[Mb-civic] Taste of the Future...and...Abracadabra Economics

[ean at sbcglobal.net]

Taste of the Future

By David Ignatius
Friday, February 24, 2006; A15

"Suppose you were an idiot. And suppose you were a member of Congress. 
But
I repeat myself." The acidulous wisdom of Mark Twain speaks to us across
the ages, and never more than this week during the great congressional
mobilization to save America's ports from the dreaded hand of Dubai.

The furor over Dubai is misplaced on so many levels, but let's start with
the supposed terrorist threat. Military and CIA officials will tell you
privately that the United Arab Emirates is among the most effective
intelligence partners the United States has today in the Arab world. Its
operatives are risking their lives to help gather information about
al-Qaeda and other terrorist groups. They don't advertise it, and when an
operation goes bad -- such as the U-2 spy plane that crashed last June
returning from Afghanistan to al-Dhafra air base -- they keep their mouths
shut.

Certainly, al-Qaeda knows who the enemy is. Among the documents released
last week by the Combating Terrorism Center at West Point was a spring
2002 al-Qaeda warning to officials of Abu Dhabi and Dubai. It accused the
UAE leaders of working with the U.S. government "in order to appease the
Americans' wishes which include: spying, persecution and detainments."
Al-Qaeda claimed it has penetrated the UAE government, and the United
States should certainly vet any UAE personnel working in the United
States. But the idea that by purchasing the British company that has been
managing six U.S. ports, Dubai Ports World is somehow opening the door to
terrorism is, frankly, racist.

The hubbub over terrorism isn't the biggest problem with the Dubai flap.
In a sense, the Bush administration had it coming, after having beaten
congressional opponents over the head with the terrorism club for four
years. What goes around comes around, and while it may be comical to hear
a legislator accuse President Bush of having a pre-Sept. 11 mind-set, the
White House made itself a fat target.

The real absurdity here is that Congress doesn't seem to realize that an
Arab-owned company's management of America's ports is just a taste of what
is coming. Greater foreign ownership of U.S. assets is an inevitable
consequence of the reckless tax-cutting, deficit-ballooning fiscal
policies that Congress and the White House have pursued. By encouraging
the United States to consume more than it produces, these fiscal policies
have sucked in imports so fast that the nation is nearing a
trillion-dollar annual trade deficit. Those are IOUs on America's future,
issued by a spendthrift Congress.

The best quick analysis I've seen of the fiscal squeeze comes from New
York University professor Nouriel Roubini, in his useful online survey of
economic information, rgemonitor.com. He notes that with the U.S. current
account deficit running at about $900 billion in 2006, "in a matter of a
few years foreigners may end up owning most of the U.S. capital stocks:
ports, factories, corporations, land, real estate and even our national
parks." Until recently, he writes, the United States has been financing
its trade deficit through debt -- namely, by selling U.S. Treasury
securities to foreign central banks. That's scary enough -- as it has
given big T-bill holders such as China and Saudi Arabia the ability to
punish the U.S. dollar if they decide to unload their reserves.

But as Roubini says, foreigners may decide they would rather hold their
dollars in equity investments than in U.S. Treasury debt. "If we continue
with our current patterns of spending above our incomes, by 2013 the U.S.
foreign liabilities could be as high as 75 percent of GDP and an
increasing fraction of such liabilities will be in the form of equity," he
explains. "So, let us stop whining about the dangers of unfriendly
foreigners owning our firms and assets and get used to it."

Here's how bad it is: The worst thing that could happen to the United
States, paradoxically, would be for Arab and other foreign investors to
take us at our xenophobic word and decide that America doesn't really want
foreign investment. If they pulled out their money, U.S. financial markets
would plummet in a crash that might make 1929 look like a sleigh ride.

Let's rashly assume that Bill Frist and Dennis Hastert, the Republican
Senate and House leaders, are serious in their expressions of concern
about foreign ownership of American assets. What they should do right now
is begin changing the fiscal policies that are transforming the United
States into a ward of the world.

I'm dreaming, of course. Such policies would mean financial sacrifice on
the part of Congress and the American people. They would require political
leadership instead of quick-hit news conferences. What a quaint idea, that
members of Congress actually might want to solve problems rather than make
headlines.

http://www.washingtonpost.com/wp-
dyn/content/article/2006/02/23/AR20060223
01412.html?nav=hcmodule


---------------


Abracadabra Economics

By Michael Kinsley
Friday, February 24, 2006; A15

The hideous complexity of President Bush's prescription drug program has
reduced elderly Americans -- and their children -- to tears of bewildered
frustration. The multiple options when you sign up, each with its own
multiple ceilings and co-payments; the second round of red tape when you
actually want to acquire some pills; the ludicrously complex and arbitrary
standards of eligibility, which play a cruel and pointless game of
hide-and-seek as they lurch up and down the graph paper like drunks.
Suddenly a mystery is solved: So this must be what he means by
"compassionate conservatism."

