Obama Champions Small Business

One of the stated goals of President Obama’s Financial Crisis Responsibility Fee is to reduce the size of financial institutions. Ideally, his administration would like to do some modern trust busting to make sure that banks won’t ever be “too big to fail” again. Who decides when a bank is “too big”? The same government that is now trying to break them up: the goverment of whim.

In his State of the Union address, the president cherished small businesses which, “through sheer grit and determination,” have weathered the recession and are ready to create jobs — which is the foremost objective of the Obama Administration this year. But, “even though banks on Wall Street are lending again, they are mostly lending to bigger companies.” Small businesses are in desperate need of credit and Wall Street bankers aren’t giving it to them.

So, the president proposes taking $30 billion of the money which Wall Street “repaid” and invest it in community banks. Of course, that money was borrowed by the American government in the first place and should now be used to pay back the loans, else that $30 billion gets added to America’s already mounting public debt. The president is aware of the problem. “If we don’t take meaningful steps to rein in our debt,” he said, “it could damage our markets, increase the cost of borrowing, and jeopardize our recovery.” But besides offering a spending freeze that won’t affect the most expensive of projects — defense, Medicare, Medicaid and Social Security — Obama volunteered no solution.

The president did announce a new small business tax credit, “one that will go to over one million small businesses who hire new workers or raise wages.” And, “while we’re at it,” Obama intends to eliminate all capital gains taxes on small business investments.

All of this is good news for small businesses and good news for the American economy at large, but there’s an uncomfortable assumption at the basis of these soon-to-be policies: that “small” businesses are good and deserve protection whereas “large” companies are to be mistrusted and fought.

Whenever a small business is successful it grows and will, in time, become a “large” business, by whatever definition one holds. The Obama Administration’s crusade against large banks and big business is, in fact, a crusade against success therefore which denies the natural order of the free market.

In a free market, businesses that satisfy their customers’ demands will know success and grow while competitors that don’t fail. By bailing out financial institutions and automobile manufacturers which for years maintained flawed policies, the American government chose to protect failing businesses against their successful competitors. As much as Obama’s State of the Union proposals favor many entrepreneurs, it follows the same skrewed logic: that companies on the verge of collapse need help while they and the people must be protected from big business. This line of thought denies the very reason why some companies go under and it ignores the very reason why others became big in the first place.

Bailing Out Bernanke

In the coming days, the United States Senate will vote on whether or not Ben Bernanke will go on to serve as Chairman of the Federal Reserve for another term. Some legislators are skeptical.

Senator Jim Bunning of Kentucky said Tuesday on CNBC that Bernanke’s own staff recommended against bailing out insurer AIG in September 2008 and that he subsequently tried to cover that up. Treasury Secretary Timothy F. Geithner quickly came to Bernanke’s defense, stating that AIG had to be saved in order to prevent a “catastrophic” blow to the American economy. According to Geithner, the goverment’s intervention in the financial market has created a system that is stabler and in a better position to provide the credit needed for a recovery. Evidently, we are to assume that were it not for Washington, even more businesses would be craving loans right now.

House Republican Darrell Issa of California, who has been investigating the AIG bailout, claimed that a whistleblower informed him of “troubling details” of the Fed Chairman’s role in the process. Chris Dodd of Connecticut, a Democrat and Chairman of the Senate Committee on Banking, is having none of it. Bernanke has done “a very good job,” said Dodd on Monday. “And but for his work, we would be in a very different position in this country today.” The senator admitted that it’s “hard to prove a negative,” but didn’t hesitate from warning that “our entire financial system might have collapsed but for [Bernanke’s] leadership.”

Senators from both parties set to confirm Bernanke for a second term credit him with averting a Second Great Depression. His actions, they argue, outweigh what blame he deserves for causing the financial meltdown in the first place. The Fed was in part responsible for the crisis but Bernanke refuses to admit it. According to his supporters however, the American people should be thankful for he could have done much worse.

Senator Bunning has asked Dodd to subpoena emails and other documents that prove him right. Bunning and other committee members have been allowed to review the documents in question at the Federal Reserve already but are bound by confidentiality from revealing their contents. Whether Dodd will oblige before the vote, if at all, remains to be seen.

