View from the West Lea

CristalNacht

2010-06-24T14:08:00.000-07:00

I couldn't pass up the pun, although I admit that the Nazi rampage against Jewish shops during the CristalNacht of the 1930's was far more nefarious than President Obama's sacking of General McChrystal. What is now clear is that Afghanistan is Obama's war.

The best comment I have read about the situation appeared in the Wall Street Journal on June 23: a think piece by Elliot A. Cohen who presently teaches at the Johns Hopkins University and who has been a student of wartime leadership issues.

While McChrystal has erred and Cohen opined that he would have to go, he wrote that the problems were not the General's fault. Cohen believes that the Obama administration made three large errors in the conduct of the Afghan war.

First, it assembled a dysfunctional team of McChrystal, Eikenberry and Holbrooke, three quite able men but who, as anyone who knew them would have predicted, could not work together effectively, to carry out the agreed policy. General Eikenberry is a former Army commander in Afghanistan and holds views on the war very different from those of McChrystal. He also loathes Afghan President Karzai. Holbrooke, a diplomatic powerhouse, added yet another layer of command into the already difficult relationships.

Second, the Administration engaged in an excruciating strategy review last fall during which its internal dissensions became public. The leaks from the process revealed that Vice President Biden's view of how to conduct the war differed strongly from those of Secretary of Defense Gates and Secretary of State Clinton. The process was unnerving to the military staffs charged with conducting the war.

Third, and the most damaging, was President Obama's speech at West Point in December 2009 in which he put his own ambivalence about the war on public view and announced that troop withdrawal would begin in July 2011. This blunder demoralized the American side while elating the enemy. They now only have to hang in for another year or so and the Americans will be gone.

General McChrystal's forced resignation perhaps moves to reinstate an American tradition of military deference to civilian authority. But it certainly does nothing to enhance the conduct of what is at best a difficult attempt to bring peace and civility to a badly damaged expanse of territory. Under the best of circumstances Afghanistan presents a difficult situation. It is essentially a failed state with little central authority, little and poor infrastructure, very low levels of human capital and almost nothing that resembles a national identity.

Efforts to build a nation from this melange and at the same time defeat a well established insurgency would tax the resources of any nation. I fear that the results of American efforts will not be pretty. Afghanistan should not be the sole conceern of the US, but I see no movement on the part of NATO allies to become further involved, instead, there appears to be a lessening of support. I do not believe that the American public, especially Obama's liberal supporters, have the patience to put up with a long, difficult and costly exercise for what I think is perceived as little gain.

The countries most at risk are not actually the US but Afghanistan's neighbors, especially Pakistan. Attitudes in Pakistan are clearly ambivalent as the governmenmt strives to contain insurgency and loss of control along its western border, but at the same time resentful of American influence (the US is perceived as anti-Muslim as well)and so it positionins itself to be a factor, at least in southern Afghanistan, when the Americans move out as expected.

Islamic extremists and the export of drugs are no bargains for the "Stans" to the north nor for Russia, but this commonality of risk hasn't evoked much in the way of support for the US, some but not much. A past "cold war" mentality and Russian resentment of its lowered status in world affairs seem to overcome a more realistic view of its true interests in the region.

And so what will be the final output? Who knows, but I can foresee the possibility of a gradual phase out of support from the US and the evolution of some sort of political settlement in Afghanistan that provides cover for a Western exit but leaves Afghanistan essentially unchanged.

Accleration

2010-06-17T13:40:00.000-07:00

I've not blogged for awhile but would like to restart! In the meantime events seem to have accelerated rapidly leaving a host of prospective topics but with the danger of moving too rapidly really to pin down. Since February developments in general don't seem to have improved, but rather to have deteriorated.

In foreign affairs the same cast of characters prevails:

Afghanistan - still a mess and I fear that the trends are not favorable.
Iraq - we're not out of this country yet and the poltitics still don't seem especially stable.
Iran - the repressive mullahs seem firmly entrenched and hell bent on exporting extremism and building nuclear capacity.
Venezuela - one could think that Hugo Chavez is in difficulties but he's still in charge and still an enemy.
North Korea - the regime seems fragile but China will prop it up to avoid having 25 million starving Koreans head north while South Korea, Japan and the US sort out an appropriate approach.
China - where is it going politically and economically and what does the US do about it, assuming it can do anything.
Japan - its new political party in power has stumbled and the country still lacks a coherent policy to overcome economic stagnation and an aging population.
Pakistan - is this country for real, or is it a failed state. Should the US just bank on India as the leading partner in South Asia?

In terms of US domestic issues events seem even more confused. We have a very unhappy electorate that seems determined to "throw the rascals out" even though we're not sure who they are. It does seem clear that Barack Obama has lost a lot of traction. Many, many citizens are unhappy with the ever rising public deficit. They're also stressed out by continuing high unemployment and the housing crisis. I suspect that the Health Care Reform legislation as it enters into force and begins affecting people's health care, often in negative ways, could well generate a back lash against this administration and its adherents. The administration is also conflicted between the need to show some signs of fiscal probity but at the same time maintain a level of fiscal stimulus and pay offs to its liberal constituents. Bank and financial regulation is another potential land mine. Forced reductions in bank fees may well lead to other charges, like fees on checking accounts. And finally there is the little matter of the oil spill in the Gulf of Mexico that threatens the lives of people in four states. The Obama administration's response has not been especially adept - admittedly it has been a disaster on an unprecedented scale - but using the crisis as a crutch for a "green" approach to energy conservation including carbon caps and oil drilling moratoria is not likely to play out well. This doesn't seem to be a particularly good time for America. It must be all those illegal aliens causing the problems.

As I find time I'll try to spend more time on selected issues not that I have any solutions either. So until later, I leave you to watch the accelerating world events.

Military Doctrine

2010-02-08T09:59:00.000-08:00

The fiscal 2011 Department of Defense budget proposal totaling $707 billion has just been presented to Congress. At the end of the Clinton Administration the DOD budget was running around $300 billion. Things have changed for us since 9/11/01. Among the changes is an effort to revise standard US military doctrine.

During my high school years - I graduated in 1949 - the immediate Post World War II world was fracturing into blocks. The Union of Soviet Socialist Republics (USSR) extended its zone of control westward into Central Europe and by 1948 had made clear that its hegemony included the Baltic states, eastern Germany, a part of Austria, and Poland, Czechoslovakia, Hungary, Romania and Bulgaria. A civil war in Greece was brought to an end with the Communists losing and Communist unions in Italy were also unsuccessful in assuming full political power. But Communist control over Europe was a close thing and in 1949 in response the US spearheaded the creation of the North Atlantic Treaty Organization (NATO) to support western European defense collaboratively against the threat posed by the USSR. It gave up control over Iranian Azerbaijan, but the USSR fully occupied the formal Imperial territories of Central Asia and Siberia, including those southern Kurile islands that had belonged to Japan. The USSR's client states included North Korea and it was an early supporter of the Chinese communists. In sum the USSR was a major international power with a strong military presence.

The year 1949 also saw the forced departure of the Nationalist Chinese Government from mainland China to Taiwan. The People's Republic of China as the political manifestation of the Chinese Communist Party assumed control of the mainland and was not a friend of the United States. This became abundantly clear when the PRC intervened in the Korean conflict late in 1950 with harsh consequences for the US forces engaged. Another large, if impoverished, international power had thus come into being, and also one with a large military establishment.

Thus early on in the post WW II environment the US found itself confronted with serious potential enemies capable of engaging in war to the east and to the west. Resulting US military doctrine was to prepare to conduct two major wars simultaneously. Equipment procurement, force levels and force positioning were all tailored to meet this requirement. As part of a general "containment" policy to keep its enemies from expanding, the US entered into war against the North Vietnamese communists, who initially were supported mostly by the USSR but later by the PRC. During the period of the conflict, 1962 - 1975, the US was careful, perhaps too careful, not to risk an open intervention by the PRC.

A decade or so after US departure from Vietnam world conditions were changed. The USSR had engaged in a war in Afghanistan that was failing and simultaneously highlighting the failure of its economy to keep pace with the west. China and the US had diplomatic relations and Premier Deng was pushing China to get rich, which could only be done by attracting foreign investment and export markets.

The USSR abandoned Afghanistan in 1989, the government changed and in 1991 the USSR imploded. Not only did the satellite states of Eastern Europe become truly independent and non-communist, but Socialist Republics like Belorus, Ukraine, Georgia, Armenia, Azerbaijan and the "Stans" of central Asia also became independent. The European boundaries of the successor state, the Russian Federation, were pushed eastward to limits not seen in 300 years. Today's Russia is resentful and strives to restore some of its lost glory as an international power, but its population of 141 million, and declining, and it economic dependence on oil and sales of other commodities, shielding a weak industrial base make very unlikely that Russia can or will mount a serious military threat to Europe. This suggests that NATO may well have lost its validity: thousands of battle tanks rumbling across the plains of northern Europe are now, I think, pure fantasy.

In contrast to the USSR, the People's Republic of China has, especially since the late 1990's, become the 800 pound gorilla of the global economy. A large number of its 1.3 billion people are not poor, as attested by 2009 automobile sales of around 11 million vehicles, and its emergence as the world's largest exporter and soon to be second largest national economy can only reshape global order. Incidentally, its holdings of a trillion dollars in US debt instruments implies a serious interrelationship between China and the US which neither side can discount in policy decisions.

So Defense Secretary Robert Gates' pitch that the two war scenario no longer holds and that US military doctrine needs to adjust is surely based on a logical reading of today's world. We now have close to 200,000 troops engaged in combat over a wide swath of the middle east without a single battle tank or self-propelled long range cannon employed. The single most important cause of death to American forces is the improvised explosive device put together from cheap ingredients in isolated houses and hidden alongside roads used by our forces. We are obviously engaged in asymetrical warfare.

That China represents a potential, if not actual threat, to its neighbors if not directly to us, is sound doctrine. But what the current situation requires is not lots of supersonic jets, immense tanks, nuclear powered battle cruisers but auto-piloted drones, helicopters, armored but agile combat vehicles and an emphasis on small force operations. There also has to be a focus on community outreach and civil government. So a military doctrine of preparation for maybe one war and a lot of anti-insurrection brush fires would seems logical.

Unfortunately logic runs into politics. Every item and services procured by the DOD involve somebody's congressional district. National interest and logic be damned! Members of Congress will fight tooth and nail to preserve every bit of cash flow destined to their respective districts. And this ignores all those "earmarks" that tailor additional funds for truly "special interests". To be fair, not only politicians resist change but senior members of each of the military services look askance at changes in relative status in total funding flows, threats to funding of strongly desired new systems or equipment and threats of a reduced role in future military operations. Everybody guards their turf!

Secretary Gates and allies were successful in the 2009 budget cycle in sharply reducing expenditures for the F-22 fighter plane. It was a tough battle that they barely won. This year's targets for removal include an alternative engine for the F-35 at a cost of a billion or so and $2.5 billion for new C-17 transport planes the USAF says it doesn't need. Small potatoes in a 700+ billion budget, but every bit counts. The "military-industrial" complex has fewer major players these days what with mergers among the giants, but its capacity to battle for money from Congress remains unparalleled.

Progress in reforming US military doctrine will not doubt be slow but it is clearly necessary.

Iraq

2010-02-01T15:24:00.000-08:00

I have just completed a biography of Gertrude Bell, essentially the founder of Iraq. Gertrude was born in Middlesbrough in 1868. She was the granddaughter of Isaac Lowthian Bell, a polymath who studied physics and chemistry in Scotland, Denmark, Germany and France. Joining his father's iron works, Lowthian Bell developed new and better steel making processes and in 1844 established Bell Brothers which became the largest and most influential iron, steel and limestone enterprise in Yorkshire. He was also a noted scientist and served as a Liberal Party member in Parliament for five years as well as having been Mayor of Newcastle twice and Sheriff of Durham County.

His son, Thomas Hugh Bell, was equally bright and also educated in France and Germany with emphasis on Chemistry. He took over the family enterprise and enhanced its business. He was also a strong advocate of public education and spoke around the country pushing for education, health and military reform. Gertrude Margaret Lowthian Bell carried on the family tradition of being extremely bright and very energetic. While accepting of many of the Victorian strictures on behavior she never accepted that women couldn't do anything they wished and in this she was encouraged by her father. She was a voracious reader and got away from home to attend a girls' college in London. She then moved on the Oxford where in 1888 she was the first woman ever to receive a "first" in Modern History.

At 20 she was a snob, an aristocrat, very self assured and one who did not suffer fools glady. She had no suitors and had failed in her primary Victorian duty of finding a husband. The family shipped her off to Bucharest where a relative was the British Ambassador and she spent a social season there ending with a trip to Constantinople which she found fascinating.
Still unmarried at the age of 23 she was sent off to the relative's household now in Tehran where he was ambassador. She learned Persian and enjoyed the country. She met a man she wanted to marry but the family found him unsuitable. She returned to England, published a translation of the Persian poet, Hafiz, that is still considered one of the best. Her love interest had died of pneumonia. Gertrude had always been strong and she took up mountain climbing, mostly in the Alps, at which she became world class. She and her father took a trip around the world but without much else to do she decided in 1899 to travel to Jerusalem to study Arabic.

There with some German friends she began to travel in the desert. Among the places visited was Petra, the ancient cliff city. On one trip she went to the north to Druze-controlled territories. Despite their fearsome reputation she made friends with the tribal leaders. After returns to England, more world travel and more mountain climbing she returned early in 1905 to Palestine. This time she traveled for several weeks, accompanied by only a handful of locals, as far east as Palmyra, a former major capital. For Gertrude that was the beginning of many trips into the desert. By 1911 she had traveled through Baghdad and far to the south, becoming increasingly knowledgeable of both the people and the geography. By November 1913 she was back from England and anxious to travel even further. She undertook to leave from Damascus and with only a handful of locals to travel into what is now Saudi Arabia to meet with Ibn Saud, the head of a leading tribe of the Nejd. After two months on the road Gertrude and her party got as far as the Rashid capital in the northern part of the Arabian desert where she was held captive for some weeks and then found it expedient to return to Damascus.

In the course of her travels during which she compiled detailed accounts of archeological sites, terrain and especially the tribal makeup of the region, including detailed geneologies, she had developed enduring friendships and acceptance from a large number of the leading Arabs in the area in which over meals, coffee and cigarettes - usually in their tents - she was able to converse in fluent Arabic about a host of topics. So by the advent of World War I she was a leading if not the leading British human respository of knowledge about the Arab middle east.

