Monthly Archive for September, 2011

Solution to Israel-Palestine: First, Assume No Hamas

Posted by Jason Dobbins on September 29, 2011. 0 Comments

You know the old economist joke:

A physicist, a chemist and an economist are stranded on an island, with nothing to eat. A can of soup washes ashore. The physicist solution: “Let’s smash the can open with a rock.” The chemist solution: “Let’s build a fire and heat the can first.” The economist solution: “First, assume a can-opener….”

In graduate school we read a book called Palestinian Politics After the Oslo Accords, and while it offered some good analysis, we mostly made fun of it because somehow, amazingly, it only mentioned Hamas on two of its 254 pages. An entire book about modern Palestinian politics only mentioned Hamas twice, both of them throwaway references! The consensus of the class was that it’s pretty easy to talk about the Palestinian national movement and the way forward in the peace process if you elide a major impediment to both. First, assume no Hamas!

I felt the same way reading John Judis’s much-praised essay in the New Republic in support of the Palestinians’ bid for statehood at the UN. Judis accuses the U.S. of severe myopia in promising to veto the bid in the Security Council. He lays much blame for the failed peace process on the Netanyahu government, which he says essentially scrapped the entire negotiation framework built by previous administrations, instead deciding to go on a “construction binge” in the occupied territories in order to appease right-wing domestic constituencies. Judis suggests that the process by which the state of Israel gained UN recognition in 1948—with strong U.S. support—is eerily similar to the current Palestinian appeal. He argues that our opposition to the latter is not only hypocritical and craven, but antithetical to our interests in the region.

Andrew Sullivan nods approvingly at Judis’s essay, calling it “an elegant, factual, calm dismemberment of where the Obama administration has ended up on Israel-Palestine.” Sullivan blames the U.S. fumbling of this whole UN episode on the Obama admininstration’s capitulation to what he calls the “Greater Israel Lobby,” as well as the president’s inability or unwillingness to overcome “Netanyahu’s adamant resistance to any serious attempt at a two-state solution.”

Both men seem to be in agreement that if not for Obama’s lack of vision, pro-Israel lobby fundamentalism, and Netanyahu’s cynicism and bad faith, we’d be in much better shape. I agree with a lot of both mens’ analysis. But do you notice anything missing from them? There is hardly a mention of Hamas! And no mention of the fact that the Palestinian leadership is currently cleaved geographically, politically, and militarily. “Palestine” is now much more accurately described as the two competing statelets of Hamasistan and Fatahistan. Remarkably, this fact doesn’t merit mention in either Judis’s or Sullivan’s essay.

Judis’s 2200-word piece mentions the word Hamas exactly twice. The first is just to point out Hamas’s “important role” in the Second Intifada (along with “other radical Islamist groups”). The second Hamas mention is this:

By seeking to win statehood through UN recognition and assistance, the Palestinian leadership is visibly underscoring its commitment to a two-state solution; by doing that, and by rejecting a strategy based on terror and violence for one based on negotiation and multilateral assistance from the United Nations (which, again, was created to resolve exactly the kind of conflict that is occurring between the Israelis and the Palestinians), it is potentially marginalizing Hamas.

But is “seeking to win statehood” through the UN really a good mechanism for Hamas-marginalization? What happens the day after statehood when all of the core issues remain as unresolved and intractable as ever? What if the Abbas/Fayyad strategy of “negotiation and multilateral assistance” is shown to have gotten us no closer to the end of occupation or settlements or to real autonomy for the Palestinian people? Might that discredit the conciliatory approach and end up embolding Hamas even more? Judis doesn’t say.

Judis does make other oddly oblique references to Hamas. For instance, he scoffs at those who argue against the UN bid just because “some Palestinians still don’t recognize the right of Israel to exist.” I agree in principle, but again, who are those “some Palestinians?” A couple of bad eggs? Well no, they are the political and terrorist organization that won a sweeping legislative victory in 2006, whose official charter calls for the destruction of Israel, who currently governs nearly half of the Palestinian people after it took over the Gaza Strip by force in 2007, who continues cross border rocket attacks against Israeli civilians, and who is against the UN statehood bid that Judis wants the U.S. to support! Why not mention any of this?