<>Thus Bush's only major domestic accomplishment in six years as 
president has not achieved its intended purpose of cementing the 
affection of senior citizens for the Republican Party. Many Republicans
are sobbing with frustration, too. It is one thing to put aside your
principles and spend hundreds of billions of taxpayer dollars on the
largest expansion of the welfare state since the Great Society if it is
going to help you win elections (so you can pursue your dream of smaller
government). It is another to sell your soul and not get anything for it.
No one looks more foolish than a failed cynic.

But look on the bright side, say the Bushies. The wretched thing does seem
to be restraining drug prices and costing the government less than it was
supposed to. The current cost estimate is only $678 billion over 10 years.
That's down 8 percent from the previous estimate of $737 billion. Cool.
But when the prescription drug benefit was enacted in 2003, it was
supposed to cost $400 billion over 10 years. As disenchanted conservative
Bruce Bartlett retails in his new book about the Bush presidency,
delicately titled "Impostor," there was a mini-scandal and an official
investigation when it came out that the administration was hiding its own
estimate of $534 billion. When the dust settled, that figure had become
$557.7 billion.

Who believes any of these numbers? Do you? I will bet anyone a month's
supply of Lipitor, collectible in 2016, that the 10-year bill will be more
than $678 billion. Any takers?

What's shocking about this, more than the numbers (hundreds of billions of
dollars are hard to fathom), is that Bush's drug benefit comes without
even a theory about how it will be paid for. Even after nearly three
decades of Republican abracadabranomics, this may be a first. A
transparently phony theory at least pays tribute to the hypothesis that
money doesn't grow on trees. Not even to bother coming up with a phony
theory is an arrogant insult to democracy. It raises "because I said so"
to a governing philosophy.

The classic Republican phony theory is, of course, supply-side 
economics. Every proposed tax cut from before Reagan until Bush's own has
been defended on the grounds that it will pay for itself by stimulating
new economic activity. This is a theory based more on faith than on
evidence, but at least it's a theory.

Bush's other big attempt at a domestic initiative -- Social Security
privatization -- came with a theory: Investing in stocks pays better than
government bonds. So you can close the looming gap between Social Security
revenue and benefits -- and even give the oldsters a bit extra -- by
letting folks invest for themselves at least part of what the government
is now investing for them in those dismal bonds. The theory had a
comically obvious flaw: How can society as a whole divert money from
government bonds to private stocks as long as the government is still
spending and borrowing as much as ever? But at least, as I say, it was a
theory. At least it paid us the compliment of obfuscation. Better to be
duped than ignored. Bush's proposed health savings accounts -- as a way to
cover the uninsured and restrain the rise in health costs -- come with a
theory that may even have some merit.

But the drug program has no theory. It addresses none of the conundrums of
the pharmaceutical age. Pills are increasingly central to medical care,
and many more miracles await. But pills are also a characteristic
post-industrial product, like software or movies: They can cost billions
to develop but can be mass-distributed for practically nothing.
Conventional supply-and-demand economics offers a compelling explanation
of how an "invisible hand" sets the price and distribution of brooms or
spaghetti sauce so that the benefit to society and individuals is
maximized. But it has almost nothing to say about Fosamax or Windows or
"Brokeback Mountain." Conventional compassion, however sincere, is little
guide to what you do about a lifesaving drug that costs $100,000 a year.
And spraying government subsidies on the insurance industry and other big
companies does not equal using the power of the free market to solve these
problems.

Without a theory, the prescription drug benefit is -- like most 
government now -- a straightforward matter of writing checks. Nothing
wrong with that, in my book. But even if this subsidy to senior citizens
survives its rocky premiere, it is doomed. Simple transfers of money
cannot keep up with the rising cost -- and rising benefit -- of
pharmaceutical drugs.

Long ago, in 1988, a Republican president and Congress enacted a bill to
address the other missing piece in Medicare: insurance against the cost of
long-term or catastrophic illness. But seniors, initially delighted,
recoiled in horror when they discovered that they were actually expected
to pay premiums to cover the cost of this insurance. The benefit program
was repealed the next year, amid much embarrassment. It didn't occur to
them back then to pass the benefit and ignore the cost. That's progress.

http://www.washingtonpost.com/wp-
dyn/content/article/2006/02/23/AR20060223
01367.html?nav=hcmodule --------------


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"A war of aggression is the supreme international crime." -- Robert Jackson,
 former U.S. Supreme Court Chief Justice and Nuremberg prosecutor

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