Obama’s Political Gift to the Latins

WASHINGTON– Much has been already said about the nomination by President Barak Obama of Judge Sonia Sotomayor to the Supreme Court. Predictably, we have heard from the Obama supporters who claim that this an inspired choice, that she is supremely well qualified; and that she will bring to bear all her scholarship and long experience on the bench as a significant contribution to the Supreme Court.

Opponents instead believe that she is another leftwing activist, another judge who will not resist the temptation of legislating from the bench. It is assumed that she will try and force on America her own “progressive” prejudices, conveniently interpreting the Constitution so that it may be construed as protecting rights that do not exist. 

Besides, the critics have found and latched on to a speech that she gave in which she seems to make the case that, by virtue of being a Latina woman from a very modest background, she would have a better understanding of issues than a white male counterpart. “Oh My! How could she say that personal background is a plus when called upon to determine what is and what is not consistent with the Constitution? Judges are supposed to be pure jurists. Their background and personal experience should have no influence in the way they understand the law”. (Oh well. So, are the purists really trying to say that we have no evidence of present or past prejudice dictated by culture, social status and experience among members of the American judiciary? Are all judges always shrouded in Olympian detachment? Are we really kidding? Anyway, digging further on this would take us into a different topic…..). 

But, be that as it may, and leaving the screening of Sotomayor’s record as an Appellate Court Judge to the Senators who will discuss her qualifications and suitability to be the next addition to the US Supreme Court, the most glaring shortcoming related to Sotomayor’s nomination has nothing to do with her real or alleged opinions.

It has to do with the fact that her selection is mostly an act of political calculation. That is: we are back to the usual kind of politics of gifts and favors. She has been selected mostly because she is a Latina jurist and because Obama wishes to please this important constituency through this gesture. This obvious political undertone and its implications –the fact that we are back to “presents to special groups as the normal way of conducting business”– have not been properly discussed. Or, rather, the issue of a political angle has been mentioned, found to be unobjectionable, (“this is how things are done in Washington”), par for the course, and become a non issue.

Everybody –left and right– nodded, meaning everybody knows and agrees that this is about “buying friendship” and in the end votes from what is still a rather underrepresented constituency, now leaning quite clearly towards the Democratic party. This having been noted and having also been noted that Obama is smart in grabbing this chance to please his political supporters, we moved on. Which is to say that the process and the logic that inspires it, according to most, is just fine.

So, now the debate and the potential fight in the Senate and in the opinion pages is about Sotomayor’s assumed, perceived or real ideological background and how it will affect her role as Justice. And not a word, really, about the fact that, without taking anything away from her demonstrably important qualifications, she is a pawn in a continuing old fashioned political game in which we recognize interest groups first and individuals, when possible, way down the line.

But wasn’t Obama supposed to change “everything”? Wasn’t he supposed to transform not just the tone but the substance of politics in Washington? Well, it does not seem so. And what is worse, nobody really cares, proving that the lofty predictions of the coming of this “New Era” were just a lot of blah, blah –certainly articulated by Obama himself during the campaign– and then magnified and exaggerated by an army of vacuous sycophants.  

In fact, only a few commentators, among them Juan Williams of National Public Radio and Shelby Steele of the Hoover Institution, (both of them African Americans, as it were), noted that, through this choice and the clear political message to the Latino Community wrapped into it Obama in fact has betrayed the hope of all of those who thought that, because of him, we had entered this new world of truly substantive, post racial, post interest groups politics.

This would be a new world of mended fences and new relationships at last based on the assumption that people are finally treated as equals and thus reward is bestowed for personal, earned merit. No longer a world of balkanized constituencies in which a political leader leads by carefully distributing patronage to this and that group, according to their numbers, weight, relevance, financial contributions etc.

Well, we may get to this new “color blind”, meritocratic bliss at some point. But the nomination of Sonia Sotomayor is an indication that we are not there yet. And the point here is not to argue that she is not  qualified or that, only by virtue of being a Latina, she jumped on top of the list and got selected. But we can safely say that, while being a qualified and experienced jurist and judge was necessary for Sotomayor to be considered, her ethnic background, in the light of the huge wave of Latin support for Obama in the presidential election, made her irresistible for this high profile nomination. Had she been Sonia Brown of white middle class background, with the very same credentials, somehow she would not have had the same appeal. And here we have the problem; because, according to the brand new script of the “Era of Barak Obama”, this was not supposed to happen.

Whereas it has happened. Now this is not tragic; but it is bad, in as much as it perpetuates belief in the assumption that group politics is what really matters. The Latino Community (assuming that there is a such a thing), is huge and growing. One of the problems related to these millions, many of whom are very recent immigrants, is that they are not integrating as fast as it may be desirable. Most of them are economic immigrants. The last thing that we should desire is for these millions to find a political rationale for keeping their separate identity, so that, by flexing their muscle, they get something “more” from the system. But this may be the message. Today you get a spot on the Supreme Court, tomorrow maybe amnesty for the millions of Latin illegal immigrants, down the line more convenient re-districting that will get more Latino legislators in the House and who knows what else.

A Supreme Court Justice should not be a present to a group so that they will keep on liking us. But, to the extent that we accept this logic of favors and nods as the way to do business, we encourage balkanization and we have a Nation with a lower and lower common denominator. And this is bad as we should not want to have people to be committed to America because, as a group, they get “things” from America. We should want all people to be sincerely committed to a polity that is beyond ethnicity or other narrower interests because they recognize its high values –and these are values that should apply to all.

This is the real qualitative change that we need in order to re-energize belief in the legitimacy of America as a Modern Republic. And this seemed to be part of Obama’s message –a message that convinced millions of young people to become his enthusiastic supporters.

In fact, in the context of traditional politics, with this Sotomayor nomination Obama did nothing strange nor particularly out of the ordinary. He gave a powerful nod to a powerful political ally, the Latino Community, whose votes he wants now and in the future. And by giving this ally the enhanced prestige of having the first ever Latin Supreme Court Justice, Obama strengthens the relationship. (By picking a Latin woman, he also gives a nod to the female vote, another essential ingredient of his coalition. Even non Latin women will appreciate that their gender gets special recognition from the President. So, hey, two birds with one stone…..Not bad).

But, this choice and the transparent political motive behind it creates serious doubts about this assumed notion that, through Barak Obama, we had indeed entered a new age of mature, substantive politics. Remember, this was supposed to be a new age based on judging individuals as individuals and not on evaluating an individual as a representative of a group. In the past, that particular individual would get more or less consideration depending on an unwritten quota system that would determine whether his/her group deserved to get “more” or not. But these old ways, whereby racial/ethnic/interest groups, in the name of affirmative action, diversity or whatever the underrepresented could claim an inherent right to “get more”, were supposed to have become obsolete.

Indeed, the “post racial” Obama had done extremely well in gliding through the whole election process without making much of an issue about his race and by carefully avoiding provocations, and there were many, that might have triggered an old fashioned racial dispute. (In fact, truth be told, it was Hillary Clinton’s campaign which, in an act of desperation, tried to make Obama’s race an issue. Obliquely at least, the point was made that she –a white woman— had better chances to be elected by a still predominantly white America than a black man who may turn people away because he is black. Well, Clinton’s arguments worked very well in the latter phase of the Democratic primaries. She won almost everything. But, as we know, it was too late).

Given Obama’s ability to somehow transcend race issues, with his nomination and subsequent convincing victory, the accepted narrative was that we had not just the Democrats re-conquering the White House; but that we, as a Nation, had achieved a real qualitative revolution –a good revolution that was supposed to bring us into a more mature era in which it is all about individual character and qualities. A Black Man elected with the general support of Whites should mean that they looked at him and trusted him as an individual, not as a Black politician. (Not entirely clear as to whether the same logic applied to Blacks who almost unanimously voted for him).

Given all this, what is truly surprising in this matter of the Sotomayor nomination is that all observers, friends and foes alike, are unwilling to criticize this episode that confirms the continuation of the balkanization practice, as a matter of course; nor is anybody willing to point out that this practice is very much in keeping with the old fashioned (bad) customs that supposedly we had transcended with Obama’s election.

The Republicans may have no interest in saying anything because they know that when their turn will come they want the freedom and the discretion to do the same thing: that is to reward friends and allies with symbolic and substantive gestures and favors as they will see fit.

The problem is more with the Democrats and in particular the large armies of the young supporters who went for Obama as a matter of instinct and faith: because he is young, charismatic, well spoken and “different” in a way that defies simple categorization. They, more than the old Capitol Hill hands, were told or assumed that this was not just another politician but “a cause” that would bring about qualitative transformation in both substance and style: a rebirth of the original American values.

Well, no doubt there is a different style and certainly Obama is more appealing than George W Bush with his somewhat fake folksy ways. As for substance, we shall see. This nomination could have been a good chance to show real change –and it was missed. Surely there will be more chances and we shall see then…..

But the general silence regarding this clear reversal into (or, better, continuation of) the old ways means that the country, for the moment at least, is not that interested in noting this obvious contradiction between what we were told to expect and what actually happened — and this is not a good sign. After all, we are only a few months into the New Era and we already forgot or stopped caring about what was promised?

 

 

 

 

 

 

 

 

 




“An Opportunity Society” As The New Frontier

WASHINGTON – Right in the middle of this deep crisis, President Barack Obama is presenting bold, new long term strategic initiatives on health, education and energy. He is pushing this agenda forward while his administration is still struggling with the immediate issues of bank lending and foreclosures. Obama has stated that there is a clear logic in launching major plans right now, as these strategies –he claims– will help create more solid foundations for the economy and the society. And it is important to get started on these plans right now, as they will take years to produce effects. So, we have an emergency plan for the short term, seamlessly integrated into a new Grand Transformative Strategy for the long term. This agenda is an extraordinarily tall order for a system of government singularly unsuited, in normal times, to digest big stuff in a couple of gulps. But these are not normal times and the idea of the Big Plan, whatever its eventual fate, is moving along.

The key areas designated by Obama: health, education and energy are clearly vital and focus on them is warranted. What is not inherently self-evident is whether a massive public sector-led effort in these areas is the best course of action to achieve the ambitious goals of affordable health care, available quality education to all and aggresive development of a non carbon energy supply.

Some opponents argue that Obama right now should limit his action on reviving the economy. We know the list: fix the banks, help them deal with the bad assets, stem foreclosures. Big, bold plans for expensive, transformative change should be part of a separate national debate that should take place after we are out of this slump. Other asserted that Obama is cleverly taking advantage of this crisis to ram through the Congress and the public in general gigantic increases in public spending, labeled by the same critics as old fashioned welfare, without adequate discussion.

Leaving aside attempts to divine whether there is an undisclosed agenda and what it may be, let’s look at the situation. It is a fact that the Obama administration is confronting more than just another economic recession, however severe. This crisis of unusual strength is taking place in an increasingly unequal society that has also lost at least some of the prerequisites to maintain its productive and innovative drive.

And these are not trivial details.

The first point is that this recession is hitting an America in which the poor have not managed to improve their conditions even when the economy was growing and times were relatively good. For this reason, while all of us are hurting, those at the bottom are hit much harder than the rest. The assessment is that, whatever individual responsibilities may be, this lack of upward mobility for millions of Americans is due to systemic lack of opportunity that make it objectively harder, if not totally impossible, for the lower strata of society to climb up the economic and social ladder, even with the best of intentions. And when those at the bottom who have minimal access to opportunity happen to be racial minorities, then we are confronted with the old story of discrimination, (this time around an implicit discrimination, as opposed to the openly sanctioned and openly practiced old one). 

Indeed, when we notice that the poor stay poor largely because of lack of access to quality education and decent health care, then, present crisis aside, we can forget about upper mobility. For them it will not happen. And when we see that objectively for many “birth is destiny”, that is the social condition in which a child is born is the strongest predictor of his future station in life, then America is not the land of opportunity for tens of millions who happen to be mostly traditionally disadvantaged minorities. For this reason, the current severe recession invites reflection on how to improve a society increasingly split between those who have chances and opportunities and those who do not.

Point two is about the foundations of America’s economic might. While the devastation of traditional manufacturing, exemplified by the debacle of the US auto sector, causes concern, an even bigger concern is raised when it is not clear what a “Plan B” will look like and whether it will be broad enough to carry the entire nation into the future. The lesson of the last few years is that we have lost basic manufacturing, because our cost structure is too high compared to the cost of the emerging economies of Asia. Fine, many say. Not to worry. We leave apparel, toys, pots, alarm clocks, toasters and hair dryers to the Chinese, as we consolidate our leadership up market in biotechnology, health care, electronics, space, aviation, software and related services. This is an obvious shift for a high cost society with highly developed human capital and many centers dedicated to innovation. 

