The only way is down for Obama

Everybody seems to have been taken by surprise with regards to the vitriol directed at the proposed health-care plan by the new US administration led by Barack Obama. Town halls have been hijacked by Republican activists and the “debate” has turned nasty. It has even evolved into an international conflict, with the British PM Gordon Brown twittering in support of the NHS. A loony Tory has joined the “debate” and spoiled the party for David Cameron, for he has all but won the next General Election save a monumental surprise or reversal of fortune. Mr Hannah’s extreme views makes someone like Cameron, a True Blue since birth, look positively socialist.

The public and the media have very short memories. Have we collectively forgotten that a huge percentage of the US public have not accepted, and will never accept the legitimacy of Barack Obama’s presidency? Not only he is a Democrat, which is bad enough for these people, but he is also a black man (ok, technically mixed race), from a foreign father, and his middle name is Hussein. Against all the odds, he won the presidential election and, against all the odds, is still alive. Still, this has not deterred hardcore Republicans from doing anything possible to get him out of office. Some even have started a campaign to question his place of birth [BBC] and thus his eligibility for Presidency.

I have never believed in Obama’s message of hope. I never bought the dream that Obama will change the USA, let alone the world, for the better. [previous post]

It is beyond the powers of any politician, head of super power or not, to improve the world –whatever that means. Obviously, almost anybody is going to be better than that ignoramus of George W Bush and his cohort of reactionary, corrupt, war-mongering lunatics. At least Obama will not make things worst, which is all we can hope for with regards to anything coming from the US politics establishment.

The Obama-bashing excuse now is the proposal for a reform on how to provide health care in the US. Perhaps one could argue that his mistake was to start a consultation. Blair did not have such qualms when he introduced a defacto privatisation of the NHS in England. But then again, he had an absolute majority in Parliament and did not need to bother with silly things like seeking consensus.

For my sins, as part of my job I have spent some time in the past poring over the financial statements of American companies. Most people now that some companies (like Ford or General Motors) have pension liabilities well in excess of their assets. But most people don’t know that health-care premiums are crippling American companies as much as their pension payouts.

In the US, there is no National Health Service (or a publicly funded health service of any kind) that provides universal health coverage. In the land of free-market dogma, health care has been completely privatised and some 47m of Americans do not have any health cover. Health provision is covered by private health insurance. If you are taken ill, and have no insurance or insufficient insurance, the hospital will recover the cost via any legal means, including forcing the patient into bankruptcy and selling his assets, including his home if he owns one.

The problem with such a system is the same as the car sales problem identified by Akerlof. Since the vast majority of us are ignorant about health matters, the insurers have more information about the potential cost of future health care than we have. It is a classic problem of information asymmetry and it will produce the same result in any market, whether is used cars or small company shares.

In the US, employers provide employees with private health cover. This is not the same as in the UK, where many of us have private cover provided by BUPA or a similar organisation. Private health cover in the UK is mostly a way to jump the queue for minor operations like a hernia or sport injuries, or bowel disease. If you need heart surgery, you will be treated in the NHS.

In the US, there is no universal provision of health care so you are left to your own devices. If you have a job, your employer will pay contributions towards a given level of cover. However, this level of cover is sometimes minimal, particularly if you don’t have a management or professional job, so the employee tops up the private health insurance cover with tax deductible contributions. The more you pay, the more you are covered for. In the last few years, the costs have rising so rapidly that companies are cutting on the level of cover provided, leaving employees to fork out the remaining contributions. This has also been driving lower disposable income for salaried Americans.

And it is this discretionary aspect of private health care in the US that is at the core of the problem. If people are pushed to decided whether to have an improved lifestyle (bigger house, bigger car, second residence, golf club membership, etc) or to have better medical insurance, a lot of people will not have the discipline and willpower to pay an ever rising percentage of their income towards their medical plan. It is easier to keep up with the Joneses by diverting that extra income into discretionary expenditure with higher utility.

Hard-line Republicans and the far-right lunatics have come out against any reform claiming that the NHS is almost a Stalinist government death machine. They sprout that any attempt to introduce any kind of social welfare in the US will be the start of socialism. Nothing should surprise us about these collection of ignorant thickos. What is surprising (or perhaps not so) is that they have chosen the British NHS as their target instead of say, the French or Canadian systems which are much better and cheaper to run.

