Tuesday, July 27, 2010

Early Returns on ObamaCare Are Disappointing

Early Returns on ObamaCare Are Disappointing

by Michael D. Tanner

Obamacare was conceived around three goals: (1) provide health insurance coverage for all Americans; (2) reduce insurance costs for individuals, businesses, and government; and (3) in crease the quality of health care and the value received for each dollar of health care spending.

Just over 100 days after the law was signed, the evidence shows it is failing on each and every one of those goals.

Supporters also promised that the legislation would not increase the federal budget deficit or unduly burden the economy. And, of course, we were repeatedly promised that "if you like your health care plan, you'll be able to keep your health care plan, period." On these grounds too, the Patient Protection and Affordable Care Act is failing.

The legislation comes closest to success on the issue of expanding insurance coverage.

It is becoming increasingly clear that millions of Americans will not be able to keep their current coverage.

Millions more Americans will indeed receive coverage under the law — mostly through an expansion of subsidies and other government programs, with nearly half of the newly insured coming through the troubled Medicaid program. Thus, how much the law expands access to private insurance is still an open question. And still, at least 21 million Americans will be uninsured by 2019. The new law is therefore an improvement over the status quo — but a surprisingly modest one.

The law also makes some modest insurance reforms that will prohibit some of the industry's more unpopular practices. However, those changes will come at the price of increased insurance costs, especially for younger and healthier individuals, and reduced consumer choice.

Meanwhile, the legislation is a disaster when it comes to controlling costs.

The administration's own chief health care actuary reports that the law will actually increase U.S. health care spending. Accurately measured, the Patient Protection and Affordable Care Act will cost more than $2.7 trillion over its first 10 years of full operation. This does not even include more than $4.3 trillion in costs shifted to businesses, individuals, and state governments.

It is not just government that will face higher costs under this law. In fact, most American workers and businesses will see little or no change in their skyrocketing insurance costs, while millions of others — including younger and healthier workers and those who buy insurance on their own through the nongroup market — will see their premiums go up even faster under the legislation.

Before health care reform passed, the Congressional Budget Office warned that health insurance premiums could double in the next six years. As a result of this bill, CBO's latest analysis warns that health insurance premiums will ... double in the next six years.

Individuals who purchase insurance on their own could see their premiums rise 13 percent faster than if the legislation had never passed. According to the RAND Corp., younger and healthier Americans could see an increase in their premiums of 17 percent. Other studies put that increase even higher.

It is also becoming increasingly clear that millions of Americans will not be able to keep their current coverage.

Seniors with Medicare Advantage and workers with health savings accounts are the most likely to be forced out of their current plans. A leaked administration memorandum warns that more than two-thirds of companies could be forced to change their current coverage. For small businesses, the total could reach 80 percent.

The law's individual mandate continues to pose an especial threat to people being able to keep their current coverage. Even if consumers are perfectly happy with their current coverage, strict government requirements under Obamacare will eventually shut down many of the plans now available.

All of this represents an enormous price to pay in exchange for the law's small increases in insurance coverage.

Opponents of this bill warned that it represents a fundamental shift in the debate over how to reform health care. It rejects consumer-oriented reforms in favor of a top-down, command-and-control, government-imposed solution. It sets the stage for potentially increased government involvement, and raises the specter, ultimately, of a government-run single-payer system down the road.

But increasingly, the evidence suggests that it is a failure even by the standards of its supporters.

Our Big-Government War on Terror

Our Big-Government War on Terror

by Gene Healy

Guess what happens when you combine a crisis atmosphere with a gusher of federal funds? You get a dangerous, wealth-gobbling bureaucracy that fails to achieve its ostensible goal, whether that's better health care, ending drug abuse — or uncovering terrorist threats.

That's the lesson of "Top Secret America," last week's high-profile Washington Post series on the post-9/11 "Intelligence-Industrial Complex."

You'd think a classic story of government overreach and incompetence would resonate with conservatives, but their reaction was mostly muted and dismissive.

Our interminable war on terror sometimes seems designed to justify every bad thing libertarians have ever said about government.

Though conservatives generally appreciate libertarian insights about bureaucracy's self-perpetuating nature, and the risks of special-interest capture and abuse of power, they have a blind spot when it comes to national security.

It's the state's duty to protect Americans from foreign threats, but, as erstwhile libertarian Jim Henley cautions, "it's still the state when it does those things."

And how. The Post series demonstrates that our metastasizing counterterrorism bureaucracy displays every pathology conservatives decry in our bloated welfare state:

  • Uncontrollable growth? Check. The Post documents more than 1,200 homeland security agencies filling up nearly three Pentagons of new office space since 9/11.
  • Special-interest rent-seeking? Check. Counterterrorism's "a jobs program," where companies court the feds by hosting conferences with "Margaritaville 'socials' " and free back rubs. Defense Secretary Robert Gates offers "a terrible confession": "I can't get a number on how many contractors work" for DoD.
  • Bureaucratic empire-building? Check. Every homeland security poohbah fights for an armed security detail and a secure "SCIF" room ("sensitive compartmentalized information facility"). It's "penis envy," one source explains, "You can't be a big boy" without "a big SCIF."
  • Central planners frustrated by the problem of dispersed knowledge? Check. "I'm not going to live long enough to be briefed on everything," laments one "Super-User" (the moniker for feds with platinum info access). President Obama's nominee for national intelligence director admits that only "God" can comprehend the numberless post-9/11 intel programs (think of Him as the ultimate "Super-User").

The system vomits up some "50,000 intelligence reports each year — a volume so large that many are routinely ignored." Details about December's "underwear bomber" vanished amid that morass. In the needle-in-haystack fight to ferret out terrorists, we've wasted billions building a bigger haystack.

Our interminable war on terror sometimes seems designed to justify every bad thing libertarians have ever said about government. For example, it's uncontested that the Bush administration's "enhanced interrogation" techniques came from a training program adopted after Chinese communists tortured U.S. soldiers captured in Korea.

Morality aside, it's almost impossible to imagine a dumber basis for fighting terror than adopting communist tactics designed to elicit false confessions. ... Unless it's the Hayekian nightmare of spending a trillion dollars and more than 5,000 American lives trying to create law-governed liberal democracies via military fiat.

Gene Healy is a vice president at the Cato Institute and the author of The Cult of the Presidency.

More by Gene Healy

Yet, it's usually liberals who report these tales of federal idiocy, and conservatives who resent them for it. "The Washington Post finds waste-in government!" Mona Charen snarks about "Top Secret America." "They seem much less curious" about waste and abuse elsewhere in government. A fair point, but one that cuts both ways.

Public-choice economist and Nobel laureate James Buchanan called his approach "politics without romance." Liberals romanticize government in every area other than law enforcement and defense, to which they apply a healthy skepticism. Conservatives suffer a mirror-image version of that myopia. They're incurable romantics when it comes to generals, policemen or spies.

At its best, the Tea Party movement seems to promise a more consistent anti-statism. Let's hope so, because Big Government doesn't become any more competent or less threatening when it moves from health care to counterterrorism.

Should the Fed Pump Even More?

Should the Fed Pump Even More?

Mises Daily: by

Some Fed officials and various commentators, such as Professor Paul Krugman, are of the view that the US central bank should be ready to consider additional steps to boost the US economy in the wake of a visible softening in key economic data. For instance, the yearly rate of growth of retail sales, after climbing to 8.5% in March, have fallen to 4.8% in June. The ISM manufacturing purchasing manager's index (PMI) fell to 56.2 last month from 59.7 in May.

Figure 1
Figure 2

The housing market also shows visible weakening. The growth momentum of new home sales has plunged in May. The yearly rate of growth of sales fell to -18.3% in May from 30.8% in April. The growth momentum of housing starts also displays a visible decline. Year-on-year the rate of growth fell to 7.8% in May from 38.2% in the month before. Furthermore, in the week ending July 9, demand for loans to purchase homes, as depicted by the mortgage purchase index, fell 3.1% to 163.3, the lowest level since December 1996.

Figure 3
Figure 4

In his articles in the New York Times on the June 27 and July 11, professor Paul Krugman warns that without a dramatic fiscal and monetary stimulus the US economy is running the risk of falling into a prolonged depression.

According to Krugman things were different in 2008–2009:

In 2008 and 2009, it seemed as if we might have learned from history. Unlike their predecessors, who raised interest rates in the face of financial crisis, the current leaders of the Federal Reserve and the European Central Bank slashed rates and moved to support credit markets. Unlike governments of the past, which tried to balance budgets in the face of a plunging economy, today's governments allowed deficits to rise. And better policies helped the world avoid complete collapse: the recession brought on by the financial crisis arguably ended last summer.[1]

Despite the stimulus, which Krugman labels as good policy, this wasn't sufficient to erase the still-enormous unemployment levels. Hence Krugman's view that more stimulus is required. Unfortunately, argues our New York Times columnist, policy makers are currently moving away from sound policies.

