In Defense of Food by Michael Pollan and
Stuffed and Starved: The Hidden Battle for the World Food System by Raj Patel
Is there anything that generates more collective exasperation, eye-rolling, and covering of one’s ears than some new study touting the health benefits of one food or the dangers of another? Michael Pollan, journalism professor at the University of California, Berkeley, empathizes with our plight, helps us understand how we got here, and makes us laugh while he’s doing it. He has some simple advice, “Eat food, not too much, mostly plants.” Then he promises to complicate matters just a bit, so that he can fill another couple hundred pages and turn it into a book.
Although Pollan stops short of accusing anyone of conspiracy, he shows us how the food industry has teamed up with nutritionists to undermine our confidence in food and encourage the purchase new products on the supermarket shelves, which he calls “foodlike substances. “ He says we have been successfully trained to think in terms of nutrients … vitamin C and potassium, for example, rather than oranges and bananas. The problem with this is who is to say, really, that a particular nutrient in a fruit or vegetable is all that it has to offer? By encouraging us look at food in this way, a nutrient can be packaged in a box with some other ingredients and a new profit making opportunity is born.
He talks about how a food – the egg, for example – is vilified for a period of time, creating the opportunity for new product development, and when just about everyone has accepted the fact that eggs are bad, the egg is redeemed, and we can all eat eggs again. He offers the reader guidance in navigating the supermarket, telling us to pretend we are entering the store with our great-grandmother, and if she doesn’t recognize something as food, it probably isn’t. Stick to the perimeter of the store, he tells us, and be very suspicious of excessive health claims on packaging. He points out the irony of the Coco Puffs bragging about their multi-grain goodness, while over in produce, the vegetables are as silent as stroke victims. His mantra is “Eat food, not too much, mostly plants.”
Pollan criticizes the changes brought to us by corporate agriculture and does so convincingly. An Iowa farm which decades ago produced a range of agricultural products will increasingly be devoted to corn and soy, which have found their way into an increasing number of foodstuffs, because those are the crops that get the federal subsidies. Giving up the tradition of crop rotation and livestock grown on farms rather than in feedlots, makes us overly dependent on chemical fertilizers and pesticides. In addition, the growth of monocultures… land that just produces one thing… diminishes the number of nutrients we get in our daily diet.
In a recent New York Times article, Pollan emphasized the health implications of how we eat. Four of the top ten diseases that kill Americans are related to diet: Type 2 diabetes, cancer, stroke, and heart disease. The foods that are marketed and sold to us -- highly refined grains, processed foods, products full of fat and sweeteners -- increasingly contribute to poor health. Our current demands for health care coverage for all should be made in conjunction with demanding food policies designed to generate good health.
As more people become concerned about the environment and national security issues tied to our dependence on foreign oil, Pollan informs us that after cars, our food system is in second place for its use of fossil fuels, consuming 19% of all that is used in the United States. The reasons include the long distances that food now travels. Why, for example, should New York City get its produce from California, rather than “the garden state,” New Jersey, which is next door? In addition, we rely heavily on chemical fertilizers that are derived from natural gas, and pesticides that are derived from petroleum. Even the plastic packaging comes from petroleum. Pollan offers us some startling statistics. In 1940, our food system produced 2.3 calories of food energy for each calorie of fossil fuel energy it used to produce, while today it takes 10 calories of fossil fuel energy to produce a single calorie of modern supermarket food.
While Pollan has advice for us in how to navigate this system to the best of our ability on an individual level, like buying fresh, local produce whenever possible and not buying anything with more than five ingredients, particularly when those ingredients are things you cannot even pronounce, he realizes that this is not simply an individual responsibility. Government policies are needed to promote local, sustainable agriculture that, in turn, will promote good health.
Pollan increasingly talks about global issues with the food industry and pointed out in a televised interview that it was the passage of NAFTA, and the subsequent inundation of Mexico with cheap corn, that put a million and a half corn farmers out of business, farmers who either ended up migrating to cities or who became laborers on other people’s farms in California. He speaks of the federal policies that create a flood of immigrants, despite the fact that many of those immigrants would have preferred to remain in their home countries.
For a more in depth look at the international impact of food policy, I read Raj Patel’s Stuffed and Starved: The Hidden Battle for the World’s Food System. Patel begins by giving us some dismals facts: one out of ten people in the world, or eight hundred million, is hungry. At the same time, another billion people are overweight, many of whom are low income, since the cheapest food available is often high calorie and low in nutrition.
After describing the growing despair in countries around the world, which are no longer able to provide food for their population and the epidemic in farmer suicides, Patel traces the evolution of the current food system from a time that agriculture was local to the present global system that now exists. He discusses the impact of that change from the perspective of those who least benefit from it.
He begins his history with the enactment of Enclosure Laws in Britain in the 15th century. Prior to that time, the poor had community rights to the land, both to grow food and feed livestock. The Enclosure Laws transformed this system into one of “private property,” as we understand it today. It was the beginning of the transition from feudalism to capitalism. The poor were left with the choice of selling their labor cheaply in the countryside or seeking work in the city. By the 18th century, the transformation had resulted in such efficiency and profit that there was the means to fund a growing national appetite for foreign food, particularly tea and sugar.
Britain had ready access to both with imperial domination in both India and the Caribbean. Over time that imperialism served to quell protests among the growing middle class and working class in the cities whose demand for food was largely met by food grown in European colonies. India, for example, supplied grain to Britain, at the expense of adequately feeding its own people. Even today, in the post-colonial era, we see the countries in what Patel calls the Global South forced into the economic choice of cultivating their land to produce products for export -- from coffee to coca – in order to survive.
However, over time, and concurrent with this continuing phenomenon, consolidation of farming in the industrialized nations has resulted in large surpluses. In the post World War II era, with the rise of the United States as the dominant global economic power, U.S. farm surpluses were donated around the world as food aid. By 1956, over half of all U.S. aid to other countries was food aid. While on the surface benign, and even caring and generous, food aid depressed the world price of grains, hurting growers. Countries in the Global South became dependent upon U.S. generosity. Earl Butz, Secretary of Agriculture under both Nixon and Ford, observed, “Hungry men only listen to those who have a piece of bread. Food is a tool. It is a weapon in the U.S. negotiating kit.”
By the mid-1970’s, the era of food aid was coming to an end -- and the new era of food policy was ushered in, controlled through the fiscal debt of the developing world. Governments who had borrowed from the World Bank and IMF and could not repay debts, found themselves at the mercy of these organizations, and were required to comply with demands for change in local government. Farm policy was part of that. Local farmers, in order to obtain any type of assistance or credit, were required to cultivate particular crops or buy genetically modified seeds that were sold in conjunction with the fertilizers and pesticides that complemented them.
At home and abroad, we will need to return to a system by which food is locally produced and controlled. Our diminishing supply of fossil fuels depends on it, and conveniently enough, traditional agriculture is based on renewable energy -- sun and rainfall -- and crop rotation. We will need to relearn what it means to eat foods that are in season. And since so much of the grain that is produced in the world goes to feeding livestock, we will need to learn to eat less meat. But the benefits, both in terms of increased health and rediscovering a lost sense of community will be great. Pollan and Patel write of people who are moving us in that direction. Now if only we could redirect the money that now goes to subsidize the commodity crops of industrial agriculture, it would be so much easier to make this change happen.
Monday, November 17, 2008
Friday, October 17, 2008
Bleeding Afghanistan by Kolhatkar and Ingalls
Bleeding Afghanistan: Washington, Warlords, and the Propaganda of Silence by Sonali Kolhatkar and James Ingalls
Sonali Kolhatkar and James Ingalls are co-directors of the U.S. based, non-profit organization, The Afghan Women’s Mission, which supports Afghan women fighting for democracy in their country. A major component of that effort is educating the American people regarding the history of our involvement in Afghanistan, in the hopes of influencing our foreign policy. Bleeding Afghanistan was written for that purpose.
A growing number of Americans are aware that our involvement in Afghanistan dates back to the 1980’s, when the Soviet Union occupied the country. The Soviet Union had been our primary adversary for decades and by financially supporting those who would fight their occupation of Afghanistan, we were also helping to bring about the downfall of the Soviet Union itself.
We funneled this aid through Pakistan to seven resistance groups, representing varying degrees of Islamic fundamentalism. These resistance groups were known collectively as the Mujahideen, today as the warlords or Northern Alliance. While they were effective in driving out the Soviets, they did not enjoy broad support among the Afghan people. Their rise to power in the post-Soviet era was a disaster for Afghanistan, where fully 70% of the population favored the return of the exiled king, Zahir Shah, to lead the country’s interim government.
The Mujahideen proved to be violent and misogynist leaders. Thousands of dissidents and intellectuals were disappeared and progress by women’s rights activists was set back decades. They were so brutal, in fact, that in 1996, when they were overthrown by the Taliban, an Islamic fundamentalist organization of Pashtuns* from both Afghanistan and Pakistan, the majority of people welcomed the change. Their optimism was short-lived, however, as the Taliban proved to be as violent and misogynist as their processors.
Al-Queda, the anti-American terrorist organization, which grew out of the resistance movement of the 1980’s, became more powerful in the late 1990’s. They were allowed to reside in Taliban-controlled Afghanistan during that time period, while planning the 9/11 attacks. The United States, in retaliation, attacked Afghanistan, deposing the Taliban, and the warlords or Northern Alliance (formerly the Mujahideen) returned to power. Despite much press to the contrary, this did not represent a return to democracy nor the liberation of women. And the cultivation of poppies, for the production of heroin, has become a booming industry, since 2001.
In 2005, four years after the fall of the Taliban, the United Nations Development Program Office in Kabul ranked Afghanistan as 173rd in their index of 178 nations, with regard to such measures as health, literacy, employment, and lifespan. The president, Hamid Karzai, is one of the few prominent Pashtuns who favors U.S. interests and is widely regarded as an American puppet. He travels with American bodyguards and his government is full of warlords.
Why did we embark upon war in Afghanistan in 2001 and what do we gain by our continued presence? Although some have contended that we were motivated by oil, Kolhatkar and Ingalls believe that initially our purpose was something far simpler – a projection of power. Afghanistan was marginal to U.S. interests prior to 9/11. The Bush Administration had been focused on Iraq. However, Afghanistan presented the United States with a perfect opportunity to “wreak vengeance and rebuild its tarnished reputation,” given bin Laden’s connection with the Taliban, the Taliban’s atrocious human rights record, and the fact that the country was an easy military target, Now, however, it would appear that some U.S. planners are taking a broader view of the region, with the oil and gas pipeline being built across Afghanistan and the pipeline through Azerbaijan and Georgia to the Black Sea. It is helpful to U.S. business interests to have a friendly government in Kabul and military bases in resource rich Central Asia .
Kolhatkar and Ingalls are deeply concerned about the bi-partisan American enthusiasm for continued war in Afghanistan, particularly because the United States continues to lack any clear strategy. They believe that stability must begin with a government that the Afghan people can support. They have several recommendations which include ending the U.S. occupation, expanding the international security forces and strengthening the Afghan National Army; supporting secular, democratic Afghan groups, while disarming the warlords; paying reparations in order to rebuild the physical infrastructure; and increasing and improving media coverage.
Independent journalist, Nir Rosen, who was recently in Afghanistan, embedded with the Taliban, laments the fact that this sort of policy was not enacted in the fall of 2001. He writes of his observations in “How We Lost the War We Won,” in the October 30th issue of Rolling Stone Magazine.
He describes Kabul as the Afghan equivalent of the Green Zone in Baghdad. A half hour from the city, the resurgent Taliban and the Americans are engaged in armed conflict. Beyond that, the Taliban retains control of most of the country. The situation has deteriorated so badly that it is difficult to imagine an American military victory. A surge in American forces invariably means that more civilians will be killed, resulting in increased anti-American feeling among the population.
He sees al-Queda, an organization with very little success before or after the 9/11 attacks, as relatively unimportant, while recognizing the enormous power of the Taliban. He believes that negotiating with the Taliban is, at this time, is the only approach in Afghanistan. He says that they have grown more pragmatic, and have softened their stance on women, now saying that they should have both educational and employment opportunities. He also sees them as evolving into an organization defined by Pashtun nationalism.
