Tuesday, September 20, 2011

What I Read Today - Tuesday September 20, 2011

From: The New York Times

Obama Rejects Obamaism


I’m a sap, a specific kind of sap. I’m an Obama Sap.

When the president said the unemployed couldn’t wait 14 more months for help and we had to do something right away, I believed him. When administration officials called around saying that the possibility of a double-dip recession was horrifyingly real and that it would be irresponsible not to come up with a package that could pass right away, I believed them.

I liked Obama’s payroll tax cut ideas and urged Republicans to play along. But of course I’m a sap. When the president unveiled the second half of his stimulus it became clear that this package has nothing to do with helping people right away or averting a double dip. This is a campaign marker, not a jobs bill.

It recycles ideas that couldn’t get passed even when Democrats controlled Congress. In his remarks Monday the president didn’t try to win Republicans to even some parts of his measures. He repeated the populist cries that fire up liberals but are designed to enrage moderates and conservatives.

He claimed we can afford future Medicare costs if we raise taxes on the rich. He repeated the old half-truth about millionaires not paying as much in taxes as their secretaries. (In reality, the top 10 percent of earners pay nearly 70 percent of all income taxes, according to the I.R.S. People in the richest 1 percent pay 31 percent of their income to the federal government while the average worker pays less than 14 percent, according to the Congressional Budget Office.)

This wasn’t a speech to get something done. This was the sort of speech that sounded better when Ted Kennedy was delivering it. The result is that we will get neither short-term stimulus nor long-term debt reduction anytime soon, and I’m a sap for thinking it was possible.

Yes, I’m a sap. I believed Obama when he said he wanted to move beyond the stale ideological debates that have paralyzed this country. I always believe that Obama is on the verge of breaking out of the conventional categories and embracing one of the many bipartisan reform packages that are floating around.

But remember, I’m a sap. The White House has clearly decided that in a town of intransigent Republicans and mean ideologues, it has to be mean and intransigent too. The president was stung by the liberal charge that he was outmaneuvered during the debt-ceiling fight. So the White House has moved away from the Reasonable Man approach or the centrist Clinton approach.

It has gone back, as an appreciative Ezra Klein of The Washington Post conceded, to politics as usual. The president is sounding like the Al Gore for President campaign, but without the earth tones. Tax increases for the rich! Protect entitlements! People versus the powerful! I was hoping the president would give a cynical nation something unconventional, but, as you know, I’m a sap.

Being a sap, I still believe that the president’s soul would like to do something about the country’s structural problems. I keep thinking he’s a few weeks away from proposing serious tax reform and entitlement reform. But each time he gets close, he rips the football away. He whispered about seriously reforming Medicare but then opted for changes that are worthy but small. He talks about fundamental tax reform, but I keep forgetting that he has promised never to raise taxes on people in the bottom 98 percent of the income scale.

That means when he talks about raising revenue, which he is right to do, he can’t really talk about anything substantive. He can’t tax gasoline. He can’t tax consumption. He can’t do a comprehensive tax reform. He has to restrict his tax policy changes to the top 2 percent, and to get any real revenue he’s got to hit them in every which way. We’re not going to simplify the tax code, but by God Obama’s going to raise taxes on rich people who give to charity! We’ve got to do something to reduce the awful philanthropy surplus plaguing this country!

The president believes the press corps imposes a false equivalency on American politics. We assign equal blame to both parties for the dysfunctional politics when in reality the Republicans are more rigid and extreme. There’s a lot of truth to that, but at least Republicans respect Americans enough to tell us what they really think. The White House gives moderates little morsels of hope, and then rips them from our mouths. To be an Obama admirer is to toggle from being uplifted to feeling used.

The White House has decided to wage the campaign as fighting liberals. I guess I understand the choice, but I still believe in the governing style Obama talked about in 2008. I may be the last one. I’m a sap.

Monday, September 19, 2011

What I Read Today - Monday September 19, 2011

From: Tax Vox - The Tax Policy Center Blog

On The President’s Recommendations to the Joint Select Committee

William Gale
Posted on September 19, 2011, 6:36 pm

Today, President Obama outlined proposals to reduce the medium-term federal budget deficit. His proposal would pay for the $447 billion stimulus package he proposed last week and reduce the 10-year federal budget deficit by an additional $3.2 trillion, according to OMB estimates.

The $3.7 trillion ($3.2 trillion + $447 billion) in budget savings is categorized as follows:
–$257 billion in mandatory spending
–$320 billion in health care spending
–$1,084 billion in defense spending (overseas contingency operations)
–$1,573 billion in tax revenues
–$436 billion in net interest savings

The proposals would bring the deficit down to about 2.7 percent of GDP by 2014, where it would hover and then eventually fall to about 2.3 percent of GDP by 2021. The debt/GDP ratio would peak at just under 77 percent of GDP in 2013 and would fall to 73 percent by 2021. The budget would be in primary surplus by 2017 and reach a primary surplus of 0.9 percent of GDP by 2021 (all data according to OMB).

Some initial reactions:

(1) Going big
The debt-limit deal signed in August had two parts. OMB estimates that the first part will reduce spending by $1.2 trillion (this may seem confusing, because the commonly-used figure for this part was $900 billion originally).

In combination with the debt-limit deal, then, the new proposals would (a) pay for the stimulus package the President proposed and (b) still reduce 10-year deficits by $4.4 trillion. Changes of this size constitute “going big” in current budget parlance and should be applauded.

In contrast, the Joint Select Committee needs to come up with “just” $1.5 trillion in deficit reduction to avoid the automatic second-round cuts. The President is asking Congress to go well beyond that and make a much more significant dent in the fiscal problem now.

(2) Compared to what?
The baseline that OMB uses is a measure of “current policy”: it assumes the extension of all of the 2001 and 2003 tax cuts, the indexation of the AMT for inflation, the non-reduction of Medicare provider payments, and the continuation of military operations at full throttle in Iraq and Afghanistan (it does not appear to assume that the run-of-the-mill temporary tax policies, the so-called “extenders,” are extended).

I have argued elsewhere that, in many ways, it makes more sense to use current law as the baseline. (http://www.brookings.edu/events/2011/0817_deficit_committee.aspx) Ultimately, the most important thing is where the proposal ends up in terms of deficits, debt, taxes, and spending. The President’s proposal would put the country on a more sustainable fiscal path and buy significant time to deal with long-term problems.

(3) Timing
The combination of the President’s stimulus proposal and the medium-term deficit reduction measures would raise the deficit by $300 billion in 2012, and then would reduce the deficit (all, relative to baseline) by $23 billion in 2013, by almost $300 billion in 2014, and by increasing amounts thereafter. If the economy has fully recovered by 2013, it will be able to bear the burden of changes in the direction and magnitude of the deficit. But if the economy is still weak, the increase in fiscal drag in 2013 and 2014 may cause significant problems.

(4) The Role of Taxes
The President is right to call for tax increases as part of medium-term deficit reduction. As I described last month, any credible proposal to solve our fiscal problem will include an increase in government revenue.

–All major durable deficit reduction packages enacted in the last thirty years, including the 1983 Social Security reforms and the 1990 and 1993 budget agreements, included both tax increases and spending cuts.
–The only way to provide shared sacrifice is by including tax increases in the package. Spending cuts do not require any significant sacrifice from very high-income households.
–The notion that government can be reduced in size by holding taxes low has not fared well over the last 30 years. The “starve the beast” approach was tried by Presidents Reagan and George W. Bush, who cut taxes, but ended up raising spending. In contrast, when President Clinton raised taxes, government also reduced spending, resulting in better fiscal discipline on both sides of the budget.
–Tax increases will be needed, too, because historical revenue levels will not be sufficient to pay for the costs of an aging population with rapidly rising medical costs. Even with significant reforms of Medicare and Medicaid, health costs will place a significant burden on the federal budget.
–Because the debt-limit deal focuses only on spending cuts, adding tax increases as one part of the new package will help, in all of the ways described above. The overall package looks to have about a 2:1 ratio of spending cuts to tax increases.
–A combination of tax increases and spending cuts is in accord with the wishes of the American public, who vastly prefer a combination of the two types of budget solutions to a solution that involves spending cuts alone.

