Author Archives: jsh54

Colleges Bobbing for French Fries.

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Education has always been a commodity like any other. Sellers set the price at what the market will bear. Calling colleges and universities “not-for-profit” hides from this reality. The only difference between Chrysler and a college is that colleges have no shareholders or proprietors.[1] Therefore, increased revenue goes directly to the employees. The reverse is also true. In a period of revenue constraint, the costs are taken out of the hide of the employees.

Suzanne Mettler has argued that the political gridlock in Washington has kept federal aid, like Pell grants, from rising enough to keep an increasing burden for tuition from falling on ordinary families. At the state level, the requirement to balance budgets and a widespread hostility to taxes has intersected rising costs for Medicaid and prisons to force cuts to state aid to public institutions.[2] Access to college is becoming a privilege of wealth instead of motor of American prosperity.

Barton Swaim isn’t buying it.[3] First, he sees a huge expansion of the scale and activities on the part of colleges and universities since the mid-1980s. “Departments and schools have multiplied, lavishly expensive student facilities and high-tech research centers have gone up even during recessions, well-paid administrators have multiplied like locusts, and federal grant-money has poured in at ever-increasing rates.” Why has this happened? “When government pays the bills, prices always go up.” Sellers charge what the market will be bear. Second, Swaim argues that the supposed recent “cuts” in state-funding for education are usually presented in terms of a falling share of state budgets, rather than as inflation-adjusted real dollars. (Swaim himself doesn’t bother to give any figures to support his alternative interpretation.) Implicitly, what is needed is some market discipline. Third, Swaim’s interpretation fits into the narrative of the unforeseen—and disastrous–consequences of liberal good intentions. Mettler, he says, “is right that American higher education is no longer the force of equality and opportunity that predominantly liberal policy makers intended it to be. What she misses is that those policy makers are to blame.”

What does Swaim get right and what does he get wrong? First, he’s right about the fact of the huge expansion in activities since the mid-1980s. He’s just wrong about the cause of it. Simply put, there are too many colleges and universities relative to the demand for them. They compete by multiplying academic program to reflect the latest fad, degrading academic standards, engaging in an amenities arms race, and multiplying recruitment and support staffs (i.e. administrators). We need a shake-out.

Second, he’s wrong on the cuts-in-state-financing-causing-tuition-increases issue. Tuition at public school has spiked much more than has tuition at private ones. This is the product of cuts in state aid. (See: “College costs: the old eat the young,” 27 September 2014.)

Third, he misses (or dodges) the chance to talk about the equivalent unforeseen—and disastrous–consequences of conservative good intentions. The war on drugs and the conversion of tax cuts from a rational policy choice into a primitive fetish (of the religious, rather than the sexual sort[4]) have been just as much exploding cigars as anything liberals have advocated.

[1] On the other hand, when is the last time you heard of a student recall? Jus sayin.

[2] Suzanne Mettler, Degrees of Inequality (Basic Books, 2014).

[3] Swaim, review of Mettler, Degrees of Inequality, WSJ, 14 March 2014.

[4] Although I suppose that someone could work up a funny patter on the parallels with BDSM. If that’s how you roll.

The International Trade in Jobs and Workers

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It is an article of faith among most economists and businessmen that barriers to trade between nations create inefficiencies and lower standards of living.[1] What kinds of barriers to trade exist? Tariffs are taxes on imported goods that raise the sales price to a level that makes the import uncompetitive with a domestic product. Government subsidies (payments) to domestic producers of some goods allow them to hold down prices compared to imports. Government regulations and standards for goods which vary from one country to another can force adaptation costs onto foreign producers, thus raising the price of their goods to a point where it isn’t worth the trouble to sell in a foreign market. The effect of these barriers is to reduce competition, efficiency, and specialization, while raising the cost of living for consumers.

So, trade barriers are bad. In 1994 businessmen won passage of the international treaty called the North American Free Trade Agreement (NAFTA). This treaty abolished tariffs and other barriers to trade on 70 percent of the goods produced and consumed in Mexico, the United States, and Canada. What is the up-side of this agreement? Trade between Mexico and the US tripled during the decade and a half after passage of the treaty; Canadian exports also tripled. What is the down-side of the agreement? Wages haven’t gone up in either Mexico or the US.