Rosen says these things not as someone who approves of or respects the Taliban. Far from it. He just realizes how powerful they have become and that it may be impossible to defeat them militarily. Above all, he thinks, the United States should re-evaluate their entire approach to the Middle East. Simply killing people is not working. We need to seriously examine why Muslims are so angry with America and take their concerns seriously.
Kolhatkar and Ingalls wrote their book over a year ago, and it would be interesting to hear what they think of Rosen’s assessment. Had we been better informed in 2001 and implemented the sort of recommendations in Bleeding Afghanistan at that time, we would not be in the situation we are in today. The book is a strong argument for not mindlessly embracing war, without any idea of either strategy or consequences.
* Note: Who are the Pashtuns? They are the largest ethnic group in Afghanistan and are also a large ethnic group within Pakistan. In fact, this division between the two countries is a vestige of British colonialism. In the 19th century, the borders were drawn to split Afghan Pashtuns from Pashtuns living in British-occupied India (now Pakistan). This was intentional to create a fractured structure that was easily divided and subject to foreign influence. “Captain K. W. Wade wrote in 1837, ‘Whilst distributed into several states, the Afghans are, in my opinion, more likely to subserve the views and interests of the British Government.’” p. 118 Kolthatkar and Ingalls.
The British followed a similar strategy at the end of WWI. With the fall of the Ottoman Empire, they drew borders of new countries to divide people, which is why the Kurds are split between Turkey, Iraq, and Iran.
Sonali Kolhatkar and James Ingalls are co-directors of the U.S. based, non-profit organization, The Afghan Women’s Mission, which supports Afghan women fighting for democracy in their country. A major component of that effort is educating the American people regarding the history of our involvement in Afghanistan, in the hopes of influencing our foreign policy. Bleeding Afghanistan was written for that purpose.
A growing number of Americans are aware that our involvement in Afghanistan dates back to the 1980’s, when the Soviet Union occupied the country. The Soviet Union had been our primary adversary for decades and by financially supporting those who would fight their occupation of Afghanistan, we were also helping to bring about the downfall of the Soviet Union itself.
We funneled this aid through Pakistan to seven resistance groups, representing varying degrees of Islamic fundamentalism. These resistance groups were known collectively as the Mujahideen, today as the warlords or Northern Alliance. While they were effective in driving out the Soviets, they did not enjoy broad support among the Afghan people. Their rise to power in the post-Soviet era was a disaster for Afghanistan, where fully 70% of the population favored the return of the exiled king, Zahir Shah, to lead the country’s interim government.
The Mujahideen proved to be violent and misogynist leaders. Thousands of dissidents and intellectuals were disappeared and progress by women’s rights activists was set back decades. They were so brutal, in fact, that in 1996, when they were overthrown by the Taliban, an Islamic fundamentalist organization of Pashtuns* from both Afghanistan and Pakistan, the majority of people welcomed the change. Their optimism was short-lived, however, as the Taliban proved to be as violent and misogynist as their processors.
Al-Queda, the anti-American terrorist organization, which grew out of the resistance movement of the 1980’s, became more powerful in the late 1990’s. They were allowed to reside in Taliban-controlled Afghanistan during that time period, while planning the 9/11 attacks. The United States, in retaliation, attacked Afghanistan, deposing the Taliban, and the warlords or Northern Alliance (formerly the Mujahideen) returned to power. Despite much press to the contrary, this did not represent a return to democracy nor the liberation of women. And the cultivation of poppies, for the production of heroin, has become a booming industry, since 2001.
In 2005, four years after the fall of the Taliban, the United Nations Development Program Office in Kabul ranked Afghanistan as 173rd in their index of 178 nations, with regard to such measures as health, literacy, employment, and lifespan. The president, Hamid Karzai, is one of the few prominent Pashtuns who favors U.S. interests and is widely regarded as an American puppet. He travels with American bodyguards and his government is full of warlords.
Why did we embark upon war in Afghanistan in 2001 and what do we gain by our continued presence? Although some have contended that we were motivated by oil, Kolhatkar and Ingalls believe that initially our purpose was something far simpler – a projection of power. Afghanistan was marginal to U.S. interests prior to 9/11. The Bush Administration had been focused on Iraq. However, Afghanistan presented the United States with a perfect opportunity to “wreak vengeance and rebuild its tarnished reputation,” given bin Laden’s connection with the Taliban, the Taliban’s atrocious human rights record, and the fact that the country was an easy military target, Now, however, it would appear that some U.S. planners are taking a broader view of the region, with the oil and gas pipeline being built across Afghanistan and the pipeline through Azerbaijan and Georgia to the Black Sea. It is helpful to U.S. business interests to have a friendly government in Kabul and military bases in resource rich Central Asia .
Kolhatkar and Ingalls are deeply concerned about the bi-partisan American enthusiasm for continued war in Afghanistan, particularly because the United States continues to lack any clear strategy. They believe that stability must begin with a government that the Afghan people can support. They have several recommendations which include ending the U.S. occupation, expanding the international security forces and strengthening the Afghan National Army; supporting secular, democratic Afghan groups, while disarming the warlords; paying reparations in order to rebuild the physical infrastructure; and increasing and improving media coverage.
Independent journalist, Nir Rosen, who was recently in Afghanistan, embedded with the Taliban, laments the fact that this sort of policy was not enacted in the fall of 2001. He writes of his observations in “How We Lost the War We Won,” in the October 30th issue of Rolling Stone Magazine.
He describes Kabul as the Afghan equivalent of the Green Zone in Baghdad. A half hour from the city, the resurgent Taliban and the Americans are engaged in armed conflict. Beyond that, the Taliban retains control of most of the country. The situation has deteriorated so badly that it is difficult to imagine an American military victory. A surge in American forces invariably means that more civilians will be killed, resulting in increased anti-American feeling among the population.
He sees al-Queda, an organization with very little success before or after the 9/11 attacks, as relatively unimportant, while recognizing the enormous power of the Taliban. He believes that negotiating with the Taliban is, at this time, is the only approach in Afghanistan. He says that they have grown more pragmatic, and have softened their stance on women, now saying that they should have both educational and employment opportunities. He also sees them as evolving into an organization defined by Pashtun nationalism.
Rosen says these things not as someone who approves of or respects the Taliban. Far from it. He just realizes how powerful they have become and that it may be impossible to defeat them militarily. Above all, he thinks, the United States should re-evaluate their entire approach to the Middle East. Simply killing people is not working. We need to seriously examine why Muslims are so angry with America and take their concerns seriously.
Kolhatkar and Ingalls wrote their book over a year ago, and it would be interesting to hear what they think of Rosen’s assessment. Had we been better informed in 2001 and implemented the sort of recommendations in Bleeding Afghanistan at that time, we would not be in the situation we are in today. The book is a strong argument for not mindlessly embracing war, without any idea of either strategy or consequences.
* Note: Who are the Pashtuns? They are the largest ethnic group in Afghanistan and are also a large ethnic group within Pakistan. In fact, this division between the two countries is a vestige of British colonialism. In the 19th century, the borders were drawn to split Afghan Pashtuns from Pashtuns living in British-occupied India (now Pakistan). This was intentional to create a fractured structure that was easily divided and subject to foreign influence. “Captain K. W. Wade wrote in 1837, ‘Whilst distributed into several states, the Afghans are, in my opinion, more likely to subserve the views and interests of the British Government.’” p. 118 Kolthatkar and Ingalls.
The British followed a similar strategy at the end of WWI. With the fall of the Ottoman Empire, they drew borders of new countries to divide people, which is why the Kurds are split between Turkey, Iraq, and Iran.
Colombia and the United States by Mario Murillo
Colombia and the United States: War, Unrest, and Destabilization by Mario A. Murillo
We Americans know very little about Colombia, but the biggest reason we should care to know is this: Colombia is the largest recipient of U.S. military aid in the Western Hemisphere and the third largest recipient in the world. Billions of our tax dollars have gone to Colombia over the past few decades. Mario Murillo, a journalism professor from Hofstra University, has written Colombia and the United States: War, Unrest, and Destabilization to give Americans a broader picture of Colombia. He offers us the history of its internal problems, and our involvement in their country, in order to help us determine if this has been a good use of our tax dollars.
If you asked the average American why our government would want to aid the Colombia military, the common wisdom would be that we are fighting “a war on drugs,” in particular, trying to eliminate the production and export of cocaine. Yet our efforts have spanned decades with little or no impact on the international drug trade. If this had truly been our goal, might it be time to reevaluate our strategy?
In fact, the “war on drugs” is only one of three justifications for our involvement in Colombia. Mid twentieth century, it was framed in terms of our fight against communism and in this century, it is spoken of within the context of the “global war on terror.” What exactly are the issues facing Colombia and what is our interest there?
Colombia is a country with considerable natural resources and productive capacity. It has petroleum, gold, and emeralds. It is a major producer of coffee and the second largest exporter of flowers, after Holland. A mountainous country, it has climates ranging from temperate in high altitude Bogota to tropical on the coast, providing a wide range of agricultural opportunity. But Colombians do not share in this wealth equitably.
Along with Brazil, it has the most inequitable distribution of wealth in the Western Hemisphere. On the one hand, there is an oligarchy – the financial and political elite – and on the other, those living at or below the poverty level, who make up over 60% of the population. This has been true for decades.
This inequality is at the root of Colombia’s unrest, which Murillo traces back to the assassination of presidential candidate, Jorge Gaitan, in 1948. Gaitan had successfully created a movement based on economic redistribution, political participation, and a challenge to the dominant two party system. His support crossed party lines, and during his candidacy, the mood in Colombia was hopeful as never before. His assassination triggered weeks of spontaneous protests in the capital, but the protestors were unable to mount the effect challenge to the oligarchy that led to the popularity of Gaitan to begin with.
In the countryside, the government reversed the agrarian reform in progress, killing hundreds of peasants, and displacing the thousands of others who fled the violence. In the cities, activist workers were fired and it became a crime to organize a strike as a means of social protest. The promise of a united union movement was destroyed. For many, Gaitan’s assassination became symbolic of democracy aborted in Colombia. Hundreds of other charismatic leaders have been murdered in the decades to follow.
Against this backdrop of government violence and repression, organized resistance to the government grew. The three best known resistance groups are: the Revolutionary Armed Forces of Colombia (FARC) which began among the peasants and was devoted to agrarian reform; the National Liberation Army (ELN), begun among middle class youth fighting against the generous oil concessions granted to foreign oil companies; and the urban based M-19 Movement, which grew out of the blatant robbing of the presidential election on April 19, 1970, and which was focused on abuses by the government.
There have also been attempts, during the past three decades to organize politically and participate in the legislative process. One such example was the Patriot Union, established in the mid-1980’s. Made up of progressive activists and intellectuals from agrarian reformers to trade unionists, they won many electoral victories. But they were undermined through assassinations, threats, and intimidation, and were unable to exercise power. This left the three major resistance groups, believing that their only path was armed resistance.
Over time, the FARC began to finance its operations through kidnappings and local control over coca production. The ELN began to blow up oil company pipelines, to the consternation of environmentalists, and the M-19 was responsible for assassinations of government officials. Three groups which had essentially been formed with populist intentions lost much of their popular support because of the means they chose to achieve their goals.
However, it was the Colombian government and the national police, with financial backing from the United States, who were responsible for most of the violence. Fully 70% of the human rights violations could be traced back to the government in the 1980’s. It was at this time that the country started to see the growth of the AUC, the United Self-Defense Forces, a paramilitary organization begun at the initiative of the Colombian army. Citizens were organized, on behalf of large landowners tied to international drug trafficking, to combat the anti-government forces. Now it is the AUC, with close ties to the government, which is responsible for 70% of human rights violations as opposed to the government itself.
With violence on all sides, what of the ordinary Colombian who longs for peace and stability and an economically viable way of life? Non-violent activists, who organize on behalf of indigenous communities, trade unions, and other progressive causes, find themselves denounced by the central government as terrorist sympathizers. Hundreds of trade unionists have been killed just in the past few years.
