Thursday, December 23, 2010

The Sad Limits of Realpolitik ("Realism" in politics)

Morality matters

Early in his service as President Nixon's national security adviser, Henry Kissinger paid a visit to his homeland. The West German government suggested to the press that Kissinger intended to visit some relatives. "What the hell are they putting out?" Kissinger vented to his aides. "My relatives are soap."

Blunt, and true. Kissinger had left Germany in August 1938 as a 15-year-old refugee, three months before Kristallnacht. His granduncle, three aunts and other relatives were murdered in the Holocaust.

So it is appalling to hear Kissinger, an epic life later, telling Nixon on a scratchy recording from March 1, 1973: "Let's face it: The emigration of Jews from the Soviet Union is not an objective of American foreign policy. And if they put Jews into gas chambers in the Soviet Union, it is not an American concern. It may be a humanitarian concern."

Some commentators have attempted to provide a psychological explanation for this incident, having to do with the struggles of a Jew in an anti-Semitic White House. But this effort is not necessary. Kissinger's words were not the expression of a quirk but of an argument. In 1969, he had publicly declared: "We will judge other countries, including communist countries, on the basis of their actions, not on the basis of their domestic ideologies." This is a commonplace assertion of a school of foreign policy called "realism" -- that only the external behavior of regimes really matters, that their internal conduct does not concern American interests. It is a view currently popular, even ascendant, among foreign-policy thinkers. Kissinger was merely being unsentimental in its application.

In response to the recent release of the recording, Kissinger said his words "must be viewed in the context of the time." That context was a debate over the Jackson-Vanik Amendment of 1974. The Soviet government -- which both practiced anti-Semitism and resented the brain drain of Jewish departures -- had imposed heavy fines on emigres. Sen. Henry Jackson and Rep. Charles Vanik, supported by American Jewish groups, responded with legislation that linked normal trade relations with the Soviet Union (and other "non-market" economies) to the freedom to emigrate.

Kissinger believed that detente with the Soviet Union was of overriding importance and that human rights issues should only be raised quietly, on an unrelated diplomatic track. "The Jewish community in this country, on that issue," he told Nixon, "is behaving unconscionably. It's behaving traitorously."

But Jackson-Vanik turned out to be a pivot point in the Cold War. After an initial drop in emigration, the legislation exerted two decades of pressure on Soviet leaders, eventually resulting in higher emigration levels. It pressed one of the West's most powerful ideological advantages against the Soviet Union by demonstrating the weakness of a system that must build walls to keep its people from fleeing. This emphasis on human rights inspired not only Jewish refuseniks but other groups and nationalities that inhabited the Soviet prison.

Jackson-Vanik was both a rejection of Kissinger's realism and a preview of Reaganism. It asserted that oppressive regimes are more likely to threaten their neighbors, placing human rights nearer the center of American interests. It elevated standards of human dignity that were direct threats to regimes premised on their denial.

Henry Kissinger is not a simple villain, because he is not a simple anything. Complexity is his creed. In other circumstances, he was a friend to the state of Israel. He skillfully navigated a difficult patch in the Cold War. In later writings, he has recognized the role of idealism in sustaining American global engagement.

This 37-year-old quote does not characterize an entire career. But it illustrates the narrowness of foreign policy realism. It has a sadly limited view of power, discounting American ideological advantages in global ideological struggles.

Realists often hold a simplistic view of great-power relations, asserting that any humanitarian pressure on Russia or China will cause the whole edifice of global order to crumble. This precludes the possibility of a mature relationship with other nations in which America both stands for its values and pursues common interests.

And from this historical episode, it is clear that repeated doses of foreign policy realism can deaden the conscience. In President Nixon's office, a lack of human sentiment was viewed as proof of mental toughness -- an atmosphere that diminished the office itself. Realists are often dismissive of Manichean distinctions between good and evil, light and darkness. But in the world beyond good and evil, some may be lightly consigned to the gas chambers.



Looting Lorillard

A BOSTON JURY last week ordered Lorillard Inc., the tobacco company, to pay $71 million as compensation -- and another $81 million in punitive damages -- for the death of lifelong smoker Marie Evans, who died of lung cancer in 2002. Evans's son William, a Harvard-trained lawyer, claimed that Lorillard had hooked his mother on cigarettes by giving out free samples of Newports in the Boston neighborhood where she lived as a child in the 1950's and 1960's.

