Friday, December 29, 2006

Joe Lieberman on Iraq

Joe Lieberman in the Washington Post makes some intelligent comments on the situation in Iraq. The whole editorial is worth reading, Lieberman is neither a toady for the administration nor an unbridled optimist but he understands the real stakes in Iraq at this point. Here are three key quotes:

"The most pressing problem we face in Iraq is not an absence of Iraqi political will or American diplomatic initiative, both of which are increasing and improving; it is a lack of basic security. As long as insurgents and death squads terrorize Baghdad, Iraq's nascent democratic institutions cannot be expected to function, much less win the trust of the people."

and "This bloodshed, moreover, is not the inevitable product of ancient hatreds. It is the predictable consequence of a failure to ensure basic security and, equally important, of a conscious strategy by al-Qaeda and Iran, which have systematically aimed to undermine Iraq's fragile political center. "

He concludes with "I saw firsthand evidence in Iraq of the development of a multiethnic, moderate coalition against the extremists of al-Qaeda and against the Mahdi Army, which is sponsored and armed by Iran and has inflamed the sectarian violence. We cannot abandon these brave Iraqi patriots who have stood up and fought the extremists and terrorists."

Lieberman admits that the additional troops which he argues for are not going to assure victory but he does think that without them, the failure will be accelerated unless we respond at this point with more forces.

How many times can he tell this story?

In this morning's papers Bob Woodward puts out a story of immense proportions, at least in his mind. He claims, yet again, that the pardon of President Nixon by his successor, was somehow a conspiracy. In May of 1973, about the time that Haldeman and Erlichman stepped down, Mr. Ford is quoted as saying to Nixon "We'll stand by you morning, noon and night." It should be remembered here that May of 1973 was a full five months before Nixon appointed Ford as VP and before a number of revelations about Nixon's actions had come to light. Woodward damns Ford by commenting that Nixon "often turned to him (Ford) to get things done on the hill." If you were a Republican president who would you turn to but the Minority Leader of the House?

Woodward should remember, although he does not seem to think it important, that one of the fellow co-conspirators at the time must have been Carl Albert the Speaker of the House who commented "We gave Nixon no choice but Ford." Many leaders at the time were struggling with what to do about the developing situation, especially as the Nixon presidency began to collapse with the resignations of Haldeman and Erlichman in May and Agnew in October. Most of those leaders had the good sense, which Woodward seems to lack, that the developing crisis was more than about scoring political points.

Woodward's major "indictment" of Ford is an undated quote where the former president commented "I looked upon him (Nixon) as my personal friend. And I always treasured our relationship. And I had no hesitancy about granting the pardon, because I felt that we had this relationship and that I didn't want to see my real friend have that stigma." Based on Woodward's other work, one would wish that this quotation were put in context. It is clear from all other accounts at the time that Ford, who had a long professional and personal relationship with Nixon, agonized about the situation. But it is also clear that Ford's ultimate decision was based not on Nixon's situation but on the country's and on his judgment that the country would not gain from continuing the drama of Watergate. Here is how Wikipedia describes the pardon. "Nixon's last chief of staff (Alexander Haig) offered Ford several options including one where the Vice President would pardon the president after assuming office. 'Even if Haig offered no direct words on his views, the message was almost certainly sent. An emotional man, Haig was incapable of concealing his feelings; those who worked closely with him rarely found him ambiguous.' Despite the situation, Ford never accepted the offer from Haig and later decided to pardon Nixon on his own terms." Even Woodward should be able to get that nuance- but, of course, Woodward's purpose is not to analyze what actually happened but to continue to present his own biased views. (emphasis added)

From my perspective, Woodward wants to do as he has always done, to sensationalize his "insider's" perspective of a set of events that have been well covered in other places. But Woodward, like the literary paprazzi that he is, simply cannot leave this story alone.

Winter's Day

Yesterday was one of those winter days in Sacramento which was cold and crisp. (Well, cold and crisp for California!) Near our house is Nimbus Dam. It is one of the flood control dams on the American River. When you get conditions like you had yesterday the air is very clear. The blues in the lake are accentuated. Here are four shots from that outing. If you want to see the full set that are on my Flickr Site. That is the direct link to the set. If you want to look at the rest of the 6000+ photos on the site they are at this address.

Wednesday, December 27, 2006

One more Ford remembrance

I was in the California Capitol - although in a meeting - when Squeaky Fromme tried to assassinate President Ford. But in the Thanksgiving after that we started a tradition that in part memorialized that event. In the 1970s I was a competitive marathoner. On Thanksgiving morning a group of runners started out from my house for a training run. My mother in law was there and she suggested that we start out with a glass of sherry before the run, afterall it was Thanksgiving. Our run then went to downtown Sacramento and as part of it we ran by the Victorian that From had lived in while in Sacramento. The next year we got a bit more formal. We started out with $20 each and stopped at each bar on the way for a pop. The third year we became even more formal. We adopted a motto for the run - I had a greek secretary and so we said "If you can't drink and run, don't run." (Εάν δεν μπορείτε να πιείτε και να τρέξετε μην τρέξτε) We authorized medals, but if you wanted one, it cost $5 more. The last year we ran the thing, I won "best in breed" because the medals could be for any category. The last year we ran it we also did two other innovations. First, because by then women were running, we invited two females on the run (one who was Norwegian complained that all this really seemed to be was a chance to run from bar to bar). Second, we carried a supply of medals to offer to the proprietor of each place we stopped. Needless to say, many of the places we stopped were a bit non-plussed when a group of sweaty runners in shorts came in for a beer and then ran off. We thought the medal would ease things.

The running club I ran for (Buffalo Chips) had a saloon where it was founded (the Buffalo Club) so we of course stopped there. About five years after we ended the 'official' race, I had the chance to be in the Buffalo Club and the medal was still proudly displayed behind the bar.

Gerald R. Ford

I worked in Washington early in my career and as a result of who I worked with had three encounters with the thirty eighth president. The first was when he was in Congress. I was working for a congressman from Michigan and Jerry Ford was the leader of the delegation. At that point there were 19 members from Michigan and the GOP had a majority of those seats. Ford always seemed like an inclusive kind of guy to me in those meetings where the GOP members and their senior staff would meet. We would discuss this or that issue that was before the congress and Ford seemed to seek out ideas from both members and staff. That was very much appreciated as a young staffer. My congressman was relatively junior (having been elected in the 1966 GOP restoration) but in that group Ford worried little about seniority.

The second instance came when I went back into the White House to work for William Simon. Ford was then Vice President. The job with Simon was an exciting one. The hours were very long - often beginning near 7 AM and ending at midnight - seven days a week. But because Simon was then head of a new effort on energy and because the US was in the middle of an oil embargo things happened quickly. My wife was taking a course at GW after her normal day of teaching in Alexandria. I think the class started at 4 or 5 PM. I was supposed to pick her up and take her from Foggy Bottom to Southwest where we lived. I am not sure why I had the only car we had that day. She called my secretary and asked when I would be picking her up - it was December and cold. My secretary replied, "Jon may be a while, he is having dinner with the Vice President." We were called into a dinner that evening on the drop of a hat. My wife said to my secretary, "I guess I will have to find my own way home." That dinner was designed to brief the Vice President on some oil regulations that the Federal Energy Office was about to put out. As I remember the dinner, there were about six of us present, including Mr. Ford, he asked tough questions about the draft regulations. But he was also very cordial in the discussion.

The third encounter was when I was back in California. Ford was getting the reputation, in part because of Chevy Chase and Saturday Night Live, as a bumbler. I was in DC for some event and called a friend who was working in the White House Press Office. She invited me to come over and watch the President deliver his press briefing on the upcoming budget. At that point the press room was a hot place because of the lighting requirements of TV. I filed into the back of the room. Normally, the President offers a statement, takes a few questions and then hands it over to his OMB head to cover the details. Ford came up to the podium and offered some brief remarks and then looked down at Sara McClendon, who at that time had been a reporter in the White House for thirty plus years. McClendon was a fixture in the White House press office. She had a grating voice and represented a bunch of papers, many small ones in Texas. She asked some inane question about some obscure office which one of her papers would be interested in and Ford looked at her and said "Sarah, we have done the following with that agency." I thought that was interesting, it was easy to anticipate what she might ask but it showed the president was well prepared. But then for the next eighty or ninety minutes, Ford answered a barrage of questions on the budget from a wide range of reporters. He demonstrated a detailed understanding of the budget he was about to propose. It showed him as a thoughtful political leader. I am not sure that any president could have demonstrated that kind of detailed knowledge of his budget. Unfortunately, that night the three news channels missed that story. They continued to berate Ford as someone who had "played football without a helmet" and the image stuck in 1976. Clearly, the press had an agenda.