Around the world … Governments are obsessing about inflation when the real threat is deflation, preaching the need for belt-tightening when the real problem is inadequate spending.[2]

Krugman maintains that the current move towards more conservative policies, which he labels as hard-money and balanced-budget orthodoxy, has little to do with rational analysis. According to our professor, this type of thinking will lead to another economic depression and massive unemployment,

And who will pay the price for this triumph of orthodoxy? The answer is, tens of millions of unemployed workers, many of whom will go jobless for years, and some of whom will never work again.[3]

In the face of a weakening in the rate of growth of various price indexes, Krugman holds that the Fed should act swiftly to prevent the economy falling into a deflationary black hole.

Mr. Bernanke's "it" isn't a hypothetical possibility, it's on the verge of happening. And the Fed should be doing all it can to stop it.[4]

Keynesian Ideas Can Only Make Things Much Worse

Following in the footsteps of John Maynard Keynes, most economists — and Krugman in particular — hold that one cannot have complete trust in a market economy, which they see as inherently unstable. If left free, the market economy could self-destruct. Hence there is the need for governments and central banks to manage the economy. In the Keynesian framework, successful management of the economy depends on influencing the overall level of spending. It is spending that generates income. Spending by one individual becomes income for another individual, according to the Keynesian framework.

Hence the more that is spent the better it is going to be. What drives the economy then is spending. If during a recession consumers fail to spend, then it is the role of the government to step in and boost overall spending in order to grow the economy.

In the Keynesian framework of thinking, the output that an economy can generate with a given pool of resources — i.e., labor, tools, and machinery — and a given level of technology, without causing inflation, is labeled "potential output." Hence the greater the pool of resources, all other things being equal, the more output can be generated.

If for whatever reasons the demand for the produced goods is not strong enough, this leads to an economic slump. The inadequate demand for goods leads to only a partial use of existing labor and capital goods.

In this framework then, it makes a lot of sense to boost government spending in order to strengthen demand and eliminate the economic slump.

What is missing in this story is the question of funding. For instance, a baker produces ten loaves of bread and exchanges them for a pair of shoes with a shoemaker. In this example, the baker funds the purchase of the shoes by producing ten loaves of bread.

Note that the bread maintains the shoemaker's life and well-being. Likewise the shoemaker has funded the purchase of bread by means of shoes that maintain the baker's life and well-being.

Now, let us say the baker has decided to build another oven in order to increase the production of bread. In order to implement his plan, the baker hires the services of the oven maker.

He pays the oven maker with some of the bread he is producing. Again what we have here is a set-up where the building of the oven is funded by the production of a final consumer good, bread. If, for whatever reason, the flow of bread production is disrupted, the baker would not be able to pay the oven maker. As a result, the making of the oven would have to be aborted.

From this simple example we can infer that what matters for economic growth is not just the existing stock of tools and machinery and the pool of labor, but an adequate flow of final goods and services that maintain individuals' lives and well-being.

Now, even if we were to accept the Keynesian framework that the potential output is above actual output, it doesn't follow that the increase in government outlays and loose monetary policy will lead to an increase in the economy's actual output.

It is not possible to lift overall production without the necessary support from final goods and services or from the flow of real funding or the flow of real savings. (For instance, out of the production of ten loaves of bread if the baker consumes two loaves, his real saving or real funding is eight loaves.)

We have seen that by means of a final consumer good — the bread — the baker was able to fund the expansion of his production structure.

Similarly, other producers must have saved final real consumer goods — real savings — to fund the purchase of the goods and services they require. Note that the introduction of money doesn't alter the essence of what funding is. Money is just a medium of exchange. It is only used to facilitate the flow of goods, it cannot replace the final consumer goods.

The government as such doesn't create any real wealth, so how can an increase in government outlays revive the economy? Various individuals who are employed by the government expect compensation for their work. The only way it can pay these individuals is by taxing others who are still generating real wealth. By doing this the government weakens the wealth-generating process and undermines prospects for economic recovery. (We ignore here borrowings from foreigners.)

"Contrary to Krugman and other commentators, we suggest that the best economic policy for the Fed and the government is to do nothing as soon as possible."

The only way fiscal and monetary stimulus could "work" is if the flow of real savings (i.e., real funding) is large enough to support (i.e., fund) government activities and activities that sprang up on the back of loose-monetary policy while still permitting a positive rate of growth in the activities of real-wealth generators. (Note that the overall increase in real economic activity is in this case erroneously attributed to the loose fiscal and monetary policies.)

If however the flow of real savings is falling, then, regardless of any increase in government outlays and monetary pumping overall, real economic activity cannot be revived. In this case, the more the government spends and the more the central bank pumps, the more will be taken from wealth generators — thereby weakening any prospects for a recovery.

When loose monetary and fiscal policies divert bread from the baker, he will have less bread at his disposal. Consequently the baker will not be able to secure the services of the oven maker. As a result, it will not be possible to boost the production of bread, all other things being equal.

As the pace of loose policies intensifies, a situation could emerge whereby the baker will not have enough bread to even maintain the workability of the existing oven. (For instance, the baker might not have enough bread to pay for the services of a technician to maintain the existing oven in good shape.) Consequently, his production of bread will actually decline.

Similarly, other wealth generators, as a result of the increase in government outlays and monetary pumping, will have less real funding at their disposal. This in turn will hamper the production of their goods and services and will retard — not promote — overall real economic growth.

As one can see, not only does the increase in loose fiscal and monetary policies fail to raise overall output, but on the contrary it leads to a weakening in the process of wealth generation in general. According to Ludwig von Mises,

there is need to emphasize the truism that a government can spend or invest only what it takes away from its citizens and that its additional spending and investment curtails the citizens' spending and investment to the full extent of its quantity. [5]

Money Supply and Economic Indicators

The so-called economic recovery, which Krugman and most commentators attribute to the success of loose fiscal and monetary policies during 2008–2009, is just a reflection of monetary pumping by the Fed.

Year on year, the rate of growth of the Fed's balance sheet (monetary pumping) climbed to 152.8% in December 2008 from 1.5% in February 2008. The pace of pumping remained very high during 2009, hovering at 125% from January to September. As a result, the yearly rate of growth of our monetary measure for the United States jumped to almost 33% in November 2008. From December 2008 to September 2009, the yearly rate of growth of AMS hovered at around 22%.

"Since most economic indicators reflect monetary expenditure, obviously the stronger the monetary pumping is, the stronger most economic indicators become."

Since most economic indicators reflect monetary expenditure, obviously the stronger the monetary pumping is, the stronger most economic indicators become. This of course means that the expansion of various economic indicators reflects a weakening in the process of real-wealth formation. Yet most commentators, including Krugman, label monetary-driven expansion a good thing. (Note that this expansion is labeled "economic recovery.")

From this we can infer that a decline in the pace of pumping since September last year is behind the current decline of the rate of growth in various economic indicators. The decline in the rate of expansion slows down the rate of damage to the process of real-wealth formation. Hence the slowdown in the expansion should be regarded as good news for the economy. (Note that there is a variable time lag between changes in the monetary expansion and changes in various economic indicators.) The yearly rate of growth of Fed's balance sheet and AMS stood at 13.7% and 2.3% respectively in June.

Obviously the Fed can accelerate the pace of pumping by embarking on a very aggressive buying of assets. This pumped money, however, is unlikely to enter the economy as long as commercial-bank lending remains depressed. (We ignore the case of the Fed buying assets directly from nonbanks.) Now, even if pumped money enters the economy, it will only undermine further the process of real-wealth formation and make the already bad economic environment much worse.

The fact that banks are reluctant to go full ahead with the expansion of credit is indicative that the pool of real savings is in trouble; after all, the essence of credit is the lending of real savings. Lending is a transfer of real savings from a lender to a borrower by means of the medium of exchange, i.e., money.

The existence of banks enhances the use of real savings. By fulfilling the role of middleman, banks make it easier for a lender to find a borrower. When a bank lends money, it in fact provides the borrower with the medium of exchange that can be employed to secure the real stuff that is required to maintain people's lives and well-beings.

It is therefore futile to urge banks (as various commentators including Bernanke and Krugman are doing) to lend more if real savings are not there. If the banks are forced to expand lending while the pool of real savings is declining, this would mean that they have to expand credit "out of thin air." Needless to say, inflationary credit can only make things much worse.

