America: Still No Energy Policy

WASHINGTON – A small news item in the briefs section of The Wall street Journal (Environment – Fuel-Efficient Auto Sales Up, Saturday-Sunday November 21-22, 2009), might give the impression that, regardless of the tiny space allocated, this is good news, an indicator of the kinds of shifts that we would like to see: such as consumers moving away from high consumption cars and buying fuel efficient vehicles. But it is not so. Even in this diminutive news item, the title is misleading, for the actual information indicates that the average consumption of the 2009 auto purchases is 21.1 miles per gallon, while the 2008 average was 21 miles per gallon. So, while technically this is an improvement, in truth it is a ridiculously small improvement, so much so that the news is relegated to a little blurb, even though with in an inappropriately upbeat title.

Fuel efficiency?

And so, what is the big deal about this? Well, the big deal is that after a cosmic upheaval in oil prices and an economic crisis branded as the worst of the worst, while America, recession notwithstanding, continues to spend staggering amounts to import about 60 per cent of our oil, when we look at the actual sales of motor vehicles, puny as they may be, in this ravaged landscape, nothing has changed in terms of consumer predilections.

Whatever cars Americans do buy, they buy the same stuff they used to buy. OK, maybe one should not read too much into this. Maybe we should take into account the fact that in a severely depressed market like this one, with an epic collapse of auto sales, the people who actually buy are the better off and thus less concerned with fuel efficiency, because they have the money to pay for gasoline, whatever the price.

But, even assuming that this is so, this is still truly bad news. What this means is that people have understood nothing about the need to radically transform the foundation of an economy that used to be based on cheap carbon and migrate as quickly as possible to other forms of energy; and that, while the path to a new green economy is long and complicated, a sensible intermediate step is to diminish consumption of the very expensive oil that we do not produce and have to import –something that can be achieved by choosing to purchase more fuel efficient vehicles, for the time being.

No energy policy and no compelling message

Well, no. We are not doing it. We buy fewer cars because we are in debt and have no money. But those of us who have the cash, well, we do exactly as before. Because a new mind set has yet to emerge and become the new standard. 

But if this so, then the whole national debate about energy, its staggering cost, the national security implications of this enormous dependence on imported oil, the threat of climate change, the promises of proliferating green technologies and so on, have not made much of a dent. When choosing to buy a new car, people buy what they used to buy before.

And this not because all these things have not been said. The issue is not about “saying” it. It is really about emphasis, making all this a national priority. It is about conveying to the public a real sense of urgency. There is no doubt that the Obama administration has said all the right words about energy conservation, about pushing renewable sources and about gearing up for the big changes necessary to face climate change threats. But it also true that this is clearly not a top national priority. It is all in there, within the laundry list. But not in a particularly prominent place.

Health care is the political priority

Broadly speaking, the Obama administration reacted swiftly on economic emergency issues. But then, when it came to political action, as opposed to reaction, it consciously chose to invest heavily on social policy issues, pushing strongly for health care reform. So, we did the emergency and quite expensive stuff for the economy (bailouts, tons of cash to banks); but then, when it came to setting a new  political agenda, Obama prioritized health care reform as administration policy item number one.

Now, there is merit in modernizing health care, even though I seriously doubt that, whatever the outcome, this reform will work as advertised, except for covering millions of people regrettably outside of the system. Whatever the outcome, the notion that we can cover more people, give choice, improve care and spend less in the aggregate is another Washington myth that many may desperately want to believe; but that will prove to be an impossibility, because it relies on too many pieces, including increased taxes and lower payments into the Medicare system, falling right into place at the right time. Inevitably, policy makers will discover at some point that certain savings will not be achieved and that certain costs were not accurately calculated. The bottom line is that, reform notwithstanding, the system is fatally geared to generate cost increases. The only way to seriously contain cost is to limit service and this called “rationed care”, whatever the euphemism that may be devised some years down the line to justify it as sensible and scientifically sound.

We missed a whole year

But, whatever the long term consequences of health care, and no matter what ridiculous claims are made now regarding the certain, positive impact on the economy of a more equitable and more efficient health care system, the truth is that the Obama administration during its first year in office has invested most of its political capital on a social issue, while it has done almost nothing to seriously push America towards the new frontier of a new, more modern, technologically advanced post carbon economy, as an integral part of the economic renewal strategy that we desperately need. And this may prove to be a real mistake. A more equitable health system is a good thing to have. But when the country is half bankrupt, with no new strategy on the horizon, while competitiveness lags, long term what good does it do to the average citizen to have a more inclusive health system that may not be affordable?

Serious energy policies will have to wait

As I said, if you look at the overall picture, administration officials can say that it is not so, that, regarding the push to a green economy, “it is all in there”. And in fact it is. But it is literally pocket change. A little bit of money to support this and that. The right words said here and there. But nothing that resembles “A Plan”. Nothing that would even remotely convey to America the conviction that it is indeed urgent and of vital importance to revitalize the foundations of an economy now geared towards decline, or, at the very least, stagnation; and that a strong push towards renewable energy technologies is one of the key ingredients to establish the basis for future success.

Other priorities

Of course, at the very beginning of 2009, we had to deal with the financial crisis. And nobody faults President Obama for having neglected it. Federal aid was delivered, and in massive amounts. We have avoided the sinking of the SS United States. But the hull is full of holes, the engine room is damaged and the crew is despondent. We are afloat; and this is good; when utter disaster seemed to be a plausible scenario.

But instead of sailing into the closest shipyard and deciding to spend all we’ve got on a fundamental overhaul, we put a few patches here and there and decided that, for morale purposes, we wanted to give a salary increase to the crew and presents to all the scared passengers.

This may look kind hearted in the short term. But, in the long term this does nothing to get us the super fast liner that we used to have and that we now need more than ever to stay in the race, never mind keeping our cherished world speed record. (If you were wondering, there was indeed an SS United States. It was the most wonderful liner of the age and it still holds the world speed record. You may still look at it, a sad looking rust bucket moored in Philadelphia).

Obama: social issues first

Of course, governing is a tough balancing act, as there are always a number of totally legitimate priorities competing for scarce resources. President Obama, elected in large part on a message of more equitable redistribution of resources, made the expansion of health care coverage his main political and policy priority for year one. As America is the only developed democracy that leaves out of the system more than 15% of its citizens, this policy choice is not without merit, even though its purported magic impact, that is the miracle of giving more to everybody while paying less for it, is tragically misrepresented and oversold.

There is such a thing as being too late

But, in so doing, “the opportunity cost” of focusing on health care is that we have wasted another year doing almost nothing truly worthwhile on renewable energy and the broader revitalization of the economy. (The take over of General Motors, while it may prove to be beneficial, was an ad hoc measure inspired by social and political concerns. It was not a clear move within a clearly articulated economic strategy). Not only we have not set a new course; but, pitifully, we have not even been able to convince the few Americans who have the money to buy a new car to select a more fuel efficient model. And so:  no policy, no guidance, no effective public policy education.

Let’s hope that we can do better in 2010. Without exaggerating the importance of the economic decline clearly underway, after a certain point, there is such a thing as being too late.

How to Win in Afghanistan

“But we must never forget: This [war in Afghanistan] is not a war of choice. This is a war of necessity. Those who attacked America on 9/11 are plotting to do so again. If left unchecked, the Taliban insurgency will mean an even larger safe haven from which al Qaeda would plot to kill more Americans. So this is not only a war worth fighting. This is fundamental to the defense of our people”

US President Barack Obama, August 17, 2009 


WASHINGTON – So, president Obama proclaimed at the same time the will to fight and moral superiority by declaring that the fight in Afghanistan is not a matter of predilection; but the “only” choice for the United States, forced on America by historic necessity . Literally, according to this narrative, this war has been imposed on us, always reluctant warriors, by an implacable enemy bent on destroying the US. More broadly, Afghanistan is the “Good War”, as opposed to the invasion of Iraq, the “Bad War” nonsensically waged by George Bush, the president called at times “delusional” by many of his political opponents.The Good War


So, Bush did the bad stuff. We are going to do the good stuff, the righteous stuff which is about the real enemy: the jihadists ensconced in the mountains of Afghanistan and Pakistan.So, let’s make it clear to the world –says the President– that our motives are unimpeachable. We “have to fight” the Taliban and al-Qaeda, because they are plotting more nefarious acts against America from those mountains between Afghanistan and Pakistan. 


Crucial for US national security


 Based on how the President framed the issue, it also clear that this conflict is only marginally about the suffering of the war ravaged people in the region. This is about America’s national security.  While we may feel something for the plight of peoples subject to the brutality of the Taliban, quite frankly, if this were just an internal problem among tribes, with no real or potential international repercussions, such as another 9/11 plot, we would say a few pious things, exhort the parties to cease violence and then carry on with ordinary business.


But the President has declared that there is a thread that links Osama bin Laden, his followers, the Taliban and other assorted followers to an ongoing plot against America. And since the plotters have taken residence in that part of the world, we have to engage in this “war of necessity” until we shall dismantled the whole enterprise, so that it can longer cause us any harm.


War of Necessity?


Now, why would the President make such a huge, upfront commitment without anything whatsoever prompting him is unclear. Is it because, as some have suggested, that by declaring Afghanistan a “war of necessity” America automatically gains and gets to keep the moral high ground? So that the President can say to the American public and to the world: “What can I say, we did not want to do this. But, quite clearly it is a war of necessity. We had no choice?” This may be nice, if it were plausible and even remotely credible –let alone true. This one, as most other wars, is a war of choice. While it is true that al-Qaeda does represent an ongoing threat to America’s security and interests worldwide, a huge military commitment in Afghanistan is by no means the only possible option.


Why say this at all?


Again, why did the President make such a sweeping, upfront commitment is difficult to understand. And frankly, it is even more difficult to understand in the light of more recent developments in October and November that reveal a potential case of “cold feet” about this “war of necessity”. The US Government has been engaged in a reassessment process, so lengthy now to indicate possible vacillation and some degree of ambivalence.


After the clear “call to arms”, there has been an inordinately long period of evaluation aimed at determining the most appropriate course of action, while a diverse menu of strategies and war plans, along with media leaks as to who is in favor of this and against that, have been presented. All in all this created the impression that the issue is not just about “how” to run the operation; but –far worse–  confusion as to the real strategic objective.


Why we cannot win


Let’s cut to the chase: the war in Afghanistan cannot be won within the most likely political constraints that will tie down any US administration. And this is different from stating that this war is not winnable as a matter of principle. It is not winnable because the President does not have a free hand. He does not have unlimited time and resources to conduct the fight.


Just like Rome, America does not have unlimited resources


This war cannot be won for the same reasons why the late Roman Emperors could not indefinitely fight and hold back the Barbarians that were making more and more incursions into the Empire. Rome was exhausted. Up to a point it retained the advantage of disciplined, first class soldiers and superior technology, (by the standards of the time). What it did not have was infinite resources and the staying power of continuing the fight for ever, no matter what. And so, eventually the Barbarians burst through and destroyed a once mighty civilization.


Impossible to rebuild Afghanistan within a limited time 


Now, where is the analogy, as the Taliban are not in Canada, trying to invade America? The analogy is in the lack of resources and lack of staying power. A serious counterinsurgency in Afghanistan would require flooding the country with troops and calculating that it might take at least 10 or 15 years, perhaps longer, not just to fight the Taliban but to build a society with all its institutions, laws, legitimacy and a sustainable economy so that the Afghans would have a country to fight for and the instruments to do so. And the simple fact is that America has neither the stomach for such a lengthy and costly enterprise nor the money to finance it. Period. To think otherwise is engaging in dangerous fantasies.


Impossible to bring about “reform”


To envisage a shorter time line for the accomplishment of the administration goals is fanciful. As it is fanciful to admonish newly reelected, (by default), President Hamid Karzai  to get his act together, stop corruption and sweet deals with the War Lords. This is like imagining a talk with Gang Leaders in Los Angeles, telling them that if they shape up, then we may pardon them and offer them an appropriate place in society. Try that, and see what enthusiastic response you get.


