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Guantanamo State of Mind

Guantanamo State of Mind

President Obama should reject arrogant unilateralism

Jacob Sullum

Seven years ago, the Pentagon began imprisoning men it described as "very hard cases," "the worst of the worst" among terrorists in American custody, at the U.S. Naval Base in Guantanamo Bay, Cuba. Since then it has released more than 500 of them. "What's left," Vice President Dick Cheney declared last week, "is the hard core." That was right before the Pentagon released half a dozen more.

Unless the Bush administration recklessly loosed hundreds of hardened terrorists on the world, the president's men evidently were mistaken when they said every detainee belonged in that category. That pattern of error reinforces the argument against allowing the executive branch to wield the kind of unchallengeable authority it asserted at Guantanamo.

As President Obama proceeds with his plan to close the prison, he should recognize that Guantanamo is not so much a place as a state of mind. It's an attitude that says: We know who the bad guys are, and we're not about to let anyone endanger national security by second-guessing us.

The Bush administration manifestly did not know who the bad guys were. Its methods for identifying "unlawful enemy combatants," defined as anyone, anywhere who belonged to or supported the Taliban or Al Qaeda, were sloppy and haphazard.

More than 90 percent of the 779 men held at Guantanamo were captured not by Americans but by Afghan militiamen, Pakistani forces, or other parties of dubious reliability, often in anticipation of bounties the U.S. had promised. Many detainees were either minor hangers-on or entirely innocent, held based on the uncorroborated word of self-interested captors or of prisoners eager to please interrogators who used "enhanced" techniques to extract accusations.

The Pentagon acknowledges that 17 Chinese Muslims it has held since 2002 were incorrectly identified as unlawful enemy combatants but says it cannot send them back to China because they might be persecuted there. At the same time, it has appealed a federal judge's order to release them in the U.S.

Haji Bismullah, one of the men freed over the weekend, fought the Taliban and later served as a regional transportation official in Afghanistan's pro-American government. After members of a rival clan who coveted his position accused him of terrorist connections, he was held at Guantanamo for nearly six years before a military panel, belatedly paying attention to the witnesses who vouched for him, decided he "should no longer be deemed an enemy combatant."

Since the Supreme Court ruled last June that Guantanamo detainees may pursue habeas corpus petitions in federal court, the government has lost 23 of 26 cases. The most recent one involved Mohammed el Gharani, a Chadian who was detained by Pakistani forces at a Karachi mosque in 2001, when he was 14.

Last week U.S. District Judge Richard Leon ordered Gharani's release, finding that the case against him was based almost entirely on the unconfirmed, inconsistent accounts of two prisoners whose reliability the government itself had questioned. Among other things, Gharani was accused of belonging to a London-based Al Qaeda cell in 1998, when he was 11 and living in Saudi Arabia.

In November, Leon ruled that the government did not have enough evidence to detain five Algerians who were arrested in Bosnia in 2001 and accused of intending to fight with the Taliban. He found that the charge was based "exclusively on the information contained in a classified document from an unnamed source."

Leon, a Bush appointee who ruled in 2005 that Guantanamo detainees could not pursue habeas corpus claims, probably was inclined to side with the government. Furthermore, under the standard he applied, the Bush administration only had to show by "a preponderance of the evidence" (a likelihood of more than 50 percent) that the prisoners' detention was appropriate.

These cases therefore speak volumes about the fallibility of the executive branch and the need for independent review of its detention decisions. I hope our new president is listening.

Geithner Apologizes for Not Paying Taxes

Hopes for the Obama Presidency

Hopes for the Obama Presidency

Marshal the Power of Government

By Katrina vanden Heuvel

President Barack Obama will need to act swiftly and invest political capital -- along with trillions of dollars -- in a sustained recovery program. While many caution our new president to tread carefully, the reality is that half-steps will not lay the groundwork for a new economy that is more just and fair. Only by effectively marshaling the power of government can Mr. Obama improve the actual conditions of peoples' lives -- and consign antigovernment evangelists to the dustbin of history.

Notable Contributors Weigh In

• Katrina vanden Heuvel
• Glenn Harlan Reynolds
• Sarah Palin
• Shelby Steele
• Francis Fukuyama
• Newt Gingrich
• Michael Milken
• José Maria Aznar
• George McGovern
• Al Sharpton
• Edmund S. Phelps

Fortunately, Mr. Obama has a mandate for change. People support reconstruction of America's crumbling physical infrastructure, and of our society. Here are a few steps I hope Mr. Obama will take: Reverse our deepening economic inequality by using this country's still immense wealth to assure that all Americans have the health care, housing and education they need; re-engage the world with wisdom and humility about the limits of military power; cut billions from wasteful defense budgets that empty our treasury without making us more secure; tackle the deep corruption in a financial system that consistently favors corporations over workers; respond with urgency to the climate crisis with an Apollo-like project to make America a clean-energy innovator; restore our tattered Constitution; protect a worker's right to organize; define a new spirit of sacrifice and service; clean up our elections; and reaffirm his campaign-trail commitment to end not just the war in Iraq but also "end the mindset that took us into" that war. Do not endanger the promise of this administration by escalating militarily in Afghanistan, further draining resources that are vital for rebuilding here at home.