What struck me about Ford was the grace with which he accepted the things that came to him late in his career. I believe he made the decision which cost him his presidency just as he said he did. But the media, looking always for conspiracies, would not accept it. I am not sure whether had he not pardoned Nixon that he would have been a great president. I think he probably would have won the 1976 race. Certainly, some of his assumptions about issues like how to confront the problems of inflation were a bit loony. I also wonder whether the country needed to go through Jimmy Carter, who was arguably the worst president of the 20th century, in order to get to Ronald Reagan.

Brussel Sprouts, Mangos and Baloney

Yesterday, Hugh Hewitt had Wall Street Journal reporter Joseph Rago on for almost 90 minutes to discuss his absurd article from last week on blogs. You may remember that the cub reporter wrote an article in the WSJ called the "Blog Mob" which categorically rejected the utility of the internet and the blogosphere. He in essence argued that news was too important to be left to amateurs. The entire transcript is available on Hewitt's Blog

Rago began by reinforcing his argument from the article, talking about several prominent blogs which Hewitt named he said "You know, they’re interpreting the news. That’s certainly fine. But you know, the main thrust of what I wrote was not in regard to journalism. Well, (pause) excuse me, I’m a little bit tongue-tied. You know, it mentions journalism right here, and then it goes on to discuss other things. If you’re looking at the blogosphere as a whole, I think minimal reportage is an accurate assessment."

Let's get this straight first, Hewitt demolished the young reporter. Rago's argument on this interview fell into three broad categories. First, he somehow claimed that the Mainstream Media (MSM) has higher professional standards, or did and that he would like them to get back to those standards. He commented "the New York Times used to reprint every major speech that was done. They don’t do that anymore. That, to me, seems to be a failing of the standards of the mainstream media. What I would like to see is trying to create an institutional culture such as the mainstream media, that has restored the debate standards that they’ve had. I mean, I don’t think that anybody could read the article that I wrote and come away thinking that I’m in favor of everything the mainstream media does, or even that they do a particularly tremendous job. I think there’s been a major failing all over the place, and I wrote the article, I thought, as a useful corrective for some of the claims that are made on behalf of the blogosphere against the mainstream media." Second, he thought that the article got the blogs to think more carefully and to pull in some of their exuberance. "I think it was a useful corrective to some of the triumphalism that we hear about blogs every day." Finally, and I think most importantly, he was worried about the "chaos" of the internet. He commented "But the point that I was trying to make is that even if the standards of the mainstream media failed, it doesn’t seem to me to be an argument against just throwing out all standards in favor of the chaos of the internet."

Econtalk had a recent podcast interview with Walter Williams which the young Rago should have listened to. Williams, is a member of the MSM as a syndicated columnist in hundreds of papers on economic issues. Williams explained the wonder of the market in terms of a grocery store. The average grocery store has thousands of items in it. A fundamental operating principle is that no one places their orders for all those goods in advance. What's more if you go to a store seeking a particular product if that product is not there you may not return. One other principle of grocery stores is that not every person wants everything in the store but the smart grocer stocks a wide variety of products to attract a wide variety of customers. Some people like brussel sprouts, some people don't. What's more, the grocery business, just like the news business, benefits from an ever widening trade. Ten years ago, mangos were an exotic delicacy that were available in only limited quantities or for limited time periods. Now they are as easy to get as apples. But the standards for judging them are different than apples, so if you want to be a mango consumer you need to figure out how to separate the good ones from the bad. No grocer stations a professional arbiter near the mangos to help us decide which are better.

The blogosphere is a lot like a grocery store, except it is a market for ideas. Just like the grocery store, there are a wide variety of products. And just like some grocery stores, there is a wide variation of quality within the overall sector (grocery stores or blogs or the mainstream media, for that matter). What this young reporter fails to appreciate is that just like the market for groceries, the market for ideas is expanding quickly. The smart grocer continues to recognize the benefits of diversity of products that he must carry to satisfy the customer. The smart media person does that too. Let's hope the young Mr. Rago learns that lesson.

Monday, December 25, 2006

The beginnings of the Long Tail

Chris Anderson's wonderful book, the Long Tail, explains the growth of personalized markets which, in part , are conditioned on the availability of the Internet as well as digital technology. But I have often thought about what the real predecessors of the Long Tail were. Anderson's book doesn't deal with that but in a discussion on Econtalk Russ Roberts had with Virginia Postrel, she offered a coherent explanation.

Postrel suggested that two things happened in the 1970s which set the staqe for personalized marketing. First, the development of databases which could track individual purchases and preferences, helped to build the catalogue business. At the same time, the wider use of credit cards allowed both the seller and the buyer to have confidence that the transaction would be reliable. Both of those things seem about right.

If you have not listened to the podcasts that Russ Roberts does on Econtalk - you should. Roberts has some great interviews including a very good two part interview with Milton Friedman and ones with Gary Becker, Robert Barro, and Richard Epstein as well as a raft of other interesting people. Roberts is a great interviewer.

Sunday, December 24, 2006

Honesty in Government

A couple of years ago I had the opportunity to listen to the Comptroller General of the United States, who serves, in essence as the chief accountant for the federal government. David Walker was previously a partner with Arthur Anderson and spoke poignantly about the destruction of that firm. But he also spoke eloquently about the fudge in accounting for the federal government. In this morning's Washington Post he wrote a letter to the editor which said in part -

"The largest employer in the world announced on Dec. 15 that it lost about $450 billion in fiscal 2006. Its auditor found that its financial statements were unreliable and that its controls were inadequate for the 10th straight year. On top of that, the entity's total liabilities and unfunded commitments rose to about $50 trillion, up from $20 trillion in just six years.

If this announcement related to a private company, the news would have been on the front page of major newspapers. Unfortunately, such was not the case -- even though the entity is the U.S. government."

Walker puts this debt into perspective by dividing it by the number of Americans which comes up to $400,000 per person. That is a healthy chunk of change, even if as I do, you would discount some of that potential burden. But a lot of this has been put behind a curtain because it is in the interest of politicians to do that. It comes back to the Cole Porter theory of public policy - accentuate the positive (the current benefits) and decentuate the negatives (the future and unfunded liabilities).

Were Sarbanes Oxley applied to government accounting, the government would have even larger problems than it does. Beginning in the new year, government entities will begin to have to account for their unfunded pension obligations in a more responsible manner. That is a good first step. But we really do need more.

Oh, by the way, Merry Christmas!

Friday, December 22, 2006

Logical Inconsistencies or Just Nonsense

Jeremy Rifkin is a hoot. (The picture with this post is not Rifkin) In this morning's Sacramento Bee he yammers that megacities are overtaking what is "wild." Rifkin would be a laugh a minute were his public policy pronouncements not taken somewhat seriously in some quarters. For example, one of his recent books aruged that European civilization was eclipsing American. Evidently, their culture, dismal economic growth (although admittedly improving), inability to deal with immigration and other societal trends are superior to our system.

This morning's diatribe continues the Rifkin tradition. His basic argument is that the world is evolving into a series of megacities and he goes on to claim that "Scientists tell us that within the lifetime of today's children, the wild will disappear from the face of the earth." Evidently it is terrible to move into larger cities. All of our efforts to preserve wilderness are coming to naught. In the US we have not successfully added new areas to wilderness protection in the last couple of decades and ditto for all other places in the world.

Fortunately, there are more rational people in the world who can look at an issue with some intelligence. Joel Kotkin, for example, argues that human organization is evolving in a number of ways. His books like the New Geography argues that Americans at least are making different choices in where they want to live. Those choices allow a mix of strategies and lifestyles. The Internet and quick travel now makes it possible for a person to live almost anywhere and still be a participant in the global economy. That would suggest, at least for some, that the megacities are no longer attractive. Kotkin seems to have a better record as an analyst than Rifkin. In the late 1970s, when the rest of the world was touting Japan,Inc. Kotkin correctly pointed out the potential foibles of the Japanese system. Kotkin presents a much more balanced understanding of the role of cities in his book The City where he uses his keen observer's eyes to explain the growth and development of cities. He understands both the positives and negatives of cities but he also has the good grace to think as an analyst rather than as a scold.

