Strategically he has governed from the Left, enacting broad policies which by their sheer comprehensiveness were to prove arid grounds for compromise. “Bipartisanship implies legislators with different world views working together. The larger a bill’s scope, the more likely it favors one worldview over another, and the less likely it will attract bipartisan support.” The result, he says, left no room for 30 to 40 Congressional Democrats who proved unwilling to go along simply because they could not sell their constituencies on a radically new vision.

Obama’s tactical mistake was to delegate the actual operations of policy change to Nancy Pelosi, who acted as his left wing “prime minister.” Pelosi in turn created a cabinet, consisting of liberal committee chairs and their acolyte staffers. This accentuated the process of polarization. With the inept and ham handed Pelosi in charge, the result was a:

policy [that] has consistently been built from the left – thanks in no small part to the very liberal chairs of key committees – with compromises made to win just enough centrist votes to get passage. On the jobs bill, the health care bill, and the cap-and-trade bill, the Democrats won only narrow victories due to mass defections on their own side. Almost all of these defections were from the center. Faced with a choice between losing a moderate or a liberal, the Speaker has consistently chosen to sacrifice the moderate. … America is not ungovernable. Barack Obama has so far failed to govern it.

“America is not ungovernable. Barack Obama has so far failed to govern it.” Cost is 99% right. But his argument misses the crucial 1 percent. The Left doesn’t want to govern, it wants to rule given the chance. It is as always willing to leave its own Big Tent behind at the decisive moment. The continual calls from the Democrat Left for Obama to “grow a spine” are really coded calls to say that the moment is now; that the President must ‘’seize the day, seize the hour.” It’s not as Cost imagines, a call to compromise. It’s a call to say that the time for compromise is over. They can drop the mask; they can hoist the Jolly Roger.

Noah Pollak’s description of the split between Amnesty International’s leadership and the head of their gender unit is the same story in a different setting.  She was purged for her inability to support Amnesty International’s espousal of an Islamic radical.  This too is a case of the vanguard leaving behind its own coalition when the moment seemed ripe. “Meet Gita Sahgal, the head of Amnesty’s gender unit … went public with her disgust after spending two years in a failed effort to separate Amnesty from Begg.” Gita, meet Amnesty International. She wrote explaining her suspension that:

“I believe the campaign [with Begg's organization, "Cageprisoners"] fundamentally damages Amnesty International’s integrity and, more importantly, constitutes a threat to human rights,” Sahgal wrote in an email to the organisation’s leaders on January 30. “To be appearing on platforms with Britain’s most famous supporter of the Taliban, whom we treat as a human rights defender, is a gross error of judgment.”

Saghal was suspended from Amnesty International within a few hours after publicly expressing her dissent.

Saghal closed the letter describing her suspension with a recitation of her revolutionary credentials. It is an eerie passage which echoes structure for structure many of the protestations of innocence by the Old Bolsheviks when they found themselves in the cellars of the Cheka, stuffed there by a leadership that found they had outlived their usefulness. She wrote:

I have been a human rights campaigner for over three decades, defending the rights of women and ethnic minorities, defending religious freedom and the rights of victims of torture, and campaigning against illegal detention and state repression. I have raised the issue of the association of Amnesty International with groups such as Begg’s consistently within the organisation. I have now been suspended for trying to do my job and staying faithful to Amnesty’s mission to protect and defend human rights universally and impartially.

Why does she think any of this matters?  The Left is not about principles. It is about itself. It is about power. Now that President Obama has been politically weakened, look for the mask to come back on. The words of sweet reason, the entreaties to “make a deal,” and feigned affection will now make a surprise reappearance. When the Left cannot rule, it will try to govern. Until the next time.

But now things have gotten out of hand. The New York Times reports that karaoke has been added to the deadly mix. A series of murders in General Santos City has been attributed to customer rage at hearing yet another cracked rendition of  Frank Sinatra’s “My Way”. The NYT quotes a karaoke bar patron who says, “I used to like ‘My Way,’ but after all the trouble, I stopped singing it,” he said. “You can get killed.”  That’s right boys. It’s a One Way Ticket to the Blues. The Times describes the travails of a Mindanao barber.

After a day of barbering, Rodolfo Gregorio went to his neighborhood karaoke bar still smelling of talcum powder. Putting aside his glass of Red Horse Extra Strong beer, he grasped a microphone with a habitué’s self-assuredness and briefly stilled the room with the Platters’ “My Prayer.”

Gregorio has successfully essayed the Platters, Tom Jones, Engelbert Humperdinck. But bar operators have apparently removed “My Way” from the playlists because it’s like asking for Twilight Time. The NYT tries to fathom the reason for the unreasoning antipathy to Sinatra’s tune.

The authorities do not know exactly how many people have been killed warbling “My Way” in karaoke bars over the years in the Philippines, or how many fatal fights it has fueled. But the news media have recorded at least half a dozen victims in the past decade and includes them in a subcategory of crime dubbed the “My Way Killings.”

The killings have produced urban legends about the song and left Filipinos groping for answers. Are the killings the natural byproduct of the country’s culture of violence, drinking and machismo? Or is there something inherently sinister in the song?

