Reprinted from the New Economic Perspectives blog at the University of Missouri-Kansas City
Editor’s Note: William K. Black, author of “The Best Way to Rob a Bank is to Own One,” is Associate Professor of Law and Economics at the University of Missouri-Kansas City, where — according to James Galbraith — “the best economics is now being done.”
In the latest example of the New York Times’ reporters’ inability to read Paul Krugman, we have an article claiming that the “Growing Imbalance Between Germany and France Strains Their Relationship.” The article begins with Merkel’s major myth accepted as if it were unquestionable reality.
“It was a clear illustration of the dysfunction of the French-German partnership, the axis that for decades kept Europe on a united and dynamic track.
In Berlin this month, Chancellor Angela Merkel, riding high after nine years in power, delivered a strident defense in Parliament of austerity, which she has been pushing on Europe ever since a debt crisis broke out in 2009.”
No, not true on multiple grounds. First, the so-called “debt crisis” was a symptom rather than a cause. The reader will note that the year 2008, when the Great Recession became terrifying, has somehow been removed from the narrative because it would expose the misapprehension in Merkel’s myth. Prior to 2008, only Greece had debt levels given its abandonment of a sovereign currency that posed a material risk. The EU nations had unusually low budgetary deficits leading into the Great Recession. Indeed, that along with the extremely low budgetary deficits of the Clinton administration (the budget went into surplus near the end of his term) is likely one of the triggers for the Great Recession.
The Great Recession caused sharp increases in deficits – as we have long known will happen as part of the “automatic stabilizers.” This is normal and speeds recovery. The eurozone and the U.S. began to come out of the Great Recession in 2009. The U.S. recovery accelerated with the addition of stimulus. In the eurozone, however, the abandonment of sovereign currencies and adoption of the euro exposed the periphery to recurrent attacks by the “bond vigilantes.” The ECB could have stopped these attacks at any time, but it was very late intervening – largely because of German resistance. Instead, Merkel used the leverage provided by the bond vigilantes and the refusal of the ECB to act to end their attacks to force increasing austerity upon the eurozone and demands for severe cuts in workers’ wages in the periphery.
Merkel’s actions in forcing austerity and efforts to force sharp drops in workers’ wages in the periphery were not required to stop any “debt crisis.” The ECB had the ability to end the bond vigilantes’ attacks and reestablish the ability of the periphery to borrow at low cost, as it demonstrated. Merkel’s austerity demands and demands that (largely) left governments in the periphery slash workers’ wages promptly threw the entire Eurozone back into a second Great Recession – and much of the periphery into a Second Great Depression. It had the desired purpose of discrediting the governing parties of the left, particularly in Spain, Portugal, and Greece; that gave in to Merkel’s mandates that they adopt masochistic macroeconomic policies.
It is also false that Merkel began demanding that eurozone inflict austerity only in 2009. Merkel wanted to inflict austerity and her war on the workers and the parties they primarily supported long before 2009. What changed in 2009 was that the ECB, the Great Recession, and the bond vigilantes gave her the leverage to successfully extort the members of the eurozone who opposed austerity and her war on workers and the parties of the left.
But it is what is left out of the quoted passage above that is most amazing. The fact that Merkel’s orders that the eurozone leaders bleed their economies through austerity and the war on workers’ wages led to a gratuitous Second Great Recession in the eurozone – and Great Depression levels of unemployment in much of the periphery disappears. The fact that inflicting austerity and wage cuts in response to a Great Recession is economically illiterate and cruel disappears. The fact that the overall eurozone – six years after the financial crisis of 2008 and eight years after the financial bubbles popped in 2006 – has stagnated and caused tens of trillions of dollars in lost GDP and well over 10 million lost jobs is treated by the NYT article as if it were unrelated to Merkel’s infliction of austerity.
“But the French economy has grown stagnant, with unemployment stubbornly stuck near 11 percent and an unpopular government pledging to cut tens of billions in taxes on business, which many French fear will unravel their prized welfare state.”
No, the eurozone economy “has grown stagnant” and produced a Second Great Depression in much of the periphery. If France had a sovereign currency or if the EU were to make the euro and into a true sovereign currency France could simultaneously “cut tens of billions in taxes on business” while preserving the social safety net and speeding the recovery. The same is true of the rest of the eurozone – including Germany where Merkel’s policies have made the wealthy far wealthier and deepened the economic crisis in other eurozone nations by cutting German worker’s wages. The NYT article is disingenuous about both aspects of the German economy, noting only that “the German economy has shown signs of slowing down.” German growth was actually negative in the last quarter and the treatment of its workers weakens the German and overall eurozone recovery.
It continues to be obvious that it is a condition of employment for NYT reporters covering the eurozone’s economic policies that they never read Paul Krugman (or most any other American economist). Consider this claim in the article:
“[Prime Minister Manuel Valls] and Mr. Hollande have alienated many members of the Socialist Party by taking a more centrist approach to economic policy, stoking suspicions that the government is favoring business at the expense of the welfare state.”
I will take this part very slow. By my count Krugman has written at least six columns in the NYT explaining that there actually is a powerful consensus among economists. The “centrist approach” is that austerity in response to a Great Recession is self-destructive. We have known this for at least 75 years. Modern Republicans, when they hold the presidency, always respond to a recession with a stimulus package. Valls and Hollande are moving away from a “centrist approach to economic policy.” They are doing so despite observing first-hand the self-destructive nature of austerity (and proclaiming that it is self-destructive). They do so despite the demonstrated success of stimulus in responding to the financial crisis. They do so despite the fact that the results of the faux left parties adopting these economically illiterate neo-liberal economic policies is the destruction of the parties that betray their principles and the workers. Valls and Hollande are spectacularly unpopular in France because of these betrayals. It is clear why Valls and Hollande wish to avoid reading Krugman’s critique of their betrayals, but theNYT reporters have no excuse.
The reporters do not simply ignore the insanity of austerity and the plight of the eurozone’s workers – they assert that it is obvious that Merkel is correct and that the French reluctance to slash workers’ wages is obviously economically illiterate.
“Just over a decade ago, as Ms. Merkel is fond of noting, Germany was Europe’s sick economy. It recovered partly because of changes to labor laws and social welfare. Mr. Hollande now faces a similar task in an era of low or no growth.”
No. These two sentences propound multiple Merkel myths and assume (1) that France’s (and the rest of the eurozone’s) problems are the same as Germany’s issues “just over a decade ago,” (2) that Germany “recovered” due to slashing workers’ wages and social programs, and (3) that the German “solutions” would work for the eurozone as a whole.
Germany’s “reforms,” which included increasing financial deregulation, have proven disastrous. German banks finished third in the regulatory “race to the bottom” (“behind” Wall Street and the worst of the worst – the City of London). The officers that controlled Deutsche Bank and various state-owned German banks were among the leading causes of the financial crisis. German workers had lost ground even before the financial crisis and have lost even more ground since the crisis began. Inequality has also become increasingly more extreme in Germany.
The current problem in the eurozone is a critical shortage of demand exacerbated by the insanity of austerity and Merkel’s war on workers’ wages. The word “demand” and the concept, the centerpiece of the macroeconomics of recession, never appear in the article. An individual nation in which the wealthy have the political power to lower workers’ wages can increase its exports and employ more of its citizens. This obviously does not prove that the workers were overpaid. Merkel and the NYT ignore the “fallacy of composition,” which is particularly embarrassing because they are neo-mercantilists pushing the universal goal of being a net exporter. As Adam Smith emphasized, we can’t all be net exporters. A strategy that can work (for the elites) of one nation cannot logically be assumed to work for large numbers of nations.
The last thing a society should want in a recession is rapidly falling wages and prices that can create deflation (another word expunged from the NYT article because it would refute their ode to Merkel, austerity, and her war on the worker). If France were to slash workers’ wages to try to take exports from Ireland while Ireland slashed workers’ wages to try to take exports from Spain, which did the same to take exports from Italy the result would be deflation, a massive increase in inequality, the political destruction of any (allegedly) progressive political party that joined in the war on the worker, and a “race to Bangladesh” dynamic.
