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Elliott Morss has spent most of his career teaching and working as an economic consultant to developing countries on issues of trade, finance, and environmental preservation. Dr. Morss received a B.A. from Williams College in 1960 and a Ph.D. in political economy from The Johns Hopkins... More
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  • Shiller On Too Many People In Finance And Bank Regulation

    Shiller on Too Many People in Finance and Bank Regulation

    © Elliott R. Morss All Rights Reserved

    Introduction

    I am glad Robert Shiller won a Nobel Prize in Economics. He works with and learns from data. He also has little patience for posturing. He was recently asked about his work at the Cowles Foundation for Research in Economics where data collection is so important. His response:

    "Our founder, Alfred Cowles, was a money manager who became disillusioned and skeptical. Money management has been a profession involving a lot of fakery - people saying they can beat the market and they really can't. He suspected that colleagues on Wall Street were just faking it, that they had no ability to predict the market….I have the same skeptical nature. When I was a child, my Sunday school teacher complained to my parents that I had a bad attitude. I didn't believe anything that guy said.

    It's still with me, that I'm just naturally skeptical of people who look impressive - but I'm naturally wondering if it's real. I guess that's what motivated Cowles and pushed him to collect data. There's an attitude in the profession that collecting data is for lesser people. That it's like janitor work; it would dirty our hands. There's social climbing in academia. So if you write a paper computing an index, that seems low-prestige, so you don't want to do that.… Some of the best theorizing comes after collecting data because then you become aware of another reality."

    Shiller has great curiosity and is always looking to data for answers. He recently wrote a piece questioning whether "too many of our most talented people are choosing careers in finance - and, more specifically, in trading, speculating, and other allegedly 'unproductive' activities".

    He noted "In the United States, 7.4% of total compensation of employees in 2012 went to people working in the finance and insurance industries."

    And that got me thinking about what we pay people. In the same article, he asked: "Why shouldn't banks be allowed to engage in any business they want, at least as long as we have regulators to ensure that the banks' activities do not jeopardize the entire financial infrastructure?"

    I have thoughts on both topics. Hence, this article.

    Too Many People in Finance?

    Table 1 provides employment and compensation data for broad sector categories. And yes, as Shilling said, 7.4% of all compensation went to the Finance and Insurance sector. But there are other interesting features in the data.

    Table 1. - US Compensation by Sector, 2012

    (click to enlarge)

    Source: US Bureau of Economic Analysis

    Look first at overall employment. It is notable that Government is largest US employer followed by Health Care and a Professional, Scientific… catch-all category. But then, greater than manufacturing or any other sector is Finance and Insurance.

    Looking at compensation levels, CEOs get the most. And as I have noted elsewhere, this is a rigged, self-perpetuating market: boards hide behind head-hunter recommendations, and head hunters are loath to recommend anyone who has not succeeded or failed previously as a CEO. The high pay in the Utilities sector reflects high unionization rates and the lack of any foreign competition. Mining is a capital intensive sector. And then we have Finance and Insurance.

    Breakdown

    It is worth looking more closely at the sub-categories under the "Finance" part of Finance and Insurance. In Table 2, all the financial sub-sectors are included along with the other sub-sectors with the highest average compensation.

    Table 2. - US Compensation in Selected Sub-Sectors, 2012

    (click to enlarge)

    Source: US Bureau of Economic Analysis

    Not surprisingly, the "packagers/deal-makers" (top two sub-sectors) in the financial industry make the most and their regulators the least. And these data miss a good portion of what the "packagers/deal makers" actually earn because it will come to them via delayed capital gains and other uncovered payment methods. Clearly, the energy and information industries also pay well.

    Back to Shiller's Question

    Shiller points to a 2006 study "25% of graduating seniors at Harvard University, 24% at Yale, and a whopping 46% at Princeton were starting their careers in financial services." Shilling adds that evidence suggests that much of the increase in financial activity since 1950 has taken place in the more speculative fields, at the expense of traditional finance. Anecdotally, I can believe this: my father was the President of a bank in 1950: the bank held on to the loans they made and spent considerable time making sure they got paid back. Think how far things have evolved since then….