Sullivan’s impassioned defense of Judis’s argument is even worse. He doesn’t mention Hamas at all, not once, let alone any hint of the current divisions in Palestinian society which make any talk of a unified cohesive “Palestine” ridiculous.

Look, I believe in the right of self-determination for the Palestinian people. I think continued occupation of Palestinian land is as unjust as it is unwise. I think Israeli settlement activity in the West Bank is illegal and immoral. I think anyone who believes they have a biblical deed to land comprising “greater Israel” is bonkers.

And I do agree with Judis and others, that the U.S. and particularly Israel really suffered a failure of imagination regarding this whole UN episode. The main argument here is that international recognition of a Palestinian state with defined or sort-of-defined borders is also a de facto recognition of a right of Israel to exist. There are a lot of creative scenarios that potentially follow from this, none of which Israel or the U.S. seem to have pursued.

But in apportioning blame for the ongoing failure to end the most intractable conflict in modern history, I am far more ecumenical than Judis and Sullivan. I prefer the view of Aaron David Miller, who has a more structural take on the problem:

There is no conflict-ending agreement now available to Israelis and Palestinians. The gaps are just too big, the suspicions too deep, and the regional environment too uncertain; and the capacity of an American (or any other mediator) to serve as an effective broker is just too implausible.

And Miller rejects the idea that the path not taken by the Obama administration would have yielded better results.

Did the president have an alternative? Could he have done things differently these many months? I have close friends, former colleagues whom I respect and admire greatly, who argue yes….

I don’t agree with any of this, of course. Neither Abbas nor Netanyahu would be willing to pay the necessary price required for a deal. But who really knows in the wonderful world of counterfactuals?

This is a rather depressing and fatalistic view, but I think the correct one. It’s true that Netanyahu is not a credible partner for peace. Neither is Hamas. The president of the United States cannot change that. There are insuperable structural impediments to peace right now, and wishing them away by eliding them from your analysis is not the answer. Assume No Hamas is not a negotiation strategy.

Small Businesses, Engines, and Backbones

Posted by Jason Dobbins on September 21, 2011. 0 Comments

President Obama’s proposal to change the marginal tax rate of millionaires in some unspecified way has given the Republicans another chance to trot out one of their favorite tropes: millionaires and small businessmen are "job creators" and you can’t raise taxes on job creators.

I’ll save the debate about tax rates for another day. What I’m interested in is this Republican tick of calling all affluent people or small business owners "job creators," thereby inuring them against any adverse regulations or tax hikes. These classes are invariably described by politicians as the "backbone" or the "engine" of America.

Dana Milbank has a nice column today poking fun at this tick. It turns out Milbank himself has formed a C-corporation for his various journalistic activities on the advice of his accountant, and so is now legally a member of the venerated American small business job-creating nobility. Except not really:

I am a job creator.

I am not a job creator in the sense that I actually create jobs. I have never knowingly created a job, and my long-term business plan, approved unanimously by my board of directors, does not call for the creation of a single one. […]

Like the overwhelming majority of small businesses, I am a one-man operation. And, like most small businesses, I would not hire anybody even if the government dropped my tax rate to zero.

According to Small Business Administration statistics, based on 2009 Census data, 21.1 million of the 27 million small businesses in the United States are “non-employer firms,” which have no workers other than the owner.

This means, "when officials talk about protecting the "job creators" from tax hikes, they are mostly protecting a bunch of doctors, lawyers, freelancers, contractors and the like." Also, a huge majority of these non-employer firms, including Dana Milbank Inc., do not earn $1 million/year or anywhere near it. It’s true that the remaining 6 million or so firms which do employ people, well, employ lots of people. But that’s just to say that we have a big private sector in America and most people work in it. Arbitrarily venerating a certain sized firm, and fawning over their unique job-creating abilities, doesn’t really make sense, and it’s disingenuous too.

