Cheers for Angela Merkel

While the US is deciding whether Obama or Romney would be the best American leader for the next four years, I'd like to give a shout-out to someone who has served their country well for years -- Angela Merkel of Germany.  Today Germany is the strongman of Europe.  Merkel is taking a lot of criticism for how she is handling the Euro crisis, including today as she visits Greece, according to the NYT.  On the other hand, she gets criticized at home for being too lenient in handing out German cash to the poor countries of Europe.  She has become one of the most important politicians on the world stage, eclipsing to some extent Obama, Cameron, Hollande, even Putin and the Chinese.  She has helped make Germany prosperous at home in difficult circumstances.  Germany probably been the most exemplary country showing that it is possible to have good wages and full employment in a globally competitive world.  Good for her. 

Obama and the Bubble

Many of the commentators have been saying that the reason Obama did so poorly in the debate with Romney was that he has spent four years in the White House bubble, where everyone is a yes-man afraid to confront him.  This overlooks the fact that Obama meets with foreign leaders who are not afraid to talk back to him, to demand things from him, to say that he is wrong.  However, it was not a good sign when Obama refused to meet with any foreign leaders during the UN general assembly.  Did he know that he was not up to it? 

We usually don't see what actually happens when Obama meets with foreign leaders.  There are usually only a few high level aides present.  We got a glimpse when Obama and Netanyahu sparred during a photo session at the While House about a year ago.  The consensus seemed to be the Netanyahu took Obama to the woodshed.  That may be one reason Obama did not want to meet with Netanyahu again just before the debate. 

We don't know how Obama does in bilateral meetings with foreign leaders, but we know that the has them.  He may let Hillary Clinton take the lead.  But in any case he does not live inside the "no-drama" Obama bubble all the time. 

MTCR Terms Changed for South Korea

The reports that South Korea has been granted special permission to build missiles that exceed the guidelines of the Missile Technology Control Regime are confusing.  Reports in the New York Times and the Wall Street Journal said that South Korea and the US had agreed to extend the range of missiles that South Korea would build.  However, the MTCR is not an arms control treaty that limits the range of South Korean missiles; it is a suppliers agreement that limits the US and other members, who agree not to supply Korea with missiles or technology or parts for missiles beyond the agreed range.  Thus, it appears that the violator of the MTCR is the United States, not Korea. 

I assume that the US has gotten the agreement of the other 33 supplier-country members of the MTCR to this extension of range and payload.  It should not be a bilateral decision when the US is a member of a suppliers' group. 

Indian Nuclear Progam Was Bad Precedent for Iran

During the Bush administration, the US agreed to look the other way at India's development of nuclear weapons, despite the significant risk of a war between India and a nuclear-armed Pakistan.  India developed nuclear weapons years ago to defend itself against China, which already had them.  Then Pakistan developed nuclear weapons to defend itself against India.  While all that may make sense from a strategic perspective, it was terrible from a nonproliferation perspective.  We have basically said it is okay for India and Pakistan to have nuclear weapons to defend themselves against their enemies, or to have "mutual assured destruction," but we say that it is not okay for Iran to develop those same weapons to defend itself against its sworn enemy Israel, which already possesses nuclear weapons. 

In its original form, the Non-Proliferation Treaty granted special status to countries that possessed nuclear weapons when the treaty was negotiated, but many of the non-nuclear states objected to this dual status.  The NPT obligated the nuclear powers to disarm, but that has been a slow, almost non-existent process.  I recent years there has been a wider acceptance of the NPT by some countries, Brazil and Argentina for example, but not by others, Israel and Iran in particular.  Israel is in the position of forcing Iran to follow the NPT, which it adheres to, while Israel refuses to join it or follow it.  Israel insists that Iran obey an international treaty that Israel refuses to obey. 

Israel and India stand in somewhat similar positions, neither adhering to the NPT..  However, thanks to the US under Bush, India has been given a somewhat official pass, while everyone just agrees to look the other way regarding Israel's nuclear weapons.  The bottom line is that the NPT, which was under attack from its very inception for having a double standard, now has a variety of standards. 

