Tuesday, June 28, 2011

What I Read Today - Tuesday June 28, 2011

From: The Daily Beast

Bachmann’s No Joke

Her campaign for president just launched, but she’s already being dismissed as a delusional flake. Mark McKinnon says it’s the media who are crazy—Michele Bachmann is a real player.

by Mark McKinnon (/contributors/mark-mckinnon.html)

June 27, 2011 7:26 PM EDT

The world is flat. We know it is. It’s what we were taught—in the Dark Ages. Michele Bachmann is a “delusional, paranoid zealot,” a “flake.” We know she is. That’s what we’ve been told—by a mainlining media.

Conservative women in politics run a punishing gauntlet. They endure psychological evaluations and near-gynecological exams their male and liberal counterparts do not. The public is force-fed only their gaffes in 10-second fixes, while similar misstatements by the current president are forgiven as momentary lapses.

Bachmann is not crazy, but the media are if they continue to view her as such.

Ranked the top fundraiser in the House during the 2010 election cycle, Rep. Bachmann was also the first Republican woman to be elected to the U.S. House of Representatives from Minnesota, in 2006. Prior to serving in Congress, in 2000 she was elected to the Minnesota state Senate, where she championed a taxpayers' bill of rights, drawing from her professional experience as a federal tax-litigation attorney. But her first introduction to politics came out of her frustration as a foster parent with inadequate curriculum standards set by state government, standards she was later successful in repealing in the state legislature.

Bachmann’s frustration again turned to action in the fight over health-care reform in 2009. Whether she or the Tea Party movement was the catalyst, the reaction of heat and light was spontaneous at the Tea Party rally held outside the Capitol building on Nov. 5, 2009. And the conversion of this onetime supporter of President Carter to a leader of a conservative movement was complete.

From her official announcement of her candidacy for the GOP 2012 presidential nomination on Monday in Waterloo, Iowa: “As a constitutional conservative, I believe in ... a limited government that trusts in and preserves the unlimited potential of the American people. I don’t believe that the solutions to our problems come from Washington. More than ever, Washington is the problem, and the real solutions will come from our businesses, our communities, our schools, and the most basic and powerful unit of all—our families.”

Her challenge to the president: “In February 2009, President Obama was very confident that his economic policies would turn the country around within a year. He said: ‘A year from now, I think people are going to see that we’re starting to make some progress. If I don’t have this done in three years, then there’s going to be a one-term proposition.’ Well, Mr. President, your policies haven’t worked. Spending our way out of this recession hasn’t worked. And so, Mr. President: We take you at your word!”

She’s not my kind of candidate. And no one I know supports her. But I know enough to know she has been underestimated and treated unfairly by the mainstream press.

On whom she represents: “It is the voice of constitutional conservatives who want our government to do its job and not ours, and who want our government to live within its means and not our children’s and grandchildren’s.”

Her debate performance in New Hampshire made many in the public and the media take her candidacy seriously for the first time. Here was a woman with more depth, clarity, and strength of conviction than portrayed in those selective soundbites. And the shockwaves were palpable. But for every force, there is an equal and opposite force, and Bachmann’s detractors are now more vicious in their ridicule.

She will be challenged, as every candidate ought to be: Is her vision of America inclusive enough? Is her experience in the House deep enough? Will her ideas lead the nation out of the economic morass we are experiencing? And the all-important question: as she competes with Herman Cain and possibly Gov. Rick Perry for the same social and economic conservative voters in the GOP primary, can she also win against Barack Obama in the general election?

She’s not my kind of candidate. And no one I know supports her. But I know enough to know I shouldn’t judge American voters and candidates by my own distorted circle. She is a rock star with the Tea Party set and social conservatives. And I also know enough to know that Michele Bachmann has been underestimated and treated unfairly by the mainstream press.

She is now a frontrunner in Iowa. And will likely do well in South Carolina.

She’s gonna be a playah.

McKinnon Electability Index
The top 10 factors, using a 40-chad scale (with a maximum of **** for each category).
1. Rationale for running: “Together we can once again strengthen America and restore the promise of the future.” ***
2. Emotional connection: She swings a visceral hammer. ****
3. Resonance/Relevancy of message: She lights up with the constitutionalists. ****
4. Message discipline: Shaky generally, but did well at debate. ***
5. Candidate preparation: Generally on message and focused. ***
6. Life experience: Brings real-world experience. ***
7. Political/government experience: Eleven years of legislative experience, and a movement leader. ***
8. Fundraising strength: Off the charts. She raised $13 million for a congressional race! ****
9. Base: Strong among Tea Party and social conservatives, especially in Iowa. ***
10.General-election appeal: Limited. *

June 27, 2011 7:26pm

What I Read Today - Tuesday June 28, 2011

From: The New York Times

Convener in Chief


This is a column about management styles. What sort of leader can get things done in an age of austerity?

Our first case study is what you might call the Straight Up the Middle Approach. When Chris Christie ran for governor of New Jersey, he campaigned bluntly on the need to reduce the state’s debt. After he was elected, he held 30 contentious town meetings with charts to explain how the debt would crush homeowners in each municipality.

Christie makes himself the center of the action and is always in the room. He sat down with Democratic leaders at meeting after meeting and hammered out compromises, detail after detail. The bipartisan pension reform bill Christie signed this month is controversial, but it is a huge step toward avoiding fiscal catastrophe. Christie, needless to say, quotes Springsteen to describe his approach: “No retreat. No surrender.”

Our second case study exemplifies the Insurgent Approach. While campaigning to be mayor of Chicago, Rahm Emanuel also spoke bluntly about the tough steps he would take to reduce the city’s $650 million deficit.

But, in office, he hasn’t led a single frontal assault. Instead, Emanuel has introduced a flurry of initiatives in all directions. He took away credit cards from many city officials. He’s moved to lengthen the school day. He redeployed 650 cops from offices to the streets. He cut $75 million from the 2011 budget. He induced United Airlines to bring 1,300 jobs.

At any given moment there seems to be six Mayor Emanuels announcing six different initiatives. The measures to reduce spending are submerged in a frenetic reinvigoration agenda.

The key for Emanuel is to know which fights to pick (making it harder for teachers to strike, for example), and sequencing those fights within broader narratives about city growth.

It’s almost physical. Christie relies on power and mass. Emanuel relies on dexterity and speed. Both have begun their administrations in spectacular fashion.

The third case study is the most unexpected: President Obama’s Convening Approach. First, some context: In 1961, John F. Kennedy gave an Inaugural Address that did enormous damage to the country. It defined the modern president as an elevated, heroic leader who issues clarion calls in the manner of Henry V at Agincourt. Ever since that speech, presidents have felt compelled to live up to that grandiose image, and they have done enormous damage to themselves and the nation. That speech gave a generation an unrealistic, immature vision of the power of the presidency.

President Obama has renounced that approach. Far from being a heroic quasi Napoleon who runs the country from the Oval Office, Obama has been a delegator and a convener. He sets the agenda, sketches broad policy outlines and then summons some Congressional chairmen to dominate the substance. This has been the approach with the stimulus package, the health care law, the Waxman-Markey energy bill, the Dodd-Frank financial reform bill and, so far, the Biden commission on the budget.

As president, Obama has proved to be a very good Senate majority leader — convening committees to do the work and intervening at the end.

All his life, Obama has worked in nonhierarchical institutions — community groups, universities, legislatures — so maybe it is natural that he has a nonhierarchical style. He tends to see issues from several vantage points at once, so maybe it is natural that he favors a process that involves negotiating and fudging between different points of view.