It’s important to distinguish between firms that employ people and firms that actually "create jobs." Most businesses fail and therefore destroy jobs, and established small businesses often have no interest in expansion. Most of the net private job growth comes from a very small handful of successful startups that soon grow large. Figuring out exactly where in the economy true innovation and growth comes from is not nearly so simple as just mouthing platitudes about the nobility of "small businesses" and their backbone- or engine-like features. I think when politicans do this they really are just going for a type of "regular guy" mood affiliation and appealing to certain cultural constituencies which enjoy a nice boot-strap narrative.

Because it turns out that actual small businesses aren’t even that prevalent in this country. Compared to the rest of the OECD countries, the U.S. does not have a large share of people working in objectively small enterprises, defined as those with 50 or fewer employees. In fact, we have the lowest share in the industrial world:

economy businesses 1to50

Conversely, we have the largest share of people working at firms with 250 or more employees. Matt Yglesias makes the point that this is actually a great thing. Look at who we’re grouped with in the chart above, and look at who tops the list. As a general rule, on any economic indicator list it’s nice to see countries like Denmark, Germany, the UK, and France nearby. If instead you find yourself clustered with Greece, Italy, and Portugal, it’s time to worry. An economy that features a lot of small businesses is not a very high-productivity economy, and probably not a particularly functional one either.

Luckily we don’t have that problem! But you wouldn’t really know it from watching politicians fall all over themselves trying to sing the plaintive, romantic ode of the American small-timer, as if all this economy needs is more corner stores or something.

Mo’ Money, Mo’ Problems: Profit Repatriation Edition

Posted by Jason Dobbins on September 19, 2011. 0 Comments

I was asked the other day what I thought about the oft-proposed idea of a repatriation holiday for profit that U.S. companies are hoarding overseas in order to avoid paying taxes. Let them bring it back home with little or no tax penalty, the story goes, and then watch them inject all that new cash into the domestic economy and stoke demand and production and new jobs all over the place.

Lovely story, but first, forgive me for thinking that the lack of supply-side tax giveaways to corporations is not exactly the most serious problem facing the U.S. economy right now. But the real issue is, as the WSJ reports today, U.S. companies already have tons of cash on hand:

Corporations have a higher share of cash on their balance sheets than at any time in nearly half a century, as businesses build up buffers rather than invest in new plants or hiring.

Nonfinancial companies held more than $2 trillion in cash and other liquid assets at the end of June, the Federal Reserve reported Friday, up more than $88 billion from the end of March. Cash accounted for 7.1% of all company assets, everything from buildings to bonds, the highest level since 1963.

The article finds a spokesman from a leading oil and gas company to say—shocker—that tax-free repatriation of corporate profits is an awesome idea, under the rationale that "whatever companies use the money for—such as investments, dividend payments or stock buybacks—the U.S. would benefit by having the funds come home. ‘That’s money that’s going to be put into productive use in the United States,’ Mr. Agosta said."

Well as Chief Financial Officer, Mr. Agosta would naturally be happy with more dividend payments. But surely the fact that these companies are already sitting on piles of cash means that giving them slightly larger piles of cash isn’t going to change their investment/production/hiring strategy very much.

The main problem is that your production/hiring strategy changes only when customer demand for your product changes. But when your customers are out of work or have stagnating wages, or underwater mortgages or major household debt, it doesn’t matter how much cash your corporation has, there’s no one to buy your stuff and no reason for you to invest in expansion or new hiring.

It is true that even using a small portion of the cash to pay out dividends to Mr. Agosta and other affluent shareholders may have some salutory downstream demand effects. But "give rich people more money so it can trickle down" has been tried before, and despite it being the central, and only, economic idea of one major U.S. political party, it is not a very good growth strategy. Yes, even if you start calling all the rich people "job creators."

