Friday, March 30, 2007

The American Inquisition

Andrew Sullivan

"Coercive Interrogation"

30 Mar 2007 09:03 am

Much ink has been split over what torture means. It isn't the first time. The original White House memo outlining the boundaries drew the line at death or failure of a major bodily organ. Hey: it's compassionate conservatism. But the exquisite ways in which human beings have found to describe torture that isn't torture or to call it something else or to place limits on it go back a very long way:

I don't know how much of your latin remains from your schooldays, but I just reread Ad Extirpanda (To Be Exterminated), the papal bull in which Innocent IV, feeling the Inquisition was not efficient enough in digging out heresy, introduced the occasional use of torture in extreme circumstances. At first, it was truly used this way. Within a few decades however, it had become the norm as legal strategy gave way to blunt force in the name of moral authority.

I found the terms used to explain what kind of torture was to be permitted to bee strangely familiar (translation mine):

"Extraordinary use of the question shall be limited to that which does not involve the effusion of blood or permanent mutilation."

John Yoo, meet your mentor.

Krugman: Monetary Policy Primer

Economist's View

Paul Krugman from 1999. I like this one - it uses a simple, entertaining fable to illuminate important issues in international finance such as whether developing countries should stabilize their exchange rates:

A Monetary Fable, by Paul Krugman: Once upon a time, the world had a single currency, the globo. It was generally well managed: the Global Reserve Bank (popularly known as the Glob), under its chairman Alan Globespan, did a pretty good job of increasing the global money supply when the world threatened to slide into recession, trimming it when there were indications of inflation. Indeed, in later years some would remember the reign of the globo as a golden age. Businessmen in particular liked the system, because they could buy and sell anywhere with a minimum of hassle.

But there was trouble in Paradise. You see, although careful management of the globo could prevent a boom-bust cycle for the world as a whole, it could not do so for each piece of that whole. Indeed, it turned out that there were often conflicts of interest about monetary policy. Sometimes the Glob would be following an easy-money policy because Europe and Asia were on the edge of recession; but that easy money would fuel a wild speculative boom in North America. Other times the Glob would feel obliged to tighten money to head off inflation in North America, intensifying a developing recession in Latin America. And there was nothing regions could do about it.

Over time frustration over this impotence built up; and when the Glob failed, through policy misjudgements, to prevent a serious global recession the system broke up. Each region introduced its own currency: Europe adopted the euro, Latin America the latino, North America the gringo, and so on. But how should these local currencies be managed?

At first officials were afraid to let the new currencies be traded freely: you were only allowed to exchange latinos for euros or gringos if the government granted you a license, and licenses were given only for "legitimate" imports. But over time it became clear that this system both discouraged beneficial trade and offered many opportunities for corruption. One by one, the world's regions moved back to free convertibility of currencies. But they were still afraid of instability, so governments tried to stabilize the rates at which these currencies exchanged by buying and selling on the foreign exchange markets.

Alas, this system too turned out to have serious problems. After all, the whole point of going from a world currency to multiple local currencies was to give governments the ability to have independent monetary policies, so they could fight recessions when necessary. But a country could not simultaneously print money to fight a recession and maintain the value of its currency on the foreign exchange market. It could improve its competitive position by devaluing - say by raising the price of a gringo from 1.2 latinos to 1.5. But once latinos were freely convertible into other currencies, the mere hint that a devaluation might be in the offing would cause massive speculation against the vulnerable currency.

So what was the answer?

One answer was simply to give up the attempt to stabilize exchange rates, and just let the market do the job. The trouble was that experience showed that the market did the job badly. You might have thought that the exchange rate between, say, the euro and the gringo would be determined by the needs of trade: by North Americans trading gringos for euros in order to buy European goods, and conversely. It soon became clear, however, that mainly the market was dominated by investors - people buying and selling currencies in order to purchase stocks and bonds. And since these investment demands were highly variable, including a large component of speculation, currency values also proved unstable. Worse yet, people began to speculate on the values of the currencies themselves. The result was that exchange rates bounced around, creating uncertainty for businesses who could never be sure what their overseas assets and liabilities were really worth.

Some governments decided that this was unfortunate, but a price worth paying; for example, North America was unwilling to sacrifice domestic goals to achieve exchange rate stability, and so it practiced benign neglect toward the gringo's value. This was, of course, easier for big, relatively self-sufficient economies than for smaller currency zones. Nonetheless, some of these also seemed to thrive under freely floating exchange rates. The kangaroo tended to hop around, but Australia's economy did very well. And for a while most economists believed that floating exchange rates, while admittedly imperfect, were a workable system for just about everyone.