As a result, although the NPT's verification mechanism, the International Atomic Energy Agency, monitors Iran's nuclear activities to some extent, since Iran is an NPT member, the IAEA is barred from Israel.  Because of the breakdown of the NPT's mechanism, Israel and the US cannot rely on it.  Thus, Iran's nuclear activities are removed the the UN's oversight and become the subject of bilateral threats to invade from Israel and the US.  The UN continues to try to work with Iran, but thanks to all the loosening of the NPT regime, the UN has little legal or moral authority.  By its past refusal to strictly enforce the NPT, the US has lost significant moral authority to restrict Iran's nuclear program.  Having lost its moral authority, it must fall back on its threats of military force. 

Do Americans Have to Die for Israel?

Israeli Prime Minister Netanyahu's attempt to get President Obama to join him in drawing a "red line" for the Iranian nuclear program amounts to having Obama issue an ultimatum to Iran that the US will invade if Iran crosses it.  Netanyahu's idea is apparently that Iran nuclear facilities can be knocked out by an air strike, but how badly would an air strike damage Iran's nuclear program and how would Iran retaliate.  If an air strike failed to do serious damage to the program, would the US and Israel send in ground troops?  Iran appears to be a more formidable opponent than either Iraq or Afghanistan.  If the US invaded, it would be more expensive in lives and treasure than either of those two wars. 

Unlike Israel, America does not appear to be directly threatened in the short term by an Iranian nuclear bomb.  It would be much more difficult for Iran to hit the US with a nuclear warhead than Israel, which is much closer.  Therefore, a US attack on Iran would be almost entirely for Israel's benefit. 

Israel is a close ally, but a somewhat unusual one.  The closest comparison is probably to America and Great Britain in World War II, still sometimes referred to as a "special relationship."  In the 1940s, America was pretty much an Anglo, English-speaking nation, although there had been waves of immigrants, mainly from other European countries -- Germany, Italy, Poland, Scandinavia -- with lesser influxes from Asia. Our President, Franklin Roosevelt, was of Anglo background and clearly wanted to help England and Churchill as they came under attack from Germany,but he felt he could not do much because of a lack of public support for going to war.  Lend-lease was a start, but one that kept the US out of the conflict.  The decisive event was the Japanese attack on Pearl Harbor, which brought America into the war.  Arguably there was still no reason to go to war in Europe, since Germany had not attacked the US, but it suited Roosevelt, and most of the population of the US, to go to war in Europe, actually first in North Africa, while the US moved more gradually across the Pacific towards Japan.   Ironically, England had gone to war with Germany because of Germany's invasion of Poland, but Poland ended up being lost to the Soviet Union. 

Now we have Netanyahu trying to force the US into a war with Iran, by drawing a "red line," issuing an ultimatum to Iran that if it does X, e.g. produces 225 kg of uranium hexafluoride enriched to 20%, then the US will attack it.  Should the US really do this for Israel?  The US does not like Iran; Iran held the staff of the US embassy there hostage for 444 days, until the day Ronald Reagan was sworn in to replace Jimmy Carter.  But if we really wanted to destroy the Iranian government, wouldn't we just invade Iran the way we invaded Iraq?  If it is in our national interest, we should do it.  In this case, the invasion called for by Netanyahu seems to be in Israel's interest, not necessarily ours.  An Iranian nuclear attack may be an existential threat for Israel, but not for the US.  It is a lot easier for Iran to reach Israel with a nuclear armed missile than the US, and the US is a lot bigger.  The explosion of one rudimentary nuclear weapon in the US would be terrible, but it would not be an existential threat to the nation. 

My concern is that American Jews and some American gentiles have divided loyalties.  They are more concerned about Israel than about the United States.  They are willing to sacrifice thousands of American lives to stop Iran from building a nuclear bomb that poses little threat to the US.  Unlike Anglo Americans during World War II, Jews constitute a relatively small percentage of the US population, yet they are very influential politically and economically.  They may have the political power to force the US to go to war for Israel.  Many young, relatively poor, conservative redneck Americans would probably go willingly, although the majority of the US population probably would have serious reservations about going to war again in the Middle East, especially after the war in Iraq strengthened the hand of Iran. We would have fought the Iraq war to strengthen Iran by installing a Shiite regime, and then fought a new war with Iran to weaken Iran, to undo what we did in Iraq. 

