military

Steve Blank: The Internet Might Kill Us All

June 22, 2011

My friend Ben Horowitz and I debated the tech bubble in The Economist . An abridged version of this post was the “closing” statement to Ben’s rebuttal comments. Part 1 is here and Part 2 here . The full version is below. ———————————- It’s been fun debating the question, “Are we in a tech bubble?” with my colleague Ben Horowitz. Ben and his partner Marc Andreessen (the founder of Netscape and author of the first commercial web browser on the Internet) are the definition of Smart Money . Their firm, Andreessen/Horowtiz , has been prescient enough to invest in social networks, consumer and mobile applications and the cloud long before others. They understood the ubiquity, pervasiveness and ultimate profitability of these startups and doubled-down on their investments. My closing arguments are below. I’ve followed them with a few observations about the Internet that may help frame the scope of the debate. Are we in the beginnings of a tech bubble: yes. Prices for both private and public tech valuations exceed any rational valuation to their current worth. In 5 to 10 years most of them will be worth a fraction of their IPO price. A few will be worth much, much more. Is this tech bubble as broad as the 1995-2000 dot.com bubble: no. While labeled the “dot-com” bubble, valuations went crazy across a wide range of technology sectors including telecommunications, enterprise software and biotech, not just the Internet. Are tech bubbles necessarily bad: no. A bubble is simply the redistribution of wealth from Marks to the Smart Money and Promoters. I hypothesize that unlike bubbles in other sectors — tulips, Florida land prices, housing, financial — tech bubbles create lasting value. They finance companies that invest in new technologies, new ideas and new products. And it appears that at least in Silicon Valley, a larger percentage of money made in the last tech bubble is recirculated back into investments into the next generation of tech startups. While most of the social networks, cloud computing, web and mobile app companies we see today will fail, a few will literally remake our lives. Here are two views how. The Internet May Liberate Us In the last year, we’ve seen social networks enable new forms of peaceful revolution. To date, the results of Twitter and Facebook are more visible on the Arab Street than Wall Street. One of the most effective weapons in the Cold War was the mimeograph machine and the VCR. The ability to copy and disseminate banned ideas undermined repressive regimes from Poland to Iran to the Soviet Union. In the 21st century, authoritarian governments still fear their own people talking to each other and asking questions. When governments shut down Google, Twitter, Facebook, et al, they are building the 21st century equivalent of the Berlin Wall , they are admitting to the world that the forces of oppression can’t stand up to 140 characters of the truth. When these governments build “homegrown” versions of these apps, the Orwellian prophecy of the Ministry of the Truth lives in each distorted or missing search result. Absent war, these regimes eventually collapse under their own weight. We can help accelerate their demise by building tools which allow people in these denied areas access to the truth . Yet the same set of tools that will free hundreds of millions of people may end their lives in minutes. The Internet May Kill Us The next war will more than likely occur via the Internet. It may be over in minutes. We may be watching the first skirmishes. In the 20th century, the economies of first-world countries became dependent on a reliable supply of food, water, electricity, transportation and telephone. Part of waging war was destroying that physical infrastructure. (The Combined Bomber Offensive of Germany and occupied Europe during WWII was designed to do just that .) In the last few years, most first world countries have become dependent on the Internet as one of those critical parts of our infrastructure. We use the net in four different ways: To control the physical infrastructure we built in the 20th century (food, water, electricity, transportation and communications) As the network for our military interconnecting all our warfighting assets, from the mundane of logistics to command and control systems, weapons systems and targeting systems As commercial assets that exist or can operate only if the net exists including communication tools (email, Facebook, Twitter, etc.) and corporate infrastructure (Cloud storage and apps) For our banking and financial systems Every day hackers demonstrate how weak the security of our corporate and government resources are. Stealing millions of credit cards occurs on a regular basis. Yet all of these are simply crimes not acts of war. The ultimate in asymmetric warfare In the 20th century, the United States was continually unprepared for an adversary using asymmetric warfare — the Japanese attack on Pearl Harbor, Soviet anthrax warheads on their ICBMs during the cold war, Vietnam and guerilla warfare, and the 9/11 attacks. While hacker attacks against banks and commercial institutions make good press, the most troubling portents of the next war were the Stuxnet attack on the Iranian centrifuge facilities, the compromise of the RSA security system and the penetration of American defense contractors. These weren’t Lulz or Anonymous hackers, these were attacks by government military projects with thousands of programmers coordinating their efforts. All had a single goal in mind: to prepare to use the internet to destroy a country without physically killing its people. Our financial systems (banks, stock market, credit cards, mortgages, etc.) exist as bits. Your net worth and mine exists because there are financial records that tell us how many “dollars” (or Euros, Yen, etc.) we own. We don’t physically have all that money. It’s simply the sum of the bits in a variety of institutions. An attack on the United States could begin with the destruction of all those financial records. (A financial institution that can’t stop criminal hackers would have no chance against a military attack to destroy the customer data in their systems. Because security is expensive, hard, and at times not user friendly, the financial services companies have fought any attempt to mandate hardened systems.) Logic bombs planted on those systems will delete all the backups once they’re brought on-line. All of it gone. Forever. At the same time, all cloud-based assets, all companies applications and customer data will be attacked and deleted. All of it gone. Forever. Major power generating turbines will be attacked the same way Stuxnet worked — over and under-speeding the turbines and rapidly cycling the switching systems until they burn out. A major portion of our electrical generation capacity will be off-line until replacements can be built. (They are currently built in China.) Our transportation infrastructure — air traffic control systems, airline reservations, package delivery companies — will be hacked and our GPS infrastructure will be taken down (hacked, jammed or physically attacked.) While some of our own military systems are hardened, attackers will shut down the soft parts of the military logistics and communications systems . Since our defense contractors have been the targets of some of the latest hacks , our newest weapons systems may not work, or worse if used, may have been reprogrammed to destroy our own assets. An attacker may try to mask its identity by making the attack appear to come from a different source. With our nation in an unprecedented economic collapse, our ability to retaliate militarily against a nuclear-armed opponent claiming innocence and threatening a response while we face them with unreliable weapons systems could make for a bad day. Our attacker might even offer economic assistance as part of the surrender terms. These scenarios make the question, “Are we in a tech bubble?” seem a bit ironic. It Doesn’t Have to Happen During the Cold War the United States and the Soviet Union faced off with an arsenal of strategic and tactical nuclear weapons large enough to directly kill hundreds of millions of people and plunge the planet in a “Nuclear Winter,” which could have killed billions more. But we didn’t do it. Instead, today the McDonalds in plaza labeled “Revolutionary Square” has been the victory parade for democracy and capitalism. It may be that we will survive the threat of a net war like we did the Cold War and that the Internet turns out to be the birth of a new spring for us all. Steve Blank’s blog : steveblank.com

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In The End, Fed’s Bond-Buying Likely Helped Economy

June 21, 2011

WASHINGTON — It would drop interest rates and lift stock prices. It would ignite inflation. It was useless. Opinions of the Federal Reserve’s program to buy $600 billion in Treasury bonds diverged sharply after the Fed unveiled it in November. Now, as the Fed wraps up its latest policy meeting Wednesday, the bond purchases are about to expire. In the end, most experts suggest, they probably didn’t hurt and might have helped the economy, at least temporarily. The bigger question, though, is: What happens now? The program was dubbed QE2 – not for the Queen Elizabeth ocean liner but as short-hand for “quantitative easing.” That’s the wonky term economists use for a tool the Fed can use to drive down long-term interest rates. It does so by buying Treasury bonds. QE2 marked the second round of such easing the Fed had taken; the first was in March 2009, at the depths of the recession. Supporters say the bond purchases worked, in part by keeping rates low and encouraging spending. Low long-term rates are vital for consumers who are buying homes and cars and for companies that are making investments. They also argue that those lower rates fueled a stock rally. When Fed Chairman Ben Bernanke outlined plans for QE2 in late August, the Standard & Poor’s 500 stock index had fallen 6 percent for the year. In the eight months that followed, the S&P 500 jumped 28 percent. Lower rates made stocks more attractive than bonds, whose yields were falling. Much of the boost from QE2 came before the bond buys actually began. Bond investors drove down long-term rates in anticipation of the purchases. From the time Bernanke revealed plans for QE2, for example, until the purchases began in November, the average rate on a 30-year fixed mortgage sank from 4.36 percent to 4.17 percent. That was a 40-year low. Mark Zandi, chief economist at Moody’s Analytics, said the bond purchases gave a sagging economy a lift by slightly reducing borrowing costs for businesses and consumers and by raising stock prices to make people feel wealthier. Still, it didn’t much energize home buying or other major purchases. “It wasn’t a slam-dunk success, but it was worthwhile,” Zandi said. Critics, including some Fed officials, saw things differently. They warned that by pumping so much money into the economy, the Fed increased the risks of high inflation later. They complained that the Fed’s outpouring of dollars lowered the currency’s value and contributed to a spike in oil and food prices. They also said they feared the bond purchases fed speculative buying that could inflate bubbles in prices of stocks or other assets. Some of the harshest criticism came from abroad. Officials in China, Brazil and Russia argued that by devaluing the dollar, the Fed’s efforts gave U.S. exports an unfair advantage. A lower dollar makes U.S. goods cheaper overseas and foreign goods more expensive in the United States. Brazilian Finance Minister Guido Mantega warned last fall that the Fed’s efforts could spur a global currency war. In April, Russian Prime Minister Vladimir Putin denounced monetary “hooliganism.” “They turn on the printing press and flood the entire dollar zone – in other words, the whole world – with government bonds,” Putin said. In a speech this month, Bernanke hit back at critics. He argued that higher oil prices were due to Middle East turmoil and demand in fast-growing countries like China. He said food-price inflation was due mainly to shortages caused by bad weather. And he said the falling dollar was caused mainly by slower U.S. growth and the U.S. trade deficit. Many critics have raised a more fundamental complaint: that the program didn’t achieve its goal of increasing growth. The economy grew only weakly in the first three months of the year, thanks to high gasoline prices, government budget cuts and sluggish consumer spending. And it may be growing only slightly better in the current quarter. Consumers remain squeezed by gas prices, scant pay increases and a depressed housing market. “There were some positive effects to the bond buying, but they were fairly transitory,” said David Wyss, former chief economist at S&P and now a visiting fellow at Brown University. Still, Zandi said critics should recall that a year ago, the economy faced the threat of deflation – a destabilizing period of falling prices. He said the bond buying helped banish that threat while strengthening the economy slightly. The purchases are set to expire June 30. Most economists say they don’t think loan rates will rise. They note that the Fed is hardly ending all its Treasury purchases. It will remain the biggest market buyer, by reinvesting in Treasurys as its existing holdings come due. Those purchases should help keep long-term rates low. Many analysts say they think the Fed won’t start reducing its Treasury stockpile until next year. And they don’t expect it to increase short-term rates until a year from now. The Fed’s key rate, the federal funds rate, has been at a record low near zero since December 2008. “Before this year’s economic slowdown, I would have said the first rate hikes would occur early in 2012, but I have put that off until June 2012,” Zandi said. One thing economists don’t expect: a QE3. Bernanke and other Fed officials have signaled there are no plans to invest new money in Treasurys, even though the economy has slowed. For one thing, critics within the Fed have become too concerned about inflation. Only a crisis that threatens to send the economy back into recession would likely lead the Fed to start a new Treasury-purchase program, most analysts say. “I would not totally rule out another round of bond buying, but it will only happen if there is a major crisis such as a loan default by Greece which causes global markets to melt down,” Wyss said. ___ AP Business Writers Derek Kravitz in Washington and Matthew Craft in New York contributed to this report.

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Male Sexually Harassed By Female Colleague: ‘It Can Happen To A Man’

June 20, 2011

LensCrafters, the largest optical chain in the country, has settled a lawsuit accusing the company of allowing a male employee to be sexually harassed by a female co-worker. The company admitted no wrongdoing, but it will pay former lab technician William Sheard $192,500 and will start educating its employees about harassment against males in the workplace as part of the settlement. The U.S. Equal Employment Opportunity Commission, which filed the suit on behalf of the technician in 2009, claimed Sheard fended off repeated come-ons from colleague Melissa Brandt in a LensCrafters store in Saginaw, Mich., and alleged that management ignored Sheard’s complaints because he was a man being harassed by a woman. “Sometimes people think that a young man — well, they don’t believe it can happen to a man,” Sheard told HuffPost. “They just believe every guy would jump on a situation like that. That’s far from the truth.” According to the suit, Sheard started working at LensCrafters in 1998. In 2006, Brandt told him she wanted to have a relationship with him that was “more than platonic.” Sheard declined. From then on, Brandt would reference sex acts in front of Sheard, talk openly about his body, touch and grab his chest and backside and tell him she loved him and wanted to have sex with him, the suit claimed. At a holiday party in 2008, Brandt allegedly tried to grab Sheard’s crotch several times, to the point where Sheard had to leave. After repeated rejections, Brandt eventually made a sexual harassment claim against Sheard, a charge she later admitted was false, according to the lawsuit. The lawsuit alleged that LensCrafters management immediately investigated Brandt’s charge while ignoring Sheard’s. “People witnessed things,” Sheard said. “Nobody wanted to do anything about it.” Sheard repeatedly brought his issues to management — at first the lab manager, and then up the company ladder — all to no avail, he said. All told, the alleged harassment lasted for more than a year. “I just kept taking it to higher authorities,” Sheard said. “I’d take it to a supervisor, then to their supervisor, and it just kept getting overlooked. It blew up to a point that they had no choice but to try to do something about it. But at that point it was way too late.” Sheard left LensCrafters in 2008, after Brandt’s father threatened him at the store due to his repeated complaints, according to court records. The EEOC took up Sheard’s case and filed its suit the following year. Sheard said life hasn’t been easy since his job at LensCrafters unraveled. The situation at work led to stress and anxiety problems, and after leaving the job he underwent psychiatric treatment and started taking medication for depression. Sheard had worked as an optical lab technician for more than a decade, since he was 18 years old, and finding a new job in the field hasn’t been easy. Part of the problem, he says, is that LensCrafters’ parent company, Luxottica Group , which was named in the lawsuit, owns many of the retail optical chains where Shears could potentially find work, including Pearle Vision, Sears Optical and Target Optical. “They own stuff you think they would never own,” he said. Despite his struggles with unemployment, Sheard said he’s relieved that the LensCrafters ordeal is finally over. Brandt could not be reached for comment, but in a statement LensCrafters denied Sheard’s claims that it tolerated sexual harassment. “Much of the conduct that formed the basis of the plaintiff’s complaint allegedly occurred when DOC Optics owned and operated the store at issue,” the statement said. “LensCrafters agreed to a settlement to avoid the cost and distraction of ongoing litigation.” Female-on-male harassment cases aren’t unheard of , though they are far less common than the male-on-female variety. According to EEOC data , the percentage of males filing harassment complaints has been rising in recent years, from about 12 percent in 1997 to an all-time high of 16.4 percent last year. But EEOC spokeswoman Christine Nazer says the agency doesn’t track how many of those complaints are men filing against women or men filing against other men. In 2009, movie-theater chain Regal Entertainment Group settled a similar EEOC lawsuit , in which a male employee claimed a female co-worker had repeatedly grabbed his crotch. In that case, the victim said management failed to address the situation and instead retaliated against him for reporting it. Regal paid $175,000 to settle the lawsuit. In a statement on the Sheard case, EEOC attorney Nedra Campbell said, “Sexual harassment is always unjust and illegal, regardless of the gender of the perpetrator or the victim.”

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Zappos’ CEO: Saving Vegas From Itself

June 17, 2011

The Zappos offices in Las Vegas are housed in a sun-drenched office park on a stretch of highway that could be found pretty much anywhere — except for the fact that once you step inside, it becomes immediately clear you’re at Zappos, Inc. Desks, ceilings and cubicles are covered with fake flowers, homemade posters, and paraphernalia ranging from mounted longhorns to marshmallow Peeps. Throughout the day there are spontaneous “parades” though the office, complete with noisemakers and homemade costumes. Zappos CEO Tony Hsieh sits under a lush canopy of fake vines and greenery, in an area of the office dubbed — for reasons that remain unclear to many employees — “Monkey Row.” A business wunderkind who sold his first company, LinkExchange , to Microsoft for $265 million two years after it was created in his living room, and has since taken Zappos from an online shoe retailer with $1.6 million in sales in 2000 to one that had over $1 billion in 2008, Hsieh is not your average CEO. Given that he is now worth hundreds of millions of dollars, Hsieh could have easily retired to Bora Bora — or any other tropical location where the monkeys might actually be real. He has instead decided to stick with the business of selling shoes, trying, in the process, to make the world a happier place. Hsieh’s vision is most concretely laid out in his best-selling book, ” Delivering Happiness ,” which chronicles the life lessons he has learned — beginning with an ill-fated worm farm at age 9 through to the near- billion dollar sale of Zappos to Amazon. Broadly, “Delivering Happiness” makes the case that happiness is good for business. “[Research shows that] great companies all have strong cultures. That’s our number one priority at Zappos,” said Hsieh. “The second ingredient is that all great companies have a vision that has a higher purpose, beyond profits or being number one in the market. By having that, it enables companies to generate more profits in the long-term. It’s a weird counterintuitive thing, this whole idea of focusing on culture and higher purpose — using happiness as a business model.” While Hsieh and Lim initially envisioned the book as a business manual, their ideas about what happiness means — and how to achieve it — resonated broadly and deeply with the general public. So far, the book has been published in 17 different languages. “One guy said to us, ‘This isn’t just a business manual, this is a life manual,’” recalled Hsieh’s co-author, Jenn Lim. This April, Hsieh and Lim decided to spin “Delivering Happiness” into an eponymous company that they describe as a “social venture” akin to Tom’s Shoes . The company is for-profit — “We want sustainable revenue to support the company,” Lim said — but profit is not its primary goal. “For us, it’s about managing the excitement and inspiration” that the book has created, Lim said. Citing the digital community that has sprung up around the book, as well as an extended cross-country book tour in the highly customized “Delivering Happiness bus,” kitted out with a bartender and a balloon artist, Lim said one of the company’s main goals will be to “connect sectors of people who have these amazing ideas — like people who want to create town halls in their own hometowns.” Delivering Happiness, Inc. will also offer advisory services around “culture coaching,” strengthening organizational DNA to make businesses places of both profit and pleasure; “culture book” services, wherein employees describe what company culture means to them; and merchandising and publishing divisions. Lim said that potential clients include private sector businesses, non-profit organizations, and international companies. The success of Hsieh’s sermon perhaps says something broader about a disconnected culture in which the notion of happiness seems so revelatory, but the possibilities for how Hsieh & Co. might revolutionize modern communities — both commercial and otherwise — remain great. As evidence, Hsieh has embarked on a mission to revitalize the city of Las Vegas, something its mayor, Oscar Goodman, calls, “Among the five most important things that have happened since I’ve been mayor in the last twelve years.” As an indicator of the city’s economic woes, last October Vegas hit a record 15 percent unemployment and was ranked second-to-last among the nation’s 100 largest metropolitan areas in terms of progress made toward economic recovery. Hsieh was looking to “increase the number of serendipitous interactions amongst employees,” he said. “That’s when ideas come out. That’s where communications happens. Very little gets accomplished in scheduled meetings — I’m super anti-meetings.” He soon became interested in the old City Hall building in downtown Vegas as a potential site for a new Zappos office. “We wanted a campus,” he explained. The location will allow all the employees to be housed under one roof, rather than in separate buildings, as they are now. Once Hsieh began examining the downtown city center, he became excited by the possibilities for revitalization. “There are the seeds of what I think can be a huge opportunity to actually create a sense of town and culture and community in the city that’s viewed, probably, by the rest of world as antithesis of that,” he said. Hsieh encapsulated his vision for Vegas as “From Sin City to Sim City” — a nod to the digital urban planning game . Once the company relocates to the City Hall building in 2013, Goodman said that there will be “10,000 Zappos employees [in the area].” He called their presence “the critical mass needed to have a very vibrant downtown.” Much like the research he used to determine how to deliver happiness and develop profitable businesses, Hsieh looked at the principle drivers of thriving urban areas, calling on the work of Richard Florida , author of “The Rise of the Creative Class” and “Who’s Your City?” “Research shows that elements of successful cities include supporting the arts scene, the live music scene — even things like having shorter sidewalks. A lot of those things are things — both inside and outside of Zappos — that we’re looking at to help bring to this area,” said Hsieh. Hsieh has developed “10 tracks” aimed at rejuvenating the downtown area, ranging from affordable housing to education to tech incubation. Zappos employees are invited to participate in these tracks and lead specific projects around them, including volunteering with local schools to teach students about technology or starting a community kitchen. Said Hsieh, “We’re trying to do fifty startups at the same time, in an integrated way.” “It’s a big deal for us,” Goodman said, about the plans being laid. While Hsieh could, at this point, be expected to take some time off from the rather significant task of rethinking corporate culture and revitalizing one of the country’s most famously downtrodden urban centers to enjoy the fruits of his labor, it’s clear that the classic distinctions between work and pleasure do not — for him — exist in the same way as they do for the rest of us. Or perhaps he just has a more enlightened view of the whole thing. “People talk about the work-life balance, or work-life separation,” Hsieh said. “Here at Zappos, we really think about it as work-life integration. Because at the end of the day, it’s just life.” WATCH:

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Robert Kuttner: The Gang of Six and Other Rogues

