Monday, April 25, 2011

NYT: More Nonsense on Bashar Assad

In today’s “Clock Ticking Against Assad,” another NYT analyst equates “studied abroad, elegant British-born wife, French speaking, and widely-read” with a desire “to reform the repressive police state he inherited from his father, given time and opportunity.” We are told that Bashar, unlike his stern father “seems quiet, almost meek.” The press’s treatment of Assad reminds me of the foolish optimism that greeted the appointment of the “sophisticated” Yury Andropov. (Andropov must be a reformer; he loves classical music and speaks foreign languages. Bashar must be a reformer he studied medicine in Britain).

Apparently Assad’s brutal crackdown of his own people has dashed our expectations. The Obama administration’s bet that Assad, the closet reformer, will democratize and broker a real peace with Israel appears to be lost. But, we learn from the article that this is not Basher’s fault. He is surrounded by sinister relatives and security forces, who stymie his benevolent impulses. His fault (according to an anonymous diplomat) is that “doesn’t have the courage to do what he needs to do for the sake of the country.”

Somehow we are supposed to believe that one of the world’s tightest and most brutal dictatorships is made up of “good” and “bad” factions, where the bad guys do bad things behind the back of the “good” head of state. We are supposed to believe that Syrian security forces assassinated a leading Lebanese politician without Bashar knowing. Bashar must also be blissfully unaware of Syria’s support of Hezbollah mischief, or of the clandestine attempt to build nuclear weapons.

We are told that Basher’s salvation is meaningful reform. The Baath regime will survive if it allows freedom of assembly and press and opposition political parties! For Bashar’s sake, let us hope he does read such pieces. Basher’s survival chances are near zero if he offers “meaningful reforms.” They will only show weakness and intensify the demonstrations (now without fear of being shot dead). The only “reform” the outraged Syrian population will accept is the removal of Bashar and his entire regime. Bashar Assad, like Qadaffi in Libya and the Mullahs in Iran, can only survive by the sword. That is their best chance, and they are likely to win.

Our diplomats and journalists must learn that dictatorships operate according to specific dynamics that do not depend on the education, background, or humanistic orientation of their leaders. Stalin was extremely well read; was kind to his daughter, and made a great impression on Roosevelt. Hitler had excellent table manners. Bashar speaks French and reads good books. These things make little difference. They are a foundation of sand upon which to base foreign policy.

Monday, April 18, 2011

The NYT Lets the Cat Out of the Bag: Reduce the Deficit By Raising Taxes on the Middle-Class Without Doing Anything

Picture the five year-old who blurts out at a family gathering: “Grandpa has bad breath.” Grandpa may indeed have bad breath, but this is not something said in polite company.

A veteran NYT journalist has committed the indiscretion of the five year old. (See Ross Douthat, “The Middle Class Tax Trap”, April 18). He sweeps away the smoke and mirrors for a fleeting moment. We learn that Obama has an alternative to his strategy of “soak the rich and then just keep going deeper into the red.” The CBO’s “current law baseline” reveals that, if the Bush tax rates are not renewed in 2012, inflation and the alternative minimum tax will raise middle-class marginal tax rates from 29 to 38 percent (Welcome to the “tax rates for the rich”), and federal tax revenues will rise from 18 to 23 percent of GDP.

Just by doing nothing in 2012, the Obama administration can set the country on course to “afford” a European style welfare state. As more and more of our vast middle class are pushed into higher tax brackets, federal, state, and local revenues rise to some forty percent of GDP. Add a harmless two to three percent deficit on top of that, and we have reached the low to mid forty percents in terms of government spending. We can miraculously pay for our entitlements without breaking a sweat. And we have done this without a value added tax, no less.

The CBO warns that their “current law baseline” could “tend to discourage some economic activity” and could “harm the economy through the impact on peoples’ decisions on how much to work and save.” We do not really know how our middle class would react to European levels of taxation. Some of us hope we’ll never test this proposition.

President Obama warned that the Republican budget proposals would lead to “a fundamentally different America.” But in a burst of candor, the NYT writer admits that the “current law baseline” scenario would lead to a “more stagnant and balkanized society in which our promise to the elderly crowds out the fundamental promise of America itself.”

Remarkable words from our newspaper of record.

The NYT Passed on the Tea Party; Now Its Passing on Atlas Shrugged

One pleasure in reading the New York Times is its movie reviews. They leave few stones unturned, covering everything from major releases to obscure foreign films. The New York Times has passed on Ayn Rand’s Atlas Shrugged (unless I missed something). This reminds me that NYT was the last mainstream-media newspaper to deign to mention the rascally and radical Tea Party.