Governance constraints will stay


And this is not to imply that President Karzai is a gangster. He is not. He is the closest thing to the best leader that a primitive, tribal, extremely poor, under resourced society can offer. But he is what he is: and that is not particularly good. By the same token, the idea that, before we could make a final decision on an Afghan policy we had to wait for the elections results would imply that the results of elections conducted in such a place with that low level of literacy, of voter knowledge and sophistication would really make a difference.


OK. Let’s be real. These days, who governs in Kabul makes a small difference. Sure, there can be different degrees of incompetence and corruption. But the underlying reality is of a horribly poor and mostly primitive medieval society, with a thin veneer of educated people and a mostly illiterate population with almost no economic prospects.


Afghanistan cannot be transformed within a reasonable time


And we want to “fix” this country as a way to win the war against the Taliban? As I said, given unlimited resources, stomach for human losses and a large amount of money, it may be doable. But we know that none of these preconditions exist. And let me stress that the last pre-condition  –money—is and will be a more and more pressing issue, given America’s fiscal predicament. America is deeply in debt. If we are serious about reducing it, we shall need to overhaul welfare spending, most likely reducing benefits to millions.


Difficult to justify the war in America


And we think that we can cut funds to seniors and at the same time justify billions for a war that, 9/11 notwithstanding, is really remote from the daily preoccupations of ordinary people? Impossible. And beyond this huge obstacle, let us keep in mind that, even if the war were fully funded, the impatient American public will want to see results and the troops back home by Christmas, as they always do.


Long, protracted efforts, with each individual casualty announced every day in the newscasts are not popular, even if the President tried to inoculate himself from criticism by declaring this “a war of necessity”. He may have said it. What others actually believe will be an entirely different matter.


So, let us agree that whatever the president and his national security team may have in mind, assuming that it is predicated on more troops and a protracted commitment, will not work.


What is the alternative?


So, what can work? Something that starts with the recognition that the power centers in Afghanistan are in the local communities, with the War Lords and other tribal leaders who have authority with the local people. Forget about Kabul. Try and get some deals with the War Lords and other local leaders. Give them tools, money, resources to make their people at least somewhat better off and find ways to reconcile differences among them in order to minimize the danger of civil war. If the deal for the average villager is a choice between a powerful Taliban versus the discredited authority of a distant Kabul, the Taliban have an inherent advantage, because they “are there”; whereas the central government is distant, mostly incompetent and corrupt.


Realistic targets


With this we give up any delusion to try and build a modern, democratic Afghanistan with a reasonably well function central government within a few years. And this is not out of cynicism; but out of realism. Afghanistan may eventually become a modern state. But this is an extremely ambitious objective, given the actual conditions on the ground, the lack of education, of resources and economic prospects.


The 2001 approach worked


As for the possible success of a “minimalist” approach, let us not forget that the 2001 campaign against the Taliban was successfully engineered and conducted following a very similar strategy manned by only a handful of skilled CIA operatives, a sprinkle of Special Forces and –most of all—suitcases full of cash liberally distributed in order to gain the friendship of otherwise reluctant partners. True, there were targeted US bombings of Taliban positions and large amounts of equipment also dropped from the air.


But fundamentally this was a low profile, extremely low cost operation that did the job. The CIA had nurtured friendships in Afghanistan well before 9/11. It had gained credibility with relevant Afghan counterparts and it convinced people to fight. This strategy created a coalition, fragile as it was, that routed the Taliban. This was a stunning success. (It is unfortunate that the image of the CIA has been subsequently tarnished when it became the scapegoat for the horrible Iraq WMD intelligence debacle. The operation in Afghanistan was brilliant).


Nation building on the cheap does not work


But then, after the defeat of the Taliban, we got involved in our own silly ideas of nation building –with no “real” money. So, we wanted to do big infrastructure projects, reconstruction, schools for girls, at the same time creating a viable central government. And all this was done poorly, halfheartedly, relying on incompetent consultants and with very little money.


I remember, in the months preceding the war in Iraq, Afghan officials coming to Washington, pleading, almost begging not to be abandoned. And we did abandon them, for all practical purposes. Of course, the main reason was that the Bush administration thought most superficially that Afghanistan was fixed, that it could subcontracted to the NATO Alliance and other assorted friends, while America was gearing up to the serious stuff: the take over of Iraq.


Afghanistan was forgotten


And we know the rest. The half baked Afghanistan operation was put aside, and it slowly started simmering and stewing. Over time, the growing mix of confusion and bad governance gave a new opening to the Taliban. Relying also on sanctuary in Pakistan, the Taliban had the opportunity to regroup and to exploit a reasonably fertile recruiting ground, given the many poor and disaffected Afghans who felt no loyalty for a new government that delivered almost nothing to them. So the CIA strategy of making friends and staying with them was abandoned.


Nation building, once more?


And now, at the end of 2009, after the abysmal failure of the nation building strategy in a country that is most inhospitable to the whole idea, we want to try this all over? It simply will not work. Not, as I said before, because it is inherently impossible, but because neither this President –nor any other US President for that matter– can retain the necessary political support to carry it out. Besides, let me repeat it: we are broke. Fighting a messy counterinsurgency that will costs billions is a luxury that nowadays we cannot afford –even if we put “war of necessity” on the invoice to the American public.



In the end: we can accomplish our goals


And so, if we cannot do the Big Plan, what we can we do in order to accomplish our primary objective of denying sanctuary to the Taliban? The goal of the Obama administration is to defang and rout the Taliban and al-Qaeda. This is a very good idea. The issue is what means can we pick to reach or at least to get closer to this worthwhile strategic objective. In 2001 the CIA found a low profile, relatively low cost strategy that proved to be quite successful.


I am not sure that we can pick the same old plan from the shelf and redo it all over. Too many things have happened since 2001. But it may be possible to re-engage the tribal leaders, to give them assistance, real tools, money and resources so that they will be motivated to defend their own people from the Taliban. We want to deny sanctuary to the Taliban in Afghanistan, so that it cannot be used as a launching pad for other operations against US interests. The tribal leaders can accomplish this objective, if they are sufficiently motivated. The plan of creating a viable, credible and popularly supported Afghan army and police force, themselves predicate on building up a credible and functioning central government, while theoretically possible, is far more difficult.


More modest goals  


So are we giving up on nation building and true democracy in Afghanistan? Yes, we are. At least for the time being. And not because we do not care. It is because it is too difficult and too onerous. Because it would take too long and because we cannot afford it. Is this cynical realism? It is realism alright. But not cynical.


And again, what is the alternative? The alternative is a dream of radical reform that would require a US open ended commitment that cannot be sustained. Reforming countries, rebuilding societies, all this sounds wonderful and surely there are plenty of dedicated people willing to throw themselves into the enterprise. But good will alone will not do it. In a context as complicated and as primitive as Afghanistan, we have to scale down our reformist ambitions.  If indeed the primary goal is to deny sanctuary and thus the ability to reorganize to the Taliban, there may other ways, as the successful 2001 campaign demonstrated.


US Foreign Policy in The Age of Penury

By Paolo von Schirach

August 29, 2009

WASHINGTON – Afghanistan is a huge mess. According to most informed experts, America, after its successful 2001 campaign that ousted the Taliban government, wasted more than six years doing almost nothing constructive over there; thus allowing the situation in a country terribly poor, terribly under resourced and chronically disorganized to fester and progressively deteriorate into real chaos. Opposition forces, Taliban and non Taliban, regrouped and became more aggressive. War Lords resurfaced. The opium cultivation and trade flourishes. The weak central government in Kabul lost control of at least forty per cent of the territory. Now, the resurgent Taliban and affiliates dominate in various provinces.

US-led reconstruction efforts have been misguided, poorly directed, and, on balance, ineffective in “winning hearts and minds”. The most recent Afghan presidential elections have been a messy affair. Whoever will win, the victory will appear suspect, given massive fraud, low turn out and the violence and intimidation that successfully prevented many people from voting in several provinces.

Of course, there is now a new US strategy, a renewed effort led by a credible counterinsurgency professional, General Stanley McChrystal, while former UN Ambassador Richard Holbrooke is now a high profile special envoy to the region. And finally, President Barack Obama himself clearly indicated in policy speeches that America will not let go.

More troops have been deployed to Afghanistan, with more to come. The civilian side of the operation will also be both radically overhauled and enhanced. USAID is now engaged in massive recruiting, in order to have a “civilian surge” that will add badly needed expertise on the ground.

So, can America finally get it right and “fix Afghanistan”? Well, the intention appears to be there. Actions have been taken and they seem credible –for now. So, reviewing these policy shifts, can we say that now, finally, everything is under control? Can we safely blame the Bush administration for these years of almost criminal neglect that allowed such a dangerous deterioration at every level?

Yes and no. It is a tricky situation. While the will may be there, in plain language there is no real money to pay for any of this. More broadly,  Afghanistan will give us the measure of America’s ability to conduct a major, multi-faceted international security and reconstruction effort in this new and in many ways unprecedented era of deep fiscal distress. All we are doing or planning to do in Afghanistan will have to rely on borrowed funds, just as most other governmental operations. Is this sustainable? And, if so, for how long? Of course, there is nothing new in financing a war through public debt. What is new here is that we are financing “everything” through debt and thus foreign military operations may soon be viewed as luxuries that we can no longer afford.

Regarding Afghanistan, the willingness to carry on seems to be there. But America’s long term staying power is another matter altogether, as it is contingent on two resources: one uncertain (will) and the other (cash) in short supply. The first one is subjective. It has to do with the actual resolve and willingness to see this through. Bloody counterinsurgency in a primitive and instinctively hostile country is difficult business any day. “Victory”, even in the most modest definition of the term, will require several years. While experts declare confidently that America’s resolve will carry into 2010, as Obama and the Democratic Party will need to show a united front on this “war of necessity” before the mid-term elections, it is quite obvious that we need a lot more than one year to fix this. Will the political resolve last beyond November 2010? Who knows….

And political resolve in front of uncertainty and mounting casualties will be affected by the other issue not at all directly connected to the war effort but very likely to affect it and indeed determine its long term viability. And the issue is financial resources –or lack thereof.

To put it simply: will the continuing US fiscal crisis –that is our huge and growing public debt– dampen America’s ability to conduct protracted foreign operations –operations that, important as they may be, have not been presented as existential threats?

At some point, when there is no money, something has to fall off the table. Foreign policy interests, and Afghanistan is a key one right now, are vulnerable; unless, as I said above, there is a consensus that this war is of vital importance to America’s survival. Of course, the Obama administration has correctly pointed out that a resurgent Taliban may once again offer sanctuary to Islamic fundamentalists who may use this base as a training ground and as a launching pad for more attacks against the US –just like 9/11. But, although the 2001 connection between the Taliban, Osama bin Laden and the Twin Towers is established; it is also getting old and, in the case of many people, probably stale if not altogether forgotten. So, a “Beware of another 9/11” war cry may not stiffen many spines at a time in which public opinion and law makers are concerned with foreclosures, unemployment and cuts in basic domestic services.

So, the question is: beyond the mid-term elections of 2010, will this administration have the ability to carry public opinion behind a war that is going to be long, bloody and costly; while America has to deal with this immense fiscal hole? The optimists assert that the cost of the war effort in Afghanistan, in dollar terms, amounts almost to a small rounding error, if compared to the size of the overall budget deficit. They say that, being in the hole for a trillion and a half or for a trillion and 600 billion are not that different; and so lack of money should not constitute an impediment to continuing operations. This may very well be true in the short term. This is a very fluid environment in which the Democrats solidly control power; while the Republican opposition is disorganized and unfocused and certainly at this point reluctant to attack the president on national security issues. But what will happen in a few years is anybody’s guess.

The simple point is that history shows that a Great Power experiencing terminal loss of economic might simply ceases to be e Great Power. Insolvency means that ambitions need to be scaled back. All sorts of face saving rationalizations may be devised to justify retreat; but retreat it will be, as lack of money, in the end is the most critical variable affecting the ability to project power and influence.