From late 1914 until her death in 1927 she was connected sometimes officially and some times informally with the British Government's efforts in the Middle East. She started first with the "Arab Bureau" in Cairo but was posted to Basrah, the port at the mouths of the Tigris and Euphrates to serve as liaison between Cairo and the Government of British India in Delhi. In 1916 she received a formal appointment as "Political Officer", the first woman ever to be so appointed. She had met T.E. Lawrence in 1911 and they were close friends although with different views on occasion. Her mentor and boss for many years was Percival Cox, a remarkable Middle East expert who was the High Commissioner for Mesopotamia for several years after 1918. Gertrude served as "Oriental Secretary" (head of intelligence) and acted as liaison between the High Commissioner's office and the Arab leadership. She was a very close advisor and confidant to Cox.

Viewing Mesopotamia (the land between the rivers) at the beginning of the 20th century and today's Iraq reveals tremendous differences but some underlying legacies. Baghdad had been the capital of the Abbasid Caliphate, at its peak 11 centuries ago, but which in some form or other had survived until 1258 when a Mongol invasion destroyed the city and brought an end to Arab self-rule. By the 14th century political authority had passed to the Turks who administered much of the known world from Constantinople. During Gertrude Bell's travels the area was lightly administered by the Ottoman Government and as long as taxes were paid and Turkish security not threatened, the locals lived in autonomy. There was no sense of nationality, people belonged to tribes, or clans or were tied to a locality. Outside of these ties there was no sense of identity. Most of the Arabs were illiterate and knew very little about anything outside their locale. Essentially the residents of Basrah and the agricultural communities of the south were Shiite, Baghdad and the central areas were Sunni while in the north around Mosul the people were mostly Kurds. There was no boundary between the settled areas and central Arabia. In the areas beyond the coast or the river valleys nomads from central Arabia wandered at will.

The navy's of the world shifted at the end of the 19th century from coal to petroluem as fuel. Ironically, none of the western European powers had oil. Britain and Germany had lots of coal but were dependent on foreign sources for oil. Britain had established the Anglo-Persian Oil Company and its refinery at Abadan was a major source of fuel. In 1914 the British Indian Army seized Basrah to protect its nearby refinery and to control the Persian Gulf. Its Army moved north to take Baghdad but with poor leadership, bad logistics and no knowledge of the terrain the effort ended badly. Mid-way between Basrah and Baghdad, at Kut, the British Army surrended to the Turks and 13,000 troops were marched off to captivity.

What the British needed and eventually got was an Arab revolt against the Turks. With Ms. Bell's knowledge, Lawrence's audacity and thousands of pounds sterling, the British and Arab forces eventually got to Damascus. The Ottoman Empire surrended in the summer of 1918 leaving the British and French to squabble over dividing the spoils. The French staked out Syria despite its independent Arab Government established in 1919, leaving the British to organize Mesopotamia. Gertrude actually drew the map for the new country, to be called Iraq, and it was her decision to combine three Turkish provinces, Mosul, Baghdad and Basrah into one political unit. In retrospect her decision appears sound. There were known oil sources in the north and inclusion of Mosul secured Iraq's northern border from the Turks and the Kurds, being Sunni, helped balance the majority of Iraqis who were Shiite. Baghdad was the only major city and its Sunni leadership and urban population were needed to form a center for the country.

Getting Iraq up and running was not easy. Many if not most of the Arab tribes were opposed to the British occupation and there were a number of insurrections. The British used aircraft and machine guns but still found it difficult to bring the country under control. The British Government complained that it had cost 50 million pounds in one year to operate in Iraq. Winston Churchill called a conference in Cairo in 1921 where 40 of those involved were gathered to work out a solution. Gertrude was the only woman among the 40.

Finally the British set up a League of Nations Mandate that was somewhat disguised by organizing a local government and bringing in a King, Feisal from the Hashemite family of the Hejaz (Mecca, Jiddah and Medina). Feisal had been bounced out of his kingship in Syria by the French. He was inaugurated in Baghdad in 1921 despite less than enthusiastic support from the Iraqis. His closest advisor for a couple of years was Gertrude Bell. But by 1925 Cox had left Iraq, the new High Commisioner was polite but did not utilize Bell's services and she ended her career in Iraq as the Director of Antiquities and founder of the Museum of Antiquities in Baghdad. She had personnally collected many of the artifacts displayed.

By 1927 she was severely depressed, her family's fortune had disappeared, and she had no friends or confidants. She was also in frail health. So one night she took extra sleeping pills and did not awake.

Looking at the range of her accomplishments she has to be considered one of the world's most important women of the 20th century. She probably was the single most important person in the creation of Iraq as a country. Her handiwork became independent in 1932 and has had a pretty rocky history. But through it all is has developed a fair degree of national identity, a significant degree of modernization and, it appears, may even have a future.

Brand Nostalgia

2010-01-26T10:43:00.000-08:00

When we moved to Arizona we bought new, front-loading laundry equipment. The units carried the brand name of Frigidaire. This boggled my mind! Frigidaire, as a division of the General Motors Corporation, had been a pioneer in the refrigerator business and had been a leading brand for perhaps 50 years. I don't recall when GM abandoned refrigerators, but the current manufacturer is Electrolux. Another shock: Electrolux is a Swedish company that pioneered the use of tank-type vacuum cleaners in America shortly after World War II. Prior to Elextrolux it seems that all vacuum cleaners were uprights made by Hoover. In England Hoover became a generic term and one cleaned house by "hoovering". And so now we have a washing machine made by a Swedish vacuum cleaner maker and featuring a refrigerator brand name. Incidentally front loading washing machines were made in the forties and were popular among laundromats. They were made by a company called Bendix.

Our new refrigerator is not a Frigidaire, but a Samsung. Now we have Samsung, LG and Haier in the market, a market dominated some decades back by the likes of General Electric and Westinghouse. The GE brand is still around, it's just that GE doesn't own it. Westinghouse, once a large industrial conglomerate, has largely disappeared. There is a Westinghouse company involved in nuclear power, but it is foreign-owned, Japanese I think. The original George Westinghouse invention, an air brake for railroads, soldiers on as WABCO, the Westinghouse Air Brake Company.

As to automobile name plates, another story of lost brands. General Motors invented the nameplate for each market niche technique and by World War II it had Chevrolet, Pontiac, Oldsmobile, Buick, LaSalle, Cadillac and GMC for trucks. In the 1920's when the American industry made over 80% of the world 's automobiles and exported product worth billions of dollars, GM expanded abroad by buying Vauxhall in Britain and Adam Opel in Germany. It also had the Holden company in Australia. LaSalle didn't survive WWII but under attack from Japan GM developed a supposedly alternative car line, Saturn. It also bought into the Isuzu company in Japan and more recently bought SAAB in Sweden. Now as it struggles to survive, Oldsmobile has already been jettisoned and Pontiac, Saturn and SAAB are on the block. I don't think it is tied to Isuzu anymore but it did buy the manufacturing assets of a Korean company, Daewoo (Aveo). GM's most attractive market opportunity may well by China where it has done well.

Henry Ford was only comfortable making Model T's in the color black. But Ford Motor followed the trend in settting up Ford England and buying Taunus in Germany. It also came out with more upscale nameplates in Mercury and Lincoln. In Japan they tied in with Toyo Kogyo KK the maker of Mazda automobiles and went into upscale European companies by buying Jaguar,Land Rover and Volvo. Now things are looking pretty good as it avoided bankruptcy and has dumped its British affiliates. Volvo may well be the next to go.

Walter Chrysler put together the third ranking US automobile company starting with Dodge Brothers and eventually producing under five name plates: Plymouth, Dodge, DeSoto, Chrysler and Imperial. Overseas Chrysler bought the English Rootes Group maker of Hillman automobiles and a French company, Simca. In Japan they bought an interest in Mitsubishi Motors. DeSoto and Imperial disappeared some years back but Chrysler bought American Motors, makers of the Jeep. The company's European operations were closed some years ago also and a few years back it became a wholly-owned subsidiary of Daimler-Benz. I think the ties with Mitsubishi ended and today's Chrysler is owned by the US Government with a minority interest and operational control held by Fabrica Italiana Automovilistichi de Torino (FIAT).

But when I learned to drive 60 plus years ago there were lots of American automobile brands. Willys-Overland made small sedans in the 1930's but it's claim to fame came from successfully developing a general purpose (GP) vehicle for the US Army. Jeeps were made in the millions and made the transition to civilian life but the company didn't. Nash made small and medium sedans as well. It had one model in the 1950's that looked like an inverted bathtub. If I remember correctly it merged with Willys and possibly Kaiser to form American Motors, later acquired by Chrysler as noted above.

Packard was a well regarded luxury car that competed with Cadillac but in the 1940's it developed a defective engine and it just couldn't keep up with the costs of new car development given its small revenue base. It merged with Studebaker. This company had begun life in Indiana making "Conestoga" wagons. It tried to capture market share in 1949 with a Raymond Loewy designed car that had a pointed front end that looked like an aircraft nascelle. There were jokes about not being able to tell which end was which. But Studebaker-Packard didn't survive.

In college I drove a 1949 Hudson and the family had a 1952 model. My dad had liked Hudsons in the old days but this make didn't survive either. An Oakland, California industrialist, Henry J. Kaiser decided he could break into the automobile business and along with a partner, Fraser, set up Kaiser-Fraser. Kaiser was the lower priced nameplate with Fraser a bit more upscale. My Uncle Hank and Aunt Joyce bought a 1950 Kaiser which I drove on occasion. This company didn't survive either as none of the smaller firms could compete with the big three in terms of development and marketing money.

In contrast to the shrinkage of American made car brands, in Japan the same 9 nameplates that were in the market 50 years ago when I first went there still survive. These were Toyota, Nissan, Honda, Mazda (Toyo Kogyo), Subaru (Fuji Kogyo), Mitsubishi, Isuzu, Suzuki and Hino for trucks and buses. Toyota dominates the local market with Honda probably second now. Nissan, which used to use the Datsun name plate in the US, is now controlled by Renault of France. I think there are ties now between Toyota, Fuji Kogyo,Hino and perhaps Isuzu. Japan has also dominated the motorcycle market with three brands, Honda, Suzuki and Yamaha. Of these, Honda has obviously been the most successful in transitioning from two-wheelers to cars, Suzuki is a late comer and Yamaha hasn't tried.

So brands, market players and market shares have all changed since my youth. For the better?

Sheep, Wolves and Would-be Shepherds

2009-12-20T07:27:00.000-08:00

The title is not original. I've taken it from political pundit Michael Barone. His theme is one that I have thought about often through the years. It's basic thrust is that most people are stupid, or at least unable to manage their own affairs, and thus are like sheep. Wolves prey on sheep, wolves being greedy landowners, rapacious robber barons, sharp bankers, unethical industrialists and others who profit from the weakness of sheep. For them protection from the predation of wolves come from those bright and good souls who appoint themselves "shepherds" and who take the measures necessary to keep the wolves in check.

At the turn of the 20th century Theodore Roosevelt and his progressive allies assumed this role and were instrumental in the passage of legislation that reined in unethical financiers, industrialists and their ilk and provided protection to the general population. During Franklin Roosevelt's presidency he could still speak of the mass of Americans who were ill-fed, ill-clothed and ill-housed (and who could thus be classified as sheep to be protected by New Deal shepherds.

Barone's point made recently is that things have changed. The great strides in education and material wealth have made it increasingly difficult in today's America to separate sheep from wolves, the latter being people with the means and talent to manage their own affairs. Thus the whole question of a need for "shepherds" arises.

Nevertheless there is stil a school of thought, most often held by the "progressive" wing of the Democratic Party, that bright and well educated people - usually them - have an obligation through government to manage the affairs of the many who may be assumed not to have the talent to handle their own affairs competently. In a word, they must be protected from themselves by people of good intentions and high intellect who understand their needs. A manifestation of this attitude was the Democrats reaction to George W. Bush's proposal to privatize Social Security. It was shock! Tey all knew that if you allowed ordinary citizens access to their retirement savings they would gamble them away on slot machines or be gulled into bad investments, winding up at retirement age with few funds. Only government in the form of the Social Security Administration stands between them and ruin.

There is some truth to this concept as, unfortunately, there is a significant number of citizens who do lack competence in managing their affairs, but the concept also embodies arrogance and condescension on the part of the self-appointed guardians. It's a very old attitude. We shouldn't forget either that the United States was created not as a democracy but as a republic, with the vote restricted to white male property owners over the age of 25.

I'm not an expert on Plato but I recall something he postulated abouth the best form of government being that of rule by a "Philosopher-King" aided by a group of advisors representative of the middle class. Perhaps in technologically simpler times one could conceive of a single individual knowing most of what was known at the time, but even so it was a dubious proposition. This model, which I call the "Platonic Myth", lived on in the structure of the Roman Empire: an all powerful emperor, advised by a Senate of the worthy and wealthywith an occasional call on the "plebes". A few centuries later this became the Pope, a College of Cardinals and senior clergy, the bishops. Always top down authority imbuing the attitude that the mass below can't be trusted to think for itself, for example by reading the bible. This is the model not only for the Catholic Church but of most Latin American elites. Governments tend to be top down and possessed of the illusion that they can regulate everything. Democracy has had a hard time gaining a foothold and at best can be said to exist truly in only a few of the Latin American nations.

Woud-be shepherds are alive and well in the US today. Rules and regulations governing how we live grow apace. We have the "Nanny State". And now there are dozen of well intentioned if deluded members of Congress who are convinced they have the wisdom and capacity to oversee our complex health system and to reform our environment. Always with legislation hundred of pages in length, incomprehensible complexity and entailing a host of unintended consequences. But never fear, your friendly governmet bureaucrat will save the day!

I do fear and I do not trust the ability of the US Congress to run anything very well, least of all my life.

thisd

Rest Stops

2009-11-03T10:05:00.000-08:00

One of the nice innovations in modern highway travel has been the rest stop. Years ago when cars generally had poor mileage and highways passed through towns and cities frequently, one could stop at a convenient gas station. With the development of the Interstate Highway System and cars that can run over 300 miles on a tank of gasoline, a need for pit stops between gasoline fill-ups became a necessity, hence the freeway rest stop.

