Saturday, March 27, 2010

There is still hope!

One of the most fortunate occurrences of my life was to find myself at the University of Chicago at the same time as Gary Becker and to end up with him as the chairman of my Ph.D. thesis committee. Unbeknownst to me at the time Becker was  still to win a Nobel prize and become arguably the most creative economist in America. His influence has been spectacular.

Today an interview with him appears in the WSJ. He is 79 and still optimistic. 

I confess that current events have depressed and frustrated me greatly. I flinch at the assaults to our economy and our understanding of how the economy works. The energy, persistence and sheer talent with which Obama (and the Obami) have pursued, and continue to pursue, their arrogant agenda absolutely terrifies me. Its one thing to be so wrong, its another to be so arrogant and effective about it. Will the American people come to the right understanding and will they act on it in the November election? Becker thinks they will and he is optimistic. I sure hope he is right.

Read the interview.


MARCH 27, 2010
    'Basically an Optimist'—Still

    The Nobel economist says the health-care bill will cause serious damage, but that the American people can be trusted to vote for limited government in November.


    Stanford, Calif.
    "No, no. Not at all."
    So says Gary Becker when asked if the financial collapse, the worst recession in a quarter of a century, and the rise of an administration intent on expanding the federal government have prompted him to reconsider his commitment to free markets.
    Mr. Becker is a founder, along with his friend and teacher the late Milton Friedman, of the Chicago school of economics. More than four decades after winning the John Bates Clark Medal and almost two after winning the Nobel Prize, the 79-year-old occupies an unusual position for a man who has spent his entire professional life in the intensely competitive field of economics: He has nothing left to prove. Which makes it all the more impressive that he works as hard as an associate professor trying to earn tenure. He publishes regularly, carries a full-time teaching load at the University of Chicago (he's in his 32nd year), and engages in a running argument with his friend Judge Richard Posner on the "Becker-Posner Blog," one of the best-read Web sites on economics and the law.
    When his teaching schedule permits, Mr. Becker visits the Hoover Institution, the think tank at Stanford where he has been a fellow since 1988. The day he and I meet in his Hoover office, Mr. Becker has already attended a meeting with former Treasury Secretary Hank Paulson and spent several hours touring Apple headquarters down the road in Cupertino with his wife, Guity Nashat, a historian of the Middle East, and their grandson. "I guess you'd call our grandson a computer whiz," he explains proudly. "He's just 14, but he has already sold a couple of apps."
    I begin with the obvious question. "The health-care legislation? It's a bad bill," Mr. Becker replies. "Health care in the United States is pretty good, but it does have a number of weaknesses. This bill doesn't address them. It adds taxation and regulation. It's going to increase health costs—not contain them."
    Drafting a good bill would have been easy, he continues. Health savings accounts could have been expanded. Consumers could have been permitted to purchase insurance across state lines, which would have increased competition among insurers. The tax deductibility of health-care spending could have been extended from employers to individuals, giving the same tax treatment to all consumers. And incentives could have been put in place to prompt consumers to pay a larger portion of their health-care costs out of their own pockets.
    "Here in the United States," Mr. Becker says, "we spend about 17% of our GDP on health care, but out-of-pocket expenses make up only about 12% of total health-care spending. In Switzerland, where they spend only 11% of GDP on health care, their out-of-pocket expenses equal about 31% of total spending. The difference between 12% and 31% is huge. Once people begin spending substantial sums from their own pockets, they become willing to shop around. Ordinary market incentives begin to operate. A good bill would have encouraged that."
    Despite the damage this new legislation appears certain to cause, Mr. Becker believes we're probably stuck with it. "Repealing this bill will be very, very difficult," he says. "Once you've got a piece of legislation in place, interest groups grow up around it. Look at Medicare and Medicaid. Originally, the American Medical Association opposed Medicare and Medicaid. Then the AMA came to see them as a source of demand for physicians' services. Today the AMA supports Medicare and Medicaid as staunchly as anyone. Something like that will happen with this new legislation."