Consistentcy does not seem to be one of Mr. Rifkin's strong suits. One would assume that he is a supporter of the "smart growth" movement which encourages people to move back into the megacities, in an organized way. If you think about Rifkin's consistent theme it is that the real problem here is that the earth has been populated by these things called humans - if we could just move them out of the picture, then everything would be OK.

Thursday, December 21, 2006

What's got into you Susie Creamcheese?

Frank Zappa brought some indelible phrases in the 1960s including the one for the title of this post. In yesterday's opinion section of the WSJ, Joseph Rago who is an Assistant Features Editor, did a rant against the blogosphere. In the article, he compared some blogs to what Joseph Conrad said about newspapers "written by fools to be read by imbeciles." He concluded that "in acceding so easily to the imperatives of the Internet, we've allowed decay to pass for progress." He dismissed political blogs as "predictable, they are excruciatingly boring. More acutely, they promote intellectual disingenuousness, with every constituency hostage to its assumptions and the party line." His general assessment of the blogosphere went something like this "Every conceivable belief is on the scene, but the collective prose, by and large, is homogeneous: A tone of careless informality prevails; posts oscillate between the uselessly brief and the uselessly logorrheic; complexity and complication are eschewed; the humor is cringe-making, with irony present only in its conspicuous absence; arguments are solipsistic; writers traffic more in pronouncement than persuasion . . ."

What struck me as funny was the contrast between his strident opinions and a short search of Rago's important, professional contributions to journalistic excellence. As an intern for the WSJ he wrote a compelling commentary on miniature golf. (August, 2005) That is not to say he has not done some serious stuff for the Journal - in August he did an article on Norman Podhoretz which was an interesting interview. But with that background, and early in his career, he might be a bit more careful with his rants. That is especially true when you understand that his previous journalistic career was with the Dartmouth Review. In June of 2004 he wrote a sophomoric piece on creating a branding identity (called the RagoForce) which had such he commented "How can someone not know Joe Rago?....Every day“What can be done?” Remember, it is your duty as Dartmouth students to promote the Joe Rago Brand." Isn't that a tone of "careless informality?"

The oddest thing about Mr. Rago's rant is his complete lack of understanding of the role that informal media has had on institutions that he was involved with. The Dartmouth Review, for the last couple of decades, has driven the admistration of the College nuts. Its prose is often of the quality of Mr. Rago's quoted article above but it has also performed a service by highlighting the narrow nature of some of the decisions of the administration.

The blogosphere is in its infancy. Indeed, there are a lot of blogs that are as bad as Mr. Rago paints them. But his broad brush is simply wrong. It is not necessary to list the thousands of blogs that distinguish themselves in either niche coverage that the main stream media does not cover or in presenting a point of view that is not done well in other venues. But Rago should reflect a bit on his idiotic generalizations. Part of the reason that the blogosphere has been as important a force as it has, has been the understanding that the traditional media often either misses major stories or gets them wrong. Mr. Rago might want to do his next article for the Journal on Dan Rather and his thoughts about the demands of professional journalistic ethics.

Wednesday, December 20, 2006

The misadventures of a wonk

From Wikipedia - WONK (colloquial American English) was originally a 1960s slang word applied to an excessively studious person (equivalent to "grind" or "nerd"). The origins of the term are obscure. It has been described as a simple reversal of "know," linked to an obscure Old English word, and attributed to Royal Navy slang for a learned but inexperienced midshipman.

WIKI also lists one a series of children's books by a British author named Muriel Levy and illustrated by Joan Kiddell-Monroe. The two pictures suggest a remarkable likeness between the current Secretary of Education and this character in children's literature.

Why all this background? One of the hallmarks of the current administration has been a series of attempts in education to redefine the relationships between education and the federal government. The first effort was in the development of something, which some wits have called Dickens-like, called No Child Left Behind (or NCLB). The law sets a series of national standards which each school district in the country is required to follow. The act has been criticized by many in the school establishment. And some in the administration see this as a badge of honor. But because the school establishment opposes NCLB should not suggest that many outside that relatively narrow group have legitimate concerns. NCLB assumes that be setting standards and counting things - education will get better. It is hard to find any examples in any market where the complexity of outcomes is as great as it is in education, where counting and measuring alone will improve quality.

That brings us to higher education. For the past year or so the Secretary has also been pursuing an agenda to seek new requirements for higher education that are similar in intent to the ones in NCLB. She has continuously complained that her daughter, who is now a student at Davidson College (one of the more selective liberal arts colleges in the country) could not find adequate information to make an intelligent search. (Although Davidson is a pretty good place-so evidently something worked in the search process.)One of her fixes for that problem is to create a national database of all 13 million college students maintained by the federal government. Spellings claims that would allow policy makers to have a better understanding of the things that colleges claim they do and at the same time allow consumers better information with which to make their choices of a college.

The Secretary discounts the substantial risks to privacy that such a database could create and at the same time disregards the potential huge costs of putting this kind of gargantuan record together. But that is not to say that the goal of improving consumer information for colleges and universities is an inappropriate goal. Colleges and universities could be a bit clearer about how they disclose consumer information. But her error is to confuse needs for data and needs for consumer information.

The consumer information about colleges is actually pretty good. For the vast majority of students one can find almost anything about a college that they want to. The Secretary says that the information on colleges is not like the information available for a set of tires. But that is a bizarre and inappropriate analogy. In any complex purchase, a house for instance, a shopper needs to do some careful evaluation of the consumer information on a couple of levels to understand options. In the current college environment there are tons of comparative sites that allow a student to find places that offer a degree in their area of interest, or allow them to search by interest areas to even find out how a BA in biology might use the skills acquired in the degree, or to compare even things like average financial packages. In the end, however, a prospective student needs to drill down in a couple of areas with the couple of serious choices to understand what works. I advise prospective students to go to a campus and walk around - it gives one a clearer impression.

The federal government already requires each institution in the country to compile some pretty good institutional data on students and finances called the Integrated Postsecondary Education Data Series (or IPEDS). Using IPEDS data can give you a good idea about what happens in institutions across the country by type and size or any other kind of variable. But colleges and universities are reluctant to create the new unit record data for a number of very good reasons.

In the end, some colleges have taken the Secretary's comments seriously and are developing a new set of consumer tools which can make data across institutions even more comparable. What we should avoid is any efforts to homogenize higher education. Some policy wonks believe that data collection will simplify, down to the level of a set of tires. That belief is a naive and dangerous one for anyone who understands that the strength of the American system of higher education is its wide range of options.

Tuesday, December 19, 2006

Snopes and Reliability

This morning I got a comment on an earlier snide aside that "Al Gore never claimed to have invented the internet." and a reference to an article in SNOPES (which is often a great debunker of myths). In this case the reference is a bit less reliable.

On March 19, 1999 Gore was on CNN - he stated and Snopes actually quotes the transcript (from Gore)-

"But it will emerge from my dialogue with the American people. I've traveled to every part of this country during the last six years.During my service in the United States Congress, I took the initiative in creating the Internet. I took the initiative in moving forward a whole range of initiatives that have proven to be important to our country's economic growth and environmental protection, improvements in our educational system." I am not sure how else one can interpret the highlighted text. The language is convoluted but "I took the initiative in creating the Internet" is pretty clear to me.

Snopes goes on to argue that the (admittedly) inflated claim made by Gore does not suggest that he "invented" the internet merely that he helped to foster it. Indeed, Gore was on several bills that increased funding for the Internet including a bill in 1986 which funded five super-computing centers. Declan McCullah in an October 2000 Wired article analyzed the then Vice President's role in the growth of the Internet. He quotes a Salon article that commented in part "The 'Gore claims he invented the Net' trope is so full of holes that it makes you wish there were product recalls for bad information."

Gore had plenty of defenders in his claim to have fostered the development of the Internet - notably many of them were strong supporters of the democratic party. Snopes counts them as reliable. At the same time, he had many (admittedly partisan) people who tried to highlight his claim in mockery, and Snopes ignores most of those. That is not bad in itself, but it should be pointed out to give a good understanding of the reliability of his claim. Snopes here did a lousy job of confirming the claim.

