Drawing the Line

One of my favorite British mystery series, shown several times on PBS but now seen only rarely, is Foyle’s War.  It relates the adventures of a police detective during World War II Britain, and continually combines wartime plot complications with old fashioned hunting down of malefactors.  One of the interesting plots involved a murderer from an aristocratic English family who turned out also to be a German secret agent.  That brings to mind one of the most obscure trivia of World War II, that German casualties included eight U.S. citizens who had become members of the German SS.  War has historically been a time of switching sides for some, and suffering the consequences, often without benefit of trial.

That is one of the often ignored complexities of the drone warfare issue.   Another is the “collateral damage” issue; from the burning of Washington by the British in the 1812 War to Sherman’s burning of Atlanta to the U.S. firebombing of Dresden to Hiroshima, death and injury to civilians has been a part of warfare.  The assumption has been that close association with the enemy brings you into the same crosshairs with him, whether you deserve it or not.  In that regard, targeted drone strikes are actually a more precise way of limiting “collateral damage” than has been available in the past.  And the argument that use of a new weapon like drones could be copied by some future adversary has never dissuaded us in the past: witness the Monitor/Merrimac battle, jet planes or Hiroshima.   The oddity of a new weapon does not mean its future misuse by the American government against the American people; jet planes are not a weapon of any U.S. police force.   So, does there remain a line that should not be crossed, and if so, where is it?

A clear line would be to avoid attacking U.S. citizens not part of an invading army on U.S. soil.  But that is already illegal, and, by the way, has been since 1812.  Even in the Civil War, solitary confederates off the battlefield were arrested, not shot on sight.  That is because adversaries on American soil fall under our police powers, and our whole justice system, including rights to trial and due process are based on the exercise of those powers.  Even on American soil, military justice requires a different system, with its own rules of procedure and penalties.  A clear difference is that police powers are exercised after commission of a crime, and not based only on intent, and that is not a limitation under military powers. Under military law a soldier can be punished for inaction, not the case in civilian law. Such differences are what declarations of martial law, rarely done and never lightly, are all about.

The absence then of police jurisdiction in an area of violent conflict is an indicator of the availability of drones.  The more complex issue is that of “targeted” drone strikes, i.e. strikes aimed at specific people, who may or may not be American citizens.  An obscure provision of the Constitution prohibits “bills of attainder”, warrants to arrest a person based only on his perceived bad character; that is the source of the prohibition under police powers against arresting someone before actual commission of a crime.  Again, that applies to those under our police jurisdiction.  Putting it all together then, the use of targeted drone strikes in parts of the world where we are engaged in armed military conflict is morally ugly, but legally acceptable.

The real question then is whether we morally can accept targeted drone strikes as ugly but necessary. Here we can fall back only on the old moral test regarding the lesser of evils:  is it the minimal bad thing we can do to avoid greater evils?  As I’ve noted, it involves actually more limited collateral damage than techniques used in the past; it does not require unusable advance planning in immediate action situations, and currently is suitable only for use in sparsely populated hostile terrain.  Its use is against those who have committed or clearly intend to commit great harm against the U.S., involving the loss of many lives.  So long as it involves the highly limited use made of it so far, then drone warfare appears to meet the “least of evils” test.  The real test will come when it becomes cheaper and still more tightly targetable.  War itself is the villain here.  It should be noted, by the way, that I am no lawyer, so my analysis involves only my version of common sense and cannot be blamed on any law school.  Then again, sometimes common sense applies even to the law.

Growing Young Again

“You can’t go home again” is the famous observation by novelist Thomas Wolfe, and that is the growing problem of the baby boom generation.  Raised in the quiet 50’s and roaring 60’s in an America different in major ways from today’s, they deplore what they see now but just lack the energy to work hard to make it better.  Instead, they tend to hunker down and hope for a kinder tomorrow that will bring back the yesterday they recall, not always accurately, as somehow better. In the process, they tend to see more deficits than investments, more aliens than energetic new Americans, more dangers than opportunities.  What emerges is, according to demographer William Frey of the Brookings Institution, a widening culture gap between the largest generation and the youngest.  And that endangers all our futures.  The 78 million baby boomers are increasingly negative and isolated from the young in their views, and while the youngest seek new opportunities and new visions, the largest generation has the votes to stop or delay them.  Baby boomers were born to parents educated because of the GI Bill, benefitted from Eisenhower’s major expansion of the transportation system, had the major financial load of aged parents in ill health removed by Medicare, got everything from Teflon to computers through publicly funded research programs and educated their own children with the student loan programs. Yet they see public programs now only as another addition to deficits.  Instead of growth, they seek austerity.

