Cause for revolt

Change we can believe in? Though they'll try to convince us otherwise, the new Geithner/Obama bailout plan is just a more complicated version of the original Paulson/Bush TARP proposal released last September.

While the administration intends to formally announce the plan tomorrow, the details of the Geithner/Obama bailout plan were leaked to the New York Times last Friday. The plan is rather complicated and I won't pretend to understand all the details. Nonetheless, Yves Smith at Naked Capitalism has provided a more or less understandable analysis of the plan. From what I can tell from the Times article and the Smith analysis, the Geithner plan includes three main parts. Firstly, the FDIC will provide loans to private investors like hedge funds and private equity firms to encourage them to purchase "toxic" assets. The loans will be equal to 85% of the value of said assets and backed "only by the value of mortgage assets being bought," according to the Times. I believe these loans are basically, in the words of Paul Krugman, "heads I win, tails you lose" propositions. In other words, if the prices of these assets go up, private investors will reap profits. If they fall, the taxpayer will pick up the tab. In part two of the plan, the treasury department, drawing on the remaining $350 billion in taxpayer dollars allocated for TARP, in conjunction with private investors, will cover the remaining 15% of the value of these assets. According to the New York Times piece, treasury will likely contribute 80% of the remaining 15% share and private investors will contribute about 20%. All told, private investors will contribute about 3% of the cash under this plan and the taxpayer will be on the hook for the remaining 97%. In the third and final piece of the plan, the Treasury "plans to expand lending through the Term Asset-Backed Secure Lending Facility, a joint venture with the Federal Reserve". This program is intended to make it easier for consumers to get loans. The administration assures us that the taxpayer will be protected from overpaying for toxic assets because the banks will "bid in auctions against each other for the assets". As a result of this process, they contend that the government will pay far below the original market value for these assets.

Without a doubt, this plan is just plain awful. In proposing this plan, Obama and his economic team have revealed themselves to be one of two things: utterly incompetent or a bunch of duplicitous liars trying to pull a fast one on the American people. Unfortunately, most of the evidence points towards the latter, but let's start with the incompetence of the plan.

To begin with, the Obama economic team has fundamentally misdiagnosed the problems facing the financial system. According to Paul Krugman's most recent blog post, the administration remains captive to the idea that over the past year or so, we've been experiencing a run on basically sound banks. This bank run has drove down the price of assets and got the banks in trouble, but in the view of Obama's economic team, there's nothing fundamentally wrong with the bank's balance sheets. In the minds of Geithner, Summers, Bernake etc, "there are no bad assets. Only misunderstood ones". As such, intervening in the markets to stabilize and correct the price of the banks' "misunderstood assets" will solve the problem. Unfortunately, as ought to be evident to pretty much anyone, the banks are not fine and their troubled assets, which are largely mortgage-related securities, are not misunderstood, they're just plain bad. As Dean Baker frequently points out, we are and have been experiencing the collapse of an $8 trillion housing bubble. Due to the collapse of housing prices, the related rise in foreclosures, and the epidemic of negative equity facing millions of Americans, the market regards mortgage-backed securitites as basically worthless and of course, they're right. Further, housing prices in many areas of the country still need to fall an additional 20% or so to reach historic trend levels, so the actual value of these assets will inevitably continue to fall. As such, the FDIC and Treasury will end up overpaying for assets, the real value of which will continue to slide downwards, costing the taxpayer billions of dollars. Yet, even after we've propped up the banks with more subsidies, many of them will still be insolvent. They've just made too many bad bets.

As for the duplicitousness of this plan, the examples are myriad. Firstly, as Yves Smith points out, the billing of this plan as a public private partnership is maddeningly Orwellian. In her own words, "Since when is someone who puts 3% of total funds and gets 20% of the equity a "partner"?". There is very little private and very little partnership in this plan but there's an awful lot of public money and public risk.

