Financial Times Austerity Debate

The Financial Times is publishing an important series on the austerity debate: Do we currently need more stimulus, or do we need to start paying off national debts?

I believe we need more stimulus for the moment. The debt is bad, but we need to get out of the hole before we start filling it in. Somebody had an interesting point this morning: Europe doesn't need to provide stimulus, because it can count on the US and China to do so, and their imports will increase exports by Europe and thus provide the stimulus that Europe would have to provide itself. I'm not sure that's correct, but it sounds reasonable. I could be one reason why Europe is much less interested in stimulus than the US.

At some point we do need to start paying down the debt, and it will be painful. But the rich bankers in New York ran the world economy off the cliff, and they have benefited more than anybody from the bailout. The government needs to help the little guys who got clobbered by the bankers, meanwhile trying to keep the bankers under control. Once the middle and lower classes begin to share some of the government largess that has been bestowed on the New York bankers, then we can begin to start paying down the debt.

Somebody had the interesting idea of encouraging Americans to buy US government debt, rather than depending on the Chinese to do it. Americans did this during World War II, and the current debacle is not unlike the stresses we when through then, although it was created by Americans who were willing to destroy America to enrich themselves. This crisis stands on its head the old idea that business is what makes America strong. Business, in particular the banking business almost destroyed America; it certainly made it much weaker. But a handful of people became obscenely rich in the process.

The fact that labor is taxed so much more heavily than capital is a huge problem. The Republicans complain about the high taxes on the rich, but by historical measures they are low, unless you go back to the days before income tax. The rich may pay the lion's share of taxes, but they earn an even larger lion's share of income. In addition, they don't pay the tax rate they should on much of their income. For workers, gross income is usually pretty close to net income on which they pay taxes. The rich hide their gross income and then have huge reductions on the gross income that they grudgingly report. They hide their wealth in corporations, in off-shore accounts, with various tax loopholes, etc. They pay lawyers and accountants millions of dollars to reduce the taxes they pay by many more millions. One of the most egregious examples was the recent death of billionaire George Steinbrenner, whose estate paid no estate ("death') taxes. This is taking food out of the mouths of the unemployed and giving it to the filthy rich.

Republicans Made a Mess

The Washington Post story on the intelligence community shows that the community is a mess. But this is what the Republicans wanted. After 9/11, Bush and Cheney wanted somebody to blame, and they wanted intelligence to support their desire to go to war with Iraq, although Iraq had nothing to do with 9/11. The CIA, which was the leading intelligence agency, with good reason, was vulnerable on both counts. It did not predict 9/11, although it did produce the famous President's Daily Brief article warning of a similar attack, and it warned of the danger from Osama bin Laden and al Qaeda and other terrorist organizations, which Richard Clark said were ignored. In addition, it did not have intel supporting going to war with Iraq, although when Colin Powell made his infamous speech to the UN, it scraped the bottom of the barrel and found intel to support him, although most of it turned out to be wrong. So Bush and Cheney set out to destroy the CIA, on the one hand by replacing the professional leadership with political hacks, and on the other by taking away CIA's leadership role and giving it to someone isolated from intelligence collection and, except for Negroponte, someone who tended to support the military over civilian intelligence.

So now we have this huge intelligence apparatus that no doubt pays a fortune to political hacks of all persuasions, but mainly Republicans, because Bush and Cheney had more time to get their guys in. No doubt there are still some well educated, skilled intelligence professionals in the ranks, but they are lost among the mediocre. I would guess that particularly the private companies, the loves of Republicans, are more willing to say whatever the bosses want them to say than career professionals, , who have some cover except in extreme cases, for example when Bush and Cheney ran a vendetta against them.

The good news is that the terrorist threat is not great, nothing like a more historical threat by another nation against the US. By and large these terrorists are poorly funded, not well trained, and poorly led. They may have access to hundreds of millions of dollars, but what is the US defense budget, something like a trillion dollars. It's non-conventional warfare, and in the eighteenth and nineteenth centuries, the Indians inflicted some serious defeats on the white soldiers, but in the end the whites won easily.

Currently, the economic threat from China is much more serious. And if China ever decides to pose a military threat to the US, it will dwarf the terrorist threat from Muslims.

Article on Israeli Nuclear Program

This is sort of a "space cadet" article about the Israeli nuclear program, but it's interesting.

Lula, Celso Amorim and Me

Actually there's nothing about Lula and me, but I did have a run-in with his Foreign Minister, Celso Amorim. While I was the science officer at the US embassy in Brasilia, the US proposed a high level science exchange. At that time, Celso Amorim was the foreign policy advisor assigned to the Science Ministry. The Science Minister and I actually had a good working relationship. Things were going along relatively smoothly until Celso Amorim got involved. He was a real Brazilian nationalist, and was very suspicious that the US had some nefarious intention for promoting the cooperation. Brazil has been suspicious of US scientific cooperation for many years, since an American discovered the huge mountain of iron ore in Brazil that became Vale do Rio Doce, now one of the world's biggest iron producers.

When Celso Amorim became involved, the negotiations for the joint scientific meeting went from being cordial to adversarial. I finally felt that I had hit a dead end and asked the ambassador's office for some help. Presumably somebody from high up in Itamaraty, the Foreign Ministry, told Celso to be more cooperative, and we eventually reached agreement on the meeting. Celso and Lula probably share a Brazilian nationalism which was probably a factor in Brazil's recent involvement in Iran's offer to ship some enriched uranium to Turkey in return for more highly enriched uranium for its research reactor.

Brazil no doubt sympathizes with Iran because it faced a similar problem created by the United States. Back in the 1970s, Brazil bought a nuclear reactor from Westinghouse in the US. Just before the reactor was finished, then Senator John Glenn passed a law that prevented the US from supplying fuel for the reactor unless Brazil agreed to "full scope safeguards" under the Nuclear Non-Proliferation Treaty, which had not been part of the original agreement. Brazil was then a party to the Tlatelolco Treaty on peaceful uses of nuclear energy in Latin America, but not the NPT, which it considered discriminatory because of the different ways it treated nuclear and non-nuclear countries. When the US changed the terms of the sale, Brazil balked. It then had a billion dollar reactor, and no fuel for it. It embarked on a program to develop a fuel cycle to produce its own reactor fuel, which could have enabled it to produce weapons grade uranium, placing it in much the same situation Iran is today. The Brazilian situation was defused (I would like to think) partly due to my efforts while science officer there. But no doubt the Brazilians, including Celso Amorim who was in Itamarty at the time, have a keen appreciation for Iran's situation.