Germany’s “success” in being a very large net exporter makes it far more difficult – not easier – for any other eurozone nation to copy its export strategy successfully. As a group, the strategy cannot work for the eurozone. The strategy has, of course, not simply “not succeeded.” It has failed catastrophically. Merkel’s eurozone policies have caused trillions of dollars in extra losses in productivity, the gratuitous loss of over 10 million jobs, increased inequality, and the loss through emigration of many of the best educated young citizens of the periphery.
Hollande does not face “a similar task” to Merkel. He faces different problems and Merkel’s “solutions” are the chief causes of France’s economic stagnation rather than the answers to France’s problems.
I repeat my twin suggestions to the NYT reporters that cover the eurozone’s economy. The paper’s management should host a seminar in which Krugman educates his colleagues. Alternatively, come to UMKC and we’ll provide that seminar without charge. None of us can afford the cost of the reporters’ continuing willful ignorance of economics and their indifference to the victims of austerity and Merkel’s war on workers.
Here are some tough words about the Obama presidency from Cornell West, who argues persuasively that the fetish for the middle ground in politics often makes for poor leadership.
In the interview Thomas Frank asks West, “What on earth ails the man? Why can’t he fight the Republicans? Why does he need to seek a grand bargain?”
“I think Obama, his modus operandi going all the way back to when he was head of the [Harvard] Law Review, first editor of the Law Review and didn’t have a piece in the Law Review. He was chosen because he always occupied the middle ground. He doesn’t realize that a great leader, a statesperson, doesn’t just occupy middle ground. They occupy higher ground or the moral ground or even sometimes the holy ground. But the middle ground is not the place to go if you’re going to show courage and vision. And I think that’s his modus operandi. He always moves to the middle ground. It turned out that historically, this was not a moment for a middle-ground politician. We needed a high-ground statesperson and it’s clear now he’s not the one.”
West also says:
“He posed as a progressive and turned out to be counterfeit. We ended up with a Wall Street presidency, a drone presidency, a national security presidency. The torturers go free. The Wall Street executives go free. The war crimes in the Middle East, especially now in Gaza, the war criminals go free. And yet, you know, he acted as if he was both a progressive and as if he was concerned about the issues of serious injustice and inequality and it turned out that he’s just another neoliberal centrist with a smile and with a nice rhetorical flair. And that’s a very sad moment in the history of the nation because we are—we’re an empire in decline. Our culture is in increasing decay. Our school systems are in deep trouble. Our political system is dysfunctional. Our leaders are more and more bought off with legalized bribery and normalized corruption in Congress and too much of our civil life. You would think that we needed somebody—a Lincoln-like figure who could revive some democratic spirit and democratic possibility.”
Read the full interview here:
Cornel West: “He posed as a progressive and turned out to be counterfeit. We ended up with a Wall Street presidency, a drone presidency”
By Steve Frisch
I have been thinking a lot about our regional climate change skeptics in the Sierra Nevada and their impact on public policy. Occasionally I do my share of getting into debates and doing a little warming myself though I know it simply empowers their position at times.
I do however have a couple of observations about how they make their case and the consequences.
Rarely do they get into the actual scientifically peer reviewed papers and make their case based on the efficacy of the science itself.
The case I hear is that any science wholly or even partially funded by the government or private foundations done by agencies, academic institutions, professional groups, or individual scientists is inherently flawed due to their source of funding. Then I hear that any science using past data funded by any of these groups is inherently flawed due to confirmation bias. Next I hear that the peer review process itself is inherently flawed due to dependence on government funding. Then I hear that when the aggregate data and multiple proof points indicate a significant change occurring we should be giving more weight to the outlier data proving the opposite, as though the very small percentage of those valid peer reviewed reports should be given some weight that contrary data is not due. Finally I hear that if there is some evidence that anthropogenic climate change is occurring the cost of doing something about it is prohibitive.
It is as though climate skeptics do not wish to even understand or acknowledge the peer review process and the critical role it plays in vetting data and its analysis.
I guess this would not be an issue if the consequences of being wrong were not so high.
The impact of a changing climate on California’s water supply alone is measured in the tens of billions of dollars in economic impact annually. Worse, because we live in a state where the vast majority of people do believe climate change is a real threat, and our state has adopted policies to adapt to and mitigate the impacts of climate change through laws like AB 32 and SB 375, the low carbon fuels standard and the renewable portfolio standard, much of our state is rushing ahead with adaptation and mitigation strategies, strategies funded through a combination of our state general fund budget, surcharges on electricity, and revenue derived from the Cap and Trade program. Those revenues are being used to adapt our infrastructure, like water delivery systems, roads, bridges transportation networks, and wastewater treatment. Those revenues can also be directed at solving the seemingly insurmountable problem in the Sierra Nevada of long-term forest management and wildfire management, establishing a link between forests, mountains, watershed management, and water supply that is the number one commodity export of the Sierra Nevada and the source of much of our states wealth.
The problem we face is that distribution of revenue is controlled by a political process; our state budget voted on by legislators annually. In a political process funds don’t get distributed to regions and legislative districts where the elected representatives don’t acknowledge a problem is occurring and actively obstruct solving the problem in other areas of the state. Consequently the Sierra Nevada and its climate related issues do not receive their fair share of state funding which is being paid for by all of the taxpayer of the state, even us rural residents.
The stakes are very high indeed; by 2020 more than $5 billion per year will be distributed to adapt to climate change in California. Where will that money go? Who will benefit from the public works, construction, community improvement and middle class jobs related to implementation?
We are allowing the voice of a small minority of climate skeptics and their ability to influence our local politics by being the ‘loudest voice in the room’ to deny our region the funding we deserve, relegating our local communities and economies to a permanent backwater and underprivileged status.
The Onion may be parodying this phenomenon, but our communities are living it, we are watching as billions of dollars a year are collected from our residents and going to urban districts where the populous is more amenable to climate adaption and mitigation strategies. If I were a rural legislator I might listen to the skeptics, but I would not deny my regions the fruits of their taxes, surcharges and fees.
At some point pragmatism has to take over.
I only wish I knew where that point was so I could push to reach it.
Steve Frisch is President of the Sierra Business Council and one of its founding members. He is a dedicated project manager with over 20 years experience managing people in a highly competitive environment. Steve manages SBC’s program staff and programmatic development. He also manages sustainable business and building projects to encourage the adoption of socially responsible business and development practices.
Prior to joining the Sierra Business Council, Steve owned and operated a small business in Truckee, California and was president of the Truckee Downtown Merchants Association. Steve has served on the Nevada County Welfare Reform Commission, the Town of Truckee redevelopment agency formation committee and as an advisor to the California Resources Agency’s California Legacy Project.
Why is that only the worst of Nevada County — in this case another right-wing gun nut — makes the national news?
Esteemed journalist and historian Rick Perlstein, writing in Salon, found occasion to notice this Nevada County event (while gently chiding the New York Times for failing to cover it):
Here is a truth so fundamental that it should be self-evident: When legitimately constituted state authority stands down in the face of armed threats, the very foundation of the republic is in danger. And yet that is exactly what happened at Cliven Bundy’s Nevada ranch this spring: An alleged criminal defeated the cops, because the forces of lawlessness came at them with guns — then Bureau of Land Management officials further surrendered by removing the government markings from their vehicles to prevent violence against them.
What should be judged a watershed in American history instead became a story about one man’s racist rants. Even as two more Nevada lunatics, inspired by their stint at Cliven Bundy’s ranch, allegedly ambushed and mowed down two police officers and killed a bystander after crying, “This is the start of a revolution.” And now, an antigovernment conspiracy theorist named Douglas Cole recently shot at two police officers in Nevada County, California (though you may not have heard about that, because the New York Times hasn’t found the news yet fit to print).
Ah, but here’s some Nevada County news that the New York Times did find “fit to print.” But wait, it’s also bad news!
Nevada County ranks 58th of 58 in diversity in California.
Students, in 2006 15,446 White 13,496 87% Black 142 1% Hispanic 1,336 9% Asian 240 2% Native American 232 2%
Some might consider Nevada County’s connection to the founding of the Tea Party Patriots good news. But there’s hardly a consensus about that.