Whatever the reason, many karaoke bars have removed the song from their playbooks. And the country’s many Sinatra lovers, like Mr. Gregorio here in this city in the southernmost Philippines, are practicing self-censorship out of perceived self-preservation.

Karaoke-related killings are not limited to the Philippines. In the past two years alone, a Malaysian man was fatally stabbed for hogging the microphone at a bar and a Thai man killed eight of his neighbors in a rage after they sang John Denver’s “Take Me Home, Country Roads.” Karaoke-related assaults have also occurred in the United States, including at a Seattle bar where a woman punched a man for singing Coldplay’s “Yellow” after criticizing his version.

One contributory cause to the mayhem is probably the presence of Red Horse beer, a beverage mentioned in the NYT article as a favorite of Mr. Gregorio’s. Though not quite as bad as Marca Demonyo gin, it definitely contributes to the atmosphere. But it was only contributory. What is it about guys, gals, guns, guitars and gin that draw people of a certain kind to together like moths to a flame? It’s an ancient and explosive brew which Robert Service described well. If a picture paints a thousand words.

A bunch of the boys were whooping it up in the Malamute saloon;
The kid that handles the music-box was hitting a jag-time tune;
Back at the bar, in a solo game, sat Dangerous Dan McGrew,
And watching his luck was his light-o’-love, the lady that’s known as Lou.

When out of the night, which was fifty below, and into the din and the glare,
There stumbled a miner fresh from the creeks, dog dirty, and loaded for bear.
He looked like a man with a foot in the grave, and scarcely the strength of a louse,
Yet he tilted a poke of dust on the bar, and he called for drinks on the house.
There was none could place the stranger’s face, though we searched ourselves for a clue;
But we drank his health, and the last to drink was Dangerous Dan McGrew. ….

Then I ducked my head, and the lights went out, and two guns blazed in the dark;
And a woman screamed, and the lights went up, and two men lay stiff and stark;
Pitched on his head, and pumped full of lead, was Dangerous Dan McGrew,
While the man from the creeks lay clutched to the breast of the Lady that’s known as Lou.

These are the simple facts of the case, and I guess I ought to know;
They say that the stranger was crazed with “hooch,” and I’m not denying it’s so.
I’m not so wise as the lawyer guys, but strictly between us two –
The woman that kissed him — and pinched his poke — was the lady that’s known as Lou.

The Malamute Saloon, Rick’s Cafe, the Mos Eisley Cantina or that joint I used to live close to fill a “hunger not of the belly kind, that’s banished with bacon and beans”. It fills a deeper longing that is met only by Red Horse Beer and a the smile from a waitress in a patched, starched uniform with a dozen bobby pins in her hair, where she is the eternal waitress and you the eternal fool. Only the Lonely. Whatever happens next you had better be ready with My Prayer after Smoke Gets In Your Eyes.

[There is a video that cannot be displayed in this feed. Visit the blog entry to see the video.]

“The agency views ‘bubble risk’ as greatest for Chinese banks given their 32 percent loan growth in 2009; this looks likely to be followed by a further 20 percent in 2010,” Fitch said in a statement.

“Credit growth of more than 50 percent over a two-year period in an economy where bank credit is already quite large relative to gross domestic product almost inevitably involves some misallocation of credit,” it added.

New loans extended by China’s banks nearly doubled in 2009 from the previous year to 9.6 trillion yuan (1.4 trillion dollars) as banks heeded Beijing’s calls to pump up lending to keep the economy growing.

Fitch however noted the limited transparency of Chinese banks and said their tendency to reschedule loans meant any bad debt problems would surface slowly.

CNN’s Katie Brenner quotes a number of academic authorities who claim that even if a Chinese bubble popped its effects would be speedily managed by an authoritarian Communist Party which is far better than the West at managing such crises — or so the experts said. Beijing can prevent capital flight by draconian control; prices can simply be set by fiat, banks can be forced to extend credit whether they like it or not.

“The [Chinese] government can really push money into enterprises to keep them going even amid a crisis,” says Peter Morici, a public policy professor at the University of Maryland. “You wouldn’t see a credit shortage like the one we saw in the U.S.”

As for the rash of bad loans that could be made amid a period of forced lending, China has an answer to that, too. The government pushes debt problems off into the future and is notoriously opaque when it comes to reporting problems. For these reasons, bad debts would surface in a slow and hopefully orderly manner, Fitch wrote in its recent report.

But Brenner notes these measures “solve” the problem by widening it. They create huge resource distortions that ripple outward to foreign markets and pass risks on to the outside world and to the political system. An unmanaged bubble, Brenner says, is an existential risk to the Communist Party of China. Maybe a bubble in China isn’t a realistic possibility but if one does inflate it will be a sight to behold indeed.

Bubbles in China are about much more than finance. Economic upheaval is a source of potential mass unrest, threatening the Communist Party …

In fact, to keep things flowing, it might open the spigots on exports and try to grow its way back, doubling down on its main engine of growth — exactly what it did during the global meltdown. And that’s where the U.S. needs to worry. An even more export-focused China would mean ever less-expensive goods flowing into the biggest market in the world — the U.S.

“Because prices are so heavily managed, China could easily flood the U.S. and the world with extremely cheap stuff,” says Morici. If nearly everything America buys is made in China now, just wait. The trade imbalance would spiral further out of control; and manufacturers in other nations fighting China for market share would be at a greater disadvantage.