June 13, 2011

If we can just get Congressman Anthony Weiner off the front pages, the Democrats should be enjoying a nice political windfall thanks to the Republicans’ blunder on Medicare. Republican Rep. Paul Ryan’s proposal to end Medicare as a public program is monumentally unpopular. Budget Committee Chairman Ryan’s plan also has the added benefit of dividing Republicans, and usefully contributed to Newt Gingrich’s self-immolation . But watch for the bipartisan Gang of Six, and their conservative allies at Tim Geithner’s Treasury Department, to snatch defeat out of the jaws of victory. In the most likely budget compromise that saves the country from defaulting on the national debt, the differences between the parties will collapse in a largely conservative direction. If the current script is followed, Republicans will be the big winners. They will win on gutting social spending, aborting a fragile recovery, humbling the president, and undercutting his re-election chances. Heckuva job, Gang of Six. Zachary Goldfarb’s recent Washington Post profile confirmed Geithner’s role in persuading President Obama to give deficit reduction priority over job creation. With the resignations of senior economist Jared Bernstein and more recently chief economist Austan Goolsbee, no senior economic adviser to the president is pushing jobs over budget cutting. Even with the withdrawal of Senator Tom Coburn, leaving just five bipartisan stalwarts, the Gang of Six (minus one) claims it is on the verge of agreeing to a deficit reduction plan that proposes $4.7 trillion in spending cuts over a decade. If the test is how much to cut, this plan goes both Obama and Ryan one better. But is that really the right test? For most Americans, the federal deficit is an abstraction. The problem is too few jobs, flat wages, declining home equity, unaffordable health care, rising college costs, diminished opportunity for the young. The entire political class has convinced itself that the way to economic recovery is via deficit reduction. The only problem with that is that no known theory of economics can plausibly demonstrate the connection. Debt financing is not crowding out private investment — interest costs are at record lows. The problem is that business doesn’t see enough customers to increase investment, because of the recession itself. No amount of deficit reduction between now and November 2012 will improve the jobs picture. On the contrary, by denying the government money to invest in projects that could create jobs, the deficit obsession will worsen the economic picture — and the Obama Administration’s re-election prospects. Alan Simpson and Erskine Bowles, former chairs of Obama’s commission on fiscal reform, could not win the necessary super-majority support for their draconian plan, which included Social Security cuts, but they just won’t shut up. They recently published a fatuous op-ed piece in the Washington Post assuring readers that the Gang of Six would soldier on and find a budget compromise. The oped concluded with the immortal words, “Pray for the Gang of Six.” Well, if you believe in the power of prayer, it would be better to pray for the Gang to splinter over partisan differences — because those differences actually play to the strength of progressives. Most Americans don’t support cuts in Medicare or Social Security. Most are opposed to the kinds of savage cuts in programs for the poor and the working middle class that are at the core of the Ryan budget and that will be part of a Gang of Six package if the Gang ever agrees. Most would like to see investments in infrastructure to put Americans back to work — the very investments that would be ruled out as part of a Gang of Six austerity budget. If those differences are submerged in a frenzy of bipartisanship, mainly along fiscally conservative lines, we lose and the right wins. The Republicans on the Gang of Six — senators Saxby Chambliss of Georgia and Mike Crapo of Idaho, as well as their absent colleague Tom Coburn, are against tax increases on the well off. They are also opposed to more than token cuts in the military. So any Gang-of-Six deal accepted by the group’s fiscally conservative Democrats will be mostly domestic spending cuts. That, in turn, will up the pressure on President Obama to accept what is basically a Republican budget and an unpopular one at that. But what about the debt and the risk of a default? The debt is a modest problem, over the long term, but the urgent crisis right now is a flat economy. The better way to reduce the burden of past debt is to get a serious recovery going. That will take more public investment, not less. As for the debt ceiling, why is it that only Republicans and fiscally conservative Democrats get to play chicken with the risk of a default? It would be better for President Obama to make clear that he is not about to sacrifice valued social outlays for far-right ideology, and hold Republicans accountable for spooking the money markets. Most of the debt increase was caused by the recession itself, by the Bush tax cuts, and the military buildup. The simplest way to tame the debt would be to revert to the tax code of the 1990s (a decade of prosperity), to shift military spending to domestic uses, and to increase federal revenues via a strong economic recovery. The final budget agreement will necessary be a compromise. But if Democrats give away their principles before the final negotiations even begin, they should not be surprised when the compromise looks mostly Republican. Robert Kuttner is co-editor of The American Prospect and a senior fellow at Demos. His latest book is A Presidency in Peril .

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Delta Charges U.S. Troops Returning From Afghanistan $2,800 In Baggage Fees

June 8, 2011

WASHINGTON — Delta Air Lines is facing intense criticism after charging 34 U.S. soldiers returning from Afghanistan $2,800 in baggage fees. The incident came to light on Tuesday after a couple of the new-media savvy soldiers recorded a video about their ordeal and posted it on YouTube. “We showed up and found out we had too many bags,” said Army Staff Sgt. Robert O’Hair in the video, which was shot on their flight. “We had four bags, and Delta Air Lines only allows three bags. Anything over three bags you have to pay for, even though there’s a contract between the United States government and Delta Air Lines when returning from Afghanistan on military orders, you’re authorized up to four bags.” O’Hair added that all the soldiers with a fourth bag had to pay $200 out-of-pocket. The total for the 34 soldiers was more than $2,800. O’Hair’s fourth piece of luggage was his weapons case, carrying the tools he used, in his words, to “protect myself and Afghan citizens while I was deployed in the country.” WATCH: A Delta social media manager identified as Rachael R. responded in a blog post on the company’s website on Tuesday, clarifying the airline’s policy: “Currently, Active Duty U.S. Military Personnel traveling on orders may check up to 4 bags in First/Business class and 3 bags in Coach for free both domestically and internationally. Additionally, to help with the travel process, we allow each bag to weight an extra 20 pounds over the standard allowance.” She apologized to the Army unit on behalf of Delta and said the airline would be reaching out to each of them personally “to address their concerns and work to correct any issues they have faced.” Rachel R. did not say whether the soldiers would be reimbursed. “A $200 bill for extra baggage by a government-contracted airline is the worst welcome home any soldier could receive,” said Joe Davis, director of public affairs for the Veterans of Foreign Wars. “We know this is a business issue and that the troops will be reimbursed if they are authorized additional baggage in their orders, but the shock of even being charged is enough to make most servicemen and women simply shake their heads and wonder who or what it is they are protecting.” The overwhelming majority of the comments on the Delta blog post were not on the company’s side. “Having been deployed three times in eight years, I have never had to pay out of pocket for bags on other airlines,” wrote a user identifying themselves as brianmcgovern. “Flying with Delta has always been a crap shoot. We can never tell when there will be an issue with baggage, especially once the major airlines got together and started soaking all passengers for baggage fees.” A user named hotberry simply said, “You people should be ashamed of yourselves.” Delta made $3.7 billion in 2010 off of ancillary revenue — charging passengers for food, drinks and extra baggage. According to Stars and Stripes , the men in the video are deployed with the 95th Infantry Division , a Reserve unit in Georgia. In the video, they say they were bound for Fort Polk, La.

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Michael Moynihan: End OPEC Now!

June 8, 2011

The OPEC cartel that meets in Vienna today has thrived in its 50-year history. First ignored, then despised for using the “oil weapon” on the West, and ultimately granted a strange legitimacy due to age, it has assumed all the trappings of an international organization. This week’s meeting of Mahmoud Ahmadinejad ‘s Iran, Muammar Gaddafi’s Libya and Hugo Chavez’ Venezuela to fix quotas, for example, will take place not in Gaddafi’s tent but in a sumptuous building on the Helferstorferstrase in Vienna. Press is likely to report not on why oil prices are set by a cartel of the world’s worst leaders but rather on whether oil quotas are modestly adjusted to cover wells out of order since the Libyan revolt Unfortunately, the cartel’s victims have not fared as well. OPEC has over the last century engineered a massive transfer of wealth from the rest of the world to its rulers. At key junctures, it has used the “oil weapon” to destabilize the global economy as with the 1970s oil shocks, the 1980s debt crisis triggered by soaring oil bills and the 2008 financial collapse (when it cut quotas with prices over $100). Less well known is the role of oil price spikes in stoking misery and instability in developing countries. The final victims have been the people of the oil states themselves who have not shared in the wealth enjoyed by a few while seeing democracy pushed indefinitely into the future. Adam Smith famously observed “Seldom do businessmen of the same trade get together but that it results in some detriment to the general public.” Based on a long history of economic study, today cartels are illegal in virtually all developed countries. The question with OPEC, therefore, is not why it is bad but why has it survived. During the first Gulf war in 1991, the US and its allies saved Saudi Arabia, liberated Kuwait and dictated peace terms to Iraq. Yet after the war, all three countries continued as prominent OPEC members. In 2002 we invaded Iraq again, this time overthrowing Saddam Hussein. But rather than insisting that Iraq leave OPEC, the United States actually became a de facto OPEC member through the provisional Iraq authority. The superficial answer to this question of why OPEC has persisted is it has successfully claimed sovereign immunity. Unlike a private cartel — hundreds of which have been prosecuted by the Justice Department since 1990, OPEC is comprised of governments that happen to set quotas for oil. But this argument is weak. The 1976 Foreign Sovereign Immunity Act contains an exception to immunity in the case of governments engaging in commercial activities. The real reason that OPEC has survived is a lack of US resolve to break it up. In 2007 and 2008, the House and Senate passed legislation that would have forced the Justice Department to go after OPEC. However, a veto threat from President Bush prevented final passage of the legislation. There is an equally strong case for trade action against OPEC, made compelling by Senator Frank Lautenberg. The WTO unequivocally prohibits quota-based cartels except in the rare case of conserving resources or national security and of the 12 OPEC members, five are WTO members and 3, observers. Yet to date, the US Trade Representative has not filed an action. These tools alone might suffice to end OPEC. But the ratcheting up of US engagement in the region recently creates a new opportunity to break the cartel. The Middle East — the geographic center of OPEC — is clearly undergoing fundamental change. Not only, of course, did the US midwife democracy in Iraq, we remain the guarantor of security of Saudi Arabia, Kuwait and the UAE, and are now also supporting the rebels in Libya. The expanded US and EU role in the region provides an opportunity to make a simple case to all parties. US and more broadly EU support must be contingent on a timeline for withdrawal from OPEC. In short, the conditions exist to end OPEC. We only need resolve. Here is a plan forward. By July 4th, Congress should pass legislation revising the FSIA to strip OPEC of any hint of sovereign immunity. The US Trade Representative should immediately begin studying action against the OPEC countries in the WTO. The Obama Administration should make it clear to parties we aid in the Middle East they need to plan to transition out of OPEC. We can end OPEC but only if we act. Time is of the essence due to the tenuous state of the global recovery.

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Robert Lenzner: Making Banks Too Big to Not Fail, Maybe

June 8, 2011

The partial meltdown in bank stocks was a surprise and a warning. The market seemed to know that the powers-that-be were going to order more capital — a great deal more capital — according to the declaration today that a surcharge will raise bank capital to at least 10% of all their footings. This is proper revenge for being Too Big to Fail and almost destroying the global economy in 2008. No wonder the shares of Bank of America, Citigroup, Wells Fargo and other national and regional banks were battered. As the Hank Paulson character in the HBO movie of Too Big To Fail , was reported as saying: “Wall Street has a gambling problem… Why would we bail out someone whose sole purpose is to make money?” This is a major challenge to bank earnings and bank shares in the market. The major banks will have to sell on average another 60 or 70 million shares to raise that capital. Selling those additional shares will put massive pressure on the shares outstanding now. And with vastly more shares outstanding, the earnings available to those shares will be far less than at present. No wonder the banks are selling near their tangible book value — that is if you can trust the tangible book value in light of the mortgage loans that might still have to be written down in value. No wonder Bank of America (BAC) did not become a $30 stock as big-time hedge fund managers like John Paulson thought they would. The stock has been under liquidation and is selling just over $10 a share. Even JP Morgan is suffering at $40 a share, though Keefe Bruyette & Woods reckons its eventually worth $58 a share. Another solution: those too big to fail institutions could become smaller by unwinding positions and liquidating assets and reduce their dangerous level of leverage in this manner. Bank executives will wail about less profits, lower share prices, smaller bonuses, unhappy shareholders. Oh, woe is me! In Too Big Too Fail Treasury Secretary Paulson confesses to one of his aides: “We’re late. We’ve been late on everything.” Maybe, with this tough demand to increase statutory capital far beyond what the banks were willing to do, there will be a banking system that is more protective of itself. On the basis of past practice, though, we have learned they will find some way to gamble again with our and their future — and cause even more need for costly bailouts.

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Some Federal Food Service Workers Make More Than State Governors

June 6, 2011

Despite the political power, governors aren’t always the most well-paid government employees in their state. In fact, a recent report from the Congressional Research Service finds that 77,057 federal government employees nationwide make more than their respective state’s governor. The report, requested by Republican Senator Tom Coburn of Oklahoma, reviews 2009 federal employee salaries across the country, and comes during the on-going debate over whether public sector pay rates are draining state budgets. An array of government positions offer higher pay rates than that of governor. Government medical officers, for instance, are the most likely to be paid more than their governor with 18,351 employees nationwide receiving higher pay, according to the report. Air traffic controllers are the second most likely with 5,170 earning more than their governors. Some chaplains, archaeologists and food service workers are also paid more than their state governor, the report said. On his website , Senator Coburn stated that government employees deserve to be paid fairly but was concerned with much of the report’s findings due to the struggling economy. “This report begs for an explanation of why interior designers, recreation planners, and other public employees are enjoying higher salaries than state governors,” he said. And it’s not just federal workers receiving handsome pay, either. In California, state-employed lifeguards are often paid well over $100,000. And athough that still falls short of the California governor’s $212,179 salary, it exceeds the salaries of other state governors, such as Maine’s Paul LePage, who is paid only $70,000. But the problem doesn’t lie with the salaries of full-time government employees, according to Beth Moten, legislative and political director for the American Federation of Government Employees . She says that pay rates for government contractors are what need to be reevaluated, not that of government employees who provide valuable services to the public. “So the government’s paying $700,000 and more for contractor salaries, and Sen. Coburn worries about the pay of physicians who care for wounded soldiers?” Moten asks, according to the Washington Times . “If those governors want to make more money, they should either become contractors or try applying to medical school.”

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Pentagon On Joint Strike Fighter: Too Expensive, But There Is No Alternative

May 19, 2011

By Colin Clark Editor, AOLDefense WASHINGTON — The U.S. must buy the Joint Strike Fighter, but it’s not affordable right now. That was the somewhat confusing message from the Pentagon’s top acquisition official, Ashton Carter, when members of the Senate Armed Services began hammering him Thursday about the plane’s huge cost overruns over the last three years. The Joint Strike Fighter (JSF), also known as the F-35, may cost a total of more than $1 trillion dollars to design, build, buy, fly and repair through 2065, according to Pentagon documents. Under sharp questioning by Arizona Sen. John McCain, the Senate committee’s top Republican, Carter said the F-35’s costs are “simply unacceptable in this fiscal environment.” The program faces a “watershed moment” after years of cost overruns and schedule delays have piled up in the midst of one of the greatest fiscal crises in United States history, McCain said. Carter stressed to the Arizona senator that he and his Pentagon colleagues now feel they have much more information — and much more accurate information — about the program’s likely path. He and other Pentagon officials repeated their mantra that there is no alternative to buying the F-35. Carter’s comments about the program’s sky-high costs during the hearing stood in stark contrast to the much more upbeat tone of a joint statement he and other top Pentagon officials prepared for the hearing. That statement conveys the official position –- adopted by all senior military officials –- that the F-35 is “the centerpiece of the Department of Defense’s future precision attack capability.” Most of it details the current status of the program, which is actually ahead of the latest version of its testing schedule. However, as McCain noted, the program overall is 80 percent over its original cost estimate, and roughly 30 percent over the estimate of the last restructuring. Defense Secretary Robert Gates and Carter have been at pains recently to say they support the F-35. After years of getting either insufficient or lousy numbers from the program office, they say they now have “credible” cost estimates for production and operation and support. The later two are the dollars spent on fuel, the people who fly and maintain the jets and the equipment needed to repair and improve them. These sustainment costs typically makes up at least 70 percent of total expense of a major weapon system. The JSF program office, led by Vice Adm. David Venlet, is preparing the first credible stab at estimating those costs — and they are high. According to Christine Fox, director of the Pentagon’s feared Cost Assessment and Program Evaluation office, the F-35 is currently estimated to cost less to operate and maintain than the F-22, which is America’s most capable stealth fighter. The F-35 will cost about one third more to sustain and operate than the main plane it is replacing, the F-16. It will cost about same as the F-15C, she told the Senate committee. A document leaked last Thursday, the Dec. 31 Selected Acquisition Report, puts the F-35′s costs at $16,425 per flying hour. That’s more than $3,000 more per hour than the F-16C/D’s $13,466 cost. Since “affordability” has been the watchword for the F-35 since it was first conceived, these numbers pose a difficult conundrum for senior Pentagon leaders. Lockheed Martin’s CEO Bob Stevens is keenly aware of the threat they pose to the program, and he has pressed company officials to do everything possible to get the costs back on track. The company’s top man on the F-35, Tom Burbage, told the Senate Armed Services Committee in his prepared remarks that the F-35B, that Marine’s version of the JSF, will save the military an estimated $1 billion a year when it replaces three other aging aircraft. That gives some sense of how complex the F-35B is intended to be. It will serve the roles of the F-18, the Harrier jumpjet and the EA-6 currently fulfill — a conventional fighter, an attack aircraft and an electronic and cyber warfare platform all rolled into one. Launching next month, AOL Defense will provide news, insight and tools about the strategy, politics and policies that shape the defense sector. Follow Colin on Twitter for views at @colinclarkaol . Follow AOL Defense for news at @aoldefense .

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Andrew Winston: The Navy’s Tactical Strike on Fossil Fuel Use

May 17, 2011

Eighteen months ago, the U.S. Navy announced it would source roughly half of its energy from alternative sources by 2020. Since then, the Navy has launched a number of innovative green projects, such as switching some Marine forward bases in Afghanistan from fossil fuels to solar power. Navy Secretary Ray Mabus, whom I recently saw speak about his energy program, runs a $150 billion budget and oversees 900,000 “employees.” His experience can teach any organization some important lessons about making the case for green and executing the vision. Connect green to your core mission and strategy . For the Navy, going green is about security and reducing dangerous reliance on fossil fuels from volatile parts of the world. As Mabus says , “we’d never let these regions produce our ships, but we give them a say in whether our ships sail, planes fly, or ground vehicles operate.” Moving away from fossil fuels also saves soldiers’ lives. For every 50 convoys of fuel, one Marine is killed or injured (for more on the cost in lives and treasure, see this post ). Guarding fuel also takes soldiers away from the real mission. Mabus puts it bluntly : “The big reason we’re doing this is to make us better fighters.” Then connect green to cost savings . Since the 2009 energy goals, oil has risen $50 per barrel, costing the Navy $1.5 billion. Enough said. Set aggressive goals . Reaching for 50 percent renewables is driving innovation. Set a moderate goal, Mabus says, and you’ll get moderate results. Help your employees do their jobs . The Marines of the 3rd battalion, 5th Marines are using portable solar collectors to power up their many electronic devices. Eliminating batteries saves the battalion 600 pounds of gear. How happy are these guys now? Ignore the naysayers . As Mabus points out, the Navy has switched fuel sources many times, from wind/sail to coal, from coal to oil, from oil to nuclear (partially). Each time, critics wondered why they’d embrace unknown fuels and in every case, he says , “the naysayers were proved wrong.” Use pilot programs . The forward bases using solar energy are great demonstration projects. Another big profile initiative is the U.S.S. Makin Island, an amphibious assault ship launched in late 2009 with hybrid gas-electric power. For speeds under 12 knots, it uses batteries, saving $2 million on its maiden voyage and an expected $250 million in its lifetime. Use data to drive buy-in and execution . One Marine per 50 convoys, $1.5 billion fuel cost rise, 600 pounds lighter, $250 million saved. Numbers work to paint a real picture. It’s not just the Navy going green. The whole military is embracing this logic, as I’ve written about before. But the Navy seems to be in the lead, and has a clear vision as to why green matters. The recent mythic raid on Osama bin Laden’s compound gave us all a powerful demonstration of what the Navy SEALs can do. In talking about energy, Mabus makes a direct connection between the achievements of the military — the Marines in particular — and green: “Renewable energy will help us continue to be the most powerful expeditionary fighting force the world has ever known.” This post first appeared at Harvard Business Online .

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Dean Baker: The Good News and the Bad News in the Social Security Trustees’ Report

May 16, 2011

There was both good news and bad news in the Social Security trustees’ report released last week. The bad news is that the program is projected to cost somewhat more in the latest report than in the 2010 report. As a result, its projected 75-year shortfall was increased by 0.3 percentage points of covered payroll from 1.92 percent to 2.22 percent. The year when it was first projected to face a shortfall was moved up a year from 2037 to 2036. This bad news about the program is also the good news. The main reason that the program’s finances deteriorated between the 2010 report and the 2011 report is that in the 2011 report the trustees assumed that we would enjoy substantially longer life expectancies than they did in the 2010 report. They increased their projected life expectancy for men turning age 65 in 2010 from 18.1 years to 18.6 years, a gain of 0.5 years. The trustees increased their projected life expectancy for women turning age 65 by 0.3 years. Remarkably, virtually no one in the deficit-obsessed media even noticed this projected increase in life expectancy, simply highlighting the bad news about Social Security’s finances. Of course the trustees likely anticipated how their report would be received. It is important to recognize that this is the report of the Social Security trustees, not the professional staff of the Social Security Administration (SSA). The six trustees include three Obama cabinet members, the head of the Social Security Administration, who is a holdover Bush appointee, and Charles Blahous, an independent trustee who was President Bush’s point man on his Social Security privatization drive. The professional staff of SSA does make recommendations to the trustees, but these recommendations are held as carefully guarded secrets, like battle plans in the war on terrorism. Even accepting the 2011 report at face value the picture is hardly as dire as many politicians in Washington are claiming. We have seen much worse before. For example in 1997, the trustees projected a shortfall that was equal to 2.23 percent of payroll . At that time, their projections showed the trust fund first being depleted in 2029. The 1997 report also assumed a slower rate of real wage growth than the 2011 report. A lower rate of real wage growth meant that any tax increase that might have been imposed to maintain long-term solvency would have taken up a larger share of the growth in the real wage of the average worker. Alternatively, any cut in benefits would have done more to slow the improvement in the living standards of retirees over time. There can be little doubt that the most recent projections show a much brighter picture of Social Security and the economy going forward than what was projected through most of the 1990s. It is also important to keep the Social Security numbers in context. Proponents of cuts to Social Security have spent fortunes on pollsters and focus groups trying to put the program’s finances in the most dire possible light. They are fond of reporting things like the program’s $17.9 trillion shortfall over the infinite horizon . The focus groups show that this one is really good for scaring people. After all, “trillion” is a really huge number and $17.9 trillion must be really really huge. Of course no one has any clue what “infinite horizon” means. So no one knows that this is a projection of what the program looks like in the 23rd, 24th, and 25th century and beyond, if we never change it in any way. The vast majority of this $17.9 trillion shortfall comes in years after 2200. Social Security does have a long planning period, but if anyone thinks that we are actually making policy for the 24th century then we should keep this person far removed from the levers of power. The best way to make the size of the projected Social Security shortfall understandable is to put it in context. Relative to the size of the economy, the projected Social Security shortfall is equal to 0.7 percent of GDP. By comparison, annual spending on the military increased by more than 1.6 percentage points of GDP between 2000 and 2011. So the burden imposed by the wars in Iraq and Afghanistan are almost 2.5 times larger than the money that would be needed to eliminate the Social Security shortfall. To take another point of reference, the Congressional Budget Office’s analysis of the Ryan Medicare privatization plan implied that it would increase the cost of buying Medicare-equivalent policies by more than $34 trillion , a sum that is almost five times as large as the projected Social Security shortfall. If the Social Security shortfall is a really big deal, then the additional costs attributable to the Ryan plan are five times a really big deal. Interestingly, almost no one in the media seems to be talking about that burden.

