Wednesday, November 11, 2009


It's a little odd that Harvard economics professor N. Gregory Mankiw, in a recent column in the New York Times ("Supply-Side Ideas, Turned Upside Down", Oct. 31), would cite an anecdote from President Ronald Reagan as evidence that "high marginal tax rates discourage people from working to their full potential."

Professor Mankiw recounts that the President told his staff he used to alter his work schedule as an actor to avoid falling into the top marginal income tax bracket: he and his fellow stars "quit working after four pictures and went off to the country."

President Reagan was a wonderful story teller. Many of his narratives had a troubled relationship with reality — recall the Cadillac-driving welfare queen and the freedom-fighting Nicaraguan contras — but they played expertly on the prejudices and fears of many Americans.

His cautionary tax tale sounds a bit too much like it was ghost-written by Ayn Rand. But even if we buy it, it's not self-evident that the actor's potential was stunted; you could as easily argue that by avoiding overexposure he might have raised his drawing power.

Another consequence might have been that other less well-heeled actors got the roles that Dutch and his pals spurned, spreading the bounty of Hollywood around more widely and giving the studios fresh blood at a lower price.

In the non-fiction world, in any case, only a small part of the workforce gets jobs in discrete chunks like movie contracts. Most of us work in ongoing jobs for continuous paychecks (if we're lucky), and few of us who do work on contract have the matinee-idol option of taking or leaving the next offer. It's a bit of a stretch, for example, to imagine a software executive taking a leave in November because her yearly income is about to put her into the top bracket.

On the macroeconomic side, the 50 percent and higher top marginal tax rates in force from the end of World War II to the beginning of the Reagan era apparently didn't damage the overall economy, either. Average growth rates were higher and prosperity more widely shared in that period than in the following three decades.

Professor Mankiw will need to pump harder if he hopes to resuscitate the cold, rigid corpse of supply-side economics.

Thursday, April 30, 2009

This is going to hurt me more than it hurts you

Hugo Chávez's comment on President George W. Bush at the U.N. in 2006, "The devil came here yesterday and it smells of sulfur still today," was a gratuitous and mean-spirited insult.

But not to President Bush – to the Devil. Even though the President of Venezuela is not known for his diplomatic finesse, being compared to such a lightweight must have wounded Luciferian pride.

The least Chávez could have done was to accurately target his politico-theological barbs. Perhaps the only one in the Bush administration with the gravitas to stand up to the comparison was then Vice President and current Marketing Director for the Spanish Inquisition, Dick Cheney.

Despite his reputation as a heavy, however, even Cheney's spoon wasn't long enough to sup with His Satanic Majesty.

If we can believe Dante, the Prince of Darkness is a connoisseur of torture. The nine rings of Hell are full of testimonies to the ingenuity of his cruelty, each torment elegantly calibrated to a specific sin. For example, those guilty of violence against humans are thrown into a river of boiling blood in the Seventh Circle; below them in the Eighth Circle, corrupt politicians wallow in a lake of burning pitch, and fraudulent advisers are consumed by flames.

The best the Veep's people could come up with was shopworn tactics from Torquemada and ham-handed stunts like slamming heads into walls that could have been licensed from the World Wrestling Federation. To add insult to injury, they called them "enhanced interrogation techniques," which makes them sound like some kind of focus group. Satan would no doubt be deeply offended at being mentioned in the same breath.

Outside of Hades, torture may be good at persuading people to sign false professions of faith or confessions of crime. But any information gained from abuse is inherently unreliable, which is one reason why courts won't accept it.

Many of the people with real operational knowledge of the interrogations of Al Qaeda suspects do not believe the torture detailed in the Justice Department memos provided useful information. Ali Soufan, an FBI agent who earlier had interrogated Abu Zubaydah with traditional [non-torture] techniques, wrote in the New York Times that months before being tortured Zubaydah had been cooperative and provided "important actionable intelligence".

"There was no actionable intelligence gained from using enhanced interrogation techniques [torture] on Abu Zubaydah that wasn’t, or couldn’t have been, gained from regular tactics," he wrote. "In addition, I saw that using these alternative methods on other terrorists backfired on more than a few occasions — all of which are still classified."

Even Stephen G. Bradbury of the Justice Department, who authored some of the memos, acknowledged in one: "It is difficult to quantify with confidence and precision the effectiveness of the program" that tortured the prisoners.