Once again, while I was writing about this topic, I came across a column that explains in a more succinct way what I am trying to get at. [Sunday Herald].

And herein lies the problem, something the author only hints at: most Americans believe that if you don’t have adequate insurance is because you have not done well in life, because you are not trying hard enough. (it can also be because you value playing golf above your family's health). Work hard and you will have good medical cover. Introducing a minimum of state-sponsored medical health care system would be akin to providing something for nothing. This is anathema in the US.

This may strikes us Europeans as mean-spirited and downright nasty. No Christian compassion in the most evangelical Christian nation on earth. It is one of life’s paradoxes (do you remember when I wrote about how people who are in support of the death penalty tend to be against abortion and vice versa?). In US politics, the same people who reject the teaching of evolution in schools, are the most outspoken defenders of economic evolution for other human beings: survival of the fittest is alright for your fellow citizen but not for the rest of the species.

Obama will not win this battle, because he is trying to change something at the core of American citizenship: you get what you work for. Most US citizens believe that people who do not have insurance are layabouts, work-shy, socialists or even worse atheists, and therefore have zero-sympathy for their “self-inflicted” plight.

This will be the first of a many battles that Obama will lose. Half the country has not accepted and will not accept his presidency and will do their utmost to derail any possibility of a second mandate. The countdown has already started. The Obama dream is already fading away and the only way is down, down, down...

The New Capitalism -by the BBC

Over the last year or so, there is one man that has become a source of pain for some in the financial services sector. Some journalists don’t like him either. It is Robert Peston, BBC Business Editor. [blog]

His idiosyncratic style and general slow delivery (plus mumbling and fumbling and humming) irritates many. Others are irritated by his “attacks” on the financial services sector and the markets. The right-wing blogosphere attack him for being a "leftie" and the mouthpiece of the Labour government. Or so they claim. Stockbrokers and investment managers despise him because he “brings the market down”. I thought the markets were "efficient"?
The FT journos call him Pestowire, or Peston RNS, a reference to the Regulatory News Service used for the public dissemination of financial markets announcements.

It is difficult to convey to anyone living outside the UK how pervasive Mr Peston’s presence in the BBC has become. Since his reports on the debacle of Northern Rock, and the collapse of the banking system and consequent recession, his presence is the main feature of the 6pm and 10pm news bulletins every single day. I remember one day he even broadcast from the garden in his house.

Recently, he has published a short essay with the title “The New Capitalism”. [PDF]
They are summarised in these two videos. [link]

Personally, I don’t have any issues with his reporting. And when someone’s argument is over style, or personality, you know that people are on a loser. So I haven’t got much sympathy for those who blame Peston for anything. The world, or the stock markets, would not be any different, had Robert Peston not reported on the stories we all know about now. Shooting the messenger is not the answer to this problem, and it shows how inward-looking and shamelessly self-preserving the financial services sector (I refuse to use the word ‘industry’) has become: denial has become the modus operandi in the face of an unpleasant reality.

I do have a bit of an issue with this essay though. Not much with the content than with it having the logo of the BBC as an endorsement. So is this the BBC’s vision of capitalism post-credit crunch or Peston’s? It may be trivial and I might be over-analysing, but the presentation of this essay is not clear, and as a license fee payer I object the way in which has been delivered.

I have no issue with Peston’s book “Who rules Britain”. It may read more like a series of articles and it lacks a cohesive argument, a central thesis that it is presented to the reader. But overall, it provides a few examples of how the City and big businesses work, and how tax avoidance, sorry tax efficiency, has been encouraged by the Labour government.

But reading his essay on the new capitalism taking shape, I could not help but wondering about some of the statements and claims made:

“Arguably the global economic crisis will turn out to be more significant for us
and other developed economies than the collapse of communism.”

Well, I disagree completely. The collapse of communism left millions of people in the world, including Europe, ideologically orphan. Suddenly, there was no alternative to capitalism in its various forms. Communism, the egalitarian, collectivist alternative had failed. We went from two competing systems to one. Now we are going from an imperfect system to another one.

I agree 100% on the debt binge ('credit expansion' to be technical about it) as the key cause of the present crisis.

Some of the language is quite emotive:

“To put it in crude terms, for much of the past decade, millions of Chinese
slaved away on near subsistence wages and still managed to save, both as a
nation (China swanks £1,400bn in foreign exchange reserves) and as individuals.
And to a large extent they were working to improve our living standards, because
they made more and more of the stuff we wanted at cheaper and cheaper prices.”