(5) Taxes on high-income households
It is appropriate to include tax increases on high-income households as part of the fiscal package.

–High-income households have seen enormous income growth over the past 30 years, which has not been reflected fully in the tax revenue statistics. The share of total income going to the top 1 percent has more than doubled, rising from 9.3 percent of pre-tax income in 1979 to 19.4 percent in 2007. In a progressive tax system, where average tax rates rise with income, one would expect that such a massive increase in income would be coupled—in the absence of any change in tax law–with significantly higher average tax rates (since more income is taxed at the highest rate as income skyrockets). Instead, the average federal tax rate on the top 1 percent of households fell over the time period from 37 percent in 1979 to 29.5 percent in 2007. (As a result, the share of federal taxes paid by the top 1 percent went up by less than double (even though the income share more than doubled) to 28.1 percent in 2007, up from 15.4 percent in 1979.)

–In contrast, the middle and lower ends of the income distribution have shown very small gains over the past 30 years. According to the Census, median family income after adjusting for inflation only increased 7.3 percent since 1979. More recently, median real family income has declined over the past decade, with median income in 2010 7.1 percent below its 1999 peak.

–The President’s proposal would return tax rates for high-income households to their late-1990s levels, a period of strong economic growth. Even though the tax rates of the 1990s did not cause the strong economic growth, it is clear that they did not get in the way of the strongest growth period the nation has had in several decades.

–Proposed taxes on high-income households seem to always generate two responses – it will hurt small business and it constitutes class warfare – which are discussed below.

(6) Small business
There will be concerns voiced that raising taxes on high-income households will hurt small businesses. However, the case can be vastly overstated.

–First, the proposed tax rates will not affect the vast majority of small businesses. According to the IRS’ 2009 Statistics of Income, only 9.9 percent of tax returns reporting business income were filed by taxpayers with an adjusted gross income greater than $250,000. Second, businesses in the upper income brackets are naturally larger than those in the lower brackets, and account for almost half of the aggregate income of so-called “small business,” but it is unclear that many of these businesses are indeed small. (For example, when Goldman Sachs was a partnership, the income of its managers would show up as “small business” income.) Moreover, most of the income in those income groups is not business income.

–Those statistics aside, the effective tax rate on small business income is likely to be zero or negative, regardless of small changes in the marginal tax rates. This is for three reasons. First, small businesses can expense (immediately deduct in full) the cost of investment. This alone brings the effective tax rate on new investment to zero, regardless of the statutory rate. Second, if they can finance the investment with debt, the interest payments would be tax deductible, making the effective tax rate negative. Third, they can deduct wage payments in full, so the marginal tax rate should have minimal impact on hiring.

(7) Class Warfare
Proposals to raise taxes on high-income households inevitably generate claims of “class warfare.”

–But it seems reasonable to ask for some fiscal sacrifice from a group that (a) is very well off, (b) has seen meteoric income gains relative to the rest of the population over the past 30 years, and (c) has nevertheless seen their average tax burden fall, not rise, during that period. It does not seem fair to let the wealthiest escape from sharing the burden of closing the fiscal gap; nor is there a way to impose that burden without tax increases.

–Ironically, proposals like Rep. Ryan’s recent plan to address long-term fiscal issues would impose more than the full burden of closing the fiscal gap on low- and middle-income households and, at the same time, give high-income households a tax cut. That seems much less justified on fairness grounds than asking high-income households to share in the burden of closing the fiscal gap.

(8) The Buffett rule
As a guideline for future tax reform (but not as a specific proposal now), the President described “the Buffett rule,” (named with reference to Warren Buffett, who has commented that he faces a lower average tax rate than many of his employees) as implying that no one with income over $1 million should pay a smaller share of his income in taxes than middle class families pay.

–The notion that people with income above $1 million should pay higher average tax rates than those in the middle class should not be a controversial proposition in principle. It is simply an extremely mild form of progressive taxation.

–However, the guidelines say “no household” with income above $1 million, which might create issues.

–The mild form of progressivity may not hold in the current system because different income types have different tax rates. These income types are concentrated in certain income groups more than others. For example, wages and salaries, which are a big share of low- and middle-income households’ income but not of high-income households’ income, are taxed at a flat payroll tax rate (up to a maximum) and graduated income tax rates. Capital gains and dividends are taxed at very low rates (15 percent maximum) under the individual income tax; these constitute less than 1 percent of the income of the bottom 80 percent of the income distribution, but more than 30 percent of the top 1 percent of households (in 2007, the figure will vary from year to year). According to Tax Policy Center estimates, the top one-tenth of one percent of households receive almost half of the benefits from preferential rates on capital gains and dividends. Low- and middle-income households cannot benefit from these tax breaks like millionaires, nor can they exploit other tax loopholes and deductions like high-income households.

–The Buffett Rule could be implemented in different ways: via a surtax on those whose income exceeds $1 million; via a reformed Alternative Minimum Tax (which would ensure that high-income, not middle-income, households are primarily affected); or via elimination or reduction of preferential rates for dividends and capital gains. The goal of a progressive tax system is laudable and should be pursued, especially as the greatest income gains have benefitted the top while median incomes have stagnated.

William G. Gale is the Arjay and Frances Fearing Miller Chair in Federal Economic Policy and Codirector of the Urban-Brookings Tax Policy Center.

Friday, September 16, 2011

What I Read Today - Friday September 16, 2011

The Planning Fallacy


When the Nobel Prize-winning psychologist Daniel Kahneman was a young man, he led a committee to write a new part of the curriculum for Israeli high schools. The committee worked for a year, and Kahneman asked his colleagues how long they thought the rest of the project would take. Their estimates were around two years.

Kahneman then asked the most experienced among them how long such work took other curriculum committees. The gentleman pointed out that roughly 40 percent of the committees never finished their work at all.

But what about those that did finish? The gentleman reported that he had never seen a committee finish in less than seven years and never in more than 10.

This was bad news. They might fail to finish a task that they thought would be done in three years. At best, the project might consume eight or nine years. Yet this information didn’t affect those on the team at all. They carried on, assuming that though others might fail or dally, surely they wouldn’t.

As it turned out, their project took eight years to finish. By the time it was done, the Ministry of Education had lost interest, and the curriculum was never used.

In his forthcoming book, “Thinking, Fast and Slow” (I’ll write more about it in a couple of weeks), Kahneman calls this the planning fallacy. Most people overrate their own abilities and exaggerate their capacity to shape the future. That’s fine. Optimistic people rise in this world. The problem comes when these optimists don’t look at themselves objectively from the outside.

The planning fallacy is failing to think realistically about where you fit in the distribution of people like you. As Kahneman puts it, “People who have information about an individual case rarely feel the need to know the statistics of the class to which the case belongs.”

Over the past three years, the United States has been committing the planning fallacy on stilts. The world economy has been slammed by a financial crisis. Countries that are afflicted with these crises typically experience several years of high unemployment. They go deep into debt to end the stagnation, but the turnaround takes a while.

This historical pattern has been universally acknowledged and universally ignored. Instead, leaders in both parties have clung to the analogy that the economy is like a sick patient who can be healed by the right treatment.