In the American Century, America did many things abroad. Many of them wrong or ill advised. But defeat, when it came, was political; not economic. We did not leave Viet Nam because we were poor. We left because the war was poorly conceived, horribly executed and extremely unpopular at home.

From now on, unless the relative impoverishment of America can be reversed, money increasingly will become an issue. On top of “Can we win this one?” others will add “Can we afford this one?” And this is new for America. Whether the issue on the table will be Afghanistan –and if are serious about it, it will have to be—or something else, the ability to fund military and other foreign operation on the scale we are used to will become a subject for increasingly heated debate.

Politics is always about the allocation of scarce resources. But, as the already scarce resources shrink significantly, the fight for a piece of them will become more intense and the strongest constituencies will win. Foreign and security policies, lacking a direct attack against the US, will be shortchanged. The open question is “how much”. In the case of Afghanistan it is easy enough for politicians to redefine success down.

The “De Luxe” outcome (whatever time it takes) would be Afghanistan as a successful democracy well on its way to economic development, with education and jobs available for most. Whereas, the “Low Budget” definition of victory is the acceptance of a weak and corrupt central government; cutting deals with local war lords; paying them off so that they will do the dirty work of keeping the Taliban away and poppy fields down to a more tolerable level.

Afghanistan this way will stay poor and messy, but our minimal goal of sanctuary denial to the Taliban may have been achieved, at least for a while. And if the Taliban will not give up? Well, in this case we shall revisit all this when this may happen. And guess what: uneasiness about an open ended long term commitment to Afghanistan (pointing to the “Low Budget” scenario as the direction we may be headed to) is already surfacing. Russ Feingold, a liberal Democratic Senator from Wisconsin, expressed concerns in an editorial in The Wall Street Journal, (“The Road Home from Afghanistan”, August 29-30, 2009). Depending on how things go, concerns can morph into outcries and vocal opposition.

So, depending on how much political will and how much money we have in hand, we may have to redefine our goals. My prediction is that, just like in the case of Britain and France after WWII, we shall redefine down “the national interest” so that it will be commensurate to how much cash is actually in the register.

And this de facto America retreat may be a real problem, not just for America; but for the world. As clumsy and misguided as America may have been in the conduct of its foreign and security policies, it is hard to believe that there are better under studies ready to take over and do better.

But how bad is the economic and consequently fiscal picture, the picture on which our future as a Super Power, including the conduct of our military and civilian operations in Afghanistan, depends so heavily?

So far the energies of the Obama administration have been focused mostly on containing the damage of the domestic economic crisis and on the complex battle to get some sort of health care reform passed.  But, as economists discuss all this, the real focus of Government action has been, not so much on investments in new growth, but on measures aimed at alleviating the pain. And these transfer payments, while important in supplementing depleted family finances, cost money, thus adding to our debt, as we wait for the recovery to take hold. While the Government clearly wants a stronger economy, a Democratic president and a Democratic Congress right now are bent on spending more money to help those mostly in need. So, the focus is on aid to the poor, unemployment compensation and, of course, extending health care coverage, among other things.

And almost all the other measures have consisted in spending massive amounts of money with the aim of fixing and stabilizing sectors in crisis. The banking sector is no longer sinking but it is still taking in water; as evidenced by the rapid depletion of the FDIC bank deposits insurance funds dedicated to guaranteeing depositors in case their bank goes under. Well, plenty of banks have gone under and many more are likely to follow. So, although we may not have more epic disasters like another Lehman Brothers or the danger of Citi requiring another major capital injection, things are still dicey. Then we have, of course, the gigantic auto rescue plan. And it will take years to see what will be the viability of the re-born General Motors.

All in all, the economic news is no longer dramatic; but the picture is hardly inspiring. There are cheerleaders who proclaim that we have touched bottom and that things are looking good, witness the nice performance of the stock market in the last few months. But a more realistic assessment would tell us that, while we may have indeed successfully averted disaster and a real depression, we are still sick, very sick. The recovery will be slow, with lots of uncertainties; while the bill for this gigantic rescue effort is massive. Of course, when you just managed to avoid death, the cost of care may not be your primary concern. But, as soon as life will get back to something resembling normalcy, the financial and fiscal picture will come to the fore. How are we going to pay for all this?

In the meantime, and this is the basic proposition I am making here, as we are trying to fix the mess and as we lick our wounds, nobody has really tried to gauge the impact of this epochal economic disaster on America’s future standing in the world.

Until the financial tsunami hit us in 2007 and 2008 we were “the” Superpower. Not just militarily but also financially and economically. While there were worrisome trends, such as a chronic trade and balance of payment deficit, America’s policies were backed by the incredible size of the economy and by the almost unsurpassed ability of American firms to reinvent themselves, to innovate and add value. America’s might was about aircraft carriers and air born troops, yes. But behind these assets stood Wall Street, Silicon Valley, a vast and world dominant information ad communication technology sector, 3M, General Electric, United Technologies, Pfizer, Du Pont, AIG and, once upon a time, mighty Detroit. America had most of “everything”: Olympic medals, record numbers of patents, Nobel Prize winners, billionaires, state of the art technologies, substantial investments in R&D.

Now we still have the largest military in the world, but neither we nor the rest of the world can be too sure of the size and strength of the economy that stands behind them. And, whatever the assessment of the current situation may be, nobody knows if our predicament is temporary or the inception of a terminal illness. Clearly, longer term, America’s place in the world will be determined precisely by such a trend. If we are on our way down economically, there is no way that we shall be able to sustain foreign policy commitments and the assets and the hardware needed to secure them –and that includes whatever we may wish to do in Afghanistan.

It was cheerfully said at the very beginning of the Obama administration that, while everybody agreed that America needed a drastic Government cash injection, the same sharp stewards of the economy were fully aware that they needed to put together very soon a credible plan that would show the determination to reduce public spending and the federal deficit in the long term. In other words: shock therapy now; followed however by fiscal sobriety later on, in order to prove to the international financial markets that America is not Mexico or Argentina.

And these statements regarding future policies were very wise. As a superpower we should really care about safeguarding the international perception of our ability to continue to be an economic powerhouse; because our ability to project power rests on the resources provided by a large and dynamic economy. So, this was the public relations pitch at the time:

“Listen up, World. OK, we had a bad patch; a very bad patch….But, hey, we are Americans. True to form, we shall pull ourselves together and we shall do whatever we need to do, not only to get back on our feet, but to beat expectations in doing so, showing you, the World, once more, that one should never underestimate American ingenuity, fortitude and resilience”.

Alright, this is what they said; and we believed it. The trouble is that this is not going to happen as announced. At least not within the initially envisaged time frame. As always, things turned out to be more complex and more difficult than initially estimated. Deep, deep trouble with the financial system. Tight credit conditions for many businesses still delay new investments. A deep housing crisis. Worse than imagined unemployment. And, worst of all, millions of consumers in tatters. Millions are unemployed. Many more millions have no cash left. Thus they cannot make the economic wheels turn. No cash equals not many purchases and thus anemic businesses.

Gigantic Government spending thus far has prevented collapse –and there is wide agreement that swift and massive action was necessary. The issue now is how much more do we need to throw into the pot and for how long more. Clearly no one wants to pull the plug too soon, lest the whole recovery would melt and we would have to start all over. But the Washington insiders along with Wall Street and international markets are also fully aware that the more we spend, the more debt we pile up and the longer it will take later on to reverse course and engineer a credible debt reduction strategy that will prove that America is both willing and capable to become once more fiscally and financially sound.

And with fiscal soundness, as we said, we regain flexibility and options in matters that are important, even though not immediately threatening, such as insurgencies in faraway places like Afghanistan. But in the meantime, at least for now, this obvious correlation between cash in hand and ability to conduct costly operations is virtually ignored. Nobody is commenting on the impact of our dire fiscal picture on the conduct of US foreign and security policies. In other words, given our concentration on the domestic agenda, nobody has put forward the following difficult question: “With what kind of resources can a superpower horribly in debt continue pursuing interests that may be vital and there again may not be, depending on how we look at them”? Can you exert power when everybody knows that, yes, you have the biggest war machine in the world, but financed with borrowed money? They can see your hardware and your marines. But at least some of them will start calculating how many more years of this you can afford, given the size of your fiscal burden.

As I said, at the moment, this issue is still under the radar. And, reviewing the international political scenario, there are not that many candidates who, contemplating America’s implosion, can credibly assert the mantle of international leadership. Certainly not Europe which does not have the inclination. Japan is not doing so well either. A vastly diminished Russia may have the desire; but not the matching capabilities. Emerging and more confident China is another matter, of course. But it will take a while, assuming its ability to sustain growth and social cohesion going forward.

Any dispassionate observer should conclude that America’s pre-eminence, despite many failures, on balance is a good thing. The problem is that we do not know if it will be possible to emerge from this horrendous economic disaster with genuine new strength and confidence. The world should hope that we will, as any aspiring world leaders are unlikely to do better than the clumsy –at times both presumptuous and naïve– but basically good United States of America.

Better and Cheaper Health Care for America?

WASHINGTON– The health care debate has morphed into a free for all inelegant cacophony; resembling at times mean food fights or may be  bar brawls. These fights often feature emotionally charged, angry citizens who attack law makers in town meetings because…well…because they are angry at “everything”. And now they have a target. They are mad at another Government attempt, (health care reform), at intervening in the lives of the people. So, this is opposed by many, as a matter of principle. Because……well, because anything concocted by Washington these days is suspect. So, hapless Congressmen are attacked for what nefarious stuff their constituents think, believe, assume or just suspect will be included in this still half baked reform plan.

Much of this emotion appears to be a way for people to vent their existential (literally) frustrations. The vehemence of some attacks against the health care reform blueprints is clearly not in sync with what is actually on the agenda. But now, this is the new Zeitgeist and, apparently, anything anti-Government goes. And so, the Government is accused of trying to surreptitiously nationalize health care without saying so. The Government is accused of secretly plotting schemes that would in effect amount to euthanasia, denial of care for the elderly and/or terminally ill patients in hopeless conditions. And so on….

Separating fact from fiction is difficult. Who knows what people are really angry about? Certainly, their own circumstances, on average at least, are not brilliant. But, if this is so, it would appear that now any opportunity to attack any Government action is fair game. Is the rage about health care in any peculiar way connected to the failure of the stimulus package to produce the magic healing that it was supposed to yield?

Or is it more broadly that the American public, after having briefly flirted (2006-2008) with the idea that “Big Government” is necessary, friendly, capable and basically “Good”, has quickly reverted to the old Yankee skepticism about what public powers can do? It has been said, probably correctly, that Middle America is on average right of center. The people’s focus is on individual empowerment. Big Government may be acceptable in truly exceptional circumstances to fix exceptional problems. But, as a rule, Government is not trusted to be able to do the right thing.

Notwithstanding the marked shift to the left going back to the elections of 2006, the US Congress has exceptionally low public opinion ratings, around 30% favorable. So, the same people who voted the Democrats into office seem to have second thoughts. Otherwise, how could we explain why are so many people now instinctively fearful that whatever the Democratic majority in Washington, (Congress and the White House), may be concocting on health care, this will translate in less service at a higher cost? Maybe it is because, intuitively, they feel one or two things. The first one is that Government cannot deliver. Government may be good when it sends welfare checks and other subsidies. But it cannot be trusted to do complex things, such as health care reform, right. The other thing is that Americans intuitively feel that they are not being told the whole story.

At this point the debate has been framed and thus it is probably futile to try and redefine it. And yet, let me be futile, and try nonetheless. Here is a basic assessment. The problem with this health care reform plan is that it does not touch the existing fundamentals. Maybe a bite here and there; but no structural change.

Let me explain: on health care, here are the fundamentals. Number one, we have a system that encourages and rewards financially doctors and all other practitioners for performing more stuff, more interventions on patients. If we leave this untouched, then the only realistic way to cut cost, even as we extend coverage to millions, is to ration care. Long term, there is no way around this. Number two, we have to confront the fact that, as a nation, our life styles have deteriorated, thus increasing the incidence of many, otherwise avoidable, chronic, (and thus costly), diseases . We are increasingly more sedentary and increasingly obese. All this causes a growth of maladies, such as hypertension and diabetes that could be substantially reduced, assuming drastic changes in nutrition habits and level of exercise on the part of millions of Americans.