Still, I would never have predicted he would be this sort of leader. I thought he would get into trouble via excessive self-confidence. Obama’s actual governing style emphasizes delegation and occasional passivity. Being led by Barack Obama is like being trumpeted into battle by Miles Davis. He makes you want to sit down and discern.

But this is who Obama is, and he’s not going to change, no matter how many liberals plead for him to start acting like Howard Dean.

The Obama style has advantages, but it has served his party poorly in the current budget fight. He has not educated the country about the debt challenge. He has not laid out a plan, aside from one vague, hyperpoliticized speech. He has ceded the initiative to the Republicans, who have dominated the debate by establishing facts on the ground.

Now Obama is compelled to engage. If ever there was an issue that called for his complex, balancing approach, this is it. But, to reach an agreement, he will have to resolve the contradiction in his management style. He values negotiation but radiates disdain for large swathes of official Washington. If he can overcome his aloofness and work intimately with Republicans, he may be able to avert a catastrophe and establish a model for a more realistic, collegial presidency.

The former messiah will have to become a manager.

Tuesday, June 21, 2011

What I Read Today - Tuesday June 21, 2011

From: The New York Times

Smart Power Setback


So far, few politicians have embraced my plan for a Marshall Plan Tax. The idea is that every time a think-tanker, op-ed writer or retired senator calls for a new Marshall Plan or a moonshot-type initiative to solve a social problem, they would have to pay a tax of $50. Within a few months, we’d have enough money to pay for an actual new Marshall Plan.

The problem with my proposal is this: Do Marshall Plans work? If this country really did galvanize its best minds and billions of dollars to alleviate poverty somewhere or to solve some complicated problem, could we actually do it?

Well, the U.S. has been engaged in a new Marshall Plan for most of the past decade. Between 2002 and 2010, the U.S. spent roughly $19 billion to promote development in Afghanistan. Many other nations have also sent thousands of aid workers and billions of dollars.

In some spheres the results have been impressive. Nearly two-thirds of Afghans now have access to basic health services, up from 9 percent a decade ago. Under the Taliban, 900,000 boys and no girls attended schools. Now more than seven million Afghans attend school, and 35 percent of them are girls, according to the United States Agency for International Development.

But when it comes to laying the foundation for economic growth and stability, the results have been discouraging.

Stuart Gordon of Chatham House, a British think tank, studied aid efforts in Helmand Province and concluded that in places where state capacity is weak and security is uncertain, foreign aid “may have as many negative, unintended effects as positive ones.” After a thorough two-year review of U.S. aid efforts in Afghanistan, the staff of the Senate Foreign Relations Committee emphasized, “The unintended consequences of pumping large amounts of money into a war zone cannot be underestimated.”

Much of the aid effort was premised on the assumption that development would foster stability. Young men with jobs wouldn’t plant roadside bombs. Communities with growing economies would reject the Taliban. This assumption was based on the modern prejudice that bad behavior has material roots. Give people money and jobs and you will improve their character and behavior.

In Afghanistan, as elsewhere, this assumption seems not to be true. A conference of experts brought together last year in Wilton Park in Britain concluded that there is a “surprisingly weak evidence base for the effectiveness of aid in promoting stabilization and security objectives” in Afghanistan.

Violence doesn’t stem from poverty. It stems from grudges, tribal dynamics and religious fanaticism — none of which can be ameliorated by building new roads. The poorest parts of the country are not the most violent.

Meanwhile, the influx of aid has, in many cases, created dependency, fed corruption, contributed to insecurity and undermined the host government’s capacity to oversee sustainable programs.

In the district of Nawa, for example, Usaid spent $400 per person last year. The per-capita income before aid was $300. According to the World Bank, 97 percent of Afghanistan’s G.D.P. derives from spending related to the military and donor community presence.

This incredible infusion distorts labor markets. An Afghan can make $75 a month as a teacher but more than $1,000 a month as a translator or driver for aid workers. The most talented people get sucked out of the real economy and into the aid economy.

It overwhelms provincial governments. It fuels corruption. As aid workers grow frustrated by nonfunctioning Afghan bureaucracies, they build their own parallel ones that, in turn, take responsibility from and infantilize the Afghan agencies that are going to have to administer the country in the long run.

Meanwhile, turnover among U.S. civilians in Afghanistan is about 85 percent a year, according to the Senate report. Many in Congress fixate on “burn rates” — how fast a program can disperse money — not effectiveness.

Many gains that have been made may be unsustainable. A flood of money washed into Afghanistan, and the reports warn about what will happen when the flood dries up in a few years.

The sad thing is, we are not foreign aid rookies. People have spent years trying to learn from past foreign aid disappointments and still, with all these resources, the results are discouraging.

This experience should have a chastening influence on the advocates of smart power. When she became secretary of state, Hillary Clinton sketched out a very attractive foreign policy vision that would use “the full range of tools at our disposal: diplomatic, economic, military, political, legal and cultural.” But it could be that cultural and economic development works on a different timetable than traditional foreign policy.

Perhaps we don’t know enough, can’t plan enough, can’t implement effectively enough to coordinate nation building with national security objectives.

The peace and security timetable is measured in years or decades. Development progress, if it comes at all, is measured in generations.

Wednesday, June 15, 2011

What I Read Today - Wednesday June 15, 2011

From: The New York Times

Justice Goes Global


You probably missed the recent special issue of China Newsweek, so let me bring you up to date. Who do you think was on the cover — named the “most influential foreign figure” of the year in China? Barack Obama? No. Bill Gates? No. Warren Buffett? No. O.K., I’ll give you a hint: He’s a rock star in Asia, and people in China, Japan and South Korea scalp tickets to hear him. Give up?

It was Michael J. Sandel, the Harvard University political philosopher.

This news will not come as a surprise to Harvard students, some 15,000 of whom have taken Sandel’s legendary “Justice” class. What makes the class so compelling is the way Sandel uses real-life examples to illustrate the philosophies of the likes of Aristotle, Immanuel Kant and John Stuart Mill.

Sandel, 58, will start by tossing out a question, like, “Is it fair that David Letterman makes 700 times more than a schoolteacher?” or “Are we morally responsible for righting the wrongs of our grandparents’ generation?” Students offer competing answers, challenge one another across the hall, debate with the philosophers — and learn the art of reasoned moral argument along the way.

Besides being educational, the classes make great theater — so much so that Harvard and WGBH (Boston’s PBS station) filmed them and created a public television series that aired across the country in 2009. The series, now freely available online (at www.JusticeHarvard.org), has begun to stir interest in surprising new places.

Last year, Japan’s NHK TV broadcast a translated version of the PBS series, which sparked a philosophy craze in Japan and prompted the University of Tokyo to create a course based on Sandel’s. In China, volunteer translators subtitled the lectures and uploaded them to Chinese Web sites, where they have attracted millions of viewers. Sandel’s recent book — “Justice: What’s the Right Thing to Do?” — has sold more than a million copies in East Asia alone. This is a book about moral philosophy, folks!

Here’s The Japan Times describing Sandel’s 2010 visit: “Few philosophers are compared to rock stars or TV celebrities, but that’s the kind of popularity Michael Sandel enjoys in Japan.” At a recent lecture in Tokyo, “long lines had formed outside almost an hour before the start of the evening event. Tickets, which were free and assigned by lottery in advance, were in such demand that one was reportedly offered for sale on the Web for $500.” Sandel began the lecture by asking: “Is ticket scalping fair or unfair?”

But what is most intriguing is the reception that Sandel (a close friend) received in China. He just completed a book tour and lectures at Tsinghua and Fudan universities, where students began staking out seats hours in advance. This semester, Tsinghua started a course called “Critical Thinking and Moral Reasoning,” modeled on Sandel’s. His class visit was covered on the national evening news.

