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Grand Strategy for a Divided America

I think that strategy is (sometimes? often? usually?) driven by economics - not by seeking any specific economic advantage, per se, but, rather, by the constant ebbs and flows of economic power and economic needs. Thus, I think this opinion piece, which is reproduced under the Fair Dealing provisions of the Copyright Act from Project Syndicate, belongs here rather than in other appropriate threads, because I think coping with the emerging Great Convergence is a serious strategic issue:

http://www.project-syndicate.org/blog/megatrend--china-s-gdp-will-exceed-u-s--gdp-in-the-21st-century----deal-with-it
Megatrend: China's GDP Will Exceed U.S. GDP in the 21st Century -- Deal With It

Steven Strauss, former Managing Director at the New York City Economic Development Corporation (NYCEDC), is an advanced leadership fellow at Harvard University. He has worked for McKinsey & Company and the World Economic Forum.

Oct 22, 2012

Welcome to the Great Convergence -- The Developing World is Converging to Developed Country GDP Per Capita Levels -- The Alternative Would Be Worse(1)

This is an election season, so all hope of intelligent policy discourse has been abandoned in favor of the partisan soundbite. One side, uniquely brilliant, will magically solve our nation's problems (all caused, of course, by the incompetent opposing candidate/party). An example is Professor Niall Ferguson's recent article "Hit The Road, Barack":

          "The failures of leadership on economic and fiscal policy over the past four years have had geopolitical consequences. The World Bank expects the U.S. to grow by just 2 percent in 2012.
            China will grow four times faster than that; ... By 2017, the International Monetary Fund predicts, the GDP of China will overtake that of the United States.(2)"

Professor Ferguson ascribes China's growing, at a rate four times faster than the US, to a "failure of leadership" by the Obama administration. Clearly, a case of Romnesia (the inability to remember facts which ruin the Romney narrative). Under President George W. Bush (Bush II), China's economy grew over five times faster than that of the U.S. (Source: World Bank; China's real GDP growth rate for 2001-2008 was 10.7 percent vs 2.0 percent for the U.S.). In fact, China's out-performance of the U.S. over the past 30 years has been bipartisan (see Chart 1).

Chart 1: http://www.google.com/publicdata/explore?ds=d5bncppjof8f9_&ctype=l&strail=false&bcs=d&nselm=h&met_y=ny_gdp_mktp_kd_zg&scale_y=lin&ind_y=false&rdim=country&idim=country:CHN:USA&ifdim=country&tstart=336024000000&tend=1314244800000&hl=en_US&dl=en_US&ind=false&icfg

China's been growing very rapidly, because it started with very low per capita income. We're experiencing the Great Convergence -- where countries globally converge to similar levels of economic productivity. China's income per capita is still only a fraction of the U.S. level, leaving plenty of room for its continued high growth rates.

The U.S.' best growth decade (the 1950s, when marginal Federal income tax rates were 90 percent) produced about 4 percent/year sustained real GDP growth. As noted above, during Bush II's Presidency (2001-2008, when marginal Federal income tax rates were reduced to 35 percent), the U.S. averaged only 2.0 percent/year real GDP growth.

Supporters of 'Romney-Ryan as economic saviors' believe they'll miraculously produce the hyper-economic growth we failed to achieve -- under Presidents Truman, Eisenhower, Kennedy, Johnson, Nixon, Ford, Carter, Reagan, Bush I, Clinton, Bush II and Obama -- by lowering marginal tax rates, repealing and replacing Obamacare, and increasing military spending. And, if you believe Romney-Ryan will produce this miracle, you probably also believe in the Tooth Fairy.

An economic miracle seems especially unlikely since Romney's economic team and policies closely resemble Bush II's - the team and policies that wrecked our economy and produced a global financial crisis. Even assuming a Romney presidency produces growth at the upper end of the US post-WWII range, China's GDP (under current trends) will still surpass that of the US within our lifetimes.

What about the prospects of China stumbling? As Professor Ferguson himself pointed out in his excellent book Civilization, the reasons China might not surpass the US relate mainly to failures inside China. First, China could prematurely plateau in a manner analogous to Japan. Second, China might succumb to social unrest (e.g., due to a surplus of males caused by the 1-child policy). Third, a rising Chinese middle class might demand more power than the system can accommodate. Fourth, China could antagonize and alienate its neighbors and trading partners. While these scenarios might preserve America's preeminent role, it could be at the cost of an unstable nuclear-armed China -- hardly a desirable outcome.

Whoever wins the election, our president in 2013 will face the economic and political challenges presented by the Great Convergence. We need to begin a serious national dialogue -- about what we want America's role to be as our relative economic importance declines -- and end the competition to produce the most quotable soundbite.

I don't agree with Steven Strauss that George W Bush's "team and policies ... wrecked our economy and produced a global financial crisis" - they helped but it wasn't exclusively their fault. But who to blame for America's problems is not an important issue; China would be rising no matter what America did or did not do in the 1970s, '80s, '90s and beyond, right up until 2012.

The strategic problem is not that America is declining, because it isn't - not badly - it is that others, especially China, are catching up, just as Japan and Europe did in the 1960s and beyond. The real problem is, as Strauss says, that America's relative economic importance IS declining and that particular decline, in one aspect of soft power, puts strains on all other components of strategic power.
 
As soon as I saw where Strauss was from I thought Mayor Bloomberg clone.
 
And I agree, mostly, with this analysis, by Chinese born, US citizen, Ting Xu, which is reproduced under the Fair Dealing provisions of the Copyright Act from The Diplomat; I think she has correctly identified the symptoms of America's problem: deep cultural divisions and the necessary treatment: unity around a pragmatic approach:

http://thediplomat.com/the-editor/2012/10/19/americas-self-inflicted-wound/
The Road to Decline: America’s Self-Inflicted Wounds

By Ting Xu

October 19, 2012

It is alarming to read the campaign advice that Marcus Tullius Cicero, the great Roman orator, received. Cicero was encouraged to inflame his opponents with scandals, pay special attention to the wealthy and powerful, keep up the hope of the zealous and devoted, put on good shows and “promise them anything” they want and forget about it. His successful campaign mirrors today’s political theater in America. But Cicero’s devotion to political maneuvering did not protect him (he was murdered by Mark Antony during his pursuit to become dictator of the country), nor the Roman republic. The sad story of the blunt calculating brilliance of Cicero and the fall of the great Republic should serve warn America: freedom and democracy are not free.

America’s greatness was very much a function of the visionary pragmatism of its founding fathers. The common sense decision to pursue liberty, equality and individual well-being was achieved through creativity, openness and consensus based on compromise.  American leadership internationally is based on not only its economic prosperity, but also the sense of hope it brings to those who seek peace and development. The country has achieved great things and the American dream stays alive in a society that offers all the possibilities that are created because America is a leader in the pursuit  of open markets, technological innovation, and equal opportunity.

Unfortunately, this sense of hope will wane if America continues on its current path. Inadequate regulation of the financial sector among other factors has dragged the country into one of its worst recessions ever, yielding historically high unemployment and an expansion of people (over 46 million in 2010) living below the poverty level. Undisciplined public spending pushed the total debt to GDP ratio over 100 percent this year. A recent Congressional Budget Office report points to the increasing likelihood of a double-dip recession caused by the impending “fiscal cliff” in 2013. This reflects failures by Congress to agree on an orderly alternative method to address the budget deficit.

Not only is the U.S. digging its own grave domestically, it is also doing so internationally as well. After entering a decade-long war in Iraq, the legitimacy of which is still being debated, the U.S. is seen by many as more of a bully than a leader for global peace. The most disturbing fact from an American perspective is that the more than $3 trillion war bill and the 4,487 casualties have overstretched America’s resources and diminished the public’s tolerance for legitimate military interventions.

The World Economic Forum attributes the decline in American competitiveness to the business community’s extreme skepticism that politicians will avoid wasting resources, reduce spending and stabilize regulations. A recent CNN poll found that only 15 percent of Americans trust the federal government to do what’s right; in February of this year more Americans reported holding favorable views of North Korea than of Congress’s job performance . This is not entirely surprising. One only needs to look at the shameful congressional show down in 2011 over the U.S. debt ceiling to get a sense of the senselessness of America’s political environment.  As two leading experts on American political institutions titled their latest book, It’s Even Worse Than It Looks. Instead of finding agreement to increase revenue and cut spending, politicians blame each other for bankrupting America and run for office on platforms proudly championing “no compromise.” Instead of supporting cutting-edge climate-friendly industries that will keep America’s competitive in industrial science and technology, numerous politicians deny the very existence of climate change. Instead of defining a new role for American leadership in a changing world, politicians instead blame China for posing economic and security threats.

There are many issues to be sorted out, including: tax reform to keep the country solvent, fixing a defunct immigration system to attract and retain talent, and revamping the education system to stop the decline in the quality of American schools. As these critical issues continue to receive short shift, politicians and pundits endlessly debate matters like the fate of “Big Bird,” the electoral consequences of politicians’ facial expressions and water consumption habits during televised debates, and whether female reproductive systems respond differently in cases of “legitimate rape.” The $6.6 billion in TV ads this season could be better used in many other ways, instead, voters are entertained by ideologically driven campaign bashing.