    Bad legislation, maintained by self-seeking interest groups. Back in 1982, I remind Mr. Becker, the economist Mancur Olson published a book, "The Rise and Decline of Nations," predicting just that trend. Over time, Olson argued, interest groups would form to press for policies that would almost invariably prove protectionist, redistributive or antitechnological. Policies, in a word, that would inhibit economic growth. Yet since the benefits of such policies would accrue directly to interest groups while the costs would be spread across the entire population, very little opposition to such self-seeking would ever develop. Interest groups—and bad policies—would proliferate, and the nation would stagnate.
    Olson may have sketched his portrait during the 1980s, but doesn't it display a remarkable likeness to the United States today? Mr. Becker thinks for a moment, swiveling toward the window. Then he swivels back. "Not necessarily," he replies.
    "The idea that interest groups can derive specific, concentrated benefits from the political system—yes, that's a very important insight," he says. "But you can have competing interest groups. Look at the automobile industry. The domestic manufacturers in Detroit want protectionist policies. But the auto importers want free trade. So they fight it out. Now sometimes in these fights the dark forces prevail, and sometimes the forces of light prevail. But if you have competing interest groups you don't end up with a systematic bias toward bad policy."
    Mr. Becker places his hands behind his head. Once again, he reflects, then smiles wryly. "Of course that doesn't mean there isn't any systematic bias toward bad policy," he says. "There's one bias that we're up against all the time: Markets are hard to appreciate."
    Capitalism has produced the highest standard of living in history, and yet markets are hard to appreciate? Mr. Becker explains: "People tend to impute good motives to government. And if you assume that government officials are well meaning, then you also tend to assume that government officials always act on behalf of the greater good. People understand that entrepreneurs and investors by contrast just try to make money, not act on behalf of the greater good. And they have trouble seeing how this pursuit of profits can lift the general standard of living. The idea is too counterintuitive. So we're always up against a kind of in-built suspicion of markets. There's always a temptation to believe that markets succeed by looting the unfortunate."
    As he speaks, Mr. Becker appears utterly at ease. He wears loose-fitting clothes and slouches comfortably in his chair. His hair, wispy and white, sets off his most striking feature—penetrating eyes so dark they seem nearly black. Yet those dark eyes display not foreboding, but contentment. He does not have the air of a man contemplating national decline.
    I read aloud from an article by historian Victor Davis Hanson that had appeared in the morning newspaper. "[W]e are in revolutionary times," Mr. Hanson argues, "in which the government will grow to assume everything from energy to student loans." Next I read from a column by economist Thomas Sowell. "With the passage of the legislation allowing the federal government to take control of the medical system," Mr. Sowell asserts, "a major turning point has been reached in the dismantling of the values and institutions of America."
    "They're very eloquent," Mr. Becker replies, his equanimity undisturbed. "And maybe they're right. But I'm not that pessimistic." The temptation to view markets with suspicion, he explains, is just that: a temptation. Although voters might succumb to the temptation temporarily, over time they know better.
    "One of the points Secretary Paulson made earlier today was how outraged—how unexpectedly outraged—the American people became when the government bailed out the banks. This belief in individual responsibility—the belief that people ought to be free to make their own decisions, but should then bear the consequences of those decisions—this remains very powerful. The American people don't want an expansion of government. They want more of what Reagan provided. They want limited government and economic growth. I expect them to say so in the elections this November."