“Remember, when we talk about bubbles, the stakes are the future of the Communist Party,” says Morici. “They’ll try to survive no matter what; and it could mean destroying other economies to do it.”

With the ante set so high, in the worst case scenario a collapsing Chinese economy would essentially keep its cash flow going by selling underpriced goods at slave-labor wages to the outside world. It’s unsustainable strategem which in the process will destroy not just the Chinese economy but the economies of those who trade with it. Japan’s exports, now in the doldrums would go completely into the tank. American producers, faced with the last brilliant flare of a dying economic supernova, would be burned to a crisp. Then the Chinese bubble, no longer able to sustain itself from outward forces will shrivels on itself like a dwarft star, leaving only the cinders of a world economy in its radius of effect.

But Shaun Rein at Forbes says there is nothing to worry about. There will be no Chinese collapse in the foreseeable future. The reason he gives are that the high rate of Chinese savings means that the lending burst is based on a real basis, not airy discounted cash flows. Moreover, there is more money in China than Westerners think because they don’t understand Chinese accounting. Lastly, China is going to keep its currency low and keep exporting. With savings, a higher than reported income and a steely determination to keep on making money, China is safe, Rein says.

Whether you believe that or not, the WSJ says the key components of Beijing’s export strategy are provoking a kind of hidden protectionism among other economies and may fuel the inflationary forces internally. In other words, China’s exports are part of what is inflating the bubble not simply what is preventing the bubble from collapse.

Key elements of the strategy—including a cheap currency, regulated interest rates and low energy prices—are stoking discontent in fellow developing countries, not just Western capitals. … At the same time, many economists argue, China’s export-friendly policies are fueling inflationary pressures at home, placing a burden on the rest of the economy.

The economic downturn has forced consumers in the West to switch to cheaper — typically “made in China” products — creating an even greater demand for its export goods. “According to International Monetary Fund projections, if current trends continue, China’s share of world exports could reach 12% by 2014, a higher portion than Japan managed at the peak of its dominance in the 1980s.” Can it continue? Some researchers have their doubts.

But some researchers at the IMF say current trends aren’t likely to continue. A paper by IMF researchers published last year suggests that for China to continue the rapid export gains of recent years, it would need to boost its share of world exports to about 20% in coming decades, an unprecedented level. The fund’s researchers said China is unlikely to be able to do that without using even more government subsidies, which would further aggravate trade tensions and cause domestic economic problems.

In any event, huge global economic pressures with complex interrelationships are building up based on asserted information. Beijing, Brussels and Washington’s economic managers are embarking upon ambitious strategies. By setting values, concealing debts, accumulating toxic assets and acquiring obligations on the basis of almost fictional cash flows the world’s economic managers are setting up a series of bets may save the day or sink the ship; which it is will sooner or later will be judged by the market. An economy can only undervalue things and overborrow for so long. Eventually the laws of supply and demand, like gravity, reasserts their control over the situation and the entire edifice settles into an equilibrium that will leave those who bet on the wrong horse holding the bag. We certainly live in interesting times.

[There is a video that cannot be displayed in this feed. Visit the blog entry to see the video.]

Hat tip: Onetailtest

If our response ends up being, you know, because we don’t want to — we don’t want to stir things up here, we’re just going to do the same thing that was being done before, then I don’t know what differentiates us from the other guys. And I don’t know why people would say, boy, we really want to make sure that those Democrats are in Washington fighting for us.

Of course he was referring to winning within his context and not necessarily Lincoln’s. Lane writes “The … striking thing was how easily he appeared to write off Lincoln politically. Conceding nothing, he implied that her defeat was not only a foregone conclusion, but also an acceptable price to pay for staying the course on policy”. Obama can do this because of the asymmetry in terms of office. The Democrats who are running scared of 2010 see the President’s policies as their death warrant. But Obama sees them them as his Forlorn Hopes, their death secures his long term victories. They are the wave of those expected to sacrifice themselves in order to establish a permanent lodgement from from a long term Democratic control will be extended. So it’s ’shut up and advance’. By taking over the health industry and amassing a huge amount of pork barrel, the President may calculate that he can hold what he can when the Republicans swing back. The Republicans may gain back some ground, but he may figure that over a six or eight year horizon the Democrats would have made a net ideological advance. They would have taken more than they would have to give up.

The problem with Obama’s strategy is that with the world economic crisis in full swing the long term trends are against him. Like Admiral Yamamoto in 1941 all his surprise attack gains are bound to be wasting assets as the opposition launches one political Essex carrier after the other upon the seas of unemployment and deficit. In the end they will outbuild him and overwhelm him politically. Unless President Obama truly believes that his policies will turn the economy around then nothing he wins will be permanent.

What may be working in Obama’s favor is the relative ineptness of his opposition. The Republicans have no political Ernest J. King to set against him and they have not solved the basic strategic dilemma he has laid before them. That problem is the reverse of Blanche Lincoln’s. Should the Republican’s imitate Obama’s strategy and sharpen the contradictions between themselves and the President? Or should they “reach across the aisle” and run to the center, which in this case means across the line to the Left from which Obama refuses to move? If keeping Left is a good strategy for Obama, why should keeping Right not be good for the conservatives?