Our first extended road travel took place in Europe in 1955. We drove from Pirmasens, Germany through the Loire Valley of France to the Atlantic Coast and then south to San Sebastian, Spain. Passing through Madrid, Valencia and Barcelona we again entered France along its Riviera Coast and into Italy. In Italy we drove through Genoa, Leghorn, Pisa, Florence and Venice before driving through the Alps into Switzerland and then back to our apartment in Germany. Highways were two lanes and passed through every town in sight. Rest stops were a bit of a problem but coffee shops, restaurants and gasoline stations offered relief. What we did notice in many places, especially Germany, that people stopped their cars and relieved themselves along the side of the road. Road travel was slow: in Italy the highway would climb into the mountains and wind and twist until the next important water front when we would descend to sea level and fight urban traffic until the next ascent. We damaged our car hitting a chuck hole in Spain and had to crawl to a nearby small town where a blacksmith reattached the rocker arm for a fee of $2.00 US. In a small town in northern Italy the spectators to a bicycle race politely parted to let us cross the course for a block or two to continue on our way. Climbing through the Swiss Alps the clutch on our 1953 Morris Minor got so hot we had to stop and let it cool off. With a 28 HP motor we had been traveling in 2nd gear. But we were young and adventurous.

Our first cross country trip in the US was in July 1958 when we drove from Brooklyn, NY to San Diego, CA, along with our 13 month-old twins. While President Eisenhower had launched the Interstate Highway program in 1957, there was nothing in place on our route. So stops were motels, restaurants and gas stations and travel was slowed by the need to pass through every town and city on route.

Express highways and rest stops had come into being in the 1930's, however, in limited areas of the East. New York built a series of expressways connecting the city to the suburbs. Examples include the Hutchinson River and Bronx River parkways and the Inter-Boro Parkway. One or two of these parkways had gasoline stations built into the system. Pennsylvania began its Turnpike (a toll road) in the 1930's. We used it for part of our 1958 trip and the traffic had grown enough so that there were backups trying to get through the two lane mountain tunnels that had not been expanded since the 1930's-40's. But the most traveled and perhaps best known was the New Jersey Turnpike which I believe was started just after World War II. Since the turnpikes and expressways bypassed towns and cities, bathroom and fuel facilities had to be provided as adjuncts.

The most successful model of a turnpike rest stop to my mind are those of New Jersey. Large facilities with two different brands of gasoline and an array of fast food outlets, often packed with travelers. Maryland and Delaware followed this model along their Interstate Highways and their rest stops are quite similar. My assumption is that the respective states have granted concessions to the private companies that provide the services and the rest stops are in effect profit centers for the affected Turnpike Authority or state.

In Virginia, Arizona and a number of other states a different model was followed. The rest stops are public facilities, funded with state money that offer rest rooms, picnic areas and a few vending machines. These often are pleasant places to stop. But if you're looking for food or gasoline you leave the Interstate at one of the truly built up exits where one can find up to a mile's length on both sides of gasoline stations, restaurants and motels.

The flaw in this model is public funding. In the current deep recession almost all of the states confront serious fiscal deficits and seek means of cutting expenses. Both Virginia and Arizona have closed at least half of their Interstate rest stops. I don't know the rationale for the public funding option - opposition to fast food concessionaires from merchants in towns near the Interstate, or an aesthetic distaste for the commercialization of rest stops, but the result has been facilities that cost taxpayers instead of those that contribute to state income. In today's economy New Jersey and Maryland are looking good! Cheers to private enterprise!

Institutionalized Hysteria - Take 2

2009-10-19T18:03:00.000-07:00

Back on February 22 - it seems a long time ago - I published a blog criticizing US attitudes in general towards "illicit" drugs. Today the news releases indicate further softening in these attitudes at least towards marijuana. The Department of Justice announced that it would not prosecute marijuana dispensaries in the 14 states where they are legal. Not to give away the store, the announcement went on to say that fraudulent dispensaries and criminal distributors would still be prosecuted. In states where medicinal use of marijuana has been legalized, the growth of dispensaries has been amazing. Obviously there are suppliers who are now legal, assuming their output is strictly for medicinal use. The article, at least in the Washington Post, stated that over half of the profits of the Mexican drug cartels comes from the trade in marijuana so legal dispensaries are not good news.

Interestingly enough a couple of weeks ago there was another article in the Post about the increase in US domestic supply of marijuana driving down the international price for the weed, substantially cutting into foreign dealers' profits. One counter effort by them has been to contract production in the US. They set up a growing facility, supply all the inputs, and contract with an individual, often a Mexican, to deliver a usable crop in something like four months.

The workings of the market place are a wonder to behold. What would happen if marijuana were decriminalized and taxed instead? There would be, I suspect, a bit of chaos on the production side as growers came out of the shadows and open competition began to affect quality, price and distribution. Getting all the producers to be nice and pay taxes might prove a bit tricky, but like Al Capone they could be prosecuted for tax evasion and, importantly, the money would stay in country given an underlying assumption that domestic production can be cost effective and that a tariff on imports would offer protection. Think of the positive effects decriminalization would offer: a) it would sharply reduce income of foreign producers, especially the Mexican cartels which can only be of great social benefit to Mexico; b) it would generate revenue for both federal and local uses if the tax structure were developed properly, substituting for a declining "sin tax", taxes on tobacco; and, c) it would free up a lot of effort on the part of law enforcement, especially the DEA, in trying to inderdict the flow of marijuana, a task in which they have mostly failed. It could even lead in a decline in the budget and employment in the DEA, freeing up money for drug treatment programs and research.

Another hint of the softening of attitudes is yet another legislative attempt in Congress to eliminate the discrepancy in sentencing between those convicted on cocaine possession in powder form (mostly white) and those using crack (mostly black). Given the financial crisis facing the states, anything that will reduce the prison population without necessarily affecting public safety can only be helpful.

As to the argument that legalizing marijuana will expand its use, my understanding is that use has been stable or declining in recent years. I would think that its presumably greater availability if legalized would in terms of demand be countered by its loss of cachet as a blow against the establishment. How can you be a rebel using something that's legal?

In any event, the economic gains alone from decriminalization make it a no brainer in my book. I trust that this time common sense and relaxed attitudes will overcome hysteria.

Health Care Reform?

2009-10-13T15:32:00.000-07:00

I’ve been mulling over writing a piece on the great health reform effort for many weeks now, but it is a moving target. I’m becoming increasingly convinced that the final effort will not be nearly as inclusive as once thought and that whatever comes from the effort may cause more problems rather than reduce their number.

OVERVIEW

When we speak of health we’re talking about a condition affecting everyone of the 300 million plus residents of the U.S. We all exhibit some form of health, good, bad or indifferent. Those of us in less than robust good health often seek remedies. This search has led to a $2.4 trillion economic sector, or about one-sixth of the US Gross Domestic Product. This sector engages literally hundreds of thousands of medically related jobs, thousands of hospitals, clinics, research institutions and manufacturers. There are pharmaceutical and biologic manufacturers in significant numbers along with the distribution mechanisms and retail outlets that distribute the goods and services produced. Numerous government agencies, some at the national Cabinet level, are involved, not to speak of the health insurance industry.

In sum the U.S. health care industry, if you want to call it that, is huge, complex and rife with conflicting interests. There are millions of “stakeholders”, many of whose economic interests and even livelihoods are at stake and many of whom vote. It is not a structure that can be defined clearly nor changed easily. Many if not a majority of Americans are dissatisfied with some or much of the system but at the same time are very concerned over the prospects of change, fearing that their particular situation may be worsened.

From time to time the movers and shakers of our government endeavor to reform the system, applying a “policy” approach. An early example was that of the “Progressives” of the late 19th and early 20th centuries, e.g LaFollette and TR Roosevelt, who worked on finance, industry, transportation and public health. Later Presidents favoring the “policy” approach have been Carter, Clinton and now Obama. The idea is that after proper analysis an overarching, rational approach to the problem can be crafted that will ignore short term vested interests and look to a longer term, sounder program that better fulfills the public interest. Unfortunately the resulting all inclusive legislative proposals, logical and beneficial though they may be, must go to the US Congress, perhaps best described as a “sausage factory” and the embedded home of short term vested interests.

Taking into account the genuine complexities of the overall health system and the lack of a truly sound analytical base on which to build - and adding in the political quagmire that is Congress - probably the only likely movement to change the system will take place at the margin, incremental approaches to selected elements or pieces of the problem.

Some of the elements of the “complexity” of the health system include:

Demographics - Overall the world’s population is aging, but the effect is particularly acute in the developed world. Economist Robert Samuelson in the Washington Post on October 12 quotes the Kaiser Family Foundation to the effect that people 55 years old or over account for half of all US health care expenditures. Those 65 and over account for one-third of such expenditures. As the number of people over 65 increases rapidly the impact in the US is two-fold: the elderly need more and more complex health care and the number of young, healthy people paying in either to retirement or health plans declines.

Environment - climate and our geographic surroundings obviously affect overall health in terms of what we need to survive as well as the nature of existing disease vectors. But our changing the environment through clearing of forests, overuse of water and general industrialization/urbanization has resulted in serious pollution of air, water and soil with resultant negative impacts on human health. Despite significant progress in cleaning up the environment in the US, we still face threats to health from poor quality air, water or food borne illnesses, embedded chemical pollution and the effects of crowded living conditions.

Economics - my grandparents had a saying: “them that has gets!”. And surely a hallmark of the problems of the US health system is income differential. From top notch care at expensive specialty hospitals to use of public hospital emergency rooms as health care recourse reflects a wide difference in what people have to spend. Current health care reform in its effort to expand health insurance coverage focuses on this issue. It has been said that Americans get the best health care they can afford, whether they need it or not, while they should be getting the best health care needed, whether they can afford it or not. But it’s not just a matter of money in the hands of prospective patients but how the industry is structured and how much of the money spent provides valid health care. A New England Health Care Institute report in 2008 stated that as much as $850 billion a year in health spending could be eliminated without reducing the quality of care. More than $58 billion is spent on inappropriate drugs and about $21 billion is spent of non-urgent cases in emergency rooms. The largest potential area for savings - up to $600 billion a year - is the great “unexplained” variance in hospital procedures such as Caesarean sections and coronary bypass operations. Further compounding the economic disparities involved in health care is another Kaiser Foundation calculation: the healthiest 50 % of the population is responsible for only 3% of all health care spending while the sickest 15% account for 50% of such spending.

Culture/Life style - this is probably the crux of the health care issue. It can be said that one’s health is the result of personal behavior and luck. Luck which includes one’s genetic endowment as well as the circumstances into which you are born has its impact but personal behavior is also key, and an element affected by culture. Our culture contributes to the attitudes we hold towards our health and how we respond to health problems. Cultural differences do affect how and what we eat, whether we go to doctors or not, how much care we demand and our attitude towards medicines, vitamins, supplements, etc. but culture also segues into lifestyle and here is a key element affecting health. Do we eat too much, do we eat the “wrong” things, avoid exercise, consume alcohol, smoke, use drugs or stimulants, drive wildly: the list can go on. We know lifestyle affects our health, leading to negative results like obesity, aggravating diabetes and leading to vascular and bone problems and we haven’t even touched on emotional or mental problems. But changing lifestyle is essentially a question of behavior modification, something as a society we don’t do well. We try legislation mandating seat belts and bicycle helmets. We’re working on forcing food suppliers, whether retail or restaurant, to list calorie and fat contents. We’re trying to eliminate saturated fats and demanding that schools provide healthier menus. But it’s a slow and difficult process and confronts a basic conflict: where should we as a society come out in the continuum between total personal freedom and the “nanny state”. The “Golden Rule” - nothing to excess and everything in moderation - wuld seem to apply but who defines moderation and excess? But absent some changes in lifestyle choices overall improvement of national health will be impeded. And of even greater significance is that the effects of poor lifestyle will be with us for decades as the consequences of poor living habits continue to appear through the natural course of aging.

Research/Development - meanwhile the industries that generate new and better equipment, devices and pharmaceutical products keep churning away, developing new and better product usually at higher prices. We now have biogenetic drugs that do wonders for certain diseases but the annual treatment for which can run into tens of thousands of dollars. The arrival of always better diagnostic devices seems to create its own demand. An example is the man who has a headache and goes to a hospital emergency room where he demands a CT scan. Numerous prescription drugs are now peddled mercilessly on prime time TV: their makers obviously expect that significant numbers of viewers will demand the appropriate prescriptions from their doctors. (Viewing the list of possible side effects as demanded by law certainly reduces my willingness to take any of these wonder drugs, but someone must be doing so.) The net result is that techniques to improve health or battle disease are improving rather rapidly owing to millions of dollars spent on research, both public and private. But the cost also goes up and in many instances the added benefit doesn’t match that cost. And the process also strengthens a general American sense of entitlement: if it helps I should have it, regardless of cost. One should note also the tendency of directing research resources towards issues that are either popular with strong lobbies, e.g. cancer, or that offer potentially large markets, e.g. diabetes. Things that are neither “glamorous” nor offer rich revenue streams are not often the subject of big research efforts. And so we have one more obstacle to getting a real handle on necessary health system costs.

Nebulous best practices - the Obama administration has taken a position that health services could be both better and lest costly if the health care providers just followed “best practices”. I defy anyone to come up with a compendium of “best practices” that covered most if not all of the diagnostics and treatments now being given that: a) would be acceptable to most everyone in the health care field and not subject to strongly held differences of opinion; and, b) wasn’t in constant change as new information and new devices, drugs, etc. come on stream. I and some of my descendants have an inherited blood condition that results in round red blood cells that have difficulty passing through the spleen, leading to anemia on occasion. In 1968 my twin daughters suffered aplastic crises - severe anemia - and were treated according to then “ best practices”, that is their spleens were removed. In January 1969 I had mine out as a precaution even though I was asymptomatic. The function of the spleen was not well understood then and it was thought to be of little use. In the 1980’s my then doctor told me that since I didn’t have a spleen I should take a “lifetime” innoculation against pneumonia. In the 90’s I learned that “lifetime” meant 10 years and now I’m told I need a new pneumovax shot every five years. In 2009 my current doctor tells me that the spleen plays a key element in the body’s immune system and that I, without one, have an impaired immune system and must exercise caution with respect to infectious diseases. And so much for “best practices”.

