Obama is choosing to be weak

My new column for the Financial Times:

As he promised last year, Barack Obama has brought climate change and healthcare reform to the centre of the nation's attention. As well as evangelising, he is pressing Congress to act. Last week the House of Representatives passed the Waxman-Markey cap-and-trade bill to curb carbon emissions, a measure that, if enacted, would touch every part of the US economy. Both House and Senate have drafted far-reaching healthcare bills, with stunning price tags.

Mr Obama aims to keep his promises, which is admirable. Unfortunately, there is a problem. This is not, as many Republicans argue, that neither issue requires forthright action. Both do. The problem is that the bills emerging from Congress are bad and Mr Obama does not seem to mind.

Read on.

What do we know about Iran?

How well do we understand what is going on in Iran?

Not very well, according to a much-discussed article by Flynt Leverett of the New America Foundation and Hillary Mann Leverett, formerly of the State Department and the NSC, published just after the Iranian election.

Without any evidence, many U.S. politicians and "Iran experts" have dismissed Iranian President Mahmoud Ahmadinejad's reelection Friday, with 62.6 percent of the vote, as fraud.

They ignore the fact that Ahmadinejad's 62.6 percent of the vote in this year's election is essentially the same as the 61.69 percent he received in the final count of the 2005 presidential election, when he trounced former President Ali Akbar Hashemi Rafsanjani. The shock of the "Iran experts" over Friday's results is entirely self-generated, based on their preferred assumptions and wishful thinking.

Although Iran's elections are not free by Western standards, the Islamic Republic has a 30-year history of highly contested and competitive elections at the presidential, parliamentary and local levels. Manipulation has always been there, as it is in many other countries.

But upsets occur - as, most notably, with Mohammed Khatami's surprise victory in the 1997 presidential election. Moreover, "blowouts" also occur - as in Khatami's reelection in 2001, Ahmadinejad's first victory in 2005 and, we would argue, this year.

Like much of the Western media, most American "Iran experts" overstated Mir Hossein Mousavi's "surge" over the campaign's final weeks. More important, they were oblivious - as in 2005 - to Ahmadinejad's effectiveness as a populist politician and campaigner. American "Iran experts" missed how Ahmadinejad was perceived by most Iranians as having won the nationally televised debates with his three opponents - especially his debate with Mousavi.

For this the Leveretts were roundly condemned as "apologists" for the Ahmadinejad regime, as "useful idiots", and worse. But these attacks were not joined, and still have not been joined, so far as I can see, to an actual refutation of their points. There are strong statistical signs of manipulation and plausible allegations of rigging, but do we believe that Ahmadinejad would have lost a clean election? That is, do we believe that most Iranians want him out? The evidence is much less clear-cut (see here and here) than our conviction that Ahmadinejad is despicable. But then we knew he was despicable before the election.

Continue reading "What do we know about Iran?" »

Too timid on financial reform

My new column for the FT complains that Obama's proposals for financial regulation are too thin.

The Obama administration's proposals for US financial regulation are pretty good, as far as they go. The problem is they do not go far enough.

Great care and intelligence went into the plan announced last week. It makes no stupid suggestions; recall Sarbanes-Oxley, a recent instance of unguided regulatory backlash, and you see this is no small achievement. But the plan's comprehensiveness is a bit of an illusion. It ignores many issues, and has more loose ends and suggestions for further review than actual innovations.

Also, as in other areas, the White House is unwilling to confront the political barriers to fuller reform. You can call this pragmatism, or you can call it timidity. A crisis of this order demands big new ideas, and the leadership to push them through. In finance, if not now, when?

Read on.

"Packing the Court" by James MacGregor Burns

Here is my review of a new history of the Supreme Court. The author argues, among other things, that the court has claimed too much power and needs to be reined back.

On one view of US history... the court has been instrumental in expanding the federal government. That is why many conservatives complain about "judicial activism". But Burns is no conservative. In this book, he is a liberal on amphetamines. He sees a court that has used its power almost entirely to block liberal governments and the voters that elected them...

Tendentious though his reading of constitutional history may be, Burns is right about some important points. Supreme Court justices are indeed unelected and unaccountable politicians in robes, as he says - and this is a problem. But they come in all ideological colours. Some are conservatives, some are liberals, some have no fixed position - but few show restraint in overruling governments and the people they represent, even when the law is unclear. Big decisions often, indeed usually of late, turn on single-vote majorities. Narrow majorities are a sign that the law is disputed. In such cases, deference to the popular will should be the norm but rarely, if ever, is.

What Burns really wants, though, is not a self-effacing court but one that puts its shoulder to the wheel of progressive politics. With surprisingly little art, he disguises this as a call for judicial modesty. He says he wants a court that would not obstruct "the kind of transforming leadership that the empowerment of the majority should make possible". But he wants it only when the empowering majority agrees with him.