The unnecessary complexity of this plan is also disturbing. By developing a Rube-Goldberg machine-like bailout plan with lots of moving parts, the administration seems to trying to hide an essential fact: that it's really just a repackaged version of the original Henry Paulson bailout plan proposed last September. The goals are the same: get the bad/toxic/troubled/misunderstood assets off the banks' balance sheets, as are the means: use public dollars to pay above market prices for these assets. The central component of the plan, the "heads you win, tails you lose" loans to hedge funds worth 85% of the value of these assets, is the functional equivalent of just buying the assets outright from the banks. Geithner et all are just adding another step to the process, by routing the money through private equity funds and hedge funds rather than just buying the assets outright. Although they totally missed the housing bubble and have demonstrated monumental incompetence elsewhere, we can be pretty sure that Geithner, Summers, and everyone else involved are well aware of this fact. These folks only tend to be incompetent when competence threatens the profits of America's bloated financial sector.

Finally, the administration's argument that competitive bidding will keep the taxpayer from overpaying for bad assets is probably the most despicable and bald-faced lie of all. According to Yves Smith, the reality of these auctions is the exact opposite. Banks simply won't agree to sell these assets unless they get what they think they are worth, which is by definition an above-market price (if this were not the case, they would've already been able to get ride of them). Thus,

the point of a competitive process (assuming enough parties show up to produce that result at any particular auction) is to elicit a high enough price that it might reach the bank's reserve, which would be the value on the bank's books now.

And notice the utter dishonesty: a competitive bidding process will protect taxpayers. Huh? A competitive bidding process will elicit a higher price which is BAD for taxpayers!

A plan which the administration claims will protect the taxpayer but in fact does the exact opposite! This sounds a lot like the Clear Skies Act and other Bush administration antics to me. Rational observers have long known that Obama is no radical and not even especially progressive, but I honestly never expected such open deceit would emanate from his office as president.

On top of revealing that the Obama economic team (which includes President Obama of course) is a midly incompetent and highly duplicitous bunch with a disturbingly low opinion of the American people, the new bailout plan also rewards all the wrong people and creates some pretty perverse incentives. Unlike nationalization, which is the only sensible solution to the financial crisis, this plan leaves the criminal management of the banks in place. Apparently, the Obama administration would like to continue rewarding the same folks who got us into this mess with even more cash. The "heads I win, tails you lose" loans to hedge funds also encourage them to make risky bets without bearing any of the consequences. And do we really want to funnel any more money into private equity firms and hedge funds, which, as Juan Gonzalez often points out on Democracy Now, are even less transparent and more dangerous than investment banks? I certainly don't think so.

More than anything, this plan reveals that the Obama administration cares more about the banks and their executives than the American people. We should all do everything we can to voice our opposition to it. In electing President Obama, the American people thought they were voting for change, not 4 more years of Bush-era, failed policies. Yet, when it comes to financial policy, team Obama has done absolutely nothing to distinguish itself from team Bush. In fact, in some ways the Obama administration has been worse. At least when Paulson released his plan for bailing out failed banks with taxpayer dollars back in September, he was basically upfront about it. Instead, the Obama team has developed an excessively complex plan to mask their true intentions. I know it's a little dramatic to say so, but this is a sad day for American democracy.

Cause for celebration

Yes!

"This is the defeat of Ronald Reagan, nothing less."
-Roberto Lavato, Salvadoran-American and Contributing Associate Editor with New America Media

One thing I forgot to mention

In my recent post about health care reform, I forgot to include one very important point. Not only is single payer the most efficient and equitable means of financing health care, it's also quite popular. Numerous polls have demonstrated that the majority of Americans support government-financed, universal health insurance. In general, polls conducted over the past two years show that approximately two thirds of Americans would prefer single payer over the current system. Surprisingly, this level of support holds true even if switching to single payer would require a tax increase. (In a May 2007 poll conducted by CNN, 64% of the survey population responded "yes" to the question: "Do you think the government should provide a national health insurance program for all Americans, even if this would require higher taxes?".) The majority of health care providers also support single payer. The largest union of Registered Nurses, the California Nurses Assocation-National Nurses Organizing Committee, strongly supports national health insurance. 59% of physicians, up from just 49% in 2002, support it as well.

Given that large majorities of both consumers and providers of health care support single payer national health insurance, a majority, or at least a large portion, of our representatives in Congress ought to support single payer as well. That is, of course, if you believe congressional representatives ought to represent the views of their constituents. Likewise, single payer health insurance should have been vigorously debated as a serious option for the United States at the recent Obama administration-sponsored health care summit, if in fact "all options are on the table," as the President claims. Furthermore, single payer ought to be widely discussed in the media and advocates of single payer should be given extensive time and space on television and newspaper op-ed pages to make the case for national health care. Unfortunately, this is not the case in any of these instances.

