated personal responsibility in favor of promises to which we have been told we are entitled. We are mindful of the present, but mindless of the future – of the costs we are placing on those that come after. We appear ignorant of the fact that freedom is not free. All societies, whether totalitarian or democratic, make pacts – they exchange security for certain individual rights. The question is one of degree. While we all recognize that the greatest responsibility of any government is the safety of its citizens, the Founding Fathers instituted a system of checks and balances; so as to prevent the usurpation of power by any one branch.

But, over the last several decades, the Executive branch has assumed ever more power; so if legislation fails or Congress refuses to confirm a particular nominee, Executive Orders are issued and “Czars” are appointed. The first five American Presidents issued a total of 15 Executive Orders. The last five (including only Mr. Obama’s first term) have issued 1349. In terms of White House “Czars,” between the Administrations of Harry Truman and Bill Clinton no President had more than eight. Things changed. George Bush had 33 and, in his first term Barack Obama has had 38. These are people appointed by the President who hold power, but are not subject to Congressional oversight. The trend toward increased executive power is ominous.

Increasing encroachment on our rights by government, combined with an erosion of personal responsibility and a lack of knowledge of our history have changed the nature of people’s relationship with their elected officials. None of us has been or will be consigned to sail the Seven Seas, as was Philip Nolan, never to set foot again on American soil nor to hear news of our country. We don’t damn our Country. We feel saddened. Many of us feel this is no longer the Country for which so many gave their lives. It is not the same place whose history we once studied. It appears Orwellian. We may not be men and women without a Country, but we are without the Country we once knew.

Thursday, June 20, 2013

“The Summit, Berlin and Unknown Knowns”

Sydney M. Williams

Thought of the Day
“The Summit, Berlin and Unknown Knowns”
June 20, 2013

Among the more famous quotes in Rumsfeld’s Rules, Donald Rumsfeld’s recent book, is the one that states that there are known knowns, things we know we know, known unknowns, things we know we don’t know, and unknown unknowns, things we don’t know we don’t know.

There is, however, another, related phrase, unknown knowns. While some include in that phrase things we knew, but have forgotten, Fintan O’Toole, the acerbic Irish commentator, defines the term differently. He sees the phrase as referring to things that are inevitable and easily knowable, but things that people choose not to know.

What brings these thoughts to mind was the two-day Summit in Northern Ireland for the G-8. While the group is supposed to represent the largest economies in the world, it ignores China (2), Brazil (6) and India. The latter is, admittedly, the ninth largest economy, but it is bigger than both Russia and Canada, both members of the G-8. Russia and Canada should perhaps stay on, but, in a world that is fragile yet filled with opportunity, it seems foolish to ignore the other three.

Summits are useful, in that they provide a forum for world leaders to meet, talk and get a sense of one another. But they also are seized upon as photo-ops to promote personal agendas back home. British Prime Minister David Cameron, the leader of this week’s Summit, had asked participants not to bring their wives. Most chose not to, but Mr. Obama not only brought his wife, but also his two daughters. That is his prerogative of course, but why does he continue to campaign when he has run his last race? Nevertheless, if world leaders, in gathering together, can help promote economic growth and avert armed conflict, it is money well-spent.

The Summit was expected to focus on the three ‘T’s – trade, taxes, transparency – and Syria. Free trade among the members has been on the agenda since the original six nations first met thirty-nine years ago; so we might be pardoned for exhaling with disappointment when only baby steps were taken in that regard. David Cameron, this year’s host, insisted on some sort of an international agreement that prohibits companies from transferring profits to low-tax havens. As a British friend wrote me from Switzerland, reducing taxes at home makes more sense than some sort of an international accord that would require more bureaucrats. Keep in mind, competition has done more to improve people’s lives than all government programs combined. Countries, just like companies, should be free to compete; otherwise there is a tendency to drift toward the lowest common denominator. The consequence of different tax strategies has been demonstrated over decades. Look no further than California and Texas, or Eastern Europe and Western Europe. The deliberate ignoring of such knowledge falls under the category of an unknown known.

In terms of transparency, Mr. Cameron wants to expose those who “aren’t paying their fair share.” (I wonder where he came up with those words?) Mr. Cameron would like to see a central registry detailing the beneficial ownership of all companies; “so businesses could not hide behind shell companies and trusts.” In demanding an increasing role for government, Mr. Cameron is betraying his conservative roots. But Mr. Cameron and the others are not interested in two-way transparency. They are, in fact, looking for one-way mirrors, where they can see us, but all we see are our reflections. Jackie Calmes and Stephen Castle, in the New York Times, wrote Wednesday that on the issue of global economic policy, “the leaders were equally vague and even self-congratulatory despite continued high unemployment…” Curiously, but not surprising, the final communiqué was a typical example of opaque, self-evident grandiloquence: “Promoting growth and jobs is our top priority.” And we, the taxpayers of these eight countries, had to spend $80 million to have our leaders travel to Enniskillen to get those pearls of wisdom?

The civil war in Syria, however, was the foremost issue at the Summit, with the United States trying to determine the exact location and color of the “red” line that President Assad and his forces were not supposed to cross, and Mr. Putin insisting that Assad is in fact the legitimate leader of Syria. Given the differences regarding Syria, the tension between Mr. Obama and Mr. Putin was palpable, but unsurprising. (That tension only increased over the silly squabble as to who would get exclusive use of the resort’s one gym. Mr. Obama won.) Mr. Putin supports Mr. Assad, while Mr. Obama and the rest would like to see him gone. There was agreement that a peace conference should be convened in Geneva over Syria, even though that conference would be delayed until “late August or early September.” That was sufficient, though, for the White House to release a statement that applauded “the international consensus that was reached on Syria.” While such inane comments are as common from politicians around the world as rocks are in New Hampshire, I am always astounded to note how gullible they must believe us to be.

Syria’s descent into civil war owes its fate, at least in part, to our procrastination. (As New England Patriot’s former owner Victor Kiam once said, “Procrastination is opportunity’s assassin.”) Assad is a known known, a bad guy. If we were going to arm the rebels (and I am not saying we should), the time to have done so was when they first took to the streets two years ago. The vacuum created by the absence of international support over the past two years has been filled with al Qaeda and other Islamic extremists – an example of an unknown known. In what seems to be an unnecessarily provocative concession, the G-8 decided to permit Iran’s newly elected President Hassan Rohaniwas to attend the Geneva peace talks. Hassan Rouhani may seem moderate in comparison to his predecessor Mr. Ahmadinejad. But this is a man who in 1999 “mercilessly and monumentally” suppressed and killed more than a dozen student protestors, according to Sohrab Ahmari writing in Monday’s Wall Street Journal. Intervening in any civil war carries risk, as the examples of Libya and Egypt have made clear. It hurts me to say so, but Mr. Putin may be right on the issue of Syria. 100,000 men, women and children have been killed over the past two years. Do we really want to risk an unknown unknown?

From Northern Ireland, the President headed to Berlin to give an address on a new phase of nuclear arm cuts. He will be doing what he does best – speaking, this time before the Brandenburg Gate, a place of much significance in U.S. Presidential orations. We recall President Kennedy, who in June, 1963 stood on the west side of the gate and said, “Ich bin ein Berliner,” and President Reagan who, on another June day twenty-four years later, declared: “Mr. Gorbachev; tear down this wall!” Now, this June, fifty years after Kennedy’s immortal words, Mr. Obama hoped to achieve a similar place in history. As a great speaker, he is well suited for such a performance; though the crowd he drew was only a small fraction of the 250,000 people that heard him in 2008. I read his speech, but did not hear it. It seemed more inspirational than policy driven. It was also designed to stave off the ripening scandals in Washington. He spoke of “peace with justice,” a nuclear free world, but also mentioned gay rights, global warming, AIDS, balancing the need for security with the protection of privacy, and the need to close Guantanamo. And, yes, he did mention that “Osama bin Laden is no more.” But instead of repeating that al Qaeda is in decline, he said that efforts against them are “evolving.” I did not note any line that might be remembered fifty years hence.