In 1822, we were expanding into new territory, creating new states, vigorously building new roads and canals; this, ten years after the British had captured Washington and attacked Baltimore and New Orleans.  While Lincoln was fighting a Civil War he was also beginning a transcontinental railroad.  Back then, bursting with energy, as a nation we were so young we didn’t know better.  Yet, over ten years after 911, we are, as retired Marine and author Peter Munson points out in the Washington Post, hunched-over psychologically  as a culture, still in mourning, awaiting an enemy’s next blow.  He contrasts that with the can-do attitudes of the young soldiers he fought alongside of  in Iraq and Afghanistan.  We have ceased being expanders and become only defenders. In the process, we are missing opportunities to seize the advantage in new technologies, fold a new generation of energetic young workers into a workforce strongly in need of them, make the transition to clean energy and act on the issues of global climate change.

The recession of the last few years was not just a financial crisis.  It was also a product of declining industries and technologies ripe for replacement,, enabling a major switch of the economy from old energy sources to new, old infrastructure to bridges and buildings suited to the 21^st century, old assembly lines to robotics.  Economists report that jobs and wages are shrinking today, but that is in the old economy. Potential for jobs and wages in the new economy is unbounded.  Such a new economy requires educated and skilled workers of all types, yet we want to cut student loan programs, fight against the Dream Act, and reduce major research programs to a minimum.  We have seen the waves of the future in nanotechnology, robotics and green energy, but we don’t feel we can afford them yet.

The most bothersome statistics I’ve seen lately are the Pew Center’s report that only 23 percent of baby boomers regard the growing immigrant population as a change for the better, and the report that the percentage of American young people with college-level education has dropped from 1^st in the world to 14^th.  The German economy has shown how highly educated workers and acceptance of immigrants into the labor force can create an economic boom.  The 2010 census revealed that our under-age-18 population would have declined had it not been for the entrance of 5.5 million Hispanic and Asian youth.  Economists tell us that, with declining birth rates, we face major labor shortages without immigrants. Yet, until we cease our defensive attitude as a nation, we will miss opportunities to enable a better future.

It comes to this.  We cannot rely only on self-funded education of wealthy elites to guarantee our success as a nation.  We need more, not less, immigrants and native-born minorities each year, and we need them to become educated.  They are young, willing and able to become positive additions to the American work force, as others from abroad have done for many generations.  We need to educate them, and they want education.  We need more Dream Act and Student Aid legislation that will enable us to develop not just immigrant but our already present minorities to become more skilled for the economy of the future.  The neurosurgeons of today descend from the starving immigrants of the past.  A national program for education of young people in need, immigrants and American-born alike, is a priority.  They are our future.

Lowering the Cost of Medicare

I’m coming off a week of enduring “the common cold”, one of the miserable human conditions for which there is no cure.  Modern medicine promises cures for just about everything else; have you, too, been afflicted by those incessant “low T” ads?  Unfortunately, the cures always have a price, often a very large one.  And that price is a too neglected factor in the current Medicare debate.

Long ago, Aristotle, Aquinas and other thinkers concluded that, as a moral necessity, the price of things must reflect their actual worth.  They wrote that the actual price charged for a thing must be its “just price.”  Surely Adam Smith, himself a moral philosopher, knew that as he unveiled his new science of Economics.  His great failure though, and it was great and it was a failure indeed, was to introduce “the invisible hand of the market” to wash away all sin.  That worked in 18^th century Scotland, a classic traditional “small market” economy”, but somehow has lost its cleansing power in our 21^st century age.  Smith’s assumption of buyer and sellers with common moral norms getting together under conditions where each knows fairly well the “just price” that should be charged, and by their decisions help set it, no longer is even close to describing our current economy.  Modern economists see only “all the market will bear” as the criterion for price, and justice has nothing to do with it.