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David Isenberg: The Uncounted Contractor Casualties

May 10, 2011

Of all the things said and written about private military and security contractors working for the U.S. government in various war zones, one of the least discussed is the sacrifices they make. And like regular military forces, they also pay the ultimate sacrifice, as in dying. Unlike regular military personnel, their deaths rarely get any notice, aside from a company press release and a few paragraphs in the hometown newspaper. Their sacrifices are so unrecognized that if Washington, D.C. were to build yet another war memorial on the mall, The Tomb of the Unknown Contractor would have to be considered a viable candidate for selection. To paraphrase the old saw about regular military forces, one might say in regard to recognition of contractors wounded and killed, “nothing is too good for our contractors, so that’s what we’ll give them. Nothing.” Admittedly, there is slightly better recognition of the wounded and dead contractors than when the U.S. invaded Afghanistan and Iraq — but that is not saying a whole lot. There simply has not been much detailed analysis of this subject. That is why a

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Deborah Frett: Make Your Mother Proud

May 8, 2011

Each May, we are inundated with advertising from jewelers, florists, and other retailers promising the “perfect” Mother’s Day gift. How did Mother’s Day morph into a shopping spectacle that rivals any other holiday of the year?!? It all seems so inadequate — and absurd — when I consider the many, many sacrifices my own mother had made for me over the years, sacrifices that mothers make for their children on a daily basis without even stopping to think. This week’s headlines turned my thoughts to the tens of thousands of courageous mothers who are members of our nation’s military. These selfless women have made the ultimate sacrifice — not just for their own families, but for all of American’s children — by choosing to serve in America’s Armed Forces. Women now make up 15 percent of the United States military, and they are the fastest-growing segment of the veteran population. According to a 2009 report by the Iraq and Afghanistan Veterans of America, more than 40 percent of women on active duty have children, and more than 30,000 single mothers have been deployed to Iraq and Afghanistan. Try finding the “right” gift in a department store to thank these mothers!! There is no question that these mothers’ military service comes at a cost to their families. According to the California Research Bureau, active duty military mothers report higher rates of emotional problems and mental illness than servicewomen without children. Women in the military divorce at a rate higher than their male counterparts, and are significantly more likely to be single parents. Across all ages and segments, women veterans are more likely to suffer from mental illness, experience homelessness, and to commit suicide than women who choose not to serve in the military. And, not surprisingly, their children also pay a huge price for their mothers’ commitment. The Rand Corporation recently reported that children whose parents have been deployed for over 19 months are more likely to experience academic difficulties and exhibit emotional and behavioral problems in school settings. Despite their willingness to make these sacrifices on behalf of our nation, it is both heartbreaking and frustrating to realize that these women often leave their military service only to face daunting challenges when they re-enter civilian life. They are frequently denied recognition and unable to access the benefits and services they have more than earned — and require to successfully reintegrate. BPW Foundation research pinpoints a critical piece of this puzzle: Too many women veterans fail to self-identify as veterans and miss the opportunity to learn about, much less participate in, the broad range of support services for which they are eligible. And, since many public and private sector tools, services, and programs for veterans are still largely designed with men in mind, women veterans are further “penalized” for their service to our nation. This year, find a truly meaningful way to show Mom how much you appreciate all the sacrifices she made for you. Take a pass on the flowers, jewelry, and myriad other “perfect” Mother’s Day gift ideas. Choose instead to recognize and thank the women veterans in your community. And together join BPW Foundation’s Joining Forces for Women Veterans, and help provide support and resources for women veterans and their families as they return to civilian life. Last month, the White House officially launched Joining Forces , a national initiative to mobilize private and public sectors of our society to help military families and veterans access the opportunities and support they have earned. At the invitation of First Lady Michelle Obama, I attended the April 12th announcement of this initiative. It was an honor to be recognized by the White House for BPW Foundation’s efforts on behalf of women veterans and we are grateful to be able to participate in this important endeavor. A major objective of our Joining Forces program is to enable women veterans to find and utilize the diverse benefits due them, helping them connect with other women veterans through scholarships, a career center, Connect-A-Vet resources, Facebook , and Twitter . We will soon be implementing a mentoring program for military spouses and women veterans, and we invite you to play a role in this project. To read a blueprint for our Joining Forces for Women Veterans campaign, visit the BPW Foundation website . To hear first hand from women veterans, check out our recently posted YouTube video from our Joining Forces for Women Veteran’s Summit . Visit www.womenjoiningforces.org to find out what you can do to support women veterans on this Mother’s Day. Your mother will be proud–just as we are proud of the incredible women who serve our nation in the US military.

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Obama Weekly Address Tries To Reassure Public On Economy, Jobs

May 7, 2011

WASHINGTON — President Barack Obama is reassuring the public that jobs and the economy are his top priority. At the end of a historic and emotionally charged week that began with his nationally televised announcement that Osama bin Laden had been killed in Pakistan during a raid by U.S. special forces, Obama on Saturday returned to promoting his energy agenda. U.S. forces raided a compound in Abbottabad, Pakistan, where bin Laden had lived for several years, killing the al-Qaida leader. The news of bin Laden’s demise dominated the week’s headlines. “So although our economy hasn’t been the focus of the news this week, not a day goes by that I’m not focused on your jobs, your hopes and your dreams,” Obama said in his weekly radio and Internet address. He recorded the address Friday while visiting an Indianapolis transmissions plant that makes systems for hybrid vehicles. Obama has been traveling around the country to talk up his plan to reduce U.S. consumption of foreign oil – and the price Americans pay for it – by increasing domestic oil production, encouraging a shift to alternative energy sources and building vehicles that use less fuel. He says shifting to jobs like those at the Indianapolis factory will create more jobs and help the economy grow. “The clean energy jobs at this plant are the jobs of the future, jobs that pay well right here in America,” Obama said. “It’s clean energy companies like this one that will keep our economy growing, create new jobs and make sure America remains the most prosperous nation in the world.” Republicans devoted their weekly message to bin Laden. Massachusetts Sen. Scott Brown praised years of diligent work by the military and by intelligence professionals to pinpoint bin Laden’s location. The al-Qaida leader’s death, Brown said, sends a clear message to others like bin Laden. “The example will not be lost on other terrorists,” Brown said. “Any escape they make will be temporary. Any sanctuary they find will be uncovered. Those who harm or threaten the American people will be dealt with, on our terms, however long it takes.” ___ Online: Obama address: www.whitehouse.gov GOP address: http://www.youtube.com/gopweeklyaddress

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Preeti Vissa: The Crisis of the Day

May 5, 2011

Is it just me, or does the news lately seem like an endless stream of crises that come and go in a flash? Japan! Libya! The deficit! Obama’s birth certificate! Bin Laden! I, too, believe that many of these are serious issues that deserve attention and sympathy, but the drumbeat of daily emergencies is enough to leave one breathless. And confused. Confused enough, in fact, not to notice that at least one old crisis hasn’t gone away. Indeed, Congress has been busy making it worse. In the recent budget deal, Congress and the administration did away with $88 million in funding for nonprofit agencies that counsel families struggling to keep their homes and avoid foreclosure. Maybe that doesn’t seem important, but as this article from Painesville, Ohio makes clear, it has real-world consequences. For one thing, it endangers many who are currently obtaining loan modifications, which may require the completion of credit and homeowner counseling as a condition for the modification to go through. If that counseling isn’t available because the agencies doing it lost their funding, what happens to these homeowners? The need for this sort of help and counseling for homeowners is only going up as the ongoing tsunami of foreclosures continues, but the future of such assistance is very much in doubt. Congress could and should restore this funding in the 2012 budget, but that’s by no means a done deal. And unlike ginned-up controversies about things like presidential birth certificates, this crisis is real, with consequences that literally include families and children being thrown out into the streets. If we must cut spending, does it always have to be from help for the poor and vulnerable? Even when what happens to the most economically vulnerable is going to affect us all? Consider: A Government Accountability Office review of Defense Department weapons procurement released in March found a “staggering” array of weapons programs soaring wildly over budget , amounting to tens of billions of dollars. Without wading into the debate about what weapons are needed, it’s a given that our military will buy tanks, planes, etc. Is it too much to ask that we get our money’s worth, that our money not be wasted due to mismanagment? It’s hard to stomach losing a comparatively tiny appropriation aimed at keeping families in their homes while simultaneously reading that contracting waste is burning through piles of money equal to the GDP of some small countries. While we’re at it, maybe it’s time to glance away from this morning’s crisis-of-the-day — whatever it is — and remember the ongoing foreclosure crisis that continues to decimate American communities, whether the media notice or not.

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Banks Illegally Foreclosed On Dozens Of Military Borrowers

May 5, 2011

WASHINGTON — Two of the nation’s largest mortgage firms illegally foreclosed on the homes of “almost 50″ active-duty military service members, according to a Thursday report by the Government Accountability Office. The report does not identify the two mortgage companies. GAO investigators attributed the finding to federal bank regulators, who recently completed a three-month probe into allegations of improper foreclosures carried out by the nation’s 14 largest home loan servicers. The GAO report, which focused on problems in the mortgage industry and the lack of federal oversight, is the first official study to feature a partial tally of military families whose homes have been illegally seized. The 50 or so wrongful foreclosures were discovered during regulators’ review of only about 2,800 loans that experienced foreclosure last year. Millions of other foreclosures in recent years have not been reviewed by regulators. More than 2.8 million homes received a foreclosure filing in 2009, and nearly 2.9 million residences got one last year, according to RealtyTrac, a California-based data provider. Federal bank supervisors “could not provide a reliable estimate of the number of foreclosures that should not have proceeded,” they said in their April report on improper mortgage servicing. Two months earlier, the head of the Office of the Comptroller of the Currency, which oversees national banks like JPMorgan Chase and Bank of America, said that only a ” small number ” of home seizures should not have occurred. The large number of wrongful foreclosures identified by the GAO from such a small sample suggests that the problem could be more widespread. As foreclosures have surged to record levels, banks and other mortgage firms have been caught ill-equipped to handle the ever-increasing workload, Treasury Department and Federal Reserve officials have repeatedly said. Due to years of under-investment by banks in their mortgage processing operations, regulators and experts have found that shortcuts were taken and procedures were not followed. Homeowners are bearing the brunt of these decisions. Improper mortgage practices affecting military borrowers are ” perhaps the most egregious cases ,” wrote five Democratic lawmakers in a joint letter Thursday to bank regulators. “The idea of wrongfully forcing service members’ families from their homes while their loved ones are risking their lives to protect our country is not only unconscionable, it’s illegal,” said Sen. Al Franken (D-Minn.), one of the co-signers, in an emailed statement. Members of the armed forces on active duty are covered by the Servicemembers Civil Relief Act , a law designed to protect them from financial distress. The legislation restricts foreclosure of properties owned by active-duty members of the military. Violations are handled by the Justice Department’s civil division. The Justice Department has reportedly said it’s investigating allegations of improper foreclosures on service members that were commenced by mortgage subsidiaries of Morgan Stanley and Deutsche Bank AG, two of the world’s largest banks. Bank of America recently announced it would change the way it handles military borrowers. A 50-state coalition of attorneys general and bank supervisors along with the Obama administration are also in talks with the nation’s five largest mortgage firms — Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial — to resolve allegations of wrongful foreclosures and improper mortgage practices. Fines could reach up to $30 billion, according to people familiar with the matter. JPMorgan Chase disclosed in February that it had improperly foreclosed on the homes of 18 military families. Stephanie Mudick, an official at the nation’s second-largest bank by assets, told a House panel that the lender had either rescinded the foreclosure sale or reached a settlement for 12 of those military borrowers, and was working through the rest. The firm’s mistakes were a ” painful aberration ,” Jamie Dimon, JPMorgan’s chairman and chief executive, said in a February statement. In April, the bank agreed to pay $56 million to settle claims of improper mortgage practices when dealing with military borrowers. On Thursday, JPMorgan spokesman Tim Keefe said that the bank had found additional cases of military families whose homes were illegally seized. Although he did not specify the exact number, a separate JPMorgan official said the total was less than 30. Keefe said the bank had committed to providing new homes and full forgiveness of any mortgage debt owed to the lender for these borrowers. By taking shortcuts in processing troubled borrowers’ home loans, the nation’s five largest mortgage firms have saved more than $20 billion since the housing crisis began in 2007, according to a confidential presentation prepared for state attorneys general by the nascent Bureau of Consumer Financial Protection inside the Treasury Department and obtained by The Huffington Post in March . In February, Holly Petraeus, who leads the bureau’s unit overseeing military borrowers, sent a letter to the chief executives of the nation’s 25 largest banks urging them to follow the law when it comes to dealing with service members. “I appreciate your assistance in ensuring that your bank does not overlook its obligations -– legal and otherwise -– to your military customers,” wrote Petraeus, whose husband, David, leads U.S. forces in Afghanistan.

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Dean Baker: Why Does Senator McCaskill Want to Bankrupt Our Children?

May 2, 2011

That is what people should be asking Missouri Senator Claire McCaskill along with her fellow senators who are advocated strict caps on government spending. The idea being pushed by Senator McCaskill, together with Tennessee Senator Bob Corker and several other prominent senators, would limit federal spending to 20.6 percent of GDP. It would require difficult to obtain super-majorities to exceed this cap. Spending would be cut across a variety of programs if the cap is not reached. This proposal is hugely deserving of ridicule for a variety of reasons. First, it operates from a blatantly wrong premise – that government spending has grown out of control. Those familiar with arithmetic know that government spending had increased by little as a share of GDP prior to the downturn caused by the collapse of the housing bubble. In 2007, the last year before the onset of the recession, spending as a share of GDP was 19.6 percent. That is 1.1 percentage points less than the 20.7 percent share 30 years earlier in 1977. So the idea that there is a long-term trend of out of control spending is simply not true, or what they call outside of Washington, a “lie.” Spending has risen in the wake of the downturn, but this was not due to a flood of new and expensive government programs. It was overwhelmingly attributable to the expansion of safety net programs like unemployment compensation and Food Stamps and a decline in GDP, which raises the spending-to-GDP ratio even when spending remains constant. If McCaskill and the other senators are upset about this recent rise in spending then they should be going after the incompetents at the Fed and Treasury who somehow could not recognize the $8 trillion housing bubble whose collapse wrecked the economy. This was indeed a horrendous mistake that has been devastating to the country, but it has nothing to do with government spending. Over the long term government spending is projected to rise, but this also has nothing to do with the profligacy of Congress. There are two reasons for the projected increases in spending. The first is an aging population. As a result federal programs that provide for elderly like Social Security, Medicare, and Medicaid will cost more money. The second reason is that health care costs are still rising out control. The United States already pays more than twice as much per person for health care as other wealthy countries. This disparity is projected to grow even larger in coming decades. If this proves true then it will both impose enormous costs on the private sector and lead to growing strains on the budget. By contrast, if health care costs were brought under control we would be looking at huge budget surpluses in the decades ahead. Of course controlling costs would mean confronting the insurance and pharmaceutical industries and other powerful lobbies. Unfortunately Senator McCaskill and her colleagues lack the courage to confront such powerful elites. In fact, McCaskill and her colleagues do not even have the courage to propose cuts for specific programs. Does McCaskill wants to cut Medicare, Social Security, Head Start, unemployment insurance? She won’t tell her constituents or the country. She just wants to cut generic spending. This one might sell well with the Wall Street crew, but it is incredibly bad policy. First off, any budget expert can quickly devise 100 ways to game spending caps, the most obvious being tax expenditures, where the government gives a tax break for items it wants to subsidize. This does not count as spending. More importantly, a strict limit on government spending that is binding would prove enormously costly because there are some things that the government does more efficiently than the private sector. Providing Medicare to retirees is one of the items in this category, according to the non-partisan Congressional Budget Office (CBO). CBO’s analysis of Representative Ryan’s plan for privatizing Medicare showed that having private insurers take over the Medicare program would add more than $34 trillion to its costs over its 75-year planning period, an amount that is almost seven times the size of the projected Social Security shortfall. CBO’s analysis implies that the Ryan plan, which was approved by the Republican House last month, would increase the cost of paying for retirement health care for someone turning 65 in 2022 (the first year the plan takes effect) by almost $170,000. This doesn’t count the cost transferred from the government to beneficiaries. This is pure waste associated with using a more inefficient private system rather than the public system. There is a similar story with Social Security. The administrative costs of privatized systems like those in the United Kingdom or Chile are 20-30 times as high as the administrative costs of the Social Security system in the United States. This would cost a typical retiree close to $40,000 in higher fees (which is income to the financial industry) that would come directly out of their retirement income. If Senator McCaskill and her colleagues really expect their caps to be binding then they must want to privatize either Social Security or Medicare or both. Arithmetic leaves few other options. By 2030, CBO projects that spending on Social Security, Medicare and Medicaid would take up 14.5 percent of GDP. If we assume, conservatively, interest payments of 3.0 percent of GDP, this brings us to 17.5 percent of GDP against a proposed cap of 20.6 percent. Any reasonable level of spending on the military, education, infrastructure, the environment and research and development would push the country far over the cap. This would leave little choice except to privatize Social Security and/or Medicare imposing an enormous and unnecessary burden on our children and grandchildren. The higher costs associated with privatized programs will leave all but the wealthiest workers struggling in retirement. Of course, the senators who want to impose this enormous burden on our children and grandchildren will mostly be enjoying a comfortable retirement themselves by the time the effects of their policy are being felt. In the meantime, they will have enjoyed the praise of the Wall Street crew and the elite media for having the courage to destroy the programs that the middle class depends upon. Welcome to Washington.

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William S. Becker: The Oil War at Home

April 30, 2011

Whom should we blame for high gasoline prices? The president? Oil companies? Price gougers? Protestors in the Arab Spring? People who drive Hummers? The answer to that question is one of the first serious issues of the 2011 presidential campaign. (Sorry, Trump. Sorry, Birthers.) It’s an issue that could — and perhaps should — become an oil war at home, politically speaking. The issue is heating up because gas prices affect us all, whether we’re buying fuel, food or consumer goods. Rising gas prices threaten our recovery from the recession and our ability to put Americans back to work. To anticipate how the price of oil might unfold as a campaign issue, we can look to California in 2006. One of the initiatives on California’s ballot that year was Proposition 87 to establish a new tax on petroleum extracted from the state’s oil fields. The tax would have raised $400 million annually to fund alternative energy programs, with the goal of cutting the state’s oil consumption 25 percent over 10 years. Proposition 87 contained a clear prohibition against oil companies passing the cost of the tax to consumers by raising fuel prices. The tax would have to come out of profits. In July 2006, polls indicated that 51 percent of California’s voters supported the initiative. Then in August, opponents launched an aggressive campaign of television ads supported in part by more than $30 million from Chevron. The ads claimed Proposition 87 would result in higher gasoline prices — despite the prohibition in the initiative. One of the ads featured the president of the California Chamber of Commerce warning that Proposition 87 “would impose a $4 billion tax on oil produced in California, a tax that would lawfully be passed on to the rest of us.” By October 2006, voter support for Proposition 87 had dropped from 51 percent to 41 percent. The measure was defeated in the November election. Fast forward to Washington in 2011. Republicans are warning again that a “tax increase” (actually subsidy reform) for oil companies will push gasoline prices higher. Some are blaming President Obama for expensive gasoline. To his credit on the issue of oil subsidies, the president stirred the pot with an April 26 letter to leaders in the House and Senate, urging them to “take immediate action to eliminate unwarranted tax breaks for the oil and gas industry and to use those dollars to invest in clean energy to reduce our dependence on foreign oil”. Obama included the same proposal in his last two budget submissions to Congress. A day later, 29 Democrats in the House wrote to Speaker John Boehner, asking for an up-or-down vote on oil subsidy reform. Boehner said no. His spokesman explained: “The Speaker wants to increase the supply of American energy to lower gas prices and create millions of American jobs. Raising taxes will increase gas prices and make it harder to create jobs.” In that response, Boehner’s spokesman managed to squeeze three big untruths into two short sentences. They came straight out of the dog-eared playbook the oil industry and its supporters continue using to frighten voters about jobs, taxes and energy prices. The president has proposed repealing tax breaks for oil companies, not increasing taxes for consumers. Repealing the subsidies will result in higher gasoline prices only if oil companies want to shake down consumers. Four billion dollars a year is chump change in the oil industry. It would shave very little off its profits. In the first three months of this year alone, Exxon-Mobil earned nearly $11 billion. Chevron netted more than $6 billion. When Rep. Diane DeGette asked the Energy Information Administration several years ago whether subsidy cuts would cause an increase in gasoline prices, EIA told her that oil revenues were so large that eliminating the industry’s taxpayer subsidies need not make a difference in the price at the pump. The third misstatement in Boehner’s response was that subsidy reform would discourage oil companies from drilling. So long as there’s money to be made, oil companies will drill. Again, $4 billion a year will not make a dent in their profits. In regard to the blame game, Politico reports this week that: Americans are paying more than $4 a gallon for gas, ExxonMobil announced a 69 percent boost in earnings, and President Barack Obama is struggling with the fact that he can’t do much about any of it… Political experts of all stripes say (high gas prices are not) good news for Obama. Politico cites a new Washington Post /ABC poll in which 60 percent of Independents said they “are concerned enough about gas prices to say that they definitely will not back Obama for reelection.” But if President Obama can’t do much more about gasoline prices, why should he be blamed for them? The administration has deployed the few countermeasures in its arsenal to reduce our dependence on oil and the price we pay for it. Among other things, it has instituted aggressive new efficiency standards for vehicles. The president doesn’t benefit from spikes in the price of oil. On the contrary. We can be certain he will do all he can to keep the recovery on track. If it’s not “the most powerful leader in the world”, then what really affects oil prices? As former Labor Secretary Robert Reich explains: It’s a global oil market. Even if 3 million additional barrels a day could be extruded from lands and seabeds of the United States (the most optimistic figure, after all exploration is done), that sum is tiny compared to 86 million barrels now produced around the world. In other words, even under the best circumstances, the price to American consumers would hardly budge. The Atlantic offers more detail : Fuel taxes make up 12 percent of the retail price of gasoline. Gas taxes averaged 48.1 cents per gallon as of last January. The federal portion is 18.4 cents per gallon; state taxes averaged 28.6 cents. The federal tax supports the Highway Trust Fund, which is used to build and maintain the interstate highway system, with smaller portions going to mass transit. It’s unlikely these revenues can be reduced without further damaging the nation’s deteriorating transportation infrastructure. The American Society of Civil Engineers estimates we are spending $110 billion too little each year to maintain the transportation system even at current levels. Meantime, the Congressional Budget Office predicts the Highway Trust Fund will run a $7 billion deficit this year and will continue to have deficits through 2020. The biggest factor by far is the price of crude oil . It accounts for 68 percent of what we pay at the pump. It also affects our trade and budget deficits. The Congressional Research Service estimates that when petroleum costs $100 a barrel — a price we’ve already exceeded — our oil imports increase the U.S. trade deficit by $100 billion. Every $10 increase in the price of oil costs our military (in other words, taxpayers) $1.2 billion a day. The balance of gasoline prices — 20 percent — goes for refining, distributing and marketing the fuel. The biggest factor in price volatility is supply and demand. Also in the mix are increases in U.S. oil consumption during the summer, speculation in oil markets, what’s happening in the Middle East and other countries from which we import petroleum, and the strength of the dollar. The least of the factors — so small that it’s overwhelmed by the others — is domestic oil production. Gasoline pricing is complex, but the politics are simple. Secretary Reich puts it this way: This gusher (of oil profits) is an embarrassment for an industry seeking to keep its $4 billion annual tax subsidy from the U.S. government, at a time when we’re cutting social programs to reduce the budget deficit. It’s especially embarrassing when Americans are paying through their noses at the pump. If that doesn’t dissuade Republicans and oil-state Democrats from going to war on this issue, then we should ask some questions: o How can the members of Congress who condemn federal budget deficits support subsidies the oil industry doesn’t need? o How do oil subsidies, some of which have been in place for generations, square with conservative mantras that the federal government shouldn’t be picking winners or engaging in corporate welfare? o How can Congress justify oil subsidies when they’ve been warned repeatedly by experienced senior military experts that, “Dependence on oil undermines America’s national security on multiple fronts”? Without question, there are issues on which the interests of the oil industry and the public coincide. The obligation of our political leaders is to detect where those interests diverge and, when a choice must be made, to choose on the side of the American people. If gasoline prices become a huge issue in the 2011 elections, we will see who favors the blame game over solutions and who represents the welfare of oil companies over the welfare of the American people. I can see the first bumper sticker now: John Boehner. R-Ohio or R-Oil?