Flawed data - proponents and opponents of the current health reform efforts quote voluminous studies supporting their respective positions. (As have I.) Despite the tremendous volume of information in print I don’t think we have a good understanding of the situation. We’re all familiar with the pronouncement that “A” was bad for us only to learn two or three years later that “A” wasn’t so bad after all. It is also true that many of these studies suffer from poor methodology and inadequate data sources. Conclusions have been drawn that can’t really be supported by the data collected. And this doesn’t include the numerous studies written with financial underwriting from interested parties nor those written by practitioners pushing their own agendas and not beyond tweaking the data. So one should question the validity of much of this data and try to discount the conflicting and often contradictory points of view, while taking into account the interests represented and possible motivations behind the reports or studies. Not a firm foundation on which to build a sound policy.

POTENTIAL OUTCOMES

My conclusion from the overview illustrated above and what I see of the workings in Congress is that we are likely to see some sort of health reform legislation pass. The new law will quite likely expand health insurance coverage by requiring most everyone to subscribe and companies to offer policies. For those for whom the health care premiums will be beyond what they can afford, there will be subsidies. Rules governing health insurance underwriters will be tightened, allowing the companies fewer opportunities to deny coverage. Nothing in the legislation under discussion really attacks the key problems affecting the nation’s health in terms of changing health care provider practices, reducing wasteful procedures, encouraging more healthful lifestyles or encouraging greater personal responsibility. It will ensure more people and probably increase overall health costs. The assertion that the changes will not add to the federal deficit are based on tenuous assumptions of taxes on certain health insurance policies,reduction in Medicare expenditures and some additional taxation of the wealthy. Compounding the cost issue is that current legislation is predicated on the current situation. An aging population will, however, result in proportionately greater health costs in the future owing both to the aging process itself as well as the embedded consequences of poor lifestyle choices.

My guess is that the number of people who will be annoyed by the legislation will outnumber the beneficiaries and that the Obama Administration will not get great political mileage from this effort. In fact there very likely will be substantial disappointment in the actual results and strong calls for more “reform”.

APPROPRIATE GUIDELINES

As mentioned above the US health system is so large and complex that change most likely will only come about incrementally. I suggest the following as appropriate guidelines within which change should be sought.

1. Individual coverage. We need to get employers in general out of the health care business. The virtually mandatory tie-in between employment and health insurance benefits is unfortunate in many respects. If health insurance were an individual or family responsibility there would be portability. You get laid off or your employer goes out of business, your health insurance is not affected as long as you pay the premiums. If you can’t stand your job, you would no longer be forced to stay just for the health benefits. In times of economic distress some form of health insurance subsidy akin to unemployment benefits could be put into force. Making health insurance and other direct costs tax deductible within limits to the individual would certainly soften the net cost to the beneficiary. And I have to think that companies would really rather not to be involved in health care administration if it could be avoided without adversely affecting employees. I suspect that making health care insurance a matter between beneficiary and insurer would enhance transparency and bring home to the insured just how much their health care costs. The Obama Administration has opposed this approach because organized labor, a major party constituency, having gone to considerable effort to negotiate amply funded health plans in place probably of added wages, is totally against changing the system. Nevertheless I believe that if offered the option most people would opt for portability and a separation between health insurance and employment.

2. Regulation. For a health insurance system to be truly competitive there has to be a single set of rules which means Federally mandated standards that apply nationally. Widely disparate state-based rules lead to a far from level playing field for the participants. Especially with the high degree of mobility of the US workforce and general population, national standards make sense. In addition there need to be Federal rules governing malpractice litigation. Hospitals and doctors make mistakes and those damaged deserve compensation. But today’s system works like a lottery with trial attorneys shopping for clients and for favorable venues. Some recent class action suits,

for example the one involving asbestos, have been clearly shown to have involved fraud. So a system that provides reasonable compensation would go far to eliminating “ambulance chasing” and other frauds, reduce the burden on the judiciary and permit medical practitioners to reduce if not eliminate “defensive” medicine, thus reducing overall costs. The Obama administration is not averse to national rules for insurers but has been very skittish about malpractice reform. Trial attorneys are another major party constituency.

3. Economic incentives. At present in most instances medical practitioners and service providers get paid for services rendered: no action, no fee and no income. Far preferable would be a system that pays service providers a “capitation” fee: a monthly or perhaps annual fee to oversee the health of an individual. Some HMO’s and certainly the Medicare-Advantage plans follow this route. The government pays a fixed monthly fee to the service provider who assumes responsibility for maintaining the health of the individual member. Doctors receive salaries as do other clinicians. Preventive medicine can be applied in these circumstances and with a system of overview in place serious problems can often be avoided or treated in timely fashion. How much to pay for this approach is a difficult question, too little and patient care suffers, too much generates waste. At present some members of Congress contend that the US Government pays too much for Medicare-Advantage coverage and look to fund reform by reducing the payment rate. Make it unprofitable and the insurers drop out of the program. And there is the overall challenge of how and over what period of time can you change the current fee-for-service system. Should you put everyone into a plan. For those who believe in Government single payer systems, this is the answer, you belong to the plan and there is no choice to go elsewhere unless you can afford the cost of private services. Even where single-payer government sponsored health plans are in effect, services may be rendered by private practitioners. These latter, however, as in the cases of Germany and Japan, are tightly regulated by government agencies.

4. Personal responsibility. Assuming a shift to health insurance for individuals and families not tied to employment and a shift in financial incentives perhaps we can begun to instill a greater sense of personal responsibility for health care and lessen the sense of “entitlement”. Possibly we need to ban non-urgent care at hospital emergency rooms: we do have a growing network of “urgent care” providers and “minute clinics” that can surely absorb much of the non-urgent care demand. We do have personal health accounts and employer-designed health option accounts that present choices to the holders: do I do this procedure or save the money for something else? We do need to promote the concept that there is “no free lunch” and that nearly everything we do costs somebody. Of course with a society that appears more and more into instant gratification and the thought that everything that happens is someone else’s fault, besides which the government should take care of me, developing a stronger sense of personal responsibility for our actions may well prove overly quixotic

HONDURAS

2009-08-27T15:53:00.000-07:00

I was surprised to see Honduras, the small and not important country I once lived in, appear on the front pages of both the Washington Post and the Wall Street Journal. It seems there was a bit of a political ruckus.

My first trip to Honduras was in 1984. A consulting associate of mine had helped the Chamber New Orleans and the River Region get a grant from the U.S Agency for International Development (USAID) to promote investment between Honduras and Belize and the Mississippi Valley of the US. He got a sub-contract from the Chamber and I was chosen to do the leg work. I traveled to cities in Tennessee, Indiana and Texas, as well as New Orleans, to promote the idea. In addition to my first, exploratory trip,I escorted a small trade mission to Honduras later in the year. I don’t think there were any results.

Later, in late 1986 when business was really slow,I went to Tegucigalpa to meet with the USAID Mission and negotiate a contract, which I completed in December. In January 1987 I began my assignment there as Project Director of the Investment and Export Development Project, an effort to promote investment into the country and exports out.

My personal services contract carried a decent salary, a housing allowance and some benefits like sick leave and vacation time. Nydia remained in Potomac working for Garfinckel’s but traveled to Honduras about every three months for a month’s stay. I had bought a 1987 Jeep Cherokee which the Government shipped for me so Nydia and I were able to travel around a bit. During her March 1987 trip I took her with me to a meeting held in Guatemala and she found Sambol, the famous Guatemalan handicrafts store. By April I had found a nice apartment and the Government shipped some furniture for me. (Keeping expats overseas is expensive.) During Nydia’s July visit, her dad and step-mother came for a visit as well and thoroughly enjoyed their couple of weeks in Honduras. In the fall we drove to the northeast coast of Honduras to Puerto Trujillo over roads mostly unpaved and some that resembled goat tracks. In the spring of 1988 we drove through along the Honduran side of the border with El Salvador through the Mayan ruins of Copan and on to Guatemala where we traveled around a bit. Honduras is quite pretty, the people pleasant but it is poor.

My contract expired in January 1988 and having had enough of USAID internal paper shuffling I chose not to renew. I caught on with a consultancy tasked with trying to salvage a series of bad loans issued by the Central American Bank for Economic Integration which had its offices in Tegucigalpa. That came to an end and I returned to Potomac in July 1988. Incidentally all of the failed loans shared in varying degrees three characteristics: the negative impact of the 1981-2 recession, incompetent management and outright fraud. Examples of the latter include a Bank inspector discovering that the loan made to build an 80 room motel south of Tegucigalpa was only going to result in 40 rooms. A loan made to an Argentine group to develop a cacao processing plant in Costa Rica resulted in new equipment being bought, but shipped to Argentina, and old, used equipment sent to Costa Rica.

Progress was made. Honduras diversified agricultural exports through development of cultivated shrimp and the production of melons on the Pacific coast. These goods were trucked in refrigerated containers to the north coast – Puerto Cortes – for export to the US. There was substantial development of industrial parks set up as export processing zones, that is areas into which goods could be shipped duty free, advanced in value, and exported to the US paying duty only on the value added in Honduras. These parks were primarily along the north coast, near San Pedro Sula – Honduras’ commercial center , and at their peak in the early 90’s employed as many as 100,000 workers. The principal activity was apparel assembly, an activity that was hurt when the international apparel import quota system ended and the Chinese took over world markets. Honduras is still a major exporter of bananas, sugar and wood products.

The Honduran military ended their rule of the country at the end of 1981. Honduras has had seven consecutive reasonably well conducted democratic elections of presidents, none of whom has been permitted to run for reelection. During my continued consulting assignments there starting in 1989 and ending in 2004 I saw new luxury hotels and nice urban shopping malls built and the small middle and upper classes do well. Honduras’ seven million people today are individually probably better off than the five million or so in the 1980’s, but most Hondurans remain relatively poor and the country’s human resource base and capital stock are inadequate to generate strong economic growth.

Much of this problem is cultural. The country has natural resources but the population is ill equipped to exploit them properly. There exists a psychology of dependency. Rather than work hard, get an education and get ahead, most seem to believe that their fate is fixed and that because they are poor they are entitled to help from outside sources. They are always ready to join up with the man on the white horse who promises them a better life. The current gang of four demagogues that bedevil the US now, Hugo Chavez of Venezuela, Evo Morales of Bolivia, Rafael Correa of Ecuador and Daniel Ortega of Nicaragua, were all elected to office on just this type of approach. Their election proves the failure of their respective societies to meet the perceived needs of a majority of the inhabitants, but demagoguery and state socialism will only in time make matters much worse.

And so we come to Honduras’ seventh president of the series, Manuel Zelaya. A rancher from Honduras’ version of Texas, the Department of Olancho, sparsely populated and mostly dedicated to cattle ranching and logging, he started as a populist without much of an ideology, but appears to have come under the influence of a cabinet minister who is a dedicated Marxist. “Mel” as he is known decided that he didn’t want to go away at the end of his term this December but, emulating the gang of four mentioned above, he would rig things so as to stay in office. He would hold a referendum that would allow the voters to change the Constitution permitting reelection. His referendum was held to be unconstitutional and the ballots impounded. Zelaya and a band of followers physically invaded an Air Force installation and retrieved the ballots. By this time both the Church and the establishment had had enough and he was removed from his home and shipped to Costa Rica. Had the Hondurans kept him in country and put him on trial there would have been far less concern. But their understandable fear was that his followers would form a mob and attempt to free him by force.

The economic situation in Honduras has been weakened by the global recession. The country is wholly dependent on imported refined petroleum products and the spike of prices last year was quite damaging. The recession has reduced export earnings and lowered remittances from the couple of hundred thousand Hondurans in the US so there is popular unrest that played into the hands of Zelaya’s demagoguery.

So now for the crime of removing a man who clearly violated constitutional process in Honduras and who wanted to clone himself as a Hugo Chavez, Honduras has come under assault by the Organization of American States with the support of President Obama and Secretary of State Clinton. The crime is undertaking a “Golpe de Estado”, unlawfully removing a President. To their credit the Hondurans remain firm in their rejection of any return by Zelaya and I think in time the issue will die down in their favor.

It boggles the mind why the US would side so quickly with a group of feckless Latin American diplomats on a formalistic approach when the defined objective is clearly neither in the interest of Honduras nor the US. My guess is that there is sufficient US domestic opposition to people like Hugo Chavez and a Marxist approach to economic management that the Obama administration will be constrained in supporting the OAS position too strongly.

Mea Culpa

2009-08-25T14:12:00.000-07:00

I must confess to being remiss in supplying new blog material. Starting May -2009 - I began having serious back problems, making sitting in front of a computer uncomfortable. Compounding matters it turned out in June that I suffered from serious osteoporosis and that two of my lumbar vertebrae had compression fractures. On July 23 I underwent a procedure in which a radiologist stuck needles into my spine and filled the affected vertebrae with fast hardening bone cement. While it appears that the procedure solidified the vertebrae I still have considerable discomfort. It's been a bit over a month now, but progress in healing is very slow.

On top of all this, the Pebble Creek construction people informed us that our new house was ready and that we should travel to Goodyear, Arizona before the end of July to take possession. So on July 28 - 5 days after the procedure that was supposed to make everything well quickly - we flew to Phoenix, closed on the house and took possession of our modern, 2 bedroom and den residence. It was of course barren of furniture but the air conditioning worked, always useful in 112 degree weather. During the rest of the week we arranged for the utilities, received the furniture shipped from Maryland and bought a new refrigerator. We were able to spend four nights in our rather sparsely furnished digs before flying back to Maryland to participate in the family gatherings attendant on cousin Richard Boles' August 6 wedding in Washington, DC.

Our son, Paul, and grandson, Justice, loaded up our Ford Fusion and left Potomac the morning of August 11. We flew to Phoenix August 14 and met up with the boys at the house late that afternoon. They helped unload and add to the house arrangements before flying to San Francisco on Sunday. Since then we've added a washer and dryer, ceiling fans, a few odds and ends and have window blinds and a new bedroom suite on order. Also a computer desk and chair to go along with the new HP desktop computer which has given us access again to the internet.

And so I intend to take up blogging again, assuming the back holds out. There are many topics of interest I want to address and so you may be treated to new blog pieces over the coming weeks,whether .

The Obama Administration - Military Policy

2009-06-17T08:42:00.000-07:00

The Obama Administration - Military Policy

Barack Obama was supposed to bring an outstandingly new approach to American politics and to address ably all the problems affecting the country. A major advantage was that he was not George W. Bush. After about five months in office, perhaps it’s time to ruminate a bit on what seems to be happening. I will be posting comments on the Obama military policy, its diplomatic policy and key aspects of it domestic policies, including industrial, health, environmental and financial.

