What Confuses Men

January 8, 2012

The American

Pat Moynihan once encountered Nixon in the hall of the White House and said ‘Mr. president, James Q. Wilson is the smartest man in the United States. The President of the United States should pay attention to what he has to say.’

Editor’s note:  These remarks were delivered at the American Enterprise Institute’s recent chairman’s dinner in Washington D.C. AEI President Arthur Brooks, AEI scholar Charles Murray, and Washington Post columnist George Will spoke in recognition of James Q. Wilson.

Arthur Brooks: Since 1938, AEI has had the motto that the competition of ideas is fundamental to a free society. There are very few individuals that have been central to the competition of ideas in America—truly a man of ideas—as the one we’re honoring here tonight. One of the nation’s leading public intellectuals, an AEI trustee, the chairman of the council of AEI’s academic advisors, and a great American patriot: James Q. Wilson.

Jim is a man who casts a long intellectual shadow. In the estimation of one of our dinner speakers tonight, George Will, to be a political commentator in James Q. Wilson’s era is to know how Mel Torme must have felt being a singer in Frank Sinatra’s era. We’re all competing for the silver medal; Wilson has won the gold. We’re going to hear tonight and celebrate the contributions to the intellectual world from our gold medal winner.

A consummate social scientist, Jim has offered insights on issues of central concern to all of us as Americans. For decades, he has analyzed the change in the political and cultural landscape of our nation with complete clarity and with unfailing honesty. He’s brought his wisdom to bear on all facets of American government and society, and he’s done so with passion, conviction, principle, and unfailing love of his country.

Jim is the author of more than a dozen books. One reviewer has described his 1993 seminal book The Moral Sense as “the most significant reflection on this matter since Adam Smith’s Theory of Moral Sentiments.” Book reviews just don’t get better than that. He’s had an enormously distinguished academic career. Currently, he’s a professor at Boston College’s Department of Political Science, but before that he has served as the Ronald Reagan Professor of Public Policy at Pepperdine, the James Collins Professor of Management at UCLA, and the Shattuck Professor of Government at Harvard.

He was awarded the Presidential Medal of Freedom by George W. Bush, the Bradley Prize from the Bradley Foundation, and a lifetime achievement award by the American Political Science Association. Jim has been an intellectual hero and mentor to me and to many people of AEI for many years. At one point in my academic career, I was citing Jim so much that my colleagues said I should change my name to Arthur Q. Brooks.

I met Jim because he sat in on my Ph.D. dissertation defense lo these many years ago. Several years after that, I got an email from Jim. He knew that I was doing work on charitable giving at that time. I was an untenured assistant professor, and he asked me a research question about charitable giving, saying that he was thinking of writing a book on the subject.

I took the opportunity to send the great man an outline of a book that I was working on, on charitable giving. It was a pretty audacious thing to do, but I did it anyway. Quickly, within a few minutes, I got an email back from him saying, “I enjoyed your outline. I don’t think I need to write my book now, but I’d be delighted to help you with yours.” He carefully reviewed each one of the chapters in that book. He wrote the book’s foreword. He made the book immeasurably better, and that project quite literally changed the trajectory of my career. That’s a little bit of insight into the man and to the character of the man. A giant intellect with the convictions of a patriot and with a servant’s heart, that’s why he’s a hero to so many of us in this room tonight.

The Board of Trustees of AEI has decided unanimously to honor Jim by establishing a chair in his name—the James Q. Wilson Chair in American Politics and Culture. In 2012, we’ll raise the funds for the chair, which will support the research and writing of a senior AEI scholar. The occupant of this chair will be somebody who shares Jim’s commitment to the highest standards of empirical research as well as his abiding passion for human freedom.

The new chair at AEI will further enshrine the contribution of this preeminent thinker—a man of ideas who has done so much to help the rest of us to truly understand America. Now, to help us understand James Q. Wilson a little bit more, we’re going to hear from two men who know his work very well and to whom I’m going to turn over the podium, George Will and Charles Murray. Let’s start with George Will.

George Will: On January 9, 1969, 11 days before Richard Nixon became president, he received a memo from Pat Moynihan, who was about to go to Washington to be his domestic policy adviser. The memo advised the president that the disintegration of “private sub-systems of authority” might presage the—and I quote Moynihan again—“the ultimate destructive working out of the telos of the liberal thought.” I cherished in my mind’s eye the picture of Nixon holding that memo with John Ehrlichman to one side and H.R. Haldeman to the other and John Mitchell peering over his shoulder, the pre-presidential brow furrowed worrying about the telos of the liberal idea.