So, like it or not, we have runaway health care costs because of two negative factors perversely combined. We live unhealthy lives that increase the incidence of many otherwise avoidable diseases. At the same time, the providers have a vested financial interest in having more rather then fewer sick people around. “Your doctor prospers when you are sick”. Of course, all this is obfuscated by the medical insurance system that creates a screen between the patient’s out of pocket cost and the doctor’s bills. But eventually something has to give. Insurance costs go higher in order to pay for all these procedures. And we have ended up with the most expensive health care system within the developed world, both as a percentage of GDP (16% as opposed to a 10-11% average) and on a per capita basis (around US $ 7000 per person as opposed to an average of about US$ 3,000). This is astonishing.

If these two issues, structurally and unfortunately combined, one about people’s bad habits, the other about the economic structure of health care provision that encourages more treatments and thus higher cost, are not radically dealt with, the only way to cut cost is by mandating cost cuts.

But this is not how the issues are presented. Which is to say, the policy-makers now debating the issues are not transparent and truly honest about the nature of the problem. They say that they want reform to guarantee coverage to all and affordability. And the say that they can ensure sustainability through smart changes that are actually going to reduce overall cost. But without addressing and radically transforming the fundamentals, this reform cannot succeed as intended. Sure enough, we may cover more people and improve the system here and there. But, longer term, we shall not cut cost, because the system encourages and rewards doctors for doing more stuff.

But nobody says this. Details aside, health care reform has been presented as a benign, major social intervention, guided and directed by Washington. Now, this sounds great. But, indeed, probably too good to be true. This idea of getting more, for more people, at a lower cost, while possibly believed by some reform advocates, is disingenuous pie in the sky. “More for less”? Within a formula concocted by and regulated in Washington? It usually does not exist. And this is why some, perhaps a bit paranoid, smell a rat and look for the catch, the fine print, the swindle that they assume must be built into a system too good to be true. This is why people fear fuzzy details. What about these “experts commissions” that will have to evaluate and recommend best practices that would “streamline” medical protocols? On the surface, this is rather innocuous. It would be about examining what is available and recommending best practices. “Oh yes? –says citizen Joe Public–Well, what if these experts start mandating cheaper, outdated practices under the disguise of efficiency? Isn’t this an oblique way to allow denial of care, under another name?”

But this paranoia, if sometime bizarre, about untoward schemes and secret plots is blossoming because fundamentally the Government is unwilling to tell the whole truth. Health care cannot be treated as a workshop where you take your car when it develops a malfunction.

Health care should be about the promotion of “Health” and this the real “Prevention”, (as opposed to the more pedestrian understanding of prevention entailing testing and screening everybody in order to find disease). Health care should be a lot more than curing sickeness. Health begins with good personal habits, good nutrition, plenty of exercise and the avoidance of addictive substances such as illicit drugs, smoking and alcohol abuse. And it is not that we do not know anything about this. When policy makers made up their mind to go to war, literally, against tobacco, they did so.

Of course, changing the personal habits of tens of millions of Americans is much more complicated and it will take years. So, it is difficult. But the pay off could be immense. People on balance healthier would need less care and thus the cost of insuring them and paying for services when needed would be significantly lower with cascading benefits in every direction. Healthy people are more productive. They show up at work. They do more. Reduced health care cost would benefit all who pay for it: businesses, individuals and Government.

By the same token, we have to change the nature of the medical profession and the expectations of those who engage in it. Right now it is mostly fees for services. And thus the doctors are inclined to overdo, because that is the way of increasing their financial gain. So, true health care reform has to break the connection whereby a doctor makes more money only if they “find” more stuff to do for the patients, with the result that many procedures are redundant, wrong or at least unnecessary.

You want real reform? Then address these issues. “Alright –someone might say– but this is gigantic, it is too difficult. We cannot do all this”. Instead, we are going to tackle other aspects that are still worthy: the plight of the uninsured, portability of insurance, more transparency about billing, streamlining of procedures. Fine. Let’s be more modest in our goals. But let us be honest and admit that this is like overhauling an old car; not about introducing a new model. And –most fundamentally– let’s stop pretending that, by tinkering here and there, we are going to cut cost.

Admittedly, structural reform may be truly overwhelming. But this is where the real problems are. If most doctors were paid a monthly salary, unrelated to the number of procedures that they prescribe, the perverse incentive that leads to overdoing and thus over billing which in turn leads insurance companies to jack up their premiums would vanish. If people on average led healthier lives, the demand for services would also shrink, at least to some extent. But this would mean that doctors, now mostly free entrepreneurs whose economic gain is determined by how many treatments they perform, would become employees. And who wants to tell doctors that this is the end game?

As for the relevance of personal habits on the “National Medical Bill”, surprisingly, while this whole health care debate was unfolding, a huge news item indicating that the doubling of obesity in America is costing about 150 billion dollars a year, (due to obesity related ailments), was not referred to at all in the debates. Why? Because this is a peripheral non issue? Well, 150 billion is by no means the bulk of the cost of medical treatments, but it is a very substantial chunk. And, as obesity is increasing exponentially, amidst the quasi indifference of the guardians of health care, this figure is likely to go higher. Now, obesity is caused in most cases by bad personal habits and ignorance about the value of proper nutrition and exercise. Assuming appropriate education, most of it could be reversed, with an obvious impact on the national health care bill. But nobody says any of this. Maybe there is fear of offending large numbers of voters. Maybe they could get scared. They might start thinking that, as their obesity induced diabetes is their own fault, going forward it may not be covered by insurance. Or something like this.

Be that as it may, the truth is that, while a great deal of disease does indeed happen randomly, or may be due to heredity, personal habits do matter. But do we hear any of this in a debate that is supposedly aimed at improving not just the reach but the rationale and the “quality of life” of Americans through a more enlightened health care delivery system? Not really.

So, here is a drastically different way of addressing health care goals.

Number 1: we as a nation take responsibility for embracing a healthier life style. This would have to include individuals in their daily lives. It would have to include public and private schools and many other institutions that provide millions of prepared meals on a daily basis. And it would have to include the food industry that will commit to withdraw the processed foods that are low in nutritive value and high in all the bad stuff (sugar, fat, salt) that induces over eating and obesity.

Number 2: we stop paying doctors on the basis of the number of procedures they perform. Other systems of compensation may be devised, as long as the financial interest of the doctor is no longer tied to how many things he does to a patient. Of course, there is nothing outlandish about any of this. Indeed, there are already hospitals and clinics in which doctors are salaried employees. Assuming that the level of financial reward for these professionals is commensurate to expertise and skills, then doctors could really focus on what is best for the patients, severing this perverse link that creates an incentive for doing more, and billing more, regardless of real merit.

Short of this, whatever the outcome of this round of reform, if we really want to get America’s cost down to the average of other modern countries, there is only nationalized health care –yes, a government run program!– or any other modality that would effectively ration availability in order to contain cost within pre-established limits.

It is time for the elected representaitives to level with the public and tell them the truth. All this stuff about re-jigging this health care system so that magically it will do more for less is unrealistic and disingenuous; with the added side effects of further eroding the confidence of the public in governmental actions and its effects.

The New American Recovery

WASHINGTON – “Have we touched bottom yet”? “Green shoots for the US economy”? These and similar questions popping up in the business media whenever there are some stirrings here and there are justified by our entrenched habit to think within the old logic of recovery-recession-recovery that used to part of the accepted “business cycle” conventional wisdom. All recessions –we have always been told—must end. And thus, at some point, we are bound to have the good old fashioned and always dependable recovery; with new investments, new sales, new employment, followed by more money floating around, thus more spending, and the resumption of our upward march to more growth and prosperity. Right?

No. This time it will not happen this way. Because we are comparatively much poorer and have thus fewer options. Remember that we got into this epic mess mostly because, as a nation, we believed in our fantasies of endless sources of wealth divorced from our real productive capacities. Unil the dream lasted we spent and spent an imaginary wealth, while in fact we were burning all our savings, eating our capital, our future income and then some at a fantastic speed. The end of the recession will reveal a weaker, somewhat withered and still incredibly debt burdened US economy. The good news is that this is not a terminal illness. Relative impoverishment and decline of once leading sectors can be reversed. But this requires resolve, clarity of purpose and determination.

Which is to say that we can come back, yes. But this will require a convincing long term, hard nosed transformational strategy aimed at seriously upgrading skills, the rate of innovation and the quality of productive assets. It will also require a serious overhaul of public spending, both in terms of its quantity and composition. We cannot continue to accumulate debt, mostly because of the dynamics of entitlement spending and assume that this will have no consequences. New competitiveness strategies have been discussed and debated; but as a nation we have yet to recognize their urgency and we have yet to enthiastically embrace them. The more we delay action, the longer it will take to see positive change.

If we do not take meaningful action, the American economy will not come back roaring. It will come back; no doubt; but weaker, and comparatively poorer on account of the severety of the damage inflicted. For a long time we spent lavishly with borrowed money and we invested little in human capital (education) and in innovation –the only key to future growth. So, today we have huge debts, a semi-destroyed services sector and not an awful lot that can be used as a strong base to rebuild and expand. Look, for example, at the severe beating taken by General Electric, in many ways still one of the best managed global industrial conglomerates, revered as the paragon of good planning and good management.

For at least a decade, we Americans lived in a dream world in which we thought that we were far more affluent than we actually were, even though we did not produce an amount of wealth that would support that level of spending. A huge chunk of that spending was financed through borrowing, justified by the delusion that appreciating fixed assets (our homes) would generate the additional funds that we could happily spend. Then the bubble burst and we know what happened. But this is not the worst part of the story.

The really bad part is that, as the ill effects of this gigantic hangover dissipate, looking at what is left within the wreckage of failed banks and withered retailers, we discover that we have comparatively few internationally competitive economic sectors capable of generating the genuine, real new wealth that will be necessary to rebalance our books and –longer term– keep us competitive with the rest of the world. Which is to say that, while we were busy inflating a huge retail and services sector catering to unsustainable levels of consumer spending, we neglected the real stuff: education, technology, innovation, new sources of energy and all what is needed to nurture and support it. Let’s say this clearly. We shall come out of this mess. But, unless we embark in a serious long term national effort, everything else being equal, we shall come out as a much poorer, debt ridden, less competitive America.

Indeed, as the spending party was going on, as we were buying (mostly imported) stuff with money that we had not earned, we let our school standards go south, thus cheating millions of young Americans who thought they were receiving an education; while we made them ineligible to get the good jobs that, in ordinary times, will be generated by the new knowledge economy. As a nation, we spent comparatively less on R&D; while we allowed the continuing, dramatic deterioration of our infrastructure, the basic supporting system of all modern economies. In the meantime the Federal Government increased its  spending thus significantly adding to our national debt. Fate had it that at the same time we also had the terrorist attacks of 2001 followed by a couple of expensive wars. While affordable in ordinary times, the cost of prolonged military engagement is clearly a further drain on  resources, resulting in net additions to the debt.

To be great again America needs more than a feeble cyclical recovery that, under present circumstances, will leave behind millions of Americans previously employed in service jobs that will never come back. These people will continue to be unemployed or underemployed for many years. They shall be a dead weight on the economy and society. And beyond the macroeconomic impact we have the personal tragedies caused by severe dislocation magnified by the lack of real alternatives.

In order to lay the foundations of new prosperity, America needs a new strategy. It needs a serious, multi-year effort (at least 10 years, probably more, of sustained investments) aimed at reconstituting its human capital through serious secondary school and University reform efforts, its R&D base, its enterprises and the ecosystem on which modern enterprises depend on in order to properly conduct business. As a minimum this should include: truly high speed internet that is at least as good as South Korea’s, redoubled efforts in ICT, nanotechnology, robotics, biotech. Then it needs modernized ports that cut down container handling time and thus cost, good freight railways nodes, a new air traffic control system, a real energy plan, (can we be do better than the corn based ethanol hoax?); not to mention billions and billions of dollars necessary to completely refurbish and upgrade the national network of highways and bridges that is literally collapsing before us, as we have done so little to maintain it in the last 40 years. All this will costs big money, of course, and we are already deeply in debt. But I think that most Americans, if told the whole story, would be more willing to accept debt generated to modernize the country, as opposed to debt generated to finance consumption.