It is naive to say the Chinese slaved away on near subsistence wages. Living standards in industrialized areas of China have risen in a way that was unthinkable a few years ago. If they were “slave” wages, then they could not save as much as they do. Agreed, the wages are low compared to Western standards, but wage differentials should not be measured in absolute terms, otherwise workers everywhere except western Europe are too slaving away. I could even concede that most factory workers in China are on relatively low wages, a byproduct of the excess supply of labour, but average Chinese wages are by no means “slave”. Also, and more importantly, the Chinese were not working to improve our standards or toiling for our prosperity: they were working to improve theirs, like any sensible nation does.
It would be more appropriate to say that we were outsourcing work to China so that we could buy goods at cheaper prices and keep inflation down.

I agree that the savings imbalances and the current account deficits in the UK and US (and also Spain) are unsustainable and that our low inflation in the last few years is the result of excess savings from emerging economies being recycled into UK, US and Euro-area debt.

And I also agree with the culpability. All of us to a certain extent for being addicted to compsumption, but mainly our financial institutions for having failed to protect the interests of their shareholders, creditors and customers, and our governments and regulators for having failed to take the appropriate regulatory (disclosure, capital requirements) and political (current account deficits, allowing outsourcing to countries with unacceptable working conditions, supporting asset inflation) decisions to prevent this crisis from happening.

But Mr Peston forgets to mention the issue of taxation and the use of low-tax jurisdictions by companies and business leaders, and how this Labour government has done nothing to stop it.
He also forgets to mention the use of off-balance sheet vehicles by banks. The Labour government and the FSA did nothing to prevent it. And he does not mention that this goverment has overseen tax changes that favour the megarich and private equity at the expense of middle class earners.

But Peston also forgets to mention the concessions China, India and others will extract from keeping buying our public debt. Just now China, if they wanted to, could bring Western economies to its knees simply by refusing to buy our low-interest, low yield government debt. But the Chinese will not do that. They will keep buying US and UK debt and will extract political concessions from the West.

What these concessions will be is difficult to predict. But I am going to venture a couple of possible scenarios:

Institutional reform: the Chinese and India will demand that international institutions are reformed and the US veto is abolished at the IMF and the World Bank.

Taiwan: Slowly, Tibet has become off-limits for the West. And next it will be Taiwan. If I were Taiwanese I would be crapping myself. Over the next few years we will see how China, slowly but surely, will gain gradual sovereignty over Taiwan as a condition for keeping Western capitalism ticking over. And this way, Mao’s dream of a unified China under one leader and one party will be accomplished.

But will the US accept that they no longer have the monopoly of power in world finance? Will they (we) accept to be humiliated once again over Tibet and Taiwan? Maybe not, since Western governments will be unable to control the press and public opinion as efficiently as the Chinese. So we are heading for a political and economic stalemate of unpredictable consequences.

There is one way out of this problem without the Chinese becoming the new superpower and gaining power over Taiwan: inflation. If the West is unwilling to make so many concessions, China, India, Gulf states and others will demand that US and UK government debt pays a higher rate of interest than it does now. That is something our governemtns can do very well, and technically is called "an increase of the money supply", or as my dad says, "printing more money". This however will fuel inflation in the US and UK and Euro-area which could have a devastating effect on employment and business investment -unless proteccionist measures are adopted to protect "national" industries. But then, protectionism itself keeps inflation high; there is no easy solution.

So over the next few years our political leaders will have to make very “tough” (don’t they love to use the word?) choices.

Do they accept that a new world order is emerging and that there are political prices to pay? Or will they postpone or delay this restructuring of world finance and political power by implementing inflationary policies that will reduce the nominal amounts of national debt but fuel domestic inflation?

In crude terms, the question is: will our (Western) politicians give up the world power mechanisms they have built up over the last few decades?

I know what my answer is. What is yours?

US foreign policy: Weapons of Mass Destruction

Today, I have heard one of the most chilling programmes on the radio for a very long time. I used to work in a local radio station, and I listen to the wireless all the time, as I hardly watch much TV, apart from the news and Still Game.

It was a long day at work today, and I finished about 19.45h. On the way back, I realised that Hecklers, the new Radio 4 debate program was on. Excellent, I thought: long day in the office, but a pleasurable drive back from Edinburgh to Glasgow listening to informed opinions and intelligent debate.