America became and maintained its status as world leader because of its prosperity, the resilience of its society, its pursuit of freedom and the sense of global responsibility. These qualities enabled our World War II generations to devote their lives to protecting the country which liberated and led the world; these qualities created the American dream and attract new citizens to take the oath. The vision of the founding fathers, along with the prosperity of future Americans and the world would be delt a fatal blow if American values are replaced with political cynicism, short sightedness, and a lack of courage and sacrifice.

We are in desperate need of leaders with a vision for America. Today pragmatism is visionary. The country suffers from self-inflicted wounds the most critical of which is polarizing partisan politics. To heal the divide in society and put the nation back on a healthy track , we need to start to work on problems at home. In this election season, Americans need to follow those who can provide a clear and pragmatic path. They need to lead from the middle and work together based on issues instead of party lines. They need to provide a healthy environment for business and care for the disadvantaged. They need to resist ideologically driven movements and bring the focus of the U.S. public back to long-term competitiveness and prosperity. They need to speak the truth even when it does not please the public. These kinds of leaders need the courage to compromise even if it costs them the next election.

The world will not wait for American leadership forever, now is the time to act.

Ting Xu is a recently naturalized American citizen. She is a Handa Fellow at Pacific Forum CSIS and Senior Fellow at Bertelsmann Foundation.


The strategic terrain has changed since Ronald Reagan ushered in a brief era of American hyperpuissance; the USSR is gone, despite its nuclear arsenal Russia doesn't really matter; Japan took a 20 year "time out" and now, like Russia, faces enormous demographic challenges; Europe is on the skids but China is rising. America's grand strategy just deal with that condition - not with a bunch of medievally minded Arab terrorists. But, as Ms Xu says, before it can refocus its military strategy it needs to get its economic house in order and that, too, requires pragmatic, not ideological solutions.
 
Walter Russel Mead (among others) have postulated that one of the reasons we are in such difficulty is the social, political and economic models of the past are no longer working, and we are evolving a new "post progressive" model for our economy and institutions. This means that while we can argue about which "red" or "blue" model should be emphasized to relieve or solve problems, the actual answer is entirely different. I don't entirely buy the conclusion (Classical Liberalism [in the US best represented by the Red State model] has a long and very successful track record over an extended period of time covering several of the social and economic periods described, and across multiple societies in different nations and continents), but it is interesting to contemplate never the less. Some of the points about the huge size of polities creating conditions for plutocracy to flourish or effectively disenfranchising voters are well taken; I would suggest looking at the Swiss model, where most issues are effectively decided at the municipal level through referendums and direct voting:

Long conversation between Walter Russel Mead and Francis Fukuyama:

http://the-american-interest.com/article.cfm?piece=1318

From the November/December 2012 issue: None of the Above Francis Fukuyama and Walter Russell Mead

Francis Fukuyama: Walter, let’s do a broader analysis rather than a blow-by-blow of the upcoming election. Nobody seems to be happy with the nature of the American system right now, whether on the Left or the Right. One of the big, fundamental questions is, what are the real sources of dysfunction? I’ll define “dysfunction” simply as the inability of our political system to make any tough choices. Whether you think we need a smaller government or think we should fix the larger government and expand it, neither of those directions is being pursued. And I would almost guarantee that, regardless of the results in November, a solution will not be forthcoming afterward. This will not prove to be one of those realigning elections that turn the country onto a different course.

I’ll also add that we all recognize that the long-term, unsustainable fiscal mess we’re in is the central problem right now, and that it’s gone unaddressed due to the polarization that has paralyzed the political system. My colleague at Stanford, Mo Fiorina, has argued that the problem doesn’t lie with American society, which is not terribly polarized on many issues; rather, it plagues the political class, by which he means the media, professional politicians, pundits and anyone who participates in the larger system as an activist, like an employee of a lobbying group for an NGO or logging corporation. He therefore thinks the problem lies in the system rather than the society.

You could pick another source of dysfunction that has to do with neither the society nor the political system: We’ve primarily been driven by the unanticipated and not well-understood exigencies of advancing technology and globalization, which have given us fits by making usual ways of doing business obsolete. So I’m wondering about your views on this. What do you see as the fundamentals of our current problems?

Walter Russell Mead: Frank, I would go with the explanation that the American political system is having a rough time because the country is having a rough time. That is, these transformational changes and the social and economic changes that accompany them, are posing budget questions we don’t know the answers to. I think our society is in the process of moving from what you might call a late-stage industrial society to an early-stage informational society. No other society has done this before, so it’s no surprise that we don’t quite know how to do it yet.

If I were looking for periods in American history to which I could compare this, I would point to the years between the Civil War and, say, 1900. At that time, as today, Americans experienced growing inequality and bitter cultural and regional wars. The Gilded Age produced a very corrupt and dysfunctional political system. The financial markets then were tumultuous, and a small group of people made enormous fortunes by learning to harness and manipulate the new system. If you look at people like Rockefeller and Carnegie, their wealth as a percentage of GDP was higher than that of today’s plutocrats.

This transition angered many people, and the social institutions and ideas that came from an earlier period lost influence. But there was no cultural physician one could go to in order to learn how to bring health to this new kind of society. I think our situation today is analogous to that time.

FF: I agree with that. That period, up until the first decade of the 20th century, is comparable to our time in many ways, particularly the rising inequality. The other element was the inability, up until the election of 1896, of the political establishment to make up its mind about what to do, because control of Congress turned around about every two years between Republicans and Democrats in the years prior to that. It was only the big Republican victory in 1896—which gave the GOP majorities in both the Senate and the House and put William McKinley in the White House—that created a basis for the Progressive Era to congeal and in time provide the country with a new set of institutions.

What strikes me, though, about that analogy is that I don’t see a realignment coming. Obama thought that the 2008 election marked such a realignment, but he was swiftly disabused of that idea when the healthcare initiative that was supposed to be its main ratification turned out to be incredibly controversial. Do you see a realignment in the works, where the country wakes up and agrees to go either with the big government solution, the small government solution, or some new government solution? I don’t see it anywhere.

WRM: No, I don’t see a quick answer coming, and certainly not this November. Looking back at the Gilded Age, we had a political system nearly as bad as it’s possible for a political system to be, yet amazing things were happening in the country. For instance, there was the Victorian equivalent of the internet—railroads and telegraph lines and the beginnings of telephones—and all sorts of related revolutions in retail and distribution. The American middle class of the Civil War period was defined as owner-occupied farms. The majority lived and worked on family farms and achieved a standard of living that was the envy of the world. But by the 1890s, the industrialization of agriculture and falling food prices relative to other goods were destroying the economic foundation of the American middle class. That problem, however, couldn’t have been answered by a policy initiative, because the industrial economy wasn’t yet big enough in the 1870s or even the 1880s to absorb those people. So these transitional historical periods have to be suffered through, it seems, and the way forward generally is not to place a group of wise people at the helm of government and set a course. Rather, changes in society itself create conditions from which a path forward gradually emerges.

It’s interesting, for instance, that Theodore Roosevelt and Woodrow Wilson hated each other as individuals but had a lot in common in how they wanted to steer the country. Perhaps as we get ourselves to a stage where the answers begin to appear, some of the partisan rancor and polarization may gradually leach out of the system.

FF: I hope so. If you look back at that period, the premonitions of what was to come were there. For example, with the transition into an industrial economy and with the growth of the railroads we suddenly had a national system that could no longer be effectively regulated at the state level. So the Interstate Commerce Commission (ICC), the first national regulator, was born to prevent beggar-thy-neighbor behavior among the states. I think the American healthcare system today is a little bit like the railroads during the 1880s: a patchwork, in each state a different policy. Like today, there was a need then for a national policy, but society’s inherent anti-statism and the courts at the time resisted a greater exercise of Federal power. Had the Supreme Court struck down the core of Obamacare I would have had a great time writing about precedents from the 1890s of opposition to various ICC decisions, since the courts at the time denied the Federal government that kind of authority.

Where I get stuck, though, is the way forward. By 1883, you already had the growth of a different kind of national government. Society was organizing to end patronage and professionalize the civil service. Today, though, I doubt we can solve many of our problems at the national level because so many of them stem from our interaction with the global economy. And at the global level it’s obvious, I think, that institutional reform is far more difficult than the reform of institutions at a national level. You say that glimmers of a solution will become evident, but just how, for example, we can harness technology to make the government deliver services more effectively is not obvious to me.

end of part 1
 
And part 2:

http://the-american-interest.com/article.cfm?piece=1318

WRM: I think the transformation this time around is more complicated and far-reaching even than the Gilded Age transformation. The nature of change itself is becoming bigger, deeper, harder to fathom. We’ve got more resources now, politically and even economically, but history has sent us a much harder problem.