In the United States the response to NAFTA is ambivalent. The normal line of development in an advanced economy is that low-wage foreign competitors in low-skill sectors take jobs from the advanced economy, while the advanced economy creates jobs in high-skill and high-wage sectors. That is one of the things that seem to be happening in the United States. By 2008, three million American manufacturing jobs had been lost since the passage of NAFTA. This doesn’t count the many more jobs lost during the “Great Recession.” On the other hand, more jobs were created in those years than in the fourteen years before passage of the treaty. Similarly, highly-mechanized North American farming is far more productive and cheaper than is much Mexican farming, so agricultural exports to Mexico have also greatly increased. However, neither American politicians nor American media have been very good about pointing out the realities of the situation. Job-loss and displacement normally gets a lot more media attention than does job creation. “If it bleeds, it leads.” Those three million manufacturing jobs that went up in smoke since 1994? Mostly they went to China and India, not to Mexico.

In Mexico the response has been profoundly hostile. Mexicans dislike NAFTA by about two-to-one. Why is that? About forty percent of Mexicans still live in poverty. Small and inefficient Mexican farms have been unable to compete with low-cost imports from North America, so many Mexican farmers have been driven to the wall. There was been a huge increase in illegal immigration to the United States, until the “Great Recession” hit. Eight million of the twelve million Mexican illegal immigrants in the United States have come since the passage of NAFTA. Is NAFTA solely or even principally to blame for the flood of illegal immigrants? Not necessarily. One Mexican observer argues that the upper classes have creamed off all the rewards of expanded trade. This has kept the benefits of increased trade from flowing downward in society through higher taxes on the well-off, better services for ordinary people, and higher wages for most workers.

This raises the possibility that the Mexican upper-class is intentionally exporting much of its population to the United States in order to defend an inequitable social order at home.

[1] “Coming to terms with NAFTA,” The Week, 30 May 2008, p. 13.

What God abandoned these defended

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Soldiers who fight for pay, rather than for a cause, are generally seen as disreputable. For example, American Patriots hated Hessian “mercenaries.” In contrast, idealists who go to war eventually command a degree of respect. One recent estimate has been that 16,000 Islamist enthusiasts have flocked to the black banner of ISIS. Clearly, ISIS represents a cause worth fighting for in the minds of many young Muslims, just as did the Spanish Republic in the 1930s for many young leftists.

In 1992 the American military began spinning-off many of its logistical and support functions to private contractors. (See: Cry of the Halliburton.) The recent wars in Afghanistan and Iraq led to a huge increase in the number of contractors in the combat areas: at their peak 155,000 in Iraq and 207,000 in Afghanistan. These numbers equaled or exceeded the number of US troops present. About as many contractors have been killed in the two wars (6,800) as have US military personnel (6,838). The use of the contractors has raised several concerns.[1]

On the one hand, there is the venerable anxiety over “waste, fraud, and abuse” (WFA).  The US paid out $200 billion for “contractors.” In 2008 Congress created a Commission on Wartime Contracting to search out WFA. Inevitably, it found many instances of over-billing and under-performance. Its estimates of spending lost to waste or fraud range between one-seventh and almost one-third of money spent, depending on what they were looking at.[2]

On the other hand, there have been concerns over unjustified violence visited on civilian populations by armed contractors. The case of Blackwater guards who shot-up Baghdad’s Nisour Square in 2007, killing 17 Iraqi civilians, has led to the conviction of one guard for murder and three others for manslaughter.

Still, contractors may be used in the current unpleasantness in Iraq and Syria. President Obama has pledged that there aren’t going to be American combat troops in Iraq. However, no one in the American government wants to totally cede the ground to Iranian advisors either. Using security contractors might offer a way to square this circle. Many of them are veterans of the US or other military forces. They could train Syrian “moderates” (to the extent that anyone can find some) and Kurdish immoderates. They could even be grouped into small combat units to directly engage ISIS forces. Backed up by US air strikes, they might make a useful contribution to the war without a name.

Contractors offer an attractive solution to several sorts of problems. First, having contractors handle logistics, maintenance, and other support functions allows the US military to concentrate its troops on war-fighting. The number of contractors can be expanded and contracted rapidly to meet the circumstance. The alternative would be to maintain a permanent large force of regular troops to handle these missions in both wartime and in peace time.