When the history of the late 20th Century is written, it will be the absence of the use of nuclear weapons that will stand out. Throughout history, increasingly deadly weapons have been developed, all of which have been used to kill or maim with ever greater efficiency. Nuclear weapons represent a noticeable exception. Other than the tragic, but necessary in my opinion, use of two nuclear bombs dropped on Japan in 1945, the world has lived with these horrific weapons without using them. They have, however, served as a deterrent. The concept of Mutual Assured Destruction (MAD) worked well for forty-five years as the East and the West faced one another. The East led by Russia was totalitarian but not stupid. They had skin in the game of international diplomacy and were able to control their satellites. The U.S. played the same role in the West. But the collapse of the Soviet Union has seen the rise of terrorists’ states; so nuclear weapons are now in the hands of unstable nations like North Korea and Pakistan. And Iran is perilously close to having one.

For the U.S. and Russia to reduce stockpiles may make sense, though not including China and India seems odd. Regardless, Mr. Reagan’s admonition of “trust, but verify” should still apply. In a world with terrorist and unstable nations in possession of nuclear weapons, far more sensible would be a concomitant proliferation of missile defense. It is, in my opinion, an example of an unknown known. Instead of bowing to Mr. Putin’s pressure to remove interceptor missiles in Poland, Mr. Obama should offer the technology to the Russians. It is defense not offense that we and all people, including the Russians should be playing when it comes to nuclear weapons. We cannot, though, overlook their role as a deterrent. President Reagan’s concept of a Strategic Defense Initiative seems increasingly prescient and sensible. Missile defense will do much more to make us safer than the U.S. and Russia reducing their nuclear stockpiles from 1500 pieces to 1000.

There are things we know and things we don’t, just as there are things we cannot know. But, ignoring what is known or not thinking clearly, or letting ideology override reason, is a recipe for disaster.

Tuesday, June 18, 2013

“Debt and the Consequences of Low Rates”

Sydney M. Williams

Thought of the Day
“Debt and the Consequences of Low Rates”
June 18, 2013

Simply put, low interest rates encourage borrowing and discourage savings. That, of course, is the Federal Reserve’s purpose in keeping rates low, as they hoped attractive rates would lubricate consumer and business spending. It worked with consumers, but has been less successful with businesses. And, of course, the federal government has stepped up their spending. Unlike most state governments, Washington is not subject to such inconvenient requirements as balanced budgets. Borrowing in this environment provides an immediate sense that money is cheap, but such debt will saddle future taxpayers when refinancings will likely have to be done at higher rates. Low interest rates, perversely, chase investors from “safe” investments into speculative ones, as investors search for needed returns. Low rates also promote profligacy – a bad habit for a nation that is retiring more than three and a half million people each year, the vast majority of whom have inadequate financial means.

One of the major disconnects is that, over the past three decades, businesses have migrated from defined benefit retirement plans to defined contribution ones, but governments have not. According to Towers, Watson & Co., just eleven of the Fortune 100 companies offered defined benefit plans to new salary employees in 2011. That would contrast to ninety in 1985. People are being forced to fund their own retirements, but, while most companies have 401K plans, most employees receive very little help from employers on the importance of saving and investing. At the same time, laws governing retirement plans are written by government employees, most of whom are covered by defined benefit plans where we, the taxpayer, are the guarantor of their plans . The situation has augured poorly for the financial health of the nation, and will continue to do so.

Consumer spending needs little encouragement. Despite the “worst financial crisis since the Great Depression” and with total employment lower than it was in 2008, consumption in 2013’s first quarter, as a percent of GDP, has remained about 70%, right where it was in 2007. While GDP dipped in 2008 and 2009, it is now about seven percent above where it was at the low point, in 2008. What makes the consumer spending numbers even more astonishing is that while the value of household financial assets are about where they were in 2007, the value of U.S. housing stock is approximately 10% below where it was five years ago. We continue to spend, while fewer of us work and our assets are worth less.

While it is easy to blame Mr. Bernanke for this state of affairs, the real responsibility lies with the President who has failed to lead and Congress that has failed to enact sensible fiscal reform. Thus far, the consequences have been a rise in speculative assets like equities, a build-up in bank’s excess reserves, a modest economic recovery at best and continued high unemployment. Not the worst of all possible outcomes perhaps, but certainly not the best.

With the build-up of government debt and obligations – municipal, state and federal – and the growth in student loan debt, it is the specter of rising interest expense, the actual real cost of debt, that is (or should be) concerning. Like all human responses, expectations that abnormally low interest rates will persist will have unintended consequences.

Human behavior is fascinating. Despite the fact that students of psychiatry and psychology can reasonably predict how we adjust to change, that fact seems to have little affect on our behavior. The predictable becomes the unpredictable. Human emotions, like love, hate, envy, greed, lust, are common to us all, though in varying degrees. Their consequences have been explored by writers, like Shakespeare, Tolstoi, Dickens, Austen and myriad others who understood the psychology of the human psyche. While not part of most business school’s curriculum, such writers should be read and studied, especially for those interested in investments, which, in this new world of personal responsibility when it comes to retirement, should be all of us.

Instinctively, but often wrong, I am not a momentum guy. The “trend is your friend” is an old Wall Street adage, but so is the concept of the “greater fool.” In my opinion, complacency is the enemy to investors. Is their complacency in bond prices? I don’t know, but I feel uncomfortable with the notion of limiting my return on High-Yield bonds to 6.2% for the next fifteen years. The idea of receiving 3.34% for thirty years for the dubious honor of owning the long U.S. Treasury bond doesn’t do much for me either.

Regardless of personal preferences as to investments, it is the fact that government, businesses and individuals are not paying proper attention to the threat that retirees face – a glut of people, longer lives, more expensive health coverage and a glaring need for assets, which should be of concern. Everybody is far too blasé about the sand traps on the fairway.

America is in a quandary. As Glenn Hubbard and Tim Kane write in their new book, Balance: The Economies of Great Powers from Ancient Rome to Modern America, the “primary threat to America is America itself.” Among the worst consequences of debt is that one’s options become limited. Total government debt, including that of state and local governments, at about 140% of GDP, rivals the experience during World War II. The difference is that seventy years ago the debt was caused by a massive build-up of our military forces in the successful bid to defeat Germany and Japan. When the war ended, everyone knew spending would come down. Today, our debt is largely a function of entitlements – wealth transfers, which are programs difficult if not impossible to slow down or stop. Mothers, wives, sisters, girlfriends wanted their menfolk home in 1945. Today one would be hard pressed to find any beneficiary of government largesse anxious to see their benefits reduced. Rising interest rates will have even more onerous effects on budgets. The very magnitude of our debt renders us close to being helpless should we again face a menace similar to what we faced in 1941. We may be more comfortable, but are we safer?

Friday, June 14, 2013

“Who Will Watch the Watchers?”

Sydney M. Williams

Thought of the Day
“Who Will Watch the Watchers?”
June 14, 2013

The title is borrowed from Edwin Fadiman’s 1970 book. But the concern it expresses goes back almost two thousand years to the Roman poet, Juvenal. He became known as the first to use the term, Quis custodiet ipros custodes?, which literally translated means who will watch the watchmen? But the meaning is the same. In a democracy, the watchers are supposed to be the people, aided by a press not beholden to any political party.