Liberals would answer that adopting a symmetrical strategy would be irresponsible — an unpatriotic besides. Obama has hammered home the accusation that anything bad that happens henceforth will be the fault of obstructionist, extremist conservatives. He will stay Left. It is the conservatives who are morally obligated, if they love their country, to come to the middle and beyond. By this means he hopes to turn the energy of the coming hard times against the conservatives. Not only is Obama playing seize and hold in the power sphere, he is also employing the same defense in the ideological sphere.

The strategic danger posed by the Tea Parties to Obama’s scheme is that it changes the game. It alters the battlefield itself. No longer is his problem one of co-opting a few Republicans with pork barrel and intimidation, it is one of neutralizing a fairly large demographic of the voting population who he cannot do a back-room deal with. Ironically many of the “weapons” he has amassed will be ineffective against the Tea Partiers. Government jobs will not be very appealing to small businessmen and workers who must pay higher taxes for programs they have no desire to see anyway.

Whether Plouffe’s calculations prove correct will be shown over the coming months. If the President rises in the polls and regains his footing with his ‘run to the Left’ strategy then Plouffe will be vindicated. My guess is that Plouffe’s strategy will fail dismally. If the economic crisis deepens and as Obama’s foreign policy mistakes come home to roost with moderately bad consequences the incumbent is likely to be blamed the most, with the entire Washington establishment a close second scapegoat.

But this rule may vanish at the extremes. In a national emergency people may pull together for a while. But even this has its limits. The Fall of France demonstrated how support for a political leader can evaporate after initially rising once it is clear he is inept. Will Obama’s gambit work? I don’t think so, but we shall see.

The VOA describes the situation: “Some analysts predict Greece could be pushed out of the bloc. Also unclear is whether the Greek government will have the political will to carry out the painful fiscal measures it promised — particularly if they spark protests. Spain also faces potential social unrest over its austerity measures. And in Portugal, the parliament on Friday voted down the government’s austerity plan.”  But the real worry was Spain. Neither the collapse of Greece nor Portugal could seriously threaten the Eurozone, but Spain’s much bigger economy could. The Wall Street Journal describes the scenario that has caused the market to fall:  a weak Europe stalls the global recovery and leads to a fall in commodities.  Like an airplane which has lost lift, someone, somewhere has got to get enough airflow over the wings to get the thing flying again. But how?

“The markets are betting on a situation that I don’t think will happen, which is a more extreme situation of default or an economy leaving the euro area,” said Carlos Almeida Andrade, chief economist of Banco Esprito Santo in Lisbon. … “The sovereign-credit concerns are just overwhelming people,” said Peter Boockvar, strategist at Miller Tabak. “It’s one big liquidation. People have been hoping there will be one event that will clear up the problems, but they’re having to realize, it’s going to be a process.” …

The breach triggered numerous sell stops, automatic orders to exit trading positions that many investors set up around major price milestones. Within minutes, oil prices had tumbled to $69.50 a barrel … oil’s free-fall acted as a cue for other commodities to follow suit. Copper sank to its lowest settlement since October… Gold, too, followed oil lower, … ICE March sugar was down 4.5% at 26.44 cents a pound.

“There’s a sense of uneasiness about … how robust the recovery’s going to be.”

The political reaction to the crisis has been to pull back hard on the stick as everyone moves to defend their entitlements. Spain’s Zapatero vows to defend the Euro have been met by hostility from his politial base. The unions have told him to take a hike. Trade union officials asked whether Zapatero wanted “social conflict”: in other words, whether he wanted a fight. There was even talk of a general strike with some saying that if the Spanish Prime Minister wanted to commit “hara-kiri” then it was his funeral. “Si Zapatero se quiere hacer el harakiri, si es su deseo, será su voluntad”.

Unfortunately the unions haven’t quite figured out that they might be commiting hara-kiri as well.  An even deeper crisis in southern Europe is not beyond the realm of possibility.

Events in Europe prefigure the possible negative consequences of President Obama’s pump priming public spending. Large increases in public spending are politically painful to wind down. The administration’s spending binge will lead to a dependence which will not be easy to kick. Rich Lowry describes the “inverse relationship” between public employment and the economic downturn at Real Clear Politics. As the economy falls the public sector rises.

The percentage of federal civil servants making more than $100,000 a year jumped from 14 percent to 19 percent during the first year and a half of the recession, according to USA Today. At the beginning of the downturn, the Transportation Department had one person making $170,000 or more a year; now it has 1,690 making that.

The New York Times reports that state and local governments have added a net 110,000 jobs since the beginning of the recession, while the private sector has lost 6.9 million. The gap between total compensation of public and private workers has only widened during the downturn, according to USA Today. In 2008, benefits for public employees grew at a rate three times that of private employees.

Public employees have developed an inverse relationship to the rest of the economy – as it shrinks, shedding jobs and cutting salaries, they draw on a never-ending taxpayer bounty.

What happens when the time comes to play the movie in reverse and downsize government? Jeffrey Sachs says why downsize it at all? The answer to the deficit is simple: raise taxes. In an article in Time, Sachs argues that America should be more like Europe and up the share the taxman takes. “Compared with those in other rich countries, taxes in the U.S. are low. Yet government spending is persistently higher than taxes: the budget deficit is at a record high for peacetime, and Washington is utterly paralyzed when it comes to addressing urgent needs.” Here’s a list of some of those urgent needs.