Second, nobody but their families care if they get killed. Their wounded don’t go to Walter Reed Hospital. They don’t get veterans benefits. The names of their dead don’t get printed in agate type at the bottom of an inside column in the New York Times and their faces don’t get broadcast in respectful silence on the PBS NewsHour. There isn’t going to be a Monument to the Fallen Contractor on the Washington Mall anytime soon.

[1] “Paid boots on the ground,” The Week, 14 November 2014, p. 11.

[2] The Iraq War cost at least $1.1 trillion and the long-term price may run as high as $3 trillion. Since the war itself offers an example of WFA, I’m not sure that getting nickel-and-dimed by private contractors should be our first area of concern.  See: http://en.wikipedia.org/wiki/Financial_cost_of_the_Iraq_War

 

Cry of the Halliburton

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In January 1919 came a huge oil strike at Burke-Burnett, Texas. Soon afterward, Erle Halliburton founded a company to provide services and supplies to oil companies. As the oil industry spread from the United States to foreign countries in Latin America, the Middle East and Africa, Halliburton extended its operations. In 1962 Halliburton merged with Brown and Root, a big Texas construction company. Soon thereafter, the company started doing a booming business with the United States government. In 1992, near the end of the presidency of George H. W. Bush, the Defense Department began spinning off many of its logistical and support functions to private contractors. The argument ran that private industry could achieve greater efficiency and flexibility than could a huge federal bureaucracy like the Defense Department, which needed to concentrate on its own specialty—waging war.

During the presidency of Bill Clinton Halliburton’s business dealings with the American and foreign governments, and with oil companies zoomed upward. Halliburton earned $5.7 billion in 1995 and $12 billion in 2000. The company’s business with the United States government grew still more as a result of the second Iraq War. By 2007 the company’s revenues topped $22 billion. Halliburton’s oilfield services division gained the contract for repairing Iraq’s badly damaged and deteriorated oil industry; its logistics and construction division provides all sorts of services to American troops.

What sort of controversies surround Halliburton? First, it has been accused any number of times of over-charging the United States government. In one particularly embarrassing case, it charged the government for 42,000 meals delivered to US forces in Iraq when it had only delivered 14,000. “Oops, my bad,” said Halliburton. Second, people complain that the company was awarded no-bid contracts by the government, so they have no incentive to hold down prices. Both the Defense Department and Halliburton have countered that there are only a few companies in the world that could handle the work. Halliburton has long experience in this work and employs 100,000 people in 120 countries around the globe. Furthermore, not all of the equivalent companies are American. The work was not going to go to a French, Chinese, or Russian company under any circumstances. It was going to go to Halliburton, they argue, so why waste time with bidding when the need was urgent?

Third, the company has long cultivated strong political connections. Brown and Root had always supported Lyndon Johnson when he was the Senator from Texas and they reaped the benefit, say critics, when Johnson became president. Later, in 1992, the Secretary of Defense who initiated the shift to using private contractors to support Defense Department operations abroad was Dick Cheney. In 1995 Halliburton named Cheney as Chief Executive Officer (CEO). He remained CEO until 2000, when he left to become Vice President. Subsequently, Cheney was a proponent of war with Iraq and Halliburton has reaped the benefits described above.

In a large sense, Halliburton may be a symbol for a number of controversial developments. First, there is the issue of the “revolving door” as people cycle between companies that seek government contracts and the government agencies that award those contracts. Second, there is the whole issue of the uneven distribution of benefits in American society. Cheney made $45 million while at Halliburton and Halliburton’s stock quadrupled in value after 2003 while most people’s incomes stagnated.

Pakiban I.

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Public schools are—or should be—a big issue for Pakistan. The country is very poor. It isn’t a major oil producer, nor does it have much in the way of other natural resources. Other countries in similar circumstances, like South Korea, have created a competitive advantage by investing heavily in improved “human capital.” That means public education. You build up from the primary schools to secondary schools to technical training schools to universities. Furthermore, developing countries can’t afford to ignore any segment of the school-age population in this drive for prosperity. As was the case with the American and European public schools systems created in the 19th Century, girls and boys both have to go to school. Education is only part of the solution to national and individual poverty, but it is a vital part.

Pakistan needs such a basic school system: about one-quarter of its population is aged between 5 and 16 years old. It doesn’t have one.[1]

Almost half of the school age population doesn’t go to school at all. Almost all of the children not in school are girls. The law says that they are supposed to go to school. But imams and parents say that girls should not go to school. The government doesn’t bother or doesn’t dare to enforce the law.