Sandel’s popularity in Asia reflects the intersection of three trends. One is the growth of online education, where students anywhere now can gain access to the best professors from everywhere. Another is the craving in Asia for a more creative, discussion-based style of teaching in order to produce more creative, innovative students. And the last is the hunger of young people to engage in moral reasoning and debates, rather than having their education confined to the dry technical aspects of economics, business or engineering.

At Tsinghua and Fudan, Sandel challenged students with a series of cases about justice and markets: Is it fair to raise the price of snow shovels after a snowstorm? What about auctioning university admissions to the highest bidder? “Free-market sentiment ran surprisingly high,” Sandel said, “but some students argued that unfettered markets create inequality and social discord.”

Sandel’s way of teaching about justice “is both refreshing and relevant in the context of China,” Dean Qian Yingyi of Tsinghua’s School of Economics and Management, explained in an e-mail. Refreshing because of the style and relevant because “the philosophic thinking among the Chinese is mostly instrumentalist and materialistic,” partly because of “the contemporary obsession on economic development in China.”

Tsinghua’s decision to offer a version of Sandel’s course, added Qian, “is part of a great experiment of undergraduate education reform currently under way at our school. ... This is not just one class; it is the beginning of an era.”

Sandel is touching something deep in both Boston and Beijing. “Students everywhere are hungry for discussion of the big ethical questions we confront in our everyday lives,” Sandel argues. “In recent years, seemingly technical economic questions have crowded out questions of justice and the common good. I think there is a growing sense, in many societies, that G.D.P. and market values do not by themselves produce happiness, or a good society. My dream is to create a video-linked global classroom, connecting students across cultures and national boundaries — to think through these hard moral questions together, to see what we can learn from one another.”

Tuesday, June 14, 2011

What I Read Today - Tuesday June 14, 2011

From:  The Wall Street Journal

How to Raise an Entrepreneur

Tips on putting your kids on the path to running their own businesses

How do you get kids ready to become entrepreneurs?

The classic answer, of course, is the lemonade stand: Encourage your kids to start a homespun business instead of just bugging you for money. But entrepreneurs and educators say the real solution goes much deeper than that. There are crucial psychological traits an entrepreneur needs to succeed, they say, and parents should help kids develop them at every opportunity.

Here's a look at those attributes—and how to foster them.

Parents should urge kids to explore their environment—and don't let them get too comfortable, advises Arthur Blank, co-founder of Home Depot Inc. and owner of the National Football League's Atlanta Falcons. That means urging them to ask questions constantly and develop an inquiring mind. For instance, "get them the right kind of toys—in which kids must figure out for themselves what to do," he says. And "on vacation, try different restaurants outside their comfort level."

Pierre Omidyar, founder of eBay Inc., agrees that exploration and inquiry are crucial lessons. "Our kids seem to thrive in situations that engage their curiosity and allow them to explore and discover the world around them on their own terms," Mr. Omidyar says.

In his own childhood, he was immersed in both Persian and French culture thanks to his parents' backgrounds. "Being exposed to and learning about these cultures taught me early on that there are different ways to think about any single situation, and that you don't always have to do things the way they've always been done," Mr. Omidyar says.

Dependable and Stable
Pramodita Sharma, a visiting professor at Babson College and director of the school's STEP Global Project for Family Enterprising, also advises parents to help their kids develop an inquiring mind. But she says a couple of other traits are just as important: conscientiousness and emotional stability.

Parents should insist that kids deliver high-quality work at the promised time, whether it's chores, homework or extracurricular activities. And parents should model good behavior, demonstrating control when emotions run high. They should also urge their children to take steps such as waiting to respond when they lose their temper.

Parents should help kids recognize that their world is full of business opportunities, and finding them just takes some careful observation and creativity.

Christine Poorman, executive director of the Chicago office of the Network for Teaching Entrepreneurship, which provides an entrepreneurship course for at-risk youths, says students are encouraged to walk around their communities and evaluate business needs. One student found her neighborhood's bodegas and hardware stores didn't have an online presence, so she created logos and websites for them.

Real-estate magnate Sam Zell also puts a high value on teaching curiosity and observation. An entrepreneur, he says, is always "seeing problems and then seeing solutions."

Sometimes those problems aren't as obvious as they look. "When I was 12, my parents moved from Chicago to the suburb of Highland Park," says Mr. Zell. Every day, "I would go into the city by train after school to attend Yeshiva school. I noticed that under the L track, they were selling Playboy magazines. I would pay 50 cents apiece for them and then bring them home to the suburbs to sell to my friends for $3—it was my first lesson in supply and demand."

Team Player
Sports can be a great classroom for entrepreneurial values. Mr. Blank says his six children, who have all played a variety of sports, have had to learn how to deal with setbacks and how to move past losses. "Sports teach how important teamwork is. The germ of the idea for Home Depot was with Bernie [Marcus] and me, but we also needed the ability to get other people excited about the idea—to get in the game, so to speak," he says.

A child born with an extraordinary gift in the arts or intelligence can be difficult to raise. Kelsey Hubbard talks with WSJ's Sue Shellenberger about some of the challenges parents' face encouraging their kids without squashing their potential.

His son Joshua is captain of his eighth-grade soccer team, he says—a role that will help the boy learn about leadership and inspiring others, as well as playing his own position.

"Not winning every game and teamwork—these are all good lessons for entrepreneurship," Mr. Blank says.

Solitary pursuits can instill good values, too. Jim Koch, founder of Boston Beer Co., found climbing mountains a good building block in becoming an entrepreneur. "Climbers are a lot like entrepreneurs. They are willing to put themselves in a risky situation and then once there they become careful and cautious and try to reduce and eliminate the risk," says Mr. Koch, who taught mountaineering for Outward Bound in British Columbia in the 1970s.

Lead by Example
In the end, many entrepreneurs say the most valuable thing you can do to teach your kids about entrepreneurship is to practice it yourself.

For Mr. Blank, his parents were his biggest influence on his becoming an entrepreneur.

"I saw living examples of entrepreneurs," he says. "My dad was 39 years old when he started a pharmacy wholesale business. He passed away at 44 when I was 15. My mother, who was 37 at the time, had no business experience but was a risk taker in her own way. She grew the business and later sold it to a larger pharmaceutical firm."

For Scottrade founder and chief executive Rodger Riney, the entrepreneurial model was his grandfather, who owned several small businesses in Hannibal, Mo., including a fertilizer plant, cemetery, grain elevator, insurance firm, alfalfa plant and trailer-rental business.

His mother's lessons in the Golden Rule were another big inspiration. "I paid attention to that and tried to treat people the way I wanted to be treated, and that later translated into how I wanted to treat my customers," Mr. Riney says.

Ms. Haislip is a writer in Chatham, N.J. She can be reached at reports@wsj.com.

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What I Read Today - Tuesday June 14, 2011

From:  The Wall Street Journal

Pundit Under Protest


I’ll be writing a lot about the presidential election over the next 16 months, but at the outset I would just like to remark that I’m opining on this whole campaign under protest. I’m registering a protest because for someone of my Hamiltonian/National Greatness perspective, the two parties contesting this election are unusually pathetic. Their programs are unusually unimaginative. Their policies are unusually incommensurate to the problem at hand.

This election is about how to avert national decline. All other issues flow from that anxiety.

The election is happening during a downturn in the economic cycle, but the core issue is the accumulation of deeper structural problems that this recession has exposed — unsustainable levels of debt, an inability to generate middle-class incomes, a dysfunctional political system, the steady growth of special-interest sinecures and the gradual loss of national vitality.

The number of business start-ups per capita has been falling steadily for the past three decades. Workers’ share of national income has been declining since 1983. Male wages have been stagnant for about 40 years. The American working class — those without a college degree — is being decimated, economically and socially. In 1960, for example, 83 percent of those in the working class were married. Now only 48 percent are.

