Israel: looking for the silver lining.

One has to be concerned about peace prospects under Israel’s proposed Binyamin Netanyahu government. It does include the moderate Ehud Barak, still head of a deeply-divided and less-powerful-than-ever Labor Party, as Defense Minister. But the racist Avigdor Lieberman, leader of the rightwing Israel Beiteinu (Israel is Our Home) Party, will show Palestinians and other Arabs an unfriendly face as Foreign Minister. Moderates had hoped to avoid having Lieberman part of the power structure, even though his party finished third. But Lieberman had to be part of Netanyahu’s government once Kadima's Tzipi Livni, whose party actually holds one more seat than Netanyahu’s Likud, choose to go into opposition rather than become Likud’s junior partner.

Pierre Atlas, an American academic, has written that “The best-case scenario--for Israel and for the prospects of resolving the Arab-Israeli conflict--would have been a grand coalition of the Israeli mainstream: Likud, Kadima, and Labor.” This is the coalition many, including myself, had been hoping against hope for. Not to be.

Yet Arab American Institute chief James Zogby, a person with an obvious interest in Middle East peace, points out that hardliner Netanyahu and the hardline Palestinians of Hamas will probably have to be part of any peace agreement that works. So why not have negotiations that include those most resistant to peace? It did work in Northern Ireland, finally.

Offered without comment.

Obamaspeak for “Tax Increase”

During his second, all-network primetime press conference Tuesday, Barack Obama told us how he plans to spend his way out of bad times:

We invest in the renewable sources of energy that will lead to new jobs, new businesses, and less dependence on foreign oil. We invest in our schools and our teachers, so that our children have the skills they need to compete with any workers in the world. We invest in reform that will bring down the cost of health care for families, businesses and our government.

These things all cost money. “Invest” is Obamaspeak for “spend.” Obama, as I have said, is trying to lift us out of depression using the Roosevelt World War II strategy. His enemy isn’t Nazi Germany, it’s Republicans who would block spending on big government, renewable energy, education, and health care. But the point is to spend, spend, spend. This year, federal spending will top $4 trillion—28.5% of GDP, a level exceeded only at the height of World War II. And Obama plans to sustain this spending throughout his administration. Breathtaking.

“Politico” reporters John Harris and Jonathan Martin, confounded by Obama’s audacity in saying he will fight deficits by enlarging them even more, did a little “he said, he meant” thing to explain Obamaspeak:

What he said: “At the end of the day, the best way to bring our deficit down [isn’t by continuing] policies that have led us to narrow prosperity and massive debt. It’s with a budget that leads to broad economic growth by moving from an era of borrow-and-spend to one where we save and invest.”

What he meant: There is no way I am going to lose the language wars in a budget battle. My budget may borrow more and spend more than any in history. But I am going to frame this plan with appeals that emphasize sobriety and responsibility.

In other words, “I’m going to lie bigtime.”

My take. Obama isn’t lying. He’s just holding back part of the truth. The deficits he will run up to pull us out of recession and to invest in America’s “new deal” could be gigantic, or they could be brought under control through higher taxes. We need higher taxes. Sooner or later, Americans will see the wisdom of raising taxes to close the deficit. One (huge) step at a time, though.

Democrats’ Meritocracy Paradox

Secular liberals (“Here on earth, God’s work must truly be our own.”) believe in meritocracy. What gives some of us, acting through government, the right to rule over the rest? Answer: the leaders have succeeded by doing well at the best schools, then landing through their school networks the best jobs. In the “free market” of ideas, the best and the brightest—whether the products of law school, consulting firms, academia, foundations, or the media—usually prevail. The point is, the power elite, the meritocracy, begins with academic competition that sorts out the best from the rest.

And where is this meritocracy born? Well, in the private schools or exceptional public schools that feed the better universities. Much less often, the best come from the average or poor public middle and high schools that seem to be “dumping grounds" for those whose parents can’t or won’t pay for private school. Public schools, often poorly led, almost always employ teachers that in the most anti-meritocracy way possible, make no distinction between good and bad in how they pay or retain staff. Unions dedicated to employee security fight every effort mounted to reward good teachers and fire bad ones. In the better schools, it’s about the students. In most public schools, it’s about protecting teachers’ jobs.

Teaching used to be an honored profession, dominated by women with few alternative employment prospects, women who made public education work. But as good teachers left for greener pastures in the 1970s, as bussing and forced integration made schools more about social engineering than education, the replacement teachers put their energy into protecting themselves from termination based upon any lack of student performance. They formed and joined unions that became so dominant in the Democratic Party that by 2008, 10% of the Democratic convention delegates were teachers. So today, security-before-ability teachers unions dominate education, when if Democrats were true to their core beliefs, schools would instead honor meritocracy; rewarding its best teachers and terminating the worst, in the cause of properly educating tomorrow’s workforce.