    But can we really say there are too many people in finance? As Shilling says, "We surely need some people in trading and speculation. But how do we know whether we have too many?" Shilling points to some studies suggesting all the benefits of many financial transactions accrue only to those making the transactions.

    So if these activities caused the largest global depression since 1929, I would argue something should be done to rein in financial activities. And that leads us to Shiller's thoughts on regulation.

    Regulation

    Shiller concedes society may have been harmed by some financial activities but he is "careful" when it comes to imposing new regulations: "We need to be very careful about regulations that impinge on such [speculative] activities, but we should not shy away from making regulations once we have clarity."

    I have a very different view on this point. Glass-Steagall legislated that depository institutions should not "gamble" with deposits. That meant no trading. The most important result of removing Glass-Steagall meant banks could trade. Among other things, that meant banks could sell off the loans they made. Think of what that did to bank incentive structures: instead of knowing their survival depended on their loans getting paid back with interest, the primary incentive became making money on commissions from selling off their loans. That meant banks should make more and more loans with little regard for their quality. And it all spun out of control….

    So I think there is "clarity": Banks should have to hold the loans they make to maturity - no selling them off. One might argue that is too harsh: let's just regulate what banks can trade. It won't work. Regulators are overwhelmed. They keep trying new regulations and they all fail. Financial transactions are simply too complex. Get the speculative activities out of banks. Let the hedge funds, the private equity companies and investment banks do the gambling. But not banks.

    Too Many People in Finance?

    I think things have changed since 2006. While finance remains an attractive profession because of compensation, the new "heroes" for the college-aged are the information gurus - Steve Jobs, Bill Gates, Jeff Bezos, Pierre Omidyar and Mark Zuckerberg. This is good: make (or lose) a billion or two like them. Just don't cause another global collapse.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Oct 28 3:46 PM | Link | Comment!
  • Argentina: A Partial Defense Of The Lady

    Argentina: A Partial Defense of the Lady

    © Elliott R. Morss All Rights Reserved

    April 2013

    Introduction

    A couple of weeks back, an American friend living in Buenos Aires asked me: "Have you been following this crazy woman? I would love to hear your take on her." In what follows, I offer a little background on the Argentina's financial situation and review the most controversial actions President Kirchner has taken. I conclude with a prescription for the future of the country.

    The Financial Situation of Argentina - Not the Lady's Fault

    Argentina's debt to GDP ratio of 43% is not high by international standards. But troubling problems remain following the country's 2001 default on $132 billion of debt. According to a Reuters report, 92% of Argentina's defaulted bonds were restructured in 2005 and 2010 with bondholders receiving 25 to 29 cents on the dollar. But there were holdouts. And a New York Court ruled in March that further payments could not be made to the bondholders who did settle until a deal is negotiated and payments are made to those still holding out. However, a failure to pay those who did settle would constitute a default and violate the 2005 and 2010 agreements. This would most definitely not be good.

    The holdouts are owed $1.3 billion. And in a court of law, their position is quite strong: they have a loan agreement and want to be paid in accordance with the terms set forth in the agreement. In such cases, it is common for courts to allow the claimants to attach other assets of the debtor. As a consequence, the Lady has resorted to chartering a plane rather than use one owned by Argentina for out-of-country flights.

    In this case, the New York Court ordered Argentina to come up with a proposal to settle with the holdouts. Argentina responded by saying it will make payments to the holdouts on pretty much the same terms it settled on with its other bondholders. The lawyer for Argentina said the country has a law that keeps new governments from improving the terms of previous restructurings. The Court has given the holdouts until the end of April to review and respond to the Argentine proposal. But Elliott Management, one of the largest holdouts, has already said it will not accept the 2010 terms.