Why Economic Cleansing Promotes Economic Growth

The conventional thinking headed by Krugman presents economic adjustment — "economic recession" — as something terrible, even the end of the world. In fact, economic adjustment is not menacing or terrible; from an economic point of view, it is nothing more than a time when scarce resources are reallocated in accordance with consumers' priorities.

Allowing the market to do the allocation always leads to better results. Even the founder of the Soviet Union, Vladimir Lenin, understood this when he introduced the market mechanism for a brief period in March 1921 to restore the supply of goods and prevent economic catastrophe. Yet for some strange reason, most experts these days cling to the view that the market cannot be trusted in difficult times.

"If central bankers and government bureaucrats can fix things in difficult times, why not in good times too? Why not have a fully controlled economy to fix all the problems forever?"

If central bankers and government bureaucrats can fix things in difficult times, why not in good times too? Why not have a fully controlled economy to fix all the problems forever? The collapse of the Soviet Union's centralized system is the best testimony one can have that controls don't work. A better way to fix economic problems is to allow entrepreneurs the freedom to allocate resources in accordance with people's priorities. In this sense, the best stimulus plan is to allow the market mechanism to operate freely. Allowing the market to do the job will result in some activities disappearing altogether, and other activities in fact expanding.

Take, for instance, a company that has six profitable activities and four losing activities. The management of the company concludes that the four losing activities must go. To keep them alive is a threat to the survival of the company; these activities rob scarce funding from profitable activities. Once the losing activities are shut down, the released funding can now be employed to strengthen the winning activities. The management can also decide to use some of the released funding to acquire some other profitable activities. This is precisely what the government and central-bank stimulus policies prevent from happening.

Loose fiscal and monetary policies are not going to rescue the economy; they will only rescue activities that the economy cannot afford and that consumers do not want. These policies will sustain waste and promote inefficiency, draining resources from growth and efficiency. Remember: government is not a wealth generator; it can only take resources from A and give them to B.

Why Doing Nothing Is the Best Policy to Revive the Economy

Contrary to Krugman and other commentators, we suggest that the best economic policy for the Fed and the government is to do nothing as soon as possible. By doing nothing, the Fed will enable wealth generators to accumulate real savings. The policy of doing nothing will force those activities that add nothing to the pool of real savings to disappear. This will make the life of wealth generators much easier. As time goes by, the expanding pool of real savings will set a platform for the further expansion of various wealth-generating activities. So the sooner the Fed and the government stop tampering, the sooner an economic recovery will emerge.

We suggest that decades of reckless monetary and fiscal policies have severely depleted the pool of real savings. So, again, more of the loose policies cannot make the current situation better. On the contrary, such policies only further delay the economic recovery. Hence, contrary to Krugman, we can suggest that a move toward greater conservatism is a step in the right direction.

Also contrary to Krugman, the unemployment rate could be lowered rather quickly if the labor market were freed. What is required, however, is not the lowering of unemployment as such but the creation of an environment where individuals can earn incomes that will enable them to lift their living standards. The key for such an environment is to stop sabotaging the process of real-wealth generation by means of loose policies.


Contrary to Krugman and other mainstream economists, neither the Fed nor the government's loose monetary and fiscal policies can cause an expansion in the pool of real savings. In fact, loose policies only weaken the process of real-wealth formation, thereby weakening prospects for a sustained economic expansion.

If loose monetary and fiscal policies could have been instrumental for economic growth, then by now all the poverty in the world would have been eradicated. The only reason why loose monetary and fiscal policies have ever appeared to be effective is because the pool of real savings was expanding. However, once this pool becomes stagnant or declining, the illusion of the effectiveness of loose monetary and fiscal policies is shattered. The more aggressive the fiscal- and monetary-policy stance is, the worse the economic conditions become.

Now, if the pool of real savings is still OK, then there is no need for Krugman's policies to revive the economy — the pool will do it. If the pool is in trouble, Krugman's policies will only make things much worse, and we could end up in a prolonged economic depression. The best policy is to do nothing.

Trotsky: The Ignorance and the Evil

Trotsky: The Ignorance and the Evil

Mises Daily: by

[Leon Trotsky • By Irving Howe • Viking Press, 1978 • 214 pages. This review originally appeared in Libertarian Review, March 1979.]

Leon Trotsky (1879-1940)

Leon Trotsky has always had a certain appeal for intellectuals that the other Bolshevik leaders lacked. The reasons for this are clear enough. He was a writer, an occasional literary critic — according to Irving Howe, a very good one — and an historian (of the revolutions of 1905 and 1917). He had an interest in psychoanalysis and modern developments in physics, and, even when in power, suggested that the new Communist thought-controllers shouldn't be too harsh on writers with such ideas — not exactly a Nat Hentoff position on freedom of expression, but about as good as one can expect among Communists.

Above all, Trotsky was himself an intellectual, and one who played a great part in what many of that breed have considered to be the real world — the world of revolutionary bloodshed and terror. He was second only to Lenin in 1917; in the Civil War he was the leader of the Red Army and the Organizer of Victory. As Howe says, "For intellectuals throughout the world there was something fascinating about the spectacle of a man of words transforming himself through sheer will into a man of deeds."

Trotsky lost out to Stalin in the power struggle of the 1920s, and in exile became a severe and knowledgeable critic of his great antagonist; thus, for intellectuals with no access to other critics of Stalinism — classical liberal, anarchist, or conservative — Trotsky's writings in the 1930s opened their eyes to some aspects at least of the charnel-house that was Stalin's Russia. During the period of the Great Purge and the Moscow show trials, Trotsky was placed at the center of the myth of treason and collaboration with Germany and Japan that Stalin spun as a pretext for eliminating his old comrades. In 1940, an agent of the Soviet secret police, Ramon Mercador, sought Trotsky out at his home in Mexico City and killed him with an ice ax to the head.

Irving Howe, the distinguished literary critic and editor of Dissent, tells the story of this interesting life with great lucidity, economy, and grace. The emphasis is on Trotsky's thought, with which Howe has concerned himself for almost the past 40 years. As a young man, he states, "I came for a brief time under Trotsky's influence, and since then, even though or perhaps because I have remained a socialist, I have found myself moving farther and farther away from his ideas."

Howe is in fact considerably more critical of Trotsky than I had expected. He identifies many of Trotsky's crucial errors, and uses them to cast light on the flaws in Marxism, Leninism, and the Soviet regime that Trotsky contributed so much to creating. And yet there is a curious ambivalence in the book. Somehow the ignorance and evil in Trotsky's life are never allowed their full weight in the balance, and, in the end, he turns out to be, in Howe's view, a hero and "titan" of the 20th century. It's as if Howe had chosen not to think out fully the moral implications of what it means to have said and done the things that Trotsky said and did.

We can take as our first example Howe's discussion of the final outcome of Trotsky's political labors: the Bolshevik revolution and the Soviet regime. Throughout this book Howe makes cogent points regarding the real class character of this regime and other Communist governments — which, he notes, manifested itself very early on:

A new social stratum — it had sprung up the very morning of the revolution — began to consolidate itself: the party-state bureaucracy which found its support in the technical intelligentsia, the factory managers, the military officials, and, above all, the party functionaries…. To speak of a party-state bureaucracy in a country where industry has been nationalized means to speak of a new ruling elite, perhaps a new ruling class, which parasitically fastened itself upon every institution of Russian life. [emphasis in original]

Howe goes on to say that it was not to be expected that the Bolsheviks themselves would realize what they had done and what class they had actually raised to power: "It was a historical novelty for which little provision had been made in the Marxist scheme of things, except perhaps in some occasional passages to be found in Marx's writings about the distinctive social character of Oriental despotism."

This is not entirely correct. Howe himself shows how Trotsky, in his book 1905 (a history of the Russian revolution of that year), had had a glimpse of this form of society, one in which the state bureaucracy was itself the ruling class. In analyzing the Tsarist regime, Trotsky had picked up on the strand of Marxist thought that saw the state as an independent parasitic body, feeding on all the social classes engaged in the process of production. This was a view that Marx expressed, for instance, in his Eighteenth Brumaire of Louis Bonaparte.