That comes to mind in reading a Washington Post article on the cost of cancer drugs, written by three distinguished oncologists, Hagop Kantarjian, Tito Fojo and Leonard Zwelling.  They ask why 11 of the 12 new cancer drugs approved by the FDA last year each have an estimated annual cost of over $100,000, yet only 3 of the 12 actually improve survival rates, and then only in minimal ways.  They note that the average monthly cost of cancer drugs has more than doubled in the past 5 years (this, in a time of recession!).  They delve in their article into moral issues specific to oncology, such as whether price should be based on survival rates or actual effects on tumors, but raise broader issues also.  For example, the usual justification by drug companies for their charges is “product development costs”, including costs of testing unsuccessful drugs, but it also includes items like education (we all know about those physician “seminars” in the Caribbean and Hawaii included in that) and advertizing.  The internal pricing each company arrives at for those items is arbitrary and varies a lot company to company.  Is it just to bill a dying patient for physician jaunts to Hawaii?  And companies “pay to delay” the entrance of cheaper generic drugs into the market.  Should patients bear the cost of that?

But here’s the really big item.  The VA gets drugs at half the price of Medicare because the VA is allowed to negotiate price but Medicare is prohibited.  As a result, the prices Medicare must pay for are two to four times the prices charged for the same drug in other countries.  Those are not drugs from the cheap fly-by-night outfits the drug companies rail about, but the prices paid to the same U.S. companies that are doing the railing.  Unchaining the market to wave its invisible hand would bring remarkable reductions in the cost of drugs, but of course that’s not all that’s needed.  Medicare negotiating would be an enormous gain for the economy and the patient, but would still leave the patient ignorant and feeble amid the pressures big pharmaceutical companies can exert.  Much stronger investigation and regulation of the claims companies make for efficacy of their drugs is required, along with strong regulation of the cost accounting that goes into setting prices.  In the EU regulators approve drug prices, and costs are substantially lower; in the U.S., such prices are unregulated.  The FDA responsibility should be expanded to include medicine price regulation.

All our politicians speak of the need to reduce the cost of Medicare.  Too many of them speak as though it’s a matter of reducing eligibility and coverage.  In fact, the biggest savings are available without any reduction in service.  In other countries, a moral principle of health care is that no one should unduly profit off the sickness of others.  They provide excellent health care at reasonable prices, guided by that principle.  For the U.S. to address “morally acceptable prices” for medicines would be a major step in that direction.

Tax Havens and Other Pursuits

A few weeks ago, in Getting to the Top Line, I wrote about the ways corporations and the wealthy have of not even getting their gross income reported to IRS, much less having it taxed.  That means that the tax rates argued about so pyrotechnically are not even all that significant to those capable of keeping income off of the Adjusted Gross Income line; if they pay 20 percent of one-tenth of their actual gross, it looks good from a public relations point of view, but is actually trivial.  An article by Larry Summers, former Treasury Secretary and President of Harvard, was the source of some general information I used.  Now Senator Bernie Sanders of Vermont has come forward with some even more revealing specifics.

Sanders reports that “In 2010, Bank of America set up more than 200 subsidiaries in the Cayman Islands (which has a corporate tax rate of 0.0 percent) to avoid paying U.S. taxes. It worked. Not only did Bank of America pay nothing in federal income taxes, but it received a rebate from the IRS worth $1.9 billion that year. They are not alone. In 2010, JP Morgan Chase operated 83 subsidiaries incorporated in offshore tax havens to avoid paying some $4.9 billion in U.S. taxes. That same year Goldman Sachs operated 39 subsidiaries in offshore tax havens to avoid an estimated $3.3 billion in U.S. taxes. Citigroup has paid no federal income taxes for the last four years after receiving a total of $2.5 trillion in financial assistance from the Federal Reserve during the financial bailout.”  Sanders goes on to note, “Pharmaceutical companies like Eli Lilly and Pfizer have fought to make it illegal for the American people to buy cheaper prescription drugs from Canada and Europe. But, during tax season, Eli Lilly and Pfizer shift drug patents and profits to the Netherlands and other offshore tax havens to avoid paying U.S. taxes. “  In short, Sanders concludes, corporations and wealthy individuals avoid over 100 billion dollars annually in U.S. taxes by shifting income to tax havens abroad through use of “shell corporations.” He further states that at the same time taxes are avoided by shifting income to tax havens, the same corporations have shipped 56,000 jobs abroad and closed 2000 American factories.  Recall that Larry Summers also wrote of the large role in tax avoidance played by trusts, multi-million dollar insurance policies, gifts, like-kind exchanges, etc.  Summers notes that only one billion in taxes is realized from the transfer of 1.2 trillion by inheritance each year.  That’s a less than one-tenth of one percent effective tax rate for the “death tax” everyone worries about. 