The situation is particularly bleak in the countryside, where both sides of the conflict fight to control the lucrative cocaine trade. Murillo interviewed a coca farmer from Southern Colombia who explained that every dollar’s worth of yucca that she could sell costs her two and half dollars to produce and bring to market. With coca, traders come to her, give her a good price for her crop, and she has the money she needs to support her children. While the government demands that farmers grow something other than coca, farmers are not given assistance or incentives to do so.
Is there any hope for Colombia? Murillo thinks so. He believes a negotiated settlement among all parties, as opposed to a military solution, is what is required, and that international mediation from the United Nations may be required. He has written this book for an American audience, because while it is true that Colombia’s problems have domestic origins, the United States has been financing the bloodshed. We have been doing that in two ways – with our demand for cocaine and with our military aid.
With both the paramilitaries and anti-government forces heavily financed by drug money, a severe drop off in demand would put a significant crimp in their operations, and people in the countryside could go back to growing food. Could more and better information regarding the impact of drug production on exporting countries influence people to stop consuming? Maybe so. Acclaimed British actress Helen Mirren recently confessed using cocaine as a young person, but stopped abruptly when she learned that Klaus Barbie, a Nazi living in South America, had become rich in the cocaine trade. Might American cocaine users react similarly if they knew the impact of their habit?
And what of our tax dollars going to aid the Colombian military? Since this has had no impact on the international drug trade, what possible justification do we have in continuing to provide military aid? Might our involvement be on behalf of U.S. business interests in Colombia and the wider region? Of what significance is the fact that Colombia is an oil producing country? Or that it is a nation so hostile to the concept of organized labor that being part of the labor movement puts one’s very life at risk? Colombia is a nation with which our government would dearly love to have a free trade agreement, even if, as analysts predict, it means putting local rice farmers out of business or providing expensive pharmaceuticals, while preventing the local manufacture of generic equivalents.
Our tax dollars are being used to maintain a most inequitable society in a region where democracy is flourishing. From Rafael Correa’s Ecuador to Michele Bachelet’s Chile, from the success of Evo Morales with his indigenous movement in Bolivia to the triumph of liberation theology in Fernando Lugo’s Paraguay, changes are going on throughout Latin America that would have made Jorge Gaitan smile. One wonders how long his native Colombia must wait.
We Americans know very little about Colombia, but the biggest reason we should care to know is this: Colombia is the largest recipient of U.S. military aid in the Western Hemisphere and the third largest recipient in the world. Billions of our tax dollars have gone to Colombia over the past few decades. Mario Murillo, a journalism professor from Hofstra University, has written Colombia and the United States: War, Unrest, and Destabilization to give Americans a broader picture of Colombia. He offers us the history of its internal problems, and our involvement in their country, in order to help us determine if this has been a good use of our tax dollars.
If you asked the average American why our government would want to aid the Colombia military, the common wisdom would be that we are fighting “a war on drugs,” in particular, trying to eliminate the production and export of cocaine. Yet our efforts have spanned decades with little or no impact on the international drug trade. If this had truly been our goal, might it be time to reevaluate our strategy?
In fact, the “war on drugs” is only one of three justifications for our involvement in Colombia. Mid twentieth century, it was framed in terms of our fight against communism and in this century, it is spoken of within the context of the “global war on terror.” What exactly are the issues facing Colombia and what is our interest there?
Colombia is a country with considerable natural resources and productive capacity. It has petroleum, gold, and emeralds. It is a major producer of coffee and the second largest exporter of flowers, after Holland. A mountainous country, it has climates ranging from temperate in high altitude Bogota to tropical on the coast, providing a wide range of agricultural opportunity. But Colombians do not share in this wealth equitably.
Along with Brazil, it has the most inequitable distribution of wealth in the Western Hemisphere. On the one hand, there is an oligarchy – the financial and political elite – and on the other, those living at or below the poverty level, who make up over 60% of the population. This has been true for decades.
This inequality is at the root of Colombia’s unrest, which Murillo traces back to the assassination of presidential candidate, Jorge Gaitan, in 1948. Gaitan had successfully created a movement based on economic redistribution, political participation, and a challenge to the dominant two party system. His support crossed party lines, and during his candidacy, the mood in Colombia was hopeful as never before. His assassination triggered weeks of spontaneous protests in the capital, but the protestors were unable to mount the effect challenge to the oligarchy that led to the popularity of Gaitan to begin with.
In the countryside, the government reversed the agrarian reform in progress, killing hundreds of peasants, and displacing the thousands of others who fled the violence. In the cities, activist workers were fired and it became a crime to organize a strike as a means of social protest. The promise of a united union movement was destroyed. For many, Gaitan’s assassination became symbolic of democracy aborted in Colombia. Hundreds of other charismatic leaders have been murdered in the decades to follow.
Against this backdrop of government violence and repression, organized resistance to the government grew. The three best known resistance groups are: the Revolutionary Armed Forces of Colombia (FARC) which began among the peasants and was devoted to agrarian reform; the National Liberation Army (ELN), begun among middle class youth fighting against the generous oil concessions granted to foreign oil companies; and the urban based M-19 Movement, which grew out of the blatant robbing of the presidential election on April 19, 1970, and which was focused on abuses by the government.
There have also been attempts, during the past three decades to organize politically and participate in the legislative process. One such example was the Patriot Union, established in the mid-1980’s. Made up of progressive activists and intellectuals from agrarian reformers to trade unionists, they won many electoral victories. But they were undermined through assassinations, threats, and intimidation, and were unable to exercise power. This left the three major resistance groups, believing that their only path was armed resistance.
Over time, the FARC began to finance its operations through kidnappings and local control over coca production. The ELN began to blow up oil company pipelines, to the consternation of environmentalists, and the M-19 was responsible for assassinations of government officials. Three groups which had essentially been formed with populist intentions lost much of their popular support because of the means they chose to achieve their goals.
However, it was the Colombian government and the national police, with financial backing from the United States, who were responsible for most of the violence. Fully 70% of the human rights violations could be traced back to the government in the 1980’s. It was at this time that the country started to see the growth of the AUC, the United Self-Defense Forces, a paramilitary organization begun at the initiative of the Colombian army. Citizens were organized, on behalf of large landowners tied to international drug trafficking, to combat the anti-government forces. Now it is the AUC, with close ties to the government, which is responsible for 70% of human rights violations as opposed to the government itself.
With violence on all sides, what of the ordinary Colombian who longs for peace and stability and an economically viable way of life? Non-violent activists, who organize on behalf of indigenous communities, trade unions, and other progressive causes, find themselves denounced by the central government as terrorist sympathizers. Hundreds of trade unionists have been killed just in the past few years.
The situation is particularly bleak in the countryside, where both sides of the conflict fight to control the lucrative cocaine trade. Murillo interviewed a coca farmer from Southern Colombia who explained that every dollar’s worth of yucca that she could sell costs her two and half dollars to produce and bring to market. With coca, traders come to her, give her a good price for her crop, and she has the money she needs to support her children. While the government demands that farmers grow something other than coca, farmers are not given assistance or incentives to do so.
Is there any hope for Colombia? Murillo thinks so. He believes a negotiated settlement among all parties, as opposed to a military solution, is what is required, and that international mediation from the United Nations may be required. He has written this book for an American audience, because while it is true that Colombia’s problems have domestic origins, the United States has been financing the bloodshed. We have been doing that in two ways – with our demand for cocaine and with our military aid.
With both the paramilitaries and anti-government forces heavily financed by drug money, a severe drop off in demand would put a significant crimp in their operations, and people in the countryside could go back to growing food. Could more and better information regarding the impact of drug production on exporting countries influence people to stop consuming? Maybe so. Acclaimed British actress Helen Mirren recently confessed using cocaine as a young person, but stopped abruptly when she learned that Klaus Barbie, a Nazi living in South America, had become rich in the cocaine trade. Might American cocaine users react similarly if they knew the impact of their habit?
And what of our tax dollars going to aid the Colombian military? Since this has had no impact on the international drug trade, what possible justification do we have in continuing to provide military aid? Might our involvement be on behalf of U.S. business interests in Colombia and the wider region? Of what significance is the fact that Colombia is an oil producing country? Or that it is a nation so hostile to the concept of organized labor that being part of the labor movement puts one’s very life at risk? Colombia is a nation with which our government would dearly love to have a free trade agreement, even if, as analysts predict, it means putting local rice farmers out of business or providing expensive pharmaceuticals, while preventing the local manufacture of generic equivalents.
Our tax dollars are being used to maintain a most inequitable society in a region where democracy is flourishing. From Rafael Correa’s Ecuador to Michele Bachelet’s Chile, from the success of Evo Morales with his indigenous movement in Bolivia to the triumph of liberation theology in Fernando Lugo’s Paraguay, changes are going on throughout Latin America that would have made Jorge Gaitan smile. One wonders how long his native Colombia must wait.
Friday, October 10, 2008
The Wrecking Crew by Thomas Frank
The Wrecking Crew: How Conservatives Rule by Thomas Frank
Wall Street Journal columnist, Thomas Frank, begins his book, The Wrecking Crew, by reminding us that conservatism has meant different things in other lands and other times, like a respect for tradition and institutions inherited from the past. In an American context, however, conservatism has always been an expression of business and that concept is fundamental to understanding the conservative movement. It is an economic philosophy which has as its guiding principle minimal government interference in the marketplace, including opposition to taxation, organized labor, regulation, and state ownership.
When, in 1929, there was a catastrophic breakdown of the business system, conservatism fell out of favor and populist economics in the public interest began to assert its influence. For decades, there was a truce between business and labor, with each understanding that there was to be no final and decisive victory over the other.
The conservatism that began to resurface in the 1970’s and 1980’s developed in such a way as to withstand a 1929-style disaster. Conservatives were no longer to be recognized as wealthy and influential bankers and manufacturers, trying to advance their own interests. Rather they defined themselves, for the most part, by what they were against – the government. Recast as rebels, outsiders, mavericks, and even freedom fighters, the new conservatives successfully built a grassroots movement of the embittered and aggrieved – everyone from blue collar patriots worried about the Soviets to fundamentalists watching their culture fall apart.
This phenomenon is examined in depth in Frank’s previous book, What’s the Matter with Kansas? Conservatives have been successful in getting large numbers of people to vote against their own economic interests, by identifying with their social issues and convincing them that, they too, are outsiders and that the problem rests with the government.
Once in power, conservatives govern badly and, according to Frank, they do so intentionally. One tactic is to appoint individuals to head up government agencies who are openly opposed to the very purpose of the organization they are heading up. The first of these in this new age of conservatism was James Watt, Secretary of the Interior, under Ronald Reagan. Prior to accepting that position, Watt ran a legal foundation which fought the department’s conservation policies on behalf of wealthy ranchers, oil companies, and timber interests. Then there was Anne Gorsuch, appointed by Reagan to head the Environmental Protection Agency (EPA). Immediately upon taking office, she did away with the EPA’s Office of Enforcement. She recognized that the regulations would be rendered useless, if there was no mechanism for enforcing them.
Examples from the current administration include Nancy Nord, the chair of the Consumer Products Safety Commission, who opposed measures that would give her agency greater authority, and the ability to weed our dangerous toys. Officials at the Mine Safety and Health Administration reduced fines to mine owners for safety violations, and those appointed to the Labor Department are people opposed to the concept of organized labor.
In 2004, at the Food and Drug Administration (FDA), a career scientist discovered that a side affect of Vioxx, an already approved drug, was heart attack. His politically appointed superiors were not pleased with his findings. When he stated emphatically that the public was his client, he was corrected. Industry was his client.
The reason for this behavior – subverting the very purpose of government while working for government – is that there is a lot of money to be made doing so. While the average citizen may view the salary of a politician or the head of a government agency as a good salary, the potential to make very much more is great, if one aids a particular company or industry at public expense, and then later goes to work for that very company or industry.
