Archive for October, 2002

Paul Wellstone

Sunday, October 27th, 2002

Ours is sometimes an age that seeks to avoid honest confrontations. Edges are blurred, fine distinctions overlooked, and disagreements avoided. Bi-partisanship has come to mean pleasant accommodation, rather then unprincipled compromise. Principles have sharp, honed edges, they incorporate important distinctions, and they compel us, at times, to disagree noisily. There are times for compromises and splitting differences, but on important issues a healthy polity requires principled, forceful, and joyful partisanship. It is, therefore, with great sadness that we mark the untimely passing of the Senate’s most statistically partisan member, Paul Wellstone, of Minnesota.

The dictionary suggests that the defining quality of a partisan is that he is so biased that he cannot not weigh things equitably. This is far too narrow a definition. Partisanship can degenerate into blind allegiance, but in its highest form, partisanship implies fervently held beliefs and principles. Wellstone was one of the few true Liberals left in the Senate. He gladly advocated socialized health care, opposed President Bill Clinton’s welfare reform, avoided tax cuts he feared would hobble his vision of an energetic federal government, fought the moderating influences of the Democratic Leadership Council, voted against the Gulf War in 1991 and recently voted against authorizing President George W. Bush to use force against Saddam Hussein. While others hid behind labels of “moderate” or “progressive,” Wellstone was an unapologetic “Liberal” with a capital-L.

It is hard to know who will assume Wellstone’s place as the Liberal conscience for the Senate. Senator Edward Kennedy’s corpulence is too easy to use as metaphor for bloated government, Senator Jon Corzine of New Jersey is frankly too wealthy to possess the common populist touch, while Senator Hillary Clinton’s ambition is too unseemly. Perhaps, Tom Harkin of Iowa is the logical candidate; though he would be the first to concede that he lacks Wellstone’s cheerful energy.

Wellstone has often been called the first 1960’s radical in the US Senate. There is merit to this proposition, but he differed from many 1960s radicals in an important respect. He loved America and Americans. Wellstone sought to evoke the best in Americans. He did not become an angry scold. If America was not what he wanted it to be, Wellstone believed America was not living up to its ideals and its callings. It just needed to be nudged and cajoled into the right direction. Other radicals would see a problem like poverty in America and conclude that it was just one more piece of evidence that the United States was an irremediably despicable, racist, and evil country. Wellstone was so convinced of the goodness of average Americans, he believe they only needed to be introduced to a problem and their consciences would do the rest. He wanted a government as good as its people.

In a recent, television interview with Bill O’Reilly, Wellstone was asked about how much effort the United States should make in the reconstruction of Afghanistan. O’Reilly was concerned that the money would be squandered. Though Wellstone argued that it is in the US interest to provide economic aid to win the support of Afghani people, his first response was to remind us shamelessly that America was a great and “good” country. The United States should aid the Afghans, because it was simply the right thing to do. Geopolitics was important, but so is doing the right thing.

Like all people, Wellstone could not always live up to his highest aspirations. After promising constituents that he would only serve two terms, he was running for a third term in the Senate. The Left was upset with Wellstone because his stance against war with Iraq was not as outspoken in 2002 when running for re-election as it was in 1990 and for his vote for the “Defense of Marriage Act.” Jeff Taylor of the Left’s argued that Wellstone was “a case study to use when looking at the corrupting effects of hanging onto power for too long.” That’s far too harsh and reflects precisely the mean-spiritedness that gives partisanship a bad name.

It is only by disagreeing with intelligent and passionate adversaries that we can confidently hone our own arguments. For Conservatives, Paul Wellstone’s intelligent debates provided such an intellectual whetstone. Conservative arguments will be consequently duller. That’s not so bad for a PhD political scientist, who used to playfully point out that he scored less than 800 combined on his math and verbal SATs.

Containment or Appeasement?

Sunday, October 20th, 2002

In the aftermath of World War II, the United States’s erstwhile ally Soviet Union was aggressively extending its sphere of control mostly through Eastern Europe by establishing totalitarian puppet regimes. While at the same time, the Soviet Union was seeking to destabilize other countries. The United States and the West were facing an important strategic challenge. The memory of Neville Chamberlain’s failed policy of appeasement against the Nazis was still fresh. Based on this analogy, it seemed that avoiding the confrontation with aggressive tyrannical regimes — appeasement — was short-sighted and counterproductive.