But the proposer of tonight’s programme was one of the most dangerous and deluded people I have ever heard on the BBC.

Patrick Clawson, of the Washington Institute for Near East Policy, argues that
it would be better to have a war with Iran than to allow its government to
develop nuclear weapons. He debates the issues with a panel of hecklers,
including George Galloway, in front of an audience at Chatham House in London.

This individual argued, in his soft American tone and paused, affable, if slightly irritating speech, that it would be in the best interests of the West to go to war against Iran rather than to allow that country to develop nuclear weapons. Patrick Clawson is deputy director for research of the Washington Institute for Near East Policy. More info on the interesting views espoused by Mr Clawson here…
Don’t want to go into a tangent here... but Near East? I always thought it was Far East but never mind...

After a few minutes listening to his disparaging arguments I started to feel sick. My legs were trembling. Listening to that man gave me the creeps. I was listening to a man advocating going to war against Iran as a pre-emptive step to bring stability to the region.
Now, where have we heard this line of argument before?

Although the program is called Hecklers, it is nothing of the sort. The proposer has three slots in which he can develop his argument and the ‘hecklers’ (panellists) are not allowed to interrupt during the first 3 minutes or so of each slot. Then a bell goes off and the panel guests are allowed to raise questions. Today, George Galloway MP was always the first to speak up after the bell rang.

Whatever one thinks of Mr Galloway and his politics and media persona, it is undeniable that the man is a great orator, and one of the few MPs in Parliament willing to challenge the establishment. If only there were a few more like him, perhaps this country would not be now fighting a pointless and illegal war based on false “intelligence”. As much as I disagree with the majority of Gorgeous George’s politics, today he was top notch. He tore apart every one of the arguments put forward by Mr Clawson.

I recommend that you set aside about 1 hour of your time to listen to the program via the BBC Radio 4 website.

It shows to what extent American foreign policy is the cause, rather than the cure, for most of the ills in the Middle East and the Gulf region. For Mr Clawson, it is quite alright that Israel already has nuclear weapons pointing at Iran and other states, and that we (as in the US and the UK) are supplying conventional and nuclear weapons to Saudi Arabia and Pakistan. The former is a theocracy where women are second class citizens. The regime in Saudi Arabia is probably the most tyrannical in the region, and certainly the least accountable to the population. As for Pakistan, it is a breeding ground for Al-Qaida terrorists, and a country divided between a secular or moderate population and the mullahs supporting Islam fundamentalism. What happens if the latter ever get into power and get control of the nuclear weapons supplied by the US and the UK?

Exactly this is what happened a few decades ago. In order to overthrow the Soviets from Afghanistan, the US financed and supplied the Mujaidins with training and conventional weapons. Once the Soviets were expelled from the region, they turned against the US and the West. These are the origins of Al-Qaida: US finance and training. The US trained and armed Osama Bin Laden. That is the result of US foreign policy.

You may be too young to remember: Iran was a democracy a long time ago. However, its leaders did not yield to US and UK foreign policy so the US&UK instigated a coup after Iran's elected government renationalised the oil industry; then the Shah took over and instituted a dictatorial regime. Read more about Operation Ajax in the Wikipedia. Yes, we (the US and the UK) instigated a coup against a democratically elected government to get control of Iranian oil.
The people of Iran rebelled, both the secular moderates (yes, there was a Communist Party in Iran...) and the Islamists joined forces and they did overthrow the dictator; sadly, the radical Islamists won the internal battle for government control. Then they turned against the US and against the West.

Remember the Iran/Iraq war of the ‘80s. Well, guess what: Saddam Hussein was supported by the West and supplied with the conventional and chemical weapons he used in the bloody war against Iran. We (US and UK) supplied Saddam Hussein and his regime with weapons. A few years later, the US and the UK bombarded Iraq, causing mass civilian casualties but without deposing the dictator. In 2003, we then have the illegal invasion of Iraq by the US-led coalition and the country is now is a much worst state, on the brink of civil war and engulfed in sectarian violence, than it was with Saddam in power. And now the Iraqis are turning against the US and the West.

Do you see a pattern emerging?