    The uncertainty surrounding this issue makes Argentina's financial position quite precarious - nobody in the right mind would lend Argentina money unless it was secured by something that could be seized - like commodities.

    Seizing the Pension Funds

    And yes, a few years back, the Lady did take over the country's pension funds. Kirchner's opposition claimed this was done so pension monies could be used to "award" provincial governors for political support. Maybe this is true. But there were economic reasons for the government to take control of the funds: not performing well, not invested in Argentina, and rumors of corruption.

    How About the Repsol Takeover?

    In the "civilized world" government takeovers are generally frowned on. But as I have reported, there were mitigating circumstances in the Repsol case. Keep in mind that a country's energy strategy is fundamental to its well-being. And Argentina is an extreme case inasmuch as it cannot borrow on world markets. That means it is extremely important to keep its trade and current account balances from going negative. Table 1 shows that Argentina's energy imports are growing rapidly.

    Table 1. - Argentina: Energy Import Shares

    Import

    2005

    2006

    2007

    2008

    2009

    2010

    2011

    Mineral fuels

    5.0%

    4.7%

    6.0%

    7.2%

    6.3%

    7.9%

    11.7%

    Petroleum

    2.7%

    2.7%

    4.1%

    4.9%

    3.9%

    4.6%

    7.3%

    Source: UNCTAD

    Kirchner wanted Repsol to develop Argentine energy reserves so it could cut back on its imports. Repsol had other priorities.

    The Lady's Shortcomings

    While one can argue the problems discussed above are not the Lady's doing, what follows are her responsibility.

    1. Falsifying Inflation Data

    The Argentine rate of inflation has grown in part because Kirchner reversed the long-standing tradition of federal subsidies for critical services including public transit and basic utilities. Most economists would applaud this move.

    But the continuing falsification of inflation data and the intimidation of anyone who questioned the data have taken on a life of its own. The International Monetary Fund has censured Argentina for these actions. It has given Argentina until Sept. 29 to implement reforms before it risks losing membership privileges. If Argentina does not comply, it would be the second country to be forced out for failing to provide accurate economic information. The former Czechoslovakia was kicked out for the same reason in 1954.

    Why does the Lady continue this charade? Is it because, as the Palisades Hudson Group claims, that by reporting inflation lower than it really is, the country has avoided paying the full interest due on its $37.6 billion of inflation-linked bonds. Is this a legitimate reason for falsifying the data? Of course not.

    Just how much falsification is taking place? To answer this question, I turn to data assembled by LatinFocus, arguably the best source of information on Latin America economies that there is. LatinFocus provides two sets of inflation data:

    • Projections made by 25 financial/academic/consulting institutions projections of the falsified government inflation rates (I presume institutions dutifully make projections on this false data because they don't want the Lady to get angry with them), and
    • Projections made by 16 unnamed "panelists".

    The projections for 2013 and 2014 appear in Table 2. If the panelists are right, the inflation rates reported by the government are less than half the actual rates.

    Table 2. - Argentina: Inflation Estimates

     

    2013

    2014

    Source

    Consensus

    High

    Low

    Consensus

    High

    Low

    Institutions

    11.1%

    13.8%

    9.8%

    11.9%

    15.3%

    9.0%

    Panelists

    28.1%

    32.3%

    23.8%

    27.2%

    32.3%

    23.8%

    Source: LatinFocus

    b. The Peso/Dollar Paranoia

    When I was last in Argentina (2009), both Pesos and Dollars were used, and the system worked well. If you had one and wanted the other, you could buy them, and the buying and selling rates were quite close. But the Lady, fearful of running out of dollars, wants everyone to use Pesos. She also appears to be under the illusion that she can "mandate" the exchange rate. Her paranoia on this score has led to:

    • requiring that all Argentine real estate transactions be done in Pesos;
    • limiting high tech imports into Argentina;
    • limiting dollars available for travel outside Argentina;
    • charging a tax on credit card charges made outside of Argentina and payable in dollars;
    • controlling/limiting payments made to suppliers outside Argentina
    • establishing the "official" peso/dollar exchange rate.