Test scores for primary school students matter most in a country building up its schools from the bottom. In Pakistan, about half of 10 year-olds score at the level of 6 year-olds in language mastery, at the level of 7 year-olds in arithmetic. How do you make only one year or two years of progress in five years of school?

You turn the schools into a political machine, that’s how. Right from the establishment of independence in 1947, Pakistan has botched its public school system. The school system has always been under-financed relative to needs. Then much of the funding has been diverted into the pockets of crooked politicians and their bureaucratic clients. Half of public primary schools have no electricity. Forty percent have no working toilets. A third have no drinking water.

Jobs as school teachers became a plum awarded to political supporters and nephews. Usually the teacher’s salary goes to the man who got him the job, while the teacher sells off whatever school resources fall into his grasp and takes another job. So, Pakistan has schoolrooms with students, but without teachers or books or desks. In the 1970s and 1980s the national government played to a rising religious tide by “Islamizing” the school curriculum.

Everyone knows that the schools are a disaster. Malala Yousafzai was campaigning against the many failings of the school system when she came to the attention of the Taliban. Many powerful people have a vested interest in the disaster continuing. Is it fair to ask if the government of Pakistan put the Taliban up to shooting Malala Yousafzai so that it wouldn’t have to do the work itself?

Pakistan isn’t the only developing country with a disdain for public education or for school girls. Aravind Adiga’s novel of contemporary India, The White Tiger, scalded Indian opinion exactly because it told so many truths about the country, the schools included. The kidnapping of hundreds of school-girls by the Nigerian Islamist movement Bozo Haram[2] is telling about the attitude of Islamists. The slack response of the Nigerian government is even more telling about the attitude of an elite pre-occupied with stealing oil revenues.

It’s worth comparing these places with Japan, China, South Korea, and even Turkey.

[1] Mosharraf Zaidi, “How Pakistan Fails Its Children,” NYT, 15 October 2014.

 

[2] Yes, I know, but did you ever see that guy on television?

What We Learned From the Report of the 9/11 Commission VII.

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What was more important in 1998, fending off a nuclear war on the Indian sub-continent or working out on Pakistan to get it to pressure the religious fanatics running Afghanistan to evict a co-religionist who hated Americans? After Pakistan had tested a nuclear weapon in May 1998, the Congress had slapped heavy sanctions on the impoverished, unstable country. This left American diplomacy with little leverage in the effort to apply pressure on the Taliban. Now Pakistan’s relations with India were at an apparent breaking point because of the struggle over Kashmir. Most American diplomats involved in South Asia policy-making preferred to downplay the terrorism issue until the possibility of nuclear war had been contained. Diplomacy got nowhere by the end of 1999. (pp. 177-185.)

 

Covert Action.

After the August 1998 embassy bombings, President Clinton signed a Memorandum of Notification that instructed the CIA to attempt to capture Osama Bin Laden, but authorized the use of deadly force only for self-defense. (pp. 185, 192.) By Christmas 1998 Berger, Tenet, and Clinton purportedly had all come around to favor killing Bin Laden if he could not be captured; Clinton approved a new Memorandum of Notification to this effect. (p. 193.) However, this memo referred only to the tribal fighters in touch with the CIA, it was circulated only to a handful of people at the highest level of government, Clinton greatly diluted a similar proposed agreement with the Northern Alliance, and no CIA officials ever got the idea that Clinton seriously desired to kill—rather than capture for trial—Osama Bin Laden.

While the “sissies in striped pants” at State were doing their thing to no visible effect, the CIA and the FBI were busy busting up Al Qaeda operations overseas. During August and September 1998 al Qaeda people were arrested in Britain, Italy, Germany, and Azerbaijan.

The Afghan tribal fighters seemed to provide valuable intelligence on the location of Bin Laden, although no one in Langley thought that their purported efforts to kill Bin Laden were very credible. [NB: Reading between the lines, it appears that the tribals were milking the CIA for money and were not going to kill the goose that laid the golden eggs by killing or capturing OBL.]