Lorillard denied the allegation, and apparently the only direct evidence for it was a videotaped deposition in which Marie Evans described how she began smoking at 13. But it doesn't seem implausible to me. The great majority of smokers take up the habit before turning 18, and even I can recall packs of cigarettes being handed out on Cleveland's Public Square in the late 1970's.

Yet even if it were true, how can it be just or moral to expropriate tens of millions of dollars from a company for distributing free samples of a lawful product? Why should Marie Evans's decision to smoke -- something she always knew was bad for her health -- entitle her son and estate to be showered with money? Reasonable people can debate whether cigarettes, already heavily regulated, should be banned outright. But it is not reasonable to hold tobacco companies liable for the foreseeable risks that smokers assume.

Lorillard never forced or tricked Marie Evans to use cigarettes; she became a smoker willingly. By her own account, she first received those free cigarettes when she was 9, and for years traded them for candy. Plainly it wasn't Lorillard that eventually got Evans to start smoking; if she could resist the lure of tobacco until she was 12, she could have resisted it at 13.

The demonizing of tobacco companies is popular, and who wouldn't rather think ill of Big Bad Tobacco than of a devoted mother who lost a terrible fight with lung cancer at the age of 54? But sorrow for Marie Evans and sympathy for her son don't alter reality: What turned her into a smoker was not a wicked corporation. It was a foolish choice she made as a teen-ager. People who willingly make foolish choices -- a category that includes most human beings, especially those of the teen-age persuasion -- ought not to be enriched for their foolishness.

Yes, smoking is addictive, but the addiction is not inescapable: Tens of millions of Americans have kicked the habit and nowadays most never start. Among those who do, there may conceivably be some so weak-willed, suggestible, or mentally deficient that they were literally incapable of refusing an invitation to smoke. Marie Evans -- a single mother who earned a degree from Northeastern University, rose through the ranks at Verizon to become a human-resources manager, and is described as "the determined one" by Michael Weisman, the lead plaintiff's lawyer in the suit against Lorillard -- was clearly not such a smoker.

"It's awful, what they did to my mom," Willie Evans told an interviewer this week. But "they" -- Lorillard -- did nothing very different from the countless other vendors who tempt us with products we would be well advised to resist, or at least to use in moderation. As a son who loved his mother and hated to see her suffer, Evans understandably hates the cigarettes that sickened and killed her. It's even understandable that he might hate the company that makes the cigarettes she favored. However, to turn her death into a legal pretext for looting that company does her memory no honor. Neither does Evans's claim that his mother "had no free will." Of course she had free will. And one of the ways she exercised it had tragic consequences.

What if Marie Evans had died from cirrhosis of the liver after drinking a six-pack of Budweiser every day for 40 years? Would her son be entitled to a fortune in damages from Anheuser-Busch? If she had been an incorrigibly reckless driver, who died in a crash caused by her speeding, would Willie Evans have sued the auto manufacturer whose commercials made fast cars so irresistible to his mother? If she had eaten her way to an early grave, would her son have gone after Nestle, Mars, and Hershey for getting her hooked on sweets long ago with a marketing strategy that targeted children?

The urge to blame others for our own self-destructive choices is as old as the power to choose. There is nothing admirable in yielding to that urge. Still less in rewarding those who do with $152 million.



Why the persisting high unemployment?

The Fed and its failed theories

While the Fed has pumped huge quantities of liquidity into the economy, the U.S. is paradoxically facing a credit crunch. As the accompanying chart indicates, banks have utilized their liquidity to pile up cash and accumulate government bonds and securities.

In contrast, bank loans have actually decreased — a credit crunch. And since credit is a source of working capital for businesses, a credit crunch acts like a supply constraint on the economy. Even though it appears as though the economy has loads of excess capacity, the supply-side of the economy is, in fact, constrained by the credit crunch. It is not surprising, therefore, that the economy is not firing on all cylinders.

To understand why, in the Fed's sea of liquidity, the economy is being held back by a credit crunch, we have to focus on the workings of the loan markets. Retail bank lending involves making risky forward commitments. A line of credit to a corporate client, for example, represents such a commitment. The willingness of a bank to make such forward commitments depends, to a large extent, on a well-functioning interbank market — a market operating without counterparty risks and with positive interest rates. With the availability of such a market, even illiquid (but solvent) banks can make forward commitments (loans) to their clients because they can cover their commitments by bidding for funds in the wholesale interbank market.

