Wednesday, August 18, 2010

Really Unusually Uncertain

By THOMAS L. FRIEDMAN



Over the past few weeks I’ve had a chance to speak with senior economic policy makers in America and Germany and I think I’ve figured out where we are. It’s like this: things are getting better, except where they aren’t. The bailouts are working, except where they’re not. Things will slowly get better, unless they slowly get worse. We should know soon, unless we don’t.
It is no wonder that businesses are reluctant to hire with such “unusual uncertainty,” as Fed chief Ben Bernanke put it. One reason it is so unusual is that we are not just trying to recover from a financial crisis triggered by crazy mortgage lending. We’re also having to deal with three huge structural problems that built up over several decades and have reached a point of criticality at the same time.
And as Mohamed El-Erian, the C.E.O. of Pimco, has been repeating, “Structural problems need structural solutions.” There are no quick fixes. In America and Europe, we are going to need some big structural fixes to get back on a sustained growth path — changes that will require a level of political consensus and sacrifice that has been sorely lacking in most countries up to now.
The first big structural problem is America’s. We’ve just ended more than a decade of debt-fueled growth during which we borrowed money from China to give ourselves a tax cut and more entitlements but did nothing to curtail spending or make long-term investments in new growth engines. Now our government owes more than ever and has more future obligations than ever — like expanded Medicare prescription drug benefits, expanded health care, an expanded war in Afghanistan and expanded Social Security payments (because the baby boomers are about to retire) — and less real growth to pay for it all.
America will probably need some added stimulus to kick start employment, but any stimulus right now must be in growth-enabling investments that will yield more than their costs, or they just increase debt. That means investments in skill building and infrastructure plus tax incentives for starting new businesses and export promotion. To get a stimulus through Congress it must be paired with spending cuts and/or tax increases timed for when the economy improves.
Second, America’s solvency inflection point is coinciding with a technological one. Thanks to Internet diffusion, the rise of cloud computing, social networking and the shift from laptops and desktops to hand-held iPads and iPhones, technology is destroying older, less skilled jobs that paid a decent wage at a faster pace than ever while spinning off more new skilled jobs that pay a decent wage but require more education than ever.
There is only one way to deal with this challenge: more innovation to stimulate new industries and jobs that can pay workers $40 an hour, coupled with a huge initiative to train more Americans to win these jobs over their global competitors. There is no other way.
But the global economy needs a healthy Europe as well, and the third structural challenge we face is that the European Union, a huge market, is facing what the former U.S. ambassador to Germany, John Kornblum, calls its first “existential crisis.” For the first time, he noted, the E.U. “saw the possibility of collapse.” Germany has made clear that if the eurozone is to continue, it will be on the German work ethic not the Greek one. Will its euro-partners be able to raise their games? Uncertain.
Keeping up with Germany won’t be easy. A decade ago Germany was the “sick man of Europe.” No more. The Germans pulled together. Labor gave up wage hikes and allowed businesses to improve competitiveness and worker flexibility, while the government subsidized firms to keep skilled workers on the job in the downturn. Germany is now on the rise, but also not free of structural challenges. Its growth depends on exports to China and it is the biggest financier of Greece. Still, “Germany is no longer the country with the oldest students and youngest retirees,” said Kornblum.
By contrast, America’s two big parties still cling to their core religious beliefs as if nothing has changed. Republicans try to undermine the president at every turn and offer their nostrum of tax-cuts-will-solve-everything — without ever specifying what services they’ll give up to pay for them. Mr. Obama gave us expanded health care before expanding the economic pie to sustain it.
You still don’t sense our politicians are saying, “Wait a minute; stop everything; we have got to work together.” Don’t these people have 401k plans of their own and kids worried about jobs?
The president needs to take America’s labor, business and Congressional leadership up to Camp David and not come back without a grand bargain for taxes, trade promotion, energy, stimulus and budget cutting that offers the market some certainty that we are moving together — not just on a bailout but on an economic rebirth for the 21st century. “Fat chance,” you say. Well then, I say get ready for a long phase of stubborn unemployment and anemic growth.