Congress Stepping Back from 90% AIG Bonus Tax

Since I called out George Stephanopoulos when he wrongly predicted Tom Daschle would survive, let me note his latest prediction, on ABC News Friday and repeated today, that Congress will in the end kill its effort to punish AIG (and other) bonus payment recipients by taxing them at 90% punitive rates. Stephanopoulos is going against the conventional wisdom that says an enraged Congress will push the punishment bill through. I think Stephanopoulos is right; the bill won’t pass the Senate.

Can Rhee Succeed?

New York Times’ liberal columnist Nicholas Kristof writes about what may be the Stalingrad of education reform battles within the Obama administration—Michelle Rhee’s effort to improve the District of Columbia’s wretched school system. Rhee, 39, has fired 1/3 of District principals, and, Kristof says,

created untold enemies, improved test scores, and — more than almost anyone else — dared to talk openly about the need to replace ineffective teachers. “It’s sort of a taboo topic that nobody wants to talk about,” she acknowledged . . . “I used to say ‘fire people.’ And they said you can’t say that.”

According to Kristof, Rhee is driven by research suggesting that great teachers are far more important to student learning than class size, school resources or anything else. One study suggests that if black kids could get teachers from the profession’s most effective quartile for four years in a row, the achievement gap would disappear.

Rhee herself notes that if she succeeds, “we will take away from all the other school districts and schools across the country the excuse that because the kids are poor, minority, whatever it might be, that they can’t achieve at the same high levels.”

In an understatement, given the importance of Rhee’s effort in the overall battle to improve urban, largely-black schools, Kristof concludes, “It would help if President Obama firmly backed Ms. Rhee.”

It’s about jobs.

The Economist makes these sobering points about unemployment in its March 14 “leader” (editorial):

➢ the world in its deepest recession since the 1930s and global trade shrinking at its fastest pace in 80 years.

➢ an American who loses his job today has less of a chance of finding another one than at any time since records began 50 years ago, something especially worrying when the finances of many households depend on two full incomes.

➢ governments must intervene energetically to help, avoiding Europe’s rigid post 1970s and early 1980s recessions labor-market that kept unemployment high for decades.

➢ even if the recession ends soon (and there is little sign of that happening), the asset bust and the excessive borrowing that led to it are likely to overshadow the world economy for years to come. Yesterday’s jobs, from Spanish bricklayer to Wall Street trader, are not coming back.

➢ we need flexible labor markets, since the more easily jobs can be destroyed, the more easily new ones can be created. Programs that help today by keeping people in existing jobs will tomorrow become a drag.

➢ unemployment will blight millions of lives for years. The politicians’ task is to make sure the misery is not measured in decades.

Healthcare Hero Ron Wyden

We may have healthcare reform, and we may have it coming out of the Senate Finance Committee, the place where universal healthcare has previously gone to die. In an interview at the “Real Clear Politics” website, Senator Ron Wyden (D-Ore.), a leader of the bipartisan health reform initiative, spells out what the package may look like. Noting that health care costs -- which accounted for less than 8% of America's economy in 1990 and less than 12% in 2000 -- now account for more 17% of GDP, Wyden says, “fixing health care and fixing the economy are two sides of the same coin. . . the reason the take home pay of the American worker never goes up is because health care is gobbling up everything in sight.”

Wyden makes these points:

➢ containing health costs is absolutely pivotal. Make sure individuals are able to pool their funds, so they can be part of a larger group with bargaining power.

➢ stop the insurance market from discriminating against people who are sick. Have insurers compete on the basis of price, benefit, and quality rather than cherry picking.

➢ give people a choice. Even if they have employer coverage, most don't have a choice of plans. Give them the ability to benefit from careful selection of their coverage

➢ More than $700 billion is wasted on administrative paperwork and health care services that do not help people feel better or prevent future illness.

➢ fee-for-service reimbursement rewards doctors and hospitals for volume -- not keeping patients healthy or being efficient. Patient decision aides can guide people through their treatment options for surgery, chemotherapy, and hospice. Pay for performance will send costs down, rewarding areas that deliver quality.

➢ Bundling services, paying a flat rate for a set of services, helps squeeze waste out of the system.

➢ We need tough insurance reforms, and tough malpractice reforms. Democrats are usually for the insurance reforms and Republicans for malpractice reforms. Both are going to have to accept changes.

Wyden believes Democrats have been right on the idea of covering everybody, because if you don't cover everybody then the people who are uninsured will shift their bills to the insured. And Republicans understand you shouldn't turn everything over to the government; that there should be a wide berth for the private sector, for private marketplace choices. But now, Wyden thinks Republicans are saying we have to get everybody covered for economic reasons—that's how you hold down costs; that's how you stop cost shifting. And Democrats are saying look we know what happens if you freeze innovation, if you have a one size fits all governmental standard.