The documentary “Why We Fight” documents one such case. Dick Cheney was, prior to being George W. Bush’s vice president, the Secretary of Defense under George Bush, senior. In this capacity, he commissioned a study conducted by Kellog, Brown, and Root (KBR), then a subsidiary of Halliburton, to see whether it might be beneficial to privatize services from cooking to laundry within the military, services previously performed by military personnel. KBR concluded that it would be beneficial and it was awarded lucrative contracts at U.S. military bases around the world. Dick Cheney was then offered the position of C.E.O. at Halliburton. Within four years, his net worth went from just over a million dollars to over seventy million dollars. Then, some years later, we saw him back in a government role, where he became one of the primary architects of the invasion and occupation of Iraq.
Thomas Frank tells us that in Iraq, conservatives got their chance to remake an entire country into a free-market utopia, with minimal interference from regulators and liberals. While the war profits of Halliburton and Exxon are well documented, the larger story is how American tax dollars have been used to create money-making opportunities for a broad range of American companies. The job of planning the privatization of Iraq’s government-owned industries went to a management consulting firm in McLean, Virginia. A firm from North Carolina got the job of setting up town and city councils. Blackwater got the job of protecting American officials. Even the job of training the Iraqi army was outsourced. One American contractor was quoted as saying that getting the rights to distribute Procter and Gamble products would be a gold mine and that one well-stocked 7-Eleven could knock out thirty Iraqi stores. One has to wonder how the American public benefits from this use of our tax dollars.
In the chapter “City of Bought Men,” Frank delves into the lobbying industry. Lobbying, he tells us, is how money casts its vote. Lobbyists exist so businesses can explain their needs to government. They write bills, help see them through the legislative process, and help with the running of reelection campaigns. It is hugely profitable. As an example of how this works, Frank cites the case of the University of Alabama whose $1.5 million in lobbying fees yielded $150 million dollars worth of research earmarks. The University paid the lobbying firm, Van Scoyoc, whose various officers contributed $123,500 to the campaign of Alabama Senator Richard Shelby. Shelby’s role, of course, was to make sure that the University of Alabama got their $150 million.
Citing a 1874 case, thrown out by the Supreme Court, in which a lobbyist sued for non-payment, Frank reminds us that persuasion-for-hire is nothing new. What is new is how large the lobbying industry has grown and its enormous role in matters of public significance. Here, too, our elected officials have enormous opportunities, upon leaving office, to either become lobbyists themselves or to work for the industry for which they have done the most, while in office. In fact, in the example above, two of Shelby’s former staffers are now vice presidents at Van Scoyoc.
Conservative presidents from Ronald Reagan to George W. Bush have created enormous federal deficits. While they have talked about “bringing spending under control,” each has spent far more than the amount of revenue taken in. In the interest of private gain, public debt has skyrocketed.
In summary, conservatives serve the public poorly, but they do so intentionally. The worse they rule, the better, because in the end, it will only cause the general public to hate government more. That is a major step in dismantling it and rendering it powerless against business. The next conservative candidate to come along once again will proclaim his maverick status and his desire to take on Washington.
And what of liberals? Unfortunately, the system initiated by the new conservatism has rendered liberals relatively powerless. Bill Clinton came to the office of the president as somewhat of a populist but had to change quickly. He inherited a large deficit from the previous administration, and both jittery bond traders on Wall Street and the Federal Reserve Chairman needed to be assured regarding a Democrat in the White House. They asked that he bring federal spending under control. He did. But it was at the cost of existing federal programs and new programs that might have been implemented. In his second term, he ran the government on a balanced budget for four straight years.
Initially irritated, Clinton had become a convert. He appointed Robert Rubin, former chairman of Goldman Sachs, as his Treasury Secretary. Rubin, in fact, was a major force behind the deregulation of the financial services industry, including the repeal of the Glass-Steagall Act, which had separated speculative activities from commercial banking, since the Great Depression.
So the call for less government and less regulation, has taken root in both political parties, and both share responsibility for our current economic crisis. If there is an alternative path, it will require a broad understanding of how we got to this point. For beginning that effort, we own a debt of gratitude to Thomas Frank.
Wall Street Journal columnist, Thomas Frank, begins his book, The Wrecking Crew, by reminding us that conservatism has meant different things in other lands and other times, like a respect for tradition and institutions inherited from the past. In an American context, however, conservatism has always been an expression of business and that concept is fundamental to understanding the conservative movement. It is an economic philosophy which has as its guiding principle minimal government interference in the marketplace, including opposition to taxation, organized labor, regulation, and state ownership.
When, in 1929, there was a catastrophic breakdown of the business system, conservatism fell out of favor and populist economics in the public interest began to assert its influence. For decades, there was a truce between business and labor, with each understanding that there was to be no final and decisive victory over the other.
The conservatism that began to resurface in the 1970’s and 1980’s developed in such a way as to withstand a 1929-style disaster. Conservatives were no longer to be recognized as wealthy and influential bankers and manufacturers, trying to advance their own interests. Rather they defined themselves, for the most part, by what they were against – the government. Recast as rebels, outsiders, mavericks, and even freedom fighters, the new conservatives successfully built a grassroots movement of the embittered and aggrieved – everyone from blue collar patriots worried about the Soviets to fundamentalists watching their culture fall apart.
This phenomenon is examined in depth in Frank’s previous book, What’s the Matter with Kansas? Conservatives have been successful in getting large numbers of people to vote against their own economic interests, by identifying with their social issues and convincing them that, they too, are outsiders and that the problem rests with the government.
Once in power, conservatives govern badly and, according to Frank, they do so intentionally. One tactic is to appoint individuals to head up government agencies who are openly opposed to the very purpose of the organization they are heading up. The first of these in this new age of conservatism was James Watt, Secretary of the Interior, under Ronald Reagan. Prior to accepting that position, Watt ran a legal foundation which fought the department’s conservation policies on behalf of wealthy ranchers, oil companies, and timber interests. Then there was Anne Gorsuch, appointed by Reagan to head the Environmental Protection Agency (EPA). Immediately upon taking office, she did away with the EPA’s Office of Enforcement. She recognized that the regulations would be rendered useless, if there was no mechanism for enforcing them.
Examples from the current administration include Nancy Nord, the chair of the Consumer Products Safety Commission, who opposed measures that would give her agency greater authority, and the ability to weed our dangerous toys. Officials at the Mine Safety and Health Administration reduced fines to mine owners for safety violations, and those appointed to the Labor Department are people opposed to the concept of organized labor.
In 2004, at the Food and Drug Administration (FDA), a career scientist discovered that a side affect of Vioxx, an already approved drug, was heart attack. His politically appointed superiors were not pleased with his findings. When he stated emphatically that the public was his client, he was corrected. Industry was his client.
The reason for this behavior – subverting the very purpose of government while working for government – is that there is a lot of money to be made doing so. While the average citizen may view the salary of a politician or the head of a government agency as a good salary, the potential to make very much more is great, if one aids a particular company or industry at public expense, and then later goes to work for that very company or industry.
The documentary “Why We Fight” documents one such case. Dick Cheney was, prior to being George W. Bush’s vice president, the Secretary of Defense under George Bush, senior. In this capacity, he commissioned a study conducted by Kellog, Brown, and Root (KBR), then a subsidiary of Halliburton, to see whether it might be beneficial to privatize services from cooking to laundry within the military, services previously performed by military personnel. KBR concluded that it would be beneficial and it was awarded lucrative contracts at U.S. military bases around the world. Dick Cheney was then offered the position of C.E.O. at Halliburton. Within four years, his net worth went from just over a million dollars to over seventy million dollars. Then, some years later, we saw him back in a government role, where he became one of the primary architects of the invasion and occupation of Iraq.
Thomas Frank tells us that in Iraq, conservatives got their chance to remake an entire country into a free-market utopia, with minimal interference from regulators and liberals. While the war profits of Halliburton and Exxon are well documented, the larger story is how American tax dollars have been used to create money-making opportunities for a broad range of American companies. The job of planning the privatization of Iraq’s government-owned industries went to a management consulting firm in McLean, Virginia. A firm from North Carolina got the job of setting up town and city councils. Blackwater got the job of protecting American officials. Even the job of training the Iraqi army was outsourced. One American contractor was quoted as saying that getting the rights to distribute Procter and Gamble products would be a gold mine and that one well-stocked 7-Eleven could knock out thirty Iraqi stores. One has to wonder how the American public benefits from this use of our tax dollars.
In the chapter “City of Bought Men,” Frank delves into the lobbying industry. Lobbying, he tells us, is how money casts its vote. Lobbyists exist so businesses can explain their needs to government. They write bills, help see them through the legislative process, and help with the running of reelection campaigns. It is hugely profitable. As an example of how this works, Frank cites the case of the University of Alabama whose $1.5 million in lobbying fees yielded $150 million dollars worth of research earmarks. The University paid the lobbying firm, Van Scoyoc, whose various officers contributed $123,500 to the campaign of Alabama Senator Richard Shelby. Shelby’s role, of course, was to make sure that the University of Alabama got their $150 million.
Citing a 1874 case, thrown out by the Supreme Court, in which a lobbyist sued for non-payment, Frank reminds us that persuasion-for-hire is nothing new. What is new is how large the lobbying industry has grown and its enormous role in matters of public significance. Here, too, our elected officials have enormous opportunities, upon leaving office, to either become lobbyists themselves or to work for the industry for which they have done the most, while in office. In fact, in the example above, two of Shelby’s former staffers are now vice presidents at Van Scoyoc.
Conservative presidents from Ronald Reagan to George W. Bush have created enormous federal deficits. While they have talked about “bringing spending under control,” each has spent far more than the amount of revenue taken in. In the interest of private gain, public debt has skyrocketed.
In summary, conservatives serve the public poorly, but they do so intentionally. The worse they rule, the better, because in the end, it will only cause the general public to hate government more. That is a major step in dismantling it and rendering it powerless against business. The next conservative candidate to come along once again will proclaim his maverick status and his desire to take on Washington.
And what of liberals? Unfortunately, the system initiated by the new conservatism has rendered liberals relatively powerless. Bill Clinton came to the office of the president as somewhat of a populist but had to change quickly. He inherited a large deficit from the previous administration, and both jittery bond traders on Wall Street and the Federal Reserve Chairman needed to be assured regarding a Democrat in the White House. They asked that he bring federal spending under control. He did. But it was at the cost of existing federal programs and new programs that might have been implemented. In his second term, he ran the government on a balanced budget for four straight years.
Initially irritated, Clinton had become a convert. He appointed Robert Rubin, former chairman of Goldman Sachs, as his Treasury Secretary. Rubin, in fact, was a major force behind the deregulation of the financial services industry, including the repeal of the Glass-Steagall Act, which had separated speculative activities from commercial banking, since the Great Depression.
So the call for less government and less regulation, has taken root in both political parties, and both share responsibility for our current economic crisis. If there is an alternative path, it will require a broad understanding of how we got to this point. For beginning that effort, we own a debt of gratitude to Thomas Frank.
Monday, July 28, 2008
Bad Money by Kevin Phillips
Bad Money: Reckless Finance, Failed Politics, and the Global Crisis of American Capitalism by Kevin Phillips
Most of us look at the economy from an individual perspective. Do we or don’t we have jobs that pay well? Can we make the monthly mortgage payment? How are we holding up under the rising cost of food, heating oil, health insurance, gasoline, and higher education? Kevin Phillips takes our concerns and offers us a broader perspective, regarding the American economy and its place in the global economy. Bad Money is about the insecurity of America’s future as the world’s leading economic power. Phillips’ book discusses the two major components contributing to that insecurity: the rapid and unregulated growth of America’s financial services sector and the vulnerability of America’s oil supremacy, resulting in the embattled dollar.
On the first theme, he begins with some sobering statistics. Manufacturing, which comprised 29.3% of the Gross Domestic Product (GDP), in 1950, shrank to 12% by 2005. Financial services grew from 10.9% to 20.4%, during the same period. In conjunction with the growth of the financial services sector, credit market debt increased from $11 trillion in 1987 to $48 trillion in 2007. In Phillips’ words, we have gone from actually producing things to “moving money around.”