Voters are certainly aware of the scope of the challenges before them. Their pessimism and anxiety does not just reflect the ebb and flow of the business cycle, but is deeper and more pervasive. Trust in institutions is at historic lows. Large majorities think the country is on the wrong track, and have for years. Large pluralities believe their children will have fewer opportunities than they do.

Voters are in the market for new movements and new combinations, yet the two parties have grown more rigid.

The Republican growth agenda — tax cuts and nothing else — is stupefyingly boring, fiscally irresponsible and politically impossible. Gigantic tax cuts — if they were affordable — might boost overall growth, but they would do nothing to address the structural problems that are causing a working-class crisis.

Republican politicians don’t design policies to meet specific needs, or even to help their own working-class voters. They use policies as signaling devices — as ways to reassure the base that they are 100 percent orthodox and rigidly loyal. Republicans have taken a pragmatic policy proposal from 1980 and sanctified it as their core purity test for 2012.

As for the Democrats, they offer practically nothing. They acknowledge huge problems like wage stagnation and then offer... light rail! Solar panels! It was telling that the Democrats offered no budget this year, even though they are supposedly running the country. That’s because they too are trapped in a bygone era.

Mentally, they are living in the era of affluence, but, actually, they are living in the era of austerity. They still have these grand spending ideas, but there is no longer any money to pay for them and there won’t be for decades. Democrats dream New Deal dreams, propose nothing and try to win elections by making sure nobody ever touches Medicare.

Covering this upcoming election is like covering a competition between two Soviet refrigerator companies, cold-war relics offering products that never change.

If there were a Hamiltonian Party, it would be offering a multifaceted reinvigoration agenda. It would grab growth ideas from all spots on the political spectrum and blend them together. Its program would be based on the essential political logic: If you want to get anything passed, you have to offer an intertwined package that smashes the Big Government vs. Small Government orthodoxies and gives everybody something they want.

This reinvigoration package would have four baskets. There would be an entitlement reform package designed to redistribute money from health care and the elderly toward innovation and the young. Unless we get health care inflation under control by replacing the perverse fee-for-service incentive structure, there will be no money for anything else.

There would be a targeted working-class basket: early childhood education, technical education, community colleges, an infrastructure bank, asset distribution to help people start businesses, a new wave industrial policy if need be — anything that might give the working class a leg up.

There would be a political corruption basket. The Tea Parties are right about the unholy alliance between business and government that is polluting the country. It’s time to drain the swamp by simplifying the tax code and streamlining the regulations businesses use to squash their smaller competitors.

There would also be a pro-business basket: lower corporate rates, a sane visa policy for skilled immigrants, a sane patent and permitting system, more money for research.

The Hamiltonian agenda would be pro-market, in its place, and pro-government, in its place. In 2012, on the other hand, we’re going to see another clash of the same old categories. I’ll be covering it, but I protest.

Tuesday, June 7, 2011

What I Read Today - Tuesday June 7, 2011

From:  The Wall Street Journal

Wall Street’s biggest secret

Commentary: The one thing investors need to know

By Brett Arends, MarketWatch

BOSTON (MarketWatch) — Wall Street has a wide array of mutual funds it wants to sell you. “Absolute return” this. “Midcap blend” that. “Small-cap growth” whatever.

Many brokers, advisers and salesmen will tell you that just the right mix of each one will give you a portfolio that’s “right for you,” with returns perfectly adjusted to your “risk tolerance.”


Before you invest a penny, listen to Bob Haugen.

He’s a former finance professor who’s spent half a lifetime studying the stock market. He’s written a number of books and papers, and is the co-author of remarkable piece of analysis entitled “Case Closed” .  Read it here:


He looked in excruciating detail at the characteristics of which stocks did best (and worst) over nearly half a century, from 1963 to 2007.

His finding?

Most of these “styles” are a waste of time. And the idea that you need to take on more “risk” to earn higher returns is a total con.

On the contrary, he says, the stock market has a big secret.

Over many decades, “the stocks with the highest risk produced the lowest returns — and stocks with the lowest risk produced the highest returns.” In other words, he says, “the risk/return ratio was upside down ... the payoff to risk is consistently negative over the 45-year period of this study.”

Instead of being paid to take risk, you got paid not to.

All those glamorous, sexy ‘growth’ stocks? All that extra volatility you took on in the desperate pursuit of the next big thing? It was a bad move.

You would have done much better investing in the dull, low-risk, widow and orphan “value” stocks.

These winners were stocks that were cheap in relation to their net assets, earnings, cashflows, and dividends. They were stocks in companies that had big and growing profits today, not pie-in-the-sky expectations for next decade. They often also had recent positive momentum on the stock market.

While Haugen tells me it’s rare to find an individual stock that’s a “perfect fit,” you can build a portfolio of stocks that are good fits.

Investing in value works. Haugen and Nardin Baker, in “Case Closed,” wrote: “the evidence strongly suggests that this simple intuition is more powerful than any of the complex theories about expected return that can be found in the literature of Modern Finance!”

They actually earned you more money and gave you a smoother ride. The strategy worked even after counting trading costs.

This has not just been true in the U.S., either. Haugen has also looked at historical data on the British stock market. On the Paris bourse. In Germany. In Japan.

The results were the same. Lower volatility stocks gave you higher returns. A free lunch.

Many professional investors already know this. But too many don’t. And many of those who do know it keep forgetting it — and rushing out and chasing expensive “growth” stocks all over again. That’s what’s been happening lately (more on this below).

Wall Street doesn’t spread the value message too widely to the public, either. It’s hard to explain to customers. And if the customers knew there was a simple way to get more return with less risk, why would they need their fund managers?

Haugen is not alone in his analysis. For years, contrarian investors have highlighted data showing that “value” has beaten “growth” over any decent stretch of time.

James Montier, the renowned strategist at GMO, once showed that the great Japanese bear market over the past 20 years has been due entirely to falling “glamor” stocks. If you had owned Japanese value stocks, and “shorted” or got against the glamor stocks, he found, you actually would have made money.

This free lunch proves that the market is far from perfectly “efficient.” Haugen himself argues it drives “a stake through the heart of the efficient market hypothesis.”

Even members of the efficient market cult have been forced to concede some of these points. For decades they maintained that to earn higher returns, you needed to take on more volatility, or “risk.” Then they looked again at the data and realized it wasn’t quite true. They admitted, instead, that small companies had done better than large companies. And value stocks had done better than growth stocks – even though they entailed less risk.

Oops. So much for efficiency!

What does this mean for you today?

It just so happens that growth stocks have boomed in the rally of the past two years. Once again, investors have allowed themselves to start dreaming of future glory instead of looking hard at present day profits. Since the start of 2009, growth stocks have outperformed value by 20%, according to FactSet. That’s an incredible margin. Small-cap growth stocks have done best. And large-cap value stocks — the safest of them all — have done worst.

If history is any guide, this will be a temporary phenomenon — and an opportunity for wise long-term investors. The obvious conclusion is that this is a moment to dump growth stocks and buy value stocks, or value funds, instead. While I am cautious about the stock market overall at current levels, if I were buying stocks here I’d buy a low-cost, large-cap value fund.

What I Read Today - Tuesday June 7, 2011

From:  The New York Times

Where Wisdom Lives


Sometimes life presents you with a basic philosophical choice. Americans are going to have to confront a giant one over the next several years.

It starts in the wonky world of Medicare. As presently constructed, Medicare is based on an open-ended fee-for-service system. The government pays providers each time they deliver a service. The more services they provide, the more money they get.