Atlas’s only NYT mention appears to be Maureen Dowd’s “Atlas Without Angelina” in her Sunday, April 17 Op-Ed section. Dowd tells us that Obama’s “we’re all in this together, that we look after each other” philosophy would be “antithetical to Rand’s idea man,” that Paul Ryan’s “pushing the cost of Medicare and Medicaid onto the old, the sick and the disabled while rewarding insurance companies with bigger profits, would be more up her alley,” and that she need not waste her time on Atlas Shrugged because P. J O’Rouke (that noted film critic!) had already panned it.

Rand, Dowd tells us, was dead wrong. She failed to see that capitalism would “evolve into a vampire casino where you could bet against investments you sold to your clients, and make money off something you didn’t own or that existed only on paper.” She then goes on to rehash the NYT 2007 story about a Democrat movie producer, who failed to get Rand’s permission to make Atlas into a movie because she wanted artistic control. Rand made a good decision, in my view. Dowd ends with the implication that Atlas Shrugged is a waste of time because it is supported by the Tea Party and Sean Hannity.

A NYT film critic would indeed be troubled by Atlas Shrugged’s cheerleading for unfettered capitalism and individualistic entrepreneurs and its railing against Washington. He or she would, at long last, share conservative discomfort with the standard Hollywood rendition of a caring liberal President protecting us from snarling Republican killers of the poor, weak, and infirm.

Ayn Rand was the first and only major writer to spin readable stories about the rent-seeking society. Dowd believes that the “fiscal meltdown” proved Rand false. Viewers of Atlas Shrugged, however, will see that Rand’s half-century-old account captures dead-on today’s suppression of (evil, greedy, and unpatriotic) entrepreneurs, the private-government “partnerships” (GE and the federal government), and the buying and selling of political influence that characterize our world today.

The NYT may choose to ignore an Atlas Shrugged as beneath their dignity, but it may turn out to be a rallying cry in the 2012 election. If so, the venerable NYT has again missed the boat.

Friday, April 15, 2011

Mafia in Pinstripe: The Real GE Scandal

The transition from street thug to state mafia took a decade in Russia. I was an eyewitness to the Russian process: In 1992, I saw businesses being shaken down by bullies in jogging suits and shaved heads. Six years later, I talked with business owners harassed by crooked tax, sanitation, police, and fire inspectors. Under Putin, these petty thugs were replaced by officials in pinstripes, politely shaking down businesses in meetings in government offices and swank hotels. It has become civilized, but the outcome is still the same.

What does the Russian story have to do with GE?

GE is unique among American corporations. Since its founding, it has been consistently in Fortune’s Top 10 – the only long-term survivor of Schumpeter’s creative destruction. GE adapted better than others to changing tastes and technology under executives like Gerard Swope, Charles Wilson, and John Welch Jr., who wrote the book on the art of corporate management.

GE is still in the top ten under CEO Jeffrey Immelt, but it is a different GE. Instead of adapting to the marketplace, GE structures its businesses to harvest government subsidies, tax preferences, and bailout money. GE fits Schumpeter’s pessimistic forecast of bureaucratized, influence-peddling capitalism, which he had the temerity to call socialism.

A casual glance at GE’s annual report shows that most of GE’s businesses depend on favor with the government. Energy generating windmill turbines make money because of government subsidies and state orders. Nuclear power requires government licenses. Energy-saving turbines receive subsidies. GE’s lending arm may again need a quiet $140 billion bailout. Its huge medical services division must receive favorable treatment under a new health care law. Even its competitive jet engines could use a diplomatic boost when foreign airlines buy new aircraft. Its NBC division needs broadcast licenses and other forms of protection.

The GE scandal is not that it paid no U.S. taxes. It was simply following the social-engineering instructions of our tax code, which its tax department is able to nudge at times. The true scandal is that the once mighty GE has become a crony capitalist in its “partnership” with Washington. The hundred million or so in campaign contributions is chump change compared to the cost of its lobbying behemoth and its vaunted tax department.

The new winners in creative destruction at first naively think they have no need of government. The Microsofts, Apples, Googles, and Facebooks create products no one had ever dreamed of. They can outstrip the competition on their own. They are then baptized by fire. Government agencies politely worry that they have grown too big; an anti-trust suit may be in the works. Revenue-hungry politicians may decide that taxing the internet is a good idea. Facing this reality, the creative-destructors open expensive offices on K-Street and join the crowd. An ounce of protection is worth a pound of cure, they reluctantly conclude.