    This is all crazy nonsense. Whenever one tries to set prices that are out of line with supply/demand forces, a secondary market develops. So Argentina now has the dólar blue secondary market where it will take more than 8 pesos to buy a dollar versus the official rate of 5+ pesos per dollar. So now there are "criminals" making illegal currency exchanges making lots of money. Government policy that encourages such activities is bad government policy.

    And what happens if anyone speaks up? The Lady does not like objections: you might get fined or worse….

    Explaining the Lady's Behavior

    As is true of most Latam countries, Argentina has a history of military dictators with little regard for free market mechanisms. They like to issue commands to get things done. It reminds me of my first trip to Ghana for the IMF when the military had just ousted Nkrumah and was running the country. The military had no understanding of economics and markets. They were used to commanding things to happen and seeing their commands followed. So if the exchange rate was not to their liking, they would tell the banks and the money traders what the exchange rate should be. Money changers normally worked on the streets near the central bank. If the military did not like the exchange rates being offered by the money changers, they would put a few of them in jail and disperse the others. It never worked. After a few weeks the money changers would return…. I observed the same behavior by Myanmar's military leaders a couple of decades later.

    I think this explains the Lady's behavior. I also think it is the way Chavez was. They both operate like military generals, using commands and intimidation to get things done. This approach never works. If you don't let markets clear, a black market will develop allowing criminals to make a lot of money.

    The Economic Condition of Argentina

    With all that has been reported above, keep in mind that Argentina, like Russia, Argentina is a natural resource rich country. And a lot of its exports are food. The world's growing population has to eat. I quote from an earlier piece I wrote with Marcela Gonzales on Argentina: "The size and role of government will probably continue to grow (it has grown from 20% of GDP in 2002 to more than 30% now). And political power grabs will probably continue. But at least the first quarter of the 21st Century will be good to natural resource rich countries. And it is hard to imagine things will be bad in Argentina in the long run. Its exports will rebound."

    With this rosy backdrop, let's look at some economic data. Table 1 provides GDP growth rate data for Argentina and other Latam countries. Both before and during the global recession, Argentina did as well or better than its neighbors. That is now changing. Can a significant portion of the slowdown be attributed to Kirchner's economic policies? Yes.

    Table 3. - Latin America: GDP Growth Rates

    Area

    2005-07

    2008-11

    2012-14

    Latin America

    5.4%

    3.3%

    3.6%

    Argentina

    8.8%

    6.4%

    2.8%

    Bolivia

    5.0%

    4.7%

    4.9%

    Brazil

    4.4%

    3.8%

    2.8%

    Chile

    5.8%

    3.6%

    4.9%

    Colombia

    6.1%

    3.8%

    4.4%

    Ecuador

    4.2%

    4.7%

    4.1%

    Mexico

    3.9%

    1.2%

    3.7%

    Paraguay

    4.1%

    5.0%

    4.3%

    Peru

    7.8%

    6.6%

    6.1%

    Uruguay

    5.8%

    6.0%

    3.9%

    Venezuela

    9.6%

    1.2%

    2.7%

    Sources: Latin Focus and IMF

    In recent months, my writings have focused on the weak sisters in the Eurozone. The "weak sisters" (Greece, Italy, Portugal, and Spain) are in dire straits: their GDPs are declining and they have high unemployment, large government deficits, and massive government debts. As Table 4 shows, Argentina is not in such straits - not even close!

    Table 4. - 2013 Argentina and the "Weak Sisters"

    Growth, Unemployment, Government Deficits and Debt

     

    GDP

     

    Govt. Def.