The bill to create a single payer health insurance system, HR 676, currently has 93 co-sponsors in the House. In other words, about 1/5 of the "people's house" supports a bill that about 2/3 of Americans support. There is no single payer legislation currently in the Senate at all, though Russ Feingold (at least at one point) and Bernie Sanders are supporters. Apparently it's difficult to stand with the people, rather than with the corporations, when you have to finance increasingly expensive state-wide elections every six years. At first, not a single advocate of single payer was invited to Obama's health care summit, but in response to intense grassroots presure, Obama relented and allowed John Conyers (D-MI), the congressional sponsor of HR 676, and Dr. Oliver Fein, the director of Physicians for a National Health Plan (PNHP), to attend. Nonetheless, according to The Nation's John Nichols, neither Conyers nor Fein were allowed to give speeches at the event, while representatives from the U.S. Chamber of Commerce, Blue Cross Blue Shield Association, and the Business Roundtable were. None of these organizations support single payer and none of the speakers at the event did either. Apparently the "we" in "Change We Can Believe In" excludes the American people.

Media coverage of single payer has been similarly representative. In a report released yesterday, the media watchdog group Fairness and Accuracy in Reporting (FAIR) argues that there has been a "media blackout on single payer". According to FAIR, there have been hundreds of stories in major national newspapers and on television over the past week on health care and health care reform, "yet all but 18 of these stories made no mention of "single-payer"(or synonyms commonly used by its proponents, such as "Medicare for all," or the proposed single-payer bill, H.R. 676)". In the rare event that single payer or its synonyms were even mentioned, it was often done so disapprovingly. Only 5 stories of the 18 stories which mention single payer included the views of single payer advocates, all of which appeared in print. Of the 10 op-ed pieces that appeared last week which mentioned single payer, 5 were a column written by Charles Krauthammer, originally published in the Washington Post and reprinted 4 times, which lampoons the concept of national health insurance. On the other hand, "socialized medicine," the misleading term preferred by opponents of single payer, appeared 7 times on television. (If medicine were truly socialized, both the financing and delivery of health care would be in the hands of the government, as in the case in the National Health Service (NHS) in Britain. In contrast, single payer, as envisioned in HR 676, would mean government financing but private delivery of health care, as is the case in Canada or in Medicare for elderly Americans. Basically no organization in the U.S., to my knowledge, advocates making doctors employees of the government). In fact, according to the FAIR study, "socialized medicine" is CNN chief medical correspondent Elizabeth Cohen's term of choice when describing basically any additional government involvement in health care, whether the example is Bill Clinton's attempted health care reform from 1994, the Canadian national health care system, or the British NHS. Thank you Dr Cohen (Ms. Cohen?) and the rest of the media for doing such a great job keeping us informed.

The disparity between widespread public approval of single payer and even more widespread disdain for single payer among our nation's political and opinion elite is a glaring case of what David Sirota aptly calls the rootsgap; sadly, on most important issues, public opinion and elite opinion are diametrically opposed. This gap will make overhauling our disastrous health care system particularly difficult. Nonetheless, grassroots activism has already achieved some victories. For instance, if it were not for pressure from PNHP, pro-single payer labor unions, and other activists, voices for single payer would not have been been included in President Obama's health care summit. We have to keep at it, and I'm confident that those same folks will continue doing everything they can to advance the cause of a just and efficient health care system. Hopefully the FAIR study will shame some of the media into changing their ways as well. In particular, I'd like Bill Moyers, Tavis Smiley, Rachel Maddow, and/or Keith Olberman to step up on this issue. Come one guys, let's see a panel discussion on health care on your shows which include single payer advocates! Let's see one of you bring the facts into this debate, like the CBO study on cost savings from shifting to single payer or any of the myriad public opinion polls. Jon Stewart of Steven Colbert could do a lot to ensure that all voices are heard in this debate as well. Please, invite David Himmelstein, Rose Ann Demoro, or John Conyers on your programs! Or why not my man Dennis Kucinich or America's favorte documentarist, Michael Moore! There's no shortage of smart, dedicated people on the right side of this issue. They just need to be given a chance to speak out. So please, just give single payer a chance!