Why is this a problem? The reason is that in order for financial services to have grown to this degree at such a rapid rate, the sector has embraced increasing risk, facilitated by deregulation, as typified by the repeal of the Glass-Steagall Act (1930’s legislation preventing common ownership of banks, investment firms, and insurance companies). In addition, while in previous generations Americans were encouraged to save and those savings were invested in increasing our productive capacity, today Americans are encouraged to borrow. In the past several years, any individual, on any given day, may find in his mailbox, multiple credit card promotions as well as encouragement to borrow against the equity in his home.
In one of the more traditional areas of financial services, home mortgage lending, established lending standards have been relaxed in order to enlarge the pool of borrowers. By 2007, roughly 20% of home mortgages were being made in the “sub-prime” market, to low-income borrowers. Roughly another 20% of home mortgages were being made to borrowers with good incomes, but poor credit histories. These two groups taken together presented considerable risk, particularly because many of these loans were at adjustable rates. A borrower, who could initially make payments on his mortgage, would eventually default and see his home go into foreclosure. As long as home prices continued to rise, this was a problem for the borrower, but not for the lender, who could take the property and resell it to a new buyer, at a similarly high rate of interest. However, with an increasing number of foreclosures, home values dropped, and before long, many people had mortgages that were higher than the current value of their homes. The whole scheme began to fall apart. It is not hard to understand that these trends ended in hardship for a growing number of families. What is less well understood is how they threaten the American economy and its place within the world economy.
In recent years, a trend developed in which mortgage lenders sold off the mortgages they originated to securities firms who would pool them into mortgage backed securities. These securities, because they involved risk, offered a greater rate of return, making them attractive to buyers. The embedded risk came precisely from those less qualified borrowers who were paying higher interest rates. It was only when large numbers of those borrowers could not make their mortgage payments that it became clear that the risk of these mortgage backed securities was too great.
A lot of these securities were being purchased by overseas borrowers. In trading with foreign countries, we purchased their manufactured goods, but we had a declining number of manufactured goods to sell to them. What we did have were these financial instruments, and now there was evidence that they may not be sound. Interest in purchasing them has dropped off. What then will we sell to foreign countries, as we buy their manufactured goods?
Looking at the early history of selling financial instruments to other countries leads us to Phillips’ second major theme: oil. Back in the mid-1970’s, the United States struck a deal with Saudi Arabia and the Persian Gulf states. We agreed to higher oil prices and to arm and protect the monarchies in the region. In return, there was unofficial agreement that oil was to be paid for in dollars. Much of the payment received was recycled back to the United States through investment in Treasury debt, the first financial instrument that we heavily promoted overseas.
The agreement to only accept dollars for oil gave the United States enormous purchasing power, because any country interested in buying oil from the region needed to trade with us to get our currency. Buying and selling in “petrodollars” became the worldwide standard practice.
The first leader of an oil producing nation to rebel against this arrangement was Saddam Hussein. In 2000, chafing after nearly a decade of economic sanctions by the United Nations and periodic bombing attacks by the United States, both of which inflicted great hardship on Iraq, he decided that international oil purchases from Iraq would be paid for in euros and not dollars. He urged members of OPEC to do the same. The 2003 invasion and occupation of Iraq quickly reversed his action. What the United States didn’t count on was the sense of outrage the invasion of Iraq would provoke throughout the world, and particularly among oil exporting nations.
Within a few years, Venezuelan president, Hugo Chavez, instructed the state owned oil company to shift accounts to euros and several Asian currencies. President Ahmadinejad in Iran shifted accounts to euros and yen. Saudi Arabia and several Persian Gulf states didn’t abandon the dollar completely, but significantly reduced the percentage of their oil sales to be paid for in dollars. They, too, were upset with the United States for invading Iraq, but they had a second more practical reason for moving toward other currencies. As the first few countries abandoned the dollar as the currency for oil sales, the value of the dollar began to decline. In that environment, any country which was tied too closely to the dollar would suffer economically.
Phillips believes that these two crises – the one that involves housing and credit and the other involving the end of our domination of world oil -- signal the end of our control of the world economy.
He looks at previous world economic powers – Spain, Holland, and Great Britain – and notes similarities. All three overemphasized the financial sector of the economy above all else. All three developed great wealth disparities between rich and poor. Holland and Great Britain were dominant in the prevailing energy sources of their day – wind and water in the case of Holland and coal in the case of Great Britain. The good news, Phillips reminds us, is that all three are far more prosperous today than they were in the height of their global reach.
But the transition from leading world economic power to a simple nation state among other nation states is not easy. No one prominent in U. S. politics will want to embrace an agenda of managing and minimizing the trajectory of our country’s fall from being the dominant economic power. The same was true in Spain, Holland, and Great Britain. Each experienced a few decades of hardship.
We are already feeling the impact of the transition. The cost of living is skyrocketing, as we pay unprecedented amounts for food, health insurance, heating oil, and gasoline for our cars. At the same time we periodically hear of our low inflation rates. How is this possible? According to Phillips, over time there have been changes in how the Consumer Price Index is calculated. For example, consumer electronics, which have been dropping in price, have been given greater weight in the calculation, and food and energy costs have been given lesser weight.
We need to realize that our entire lifestyle – how we get from place to place, our suburban residential patterns, the products we use – is all predicated on abundant, cheap oil. Within the next few years, the world will reach peak oil production, and it will decline from there. That and our diminishing control over the global oil business, as well as our failure in global credit markets, point to major changes in global economic power.
Recognition that this shift in world economic power is already underway will help us adapt to it. If we can develop high end manufacturing and alternative energy sources sooner rather than later, the transition will be far less painful.
Most of us look at the economy from an individual perspective. Do we or don’t we have jobs that pay well? Can we make the monthly mortgage payment? How are we holding up under the rising cost of food, heating oil, health insurance, gasoline, and higher education? Kevin Phillips takes our concerns and offers us a broader perspective, regarding the American economy and its place in the global economy. Bad Money is about the insecurity of America’s future as the world’s leading economic power. Phillips’ book discusses the two major components contributing to that insecurity: the rapid and unregulated growth of America’s financial services sector and the vulnerability of America’s oil supremacy, resulting in the embattled dollar.
On the first theme, he begins with some sobering statistics. Manufacturing, which comprised 29.3% of the Gross Domestic Product (GDP), in 1950, shrank to 12% by 2005. Financial services grew from 10.9% to 20.4%, during the same period. In conjunction with the growth of the financial services sector, credit market debt increased from $11 trillion in 1987 to $48 trillion in 2007. In Phillips’ words, we have gone from actually producing things to “moving money around.”
Why is this a problem? The reason is that in order for financial services to have grown to this degree at such a rapid rate, the sector has embraced increasing risk, facilitated by deregulation, as typified by the repeal of the Glass-Steagall Act (1930’s legislation preventing common ownership of banks, investment firms, and insurance companies). In addition, while in previous generations Americans were encouraged to save and those savings were invested in increasing our productive capacity, today Americans are encouraged to borrow. In the past several years, any individual, on any given day, may find in his mailbox, multiple credit card promotions as well as encouragement to borrow against the equity in his home.
In one of the more traditional areas of financial services, home mortgage lending, established lending standards have been relaxed in order to enlarge the pool of borrowers. By 2007, roughly 20% of home mortgages were being made in the “sub-prime” market, to low-income borrowers. Roughly another 20% of home mortgages were being made to borrowers with good incomes, but poor credit histories. These two groups taken together presented considerable risk, particularly because many of these loans were at adjustable rates. A borrower, who could initially make payments on his mortgage, would eventually default and see his home go into foreclosure. As long as home prices continued to rise, this was a problem for the borrower, but not for the lender, who could take the property and resell it to a new buyer, at a similarly high rate of interest. However, with an increasing number of foreclosures, home values dropped, and before long, many people had mortgages that were higher than the current value of their homes. The whole scheme began to fall apart. It is not hard to understand that these trends ended in hardship for a growing number of families. What is less well understood is how they threaten the American economy and its place within the world economy.
In recent years, a trend developed in which mortgage lenders sold off the mortgages they originated to securities firms who would pool them into mortgage backed securities. These securities, because they involved risk, offered a greater rate of return, making them attractive to buyers. The embedded risk came precisely from those less qualified borrowers who were paying higher interest rates. It was only when large numbers of those borrowers could not make their mortgage payments that it became clear that the risk of these mortgage backed securities was too great.
A lot of these securities were being purchased by overseas borrowers. In trading with foreign countries, we purchased their manufactured goods, but we had a declining number of manufactured goods to sell to them. What we did have were these financial instruments, and now there was evidence that they may not be sound. Interest in purchasing them has dropped off. What then will we sell to foreign countries, as we buy their manufactured goods?
Looking at the early history of selling financial instruments to other countries leads us to Phillips’ second major theme: oil. Back in the mid-1970’s, the United States struck a deal with Saudi Arabia and the Persian Gulf states. We agreed to higher oil prices and to arm and protect the monarchies in the region. In return, there was unofficial agreement that oil was to be paid for in dollars. Much of the payment received was recycled back to the United States through investment in Treasury debt, the first financial instrument that we heavily promoted overseas.
The agreement to only accept dollars for oil gave the United States enormous purchasing power, because any country interested in buying oil from the region needed to trade with us to get our currency. Buying and selling in “petrodollars” became the worldwide standard practice.
The first leader of an oil producing nation to rebel against this arrangement was Saddam Hussein. In 2000, chafing after nearly a decade of economic sanctions by the United Nations and periodic bombing attacks by the United States, both of which inflicted great hardship on Iraq, he decided that international oil purchases from Iraq would be paid for in euros and not dollars. He urged members of OPEC to do the same. The 2003 invasion and occupation of Iraq quickly reversed his action. What the United States didn’t count on was the sense of outrage the invasion of Iraq would provoke throughout the world, and particularly among oil exporting nations.
Within a few years, Venezuelan president, Hugo Chavez, instructed the state owned oil company to shift accounts to euros and several Asian currencies. President Ahmadinejad in Iran shifted accounts to euros and yen. Saudi Arabia and several Persian Gulf states didn’t abandon the dollar completely, but significantly reduced the percentage of their oil sales to be paid for in dollars. They, too, were upset with the United States for invading Iraq, but they had a second more practical reason for moving toward other currencies. As the first few countries abandoned the dollar as the currency for oil sales, the value of the dollar began to decline. In that environment, any country which was tied too closely to the dollar would suffer economically.
Phillips believes that these two crises – the one that involves housing and credit and the other involving the end of our domination of world oil -- signal the end of our control of the world economy.
He looks at previous world economic powers – Spain, Holland, and Great Britain – and notes similarities. All three overemphasized the financial sector of the economy above all else. All three developed great wealth disparities between rich and poor. Holland and Great Britain were dominant in the prevailing energy sources of their day – wind and water in the case of Holland and coal in the case of Great Britain. The good news, Phillips reminds us, is that all three are far more prosperous today than they were in the height of their global reach.
But the transition from leading world economic power to a simple nation state among other nation states is not easy. No one prominent in U. S. politics will want to embrace an agenda of managing and minimizing the trajectory of our country’s fall from being the dominant economic power. The same was true in Spain, Holland, and Great Britain. Each experienced a few decades of hardship.
We are already feeling the impact of the transition. The cost of living is skyrocketing, as we pay unprecedented amounts for food, health insurance, heating oil, and gasoline for our cars. At the same time we periodically hear of our low inflation rates. How is this possible? According to Phillips, over time there have been changes in how the Consumer Price Index is calculated. For example, consumer electronics, which have been dropping in price, have been given greater weight in the calculation, and food and energy costs have been given lesser weight.
We need to realize that our entire lifestyle – how we get from place to place, our suburban residential patterns, the products we use – is all predicated on abundant, cheap oil. Within the next few years, the world will reach peak oil production, and it will decline from there. That and our diminishing control over the global oil business, as well as our failure in global credit markets, point to major changes in global economic power.
Recognition that this shift in world economic power is already underway will help us adapt to it. If we can develop high end manufacturing and alternative energy sources sooner rather than later, the transition will be far less painful.
