Obsidian Wings

Obama's First Gesture Toward Iran

by Eric Martin

According to The Guardian, the Obama administration is wasting no time in changing the posture of the US government vis-a-vis Iran:

Officials of Barack Obama's administration have drafted a letter to Iran from the president aimed at unfreezing US-Iranian relations and opening the way for face-to-face talks, the Guardian has learned.

The US state department has been working on drafts of the letter since Obama was elected on 4 November last year. It is in reply to a lengthy letter of congratulations sent by the Iranian president, Mahmoud Ahmadinejad, on 6 November.

Diplomats said Obama's letter would be a symbolic gesture to mark a change in tone from the hostile one adopted by the Bush administration, which portrayed Iran as part of an "axis of evil". [...]

State department officials have composed at least three drafts of the letter, which gives assurances that Washington does not want to overthrow the Islamic regime, but merely seeks a change in its behaviour. The letter would be addressed to the Iranian people and sent directly to Iran's supreme leader, Ayatollah Ali Khamenei, or released as an open letter.

The sentiment expressed in that last paragraph is important in terms of pursuing negotiated settlements in earnest.  To some extent, anxiety about US intentions with respect to pushing for regime change in Iran has motivated some of Iran's efforts to counter our movements in the region (see, ie, Iraq) and, possibly, has spurred on Iran's pursuit of nuclear weapons (no nation with nuclear weapons has been invaded). 

Bush famously failed to offer Iran security guarantees, and key figures associated with the Bush administration openly discussed supporting elements in Iran, and outside its borders, in an effort to foment regime change.  Not to mention the rejection of overtures from Iran, and the frequent casual talk of military strikes on Iran.

This statement from Obama - should it be included in the final version of the letter - would be a signal that the Obama administration might contemplate abandoning regime change and/or military action as preferred policies.  Now, it is possible that even with security guarantees on the table, Iran will refuse to abandon its nuclear program, or agree to third party enrichment or some such other prophylactic measure aimed at keeping Iran a safe distance from weaponization.  But making such a gesture will force Iran's hand, and get closer to revealing the bottom line positions of all the parties involved.  And it's clear that without it, no progress is possible, so we might as well see how far we can get with such guarantees in hand.

On a side note, Kevin Drum tempers the good news with a splash of cold water from another article appearing in The Guardian:

An accompanying story...strikes a less hopeful tone: "There is one thing everyone agrees on — it is impossible to do any kind of business with the current Iranian president. Ahmadinejad's speech in Kermanshah yesterday, demanding complete US withdrawal from all overseas deployments, clearly illustrated that."

However, focusing on Ahmadinejad is a waste of time and a distraction.  He has littleindependent power within Iran, and less so with respect to setting that country's foreign policy.  The real power resides with the Supreme Leader (presently Khamenei), for better andfor worse.  So reaching an accord with Iran is just as possible with Ahmadinejad as another Iranian president if and to the extent that Khamenei, or his successor, deems such an accord attractive.  Akbar Ganji provides a thorough accounting of this dynamic, and some recent trends associated therewith:

As the Iranian parliamentary elections of March 2008 approached, many Iranians wondered nostalgically: If a reformist had won the 2005 presidential election instead of Mahmoud Ahmadinejad, would Iran be in its current dismal state? For Abdollah Ramezanzadeh, a former government spokesperson, Iran's situation is "worse today that it has ever been over the past 50 years." And for many Iranian opposition leaders, as well as much of the Western media and political class, Ahmadinejad is the main culprit of Iran's ills today: censorship, corruption, a failing economy, the prospect of a U.S attack.

But this analysis is incorrect, if only because it exaggerates Ahmadinejad's importance and leaves out of the picture the country's single most powerful figure: Ali Khamenei, the supreme leader. The Iranian constitution endows the supreme leader with tremendous authority over all major state institutions, and Khamenei, who has held the post since 1989, has found many other ways to further increase his influence. Formally or not, the executive, legislative, and judicial branches of government all operate under the absolute sovereignty of the supreme leader; Khamenei is the head of state, the commander in chief, and the top ideologue. He also reaches into economic, religious, and cultural affairs through various government councils and organs of repression, such as the Revolutionary Guards, whose commander he himself appoints.

Of all of Iran's leaders since the country became the Islamic Republic in 1979, only Ayatollah Ruhollah Khomeini, the revolution's leader; Ali Akbar Hashemi Rafsanjani, Iran's president for much of the 1990s; and Khamenei have had defining influences. Despite all the attention he receives, Ahmadinejad does not even rank among Iran's top 100 leaders over the past 30 years. Khamenei supports Ahmadinejad immeasurably more than he did any of Ahmadinejad's predecessors, but Ahmadinejad is only as powerful as he is devoted to Khamenei and successful at advancing his aims. Khamenei's power is so great, in fact, that in 2004 the reformist Muhammad Khatami declared that the post of president, which he held at the time, had been reduced to a factotum. Blaming the country's main problems on Ahmadinejad not only overstates his influence; it inaccurately suggests that Iran's problems will go away when he does. More likely, especially regarding matters such as Iran's foreign policy, the situation will remain much the same as long as the structure of power that supports the supreme leader remains unchanged.