Tuesday, August 17, 2010

No ‘Graceful Exit’

By BOB HERBERT



In his book, “The Promise,” about President Obama’s first year in office, Jonathan Alter describes a brief conversation between the president and Vice President Joe Biden that took place last November at the end of Mr. Obama’s long deliberation about what to do in Afghanistan.

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Mr. Biden asked whether the new policy of beginning a significant withdrawal of U.S. troops from Afghanistan in 2011 was a direct presidential order that could not be countermanded by the military. The president said yes.
The two men were on their way to a meeting in the Oval Office with members of the Pentagon brass who would be tasked with carrying out Mr. Obama’s orders. Among those at the meeting was Gen. David Petraeus, then the chief of the United States Central Command, which included oversight of the wars in Afghanistan and Iraq. According to Mr. Alter, the president said to General Petraeus:
“David, tell me now. I want you to be honest with me. You can do this in eighteen months?”
Mr. Petraeus replied: “Sir, I’m confident we can train and hand over to the A.N.A. [Afghan National Army] in that time frame.”
The president went on: “If you can’t do the things you say you can in eighteen months, then no one is going to suggest we stay, right?”
“Yes, sir, in agreement,” said General Petraeus.
Adm. Mike Mullen, the chairman of the Joint Chiefs of Staff, was also at the meeting, and he added his own crisp, “Yes, sir.”
That was then. The brass was just blowing smoke, telling the commander in chief whatever it was that he wanted to hear. Over the past several days, at meetings with one news media outlet after another, General Petraeus has been singing a decidedly different song. The lead headline in The Times on Monday said: “General Opposes a Rapid Pullout in Afghanistan.”
Having taken over command of U.S. forces in Afghanistan after the ouster of Gen. Stanley McChrystal, Mr. Petraeus is now saying he did not take that job in order to preside over a “graceful exit.” His goal now appears to be to rally public opinion against the very orders that President Obama insisted, as he told Joe Biden, could not be countermanded.
Who’s in charge here?
The truth is that we have no idea how the president really feels about the deadline he imposed for beginning a troop withdrawal. It always seemed peculiar to telegraph the start of a troop pullout while fighting (in this case, escalating) a war. And Mr. Obama has always been careful to ratchet up the ambiguity quotient by saying the start of any withdrawal would depend on conditions on the ground.
Anyone who has been paying attention knows that conditions on the ground right now are awful, so it looks as though we’re going to be there for a long, long while.
This is a terrible thing to contemplate because in addition to the human toll (nearly half of all the American troop deaths in Afghanistan have occurred since Mr. Obama took office), the war is a giant roadblock in the way of efforts to deal effectively with deteriorating economic and social conditions here in the United States.
Look around at the economy, the public school system, the federal budget deficits, the fiscal conditions plaguing America’s state and local governments. We are giving short shrift to all of these problems and more while pouring staggering amounts of money (the rate is now scores of billions of dollars a year) into a treacherous, unforgiving and hopelessly corrupt sinkhole in Afghanistan.
(I stand in awe of the heights of hypocrisy scaled by conservative politicians and strategists who demand that budget deficits be brought under control while cheering the escalation in Afghanistan and calling for ever more tax cuts here at home.)
The reason you hear so little about Lyndon Johnson nowadays despite his stupendous achievements — Medicare, Medicaid, the Civil Rights Act of 1964, the Voting Rights Act of 1965 — is that Vietnam laid his reputation low. Johnson’s war on poverty was derailed by Vietnam, and it was Vietnam that tragically split the Democratic Party and opened the door to the antiwar candidacies of Eugene McCarthy and Robert Kennedy. The ultimate beneficiaries, of course, were Richard Nixon and the Republicans.
President Obama does not buy the comparison of Afghanistan to Vietnam, and he has a point when he says that the U.S. was not attacked from Vietnam. But Sept. 11, 2001, was nearly a decade ago, and the war in Afghanistan was hopelessly bungled by the Bush crowd. There is no upside to President Obama’s escalation of this world-class fiasco.
We are never going to build a stable, flourishing society in Afghanistan. What we desperately need is a campaign of nation-building to counteract the growing instability and deterioration in the United States.