The fee-for-service system is incredibly popular. Recipients don’t have to think about the costs of their treatment, and they get lots of free money. The average 56-year-old couple pays about $140,000 into the Medicare system over a lifetime and receives about $430,000 in benefits back. The program is also completely unaffordable. Medicare has unfinanced liabilities of more than $30 trillion. The Medicare trustees say the program is about a decade from insolvency.

Some Democrats simply want to do nothing as Medicare careens toward bankruptcy. Last Sunday on “Face the Nation,” for example, Nancy Pelosi said, “I could never support any arrangement that reduced benefits for Medicare.”

Fortunately, more responsible Democrats are looking for ways to save the system. This is where the philosophical issues come in. They involve questions like: Who should make the crucial decisions? Where does wisdom reside?

Democrats tend to be skeptical that dispersed consumers can get enough information to make smart decisions. Health care is phenomenally complicated. Providers have much more information than consumers. Insurance companies are rapacious and are not in the business of optimizing care.

Given these limitations, Democrats generally seek to concentrate decision-making and cost-control power in the hands of centralized experts. Under the Obama health care law, a team of 15 officials will be created to discover best practices and come up with cost-cutting measures. There will also be a Center for Medicare and Medicaid Innovation in Washington to organize medical innovation. Centralized officials will decide how to set national reimbursement rates.

Republicans at their best are skeptical about top-down decision-making. They are skeptical that centralized experts can accurately predict costs. In 1967, the House Ways and Means Committee projected that Medicare would cost $12 billion by 1990. It actually cost $110 billion. They are skeptical that centralized experts can predict human behavior accurately enough to socially engineer new programs. Medicare’s chief actuary predicted that 400,000 people would sign up for the new health care law’s high-risk pools. In fact, only 18,000 have.

They are skeptical that political authorities can, in the long run, resist pressure to hand out free goodies. They are also skeptical that planners can control the unintended effects of their decisions.

Republicans point out that Medicare has tried to control costs centrally for decades with terrible results. They argue that a decentralized process of trial and error will work better, as long as the underlying incentives are right. They suggest replacing the fee-for-service with a premium support system. Seniors would select from a menu of insurance plans. Their consumer choices would drive a continual, bottom-up process of innovation. Providers could use local knowledge to meet specific circumstances.

Representative Paul Ryan’s Republican plan is controversial because of the amount of public money he would dedicate to his premium support plan, but the basic architecture of the plan has been around for decades. In less rigidly ideological times, many Democrats supported variations of this basic approach.

Advocates, like Alain Enthoven of Stanford, point out that competition-based plans have improved outcomes in many places. Such plans cover employees of the University of California and state employees in California, Wisconsin and Minnesota. They also note that the Medicare prescription drug benefit also uses a competition model. Consumers have been adept at negotiating a complex marketplace, and costs are 41 percent below expectations.

The fact is, there is no dispositive empirical proof about which method is best — the centralized technocratic one or the decentralized market-based one. Politicians wave studies, but they’re really just reflecting their overall worldviews. Democrats have much greater faith in centralized expertise. Republicans (at least the most honest among them) believe that the world is too complicated, knowledge is too imperfect. They have much greater faith in the decentralized discovery process of the market.

I’d only add two things. This basic debate will define the identities of the two parties for decades. In the age of the Internet and open-source technology, the Democrats are mad to define themselves as the party of top-down centralized planning. Moreover, if 15 Washington-based experts really can save a system as vast as Medicare through a process of top-down control, then this will be the only realm of human endeavor where that sort of engineering actually works.

Monday, June 6, 2011

What I Read Today - Monday June 6, 2011

From: The Wall Street Journal
Op-Ed Contributor
When a Nobel Prize Isn’t Enough


Lexington, Mass.

LAST October, I won the Nobel Prize in economics for my work on unemployment and the labor market. But I am unqualified to serve on the board of the Federal Reserve — at least according to the Republican senators who have blocked my nomination. How can this be?

The easy answer is to point to shortcomings in our confirmation process and to partisan polarization in Washington. The more troubling answer, though, points to a fundamental misunderstanding: a failure to recognize that analysis of unemployment is crucial to conducting monetary policy.

In April 2010, President Obama nominated me to be one of the seven governors of the Fed. He renominated me in September, and again in January, after Senate Republicans blocked a floor vote on my confirmation. When the Senate Banking Committee took up my nomination in July and again in November, three Republican senators voted for me each time. But the third time around, the Republicans on the committee voted in lockstep against my appointment, making it extremely unlikely that the opposition to a full Senate vote can be overcome. It is time for me to withdraw, as I plan to inform the White House.

The leading opponent to my appointment, Richard C. Shelby of Alabama, the ranking Republican on the committee, has questioned the relevance of my expertise. “Does Dr. Diamond have any experience in conducting monetary policy? No,” he said in March. “His academic work has been on pensions and labor market theory.”

But understanding the labor market — and the process by which workers and jobs come together and separate — is critical to devising an effective monetary policy. The financial crisis has led to continuing high unemployment. The Fed has to properly assess the nature of that unemployment to be able to lower it as much as possible while avoiding inflation. If much of the unemployment is related to the business cycle — caused by a lack of adequate demand — the Fed can act to reduce it without touching off inflation. If instead the unemployment is primarily structural — caused by mismatches between the skills that companies need and the skills that workers have — aggressive Fed action to reduce it could be misguided.

In my Nobel acceptance speech in December, I discussed in detail the patterns of hiring in the American economy, and concluded that structural unemployment and issues of mismatch were not important in the slow recovery we have been experiencing, and thus not a reason to stop an accommodative monetary policy — a policy of keeping short-term interest rates exceptionally low and buying Treasury securities to keep long-term rates down. Analysis of the labor market is in fact central to monetary policy.

Senator Shelby also questioned my qualifications, asking: “Does Dr. Diamond have any experience in crisis management? No.” In addition to setting monetary policy in light of a proper understanding of unemployment, the Fed is responsible for avoiding banking crises, not just trying to mop up afterward.

Among the issues being debated now is how much we should increase capital requirements for banks. Selecting the proper size of the increase requires a balance between reducing the risk of a future crisis and ensuring the effective functioning of financial firms in ordinary times. My experience analyzing the properties of capital markets and how economic risks are and should be shared is directly relevant for designing policies to reduce the risk of future banking crises.

Instead of going to the Fed, however, I will go about my congenial professional existence as a professor at M.I.T., where I have taught and researched since 1966, and I will take advantage of some of the many opportunities that come to a Nobel laureate. So don’t worry about me.

But we should all worry about how distorted the confirmation process has become, and how little understanding of monetary policy there is among some of those responsible for its Congressional oversight. We need to preserve the independence of the Fed from efforts to politicize monetary policy and to limit the Fed’s ability to regulate financial firms.

Concern about the (seemingly low) current risk of future inflation should not erase concern about the large costs of continuing high unemployment. Concern about the distant risk of a genuine inability to handle our national debt should not erase concern about the risk to the economy from too much short-run fiscal tightening.

To the public, the Washington debate is often about more versus less — in both spending and regulation. There is too little public awareness of the real consequences of some of these decisions. In reality, we need more spending on some programs and less spending on others, and we need more good regulations and fewer bad ones.

Analytical expertise is needed to accomplish this, to make government more effective and efficient. Skilled analytical thinking should not be drowned out by mistaken, ideologically driven views that more is always better or less is always better. I had hoped to bring some of my own expertise and experience to the Fed. Now I hope someone else can.

Peter A. Diamond is a professor of economics at the Massachusetts Institute of Technology.