The Democrats, besotted by the myth that the New Deal ended the Great Depression, have consistently overestimated their ability to turn the economy around. They regard the Greek crackup as a freakish, unlucky break, even though this sort of thing is a typical feature of a financial crisis.

Republicans, who should know better, also have an inflated sense of the power of government. In the presidential debates, Rick Perry, Mitt Romney and Jon Huntsman argue about which one oversaw the most job creation during his term as governor, as if governors have an immediate and definable impact on employers’ hiring decisions.

The reality, of course, is that the economy is not a patient. It is a zillion, zillion interactions. Government is not a doctor. Most of the time, it is a clashing collective enterprise that is occasionally able to produce marginal change, for good and for ill.

Democrats should be learning about the limits of social policy. As in the war on poverty, as in the effort to transform American schools, as in the effort to create prosperity in the developing world, it is really hard to turn around complex systems.

Republicans should be reflecting on the fact that if a Republican president were in office right now, and even if he or she did sensible things, the economy would still be in the dumps. It would be Republicans losing “safe” Congressional seats in special elections.

The key to wisdom in these circumstances is to make the distinction between discrete good and systemic good. When you are in the grip of a big, complex mess, you have the power to do discrete good but probably not systemic good.

When you are the president in a financial crisis, you have the power to pave roads and hire teachers. That will reduce the suffering of real people who would otherwise be jobless. You have the power to streamline regulations and reduce tax burdens. That will induce a bit more hiring and activity. These are real contributions.

But you don’t have the power to transform the whole situation. Your discrete goods might contribute to an overall turnaround, but that turnaround will be beyond your comprehension and control.

Over the past decades, Americans have developed an absurd view of the power of government. Many voters seem to think that government has the power to protect them from the consequences of their sins. Then they get angry and cynical when it turns out that it can’t.

Thursday, September 15, 2011

What I Read Today - Thursday September 15, 2011

From: The Tax Vox - The Tax Policy Center Blog

What the Great Budget Debate Is Really About

Howard Gleckman
Posted on September 15, 2011, 9:00 am

Want to know what the Great Budget Debate of 2011 is really about? Ask Congressional Budget Office director Doug Elmendorf (who was a Tax Policy Center associate before joining CBO). In testimony to Congress’s fiscal super committee on Tuesday, Doug put the whole thing into a few simple sentences:

“I think really the fundamental question…is…where you want the country to go, what role do you …want the government to play in the economy and society?” [I]f you want a role that has benefit programs for older Americans like the ones we’ve had in the past, and that operate…the rest of the government like …in the past,then more tax revenue is needed than under current tax rates. On the other hand, if one wants those tax rates, then one has to make very significant changes in spending programs for older Americans” and the rest of government.

Doug is exactly right about these core choices. And that’s why it is so difficult for Congress and President Obama to reach any serious agreement on fiscal policy. At bottom, this argument is not about reducing the deficit by $1.2 trillion or $1.5 trillion to hit some artificial budget target. It is about reconciling fundamentally competing visions of the role of government.

Herb Stein, who was the top economic adviser to President Nixon, used to say that budgeting was simple: Congress’ job was to decide what it wanted to do and then figure out how to pay for it.

Unfortunately, in the four decades since Herb’s observation, Congress and a half-dozen presidents have done a fabulous job of finding stuff to do, but not such a hot job of paying for it (Bill Clinton, with the help of a roaring economy, was the exception).

Now, policymakers finally are struggling to do the work Stein described. And to do so, they must confront Doug’s choice: Do they do less than many voters expect, tax more, or both?

To add to the challenge, they are trying to do it at a time when the nation is deeply divided—and conflicted. Polls suggest most Americans support deficit reduction—but oppose the very spending cuts and tax hikes needed to achieve it. This disconnect is not helped by politicians who continue to promise pain-free deficit reduction.

At the most recent GOP presidential debate, for instance, former House Speaker Newt Gingrich insisted he could address most fiscal problems by controlling, yes, waste, fraud, and abuse. “Anybody who knows anything about the federal government knows that there’s such an enormous volume of waste, that if you simply had a serious, all-out effort to modernize the federal government, you would have hundreds of billions of dollars of savings falling off,” Gingrich claimed.

Now, there is plenty of waste in government and we absolutely should curb it. But is it going to fix the deficit problem? Only in Newt’s dreams.

So increasingly, it looks as if we are going to have an election about the fundamental role of government—in creating jobs, helping those in distress, and preserving the nation’s health and safety. This may not be so true if Republicans nominate Mitt Romney. But it certainly will be if the GOP picks Texas Governor Rick Perry and Obama sticks with the powerful defense of government he delivered to Congress earlier this month. Not since Johnson and Goldwater would these competing visions be so clear. If nothing else, as Goldwater said, voters will have a choice, not an echo.

What I Read Today - Thursday September 15, 2011

From:  The Miami Herald

Candidates must deal with facts, not wishes


When it comes to foreign policy, the saying goes that politics stops at the water's edge.

When it comes to climate science, we say that politics should stop at the atmosphere's edge.

One of us is a Republican, the other a Democrat. We hold different views on many issues. But as scientists, we share a deep conviction that leaders of both parties must speak to the reality and risks of human-caused climate change, and commit themselves to finding bipartisan solutions.

Scientists have known for more than 100 years that carbon dioxide in our atmosphere traps heat. And today we know that the excess carbon dioxide accumulating in the atmosphere from human activity - primarily, burning coal and oil and clearing forests - is altering our climate.

It's a conclusion based on established physics and on evidence gathered from satellite data, ancient ice cores, temperature stations, fossilized trees and corals. And it's a conclusion affirmed by the U.S. National Academy of Sciences, established by President Lincoln to advise our nation's leaders on matters of science.

But as scientific understanding of climate change has advanced, the public discourse has split along partisan lines.

Republicans who identify with the Tea Party are particularly likely to deny the reality of global warming. Several of this year's aspiring presidential candidates are rejecting the findings of climate science - and feeling the political heat if they don't.

After former Massachusetts Gov. Mitt Romney reiterated his understanding that human activity is warming the planet, Rush Limbaugh denounced him for doing so, saying, "bye-bye nomination." Romney now says that he doesn't know what is causing climate change.

Texas Gov. Rick Perry recently accused climate scientists of "manipulating data." In Wednesday's Republican candidate debate, he made an argument like the one tobacco industry executives used to cast doubt on the scientific evidence of smoking's health risks, saying, "The idea that we would put Americans' economy in jeopardy based on scientific theory that's not settled yet to me is just nonsense." Science is never truly settled and no responsible leader would wait for 100 percent certainty to respond to a serious threat.

Making misleading statements about science and picking on scientists is easy. Most would rather defend their findings in peer-reviewed journals than on cable TV. A lie can travel halfway around the world before we even get our lab coats on.

Some politicians, fortunately, are demonstrating a more responsible way to talk about climate change.

Former Utah Gov. Jon Huntsman, for example, reaffirmed his acceptance of the science in Wednesday's presidential debate. And New Jersey Gov. Chris Christie has also been speaking up for climate science, even as he has backed away from taking action.

"When you have over 90 percent of the world's scientists who have studied this stating that climate change is occurring and humans play a contributing role, it's time to defer to the experts," Christie said last month.

The right rebuked Christie for recognizing the reality of climate change. And the left lambasted him for using the same speech to pull out of a regional pact to curb emissions.

We question Christie's policy decision. But we commend him for acknowledging the reality of climate change, and for providing New Jersey voters a chance to decide whether they agree with his policy choice. That's how our democracy should work.