With about forty senators lined up already to confirm Bernanke, it seems likely that the man will remain in place for another four years to come, in spite of his shared responsibility for today’s recession and regardless of whether or not bailing out AIG and banks was necessary to begin with.

Geography Matters in Yemen

What was, until recently, a quiet war has, according to some commentators, quickly turned into President Obama’s greatest foreign policy challenge for the year ahead: the ravage that we call Yemen.

Since 2004 the Zaidis of North Yemen have been in rebellion against the country’s central government. The Zaidis, a minor sect within Shia Islam, are one of the most impoverished people of Yemen and feel discriminated against by their government. Thousands of people have lost their lives in the onslaught already with tens of thousands more on the run.

The Yemeni government accuses Iran of supporting the Zaidis while an Iranian Grand Ayatollah once legitimized their uprising by referring to it as a jihad. Yemen can boast the support of Saudi Arabia and, indirectly, that of the United States although its northern neighbor is, understandably, the most concerned about the violence. Read more “Geography Matters in Yemen”

The Environmentalist Gospel

A new, thoroughly twenty-first century threat to domestic harmony is emerging, reports The Independent. “In some relationships, it is said to be causing as much discord as those age-old battlegrounds, sex and money. The problem is environmental incompatibility.”

Therapists across America are reporting a sharp increase in what they call “green disputes”. Couples are finding it increasingly difficult to agree about how much their little unit should contribute to that great cause of our age, the saving of the planet.

The Independent‘s Terence Blacker, fortunately, provides a little common sense as we shake our heads and wonder what has gotten into people. “The high priests and priestesses should, for the sake of their case, give the rest of us a break,” he writes. “All this scolding, bossiness and moral superiority is not only bad for relationships, but it does more harm than good to the planet. Spreading guilt is never a good way to convert souls, even to the great secular faith of our times.”

An interesting choice of words on Blacker’s part for environmentalism is increasingly becoming a dogma uncontested in media and academics.

As early as 1995, in Acton Institute’s Religion & Liberty (Volume 5, Number 2), Robert H. Nelson, a professor of environmental policy, warned against what he called “The Ecological Gospel“. Infuriated with Christian sentiment, environmentalists in the United States more than ten years ago preached against the progress of the modern age already, which, according to them, “has not meant the advance of mankind, but has instead plunged human beings into evil ways,” as Nelson put it. They denounce our modern day consumer society and like to think of human beings as a “cancer” on the planet. Our “addiction to growth,” they insist, “will destroy us all.”

Apocalypse hasn’t quite unfolded yet though 2012 Scare is a recent example of popular fright that environmental collapse is imminent nonetheless. That belief is only enforced by opinion- and policymakers the world over who threaten that life as we know it will come to an end unless we do something, now. The end is nigh, they cry, and we better repent for our environmentalist sins. Back in the 1990s, Nelson knew that “the wide fears of recent years about global warming […] have more to do with religion than science.”

The heating of the earth, global warming alarmists tell us, will melt the polar ice caps, raise the seas, and thereby cause widespread flooding. Higher temperatures will parch the land, creating famine. Global warming will alter the normal weather patterns of the earth, bringing on drought. Perhaps it will encourage insects and bacteria, spreading disease. Flooding, famine, drought, pestilence, all are the traditional instruments of a wrathful God imposing a just punishment on a world of many sinners.

“In environmental theology, the traditional Judeo-Christian categories of good and evil have been replaced by ‘natural’ and ‘unnatural’,” a phenomena that is all the more powerful today as companies “go green” while more and more “eco-friendly” products turn up in our shopping carts. It would appear that many have forgotten that it were chemicals, synthetics and the exploitation of the Earth that allowed us to reach our current state of civilization and luxury in the first place.

Denouncing industry and the progress that it has brought man is not the way to overcome climate change. Yet, as Nelson dreaded, “environmental policies often are not shaped by pragmatic concerns of how to improve human welfare. Instead, [they] follow a logic grounded in an environmental theology” which loves everything “natural” and abhors all that is anti-nature. Thus windmills, for instance, though hardly economical, are subsidized with hundreds of millions of taxpayers’ dollars while lawmakers try to ban everything that pollutes. Increasingly, the state acts as a protector, not of its citizenry, but of nature, making life more difficult for the common man in the process.