I do see some green shoots. This week I was going crazy because I finally figured out that my car registration expired. Twenty years ago this would have been an agonizing problem, involving multiple trips to the DMV and possibly having to take the car off the road while the paperwork was being processed. But I was able to download the temporary registration certificate and do the whole thing online. So there’s a sense—even in a state like New York, which isn’t notorious for being on the cutting edge of innovation and reform—that government is adapting. More internet-based transactions and fewer wrangles with the angry lady behind the counter represent, in my book, a real step forward.

FF: My experience with the California DMV has been positive, too, but getting your car squared away is child’s play compared, say, to dealing with the completely unsustainable path we’re on with regard to healthcare costs. So much of the expenditure effectively goes toward keeping people who are 85 or ninety alive for another six months. We’re going to bankrupt ourselves if government continues funding this level and kind of services. But changing course requires extremely difficult political decisions about rationing healthcare at the end of life. When I think about the “death panels” fracas, and how both parties were so eager to launch demagogic attacks on the subject, I don’t see how we solve this. I don’t think technology will help us much, because this is a deeply political choice that must be made.

WRM: Well, still, if I compare where we are now to where we were twenty years ago, I see a lot of good movement in this area. It’s not that people welcome the idea of the government or some outside group telling you or your grandma what to do, but when you talk to older people you don’t hear many of them saying, “I want to be hooked up to tubes until the last possible second, no matter how much pain I’m in or what I’m putting everyone else through.” You usually hear them say instead something to the effect, “I know death is coming, and I hope to die in a way that’s consonant with how I lived and the values I expressed.”

FF: That seems like wishful thinking to me. When I was on the President’s Bioethics Council in the early 2000s, we spent a lot of time on these end-of-life and caregiving questions. People will say they don’t want a certain kind of invasive care and would choose to terminate it earlier if given the option, but they say that when they’re relatively young and healthy. When the crucial moment comes, almost no one makes that choice; nor do the family members, who don’t want to live with the burden of having pulled the plug. The institutions don’t want to make that choice either, because they don’t want to be blamed for the outcome. So I don’t think this problem will be solved simply by society changing its norms and embracing a more mature acceptance of death.

WRM: Well, polling on these questions may be scarce or unreliable given the emotional difficulty, but I do see many family members and friends making the decision to forgo intensive care after a certain point. We also see a lot of growth in hospice care; it’s a much bigger industry than it used to be. Changes in healthcare technology and delivery systems can also make the system less unaffordable. And if we can get a solution to those things, then almost everything else we’re looking at in terms of deficits becomes much more manageable.

FF: Getting solutions won’t be easy for political reasons, I suspect. To continue with healthcare for a moment, one of the central cost-drivers is the fee-for-service model, which makes for a tremendous overprescription of testing and procedures and the like, because doctors and hospitals make money off of it. But it’s almost impossible to bring up in Congress any proposal to restrict or somehow channel fee-for-service, because all the entrenched interest groups are committed to that particular model.

The larger question here, of course, is plutocracy. Wealth brings political influence. Any honest reading of history testifies to the phenomenon of sclerotic political systems in which the already rich and powerful get hold of the system in order to protect their positions. You can multiply this through the entire American economy. It’s not necessarily a partisan issue, because on the Left there are also powerful interest groups, like public-sector unions and trial lawyers, that have an effective veto over changes to public policy. But corporate America has most of the money, and most of the distortions in the tax code come from there. My perception is that you’re not as exercised about this issue as some are, but it seems to be an issue we’re completely incapable of addressing. Take the Supreme Court’s decision in Buckley v. Valeo (forget about Citizens United; this has been a position of the Court since the 1970s): This decision amounts to the notion that you can’t restrict money in politics because of the First Amendment. I would be interested in your views on this.

WRM: I think that a lot of the problems in our political system now are the result of failed campaign finance reforms from the past, and other failed reforms that have dismantled party structures and have essentially turned every candidate into a fund-seeking missile. This has shifted power away from organizations and structures that were at least nominally accountable to voters and put it into the hands of interest groups and individuals.

I’d like to have a conversation about campaign finance involving three smart people: a really good political operative, a really good campaign finance reform advocate, and a really good constitutional lawyer. I’d want the advocate to give us a proposal; the operative to tell us whether it really would dilute the influence of money in politics; and then the lawyer could tell us whether it’s possible. My guess is that the intersection of the three gives you a null set. There isn’t anything substantive that could constitutionally be done that would really change the way hacks make politics run.

FF: Yes, but the key word there is “constitutional.” The way our courts have interpreted the Constitution makes it correct to say there’s nothing that can be done. In other democratic countries, however, few suffer from an electoral process that is as out of control as ours is right now. Just consider the amount of time candidates spend campaigning to be President: at least two years, and more than that in many cases. In Japan and Britain there’s a six-week campaigning window, and that’s it. I think there are some institutional fixes that would be relatively simple were it not for this constitutional straitjacket we’ve gotten ourselves into, a straitjacket tightened considerably by the moneyed interests that want to keep things as they are.

WRM: I think we’re going to adopt the metric system before we ever revise the First Amendment, or our basic interpretations of it. That’s one reason, Frank, I may seem less exercised about this. It’s the serenity prayer: This is one of those things I need to learn to accept so I can start thinking instead about the things I can change.

FF: Well, you’ve already accepted the fact that you’re going to die, which is an important coming to terms with a difficult issue, and now you’ve accepted the fact that we can’t fix money in politics.

WRM: At least not through this sort of strategy. I think some things can be done. One reason I advocate, for example, breaking up states like California into smaller units is that they’ve grown to such a degree that their size magnifies the role of money in politics and minimizes the combined grassroots clout of individuals. To run on a statewide campaign in California, you have to raise insane amounts of money. And because the state is so diverse, and because the different parts of the state have so little in common culturally and historically, media and impressions based on political ads often dominate the way that politics goes. Just consider: The constitution was developed for a country with about three million inhabitants, and perhaps only about a tenth of those could vote. The city of Los Angeles alone is larger today than the entire United States was then. I think federalism works, but there are places where the states have gotten so gargantuan that money takes over politics and people live in districts where their ability to change things has eroded. I think there are fixes that don’t require changes in the First Amendment.

FF: When I moved from Virginia, a swing state, to California two years ago I was effectively disenfranchised. If you actually break California up into four or five smaller units—which I’d be perfectly happy to see happen—you would then have a permanent Democratic majority, certainly in the Senate. But the general point is right, that the political system there is completely out of control. It was created in the early 20th century in order to get around the influence of railroad interests in the state legislature. The whole idea was that citizens should be able to mobilize to counter these special interests. But what’s happened, given the size of the state and the amount of money needed to mount a referendum campaign, is that it has become completely professionalized and taken over by consulting firms that do nothing but hatch ballot initiatives. There are highly automated procedures for collecting the necessary number of signatures, and of course they’re only won by massive television advertising campaigns. It’s also striking that a 50 percent vote on the initiative—which does not represent 50 percent of voters—can put in place a measure that can only be undone by a two-thirds vote in the legislature. That’s an interesting theory of democracy, in which a minority can bind a super-majority.

WRM: Right. Once you have a political system that doesn’t fit the population, things start going wrong and start adding up. I can think of another change that might help, too. In the old days, every ten years when we did the census reapportionment, the size of the House would increase to match population growth. This meant that district boundaries changed less from census to census. If we can get back to that and permit a slightly greater population differential among districts in order to maintain those boundaries, politicians will need more than media appeal. They’ll need to have people at the grassroots level invest in them and build grassroots support in their district.

FF: Don’t get me started on redistricting. One of the bad outcomes of the Supreme Court decision that required decennial redistricting is that the authority for it was handed over to the political parties. Of course, they redistrict in a way that ensures their hold on power. A lot of the increasing homogeneity of the parties and the fact that they overlap very little is that there are very few House districts that are competitive anymore. That’s not an accident. Having just dumped on California’s referendum system, I’ll note one interesting example that may actually do some good. Redistricting power was taken away from the state legislature and given not to a bipartisan, but to a strictly non-partisan, committee, which has been slicing up districts deliberately to make them more heterogeneous. The hope is that more Congressmen will have to appeal to a wider variety of constituents. None of the political consultants know how this will play out, but this year’s election is the first under this new system. In general, though, more states ought to hand over redistricting to some independent group rather than let the incumbents use it to feather their own nests.

WRM: That makes perfect sense. I also think increasing the size of the House with the census may be a good thing if it allows us to keep districts as small as possible. That way voters have more of a sense that they can influence the choices of their representatives. There’s a trend where all layers of government are getting further removed from the people. Not only do you get a political class that floats above people and is less connected to them, but also the power of money is magnified. The more politicians are dealing with “the masses”, and the less with groups of voters making decisions about issues they know a lot about, the nastier and messier politics gets—and the more powerful money is.

At the state level, I’m a great believer in getting rid of bicameral legislatures and having larger Houses of Representatives with smaller districts whose boundaries don’t change much. What I’m saying, Frank, is that given the constitutional roadblock, there are other ways to deal with money in politics—not to ban money from politics, but rather to nurture counterforces like public opinion and grassroots organizations.