Friday, June 3, 2011

What I Read Today - Friday June 3, 2011

From: The New York Times

The Depravity Factor


By now you have probably heard about Hamza Ali al-Khateeb. He was the 13-year-old Syrian boy who tagged along at an antigovernment protest in the town of Saida on April 29. He was arrested that day, and the police returned his mutilated body to his family a month later. While in custody, he had apparently been burned, beaten, lacerated and given electroshocks. His jaw and kneecaps were shattered. He was shot in both arms. When his father saw the state of Hamza’s body, he passed out.

The family bravely put video evidence of the torture on the Internet, and Hamza’s martyrdom has rallied the opponents of President Bashar al-Assad’s Baathist regime. But, of course, his torture didn’t come out of nowhere. The regime’s defining act of brutality was the Hama massacre in 1982 when then-President Hafez al-Assad had more than 10,000 Syrians murdered. The U.S. government has designated Syria a state sponsor of terror for 30 consecutive years. The State Department’s Human Rights Report has described the regime’s habitual torture techniques, including pulling out fingernails, burning genitals, hyperextending the spine, bending the body around the frame of a wheel while whipping the victim and so on.

Over the past several weeks, Bashar al-Assad’s regime has killed more than 1,000 protesters and jailed at least 10,000 more, according to Syrian human rights groups. Human Rights Watch has described crimes against humanity in the town of Dara’a, where boys have been mutilated and men massacred.

All governments do bad things, and Middle East dictatorships do more than most. But the Syrian government is one of the world’s genuinely depraved regimes. Yet for all these years, Israel has been asked to negotiate with this regime, compromise with this regime and trust that this regime will someday occupy the heights over it in peace.

For 30 years, the Middle East peace process has been predicated on moral obtuseness, an unwillingness to face the true nature of certain governments. World leaders have tried sweet-talking Syria, calling Bashar al-Assad a friend (Nancy Pelosi) or a reformer (Hillary Clinton). In 2008, Nicolas Sarkozy invited Assad to be the guest of honor at France’s Bastille Day ceremonies — a ruthless jailer celebrating the storming of a jail.

For 30 years, diplomats and technocrats have flown to Damascus in the hopes of “flipping” Syria — turning it into a pro-Western, civilized power. It would be interesting to know what they were thinking. Perhaps some of them were so besotted with their messianic abilities that they thought they had the power to turn a depraved regime into a normal regime. Perhaps some of them were so wedded to the materialistic mind-set that they thought a regime’s essential nature could be altered with a magical mix of incentives and disincentives.

Perhaps some of them were simply morally blind. They were such pedantic technocrats, so consumed by the legalisms of the peace process, that they no longer possessed the capacity to recognize the moral nature of the regime they were dealing with, or to understand the implications of its nature.

In any case, their efforts were doomed. In fact, the current peace process is doomed because of the inability to make a categorical distinction. There are some countries in the region that are not nice, but they are normal — Egypt, Jordan, Saudi Arabia. But there are other governments that are fundamentally depraved. Either as a matter of thuggishness (Syria) or ideology (Hamas), they reject the full humanity of other human beings. They believe it is proper and right to kill innocents. They can never be part of a successful negotiation because they undermine the universal principles of morality.

It doesn’t matter how great a law professor or diplomat you are. It doesn’t matter how masterly you sequence the negotiations or what magical lines you draw on a map. There won’t be peace so long as depraved regimes are part of the picture. That’s why it’s crazy to get worked into a lather about who said what about the 1967 border. As long as Hamas and the Assad regime are in place, the peace process is going nowhere, just as it’s gone nowhere for lo these many years.

That’s why it’s necessary, especially at this moment in history, to focus on the nature of regimes, not only the boundaries between them. To have a peaceful Middle East, it was necessary to get rid of Saddam’s depraved regime in Iraq. It will be necessary to try to get rid of Qaddafi’s depraved regime in Libya. It’s necessary, as everybody but the Obama administration publicly acknowledges, to see Assad toppled. It will be necessary to marginalize Hamas. It was necessary to abandon the engagement strategy that Barack Obama campaigned on and embrace the cautious regime-change strategy that is his current doctrine.

The machinations of the Israeli and Palestinian negotiators are immaterial. The Arab reform process is the peace process.

Thursday, June 2, 2011

What I Read Today - Thursday June 2, 2011

From: The Daily Beast

Apple's iCloud Triumph

by Dan Lyons

Dan Lyons is technology editor at Newsweek and the creator of Fake Steve Jobs, the persona behind the notorious tech blog, The Secret Diary of Steve Jobs. Before joining Newsweek, Lyons spent 10 years at Forbes.

Apple’s new online service, iCloud, is destined to beat Google and Amazon, Dan Lyons says, by offering users access to all their files from any device with the ease we’ve come to expect from Steve Jobs.

Amazon and Google both rolled out cloud music services recently, and now everyone is buzzing because Apple says it will introduce its own cloud service, iCloud, at a conference for developers next week, and that Steve Jobs himself will be on stage to show it off. 

Not much is known about iCloud, but as always happens with any new Apple product, there’s been plenty of speculation about how Apple might leapfrog the competition. 

I have no inside knowledge, but I’m going to go out on a limb and predict that Apple will be the first company to deliver a cloud service that is easy to understand and easy to use. 

This is a risky bet, especially because Apple’s original cloud service, MobileMe, has never lived up to its promise and has been a consistent disappointment. It’s so bad, in fact, that as Fortune recently reported, in 2008 Jobs dressed down his developers and told them they had “tarnished Apple’s reputation” by shipping a lousy product. 

Nevertheless, I am betting that Apple sees iCloud as a chance to redeem itself, and that this time Apple will get things right—or at least, not as wrong. 

The big opportunity here is to provide one place in cyberspace where people can keep all of their stuff—music, movies, home videos, photos, files.

Whatever the price, the much more important question will be, Do I trust these guys? Can I can rely on them? Will the system just work, without any glitches? Will it seem like magic?

Right now there are all sorts of places where you can do this. You can put photos on Flickr or Picasa or MobileMe; create documents on Google Docs (which I’m using to write this article) and store backup files on Dropbox, MobileMe, Mozy or Carbonite; and share your home videos via YouTube. You probably store your own music on a computer somewhere in your house, and maybe you stream music from Pandora. You have some Hollywood movies that you’ve bought via iTunes stored on your home computer, but you likely also stream movies from Netflix. And maybe you watch TV shows via Hulu. 

Enough already! What I want—what everybody wants—is one place to keep everything. We also want it to be easy to understand and easy to use. 

That’s where Apple comes in. Nobody does user interface like Apple. Nobody is better at creating metaphors that make arcane tech stuff seem simple and easy to understand. 

That’s where I’m expecting Apple to shine next week. It’s not that they’ll be reinventing the wheel. It’s that they’ve spent the past few years studying this problem, learning from mistakes they’ve made on MobileMe, and now they’ll come out with a solution—One Cloud To Rule Them All, as I like to think of it. 

One place Apple is expected to outdo its rivals is in music storage. Amazon and Google both let you upload the music collection on your computer up to their servers in the cloud, and from there you can listen to your music from any device with a wireless connection to the Internet. This means your smartphone now has access to all of your music, wherever you are. 

But that approach has one big hassle—you have to go through the process of uploading all of your music. It’s not that difficult, but it does take some time. (Google’s cloud service gobbled up about 3,500 of my songs in one overnight session.) 

What Apple is going to do, people suspect, is something a lot more clever. Its software will survey your music collection, figure out what songs you own, and then create a library in the cloud that contains all the same stuff. No need to upload. 

To make this work, Apple is striking deals with the music labels—something that Google and Amazon have been unable to do. (Those guys boldly rolled out their services without getting any kind of blessing from the music companies.) 