Shortfalls in education outlays are shortchanging young people, forcing many to leave college before they graduate because families are unable to cover college tuition. The conversion to clean energy is stymied by a lack of cash. Future NASA missions are being scrubbed. The list is long and perilous. …

The total tax take, federal plus state, amounts to 28% to 30% of GDP. That is more than 10 percentage points lower than the average total revenue collections in Europe. … We need a new political consensus. No doubt the Republicans are just waiting for Obama to reverse his campaign promise on taxes so that they can pounce, just as Democrats did when George H.W. Bush broke his “Read my lips,” no-new-taxes promise. Such is politics, where the first rule is to pander to antitax sentiment. But if we carry on down that road, we will end up with a much deeper fiscal crisis — the kind where the dollar collapses, foreigners stop buying Treasury bills and public services fall apart while inflation soars.

The answer, Sachs says, must be a mixture of tax increases and judicious spending cuts. The problem, apart from the fact that those countries Sachs longs to be like are no longer “rich” (Spain has an unemployment rate of 20%. Youth unemployment is near 40%),  is that the tax increase route may lead to precisely the trap that has imprisoned the Southern Europeans. With a proportionately reduced private sector the economy becomes uncompetitive, tax revenues drop and require even greater tax increases to maintain the beloved level of public “investment”. Demand falls and commodity prices drop. Where have we seen that before? Maybe in today’s news?

“England is a cesspit. England is the breeding ground of fundamentalist ­Muslims. Its social logic is to allow all religions to preach openly. But this is illogic, because none of the other religions preach apocalyptic violence. … “This is part of the character of Great Britain. Colonialism bred an innate arrogance, but when you undertake that sort of imperial adventure, that arrogance gives way to a feeling of accommodativeness.”

Caryl’s answer is more prosaic. He argues that Britain is a cesspit because that’s where the money is: in the form of grants, the dole and celebrity. It’s a extremist-friendly place so Islamic extremists go there and learn all kinds of radical things. No mystery at all.

Haras Rafiq, a British Muslim who founded a think tank to combat Islamic extremism, worries that a big share of the blame goes to his own government. For decades, he says, Britain tolerated plotting by domestic Islamic radicals as long as they targeted other countries, often ones in the Middle East. “We gave them freedom to preach violence and extremism — [as long as] they were preaching it abroad and not in the U.K. They used that freedom to take over community organizations, mosques, TV stations,” he says. “They’ve been building capacity for their viewpoint.” He describes the radicals’ techniques as strikingly reminiscent of those of 20th-century communists and fascists. The Islamists have also mimicked the Irish Republican movement by using ostensibly non-violent political groups to covertly radical ends.

Once the cesspit “capacity” comes into existence it becomes a potent threat-in-being which the host is compelled to manage. One way to do this is by directing radical energies outwards or trying to buy them off. Either way the cesspit just gets deeper. The same dynamic may now be at work in the Obama administration’s relationship with Iran. Having let the Iranians, in the name of engagement get so far along on the road to developing a nuclear weapon, it becomes increasingly difficult for them to stop it now that it has built up momentum. Just like a rock which has been allowed to roll downhill, the time when it can be easily stopped is long past. Using the brake now becomes dangerous and the only easy strategy left is to simply keep steering the rapidly accelerating object around the playgrounds and schools in the hope of averting a complete disaster.

Ed Morrissey, writing in HotAir says that Obama can’t confront the deficit because too many people are on the gravy train for it stop. Even if the President tried to slam the brakes on it he would have the devil’s own job trying to convince his own party. So what he’s going to do is increase the deficit and try to buy his way past the opposition with backroom deals. Obama’s riding a bronco that he can’t get off.

What about Iran?

In the case of Iran the administration may be so invested in engagement that there’s really nowhere to go if they are to avoid writing it off as a dead loss. Michael Goodwin in the NY Post says that if Israel informed the US that it was about to destroy Iranian nuclear facilities, President Obama would probably exert pressure on them to hold off while he gave it ‘one more try’. But that was the policy road which created the crisis in the first place and the delay would build rather than reduce the accumulating tensions.

He would notify world leaders and probably try to get China and Russia to lean on Iran to agree to a halt in enrichment. He might even warn Iran himself that the attack was coming unless it stopped enriching. Above all, we can be certain he would try to buy time to avoid a showdown, which is exactly what he has been doing for the last year. That, by the way, is the same feckless policy that has produced this nightmare scenario.

The bigger a radical cesspit London becomes the more grants are likely to be handed out there. Like a firestorm it becomes a blaze that eventually stokes itself.  Iran might be the same way. History is replete with examples of problems that have just been kicked down the road leaving an increasingly harder job for everyone who followed until the problems simply flared up and consumed the host. Whether the problem is a growing radical Islamic community in London, or a budget deficit, or Iranian nuclear ambitions, politicians normally avoid bringing matters to a head until unforeseen events force them to confront it. Maybe a crisis is really just another name for a long-simmering problem that politicians can no longer avoid.

Stated another way, even if TARP saved our financial system from driving off a cliff back in 2008, absent meaningful reform, we are still driving on the same winding mountain road, but this time in a faster car.