FF: Another possible change that wouldn’t require constitutional modification is for a large group of states to agree to move to proportional allocation of electoral votes. The current system, in which votes are allocated on a winner-take-all basis, means that only six states actually matter in a presidential election, like Ohio and Virginia, and everyone else is disenfranchised. But no single state will unilaterally do this. It would make no sense for, say, the Democratic majority in California to agree to proportional allocation because it would simply hand over a third of their votes to the Republicans. It would have to be a package deal, one in which all or nearly all fifty states agree to act together. Even if that were possible, would it decrease the role of money in American politics? I don’t know.

WRM: I like the idea of keeping the presidential election to a race in states.

FF: This idea would do that, but would just make all fifty states matter. Otherwise we might as well just turn it over to Iowa.

WRM: I disagree. I think the idea of a candidate’s trying to carry individual states is important. Given the growth of population, and the remoteness of institutions and leaders from people’s daily lives, it’s dangerous to weaken the intermediary units. Yes, as you say, there are certain problems, particularly economic ones, that require solutions at the national or international level. But that’s all the more reason to hold on tightly to the places where you have the option to keep things more locally tied.

FF: The proportional allocation of electoral votes wouldn’t affect that very much…

WRM: I think it would. Right now it matters intensely who “carries” a state. Under proportional allocation, it wouldn’t matter if a candidate carried, say, Ohio, with its whole spate of local, regional concerns, any more or less than any other state.

FF: Well, it wouldn’t make Ohio matter any more than California, but it would make California matter in a way it can’t under the present system. It would make politicians compete for California votes in national elections much more intensely. We’ve not seen a single presidential ad in California for weeks, but if you live in Virginia or Florida, that’s all you’re seeing on television.

WRM: I think Californians’ grief about not seeing those ads is quite limited. I hope, Frank, that’s the worst curse in your life, to be cut off from campaign advertising.

FF: You’re right, I should count it as a blessing. Walter, this has been fun. We’ll have to have a conversation about the rest of the world at some later date.

WRM: Yes, let’s.
 
For want of a better place to put this ... the Secretary of State is charged with implementing America's grand strategy in the wider world so the person who will hold that job matters. This article, reproduced under the Fair Dealing provisions of the Copyright Act from the New York Times, discusses two front runners:

http://www.nytimes.com/2012/11/13/us/politics/top-candidates-to-replace-clinton-at-state-dept-may-face-hurdles.html?smid=tw-share&_r=0
Top Candidates for State Dept. Are Both Facing Possible Hurdles

By MARK LANDLER

Published: November 12, 2012

WASHINGTON — For months, the Beltway parlor game about who will succeed Hillary Rodham Clinton as secretary of state has revolved around two names: Susan E. Rice, the American ambassador to the United Nations, and Senator John Kerry of Massachusetts.

But now that President Obama’s re-election has made the exercise real rather than hypothetical, both front-runners for the most coveted job in his cabinet are dogged by issues that could complicate their path to Mrs. Clinton’s State Department office.

Of the two, Ms. Rice, an outspoken, ambitious diplomat with close ties to Mr. Obama, has emerged as the clear favorite. But she would face stiff resistance on Capitol Hill, where she has come under withering criticism from Republicans for asserting that the deadly attack on the American mission in Benghazi, Libya, might have been a spontaneous protest rather than a terrorist attack.

Mr. Kerry, who is the chairman of the Senate Foreign Relations Committee and prepped Mr. Obama for his debates with Mitt Romney, holds a Senate seat that the White House worries could fall into Republican hands if he gave it up for a cabinet post.

Both Ms. Rice and Mr. Kerry have a reservoir of good will in the Oval Office, and if she gets the nod, officials said, Mr. Kerry could be considered for defense secretary. But politics will inevitably play a part in Mr. Obama’s decision, especially in the wake of the sex scandal that brought down David H. Petraeus as director of the Central Intelligence Agency.

The decision, administration officials said, will likely hinge on whether Mr. Obama would rather risk a bruising confirmation battle for Ms. Rice or the loss of Mr. Kerry’s seat, which could be picked up by Scott P. Brown after the loss of his own seat last week.

“The question is, does the president want to launch a major fight with Congress over his choice of secretary of state?” said Aaron David Miller, a longtime diplomat who is vice president of the Woodrow Wilson International Center for Scholars.

The Senate and House have scheduled hearings on Benghazi this week, which will keep the heat on Ms. Rice as the White House begins its deliberations. At least one influential Republican, Senator Lindsey Graham of South Carolina, has already come out against her. “I’m not entertaining promoting anybody that I think was involved with the Benghazi debacle,” Mr. Graham said Sunday on “Face the Nation” on CBS. “Susan Rice needs to be held accountable.”

The White House stoutly defends Ms. Rice, noting that in her remarks on Benghazi, she was reading from a briefing prepared by the intelligence agencies. The administration, citing new evidence, subsequently confirmed that the attack was an act of terrorism.

“Anyone who opposes Susan, based on one day’s comments, will have to reconcile that with what the intelligence said on that day,” said an administration official, speaking on condition of anonymity.

In the unforgiving climate of Washington, though, Mr. Kerry might profit from Ms. Rice’s misfortune. He would likely breeze through a confirmation hearing with his Senate colleagues. And he has been a loyal soldier for the administration on a variety of issues. In 2009, the White House dispatched Mr. Kerry to Afghanistan, where he helped talk President Hamid Karzai into accepting a runoff election. In the Senate, Mr. Kerry has pushed for Obama initiatives like the New Start treaty with Russia.

With his patrician bearing and Massachusetts roots, he was an obvious stand-in for Mr. Romney during debate preparation. While the president’s lackluster first debate almost capsized his campaign, his aides said they did not blame Mr. Kerry.

Nor does the loss of his Senate seat appear quite as problematic as it did before last Tuesday. Senator Brown, who was defeated by Elizabeth Warren, left the door open to another run. But some political analysts in Massachusetts say he might be more inclined to run for governor, given that the state once elected a fiscally conservative, socially moderate Republican — Mr. Romney — to that post. Even if he did run for the Senate, Mr. Brown would face a robust bench of Democrats.

Among the potential candidates for Mr. Kerry’s seat is Gov. Deval Patrick, who is close to Mr. Obama. On Friday, Mr. Patrick and his wife, Diane, flew to Washington for a private dinner with Mr. Obama and his wife, Michelle, at the White House.

Mr. Patrick may have his eye on a cabinet post like attorney general. But there are other formidable Democrats, like Representative Michael E. Capuano and Martha Coakley, who lost to Mr. Brown but has since rehabilitated her image as the state attorney general.

“I think the administration could feel relatively confident that they will hold on to the seat,” said Thomas Whalen, a political historian at Boston University. “When you look back on Brown, it was a special election against an exceptionally weak Democratic opponent.”

Weighing against Mr. Kerry, officials said, is that he would be replaced as chairman of the Foreign Relations Committee by Senator Robert Menendez of New Jersey. With his Cuban roots and hostility toward the Castro regime, Mr. Menendez would likely impede any diplomatic overture by Mr. Obama.

Representatives of Mr. Kerry and Ambassador Rice declined to comment on their prospects, while the White House said it would not comment on personnel deliberations.

Mrs. Clinton has long insisted that she would not serve during a second term, but she recently left open the possibility of staying on the job long enough for a successor to win confirmation. That could allow the White House to delay Ms. Rice’s nomination to allow the passions over Benghazi to subside.

Mr. Kerry and Ms. Rice are not the only names in circulation. Thomas E. Donilon, the national security adviser, is been mentioned, though officials said he would prefer to stay put.

There has even been speculation in foreign-policy circles that the messy departure of Mr. Petraeus might prod Mr. Obama to consider nominating a Republican, like former Senator Chuck Hagel; a hawkish independent, like Senator Joseph I. Lieberman; or even Jon M. Huntsman Jr., who was Mr. Obama’s envoy to Beijing before running for the Republican presidential nomination. Mr. Huntsman dismissed the rumors of his candidacy as “idle hallway gossip.”

For all the political static around Ms. Rice, however, she shares many of Mr. Obama’s instincts on foreign policy. She was among those who lobbied successfully for the United States to intervene during the civil war in Libya. Her ties to Mr. Obama — she advised him during the 2008 campaign — could also enable her to hold her own in an administration where foreign policy has been tightly centralized at the White House.

“You’ve got a guy in the White House who is the most withholding president in memory,” said Mr. Miller, of the Woodrow Wilson Center. “She has the best chance of breaking that withholding pattern.”

A version of this article appeared in print on November 13, 2012, on page A12 of the New York edition with the headline: Top Candidates For State Dept. Are Both Facing Possible Hurdles.


In my opinion, worth what you're paying for it: Kerry is the liberal favourite but Rice is the better choice.
 
Mrs. Clinton taking the hit for Obama took massive heat off of Rice.....Clinton can probably out wait the issue, but Rice comes across as acting under her direction...and that's the issue of the day.
 