Ahmadinejad's lack of power is not, on its face, a cause for optimism necessarily - that is, to the extent that Khamenei or his successor stays the course as Ganji dimly predicts.  But Ahmadinejad's only relevance to the story is ancillary.  It will be interesting to observe Ahmadinejad's political fortunes in upcoming elections, and how his success, or failure, might signal a shift behind the scenes.

A Rush and a Push and the Land is Ours

by Eric Martin

While I generally try to leave the filleting of the conservative movement's more outrageous voices to the experts (knives being sharp and all), I occasionally attempt a skewer or two when so moved.  At the risk of relying on anecdote, though, it seems that every time I write something about Ann Coulter or Rush Limbaugh I'm chided from the left ("why waste time talking about them?") or the right ("they don't really represent the Republican Party/conservative movement in America").

Well, an interesting thing is happening within the Republican Party, and it only exposes the prominence of voices like Limbaugh's, and the extent to which he can actually bring elected GOP representatives to their knees.  I'm sure many of you are already familiar with the story of Rep. Phil Gingrey (R-GA), the chairman of the conservative Republican Study Committee, who recently had some mild criticismsfor Limbaugh - particularly appropriate given Limbaugh's recent declaration that he hopes the Obama Presidency fails, consequences to the American public be damned, and that the Republican leadership seemed frightened to pursue such a strategy. 

After Gingrey's faint rebuke, Limbaugh lashed out, and Gingrey supplicated himself before El Rushbo:

“I never told Rush to back off,” Gingrey continued. “I regret and apologize for the fact that my comments have offended and upset my fellow conservatives — that was not my intent … Rush Limbaugh, Sean Hannity, Newt Gingrich, and other conservative giants are the voices of the conservative movement’s conscience.”

As Steve Benen observed:

Gingrey went on to say, "I see eye-to-eye with Rush Limbaugh," adding that he's among millions of Americans "inspired" by Limbaugh

Note, Gingrey hadn't said anything especially controversial yesterday. It iseasy for political observers on the outside to criticize, as compared to keeping a party together. But Gingrey not only faced a swift rebuke for daring to question Leader Limbaugh, but apologized, in writing, and in an embarrassingly meek tone.

The Republican Party is suffering something of a leadership vacuum. It's pretty obvious who's calling the shots. [emphasis added throughout]

Indeed.  But it didn't end there.  Mike Pence (R-IN) was next in line to make gestures in Limbaugh's direction cooing about how he "cherish[es]" Limbaugh's "voice in the debate."  Yeah, what's not to love. 

But stillit did not end there.  The Wall St. Journal lept into the fray and offered Rush a spot on its Op-Ed pages from which to offer a solution to the economic crisis - a sophomoric proposal that doesn't even pretend to take into account questions of efficacy.  No, to Rush, it's all a political ruse:

Fifty-three percent of American voters voted for Barack Obama; 46% voted for John McCain, and 1% voted for wackos. Give that 1% to President Obama. Let’s say the vote was 54% to 46%. As a way to bring the country together and at the same time determine the most effective way to deal with recessions, under the Obama-Limbaugh Stimulus Plan of 2009: 54% of the $900 billion—$486 billion—will be spent on infrastructure and pork as defined by Mr. Obama and the Democrats; 46%—$414 billion—will be directed toward tax cuts, as determined by me.

Brilliant!  Erected on such solid economic principles! How could that possibly fail! 

So there you have it, the cherished voice of the conservative conscience offering a fiscal gimmick that, however ludicrous, the GOP leaders know better than to question.  No, I expect them all to tiptoe around l'enfant terrible as if he was little Anthony Fremont.

But now that the GOP has acknowledged Rush's place in the movement's firmament, shouldn't we all drop the protests that Rush is too insignificant to discuss, or that discussing his views would be a waste of time because he doesn't really speak for the GOP?  Why, he's one of their most revered pundits.  "Inspirational" even.

Given this, I believe it would be fair - no necessary - that the media ask a whole host of questions of GOP representatives regarding Limbaugh's past statements/positions.  After all, the media has a duty to inform the American people of just how much influence the extreme right wing has over the Republican Party.

A short list below the fold, but feel free to add your own.

A Stimulus For Tomorrow - Part 3 - Heck Yeah, America! Get Some! (Patriotic Jingle And Response To Hilzoy)

by von

It's good to see Hilzoy join the discussion regarding the stimulus package working its way through Congress and respond to one of my two posts on the subject.  This is a debate worth having.

And it's good that Hilzoy acknowledges that there are three components to the package, which the CBO divides into two categories:  "Division A" (spending) and "Division B" (tax cuts and direct payments). 

