Israel, Marshall, and Truman

In today's Washington Post, Richard Holbrooke recalls America's response to the declaration of Israel's creation. He says that most of the "wise men" at the State Department opposed immediate recognition of Israel, because it would create so many problems with the Arabs. Defense Secretary Forrestal said there were 30 million Arabs [with oil] and 600,000 Jews [with no oil]. Secretary of State General George Marshall led the argument against immediate recognition. Clark Clifford, Truman's domestic political adviser, led the argument for recognition. Holbrooke, who wrote Clifford's biography says that domestic politics were not important, i.e., the Jewish vote. He might be biased.

Only with great effort was Secretary Marshall persuaded not to make a public stink when Truman recognized Israel, and then Truman went ahead and did it. It's still questionable whether this was the right decision. Clearly it's been good for Zionist Jews in America, who interestingly according to Holbrooke did not include the Jews who owned the Washington Post and the New York Times. But it's not so clear that it's been good for America as a nation. No doubt today's high price of gasoline is in part due to Truman's decision to side with Israel over the Arabs. And of course we have over 100,000 troops in Iraq doing something that is in part motivated by the defense of Israel. Both Hillary and McCain continue to pander to the Jewish vote by threatening to destroy Iran, which is the new target for Israel, now that the US has neutralized Iraq's threat to Israel.

But it's a never ending struggle for the US to defend Israel. Just in the last 24 hours Lebanon has threatened to blow up again. Will Bush "stay the course" in Lebanon, too, or will he follow Reagan's example and stay out?

Was Reagan So Great?

In this election year the Republicans often look back nostalgically to Ronald Reagan as the example of what a President should be. There are many, but two who love him are George Will and Peggy Noonan. Let's look at the record.

1) Reagan did not fight in World War II. Almost everyone fought in World War II, the last "good" war, the greatest generation. He had himself declared legally blind so that he could not fight, but he did become an Army officer who made movies in California for the military.

2) Reagan was divisive. His intra-party fight with Gerald Ford for the nomination in 1976 probably led to Jimmy Carter's election. If Ford had been uncontested for a second term, he probably would have won.

3) Reagan's election over Jimmy Carter in 1980 got a big boost from Ayatollah Khomeini and the other Iranian mullahs. The Iranians hated Jimmy Carter because he stood by the Shah and allowed him to have medical treatment and refuge in the US. Thus, they took over the US Embassy in Tehran and refused to let the hostages go while Carter was still President. They used the hostages as pawns to get Jimmy Carter out of office. Thus, Reagan was the Iranians' candidate. He probably could have won the election without Iranian support, but the hostage crisis helped his campaign enormously by hurting Carter enormously. The hostages were released within hours of Reagan taking office. We'll never know, but it's possible that the Iran-Contra scandal was the result of Reagan's trying to repay the Iranians for their support in the 1980 election.

4) He turned tail and ran out of Lebanon after the Marine barracks were blown up. All the Republicans talk about how brave Reagan was to stand up to the Russians, but they don't talk much a Lebanon, which is more closely comparable to the Iraq war today. He did not "stay the course" in Lebanon; after the massive Marine casualties, he brought the troops home quickly and left Lebanon to descend into civil war. Maybe Reagan was brave to stand up to the Russians, but Gorbachev was a new kind of Soviet leader, much more open to the West than his hard-line predecessors. At a summit in Iceland, Reagan is reported to have reached an agreement to totally dismantle the US nuclear arsenal before Richard Perle talked him out of it.

Does Reducing Taxes Increase Revenues?

This morning in a debate on CNBC about tax policy, CNBC rolled out the old Laffer-curve argument that reducing taxes increases revenues. They showed this graph, which appears about 6:18 into the video. In it, you can see that when capital gains taxes were reduced, there was a spike in tax revenues. What they didn't mention is that the spike was quickly followed by a drop off to normal levels. What that shows is that legislating is a relatively slow process. When lower capital gains rates are being discussed, wealthy people hold off on realizing profits until the new lower rates are in effect. Then they do some profit taking on which they can pay the lower rates. A lot of the assets sold are probably ones that have been held a long time and perhaps would not otherwise have been sold.

Another factor as tax rates become even lower is that it encourages speculation. If there's little or no capital gains tax, it encourages people to "speculate" for short term gains, not "invest." Hence, there is more churning and more taxes on more individual transactions.

Reagan's belief in the Laffer-curve showed that his Alzheimer's had set in while he was still President. And for those crazies who still believe in it, it just shows that they are crazy. There probably is some very high level where the Laffer hypothesis applies, close to a 100% tax rate, but that it largely irrelevant in today's world.

Taxpayers Subsidize Richest Americans

The NYT reports that several hedge fund managers took home over a billion dollars in pay last year. It says, "Combined, the top 50 hedge fund managers last year earned $29 billion." Interesting that the $29 billion figure almost exactly matches the $30 billion bailout of Bear Stearns. It's more than a coincidence.

The hedge funds don't really do much useful. They don't make anything; they don't start businesses. They don't even pretend to make businesses more efficient, as private equity funds claim to do. They are basically gambling institutions, betting on various, esoteric market fluctuations. So, when they win, somebody else loses, because they are not creating wealth; they're just taking somebody else's wealth. So, the winners made $29 billion and the losers got bailed out to the tune of $30 billion by the taxpayers. The taxpayers are contributing to the unprecedented transfer of wealth from the lower and middle classes to the super rich.