E.R. Campbell said:
For want of a better place to put this ... the Secretary of State is charged with implementing America's grand strategy in the wider world so the person who will hold that job matters. This article, reproduced under the Fair Dealing provisions of the Copyright Act from the New York Times, discusses two front runners:

http://www.nytimes.com/2012/11/13/us/politics/top-candidates-to-replace-clinton-at-state-dept-may-face-hurdles.html?smid=tw-share&_r=0

In my opinion, worth what you're paying for it: Kerry is the liberal favourite but Rice is the better choice.


Evidently, Michele Malkin doesn't share my views on the acceptability of Susan Rice. She tweets: "Susan Rice? Perfect. A lying, dhimmi* Secretary of State for the lying, dhimmi POTUS."


----------
* Wikipedia says that: "A dhimmī (Arabic: ذمي‎ ḏimmī IPA: [ˈðɪmmiː]), (collectively أهل الذمة ahl al-ḏimmah/dhimmah, "the people of the dhimma") is a historical term referring to non-Muslim citizens of an Islamic state. Dhimma allows rights of residence in return for taxes. According to scholars, dhimmis had their rights fully protected in their communities, but as citizens in the Islamic state, had certain restrictions.[3] They were excused or excluded from specific duties assigned to Muslims, and otherwise equal under the laws of property, contract and obligation."
 
The Los Angeles Times is reporting that, "Obama reassessing sensitive foreign issues now that election is over." The report says President Obama is reviewing "whether to deepen U.S. involvement in Syria's civil war, accelerate the withdrawal of U.S. combat troops from Afghanistan, and offer Iran a compromise deal to curb enrichment of uranium ... they also are considering ways to work out new cooperation with China, an undertaking that Obama campaign operatives had feared might alienate swing state voters anxious about Chinese trade policies and competition."

But ongoing events in and around Israel may put reconsideration of Syria or overtures towards Iran on hold.

_____
Evidently America's Grand Strategy is no longer a "defence" or "security" issue.  ::)
 
E.R. Campbell said:
The Los Angeles Times Evidently America's Grand Strategy is no longer a "defence" or "security" issue.  ::)
It is once again - my error.

Milnet.ca Staff
 
Not sure what happened with the US economy thread, but since this is about foreign money flowing into America (and targeted flows at that), then it will impact on both American domestic and foreign policy, and by extension, their Grand Strategy (since securing their domestic economy and preventing deastabilization by foreign "hot" money should be one of the main pillars of their economic policy) Large number of charts and graphs on the link:

http://www.zerohedge.com/contributed/2012-11-16/following-herd-foreign-money-us-real-estate-markets

Following the herd of foreign money into US real estate markets
Submitted by drhousingbubble on 11/16/2012 13:55 -0500

China Commercial Real Estate CRE CRE Detroit Federal Reserve Gross Domestic Product Hong Kong Housing Bubble Japan Krugman National Debt Nikkei Paul Krugman Real estate


Foreign money is flowing heavily into US real estate markets. Now some think that foreign money is going to prop up the entire market but this is simply not the case. The money flowing in from abroad is going specifically into targeted markets. This isn’t necessarily a US trend only. Canada is experiencing a massive housing bubble from money flowing in from China in particular. Here in Southern California many cities are seeing solid money flowing in from Asian countries. You have this occurring while big fund domestic investors are buying up low priced real estate cross the country as investments. What occurs then is the crowding out of your typical home buyer. I get e-mails from local families looking to buy saying they were outbid by $50,000 or $100,000 for properties that had nothing special. Even after the crash, why does it seem hard for domestic buyers to purchase a home?


Higher net worth group jumping ahead while middle and lower class grows in size

The below chart is an interesting look at net worth by percentiles:



Most Americans are still in a worse economic condition than they were over a decade ago. The numbers in terms of net worth, the true measure of wealth, highlight this very clearly. There are two primary drivers for this:

-90 percent of households have negligible holdings of actual stocks
-Most households derive their wealth from real estate
This explains why after the near non-stop run-up of the stock market since early 2009, most families are still in a tight financial pinch. High net-worth households with higher stock holdings rode this boom and bust much nicer. Part of this has to do with the fact that real estate is a small part of their portfolio and the massive stock market run has aided in boosting net worth back up.

This has implications on purchasing homes. Those in SoCal making $100,000+ think they should reasonably afford a “nice” home in a prime city. Well those are the places currently being targeted heavily by flippers, investors, and foreign money. This group is part of the net worth group that is in much better shape relative to the other 90 percent of households. So in essence, what was once viewed as affordable just doesn’t match anymore in a more uneven market of wealth.

People talk about simply picking up and leaving yet this trend is tiny.

"(The Atlantic) There's a connection between certain places and certain jobs. Silicon Valley is to tech what New York is to finance what Detroit is to cars. Call it the Synecdoche Economy. It's what Paul Krugman dubbed the new economics of geography: small differences beget more differences that become big differences. Regions specialize -- or do they still?
Maybe not quite as much. Silicon Valley still does computers, New York still does trading, and Detroit still does automobiles, but all of us do a whole lot less of one big thing -- moving. Consider that gross interstate migration has halved in just the past two decades, as the chart below shows."







Overall, people for the most part tend to stay where they are. Our cities copy one another so there no longer is the one city hub of say automobiles (i.e., Detroit) so you have tech jobs in Austin, Silicon Valley, or even Utah. In California, those trying to cope and stay are simply using up the easy money from the Federal Reserve and going into massive debt. These families typically also have large auto loans and other luxury expenses that they consider essential. This is why many are willing to take out a $500,000 mortgage for a shack. All debt and no cattle.


Japan and CRE bubble

In the late 1980s and early 1990s money was flowing into Hawaii and California heavily from Japan. This was during their real estate and stock bubble. Back then the fears were similar and that somehow, all of California was going to go to Japanese investors. That bubble was mostly focused on commercial real estate however. Of course that bubble ended and Japan finds itself in a stagnation of over two decades.

China is experiencing a massive real estate bubble. We recently discussed how Hong Kong instituted a 15 percent tax on foreign investors to cool the market down. Yet these actions are merely methods of slowing down the inevitable. People forget that money is flowing here because it largely wants to opt out or hedge against internal risks. Think about this clearly. If things were so fantastic domestically why is so much money eagerly looking to get out? Don’t you think that these local investors in China know what is going on domestically more than some Bloomberg report from New York? Whenever I see money escaping a country with a passion I think of two things:

-1. Domestic investments are looking weak
-2. Long-term growth is slowing down which is likely to bring economic and political instability
Just look at global stock markets since the lows in 2009:



While the S&P 500 is only off by 5.86 percent from its peak, the Shanghai index is off by a whopping 40 percent. The Hang Seng index is off by 14 percent. Even the Nikkei is off another 22 percent from its recent high. Again, when you see money flowing out of a country in epic fashion you have to ask what is going on internally. You don’t see European investors coming over with suitcases looking to buy properties in large droves. Yet you see this literally happening in California and Canada.

Supply is low

So you have this flood of money coming in competing with the Federal Reserve pushing interest rates to record lows. Add to the mix record low inventory and you can see why prices are jumping in some areas:



It isn’t that sales are back to bubble day levels. Not even close. Yet what is happening is inventory is incredibly low and the mix of foreign money, big domestic funds, and folks moving off the fence is causing some markets to move up in price. Take California for example. The share of foreclosure re-sales are moving lower and lower:



Foreclosure resales as a share of all sales is now back to levels last seen in 2007. So the sales that do occur, non-distressed sales are pushing the median price up giving the impression that we are in some sort of large appreciation movement. This is why the median price of a California home is now up 15 percent from last year even though incomes are stagnant.

I’m always weary about home prices rising so fast while incomes remain stagnant. This is a hot money scenario. Congress is likely to do nothing substantive this year but we have some major challenges in 2013. $16+ trillion in national debt is enormous and bigger than our actual GDP. As we have stated before, something needs to give and something will need to be done. The public of course is now accustomed to low interest rates, high levels of services, and a political machine that runs more like a corporation with large advertising arms. Those thinking they can buy homes in certain markets at rock bottom prices are now contending with the above trends. Hey, you can still get deals in probably 40+ states of the nation or even in places like the Central Valley or Inland Empire in California. Yet most want to live where the foreign and big money is. Following the herd is usually not a good long-term investment strategy.
 
E.R. Campbell said:
For want of a better place to put this ... the Secretary of State is charged with implementing America's grand strategy in the wider world so the person who will hold that job matters. This article, reproduced under the Fair Dealing provisions of the Copyright Act from the New York Times, discusses two front runners:

http://www.nytimes.com/2012/11/13/us/politics/top-candidates-to-replace-clinton-at-state-dept-may-face-hurdles.html?smid=tw-share&_r=0

In my opinion, worth what you're paying for it: Kerry is the liberal favourite but Rice is the better choice.


The mainstream liberal media (led by the New York Times and the Washington Post) have come out against Ms. Ruice and now I read that Sen John McCain says he will support John Kerry.
 