In military policy, the topic that most outraged Democratic liberals, it is difficult to discern much difference between the Obama and Bush approaches. Troops are being withdrawn from Iraq, but slowly and as many as 50,000 may remain for some time. There is also a real chance that should things deteriorate more than feared, US policy may reverse and troop withdrawals cease.

In Afghanistan, the Obama administration has moved to deepen US involvement, adding more troops and acknowledging the tight connection between Pashtun radicals in Afghanistan and their cousins in Pakistan. Neither Afghanistan nor Pakistan has ever been a true nation state. Afghanistan has been the collection of disparate ethnic groups put offside by the British, who having been badly beaten there in the 1840’s, drew a line (the Durand Line) down the middle of the mountains and chose only to administer, albeit lightly, those on the east side of the line. Those west of the line were cobbled together by a series of strong men into a kingdom in which central authority and modernization were both quite limited. Pakistan was created artificially by the British in 1946 to provide a home for India’s muslims after independence. Bengal in the east, the Punjab and Sindh in the west formed the heartland with Baluchistan, the north-west territories and Kashmir as the appendages. India favored the Hindu ruler of Kashmir and the partition of that territory left most of its muslim inhabitants under Indian rule. The east Bengalis resented control from the Punjabis and in 1977, with a bit of help from India, achieved independence as Bangla Desh, noted for poverty and flooding. Pakistan itself has not been overly successful in alleviating poverty or in modernization.

So now we have a weak and corrupt central government in Afghanistan and up to now too few American and other foreign troops engaged to subdue the radical Islamic resistance. The major export appears to be opium, the trade in which we know is quite profitable and funds all sorts of mischief. President Obama has taken over the Afghan campaign as his own, moving many of the key people who served Bush in Iraq into this theatre. Afghanistan’s terrain is far more difficult than that of Iraq and much of the equipment developed for the Iraqi desert works poorly in the Afghan mountains. There is now a debate under way within the US Army as to the proper strategy. Do we concentrate on protecting civilian population centers, abandoning as it were the scattered guerrillas in the remote crags and valleys, or do we attack all the resisters in the hope that this will prevent attacks on towns and villages. I believe it is acknowledged that to win will require gaining the support of a large majority of the people.

Pakistan is beginning to confront the reality that it’s mortal enemy is not, as has been believed since 1946, India, but the intransigent Islamic radicals within its midst, concentrated at present in the north-west territories. Pakistan’s army appears to have the capacity to push the Taliban out of relatively accessible places like the Swat Valley, but the truly rugged terrain of Waziristan in which the radicals have been entrenched for decades, may prove far more difficult. There is a real question as to whether Pakistan has sufficient national will to endure a long and difficult campaign and whether it can survive its dysfunctional political system.

The Bush administration got rid of the Taliban in Afghanistan, at least initially, but devoted insufficient resources to keep everything under control. It also provided substantial aid to Musharraf's Pakistani government, but with modest results. There is now a "democratic" government in Pakistan but how secure is unclear. Into this situation the Obama administration appears willing to add resources but positive results are anything but assured. And if things don’t go well, how long will the American public put up with an apparently never ending war for a country far away?

Beyond Central Asia, US military power appears to be challenged only in East Asia. As China continues to grow economically and to assert its interests, the relationship between the US and its allies, such as Japan, and China becomes trickier. What are China’s objectives and do they conflict with ours? How do these two major powers develop a working relationship that doesn’t threaten to result in military conflict?

North Korea in its current very belligerent mode would appear to be a military threat. South Korea looks to the US to be its nuclear shield and to protect it against any aggression from the north. The US has 28,000 troops in country and they could be at risk. Japan’s national interest is also threatened and that country may well become more militant if it perceives a need to defend itself under circumstances where the US doesn’t seem sufficiently firm or committed. What does seem to be the driving force within North Korea is instability in the hold of the ruling family and close associates on what is clearly a failed state. Instability and fear can lead to unfortunate accidents, but on balance North Korea is not a major military force. But its aggression if not checked could bring on a very messy and destructive conflict.

On the home front, Defense Secretary Gates is developing what I think is an intelligent reshaping of the US military force. We need to look at real potential enemies, mostly lightly armed forces that engage in asymmetrical warfare and for which huge nuclear powered destroyers and very expensive jet fighters are of modest use.

Whether these changes can be brought about is a true challenge to the Obama Administration. The enemies are the 535 defense micro-managers on Capitol Hill who have clearly shown that their interest is not nearlys as much the national interest but rather how much money and how many jobs can be squeezed out of the DOD budget for each district. They are joined in this by the career military officers who are emotionally tied to big and better airplanes, bigger and better ships and more and more complex weaponry. Behind them come the large - and many small - corporations that live off defense procurement as it now is. Cutting production of F-22’s and building something else portends wrenching realignments of the players, a situation they would like to avoid if at all possible. I don’t see much of an Obama commitment to military reorganization, certainly not enough to alienate Congress people who hold Obama’s plans for health and environmental reform in their hands. And so I don’t see Mr. Gates’ programs going very far.

Energy Policy Revisited

2009-05-01T10:12:00.000-07:00

In July 2008 I blogged about US energy policy and followed up with a shorter piece on compressed natural gas as an automotive fuel. Since then two major events took place. One, the global economy crashed and Barack Obama was elected President of the US.

The global economic collapse has led to a reduction in mileage driven in the US and a collapse of the US automotive market from a rate of 17 million light trucks and cars sold per year to about 9 million. Chrysler is in bankruptcy, GM is on the verge of same, and no one in the industry is happy. Gasoline prices are now around $2 a gallon, a development than in and of itself nearly solved the foreign exchange imbalance,reducing the outflow of dollars to import petroleum from a projected $750 billion to perhaps less than $250 billion.

The energy policy discussion continues but the Obama Administration and the Democratic Congress seem now focused on the negative environmental effect of burning fossil fuels. So now we're talking less about diversifying the source of petroleum and more about reducing consumption of petroleum and coal. None of the alternative energy sources has grown any more promising. Corn ethanol is still not close to being competitive in cost per BTU with petroleum derived fuels and survives only through tax payer subsidies and, as well, is suffering from criticism of how much land must be diverted from food production or other uses just to grow corn. Solar power is growing in use but is still expensive while wind power is expanding but not in the areas where the power is needed. Nuclear power is costly, time consuming to develop and carries a stigma. It should be remembered that solar power doesn't work at night nor does the wind always blow so use of these sources implies access to stored energy of some sort to fill in the production gaps.

For transportation the "flavor of the month" is electric power. Batteries are still very expensive and have limited output capacity which means rather small, expensive cars that travel less than 100 miles between charges. As a practical matter the internal combustion engine appears here to stay. The good news is that the US has in recent years uncovered vast reserves of natural gas, enough by some accounts to supply national needs for the next hundred years. So we have at hand a fuel source that burns cleaner than petroleum fuels and does not have to be imported. A sound reason to follow Boone Pickens' call for conversion even if it benefits him financially.

The real problem confronting the political class is how to impose its views of global warming and the need to reduce CO2 emissions to ameliorate or halt such warming. A tax on carbon usage seems one approach and we hear talk of "cap and trade" programs. Where the risk for these policy proposals lies is in the cost and impact on the public. Over 50% of US electricity is produced by coal powered plants. Literally hundreds of millions of Americans drive vehicles and the nation's goods are almost universally carried at some point by truck. There is no way in my view to diminish fossil fuel use and the generation of carbon dioxide without cost, a high cost in fact. This implies increased taxes on somebody, which means all of us in some form. Increasing taxes is not good for political incumbency unless it can be posed as a necessary sacrifice to save the nation.

There are problems in gaining widespread public acceptance of this need. First, can we be certain that global warming is, in fact, largely the result of human activity. The earth's climate has fluctuated substantially through the centuries and so one can question whether the current situation is truly unique. Second, the US is not an island and I doubt public acceptance of policies that take into account the burning of coal in China, India and elsewhere in the developing world only by sending them money to improve technology while we undergo harsh measures to reduce CO2 emissions domestically. That nasty air blows from China across North America as well. And, finally, measures to reduce carbon emissions centered on coal and industry will impact the industrial midwestern US far more severely than either coastline. To ask hard working midwesterners to sacrifice for the benefit of the "glitterati" of California, New York or Washington, DC will be at best difficult, if not political divisive.

And so in the 10 months since my earlier blogs we have seen sharp economic changes but no real changes in terms of the country's energy policy. The realities on the ground make unlikely either rapid or fundamental changes.

Paradigm Shift?

2009-02-27T14:16:00.000-08:00

I first heard the word "paradigm" about 15 years ago. It has certainly come into wide usage. One definition is "pattern", but the connotation is that of a complex pattern with many different elements closely linked. I suppose one would look at the global economic set-up and consider it a paradigm. It is also suggested, given the severity and breadth of the current economic downturn that perhaps the paradigm confronts a change.

For the past decades the world's economy seems to have been divided into rich, consuming countries of which the US is a leader, and countries that have grown their economies primarily through exporting goods to the first group. Japan was probably the first and most successful practicianer developing very large and sophisticated industries producing mostly consumer goods like automobiles and electronic entertainment products but also substantial intermediate goods like machine tools, construction equipment and mechanical components. Japan was so successful that various pundits spoke of the 21st Century as being Japan's century. The decade of the 90's did Japan in as its version of the "bubble" economy burst, a downturn that Japan has yet to recover from. Nevertheless Japan's economy remained dependant on exports and its balance of payments surpluses covered its domestic deficits and generated reserves of hundreds of billions of dollars. As export king, Japan in the last 20 years has given way to China where everything including the balance of payments surplus has been bigger. China now has about a trillion dollars of US debt instruments in reserve. China's emergence as the world's prime exporter had ramifications world wide inasmuch as the prime and intermediate components it needed to support finished goods manufacture were largely imported. So China's exports to the US and western Europe were fueled by exports from Japan, Korea, and Taiwan as well as raw materials shpped from Australia, Indonesia, Brazil, Russia, the US and others.

The very large American economy has been driven by consumption, representing some 70% of its gross national product. The country, probably unconsciously, moved into a regime where much of the consumables were imported and the large imbalance in trade in goods covered by investments of the exporters in US debt. A similar system developed in Europe in recent years as the once poor economies of the former Soviet bloc attracted investment into export industries owing to their comparative cost advantage compared to the developed European markets. While the Chinese and other Asians tended to save their trade surpluses, generating huge national reserves, the eastern Europeans went on a consumption binge aimed at producing parity in life style with the west. Western Europe has also served as a prime market for Asian exporters.

The housing and financial system bubbles in the US and western Europe have come crashing down. Housing markets are paralyzed, banks are insolvent, workers - white, blue and pink collared -are being layed off and nobody except governments are spending. There are other bubble spots affected also, places like Dubai, for example. To the extent that the US and other developed economies reduce imports, the exporters can only suffer sharp declines in their economies as well. Japan's exports have declined 18 to 20% throwing thousands of Japanese out of work, reducing domestic consumption and aggravating government finance. China's export declines have had similar effects, with thousands of newly urbanized workers being forced back into the countryside. Commodity markets that made producers giddily profitable have collapsed. The impact of the price of oil falling from $140 to $42 a barrel has shocked the economies of Russia, Iran and Venezuela not to speak of the budgets of other oil producers. A year ago there were complaints that rice was priced too high for the poor of the world: now Thaland and Vietnam are working together in an attempt to put a floor under the much diminished price. Soybeans, wheat, corn, iron and other minineral ores are all in the dumps. Depressed employment in developed economies badly affects economies in the developing world from the loss of billions of dollars in remittances and the return home of thousands of workers from employment abroad.

The question that remains to be answered is whether this economic downturn, that bodes to be the worst since the Great Depression, is temporary or will the recovery - assuming there will be one - reflect changed circumstances, a "paradigm shift" as it were. It appears likely that the emerging financial systems, world wide, will be subject to greater regulation and that the role of some of the wilder financial products will be much curtailed if not eliminated. One can foresee a move to break up megabanks into more manageable pieces as well as a basically more risk averse financial climate. What will the impact be on venture capital, mergers and acquisitions and private equity buyouts? Those that have, even in these times, are already "bottom fishing" by buying companies in distressed situations and low valuations. Does this imply a more rational system of asset valuation? Fewer retailers? Fewer restaurants? Perhaps even fewer lawyers?

Some have suggested that the US needs to reduce consumption and save more. Conversely China needs to save less and spend more. Whether this can happen and to what degree may be determined by trends that we can only glimpse at present.

A big factor has to be the value of currency and the interrelation between national currencies. Should the US generate the huge budget deficits now contemplated by President Obama there obviously will be a risk that the resultant US debt will overload the market, and diminished demand will drive up interest rates and drive down the relative value of the dollar. A significant devaluation of the dollar relative to Euros, Yen and other currencies can only serve to drive up the cost of imports, like oil, while driving down the cost of US manufactures and commodities. What happens to the world economy if the US no longer generates a balance of payments deficit? Can China, for example, really achieve the rapid economic growth it believes it needs through increased domestic consumption? And without the stimulus of foreign exchange earning exports?

A second trend that may well be in process is a general discrediting of the "free enterprise" market driven economy and its replacement by a far more intrusive public sector. This has been the model in Europe for some time and one can interpret Mr. Obama's budget proposals as moving the US in that direction. But what if the belief that government is the problem, not the solution, and that small government is to be preferred turns out to be right. If we should find ourselves in an economy heavily regulated by a government, motivated by social and political goals, and that plays a large economic role, what may we expect in terms of innovation, new investment and entrepreneurs willing to take risks. Will the new paradigm be one of a stodgy, but safe economy, in which nothing much happens. Ah to live in interesting times.

Institutionalized Hysteria

2009-02-22T08:26:00.000-08:00

It’s nice to note when political luminaries reach the same conclusion that I had reached some years ago: that the US policy on illicit drugs has been a failure. The Wall Street Journal on February 12 reported that a commission headed by former President of Brazil (Hernando Henrique Cardoso), of Colombia (C�sar Gaviria) and of Mexico (Ernesto Zedillo) concluded that the US –led drug war was a failure, one that is pushing Latin American societies to the breaking point. The turmoil now affecting Mexico, a development that discourages Americans from visiting that country or even crossing the border, with its headlines detailing violent gun battles, assassinations and kidnappings as the narcotraficantes battle police and army, is possibly the clearest example for Americans of the impact of this war on neighboring societies. Details of the struggle also make clear the degree to which the narcotics traffic has corrupted government institutions. As Mary Anastasia O’Grady, the Journal’s correspondent for Latin America, points out frequently, the corruption and social ills resulting from the war on drugs has badly affected many Latin American societies, not just Mexico’s but those of Colombia, Peru, Bolivia, and the Central American and Caribbean republics.