I look forward to the day when we get into the national news for integrating our local economic and environmental interests, for our understanding of the economic importance of restoring local watersheds, for our leadership in bridging the urban/rural divide. and for our creative reconciliation of liberal and conservative values.
The fact that this all sounds very idealistic and touchy-feely is an indication of how far we have to go in making it a reality.
But why else should we be here, if not to work for that?
FORWARDING TO FULL PAGE FORMAT …
Reprinted with permission from Tomdispatch.com
Of all the preposterous, irresponsible headlines that have appeared on the front page of the New York Times in recent years, few have exceeded the inanity of this one from early March: “U.S. Hopes Boom in Natural Gas Can Curb Putin.” The article by normally reliable reporters Coral Davenport and Steven Erlanger suggested that, by sending our surplus natural gas to Europe and Ukraine in the form of liquefied natural gas (LNG), the United States could help reduce the region’s heavy reliance on Russian gas and thereby stiffen its resistance to Vladimir Putin’s aggressive behavior.
Forget that the United States currently lacks a capacity to export LNG to Europe, and will not be able to do so on a significant scale until the 2020s. Forget that Ukraine lacks any LNG receiving facilities and is unlikely to acquire any, as its only coastline is on the Black Sea, in areas dominated by Russian speakers with loyalties to Moscow. Forget as well that any future U.S. exports will be funneled into the international marketplace, and so will favor sales to Asia where gas prices are 50% higher than in Europe. Just focus on the article’s central reportorial flaw: it fails to identify a single reason why future American LNG exports (which could wind up anywhere) would have any influence whatsoever on the Russian president’s behavior.
The only way to understand the strangeness of this is to assume that the editors of the Times, like senior politicians in both parties, have become so intoxicated by the idea of an American surge in oil and gas production that they have lost their senses.
As domestic output of oil and gas has increased in recent years — largely through the use of fracking to exploit hitherto impenetrable shale deposits — many policymakers have concluded that the United States is better positioned to throw its weight around in the world. “Increasing U.S. energy supplies,” said then-presidential security adviser Tom Donilon in April 2013, “affords us a stronger hand in pursuing and implementing our international security goals.” Leaders in Congress on both sides of the aisle have voiced similar views.
The impression one gets from all this balderdash is that increased oil and gas output — like an extra dose of testosterone — will somehow bolster the will and confidence of American officials when confronting their foreign counterparts. One former White House official cited by Davenport and Erlanger caught the mood of the moment perfectly: “We’re engaging from a different position [with respect to Russia] because we’re a much larger energy producer.”
It should be obvious to anyone who has followed recent events in the Crimea and Ukraine that increased U.S. oil and gas output have provided White House officials with no particular advantage in their efforts to counter Putin’s aggressive moves — and that the prospect of future U.S. gas exports to Europe is unlikely to alter his strategic calculations. It seems, however, that senior U.S. officials beguiled by the mesmerizing image of a future “Saudi America” have simply lost touch with reality.
For anyone familiar with addictive behavior, this sort of delusional thinking would be a sign of an advanced stage of fossil fuel addiction. As the ability to distinguish fantasy from reality evaporates, the addict persists in the belief that relief for all problems lies just ahead — when, in fact, the very opposite is true.
The analogy is hardly new, of course, especially when it comes to America’s reliance on imported petroleum. “America is addicted to oil,” President George W. Bush typically declared in his 2006 State of the Union address (and he was hardly the first president to do so). Such statements have often been accompanied in the media by cartoons of Uncle Sam as a junkie, desperately injecting his next petroleum “fix.” But few analysts have carried the analogy further, exploring the ways our growing dependence on oil has generated increasingly erratic and self-destructive behavior. Yet it is becoming evident that the world’s addiction to fossil fuels has reached a point at which we should expect the judgment of senior leaders to become impaired, as seems to be happening.
The most persuasive evidence that fossil fuel addiction has reached a critical stage may be found in official U.S. data on carbon dioxide emissions. The world is now emitting one and a half times as much CO2 as it did in 1988, when James Hansen, then director of the NASA Goddard Institute for Space Studies, warned Congress that the planet was getting warmer as a result of the “greenhouse effect,” and that human activity — largely in the form of carbon emissions from the consumption of fossil fuels — was almost certainly the cause.
If a reasonable concern over the fate of the planet were stronger than our reliance on fossil fuels, we would expect to see, if not a reduction in carbon emissions, then a decline at least in the rate of increase of emissions over time. Instead, the U.S. Energy Information Administration (EIA) predicts that global emissions will continue to rise at a torrid pace over the next quarter century, reaching 45.5 billion metric tons in 2040 — more than double the amount recorded in 1998 and enough, in the view of most scientists, to turn our planet into a living hell. Though seldom recognized as such, this is the definition of addiction-induced self-destruction, writ large.
For many of us, the addiction to petroleum is embedded in our everyday lives in ways over which we exercise limited control. Because of the systematic dismantling and defunding of public transportation (along with the colossal subsidization of highways), for instance, we have become highly reliant on oil-powered vehicles, and it is very hard for most of us living outside big cities to envision a practical alternative to driving. More and more people are admittedly trying to kick this habit at an individual level by acquiring hybrid or all-electric cars, by using public transit where available, or by bicycling, but that remains a drop in the bucket. It will take a colossal future effort to reconstruct our transportation system along climate-friendly lines.
For what might be thought of as the Big Energy equivalent of the 1%, the addiction to fossils fuels is derived from the thrill of riches and power — something that is far more difficult to resist or deconstruct. Oil is the world’s most lucrative commodity on the planet, and a source of great wealth and influence for ruling groups in the countries that produce it, notably Iran, Iraq, Kuwait, Nigeria, Russia, Saudi Arabia, Venezuela, the United Arab Emirates, and the United States. The leaders of these “petro-states” may not always benefit personally from the accumulation of oil revenues, but they certainly recognize that their capacity to govern, or even remain in power, rests on their responsiveness to entrenched energy interests and their skill in deploying the nation’s energy resources for political and strategic advantage. This is just as true for Barack Obama, who has championed the energy industry’s drive to increase domestic oil and gas output, as it is for Vladimir Putin, who has sought toboost Russia’s international clout through increased fossil fuel exports.
Top officials in these countries know better than most of us that severe climate change is coming our way, and that only a sharp reduction in carbon emissions can prevent its most destructive effects. But government and corporate officials are so wedded to fossil fuel profits — or to the political advantages that derive from controlling oil’s flow — that they are quite incapable of overcoming their craving for ever greater levels of production. As a result, while President Obama speaks often enough of his desire to increase the nation’s reliance on renewable energy, he has embraced an “all of the above” energy plan that is underwriting a boom in oil and gas output. The same is true for virtually every other major government figure. Obeisance is routinely paid to the need for increased green technology, but a priority continues to be placed on increases in oil, gas, and coal production. Even in 2040, according to EIA predictions, these fuels may still be supplying four-fifths of the world’s total energy supply.
This bias in favor of fossil fuels over other forms of energy — despite all we know about climate change — can only be viewed as a kind of carbon delirium. You can find evidence of this pathology worldwide and in myriad ways, but here are three unmistakable examples of our advanced stage of addiction.
1. The Obama administration’s decision to allow BP to resume oil drilling in the Gulf of Mexico.
After energy giant BP (formerly British Petroleum) pleaded guilty to criminal negligence in the April 2010 Deepwater Horizon disaster, which resulted in the death of 11 people and a colossal oil spill, the Environmental Protection Agency (EPA) suspended the company’s right to acquire new drilling leases in the Gulf of Mexico. The ban was widely viewed as a major setback for the company, which had long sought to dominate production in the Gulf’s deep waters. To regain access to the Gulf, BP sued the EPA and brought other pressures to bear on the Obama administration. Finally, on March 13th, after months of lobbying and negotiations, the agency announced that BP would be allowed to resume bidding for new leases, as long as it adhered to a list of supposedly tight restrictions
BP officials viewed the announcement as an enormous victory, allowing the company to resume a frenetic search for new oil deposits in the Gulf’s deep waters. “Today’s agreement will allow America’s largest investor to compete again for federal contracts and leases,” said BP America Chairman and President John Mingé. Observers in the oil industry predict that the company will now acquire many additional leases in the Gulf, adding to its already substantial presence there. “With this agreement, it’s realistic to expect that the Gulf of Mexico can be a key asset for BP’s operations not only for this decade but potentially for decades to come,” commented Stephen Simko, an oil specialist at Morningstar investment analysts. (Six days after the EPA announced its decision, BP bid $42 million to acquire 24 new leases in the Gulf.)