The comment made in my original post was an aside, and thus, almost as a gratuitious comment, is not worthy of response. But I wanted to respond to my reader for two reasons. First, politicians of all stripes are constantly attempting to burnish their records. the reason that legislators allow for co-authors on bills is to allow this to happen. Gore has been particularly adept at claiming responsibility in a number of venues where others suggest his role was less important. One commentator called his role in some of these things as "Zelig-like." (Woody Allen's movie where a nebbish appears in a number of important historical events over a long period of time - but really had no or very little role in those events.) Even Gore had a sense of humor about the flap about his claim. At one point he explained his original quote " I was pretty tired when I made that comment because I had been up very late the night before inventing the camcorder." That quote suggests that Gore was a bit chagrined about his overstatement.

But second, Gore's claim here is important to be criticized because just because he had an interest in technology (which he clearly did) does not mean that his policy solutions made or make sense. Gore was a champion of the "information superhighway" which suggested a series of governmental policies that encouraged a more centralized approach to the encouragement of information technology than many observers would accept. One of the real innovations of the Internet has been its dispersed authority structures. The real innovations of the internet have often been created as a result of its chaotic organizational structure.

In the end the importance of whether Gore had a significant role in this area is not as important as the more fundamental issues of political behavior (that their constant goal is to keep in the public eye and to keep their office) and public policy (just because you were a part of something does not mean you thought about the best ways to implement). In the end those are much more substantive.

Monday, December 18, 2006

When is a government not a government?

Two statistics caught my eye. The first came from the California Secretary of State on the November election. 56.2% of the eligible voters came to the polls in November but of those 41.5% cast their votes by absentee. Thus, only about a third of the possible voters thought it was important enough to show up on election day.

According to the Tax Foundation, about a third of the households file no income tax. In the last fifty years the percentage has varied from just under 20% to the current levels. But since the passage of the 2001 Act, the percentage of non-filers has increased at a fairly steady clip from about 27% to the current 32.4%. These taxpayers are over-whelmingly at under $30,000 income.

My suspicion is that the non-voters are also in the same demographics. But the question I have is at what point the non-participants no longer have an oar in the water? It is great to eliminate taxpayers with little or no income from the tax system. It is also pretty important to assure that a bunch of voters can exercise their franchise in a way that suits their lifestyle. But when does that become a problem for democratic institutions?

This about sums it up

From an editorial in the Washington Examiner today...

"There appears to be no bottom to the pit of specious vacuity in which former president Jimmy Carter has been falling since his massive repudiation by voters in his 1980 election loss to Ronald Reagan. "

And after reviewing what this blog discussed in detail a week or so ago - the editorial concludes - "Carter would do himself and his countrymen a favor by permanently resisting the urge to offer any further commentary on world affairs." Sounds about right, doesn't it (if a bit understated)?

Why am I not surprised?

Those people over at CTJ have made a proposal to reduce to impact of the Alternative Minimum Tax (AMT). You will remember that the CTJ is the group called Citizens for Tax Justice (I know when you read their stuff that you often think of it as Comedians for Tax Justice but most of that they say is not that funny.)

Their solution would have two key elements: 1) Extend the 2006 AMT exemptions through 2010, indexed for inflation. 2) Remove the special low 15% tax rate on capital gains and dividends from the AMT. That would mean treating capital gains and dividends the same as other income for AMT purposes. Who could have thought it that simple? Anyone who knows something about this group would not be surprised.

The AMT, as discussed previously in this blog, is that invention to snare errant taxpayers who don't pay their "fair" share. In reality it works like many other parts of the tax code that were added with the same intent - it cuts across an increasingly large number of taxpayers (as the attached WSJ graph shows). The "fix" in the last tax bill reduced the hit, but not by much, especially for the people that the designers say they never intended to get.

Unlike the AMT, which is a creation trying to solve something that by most accounts doesn't really exist(the myth that milions of wealthy taxpayers do not pay taxes), the capital gains preference was created to recognize that a) our society benefits from incentives to invest in capital and b) an income tax system which counts income on an annual basis does not accurately count the contributions of capital or the income. Perhaps a more accurate system on capital would index the cost (basis) for the investment. That would at least take out the windfall that the government gets from capital investments which are held for a long period of time based on inflation. But indexing is complicated. Nicholas Kaldor, who wrote one of the required texts for all tax wonks - the 1955 book called An Expenditure Tax, in his broad theory of how taxes should function declared that we should tax these incremental changes. But as the first Reagan Tax Commission found in the early 1980s the difference between good theory and good practice is wide indeed.

CTJ, in one of their papers, yammers that shudderpeople who hold appreciated assets can keep them from the tax man forever. Yet, CTJ has no consideration for the long term effects on capital formation that higher rates has (it is negative or else many countries in the world would not have lowered their rates on the taxation of capital.) What is clear from any reasonable analysis, is that if the differential rate (I hesitate to call it preferential because it does not fully reflect the long term costs of inflation) is eliminated, taxpayers will continue to hold appreciated assets until the rate is reduced at some point in the future.

Capital investments require some assumption of risk and while the current system offers some recognition of that with the preferential rate, the system still does not adequately recognize the risks of losses. CTJ has whipped this dog for a long time. Their "analysis" is consistent. For example, in a paper called the Hidden Entitlements, CTJ argues that "in terms of cost and maldistribution--and contentiousness--tax breaks for capital gains are at the top of the list." They then go on to argue that the "evidence" of the effects on capital formation is not real because, for example, although the 1978 reduction in capital gains rates did as its sponsors suggested (increased by dramatic rates the realization of capital gains) the country went into a recession after the Steiger amendment was adopted. They look at one year results - but any first year economics student understands that investments take time to develop. A preferential rate for capital gains is a long term thing, but I guess CTJ believes in instant gratification.

What's more the capital gains preference only goes, substantially, to people shudder again in the highest tax brackets. The AARP is as silly about this in a "research" paper on the issue AARP argues that while a substantial portion of the benefits of captial gains exclusions would go to people they supposedly lobby for, the AARP opposes a reduction in the rate because it is skewed to high income taxpayers. At the current time, the top 1% of taxpayers pay as a percentage in taxes about twice what they earn as a percentage of their income share - but AARP and CTJ think that is not "justice." CTJ cites a Department of the Treasury comment before the 1995 Republican Contract for America which stated "Increasing the preferential treatment of capital gains would create economic efficiency losses and make the tax system more complex by encouraging taxpayers to convert ordinary income into capital gains." as an indication that even conservatives (remember 1995 is the Clinton presidency) oppose the preferential rate for capital gains.

CTJ's sponsors simply don't want to recognize the benefits of a capital gains preference. That is not surprising. But it is disappointing. Long term benefits of capital investments improve capital formation, but then supposedly that does not matter to their sponsors.

Friday, December 15, 2006

Did this guy actually farm chickens?

Jimmy Carter, aka former President Lilliput, chickened out of an appearance at Brandeis University where he was scheduled to flog his book. It seems that the former president was unwilling to have a person of normal intelligence be on the same stage with him and discuss the fine points of his argument. The ever quotable peanut farmer rejected the appearance opportunity with the following dismissal - he was unwilling to appear with someone who had no knowledge about the subject. The person who was slated to appear with Mr. Carter was none other than Alan Dershowitz famed lawyer and before this a Carter supporter. (It is unclear whether Carter was referring to himself or not but then his other appearances would also be problematic.)

Dershowitz, like many lawyers, can be an agressive advocate. And indeed on the Huffington Post he did a wonderful job of analyzing the gibberish which passes for analysis in the Carter tome-ette. But Saint Jimmy is evidently a bit sensitive about having to engage in anything like rational debate. The book by the way is the number one current best seller in sort of non-fiction on the idiotic moralizers book list.

Is Income Inequality a Zero Sum Game?

In this post are three charts from a recent UN Report on Income Inequality in the world. There are two sets of questions that should be asked about those charts. First, besides the raw numbers what are they actually showing? And second, if they are true, how should we respond?

The report is a good thing - for what it does. It's limitations should be noted, it includes very little longitudinal data and there are some parts of the earth where data is not adequate. But the numbers are probably close to right. Indeed, the US and the rest of the developed world has a large percentage of the assets in the world. But the risk is that if the readers of the report think in the same UN mindset that the framers of Kyoto did, we will come up to the same idiotic standard of a fixed pie. Kyoto should have been opposed because the people who framed its answers framed them as if the world were a static place.