However, success for this strategy is predicated on a few assumptions. A key one is that the overall level of education in America will be high enough to produce the sophisticated and highly skilled labor force capable of manning and running complex, knowledge intensive enterprises. And this means good if not excellent education not just for the elites but for the broader labor force. And here we are failing. Public education is substandard; and the urban minorities usually get the worst kind. So, we are not preparing the human capital for the future, while millions of uneducated young will be marginalized. Another one is that the overall burden of national health care costs should be bearable as a percentage of overall wealth, while at the same time creating access to health care for the more than forty million Americans who have no coverage. And yet another is that we shall be able to curb our consumption of imported hydrocarbons, as a matter of both cost and national security.

In brief, this seems to be the underlying rationale for the bold Obama approach. We are facing this ugly crisis. But, as we are dealing with it, we also want to lay the foundation of a New Economy and of a New, more equitable, Society, based on increased access to knowledge and thus opportunity.

Having said that, and even assuming agreement on the analysis, the question is: can a Washington-led effort re-engineer America? Can we create new programs aimed at building those steps that can be used by the poor to get out of poverty? And, most importantly, noble intentions aside, can government do all this and do it efficiently and effectively?

The temptation is to say: “Yes”. We tried the government-is-the-problem, so let’s go ahead with private sector-led stuff –and it did not work so well. We let the private sector free and it did not invest. It invented ultra sophisticated financial tools that brought enormous riches to those in charge of the system and almost nothing to everybody else. And then the whole thing collapsed. And so, can we safely conclude that free market capitalism “failed” and that the government, by default, if for no other reason, has to take the lead?

This is an enormously complicated question. And there is no absolute right answer. The best answer that I can give is that it is fine, in the present circumstances, for government to take the lead. But much of the success hinges on our shared understanding of government’s role in the long term. If we agree that these are special measures due to special circumstances and that later on we shall revert to a healthier private sector taking the lead, this would be fine. But if the notion instead is that now we discovered that the public sector is qualitatively better at guiding economic development, we may be in serious trouble. Plenty of evidence shows that, by and large, the State does not do a good job, except for limited areas, (funding of basic research comes to mind, for instance, as this is an area in which the private sector is not well suited at taking the lead).

Ideally, it would be nice to hope that the Government can help create a more level playing field in which there will be meaningful equality of opportunity for most if not all people; thereafter allowing them to express themselves as best they can. It is good for the Government to actively remove obstacles to opportunity. But if this noble effort should morph into the creation of protected groups or classes and the distribution of extra this and extra that to the disadvantaged, deserving categories, this would be a perversion of the initial intent and it would result into bureaucratization and the end of individual initiative and successful enterprise. There is plenty of evidence showing that large public policy programs aimed at solving problems end up institutionalizing them, creating permanently dependent constituencies that do not go away.

Long ago, Frederick Jackson Turner provided an interesting interpretation of the old American ethos. “American Individualism” was grounded on the peculiar experience of the colonization of the American West. By default, if nothing else, individuals or small groups struggling to get someplace in the wilderness had to be self-reliant and had to base their chances of success on personal will power, determination, hard work and ingenuity. When the Era of the Frontier came to an end, Turner wondered as to what this change would mean for the American ethos. When the big job at hand is no longer to lead the covered wagons caravan further West in search for good land, so that the first settlement could be established, what will become of an America shaped by experiences grounded on individual resilience? If indeed the defining feature of the American psyche and approach to life is rugged individualism, how would this “patrimony”, born out of the frontier experience, adapt to an urban society in which complex dialogue and mediation among diverse interests will be needed, rather than the trade mark “do-it-yourself-as-no-one-else-is-here-to-help” approach?

This important question was posed by Turner at the end of the Epic of the Frontier, more than a hundred years ago. He wondered what would become of America. What would happen to the self-starting spirit, to the can-do approach to anything? As Turner put it later, in March of 1920, “The future [….] alone can reveal how much of the courageous, creative American spirit, and how large a part of the historic American ideals are to be carried over into that new age which is replacing the era of free lands and of measurable isolation by consolidated and complex industrial development and by increasing resemblances and connections between the New World and the Old. (Emphasis added).[….] What has been distinctive and valuable in America’s contribution to the history of the human spirit has been due to this nation’s peculiar experience in extending its type of frontier into new regions; and in creating peaceful societies with new ideals in the successive vast and differing geographic provinces which together make up the United States[….]

Turner described a society and a culture shaped by the accepted –indeed revered– national myth, (even though this was not the actual experience for many) of the all conquering individuals who settled wild lands, relying on their wits. The American pioneer was not “the explorer” of the European experience. The American pioneer was not Magellan or Amerigo Vespucci. He was the common man, driven by a desire to go and settle in a new place. He had no financial backers. He was neither rich nor particularly well educated. What he had was will power and ingenuity.

To the extent that this national myth of individual resourcefulness and risk taking spirit had value as the intangible yet strong motivating force that would drive Americans onward, could this myth survive after the quest for open space in the West was over? And if frontier individualism would not survive in its original form, could it be transformed into something else, equally vital, yet more suitable to changed circumstances? Or was it the fate of America to rejoin the spiritual heritage of Europe?

Turner himself expressed the wish that Americans would be able to transform the physical reality of the Frontier and the challenges that it had presented to the would be colonizers into a new notion of frontiers of knowledge and new discoveries in science and technology and more. A good idea it would seem. And, to some extent it would appear that America followed this adaptation. From the physical frontier, we moved to the frontier of innovation, technology and new science. From the covered wagons we got to the Bell Labs, Silicon Valley, the internet and the human genome.

In all this, as compared to the European experience, the State and public resources, according to the accepted national narrative, played a relatively minor role. It was all about individual creativity and resourcefulness. Hence the somewhat simplistic notion that all that is good in America is done by the private sector, while the government is incapable, inefficient and wasteful; so it better stay out of the game. (Remember Ronald Reagan’s favorite joke?: “We are from the Government…..We are here to help”. And this supposedly preposterous assertion linking “Government” and “help” sounded extremely funny to his supporters).

In light of this heritage and the accompanying national myth of the individual as the engine of creativity and growth, the Obama approach, while motivated by this national emergency, appears wrong, misguided or even blasphemous to many. “Obama wants to make all of America just like France, or at least just like California, whose stupendous state budget deficit is the outcome of a failed statist philosophy”. “Obama is a socialist”. And the more colorful characterizations assert that “we are going the way of Argentina”, or (less plausibly) “of Zimbabwe”.

Indeed, citing Turner’s thesis, Daniel Henninger of The Wall Street Journal, wrote an insightful editorial on December 4, 2008, (“America Needs Its Frontier Spirit”) that opened with this admonition:

The greatest danger in the current economic crisis is that the United States will lose its historic appetite for risk. The mood now is that risk taking got us into this mess. Risk, though, is the quintessential American trait that built the nation –from the battle of Bunker Hill to the rise of the microchip. If we let risk give way to a new ethos of commercial reserve and regulatory restriction, the upward arc of the US ascendancy will flatten. Maybe it already has.”

Henninger wrote that Turner had recognized that the “frontier spirit”, while uniquely American, was not all good. The fierce individualism that was its trade mark and dominant feature was “working for good and evil“. And we have seen plenty of both with positive and negative consequences. The rise of the great steel entrepreneur, later on turned philanthropist (Andrew Carnegie); but also of the Robber Barons, the speculators and the criminals (Bernard Madoff, by acclamation, gets the latest sleaze prize).

But is this reflection on what was or is the American ethos relevant to today’s circumstances? It is very relevant to the extent that we agree that people are motivated and driven by certain values that are transmitted by the prevailing culture. Turner wondered what would happen to the spirit of the frontier after the end of that epic age. He hoped that it would move to other fields of endeavor. And, to a large extent, this really happened. But the outcome is of a society that is both, highly innovative and fractured, flexible and adaptable and thus hospitable to the daring; but mercilessly cruel to those trapped in a world of poverty and ignorance. For them the verdict is as severe as it is unfair: “As they could not summon their individual resilience, well, they were doomed to failure. They did not make it; and it is too bad”.

The open question for the leadership of a modern industrial democracy in which a high level of sophisticated knowledge is the ticket to participate, is whether we can accept the old fashioned frontier time philosophy whereby “those who want can and will do”; and the others, well the others did not have what it takes to go through the wilderness and Indian lands. They did not make it.

The Obama administration appears to appreciate the good aspects of the old heritage that created a society in which individual ingenuity is at the root of growth. But it also sees the negative consequences of excessive individualism: a fractured society in which those who can go ahead, while many others sink or are condemned to perpetual marginalization, largely because of the circumstances in which they are born. The trick here is to “fix” the flaws of individualism without destroying it in the process.

Indeed, individualism stirs the free human creativity that produces Apple and Federal Express. Regimented, bureaucratic industry and endless bargaining with the unions produced Rick Wagoner and a slumbering General Motors, a corporation that does not even have the minimum level of self awareness to know when the business is dead. While Obama and his advisers correctly talk about systemic flaws that require real reform, it should be our hope that they will keep in mind that, in the end, the future competitiveness of America will still rest on the ability to keep and nurture a spirit of creative enterprise that has few competitors in the history of the world.

Right now, in the midst of this severe recession, the frontier spirit is not shining. There is an understandable backlash against unregulated capitalism managed by manipulators who concocted incomprehensible financial instruments and peddled them to many like the all curing snake oil of old, while the regulators were looking the other way, because they were supposed to allow the free market to do its own thing.

Looking at the destruction of wealth and at the dislocation for millions that occurred mostly under the stewardship of an incompetent Republican Party distracted by its excessive preoccupation with the war on terror and by the all absorbing Iraq adventure, one could easily agree with President Barak Obama’s conclusion that the old way of doing things (unregulated markets) has been tried and it did not work. Hence the need to try something else. Very true.

What happened under George W Bush was a disaster that has shown what level of damage blind faith in individualism, this time around  “working for evil”, (whether we knew it or not), can bring about. But, agreeing that the damages of the past were caused by reckless deregulation and lack of any kind of oversight, does not provide a clear indication of what may be a better way. Right now, with the engine of capitalism broken or at least stalled, it is appropriate to use the levers of public policy to inject some life into the system. But is this a temporary remedy or a brand new course? If it is temporary and expedient, so be it. Someone has got to do something. But if this is the prelude to the return to old 1960s and 1970s ideas of Big Plans that will fix Big Issues, then a cautionary note should be introduced.

The Frontier Spirit may not provide good guidance at this time, at least not until it can be refurbished as a genuine force for good. But there is no evidence that state run, social democratic policies work any better in the long haul.

In the 1960s and 1970s the European industrial democracies thought that they had improved and refined capitalism. The Great Society programs here in the US had similar aims. You could have both, a private sector and a public sector, free enterprise mitigated by good regulations and welfare programs that would embrace and sustain everybody. Progressive taxation would finance the whole machinery. In the European experience, thoughtful technocrats, the High Priests of the Mixed Economy and the Welfare State, would watch over and fine tune the system, making sure that all would thrive, enjoying the fruits of carefully orchestrated economic activities.

In Europe in particular, the central element of this whole idea was a sincere belief in the concept of “The Plan”. A good and wise allocation of national resources needed a careful plan, so that there would be no waste and no disruption; thus optimizing the allocation of scarce capital. In theory all this sounds quite good. In practice, it is odd that the concept of “The Plan”, sincerely embraced by the Social Democrats, was in fact the absolutely worst component of Soviet style communism. Simply stated, even assuming the best intentions and the best people working on it, “The Plan” does not work. And this is mostly for two reasons.

First, a Plan is normally based on assumptions that prove to be inaccurate or wrong, while the Plan is too rigid, not allowing for course corrections. The second reason is that any attempt at forced allocation of resources according to The Plan, is not optimal and in fact quite wasteful. But worst of all, the notion that we all have to work according to a script denies in practice the expression of individual creativity and smothers that risk taking feature that Turner and others indicated as the distinctive feature of American style enterprise. In fact, America has been and still is the destination of many disgruntled would be entrepreneurs from Europe or Asia who moved here because they believed that here they would find more fertile ground for the flourishing of their ideas and enterprises.