The net result on the tax side is that federal tax revenue only accounted for 14.8 percent of GDP in 2011, the lowest rate since 1950, and the effective corporate tax rate was 1.8 percent.  Compare that with “socialized” Britain, whose corporate tax rate was 3.6 percent.  In 1945, the last year of another global war, the effective U.S. federal rate was about 21 percent.  Yet taxes have gone down while we fought major wars in Iraq and Afghanistan. The deficit works out to about 10 percent of GDP, while we have reduced the effective tax rate by about 6 percent from its 1945 level.  A billion here, a billion there, and its beginning to add up to a number approaching the federal deficit. 

But the same people worrying so hard about the deficit, death taxes, etc., are expressing grave concern about raising the minimum wage to a point that would put income for a full-time working individual above the poverty level.  All this, while there seems to be a growing arms race on size of yachts, with the latest winner boasting a $1.5 billion yacht that’s the largest in the world.  And GDP data indicates that all growth in GDP goes to those with in the top ten percent, with income for the other 90 percent staying flat.  The picture that’s emerging of the top ten percent is not flattering.

Senator Sanders is sponsoring legislation aimed at reducing the tax avoidance problem, the Corporate Tax Dodging Prevention Act (S.250).  It’s a step forward, and deserves support.  But of course, it covers only part of the problem.  Many other loopholes will remain.  The top line will remain the line that counts.  President Obama, in the State of the Union Address, reminded us that we are all citizens with a share in governing.  We need to stay aware and informed of the big picture of governing, and let our voices be heard at home and in D.C.  Washington is where reform occurs, but those who decide in D.C. are elected locally.

Here Come the Barbarians

I don’t know whether to cheer or despair at the news that the FCC is proposing to free up unlicensed spectrum for a massive program aimed at spreading free ultra-high-speed wifi throughout the country.  For the significance of the program lies not so much in technology per se, but in the major acceleration of social and cultural change sure to result.  When President Obama was first elected, I made a note to myself that one of the greatest impact programs he could sponsor, akin to FDR’s rural electrification program and Eisenhower's Interstate Highway program, would be to promote broadband internet in the rural heartland of America.  So, on one hand I rejoice at the democratization of technology implied in the FCC proposal.  One of the things you’re taught in political sociology is that new technology usually goes first to elites who use it to strengthen their grips on the reins of power. This is the kind of reversal of that approach that has contributed mightily to social change around the globe.  A famous graffiti on a Middle-Eastern wall during the Arab Spring said simply, “Thank you, YouTube.”  The reins of power will now increasingly rest in the hands of the adaptable young.  On the other hand, there’s an old French proverb that the primary task of each generation is to save civilization from the barbarians of the following generation.  So far, we’re not doing very well at that, and a tidal wave of high-speed communication can only accentuate the problem.

The FCC proposal is generally supported by city governments and by technology vendors, with the exception of phone and cable vendors who fear losing business because of it.  It potentially can provide speeds 10 times faster than even our broadband vendors provide now, ushering in a real age of information availability.  Some areas of the world, like Taiwan in particular, are already experiencing it, and sneer at our backward ways.  It is being tested now by Google in the Chelsea area of NYC, and reported to be wildly popular, enabling small businesses to do things they’ve never been able to do before.  It will enable also the spread of innovations like new health care technologies such as remote robotic surgery, and even, it is whispered, future electronic transmission of medicines for assembly via nanotechnology at the patient’s bedside.  I suspect that in one form or another, the FCC proposal will be realized.  But a real spread of broadband technology will also result in changes to the heartland culture like we’ve never seen before.