There are a couple of things we know about changes in income over time, both in the US and around the world. Most of the differences in wealth can be explained by educational levels. Those countries that invest(ed) in education for their population are either growing toward wealth or already have it. As Gary Becker constantly reminds us "Human Capital helps to determine wealth." That is a simple statement but an important one.

Second, the allure of great wealth in some arenas (or at least high salaries) has deflected some away from more social occupations. Richard Posner speculates that we've lost some quality in places like public service because the pay does not compare to areas like law or banking or even some high tech jobs.

Finally, the picture in the world map is that wealth also clearly equates with secure property rights. As the gold and green countries begin to make changes to assure those rights, and if they invest in education, they will soon be in the realm of the wealthy and we will all be better for it. Some have looked at the tremendous investment that China is making in education at this point. I applaud them for it, and rather than bewailing those efforts, I respond by believing that in a competitive world the pie is never fixed and if we as Americans continue to underproduce in key areas of human capital development (read education) we will be the poorer for it.

Thursday, December 14, 2006

Al Gore on CNET

The Executive Editor of CNET, one Charles Cooper, writes today that we should listen to Al Gore and read his book and see his silly movie. What a crock. I am so sick and tired of listening to the rantings and claims of this twice dropout. But the interesting response to the CNET post - several people said a) what about the use of technology in thinking about this set of issues and b) why in the world would a tech site listen to this political rant. Those are sound questions. If Cooper continues to rant like this, I will take his RSS off my list. I expect that my tech sites will talk about tech issues.

I am getting so tired of hack politicians with bad combovers yacking about something they clearly do not understand. It is made worse by people like Cooper, who may also not have any background in the field, who buy this prattle. Oh, I forgot, Al Gore invented the Internet.

What is the Distribution of Income in the Country and Why does it Matter

Alan Reynolds argues that the standard measures of income inequality distort the actual realities in an article in the Wall Street Journal this morning. It forced me to go back to a body of work that I have looked at in the past. There are two sets of issues here. One is methodological, how should we determine income shares? The second is political, why does it matter that the income share arguments are wrong.

In the methodological arguments, the questions are complex but fairly clear. Beginning in 1993 (in the Quarterly Journal of Economics - Vol CXVIII, Issue 1) Thomas Piketty of EHSS in Paris and Emmanuel Saez of UC Berkeley began a series of studies looking into income inequality. The two scholars have periodically updated their work.

The numbers from Piketty-Saez, if correct, should be of concern. They argue that the top 1% of taxpayers hold 16.1% of the total income and that the share has increased substantially from 2004 (when it was 14.7%) and 1980 (when it was 9.3%). And there are a number of visuals that can confirm that trend. (Bonuses at Goldman, which average more than $600,000 were a major story on ABC news last night.) But visual impressions should not guide policy.

Reynolds points out a number of problems with the model used by Piketty and Saez. First, their model does not include transfers (such as Social Security) which are not counted in tax data and are skewed to the lower end of the sample. Second, alternative data on incomes suggests that the total figure in the income totals is about a third higher than the one used for the data in the Piketty/Saez paper. Third, the data understates middle and lower income incomes because its figures fail to account for such middle class savings vehicles as §529 plans and §401K plans. Fourth, it fails to account for the significant increase (estimate by one source at a growth rate of 9% per year since the 1986 tax act) of movement from corporate to Subchapter S corporate returns. Those returns are business income that seems to be reported as personal. The net effect of all of these differences is that middle income income is underreported and higher income income is over-reported AND that the trend for both seems to be accelerating.

But then there is the political side of it. In a recent Rolling Stone article headlined The Great Wealth Transfer liberal darling Paul Krugman argues that not only is the data on wealth correct but that it is even worse than suggested by the two real academics. "The reason most Americans think the economy is fair to poor is simple; for most Americans it really is fair to poor.", Krugman clucks. One wonders whether Krugman would say anything different even if the data were different. He then goes on to compare the 1970s and today - 1) the common employee in the 1970s worked for GM and had generous defined benefit pension plans and other benefits and now works for Walmart with no such things. That is a nonsensical comparison. The employee in the 1970s did not have a §401 plan and much less control over his own fate than today. 2) Krugman then goes on to argue that more unions and a higher minimum wage would save the day. That is something that most legitimate economists would disagree with. 3) He then goes on to suggest that the corporate scandals were somehow covered up by the invasion of Iraq. That is absurd on its face but hasn't he heard of Sarbanes Oxley and doesn't he own a calendar (we went to Iraq before he dates the corporate scandals)? Lefty places like the Center on Budget and Policy Priorities trumpet the data as they did in October when they suggested that there was an "Extraordinary Jump" in inequality in the country.

Here is what we know. First, workers in the middle class have much more control over their lives (in things like §401 savings opportunities) and less apparent security than their counterparts in the 1970s. The flexibility of employment works both ways. The benefit or cost of that depends on some value judgments. I happen to think that individuals benefit from more freedom, but benefit is in the eye of the beholder. Second, by most reasonable comparative opportunities today's middle class is better off - larger square foot houses and better technology - which may or may not show up in the income statistics. I am amazed every time I go back to my aunt's house in North Carolina to understand just how small their very prosperous family home is by modern standards. Third, we understand that the Top 1% in income (or 5% for that matter) are not necessarily the same people in two time periods. Part of this requires some value judgements but part also require a clear headed analysis of data.

I am interested in this set of issues, because I believe that the ability of people to make their own way and to benefit from their energy is critical to maintaining democratic institutions. Krugman is not interested in the facts here but merely a way to push his own centralized and looney alternatives. Here the wrong data can lead to wrong conclusions.

University Endowments

In Inside Higher Education this morning a National Association of College and University Business Officers report highlights the differences in performance between well endowed and less well endowed institutions. An endowment is a poorly undersood thing but very important to charitable institutions, especially colleges and universities. It represents the accumlated gifts from all sources that are permanently dedicated to sustaining the institution through good times and bad. It is like a savings account, although some of this savings account has to be spent on specific projects (that is called restricted endowment).

The numbers looked like this:

Endowment Size 1-Year Average Increase
Greater than $1 billion -- 15.2%
$501 million — $1 billion -- 12.8%
$101 million — $500 million -- 11.9%
$51 million — $100 million -- 10.0%
$26 million — $50 million -- 9.3%
Up to $25 million -- 7.8%

The differences in return are entirely predictable. A good friend of mine, who was president of Claremont McKenna College, once said to me that investing endowment funds should always be done like you were a young investor because the funds in an endowment are to last the lifetime of the institution. The differences in return can be keyed on one thing and one alone - diversification. The largest endowments put about 45% of their money in equity (stocks and bonds) while the smallest put almost 59%. But the smallest put 29% of their endowments into fixed income (like bonds) while the largest put only about 12.5% into the same category. The biggest put their funds into all sorts of things including hedge funds and private equity (venture capital funds).

At this point some of you may be saying, OK, so why is this important to me. Let me answer in two ways. First, there is a simple principle here that should be instructive to both institutions that you care about and to individuals. Diversification of investments is a good idea. If you cannot do it for yourselves you should find someone who can. There are all sorts of "experts" (The one that comes closest to mind is the radio financial "guru" Bob Brinker who I have heard argue that for a 20s something person who came into a small inheritance that it was just dandy to put most of his windfall into fixed income instruments and thus condemning this caller to safe but inadequate returns) who come up with the bizarre theory that one should increasingly invest only in fixed income as you age. Caution in investing and limiting your horizons to fixed income are two different things.

Second, in the Congress there is beginning to be some talk about taxing "excess" endowments. US college and university endowments vary in size by significant proportions. To be in the top 25 you need a bit over $2 billion in assets. The largest endowment is Harvard (at $29.2 billion) and their endowment could run the university for several years if spent down or at current spending rates could cover a lot of the current operating costs. Of the top 25, 18 are independent institutions. Also in the top 25 are 3 California institutions (Stanford at $15.2, UC at $5.8, and USC at $3.1). There are two problems with this rhetoric. First, the definition of excess is a hard thing to characterize. A lot of the discussion about endowments rests on why can't they are not being used to bring down tuition costs. That is problemmatic because a lot of endowments are restricted thus can only be used for specific purposes. Colleges use a lot of their unrestricted funding for scholarships which lower the price for needy students. But the use of outside funds to charge differential prices increases complexity (albeit with good motives) for consumers. (No student ever pays the full cost of higher education - which the National Commission on College Costs found.)