We live in an age of ubiquitous personal data, easily available and mined by government and business. We love the connectivity technology affords, but we are torn between a desire for privacy and a need to be protected. Edward Snowden claims that the pendulum had swung too far toward violations of privacy, so he broke the secrecy rules, ran off to Hong Kong and exposed the NSA’s Prism program on which he had been working while employed by Booz Allen in Hawaii. Civil disobedience has a long history in the United States, from the Bostonians who threw British tea into Boston Harbor, to Henry David Thoreau, to Martin Luther King. Thoreau once said: “If the machine of government is of such a nature that it requires you to be the agent of injustice to another, then, I say, break the law.”

But then there are those who claim civil disobedience, but in fact are motivated by hubris or politics, men like Daniel Ellsberg who published the “Pentagon Papers” in 1971 and ABC’s Sam Donaldson who in 2006 declared it a “sacred duty” to expose secret CIA prisons. Both men probably thought of themselves as modern-day Thoreaus. But, in my opinion, their motivations had baser elements. Mr. Ellsberg disagreed with the Vietnam War, while Mr. Donaldson simply did not like George Bush. Not everyone who disobeys our laws is a hero, no matter their claim. In which camp does Mr. Snowden fall? It is too early to tell, but I suspect he falls into the latter.

We live in an information age. Ninety-nine plus percent of Americans love their smart phones. Wikipedia estimates that there are 327 million cell phones in the U.S. and over six billion in the world. Estimates are that on average six calls are made per day and three to four times as many text messages. It is estimated that about 150 billion e-mails are sent each day. Instant messaging and twittering provide more fodder. Every YouTube video ever made resides somewhere in the blogosphere, as does every photo sent over the internet. Smart phones are used to call, text, locate the nearest Starbucks or determine the weather. Messages and calls travel wirelessly using some form of spectrum or broadband that some carrier has purchased from the government. We purchase goods and make payments this way. Two years ago, PEW Research estimated that the average young person received or sent 87.7 messages every day. Even those over the age of 65 were sending more than five messages a day. The numbers must be far higher today.

Consequently, our movements, calls and messages can be tracked, listened to and read. That knowledge is instinctive to anyone with a smart phone. “You have zero privacy. Get over it,” said Scott McNealy fourteen years ago. Despite the popularity of Lee Child’s hero, there are very few Jack Reacher’s out there.

The point being, because of technology and the human need to stay in touch, we live in a world that is far easier to monitor than ever before. Yet millions of Americans seemed oblivious to the traceability of their movements, calls, videos and messages. The disclosure by Edward Snowden about the workings of the National Security Agency’s (NSA’s) Prism Program sent sales of George Orwell’s 1984 soaring – up 5000% one day earlier this week. Millions of people, having forgotten or ignored Mr. McNealy’s admonition, are unreservedly sending text messages, photos and e-mails, data that would embarrass them in more sober moments. To them, Mr. Snowden’s divulgence served as a wake-up call; so, for many in the aftermath, the Fourth Amendment trumped safety.

The massive amount of data available means it is impossible for any organization to listen in on every call or read every message. The NSA must create sophisticated algorithms to mine this “metadata” in order to monitor possible terrorist activity. And the formulas must be constantly adjusted to account for new pieces of information. They must also always be on the alert to hacking activities, as the bad guys persistently attempt to block intrusive government monitoring programs. One can think of the Prism Program as a funnel with a very large conical mouth and a microscopic stem – ingesting the general, digesting and disgorging the granular. Wednesday, in testimony before the Senate, NSA chief, General Keith Alexander noted that billions of pieces of data resulted in only a few dozen pieces of information that would be studied carefully.

General Alexander claimed that a dozen or more terrorist plots had been prevented because of the surveillance. On the other hand, the Tsarnaev brothers escaped scrutiny. Was their slipping through the cracks, a result of political correctness, errors in the algorithms of the surveillance program, or was their non-detection proof that the NSA errs in favor of not being a Big Brother? A survey conducted by PEW Research, released on Monday, found that 56% of Americans approve the programs. Still, 41% of Americans found that tracking phone calls was an “unacceptable way” for government to investigate terrorists. How, then, should it be done?

We all know that the data exists. We all know that our messages, calls, movements and purchases are captured by some entity. Every time I go on Amazon, a message pops up welcoming me back and making suggestions based on past purchases. This happens to us all and is repeated millions of times every day. What concerns people is what is done with the data. How is it used? Is it sold? Can it be compromised? Virtually every business is dependent on data transmission, from buying gasoline, to the entire banking system to the deployment of nuclear missiles. Cybersecurity is a real and present danger.

When James Clapper, the National Director of Intelligence, appeared before the Senate last March he was asked if the NSA collects any data at all on millions of Americans. He answered unequivocally that they did not. He lied. Should he be prosecuted for perjury, or was he simply safeguarding a program designed to protect Americans from terrorists? In my opinion the question was designed to elicit a lie. One would have had to have lived in a cave for the last two decades to believe that such data was not being collected. The real question is how is it used?

We live in a politically correct, multicultural environment, one that is supported by mainstream media. In his acceptance of the Bradley Prize last week, Roger Ailes – a notable, non-mainstream media executive – said America is losing its historic literacy. Sixty percent of seniors among the nation’s top colleges could not place the Civil War in the correct half of the 19th Century! Ideas, in this milieu, don’t count for diversity. Diversity, according to the politically correct, can only be determined by one’s gender or the color of one’s skin, not by the ideas one expresses. It is impossible for “historical illiterates” to put into perspective the disclosures of Mr. Snowden, or to consider what he said in a broader context.

At the heart of the controversy, however, is trust. How can we trust a government that used IRS audits for political gains and the Department of Justice to penetrate press activities for the same purposes? How do we trust a government that lied about the events in Benghazi? Who will watch the watchers? How can we find a consensus when the two Parties are so far apart that landmark legislation like ObamaCare and Dodd-Frank were passed without a single opposition vote? Two PEW Research Center polls regarding the NSA’s tracking methods are telling – one conducted in 2006, the other last week. In both cases, people marginally approved the methods. But in 2006, Republicans overwhelmingly supported the program. Democrats did not. In 2013, we saw the reverse. If half the country does not trust the other half and if nobody trusts government, we have a problem, as President Obama noted a week ago. Yes, Mr. President we do have a problem, and a search for the reason should put you before a mirror. There are others who are responsible, but you are the President. Campaigning when you are not up for re-election, demonizing your opponents and acting unilaterally has not helped.

Restoration of trust will have to wait for the next President, if then.

Wednesday, June 12, 2013

“Return to a Draft?”

Sydney M. Williams

Thought of the Day
“Return to a Draft?”
June 12, 2013

While America’s volunteer army is four decades old, two long-simmering events have made this issue timely and sensitive. The ten-year wars in Iraq and Afghanistan have put enormous pressure on our forces. The fact that the U.S. has fewer troops to deploy than it had during the first Gulf War has meant three and sometimes four tours of duty for many of our soldiers. In like vein, there has been a long, smoldering resentment that dates back to Vietnam, when last we had conscription. In that era, better off young men were often able to get student deferments, or simply joined the National Guard or Army Reserve, to avoid the possibility of being sent to Vietnam. Thus fighting fell unevenly on the poor and especially on African-Americans. In December 1969, the Selective Service Bureau introduced a lottery system to determine the order of call for military service. It was seen as a means of addressing what were seen as unfair practices. However, it backfired, creating even more resentment toward the draft, particularly at a time when support for the war had already eroded.