Yes, at some point this year we shall touch bottom and the recovery will start. But it will not be the same as before. This deep recession is forcing us to take stock of an economy that, while (thankfully) still state of the art in some strategic sectors, is full of holes. Put it differently, the crisis and near death of the once mighty automobile sector was certainly not driven by Wall Street or by sub prime mortgages. But it may not be an accident that Detroit’s extraordinary level of management myopia and incompetence (known to the insiders for decades) was fully exposed to all only when the Potemkin Village of a reasonably prosperous America around it collapsed. It is certainly true that the crash of the US economy made things much worse for General Motors and the others. But what is truly extraordinary is that when Detroit’s leaders first came to Washington to ask for money in the Fall of 2008 they told law-makers with a straight face that theirs was a short term cash flow problem; that they had a good plan; that it was all under control. It is really worrisome that even then nobody saw (or wanted to publicly say) how badly run these companies were. It took a general worsening of the recession in 2009 to fully expose the damage and let the world finally see the appallingly bad conditions of these companies. Before their collapse, the line was that they had been unfortunately caught in the general downdraft caused by the recession, just like everybody else. Sure, all auto manufacturers around the world are in trouble; but not all of them got into this tempest already sinking under the weight of hundreds of billions of dollars of debt that could not be wished away. Toyota may not do so well; but it did not go belly up.

Leaving aside the unraveling of the whole financial system and the likelihood that its total collapse might have caused national ruin, the almost banal truth is that this is an economic crisis caused by stupendously overextended leveraging and consumer spending, sustained by lines of credit that in ordinary circumstances should not have been made available. Until the consumer believed that he could keep going, the cash registers of America were happily ringing. The wheels were turning and everybody was making money –or so it seemed. But it was a gigantic delusion, as the money spent at an extraordinary rate was mostly borrowed, with inflated home equity as the only collateral.

Now, what we have to face is that this was not about occasional excess here and there by some irresponsible people. This was a national disease that came to a halt only because credit stopped flowing. And we know the cascading effects. Mortgages not paid. Properties foreclosed. Home prices collapsing. And the simple fact that people with no cash and no credit cannot buy. Thus, all of a sudden, no more spending and the ensuing recession that will be much more painful because it will take much longer (even for the reasonably lucky ones) to get out of an extraordinary level of debt.

Sure, not all Americans are deeply in debt. Some are responsible and did not accept all the credit card offers or the home equity lines of credit cascading in their mail boxes. Some homes are paid for and thus not in danger of foreclosure. Growing unemployment notwithstanding, most people still have a job. But caution: all property values are affected by a declining market. Besides, many employed people are forced to work less and thus make less. Many are part time employees under duress. They used to have full time jobs and are now forced to be part time and this means less money in their pockets. And even the employed people have suffered portfolio losses given the collapse of the stock market. So, even the comparatively better off are not spending as they used to. Do not count on them to restart the consumer led binge.

And the impact on the economy of the millions of the worse off Americans deeply in debt will be huge for years to come. To the extent that most of them have understood the lesson and so are now willing to start paying off their debts and with difficulty begin reconstituting some savings, we can kiss good bye to a recovery driven by old fashioned, vigorous American consumer spending.

Drastic consumer spending cuts are bound to have profound consequences. Most Americans used to be employed in the services sector. And a big chunk of it was consumption or about consumption. It was retail, restaurants, entertainment, hotels, travel, package tours and all that went with it: the real estate, the suppliers and vendors, the brochure designers, the IT service providers and of course the armies of sales persons, accountants, managers, clerks, bus boys, janitors and landscape workers that supported it. It is very difficult to think that  these millions of jobs lost because of deep cuts in consumer spending will come back, because poorer Americans will not be able to spend that much in the future.

And we have not seen the end of the ripple effects of this disaster. As everybody is poorer, state and local governments have much less tax revenue, thus no cash. Hence staff cuts, while state budgets deficits go higher. Only three states, that is right, just three, are projecting budget surpluses for both 2009 and 2010: Montana, North Dakota and Wyoming. Good for them, of course. But small consolation for the rest of America, where most people live. Even if we leave aside the rather extraordinary case of California and its 26 billion deficit and the consequent insolvency that forced the state government to issue IOUs instead of real money, the fiscal crisis affecting all states simply adds to the mix of factors dragging down the economy. Leaving aside the real hardships caused by cuts in services, (cuts in education spending right at the time in which we need it most), we have the hundreds of thousands of state employees who suffer salary cuts or lose their jobs thus contributing to the overall decline of consumer spending. 

Given all this, if our hope is in the “green shoots”, in the rebound that is supposedly built in every business cycle of growth-recession-growth, we may have to wait a very, very long time. The lucky ones, that is those who still have equity in their homes and a job have to cut back because their 401ks have shrunk, while they need to pay off their huge credit card debt and their home equity lines. They are still going to be consumers, of course. But they will consume much less and in cheaper places. Hence the buoyant business for Wal-Mart and McDonalds. Down market is the place to go for large segments of the middle class who mistakenly believed for quite a long while that they had become rich, even though their incomes did not say so.

But this is the good news. That is this is about the segment of population that has enough resources left to climb out of the hole and overtime regain some solvency. And what about all the others? The millions of often not especially skilled unemployed who have lost their home and have a pile of debt? Can they come back? Some undoubtedly will. Never underestimate American resilience and ingenuity.

But millions more will not. They have been swept away by the end of bubble financed spending and they have no place to go to. And we know that retraining and personal professional reinvention is very difficult even in good times, while growing sectors like health care have a limited absorption capacity. Not all sale clerks can be recycled as nurse assistants.

This being the picture, if we agree that a cyclical recovery can repair only a part of the damage, with the net impact of millions of Americans impoverished and virtually out of the game, then we need something more drastic. America needs huge investments in productive sectors and basic retooling. But, for the moment, we do not see an agreement on a broad, truly understood and nationally embraced growth strategy, founded on education and innovation.

President Barak Obama seemed to have arrived in Washington swinging. He had the dream team of the brightest minds who had the big ideas and the new, bold, long term strategies. But, as we all know, governing in a still fractured and ideologically divided democracy is not easy. And things turned out to be worse than anticipated. The recession is worse than they thought. Unemployment is higher then they forecast. The national debt is growing more than they anticipated. The financial crisis absorbed a lot of energy, and then there was the GM and Chrysler bankruptcy, and so on. But now –whatever the reasons behind the choice of priorities–the focus is on social initiatives, such as health care reform. Whatever its merit, and it does have merit, health care reform inevitably will end up costing more than planned, with fewer savings than now forecast. And spending greater then anticipated, as in most large scale social services reforms aimed at expanding reach, is practically inevitable, even with the best of intentions.

Health care reform is laudable as it is about improving social conditions, (and consequently the economic conditions of many); but in the short and medium term, even if we (optimistically) assume that there will be savings for the national medical bills down the line, it will do almost nothing to improve American competitiveness.

In the meantime, the other legs of the stool: education reform, and a vibrant, aggressive new high tech and energy policy that may be able to spur both a reconstitution of human capital and US competitiveness do not get sufficient support. There is support; but not the dramatic, “national effort” type of support that would convey the unmistakable decision of a nation bent on rebuilding a competitive economy.

It is true that, all things being equal, we want a private sector-led renaissance. So, it is up to the private sector to do its job. But it is also true that the private sector has taken heavy knocks and suffers shortness of breath right now. Besides, even in good times, the private sector operates within a system of public policy incentives created by government. The Obama administration came along with Big Plans for the economy. But, beyond putting fires out, and this was a necessary precondition, we have not seen the Big Plans in action as yet.

And let us not forget that, even before Obama, the government, contrary to popular belief, always played a significant role in shaping our economic future. Indeed, here in America, the “Sanctuary of Private Enterprise”, government, through its enormous procurement, regulation, taxation policies and so on had a huge impact on the economy.  Washington can decide to support more or less basic science and R&D in diverse fields with impressive consequences. Let us not forget that the NASA led July 1969 moon landing that we are rightfully celebrating now, on its forty year anniversary, was a gigantic “public works project” that employed at some point hundreds of thousands of people, supported by hundreds of billions of (today’s) tax payers dollars. The US government led this effort.

Going forward, the network of the Department of Energy National Laboratories, (Los Alamos, Sandia, Lawrence Livermore, Oak Ridge and others), can have more or fewer resources to spur innovation and cross pollinate with universities and corporations. The same applies to NIH, (National Institutes of Health), NIST, (National Institute of Standards and Technology), run by the Department of Commerce, and the National Science Foundation. Likewise, if the Pentagon decides to support jet fuel made from renewable resources, this policy change, by itself, would create the biggest single customer for some new technologies. Ditto for decisions by federal agencies (and state governments, if they followed Washington’s lead) to switch their vehicles fleets to natural gas or to retrofit all their buildings in order to make them energy efficient. True, some of this is being discussed, planned and even done, as we speak.

But only some of it. Piecemeal. We do not have large, clearly articulated, recognizable national goals, themselves part of some sort of a “National Competitiveness Strategy”, by necessity led by Washington, that we can all sign on to and that may be able to energize the major retooling that America has to undergo in order to be competitive, prosperous and –most of all— in order to be reaffirmed once again as the choice destination of innovators and entrepreneurs from all over the world who see America as the fertile ground for their ideas and their industry.

President Barak Obama has a tough job; tougher than most of his predecessors. But he was elected because he was the candidate that wanted to discard the old ways; the candidate who truly understood the urgency of radically new approaches. Only a few months into his job, President Obama still enjoys a huge reservoir of favorable public sentiment. It is time for him to spell out the vision that will help America go back and do what it does best: create opportunity for most and a superior environment for innovators and entrepreneurs. Otherwise, the recovery produced by the “green shoots” will be feeble and America as a whole will be diminished.

Unhealthy America

WASHINGTON – There is a consensus now that something needs to be done about health care in America. And Congress is busy concocting some type of reform aimed at both containg cost and extending coverage. However, it is really hard to think of a health care reform formula that would magically make the system cheaper and truly accessible to all, while guaranteeing to all users the highest quality of service. In fact it is impossible, unless the whole concept of “health” is radically transformed from a system that provides to the insured almost unlimited availability of resources to fix problems after they have manifested to a system aimed at keeping people healthy so that interventions and related costs are significantly reduced.

As things stand today, the system is horribly expensive, (absorbing about 16 per cent of GDP), while it does not provide any meaningful level of guidance and education to Americans so that they shall cultivate healthy life style habits, thus reducing the need for medical interventions. Arguably, the increasingly unhealthy habits of Americans have put additional strain on a system aimed at providing more rather than less service to the sick. Large scale drug and alcohol abuse are egregious examples of truly unhealthy habits of millions. But the explosion of health care costs is also due to the medical consequences of the staggering growth of obesity, now a veritable national epidemic. A recent study estimates that the cost of obesity related conditions adds close to 150 billion to the national health care bill.

The fact is that we lack cogent programs aimed at telling people to eat well and exercise not just because it is the fad of the day but for the simple reason that proper nutrition and exercise are key to having a longer and more enjoyable life. So, we do not educate. But, perversly, the health care system gets into high gear after the fact, when the often avoidable damage is done. When the overweight person goes to the doctor who finds high cholesterol, or may be diabetes, then the same doctor is happy to prescribe cholesterol lowering drugs, or insulin treatments, to the delight of the drug manufacturing companies, who sell them in massive quantities, given the huge dimensions of the problem.