So it looks like a bipartisan bill might work. As he says, “Reformers are very much. . . in agreement . . . [First,] you have to cover everybody. Second, you ought to be able to keep the coverage you have. Third, you've got to reform the private insurance markets, because it's broken. Fourth, you've got to reward prevention. Fifth, would be the value of Health Information technology, which we pursued in the stimulus.”

Finally, Wyden supports a straightforward discussion about how to die without incurring huge costs. He believes we should provide as many choices as possible to American families; no federal government dictating to families what ought to be done or setting up intrusive federal bureaucracy as the arbiter of end-of-life judgments.

“The Class”

François Bégaudeau plays himself in this French movie about the trials of teaching middle school students in the working class 20th arrondissement, Paris. The movie, France’s nominee for best foreign film Oscar, is based on Bégaudeau’s own book and seems extraordinarily real. His students are Arab, African, Caribbean, Chinese, and white—a mixture on the scale one finds in urban public middle schools throughout the U.S. Bégaudeau tries to connect with his teenagers by being their friend. It doesn’t work. He tries and tries, and they don’t learn. Well, some learn, but the characters who dominate the story [picture, hands up] don’t seem to.

I loved “Stand and Deliver” (1988), a movie about Bolivian teacher Jaime Escalante who was able to connect with his East LA Hispanic math students. Escalante was successful, in part, because he was of their culture, of their world. France wants its students to be French, to embrace one grand (and it is) culture. Bégaudeau’s troublemakers are having none of that.

I’m seeing urban public schools as a dumping ground, where children end up because their parents can’t or won’t pay for a private education—an education that works. Some children will make it out; their parents insist that they do. The majority correctly see they are parked in school by a system that has nothing better for them to do between childhood and adulthood. Naturally, they don’t like it.

In France, in the U.S., the system is broken. We know the solution is to create public schools of choice, schools students go to because they want to be there. Many of the successful teachers in these choice schools will be people of their own culture, and they will learn together, parent, teacher, student.

The old way: top-down, middle class to working class, white to minority. The only way: schools that serve their customers or go out of business.

Top 15 Countries and Global Cities

In November, I looked at how my list of the Top 15 countries squared with the G-20 group that met in Washington to tackle the global economic crisis. We found significant overlap. Let’s now look at another list—Foreign Policy’s global cities index. Since global cities are about population and political and economic clout, there should be considerable overlap between the two rankings.

And there is. Every “country” (I count the European Union as a mega-country, and give it two slots in my Top 15) has at least one global city on Foreign Policy’s list of 60, with the exception of Iran. While Tehran is big, it isn’t “global” in its connections. Otherwise, the overlap is complete.

And do the global cities overlap with the top countries? Well, of the top 20 global cities, all are located in my top 15 countries except for:

➢ Singapore, ranked #7 and associated with neighboring Indonesia (#9 on my list), while Indonesia’s biggest city, Jakarta, ranks well behind Singapore at #48;

➢ Seoul, ranked #9, capital of South Korea, which though outside the top 15, is in my top 20 countries, and;

➢ Sydney, ranked #16, and Australia is a G-20 member.

Also, the next 19 cities (21-39) are all in countries in my Top 20 or the G-20. To a great extent, therefore, Foreign Policy’s index of global cities affirms my Top 15/Top 20 and the G-20 lists of countries.

Hoping for Failure

Democrats say they are making Limbaugh into the Republican they love to hate because Rush said,

I've been listening to Barack Obama for a year and a half. I know what his politics are. I know what his plans are, as he has stated them. I don't want them to succeed.

Limbaugh wants Obama’s program to fail. That’s certainly bad politics; most of the country wants Obama to succeed in righting our crippled economy.

Still, one has to note that Democrats outraged at Limbaugh’s statement are kettles calling the pot black. As FOX News’ Bill Sammon found, James Carville [picture] said of Bush, just before 9.11, "I certainly hope he doesn't succeed." And in 2006, 51% of Democrats wanted Bush to fail, according to a FOX News/Opinion Dynamics poll.

Dems’ Latest Bogeyman

Democrats are stuffing and mounting Rush Limbaugh as the new “monster trophy” for their party to rally against. Vilifying a targeted conservative to win elections worked for Democrats in 1996 and 1998 (Newt Gingrich), in 2006 (Tom Delay and Mark Foley), and 2008 (Bush). Why stop now?