Iraq and Afghanistan have given new life to that long-ago resentment toward the privileged – that wars are still being fought by the less fortunate among us. There are approximately 25 million Americans between the ages of 18 and 25, yet only about 260,000 have served in those two countries. In contrast, over 500,000 U.S. troops served in the first Gulf War, when the population was 20% smaller. Additionally, income and wealth gaps have served to magnify the differences between rich and poor in an already divided nation.

The military has been crucial to our country since its founding, but for most of those years the concept of military service was cloaked in civilian terms. One of George Washington’s maxims was: “When we assumed the soldier, we did not lay aside the citizen.” As an occupied colony of the British Empire, citizens were naturally wary of soldiers. Samuel Adams was quoted in 1776: “A standing army, however necessary it may be at times, is always dangerous to the liberties of the people.” Thomas Jefferson pushed for a universal militia until his death in 1826. In an 1813 letter to James Monroe he wrote, “We must train and classify the whole of our male citizens, and make military instruction a regular part of collegiate education. We can never be safe until this is done.”

When armies needed to be raised, as they did in 1812 and again in 1846, it was the responsibility of the states to raise militias. Those same methods were largely used during the Civil War. While President Lincoln did sign the Enrollment Act, which was the nation’s first federal draft, 98% of the North’s soldiers were still raised by states. Each state was given a quota. If not enough volunteers signed on, governors resorted to conscription on a lottery basis. However, if one found a substitute or paid $300 they would be exempted. That helped the rich, but not the poor. (To put the $300 dollars in perspective, at the time the annual income for a carpenter was roughly $550.)

It wasn’t until 1917, as the United States entered World War I, that the first real federal draft was enacted, the Selective Service Act. With a target of a million men and with only 73,000 volunteering during the first six weeks, President Wilson had no choice. Unlike the Civil War era, this law prohibited the purchase of exemptions. In August 1940, after the fall of France and before the Battle of Britain, President Roosevelt signed the Selective Training and Service Act, the nation’s first peace time draft. It effectively marked the end of the isolationist tradition of the United States. World War II changed forever the role of the United States within the world. Our role as leader of the free world and as a beacon for emerging countries carries with it a price, which is that we must enforce the peace. How we do that is critical for our survivorship and vital for the example we set.

Forty years ago this past January, the U.S. Military draft ended, when President Nixon allowed it to expire. Two years later, President Ford terminated the Selective Service Act, whose origins dated to 1917, with Proclamation 4360. For three decades a volunteer army served our needs well. The last ten years have raised the question: Is what worked in the past appropriate for the future?

The United States is often characterized as “exceptional.” Perhaps, as a nation of immigrants, we are. But luck and circumstances have been on our side as well. For the first 140 years, the Country was able to grow in “splendid isolation,” as we had only two neighbors, one on the north, the other on the south. Oceans served as barriers to the repeated attacks so common to most countries. We were blessed with natural resources, from timber and gold, to coal and oil. After the First World War, and despite our refusal to join the League of Nations, it became obvious that we were the preeminent nation. With the conclusion of World War II, there would be no retreat to the isolation of the past. Europe and Japan largely disarmed, but the emotions and behavior of mankind is timeless. With a world divided between dictatorships and democracies, we became the principal defender of the latter, sometimes under cover of the United Nations and sometimes alone. The collapse of the Soviet Union marked the end of their empire, but did nothing to end the concept of self interest – ours and that of our enemies. Keeping the peace required strength, not to be used offensively to gain land or political/economic control, but to help keep an unruly world relatively safe.

In this new world, enemies who could not command big armies resorted to terrorism; thus a new threat was born. And that has required a different type of military response.

The arguments favoring an all-volunteer force tend to center around three main points. The troops are professional; they are well trained, and they have high morale. About 170,000 men and women enlist each year. Another 130,000 join the National Guard or the Reserves. The former have chosen the service as a career; it is their profession, unlike a draftee who may be there under protest. But it is unclear that today’s army is representative of America.

Most supporters of a draft cite duty to the nation, respect for the flag and the institutions it represents. It means “skin-in-the-game” for all citizens. While we have a strong cadre of highly trained troops, there are questions as to the depth of our bench. Besides, draftees epitomize democracy. In the army, every recruit is equal. I recall my own experience more than fifty years ago. Standing in line at Fort Dix, while awaiting our shots and dressed only in shorts, it made no difference whether one’s father was a Wall Street banker, a farmer, a U.S. Senator or a drug dealer; for, as inductees, we were all the same – head-shaven grunts. I was reminded of Lear: “Is man no more than this? Consider him well…Unaccommodated man is no more but such a poor bare, forked animal as thou art.” That blurring of class lines is unquestionably healthy in a nation as diverse as ours.

Service to the nation does not have to be confined to the military. Young people of military draft age could be conscripted by AmeriCorps or the Peace Corps, or some similar organization. Doing so, however, should mean dedication and appropriate punishment for dereliction of duty. Service of this nature should not be seen as a comfortable way station for a year or two, or as the shirking of an obligation. Responsibility and accountability should be integral to any conscripted program. Failure to do what is asked should have consequences, as it does in the military.

When I began thinking about this piece, I felt strongly that bringing the draft back should be an easy decision. While I still believe that is the right course, I no longer think of the decision as easy. We live in a time when the rapid deployment of specially trained forces requires speed, discretion and efficiency – all of which are perhaps better provided with a volunteer, professional force. In combat situations, with the threat of death a permanent fixture, morale is critical to the successful completion of a mission. Again, an army comprised of willing volunteers seems the better vehicle. But service to the nation at any time, but especially when one is young, is a healthy reminder of the debts we owe to all those who came before us. As to whether we should restore the draft is a worthy debate. I rue the sense that appreciation for our nation seems to be ebbing; that patriotism, which when extreme can blind people into ignorance, now seems non-existent. The Memorial Day Parade in Old Lyme has been reduced to a few community groups, like scouts, little league, soccer teams, a few bands and some fire engines, with only a smattering of soldiers. It is wonderful to see the community support so many groups, but the meaning of the day gets lost.

We must recognize that the beauty of a government such as ours is not its efficiency, but its freedoms. As a people, we comprise every known ethnic divide, but as Americans we are united in our beliefs in individual liberty, the rule of law and the right to dissent. These are rights worth defending, and they should be rights for which each one of us is willing to fight.

Monday, June 10, 2013

“Defiant”

Sydney M. Williams

Thought of the Day
“Defiant”
June 10, 2013

As President, Mr. Obama has every right to appoint whomever he chooses as his national security adviser. It is an appointment that does not require Congressional approval. Nevertheless, his choice of Susan Rice, while being characterized as being “bold” by some was in fact a cynical slap in the face of the American people.

Ms. Rice is not the only appointment to merit that response. Peter Baker, writing in Thursday’s New York Times, noted that Ms. Rice’s appointment “underscored the newly assertive approach he [Mr. Obama] has taken to appointments ever since he abandoned a potential cabinet appointee named Susan E. Rice.” Ed Rogers, a former aide to Reagan and the elder Bush tweeted: “There’s a lot of taunting, a lot of in-your-face. To me, he is throwing in the towel on governing, and it’s just going to be about his grievances. I don’t get it.” Incredibly, at least to me, Mr. Obama also nominated Victoria Nuland, who helped edit the (deliberately misleading) Benghazi talking points, as an assistant secretary of state. Despite known Republican Congressional opposition, Mr. Obama has renominated Richard Corday, the former Ohio Attorney General, as head of the Consumer Finance Protection Bureau. He had been appointed in January by Executive Order, and the President is now seeking Senate confirmation.