It’s hard for city people on the east or west coast to appreciate the isolation of rural and exurban areas in the Midwest.  A few years ago, visiting relatives in rural Minnesota, I was surprised at the lack of the broadband internet I had come to take for granted on the east coast.  And that lack translates into information shortages.  Unless you really work at it, available information is mainly the local variety, or national and international information filtered through the local culture into a pre-existing point of view.  The hundreds of information sources I get regularly just don’t exist.  That situation is changing, but not at a rapid pace.  As a consequence, there’s a major culture lag problem in this country, where coastal citizens and heartland citizens have entirely different perceptions of what is happening here and around the world.   The result is the kind of impasse politics we’ve been experiencing, each side standing their ground for an entirely different vision of what the world is and should be. High-tech availability in rural areas will eventually create pressures for resolution of differences into a more common national vision.  That’s the good news.

But those hundreds of different information sources produce thousands of different standards for what is or is not acceptable behavior and what is or is not a valuable part of our culture.  As a result, we experience in a new high-tech culture an “any thing goes” kind of confusion about limits, generating the kind of social turmoil we see in our cities today.  And Beyonce replaces Mozart, at least temporarily.  The popularity of such TV shows as “Downton Abby” reveals a kind of longing for standards of an age we gave up long ago, but the popularity of “Big Bang Theory” and “Colbert” also reveals a moral core to the vision of the new age.  I enjoy all those shows.   We live in an age of transition.  Eventually things will settle down and social norms will reappear.  In the meantime, the barbarians are advancing.  The society of the future will be the result of what we do now.

Addendum to Red Coat Citizens

So, I contradict myself.  That was proud response of Emerson when challenged by a listener about his remarks.  And I myself contradict myself, which I admit both sheepishly, and like Emerson, proudly. His admission was accompanied by a sneer, “A foolish consistency is the hobgoblin of little minds.”  I hope to be less sneeringly proud than he by invoking instead the image of the wise men and the elephant.  It is a contradiction to say that an elephant is like a fan, and then to say the elephant is like a column. But the apparent contradiction comes from not seeing the whole elephant, for the elephant is both like a fan and like a column.

The particular way I contradict myself this time (there are many other times) is that in a prior post I praised permanent worker visas as an important part of immigration reform.  In my “Red Coat” post I pointed out that permanent worker visas could create a class of “semi-citizens” which Jefferson warned us against as contributing to a denial of rights and consequent social turmoil.  I believe that both points are valid.  Immigration reform requires both permanent worker visas and a reasonable path to citizenship.  Some immigrant workers remain non-citizens by choice; if they so choose, that should not limit their participation in the American work force when we so desperately need new workers.  But if immigrants want to become citizens, the path should be there for them to do so.

I hope those of you who enjoy my posts are alert to my contradictions.  Sometimes they are actually signposts pointing the way to a whole elephant that requires a little search to find.  Of course, sometimes they are merely my inconsistencies.

Redcoat Citizens

The town where I live is infused with early American history.  It is reputed to be the spot where the first protest against the Stamp Act occurred, Francis Scott Key (for whom the local baseball team and a shopping mall are named) practiced law, along with his much less esteemed cousin Roger Taney, and is buried here, etc.,etc..  One of the more interesting spots though is a set of buildings, now on the campus of the Maryland School for the Deaf, where Lewis and Clark provisioned for their expedition, back when it was an army depot.  But the buildings get their name, The Hessian Barracks, from their first use, as a prison camp for the Hessian soldiers captured at the Battle of Trenton during the American Revolution.  Those Hessians liked the town so much, and the town liked them, that after the revolution, a third of them preferred to settle permanently here; a substantial part of the old families in town trace their ancestry in part to those Hessians.

They weren’t quite as welcome elsewhere.  Political scientist Elisabeth Cohen, writing in the Washington Post, reports that in 1805, the Supreme Court heard the first challenges to the citizenship of those who had fought on the English side in the Revolution; the Court wisely ruled that even fighting on the wrong side during the Revolution was not an impediment to U.S. citizenship.  Cohen writes that the principle established by the Court was that only three things should matter for citizenship – a reasonable period of residence, a decent knowledge of the workings of American democracy, and a good moral character.  There were not even those restrictions on residence.  Records of entry into the country were not even kept until 1820.  More than one of our early American ancestors was running from the law of the place they came from on their entry into the U.S.  Our founding fathers believed, and explicitly stated, in Congress and elsewhere, that the best qualification for American citizenship was the experience of living here.  Country of origin, life before entry or reasons for coming did not matter.  Agricultural workers, younger sons of nobility, fleers from the German draft and poor house residents were the stuff our country was made of. 