    Even if ordinary Americans still want limited government, I ask, what about those who dominate the press and universities? What about the molders of received opinion who claim that the financial crisis marked the demise of capitalism, rendering the Chicago school irrelevant?
    "During the financial crisis," he replies, "the government and markets—or rather, some aspects of markets—both failed."
    The Federal Reserve, Mr. Becker explains, kept interest rates too low for too long. Freddie Mac and Fannie Mae made the mistake of participating in the market for subprime instruments. And as the crisis developed, regulators failed to respond. "The Fed and the Treasury didn't see the crisis coming until very late. The SEC didn't see it at all," he says.
    "The markets made mistakes, too. And some of us who study the markets made mistakes. Some of my colleagues at Chicago probably overestimated the ability of the Fed to smooth disruptions. I didn't write much about the Fed, but if I had I would probably have overestimated the Fed myself. As the banks developed new instruments, economists paid too little attention to the systemic risks—the risks the instruments posed for the whole financial system—as opposed to the risks they posed for individual institutions.
    "I learned from Milton Friedman that from time to time there are going to be financial problems, so I wasn't surprised that we had a financial crisis. But I was surprised that the financial crisis spilled over into the real economy. I hadn't expected the crisis to become that bad. That was my mistake."
    Once again, Mr. Becker reflects. "So, yes, we economists made mistakes. But has the experience of the past few years invalidated the finding that markets remain the most efficient means for producing economic growth? Not in any way.
    "Look at growth in developed countries since the Second World War," he continues. "Even after you take into account the various recessions, including this one, you still end up with a good record. So even if a recession as bad as this one were the price of free markets—and I don't believe that's the correct way of looking at it, because government actions contributed so greatly to the current problem—but even if a bad recession were the price, you'd still decide it was worth paying.
    "Or look at developing countries," he says. "China, India, Brazil. A billion people have been lifted out of poverty since 1990 because their countries moved toward more market-based economies—a billion people. Nobody's arguing for taking that back."
    My last question involves a little story. Not long before Milton Friedman's death in 2006, I tell Mr. Becker, I had a conversation with Friedman. He had just reviewed the growth of spending that was then taking place under the Bush administration, and he was not happy. After a pause during the Reagan years, Friedman had explained, government spending had once again begun to rise. "The challenge for my generation," Friedman had told me, "was to provide an intellectual defense of liberty." Then Friedman had looked at me. "The challenge for your generation is to keep it."
    What was the prospect, I asked Mr. Becker, that this generation would indeed keep its liberty? "It could go either way," he replies. "Milton was right about that."
    Mr. Becker recites some figures. For years, federal spending remained level at about 20% of GDP. Now federal spending has risen to 25% of GDP. On current projections, federal spending would soon rise to 28%. "That concerns me," Mr. Becker says. "It concerns me a great deal.
    "But when Milton was starting out," he continues, "people really believed a state-run economy was the most efficient way of promoting growth. Today nobody believes that, except maybe in North Korea. You go to China, India, Brazil, Argentina, Mexico, even Western Europe. Most of the economists under 50 have a free-market orientation. Now, there are differences of emphasis and opinion among them. But they're oriented toward the markets. That's a very, very important intellectual victory. Will this victory have an effect on policy? Yes. It already has. And in years to come, I believe it will have an even greater impact."
    The sky outside his window has begun to darken. Mr. Becker stands, places some papers into his briefcase, then puts on a tweed jacket and cap. "When I think of my children and grandchildren," he says, "yes, they'll have to fight. Liberty can't be had on the cheap. But it's not a hopeless fight. It's not a hopeless fight by any means. I remain basically an optimist."
    Mr. Robinson, a former speechwriter for President Ronald Reagan, is a fellow at Stanford University's Hoover Institution.