Mixed luck for President Obama's Asian pivot strategy: his keynote trip to Asia has been overshadowed by Gaza (Secretary Clinton is getting more and "better" media exposure) but this is, partially, a good thing because his visit to ASEAN was overshadowed, there, by internal dissent over China and the islands dispute, and he appears to have flubbed his meeting with Aung San Suu Kyi so, maybe, he's glad the world's attention is focused elsewhere.

I'm having difficulty understanding why this particular trip was planned the way it was ~ the diplomatic objectives are elusive to me.
 
And here, in an opinion piece by Robert Kagan, which is reproduced under the Fair Dealing provisions of the Copyright Act from the Washington Post, is why the Asian pivot strategy is problematic, regardless of how well it is (or is not) implemented:

http://www.washingtonpost.com/opinions/robert-kagan-us-cant-ignore-the-middle-east/2012/11/20/a2b4ede0-3331-11e2-bfd5-e202b6d7b501_story.html
United States can’t pivot away from Middle East

By Robert Kagan

Published: November 20

Robert Kagan, a senior fellow at the Brookings Institution and a monthly columnist for The Post, is most recently the author of “The World America Made.”

ABU DHABI

The recurrent theme at the Sir Bani Yas Forum, hosted by the United Arab Emirates and Chatham House here last weekend, was, Where is the United States? As the conference opened, Israel had just begun launching strikes in Gaza in response to the missile attacks from Hamas; Syria’s civil war raged with no end in sight; answers to the growing challenge of Iran remained elusive; and the course of Egypt’s political evolution had many concerned.

No one was suggesting the United States could or ought to have all the answers, but among this gathering of Arab, North African, South Asian and European diplomats and international civil servants, the overwhelming consensus was that the superpower is AWOL. The only question was whether the absence is temporary or permanent.

It was impressive to see how much desire there is for a more active U.S. role in the Middle East. There was little talk here of America’s decline as the world’s preeminent power. No one is preparing for a Chinese, Indian or Turkish ascendancy. Not even the Europeans claim that the European Union has the will or capacity to take on a bigger role in the region. The United States remains by far the most important player.

What has people concerned and despairing is not American decline but America’s declining interest — the sense that the Obama administration, and the American people, have about washed their hands of the Middle East.

President Obama was setting off on the first trip after his reelection, and it was to Southeast Asia, a fitting symbol of his proclaimed “pivot.” No one begrudges the United States paying more attention to Asia, but in the Middle East the pivot is seen as an attempt to turn away from this region’s difficult problems. People here believe Obama got burned on the Middle East peace process three years ago and is reluctant to engage again. They see how reticent the United States is to do anything in Syria. Veteran America-watchers complain that neither the White House nor the State Department has a Middle East hand with real clout focusing full-time on the region.

And it’s hard to deny: Many in the United States, not just inside the Obama administration, seem to think American policy needs to be “rebalanced.” The strategic importance of the Middle East is declining, they argue, as the United States grows independent of the region’s oil supply. Obama does little to push back against a growing public perception that there is nothing but trouble for the United States brewing in the Middle East.

When the Arab revolutions first erupted, the Obama White House promised to focus great attention and resources on these world-transforming events. That enthusiasm faded long ago. The administration used to trumpet its success in Libya. But lack of attention and follow-through has damaged even that once-bright spot. The Obama campaign boasted about getting U.S. troops out of Iraq. Beyond that, however, administration officials have little to say about one of the most important nations in the Middle East, still engaged in a historic struggle for democratic change.

The irony, of course, is that every time the Obama administration tries to turn toward Asia, the Middle East drags it back — literally, in the case of Secretary of State Hillary Clinton. It’s an illusion to think we will not continue to be drawn into Middle East affairs. The world is no longer neatly divided by distinct regions, if it ever was. Events in the Middle East affect the world, just as events in Asia do. Wherever the United States gets its oil, global energy prices are affected by whether oil flows freely from the Middle East, and U.S. allies in Europe and Asia still depend on that as a main source. If Iran acquires a nuclear weapon, it will affect not just the Middle East but the global non-proliferation regime. The success or failure of the experiment to marry Islamism and democracy that is playing out in Egypt, Tunisia and elsewhere will affect politics across the Islamic world, from Morocco to Pakistan to Southeast Asia as well as in Europe. And if Syria collapses, the chances are high that well-armed terrorist groups will gain a foothold in a nation with the world’s largest chemical weapons stockpiles.

The present world order is seamless, and so is the global strategy necessary to sustain it. As one prominent statesman expressed the general puzzlement here, “Can’t the United States walk and chew gum at the same time?” For decades the United States has been able to provide security and remain engaged in three major theaters at once: Europe, Asia and the Middle East. Today those theaters are more interconnected, economically and strategically, than ever.

So let’s by all means give Asia the attention it deserves. But the world won’t afford us the luxury of downgrading the importance of the other two regions. That’s what it means to be a global superpower: We can pivot, but we can’t leave.

I agree with Robert Kagan that: "The present world order is seamless, and so is the global strategy necessary to sustain it."

The Asian pivot threatens to:

1. Persuade the Chinese that America intends to encircle and contain it. In my opinion neither is the case, for this administration, anyway; but either would be a serious strategic blunder unless and until the USA is willing and able to go to war with China; and

2. Weaken American influence elsewhere without a concomitant strengthening of America's influence in Asia.
 
To illustrate what wrong with the implementation of the the Asian pivot strategy:

1. China almost got what it wanted ("back burner" treatement) last week at the ASEAN meeting; but

2. It, China, settled for less (public disunity), but only because of ASEAN internal disagreements, not as a result of any US influence; and

3. Now the Philippines, a not inconsequential Asian power, has called a separate meeting (with Brunei, Malaysia and Vietnam) to deal with China's island claims without US (or ASEAN) involvement.

It looks to me as though some Asians are less than convinced that the US "here to stay": or, for that matter, even "here."
 
I hate to keep banging on about this, but Reuters reports, datelined Phnom Penh, 1 Nov 12, that:

"When U.S. President Barack Obama and more than a dozen leaders arrived in Cambodia for a regional summit meeting this week, only one of them was feted with banners strung from the venue gates.

"Welcome Prime Minister Wen Jiabao!" one proclaimed. "Long live the People's Republic of China!" read another.

As the leaders left, the green-and-white banners were still festooned outside Phnom Penh's Peace Palace, a fitting reminder of China's powerful and growing clout as Beijing uses its influence - and money - to win friends and frustrate those uneasy about its sweeping territorial claims and rising military strength."

I guess the Asian pivot needs more money and military strength, both of which are in short supply in Washington, to win in East Asia.
 
A sort of string from Instapundit earlier today. The US economy is facing huge hurdles and the looming "fiscal cliff" is just one of them. On economic threads I have pointed out the importance of incentives, since this Administration is viciously disincentivizing wealth creation we will see sluggish growth and massively expanded debt for years to come:

http://pjmedia.com/instapundit/

A READER EMAILS:

    I have noticed a theme running through a lot of your posts. From tax policy, to health care, to federal criminal laws, it is a constantly changing landscape that is impossible for companies and individuals to navigate. I am working with a company that is looking to start a whole new business program in the healthcare field, but they were holding off until after the election because of all the changes that will of course occur regardless of who won. Now they aren’t even sure if they will proceed with it.

    Politicians will talk about helping American manufacturers, small businesses, etc. But instead they constantly change the rules of the game to “help” (of course it only seems to help big contributors who can navigate the rules or get special waivers). Businesses can handle all sorts of challenges, but they need to know that the time, money and effort they put in wont be undermined by a constantly changing rule book. Why would I sacrifice and risk if some politician is going to decide some day that I was too successful and take what I earned, or some competitor will pay enough to get an unfair advantage bestowed upon them by a politician.

    At this point, most of the business people I know are truly disgusted with politicians from both parties. They go around making policies, rules and laws as if this is some game. This is my business, my family and my life, and it is constantly under attack by an army of bureaucrats.

Yes, it’s important to have good policies, but it’s also important — perhaps more important — to have stable ones. When things are constantly changing, the problem is called “regime uncertainty.” It can be quite destructive, especially if you want innovation and investment.

The problem is, stable policies offer fewer opportunities for graft and electioneering.

UPDATE: Reader Janet Shagam writes:

    The email reminded me of this bit from Federalist No. 62 – “It will be of little avail to the people, that the laws are made by men of their own choice, if the laws be so voluminous that they cannot be read, or so incoherent that they cannot be understood; if they be repealed or revised before they are promulgated, or undergo such incessant changes that no man, who knows what the law is today, can guess what it will be tomorrow.”

Indeed.

Posted at 2:30 pm by Glenn Reynolds 

SO YESTERDAY’S DISCUSSION OF MARGINAL TAX RATES raises a thought: In today’s freelance economy, will the impact of marginal rates on how hard people work be greater than in the past? I mean, if you have an old-fashioned full-time “job” paying X-dollars a year, you can’t easily cut back and lower your income. But if you’re a freelancer of some kind, it’s easy to say that once you’re paying 50% (or 40%) tax on your income you’d rather cut back and substitute more leisure time. With more people earning their living that way, and fewer in full-time jobs, I assume we’ll see a lot more of that than we would have, say, 20 or 30 years ago.