More importantly, the class character of Marxism itself — as well as the probable consequences of the coming to power of a Marxist Party had been identified well before Trotsky's time. The great 19th-century anarchist Michael Bakunin — whose name does not even appear in Howe's book, just as not a single other anarchist is even mentioned anywhere in it — had already subjected Marxism to critical scrutiny in the 1870s. In the course of this, Bakunin had uncovered the dirty little secret of the future Marxist state:

The State has always been the patrimony of some privileged class or other; a priestly class, an aristocratic class, a bourgeois class, and finally a bureaucratic class…. But in the People's State of Marx, there will be, we are told, no privileged class at all … but there will be a government, which will not content itself with governing and administering the masses politically, as all governments do today, but which will also administer them economically, concentrating in its own hands the production and the just division of wealth, the cultivation of land, the establishment and development of factories, the organization and direction of commerce, finally the application of capital to production by the only banker, the State. All that will demand an immense knowledge and many "heads overflowing with brains" in this government. It will be the reign of scientific intelligence, the most aristocratic, despotic, arrogant, and contemptuous of all regimes. There will be a new class, a new hierarchy of real and pretended scientists and scholars. [Emphasis added.]

This perspective was taken up somewhat later by the Polish-Russian revolutionist, Waclaw Machajski, who held, in the words of Max Nomad, that — "nineteenth century socialism was not the expression of the interests of the manual workers but the ideology of the impecunious, malcontent, lower middle-class intellectual workers … behind the socialist 'ideal' was a new form of exploitation for the benefit of the officeholders and managers of the socialized state."

Thus, that Marxism in power would mean the rule of state functionaries was not merely intrinsically probable — given the massive increment of state power envisaged by Marxists, what else could it be? — but it had also been predicted by writers well known to a revolutionary like Trotsky. Trotsky, however, had not permitted himself to take this analysis seriously before committing himself to the Marxist revolutionary enterprise. More than that: "To the end of his days," as Howe writes, he "held that Stalinist Russia should still be designated as a 'degenerated workers' state' because it preserved the nationalized property forms that were a 'conquest' of the Russian Revolution" — as if nationalized property and the planned economy were not the very instruments of rule of the new class in Soviet Russia!

"It may well be, that is, that the Bolsheviks had never had the slightest idea of what their aims would mean concretely for the economic life of Russia, how those aims would of necessity have to be implemented, or what the consequences would be."

It remained for some of Trotsky's more critical disciples, especially Max Shachtman in the United States, to point out to their master what had actually happened in Russia: that the Revolution had not produced a "workers' State," nor was there any danger that "capitalism" would be restored, as Trotsky continued to fret it would. Instead, there had come into an existence in Russia a "bureaucratic collectivism" even more reactionary and oppressive than what had gone before.

Trotsky rejected this interpretation. In fact he had no choice. For, as Howe states, the dissidents "called into question the entire revolutionary perspective upon which [Trotsky] continued to base his politics…. There was the further possibility, if Trotsky's critics were right, that the whole perspective of socialism might have to be revised." Indeed.

To his credit, Howe recognizes that a key period for understanding Bolshevism, including the thought of Trotsky, is the period of war communism, from 1918 to 1921. As he describes it, "Industry was almost completely nationalized. Private trade was banned. Party squads were sent into the countryside to requisition food from the peasants." The results were tragic on a vast scale. The economic system simply broke down, with all the immense suffering and all the countless deaths from starvation that such a small statement implies. As Trotsky himself later put it, "The collapse of the productive forces surpassed anything of the kind that history had ever seen. The country, and the government with it, were at the very edge of the abyss."

How had this come about? Here Howe follows the orthodox interpretation: War communism was merely the product of emergency conditions, created by the Revolution and the Civil War. It was a system of "extreme measures [which the Bolsheviks] had never dreamt of in their earlier programs."

Now, this last may be, strictly speaking, correct. It may well be, that is, that the Bolsheviks had never had the slightest idea of what their aims would mean concretely for the economic life of Russia, how those aims would of necessity have to be implemented, or what the consequences would be.

But war communism was no mere "improvisation," whose horrors are to be chalked up to the chaos in Russia at the time. The system was willed and itself helped produce that chaos. As Paul Craig Roberts has argued in his brilliant book Alienation and the Soviet Economy, war communism was an attempt to translate into "Reality" the Marxist ideal: the abolition of "commodity production," of the price system and the market.

This, as Roberts demonstrates, was what Marxism was all about. This is what the end of "alienation" and the final liberation of mankind consisted in. Why should it be surprising that when self-confident and determined Marxists like Lenin and Trotsky seized power in a great nation, they tried to put into effect the very policy that was their whole reason for being?

As evidence for this interpretation, Roberts quotes Trotsky himself (ironically, from a book of Trotsky's writings edited by Irving Howe):

[T]he period of so-called "war communism" [was a period when] economic life was wholly subjected to the needs of the front … it is necessary to acknowledge, however, that in its original conception it pursued broader aims. The Soviet government hoped and strove to develop these methods of regimentation directly into a system of planned economy in distribution as well as production. In other words, from "war communism" it hoped gradually, but without destroying the system, to arrive at genuine communism … reality, however, came into increasing conflict with the program of "war communism." Production continually declined, and not only because of the destructive action of the war.

Roberts goes on to quote Victor Serge: "The social system of those years was later called 'War Communism.' At the time it was called simply 'Communism' … Trotsky had just written that this system would last over decades if the transition to a genuine, unfettered Socialism was to be assured. Bukharin … considered the present mode of production to be final."

One slight obstacle was encountered, however, on the road to the abolition of the price system and the market: "Reality," as Trotsky noted, "came into increasing conflict" with the economic "system" that the Bolshevik rulers had fastened on Russia. After a few years of misery and famine for the Russian masses — there is no record of any Bolshevik leader having died of starvation in this period — the rulers thought again, and a New Economic Policy (NEP) — including elements of private ownership and allowing for market transactions — was decreed.

The significance of all this cannot be exaggerated. What we have with Trotsky and his comrades in the Great October Revolution is the spectacle of a few literary-philosophical intellectuals seizing power in a great country with the aim of overturning the whole economic system — but without the slightest idea of how an economic system works. In State and Revolution, written just before he took power, Lenin wrote,

The accounting and control necessary [for the operation of a national economy] have been simplified by capitalism to the utmost, till they have become the extraordinarily simple operations of watching, recording and issuing receipts, within the reach of anybody who can read and write and knows the first four rules of arithmetic.

With this piece of cretinism Trotsky doubtless agreed. And why wouldn't he? Lenin, Trotsky, and the rest had all their lives been professional revolutionaries, with no connection at all to the process of production and, except for Bukharin, little interest in the real workings of an economic system. Their concerns had been the strategy and tactics of revolution and the perpetual, monkish exegesis of the holy books of Marxism.

The nitty-gritty of how an economic system functions — how, in our world, men and women work, produce, exchange, and survive — was something from which they prudishly averted their eyes, as pertaining to the nether-regions. These "materialists" and "scientific socialists" lived in a mental world where understanding Hegel, Feuerbach, and the hideousness of Eugen Duehring's philosophical errors was infinitely more important than understanding what might be the meaning of a price.

Of the actual operations of social production and exchange they had about the same appreciation as John Henry Newman or, indeed, St. Bernard of Clairvaux. This is a common enough circumstance among intellectuals; the tragedy here is that the Bolsheviks came to rule over millions of real workers, real peasants, and real businessmen.

Howe puts the matter rather too sweetly: once in power, he says, "Trotsky was trying to think his way through difficulties no Russian Marxist had quite foreseen." And what did the brilliant intellectual propose as a solution to the problems Russia now faced? "In December 1919 Trotsky put forward a series of 'theses' [sic] before the party's Central Committee in which he argued for compulsory work and labor armies ruled through military discipline…."

So, forced labor, and not just for political opponents, but for the Russian working class. Let Daniel and Gabriel Cohn-Bendit, the left-anarchists from the May days of 1968 in Paris, take up the argument:

"Was it so true," Trotsky asked, "that compulsory labor was always unproductive?" He denounced this view as "wretched and miserable liberal prejudice," learnedly pointing out that "chattel slavery, too, was productive" and that compulsory serf labor was in its times "a progressive phenomenon." He told the unions [at the Third Congress of Trade Unions] that "coercion, regimentation, and militarization of labor were no mere emergency measures and that the workers' State normally had the right to coerce any citizen to perform any work at any place of its choosing."

And why not? Hadn't Marx and Engels, in their ten-point program for revolutionary government in The Communist Manifesto, demanded as point eight, "Equal liability for all to labor. Establishment of industrial armies, especially for agriculture"? Neither Marx nor Engels ever disavowed their claim that those in charge of "the workers' state" had the right to enslave the workers and peasants whenever the need might arise. Now, having annihilated the hated market, the Bolsheviks found that the need for enslavement had, indeed, arisen. And of all the Bolshevik leaders, the most ardent and aggressive advocate of forced labor was Leon Trotsky.