In effect, the whole debate over whether or not torture "worked" to help prevent acts of terrorism is a diversion, because by its nature the effectiveness of torture is not knowable with any confidence.

In the unlikely case that usable information was obtained from a prisoner who had been tortured, how could anyone know if it was the torture that caused the prisoner to provide the information? They would have to be able to get inside the prisoner's head and review the entire experience in captivity to understand motivations. It's not as though they can run double-blind studies or animal tests. Torture is an art, not a science.

Most damningly, even if it appears to the torturers that torture was successful in extracting intelligence, it is inherently impossible to determine whether the same information could have been elicited by legal interrogation methods. They can never step in that same river again to retry different tactics. While the interrogators may have become frustrated with their lack of progress and felt that they needed to use harsher means, that does not necessarily make their perceptions accurate or mean that different non-torture means would not have worked just as well.

Both torturer and victim have ample and contradictory reasons to misrepresent causality to anyone trying to investigate. On the inflicting side, for example, any interrogator who admitted torturing would have a strong incentive to inflate the importance of the results obtained.

Even if the efficacy of torture could be evaluated, however, and even if it turned out to be effective at wringing information out of terrorist suspects, it would still be a crime against humanity and a reckless endangerment of national security.

The Geneva Conventions and laws of war were not made up by bleeding-heart liberals who wanted to hamstring Jack Bauer of "24". They evolved from experience over the past 150 years. The Third Convention on prisoners of war was adopted because most nations and their militaries recognized that they could reduce the likelihood of torture of their own captured soldiers by the enemy by agreeing not to torture enemy prisoners.

Civilization, such as it is, depends on such webs of trust: they are painstakingly woven and painfully easy to tear apart. When Al Qaeda killed thousands of innocent civilians on September 11, they blasted a small hole in those webs, but strengthened the United States while discrediting themselves. Most of the world reacted with an outpouring of sympathy and support for the victims and revulsion with the terrorists.

One of the most serious of the Bush administration's sins against the security of this country was to convert that solidarity into widespread condemnation of a neo-imperial war launched with contemptuous lies, and accompanied by serial attacks on the international social and legal fabric.

The Justice Department memos and other evidence now reveal that that the torture of prisoners was partly an effort to fabricate a justification for that war. "High Bush officials put heavy pressure on Pentagon interrogators to get Mohammed and Zubaydah to reveal a link between Saddam Hussein and the 9/11 hijackers," wrote Marjorie Cohn, professor at the Thomas Jefferson School of Law.

The Bush administration, most notably Cheney and Rumsfeld, wanted "to find evidence of cooperation between al-Qaeda and the late Iraqi dictator Saddam Hussein's regime," according to McClatchy News, citing a former senior US intelligence official and a former Army psychiatrist.

Well before the Justice Department memos, President Bush had issued a determination that "Common Article 3 of the Geneva Conventions, which would have afforded minimum standards for humane treatment, did not apply to al-Qaeda or Taliban detainees," according to a Senate Armed Services Committee report. One of the Justice Department memos suggested that as commander-in-chief, the President could override the federal anti-torture statute.

In the Bush administration's Hobbesian worldview, only a stealth Leviathan unrestrained by puny laws could save us from the "warre of each against each". Beyond any tactical purposes, a major strategic goal of torturing captives and invading Iraq, along with many of the Bush administration's other initiatives, appears to have been to establish the unchallengeable power of a Unitary Executive above constitutional checks and balances, national and international law, treaties and human rights.

What is emerging into daylight looks like an effort to roll history back to before Watergate and breathe new life into Nixon's circular self-justification: "When the president does it that means that it is not illegal." Or as the DOJ's Bradley put it to the Washington Post in 2006: "The president is always right."

It would be a welcome and fitting act of international censure for Spanish judge Baltasar Garzón to indict the perpetrators for war crimes and request extradition. On April 29, according to the Spanish daily El País, he opened an investigation of what he called "an authorized and systematic plan of torture and abuse of persons deprived of liberty without charges and without the elementary rights of all detainees required by the applicable international conventions" in Guantánamo and other prisons, including Bagram (my translation).

There's a certain poetic justice in the idea of a nueva Inquisición secular making the modern torturers squirm through legal means (even if rivers of boiling blood or lakes of burning pitch might have more deterrent value).

But only our own government, under pressure from its citizens, can investigate and punish the hijacking of our Constitution, our national security apparatus, and our moral stature.

If the leaders of the richest and most powerful empire in history can claim that its defense requires them to torture prisoners, what government or armed group can and will not make the same claim?