A Truly pragmatic approach to health care reform

Health care reform is, once again, in the air in Washington. President Obama says its his administration's top fiscal priority. It's about time. Evidence of the myriad flaws of the U.S. health care system is overwhelming. Among the industrialized nations of the world, the American health care system is the most expensive, both in absolute terms and relative to the size of our economy, least equitable--1/6 of Americans have no insurance, while in every other industrialized nation, health care is a right--and just about the worst performing. Despite spending more on health care than any other nation, The United States ranks 38th in the world in life expectancy, and 33rd in infant mortality. Many developing nations, such as Costa Rica and Chile, have higher life expectancies. Cuba, whose per capita income is less than a fourth of the U.S., has a far lower infant mortality rate. The rising cost of health care in the United States is also becoming unbearable for American families. Medical bills are the cause of nearly half of personal bankruptcies in the United States. The U.S. health care system is also a disastrous competitive disadvantage for American industry, a problem best exemplified by the Big 3 auto companies. As Amy Goodman loves to point out, the automakers spend more on health care than on steel. According to Dean Baker, if the U.S. health care system was as expensive as the Canadian system, GM would have earned $22 billion more in profits over the past ten years. If they had those extra earnings, they might have been able to ride out the current crisis without government assistance, or at least with far less aid.

It may come as some of a shock, as I rarely say anything positive about him, but I think President Obama's thinking on health care is, at a minimum, on the right track. First and foremost, I'm happy that President Obama has acknowledged that the American health care system is in crisis. In his own words:

the cost of our healthcare has weighed down our economy and our conscience long enough. So let there be no doubt: healthcare reform cannot wait, it must not wait, and it will not wait another year.

He is also matching his words with action. In his budget proposal, Obama has allocated $634 billion for health care reform. Obama plans to use those $634B for two main purposes. Firstly, he wants to set up a system of subsidies to help Americans without health insurance to afford it. Secondly, he wants to set up a public health insurance plan, like Medicare, that any American can buy into. He proposes to pay for this by raising taxes on the super-wealthy and eliminating subsidies for the pharmaceutical and insurance industries in Medicare, which were included in the 2003 Medicare Modernization act. Or, as Paul Krugman more accurately calls it, The Medicare Middleman Multiplication Act of 2003. Eliminating the gratuitous and utterly inefficient corporate welfare in Medicare is a good step in itself. I'm glad that he also plans to put the savings generated to good use.

Both of these ideas aren't bad, if implemented correctly. Our goal, however, ought to be moving towards a single payer health insurance system, like that of Canada. Unfortunately, Obama is not proposing a single payer system. Single payer is the most equitable means of financing health care as it guarantees the same standard of care to everyone, regardless of their ability to pay. In single payer systems, people also aren't dependent on their employers for health insurance, like we are in the U.S., allowing for continuity of coverage in the event of joblessness. It is also far and away the most efficient means of financing health care. As mentioned above, countries which use single payer systems and guarantee coverage to everyone, like Canada, France, and the United Kingdom, actually spend less per person than we do in the United States, despite the gaping holes in our system.

How is that possible? Mainly because private companies are far less efficient insurers than government agencies. That's right, as difficult as it may be for Americans to believe, privatization is not synonymous with efficiency. Private companies are less efficient because they make money not by providing the best quality insurance at the lowest price, but by denying coverage to the sick and selectively covering only the healthiest and wealthiest among us. This process, as any American whose ever wrangled with their insurance company knows, requires a lot of paperwork, wastes time, and drives up administrative costs. In a single payer plan, everyone is covered, regardless of income or health, so there's far less wasteful paper work. Private companies also earn profits and pay executives exorbitant salaries, two sources of waste which are nonexistent in government bureaucracies. These costs all add up. According to Physicians for a National Health Program, private insurers spend 13 cents of every dollar they take in in on administration and profits. For managed care organizations, this figure is even higher, averaging 30%. In contrast, administrative costs and overhead represent just 2% of the costs of running Medicare and 1% of the cost of the Canadian national health insurance system. Having to deal with multiple insurance plans, each with different, complex, and often confusing billing procedures, also drives up administrative costs for doctor's offices and hospitals in the U.S.. In Canada, doctor's offices spend 34% of their gross income on overhead and hospitals spend about 12%. In the United States, the numbers are 44% and 25.5%, respectively. All told, the potential savings of switching to a single payer plan in terms of reduced bureaucracy are enormous. According to the U.S. Congress's General Accounting Office (GAO), switching to single payer would instantly cut U.S. health care costs by 10% a year, saving us $100 billion annually.