In October, November, and December 1998 concern that al Qaeda meant to launch a terrorist attack within the United States led to various alerts and to discussion of an attempt to hit Bin Laden in Kandahar, but the decision-makers choked on the latter option—much to the annoyance of lower level officials.[1] Lieutenant General William Boykin, a snake-eater from way back and subsequently the Deputy Undersecretary of Defense for Intelligence, later said of this time that “opportunities were missed because of an unwillingness to take risks and a lack of vision and understanding.” (quoted, p. 199.)

[1] This lower-ranks frustration with the caution of the upper-ranks is similar to the later improvisation of a response to the 9/11 hijackings. This emerges as one of the key factors in understanding American vulnerability to attack. The Federal government appears to recruit and promote cautious, consensus-oriented CYA people.

What We Learned form the Report of the 9/11 Commission VI.

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“The modest national effort exerted to contain Serbia and its depredations in the Balkans between 1995 and 1999, for example, was orders of magnitude larger than that devoted to al Qaeda.” (p. 487.) Neither the American public nor American leaders seemed to even notice terrorism as a problem in the post-Cold War environment.

 

Crisis: August 1998.

Immediately after the embassy bombings CIA Director George Tenet knew that there would be a big gathering of terrorist leaders at Khowst in Afghanistan on 20 August 1998, and CentCOM commander Tony Zinni had his cruise missile plan already to go. The responsible decision-makers talked over the issues until 20 May and sent the Vice-Chairman of the JCS to warn the Pakistanis that the cruise missiles flying through their air space were not an Indian attack. Nobody wanted a nuclear war on the sub-continent as an unintended by-product of the strike at Bin Laden, but this probably constituted a serious breach of security. The missiles missed Bin Laden by a few hours and some people think that he was warned off by Pakistan’s intelligence service. (pp. 169-171.)

Clarke wanted the cruise missiles strikes of 20 August 1998 to be the opening act for continuous efforts to kill Bin Laden. It was not to be. (pp. 175-176.)

Although JCS Chairman Hugh Shelton ordered CENTCOM to plan for additional measures, he “did not recommend any of them.” “Shelton felt that the August 1998 attacks had been a waste of good ordnance and thereafter consistently opposed firing expensive Tomahawk missiles merely at ‘jungle gym’ terrorist training infrastructure. In this view, he had complete support from Defense Secretary William Cohen. Shelton was prepared to plan other options, but he was also prepared to make perfectly clear his own strong doubts about the wisdom of any military action that risked U.S. lives unless the intelligence was ‘actionable.’”(pp. 502, 503.)

CENTCOM commander Tony Zinni, who actually had to come up with a possible scheme, believed that a long-term development of relationships with neighboring countries made the most sense. Covert action of any kind would require some kind of local base. Zinni got the feeling that Washington was picky about doing business with dictators merely because they could help out the United States. (p. 197.)

Already haunted by memories of “Desert One” and “Black Hawk Down,” decision-makers probably became even more cautious about using force to solve the Bin Laden problem in the wake of the failed cruise missile strikes of 20 August 1998. (pp. 172-173.)

In addition to missing Bin Laden, there were serious downsides to this attack: international opinion heaped abuse on the US for being “bomb-happy”; the Republicans ridiculed Clinton for “pinpricks.” (pp. 172-173.)

Soon afterward, American diplomatic and military power was being applied in the Balkans against Serbia (October 1998-March 1999) and in the Middle East against Iraq (December 1998). This distracted most of the key people from problem of terrorism.

At the same time it is important to note that people working for Allen Holmes, the Assistant Secretary of Defense for Special Operations and Low-Intensity Conflict, produced a paper calling on the Defense Department to assume the lead in the global fight against terrorism. (pp. 176-177.) This paper did not get very far up the chain of approval during the Clinton Administration, but it may have lain dormant until Rumsfeld came to the Pentagon.

Sore Winners and Sore Losers from Obamacare.

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Medicare provides health insurance for 98 percent of Americans aged 65 and over.

Who lacked/lacks health insurance before/since the Affordable Care Act (ACA)?

Group                                                  Before ACA               Today              Difference.

All Americans under 65                      16.4 percent                11.3 percent    -31 percent.

Hispanic-Mexicans                              26.2 percent                16.5 percent    -37 percent

Blacks                                                             24.1 percent                16.1 percent    -33 percent.

