Friday, December 10, 2004

Tom Friedman's had a few columns that have been praised in the lefty blogsphere for their uncommon good sense. But it seems that with his latest, Friedman is returning to form:

America's greatest intelligence failure in Iraq was not the W.M.D. we thought were there, but weren't. It was the P.M.D. we thought weren't there, but were. P.M.D., in my lexicon, stands for "people of mass destruction." And there were far more of them in Iraq than anyone realized. The failure of U.S. intelligence to understand what was happening inside Iraqi society during the decade-plus of U.N. sanctions that preceded our invasion is the key to many of the problems we've encountered in post-Saddam Iraq.

Friedman goes on to explain where these "P.M.D." came from: the Iraqis we were counting on to rebuild society left during the sanctions, he claims, while the dregs that remained were radicalized as Saddam used an Islamic revival (Wahhabi, Friedman claims without evidence -- never mind that the most influential religious figures in the country are Shiite) as the opiate of the masses.

But while wondering where suicide bombers come from, he somehow neglects to mention the uncontested fact that a lot of their support structure -- to say nothing of the guys manning RPGs, mortars, and managing their ammo -- are the same people that Bremer fired from the preexisting Iraqi army. Nor how our administrators failed to hire the Iraqis who remained in country (let alone try to lure back the exiles) or rebuild their facilities (hoping instead that harebrained privatization schemes would magically take care of that in some indefinite future they didn't have time to achieve).

And so he gets to suggest that the people who have been running that country for going on two years now are not primarily to blame for conditions inside it.

Wednesday, December 08, 2004

A slightly belated post of news from the legal frontier:

IN A CONTROVERSIAL DECISION, CUNO V. DAIMLERCHRYSLER, INC., CA-6, DKT. No. 01-3960, 9/2/04, 2004 WL 1944019, a three-judge panel of the federal Court of Appeals for the Sixth Circuit struck down a long-standing and wide-spread practice of states' offering tax credits as an incentive to encourage corporate investment and employment in targeted areas. The decision leaves many states (40 or more), and potentially thousands of businesses, under a cloud of uncertainty about the viability of existing tax incentive arrangements involving billions in capital investment.

The decision applies only within the Sixth Circuit, of course (Kentucky, Michigan, Ohio, and Tennessee), but within them, it is no longer legal for cities to offer cut rate taxes to businesses that want to move in. Why? Because, the court claimed, cutting taxes for an expanding business can steer commerce away from other states, and only Congress at the Federal level has the power to regulate interstate commerce.

The actual logic of the decision is even more tangled than that. States, the court claims, can make some kinds of tax concessions but not others. The upshot, per the decision: it's actually legal for a state to make tax concessions to attract new business from other states. But, say the judges, making tax concessions to try to keep or expand operations of a business that's already in the state usurps the federal power to regulate interstate commerce. As Dave Barry would say, I'm not making this up.

These deals are problematic for all sorts of reasons. The effect of allowing them is a race to the bottom in which a lot of communities find their local governments starved of tax money that they really need to provide basic services. And then there's the unfortunate tendancy of many businesses that receive these deals to take the money and run to an even sweeter deal somewhere else. So a ban would not be an entirely bad thing.

But if states can't change their tax codes to affect local commerce, what's next? Can California still have its own vehicle emissions regulations? That sure is affecting their commerce with Detroit...

Monday, December 06, 2004

Dubya's crew have established it as a priority to spread democracy in the Arab world. But there are priorities and then there are priorities. And so, valuable as it might be to establish the rule of law in Arab states, that has to take second place to a principal far dearer to their hearts: total impunity for Americans charged with war crimes before the International Criminal Court:

An amendment to the 3,000-page budget bill before the House of Representatives would punish countries, even close allies in the war on terrorism, that have joined the International Criminal Court and have declined to promise they would not send American citizens to the court without US permission.

Since 2002, the US government has withheld military aid from countries that refused to sign such a bilateral agreement. But the new amendment in this year's budget bill goes a step further, revoking other nonmilitary assistance to governments. The amendment targets an economic support fund designed to foster democracy and human rights around the world, as well as promote the rule of law in Muslim countries to bolster counterterrorism efforts.

Jordan would be hit hardest. It stands to lose $250 million in a two-year old program to foster pluralism and secular education, potentially undermining the Bush administration's declared goal of spreading democracy in the Mideast.

But let's not accuse them of too narrow a vision. It isn't just Americans to whom they want to extend the benefits of this shield:

The agreements that Washington is seeking also provide protections from prosecution for non-US citizens who work for US intelligence agencies, according to [ICC proponent William] Pace.