In the end, this crisis will pass. looking at the aftermath, the Obama administration is right in asserting its desire to address systemic weaknesses in education, health care and energy that, if left unattended, in the long run will weaken America and diminish its chances to be truly competitive in the global economy. While, in principle, this is a good idea, wanting to do the right things is not necessarily an indicator of future success. Then, what do we do?

It would be wise for a reformed and sobered up private sector to stay away from the attempts at demonizing Obama as a northern version of Hugo Chavez bent on ruining the country, and engage with this administration in devising the best way to use public policy and/or mixed models of public private partnerships in an innovative and productive way. The stakes are high. If we are successful in providing the necessary tools to those that have been excluded, we have now the chance to transform America into a modern, vibrant “Opportunity Society”. And this is something that both left and right should be able to agree upon. As Turner said, there can be different frontiers. Why not make “Expanded Opportunity” the new one?




Politicized Media and The Loss of a Common Ground

WASHINGTON – Consider this superficially innocent excerpt from a recent (February 28, 2008) article in The Wall Street Journal dealing with Obama’s announcement of a timetable for US withdrawal from Iraq: “Bush aides once talked of leaving tens of thousands of American troops in Iraq into the indefinite future, citing the examples of postwar Germany, Japan and South Korea“. So, you read this and you may get the impression that the Bush administration had the ambition of occupying Iraq potentially forever. Now, this is patently untrue; witness the fact that the Bush administration negotiated a status of forces agreement (SOFA) with the government of Iraq which clearly set a deadline for withdrawal from cities by mid 2009 and complete withdrawal from Iraq by December 2011. So much for planning to stay for “the indefinite future”. In fact, as it turns out, that Bush timetable is not that different from the new one just announced by President Barak Obama. So much so that Obama’s plan has been endorsed by Senator John McCain, his Republican opponent in the recent presidential elections. As to the parallels with US troops in Germany and other countries, these are idiotic. The stationing of US troops In Germany and Korea was and is about the protection of these countries from foreign invasion, not about the need to have a US occupying force in order to fight an ongoing insurgency and keep domestic order. So there are troops and there are troops. Talk about apples and oranges. Shouldn’t a journalist know the difference?

Again, this excerpt is not particularly egregious in terms of the consequences of error and distortion. The Bush administration is gone and thus its alleged policies and or wish list about Iraq have become irrelevant. Likewise, wrong historic and political comparisons are not uncommon in the media and thus they will not be cause of outrage.

But this is precisely the problem. The fact that errors or distortions appear and that in general they are not corrected, while nobody really cares, is evidence to the fact that, even in the so called “quality press”, one can write sloppy (or tendentious, as the case may be) stuff, make stupid, historically erroneous analogies and get away with it. But, as a result of this, the unsuspecting reader is fed errors and misrepresentations from which he is likely to draw the wrong conclusions.

Another common form of distortion is the “friendly” interview in which the interviewee is allowed to say anything they want, while the journalist nods, even when confronted with blatant falsehood. Take as an example Governor Jennifer Granholm of Michigan. In recent media appearances she has come out strongly defending the auto industry bail out. OK, you may say. She has to do that. Detroit is in big trouble and it is in her state. The auto industry is so important for Michigan. How could she not defend it? Fine. But only up to a point. Why should interviewers not question her assertion that, after all, all other automobile manufacturers around the world are also in a crisis and they have all applied for state help. So –asks the Governor–what is the big deal about Detroit? After all, just like all the others, they are seeking emergency aid. And they should get it, because it is all about saving jobs, etc.

“Yes, Governor –the journalist should say– all other automobile manufacturers worldwide are in trouble because there is a global recession; and it is true that they are asking for and getting financial assistance. But the fact is that Detroit has been structurally in trouble for the past thirty years, without doing much about it. For this reason, while it is true that the crisis has hit everybody, it is a devastating blow to the US auto companies that were poorly managed way before. This is the truth. For this reason, GM’s problems are not on the same scale as Toyota’s. The skeptics may go and pick up and old copy of “The Reckoning”, the 1986 best seller book by David Halberstam. That book documented the passivity of Detroit and its inability to innovate and thus confront the emerging Japanese competition. So, the crisis of the US auto sector and the need for swift remedial action was known and amply documented back in 1986. While attempts to turn thing around have been made, the general picture has only deteriorated over time, witness the horrible financial conditions of the automakers accompanied by steady loss of market share, well before the financial crisis“. But nobody really said this.

And so, the Governor of Michigan, conveniently ignoring a long history and massive amount of data about the failures of the Big Three, goes on TV talk shows saying that Detroit is essentially another victim of the financial crisis and that their plan to emerge victorious from the crisis is very solid. Again, to a degree we can allow a politician to be the ex officio defender of a very large cause affecting her state (and, admittedly, way beyond her state). But does her advocacy role allow such a level of distortion so that people are supposed to ignore the systemic mismanagement of the US auto sector? Still, lacking any further probing and clarification on the part of journalists not doing their job, the average viewer watching the interview can come up with the idea that the Governor has a very valid point and that we should save the US auto sector, just like everybody else around the world is trying to save theirs.

And then we have the energy “debate”. Conservatives, to score points against the supposedly misguided tree hugging liberals, during the recent presidential elections campaign demanded with the loudest voice that we should do away with all environmental niceties and drill as much as we can on shore and off shore here at home, so that we could get our own oil and stop buying it from the Middle East. They did so using friendly media outlets that did not question the “facts” as presented. Here, as elsewhere, there is a mix of truth and complete fantasy. Is there more oil to be extracted in the US? Absolutely. But, even according to the most optimistic estimates, there is not much of it. Maybe an additional million barrel a day, maybe two –if we are really lucky. This additional supply, while welcome, would allow us to cut down a bit our oil imports, now about 12 million barrels a day, or roughly 65 per cent of our consumption. But it would not change the larger picture which indicates the progressive and fairly rapid depletion of domestic oil reserves. In terms of overall known world oil reserves, the US, with 3% of the total, comes to number 14. In theory this is a respectable showing, except that we are by far the largest consumer and so these reserves will satisfy only a modest percentage of our consumption and they will go fast. So the idea that we have all this untapped oil that would take care of most if not all our problems, while we are prevented from getting to it by stupid liberal policies that undermine energy security, is a dangerous falsehood. It is a falsehood that fosters partisanship in as much as the conservatives want to portray themselves as the defenders of US energy security; while depicting the liberals as essentially unpatriotic and silly people who would gladly sacrifice US national interest to protect wild animals in Alaska or seals somewhere else.

And yet, instead of consistently presenting the issue of additional exploration in context, the media, depending on their politics, have joined one side or the other of this polemic about “to drill or not to drill”. Lost in the cacophony are the hard facts. “Yes, America, it is possible to extract more oil, and within reason it should be done, as more oil extracted at home is better than less. But, at the same time, we the media are presenting to you the complete picture: the US has consumed most of its oil deposits. And, given our high consumption rate, soon we shall have nothing left. Hence the need to have a new strategy based on other sources”.

Multiply this partisanship, errors, sloppy reporting and egregious distortions by the thousands of media outlets and one gets to the uncomfortable conclusion that, in this very new era of information saturation, it is very hard to “know” what a “fact” is and whether opinions expressed on the basis of these “facts” are even remotely connected with reality.

In theory, one could make the case that the proliferation of new media and the low barrier to entry in the world wide information circuit accessible by hundreds of millions via the internet should help quality of information reporting. With more and more independent voices checking on whatever is being said or written, more and more people doing research and fact checking, this should discourage all practitioners from engaging in total fabrication or even partisan distortion. In the end, as everybody is paying attention to what everybody else is saying, the “truth” would finally emerge.

But, paradoxically, it is not so. The proliferation of media outlets –and cable TV news is the primary example— simply means that people watch the outlets of their choice not to get information but only to hear views that confirm and reinforce their existing biases and preformed opinions. Watching someone who articulates what I already believe seems to be comforting. If this attitude were confined to opinion, it would be bad enough. But now, this “artistic freedom” has been extended to facts. And so, the lines of demarcation between news and editorials have disappeared. We are all “entitled to have our own facts” –it seems. And, on the basis of these fantasies, we can opine whatever we want. Those who say we are wrong are dismissed as partisan political opponents and that is the end of the debate.

The old fashioned traditional media, rightly or wrongly, were believed to be guardians and honest stewards of some level of “objective truth”. This may have been wishful thinking in many instances, but at least it was assumed that there was an ethical code that would force media outlets to report the facts. Well, now there are no such standards. Partisan media have openly morphed into long political commercials. It is bad enough that TV political ads routinely distort the facts through manipulated polls and out of context “quotes”. Now this practice has become routine for most media. It is quite clear that, by picking and choosing, one can make almost any point about any subject. Of course, this is not new. Distortion has always been around. But it was not routine and it was not open and blatant.

Well, what is the point of this tirade? It is quite simple. We would all concede, at least in principle, that a vibrant republic is predicated on informed citizens. In our world, information comes mostly from the media. The observation here is that the myriad of diverse outlets did not spur a renewed commitment to improve and sustain the necessary effort aimed at presenting facts, while clearly separating reporting from commentary and opinion. In fact, the new media are mostly about advocacy. The intent is not to inform but to recruit followers.

The average reader/viewer, by believing what is dished out by their favorite outlet can believe that George Bush wanted to occupy Iraq indefinitely, just as we are occupying Germany. They can believe that General Motors is another victim of the global financial meltdown and that we should help Detroit just like the Germans or the Japanese are helping their equally suffering auto manufacturers. And they can also believe that, if Washington would just do away with this nonsense about environmental concerns, we could get busy extracting our own oil and this would pretty much take care of our energy problem for quite a while. All this is troubling.

Essentially there are two issues here. The first one is the open morphing of information into advocacy and propaganda, whereby he who has the loudest voice and deeper pockets may carry the day. The second issue is sloppy journalism, no fact checking and the inability to present news within an appropriate historic context. The two combined have created a mess within which people are inclined to choose their version of reality on the basis of ideology and not reason. If news and information was presented in context, then people would have a better chance of evaluating it and to form their opinion. Without context,  news is a messy, sometimes incomprehensible, stew of stuff; and so the best way of sorting it out is by following one’s own pre-selected media outlet that has a pre-cooked opinion on the issue.

The promise of the internet was that we could all gather in this virtual ongoing town hall meeting offered by cyberspace. As we are all alert and tuned in, nobody could get away with falsehood or misinformation. The aware, watchful citizens would know and cry foul. Well, so far it has not turned out this way. Media proliferation has mostly meant fragmentation of the enormous audience according to ideological preferences. Just like people may choose to read about jogging, as opposed to gardening or fishing, people also choose conservative as opposed to liberal media because this or that better suits their political biases.

The problem is that this way –by accepting ideologically biased information as the only kind that is available– as a society we risk losing an essential prerequisite for fruitful debate: the common ground of a shared reality. In the realm of science, with occasional lapses, scientists are not allowed to create their own version of reality simply because this would better fit their theories. While many mistakes are made by scientists, there is a consensus that scientists collectively are looking for the discovery and understanding of facts. In human affairs this is more complicated because we have facts and intentions and wishes and interpretations and opinions etc. But the higher degree of complexity, if anything, should make those who are in the news business to at least try to be as accurate as possible about the facts.

If we conclude that we are all entitled to our own facts “because this is the way I see it” and that political debate is mostly about the power of persuasion based on rhetorical ability, then it is all about ideological screens and not about dealing constructively with the issues that will determine our future.

Ideologues and ideological struggles are not new. What is new, in the context of a modern, scientifically and technologically advanced democracy, is the progressive loss of a common ground. Outlandish propositions and falsehood are countered mainly by other biases articulated through a variety of media outlets that are mostly about advocacy and propaganda and no longer about information. The media, including the new media enabled by the internet, having become open partisans of this or that, have abdicated their role of presenters of well documented facts. This way, facts have become subjective, just like individual taste in food or clothing. But if we are allowed to create our own subjective realities, then, without a shared understanding of what is happening, we shall progressively lose the precondition for having constructive debates. And this cannot be good.




Obama’s Big Plan Needs a Truly Loyal Opposition

WASHINGTON – Let’s give President’s Obama budget proposal and bold blueprint for addressing and hopefully fixing a number of serious problems the benefit of the doubt. Let’s assume that his approach is well crafted, thoughtful and that the goals are both noble and reasonable. Let’s also stipulate that his assessment about past irresponsibility by both the private sector and government is correct. Fine. So we all agree on this. But does it follow that his complex plan is the best course of action and, more importantly, that it is indeed going to work as intended?