My main point has been that Division A of the stimulus is going to arrive too late to be the dramatic "jolt" promised by the Administration.  Division A contains the big infrastructure projects and other government programs that are being touted as key to our economy recovery.  It's worth repeating Hilzoy's chart (borrowed from Menzie Chin) to illustrate that any "jolt" primarily does not come from Division A (blue); it comes from Division B (green and red like Christmas, huzzah!). 

As you'll see, I've made a small change to the chart.  Regrettably, there still is some obfuscating going on regarding the true components of Division A and Division B. 

Division A includes the big government projects. 

Division B (green) are tax cuts. 

Chin, however, introduces some confusion in Division B (red) by labeling it "mostly changes to spending."  That's not accurate in any useful sense.  The outlays in Division B (red) are actually direct payments to individuals and states.  A refundable tax credit, for instance, fits into Division B (red).  Unemployment insurance fits into Division B (red).  Payments to states to cover health care fit into Division B (red).  Etc. 

That's quite different from the spending that's included in Division A.  The Federal Government isn't "buying" anything through Division B (red).  Rather, the government is directly injecting the money into the economy - the effective equivalent of a tax cut.  Indeed, in the case of a refundable tax credit (Division B, red), it's virtually indistinguishable from a tax cut (Division B, green).

So, what can we say about all this?  First, we've been told that we need an immediate jolt to the economy, and that if we don't spend right now the recession will be deeper and longer.  That might be true.  But the main components of any jolt are coming from Division B, not infrastructure spending or big CPA-style public work programs.  If the "jolt" has any impact, it will be because tax cuts and direct payments have impact.

Second, most of Division A does not get spent until after the recession is projected to end by most accounts.  These projections can of course be wrong.  Hilzoy is right to point out that we do ourselves no favors by planning for the best case scenario.  Hope, it has been said, is not a plan.  But neither do we benefit ourselves by overemphasizing the importance of Division A spending; or claiming that it's part of the promised "jolt"; or trying to rush through a large, costly package of new government programs based on the notion that they are going to have an immediate impact.  The Presidents Day deadline seems particularly silly when we're talking about programs that might not have effect until 2010, 2011 or thereafter:  certainly, we can afford to debate the merits of those programs until at least March.

Third, if the recession lingers past 2011, the remaining Division A spending is not going to be enough.  If there be a "Year of the Jolt," that year be 2010.  The alleged stimulus in 2012, however, is a small fraction of alleged stimulus in 2010.  If the recession is still sticking around through the end of 2011, as Hilzoy fears, we're going to see a new round of fiscal incentives - which will again primarily consist of tax cuts, tax refunds, and direct injections of cash.

I have some doubts about whether any particular package is going to have a significant effect on the economy, much less a more significant effect than the Fed's monetary policies. But if this stimulus package has an effect, it will have that effect primarily through tax cuts, tax refunds, and direct injections of cash.  Keep that in mind when folks should the recession end in 2010, and folks start to claim that victory was had through public-works spending.

More importantly, don't lose your heads.  "Make it bigger" is a principle that applies to beer and male enhancement, but not spending.  Spending has to be repaid; deficits eventually exhibit crowding out effects; and there are a bunch of folks (let's call them "baby boomers") who are about to retire and start paying less in taxes.  So let's spend wisely.  There is no reason why we cannot pass parts of Division B right quick and spend an extra month considering the ramifications of Division A.  It would be time well spent.

UPDATE: It's worth pointing out that my concern is shared by some Democrats: 

In testimony before the House Budget Committee yesterday, Alice M. Rivlin, who was President Bill Clinton's budget director, suggested splitting the plan, implementing its immediate stimulus components now and taking more time to plan the longer-term transformative spending to make sure it is done right.

"Such a long-term investment program should not be put together hastily and lumped in with the anti-recession package. The elements of the investment program must be carefully planned and will not create many jobs right away," said Rivlin, a fellow at the Brookings Institution. The risk, she said, is that "money will be wasted because the investment elements were not carefully crafted."

Hat tip, Mikkel.

UPDATE 2: Clarified an unclear phrase. 

A Stimulus For Today And Tomorrow, And That's OK

by hilzoy

Earlier, von criticized the parts of the stimulus bill that involve government appropriations, as opposed to tax cuts or direct transfers to people (e.g., food stamps, unemployment benefits, etc.) on the grounds that "the requested government spending won't occur until after the recession is projected to end." I'm responding to it partly because I think there were arguments that he missed, but also because, as luck would have it, Menzie Chin put up a post with data that bear on this question. 

I will assume that von meant to say not that no appropriation spending will occur until after the recession is projected to end -- in fact, according to the CBO, about 40% of it will be spent by the end of FY 2010, and 70% by the end of FY 2011. Here are the CBO's projections in convenient chart form:

I will also ignore the question who projects the recession to end by the end of FY 2010, except to note that as far as I can tell, this is nothing like a unanimous opinion among economists, and that since, as I said, 70% of the appropriations in the stimulus bill will have been spent by the end of FY2011, von seems to be putting a lot of weight on people's ability to predict the end of the stimulus recession (oops!) with precision.