So BP’s interest is clear enough, but what is the national interest in all this? Yes, President Obama can claim that increased drilling might add a few hundred thousand barrels per day to domestic oil output, plus a few thousand new jobs. But can he really assure our children or grandchildren that, in allowing increased drilling in the Gulf, he is doing all he can to reduce the threat of climate change as he promised to do in his most recent State of the Union address? If he truly sought a simple and straightforward way to renew that pledge, this would have been a good place to start: plenty of people remember the damage inflicted by the Deepwater Horizon disaster and the indifference BP’s top officials displayed toward many of its victims, so choosing to maintain the ban on its access to new drilling leases on environmental and climate grounds would certainly have attracted public support. The fact that Obama chose not to do so suggests instead a further surrender to the power of oil and gas interests — and to the effects of carbon delirium.
2. The Republican drive to promote construction of the Keystone XL pipeline as a response to the Ukrainian crisis
If Obama administration dreams about pressuring Putin by exporting LNG to Europe fail to pass the credibility test, a related drive by key Republicans to secure approval for the Keystone XL tar-sands pipeline defies any notion of sanity. Keystone, as you may recall, is intended to carry carbon-dense, highly corrosive diluted bitumen from the Athabasca tar sands of Alberta, Canada, to refineries on the Gulf Coast. Its construction has been held up by concerns that it will pose a threat to water supplies along its route and help increase global carbon dioxide emissions.
Because Keystone crosses an international boundary, its construction must receive approval not just from the State Department, but from the president himself. The Republicans and their conservative backers have long favored the pipeline as a repudiation of what they view as excessive governmental deference to environmental concerns. Now, in the midst of the Ukraine crisis, they are suddenly depicting pipeline approval as a signal of U.S. determination to resist Putin’s aggressive moves in the Crimea and Ukraine.
“Putin is playing for the long haul, cleverly exploiting every opening he sees. So must we,” wrote former Secretary of State Condoleezza Rice in a recentWashington Post op-ed. “Authorizing the Keystone XL pipeline and championing natural gas exports would signal that we intend to do precisely that.”
Does anyone truly believe that Vladimir Putin will be influenced by a White House announcement that it will allow construction of the Keystone XL pipeline? Putin’s government is already facing significant economic sanctions and other punitive moves, yet none of this has swayed him from pursuing what he appears to believe are Russia’s core interests. Why, then, would the possibility that the U.S. might acquire more of its oil from Canada and less from Mexico, Nigeria, Venezuela, and other foreign suppliers even register on his consciousness?
In addition, to suggest that approving Keystone XL would somehow stiffen Obama’s resolve, inspiring him to adopt tougher measures against Moscow, is to engage in what psychologists call “magical thinking.” Were Keystone to transport any other substance than oil, the claim that its construction would somehow affect presidential decision-making or events on Russia’s borders would be laughable. So great is our reverence for petroleum, however, that we allow ourselves to believe in such miracles. This, too, is carbon delirium.
3. The Case of the Missing $20 Billion
Finally, consider the missing $20 billion in oil revenues from the Nigerian treasury. In Nigeria, where the average income is less than $2.00 per day and many millions live in extreme poverty, the disappearance of that much money is a cause for extreme concern. If used for the public good, that $20 billion might have provided basic education and health care for millions, helped alleviate the AIDS epidemic, and jump-started development in poor rural areas. But in all likelihood, much of that money has already found its way into the overseas bank accounts of well-connected Nigerian officials.
Its disappearance was first revealed in February when the governor of the Central Bank of Nigeria, Lamido Sanusi, told a parliamentary investigating committee that the Nigerian National Petroleum Corporation (NNPC) had failed to transfer the proceeds from oil sales to the national treasury as required by law. Nigeria is Africa’s leading oil producer and the proceeds from its petroleum output not claimed by the NNPC’s foreign partners are supposed to wind up in the state’s coffers. With oil prices hovering at around $100 per barrel, Nigeria should theoretically be accumulating tens of billions of dollars per year from export sales. Sanusi was immediately fired by President Goodluck Jonathan for conveying the news that the NNPC has been reporting suspiciously low oil revenues to the central bank, depriving the state of vital income and threatening the stability of the nation’s currency. The only plausible explanation, he suggested, is that the company’s officials are skimming off the difference. “A substantial amount of money has gone,” he told the New York Times. “I wasn’t just talking about numbers. I showed it was a scam.”
While the magnitude of the scam may be eye-catching, its existence is hardly surprising. Ever since Nigeria began producing oil some 60 years ago, a small coterie of business and government oligarchs has controlled the allocation of petroleum revenues, using them to buy political patronage and secure their own private fortunes. The NNPC has been an especially fertile site for corruption, as its operations are largely immune from public inspection and the opportunities for swindles are mammoth. Sanusi is only one of a series of well-intentioned civil servants who have attempted to plumb the depths of the thievery. A 2012 report by former anti-corruption chief Nuhu Ribadu reported the disappearance of a hardly less staggering $29 billion from the NNPC between 2001 and 2011.
Here, then, is another, equally egregious form of carbon delirium: addiction to illicit oil wealth so profound as to place the solvency and well-being of 175 million people at risk. President Jonathan has now promised to investigate Sanusi’s charges, but it is unlikely that any significant portion of the missing $20 billion will ever make it into Nigeria’s treasury.
These examples of carbon delirium indicate just how deeply entrenched it is in global culture. In the U.S., addiction to carbon is present at all levels of society, but the higher one rises in corporate and government circles, the more advanced the process.
Slowing the pace of climate change will only be possible once this affliction is identified, addressed, and neutralized. Overcoming individual addiction to narcotic substances is never an easy task; resisting our addiction to carbon will prove no easier. However, the sooner we recast the climate issue as a public health problem, akin to drug addiction, the sooner we will be able to fashion effective strategies for averting its worst effects. This means, for example, providing programs and incentives for those of us who seek to reduce our reliance on petroleum, and imposing penalties on those who resist such a transition or actively promote addiction to fossil fuels.
Divesting from fossil fuel stocks is certainly one way to go cold turkey. It involves sacrificing expectations of future rewards from the possession of such stocks, while depriving the fossil fuel companies of our investment funds and, by extension, our consent for their activities.
But a more far-ranging kind of carbon detoxification must come in time. As with all addictions, the first and most crucial step is to acknowledge that our addiction to fossil fuels has reached such an advanced stage as to pose a direct danger to all humanity. If we are to have any hope of averting the worst effects of climate change, we must fashion a 12-step program for universal carbon renunciation and impose penalties on those who aid and abet our continuing addiction.
Michael T. Klare, a TomDispatch regular, is a professor of peace and world security studies at Hampshire College and the author, most recently, of The Race for What’s Left. A documentary movie version of his book Blood and Oilis available from the Media Education Foundation.
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Copyright 2014 Michael T. Klare
By Bruce Herring
Much ado lately in local press and other spheres concerning the future of Grass Valley. Citizens, elected officials, print journalists, bloggers, and other characters have bandied about a variety of notions. At issue: What is, what has, and what will really revitalize Grass Valley? It has been suggested the new Dorsey interchange is the true “silver bullet.” It has been suggested a new “Lifestyle Mall” at the interchange is the key to our future, complete with a big or at least a medium box. “It’s what the people want.”