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Ian Fletcher: America’s Fate Under Chinese Hegemony: A Review of Eamonn Fingleton’s Jaws of the Dragon

April 30, 2011

The news has recently hit the press that China’s economy, measured on the purchasing-power basis that adjusts for price differences between nations, may surpass the U.S. in only another five years or so. Surprisingly, China has still shown no signs of morphing into the cuddly liberal and democratic nation, devoted to American ways from Coca-Cola to democracy, whose eventual appearance has been assumed by American policy for thirty years now. Our policy during this period has, after all, enthusiastically cooperated with China’s efforts to build up its economic power–which entails, of course, every other kind of power, including the military kind. So our assumption of a benign China had better be right, or else we have been abetting the creation of a monster. A hostile China will be arguably even worse than the USSR, because it will not do us the favor of sabotaging its economy by adhering to a dysfunctional economic ideology. The above realities are the subject of Eamonn Fingleton’s book In The Jaws of the Dragon: America’s Fate Under Chinese Hegemony . Fingleton is a Tokyo-based Irish journalist who has lived in East Asia for over 25 years, and he has a long and distinguished record of telling truths about the region’s politics and economics that the establishment (on both sides of the Pacific!) would rather the public did not learn. This is one of those books that one wishes the President would read. While it is hardly news that America is facing a Chinese challenge, the seriousness of this challenge is still poorly appreciated. For example–this was my big takeaway from the book–China is not just another despotism. It is the implementer of a systematic and sophisticated political philosophy, which Fingleton calls Confucianism, which will almost certainly constitute a serious threat to liberal democracy in the years ahead. Confucianism, as the reader may recall from a comparative religions class taken long ago, is the political philosophy derived from the ancient Chinese sage Confucius. It was the official ideology of the state in Imperial China for thousands of years. Now Confucius wasn’t a bad man, but he did base his political philosophy on taking authoritarian government as a given and trying to civilize it. He did not, as Western political thinkers since the dawn of democracy in Ancient Greece have done, base his political ideology on trying to prevent despotism in the first place. As a result, he simply wasn’t that interested in concepts like individual freedom or limited government. The bottom line, after a few thousand years of history and some astonishing ideological twists and turns, is an approach to politics that is systematically opposite to liberal democracy. It is the velvet glove on the iron fist, and increasingly a very sophisticated one. It has tamed capitalism and mastered modern media. It is not headed for collapse or metamorphosis any time soon. If anything, it is currently more successful at imposing its will on us than we are at the reverse. To be fair to poor old Confucius, the political system of contemporary China is not a direct extrapolation of any blueprint he drew up, and its flaws should not blind humanity to the genuinely civilizing aspects of his teachings (which are real). But, as Fingleton shows in considerable detail, a Confucian mentality underlies the politics of not only China, but also, in a soft-authoritarian version that has mastered the surface rituals of democracy, the politics of neighboring nations like Japan, Korea, and Singapore. Make no mistake: East Asia is on a fundamentally different civilizational track than the U.S., and it isn’t going to get off any time soon. And why should it, when East Asians are currently watching America decline? If the U.S. had not chosen, by its unconditional embrace of economic globalization by means of (one way) free trade, to render itself vulnerable to China, the above might not matter very much. After all, for most of its long history, China has maintained a civilization upon principles very different from those of the West, and it didn’t do us much harm. Unfortunately, the U.S. has, in fact, chosen the opposite course, with the result that our own government is increasingly slipping under the control of an ethically alien and geopolitically hostile power. To take just the most obvious example: because political bribery is, by way of political action committees, essentially legal in the U.S., Beijing can manipulate the U.S. Congress and the presidency almost at will. Why? Because it can manipulate the profits of the Fortune 500 companies that do business in China, and they do its bidding as lobbyists here. Because they are still headquartered in the U.S., they find welcome on Capitol Hill, but it is Beijing that is calling the shots. Americans sometimes puzzle over why their government doesn’t “get” the Chinese threat. The answer is simple: because it has been bribed not to by China. The most important issue on which our government has been bribed is, of course, trade. China runs astronomical trade surpluses with the U.S. In fact, a majority of our trade deficit is now with China. This is no accident: it is the product of China’s aggressive embrace of predatory mercantilism plus America’s government being bribed not to take defensive measures. To find an historical parallel, one would probably have to go back to something like the suicide of the old Polish state in the 18th century, carved up by its adversaries after its domestic politics was paralyzed by foreign bribery. America’s defense against Chinese mercantilism is further sabotaged by the fact that, despite our using similar policies earlier in our own history, mainstream American economists are largely blind to the fact that mercantilism even works. Trapped in the same “free” market thinking that led to the 2008 financial crisis, they don’t believe that China’s policies can possibly be a winning move for that country. An economy that has gone from peasant agriculture to superpower in 30 years doesn’t seem to persuade them. Why are China’s economic policies so effective? The aggressive pursuit of exports is a game other nations, like Germany and Japan, also play well. But these are both medium-sized high-wage nations that are already developed, not gigantic low-wage nations still on the early stage of their development path. (China is an economic superpower because it has so many workers, but their per capita output still only qualifies China as a middle-income nation globally, behind nations like Jamaica.) China is unique because it combines standard-issue (if exceptionally cynical) mercantilism with other policies, like forced savings and systematic technology acquisition, made possible by its despotic ex-Marxist political system. For example, it has, by deliberate state fiat, a savings rate close to 50%, while America’s is close to zero. This gives China a tidal wave of investment capital to put into everything from factories to freeways. (It is also enabling China to accumulate ownership of American government securities and private-sector assets.) Japan never took over the world, so some people dismiss the Chinese threat as yet another big wolf-cry. But China has ten times Japan’s population, nuclear weapons, and a hard-authoritarian rather than soft-authoritarian political system. This time, it’s different. Beijing is already extending its political tentacles everywhere from the Middle East to Latin America. Now that Uncle Sam worships democracy (at least in principle) and doesn’t cut dictators the slack he did during the Cold War so long as they were anti-communist, China is the new best friend of despots everywhere. China’s voracious demand for natural resource imports alone guarantees that this rivalry will not remain trivial forever. If worst does come to worst, don’t say you weren’t warned. This is a readable and very important book.

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Donald Trump’s Vietnam Draft Claim Called Into Question

April 29, 2011

Earlier this week, Donald Trump said during an interview that he avoided being called to serve in the Vietnam War because he “got lucky” and “had a very high draft number.” The Smoking Gun reports , however, that appears not to have been the case. According to the website , Selective Service records tell a different story: By the time his number (356) was drawn during the December 1, 1969 draft lottery, Trump had already received four student deferments and a medical deferment, according to military records on file with the National Archives and Records Administration. An extract of Trump’s Selective Classification record, seen here, was provided in response to a TSG records request. ( Click here to view the records obtained by The Smoking Gun.) National Review Online relays what Trump initially told New York-based station WNYW about the matter earlier this week. “I was sitting at college, watching,” he said to the local outlet, “I was going to the Wharton School of Finance. And I was watching as they did the draft numbers and I got a very, very high number and those numbers [they] never got up to.” The Smoking Gun reports , however, that the draft lottery that took place in December of 1969 came eighteen months after Trump graduated from the Wharton School at the University of Pennsylvania. National Review Online questioned the claims made by Trump to WNYW on Thursday. Brian Bolduc wrote : But in her biography of Trump, Donald Trump: Master Apprentice , journalist Gwenda Blair attributes the Donald’s escape of the draft to another factor: “Donald’s military career ended with NYMA graduation; despite his athletic prowess, in 1968 he received a medical deferment from the military draft.” Trump has yet to announce whether he plans to run for president in the next election cycle. During a stop in Las Vegas on Thursday night he said he could be expected to make his plans known by June 1. When one woman at the event shouted “run for president,” the billionaire reportedly responded, “I think I am going to make you very happy on that.”

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There’s An App For That: Going To College Via Smartphone

April 28, 2011

Mobile devices now offer yet another option for a generation adept at distraction — behold, going to college by smartphone. Earlier this week, the University of Phoenix, the nation’s largest private university, became the latest for-profit institution to dip its toe in the rapidly expanding marketplace of higher-education apps. Specifically, by launching the PhoenixMobile app, which is now available free of charge at the iTunes store , University of Phoenix students who are iPhone, iPod touch or iPad users will now be able to “move seamlessly between the online classroom and their mobile phone,” according to a recent press release. It is currently listed as the number one education app for the iPhone. “It’s all about functionality and the extension of the classroom,” says Michael White, University of Phoenix’s chief technology officer. The app will allow students to check grades, communicate with classmates and participate in online discussions. “From four walls to a laptop to a handheld device, it’s about a classroom on the go, whether on the bus or on the subway, where our students can do their learning when and where they need to.” Soon, some like Diana Rhoten, co-founder of Startl , which helps build digital education companies, predict that we’ll all be learning on our mobile devices — anytime, anywhere. “The 2000s were about universities and electronic-learning,” says Rhoten. “The 2010s are going to be about mobile-learning.” But in lowering the barrier of entry and increasing accessibility, is something being lost as a result? Barmak Nassirian, associate executive director at the American Association of Collegiate Registrars and Admissions Offers, says an unequivocal yes. “Can you learn thermodynamics by texting?” wonders Nassirian, who describes smartphones used as tools for earning college degrees as “weapons of mass instruction.” Further, he sees such a development as an “astonishing display of disregard for the actual substance of education. And it shows how little they think education requires in terms of attention and focus and some measure of actual engagement.” Others are far less troubled by the latest technological innovation — or higher education delivered through the vehicle of a two-inch screen. “Twenty years ago, people were freaking out about the notion that anyone would take a course online. Now, we just take it for granted,” says Frederick Hess, an education-policy analyst at the American Enterprise Institute. He sees the shift away from desktops and laptops toward handheld devices as part of not only a natural, but expected order of things. “Our notion of what’s normal versus what’s convenient tends to evolve as people get used to using tools in new ways.” Hess notes that a 16-person literature seminar being taught by an exemplary professor will be difficult to duplicate on an iPhone. But he doesn’t think that it’s any worse than taking a basic skills course, whether in accounting or air-conditioning repair, on one’s laptop. In 1989 the University of Phoenix became the first university to provide college degrees online. Its core group of students are non-traditional, whether parents, working adults or members of the military and according to its press release, do most of their online coursework during the hours of 9 p.m. and 2 a.m. But as its digital offerings expand, at issue for some is whether the University of Phoenix’s particular for-profit stance might signal other reasons to be more cautious.  “For-profit universities have incentives to try and maximize a return on investment,” explains Hess, who sees potential technological innovations as a way to not only serve more clients, but also cut costs. “A concern is whether that will compromise quality — and that’s a risk. But there’s an enormous potential upside, as well.” According to the most recent data compiled by the U.S. Senate Committee on Health, Education, Labor and Pensions, the Apollo Group, which is the company that owns the University of Phoenix, enrolled 177,368 students in associate degree programs. Of these, fewer than five percent had completed their degree after two years . More troubling to some are the high costs associated with such a risky endeavor. The cost of the two-year University of Phoenix degree is $21,833. Further, according to the U.S. Department of Education, nearly 21 percent had defaulted on their loans after just three years. Meanwhile, the Apollo Group made more than $1 billion in profit last year. José Cruz, vice president of higher education practice and policy at Education Trust, is more concerned with how the app might help to lure in an unsuspecting demographic of student . “It’s very characteristic of what they do in terms of trying to enroll students into programs,” explains Cruz. “It’s this consumer notion that we’ll give you what you want, but that it’s not necessarily what you need.” Further, Cruz wonders whether the money spent on marketing or future app development might better be spent researching improved learning models so that students might actually graduate at higher rates. Eszter Hargittai, an associate professor of communication studies at Northwestern University, worries about the overall effectiveness of such a model. Essentially, that just because we have the tools doesn’t mean they will necessarily improve learning outcomes. “It’s a little hard to imagine the person changing a diaper and running off to work and in between, having the time to meaningfully engage with their classmates.” Meanwhile, Aaron Pallas, a professor of sociology and education at Columbia University’s Teachers College, hopes that such technology doesn’t expand elsewhere for now. He worries about students trying to do too much at once, and that much of learning and subsequent discussion can’t be relegated to a 140-character tweet. One of Pallas’ colleagues is known to pass out his cell phone number so that students can contact him, day or night. “I simply don’t want to be that accessible,” says Pallas, who advocates the imposition of a more reasonable setting of boundaries that demarcate when he can devote his full attention to his students and the complex issues they raise. “I want to be accessible, but I don’t want to be perpetually on call.”

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Dylan Reid: Faced With A Grim Job Market, Young Entrepreneurs Create Their Own Employment

April 26, 2011

As June approaches, the million and a half students set to graduate from college in the U.S. this year likely have just one thing are their mind: the job market. For each of these students faced with an uncertain, unstable or imprudent future, there will be a strong impulse to pursue the safest path, often on the periphery of their passions. So to all this year’s graduates wavering between boring job prospects and graduate school admissions, debating backpacking trips across Europe or Latin American missions with the Peace Corps, we propose an alternative. Instead of looking for a job: create your own. The time for entrepreneurship is now. Employment may be scarce, but opportunities for talented students and recent grads to start companies are abundant, especially in the U.S. Increasingly, our national attention is focused on entrepreneurs, with university and government programs supporting R&D and offering low-interest loans for new ventures to start and scale. Tools like crowd-funding and out-sourcing are cutting costs and allowing entrepreneurs to bootstrap from virtually nothing. Accelerators and incubators are sprouting up across the country, transforming once quiet cities into interconnected innovation hubs. And as countries become more connected, more and more entrepreneurs are launching enterprises that operate across countries, continents and around the world, catering to cultural differences and regional needs. The international impact of startups like Facebook, Twitter and Google have laid the groundwork for new wave of global thinking. Growing up on a small farm in New Jersey, Jason Halpern remembered the difficulty of installing solar panels so far off the grid. Small farmers, he realized, had much to gain from solar but its complex and costly infrastructure placed it out of reach for many. While a student at the University of Pennsylvania, Halpern and childhood friend Pat Murphy set out to create a portable and affordable solar generator designed for farmers. After participating in contests and attending conferences at their school and around the area, they pieced together a prototype. They won a $500,000 Edison Innovation Fund Cleantech Grant from the State of New Jersey. And today their company PowerFlowerSolar is developing a range of portable solar generators for farmers, the military and for use in disaster relief. “Bringing power,” as Halpern says “to the places that need it the most.” Not every young entrepreneur has such a clear vision from the onset. Some stumble into entrepreneurship with only a vague plan. Upon graduating Wharton in 2009, Jonathan Hefter turned down lucrative job offers in finance and moved into his parent’s basement where he taught himself to code. It was then that he came up with the concept for the Neverware Juicebox, a super-fast, inexpensive server that speeds up old computers. After getting an invitation to join New York incubator Dogpatch Labs, he was able to perfect the first server. Today, Neverware Juiceboxes are revitalizing outdated computers in public schools across New York and New Jersey. While these entrepreneurs are exceptional, their stories are certainly not unique. They are only a few among the growing number of top students and recent grads in the U.S. and abroad foregoing the arduous process of job seeking for job creation. They are turning their passions into products and experiences into enterprises. They are working across a wide range of sectors and distant geographic locales. They are seeing opportunity in uncertainty and in doing so shaping the future and from the stories of their success a new generation of young talented people might be encouraged to do the same. At the Kairos Society this is not only our hope — it’s our vision. As the world’s most expansive network of student entrepreneurs, we are committed to making our vision a reality. By connecting the world’s most promising young entrepreneurs to each other and the resources they need to succeed, we are helping to foster the businesses that will drive the future and continually question what is possible.

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Renny McPherson: Tech Startups: Turn The U.S. Military Into Your Client

April 26, 2011

This post was co-written with Matt McKnight and Brett Gibson. The U.S. defense and intelligence communities have traditionally been difficult markets to engage. For this reason, most early stage entrepreneurs know very little about these organizations as potential partners or clients. This need not be the case. Today, there are changes on the horizon that endeavor to make government markets more accessible and easier to understand. As a country, we are entering an era of flat security budgets which will drive a necessity for less-expensive commercial-off-the-shelf (COTS) solutions, thereby benefitting innovative young companies. There is a significant effort underway to modernize the IT acquisition cycle, and the government is reevaluating the rules governing the purchase of items like Software-as-a-Service (SaaS) products. Procurement officials are working hard to ensure that new products are not treated in the same manner as big-ticket items like ships and airplanes as many are now. Further, defense and intelligence organizations are focusing massive resources on the persistent and growing cyber-threat, and this will require continued engagement with best-in-class private sector companies. With all that said, and despite potentially positive changes on the horizon, government work can be difficult and dangerous for small businesses who don’t understand the risks that will still exist. As military and intelligence officers and entrepreneurs, we submit this series of notes as a short starter guide for approaching military and intelligence markets in a way that can effectively turn the government into your client. This project is built on our frustration with the lack of access to technology innovation during our time in the military. We wanted to better understand this challenge so we conducted over 25 interviews in the past few months with industry experts to develop recommendations for innovative companies to approach these markets and design and deliver better products to servicemen and women. Based on these conversations with entrepreneurs, government acquisition officials, intelligence and defense professionals, venture investors, and the private equity community, we draw out areas that are most pertinent to entrepreneurs as they begin to look into working with the government. These topics, discussed in detail below, are: Know what is happening in the macro defense/intelligence environment and apply those dynamics to your organizational approach; Target specific user communities and understand what they need; Know what “color” of money you are best positioned to receive; Understand how the government thinks about acquisitions and; Realize you must dedicate resources to this effort. The government really does want to help entrepreneurs. Government acquisition programs can be disorganized and difficult to engage with and contracts are sometimes written by a government customer that does not know the technical scope of the service they are requesting, there is high turnover within the system as military and government personnel work in two to five year intervals in most jobs, and funding is largely dependent on fiscal year cycles. All these factors can contribute to inconsistent and unpredictable contracting cycles. The defense and intelligence communities are aware of these problems, and they are working hard to fix them. Being sure to understand the risks, we believe change is coming and that it is worth the effort for small companies to begin thinking of the government as a clear distribution channel. Even today, a variety of innovative technology transfer organizations funded by the U.S. government are seeking to reduce the friction involved with the traditional contracting structure. We will highlight some resources in the appendix to this article, but entrepreneurs should research In-Q-Tel, OnPoint, the Small Business Innovative Research (SBIR) and Small Business Technology Transfer (STTR) grant programs, the Defense Advanced Research Projects Agency (DARPA), and the Intelligence Advanced Research Products Agency (IARPA) to seek opportunity in this space. Now is an opportune time for entrepreneurs and technology firms to engage with the government customer. In response to increased demands for innovative technology, the defense and intelligence communities are beginning to work more quickly to develop solutions that are flexible and agile. This shift is changing the way defense and IC companies serve their customers, collaborate with partners, and take ideas and solutions to market. Further, a relatively untapped market for Silicon Valley firms, the environment for large strategic defense contractors making purchases of small companies active in these emerging growth areas will likely heat up over the next two to four years. Technology start-ups that have traditionally avoided the government as a market are potentially missing a huge opportunity to leverage an important distribution channel that provides both access to funding and an immediate stamp of legitimacy for emerging products. We will soon post an in-depth explanation on the first five things to know when you start looking for government funding. This post was co-written with Matt McKnight and Brett Gibson. Matt, a former Marine Corps intelligence officer, is currently attending the joint degree program at the Harvard Business School and Kennedy School of Government. Among other pursuits, he consults for the Mayflower Strategy Group. Brett, a former Army officer and second-year student at HBS, will be joining LivingSocial in Washington DC after graduation.