This is the problem. And, unless we indulge in ideological posturing letting prejudice and bias prevail over reason, all of us should humbly admit that we do not know the answer.

Given the mess we are in, right now the general mood is to give this plan a shot. Of course, the mood is due to the depth of this crisis in which the previously exalted free market capitalism got us into. There is no doubt that the irresponsible lunacy and recklessness displayed by the leading lights of the private sector is largely accountable for this new swing favoring government solutions to the large issues.

When the face is capitalism is Bernard Madoff, (the swindler), or Rick Wagoner, the hapless head of General Motors, the chief executive who presided over the final sinking of the automotive version of the Titanic, it is easier to listen to a new political leader who tells us that ramped up government activism will provide both the answers and the proper modalities to implement policies aimed at both reviving America and propelling it to new heights.

And in truth, with the economy in deep trouble, a banking sector on respirator, the housing market in the abyss, where else can we turn? The government seems to be a plausible alternative; even though we are aware that this new massive effort is going to increase an already gigantic deficit, with consequent increases of the national debt and more money to pay more interest to all the bond holders for years to come.

So, can we say that the pendulum swung back to where it was in the 1960s and the 1970s? Are we back to the optimism surrounding “Great Society” like interventionism? And if, so, is such optimism not so much in the public sector’s leadership but in its competence to manage large public policy programs and huge budgets warranted? Again, right now, the issue can be framed as: “Yes, we may have some legitimate doubts about government efficiency. But compared to what”?

Indeed if the auto sector CEOs are the face of capitalism, one is tempted to believe that anybody, including petty dictator Hugo Chavez, may be better than this brotherhood of supreme incompetence. And if you add to the line up the leaders of Wall Street, with that unholy mix of greed, thievery and stupidity, this may invite favorable comparisons with Zimbabwe’s leaders.

Remember that this is America. We were supposed to be the ultra-sophisticated leaders of free market capitalism. We were teaching the world. We invented the “Washington Consensus”, that high minded prescription to be fed to sick third world countries, consisting of fiscal discipline, budget cuts, privatization and –last but not least— the best of the best: “Private Sector-Led Growth”. And countless governments were invited (forced?) to pray at the altar of the Free Market and to publicly renounce Satan (i.e. “State Owned Enterprises” and other such evils).

And now, how do we look? We, the Keepers of the Faith? The Guardians of the Temple? Oh well. Contemplating this ruin, Maestro Alan Greenspan, until recently the object of almost religious reverence, just like a child with a broken toy in his hands, is speechless. The only thing that he could meekly articulate in defense of his hands off approach during his tenure as Chairman of the Fed is that he really, really believed that the private sector was perfectly capable of assessing and pricing risk. Well, he (along with many others, of course) was incredibly wrong. The very notion of risk, let alone any realistic pricing thereof, had vanished. Hence the overleveraging orgy which destroyed the financial sector and anything it touched.

In the 1980s Ronald Reagan successfully argued that the dysfunctions affecting the US economy were mostly due to too much government, too much regulation and too many taxes. He argued that the legacy of the Great Society was a bloated and incompetent public sector, supremely unsuited to manage anything. Hence the need to starve it. And he won the argument. (Ironically, the one component of public spending, defense, that Reagan wanted to increase, owing to the imperatives of national security, lived up perfectly well to his caricature of “fraud waste and mismanagement”. The Defense Department embarked in a gigantic and thoughtless shopping expedition. No real plan, no priorities, no streamlining of the procurement system. So, we got a stronger military, no doubt; but at an immense cost). 

But the winning deregulation philosophy of the Reagan years and the aftermath got us into the Wild West of no rules and no boundaries. And the hands off approach was justified by the notion that the private sector and the infallible market would wisely allocate capital to the benefit of us all.

Well, the developments of the New Millennium proved that this was not so. Everybody was wrong. And all the guardians of the system, the Securities and Exchange Commission and all the other regulators, were more than wrong, they were negligent and inept.

So, here comes Barak Obama telling us that we need to fix things. Everything else being broken or almost bust, government will have to step in. Of course, Obama’s plan is not confined to fixing capitalism, but to use some of its resources to make our society more just. And this is not just a detail.

And here we set the stage for old and new ideological battles. Should government be in the redistribution business? What is fair? To what extent those at the bottom are victims of injustice and lack of opportunity or victims of their lack of abilities?

Well, the large debate between government role and individual responsibility will never end; and rightly so, as circumstances change and roles should adjust accordingly. If such debate were conducted in a responsible fashion, it would be healthy. But if it all degenerates into an ideological food fight, a useless cacophony conducted only to score points before the next election, the real issues do not become any clearer and nobody wins.

Having said that, let’s focus on the fact that the most immediate dilemma confronting us today is not about philosophy. It is really about implementation tools and capabilities. The anti-government Republicans (and not just the Republicans) of the 1980s argued two things. Number one, the government has no business in meddling in the economy. Number two –and this is really the point— government, even with the best of intentions, is inherently incapable of delivering a good product in a cost effective manner. Bureaucrats are just incapable of understanding large issue and thus they cannot manage them.

Plenty of evidence to support this point, at the time.

Again, today the context is different, as we have massive evidence of private sector failures. In Ronald Reagan’s times it could be said: “Give the private sector a chance”. Today the simple rebuttal is: “We gave the private sector a chance. And look at what they gave us: the worst crisis since the Depression”.

While this is true, the failures of Wall Street do not automatically authorize us to be reassured that, in the meantime, government reformed itself and that it is today up to the task of administering gigantic new programs and new spending. While government can and should be more efficient, where is the evidence that it has become so?

Or was it just the fault of the Republicans who governed until yesterday? Can we say that the Republicans poisoned the well and made it impossible for the federal bureaucracy to do its job? Sure, to some extent atmosphere counts, as it affects morale and thus performance. But can we safely say that a major change at the top, with a brand new Democratic leadership in charge, is enough to change not just the mood but the degree of competence and thus the ability to execute?

In the intelligence realm, can we say that the massive failures that led to the inability to detect the 9/11 plot, and later on to the gigantic blunder regarding the weapons of mass destruction in Iraq, was all George Bush’s fault? Likewise, the inept response to Hurricane Katrina, was it all due to the wrong leaders giving the wrong commands? Sure enough, sub par leadership made things worse, but it can not explain everything.

So, in the end, this is the issue. President Barak Obama wants to do a great deal. Looking at his plan for action, as outlined in the Budget blueprint just made public, there are two sets of possible critiques regarding this renewed faith in Government’s activism. The first one is that, no matter how bad the private sector has been in protecting the general welfare, government is still worse.

The second one, (and in view the most troubling) is that even assuming that the policies are correct and just, government is just not capable of executing because it lacks the intellectual and the institutional tools to act swiftly, intelligently and to produce the intended results. Needless to say, those who oppose interventionism as a matter of principle, are already salivating and ready to pounce on each and every blunder, big or small, that will prove that government (…I told you so, didn’t I?…) is inept.

But, if this becomes a gigantic ideological brawl, nobody wins. We got ourselves in a deep mess. President Barak Obama is the new steward of the common welfare. He has a recipe. Maybe flawed and imperfect; but it is a plan. And he will use the public policy tools that he has inherited, imperfect as they are, to implement it. The question before us all is: do his opponents really want him to fail to prove that he was philosophically wrong, or do they want to engage in a dialogue aimed at improving both the plan and the tools to the extent that it may be possible as we move along? Things being as bad as they are, Obama’s presidency can be a historic turning point for America. It would be wise –and, yes, patriotic– for the opponents to criticize and to present their ideas, as they see fit; but to do so constructively, with the sincere intent to lend a hand.




US Elections: Grand Plans versus Reality

WASHINGTON – America is in a deep funk. We have this unprecedented financial crisis whose dimensions, potential reach and likely duration we are still not sure about. Hence fear, if not outright panic. But, whatever the many countermeasures already undertaken and the chances of avoiding the worst regarding this plague, we should also keep in mind that this upheaval hit an economy already in bad shape, weakened by low growth, unsustainable leveraging, excessive consumption and negative personal savings.

The painful reality is that, quite apart from surviving the financial crisis, in order to recreate some balance and chances for future growth, we have to accumulate fresh capital for new productive investments. And this will take time, given the need to pay off the mountain of debt. There has been too much borrowing for unproductive purposes. Highly indebted individual consumers will have to cut spending for a number of years. This means recession, given the oversized relevance of personal spending as an engine of growth in the US. Prolonged spending cuts will spell disaster all over and especially in the huge services sector that depends on consumers. And all those clerks and waiters and salesperson who lose their jobs will also stop consuming, causing more contractions and more misery.

In all this, we have a presidential election. But the curious thing is that, while the candidates talk about this crisis, they sort of skip and jump, without seriously pointing out that this is going to mean prolonged pain throughout. In a rather disingenuous way, while the candidates admit the problem, they peddle their “plans” as magic remedies that will fix everything in almost no time, omitting the simple fact that, as we are already deeply in debt, the Government’s options will be severely constrained. Given the huge financial commitments that we have just created through various emergency programs, piled on top of already unsustainable public spending, realistically we have no real money for anything new.

Yet, the glaring contradiction between the current fiscal predicament and the electoral promises which promise more spending, strident as it is, goes essentially unnoticed. If a candidate gives a coherent 5 point solution to take care of this or that, well, this is “His Plan”. It does not matter that the solution is premised on increased spending that is just not available. The armies of commentators simply omit to mention this. Or, if they do so, they say it timidly. “Oh well, will candidate X be able to implement the overhaul of health care under the present fiscal circumstances”? Well, reason tells us that, no, he will not be able to do this. But, since the media and the analysts love someone coming along with a comprehensive solution, forcefully presented, they do not seriously challenge the fact that this or that program is based on unlikely premises of fiscal solvency.

Overall, it seems clear that, starting with the elites who shape the national commentary, people do not demand the “truth”, whatever that may be. The educated elites like to listen to a good doctor who seems to have the good cure, what it takes to fix the problems quickly and (maybe with magic) with little or no pain. There is no deep analysis of the assumptions, as long as the cure is well presented in an earnest and convincing way. And the winner is the one who sounds more persuasive. And if the solution is well articulated in 4 or 5 steps that, at least in principle, seem to follow some logic, well this is a “Real Plan”.

Barak Obama has come up with many such Plans. He sounds in control and thus intellectually ahead of his more disorganized opponent who seems to be all over the place and who has failed to articulate an equally compelling “Grand Strategy”. Besides, the bedside manners of Dr. Obama are clearly superior to those of Dr. McCain. Barak Obama successfully morphed from Messianic, visionary new leader who would transform the entire substance of the political dynamics in Washington, to the steady, reliable hand who can talk ably about grand policy plans and be believed in so doing. Hence he wins points for being  calm, while McCain appears flustered and unduly aggressive. Not bad for a freshmen Senator who was derided by his Democratic opponents during the primaries as naïve and inexperienced, someone whose career could be condensed in a couple of paragraphs. While one might argue that Senator Obama has grown through the grueling campaign process, we should not make the mistake that equates personal charisma which worked as a magnet to attract unprecedented funding for a well managed campaign with good governing skills. Right now the name of the game is persuasion. While governing certainly includes the ability to persuade, it is about persuading about doing “the right things”. And that is another matter.

On the other side, the feisty McCain-Palin Maverick Team has sputtered. Its message appeals mostly to its traditional base, a disoriented Republican constintuency that has become narrower and smaller in recent years. The strategy of appealing to the millions of uncommitted through an unconventional message that would transcend tradional politics has essentially failed. Their basic theme of “going to Washington to clean up the mess”, (including the mess caused by fellow Republicans), may sound good to some; but it is not reassuring to the millions who want “things” to be done, now, “for me, the suffering citizen”. McCain has not created a message that truly broadens his party’s political appeal and he does not have the polished plans that would include “things” to be delivered; or if he does, he does not communicate them well. His plans do not resonate.