The tragedy of this effort is that it has failed in its stated objective to eliminate or at least sharply reduce the consumption of illicit drugs within the United States. A recent Brookings Institution study found that despite interdiction and eradication efforts, governments around the world have failed to decrease appreciably the supply of such drugs nor have punitive measures succeeded in lowering drug use. Washington Post columnist Edward Schumacher-Matos in an article that appeared on February 21 alleges that the present US street price for cocaine is only one-fourth of what it was in 1981. Confronted with this evident failure, a failure that has been clearly visible for many years, one searches for reasons that governments, especially that of the US, remain in denial.

My choice for the prime reason is social, a form of institutionalized hysteria, an hysteria so firmly entrenched that few dare to challenge the political viewpoint that we need not only to continue the “war” but to expand the effort. The popular viewpoint from my experience seems to flow from a belief that a single puff of marijuana leads to experimentation with cocaine and then to heroin addiction. This viewpoint was deliberately promulgated in the late 1930’s by people actively campaigning to organize an official counter-narcotics program. That it is believed shouldn’t be surprising: a substantial number of Americans also reject the theory of evolution.

Drug addiction is a serious social problem in many societies but this official viewpoint of the inevitability of addiction is simplistic and its consequences very damaging. But with an entrenched bureaucracy, the Drug Enforcement Agency (DEA), spending several billions of dollars concentrated on punitive efforts, changing official policy is not easy. An example is the assertion of John Walters, former director of the White House Office of National Drug Control Policy that:” It is not true that we’ve lost or can’t do anything about the drug problem”. His example was improved security in Colombia, but without mentioning the more than five billion dollars provided that country in mostly military assistance in its war against drug-financed guerrilla groups. As to Mexico he asserts that it is success in the drug war that has driven desperate traffickers to violence, assuming that they’re fighting over dwindling areas of influence.

Demand, not supply, drives illicit drug use. The US has focused, unsuccessfully as has been evident for some time, mostly on the supply side of the equation. Demand for substances that alter human behavior has existed since the emergence of modern man, some 60,000 years ago. Early on the results of fermenting fruit and grain became noted and used. Some millennia back came the production of mead, beer and wine. A safe statement is that ethyl alcohol is the most costly “drug” now in use in America. Prohibition was logically correct, but failed utterly as society refused to give up a drug to which it had adapted over the centuries.

Probably the second most damaging drug, albeit in declining use, is nicotine. Nicotine is the addictive element of its carrier, tobacco, the mainstay of America’s colonial economy, a crop on which the nation was largely built. A third, caffeine, as found in coffee, has gone from European 18^th century coffee shops to today’s billion dollar coffee shop chains. Millions of dollars are spent by consumers on coffeemakers and exotic coffee beans. And that doesn’t even cover another caffeine carrier in wide use, especially by youth, cola drinks.

So why the “war”. Cannabis, opium poppies and coca plants are not typically grown inAmerica. Their use, however, has only come under attack in this country about 80 to 90 years ago. One factor I believe is ethnocentrism. The effects of these chemicals can be devastating, and they are often addictive. But, importantly, their source has traditionally been among “brown-skinned” foreigners, and thus “un-American”. The answer then to the problem has been interdiction. Stop the trade!

Driven by American consumer demand these drugs have continued to flow into the country. Proscription has only served to support sales prices that in turn have resulted in shifting billions of dollars from users to producers and traffickers. This flow of great, if illicit, wealth has brought immense social damage to producing countries.

Relatively few people who experiment with illicit drugs fall into addiction. But some do and the reason would appear to be in the makeup of the individual. Perhaps nature, that is a tendency towards addiction, is worsened by nurture, dysfunctional families or traumatic childhoods, but this doesn’t explain many cases of addiction. We don’t really know. We speak of “addictive personalities” to describe those who seem unable to avoid alcoholism or other forms of drug addiction. We also know that a vast majority of people can enjoy alcoholic beverages with few perverse effects. Some have been know to smoke marijuana or use cocaine with out falling into addition. So society’s problem is more with the few than with the many.

We know that social interactive groups like Alcoholics Anonymous have been able to alter addictive behavior, but not easily and not always permanently. Other individuals have been able to kick addition on their own, going “cold turkey”. Research suggests that drugs alter the chemistry of the brain and that some individuals are more susceptible than others. Perhaps a better understanding of brain function would permit the development of “addiction blockers”. But this is speculation.

The Drug Enforcement Agency appears mostly to be involved in interdiction of supply. One could speculate that if the US Government hadn’t created this agency, the drug trade would have created something similar inasmuch as it performs a useful function. The DEA doesn’t really cut off supply but it knocks off those in the trade who are either dumb or unlucky, restricting the supply and helping to maintain prices, which has to aid the more skilled traffickers. Particularly in Afro-American communities, well meaning and concerned groups, churches for examples, have worked hard to combat the pernicious effects of excessive drinking, crack cocaine and other evils. Given their failure despite best efforts to bring these plagues under control, one wonders why they persist in the illusion that the “cowboys” from the DEA or “Washington” in general will succeed where they have failed.

Surely the American public and its elected political leaders should have learned from the failure of Prohibition that government edicts do little to change behavior and that attempts to enforce such edicts against the will of substantial numbers of people are doomed to be costly failures. As to the cost, the Office of National Drug Control Policy estimates the present annual cost at $21 billion. Of this sum, $14 billion is spent on incarceration of offenders. As of 2007 there were 500,000 individuals incarcerated for drug offenses. The social and financial cost of keeping this many people in prison boggles the mind. And that ignores the billons spent ineffectually chasing traffickers.

Surely it is time to abandon hysteria, move away from denial and recognize reality. We not only haven’t been able to halt the flow of illicit drugs from abroad into the country, but we have also to cope with chemists who synthesize drugs such as “ecstasy” and amphetamines and who do not need to be outside the good old US of A.

A first step, as recommended by the Commission of former Presidents, is to decriminalize marihuana. Cannabis may not be good for you, but the potential damage appears modest and not commensurate with the costs of trying to eliminate it. A number of benefits would flow from this measure. One, it would free up a significant amount of enforcement effort, allowing law enforcement agencies to concentrate their limited resources on more serious problems. It should also serve to reduce the prison population a positive benefit for those affected as well as for society at large. It would also free the public arena of countless legal battles over “medical” uses of marijuana and the production of product for such use.

Make it legal, sold only through registered dealers and taxed in the fields and retail. Turn it into an income source for public uses rather than a drain on public resources. Once growing becomes legal, allowing us to get illicit growers out of our National Parks and sundry basements, the laws of economics should result in modest prices removing current incentives for farmers in Mexico’s Sierra Madre Occidental to grow hemp instead of corn. I’m sure there will be those who will want to circumvent the law, but they will be in violation of tax laws, and can be prosecuted as we once did Al Capone.

Once marijuana is legalized, the thrust of new policies with respect to illicit drugs should be to move resources away from interdiction, especially overseas, and to concentrate on the demand side. This could include enhanced enforcement actions against users, but more importantly, much more funding for treatment programs and serious research into addiction and its treatments. The US needs to find means of combating the ills of addictive drug use but without generating the billions of dollars now accruing to the drug producers and traffickers. A rational approach of looking at drug addiction as a medical problem rather than merely criminal together with sharply focused and more limited enforcement would I submit contribute to this goal.

Eisenhower and Me

2008-12-21T08:59:00.000-08:00

In about a month, Barack Obama will be inaugurated as the nation's 44th President. Given that the first nine months of my life took place during the administration of Herbert Hoover, my lifetime has now encompassed 14 of this country's 44 presidents, or nearly one-third of all American Presidents. We're talking Hoover, Franklin Roosevelt, Harry Truman, Dwight Eisenhower, John Kennedy, Lyndon Johnson, Richard Nixon, Gerald Ford, James Carter, Ronald Reagan, George H.M. Bush, William Clinton, George W. Bush and now Obama.

In June 1953 I "commenced" by adult and professional life in the quad before Royce Hall on the Westwood campus of the University of California at Los Angeles, receiving a BA in International Relations. That same week I flew to Washington, D.C. to take the oral examination for the US Foreign Service and I turned 21. By this time Dwight David Eisenhower had been President for five months. He was thus the first President of my now a bit more than 55 years of adult life. Of all the Presidents during this period he probably had more impact on my life than any other.

The first impact was felt that same June just after my oral exam. For a period of over 50 years, politics in America was dominated by two public philosophies: the Democratic Party had Franklin Roosevelt's "New Deal" and the Republican Party had Warren Harding's post World War I slogan a "Return to Normalcy". I was caught in the latter as the first measure of the Eisenhower administration was to reduce the size of the federal government. The Eisenhower "reduction in force" or "RIF" meant that the State Department did not hire any new foreign service officers between 1953 and 1955. After my oral exam I was told by the State Department people that I had been certified "eligible for appointment" but that they weren't hiring. I was told to get my military service out of the way and then let them know when I was available.

I came of age during the Korean War and I was, like all young male Americans, registered for the draft. I had actually been taken to Los Angeles in the summer of 1952 for a pre-induction physical which I passed, but was deferred to continue my college education. In June when I returned from Washington, D.C. I "volunteered" for the draft. Being a Foreign Service Officer did not exempt one from the draft, but had I been appointed in the summer of 1953 I wonder if I could have gotten further deferments. Anyway I was inducted in September 1953. My college classmates who did not volunteer were inducted in October. But at induction I was affected a second time by Eisenhower actions: he had brought to a conclusion the Truman administration mess in Korea with a Truce Agreement signed in August 1953. I was thus joining a "peace-time" Army in the process of imploding, that is, reducing numbers sharply and closing bases.

The third thing President Eisenhower did for me was to refuse to commit American forces to support the French in Indo-China. Despite political pressure from the right after the French loss at Dien Bien Phu in 1954, Eisenhower kept away from major commitment and let that country achieve independence in 1955 as two countries, North and South Viet Nam divided by the 17th parallel. So I went neither to Korea nor to Viet Nam but after a 13 months of largely inactive service I was sent to Germany. By this time, after 10 months in the greater New York metropolitan area, I had met and married Nydia Medina of Brooklyn.

We spent the first year of our married life sharing an apartment with a German couple that spoke no English. The location, however, reflected the fourth thing Eisenhower did that affected me. After World War II Germany had been divided into four zones of occupation. Berlin, the capital, had its own four zones. The Brits had northwest Germany, the French the west central portion and the Americans the south, principally Bavaria. The east stayed with the Russians. When Eisenhower became President, as a successful former Army General, he concluded that having all our troops aligned along the border with the Russians made no strategic sense. His policy change was to have American support forces move into the French zone where they could put distance between them and the combat troops in the front lines. I found myself assigned to the 17th Signal Battalion (allegedly I was a field radio repair specialist, but that's another story) located in Pirmasens, Pfalz. We were a few miles north of the French border between Karlsruhe on the Rhein and Saarbrucken. We were housed in a Wehrmacht five story masonry building. We got virtually nothing of the modern buildings built in the American zone.

The fifth and last thing President Eisenhower did that affected me was to reorganize the State Department's personnel structure. I did get an honorable discharge from the US Army, return to San Diego and finally secure my appointment to the Foreign Service as of April 1, 1956. Nydia and I took the train from San Diego to Washington and rented an apartment just past the DC line in Prince George's County, Maryland. Traditionally the Foreign Service had filled all the overseas posts while those who worked in the bureacracy in Washington were part of the general Civil Service. The Administration had hired the former President of Brown University, Henry Wriston, to review the personnel structure and his recommendation that foreign and domestic personnel be integrated into a single Foreign Service was adopted.

So my first assignment was in Washington, DC in the Educational Exchange Service (we administered Fulbright and Smith-Mundt scholarships for foreign students) that had been previously all civil service. The philosophy was that people working in Washington should have first hand experience of working abroad and that those abroad needed periods of "reculturalization". In 1956 many of the department chiefs and administrators were women, having come to Washington during World War II, taking jobs as secretaries, and then remaining in place, rising in rank as the years went by. Civil service employees above clerical status were forced to join the Foreign Service with its obligations to take overseas assignments or seek other employment. During my first tour in Tokyo the consular division was staffed with a number of "Wristonized" officers. The overall career impact was that fairly lengthy assignments in Washington, where one did not get a housing allowance, became common.

While subsequent Presidents affected the country and me to varying degrees, especially during the Johnson and Reagan years, I have to think that President Eisenhower had the most direct impact on my life.

The Frog and the Scorpion

2008-11-21T14:16:00.000-08:00

There is a fable about a frog and a scorpion. The scorpion wants to cross a stream but can't swim so it asks a frog for a ride. The frog is reluctant knowing that the scorpion's sting would kill it. The scorpion points out that if it were to sting the frog it would drown. So the frog begins to ferry the scorpion across the stream. The scorpion stings the frog and both die. You could say it was in the nature of the beast.

In the midst of probably our worst economic crisis since the 1930's, we confront the consequences of having bought far more from overseas than we sold. The perennial deficits have been financed, as they are even today, by foreigners, especially governments, in effect exchanging their goods for US Treasury bonds. The US Treasury now pays interest on several trillion dollars of these bonds of which the largest single holder is China with 868 billion dollars worth. Japan is second with 721 billion dollars. As a holder of this extraordinary amount of US obligations, China is in the driver's seat, as it were. Should it cease buying US debt or, worse, choose to hold its reserves in other currencies, e.g. euros, the dollar would undoubtedly suffer a sharp decline in value against other currencies, US imports would be priced above the purchasing power of many if not most Americans and our world standing would be truly eroded.

The saving grace is that while we're the frog and the Chinese the scorpion hopefully they have a a far better perception of self interest. To keep the lid on social ferment and to maintain the near monopoly of power of the Communist Party, China needs an economic growth rate of a minimum of 8% annually. Historically it has achieved even higher rates of growth through massive increases of exports, becoming the world's largest exporter in the process. A world wide recession is already threatening China's ability to manage its domestic economy and for it to throw its financial weight around carelessly could well prove a disaster for all. We are in a form of "mutually assured destruction" that perhaps constrains untoward behavior for all parties.