UPDATE: A reader emails:

    With regard to your last comment on marginal tax rates, I really think that the Collins (the chiropractors mentioned in the articles lambasted on HuffPo, Slate and Mother Jones) are getting a very raw deal. There is no reason to suspect that they don’t know how marginal rates work. Given that they’re pretty much fee-for-service workers, the main way that they’ll make more money is to see more patients. If they see more patients, they have less leisure time. Hence, once they hit the higher bracket, every marginal patient is less profit to them, and the option of going on vacation is more attractive.

    Weigel, Drum and Linkins all assume that the Collins don’t understand marginal tax rates because every patient brings in addition profit, simply not as much–the embedded assumption being that expansion is great marginal revenue is greater than zero. They don’t seem to understand that every hour worked (and thus taken from leisure) has an opportunity cost (and, indeed, a rising marginal cost). The Collins seem to have a perfectly good grasp of economics, and the journalists appear both clueless and, worse, cruel.

    Of course, what’s odd is that they all make the same mistake.

Groupthink abounds. But yes, the more you work, the greater the value of your remaining leisure time. Set that against a declining return on additional hours worked, and it’s easy to see why people might stop working sooner than purely profit-oriented models suggest.

And another reader emails:

    Please keep me anonymous if you use this.

    I work in commission sales. I’ve earned a very nice income right below that $250K “threshold”. I’ve spent all of 2011 and 2012 in downsizing my expenses, paying off all debts, and conversing with my wife about how to best enjoy our now empty-nest status. A big part of our consideration is how much various taxing entities will be taking a piece of my hard-earned dollars. As a result, we will significantly reduce my income in 2013 so that I have a LOT more time to enjoy life. We’ll be very comfortable and my employer is very comfortable with me since I’m dependable and will reach my production goals that we’ve mutually agreed to. Could I earn a lot more? Yes. But I won’t because I don’t need to send any more dollars to Washington DC.

And reader Paul Stueck emails:

    If I am the marginal consultant, the answer is yes.

    My plan is to either raise my rates, so that there is less demand for my services (resulting in more leisure time between assignments), and\or to not take overlapping contracts as I’ve done previously.

    (This from someone who worked from 3:00 AM to 11:30 PM to help out a client on Thanksgiving…)

I think we’ll see a lot more of this than many anticipate.

UPDATE: Reader Roger Bogh writes:

    Regarding your discussion on the effect of increasing marginal tax rates on a consultant economy (http://pjmedia.com/instapundit/158226/) I have a point to be made on we salaried slugs. Namely, that many of us have spent the last four or five years getting out of debt and increasing cash flow. I was going to enjoy my new financial clout and freedom. Now I have to assume that various government entities will be grabbing at my new found assets. What is one to do? Well, I am number crunching the various tax increases I am about to be challenged by. My goal is to absolutely Zero Out those tax increases by increasing my 401(k) contributions, increasing my Health Flexible Savings Account, donating more to charity, and grinding on all of my potential deductions.

    The end result is that I will have a backup Winnebago and a boat in my golden years. Maybe I’ll hire a couple of drivers for my Winnebagos rather than a boat and captain. I really don’t want all that stuff in my golden years but you have to do what you have to do.

    Right now, I have mathed out the increase in my 401(k) required to zero out Kalefornea’s Proposition 30 and Proposition Z. Since I am not in the upper crust I am only going to have to zero out $150. I will time that for my first paycheck in January. The bummer is that zeroing out Governor Moonbeam’s tax increase will result in the Feds taking a cut in their revenue. Hope our Economic Black Swan President doesn’t let us fall of the cliff. If he does Kalefornea will wonder where all their money went.

    Bring it on. If nobody on Capitol Hill will starve the beast I will…

Funny, I’m now reading James Scott’s new book, and he says (on page 14):

    One need not have an actual conspiracy to achieve the practical effects of a conspiracy. More regimes have been brought, piecemeal, to their knees by what was once called “Irish Democracy,” the silent, dogged resistance, withdrawal, and truculence of millions of ordinary people, than by revolutionary vanguards or rioting mobs.

This response seems to me to be something like that — with the added aspect that it is actually encouraged by the regime’s own policy approaches.

The two takeaways are the constant "churning" of regulations and laws is replicating the conditions that caused the Capital Strike of 1937-38 (the single worst year of the Great Depression) and that people are making plans to "go Galt" without any sort of coordination. The Administration and the Blue States might believe they are under some sort of coordinated economic attack, but none exist. They will try to impliment new rules and taxes to "boost the economy", but only push more people past the threshold where they will "go Galt", setting up a new cycle until the system implodes. The end result will not be pretty.
 
It seems that the rest of the world can recognize that the US is currently not a serious player, and the TPP has been sidelined by a much larger, "all Asian" trading partnership group. This may also have some consequences for us (and probably not good ones). Lots of charts in the article, follow link:

http://www.atimes.com/atimes/Global_Economy/NK27Dj02.html

Post-US world born in Phnom Penh
By Spengler

It is symptomatic of the national condition of the United States that the worst humiliation ever suffered by it as a nation, and by a US president personally, passed almost without comment last week. I refer to the November 20 announcement at a summit meeting in Phnom Penh that 15 Asian nations, comprising half the world's population, would form a Regional Comprehensive Economic Partnership excluding the United States.

President Barack Obama attended the summit to sell a US-based Trans-Pacific Partnership excluding China. He didn't. The American led-partnership became a party to which no-one came.

Instead, the Association of Southeast Asian Nations, plus China, India, Japan, South Korea, Australia and New Zealand, will form a club and leave out the United States. As 3 billion Asians become prosperous, interest fades in the prospective contribution of 300 million Americans - especially when those Americans decline to take risks on new technologies. America's great economic strength, namely its capacity to innovate, exists mainly in memory four years after the 2008 economic crisis.

A minor issue in the election campaign, the Trans-Pacific Partnership initiative was the object of enormous hype on the policy circuit. Salon.com enthused on October 23,

    This agreement is a core part of the "Asia pivot" that has occupied the activities of think tanks and policymakers in Washington but remained hidden by the tinsel and confetti of the election. But more than any other policy, the trends the TPP represents could restructure American foreign relations, and potentially the economy itself.

As it happened, this grand, game-changing vision mattered only to the sad, strange people who concoct policy in the bowels of the Obama administration. America's relative importance is fading.

To put these matters in context: the exports of Asian countries have risen more than 20% from their peak before the 2008 economic crisis, while Europe's exports have fallen by more than 20%. American exports have risen marginally (by about 4%) from their pre-2008 peak.

Exhibit 1: Asian, European and US exports


China's exports to Asia, meanwhile, have jumped 50% since their pre-crisis peak, while exports to the United States have risen by about 15%. At US$90 billion, Chinese exports to Asia are three times the country's exports to the United States.

After months and dire (and entirely wrong) predictions that China's economy faces a hard landing, it is evident that China will have no hard landing, nor indeed any landing at all. Domestic consumption as well as exports to Asia are both running nearly 20% ahead of last year's levels, compensating for weakness in certain export markets and the construction sector. Exports to the moribund American economy are stagnant.

Exhibit 2: China's exports to Asia vs USA

Source: Bloomberg

In 2002, China imported five times as much from Asia as it did from the United States. Now it imports 10 times as much from Asia as from the US.

Exhibit 3: Chinese imports from the US and Asia

Source: Bloomberg

Following the trade patterns, Asian currencies began trading more closely with China's renminbi than with the American dollar. Arvind Subramanian and Martin Kessler wrote in an October 2012 study for the Peterson Institute:

    A country's rise to economic dominance tends to be accompanied by its currency becoming a reference point, with other currencies tracking it implicitly or explicitly. For a sample comprising emerging market economies, we show that in the last two years, the renminbi (RMB/yuan) has increasingly become a reference currency which we define as one which exhibits a high degree of co-movement (CMC) with other currencies.

    In East Asia, there is already a RMB bloc, because the RMB has become the dominant reference currency, eclipsing the dollar, which is a historic development. In this region, 7 currencies out of 10 co-move more closely with the RMB than with the dollar, with the average value of the CMC relative to the RMB being 40% greater than that for the dollar. We find that co-movements with a reference currency, especially for the RMB, are associated with trade integration.

    We draw some lessons for the prospects for the RMB bloc to move beyond Asia based on a comparison of the RMB's situation today and that of the Japanese yen in the early 1990s. If trade were the sole driver, a more global RMB bloc could emerge by the mid-2030s but complementary reforms of the financial and external sector could considerably expedite the process.

All of this is well known and exhaustively discussed. The question is what, if anything, the United States will do about it.

Where does the United States have a competitive advantage? Apart from commercial aircraft, power-generating equipment, and agriculture, it has few areas of real industrial pre-eminence. Cheap natural gas helps low-value-added industries such as fertilizer, but the US is lagging in the industrial space.