From Debra Saunders, San Francisco Chronicle:

As Politico.com reported last week, Demo gurus James Carville and Stan Greenberg first concocted the idea of making Limbaugh the GOP albatross last year after a poll showed that among younger voters Limbaugh's ratings were in the toilet. White House adviser David Axelrod and Press Secretary Robert Gibbs joined in the get-Limbaugh gambit, while White House chief of staff Rahm Emanuel called Limbaugh "the voice and the intellectual force and energy behind the Republican party" on CBS' "Face the Nation." The Democratic Senatorial Campaign Committee jumped into the act and sent out an e-mail instructing recipients to send an "urgent call" for GOP senators "to denounce [Limbaugh’s] shameful rhetoric."

The Best War

If World War II was “the good war,” Obama’s version of the war to reshape America is “the best war.” In his view, we finally have our priorities right—government organizing to transfer resources from the rich to those below them, not wasting our resources in some overseas killing venture. Total war means government in full control. As Obama’s Chief of Staff Rahm Emanuel said, "You never want a serious crisis to go to waste. This crisis provides the opportunity for us to do things that you could not do before."

The conventional view of why the Great Depression lasted so long—1938, nine long years after the ’29 crash, was almost as bad a year as the Depression’s 1933 low point—is that Roosevelt stopped spending too soon. Government should have spent more. We needed the gigantic government spending we had in World War II. Here’s how prominent Keynesian economist Paul Krugman sees it: “What saved the economy, and the New Deal, was the enormous public works project known as World War II, which finally provided a fiscal stimulus adequate to the economy’s needs.” Krugman wants Obama to undertake a World War II-like commitment to spending to pull us out of our current mess.

Michael Goodwin of the New York Daily News has seen what Krugman sees, and more bluntly proclaims, “the Obama administration is on a war footing. Make that a class-war footing.”

In The Forgotten Man, Amity Shlaes’ highly-readable book on the Great Depression, Shlaes says (p.31) Herbert Hoover, the president who didn’t understand depressions, believed “life was like wartime, and that government ought to plan more, as if at war.” Even Hoover, but certainly Roosevelt, wanted the country on a war footing to fight the Depression.

Obama seems after the biggest possible warlike effort at home, one that could transform America into a European-like welfare state.

But didn't government control of the economy end up throughout the world being the 20th Century’s most notable failure?

Market Keeps Dropping

"Nobody wants to get in the way as the freight train comes down the embankment," said one Wall St. trader. The market has fallen 14 of the last 18 sessions, and is now in a range where, like My FOX INDEX, which measures the distance from a healthy market (12,000 Dow, 1,300 S&P, 2,500 NASDAQ) to nil, nada, nothing, it hits new lows daily. Yesterday the FOX INDEX arrived at a new bottom of -7,223, now 46% of the way from healthy to zero [see chart]. Oh my. Freight train going down the embankment.

When Will Housing Hit Bottom?

My FOX INDEX, which measures the distance to a healthy market (12,000 Dow, 1,300 S&P, 2,500 NASDAQ), hit a new bottom of -7,013 (we run the 7-months-old FOX INDEX whenever it hits new lows), 44% of the way from healthy to zero [see chart]. That’s bad. The market hasn’t been lower in 12 years.

To be contrary, let’s suggest reasons to be calm. What’s happening in finance pretty much makes sense. In the late 1990’s, people said there was too little reason for the dot.com boom to keep ballooning. They were right. Dot.com went bust in 2000.

In 2005, people warned low interest rates and subprime financing were pushing housing prices to unnatural highs. They were right. Housing ballooned in 2005-6, and went “pow!” in 2007-8. Now we are paying the price. Markets move in cycles. Boom-bust-boom-bust. Good times follow bad, and we always overshoot in both directions. When will we hit bottom? When we do, the bottom will be irrationally low. It always is.

Robert Samuelson writes about the problem with the current housing crisis:

➢ home prices are down 26% from their peak. Since late 2007, housing-related jobs -- carpenters, realtors, appraisers -- have dropped by 1 million, a quarter of all lost jobs.

➢ the problem is too much supply chasing too little demand. Huge unsold homes inventories depress prices and construction.

➢ housing may be more affordable now than in decades, thanks to lower prices and falling mortgage rates. The National Association of Realtors’ "affordability index" estimates the family income needed to buy a median-priced house is now the highest since the index's start in 1970.

Samuelson speculates as to why lower prices don’t spur demand. He blames deflationary psychology: if yesterday's $250,000 house is now $200,000, it may be $175,000 by June. Waiting is better.
This deflationary psychology is self-fulfilling since the more buyers wait, the more prices fall. Samuelson wants to bribe prospective buyers not to wait by giving them a 10% tax credit, up to $15,000, on a new home purchase.

Whatever the specifics, government does have to act to break the deflationary spiral before our recession becomes a depression, and the wait for the next boom costs us all too much.