When millions around the world see those acts of barbarity as an attack on our common humanity and the very idea of the rule of law, only a forceful demonstration that this country rejects torture, is punishing the transgressors, and has restored respect for international norms to our policies and actions can begin to restore confidence and remedy the damage.

Friday, March 13, 2009

For a better bailout, call Tony

The Obama administration is looking for bipartisanship in all the wrong places. The Republican leadership in Congress simply wants to eviscerate any stimulus plan. The goal of the Taliban of Market Fundamentalism is to give the new president a black eye and to “starve the beast” of government.

At the grassroots around the country, however, there’s a rare opportunity in the groundswell of bipartisan fury at the financial industry and its Bush/Paulson bailout.

It’s time to play the blame game with brass knuckles, because it’s blindingly obvious that much of the leadership of this industry and their friends in government truly are at fault for the financial implosion. There’s momentum to hold those who made bad decisions accountable and to restructure the industry so that it can’t bring down our real economy again.

The ultimate goal of a public bailout of banks and investment houses should be to take the Vegas out of Wall Street. We are all suffering now because finance became a perverse casino where small numbers of very rich people used deregulated, superheated markets to multiply their winnings many fold, but now expect the public to cover their losses.

To de-Mammonize this mess, we need less Mother Teresa and more Tony Soprano.

We need some wise guys to take some regulatory two-by-fours, put a serious hurt on the gavoni of the Wall Street brugad, break up their CDS-smoking, leverage-like-there’s-no-tomorrow party, and run them off our turf.

The invisible nose has been snorting designer derivatives, and the invisible hand has been picking the public pocket to supply its habit. It’s time to make them visible and carefully dissect their failures.

For starters, taking stock of an historic catastrophe requires a truth commission, not a new idea but a good one. In the early 30s, for example, Ferdinand Pecora and the Senate Banking and Currency Committee shone a spotlight on the dealings of the "unscrupulous money changers” that the New Deal chased out of the temple.

For the Crash of 2008, the mandate of the straight-shooting Elizabeth Warren of Harvard and her
Congressional Oversight Panel investigating TARP could be expanded to go after root causes.

The financial industry is already cosa nostra, our thing. The Paulson/Bush bailout effectively nationalized it, but without taking control of the rudderless ship or getting value for the public in return. It was welfare for the rich and incompetent with no strings attached, the Reagan Revolution ideal of privatizing profits and socializing losses on steroids.

Warren’s panel found that in the 10 largest TARP transactions, “for every $100 spent by Treasury, it received assets worth, on average, only $66”. On the first $254 billion spent, total taxpayer losses were $78 billion.

A “Bad Bank” would further nationalize the financial industry, but only the toxic stuff that's about to go critical. Bad-a-bank, bad-a-boom.

You got a problem with nationalization? Conservatives may get in a lather about the word, but it's funny how often they're the ones who end up tapping toesies with the commie menace in the next toilet stall.

Who was it who temporarily nationalized the banks in Sweden in the early 90s? A conservative government. And who was that who set up the Resolution Trust Corporation in 1989 to nationalize the failing thrifts? Shrub's daddy. And whose FDIC already nationalized IndyMac and other small banks last year? Who but the right would overdosing financial markets prefer to call on to talk them down and dispose of the evidence?

Here’s a conservative idea: we expect our government to invest our money to yield the best return with the lowest risk and the greatest public benefits. When you hire a broker to work for you, you expect this. When a company hires a CFO, it expects this. When the government takes a stake in a failing bank, we expect this.

We don’t want strings attached to public money: we want steel cables. Or as Tony might put it: you work for us, you deliver the vig, or we’ll have to take a little walk.

The careers of those who screw up get a one-way voyage on a cabin cruiser off the Jersey shore. Don’t just cap executive salaries: kneecap the contracts of the top couple of tiers of executives and let them reapply for their positions.

Ice the shareholders and bondholders: they lose their stakes, or at best get no more dividends until the public recoups its investment. Welcome to capitalism.

Avert future bailouts by carving up the zombie mega-banks and financial firms into smaller units that are not “too big to fail”. Rebuild and modernize the Glass-Steagall firewall between commercial and investment banking. Deconsolidation would create the side benefits of more jobs at the lower end and reduced ability of smaller firms to throw their weight around politically.

Recreate the financial industry as a reliable source of credit for real needs, not a criminal conspiracy ripe for a RICO prosecution. Turn it into a boring, safe place to work where you can make a good, steady living, but not a killing.