Whereas Dr. Obama has a solid list of therapies and remedies, (remedies that include tangible benefits), targeted to the middle and lower middle class. And he explains them in a calm and steady way. He sounds “in control” and thus believable. And he is believed. He will tax some people; but, hey, not you and me. He will find money to reform health care, and, by modernizing antiquated administrative systems, he will manage to realize substantila savings, thus diminishing medical cost for all. He will get those millions of outsourced jobs back. He will give you what you need for work, child care, access to university, retirement. On top of that, he will retool the economy, revamp Detroit and create millions of new jobs by turning America into an efficient energy producer and consumer through massive investments in renewable energy. And he will end all the wars. He will finally catch Osama bin Laden and he will talk to foreign leaders, so that we can finally regain respect and good will in the international arena. Yes, he will do all that, deficits and economic meltdown notwithstanding.

Dr. McCain may have a few interesting points here and there; but his presentations are not compelling and they are not smooth. It all looks a bit confused. His good intentions are not necessarily in question; but his ability to keep it all together is in doubt. He has not convincingly articulated a “Grand Policy Plan” that will help Middle America. Besides, he is getting old. When he talks, his delivery is not secure and his voice not as silky as the other physician’s. His number two, Sarah Palin may be interesting. But she is too right wing for most independents and very green in terms of experience. Besides, McCain is too closely associated with the Republican Team in charge as the economic disease developed. Thus, one more reason to ditch the Republicans and try a fresh approach.

Of course, nothing, absolutely nothing in the record of either candidate indicates probability of success by choosing one or the other. While McCain has been around longer, showing some propensity to be a pragmatist, neither of the two Senators has had significant executive experience of any kind. They are politicians. They have not “run” anything. True, Obama’s smooth performance, his well oiled campaign, his long list of distiguished advisors would indicate an ability to manage and to plan. Yet again, quality of execution when governing is another matter.

But the national elites seem to have made up their mind based on appearance, debating skills and cleverness of delivery. But, most of all, the intellectual elites are instinctively in favor of social engineering. The consensus now being that the machinery of free enterprise is broken, they believe that now is the time to implement complex regulations that will bring about discipline and accountability. They are instinctively convinced that society needs to be fixed and that it is up to the technocratic elites (as they know better) to come up with the good solutions which they (the enlightened ones) will implement for the benefit of us all. And, as the intellectual consensus now is that the current crisis shows the perils of deregulation, the elites love the idea of being in charge of the plans to fix everything, while correcting injustices and finally creating a more equitable society.

So, the elites have already decided for Obama. Once the country digested the notion that a racially mixed candidate is quite alright, Obama’s talent as an articulate, thoughtful public speaker, seems to have done the trick. And the citizens are comfortable. Obama’s cure, at least on the surface, appears more detailed, better researched and more ably presented. Hence his lead in the opinion polls.

But does “The Plan” match reality? As I said, the question is not asked. For some reason a Big Plan is better than a Small Plan; even if it is based on questionable fiscal assumptions. This is the triumph of good presentation and clever delivery of a well scripted policy book; even if completely divorced from the unpleasant reality of fiscal emergency in which we are, due to the current crisis. Obama wins because of well articulated presentations and because of the appeal that programs laced with goodies have with the suffering middle and lower middle class. But the truth is that most of what either candidate recite, however smart and intriguing, is largely a rhetorical campaign exercise.

Most of it will not be done, as there is no money.

Let’s clarify this. Well before the financial emergency, the federal government was already on an unsustainable pattern of rapidly increasing debt that goes back to the very beginning of the Bush presidency, almost 8 years ago. Lower taxes, runaway spending and two prolonged wars have massively increased public debt. Fiscal year 2007-2008 that just ended on September 30 got us the highest federal deficit in the history of the United States: 455 billion dollars. While this is bad enough, the raft of emergency measures just undertaken to contain and hopefully stop the bleeding caused by the consequences of the financial insanity of the last decade amount to an additional trillion, (and we are still counting) of new spending. This means that the projected deficit for Fiscal Year 2008-2009 (which just started on October 1) is about a trillion. These are fantastic inbalances, even for the world’s largest economy.

And if we look further down the line at the aggregate fiscal implications of larger numbers of older people who will be collecting pensions, while requiring medical care, we are told that America has already accumulated unfunded liabilities in excess of 50 trillion dollars. And this was before the extraordinary new expenses forced by the need to contain the consequences of the financial tsunami! In other words, unless the national priorities are drastically changed, quite apart from the present contingency, we are headed towards financial catastrophe. Given all this, with this gigantic and growing fiscal shortfall, the new President will see that the already constrained policy options will be severely limited.

The truth is that we have almost no discretionary spending left, as the revenue is both insufficient (hence the need to borrow heavily) and already committed. From the general revenue that Washington gets, first we must take out money to be paid as interest on the debt (which must be handed over to all those Treasury bonds holders). Interest is going to increase as a percentage of total outlays in light of the additional borrowing. Then take out from the pool of available funds all the large and growing (due to an increasingly older population) entitlement programs: Social Security, Medicare, Medicaid, veteran benefits. All these programs run on autopilot. These obligations must be paid, along with built in cost of living adjustments. And with this, we have already eaten up more than two thirds of the total revenue. Then we have Homeland Security spending. It will be difficult to cut from Immigration, Border Patrol, Airport Security and the like. If anything, the experts tell us that we should be spending more to make the country more secure. And finally we have defense spending. Of course, we can play a little with it. But not too much, with two wars underway. You may cancel, delay and stretch some of the weapons programs and other procurement. Maybe you could save a few billions. But, contrary to popular opinion, most of the defense money goes to salaries and funding for current operations. It will be difficult to maintain a fighting force and save significant money at the same time, even assuming a successful fast track out of Iraq.

Simply stated, what is left for “non defense discretionary spending” which includes most of what government does, beyond the entitlement programs and national security, is very little, very little indeed. It is roughly 15 per cent of the total kitty. That’s right, when you take out interest on the debt, entitlements, homeland security and defense, the rest is about 15 per cent of all the dollars that Washington can allocate. And even this relatively small slice of the total is pretty much spoken for. Unless we want to eliminate or downsize entire departments or agencies, (how about cutting down 50 per cent from Commerce, NASA, NIH, or Agriculture?), unless we want to significantly cut foreign aid or close down embassies, most of the discretionary money goes to run operations for the entire federal government at current levels. The wiggle room is minimal. Senator McCain talks  forcefully about the exponential growth of earmarks, that is money allocated for projects that do not really serve the public good. Still, we could eliminate all earmarks today and the basic fiscal picture would not change that much.

And so, this dire financial scenario means that the convincing delivery of detailed cures and remedies that supposedly will take out of this mess under the reliable care of Dr. Obama is mostly that: good delivery of good intentions. The hospital has run out of almost everything. The fancy new therapies require new money. The electoral programs are about reintroducing fairness, about giving more to those who do not have a seat at the table. But the ability to engineer these complex reforms assumes extra funds; and we do not have any.

The fact is that both Dr. Obama and Dr. McCain know this. All of Washington knows this. The media pundits know this. And yet, somehow, the game of make believe, whereby the candidates engage in debates about things that in reality cannot be done, continues. And the complicit pundits give high marks to whomever sounds better; the one who can deliver the clever line with a secure tone of voice, showing to have better command of the issues and better stage presence, along with the necessary gravitas or humor, depending on the need of the moment. Whoever “seems” to have the policy that “seems” to meet the needs, well presented and artfully delivered, will win. Obama is better at this. No question. And he will probably win because he appears more in command, while his promises have broader appeal.

But Obama is not auditioning for the part of President in a new movie. This is the real thing. Taking for granted that both candidates have a modicum of intelligence and perspicacity, to be more personable, as Obama is, is a good trait for any human being and in politics it certainly is a plus. To be inspiring and reassuring, as he is, is even better. But, while these qualities can engender trust, neither of them are substitutes for real governing skills. Simply stated, complex governing programs that promise fixes, assuming financial resources that will not be found, is either a dream or a hoax, depending on your preferences.

As I said, this is not a movie about Washington, this is the real thing. No money will make it impossible to implement these complex ideas, at least not as stated. What will actually be possible, given the uncertainties of the cost of the current crisis and the paucity of fiscal resources, has not been seriously discussed. But, for the moment, the national elites have decided that they like the sophisticated policy plans, as many of them dream to be in charge of implementation, showing thus their superior talent. In step with the national intelligentsia, the frustrated people seem to have decided that the one who has the best of list of promises and who unquestionably looks better on stage is the one to be trusted.




McCain’s Ethical Crusade For A Frightened America?

WASHINGTON – Senator Barack Obama has a clear theme to draw appeal to his quest for the White House: the recreation of economic fairness in a society in which the current Republican leaders have taken care of those on the top and failed to do the same for those in the middle or lower. And this is the latest variation on a philosophy that proclaims that all should have a “fair share” of the pie, whatever the going perception of “fair” may be. This is not exactly a socialist program; but it is an aspiration to a more egalitarian society. While there is more than just wealth redistribution in this plan, the raw political message is: “Given growing unfairness, tax the rich and give more to the struggling middle class and the poor”. Reasonably appealing to begin with, in the midst of the current severe financial crisis, Obama’s message of “I’ll take care of you” has had an even stronger impact. The disoriented and frightened voters now lean decisively towards the Democratic contender and his reassuring message of a benevolent government that will finally take care of all those who have been left behind.

On the opposite side, Senator John McCain may have an economic and social agenda. Certainly he has articulated some thoughts about retooling America, about a new energy policy etc. But there is no “Grand Plan” founded on a policy program . His fundamental message is about ethics. It boils down to a vision of politics as ethical mission in which the first order of business is to clean up the mess caused by corruption and lax morals. Overall, today’s problems, according to McCain, are not so much the outcome of flawed, bad policies but of bad, unethical people who ultimately have corrupted the system. Whatever the political affiliation of unethical office holders and business leaders, their choices, whatever the ideological disguise, are inspired by personal greed and favoritism. And so the Common Interest is lost.

Hence the paramount importance of personal character in politics. Policies that look good in principle do not mean much in practice unless implemented by an Ethical Leader. And this Leader, once in office, will pursue the bad people, he will expose them and he will get rid of them. This action, in an as of itself, should cleanse the system and make it more responsive to the needs of the larger society.

Fine. But what about everything else? Well, for everything else, for governing that is, the Good Leader will rely on good judgment founded on ethical foundations coupled with seasoned experience. These qualities will tell him what can be done to get a consensus on this or that and get something “done” in the interest of the People. 

With the exceptions of a few general principles, such as the need to maintain a vibrant private sector based economy, the need for reforms that would increase the level of skills, the need for a new less carbon based energy policy, the need to make America more competitive and –in foreign policy– the need for vigilance against old and new threats, to be achieved also through rejuvenated alliances and coalitions of democracies, there are not that many more specifics that define a carefully crafted “McCain Plan”.

McCain’s basic political message is about a Moral Crusade that will restore the preeminence of the Public Interest. And McCain’s choice of Sarah Palin as running mate is a way to underscore this point. Whatever her moral conservative credentials that energized a dispirited Republican Christian wing, with this choice McCain wanted to create the “Maverick Team”. There is the lady from Alaska who rose to the top of her state’s politics mostly because of her record as the brave crusader against entrenched interests. She is portrayed as the classic anti corrupt establishment leader who will fight the good fight to restore confidence in a discredited political process by finally acting in the interest of the people.

So, Sarah Palin is a younger, female version of Senator McCain. By choosing her he also wanted to show that this ethical approach to politics is not just his own pet project but a real broad based plan that can have wide appeal across geography, demographics and gender. Of course, we now know that the appeal of the “Maverick Team”, significant after Palin came on stage, has waned. The initial questions about her thin credentials have turned into a broadly shared conclusion that, whatever her crusading record in Alaska, she is really not well qualified for high office.

Still, even assuming no questions about Palin’s resume, is this all there is in McCain’s message? Throw the rascals out and then do what is sensible by creating bipartisan coalitions in passing reforms such as immigration, energy and medical services?

Well, this stripped down approach that fundamentally says to America: “Trust me because I am moral and I have experience and I am pragmatic enough to find non partisan solutions for complex problems” is certainly not the joy of policy wonks who want to analyze complex platforms replete with multi-layered, interconnected policy solutions. This looks pretty thin, doesn’t it? Can this be the basis of an electoral program for someone who is running for the highest office in the most complex industrial democracy?

Well, yes; at least in principle it could be. It all depends on the quality of execution which rests on the (assumed) good instinct of a leader in terms of broad direction and the actual policy choices made under the guidance of his (assumed) ethical pragmatism. Let’s explain a little more. In American politics, with very few exceptions, complex political programs supported by ponderous policy briefs labored on by hundreds of experts in the end amount to not much, as these complex policy programs are soon disregarded, correctly judged to be impractical, unless substantially watered down and modified.