There are other areas in which Howe's critique of Trotsky is not penetrating enough, in which it turns out to be altogether too soft-focused and oblique. For instance, he taxes Trotsky with certain philosophical contradictions stemming from his belief in "historical materialism." All through his life, Howe asserts, Trotsky employed "moral criteria by no means simply derived from or reducible to class interest. He would speak of honor, courage, and truth as if these were known constants, for somewhere in the orthodox Marxist there survived a streak of nineteenth century Russian ethicism, earnest and romantic."

Let us leave aside the silly implication that there is something "romantic" about belief in ethical values, as against the "scientific" character of orthodox Marxism. In this passage, Howe seems to be saying that adherence to certain commonly accepted values is, among Marxists, a rare kind of atavism on Trotsky's part. Not at all.

Of course historical materialism dismisses ethical rules as nothing more than the "expression," or "reflection," or whatever, of "underlying class relationships" and, ultimately, of "the material productive forces." But no Marxist has ever taken this seriously, except as pretext for breaking ethical rules (as when Lenin and Trotsky argued in justification of their terror). Even Marx and Engels, in their "Inaugural Address of the First International," wrote that the International's foreign policy would be to "vindicate the simple laws of morals and justice [sic] which ought to govern the relations of private individuals, as the laws paramount of the intercourse of nations."

"War communism was no mere 'improvisation,' whose horrors are to be chalked up to the chaos in Russia at the time. The system was willed and itself helped produce that chaos."

That Trotsky admired honor, courage, and truth is not something that cries out for explanation by reference to Russian tradition of "ethicism" (whatever that might be). The admiration of those values is a part of the common heritage of us all. To think that there is a problem here that needs explaining is to take "historical materialism" much too seriously to begin with.

Similarly with other contradictions Howe thinks he has discovered between Trotsky's Marxist philosophy and certain statements Trotsky made in commenting on real political events. Of the Bolshevik Revolution itself, Trotsky says that it would have taken place even if he had not been in Petrograd, "on condition that Lenin was present and in command." Howe asks, "What happens to historical materialism?" The point Howe is making, of course, is that in the Marxist view individuals are not allowed to play any critical role in shaping really important historical events, let alone in determining whether or not they occur.

But the answer to Howe's question is that, when Trotsky commits a blunder like this, nothing happens. Nothing happens, because "historical materialism" was pretentious nonsense from the beginning, a political strategy rather than a philosophical position. Occasionally, in daubing in some of the light patches sky that are intended to up for the dark ones in Trotsky's life, Howe comes perilously close to slipping into a fantasy world.

He says that in the struggle with Stalin, Trotsky was at a disadvantage, because he "fought on the terrain of the enemy, accepting the damaging assumption of a Bolshevik monopoly of power." But why is this assumption located on the enemy's terrain? Trotsky shared that view with Stalin. He no more believed that a supporter of capitalism had a right to propagate his ideas than a medieval inquisitor believed in a witch's right to her own personal style. And as for the rights even of other socialists — Trotsky in 1921 had led the attack on the Kronstadt rebels, who merely demanded freedom for socialists other than the Bolsheviks. At the time, Trotsky boasted that the rebels would be shot "like partridges" — as, pursuant to his orders, they were.

Howe even stoops to trying a touch of pathos. In sketching the tactics Stalin used in the struggle with Trotsky, he speaks of "the organized harassment to which Trotskyist leaders, distinguished Old Bolsheviks, were subjected by hooligans in the employ of the party apparatus, the severe threats made against all within the party…." Really now — is it political violence used against Leon Trotsky and his "distinguished" followers that is supposed to make our blood run cold? No: if there was ever a satisfying case of poetic justice, the "harassment" and "persecution" of Trotsky — down to and including the ice ax incident — is surely it.

The best example of Howe's strange gentleness toward Trotsky I have for the last. What, when all is said and done, was Trotsky's picture of the Communist society of the future? Howe does quote from Trotsky's Literature and Revolution the famous, and ridiculous, last lines: "The average human type [Trotsky wrote] will rise to the heights of an Aristotle, a Goethe, or a Marx. And above this ridge new peaks will rise." He doesn't, however, tell us what precedes these lines — Trotsky's sketch of the future society, his passionate dream. Under Communism, Trotsky states, Man will

reconstruct society and himself in accordance with his own plan…. The imperceptible, ant-like piling up of quarters and streets, brick by brick, from generation to generation, will give way to the titanic construction of city-villages, with map and compass in hand…. Communist life will not be formed blindly, like coral islands, but will be built up consciously, will be erected and corrected…. Even purely physiologic life will become subject to collective experiments. The human species, the coagulated Homo sapiens, will once more enter into a state of radical transformation, and, in his own hands, will become an object of the most complicated methods of artificial selection and psycho-physical training…. [It will be] possible to reconstruct fundamentally the traditional family life…. The human race will not have ceased to crawl on all fours before God, kings and capital, in order later to submit humbly before the laws of heredity and sexual selection! … Man will make it his purpose … to create a higher social biological type, or, if you please, a superman.

"Man … his own plan … his purpose… his own hands." When Trotsky promoted the formation of worker-slave armies in industry, he believed that his own will was the will of the Proletarian Man. It is easy to guess whose will would stand in for that of Communist Man when the time came to direct the collective experiments on the physiological life, the complicated methods of artificial selection and psycho-physiological training, the reconstruction of the traditional family, the substitution of "something else" for blind sexual selection in the reproduction of human beings, and the creation of the superhuman.

This, then, is Trotsky's final goal: a world where mankind is "free" in the sense that Marxism understands the term — where all of human life, starting from the economics, but going on to embrace everything, even the most private and intimate parts of human existence — is consciously planned by "society," which is assumed to have a single will. And it is this — this disgusting positivist nightmare — that, for him, made all the enslavement and killings acceptable!

Surely, this was another dirty little secret that Howe had an obligation to let us in on.

Howe ends by saying of Trotsky that "the example of his energy and heroism is likely to grip the imagination of generations to come," adding that, "even those of us who cannot heed his word may recognize that Leon Trotsky, in his power and his fall, is one of the titans of our century."

This is the kind of writing that covers the great issues of right and wrong in human affairs with a blanket of historicist snow. The fact is that Trotsky used his talents to take power in order to impose his willful dream — the abolition of the market, private property, and the bourgeoisie. His actions brought untold misery and death to his country.

Yet, to the end of his life, he tried in every way he could to bring the Marxist revolution to other peoples — to the French, the Germans, the Italians — with what probable consequences, he, better than anyone else, had reason to know. He was a champion of thought-control, prison camps, and the firing squad for his opponents, and of forced labor for ordinary, nonbrilliant working people. He openly defended chattel slavery — which, even in our century, must surely put him into a quite select company.

He was an intellectual who never asked himself such a simple question as: "What reason do I have to believe that the economic condition of workers under socialism will be better than under capitalism?" To the last, he never permitted himself to glimpse the possibility that the bloody, bureaucratic tyranny over which Stalin presided might never have come into existence but for his own efforts.

A hero? Well, no thank you — I'll find my own heroes somewhere else. A titan of the 20th century? In a sense, yes. At least Leon Trotsky shares with the other "titans" of our century this characteristic: it would have been better if he had never been born.

The AfPak Papers

The AfPak Papers
The real story is how closely these documents reflect official views of the Afghan war.

We've long believed the U.S. government classifies too many documents as secret, and now we know for sure. How else to explain why Sunday's release of some 92,000 previously confidential documents reveals so little that we didn't already know about the war in Afghanistan? This document dump will only matter if it becomes an excuse for more of America's political class to turn against a war they once supported.

One news item we could find in the orchestrated rollout on WikiLeaks.org and three newspapers is that the Taliban have heat-seeking anti-aircraft missiles, perhaps even Stingers of the sort we gave the Afghan rebels to fight the Soviets in the 1980s. But even if they do have Stingers, the U.S. continues to dominate the skies and few U.S. aircraft have been shot down.

Another, more important, disclosure is how closely Iran has been working with the Taliban, as well as with al Qaeda and other Sunni extremists. This makes logical sense, given Iran's support for terrorists in Iraq and its general desire to chase America from the region. But the evidence should discredit those who think Tehran can be made peaceable by diplomatic entreaties.

Among the many nonscoops in the documents, we learn that war is hell, especially for infantry, and that sometimes troops make mistakes; that drone aircraft sometimes crash; that a forward U.S. base near the Pakistan border was ill-positioned to defend against Taliban attacks and had to be abandoned; and that many Afghan officials are corrupt and that Afghan troops flee often under fire. Any newspaper reader knew as much.

Far from being the Pentagon Papers redux, the larger truth is how closely the ground-eye view in these documents reinforces what U.S. officials were long saying: that the war wasn't going well, the Taliban were making gains, and a new and invigorated strategy was needed to combat them. Both the Bush and Obama Administrations made the same diagnosis in recent years, neither one kept it secret, and this year Mr. Obama followed through with an increase in troops levels and a renewed counterinsurgency.