What I do want to address is von's claim that there are only two defenses of stimulus spending: (a) "obfuscation.  Hiding.  Eliding", and (b) Krugman's claim that unemployment will be rising after the recession ends. As I understand it, there are several main arguments for government spending, as opposed to tax cuts and, to a lesser degree, transfers. 

The first is that you get more bang for the buck. In testimony before Congress on Jan. 27 (pdf, see chart 5, p. 27), the Director of the CBO estimated the multipliers for both "purchases of goods and services by the federal government" and transfers to states for infrastructure spending at 1-2.5, for transfers to persons at 0.8-2.2, and for "temporary, well-targeted tax cuts" at 0.5-1.7. 

The second is that if the government appropriates money at all wisely, we, the taxpayers, will get some tangible benefit from this spending, above and beyond its stimulative effect. We could, as Keynes said, stimulate the economy by paying people to dig holes and then fill them up again, but other things equal, it would probably be best to pay them to fix bridges and modernize the electric grid instead.

These arguments seem to show that appropriations of the sort contained in the stimulus bill have real advantages over transfers and tax cuts, other things equal. But, of course, other things are not equal. In particular, these appropriations take longer to get going. And none of the arguments I just made would work if von were right that appropriations spending would come too late to do any good. In a normal recession, he probably would be right: normal recessions tend to be reasonably short-lived. However, the projections I read claim that this recession will be unusually long, and that we need to worry about the possibility that even after we emerge from a technical recession, we will face years of low growth and underutilised capacity.

Here, via Menzie Chin, is a chart from the Director of the CBO showing the gap between our potential GDP and the GDP we can expect in the absence of a stimulus (or any other actions not taken by early January, when this chart was published; it does include the effects of earlier actions, like TARP):

(Here's a related chart showing the output gap in absolute terms (pdf, see p. 2.)) There is a very substantial gap in FY 2011, and so I'm not sure I see why spending during that year would somehow be wasted. It would be a problem if none of the spending in the stimulus bill occurred before FY 2011, but as the stimulus bill is not written that way, we don't really have to worry about that. 

In testimony before Congress on the 27th, the Director of the CBO said:

"Because most periods of economic weakness are fairly short-lived, it is generally preferable that stimulus policies be short-lived. Currently, however, CBO projects that economic output will remain significantly below its potential for several more years, so policies that provide stimulus for an extended period of time may be appropriate. Indeed, a fiscal stimulus that ends before the economy has started to regain its footing runs the risk of exacerbating economic weakness when the stimulus ends."

So he, at least, seems to think that spending in FY 2011 will not be wasted. The chart above shows why.

The House GOP Goes All In

by publius

When you start losing in Texas Hold ‘Em, you eventually face a difficult choice – a crossroads if you will.  The problem is that your chip stack is getting smaller and smaller while the blinds take bigger and bigger chunks of your money each turn.  The choice then is whether to go down fighting or suffer a slow death by a thousand cuts.

For those preferring to go down fighting, the advice is to try to hold out for a decent hand (not necessarily a good one) and then go “all in” before seeing the flop (the next set of cards shown face up).  The potential benefit of going all in is that you’ll double your chips in one swoop and regain past strength. 

The potential downside though is that you’ll be permanently eliminated.  Indeed, going all in is pure Russian roulette – there remain 5 cards to be flipped over, and you have no idea what they will be.  Maybe they’ll turn out great.  More likely, though, they'll be fatal.  But regardless, you are completely at the mercy of Lady Fortune at that point.

That’s essentially what the House Republicans did today when they voted unanimously against the stimulus – they went all in before the flop.  And now they too are completely at the mercy of the flop -- and fate -- with a less than stellar hand.

Frankly, I don’t think it was a completely irrational move considering the circumstances.  The House Republicans’ long-term prospects ain’t good – they’re locked into a declining, southern-centric demographic base getting smaller by the year.  Plus, it's not like voting for the stimulus will reverse these trends.  If it works, Obama will probably get credit regardless of what the GOP does.  Accordingly, the GOP decided to do something more drastic, and then hope for the best by hoping for the worst.

And it might work.  The flop might save them.  Maybe the economy will get even worse in 2 or 4 years.  If so, the Republicans can stand up and say, “if only we had cut more taxes, if only we hadn’t wasted all this money…”  And who knows?  If the economy continues to tank, that might get some traction.

But make no mistake – it’s an extremely risky strategy.  The GOP locked themselves into a game of Russian roullette today.  If the economy gets better, or if the GOP somehow manages to block it in the Senate, then the Republicans’ unanimous opposition could send the party into the wilderness for a long time to come.  Republicans, remember, picked the wrong horse in the New Deal debate, and ultimately lost control of Congress (with periodic and fleeting exceptions) for about 60 years.