Not long ago the buzz was the re-opening of the Idaho-Maryland Mine. Before that it was Loma Rica, other annexations, the shopping malls, and heck even the freeway itself. Brilliant idea that freeway, and convenient. Of course great swaths of private and commercial property were condemned, Nevada City lost the old gazebo, and Wolf Creek sentenced to run underground through tunnels and culverts for much of its downtown reach. A bit further back are the mines themselves, the mills, Lake Olympia, the Narrow Gauge Railroad, and …
Except for a portion of the original Loma Rica plan, these ideas and “improvements” – while visionary to varying degrees – are all based on quite conventional nineteenth or twentieth century thought. All have brought, or will bring some gain. All have tradeoffs. Everything does.
Several recent comments aim to push the conversation toward a 21st century framework. One suggests we are leaving history out of the equation. Others call for a comprehensive outlook instead of the usual piece-meal strategy. Steve Frisch of the Sierra Business Council goes one step further to suggest folks today “Want to live, work, shop and be entertained in the place they live; they want to walk and ride bikes; they want access to trails and open space; they want affordable starter housing for working people because young people can’t afford the single family residential American dream anymore; people crave authenticity and a sense of place.”
Two things. One, the City of Grass Valley has secured a grant to pursue a Comprehensive Economic Development Plan. I am told by high level city staffers that a multi-year series of public meetings will commence sometime later this year to do just that. Fabulous.
Two. Yes, a comprehensive outlook with a broad perspective is indeed a welcome idea. But the discourse must also include the age-old concept of the Commons. To be sure Grass Valley and Western Nevada County need to continue moving forward economically. But as Mr. Frisch suggests, we should do so authentically and with a renewed sense of “place.”
The common thread through Grass Valley is Wolf Creek. Like most “commons” it has been virtually invisible, neglected, used, and abused since the get-go in the 1850s. Commons in general are taken for granted and not valued in the complex accounting of GDP and “economic growth.” And yet in their wisdom the Grass Valley City Council unanimously approved a Conceptual Plan for a Wolf Creek Parkway in 2006. A Wolf Creek Trail is mentioned in city documents as early as 1999 and is included in the Downtown Strategic Plan.
Little or nothing has happened in the last eight years to move the concept forward. The time to do so is now. The Wolf Creek Parkway can and should stand as the centerpiece of any Comprehensive Economic Development Plan. Yes for the creek’s sake, but more importantly for OURS. We need a healthy visible accessible creek to revitalize ourselves. A place to walk, a place to bike, a place to just sit by moving water will provide a profound sense of place and connection to the natural world. It will help each of us feel good about our town. Citizens and visitors alike will benefit from the shared values derived from Wolf Creek, the “Real Gold in Grass Valley.”
Urban river and creek restoration has boosted property values and economic vitality in San Luis Obispo, Napa, Santa Rosa, and Tempe, AZ. Plans are underway for a major rehabilitation of the Los Angeles River. Freeway interchanges, bridges, and places to shop locally are indeed essential to our vitality, as would be high speed internet access. But the Wolf Creek Parkway will make a statement and put Grass Valley “on the map.” The Parkway epitomizes a bold move into 21st Century thinking.
Let the conversation continue. For additional information please visit the website of the Wolf Creek Community Alliance.
Bruce Herring is a former whitewater rafting guide for O.A.R.S., running in the 70s and 80s on the Stanislaus, Tuolumne, Merced, American, Rogue, San Juan, Tatshenshini, and Grand Canyon. He spent ten years teaching and as Principal of Bitney Springs High School in Grass Valley, stepping aside in 2013. He currently serves as the Managing Director for A&B Associates, and volunteers for the Wolf Creek Community Alliance. See his blog at “Steward’s Log.”
Reprinted with permission from TomDispatch.com
The Empire Strikes Back
How Wall Street Has Turned Housing Into a Dangerous Get-Rich-Quick Scheme — Again
You can hardly turn on the television or open a newspaper without hearing about the nation’s impressive, much celebrated housing recovery. Home prices are rising! New construction has started! The crisis is over! Yet beneath the fanfare, a whole new get-rich-quick scheme is brewing.
Over the last year and a half, Wall Street hedge funds and private equity firms have quietly amassed an unprecedented rental empire, snapping up Queen Anne Victorians in Atlanta, brick-faced bungalows in Chicago, Spanish revivals in Phoenix. In total, these deep-pocketed investors have bought more than 200,000 cheap, mostly foreclosed houses in cities hardest hit by the economic meltdown.
Wall Street’s foreclosure crisis, which began in late 2007 and forced more than 10 million people from their homes, has created a paradoxical problem. Millions of evicted Americans need a safe place to live, even as millions of vacant, bank-owned houses are blighting neighborhoods and spurring a rise in crime. Lucky for us, Wall Street has devised a solution: It’s going to rent these foreclosed houses back to us. In the process, it’s devised a new form of securitization that could cause this whole plan to blow up — again.
Since the buying frenzy began, no company has picked up more houses than the Blackstone Group, the largest private equity firm in the world. Using a subsidiary company, Invitation Homes, Blackstone has grabbed houses at foreclosure auctions, through local brokers, and in bulk purchases directly from banks the same way a regular person might stock up on toilet paper from Costco.
In one move, it bought 1,400 houses in Atlanta in a single day. As of November, Blackstone had spent $7.5 billion to buy 40,000 mostly foreclosed houses across the country. That’s a spending rate of $100 million a week since October 2012. It recently announced plans to take the business international, beginning in foreclosure-ravaged Spain.
Few outside the finance industry have heard of Blackstone. Yet today, it’s the largest owner of single-family rental homes in the nation — and of a whole lot of other things, too. It owns part or all of the Hilton Hotel chain, Southern Cross Healthcare, Houghton Mifflin publishing house, the Weather Channel, Sea World, the arts and crafts chain Michael’s, Orangina, and dozens of other companies.
Blackstone manages more than $210 billion in assets, according to its 2012 Securities and Exchange Commission annual filing. It’s also a public company with a list of institutional owners that reads like a who’s who of companies recently implicated in lawsuits over the mortgage crisis, including Morgan Stanley, Citigroup, Deutsche Bank, UBS, Bank of America, Goldman Sachs, and of course JP Morgan Chase, which just settled a lawsuit with the Department of Justice over its risky and often illegal mortgage practices, agreeing to pay an unprecedented $13 billion fine.
In other words, if Blackstone makes money by capitalizing on the housing crisis, all these other Wall Street banks — generally regarded as the main culprits in creating the conditions that led to the foreclosure crisis in the first place — make money too.
An All-Cash Goliath
In neighborhoods across the country, many residents didn’t have to know what Blackstone was to realize that things were going seriously wrong.
Last year, Mark Alston, a real estate broker in Los Angeles, began noticing something strange happening. Home prices were rising. And they were rising fast — up 20% between October 2012 and the same month this year. In a normal market, rising home prices would mean increased demand from homebuyers. But here was the unnerving thing: the homeownership rate was dropping, the first sign for Alston that the market was somehow out of whack.
The second sign was the buyers themselves.
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About 5% of Blackstone’s properties, approximately 2,000 houses, are located in the Charlotte metro area. Of those, just under 1,000 (pictured above) are in Mecklenberg County, the city’s center. (Map by Anthony Giancatarino, research by Symone New.)
“I went two years without selling to a black family, and that wasn’t for lack of trying,” says Alston, whose business is concentrated in inner-city neighborhoods where the majority of residents are African American and Hispanic. Instead, all his buyers — every last one of them — were besuited businessmen. And weirder yet, they were all paying in cash.
Between 2005 and 2009, the mortgage crisis, fueled by racially discriminatorylending practices, destroyed 53% of African American wealth and 66% of Hispanic wealth, figures that stagger the imagination. As a result, it’s safe to say that few blacks or Hispanics today are buying homes outright, in cash. Blackstone, on the other hand, doesn’t have a problem fronting the money, given its $3.6 billion credit line arranged by Deutsche Bank. This money has allowed it to outbid families who have to secure traditional financing. It’s also paved the way for the company to purchase a lot of homes very quickly, shocking local markets and driving prices up in a way that pushes even more families out of the game.
“You can’t compete with a company that’s betting on speculative future value when they’re playing with cash,” says Alston. “It’s almost like they planned this.”