It’s also likely that Apple will integrate its iTunes music store into the mix, so that when you go online with your iPhone and buy a song or an album, the system will automatically add that music to your iCloud collection where it will be available on your home computer, your Pad or any device with a Web browser.

To power iCloud Apple has built a 500,000-square-foot data center in North Carolina whose price tag—supposedly $1 billion—shows you just how seriously Apple is taking this whole cloud thing. 

Indeed, the cloud is the next big battleground in consumer computing, a multi-billion-dollar market that the Big Three—Amazon, Apple, Google—will be fighting over. 

How will this brave new world work? Instead of storing files locally and then sending backups to the Internet, we’ll just keep stuff on the Internet and pull items down as we need them. 

We can do this because Internet connections are fast enough that we can zip stuff across thousands of miles in so little time that it seems to be right here on our computer. And connections are ubiquitous enough that no matter where you are, you can pretty much always be connected. 

For those times when you’re not able to get on the Internet, you can keep a local copy of some files—a little cache of stuff that you want to keep with you at all times. 

But see what’s happened? We’ve tipped things upside down. Until now your hard drive has been your primary storage vault, and the Internet was just for backups. In the new cloud model, your primary storage vault is on the Internet, and the hard drive on your computer or SD card on your smartphone is secondary. 

The implications are huge. For one thing, devices become much less important. They’re switchable, interchangeable, almost irrelevant. They’ll also become cheaper, if only because you’re not going to need a super-fast microprocessor and a 1-terabyte storage drive anymore. 

The much more difficult and important decision will be choosing the right cloud provider. They’re all going to find ways to try to lock you in and keep you from switching to a different service. It’s not clear how much Apple will charge for iCloud. Maybe it will stick with the $99-per-year price that it has used for MobileMe. But whatever the price, the much more important question will be, Do I trust these guys? Can I can rely on them? Will the system just work, without any glitches? Will it seem like magic? 

That, in the end, may be Apple’s biggest advantage, and the one that enables it to come out on top in the battle for the cloud.

For inquiries, please contact The Daily Beast at editorial@thedailybeast.com.

Wednesday, June 1, 2011

What I Read Today - Wednesday June 1, 2011

From: FP: Foreign Policy Magazine

You Can't Always Get What You Want

What Amazon.com and Netflix can teach us about fighting poverty.


MAY 31, 2011

We usually think of "rich" as the opposite of "poor," and in some ways that makes a lot of sense. It's true, anyway, that rich people aren't poor, and poor people aren't rich. Thinking of rich and poor as opposites also feels natural because it introduces an obvious yardstick -- money -- for measuring how wealthy people are, and how much separates one person from another. Money is a convenient yardstick because it follows a simple rule: All other things equal, we'd always like to have another dollar. Think here of a line from The Simpsons, spoken by Montgomery Burns after Barney expresses admiration for his incredible wealth: "Yes, but I'd trade it all... for just a little more."

Unfortunately, the word "poor" has lots of opposites, and not all of them have to do directly with money. "Healthy," "well-educated," "having access of clean water," and "nourished" are among the many opposites of "poor," and when we think about the relative merits of antipoverty programs, we have to weigh each of these things -- and more -- against each other. But how do we compare the importance of, say, health versus education versus housing? And how do we make tradeoffs between them? One approach is to apply our own values and priorities, but this ignores the preferences of the very people for whose benefit these programs are designed. This happens often in the world of development aid; a donor focusing on education, for example, might care more about classroom quality than hospital beds. But wouldn't it be better if we could instead ask the people receiving our help what they want?

This isn't just about trying to please. Development aid lore is rife with stories of well-intentioned outsiders missing the mark, offering people goods and services they don't really want. Recipients sometimes manage to extract some value from unwanted items by trading them for things they actually do want, or by jury-rigging them to serve other purposes (often with limited success). A mosquito net may get swapped for a machete, for example, or a kitchen set might be sold in order to just buy food. If we want to avoid these outcomes, we must answer the question: How can we best understand people's priorities and tastes?

Outside the poverty field, there are a growing number of ways of ascertaining and predicting what people like, and all of them are imperfect -- but they're getting better. Think about the ubiquitous taste-based suggestions on Amazon.com and Netflix, for instance: "Customers who liked this also liked _____." This "taste-matching" approach looks for other people whose preferences are similar to yours, then recommends things those people like that you haven't tried yet. It stands to reason that taste-matching methods improve over time; they look at thousands of consumers' feedback about thousands of products, and see what patterns emerge. As more wide-ranging data is amassed from more consumers to inform these suggestions, they become increasingly accurate.

A hazard of taste-matching, however, is that it has a hard time dealing with quirks. Suppose you like Mediterranean food but hate olives. If that quirk isn't shared by many other lovers of Mediterranean food, it's unlikely that it will be reflected in the food recommendations you would get from a taste-matching approach.

When it comes to fighting poverty, missing those quirks can be a deal breaker. Here's a real example from central Kenya, where farmers of Gichugu Division, at the foot of Mount Kenya, grew impressive crops but were hamstrung by isolation. Without information about foreign markets or access to exporters, most grew products like maize and kale, which they sold to local consumers. DrumNet, an ambitious program designed by the nonprofit organization PRIDE AFRICA, sought to help by setting up an export supply chain and encouraging the farmers to adopt crops that were both well-suited to the weather and soil of Gichugu Division and in high demand elsewhere. Specifically, the program pushed for French beans, a favorite of European consumers.

When the program was in its infancy, Dean visited the area and found that most of the farmers weren't growing the beans. The farmers expressed concerns over the risks of the export markets. In particular, they feared that exporters would claim the French beans they had grown were of inferior quality and would offer them too low a price. If that happened, Dean asked, could the farmers just sell the beans locally, or even eat them? (These were delicious French beans, being sent to Europe to be served with fine wine and fancy gourmet meals!) They looked back as if they had been told to eat dirt. "French beans? Eat them? At best we would feed them to our pigs and goats."

If taste-matching doesn't work, what about dispensing with democracy and giving some people's preferences -- usually those of experts -- greater weight than others? Take the restaurant site Opinionated About Dining, for example, which considers every individual's opinion, but weights them according to the amount of experience that individual has dining in the finest venues. The reviews of people who eat frequently at highly rated restaurants (i.e. foodies) carry the most weight, while reviews from people who seldom eat out except for an occasional meal at, say, Denny's count for very little.

This kind of approach has the advantage of helping to sift the best opinions from the rest --provided there really is an objective answer to "which is better?" Again, though, when navigating the preferences of the poor, it's often difficult to rank things cleanly. A few years ago, for example, Jacob, an American working for Innovations for Poverty Action and living in Ghana, tried to take a friend, Oti, out for a special birthday dinner. For weeks beforehand, Jacob asked Oti to choose a restaurant or a cuisine that he wanted to try, but he always replied that he would be happy to eat chicken and rice at Papaye, the Ghanaian equivalent of a McDonald's Big Mac and fries. On the big day Jacob asked one last time: Wouldn't he like to try one of the good Thai or Indian or Chinese restaurants? Finally Oti buckled and chose Indian. To his credit, Oti gave the meal a fair shot. He tried every dish. But, despite his noble efforts to be polite, he just didn't like it. Fortunately, the waiter had been one step ahead all along. Soon after he brought out the last Indian dish -- and without being asked -- he returned to the table with a heaping plate of fried chicken gizzards, a local favorite. Oti was thrilled and relieved.

If, as outsiders, we have such a hard time navigating between French beans and kale, or daal and chicken gizzards, what hope do we have to make the right tradeoffs between food and shelter, or health and education?