    Copyright 2009 Dow Jones & Company, Inc. All Rights Reserved

    Friday, March 19, 2010

    Whose side is Obama on?

    Call me paranoid, but I suspect a public-relations plot against Israel by the Obama administration.

    I see a deliberate attempt to put distance between the U.S. and Israel, as a prelude to increased pressure on Israel to accept the U.S. approach to peace negotiations - the Mitchell approach.

    The basis for my suspicion is a discernable ratcheting up of rhetoric - conveniently supported by the target provided by the announcement of the intention to build housing units in East Jerusalem (which was itself probably the result of a counter-Obama Israeli agenda).

    The White House is leaking insinuations and rumors from the highest level in the administration and even the military (see for example here and here). According to Mark Perry, an intelligence analyst with known sympathies for Arab extremists, General Petraeus and other senior commanders were shocked to learn the extent to which Israel's intransigence in the Middle East was fueling resentment in both Iraq and Afghanistan, and elsewhere across the Moslem world, and increasing the danger faced by American soldiers in the field. I heard an interview on NPR (I think it was with Mark Perry) in which he clearly implied that if only Israel would quickly "resolve" its disagreements with the Palestinians, America's job in the world, and in the Moslem world in particular, would be significantly eased. This stuff is now all over the media.

    This is not a new accusation, but it is an alarmingly serious one. Americans overwhelmingly believe that Israel and American share common values and interests - and are not just strategic allies. In its understanding of the importance of Israel as a bastion of classical liberal principles, America is almost alone in the world. If this should change, if Americans could be made to believe the horribly specious argument that support for Israel is unnecessarily costing us money and lives, the cost to Israel and to the world can hardly be understated.

    It boggles my mind to imagine that the Jews of America, Alan Dershowitz included (see here), voted for this President.

    AIPAC is about to begin its high-profile annual convention in Washington DC. The delegates will hear from both Hillary Clinton and Binyamin Netanyahu. Let us hope they hear the right things and have the strength and influence to turn this tide before it becomes a tsunami.

    Thursday, March 18, 2010

    Soft on Settlements?

    All this fuss about apartments in East Jerusalem?

    I have come to believe that indignation about the so-called "settlements" is purely pretextual. Both the Palestinians and the Obami are using this incident as a pretext for doing what they wanted to do anyway - isolate Israel in public opinion. And the Europeans are lapping it up. The Palestinians and the Europeans vilified Israel before the settlements were an issue and will not be placated whatever Israel does.

    The settlement issue is fraught with myth and missinformation. It is presented as if Israel is a colonizer on Palestinian land. As Ruth Wisse points out in today's WSJ, Israeli citizens have historically got the worst of the land stuggle. Looking at a map it is hard to believe that this is about land - about living space. Twenty one countries, with 800 times more land, much of it unsettled, are obsessing about Israel building appartments in Jerusalem. As Bret Stephens of the WSJ has put it, this is not a territorial struggle, it is an existential one. It is Israel's existence that is the issue.

    The conventional wisdom is that Bibi was surprised by the announcement by his government. It may well be that he is trying to send a message to American Jews to wake up and realize that those who warned that Obama is basically an Arab sympathizer were more right than imagined - Ram Emanuel being an ex-Israeli notwithstanding.

    As I say, the settlement issue is a complicated one - not so simple as the world press makes it out. Some of them are private purchases; all of them are in disputed territory, not self-evidently Palestinian. As a rule I do not like government appropriation and development of land wherever it occurs. But this is not the issue here.

    It is important to point out that the presence of these Israelis in the territories is often a boost to the Palestinian economy. They bring jobs at fair wages and work conditions, and stimulate trade. And now the EU has decided to boycott the products of this industry. Typical.

    In fact trade between the Palestinians and Israel is quietly growing. This is absolutely the best hope for peace in the region as both sides develop a vested interest in each other. But expect the EU, the Palestinians leaders and other thugs to disrupt this trade. It is very threatening to them and their raison d' etre. So it is going to be crushed!

    I hope the 78% of American Jews who voted for Obama are rethinking their choice. If not Israel is really in trouble. We know America is, for a host of other Obama-related reasons.

    Wednesday, March 3, 2010

    Introducing Pilar Rahola

    My cousin Matthew Lewin sent me this blog.

    Its been around for awhile but I had not seen it. Nor had I heard of Pilar Rahola. I have now looked at her blog site, read some of her stuff (thanks to the tireless efforts of my wonderful Spanish teacher) and count myself as an admirer.
    This short address, translated from Spanish, reveals the flavor of her other work.