There is an invisible cost to all this that few of us notice or understand. The mighty GE has been diverted from innovating and developing products that stand on their own to producing those things that its Washington partners want for the “good of society.”

Wednesday, April 13, 2011

NYT: Blatant Headline Bias

I was taught in junior high journalism that headlines are guide to the content of the article. If the reader skips the article, the headline constitutes the information that the reader takes away. The headline should strive to honestly capture what the article is about.

“Budget Cuts Raise Doubt On the Course of Recover” (NYT, Business section, April 12) blatantly violate this basic rule. The headline warns that experts (not the writer) think that the $38 billion budget cut (and cuts to follow) will harm the recovery. “The budget deal is a bet by the Obama administration that the loss of $38 billion in federal spending will not be the straw that breaks the back of the fragile economic recovery.”

We then learn that the straw is lighter than the lightest of feathers. The $38 billion equals one quarter of one percent of GDP and “joins a growing list of minor problems impeding growth, economists (which ones?) said.”

To underscore the impeding danger, the author tells us that a chief economist of a Chicago investment firm has reduced her growth forecast from 4.2 percent to 3.3 percent. There is no corollary statement her move was prompted by the budget cut. If it were, I imagine she would be laughed out of the investment community.

The article changes tone. We learn that things are looking up. The Fed and private forecasters predict that growth will accelerate. Even more surprising (in light of the dire headline), there are experts who think budget cuts will stimulate economic activity, but one such expert is dismissed as belonging to “a libertarian think tank.” However, other economists (in addition to the libertarian) opine that budgets cuts will have immediate economic benefits “by soothing the nerves of foreign investors.”

The NYT writer saves his strongest ammunition for last: an IMF warning that “the cuts proposed by the Obama administration will be challenging to implement in an environment of weak growth and high unemployment.” As I read this, the IMF is concerned that the administration cannot carry through on the proposed budget because of political considerations, not because of the economic consequences. I cannot really tell from the information in the article.

An accurate headline from an unbiased writer would have been: “$38 billion budget cut no threat to recovery, experts say.”

Saturday, April 9, 2011

The NYT and BP Still Do Not Get it?

The NYT’s “Misreading the Enigma” gets one thing right: BP has lacked “geopolitical acumen” in its Russian dealings. BP’s proposed share swap with Rossneft (the State oil giant) is on permanent hold. The Stockholm arbitration court says BP may have violated its shareholder agreement with its billionaire AAR partners in their private BP-TNK Russian oil venture.

It now turns out (according to confidential NYT sources within BP) that BP had disclosed the potential conflict to the Kremlin but thought that the Kremlin “would resolve any difficulties with the local shareholders” because the BP deal coincided with the Russian national interest. BP failed to understand that in the Russian KGB state, no one (including Putin) really cares about the “national interest.” The confidential BP source went on to state the obvious: “It hasn’t happened yet. It has to happen now.”

It also turns out that the presumed patron of the deal, Putin, was aware of the conflict and remarked at the signing that the AAR partners were “litigious.” Putin now claims he was “completely in the dark.” BP “didn’t say a word about this.”

Here is the proper interpretation of what is going on: When BP struck its deal in January, the Russian treasury was empty. It needed investment in arctic oil, and the world price of oil was low. Russia needed BP. BP, thinking Putting was on their side, assumed that Putin would “pull a Khodorkovsky” on the AAR billionaires. If they want to kick up a fuss against the deal, Putin had a steel cage ready for them in a Moscow courtroom, BP thought.

Putin did not put the squeeze on the AAR billionaires for any of a number of reasons: First, AAR had already bought him off to help them in their plan to get half of BP’s half of the Rossneft deal. (Putin might need a few billion more for his portfolio). Second, Putin can take on a single Oligarch (such as Khodorkovsky), but can’t take on three at once. If this is the reason, Putin is less powerful than we think. Third, Putin fears he faces a real challenge from Medvedev in the 2012 presidential election and needs the AAR billionaires and their media empires on his side.

Whatever the interpretation, things do not look good for BP, which is now looking for a “reasonable commercial solution.” That solution is the one I have been predicting for quite a while: AAR gets one quarter of the Rossneft drilling venture, “Russia” get a half, and BP is reduced from a half to a quarter.

Such is the price of misreading the geopolitical tea leaves.