The most politically explosive documents concern the conflicting loyalties of Pakistan's Directorate of Inter-Services Intelligence, or ISI. Nearly 200 reports allege that the Pakistani military intelligence arm is in cahoots with the Taliban, despite claiming to side with America. This is undoubtedly true but also no surprise.

The ISI helped the U.S. arm and organize the mujahideen against the Soviets, and it kept doing so to fill the Afghan power vacuum after America abandoned the region in the early 1990s. The reports released this week allege—often citing a single source or uncertain information—that the ISI helped train Afghan suicide bombers, plotted to poison beer slated for GIs, and schemed to assassinate President Hamid Karzai. It isn't clear how many of these plots were ever attempted, but there's no doubt that many Pakistanis doubt U.S. staying power, fear Indian influence in Afghanistan, and want to use the Taliban to shape events on their Western border.

Then again, we also know that Pakistan has shifted its behavior in a more pro-American direction in the last 14 months as the Taliban began to threaten Pakistan's own stability. Responding to a surge of terrorism against Pakistani targets, the Pakistani army has pushed Islamist insurgents from the Swat Valley and even South Waziristan. It has taken heavy casualties in the process. Islamabad now actively aids U.S. drone strikes against Taliban and al Qaeda leaders in the mountains along its Afghan border.

Pakistan can and should do more to pursue the terrorist enclaves along the border, as well as in Quetta and Karachi. The question is what's the best way to persuade their leaders to act. U.S.-Pakistan cooperation has been one of the Obama Administration's foreign policy successes, and it would be a tragedy if the leak of selective documents, often out of context, would now poison that cooperation.

Pakistan's military elites already see evidence of weak American will in President Obama's declared desire to start a U.S. withdrawal from Afghanistan next summer. While parts of the ISI are fighting on the wrong side, the U.S. needs to stay engaged with Islamabad both to bring more stability to Afghanistan and especially to destroy terrorist sanctuaries that remain a threat to the U.S. mainland.

Columnist Bret Stephens and Editorial Board member Matt Kaminski on the WikiLeaks document dump, and columnist William McGurn on school reform.

That is why it is so disconcerting, if also predictable, to see the usual political suspects seize on the media hullabaloo to claim the Afghan effort is hopeless. The political left, which can't forget Vietnam, is comparing the WikiLeakers to Daniel Ellsberg and even the Tet offensive. Senate Foreign Relations Chairman John Kerry, who pays close attention to the region and has led the fight for more U.S. aid to Pakistan, nonetheless declared that, "However illegally these documents came to light, they raise serious questions about the reality of America's policy toward Pakistan and Afghanistan."

As informed as he is, Mr. Kerry can't possibly have learned all that much from these documents. His statement is more worrisome as a signal of political panic, a desire to placate his party's growing opposition to President Obama's war effort. Yet this is precisely the time when cooler political heads should be putting the documents into context, explaining the importance of U.S. ties to Pakistan, and above all giving Generals David Petraeus and James Mattis the time they need to succeed in that crucial theater. We can't afford another liberal antiwar stampede.

Opinion Journal: The Afghanistan War Logs

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News Hub: War Leaks Prompt Damage Control

U.S.-Mexican border is terrorists’.....

U.S.-Mexican border is terrorists’ moving sidewalk – by Deroy Murdock

Daniel Joseph Maldonado AKA Abu Mohammed

NEW YORK — While Americans march against Arizona’s new restrictions on unlawful immigration, hundreds of illegal aliens from countries awash in Muslim terrorists tiptoe across the U.S.-Mexican frontier.

According to the federal Enforcement Integrated Database, 125 individuals were apprehended along the border from fiscal year 2009 through April 20, 2010. These deportable aliens included two Syrians, seven Sudanese, and 17 Iranians, all nationals from the three Islamic countries that the U.S. government officially classifies as state sponsors of terrorism.

Federal authorities also track “special interest countries” from which terrorism could be directed against America. Over the aforementioned period, 99 of those nations’ citizens also were nabbed on the border. They were: two Afghans, five Algerians, 13 Iraqis, 10 Lebanese, 22 Nigerians, 28 Pakistanis, two Saudis, 14 Somalis, and three Yemenis. During FY 2007 and FY 2008, federal officials caught 319 people from these same countries traversing America’s southwest border.

Some such characters were confined in Arizona, which recently adopted a controversial law that lets cops ask the citizenship status of those they suspect of other possible violations. WSB-TV recently publicized an April 15, 2010, “population breakdown” of immigrants detained at a facility in Florence, Ariz. Of the 395 males behind bars, 198 were Mexican, 18 hailed from Afghanistan, Iraq, Iran, Lebanon, Nigeria, Pakistan, Somalia, Sudan and Yemen.

Perhaps these gentlemen simply want to pursue the American dream. Worrisome signs suggest, however, that some may have arrived via blistering, cactus-adorned deserts so they could blow Americans to smithereens.

Texas Border Patrol agents discovered, along with Iranian currency and Islamic prayer rugs, an Arabic clothing patch that reads “martyr” and “way to immortality.” Another shows a jet flying into a skyscraper.

“Members of Hezbollah, the Lebanon-based terrorist organization, have already entered the United States across our southwest border,” declares “A Line in the Sand,” a 2006 report by the House Homeland Security Investigations Subcommittee, then-chaired by Rep. Michael McCaul (R-Texas).

Even more disturbing are the uninvited terrorists and terror suspects that were arrested after entering America through our permeable underbelly:

– Mahmoud Youssef Kourani pleaded guilty in March 2005 to providing material support to terrorists. First, Kourani secured a visa by bribing a Mexican diplomat in Beirut. He and another Middle Easterner then hired a Mexican guide to escort them into America. Finally, Kourani settled in Dearborn, Michigan’s Lebanese-immigrant community, and raised cash for Hezbollah.

– Miguel Alfonso Salinas was caught in New Mexico near the international border in 2006. As The Washington Examiner reported, one week of FBI interrogation exposed Salinas as an Egyptian named Ayman Sulmane Kamal. Evidently, he remains in federal custody.

– Then-National Intelligence Director Mike McConnell said that in FY 2006 and FY 2007, at least 30 potentially dangerous Iraqis were found trying to penetrate America via Mexico. As McConnell told the El Paso Times: “There are numerous situations where people are alive today because we caught them.”

– The Department of Homeland Security issued an April 14 intelligence alert regarding a possible border-crossing attempt by a Somali named Mohamed Ali. He is a suspected member of Al-Shabaab, a Somali-based al-Qaida ally tied to the deadly attack on American GIs in 1993′s notorious “Blackhawk Down” incident in Mogadishu.

– Captured in Brownsville, Texas, Ahmed Muhammed Dhakane pleaded not guilty on May 14 to federal charges that he “ran a large-scale smuggling enterprise” designed to sneak East Africans through Mexico into Texas, including “several AIAI-affiliated Somalis into the United States.” Al-Ittihad Al-Islami is yet another Muslim-extremist organization.

– Daniel Joseph Maldonado also has Somali ties. He was picked up in Somalia in 2007 during terrorist training. He was returned to Houston for prosecution. As Rice University’s Joan Neuhas Schaan told KHOU-TV: “They had plans for him to come back to the United States and recruit female suicide bombers.”

All this involves only the bad guys who the authorities nailed. Those who have stayed undetected after crossing the border to murder Americans remain, by definition, invisible.

* Deroy Murdock is a columnist with Scripps Howard News Service and a media fellow with the Hoover Institution on War, Revolution and Peace at Stanford University.

U.S. Congresswoman Sue Myrick Warns About Hizbullah-Drug Cartel

U.S. Congresswoman Sue Myrick Warns About Hizbullah-Drug Cartel Link on Border with Mexico

Hizbullah may be conspiring with drug cartels along the U.S.-Mexico border, a Republican congresswoman warned, calling on the Homeland Security Secretary to establish a special task force to figure out how to “clamp down” on this “national security” threat, Fox News reported.

In her letter to Secretary Janet Napolitano (read it below) North Carolina Congresswomen Sue Myrick called on finding out and reporting more on the extent of the problem.

She cited several developments that would point to Hizbullah creeping closer to and inside the U.S., with the help of Mexican drug gangs, according to Fox News.

“It is vital we know what is happening on our border, especially as crime and violence continue to rise there and as terrorist plots and threats are increasing inside the U.S.,” she wrote.

She said gang members in prisons in the American southwest are starting to show up with tattoos in Farsi, implying a “Persian influence that can likely be traced back to Iran and its proxy army, Hizbullah.”