Republicans skeptical about climate policy should follow Christie's and Huntsman's lead and realize that they don't need to misrepresent the science.

And Democrats must speak out as well.

Candidate Barack Obama spoke forcefully about global warming, but has been far too quiet as president. In a rare public statement on climate, he recently told two "kid reporters" with Scholastic News that climate change is one of the chief challenges their generation will face.

That's not enough. Science tells us that the extent and severity of climate change faced by our children's generation will be determined by the hard choices we must make today. Political leadership is about ensuring that we adults face up to this task.

We cannot afford to have those leading our nation misrepresent, or be silent about, the reality and risks of climate change.

Whoever wins the next election will lead a nation increasingly affected by climate change, command a Pentagon that calls climate change a national security threat, and preside over federal scientists already working to help states and cities prepare for climate change impacts.

It is time for leaders of both parties to take seriously what science tells us we are doing to our common atmosphere, so we can take up the urgent task of finding solutions on common ground.

Read more: http://www.miamiherald.com/2011/09/14/v-print/2406387/candidates-must-deal-with-facts.html#ixzz1Y1bSuXZB

Wednesday, September 14, 2011

What I Read Today - Wednesday September 14, 2011

From: The New York Times

Is It Weird Enough Yet?


Every time I listen to Gov. Rick Perry of Texas and Representative Michele Bachmann of Minnesota talk about how climate change is some fraud perpetrated by scientists trying to gin up money for research, I’m always reminded of one of my favorite movie lines that Jack Nicholson delivers to his needy neighbor who knocks on his door in the film “As Good As It Gets.” “Where do they teach you to talk like this?” asks Nicholson. “Sell crazy someplace else. We’re all stocked up here.”

Thanks Mr. Perry and Mrs. Bachmann, but we really are all stocked up on crazy right now. I mean, here is the Texas governor rejecting the science of climate change while his own state is on fire — after the worst droughts on record have propelled wildfires to devour an area the size of Connecticut. As a statement by the Texas Forest Service said last week: “No one on the face of this earth has ever fought fires in these extreme conditions.”

Remember the first rule of global warming. The way it unfolds is really “global weirding.” The weather gets weird: the hots get hotter; the wets wetter; and the dries get drier. This is not a hoax. This is high school physics, as Katharine Hayhoe, a climatologist in Texas, explained on Joe Romm’s invaluable Climateprogress.org blog: “As our atmosphere becomes warmer, it can hold more water vapor. Atmospheric circulation patterns shift, bringing more rain to some places and less to others. For example, when a storm comes, in many cases there is more water available in the atmosphere and rainfall is heavier. When a drought comes, often temperatures are already higher than they would have been 50 years ago, and so the effects of the drought are magnified by higher evaporation rates.”

CNN reported on Sept. 9 that “Texas had the distinction of experiencing the warmest summer on record of any state in America, with an average of 86.8 degrees. Dallas residents sweltered for 40 consecutive days of grueling 100-plus degree temperatures. ... Temperature-related energy demands soared more than 22 percent above the norm this summer, the largest increase since record-keeping of energy demands began more than a century ago.”

There is still much we don’t know about how climate change will unfold, but it is no hoax. We need to start taking steps, as our scientists urge, “to manage the unavoidable and avoid the unmanageable.” If you want a quick primer on the latest climate science, tune into “24 Hours of Reality.” It is a worldwide live, online update that can be found at climaterealityproject.org and will be going on from Sept. 14-15, over 24 hours, with contributors from 24 time zones.

Not only has the science of climate change come under attack lately, so has the economics of green jobs. Here the critics have a point — sort of. I wasn’t surprised to read that the solar panel company Solyndra, which got $535 million in loan guarantees from the Department of Energy to make solar panels in America, filed for bankruptcy protection two weeks ago and laid off 1,100 workers. This story is an embarrassment to the green jobs movement, but the death by bankruptcy was a collaboration of the worst Democratic and Republican impulses.

How so? There is only one effective, sustainable way to produce “green jobs,” and that is with a fixed, durable, long-term price signal that raises the price of dirty fuels and thereby creates sustained consumer demand for, and sustained private sector investment in, renewables. Without a carbon tax or gasoline tax or cap-and-trade system that makes renewable energies competitive with dirty fuels, while they achieve scale and move down the cost curve, green jobs will remain a hobby.

President Obama has chosen not to push for a price signal for political reasons. He has opted for using regulations and government funding. In the area of regulation, he deserves great credit for just pushing through new fuel economy standards that will ensure that by 2025 the average U.S. car will get the mileage (and have the emissions) of today’s Prius hybrid. But elsewhere, Obama has relied on green subsidies rather than a price signal. Some of this has really helped start-ups leverage private capital, but you also get Solyndras. The G.O.P. has blocked any price signal and fought every regulation. The result too often is taxpayer money subsidizing wonderful green innovation, but with no sustainable market within which these companies can scale.

Let’s fix that. We need revenue to balance the budget. We need sustainable clean-tech jobs. We need less dependence on Mideast oil. And we need to take steps to mitigate climate change — just in case Governor Perry is wrong. The easiest way to do all of this at once is with a gasoline tax or price on carbon. Would you rather cut Social Security and Medicare or pay a little more per gallon of gas and make the country stronger, safer and healthier? It still amazes me that our politicians have the courage to send our citizens to war but not to ask the public that question.

Tuesday, September 13, 2011

What I Read Today - Tuesday September 13, 2011

From: The New York Times

If It Feels Right ...


During the summer of 2008, the eminent Notre Dame sociologist Christian Smith led a research team that conducted in-depth interviews with 230 young adults from across America. The interviews were part of a larger study that Smith, Kari Christoffersen, Hilary Davidson, Patricia Snell Herzog and others have been conducting on the state of America’s youth.

Smith and company asked about the young people’s moral lives, and the results are depressing.

It’s not so much that these young Americans are living lives of sin and debauchery, at least no more than you’d expect from 18- to 23-year-olds. What’s disheartening is how bad they are at thinking and talking about moral issues.

The interviewers asked open-ended questions about right and wrong, moral dilemmas and the meaning of life. In the rambling answers, which Smith and company recount in a new book, “Lost in Transition,” you see the young people groping to say anything sensible on these matters. But they just don’t have the categories or vocabulary to do so.

When asked to describe a moral dilemma they had faced, two-thirds of the young people either couldn’t answer the question or described problems that are not moral at all, like whether they could afford to rent a certain apartment or whether they had enough quarters to feed the meter at a parking spot.

“Not many of them have previously given much or any thought to many of the kinds of questions about morality that we asked,” Smith and his co-authors write. When asked about wrong or evil, they could generally agree that rape and murder are wrong. But, aside from these extreme cases, moral thinking didn’t enter the picture, even when considering things like drunken driving, cheating in school or cheating on a partner. “I don’t really deal with right and wrong that often,” is how one interviewee put it.

The default position, which most of them came back to again and again, is that moral choices are just a matter of individual taste. “It’s personal,” the respondents typically said. “It’s up to the individual. Who am I to say?”

Rejecting blind deference to authority, many of the young people have gone off to the other extreme: “I would do what I thought made me happy or how I felt. I have no other way of knowing what to do but how I internally feel.”

Many were quick to talk about their moral feelings but hesitant to link these feelings to any broader thinking about a shared moral framework or obligation. As one put it, “I mean, I guess what makes something right is how I feel about it. But different people feel different ways, so I couldn’t speak on behalf of anyone else as to what’s right and wrong.”

Smith and company found an atmosphere of extreme moral individualism — of relativism and nonjudgmentalism. Again, this doesn’t mean that America’s young people are immoral. Far from it. But, Smith and company emphasize, they have not been given the resources — by schools, institutions and families — to cultivate their moral intuitions, to think more broadly about moral obligations, to check behaviors that may be degrading. In this way, the study says more about adult America than youthful America.