In the intermediate to longer term the American propensity to consume without much thought to savings and to run large foreign exchange deficits year after year is not sustainable. Economic theory suggests that over time the dollar must decline in relative value to a level conducive to equilibrium in the balance of payments. As this occurs we will undoubtedly experience changes in consumption patterns as well as structural adjustments in the makeup of the national economy. As many are now commenting we may well be entering into a different and changed world.

The saving grace we've enjoyed for some decades has been the role of the US dollar as worldwide medium of exchange and holder of value of last resort. When in panic, foreigners tend to flee to the dollar. But the balance of economic power is shifting. The G-20 meeting held this month in Washington, DC, included in addition to the usual G-8 representatives, the presidents of China, Brazil, Mexico, South Africa and Indonesia as well as prime ministers from South Korea, India and Australia. In my view the locus of economic power has shifted from the Atlantic to the Pacific basin and the economic hegemony of the US will be challenged and most probably diminished in the years to come. Europe is already far less important now relative to the world economy than in the past and Japan is on track to follow. It's a new world out there!

HISTORY IS FICKLE

2008-11-01T14:45:00.000-07:00

Historical perspective of people and events changes over time, sometimes becoming more favorable and other times less so. Reputations of many American Presidents have varied widely over the decades.

At present, it would appear that a strong majority of the world's population favors Barack Obama for President of the United States. As stated in a recent Indian newspaper editorial, Obama's election will be viewed as a repudiation of racism in America and will bring to the office a person much less bellicose in foreign policy and much more attuned to the pulse of world opinion than either President George W. Bush or Senator John McCain. What all these well wishers ognore at their peril is that Obama, many democratic politicians and especially the labor unions are opposed to globalization, free trade and the consequences of unbridled capitalism. Democrats have refused to support free trade agreements with Colombia, Panama and South Korea. Candidate Obama has called for renegotiating NAFTA and chastising the Chinese for "currency manipulation". There are calls by Obama and other democrats to somehow reverse outsourcing of jobs and to punish corporations for going off shore. This appeals to many Americans burdened as they are by an economic recession and a great deal of economic uncertainty, not to speak of lost jobs, collapsed housing prices and devalued share holdings. It's not an uncommon call in American history: "America First"! Let's take care of things here before we worry about the rest of the world. Besides its easier to blame foreigners than admit our own errors.

The irony is that should a President Obama folow through on his various pronouncements, life will not be as good for his overseas well wishers as they naively believe. Asian economies especially, but others as well, have benefited strongly from selling into the American market. A recession of and by itself will reduce American consumption and damage foreign exporters. However, other aspects of protectionism could mean declines in employment at off shore call centers and online services, not to speak of impeded capital flows and lessened business investment.

The Indian editorial mentioned above concluded that India would be better off if McCain wins the election. Assuming Obama wins and that the Obama-Reid-Pelosi combo realize their aspirations, four years downt the road our international trading partners may well look back at the Bush era with longing. There is an old saying: "Be careful of what you wish for, you may get it".

I am confident that as the years pass, history''s evaluation of the G.W. Bush administration will rise, to the undoubted consternation of today's Bush-haters. History, properly viewed, is never short term.

Interesting Times

2008-10-08T13:00:00.000-07:00

I’ve long been fond of the reputed Chinese curse: ”May you live in interesting times”. Do the past few weeks qualify as “interesting times”? You betcha, by golly!

Having played the stock market for the past 40 years I am familiar with its vagaries, going both up and down and not always rationally. I must admit that the past couple of weeks have been rather exceptional. I did suffer through the dot.com bust, but made a bundle in the two or three years that followed. Will I be able to repeat? To coin a phrase, only time will tell!

All of this financial carnage plays out in the midst of a presidential campaign that marks, for better or ill, a change in personnel, if not of tone, at the top. Having watched the debates I am struck how no one really seems to come to grips with the various serious issues that confront us. We watch the candidates emote sound bites, criticisms – rarely accurate factually – and expound slogans and platitudes. None has spelled out in great detail the consequences of their proposals. Who pays for the new spending programs, whether for more health care, tax cuts for the “middle class” or buying up bad mortgages? Obama’s “middle class” seems to be anyone whose income is below $250,000 annually, or almost everyone living in America. Taxing the rich and benefiting the “middle class” isn’t going to pay the bills. The top 5% of American income earners already pay over 60% of total income tax and the bottom 42% don’t pay any. That appears to me a system already skewed against the wealthy. How much farther can you go?

The irony in all this is that no president, however gifted, can do anything by just directing that it be done. Government action generally involves legislative action. Any number of good initiatives have run aground in the shoals of a deservedly maligned Congress replete with prima donnas and well entrenched special interests. The current body under the leadership of Reid and Pelosi has not covered itself in glory, nor accomplished much. Proposals to spend garner wide support. Proposals to cut spending engender outrage by any and all of the affected beneficiaries. Does our Navy need more billion dollar destroyers? The Navy doesn’t think so, but Congress will be damned if it lets a single shipyard suffer. There isn’t a government program going that doesn’t put money into somebody’s hands, and few beneficiaries have ever voluntarily given up their benefits.

The candidates were asked at the second debate: “What sacrifices should you ask the American people to make during this time of economic crisis”. Both waffled around the issue with very weak responses. The present economic crisis cannot be blamed just on the greed of “Wall Street”. Everyone was in on the act from Congressmen who pushed populist programs and ever more spending while evading corrective actions until too late to the great American consumer who bought and bought and saved little in the false belief that the “good times’ would never end.

What is very clear although perhaps not recognized by the political classes is that issues drive politics, not the other way around. John McCain was asked what he “didn’t know” and his reply was that he didn’t know what was coming: what crisis and where. His statement is quite true: the future rarely mimics the past. We live in a world of constant change, but we assume that whatever is, will be forever! A bad base for sound policies.

The US may be the single most important player on the economic and political world stage, but it is not alone. Power and influence can be found in several other centers and the US can no longer call the tune without adjusting to others’ agendas. We bought lots of cheap goods from China, benefiting us as consumers, but we paid for these goods by selling US treasury bonds to China. As China’s foreign currency reserves approach a trillion dollars it has the power to destroy the US economy by refusing to buy more bonds and dumping those it has. Such action would also destroy the Chinese economy, so we have a new version of “mutually assured destruction”.

So while our presidential candidates and others of the political class dance over the surface of the present crisis there remain a series of issues that must be addressed in the near term. Briefly, these include:

Foreign relations - we live in a dangerous and turbulent world. The candidates should realize that countries don’t have “friends or enemies” but interests. Multilateral institutions are far from unified and few countries share US interests as completely as we might like. So often defense of the national interest may well require a “go alone” strategy, but this surely requires a careful balancing of our real national interest and our actual capacity to act. Persuasion and diplomacy are useful but interminable delays in reaching decisions should not be tolerated.

Financial systems and markets - bank deregulation originated with President Clinton and by and large has worked. What hasn’t worked is the creation of new financial instruments that were poorly understood and unregulated. Also, a very easy monetary policy on the part of the Federal Reserve led to easy money and lots of borrowing. There was also a lack of understanding of just how closely linked world financial markets are. There are billions of dollars floating around the world and no one government nor multilateral institution has any real handle on how to motivate nor for that matter to control the flows. Attacking the demonstrated flaws in the system should not mean permanent government intervention, government ownership and direction of financial assets nor instituting a harsh regulatory regimen that inhibits the needed flow of capital as it seeks its optimum rate of return.

Government fiscal policy - McCain spoke of the need to reduce spending and even talked about a spending freeze for at least part of the government. He also challenged defense spending. Obama only talks about the need to invest in any number of initiatives while cutting taxes but seems to think this can be paid for by increasing taxes on the “rich”, the oil companies and by closing “loopholes”, a delusion I think. Balancing government expenditures and revenues is unlikely absent a near economic collapse. The country appears to live in an “entitlement” atmosphere. Every problem can be solved by throwing government money at it. No existing program can be cut, whether we’re taking about farm subsidies, subsidies of ethanol or extraordinarily expensive military hardware. Frugality and discipline have disappeared. Neither candidate nor the Congress would appear willing or able to impose either on the nation.

Health care - A prime example of the “entitlement” mentality. We demand the best of medical care for everyone and for everything but don’t really like paying for it. The present system is broken. The biggest problem in the present system and one McCain’s proposal attempts to address is that since 1947 health insurance in the US has largely been company sponsored. No job with a company with benefits means no benefits.

An alternative system where health insurance is based on the individual independently of employment could free consumers to pick and choose from competing plans and, very importantly, would allow portability. Change jobs? No problem, no effect on your health insurance. Companies would be freed of the expense of these often subsidized health programs with the money made available usable for higher wages, lower prices or more investment. The proposed mechanism is to make health insurance expenses tax deductible for individuals and families, up to a limit, while removing the tax deduction feature from company plans. This is a wrenching change from current practice and worrisome to those who favor the “Nanny” state and prefer that Government set the standards and control the program.

Entitlement programs - Here we’re talking Social Security, Medicare, Medicaid and numerous other programs where tax money (or government borrowing ) is transferred for some form of welfare benefit. George Bush offered a program of partial privatization a couple of years ago. It went down in flames as no politician wants to offend the “greedy geezers” whose numbers and votes grow yearly. American youth are largely convinced that there will be no Social Security System in place when they grow old. Spending on these entitlements must be controlled to preserve public funds for other, necessary uses. There are four methods available: raise age eligibility to accord with increased longevity, raise taxes – already a regressive drag on young workers, reduce benefits like cutting back on cost of living increases, or impose a means test that denies benefits to the affluent. Privatization of retirement programs has been successful in other countries, but again the “Nanny “ state stalwarts oppose: people are too stupid to manage their own financial affairs, the governing elite must do it for them. As to the four possible adjustments, I know of no politician, presidential candidate, or not, who has proposed any one of them.

Energy - The country uses a lot of it and it shouldn’t. Aside from environmental impact, it makes excellent economic sense to reduce the relative cost of energy within the economy. Progress has been made: energy usage per unit of GDP has declined since 1973. The real problem as mentioned by both candidates is the $700 billion import bill for petroleum, much of which went to people who don’t have our best interests at heart. Parenthetically, neither candidate mentioned that the number one source of petroleum for the US is Canada and that Mexico ranked third. One technique already in place is to reduce demand and increase the relative value of the dollar. We now have oil at $90 a barrel instead of $140 so the import bill at least in the short run will be much lower even if we do nothing. Logic suggests we need to increase the supply of energy, preferably from domestic sources. Logic doesn’t necessarily lead to effective policy and economic reality proves a barrier. Few alternative sources of energy match the economic efficiency of burning petroleum. Spending millions on ethanol both in subsidies and an artificially high import tariff does far more for corn farmers, corn processors and farm interests than it does to alleviate the energy crisis. When you add in the impact on food prices of higher priced corn and the impact on the environment of more land plowed for corn production, it appears that we need to rethink the whole program and thrust in another direction. Expanded use of natural gas is one area. Offshore drilling is another. Expanded investment in nuclear energy is one more. Investment in wind, solar, tidal and geothermal sources are of interest especially if further research and development can bring unit costs down. Energy conservation is also important, a process that can be promoted by economic incentives like high gasoline taxes as used in Europe or some form of carbon tax. Neither candidate nor few members of Congress are likely to call for any form of tax increase: government mandated standards are the preferred route.

Environment - Overcoming environmental damage from whatever source and attempting to restore what has been lost is laudable, extremely difficult and closely tied to the whole argument on global warming. Sarah Pallin admitted that global warming was taking place and that we needed to adapt to that reality, but that its cause was not clearly known even though human actions undoubtedly played a role. She was right: Joe Biden’s statement that global warming is solely the result of human action was flat out wrong. Al Gore’s proposal that we can overcome the problem in ten years is delusional.

Climate conditions are very tricky. Eleven hundred years ago the world was so warm that the Norsemen thought Greenland suitable for raising barley and herding sheep. Five hundred years ago it was so cold that the grain crops in Europe failed to ripen and thousands starved. Sun spot variance, changes in the earth’s orbit, volcanic activity, burning fossil fuels that generate carbon dioxide? Or all of the above. No one truly knows and those who spell out just how many degrees the earth will warm in the next twenty years should lend their talent to our local weathermen who fail to forecast the weather accurately three days in advance. There are a lot of variables, but what is certain is that the combustion of fossil fuels is the cornerstone of the modern economy world wide and you can’t change this condition without horrendous restructuring of the physical economy and quite likely severe negative economic consequences. For example, Norway imposed very strict regulations to reduce carbon dioxide emissions including very high gasoline taxes. Per capita emission of carbon dioxide has been reduced, but the total tonnage produced by the country has increased. Why? More people, more cars and more oil wells.

Before leaving the environmental issue, an even more important element is the use – and misuse – of water. We have problems but the developing world, e.g. China and India , have far more severe ones. Shortages of potable water, pollution of what exists and increasing needs for industry and agriculture exacerbate the problem. Someone needs to address the US problem of the southwestern desert and population growth, the appropriate use of relative dry plains areas east of the Rockies and the contamination of our waterways. Straightening out rivers and putting dams everywhere have also been unhelpful in avoiding environmental damage. Do we really need cities in the desert or others below sea level and in flood plains?

Issues that need to be addressed or they will control our lives in ways not to our liking!

Real Estate

2008-10-05T19:05:00.000-07:00

Falling house prices and the bursting of the real estate bubble have been at the forefront of the news for many months now. Southern Calvert County (Maryland) was one of the farther out areas of “affordable” housing that was badly affected as were similarly located suburbs elsewhere in Maryland and Virginia. Into this mess we chose to venture.

While in Arizona in April we saw a senior living community that offered a model home we thought ideal, 1,800 square feet all on one level. We put down a deposit on a lot at a price made feasible through a substantial discount offered by the developer. Score one for the buyer’s side.

Back at the ranch, that is, at our second home located less than a mile from the Chesapeake Bay, market prospects were grim. We had concluded that at our advanced age and the general dispersion of the family, it didn’t make sense for us to continue to keep up two rather large, three story residences. Our unique, custom built contemporary could, we think, have sold for close to $400,000 in mid-2006. In mid-2008 there were over three hundred houses listed for sale in our ZIP code, none of which seemed to be selling. Our real estate agent was hard pressed to identify “comparable” properties since among the 4,000 houses in the Chesapeake Ranch Estates there was none like ours. To get a feel for the going price we engaged an appraiser. Bad move! The woman came out, didn’t particularly like our appreciate our house, identified three “reasonable substitutes” – one split level and two Cape Cods - for our house that had sold recently within a couple of miles of us, and came up with an appraisal of $282,900. We were shocked, of course, $400 down a rat hole, as it were. Score one against the seller’s side.