In hindsight, it’s clear that the Great Recession fueled a terrific wealth and asset transfer away from ordinary Americans and to financial institutions. During that crisis, Americans lost trillions of dollars of household wealth when housing prices crashed, while banks seized about five million homes. But what’s just beginning to emerge is how, as in the recession years, the recovery itself continues to drive the process of transferring wealth and power from the bottom to the top.
From 2009-2012, the top 1% of Americans captured 95% of income gains. Now, as the housing market rebounds, billions of dollars in recovered housing wealth are flowing straight to Wall Street instead of to families and communities. Since spring 2012, just at the time when Blackstone began buying foreclosed homes in bulk, an estimated $88 billion of housing wealth accumulation has gone straight to banks or institutional investors as a result of their residential property holdings, according to an analysis by TomDispatch. And it’s a number that’s likely to just keep growing.
“Institutional investors are siphoning the wealth and the ability for wealth accumulation out of underserved communities,” says Henry Wade, founder of the Arizona Association of Real Estate Brokers.
But buying homes cheap and then waiting for them to appreciate in value isn’t the only way Blackstone is making money on this deal. It wants your rental payment, too.
Wall Street’s rental empire is entirely new. The single-family rental industry used to be the bailiwick of small-time mom-and-pop operations. But what makes this moment unprecedented is the financial alchemy that Blackstone added. In November, after many months of hype, Blackstone released history’s first rated bond backed by securitized rental payments. And once investors tripped over themselves in a rush to get it, Blackstone’s competitors announced that they, too, would develop similar securities as soon as possible.
Depending on whom you ask, the idea of bundling rental payments and selling them off to investors is either a natural evolution of the finance industry or a fire-breathing chimera.
“This is a new frontier,” comments Ted Weinstein, a consultant in the real-estate-owned homes industry for 30 years. “It’s something I never really would have dreamt of.”
However, to anyone who went through the 2008 mortgage-backed-security crisis, this new territory will sound strangely familiar.
“It’s just like a residential mortgage-backed security,” said one hedge-fund investor whose company does business with Blackstone. When asked why the public should expect these securities to be safe, given the fact that risky mortgage-backed securities caused the 2008 collapse, he responded, “Trust me.”
For Blackstone, at least, the logic is simple. The company wants money upfront to purchase more cheap, foreclosed homes before prices rise. So it’s joined forces with JP Morgan, Credit Suisse, and Deutsche Bank to bundle the rental payments of 3,207 single-family houses and sell this bond to investors with mortgages on the underlying houses offered as collateral. This is, of course, just a test case for what could become a whole new industry of rental-backed securities.
Many major Wall Street banks are involved in the deal, according to a copy of the private pitch documents Blackstone sent to potential investors on October 31st, which was reviewed by TomDispatch. Deutsche Bank, JP Morgan, and Credit Suisse are helping market the bond. Wells Fargo is the certificate administrator. Midland Loan Services, a subsidiary of PNC Bank, is the loan servicer. (By the way, Deutsche Bank, JP Morgan Chase, Wells Fargo, and PNC Bank are all members of another clique: the list of banks foreclosing on the most families in 2013.)
According to interviews with economists, industry insiders, and housing activists, people are more or less holding their collective breath, hoping that what looks like a duck, swims like a duck, and quacks like a duck won’t crash the economy the same way the last flock of ducks did.
“You kind of just hope they know what they’re doing,” says Dean Baker, an economist with the Center for Economic and Policy Research. “That they have provisions for turnover and vacancies. But have they done that? Have they taken the appropriate care? I certainly wouldn’t count on it.” The cash flow analysis in the documents sent to investors assumes that 95% of these homes will be rented at all times, at an average monthly rent of $1,312. It’s an occupancy rate that real estate professionals describe as ambitious.
There’s one significant way, however, in which this kind of security differs from its mortgage-backed counterpart. When banks repossess mortgaged homes as collateral, there is at least the assumption (often incorrect due to botched or falsified paperwork from the banks) that the homeowner has, indeed, defaulted on her mortgage. In this case, however, if a single home-rental bond blows up, thousands of families could be evicted, whether or not they ever missed a single rental payment.
“We could well end up in that situation where you get a lot of people getting evicted… not because the tenants have fallen behind but because the landlordshave fallen behind,” says Baker.
Bugs in Blackstone’s Housing Dreams
Whether these new securities are safe may boil down to the simple question of whether Blackstone proves to be a good property manager. Decent management practices will ensure high occupancy rates, predictable turnover, and increased investor confidence. Bad management will create complaints, investigations, and vacancies, all of which will increase the likelihood that Blackstone won’t have the cash flow to pay investors back.
If you ask CaDonna Porter, a tenant in one of Blackstone’s Invitation Homes properties in a suburb outside Atlanta, property management is exactly the skill that Blackstone lacks. “If I could shorten my lease — I signed a two-year lease — I definitely would,” says Porter.
The cockroaches and fat water bugs were the first problem in the Invitation Homes rental that she and her children moved into in September. Porter repeatedly filed online maintenance requests that were canceled without anyone coming to investigate the infestation. She called the company’s repairs hotline. No one answered.
The second problem arrived in an email with the subject line marked “URGENT.” Invitation Homes had failed to withdraw part of Porter’s November payment from her bank account, prompting the company to demand that she deliver the remaining payment in person, via certified funds, by five p.m. the following day or incur “the additional legal fee of $200 and dispossessory,” according to email correspondences reviewed by TomDispatch.
Porter took off from work to deliver the money order in person, only to receive an email saying that the payment had been rejected because it didn’t include the $200 late fee and an additional $75 insufficient funds fee. What followed were a maddening string of emails that recall the fraught and often fraudulent interactions between homeowners and mortgage-servicing companies. Invitation Homes repeatedly threatened to file for eviction unless Porter paid various penalty fees. She repeatedly asked the company to simply accept her month’s payment and leave her alone.
“I felt really harassed. I felt it was very unjust,” says Porter. She ultimately wrote that she would seek legal counsel, which caused Invitation Homes to immediately agree to accept the payment as “a one-time courtesy.”
Porter is still frustrated by the experience — and by the continued presence of the cockroaches. (“I put in another request today about the bugs, which will probably be canceled again.”)
A recent Huffington Post investigation and dozens of online reviews written by Invitation Homes tenants echo Porter’s frustrations. Many said maintenance requests went unanswered, while others complained that their spiffed-up houses actually had underlying structural issues.
There’s also at least one documented case of Blackstone moving into murkier legal territory. This fall, the Orlando, Florida, branch of Invitation Homes appeared to mail forged eviction notices to a homeowner named Francisco Molina, according to the Orlando Sentinel. Delivered in letter-sized manila envelopes, the fake notices claimed that an eviction had been filed against Molina in court, although the city confirmed otherwise. The kicker is that Invitation Homes didn’t even have the right to evict Molina, legally or otherwise. Blackstone’s purchase of the house had been reversed months earlier, but the company had lost track of that information.
The Great Recession of 2016?
These anecdotal stories about Invitation Homes being quick to evict tenants may prove to be the trend rather than the exception, given Blackstone’s underlying business model. Securitizing rental payments creates an intense pressure on the company to ensure that the monthly checks keep flowing. For renters, that may mean you either pay on the first of the month every month, or you’re out.
Although Blackstone has issued only one rental-payment security so far, it already seems to be putting this strict protocol into place. In Charlotte, North Carolina, for example, the company has filed eviction proceedings against a full 10% of its renters, according to a report by the Charlotte Observer.
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About 9% of Blackstone’s properties, approximately 3,600 houses, are located in the Phoenix metro area. Most are in low- to middle-income neighborhoods. (Map by Anthony Giancatarino, research by Jose Taveras.)
Forty thousand homes add up to only a small percentage of the total national housing stock. Yet in the cities Blackstone has targeted most aggressively, the concentration of its properties is staggering. In Phoenix, Arizona, some neighborhoods have at least one, if not two or three, Blackstone-owned homes on just about every block.
This inundation has some concerned that the private equity giant, perhaps in conjunction with other institutional investors, will exercise undue influence over regional markets, pushing up rental prices because of a lack of competition. The biggest concern among many ordinary Americans, however, should be that, not too many years from now, this whole rental empire and its hot new class of securities might fail, sending the economy into an all-too-familiar tailspin.