For example, who remembers that then candidate Bill Clinton centered his electoral message in 1992 on the need to craft a “National Economic Strategy” for America, a strategy to be fashioned following the (then winning) models of Japan (yes, Japan) and Germany? Well nobody remembers any of that, because the whole thing was quietly abandoned as soon as Clinton came into the White House. By the same token, Ronald Reagan’s pledge to abolish the Departments of Energy and Education, viewed by him as examples of unnecessary government meddling, went nowhere after he became president. Likewise, the partial implementation of Reagan’s agenda to shrink government and lower taxes led to the cutting of taxes without managing to achieve commensurate cuts in public spending, with the ensuing huge structural budget deficits that characterized his presidency. So, the frugal Republicans turned out to be the kings of the deficit and fiscal irresponsibility. Which is to say that Grand Plans, whatever their electoral appeal, do not work very well in America.

In this very fragmented, if not fractured, institutional system it is not easy to fashion strong and lasting coalitions that can lead to the implementation of radical change. In this inherently balkanized framework with multiple centers of power, the complete victory of one clearly defined ideological view point over another is next to impossible. And even when sweeping victories of one point of view occur, they are short lived. They are easily undone by a different coalition, usually within a short period of time.

Which is to say that, whatever the pristine visions offered to followers in the primaries and in the general election campaign may be, in the end there are not that many revolutions in American politics. On balance, the country is governed from the center, via non ideological compromise. Individual politicians may get attention by clamoring for radical positions on this or that (Congressman Tancredo: tough on immigration; Congressman Kusinich: end the war, impeach Bush), but the country is governed from the middle by people who, regardless of their political affiliations, agree on basic principles.

To the extent that a president is or appears to be strident and uncompromising on whatever issue, (think of George Bush) his leverage dwindles and, along with that, his popularity and his ability to present himself as the symbol of national unity. By the same token, a legislative branch guided by a majority with a strong, uncompromising program, will not go very far. The Republicans stunned Washington with their surprise victory in 1994 under the guidance of the extremely sophisticated and articulate Newt Ginrich. And that victory sprang from a platform of radical change. Well, despite some promising beginnings, the whole enterprise soon unraveled and Ginrich in the end resigned in defeat. Worse yet, the same Republican party that marched to victory in 1994, ten years later was a spent force with no distinguished leaders and a lot of corrupt members in jail; while it had completely abandoned its core principles of limited government, unleashing instead an era of unrestrained public spending.

Which is to say that McCain’s notion of a government of “good people” who would do “sensible things”, while thin on details, is frankly quite alright for America. If, in a centrist, non ideological, environment a New Leader would forcefully reinstate healthy principles of ethical behavior, fighting corruption and the influence of special interests, while pushing ahead sensible middle of the road reform, we could get a great deal more accomplished. So, John McCain, a seasoned Senator who has anti-special interest credentials, who is not an ideologue and who has a credible record as a maverick coalition builder should have a fair shot at the White House.

In principle, may be. But this is not the likely outcome of these elections. The country is frazzled and tired. The unfolding of the financial panic on top of an eeconomic downturn just weeks before the general elections have reinforced the idea that America now does not need someone with an “Ethical Government Plan” but someone with a “Rescue Me Plan”. Beyond the current tempest, the perception is that the troubles of the battered middle class spring from the mean spiritedness of the outgoing Republican president. While a maverick, John McCain is still a Republican and thus guilty by association of George Bush’ sins. Senator Barak Obama, the Democratic candidate promising fairness (translated into English: “more money to you”) to the exhausted middle class, has more direct, practical appeal than the candidate promising to fight corruption and special interests in order to restore the notion of government as selfless action in the name of the Public Good.

McCain’s promise of an ethical crusade may sound nice. But “money talks”. And when the distribution of aid, subsidies and help is also presented as ethical, as the need to reintroduce fairness, this is most likely a winning combination. Says McCain: “I shall do the right thing for you”. Says Obama: “I shall do the right thing for you; and, incidentally, here is the list of what I shall give you”. In these extremely difficult times, a vision of new ethical fairness accompanied by goodies is most likely preferable to new ethics without tangible presents.




Shirley Temple Goes to Washington

WASHINGTON– If we accept that the lines between the political process and entertainment have been blurred and that politicians attract and convince voters at least as much with their stage presence and delivery as with ideas and programs, then Governor Sarah Palin of Alaska is a naturally gifted actress/politician. She reminds me of an adult version of the little Shirley Temple: effervescent, determined and giggling; irreverent but always endearing.

Barack Obama, in his best moments, is inspiring and messianic. He really conjures up moving, beautiful new visions and he creates them both with words and tone of voice and pauses and facial expressions. But Obama has become flat recently. The charisma that he exuded as outsider has been lost after he became the official candidate. The stirring speeches are gone, replaced by a rather conventional nuts and bolts to do list. 

Well, for those who want inspiration, albeit of a different kind, here comes Governor Sarah Palin. Sarah Palin almost exploded on the national stage. She is a modern day, energizing, adult, Shirley Temple. Just like the little girl of the old movies, she is feisty and fresh, but always with an endearing grin. She is pretty, not beautiful. She has presence; but not of the Greta Garbo, dramatic kind. She appears believable, because of her high pitched, yet somehow sweet, honest voice. She is childlike, yet clearly mature. Just like the little Shirley, she is fearless and assertive; but her grin makes her endearing. So she is a rare combination of femininity and strength; while avoiding the trap of appearing unpleasantly arrogant or masculine.

If politics is theatre, a gifted actress has come on stage, thanks to imaginative impresario John McCain. Sarah Palin: comedienne and leading lady, young and articulate, funny and serious. Whatever the outcome of the elections, one thing appears certain: the Republicans needed some kind of elixir to make them enthusiastic about an election  they were almost resigned to concede. The young lady from Alaska, with contagious enthusiasm laced with humour, at least for now, has changed the mood of the party and maybe the dynamic of the whole campaign.

So, the comatose Republicans, once again, have become interesting; if not for “new ideas”, at least for new personalities. If this were enough, if these personal gifts for theatre and direct communication alone would be evidence of good leadership skills and vision for the future, Sarah Palin could be not just Vice President, but certainly President and who knows what else. The country will decide in the end if this perception is also reality.

As to whether politics should be theatre, well, this is an entirely different matter that I leave for another moment.




Absent from Denver: The Gobal Economy

WASHINGTON– A somewhat disturbing feature of the Denver Democratic Convention has been the absence of a serious, in depth debate on the shifting of economic power to Asia and of the depressing effect on American wages caused by the addition to the global labor force of hundreds of millions of eager and inexpensive Asian workes who can perform the same tasks at a much lower cost. 

This new competition from Asian cheap labor is the main source of the troubles of the squeezed American middle class. Rather rapidly, American workers had to realize that they could no longer get relatively high wages, as their competitors can perform the same tasks for a fraction of what a US worker is paid. But the Denver narrative was almost entirely focused on the need to correct lack of fairness and lack of attention to the problems of the middle and lower middle class in America, as if this were a self-contained American problem, created primarily by wrong headed Republican policies. The implication of this “domestic context approach” is that fiscal policies aimed at redistributing burdens and rewards are the main instruments to be used to fix this social injustice generated by misguided domestic policies. (Needless to say, there are important problems that are truly domestic: the financial recklessness that has contributed to the current housing crisis and the aburd cost of health care, to name just two egregious ones. But it is a mistake not to appreciate that the repricing of US labor, due to the Asian competition, has created a true systemic shift that cannot be fixed with a bit of adjustment and fine tuning).   

Failing to focus on the new role of Asia, the extremely powerful external economic factors that have affected America –with a devastating impact (especially on the manufacturing sector) were not closely examined. The accepted interpretation of the sources of the plight of the middle class went as follows. Millions of jobs were lost –it was said– under George Bush. As he is the steward of the economy, this must be his fault. (Anybody who knows better is aware that no President is in control of the economy; but in politics, unlike science, anything that has a ring of truth becomes the truth). Well, George Bush does have many faults, including improvident fiscal policies; but he did not create the Asian economic rebirth and the ensuing competition caused by cheap Asian labor. Sure enough, a new president can change approach. However, fiscal and social policies alone, however well intended, unless accompanied by a serious strategy aimed at creating new sectors in which America can outrank the competition, will not cause the structural changes we badly need to create new, competitive sectors.  

The fact is that the world balance of economic power has shifted to Asia. But this fact is absent from this campaign. All players continue to debate on the basis of the outdated assumption that America is still number one and thus what happens in America and to Americans is still mostly dependent on policies devised in Washington. Well, while America is still number one in many ways, Washington is no longer in total control. 

In Denver, (as elsewhere in this protracted campaign), absent a close examination of the rise of Asia and the damage that this phenomenon has inflicted on the least competitive sectors of the US economy, the whole discussion was focused mostly on the need to reintroduce fairness in a society managed until now by Republicans portrayed as disconnected from the general population. Fairness will be achieved by redistributing resources from those who have gotten too much during the pro-business years of George Bush to those who got only a few crumbs. Hence the long list of the needy and the assistance, aid and relief that will be provided to all who are struggling.

This may be fine and, to some extent at least, justified, as the needs are real and, in some instances, urgent. But the problem is that –whatever the merits of fairness or lack thereof– the whole debate failed to take into account that the main factor negatively affecting the welfare of the large US middle class is not to be found in the exaggerated profits of Exxon; but in the impact of hundreds of millions of new, reasonably skilled and cheap Asian workers who have entered the global jobs supply, thus taking away most of the functions that used to be performed in developed countries; while putting pressure on the salaries of those lucky enough to still have a job in the West. If certain skills are in abundant supply at a low price all over the world, it is hard for an American worker to obtain more money than the new competitors, while selling those same skills. Many US corporations, if confronted with increasing  labor costs, have the option of closing down and reopening in Asia. We all know this.

Yes, low wages paid to millions of reasonably competent factory workers in China and elsewhere do have a negative impact on wages in the US. If global labor cost are down, it is hard for US workers to be the exception, unless they are employed in extremely competitive, high value sectors not affected by what happens in lower value sectors. (There are some such instances of emerging high value sectors in America; but not enough. And this is the main problem that affects the real income of tens of millions of low skilled, low paid Americans. More on this later).

The downward pressure on wages for the average worker in the developed world is the least palatable effect of globalization for those in the West who are situated at the lower levels of the value chain. As a result, we have the relative impoverishment, or at least stagnation, of the middle and lower middle class. This is an issue with a clear economic origin but with obvious social and political consequences. These millions of Americans, squeezed by international competitors, are not doing well and thus are not happy. (The parallel housing crisis and high gasoline cost certainly do not help in brightening the picture). But what is much worse for them, as they look ahead, is that there is no new “grand strategy” that would help change the economic fundamentals –in terms of larger investments in new sectors accompanied by skills upgrades–and thus improve their condition any time soon.

The fact is that for the first time in modern history we Americans are not the most sophisticated low cost producers capable of invading weaker, less efficient markets and thus causing disruption in less sophisticated productive systems. We are –and we shall be for quite a few years— on the receiving end of the globalization revolution made possible by low cost Asian labor. In this new era the lower cost of others is disrupting us! For the time being, this is mostly because Chinese workers are cheaper, not necessarily better. Should they become better, as well as cheaper, this would add another layer of pressure on the US productive systems; and the US workers would be the first to feel the brunt of it.

But did we hear much about this in Denver? Not really. It would appear that the plight of US workers, real or a bit exaggerated as it may be, is entirely due to failed domestic policies; or, worse, policies that openly favor corporate interests at the expense of the millions of workers. So, as the cause of the problems is primarily domestic, we can devise a solution based on the reshuffling of domestic factors.

But this is wrong. The real underlying problem is the cataclysmic reallocation of labor and its negative consequences on the standard of living of US workers. A constructive way to cope with this transformation and the downward pressures that it has caused on the wages and thus standards of living of the US middle and lower middle class is to put forward and discuss the best plans aimed at upgrading skills and creating new competitive areas in the US economy. This is the only long term strategy that can provide a chance to regain competitiveness.