But when the world's poorer regions tried to behave like the First World, responding to speculative attacks on their currencies by simply letting them float, disaster struck. When the kilogram was allowed to float against the euro, nothing terrible happened: the currency fell by 15 percent, then stabilized; in effect, investors seem to have thought "Good, that's over" and been willing to start putting money back into the country. Indeed, the central bank found itself able to cut interest rates, and engineer an economic recovery. But when the latino was allowed to float against the gringo, investors panicked: it went into free fall, losing half its value in a matter of weeks. Since many companies had debts denominated in gringos, this was a financial catastrophe. So the government tried to stabilize the latino by raising interest rates to 75 percent, hoping that this would induce investors to keep their money in the country; the effect, however, was a disastrous recession, which in a way ratified the investors' panic.

And the same story played itself out repeatedly, in one country after another. Indeed, after a while the whole thing started to feel like a recurrent nightmare, with the same horrifying events replayed each time. First a country which had seemed to be doing well would find itself the sudden object of speculative attack, sometimes because of some real but probably manageable economic difficulties, sometimes because of psychological "contagion" from an economic crisis halfway around the world, and even on occasion because of a short-selling conspiracy by hedge funds. Then a team from the Global Monetary Fund would arrive, promising to save the country by lending it money, but only if it did things that were guaranteed to produce a severe slump: raising taxes, cutting spending, and increasing interest rates to punitive levels. These measures were supposed to restore market confidence, stabilizing the situation; but by depressing the economy, and often destabilizing its internal politics, they would usually precipitate a new crisis after a few months. Some countries eventually recovered from these crises, and these cases were celebrated as demonstrations of the success of the GMF's recommendations; but after four years of rolling crisis, which had devastated the economies of eight nations and counting, the world economy was starting to look like a very dangerous place.

What could the poor Latins (and Asians, and ...) do?

Some economists argued that many developing countries could still move to floating rates - that the currency collapses were actually the consequence of misguided GMF policy, and could have been avoided. And in some cases they may have had a point. On a Friday in January 1999, for example, Amazonia let its currency float, and the initial results were far better than expected: the currency fell only modestly, and the stock market soared. Nonetheless, over the weekend GMF officials demanded that the country raise its interest rates. (Were they, perhaps unconsciously, unwilling to see a non-GMF-style policy succeed, and thus call into question their previous actions?) When the rate increase was announced on Monday, panic set in, and the fragile sense of optimism was shattered.

But most economists were more pessimistic. It seemed to them that in general developing countries were, for whatever reason, held by financial markets to a different standard than First World nations; and for them floating rates did not work. So something else had to be done.

One possible answer was to achieve credibility by tying oneself to the mast: to adopt a currency board - that is, back every latino with a gringo of reserves, and pledge never ever to change the parity - or, if even this wasn't enough, to give up on having your own currency at all, and "gringoize" (or euroize) the economy. In effect, this would mean going back to a sort of inferior version of the globo standard - inferior because it would have all the weaknesses of that system, plus new problems. You see, while Alan Globespan managed the globo on behalf of the world as a whole, his successors - Mr. Gringspan, who controls the gringo supply, and Mr. Euroberg, who controls the euro supply - have more parochial concerns. (And because those concerns differ, the euro-gringo rate is highly unstable, making it problematic for small countries that trade extensively with both regions to peg to either one). And nationalism is not dead: could independent countries really be expected to swallow their pride and accept monetary subservience on a permanent basis?

Another possible answer was to reimpose exchange controls, so as to limit the vulnerability of economies to speculative attack. The reasons for avoiding such controls were as strong as ever; but countries that had maintained controls on capital movement had been noticeably less savaged by crisis than those that had not. Perhaps, in an imperfect world, the costs of controls were a price worth paying.

The worst thing to do, of course, was to put off making a choice: to try to defend a currency of suspect credibility with high interest rates, producing a recession and budget crisis that inevitably led investors to worry - despite all denials by the government - that capital controls might be the next step. And yet of course, politics and human nature being what they are, that is what most countries did when the crises came. (Less forgivably, it is also what the GMF, time and again, advised them to do).

And so the world lurched from crisis to crisis; and they all lived unhappily ever after.

Wednesday, March 28, 2007

Nothing Rallies the People Around an Unpopular President...

Well worth remembering:

Barry Ritholz at The Big Picture

We even noted on Monday that Oil and Gas had ticked up in price, with premium (high test) selling for more than $3 and Oil tickiling $64. That obviously didn't concern Mr. Market last week, nor did the Fed's evident concern with the decaying economy and creeping Real Estate problems.

Now, it appears that glimmers of recognition of all that risk is returning, courtesy of Iran's capture of 15 British sailors and marines. Last night, Oil spiked $5, "rumors that Iran fired on U.S. Navy warships." Other rumors of an immiment Iran attack by the Brits aided by the U.S. were reported.