Burns suggests a constitutional crisis.

His modest proposal is this. Mr Obama, if the court deems a law he has signed to be unconstitutional, should simply ignore that finding on the grounds that the constitution does not give the court power to decide what the law is. The president should then invite his critics to amend the constitution, if they can, to confer that power explicitly.

It would take courage, Burns admits: "There might even be demands for impeachment."

Yes, just possibly. A bizarre recommendation, and a tendentious telling of the history, as I say. But still I found the book worth reading. It's provocative and well-written, and gets a lot right.

Atul Gawande's article

Anyone at all interested in the US health debate will already have read Atul Gawande's excellent New Yorker piece, which compares health spending in McAllen, Texas ($15,000 per Medicare enrollee in 2006) with spending in El Paso (only half as much, even though its relevant characteristics seem similar). His recent commencement address at the Pritzker School of Medicine is also very good. Both pieces serve to shift the focus away from the preoccupation with public v private insurance, because the enormous variations in health spending he discusses are within the public system. They also slightly dampen one's hopes for comparative effectiveness research, all the rage just now, as a way to save money--unless it is used alongside changes in financial incentives. Changes in payment delivery are the key thing. How are doctors and hospitals reimbursed? That is what matters.

The Health Affairs blog has two posts for supplementary reading. One is about the Dartmouth research that provides the data for this kind of comparison (and which is facing criticism of late). The other is a roundtable on the Gawande article.

The financial blueprint

The administration's proposals embody a series of compromises, some more defensible than others--but at least (compare with health reform) the White House has worked out a careful, detailed plan and is making the case for it.

Most of the key elements are, or should be, uncontroversial: stronger system-wide oversight, albeit with responsibility divided between the Fed and a new Financial Services Oversight Council chaired by the Treasury; more demanding capital requirements for banks and other financial firms; an FDIC-like early resolution regime for systemically important financial institutions; new consumer protections, to be designed and enforced by a new agency; stronger regulation of securities, with a requirement that originators of securitised loans retain a material interest in the asset; and moves to get standardised derivatives traded on exchanges rather than over the counter. Based on recent experience, each of these proposals meets a clear need.

That is a lot to be getting on with, but it is disappointing nonetheless that Obama has flinched from attempting a thorough overhaul of the regulatory structure. The multiplicity of overlapping regulators not only remains, it grows more complicated. The Office of Thrift Supervision disappears into the Office of the Comptroller of the Currency, for a loss of one regulatory entity. But banks, for instance, will continue to regulated by many different state and federal regulators. In the end, opportunities for regulatory arbitrage will not be significantly reduced. There had been talk of merging the SEC and the CFTC as well, but that will not happen either.

A main reason for this timidity appears to be Congressional prerogatives--the unwillingness of various committees to surrender their oversight powers. This fracturing of supervision will put an enormous burden on the Treasury and its new oversight council. Next time, that is where the buck will stop.

The oversight council is a political compromise in another sense. It would have been tidier to put its functions at the Fed, now that the central bank is to have bigger systemic-stability responsibilities. But many in Congress think that the Fed is already too powerful, and is being rewarded for failure. So with one hand the administration gives it new authority (with respect to individual systemically significant banks and non-banks) and with the other denies it or takes it away (through the Treasury-led council; through the requirement to "receive prior written approval from the Treasury for emergency lending under its 'unusual and exigent circumstances' authority").

For the most part the plan is very good. If it can be implemented in this form--and depending on crucial details such as the precise form of the new capital requirements--the financial system will be safer. But the unmended complexity of the structure is going to be a serious problem. Getting the pieces to work well together will not be easy. And international co-ordination around the new rules, which the administration rightly wants to see improved, is going to be much more difficult than it should be. If getting domestic regulators to work together is going to be a challenge, I don't give much for the chances of effective  co-operation across borders.

Of the commentary I have read so far on the plan, I recommend this note by Douglas Elliott at Brookings.

Is this leadership on health care?

Obama's hands-off approach to health care reform looks ever more questionable. I'm getting tired of listening to speeches that state uncontroversial goals--widen coverage, curb costs, free doctors from useless paperwork, improve medical outcomes--but have little or nothing to say on how these things might actually be done. It's one thing to refrain from ramming a fully worked-out blueprint down the throat of a skeptical Congress, another entirely to step back altogether from fundamental questions of design and cost recovery.

Obama is failing even to express preferences. Aren't hard choices supposed to be his specialty? To listen to the administration, one would suppose that there are no hard choices in health care, only easy ones: for example, to curb costs, simply widen coverage. Who really believes that? It is a dream world.