The majority of the people, “who simply want a clean and attractive environment,” according to Nelson, “are paying a high price — many tens of billions of dollars — for their current willingness to leave much of environmental policy making to those people who see it as a religious crusade.”

Obama the Jeffersonian

The only constant about President Obama’s foreign policy so far seems to be its reception. Conservatives dread the end of American ascendency and wonder out loud whether Obama is projecting weakness while the Europeans are supposedly upset about the current administration not paying them enough attention.

The truth is that a series of early hiccups abroad coupled with ever increasing Republican opposition at home is imposing caution upon the administration. “Democratic foreign policy observers predict that a weakened domestic political position will make Obama inclined to be more selective in choosing when and with whom to engage,” reports Politico‘s Laura Rozen, “focusing on opportunities where he can demonstrate success over more ambitious but less certain efforts, such as trying to achieve Middle East peace.”

The president admitted that his approach to the Israeli-Palestinian conflict was misguided and in fact hampered the peace process instead of advancing it. Rozen links to an article in Spiegel, Germany’s leading opinion magazine, which declares that Obama “will have to fundamentally re-think his political course.” That is a bit of an overstatement, perhaps, for one lost Senate seat does not diminish the entire Democrats’ agenda. It is symptomatic however of a growing animosity toward the president and his party and a lack of foreign policy results is in part to blame.

The administration got off to a decent start. It “strategically reassured” China rather than treating it like a future advisary. Still, Sino-American relations are shaky and China increasingly focuses on its own backyard, recently signing a free-trade agreement with ASEAN as some American commentators continue to cry havoc.

Obama sought a new start with Russia and while a renewed nuclear arms treaty is underway, the Russian Bear still roars, interfering in its former satelite states and trying to conquer the Arctic.

Lastly, in Afghanistan, the president initiated a surge reminiscent of the strategy that worked so well in Iraq, but Pakistan, although part of the administration’s thinking on the war, is a mess, increasingly plagued by terrorist attacks and goverment corruption. Moreover, Obama is torn between supporting Pakistan and deepening the American alliance with India. The latter is of far greater importance in the long run but he can’t have both.

At the core of his shortcomings, opines Walter Russel Mead in Foreign Policy, is Obama’s “split personality when it comes to foreign policy.” The president is “not only buffeted by strong political headwinds,” he notes, “but also pulled in opposing directions by two of the major schools of thought that have guided American foreign-policy debates since colonial times.”

There are basically four different world views among American president and policymakers: the Hamiltonian, named after the first treasury secretary and reiterating his position that government should promote economic growth and protect the interests of American business at home and abroad; the Wilsonian, which stands with the Hamiltonian but stresses democracy and human rights as primary American export products; the Jeffersonian, which dissents from the aforementioned views and seeks to minimize American commitments overseas; and the Jacksonian, populistic and “suspicious” as Mead puts it, “of Hamiltonian business links, Wilsonian do-gooding, and Jeffersonian weakness.”

Moderate Republicans tend to be Hamiltonians. Move right toward the Sarah Palin range of the party and the Jacksonian influence grows. Centrist Democrats tend to be interventionist-minded Wilsonians, while on the left and the dovish side they are increasingly Jeffersonian, more interested in improving American democracy at home than exporting it abroad.

After 9/11, the Jacksonians demanded action. George W. Bush’s presidency was “defined by an effort to bring Jacksonians and Wilsonians into a coalition.” The failure of this approach “created the context that made the Obama presidency possible.” Obama comes from the Jeffersonian wing of the Democratic Party, which would like to see the costs and risks involved in efforts overseas reduced, while holding dear the more Wilsonian idealism of shaping of the world in America’s image.

Portrait of Thomas Jefferson by Rembrandt Peale, 1800
Portrait of Thomas Jefferson by Rembrandt Peale, 1800

According to Obama, the United States can best spread freedom and democracy by providing a good example of it. He said so much in his Nobel Prize acceptance speech when he declared that America should be the “standard-bearer” of civilization.