As Matt Yglesias notes, it is the gap between potential and actual output that is killing us right now. In other words, a major fall-off in consumption and aggregate demand. Here’s the graph:

That gap between the lines is why companies aren’t producing more stuff or hiring more people, and magnanimously giving them a giant tax windfall wouldn’t change that. Why would we think they’d do anything other than hoard it as they’re doing now?

I’m no fan of our onerous statutory corporate tax rate (Statutory being the operative word: few pay the full statutory rate.) There is certainly a place for major corporate tax reform within the context of a system-wide tax reform effort. But right now, we can either get used to the "new normal" of depressed output levels, or else we get policymakers to take advantage of historically low borrowing rates and make up for some of the slack private consumption with increased public spending. But just arbitrarily deciding to suspend all the tax rules every so often to give corporations cash they don’t need and won’t use, doesn’t make a whole lot of sense as a sound growth strategy.

The Arab Spring and Nervous Dictators

Posted by Jason Dobbins on September 12, 2011. 1 Comment

It is amusing to watch the surviving Arab dictators scramble to stave off the contagion of unrest and instability that has transfixed and transformed the region. 

Today we see Saudi Arabia getting tough with the U.S. over the upcoming Palestinian bid for statehood at the UN. If the U.S. vetoes the bid, the Saudis have threatened to  downgrade the Saudi-American relationship: 

Saudi Arabia would no longer be able to cooperate with America in the same way it historically has. With most of the Arab world in upheaval, the “special relationship” between Saudi Arabia and the United States would increasingly be seen as toxic by the vast majority of Arabs and Muslims, who demand justice for the Palestinian people.

Saudi leaders would be forced by domestic and regional pressures to adopt a far more independent and assertive foreign policy. Like our recent military support for Bahrain’s monarchy, which America opposed, Saudi Arabia would pursue other policies at odds with those of the United States, including opposing the government of Prime Minister Nuri al-Maliki in Iraq and refusing to open an embassy there despite American pressure to do so. The Saudi government might part ways with Washington in Afghanistan and Yemen as well. 

Of course, the "special relationship" between Saudi and the U.S. has always been seen as toxic in the Arab world, just like the special relationship between the U.S. and Egypt, Jordan, Tunisia, et al. Also, the "vast majority of Arabs and Muslims" have been demanding justice for the Palestinian people for many years prior to this op-ed being published. The Arab Spring hasn’t changed any of this. So what has prevented Saudi leaders from embarking on this new "independent and assertive" course before?

It won’t shock anyone to learn that Arab publics on the whole are not huge fans of America, in large part because they see us propping up their oppressors and view us as complicit in their oppression. Yes, these regimes made a nod to public opinion by playing a neat double game: Egypt under Mubarak presented itself as a champion of the rights of Palestinians and keeper of the peace process—a position he used to justify his rule to the West for decades. But in reality he never did anything tangible to improve the lives of the Palestinian people or to hasten a peace accord, and he was glad to help enforce the Israeli seize on Gaza for many years.

In the case of Saudi Arabia, its double game consisted of exporting extremism by lavishly funding Wahhabist madrassas abroad, while at the same time joining the U.S. in counterterrorism efforts by making its own country one of the most inhospitable places on earth for al-Qaida and related groups. We also allowed these Arab leaders to present the face of solidarity and resistance and confrontation to domestic audiences in Arabic, while giving Western audiences and leaders an entirely different line. This can only go on for so long before it breeds cynicism on both sides.

Saudi’s belated threat to reassess some basic tenets of its foreign policy is not evidence of strength, but of weakness and fear. Dictators do not scramble to align themselves with public opinion unless they absolutely have to. Al-Faisal’s piece generously concedes that this shift is motivated by "domestic and regional pressures." While he is surely right about that, he’s wrong about the effect such a shift will have on his people. It’s true that pro-U.S. dictators in Egypt and Tunisia have not faired well in the Arab Spring. One could see how the surviving dictators in the region might take the lesson as, "We should be more hostile to American interests and that will keep our people happy and quiet." But of course, popular uprisings in Iran and especially Syria have exploded that thesis. Being a platinum member in the axis of Zionist and imperialist resistance is not helping Bashar al-Assad very much right now, and I don’t think Ayatollah Khamenei sleeps so soundly either these days.

