We Need Some Financial Pain

This op-ed in the Financial Times by the Polish finance minister, "Intolerance of small crises led to this big one," makes a point that I have been thinking about and strongly agree with. We need some pain to shake out the aftereffects of the financial crises that we have been through. Fed chairmen, particularly Greenspan and Bernanke, have tried to keep their political masters happy by avoiding any economic pain, except that which blindsided them, like that accompanying the popping of the tech bubble and the housing bubble. This op-ed makes the correct point that they were blindsided by these crises precisely because they trying so hard to smooth out the smaller bubbles preceding them. There is no free lunch. If you pummel the economy, as the bankers did in the housing crisis, you hurt it, and it can't pop back up like nothing happened. If it appears to (as it has recently), it probably means that you've done something bad to it that will come back to haunt you sometime, in a few months or maybe if you're lucky, in a few years. The obvious possibility is that you will sow the seeds of inflation, and that when those seeds sprout, you're going to have a big mess on your hands, made worse by postponing it for years. On the other hand, you might get deflation, like that which produced the "lost decade" in Japan, about to become two lost decades.

What we need is an economy on a sound footing, which means among other things that there is moral hazard for messing up your business. Momma (the Fed and Congress) shouldn't always bail you out. So, should we have let a few more banks follow Lehman down the drain. I don't know, but I don't think so. I think it was probably right to save the banks, but we should have made them pay a higher price for being saved. And we should impose significantly stronger regulations, in particular limiting both their business size (Glass-Steagel) and geographic size.

Brits & US Share Problem

This op-ed in the Financial Times on how to reform the British Foreign Office could have been written about the US State Department. The US Foreign Service almost always suffers from budgetary problems, like their British colleagues. There are exceptions. Colin Powell was personally concerned about the Foreign Service, and Hillary Clinton may try to demonstration her political clout by helping increase State's budget, but most Secretaries of State are more interested in policy issues than personnel issues.

One big problem of both organizations is that they have no domestic constituency. Citizens often see the job of diplomats as representing the foreign countries they work with, rather than pushing the agenda of their home country. Yet, that is seldom the case. They may often argue for going slow in going to war on slapping on sanctions in trade disputes, but that is because they understand that such actions are likely to be futile or counterproductive, although they may make Americans (or Brits) feel better for a while, until the chickens come home to roost.

In any case, those unfortunate perceptions often mean that budgets for diplomacy are among the first to get cut in bad times and among the last to be increased in good times. American lawmakers should take these British arguments to heart in considering their appropriations for the State Department.

Howard Dean Is Right On Healthcare

I have been been a fan of Howard Dean since he ran for President in the 2004 race. He would have been a better candidate than John Kerry. He had good ideas. Unlike Kerry, he spoke his mind, which may have been what killed his campaign. Since he's a doctor, he's seen he's seen this country's healthcare system close up.

When he says the lobbyists and special interests, working through the last must-have votes in the Senate like Joe Lieberman, have made this bill worthless, or even making the healthcare system worse rather than better, I believe him.

It's time to put a public option or Medicare expansion option back in. If the bill won't get 60 votes, get 60 votes to bring cloture and cut off a Republican filibuster. Then go for a vote that only requires a majority of 51 Senators.

If such a plan fails, and the Senate passes something that it total garbage like the present bill, hopefully, they will be forced to revisit the issue and clean up healthcare in the coming years. But the Medicare Part D legislation, creating the doughnut hole that funnels money to the pharmaceutical industry while benefiting few people who can figure out the arcane rules, is not a good precedent. It is speeding the bankruptcy of the US, providing nothing like the benefits that it should for such huge costs.

Give Obama a Chance on Afghanistan

The fact that Obama is taking flack from both the Left and the Right indicates that his policy on Afghanistan is probably about right. The Democrats are complaining that he is the tool of the generals. If he were a Republican, I would worry more about this argument, but I believe that Obama's natural tendency would be to not to go with the generals' recommendations. That means that they must have some good arguments and that they will have to produce results or he will turn against them. Furthermore, I have more confidence in Bob Gates and Hillary Clinton than in most politicians or bureaucrats and am encouraged that they are on board.

I am not personally convinced that we currently need to be fighting in Afghanistan. I think that Bush, Cheney, and Rumsfeld gave the Afghan war short shrift. They didn't really care about it; they cared about Iraq. The troops who died there were not appreciated, starting with Pat Tillman. Bush, Cheney and company were cowards; they were draft dodgers during the Vietnam War, and they hid during the 9/11 attacks. They felt they had to do something in response to 9/11; so, they sent troops to Afghanistan, but their heart was not really in the war, which is why all the troops, equipment and money went to Iraq.

Now that Obama is in office, Afghanistan if getting the attention it deserves for the first time. It deserves attention because Americans are dying there and we are spending billions there. Basically, I think Obama is saying to the military, "Okay, you've been in Afghanistan for eight years, but you've never had the manpower and resources to do the job. And you've never really been told was your mission was. Now, we are going to give you the men and resources to carry out a limited mission. You have 18 months. At the end of that time, if you've succeeded, or if it looks like success is impossible, we'll pull out. If something unexpected happens, we'll reevaluate then." So, the military has a chance to prove itself, after being given just the back of Bush's hand for eight years. We owe it to those who have died over the last eight years, and perhaps to the 3,000 who died on 9/11.