The good news is that things will go just swimmingly  … until we reach the next hairpin bend.  The rest of the excerpt follows.

Many of TARP’s stated goals, however, have simply not been met. Despite the fact that the explicit goal of the Capital Purchase Program (“CPP”) was to increase financing to U.S. businesses and consumers, lending continues to decrease, month after month, and the TARP program designed specifically to address small-business lending — announced in March 2009 — has still not been implemented by Treasury. Notwithstanding the fact that preserving homeownership and promoting jobs were explicit purposes of the Emergency Economic Stabilization Act of 2008 (“EESA”), the statute that created TARP, nearly 16 months later, home foreclosures remain at record levels, the TARP foreclosure prevention program has only permanently modified a small fraction of eligible mortgages, and unemployment is the highest it has been in a generation. Whether these goals can effectively be met through existing TARP programs is very much an open question at this time. And to the extent that the Government had leverage through its status as a significant preferred shareholder to influence the largest TARP recipients to carry out such policy goals, it was lost with their exit from TARP. As important as assessing the effectiveness of TARP programs is, in the final analysis, TARP can truly only be a success if TARP is both managed well and positive effects are enduring. The substantial costs of TARP — in money, moral hazard effects on the market, and Government credibility — will have been for naught if we do nothing to correct the fundamental problems in our financial system and end up in a similar or even greater crisis in two, or five, or ten years’ time. It is hard to see how any of the fundamental problems in the system have been addressed to date.

To the extent that huge, interconnected, “too big to fail” institutions contributed to the crisis, those institutions are now even larger, in part because of the substantial subsidies provided by TARP and other bailout programs.

To the extent that institutions were previously incentivized to take reckless risks through a “heads, I win; tails, the Government will bail me out” mentality, the market is more convinced than ever that the Government will step in as necessary to save systemically significant institutions. This perception was reinforced when TARP was extended until October 3, 2010, thus permitting Treasury to maintain a war chest of potential rescue funding at the same time that banks that have shown questionable ability to return to profitability (and in some cases are posting multi-billion-dollar losses) are exiting TARP programs.

To the extent that large institutions’ risky behavior resulted from the desire to justify ever-greater bonuses — and indeed, the race appears to be on for TARP recipients to exit the program in order to avoid its pay restrictions — the current bonus season demonstrates that although there have been some improvements in the form that bonus compensation takes for some executives, there has been little fundamental change in the excessive compensation culture on Wall Street.

To the extent that the crisis was fueled by a “bubble” in the housing market, the Federal Government’s concerted efforts to support home prices — as discussed more fully in Section 3 of this report — risk re-inflating that bubble in light of the Government’s effective takeover of the housing market through purchases and guarantees, either direct or implicit, of nearly all of the residential mortgage market.

Stated another way, even if TARP saved our financial system from driving off a cliff back in 2008, absent meaningful reform, we are still driving on the same winding mountain road, but this time in a faster car.

Basically it suggests we have incentivized rather than discouraged economically destructive behavior. TARP has handed out Thompson submachine guns and getaway cars to people caught exhibiting an inordinate interest in other peoples’ money. No good may come of it. There will be Hope and Change, as in “let’s hope you’re still left with some change”.

“It is a simple issue of survival,” the newspaper quoted Anna Tsounara, a protester as saying. “… I have never demonstrated like this before but now I want answers. All of us here worked in the public sector on contracts for years and now we are told the state is bankrupt by a government that comes in and says it wants to get rid of us. Just like that. That’s not fair,” the protester added. …
The country’s leftist government under Prime Minister George Papandreou, only in power for three months, faces the colossal task of carrying out reform programs to eradicate problems of corruption and politics standing in the way of economic growth.

He has reportedly warned of the country’s “sinking” as a result of bad public finances unless changes are made.

“People are puzzled. They spent the best part of the last decade thinking ‘it’s over, we made it, we’re rich’ and then suddenly they’re told the country’s bankrupt. Like the past conservative government, many bought into the illusion that borrowing was OK. And now they, too, are weighed down by debt,” Pavlos Tzimas, a political analyst told The Guardian.

Greece’s problems were ironically exacerbated by its inclusion in Euro currency area. With Greek prices denominated in Euros, it’s tourist industry collapsed because people could no longer afford to visit the country and it had to borrow more and more to keep up the economy. The saga of Greece’s attempts to rein in decades of entitlement makes for gripping reading, not in the least because it echoes many of the themes now being heard in the US.

In Oct 2009 the socialist PASOK took power with a big majority. They promised to rein in the deficit but the new budget submissions soon showed that the deficit rather than falling wound continue to rise. In response the Prime Minister vowed to tax the bankers and increase tax rates on high income groups while announcing some cuts in social security. But the markets fell and international creditors remain unconvinced that Greece was serious. Meanwhile the protesters continued to demand that Greece ‘end the economic crisis’.  Nobody believed that the party was over, that the last days of disco had come and that the gravy train had to stop. It simply couldn’t be true and the protesters acted accordingly. The public sector employees union ADEDY has called a 24-hour nationwide strike to protest against the government’s austerity measures on Feb 10. “Greek tax officials have also called rolling nationwide strikes throughout February. Private sector union grouping GSEE has said it will stage a 24-hour strike against the government’s austerity measures at end-February.”