And therein lies the rub: “While Wilsonians believe that no lasting stability is possible in a world filled with dictatorships, Jeffersonians like Obama argue that even bad regimes can be orderly international citizens if the incentives are properly aligned.” Hence Obama’s “soft power” approach to otherwise hostile regimes as Iran and North Korea and the “scrupulous caution” with which his administration has behaved in Latin America so far, lest it provoke any sort of confrontation with the “Bolivarian” states of Venezuela, Ecuador, and Bolivia.

In spite of Obama’s “split personality” some progress has been made — perhaps, in part, thanks to Secretary of State Hillary Clinton who has no desire for renewed isolationism. It seems that merely a year after Obama took office, many have forgotten already how badly American prestige was left shattered by the last Bush Administration. President Obama did much to restore traditional alliances and America’s appeal to moral leadership in the world. His failure to bring about much concrete with regards to China and Russia so far is in part to blame on President Bush’s neglect of relations with both superpowers throughout his two terms in office.

Mead is optimistic nonetheless. He calls Obama’s an “ambitious and an attractive vision. Success,” he believes, “would reduce the level of international tension even as the United States scales back its commitments.”

It’s no easy task though. “The other schools are generally skeptical about reducing American commitments. Wilsonians interpret Jeffersonian restraint as moral cowardice” whereas the Jacksonians like to think of it as “cowardice pure and simple.” Lastly, the Hamiltonians might be willing to go along with restraint for some time “but sooner or later they attack Jeffersonians for failing to develop and project sufficient American power in a dangerous world.” On top of political opposition, there is the American people who “perceive problems all over the world.” A Jeffersonian response is likely to strike them as “too passive.”

Even if Obama succeeds only partly in bringing back some Jeffersonian influence, he will provide a necessary element of caution and restraint in American foreign policy, preventing “imperial overstretch” by ensuring that America’s ends are proportionate to its means.

We need this vision today more than ever: If Obama’s foreign policy collapses — whether sunk by Afghanistan or conflicts not yet foreseen — into the incoherence and reversals that ultimately marked Carter’s well-meaning but flawed approach, it will be even more difficult for future presidents to chart a prudent and cautious course through the rough seas ahead.

Future Surface Combatant and Other Myths

This is the second part in a series of reports on the current state of the Royal Navy. The first entry focused on the expeditionary tool of the Royal Navy’s future force; the aircraft carrier. This article discusses the Future Surface Combatant and the effectiveness of modular versus “hardwired” vessels.

Earlier this week, the blog War is Boring reported on the development of the Royal Navy’s Future Surface Combatant while the Royal United Services Institute featured an article (PDF) about the very same subject in their February Defence Systems. In the short month since my last post new events have occurred within Procurement planning circles which directly influence the future of the Royal Navy and pose some interesting points to the wider community interested in naval and security affairs.

I had first heard of the Future Surface Combatant (FSC) in a lecture presented by a former Royal Navy officer on the current and future capability of the Royal Navy in October, so already had an inkling of what to expect in both the RUSI’s article and the basic but informative War is Boring entry. Not much. Both are scant in regards the nuts and bolts of a complex defense project. Read more “Future Surface Combatant and Other Myths”

Economic Freedom in 2010

Empire State Building New York
The Empire State Building in Manhattan, New York (Unsplash/Gaurav Pikale)

As the global recession took hold of the world last year, free-market capitalism increasingly came under persecution. Much of the industrialized world accepted an expansion of government power over the economy in the form of greater oversight, tightening financial regulation and sharper labor laws. Taxes went on the rise consequently, targeting especially the supposed perpetrators of the meltdown: bankers and big business, although they were hardly to blame for the situation.

The 2010 Index of Economic Freedom published by the Washington-based Heritage Foundation and The Wall Street Journal reflects these changes as countries formerly steeped in the free-market tradition have fallen on the scale, the Netherlands, the United Kingdom and the United States foremost among them. Read more “Economic Freedom in 2010”

Haiti’s Avoidable Death Toll

Some expect Haiti’s 7.0 earthquake death toll to reach over 200,000 lives. Why the high death toll? Northern California’s 1989 Loma Prieta earthquake was more violent, measuring 7.1 on the Richter scale, resulting in 63 deaths and 3,757 injuries. The 1906 San Francisco earthquake measured 7.8 on the Richter scale, about eight times more violent than Haiti’s, and cost 3,000 lives.