    Really worth reading.

    Saturday, January 3, 2009

    Pilar Rahola

    Pilar Rahola

    Pilar Rahola is a Spanish politician, journalist and activist. She is a passionate defender of the United States and Israel and an indefatigable fighter against anti-Semitism. All these despite being ideologically from the left. Her articles are published in Spain and throughout some of the most important newspapers in Latin America. She is the recipient of major awards by Jewish organizations.

    I came across this speech and felt that it was worthwhile placing it in my blog. I translated it and assume full responsibility for any errors. If you want to visit her blog, you can do so by clicking here: Pilar Rahola. Some of her articles are translated into English.
    Why don’t we see demonstrations against Islamic dictatorships in London, Paris, Barcelona? Or demonstrations against the Burmese dictatorship? Why aren’t there demonstrations against the enslavement of millions of women who live without any legal protection? Why aren’t there demonstrations against the use of children as human bombs where there is conflict with Islam? Why has there been no leadership in support of the victims of Islamic dictatorship in Sudan? Why is there never any outrage against the acts of terrorism committed against Israel? Why is there no outcry by the European left against Islamic fanaticism? Why don’t they defend Israel’s right to exist? Why confuse support of the Palestinian cause with the defense of Palestinian terrorism? An finally, the million dollar question:Why is the left in Europe and around the world obsessed with the two most solid democracies, the United States and Israel, and not with the worst dictatorships on the planet? The two most solid democracies, who have suffered the bloodiest attacks of terrorism, and the left doesn’t care.

    And then, to the concept of freedom. In every pro Palestinian European forum I hear the left yelling with fervor: “We want freedom for the people!” Not true. They are never concerned with freedom for the people of Syria or Yemen or Iran or Sudan, or other such nations. And they are never preoccupied when Hammas destroys freedom for the Palestinians. They are only concerned with using the concept of Palestinian freedom as a weapon against Israeli freedom. The resulting consequence of these ideological pathologies is the manipulation of the press.

    The international press does major damage when reporting on the question of the Israeli-Palestinian issue. On this topic they don’t inform, they propagandize. When reporting about Israel the majority of journalists forget the reporter code of ethics. And so, any Israeli act of self-defense becomes a massacre, and any confrontation, genocide. So many stupid things have been written about Israel, that there aren’t any accusations left to level against her. At the same time, this press never discusses Syrian and Iranian interference in propagating violence against Israel; the indoctrination of children and the corruption of the Palestinians. And when reporting about victims, every Palestinian casualty is reported as tragedy and every Israeli victim is camouflaged, hidden or reported about with disdain.

    And let me add on the topic of the Spanish left. Many are the examples that illustrate the anti-Americanism and anti-Israeli sentiments that define the Spanish left. For example, one of the leftist parties in Spain has just expelled one of its members for creating a pro-Israel website. I quote from the expulsion document: “Our friends are the people of Iran, Libya and Venezuela, oppressed by imperialism, and not a Nazi state like Israel.”

    In another example, the socialist mayor of Campozuelos changed Shoah Day, commemorating the victims of the Holocaust, with Palestinian Nabka Day, which mourns the establishment of the State of Israel, thus showing contempt for the six million European Jews murdered in the Holocaust. Or in my native city of Barcelona, the city council decided to commemorate the 60th anniversary of the creation of the State of Israel, by having a week of solidarity with the Palestinian people. Thus, they invited Leila Khaled, a noted terrorist from the 70’s and current leader of the Popular Front for the Liberation of Palestine, a terrorist organization so described by the European Union, which promotes the use of bombs against Israel. And so on and so on.

    This politically correct way of thinking has even polluted the speeches of president Zapatero. His foreign policy falls within the lunatic left, and on issues of the Middle East he is unequivocally pro Arab. I can assure you that in private, Zapatero places on Israel the blame for the conflict in the Middle East, and the policies of foreign minister Moratinos reflect this. The fact that Zapatero chose to wear a kafiah in the midst of the Lebanon conflict is no coincidence; it’s a symbol.