That's a bold agenda millions can believe in. In fact, it's what millions voted for.

Ms. vanden Heuvel is editor and publisher of The Nation.

Let's Show Each Other Some Respect

By Glenn Harlan Reynolds

I agree with Barack Obama on some issues and disagree on others, but my hopes for the Obama presidency have mostly to do with tone. By reaching out to conservative columnists, and by going out of his way to say that he thinks George W. Bush is "a good man," Mr. Obama has made some efforts to transcend the nastiness that has emanated from much of the Democratic Party over the past eight years, where open hatred of Mr. Bush and Republicans has been a major source of social bonding. That is a wise move on his part, as it makes it less likely that Republicans will return the favor. Venomous hatred by the opposition seriously harmed the Clinton and Bush administrations, and Mr. Obama will have a much more successful presidency if he can avoid similar problems. Whether this approach succeeds or not, however, will depend on whether his followers go along; in this, it is an early test of President Obama's ability to lead.

I will make one policy proposal. Some of my fellow libertarians hope that the Obama administration will put an end to the drug war. I hope so too, but I'm not too optimistic. Instead, I propose a smaller step toward freedom -- eliminating the federally mandated drinking age of 21. This mandate was a creature of Elizabeth Dole (who is no longer in the Senate to complain at its abolition), and it has unnecessarily limited the freedom of legal adults, old enough to fight for their country, to drink adult beverages.

What's more, as the 130 college presidents of the Amethyst Initiative have noted, rather than promoting safety, it has largely created furtive and less-safe drinking on campus. As a former professor of constitutional law, President Obama knows that the Constitution gives the federal government no legitimate role in setting drinking ages. Returning this decision to the states would be a step for freedom, a step toward honoring the Constitution, and a step away from nannyism. It would also be a particularly fitting act for this administration. Barack Obama received enormous support from voters aged 18-21. Who better to treat people that age as full adults again?

Mr. Reynolds is a blogger and law professor at the University of Tennessee.

Tax Cuts and Fiscal Discipline

By Sarah Palin

Especially evident in these trying economic times is America's need for affordable, abundant and secure energy. This means American energy resources developed through American ingenuity and produced by American workers. I applaud President Obama's focus on alternative and renewable energy, and here in Alaska we've joined the effort: I have asked Alaskans to focus on obtaining 50% of our electric generation from renewables by 2025. In the meantime, we must not abandon oil and gas exploration and development. In fact, Americans should demand the cooperation of the major oil producers so that Alaska's vast supply of clean natural gas can be brought to market. Alaska stands ready to positively contribute to the nation's markets and energy needs.

Another step on the path to economic recovery is to let Americans keep more of their income. Mr. Obama and Congress could make this happen with permanent tax cuts and by adhering to a path of fiscal discipline. When congressional appropriation trains run too hastily, they accumulate excess baggage, spending more taxpayer money. Leaving more money in American pockets through tax cuts and fiscal discipline stimulates the business-investment and job-creation climate -- the climate for economic recovery.

Finally, we are extremely proud of our men and women in uniform. Mr. Obama and Congress must continue to guarantee a strong national defense by modernizing and equipping our armed forces; by treating active-duty military and veterans fairly; and by supporting the families of our service members. America will face difficult challenges in the years ahead. As Mr. Obama takes the helm, our prayers are with him as he seeks direction for our great nation.

Mrs. Palin is governor of Alaska.

Black America Could Have Done Better

By Shelby Steele

When one's candidate loses in American politics, it is only good manners to offer best wishes to the winner. And I wish Barack Obama well as the new president of the United States. I hope he gets to govern in a quiet world. And I am proud that America could elect a black president, though I've known this was possible at least since 1996, when Colin Powell might well have beaten a then weak Bill Clinton. So I feel earnest goodwill toward this new administration, but I'm afraid my actual "hopes" for it run to the negative.

I hope this administration does not succeed in dumping vast amounts of printing-press money into the economy, so that taxes must later be raised to withering levels. I hope it fails to universalize health care or to sustain race-based affirmative action. I hope school choice happens in inner cities despite Mr. Obama's animus toward it.

Barack Obama's victory was an ideological defeat for modern conservatism and a devastating blow to the Republican Party. It wasn't just a case of one centrist candidate slipping past another centrist candidate at the finish line. This defeat -- helped along by a sinking economy -- was on the level of ideas. It points to nothing less than a new and still unfolding Obama "progressivism" in which Keynes replaces Friedman and "trickle-down" gives way to "bottom-up."

This progressivism sees economic inequality as America's gravest problem, and blames it on the conservatism of free markets, lower taxes, fewer regulations and smaller government. It wants to engineer equality through redistributive tax policies, the restructuring of markets through increased regulation, an expansion of entitlements, and more governmental activism.

Of course the bad economy has checked some of Mr. Obama's progressive ambitions. He will live with the Bush tax cuts for the time being, and he may include some business tax cuts in his stimulus package. But he clearly wants a more redistributive and socially activist government. And he will be helped in this by two unique sources of authority: the urgency of our economic troubles and his moral authority as the first black president. Again, I am not hopeful for him here, and I despair at seeing the moral capital of my race put to these ends.