Presidents often surround themselves with those with whom they feel closest. That tendency is true of most insecure people. It indicates a lack of self-confidence. Doris Kearns Goodwin titled her 2005 book about Lincoln, Team of Rivals, because the term did in fact define Mr. Lincoln’s cabinet. Lincoln knew that in spirited debate answers could be found. It was the premise offered by Mr. Obama when he took office a little more than four years ago. But instead, the President has created a stable of sycophants. And, as scandals proliferate and his polls worsen, he increasingly draws upon his Administration’s adulators. Dana Milbank, Washington Post columnist put it this way last week: “The man who boasted about creating a ‘team of rivals’ in his first term has been circling the wagons so tightly that people are bound to get motion sickness.”

There are, of course, those that support Ms. Rice. James Rubin, a former diplomat in the Clinton years and now an editor of Bloomberg News glosses over the appointment as probably not making much of a difference – that policy decisions have already been decided upon. That may be true if nothing changes, but how confident can we be with Syria in flames, North Korea flexing its nuclear muscles, Iran almost certainly being in possession of nuclear weapons before 2016 and East Asia looking more and more like a tinder box? The Financial Times, in an editorial, wrote, “Her appointment offers grounds for hope and caution.” They praised her for instinctively being more “interventionist” than her predecessor, “notably on humanitarian grounds.” They did, however, acknowledge her reputation for being “abrasive and uncollegiate.” The Middletown Press, a local paper in southeastern Connecticut, was the most supportive of the editorials I read, suggesting, in a statement I found incredulous in its misrepresentation of the facts, that she should have been confirmed as Secretary of State were it not for an “irresponsible Republican campaign accusing her of dissembling about the attack on the U.S. mission in Benghazi.”

The Wall Street Journal, in an editorial criticizing Ms. Rice’s appointment, noted that she shares Mr. Obama’s view that “the U.S. is no longer the world’s ‘indisputable nation,’ (as Bill Clinton’s Secretary of State Madeleine Albright once put it).” Investor’s Business Daily questioned her “integrity.” Ralph Peters, in the New York Post questioned her competence, while pointing out that, as a close personal friend of Mr. Obama, she could become the most influential national security adviser since Henry Kissinger served in that capacity for Richard Nixon during the years 1969-1973. Certainly, Kissinger’s influence and intellect eclipsed that of then Secretary of State, William Rogers.

But the real reason for objection to her appointment is that she is a liar. Ms. Rice may be very bright, but the Benghazi killings showed her to be a willing accomplice in elevating political expediency above the truth. Euphemisms, such as dissembling, prevaricating or “not strictly adhering to the truth,” don’t do justice to a woman who went on national television five days after the Islamic extremists’ attack on our mission in Benghazi and laid blame for the attacks on a video. As a quote-unquote sophisticated society, we take cover behind polite sounding euphemisms, but we should never be fearful of using good old Anglo Saxon words where the apply. Ms. Rice may have been reciting the “talking points,” but she had to have known that they were wrong. Like the Fort Hood shootings in November 2009 by self-confessed al Qaeda terrorist Major Nidal Malik Hasan (still, incredulously, characterized by the Administration as “workplace violence”), Benghazi was proof that we are not immune from attack by militant Islamic fundamentalists, despites repetitive statements from the President that Osama bin Laden is dead and al Qaeda is in retreat. The attack in Benghazi simply did not accord with the script.

With government’s ease and frequency in listening to our calls, reading our e-mails and tracking our movements, trust in leadership becomes more critical. [Consider the case of Edward Snowden.] Such knowledge garnered may be important to officials in thwarting terrorism, but there is a fine line between necessary spying on real or perceived terrorists and harassment of one’s political enemies. Accountability and responsibility fall more heavily on those in charge. Cyber security was first on the agenda when President Obama met China’s President Xi Jinping last weekend at the Annenberg Retreat in California, but cyber security at home is equally important. As each day advances, technology makes simpler the ability to intercept and interpret what is being sent or said by and to whom. Installing a person like Ms. Rice, who knowingly misled the American people, as national security adviser does little to advance confidence and trust in government.

Despite a spate of scandals, the President’s poll numbers remain surprisingly high; though they have been slipping in recent weeks. The latest Rasmussen Poll found that, while 51% of voters approve of the President’s performance and 49% disapprove, only 27% strongly approve, while 36% strongly disapprove, giving him a Presidential Approval Index ranking of negative 9. A new Economist/YouGov poll showed that difference to be negative 15. As scandals have escalated and his approval ratings have fallen, Mr. Obama’s bravado has increased. Relations with our allies have become more tenuous, while our enemies have become more emboldened. The economy is still sputtering, but there have been no cutbacks on Presidential vacations or golf outings. While loyalty and personal friendships are to be admired, offering Ms. Rice so prominent a job serves as a vindication that lying is okay, at least when it is done in the interests of politics. “Patriotism,” claimed Samuel Johnson, “is the last refuge of a scoundrel.” Defiance, it seems to me, is the reaction of a President who has lost his way.

Friday, June 7, 2013

“Affirmative Action”

Sydney M. Williams

Thought of the Day
“Affirmative Action”
June 7, 2013

Fisher v. University of Texas at Austin is being deliberated at the Supreme Court. A decision could come as early as Monday. At issue is the University of Texas’ use of race in deciding which undergraduates to admit. In 2003 the Supreme Court, in the case of Grutter v. Bollinger, concluded 5-4 that the University of Michigan Law School had a right to consider race in admissions policies. However, at the same time in Regents of the University of California v. Bakke, the Court ruled that race could be a factor in admissions, but should not be the “deciding factor.” At issue was the number of points assigned to underrepresented minorities.

Race remains a contentious issue in American politics, as well as in ordinary life. But it is less factious than it had been. Slavery ended 148 years ago, but the repugnant Jim Crow laws that dominated the first half of the Twentieth Century did not end until passage of the Civil Rights Act of 1968. Affirmative action was a federal agenda initiated during the 1960s as a means of counteracting historic discrimination that had been so pervasive. It was seen not only as a way of amending past wrongs with permitting fairness, but also as a means of fostering diversity. In matters of education and employment, affirmative action was designed to help minorities, whether by race, gender or religion, but especially by race. And, by any measure, it has been a success.

The suits, however, raise several questions: Has affirmative action been successful? Should affirmative action be extended to include class? Should affirmative action remain a permanent fixture in college admissions and employment decisions? Despite affirmative action having been around for almost fifty years, why does society remain compartmentalized, in fact segregated?

The answers are generally ones of judgment and are always worthy of debate. In my opinion, there is little doubt that affirmative action has been successful. One need look no further than to the fact that Mr. Obama has been twice elected President. While one could well argue that African-Americans remain underrepresented in many fields, the change over the past five decades has been dramatic. But, while affirmative action has favored racial and gender diversification, the same cannot be said about class. Richard Kahlenberg, a senior fellow at Century Foundation, has noted that economic diversity is largely absent form the nation’s most competitive schools. In an interview with Erin Fuchs of “Business Insider,” Mr. Kahlenberg said: “In the extreme, a class-blind, race-based preference system means that Barack Obama’s children deserve a preference in admissions.” Mr. Kahlenberg’s views comport with those expressed by Ross Douthat in his 2005 memoir of his student years at Harvard (class of 2002), Privilege: Harvard and the Education of the Ruling Class. In the book, Mr. Douthat reported that there was racial diversity, but little variance in terms of economic differences. For example, he wrote that 22% of the matriculating students at Harvard, Yale and Princeton came from 0.3% of the nation’s high schools.