    Govt. Debt

    Country

    % Change

    Unemployment Rate

    (% GDP)

    (% GDP)

    Argentina

    3.1%

    7.4%

    -2.2%

    43%

    Greece

    -4.5%

    26.4%

    -5.5%

    178%

    Italy

    -1.1%

    11.7%

    -2.2%

    128%

    Portugal

    -2.1%

    16.9%

    -4.9%

    125%

    Spain

    -1.5%

    26.5%

    -6.0%

    92%

    Sources: FocusEconomics

    There is one area where Argentina faces problems equal or greater than those facing the "Weak Sisters". While the European Central Bank and the IMF are providing huge sums to bail out the "sisters", nobody is eager to help Argentina out. But this is a resolvable problem.

    A Prescription for the Future

    Argentina has a bright future. The Lady temporarily taken it in the wrong direction. This can be easily remedied. To start, a group of the country's best economists working in academia, government and the private sector should draft An Economic Plan for the New President of Argentina. Every major sector in Argentina should be examined with an eye to removing all the foolish policies the Kirchner regimes have enacted. The group should also commission a set of in-depth studies looking at such issues as what the country's energy strategy should be for the next decade. To protect the group from Kirchner intimidation, it should work obtain support from the international private sector, international organizations and foundations.

    Legislative elections take place this fall in Argentina. And a new President will be elected in October 2015. It is time for work on this plan to start.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Apr 15 5:14 PM | Link | Comment!
  • Growing Disillusionment With The US - Do Americans Know Or Care?

    Growing Disillusionment with the US - Do Americans Know or Care?

    © Elliott R. Morss All Rights Reserved

    March 2013

    Eisenhower warned: Until the latest of our world conflicts, the United States had no armaments industry…we have been compelled to create a permanent armaments industry of vast proportions. This conjunction of an immense military establishment and a large arms industry is new in the American experience. We recognize the imperative need for this development. Yet we must not fail to comprehend its grave implications. Our toil, resources and livelihood are all involved; so is the very structure of our society. In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military-industrial complex. The potential for the disastrous rise of misplaced power exists and will persist….We should take nothing for granted. Only an alert and knowledgeable citizenry can compel the proper meshing of the huge industrial and military machinery of defense with our peaceful methods and goals, so that security and liberty may prosper together. Dwight D. Eisenhower, 1961

    Open Secrets reports 2012 US Defense lobbyists spent $130 million and made campaign contributions of almost $30 million. What do they want? They want more orders.

    Introduction

    I grew up in the Kennedy/Rockefeller era. The Rockefellers helped establish the United Nations to promote the well-being of mankind throughout the world. It was intended to be a place where nations could come together to express and discuss their views. Kennedy created the Peace Corps and said the US would put a man on the moon. The Peace Corp was the best foreign assistance program the US ever had. It gave regular Americans a chance to see poverty worldwide and try to help out as volunteers. And putting a man on the moon - people everywhere were caught up in watching.

    Because of the Rockefellers and Kennedy, the US projected hope worldwide: most nations believed the US would be a good steward for the world. And in those days, wherever I went overseas (I worked professionally in 45 countries), people asked me my opinion on almost everything because I was an American.

    Times have changed. I remember travelling in Africa in the early '70s after the US got bogged down in Vietnam. Africans did not understand the Vietnamese campaign but they still liked and respected Americans. But then, other things happened. US support for Israel1 raised questions in Muslim countries worldwide led to the 9/11 attacks followed by destabilizing land wars in Afghanistan and Iraq.

    Back to Vietnam: Mao Tse Tung asked for diplomatic recognition so as to avoid being controlled by Russia; John Foster Dulles said no because Mao was a communist. Ho Chi Minh asked for diplomatic recognition in hopes of avoiding yet another invasion from China. Dulles again said no because he was a communist.

    Iraq: By invading Iraq and deposing Saddam Hussein, the US destabilized the Middle East by destroying a balance of power between Saddam (Sunni) and Iran (Shiite).

    Afghanistan: After 9/11, the US wanted to "get" Bin Laden. The US learned nothing from the experiences of France and Russia there. So a ground war in Afghanistan lasting more than a decade was launched.