Although Guardian columnist Larry Elliot proclaimed the Euro “too big to fail”, the chief economist of Deutsche Bank, Thomas Mayer said “If the Greece situation is handled badly, the Euro-zone could break down, or suffer major inflation … Neither the European Central Bank nor the Commission nor any other EU body can force Greece to implement necessary reforms in exchange for help.” Mayer warned that Greece may be only one of several countries that will fall into the “EMU trap” a condition in which Europeanization essentially destroys the competitiveness of the economy.

Thomas Mayer warns that some countries might have fallen in what he calls an “EMU Trap”: According to his analysis, countries which have strong labour cost increases might fall into a position in which growth is slowing because competitiveness has badly deteriorated. With growth slowing, tax revenues are falling and outlays for unemployment are increasing, leading to a bigger budget deficit. In this position, a country cannot do much anymore: Cutting the deficit further would lead to even slower growth while there is no possibility to improve competitiveness quickly.

Thomas Mayer sees Portugal and Italy already in the EMU trap and Greece and Spain in imminent danger of falling into this trap. Thomas portraits three possible consequences from the EMU trap: First, a country could cut its production costs. Second, it could leave EMU. Third, it could pressure the ECB to allow for a higher rate of inflation in the whole union.

Without competitiveness, there is no goose to lay the Golden Egg and therefore no eggs.  But these admonitions fell on deaf ears as  Greek farmers blockaded borders with neighboring countries to demand debt moratoriums, more subsidies and higher prices for their goods. Eggs! Eggs! Greek officials have explained that the government simply has no more money but many protesters were sticking to their demands. Meanwhile across the Atlantic, the US is struggling with its own crisis brought about by a huge increases in spending, which like Europe were mostly the product of entitlements. Ironically these rose even as the government continuously reduced spending in one of the core government functions — national defense — to levels unseen in fifty years. Surprising as it may seem, Bush spent less for defense as a percentage of GDP than the lowest point under Jimmy Carter and at half the rate of Kennedy years, even before Vietnam. It isn’t the burden of guns which is sinking the West, it’s borrowed butter. Rising interest payments may eventually overtake defense spending.

The economic crisis in the West is in part a cultural crisis born of a contradiction in expectations. For many decades and especially since the End of History was declared circa 1989, there was a widespread belief that an unlimited amount of money existed from which to draw while populations went around fulfilling themselves tending the garden of Gaia in a politically correct universe in which there was no need for guns, no prospect of hunger and no cause for danger. And now the publics are saying “do you mean it was all a lie?” You mean like Global Warming?

Next year, according to Obama’s fiscal plan, spending would increase to more than $3.8 trillion. Revenues would rise by two full percentage points of GDP to almost $2.6 trillion. Thus the deficit as a share of GDP would shrink to 8.3 percent. After that, matters would improve somewhat more (thanks in part to a growing economy) but the deficit would never fall below 3.6 percent of GDP. And still, the total debt held by the public would grow from an already-troubling 63 percent this year to 77 percent by 2020.

Where’s the money going to come from? More taxes on wealthy individuals and business, the proposal says. The WSJ writes that tax deductions will decrease and tax rates will increase for those who are deemed able to do more.

The bulk of that increase comes as tax cuts enacted under President George W. Bush expire at the end of 2010. The top two income-tax rates, which affect people earning more than $200,000 a year, or $250,000 for married couples, will return to 36% and 39.6%, from 33% and 35% now. Under the budget plan, capital gains and dividends would be taxed at 20%, up from 15% now, for people at those income levels.

But as in last year’s budget, Mr. Obama proposed Monday to go further by limiting the value of those benefits, which include deductions for mortgage interest and some charitable contributions. The highest-income earners under current law can lower their taxes by up to 39.6% of those deductions; under Monday’s proposal, that would be reduced to 28%.

The Washington Post says the President declared “it’s time to save what we can, spend what we must and live within our means once again.” This basically means the government will tax more and spend more in order to stimulate the economy to eventually reduce the deficit. The WaPost is skeptical that it will work, but took pains to note that “it is Congress, and not the president, that sets spending and taxing levels. All the president can do is send up a budget blueprint and make it sound like his proposals are the final word.”

David Sanger at the NYT stops just short of saying that President’s Obama’s policies are an admission that America’s pre-eminence on the world stage is over. It is broke and has no prospect of ever getting level again. The question is whether the budget simply recognizes this possibility or actually constitutes a self-fulfilling prophecy. Sanger notes that the President’s budget contains two numbers. The first is a deficit percentage unseen since the Civil War, World War 1 and World War 2. It is a World War budget without a world war. But it is the second number that scares Sanger.

But the second number, buried deeper in the budget’s projections, is the one that really commands attention: By President Obama’s own optimistic projections, American deficits will not return to what are widely considered sustainable levels over the next 10 years. In fact, in 2019 and 2020 — years after Mr. Obama has left the political scene, even if he serves two terms — they start rising again sharply, to more than 5 percent of gross domestic product. His budget draws a picture of a nation that like many American homeowners simply cannot get above water.