Back then, reasonable residence was defined as five years; when, in a fit of xenophobia, the Congress raised the residence requirement to 14 years, President Jefferson protested so strongly that Congress reversed itself.  Jefferson was equally indignant at the idea of long term residence without the prospect of citizenship.  He wrote that that such a residence without a reasonable prospect of citizenship created “semi-citizens” - an underclass of people, taxed but without representation, that was bound to lead to social turmoil and civil unrest.  In 1801, speaking to the opening session of congress, Jefferson painted such residence without citizenship as denying the asylum and “privileges” for which the founding fathers had fought.

It’s amazing how people pick and choose among Constitutional principles.  Social conservatives  swear allegiance daily to a strict interpretation of the Constitution based on the “original intent” of the founding fathers, then immediately go out and argue against a “path to citizenship” which the founding fathers cherished.  They call people “illegal aliens” when the founders would have repudiated the very idea of such “illegality” as contrary to the basic principles of the country.   The founding fathers’ principles were totally forgotten back in 1920 when national quotas were set for entry. Nowadays we get ever angrier about the presence in our country of those whom the founders would have recognized as kindred spirits and welcomed with open arms.  We seek immigration reforms the founders would have thought heinous, not because they go too far in easing restrictions, but because they are far from enough. Permanent worker visas are a major improvement over what we have, but they still create the kind of "semi-citizens" about which Jefferson warned.  We can do better.

We need to remember both our own country’s needs, for willing workers of all kinds and from everywhere, and to remember the reasons this country was built in the first place.  We build border walls when our founding fathers set out to create open doors.  We claim that all are created equal, then deny equality to millions of those who have lived and worked hard here for years.  Those Hessians, through living here, saw the blessings of liberty, and reached out to acquire them, and they were welcomed.  If we truly seek “the blessings of liberty for ourselves and our posterity”, we need to welcome their modern counterparts also.

The Nature of the European Debt Crisis

For many years, my wife and I have been members of a small foreign policy discussion group, one of thousands across the country. The sponsor, the Foreign Policy Association, a non-partisan foundation established by Woodrow Wilson to promote discussion of foreign policy issues, provides a briefing book each year containing thoughtful analyses of hot current issues.  This year, its analysis of the European Debt Crisis, is the most lucid, and excellent, discussion of the topic I have yet encountered.  The author, Erik Jones, is director of the European Studies Program of the Johns Hopkins School of Advanced International Studies, and is located at Oxford; he is ideally situated to observe the European thrashings about, and it shows.  Jones is an economist, so his analysis suffers from one or two of the natural flaws of his profession, but it addresses the real point of the crisis as well as it can be stated.

Jones begins with a brief review of the evolution of the EU, important because it reveals, as I mentioned in a prior post, how the EU has evolved into a betwixt-and-between organization, too loosely related for a political union and too tightly tied for an economic interests only union.  The result is a union where the members, particularly the rich countries, pay lip service to common principles but ignore them in favor of their own national interests when convenient.  Yet they are tied by a common requirement to maintain stable values for the Euro.  Jones in passing points out that the common belief that the European crisis results from an overload of “welfare state” entitlements is a fiction, since the wealthiest economies in Europe provide more entitlements than the poor ones; German workers have more benefits than do the Greeks. The crisis stems from drastic changes in financial liquidity.

Europe maintained stable relationships with non-European economies under the Maastricht arrangement, but internally underwent an enormous flow of capital from northern Europe to the Mediterranean countries, often through under-the-table loan arrangements. This created huge opportunities for investments and public benefits in countries like Greece and Spain and Portugal; southern Europe was financing its growth with international capital, both from northern Europe and from America.   For a time, all Europe prospered, with productivity and GDP’s rising.  Jones points out that the Greek economy was slowly but steadily improving, and that the “cooked-books” accounting of the Greeks was what everyone, including international investors, knew that they were doing and had always done. But when the international finance crisis erupted in 2007, precipitated by Lehmann Brothers,  international investors experienced a crisis of confidence, precipitated by uncertainty about German-Greek financial relationships (that loose “union” arrangement), and pulled a flood of capital back out of southern Europe to “safer” places.  This starved southern Europe for the capital they had been running on and raised interbank lending rates so high in southern Europe that the collapse began.  National economies were overwhelmed by flows in liquidity.  Thus, in Jones’ analysis, the extremely high international flows of capital, dependent on maintaining investor confidence, were the cause of the crisis, not the actions of individual countries, who were doing what they had been doing all along. And that confidence was shattered by the uncertainties of the structure of the EU itself.