Because when we're recruiting thugs and drug lords, it's a whole lot easier if we can offer them a get-out-of-jail-free card.

For other reasons why they might want to keep third parties from investigating possible war crimes by Americans, see this other much-blogged article, also from Sunday's Boston Globe, on possible American military actions aimed to keep control of Falluja, which apparently include press-ganging the male citizens, in clear violation of international law...

Sunday, December 05, 2004

So, here's a scene from a Neal Stephenson novel. From all over China, they were selected and groomed at an early age, through stage after stage of rigorous training and brutally tough exams. Fewer than two dozen, filtered from over a billion Chinese, they are the best of the best. In math. Forbidden to accept gifts, they are fêted almost every night by foreigners seeking to curry favor, with food, good cheer, and tickets to romantic Mandarin operas -- for westerners, an acquired taste at best. And every morning, they make their way to a rented room on the fourth floor of an insurance building in Beijing, where beneath a jeweled globe with seas of lapis lazuli, they trade on behalf of Communist China's central bank.

But it's not science fiction. This future is here. You just haven't noticed yet.

Which is a shame. Because if you're living in the States, it does make a difference to you.

Here's the deal. Because of our trade deficit, dollars keep flooding out of the country. And you'd think that flooding the rest of the world with dollars, raising the supply, would lower the price -- that is, the value of the dollar, as expressed in Japanese Yen, Chinese Yuan, Indian Rupees, or whatever, And yet, so far, it hasn't -- in large part, because Asian central banks, particularly the Japanese and our friends under the Chinese jeweled globe, have been soaking the dollars up. And for the Japanese, who have 90% of their foreign currency reserves in dollars, this is becoming a problem. Quoting the same New York Times article that describes the jeweled globe in the rented room:

The problem for Japan is that it is in so deep that to a large degree it is chained to its American debtor.

"Imagine that tomorrow people hear, 'Hey, Japan has decided to divert from U.S. dollars to euros,' " Mr. Asakawa said. "That would create a hugely undesirable impact on the U.S. Treasury market, and we have no intention at all to make an unfortunate impact on the U.S. Treasury market."

Any selling move by Japan would move the entire market - and cut further into the value of Japan's own portfolio.

[As] Richard Koo, chief economist for the Nomura Research Institute ... sees it, anything Japan might do to slow its dollar purchases would only create a self-inflicted wound. "If they could move it all out of dollars in one day, I am sure they would do it in an instant," Mr. Koo said. "But if they move 10 percent, and the dollar goes down 20 percent, they are stuck with 90 percent of the portfolio worth 20 percent less."

But if the Japanese can't sell their dollars, how much can they really be worth?

As for the Chinese, apparently all those Ph.D.'s in math have been paying off. They are only 35% in dollars. Which is still enough to be a problem, but not nearly so severe. Which means that if the Chinese stopped buying dollars, and stopped doing their part to stanch the flood, perhaps they'd get hurt -- but the Japanese, would get hurt worse, at least as regards the central bank reserves. And the U.S. would likely also face severe consequences, starting with having to pay for energy imports in real money. This is all a pretty crude way of looking at things, of course. (For one thing, the Chinese would also be hurting their manufacturing sector, now heavily dependant on exports to the U.S.). But the point is that a fall in the value of the dollar hurts everybody.

Now, consider this from the point of view of the real Chinese leadership, the ones who give orders to the math wonks beneath the jeweled globe. To them, this might not look like such a bad deal. What they are playing for is regional dominance and global power. Ask anyone who plays Go, the strategy game played for millenia in China, and they'll tell you that hurting yourself is a perfectly fine way to win, so long as you hurt your opponents worse. If we're too distracted dealing with our own problems to interfere when the Chinese start playing hardball with Taiwan, maybe that's worth it to them. Go strategy is just about impossible to understand until you have an appreciation for the merit of a well-played sacrifice.

In the meantime, as we watch the continuation of a dollar decline that already seems to be happening, we may have to see conventional wisdom about many things change. Another article this week noted that

The repercussions of a long-term decline in the dollar could be far-reaching. A permanent change in the relative prices of goods and services produced in the United States and abroad could hamper some important and long-running economic trends, like the growing productivity of the American work force.

Or is it that the productivity of the American work force has been overstated for years now because its output has been measured in inflated dollars?

There's a lot more writing on this subject on the Net right now; here's a nice review in a diary on the Daily Kos of the extent to which our problems now are self-created: the Chinese Communists may be in a position to hang us now, but only because we sold them the rope.