Any plan that leaves private insurers in place will force consumers and providers to bear the cost of unnecessary administrative waste. As such, private insurance will never be as effective at containing costs, while preserving quality and equity, as public insurance. As concerned citizens, we ought to be organizing and pushing for single payer. That being said, Obama's plan is not at all terrible. In particular, creating a public plan that everyone can buy into, even as a voluntary option, is a great idea. Due to the inherent efficiencies of public insurance noted above, the public option ought to deliver decent coverage at a lower price than private insurance. Thus, through the magic of the marketplace, individuals and businesses should switch from private to public insurance, saving them money on a micro level and decreasing costs on a macro level. Obama has also proposed the idea of requiring private insurers (and the new public plan) to use community rating, which would make it illegal for them to deny coverage to people based on pre-existing health conditions and require them to charge everyone the average, rather than marginal price of coverage. In other words, if it costs, on average, $6000 per person per year to cover everyone at your workplace, then the insurer must charge everyone $6000 a year and cannot charge less for young, healthy workers or more for older, sicker workers. Community rating is an absolutely essential piece of Obama's plan for it to work properly. It ought to make private insurance function more equitably. By criminalizing selective coverage, it should also cut down on administrative costs as insurers will spend less money trying to figure out how not to cover people. Community rating will also insure that the public and private plans compete on a level playing field. If a public plan which uses community rating is actually established and private insurers are not required to play by the same rules, private companies will continue to cover just the healthiest, youngest, and wealthiest and likely drop their coverage of sicker people, while the least healthy and oldest, who cost more to insure, will migrate to the public insurance, weighing down the public budget. This phenomena, known as adverse selection(see example: insurance), is a big problem in Chile, which has both public and private insurance but does not require that they use the same standards for coverage (if you're a total geek like me and would actually like to read the Chile study, send me an email and I'll send you a copy).

Basically, if Obama's plan were put into law exactly as he envisions it, it would be decent, but not ideal. Regardless, the pragmatic path for citizen activists to take is still advocating for single payer. Not only should we advocate for it because it's the best system, it's also the smartest negotiations tactic if we're willing to be honest about how Washington actually works and indeed how all public policy is made any where. As Paul Street eloquently pointed out back in November of last year,

Big and meaningful reforms - and we need serious reforms (e.g. single-payer national health insurance, massive public works programs, and the restoration of union organizing rights in this country), however insufficient they may be in and of themselves - are only attained when elites are convinced that the cost of changing is less than the cost of not changing

. The New Deal is a perfect example of this. As I've stated before, FDR did not create social security, set up public works/job creation programs, or reform American labor legislation solely out of the goodness of his own heart. Rather, he took these steps because there were lots of radicals, such as trade unionists, unemployed activists, and anti-eviction protesters, running arround in the 1930s with very dangerous ideas that shook the status quo to its core. I can't find the exact quote, but I'm almost positive that FDR regarded his efforts as "saving capitalism from itself". If he had not acted, America may have very well been taken over by those crazy radicals. (If only, I'd say, but we can get back to that later). Instead, he preserved the state capitalist economic system, albeit in a much more humane fashion.

Whatever health care reform comes out of Washington, I believe, will inevitably be a compromise between the people's interests and corporate interests. If we build a large, aggressive, grassroots campaign for single payer, as many progressive organizations like Physicians for a National Health Program, the California Nurses Association, and Healthcare-Now!, are already working towards, we approach the negotiations over health care reform in Washington with a strong hand and raise the cost of not acting or acting solely in the corporate interest. In contrast, if we preemptively make concessions to corporate interests, like those made by Health Care for America Now!, which has aligned themselves totally with the Obama plan and opposes single payer, we set ourselves up for failure. The health insurance industry will do everything they can to prevent the most vital and progressive elements of the Obama plan from passing, namely community rating and the public insurance plan. If we start off by calling just for those reforms, a far weaker plan can be presented as a compromise between the left (the people) and the right (the corporations). See the recent stimulus debate for more evidence of this dynamic.