In spite of that memo, not because of it, Moynihan did indeed go to Washington, where he became somewhat dismayed at the Republican resistance to engagement with the American intelligentsia, until in his exasperation one day he encountered Nixon in the hall of the White House and said, “Mr. president, James Q. Wilson is the smartest man in the United States. The president of the United States should pay attention to what he has to say.”

Nixon did. Not enough, the Lord knows, but he did pay some attention. James Q. Wilson’s name became sufficiently well-known to the Nixon reelection campaign that they solicited Jim’s name to be included on an ad—Democrats, I believe, for Nixon. I may be wrong; I take this from Moynihan’s letters. At this point, Jim Wilson was being considered for membership on a presidential commission on drug abuse, which he cared much about, and the president cared much about, and he wanted to have this.

But Jim said to this Nixon campaign apparatchik, he says, well, I might allow my name to be on that. In which case, of course, you would have to withdraw my name as a nominee to the drug panel and not consider me for any other position lest it seemed that my name is for sale. It was a kind of nicety not normally seen in Washington and probably unexpected on the part of the Nixon people, who were that not used to dealing with professors.

In 1976, on the night that Pat Moynihan won the primary—the Democratic primary—narrowly beating Bella Abzug by 10,000 votes for the right to run against the sainted Jim Buckley, over at Jim Buckley’s headquarters when he accepted the Republican nomination, he says, I look forward to running against Professor Moynihan. I’m sure that Professor Moynihan will conduct a kind of high level campaign we can expect of a Harvard professor.

Back over at Moynihan’s headquarters they said, “Pat, Jim Buckley is referring to you as Professor Moynihan.” Pat drew himself up to his considerable height and said, “Oh, the mudslinging has begun.”…

Read it all

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Der Spiegel:

Countries around the world, particularly in the West, are hopelessly in the red, with debt rising every day. Even worse, politicians seem paralyzed, unable — or unwilling — to do anything about it. It is a global disaster that threatens the immediate future. But there might be a way out.

When Carlo Ponzi, a dishwasher from Parma, Italy, immigrated to the United States in 1903, he had $2.50 in his pocket and a million-dollar dream in his head. He was able to fulfill that dream, at least temporarily.

Ponzi promised people that he would multiply their money in a miraculous way: by 50 percent in six weeks. With his carefully parted hair and charming accent, Ponzi beguiled investors and fueled their avarice. The first investors raked in fantastic returns. What they didn’t know was that Ponzi was simply using the next investors’ money to pay them their profits.

The scheme continued. Ten investors turned into 100, and 100 investors turned into 1,000, until the scam was discovered. Ponzi spent many years in prison, and he died a pauper in 1949. But his name remains important to every criminologist today — and every economist.

Economists use the term “Ponzi scheme” to describe a disastrous mechanism in which someone pays off old debt by constantly taking on new debt. The repayment of the debt — the most recent loans, plus interest — is deferred into the distant future, fueling an eternal process of debt refinancing.

It’s the classic pyramid, or snowball scheme, practiced by thousands of con artists after Ponzi. The most spectacular case was that of New York financier Bernard Madoff, who was responsible for losses of about $20 billion by 2008. Snowballs are set into motion, becoming bigger and bigger as they roll along. In the worst case, they end in an avalanche that takes everything else with it.

Western economies have not acted much differently than the fraudster Madoff. In 2011, they were virtually inundated with bad news and old sins. Almost everyone — in Europe and in the United States — has been living beyond their means, from consumers to politicians to entire countries. Governments have become servants to the markets upon which they have become dependent.

Bigger Snowballs

On an almost weekly basis, the reports have become more worrisome and the sums of money involved more staggering. Many are now concerned that, as 2012 begins, the snowballs will only get bigger — and roll faster:

  • There are the banks in Europe, which will have to repay about €725 billion in combined debt in 2012, including €280 billion in the first quarter alone. With the private market largely off-limits to them, the banks have had to rely on the European Central Bank (ECB) to bail them out. The ECB is now lending them fresh money — as much as they want — at minimal interest rates.
  • There is a country like Italy, which has an exorbitant amount of debt to service at the beginning of the year. About €160 billion in debt will mature between January and April; the total for the entire year is about €300 billion. The government in Rome is already having trouble finding buyers for its bonds.
  • There is the ECB, which is creating billions essentially out of nothing. On an almost weekly basis, it is acquiring bonds that no one else would buy from Portugal, Spain and Italy and, in the process, it is turning into a reluctant financier of nations. This financial aid already amounts to €211 billion.
  • There is the European Commission, whose president, José Manuel Barroso, supports the use of so-called euro bonds. These bonds, which would be issued jointly by the countries in the monetary union, would amount to an accumulation of collective debt on top of national debts.
  • There is the €440-billion euro bailout fund, of which €150 billion are already promised to Greece, Ireland and Portugal. But because this amount is still not enough, the finance ministers have decided to “leverage” the fund, a seemingly harmless term for bringing in additional lenders, thereby multiplying the volume of credit.
  • And then there is the United States, which only remains solvent because the Congress in Washington keeps raising the debt ceiling. The American government already owes its creditors about $15 trillion. Stay tuned for the next installment.
  • There are the banks in Europe, which will have to repay about €725 billion in combined debt in 2012, including €280 billion in the first quarter alone. With the private market largely off-limits to them, the banks have had to rely on the European Central Bank (ECB) to bail them out. The ECB is now lending them fresh money — as much as they want — at minimal interest rates.
  • There is a country like Italy, which has an exorbitant amount of debt to service at the beginning of the year. About €160 billion in debt will mature between January and April; the total for the entire year is about €300 billion. The government in Rome is already having trouble finding buyers for its bonds.
  • There is the ECB, which is creating billions essentially out of nothing. On an almost weekly basis, it is acquiring bonds that no one else would buy from Portugal, Spain and Italy and, in the process, it is turning into a reluctant financier of nations. This financial aid already amounts to €211 billion.
  • There is the European Commission, whose president, José Manuel Barroso, supports the use of so-called euro bonds. These bonds, which would be issued jointly by the countries in the monetary union, would amount to an accumulation of collective debt on top of national debts.
  • There is the €440-billion euro bailout fund, of which €150 billion are already promised to Greece, Ireland and Portugal. But because this amount is still not enough, the finance ministers have decided to “leverage” the fund, a seemingly harmless term for bringing in additional lenders, thereby multiplying the volume of credit.
  • And then there is the United States, which only remains solvent because the Congress in Washington keeps raising the debt ceiling. The American government already owes its creditors about $15 trillion. Stay tuned for the next installment.

In other words, there are plenty of snowballs that have started rolling and getting larger with each rotation. Some aspects of the economic system in the industrialized countries resemble a gigantic Ponzi scheme. The difference is that this version is completely legal.

Living on Credit

Old debts are paid with new ones, with borrowers giving not the slightest thought to repayment. This has been going on for a long time, far too long, in fact. It was only with the eruption of the financial crisis in 2007 and the outrageously expensive bailouts of banks and economies that many people realized that the entire world is living on credit.

“Debt is rising to points that are above anything we have seen, except during major wars,” economists at the Bank for International Settlements (BIS) concluded in a recent study. “The debt problems facing advanced economies are even worse than we thought.”

This is even true of seemingly rock-solid Germany. In the third quarter of 2011, German public debt amounted to €2.028 trillion, an increase of €10.8 billion over the debt level just three months earlier. Germany’s public debt grew by about €120 million a day — or more than €80,000 a minute — between July and September.

To make matters worse, this increase occurred in a quarter marked by plentiful tax revenues and a significant decline in unemployment. But debts increase independently of whether times happen to be good or bad.

The End of the System

The same thing is happening almost everywhere. In the first decade of this century, which was by no means a weak period economically, countries more than doubled the level of debt — to an estimated grand total of $55 trillion by the end of 2011.

The United States leads the pack with its national debt of $15 trillion, followed by Japan with about $13 trillion. Germany’s €2 trillion looks almost paltry by comparison. Today, the three major rating agencies award their highest credit rating to only 14 countries in the world.

The fact that nations are continually spending more than they take in cannot turn out well in the long run. The word “credit” comes from the Latin “credere,” which means “to believe.” The system will only function as long as lenders believe in borrowers. Once the belief in the creditworthiness of borrowers is destroyed, hardly anyone will be willing to buy their securities.

When that happens, the system is finished.

This is precisely what happened with Carlo Ponzi’s scheme. And now entire countries are suffering suspiciously similar fates. They are no longer being taken seriously.

Greece is effectively insolvent. Italy and Spain are forced to offer higher interest rates to find buyers for their government bonds. And France threatens to lose its impeccable credit rating. The debt crisis has arrived in the heart of Europe.