As tragic as the Haitian calamity is, it is merely symptomatic of a far deeper tragedy that’s completely ignored, namely self-inflicted poverty. The reason why natural disasters take fewer lives in our country is because we have greater wealth. It’s our wealth that permits us to build stronger homes and office buildings. When a natural disaster hits us, our wealth provides the emergency personnel, heavy machinery and medical services to reduce the death toll and suffering. Haitians cannot afford the life-saving tools that we Americans take for granted. President Barack Obama called the quake “especially cruel and incomprehensible.” He would be closer to the truth if he had said that the Haitian political and economic climate that make Haitians helpless in the face of natural disasters are “especially cruel and incomprehensible.”

The biggest reason for Haiti being one of the world’s poorest countries is its restrictions on economic liberty. Let’s look at some of it. According to the 2009 Index of Economic Freedom, authorization is required for some foreign investments, such as in electricity, water, public health and telecommunications. Authorization requires bribing public officials and, as a result, Haiti’s monopolistic telephone services can at best be labeled primitive. That might explain the difficulty Haitian Americans have in finding out about their loved ones.

Corruption is rampant. Haiti ranks 177th out of 179 countries in the 2007 Transparency International’s Corruption Perceptions Index. Its reputation as one of the world’s most corrupt countries is a major impediment to doing business. Customs officers often demand bribes to clear shipments. The Heritage Foundation’s Index of Economic Freedom says that because of burdensome regulations and bribery, starting a business in Haiti takes an average of 195 days, compared with the world average of 38 days. Getting a business license takes about five times longer than the world average of 234 days — that’s over three years.

Crime and lawlessness are rampant in Haiti. The United States Department of State of State website, long before the earthquake, warned, “There are no “safe” areas in Haiti. […] Kidnapping, death threats, murders, drug-related shootouts, armed robberies, home break-ins and car-jacking are common in Haiti.” The Australian Department of Foreign Affairs and Trade warns its citizens that, “The level of crime in Haiti is very high and the police have little ability to enforce laws. Local authorities often have limited or no capacity to provide assistance, even if you are a victim of a serious crime.” Crime anywhere is a prohibitive tax on economic development and the poorest people are its primary victims.

Private property rights are vital to economic growth. The Index of Economic Freedom reports that “Haitian protection of investors and property is severely compromised by weak enforcement, a paucity of updated laws to handle modern commercial practices, and a dysfunctional and resource-poor legal system.” That means commercial disputes are settled out of court often through the bribery of public officials; settlements are purchased.

The way out of Haiti’s grinding poverty is not rocket science. Ranking countries according to: (1) whether they are more or less free market, (2) per capita income, and (3) ranking in International Amnesty’s human rights protection index, we would find that those nations with a larger free-market sector tend also to be those with the higher income and greater human rights protections. Haitian President Rene Preval is not enthusiastic about free markets; his heroes are none other than the hemisphere’s two brutal communist tyrants: Venezuela’s Hugo Chavez and Cuba’s Fidel Castro.

Haiti’s disaster demands immediate Western assistance but it’s only the Haitian people who can relieve themselves of the deeper tragedy of self-inflicted poverty.

This story first appeared at Creators Syndicate, January 20, 2010.

Obama on the Middle East: “Really Hard”

After President Obama delivered a much praised speech in Cairo, Egypt last year in which he called upon the Muslim world to end “the cycle of suspicion and discord,” his administration made little progress in the Middle Eastern peace progress. The president’s credibility with both Israelis and Palestinians “diminished” as his demand that Israel freeze settlement construction failed to bring about the desired result. Special envoy to the region George Mitchell promised to deliver peace in two years but doesn’t appear to have achieved anything concrete yet.

In an interview with Joe Klein of The New York Times, the president admitted that the “process has not moved forward” while Mitchell, he claimed, “got blinded” by the progress he saw from the Israelis, not realizing that it wasn’t enough for the Palestinian leadership.