    Spain has suffered the worst terrorist attack in Europe and it is in the crosshairs of every Islamic terrorist organization. As I wrote before, they kill us will cell phones hooked to satellites connected to the Middle Ages. An yet the Spanish left is the most anti Israeli in the world.

    And then it says it is anti Israeli because of solidarity. This is the madness I want to denounce in this conference.


    I am not Jewish. Ideologically I am left and by profession a journalist. Why am I not as anti Israeli as my colleagues? Because as a non-Jew I have the historical responsibility to fight against Jewish hatred and currently against the hatred for their historic homeland, Israel. To fight against anti-Semitism is not the duty of the Jews, it is the duty of the non-Jews.
    As a journalist it is my duty to search for the truth beyond prejudice, lies and manipulations. The truth about Israel is not told. As a person from the left who loves progress, I am obligated to defend liberty, culture, civic education for children, coexistence and the laws that the Tablets of the Covenant made into universal principles. Principles that Islamic fundamentalism systematically destroys. That is to say that as a non-Jew, journalist and lefty I have a triple moral duty with Israel, because if Israel is destroyed, liberty, modernity and culture will be destroyed too.
    The struggle of Israel, even if the world doesn’t want to accept it, is the struggle of the world.

    Monday, March 1, 2010

    Greece and California

    When the proposed currency unification of the members of the European Union was adopted I predicted it would fail. I was pleased to have been proven wrong - or so I thought. Now, I see I may have been right. As so often happens, the undrelying economic realities take longer than expected to assert themselves.

    The underlying realities are these. A common currency implies a common monetary policy. By agreeing to adopt the same currency, the members of the currency union agree in effect to relinquish independence in monetary policy decisions. So France cannot adopt a more inflationary posture than Germany without straining the agreement. Whoever controls the supply of the currency will ultimately determine the degree of inflation. The ability of the independent states to create money to cover government deficits is removed.

    In this way Greece is like California. California has no independent currency or central bank. When it runs a defiicit it can only cover it by spending less or taxing more. A third option is to go to the Federal Government to "bail it out." The Federal Government has its own exploding deficit. The difference is that the Federal Government can borrow money from the Federal Reserve System by issuing debt - as long as the Fed is willing to buy the debt or get the public to do so. The Fed can arrange the borrowing from the public (or foreign governments) if the Treasury is willing to sufficiently raise interest rates to make its debt attractive in these uncertain times, or (since high interest rates are unpopular) it can simply buy the debt by creating new deposits for the Treasury. This is commonly called "printing money." In this way, by adding to the Treasury's need to borrow, California can contribute to the policy dilemma of the United States.

    California, with its huge deficits, is not the only perpetrator of profligacy. New York, New Jersey, and many other states, to various degrees, are guilty. By coming to the rescue of profligate states the Federal government forces those states who act relatively frugally and responsibly to shoulder the irresponsible consequences of the spendthrifts. Even more important, by so doing the Federal Government encourages irresponsible behavior and discourages fiscal responsibility.

    I ardently hope that the decision is made not to come to the rescue of California, New York or any other needy state - even if this means the defaulting of state government debt and the crisis that will entail. Pay now or pay more later.

    By the same token, the senior members of the EU should not bail out Greece - whatever the consequences. Greece today, Spain tomorrow and there is no visible end. Greece will not live up to any austerity conditions placed upon it and failure to stick to the tough love approach may well mean the end of the common currency that has worked quite well to date.

    Obama wants America to be more like Europe - in health care, the environment, public transportation - and no doubt in hypocrisy too. The Europeans are contempruous of his admiration. They will not allow him to take away their reasons for hating America. Regarding California, as with most everything else, we should not be aspiring to be like them.