But the global economy and its imperatives were at best distant echoes in the Democratic Convention. We heard about all this suffering and ways in which the Federal Government in the hands of the well intentioned Democrats will take care of it. Of course, right before a national election taking place when the economic pie is shrinking, the temptation to use the zero sum logic is strong. And indeed this is what we have heard in Denver: “If many do not have enough, it is because the greedy and well connected few have gotten too much. So, the issue on the table is a necessary and radical redress”.

Unfortunately, while there is some merit to this position, it is fundamentally wrong. While issues of fairness should be discussed, it is a delusion to believe that, once properly addressed, the solutions devised will take care of the systemic deficiencies of significant segments of the US economy, due to loss of competitiveness in sectors invaded and conquered by lower cost producers from developing countries –China first and foremost.

Sure, we have to agree with the Democrats that there is something fundamentally wrong when those who manipulate capital, without adding much value in the process, collect ridiculously high fees for those services. Likewise, the disconnect between the quality of services rendered by corporate leaders and their compensation should be addressed. And certainly, a dispassionate conversation about what causes a growing gap between those on top and those below would  be useful. But only to the extent as this does not become an opportunity for airing conspiratorial or populist views, whereby the rich are all greedy crooks, and the not so well off are the hard working, honest people who have been betrayed by a Government corrupted by the lavish donations of corporations. Of course, there is some truth in all this. There is greed, and there is corruption and there are resources diverted to special interests serviced by large armies of Washington based lobbyists.

But the real picture is of America as a society progressively divided into two categories: those who actively participate as authoritative protagonists in the global economy, and thus reap its rewards; and those who are the victims of global change and who see their stakes diminished as a result of the worldwide reallocation of labor and, as a result, of its rewards.

The highly educated, savvy, competent Americans are doing well. The well managed global corporations have competitive technologies, skills and (at least in general) sophisticated upper management. This upper management created in the super universities, refined through intensive on the job training around the world and polished via MBAs in the elite schools is at home in a global economy where their business operates seamlessly in Chicago, Sao Paulo or Shanghai. The world is the oyster of the Wharton or Stanford graduates. MIT welcomes change, in facts it causes it –and so do Carnegie Mellon and Caltech and so on. And the educated elites who populate the R&D centers at Cisco Systems, Microsoft, Apple, Xerox, General Electric, United Technologies, Boeing and Johnson & Johnson, or the state of the art National Laboratories of Oak Ridge, Sandia, Lawrence Livermore and Los Alamos look at the future as new horizons full of exciting of possibilities, not as an unavoidable Asian tidal wave that will obliterate them.

And the cream of the crop within these corporate elites are the people who populate the recession proof Four Seasons Hotels around the world, those who shun the chaos of overcrowded airports as they fly with their “corporate barge”. They keep the luxury goods industry in business and certainly gasoline prices are not a major factor in the upkeep of their multiple luxury vehicles. Their children have the mathematical certainty of getting placed in one of the elite private schools, the springboards to get into the best universities and thereafter the good careers.

But everybody else, the worker bees of the American economy, those who do not make the changes but who are affected by the new competitive economy in which profit margins are thinner and thinner, are not doing so well. In the glorious past in which the US was the quintessential volume manufacturer, inundating markets with relatively cheap goods, the US worker, in steel mills, auto manufacturing or machinery, did reasonably well. Quality was good, competition modest, margins high. Thus management, (often pressured by labor unions much stronger than they are today) could afford to be generous. There was enough fat for all: shareholders and labor.

But all this is in the past. With the exception of those well equipped to participate in the globalized economy, all the others are still trying to comprehend what happened to them. Why is it that the good jobs are gone? Why is it that those that are still here pay comparatively less than before? Ho much more outsourcing can we expect? There is disquiet, anxiety, some anger and quite a bit of fear about a future that appears controlled by unknown forces. 

It is a complex situation, with many drivers. The main ones (related to the modernization of significant parts of the developing world) are totally beyond our control. Nonetheless, we need a new strategy that would require taking stock of a transformed world economy in order to determine how we reposition ourselves. Unfortunately, all this is complicated. It cannot be easily framed into a catchy campaign slogan. And, in any event, as the problems are huge and systemic, realistically there can only be long term viable solutions.

Hence, in a hot political seasons in which politicians have to give the appearance of having powers that in truth go beyond their reach, the temptation on their part is to bypass the real story of the impact of globalization and to assert that all the problems are domestic and that it is possible to go for the quick fix of redistributive politics as a way to finance assistance to the needy. (Of course there is more in the plans debated than just “taking from the rich and giving to the poor”. For example, a true reform of the health care system and all the waste and run away costs caused by the present setup has merit and it should be undertaken in any case, whatever the underlying economic circumstances).

But, while politically expedient, especially at a time in which the ranks of the worried needy have swollen, relief via taxation/redistribution will have only the important but limited effect of improving the short term economic conditions of many. Unfortunately, relief alone will do nothing to make the millions of marginally competitive or non competitive Americans better steeled to face the rest of the world. But this underlying reality is not discussed in the campaign as the real source of the current distress. And this is true for both parties, Republicans and Democrats.

On the Democrats’ side, the campaign rhetoric is about the masses of those who work hard and, at the end of the day, cannot get the commensurate rewards. Thus they feel cheated by “the system”. But here we have a fundamental misconception. In this conventional wisdom, it is assumed that “working hard” is the same as “working smart”. Whereas, while working hard and being diligent is very important, the kind of work that is performed, and how any type of work is ranked in terms of value within the new global context, is far more important.

This is why one should listen with some concern to the open ended promises of “getting back home those high paying manufacturing jobs”. The same jobs? Even though those same functions can be performed at a fraction of the US cost in China? This is dreamland.

By the same token, while something was said by Barak Obama about creating education opportunities for all, the way the issue was painted it would appear that the major obstacle to a good education and thus high paying jobs is the cost of education. Sure, obstacles to access are significant factors, especially in the US where there is a growing disconnect between the overall cost of living and the incredibly high cost of higher education. But, while access is very relevant, far more important (and not at all discussed) is the quality of education that is received through this laborious and expensive process. The real test of the value of this coveted and expensive education is whether or not it gives the student and future worker a real qualitative edge which, in turn, will allow him/her to be employed in companies that can command higher prices because of the superior and competitive quality of their products and services. And here we have a serious problem.

As I have already written, the quality of US secondary education is somewhere between mediocre and horrible. And, in most instances, those who receive horrible education tend to be the poor and the struggling. Being poor and uneducated is a life sentence to marginalization in a society that needs and rewards sophisticated skills. Unless, as a nation, we repair this huge deficiency, no matter what generous subsidy programs will be created in other areas, the education gap will stay there. As a result of this gap, we shall have an even larger chunk of our work force downgraded in terms of their earning potential, as their qualifications will be no better than those of comparable unskilled workers in Asia whose employers will win new business because their labor costs are lower. And people lacking competitive skills can work as hard as they want. They will compete for the scraps and they will be paid little, no matter what.

We did not hear much of this in the policy debates within the Democratic Convention. In part this is because any objective analysis of the disastrous failures of the secondary education system would have entailed a closer examination of the role of unionized teachers who happen to be staunch Democrats.

Of course, it would be nice to go back to the days when the US was by far the leading world economy, when Pittsburgh made all the steel and Hollywood produced all the movies; when General Motors had no competitors and the general public could openly laugh at those peculiar Japanese who in the 1960s were trying to sell their ridiculous little automobiles in America. In that era Americans with little education could be trained to be assembly line workers and take home a reasonably good pay.

But that era and that world is gone –for good. Of course, this does not mean that the whole of America lost its edge and has been left behind. While a large chunk of the old economy has been destroyed, some new sectors have emerged. It is America that has created the fundamental components of the new knowledge economy. The Internet came from America and so did the first PC and the first mass produced PC operating systems. The US productivity revolution of the 1990s has been due to the massive transformations in almost all sectors of the economy due to the adoption of information technology tools developed primarily in the US.

But this edge was not permanent. The development of information technologies was just the beginning of a process. While all this began in the US, it is now a global phenomenon. If the US gave the world the first rudimentary components of the Internet, a vast innovative process with many new international players ensued. Today, Korea has faster broadband than the US. Nowadays, the global economy allows me to have my PC examined via the internet by a Dell technician in Chennai, in the south of India. The internet may be originally American and Dell is a US company, but this job is performed in India. An Indian technician is the one who gets paid.

At a different level, the spreading of knowledge at least about basic manufacturing, gave an immense edge to Asia, as its armies of new, motivated workers could start making the same products at a fraction of our cost. These new dynamics –and not mean spirited Republican policies– are at the root of the displacement of millions of US workers. (The Republicans have their large share of responsibilities; but will get to these another time).

The ideal way forward is for all of us –as a nation– to acquire the worldliness of Henry Kissinger and the creative skills of Steve Jobs. Of course, this is impossible in the short run; but not impossible in absolute terms. Yet, be that as it may, any constructive way forward has to include an urgent and honest debate about the parallel deficiencies of our obsolete economic sectors and of our secondary education system. We need strategies leading to the substantial upgrading of the quality of our schools and what children learn. They are the future players in the global economy. Any team sent out there to compete without proper training will not achieve much. And, if this happens, the coach is rightfully blamed. If we want to win, we better look at who the coach is and what kind of training is given. If we say that we cannot get a better coach because we do not have enough  money to pay for talent, then we are really in trouble, as we shall keep losing.




Education is the New American Frontier

WASHINGTON – The main theme of the Democratic Party, as we approach the November elections, is economic justice. The Republicans gave too much to the rich. Too many poor people in America. Too many middle class families struggling. It is time to recreate some balance. Fine, we understand the picture and the rationale for change. The Republicans, in turn, do not have much to say. The somewhat feeble message is to go back to the frugal ways of the past: limited government, limited taxation, obtaining thus the magic of re-energized free enterprise.

While there is definitely more in the programs of both parties, they are both surprisingly myopic in as much as they fail to see the need to create human capital as the essential precondition for more wealth creation. To the Democrats we should say that the issue is no longer about the fairness in which the pie is sliced. No doubt, there is growing inequality in America. But the real story is not about the extravagant compensation packages of CEOs; but about America’s difficulty in growing the pie. With so much focus on economic and social inequalities, we are losing sight of the fact that the country has lost steam. For the last few years we have had bogus growth founded on delusions of wealth (the supposedly never ending real estate appreciation cash cow). People spent “found money” represented by growing equity in their homes that was not real. Now, even for the relatively prudent, the equity in their homes has been cut to size and the home equity lines of credit need to be paid pack. For the reckless, of course, it is a lot worse: foreclosure, bankruptcy and all that.

While the consequences of ill advised spending favored by the housing mirage are well known, the reality of America’s diminished wealth that was hidden underneath the spending frenzy is not in full sight and thus not fully analyzed. The fact is that, overall, as a country, we are not as wealthy as we used to be.

And to restart the engine of growth it will take more than lower taxes. This is why the Republican message is also disappointing. Sure, lower taxes, on balance, are better than higher taxes. But the issue before us is more than creating the proper macroeconomic environment that will stimulate new growth. Indeed, in order to have meaningful new growth, we need to understand that the drivers of growth have changed and thus we need to retool. And this retooling should not be impossible, as Americans are more inclined to undo and redo than most other nationalities. But the urgency to redo and retool has to sink in.

The urgency is due primarily to some of the effects of globalization. Globalization has brought into the mainstream hundreds of millions of new, relatively inexpensive workers. Like it or not, they compete with our workers. Assuming equal or comparable skills, they are more competitive because they are cheaper. This is the main driver fostering the migration of labor intensive industries to developing countries, China first and foremost, but also Vietnam, Bangladesh, the Philippines and all the others. This is systemic change. Those industries and all those jobs are gone. Tax incentives and other assorted bribes will not do much to counter this transformation.

And the fact is that we have seen only the beginning of this labor force realignment. As education standards improve in developing countries, new skills will be developed and thus better educated workers in Asia will take over other sectors, to the detriment of the skilled workforce of America. In the meantime those who are not swept away by this new current will see their income stagnate, for the obvious, if unpleasant, reason that their US employers will have to keep their cost low in order to compete with the newcomers.

The days in which American industries dominated the world are over. The days in which General Motors could negotiate generous benefits packages with the labor unions are over, because there are no longer any margins, no fat profits to be shared. Today, General Motors, aware of the financial weight caused by these stupendous costs, is trying to get out of the old arrangements in the hope of surviving.