Yes, he has backed the public plan option, which seems to imply a view of some kind--but what does that proposal actually mean? As this new FT column of mine argues, it is surely disingenuous to say that a public plan can be just another competitior. How can just another competitor "keep them [the private insurers] honest"? If the public plan makes a difference it will be because of its market and political power, and because of its ablity to attract subsidy--in short, because it is not just another competitor. If in turn it exerts those pressures, Obama's pledge that nothing will change for Americans who have private health insurance they like will be impossible to honor. Not even Obama can reform a system without changing it.

Incidentally, the headline on that column--"Medicare for all may be the best cure for the US"--was a little over-exuberant. The piece says that Medicare for all might be better than the current system, but that isn't saying much. In fact I think a system based on well-regulated private insurers is still the best bet. That is unlikely to be where we end up if a public option is included and empowered to make a difference. The momentum in that case would indeed be toward Medicare for all. The main point of the article is that if Obama does want to shove the US in that direction--as many other Democrats plainly do--then he, and they, should say so and start making the case.

For more on the hard choices in health care reform, here's another recent column I did on the subject for National Journal.

  

Sotomayor and racial politics

My new FT column praises Sonia Sotomayor but questions her decision in the New Haven case, and argues in any event that the law on affirmative action needs to be adjusted.

During the election campaign, Mr Obama touched on the controversies surrounding affirmative action and racial discrimination. He said it was time to start emphasising the principle of colour blindness, and that help for disadvantaged people would be better targeted not by race but by individual circumstances - not according to whether people are black or brown, but whether they are poor or badly educated.

It is true that poverty and poor education are racially correlated. It is also true that bigotry has not disappeared. On the other hand, bigotry has surely subsided. The US now has a black president. In principle, a black student stuck in a failing inner-city school has no greater, or smaller, claim on the nation's conscience than a white or Hispanic student in the same position. The US needs to think less in racial terms. That is an achievable ambition for Mr Obama.

(Incidentally, the piece describes her as the daughter of an immigrant. A stupid mistake, for which I apologise. Her parents were from Puerto Rico.)

Obama's speech in Cairo

Like many observers I thought Obama's speech in Cairo was excellent: brave, reasoned, and direct. Of course he paid routine tribute to "all of the children of Abraham", underlining the values they hold in common, and so on. That was the easy stuff. The hard part was to transcend those platitudes, get to grips with the issues, and say things he knew would fail to please his audience.

He did. He affirmed "America's strong bonds with Israel" and called on Palestinians to abandon armed struggle: "Violence is a dead end. It is a sign of neither courage nor power to shoot rockets at sleeping children, or to blow up old women on a bus. That is not how moral authority is claimed; that is how it is surrendered." He also attacked Mahmoud Ahmadinejad and other Holocaust deniers, calling their views "baseless", "ignorant" and "hateful". There was no equivocation in these parts of his speech. But he also recognised the justice of the Palestinian cause. "America will not turn its back on the legitimate Palestinian aspiration for dignity, opportunity, and a state of their own... The United States does not accept the legitimacy of continued Israeli settlements. It is time for these settlements to stop."

The challenge in fact is not merely to stop new settlements, which will be hard enough, but also to evacuate existing ones. David Ignatius has a good column on the long history of US exhortation on the matter. Experience says that deflecting Israel from its current policy is likely to require more than mere words. Words have been tried before, but if they count for anything, give Obama his due. This was an outstanding speech, one that paid tribute to the intelligence and goodwill of his audience. He addressed the world's Muslims frankly but respectfully, as a would-be friend and partner. He achieved a tone and sophistication that few other politicians--to say nothing of his predecessor--could even attempt, let alone match. I think we have a test case for the efficacy of soft-power diplomacy. We will see what difference, if any, the Obama factor makes.

An impatient America will lose Afghanistan

I have been in Kabul this past week. My new column of the FT has some observations about the challenges confronting US policy.

On every side, when one turns from goals to execution, intractable difficulties crowd in. Looming over everything is the question of US commitment. In choosing sides, much as they may dread the return of a fundamentalist tyranny, Afghans can be forgiven for asking who is more likely to be here in five years, the Americans or the Taliban. The prudent man hedges his bets.

Afghans know that the US policy debate revolves around exit. The Taliban explain it to those who are unaware. "They have the watches," they say, "and we have the time." Americans ask, when do we leave? But talk of an exit strategy for Afghanistan is 20 years premature. The country cannot be secured - and denied as a haven to enemies of the west - by force alone. Also required are far-reaching reform of its governance, perceptible improvements in living standards and wholesale reinvention of vital institutions such as the police.

This is not a one-year project, or a three-year project or even a 10-year project. Can the US credibly commit itself to underwrite this endeavour for as long as it takes? I doubt it. So do the Afghans. The irony, of course, is that the struggle might still drag on that long - at an even higher cost, ending ultimately in failure - because of that very lack of credibility.