If Roosevelt had difficulty coming to the aid of England during World War II, despite America's close ties with her, I hope that we will have at least as much difficulty going to war with Iran when there is a much smaller group of Israel-loving Jews pressing for it. 

Netanyahu's Red Line

Israeli Prime Minister Netanyahu's campaign to have President Obama draw a nuclear "red line" that Iran cannot cross, amounts to having Obama issue an ultimatum that the US will invade Iran under the conditions specified in the "red line."  From his UN speech it appears that Netanyahu sets his red line at Iran's production of an amount of uranium enriched to 20% that will produce enough highly enriched uranium to build a bomb warhead, according to Reuters.   According to Wikipedia, the critical mass of U-235 metal needed for a warhead would be about 52 kilograms.  Arms Control Now says 225 kg of uranium hexafluoride enriched to 20% would be about the amount needed to produce the uranium needed for a 90% highly enriched warhead.  Uranium hexafluoride is the gas that is run through the enrichment centrifuges.  Once weapons-grade enrichment level is reached, the uranium metal is separated from the fluorine to produce the warhead.  Wikipedia says weapons grade enrichment is usually more than 85% U-235.  (Natural uranium contains only about 0.7% of the U-235 isotope.)  However, Arms Control Now reports that according to the last two IAEA reports, Iran's stockpile of 20% enriched uranium went down because Iran is using it to fuel its research reactor which needs 20% enriched uranium fuel to operate.  The latest IAEA report for August 2012 said that Iran had only 91.4 kg of 20% enriched uranium, considerably less than the 225 kg it would need for a warhead, according to IPS News.   The IAEA report for the previous quarter said that Iran then had a 20% stockpile of 101 kg. 

According to IPS, the IAEA report also said the total amount of 20% uranium hexafluoride produced by Iran rose from 143 kg in May 2012 to 189.4 kg in August 2012, or about 15 kg per month.  At this rate, to go from 91.4 kg to about 225 kg would take about 8 or 9 months, if no enriched uranium was diverted to the research reactor or other uses.  In that case, Iran would reach Netanyahu's red line around June of 2013. 

Arms Control Now says that once Iran has 225 kg of 20% enriched uranium hexafluoride, it would take about one more month to increase the enrichment to 90%.  It would also take time to convert the uranium hexafluoride to uranium metal and then to fabricate the warhead. 

NYT Op-Eds

Two New York Times op-eds on Tuesday ended on very good points.  David Brooks lamented the Republican party's focus only on economic conservatism, to the neglect of more traditional conservative ideas.  He closed by saying:

Conservatism has lost the balance between economic and traditional conservatism. The Republican Party has abandoned half of its intellectual ammunition. It appeals to people as potential business owners, but not as parents, neighbors and citizens.

On the same page, Joe Nocera commented on the Forbes 400 list of the richest individuals.  He supported my concern about the capital gains tax as welfare for billionaires.  He said:

The American dream exists not because of the capital gains differential but in spite of it. It is the tax break that most glaringly exists to benefit the wealthy. If you have any doubts about that, all you need to do is read the latest Forbes 400.
 

Romney's Taxes

Romney's release of 2011 taxes and an accountants' statement don't do him many favors.  They do show that he paid taxes in all previous years, contrary to Sen. Reid's claim.  Otherwise, he does not do much to support America.  He paid very low taxes.  Andrea Mitchell noted that the summary of 20 years of prior taxes look higher because the tax rates were higher in previous years.  I was surprised to find the best listing of prior year tax rates in Forbes. 

For much of that 20 year period the top tax rate for salaried income was over 40% and the maximum capital gains tax rate was over 20%.  For 2011 the rates were 37% and 15%.  The table shows how much taxes on rich taxpayers have gone down.  When you look at Federal payroll taxes (for Social Security and Medicare) and state income taxes, sales taxes, and property taxes, the formerly "progressive" tax rates where rich pay higher taxes than the poor, have become "regressive" taxes that fall more heavily on the poor.  Romney's claim that 47% of potential taxpayers pay no taxes, ignores all taxes except federal income taxes. 