At the end of World War II, the United States also had a nuclear monopoly. Hence, there were some who argued that the United States should militarily overthrow the Soviet regime, while it still could. To pursue this policy would have been difficult. The Soviet Union was a large continental power. Either there would be massive American casualties like those experienced by the French and the Germans when invading Russia or nuclear weapons would have to devastate the Soviet Union with incredible numbers of civilian casualties.

Perhaps out of necessity, perhaps out of wisdom, in 1947 American diplomat George F. Kennan, in a famous article entitled, “The Sources of Soviet Conduct” in Foreign Affairs magazine outlined a long-term policy of “containment.”

Kennan argued that the Soviet Union was driven by a commitment to an ideology certain of its ultimate success. This ideology posited, “that capitalism contains the seeds of its own destruction.” Soviet leaders believed that “truth is on their side and they can therefore afford to wait.” Setbacks, even large ones, could be overlooked because victory would ultimately come. There was, therefore, less immediacy in Soviet aggression and expansionism.

“In these circumstances,” Kennan argued, “it is clear that the main element of any United States policy toward the Soviet Union must be that of long-term, patient but firm and vigilant containment of Russian expansive tendencies.” Kennan believed that the centralization of political power was the fatal flaw of the Soviet Empire. The brutal regime had destroyed any popular support and ultimately political instability would undermine the regime.

Which lesson of history do we apply to Hussein’s regime in Iraq? Is the regime more like the Soviet Union to which we apply an analogous policy of containment? Or, would containment in the case of Iraq resemble the failed policy of appeasement against Nazi aggression?

The argument for containment holds that even if Saddam Hussein manages to hold on to power indefinitely, eventually, he will die. Containment, it is argued, will keep Hussein in his box until time inevitably brings about regime change. Hussein is a rational player and the costs of aggression can be raised high enough to maintain the effectiveness of containment.

In Kennan’s original thesis outlining the intellectual case for containment, he was careful to draw a distinction between ideologically driven regimes with perhaps tyrannical rulers and tyrannical, self-centered rulers like Napoleon and Hitler for whom ideology is only a convenient fig leaf. For the latter, there is an immediacy and urgency to build an empire to serve the greater glory of the ruler. Moreover, in such cases the regimes will collapse when defeated. There is no underlining belief or ideology to maintain resistance once the leader is vanquished. As originally conceived, Kennan’s containment policy was specifically not directed toward regimes like Hussein’s.

In addition, depending on the rationality of Hussein to act in his own self-interest is not a strong or reliable foundation upon which to build a long-term foreign policy. If Hussein always acted in his rational self-interest, he would not have fought a war of attrition against Iran for so long. If he were truly rational in the conventional sense, he would not have attempted to assassinate President George Bush (41) when Bush visited Kuwait in 1993. Hussein had just suffered a humiliating defeat at the hands of a superior American military force. If he had succeeded in killing Bush in a fit of pique, it is possible that the US would have initiated a massive response that would have toppled his regime. Over the last ten years, he has fanatically sought weapons of mass destruction in the face of international sanctions. As a consequence, Iraq has forgone an estimated $50 billion in oil revenue. This money could have both improved the life of Iraqis and cemented Hussein’s control of Iraq.

Those who urge containment minimize the associated risks. Even though containment was ultimately successful against the Soviet Union, it was just barely so. Containment certainly took much longer than the ten to fifteen years originally anticipated by Kennan. There were times when the containment policy nearly catastrophically failed in a nuclear holocaust. If a Joseph Stalin lead the Soviet Union, rather than a Nikita Khrushchev during the Cuban missile crisis, it is very possible that there might have been an horrific nuclear exchange. Moreover, a legacy of Cold War containment was stunted economic growth in Eastern Europe as well as a fractured and unstable Middle East.

Those who urge attacking Iraq before the threat grows worse, must acknowledge that in the short-term the risks to American security will be higher. However, a threat postponed is not a threat avoided or even diminished. It is unlikely that any policy of containment will keep nuclear weapons out of the hands of Hussein in the long run. A policy of containment will increase the probability of a long-term threat to the Middle East as Hussein continues his deliberate efforts to destabilize the region by subsidizing terrorism.

Ten years ago after the Gulf War, it was possible to conclude the Hussein’s regime might quickly collapse. Reasonable people could conclude that there was no need to use force to disarm him and his regime. In retrospect, it might have been wiser to push against the Iraqis a little longer. If we do not deal with Hussein’s regime shortly, ten years from now we may view today as a similar opportunity squandered.