Smith and company are stunned, for example, that the interviewees were so completely untroubled by rabid consumerism. (This was the summer of 2008, just before the crash).

Many of these shortcomings will sort themselves out as these youngsters get married, have kids, enter a profession or fit into more clearly defined social roles. Institutions will inculcate certain habits. Broader moral horizons will be forced upon them. But their attitudes at the start of their adult lives do reveal something about American culture. For decades, writers from different perspectives have been warning about the erosion of shared moral frameworks and the rise of an easygoing moral individualism.

Allan Bloom and Gertrude Himmelfarb warned that sturdy virtues are being diluted into shallow values. Alasdair MacIntyre has written about emotivism, the idea that it’s impossible to secure moral agreement in our culture because all judgments are based on how we feel at the moment.

Charles Taylor has argued that morals have become separated from moral sources. People are less likely to feel embedded on a moral landscape that transcends self. James Davison Hunter wrote a book called “The Death of Character.” Smith’s interviewees are living, breathing examples of the trends these writers have described.

In most times and in most places, the group was seen to be the essential moral unit. A shared religion defined rules and practices. Cultures structured people’s imaginations and imposed moral disciplines. But now more people are led to assume that the free-floating individual is the essential moral unit. Morality was once revealed, inherited and shared, but now it’s thought of as something that emerges in the privacy of your own heart.

Monday, September 12, 2011

What I Read Today - Monday September 12, 2011

From: TaxVox - The Tax Policy Center blog

Do Republicans Really Want to Cut Taxes on the Wealthy and Raise Them on Everyone Else?

Howard Gleckman
Posted on August 25, 2011, 3:26 pm

Of all the curious rhetoric floating around both Washington and the campaign trail, the strangest may be the demand of many Republicans that Congress raise taxes for low-income working households even as it cuts taxes for the wealthy. The left has, not surprisingly, gleefully leapt on the issue. And, honestly, it seems like terrible politics for the GOP.

But this idea is hardly new. It is a key element of various forms of consumption taxes such as the National Retail Sales Tax (including the wildly misnamed FAIR tax). It is also favored among those on the right who want to close “loopholes” to force low- and moderate-income households to pay some income tax even as they cut rates across the board—a design almost certain to favor high-income taxpayers.

Texas governor and GOP presidential hopeful Rick Perry supports the FAIR tax (or at least did last year when he wrote his manifesto Fed Up). This levy would repeal nearly all federal taxes (including the income tax and the payroll tax) and replace them with a single-rate national sales tax on the purchase of all goods and services. FAIR tax backers set this rate at 23 percent but the Tax Policy Center’s Bill Gale and others have concluded that the rate would have to exceed 30 percent if the scheme is to raise as much money as current law.

To try to get a sense of what such a levy would do to the tax burden across incomes, the Tax Policy Center analyzed a generic consumption tax designed to replace most federal taxes. In, um, fairness, it is important to note that TPC did not review the actual FAIR tax but rather a stylized Value Added Tax –type consumption tax. But any broad-based consumption tax will generate roughly the same pattern.

Still, the results are dramatic. On average, such a levy would raise the share of taxes paid for all but the highest-income households, who would pay far less than they do today. A consumption tax without any rebate to protect low-income people (the red bar in the graph) would be extremely regressive. In other words, the more you make, the lower your tax burden, and the less you make, the higher–a mirror image of today’s moderately progressive tax system.

The reason is simple: A consumption levy would not tax income from saving, and low- and moderate-income people save a lot less than the rich. Thus, if Congress taxes consumption, those down the economic food chain will inevitably pay more in taxes. One way Congress can address the problem is with a rebate—effectively exempting thousands of dollars of spending from tax (the exact amount is tied to the poverty level so it rises as income falls).

As the blue bars in the graph show, such a rebate would not completely fix the problem. Low- and moderate-income families would still pay more on average than they do today. But they’d pay a much smaller share than if there was no rebate.

There is a funny thing about the rebate, though (called a prebate in the FAIR tax). It would end up exempting a lot of low-income households from tax—recreating exactly the problem Perry and others complain about. And even with a rebate, the highest income 5 percent of households would still enjoy a major tax cut even as others pay more. Such a consumption tax would reduce the tax burden for the top 1 percent (who make an average of $1.6 million per year) by a stunning 40 percent.

Of course, tax systems are about more than fairness. Efficiency and the effect on the overall economy matter. But I’m not sure I’d want to run for president on a promise to cut the tax burden on millionaires by 40 percent even as I’d raise taxes for nearly everybody else. Forget class warfare. This is more like the charge of the Light Brigade.

Friday, September 9, 2011

What I Read Today - Friday September 9, 2011

From: The New York Times

Stimulus for Skeptics


A few years ago, Kenneth Rogoff and Carmen M. Reinhart wrote the definitive guide to the current economic downturn, a book called “This Time Is Different.” Rogoff and Reinhart studied data from eight centuries of financial crises. They found that banking-crisis recessions are worse than normal recessions. They last longer.

In these recessions, it took an average of six years for housing prices to stop their decline. Unemployment rates were high or rising for an average of five years. Government debt increased by an average of more than 86 percent.

The general lesson I take from this history is that policy makers stuck in a financial recession should probably think about the long term. You’re going to be stuck with a lousy economy anyway. Anything you do to try to boost the growth numbers next month or next quarter is going to be overwhelmed by the underlying forces — the continuing housing overhang, the gradual deleveraging process, the lingering mood of fear and anxiety.

You might as well use the winter of recuperation to take care of the fundamentals. Work hard to fix the education system, the tax code, the fiscal mess and the regulatory system. None of these things will produce short-term benefits. But when the recession finally does run its course, the economy will be ready to surge. Paradoxically, you have more power to influence these fundamental issues than you do next month’s jobs report.

There’s only one problem with this long-term orientation. Suppose in the middle of the winter of recuperation the economy stops recuperating? Suppose instead of grinding forward, the economy starts sliding back? In these circumstances, do you still have the luxury of thinking about the long term? Don’t you have to try to reverse things here and now?

This is the problem the Obama administration is facing. Like everybody else, it has seen a sluggish economy come grinding to a halt. There is clearly now a significant risk of a double-dip recession. That would be terrible for America’s workers, fiscal situation and psyche. This prospect is enough to shock even us stimulus skeptics out of our long-term focus. It’s enough to force us to contemplate the possibility of another stimulus package.

The next question is this: Does the administration have any stimulus ideas that could actually stimulate? Thursday night the president gave one of the most forceful and compelling domestic policy speeches of his presidency. His proposals were drawn from the middle of the ideological spectrum and were selected to appeal to people who don’t put a lot of faith in government spending. There’s a payroll tax cut, a small business tax cut, infrastructure spending, subsidies so states don’t have to lay off cops, firefighters and teachers, and a plan to use unemployment insurance to subsidize temporary work for the unemployed to get them back involved in the labor force.

Republicans have supported most of these ideas at one time or another. Still, let’s not sugarcoat things. Recent stimulus packages have not exactly lived up to the hype. Temporary tax cuts generally don’t lead to much job creation. Given the long lead times involved, infrastructure spending is an odd way to combat a double dip that might be starting right now. Job subsidies often go to companies that would have hired the people anyway. One recent study showed that a plurality of the people hired under the last stimulus package already had jobs; they were just switching from one to another.

In short, the administration is putting forth a package to prevent a double-dip recession that may not come to pass with a series of measures that may not work.