If Romney were a loyal, patriotic American earning as much as he does, he should pay something on the order of 30% of his income in federal taxes, not less than 15%. 

Romney and other Republican tax bashers say capital gains taxes have to be low, because they experience double taxation.  Their companies pay tax, and they get their investment income only after the companies are taxed.  But if the companies paid no taxes, workers salaries could be higher, too.  Why don't salaried workers get a double taxation break?  In addition, capital gains taxes are paid only after an asset is sold.  Therefore, many wealthy individuals have the earnings tax free for years. 

For example, if you buy some stock for $100, and it goes up $50 the first year.  You have made $50, but you pay no tax on it, because you don't sell it.  The next year, if the stock goes up another 50%, you make $75, but you pay no tax on that $75, plus you have made money on ALL of the profit you made the first year, because that profit was not taxed.  A salaried worker pays taxes on all of his income in the year he makes it; there is no benefit from compound interest, i.e., interest on the prior years' interest.  On the other hand, a rich person can hold a profitable asset for many years without paying any taxes on it, earning profit on the earlier profit that was not taxed.  Then when he sells it, he pays much lower taxes than someone who works for a living.  Basically the government gives him an interest free loan of the taxes due each year until he sells the asset.  Who's the "welfare queen" in this picture? 

It doesn't seem fair to me.  It's a good deal, but it's not fair. 

Year	Top Regular Rates			Max. Capital Gains Rate	Capital Gains Taxation Notes
	Wages & Other Earned Income	Unearned Income Except Cap Gains	Above Joint Taxable Income of
1916	15%	15%	$2,000,000	15%	Realized gains taxed same as other income
1917	67%	67%	$2,000,000	67%
1918	77%	77%	$1,000,000	77%
1919-21	73%	73%	$1,000,000	73%
1922	58%	58%	$200,000	12.50%	Maximum rate
1923	43.50%	43.50%	$200,000	12.50%
1924	46%	46%	$500,000	12.50%
1925-28	25%	25%	$100,000	12.50%
1929	24%	24%	$100,000	12.50%
1930-31	25%	25%	$100,000	12.50%
1932-33	63%	63%	$1,000,000	12.50%
1934-35	63%	63%	$1,000,000	31.50%	Sliding exclusion of 70%>10yrs 0% <1 small="small" yr.="yr.">
1936-37	78%	78%	$2,000,000	39%
1938-40	78%	78%	$2,000,000	30%	Excl. 50%>2yrs; 67% 18-24mo; 0%<18mo 30="30" ax="ax" small="small">
1941	80%	80%	$2,000,000	30%
1942-43	88%	88%	$200,000	25%	Exclusion 50% > 6 months; 25% maximum
1944-45	94%	94%	$200,000	25%
1946-47	86.50%	86.50%	$200,000	25%
1948-49	82.10%	82.10%	$200,000	25%
1950	84.40%	84.40%	$200,000	25%
51-64	91%	91%	$200,000	25%
64-67	70%	70%	$200,000	25%
1968	75.30%	75.30%	$200,000	26.90%	Transition
1969	77%	77%	$200,000	27.50%
1970	50%	70%	$200,000	32.30%
1971	50%	70%	$200,000	34.30%
1972-75	50%	70%	$200,000	36.50%	50% exclusion - minimum tax effects
1976-77	50%	70%	$203,200	39.90%
1978	50%	70%	$203,200	39%
1979-80	50%	70%	$215,400	28%	60% exclusion
1981	50%	70%	$215,400	23.70%	50% or 60% exclusion
1982-86	50%	50%	$215,400	20%	60% exclusion
1987	38.50%	38.50%	$192,930	28%	Maximum rate
1988-90*	28%/33%	28%/33%	*	28%/33%	Realized gains taxed same as other income
1991-92	31.90%	31.90%	$82,150	28.90%	Maximum rate
1993-96	43.70%	40.80%	$250,000	29.20%
1997-2000	43.70%	40.80%	$275,000	21.20%
2001	43.20%	40.30%	$297,350	21.20%
2002	42.70%	39.80%	$307,050	21.20%	18% top capital gains rate in rare cases
2003-05	39.00%	36.10%	$311,950	16.10%	Reduced maximum rate which also applied to dividends
2006-07	38.60%	35.70%	$336,550	15.70%
2008-09	38.30%	35.40%	$357,700	15.40%
2010-12	37.90%	35.00%	$373,650	15%
2013-on	44.60%	44.60%	$396,100	25%	21.2% income tax plus 3.8% Medicare tax; also on dividends