Mr. Steele is a research fellow at Stanford's Hoover Institution.

Get Serious About Entitlements

By Francis Fukuyama

President Obama has spoken a lot about being a "postpartisan" president, and there is one particular respect in which I hope this comes true. We find ourselves in a pretty dire situation. The baby-boom generation -- of which I'm a member -- has gone through its peak earning years overconsuming, not saving enough, and exempting itself from as much taxation as possible. This could happen only because savers in places like China were willing to hold a seemingly endless number of dollars to finance this binge. We've had a pretty good ride, but things aren't going to continue in this fashion.

Once growth resumes, the Obama administration is going to have to pivot on a dime, cutting expenditures, raising taxes, and stopping the dollar printing presses. That would be hard enough to do even if we had no long-term fiscal crisis. No American politician in recent years has been able to talk honestly with the American people about the need to do things like raising the retirement age, rationing expensive medical procedures, or imposing a stiff tax on carbon. Mr. Obama has a great gift of language. One of the things he needs to do with this gift is to create a new framework for understanding taxes and spending, and a new sense of intergenerational responsibility in Americans.

Mr. Fukuyama is a professor at the Johns Hopkins School of Advanced International Studies.

Get Real on Spending and the Mideast

By Newt Gingrich

President Barack Obama is one of the smartest leaders ever to occupy the White House. His transition has been centrist and responsible in tone. His appointments have been establishmentarian far more than radical left. His outreach to conservative intellectuals and to Republicans in the Congress has been positive and has had serious impact.

On the other hand, he has sustained the wildly expensive and ultimately destructive Bush policy of endless bailouts and government-centered stimulus packages. Mr. Obama's trillion dollars on top of Mr. Bush's trillion dollars represents the largest orgy of government control and government expenditure since the New Deal. The New Deal probably extended the Great Depression by at least five years. In fact, the United States did not really begin to recover from the crisis until World War II mobilization and procurement created massive economic growth.

There is a grave danger that the Obama administration will increase the power of government, but do so at the expense of the economy and of jobs. Similarly, the Obama team continues to articulate pious platitudes about setting a new tone in the Middle East while Hamas enthusiastically fires rockets into Israel and taunts the Israelis into launching larger and larger attacks on Gaza.

My deepest hope for the new administration is that in both domestic economics and foreign threats it will rapidly learn to distinguish between reality and its own campaign rhetoric.

Mr. Gingrich is a former speaker of the House of Representatives.

Develop Human Capital

By Michael Milken

My hopes for the new administration are in two areas: the deployment of financial capital to lower mortgage interest rates so struggling homeowners can keep their homes; and the development of human capital through education and immigration reform, disease prevention and medical research. All qualified citizens can attend our world-class universities with assistance from government Pell grants. We need equivalent access to excellence through Pell-type grants in K-12 programs and even more importantly, in early childhood education. We should also alter immigration restrictions that exclude many of the world's brightest students, entrepreneurs, artists and scientists. Their contributions as citizens would create millions of new jobs without threatening American workers.

Second, as a physically fit role model, President Obama can provide leadership on the health and economic benefits of disease prevention through an active lifestyle and sensible nutrition. This will raise productivity and lower medical costs. If the average weight of Americans simply returned to early 1990s levels, the reduction in chronic-disease costs would boost our economy annually by an estimated $1 trillion -- at no cost to the government. And if we invested a small portion of that health dividend by doubling medical-research funding, the economic effect would be worth trillions more, in addition to the incalculable benefit of lives saved.

Mr. Milken is chairman of the Milken Institute in Santa Monica, Calif.

Prepare to Be Tested

By José Maria Aznar

President Obama has raised a new wave of hope. Millions of people inside and outside the United States are wishing him all the best in his endeavor, and so do I.

We have reached a defining moment in the history of liberty around the world. That is why I believe that his most serious responsibility is to preserve hope. I have not come across a better definition of hope than the one Abraham Lincoln proclaimed in his Gettysburg Address. To me hope means that the U.S. continues to be the great nation based on the principles of liberty and human dignity that Lincoln represented.

Tragically, we know that there have been attempts to destroy those principles. Thank God, the American people have shown courage and resolve to stand for them. That is not only a sign of hope for America but also for the rest of the world. The main responsibility of Mr. Obama is to preserve that wave of hope. Those who want to finish it will not wait long to test him.

Mr. Aznar was prime minister of Spain (1996-2004).

Feed the Hungry

By George McGovern

I would discourage any increase in the American military presence in the Middle East. We can't afford any more wars like the one in Iraq -- and that includes a wider war in Afghanistan. Nations that have tried to impose their will on the Middle East by military means have all failed.

Here is something I wish President Obama would do: Substantially increase our contribution to the U.N. World Food Program, which administers an international school lunch program. The aim of this program is to provide a good, nutritious school lunch every day for every hungry, school-age child, beginning with the poorest countries. As matters now stand, there are 59 million children attending school in the poorest countries who have no lunch during the school day. Another 72 million school-age children in these countries are not in school and are hungry. Most of these children are girls.

Girls who stay at home, illiterate for a lifetime, marry very young and have an average of six children. Those who attend school wed later in life and have an average of just under three children. In short, we are using food and education to cut the birthrate in half in the poorest, most overcrowded countries.