Yet it’s hard to walk away. The prospect of a double dip is truly horrifying. What happens if next months job’s report comes in negative? Or the one after that? Believe me, Congress will be rushing to do something then.

Personally, my bottom line is this: I think the president has earned a second date. He’s put together a moderate set of stimulus ideas. His plan may not be enough to jolt prosperity, but it might maintain its current slow growth.

If he comes up with his own deficit proposal that pays for his programs with some serious entitlement reforms (and not merely with some boilerplate “let’s tax the rich” plan), then Republicans would be wise to work with him to make his growth ideas more effective.

The mainstream economic view is that we should combine near-term stimulus with long-range austerity. Up until now, the political system has been unable to perform this two-stage approach. Republicans won’t touch spending, and Democrats won’t touch entitlement reform.

The president clearly wants to give it a final shot. His tone on Thursday was feisty and will please Democrats. But the substance was heterodox and worth pursuing. In this moment of peril, the country needs an insurance policy against the double dip.

Wednesday, September 7, 2011

What I Read Today - Wednesday September 2011

From:  The New York Times - Editoral Page

In the Land of DenialThe Republican presidential contenders regard global warming as a hoax or, at best, underplay its importance. The most vocal denier is Rick Perry, the Texas governor and longtime friend of the oil industry, who insists that climate change is an unproven theory created by “a substantial number of scientists who have manipulated data so that they will have dollars rolling into their projects.”

Never mind that nearly all the world’s scientists regard global warming as a serious threat to the planet, with human activities like the burning of fossil fuels a major cause. Never mind that multiple investigations have found no evidence of scientific manipulation. Never mind that America needs a national policy. Mr. Perry has a big soapbox, and what he says, however fallacious, reaches a bigger audience than any scientist can command.

With one exception — make that one-and-one-half — the rest of the Republican presidential field also rejects the scientific consensus. The exception is Jon Huntsman Jr., a former ambassador to China and former governor of Utah, who recently wrote on Twitter: “I believe in evolution and trust scientists on global warming. Call me crazy.” The one-half exception is Mitt Romney, who accepted the science when he was governor of Massachusetts and argued for reducing emissions. Lately, he’s retreated into mush: “Do I think the world’s getting hotter? Yeah, I don’t know that, but I think that it is.” As for the human contribution: “It could be a little. It could be a lot.”

The others flatly repudiate the science. Ron Paul of Texas calls global warming “the greatest hoax I think that has been around for many, many years.” Michele Bachmann of Minnesota once said that carbon dioxide was nothing to fear because it is a “natural byproduct of nature” and has complained of “manufactured science.” Rick Santorum, a former senator from Pennsylvania, has called climate change “a beautifully concocted scheme” that is “just an excuse for more government control of your life.”

Newt Gingrich’s full record on climate change has been a series of epic flip-flops. In 2008, he appeared on television with Nancy Pelosi, the former House speaker, to say that “our country must take action to address climate change.” He now says the appearance was a mistake.

None of the candidates endorse a mandatory limit on emissions or, for that matter, a truly robust clean energy program. This includes Mr. Huntsman. In 2007, as Utah governor, he joined with Arnold Schwarzenegger, then the governor of California, in creating the Western Climate Initiative, a market-based cap-and-trade program aimed at reducing emissions in Western states. Cap-and-trade has since acquired a toxic political reputation, especially among Republicans, and Mr. Huntsman has backed away.

The economic downturn has made addressing climate change less urgent for voters. But the issue is not going away. The nation badly needs a candidate with a coherent, disciplined national strategy. So far, there is no Republican who fits that description.

What I Read Today - Wednesday September 7, 2011

From: The New York Times

The Whole Truth and Nothing But


Kishore Mahbubani, a retired Singaporean diplomat, published a provocative essay in The Financial Times on Monday that began like this: “Dictators are falling. Democracies are failing. A curious coincidence? Or is it, perhaps, a sign that something fundamental has changed in the grain of human history. I believe so. How do dictators survive? They tell lies. Muammar Gaddafi was one of the biggest liars of all time. He claimed that his people loved him. He also controlled the flow of information to his people to prevent any alternative narrative taking hold. Then the simple cellphone enabled people to connect. The truth spread widely to drown out all the lies that the colonel broadcast over the airwaves.

“So why are democracies failing at the same time? The simple answer: democracies have also been telling lies.”

Mahbubani noted that “the eurozone project was created on a big lie” that countries could have monetary union and fiscal independence — without pain. Meanwhile, in America, added Mahbubani, now the dean of the Lee Kuan Yew School of Public Policy at the National University of Singapore, “No U.S. leaders dare to tell the truth to the people. All their pronouncements rest on a mythical assumption that ‘recovery’ is around the corner. Implicitly, they say this is a normal recession. But this is no normal recession. There will be no painless solution. ‘Sacrifice’ will be needed, and the American people know this. But no American politician dares utter the word ‘sacrifice.’ Painful truths cannot be told.”

Of course, there is a big difference between America and Libya. We can vote out our liars, unlike certain Arab — and Asian — countries. Still, Mahbubani’s comparison warrants some reflection this week, which coincides with the 10th anniversary of 9/11 and the president’s jobs speech. It is a great week for truth-telling.

Can you remember the last time you felt a national leader looked us in the eye and told us there is no easy solution to our major problems, that we’ve gotten into this mess by being self-indulgent or ideologically fixated over two decades and that now we need to spend the next five years rolling up our sleeves, possibly accepting a lower living standard and making up for our excesses?

For me, this is the most important thing to say both on the anniversary of 9/11 and on the eve of President Obama’s jobs speech. After all, they are intertwined. Why has this been a lost decade? An answer can be found in one simple comparison: How Dwight Eisenhower and his successors used the cold war and how George W. Bush used 9/11. America had to face down the Russians in the cold war. America had to respond to 9/11 and the threat of Al Qaeda. But the critical difference between the two was this: Beginning with Eisenhower and continuing to some degree with every cold war president, we used the cold war and the Russian threat as a reason and motivator to do big, hard things together at home — to do nation-building in America. We used it to build the interstate highway system, put a man on the moon, push out the boundaries of science, teach new languages, maintain fiscal discipline and, when needed, raise taxes. We won the cold war with collective action.

George W. Bush did the opposite. He used 9/11 as an excuse to lower taxes, to start two wars that — for the first time in our history — were not paid for by tax increases, and to create a costly new entitlement in Medicare prescription drugs. Imagine where we’d be today if on the morning of 9/12 Bush had announced (as some of us advocated) a “Patriot Tax” of $1 per gallon of gas to pay for education, infrastructure and government research, to help finance our wars and to slash our dependence on Middle East oil. Gasoline in the U.S. on Sept. 11, 2001, averaged $1.66 a gallon.

But rather than use 9/11 to summon us to nation-building at home, Bush used it as an excuse to party — to double down on a radical tax-cutting agenda for the rich that not only did not spur rising living standards for most Americans but has now left us with a huge ball and chain around our ankle. And later, rather than asking each of us to contribute something to the war, he outsourced it to one-half of one-percent of the American people. Everyone else — y’all have fun.

We used the cold war to reach the moon and spawn new industries. We used 9/11 to create better body scanners and more T.S.A. agents. It will be remembered as one of the greatest lost opportunities of any presidency — ever.

My fervent hope is that on Thursday Mr. Obama will set an example and tell the cold, hard truth — to parents and kids. I know. Honesty, we are told, is suicidal in politics. But as long as every solution that is hard is off the table, then our slow national decline will remain on the table. The public is ready for more than Michele Bachmann’s fairy-dust promise that she can restore $2 a gallon gasoline.