In short, the GOP's vote today exposes them to a sharp partisan attack.  Obama, however, isn’t inclined to make this argument right now.  That's because he's a better person than I am.  But if the Democrats really wanted to ramp up the attacks on the GOP’s opposition, those attacks could be devastatingly effective. 

Here we are facing the most desperate economic crisis since the Depression – with mass layoffs stories filling the newswires each week.   And the Republicans are attempting – in an extremely partisan fashion – to block efforts to stimulate the economy (after monetary policy has completely run out of bullets).  I mean, a Democratic Karl Rove would have a field day with this stuff.

Anyway, I think the GOP is naïve if they think this vote isn’t going to be revisited on down the line.  And maybe that’s a risk they had to take.  Again, I’m not saying it’s a crazy move.  I’m just saying it’s a potentially fatal one.

Photo via Flickr under Creative Commons license.

Bipartisanship And The Stimulus

by hilzoy

From the NYT:

"Without a single Republican vote, President Obama won House approval on Wednesday for an $819 billion economic recovery plan as Congressional Democrats sought to temper their own differences over the enormous package of tax cuts and spending. (...)

All but 11 Democrats voted for the plan, and 177 Republicans voted against it. The 244-to-188 vote came a day after Mr. Obama traveled to Capitol Hill to seek Republican backing, if not for the package then on other issues to come."

I'm glad it passed. I'm also glad that Obama tried as hard as he did to get bipartisan support, and I don't think that the fact that he didn't get it shows that the attempt was misguided. There are good reasons to try for bipartisan support regardless of how likely you think you are to succeed. 

If you do succeed, then both parties have some ownership of the stimulus bill, neither will be as eager to politicize it, and it will be harder for either to use it to beat up the other. This is good. If you try hard, and publicly, to attract Republican support, but fail, then Republicans look like intransigent ideologues who would rather try to score political points than actually deal with the serious problems the country faces. You, by contrast, look reasonable: you tried to reach out, but your efforts were rejected.

Obviously, this only works if your efforts look serious. If Obama had gone to the Republicans and said: I propose a bill entirely made up of things Democrats really want and you really hate, but please, do join us in supporting it!, that wouldn't work at all. But he didn't do that. He went the extra mile. When Republicans protested about particular things, he dropped some of them (though not all: he was not, for instance, willing to compromise on refundable tax credits, and he was right not to compromise on that one.) There's a fine line between being willing to compromise and being willing to surrender, and I think Obama generally stayed on the right side of it, while being open enough to compromise that he will get real credit for trying.

The House Republicans, by contrast, looked silly. They were carping about tiny bits of the stimulus (the capitol mall?!). They changed the bits they objected to from one day to the next, and looked for all the world like what I take them to be: people who were determined to oppose the stimulus bill from the outset.

The function of trying to win bipartisan support, it seems to me, is to clarify things to the American people. If the House Republicans could be induced to support the bill, that would become clear, and everyone would have been better off. If, on the other hand, they were bound and determined to oppose it, no matter what, that also becomes clear. Neither would have been clear had Obama not bothered to try.

To my mind, it is generally a good idea to act on the assumption that your opponents are reasonable people. (There are, of course, exceptions: e.g., when you don't have time.) It's the right thing to do morally. But it's also generally the right thing to do tactically. I think this is especially true when you suspect that your opponents are, in fact unreasonable. You should always hope to be proven wrong, but if you are not -- if your opponents are, in fact, unreasonable -- then by taking the high road, you can ensure that that fact will be plain to the world. 

Somalia, We Hardly Knew Ya

by Eric Martin

Matt Yglesias and Rob Farleybeat me to the punch*, but it's still worth discussing recent developments in Somalia.  Basically, the last of the Ethiopian troops (those left over from a December 2006 invasion that the US government actively supported) withdrew from Somalia, and the Transitional Federal Government (TFG) propped up by Ethiopia's forces quickly fell:

Hardline Islamist insurgents captured the central town of Baidoa on Monday, an important stronghold of Somalia's fragile government and seat of the national parliament, witnesses said.

Just hours after Ethiopiawithdrew its last troops from Baidoa and pulled back across the border, fighters from the militant al Shabaab group moved in. [...]

It has long wanted to take Baidoa, which, along with Mogadishu, was the only place where the government had any physical control.

Thus marks the culmination of yet another of the Bush administration's foreign policy blunders.  Some might argue that simply because our objectives failed (replacing the Islamist Courts Union (ICU) government with the TFG via an invasion by Somalia's longtime regional rival, Ethiopia), that does not mean it was a mistake to back Ethiopia in the first place.  Especially because Ethiopia was going to invade Somalia regardless.

Taking the second part first, it should be noted that Ethiopia gets roughly $500 million in aid from the US each year, most of that allocation coming in the form of military aid.  This puts Ethiopia in the top five of all nations receiving aid from the US.  In other words, the US government has a certain amount of leverage over Ethiopia, and had we let our displeasure be known to the Ethiopian government, there is a good chance that we could have influenced Ethiopia's decision-making.  Regardless, due to the high level of aid we provide, we are already considered by many to be Ethiopia's patron in the region, and, in turn, they have become our perceived representative.  Thus, it is imperative that we either exert pressure on Ethiopia to act in a manner befitting that relationship, or we cease to play the part of blank-check benefactor.