With trepidation we put the house into multiple listing on August 12, with an asking price of $329,900. (We ignored the appraisal and used our own sense of market value.) That weekend a husband and wife with one daughter came by with the feminine members “falling in love” with the place. Within a week we had received an offer, quite low, responded and had our counter-offer essentially accepted. The effective selling price after seller give-backs was $315,000.

The formal selling price was $324,000, which is the value of the 100% VA-guaranteed mortgage. By our covering $9,000 of the buyer’s closing cost, we effectively allowed the buyer to amortize this portion of his closing costs, saving cash, and paying out this amount over the life of the mortgage. All of this hinged upon an appraisal coming close to the asking price. This appraiser came out with a figure of $324,000. Our real estate agent thinks this is because she met with him and put forth a number of “comparables” favorable to our cause. There is also the suspicion that appraisers still have an institutional bias to justify the proposed level of mortgage. That this appraisal was $41,100 more than the earlier one was gratifying. Real estate appraisal, like the practice of medicine, is an art, not a science. Incidentally, most of the houses in the area with “For Sale” signs remain in that condition. Someone once said that it is better to be lucky than good!

Then began the fun! We had in the course of about 5 weeks to empty out our house, dumping some of our goods, carrying others to the house in Potomac and yet another collection to put in storage pending a move to Arizona. Some even were transported to Pennsylvania. We dumped, among other things, 3 old analog TV’s that in today’s digital world were without value. For an old man with bad knees I spent a lot to time carrying boxes up and down stairs and loading our pickup truck. We brought to Potomac five truck loads of things, much of which remains to be stored properly in the new surroundings.

Our life style has changed. For 17 years we drove nearly every weekend the 160 mile round trip to the beach house and back. It was a lovely home and there is much that we will miss: breakfast on the deck surrounded by trees; walks to the Bay; expansive rooms bathed in sunlight, a full moon bathing the bedroom in light through the skylight above; and, a car port that we’ve never had elsewhere in Maryland. But now the house has new owners, much younger than we, who will hopefully provide care, attention and derive enjoyment in the years to come.

CNG REVISITED

2008-09-14T18:31:00.000-07:00

The campaign to convert the American motorist to compressed natural gas from gasoline continues apace with more full page ads touting the cost advantage of natural gas. T. Boone Pickens, the apparent power behind this campaign, has been in the energy field for a long time. As an independent oil man he founded Mesa Petroleum and led the firm for many years until the industry hit a bad stretch and Pickens was ousted.

Pickens recently published a new autobiography, reviewed by a columnist in the Wall Street Journal who apparently is no great admirer. Among the allegations was that Pickens is behind a group formed to develop compressed natural gas delivery stations which, according to the reviewer, fuels Pickens' interest in CNG as an automobile fuel. The reviewer went on to attack Pickens' positions on wind power and the economic advantages of CNG. He asserted that wind power won't be very useful because the wind farms are in the western desert and the major electrical markets are in the eastern US, requiring the construction of new and expensive transmission lines. As to CNG, he wrote that a car built to use this fuel would carry a surcharge of $6,000 and that to convert a vehicle to CNG would cost $12,000. And, finally, there are few places where you can buy the CNG you would need.

At first blush this appears damning, but the more I think about it the more I'm convinced the reviewer is writing from biases and not from facts. Technically I don't think converting an internal combustion engine from gasoline to compressed gas is that difficult. Admittedly compressed gas requires a steel cylinder in place of the sheet iron gas tank and, often in cars that I've ridden that use CNG, the tank does take up much of the trunk. But starting from scratch to build a gas powered car shouldn't need nearly as much modification as building a hybrid, and I don't recall Toyota's Prius requiring a $6,000 premium, although there was a premium. Considering that my Ford Fusion has a trunk with 20 cubic feet of capacity, I would think that a compressed gas tank could be built into the car, replacing the gasoline tank, without too much impingement of the trunk space. As to getting the cylinders to fire, if a motor can be made to use biodiesel it shouldn't be too hard to modify it for natural gas. As to a $12,000 price for conversion, I think that figure is just off the wall. Besides which if you buy a car designed for CNG the question of conversion is moot. True there are few places that sell compressed gas, but should the market grow, Pickens and others will invest to supply it.

The basic facts that natural gas costs substantially less than gasoline and that the US has substantial domestic supplies of natural gas remain.

There has been substantial comment on the disconnect between areas suitable for wind generation of power, like the western desert, and the principal market for electric power which remains the eastern urban centers. Transmission lines at present are inadequate and building new ones not only costs a lot of money but runs into stiff opposition from environmentalists. We all want "green" power but don't want to see a transmission line within 50 miles. The latest developments I have read about finesse the problem by proposing to put the wind mills off the coast of the Eastern US. Unlike the Pacific, the Atlantic ocean remains realatively shallow for some distance from shore so that wind towers even as far as 50 miles from the coast are technically feasible. Wind farms off the coast of New Jersey or Delaware would certainly bridge the gap between power generation and consumption.

Regardless of technical difficulties the time has come, politically speaking, to throw lots of money at alternative energy options. Let's just hope for the sake of the tax payer that there is some direct connection between money spent and results generated.

Multiculturalism: A Danger

2008-08-14T08:08:00.000-07:00

As our nation endures yet another spell of emotional turmoil regarding immigration the role of immigrants and others who are “different” from what we think of as mainstream is also in question. The two issues are closely linked and the one involving “different” calls into play the concept of “multiculturalism”, a consideration of which follows

We are not born with either a culture or language, but the capacity to develop both. Each human infant enters life with a set of basic needs. These include nutrition, affection, health, a place in some sort of social structure, a sense of identify and place, and an accepted set of “rules of the game”, that is, how is one expected to behave to be accepted in the group. None of these needs is culture specific, but generic to the human condition.

The embryo is indifferent as to which language group or culture it is born into.
After birth, however, the process of acculturation begins and the individual acquires an identity, a language system and knowledge of a specific set of “rules of the game”. Having gone through this process, most individuals develop a vested interest in defending the acquired status and its related sense of identity. A major outward manifestation of acculturation is language, basically a system of applying labels to defined elements of experience, of things, of forces and concepts. Each language tends to apply the labels differently and transference with precision from one set of views of the universe to another is difficult.

Immigration challenges the acculturation process because in the changed environment the new generation starts to play by a different set of rules and a different language, a process many parents find threatening of their own sense of identity and orderly behavior. The shift from the previous culture to the new can be messy and engender resistance.

A great advantage for modern political states in seeking their place in the world is the capacity to blend disparate cultural groups into a reasonably congenial whole. America has been remarkably successful in this process: the melting pot works, but at various times in history there have been doubts. Nineteenth century German and Irish immigration raised serious concerns as did the influx in later decades of immigrants from Italy and Eastern Europe. Despite these concerns the Republic survived! It should be admitted, however, that the process in this century was aided by low immigration levels from 1922 until after World War II owing to restrictive immigration laws and the pernicious effects of the Great Depression.

Now confronting substantial inflows of immigrants these concerns are again rampant. Focus has been on Hispanic immigrants but the flow is far more widespread, including African, South Asian, Middle Eastern, Chinese and Vietnamese. The press reports twelve million people living in America without proper documentation. But of a population of 300 million, this is only 4 percent. Not an insurmountable number. But, as in earlier times, fear has arisen that the country’s ability to assimilate is inadequate to cope with the sheer number of newly arriving immigrants.

Despite its current concerns, America has been far more adept at assimilation than European or Asian societies. The rule of thumb seems to be that three generations converts a foreign immigrant into a typical American. In today’s world, however, there are many political entities that are not truly “nation states”. It would appear imperative for a modern, technically and economically advanced state or those that aspire to this status, to have the benefit of a reasonably unified civil society filling its politically defined boundaries. Failure to achieve this is acutely apparent in countries like Iraq and Afghanistan, not to speak of the former Kingdom of the South Slavs. Another relevant example is whether the thousands of Kurds, Azeris, Arabs and Baluchis who find themselves in Iran feel at one with Iranian culture and the Farsi language.

Returning to the United States, recognition of differences in cultural backgrounds enriches our society. One would not want to see differing traditional foods, holiday celebrations and taste in music and literature disappear. Nor do we want to see freedom of religion weakened. But to do well within our society, all American residents need to master English, accept the norms of civil behavior and play pretty much by the same, established set of rules. A multiculturalism resulting in autonomous enclaves of people marching to the beat of a different drummer is not helpful, either to the country or to the members of the enclave.

A prime example is Santa Ana, county seat of Orange County, California, in which Hispanics (mostly Mexican) now are 79% of the city’s population. Daily life can and is carried out for most residents within the “Chicano” culture and entirely in the Spanish language. There is a catch, however, in that lack of English language capacity imposes an economic ceiling, confining those without English to low skilled and low paying jobs. To break out of this trap and to enter into the broader America of higher skilled and professional employment one needs to communicate in the national language, English. Santa Ana has begun a program to teach English to help its interested Spanish speaking residents surpass this economic barrier.

There are two issues at play, then. One is whether the current rate of immigration, both legal and illegal, is beyond what the country can reasonably assimilate and the other is a tendency by some to reject acculturation into the whole in favor of preserving separate cultural entities, whether of behavior, language or acceptance of U.S. “rules of the game”.

The danger that I see for the first issue is not how we assimilate the twelve million already here, I think we can handle that in time, especially since many of these people have been here for some years and have already begun the process, but what do we do with the next twelve million? At some point the inflow has to be controlled!

As to the cultural enclaves I think as a nation we need to revisit and probably eliminate bi-lingual education, ballots in foreign languages and other elements catering to those outside the mainstream. The major drive behind much of this is the large Hispanic element among recent immigrants, but where is the justice in catering to Spanish speakers and ignoring speakers of Hindi, Tamil, Tagalog, Vietnamese, Hmong, Arabic, Portuguese, Cantonese, Mandarin, Korean and a variety of African languages? The solution is not a tower of Babel, but a push to join the mainstream. It’s interesting to note that bi-lingual education is largely limited to Hispanics, but children of Japanese and Chinese background, and other groups as well, send their children outside of regular school hours to special Chinese or Japanese language schools, without taxpayer funding. It doesn’t seem a fair system.

The US market will supply the demand for foreign language media or ethnic foods and it will cater to consumer cultural differences as long as there is money to be made. That’s what free markets do. But I see no national interest served by using public funds to entrench cultural disparity. Both the needs of our individual residents and the country are best served by programs than enhance assimilation through improved education, health and English language ability. Since we can’t or shouldn’t choose individual groups over others, the best government approach is one of neutrality. Provide the social and education services needed by all without catering to the perceived special needs of individual groups.

Economics 101

2008-08-13T13:54:00.000-07:00

There are some basic economic principles taught in elementary economics, among them the concept that at an equilibrium price supply and demand will be equal. In this simple model if supply contracts while demand remains the same, the price will rise until there is a new equilibrium. In real life it doesn't always work that way as changes in either supply or demand don't result in equivalent price changes. The economic principle is of price elasticity. If consumers continue to buy the same amount of a commodity at a higher price, the price is said to be inelastic. A case in point is gasoline: a price increase this year in the range of 35% appears to have reduced demand by around 3.5%, a reduction but clearly an example of price inelasticity.

Politicians seem not ever to have taken Economics 101. The Maryland legislature earlier this year faced a substantial budget deficit. So one of the measures taken to address the issue was to raise the tax on a pack of cigarettes to $2.00. Now they discover that cigarette sales in the State have fallen 25% compared to last year and that their assumption of physical sales volume remaining the same despite the sharp increase in price was, to put it mildly, flawed. If one assumed that the sales decline meant a reduction in smoking you could at least assign a health benefit to the measure. What is more likely, however, is that smokers are buying their cigarettes out of state: the neighboring Commonwealth of Virginia imposes only a 30 cent tax per pack. So now the Maryland politicians are calling for policing the border to make sure that no one has bought more than 3 packs out of state. In New York City where very high cigarette taxes were also imposed, it is estimated that 75% of the cigarettes consumed come from outside the city. High cigarette taxes in some jurisdictions within a common market, e.g. the United States, in which other members impose much lower taxes is a blatant invitation to smuggling and political jawboning won't stop the illicit flow of goods.

A similar disregard of the economic laws produced the "gray market" many of us have taken advantage of. Manufacturers, especially of pharmaceuticals and goods for personal consumption devised a strategy of differential pricing. One, high, price for the US market and other, usually lower prices, for foreign markets, like Europe. But the entrepreneurial spirit lives and selected merchants discovered the price differential for many items was large enough to allow purchase in Europe followed by shipment to and resale in the US at prices undercutting the manufacturer's list prices but still profitable. The manufacturers screamed and demanded the US government deny imports from "unauthorized" dealers. Now with online purchasing prevalent it's extremely hard to maintain differential pricing.

People in general are not "economic men" making their decisions based on carefully calculated economic principles, but governments, corporations and people discover eventually that you can ignore economics but only to a degree and for a limited time before the consequences catch up. Today there is an electric power shortage in China: electric prices are kept below economic rates by the government to keep costs low for consumers, but coal prices go up and electric power companies even in China are reluctant to buy more coal just to lose money selling electricity. Future economic growth is threatened. What's a government to do? Let electricity prices rise? Subsidize the power companies? How does misallocation of resources encourage investment in power generation?

And so it goes - populism versus the insights of all those dead economists.

CNG

2008-08-07T06:36:00.000-07:00

Now that I've proposed that the country switch fuel for cars and trucks from gasoline to natural gas, I see others furthering this concept. The Washington Post on August 5 carried a full page ad for Compressed Natural Gas (CNG) sponsored by two trade associations. The pitch is the same: CNG costs only half as much as gasoline in gallon equivalents and that the US has large supplies of domestically produced gas. Neither presidential candidate has mentioned this issue and neither has produced any really useful ideas on energy. Pelois-Reid are still battling against lifting the ban on off-shore drilling despited majority public support for the measure. I suspect Congress favors it as well so to avoid the issue the leadership just avoids any legislation in the field.