Political Peace Prize

Sunday, October 13th, 2002

“Peace is not an absence of war, it is a virtue, a state of mind, a disposition for benevolence, confidence, justice.” — Baruch Spinoza.“Even peace can be purchased at too high a price.” —Benjamin Franklin.

Any president has an important advantage when he runs for re-election. He has the ability to use the trappings of office to lend prestige and credibility to his candidacy. No one in recent memory has squandered this advantage in such a spectacular way as Jimmy Carter. In 1980, he lost re-election in a landslide by 489 to 49 in the electoral vote and nearly 10 percentage points in the popular vote. Rarely has this country been so united than in its overwhelming and unequivocal rejection of Jimmy Carter’s presidential leadership.

Since then, Jimmy Carter has devoted his time to humanitarian efforts. Through the Carter Center, Carter pursues his vision of peace and health programs. Many believe that Carter is a model ex-president. A cynic might argue that the American people anticipated how good an ex-president Carter would become and in 1980 hastened him into that role.

Carter’s presence overseas has sometimes been salutary as he helped monitor multiparty elections, though sometimes he was disappointed as when his pal Sandinista Daniel Ortega lost in Nicaragua. Subsequent presidents have often been annoyed when Jimmy Carter self-righteously interjected himself into international affairs. Carter took it upon himself to urge the United Nations not to support the US efforts to expel Iraq from Kuwait. He once intervened on behalf of Yasser Arafat to persuade the Saudis to resume funding of Arafat after his ill-judgeded support of Hussein in the Gulf War. Even the Democratic Clinton Administration was so concerned about Carter’s undisciplined approach to Haiti that they sent Colin Powell with him, perhaps to act as adult supervision.

In something of a surprise decision, the Nobel Committee awarded the 2002 Nobel Peace Prize to Carter. In 1978, the Committee selected Egyptian President Anwar Sadat and Israeli Prime Minister Menachem Begin for the peace prizes for the Camp David Accords that brought peace between Israel and Egypt. Carter helped broker the deal between the two leaders. That would have been a logical time to award Carter the peace prize.

This year, the prize had barely been awarded when the Nobel Committee Chairman Gunnar Berge explained that the selection of Carter “should be interpreted as a criticism of the line the current [Bush] administration has taken…” Like a petulant, ill-tempered child, Berge described the selection of Carter as “a kick in the leg to all that follow the same line as the United States.” A couple of committee members attempted to distance themselves from this interpretation, but according the BBC, Nobel Committee member, “Gunnar Staalsett said he fully supported the chairman’s remarks and agreed that the citation was indeed a criticism of Mr. Bush.”

By revealing the nature of the selection of Carter, members of the Nobel committee had incredibly devalued the peace prize and any indirect message they were trying to send. It was not what Carter had accomplished for peace that was being recognized, but rather Carter was being consciously exploited in a political disagreement with the policies of George Bush. If there were no George Bush, Jimmy Carter may very well have never won the peace prize.

The Nobel Committee has awarded the peace prize to a number of deserving individuals such as Martin Luther King, Jr. and Mother Therea. Nonetheless, the Nobel Committee over the last century has overlooked obvious candidates for the peace prize like Mahatma Gandhi, who expelled the British from India through non-violent civil disobedience, Alexander Solzhenitsyn who documented to the world the horror of Soviet prisons camps, or Armando Valladres, the Cuban poet who endured Cuban torture and imprisonment. While at the same time, the committee has made some rather conspicuously awful and immoral selections for the peace prize like Yasser Arafat, the Middle East’s enduring terrorist and Le Duc Tho. Tho was awarded a peace prize for the Paris Peace accords he violated at every opportunity. At least Tho refused the prize. There are some hypocrisies that are too large for even brutal communist leaders to swallow. Sometimes, awards are maliciously frivolous like the peace prize for United Nations Secretary Kofi Annan, who must have been Neville Chamberlain in a previous life.

The selection of Carter was not so much a mistake or error in judgment. He deserves recognition for sincere efforts at social justice. God knows he believes he deserves it. The decision was, however, a deliberate abuse of the award.