The returns on investments in colleges in the top 25 ranged from a high of 22.3% to a low of 6.8% (due in part because of the non-diversification of that university's endowment). That is a pretty impressive difference but as noted above, the consistent differences in returns based on size of endowment is even more impressive. While the ones who are larger than $1 billion have had some real dips in performance on a long term basis their returns, based on their diversification of investments, is pretty consistently higher than the ones under $25 million.

Wednesday, December 13, 2006

Where does Al Gore fit in here?

According to a report sponsored by the EU, World Bank and a bunch of others -

"The livestock sector is...responsible for 18 percent of greenhouse gas emissions measured in CO2 equivalent. This is a higher share than transport."

I can't wait to hear the Tennessee bard reconcile that one.

Information Overload

The grandmother of my daughter in law is a wonderful person. She is also a big user of the internet. Several times a week I get one of three types of information from her. The first are a series of laugh out loud funnies from all sorts of sources. I am not sure where she gets them - where do any of these things come from - but I appreciate the chuckles. The second are a series of inspirational things. She is a devout Christian and sends materials designed to inspire and they do. The third are a series of mailings on issues of the day, some reflect her political beliefs and some reflect concerns about the internet. This morning I received two mailings on top of each other. The first was about a service called Zabasearch. I have known about Zaba for a long period of time. It allows you to search public records databases by name and location. You get some basic information about the person and then for a fee you can get more. Zaba, in my mind, is a useful service. It includes a lot of information that was available in earlier times but now can be accessed on line. But like Google Maps, or one of the other mapping tools, it is pretty impressive and potentially scary the first time you see it. The second mailing was about Familywatch which allows a person to again access public databases to map homes and work places of sex offenders. In this case rather than concern there was support for this useful tool. The point of this is that the information comes from the same kinds of sources.

I am not sure how to explain to her how both sets of information come from the same kinds of sources and with additional information like the stuff on family watch also comes the information on where you live. What concerns me is the assumption that because you can get public records on the net some believe that anyone can get any piece of personal information about a person on the net. Every once in a while I see something from her or another person about how easy it is to get social security numbers (not) or credit histories (a bit easier) or detailed financial information (tough) about a person. But like many other technologies you cannot open up the box partially.

Personally, I like the availability of information on the net. It is handy and not really that intrusive.

Tuesday, December 12, 2006

Political Idiocy

Extreme Mortman has the 10 funniest political quotes of 2006 - although he missed the other Kerry one (perhaps we could do the 10 funniest Kerry quotes of 2006) - where Kerry after he made his gaff in California decided to cancel the rest of his political appearances because it was "confusing the voters." There are lots of giggles on this list although I would have liked to vote.

An Annotated version of Annan's Speech at the Truman Library

Independence, Missouri, 11 December 2006 - An annotated version of the Secretary-General's (more properly known as an un-indicted co-conspirator) address at the Truman Presidential Museum and Library.
Thank you very much, Senator [Hagel] for that wonderful introduction. It is an honor to be introduced by such a distinguished legislator for whom I have always had a great deal of respect. I am especially respectful of any member of the Senate who does not like the same people that I do not like. And thanks to you, Mr. Devine, and all your staff, and to the wonderful UNA chapter of Kansas City, for all you have done to make this occasion possible. I realize that when I was appointed I was the "reform" candidate. But of course the only reforms enacted in my administration were the manifold bribery scandals from all sources - Benon Sevan - took $160,000, my chief of staff wisely tried to destroy the documents. Me and my deputy, knew about the scandal but failed to report it as required under the UN Charter. Money laundering during my administration came to new heights. Vladimir Kuznetsov lifted more than a million bucks and our peacekeeping operations mismanaged in the range of $300 million.

It is a pleasure, and a privilege, to be here in Missouri. It's almost a homecoming for me, as you heard from the Senator. Nearly half a century ago I was a student about 400 miles north of here, in Minnesota. (Nebraska, Minnesota, Missouri – they are all a part of that vast middle of the country that the people on the coasts just mush together) I arrived there straight from Africa – and I can tell you, Minnesota soon taught me the value of a thick overcoat, a warm scarf and even the weird looking ear-muffs – that's to an African eye!

When you leave one home for another, there are always lessons to be learnt. And I have had more to learn when I moved on from Minnesota to the United Nations – the indispensable common house of the entire human family, (Of course, in my definition of family, some are more equal than others.) which has been my main home over the last 44 years. Today I want to talk to you particularly about five lessons I have learnt in the last ten years, during which I have had the difficult but exhilarating (and financially rewarding) job as Secretary-General.

I think it's especially fitting that I do that here in the house that honors the legacy of Harry S Truman. If FDR was the architect of the United Nations, then President Truman was the master-builder, and the faithful champion of the Organization in its early years, when it had to face quite different problems from the ones FDR had expected. Truman's name will always and forever be associated with the memory of far-sighted American leadership in a great global endeavor. And you will see that every one of my five lessons brings me to the conclusion that such leadership is no less sorely needed now than it was sixty years ago.

My first lesson is that, in today's world, the security of every one of us is linked to that of everyone else. (Is this where we link hands and sing Kumbaya? The UN was conceived as a way for nations to work together on common problems. At times it has been successful in resolving conflicts between nations. But the operating unit in the entity is not people but nations. That is a fundamental concept which Mr. Annan seems to forget.)

That was already true in Truman's time. The man who in 1945 gave the order for nuclear weapons to be used – for the first time, and let us hope the only, time in history – understood that security for some could never again come or be achieved at the price of insecurity for others. (The example is an excellent one – Truman acted in behalf of the interests of the United States in dropping the bombs to end WWII. Most histories do not suggest that he spent a lot of time consulting with even members of the allies on this important decision. ) Remember that I helped to try to stop interventions in Iraq as early as 1998. Yeah, Saadam was killing his own people at the rate of 36,000 per year, but what of that? Saadam was no worse than the regime in Khartoum. He was determined, as he had told the founding conference of the United Nations in San Francisco, to “prevent, if human mind, heart, and hope can prevent it, the repetition of the disaster [meaning the world war] from which the entire world will suffer for years to come.” He believed strongly that henceforth security must be collective and indivisible. That was why, for instance, he insisted, when faced with aggression by North Korea against the South in 1950, on bringing the issue to the United Nations and placing US troops under the UN flag, at the head of a multinational force. (Of course I am free to forget when the body acted 18 times to stop the atrocities of Saadam.)

But how much more true it is in our open world today: a world where deadly weapons can be obtained not only by rogue states but by extremist groups; a world where SARS, or avian flu, can be carried across oceans, let alone national borders, in a matter of hours; a world where failed states in the heart of Asia or Africa can become havens for terrorists; a world where we can have a Human Rights Commission in the UN where the major players are the most extreme violators of human rights; a world where even the climate is changing in ways that will affect the lives of everyone on the planet.I'll go ahead pressing for lunacies like the Kyoto treaty because I know the rich countries can pay for it. Did I tell you I saw Al Gore's movie 18 times - it sort of conforms to my forgetting the 18 resolutions.

Against such threats as these, no nation can make itself secure by seeking supremacy over all others. We all share responsibility for each other's security, and only by working to make each other secure can we hope to achieve lasting security for ourselves. There is this nasty thing of the organizational structure of the UN. As the body was established it was founded on the principle that some nations are more equal than others. That is why there is a security council.

And I would add that this responsibility is not simply a matter of states being ready to come to each other's aid when attacked – important though that is. It also includes our shared responsibility to protect populations from genocide (I guess the Kurds in Iraq do not count), war crimes(I guess Saadam’s role in the first Iraq conflict should be ignored.) , ethnic cleansing (You should forget the record here. When the UN did not act as in Kosovo - lives seem to have been saved, when they did they mostly were not. I have forestalled interventions in the obscenities of Sudan because my pals in Khratoum don't want people looking over their shoulders- that is only for regimes I do not like.) and crimes against humanity – a responsibility solemnly accepted by all nations (There is that term – nations, not peoples. Although KA does not really believe that all nations are equal here – he must be the arbiter of when we stick up for these principles.) at last year's UN world summit. (Of course it is OK to have tin horn dictators from Iran and Venezuela come and insult the US to their heart’s delight.) That means that respect for national sovereignty can no longer be used as a shield by governments intent on massacring their own people ((But again we’ll just ignore that in Iraq, earlier or now.), or as an excuse for the rest of us to do nothing when heinous crimes are committed. (heinous crimes are defined by me not the body of nations)

But, as Truman said, “If we should pay mere lip service to inspiring ideals(as I have for honor or financial responsibility) , and later do violence to simple justice, we would draw down upon us the bitter wrath of generations yet unborn.” And when I look at the murder, rape and starvation to which the people of Darfur are being subjected, I fear that we have not got far beyond “lip service”. The lesson here is that high-sounding doctrines like the “responsibility to protect” will remain pure rhetoric unless and until those with the power to intervene effectively – by exerting political, economic or, in the last resort, military muscle – are prepared to take the lead. (But then I have ignored this doctrine for most of my term as SG preferring to run up costs and help my buddies get some boodle from UN activities.)

