Illusory Thinking

"We need to make tax cuts permanent, and we need to make a commitment that there'll be no new taxes," Mr. McCain said. "We need to cut payroll taxes. We need to cut business taxes."

It is, and always has been, illusory to think that the GOP would forgo playing politics, join the ranks of the economically sane and sign on to the American Recovery and Reinvestment Act as currently hammered out in negotiations between the President's economic team and the leadership in the Congress. The only thing more illusory is their adherence to the belief that tax cuts work as an economic stimulus. But at least their views are now clearly stated and I suspect that should please the President for he can and should now just ignore the recalcitrant wing of the GOP, or put another way, all but a handful of them. The bankruptcy of GOP economic thought should now be plainly evident and that's a case the President can make directly to the American people.

"Right now, given the concerns that we have over the size of this package and all of the spending in this package, we don't think it's going to work," the House Minority Leader John A. Boehner, Republican of Ohio, said on NBC's "Meet the Press.""And so if it's the plan that I see today, put me down in the no column."

Actually, it's more like the irrelevant column. The Congressman from Ohio can pout all he will, the Senator from Arizona can rant and rave all he wants and it won't change the fact that tax cuts have been an abysmal failure in lifting the economy. The GOP's main contention has been now for over 30 years that by reducing the top tax rate on personal and corporate income that a large increase in aggregate total savings would result. Yet the savings rate of American households has been declining for more than a decade and it now stands at the lowest level of the post-WW II era. Since 2003, the combined annual net savings of households, businesses, and government have declined to about one percent of gross national income. So if increasing the savings rate is the goal so as to thus increase investment, cutting taxes hasn't worked.

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Number Two

In his first interview since becoming Vice President, Joseph Biden told CBS News' Bob Schieffer on Face the Nation that he does not see his role to be "deputy president." Rather, the Vice President said he hopes to be a "confidant, advisor and essentially the last guy in the room when [President Obama] makes critical decisions."

Perhaps the Vice President should have read today's New York Times and the profile of Chief of Staff Rahm Emanuel:

Mr. Emanuel initially resisted taking the job. He came around after Mr. Obama insisted, saying these were momentous times and that the awesome tasks he faced required Mr. Emanuel's help. The president-elect also assured Mr. Emanuel that the position would be the functional equivalent of "a No. 2" or "right-hand man," according to a person familiar with their exchanges.

So who is number two in the Obama Administration? My money is on Emanuel at the least in the short term though Biden may prove the more long-lived. Though, in truth, I sense that the Obama Administration will be much more broad based in its thinking and take a consensus building approach to decision-making. There seems to be a whole team of number twos.

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The Return of Pachamama

Bolivians head to the polls on Sunday in a referendum on a new Constitution the drafting of which took over two years and was marked by an ever deepening conflict between Evo Morales' leftist government and the traditional parties that have dominated Bolivian politics for half a century. The conflict has led many observers to believe that the territorial integrity of Bolivia may be increasingly at stake. The heated debate that has on several occasions erupted into violence has exposed Bolivia as a fragile and cleft state splitting the country in two on north-east to south-west axis. Of Bolivia's nine provinces, five are likely to vote against the new Constitution and four in favour but its passage seems likely because the more heavily populated areas are likely to overwhelming back the new charter. The more populous but poor and heavily indigenous western provinces will vote for the Constitution but in the wealthier, natural gas rich and mestizo north-eastern provinces, support for the new Constitution is minimal.

The new Constitution is many things. Above all, it is a rejection of neo-liberalism, an economic ideology that in Latin America reaches the status of a pejorative. Under the new charter, the state will control all mineral and oil and gas reserves. Indigenous groups would get control of all renewable resources on their land. Water is recognized as a fundamental human right that cannot be controlled by private companies. The definition of water as a fundamental human right is noteworthy for it bears reminding that the Bolivian city of Cochabamba in 2000 became the epicenter of the battle against the excesses of neo-liberal privatization. Then an international consortium (US  Bechtel Corporation along with Italy's Edison and Spain's Abengoa) won the rights to the Cochabamba water public utility and then hiked water rates by as much as 200% after winning a 40-year concession in closed-door negotiations. After privatization, water bills amounted to 20% to 30% of the income of poor households that constituted over 60% of the residents of the city. Families earning as little as $80 to $100 dollars a month began to be charged $20 dollars a month for water. Not surprisingly, full-scale protests ensued. In retrospect, the Cochabamba water wars, as the episode came to be known, marked one of the tipping points in Latin America's rejection of neo-liberalism. The door on privatization, especially of public utilities, was closed. This Constitution locks that door and throws away the key.