    After the trillions spent on the Vietnam, Afghanistan, and Iraq land wars, what can we say has been accomplished? Better not to ask. More than 60,000 Americans dead and over 3 million Afghanistan, Iraq and Vietnamese deaths.

    And then in late-2008, US banks collapsed, pitching the world into a global depression. And all of this occurred while the primary US foreign aid program (USAID) was telling banks in developing countries to increase leverage.

    The world watches what the US does and draws its own conclusions. So what do the countries of the world think? I address this question below with the assistance of surveys done by the Pew Research Global Attitudes Project.

    Opinions of the US

    Table 1 provides survey results on how countries viewed the US in two periods: 2002-04 and 2010-12. The question was: "Do you have a favorable or unfavorable view of the U.S.?" The figures in the table are the net of responses. E.G., if that number is 0, the same percent of respondents answered positively and negatively, if the number is negative, more respondents answered negatively, etc. The table provides data on all countries surveyed in both periods.

    Table 1. - Views of the US

    Country

    2002-04

    2010-12

    Population (mil.)

    Pakistan

    -59%

    -68%

    182.6

    Jordan

    -50%

    -74%

    6.3

    Turkey

    -24%

    -57%

    75.6

    Lebanon

    -23%

    -1%

    4.3

    Argentina

    -15%

    1%

    40.1

    Germany

    25%

    8%

    82.0

    Indonesia

    25%

    14%

    237.6

    Russia

    28%

    18%

    143.4

    France

    28%

    38%

    65.6

    Mexico

    39%

    22%

    112.3

    Czech Republic

    44%

    17%

    10.5

    Japan

    46%

    45%

    127.4

    Italy

    47%

    52%

    59.5

    Britain

    59%

    29%

    63.2

    Ukraine

    61%

    30%

    45.5

    Kenya

    65%

    72%

    38.6

    Poland

    68%

    43%

    38.5

    Weighted. Ave.

    19%

    10%

     

    Source: Pew Research

    So what do we find? The overall approval ratings, weighted by population size, have fallen from 19% to 10%.

    Another survey question asked if citizens think the US respondents cares about their country's interests? As in Table 1, the net of the percentages answering yes or no are presented in Table 2 for all countries surveyed in the 2010-12 period.

    Table 2. - Does the US Care About You?

    Country

    2002-04

    2010-12

    Population (mil.)

    Spain

    -52

    -65

    47.3

    Egypt

    na

    -62

    83.7

    Jordan

    -43

    -60

    6.3

    Greece

    na

    -60

    10.8

    Argentina

    -60

    -59

    40.1

    Turkey

    -57

    -54

    75.6

    Pakistan

    -13

    -52

    182.6

    Lebanon

    -58

    -50

    4.3

    Russia

    -48

    -47

    143.4

    Tunisia

    na

    -45

    10.8

    Czech Republic

    -42

    -44

    10.5

    Italy

    -22

    -40

    59.5

    France

    -55

    -38

    65.6

    Poland

    -30

    -36

    38.5

    Britain

    -8

    -28

    63.2

    Japan

    -24

    -24

    127.4

    Mexico

    -10

    -16

    112.3

    Germany

    8

    -11

    82.0

    Brazil

    na

    13

    193.9

    China

    na

    14

    1,354.0

    India

    na

    29

    1,210.2

    Weighted Ave.

    -26%

    -38%

     

    Source: Pew Research

    With all the US actions outlined above in the last decade, it is not surprising that the image of the US has suffered. Tables 1 and 2 have something else in common: Many of the countries giving the US the lowest ratings were Muslim. People living in the "Palestinian Territories" were not included in the tables because they were not surveyed in the 2010-12 period. But they were surveyed in 2003: 92% said the US did not care about their interests.