Myrick cited the opinions and findings of former intelligence officials and others in her detailed letter. One of them was a “high-ranking Mexican Army officer” whom she said believes Hizbullah could be training Mexican drug cartels to make bombs.

“This might lead to Israel-like car bombings of Mexican/USA border personnel or National Guard units,” she wrote.

Source: Naharnet

June 23, 2010

The Honorable Janet Ann Napolitano


U.S. Department of Homeland Security

Washington, DC 20528

Dear Secretary Napolitano:

Former intelligence officials have suggested that Hezbollah has increased its presence in Central and South America, and are now operating in Mexico and on our southern border. Even more troubling is that I believe Hezbollah and the drug cartels may be operating as partners on our border.

I believe we need to do more intelligence gathering on Hezbollah’s presence on our border. I therefore request that you form a Homeland Security task force to engage US and Mexican law enforcement and border patrol officials about Hezbollah’s presence, activities, and connections to gangs and drug cartels.

This task force should develop a public report on this issue, so that the American public understands these threats. They should also develop a report for intelligence officials and policymakers, complete with policy recommendations on how we can clamp down on Hezbollah’s operations on our border.

Thanks to the good work done by the Treasury Department, terrorist organizations like Hezbollah have found it increasingly hard to obtain or transfer funds through financial institutions. As a result, Hezbollah has increased their presence in drug trafficking to obtain funds that cannot be traced.

Many experts believe Hezbollah and drug cartels have been loosely working together for decades. We have seen their cooperation in countries across South America, particularly the tri-border area of South America (bounded by Puerto Iguazu, Argentina; Ciudad del Este, Paraguay; and Foz do Iguazo, Brazil). Hezbollah operates almost like a Mafia family in this region, often demanding protection money and “taxes” from local inhabitants.

In fact, while speaking about Hezbollah and the drug cartels, former Chief of Operations for the Drug Enforcement Administration, Michael Braun stated: “Hezbollah relies on the same criminal weapons smugglers, document traffickers and transportation experts as the drug cartel…They work together; they rely on the same shadow facilitators. One way or another they are all connected.”

The connection between Hezbollah and the drug cartels has seemed to grow over the past few years. This may be especially true on the US Southern border.

Across states in the Southwest, well trained officials are beginning to notice the tattoos of gang members in prisons are being written in Farsi. We have typically seen tattoos in Arabic, but Farsi implies a Persian influence that can likely be traced back to Iran and its proxy army, Hezbollah. These tattoos in Farsi are almost always seen in combination with gang or drug cartel tattoos. These combinations have been increasing in number and point to the fact that these criminals are tied to both Hezbollah and gangs and drug cartels.

Former intelligence officials have pointed to the terrain that makes up our border, especially in the San Diego border sector, as a reason why drug cartels have been partnering with Hezbollah. This terrain is very much like the areas around Israel’s borders. As we well know, Hezbollah is extremely skilled in the construction of tunnels. Israel has time and again found Hezbollah tunnels leading into Israel, some of which are large enough to accommodate trucks. Likewise, these intelligence officials say that the drug cartels, in an effort to dig larger and more effective tunnels, are employing the expertise of Hezbollah. For their expertise, Hezbollah could be receiving a cut of the drug money or even be helping put cash up front to assist in the overall drug operations.

Iranian President Ahmadinejad and Venezuelan President Hugo Chavez appear have formed a tight bond. This is concerning on many levels, but it may also explain the recent rise of Iranian nationals being apprehended by well trained border agents. Experts believe Iranian agents and members of Hezbollah are going to Venezuela to learn Spanish. When somewhat fluent, they obtain false documents in hopes of crossing the US border as Hispanics. If stopped by border agents when trying to cross, they try to pass off as Mexican. Only well trained border agents can detect that their Spanish accent is Venezuelan, not Mexican. If this is not detected they are merely sent back into Mexico where they try to cross into the US again, rather than being detained for more questioning.

The Venezuela and Hezbollah false documentation connection is further supported by NY County District Attorney Robert M. Morgenthau’s comments at a Brookings Institution speech on December 8, 2009. He stated: “Particularly alarming, within the ranks of Chavez’s corrupt government lie supporters of Hezbollah. In fact, Mr. El Aissami, who at one time headed Onidex, the Venezuelan passport and naturalization agency inside the interior ministry, is suspected of having issued passports to members of Hamas and Hezbollah.” If officials within Venezuela are willingly giving away passports to Hezbollah, it stands to reason they can help them with a variety of other fraudulent documentation.

Further, some authorities have opined that Hezbollah and other Islamic radicals have been welcomed into Mexico and other Latin American countries by the cartels because of their access to cheap narcotics from Afghanistan. One high ranking Mexican Army officer, who asked not to be named for security reasons, states they believe Hezbollah may be training the Mexican drug cartels’ enforcers in the art of bomb making. This might lead to Israel-like car bombings of Mexican/USA border personnel or National Guard units in the border regions. This militant threat could be exacerbated by the current tensions between the US and Iran, since Iran directs Hezbollah.

A taskforce could explore all these issues. It is vital we know what is happening on our border, especially as crime and violence continue to rise there and as terrorist plots and threats are increasing inside the US.

I thank you for your attention to this vital national security issue, and hope that you can initiate a task force on this as soon as possible.


Sue Myrick

Member of Congress

Schumpeter's notebook

Business and management

Schumpeter's notebook

  • A war on the right

    Cato, the AEI and a new "culture war"

    by Schumpeter

    BRINK LINDSAY has mounted a powerful attack on Arthur Brooks's new book, "The Battle: How the Fight Between Free Enterprise and Big Government Will Shape America's Future". Given that the two men are both luminaries of America's intellectual right—Lindsay is vice-president of research at the Cato Institute and Brooks is head of the AEI—this suggests that not everyone on the conservative side has succumbed to "epistemic closure" (though it is notable that the review appeared in the pages of a left-wing magazine, The American Prospect).

    Mr Brooks's book might be summarised thus:

    America faces a new culture war. This is not the culture war of the 1990s. This is not a fight over guns, abortions, religion, or gays…Rather, it is a struggle between two competing visions of America's future. In one, America will continue to be a unique and exceptional nation organized around the principles of free enterprise. In the other, America will move toward European-style statism.

    The metaphor of a culture war sticks in Mr Lindsay's craw, for two good reasons. The first is that it overstates the tension between the market and the state. You can have a big state with a well-functioning free market, as Denmark and the Netherlands demonstrate; you can also have small states that habitually distort the economy, as any number of undeveloped countries prove. The second reason is that, when it comes to regulation and free trade, the great American people are more backward than the elites. Voice the sort of economic liberalism that passes for common sense in Washington, DC, in a bar in Cleveland and you might be in for a rough night. In other words, Mr Lindsay thinks, rightly in my opinion, that Mr Brooks is declaring a culture war that his side will inevitably lose.

    I would add a third objection to Mr Lindsay's duo. This is a practical one. The only chance that America has of shrinking the state, given the country's closely divided politics, is for both sides, Republicans and Democrats, to co-operate. You cannot deal with problems such as entitlements if the other side is going to demonise you and indulge in demagoguery. Republicans and Democrats need to unite behind reform and proclaim, in effect, that there is no alternative. Turning economic policy into another excuse for a culture war is a guarantee of paralysis and failure.

  • Innovation policy

    Unchain the profs from their universities

    Jul 5th 2010, 16:34 by Schumpeter

    A WONDERFULLY simple idea on how America can improve its innovation machine, over at the Kauffman Foundation's Growthology blog.

    American innovation got a huge boost back in 1980 when the Bayh-Dole Act allowed universities to hold on to the intellectual-property rights of ideas produced with federal funds. But recently the innovation engine has been running out of steam: there are fewer new products than there used to be, and academics complain about proliferating red tape. Lesa Mitchell and Bob Litan argue that the best way to revitalise the system is to free professors from the monopoly power of the universities that employ them:

    Open up technology transfer to market competition. That is, allow a professor from University X with a potentially breakthrough innovation to go outside his or her university's TLO [technology-licensing office] and use that of University Y, if University Y happens to be more skilled at commercialization in this particular discipline. University X would not be required to relinquish IP rights, and of course the professor is not required to do anything. The idea is simply to bring more openness and competition into a process that has become muddled and distorted. Where else in society do we tolerate such artificial monopolies with public research dollars at stake? This idea, in fact, perfectly carries forward and extends one of the primary motivations behind Bayh-Dole—to smooth the commercialization process.