“You’re allowing Wall Street to control a significant sector of single-family housing,” said Michael Donley, a resident of Chicago who has been investigating Blackstone’s rapidly expanding presence in his neighborhood. “But is it sustainable?” he wondered. “It could all collapse in 2016, and you’ll be worse off than in 2008.”
Laura Gottesdiener is a journalist and the author of A Dream Foreclosed: Black America and the Fight for a Place to Call Home, published in August by Zuccotti Park Press. She is an editor for Waging Nonviolence and has written for Rolling Stone, Ms., Playboy, the Huffington Post, and other publications. She lived and worked in the People’s Kitchen during the occupation of Zuccotti Park. This is her second TomDispatch piece.
[Note: Special thanks to Symone New and Jose Taveras for conducting the difficult research to locate Blackstone-owned properties. Special thanks also to Anthony Giancatarino for turning this data into beautiful maps.]
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Copyright 2013 Laura Gottesdiener
Reprinted with permission from Tomdispatch.com
By Bob Dreyfuss
Put in context, the simultaneous raids in Libya and Somalia last month, targeting an alleged al-Qaeda fugitive and an alleged kingpin of the al-Shabab Islamist movement, were less a sign of America’s awesome might than two minor exceptions that proved an emerging rule: namely, that the power, prestige, and influence of the United States in the broader Middle East and its ability to shape events there is in a death spiral.
Twelve years after the U.S. invaded Afghanistan to topple the Taliban and a decade after the misguided invasion of Iraq — both designed to consolidate and expand America’s regional clout by removing adversaries — Washington’s actual standing in country after country, including its chief allies in the region, has never been weaker. Though President Obama can order raids virtually anywhere using Special Operations forces, and though he can strike willy-nilly in targeted killing actions by calling in the Predator and Reaper drones, he has become the Rodney Dangerfield of the Middle East. Not only does no one there respect the United States, but no one really fears it, either — and increasingly, no one pays it any mind at all.
There are plenty of reasons why America’s previously unchallenged hegemony in the Middle East is in free fall. The disastrous invasions of Afghanistan and Iraq generated anti-American fervor in the streets and in the elites. America’s economic crisis since 2008 has convinced many that the United States no longer has the wherewithal to sustain an imperial presence. The Arab Spring, for all its ups and downs, has challenged the status quo everywhere, leading to enormous uncertainty while empowering political forces unwilling to march in lockstep with Washington. In addition, oil-consuming nations like China and India have become more engaged with their suppliers, including Saudi Arabia, Iran, and Iraq. The result: throughout the region, things are fast becoming unglued for the United States.
Its two closest allies, Israel and Saudi Arabia, are sullenly hostile, routinely ignore Obama’s advice, and openly oppose American policies. Iraq and Afghanistan, one formerly occupied and one about to be evacuated, are led, respectively, by Prime Minister Nouri al-Maliki, an inflexible sectarian Shiite closely tied to Iran, and President Hamid Karzai, a corrupt, mercurial leader who periodically threatens to join the Taliban. In Egypt, three successive regimes — those of President Hosni Mubarak, Mohammad Morsi of the Muslim Brotherhood, and the chieftains of the July 2013 military coup — have insouciantly flouted U.S. wishes.
Turkey, ostensibly a NATO ally but led by a quirky Islamist, is miffed over Obama’s back-and-forth policy in Syria and has shocked the U.S. by deciding to buy a non-NATO-compatible missile defense system from China. Libya, Somalia, and Yemen have little or no government at all. They have essentially devolved into a mosaic of armed gangs, many implacably opposed to the United States.
This downward spiral has hardly escaped attention. In a recent address to the National Council on U.S.-Arab Relations, Chas Freeman, the former American ambassador to Saudi Arabia, described it in some detail. “We have lost intellectual command and practical control of the many situations unfolding there,” said Freeman, whose nomination by Obama in 2009 to serve as head of the National Intelligence Council was shot down by the Israel Lobby. “We must acknowledge the reality that we no longer have or can expect to have the clout we once did in the region.”
In an editorial on October 29th, the New York Times ruefully concluded: “It is not every day that America finds itself facing open rebellion from its allies, yet that is what is happening with Saudi Arabia, Turkey, and Israel.” And in a front-page story on the administration’s internal deliberations, the Times’s Mark Landler reported that, over the summer, the White House had decided to scale back its role in the Middle East because many objectives “lie outside [its] reach,” and henceforth would adopt a “more modest strategy” in the region.
Perhaps the most profound irony embedded in Washington’s current predicament is this: Iran, for decades the supposed epicenter of anti-Americanism in the region, is the country where the United States has perhaps its last opportunity to salvage its position. If Washington and Tehran can negotiate a détente — and it’s a big if, given the domestic political power of hawks in both countries — that accord might go a long way toward stabilizing Washington’s regional credibility.
Debacle in Syria
Let’s begin our survey of America’s Greater Middle Eastern fecklessness with Exhibit A: Syria. It is there, where a movement to oust President Bashar al-Assad devolved into a civil war, that the United States has demonstrated its utter inability to guide events. Back in the summer of 2011 — at the very dawn of the conflict — Obama demanded that Assad step down. There was only one problem: short of an Iraq-style invasion of Syria, he had no power to make that happen. Assad promptly called his bluff, escalated the conflict, and rallied support from Russia and Iran. Obama’s clarion call for his resignation only made things worse by convincing Syrian rebels that the United States would come to their aid.
A year later, Obama drew a “red line” in the sand, suggesting that any use of chemical weapons by Syrian forces would precipitate a U.S. military response. Again Assad ignored him, and many hundreds of civilians were gassed to death in multiple uses of the dreaded weapons.
The crowning catastrophe of Obama’s Syria policy came when he threatened a devastating strike on Assad’s military facilities using Tomahawk cruise missiles and other weaponry. Instead of finding himself leading a George W. Bush-style “coalition of the willing” with domestic support, Obama watched as allies scattered, including the usually reliable British and the Arab League. At home, political support was nearly nil and evaporated from there. Polls showed Americans overwhelmingly opposed to a war with or attack on Syria.
When, in desperation, the president appealed to Congress for a resolution to authorize the use of military force against that country, the White House found (to its surprise) that Congress, which normally rubber-stamps such proposals, would have none of it. Paralyzed, reluctant to choose between backing down and striking Syria by presidential fiat, Obama was rescued in humiliating fashion by a proposal from Syria’s chief ally, Russia, to dismantle and destroy that country’s chemical weapons arsenal.
Adding insult to injury, as Secretary of State John Kerry scrambles to organize a long-postponed peace conference in Geneva aimed at reaching a political settlement of the civil war, he is faced with a sad paradox: while the Syrian government has agreed to attend the Geneva meeting, also sponsored by Russia, America’s allies, the anti-Assad rebels, have flatly refused to go.
Laughingstock in Egypt
Don’t think for a second that Washington’s ineffectiveness stops with the ongoing Syrian fiasco.
Next door, in a country whose government was installed by the United States after the 2003 invasion, the Obama administration notoriously failed to convince the Iraqis to allow even a small contingent of American troops to remain there past 2011. Since then, that country has moved ever more firmly into Iran’s orbit and has virtually broken with Washington over Syria.
Since the start of the civil war in Syria, Shiite-led Iraq has joined Shiite Iran in supporting Assad, whose ruling minority Alawite sect is an offshoot of Shiism. There have been widespread reports that pro-Assad Iraqi Shiite militias are traveling to Syria, presumably with the support or at least acquiescence of the government. IgnoringWashington’s entreaties, it has also allowed Iran to conduct a virtual Berlin Airlift-style aerial resupply effort for Syria’s armed forces through Iraqi air space. Last month, in an appearance before the Council on Foreign Relations in New York during the United Nations General Assembly session, Iraqi Foreign Minister Hoshyar Zebari undiplomatically warned Obama that his government stands against the U.S. decision — taken in a secret presidential finding in April and only made public last summer — to provide arms to Syria’s rebels. (“We oppose providing military assistance to any [Syrian] rebel groups.”)