The Bush administration did not consider using aid as leverage to talk Ethiopia down, nor did the Bush administration consider at least to publicly opposing the invasion while not turning off the aid spigot.  Rather, the Bush administration provided air strikes in support of the invasion, allowed special forces to work with Ethiopian troops on the ground and provided other intelligence and logistical support. 

This was an enormously risky gambit, based on questionable assumptions.  Ethiopia and Somalia have been regional rivals for many decades - fighting intermittent wars and other skirmishes throughout that period.  Both countries claim the Ogaden region that is predominately ethnically Somali, but which lies within Ethiopia's borders.  Ethiopia's stated policy objective has been to keep Somalia weakenedand destabilized so as to forestall any real challenge over the status of Ogaden.  Given that history, it was reckless to bet on Ethiopia actually intending to - let alone being able to - bring about stability in Somalia through its armed invasion and support for the TFG - which was, itself, lacking popular support within Somalia.

Given those long odds for success, and the dubious motivations of our putative peacemaker, backing the use of military force was especially rash.  Generally speaking, military force should be applied only as a last option when there are no viable alternatives, when the interests are so vital that some action is required AND when there is a good chance of achieving the underlying objectives at acceptable costs within a reasonable time frame.  The decision to back Ethiopia's invasion could be said to have failed at least two of those criteria, but unquestionably the third. 

There was an opening, before the invasion, to try to engage the ICU and work toward furthering the stability that had been brought to the capitol, Mogadishu, and for securing greater cooperation from the ICU with respect to US anti-terror interests.  As for our anti-terror interests, elements of the ICU were believed to be providing sanctuary to al-Qaeda operatives (there is likely some truth to these allegations, though the depth of the connections were exaggeratedby the TFG and Ethiopia as a means to garner the support of the US).  I wouldn't rate the odds of success in terms of winning over the ICU on all fronts as particularly high, but it was worth a shot given the enormous costs of Option B - war (more on that below). 

As for our interests, neutralizing the threat posed by al-Qaeda operatives was a valid and important priority, but the means chosen to achieve it were not conducive to success.  Actually, we have made matters worse as those al-Qaeda operatives that we sought are still on the loose, chaos in Somalia has opened more safe havens for terrorists to use, the Horn region has been further destabilized (not that it was particularly stable beforehand) and Ethiopia's brutality has stoked greater anti-Americanism and sympathy for al-Qaeda throughout the Somalia, and other parts of the Horn.

Back to the costs of Option B, though.  The reason that military force should always be the option of last resort is that its use creates unpredictable and uneven outcomes in terms of what was intended, and, generally speaking, a lot of people end up dead, humanitarian crises abound and cycles of violence tend to reverberate and expand outward.  Our dalliance in the Horn has been no different.  According to the UN envoy in August 2008:

Just from the beginning of this year, the number of people in humanitarian crisis has increased 77 percent. That is going from 1.8 million people to more than 3.2 million people.

In December 2008:

[The recent fighting] has displaced over 400,000 Somalis and left millions hungry.

The United Nations estimates that 3.25 million Somalis, or 43 percent of the population, will require food aid until the end of the year.

As I've concluded in a prior post when assessing the scorecard for our backing of Ethiopia's invasion of Somalia:

Low-to-non-existent benefits in terms of neutralizing known al-Qaeda operatives while the region has been further radicalized and support for al-Qaeda has surged locally [ed note: indeed]. There is increased instability and violence that allows al-Qaeda and other terrorists to move about, and conduct business, freely (the ICU had provided stability to the capital of Mogadishu which has since evaporated). There has been an increase in the number of dead from the flaring of the conflict, massive refugee flows and widespread humanitarian crises befalling the beleagured Somali people. Our overt support for anti-democratic and belligerent elements has led to a sharp upswing in anti-Americanism as we have become closely identified with the brutality of Ethiopia and the TFG.

It's not just about reversing the Bush administration's shoot first, ask questions later approach.  It's really about honing the questions and assumptions that must precede decisions to employ the military option.  We, as a nation, need to develop a truly comprehensive appreciation for the risks, costs and destruction that are inextricably linked to the use of military force.  At the bare minimum, we cannot afford - either morally, economically or strategically - to continue to back such ill-conceived missions as Ethiopia's latest effort to assail its neighbor and rival in pursuit of the seemingly contradictory goal of bringing stability to the region - all while winning the hearts and minds of the targeted population subjected to the brutality that the conservatives cheered on as the answer to our insurgent problem in Iraq. 

*(Gary Farber too, of course)

Cram Downs!

by hilzoy

From the WSJ:

"A measure to allow judges to reduce the principal amounts of mortgages for troubled borrowers in bankruptcy cleared a key hurdle Tuesday when it was approved by a U.S. House panel. (...)