Concern about Military is about Contractors

With the approach to the "fiscal cliff," there is a lot of talk about the desire to avoid cutting the Defense budget.  On its face, this appears to be concern about the fighting men and women in Afghanistan and other dangerous places, but it's really concern about defense contractors.  I don't think the Republicans really care about the people serving in the military.  Very few Republicans (or Democrats) in the House or Senate served in the military.  But they do care about their contributions from defense contractors, and about jobs in plants in their home districts.  Because of their concern about their home districts, the government had to change the whole procedure it uses to close military bases, because if handled the normal way, no base would ever be closed.  It's almost the same thing with defense contractors; every congressman wants to funnel money home to his defense contractor.  Hence, the frequent congressional mandates to build weapons systems that the Pentagon doesn't want. 

So, I am not too concerned about all the furor about saving the Defense Department budget; it's really about saving elections for incumbent congressmen and senators.  The bottom line on jobs is serious, but why should we be more concerned about keeping jobs at defense plants than anywhere else?  We need more jobs in computer companies, too, in airlines, everywhere.  Why should defense contractors get special consideration?  Because they give lots of money to the reelection campaigns of people in Congress.  It's all about the money, not about patriotism. 

Sleaze on Wall Street

I was struck reading Michael Lewis' book Boomerang about how sleazy Wall Street salesmen are.  Basically they are worse than used car salesmen, but are selling stuff worth billions.  Lewis says one of the main problems the Germans ran into during the 2008 economic crisis was that they believed the salesmen.  He says reports a conversation with Dirk Rothig, a German banker, talking about the German Landesbanks:

"The people in these banks were never spoiled by any Wall Street salesmen.  Now there is someone with a platinum American Express credit card who can take them to the Grand Prix in Monaco....  He has no limit....  All of a sudden a very smart guy from Merrill Lynch shows up and starts to pay a lot of attention to you.  They thought, 'Oh he just like me!'"

At bottom, he [Rothig]  says, the Germans were blind to the possibility that the Americans were playing the game by something other than official rules.  The Germans took the rules at their face value; they looked into the history of triple-A-rated bonds and accepted the official story that triple-A-rated bonds were completely risk-free. 

It's a shame that America has become such a corrupt country, while the Germans seemed to have maintained their moral standards.  Perhaps their terrible failings during World War II have made them more moral today, while our relatively easy course through WW II made us less concerned about our morals.  In particular Wall Street appears to have become a snake pit that has attracted some of the lowest types of humanity. 

 

The Rewards of Military Service

I've decided there are relatively few rewards for military service beyond those of any other job.  If the pay is good and you are not getting shot, then it's as good as any other government job.  But any idea of patriotism or idealism is out the window.  There is a lot of talk about the importance of those serving in the military, but I don't think most Americans believe it, or even if they claim to believe it, they don't act on it.  Companies tout giving jobs to veterans, but it's not because they really care about veterans; it's because it's good publicity for the company. 

If there is any psychic benefit to military service, it is only for the person who serves.  He or she can be personally proud of serving and protecting the nation but don't expect anybody else to share in that feeling.  With the rise in income inequality in the US, soldiers are not protecting their own homes and families so much as they are being paid to protect the enormous wealth of the few at the top of the pyramid.  Neither Romney, nor any of his five sons served in the military, but they are willing to pay some poor, dumb redneck to go shoot some Afghans for them. 

Things have changed for the better.  Veterans returning from Vietnam, like me, were reviled as psychotic baby killers.  After 9/11 there was a genuine increase in patriotism and a desire to protect the US from another, similar assault.  The diversion into the war in Iraq, which had nothing to do with 9/11 tended to waste that feeling and discredit the service of those who volunteered after 9/11.  The military is still more respected than it was after Vietnam, but the spirit of 9/11 is mostly dead.