What would it cost to feed the 59 million children now in school who get no lunch, plus the 72 million hungry kids not in school? The total bill would come to $6.5 billion. If the U.S. paid $1.5 billion, and other countries paid $5 billion, we could reach all the children in the poorest countries. Might this not only be much cheaper than another war, but a better way of increasing our standing in the world and a more effective instrument of reducing terrorism?

Mr. McGovern is a former senator from South Dakota and the 1972 Democratic presidential candidate.

The Fairness Struggle Isn't Over

By Al Sharpton

For the first time, America has a president from my race. While we all wish it were otherwise, challenges will continue to plague our nation throughout Barack Obama's presidency. There still will be racial issues like Jena Six, tragic police-community exchanges like the recent Oakland, Calif., case and the Sean Bell shooting in Queens, N.Y., severe economic hardship, and a broken education system. But I firmly believe that President Obama -- with America's help -- can make significant strides in all of these areas. In fact, they are all related.

Dramatically improving education, the civil-rights issue of our time, is central. My belief is that Mr. Obama will close the devastating achievement gap among white and black and brown students so that all of America's children have the opportunity to learn and thrive. Currently, almost half of America's black children never make it out of high school.

Vital to the continued evolution of a more just America is to have a justice system that is fair, impartial and responds swiftly to instances of discrimination and police misconduct. I believe that the Obama administration understands the simple notion that all crimes, whether committed by a common criminal or a policeman, must be prosecuted vigorously. And when a community feels as much fear from the police as they do from criminals, and they allege possible police misconduct, that community must be reassured the alleged misconduct will be examined fairly.

Finally, while I do not necessarily expect the Obama administration to continue the dialogue on race in America, I sincerely hope that it does. That discussion should be joined by black and Latino leaders in pressing for greater personal and parental responsibility and relying no longer on excuses, whether or not they are legitimate. Personal responsibility and accountability is as important as the collective efforts at achieving equality, because without it, people will be ill-prepared to take advantage of true opportunity.

Some believe that the struggle for fairness and equity ended with the election of Barack Obama as president. It did not. But we can make great strides toward that lofty goal by helping our president, and by our president hungering, as I know he will, to be the last American president of an unequal nation.

Rev. Sharpton is a civil-rights activist.

Rewarding Work

By Edmund S. Phelps

Capitalist systems have no preset course, no predictable destination. Every government, though, seems to have a mission. We have just been through a regime of "compassionate conservatism," with its crusade to boost homeownership over renting, give free pills to the elderly, and implant democracy overseas. There was not much compassion, though, for the low skilled and those depending on fiscal responsibility for their future Social Security benefits.

Now a staggering economy impels the new administration to take on a different mission -- to remake the economy on the "ideas of our forebears." I welcome the announced projects for more and better infrastructure -- roads, bridges, airports, broadband, and the electric grid. This initiative -- even if taken by every country -- will contribute a net increase to employment in the capital goods sector and to aggregate employment in the U.S. In contrast, global tax cuts to households, to the extent they stimulate a world-wide increase in consumer demand, will drive up world interest rates and could thus damage employment.

I confess, though, that investing in infrastructure does not make my heart soar. Glaringly omitted from President Obama's announced plans is the idea of boosting another kind of social investment. In his victory speech after the North Carolina primary win, he spoke feelingly of the centrality of work in everyone's life, recalling how much his father-in-law's job had occupied his thoughts and given him pride. He spoke of "rewarding work," the title of my 1997 book on using tax credits to induce companies to employ more low-wage workers.

Instead, a proposed cut in the payroll tax rate -- up to a certain earnings level -- is planned. Low-wage earners will get their piece of it. But that will not be enough of a pay boost to create careers of self-discovery and transform neighborhoods and cultures among the least advantaged. My hope is that it is not too late to revert to the ideas expressed in North Carolina.

Mr. Phelps, a professor at Columbia University, won the 2006 Nobel Prize in economics.

Meet President Obama

Meet President Obama

He begins with a serious, solid Inaugural Address.

• By PEGGY NOONAN

Washington

Teddy Kennedy is gallant. He attended the swearing-in of the new president on Tuesday in the midst of serious illness, white-haired and frail—in his jaunty fedora he looked like his father, old Joe Kennedy, in 1939, when he first burst on the scene as the new American ambassador to the Court of St. James. The senator smiled as he walked toward his seat, sweetly blowing a kiss to a friend in the stands. Later, at the congressional lunch, he collapsed.

AP

Four years ago it was Chief Justice William Rehnquist, who rose from his sickbed to swear in George W. Bush for a second term, and who died 7½ months later of the cancer from which he'd long suffered. Such personal gallantry has long graced our national life, and in its way makes that life possible. And so it should always be noted, with gratitude, and a tip of the hat. As I write I can hear the ambulance that is taking Sen. Kennedy to the hospital. He is a courteous person, much like the Bushes in being an old-school writer of notes and maker of calls, and one suspects very soon we'll be hearing that he called the new president to apologize for stepping on his story.

All this did have a somewhat subduing effect on the day. But then the Inaugural Address itself was somewhat subdued.