Often the default approach is to consider all our options with the common denominator of dollars and cents. For instance, we could think about the value of a health program as the savings from reduced medical bills plus the value of additional working days which, absent the health program, would have been missed due to sickness. We could similarly think about the value of a scholarship education program as the aggregate additional income earned by participants who can attract higher wages because they have more schooling. And then we could compare the dollar values of the two programs to decide which one is better.

But there are many instances in which the alternatives in front of us stubbornly resist description in dollar terms, or where key ancillary assumptions, like how much participants value future versus current income, can flip the answer around. As DrumNet and Oti's Indian dinner illustrate, this can be tricky even when we're trying our best to accommodate people's preferences.

The stakes here are high. When a charity pushes particular choices (rather than handing out cash, for example), and gets recipients' preferences wrong, something is lost immediately: Either the things given simply go to waste, providing no benefit to anybody, or else recipients are effectively taxed by having to trade for the things they want or repurpose the aid to make it useful. The longer-term consequence of misreading -- or, worse, ignoring -- recipients' preferences is to demonstrate that charities aren't paying attention to the real needs and desires of the very people they claim to be serving.

No aid organization or government has yet figured out how to perfectly understand the preferences of their recipients, though they do try. Charities often ask community members questions like: "What are the biggest challenges you or your community face?" and "How can we help?" But of course, the process can go awry. If the residents of a rural village decided that what they really wanted was a deluxe swimming pool instead of a school or a health clinic, a charity would be forced to think about taste. Would they buckle and accept the residents' stated preferences? Here we suspect they would quickly become fans of the expertise-oriented Opinionated About Dining model. To twist a phrase from Orwell, they might argue that all preferences are created equal, but some preferences are better than others.

Looking at all the pitfalls of specific aid projects, an increasing cadre of experts has argued in recent years that it's better to just give recipients cash. That way, every individual can make a choice about what it is he or she needs most.

There are cases, however, when this might not be ideal.

First, in situations that economists call "market failures," handing out cash does not lead to socially optimal investments. Take contagious disease as an example: The personal benefit a small-scale farmer gets for taking preventative measures may not actually exceed what it costs him to do so. But since disease spreads from person to person, each individual who chooses not to protect himself imposes an additional cost on others. That's the market failure: With each person rationally choosing not to take preventative action, we end up with a suboptimal outcome for everyone as a whole -- a great risk of an epidemic. Another type of market failure comes when individuals yield to temptation; the planner in them may want a mosquito net, but they may be tempted when cash is in hand to buy something for the moment, like meat for dinner or even alcohol or cigarettes. Cases like this cry out for public action, and individuals may themselves ask for interventions to help resist their own future temptations.

Second, if no market failure exists, some may return to the question of tastes, and simply impose their own as so-called experts. The Opinionated About Dining approach suggests this may be useful. In the context of development, a charity could push for more spending on education and health simply because it believes that this would serve the recipients well.

When neither of the two cases above applies, there is a strong argument for simply providing cash. But donors also have preferences, and they often choose to support programs that align with them, whether that means spending on education, health, food, or something else. As researchers concerned with poverty, when one person asks us "What can I do to help increase the income of impoverished women in Zambia?" and another asks "What can I do to help improve the health of impoverished children in Peru?" we're reluctant to try to convince either to change their question. Donors are entitled to their own tastes, too. We are happy to see people respond actively to the plight of the poor, and urge donors to look at rigorous research on aid effectiveness to learn how to maximize the good they can do for the people and issues they care about most.

Dean Karlan, professor of economics at Yale University, and Jacob Appel, researcher at Innovations for Poverty Action, are authors of More than Good Intentions.

What I Read Today - Wednesday June 1, 2011

From:  The New York Times

The Bin Laden Decade


Visiting the Middle East last week, and then coming back to Washington, I am left with one overriding impression: Bin Laden really did a number on all of us.

I am talking in particular about the Arab states, America and Israel — all of whom have deeper holes than ever to dig out of thanks to the Bin Laden decade, 2001 to 2011, and all of whom have less political authority than ever to make the hard decisions needed to get out of the holes.

Let’s start with the Arabs. In 2001, Osama bin Laden attacked the World Trade Center and the Pentagon. Just a few months later, in 2002, the U.N. issued the “Arab Human Development Report,” which described the very pathologies that produced Al Qaeda and prescribed remedies for overcoming them. The report, written by Arab experts, said the Arab states suffered from three huge deficits: a deficit of freedom and respect for human rights as the bases of good governance, a deficit of knowledge in the form of decent schooling and a deficit of women’s empowerment.

Instead of America and the Arab world making that report their joint post-Bin Laden agenda, they ignored it. Washington basically gave the Arab dictators a free pass to tighten their vise grip on their people — as long as these Arab leaders arrested, interrogated and held the Islamic militants in their societies and eliminated them as a threat to us.

It wasn’t meant as a free pass, and we really did have a security problem with jihadists, and we really didn’t mean to give up on our freedom agenda — but Arab leaders, like Hosni Mubarak of Egypt, sensed where our priorities were. That is why Mubarak actually arrested the one Egyptian who dared to run against him for president in his last election, and he and the other Arab autocrats moved to install their sons as successors.

As the Arab leaders choked their people that much tighter, along came Facebook, Twitter and cellphone cameras, which enabled those people to share grievances, organize rebellions, lose their fear and expose their leaders: “Smile, your brutality is on Candid Camera.”

That’s the good news. The challenging news is that because of the Bin Laden decade, these newly liberated Arab states are in an even deeper hole in terms of economic development, population growth and education. They each have a huge amount of catch-up to do that will require some painful economic and educational reforms.

But as one can quickly detect from a visit to Cairo, right now Egypt has a political vacuum and, if anything, is tending toward more populist, less-market-oriented economics. Yet, in return for infusions of cash, Egypt will probably have to accept some kind of I.M.F.-like austerity-reform package and slash government employment — just when unemployment and expectations are now sky high. Right now, no Egyptian party or leader has the authority that will be required to implement such reforms.

In America, President George W. Bush used the post-9/11 economic dip to push through a second tax cut we could not afford. He followed that with a Medicare prescription drug entitlement we cannot afford and started two wars in the wake of 9/11 without raising taxes to pay for them — all at a time when we should have been saving money in anticipation of the baby boomers’ imminent retirement. As such, our nation’s fiscal hole is deeper than ever and Republicans and Democrats — rather than coming together and generating the political authority needed for us to take our castor oil to compensate for our binge — are just demonizing one another.

As the Israeli political theorist Yaron Ezrahi points out, governance is based on authority “that is generated in one of two ways — by trust or by fear. Both of those sources of authority are disintegrating right now.” The Arab leaders governed by fear, and their people are not afraid anymore. And the Western democracies governed by generating trust, but their societies today are more splintered than ever.

Israel has the same problem. The combination of Yasir Arafat’s foolhardy decision to start a second intifada rather than embrace President Bill Clinton’s two-state peace plan, followed by the rise of Bin Laden, which diverted the U.S. from energetically pursuing the peace process, gave the Israeli right a free hand to expand West Bank settlements. There are now some 500,000 settlers in the West Bank and East Jerusalem.

Absent some amazing Palestinian peace overture, and maybe even with one, I do not see any Israeli leader with enough authority today to pull Israel out of the West Bank. So, for now, Prime Minister Bibi Netanyahu and Bin Laden both win: In the short run, Bibi gets to keep the West Bank, with 300,000 Jews occupying 2.4 million Palestinians. And in the long run, Bin Laden helps to destroy Israel as a Jewish democracy.

For all these reasons, I find myself asking the same question in Cairo, Washington and Jerusalem: “Who will tell the people?” Who will tell the people how deep the hole is that Bin Laden helped each of us dig over the last decade — and who will tell the people how hard and how necessary it will be to climb out?