So please, write or call your congresspeople and tell them you want single payer health insurance today! There's already a bill in congress that would put single payer in place, sponsored by Representative John Conyers of Michigan, HR 676. Then check out Healthcare-Now!'s website and find out when the next demonstration is in favor of single in your area and go to it! I know it's easy to say this, heck, I'm in Costa Rica, but I really think supporting single payer is among the most patriotic things you can do. HR 676, for America's future!

Thoughts on the stimulus and the bailout

Without a doubt, this has been an important week in Washington. Our elected leaders have made decisions over the past several days that will likely have an enormous impact on both the American and world economies for many years to come. On Tuesday, Treasury Secretary Tim Geithner (D-Goldman Sachs) unveiled a 1.5 trillion dollar financial rescue package, intended to restore the flow of credit to individuals and businesses. Today, the House and Senate agreed on a $789 billion economic stimulus plan, which aims to create or save 3.6 million jobs. Both the financial rescue plan and the stimulus are not completely terrible. Geithner appears to have abandoned the idea of over-paying the banks for toxic assets as a means of rescuing the financial system, likely under public pressure. Progressive activists also deserve a lot of credit for making the stimulus bill less bad than it could have been. Thanks to their activism, the bill has been stripped of some of its most awful components, including subsidies for "clean coal" and nuclear power plants, and still includes several progressive components which came under fire from the right, including the "Buy American" provision and funding for medical effectiveness research.

Nonetheless, the financial rescue and the stimulus in particular are quite disappointing. When the country is legitimately facing the most severe economic crisis since the great depression, half measures are not good enough. Progressive economists like Dean Baker and Paul Krugman have issued direct, specific recommendations for what the government ought to do to get us out of this crisis. However, their advice has gone largely unheeded. Of course, it's nothing new for the government to reject the advice of the likes of Krugman and Baker, who advocate policies like single payer health insurance and the elimination of patent protection for pharmaceuticals, which threaten the obscene profits of entrenched elites. However, given that we're facing a true crisis, I was under the bizarre delusion that our government would do the right thing. As I said, bizarre.

With regard to the collapse of the credit markets, the government really has only one solution: nationalization of the banks. We cannot allow the banks to fail completely because doing so would lead to the further collapse of the financial system and potentially depression-like conditions. We could just hand out cash to the banks through loans with no strings attached or purchases of bad assets at above market prices, aka Lemon Socialism, and there's an outside chance that might jumpstart the financial system. But Lemon Socialism, which is what we've been doing since last September with no success, leaves the banks' management in place, aka the folks who got us in this mess, and protects the banks' shareholders. In other words, it's just welfare for rich people and thus ought not to be and ought not to have been considered an option. Additionally, according to Economist James Galbraith, leaving the banks' management in place likely prevents the public from being able to access the banks' books. Without having unfettered access to their books, we won't know what their assets are worth, if in fact they're worth anything at all. Many large financial institutions, like Bank of America and Citibank, are likely already insolvent and only being propped up by the expectation of government aid. Thus, the only reasonable option we're left with is to take state ownership of the banks, fire the management and wipe out the shareholders, and then recapitalize them. State ownership ensures that the people control what the banks do with the money. Taxpayers also get an equity stake when you nationalize the banks, so if they return to profitability the returns go to you and I, not private investors. According to Matt Yglesias, the Geithner rescue might, through a roundabout way, lead to nationalization. Let's hope that actually happens. However, both Geithner and Obama have publicly opposed the idea of nationalization, so it's highly unlikely, to say the least.