The joyous crowd, an estimated two million strong, did not seem ready to let President Obama speak when he took the podium; they were cheering, clapping and shouting and didn't seem to want to stop. The new president seemed prepared for this, and barreled through and on, saying "My fellow Americans" with a quieting authority. The audience settled down. But it was a real expression of the feeling of the day, the wave upon wave of cheers and chants that came from the sea of people.

This is what Mr. Obama said:

In a time when all wonder if our nation's best days are behind us, we need to know that the answer is no. We continue. We go on. This is not journey's end.

That, I think, is what the-18 minute speech came down to. Are we in a difficult moment? Yes, it is a time of "gathering clouds and raging storms." There is "a nagging fear that America's decline is inevitable, and that the next generation must lower its sights." We face great challenges, but "know this, America—they will be met." How? We will meet them by being who we are. Our success depends on the American "values" of "hard work and honesty, courage and fair play, tolerance and curiosity, loyalty and patriotism." He said, "These things are old. These things are true." Like those who've long fought in our armed forces, Americans have shown "a willingness to find meaning in something greater than themselves."

It was a moderate speech both in tone and content, a serious and solid speech. The young Democrat often used language with which traditional Republicans would be thoroughly at home: The American story has never been one of "shortcuts or settling for less," the journey "has not been . . . for the fainthearted—for those who prefer leisure over work, or seek only the pleasure of riches and fame. Rather, it has been the risk-takers, the doers, the makers of things" who have created the best of our enduring history

Obama named in stark terms America's essential foe: "For those who seek to advance their aims by inducing terror . . . we say to you now that our spirit is stronger and cannot be broken; you cannot outlast us, and we will defeat you." This had the authentic sound of a man who's been getting daily raw intelligence briefings and is not amused.

It was not an especially moving or rousing speech, but the event itself, the first major address of a new president from a new generation and a previously unrepresented race, was inherently moving. The speech was low-key, sober. There was not a sentence or thought that hit you in the chest and entered your head not to leave. But it was worthy, had weight, and was adult. In fact, Mr. Obama lauded a certain kind of maturity: "In the words of Scripture, the time has come to set aside childish things." This was a call for a new nobility that puts aside "petty grievances and false promises" that have marked the oral culture of our modern political life. He seemed to be saying that the old, pointless partisanship of the past does not fit the current moment.

"Starting today, we must pick ourselves up, dust ourselves off, and begin again the work of remaking America." For those with enough years to recognize it, that was an echo of a famous World War II-era song by Jerome Kern and Dorothy Fields. Fred and Ginger sang it: "Pick yourself up, dust yourself off, and start all over again."

We come from a hardy people, from those who crossed the seas, "toiled in sweatshops and settled the West; endured the lash of the whip and plowed the hard earth," and those who fought in "Concord and Gettysburg, Normandy and Khe Sanh." In that last, the American experience in Vietnam was unselfconsciously valorized by the post-Boomer president. Good.

Domestically, Mr. Obama suggested, somewhat strikingly if now conventionally, that while Ronald Reagan was wrong in saying, in his first inaugural, that "government is not the answer, government is the problem," Bill Clinton too was wrong in saying, in a State of the Union, that "the era of big government is over." Such talk, Mr. Obama suggested, is beside the point. "The question we ask today is not whether our government is too big or too small, but whether it works." Programs and policies that are effective should move forward, and those that are not "will end." He said that those who "manage the public's dollars" are obliged "to spend wisely . . . and do our business in the light of day." Greater transparency and spending that is not wasteful will "restore the vital trust between a people and their government."

In foreign affairs Mr. Obama signaled a break with Bush policy through the most memorable assertion in the speech: "Our power grows through its prudent use." "America," he said, "is a friend of each nation and every man, woman and child who seeks a future of peace and dignity." He suggested a new emphasis on "sturdy alliances." He lauded "humility and restraint," and the force of "our example."

I don't know what the networks will use as the sound bite, that rather ugly word, now some 35 years old, that speaks of the short piece of audio- or videotape they will use to show the highlight of the speech, or capture its essence. This is not all bad. When a speech is so calm and cool that you have to read it to absorb it fully, the speech just may get read.

This was not the sound of candidate Barack Obama but President Obama, not the sound of the man who appealed to the left wing of his party but one attempting to appeal to the center of the nation. It was not a joyous, audacious document, not a call to arms, but a reasoned statement by a Young Sobersides.

Bachmann Discusses Multi-Billion Dollar Financial Bailout on Cavuto

Peter Schiff 1/20/09 - CNBC Kudlow & Company [Part 1]

A 'Responsibility' Era

A 'Responsibility' Era

A pragmatic call to Americans to lift our national game.

Whatever your partisan inclinations, the sight yesterday of two million Americans cheering the peaceful transfer of power to a new President should stir some patriotic pride. Mr. Obama more than met the moment with an Inaugural Address that invoked America's historical purposes and optimism, as well as a bracing challenge to lift -- as he might put it in a less formal setting -- our national game.

AP

We were especially taken with President Obama's call for "a new era of responsibility." This is the phrase his press folks had leaked the day before, and if they did so to drive the theme home, so much the better. This is a useful message for Americans of all walks of life to hear -- from Wall Street CEOs to unmarried fathers to AARP lobbyists in Washington. The prosperity of recent decades has produced a culture of entitlement and sometimes even of complacency.