For once, Mr. President, let’s start a debate with the truth. Tell us what you really think will be required to get us out of this stagnation, what kind of collective action and shared sacrifice will be needed and why that can lead not just to muddling through, not just to being O.K., but to restoring American greatness.

Sunday, September 4, 2011

What I Read Today - Sunday September 4, 2011

From:   The Oz Principle - Getting Results Through Individual and Organizational Accountability
             by Roger Conners, Tom Smith and Craig Hickman


Whenever you get stuck in the victim cycle, you can’t get unstuck until you first acknowledge that you’re functioning Below The Line and paying a high price for it. Only with that acknowledgment can you begin assuming a See It attitude that gives you the perspective you need to get Above The Line. Oftentimes, unable to overcome the inertia of the victim cycle on your own, you need feedback from an objective person such as a friend or spouse, or as in the case of GE, a customer in Philadelphia with a failed refrigerator compressor.

However, you can greatly improve your ability to recognize your predicament by looking for one or more of the following telltale clues:
 • You feel held captive by your circumstances.
 • You feel you lack any control over your present circumstances.
 • You don’t listen when others tell you, directly or indirectly, that they think you could have done more to achieve better results.
 • You find yourself blaming others and pointing fingers.
 • Your discussions of problems focus more on what you cannot do, rather than on what you can do.
 • You fail to confront the toughest issues you face.
 • You find yourself being sought out by others so they can tell you what someone else did to them this time. • You resist asking probing questions about your own accountability.
 • You feel you are being treated unfairly and you don’t think you can do anything about it.
 • You repeatedly find yourself in a defensive posture.
 • You spend a lot of time talking about things you cannot change (e.g., your boss, shareholders, the economy’s performance, government regulations).
 • You cite your confusion as a reason for not taking action.
 • You avoid the people, the meetings, and the situations that require you to report on your responsibilities.
 • You find yourself saying: “It’s not my job.” “There’s nothing I can do about it.” “Someone ought to tell him.” “All we can do is wait and see.” “Just tell me what you want me to do.” “If it were me, I’d do it differently.”
 • You frequently waste time and energy “boss or colleague bashing.”
 • You spend valuable time crafting a compelling story detailing why you were not at fault.
 • You repeatedly tell the same old story about how someone took advantage of you.
 • You view the world with a pessimistic attitude.

What I Read Today - Sunday September 4, 2011

From:  The Wall Street Journal

Can the World Still Feed Itself?

Yes, says Nestle's chairman Peter Brabeck-Letmathe, but not if we burn food for fuel, fear genetic advances and fail to charge for water

Vevey, Switzerland

As befits the chairman of the world's largest food-production company, Peter Brabeck-Letmathe is counting calories. But it's not his diet that the chairman and former CEO of Nestlé is worried about. It's all the food that the U.S. and Europe are converting into fuel while the world's poor get hungrier.

"Politicians," Mr. Brabeck-Letmathe says, "do not understand that between the food market and the energy market, there is a close link." That link is the calorie.

The energy stored in a bushel of corn can fuel a car or feed a person. And increasingly, thanks to ethanol mandates and subsidies in the U.S. and biofuel incentives in Europe, crops formerly grown for food or livestock feed are being grown for fuel. The U.S. Department of Agriculture's most recent estimate predicts that this year, for the first time, American farmers will harvest more corn for ethanol than for feed. In Europe some 50% of the rapeseed crop is going into biofuel production, according to Mr. Brabeck-Letmathe, while "world-wide about 18% of sugar is being used for biofuel today."

In one sense, this is a remarkable achievement—five decades ago, when the global population was half what it is today, catastrophists like Paul Ehrlich were warning that the world faced mass starvation on a biblical scale. Today, with nearly seven billion mouths to feed, we produce so much food that we think nothing of burning tons of it for fuel.

Or at least we think nothing of it in the West. If the price of our breakfast cereal goes up because we're diverting agricultural production to ethanol or biodiesel, it's an annoyance. But if the price of corn or flour doubles or triples in the Third World, where according to Mr. Brabeck-Letmathe people "are spending 80% of [their] disposable income on food," hundreds of millions of people go hungry. Sometimes, as in the Middle East earlier this year, they revolt.

"What we call today the Arab Spring," Mr. Brabeck-Letmathe says over lunch at Nestle's world headquarters, "really started as a protest against ever-increasing food prices."

Mr. Brabeck-Letmathe has extensive experience at the intersection of food, politics and development. He spent most of his first two decades at Nestlé in Latin America. In 1970, he was posted to Chile, where Salvador Allende's socialist government was threatening to nationalize milk production, and Nestlé's Chilean operations along with it. He knows that most of the world is not as fortunate as we are.

"There is a huge difference," he says, "between how we live this crisis and what the reality of today is for hundreds of millions of people, who we have been pushing back into extreme poverty with wrong policy making." First there's the biofuels craze, driven by concerns over energy independence, oil supplies, global warming and, ironically, Mideast political stability.

Add to that, especially in Europe, a paralyzing fear of genetically modified crops, or GMOs. This refusal to use "available technology" in agriculture, Mr. Brabeck-Letmathe contends, has halted the multi-decade rise in agricultural productivity that has allowed us, so far, to feed more mouths than many people believed was possible.

Then there is demographics. Recent decades have seen "the creation of more than a billion new consumers in the world who have had the opportunity to move from extreme poverty into what we would call today a moderate middle class," thanks to economic growth in places like China and India. This means a billion people who have "access to meat" for the first time, Mr. Brabeck-Letmathe says.

"And the demand for meat," he says, "has a multiplier effect of 10. You need 10 times as much land, 10 times as much [feed], 10 times as much water to produce one calorie of meat as you do to have one calorie of vegetables or grain." Even so, we are capable of satisfying this increased demand—if we choose to. "If politicians of this world really want to tackle food security," Mr. Brabeck-Letmathe says, "there's only one decision they have to make: No food for fuel. . . . They just have to say 'No food for fuel,' and supply and demand would balance again."

If we don't do that, we can never hope to square the drive for biofuels with the world's food needs. The calories don't add up. "The energy market," Mr. Brabeck-Letmathe argues, "is 20 times as big, in calories, as the food market." So "when politicians say, 'We want to replace 20% of the energy market through the food market,'" this means "we would have to triple food production" to meet that goal—and that's before we eat the first kernel of what we've grown.

Even if we could pull this off, we will never get there by turning our backs on genetically modified crops and holding up "organic" food as the new gold standard of safety, purity and health. Organic production is all the rage in the rich West, but we can't "feed the world with this stuff," he says. Agricultural productivity with organics is too low.

"If you look at those countries that have introduced GMOs," Mr. Brabeck-Letmathe says, "you will see that the yield per hectare has increased by about 30% over the past few years. Whereas the yields for non-GMO crops are flat to slightly declining." And that gap, he says, "is a voluntary gap. . . . It's just a political decision."

And it's one thing for rich, well-fed Europe to say, as Mr. Brabeck-Letmathe puts it, "I don't want to produce GMO [crops] because frankly speaking I don't want to produce so much food." That, he says, he can understand.

What's harder for him to understand is that Europe's policies effectively forbid poor countries in places like Africa from using genetically modified seed. These countries, he says, urgently need the technology to increase yields and productivity in their backward agricultural sectors. But if they plant GMOs, then under Europe's rules the EU "will not allow you to export anything—anything. Not just the [crop] that has GMO—anything," because of European fears about cross-contamination and almost impossibly strict purity standards. The European fear of genetically modified crops is, he says, "purely emotional. It's becoming almost a religious belief."