“Even for a guy like George Mitchell who helped bring about the peace in Northern Ireland,” the Middle Eastern conflict “is just really hard,” according to Obama. The political situation in both Israel and the Palestinian territories made it “very hard for them to start engaging in a meaningful conversation.” Read more “Obama on the Middle East: “Really Hard””

Spheres of Waning Influence

Whenever a new non-Western alliance is formed somewhere in the world, Western commentators are quick to regard it as a threat to Western interests and security. Whereas the economic integration of the European Union and the military cooperation within NATO are considered to have significantly advanced peace and stability on both sides of the Atlantic, similar arrangements made independently of Western interference are regarded warily.

This is shortsighted and ignores how much the West stands to benefit from the copycat behavior of the Rest.

EU imitators

Oftentimes, international cooperation outside Europe and North America is pursued in defiance of perceived Western pressure. The South American Mercosur and Southeast Asia’s ASEAN are both free-trade blocks structured on the European model, founded in part to strengthen their members’ ability to resist the demands of the IMF and the World Bank which for decades have dictated economic policy to these nations.

The irony is that once freed from the Washington Consensus, these same countries embraced free-market capitalism, be it with some “softening” measures to fight poverty as happens, very successfully, in Brazil, for example.

Other EU imitators are less resistant to the West. The Gulf Cooperative Council, led by Saudi Arabia, is designed to counterbalance Iran and relies heavily on American support — and on Westerners buying its oil.

Sino-Russian competition

Until recently, the most potent of anti-Western alliances appeared to be the Shanghai Cooperation Organization (SCO) in which both China and Russia take part while India settled for an observer status.

In spite of its stated goals, the SCO has failed to achieve much regional cooperation in the last few years. China has been able to use the platform to project its influence across the region while Russia is reluctant to deepen its participation, writes Alexander Cooley in Foreign Affairs magazine. “Subtle but key differences in the regional security priorities of the two countries have started to play out,” he argues.

Russia regards Central Asia as its “zone of privileged interests.” For the past two decades, Moscow has sought to embed the states of Central Asia in a system of Russia-controlled institutions — the Collective Security Treaty Organization (CSTO), a mutual defense alliance; the Eurasian Economic Community (EurAsEC), a customs union; and the Commonwealth of Independent States (CIS), a loose federation of former Soviet countries. At the same time, it has actively worked to block Western actors such as NATO. China, in contrast, has been focused not so much on countering the West as on stabilizing its own western territory: the autonomous province of Xinjiang, which borders the Central Asian states.

At the time when color revolutions swept across Eastern Europe, Beijing and Moscow found their agendas aligned: both feared Western-backed democratization in Central Asia. Russia showed its teeth to prevent further foreign involvement in its former satellite states while China pressed down hard on calls for reform in its hinterland.

But a Sino-Russian split became apparent when the latter invaded Georgia in 2008. Days after a EU-brokered ceasefire went into effect, Russian president Dmitri Medvedev asked the SCO to support the independence of the breakaway Georgian provinces which Russia claimed to defend. China and the other members refused.

“After this diplomatic rebuke,” writes Cooley, “Moscow redoubled its efforts to promote the CSTO, an organization that includes the same Central Asian states but is safely in Russia’s pocket.”

Wary of China’s economic predominance, Russia subsequently sought to block many of its neighbor’s efforts to use the SCO to its own advantage. Chinese premier Wen Jiabao’s proposal to create a SCO free-trade area was met with Russian disapproval. Rather, Moscow champions the existing EurAsEC, which includes Belarus, Kazakhstan, Kyrgyzstan, Tajikistan — but not China.

Paper tiger

The SCO then is weak and far from the aggressively anti-Western pact is appeared to be a few years ago.

“As such,” writes Cooley, “it makes sense for the United States to work with the SCO to engage China and the Central Asian states on select Afghanistan issues.”

Moreover, Western engagement with the SCO could undercut Russia’s ambitions to dominate the region once again.

As the world moves toward more multilateral cooperation, the West should not stand in its way. The United States will probably lose some of its status and influence, as Western Europe has, but it will remain the uncontested superpower for decades to come.

More importantly, as the Latin American and Southeast Asian states have demonstrated, direct involvement in their development does not encourage them to do as the West did. Rather, allowing these nations to discover the advantages of free markets and shared security on their own is much more effective — and therefore more in the West’s own interest.