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Jay Mandle: The Politics of the Budget Deficit

April 25, 2011

The federal budget showed a surplus of $185.2 billion in 2000. By 2010 it was in deficit by $1.3 trillion. What happened? Only after that question is answered is it reasonable to discuss what we should do. The numbers are clear: between 2000 and 2010 tax revenues declined from 21.5 percent of the economy’s Gross Domestic Product (GDP) to 16.3 percent. During these same years, federal government expenditures increased from 19.6 percent to 25.4 percent. The budget surplus disappeared because revenues declined by 5.2 percent of GDP and expenditures increased by 5.8 percent. 1 It does not take much investigation to explain the contrasting trends in revenues and expenditures. The two tax cuts passed during the Bush Administration, combined with the two recessions that occurred during that administration, starved the government for funds. At the same time, defense expenditures increased dramatically — from 3.7 percent of GDP to 5.6 — while health care rose from 5.0 to 7.3 percent in 2009 (the most recent available data). This means that increased health care and military spending together were responsible for about three-quarters of the growth in government expenditures as a percentage of GDP that occurred during the last decade. Economic downturns and tax cuts, combined with increased military expenditures and escalating health care costs, were clearly the villains. Logic therefore would suggest that these are the areas that need to be corrected. The economy’s vulnerability to crises should be reduced, the Bush tax cuts rescinded, defense expenditures curbed, and the health care sector made more efficient. But as obvious as these corrective steps might seem, the dominance of wealthy special interests in our political system makes it unlikely that any of them will be implemented. Despite the financial debacle of 2007, Wall Street continues to ride high and the economy remains vulnerable to a financial meltdown. Reducing health care costs will require taking on powerful special interests in a way that the Obama Administration has shown no stomach to do. Increasing taxes on the wealthy at a time of mounting income inequality is so obviously a matter of justice that it would seem not to require much of an argument. Yet spokespersons for the elite like Arthur C. Brooks of the American Enterprise Institute recently argued in The Washington Post that increasing taxation on the rich will damage not only the economy but the meritocratic ideals upon which the country rests. 2 Then there is the question of defense spending. The fact is that the importance of the military in the American economy far exceeds that anywhere else in the world. Most Americans are unaware of that imbalance or its implications. But the fact is that defense spending in the United States as a share of GDP is at least twice as high as in any comparably developed country. In contrast to the roughly 5 percent in the United States, France stands out as the big spender in the European Community at 2.4 percent. The United Kingdom’s level is 1.7 percent. 3 This commitment to the military is particularly anomalous because the United States is a relatively low tax country. Defense spending here therefore claims a significantly larger share of the overall budget. One estimate has it that United States spends 19.3 percent of budget appropriations on the military, in contrast to 6.3 percent in the United Kingdom and 5.4 percent in France. 4 The consequence is that desirable social and labor market policies are crowded out for lack of funds much more so in this country than in Europe. The people who most need social support are the same people who pay the cost of our military expenditures. Given the configuration of power in our political system and in particular the dominant role of wealth, it is all too likely that in addressing the budget deficit, legislators will inflict a grave injustice on large numbers of people. Middle and low income households were not responsible for the budget deficit. But the programs from which they benefit that are most likely to be on the chopping block. The deficit emerged because rich people succeeded in achieving major tax reductions, Wall Street decimated the economy, the costs of health care remained exorbitant, and the growth of defense spending remained unchecked. Yet as things stand, none of these will be the object of political redress. It is at times like these — when real and important choices have to be made – that the fundamental dysfunction of a political system based on wealth is most obvious. 1. Statistics from this and the next paragraph are from the Bureau of Economic Analysis, U.S. Economic Accounts, http://www.bea.gov , Table 3.2, 1.1.10, and 3.12 2. Arthur C. Brooks, the Washington Post , April 24, 2010, p. B-1 3. The World Bank, “Military Expenditures as % GDP,” http://data.worldbank.org/indicator/MS.MIL.XPND.GD.ZS 4. “How Countries Spend Their Money,” % of Total Budget Allocated to Military, http://www.visualeconomics.com

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Naveen Jain: Our Sputnik Moment: US Entrepreneurs Needed for the "Space Race"

April 20, 2011

Fifty years ago, Russian cosmonaut Yuri Gagarin became the first man in space. It was an event that spurred on America to catch up and exceed Russia’s achievement, as President John F. Kennedy outlined in 1962: “…this country of the United States was not built by those who waited and rested and wished to look behind them. This country was conquered by those who moved forward — and so will space.” Moving forward to 2011, it looks like we’re in a similar “catch-up” position. Russia is greatly expanding its space program and is considering investing $7 billion to build a base on the Moon as part of a plan to send a mission to Mars. China’s Lunar Exploration Program has announced its intention to mine the Moon for the substance Helium-3, and the Russian government has made similar statements about its wish to harvest it. While Kennedy exhorted Americans to throw their support behind the government’s efforts to reach the Moon, President Obama has made it clear that this job now belongs to private enterprise. In his 2011 State of the Union speech, he referred to this generation’s “Sputnik moment” — that is, the realization that a foreign superpower could usurp our economic leadership position. The president has indicated that the private sector should take over the job of Moon exploration, so now’s the time to use private enterprise know-how to tap into resources beyond those of the Earth. There have been some steps in the right direction. NASA has committed $30 million to buy information that is gleaned from future missions to the Moon; the money has been contracted to six teams who are also competing for the Google Lunar X PRIZE, managed by the X PRIZE Foundation . That’s a good beginning, but government and private enterprise need additional mechanisms to find funding, and make government expenditures for data worth the investment. As Obama has logically said, NASA’s mission should focus on exploring deep space, and private companies should take on the task of building ships to carry cargo and passengers to the International Space Station, and to the Moon. Rocket companies can get in on this market, as can mining companies. The time may be right to think about going to the Moon as a business rather than a hobby. That’s the goal of Moon Express , a new company of which I am a cofounder. We’re working on building vehicles that can deliver payloads to the Moon and search the lunar surface for precious materials. Why does this discussion of space exploration matter now, especially at a time when so many problems demand our attention here on this planet? Are we trying to go back to the Moon just because we can or is there a benefit to the world in lunar exploration? The answer is the latter. Moon exploration promises to yield new energy sources that could finally break our hold on fossil fuel, and our overdependence on sometimes hostile nations that control its supply. But this time around, we don’t need to rely on government funding to fuel Moon exploration — we can encourage private entrepreneurs to take on this role. The value in Moon exploration comes in part from the presence of valuable resources such as Helium-3, a source of energy that is rare on Earth but is abundant on the Moon. It can “generate vast amounts of electrical power without creating the troublesome radioactive byproducts produced in conventional nuclear reactors,” a Popular Mechanics article explains. In addition, platinum is present on the Moon, and could be mined for use in energy applications, where it is a key catalyst for fuel-cell vehicles. If China and Russia succeed in their goals to obtain Helium-3 and other rare resources for the development of energy, the U.S. could end up relying on these countries for its own energy needs. That’s a tricky thing from a political standpoint: What happens if our relations with these countries turn sour? What happens if Russia and China decide to severely restrict the sale of Helium-3 to other countries, which will drive prices sky-high? We’ll be in the same boat that we’re in now, where we are beholden to oil-rich countries that are often in turmoil. However, if we allow private enterprise to explore and take advantage of the Moon’s resources, we may set ourselves on the road to energy independence. To re-launch our space program, we need private enterprise to step into the void. Government funding only needs to take us to the point where the technology has been developed to get us to the Moon — and we already have that. It’s a model that’s been used successfully in the past: the military first developed the Internet, and private enterprise then seized on its commercial potential; the same thing occurred with GPS technology. Naturally, there are barriers to entrepreneurs leading the charge to the Moon. For one thing, ownership is always a point of discussion — but the fact is that “everyone” and “no one” owns the Moon. Much like when mining resources from international waters (as in fishing), entrepreneurs would need to respect the rights of other business and government players. There is legal precedent for explorers finding and keeping resources that they have uncovered via private investment. There’s also the question of whether we can transport resources from the Moon in a cost-effective manner. Perhaps the cost of rocket launches — by far the greatest expense for a Moon mission — will come down as more entrepreneurs move into this market, or new technology will make them cheaper. It’s even possible to create rocket fuel from resources on the Moon, which would slash return costs and even lower launch costs from Earth. On the other hand, mining and transporting these resources back to the Earth could depress prices as supplies grow, making such ventures less appealing to entrepreneurs. As with all private market endeavors, many will want to take a wait-and-see approach to the Moon’s market potential. But therein lies the opportunity for early movers who apply entrepreneurship to the opening of whole new markets, and in the case of the Moon, a whole new world.

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WATCH: GOP Lawmaker Claims Every Time The U.S. Has Cut Taxes, Revenue Has Gone Up

April 17, 2011

WASHINGTON — As Congress addresses the federal deficit and begins debating next year’s budget, a centerpiece of the conversation is whether to raise taxes and increase revenue for the government or to simply cut spending. In his speech last week, President Obama called for allowing the Bush tax cuts to expire for individuals making $200,000 or more a year and couples making $250,000 or more. Some conservatives, such as Sen. Tom Coburn (R-Okla.) have voiced support for tax increases. But many other Republicans, especially freshmen members affiliated with the Tea Party, aren’t so keen on that idea. On ABC’s “This Week,” host Christiane Amanpour mentioned to freshman Rep. Joe Walsh (R-Ill.) that House Budget Committee Chair Paul Ryan’s (R-Wis.) budget plan doesn’t address raising revenue, while Obama’s does. “Can you really sustain what everyone’s calling for just by cuts in public services? Doesn’t there need to be revenue-raising mechanisms?” she asked. Walsh replied that the best way to raise revenues is to grow the economy. “You get taxes and regulations off the backs of businesses so that revenues can increase,” he insisted. Amanpour continued to press him, expressing skepticism that Congress can really balance the budget just by cutting social programs. Walsh insisted that tax cuts consistently help the economy grow and therefore raise revenues for the government. “In the 80s, federal revenues went up,” said Walsh. “We didn’t cut spending. Revenues went up in the 80s. Every time we’ve cut taxes, revenues have gone up. The economy has grown.” WATCH: Walsh isn’t the first lawmaker to make this argument. Last year, Senate Minority Leader Mitch McConnell (R-Ky.) made a similar comment about the Bush tax cuts. “There’s no evidence whatsoever that the Bush tax cuts actually diminished revenue,” he asserted. “They increased revenue, because of the vibrancy of these tax cuts in the economy.” But even conservative economists have cast doubt on this claim. “Federal revenue is lower today than it would have been without the tax cuts. There’s really no dispute among economists about that,” said Alan D. Viard, a former White House economist under George W. Bush, in a 2006 Washington Post article. Robert Carroll, deputy assistant Treasury secretary for tax analysis, also said that no one in the administration believes tax cuts created a surge in revenue. “As a matter of principle, we do not think tax cuts pay for themselves,” Carroll said. Bruce Bartlett, a Reagan economist who became a strong critic of the Bush administration’s policies, used data from the Office of Management and Budget in a blog post last year to illustrate how ” the Bush tax cuts reduced revenue rather significantly .” On CNN’s “State of the Union,” Sen. Rand Paul (R-Ky.) rejected calls for tax increases, suggesting instead to cut military spending and funds for welfare programs. “I think there is a compromise,” he said. “But the compromise is not to raise taxes, the compromise is for conservatives to admit that the military budget’s going to have to be cut. We’ve doubled military spending. I believe in a strong national defense, but conservatives will have to compromise and we will have to cut military spending. Liberals will have to compromise and we will have to cut domestic welfare. The compromise is where we cut, not where we raise taxes.”

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Kevin O’Brien: America Comes Together to Support Military Families with Joining Forces Initiative

April 14, 2011

The men and women of our armed forces are always in our hearts and prayers… but oftentimes their loved ones are forgotten. This week, the President, the First Lady, the Vice President and Dr. Biden launched the Joining Forces Initiative to mobilize all sectors of society — from citizens to businesses to communities — to give service members and their families the opportunities, resources and support they have earned to make the deployment of their loved ones a little bit easier. While one percent of Americans are fighting in US wars, I am a strong believer that ALL Americans have the obligation to commit to support military families and help make a difference. “I’ve met so many of these military families. What you realize when you talk to them is that these families serve as well. Often we see the men and women in uniform and it’s very clear to us the sacrifice they make. But we forget that when they go to war so does their family they are enduring these employment but they are doing it with such grace and courage,” said Mrs. Obama. Mrs. Obama added, “This campaign is about all of us, all of us joining together, as Americans, to give back to the extraordinary military families who serve and sacrifice so much, every day, so that we can live in freedom and security.” The strength and resilience of military families is so strong. We as Americans need thank these families for their service and lend a helping hand. Whether it’s cutting the grass, helping with carpools or assisting with securing a suitable job… every little bit helps because it is one less thing a military spouse needs to worry about. Without the support of our military and their families we would not be able to live in a free nation. President Obama said, “Our nation endures because these men and women are willing to defend it, with their very lives. And as a nation, it is our solemn duty and our moral obligation to serve these patriots as well as they serve us.” Joining Forces is partnering with top corporations and nonprofit groups to bolster health care, employment and educational opportunities. Helping military spouses find employment is critical for the stability of military families. According to the November 2009 data from the Bureau of Labor Statistics, 8.4 percent of military wives were seeking jobs and couldn’t find one, compared to 5.3 percent of women in civilian families. In addition, military families move on average every 2.9 years, this makes it difficult to pursue a career. In conjunction with Military Spouse Appreciation Day, Sears Holdings Corporation is partnering with UBM’s Milicruit to present the Military Spouses Virtual Career Fair, which will be hosted on May 6, 2011 from 1PM – 4PM EDT. Joining Sears Holdings will be dozens of military-friendly employers who also recognize and value the contributions military spouses provide to the defense of our nation. The virtual career fair will allow spouses the opportunity to meet and interact with employers from all over the country from the comfort and convenience of their home. The virtual career fair will allow the spouses to learn about employment opportunities, chat with recruiters, view/apply for jobs, and perhaps even video interview. The Military Spouses Virtual Career Fair is free of charge for military spouses to participate. Those interested in attending the virtual career fair can register at www.militaryspousecf.com. Sears Holdings is one company that understands the plight of military spouses. The company employs over 30,000 military personnel, veterans and spouses across all levels of the organization. The “PCS Promise” is an effort that covers all military personnel and spouses employed at Sears Holdings to provide transfers in the cases of Permanent Change of duty Station (PCS), retirement or separation, depending on job availability and performance. I am proud to be a part of Milicruit — helping military veterans and spouses find suitable employment. How do you plan to thank a military family? Employers wishing to participate in the virtual career fair can send requests to Kevin O’Brien at kobrien@milicruit.com This story is part of Military Families Week, an effort by HuffPost and AOL to put a spotlight on issues affecting America’s families who serve. Find more at jobs.aol.com/militaryfamilies and aol.com .

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Obama Tiptoes On Proposed Tax Increases

April 14, 2011

WASHINGTON — With his striking choice of words, President Barack Obama clearly outlined the greatest perils for Republicans – and for Democrats – in the nation’s high-stakes debate over spending and social programs. Obama used vivid, populist language in a forceful speech Wednesday to denounce the GOP plan for cutting spending and revamping Medicare and Medicaid. The Republicans, he said, have concluded that “even though we can’t afford to care for seniors and poor children, we can somehow afford more than $1 trillion in new tax breaks for the wealthy.” But the president’s language was tortured and opaque when it came to one element of his own proposal: raising taxes for certain Americans, mostly high earners. Obama said he wants “to reduce spending in the tax code.” That code, he said, is “loaded up with spending on things like itemized deductions.” By any measure, “spending in the tax code” is a curious phrase. It likens tax revenue to a source of money that “spends” down its total when tax cuts are enacted and conversely “reduces spending” when taxes go up, including cases in which temporary tax cuts are ended. Long gone are the days when Democrats employed frank language on taxes, as presidential nominee Walter Mondale did in 1984. “Mr. Reagan will raise taxes, and so will I,” Mondale said in accepting the nomination. “He won’t tell you. I just did.” Obama left no doubt he believes some taxes should go up. But he couched it in careful terms designed to distance himself from proverbial “tax-and-spend Democrats” almost as much as he distanced himself from what he suggested are heartless Republicans. Throughout his 43-minute speech, Obama portrayed himself as a fair but frugal leader willing to trim popular agencies, including the military, and to raise taxes only on wealthy people who have benefited disproportionately in recent years. It’s part of a broader appeal to independent voters, who swung dramatically from Democratic candidates in 2008 to Republicans in 2010 and who hold the key to his re-election hopes next year. Americans are showing increased alarm at the fast-growing federal debt. It’s coupled with concern, along with sometimes conflicting emotions and beliefs, about the nation’s biggest social programs, Medicare and Social Security. Both parties face political opportunities and risks as they confront these issues. And both parties are seeking phrases and slogans to best exploit their openings while minimizing their weaknesses. House Republicans plan this week to pass an ambitious 10-year plan that would convert Medicare to a voucher program and turn Medicaid into a state block grant program, saving the government billions of dollars. The bill would reduce tax rates for corporations and high earners, while ending some tax-avoidance loopholes. Democrats feel the GOP is overreaching, chiefly in its proposed changes to Medicare, the rapidly expanding federal health care program for older Americans and the disabled. They think voters will recoil at the notion of higher medical costs for the elderly, especially if income tax rates are falling for high earners. Obama ripped the Republican plan. “It’s a vision that says America can’t afford to keep the promise we’ve made to care for our seniors,” he said. “It ends Medicare as we know it.” Republicans, meanwhile, have virtually perfected their attacks on any Democrat who suggests a tax increase of any kind. Several top Republicans criticized Obama’s long and multilayered speech on that topic alone. Obama “doesn’t get it,” said Mississippi Gov. Haley Barbour, a likely presidential candidate. “The fear of higher taxes tomorrow hurts job creation today.” “The real problem is that Washington spends too much, not that it taxes too little,” said Sen. Lamar Alexander, R-Tenn. Numerous bipartisan and nonpartisan analysts say it is almost impossible to solve the nation’s debt problem without some combination of tax increases, spending cuts and substantial changes to Medicare and Social Security. After calling for an array of spending cuts Wednesday, Obama made the case for targeted tax increases, albeit in roundabout language. Because Medicare and Social Security are popular with both parties, he said, “and because nobody wants to pay higher taxes, politicians are often eager to feed the impression that solving the problem is just a matter of eliminating waste and abuse, that tackling the deficit issue won’t require tough choices.” He said he would not repeat last year’s decision to extend Bush-era tax cuts – now scheduled to expire before 2013 – for families earning more than $250,000 a year. “We cannot afford $1 trillion worth of tax cuts for every millionaire and billionaire,” the president said. He renewed his call for limiting itemized deductions “for the wealthiest 2 percent of Americans.” Such deductions apply to money spent on mortgage interest payments, charitable gifts and other items. Obama described such goals as “reducing tax expenditures.” “I think it was very, very smart” to use such unfamiliar and indirect language, said Matt Bennett, vice president of Third Way, a Democratic-leaning think tank that praised Obama’s speech. “Why not put it in those terms?” he said in an interview. “It’s what the Republicans’ Frank Luntz would do.” Luntz is a GOP adviser known for pushing carefully crafted political terms, such as referring to levies on estates as the “death tax.” Bennett said Republicans have demonized even reasonable and necessary tax increases to the point that “it’s a gigantic problem” for solving the nation’s fiscal woes. If a “term of art” will blunt GOP attacks, he said, it could help Obama advance his agenda and give political cover to Republican lawmakers who believe some element of tax increases must be part of a deficit-reduction drive. In his closest brush with an explicit call for tax increases Wednesday, Obama chastised the most insistent Republicans. “Some will argue we shouldn’t even consider ever, ever raising taxes, even if only on the wealthiest Americans,” the president said. “It’s just an article of faith for them. I say that at a time when the tax burden on the wealthy is at its lowest level in half a century, the most fortunate among us can afford to pay a little more.” It fell far short of Mondale’s candor. But it was enough to unleash a barrage of GOP criticisms, certain to resound through the fall of 2012. ___ EDITOR’S NOTE – Charles Babington covers Congress and politics for The Associated Press.