Tuesday, July 1, 2008
Health Care Meltdown by LeBow and White
Health Care Meltdown: Confronting the Myths and Fixing Our Failing System
By Robert H. LeBow, MD
Revised and Updated by C. Rocky White, MD
Robert LeBow spent two years as a U.S. Peace Corp physician in Bolivia, and was headed toward a career in international health, when he realized that the economic forces in play in our own American health care system resulted in poor health outcomes here at home. He joined a health center for migrant farm workers in Idaho and became a life long health care activist. C. Rocky White arrived at the same conclusions, coming from a completely different background. His fundamentalist Christian boyhood on a Nebraska farm shaped his conservative views. His experience as a caring physician convinced him that while he was a strong believer in capitalism and the profit motive, he drew the line on issues relating to human health and questions of life and death. A few years after LeBow’s death in 2003, his widow asked White to revise and update her husband’s book, the very book that White himself would have written, had LeBow not done it first.
What exactly did these two men find wrong with the American health care system? Our medical technology is among the finest in the world and we have thousands of competent and compassionate health care providers. One problem is that our health outcomes are not very good in comparison to the rest of the world. A World Health Organization Study in the year 2000 ranked us at 27th in life expectancy, 29th in maternal mortality, 35th in infant mortality, and 36th in mortality before age five. In virtually all measures of health care, we rank in 20th place or worse, and we are the only industrialized democracy in the world which does not provide universal coverage to its entire population.
In light of these facts, it is surprising that in the United States, per capita spending on health care is roughly twice as much as in most other industrialized nations. We are also unique among our peers in being the only place where illness can lead to financial ruin. A full 50% of personal bankruptcies are medically related, and those affected are primarily middle-class people. 75% of those driven to bankruptcy due to health care costs had health insurance when they became ill.
What is contributing to such high costs? LeBow and White say that it is our fragmented, for-profit system for financing health care. A recent study of 2277 people in Washington state, for example, revealed that they were covered by 755 different health insurance policies and 189 different health plans. Such complexity results in increased administrative costs, as health care providers and hospitals submit claims to a variety of payers. In fact, up to 30% of health care costs involve administration, marketing of various insurance plans, inflated CEO salaries, commissions to insurance agents, and corporate profits. If these resources were instead devoted to patient care, all those currently insured could be covered.
How many people are currently uninsured? Out of a population of 300 million roughly 46 million have no health insurance. Adding those who are underinsured – in other words, those whose co-payments and deductibles are so high that their lack of a good plan presents a barrier to care – the figure is closer to 90 million.
When one is among the 90 million, he tends to delay health care, simply because it is too expensive. Or he sees a doctor, but forgoes the follow up visit. Or he doesn’t buy the prescribed medications, because he can’t afford them. Ultimately, the lack of preventative care or early intervention, results in many of the uninsured or underinsured developing serious problems that could have been avoided.
At the point where conditions become catastrophic, members of the uninsured or underinsured groups may gain entry to the system. Their aggravated conditions require immediate attention and the accompanying economic devastation makes them qualify for government programs for the very poor. However, the price is great – both in terms of human suffering and financial waste.
On the other side of the spectrum, there may be a tendency for overutilization. A person with back pain, for example, might come in and demand an MRI. A physician’s inclination might be to go with conservative approaches first, but he might be pressured into going along with the request, provided that the patient has a health plan that would cover it. In a similar vein, someone might see a particular medication advertised on TV and insist upon it, even though another medication might be less expensive and just as effective.
However, the middle class is vulnerable, as well. Our unique approach to health care which ties coverage to employment – a concept unheard of in other industrialized nations – means anyone is one layoff away from losing insurance. In addition, anyone who has been seriously ill (e.g. a cancer survivor) is someone labeled with a “pre-existing condition.” Insurance premiums for such a person become so high that many can no longer afford to buy it.
Physicians are suffering under the current system as well. They are devoting a significant amount of time to paperwork in figuring out who is covered by what and submitting and resubmitting claims. They also find themselves chasing favorable demographics, in order to survive. Rocky White tells of his own experience in the San Luis Valley, in South Central Colorado. In 1996, when he began working there, he was one of eleven internists in the Valley. The uninsured rate there is close to 24%. 23% of the population is on Medicaid and another 28% are on Medicare. With Medicaid patients, his practice lost 30 cents on the dollar, and with Medicare, he broke even. With such demographics, it is hard to sustain a practice, and White found that after nine years, he was the only internist left in the Valley. In this manner, many regions throughout the country are left with few or no internists.
LeBow and White argue that the only way to fix our health care system is to move to a single payer, one risk pool system. Health care delivery would continue to come from private providers but the financing mechanism needs to be done on a non-profit, public interest basis. With a single payer, health care administrative costs can be cut dramatically and resources could go back into patient care.
Who could object to health care as a human right and a simplified payment mechanism which would save billions of dollars? There have been four primary opponents: physicians, hospitals, pharmaceutical companies, and insurance companies. However, things are beginning to change. While the American Medical Association has long been an opponent of a single payer system, 57% of physicians overall now support it. These physicians are from varied backgrounds and political inclinations, but are aware of the inherent wastefulness in the current system and how it makes it increasingly difficult to practice medicine.
Hospitals, primarily those run as non-profits, should welcome a change that would streamline administration and cut down on paperwork. For-profit hospitals might consider converting to non-profit status.
A single payer opponent with more to lose is the pharmaceutical industry. Drug companies have one of the highest profit margins of all American companies, at 19% of sales. (In comparison, the median profit margin of Fortune 500 companies is 5%.) Drug companies spend three times as much money on marketing as they do on Research and Development, in order to maintain those high profits. A single payer system would have tremendous power to negotiate better pricing. Drug companies would still make a profit, but would not be able to “maximize profit.” The well being of our citizens would come first.
Finally, the player with the most to lose is the insurance industry. Their middleman role would be all but eliminated, except for some basic administrative functions within a non-profit context.
Perhaps the greatest obstacle to change, say the authors, is that the public knows so little about how the present system works or what alternatives might look like. The opponents of single payer have huge budgets to convince us that single payer is not a good idea. The opponents would like us to think that single payer would offer us less choice, when, in fact, the opposite is true. With today’s system, you can’t see a physician who is not approved by a particular health plan. Under single payer, there would be no such restrictions. A single payer, one risk pool system would continue to utilize health providers in the private sector. It is only the financing mechanism that would operate on a non-profit basis, in the public interest.
The authors emphasize that the “single risk pool” aspect of single payer is a critical element. Under the current system, health insurance companies are only too happy to delegate high risk patient responsibility to the government. The elderly are more likely to need medical services as are the truly poor, who have not had the same level of preventative care or early intervention. The profits are to be made among those in the healthy, employed middle-class. What could be more profitable than having a family of four pay well over $10,000 per year in health insurance, when the vast majority have little or no need to actually use health care services? Then, of course, should someone in this group become seriously ill, for example, develop cancer, the insurance industry looks for the first opportunity to deny coverage, or establish premiums that are well above the affordable level.
The one risk pool approach, advocated by the authors, requires us to think beyond our individualistic approach to health care and assume community responsibility. However, it is not simply a matter of altruism. We need to acknowledge that someone close to us may some day grow old or develop a serious illness. Just as we would want the members of the larger community to be there for us, we need to be there for them.
By Robert H. LeBow, MD
Revised and Updated by C. Rocky White, MD
Robert LeBow spent two years as a U.S. Peace Corp physician in Bolivia, and was headed toward a career in international health, when he realized that the economic forces in play in our own American health care system resulted in poor health outcomes here at home. He joined a health center for migrant farm workers in Idaho and became a life long health care activist. C. Rocky White arrived at the same conclusions, coming from a completely different background. His fundamentalist Christian boyhood on a Nebraska farm shaped his conservative views. His experience as a caring physician convinced him that while he was a strong believer in capitalism and the profit motive, he drew the line on issues relating to human health and questions of life and death. A few years after LeBow’s death in 2003, his widow asked White to revise and update her husband’s book, the very book that White himself would have written, had LeBow not done it first.
What exactly did these two men find wrong with the American health care system? Our medical technology is among the finest in the world and we have thousands of competent and compassionate health care providers. One problem is that our health outcomes are not very good in comparison to the rest of the world. A World Health Organization Study in the year 2000 ranked us at 27th in life expectancy, 29th in maternal mortality, 35th in infant mortality, and 36th in mortality before age five. In virtually all measures of health care, we rank in 20th place or worse, and we are the only industrialized democracy in the world which does not provide universal coverage to its entire population.
In light of these facts, it is surprising that in the United States, per capita spending on health care is roughly twice as much as in most other industrialized nations. We are also unique among our peers in being the only place where illness can lead to financial ruin. A full 50% of personal bankruptcies are medically related, and those affected are primarily middle-class people. 75% of those driven to bankruptcy due to health care costs had health insurance when they became ill.
What is contributing to such high costs? LeBow and White say that it is our fragmented, for-profit system for financing health care. A recent study of 2277 people in Washington state, for example, revealed that they were covered by 755 different health insurance policies and 189 different health plans. Such complexity results in increased administrative costs, as health care providers and hospitals submit claims to a variety of payers. In fact, up to 30% of health care costs involve administration, marketing of various insurance plans, inflated CEO salaries, commissions to insurance agents, and corporate profits. If these resources were instead devoted to patient care, all those currently insured could be covered.
How many people are currently uninsured? Out of a population of 300 million roughly 46 million have no health insurance. Adding those who are underinsured – in other words, those whose co-payments and deductibles are so high that their lack of a good plan presents a barrier to care – the figure is closer to 90 million.
When one is among the 90 million, he tends to delay health care, simply because it is too expensive. Or he sees a doctor, but forgoes the follow up visit. Or he doesn’t buy the prescribed medications, because he can’t afford them. Ultimately, the lack of preventative care or early intervention, results in many of the uninsured or underinsured developing serious problems that could have been avoided.
At the point where conditions become catastrophic, members of the uninsured or underinsured groups may gain entry to the system. Their aggravated conditions require immediate attention and the accompanying economic devastation makes them qualify for government programs for the very poor. However, the price is great – both in terms of human suffering and financial waste.
On the other side of the spectrum, there may be a tendency for overutilization. A person with back pain, for example, might come in and demand an MRI. A physician’s inclination might be to go with conservative approaches first, but he might be pressured into going along with the request, provided that the patient has a health plan that would cover it. In a similar vein, someone might see a particular medication advertised on TV and insist upon it, even though another medication might be less expensive and just as effective.
However, the middle class is vulnerable, as well. Our unique approach to health care which ties coverage to employment – a concept unheard of in other industrialized nations – means anyone is one layoff away from losing insurance. In addition, anyone who has been seriously ill (e.g. a cancer survivor) is someone labeled with a “pre-existing condition.” Insurance premiums for such a person become so high that many can no longer afford to buy it.
Physicians are suffering under the current system as well. They are devoting a significant amount of time to paperwork in figuring out who is covered by what and submitting and resubmitting claims. They also find themselves chasing favorable demographics, in order to survive. Rocky White tells of his own experience in the San Luis Valley, in South Central Colorado. In 1996, when he began working there, he was one of eleven internists in the Valley. The uninsured rate there is close to 24%. 23% of the population is on Medicaid and another 28% are on Medicare. With Medicaid patients, his practice lost 30 cents on the dollar, and with Medicare, he broke even. With such demographics, it is hard to sustain a practice, and White found that after nine years, he was the only internist left in the Valley. In this manner, many regions throughout the country are left with few or no internists.
LeBow and White argue that the only way to fix our health care system is to move to a single payer, one risk pool system. Health care delivery would continue to come from private providers but the financing mechanism needs to be done on a non-profit, public interest basis. With a single payer, health care administrative costs can be cut dramatically and resources could go back into patient care.
Who could object to health care as a human right and a simplified payment mechanism which would save billions of dollars? There have been four primary opponents: physicians, hospitals, pharmaceutical companies, and insurance companies. However, things are beginning to change. While the American Medical Association has long been an opponent of a single payer system, 57% of physicians overall now support it. These physicians are from varied backgrounds and political inclinations, but are aware of the inherent wastefulness in the current system and how it makes it increasingly difficult to practice medicine.