Under the legislation, borrowers would be eligible to have a bankruptcy judge reduce the principal balance on their home loan -- a move known as a "cram down." Current law allows cram downs for mortgages on vacation properties, but not for those on primary residences. (...)

In key concessions to the banking industry, Mr. Conyers agreed to alter the legislation to allow court-ordered modifications only for existing mortgages and to require that borrowers contact their lender at least 15 days before filing bankruptcy. Citigroup Inc. had demanded the changes in exchange for throwing its weight behind the bill, a move that angered the rest of the industry.

In another change, the legislation will now require recipients of cram downs who resell their home within five years to share the proceeds with their lender.

The panel also added language dissuading bankruptcy judges from shrinking the principal amounts of mortgages guaranteed by the Federal Housing Administration, the Veterans Administration or the Department of Agriculture. Under current law, the government cannot guarantee or insure amounts that have been crammed down on such loans."

This is good news. As I understand it (and my understanding owes a lot to Tanta at Calculated Risk; her classic cram down post is here), allowing cram downs just amounts to treating mortgage like any other form of secured debt in bankruptcy: if the amount you owe is greater than the value of the asset that secures the debt, your debt can be modified by a bankruptcy judge. So, in the case at hand, if your mortgage is underwater, it can be written down to the amount your house is now worth, and the remainder of your debt to the mortgage company is treated like other unsecured debt. 

Every other form of secured debt is treated this way in bankruptcy. Mortgages were treated this way for most of our history. It is not clear why they should be treated differently. In the hearings that led to the exemption, mortgage lenders argued that they should get the exemption because they "performed a valuable social service." Tanta:

"I have some sympathy with the view that mortgage lenders "perform a valuable social service through their loans." That's why, when they stop doing that and become predators, equity strippers, and bubble-blowers instead of valuable social service providers, I like seeing BK judges slap them around. Everybody talks a lot about moral hazard, and the reality is that you're a lot less likely to put a borrower with a weak credit history, whose income you did not verify and whose debt ratios are absurd, into a 100% financed home purchase loan on terms that are "affordable" only for a year or two, if you face having that loan restructured in Chapter 13. If you are aware that your mortgage loan can be crammed down, I'm here to tell you that you will certainly not "forget" to model negative HPA in your ratings models, and will probably pay more than a few seconds' attention to your appraisals. You might even decide that, if a loan does get into trouble, you're better off working it out yourself, via forbearance or modification or short sale, rather than hanging tough and letting the BK judge tell you what you'll accept."

(I miss Tanta.)

***

A whole lot of debt is going to have to be written down in the next few years. This is a way of writing down some of it in a way that's basically fair, that shares the pain between the borrower, who has to go through bankruptcy, have his or her credit destroyed, etc., and the lender/servicer/whoever, who has to eat some of the value of the loan. It avoids the horrendous disruption of foreclosure, and it does so without either letting borrowers off the hook or paying lenders the full price of the mortgage, as though they had nothing whatsoever to do with the ludicrous loans that got made. 

Sounds like a good step to me. At any rate, I think the burden ought to be on lenders to explain why mortgages ought to be treated differently than other secured debt. And somehow I don't think that the claim that people who make mortgages can be presumed to be performing a socially valuable service, even when they run around trying to convince people to take out loans that only even seem to make sense if you assume that housing prices will rise in perpetuity, will cut it this time.

Make It Bigger

by publius

Tomorrow’s Post article (via TPM) usefully outlines some criticisms of the current stimulus plan from Democrats – namely, too many tax cuts and too little public infrastructure investment.  This is a good development – the pressure on the bill shouldn’t be coming solely from the Eric Cantors of the world.  There needs to be leftward pressure too.

Frankly, I’m torn on Obama’s “outreach” strategy at this point.  Here’s the best justification that my feeble mind can conjure:

Obama is, as always, looking long term.  When he says the stimulus is just the beginning, I think he believes it.  He expects to do other big things.  I also suspect he thinks the political dynamics here are fluid.  That is, success today will increase chances of even bigger successes tomorrow. 

For instance, if Obama can deliver a big bipartisan success on this initial early test, it will dynamically increase his political power.  The increased power, in turn, will enable larger New Deal-type changes down the road.  Or that what they’re thinking, I suspect.

Here’s the problem with that theory though – the dynamics work the other way too.  It’s just as plausible that the resulting deficit will – for good or bad – make it far more difficult to pass anything really big in the months and years to come.  (I sincerely hope that the last sentence bags me a Von Hoffman one day, but I doubt it will.)

Our country needs a massive, New Deal-level public infrastructure investment.  We also need a massive health care overhaul.  My fear, then, is that the political appetite for such ambitious and expensive programs won’t be there after Congress passes the stimulus bill.