Meanwhile, it is also flaring up in the United States once again, with Democrats and Republicans blaming each other for the nation’s debts. Instead of taking responsibility and consolidating the budget, President Barack Obama prefers to rail against the Europeans’ approach to crisis management. They, in turn, refuse to tolerate any interference, especially from the United States, which they blame for being the source of the financial crisis in the first place.

In this fashion, the Old World and the New World are tossing the blame back and forth, while confidence in politics and its ability to avert collapse is dwindling on both sides of the Atlantic. Is there still a way to stop the avalanche, or at least to diminish is destructive force? Why do countries that collect taxes have to borrow money in the first place?…

Read it all.

Foreign Policy:

A recent 10-day training exercise conducted by Iran’s Navy included a test of an upgraded anti-ship cruise missile, presumably designed to counter the regular presence of U.S. 5th Fleet warships nearby. Before the Iranian exercise began, the USS John C. Stennis aircraft carrier strike group sailed from the Persian Gulf to the Arabian Sea. The carrier received some parting advice from Gen. Ataollah Salehi, the commander of Iran’s armed forces. “We warn this ship, which is considered a threat to us, not to come back, and we do not repeat our words twice,” Salehi said.

It would be difficult to find a credible naval analyst who thought that a clash between the Iranian Navy and the U.S. 5th Fleet would turn out well for Iran. But Tehran has apparently doubled down on Salehi’s warning; the Iranian parliament is now considering a bill that would prohibit foreign warships from entering the Persian Gulf without prior permission from the Iranian government. This would violate long-standing international maritime law.

In contrast to its occasional all-thumbs response to irregular warfare situations, a conventional naval battle around the Strait of Hormuz would play to the U.S. military’s strongest suit. American advantages in sensors, targeting, command and control, precision weapons, electronic warfare, training, and many other dimensions would quickly crush Iran’s air and naval forces. Iran would also be unlikely to derive any political or diplomatic benefit from sparking a clash in the strait. Even competitors like China would expect the United States to fulfill its role as protector of the global commons (at least in the Strait of Hormuz). Iran would be seen as violating international maritime law. And the more the shooting accelerated, the more Iran would suffer. This is the definition of “escalation dominance,” which would favor the United States as fighting intensified (and might therefore give the United States an incentive to escalate an outbreak of combat). Salehi and his officers must surely understand this.

So what is Iran up to? The looming imposition of U.S. sanctions on Iran’s Central Bank and by Europe and perhaps Japan and South Korea on Iranian oil exports might force Iran to have to sell its oil to its few remaining customers at a discount from market prices. To make up for this lost revenue, Iran might find saber rattling a useful way of boosting crude oil prices. Whether Iran can sustain such a risk premium without actual shooting occurring at some point remains in doubt.

We might see Iran resorting to its own strong suit: covert action and irregular warfare. Tehran’s goal would be to impose economic and political pain on the United States, Europe, China, and other oil importers and boost the oil-market risk premium to its own financial benefit. Iran might attempt to achieve this by clandestinely laying naval mines in tanker shipping lanes, as it did during the Tanker War of the 1980s. The result then was an escalating naval confrontation that culminated in the U.S. Navy’s Operation Praying Mantis in 1988, a defeat for the Iranian Navy.

Alternatively, Iran might opt to disrupt the global oil market by sabotaging Iraqi, Kuwaiti, or Saudi oil fields. Such actions would be reckless and would be politically damaging to Iran if discovered.

The simmering standoff between Iran and the United States has some parallels with the origins of the Pacific war in 1941. To persuade Japan to withdraw its marauding army from China, the United States and other countries imposed ever-tightening sanctions, culminating with an oil embargo that put Japan’s back to the wall. It was politically impossible for President Franklin D. Roosevelt to enter the war without a grave provocation, even if allies were urging him to do just that. But after Japan’s attack on Pearl Harbor and elsewhere, America’s great industrial advantage became decisive. Similarly, it’s politically untenable for President Barack Obama to fire the first shot at Iran. But Iranian military action that, say, closes the Strait of Hormuz for a time could result in the world’s begging for U.S. military action.

Few doubt that Japan’s policymakers blundered badly when they opted for war against the United States. Yet these leaders also thought it was impossible to abandon their China policy. Iranian leaders are caught between demands for full International Atomic Energy Agency inspections of its nuclear program and the U.S. 5th Fleet. Iran may have a card or two left to play, but it would be illogical for shooting to be one of them…

Read it all.

Via Newsday

Ahmadenijad Won!

January 8, 2012

This image has been posted with express written permission. This cartoon was originally published at Town Hall.

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