This makes Mr. Brabeck-Letmathe, a jovial man with a quick smile, get emotional himself. "How many people," he asks with a touch of irritation, "have died from food contamination from organic products, and how many people have died from GMO products?" He answers his own question: "None from GMO. And I don't have to ask too long how many people have died just recently from organic," he adds, referring to the e. coli outbreak earlier this year in Europe.

Nestlé itself has at times been painted as an enemy of the world's poor—for 30 years it has contended with a sporadic boycott movement over the sale and marketing of infant formula in the Third World, a push that some rich Westerners find unethical. On the other hand, under Mr. Brabeck-Letmathe, Nestlé's corporate strategy has emphasized that all food markets are intensely local. Americans may increasingly buy all drinks by the gallon and chocolate bars by the pound, but in many parts of the world a trip to the store might yield a single Maggi cube—the Nestlé-made bullion cubes that are ubiquitous in many countries. In these countries, single servings of many products are sold in little foil packets to allow people to match their spending to their cash flow.

This is, Mr. Brabeck-Letmathe contends, an extension of Nestlé's original reason for being. Nestlé exists, Mr. Brabeck-Letmathe says, because as Europe's population "urbanized," as people moved to the cities and traded their ploughshares for time cards, "somebody had to ensure that people" who worked 12 hours a day in a factory could feed themselves. For the first time in history, "you need[ed] a food industry. You need[ed] somebody who takes a product, who treats it so that its shelf life allows it to be transported, to be brought into the consumption center. That's why we have canning, that's why we have pasteurization, that's why we have all these things."

The vast majority of us would have no idea any longer how to feed ourselves if we turned up one day to find the supermarket empty. We rely on industrialized food production, distribution, preservation and storage to make our urban lifestyles, our very lives, possible. And "it was not the state that took care of this thing. It was private initiative." Today, Nestlé employs some 300,000 people, takes in some $100 billion a year in revenue—and yet represents just 1.5% of a global food industry that feeds billions.

But for private initiative to work that kind of miracle, you need a market. Mr. Brabeck-Letmathe even worries about the absence of a functioning market for water. Some 98.5% of the fresh water the world uses every year goes to agricultural or industrial use. And in most cases, there is no market for how that water is allocated and used. The result is waste, overuse and misuse of the water we have. If we don't do something about that, Mr. Brabeck-Letmathe fears, we will soon run ourselves dry.

Up to now, he says, our response to water shortages has focused "on the supply-side": We build another dam, or a canal to bring water from one place to another. But "the big issue," he contends, "is on the demand side," and the "best regulator" of demand is prices.

"If oil becomes scarce," he notes, "the oil price goes up. But if water does, well, we still pump the same amount. It doesn't matter because it doesn't cost. It has no value." He drives this point home by connecting it back to biofuels: "We would never have had a biofuel policy—never," he contends, "if we would have given water any value." It takes, Mr. Brabeck-Letmathe says, "9,100 liters of water to produce one liter of biodiesel. You can only do that because water has no price."

He cites Spain as an example of an agricultural sector in need of adjustment. "The total [output] of the Spanish agricultural system," he says, "is less in value than the subsidies they receive between the Common Agricultural Policy, the subsidies for tax relief, the subsidies for water."

'Take away the emotion of the water issue," Mr. Brabeck-Letmathe argues. "Give the 1.5% of the water [that we use to drink and wash with], make it a human right. But give me a market for the 98.5% so the market forces are able to react, and they will be the best guidance that you can have. Because if the market forces are there the investments are going to be made."

The world's population is projected to hit nine billion by mid-century, up from 6.7 billion today. So, can we feed all those people? Mr. Brabeck-Letmathe doesn't hesitate. "We can feed nine billion people," he says, with a wave of the hand. And we can provide them with water and fuel. But only if we let the market do its thing.

Mr. Carney is editorial page editor of The Wall Street Journal Europe and coauthor of "Freedom, Inc.," (Crown Business, 2009).

Friday, September 2, 2011

What I Read Today - Friday September 2, 2011

From: The New York Times

The Vigorous Virtues

There’s a specter haunting American politics: national decline. Is America on the way down, and, if so, what can be done about it?

The Republicans, and Rick Perry in particular, have a reasonably strong story to tell about decline. America became great, they explain, because its citizens possessed certain vigorous virtues: self-reliance, personal responsibility, industriousness and a passion for freedom.

But, over the years, government has grown and undermined these virtues. Wall Street financiers no longer have to behave prudently because they know government will bail them out. Middle-class families no longer have to practice thrift because they know they can use government to force future generations to pay for their retirements. Dads no longer have to marry the women they impregnate because government will step in and provide support.

Moreover, a growing government sucked resources away from the most productive parts of the economy — innovators, entrepreneurs and workers — and redirected it to the most politically connected parts. The byzantine tax code and regulatory state has clogged the arteries of American dynamism.

The current task, therefore, is, as Rick Perry says, to make the government “inconsequential” in people’s lives — to pare back the state to revive personal responsibility and private initiative.

There’s much truth to this narrative. Stable societies are breeding grounds for interest groups. Over time, these interest groups use government to establish sinecures for themselves, which gradually strangle the economy they are built on — like parasitic vines around a tree.

Yet as great as the need is to streamline, reform and prune the state, that will not be enough to restore America’s vigorous virtues. This is where current Republican orthodoxy is necessary but insufficient. There are certain tasks ahead that cannot be addressed simply by getting government out of the way.

In the first place, there is the need to rebuild America’s human capital. The United States became the wealthiest nation on earth primarily because Americans were the best educated.

That advantage has entirely eroded over the past 30 years. It will take an active government to reverse this stagnation — from prenatal and early childhood education straight up through adult technical training and investments in scientific and other research. If government is “inconsequential” in this sphere, then continued American decline is inevitable.

Then there are the long-term structural problems plaguing the economy. There’s strong evidence to suggest that the rate of technological innovation has been slowing down. In addition, America is producing fewer business start-ups. Job creation was dismal even in the seven years before the recession, when taxes were low and Republicans ran the regulatory agencies. As economist Michael Spence has argued, nearly all of the job growth over the past 20 years has been in sectors where American workers don’t have to compete with workers overseas.

Meanwhile, middle-class wages have been stagnant for a generation. Inequality is rising, and society is stratifying. Americans are less likely to move in search of opportunity. Social mobility has been flat for decades, and American social mobility is no better than European social mobility.

Some of these problems are exacerbated by government regulations and could be eased if government pulled back. But most of them have nothing to do with government and are related to globalization, an aging society, cultural trends and the nature of technological change.

Republicans have done almost nothing to grapple with and address these deeper structural problems. Tackling them means shifting America’s economic model — tilting the playing field away from consumption toward production; away from entitlement spending and more toward investment in infrastructure, skills and technology; mitigating those forces that concentrate wealth and nurturing instead a broad-based opportunity society.

These shifts cannot be done by government alone, but they can’t be done without leadership from government. Just as the Washington and Lincoln administrations actively nurtured an industrial economy, so some future American administration will have to nurture a globalized producer society. Just as F.D.R. created a welfare model for the 20th century, some future administration will have to actively champion a sustainable welfare model for this one.

Finally, there is the problem of the social fabric. Segmented societies do not thrive, nor do ones, like ours, with diminishing social trust. Nanny-state government may have helped undermine personal responsibility and the social fabric, but that doesn’t mean the older habits and arrangements will magically regrow simply by reducing government’s role. For example, there has been a tragic rise in single parenthood, across all ethnic groups, but family structures won’t spontaneously regenerate without some serious activism, from both religious and community groups and government agencies.

In short, the current Republican policy of negativism — cut, cut cut — is not enough. To restore the vigorous virtues, the nanny state will have to be cut back, but the instigator state will have to be built up. That’s the only way to ward off national decline.