Jones is a gentleman, and thus does not mention the nature of those “international investors”; that is a limitation of his analysis.  Those investors are not retirees counting their dividends and worried about loss of income; they are major international banks and corporations and hedge funds.  They are huge; the 50^th ranking corporation on the Fortune 500 List has annual revenues about equal to the GDP of Sweden.  Any one of the larger banks or corporations by itself could shake the economy of a small country.  David Rothkopf, in Power, Inc., estimates that these days there are only about 15 national economies too large to be overwhelmed by the largest of the corporations.  The corporations are moving about, without regard to national boundaries or national interests, huge capital flows, which mostly consist of financial derivatives.  Rothkopf estimates that at any one time there are $14 in derivatives for each $1 in actual currencies worldwide.  Bloomberg News reported that the loans from Goldman-Sachs that got Greece in trouble were mostly based on one of the most complex of the derivatives.  As Warren Buffett noted, derivatives have become a “weapon of mass destruction.”

Domestic national economies cannot absorb these unregulated international flows of capital without repeats, in ever larger forms and farther places, of the European debt crisis. And the consequences are ever growing forms of human misery.  Unemployment in Greece recently was 25 percent and 27 percent in Spain.  The loss of public services from governments strapped by lack of liquidity makes the misery only worse.  The EU, as I’ve said before, needs to get its act together, “to form a more perfect union”, but that is only the start.  More and more, the private, unregulated investment decisions of corporate managers can shake nations.  International regulation and consequences are urgent.  One small step might be to require that sovereign debt be financed without use of derivatives.  Commonly regulated international financial institutions are needed. The G-7 must get involved.  Europe’s problems extend far beyond Europe; recent concerns from financial analysts have been expressed that many “third world” economies are running on capital inflows from Europe and America, and a drying up of those capital inflows could destroy the economies of nations around the world.  We can no longer ignore each other’s misfortunes.

Sequence is Everything

Imagine this.  Imagine that after the American Revolution, the colonies had immediately had a democratic election, postponing the decisions about a constitution until after the election.  The only candidates allowed in the election were those who had demonstrated experience as royal governors. And any criticism of them for prior actions was deemed contrary to the public interest and treasonous.   The result was a direct democracy with monarchists in charge (remember that there were sizable numbers of Tory sympathizers during and after the revolution), and public unrest was rampant.  The army remained strong to hold down the unhappy.  The result would of course have been either a series of short republics, a la France, possibly another monarchy, or most probably chaos followed quickly by re-absorption of the colonies by the European powers.  This, in essence, is the picture painted of current-day Iraq and Egypt by Fareed Zakaria in the Washington Post.  Those countries, following an elect first, then think about it, scenario are rapidly falling into a predictable chaos.  As Zakaria puts it, they put democratization before liberalization. That included domination by the majority Muslim Brotherhood of a quick, ramshackle constitutional assembly that enacted an at best partisan document for the new  Egyptian constitution.

For Zakaria, the good guys in the Middle East these days are the monarchies of Jordan and Morocco.  In Jordan, the king established a constitutional council to draw up a constitution, transferring some of the king’s power to a parliament and setting up an independent commission to administer elections and a court to oversee constitutionality.  It was approved and elections were held with a good mix of candidates elected.  Although the Muslim Brotherhood tried to boycott the elections, their effort failed, and the country comfortably accepted the results.  Morocco is following a similar path.

When I was learning to play a little (not much) chess from a friend who was an expert player, the mantra he constantly drilled into me was, “sequence is everything.”  The good player knows that just a small change in the sequence of moves in a complex situation can produce remarkable results.  Nowhere is that more evident than in the Middle East.  The Islamic Spring is being followed by hurricanes without structures having been built to shelter from them.  Part of the problem is cultural; civility is enforced by strength.  Maintaining dignity during passionate argument is so essential that insulting an official is made illegal in a useless attempt to control violence. In the west, insulting officials is so routine that no one notices.   But that is strong evidence that constitutions and laws should come before elections, not after.  The shelters are needed.