With a little luck, this situation gets resolved with no shots fired, but I suspect that may not suit the unpopular President of Iran, Mahmoud Ahmadinejad -- nothing rallies the populace around an unpopular president like an attack on the nation from abroad.

Wednesday, March 14, 2007

Q for W: What's God Telling You About Iraq Now?

Who's the idiot here?

Bill Cusak at Huffington Post

Before deciding to invade
Iraq, Bush, apparently, or so he says, talked it over with God, and God, says Bush, told him to invade, or at least made it abundantly clear that he supported an invasion of Iraq very, very, very strongly, presumably because God hates Middle Eastern dictators with lots of oil as opposed to lots of other dictators without lots of oil. God knew there were no WMD's because God is all powerful and can see all or he ain't God. Apparently God didn't tell Bush he would create terrorists and unleash ethnic hatred which would drag us into a death spiral quagmire, either. So the bottom line is God told Bush to invade Iraq, which is the most tragic blunder in U.S. history since the decision to legalize slavery- a blunder that has humiliated this country and will imperil the security and economic interests of America for the rest of this century. Is God an idiot? ...

Friday, March 09, 2007

Sullivan on Bush & Torture

Andrew Sullivan

"Bush took the blame for Abu Ghraib, but who believes that he desired torture and obscene handling of the enemy?" - Bill Buckley.

Where to start? First, I don't recall Bush personally taking the blame for Abu Ghraib at all. He even refused to let his defense secretary take the blame and resign. I remember him insisting that "this is not America" and denying that he had any role in it, despite signing a memo that allowed all such abuse if "military necessity" demanded it.

Bush's signature is on the memo. Period. He is in charge of his mental faculties and he is commander-in-chief. Period. His own defense secretary sent Geoffrey Miller to Abu Ghraib to replicate the torture Bush had already ordered at Gitmo. Torture continued long after Abu Ghraib was exposed under Bush as commander-in-chief. Given a chance to ban it entirely last year, Bush did all he could to keep torture alive as a program, succeeded, and then planned on running a campaign boasting of his aggressive treatment of military detainees. He has done everything to push the actual blame for torture on military grunts, rather than on the civilians who authorized and directed them. In fact, he got the GOP to pass a law retroactively immunizing him from legal culpability for torture in the last days of the last Congress. If he is prepared to do all this, then, sorry, Mr. Buckley, but you need to wake up.

If Bush is willing to take responsibility for toppling Saddam - and to dress up in military uniform and land on an aircraft carrier for good measure - then he must take full responsibility for torture and for the appalling treatment of injured vets at home. He cannot have it both ways. Either he is commander-in-chief or he isn't. You don't get to be commander-in-chief for all the good times; and have someone else take the responsibility for the bad ones. Your daddy isn't going to let you off the hook, any more Dubya. Get that?

But Buckley asks a deeper, more interesting question. Bush authorized and endorsed torture. That much is indisputable. But did he actually fully realize what he was doing? He is certainly shallow enough to authorize torture and not fully grapple with what that means. The man is a master in denial. And he is deeply, deeply morally lazy. This is a guy who could laugh and mock a woman he was about to execute. Remember that? He makes his cut-throat mother look compassionate.

Did he wrestle long and hard with the question and decide that allowing torture was a terrible thing but he had no choice to protect American lives? Or did he just say "fine," do what you have to do, and move on? I suspect the latter. Occasionally his glib callowness still has the capacity to shock, even after all these years. His dry-drunk capacity for utter denial of reality - especially about his own moral complicity in torture and the deaths of thousands of innocents in Iraq - renders him immune from taking moral responsibility. For anything.

That's what fundamentalism can do to a person: it can so convince you that you are on the side of absolute good that you do not even stop to imagine that you are also capable of absolute evil. But Bush has been capable of absolute evil. His glib, lazy hands are covered in the blood of others, and he has tainted the honor of his office and the military more deeply than any president in modern times. But he is saved, isn't he? And the saved cannot do evil, can they?

Friday, March 02, 2007

Macaulay on James II

From The Reality-Based Community

Macaulay on James II:

The obstinate and imperious nature of the King gave great advantages to those who advised him to be firm, to yield nothing, and to make himself feared. One state maxim had taken possession of his small understanding, and was not to be dislodged by reason.

To reason, indeed, he was not in the habit of attending. His mode of arguing, if it is to be so called, was one not uncommon among dull and stubborn persons, who are accustomed to be surrounded by their inferiors. He asserted a proposition; and, as often as wiser people ventured respectfully to show that it was erroneous, he asserted it again, in exactly the same words, and conceived that, by doing so, he at once disposed of all objections.

History of England, Vol. I, Chap. 6, "The King's Temper and Opinions," p. 569 of the Edinburgh Edition.