Affirmative action, as a permanent fixture, incorporates at least two unrelated risks. For one, it raises the stigma that African-Americans are only at elite universities because of their heritage, not their abilities. The corollary is that it can cause resentment on the part of those who were better qualified, but rejected; i.e. the plaintiffs in the suits. (Richard Sander and Stuart Taylor, Jr. raised a similar concern in their 2012 book Mismatch – that some minorities are admitted to colleges and universities for which they are not prepared, so end up doing poorly.) Second, affirmative action can lead to a sense of dependency (and expectancy) on the part of the beneficiaries – that big brother will always be there to lend assistance – not healthy for the recipient or society.

As to why America continues to compartmentalize its people in so many ways, the answers are both cultural and political. Many colleges have replaced traditional courses with classes in women’s studies, or African-American studies. There is nothing wrong with such courses as adjunct classes, but when they become college majors the tendency is to de-emphasize our shared American history. These problems are the unintended consequences of idealists trying to right an historic wrong. But politicians share part of the blame. Political campaigns find it easier to slice and dice their constituencies, thereby allowing candidates to address individual or small-group grievances rather than address the bigger issues that affect us all. Where we were once seen as a melting pot, with all the implications that meant, we are now seen as a people composed of myriad, but individual elements – man/woman, African-Americans, Muslim-Americans, Jewish-Americans, Hispanic-Americans, Asian-Americans and the 1% or the 99%. We should honor our diversity, but celebrate our unity as Americans, with a common love for freedom and democracy. And we should all bless our fortune in being part of this country.

Lee Bollinger, President of Columbia University, recently penned a vigorous defense of the current system of affirmative action in “Slate.” He wrote, “The distance the United States has traveled in overcoming racial discrimination reflects one of our nation’s greatest achievements…But we still have a long way to go.” His concern was that a focus on socio/economic considerations would mean dropping racial affirmative action. He notes the obvious, that the United States is not a post-racial society. It is not. He quoted from the Civil Rights Project of UCLA that “the nation’s population of African-American and Latino K-12 students is more segregated than at any time since the 1960’s.” That’s obviously not a good thing. But who is at fault – the schools, politicians who encourage compartmentalization or a culture that fosters differences over commonalities? Mr. Bollinger wrote about California’s “flagship state universities” and that the African-American student representation was 40% below where it had been seventeen years ago. But he failed to mention that, with the increase in numbers of Hispanics and Asians, African-Americans, as a percent of California’s population, had declined 23%.

Affirmative action has served a useful purpose and perhaps some measure should be preserved, but I find it quixotic that an educator can speak of the benefits of diversity, and then refuse conservatives the same forum as liberals and, in some cases, ban them from speaking at all. Such illiberal attitudes are unworthy of institutions charged with providing a liberal arts education. The stance by elite universities vis-à-vis ROTC is telling. During the latter Vietnam years, ROTC was banned from many colleges, in most cases for decades. It was a political and cultural decision that in effect limited diversity. But ROTC remained important at many state universities, emphasizing the growing differences between the elite and state universities. According to the Department of Defense, 30% of newly commissioned military officers came out of ROTC programs in 2010. It has only been since the ban on gays was lifted that these colleges have begun, slowly, to reintroduce ROTC. Timely, but ironically, a good friend sent yesterday a clipping from the New Hampshire Union Leader about the high school in the town in which I grew up. It appears that the school principal will not allow a graduating senior, who is simultaneously finishing Marine Corps boot camp, to wear his service uniform at graduation. Why would anyone deprive that youth the right to wear his uniform, which he has so valiantly earned? The answer has to lie in political correctness.

The argument in favor is that affirmative action promotes diversity and makes opportunity more universal. And there is no denying the importance of this policy. But, we must also recognize that while living in perfect harmony is a worthy goal, it is only an ideal, not a practical reality. What is fair to one person or one group is not necessarily fair to another. We must be true to our principles of a fair and diverse nation, but we must also be cognizant of the need to compete in an increasingly globally competitive world. Endowments at elite universities are such that ability to pay should never be a problem, in terms of admissions. That would suggest that merit, regardless of means, race or gender, should always be the overriding determination as to who is admitted and who is denied. The diversity one would get would reflect the best and the brightest of a very diverse nation.

Wednesday, June 5, 2013

“Woodrow Milhous Obama”

Sydney M. Williams

Thought of the Day
“Woodrow Milhous Obama”
June 5, 2013

Because of myriad scandals inflicting his second term, it has become common for many on the Right to compare Barack Obama to Richard Nixon. Both had been re-elected with majorities; though Mr. Obama’s margin of victory paled in comparison to Nixon’s. While the New York Times referred to Mr. Obama’s re-election as a “resounding victory,” the facts are that he won with a smaller percentage and with fewer votes than he did in 2008. Mr. Nixon, in contrast, won with 60.7% of the popular vote, a 23.2% margin – the fourth largest in U.S. history. Despite having risen to the highest office in the land, both men were (are) loners, relying on small cadres of carefully selected advisors. Both were (are) mistrustful of Congress and abhorred small talk; though Mr. Nixon had served in both the House and the Senate before becoming Eisenhower’s Vice President. Both men used the IRS as a means of intimidating their enemies. Both attempted to muzzle opposition in the press.

Woodrow Wilson is the other president to whom Mr. Obama has been compared. There are notable differences, of course but comparisons of the 44th President to the 28th are intriguing. They are the only two Presidents, according to Michael Barone, who won second terms with smaller margins in the Electoral College than they did in their first terms. Neither man had much preparation for the Presidency. Mr. Wilson had been a professor of jurisprudence and political economy at Princeton, before becoming president of the college (1902-1910). He then served as Governor of New Jersey for two years. Mr. Obama had been a community organizer, law professor, a State Senator for six years and a U.S. Senator for four. While Mr. Obama was elected by a majority of the electorate in both elections, Mr. Wilson was not in either. In 1912, Theodore Roosevelt formed the Bull Moose Party, which garnered 27.4% of the vote, spelling defeat for William Howard Taft who won 23.2%. Wilson won with 41.8%. He won re-election in 1916 in a tough battle against Charles Evans Hughes, with 49.2% of the vote.

Both men were (are) agents of change. Mr. Wilson spoke of a “New Freedom,” a vision of social and economic renewal. Mr. Obama pledged to “remake America.” Both men entered office with clear majorities in both Houses. As both men had taught at the college level, both were considered to be intellectuals. Mr. Wilson, as the only PhD to occupy the White House, actually was one. Both had productive first terms.

In Mr. Wilson’s first four years, Congress created the Federal Reserve, the Federal Farm Loan Bank and the Federal Trade Commission, and it passed the Clayton Antitrust Act. With passage of the Revenue Act of 1913, Mr. Wilson signed into law the nation’s first peace time income tax. In Mr. Obama’s first term, Congress passed the American Recovery and Reinvestment Act of 2009, an $800 billion stimulus plan. It passed the Wall Street Reform and Consumer Protection Act, better known as Dodd-Frank. And it passed the Patient Protection and Affordable Care Act, commonly called ObamaCare. A significant difference is that all the major legislation enacted during Wilson’s first term passed Congress with bipartisan support, while Mr. Obama’s signature programs did not garner a single Republican vote. It is interesting to note that the names put on legislation today deceptively mask the reality of their intent.