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Skills Learned In Service Don’t Translate To Employment For Veterans

April 14, 2011

WASHINGTON — When Eric Smith, 26, returned home after his second tour in Iraq serving as a Navy medic, he didn’t expect to have a difficult time finding work. While on tour, Smith had worked as a physician’s assistant in the intensive care unit (ICU), caring for patients undergoing everything from cancer to recent brain surgery. At times, he served on the front lines treating infections. He never thought the expertise he had developed in the field wouldn’t amount to a job back home — but when he returned he found that he couldn’t get a job in medicine without the right certifications. “They beat it into your head, that you’re a veteran, [employers] want you, they know about your dependability and your training, blah blah blah,” Smith said. “That proved not to be the case. I got out in August 2008, and in September 2008 there was a big economic downturn and that changed everything. It really became: what do you have off the bat, are you able to come in and just work and do you have all the necessary certifications?” Smith joined the military at age 17, and has no college degree. He now lives with his parents in Baltimore. He’s had three jobs since his return, all temporary positions. He lives off his VA check and picks up odd jobs as they come up around the neighborhood. The economic crash has been unkind to veterans returning from the most recent wars. On Wednesday, Smith testified at a hearing in Washington examining unemployment among veterans led by Sen. Patty Murray (D -Wash.), who has been on the forefront of a fight to ensure proper support for returning vets. More than one fifth of 18-24 year old veterans returning from Iraq and Afghanistan were unemployed in 2010, according to recent data from the Bureau of Labor Statistics. The unemployment rate for young male veterans was 21.9 percent last year — more than two percent higher than their non-veteran counterparts. Those who focus on veteran rights and unemployment issues find that number disturbing. “We’re asking our young men and women to go serve in combat and make major sacrifices — not just going into danger for their country, but the sacrifice of time from their lives. It’s a moral imperative to actually support them when they get home,” said Tim Embree, a legislative associate at Iraq and Afghanistan Veterans of America who served two combat tours in Iraq. “We spend so much money investing in the service members while they’re wearing the uniform but then to just waste that? It’s a waste of tax dollars,” he added. Embree said one of the biggest challenges for returning veterans can be figuring out how to translate skills they’ve gained in the service to civilian jobs. This challenge goes both ways — employers often need help understanding how veteran skills can benefit their businesses. In Embree’s view, long term unemployment can be one of the most hazardous obstacles for both young veterans coming home from war, and for society at large. “Unemployment is one of the most dangerous problems,” Embree said. “If a person can’t find a job and they’re already susceptible to mental or physical injuries, it’s going to be a lot more expensive down the road.” On the other hand, he said, “if someone has a good job that they can develop in and grow in, they’re not going to be homeless. They’re not going to be utilizing more and more services because they’re not going to need to.” While the statistics are most dire for young veterans returning home from Afghanistan and Iraq, the problem of unemployment after the military is widespread. After serving in the U.S. Navy for the past seven years, Clayton Crotty, 29, couldn’t find work. Although he has applied to over 50 jobs since his terminal leave in August 2010, he has yet to be called for an interview. “I think I’m a good candidate,” said Crotty, whose fiancée is due with their first child in August. Although Crotty was never deployed during his two tours in the Navy, he was certified as a welder. “I’ve applied for welding jobs in Navy shipyards around Philly and can’t even get interest in that,” he said. “How much more qualified can you get?” Crotty said he receives about $2,000 a month in unemployment checks, which helps ease the financial pressure of having a baby on the way. But he was hoping to be able to use the skills he developed in the Navy in a civilian job. He said he focuses most of his job seeking efforts on positions that list “veteran’s preference,” but he’s starting to wonder whether that means anything. “To say I’m frustrated is the worlds largest understatement,” he said. “My home life has suffered, my finances are suffering, and 60 percent of my income now is gone. I’m at my wit’s end.” Part of Crotty’s struggles to compete in the job market likely stem from the fact that he joined the military in lieu of pursuing a college degree. He said he is now planning to go back to school near his hometown of Wenonah, NJ, since that seems to be his only option, but he is worried about having to start at the bottom so late in life. “It’s not ideal,” he said. “By the time I get my degree, I’ll be 32 or 33, and nobody wants to start the job they’re gonna have for the rest of their lives at that age. I’d prefer to start a job now, but that didn’t work out.” Those who advocate on behalf of veterans have been pushing for more federal programs to help integrate returning vets into civilian life. “We need to ensure the skills they’ve learned in the field transfer into the certifications they need to perform those same duties at home,” Sen. Murray, who is the chairman of the Senate Veterans’ Affairs Committee, wrote in an email. “We need to improve outreach and oversight of current administration efforts to address this problem, and we have to eliminate the stigma many veterans feel is attached to their service because of the invisible wounds of war. We cannot continue down a path that has our veterans going from fighting to keep us safe to fighting just to get an interview.” This story is part of Military Families Week, an effort by HuffPost and AOL to put a spotlight on issues affecting America’s families who serve. Find more at jobs.aol.com/militaryfamilies and aol.com .

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Military Spouses Face Difficulties Finding Employment

April 12, 2011

WASHINGTON — Among the 14.8 million Americans looking for work, the men and women married to military personnel face barriers others don’t. Military families move on average every 2.9 years, making it hard to pursue a single career or accumulate the experience employers want. Labor markets near sprawling bases like Fort Hood, Tex. or Fort Benning, Ga. are often saturated with overqualified military spouses eager for work. Many times, the certification or license required for skilled professions like nurses or teachers are state specific, adding another bureaucratic hurdle to overcome with every move. Of course, many military spouses — mostly women — run their households singlehandedly while their partners are deployed or away on long training missions. And many wives are expected to volunteer long hours running the military’s family readiness groups, which provide communications and support to families, while their husbands’ unit are deployed. Small wonder military spouses are having a difficult time finding work. The most recent data from the Bureau of Labor Statistics, from November 2009, shows 8.4 percent of military wives were seeking jobs and couldn’t find one, compared to 5.3 percent of women in civilian families. “It is difficult — you are constantly moving so having a career is extremely hard,” said Kristy Kaufmann, whose husband is an Army officer. “Sometimes you can get a job waitressing or at the post exchange, but for people who want more of a career, that can be challenging.” For enlisted troops, the pressure on spouses to find work can be intense. “They don’t get paid a lot of money, so you really have to have a dual income family,” said Kaufmann, who consults with the Defense Department on spouse employment issues. To make matters worse, when a military spouse loses her job because her partner is transferred, at least 14 states — including states with military bases, such as Idaho, Missouri and Louisiana — don’t provide unemployment insurance because such transfers are seen as “voluntary.” Tianne Travis had a job she loved, working at a bank while her husband was stationed at Eglin Air Force Base in Florida. But she was thrown out of work when he was reassigned to Andrews AFB in Washington. “That’s the way the military is,” she said. “I resigned and came to Maryland and was really searching.” Although the Pentagon and Labor Department offer help, she and others have found the process to access the right kind of help bewildering. Applying for a federal job, for instance, can be tricky. Even though military family members often get precedence for federal jobs, Travis didn’t know all the inside tricks to getting a job. “Your resume has to have all the right key words in it for someone to even look at it,” she discovered. “I had to pull that information on my own.” But those who’ve been in the military community for a while have seen big improvement in the job picture for military spouses. “When I came into the military 23 years ago, the big question was whether military spouses should work. You had to convince people you could be successful in your own right and still be supportive of your military spouse’s career,” said Pamela McBride , the wife of an Army officer and a successful businesswoman, job counselor and author of books on successful career-building. Since that time, when job opportunities and career assistance was “very limited,” there has been “an explosion of assistance and training” for job-hunting military spouses, she said. But success depends as well on personal drive and determination, and she advises military spouses to “take a deep breath,” look around and define your goals. Rather than just seeking a job, she said, “We have to learn how to define our own success, which may not be a corporate career and climbing up all the steps. Make a wish list of what you want to do, and use a slow deliberate approach to get there, filling in gaps in your resume, networking, working with people who can help.” * * * * * This story is part of Military Families Week, an effort by HuffPost and AOL to put a spotlight on issues affecting America’s families who serve. Find more at jobs.aol.com/militaryfamilies and aol.com.

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Bill Lawson: Why Businesses Should Hire More Veterans With Disabilities

April 12, 2011

Most people would agree that America’s Veterans with disabilities — those who have served and sacrificed for our freedoms — clearly deserve a fair shot at what is at the heart of the American dream, a good job with a good company. Yet the unemployment statistic for Veterans with severe disabilities is a startling 85 percent . How can we work together to change this picture and to turn this grim statistic around? How can we bring the collective power of the public and private sectors together to improve the quality of paralyzed Veterans’ lives while also improving business’ bottom line? At Paralyzed Veterans of America ( www.pva.org ), we decided to meet this challenge head on — helping those who wore the uniform and were seriously injured get good jobs and careers. We invested in a vocational rehabilitation program, designed to empower Veterans with disabilities with the services and tools they need to reintegrate into the job market — while matching them with businesses and organizations with career positions. The program — with offices in Richmond, VA; Minneapolis, MN; San Antonio, TX; Long Beach, CA, Boston, MA and Augusta, GA — was established through an innovative public-private partnership between Paralyzed Veterans of America, businesses and the U.S. Department of Veterans Affairs (VA). We have helped hundreds of Veterans with disabilities through this program and have developed working relationships with more than 300 employers. There are three elements that work to make our jobs and careers program a success: connecting with Veterans, connecting with businesses and changing perceptions. The program receives clients in a number of ways, from visiting newly injured patients to word of mouth. But the most important thing is that the program proactively reaches out to the Veterans, often meeting them early in the rehabilitation process, engaging patients, their families and outpatients alike and publicizing the program at events and in the media. With our offices located in VA spinal cord injury (SCI) centers, we maximize vocational rehabilitation exposure to the SCI Veterans and service providers. Our voc rehab counselors network with Chambers of Commerce, community organizations (such as Rotary), job fairs and Veterans employment coordinators. They attend meetings and reach out to local and national employers to develop a network of business leaders who want to hire America’s Veterans. For Veterans with disabilities, career opportunities can change their expectations of what comes next for them. With encouragement and help, they feel empowered to take the rights steps to finding a good job and fulfilling career. For businesses, Veterans make great employees. They are disciplined, focused, reliable, hard working, team players and much more. In addition to working with Veterans, our voc rehab team spend time educating employers on working with people with disabilities. We complete a work assessment of the position to ensure we provide a good fit for the employer. We also provide information on tax and other incentives that vary by state for hiring people with disabilities. Plus, the program is recognized as an approved “employer network” (EN) by the Social Security Administration. The truth is, hiring more Veterans with disabilities is a win, win for our country. Those who served secure good careers; employers get great employees; and, in turn, our economy becomes stronger. It’s a strategy that helps empower America’s best with everything they need to live full, self-sufficient and productive lives. It’s a strategy that’s good for business and great for our nation. Employers: America needs you to hire more paralyzed and disabled Veterans! Bill Lawson of Woodward, Oklahoma was elected National President of Paralyzed Veterans of America at its 64th Annual Convention in August 2010. He is a staunch advocate for veterans and people with disabilities. This story is part of Military Families Week, an effort by HuffPost and AOL to put a spotlight on issues affecting America’s families who serve. Find more at jobs.aol.com/militaryfamilies and aol.com .

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Economists: Gridlocked Congress ‘Playing With Fire’

April 6, 2011

NEW YORK — Political infighting in Washington may seem irrelevant to many Americans. But in the coming weeks, as Congress attempts to pass a budget and debates whether to increase the federal debt limit, these rivalries now have the potential to devastate the U.S. economy. If lawmakers don’t reach an agreement to fund the government by Friday, an array of programs will shut down. The freeze, if it lasts for several weeks, could wound Americans’ confidence enough to tip the economy into recession , Mark Zandi, chief economist of Moody’s Analytics, said last week. But even that scenario wouldn’t be as damaging as if the government defaulted on its debt, a consequence that could come sometime in the next several months if lawmakers, locked in a political stalemate, fail to increase the federal debt limit. A government shutdown has the potential to cause a recession if it lasts long enough, experts say. A default would likely ravage the economy almost immediately. Both could be caused by gridlock in Congress. “It would be a big, big, big deal” if the United States defaulted on its debt, said Nariman Behravesh, a chief economist at IHS Global Insight, a financial and economic analysis firm. “It could mean the collapse of the dollar. People would run away from the U.S.” “That’s playing with fire,” he added. At stake is the ability of the United States government — and indeed of all of its citizens — to borrow money cheaply, something Americans have long taken for granted as an essential feature of their first-world economy. If interest rates rise high enough, the economy essentially grinds to a halt. “People playing chicken think it’s a good idea to put at risk something that the country paid a dear price to preserve for so many years,” said Gary Burtless, a former Labor Department economist and a current fellow at the Brookings Institution, in Washington. “For a rich country to play these types of games does strike me as being foolish in the extreme.” For months, top economic officials in the Obama administration have warned of the perils of refusing to increase the federal debt ceiling, while Republicans in Congress have portrayed the limit as a means of enforcing fiscal austerity. The U.S. government continuously issues new debt to pay principal and interest on older debt, which means that if the debt burden isn’t allowed to grow, the U.S. could be forced to miss payments to creditors. If lawmakers fail to legislate, the debt ceiling will likely be hit. But in the current political climate, legislation has been met with a fierce, protracted stalemate . In the past few weeks, lawmakers on both sides of the aisle have dug in their heels, generally refusing to compromise on a budget bill. Gridlock could lead to a shutdown on Friday. A month later, the costs of not legislating will be even more dire. Treasury Secretary Tim Geithner testified before the Senate appropriations subcommittee on Tuesday, laying out the dangers of inaction. Failing to raise the debt ceiling would send the country into crisis mode by May 16, he said, at which point the government would resort to emergency measures to stave off default for a few more weeks. “Default by the United States would precipitate a crisis worse than the one we just went through,” Geithner said, according to a transcript of his remarks. “I think it would — it would make the crisis we went through look — look modest in comparison.” A default by the United States could set off a dangerous chain reaction. It would likely cause interest rates to rise and the value of bonds to fall, as what is arguably the world’s safest security would now be perceived as risky. Those higher rates would ripple throughout the economy, raising borrowing costs for homeowners, students, car-buyers, entrepreneurs, investors and all types of businesses. Financial markets everywhere would likely be thrown into panic. Credit ratings agencies would likely be forced to lower the United States’ top ranking, a seal of approval that investors across the world take for granted. The Federal Reserve’s massive asset-purchase program, designed to lower interest rates to encourage the flow of money through the economy and stimulate a recovery, would likely be undermined. As the United States would scramble to calm investors, the government would be forced to cut payments to the military, Geithner said. The full ramifications, moreover, cannot be foretold. “That would be absolutely catastrophic and very likely set the stage for the U.S. economy to have a relapse into recession,” said Bernard Baumohl, chief economist of the Economic Outlook Group. “That is the worst possible kind of outcome that we could have from Washington. It would be absolutely irresponsible.” In the event of a government shutdown, payments for struggling families could be delayed. In the case of a federal default, something similar could happen, but on a far larger scale. Investors across the nation and around the world hold U.S. government paper. If that debt weren’t paid, myriad investors — from retirees just scraping by to the biggest Wall Street firms — would see their investments suffer. Eventually, these investors would almost certainly be made whole. But even a brief hiccup on the part of the U.S. government could trash the nation’s borrowing ability for years to come. “There’s no question people will be paid back on their bonds,” said Mark Vitner, a senior economist at Wells Fargo. “The risk to the economy is: Does the stature of the U.S. debt market suffer because people misinterpret a temporary glitch in the Treasury market?” That glitch could be ruinous. “It’s a hell of a mess,” Vitner said.

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Representatives Defend Joint Strike Fighter Program Against ‘Irresponsible’ Budget Cuts

April 5, 2011

By Colin Clark Editor, AOL Defense WASHINGTON — As GOP budget ace Rep. Paul Ryan rolled out his ambitious 2012 budget plan, supporters of the country’s largest defense program urged their House Budget Committee colleagues not to touch the Joint Strike Fighter program. An April 1 letter, signed by 41 members of the House, describes Lockheed Martin’s JSF program as a “quantum leap” over current US fighters, such as the F-15 and the F/A-18. The letter points to Chinese-designed and -built J-20 stealth fighter and its Russian cousin, saying those planes help make the case for the JSF. The signers said they would “oppose any action” that might hurt the program. Their fears may be overblown; Ryan’s budget proposal largely gives a pass to defense spending. The proposed $692.5 billion for the Pentagon’s budget marks an important victory for mainline GOP members over the Tea Party caucus. House Armed Services Committee chairman Rep. Buck McKeon and Rep. Todd Akin have strongly supported of defense spending, even in the face of Tea Party calls for cuts. The Obama administration requested $712 billion in defense spending for 2011, with $159 billion of that intended for operations in Afghanistan and Iraq. That puts the requested base budget for the Pentagon at $549 billion. Akin may have played a key role in turning the tide on the defense budget. As a member of both the HASC and the Budget Committee, he has been arguing for weeks with his GOP budget colleagues to prevent cuts to defense spending. In a commentary posted to the conservative Heritage Foundation’s blog The Foundry last week, Akin rejected the argument that Pentagon spending on weapons is inherently wasteful: While we may not agree that all of these missions are essential, it would be irresponsible to cut funds for troops that are in harms’ way. While some may think that downsizing defense is as simple as cutting funding for futuristic weapons technology or changing our foreign policy posture, the reality is that most defense funding is paying for the military we have today, including fuel, maintenance, health care and salaries. Cutting defense spending will have a serious impact on the Soldiers, Sailors, Airmen and Marines that are serving our country today as well as in the future. Secondly, many who propose defense cuts argue that there must be waste in a budget the size of the Department of Defense, so cutting the defense budget is reasonable. I agree that there is waste, but simply chopping a percentage off the top of defense funding is an inefficient and irresponsible way of trying to eliminate wasteful spending. Congress is part of the problem, with funding levels that are unpredictable and oversight that is often weak or lacking. Getting rid of waste, fraud and abuse is necessary but it is a wholly inadequate budget strategy because these cuts represent a small percentage of the defense budget. Ryan’s budget plan echoes Akin, arguing that “defense spending as a share of the budget has fallen from around 25 percent thirty years ago to around 20 percent today.” Eager to bring Tea Party skeptics on board, Ryan notes, “Defense spending should be executed with greater efficiency and accountability. But responsible budgeting must never lose sight of the fact that the first responsibility of the federal government is to provide for the defense of the nation.” Launching in Spring 2011, AOL Defense will provide news, insight and tools about the defense sector. Follow Colin on Twitter at @colinclarkaol .

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Craig K. Comstock: After the American Dream

March 29, 2011

Over breakfast with a client who had a $90 million fortune, I asked a hypothetical question: would it decrease your motivation as an entrepreneur if it were understood that each year people with big incomes would be celebrated and, as if at a potlatch, would give back to the community all but some small multiple of the average family income? After a forkful of Spanish omelette, he told me, “no, it wouldn’t decrease my motivation or my business creativity: what other game would I play?” As my client knew, a potlatch was a Native American custom in the Northwest, a feast at which prosperous members of the community sought prestige not by having wealth, but by giving it away. Let’s plug in figures for a conservative yield on my client’s fortune and for the average family income. Even allowing no deductions at all, he would be giving away the equivalent of an income tax even higher than the 91%* charged under Eisenhower for the biggest incomes. (It’s now down to 35% on whatever portion is taxable after the accountants get done.) The sample size of my breakfast survey was just one, and the respondent was unusual: as a philanthropist, he was already giving some of his fortune away and he had a broad worldview. He took seriously the claim that, above a certain level, money is only a way keeping score. I thought of his reply when reading the results of a survey of a representative sample of more than 5,000 U.S. residents commissioned by a Michael I. Norton, professor at the Harvard Business School, and Dan Ariely, a colleague at Duke University. They found that the average U.S. citizen radically underestimates the actual U.S. inequality, and regards as ideal even less inequality than he or she mistakenly thinks now prevails. Here are the figures from their survey: The sample regarded as fair a 32% share of the national wealth for the top fifth of the population (“quintile”). What they thought is now the share of this same group: 59% The actual share at the time of the survey: 84% The gaps here are so extreme as to raise the question: in a country proud of its democracy, how does the top fifth get away with owning 84% of the national wealth? Even more startling, how is the top 1% of people allowed to own nearly 50% of the wealth? In the last 30 years, since around the start of the 1980s, we have witnessed, apart from the rich, only a “stagnation” of income. So far, this “plateau” has been disguised by more than one member of the household working, by the availability of cheap goods from abroad, and by the magic of inflation (when dollar income rises; but purchasing power does not). We could find many explanations for toleration of the present disparity, but they probably rely on the “little people” not suffering a noticeable decline in purchasing power. In other words, I suggest that the American dream can tolerate shifting from “will be better off than the prior generation” (rise) to “will be no worse off” (plateau), but perhaps not to “will have notably less” (fall). After college my first job was teaching assistant in a course on “American character and social structure” given by the social observer David Riesman, author of The Lonely Crowd. We examined the distinction between economic equality of result (claimed by our enemy of that time) and what this country allegedly had or at least sought, which was “equality of opportunity.” Ambition, ingenuity, and hard work would be “rewarded” by whatever money could be extracted from “the free market.” As much as possible, we were supposed to have a “level playing field,” on which merit and energy would seek to score. People who did well “deserved” everything they got: why should they pay taxes for anything but the military and a few other essentials? Let everything else be “privatized.” According to Erin Currier of the Economic Mobility Project, “There is not equality of opportunity in the way we as a nation imagine there is.” In his view, based on research, “the American dream is struggling.” The Motion Picture Academy just gave an Oscar for best documentary to Inside Job , an expose of what its director regards as “systemic corruption” in what is called the “financial services industry.” However, most Americans still don’t want to inquire too deeply into the financial system, any more than they want to draw conclusions from findings about climate change or the peak of petroleum production. Yet we continue to barrel ahead despite the prospect of declining global production of oil, and a growing demand for it, and evidence that the price of oil above a certain amount leads to severe recession. In a previous article I have suggested that revolts in so-called developing countries can be predicted not only by the fraction of educated youth who are unemployed and other factors, but also by the fraction of household budget spent for food. Now we might ask of developed countries: to what extent will voters tolerate extreme inequality if the standard of living of a large majority of them no longer gradually rises or at least seems to remain stable, but actually declines noticeably?