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The Haqqani Network

It is of grave concern that President Obama is choosing to continue the aerial war in Afghanistan which the Bush Administration in August 2008 extended into Pakistan's tribal areas. From the Washington Post:

At least 20 people were killed in northwest Pakistan near the border of Afghanistan on Friday in two suspected U.S. missile strikes, marking the first such attack in Pakistan's tribal areas since President Obama's inauguration.

A U.S. Predator drone fired three missiles at a compound about two miles from the town of Mirali in the tribal area of North Waziristan about 5:15 p.m., according to a Pakistani security official and local residents. The precision strike leveled a compound, which was owned by local tribal elder Khalil Malik, killing at least 10 suspected militants, including five foreign nationals, according to the Pakistani security official. The site of the attack is about 30 miles east of the Afghan border.

At least 132 people have been killed in 38 suspected US predator drone missile strikes inside Pakistan since August 2008 as the Bush Administration decided to pursue more aggressively Taliban and al-Qaeda insurgents inside Pakistan's tribal areas. The use of the specially equipped drones represented a fundamental shift in US strategy. After years of deferring to Pakistani authorities and waiting for them to act, the Bush Administration turned toward unilateral American military operations in the hopes that the increased pressure on Islamic militants would yield quick results but the strategy risks alienating both the populace and government of a country that has been a key if sometimes reluctant counter-terrorism ally. The government of Pakistan, beyond its own incompetence, finds itself caught between Washington's demands for action and the unpopularity of the US aerial campaign. With this attack, it is clear that when it comes to Pakistan nothing has really changed despite a new Administration. An aerial drone war on Pakistan, no matter how well targeted and pinpointed, is bound to fail because the number of civilians killed is disproportionately high. In these attacks, it appears three children were killed. And that will lead to protests on streets of Pakistan and a further hardening of resentment against the US and the West.

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To Change the Middle East, Invest in Education

In a story in the New York Times today on Arab discord at yet another failed pan-Arab conference is this paragraph:

By many measures, the Arab world is slipping further and further behind in its ability to compete globally. Perhaps the single greatest drag on the region, one that afflicts wealthy Gulf states as well as poorer countries like Egypt, is the quality of schools. International trends in math and science among fourth- and eighth-graders show that in math, for example, eighth-graders from Saudi Arabia placed 46th, out of 48; among fourth-graders, the bottom four nations out of 36 were Tunisia, Kuwait, Qatar and Yemen. In science, eighth-grade students in Qatar placed second to last, below Botswana and El Salvador. Among fourth-graders taking the science test, Algeria, Kuwait, Tunisia, Morocco, Qatar and Yemen were at the bottom of the list.

The numbers are stunning. In Yemen, only 40% of the population achieves a primary school education. In Egypt, 52% of the rural poor remain illiterate. Overall, Egypt's literacy rate is just 58%. Even in wealthy Bahrain and Qatar, the literacy rate is just 89%. Across the Middle East and North Africa region as a whole, public spending on education has actually decreased as percentage of GDP and on a per capita basis since 1990 (in 1980 the region spent $250 per capita on education, now it is under $200) even as much of the region enjoyed unprecedented wealth from the oil boom. Yet despite rising Gross National Income, in too many parts of the Middle East and North Africa, education remains a distinct luxury, unavailable to many or only offered to a select few. Too often, girls are prevented from attending school by custom, religious tradition, lack of resources, and oppression. The result is that too many people in the region can neither read nor take advantage of the opportunities that come with education and thus remain mired in endemic poverty. And poverty is fertile ground for Islamic fundamentalism and jihadism. According to the United Nations Education, Scientific and Cultural Organization (UNESCO), across the Middle East and North Africa, more than seventy-five million women and more than forty-five million men are illiterate. Secretary of State Clinton spoke of 'smart power' during her confirmation hearings, the interests of the United States and the cause of peace would be well served if our diplomatic efforts in the region would encourage the leadership of these Arab lands to invest in the development of their own human resources. Literacy must be conceived of as a basic human right.

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Obama To Name George Mitchell As Mideast Envoy

"Israel has a state, but its people live in unbearable anxiety, so security for the people is an overriding objective. The Palestinians don't have a state and they want one, an independent, economically viable and geographically integral state; that is their overriding objective. I believe that neither can attain its objective by denying to the other side its objectives. Israelis are not likely to have sustainable security if the Palestinians don't have a state, and Palestinians will never achieve a state until the people of Israel have some security." - George Mitchell, December 2008

The New York Times is reporting that President Obama will name former Maine Senator and Majority Leader George Mitchell as US Special Envoy to the Middle East. It's a smart choice for the former Senator is one who firmly believes that "there is no such thing as a conflict that can't be ended." Beyond his crucial role as US Special Envoy on Northern Ireland for President Clinton, Senator Mitchell has ties to the region, is intimately aware of the issues and most importantly is seen by most parties as a studious and impartial negotiator.