It is second terms that so often create problems for Presidents. Their last election is behind them. Having every word and movement parsed by a relentless Press creates a need to be constantly vigilant. Victory provides release, which too often devolves into arrogance. Scandals that had been hushed, either deliberately or by silent accord are exposed. But, as the old saying goes, truth ultimately outs. It happens in almost all second terms. One thinks of Reagan and the Iran-Contra scandal; Clinton and Monica Lewinsky; Bush II and the fallout from Iraq. That was what happened to Nixon. The Watergate break-ins occurred in May and June of 1972. A year later Senate hearings began, but it wasn’t until August, 1974 that President Nixon resigned in disgrace.

In 1916, Wilson campaigned on the slogan, “He kept us out of war!” Like, FDR in 1940, he had to know he could not keep the promise. German submarines had been sinking American ships since the Lusitania went down in 1915. After the election, but before the inauguration, the Zimmerman telegram was intercepted, which alleged Germany’s attempt to enlist Mexico on the side of the Axis. On April 2, 1917, America declared war on Germany. Two months later, on Flag Day (June 14), the President, while explaining “we are not the enemies of the German people,” helped enflame anti-German sentiment: “The military masters of Germany denied us the right to be neutral. They filled our unsuspecting communities with vicious spies and conspirators and sought to corrupt the opinion of our people in their own behalf.” The consequence was further ostracism of German-Americans, as stories of Lou Gehrig’s childhood in New York so vividly illustrate. More important were the enacting of the Espionage Act of 1917, the Sedition Act of 1918 and the Immigration Act of 1918; the latter caused the deportation of recent Russian immigrants back to the new Soviet Union – and most assuredly to the Siberian Gulags and probable death.

Among those jailed by an aggressive Wilson Administration was Eugene Debs, a candidate for President under the Socialist Party of America banner in 1912. He was arrested in 1918 under the Espionage Act for a speech. (Mr. Debs was granted amnesty by President Warren Harding in December, 1921.) Attorney General, A. Mitchell Palmer became so aggressive in pursuit of violators of the Espionage and Sedition Acts that Massachusetts District Court Judge George Anderson felt compelled to declare, in a statement that rings ominously prescient today, “A mob is a mob, whether made up of government officials acting under instruction from the Department of Justice, or of criminals and loafers and other vicious classes.”

It was in pursuit of his Fourteen Points and in his adamant and desperate defense of the League of Nations following the Armistice that Woodrow Wilson most resembled the arrogance of Mr. Obama. Despite his PhD thesis that had been written about Congressional government, Wilson found it impossible to work with Massachusetts senior Senator Henry Cabot Lodge. The peace that followed the end of World War I brought strife to the Wilson White House. Instead of working with the Senate, he tried to bypass it by appealing directly to the people. After almost six months in Europe where he attempted to manage the peace process, he toured America trying to sell his Fourteen Points and his concept for a League of Nations. On the trip he suffered a stroke and never really recovered. The upshot was a Treaty of Versailles that was never signed by the United States and a League of Nations that the U. S. never joined.

Woodrow Wilson was a product of the Progressive movement. Like today’s Leftists, turn-of-the-century Progressives considered themselves intellectually elite. Wilson wanted his compatriots to move beyond the Declaration of Independence. “It is,” he said, “of no consequence to us.” Paul Rahe, in the April 11th edition of the National Review, wrote: “For the rights of individuals celebrated in that document [the Declaration of Independence] and for the limits on government implicit in its celebration of those particular rights, he [Wilson] had no use.” Worse, like the majority of Progressives of that era, he embraced eugenics and racial theory as a truth taught by science. Consequently, a month after his inauguration in 1913 he segregated the civil service. Earlier, as Governor of New Jersey he had signed a bill making mandatory the sterilization of criminals and the mentally retarded. Government, as Wilson once put it, “should be accountable to Darwin, not to Newton.”

In a 2001 radio interview, Barack Obama commented on the civil rights movement and the Supreme Court. He said that the Warren Court had not broken “free from the essential constraints that were placed by the Founding Fathers in the Constitution…that generally the Constitution is a charter of negative liberties.” To achieve “redistributive change,” the limits of the Constitution would have to be overcome by the Court or by Congress. Woodrow Wilson wanted a “living Constitution,” unmoored from its ascertainable meaning and constraints. Mr. Obama wants a living Declaration of Independence, one that acknowledges that “self-evident truths” are an evolving thing. In The Audacity of Hope, Mr. Obama wrote that “…the very idea of ordered liberty is a rejection of absolute truth.” In his Second Inaugural, the President hinted at his postmodern view toward the founding documents: “Being true to our founding documents does not require us to agree on every contour of life. It does not mean we all define liberty in exactly the same way or follow the same path to happiness.” His is the argument for moral relativism.

While technologies and mechanics change, the beauty of the Declaration of Independence and the Constitution is that they are based on truths that are self evident and eternal, that all men are created equal and that man is endowed by his Creator with rights that are unalienable. Those precepts cannot and should not change at the whim of the nation’s leaders. Progressives today may eschew the concept of Social Darwinism, but they are no less confident in the righteousness of their beliefs. Mr. Obama subtly – or perhaps, not so subtly – argues for the welfare state. However, his reasons risk altering the inherent contract of citizens to their government. The pursuit of happiness has nothing to do with material happiness and everything to do with personal freedom. Abraham Lincoln derided the underlying principle of the welfare state, as “the same old serpent that says you work and I eat, you toil and I will enjoy the fruits of it.” Like President Wilson, Barack Obama is arrogant in his iteration that he knows best what is right for the people. Creating dependency is the argument tyrants have always used to enslave their citizens. Democracy is not an efficient form of government and that means there will be times when other forms of government, like statism or socialism, will seem more responsive and generous to the immediate needs of the people. But no form of government yet devised provides individuals the level of independence so common to those living in democracies. Freedom is fragile and comes with an exceedingly high price. Like so many valued assets, it is most appreciated when it has been removed.

Benghazi, the IRS and the AP scandals surrounding the President will not dissipate, no matter how hard his supporters may wish them away. They reflect a White House consumed with “enemies” and a willingness to do anything to achieve political gains. In that regard, Mr. Obama resembles Mr. Nixon. But in his belief in his own infallibility, he resembles Mr. Wilson. It was the entrance into the War, and the subsequent passage of bills like the Espionage and Sedition Acts that revealed Mr. Wilson’s real character. Mr. Obama’s is revealed in his mentors, his writings and his early speeches. Caveat civis.

Monday, June 3, 2013

“Energy, Jobs and Trade Deficits”

Sydney M. Williams

Thought of the Day
“Energy, Jobs and Trade Deficits”
June 3, 2013

While there are signs of gradual improvement, America’s economy remains in a funk. On Thursday, first quarter GDP was revised down slightly from 2.5% to 2.4%. While the BLS (Bureau of Labor Statistics) puts official unemployment at 7.5%, Gallup’s daily U.S. employment survey indicates that as of May 28 unemployment was 8% and underemployment was a staggering 18.2%. If the labor participation rate were the same it had been when the downturn began, unemployment would be 11.5%, according to a May 10 study by Goldman Sachs. Jobless claims rose unexpectedly last week to 354,000. In the first quarter of 2013, corporate earnings, according to the Bureau of Economic Analysis, declined 1.9%. And that was with the nation’s largest banks recording record earnings, up 15.8% versus a year ago. On the other side of the ledger, May marked the sixth month of positive returns to stocks. Does the right hand know what the left hand is doing?