As for the stimulus, according to Dean Baker, it's relatively simple to calculate how much the government needs to spend to get our economy back on track. Due to the wealth effect, the collapse of the $8 trillion housing bubble, the $7 trillion stock market bubble, and the multi-trillion dollar commercial real estate bubble will lead/ is leading to an $800 billion decline in annual consumption. Additionally, the collapse of the construction industry due to the popping of these bubbles will reduce demand by another $450 billion dollars. In total, that adds up to approximately $1,250 billion in lost annual demand. Yet, the federal government plans to spend $789 billion over the next two years, which is clearly nowhere near enough. Some of that spending, such as infrastructure investments, aid to state governments, and increased unemployment benefits, generates more dollars in increased economic output than it costs the government in additional spending, due to the multiplier effect. However, tax cuts, which represent 36% of the bill, have no such effect, and generally produce much less in added economic activity than they cost the government. Of course, it is possible that, against all odds and all predictions, the economy will recover quickly and a stimulus of such magnitude will be rendered unneccessary. But such a situation isn't really all that bad, because, as Krugman explains in his recently re-released book, The Return of Depression Economics, it would only lead to inflation. Policymakers know how to counter inflation, in fact they have many tools at their disposal to deal with it. For instance, they could raise taxes, increase the interest rate, or even better, institute wage and price controls. In contrast, when faced with the risk of deflation, which is a real possibility in this economic climate, policymakers are generally clueless; Japan was stuck in a recession for an entire decade due to deflation and it was only thanks to an export boom that they escaped it (now of course, they're back in a recession). An export-driven expansion is unlikely to happen in the United States or anywhere in the near future, because the whole world is doing badly.

Faced with such dire conditions, one would assume that a responsible congress and executive would propose similarly bold solutions. Instead, the debate on the stimulus has been absolutely maddening, with Republicans pushing for ineffective tax cuts and declaring which kinds of spending constitute stimulus (ignoring, of course, that spending is by definition, stimulus ), "centrist" Democrats and Republicans demanding billions of dollars in cuts from essential and effective programs, and Democrats being forced to defend an already inadequate House stimulus bill as the best possible option. It would be comical if the repercussions of such craven irresponsibility and indifference to suffering weren't so dangerous for our nation. In subsequent appropriations bills, there should be opportunities to add more stimulus spending. I hope congress decides to spend a lot more in the coming months, just like I hope the Geithner plan will lead to nationalization of the banks. However, given the sideshow that was the debate over this stimulus and Geithner's well known bias in favor of his former constituency, I'm somewhat less than optimistic.

Robot Wars

A threat to humanity?

Do any of my readers remember the show Battlebots, which aired on Comedy Central from 2000 through 2002? For those who don't, the show was a live action game show in which people designed remote-controlled robots, armed with things like saws and flame throwers, and put them in an arena to fight in various tournaments. Rather transparently, the show was geared towards young, sexually frustrated and geeky men, combining engineering, competition, violence, and sex appeal (for announcers, the show hired former baywatch actresses and playboy models). While the show is no longer on the air, robot fighting tournaments are still held in the U.S. and the U.K. The "sport" of robot fighting was also the subject of a recent episode of the CBS sitcom, "The Big Bang Theory".

Despite the fact that, from 2000 through 2002 I closely resembled the target audience of the "Battle Bots" television show, I was never really a fan and have never seen an entire episode. I only mention Robot Fighting because it's come to my attention that the use of robots for combat has entirely transcended innocent game shows and science fiction novels. In fact, unmanned and armed robots have become a major part of our nation's military arsenal. For more on the use of robots in war, check out Amy Goodman's interview with P.W. Singer, author of "Wired for War: The Robotics Revolution and Conflict in the 21st Century" on today's Democracy Now.

According to Singer, The U.S. military now possesses over 5,000 unmanned aerial drones and over 12,000 robots used for ground attacks. Just 6 years ago, the military had just a hand full of drones and zero ground robots. The aerial drones have made the headlines quite a lot recently, as they are frequently used to carry out attacks against suspected terrorist targets in the tribal regions of Pakistan, along the Pakistan-Afghanistan border. In fact, the first military order carried out by our new commander-in-chief, President Obama, was an aerial drone attack in Pakistan, which killed 22 people and at least 3 children. In total, drone attacks have been responsible for the deaths of 250 people in Pakistan. The drones, as well as ground robots designed to do everything from surveillance, to bomb diffusion, to shooting m-16's, are also widely used in the occupations of Iraq and Afghanistan.

The use of robots in combat provokes a variety of ethical dilemmas, several of which are posed by Goodman and Singer during the interview. Firstly, by risking fewer American lives, Singer points out that using robots as weapons lowers the political cost of war. Resistance to war is likely to be far lower if future conflicts are fought with machines rather than American men and women, particularly in the U.S. political climate, in which American military deaths are rightly considered tragedies but little attention is paid to either enemy or civilian casualties. There's also the question of unavoidable mechanical errors, which may result in deaths. In such cases, who should be held responsible? The operator/pilot of the robot? The program designer? More broadly, Amy Goodman asked Mr. Singer, "how does international law address robots in war". His response: "we don't have a good answer to that question".