So, the unaware –and increasingly unhealthy– American is fundamentally “a profit center” for health care providers who thrive by multiplying actions and interventions on sick people. While trying to avoid caricature, as there are doctors who truly care about the well being of their patients and are willing to spend time educating them on  preventable diseases, the following is fundamentally true: the more unhealthy the people, the better off the providers who, under the present system, benefit financially only when people are sick. The snag in all this is in the fact that, while the insured patient absorbs only a small portion of the financial cost of care and the doctor collects fees, someone –the insurance company–eventually has to pay the providers. If people are increasingly unhealthy and doctors keep prescribing this and that (as they must), then cost will keep going higher until it will bankrupt the nation. We already have the highest percentage of GDP absorbed by medical care in the world, while the per capita cost of all this amounts to roughly 7000 dollars for Americans; while on average it is about 3500 dollars in other developed countries. Given this huge cost disparity, either the other systems fail to take care of their people, or we must be doing something wrong. As it turns out, our not so stellar health statistics indicate that all this money spent here in America, surprisingly, produces mediocre results.

It would appear that reform blueprints being worked on right now do not really address any of this in a meaningful way. Sure enough, there are many good faith ideas aimed at containing cost, but no plan to seriously reformulate the system and do away with the perverse incentives that conspire to produce cost escalation. And yet, a health care system still based on private insurance cannot survive when the demands and related costs for service outpace the revenue generated by premiums. In America’s case, as demand is outpacing revenue, premiums keep going up. At some point, either we find ways to reduce demand in a physiological fashion, that is by enabling more and more people to be and stay reasonably healthy, or, in order to avoid national bankruptcy, we shall have to mandate limitations on how much the system will deliver; imposing ceilings on how much can be provided –and this is the dreaded “rationing” of health care. Nobody is openly discussing the need to ration health care right now. But when it will become obvious that substantial cost containment is impossible, rationing will become unavoidable.

And so far we have described the situation for the lucky ones –the insured– those who are doing relatively well under the current system. For the uninsured, it is of course a nightmare. There is a gigantic barrier to obtaining coverage: cost of premium and/or pre-existing conditions. In America today If you cannot get insurance and you cannot afford service, you do not get it. End of story. True, there is the horribly expensive escape valve of emergency room health care provision that gives some relief, in some instances, to some people. In this way we have some form of delivery to the poor or the financially strapped; but in the least efficient or cost effective manner.

Given all this, even without radical reform, we may be able to create a partial solution to the twin problems of escalating costs and extending  coverage for the excluded. We can mandate/subsidize insurance for most, if not all who are currently uninsured. But, in order to contain overall cost, we shall have to resort to some form “rationing” –which is what is done in many other countries. While the very concept of rationing sounds horrible to patients used to choice, people in other countries manage to live with it, with results, in terms of health statistics, (as noted above), that are arguably much better than what we can produce here in America with all our emphasis on freedom of choice and unlimited usage. So, either we reward doctors for keeping people healthy, or we contain demand for services through the imposition of limits on services.

Anyway, let’s review the scenario. When it comes to the insured, we know that the spiraling costs are caused at least in part by an increasingly unhealthy population; while the system places incentives on doing more rather than less for patients. And this includes millions who have more circulatory problems, hypertension and diabetes in large measure because they eat poorly and do not exercise. This increased demand for services inflates overall cost. This cost increase jacks up premiums. Employers who provide insurance feel the squeeze. Self-employed people who buy their own insurance gasp at the annual premium increases. But again, much of this could be avoided, or at least mitigated if we, as a nation would embrace a healthier life style.

Indeed, the Center for Disease Control estimates that 75% of health care spending is for “chronic diseases, such as obesity, heart disease and diabetes”. Which is to say that much of what is spent is for treating self-inflicted maladies, caused largely by unhealthy habits that can be modified, given proper education and guidance starting at an early age. But while generically “diet and exercise” are discussed, there is no large scale, national public education effort underway to drive home the simple point that people inflict serious health damage on themselves, while in the process they add to an already unaffordable national health bill.

Let’s stress this point again. The explosion of health care costs in America is due in large part to the combination of increase in unhealthy habits and to the health care system focus on treatment  “after the fact”, that is fixing what is already broken, as opposed to promoting wellness, something that, in the aggregate, would reduce demand for services and thus cost. Within the current system, sick patients equal more revenue for all providers. Doctors get paid not “to look after the general well being of individuals”; but for doing things to them when they show up sick: diagnostics, therapies, procedures, surgeries. While the ethical standards of the providers do vary in terms of prescribing unnecessary procedures just to jack up the bill, it is obvious that there is a built-in financial incentive for doctors to do “more” rather than less. Likewise, there is a gigantic system of incentives created by the pharmaceutical industry so that people will use more and more drugs. They make a living making them and selling them and they count on a friendly health care system to favor the increase rather than the decrease of consumption.

Let’s put in simple terms: your drug company “wants you to be sick”, or, just as well, they want to convince you that a particular treatment will be good for you. Whether it really helps or not is immaterial, as long as you keep buying it, while the insurance company keeps paying for it. And so, tons of anti depressants are prescribed, while millions of children take medications for attention deficit disorders. Do these therapies really help? In many cases clearly they do not or they produce minimal effects. But it does not matter. As long as the doctors keep prescribing these medications, somone is profiting. 

But cost is of no or little immediate concern to the adequately insured patient who, at least in the short term, ends up paying only a small fraction of the treatment. Of course, we know that this almost unlimited usage increases overall cost and eventually it jacks up premiums for all, and so on. The experts are fully aware that this dynamic sets in motion an uncontrollable cost escalation that ultimately will make the whole system unsustainable and affordable.

But most people do not see the aggregate consequences of their individual overuse; especially when overuse is directed by trusted experts, the physicians. But the truth is that most doctors will be very happy to prescribe cholesterol lowering drugs; while really the best treatment for the patient would be cutting down the consumption of animal fat and increasing the level of physical activity. But why tell the patient about non medical ways to be healthy? The fact is that nobody in the health care system makes any money if I manage to lower my cholesterol through a healthy diet.

Then we have the separate but extremely troubling issue of the disproportionate resources allocated and related costs in delivering care to individuals at the end of their lives. Terminally ill patients, elderly patients with dementia as well as patients kept alive artificially weigh very heavily on the health care system and thus on the whole medical insurance apparatus, including the federally funded Medicare program and premiums paid by comparatively healthier people, even though the quality of life created through all this very expensive care is not that great, or, arguably, in many cases quite horrible.

But here we would enter the mine field of denial of treatment or euthanasia and of all the objectively complicated issues related to who has/should have the authority to determine if and when “enough is enough” when it comes to devoting resources to citizens at the very end of their lives. For the time being we are unable to approach, let alone resolve this issue, as it is so profoundly tied to religious beliefs and to our collective aspiration of doggedly prolonging life, no matter what the cost, no matter how futile this may be, in terms of the actual results of these efforts.

But even if we carefully avoid the mine field of terminal care and its disproportionate cost, it is clear that the priorities on which we base our private insurance system are wrong. All other insurance systems are founded on the notion that most of the time the premiums paid by all would exceed the claims of some. The assumption is that, on average, claims will be rare. But health care in America is different, as there is an inherent difficulty in inducing the good behavior, (translating in better health), that would reduce demand for services and thus strain on the system.

Part of the disconnect is due to the fact that most of the time there is no immediate penalty for overuse. The insured person cannot fully appreciate the cost effectivenss of prescribed procedures, while the physician prescribes liberally, with full awareness that the insured patient will not object, because he/she does not pay most of the cost involved. By the same token, while the bad personal habits of the insured are in many instances at the root of growing demand for services, the insured does not appreciate that his/her behavior overburdens a system that will eventually collapse under the weight of excessive demand. And the doctor is not going to turn away a patient, even if guilty of bringing additional disease on himself via unhealthy life style. Person is sick: person needs treatment. And this includes thousands oh hospital re-admissions due to the fact that patients failed to follow basic life style guidance received upon being discharged. 

In other words, this is not car insurance, a system in which I know that I am somehow in control of the cost of my insurance. When it comes to driving, I know that my behavior can significantly affect my ability to get and keep coverage. I know that if I have a good driving record I get a low and may be reduced premium. Thus the system provides guidance and incentives so that through my behavior I shall minimize the level of risk to myself and my insurer. If I am a prudent driver, it is a win win situation: my premium stays low, while my insurance company makes a profit because I am not originating claims. Thus I want to avoid accidents, so that my coverage will remain low, while my insurer is thrilled to receive my premiums and no claims resulting from my driving. As a driver I have some degree of control on accidents. I do not speed, I do not drink and drive, I am careful and I take care of my vehicle so that it will respond well. Sure, accidents will happen regardless, (and that is the whole point of having insurance); but one can reduce or increase their likelihood through good or bad personal behavior that is in turn reflected in higher or lower cost of insurance.

But in health care insurance things do not work in the same way, as the correlation between personal behavior and demand for service is not that clear. People think that sickness is something that “happens” randomly, as opposed to a car accident that I caused because I was drunk.

I do not wish to exaggerate this focus on personal habits. Obviously, there are many medical conditions quite beyond personal control that will indeed happen even to those who follow the best wellness guidance. But here I am emphasizing the significant and growing perecentage of medical care due to preventable, bad personal behavior. “Wellness” is not going to abolish disease, but it can reduce it and contain it, lessening thus the demand for health care services that we all end up paying for, one way or the other.

If we do not reduce demand for services via the improvement of health standards, the pool of insured will not adequately cover the cost of growing usage. As currently conceived, in the aggregate, the system has no built in self-correcting mechanisms. Let’s say it again: American health care is not about promoting wellness and thus reduced demand for treatments. 

The companies that make blood glucose testing equipment must be thrilled about the obesity epidemic and the consequent diabetes explosion in America. Are they willing to spend the equivalent of what they spend advertising their products to the growing  population of diabetics on serious media campaigns illustrating that in many cases diabetes is avoidable or reversible, assuming that the individual understand and implements the needed changes in life style and eating habits? No way. The companies are quite happy with a growing flock of sick customers; so that they can sell more stuff to them. And the same can be said about the cholesterol drugs companies. Do we see their representatives distributing literature in front of restaurants and supermarkets warning people about the consequences of a bad diet?

On a different note, much has been said about the cost effectiveness that could be achieved by rationalizing the whole health care delivery architecture. With the aid of our quite developed, world class IT industry, we can massively introduce electronic record keeping, simplify billing and other administrative procedures, promote the best protocols and so on. This is doable; it should be done and significant savings will result.

But, if everything else stays the same, the system will remain slanted towards over-consumption, because the insured patient has no real incentive for not undergoing this or that when the doctor says he needs it and the out of pocket cost for the insured is tolerable; while the physician has every incentive in doing more rather than less –needed or unneeded as the procedure may be.

And to this mix we have to add “defensive medicine”. Doctors are afraid of being sued for malpractice. One way of avoiding this danger is in being overzealous, in order to be able to show, at a later date, that “I have done everything I possibly could to have the correct diagnosis and therapy”.

There are other factors conspiring to keep the system as is, including the intangible, but psychologically important factor that the system as currently configured allows almost unlimited choice, reinforcing the notion that we have to keep health care delivery as is: open-ended in terms of what type of service can be obtained and it what amount. For the insured there is this comforting idea that, under the present system, they can go wherever they want, explore every possible therapy, consult with as many doctors as they want. This is important as a principle and in many cases, especially in very complicated hard to diagnose conditions, it offers the chance to eventually get it right. So, a health care system that allows the insured to go shopping for whatever the best approach may be is reassuring to many. And the politicians and the interest groups resisting change talk about this bond between patient and doctor that should not be affected by cost considerations (nobody should be there adjudicating when “enough is enough”) or, much worse, health care delivery rationed through a quota system.

So, there you have it. The American system does not promote wellness; while it is fueled by perverse incentives that encourage or at least do not discourage over consumption and rising costs for all. Paradoxically, the consequences of all this are that many of the truly sick find it more difficult to get coverage; ensuring thus that many of the neediest are those who get the least. At the bottom of the pile, if you are poor and sick in America you are really out of luck. The uninsured sick are thus marginalized, with obvious consequences for their health, their finances and their real chances in life. We know that a serious medical conditions is one of the main causes of financial ruin in America, and this should not be allowed to happen.