    Unqualified US Support for Aggressive Israeli Acts

    Few Americans are clear on this matter, so it is worth reviewing in some detail. During the Six-Day War of 1967 Israel seized lands from Egypt, Jordan, and Syria that it still holds. Keep in mind that when Saddam Hussein invaded Kuwait, the US spearheaded a UN military force that got him out. Back to Israel: Syria, Egypt and Jordan brought a resolution before the UN saying that Israel would give back the lands it seized during the six-day war and that the resulting borders would be the basis for the Palestinian state. The US vetoed this 1976 resolution.

    Since the Six Day War, Israel has been condemned by the UN Security Council for aggressive acts 29 times, far more than any other country in the history of the UN. And there would have been more condemnations if the US had not vetoed them. Recently, the U.S. vetoed a U.N. Security Council Resolution, condemning Israel's settlement activities in the Palestinian territories, including East Jerusalem. The vote: 14 1 with the U.S. exercising its first veto since President Obama came to office.

    Can the anti-US terrorism that started in the Middle East more than 3 decades back, including the 9/11 attacks, be attributed to the pro-Israel position of the US? That would clearly be an overstatement. But it is worth noting that Michael Scheuer, CIA's analyst who led the hunt for Osama bin Laden, said he was motivated by a belief that US foreign policy had oppressed, killed, or otherwise harmed Muslims in the Middle East.

    Do Americans Know or Care What Others Think?

    Gabriel Almond2 and others have documented that most Americans have no idea of what is happening in the rest of the world and US foreign policy. Recently, a study was undertaken to determine how the knowledge of US citizens compares with other nations. The conclusion: Germans are most knowledgeable followed by Britain, Canada, and France. Americans had the least knowledge. To work effectively, democracies require an informed public. When it comes to US foreign policy, Americans know very little so they will go along with what its political leaders (and lobbies) want.

    What Could Be Done

    Should the US care about what others think? Yes. It is in its national interest to care. So what could be done to change foreigners' perspectives?

    1. Stop engaging in foolish wars

    How can this be done? The defense lobbies remain at work. The only effective thing we can do is bring back the draft. This would force wealthy and influential parents to start thinking about where their children will be sent and why.

    1. Stop coddling Israel

    The fact that Israel continues to build settlements in "Palestinian territories" is an outrage. And as long as this continues, Obama's assertion that he favors a "two-state" solution is laughable. What can be done? In 1967, U.N. Security Council Resolution 242 passed unanimously. That means the US supported it. UN 242 said Israel would give back the lands it seized during the six-day war and that the resulting borders would be the basis for the Palestinian state. Following discussions with the Israelis and Palestinians over land adjustments, the US should bring a similar resolution before the UN Security Council. It would pass unanimously.

    1. Education

    US high school students should be required to take a course on global history and US foreign policy since World War II. A democracy cannot operate effectively if its citizens are not educated. And the outside world is now too important to leave to political leaders and lobbyists.

    Conclusions

    Robert L. Borosage: The country finds itself constantly at war. New presidents inherit the wars of their predecessors. They are faced not with deciding to go to war, but whether to accept defeat in one already in progress….And slowly, the great power declines from the inside out. The wars are costly, running up national debts. Vital investments are put off. Schools decline. Sewers leak. For a long time, circuses distract from the spreading ruin….Other societies become productive centers, capturing the new industries. Some begin providing better education for their citizens, better support for their citizens. Their taxes, not drained by the cost of wars past and present, can be devoted to what we used to call "domestic improvements." This is a very rich country, despite the years of conservative misrule. But even wealthy countries must choose. We can afford to police the world - to sustain 800 bases across the globe, to station troops in Korea, in Japan, in Bosnia, in Europe, fight wars in Iraq and Afghanistan, sustain fleets to police the seas… A rich country, Adam Smith wrote, has a lot of ruin in it. We seem intent on testing the limits of that proposition. Borosage, 2009

    1 John Mearsheimer and Stephen Walt, The Israel Lobby , London Review of Books, March 2006.

    2 Gabriel Almond, The American People and Foreign Policy, NY: Harcourt Brace, 1950.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Mar 29 12:22 PM | Link | Comment!
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