Hospitals, primarily those run as non-profits, should welcome a change that would streamline administration and cut down on paperwork. For-profit hospitals might consider converting to non-profit status.
A single payer opponent with more to lose is the pharmaceutical industry. Drug companies have one of the highest profit margins of all American companies, at 19% of sales. (In comparison, the median profit margin of Fortune 500 companies is 5%.) Drug companies spend three times as much money on marketing as they do on Research and Development, in order to maintain those high profits. A single payer system would have tremendous power to negotiate better pricing. Drug companies would still make a profit, but would not be able to “maximize profit.” The well being of our citizens would come first.
Finally, the player with the most to lose is the insurance industry. Their middleman role would be all but eliminated, except for some basic administrative functions within a non-profit context.
Perhaps the greatest obstacle to change, say the authors, is that the public knows so little about how the present system works or what alternatives might look like. The opponents of single payer have huge budgets to convince us that single payer is not a good idea. The opponents would like us to think that single payer would offer us less choice, when, in fact, the opposite is true. With today’s system, you can’t see a physician who is not approved by a particular health plan. Under single payer, there would be no such restrictions. A single payer, one risk pool system would continue to utilize health providers in the private sector. It is only the financing mechanism that would operate on a non-profit basis, in the public interest.
The authors emphasize that the “single risk pool” aspect of single payer is a critical element. Under the current system, health insurance companies are only too happy to delegate high risk patient responsibility to the government. The elderly are more likely to need medical services as are the truly poor, who have not had the same level of preventative care or early intervention. The profits are to be made among those in the healthy, employed middle-class. What could be more profitable than having a family of four pay well over $10,000 per year in health insurance, when the vast majority have little or no need to actually use health care services? Then, of course, should someone in this group become seriously ill, for example, develop cancer, the insurance industry looks for the first opportunity to deny coverage, or establish premiums that are well above the affordable level.
The one risk pool approach, advocated by the authors, requires us to think beyond our individualistic approach to health care and assume community responsibility. However, it is not simply a matter of altruism. We need to acknowledge that someone close to us may some day grow old or develop a serious illness. Just as we would want the members of the larger community to be there for us, we need to be there for them.
Wednesday, June 18, 2008
The Three Trillion Dollar War by Stiglitz and Bilmes
The Three Trillion Dollar War: The True Cost of the Iraq Conflict
By Joseph E. Stiglitz and Linda J. Bilmes
Joseph Stiglitz, a Columbia University professor and winner of the 2001 Nobel Prize in Economics, and Linda Bilmes, a government finance expert at Harvard’s Kennedy School, are almost defensive about having come together to write this book. Given the human suffering that war causes, they say in their preface, it may seem callous to focus on financial cost. However, financial resources are not infinite, and whether one was or is for this war or against it, it behooves all of us to examine the costs. When making choices between real world options, financial costs need to be one of the factors under consideration.
As of this writing – mid 2008 – the cost of the conflict is often stated as $645 billion, with the likely approval of 2008 war funding raising that to over $800 billion. Stiglitz and Bilmes say that this figure only represents funding for current combat operations. There are three other broad categories: hidden costs, future costs, and interest payments, which they analyze from a “best scenario” perspective (earlier withdrawal) and a “realistic-moderate” scenario. When the cost categories are added together, the total is conservatively estimated at $3 trillion. Adjusting for inflation, the only war that has been more expensive was World War II. And that is just the cost to the United States. The cost to the remainder of the world (primarily Iraq, but also those countries who have taken in refugees, or who have been pressured into forgiving Iraqi debt, so the Iraqis can rebuild) at least doubles that figure.
What are hidden costs? Hidden costs are essentially those which are buried in other budgets but are used to fund the Iraq War. The Department of Defense has an annual budget of roughly $500 billion per year, completely separate from war funding appropriations. Yet part of that budget is used to pay for the costs of current war. For example, the salaries of soldiers come out of the Defense Department budget. Only “extra” pay such as combat pay is taken out of the war appropriations budget. Also, due to difficulties recruiting, the military has hired thousands of new recruiters, increased signing bonuses and re-enlistment bonuses, and increased its national advertising campaign. All this has come out of the regular defense budget. Stiglitz and Bilmes meticulously delve into these and other hidden costs, while reminding us that they are being conservative in their estimates. Many hidden costs are not even included in their calculations, such as the insurance and workmen’s compensation for contractors, an expenditure that comes from the Department of Labor.
What are future costs? They are primarily costs which accrue now and are paid later. Primary among them is the cost of caring for our veterans. Due to advances in medicine and better protection of the torso, the ratio of injuries per fatality has skyrocketed since the second World War. At that time 1.6 soldiers were injured per fatality. Now the ratio is around 15 to 1. The signature wounds from this war are: traumatic brain injury, post-traumatic stress disorder, amputations, and spinal chord injuries. The costs of caring for these wounded veterans will go on for a lifetime, and they are not trivial.
Fully 38% of returning veterans are treated for mental health issues. A lot of those mental health problems stem from the difficulty of the soldier, once in Iraq, in determining who exactly the enemy is. Also, with repeated deployments, there is more likelihood of seeing the death or injury of a comrade. In addition, there are social costs tied to these future costs, like the lost income of the veteran whose disability prevents him from ever working, or the lost income of the caregiver who has given up a job to take care of him.
The fourth broad category is interest payments. This war has been funded on borrowed money. Foreign countries have purchased treasury debt and we pay billions each year in interest alone, on that debt. The longer the war continues, the more these debts will increase, since the current administration is pushing these costs onto future generations, and giving current taxpayers tax rebates. Eventually those debts will have to be paid.
One of the reasons the war has been so very expensive has been the unprecedented use of contractors in a variety of functions from personal services for soldiers to security detail, all of which used to be done by the military itself. These contractors are tremendously expensive. For example, private security guards working for Blackwater can earn as much as $1222 a day. By comparison, an Army sergeant earns $140 to $190 a day in pay and benefits.
Stiglitz and Bilmes anticipate that people will ask about the benefits of the conflict, but they have a hard time finding any. Had our goal been to find weapons of mass destruction, we soon discovered that there were none. Had we thought that Saddam Hussein was linked to those involved in the 9/11 attacks, we now know that is not true. Had our goal been to create a stable, democratic, and secular country that could be a model for the region, we are now far away from that goal. As the country plunged into chaos, the secular, educated middle class has largely fled to other countries and those who remain are more fundamentalist than ever. And finally, had we been after cheap oil, we have failed there, as well. Gasoline prices hovered around $1.60 per gallon at the start of the Bush Administration and are now over $4 per gallon. In fact, the authors argue that part of the rise of the price of oil is because of the war, and that adversely impacts other countries, as well. Only the oil companies, defense contractors, and security firms have benefited. Our international reputation has been tarnished and we have more enemies worldwide than ever. Our National Guard has been unavailable for domestic emergencies, such as Hurricane Katrina. Productive capacity that could have been used to manufacture goods that meet civilian needs instead went into armaments. Money spent on the war could have been spent on repairing our infrastructure, schools, and hospitals.
With regard to the continuation of the war, Stiglitz and Bilmes advocate getting out now. Iraq is not stable, but what makes us think that it will be more so in a year? In three years? In five years? We will only be adding to current and future costs. Adding to the difficulty is that most Iraqis want the Americans out of their country. There is not a lot of incentive for Iraqis to join forces with the Americans. Americans have imprisoned those who are part of the insurgency as well as those who are not. If “good” individuals (from the American viewpoint) are treated badly, there is little incentive to be good. On the other side, the insurgents are far more likely to only punish those complicit with the occupation. Being from Iraq and speaking Arabic, they are in a far better position to judge who is who. Being on the American side turns out to not be a very good bet from the Iraqi perspective.
The authors end their book by saying that war is not a decision to be taken lightly. In the end war is about men and women brutally killing other men, women, and children. But the authors don’t delve into a discussion of alternatives such as diplomacy or a strategy of generosity as embodied in the Marshall Plan in the 1940’s. Rather they make the assumption that our government will at some point take us into war again. Within that framework, they make several recommendations for the future. Some have to do with taking good care of our veterans, and making those benefits an entitlement, as opposed to something that comes up for periodic consideration by our congressmen. They also argue for limiting the use of contractors. Not only do contractors command huge salaries, their primary goal is making money, so they have little concern for the public interest.
Stiglitz and Bilmes also recommend that the costs of any military action, lasting more than one year, should be borne by current taxpayers, through the levying of a war surtax, and that any funding of war – or yearly refunding – should at every turn be linked to strategy. These last two recommendations alone should be enough to compel all of us – average citizens and Congressmen alike – to pay better attention as to what we are doing and why.
Louellyn Lambros
By Joseph E. Stiglitz and Linda J. Bilmes
Joseph Stiglitz, a Columbia University professor and winner of the 2001 Nobel Prize in Economics, and Linda Bilmes, a government finance expert at Harvard’s Kennedy School, are almost defensive about having come together to write this book. Given the human suffering that war causes, they say in their preface, it may seem callous to focus on financial cost. However, financial resources are not infinite, and whether one was or is for this war or against it, it behooves all of us to examine the costs. When making choices between real world options, financial costs need to be one of the factors under consideration.
As of this writing – mid 2008 – the cost of the conflict is often stated as $645 billion, with the likely approval of 2008 war funding raising that to over $800 billion. Stiglitz and Bilmes say that this figure only represents funding for current combat operations. There are three other broad categories: hidden costs, future costs, and interest payments, which they analyze from a “best scenario” perspective (earlier withdrawal) and a “realistic-moderate” scenario. When the cost categories are added together, the total is conservatively estimated at $3 trillion. Adjusting for inflation, the only war that has been more expensive was World War II. And that is just the cost to the United States. The cost to the remainder of the world (primarily Iraq, but also those countries who have taken in refugees, or who have been pressured into forgiving Iraqi debt, so the Iraqis can rebuild) at least doubles that figure.
What are hidden costs? Hidden costs are essentially those which are buried in other budgets but are used to fund the Iraq War. The Department of Defense has an annual budget of roughly $500 billion per year, completely separate from war funding appropriations. Yet part of that budget is used to pay for the costs of current war. For example, the salaries of soldiers come out of the Defense Department budget. Only “extra” pay such as combat pay is taken out of the war appropriations budget. Also, due to difficulties recruiting, the military has hired thousands of new recruiters, increased signing bonuses and re-enlistment bonuses, and increased its national advertising campaign. All this has come out of the regular defense budget. Stiglitz and Bilmes meticulously delve into these and other hidden costs, while reminding us that they are being conservative in their estimates. Many hidden costs are not even included in their calculations, such as the insurance and workmen’s compensation for contractors, an expenditure that comes from the Department of Labor.
What are future costs? They are primarily costs which accrue now and are paid later. Primary among them is the cost of caring for our veterans. Due to advances in medicine and better protection of the torso, the ratio of injuries per fatality has skyrocketed since the second World War. At that time 1.6 soldiers were injured per fatality. Now the ratio is around 15 to 1. The signature wounds from this war are: traumatic brain injury, post-traumatic stress disorder, amputations, and spinal chord injuries. The costs of caring for these wounded veterans will go on for a lifetime, and they are not trivial.
Fully 38% of returning veterans are treated for mental health issues. A lot of those mental health problems stem from the difficulty of the soldier, once in Iraq, in determining who exactly the enemy is. Also, with repeated deployments, there is more likelihood of seeing the death or injury of a comrade. In addition, there are social costs tied to these future costs, like the lost income of the veteran whose disability prevents him from ever working, or the lost income of the caregiver who has given up a job to take care of him.
The fourth broad category is interest payments. This war has been funded on borrowed money. Foreign countries have purchased treasury debt and we pay billions each year in interest alone, on that debt. The longer the war continues, the more these debts will increase, since the current administration is pushing these costs onto future generations, and giving current taxpayers tax rebates. Eventually those debts will have to be paid.