At present, the major problem facing the interbank market is the zero interest-rate trap. In a world in which the risk-free Fed funds rate is close to zero, banks with excess reserves are reluctant to part with them for virtually no yield in the interbank market. Accordingly, the interbank market has dried up — thanks to the Fed's zero interest-rate policy — and, with that, banks have been unwilling to scale up their forward loan commitments.

In short, the Fed's zero interest-rate policy has created a credit crunch that is holding back the economy. The only way out of this trap is for the Fed to raise the Fed funds rate to, say, two percent.

The Fed's interest-rate strategy is not the only thing holding back the U.S. (and international) economy. Regime uncertainty is so thick that you can cut it with a knife. The Fed — by embracing more quantitative easing — has generated uncertainty. Bond market participants, among others, anxiously ponder how and when the Fed will eventually drain liquidity from the economy. Bankers are also nervous. They have been called on to beef up their banks' capital positions. This they have done. But, will there be more mandates to increase bank capital? And, if this wasn't enough, the all-important bank regulations that will accompany the new Dodd-Frank bank legislation will take years to be written and finalized. It's not surprising that bankers, instead of making loans, are piling up excess reserves....

We must not forget that the Fed's ultra-low interest rates have not only produced a U.S. credit crunch, but also picked the pockets of prudent savers. For example, with "low" returns (and "low" discount rates), the unfunded liabilities of state pension funds in the U.S. have exploded and are estimated to reach $1 trillion by 2013. In the United Kingdom, actuaries are also having sleepless nights because of "low" yields (and "low" discount rates). Over half of the companies in the U.K. are projected to face bankruptcy if government bond yields remain at current levels.




Gaza: IDF fighter jets strike Hamas targets: "The IDF Spokesman unit on Tuesday confirmed that IAF aircraft attacked terrorist activity targets in the southern Gaza Strip. ... Palestinian sources claimed that the IDF attacked targets in the Gaza Strip belonging to the military wing of Hamas, Izzadin Kassam Brigade and eye witnesses reported that four people were injured during the attacks. The reports follow an incident in which a Kassam rocket landed near a kindergarten in a kibbutz near Ashkelon on Tuesday morning, injuring a 14-year-old girl."

After four decades, Harvard opens door to ROTC: "Harvard University will welcome ROTC back to campus now that Congress has repealed a ban on gays and lesbians serving openly in the military, university president Drew Faust said. The move will end a four-decade standoff between one of the nation’s most prestigious universities and its armed forces. The tension began over the Vietnam War and continued in recent years as university administrators, faculty, and students objected to what they saw as discrimination against gays and lesbians." [It will be a while before the change will be implemented so Harvard sound like they are racing to get a monkey off their backs]

Census result: "The population of the United States grew 9.7% to 308.7 million people over the past decade -- the slowest rate of growth since the Great Depression -- the Census Bureau reported on Tuesday. In the 1930s, the population grew by just 7.3%. Comparatively, the nation added 13.2% more residents during the 1990s."

NJ: Mortgage firms face possible foreclosure freeze: "The chief judge of New Jersey's highest court ordered six leading mortgage lenders and servicers to face a possible freeze on their foreclosures in the state due to problems in handling documents, the Associated Press reported. ... [Supreme Court Justice Stuart] Rabner's order follows a report to the Supreme Court citing depositions and court filings in other states. It portrayed a system rife with abuse in the filing of foreclosures that include 'robo-signing,' in which employees signed hundreds of documents without checking them for accuracy." [There have been a lot of bungles]

Murkowski the RINO: "One of Pres. Obama's biggest supporters in the Senate in the past week is not even a member of his own party: Sen. Lisa Murkowski (R-Alaska). Murkowski supported the president's position on the Senate's four biggest votes since last Wednesday. She and fellow Alaska Sen. Mark Begich (D) voted in favor of the tax cut compromise and to invoke cloture on New START treaty, the Dream Act and the repeal of Don't Ask, Don't Tell. Both senators also voted in favor of the final repeal of Don't Ask, Don't Tell on Saturday. No Senate Republican voted for all four bills other than Murkowski."


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The Big Lie of the late 20th century was that Nazism was Rightist. It was in fact typical of the Leftism of its day. It was only to the Right of Stalin's Communism. The very word "Nazi" is a German abbreviation for "National Socialist" (Nationalsozialist) and the full name of Hitler's political party (translated) was "The National Socialist German Workers' Party" (In German: Nationalsozialistische Deutsche Arbeiterpartei)


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