And, as Governor Christie mutters, candidates matter.  The American colonies were successful in their revolution in part because, instead of electing the most liberal of the monarchists, they elected the most conservative of the revolutionaries.   Patrick Henry was banished from their councils while the Constitution was constructed, and Jefferson was sent away to France.  Washington was a revolutionary leader, but not a revolutionary thinker.  Franklin, Hamilton and Madison were true moderates.  Electing before the constitutional framework is established to create a balanced political system ensures that either the strongest conservatives or the most passionate revolutionaries will be in charge, to the detriment of all.

The result of these sequence issues in the Middle East has been the emergence of what Zakaria terms “illiberal democracies.”  But such governments are naturally short-lived; they cannot cope with the stresses of constant societal change without the moderating structures to contain them.  Things will fall apart.  They will be torn between the needs of their people for orderly government and the anarchic ideals of the revolutionaries.  Egypt and Iraq, like many countries before them, will need a fresh constitution, balanced between all their interests, and moderate leaders to design it and to execute it.  They have some good role models, from the neighboring Middle East to Turkey to Indonesia to the western democracies to guide them.  It is important for the health of their nations and of the world that they study and learn from them.

The EU and General Electric

The Preamble is undoubtedly the finest writing in the U.S. Constitution, but it is also the most necessary.  Only constitutional lawyers can quote easily from Section I or 2, but just about all Americans can quote large portions of the Preamble, beginning of course with “We, the People…”, for that states the goals and purposes we all share. Political arguments in the U.S. are really about the priorities and nuances of those purposes, and never about their validity, for the first of them, “to form a more perfect union”, i.e., a political union of the separate states, has long since been achieved.

That’s quite different from another admirable kind of document – a good business plan.  I used really to admire the strategic planning operation at General Electric, for the way they started from scratch with their planning by first determining that GE’s fundamental business revolved around the exploitation of carbon-related technologies.  They knew that understanding purposes from the beginning was vital to a good enterprise in keeping it from going astray.

A solid understanding and statement of purposes is the common thread between the two kinds of documents.  Among other things, it helps to distinguish between them.  A political union and an economic joint venture are just not the same thing, and failure to realize that can cause the downfall of either.  The founding fathers had failed miserably at trying to operate the united colonies as an essentially economic venture, and not a very good one  – no foreign policy, a miserable domestic policy, a failed currency, famine everywhere and the Great Powers of Europe waiting hungrily in the wings to pick up the pieces of the surely doomed confederation.  It was their genius and their desperation that drove them to the Constitution, and they started it right.

That’s why I appreciate David Cameron for shaking up the EU by calling for a referendum on Britain’s membership in it.  I don’t agree with his politics, and he is in large measure fighting the wave of the future, but he is right in his strong statement of the need for clarification of the EU’s purposes.  Is it essentially a joint marketing venture, out to enable easy commerce between European nations and to provide a common front for promoting trade elsewhere (Cameron seems to think so), or is it a nascent stage of political union, aimed eventually to tie together Europe into one sovereign state, with common laws, policies, currency, etc., that form a true, and singular, nation?   Being unable to distinguish between the two is the real basis for the EU debt crisis.  Members of a political union do not treat each other the way Germany and Greece have in the debt crisis, but each member of a purely economic joint venture also has far more latitude for action than EU nations have had.  The EU needs to make up its collective mind.

If the EU founding fathers do, out of desperation, decide to “form a more perfect union”, I hope they too have the genius to begin with “We, the People.”  For that is the starting point for any nation that hopes to endure, a common identification among people, not just governments, and the wisdom to recognize it.  That is their great issue.  The American colonies did not have multiple languages and cultures and histories to separate them.  Europe began as its own world; not much outside it was recognized or reachable for almost two millennia.  But it is no longer a solitary world of squabbling states; it must stand or fall united.  It may do so as a new kind of “mega-nation”, or achieve at least some success as an economic joint venture, though the experience of Greece has already shown that small, solitary nations in the 21^st century do not fare well when pitted against the new breeds of corporate giants.  Europe is now surrounded by great powers from China to the New World to the emerging nations of Africa to Goldman-Sachs, and they too are willing to pick up the pieces.