Meanwhile, Washington is also flailing in its policy toward Egypt, where the Obama administration has been singularly hapless. In a rare feat, it has managed to anger and alienate every conceivable faction in that politically divided country. In July, when Egypt’s military ousted President Mohammad Morsi and violently clamped down on the Muslim Brotherhood, the Obama administration made itself look ridiculous to Egyptians (and to the rest of the Middle East) by refusing to call what happened a coup d’état, since under U.S. law that would have meant suspending aid to the Egyptian military.
As it happened, however, American aid figured little in the calculations of Egypt’s new military leaders. The reason was simple enough: Saudi Arabia and the Arab states of the Persian Gulf, bitter opponents of the Morsi government, applauded the coup and poured at least $12 billion in cash into the country’s near-empty coffers. In the end, making no one happy, the administration tried to split the difference: Obama declared that he would suspend the delivery of some big-ticket military items like Apache attack helicopters, Harpoon missiles, M1-A1 tank parts, and F-16 fighter planes, but let other aid to the military continue, including counterterrorism assistance and the sale of border security items. Such a split decision only served to underscore the administration’s lack of leverage in Cairo. Meanwhile, there are reports that Egypt’s new rulers may turn to Russia for arms in open defiance of a horrified Washington’s wishes.
Saudi and Israeli Punching Bag
The most surprising defection from the pro-American coalition in the Middle East is, however, Saudi Arabia. In part, that kingdom’s erratic behavior may result from a growing awareness among its ultraconservative, kleptocratic princelings that they face an increasingly uncertain future. Christopher Davidson’s new book, After the Sheikhs: The Coming Collapse of the Gulf Monarchies, outlines the many pressures building on the country.
One significant cause of instability, claims Davidson, is the “existence of substantial Western military bases on the Arabian Peninsula, [which are considered] an affront to Islam and to national sovereignty.” For decades, such an American military presence in the region provided a security blanket for the Saudi royals, making the country a virtual U.S. protectorate. Now, amid the turmoil that has followed the war in Iraq, the Arab Spring, and the rise of an assertive Iran, Saudi Arabia isn’t sure which way to turn, or whether the United States is friend or foe.
Since 2003, the Saudi rulers have found themselves increasingly unhappy with American policy. Riyadh, the area’s chief Sunni power, was apoplectic when the United States toppled Iraq’s Sunni leader Saddam Hussein and allowed Iran to vastly increase its influence in Baghdad. In 2011, the Saudi royal family blamed Washington for not doing more to prevent the collapse of the conservative and pro-Saudi Mubarak government in Egypt.
Now, the Saudis are on the verge of a complete break over Washington’s policies toward Syria and Iran. As the chief backers of the rebels in Syria, they were dismayed when Obama chose not to bomb military sites around Damascus. Because it views Iran through the lens of a regional Sunni-Shiite struggle for dominance, it is no less dismayed by the possible emergence of a U.S.-Iran accord from renewed negotiations over that country’s nuclear program.
To express its pique, its foreign minister abruptly canceled his address to the United Nations General Assembly in September, shocking U.N. members. Then, adding insult to injury, Saudi Arabia turned down a prestigious seat on the Security Council, a post for which it had long campaigned. “Upset at President Barack Obama’s policies on Iran and Syria,” reported Reuters, “members of Saudi Arabia’s ruling family are threatening a rift with the United States that could take the alliance between Washington and the kingdom to its lowest point in years.”
That news service quoted Saudi Arabia’s intelligence chief, Prince Bandar bin Sultan, as saying that his country was on the verge of a “major shift” in its relations with the U.S. Former head of Saudi intelligence Prince Turki al-Faisal lambasted America’s Syria policy this way: “The current charade of international control over Bashar’s chemical arsenal would be funny if it were not so blatantly perfidious. [It is] designed not only to give Mr. Obama an opportunity to back down [from military strikes], but also to help Assad to butcher his people.”
This is shocking stuff from America’s second most reliable ally in the region. As for reliable ally number one, Israeli Prime Minister Benjamin Netanyahu has visibly decided to be anything but a cooperative partner in the region, making Obama’s job more difficult at every turn. Since 2009, he has gleefully defied the American president, starting with his refusal to impose a freeze on illegal settlements in the occupied West Bank when specifically asked to do so by the president at the start of his first term. Meanwhile, most of the world has spent the past half-decade on tenterhooks over the possibility that his country might actually launch a much-threatened military strike on Iran’s nuclear facilities.
Since Hassan Rouhani was elected president of Iran and indicated his interest in reorienting policy to make a deal with the Western powers over its nuclear program, Israeli statements have become ever more shrill. In a September speechto the U.N. General Assembly, for instance, Netanyahu rolled out extreme rhetoric, claiming that Israel is “challenged by a nuclear-armed Iran that seeks our destruction.” This despite the fact that Iran possesses no nuclear weapons, has enriched not an ounce of uranium to weapons-grade level, and has probably not mastered the technology to manufacture a bomb. According to American intelligence reports, it has not yet even militarized its nuclear research.
Netanyahu’s speech was so full of hyperbole that observers concluded Israel was isolating itself from the rest of the world. “He was so anxious to make everything look as negative as possible he actually pushed the limits of credibility,” said Gary Sick, a former senior official in the Carter administration and an Iran expert. “He did himself harm by his exaggerations.”
Iran: Obama’s Ironic Beacon of Hope
Both Israel and Saudi Arabia are fearful that the Middle Eastern balance of power could be tipped against them if the United States and Iran are able to strike a deal. Seeking to throw the proverbial monkey wrench into the talks between Iran, the U.S., and the P5+1 powers (the permanent members of the U.N. security Council plus Germany), Israel has put forward a series of demands that go far beyond anything Iran would accept, or that the other countries would go along with. Before supporting the removal of international economic sanctions against Iran, Israelwants that country to suspend all enrichment of uranium, shut down its nuclear facilities, not be allowed any centrifuges to enrich uranium, abandon the heavy-water plant it is constructing to produce plutonium, permanently close its fortified underground installation at Fordo, and ship its stockpile of enriched uranium out of the country.
In contrast, it’s widely believed that the United States is ready to allow Iran to continue to enrich uranium, maintain some of its existing facilities, and retain a partial stockpile of enriched uranium for fuel under stricter and more intrusive inspection by the International Atomic Energy Agency.
Ironically, a U.S.-Iran détente is the one thing that could slow down or reverse the death spiral of American influence in the region. Iran, for instance, could be helpful in convincing President Assad of Syria to leave office in 2014, in advance of elections there, if radical Sunni Islamic organizations, including allies of al-Qaeda, are suppressed. Enormously influential in Afghanistan, Iran could also help stabilize that country after the departure of U.S. combat forces in 2014. And it could be enlisted to work alongside the United States and regional powers to stabilize Iraq.
More broadly, a U.S.-Iran entente might lead to a gradual de-escalation of the U.S. military presence in the Persian Gulf, including its huge naval forces, bases, and other facilities in Qatar, Bahrain, and Kuwait. It’s even conceivable that Iran could be persuaded to join other regional and global powers in seeking a just and lasting negotiated deal between Israel and the Palestinians. The United States and Iran have a number of common interests, including opposing al-Qaeda-style terrorism and cracking down on drug smuggling.
Of course, such a deal will be exceedingly difficult to nail down, if for no other reason than that the hardliners in both countries are determined to prevent it.
Right now, imagine the Obama administration as one of those vaudeville acts that keep a dozen plates spinning atop vibrating poles. At just this moment in the Middle East, those “plates” are tipping in every direction. There’s still time to prevent them all from crashing to the ground, but it would take a masterful effort from the White House — and it’s far from clear that anyone there is up to the task.
Bob Dreyfuss is an independent investigative journalist based in Cape May, New Jersey, specializing in politics and national security. He is a contributing editor at the Nation, and his blog appears daily at TheNation.com. In the past, he has written extensively for Rolling Stone, Mother Jones, the American Prospect, the New Republic, and many other magazines. He is the author ofDevil’s Game: How the United States Helped Unleash Fundamentalist Islam.
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Copyright 2013 Bob Dreyfuss