And I believe we have a responsibility not only to our contemporaries but also to future generations – a responsibility to preserve resources that belong to them as well as to us, and without which none of us can survive. That means we must do much more, and urgently, to prevent or slow down climate change. (I saw Al Gore's movie eighteen times and believed it. But then I know he is the guy who invented the internet too. ) Every day that we do nothing, or too little, imposes higher costs on our children and our children's children. (I am the guy who is supposed to impose costs but this delay in working on global warming prevents me from getting some of the spondoodle that comes from UN activities. Me and my son are no longer raking off our percentages from the oil for food program.) Of course, it reminds me of an African proverb – the earth is not ours but something we hold in trust for future generations. I hope my generation will be worthy of that trust.

My second lesson is that we are not only all responsible for each other's security. We are also, in some measure, responsible for each other's welfare. Global solidarity is both necessary and possible.(Of course, Israel does not count here. I've said nothing about the efforts of the Iranian leadership to deny the holocaust.)

It is necessary because without a measure of solidarity no society can be truly stable, and no one's prosperity truly secure. That applies to national societies – as all the great industrial democracies learned in the 20th century – but it also applies to the increasingly integrated global market economy that we live in today. It is not realistic to think that some people can go on deriving great benefits from globalization while billions of their fellow human beings are left in abject poverty(Surely I do not want to be in abject poverty, that is why I figured out how to take something off the top.) , or even thrown into it. We have to give our fellow citizens, not only within each nation but in the global community, at least a chance to share in our prosperity. (Of course I will ignore the value of markets in assuring development - doesn't allow me as big a chance to scrape it off the top. The ability of individuals to be able to determine their own destinies is, in the end a positive value. So what have you done to increase the opportunities for markets in the world? The best systems are ones which taxingenuity and success and allow me a piece of the pie.)

That is why, five years ago, the UN Millennium Summit adopted a set of goals – the “Millennium Development Goals” – to be reached by 2015: goals such as reducing by fifty percent the proportion of people in the world who don't have clean water to drink; making sure all girls and boys receive at least primary education; slashing infant and maternal mortality; and stopping the spread of HIV/AIDS. (Again I will ignore the evidence– encouraging vigorous markets increases individual welfare and allows people to spend money on things beyond subsistence.)

Much of that can only be done by governments and people in the poor countries themselves. But richer countries, too, have a vital role to play. (And of course all of it should be funded through the UN so I can take my share.) Here too, Harry Truman proved himself a pioneer, proposing in his 1949 inaugural address a program of what came to be known as development assistance. And our success in mobilizing donor countries to support the Millennium Development Goals, through debt relief and increased foreign aid, convinces me that global solidarity is not only necessary but possible.

Of course, foreign aid by itself is not enough. (No we also have to pay outrageous salaries to people like me.) Today, we realize that market access, fair terms of trade, and a non-discriminatory financial system are equally vital to the chances of poor countries. (But that does not mean I do not think I could regulate all that better.) Even in the next few weeks and months, you Americans can make a crucial difference to many millions of people, if you are prepared to save the Doha Round of trade negotiations. You can do that by putting your broader national interest above that of some powerful sectional lobbies, while challenging Europe and the large developing countries to do the same.

My third lesson is that both security and development ultimately depend on respect for human rights and the rule of law. (But again the rule of law is a more limited focus than you traditionally see. We don't care about enforcing the resolutions passed by the UN, except the ones I care about. Also we are not bothered when one country like Iran challenges the very existence of another country like Israel. Those kinds of things are not included in the rule of law.)

Although increasingly interdependent, our world continues to be divided – not only by economic differences, but also by religion and culture. That is not in itself a problem. (Unless of course you are a Christian in parts of Africa or Jewish and in the Middle East.) Throughout history human life has been enriched by diversity, and different communities have learnt from each other. But if our different communities are to live together in peace we must stress also what unites us: our common humanity, and our shared belief that human dignity and rights should be protected by law. (Law is an interesting concept to use here, it is based on a shared culture and some fundamental common understandings of how things work together. But then as I said earlier, I beleive that the rule of law needs an arbiter like me.)

That is vital for development, too. Both foreign investors and a country's own citizens are more likely to engage in productive activity when their basic rights are protected and they can be confident of fair treatment under the law. (But of course we did not want to move too quickly in Iraq where human rights was not a concept accepted by Saadam.) And policies that genuinely favor economic development are much more likely to be adopted if the people most in need of development can make their voice heard. (But that principle did not apply to Iraq under Saadam.)

In short, human rights and the rule of law are vital to global security and prosperity. As Truman said, “We must, once and for all, prove by our acts conclusively that Right Has Might.” That's why this country has historically been in the vanguard of the global human rights movement. But that lead can only be maintained if America remains true to its principles, including in the struggle against terrorism. When it appears to abandon its own ideals and objectives, its friends abroad are naturally troubled and confused. (The Geneva Convention makes a clear distinction between forces fighting for a country and those who are not. The rights extend only to those who are fighting for a country. But in my conception of the rule of law, that principle does not apply. Nations when I say it, people at other times - that is my principle.)

And states need to play by the rules towards each other, as well as towards their own citizens. (But we will ignore the inconvenient truths when it suits us.) That can sometimes be inconvenient, but ultimately what matters is not inconvenience. It is doing the right thing. (That clearly does not apply in KAs notion when the UN passes 18 resolutions compelling actions by one of its members.) No state can make its own actions legitimate in the eyes of others.(Unless of course I say it is OK.) When power, especially military force, is used, the world (read the people who agree with me not those silly fool countries who worked with the US in Iraq. Oh, I forgot, those are not nations.) will consider it legitimate only when convinced that it is being used for the right purpose – for broadly shared aims – in accordance with broadly accepted norms. (But of course we will look the other way when our peacekeepers bring mayhem to the country they are supposedly assisting.)

No community anywhere suffers from too much rule of law; many do suffer from too little – and the international community is among them. (Law comes from shared values. Does the suppression of women’s rights rise to a standard in all countries?) This we must change.

The US has given the world an example of a democracy in which everyone, including the most powerful, is subject to legal restraint. Its current moment of world supremacy gives it a priceless opportunity to entrench the same principles at the global level. As Harry Truman said, "We all have to recognize, no matter how great our strength, that we must deny ourselves the license to do always as we please."

My fourth lesson – closely related to the last one – is that governments must be accountable for their actions in the international arena, as well as in the domestic one. (In my conception, all nations should submit to our form of law, but some like Iran and Iraq under Saadam will be treated differently than others. My principle of law is like what WC Fields once said - don't do as I tell you, do as I tell you.)

Today the actions of one state can often have a decisive effect on the lives of people in other states. So does it not owe some account to those other states and their citizens, as well as to its own? I believe it does.

As things stand, accountability between states is highly skewed. Poor and weak countries are easily held to account, because they need foreign assistance. (Wouldn’t it be useful to cite specific examples here?) But large and powerful states, whose actions have the greatest impact on others, can be constrained only by their own people, working through their domestic institutions. (Or by the UN failing to act.)

That gives the people and institutions of such powerful states a special responsibility to take account of global views and interests, as well as national ones. (Ignoring Iran and a host of other countries.) And today they need to take into account also the views of what, in UN jargon, we call “non-state actors”. I mean commercial corporations, charities and pressure groups, labor unions, philanthropic foundations, universities and think tanks and terrorists when it suits our broader purposes – all the myriad forms in which people come together voluntarily to think about, or try to change, the world.