We are five years into recovery and the only thing that seems to be working is monetary policy – the Fed’s leaning on interest rates. Low interest rates have helped asset prices and the housing industry, and it has allowed large banks to make billions, but have done very little to encourage lending to consumers (apart from student loans) and small and midsize businesses. Low interest rates have, of course, lowered the value of the dollar, thereby aiding exports. Positive fiscal policy has been nonexistent. Instead, increases in taxes and regulation have created uncertainty, which have had negative impacts on confidence. Monetarists understand Milton Friedman’s admonition that inflation is always and everywhere a consequence of growth in the money supply. Nevertheless, despite an increase in money supply, inflation remains subdued. One explanation has been the desire of consumers to reduce leverage; a second has been a $1.8 trillion increase in the excess reserves of banks. But never mind; inevitably, the increase in money supply will lead to inflation.

The consequence of all this has been a sluggish economic recovery, with unemployment remaining stubbornly high. One of the bigger exceptions has been metropolitan Washington. (See last Saturday’s Wall Street Journal): “What Sequester? Washington Booms, As a New Gilded Age Takes Root.”) Not coincidentally, four of the five states with the lowest unemployment – North Dakota, South Dakota, Utah and Nebraska are right to work states. Vermont is the other. And the Dakotas have enjoyed the fruits of an oil and gas boom.

The Administration’s persistent mantra has been that this has been the worst economic downturn since the great Depression. In terms of a decline in GDP that is true, but it is factually untrue, if one measures downturns in terms of unemployment. In the early 1980s, unemployment reached 10.8% and remained above 10% for several months, before declining to 7.5% in 1984 and 5.5% in 1988. If only that were the case today! Also, it should not be forgotten that the credit crisis, which accelerated the downturn, was already beginning to recover when Mr. Obama took office.

What makes this laconic recovery seem so unnecessary is the revolution in energy. In spite of little or no help from Washington, the sector has been on a tear. In December, U.S. oil exports hit 3.6 million bpd – a record. In 2012, domestic natural gas production averaged 69 billion cubic feet per day – a record. And last year U.S. oil production rose by 790,000 bpd to 6.5 million barrels per day, the largest increase since oil was first produced in 1859 – so also a record. In his recent book “Comeback,” Charles Morris estimates that hydraulic fracturing of shale has added 1.7 million jobs since 2008. Putting that number in perspective, data from the Bureau of Labor Statistics (BLS) shows total employment in 2008 at 146.3 million, while total employment in April 2013 was 2.7 million fewer, at 143.6 million. The immediate problem the country faces is not gays or sex assaults in the military; it is not climate change, nor is it closing Guantanamo; it is not guns. The immediate problem we face is a lack of jobs.

Fear of “peak oil” has been around since the 1920s. In 2005, ExxonMobil’s combative CEO Lee Raymond declared: “Gas production has peaked in North America.” The reasons such Cassandra’s have been proven wrong, according to Robert Bryce, a senior fellow at the Manhattan Institute, is due to a convergence of myriad technologies – better drill rigs and bits, fracking, horizontal and deep water drilling, robotic rigs and nanotechnology. These techniques have combined to convert a “wildcat” industry into one that is “more akin to the precision manufacturing that dominates aerospace and automobiles.” Technology has allowed producers to extract oil from places previously considered inaccessible, and to do so with less environmental impact.

America could become a net exporter of oil and gas within the decade, should it be allowed, most experts agree. But the Administration has moved cautiously. The EPA has been slow to approve fracking on federal lands. In 2011, drilling on federal lands was down 11% from 2010. Mr. Obama has still not approved the XL Pipeline. According to Real Clear Energy, a 1975 law prevents the exporting of crude oil. While refining capacity is almost triple that of oil production, those dynamics are changing. Mark Mills of Real Clear Energy notes that increases in oil production have grown far in excess of increases in domestic refining capacity, creating a situation where “oil in the heartland sells up to $40 below world prices, but cannot be exported to willing buyers.” There have even been concerns expressed by the New York Times and Foreign Affairs that cheaper U.S. crude could upset the economies of crude exporters like Russia, Nigeria, Venezuela and the Middle East – an odd charge at a time when these countries are not our closest allies and our economy remains moribund.

The economics in natural gas are even more compelling, with gas selling in the U.S. for a fraction of what it sells for in Asia and Europe. Natural gas has traditionally been a domestic market, as gas is volatile and transporting it can be dangerous. Liquefying gas via a freezing process allows it to be shipped safely. Once delivered, the gas can be vaporized through a warming process called re-gasification and piped to customers. However, the permitting process for Liquefied Natural Gas (LNG) plants is slow, laborious and costly. Thus, despite a discrepancy in pricing that has the Japanese paying almost three and a half times U.S. prices, American LNG shipments to Japan declined in the past year. Consequently, there has been a reduction in U.S. production.

Increased energy production is an obvious answer to the country’s need for jobs. According to a recent report from The Boston Company, entitled “End of an Era: The Death of Peak Oil,” supply in North America has grown annually by 500,000 bpd and demand has shrunk by similar levels. With more oil being discovered in regions as diverse as Brazil, North Africa and the North Sea, supply should more than offset rising demand from emerging nations. In the U.S., increased and increasing supplies should afford American manufacturing cost advantages in terms of exports. Discouraging deep-well, offshore exploration, fracking on federal lands, drilling in places like ANWR (Alaskan National Wildlife Refuge), and disallowing the Keystone XL Pipeline are acts that may satisfy a few radicalized environmentalists, but ignore the greater need of society. Because of technology, the impact of drilling on the environment is far less than it had been. An emphasis on renewables is laudatory, but makes little sense when employment is so low and the economy so weak. Despite expanding energy reserves, oil imports, according to a recent policy report by Mark Mills of the Manhattan Institute, accounted for 40% of our $750 billion annual trade deficit. Certainly, spending research dollars on renewables is worth undertaking, something DARPA (Defense Advanced Research Projects Agency) might conduct. That makes a lot more sense than giving taxpayer money to the Administration’s crony friends in the wind and solar industries.

Unemployment in California is 150 basis points above the national average. The reasons: high taxes, no right-to-work laws and regressive regulation. Yet California sits atop 64% of America’s shale oil. The Monterey shale formation is estimated to hold 15 billion barrels, about four times the size of the Bakken Field in North Dakota. There are obstacles beyond environmentalists. Sunday’s New York Times ran an article highlighting disputes between farmers in Monterey County and shale drillers. Nevertheless, the Issues and Insights column of Saturday’s Investor’s Business Daily summarized the issue well: “North Dakota’s miracle is no miracle at all, but the harvest of a decision to employ fracking to squeeze the crude out of the Bakken shale. It is the sort of decision that could save California from its lethargic economy and heavy government debt.”

Three problems – unemployment, persistent dependency on foreign crude, and trade deficits – all could be solved by exploiting the natural resources that we already have – oil and gas. The question is, will government allow this to happen? A New York state study found that fracking can be done safely. The Environmental Protection Agency (EPA) declared that contaminated drinking water in Dimock, Pennsylvania was not caused by fracking. An analysis from the University of Southern California estimated that developing fields in the Monterey formation could create 2.8 million jobs by 2020, while boosting state and local tax revenues by $4.5 billion. At the federal level we have a new Energy Secretary, Ernest Moniz, who gave up a professorship as a nuclear physicist at MIT to go to Washington. It remains to be seen what his position will be relative to deep-well, off-shore drilling and to fracking on federal lands. Secretary Moniz spent the last two decades working on the Alcator C-Mod advanced fusion facility that hopefully will someday produce nuclear energy through fusion without creating long-term radioactive waste. Regardless, it appears that carbon fuels will be plentiful for a long time.

It is estimated that private investments in the American carbon energy sector will reach $5 trillion over the next ten years. Private capital is putting their money on the line. Governments should listen up. Our economy can use the energy; reductions in trade deficits would be welcome, and we badly need the jobs.