Another serious issue is the psychological impact of piloting robots in combat. According to Singer, many pilots of aerial drones in Iraq are based in Nevada, 7,000 miles away from the combat zone. This puts pilots in a very awkward position, somewhere between life on the front lines and normalcy. Being based in the U.S. allows pilots to drive to work, carry out bombing missions for 12 hours in a far away land, and then drive home, pick up your kid from softball practice, and have dinner with your family. However, it turns out that this arrangement may be even more psychologically damaging than actually being in the war zone: drone pilots suffer from higher levels of post traumatic stress disorder than soldiers in Iraq. Given that Iraq veterans are suffering from an epidemic of PTSD, which has led to an unconscionable rash of suicides, the percentage of drone pilots suffering from psychological disorders must be astronomical. Further, given the culture of the military, the general failure of the armed forces to deal with psychological disorders, and the distance of drone pilots from the actual war zone, drone pilots have little access to needed assistance and would likely feel ashamed to even ask for help.

Goodman and Singer also delved into the questions of who has access to these combat robots and who ought to have access to them. In the United States, not only does the military use unmanned drones, they are also used by the department of homeland security. While the drones were purchased with counterterrorism funds, they've largely been used for other reasons, namely to police the US-Mexico border. I think it's a bit of a stretch to consider economic refugees fleeing the catastrophe of neo-liberalism that is our southern neighbor terrorists. Local law enforcement officials, like the scion of human rights that is the Los Angeles Police Department, have expressed interest in using unmanned drones for criminal surveillance. Private mercenary armies, including the war criminals at Blackwater, have access to these robots as well. Moreover, unlike fighter jets or aircraft carriers, which have to be built in large, sophisticated industrial plants, combat robots are far simpler and cheaper to build. According to Singer, you can purchase a kit to assemble a ground robot for $1000 which, while unarmed, can conduct surveillance from more than a mile away and could easily be weaponized by someone with engineering experience. I can imagine there are all sorts of unsavory individuals, from peeping toms to criminal syndicates to terrorist organizations, who wouldn't mind having such a toy to play with and wouldn't have all that much trouble scrounging up a thousand bucks.

Towards the end of the interview, Singer compares combat robots to the atomic bomb and says that the history of the A-bomb offers a powerful lesson. Atomic weapons were built and used (only by the US of A of course) before there was any public discussion of their ethical implications. In contrast, the makers of these robots publicly advertise them and the army has not been shy about their use. This increased transparency gives us an opportunity to have an open, public discussion about the ethical and moral implications of the use of robots as weapons. I hope Singer's presence on Democracy Now today helps spark that discussion. Competitions like Battle Bots are fun (for geeks of course) because, in the end, the only thing that gets hurt is a soulless piece of metal, and perhaps the pride of the losing side. Taken out of the arena, combat robots are not fun, they are quite terrifying. Weaponized robots are a threat to human life and human rights. Humanity would likely be far better off banning their production and use than encouraging or even tolerating them.

Some words of wisdom from Paul Krugman

Krugman, on the chocked-full-of-ridiculous-tax-cuts Obama stimulus plan:

The House has passed the stimulus bill with not a single Republican vote.

Aren’t you glad that Obama watered it down and added ineffective tax cuts, so as to win bipartisan support?

And Krugman again on the Obama plan to set up a "bad bank," which will reward Wall Street's destructive behavior by overpaying them for toxic assets:

As the Obama administration apparently prepares to launch Hankie Pankie II — buying troubled assets from banks at prices higher than they will fetch on the open market — it occurred to me that an updated version of an old Communist-era joke may be appropriate: under Bush, financial policy consisted of Wall Street types cutting sweet deals, at taxpayer expense, for Wall Street types. Under Obama, it’s precisely the reverse.

Update: Maybe I was too cryptic. The original joke was, “Capitalism is the exploitation of man by man. Socialism is the reverse.”

My goodness, he is a breath of fresh air! Unfortunately though, he's on the outside looking in like the rest of us.

Mr. President, this is not change we can believe in.