Whites                                                14.1 percent                10.0 percent    -29 percent

Asians                                                             13.6 percent                 9.7 percent    -29 percent

Aged between 18 and 34,                   21.6 percent                14.2 percent    -34 percent[1]

Aged 35 to 44                                     16.4 percent                11.2 percent    -32 percent

Aged 45 to 54                                     15.0 percent                10.6 percent    -29 percent

Aged 55 to 64                                                 12.7 percent.               9.1 percent    -28 percent

Poorest 20 percent of neighborhoods 26.4 percent                17.5 percent    -36 percent

Next poorest 20 percent                      21.6 percent                14.3 percent    -34 percent

Middle 20 percent,                              17.6 percent                11.9 percent   -33 percent

Next highest 20 percent                      13.4 percent                 9.4 percent    -30 percent

Richest 20 percent                               6.5 percent                6.5 percent    ————–

 

Overall and within almost all groups, the ACA has reduced the uninsured by about one-third. Still, two-thirds of those who were uninsured before the ACA remain uninsured today.

Why hasn’t a plan intended to provide almost all Americans with health insurance come anywhere near to achieving that goal? In large measure, the failures of this part of the ACA go back to its design. The ACA originally sought to coerce the states into expanding Medicaid to cover many of those who are uninsured today. In 2012, the Supreme Court rejected that component of the plan. States were left free to expand or not expand Medicaid. So far, twenty-seven states have chosen to expand Medicaid, while twenty-three have rejected it.

Why did many states reject Medicaid expansion? One answer would be Republican wrecking tactics directed against the center-piece of President Obama’s agenda. However, not all Republican-led states rejected expansion and not all Democratic-led states accepted it.

It is possible that rational calculation played a role. The states that rejected expansion had an average uninsured rate of 18.2 percent before the ACA, while those that accepted expansion had an average uninsured rate of 14.9 percent. Federal subsidies for expanded Medicaid are scheduled to be reduced in a few years. States will have to increase their share of the expanded costs. Many of the states that rejected Medicaid expansion pursue a low-tax strategy to attract business. Other parts of the ACA were not completely thought through. Perhaps the failure to make the complete Federal subsidy permanent is another such “glitch.” It will take a Democratic House, Senate, and White House to fix it.

Even in states that expanded Medicare, 9.2 percent of people remain without insurance.   Why? Ignorance? A libertarian resistance to coercive good intentions? Most Republicans have an ideological opposition to an “entitlement” that was forced on them by Democrats. Unlike post-war Europe, there is no consensus on this issue.

Kevin Quealy and Margot Sanger-Katz, “Obama’s Health Law: Who Was Helped Most,” NYT, 29 October 2014.

[1] Understates the gain because it doesn’t include the three million people who are allowed to remain on parents’ insurance.

Signals from the Depths.

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Democratically-elected governments have been responding to the “Great Recession” by trying to cut public spending.[1] This is a throw-back to the initial—and disastrous—response to the “Great Depression” after 1929. It is a rejection of the subsequent Keynesian deficit-spending policies that eventually got countries out of the Depression. The “sequester” in place of more stimulus has dragged on American economic recovery since 2011; the Germans insist upon austerity in the European Union, and Japan’s parliament recently passed a higher consumption tax that short-circuited an attempt to stimulate growth there.

In the absence of spending programs, central banks have used, are using, or may be about to use purchases of long-term debt (called “quantitative easing”) to pump money into the economy. This is better than nothing.[2] The Federal Reserve Bank has just ended its buying of long-term bonds and has hinted at higher interest rates in 2015. Thus, it is signaling its belief that economic recovery is well underway in the United States.

Still, amidst all the talk about an improving American economy, there have been signs of new troubles ahead in the world economy.[3] By early October 2014, world prices for bonds, currency, and commodities were being read to suggest the possibility of a new global slowdown. It isn’t clear that there are any policy tools that could check this descent.

Economic growth should reduce un-employment. Over time, lower unemployment should lead to a rise in wages and to higher prices. However, all the major advanced economies seem headed toward low long-term interest rates. There appears to be a widely-shared belief among knowledgeable people that inflation is not going to fire up any time soon. Why would people believe this?

First, the value of the dollar has been rising against the currencies of Europe, Japan, South Korea, and Japan. You could read this as investors taking flight from those currencies to the security of currently stable dollars. This may reflect a belief that by investors that the world economy is headed downhill and that there aren’t any policy tools to control the descent.