Whack Gordon Gekko. Make George Bailey from “It’s a Wonderful Life” a capo.

While we’re at it, how about fixing credit-ratings firms like Standard & Poor’s and Moody’s so they can never again take money from the businesses they’re supposed to be rating? Talk about a sweet racket.

As long as we're already in the business, think big: try retooling some of the banking capability we’ve been forced to buy into a national infrastructure bank that issues public works bonds, an idea from the Brits. Waste disposal can be a very creative business, as Mr. Soprano has ably demonstrated.

For consiglieri, tap some of the bookies who got the odds right on this crisis, people like Dean Baker of the Center for Economic and Policy Research, Robert Shiller of Yale and Nobel laureates Paul Krugman of Princeton and Joseph Stiglitz of Columbia.

Save Mother Teresa for the people in lower-level jobs in the banks and any other firms the public bails out. Use a good piece of the skim to save their jobs or help them find new ones.

Beyond Mother T, call in the spirit of Mother Jones, the tough old mineworkers’ leader, for the homeowners and renters who have been whipsawed by deceptive lending and deflation of the housing bubble. Keeping as many as possible in their homes would have the side benefit of helping to stabilize some of the mortgages and mortgage-backed securities that continue to stoke the crisis.

It’s not about charity, it’s about solidarity: a public-spirited bailout has to recognize that we’re all in this together and work from the bottom up. But – no disrespect – a little muscle wouldn’t hurt either.

Full disclosure: I grew up in New Jersey as a member of a dis-organized non-crime family.

Joe Nostalgia

Joe the Plumber sweated the joints of a drab election season with the propane torch of true conservatism, blinding us all with its radiance. So I felt a little betrayed when I read the latest doings of Samuel Joseph Wurzelbacher.
Pajama TV, a conservative Internet site, reported that he is suing Ohio officials for violating his privacy rights (Joe Wurzelbacher Goes to Court, March 9, 2009). He also has his own show on PJTV, Just Joe, from which he reported from Israel on the Gaza War in January.
OMG, trial lawyers and journalists - say it ain't so, Joe. You're becoming the people Rush warned you about.
Sic transit gloria mundi.
Read the original story:
POLITICS-US: Plumbing the Depths of Spin
Analysis by Peter Costantini
October 27, 2008

Shrub Nostalgia

Are we ready yet for George W. Bush nostalgia, while a generation of comedians is still in deep mourning? Although his father may have been born with a silver foot in his mouth, in Ann Richards words, the son practiced a genre of wordsmithing tailored to the times, somewhere between a badly translated electronics manual and text messaging.
Generous historians will also recognize that he served as lookout for perhaps the highest stakes – and certainly the most innovative – floating crap game in financial history.
Read the full story:
ECONOMY-US: This Sucker Could Go Down
Analysis by Peter Costantini
October 7, 2008

Crash Nostalgia

Can anyone remember last September, when 700 billion dollars still seemed like a big bill for the financial bailout?
Way back then, just as the credit-default swaps were hitting the fan, I interviewed Dean Baker of the Center for Economic and Policy Research for Inter Press Service. For years, Baker has been one of the most prescient economists in calling attention to the housing bubble and criticizing the handling of it by the Fed and the Bush administration.
In the interview, he pointed to the need to insure that the creators of mortgage-backed securities retain some responsibility for them:

IPS: In the long term, what regulations need to be put in place to fix these markets?
DB: First let's back up a step. The Federal Reserve board allowed the housing bubble to grow. The bubble could have easily been attacked, but [Fed chief] Alan Greenspan made the decision not to. If he had, you wouldn't have had a lot of these problems.
Beyond that, he was totally derelict in enforcing a lot of regulations. Everyone knew that a lot of garbage loans were being made. They could have easily cracked down on that - that was incredible negligence.
As to the deeper structure of the markets, it makes sense to make sure that the issuers of mortgage-backed securities have a stake in them, so that they don't have an incentive just to issue garbage loans and sell them on the secondary market.
As a practical matter, though, I don't know if the regulators will have to do anything, because I don't think anyone's going to buy mortgages from people who don't have a stake in them. Wall Street might actually want the regulation because they want people to believe that they're selling good assets.
Read the full interview:
Q&A: Brother, Can You Spare 700 Billion Dollars?
Peter Costantini interviews DEAN BAKER
September 27, 2008