That’s not an argument against doing the stimulus – just the opposite in fact.  It’s an argument that progressives should try harder to get more in there right now while we can.  History turns on a dime – who knows what will come.  

For that reason, I’m leaning more and more toward ignoring the House Republicans and toward spending more time and effort to dramatically expand the infrastructure projects in there.  Make it a cool trillion in a half.  Build more fiber.  Build more grids.  Build some supertrains.  Do the things that the 21st century economy so desperately requires – things that will pay enormous dividends for generations to come. 

These opportunities don’t come around that often.  Obama has the combination of a financial crisis and soaring honeymoon approval levels.  He should use it.

Plus, the stimulus is going to pass.  The Republican leadership is playing a game of chicken at the moment, but a few GOP Senators will eventually flinch.  Think about it – do you really think the GOP can keep a filibuster together in the face of new layoffs every single day? 

Of course not.  The stimulus will pass, and Obama can – almost – get anything he wants through Congress right now.  The GOP’s best strategy is to oppose a bill that ultimately gets passed, and then hope for the worst.  But a filibuster that actually succeeds would be political suicide.

All that said, I generally support the outreach.  I think it’s good policy, and it helps everyone feel invested.  I also think it’s good politics in that it lowers the levels of future Republican hatred (that’s what Bush and Rove never realized – they rammed things through, but their unilateral actions set in motion the backlash that ultimately dethroned their party).

So it’s a very tricky question – particularly for someone like Obama who takes the “new politics” quest very seriously.  But at the end of the day, this is an opportunity for major structural change that Obama likely won’t see again.  It would be sad to blow that historic opportunity out of a desire to accommodate Eric Cantor.

So I say go for it.  Make it bigger.  Build what needs to be built.  Realistically, it may be the only opportunity for real change that we have.

A Stimulus for Tomorrow, part 2

by von

The largest part of the proposed stimulus is appropriations -- aka, government spending.  But, as noted below, this part of the stimulus isn't much of a stimulus.  It can't have nearly as much of a stimulus effect as the other two parts of package -- direct payments and tax cuts -- for a very simple reason: the requested government spending won't occur until after the recession is projected to end. 

This isn't Keynes v. Friedman.  Nor is it a Democrat v. Republican debate.  It ain't Krugman v. Norquist neither. (More on Krugman below.) It's a simple function of the time it takes to spend government dollars v. the immediate impact of direct payments and tax cuts.  Direct payments and tax cuts -- what the nonpartisan CBO calls "Division B" of the package -- are faster.  They are the primary components of the "stimulus package" when it matters most, 2009 and 2010.

Moreover, a relatively small amount of the proposed spending has to do with so-called "shovel-ready" projects that have been promised, much less green shovel ready projects that are going to launch us toward a bold tomorrow.  (Review pages 5 through 10 of the CBO report for yourself.)

Thus far, there have been two primary defenses of the government spending side of the stimulus package.  The first is obfuscation.  Hiding.  Eliding.  Kevin Drum, regrettably, takes this approach.  The CBO distinguises government spending ("Division A"), which "would take several years to complete" (CBO Report, p. 4) from direct payments and tax cuts ("Division B"), which have an immediate effect (id., p. 3).  

Drum selects about half of Division B and adds it to Division A, relabling the combined $600 billion beast "spending."  It's crude, but effective.  Government spending looks a lot more stimulative if you add stuff that ain't government spending. And Drum has a foolproof argument, so long as the fools don't read the CBO.

The more sophisticated response is from Paul Krugman.  Krugman acknowledges that the government spending side of the equation is going to take time, but asserts that it doesn't matter. Krugman argues:

It’s not a problem if some or even most of the stimulus arrives after the official recession, as determined by the NBER, is over. Why? Because in modern recessions, unemployment keeps rising long after the NBER has determined, based on things like industrial production, that the recession proper is over. You can see that the need for stimulus doesn’t end with the recession by the simple fact that in each of the last two recessions the Fed continued to cut interest rates long after the official cycle trough. if it’s good enough for the Fed, it’s good enough for fiscal policy.

That is not a wholly irrational response, although Krugman's reference to the Fed seems misplaced in the post-Greenspan era.  Haven't we all retroactively decided that Greenspan was a fool to keep cutting interest rates after the end of the last recession?  It supposedly caused the current housing market mess and all that?  Well, that used to be Krugman's opinion.  C'est la vie, I suppose. 

Anyhoo, crossed finger-pointing aside, the meat of Krugman's position is that "in modern recessions, unemployment keeps rising" after the recession's through.  The qualifier, "in modern recessions" is important to Krugman because Krugman's claim is not true for every recession prior to 1991.  (Yup, that's Krugman's own chart.)

In other words, Krugman's argument holds if the mild recession of 1991 and the even milder post-9/11 recession of 2001 define a new paradigm.  If they do, Krugman's on sound footing.  If they don't -- if, say, this recession is more like the deeper recessions of the late 1980s (and every one before) -- then Krugman's argument doesn't hold. 

Hello, brave new world.