He ends by saying that President Obama should get high marks for candor, unlike the Bush administration, which tried “sugarcoat” situation. Yet it is, as Sanger says, Obama’s deficit that we are talking about now.

Crimson tide

[There is a video that cannot be displayed in this feed. Visit the blog entry to see the video.]

Will this government-led recovery work?  Or will this budget simply exacerbate the situation. Open thread.

Five pages into the book, as Adams was performing a restrospective based on the admiral’s principles it occurred to me that it would be a useful exercise to ask: what would Mahan do if he commanded the War on Terror? Were the same political ‘compromise’ effects at work? And to what extent? The discussion after the “read more” explores that line of thinking.

Adams says that Mahan’s ideas can be succinctly expressed in five sentences. Let’s see how each side, the US and al-Qaeda, measure up to the key concepts.

1. The objective of your fleet is to destroy the enemy fleet. By this Mahan meant the destruction of the source of the enemy’s power to interfere with you.  In his view, the key problem in naval war was to focus on the enemy center of gravity. There was little use, he said, in attacking each little enemy outpost by itself. Destroy the source of their power and security — in this case the enemy fleet — and all the little outposts would fall automatically.
   • Even nine years after 9/11 there are no good official responses to the question: what is the enemy’s center of gravity? Or even, who is the enemy?  Is it in Afghanistan? Yemen, the Horn of Africa? Or is it something more abstract, like the sources of money and ideology that sustain it?  It is probable that Mahan would insist on finding answers to these questions.
   • In contrast, al-Qaeda has never wavered in the its decision to make the United States, its financial centers and centers of government the center of gravity.
2. Never divide the fleet. Once the enemy’s center of gravity is known then focusing on anything else is a waste of time. There will be temptations do a little bit of everything, to provide a little bit of protection for everyone.  Politicians in especial will want to craft a compromise strategy. But as Adams says, “compromise is the bane of [Mahanian] strategy. Strategic thinking must pare the problem down to its most critical facet, and then make the hard, uncompromising choice to concentrate all to win at that facet. To hedge one’s bets is to risk not being strong enough at the decisive point … never NEVER divide the fleet.”
   • America may in fact be in pursuing the strategy of mopping up every outpost it can find without focusing on the enemy center of gravity. Ralph Peters in the New York Post argued that Afghanistan was once an important place, but it’s not central any more. “We know why we went in 2001, but al Qaeda’s long gone.” The strategic reasons for the “war of necessity” may simply be that it was not Iraq. By pursuing a committee approach to warfare, the US may actually be treating “dividing the fleet” as a desirable thing.
   • al-Qaeda on the other hand is pursuing the classic Mahanian strategy of forcing its enemy to divide its fleet while remaining a force that can concentrate its efforts at will. It is a “fleet in being”. It never presents a single physical target against which the US can concentrate. But that’s not necessary. The Russians learned in fighting Napoleon that the center of gravity is not necessarily physical. It solved the problem of concentration by identifying his center of gravity as the Grand Armee’s endurance. By luring him into Russia and destroying the Grand Armee’s endurance, they avoided the necessity of having to concentrate their armies against the French armies. But in a strategic sense the Russians did not “divide the fleet”; by choosing the right focus, they concentrated it.
3. The nation that would rule the sea must always attack. Mahan believed that the only way to win was to retain the initiative.
   • To talk about pre-emption and initiative today is to court political disaster. The War on Terror is no longer even called a war. Victory has been discarded as an obsolete concept by the President himself. In its place are approaches that treat it as a chronic condition or another species of crime. That Khalid Sheik Mohammed is being tried for the 9/11 attack in order to be “brought to justice” is stark proof of this. What would Mahan make of treating warfare as a law enforcement problem? It is not clear whether the administration believes that initiative is even a virtue in war, or whether a state of war even prevails.
   • al-Qaeda on the other hand is always on the attack. Despite its smaller resources this organization retains the initiative even today.
4. Well trained men are decisive fleet attributes. Over time, better leadership will prevail.
   • The US has a tremendously well trained force. However as Adams notes, the total effectiveness of the “fleet” consists of the joint effect of  material capability x personnel training x strategic leadership. ‘If one of these factors go to zero, then the entire term is zero.’ It is possible that the cumulative US effort is being zeroed out by the inept strategic decisions.
   • On the other hand al-Qaeda may have small values for all the three factors mentioned above, but because its strategy may have a non-zero value the joint effectiveness is still some positive number.
5. To interfere with the commander in the field is generally disaster.
   • The number one rule in the War on Terror is to keep the commander in the field on a short leash; to spend months avoiding a meeting with him and to send thousand of lawyers to descend on his chain of command. Mahan would consider this a disaster, but Washington would consider it business as usual.
   • al-Qaeda is designed as franchise which allows for tactical flexibility within a single strategic framework. In many ways, al-Qaeda’s inability to communicate in real time with its field commanders re-creates the old Nelsonian environment of individual iniative.

The Japanese Imperial Navy put great store by Mahan’s teachings. Fortunately, so did the United States Navy. When they met, two strategically competent foes fought the greatest naval campaign in history. But today America’s adversaries in the War on Terror may be more faithful to the old admiral’s precepts than his strategic descendants. The correlation of forces between al-Qaeda and America is tremendously lopsided. What evens it out is the asymmetry in strategic competence.