Four years ago, when Francesco Sisci and I proposed a Sino-American monetary agreement as an anchor for trade integration, the US still dominated the nuclear power plant industry. With the sale of the Westinghouse nuclear power business to Toshiba, and Toshiba's joint ventures with China to build power plants locally, that advantage has evaporated.

The problem is that Americans have stopped investing in the sort of high-tech, high-value-added industries that produce the manufactures that Asia requires. Manufacturers' capital goods orders are 38% below the 1999 peak after taking inflation into account. And venture capital allocations for high-tech manufacturing have dried up.

Exhibit 4: Venture capital allocations for export-related industries collapse
(March 2003=100)

Source: National Venture Capital Association

Exhibit 5: US capital goods orders nearly 40% below 1999 peak in real terms

Source: Bureau of Economic Analysis

Without innovation and investment, all the trade agreements that the Washington policy circuit can devise won't help. Neither, it should be added, will an adjustment in exchange rates.

It is hard to fathom just what President Obama had in mind when he arrived in Asia bearing a Trans-Pacific Partnership designed to keep China out. What does the United States have to offer Asians?

It is borrowing $600 billion a year from the rest of the world to finance a $1.2 trillion government debt, most prominently from Japan (China has been a net seller of Treasury securities during the past year).
It is a taker of capital rather than a provider of capital.

It is a major import market but rapidly diminishing in relative importance as intra-Asian trade expands far more rapidly than trade with the United States.

And America's strength as an innovator and incubator of entrepreneurs has diminished drastically since the 2008 crisis, no thanks to the Obama administration, which imposed a steep task on start-up businesses in the form of its healthcare program.

Washington might want to pivot towards Asia. At Phnom Penh, though, Asian leaders in effect invited Obama to pivot the full 360 degrees and go home.

Spengler is channeled by David P Goldman. His book How Civilizations Die (and why Islam is Dying, Too) was published by Regnery Press in September 2011. A volume of his essays on culture, religion and economics, It's Not the End of the World - It's Just the End of You, also appeared last fall, from Van Praag Press.
 
In this column reproduced from The National Review Online under the Fair Dealing provision of the Copyright Act Mark Steyn makes the point, which should be obvious to policy makers and the people in the street alike, that the Americans voted for a European-type welfare state but are not willing to pay for it.

Kindly Note the Impending Bankruptcy
You can’t have American-sized taxes and European-sized government.
By Mark Steyn


Previously on The Perils of Pauline:

Last year, our plucky heroine, the wholesome apple-cheeked American republic, was trapped in an express elevator hurtling out of control toward the debt ceiling. Would she crash into it? Or would she make some miraculous escape?

Yes! At the very last minute of her white-knuckle thrill ride to her rendezvous with destiny, she was rescued by Congress’s decision to set up . . . a Super Committee! Those who can, do. Those who can’t, form a committee. Those who really can’t, form a Super Committee — and then put John Kerry on it for good measure. The bipartisan Super Committee of Super Friends was supposed to find $1.2 trillion dollars of deficit reduction by last Thanksgiving, or plucky little America would wind up trussed like a turkey and carved up by “automatic sequestration.”

Sequestration sounds like castration, only more so: It would chop off everything in sight. It would be so savage in its dismemberment of poor helpless America that the Congressional Budget Office estimates that over the course of a decade the sequestration cuts would reduce the federal debt by $153 billion. Sorry, I meant to put on my Dr. Evil voice for that: ONE HUNDRED AND FIFTY THREE BILLION DOLLARS!!! Which is about what the United States government currently borrows every month. No sane person could willingly countenance brutally saving a month’s worth of debt over the course of a decade.

So now we have the latest cliffhanger: the Fiscal Cliff, below which lies a bottomless abyss of sequestration, tax-cut-extension expiries, Alternative Minimum Tax adjustments, new Obamacare taxes, the expiry of the deferment of the Medicare Sustainable Growth Rate, as well as the expiry of the deferment of the implementation of the adjustment of the correction of the extension of the reduction to the proposed increase of the Alternative Minimum Growth Sustainability Reduction Rate. They don’t call it a yawning chasm for nothing.

As America hangs by its fingernails wiggling its toesies over the vertiginous plummet to oblivion, what can save her now? An Even More Super Committee? A bipartisan agreement in which Republicans agree to cave and Democrats agree not to laugh at them too much? That could be just the kind of farsighted reach-across-the-aisle compromise that rescues the nation until next week’s thrill-packed episode when America’s strapped into the driver’s seat of a runaway Chevy Volt careering round the hairpin bends on full charge, or trapped in an abandoned subdivision overrun by foreclosure zombies.

I suppose it’s possible to take this recurring melodrama seriously, but there’s no reason to. The problem facing the United States government is that it spends over a trillion dollars a year that it doesn’t have. If you want to make that number go away, you need either to reduce spending or to increase revenue. With the best will in the world, you can’t interpret the election result as a spectacular victory for less spending. Indeed, if nothing else, the unfortunate events of November 6 should have performed the useful task of disabusing us poor conservatives that America is any kind of “center-right nation.” A few months ago, I dined with a (pardon my English) French intellectual who, apropos Mitt Romney’s stump-speech warnings that we were on a one-way ticket to Continental-sized dependency, chortled to me, “Americans love Big Government as much as Europeans. The only difference is that Americans refuse to admit it.”

My Gallic charmer is on to something. According to the most recent (2009) OECD statistics: government expenditures per person in France, $18,866.00; in the United States, $19,266.00. That’s adjusted for purchasing-power parity, and yes, no comparison is perfect, but did you ever think the difference between America and the cheese-eating surrender monkeys would come down to quibbling over the fine print? In that sense, the federal debt might be better understood as an American Self-Delusion Index, measuring the ever widening gap between the national mythology (a republic of limited government and self-reliant citizens) and the reality (a 21st-century cradle-to-grave nanny state in which, as the Democrats’ convention boasted, “government is the only thing we do together”).

Generally speaking, functioning societies make good-faith efforts to raise what they spend, subject to fluctuations in economic fortune: Government spending in Australia is 33.1 percent of GDP, and tax revenues are 27.1 percent. Likewise, government spending in Norway is 46.4 percent and revenues are 41 percent — a shortfall but in the ballpark. Government spending in the United States is 42.2 percent, but revenues are 24 percent — the widest spending/taxing gulf in any major economy.

So all the agonizing over our annual trillion-plus deficits overlooks the obvious solution: Given that we’re spending like Norwegians, why don’t we just pay Norwegian tax rates?

No danger of that. If (in Milton Himmelfarb’s famous formulation) Jews earn like Episcopalians but vote like Puerto Ricans, Americans are taxed like Puerto Ricans but vote like Scandinavians. We already have a more severely redistributive taxation system than Europe in which the wealthiest 20 percent of Americans pay 70 percent of income tax while the poorest 20 percent shoulder just three-fifths of one percent. By comparison, the Norwegian tax burden is relatively equitably distributed. Yet Obama now wishes “the rich” to pay their “fair share” — presumably 80 or 90 percent. After all, as Warren Buffett pointed out in the New York Times this week, the Forbes 400 richest Americans have a combined wealth of $1.7 trillion. That sounds a lot, and once upon a time it was. But today, if you confiscated every penny the Forbes 400 have, it would be enough to cover just over one year’s federal deficit. And after that you’re back to square one. It’s not that “the rich” aren’t paying their “fair share,” it’s that America isn’t. A majority of the electorate has voted itself a size of government it’s not willing to pay for.

A couple of years back, Andrew Biggs of the American Enterprise Institute calculated that, if Washington were to increase every single tax by 30 percent, it would be enough to balance the books — in 25 years. If you were to raise taxes by 50 percent, it would be enough to fund our entitlement liabilities — just our current ones, not our future liabilities, which would require further increases. This is the scale of course correction needed.

If you don’t want that, you need to cut spending — like Harry Reid’s been doing. “Now remember, we’ve already done more than a billion dollars’ worth of cuts,” he bragged the other day. “So we need to get some credit for that.”

Wow! A billion dollars’ worth of cuts! Washington borrows $188 million every hour. So, if Reid took over five hours to negotiate those “cuts,” it was a complete waste of time. So are most of the “plans.” Any “debt-reduction plan” that doesn’t address at least $1.3 trillion a year is, in fact, a debt-increase plan.

So given that the ruling party will not permit spending cuts, what should Republicans do? If I were John Boehner, I’d say: “Clearly there’s no mandate for small government in the election results. So, if you milquetoast pantywaist sad-sack excuses for the sorriest bunch of so-called Americans who ever lived want to vote for Swede-sized statism, it’s time to pony up.”

Okay, he might want to focus-group it first. But that fundamental dishonesty is the heart of the crisis. You cannot simultaneously enjoy American-sized taxes and European-sized government. One or the other has to go.
 
Susan Rice under fire from the left.

http://thehill.com/blogs/global-affairs/un-treaties/270293-liberal-group-launches-petition-blasting-susan-rices-outrageous-keystone-investments
 
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