One of the reasons the war has been so very expensive has been the unprecedented use of contractors in a variety of functions from personal services for soldiers to security detail, all of which used to be done by the military itself. These contractors are tremendously expensive. For example, private security guards working for Blackwater can earn as much as $1222 a day. By comparison, an Army sergeant earns $140 to $190 a day in pay and benefits.
Stiglitz and Bilmes anticipate that people will ask about the benefits of the conflict, but they have a hard time finding any. Had our goal been to find weapons of mass destruction, we soon discovered that there were none. Had we thought that Saddam Hussein was linked to those involved in the 9/11 attacks, we now know that is not true. Had our goal been to create a stable, democratic, and secular country that could be a model for the region, we are now far away from that goal. As the country plunged into chaos, the secular, educated middle class has largely fled to other countries and those who remain are more fundamentalist than ever. And finally, had we been after cheap oil, we have failed there, as well. Gasoline prices hovered around $1.60 per gallon at the start of the Bush Administration and are now over $4 per gallon. In fact, the authors argue that part of the rise of the price of oil is because of the war, and that adversely impacts other countries, as well. Only the oil companies, defense contractors, and security firms have benefited. Our international reputation has been tarnished and we have more enemies worldwide than ever. Our National Guard has been unavailable for domestic emergencies, such as Hurricane Katrina. Productive capacity that could have been used to manufacture goods that meet civilian needs instead went into armaments. Money spent on the war could have been spent on repairing our infrastructure, schools, and hospitals.
With regard to the continuation of the war, Stiglitz and Bilmes advocate getting out now. Iraq is not stable, but what makes us think that it will be more so in a year? In three years? In five years? We will only be adding to current and future costs. Adding to the difficulty is that most Iraqis want the Americans out of their country. There is not a lot of incentive for Iraqis to join forces with the Americans. Americans have imprisoned those who are part of the insurgency as well as those who are not. If “good” individuals (from the American viewpoint) are treated badly, there is little incentive to be good. On the other side, the insurgents are far more likely to only punish those complicit with the occupation. Being from Iraq and speaking Arabic, they are in a far better position to judge who is who. Being on the American side turns out to not be a very good bet from the Iraqi perspective.
The authors end their book by saying that war is not a decision to be taken lightly. In the end war is about men and women brutally killing other men, women, and children. But the authors don’t delve into a discussion of alternatives such as diplomacy or a strategy of generosity as embodied in the Marshall Plan in the 1940’s. Rather they make the assumption that our government will at some point take us into war again. Within that framework, they make several recommendations for the future. Some have to do with taking good care of our veterans, and making those benefits an entitlement, as opposed to something that comes up for periodic consideration by our congressmen. They also argue for limiting the use of contractors. Not only do contractors command huge salaries, their primary goal is making money, so they have little concern for the public interest.
Stiglitz and Bilmes also recommend that the costs of any military action, lasting more than one year, should be borne by current taxpayers, through the levying of a war surtax, and that any funding of war – or yearly refunding – should at every turn be linked to strategy. These last two recommendations alone should be enough to compel all of us – average citizens and Congressmen alike – to pay better attention as to what we are doing and why.
Louellyn Lambros
Thursday, June 5, 2008
The Myth of Free Trade by Ha-Joon Chang
Bad Samaritans: The Myth of Free Trade and the
Secret History of Capitalism
by Ha-Joon Chang
The concept of free trade, as promoted by today’s economic superpowers, is a set of principles based on unfettered capitalism (e.g. no tariffs or government subsidies) with a few notable exceptions (e.g. subsidies for agriculture, intellectual property rights). Promoted as beneficial to the world community at large, free trade simultaneously promises to lift developing nations out of poverty and give the greatest number of human beings the greatest number of goods, at the lowest possible cost. Ha-Joon Chang, a distinguished economics professor at the University of Cambridge, challenges these notions. Instead of examining them from a theoretical perspective, he reviews actual trade history to provide an empirical framework for discussion.
He begins his review with his own native South Korea which achieved a level of economic growth in forty years that it took the United States a century and a half and Great Britain two centuries to achieve. He asks if this was a result of practicing the principles of free trade and concludes that it was not. The South Korean government methodically selected key industries and nurtured them through a combination of tariffs, outright import bans, and subsidies. They heavily controlled foreign investment, welcoming it in certain areas and shutting it out in others. Some critical industries that would not be immediately profitable were undertaken as state-owned enterprises, the steel maker, POSCO, being the best example.
Chang then reviews the British and American experience and finds a similar history. Britain imposed high tariffs on wool for many years, while developing a woolen industry that could compete against the Low Countries. The United States imposed high tariffs on British cotton textiles in order to develop its own textile industry. In fact, this was the primary source of tension between the North and the South in the run-up to the Civil War.
As producers of raw cotton, it was understandable that the South would want to purchase cotton cloth at the best possible price. The 40 to 50% tariffs that the United States imposed on all manufactured goods, from that period through the First World War, was seen as an imposition on a region that was primarily agricultural. Yet in order to grow and prosper as a nation, the United States needed to protect our new industries until they reached a point where they could compete on the world stage. There was no stronger advocate for this than Alexander Hamilton, our first Secretary of the Treasury, whose ideas in “Report on the Subject of Manufactures” became the foundation of our economic prosperity.
There appear to be only two areas within the free trade framework that government intervention is encouraged: agricultural subsidies and intellectual property rights. The United States heavily subsidizes agriculture and the result is that our food products are available in other countries at lower prices than locally grown foods. For example, after the implementation of NAFTA, low cost corn from the United States reached the Mexican market, resulting in many Mexican corn farmers going out of business. This was not only devastating to individual farmers. It put the entire country in a difficult position since it became dependent upon another country for the staple of its diet.
In the area of Intellectual Property Rights, particularly as granted to pharmaceutical companies, Chang shows where such policies often result in scarcity, rather than abundance, of goods. When a local economy is prevented from creating a cheaper generic alternative, many go without badly needed medicines, simply because they cannot afford them. Recent changes in patent laws have extended the life of patents, 97% of which are held by rich countries, making economic development in poorer countries that much more difficult. Interlocking patents make it hard to generate medicines and other innovations that are founded on previously patented knowledge. Chang dispels the myth that without a strong profit motive, advances in medicine would not occur, pointing out that much research is done in university settings for reasons having to do with scientific curiosity and the desire to do something beneficial for mankind.
On another front, and as part of the free trade framework, the giants of world finance, the World Bank and International Monetary Fund, favor private enterprise over state owned at all times, and these preferences are usually part of the terms of business. Chang looks at the criticisms leveled against state owned enterprises, which he calls the “principle agent problem, the free rider problem, and the soft budget constraint.” He shows through actual examples that these problems are not exclusive to state owned enterprises, and that there are poorly run and well run state, as well as private, enterprises. He shows that even in countries such as France, many successful companies from Renault to Rhone-Poulenc began as state-owned, the most powerful reason being that some critical industries need to be nurtured for years, before they can become profitable.
The strength of the book is that it does not rely on hypothesis and conjecture regarding the result of free trade, but rather examines actual trade history. Chang’ concludes that the notion of a “level playing field” is unfair when the players themselves are unequal. He certainly supports the idea of international trade, and in fact, blames the lack of it for North Korea’s dismal economic performance, since 1950. However, as was the case in South Korea, Britain, the United States, and the vast majority of prosperous nations, he strongly believes that countries must be allowed to integrate into the world economy on their own terms.
What is lacking here is any discussion of the impact of free trade on the citizens of wealthier countries. Chang does not address the concerns of displaced workers in a nation that has been losing its manufacturing base, nor does he give possible remedies for those concerns. That, perhaps, is the subject of another book.
Louellyn Lambros
Secret History of Capitalism
by Ha-Joon Chang
The concept of free trade, as promoted by today’s economic superpowers, is a set of principles based on unfettered capitalism (e.g. no tariffs or government subsidies) with a few notable exceptions (e.g. subsidies for agriculture, intellectual property rights). Promoted as beneficial to the world community at large, free trade simultaneously promises to lift developing nations out of poverty and give the greatest number of human beings the greatest number of goods, at the lowest possible cost. Ha-Joon Chang, a distinguished economics professor at the University of Cambridge, challenges these notions. Instead of examining them from a theoretical perspective, he reviews actual trade history to provide an empirical framework for discussion.
He begins his review with his own native South Korea which achieved a level of economic growth in forty years that it took the United States a century and a half and Great Britain two centuries to achieve. He asks if this was a result of practicing the principles of free trade and concludes that it was not. The South Korean government methodically selected key industries and nurtured them through a combination of tariffs, outright import bans, and subsidies. They heavily controlled foreign investment, welcoming it in certain areas and shutting it out in others. Some critical industries that would not be immediately profitable were undertaken as state-owned enterprises, the steel maker, POSCO, being the best example.
Chang then reviews the British and American experience and finds a similar history. Britain imposed high tariffs on wool for many years, while developing a woolen industry that could compete against the Low Countries. The United States imposed high tariffs on British cotton textiles in order to develop its own textile industry. In fact, this was the primary source of tension between the North and the South in the run-up to the Civil War.
As producers of raw cotton, it was understandable that the South would want to purchase cotton cloth at the best possible price. The 40 to 50% tariffs that the United States imposed on all manufactured goods, from that period through the First World War, was seen as an imposition on a region that was primarily agricultural. Yet in order to grow and prosper as a nation, the United States needed to protect our new industries until they reached a point where they could compete on the world stage. There was no stronger advocate for this than Alexander Hamilton, our first Secretary of the Treasury, whose ideas in “Report on the Subject of Manufactures” became the foundation of our economic prosperity.
There appear to be only two areas within the free trade framework that government intervention is encouraged: agricultural subsidies and intellectual property rights. The United States heavily subsidizes agriculture and the result is that our food products are available in other countries at lower prices than locally grown foods. For example, after the implementation of NAFTA, low cost corn from the United States reached the Mexican market, resulting in many Mexican corn farmers going out of business. This was not only devastating to individual farmers. It put the entire country in a difficult position since it became dependent upon another country for the staple of its diet.
In the area of Intellectual Property Rights, particularly as granted to pharmaceutical companies, Chang shows where such policies often result in scarcity, rather than abundance, of goods. When a local economy is prevented from creating a cheaper generic alternative, many go without badly needed medicines, simply because they cannot afford them. Recent changes in patent laws have extended the life of patents, 97% of which are held by rich countries, making economic development in poorer countries that much more difficult. Interlocking patents make it hard to generate medicines and other innovations that are founded on previously patented knowledge. Chang dispels the myth that without a strong profit motive, advances in medicine would not occur, pointing out that much research is done in university settings for reasons having to do with scientific curiosity and the desire to do something beneficial for mankind.
On another front, and as part of the free trade framework, the giants of world finance, the World Bank and International Monetary Fund, favor private enterprise over state owned at all times, and these preferences are usually part of the terms of business. Chang looks at the criticisms leveled against state owned enterprises, which he calls the “principle agent problem, the free rider problem, and the soft budget constraint.” He shows through actual examples that these problems are not exclusive to state owned enterprises, and that there are poorly run and well run state, as well as private, enterprises. He shows that even in countries such as France, many successful companies from Renault to Rhone-Poulenc began as state-owned, the most powerful reason being that some critical industries need to be nurtured for years, before they can become profitable.
The strength of the book is that it does not rely on hypothesis and conjecture regarding the result of free trade, but rather examines actual trade history. Chang’ concludes that the notion of a “level playing field” is unfair when the players themselves are unequal. He certainly supports the idea of international trade, and in fact, blames the lack of it for North Korea’s dismal economic performance, since 1950. However, as was the case in South Korea, Britain, the United States, and the vast majority of prosperous nations, he strongly believes that countries must be allowed to integrate into the world economy on their own terms.
What is lacking here is any discussion of the impact of free trade on the citizens of wealthier countries. Chang does not address the concerns of displaced workers in a nation that has been losing its manufacturing base, nor does he give possible remedies for those concerns. That, perhaps, is the subject of another book.
Louellyn Lambros
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