If Saudi Arabia really believes it can hide its own shortcomings by deflecting blame to the U.S., or that a strategic shift of policy on peripheral issues like Afghanistan or the composition of the Iraqi government will make the Saudi people forget that they have no political freedom, good luck. The Saudi monarchy is better insulated from mass popular uprising than most, because Saudi Arabia is not a poor country. But we have learned that nothing quells an awakened and restive populace hungry for democratic change except for one of two things: a brutal murderous government crackdown, or regime-ending political revolution. If the day ever comes, there’s no doubt that the Saudi monarchy will choose the former, as it did by proxy in Bahrain. But petty threats of a U.S. relationship downgrade, or the tired tactic of conspicuous Palestinian flag-waving, will not forestall such a reckoning. I for one look forward to it.

What DOES Rick Perry Struggle Over?

Posted by Jason Dobbins on September 8, 2011. 1 Comment

I strongly oppose capital punishment, so naturally I found it revolting when the audience at last night’s GOP debate broke into hearty applause when informed that the state of Texas under Rick Perry has executed 234 people:

Perry notes that he has "never struggled at all" with the idea that one of those inmates might have been innocent. But of course, one was innocent. If you’re unaware of the case of Cameron Todd Willingham, do read this piece by David Grann published last year. It’s one of the most absorbing pieces of journalism I’ve ever read. How anyone can read this and then blithely assert that they’ve "never struggled at all" with the question of wrongful execution is well beyond my moral comprehension. 

Ta-Nehisi Coates writes that we should not be at all shocked by this sentiment from Perry, nor from the approving audience reaction; after all, this was a Republican debate in a country that strongly supports the death penalty. I get that. One is of course tempted to point out the vertiginous dissonance exhibited by a man and a party that thinks everything the government does is unconstitutional except for the murdering of citizens, but really, the electorate doesn’t care about dissonance.

No, it’s the relishing that gets me, and I imagine it would get me even if I were a supporter of capital punishment. It’s the total absense of doubt or self-reflection in the face of woefully incomplete or conflicting information. Surety under such conditions is a shameful vice and a mark of deficient character. Rick Perry and those audience members treat it as high virtue, laudable, strong, decisive. It’s disgusting.

I admit I am not familiar with the brand of conservatism that says doubt is to be shunned, that says bloodlust and hubris are worthy proxies for statesmanship and leadership; the conservatism for which proudly asserting that you "never struggle at all" with questions of imperfect justice and state power over life and death is some sort of perverse proof of presidential fitness rather than an automatic disqualification. It’s been said many times, but the Republican party that embraces these things is not ‘conservative’ in any way. It is a psychopathological support group for the expression of distilled cultural grievance and anxiety and bravado.

Look, I understand the case for capital punishment, but in my view if you have decided that you are for it, you should be for it just barely. If you find yourself in an audience where you are whooping over the awesomeness of the very idea of state execution, something has gone awry. But either way, you must have the moral courage to reckon with the Cameron Todd Willinghams of the world. The state-sanctioned murdering of innocents is an ineluctable result of the pro-death penalty position. To me, this decisively seals the case for the other side. But if it doesn’t seal it for you, I would hope that your conception of justice and humanity at least leads you to struggle with it. After all, if you do not struggle over Cameron Todd Willingham, what DO you struggle over? Rick Perry signed the death warrant. What does Rick Perry struggle over?

Brooks: Government Should Only Do the Basics ie., Everything

Posted by Jason Dobbins on September 2, 2011. 1 Comment

In his column today, David Brooks claims to agree with Rick Perry that what ails America is too much government and not enough good ol’ pioneer American vigor:

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

But, over the years, government has grown and undermined these virtues. […] The current task, therefore, is, as Rick Perry says, to make the government “inconsequential” in people’s lives — to pare back the state to revive personal responsibility and private initiative.