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GOP Senator Questions Costs Of Libya Conflict

March 27, 2011

WASHINGTON — On Sunday, Sen. Richard Lugar (R-Ind.) raised questions about the economic costs of U.S. involvement in Libya. Speaking on NBC’s “Meet The Press,” Lugar insisted that the U.S. has no vital national security interest in Libya and argued that additional military spending will exacerbate the nation’s budget deficit. “There have to be objectives and a plan and an agreement that we’re prepared to devote the military forces but also the money,” Lugar said. “It makes no sense in the front room, where in Congress we are debating seemingly every day the deficits, the debt ceiling situation coming up, the huge economic problems we have — but in the back room we are spending money on a military situation in Libya.” President Obama committed U.S. forces in Libya amid escalating violence, in which Libyan leader Muammar Gaddafi pledged to show “no mercy” to those opposing his regime. Other members of Congress have been critical of Obama’s Libya decision, presenting arguments that many congressional Democrats had used to critique President George W. Bush’s handling of the Iraq war. But in recent years, Lugar has developed a record of questioning U.S. military efforts that other top Republicans have supported. After initially supporting the Iraq invasion, Lugar broke with President Bush and his party in 2007 by calling for a reduced American role in Iraq. He has also criticized continued U.S. involvement in Afghanistan over the past year, noting the costs of the operation and unclear military objectives . Rep. Justin Amash (R-Mich.) introduced legislation last week to immediately halt military action in Libya unless the president receives authorization from Congress. Rep. Bruce Braley (D-Iowa) has also pressed the administration for a full accounting of the costs of U.S. involvement , saying he has not yet received a straightforward answer from the White House. Administration officials are not planning on asking Congress for a supplemental bill to pay for the military intervention in Libya, which National Journal estimated cost more than $100 million in Tomahawk missiles alone in its first day. “The operation in Libya is being funded with existing resources at this point. We are not planning to request a supplemental at this time,” Office of Management and Budget spokesman Kenneth Baer said Monday. In an interview with Jake Tapper on ABC’s “This Week,” Defense Secretary Robert Gates refused to estimate the length of the U.S. commitment in Libya. When asked by Tapper whether American troops would be withdrawn by the end of the year, Gates responded, “I don’t think anybody knows the answer to that.” Gates was also cautious about defining American objectives in Libya, noting that “regime change is a complicated business,” and suggesting that a full ouster of Gaddafi may not be a final goal of the U.S. mission. In a separate interview for “Meet the Press,” Gates acknowledged that Libya does not represent a clear threat to U.S. national security interests, but said that other considerations make the military mission important. “I don’t think it’s vital interest of the United States, but we clearly have interests there,” Gates said. “And it’s a part of the region which is a vital interest for the United States.” Sens. Jim Webb (D-Va.) and Edward Markey (D-Mass.) have both suggested the U.S. implemented its no-fly zone out of concerns over the stability of oil prices. Rising oil prices are crimping American consumers amid a fragile economic recovery. But Lugar questioned whether the money being spent on military operations in Libya would be better spent elsewhere. “Estimates are that about $1 billion has already been spent on an undeclared war in Libya, some would say only hundreds of millions, and that that will diminish in the days ahead,” Lugar said. “But [who] knows how long this goes on? And furthermore, who has really budgeted for Libya at all? I have not really heard the administration come forward saying that, ‘We’re going to have to devote these funds, folks, and therefore it’s something else we’ll have to go or it simply adds to the deficit.’” Secretary of State Hillary Clinton also made the Sunday talk show rounds with Gates. In an interview on ABC, Clinton insisted that international cooperation made the U.S. mission in Libya a more manageable operation than the war in Iraq, and one that does not need the same level of congressional approval. Sen. Carl Levin (D-Mich.) made similar statements on CNN’s “State of the Union.” “There was no U.N. support in Iraq. It made a big difference,” Levin said. “We’re part of an international coalition which has been supported now by U.N. resolution, the support of Arab countries, to prevent the slaughter of civilians in Libya.” When Tapper asked why President Obama chose to intervene in Libya, after declining to commit U.S. troops to unrest in other Middle East nations, Clinton said the severity of the violence in Libya had touched a particular humanitarian nerve in the international community. “Each of these situations is different,” Clinton responded. “But in Libya, where a leader says ‘spare nothing, show no mercy’ and calls out air force attacks on his own people, that crosses a line.”

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The Million-Dollar Weapon

March 25, 2011

By Sharon Weinberger Center for Public Integrity In the opening days of the assault on Libya, the United States and the United Kingdom launched a barrage of at least 161 Tomahawk cruise missiles to flatten Moammar Gadhafi’s air defenses and pave the way for coalition aircraft. In fiscal terms, at a time when Congress is fighting over every dollar, the cruise missile show of military might was an expenditure of nearly a quarter of a billion dollars. Each missile cost $1.41 million, close to three times the cost listed on the Navy’s website. Raytheon Corp. is the manufacturer of the Tomahawk Block IV, a low-flying missile that travels at 550 miles per hour. During a decade of war in Afghanistan, Iraq, and now Libya, the Pentagon has increasingly relied on the Tomahawk. A year ago, Raytheon boasted of its 2,000th Block IV delivery to the Navy. The 20-foot missile is particularly attractive for the military in current conflicts because it can be launched from submarines and surface ships at a safe distance and can be used to take out air-defense systems that could pose a threat to manned aircraft. William Hartung, director of the Arms and Security Initiative at the New America Foundation and author of the book Prophets of War , said the use of the Tomahawk helps explain, in part, the high cost of the operations in Libya. “The no-fly zones in Iraq averaged about $1 billion or so per year, while the Libyan operation cost $100 million or more on the first day, largely due to the use of cruise missiles,” Hartung said. “I would stop short of calling it a boondoggle, as it does seem to be getting the job done, just at a very high cost,” Hartung told the Center for Public Integrity. Some members of Congress are nervous about yet another war, cost being one of their complaints. “It is hard to imagine that Congress, during the current contentious debate over deficits and budget cutting, would agree to plunge America into still another war,” said Rep. Dennis Kucinich, an Ohio Democrat, in a statement. “Our nation simply cannot afford another war, economically, diplomatically or spiritually.” Tomahawks have high accuracy rate The Tomahawk was first used operationally in the 1991 Gulf War, when 288 cruise missiles were fired at Kuwait and Iraq to destroy Iraqi forces. The Navy claimed the missiles, which were used to target everything from air defense sites to Saddam’s presidential palace, had an 85 percent accuracy rate. The low-flying cruise missile was used again, in 1998, against Serb forces, and over 325 Tomahawks were launched against Iraq that same year in Operation Desert Fox. During the Iraq war in 2003, the number of Tomahawks used more than doubled compared to the first Gulf War, with over 725 of the cruise missiles launched at Iraq, according to Richard Myers , then chairman of the Joint Chiefs of Staff. The Tomahawk, which is guided to its target by GPS, has tended to work well for fixed sites, like air defense systems, but perhaps less well for so-called fleeing targets, which depends on precise and up-to-date intelligence. In August 1998, President Bill Clinton ordered U.S. Navy vessels in the Arabian Sea to strike suspected Al Qaeda sites in Sudan and Afghanistan in retaliation for the Africa embassy bombings. “Though most of them hit their intended targets, neither Bin Ladin nor any other terrorist leader was killed,” the 9/11 Commission wrote in its final report. “[Former National Security Advisor Sandy] Berger told us that an after-action review by [CIA] Director [George] Tenet concluded that the strikes had killed 20-30 people in the camps but probably missed Bin Ladin by a few hours.” In some cases, it’s hard to judge the Tomahawk’s record: Amnesty International claims 41 civilians were killed by a U.S. Tomahawk strike against Yemen in 2009, but neither U.S. nor Yemeni officials ever confirmed the attack, which was reportedly directed against Al Qaeda sites. In Libya, the government claimed the recent Tomahawk strikes killed 48 civilians , though those reports have not been confirmed. Missile cost nearly tripled since 1999 From the standpoint of helping set up the no-fly zone, the Tomahawk’s use has been a success, according to U.S. officials. The most current version of the Tomahawk has some noted improvements, most significantly its ability to be reprogrammed in flight via two-way satellite communication. It that sense, the Tomahawk is roughly similar to an unmanned drone aircraft, except that it doesn’t ever come back. It’s not clear, however, how often its ability to be reprogrammed is actually used. “In the real world, you’re just not going to have the sort of precise intelligence that would tell you, after you launch a Tomahawk and it’s halfway there, that now there’s a bus full of widows and orphans” and it needs to be diverted, said John Pike, the director of GlobalSecurity.org. “That just doesn’t happen.” The cost of the Tomahawk has long been an issue. The Navy, according to a public fact sheet on its website, places the price tag of a Block IV missile at $569,000, but that’s in fiscal year 1999 dollars. However, Rob Koon, a spokesman for the Navy, on Wednesday placed the current price tag at $1.41 million. A spokesman for Raytheon, citing current operational use of the Tomahawk, directed all questions about the Tomahawk to the Navy. Whether the increasing use of the Tomahawk will translate to more orders is unclear. The Navy declines to discuss inventory numbers, citing operational security, but in February 2010, Raytheon announced that it had delivered its 2,000th Tomahawk Block IV missile to the Navy. The company’s trademarked motto is “Customer Success is Our Mission.” With $25 billion in revenues and $1.84 billion in profits companywide in 2010, Raytheon is one of the five largest defense contractors and has benefited from the military’s increasing reliance on cruise missiles. Missile sales have also been paralleled by its lobbying effort. Raytheon, now the world’s biggest producer of guided-missiles, spent just shy of $7 million on congressional lobbying in 2010, compared to $2.32 million a decade earlier, according to the Center for Responsive Politics’ OpenSecrets.org. Raytheon has liberally sprinkled campaign contributions across Congress, including more than $2.1 million in 2009-2010. The contributions were balanced between parties, with 53 percent going to Democrats and 46 percent to Republican candidates, according to OpenSecrets. Even in an era of staggering weapons costs, the price tag for a Tomahawk stands out because it’s only used once. So, is the Tomahawk worth well over $1 million a shot? “They are expensive rounds, but they give you the potential to attack heavily defended targets up front,” said Barry Watts, a senior fellow at the Washington, D.C.-based Center for Strategic and Budgetary Assessments. “How do you value not putting a bunch of pilots in harm’s way?”

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L. Randall Wray: Deficit Impasse: What Should We Cut?

March 3, 2011

It looks like Washington will grant a two week reprieve, allowing Congress and the president time to identify spending areas where it can cut to “rein in” its “runaway” budget deficits. Let us take a look at budget realities. First, it is useful to examine current spending by the federal government. Social Security spending is about 20% of the budget; Medicare and Medicaid total 23%; interest is 6%; other “mandated” spending is 12%; and “discretionary spending” amounts to 19%. These percentages are all predicated on a narrow definition of “defense” spending, limited to Department of Defense outlays that total 20% of the budget. Using a broader definition that would eat into some of the areas enumerated above (including discretionary spending), defense is really 28% to 38% of the budget. By official classification, something over 60% of the budget is nondiscretionary (defense is included as discretionary for these purposes). If we leave to the side defense, it is clear that cuts to discretionary spending, alone, will not make much of a difference so far as budget cutting goes. That is why there is so much focus on “entitlements” like medical care and Social Security. Yesterday Michael Tanner — from the CATO institute — and I were invited to discuss on Public Radio the impact of the “big three” (medical care, Social Security, and defense) on the federal budget, and the desirability of cuts in these programs to reduce the deficit and growth of the federal government’s debt. (See here for the audio tape.) (I will leave to the side the irony of the fact that CATO was invited to expound its views on publicly-supported radio, particularly after Congress has followed the free marketeer’s desire to eliminate public funding to the main alternative to Fox news. Presumably, Fox and the rest of the mainstream for-profit media already allocates ample time to CATO, so it is interesting that CATO would not “put its money where its mouth is” — so to speak — by staying off government-funded radio.) I began by noting that “money” and “funding” cannot be an issue for our federal government, which is the issuer of our sovereign currency. It spends through “keystrokes” — by crediting bank accounts — and hence could never “run out of money”. I am not alone in this argument. In March 2005, in response to a question by Rep. Paul Ryan (“Do you believe that personal retirement accounts can help us achieve solvency for the system [Social Security] and make those future retiree benefits more secure?”), Chairman Greenspan said: “Well I wouldn’t say that the pay-as-you-go benefits are insecure, in the sense that there’s nothing to prevent the federal government from creating as much money as it wants and paying it to somebody. The question is, how do you set up a system which assures that the real assets are created which those benefits are employed to purchase.” This statement is particularly important, given that Alan Greenspan had headed the commission under President Reagan that transformed Social Security from “pay-as-you-go” to “advance funding” — from a system in which tax revenues were set to just match benefit payments to one in which tax revenues were one-third larger than benefits in order to build up trillions of dollars in a “Trust Fund” to be used later. Greenspan admitted in 2005 that trust funds are not at all necessary to secure the benefit payments, because government can always “create money” to meet benefit payments. In other words, the change to the program that he had pushed back in 1983 was totally unnecessary. All it did was to reduce worker’s take-home paychecks for the past three decades. Much later, in a 60 Minutes interview by Scott Pelley, Chairman Bernanke said much the same thing. When asked about the Fed’s bailout of Wall Street, Pelley asked “Is that tax money that the Fed is spending?”, Bernanke (correctly) responded: “It’s not tax money. The banks have — accounts with the Fed, much the same way that you have an account in a commercial bank. So, to lend to a bank we simply use the computer to mark up the size of the account that they have with the Fed.” That is true, and it applies equally well to Fed purchases of assets (Fed “lending” is really just the purchase of a bank’s IOU; the Fed can — and does — also buy toxic waste mortgage backed securities from banks by crediting their reserve accounts.) In truth, both Bernanke and Greenspan have accurately described the way both the Fed and the Treasury spend — they credit bank accounts. And as Thatcher said: TINA (there is no alternative)! The sovereign government only spends that way. All it needs is Congressional authorization to credit the accounts. With that preface, we turn the debate to the “real economy”. There is no question about government ability to spend, about government “solvency” or “sustainability” of budget deficits or of the possibility of sovereign government “bankruptcy”. Sovereign government is not like a firm or household. It can buy anything for sale in its own currency. It can never run out of its own “money” — its own IOUs — and can always create more by crediting bank accounts. It can never be forced to default on its commitments, and it can never be forced into bankruptcy court. So what matters is not the “impact on the budget” but rather the impact on the economy of spending on the “big three” categories: medical care, Social Security, and defense. Let us look at each in turn. 1. Medical care. US medical care spending is equal to nearly 18% of US GDP, or well over $8,000 per person per year. In the UK the relevant figure is 8%; it is around 10% in Canada and Germany. Clearly, the US is unusually high. I have looked at this in some detail in previous work. Our high spending has (mostly) to do with two main factors: our population is less healthy (a euphemism for more likely to be obese) and we send a much higher percent of every healthcare dollar to insurance companies. Focusing only on Medicare and Medicaid spending is a huge mistake — the total federal government share of health care spending is 27%; Medicare spending is about a fifth and Medicaid is about 15%. Private health insurance is a third; and out-of-pocket expenditure is 12%. The total household share is 28%, the private business share is 21%, and the state and local government share is 16%. I provide these details only to indicate that rising health care costs (again, largely due to obesity of the population as well as to the greed of Wall Street’s insurance industry) are a burden on every sector of our economy. The right wing is right: the situation is unsustainable, with health care costs growing at a 6%-9% annual rate (depending on sector) — much faster than GDP. Simple math shows that health care will amount to 100% of GDP before long at that pace. Reform is necessary and inevitable. But it is not just the government’s programs that must be reformed. Both households and firms will be bankrupted by health care costs long before health care spending reaches 100% of GDP. We need sensible reform. What makes the most sense is to get the insurance industry out of health care, and to deal with obesity and all of its associated health care problems directly. Dare I say it? Yes. We need a national single payer system. 2. Social Security. It now absorbs just under 4.5% of GDP, and it amounts to a fifth of the federal budget. There are currently 50 million recipients and 154 million workers subject to payroll taxes. That ratio will get “worse” as we age. Still, the total demand on our nation’s output will peak at somewhere just north of 6% of GDP, and will settle down to just under that ratio for the infinite future. Hence, as we age as a society we will need to shift somewhere between 1% and 1.5% more of GDP toward Social Security to provide a decent safety net to tomorrow’s retirees. Note that we have achieved a much bigger shift than that over the past two generations — without financial Armageddon, and without excessive burdens on the working population. Indeed, when one looks at the real world projections, one wonders what all the hysteria is about. Can our nation “afford” to shift a measly one percent more of GDP toward the elderly over the next two generations? Of course it can. Note that workers in 1965 supported more dependents (young+old) than any generation will ever support again. Were they miserable? It was the golden age of US capitalism, an era of rapidly rising living standards. Yes, I do agree that it is much more exciting to support lots of young people than it will be to support a nation of old geezers. (I can say that because I was both — I was one of those protesting and revolting teens of the 1960s, and I’ll be one of the toothless geezers that workers of 2030 will have to support with titanium hips — but I’m not so sure that the excitement of the 1960s should be preferred to the quiescent 2030s when the babyboomers are mostly wheel-chair bound or safely planted in their permanent places of rest.) 3. Defense accounts for either 5% of GDP or 10%, depending on the classification of spending. The smaller figure counts only Department of Defense spending; the broader classification includes estimates of (somewhat hidden) spending outside DOD. Between 2000 and 2009 that has been growing at a 9% annual pace — much above GDP. It accounts for half of all discretionary spending, hence, is a natural target for cuts. US defense spending amounts to 40% of global spending on military, and is six times Chinese spending. Again, the question is not “can the US government afford to continue to spend somewhere between $1 trillion and $1.35 trillion per year on defense”? Of course it can. It buys bombs of mass destruction in exactly the same way it buys financial instruments of mass destruction (toxic MBSs): by crediting bank accounts. It cannot “run out of money”. So the real question is this: do we really want to devote perhaps a tenth of our nation’s output to the military? Moreover, the defense sector tends to be the most high-tech, utilizing the most advanced plant and equipment and the most highly skilled workers. It competes with other areas that are critical to US development — sophisticated production like the bullet trains and the solar energy plants the US will need. As President Obama argued in his State of the Union address, the US will need to invest much more in our high tech sectors to keep up with China. So the real question is whether it makes more sense for the US to devote 10% of its GDP to produce bombs and jet fighters that are sent off to war in Afghanistan, or would it be better to shift real resources to projects that would move our economy into the 21st century? In all these three areas, single-minded focus on the budget deficit and growth of the government’s debt is not only a diversion, but is completely counterproductive. It does not let us move toward a solution to the real problems that are posed by a growing problem of obesity (and an associated explosion of diabetes), by an aging population, and by allocation of too many of our nation’s resources to the military.

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James K. Galbraith: Economists Warn of ‘Irrational Fears’ of the Deficit and Stymied Recovery

February 28, 2011

Economists for Peace and Security has issued the following statement on current budget debates, pointing out that the entire premise is false and that giving in to the demands to cut the deficit imperils fragile recovery. James K. Galbraith, along with Ken Arrow, Andrew Brimmer, Robert J. Gordon, is among the notable signatories. FEDERAL SPENDING AND THE RECOVERY A Statement by Directors, Trustees and Fellows of Economists for Peace and Security Annandale-on-Hudson, New York – February 28, 2011 – The budget adopted by the House of Representatives on February 19, 2011 does not make economic sense and is likely to do more harm than good. First, the rationale for the measure is based on a false premise. Secondly, the budget cuts being proposed will impede and may end the recovery. If the recovery fails, unemployment will increase and the financial crisis could re-emerge. The premise that the US government is broke is false. The US government has never defaulted and will not default on any of its financial obligations. Deficit spending is normal for a great industrial nation with a managed currency, and it has been our normal economic condition throughout the past century. History proves, and sensible economic theory confirms, that in recessions, increased federal spending — not balancing the budget — is the tried and true way to return to a path of sustained growth and high employment. Eliminating waste in government spending is desirable. But that is not what the House proposes; indeed the House budget failed to address the largest waste in federal government, namely in the military, and the House failed to remove our most egregious subsidies, such as to oil companies. To adopt a policy of deep budget cuts at this stage of recovery is to surrender to irrational fears in the service of a political, not an economic, agenda. As economists, as citizens, and as long-time critics of waste in government, we call on the Senate to reject the House proposal and to craft an alternative that places first priority on sustaining economic recovery and on dealing with the country’s true economic and social problems, which include unemployment, home foreclosures, the fiscal crisis of states and cities, our infrastructure needs, energy security and climate change. Current Signators*: Clark Abt, Brandeis University and Cambridge College Kenneth Arrow, Stanford University, Nobel Laureate Marshall Auerback, Madison Street Partners Barbara Bergmann, American University and University of Maryland Linda Bilmes, Harvard University Stanley Black, University of North Carolina Andrew F. Brimmer, Brimmer & Co. Kate Cell, Principal, Kate Cell Consulting Lloyd Jeff Dumas, The University of Texas at Arlington Gary Dymski, University of California, Riverside James K. Galbraith, The University of Texas at Austin David Gold, The New School Robert J. Gordon, Northwestern University Michael Intriligator, UCLA Richard F. Kaufman, Bethesda Research Institute Ann Markusen, University of Minnesota Richard Parker, Harvard University Dimitri B. Papadimitriou, The Levy Institute of Bard College Gustav Ranis, Yale University Kathleen Stephansen Lucy Law Webster, Center for War/Peace Studies, New York *Please note that affiliations are listed for identification purposes only. Cross-posted from New Deal 2.0 .

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Ian Fletcher: In Praise of Mercantilism (or Why Economic History Isn’t Boring)

February 26, 2011

Does economic history hold a giant clue for getting America out of its present trade mess? Yes, because it debunks the idea that free trade is how nations become prosperous. Instead, it shows that nations win at international trade by playing a 400-year-old game called mercantilism. Let’s look at England, for example. The great Adam Smith, founder of modern economics, published his epoch-making free-trade tract The Wealth of Nations , the origin of endless subsequent delusions, in 1776. But he was a hypocrite, for Britain in 1776 was not a blank slate upon which free markets and free trade could work their magic. It was instead the beneficiary of several prior centuries of protectionism and industrial policy. In the words of British economist William Cunningham: For a period of two hundred years [c. 1600-1800], the English nation knew very clearly what it wanted. Under all changes of dynasty and circumstances the object of building up national power was kept in view; and economics, though not yet admitted to the circle of the sciences, proved an excellent servant, and gave admirable suggestions as to the manner in which this aim might be accomplished. England in this era was, in fact, a classic authoritarian (this is long before English democracy) developmentalist state: a Renaissance South Korea , with kings rather than the military dictators who ruled South Korea for most of the Cold War period. English industrialization must actually be traced 300 years prior to Adam Smith, to events like Henry VII’s imposition of a tariff on woolen goods in 1489. King Henry’s aim was to wrest the wool weaving trade, then the most technologically advanced major industry in Europe, away from Flanders (the Dutch half of present-day Belgium), where it had been thriving upon exports of English wool. Flemish producers were entrenched behind huge capital investments, which gave them economies of scale sufficient to outcompete fledgling entrants into the industry. So only government action could get England a toehold. Even in the 15th century, there was an awareness that being an exporter of agricultural raw materials was a dead end–a problem impoverished African and Latin American nations wrestle with to this day. And there was an awareness that free trade will not lift a nation out of this predicament: you need some well-chosen protectionism. Henry VII created, in fact, the first national industrial policy of the modern era, long before the Industrial Revolution introduced artificial energy sources like steam power. A whole interlocking series of now-forgotten policy moves underlay the rise of English industry; what all these measures had in common was that protectionism was essential to making them work . In the words of economist John Culbertson of the University of Wisconsin and the Federal Reserve Board of Governors: Step after step in the cumulative economic rise of England was directly caused by government action or depended upon supportive government action: the prohibition of importation of Spanish wool by Henry I, the revision of land-tenure arrangements to permit the development of large-scale sheep raising, Edward III’s attracting of Flemish weavers to England and then prohibiting of the wearing of foreign cloth, the termination of the privileges in London of the Hanseatic League under Edward VI, the near-war between England under Elizabeth I and the Hanseatic League, which supported the rise of English shipping. And then there was the prohibition of export of English wool (which damaged the Flemish textile industry and stimulated that of England), the encouragement of production of dyed and finished cloth in England, the use of England’s dominance in textile manufacture to push the Hanseatic League out of foreign markets for other products… The aim of English policy was what would today be called “climbing the value chain”: deliberately leveraging existing economic activity to break into more-sophisticated related activities. Henry VII’s advisors got their economic ideas ultimately from the city-states of Renaissance Italy, where economics had been born as a component of Civic Humanism, their now-forgotten governing ideology. The name for this forgotten developmentalist wisdom of early modern Europe that has stuck is “mercantilism.” One of the great myths of contemporary economics is that mercantilism was an analytically vacuous bundle of gold-hoarding prejudices. It was, in fact, a remarkably sophisticated attempt, given the limited conceptual apparatus of the time, to advance national economic development by means that would be familiar and congenial to the technocrats of 21st-century Tokyo, Beijing, or Seoul. (And believe me, they’re still using these techniques against us.) For 400 years, this is how former Third-World nations have become former Third World nations. Mercantilists invented many economic concepts still in use today, such as the balance of payments, value added, and the embodied labor content of imports and exports. They championed the economic interests of the nation as a whole at a time when special interests (notably royal monopolies) were an even bigger problem than today. They began with obvious ideas like taxing foreign luxury goods. They progressed to the idea that exporting raw materials for foreigners to process was bad if the nation could process them itself. They understood that nations rose economically by imitating the industries of already rich nations (first the more primitive industries, then the more sophisticated) and that low relative wages were the key advantage of underdeveloped nations in this game. How little has changed! Mercantilists saw free markets as a useful tool in economics, but not the sum total of economic wisdom. Even their much-mocked obsession with the accumulation of bullion was not as irrational as it is usually depicted as being, given that under a monetary system based on gold, accumulating it is the only way to expand the money supply and drive down interest rates, a boon to investment then as now. Mercantilism, in fact, created the modern European economy and thus made possible the colonial power that economically shaped much of the rest of the world. It is thus the foundation of modern capitalism itself. Anyhow: Britain functioned on a mercantilist basis for centuries before its much misunderstood experiment with free trade began. Even as late as the beginning of the 19th century, Britain’s average tariff on manufactured goods was roughly 50 percent–the highest of any major nation in Europe. And even after Britain embraced free trade in most goods, it continued to tightly regulate trade in strategic capital goods, such as the machinery for the mass production of textiles, in order to forestall its rivals. This was rational, as the win-win logic of free trade starts to break down if productive capital is mobile between nations or if free trade induces productivity growth abroad. After Britain embraced free trade in the mid-19th century, its long economic decline , of course, began. Today, the United States is making the same mistake, having mistaken the temporary tactical advantages of free trade for a nation at the peak of its economic power for a fundamental strategic truth. Meanwhile, our rivals, especially but not only in the Far East, hold firm to the mercantilist principles that we ourselves employed for 150 years. Mercantilism has somewhat different application in developed, rather than developing, nations, but its fundamentals still hold good. At the very least, we need to defend ourselves against mercantilist aggression against us, something we are not doing .