When President Jimmy Carter left office, the Cold War was still intense. The world had resolved itself to what John Kennedy had referred to as a “long twilight struggle” between the East and West. Nine years later, the Cold War ended with the economic collapse of the Soviet Union engineered by the relentless pressure of the next American president. This same American president demanded at the foot of the Berlin Wall of the Nobel peace prize winning Mikhail Gorbachev that he “tear down this wall.” However, the Nobel Prize Committee has its collective eyes too clouded with ideological cataracts to recognize that Ronald Reagan deserves the peace prize.

Is the Dow Jones Industrial Average Where It Ought to Be?

Wednesday, October 2nd, 2002

In the nineteenth century, investing in publicly traded stocks was properly considered a highly speculative enterprise. There was little reliable independent information and businesses tended to hide bad economic news. With the collapse of Enron and WorldCom, we have recently become reacquainted with this behavior. Nineteenth century investors wisely preferred to invest in corporate bonds that promised regular payments backed by real collateral. Information about the stock values of companies was so sparse and unreliable that it was often impossible to assess the current general health of business stocks.

In stepped journalists Charles Dow and Edward D. Jones. In 1882, they formed Dow, Jones, and Company. The company started publishing subscription newsletters with business information. The newsletter eventually evolved into the now famous Wall Street Journal. In 1884, they created the Dow Jones Industrial Average as a measure of general stock market performance. The original index consisted of only 11 companies, including nine railroads. There was a certain logic in heavily weighting railroads. Not only were railroads large industrial enterprises but the economic performance of railroads also indirectly reflected the fortunes of other companies that shipped via railroads.

Over time, the list of companies grew and changed radically. Presently 30 are included in the index. Many of them like Boeing, Hewlett Packard, International Business Machines, and Intel reflect the changing nature of the economy in the past one hundred years. Now there are many more market indices. The Standard and Poor’s 500 represents the collective performance of 500 of the countries biggest companies. The Wilshire 5000 is so large that it measures essentially the returns of almost all publicly traded US companies.

The present value of the Dow Jones Industrial Average is that it provides an exceptionally long time series of economic performance. Whereas the Dow began in the nineteenth century, the Wilshire 5000 began in only 1974. Hence, even though the Dow may be a narrow and imperfect index, it is the best we have to monitor and study long-term variations in stock performance.

Figure 1 is a log plot of the Dow Jones Industrial average since its inception. The most conspicuous feature of the time series is its relentless growth. There is a clear persistent dip in the index during the Great Depression in the 1930s. However, decade-in-and-decade-out the stock market and the Dow yield strong positive returns. Plotting the index on a log graph emphasizes the variations. If plotted on a linear scale, the general upward movement in value would be ever more conspicuous.
This increase has been so persistent and the rise from January 1980 to January 2000, when the market peaked at 11,700, was so rapid that some have become overly optimistic. In 1999, James Glassman and Kevin Hassett suggested that people now realized that in the long run stocks provide larger and more reliable returns than other investments. This new understanding would drive up prices. Glassman and Hassett predicted that, “Stocks are now, we believe, in the midst of a one-time-only rise to much higher ground — to the neighborhood of 36,000 for the Dow Jones Industrial Average. After they complete this historic ascent, owning them will still be profitable but the returns will decline.” Given that the Dow is now below 8,000, it does not seem likely that we will see the Dow at 36,000 any time soon. The recent plunge in the market has devastated the retirement plans of many and a subtle fear is becoming palpable.

While the effects of the decreases in stock values since 2000 are very real, a closer examination offers modest room for hope. Figure 2 is a log plot of the Dow Jones Industrial Average from 1980 to the present. From 1980 to about 1995, the values of the stock market increased at a rate of over 10% per year. Then in 1996, the stock market literally exploded upward in what Federal Reserve Chairman Alan Greenspan then described as a fit of “irrational exuberance.” The straight line drawn in Figure 2 shows the increase in the Dow if it had simply followed the same healthy growth rate it had experienced from 1980 to 1995. The stock market would be approximately where it is right down. Holders of stocks would not be appreciably richer, but they would certainly feel less anxious.

Markets are never sufficiently disciplined or wise to grow along easily predictable straight lines. Markets that overshoot the long-term growth rate will likely undershoot that same growth rate for a while. The pain is not over. Nonetheless, the fact that the Dow is about where we might expect it to be given its long-term growth rate offers a least a small ray of comfort for those who have lost many paper profits over the last few years. Or perhaps this is just “whistling past the graveyard.”