You can read all this and much, much more in the extraordinary, priceless, colossal book “The Great War for Civilisation: The Conquest of the Middle East" by Robert Fisk.
Admittedly, I have not yet started reading the book. A certain master degree thesis on Credit Default Swaps is taking a lot of my spare time –about 1 year and 4 months to be exact.

So you can imagine my anger when this very dangerous man was arguing live on BBC radio 4, the moral and cultural backbone of Britain, that a US strike against Iran would somehow encourage middle-class Iranians to rebel and overthrow the tyrannical dictatorship of the Council of Guardians. It was frightening.

However “imperfect” (a word he constantly used to refer to the Non-Proliferation Treaty) the Iranian electoral system is, at least people can and do vote. The same cannot be said of Saudi Arabia, apparently the West's ally in the region, with its total disregard for human rights and lack of any progress towards democracy or a more equal society for men and women.

He also said that an attack against Iran would prevent the NPT from becoming irrelevant, even though there are “imperfections” (i.e: non-compliance) in the system. He said something along the lines of “I would hate to lose that imperfect instrument in the pursuit of the perfect instrument”. In other words: it is ok for the UK, the US, France, Israel, India, Russia and others to violate the terms and the spirit of the NPT, but not for Iran. Some hypothetical, yet-to-happen, imperfection is punished by war; current imperfections are ignored. To say this smacks of double standards would be an understatement.

We are told that Iran, according to Mr Clawson, is an “irrational player”, behaving according to an “apocalyptic theocratic view” of the world. At this point I almost choked on my chocolate bar. Is it not the President of the United States who had claimed that God had given him permission to go to war in order to prevent the threat of an Iraqi attack against the West? To me that sounds pretty much like an irrational player with a theocratic apocalyptic view of the world.

No nation has behaved more irrationally in the Middle East than the US. Supporting and arming some dictatorships; going to war against others; and doing both with some, as in Iraq. Yet, Mr Clawson, and the US political establishment, either Democrats or Republicans, are in complete denial about the havoc, mayhem and suffering US foreign policy has created around the world, especially in the Middle East.

The last point put forward by Mr Clawson is beyond surreal. He argues that an US-led attack against Iran would unite Iranians in blaming their own government for developing nuclear weapons and thus provoking a crisis. This popular rebellion would result in the Iranian regime engaging (i.e: yielding to US foreign policy) with the West. For someone who claims to be an expert in the Middle East, this is surely a joke.

But the warmongering lunatic goes on: according to him, an attack against Iran should not mean a land invasion of the country, but rather targeted, high-precision attacks against military objectives. Have we not heard this before? Yes, we have. As recently as 2003, when the US-UK coalition targeted attacks against Iraqi military infrastructure resulted in hundreds of civilian casualties and the destruction of hospitals. I also remember a certain aspirin factory in Sudan that was targeted with a combination of intelligence and high-precision weaponry.

Mr Clawson also argued that not only Iran’s population would rebel against their elected leadership following a US attack, but also that Iran’s neighbours would rise to the challenge and support US action too. This is the world of fantasy inhabited by the neocon revolutionaries in the US.

This last point was absolutely demolished by all panellists. One by one, audience members and panellists reduced Mr Clawson “lightweight argument”(quote from a former correspondent of the FT in Tehran) to what they are: absolute warmongering shite. The only voice of support came from, wait for it... an US Embassy employee.
Priceless if it was not so depressing.

What is scary about this man and his ilk is their level of delusion; their disregard for the facts about the Middle East, and the loss of human life; their arrogant ignorance of the damage US foreign policy has caused in the region in the last 40 years, 20 years or even since the ill-conceived invasion of Iraq. As with the Iraqi non-existent weapons of mass destruction, an enemy is created and the threat is hyped up in the friendly press, and thus war is justified. Their irrational minds see no flaw in this perverse logic, despite its disastrous consequences in Iraq, or in Iran decades ago.

War is still another option in the US foreign policy toolkit and the neocons have not learnt anything. And now they want to start another war against Iran. History will not be kind to these despicable people.

And the question for us in Britain is: what will PM Gordon Brown do? Will he be America’s lap dog like former PM Blair, or will he have an “ethical foreign policy”, as New Labour promised in 1997? I am not sure I want to know.

Next week, Hecklers will hopefully be less frightening and distressing. Tax specialist Richard Murphy argues at the free market Institute of Economic Affairs that Britain should stop trying to woo the foreign super rich with tax breaks.