So, once again, the main economic issue is not about fairness nor is it about fiscal incentives. The fundamental issue is about human capital, or lack thereof. Simply stated, America cannot and will not remain a first class economic power with a third rate education system. Until now the failures of American education have been masked by the surprising unevenness of the education scene. In America education is local and driven by local issues; not to mention that the rich can opt out of it altogether, sending their children to private schools. So, we have at least two types of education. One for the small elites which is good or even superior; and one for everybody else which is between mediocre and horrible. Until recently, the pipeline for the elites funneled the talent that would go and populate the super universities whose human crops could be harvested by the leading corporations. But the pipeline from private or high quality high schools to prestigious universities is too narrow these days to create and maintain an internationally competitive workforce strong enough to sustain the whole country.

The innovation produced at the top level no longer generates enough surplus to give buoyancy to the rest of a society –a society that may be hard working but that is unskilled and thus uncompetitive and for this reason poorly paid. And so we have at least two economies: the competitive sectors that thrive in the new globalized environment and those who suffer from globalization because they cannot adequately compete with the new comers from the emerging economies. If we ignore this fact: an increasingly uncompetitive workforce, we can try and twist this issue of the American economy in every way it would please politicians, but we shall not improve the underlying fundamentals.

Of course it is easy for Democratic contender Barak Obama, seeking the votes of the underprivileged and of a struggling middle class, to affirm that it is all about fairness and thus the need for redistribution of what appear to be excess profits going to very few at the top. So, a little bit of Robin Hood politics should do all some good. Some of the very rich may have to pay more taxes and, who knows, may have to give up their shares of the private jet. The poor will get a little relief. Indeed. For the millions who do indeed have immediate pocket book issues, relief is appealing.

On the other side of the divide, the idea of tax relief and disciplined public spending may appeal to struggling business people who would like to grow their activities.

But, yet again, the issue is no longer about the most appropriate fiscal or macroeconomic environment. The issue here is about the very foundation of a competitive knowledge economy and that foundation rests on superior human capital. Lacking such capital, we are in trouble. We are no longer on top. We struggle and, inevitably we shall fall behind. In this context fighting for deciding who gets what may be expedient in the short term. But, long term, it does not resolve the systemic problem of declining incomes due to a progressively uncompetitive workforce.

Even Karl Marx, if I may digress, postulated a successful socialist society on a prosperous economy. Socialism, let us not forget, was not about equality, it was about a (supposedly) more rational use of all economic assets to increase the general welfare. Socialism was not about socializing poverty. It was about socializing wealth. Such wealth must be produced and today it is all about brains and very little about muscle.

If this were not enough, the education gap in America is exacerbated by the race issue. Simply stated, in Black or Latino neighborhoods, the public schools are usually at the bottom in terms of quality. So, those who need the education ladder the most in order to extricate themselves from poverty, low paying jobs, marginalization and worse are those who are treated the worst.

If the middle class accountant is in trouble as his job may soon find its way to Bangalore, the poor inner city kid who goes to a dismally dysfunctional school has even fewer chances. He may drop out and thus be illiterate or semi-illiterate. Or he may get a diploma which in the real world is almost useless, given the low quality of education that he received.

In the past, Blacks were poor because they were openly discriminated against. No access to this or that. Today Blacks and Latino are more likely to stay poor because they are without access to quality education. A lower income uneducated person has next to zero chances to improve his/her lot. Thus the underclass will stay underclass. This is the immense unfairness of a society in which we would like to think that “Access” is our motto, as everybody should have a chance. No, a ghetto kid is trapped by the circumstances of his birth. Very much like a poor person in a third world village, for him/her birth is destiny. Politicians may come along promising aid and relief. But, unless this relief comes in the form of meaningful education, it is not worth much.

If the situation and the chances of those at the very bottom of the American society is truly dire, for most of the others the prospects are not that rosy either. They will have to compete with equally educated and very eager Asians. Unless their skills improve substantially, everything else being equal, lower labor cost will prevail. Of course, eventually this cost advantage will be eroded. But this is many years in the future. In the meantime we have to appreciate the new competitive environment and retool accordingly by creating a first class workforce that will work in the high value industries of tomorrow.

For the time being, the educated elites are doing reasonably well. In the ocean liner Globalization they have the education, the skills, the knowledge and thus the first class arrangements. They run the competitive, innovative industries. They get to export to the emerging markets. They benefit from trade.

But the second and third class uneducated passengers, upon arrival, do not have the chance to improve their lot through hard work and ingenuity. They are cheap, unskilled labor, competing with illegal immigrants at home and new workers abroad. We need someone to go down to the third class with lots of books and a lot of energy. With proper training, when we get to port, the third class passengers –who happen to be mostly our minorities– may have a chance.

This is what the current political debate should be about: how to give proper education to all, so that, as a society we may stay internationally competitive and prosper. Either we get new skills for all or those who are left behind or we shall be progressively poorer. Not a good future for this Land of Opportunity.




America: Still Unserious about Energy

WASHINGTON – Amazingly enough, to this day, America does not have an energy policy even minimally related to the extraordinary crisis the country is facing. The growing global demand for oil, combined with rapidly dwindling resources at home, accompanied by completely unrestrained domestic consumption have caused a serious strategic dependence on foreign supplies; while the cost of imports –due to the higher crude prices– grows daily up to impossible levels.

This predicament is well known. And yet nobody has proclaimed that this is a national emergency requiring extraordinary action. Oil has gone from forty dollars to seventy and than doubled again in no time. So, here we are. America is still by far the world largest consumer. And yet, in a time of conflict and in a time of huge balance of payment deficits, (despite the unhappiness about high gasoline prices), we merrily continue to behave more or less in the same way as if we had a lot of cheap oil, produced in the US. Sure enough, gasoline at four dollars plus a gallon is going to force habits changes, including the types of cars that many people will choose. And this is better than nothing.

Still, we are in the midst of a presidential campaign and energy issues are featured only in a superficial, emotional way. At best, there is a search for culprits, not for solutions. Prices are too high? Well, it is the speculators, or the oil companies, or Bush and Cheney and their big oil friends. Or it is the war in Iraq, or whatever.

And the remedies proposed? From the left we hear that we should provide relief to the poor by taxing the rich and/or the oil companies and their scandalous profits. This way the burden of higher costs will be more equally shared.

The pro-growth crowd has a different but equally inane solution. Let’s drill some more at home; so that we’ll get our own oil. This idea fuels the totally mistaken fantasy that there are substantial reserves still to be exploited. If we only tried, we could get out of this mess. But it is not so. While there is more oil to be extracted at home, unless some truly gigantic new fields are discovered, new extraction would make a very small strategic difference, if anything delaying a bit the inevitable reckoning.

Given our present and projected needs, what we produce (currently about 35 per cent of our consumption), or can realistically produce, is woefully insufficient. Besides, regardless of current production, our known domestic reserves are dwindling fast, indicating even lower production in the years to come. Essentially, we have almost run out of our oil. Half a million extra barrels, or even a million or two added to daily production, even assuming that they existed, would not rebalance the long term supply needs.

And yet, despite these realities, the silly debate about drilling or not drilling some more received an inordinate amount of space, as if were a real discussion about meaningful strategic alternatives. As we continue to argue about these short term, myopic political proposals emerging now from a political campaign acquiring dangerously populist tones, we shall not get very far in creating real alternatives. We have now mostly non strategic approaches to a strategic crisis.

In order to change things, first of all, the tone has to change from emotional to serious. For the moment, while there is visible agitation and malcontent about high energy prices, this is still regarded as a major annoyance, not as a national emergency, indicating a major historic challenge.  Americans need to be told by their current and would be leaders that this country simply cannot continue to be a major economic and military power, being almost completely dependent on energy whose reliable supply it cannot guarantee; while its cost is becoming unbearably high. 

The reality that should be communicated is that, as a minimum, we need to do –right now–two very difficult things at the same time. Consumption needs to be massively curtailed; while the nation needs to embark in an all out effort to develop new technologies that will allow us to dimish and hopefully stop our dependence on oil. Consumption needs to be cut now. A dedicated effort at creating alternatives is more uncertain in terms of results, but it is likely to pay off.

The US economy is now at a historically high risk of being strangulated by any sudden supply disruption; while the cost of the oil bill at these prices is becoming too burdensome for an economy already crushed by a huge trade and balance of payment deficit. Of course, cutting consumption will have to be done in stages, so that we do not destroy the economy. But the message to be delivered is that we must do this as quickly as possible. Using less oil clearly is not a long term strategy. It is a temporary stop gap measure in the same way as cutting spending is a good policy when you are facing bankruptcy. It is not a real strategic plan; but it may create the breathing room to craft one.

But we hear nothing from the leadership of the nation about the need for drastic consumption cuts. Sure enough, current market prices will go a long way in dictating a new behavior that will result in lower consumption. But what is missing here is a serious political and policy consensus, a consensus that should provide guidance, thus helping the people define the situation and its true gravity. There is no coherent, clear message, no attempt to place the higher prices and dependance issues within their appropriate context.

Nobody from the top says to the public:

“Given all this, you have to change your habits today. Stop driving, unless it is truly necessary. Use public transport. If you must drive, ditch the SUVs and all other high consumption cars and switch now to smaller cars, including whatever is available now in the category of hybrids. Indeed, in order to impress upon you that this is a priority, we, the US Government, are going to tax high consumption vehicles and offer tax relief to all those who purchase smaller, low consumption cars. And we are going to introduce this new regime right now. If you thought of spending extra money to take a vacation this year and switch cars next year, revise your priorities. Forget about leisure. Spend the money to switch to a lower consumption vehicle now!”

By making these changes, collectively Americans could start cutting consumption today, without intolerable restrictions. It would take time. Yet just by choosing, as a nation, to drive less, while switching to more efficient compact cars, we could save millions of barrels a day. This would be significantly more than any added output coming from Alaska, should that reservoir ever come to be exploited. Of course, this would take a few years. But precisely because it is going to take time, we should start now. And it would take less time to achieve results if the public and industry received a clear message with clear policy guidance from the government.

As for positive action aimed at finding alternatives, sure enough there is activity, and these oil prices will provide significant new incentives. But again, we hear nothing from the top. Modest policy initiatives aimed at enhancing efforts here and there do not convey a political message of urgency. We spend billions every month in Iraq. Rightly or wrongly, just looking at budgets, Iraq is a policy priority. Looking at public resources expended, finding new energy sources may be considered important, but it is not a national priority.

Senator John McCain, the Republican candidate for the White House, just proposed a national competition with a 300 miilion dollar  prize to whoever would come up with a substantially improved battery that could fuel future electric cars. While this may be a good idea, he did not unveil a new Manhattan Project. 300 Million may sounds like a lot of money. But it is not really such a large sum for whoever may come up with an invention that could potentially transform the whole automotive sector worldwide. And McCain, in explaining his proposal, said that it would be only one dollar per US citizen. Not a major sacrifice –he said– for something so important. Indeed. But this is exactly what is wrong. This soft approach encourages the wishful thinking that somehow there is some kind of clever, cheap, painless way out of this.

Of course, there could be incredible technological breakthroughs just around the corner. This is possible. But, so far, we have dependence and historically high prices with no alternative in sight; while the country is involved in conflicts in the Middle East, the region of the world that holds the most significant oil reserves.

Those who propose increased domestic production affirm that America’s determination to augment supply would send a message to the markets about future declines in US demand and that this would stabilize future prices. Well, theoretically this might be true; but only assuming really huge increases to total supply resulting from massive new US extraction. A little bit more here and there, while useful, would do nothing to change the larger picture.

Whereas a credible national policy to start cutting consumption today would have an impact. America being the largest consumer, the aggregate effect of behavioral change on the part of millions as a matter of long term choices dictated by policy would send a message to the oil markets. Just by switching, as a nation, to smaller cars we could achieve lower consumption. In a few years this could amount to millions of barrels a day. Again, this is not a solution; but it would create some slack, by diminishing the tightness of this energy market.

In the meantime, it is going to take a great deal more than a glorified high school science project prize to transform our energy economy. The 300 million proposed by Senator McCain certainly beats the paltry initiatives of the Bush administration; but it is not that much for the world’s largest economy, spending now billions of dollars every month to finance the war in Iraq. America still has enormous resources. It is time that they are mobilized in order to safeguard, in fact to renew, our economic viability and chance to be meaningful participants in the future global economy.

But if the leadership does not communicate a real sense of urgency, more time will be wasted. In this as in other historic challenges inaction has a price. Beyond a certain point, there may be such a thing as being too late.