And we have not yet come to the worst part. The worst part is that enormous and growing national expenditures on health care deliver mediocre quality. If all this money would provide superior results, then we could argue that you really get what you paid for. But it is not so. More money does not buy better service. Collectively, even considering that we have 15 per cent of the population, (about 45 million people) who have no insurance, we Americans spend a larger proportion of GDP on health care than any other developed country. And yet, really adding insult to injury, our health statistics are not especially good.

Sure, we can point out the existence in America of state of the art medical facilities and leaders in research for new drugs. But the benefits of cutting edge new stuff, while real, do not percolate evenly throughout America. If you are rich or super rich you can have access to the very best. But, below that threshold, you get what is available. And what is available is both comparatively expensive and not at all excellent; with ensuing national health statistics that are not particularly enviable. And since the system, barring politically mandated changes, has no self-correcting mechanisms, the only thing that increases, year after year, is cost and thus premiums. So we have a bad combination of a system that is mediocre in terms of quality with growing and eventually unsustainable cost.

So a private sector led system does the opposite of what anything market driven is supposed to do. Why can’t America do in health care what America is supposed to do best? Beat the competition by delivering more, better, cheaper and faster? Well, this is what we do with PCs and other components of information technology, a sector in which state of the art research combined with sophisticated manufacturing and marketing allows America to best the competition by the constant improvement of quality accompanied by falling costs that are passed on to the consumers via reduced prices.

But we cannot follow this paradigm with health care, because of the medical insurance apparatus that we have created, whereby the practitioners thrive and prosper when people need or are made to believe they need more of everything, while little or no attention is paid to keeping people in good health, (in the same way in which people are encouraged to drive safely so that they get fewer accidents, thus costing less to the insurance providers). And, as someone eventually pays, there is not much of an incentive to expend a lot of energy trying to be truly cost effective.

This being the case, then we need to revolutionize the system in order to create completely different incentives.

Imagine for a moment the following fantasy. Doctors have a certain number of patients covered by insurance. At the end of the year the doctor receives a bonus related to how few of his patients have been sick. Given this incentive, his efforts would go in making sure that the insured people stay healthy, as opposed to taking care of them when they show up sick. Ideally in this system the doctor and all the other practitioners would want to promote wellness, including good diet and appropriate exercise, as they would be rewarded by having people in their care who are on balance healthier. OK, then someone would argue that this parameter would create the perverse incentive of not treating people who are really sick in order to show better numbers at the end of the cycle. Of course, this may happen. But the opposite, that is an incentive to overdo is what we are dealing with now; and there is no outrage. More tests, more therapies, more prescriptions, more surgeries translate into more money for the health care providers. On balance, there is no incentive to do less. And again, let us not forget that in the end we do not have a comparatively healthier population.

There has been talk in the past about changing the incentives system via the creation of medical saving accounts managed by the insured individual who will get to keep what they do not spend. In control of their own accounts, the patients would have a vested interest in scrutinizing the actions recommended by the doctor. Since I get to keep the health care money that I do not spend, as opposed to a health insurance premium that is lost whether I use the system or not, then I would have a vested interest in scrutinizing my doctor’s recommendations. “Come on, doctor, this is really expensive –the cost conscious patient would say– do I really need this?” The point is that, while in principle the savings accounts do create incentives for moving cautiously, the reality is that the patient is a lay person who cannot second guess or challenge the doctor’s advice on its merit. Sure, the patient can go shopping around for second or third opinions and get what may seem to be the best. But the cheapest option may not be the most medically sound after all. So, while I may want to keep more of my money, how do I evaluate the cost effectiveness of this or that therapy or the option of doing nothing? I am not an expert.

In all this huge mess featuring poor health statistics, runaway cost and millions of uninsured, the major policy initiative now on the table is about spending more money by increasing coverage to the uninsured, thereby attenuating the injustice of lack of access for millions of excluded Americans. Sure, the idea is to introduce cost saving mechanisms here and there. But there is no basic reform that would address the fundamentals. While the goal of this initiative promoted by the Obama administration is laudable, we can rest assured that its net financial impact will be more money to be spent on health. So, how do we balance the need to grant access to millions and the need to contain costs that are already out of control?

While nobody is saying it loudly, the only way to contain cost, even assuming the introduction of electronic records and other cost saving measures now under review, is to limit access through some form of rationing. Rationing may make a lot of sense in certain instances of abuse and overuse; while it may have horrible consequences in others in which needed care will be denied on the basis of some abstract parameter. Who knows when the right balance will be struck, given the perplexing variety of cases and individual circumstances? Overall, rationing sounds bad, as it would deprive Americans of their perceived absolute freedom of choice. And so it will be fiercely opposed.

But the current freedom of choice may be a luxury that we can no longer afford. As currently conceived, without mandatory changes aimed at containing the cost and its rate of growth, pretty soon the health care system will bankrupt the country. So, at some point someone will have to rule that, even as we increase the number of people covered, reducing the level of benefits is really OK. As we cannot inspire or induce good habits that would lead to lower demand for medical services, somehow we shall have to mandate it.

The alternative to mandated rationing would be in truly and enthusiastically embracing wellness as a philosophy of life. This would be about pursuing a healthy life style at every level, not to save on our national health bill, but to live well. The fact is that we have astronomic health care costs, while at the same time Americans are frittering away their well being in grotesque ways. It is indeed nonsensical that the country that spends this inordinate amount on health care is the ideal market for drug cartels all over the world, given its high demand for illegal drugs. At the same time alcoholism is high; while obesity, with all its known medical consequences, has grown exponentially in the last decade, reaching epidemic proportions.

So, we have the paradox of nurturing in America some of the best health care facilities in the world; while at the same time millions of Americans indulge in very unhealthy habits whose consequences cannot be contained or reversed by this super expensive health care system. If our focus is on cost control, then rationing health care is the only answer. The debate will be on the degree and level of rationing. But if we focus on wellness as a goal, then the perspective changes entirely. The doctor becomes an educator as well as a provider and not just “a mechanic” who fixes what is broken. The system will reward better health, as opposed to paying more for more procedures performed to the sick.

Our legendary American problem-solving ingenuity should be put to the test. But this may occur only if the leadership of the nation would tell the public two things. Number one, this system is really broken and not fixable. Number two, this is the wrong system, as it is not designed to properly address the real goal of having and sustaining a healthy population. This is a tall agenda, I admit it.

But the alternative is a mix of partial fixes whereby we shall end up concocting a formula that would include improved access to those who are excluded; while limiting usage for the others in order to avoid national bankruptcy. No doubt, extending access would represent an improvement from the standpoint of social justice, but this is hardly the best that we could do as a mature society.



“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?

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.

America: Global Ambitions and No Cash

WASHINGTON – Almost lost within the avalanche of news about more and more rescues: the banks, the auto sector, homeowners, and…welll… everybody else, (followed ominously by deeper and deeper Wall Street dives), was the announcement that the Obama administration has decided to send additional US troops to Afghanistan: 17,000 to be exact. Now, this falls short of the 30,000 additional troops requested by military commanders on the ground; but it is a nice installment. And it should not come as surprise, as Obama repeatedly indicated during the campaign that Afghanistan was and is the place we should focus on; while stating that the Bush administration had squandered resources in the misguided Iraq campaign.

The commander of the Afghanistan NATO force, US General David McKiernan, indicated that these reinforcements are welcome and badly needed, in the light of the precarious and, in fact deteriorating, security environment. And so it goes. The US has already 38,000 troops in Afghanistan. Now the additional 17,000 and probably more to come, depending in part on the draw down timetable from Iraq where we have about 140,000 troops.

And how is the rest of NATO, (that is wealthy Europe), plus assorted non NATO friends, doing in terms of deployments in Afghanistan? Not so great, in terms of numbers. The total non US force in Afghanistan comes to about 19,000, coming from 42 countries. While this is unfair, as some countries (UK, Canada, the Netherlands, France) contribute a lot more than others, let’s average this grand total. So: 19,000 divided by 42. Well, it comes to 452 soldiers per ally. Again this is not a correct representation of country by country contributions. Some allies have sent dozens, others thousands. Still the overall disproportion is immense. Soon the US shall have almost 70,000 soldiers; while the others –42 countries– do very little for a mission deemed to be important by all. Let us note that, while all countries are experiencing significant financial constraints, the Afghanistan deployments disproportion goes back quite a while. It is a matter of political will, rather than resources constraints. (No matter how messy Afghanistan is today, let’s imagine for a moment the consequences of a US decision to scale down its military commitments to the average of all the other countries who have contributed forces. Would this be a good thing for regional and global stability? More on this later).

So, we have significant new US commitments for the “good war” in Afghanistan. Still, while here in Washington we are contemplating a budget deficit that is approaching banana republic levels because of stimulus spending and assorted bail outs, how are we planning to pay for these new military deployments? 

Let’s move to another scenario. On January 10, 2009 there was the solemn and in many ways moving commissioning of the “George Herbert Walker Bush”, or CVN 77, the last Nimitz class aircraft carrier named after “Bush 41”, that is the first president Bush, father of president George W. Bush. The outgoing president “Bush 43”, his son, presided over the ceremony honoring his father just a few days before leaving office. So, the expensive “George Herbert Walker Bush” starts sailing the oceans in the year of the “Great Crisis”. This 78,000 tons nuclear powered ship, built by Northrop Grumman, with all its airplanes and helicopters and its complement of cruisers, frigates and all the rest that make up a carrier group, is the finest product of US technology, while embodying US power. Indeed, as Secretary of the Navy Donald Winter said during the ceremony: “The impact of a new carrier is global. For no other ship represents to the world the power of the United States the way this does…..” Indeed…

So, add another few billion dollars to the defense procurement bill (although stretched over a number of construction years) and, of course, from now on, the few hundreds of millions for the annual operating cost of this sailing airbase and the other vessels accompanying it, with thousands of airmen and sailors on them.

And now, the same scenario, from a different angle. Answering a reporter question on February 13, 2009, regarding the chances of buying large numbers of the (very pricey) F-22 Raptor, the new generation fighter jet, Pentagon spokesman Geoff Morrell gave us a hint that the Defense Department is aware of the fact that money is becoming scarce and tough choices are ahead. Maybe we cannot have all the weapon systems that we want:….”….Fundamentally –Morrell said–, the Secretary [Secretary of Defense Robert Gates] is looking at the things I laid out for you, I mean, the notion that we need to make hard choices in this economic climate, we need to […] look for cost efficiencies and we need to be more joint in how we acquire…..”

So, is there a common thread in any of this? Not easy to discern one, really. The first two examples –more troops in Afghanistan, the commissioning of a brand new carrier– would indicate that America has money. The prudent reply of the Pentagon spokesman regarding future procurement of major weapon systems would indicate that, because of the fiscal crisis, there will be painful procurement cuts. 

Well, and so, what does it mean? It means that, unless we reestablish fairly quickly our economic strength, at some point trillion dollar plus deficits and a country in a deep recession will collide with global foreign policy ambitions, a huge defense budget and the desire to send around a world a powerful symbol of US might. Unless Obama is successful in leading America in an effort that will fix this mess, sooner rather than later we shall get to the point in which the superpower status and international role played by the US will be undercut by lack of money. 

Ordinarily, (that is excluding for a moment all the extraordinary federal spending just launched and its impact on federal finances and on the national debt), the Pentagon is used to taking a huge chunk of all discretionary federal spending, that is all the spending that is not committed to transfer payments such as Social Security, Medicare, etc. But, given this deep crisis of uncertain duration, how long can this last? The answer is not so simple. Allocations for national security are  a combination of available cash and the setting of policy priorities. If a country has money it can decide to have or not have significant military spending. But if a country has fewer and fewer resources then the policy choices become more limited. As the French say: “C’est l’argent qui fait la guerre“, “It is money that makes war”. And this is not to recommend war. It is simply to recognize that without money to fund a modern military that is supposed to be large enough to constitute a credible deterrent and to be effective as a policy tool when it is so decided, the US cannot continue to be a superpower.