In several ways, Mr. Obama was calling Americans to larger purposes that will require more work and sacrifice. In diagnosing the cause of our economic distress, he scored not only the easy mark of "greed" but also stressed "our collective failure to make hard choices and prepare the nation for a new age." He might have been referring to home buyers who took out "liar loans," Senators who got sweetheart mortgages, and executives who walked away with bonuses for profits that proved illusory.

While the President argued that we face a "crisis," and spoke of "gathering clouds and raging storms," he pushed back against the "nagging fear that America's decline is inevitable, and that the next generation must lower its sights." He acknowledged that "the challenges we face are real," but added: "[K]now this, America -- they will be met."

In "reaffirming the greatness of our nation," Mr. Obama tapped into the deep well of optimism about our country and our future that is, still, characteristically American. And there can be no doubt that the throng who came to see him sworn in, and many millions of others around the U.S., see in Mr. Obama a chance for renewal.

At the same time, the President was vague about how he intends to move from rhetoric to action. Inaugural speeches are no place for policy lists. But at their best they are a statement of the first principles that will guide the new administration. Ronald Reagan famously said in 1981, "In this present crisis, government is not the solution to our problem; government is the problem."

Mr. Obama's first principles were harder to discern. He acknowledged that the power of the market "to generate wealth and expand freedom is unmatched," while warning it can also "spin out of control." He added that "the question we ask today is not whether our government is too big or too small, but whether it works," and said that where it doesn't, "programs will end." This all sounds like traditional American pragmatism. But his use of the passive voice is revealing -- no government program ever ended of its own accord, and ending them takes political will. He is of course also proposing the largest expansion of entitlements in two generations (see here).

Perhaps most encouraging was the President's clear declaration that we are indeed fighting a "war" against "those who seek to advance their aims by inducing terror and slaughtering innocents." Many of his supporters on the left, and around the world, have been hoping that Mr. Obama will return U.S. national security policy to its pre-9/11 assumptions. The Democrat was warning our adversaries -- and some of our allies -- that his foreign policy will have as much continuity as change, and that he isn't about to jettison policies that protect Americans.

We expect to have our differences with our 44th President in the months ahead, but his Inaugural call to greater responsibility and renewed national purpose is one that all Americans can unite around.

Rules for International Monetary Reform

Rules for International Monetary Reform

by Jesus Huerta de Soto

In chapter 9 of my book, Money, Bank Credit, and Economic Cycles (pp. 789–803), I design a process of transition toward the only world financial order that, being fully compatible with the free-enterprise system, can eliminate the financial crises and economic recessions that cyclically affect the world's economies. Such a proposal for international financial reform is, of course, extremely relevant at this time, since the disconcerted governments of Europe and America are planning a world conference to reform the international monetary system in order to avoid future financial and banking crises such as the one that currently grips the entire Western world. As I explain in detail over the nine chapters of my book, any future reform will fail as miserably as past reforms unless it strikes at the very root of the present problems and rests on the following principles:

1. the reestablishment of a 100% reserve requirement on all bank demand deposits and equivalents;

2. the elimination of central banks as lenders of last resort (which will be unnecessary if the first principle is applied, and harmful if they continue to act as financial central-planning agencies); and

3. the privatization of the current, monopolistic, and fiduciary state-issued money and its replacement with a classic gold standard.

This radical, definitive reform would essentially mark the culmination of the 1989 fall of the Berlin Wall and real socialism, since it would mean the application of the same principles of liberalization and private property to the only sphere — finance and banking — that has until now remained mired in central planning (by "central" banks), extreme interventionism (the fixing of interest rates, the tangled web of government regulations), and state monopoly (legal-tender laws, which require the acceptance of the current, state-issued fiduciary money) — circumstances with disastrous consequences, as we have seen.

I should point out that the transition process designed in the above-mentioned chapter of my book could also permit, from the outset, the bailing out of the current banking system, thus preventing its rapid collapse, and with it the sudden monetary squeeze that would be inevitable if, in an environment of widespread broken trust among depositors, a significant volume of bank deposits were to disappear.

This short-term goal, which, at present, western governments are desperately striving for with the most varied plans (the massive purchases of "toxic" bank assets, the ad hominem guarantee of all deposits, or simply the partial or total nationalization of the private banking system), could be reached much faster and more effectively, and in a manner much less harmful to the market economy, if the first step in my proposal for reform (page 792 in my book) were immediately taken: to back the total amount of current bank deposits (demand deposits and equivalents) with cash, bills to be turned over to banks, which from then on would maintain a 100% reserve with respect to deposits. As I explain in chapter 9, chart IX-2, which shows the consolidated balance sheet for the banking system following this step, the issuance of these bills would in no way be inflationary (since the new money would be "sterilized," so to speak, by its purpose as backing to satisfy any deposit withdrawals).

Furthermore, this step would free up all banking assets (toxic or not) that currently appear as backing for demand deposits (and equivalents) on the balance sheets of private banks. On the assumption that the transition to the new financial system would take place under "normal" circumstances, and not in the midst of a financial crisis as acute as the current one, I proposed in my book that the freed assets be transferred to a set of mutual funds created ad hoc and managed by the banking system, and that the shares in these funds be exchanged for outstanding treasury bonds and for the implicit liabilities connected with the public social-security system (pp. 796–797).