Second, stocks and bonds usually move in opposite directions. In an expanding economy, money will flow toward stocks as investors try to share in profits and rising share prices. In a shrinking economy, money will flow to bonds as people try to avoid being stuck with stocks whose price is falling. Monetary policy usually seeks to keep interest rates low when the economy needs to be propped-up. Until that is shown to be working, investors will accept even low yields from bonds. The interest rate on 10-Year US bonds has fallen over the course of the year from 3.0 percent to 2.2 percent. Purchasers are bidding-down the interest on these bonds out of their eagerness to have them in their portfolio.

Third, the price of commodities has been falling. The price of crude oil is down 22 percent since the end of June. The price of corn futures has fallen by 31 percent since late April. Abundant production is forcing down prices. It comes at an awkward time for confidence in the world economy.

What do you do when unelected experts and private investors disagree with elected representatives on the best policy? What if the experts and investors are right?

[1] Neil Irwin, “What the Bank of Japan’s Surprise Move Means for the Global Economy,” NYT, 31 October 2014.

[2] Moreover, it pushes up the prices of assets, which are owned by upper income groups, better than it stimulates employment or raises wages. So, many voters find themselves preoccupied by inequality.

[3] Neil Irwin, “The Depressing Signals the Markets Are Sending About the Global Economy,” NYT, 15 October 2014.

What we learned from the Report of the 9/11 Commission V.

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Between 1996 and 1998, Bin Laden rebuilt al Qaeda in Afghanistan. However, “Pakistan was the nation that held the key to [Bin Laden’s] ability to use Afghanistan as a base from which to revive his ambitious enterprise for war against the United States.” (p. 95.) Pakistan is a failed democracy in which the army’s most recent intervention in politics had led to an appeal to Islamist sentiment as a form of legitimization. Pakistan also is a failed economy in which large numbers of refugees from the Afghan war were educated in Saudi-funded Wahhabist “madrasas” that taught religious fervor in place of life skills. Bin Laden had long-standing ties with Pakistan’s intelligence service. [NB: Which is scary when you think about the ties between the ISI and A.Q. Khan.]

Bid Laden was hurting for financial resources, a number of al Qaeda members or allies went off on their own on the assumption that he was in decline, and one of his chief operations people had died in a ferry boat accident on Lake Victoria.

Not everything was against Bin Ladin by any means. Most of Afghanistan was governed by the Taliban, a bunch of religious fanatics who thought that anything and everything OBL said made a lot of sense. While the Pakistanis may have wanted a friendly government in Afghanistan to give their country “strategic depth,” Pakistan also provided Afghanistan with the same sort of strategic depth against American retaliation. Afghanistan swarmed with terrorist-wannabes and jihadist from all over the Muslim world.   Various veterans of the war against the Soviets ran terrorist training camps, and supplied weapons, and arranged travel for jihadis. Donations from all over the Arab world, but especially from Saudi Arabia, kept most of these enterprises afloat. As one of the American counter-terroism people would later phrase it, “Under the Taliban, Afghanistan is not so much a state sponsor of terrorism as it is a state sponsored by terrorists.” (p. 263.)

 

Bin Laden revived his activities of the Afghan war and shared the results with the Taliban: the “Golden Chain” fund-raising system provided money and the recruiting system among Islamic fundamentalists provided manpower. Bin Laden seems to have creamed off the best of both for his own movement. (pp. 97-99.) Thus, the “Golden Chain” raised about $20-30 million a year. Al Qaeda paid the Taliban about $10-20 million a year for protection and support, so al Qaeda had about $10 million a year to spend on all his projects. (pp. 247-248.) Al Qaeda ran terrorist training camps in Afghanistan. About 70 percent of the people in the al Qaeda camps were Saudis; another 20 percent were Yemenis; and 10 percent came from various other places. (p. 336.) By 1998, after a year to a year-and-a-half of hard work, Bin Laden and al Qaeda were back in business.

Along the way, Bin Ladin renewed contact with Khalid Sheikh Mohammed. They had known each other in the Afghan war in 1987, but had not been in contact since 1989.

One thing worth noting is that Bin Laden was rebuilding al Qaeda at the same time that George Tenet was rebuilding the CIA. While bin Laden’s efforts were smaller than were those at CIA, they were also more tightly focused. Who would be ready first?

Thomas H. Kean and Lee H. Hamilton, The 9/11 Report: The National Commission on Terrorist Attacks Upon the United States (New York: St. Martin’s Press