Military spending, however misdirected and often misused, is a large component of US credibility as a world leader. Without military power or with very diminished power, who will listen to America? Well, the proponents of “soft power” would argue that there are other, indeed better, ways to influence international affairs through trade, dialogue and diplomacy. I am not so sure. The governments of the countries that send a few hundred troops or less to Afghanistan do not seriously expect to influence policy. The European Union has no military power to speak of and thus nobody pays any real attention to its proclamations.  

One school of thought about the roots of “decline” focuses on  “Imperial Overstretch”. A great power, keen on preserving its strategic global interests, starts spending too much on national defense at the expense of other productive investments. In the end, because of this underinvestment, its basic economic strength is sapped and –paradoxically– there is less capital to be allocated to defense spending. Hence the need to retreat and the loss of global status.

Well, in the case of the US it could be argued that a few years of expensive wars in Iraq and Afghanistan have absorbed much national wealth. This is true. But, while the cost of these wars is significant, it is clear that the current serious recession is not due primarily to the cost of military adventure, however expensive. It is due to national profligacy and plain old “living beyond one’s means”.

The Obama administration wants to accomplish many things, all of them strategically important: stop the bleeding, kick start the economy through emergency packages, create a plan that will reestablish fiscal discipline and budget balance in the long term, (through a radical reform of entitlement programs), and maintain US global leadership.

This is an immense challenge. It would be great for America to accomplish all this. But it would be even better for the world if America could pull this off. Those who rejoice looking at America in big trouble should ponder what viable alternatives to US global leadership there may be. Unless people seriously believe that Europe’s “soft power”, with the attendant unwillingness and inability to support a military effort in Afghanistan with more than token troops, will provide a stronger and more effective leadership model.

How To End Road Congestion In The US

WASHINGTON – Can America end its perverse love affair with the automobile? No doubt, when the automobile was invented, more than a century, ago it represented progress. A vehicle –as opposed to one’s legs or a horse– that can give its owner the freedom to move around relatively easily, at will, and at a relatively modest cost. People always wanted the freedom to go places for business or for exploration. Trains, of course, had come along in the 1800s and they had shortened travel time. But the automobile was the personal train: leaving when one wants and going where one wishes. So, progress across the board.

Yes, except that now, a full century into the age of the private automobile, there are just too many cars. In regions with high population density (in America but also across the globe) what might have been a bit of a problem a few decades ago, has now become a sheer calamity. Perennial traffic, gridlock, longer and longer commutes, pollution, noise and bad air quality. All this exacts a toll, both economic and human. Simply stated: there is a point beyond which too many cars on the road paradoxically end up denying drivers the fundamental benefit initially brought about by cars: freedom of movement. The millions who, on a daily basis, get into their cars only to be stuck in traffic, move; but they move very, very slowly.

At some point one should take stock of this situation and determine that we have reached and indeed passed the point of diminishing returns. The car, once touted as the indispensable tool for personal mobility, is now a problem. Simply because too many of us have one and want to use it when all the others want to do the same. Some large cities, like London, have adopted partial remedies, such as a congestion charge, in order to discourage people from driving into the central areas that tend to be easily saturated. While this is not the ultimate solution, the congestion charge at least established the policy principle of creating a strong disincentive to drive a private vehicle, simply because too many vehicles make circulation virtually impossible. (More recently, New York’s Mayor Michael Bloomberg tried to adopt a similar approach; but it failed).

The traffic crisis in large cities indicates that it is time to think creatively about alternatives to the private car. Given the global recession that has hit car manufacturing the hardest, it could be argued that this is not the appropriate time to plan to do away with cars. Right now policy makers hardly worry about congestion; they fret about the fact that cars collect dust in dealers’ lots. Unsold cars mean major troubles for the industry worldwide and especially here in America where General Motors, once the symbol of industrial America is teetering on the edge of bankruptcy. In this nasty situation, we are reminded that the auto industry is an icon, that it is the symbol of our industrial prowess. Indeed, if auto goes down it will bring down a huge chunk of the economy, a real catastrophe for the US. And all this may very well be true.

But, leaving aside immediate concerns about the underperforming management at GM or Ford, we have a strategic challenge ahead of us. The real problem is that we have allowed the car industry to have become so central in the US because of our lack of fantasy about transportation modalities, notwithstanding the well known and growing problems caused by too many cars in more and more congested cities.

Let’s try and reframe the issue. Americans, just as the Europeans or the Asians do not need “cars” per se; they need functional, comfortable, affordable systems that allow freedom of movement. The car happens to be one modality. The fact that it has become dominant is due to both its happy beginnings and to our lack of fantasy in thinking about alternatives, even after the disadvantages of the semi-exclusive focus on the car became apparent.

We do understand that, in this emergency mode, at present the chief concern is to save the auto industry because of all the millions of jobs that it creates. And this is fine. But we should not allow the current economic slump and its disastrous impact on the car industry to overshadow the need for fresh approaches to mobility in large urban areas. Present crisis notwithstanding, it would be wise to start thinking about a way to transition away from an industry that produces a tool that is no longer optimal for the fulfillment of personal mobility needs.

The economic consequences of Detroit’s collapse are urgent and real. Still, pressed by the need to reverse this calamity, once more we do not seem to have the opportunity to examine strategic alternatives, some of which would question the wisdom of assuming that the car industry should continue to be the center of our economy because it produces goods that we absolutely need. 

The truth of the matter is that, if we leave out the urgency of the present sitaution, at least in principle, it is quite possible to think of a new model in which the personal mobility needs of most Americans can be fulfilled through means other than a private vehicle. If this were indeed so, then the need for a vast industry justified on the basis of a customers base of millions of people eager to buy, trade and upgrade cars would vanish. The industry would not disappear, as there would still be a need for vehicles; but it would become far less significant, at least less important than what it is today. The auto industry would become just another component of our manufacturing, as opposed to being its backbone, the sector that sustains almost everything else because of its sheer size, supply chains and reach.

If we take a step back, away from the current crisis, there are many arguments against the continued dominance of the private automobile as the primary means that allows individuals to get around as they please. The rising price of fuel should be one reason. But we are not there yet. Of course, last year most Americans experienced the gasoline price shock. But, unfortunately it was all too brief to cause a real transformation. For a while at least, the price scare will stay in the collective memory; but it did not last long enough to cause a deep reflection on the cost effectiveness of the private automobile. And now, gasoline prices being lower, we are back to business as usual. Of course, we should be mindful that current lower prices are temporary, the result of the worldwide recession. There is no indication that low prices are here to stay. Unless there are some gigantic new oil discoveries that would substantially add to supply, as the world economy will recover, global demand will go up again and so will prices. We may not get to oil at over $ 140 a barrel very soon; but it is unlikely to stay at $ 40.

But, while a likely gasoline price increase should be considered as a powerful factor against the (future) cost effectiveness of the private automobile, it is not the main one. We could imagine future automobiles magically running on a cheap and non polluting substance. And yet a strong case against the automobile could still be made.

And the case is very simple and before our very eyes. There are just too many of us trying to exercise at the same time our individual right to move around as we please, when we please, with our own vehicle. The net result is road congestion, longer and longer commute time and gridlock. (Commuting is the result of people moving to larger yet affordable houses in suburbs. The trade off of a bigger house was a long drive to the work place. That seemed fine when roads could accomodate that traffic. Nowadays, millions of commuters jam the highways, thus lengthening commuting time for all). This is not just a bit of inconvenience every now and then. This is a systemic crisis that has reached gigantic proportions in most large metropolitan areas, in the US and around the world. However, strangely enough, there is no general perception that this indeed an urgent problem.

Just like the proverbial frog swimming in the pot of progressively warmer water, we end up being cooked without even realizing it. Indeed, it is mind boggling that we have become so used to the diminishing returns caused by too many automobiles on the road that we do not even notice the contradiction between the purpose of the car and the reality of gridlock caused by having too many of them jamming the roads. The very tool that we have chosen to make life easier for us is actually making it more difficult.

Of course congestion does not occur everywhere; and a strong case can easily be made for private vehicles in sparsely populated rural areas. But congestion is common place in most large urban areas and in the highways connecting them. And large urban areas are where most people live.

Until now the only answer to congestion has been to build new roads or to add lanes to the existing ones. We have also come up with other gimmicks. As people need their cars to go shopping, we have created shopping centers and we have moved them away from city centers, so that we can have the indispensable large parking lots that shoppers need. But none of this solves the problem. Congestion grows and mobility is reduced.

As long as the private automobile will remain the default, dominant component of any transportation concept, there is no way out. The only way is in changing the approach. And this would include shifting the focus to the real objective of the transportation conundrum. Again, people do not need cars, they need systems that would allow them to get from here to there when they want, in a comfortable way, at a reasonable speed and cost.

Already quite a while ago, it was thought that underground mass transit systems could provide an efficient and reliable transportation modality and thus a possible alternative to private cars. And, in principle, this may be true. Except for the fact that building and maintaining large underground systems is extremely expensive. Furthermore, there are other structural problems. Precisely because of the increased mobility made possible by the private car, many American cities have spread out. Millions of people live in wider and wider, low density suburbs. It is just not cost effective to build a large network of underground rail aimed at scooping up people scattered in very large areas.

But there are perfectly viable, lower cost alternatives to building underground systems. And they can be achieved through fast, reliable interconnected bus systems that would function pretty much in the same way as underground lines, except that they would run on the existing roads, thus avoiding the tremendous cost of constructing  dedicated underground systems. The major problem in achieving this solution is the availability of dedicated bus lanes that would allow buses to run essentially like trains. In present circumstances this would be impossible, as buses would compete with private automobiles for limited road space. And without dedicated bus lanes, there goes the convenience and higher speed that would make public transport more desirable. If you are going be stuck in traffic; you may as well do so in the privacy of your own car.

And here is where the shift in thinking should take place, as difficult as it may be. Would you give up the right to use your car if this would mean allowing an interconnected network of fast, reliable buses taking its place? The main objection against the bus nowadays is that buses are late, often overcrowded and slower than a car. They move at the same speed of the rest of the traffic; while, in addition, they have to make all those stops.  

But imagine a future world with a lot more buses that can go more places and that do not get stuck in traffic, as they will no longer compete against all those cars. Again imagine the ability to change buses in really functional interconnected stations where you easily exit bus A and within a covered, practical, sheltered space, you get into bus B without the inconvenience of waiting endlessly in the cold or in the rain. This is actually not a fantasy. Go to Curitiba, In Brazil and you shall see a system built along those lines in operation. it took a while; but original thinking and experimentation created a viable, reliable alternative to the private car.

Alright. So this shift to a network of fast buses is doable. Except that in order to get there we would need a real revolution. No more private cars in large metropolitan areas. Build the bus inter-connectors. Design and manufacture the new, customer friendly buses of different shapes and sizes, depending on the routing and the load expected. Fine tune the whole mix so that service is seamless and reliable. And there you have it: a bus stop just next to your home and a bus service that takes you virtually anywhere with a few easy changes through station that are covered and practical.

But is it even remotely conceivable to have such a revolution in our thinking about mobility in a society so profundly dominated by the private automobile? In truth, the very inconvenience caused by car congestion should spur people to think about something else. But assuming that it is difficult to quickly change a long established mind set, let alone all the huge, entrenched economic interest that would be hurt by dramatic changes, let’s not have a revolution. Knowing that a transformation of this magnitude, touching upon everything: our personal habits, the industrial base, the make up of cities etc. etc. cannot be mandated, let alone achieved quickly, let’s think about a reasonable transition period in which we can phase in all these changes. Still, even with well planned transitions it will not be easy.

But if we resist these changes because of their intimidating magnitude, then the alternative is more of the same. We shall be condemned to live with the diminishing returns caused by congestion and gridlock, (not to mention pollution and greenhouse gases, at least until we use gasoline as the default fuel), with the ensuing waste of billions of dollars, because people wasting hours and hours in cars burn fuel while sitting idle in an unproductive way. If we think that we have to endure the ill effects of this automobile dominated environment because “this is the way it is”, we are not only unimaginative, we are also quite dumb.