None of these should be allowed to substitute itself for the state, or for the democratic process by which citizens choose their governments and decide policy. But they all have the capacity to influence political processes, on the international as well as the national level. States that try to ignore this are hiding their heads in the sand. (Is this the place to insert all of the nations in the UN who ignore the democratic processes?)

The fact is that states can no longer – if they ever could – confront global challenges alone. Increasingly, we need to enlist the help of these other actors, both in working out global strategies and in putting those strategies into action once agreed. It has been one of my guiding principles as Secretary-General to get them to help achieve UN aims and to line my own pockets whenever I can – for instance through the Global Compact with international business, which I initiated in 1999, or in the worldwide fight against polio, which I hope is now in its final chapter, thanks to a wonderful partnership between the UN family, the US Centers for Disease Control and – crucially – Rotary International.

So that is four lessons. Let me briefly remind you of them:

First, we are all responsible for each other's security.

Second, we can and must give everyone the chance to benefit from global prosperity.

Third, both security and prosperity depend on human rights and the rule of law.

Fourth, states must be accountable to each other, and to a broad range of non-state actors, in their international conduct.

My fifth and final lesson derives inescapably from those other four. We can only do all these things by working together through a multilateral system, and by making the best possible use of the unique instrument bequeathed to us by Harry Truman and his contemporaries, namely the United Nations. (Multilateral means one thing for KA and quite another for others. Multilateral should mean at times inside the UN but when it proves itself incapable, multilateral may mean some actions take place outside the UN.)

In fact, it is only through multilateral institutions that states can hold each other to account. And that makes it very important to organize those institutions in a fair and democratic way, giving the poor and the weak some influence over the actions of the rich and the strong. (I guess the question here is what does the word “some” mean here.)

That applies particularly to the international financial institutions, such as the World Bank and the International Monetary Fund. Developing countries should have a stronger voice in these bodies, whose decisions can have almost a life-or-death impact on their fate. And it also applies to the UN Security Council, whose membership still reflects the reality of 1945, not of today's world. (There is a good question whether the IMF and WB serve the interests of development, but that is a topic to be addressed in another venue or post.)

That's why I have continued to press for Security Council reform. But reform involves two separate issues. One is that new members should be added, on a permanent or long-term basis, to give greater representation to parts of the world which have limited voice today. (Does that also mean dropping some permanent members from the SC when it is demonstrated that they are no longer deserving of permanent status?) The other, perhaps even more important, is that all Council members, and especially the major powers who are permanent members, must accept the special responsibility that comes with their privilege. The Security Council is not just another stage on which to act out national interests. It is the management committee, if you will, of our fledgling collective security system. (The original idea of the SC was something more and less than a management committee. It was clearly designed for the permanent members to have the opportunity to stop something which was clearly not in their interest. KA is right here that this is a special responsibility, but the characterization as a management committee is much too limited.)

As President Truman said, “the responsibility of the great states is to serve and not dominate the peoples of the world." He showed what can be done and what can be achieved when the US assumes that responsibility. And still today, none of our global institutions can accomplish much when the US remains aloof. But when it is fully engaged, the sky is the limit. (But that involvement has to be both ways. The US cannot afford to allow the UN to selectively intervene when it thinks it should but to ignore vital US interests at its will.)

These five lessons can be summed up as five principles, which I believe are essential for the future conduct of international relations: collective responsibility, global solidarity, the rule of law, mutual accountability, and multilateralism. Let me leave them with you, in solemn trust, as I hand over to a new Secretary-General in three weeks' time. (I am still trying to figure out in those last three weeks whether I can get any more boodle out of this job.)

My friends, we have achieved much since 1945, when the United Nations was established. But much remains to be done to put those five principles into practice.

Standing here, I am reminded of Winston Churchill's last visit to the White House, just before Truman left office in 1953. Churchill recalled their only previous meeting, at the Potsdam conference in 1945. “I must confess, sir,” he said boldly, “I held you in very low regard then. I loathed your taking the place of Franklin Roosevelt.” Then he paused for a moment, and continued: “I misjudged you badly. Since that time, you more than any other man, have saved Western civilization.”

My friends, our challenge today is not to save Western civilization – or Eastern, for that matter. All civilization is at stake, and we can save it only if all peoples join together in the task. The principle here should be to allow civilizations to continue. The respect for “law” is a complex thing. If the terrorists do not respect institutions in the west, how should the body of nations, or one nation respond?)

You Americans did so much, in the last century, to build an effective multilateral system, with the United Nations at its heart. Do you need it less today, and does it need you less, than 60 years ago?

Surely not. (I am not sure I would answer as quickly. The concept of working together is a good one. But when the major body that is supposed to promote that is so taken over by tinpots and demagogues and when its administration is more concerned about compensation than principle, then maybe it is time to either revise the body or abandon it.) More than ever today Americans, like the rest of humanity, need a functioning global system through which the world's peoples can face global challenges together. And in order to function more effectively, the system still cries out for far-sighted American leadership, in the Truman tradition. But also for the principled leadership of many of my predecessors.

I hope and pray that the American leaders of today, and tomorrow, will provide it. I hope and pray that the successor to Mr. Annan will be a bit less inclined to follow his predecessor’s ways.

Thank you very much.

One other comments bears making. The multilateral diplomacy that evolved after the Second World War was reflective of the times. It should be clear that with changes in international affairs that it might be timlely to think more creatively about what the system in this era should look like.

When the UN was created it looked back to the League of Nations but it also looked at the current conditions on which to build the system. But that system was built in an era where a substantial percentage of the peoples in the world were under some level of colonial authority and where an increasing percentage of people were subject to communist rule. In this era those conditions no longer obtain. Over the last six decades people have collectively thrown off the colonial yoke and communism has failed. The new nations that evolved are different from those that convened to think about the formation of the UN. Not only are some of the original superpowers less super, but the challenges we face go back before the formation of the nation state.

Annan, as might be expected, thinks in a linear fashion. He extends the current system beyond any sense of reason. But as we saw in the formation of the UN after WWII, linear thinking will not serve us. Perhaps Mr. Annan's successor will be able to move the organization in a direction that has more relationship to the world we live in today. I am constantly annoyed at the moral hectoring that this international hack tries to foist upon us but that does not mitigate my understanding that the world community needs to think creatively about how to accomplish things in a collective way. Annan's five principles are mostly hackneyed restatements of what his leadership has brought the UN to, but that does not mean that we should not continue to work on our joint interests.

Monday, December 11, 2006

Editorial Tax Nonsense

In the second editorial today in the Sacramento Bee (called Tax Scammery) the lack of reform in the Alternative Minimum Tax is blamed on the "record Bush tax cuts of 2001." What nonsense! Does the Bee not remember where the AMT came from? It came from a democrat initiative in the 1969 tax act. You should remember that tax "reform" which was designed to catch errant millionaires who did not pay tax. The Assistant Tax Secretary at the time, Stanley Surrey, argued that without this parallel tax system that millionaires would pay no tax.

The problems with the AMT are huge. As it has gone unindexed over time the snare has extended lower and lower into the tax system. The compliance cost of the alternative system is also huge. But the Bush tax cuts are not the reason why the AMT is bad tax policy or even why it is still in the Internal Revenue Code.

Which of the "record tax cuts" would the Bee trade off for the elimination of the AMT? The modest reduction in rates? The reduction in capital gains rates? The elimination of the death tax? Each of those policies which were the core of the 2001 tax act have strong justification in making the tax system become less intrusive into our lives. Each of those changes, which were the base of the tax cuts, has sound justification in tax policy. The capital gains reductions help in capital formation. The rate reductions put us more in line with tax rates around the world - and seem to have had the effect of having the wealthiest taxpayers actually pay a slightly higher percentage of the tax burden. The death tax elimination ended the ability of the government to confiscate family businesses. (Although most observers suggest that some modification of the complete elimination would raise some revenue - and the last congress toyed with setting a high exclusion to raise some revnue.)

The real problem with the AMT is its narcotic like effects for people who want to increase spending. The Bee points out that the burdens of AMT are in the range of $70 billion and growing. The AMT affects more than 23 million taxpaying units. In a Brookings study of the issue if the Bush tax bill had not been enacted the AMT would now only affect 300-400,000 taxpayers. But did the Brookings look at the effects of raising rates on capital or the costs to family businesses for going back to the absurdly low exclusions for death taxes, or even for the negative effects of keeping the general rate tables above where they are today? In reality, the Bee wanted more to yammer about Bush than to think conscientiously about sound tax policy.