Nevertheless, in the current climate of severe financial and economic crisis, we have another alternative: apart from canceling "toxic" assets with these funds, we could devote a portion of the rest, if desired, to enabling savers (not depositors whose deposits would already be backed 100 percent) to recover a large part of the value lost in their investments (particularly in loans to commercial banks, investment banks, and holding companies). These measures would immediately restore confidence and would leave a significant remainder to be exchanged — once and for all and at no cost — for a sizeable portion of the national debt, our initial aim.

I conclude with an important final warning: naturally (and I must never tire of repeating it) the solution I propose is only valid in the context of an irrevocable decision to establish a free-banking system subject to a 100% reserve requirement on demand deposits. Any of the reforms noted above, if adopted in the absence of a prior, firm conviction and decision to change the international financial and banking system as indicated, would be simply disastrous: a private banking system that continued to operate with a fractional reserve (orchestrated by the corresponding central banks), would generate — in a cascading effect, and based on the cash created to back deposits — an inflationary expansion like none other in history, one which would eventually finish off our entire economic system.

Tuesday, January 20, 2009

Why Obama must mend a sick world economy

By Martin Wolf

Pity President Barack Obama. He won power partly because of the global economic crisis. He himself, most of his fellow citizens and much of the rest of the world agree that the US broke the world economy and now has the duty to fix it. Unhappily, this consensus is false. The crisis is a product of the global economy. It cannot be cured by the US alone.

Happily, Mr Obama has the authority needed to lead the world towards a resolution: his hands are clean, and his lack of desire to exculpate his country is evident. It is also in the interest of his country and the world that the world economy be put on a sounder footing. Should this effort fail, I fear a resurgence of protectionism will be the outcome.

What then is the global failure? It is the malign interaction between some countries’ propensity towards chronic excess supply and other countries’ opposite propensity towards excess demand. This is the theme of my book Fixing Global Finance. But the biggest point about the world economy today is that the credit-fuelled household borrowing that supported the excess demand in deficit countries has come to a sudden stop. Unless this is reversed, excess supply of surplus countries must also collapse. This statement follows as a matter of logic: at world level, supply must equal demand. The question is only how the adjustment occurs.

Michael Pettis of Peking University laid out the argument in the Financial Times on December 14 2008. Professor Pettis sees the world as divided into two economic camps: in one are countries with elastic systems of consumer finance and high consumption; in the other are countries with high savings and investment. The US is the most important example of the former. China is the most significant example of the latter. Spain, the UK and Australia were mini versions of the US; Germany and Japan are mature versions of contemporary China.

I have argued that the driving force behind these “imbalances” has been the policies of surplus countries and particularly of China, whose surpluses have grown particularly quickly (see chart). A managed exchange rate, huge accumulations of foreign currency reserves and sterilisation of their monetary consequences, tight fiscal discipline and high retained earnings of companies have generated national savings rates of well over 50 per cent of gross domestic product and current account surpluses of more than 10 per cent. Household savings appear to generate less than a third of total savings. In turn, investment has poured into expanding supply, including of exports: the ratio of China’s exports to GDP rose from 38 per cent of GDP at the beginning of 2002 to 67 per cent in 2007 (see chart).

The view that the excesses of deficit countries were partly a response to the behaviour of surplus countries is shared by a number of policymakers, including Hank Paulson, outgoing US Treasury secretary. Zhang Jianhua of the People’s Bank of China is reported to have declared that “this view is extremely ridiculous and irresponsible and it’s ‘gangster logic’ ”. In this perspective, the pattern of global deficits and surpluses was solely caused by western policymakers, particularly the Federal Reserve’s lax monetary policies and unregulated expansion of credit.

Yet, whoever was most responsible, one point is certain: huge asset price bubbles made possible the excess supply of some countries, particularly China. Since the Asian financial crisis of 1997-98, the developed world – and the US in particular – have experienced, successively, the largest stock market bubble and the biggest credit-fuelled housing bubble in their histories. This era is over. We will struggle with its aftermath for years.

So what happens now? The implosion of demand from the private sectors of financially enfeebled deficit countries can end in one of two ways, via offsetting increases in demand or via brutal contractions in supply.

If it is going to be through contractions in supply, the surplus countries are particularly at risk, since they depend on the willingness of deficit countries to keep markets open. That was the lesson learnt by the US in the 1930s. Surplus countries enjoy condemning their customers for their profligacy. But when the spending stops, the former are badly hurt. If they try to subsidise their excess supply, in response to falling demand, retaliation seems certain.

Obviously, expansion of demand is much the better solution. The question, though, is where and how? At present much of the expansion is expected to come from the US federal budget. Leave aside the question whether this will work. Even the US cannot run fiscal deficits of 10 per cent of GDP indefinitely. Much of the necessary expansion in global demand must come from surplus countries.