  • Apple versus Nokia

    Taking the shine off the Apple

    by Schumpeter

    THERE are no signs of the recession in Apple's cavernous store in Regent Street in London: you have to elbow your way through crowds to get your chance to play with the iPpads and iPhones on display, and stand in endless queues to part with your money.

    But is Apple capable of replicating this success in the emerging world? In today's Financial Times Liu Chuanzhi, Lenovo's founder and chairman, says that Apple is fluffing the China market ("We are lucky that Steve Jobs has such a bad temper and doesn't care about China...")

    And in the Harvard Business Review's blogs, Dan Steinbok points out that young Indonesians are buying Nokia's new smart phones rather than Apple's new iPhone4.

    Nokia has dramatically outperformed Apple in the emerging world. Apple will struggle to catch up, given the holes in its global supply chain, and growing unrest in the Chinese labour market.

    In order to surpass Nokia globally, Apple will have to increase production 10-fold to some 400-500 million smartphones on an annual basis. Apple is not well-positioned to expand its production capabilities, particularly when compared to Nokia's established global production systems.

    Since the 1990s, Nokia has built its production network worldwide, especially in China. More recently, it has relied increasingly on in-house production and, even with smartphones, only 5 percent of the production is outsourced.

    In contrast, Apple has no production of its own; it is entirely dependent on a few suppliers. Moreover, only a few of these outsourcing giants can manage massive volumes, including Flextronics, Hon Hai (Foxconn), and Sanmina-SCI.

    While Apple is trying to scale up fast, its timing is difficult. Today, the world's largest electronics contract manufacturers in Guangdong suffer from extraordinary labor turmoil, which has resulted in salary hikes.

    Moreover, since early spring, Foxconn, which won Apple's order to make the iPhone, has been in the spotlight in China, due to multiple suicide cases.

    That said, the iPad is a truly wonderful device.

  • General Electric and China

    Immelt blasts China

    by Schumpeter

    THIS week's plain-speaking prize goes to Jeff Immelt, the boss of General Electric.

    He argued that China is increasingly hostile to foreign multinationals; he also gave warning that his company, the world's biggest manufacturer, is actively looking for better prospects in other emerging markets. "They don't all want to be colonised by the Chinese", he said, going rather further than was prudent. "They want to develop themselves".

    Mr Immelt's broadside was undoubtedly significant. It reflects a growing mood of disillusionment with China among big Western companies. It came from the mouth of one of China's biggest boosters, a man who praised the Chinese leadership, only last December, for doing exactly what they say they will.

    Is Mr Immelt right about the changing mood in China? The Chinese are certainly unusually self-confident at the moment, thanks to the financial meltdown. They have flexed their muscles against a succession of companies, including Rio Tinto and Google.

    But the Chinese have always driven a hard bargain, and they have always made it clear that they will give only to get. The American Chamber of Commerce reported in 2008 that three-quarters of the foreign companies that they surveyed were finally making money in China, a big increase on the historical average. Many Western companies, notably Yum! Brands, have finally cracked the China code, and are becoming ubiquitous across the country.

    It will be interesting to see how Immelt's comments play out in China, a country which puts a great store on "face", and which does not take kindly to even gentle criticism, let alone talk of "colonisation".

    Google seems to be retreating, with its long tail between its legs, from its bold challenge to Chinese authoritarianism. It will therefore also be interesting to see if, sometime in the near future, Mr Immelt finds himself delivering a speech with a rather different message.

Beyond the Horizon

Beyond the Horizon

by The Economist online

IN THE end, it was a statement of the obvious. “BP cannot move on as a company in the United States with me as its leader,” said the oil company’s outgoing chief executive, Tony Hayward, who will be replaced by Robert Dudley on October 1st. And moving on is very much the company’s intention. No oil has leaked into the Gulf from its Macondo well for more than a week. A permanent plug could be in place within a month.

With its second-quarter results, published on July 27th, the company took a pre-tax charge of $32 billion against the ultimate costs of killing the blown-out well which doomed the Deepwater Horizon rig, cleaning up the damage it has wrought, and paying the claims of those who have been affected and the fines that follow from releasing millions of barrels of oil into the sea. It also announced an asset-sales programme designed to raise more or less the same amount of money over the next eighteen months. There is no way to draw a line under what has happened in the Gulf: but with no oil in the water, no Mr Hayward in head office and no doubt in the markets that there is money coming in with which to pay the bills, the company hopes to convince the world that its problems are now merely grave, rather than life-threatening.

The company makes no claim to a broad strategic rationale for the specific disposals it will be making, which represent about 10% of what BP’s portfolio might be worth on break-up. Mr Hayward points to the sale of assets in Texas and elsewhere to Apache, an exploration and production firm, to illustrate the idea that the sales, though large, are not enough to change fundamentally the company, which is showing pretty good underlying performance. Apache paid $7 billion for about 2% of BP’s production. If that ratio holds for future disposals, Mr Hayward says, BP will be a somewhat smaller, but better focused, producer, with production of about 3.5m barrels a day rather than today’s 4m. (3.5m barrels is, as it happens, a reasonable guess for the amount of oil spilled into the Gulf to date.)

The company says it is not planning to prioritise the sale of American assets, and that it intends to continue playing a role in the Gulf. Nevertheless, in current circumstances it is a fair guess that the increase in value an asset would enjoy simply by no longer being associated with BP will be greatest in America, which suggests that may be where some of the best deals are to be done.

Saving up for some big bills
If the 18-month disposal plan goes ahead as envisaged, the company hopes to look reasonably robust over the next couple of years, as the assets will come in ahead of the liabilities (the escrow fund, agreed to in negotiations at the White House in June to pay for damages, is to be built up at a rate of $5 billion a year). BP has also increased the lines of credit it has available, from $5 billion in the previous quarter to $17 billion. It will re-examine its suspension of dividends early in 2011.

That desire to look strong points up the fact that, though large, the $32 billion charge may not be an end to the matter. The bulk of the charge is intended to cover the $20 billion escrow fund. On top of that are the costs of containing, killing and cleaning up the spill, restoring damaged environments, funding research into environmental impacts (a healthy $500 million in itself) and the creation of new barrier islands in the Mississippi delta, not to mention legal fees.

On top of that it should also cover fines under the Clean Water Act. Although BP is not breaking out the figure it expects to pay, it seems implicit in the $32 billion figure that the company expects the fines to be levied towards the bottom of the range of possibilities, which runs from $1,100 a barrel to $4,300. For a 3.5m barrel spill, a fine at the top end would represent an extra $10 billion in liabilities.

A finding of negligence, which would push the fines towards the top of the range, could also trigger various other liabilities. And it would make it harder for BP to recoup some of its costs from Anadarko and Mitsui Oil Exploration, its junior partners in the development of the Macondo well. BP has so far billed the two partners for $1 billion of costs related to the disaster, which they have not paid. If BP were found negligent, they might well not have to.

One inquiry after another
BP insists that it will not be found negligent, and says that it intends to get the money from its partners either though arbitration or the courts; it has not counted that money among its assets, though, citing accounting regulations. At a press conference on the 27th BP executives suggested that they thought evidence provided last week to the marine board inquiry run by the coastguard and the Bureau of Ocean Energy Management (the regulator formerly known as the Minerals Management Service) bolstered the company’s case. That evidence pointed to poor procedures on the part of Transocean, the company which owned the ill-fated Deepwater Horizon rig. A final verdict on negligence, though, is a long way off. Though BP says its internal investigations may be completed in a month or so, the presidential commission into the subject will not be reporting until after the November mid-term elections. The marine board inquiry is expected to take longer, as is that of the Chemical Safety Board. There is a wide range of further inquiries and lawsuits in the offing.

It all adds up to a lot for Mr Dudley, currently in charge of the relief operation. According to BP’s chairman, Carl-Henric Svanberg, Mr Dudley was one of a number of internal and external candidates considered for the post. A veteran oil man who worked for Amoco before its merger with BP, Mr Dudley was until this year best known for having been chief executive of TNK-BP, the company’s joint venture in Russia. During his tenure there was a fierce fight between BP and its Russian partners, who did not think the joint venture was being run in good faith. BP’s Moscow offices were raided by Russian security services and a court in Siberia imposed injunctions on its staff before Mr Dudley finally left the country amid some disarray, claiming personal harassment.

Mr Dudley’s departure cleared the way for a settlement between BP and TNK and allowed BP to keep its 50% share in the joint venture, a result for which Mr Hayward took much credit. BP now plans to nominate Mr Hayward to a non-executive directorship at TNK-BP. On American television screens and in front of congressional committee’s Mr Hayward may be a liability—but he apparently still has a good relationship with Igor Sechin, Russia’s energy tsar and Vladimir Putin’s deputy prime minister.

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