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The Financial Sector Becomes a Call Option

It's a good thing that the US markets were closed Monday for the Martin Luther King holiday. Pity they weren't closed today. The DJIA fell below 8,000, losing 4%, its poorest performance on any Inauguration Day since the index was started 124 years ago. The tech-heavy Nasdaq and the broader Standard & Poor's 500-stock index both plunged more than 5%. The S&P is now down 49% since its peak and the DJIA is off 45% from its high.

Leading the collapse is the global financial sector which has in essence become a call option. The catalyst for the collapse was news out of the United Kingdom where shares of the Royal Bank of Scotland plunged 68% on Monday after the bank admits it was poised to report £28bn ($41 billion USD) in losses. The shares fell another 74% today. Stock markets around the world absorbed the news poorly. Sydney was off 4% on Monday. The Nikkei was off 2.3% on Monday and then another 2.6% on Tuesday. In early trading on Wednesday, the Nikkei is off another 1.9%. It has so far lost 10.7% for the year.

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On Goverment, Reagan versus Obama

Here is Ronald Reagan from his Inaugural Address of January 20, 1981 on the role of government in American society and how government should confront an economic crisis:

The economic ills we suffer have come upon us over several decades. They will not go away in days, weeks, or months, but they will go away. They will go away because we, as Americans, have the capacity now, as we have had in the past, to do whatever needs to be done to preserve this last and greatest bastion of freedom.   

In this present crisis, government is not the solution to our problem.   

From time to time, we have been tempted to believe that society has become too complex to be managed by self-rule, that government by an elite group is superior to government for, by, and of the people. But if no one among us is capable of governing himself, then who among us has the capacity to govern someone else? All of us together, in and out of government, must bear the burden. The solutions we seek must be equitable, with no one group singled out to pay a higher price.

So, as we begin, let us take inventory. We are a nation that has a government--not the other way around. And this makes us special among the nations of the Earth. Our Government has no power except that granted it by the people. It is time to check and reverse the growth of government which shows signs of having grown beyond the consent of the governed.

It is my intention to curb the size and influence of the Federal establishment and to demand recognition of the distinction between the powers granted to the Federal Government and those reserved to the States or to the people. All of us need to be reminded that the Federal Government did not create the States; the States created the Federal Government.

Now, so there will be no misunderstanding, it is not my intention to do away with government. It is, rather, to make it work--work with us, not over us; to stand by our side, not ride on our back. Government can and must provide opportunity, not smother it; foster productivity, not stifle it.

Now here is President Obama today:

For everywhere we look, there is work to be done.  The state of the economy calls for action, bold and swift, and we will act - not only to create new jobs, but to lay a new foundation for growth.  We will build the roads and bridges, the electric grids and digital lines that feed our commerce and bind us together.  We will restore science to its rightful place, and wield technology's wonders to raise health care's quality and lower its cost.  We will harness the sun and the winds and the soil to fuel our cars and run our factories.  And we will transform our schools and colleges and universities to meet the demands of a new age.  All this we can do.  And all this we will do.

Clearly, Obama's "we" is government. What else can it be? And it is a far different construct than Reagan's government of being the problem, not the solution.

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"I'm a lefty. Get used to it."

"I'm a lefty. Get used to it," Obama quipped as he signed his name. "I was told not to swipe the pen."

Unfortunately, he's referring to his preference of hand not his politics but I am optimistic that he will surprise us. The President signed three documents after his inauguration, including a proclamation declaring a day of national renewal and reconciliation. He also signed Cabinet and sub-Cabinet nominations that were then taken to be presented to the Senate.

The other left-handed Presidents include James Garfield, Harry Truman, Gerald Ford, George H. W. Bush, and Bill Clinton. There are also some who think that Herbert Hoover and Ronald Reagan were natural lefties but were turned rightward by their school teachers.

More from CNN.

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The Childlike Senator John Cornyn

If you think all elements of the GOP are prepared to get on with the business of the nation and not throw childlike fits of pouting, well, think again. Today, Senator John Cornyn of Texas objected to including Hillary Clinton's name in a unanimous consent vote for several Cabinet nominees, scheduled for hours after the swearing-in of President Obama. No, instead Senator Cornyn chose to act like a petulant child and deprive Senator Clinton of a unanimous consent vote. Now instead, a roll-call vote on Seantor Clinton's nomination to be Secretary of State will be held on Wednesday. She will be approved then. Senator Cornyn aimed to embarrass Senator Clinton, but he has, in fact, only embarrassed himself.

More from the New York Times.

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