Managing this adjustment is far and away the biggest challenge for the group of 20 advanced and emerging economies, which will meet in London in early April. Mr Obama must take the lead. He can – and should – say he expects these adjustments to be made, but understands they will take time. He can also sustain exceptional fiscal and monetary measures in the short term, if his country’s main trading partners make the necessary medium-term adjustments in their spending. China, in particular, needs to create a consumption-led economy. That is in the interests of China. It is also in the interests of the world.

Yet this is not all the US should propose. If the world economy is to be less dependent on destructive bubbles, more of the world’s surplus capital needs to flow into investment in emerging economies. The problem, however, is that such flows have also always led to crises. This is why emerging economies set themselves to accumulate vast foreign currency reserves in this decade. It is essential, therefore, to make the world economy much more supportive of net borrowing by emerging economies.

What will be needed for this is far bigger and more effective insurance against systemic risks than the International Monetary Fund now provides. A crucial step is a restructuring of the IMF’s governance, to make it more responsive to the needs of responsible borrowers. One of the ideas Mr Obama should propose is the establishment of a high-level committee to recommend a radical restructuring of global institutions, with a view to lowering risks of the emerging market crises that preceded the era of advanced country bubbles.

Let us be clear about what is at stake. It is essential to clean up the huge current mess. But it is also evident that an open world economy will be unsustainable if it remains dependent on bubbles. Collapse of globalisation is now no small risk. Mr Obama is present at the re-creation of the global economic system. It is a challenge he has to take up.

Dissident Notes on the Obama Coronation

Dissident Notes on the Obama Coronation

Posted by David Boaz

It’s wall-to-wall Obama in the newspapers and on the airwaves, and I keep wondering, Was it quite so overwhelming in the run-up to previous inaugurations? I think not. Presumably the gushing media response is generated by some combination of Barack Obama’s being our first African-American president, his being the antidote to an epidemic of Bush Derangement Syndrome, and our growing cult of the presidency. I complained once about people who see the president as “a combination of Superman, Santa Claus, and Mother Teresa,” and this month journalists are leading the way. Even New York Times reporter Helene Cooper, writing the “pool report” for other journalists on Obama’s visit to the Washington Post, noted that “around 100 people–Post reporters perhaps?–awaited PEOTUS’s arrival, cheering and bobbing their coffee cups.” Post reporter Howard Kurtz assured readers that his fellow journalists did gawk, but they did not cheer or applaud.

The Washington Post banners Obama’s “centrist approach.” Even Blue Dog Democrat Jim Cooper says he’s showing “great centrism.” He’s promising to spend a trillion dollars more than the most spendthrift president in history. If he promised to spend two trillion dollars more, would the Post see his program as left-liberal?

For politicians everything is politics: “It has been more than three months since he sat through a Sunday church service and at least five years since he attended regularly, but during the transition, Obama has spoken to religious leaders almost daily. They said Obama calls to seek advice, but rarely is it spiritual. Instead, he asks how to mobilize faith-based communities behind his administration.”

“Nation’s Hopes High for Obama,” says the Washington Post-ABC News poll. Those polled say that they have high expectations for his administration, they think he has a mandate for major new programs, and they like his promise to give virtually everyone some money. Indeed, according to a graphic in the paper but apparently not online, 79 percent of respondents have a favorable impression of Barack Obama, much higher than the numbers for Reagan, Bush I, Clinton, or Bush II as they prepared to take office. In fact, the only modern president whose favorable ratings on the eve of inauguration matched Obama’s was Jimmy Carter. Hmmmmm.

Bob Woodward offers 10 lessons Obama could learn from the mistakes of the Bush administration. One of them is “Righteous motives are not enough for effective policy.” Woodward directs all his lessons at foreign and defense policy, but that’s a good rule for domestic policy too. The fact that a policy sounds right-minded — create jobs, raise the minimum wage, ban sweatshop products, mandate energy efficiency — doesn’t mean that it will work. Economic processes are dynamic, not static. Benefits have costs. Another of Woodward’s rules is “A president must do the homework to master the fundamental ideas and concepts behind his policies.” Again, that applies to economic as well as to foreign policy. Has Obama read any thoughtful criticisms of Keynesian economics or of “job creation” schemes or of renewable-energy mandates? He met with conservative pundits, but has he sat down and listened to any of the many economists who oppose his stimulus plans?

On a lighter note, former “Saturday Night Live” writer and Will Ferrell collaborator Adam McKay discussed Ferrell’s Broadway show, “You’re Welcome America: A Final Night with George W. Bush” with the Washington Post. Asked how he might make Obama-related comedy, McKay said it would be tough because “Obama’s an actual adult who knows how to work.” Let’s see . . . four years ago Obama was voting “present” in the state senate, and now he’s going to be president. His supporters range from journalists who compared him to “the New Testament” to actual voters who exult, “I won’t have to worry about putting gas in my car. I won’t have to worry about paying my mortgage. You know. If I help [Obama], he’s gonna help me.” He himself said that his capture of the Democratic nomination “was the moment when the rise of the oceans began to slow.” If humorists can’t find some humor there, we need better humorists.

And maybe it’s appropriate that a singer known as “The Boss” headlined the inaugural concert for a candidate whose wife promised, “Barack Obama will require you to work. . . . Barack will never allow you to go back to your lives as usual, uninvolved, uninformed.”