There’s much truth to this narrative.

Despite Rick Perry’s truth-telling, Brooks bravely insists that Republican small government orthodoxy is “necessary but insufficient” to restoring American greatness:

There are certain tasks ahead that cannot be addressed simply by getting government out of the way.

So in which areas does Brooks think we need a residual government involvement, consistent with his and Perry’s desire to make government “inconsequential” in people’s lives? Brooks lists three. They must be pretty narrow obligations, so as to encourage all those “vigorous virtues” that have been snuffed out through government suffocation. Let’s take a look:

In the first place, there is the need to rebuild America’s human capital.

Hmm, sounds sort of expansive. Maybe by “capital” he means DC and he wants to just reseed the National Mall or something.

It will take an active government to reverse this stagnation — from prenatal and early childhood education straight up through adult technical training and investments in scientific and other research.

Well ok, no government except for whole-life (and prenatal?) education and training and scientific research investment. Fine. But nothing more than that please, because remember there is “much truth” to Rick Perry’s idea about insidious government overreach destroying America.

What’s next on Brooks’s list? Must be something like paving roads. No one can argue with good ol’ government road paving.

Then there are the long-term structural problems plaguing the economy…[M]iddle-class wages have been stagnant for a generation. Inequality is rising, and society is stratifying. Americans are less likely to move in search of opportunity. Social mobility has been flat for decades, and American social mobility is no better than European social mobility.

All big problems, to be sure. But nothing the vigorous ingenuity of the American spirit can’t handle, right?

Tackling them means shifting America’s economic model — tilting the playing field away from consumption toward production; away from entitlement spending and more toward investment in infrastructure, skills and technology; mitigating those forces that concentrate wealth and nurturing instead a broad-based opportunity society.

Whoa, slow down Trotsky. A government-led shifting of America’s economic model? Tackling inequality, restructuring consumption incentives, technology and infrastructure investment? And I assume “mitigating those forces that concentrate wealth” is Brooksspeak for progressive redistribution. That sounds like a lot of stuff! But there’s one more little task:

Finally, there is the problem of the social fabric. Segmented societies do not thrive, nor do ones, like ours, with diminishing social trust….family structures won’t spontaneously regenerate without some serious activism, from both religious and community groups and government agencies.

So to recap, David Brooks agrees with Rick Perry that government needs to be made inconsequential in American life, except for three minor areas:

–womb-to-grave education and labor training

–a complete national economic restructuring touching upon every area of our economic life

–a program of national social engineering to foster communitarian behavior and the augmenting of American family life

But that’s definitely it! There’s nothing else government should do except for intervening in education, labor markets, something to do with prenatals, consumption behavior, the amount of trust in our hearts, the macroeconomy, the microeconomy, science, inequality, the social fabric, and family structuring. Inconsequential!

Brooks actually seems to think he is buttressing Rick Perry’s anarchic vision rather than demolishing it. This column would be great if he just elided the whole ridiculous first part where he tries to yoke his substantive ideas to Rick Perry’s skeletal ideology. Rick Perry agrees with absolutely none of this (save the part about single parenthood I guess). In fact, no Republican does.

Brooks concedes that Republicans have “done almost nothing to grapple with and address these deeper structural problems,” but he doesn’t say that there are many Democrats, including the president, who would be glad to sign up for his renewal plan, and indeed the White House has already endorsed or proposed many similar ideas. I await his next column which no doubt is an enthusiastic endorsement of Obama 2012.

Alas, as Jon Chait put it so well recently, after David Brooks writes something critical of Republicans, he tends to quickly “revert to the posture of even-handedness, sadly laying blame upon both sides with an emphasis on Democratic culpability.” I can’t sum up the Brooksian dilemma better than Chait:

One could write a great analysis of the reportorial, sociological, and ideological pressures of being David Brooks, and how those forces require Brooks to revert to a political equilibrium regardless of world events. I sort of wish we could clone Brooks so that the other one could write that piece. He’d do a masterful job of it.