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SatMAX Corp. Introduces New Board Member, David Chalela, Former Chief of Military Justice, in Anticipation of Acquisitions

February 24, 2011

HOUSTON TX–(Marketwire – February 24, 2011) – SatMAX Corp. ( PINKSHEETS : SATM ) is proud to announce that in anticipation of pending acquisitions they have appointed Former Chief of Military Justice David Chalela as a new board member.

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SatMAX Corp. Introduces New Board Member, David Chalela, Former Chief of Military Justice, in Anticipation of Acquisitions

February 24, 2011

HOUSTON TX–(Marketwire – February 24, 2011) – SatMAX Corp. ( PINKSHEETS : SATM ) is proud to announce that in anticipation of pending acquisitions they have appointed Former Chief of Military Justice David Chalela as a new board member.

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Raymond J. Learsy: It’s All About The Money. Jamie Dimon’s Big Pay Hike While Foreclosing the Homes of Our Servicemen

February 19, 2011

It was always about the money, but over the past few years that truism has descended into a miasma of self interested perversity that has begun to put the entire game at risk with more and more of the nations economically disenfranchised sensing that they have become powerless in a system that looks only after the well heeled and well connected. The disparity between have and have not’s escalating to a degree that earlier generations of Americans post the Civil War, would not have tolerated. The level playing field that was America, even with the occasional pothole, was a system in which Americans believed in and in and in which they took comfort and pride. With the financial events of the past few years, and with the insatiable self-engorgement of the financial sector and a complicit or haplessly blind government, forever coming to the financial sectors rescue at the expense and risk to the nation at large, trust in our institutions has been profoundly shaken. Rather than enough being enough and to add insult to injury, we are given another ignoble example of the tone deafness and the disregard with which the system now works Over the past days we have learned that J.P. Morgan Chase, the nation’s second largest bank, increased its CEO Jamie Dimon’s 2011 payout by more than 50% of the initial value of the one Mr. Dimon received in 2010 (“JPMorgan Gives Dimon a $17 Million Payday” NYT 02.17.11) .- Yes, I know, some ballplayers get paid more. But they don’t have the ability of wrecking peoples lives by foreclosing on their homes as our government shovels our rescue money to the very same financial institutions who do, all the while covering their bonuses and salaries. We, at the very least, have the choice of going to the ball park or not,- Certainly, under Dimon’s stewardship J.P. Morgan Chase brought home the bacon, making some $17.4 billion in profit, a gain of 48 percent from the year before. Big numbers deserve a big salary, or so we are told. After all, it’s all about the money, Right? Well, maybe. First of all it’s not hard to make big money if you have access to virtually cost free money at the Fed window, or vast pools of money from your depositors accounts insured by you and me through the Federal Deposit Insurance Corp. (FDIC) giving Morgan almost limitless chips to speculate in the oil market (thereby helping to push oil prices ever higher without ever having to say thank you to us when we pay at the pump), or engaging in such community enhancing banking services as that reported by Reuters (“JP Morgan holds dominant LME copper stock position-Telegraph” 12.05.10) that JP Morgan Chase “holds between 50 and 80 percent of the 350,000 tonnes of copper held in London Metal Exchange warehouses.” Not to speak of extensive dallying in the silver market and on. Certainly these forays into money making commodity speculation must have held much of Mr. Dimon’s attention. Clearly he was too busy to notice, or perhaps he didn’t care (not much money here) when, in breach of law, members of our military on active duty in Iraq and Afghanistan were being dispossessed of their homes by J.P. Morgan in contravention of the Servicemembers Civil Relief Act, and while more than 4500 servicemen were being overcharged on their mortgages and/or threatened with foreclosure. All the while the servicemen had tried to protect their rights in the courts trying to get J.P Morgan to obey the law (NYTimes Frank Rich Op-ed 02.12.11). A thimble of the money pouring into the J.P. Morgan’s oil and copper trades could have easily accommodated a workout with our servicemen permitting them and their families to have a fragment of continuum in their lives. Yet, in spite of the public opprobrium at J.P. Morgan’s abrogation of its basic societal banking responsibilities, – it clearly wasn’t about the money in sufficient degree to garner the attention of Mr. Dimon and his entourage. That our soldiers were being stripped of their homes on Jamie Dimon’s watch and to J.P. Morgan’s shame clearly didn’t figure in the compensation committee deliberations. Enterprise reputation and its mandate to being responsible tillers of the business soil doesn’t come into play. You see, in this day and age and sadly more than ever before, it’s all about the money.

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Video: Djerejian Says Egypt Part of `Tectonic Shift’ in Mideast

February 11, 2011

Feb. 11 (Bloomberg) — Edward Djerejian, former U.S. ambassador to Israel and Syria, talks about the legacy of former Egyptian President Hosni Mubarak and the outlook for a transition of power in the nation and the political landscape of the Middle East. Mubarak resigned his position as president after more than two weeks of protests in the streets of Egypt. He handed over power to the military while a transitional structure is established. Djerejian speaks with Mark Crumpton on Bloomberg Television’s “Bottom Line.” (Source: Bloomberg)

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Video: McMahon Doubts Egypt Will Disrupt Middle East Oil Flows

February 11, 2011

Feb. 11 (Bloomberg) — Daniel McMahon, director of equity trading at Raymond James & Associates Inc., talks about the political unrest in Egypt and the impact on energy markets. Hosni Mubarak stepped down as president of Egypt today and handed power to the military. McMahon speaks with Julie Hyman on Bloomberg Television’s “Fast Forward.” (Source: Bloomberg)

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Video: Davidson Says Mubarak Regime Change `Yet to Be Seen’

February 11, 2011

Feb. 11 (Bloomberg) — Christopher Davidson, a professor at Durham University in the U.K., talks about Hosni Mubarak’s move to step down as president of Egypt and hand over power to the military. He speaks with Tom Keene on Bloomberg Television’s “Surveillance Midday.” (Source: Bloomberg)

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Video: Mubarak Resigns as Egypt President; Protesters Cheer

February 11, 2011

Feb. 11 (Bloomberg) — Hosni Mubarak stepped down as president of Egypt and handed power to the military, bowing to the demands of protesters who have occupied central Cairo for the past three weeks demanding an end to his 30-year rule. Vice President Omar Suleiman made the announcement in a statement on state television today. Bloomberg’s Margaret Brennan and Lara Setrakian report. (Source: Bloomberg)

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David Isenberg: The Known and Unknown Contractor

February 10, 2011

It is not a secret that as Secretary of Defense during the presidency of George W. Bush Donald Rumsfeld was sympathetic to using private military contractors. In 2003, he said that as many as 320,000 jobs filled by military personnel could be turned over to civilians. Ironically, long before Abu Ghraib, Defense Secretary Rumsfeld was preaching the virtues of using contractors in prisons. The secretary said at a town hall meeting in August 2003 that the Army pays $20,000 to $40,000 to hold a prisoner each year, whereas it costs Kansas only $14,000 per year. “I don’t think of running a prison as a core competency of the United States military,” he said In September 2004 he told the Senate Armed Services Committee that he had identified more than 50,000 positions now filled by uniformed personnel “doing what are essentially nonmilitary jobs.” At the same time, he said, the Army was so short-handed it had to call up tens of thousands of reservists to fight in Iraq. Rumsfeld said he intended to assign the troops to military jobs and hire civilian workers or contractors to take the non-military jobs. “We plan to carry this conversion out at a rate of about 10,000 positions per year,” Rumsfeld told the committee Now, thanks to his just published memoir, ” Known and Unknown ” we have a few more examples of his view on contractors. As part of the book’s promotional effort for the book Rumsfled created a website , where he has posted hundreds of documents from his files. If you search them using the “contractor” keyword you get things like the following 25. 2004-03-30 to (no recipient) re (no subject) Category: George W Bush Secretary of Defense (21) – 2004 – Snowflakes New pay schedules, so that US SOF don’t get enticed out to the CIA or to private contractors at much higher salaries than we are currently able to pay them. One might recall that PMC advocates have claimed that this was an overblown concern but evidently it was serious enough to get Rumsfeld’s attention Then, there was this, which is actually pretty sensible and uncontroversial. TO: Honorable Andrew Card FROM: Donald Rumsfeld SUBJECT: Military Detailees March 28, 200l lo:28 Andy, are you going to take a look sometime at the way the demand for members of the armed services in the total White House complex has ballooned’? 1 am told it has gone from 1,400 to 2,100. 1 don’t know from when, or whether that figure is accurate, but it is worth checking. We might want to think about ways that that number can be cut down and possibly ways more could be reimbursable, rather than non-reimbursable. Also, it may make sense to replace some functions now performed by uniformed military personnel with contract employees, as WC are doing at the Pentagon. For example, mess attendants for U.S. forces in Bosnia are provided by an outside contractor, not by soldiers. Let me know what you think. Thanks. I WlR:dh 03270 l-24 And, proving that Eisenhower’s famed military-industrial complex is now more properly accurately described as a military-industrial-congressional complex, is this: 2001-02-22 Re Ethics Laws Category: George W Bush Secretary of Defense (21) – 2001 – Snowflakes … of the new Congressional ethics laws that apply to the Executive Branch is that the contractor community has to be very careful about dealing with the Executive Branch, but they … February 22, 2001 9:08 PM SUBJECT: Ethics Laws One of the side effects of the new Congressional ethics laws that apply to the Executive Branch is that the contractor community has to be very careful about dealing with the Executive Branch, but they don’t have to be careful about dealing with the Congress. As a result, since I was last here, there has been a process taking place that has knitted the defense contractor community to the Congress with an unfortunate effect on the defense establishment. Finally, there was this. If Rumsfeld has bothered to look at how this training has actually turned out he is probably feeling embarrassed. Contractors such as DynCorp and others have been heavily involved in this and have received loads of criticism for their efforts. 2. 2002-04-23 to Gen Franks re Contractors Category: George W Bush Secretary of Defense (21) – 2002 – Snowflakes … 2002-04-23 to Gen Franks re Contractors … April 23, 2002 6:30 PM TO: Gen. Franks CC: Gen. Myers FROM: Donald Rumsfeld SUBJECT: Contractors Have you thought of using contractors to train the Afghan army? Thanks. DHR:dh 042302-24

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Robert E. Scott: Exports and Jobs: Less Than Half the Story

January 26, 2011

President Obama talked about doubling exports in the State of the Union Address last night as a strategy to create jobs. It’s a great sound bite, but woefully incomplete economics. While exports support American jobs, imports displace them ; when imports grow faster than exports, our trade deficit expands and American jobs are lost. Between 2001 and 2007 (both business cycle peaks), we lost 3.4 million U.S. manufacturing jobs, and the fact that the trade deficit as a share of GDP rose by roughly one third is a key reason why. Lately, when the President has talked about jobs and trade, he mentions the jobs associated with exports but ignores those lost due to growing imports. It’s like watching baseball, but only counting runs scored by the home team — lots of fun but it won’t tell you anything about how well they are doing. Last week, the President talked a lot about expanding exports to China . But he rarely mentioned imports or the trade deficit. We heard a lot about unfair trade and job losses during Obama’s primary campaign, but those words disappeared after the election. One reason may be that President Obama has surrounded himself with advisors from multinational companies, who have more to gain from outsourcing than from domestic job creation. For example, just this week, the President appointed GE CEO Jeffrey Immelt to head his new Council on Jobs and Competitiveness. Our exports to China did increase rapidly last year — by about $23 billion, and this did support job creation. But imports increased about three times as fast, by $71 billion, which cost the U.S. many more jobs than exports supported. On balance, the growth in our trade deficit with China cost the United States at least one half million jobs in 2010 . We have huge trade deficits with China because of massive currency manipulation and many other unfair trade practices. Currency manipulation acts like a subsidy on all of China’s exports to the United States, and puts an identical tax on U.S. exports to China, and to every other country in the world where we compete with China, which is our most important trade competitor. The U.S. could recover at least a million jobs by forcing China to revalue its currency now . We will have a record trade deficit of nearly $275 billion with China in 2010. President Obama is unlikely to acknowledge that trade with China cost us a half million jobs in 2010; the U.S. China trade deficit is growing rapidly and job displacement will worsen in the future unless something is done to end China’s currency manipulation and other unfair trade policies. The Obama administration’s trade policies are failing because corporate executives are designing them. Many key staff members have close ties to multinational corporations and Wall Street, such as new White House Chief of Staff Bill Daley (former executive of JPMorgan Chase), former Treasury official Gene Sperling, recently appointed head of the National Economic Council in the White House (formerly worked for Goldman Sachs); and recently departed NEC director Lawrence Summers, who received $5.2 million from a Wall Street hedge fund between stints in the Clinton and Obama administrations. Summers, Sperling and Treasury Secretary Timothy Geithner (also from Wall Street) played key roles in opposing efforts within the Obama administration to impose tariffs on Chinese goods if the Chinese Government continued to manipulate their currency. Multinational corporations are responsible for outsourcing millions of U.S. jobs. What’s good for their corporate profits (and executive pay) often conflicts with the national interest of the United States to maximize job creation and production in this country. Even U.S.-based MNCs sometimes profit enormously from China’s unfair trade and industrial policies and currency manipulation. China spent $199 billion last quarter alone buying foreign currency reserves (primarily treasury bills) in order to keep its currency artificially low. They now hold $2.85 trillion in foreign currency reserves. The best estimates suggest that the Chinese yuan (RMB) is at least 30-40% undervalued. That amounts to a subsidy of 30%-40% on all the goods imported by GE and other MNCs from China. These companies would lose billions in profits if China revalued the yuan (RMB) and made these goods more expensive, so they are actively opposing efforts to compel China to revalue. Multinational corporations don’t need government assistance — they are sitting on $2 trillion in cash that they are investing in financial securities, rather than real capital that would create new jobs. They have all the cash they need to invest in R&D and to expand their factories. They can also afford to file trade cases to protect their fair trade and patent rights, which can cost millions of dollars for a single case. Instead, however, while they hoard their cash at home, they are investing abroad. China is giving hundreds of billions in subsidies to MNCs to move factories from the U.S. and other countries and locate them in China. For example, Evergreen Solar announced last week that it will close its solar cell factory in Massachusetts , which opened in 2008 with $43 million in state subsidies. Chinese banks offered Evergreen financing for two-thirds of the cost of its new plant at rates “as low as 4.8 percent” with no principal payments or interest payments due until the end of the loan in 2015. Even cheap labor is beside the point. U.S. clean energy loan guarantees can’t compete with the Chinese loan subsidies. This is another reason why MNCs will oppose (overtly or covertly) efforts to enforce fair trade laws by the Obama Administration. Americans who work for a living should be outraged that the President has appointed an executive of a firm that has offshored tens of thousands of jobs to serve as one of his key advisors. G.E.’s Immelt, the President’s newest CEO advisor, says that he wants to create jobs in the United States. But as Scott Paul of the Alliance for American Manufacturing showed last week , Immelt and GE have been leading the charge of the outsourcers. He notes that GE has “slashed their American workforce to fewer than 150,000, [and] dramatically expanded its global presence, now employing over 300,000 workers worldwide.” The President visited Immelt at a GE Plant in Schenectady, New York, last week where they celebrated $45 billion in new trade deals with China, like the joint venture GE just signed with China AVIC, an avionics firm that supplies components to both civilian and military jet makers in China. GE claims that the deal will create jobs in the US, but they are giving away the keys to their kingdom by transferring key avionics technology to China AVIC. GE put $200 million and its technology in the deal and the Chinese partner is putting up $700 million. GE is effectively selling its treasure for beads and trinkets. This is supposed to be a 50 year deal, but the way these deals usually work, the Chinese partner will appropriate GE’s technology and then kick them out in a few years. Within ten years China AVIC will be a global leader in avionics, and GE will be out of the business. This, in essence, has been the result of China’s indigenous innovation policies, which have forced foreign companies to transfer technology to Chinese firms, according to the National Association of Manufacturers . The deal may boost short term profits and Jeffrey Immelt’s bonuses, but thousands of American jobs will disappear. Who in our government is representing those workers? The deal will supposedly be limited strictly to domestic avionics, but it would be unwise to blindly trust the Chinese partner — this deal will give their military aircraft access to cutting edge US technology; two weeks ago, when Defense Sectary Gates visited China, their military conducted the first test flight of a new stealth fighter — they are catching up fast. Small and medium sized manufacturers create most of the jobs in the U.S. — not the giant corporations. Unlike the big companies, small and medium sized firms cannot get access to enough capital to finance working capital or expansion needs. President Obama should have appointed someone like Laurie S. Moncrieff — President, Adaptive Manufacturing Services and Schmald Tool & Die, Inc., a dynamic business leader who speaks for small and medium sized firms. (Moncrieff appeared at an EPI currency forum last March ). She would make an outstanding Chair for the new White House Council on Jobs and Competitiveness. In his State of the Union Address last night, the President proposed some new investments in infrastructure and measures designed to boost competitiveness. We do need to invest hundreds of billions of public and private dollars each year for the next few years to rebuild our aging infrastructure and lay the foundations for new clean energy industries and for conservation. And those investments can support millions of new jobs. But their effectiveness will just be blunted if we shy away from fixing our trade problems with China and other countries that use unfair trade policies to take away jobs and production from U.S. workers and domestic companies. Without effective trade policies, too much of the boost to U.S. jobs that can be gained from our rebuilt highways and railroads will leak away in the form of rising imports. The President needs to address both imports and exports. He needs to tell us how he plans to end currency manipulation this year, and his plans for ending unfair trade. Eliminating the U.S. non-oil trade deficit would support over five million U.S. jobs, and generate hundreds of billions of dollars in new tax revenues and reduced spending on unemployment and other social services over the next few years. It’s time to end illegal currency manipulation and unfair trade practices, and to do that the President needs a new crop of advisors who care more about American job creation than outsourcing and MNC profits.

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Chris Birk: Special Consumer Protection Agency to Safeguard U.S. Service Members

January 14, 2011

The fight against the financial exploitation of America’s service members got a huge boost last week with the unveiling of a new consumer protection arm for military families. The Office of Servicemember Affairs aims to increase financial education for military members and better monitor and respond to problems and complaints. Part of the recently created Consumer Financial Protection Bureau, this new military-focused agency will be headed by Holly Petraeus, wife of Gen. David Petraeus, current commander of U.S. forces in Afghanistan. While it’s still taking shape, this new advocacy and awareness entity could significantly curb the unscrupulous lending practices and financial chicanery that impact scores of military families nationwide. Studies have shown military members are more likely to be financially overburdened than civilians. That leaves them vulnerable to sales pitches and advances from companies and individuals bent on taking advantage. “Those who serve in the military should be able to focus on their jobs and their families without having to worry about getting trapped by abusive financial practices,” Elizabeth Warren, special advisor to the Treasury secretary for the CFPB, wrote last week on The White House blog . “America’s national security depends on that basic premise.” Recent online surveys found that nearly 25 percent of enlisted personnel or junior NCOs had used payday loans, auto title loans or other high-cost borrowing practices in the last five years. More than half of respondents reported only making the minimum payment on credit cards, and nearly a third said they had made a late payment in the previous year. About 15 percent of those surveyed had both a mortgage and a credit card balance of at least $10,000. These issues are far from merely financial concerns. Money problems at home can weigh heavily on military members serving abroad and even affect mission readiness. Army Secretary John McHugh wrote about this in May in response to unscrupulous auto lenders targeting military members. Defense Department surveys consistently rank finances among the leading causes of stress for most military families. “Soldiers who are distracted by financial issues at home are not fully focused on fighting the enemy,” McHugh’s letter read in part. Service members sacrifice a great deal to keep America safe. They and their families should no longer have to battle craven financial predators at home.

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